Sanitation district mounting lawsuit against the state
November 8, 2014
By KAREN VELIE
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.
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.”
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