Calls to Reform O.C. Water Districts Reach Flood Stage : Politics: For years, the agencies have been allowed to operate in obscurity with little oversight, officials say.

On a mid-December day about 40 years ago, early leaders of the powerful Metropolitan Water District of Southern California met in the old Hotel Laguna and opened a spigot that continues to be crucial to Orange County’s growth.

There, around the hotel bar, they crafted a policy known as the “Laguna Declaration,” which promised to provide an unlimited cheap water supply for future housing and development from Oxnard to the Mexican border.

For the large landholders of South County--including the Moultons, the O’Neills and the Irvines--this was the assurance they needed to push ahead with their plans. Armed with the backing of MWD, the ranching families and other early developers eventually began laying the pipelines that today have evolved into a tangled bureaucracy of hidden government that is beginning to unravel.

With scandal gripping South County’s biggest water agency--the Santa Margarita Water District--the network of sewer and water districts are now the focus of a countywide reform movement. For years, county officials said, the agencies have been allowed to operate in relative obscurity with little oversight.

Many of the districts have been perpetuated by a small core of directors who have little contact with a mostly disinterested public, a style reminiscent of that meeting in Laguna Beach when the crucial declaration warranted little public notice. So critical has the lack of accountability been to the troubles in the Santa Margarita district, said John Killefer, a current MWD director, that all water district officials have unfortunately become suspects to the public.

“Water districts on a whole are so bad in the area of accountability and openness to public scrutiny that there really is opportunity for reform,” said Robert Gottlieb, a former MWD director and now a member of the urban planning faculty at UCLA.

For the most part, the sheer number of water districts has contributed to problems with accountability, Gottlieb and others have said. In Orange County, for example, 19 independent water districts exist today, not counting at least a dozen others that deal exclusively in waste water or crop irrigation issues.

Many people in the industry now say that some of these districts are in need of reorganization or outright elimination, having long ago outlived their usefulness. One of those people is prominent Newport Beach attorney Alex Bowie, who said he believes that organizational flaws exist in the special district system and invites closer scrutiny by the public.

“There are economies of scale that can be achieved,” said the Newport Beach attorney. “What’s going on here (the call for reform) is good. It’s proper to look at and should be looked at.”

Gottlieb, the author of several books on water politics in California, points to the early 1980s as a critical era. By then, the districts throughout California accomplished their early charge to deliver water and did not adequately respond to changing needs, he said.

“There wasn’t an ever-expanding pie (of undeveloped land) to divvy up, and they were ill-equipped to respond to issues like water quality and the drought,” said Gottlieb, who has co-authored a book on California water policy.

It’s doubtful that any of the MWD directors who gathered in Laguna Beach that December day, having traveled through what was then a rural county, could have anticipated the tremendous growth their actions would bring.

In 1952, Laguna Niguel and Laguna Hills were vast sheep ranches, while citrus groves and English walnut trees surrounded a sleepy San Juan Capistrano. In Irvine, lima bean fields and eucalyptus trees crisscrossed what is now UCI.

But within a decade, nearly every creek along the coastline was the site of a new sewer plant. And the developing families began plotting ways to bring the MWD pipelines to their properties.

Unlike North County, where an underground water supply helped support a growing population, the south could barely supply the water for ranching and agricultural needs.

“There was really no water in this part of the county,” said Edwin Finster, a retired engineer who helped form some of the earliest water governments. “I remember some developers drilling for water in Laguna Niguel in the ‘50s. When they came up dry on the second well, they went after imported water.”

The immediate result, Finster said, was creation of the Moulton Niguel Water District. Today, that district is the supplier for Laguna Niguel, Aliso Viejo and parts of Dana Point and Laguna Hills.

During the 1960s, as the urban sprawl pushed farther south, the water governments formed one after another: Santa Margarita Water District, Tri-Cities Municipal and Capistrano Beach County Water District were just the start. In virtually every case, the districts were spawned by the interests of early landholders or developers who wished to begin expansion.

The bureaucracy grew even more complicated by 1970 with the emergence of another layer of government needed to manage the waste generated by the booming development.

In a quest to limit the number of sewer outfalls to the ocean, the federal and state governments urged water agencies to form regional sewer treatment plants. These conglomerates, or joint powers authorities, in South County became known as the Aliso Water Management Agency and the Southeast Regional Reclamation Authority.

The two agencies took over the monstrous role of treating the waste generated by the expanding communities of Mission Viejo, El Toro, Lake Forest, Rancho Santa Margarita, Laguna Hills and Laguna Niguel. Each agency maintains its own boards of directors and operates on about $8-million annual budgets, with the funds derived chiefly from user fees and connection fees and a small amount of property tax money from the state.

In some cities, these layers of government, now well-entrenched, have become nearly unmanageable, some officials say.

For example, James Colangelo, director of the county’s Local Agency Formation Commission, said the commission in 1986 recommended elimination of two central county irrigation districts, which now have few agricultural customers.

It was felt that the old Carpenter and Serrano districts could easily be absorbed by other agencies, he said. The effort failed, however, when the districts themselves did not follow the commission’s recommendations and did not disband.

The Serrano district has a $1-million annual budget and today acts as the water delivery system for the city of Villa Park. The tiny Carpenter Irrigation District operates on a $125,000 annual budget and exists mainly to provide water to sand and gravel businesses in Santiago Creek.

Since 1972, the commission has regulated the creation of special districts, but, by a strange quirk of state law, cannot close them down without approval from the districts themselves.

In Dana Point, seven water-related agencies serve one of the county’s smallest cities. There, the independent agencies are governed by a total of 39 elected officials, making Dana Point the most governed city in the county and perhaps all of Southern California.

The Dana Point situation, described as “incredible” by Colangelo, has prompted a recent push by the agency toward consolidation there.

But the strongest momentum for change has come in the wake of reports about questionable business practices within the Santa Margarita district, which were first disclosed in The Times. District officials Walter W. (Bill) Knitz and Michael P. Lord are the subjects of a joint investigation by the FBI and the Orange County district attorney’s office into possible violations of conflict-of-interest laws.

In the past six years, the men have accepted thousands of dollars in gifts from companies that they recommended for district contracts.

The two also sit on the boards of several joint powers authorities. The Times reported Sunday that as directors of those agencies, Knitz and Lord recommended that contracts be given to the companies that had given them gifts.

On Friday, Assemblyman Mickey Conroy (R-Orange) voiced his outrage with the disclosures involving Santa Margarita by promising to introduce legislation that would restructure voters’ rights within the district.

Conroy described Santa Margarita as the “South Africa” of water districts during a meeting with reporters. The water district is currently run by directors who are not elected on a “one-man, one-vote” rule. Rather, under regulations governing certain types of water districts, the Santa Margarita agency allows landowners one vote for every dollar of assessed land.

The legislator said the rules ensure that district board members are more accountable to large developers than the district’s 26,500 ratepayers.

Calls for reform came even before the cases in Santa Margarita and Dana Point were brought to light but were consistently resisted. In two separate investigations by Orange County grand juries starting in 1981, the maze of special districts were blasted as hidden forms of government that seriously lacked accountability and citizen participation.

Even though the Local Agency Formation Commission has regulated the creation of special districts, Colangelo said the agency was not able to execute the grand juries’ recommendations because of the commission’s limited authority to eliminate the districts it had helped create.

In a letter to The Times, one of the county’s largest wholesale water providers promised that it would again review the grand juries’ recommendations.

Wayne A. Clark, a director of the Municipal Water District of Orange County, said the agency would explore merging with the county’s two other major wholesalers. Clark said he would also propose a “model policy” in which the district would review its contractual relationships with engineers and consultants every three years.

“There are many billions of dollars in capital projects in various stages of planning by water agencies in Southern California,” Clark stated. “It will be very important to have public confidence as we undertake to make our water system more reliable.”