Santana: Brea’s Secretive Water Agency Draws Court Challenge

Cal Domestic Water building in Whittier

Brea city council members this week will head behind closed doors to debate whether they should continue keeping residents in the dark about city appointees to a secretive water agency, Cal Domestic Water, which provides water for residents citywide.

Back in 2018, the state’s Fair Political Practices Commission sanctioned former Brea City Manager Tim O’Donnell for failing to disclose more than $100,000 in payments from a subsidiary of Cal Domestic Water to O’Donnell as a Cal Domestic board member at the same time O’Donnell was involved in official City of Brea decisions to purchase tens of millions in water rights from the company.

When O’Donnell and FPCC investigators reached a $500 fine settlement last year – a $100 fine for every year of not disclosing the conflict with the state on his annual conflict of interest forms – all sides agreed he should have disclosed the relationship.

And yet, years later, Brea city officials still don’t require city appointees to Cal Domestic Water – a private water company co-owned by Brea, the City of La Habra and private investors – to formerly disclose conflicts of interest like so many other city officials.

Keep in mind that Cal Domestic Water is an odd, pseudo-public agency that doesn’t answer press calls and operates a website with virtually no information about the company operations, the board of directors or top officials like its President Lynne Noriega.

It’s also choc full of potential conflicts.

One of the most glaring comes from a look at a PDF copy of the 2014-2015 company’s annual report to shareholders (only disclosed by the city on a city meeting agenda) showing that the board chairman is none other than Dick Jones, whose law firm – Jones Mayer – also provides city attorney services to Cal Domestic’s other main customer – the City of La Habra.

Voice of OC profiled Jones’ work in Westminster back in 2015, where he was able to work both as a City Attorney and a contract attorney for that city, while also participating through Westminster in the state’s pension system, a lucrative arrangement our reporting seemingly halted by 2017.

Cal Domestic Water is central to Brea’s civic and commercial life as the entity that sells the city most of its water at wholesale rates.

And those water purchases skyrocketed in recent years, from less than $500,00 in 2003 to nearly $40 million.

Now, that secretive relationship may be odd but it keeps water rates down, saving the city up to $400,000 in recent years, city officials argue.

Earlier this year, Brea’s elected City Treasurer Rick Rios raised issues about city water rights purchases with city staff, who seem to differ with his opinion and have continued the water rights purchases this past year.

Yet few city officials can actually explain how the city’s water rights are managed much less the board relationship with Cal Domestic Water.

For example, earlier this year when I first wrote about Brea’s water issues, City Manager Bill Gallardo noted that Brea has two appointees to Cal Domestic Water – talking about them as if they were appointments to a regional board – where an appointment nets the city a panel vote.

Yet when I pressed him further about Cal Domestic Water documents indicating board members have a fiduciary responsibility to Cal Domestic and not Brea, Gallardo agreed that was the case.

So appointed board members from the municipalities to Cal Domestic don’t speak for the public, they respond to the company interests.

Keep that thought in mind as you read this section from the August 2015 letter from DA investigators to Brea officials about O’Donnell’s role in the relationship between the city and the company.

“O’Donnell was responsible setting the price at which shares in the company (known as ‘common shares’) or water rights (known as ‘preferred shares’) would be sold. During this same time period, the City of Brea entered into multiple contracts with CDWC for the purchase of either common shares or preferred shares. The total value of these contracts is well into the tens of millions of dollars. Some of these purchases of CDWC shares were recommended for approval in written documents signed by either O’Donnell or people reporting to him, such as the Public Works Director. Thus, one of the key issues became whether Mr. O’Donnell has or had a financial interest in CDWC.

Our investigation found that Mr. O’Donnell received a monthly stipend from CDWC in exchange for his role as a board member. The amount of this stipend since at least 2009 has been $150.00 per month. However, we found that Mr. O’Donnell never accepted any of this money, Rather, his checks were signed over to a charity, and he did not claim the charitable donation as a tax write off. As such, for the $150.00 monthly stipend we did not find evidence of a conflict of interest, nor did we find a willful violation of Form 700 requirements.

Our findings regarding Cadway were more concerning,” wrote the investigators.

“As mentioned, Cadway is a wholly-owned subsidiary of CDWC. While initially described to us as a land holding company, we learned that at least part of Cadway’s business or profits involve the leasing of water rights. Cadway has the same address, the same staff, the same President, and the same Board of Directors as CDWC. For all intents and purposes, it appears that Cadway is the for-profit arm of CDWC that allows CDWC to retain its not-for-profit status.

By virtue of becoming a board member of CDWC, Mr. O’Donnell also became a board member of Cadway. Since 2009, which was the furthest we went back in our investigation, Cadway has paid out over $108,000 to Mr. O’Donnell. (sic) The amount he received has increased each year. This money included a monthly stipend, as well as what were described as ‘quarterly bonuses’ that were based on how well financially the company was doing.

Nobody we talked to at the City of Brea was aware that by electing a representative to the CDWC Board of Directors, that person would also receive a significant financial benefit from Cadway. We did not find any evidence that Mr. O’Donnell ever disclosed this information, or ever listed it on his Form 700.”

Ultimately, the former DA’s probe didn’t go into how Cal Domestic works and focused only on the lack of reporting by O’Donnell, referring the item to the state’s Fair Political Practices Commission (FPPC), which later sanctioned him.

Now, all these years later, city council members still want to keep their appointees to the water agency from having to file any kind of financial disclosures.

Local blogger Rick Clark, who publishes the Brea Matters website, challenged city officials on their lack of transparency regarding water agency appointments and asked them to change.

They essentially thumbed their noses at him and doubled down on the practice.

Clark then took the issue to the FPPC, which in August essentially told him that when it comes to deciding who in the city has to file a 700 Form (Conflicts of Interest), it’s up to the city council.

The only way to challenge that is to head to court.

This past month, that’s exactly what Clark did.

To Read Clark’s Lawsuit, Click Here.

He filed a lawsuit challenging the city decision to keep appointees to the Cal Domestic Water agency from having to file a 700 Conflict of Interest form with the state.

This Tuesday, Brea City Council members will head into their closed session to talk about the lawsuit.

“The city has not made any determination and we are evaluating the merits of the lawsuit,” said Gallardo. “It is on the 12/17 Council Agenda for discussion in Closed Session.”

Will the double down continue?