Santa Margarita Water District

(Times staff writer) Chris Woodyard’s April 11 article on Santa Margarita Water District’s association with Santa Margarita Co. presented a grossly distorted view of events conjured up by J. P. Morgan (Securities Inc.), which stands to make several million dollars in bond underwriting fees if the proposed takeover of the district by California-American Water Co. is successful.

The basic thrust of the article is wholly incorrect. The district showed no favoritism toward Santa Margarita Co. No “credits” have been issued and no debt has been “swept” aside. When the district refinanced its bond debt last summer, our bond underwriters required us to allocate interest earned from our construction fund accounts to reduce assessments. This allocation was done across the board on a pro rata basis, which resulted in homeowners avoiding higher assessments. Homeowners did not pay more as a result of this allocation.

In addition, Santa Margarita Co. did not receive preferential penalty interest treatment. A change in district policy, again required by our bond underwriters, forced the company to pay two years of assessments in one year. For one of these years, the penalty was exactly what would be paid by homeowners. But since we were requiring the company to pay so much in one year, we set the interest for the second year’s worth of payments at a level that covered our costs plus 1%.

Finally, the statement that Santa Margarita Co. enjoys a lower rate than others in our district is absurd. We have only one rate, and that is the rate all our customers pay, including Santa Margarita Co. Rancho Santa Margarita’s property tax rates associated with water and sewer construction costs are lower than they normally would be, but only because Santa Margarita Co., like Chevron in Coto de Caza, has elected to pay the district substantially more than it has to, in order to reduce assessments homeowners must pay.

The real story, which The Times failed to report, is that if California-American is successful in this takeover, district residents will pay more for their water (according to an independent analysis by Ernst & Young), while losing local control of their district.

--JOHN J. SCHATZ

General manager, Santa Margarita Water District

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In regard to the article that accuses the Santa Margarita Water District and Santa Margarita Co. of too close a relationship, it should be made clear that J.P. Morgan Securities has a motive behind its criticism. If California-American successfully takes over the district, J.P. Morgan stands to make a considerable profit from the sale of bonds.

It’s appalling that California-American tried to coerce the Santa Margarita Co. into backing away from its support for the water district through blackmail.

--JIM THOR

Rancho Santa Margarita