US - The San Diego City Employees' Pension System (SDCERS) has been hit by revelations it paid $8m in excess benefits to 102 members between 2001 and 2007, including high ranking city employees.
San Diego city attorney Michael Aguirre said, while SDCERS was trying to rectify the violations to tax law, details of the overpayments were not provided to auditors, the US Securities and Exchange Commission (SEC) or any other official body which had investigated the city’s financial dealings.
Aguirre said those who benefited from excess payments included three of the ‘key players’ who negotiated a settlement to reduce city contributions to the pension scheme while benefits were increased, which resulted in an SEC fraud investigation.
He said: “The pension scheme has become a ‘ponzi scheme’ that gobbles up scarce tax dollars needed for important public projects. Taxpayers should not have to pay for these gross pension benefits.”
Under Internal Revenue Service (IRS) regulations, the SDCERS fund enjoys a tax qualified status, meaning it does not pay tax on growth and returns as long as payments do not exceed limits set out in US Tax Code 415.
Meanwhile, San Diego hopes to issue municipal bonds again by next April after it was forced to drop put of the market in 2004 following SDCERS irregularities.
It stopped issuing bonds after rating agencies Moodys and Fitch Rating downgraded the city’s credit rating to ‘junk’ level, while S&P suspended the city.
With the completion of the 2006 Comprehensive Annual Financial Report (CAFR), San Diego is set to be re-evaluated by the ratings agencies and hopes to be able to be able to re-enter the bond markets.
The bond issues would raise funds for urgent infrastructure improvements, according to the city’s mayor, Jerry Sanders.
He said: “It is in the taxpayers’ best interests for the city to have access to the public bond markets. It will allow the city to fund major capital improvements and meet financial funding obligations in a more cost-efficient manner.”
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