Gov.’s Top Aide Was Paid by Developer

Gov. Arnold Schwarzenegger’s new chief of staff, who is spearheading a $9-billion plan to improve California’s water system, was paid $120,000 last year by a Los Angeles developer seeking to build a massive water storage project under the Mojave Desert.

According to interviews and her financial disclosure statement, Susan P. Kennedy earned $10,000 per month in 2005 as a consultant to Cadiz Real Estate, operated by her longtime friend Keith Brackpool.

For nearly a decade, the British-born Brackpool has tried unsuccessfully to put together a public-private partnership that would use the aquifers under his San Bernardino property to store water for use during droughts.

As Schwarzenegger’s chief of staff, Kennedy is responsible for advancing the governor’s proposals to fix the state’s crumbling infrastructure through government projects and public-private partnerships. Part of that plan would raise $9 billion in bond money to improve the state’s water storage and management system.

Paul S. Ryan, an attorney with the Campaign Legal Center in Washington, D.C., said Californians should be skeptical of “revolving door” arrangements that bring people from the private sector into government positions that could potentially benefit their former industries.

Such appointments, although common, “create the appearance of impropriety,” he said. “It would be wise for such an individual to recuse himself or herself from any dealings that would add to the public’s cynicism about the government.”

A representative for Cadiz did not return calls seeking comment. Margita Thompson, a spokeswoman for Schwarzenegger, said Kennedy has no conflict of interest.

“If something on the project were to come up, she would recuse herself,” Thompson said. “But under no current scenario would the project come up during state business, because it’s a private project.”

Cadiz came close in 2002 to finalizing a deal with the Metropolitan Water District to store Colorado River water for the agency during wet years that it would sell back in dry years. The proposal was defeated in a close vote of the MWD board over concerns about Cadiz’s finances and about the environmental impact of the project.

The MWD supplies water to 18 million people in Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties.

Despite that rejection, Cadiz “is actively exploring alternative ways to develop” the project, according to its website. The company has requested a right-of-way from the federal government for a pipeline to transport Colorado River water to a 45,000-acre parcel it owns in San Bernardino County.

In its 2006 company prospectus to shareholders, Cadiz Inc., parent company of Cadiz Real Estate, reported being $24 million in debt. But the company said it was seeking to “participate in a broad variety of asset development programs, including water storage and supply, exchange and conservation programs with public agencies and other parties.”

The money Cadiz paid Kennedy went through the company’s law firm, Miller and Holguin, and was for work on federal regulatory and legal issues. Thompson said Kennedy will not do consulting work for Cadiz this year.

Kennedy, who served as communications director to U.S. Sen. Dianne Feinstein from 1995 to 1998, acknowledged that over the last five years she has had a “couple of conversations” with the senator about Cadiz. Feinstein opposed the MWD-Cadiz deal on environmental grounds.

Kennedy’s consulting work for Cadiz came at a time when she served on two boards with oversight responsibility for some aspects of state water policy, although neither directly regulated Cadiz.

From August 2003 until Dec. 19 of last year, she was a regional representative on the California Bay-Delta Authority, an agency that coordinates state and federal efforts to restore delta ecosystems while ensuring a reliable state water supply.

Kennedy also was a member of the California Public Utilities Commission from 2003 until Dec. 31 of last year. Among its duties, the PUC regulates dozens of private water companies throughout the state, although Cadiz is not included on the list of firms it oversees.

Kennedy, a Davis appointee, was paid about $114,000 for her full-time job as a PUC commissioner. She was not alone in having outside income. Three of her fellow commissioners on the five-member PUC have reported receiving outside income, including Michael Peevey, who reported more than $1 million in income in 2004 as an investor in a women’s card, book and apparel business called Simply She Inc.

While still a PUC board member, Kennedy also received $25,000 in December for work as a consultant on Schwarzenegger’s reelection campaign.

His campaign had received donations from companies regulated by the PUC, including $25,000 from AT&T; three weeks earlier. Four days after the donation, Kennedy voted to approve AT&T;’s merger with SBC Communications.

Kennedy, who is being paid $100,000 in annual salary from the Schwarzenegger campaign, on top of her $131,000 state salary, last week denied any conflict and said political opponents were trying to undermine the governor.

“I’m 45 years old; I got a mortgage to pay,” Kennedy told the San Francisco Chronicle last week when questioned about earning money from the Schwarzenegger campaign. She denied any suggestion that the campaign salary was improper. “I am living up 100% to the spirit and the intention of the conflict laws.”

For years, Brackpool has kept close ties to several prominent politicians. Before Antonio Villaraigosa, now Los Angeles’ mayor, was elected to the City Council in 2003, Brackpool employed him as a consultant for two years.

Brackpool was also close to former Gov. Gray Davis, who appointed Brackpool co-chairman of a 33-member task force that looked for ways to manage California’s water. Brackpool and his companies donated $345,000 to Davis’ campaigns and gave candidate Davis the use of Cadiz’s corporate plane.

Kennedy served as Davis’ deputy chief of staff during the period when Brackpool worked on water policy for the Davis administration. She directed the state’s efforts to reform California’s water policy through a process called CalFed. Brackpool sat in on policy meetings in the governor’s office on such topics as water and agriculture.

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Times staff writer Dan Morain contributed to this report.