Four on Santa Margarita Water Board Swept Out : Election: Voters choose reform candidates in district beset by a scandal involving its two top managers.

Four incumbents on the Santa Margarita Water District Board of Directors have been swept from office and replaced by reform candidates who said a scandal at the South County agency prompted them to run in Tuesday’s election.

Even a director appointed to the board months after the controversy surfaced failed to survive, as voters and landowners cast their votes for wholesale change. Nobody had challenged an incumbent board member in six years.

The board’s chairman, Don B. Schone, is the only holdover from this year’s board and is up for reelection next year.

William F. Krasho, one of the losing incumbents, said he wouldn’t be surprised if Schone lost his seat too.

“It’s my belief that had the entire existing board been running, everyone would be replaced,” said Krasho, who had served on the board since 1987.

A record eight challengers filed to run in the election after reports in The Times that the district’s top two managers had spent thousands of dollars on themselves in questionable expenses. At the same time, they accepted gifts and meals from contractors whom they recommended for millions of dollars worth of business.

Both managers--Walter W. (Bill) Knitz and Michael P. Lord--retired less than two months after a criminal investigation was begun by the FBI and the Orange County district attorney’s office. The probe is expected to be completed by the end of the year. A separate examination by the U.S. Securities and Exchange Commission has also been launched.

Knitz and Lord, through their attorneys, have denied wrongdoing.

Stories in The Times prompted immediate change, both inside and outside the district. A new ethics code, one of the county’s most restrictive, was adopted. Lord’s position of assistant general manager was eliminated. A nepotism policy was established. Other water districts moved to tighten their policies in light of the Santa Margarita Water District’s troubles.

An Orange County lawmaker introduced a bill to change election procedures at the Santa Margarita district and another water district--Los Alisos--to the “one-man, one-vote” system. Currently the districts assign votes based on assessed property value. Gov. Pete Wilson signed the bill into law last month.

Harry Johnson, a Los Alisos board member for 17 years, appeared to have lost his seat in Tuesday’s election, although that district counts mail ballots and some are still filtering in. The Los Alisos Water District serves a population of 40,000 in the Lake Forest area.

The cumbersome voting system--in which millions of votes had been counted by hand--delayed final tabulations until nearly 4 a.m. Wednesday. Donald Tanney, the county’s registrar of voters, said he will have workers re-examine a few precincts in the Santa Margarita Water District to make sure the totals are sound. But he said he is confident the results will stand.

The winners were Jim Mizell, 45, a certified public accountant; Betty K. Olson, 46, a UC Irvine professor and water scientist; Bob Lay, 38, a former bank executive who now specializes in public finance, and Jim Holmes, 69, a retired sports manufacturing executive.

“The signal to the board was that change was demanded, even for the newly appointed incumbent,” Lay said. “I was surprised that the change was that sweeping, but there will be new blood in there and a new presence will be felt immediately.”

The losers were Krasho, a construction manager elected in 1987; James Neidert, a real estate sales manager who joined the board last year; Richard F. Boultinghouse, a former business owner who was elected in 1980; and Sean Barrett, who was appointed to the board this year after the retirement of John Van Dam.

Barrett was selected two months after Knitz and Lord retired. Boultinghouse announced three days before the election that he was resigning because he had sold his property in the district and that he would soon be ineligible to serve. His vote total was the second lowest.

Because so many millions of votes were cast for so many candidates--Mizell was the leader with 605 million votes--it is difficult to determine who supported which candidate. But it is clear that large developers who control huge blocs of votes helped turn the incumbents out of office.

The Santa Margarita Co., for example, holds 112 million votes, mostly in the areas of Rancho Santa Margarita. A spokeswoman declined to share the company’s voting strategy or discuss whether it had sought a new board.

“All of the board members appear very well qualified to serve,” said Diane Gaynor, the company publicist. “We look forward to working with them.”

The new board will convene sometime in December. Lay said the top order of business would be selecting a new general manager. The current board culled through 138 applications, winnowing the list of qualified candidates to 10.

Schone, the remaining holdover from the board, said he understands why voters decided to make such a clean sweep. “That’s human nature,” he said. “I’m not upset with the voters. If I had read in the newspapers what the voters had read, I might have made the same decision.”

Some defeated board members, like Krasho, also took the news in stride.

“The analysis is that landowners were not happy with the board as constituted and I don’t have a problem with that,” he said. “I’ll be able to devote more time to my work.”

Newcomer Holmes, president of the 3,500-member Casta del Sol Homeowners Assn., said he was spurred into serving on the board after reading newspaper articles on the district’s troubles.

“I figured someone from the outside needed to be of help,” he said. “I can’t believe the entire board was the problem over there, but I guess the buck stopped there.”

The water district serves a population of 84,000 in the areas of Rancho Santa Margarita, Mission Viejo, Coto de Caza and unincorporated areas of the county.

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