Sanitation district mounting lawsuit against the state

November 8, 2014
Oceano Board President Matt Guerrero

Oceano Board President Matt Guerrero


The South San Luis Obispo County Sanitation District Board voted unanimously Wednesday to file a lawsuit against the state over a $1.1 million fine in a fight that has already cost ratepayers over $750,000.

In 2010, issues at the sanitation district resulted in 384,000 million gallons of raw sewage flowing into Oceano homes and the ocean. The Central Coast Regional Water Quality Control Board then determined the spill was the result of mismanagement.

Shortly after water board investigators reached their finding, it offered a $300,000 settlement to the sanitation district. The sanitation district serves the residents of the Oceano Community Service District, Arroyo Grande and Grover Beach and is governed by a three person board consisting of one representative from each community.

John Wallace

John Wallace

The district board declined the $300,000 settlement offer at plant administrator John Wallace’s suggestion. The district then paid about $750,000 to Wallace’s engineering firm the Wallace Group and a team of lawyers to argue against the allegations of mismanagement and the proposed fine.

During the legal battle that ensued, the district tried to halt the civil prosecution claiming that state authorities illegally withheld records in the investigation. But, in Aug. 2012, Sacramento County Superior Court Judge Michael Kenny ruled that the investigatory records were exempt from disclosure because of “a concrete and definite prospect of criminal enforcement,” leaving the door open for the district board to find Wallace criminally and financially culpable for the spill and the any fines.

In the state water board’s complaint, prosecutors accused Wallace of not properly maintaining or operating the plant and failing to properly report incidents to regulators.

At a subsequent hearing, the state water board determined that the 2010 sewage spill was due to careless and improper maintenance of the district and levied a fine of $1.1 million.

Prosecutors said several times during the hearing that a lawsuit filed on behalf of the rate payers could result in The Wallace Group being found responsible for the fines as opposed to the rate payers.

Discounting a San Luis Obispo Grand Jury report, the state water board’s findings and a state judge’s claims of criminal activity, the sanitation board, comprised at the time of Arroyo Grande Mayor Tony Ferarra, Oceano Community Services District President Matt Guerrero and Grover Beach Councilman Bill Nicholls, voted against conducting an audit of Wallace’s management and appealed the fine.

On Oct. 24, the state water board rejected the sanitation board’s petition for an appeal in a letter to the district.

The board, currently comprised of Ferrara, Guerrero and Grover Beach Councilman Glen Marshall, responded Wednesday by voting unanimously to hire an attorney to file a lawsuit against the state water board in state court. It is highly likely the cost of the sanitation district’s battle against the fine and any legal culpability will exceed the $1.1 million fine.

Following a San Luis Obispo County Grand Jury finding of conflicts of interest in the management of the sanitation district, Grover Beach Mayor Debbie Peterson asked for a complete audit of the district’s finances and a review of Wallace’s performance. Shortly afterwards, Wallace resigned.

Before he stepped down, the district regularly exceeded its more than $6 million annual budget. Under a new administrator, the district’s costs are less than 50 percent of its budget, district records show.

Peterson said she had not been informed of the district’s initiation of litigation, which she does not support, before receiving a call from CalCoastNews.

“From 1998 through 2004, when Ferrara and (John) Shoals came on board and Wallace was made the treasurer, the district ran $500,000 in the black,” Peterson said. “And now they want to take public funds that are critically required to upgrade the plant and waste those funds on the defense of the indefensible.”

Don’t miss breaking news stories, like CalCoastNews on Facebook.



  1. LeAnn says:

    I just can’t believe what I have read. It is has left me speechless, which I can assure you, doesn’t happen often…so, my question is this, how do we make a change in how the South County Sanitation District is governed and managed? How do we change the direction this is going? It seems like everywhere you turn, Ferrara is tied to every short-sighted, mis-managed, and closed-door meeting/decision-making venue there is in SLo county…we have to remove his political ties from office as well…if we don’t, he will continue to have a strangle-hold over many things in AG and beyond.

    SHUT THEM DOWN!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    (9) 15 Total Votes - 12 up - 3 down
    • agag1 says:

      Ferrara will lose his seat here too when the election results are finalized.
      His Mayorship,
      The presidency of the League of CA Cities,
      And now this!

      Nov 4th was a very bad day for Ferrara, but a very good one for South County.

      (8) 12 Total Votes - 10 up - 2 down
      • Mike Byrd says:

        Unfortunately, Grover Beach voters returned John Shoals to be mayor so even if Jim Hill is elected the san district board will still be 2-1 to keep on doing business as usual. If Mayor Peterson had been reelected there would have been a board majority dedicated to cleaning up that mess.

        (8) 10 Total Votes - 9 up - 1 down
    • falconbh says:

      Unfortunately, the cost saving Five Cities Fire Merger , take a look at the budget , and new hand picked politically connected Fire Chiefs background from Grover Beach and we have another mess to clean up. We need our own Fire Department back.

      (2) 8 Total Votes - 5 up - 3 down
    • falconbh says:

      With all the things happening, we now have the former mayor of Grover Beach as our new fire chief.

      (-3) 7 Total Votes - 2 up - 5 down
  2. TheNekkidTruth says:

    Uh Oh. We’ve heard reports that recently there was another sewage spill at the Oceano Sewer Plant and the head dude didn’t report, and then tried to cover it up.

    Good thing Tony Ferrara charged the Sanitation District thousands of dollars to draft the District’s Emergency Response Plan. I’m sure they got a boilerplate document on how to cover shit up.

    (9) 15 Total Votes - 12 up - 3 down
  3. wineguyjc says:

    So they will defend their buddy at any expense, oh that is at any expense to the public. That firm hires the worst of the worst.

    (8) 12 Total Votes - 10 up - 2 down
  4. falconbh says:

    South County Sanitation is just another verified example of the current gross mismanagement in Arroyo Grande , Orgren CSD in Oceano , and Grover Beach.

    With Automatic Rate Increases, without real democratic vote, we have a system that has no checks or balances, no incentive to reduce costs, and has unlimited access to taxpayers funds. A prop 218 Automatic Rate Increase , has never been defeated in California using this process.

    We need to demand more transparency at the City Councils and Community Services Districts on these important costly decisions with local public comments. They need to be stopped before Automatic Rate Increases are placed on the ballot.

    Next we need to encourage a change in leadership on the South County Sanitation Board that will do a better job in representing our local communities and will promote more citizen participation.

    If we have a major infrastructure problem in the South County Sanitation District then we need a bond that will only go towards infrastructure. We have all seen how Automatic Rate Increases or Sales Taxes have been diverted to legal costs, salaries , benefits , and early retirements.

    (9) 15 Total Votes - 12 up - 3 down
  5. agag1 says:

    Wow, I sure hope you’re on team Hill!

    (5) 13 Total Votes - 9 up - 4 down
  6. SLOBIRD says:

    What a damn mess for the citizens of the South County. There is only one solution when the ratepayers wake up:

    DUMP Marshall, Tony Ferrara, Matt Guerrero, Carmel, Adams, Wallace and Shoals. Until these corrupt cronies are gone, there will be no reform. These people do not make sense, can’t extend their palms out far enough and can’t pat each other enough on the back. Talk about a pack of rats!

    (26) 42 Total Votes - 34 up - 8 down
  7. analyticone says:

    The budget is the revenue remaining after all operating expenses are paid, which is in the black in 2014 for the first time since 2004 when Shoals and Ferrara came on board and made John Wallace the district treasurer.

    These funds, and the millions spent losing the fight against the $1.1 million fine and paying the Wallace Group belong to the people of the district. These are funds that were built up over decades and began to build again in 2014 and are desperately needed to upgrade the plant and find ways to address the critical ongoing water shortage. The water shortage won’t go away when the rains come.

    Instead, for a decade these reserves have been siphoned off to fund the defense of the directors and the overpaid John Wallace and his engineers, the Wallace Group who under performed and then were fined for their malfeasance.

    The only good use of district resources on outside legal assistance is to pursue a professional investigation into district affairs with a view to recovering these millions from these cronies and their friend Wallace.

    (24) 34 Total Votes - 29 up - 5 down
    • Snoid says:

      Keep in mind in 2006/07 the San Dist had over $12,000,000 in reserves. That is not a typo either. That money was for process upgrades as it was believed when the NPDES permit was due/renewed, the state would reduce discharge requirements to a point the plant could not meet. Wallace under Kennedy Jenks who designed the facility knew damn well this was coming. Wallace was not, and is not to this day qualified to design the needed plant upgrades. This was clear so he squandered off the savings with pork barrel projects that the Wallace group could design and manage that benefit nothing in the way of effluent quality improvements. Heres a few to toss around.
      1. Hundreds of thousands on a Biogas Cogen unit. Status/Dead as of a couple years ago
      2. The $1.200,000 dollar contact chamber. Status/ cost some 2.3 million and was taken off line multiple times after numerous system failures and higher Fecal coliforms than without a CC.
      3. San Simeon Earthquake repairs. Status/ Financially to be determined still/The cause of the headworks flooding as sub par management practices left low spots where the electrical pull boxes are that allowed rain water to enter the pump motors and shut down influent pumping.
      One could go on for years with a track record of projects gone bad and fees thru the roof. $80,000 a month was the typical billing rate. This went on for over two decades people, don’t forget this.

      (30) 32 Total Votes - 31 up - 1 down
      • LameCommenter says:

        Snoid, they DID forget and Shoals is coming back., maybe Wallace comes back next, Los Osos brought back (by election last week) Cesena who achieved his recall too late but still arrogantly shut down a going sewer project, costing most Osos homeowners $24,933 to move the WWT plant a meaningless five klicks east, not to mention higher O&M and years of painful town in-fighting.

        The disconnected electorate desires to TRUST in elected people to make mostly sensible and responsible actions. How can you blame them; not everybody has the time to track the abundant malfeasance-in-office that pervades this lovely county.

        (10) 14 Total Votes - 12 up - 2 down
    • StakeHolder says:

      This last move by the Sanitation Board shows what a critical CRISIS we are in. I agree with your comment about finding outside legal assistance to pursue a professional investigation into this district, PLUS the involvement of the various council members/mayors who have sat on the board since 2004.

      It may be time that concerned citizens meet and discuss a plan of action. We should not take any more of this!

      (11) 11 Total Votes - 11 up - 0 down
  8. Mike Byrd says:

    Interesting that nobody knew about this plan to sue until Ferrara’s election was over. Apparently the two cities and the OCSD weren’t even told.

    Lost in this was another announcement that wasn’t published until the day after the election. The fire authority board including, you guessed it, Tony Ferrara, hired a former volunteer firefighter who happens to have very, very good political connections to be the new fire chief. And this decision was made a couple of weeks before the election.

    Somehow an ex-volunteer being in charge of professional firefighters just doesn’t seem right. Is it any wonder that this, like the san district folly was kept under wraps until the election was over?

    I can only wonder how one-sided the mayoral election would have been if the voters had known about these two votes before they went to the polls.

    (32) 44 Total Votes - 38 up - 6 down
    • analyticone says:

      Not to mention that this decision, also rushed in before election day in special closed session meetings involves the same cronies and best friends of John Shoals who also ‘served’ the sanitation district: Bill Nicolls, Steve Lieberman, Tony Ferrara, Matt Guerrero.

      (22) 32 Total Votes - 27 up - 5 down
    • Snoid says:

      Mike, The petition for dismissal from the state was issued 10-24-2014 and sent to Thorme of Downey Brand.. I’m by no means making excuses for anything, however perhaps they did not see it until later.

      (-1) 3 Total Votes - 1 up - 2 down
      • Mike Byrd says:

        That’s correct. It seems to me that something so significant would have been shared with the member bodies along with the options. The public should have known what was going on before such a drastic, expensive and questionable decision was made.

        (16) 24 Total Votes - 20 up - 4 down
  9. agag1 says:

    This plan to sue smells like more legal advise from AG City Attorney, Tim Carmel.
    Sue, then claim you can’t talk about it because it’s a legal (or personnel, or ???) matter.

    (24) 32 Total Votes - 28 up - 4 down

Comments are closed.