The state Attorney General’s Office has upheld a legal opinion put forward by San Diego City Attorney Mara Elliott, who told the City Council last year that members of its audit committee could not simultaneously serve on other public oversight boards.
In a 20-page legal opinion published last week, state attorneys agreed that serving on the city audit committee and other auditing panels presents a potential conflict of interest because the agencies may eventually examine one another.
“Given this overlap in auditing jurisdiction, we conclude that dual committee membership could create a conflict of interest that compromises independent decision-making,” the opinion said.
State lawyers also looked at whether an internal auditor for the San Diego Metropolitan Transit System, the regional agency that provides bus and rail service throughout the southern portion of the county, also could serve as a city audit committee member.
They rejected Elliott’s assertion that MTS auditor Toufic Tabshouri had a conflict by serving on the committee.
“In the organization’s hierarchy, the internal auditor is three steps removed from the board,” the opinion stated. “Applying the three-part test, we conclude that the position of MTS internal auditor is not a ‘public office’.”
The opinion from the California Department of Justice was sought early this year, after Elliott publicly opposed a plan to reappoint finance professional Stewart Halpern to the council’s audit committee.
The San Diego city attorney said the reappointment would represent “a significant clash of duties or loyalties” because he was also serving on the audit committee of the San Diego Association of Governments, the regional planning agency known as SANDAG. She said either committee could be tasked with auditing the other, presenting a potential conflict of interest.
Elliott raised her concerns over Halpern’s service on the city panel in April 2022, months after Halpern publicly criticized her response to a city audit of San Diego real estate practices.
In a statement this week, the city attorney praised the opinion of the state attorneys.
“We appreciate the thoughtful opinion issued recently by the Attorney General confirming the conflict of interest our office formally identified on April 22, 2022, concerning a member of the city Audit Committee,” she wrote. “It is unfortunate that the conflict we flagged 20 months ago remains unaddressed today.”
Elliott did not raise concerns when Halpern was nominated to the audit committee in 2019, although he was on the SANDAG audit committee at the time.
The issue is moot now because Halpern’s service on the SANDAG audit board and a related oversight panel concluded at the end of October, said Guillermo “Gil” Cabrera, an attorney who represents Halpern.
Cabrera said Elliott should have sought the state legal opinion back in the spring of 2022 and that his client would have followed whatever advice the state office said.
“They decided not to take that path and instead tried to argue before the City Council that this was a conflict,” he said by email. “At that time, the City Council referred it to the attorney general.”
Halpern was among several audit committee members to raise questions about the city attorney’s response to a 2021 audit into city real estate practices.
The audit two years ago had criticized the city for how it acquired properties such as the former Sempra Energy headquarters at 101 Ash St. Among other problems, City Auditor Andy Hanau said the former mayor and others misrepresented and withheld key facts from the City Council in seeking approval to acquire the property.
Elliott, whose office had signed off on many of the transactions, challenged the report findings as incomplete because auditors had not spoken to several key people.
She also said it was not up to auditors to examine the legal impacts of a proposed real estate deal.
“The city attorney’s response is inaccurate, absurd and baseless,” Halpern said at the time.
The July 2021 audit raised serious questions about the city’s process for handling major property acquisitions like the former Sempra Energy headquarters at 101 Ash St., a deal that cost taxpayers hundreds of millions of dollars for a building that cannot be safely occupied.
In her response to the attorney general’s legal opinion, Elliott referenced the Ash Street transaction and the city’s former volunteer real estate adviser Jason Hughes, who collected millions of dollars in fees after recommending the deal to then-Mayor Kevin Faulconer.
“An unreported conflict of interest by a volunteer cost city taxpayers millions of dollars in the acquisition of the 101 Ash St. property,” she wrote. “Failing to address this and other existing ethical loopholes is unacceptable.”
Hughes pleaded guilty to a misdemeanor conflict-of-interest charge earlier this year and received a $400 fine and one year of summary probation. He also agreed to repay the city $9.4 million in ill-gotten profits.
Cabrera said his client’s longstanding volunteer work for the city was wholly unrelated to the Ash Street debacle.
“All of the purported conflicts that Mr. Halpern had were disclosed at the time of his application” to the city audit committee, he said. “Also, Mr. Halpern had nothing to do with 101 Ash Street.”
Elliott said the attorney general’s legal opinion showed that the city’s practices in filling positions on volunteer boards needs to be reformed, and she is drafting a plan to change the system.
“We plan to bring ethics reform legislation to the council next year with the goal of drastically reducing the possibility that a city volunteer has a conflict of interest impacting their service,” she said.
The elected San Diego city attorney is limited to two terms. Elliott will be termed out of office late next year.
