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Central Basin Faces Financial Collapse If Directors Vote to Terminate General Manager

Sources are telling HMG-CN that yet another vote has been called today, September 17, to fire CB GM Perez.

 

Roybal, Apodaca, Vasquez, Perez

 

By Brian Hews and Randy Economy

Hews-Media Group-Community News has exclusively obtained a copy of an internal memorandum from Central Basin Municipal Water District staff and General Manager Tony Perez to the CBMWD Board, detailing the financial and other ramifications if they were to fire Perez.

The memo was in response to a special meeting, first reported by HMG-CN, called on September 4th 2014 by CBMWD Directors Bob Apodaca and James Roybal to suddenly terminate Perez.

Roybal had informed staff to “expect a call” from Director Leticia Vasquez to confirm the meeting that day but Vasquez never called. Sources inside CNMWD told HMG-CN that Vasquez held off calling for the meeting “to squeeze more money from the person who wants Perez out.”

When asked why the memorandum was written, Perez said, “I work at the pleasure of the Board and if a majority of the Board wishes a change, I would of course respect their decision. However, I have a responsibility to inform the Board of the possible consequences of their decisions, and given the severity of this outcome, I felt full and complete disclosure was imperative.”

In the memorandum, Perez details the impact on the District’s finances, operations, and reputation.

In May of this year, the District’s insurance carrier, ACWA-JPIA cancelled the District’s liability coverage for “Board dysfunction”. In a letter dated April 3 2014, JPIA Chief Executive Officer Walter Sells informed the District of conditions necessary to retain insurance, including modifying the GM’s contract to “…require four Board members to vote in favor of termination.”

A special Board meeting was scheduled for April 30th, 2014 to vote on a response to JPIA, but the meeting was cancelled due to lack of quorum after Directors Apodaca, Roybal and Vasquez failed to attend.

The memorandum states that “it would be almost certain that the District would lose its insurance coverage by next May 2015 with a non-renewal and it would be extremely unlikely to be able to secure any replacement insurance without drastic premium increases or coverage reductions.”

The memorandum goes on to state that termination of the GM most likely would lead to a credit rating downgrade, endangering the District’s current attempts to restructure its debt, and most likely leading to failure to meet its required debt-coverage ratio of 1.15.

The memo stated, “…If the downgrades or digressing financial performance is severe enough, the letter of credit and/or SWAP agreement is likely to be revoked or not extended which would necessitate upfront payment of approximately $14-$15 million. A payment of this magnitude would completely eliminate the District’s current reserves.”

Operationally, Perez warns that up to 50% staff turnover may occur due to loss of morale. Senior management turnover could negatively impact ongoing negotiations with the Metropolitan Water District on water supply allocation and long-term purchase orders and the L.A. County Sanitation District for purchases of recycled water, critical discussions during a time of unprecedented drought.

Perez states, “Any turnover by the GM or senior management at this time may pose long lasting and significant risks to the success of any of these processes and negotiations.”

The memo also indicates that the District would face imminent severe financial hardship if it were to negotiate a settlement to terminate Perez, as he has over 3-1/2 years remaining on a contract paying him $195K per year.

If the District were to terminate Perez “for cause,” it would likely face an expensive retaliation lawsuit exceeding $2-million.

The District’s reputation could also be damaged, Perez warns.

The L.A. County Supervisors unanimously passed a motion in June 2014 to investigate CBMWD over concerns with the agency’s ability to effectively deliver water due to Board dysfunction. The investigation is scheduled to be completed in September 2014.

Perez warns “that the Board’s action to remove the current GM may help fuel the perception that the District needs to be taken over by another agency.”

HMG-CN broke the story last week that the vote to remove Perez was about to take place, and called LA County Supervisor Don Knabe for a quote. When informed by HMG-CN that CBMWD intended to replace Perez with former-Assembly member Rudy Bermudez, Supervisor Don Knabe told HMG-CN, “They just don’t get it. They have tried the political appointments before and it didn’t work. They are in the water delivery business not appointing political friends to attempt to cover their mismanagement and incompetence. If that happens you can be sure I will be on the phone to Assembly Member Rendon to ignite the legislation to take them over.”

When asked why Bob Apodaca would call for such a provocative and damaging action less than 60-days prior to his re-election, former Central Basin candidate Scott Collins said, “Apodaca comes from the pay-to-play school of the Calderons. He brought Tom Calderon and Art Aguilar into the District and you can see the results. Firing the GM is pay-back for Perez firing his sugar-daddy Ernie Camacho.”

Ernie Camacho is the owner of Pacifica Services, an engineering firm that has received over $5-million from CBMWD over an 8-year period where Pacifica’s contracts were routinely renewed without competition. Apodaca is reportedly married to Ernie Camacho’s cousin.

When asked what motivation Roybal and Vasquez would have to terminate Perez, Collins continued, “Perez is conducting investigations into Roybal’s assignment to teacher jail and the illegal leaking and falsifying of a federal subpoena. Roybal and Vasquez will clearly come up dirty, and they need a GM they can control to escape punishment.”

When contacted by HMG-CN, Noel Jaimes, who is running against Apodaca in the upcoming November 4th election said, “Tony Perez is the only thing holding that organization together, period.  If Tony were to be fired, Bob Apodaca will be sending a message to the community that he doesn’t care about the financial condition of Central Basin and with the bankers on Wall Street in New York.”

Jaimes, a real estate executive and a financial advisor, also told HMG-CN in a phone interview on Wednesday that, “Moody’s would immediately reduce this CB’s bond rating if Perez is fired.  The community has lost all interest in Bob Apodaca and he continues to bring gasoline to a burning house.”

Jaimes will be monitoring how the agenda item will be presented to the public.   “They better post this agenda item about Perez at least 72 hours in advance, or I will file a complaint with the Los Angeles County District Attorney’s Office immediately,” he stressed.

See memo, click here.

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