Guilty Pleas End S. County Water Scandal

Closing out a scandal that prompted an overhaul of the Santa Margarita Water District, the district’s former second-in-command pleaded guilty Thursday to criminal charges that he illegally influenced the award of contracts to companies that lavished him with gifts.

The guilty pleas by Michael P. Lord, the assistant general manager for nearly 16 years until his retirement in 1993, end a criminal investigation that began at the district exactly 15 months ago.

Lord, who turned 51 last week, agreed to pay a $10,000 fine and perform 320 hours of community service in exchange for pleading guilty to 15 counts of conflict of interest and failing to disclose gifts. Lord is in the midst of Chapter 7 bankruptcy proceedings, and was given until the end of the year to pay his fine.

Appearing nervous and subdued in Municipal Court Thursday, Lord said he understood that he is not to be involved with any water district in Orange County, including Santa Margarita, for the next three years. He also agreed not to lobby on behalf of any county, state or local agency for the next four years.

“I’m just glad it’s over,” said Gary Pohlson, Lord’s attorney.

Lord, whose bankruptcy filing in San Diego County claims assets of $375,646 and liabilities of $416,257, declined comment.

In the past two weeks, three other officials have agreed to pay fines for similar conflicts of interest, and for their failure to fully disclose on their annual statements of economic interest, as state law requires, the gifts they had accepted from district contractors.

Walter W. (Bill) Knitz, the former district general manager, pleaded guilty to 23 criminal counts in exchange for paying a $20,000 fine and performing 200 hours of community service. Former board chairman Don B. Schone and district engineer William B. Dye agreed to pay $10,000 each in civil fines to settle lawsuits filed against them by the district attorney’s office.

Prosecutors said the fines and community service were apt punishments for Knitz and Lord, although critics said the terms were far too lenient.

“The people who I heard from wanted a little more flesh,” said Bob Lay, a current board member. “But at least it’s over. I’m glad that we got this whole thing behind us and we can move forward.”

Marc Kelly, the deputy district attorney who handled the cases against Santa Margarita officials, said that although Knitz and Lord spent grandly on themselves, there was no evidence of theft and felony charges could not be filed.

“Yeah, these guys were able to stay at fine hotels and enjoy expensive meals and take a limo ride but . . . there was no evidence of theft,” Kelly said. “The public is well served by the dispositions of these cases. These guys lived a high life and both have been disgraced.”

In order to show that Knitz and Lord misappropriated public funds, Kelly said, prosecutors would have had to prove that both men engaged in “shocking and offensive behavior” in their spending.

“I have sympathy for those people (residing) in the water district, and the high water rates they have to pay, but we investigated this case thoroughly and could not meet the criminal burden needed to file felonies,” Kelly said.

The obscure South County water district has spent the past year in the news, following revelations in The Times that Knitz and Lord spent district money freely, often treating themselves and others to theater tickets, limousine rides, stays at posh hotels like the Ritz-Carlton and Helmsley Palace, as well as sheepskin seat covers and $125 wax jobs for their automobiles.

At the same time, Knitz, Lord, Schone and Dye recommended or voted to award contracts to companies that gave them tens of thousands of dollars worth of gifts, such as hunting and fishing trips, meals, and entertainment.

State law requires that government officials who have accepted gifts totaling $250 or more in any 12-month period must abstain from doing anything to influence the award of a contract to a gift-giver in the succeeding year. Violations of the law are misdemeanors punishable by up to six months in jail and fines up to $10,000.

Many of the gifts came from two companies--Robert Bein, William Frost & Associates of Irvine and MacDonald-Stephens Engineers of Mission Viejo--that received the bulk of the district’s engineering work. Together, they received $17 million worth of work between 1989 and 1993.

Both the conflicts of interest, and the excessive spending by Knitz and Lord, were brought to light last year in a series of Times articles detailing how the two men had accepted more than $40,000 in gifts from companies doing business with the water district. In financial disclosure statements the men filed after the articles appeared, the two water officials acknowledged taking gifts worth about $60,000.

Subsequent articles in The Times revealed that Schone and Dye had also been the beneficiaries of contractor largess, but the sums were much smaller and the reporting failures deemed less serious.

The disclosures sparked intensive activity at the sleepy district, which had the same set of top managers for 15 years.

During 1993, Knitz and Lord retired. One board member resigned in disgust over the spending abuses and three others were voted out of office last November. Schone resigned in January, after The Times revealed he had taken free trips to Cabo San Lucas, courtesy of Bein-Frost. Even the board’s longtime general counsel, Fritz R. Stradling, a founding member of the district, was fired.

Two laws were approved in the wake of the scandal. One, proposed by state Assemblyman Mickey Conroy (R-Orange) and signed into law by Gov. Pete Wilson, changed the way district board members were elected to a “one man, one vote” system. Previously, votes were awarded to property owners on the basis of one vote for each dollar of their property’s value on property tax rolls--a system that gave more political clout to the big landowner-developers in the district.

The second law, proposed by state Assemblyman Tom Umberg (D-Garden Grove) and signed by Wilson in April, restricted gifts and honorariums to all officials of local governments or special districts. It also added tough new disclosure requirements for special districts, such as Santa Margarita.

Special districts also underwent a new scrutiny following publicity about Santa Margarita’s problems. In May, the Orange County Grand Jury recommended that nine water districts, including Santa Margarita, be merged into two larger districts for greater accountability.

Santa Margarita board member Lay said that if those elected to oversee special districts are not vigilant, there is always the potential for a new scandal somewhere down the line.

“At this point in time, it will take a long time for future or current board members to forget what happened here,” Lay said. “But if we’re not paying attention, the same thing can happen again. And it can happen anywhere.”