Special District Ills Foretold by Two O.C. Juries

SANTA ANA — Two separate Orange County grand juries warned in the 1980s that an obscure layer of government largely made up of water and sewer districts was a breeding ground for financial waste and abuse, foreshadowing the troubles that have engulfed the Santa Margarita Water District.

In damning reports, the grand juries called for greater accountability and consolidation, but their recommendations were ignored.

“It’s pretty clear that the grand jury had a vision as to what could happen,” said James Colangelo, director of the county’s Local Agency Formation Commission, which recently launched a reorganization of special districts in Dana Point.

With the Santa Margarita Water District embroiled in controversy over questionable spending by its top two managers and an investigation of possible conflict-of-interest violations, Assemblyman Mickey Conroy (R-Orange) said Thursday that he wants to restructure the water agency. He has called a news conference today to announce details of his plan.

One grand jury, convened in 1981, predicted that change would be difficult given the presence of “vested interest groups” that benefited from the millions of dollars in public money spent to keep the districts operating.

In its most comprehensive probe of the county’s entire special district system of government, the same jury panel found that the agencies operated in a climate of obscurity and were perpetuated by a core of directors who remained insulated from public scrutiny.

Many directors serve on multiple district boards and overlapping government agencies, records show. For example, Walter W. (Bill) Knitz, recently suspended manager of the troubled Santa Margarita district, serves on five separate water-related agency boards.

Lloyd Woerner, a director of the Dana Point Sanitary District as well as a South County sewer service conglomerate, is an outspoken proponent of consolidation of special districts. He said too many attorneys, engineers and consultants have enjoyed lucrative earnings at taxpayers’ expense.

“I call it bureaucratic welfare,” Woerner said. “It’s a group of public agencies sucking at the public trough.”

District directors were singled out for criticism in the 11-year-old grand jury report when a survey of 29 officers found that more than half “did not have some of the most basic information about the districts they governed.”

The jury also found that public meetings by the special district boards “generally have dismal attendance records by the citizenry. In several cases where boards govern special districts with multimillion-dollar annual budgets, directors informed the jury that several years have elapsed since more than one citizen has attended a meeting.”

In addition to the county’s 19 separate agencies that now govern water distribution, more than 90 others have existed to manage such services as cemeteries, libraries, parks and even mosquito control. All of the agencies have boards of directors that are elected or appointed.

The 1981 grand jury report was supported by an independent study by the accounting firm of Price Waterhouse, which recommended that the county’s special districts be dramatically scaled back to save in operating costs.

County officials and a subsequent grand jury, convened in 1987, said the recommendations proposed in the 1981-82 grand jury report and the Price Waterhouse study were never implemented.

As a result, the second grand jury issued further recommendations calling for state legislation to increase oversight authority and urged that the county’s Local Agency Formation Commission be granted greater authority to force consolidation.

Only in the wake of reports about improprieties within the Santa Margarita Water District, first disclosed in The Times, has the issue of consolidation begun to re-emerge. Knitz and his assistant, Michael P. Lord, are the focus of a joint investigation by the FBI and Orange County district attorney’s office into possible violations of conflict-of-interest laws.

In the last six years, the men accepted nearly $60,000 in gifts from companies that they recommended for district contracts.

Santa Margarita district records also show that Knitz and Lord have been reimbursed tens of thousands of dollars in questionable expenses over the last decade, including cross-country trips for their wives, rooms at posh hotels, four-figure room-service tabs and expensive dinners at local restaurants.

Since the spending habits of Knitz and Lord were first reported, the district has begun to formulate new policies governing expense accounts. The revelations have also caused water districts throughout the county to review their expense account policies and reconsider how they do business.

The consolidation effort is gaining further momentum as the state prepares for the second successive year to tap special district revenues to help offset a massive state budget shortfall.

“We are in a changing scene now and people have to accept that,” said Ray Miller, retired general manager of the South Coast Water District. “With the loss of tax monies, these things finally have to be looked at.”

Ingrid McGuire, a South Coast director, said the Santa Margarita case particularly has stirred new interest in reorganization of district governments.

“The grand jury reports seemed to have had less credence than perhaps they should have been afforded,” McGuire said. “The public was never made aware of what the grand jury recommended. . . . But now, everybody in the water community is talking about consolidation.”

The county’s local agency commission has begun a consolidation effort in Dana Point, where seven water-related agencies serve one of the county’s smallest cities.

Commission director Colangelo said the independent agencies are governed by a total of 39 officials, making tiny Dana Point easily the most governed city per capita in the county and perhaps all of Southern California. Dana Point is also the only city in the county with an independent park district, which is governed by another five elected officials.

“If you look at just the numbers of elected officials serving Dana Point, that’s pretty incredible,” Colangelo said. “With all of those people involved in making decisions on issues, it makes it tough to get questions answered. It’s a real strange situation down there.”

Newport Beach attorney Alex Bowie, whose specialty is water and special district law, places much of the blame for the unwieldy system of government at the door of Colangelo’s local agency commission.

Bowie said the commission was created to exercise some control over the formation of such agencies but has failed to include special district members on its panel to work toward possible solutions.

“Who is the watchdog?” Bowie asked. “Has the watchdog been asleep? And why haven’t those who are part of the problem been included as part of the solution?”

But Colangelo said the commission has always lacked the authority to eliminate unnecessary districts. The commission may only recommend reorganization or elimination, but the action must come from the districts involved, he said.

That lack of authority, Colangelo said, has been the “biggest stumbling block” to initiating the change recommended by the grand juries.

In its own investigation, the 1981-82 grand jury apparently foresaw the obstacles to changing such a structure.

“One consideration of the jury in deciding to make this study was the impression that, if any changes in the existing system were recommended, there may be strong negative reactions from the sizable vested interest groups . . . ,” the report stated.

Miller, the retired South Coast Water District official, said the county cannot afford to resist massive government reorganization any longer.

“Public agencies better take a look at consolidation before somebody does it for them,” he said.

Times staff writer Mark Platte contributed to this report

Warnings Unheeded

More than a decade ago, Orange County grand juries warned that the proliferation of special districts had created a hidden layer of government. Officials say those warnings were never heeded and that inaction may have bred a climate that has helped foster problems similar to the Santa Margarita Water District scandal.

1981-82 grand jury report:

“Independent special districts exist in a barely visible manner that diminishes citizen participation and representating. Special district elections (or lack of them), incumbency patterns, and candidate requirements contribute to low visibility of special district governments. Special district elections are held in November during odd numbered years. In 1981 only 10.8% of the electorate voted. This is typical of voter turnout in special district elections: in 1977, 7.1% voted; in 1975, 10% voted; in 1973, 10% voted.

”... Once the director was contacted, a common set of questions (Attachment C) was asked regarding current district studies, future planning, sources of revenue, budget reserves, and user fees. Although there was a mixed set of resonses to the opinion questions, as one would expect, the mixed set of responses to questions that had only one correct or even ‘ball park’ answer led the jurors to conclude that over half of the directors did not have some of the most basic information about the districts which they governed.”

1987-88 grand jury report:

“RECOMMENDATION 9: The Board of Supervisors should sponsor legislation to increase the powers of the Local Agency Formation Commission (LAFCO) to include the ability to initiate changes in the special district organizational structure, then LAFCO could take a more active role in the investigation of special district consolidation or reorganization of special districts. In addition, cities and LAFCO should be granted eligibility to seek loans from the Special District Augmentation fund under the terms of the California Special District Assistance ...

”... In 1982, the Grand Jury reviewed compliance with Government Code 65401 (see Appendix 11) which requires special districts to submit to the city and/or county a list of proposed public works recommended for planning, initiation or construction during the ensuing fiscal year. The Grand Jury found that this practice had not been followed.”

Source: Orange County Grand Jury reports