Amid Inquiry, District’s Affluence Under Fire

The Irvine Ranch Water District has never been an ordinary source for water.

While most other Orange County special districts operate amid whispers of public recognition, Irvine Ranch screams its prosperity and influence from a $12.9-million copper-clad complex that rises Oz-like from acres of furrowed farmland off the San Diego Freeway.

It’s the only water district in the state allowed by the Legislature to invest in residential real estate. It spent $43 million for luxury apartment complexes in Anaheim Hills and Aliso Viejo.

It put $300 million in the county investment pools, making it one of the largest investors before the pools collapsed in December 1994. But despite its $70-million loss, the district was still so flush with cash that it could float loans to three school districts that also had lost money.

In the last decade, Irvine Ranch has become a recognized statewide leader in water conservation. Its reserve fund has hovered near $100 million. Its water rates remain the lowest in the county.

Throughout it all, the district appeared to have mastered the ability to operate on the cutting edge without getting sliced.

So observers were stunned this week when police arrested a former Irvine Ranch employee and three others and accused them of embezzling $2.2 million from a water conservation program. Irvine police said the losses occurred over 2 1/2 years from 1994 to 1997.

The arrests gave critics of the district an invitation to point out the dangers of complacency.

“When you’re fat, you become dumb and happy,” said county Treasurer John M.W. Moorlach. “Even when you have what we call discretionary income, you should have a budget, you should have oversight and you should have proper auditing procedures in place. If those weren’t in place, then shame on you.”

UCI professor Mark Petracca was on the board of a Turtle Rock homeowner association when it took advantage of the conservation program from which the money disappeared. He said the board appreciated the program but was irked that it was funded by surcharges tacked on for what the district arbitrarily decided was excessive water use.

“All of this gets nicely summed up by the observation that this is an agency that somehow managed to forget what it’s supposed to do,” Petracca said. “It’s an agency that’s supposed to deliver clean water for people at an affordable price.”

*

Irvine attorney Susan Trager, who specializes in water issues, said the district is known for capable management, innovative use of reclaimed water and a loss of water from leaks that is one-tenth what other districts experience. The district attributed its low leakage rate to its aggressive maintenance program.

Trager, who is working on a project for Irvine Ranch, said consultants want to be hired by the district because it has “the resources to do it right.” It can try new things because its core operations are so solid, she said.

“They may appear to be arrogant to the outside world,” but executives are spending more time working with other agencies and cities, she said.

The district first was thrust into countywide notoriety during the fallout from the county bankruptcy. Then, focus turned to the district’s high reserves and the behind-the-scenes actions of the president of its governing board, Peer Swan.

A former Republican congressional candidate, Swan was a savvy investor for the district and had defended then-Treasurer-Tax Collector Robert L. Citron to the Lincoln Club, a prestigious group of GOP donors, during the June 1994 election.

Several months later, Swan became the first person to demand money from the county’s then-teetering investment fund. He got $100 million before Citron halted further withdrawals. Swan served out his term as president and remains on the board.

In 1995, Assemblyman Curt Pringle named Irvine Ranch a prime example of bloated, obscure government bureaucracies that hoard millions of dollars in unneeded reserves. He criticized the district for having too much unused cash, despite arguments that the money was needed to fund future water system construction.

The Legislature ultimately scuttled Pringle’s attempt to consolidate the county’s special districts and reduce their powers.

Pringle said this week that it was only a matter of time for someone to take advantage of the extraordinary amounts of money raised and spent by the water district.

“These districts are off the radar screens of most voters, and they can get away with a lot,” Pringle said. “The bottom line is that this money comes from ratepayers. The district wasn’t the victim--their [customers] were.”