Reforms Sought for Water Districts : Orange County: In wake of Santa Margarita scandal, a number of people are calling for more accountability by agencies that have worked for years in obscurity.

LAGUNA BEACH —  On a mid-December day about 40 years ago, early leaders of the powerful Metropolitan Water District met here in the old Hotel Laguna and opened a spigot that continues to be crucial to growth in Southern California.

There, around the hotel bar, they crafted a policy known as the “Laguna Declaration,” which promised to provide an unlimited cheap water supply for future housing and development from Oxnard to the Mexican border.

For the large landholders of southern Orange County--including the Moultons, the O’Neills and the Irvines--this was the assurance they needed to push ahead with their plans. Armed with the backing of the MWD, the ranching families and other early developers eventually began laying the pipelines that have evolved into a tangled bureaucracy of hidden government that is beginning to unravel.

With scandal gripping the biggest water agency in southern Orange County--the Santa Margarita Water District--the network of sewer and water districts is now the focus of a countywide reform movement.

Reports of questionable business practices in the Santa Margarita district triggered an investigation of two district officials by the FBI and the Orange County district attorney’s office about possible violations of conflict-of-interest laws.

For years, county officials said, the agencies have been allowed to operate in relative obscurity with little oversight.

Many districts have been perpetuated by a small core of directors who have little contact with a mostly uninterested public, a situation reminiscent of that meeting in Laguna Beach when the crucial declaration received little public notice. So critical has the lack of accountability been to the troubles in the Santa Margarita district, said John Killefer, a current MWD director, that all water district officials have become suspect in the public’s eyes.

“Water districts on a whole are so bad in the area of accountability and openness to public scrutiny that there really is opportunity for reform,” said Robert Gottlieb, a former MWD director and now a member of the urban planning faculty at UCLA.

Just the sheer number of water districts contributes to problems of accountability, Gottlieb and others have said. In Orange County, 19 independent water districts are operating, not counting at least a dozen others that deal exclusively in waste water or crop irrigation.

Many people in the industry say that some districts are in need of reorganization or elimination, having long ago outlived their usefulness. One such critic is Newport Beach attorney Alex Bowie, who said he believes that organizational flaws exist in the special district system.

“There are economies of scale that can be achieved,” Bowie said. “What’s going on here (calls for reform) is good. It should be looked at.”

Gottlieb, the author of several books on water politics in California, points to the early 1980s as a critical era. By then, the districts throughout California accomplished their early goal of ensuring that water would be delivered.

“There wasn’t an ever-expanding pie (of undeveloped land) to divvy up, and they were ill-equipped to respond to issues like water quality and the drought,” Gottlieb said.

It is doubtful that any of the MWD directors who gathered in Laguna Beach that December day, having traveled through what was then a rural county, could have anticipated the tremendous growth that would spring from their actions.

In 1952, Laguna Niguel and Laguna Hills were vast sheep ranches, while citrus groves and English walnut trees surrounded a sleepy San Juan Capistrano. In Irvine, lima bean fields and eucalyptus trees crisscrossed what is now the UC Irvine campus.

But within a decade, nearly every creek along the coastline was the site of a new sewer plant. And developers began plotting ways to bring the MWD pipelines to their properties.

During the 1960s, as the urban sprawl pushed farther south, the water governments formed one after another, with the Santa Margarita Water District among the first.

In virtually every case, the districts were spawned by the interests of early landholders or developers who wanted to begin expansion.

Since 1972, the commission has regulated the creation of special districts, but, by a quirk of state law, cannot close them down without approval from the districts themselves.

Seven water-related agencies serve Dana Point, one of the county’s smallest cities. There, the independent agencies are governed by a total of 39 elected officials, making Dana Point the most governed city in the county and perhaps all of Southern California.

The Dana Point throng, a situation described as “incredible” by James Colangelo, director of the county’s Local Agency Formation Commission, has prompted a recent push by the agency toward consolidation there.

But the strongest momentum for change has come in the wake of reports about questionable business practices within the Santa Margarita district. District officials Walter W. (Bill) Knitz and Michael P. Lord are the subjects of a joint investigation by the FBI and Orange County district attorney’s office into possible violations of conflict-of-interest laws.

In the past six years, the men have accepted thousands of dollars in gifts from companies that they recommended for district contracts.

The two also sit on the boards of several joint powers authorities. As directors of those agencies, Knitz and Lord recommended that contracts be given to the companies that had given them gifts.

Recently, Assemblyman Mickey Conroy (R-Orange) voiced his outrage with the disclosures involving Santa Margarita by promising to introduce legislation that would restructure voters’ rights within the district.

Conroy described Santa Margarita as the “South Africa” of water districts during a meeting with reporters. The water district is run by directors who are not elected on a “one-man, one-vote” rule. Rather, under regulations governing certain types of water districts, the Santa Margarita agency allows landowners one vote for every dollar of assessed land.

The legislator said the rules ensure that district board members are more accountable to large developers than to the district’s 26,500 ratepayers.