EOCWD prevails in surprise LAFCO ruling

May 2016

By Tina Richards

The Local Agency Formation Commission (LAFCO) voted 6-1 to deny the Irvine Ranch Water District’s (IRWD) application to manage the Area 7 sewer system, and accepted the East Orange County Water District’s (EOCWD) proposal instead.

The April 13 vote was the opposite of what was expected; LAFCO staff had recommended IRWD for the job, and that larger, more experienced district was the odds-on favorite.  The vote shocked Irvine Ranch advocates, who believed that agency’s credentials made it a shoo-in, and East Orange supporters who, despite their best efforts, recognized that their smaller local agency was the likely loser.

EOCWD currently provides wholesale water to OC suppliers and retail water service to 1,300 residents in North Tustin, El Modena and a sliver of Orange. Its retail service area mirrors the Area 7 sewer system.

IRWD does not serve residents of Area 7, but it has 40 years of sewer experience, 300,000 customers, a fleet of service vehicles and  equipment, and a solid  financial footing. It offered Area 7 customers a 50 percent rate cut. A formidable competitor for Area 7, the one thing it lacked was local accountability and control. Its board of directors lives in Irvine and Newport Beach; its headquarters are in Irvine.  EOCWD board members all live in Tustin or North Tustin.  Its offices are located in Orange in a doublewide trailer. The district has no debt, and operates on a pay-as-you-go basis.

Raising the stakes

EOCWD did its best to level the playing field. It revised its initial 10 percent rate cut to match IRWD’s 50 percent. It hired the Orange County Sanitation District retiree who had managed the Area 7 system for the county, and contracted with Performance Pipeline, the same company/crew that has been servicing Area 7 for seven years.  EOCWD also committed to cleaning the pipes annually; IRWD planned to clean every two years.

The public hearing was standing room only.  “This is truly the most controversial issue LAFCO has addressed during my tenure,” Chairman Derek McGregor admitted.  “LAFCO meetings never draw this many people.”

And 53 of them wanted to speak publicly.  Mayor Tita Smith of Orange, Mayor John Nielsen of Tustin, Mayor Greg Mills of Villa Park, and Rick Nelson, president of FCA, all stressed their city’s desire to keep Area 7 local. A number of speakers urged the commission to select IRWD; many more expressed a desire to preserve local accountability with EOCWD.

It was LAFCO commissioner and Third District Supervisor Todd Spitzer, however, who carried the day for local control. Area 7 is in his district, and he was the unofficial point man in the discussion.

The pivotal player

Spitzer trimmed the frayed edges of the emotional debate before framing the case for EOCWD.  Two commissioners, McGregor and John Withers, had been criticized by EOCWD supporters because they had ties to IRWD and had refused to recuse themselves.  Many in the audience had come to call them out again.  “Look,” Spitzer said, “the law recognizes that commissioners wear many hats. I’m a supervisor. I sit on this commission. I sit on the fire authority. John Withers happens to be on the IRWD board, the sanitation board and this commission. Derek McGregor hasn’t done any work for IRWD in years. It is legal for them to vote on this. Don’t bring it up again,” he instructed. No one did.

The LAFCO staff report recommending IRWD was considered by many to be the final word on the decision. Spitzer settled that without trampling on any toes. “The staff report is excellent,” he agreed, directing his comments to the staffer who wrote it. “But you are not an elected official. You have no idea what it’s like to sit where I sit. And that’s nothing against you. But I have to concern myself with governance. I have to decide on behalf of the people I represent.”

The supervisor acknowledged that while both IRWD and EOCWD were capable of operating Area 7, the residents of North Tustin and El Modena would have no voice in the larger company’s governance.  Members of IRWD’s board are consistently reelected.  “Sure, North Tustin could run a candidate for the board,” Spitzer said, “but they wouldn’t win.”

Close to home

“A local voice is important,” he explained, “because local board members are more likely to be concerned about the community as they are about the agency they serve.”  As an example, he cited the IRWD board’s decision to pull its money out of the county investment pool prior to the 1994 bankruptcy.  “If IRWD hadn’t pulled out, the bankruptcy may not have been nearly as bad,” he said. “That board was more concerned about the good of IRWD than it was about the good of Orange County.”

Two of Spitzer’s commission colleagues agreed with him. Cheryl Brothers and Lisa Bartlett noted that both agencies were capable, but that community desire to retain local control was a key factor. Commissioner Allan Bernstein, mayor pro tem of Tustin, also gave EOCWD the nod. With a majority of four commissioners poised to deny IRWD’s application and accept EOCWD’s, Charlie Wilson and John Withers, previously aligned with IRWD, switched their votes.  McGregor stuck with IRWD.

Ironically, EOWCD’s lack of debt and pay-as-you-go financial philosophy was considered a negative by the commission.  IRWD holds about $500 million in debt, but has an AAA credit rating. East Orange, with no debt, doesn’t have a credit rating at all. With no rating, it will likely pay more interest on bond financing. Commissioner Bartlett admonished it to “do what you have to do to get a credit rating.”

Because the commission was expected to approve IRWD’s application, the paperwork prepared by staff in advance of the hearing reflected approval of Irvine Ranch and rejection of EOCWD. The commission asked staff to redo the resolutions and bring them back for approval at the May LAFCO meeting.