SAN DIEGO -- A court order declaring pension benefits granted to city employees in 1996 and 2002 illegal is "imperative" for the financial well-being of San Diego, City Attorney Michael Aguirre told a judge Tuesday.

In his opening statement in a non-jury civil trial before San Diego Superior Court Judge Jeffrey Barton, Aguirre said $700 million in benefits were created in violation of debt liability limit laws and the state Constitution.

"It is a rotten foundation that was placed into the system in 1997 and exacerbated in 2002," Aguirre told the judge.

Aguirre said his lawsuit was not about robbing employees of their individual benefits, but restoring the financial soundness of the pension system.

"It's about informing the pensioners that they don't have the pension that they think they have," the city attorney said. "Everyone's goal should be the system."

Aguirre said union leaders and advisers tampered with funding methods for the pension system, leading to an estimated $1.43 billion deficit. He said a remedy is needed now before the problems become "insurmountable."

Aguirre said the union leaders' knowledge that pension benefits would be increased and contributions by the city would go down was a "complete violation of the liability limit law."

A court-ordered remedy to undo alleged tampering wouldn't completely solve the pension crisis, but would go a long way toward restoring the financial health of the city, Aguirre said.

"We need a declaration. Our council needs a declaration. Our mayor needs a declaration, to move forward," Aguirre told the judge.

Aguirre said the city wouldn't have an adequate remedy in place to deal with the crisis if the lawsuit was dismissed. He said the case represented the "last way station on the road to bankruptcy for the city of San Diego."

The case is scheduled to be tried in three phases.

In the first phase, the judge will hear evidence on whether the 1996 and 2002 pension agreements violated the debt liability limit law, which bars new debt from being created without a funding source.

In the second or third phase of trial, a jury may be impaneled to consider whether the benefits were legal, along with Aguirre's claim that the pension failures represent a violation of the state's conflict-of-interest law.

Decisions that led to the underfunding of the retirement system and the city's failure to properly disclose the scope of the debt to investors is the subject of ongoing federal investigations and two criminal cases.

In her opening statement Monday, Ann Smith, the attorney for the San Diego Municipal Employees Association, told Barton that Aguirre's lawsuit was politically motivated and not well-founded.

Smith said city ordinances and legal settlements make it impossible for the judge to invalidate the contracts that granted the benefits.

She said the MEA and three other labor groups were "clueless" as to what they were doing in the lawsuit, which she argued should be dismissed after the first phase because the issues raised were not sufficient to warrant a trial.

In addition, thousands of city retirees are not represented at the trial, Smith argued. To proceed in the case without notifying retirees who could be affected would be "inconceivable," the attorney said.

She urged the judge not to give Aguirre "a political weapon" by declaring benefits granted in 1996 and 2002 illegal. To do so would allow the city to "gut" the pension plan, Smith said.

In pretrial motions, Aguirre told the judge that he will prove that the pension system was a "Ponzi scheme," with old liabilities being paid off with new debt.

"Ann Smith and her friends at City Hall rigged the pension system," Aguirre said, as he argued one of the pretrial motions.

The four groups of employees represented in the lawsuit total more than 9,300 employees and include the local firefighters union, blue-collar workers union and a smaller group of mostly retired professionals.