In California drought, big money, many actors, little oversight

By Tim Reid (Reuters) - In the middle of one of the worst droughts in California's history, no one knows exactly how many agencies supply the state with water. While state regulators supervise three companies that provide gas and electricity for most of California, drinking water is delivered through a vast network of agencies which collectively do billions of dollars of business, setting rates and handing out contracts with scant oversight. There are so many agencies, in fact, that the California Department of Water Resource, which is responsible for managing and protecting the state's water, concedes that it does not even know the exact number. "We think the total number is about 3,000 but there is no definitive resting place for those numbers," a department spokesman said. Some state officials and water experts are calling for change, arguing that the process of providing water should be as clear as the product, especially in the middle of a drought. As one of the nation's agricultural leaders and a trendsetter in environmental regulation, California's actions could be felt beyond its borders. Wes Strickland, an attorney who specializes in water law, says most of these water agencies do a good job. Cities and towns like controlling their own resources, and most of the agencies are elected, assuring a level of accountability. But, Strickland says, good and bad, most operate "under the radar", with little public scrutiny. "These agencies are at the forefront of the drought response," he added. John Chiang, the California state controller, is pushing for legislation that will increase fines for public water entities that fail to file annual reports with his office, although no agency is responsible for reading the reports once filed. "The lack of transparency provides a breeding ground for unchecked spending, corruption, and fiscal mismanagement," said Chiang, who in October warned nine cities and 117 special districts, some of which were public entities solely responsible for managing and supplying water, that they were delinquent in filing financial records. Just 138 utilities - those owned by investors - are regulated by an outside body, the California Public Utilities Commission, Strickland says. The rest are governed by small boards of locally-elected officials. The former general manager and other unidentified current and former officials at one major water system, southern California's Central Basin Municipal Water District, are accused in a recent whistleblower lawsuit of using a secret $2.7 million fund for groundwater storage as a "slush fund" that funneled cash to political allies, board members and relatives. The lawsuit was filed last month by district board member Leticia Vasquez. Under the whistleblower statute she would stand to gain financially if the lawsuit succeeds. The agency's own lawyers, in a report issued at the end of March after a nine-month investigation, said the water district violated California's open-meeting laws when it created the fund out of the public eye. The former general manager has not yet filed a legal response to the allegations. Efforts to contact him were unsuccessful. The water district said if the case proceeds, it intends to fully cooperate. Records relating to the fund were among those subpoenaed by federal officials last year as part of a wider and ongoing FBI investigation into the financial activities of the water district, which sells imported water to water districts in Los Angeles county. Three subpoenas, seen by Reuters, requested financial records, documents and personnel records from the water district. The FBI and the water district declined to comment or confirm an investigation. California's drought, which is on track to be the third worst since records began in the early 20th century, according to state officials, threatens to have devastating effects in the state and beyond. Farmers are considering idling a half million acres of cropland, a loss of production that could cause billions of dollars in economic damage, and several small communities are at risk of running out of drinking water. The state also recorded its driest winter to date by March. The state's snowpack, which provides water in the spring melt, is at a record low. From the water wars in the movie "Chinatown" to the quote attributed to Mark Twain, "Whiskey is for drinking, water is for fighting," water in the West has a long history of strife. As California was settled, small communities would establish their own water wells. Economic and political power often stemmed from water rights and no single entity has ever been put in charge of the system, Strickland says. Some of these agencies are scrambling to get new sources of water, which could require wells, water imports and plants to treat tainted water. THE COST OF WATER Water is expensive. For instance, 885 "special districts", which provide drinking water for 11 million Californians had operating expenses of $7.3 billion for fiscal year ending 2012. Their long-term bond debt amounted to $20 billion, according to the controller's office. The state is planning an $8 billion water bond and Democratic assemblyman Anthony Rendon, a sponsor, wants to put provisions for stricter oversight of how bond money is spent. "Past water bonds have gone to so many different places for so many things it is hard to keep track of the money. We don't really have a place where we can find out that information," Rendon said. "There is very little oversight over the management of one of our most sacred and vital resources." State data shows that salaries to water district employees vary widely and that some small agencies are paying big-city wages. The state controller's website, where the latest available records date to 2011, shows the average salary to employees in 45 top-paying water special districts listed by wage totals is over $70,000, and over $100,000 in two districts. The chief executive of the Dublin San Ramon Service District in northern California, which serves 157,000 people, will receive wage and benefits of nearly $338,000 for 2014, according to a water district official. That compares with $345,000 paid to the general manager of the Department of Water and Power (DWP) in Los Angeles - America's second largest city with a population of 3.8 million. Sue Stephenson, a spokeswoman for the Dublin San Ramon district, defended the high salaries, stating that the San Francisco Bay area had a high cost of living. She also said managing a water district is an extremely responsible job, as clean water has to be on tap for users every minute of every day. Most of the agencies are run by elected boards that have to file basic revenue and spending documents, and wage and benefit totals, to California's state controller. But they do not file full budgets and their contracts are not subject to review or singled out in filings. "Nobody pays any attention to these districts. So nobody knows what is going on," said Robert Stern, an open government advocate and an author of California's Political Reform Act, a post-Watergate era law designed to make government more financially transparent. In the Seeley County Water District, which serves just under 400 homes in the desert near the border with Mexico, General Manager David Dale resigned in March 2008. The following month his company Dynamic Consulting Engineers received no-bid contracts from the water district's board worth over $200,000, followed by another contract worth over $200,000 in 2010, to undertake engineering work, according to copies of the signed contracts provided by the water district. Dale said he was giving the board what it wanted by undertaking engineering work, but current Board Director Patrick Harris, who came into office calling for more reform, said the contracts show the lack of accountability. "I can't say it's illegal. But my impression is it's unethical. There was absolutely no oversight," Harris said. Dale said: "Districts are not required to go to competitive bidding for professional services. The board selected me. And before they selected me, I stepped down as general manager." (Reporting by Tim Reid, editing by Peter Henderson)