Is Big Business Using San Luis Obispo County Communities As Piggybanks?

by Kari Olsen

Reports of the recent scandal in the City of Bell describe the alleged misappropriation of about $5.5 million dollars. Bell city officials are accused of paying themselves exorbitant salaries at the expense of taxpayers.  $5.5 million dollars is a great deal of money, but is almost insignificant when compared to the tax dollars allegedly being misappropriated by local governments through the inappropriate awarding of contracts to vendors with alleged ties to government officials.

Several San Luis Obispo County news sources have published stories that indicate that representatives of big business interests may have infiltrated San Luis Obispo County government.  News sources that have reported on the issue include the SLO Coast Journal, Cal Coast News, the New Times, and the Rock of the Coast. 

The stories recount allegations that local government officials are using their positions to influence decisions on public works projects, enabling huge profits for a select few businesses, while racking up unnecessary costs that taxpayers must shoulder.  Major examples of such projects include the Morro Bay/Cayucos wastewater treatment plant (WWTP) upgrade, the Los Osos Sewer project, and work done for the South County Sanitation District. 

In Morro Bay and Los Osos, government bias in favor of Montgomery Watson Harza (MWH) has been alleged by concerned residents.  In South County, residents have alleged irregularities related to the fact that South County Sanitation District administrator John Wallace, who is the owner and president of the Wallace Group, has been inappropriately funneling District contracts to his own firm.

Many residents have asked why, with multiple news sources reporting these very serious allegations, nothing has been done.  In some cases, residents have provided the District Attorney with significant evidence of possible wrongdoing, but no action was taken.

It has been suggested that the Bell case may have been easier for regulatory agencies to investigate and address.  However, compared to the potential costs to taxpayers when big business inappropriately uses municipal governments as piggybanks, the Bell case seems, to many residents, to be only the tip of a very big iceberg.  

Some locals have speculated that our community and state finances would be in much better shape if tax money were being spent appropriately, by public officials committed to getting the best deal for the taxpayers; not big business.  As noted in a recent New Times story by Colin Rigley, "Morro Bay and Cayucos haven't even built a new sewer yet, but people already think something stinks."  To some, it seems only fitting that here in San Luis Obispo County, the most serious allegations of misappropriation of taxpayer funds are connected with the sewers.

Morro Bay/Cayucos WWTP Upgrade

In Morro Bay and Cayucos, high-ranking staff members have doggedly insisted that MWH is the best vendor for the project. They have strongly and publicly resisted consideration of another firm, PERC Water, which has offered an alternative that would cost millions less, and occupy a much smaller footprint, allowing for the sale or lease of valuable beachfront land.  PERC also guarantees the final project cost, the project schedule, and the quality of treated water.  Residents have alleged improprieties related to the fact that Dylan Wade, Morro Bay's Capital Projects Manager, is a former MWH employee, and served on the committee that chose MWH for the design contract.  MWH was the highest, not the lowest bidder, and has offered no guarantees.

As noted in a September 8, 2010 New Times story by Colin Rigley, Wade denies any conflict of interest.  The story indicates that there is no record of how the committee chose MWH, stating, "According to Morro Bay City Attorney Robert Schultz, there's no public record of how each review committee member evaluated bids. Responding to a public records request from Stedjee for the individual evaluation sheets of committee members, Schultz said such materials are exempt from disclosure until there's a formal protest or legal challenge.   "The city does not collect or maintain the evaluation committee members' individual evaluation score sheets," Schultz said on March 18."

A September, 2010 SLO Coast Journal article by Jack McCurdy highlights some of the concerns regarding the background of the Morro Bay City and Cayucos Sanitary District staff's favored vendor.   "The design engineer is the controversial MWH, Inc., (Montgomery Watson Harza), which is under investigation for allegedly overbilling the city of New Orleans and has been the target of criticisms for its handling of the Los Osos sewer project. Its design for the Morro Bay/Cayucos plant has been termed "traditional" by one city staff member, which some residents think is inadequate to serve Morro Bay and Cayucos for decades to come."

A July, 2010 SLO Coast Journal article by Kari Olsen describes residents' concerns regarding the potential outcome of the project.  "Resident concerns regarding the cost of the Morro Bay/Cayucos wastewater treatment plant (WWTP) upgrade project are similar to those expressed several years ago by residents of the City of Fillmore, California.  The cost of the Fillmore plant ballooned from a 2003 estimate of $24 million to a final total of about $83 million.  Morro Bay and Cayucos residents fear that the same thing could happen here and have urged their elected officials to consider an alternative project approach with a guaranteed final cost, such as that offered by PERC Water."   According to the story, Fillmore residents also alleged improprieties in their staff's handling of the project and their refusal to consider lower-cost alternatives. 

Los Osos Sewer Project

For years, residents of Los Osos have protested alleged corruption in the handling of a project to build a sewer in the town.  At the center of the controversy is San Luis Obispo County Public Works Director Paavo Ogren who, like Dylan Wade in Morro Bay, is a former MWH employee.

As in Morro Bay, less-costly and more-environmentally-friendly options have been rejected in favor of what is expected to the most expensive sewer construction project in history with, once again, MWH the favored contractor.  A Rock of the Coast article titled, Ogren's Gravity Bias Costing Los Osos Tens of Millions" asks, "Why was the cheaper, environmentally-preferred STEP collection system suddenly dropped from the County's design-build process for the Los Osos Wastewater Project last year? Why didn't the only STEP design-build team in the mix appeal that decision?" 

The Rock of the Coast article, written by Ed Ochs, states concerns related to MWH involvement, including, "Montgomery Watson Harza was favored with their own outdated (2004) gravity sewer design, even with an apparent violation of California Public Contract Code 20133, that specifically states, 'Any architect or engineer retained by the county to assist in the development of the project specific documents shall not be eligible to participate in the preparation of a bid with any design-build entity for that project.'"  Stated in black and white on Carollo's SLO County contract are the MWH line items that contain verbiage about determining Viable Project Alternatives. Not only is "Determining Project Specific Alternatives" specific, but it gives the appearance that MWH was involved in steering the project alternatives selection.

Former Los Osos Community Services District President Lisa Schicker's October 21, 2009 article in the New Times  presents additional serious allegations regarding pro-MWH bias.  "Last March, without explanation, the county eliminated a top-ranked engineering team guaranteeing a 20-percent savings over competitors for building the wastewater project. Instead, they selected the giant multinational firm Montgomery Watson Harza (MWH) as one of three short-listed firms for both major contracts.    The interview panel recommending MWH was comprised of county employees and consultants, selected by Public Works Director Paavo Ogren. These consultants receive regular no-bid contracts from Ogren and happen to be former business partners of MWH. Ogren placed himself and recently-fired Gail Wilcox on the appeals panel."   

This is not the first appearance of MWH on the Los Osos Sewer Project scene.  Providing some project history, Schicker noted that, "MWH designed the failed project for the Los Osos Community Services District (LOCSD); an expensive downtown project that voters rejected.  They had a habit of securing reasonable contracts that were repeatedly "amended" into millions of dollars of additional costs; essentially no-bid, no-competition. Their last so-called "amendment" with LOCSD was a no-bid contract for $7.48 million dollars; one they recommended for themselves.   Ogren was the LOCSD's first manager; he arranged MWH's first contract; Bruce Buel came next. A 2006 letter from second-manager Buel to third manager Dan Bleskey stated that after his arrival, manager Ogren requested that he backdate (isn't that illegal?) LOCSD's first contract with MWH; Buel complied with Ogren's request."

MWH was fired by the LOCSD in 2006 for a variety of alleged wrongdoings.  An August, 2006 LOCSD letter to MWH outlines the alleged improprieties, including submission of multiple false claims, submission of duplicate invoices for the same work,  knowingly and with malice working with regulatory agencies in a manner not in the best interest of the District, knowingly and as a matter of public record making financial contributions that were litigating against the District in an effort to stop the project,  and knowingly and as a matter of public record making financial contributions to government officials in a manner so as to influence courses of actions that were not in the best interests of the District.

Yet, as noted by Schicker in her 2009 article, "MWH is back again. Legal issues remain unresolved, yet they made the shortlist as the leading candidate for the county's project."  The project is headed by former MWH employee Paavo Ogren.

South County Sanitation District Management

A September 19, 2010 Cal Coast News story by Karen Velie described allegations made against John Wallace, administrator of San Luis Obispo County's South County Sanitation District.  Wallace is the owner of Wallace Group, an engineering firm that has done work for the District.

 Velie's article notes that, "Accusations that the administrator of a sanitation district in San Luis Obispo County's South Bay has been funneling thousands of dollars to a private engineering company he owns while concealing environmental violations has drawn the attention of local, state and federal regulatory agencies."  According to Velie, "Critics contend plant supervisors have instructed staff to manipulate effluent release numbers in order to keep the public from knowing the aging plant is in need of a complete upgrade because Wallace is not qualified to supervise a modern sewage plant. And if the plant is rebuilt, Wallace would no longer have the ability to divert jobs to his consulting firm."

The article describes various alleged improprieties, including this one: "Another area of contention is over claims that Wallace Group employees purposely dug a trench at the sewage plant to install new methane lines, which included tearing through asphalt, even though district staff said that there were electrical conduits they would run into if they dug there.  After running into the conduit lines, Wallace asked the district to cough up tens of thousands of dollars to dig another trench. The expenditure was approved."

Interestingly, according to  former LOCSD official, John Wallace once worked for the County of San Luis Obispo, and County Public Works Director Paavo Ogren allegedly "sole sources" Wallace and Associates as an engineering consultant on a regular basis.

Belted Kingfisher on Banner by Cleve Nash