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.”

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When I hear about the connection between Shoals and Ferrara,

and their actions while they served together,

It makes me wonder what is happening in Grover,

that they would re-elect Shoals,

while in AG, we are working so hard to get rid of Ferrara?


I used to think Guerrero was decent guy but have come to learn he is not. Like Ferrara and Wallace, it seems he is lacking in ethics. And to think Guerrero has aspirations of becoming a judge. If he ever ends up on a short list the people need to raise heck with the Governor.

I don’t know, it seems more and more like most of the sewage in the South County Sanitation District isn’t confined to the treatment tanks but rather its seated in the board room.


Please don’t think we call Tony a narcissist for no reason, he really has a personality disorder and that is one of the reasons they voted to spend this money. A narcissist NEVER thinks it is their fault, it is always the other guy.

And let’s see Tony was not feeling well with kidney stones Tues so he was not able to attend any election parties, but Weds he felt fine and went to the san dist meeting and voted to spend more money, then Thursday he is sick again.

My husband has had kidney stones, and many freinds, and you don’t feel bad, then good for a day, then bad again in my experience. You don’t go to the hospital twice with them either.You go one time they try to flush them out, if not you go home with a screen to urinate into so you can catch the stones, and then they go to a pathology lab.

This is just like so many other things Tony tries to tell us, they don’t pass the smell test.

Let’s hope Jim Hill can talk some sense into Shoals so we can do something with the San dist.


Not likely that Hill will be able to talk sense into Shoals. It would be Shoals who directed Marshall to vote to sue, as Shoals also needs to cover his culpability in the losses and negligence. Shoals and Ferrara are close friends as are Shoals and Guerrero.


Let me get this straight….

A sewage spill that was deemed a negligent action by the South County Sanitation District that resulted in a $1.1 million dollar fine by the Central Coast Regional Water Quality Control Board

The board offered a highly reduced settlement of $300,000

The SCSD rejected the offer and spent upwards of $750,000 on an appeal of the fine

On Oct. 24, the state water board rejected the sanitation board’s petition for an appeal

On November 5th the SCSD voting unanimously to hire an attorney to file a lawsuit against the state water board hiring some of the same original attorneys that lost the appeal






Worse than that! The district’s $3 million budgets until 2004 were consistent with its revenues and generated about $500,000 to set aside for infrastructure every year.

Then in 2004 Tony Ferrara and Grover Mayor John Shoals joined the board and made John Wallace the treasurer. In 2005 the District broke even. From 2006 to 2013 it lost $500,000 to $2,000,000 a year, thus wiping out the infrastructure fund built up since 1988. They passed $6 million budgets on $3 million revenues. After Grover Mayor Debbie Peterson intervened the 2014 budget was balanced and the District returned to having $500,000 to place in the infrastructure fund.

Now the same folks responsible for nearly bankrupting the District have voted to misappropriate this $500,000 to sue the agency that caught them at it when funds are desparately needed to update the plant and find ways to clean up the wastewater and recharge the basin.


Thanks for a relatively concise history of this farce. I was generally familiar with it but had forgotten many of the specifics. This, more than the Adams affair coverup, is why I joined the fight against Ferrera. I don’t know if Shoals played his role knowingly or if he was just conned into supporting Wallace/Ferrera in their ratepayer ripoff. But, at the least he was grossly negligent in letting it occur and is wrong in supporting this attempt to waste more money fighting it.

I wish that Debbie Peterson had emphasized this more during her campaign and that she had the same kind of support in GB that Jim Hill had in AG.


Shoals knew all about it. was too focused on conference center


3 people who disagree. pray tell why?


Perhaps your husband, a former San Dist employee for over two decades, and once Superintendent who was canned, can answer that one. Indeed, Why?. As a public servant why didn’t he man up and spill the beans about the goings on considering Wallace was his boss for 20+ years?


The San Dist board has hired the same attorney, Melissa Thorme of Downey Brad, LLP, to file this writ that represented the district in the September 2012 hearings…racking up about $500,000 (of the $750K spent) in attorney fees at that time.

What is the budget for this suit? What do they hope to gain?

The San Dist’s appeal to the State Water Board was denied on October 25, the city mangers were not copied on the letter, do we know if they were notified? did they in turn notify council members? The San Dist board had time to take this to their respective council’s to get input on whether to take the tri-communities down this litigious path.

Clearly Mayor Peterson didn’t know and wouldn’t have supported it…did any of other 11 elected officials effected in this decision know this was coming? Probably not. These three board members, Guerrero, Ferrara and Marshall, made this choice in a vacuum. The way this was agendized, without any indication that initiating litigation was anticipated left the public out entirely.

The rate consultant, hired in August of last year, is due back anytime with a 218 rate schedule increase to cover costs associated with $10M in plant upgrades. Water rates just went up in AG, OCSD isn’t far behind, GB may be handing out street repair taxes, the Fire Authority is in financial trouble, all of these things should be considered by the San Dist. Is this really the best path to take? If it is, explain why.


Julie….the crap just keeps piling up.


Only in government would you spend $750,000 instead of taking a settlement of $300,000, of course it’s not their money. No surprise Wallace is involved, another close friend of the (hopefully) former mayor of Arroyo Grande.

Mike Byrd

I so wanted Mayor Peterson and Jim Hill to gain control of the sanitation district board. The audit would have been done, Wallace would have been held to account and wasteful spending at ratepayers expense would not have occurred. Now it looks like we may gain Mr. Hill but have lost Mayor Peterson. The status quo continues and that is going to be very expense for us in the south county.


Simultaneously…sue the Wallace Group. They don’t have a leg to stand on.


The next big battle will be with the South County Sanitation District and their Automatic Rate Increase to cover mismanagement and excessive legal costs.

Just behind them is the Ogren CSD in Oceano that is being driven directly into bankruptcy by Guerrero.