Ex-Official Tied to S. County Water Talks

MISSION VIEJO —  The former general manager of the Santa Margarita Water District, who faces criminal conflict-of-interest charges for taking gifts from district contractors, has been working with the company trying to buy the district and its assets.

The president of the California-American Water Co. of Chula Vista confirmed Monday that Walter W. (Bill) Knitz was hired as a consultant by the private firm that recently announced it was seeking to purchase the district for more than $300 million.

Ted Jones Jr., the company’s president, disclosed that Knitz was hired through his new employer, Florian Martinez Associates, a landscape architectural company in Tustin. Knitz conducted an engineering analysis of the water district that took several months, he said.

“He did do some work on a consulting basis,” Jones said. “He did some analysis for us and helped us to understand operational issues. His name was referenced to us as someone who knew a lot about the district. We had (limited) access to financial data and, as you can imagine, we were trying to understand how an operation like this would work. He gave us some . . . advice.”

Jones said he didn’t know exactly how much Florian Martinez had been paid for Knitz’s consulting work, but a source familiar with the arrangement said it was a $50,000 contract. Officials with Florian Martinez had no comment Monday. Jones said he believes Knitz has completed the work for which he was hired.

Although he was aware of the criminal charges against Knitz, Jones said he didn’t think it made a difference when it came to hiring the former general manager.

“We had nothing to do with what happened in the past, and we have already stated that if we were successful (in the takeover), we would employ the current employees of the district,” he said. “We have no intention of having Mr. Knitz work for us if we ran the district. It’s never been an issue, and never a subject of discussion.”

In March, Knitz was charged with 23 criminal misdemeanor counts stemming from his failure to disclose gifts from companies he recommended for district contracts. Knitz’s assistant general manager, Michael P. Lord, faces 15 similar misdemeanor charges.

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The Orange County district attorney’s office learned about Knitz’s relationship with California-American Water Co. when The Times sought a prosecutor’s reaction last week.

Deputy Dist. Atty. Marc Kelly, who is handling the criminal cases against Knitz and Lord, said he is working out plea bargain arrangements with both men and will take the new revelations about Knitz into consideration.

“We are aware of the allegations,” Kelly said. “Right now, we are in the midst of settlement discussions, and I cannot comment on the details. However, we will take a look at all circumstances in this case to determine a fair disposition.”

Knitz was expected to plead guilty to the charges at a scheduled pretrial hearing last Friday in Orange County Municipal Court in Laguna Niguel. But Kelly postponed the proceedings until June 27 because the exact terms of the plea bargain could not be agreed upon. It is possible that Kelly could force Knitz, as a condition of the plea agreement, to refrain from all dealings with California-American or the Santa Margarita Water District.

Had Knitz agreed on a plea Friday--and his involvement with California-American not been disclosed--the result could have been an embarrassing replay of what happened in the case of former Orange County Supervisor Don R. Roth.

As part of his plea agreement in March, 1993, Roth pledged to avoid lobbying officials under the framework of the state’s Political Reform Act. But that law applies only to the lobbying of state officials, leaving Roth free to lobby officials with county agencies, many of whom he had been instrumental in hiring or promoting. After The Times raised the issue, the district attorney’s office struck a new deal with Roth that banned local lobbying for three years.

Neither Knitz nor his attorney, Marshall M. Schulman, would talk about the proposed plea arrangement nor Knitz’s association with California-American.

“I’d rather not comment about who he is or is not working for,” Schulman said.

The news that Knitz was once again involved with the Santa Margarita Water District, just a year after he retired in disgrace, stunned the new board of directors, all of whom were appointed or approved by voters after the scandal broke.

“A lot of the problems with this district are due to him,” said Betty Olson, a UC Irvine professor of environmental science who was appointed to the board in March. “The new board is making progress, and here comes Bill Knitz again.”

Said board member Bob Lay: “I’m surprised. I would think (California-American) would have better sense. This whole thing has taken on a shady feel.”

Knitz joined the district in 1975, after being recommended by then-board Chairman Thomas C. Blum, who served for years as executive vice president of the Santa Margarita Co.

The 62-year-old Knitz announced his early retirement from the district, where he had worked more than 17 years, following revelations in The Times that he and Lord billed the district for tens of thousands of dollars in questionable expenses while accepting $60,000 in meals, entertainment and gifts from companies they had recommended for millions of dollars in contracts. Lord, 50, announced his retirement the day after Knitz said he was leaving.

Former board chairman Don B. Schone resigned in January--following stories that he failed to report trips to Mexico paid by an engineering firm.

Since all of the other board members had been replaced in elections last November, the all-new board thought they could proceed with correcting a number of problems in the district without obstacles.

But in late May, California-American announced it was trying to buy the district, a proposed action that took the district’s general manager and board of directors by surprise. California-American is a subsidiary of the New Jersey-based American Water Works Co., the largest investor-owned water utility in the country.

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If a deal could be worked out, company officials said, California-American would assume the district’s $370-million debt. Water and sewer rates would be frozen for three years and could only be raised with the approval of the state’s Public Utilities Commission.

Company officials say that approval for the sale must come from the Local Agency Formation Commission, the agency which oversees special district takeovers, and the Public Utilities Commission. But officials of the Santa Margarita Water District say that the 80,000 people whom the district serves should be allowed to vote on the proposal.

“We think this issue is important enough that the landowners should have a say whether it’s required by law or not,” said general manager John J. Schatz. “It would show a good-faith effort on the company’s part.”