The Westlands Water District, the “biggest of big shots in the water world of California’s Central Valley,” was fined $195,000 last week by the Securities and Exchange Commission for altering records to hide drought-related expenses, reports the L.A. Times. Two of its officers also were fined.
In 2009, the district realized, it would fall $10 million short of meeting debt obligations on bonds it had issued. But instead of raising water rates on its customers—some of the biggest farm groups in the state—Westlands’ General Manager, Thomas Birmingham, told a board member that the agency engaged in “a little Enron accounting.”
Westlands reissued the miscalculated statement, which showed that the agency was 10 times more capable of covering its debts than it was, as part of a $77-million refunding bond issued in 2012. Investors might have avoided the bond if they had known.
To date, none of Westland’s senior officers have admitted wrongdoing, including Birmingham. And while the SEC has said that this is the single largest case ever against a municipal bond agency, Times columnist Michael Hiltzik argues that $195,000 is just “a slap on the wrist.”
“As long as senior officials can boast about doing “Enron accounting” and then, when they’re caught, get off without admitting their wrongdoing for the record, there’s little hope that the public interest will be protected,” says Hiltzik.
However, the bond rating agency, Fitch Ratings, has since negatively reviewed an important 2013 bond issued by the San Luis & Delta-Mendota Authority, because Westlands was the sole guarantor, reports the Times. The authority controls more than 3 million acre feet of water in the Central Valley.
“If Fitch takes further action to downgrade the bonds’ underlying AA ratings, it could affect the district’s cost of borrowing as well as the market for the bonds,” says the Times. More bad reviews might ultimately undermine one of the authority’s most important projects—a plan to build a delta tunnel that would divert water from the Sacramento River. Environmentalists say that the tunnel would steal water from the state’s fisheries and severely damage the estuary system.