Farmers Accused of Misusing $10 Million in Delta Disaster Aid

State and federal auditors have charged that Sacramento-San Joaquin River Delta farmers misused upward of $10 million in disaster aid to save their sinking islands from floods and are preparing a demand that it be repaid.

Auditors charged that there were instances of double-billing, charges for material that apparently was not delivered and widespread overcharges for rock and sand that was used to bolster island levees in the delta.

“I think there is a fiduciary duty that needs to be exercised. I don’t think it was,” said Charles F. Wynne, a state Office of Emergency Services official who is overseeing the matter.

Only a few thousand people live on 60 major islands, scattered among 700 miles of rivers and sloughs in the delta. The islands are used for farming. But they also are an important part of California’s water system, especially as it serves Southern California. The islands hold back saltwater intrusion from San Francisco Bay, thereby allowing state and federal officials to pump fresh water south.

When islands fail, saltwater intrudes into the environmentally sensitive delta, habitat to many species of fish, birds and other animals. To hold the brackish water back from the delta, fresh water that could be used for farming and drinking must be released from reservoirs upstream.

Delta levees often fail in high water. To save their islands, farmers say they must act quickly, first by placing sandbags along their levees and then laying down large rocks as a more permanent barrier. But in order to get paid by disaster assistance agencies, the farmers must act through their reclamation districts, which are required to maintain records of how assistance funds are spent.

Wynne is scheduled to begin a series of meetings today in which he will go island-by-island to determine exactly how much money each reclamation district must repay.

In an interview, Wynne characterized the districts’ record-keeping as a “mess.” When district officials did produce records, the documentation was insufficient, he said.

He noted that since some work was done, some money should be paid. But he also estimated that as much as 25% of the $42.6 million spent on fighting severe flooding in 1983 could end up being disallowed and may have to be repaid.

“A 25% cutoff in the claims would be akin to a disaster,” said Dante Nomellini, a Stockton attorney for several districts. “If that is the net result, the one thing that will have been learned will be that the biggest disaster is disaster assistance.”

Some farmer-run reclamation districts could be forced into bankruptcy if they must repay the Office of Emergency Services and the Federal Emergency Management Agency, Nomellini said. Nomellini raised the possibility that if there are floods this year, the financially strapped districts will be unable to respond.

The potential size of the claim for reimbursement has concerned bankers, who have lent money to the districts. Some districts have had to renegotiate their debt repayments.

“The financial integrity of reclamation districts is at stake,” said Doug Eberhardt, executive vice president of the Bank of Stockton, which is holding $10.2 million worth of warrants from various districts.

If the districts are forced to repay the money and go into bankruptcy, the state or federal government could be forced to take over the islands in order to save them and ensure that fresh water continues to flow to Southern California and San Joaquin Valley farmers.

The financial effects are only one of the districts’ problems.

The Federal Emergency Management Agency’s inspector general has opened a “much more in-depth” investigation of disaster assistance in the delta to determine whether there were violations that could result in criminal, civil or administrative actions, said F. Gerry McGrath, assistant inspector general.

Wynne characterized his role as that of a mediator between the districts and state and federal auditors, whose reports issued during the past year and a half have recommended that state and federal disaster agencies pay almost none of the $42.6 million in costs claimed by the districts for the 1983 floods.

Federal Emergency Management Agency audits obtained by The Times show it recommended payment of only $754,000 out of the $15.3 million being sought by three reclamation districts for the 1983 flood.

The state controller, which audited several other districts for the 1983 flood, concluded that $25.8 million of the $27.3 million in claimed expenses should be disallowed.

Although the investigation focuses on the 1983 flooding, the same approach most likely will apply to flood costs in 1986, when several delta islands again were flooded. In all, state and federal agencies have spent $120 million to fight delta floods during the 1980s.

An audit by the Federal Emergency Management Agency showed that Rindge Tract, one of the farming islands, billed the state and federal government for the same work--more than $870,234 for rock, levee widening and dredging.

In another instance, a reclamation district estimated the cost of repairing erosion damage at from $160,000 to $223,000. By the time the work was done, the cost skyrocketed to $2.5 million.

Federal auditors noted that when the districts paid for rock out of their own money, the price was anywhere from $11.85 to $14.50 per ton. When the Federal Emergency Management Agency paid for the rock, the price was as much as $20 a ton. Commonly, thousands of tons of rock are needed to fix a failing levee.

Nomellini insisted that instances of double-billing were mistakes. He maintained that the districts will prove to the state and federal governments that there was virtually no overcharging and called audits a “hatchet job.”

He said documentation for the 1983 flood is better than it was in previous floods and blamed changes in the state and federal standards for many of the problems.

“If the same standards for review (in past years) had been applied, then these claims would get an A-plus-plus rating,” he said. “ . . . All of a sudden what was historically found to be acceptable was rejected in total.”