DeMaio’s Real Role in the Financial Crisis | Voice of San Diego

Elections

DeMaio’s Real Role in the Financial Crisis

Carl DeMaio claims he uncovered the city’s financial crisis. But it was already a full-blown public scandal by the time he made his mark.

 

In the closing weeks of the mayoral primary, Carl DeMaio began staking a claim to a piece of recent San Diego history.

He took credit for uncovering the city of San Diego’s financial crisis in 2003. That’s no small feat. The unfolding crisis exposed a corrupt political and governmental culture. It turned the city upside down, forced a popular mayor to resign in disgrace, and led to criminal charges and the discovery of investment fraud.

A decade later, those misdeeds continue to shape our politics and restrain the level of services we can expect from our government.

And one of the two guys who want to be the next mayor of San Diego is taking credit for uncovering the root of all of it.

In May, DeMaio fielded a question about primary competitor Nathan Fletcher’s independence, and pivoted to his own credentials (emphasis mine):

“What really makes you independent is whether you stood up and took on the special interests, and I’ve done that for years in San Diego, from uncovering the financial crisis in 2003, to standing up to the developers who wanted to build a brand new City Hall,” he said on CBS8.

That same month, he offered a similar account during a televised debate on NBC.

“San Diegans are familiar with my leadership because they’ve seen the results we’ve been able to deliver, whether it was uncovering the financial crisis in 2003 and taking on a Republican mayor and Democratic council to really shine a light on the problem and bring it to public attention or passing managed competition in 2006, building a bipartisan coalition to get that done,” DeMaio said.

Other times, he’s added the qualifier that he “helped” uncover the pension or financial crisis.

The statements jumped out at me.

I covered City Hall for The Daily Transcript beginning in fall 2002 through the end of 2003. I was as deep into the pension and finance stories as anyone. At the end of the year, I moved abroad. I’d never heard of DeMaio.

It wasn’t until early 2004 that the gravity of the city’s problems became much more recognizable and accepted. In February 2004, news of federal investigations broke. Soon, the city’s problems became national news.

I first heard of DeMaio when cracking open a New York Times story about the city’s mess. I had to ask my friend Scott Lewis, back at the Transcript, who he was. When I returned to the scene in January 2005 as Voice of San Diego sprang to life, DeMaio was a figure, albeit the kind of figure who’d call me on deadline to try to get his quote into a story.

He was not one of the sources I relied on to feed me the dirt of what was really going on as the city government collapsed around us.

Now, just because I didn’t know of DeMaio, or rely on him, doesn’t mean he didn’t play an important role.

So I set about to try to reconcile my view of DeMaio with the campaign story he’s been telling.

♦♦♦

Early worries about the financial burdens of the employee pension system and retiree health care arose in 2001 as the mayor’s Blue Ribbon Committee on City Finances took stock for new Mayor Dick Murphy.

Concerns of committee members like April Boling and Dick Vortmann, however, got tamped down by staff. While they report did mention the problems, Vortmann soon after wondered if they should’ve rung the bell more loudly.

In 2002, DeMaio famously did essentially the opposite of uncovering the city’s financial problems. He presented Murphy with an award for his financial acumen.

Later that year, pension trustee Diann Shipione first blew the whistle on both shady dealings at the pension system and the massive costs the city would face in the future.

There was a cost to her lonely activism. Like many whistleblowers, she faced strong blowback, personal attacks and even an aborted attempt to have her arrested at a pension board meeting.

Over the next year, people like City Councilwoman Donna Frye and plaintiffs attorney Mike Conger joined her in speaking out and taking action. Pressure slowly built and more facts slowly trickled out, but you could still call it a fringe movement.

In late 2003, as Murphy began to put together his re-election campaign, he assigned a Pension Reform Committee, led by Boling, to suggest solutions for the pension problem.

DeMaio’s first appearance as a critic of city finances in the public record that we could find comes in the form of a Union-Tribune op-ed on May 14, 2004.

He is indeed critical of city finances. But even his first paragraph describes the attention the topic had already received.

“For the past several months, San Diego’s City Hall has been rocked by a raft of revelations that have brought the poor state of its finances to public light,” wrote the 29-year-old.

Indeed, by that time federal investigations into city politics and finances were already front-page news.

DeMaio’s major entrance came the next month, in June 2004, when he released what he called the Citizens’ Budget Plan. It featured a series of 10 recommendations to improve city finances and identified examples of government waste.

But there’s a reason DeMaio points out the year specifically, over and over again. There was a difference between jumping aboard in 2003 and 2004.

I talked to DeMaio about my perception and asked him to define his role. He justified his statements by saying he began his work looking into city finances as early as May 2003.

As evidence of his earlier involvement, his campaign provided a Sept. 26, 2003 memo to the city manager outlining his proposed budget project.

The Performance Institute, DeMaio’s government consulting firm, was going to team with the Taxpayers Association and the Chamber of Commerce. Together, they would “spearhead a project that will offer real reform as a solution to the current city budget deficit and looming long-term liabilities,” according to the memo.

That sounds more like a project built around fixing known problems, not uncovering unknown ones.

His campaign also provided a Feb. 3, 2004 press release announcing the project. “We see a real opportunity to engage citizens in San Diego’s budget process,” DeMaio says in the press release.

The Taxpayers Association and Chamber of Commerce both ended up dropping out because of concerns over DeMaio’s numbers. He tells a different story. They just didn’t want to rock the boat, he said. “We wear that with a badge of honor,” DeMaio told me.

Regardless, none of those documents makes a compelling case.

In our conversation, DeMaio said there was more to his work than just uncovering the problems. “It was alerting the public,” he said.

DeMaio claimed he couldn’t get local reporters to buy into the story in 2004, so he had to go national. “That woke local media up to the problem,” he told me.

That’s quite a statement. San Diego media has its shortcomings and has missed plenty of stories. But by 2004 it had jumped on this one without much reservation and certainly without DeMaio’s prodding.

Look, there’s no doubt DeMaio has been beating the financial drum for years. And he’s had to deal with his fair share of scorn because of it. First it came from now erstwhile city officials and more recently from labor unions and party operatives.

And we can debate the nuances of adding the word “helped” in there to hedge any bets. But his campaign statements clearly imply that he was on the vanguard of exposing a historic mess. Instead, after reviewing the record, it’s clear to me that he seized on a crisis that was already in the public eye and capitalized on it to propel his rapid political ascent.

DeMaio became an outspoken critic when confidence in City Hall was already shaken and federal investigators from the FBI and Securities and Exchange Commission were already combing through emails and documents. When doing so made you more en vogue than rogue.

“He was really, really a late comer,” said Conger, who sued the city in 2003 on behalf of retirees to stop it from shortchanging its pension system. “By the time he started going to any (pension board) meetings, it was at least a year after the fact. The cat was already out of the bag and had kittens.”

Shipione gave me a list of names of people she thought were responsible for uncovering the city’s crisis. She didn’t include DeMaio.

While the mayoral candidate isn’t a reason that we began talking about pensions nearly a decade ago, he is a reason we’re still talking about them.

He’s used his talents of framing, presentation and relentlessness to keep the issue at the forefront of San Diego’s political dialogue. DeMaio came to dominate the conversation and eventually used the financial issues to rise from no-name newcomer to mayoral frontrunner in a matter of years.

There is a discernible difference between courageously uncovering uncomfortable truths, though, and simply being adept at using those truths to your political advantage.

I’m a Voice of San Diego contributing editor and a John S. Knight fellow at Stanford University working on innovation, entrepreneurship and leadership in journalism. I served as VOSD’s editor from 2005 to 2012. You can reach me at andrew.donohue@voiceofsandiego.org.

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Disclosure: Voice of San Diego members and supporters may be mentioned or have a stake in the stories we cover. For a complete list of our contributors, click here.

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