South County administrator left district uninsured

July 10, 2012

John Wallace


South County sanitation district administrator John Wallace’s failure to maintain errors and omissions insurance during a 2010 sewage spill could leave him financially responsible for a proposed $1.4 million fine.

In late 2009, following reports of environmental abuses to local and state water authorities from South San Luis Obispo County Sanitation District employees, the insurance company that carried insurance for Wallace said it was canceling his coverage.

Wallace, however, failed to inform the district’s board of directors of the cancellation and did not acquire another insurance policy. As a result, district officials plan to increase charges and pass the cost of any fines to the rate payers.

But because Wallace failed in his fiduciary duty as administrator of the plant, he could be found financially and personally responsible for the proposed fine.

The district, which serves the residents of the Oceano Community Service District, Arroyo Grande and Grover Beach, is governed by a three person board consisting of one representative from each community.

Former board member Jim Hill said the district had been paying for Wallace’s errors and omissions insurance.

“I expected him to have maintained insurance,” Hill said. “There was no reason for him not to have it.”

In a complaint filed last month, prosecutors for the Regional Water Resources Control Board accuse Wallace of failing to properly report incidents to regulators.

Regulators also contend Wallace’s failure to properly maintain the plant resulted in 1,139,825 gallons of sewage spilling into the community of Oceano, local waterways, and the Pacific Ocean in December 2010.

Wallace argues that the plant spilled only 400,000 gallons of raw sewage and has vowed to aggressively defend his claim. Apart from possibly having to cover the proposed fines, the rate payers are also funding the district’s mounting legal expenses.

During the 2011/2012 fiscal year, the district paid $232,500 to attorney Michael Seitz. In its 2012/2013 proposed budget, the district estimates it will pay $295,000 to Seitz and a Sacramento based attorney firm Wallace hired to defend him and the district.

Sewage plant administrators at other county plants report the costs for legal services run substantially less than those paid out by the South County district.

For example, Paso Robles has similar sewage needs as those at the South County district. Paso’s costs for legal services are currently budgeted at $22,000 for the year,  said Chris Slater, Paso Robles city waste water division supervisor.

Regulators have set a tentative public hearing on the complaint for Sept. 6 at the water board office in San Luis Obispo. At the hearing, Wallace will have an opportunity to argue against the complaint.

During the 2010 spill, sewage flowed into approximately 40 homes in Oceano. Unaware of allegations of mismanagement, none of the residents filed suits against the district before the statute of limitations to make a claim against the public agency ran out. However, if the hearing results in charges of mismanagement, those homeowners would have an opportunity to seek restitution from Wallace.

Water board investigators are currently interviewing Oceano residents whose homes were damaged from the sewage spill. Office of Enforcement investigator James Fischer is asking homeowners to call him at 916-341-5548 or email him at

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You’ll remember Council Member Molnar shared some previously un-disclosed information about Nicolls. Then, it was agreed by the council that a discussion about their representation (or lack of representation) by Nicolls would be added to a future agenda. All is not lost… I still believe the council will do the right thing, eventually.

The talk of a citizen’s group, I feel, is unnecessary. I can count the number of citizens on two hands that have stepped to the microphone and talked about how broken the sanitation district is, how the leadership needs to do better. That is not the community involvement that I have seen work effectively for other issues.

We don’t need a citizens group. We need citizens to come and speak at ONE meeting. When the agenda item comes up, maybe at the next meeting, citizens need to speak! Ask the City’s Attorney to explain why rate-payers should to pay the fine, ask him whether there is any recourse for the city to avoid paying it. Ask the Mayor why Nicolls wasn’t replaced earlier. Ask whatever you want.

The people need to clearly set the expectation here! Even if you think Nicolls has done a great job, show up and speak. There is a process in place that SHOULD work for us. It is worth the investment for at least one more meeting.

I’m sorry, but I have to respectfully disagree. The fiasco that has been ongoing at the Sanitation District since 2009 when the first whistleblower charges were filed has been discussed at length with Ferrara and Nicolls and they’ve let it be known that they are 100% behind anything John Wallace wants.

It’s time for the people who are going to have to pay the 1.4 MILLION DOLLAR fine to have a say in what’s going on. It’s clearly evident that our elected leaders do not have a handle on this situation.

I believe that Nicolls is running for re-election as mayor. As mayor he’ll have the ability to self appoint himself as the District’s represtentative. The public needs to make it very clear, in loud and simple terms, that we do not trust Nicolls and the public should have input on who the new representative to the Sanitation District Board will be.

I hope the People in Arroyo Grande are watching all of this unfold. Ferrara should be the next one on the chopping block.

I have heard from more than one resident in Grover that Oceano has decided not to pay the fine and the responsibility lies with Wallace. Anyone else hear that? I do hope that Grover puts the replacement of Nicols on the agenda next meeting. It will be just before the hearing. I am confused I have heard two dates. Sep 6th and Wallace said Sep 7th at his Grover presentation.

The Water Board changed the hearing date to the 7th.

So, there could be 2 interesting meetings next week, AG and Oceano. Except… AG cancelled their meeting that would usually be scheduled for the 24th. We’ll have to wait and see whether Oceano CSD addresses this issue on their agenda for the 25th.

Yes. Tomorrow night, early in the agenda, Grover Beach has an opportunity to learn a lot about their present, ineffective representatives on the San Dist… Nicolls (primary) and Shoals (alternate). You know, this whole scenario could have played out differently. It is the Mayor’s decision who will serve on the San District if they themselves are unable to serve. Last fall, it became apparent to everyone that was watching that Nicolls was not accurately reporting problems with the district. Surfrider, during multiple Public Comments, asked that the council vote to replace him

Mayor Shoals, the decision maker, said in Sept 2011, that come new committee assignments in Jan 2012, the council would discuss replacing Nicolls. That discussion never happened. In fact, Shoals made himself the alternate instead of Karen Bright. Thus, it is Shoals that blocked the possibility of getting other eyes on the problems of the Sanitation District in 2012.

So, tomorrow night we might find out a lot about the future leaders of Grover Beach. And, should they ask some tough questions and help the district follow through with some common-sense reforms, Arroyo Grande, Grover Beach, and Oceano will all benefit.

I could not have said it better, let’s see what happens tonigit.

I was at last night’s Grover City Council meeting. Here’s a few of the highlights that I thought were interesting:

-San Dist Administrator John Wallace was there and gave his usual dog and pony show about how great things were at the District and how there was nothing to worry about. They’ve got the fine thing handled and they can always “take it to court” if they lose at the Water Board hearing.

– Wallace had to handle a few tough questions about his Errors and Omissions insurance. He did an artful dance of never specifically answering the question while but blathering on about unrelated matters for several minutes.

-A vote of “no confidence” was presented by Council Member Molnar and she suggested an emergency meeting to vote in a replacement for Nicolls on the San Dist Board. Mayor Shoals quickly shut her down, and unfortunately, Director Bright wouldn’t vote for it either. I’m disappointed in both of them.

I happen to have certain information that I believe Director Molnar should be made aware of. I’ve tried mailing her through her website, but the mail keeps getting bounced back. If anyone has her email addres could you forward it to me:

I’d also like to throw out an invitation for any who are interested in getting together some kind of South County Citizens Group to basically let the politicians know we don’t like the way they’re handling this situation. Again, email me at:

Interesting to note that the Sanitation District’s regularly scheduled meeting on July 18th has been CANCELLED. A new meeting has been scheduled for July 17th.

This seems to be Wallace’s M.O. in dealing with negative publicity…cancel the regular meeting and schedule a “Special” Meeting. He’s done it numerous times over the last several years as he’s dealt with the negative fallout he recieved from his San Dist dealings.

However, I truly do no believe that it would do any good to attend a San Dist board meeting anyway. Nicolls and Ferrara have proven time and time again that they will rubber stamp anything Wallace puts infront of them.

The only way to truly effect change will be for new representatives to be appointed to the San Dist Board. A truly impartial and “for the people” elected official (if there are truly any of those) would review Wallace’s contract and terminated him and all of his companies services immediately.

I disagree with you. I think showing up the the meetings will help. We HAVE to do EVERYTHING we can to correct this problem.