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MWD Project Cost Overrun Is Criticized

Water: Amount could reach $500 million, audit of Eastside Reservoir spending finds. Accounting and record-keeping are singled out.


The cost overrun on the mammoth reservoir being built by the Metropolitan Water District of Southern California may reach $500 million, according to an outside audit that criticized the district's accounting and record-keeping and its alleged failure to warn board members that the project was busting its budget.

The audit, ordered by MWD board members after they discovered in October that the Eastside Reservoir project near Hemet was already $220 million over budget, was seized upon Tuesday by water officials from San Diego and Imperial Valley as proof of MWD's financial wastefulness.

The overrun also is expected to draw fire today at a legislative hearing in Sacramento featuring two of MWD's harshest critics: state Sens. David Kelley (R-Idyllwild) and Tom Hayden (D-Santa Monica). Kelley said Tuesday that the overrun is even worse than the audit suggests.

Ronald Gastelum, MWD's new general manager, said he agreed with the audit's finding that MWD employees should have done a better job of estimating costs, keeping records and informing board members of overruns.

He said he plans to make personnel changes in the project's management. "I think the staff is going to come out of this with a clear black mark on what is otherwise an admirable project," Gastelum said.

The 4,800-acre reservoir, designed to contain enough water to sustain Southern California for six months in case of emergency, is the most expensive project in the history of MWD, which provides water for 16 million people in six counties. Set to be completed this fall, the project will fill the Domenigoni Valley near Hemet.

Its price tag was set at $1.9 billion, but an audit by the Los Angeles accounting firm of Vargas, Lopez and Co. identified a $500-million overrun between March 1996 and November 1998.

While it stops short of saying that MWD staff hid the overrun from superiors and board members, the audit concludes that "it appears that the board of directors was given the impression that the program was on financially solid ground."

Officials from other major Southern California districts, who have long said the project verged on folly, took the report as vindication.

"The cost overruns at the reservoir seem to be the only thing going up faster than the stock of," said Don Cox, a member of the Imperial Irrigation District board.

Francesca Krauel, a member of the San Diego County Water Authority, said the overrun proves that the project "has been mismanaged and that MWD feels no need to be accountable."

The audit found no hint of skulduggery or inappropriate use of public funds, but questioned MWD staff's decision to issue "open-ended contracts."

Under such contracts, the firms perform their work and submit a bill that is not subject to a budget. Gastelum said it was wrong to award open-ended contracts.

From the beginning, MWD officials have suggested that an overrun could reach 30% because of the difficulties and uncertainties involved with excavation, dam construction and tunnel building.

But auditors say that is no excuse for such an enormous overrun and that it is no excuse to say, as MWD project managers did, that much of the overrun is being absorbed by a contingency fund.

If an overrun was expected, the contingency fund should have been counted as part of the original budget, the audit concluded, allowing board members and the public to know the full cost of the project.

Gastelum said that much of the overrun was for additional safety inspections beyond what is required.

"I think . . . [the MWD board] will be happy that safety measures were taken but will not be very happy that the board was not included in those decisions."

Pleasing the Legislature may prove harder. Kelley said Tuesday that his staff's analysis of the project shows an even greater overrun and more problems than disclosed in the audit.

Kelley sent a tart letter to MWD board Chairman Phillip Pace last week after Pace indicated he could not attend today's hearing. Pace had earlier missed three deadlines set by Kelley to provide written answers about the overrun.

"If your . . . schedule makes it impossible to attend legislative hearings," Kelley wrote, "or answer written questions, perhaps you should step aside in favor of someone who will be able to shoulder that responsibility."

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