Phantom Governments

Imagine California’s local governments as a jigsaw puzzle with more than 5,000 pieces. They include the familiar outlines of cities (474), counties (58) and school districts (more than 1,000), and a bewildering variety of special districts (3,800). Keep in mind that most of these pieces have an elected board with a constituency that can number in the millions. Now, imagine that the government puzzle is in three dimensions, since many of the pieces have overlapping borders and parallel missions, and they often provide services to each other’s citizens (who pay for them as property owners, ratepayers or consumers).

Is your head hurting yet?

It will, when you look more closely at the multitude of independent special districts (at least 2,200) that stand alone as California’s phantom governments: the cemetery district that awaits the passing of fewer than 5,000 souls; the 24 hospital districts (out of 74) that have no hospitals but still take in $17 million a year in taxes; and the one-of-a-kind districts so obscure that hardly anyone knows what they do.

The districts’ distance from voters and state policymakers has an enormous price tag. California voters passed a $1-billion water-bond measure in 1996 and another $2-billion measure last March not knowing that just 14 of the state’s 458 water and irrigation districts (not counting the behemoth Metropolitan Water District) hold well over $3 billion in “retained earnings.” The voters also didn’t know that some water projects to be built with bond revenue (with an annual tax bill of $135 million) will benefit districts with some of the largest reserves.

Depending on how you do the math--and the districts dispute how it’s done--California’s special districts may be holding on to nearly $20 billion in reserves. Some of these districts, particularly those formed to provide irrigation water, go back to the 1880s, but it was only last year that the Legislature ordered the state’s Little Hoover Commission on governmental efficiency to review their operations, largely because of the chaos in one special district: the Water Replenishment District of Southern California.

(In Lakewood, where I’m a city employee, the WRD is the “poster child” for

special-district reform. The city councils of Lakewood, Downey and six other communities sued the district in 1997 to restrain it from going into debt to pay for projects that could be built with the district’s reserves. Other cities, water suppliers and taxpayer organizations think so, too. Their concerns led to a highly critical report by the state Bureau of Audits last December and to the WRD’s inclusion in the Little Hoover Commission’s study, published last month.)

The Legislature created the Water Replenishment District in 1959 with the support of water suppliers in a broad swath of western and southeastern Los Angeles County. The water suppliers--cities, water companies, industrial users and irrigation districts (which are special districts themselves)--needed an agency to collect the fees they paid to replenish the water they pumped from the aquifers beneath the basin.

The Legislature gave the WRD a straightforward mission: estimate the amount of replacement water needed each year to balance withdrawals, assess the pumpers and buy replenishment water from the Metropolitan Water District. The WRD then pays the County Flood Control and Water Conservation District to get the water back into the ground. It also buys the water that maintains two barriers to seawater intrusion. Wells and pumps owned and operated by the county inject freshwater into the coastal aquifers to keep the saltwater out.

Before 1991, when the size of the agency’s staff began to swell along with the district’s political ambitions, the WRD was largely an accounting operation. It was overseen by an elected board of five directors who shared a three-member administrative staff with two other water districts. The WRD did its job so quietly and effectively for its first 30 years that its 3.5 million residents hardly knew it was there.

That by itself isn’t so special. Special governments like the WRD are supposed to be narrowly focused. Their precision of operation has always been their greatest strength, until, as in the case of the WRD, it becomes a weakness.

The Little Hoover Commission found that most special districts do their limited jobs very well, but without effective public oversight. While the districts may be technically competent, their elected board members have no incentives to question their policies or improve their agency’s fit with broader community needs. Board members run virtually unopposed in sleepy elections that bring out less than 5% of the electorate. Seats just as often are uncontested, and elections are canceled or board members appointed to fill vacancies.

Under such circumstances, some boards of some districts accumulated the unusually large reserves that troubled the Little Hoover Commission. Nearly 200 districts were still collecting fees and assessments even though they held reserves greater than five times their annual revenues in 1997. By that year, the WRD had accumulated $67 million in unallocated reserves, an amount equal to 164% of its annual income. By contrast, cities generally retain between 15% and 25% of their annual revenues for contingencies. There are no state-mandated rules on how big reserves can get.

The state auditor called the WRD’s surplus “excessive,” recommended reducing it to $10 million and expressed surprise that the district lacked a coherent plan for forecasting its future spending. The Little Hoover Commission found that the WRD had plenty of company. The commission learned that most special districts lacked any policy for the size or use of unallocated reserves. Some districts couldn’t even identify exactly where they had socked away their money for a rainy day.

As the size of the WRD’s reserves ballooned by more than 400%, and replenishment assessments climbed from $61 an acre-foot of water in 1990 to $161 in 1997, water suppliers like Lakewood passed on the escalating costs until, in Lakewood, WRD charges became 25% of the average household’s water bill.

The problem with reserves is not so much that special districts have them: Every agency needs a cushion against contingencies. The problem with the billions that California’s special districts hold is the absence of genuine public participation in deciding how these resources will be used.

As a result of exactly the kind of media, legislative and public attention that the Little Hoover Commission said is missing from special districts, the WRD is developing a reform-oriented dynamic that might make citizenship in the district worthwhile. Among the encouraging steps:

* The board placed its general manager on administrative leave (with pay) and appears to be negotiating his resignation. The board also let go the district’s assistant general manager.

* The district lowered its replenishment assessment from $139 an acre-foot of water to $112.

* The WRD may support some of the reform proposals pending in the Legislature, including bills by Assembly members Sally M. Havice (D-Cerritos) and Thomas M. Calderon (D-Montebello), and state Sens. Martha Escutia (D-Whittier), Betty Karnette (D-Long Beach), Richard Mountjoy (R-Arcadia) and Richard Polanco (D-Los Angeles). New legislation should give statutory weight to the fiscal controls and limitations on reserves in the state auditor’s and commission’s reports.

* The district has even begun trimming its army of politically connected lawyers and Sacramento lobbyists. Consultants were costing ratepayers at least $100,000 a month as mercenaries in what the commission called the WRD’s “war” with its critics.

Special districts formed when California had little government, many needs and an abiding suspicion about the political process. Special districts filled the service gap with water systems, parks, libraries, ports, waste-treatment plants and hospitals, often by valuing technical bravura over public involvement. Once they were formed, however, special districts slipped beyond state legislative review and into public obscurity. Nothing ensured that these phantom governments would evolve the size, shape and structure that make the most sense to their citizens. And virtually nothing can influence a special district to refocus its mission or close its doors if its purpose has been outlived.

Voters shouldn’t have to assemble the government puzzle blindfolded or wait for scandals like the WRD to illuminate the consequences of too much money and too little scrutiny. If reform isn’t possible, despite the lessons of the WRD, then pity poor Californians who have such an excess of citizenship. *