Firm’s Bid to Buy Top South County Water District Fails

RANCHO SANTA MARGARITA —  An emotional six-hour public hearing ended early Tuesday morning when the Local Agency Formation Commission rejected a private firm’s unprecedented bid to buy the Rancho Santa Margarita Water District.

Representatives of the California-American Water Co., which offered to buy the scandal-plagued water district for $300 million, appeared shocked as commission members voted down the first attempt in California history to privatize a public agency.

“We’re going to discuss it,” company spokesman David Paine said moments after the 1 a.m. vote. “We’ll see what our options are.”

Commission members left the door open for the company to renew its bid to acquire the largest water district in South County, which serves 60,000 people in Mission Viejo, Coto de Caza, Rancho Mission Viejo and Rancho Santa Margarita.

But company officials may think twice about approaching the district again, after some 500 citizens, the majority of them against the deal, packed the St. John’s Episcopal School gymnasium. Some waved anti-company placards and others wore anti-company slogans.

“I think it’s disappointing,” Paine said. “I think it’s an indication of how difficult it is to privatize anything. . . . We would most certainly have saved residents of that community a substantial amount of money, not just immediately but over the next five, 10 years. That will be proven out.”

Residents were extremely vocal in their support of water district officials, filling the gym with raucous hoots, whistles and cheers.

“Public opinion definitely has its place,” said Sandra Jacobs, one of the scores of residents who spoke against the company. “It’s been shown right here, right now.”

But it was not always so.

In 1993, The Times disclosed that the district’s top mangers--Walter W. (Bill) Knitz and his assistant, Michael P. Lord--received more than $60,000 in gifts from companies awarded district contracts worth millions of dollars. At public expense, district officials rode in limousines, stayed in luxury hotels and drove $35,000 cars.

The disclosures sparked public outrage and helped stir anti-government sentiment that appeared to make the district an easy target for takeover.

Two years later, however, residents turned out in droves to retain local control of their water and stymie the bid from California-American, a Chula Vista subsidiary of New Jersey-based American Water Works Co. The strong sentiment came amid several other unrelated proposals to privatize county government services in the wake of its unprecedented financial disaster.

Both supporters and opponents of the bid voiced astonishment at the size and resilience of the crowd, which was still large and boisterous five hours after the meeting was gaveled to order.

Of those who spoke, most said they were skeptical about the company’s promise to freeze rates for the next five years. Some said they felt a kinship with the water district.

A few speakers admitted they felt lost in the sea of data and charts.

“I thought LAFCO had something to do with the comedy store,” said one man who was among the last to speak in the wee hours. “Then I came here and found out that water can be very dry.”

Jim Holmes, chairman of the water district’s board of directors, said the company’s proposal was actually quite simple.

“None of us are against privatization,” he said. “But . . . in this case, it won’t work.”

At the meeting’s end, weary commissioners seemed set to postpone a final decision until September. Resident after resident, however, urged them not to delay.

John Withers, a commissioner who pushed for the prompt vote, said he spent weeks tormented by the decision, often waking up in the middle of the night with water on his mind. But the most dramatic thing about the meeting, he said, was the fascinating glimpse it afforded of grass-roots power.

“The beauty was, it’s local government at its best,” he said.