[env-trinity] SEC Charges Westlands Water District with 'Enron Accounting'/Tom Birmingham: "In a worst case scenario, we file for bankruptcy"

[Dan Bacher]

Good Evening

Here is my piece revealing how the SEC charged the Westlands Water  
District with "Enron accounting" - and how Westlands General Manager  
Tom Birmingham said, "In a worse case scenario, we file for  
bankrupty," in response to a question at a district board meeting in  
January 2014, according to a meeting transcript.

Thanks
Dan

http://www.dailykos.com/stories/2016/3/10/1499271/-Federal-SEC-Charges-Westlands-Water-District-for-Enron-Accounting

https://www.indybay.org/newsitems/2016/03/11/18783904.php

Photo of protest by the Yurok, Hoopa Valley, Karuk and Winnemem Wintu  
Tribes against a lawsuit by Westlands Water District blocking the  
release of Trinity River to save Klamath River salmon in Sacramento in  
August 2014. Photo by Dan Bacher.


800_westlands_sucks_the_t...

SEC Charges Westlands Water District with 'Enron Accounting'


by Dan Bacher

Westlands Water District, considered to be the “Darth Vader” of  
California water politics by leaders of fishing groups, Indian Tribes  
and environmental organizations, is in boiling hot water with the  
federal Securities and Exchange Commission (SEC).

The SEC on Thursday, March 10 charged Westlands, California’s largest  
agricultural water district, with “misleading investors about its  
financial condition as it issued a $77 million bond offering,”  
according to a statement from the Commission.

In addition to charging the district, the SEC also charged its general  
manager Thomas Birmingham and former assistant general manager Louie  
David Ciapponi with misleading investors about its financial condition.

“Birmingham jokingly referred to these transactions as ‘a little Enron  
accounting’ when describing them to the board of directors, which is  
comprised of Westlands customers,” the SEC reported.

Located on drainage-impaired land on the west side of the San Joaquin  
Valley, the water district has been one of the biggest promoters of  
Governor Jerry Brown’s California Water Fix to build the Delta Tunnels  
until recently when they told FOX News in Los Angeles that they can no  
longer afford to pay for the project.

The project to build two giant tunnels to divert Sacramento River  
water under the Delta, designed to facilitate the export of water to  
Westlands and other corporate agribusiness interests, Southern  
California water agencies and oil companies conducting fracking  
operations, could cost ratepayers and taxpayers up to $67 billion -  
and won't create one drop of new water, critics charge.

According to the SEC’s order instituting a settled administrative  
proceeding:

• Westlands agreed in prior bond offerings to maintain a 1.25 debt  
service coverage ratio, which is a measure of an issuer’s ability to  
make future bond payments.

• Westlands learned in 2010 that drought conditions and reduced water  
supply would prevent the water district from generating enough revenue  
to maintain a 1.25 ratio.

• In order to meet the 1.25 ratio without raising rates on water  
customers, Westlands used extraordinary accounting transactions that  
reclassified funds from reserve accounts to record additional revenue.

• When Westlands issued the $77 million bond offering in 2012, it  
represented to investors that it met or exceeded the 1.25 ratio for  
each of the prior five years.

• Not only did Westlands fail to disclose that wouldn’t have been  
possible without the extraordinary 2010 accounting transactions, but  
also omitted separate accounting adjustments made in 2012 that would  
have negatively affected the ratio had they been done in 2010.

• Had the 2010 reclassifications and the effect of the 2012  
adjustments been disclosed, Westlands’ coverage ratio for 2010 would  
have been only 0.11 instead of the 1.25 reported to investors.

• Birmingham and Ciapponi improperly certified the accuracy of the  
bond offering documents.

The SEC said Westlands agreed to pay $125,000 to settle the charges,  
making it only the second municipal issuer to pay a financial penalty  
in an SEC enforcement action.

Birmingham agreed to pay a penalty of $50,000 and Ciapponi agreed to  
pay a penalty of $20,000 to settle the charges against them.

“The undisclosed accounting transactions, which a manager referred to  
as ‘a little Enron accounting,’ benefited customers but left investors  
in the dark about Westlands Water District’s true financial  
condition,” said Andrew J. Ceresney, Director of the SEC Enforcement  
Division. “Issuers must be truthful with investors and we will seek to  
deter such misconduct through sanctions, including penalties against  
municipal issuers in appropriate circumstances.”

The SEC’s order finds that Westlands, Birmingham and Ciapponi violated  
Section 17(a)(2) of the Securities Act of 1933 and must cease and  
desist from future violations.

You can read the SEC decision here: http://www.sec.gov/litigation/admin/2016/33-10053.pdf

In response to the SEC action, Barbara Barrigan-Parrilla, Executive  
Director of Restore the Delta, said, “Westlands Water District has  
been fined for doing Enron-style accounting on the sale of water bonds  
in 2012. Portions of those bonds were used to finance planning of the  
Delta tunnels project.”

“Westlands leadership, however, recently told Fox News in Los Angeles  
that they can no longer afford to pay for the Delta tunnels project.  
Clearly, they are no longer in a position to sell bonds for paper  
water -- because the Delta tunnels will not provide any new water to  
water exporters,” she said.

She said the vote on Tuesday, March 8 by the Metropolitan Water  
District (MWD) of Southern California to purchase Delta islands in  
order to have a staging site for construction of the Delta Tunnels  
“indicates that water exporters are so desperate to push the project  
through that they will continue to push it forward even without a  
viable funding plan.”

“The question now is if Southern California and Santa Clara Valley  
ratepayers are willing to pay not only their share for dry tunnels,  
but for Westlands growers as well,” Barrigan-Parrilla concluded.
Tom Birmingham: "In a worst case scenario, we file for bankruptcy"

Tom Stokely of the California Water Impact Network (C-WIN) noted that  
the SEC action “reminded me of a transcript from a Westlands board  
meeting where Birmingham, in response to a question, said the district  
would declare bankruptcy and default on bonds for BDCP, the  
predecessor to the California Fix, if necessary, and the landowners  
would not be held financially responsible.”

The transcript from the Westlands Water District Board meeting of  
January 15, 2014, states:

Q: If the District goes broke, will the bondholders not come back [and  
go after the Westlands landowners?].

A: The security on the bonds is the [Westlands] district’s revenue,  
not the landowner’s land. In a worst case, we file for bankruptcy.  
That’s what the District could do. The landowners’ land is not security.

You can read the transcript of the meeting here: http://www.c-win.org/webfm_send/434

Stokely said that it is clear from the SEC action, as well as from the  
Westlands board meeting transcript, that "anybody who would buy bonds  
through Westlands for the Delta Tunnels or anything else is taking a  
huge risk.”

“The federal government has appoved a court settlement that would  
forgive Westlands $375 million in interest-free debt they owe the  
federal government for their share in the construction of the Central  
Valley Project facilities that deliver their water. It’s clear that  
urban ratepayers of California would have to pick up Westlands’ tab  
for the Delta Tunnels,” said Stokely.

“Westlands contribution to the Delta Tunnels project is 40 percent,  
according to the California Water Fix,” explained Stokely. “At 40%,  
how much debt can MWD and the Santa Clara Valley Water District  
(SCVWD) reasonably take on? The tunnels are going to deliver water for  
everyone south of the Delta, so water will still be physically  
delivered, but MWD and SCVWD rate payers and property tax payers will  
take on even more of the bill.”

Westlands is well-known for its attacks on state and federal laws  
protecting fish and the environment. The water district sued the  
federal government over the past several summers in unsuccessful  
attempts to stop supplemental releases from Trinity Reservoir to  
prevent a massive fish kill on the lower Klamath River, prompting  
protests by members of the Hoopa Valley, Yurok, Karuk, Winnemen Wintu  
and other Tribes in 2013 and 2014 against Westlands’ litigation.

“Central Valley water users have made untold billions of dollars at  
the expense of Trinity River salmon and communities," said Danielle  
Vigil-Masten, then the Chairwowman of the Hoopa Valley Tribe, before a  
protest organized by the Tribe in Fresno in August 2013. “The greed  
and aggression represented by this lawsuit and the hypocrisy of the  
plaintiff’s exploitation of environmental protection laws both stuns  
and saddens us." (http://www.dailykos.com/story/2013/8/20/1232633/-Hoopa-Valley-Tribal-Members-Protest-Westlands-Lawsuit 
)

In response to the settlement, Fitch Ratings, one of the three  
nationally recognized statistical rating organizations (NRSRO)  
designated by the U.S. Securities and Exchange Commission in 1975,  
placed a "negative ratings watch" on $193.6 million in Westlands Water  
District debt and $28 billion in bonds issued by the San Luis and  
Delta Mendota Authority, according to the New York Times. (http://www.nytimes.com/2016/03/11/us/california-water-district-fined-by-sec-over-enron-accounting.html 
)

A call to the Westlands Public Affairs Office regarding a comment on  
the SEC decision has not been returned. 
  
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