Watchdog Calls Special Districts Lax

California’s anonymous collection of small special districts handling water, trash, flood protection and other services are sitting on $19.4 billion in reserves with little oversight for how that stash is used, a state watchdog agency reported Wednesday.

The Little Hoover Commission recommended that state legislators take steps to promote better public participation and oversight of the more than 2,200 independent special districts scattered throughout California and improve management of their rich pool of reserve revenue.

In an 80-page report, the commission said many local and state lawmakers are unaware of the vast size of those reserves, putting leaders at risk of making faulty judgments in planning for California’s future. Officials at some districts, the report said, couldn’t even articulate a plan for how reserve cash should be spent.

“Many districts operate without much scrutiny,” said Richard R. Terzian, the commission chairman. “Some of them should probably be merged . . . and some of them should probably go away.”

Some officials at special districts immediately attacked the report as an overly simplistic study that missed the mark. The lack of public participation, they said, is a sign of customer satisfaction.

“As long as water comes out of the tap and toilets work, the public doesn’t get too excited about special districts,” said Bob Reeb, state legislative director for the Assn. of California Water Agencies. “We can’t make people come to meetings.”

California’s independent special districts handle a broad range of duties, from running public cemeteries to operating parks and sewer systems. There are special districts for street lights, hospitals and libraries. The more than 450 districts that provide water form the biggest contingent. Many were formed years ago to extend services to rural spots unserved by cities.

But growth has caught up. Some legislative leaders contend that many special districts have outlived their useful years and should be consolidated or dissolved. The commission report cited how a third of the state’s 74 hospital districts no longer operate hospitals, instead administering separate health services such as ambulance service or clinics.

With little scrutiny by the public or press, scandals have engulfed some special districts.

The latest under the microscope is the Water Replenishment District of Southern California, the subject of a critical state audit in December that cited shoddy planning and management. Several of the cities serviced by the district in south Los Angeles County have filed lawsuits and are trying break away, angered by high prices for water. Assembly members Sally M. Havice (D-Cerritos) and Thomas M. Calderon (D-Montebello) are pushing bills to revamp the water agency.

In its report, the Little Hoover Commission also recommended that lawmakers strengthen efforts by Local Agency Formation Commissions to scrutinize special districts, which can have overlapping or outdated duties that make them targets for consolidation or elimination.

The commission suggested that most county LAFCOs are understaffed, underfunded and lacking the independence needed to challenge the status quo at special districts, which invariably don’t want to shut down on their own.

Some of the reluctance, the report said, is driven by the compensation offered elected board members at districts. Although the typical stipend and benefit packages are minimal, elected directors at some districts receive compensation of more than $20,000 a year, sometimes for attending a few meetings a month.

Legislative attempts in Sacramento to force consolidations have been unsuccessful. A bill to meld 25 water agencies in Orange County failed in the mid-1990s. Later, the county’s LAFCO pushed for consolidation of three water districts, but the effort took several years.

The 12-member Little Hoover Commission, which is appointed by the governor and legislative leaders, chided districts for holding unreasonably large reserves at a time that the state asked voters on two occasions to approve nearly $3 billion in water bonds.

“Neither measure was crafted to consider the resources already available to water districts,” the report said.

The panel’s report noted that the giant Metropolitan Water District of Southern California reported reserves of more than $4 billion in 1999, five times its annual operating revenues. The Irvine Ranch Water District’s reserves amounted to more than three times its annual revenues, according to the report.

The commission recommended that districts do a better job of publicly reporting their reserves and suggested a panel be appointed by the Legislature to set guidelines for prudent levels of savings, which go to fund public works projects and finance emergency work.

Officials at water districts took exception, saying the report overstated the reserves. They say the commission confuses reserves with “retained earnings,” which include the value of a district’s infrastructure network. In addition, water districts are regularly audited to ensure the surpluses are in line with future needs.

Finally, the commission noted that property tax revenues continue to roll in to some of the state’s richest districts as well as others that don’t even perform the task they were formed to tackle. In 1998-99, for example, about $17 million flowed to health care districts that no longer operate hospitals. The commission suggested, among several reforms, forming a legislative task force to spotlight districts that should be cut off.

Water district officials countered that a shift in property tax revenues would cause rate increases, hurting the elderly and others on fixed incomes, while inflicting further fiscal pain on small agencies already weakened by state funding cuts.

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Special Districts

Following are the numbers of special districts in California, by general category. There are more than 2,200 special districts in all.

*

Water: 458

Fire protection: 342

Community services: 283

Cemetery/memorial: 279

Reclamation: 132

Sanitation: 117

Recreation/park: 96

Resource conservation: 92

Pest abatement: 61

Utility: 55

Flood: 35

Drainage: 28

Maintenance: 23

Library: 14

Harbor/port: 12

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Reserves Held by Some Special Districts (1996-97*)

Water: $11.8 billion

Sanitation: $4.1 billion

Utility: $1.1 billion

Harbor/port: $592 million

Comm. services: $436 million

Airport: $53 million

Reclamation: $13 million

*

* Most recent data available

Source: Little Hoover Commission