California State Auditor Slams Central Basin Municipal Water District’s ‘Poor Leadership’

LA County Supervisor Don Knabe issued a statement 12/4/15:

“I originally called for an audit of the Central Basin Municipal Water District in 2014. At the time, the organization was enveloped in a cloud of dysfunction that threatened the District’s ability to serve the 2 million residents and 24 cities and unincorporated communities who depend on it as their main source of water. I would like to thank Assemblyman Anthony Rendon for elevating these issues to the state level. The State Auditor’s report proves we were right to be concerned. The District has taken some steps to earn the public’s trust back, but more action is necessary. The Central Basin Water District needs a complete overhaul, from top to bottom, to effectively and ethically serve its customers.”

By Brian Hews

The California Auditor has released a scathing report slamming Central Basin Municipal Water District’s Board (CB), which has been led by President Bob Apodaca, Vice President James Roybal and Director Leticia Vasquez for the past three years.

The report cited several factors related to the poor leadership including the handling of the infamous slush fund, handing out no-bid contracts, CB’s hiring policy, turnover at the General Manager position, loss of insurance coverage, and its debt coverage ratio.

The report concluded by setting out guidelines to correct the inefficiencies and proposed the governance structure of CB be changed from at-large voting to Directors appointed by “CB’s customers.”

The Auditor stated that CB, “generally agreed with our recommendations and indicated that it plans to take various actions to implement them. However, the district disagreed with our recommendation to the Legislature that it should modify the district’s governance structure.”

The first paragraph set the tone of the report, “The district’s board of directors’ poor leadership has impeded the district’s ability to effectively meet its responsibilities.”

Citing the firing of GM Tony Perez and the cascade of events that occurred after that, the report stated, “The board has not maintained stability in the district’s key executive management position. It has not established essential policies to safeguard the district’s long-term financial viability. The board’s actions caused the district to lose its liability insurance coverage, resulting in higher costs for less coverage.”

After a number of unsuccessful attempts which caused irreparable turmoil within CB, Apodaca, Roybal, and Vasquez inexplicably fired GM Tony Perez in September 2014.

Sources told HMG-CN that Pacifica Services CEO Ernie Camacho “ordered” the firing because Perez was investigating the billing practices of Pacifica.

“The district consistently engaged in questionable contracting practices by avoiding competitive bidding and inappropriately using amendments to extend and expand contracts.”

The report went on, “In recent years, the district’s actions have called into question the efficiency and effectiveness of its operations. News reports have focused public attention on a number of issues at the district, some of which we explore in detail in this report. Our audit found that the board’s poor leadership has impeded the district’s ability to effectively meet its responsibilities.”

Again the report cited the insurance fiasco of 2014 that then-GM Tony Perez warned the Board about, “The board’s actions caused the district to lose its insurance coverage. Specifically, in 2014 the board did not respond to the conditions required by its then-insurer in a timely manner, and consequently the insurer canceled the district’s insurance coverage, including its general liability and employment practices liability coverage.”

Later, on a 3-2 vote, Vasquez, Roybal, and Apodaca fired GM Perez. The report slammed the three stating, “Subsequently, in September 2014, after the district had obtained new insurance coverage from private insurance companies, the district’s insurance broker warned the district that any changes to senior staff could adversely impact the district’s employment practices liability insurance coverage. Despite this warning, the board subsequently fired the district’s then-general manager (Perez), and the insurance company did not renew the district’s insurance coverage in 2015.”

In reference to Apodaca, Roybal and Vasquez’ vote the Auditor said, “As a result, the district had to obtain new coverage yet again and currently pays thousands more for $1 million less general liability and employment practices liability insurance coverage than previously.”

The report once again referred to many of the no-bid contracts first handed out by CB, as first revealed by HMG-CN articles.

They presumably included Pacifica Services, a contract give to Jasmyn Cannick, a friend of Leticia Vasquez, a contract awarded to Tafoya and Garcia to investigate the firing of Perez, and many others.

All contracts were voted on a 3-2 line with Apodaca, Roybal and Vasquez voting yes, while Directors Chacon and Hawkins voted no.

The report stated, “Additionally, the district often inappropriately avoided its competitive bidding processes when it awarded contracts to vendors during the period we audited. 13 of the 20 contracts we reviewed the district did not use its competitive bidding process and did not adequately justify why it failed to competitively bid for 11 of these contracts.”

Citing former GM Art Aguilar’s lavish golf outings mostly with Pacifica’s Camacho, as first reported by HMG-CN, the lack of a competitive bidding process opened the district up to favoritism in awarding contracts.

“In early 2015 the Fair Political Practices Commission fined a former general manager and a former board member for accepting gifts in excess of applicable limits from a contractor doing business with the district.”

The Auditor then proposed a change in the governance structure of CB saying, “the magnitude of the problems we found suggests that the district could benefit from a different governance structure. Specifically, because the board is publicly elected, it is not directly accountable to its customers, which are the various entities that sell water throughout the district. Other water agencies in the region, including Metropolitan and the San Diego County Water Authority, have boards composed of members appointed by their customers. If the Legislature chose to change the district’s governance structure, modifying the structure to increase the board members’ accountability to the entities they serve would help to ensure that the board makes decisions that reflect the district’s best interest.”

The report then cited recommendations for improving CB operations including establishing a formal policy for hiring a general manager, completing a long term financial plan no later than December 2016, completing its planned water rate study no later than the spring of 2017, creating a formal debt management policy, negotiating for more cost-effective and appropriate insurance, disclosing to the public the true nature and purpose of all of its expenditures, and amending its administrative code by June 2016 to limit its sole-source contracts to emergency situations only.

The report went on to recommend additional steps to ensure its’ expenditures do not constitute gifts of public funds including immediately eliminating its allocation of funds to individual board members for community outreach, revising its administrative code by June 2016 to include more specific guidance as to what constitutes a reasonable and necessary use of public funds

CB sent out a statement saying, “In a spirit of collaboration and with a commitment to improved governance, transparency and financial stability, the Central Basin Municipal Water District (District) is reviewing and addressing the recommendations in the State Audit Report released today. The State Audit Report provides valuable insight on steps the District can take to enhance its operations, while recognizing key improvements that have taken place. “

“We commend the State Auditor for their high level of professionalism and for identifying areas where Central Basin can be a more effective public agency,” said Central Basin General Manager Kevin Hunt. “We are committed to continuing to move Central Basin toward a more transparent, financially stable and effective District.”

HMG-CN contacted CB Director Art Chacon who said, “I believe the State Audit is an unfortunate yet realistic portrayal of the District as it is has been governed by its three member majority for the past three years. I take responsibility for missteps made before that time, but I also acted to bring in top management who were familiar with our past problems to make necessary corrections only to have this same majority fire them for doing their job. The irony is that this audit uncovered what those same individuals were investigating three years ago. The only difference is that now those responsible for fleecing the District are long gone and those fired for investigating them have valid lawsuits pending against the District.”

One former high-ranking District employee who did not want to be identified said, “The Audit does not take into consideration that an earnest effort was made by the former Board in 2012 to promptly investigate the $2.75 million trust fund as well as the District’s questionable and dubious contracting practices. Once longtime former General Manager Art Aguilar was pushed out it was like the Board had seen daylight for the first time. They immediately brought in new management familiar with the events that had taken place only to see the new Board majority of Leticia Vasquez, James Roybal and Bob Apodaca dismantle that team. Anyone familiar with Central Basin knows that Roybal, Apodaca and Vasquez displayed total disregard for the financial well-being of the District. The numerous lawsuits make that very clear. Roybal and Vasquez are forever beholden to those that financed their election campaigns. They are collectively unfit to govern. The Audit concludes correctly that the existing Board is not qualified to continue in a decision making capacity”