Damage-Control Steps Taken by Water District : Probe: Santa Margarita board hires a consultant, drafts a code of conduct and sets tentative expense limits.

Stung by disclosures of extravagant spending by its top two managers, the Santa Margarita Water District’s board of directors on Monday hired a political consultant, drafted a code of conduct for employees and set tentative reimbursement guidelines for travel, meals and other expenses.

The board also said it will ask its general manager, Walter W. (Bill) Knitz, and his assistant, Michael P. Lord, to abstain from making contract recommendations while a district attorney’s investigation is pending.

Both men are under scrutiny for recommending payments to contractors and consultants who have given them gifts in excess of state-mandated limits. Investigators for the district attorney’s office are scheduled this morning to pick up the managers’ expense records for the past four years.

On Monday night, the five-member board of directors met for 80 minutes in closed session to discuss the future of Lord and Knitz. A board member who did not wish to be identified said that a full range of options had been discussed, including whether to fire the two managers.

“We are homing in on a decision,” Board Chairman Don B. Schon said. “We want to restore confidence in this district.”

The new guidelines, while still in draft form, involve per diem limits on meals, a possible ban on alcohol during business meals, and a rule that the district will not pay for spouses on business trips without prior board approval. The board may also bar employees from accepting meals from contractors.

The code of conduct will address “professional ethics” and matters that give “an appearance of impropriety,” Schone said, but he added that the wording has not been finalized. All the new guidelines will be approved at a board meeting later this month, he said.

Last week, the board suspended the spending privileges of Knitz and Lord one day after The Times reported that the two officials have been reimbursed for tens of thousands of dollars in questionable expenses over the last decade, including limousine rides, expensive hotel stays, gifts and excessive room service charges.

In one instance, a San Francisco hotel bill was claimed twice on Lord’s expense accounts and once on Knitz’s expenses and paid each time. After The Times inquired about the expense, Knitz and Lord reimbursed the district for the $681 they had wrongly claimed on the accounts. They said the overpayment was made in error.

Since 1984, Knitz has received $86,120 in expense reimbursements. Lord has received $75,949. Some of the reimbursement amounts were for expensive lunches and dinners for engineering contractors and consultants who have provided them free meals and gifts over the years.

“This was a pretty big shock to us,” said board member William F. Krasho.

Besieged by negative publicity and a barrage of consumer complaints from water district ratepayers after the articles, the board voted Monday to hire a political consulting firm for “public information” purposes.

Schone said he and board member Richard F. Boultinghouse thumbed through the telephone book and came up with nine companies. They whittled down the list, without seeking competitive proposals, and selected David Ellis and Scott Hart, two former field representatives for local politicians who formed a firm that specializes in political consulting and media damage control.

The board unanimously selected Ellis Hart Associates of Corona del Mar.

Hart also worked for Gov. Pete Wilson when Wilson was a U.S. senator, opening his Orange County office and later becoming his Southern California field deputy. Ellis was manager of Rep. William Dannemeyer’s (R-Fullerton) local office.

Ellis and Hart currently represent the Airport Working Group, an organization opposed to further expansion of John Wayne Airport. The group is pushing for a commercial airport at the El Toro Marine Corps Air Station.

They are known more for their expertise in political consulting than for public relations, but do both.

On Monday, board members expressed frustration over what has become a firestorm of media stories about Knitz and Lord, from home improvement work by district contractors at Lord’s Vista home to Knitz taking a $245 limousine ride around Manhattan at district expense because he was “killing some time . . . and doing a little sightseeing.”

Boultinghouse said the adverse publicity “is getting to us. I know it’s getting to me.”

The board did not approve a set fee for Ellis and Hart’s work, but said the contract would start at less than $10,000 and come out of an account set aside for emergencies, such as weather-related problems. The board said it reserved the right to end the contract at any time if it is not happy with the work Ellis and Hart are doing.

Board members said that a public relations firm would act as “spin doctors” and help present a more positive image of the district to the public.

“We’re engineers and builders” on the board, Krasho said. “We need someone to help us talk to people.”

Because notice of the board’s special meeting was not posted at the district until Monday morning, few members of the public knew to attend and none showed up. The board is legally required to post notice of special meetings at least 24 hours in advance. Regular meetings must be posted at least 72 hours in advance.

For the second Monday in a row, the board of directors did not give proper public notice, posting the meeting at three locations several hours before the meeting was to be held.

Times staff writers Len Hall and Jeffrey A. Perlman contributed to this report.