San Simeon officials inundated with allegations of conflicts of interest

December 2, 2020

By KAREN VELIE

State and county agencies have mounted investigations into officials at the San Simeon Community Services District amid accusations of fraud and conflicts of interest.

In early November, the California Department of Water Resources asked several agencies to investigate the district’s procurement and distribution of two state grants the district received in years past. The state is concerned that the district failed to follow bidding requirements, instead sole-sourcing jobs to favored contractors and did not own the land upon which its water treatment facility was constructed.

The California Fair Political Practices Commission (FPPC) in April initiated a conflict of interest investigation into district Manager Charles Grace. The investigation followed a request from the district’s legal counsel for advice on conflicts of interest. Even though the district’s legal counsel later withdrew the request, the FPPC opened an investigation.

Since then, the FPPC has opened conflict of interest investigations into current board members Gwen Kellas and William Maurer and former board members John Russell and Mary Margaret McGuire, according to the FPPC.

The San Luis Obispo County District Attorney’s Office is also investigating allegation of conflicts of interest at the district, according to district records.

Nestled along the coastline near Hearst Castle and the Piedras Blancas Light House, San Simeon is primarily a tourist destination. The home of 11 hotels, San Simeon has approximately 500 residents and a yearly district budget of almost $1 million.

Concerned with the administration of the district, several residents have hammered the district board with questions regarding alleged conflicts of interest and sole-sourcing projects, helping to spur the multiple investigations.

On February 10, 2017, in response to conflict of interest concerns residents posed at board meetings, Grace sought advice from the FPPC. The FPPC responded that they do not give advice after the fact.

Grace Environmental Services, a wastewater consulting and management company owned by Charles Grace, entered into a professional services agreement with the district in 2016. As administrator of the district, Grace has funneled work to his company and approved his company’s invoices.

On Feb. 27, 2017, San Simeon district legal counsel Heather Whitham of Carmel & Naccasha sent a letter to board members regarding Grace’s potential conflicts of interest.

A few months after Whitham questioned Grace’s alleged conflicts, Grace put the district’s legal contract out to bid, and Carmel & Naccasha declined to compete. Grace and the board then contracted with attorneys Jeffrey Minnery and Natalie Frye Laacke with the law firm of Adamski, Moroski, Madden, Cumberland & Green, LLP.

In 2019, Frye Laacke requested advice from the FPPC regarding board members’ possible conflicts of interest tied to their ownership of property located near the sewer plant.

Before the FPPC opined, Frye Laacke abruptly withdrew the request noting “decisions were too far into the future.” However, the board voted on issues related to the sewer plant within months of that withdrawal.

On April 14, 2020, the FPPC initiated and opened an investigation into Grace’s possible conflicts of interest.

“This letter is to notify you that the Enforcement Division of the Fair Political Practices Commission has commenced a commission-initiated investigation regarding your potential violations of the conflict of interest provisions of the Political Reform Act,” the FPPC said in a letter to Grace.

On April 15, district board chair Mary Margaret McGuire resigned.

On May 13, San Luis Obispo County Deputy District Attorney Kenneth Jorgensen ordered the district to turn over multiple documents regarding potential conflicts of interest and finances. In his public records request, Jorgensen asks for documents related to Grace’s salary, expenditure records, the dismissal of the attorney from Carmel & Naccasha, communications with Grace Environmental Services and the FPPC concerning possible conflicts of interest, and payments and invoices related to Grace Environmental Services.

On June 29, the FPPC opened an investigation into district board chair Gwen Kellas, and her alleged conflicts of interest. More than a year earlier, Kellas learned she had a possible conflict of interest, living next to the sanitation plant while voting on issues that could impact the value of her home, and then continued to discuss and vote on issues at the plant.

On July 6, activist Julie Tacker sent a formal request to the FPPC to look into financial conflicts with additional district board members.

On July 20, the FPPC opened the investigation into three more current and former district board members, according to the FPPC.

On Aug. 18, five years after the district built a water treatment plant, the owners of Hearst Ranch hired a licensed surveyor to find out if the water facility encroached on their land. The surveyor determined 560 square feet of the district’s reverse osmosis facility is on the Hearst Ranch Conservation Easement.

In mid-October, the owners of the Hearst Ranch demanded financial reimbursement for the encroachment on their ranch. The district has agreed to pay nearly $30,000 for survey and legal expenses along with with an annual $5,000 charge as long as the building is located on their property. A final settlement and easement agreement with the Hearst Corporation has not been reached.

On Oct. 14, district board member John Russell resigned.

On Oct. 23, state and federal agencies rescinded two grants because of alleged wrongdoing. In the summer of 2019, San Simeon applied for and received confirmation the district would receive $125,000 from the National Fish and Wildlife Foundation (NFWF) and a matching $125,000 grant from the Ocean Protection Council.

In an Oct. 23 letter, the NFWF accuses district officials of knowingly applying for a grant they were not eligible for, and of sole-sourcing and conflicts of interest.

On Nov. 4, the California Department of Water Resources asked several agencies to investigate the district’s procurement of engineering work for two state grants the district received in 2015 and 2019 to help fund water treatment facility development. Specifically, the state is concerned that the district did not abide by bidding requirements while spending a $180,000 in grant funds for engineering.

The state also requested the SLO County Public Works Department investigate allegations the district was dishonest in the 2015 application that led to an award of approximately $400,000 for construction of the district’s water facility that has been found to be encroaching on Hearst Ranch property. In addition, the district allegedly failed to abide by fair bidding and procurement processes.

“We realize that the subject (2015) grant agreement is now closed, but in light of the fact that Department of Water Resources is poised to enter into a new Proposition 1 IRWM Implementation grant agreement with SLO District which would provide $500,000 in funds to the San Simeon CSD for another project, we request that you investigate this matter and respond to us in a timely manner with your results,” according to the letter the state sent the county.

Amid the FPPC, SLO County District Attorney’s Office and Department of Water Resources investigations, the district recently put one of the previously sole-sourced contracts out to bid.