Possible conflict of interest seen at water agency

SANTA CLARITA — A top water agency official and three board members have helped shape millions of dollars in projects benefiting developer Newhall Land & Farming Co. while holding

financial interests in the firm, records show. State conflict of interest law generally prohibits public officials, such as those of the Castaic Lake Water Agency, from making or

participating in decisions when their personal financial interests are involved. Newhall Land is the biggest landowner in the Santa Clarita Valley, and has plans to develop thousands of

acres there. The agency, governed by an 11-member board, is the exclusive water wholesaler for the region, providing State Water Project supplies. The actions in question, all taken over the

last three years, involve grading a road through Newhall Land property, a project Castaic estimates is worth $3 million; planning a $4.2-million reclaimed-water system that would

exclusively serve Newhall Land developments, and relocating a major water line that ran in part under a commercial development site owned by Newhall Land at a cost of $576,610. Robert Clark,

the water agency’s attorney, called the participation and actions by all four men “in full accordance with the law.” The officials, their financial interests and actions benefiting Newhall

Land follow. * General Manager Robert Sagehorn, who has headed the agency since 1980 at a current salary of $113,300, owns 300 limited-partnership shares in the publicly traded Newhall Land,

with a market value of about $3,900. As head of the agency, Sagehorn oversaw the development of all three projects. * Stephen McLean, an agency board member through 1994 who was hired as

operating engineer for the agency this spring, holds 200 Newhall Land limited-partnership shares. At current market prices, the shares are worth about $2,600. McLean voted for the road

grading project on two occasions in 1992, saying no one told him not to. He has repeatedly abstained from later votes on follow-up questions regarding easements and property-value issues

involved in the project, saying he did so at Clark’s suggestion. McLean voted for the plan to remove an agency pipeline from under Newhall Land property in 1993. * Castaic board member

Robert DiPrimio manages Valencia Water Co., a wholly owned subsidiary of Newhall Land. DiPrimio voted to move the water line under Newhall Land’s property. He abstained from voting on the

follow-up matters involving the grading deal, citing Clark’s advice. * Board member Richard Green owes Newhall Land about $140,000, records show. Green said he bought his nursery business

property from Newhall Land and is still repaying the debt. Green also voted to spend agency money to move its water line out from under Newhall Land property. In addition, Green and DiPrimio

attended a briefing last month in which Sagehorn proposed the water reclamation project. At the time, Sagehorn said he wanted board members to review the plan before the agency sought

financing. A spokesman for the Fair Political Practices Commission, which enforces state conflict of interest law, declined comment. Supported by property taxes and water rates, the Castaic

Lake Water Agency has been the target of growing criticism over its perceived pro-development policies, its $58-million surplus, and its new $116-million water treatment plant, which cost

45% over original estimates. The four top Castaic officials disclosed their interests in Newhall Land in documents required by the state Political Reform Act. “To my knowledge, all agency

directors and management acted in full accordance with the law,” said Clark, the agency attorney. “All interests have been disclosed. Nothing has been hidden,” he said, adding that he has

given “conservative” advice to the agency on conflict issues. Sagehorn oversaw all three of the projects affecting the developer and brought them to the agency’s board for consideration. In

an interview with The Times, Sagehorn acknowledged that he was involved in the agency projects affecting Newhall Land. Sagehorn said he could not recall abstaining from any issue related to

the company, even though it is the largest private landholder in the water agency’s service area. “I never had to abstain. I never act on anything. As a manager, I simply provide reports and

the board takes actions,” Sagehorn said. In interviews, board members DiPrimio and Green said they saw nothing wrong with participating in agency issues affecting the developer. DiPrimio

acknowledged promoting the agency’s reclaimed-water proposal, which he said is important for the future of the Santa Clarita Valley and would also serve Newhall Land projects and impact his

own water company. Asked about the conflict issue, he said: “I just don’t agree. I look at it as a responsibility I have to my customers.” In the Santa Clarita Valley, “if you put your

finger on the map 45 times, 42 of those hits are going to be on Newhall’s land,” said Green, who also acknowledged favoring the reclaimed-water proposal. Newhall Land owns about 37,000

acres, or 30% of the property in the area served by the Castaic Lake Water Agency. Marlee Lauffer, spokeswoman for Newhall Land, which founded and is still developing the master-planned

community of Valencia in the area, said she saw nothing unusual about the water agency officials’ ties to the company. “We have a lot of local stockholders,” she said. According to agency

records, the Castaic board voted in 1992 to approve plans and then award an $18.4-million contract to install two huge water pipelines and grade a hillside road through Newhall Land

property. The agency’s chief engineer, Lynn Takaichi, said the agency estimated the work’s value to Newhall Land at about $3 million. In a complex trade, the agency decided to route its

pipelines along the future extension of Newhall Ranch Road, which the company would have to improve when it develops the area and do partial road grading in the process. In exchange, the

company gave the agency a pump station site and easements. In the second project, Sagehorn recommended to the board last month a design for the agency’s first reclaimed-water project, the

sole initial beneficiary of which would be Newhall Land’s 1,007-acre North River project, where the company plans more than 5,400 housing units. The board did not take a vote at its Aug. 9

meeting. Staff members said they wanted the board to see the new design before they proceeded to seek loans to fund the $4.2-million project. DiPrimio and Green both attended the

presentation by Sagehorn. Clark called the board discussion that day “wholly preliminary.” Under the plan, Newhall Land projects would receive a discount for using up to 235 million gallons

of reclaimed water per year, and gain a secure water supply. In the third project, records show that on Sept. 8, 1993, the board on Sagehorn’s recommendation awarded a $576,610 contract to

relocate a 21-inch water line that in part ran under an undeveloped, three-acre Newhall Land parcel on Valencia Boulevard adjoining the south fork of the Santa Clara River. Under agency

policy, buildings cannot be developed on top of agency pipe easements for access and safety reasons, according to Castaic’s Takaichi. Shortly after the relocation was completed, Newhall Land

began planning to develop an auto-care center at the site and sold a portion of the land to a firm that applied to the city for a permit to build a carwash. Lauffer said the agency line

only ran along the edge of the parcel and its relocation “had absolutely no impact on our development potential of that property.” Lauffer said the firm had no specific plans to develop the

property until after the pipeline was removed. Prior to the pipeline project, Takaichi, the agency’s engineer, said Newhall Land officials “indicated to us there was no plans for

development” of the site. Agency officials said their main motivation was to relocate another section of the pipeline nearby that had been battered in storms. (BEGIN TEXT OF INFOBOX /

INFOGRAPHIC) Financial Ties State conflict of interest law, as enforced by the Fair Political Practices Commission, governs decisions by top officials such as those of the Castaic Lake Water

Agency, who have participated in decisions benefiting Newhall Land and Farming Co. while having financial interests in the firm. The California Political Reform Act states: “No public

official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows

or has reason to know he has a financial interest.” Violations are punishable by fines of up to $2,000. **** ROBERT SAGEHORN, _ General manager_ INTEREST: Owns 300 limited-partnership

shares, with a market value of about $3,900, in the publicly traded Newhall Land company. Reported acquiring them in 1990. ACTIONS: Oversaw agency actions since 1992 that included grading a

road through Newhall Land property, a project the agency estimates was worth $3 million to the developer; proposing a $4.2-million reclaimed water system that would exclusively serve several

Newhall Land planned developments, and removing a major agency water line that ran in part under a commercial development site owned by Newhall Land at a total cost of $576,000. LAW: A

public official has a financial interest in a decision if it is reasonably foreseeable that it will have a material financial effect on a business entity in which the official has an

investment of $1,000 or more. Under FPPC regulations, an official’s involvement would be material, and thus a potential conflict, if any of the decisions would result in an increase of

$250,000 or more in the gross revenues or assets of any firm traded on the New York Stock Exchange. **** STEPHEN McLEAN, _ Elected agency board member through 1994 who was hired by the

agency as operating engineer this year_ INTEREST: Owns 200 Newhall Land limited-partnership shares. At current market prices, the shares are worth about $2,600. McLean said he bought the

stock prior to becoming a board member. ACTIONS: Voted twice for the road grading project in 1992, and voted for the contract to remove the agency pipeline from under Newhall Land property

in 1993. LAW: A public official has a financial interest in a decision if it is reasonably foreseeable that it will have a material financial effect on a business entity in which the

official has an investment of $1,000 or more. Under FPPC regulations, an official’s involvement would be material, and thus a potential conflict, if any of the decisions would result in an

increase of $250,000 or more in the gross revenues or assets of any firm traded on the New York Exchange. **** ROBERT DIPRIMIO, _ Appointed Castaic board member_ INTEREST: Is the managing

director of the Valencia Water Co., a wholly owned subsidiary of Newhall Land. Castaic is the exclusive supplier of State Water Project water to DiPrimio’s company. ACTIONS: Voted to remove

the agency water line from under Newhall Land’s property in 1993, and participated in a briefing Sagehorn gave board members last month on the reclaimed water proposal. LAW: An official has

a financial interest in a decision if it is reasonably foreseeable it will have a material financial effect on a business entity in which the official is a director, officer or partner.

Under FPPC regulations, an official’s actions would be material, and thus a potential conflict, in any case where the business entity is directly involved in or the subject of a decision. If

a company is indirectly involved in a decision, then a conflict would exist only if the decision would result in a $250,000 or greater impact on the company. In 1986, the state Legislature

passed a bill to allow representatives of four Santa Clarita Valley water retailers to sit on the board of the Castaic Lake Water Agency. The legislation absolved those representatives of

conflict of interest in decisions affecting “the water industry.” **** RICHARD GREEN, _ Elected Castaic board member_ INTEREST: Owes Newhall Land about $140,000 for nursery business property

he bought from the company; is still repaying the debt. ACTIONS: Voted in 1993 for the contract to remove the agency’s water line from under Newhall Land’s commercial property and

participated last month in Sagehorn’s briefing for board members on the reclaimed-water proposal. LAW: An official has a financial interest in a decision if it is reasonably foreseeable the

decision will have a material financial effect on a source of income to the official of $250 or more in the past year. FPPC attorneys have ruled that loans are sources of income to public

officials as long as they remain outstanding with a balance of at least $250. Under FPPC regulations, an official’s actions would be material, and thus a potential conflict, in any case

where the business entity is directly involved in or the subject of a decision. If the company is indirectly involved in a decision, then a conflict would exist only if the decision would

result in a $250,000 or greater impact on the company. MORE TO READ