PERSPECTIVE : Testing the Waters by Reorganizing Special Districts

In the government-reform debate sparked by the county bankruptcy, the Irvine Ranch Water District is something of a Rorschach test.

Supporters see the district as a model of good government, an innovative, responsible agency that charges some of the lowest water rates in the county yet still manages to maintain reserves of nearly $100 million.

To critics, however, the agency exemplifies an “expansionist” government bureaucracy so flush with taxpayer dollars that it can afford to purchase luxury apartments in Anaheim and offer loans to financially troubled school districts.

Then there are some who find validity in both views.

“In the big picture, the [water district] does a good job for its constituents. They have been innovative in positive areas and have saved taxpayers money,” said Irvine Councilman Barry J. Hammond. “But creativity can sometimes step over the line and focus on areas where [government] should not be.”

Those differing views over where to draw the line is likely to receive more attention in the coming months as leaders in Orange County and Sacramento grapple with the future of special districts such as the Irvine Ranch Water District.

Assembly Republican Leader Curt Pringle of Garden Grove recently called for the consolidation of the county’s more than 20 independent sewer and water districts into one countywide entity that he says would boost efficiency.

Meanwhile, conservative and libertarian groups continue to push for the transfer of many government functions, including some utility services, into the hands of the private sector.

Though Irvine Ranch is just one of many agencies that would be affected by the various proposals, it has become an unlikely lightning rod in the movement to restructure government.

During last year’s Measure R fight, activists against the proposed county sales tax increase repeatedly pointed to Irvine district’s hefty reserves and real estate investments to bolster their contention that agencies hurt by the bankruptcy didn’t deserve taxpayer bailouts.

A study last year by a libertarian think tank found that selling the agency and other major water districts to private companies would generate significant tax revenue and result in more cost-effective management.

“It’s a choice between a government-owned monopoly and free-market competition,” said Rich Phillips, spokesman for the Los-Angeles-based Reason Foundation.

But Irvine Ranch Water District officials contend that only a government agency can embark on ambitious projects, such as water reclamation, that will not generate quick profits. Private water service, they say, could result in higher rates, less innovation and an emphasis on profits over long-term planning.

“We are able to take the long view and not just look in terms of fiscal years,” said Ronald E. Young, the district’s general manager.

Irvine Ranch is Orange County’s largest water agency, with 254 employees and an annual budget of about $100 million.

Critics such as Bruce Whitaker, a Fullerton antitax activist and leader of the watchdog group Committees of Correspondence, are quick to point an accusing finger at the district’s $94-million reserve, questioning the need for such a vast accumulation.

Water districts are prohibited by state law from making profits on services, but they are permitted to maintain reserves that can be used to rebuild and replace pipes, pumps and other parts of their cavernous waterworks.

Young said the funds allow the district to practice preventive maintenance, helping to avoid service interruptions or costly mishaps. While some agencies have water leakage rates of more than 20%, he said, Irvine’s is just 2%, a fact officials attribute in part to aggressive maintenance.

About 30% of the district’s reserves are invested in Anaheim apartments, which were purchased a few years ago after state lawmakers approved special legislation allowing agencies to invest a portion of their reserves in real estate as a hedge against inflation. Irvine district officials pushed for the legislation.

The reserves also enabled the agency to provide bridge loans to three school districts that faced bankruptcy-related cash shortages in June. Those deals were praised by educators but raised eyebrows among activists who saw them as one more example of the agency’s inappropriate financial clout.

“The detractors said we have so much money that we can bail out these schools,” said Peer Swan, the Irvine district’s chairman. “But other agencies had money too, and they could have done the same thing. They made their own choices and we made ours.”

Whitaker and others are also critical of the district’s plans to expand its water reclamation system, saying such services overstep the bounds of a government agency. But Young insists that pioneering water treatment projects benefits the environment by reducing demand for precious fresh water.

While district officials are dubious about the merits of privatization, they said consolidating various agencies holds promise.

Months before Pringle announced his merger plan, Irvine Ranch Water District and other South County water agencies had commissioned a study to examine pro and cons of a regional consolidation.

“It’s important for us to look at all areas to improve our operations,” Young said. “I think we are seeing a lot of districts talking with their neighbors.”

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Up for Discussion

Officials in Orange County and Sacramento are considering ideas for restructuring the county’s dozens of special districts, which provide services ranging from water reclamation to trash collection. Some of the concepts being discussed:

* Countywide consolidation: Assemblyman Curt Pringle (R-Garden Grove) wants to place on the November ballot a proposal to merge more than 20 independent water and sanitation districts into one countywide entity with directly elected board members. Pringle aides say it would improve efficiency by reducing staff and eliminating duplicated services.

* Local consolidation: Water districts have long discussed various mergers. Districts south of the Costa Mesa Freeway recently commissioned a study of pros and cons of consolidation. Neighboring agencies have also discussed forming larger regional districts.

* Privatization: A report by the Reason Foundation, a libertarian think tank, states that selling the county’s water and sanitation districts would significantly increase the property tax base and result in more cost-effective operations. However, district officials warn that private companies might place short-term profits over long-term planning and low rates.

Sources: Curt Pringle’s office, Irvine Ranch Water District, Reason Foundation, Times reports; Researched by SHELBY GRAD / For The Times

Los Angeles Times