Water District Manager Knitz Suddenly Retires : Investigation: Santa Margarita official denies guilt in probe of gifts, spending. Top aide is still on suspension.

The suspended general manager of the Santa Margarita Water District, who is under criminal investigation for possible conflict-of-interest law violations, announced his sudden retirement Wednesday, less than two months after public disclosure of his lavish expense accounts and gift-taking from district contractors.

In a letter to the district’s board, General Manager Walter W. (Bill) Knitz said he would continue to “vigorously refute the accusations against me by the press” but had decided that it would be impossible for him to continue to provide “the leadership the district must have to serve the public.”

Knitz and his top assistant, Michael P. Lord, were suspended by the district and came under investigation last month after The Times disclosed that they had accepted nearly $60,000 worth of gifts from contractors, bankers and engineering firms, which they acknowledge recommending for millions of dollars’ worth of contracts the district awarded without competitive bidding.

Under state law, an official who accepts gifts worth more than $250 within a 12-month period is forbidden to influence any official decision that would benefit the gift-giver.

Knitz and Lord, whose annual salaries amounted to $113,292 and $109,116 respectively, were also found to have treated themselves to stays in luxury hotels across the country, running up room service tabs as high as $1,500. Knitz once took a $245 sightseeing tour of Manhattan in a stretch limousine just “killing some time” before catching a plane back to Orange County.

In the letter announcing his retirement, the 61-year-old Knitz said he had hoped to remain in the top administrative post he has held for more than 17 years and continue overseeing water and sewer service for the sprawling South County district’s 26,500 customers but decided it best “that I clear the way for new leadership” and retire effective next Monday.

The district’s board of directors had been poised to make a decision on the employment status of Knitz and Lord during a special meeting called for Monday, the same day Knitz’s retirement becomes effective.

Both men were suspended with pay, and the district--which was criticized by some ratepayers and political activists such as Shirley L. Grindle for doing nothing more than giving them “paid vacations” for their reported misdeeds--announced May 6 that it planned to quickly resolve their status and terminate their paid administrative leave by May 24.

“This is a total surprise to us,” said district spokesman Scott Hart. “There have been absolutely no agreements and no deals” arranged beforehand for Knitz to retire.

The board is still scheduled to decide Lord’s fate Monday afternoon. Hart said the board essentially has three options: to reinstate Lord, continue his suspension but without pay, or fire him.

Lord’s attorney, Thomas M. Goethals, said his client is not quitting.

“Mr. Lord has no current intention of resigning,” Goethals said. “He doesn’t feel there is any legal reason or requirement or necessity for him to resign.”

Goethals declined to say whether Lord had been asked to resign.

The two officials’ acceptance of gifts, and actions on behalf of the gift-givers, are under investigation by a joint task force formed by the FBI and the Orange County district attorney’s office.

Investigators of the U.S. Securities and Exchange Commission have also opened their own investigation into Lord’s management of the $150-million investment account where the district deposits the proceeds of public bond sales.

Wallace J. Wade, the assistant district attorney in charge of special operations, said Knitz’s unexpected retirement would have no impact on the task force’s continuing investigation.

“Our examination will continue until we have resolved whether or not the accusations made against Mr. Knitz and Mr. Lord have validity,” he said. “The issue of (Knitz’s) employment is separate from the issue of these allegations.”

Knitz’s letter announcing his retirement was dated May 13, the day he called the water district’s labor attorney, Bruce May, and said he might retire, Hart said.

“I think the handwriting was on the wall,” Hart said. “The message was that they’d voluntarily resign or retire or possibly be fired. Those seemed to be the options.”

Knitz will receive retirement benefits of $42,918 a year, seven weeks of unused vacation time valued at $15,250, and $1,428.57 in monthly payments from an annuity given him by the board in November, 1987, in lieu of future pay raises.

Had Knitz continued to work through the full seven years of the annuity agreement, he would have been entitled to $2,000 a month. If he had been fired because of criminal misconduct, instead of retiring, his annuity benefits--but not his retirement benefits--would be forfeited.

The board also purchased two supplemental life insurance policies for Knitz, paying $18,369 in premiums. Knitz gets two other life insurance policies afforded all water district employees. After he retires, Knitz will be responsible for his own health benefits.

Board Chairman Don B. Schone said that the board is continuing to conduct its own internal audit and that if it determines that Knitz did something wrong, “we always have legal recourse.”

Knitz was hired in November, 1975, after being recommended by then-Board Chairman Thomas C. Blum, now the executive vice president of the Santa Margarita Co.

A native of Toledo, Ohio, Knitz attended Marquette University in Milwaukee, where he earned a bachelor’s degree in civil engineering. After graduation, he became a pilot in the Marine Corps and was stationed at El Toro Marine Corps Air Station.

After leaving the Marines, Knitz went to work for Toupes Engineering in Santa Ana and spent more than 20 years as a consulting civil engineer specializing in sewer and water systems, land development and municipal engineering.

He is married with four children and lives in Mission Viejo.

Civic activists praised Knitz’s decision Wednesday.

“This is the only way out for him,” said Karoline Koester, a former San Clemente mayor and community activist. “I think he was wise in departing the scene, since he and Mr. Lord are being investigated.”

Longtime Orange County political activist Grindle, who helped engineer a tough new ban on political gifts for county officials, called Knitz’s retirement a “very good move. Others should do the same. It won’t absolve them of blame, but it’s a good start.”

Earlier this week, the district’s board adopted a sweeping new code of ethics patterned on the county’s, which would prohibit all water district employees from accepting gifts in any amounts, including free meals.

Since The Times first reported on Knitz and Lord, two Orange County lawmakers have proposed legislation that would change how Santa Margarita Water District board members are elected and would toughen disclosure requirements for special districts throughout the state. As one of only two remaining “landowner districts” in Orange County, the Santa Margarita district’s Board of Directors has been elected primarily by big landowners, who are accorded one vote for each dollar of their land’s assessed value on county tax rolls.

Assemblyman Mickey Conroy (R-Orange), who is seeking to impose a “one-man, one-vote” rule on the district and who has criticized the board’s decision to suspend Knitz and Lord with pay, said Knitz’s retirement is “long overdue.”

Conroy also questioned whether Knitz deserved all of his retirement benefits, noting that the general manager will make more in his golden years than Conroy does now.

“I think if he was in a profession . . . (like) the military, he would go out in disgrace with no retirement,” Conroy said. He added that Knitz’s retirement package should be reviewed if he is convicted of any wrongdoing.

“If they find him to have done these things, then I think his retirement should be severed, or, at the least, severely reduced,” Conroy said.

Water District Woes: A Chronology

* March 28: The Times reports that Walter W. (Bill) Knitz, the general manager of the Santa Margarita Water District, and Michael P. Lord, the assistant general manager, have billed the water district for tens of thousands of dollars in questionable expenses over the past decade, including a $245 limo ride around Manhattan, a single $1,500 room service tab and dozens of expensive meals.

* March 29: Knitz and Lord have accepted more than $40,000 in gifts from contractors, bankers, developers and consultants, many of them recommended for millions of dollars’ worth of contracts in apparent violation of state law, The Times reports. The total amount of gifts increases to $60,000 as the two men file new disclosure forms or amend old ones.

* March 30: The Orange County district attorney’s office opens an investigation into possible violation of conflict-of-interest laws.

* April 6: The FBI announces that it is conducting an investigation into possible criminal wrongdoing at the water district. Later, the FBI and district attorney’s office join forces and create a joint task force.

* April 9: The district’s board of directors places Knitz and Lord on paid administrative leave until the law enforcement investigations are concluded.

* April 16: State Assemblyman Mickey Conroy (D-Orange) proposes legislation that would change the way board members are elected. Voting would be changed to “one man, one vote” from a system in which property values determine the number of votes, a formula that enables big landowners to dominate voting.

* May 5: The Times discloses numerous instances of district employees’ relatives working for contractors doing business with the district.

* May 9: The Times reports that Knitz blocked repeated attempts by his financial officers to require a contractor--and gift-giver--to justify more than $500,000 in billings, finally ordering his underlings to write off some of the overcharges.

* May 12: The U.S. Securities and Exchange Commission opens its own investigation into the district’s $150-million investment portfolio.

* May 17: The board of directors adopts a tough new ethics code, which prohibits all district employees from accepting gifts of any amount.

* May 19: In a letter delivered to Board Chairman Don B. Schone, Knitz announces his retirement, citing continuing press scrutiny. The retirement is effective Monday.