O.C. Water Board Suspends Officials : Removal: Santa Margarita directors put their two top managers on paid leave, allowing them to keep salaries and benefits while their spending, gift-taking are investigated.

The Santa Margarita Water District’s Board of Directors placed its two top managers on paid leave Friday in response to disclosures of excessive spending and gift-taking that are now the subject of investigation by state and federal authorities.

Walter W. (Bill) Knitz, the district’s general manager for 17 years, and Michael P. Lord, his longtime assistant, will continue to collect their salaries and benefits but will lose their leased district cars. Knitz earns $113,292 annually and Lord makes $109,116.

The five-member board will select an interim manager to oversee operations of the district, which provides water and sewer service to more than 80,000 customers in Coto de Caza, Rancho Santa Margarita and Mission Viejo. Until a manager is selected, the board will run the operations of the district, members said. Knitz and Lord were ordered to be available whenever needed.

The board’s unanimous decision came amid a public furor over extravagant business expenses claimed by both men and potential conflicts of interest first reported in The Times. Among their more questionable costs were stays at luxury hotels, a $1,500 room service tab and a $245 sightseeing tour of Manhattan.

At the same time, both men have accepted more than $46,000 worth of gifts from contractors who have received substantial contracts from the district. In many cases, Knitz and Lord recommended that the board give contracts to vendors who had given them gifts or meals in excess of $250 the previous year, a violation of the state Political Reform Act of 1974.

Those recommendations are the subject of a joint investigation by the Orange County district attorney’s office and the FBI. Both agencies are trying to determine whether the managers traded gifts for contracts.

Attorneys for Knitz and Lord could not be reached for comment Friday. Board Chairman Don B. Schone said removal of the two managers does not mean that they are guilty of wrongdoing.

“Our actions in no way should be construed as an admission of violating any laws or administrative procedures,” he said. “Clearly, due process has not yet occurred.”

Both men will continue to collect their salaries and benefits, which total more than $130,000 each. Knitz has received steady raises of 3% to 6% annually during the last six years. Lord’s salary has increased 41% during the past six years, from $77,520 to $109,116.

The board’s action was criticized by some.

“I don’t think they should be paid while they are investigated,” said Rene Orozco, a Santa Margarita Water District customer in Mission Viejo. “They already overspent, why should they get paid? They cost the customers too much money already.”

Knitz and Lord will be losing the privilege of their district-leased cars. Knitz drives a 1990 Mercury station wagon, valued at $19,599 and with a car telephone. Lord drives a 1992 Chevrolet Suburban, valued at $25,000 with a portable car phone.

Board members would not comment on how long Knitz and Lord would remain on paid leave and said little else after meeting for nearly two hours in closed session to discuss the issue.

But sources close to the board said its members had considered a range of options, including the possibility of cutting each manager’s pay 15%, while allowing them to continue in their jobs. They also had considered hiring an interim two-person management team to whom Knitz and Lord would report.

Sources said the interim management consultant approved Friday will stay in place until the law enforcement investigation is concluded. At that time, the two men will either be reinstated if exonerated or fired if charged with wrongdoing.

Although board members debated whether to fire the two men, they ultimately decided that since there were no spending guidelines for the managers to follow, they could not be held completely accountable, sources said.

The joint investigation of the district is far-reaching. Investigators this week requested invoices, contracts, expense reports and other materials dating back six years and including much of the board’s business records.

Board Chairman Schone has hired criminal defense attorney Paul S. Meyer, who represented former County Supervisor Don R. Roth in a political corruption case. Roth recently pleaded guilty to seven criminal misdemeanor counts of conflict of interest and failure to report gifts from people who had business with the board.

Schone, who said he hired Meyer as a precaution, personally approved all of Knitz’s spending and himself racked up thousands of dollars in room service, hotel bills and long-distance telephone calls at out-of-town conferences.

Schone’s 1990 economic interest statement indicated that he received between $200 and $400 from three contributors that have received large contracts during the past several years. The contributors were engineering firms Robert Bein, William Frost & Associates; MacDonald Stephens Engineering, and the district’s law firm, Stradling, Yocca, Carlson & Rauth.

But Schone said the filing is misleading. He said he meant to indicate that the combined total from the three contributors was between $200 and $400 and that no gift from a single donor exceeded $250. He said he doesn’t believe that he has a problem and has continued to vote on contracts affecting all three contributors.

The board released a statement before Friday’s meeting in which it sought new public members for its finance and engineering committees. Knitz had sat on both committees. Lord sits on the finance committee as well.

The board also announced that four of the five board members are up for reelection this November and one member may retire before then. The statement urged residents of Coto de Caza, in particular, to run for the board.

Meanwhile, Assemblyman Tom Umberg (D-Garden Grove) said Friday that he wants to introduce legislation requiring more direct public disclosure of trip expenses and gifts for employees of special districts.

The legislation would require districts to report annually on all meals, gifts and other perks received by employees. Umberg said the disclosure of such information would make it easier for the public and governing boards of special districts to keep an eye on extravagant spending.

“What I want to do is shine a little light on it so that if people think it’s outrageous they can raise a hue and cry,” Umberg said. “I’m confident that if employees are abusive of their expense accounts and it’s publicly disclosed, there would be a public outcry.”

Umberg said he considered placing limits on meal and travel expenditures but saw problems. “You’d have to create another policing mechanism that would be pretty cumbersome,” he said. “It’s tough to set strict spending limits. In New York, you wouldn’t be able to find a hotel for $70, but in Bakersfield spending $70 might be considered extravagant.”

Times staff writer Eric Bailey in Sacramento contributed to this report.

Water District Benefits

The Santa Margarita Water District placed its two top managers on administrative leave Friday in response to reports of excessive spending and gift-taking. In addition to six-figure annual salaries, General Manager Walter W. (Bill) Knitz and his assistant, Michael P. Lord, receive more than $65,000 yearly in benefits approved by the district’s board of directors.

Knitz Lord Salary $113,292 $109,116 Life insurance premiums 5,182 710 Medical 4,099 4,613 Dental 495 736 Vision 168 168 Retirement 16,052 15,458 Car lease 6,015 8,574 Car insurance 1,436 1,725 Total $146,739 $141,100

Source: Santa Margarita Water District