Lack of Transparency and Due Diligence at the Santa Maria Valley Water Conservation District*

Conclusions 4

• CL1
  The Santa Maria Valley Water Conservation District's inadequate disclosure regarding its contract with Mitigation Solutions, LLC resulted in Western Sierra Resource Corporation's inaccurate news releases becoming the only public source of information about ongoing mitigation activities at Twitchell Dam and Reservoir.
• CL2
  The Santa Maria Valley Water Conservation District failed to exercise financial due diligence in its evaluation of Mitigation Solutions, LLC's ability to meet its contractual obligations, particularly considering Western Sierra Resource Corporation and Mitigation Solutions, LLC's financial condition.
• CL3
  months after the issuance of the report Will not be implemented, with an explanation of why
• CL4
  Santa Maria Valley Water Conservation District – 90 days Findings 1, 2 and 3

Observations 1

• OB1
  2 Mitigation activities broadly include stabilizing Twitchell Dam and removing sediment and debris in and around the Reservoir. Best practices for transparency In its own words, "The Special District Leadership Foundation (SDLF) is an independent, non-profit organization that promotes good governance and best practices among California's special districts through certification, accreditation, and other recognition programs. The SDLF and its activities are supported by the California Special Districts Association and the Special District Risk Management Authority." The District is a member of the California Special District Association. SDLF programs include checklists of best practices, one of which addresses transparency; it offers a "District Transparency Certificate of Excellence" to districts that qualify. In addition, the application for the transparency program has an extensive checklist of requirements for a district's website, including information about the district's mission, operations, board members and key employees, board meeting schedules, agendas, meeting packets, minutes of meetings, budgets, and financial statements.3 The Jury examined websites of several other special districts in northern Santa Barbara County, which all have transparent websites with links to relevant resources for items such as those mentioned in the SDLF website checklist. Deficiencies in transparency at the District The Jury's first review of the District's website (SMVWCD.org) in early February of 2023 revealed a dearth of information. During the Jury's investigation, disclosures have been sporadically added. The investigation of the District's 2022 meetings revealed that a notice and an agenda were posted. No minutes or document packs were attached for 3https://higherlogicdownload.s3.amazonaws.com/CSDA/feaaf941-6df6-4428-a23c- 583379a09704/UploadedImages/PDfs/2023 SDLF District-Transparency-Application.pdf Date last viewed May 15, 2023. any meeting except for a special meeting of the District's Board held on October 19, 2022, with one action item relating to the contract for the mitigation efforts at Twitchell. The sole reference in the minutes reads: ACTION ITEMS Twitchell Dam & Mitigation Contract: District Counsel reported on the changes to the MSL contract; held discussions with Mr. Jones of MSL, revised correct typographical errors raised by Director Hadick. Responded to Director Adam's questions. It was moved and seconded (Flores and Mahoney) to authorize President Hadick to execute and Secretary to attest to the MSL contract. Motion carried: 5-0-0-2.4 The contract with MSL Nothing appeared on the District's website about the nature, scope, or finances involved in the contract with MSL. No local newspaper picked up the story, although some financial service websites did report WSRC's news releases. A web search revealed the only public mention of the contract was in securities filings and news releases by WSRC, which is the parent company of MSL. WSRC's news releases and disclosures were the only publicly accessible sources of information about the MSL contract with the District that the Jury could find. A news release by WSRC, dated October 25, 2022, valued the contract at $1.976 billion, and reported that WSRC had $40 million of equipment financing and a $150 million line 4 https://www.smvwcd.org/files/f89bdfc92/10-19-2022+Minutes+Final.pdf Last read May 15, 2023. . . of credit immediately available. The news release also stated MSL would secure federal reimbursement funding for the District.5 The contract has been characterized as self-funded, meaning responsibility for performing mitigation activities and obtaining government or other financing for the work rests solely and exclusively with MSL, at a net zero cost and no liability nor obligation to the District. The District did not establish a value for the MSL contract. The October 2022 contract was for a feasibility study. The final contract in January 2023 incorporated the feasibility study and set the legal framework for the relationship between the parties. Values of the contract will be known only if and when the District initiates specific task orders for work. WSRC's assertion about $190 million of available financing has not been verified. Emergency expenditures in response to Winter 2023 storms in California Winter 2023 storms in California placed Twitchell in emergency mode, and $13.6 million of disaster expenditures were made through February 2023 via independent contractors. The $13.6 million amount is far more than the District's funds on hand or its ability to generate additional revenue, and MSL has not provided funding. In a March 28, 2023, letter to the California Office of Emergency Services, the District formally requested advanced funding for those emergency expenditures through the California Disaster Assistance Act. 6 The District failed to perform financial due diligence regarding the contract 5https://www.otcmarkets.com/stock/WSRC/news/Western-Sierra-Announces-FINAL-Contract- for-15-Billion-Federally-Funded-Project-Through-the-Companys-Wholly-Owned- Subsid?id=377389 Date last viewed May 15, 2023. 6https://www.smvwcd.org/files/cfa2d051e/SMVWCD+Request+to+CalOES+re+Advanced+Fund ing.pdf Date last viewed May 15, 2023. . . The Jury learned that the District did not initiate the contract with MSL. MSL approached the District. Only cursory steps were taken to vet MSL and its principals. The District did not seek bids because the contract was presented as a net zero cost to the District. Financial filings and news releases by WSRC have long been publicly available on its website7 as well as on OTC Markets Group, Inc.8 The websites show that MSL is a wholly owned subsidiary of WSRC9. The financial reports and other filings the Jury reviewed revealed a history of unfavorable financial conditions, 10 and do not reflect the availability of the financing resources claimed by WSRC in its October 25, 2022, news release.

Agency Responses 1

Government agencies' official responses to this report's findings and recommendations. Click on a response to see the structured breakdown.