O.C. Grand Jury Studying Water Agency Merger

Nearly a year after scandal rocked a major South County water district and prompted calls for closer scrutiny of the water industry, the Orange County Grand Jury has launched an inquiry into the possible benefits of merging four agencies that wholesale water to districts that serve customers.

In a letter to the four agencies dated Dec. 2, the chairman of a grand jury committee informed the general managers that he would examine “the logistics and the potential financial impact” of their consolidation.

John J. Baird, chairman of the jury’s administrative agencies committee, also said that the accounting firm of Ernst & Young would perform a management and operation audit of the four districts during the study.

The grand jury targeted the Coastal Municipal Water District, the Tri-Cities Municipal Water District, the Orange County Water District and the Municipal Water District of Orange County--all agencies that function as intermediaries in the county water distribution system, and sell water either to municipal water departments or other water districts.

County Supervisor Harriett M. Wieder applauded the study, saying “the timing could not be better” since it comes at a time when the private sector group is beginning to study the multiplicity of government agencies.

“It’s exciting,” Wieder said. “People talk about reinventing government, but we don’t have to reinvent it, it just needs to be managed better. . . . I don’t think we need so many water districts to deliver water.”

The grand jury letter also indicated that the panel would coordinate its inquiry with a parallel study being conducted by the county’s Local Agency Formation Commission, which is also reviewing the possible merger of some county water agencies. That five-member commission, on which Wieder and Supervisor William G. Steiner, two city council members and a public member have seats, reviews potential mergers and annexations in the county.

Stan Sprague, the general manager of Municipal Water District of Orange County, questioned the need for a grand jury study, saying the districts have already undertaken a consolidation study on their own.

“We think they are a little premature,” Sprague said of the grand jury study. “We think they should perhaps monitor what we are doing, and what LAFCO is doing, and if the process breaks down, then maybe they should jump in.”

But Ray Benedicktus, a member of Tri-Cities’ board of directors, suggested the grand jury would be free of politics and might be the proper agency to perform these tasks. Water district directors have always resisted consolidation that would result in their losing their positions, he said.

“I think it’s better to have an outside group do this, rather than an in-house group,” said Benedicktus of Capistrano Beach. “The outside group will take a fresh look . . . without a vested interest. That’s the key to the whole thing.”

Ray Arballo, the grand jury committee co-chairman, said the existence of several concurrent studies was “maybe just coincidence.”

“We just want to see what the effects (of consolidation) are, and what the advantages are,” Arballo said. He anticipated the study would take as long as three months.

The current grand jury effort follows a similar grand jury undertaking in 1982 that resulted in damning reports depicting the county’s water agencies as breeding grounds for financial waste and abuse. The earlier study found that the agencies operated in a climate of obscurity and were perpetuated by a core of directors who remained insulated from public scrutiny.

Those grand jury reports foreshadowed the scandal that rocked the Santa Margarita Water District earlier this year. The district’s former top two executives are the focus of ongoing investigations by the FBI and the Orange County district attorney’s office into excessive spending and gift-taking from firms that were granted lucrative contracts.

Although the grand jury warnings came years before the scandal, they were largely ignored, a fact that has not escaped the attention of the current grand jury, said James Colangelo, the director of LAFCO.

Colangelo has met with the grand jury on several occasions since July and helped direct their efforts so they may be helpful to LAFCO. If the grand jury study suggests consolidations might be a financial boon to taxpayers, LAFCO could help initiate mergers, Colangelo said.

“Their intent is not to create a document that draws a headline one day and gets stuck on a shelf,” Colangelo said. “I tried to help them to the extent that if they do come up with something, it will be something we can use.”

Steiner also welcomed the study, adding that he was scheduled to meet with a grand jury representative today. But he predicted there would be problems getting special districts to merge without a fight.

“The consolidation of special districts is something that people of all levels of government need to pay attention to,” because of the decline of tax revenues, Steiner said. “But there will always be controversy when elected officials are giving up governmental authority.”

About 60% of all water used in Orange County is imported from Northern California or the Colorado River and channeled through the four water districts that are the focus of the study. They in turn sell the water to municipal water departments or semiautonomous water districts that distribute it to residential and other customers.