Fiscal crunch time in San Diego

Overshadowed by Los Angeles and San Francisco to the north, San Diegans have long battled a stereotype that they're sun-addled sleepyheads, pleasant but a bit dull.

So much for that.

First, three city councilors were indicted on charges of accepting bribes from strip clubs after the FBI wiretapped City Hall. Then the city's mismanaged employee pension plan imploded, hordes of federal investigators came calling, and a surf shop owner nearly toppled the buttoned-down Republican mayor.

Now, the four-month-old mayoral election remains in dispute. Municipal bankruptcy is looming as a serious possibility. And the newly elected city attorney is publicly accusing municipal leaders of breaking the law, drawing charges that he's a grandstanding inquisitor.

Sure, San Diego has been home to indicted mayors, corrupt councilors, and banking scandals. But a $1.17 billion pension fund deficit resulting from years of underfunding, unwarranted financial optimism, and alleged coziness with employee unions? That's new. And the prospect of city leaders hiring lawyers to protect themselves from the city attorney? That's new, too.

"There's a certain laziness that that comes over salubrious San Diego, where you've been so long accustomed to everything just gliding along," says former longtime congressman Lionel Van Deerlin. "This is on such a big scale that we can barely absorb the thought of it."

Indeed, the financial straits of this city are so bad that they're threatening to leach out of the highly technical world of long-delayed audits and slumping municipal credit ratings. Strapped for cash, San Diego has just put several library and firehouse projects on hold. Pete Wilson, a former mayor and also former US senator, is urging the city to consider declaring bankruptcy. It would be one of the largest municipalities in US history to do so.

At the center of the storm is a former judge named Dick Murphy. He ran for a second term in November and was poised to breeze to victory over a Republican opponent when news broke of the full extent of the pension mess. Donna Frye, a maverick Democratic council member, launched a long-shot write-in campaign and won the most votes. But thousands of her supporters failed to fill in a bubble on their ballots, and a judge ruled that those votes didn't count under the law. The legal fracas continues, however, even though Mr. Murphy has remained in office.

Fortunately for the mayor, his image remains largely intact, says Thad Kousser, assistant professor of political science at the University of California at San Diego. "He doesn't come across as somebody who's corrupt. He may come across as stodgy and maybe out of touch, and not particularly dynamic. But people want to believe the city has been on the up and up."

Meanwhile, Murphy has a new powerful enemy to deal with. He's City Attorney Mike Aguirre, who himself survived a close election in November, winning by 3,293 votes. A self-described defender of the people, Mr. Aguirre has issued a series of scathing reports bashing city leaders and suggesting there is "substantial evidence" of wrongdoing in the pension scandal.

"He's found corruption, he's found incompetence, he's found bad judgment," says local attorney Pat Shea, who represented government agencies during Orange County's infamous 1994 bankruptcy and is married to a prominent city whistle-blower. But others call Mr. Aguirre a loose cannon, and Murphy says his charges are "untrue, irresponsible, and defamatory."

For now, the city government is in a holding pattern, awaiting the results of a long-anticipated audit of municipal finances. " I can't tell you what the next big thing will be," Mr. Kousser says, "but there will continue to be tension."