Knitz Pleads Guilty in O.C. Water District Case : Scandal: He will pay $20,000 fine and do community service in plea deal. Judge astonished by leniency.

Walter W. (Bill) Knitz, former general manager of the Santa Margarita Water District whose use of public funds for self-described “perks” enraged ratepayers and ultimately cost him his job, pleaded guilty to criminal conflict-of-interest charges Monday and agreed to reimburse the district $20,000 for a portion of his excessive expenses.

The 62-year-old Knitz, who held the district’s top post for 17 1/2 years until his abrupt retirement last year, agreed to a plea-bargain that also requires him to perform 200 hours of community service and refrain from involvement with Santa Margarita or any other water district for the next three years, and bars him from lobbying officials of any state, local or county agency for four years.

“He’s through doing business in Orange County with any water district,” said Marc Kelly, the deputy district attorney handling cases against four former or current district officials. “The glory days are over. This is a pretty big fall from grace.”

Municipal Court Judge Blair T. Barnette expressed astonishment over the seeming laxity of the punishment. Knitz faced up to six months in jail and $10,000 fines each on 19 of the criminal charges he faced.

At Monday’s hearing, Knitz pleaded guilty to a total of 23 misdemeanors for his failure to disclose the extent of gifts he accepted from companies that he then recommended for contracts in violation of state conflict-of-interest laws.

The gifts came principally from two firms--MacDonald-Stephens Engineers and Robert Bein, William Frost & Associates--that performed almost all of the district’s engineering work.

“When you’re talking about this amount of money, there is usually a discussion of jail time,” Barnette said, characterizing the sum Knitz is obliged to pay as restitution for a “$20,000 theft.”

After the hearing, Kelly suggested that Barnette might not have been sufficiently familiar with the particulars of the case, having looked it over for the first time only minutes before the plea was entered in his court.

Kelly said the judge may have been under the impression that the $20,000 represented embezzled public funds, rather than what prosecutors felt were merely questionable or excessive sums on Knitz’s expense accounts.

But others also questioned whether the punishment fit the crimes.

Last year, The Times revealed that Knitz and his top assistant, Michael P. Lord, accepted more than $60,000 in gifts from companies to which they illegally helped steer nearly $20 million in district business.

At the same time, the two officials were chalking up $160,000 on their district expense accounts, frequently for items as questionable as the $245 Knitz paid for a limousine to wait for him while he had a $121 lunch at the Tavern on the Green in Manhattan’s Central Park, and to take him for a five-hour sightseeing trip--”just killing some time”--before heading to the airport for his return to Orange County.

Lord was found to have charged the district for a trip to New York with a girlfriend, and $200 for tickets to a Broadway show.

“Is that it? Are you serious?” asked John J. Schatz, current general manager of the Santa Margarita Water District, after learning the terms of the plea agreement. “I’d say (Knitz) did very well. I didn’t expect jail time, but I did expect the fine would be substantially higher.”

Schatz said a $20,000 reimbursement would make little difference to the water district, whose new managers are trying to cope with some staggering financial problems they inherited from Knitz and Lord. The two former managers had been defended by some of the ousted former board members as financial wizards.

The district’s operating budget is about $28 million a year, which is collected through water rates--some of the highest in the county--and through special property tax assessments on district residents. The district proposes to increase both this year.

William R. Mitchell, head of the Orange County chapter of Common Cause, a citizens’ watchdog group, called the punishment “a slap on the wrist” and noted that several public officials had gone to jail for less serious crimes.

“Bill Knitz betrayed the public trust and admitted to criminal activity,” Mitchell said. “The fine doesn’t come close to the money misused at the water district. This is completely inadequate and sends the wrong message to the public.”

Mitchell said it was commendable that Dist. Atty. Michael R. Capizzi’s office had criminally charged officials like Knitz and former Orange County Supervisor Don R. Roth, whose misdeeds were disclosed by The Times, but that his office was “engaging in a pattern of plea-bargaining that is disappointing.”

Kelly strongly disagreed, saying that Knitz’s punishment fit the crime and that investigators found no evidence of more serious offenses. Capizzi was unavailable for comment.

“I don’t want anyone to get the impression that we were lenient in any way,” Kelly said. “Mr. Knitz has a criminal conviction on his record, is paying hefty restitution, and we have very strong terms and conditions of probation. We have ended his high life. This is not a slap on the wrist.”

Throughout the investigation of Santa Margarita water officials, Kelly said, no evidence was uncovered that Knitz or Lord misappropriated public funds, although they had charged the district large sums for luxury hotel stays, four-figure room service tabs, golf outings and even $371 sheepskin seat covers for Lord’s district-owned car.

Knitz declined to comment after Monday’s hearing. In the past, he has maintained that he was entitled to everything he claimed on his expenses, because he was expanding a utility that would one day serve a population of 180,000. The failure to disclose gifts from contractors and conflicts of interest were the result of poor legal advice, his attorney, Marshall M. Schulman, has said.

Knitz had been scheduled to enter his guilty plea earlier this month, until The Times raised questions about his involvement with a for-profit utility holding company that has offered to buy the Santa Margarita Water District. When Kelly learned from The Times that Knitz had been retained as a consultant by California-American Water Co. of Chula Vista, the hearing was postponed, and plea negotiations reopened.

As part of the final plea agreement, Knitz acknowledged having been “involved in the attempted acquisition, privatization, or restructuring” of the district by California-American, and agreed to refrain from such activities for three years.

Knitz is also barred from having anything to do with any other water district for three years and cannot lobby any local, state or county agency or official for the next four years. He is prohibited, as well, from holding elective office during that time.

Exactly what Knitz will be required to do on his 200 hours of community service has yet to be determined, but Kelly said it would amount to “picking up trash for Caltrans . . . or feeding soup to the poor.” The first 50 hours must be completed by early October and all 200 hours must be finished by next June.

The district attorney opened its case against Knitz and Lord in March, 1993, the day after The Times disclosed that the two men had taken $40,000 worth of meals, entertainment and gifts from engineering companies, developers, bankers and law firms while helping them obtain contracts for district work. As the two men filed amended state disclosure forms, the amount of gifts rose to $60,000.

Knitz announced his retirement from the general manager’s $113,292-a-year job in May, 1993. The next day, Lord, 50, followed suit, leaving a job that had paid him $109,116 annually.

With the Knitz case settled, and $10,000 in civil fines secured from former water board chairman Don B. Schone and chief engineer William B. Dye, prosecutors have only the case against Lord remaining.

Lord’s situation is more complicated because he filed for Chapter 7 bankruptcy in April, claiming assets of $375,646 and liabilities of $416,257. Prosecutors had hoped to make Lord pay a similar fine. Chapter 7 allows individuals to keep some personal property, including a home and automobile, but other assets must be sold off to pay at least part of the debt.

In his bankruptcy filing, Lord says he has been a self-employed contractor working out of his home in Vista since he retired from the district in May, 1993. Among his debts he lists a $17,000 claim by Bein-Frost for engineering fees associated with improvements at his home.

Lord’s pretrial hearing is set for Thursday in Municipal Court in South County.