Arroyo Grande mayor seeks sanitation district audit

December 5, 2014
John Wallace

John Wallace


Arroyo Grande Mayor Jim Hill has asked the South San Luis Obispo Sanitation District to initiate a forensic audit of the district in an attempt to recover the cost of a fine and mismanagement attributed to the former plant administrator.

At Wednesdays sanitation district meeting, Hill’s first action as a district board member was to place the request for an audit on the first agenda in January. The sanitation 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.

In 2013, amid allegations of mismanagement, John Wallace, the sanitation district’s former administrator, stepped down. Within months, the plant was operating cleaner at less than 50 percent the cost, according to financial reports obtained from the district.

Following Wallace’s resignation, former Grover Beach mayor Debbie Peterson requested a forensic audit of past practices in an attempt to possibly reimburse ratepayers for misappropriated funds. However, former Arroyo Grande mayor Tony Ferrara and Oceano Community Services District Board President Matt Guerrero voted against Peterson’s proposal, and it failed.

The current board consists of Guerrero, Hill and new Grover Beach Mayor John Shoals.The three are slated to vote on the proposed audit in January.

Under Wallace, the district regularly exceeded its more than $6 million per year budget and ran at a deficit. Currently, the district is running at less than 50 percent of its budget, with overages being placed in a reserve account.

For decades, Wallace acted as chief administrator of the district, and also as owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo. For years, the Wallace Group received between $50,000 and $80,000 a month from the district for a variety of engineering services.

In a 2010 exclusive, CalCoastNews detailed allegations that Wallace had been funneling thousands of dollars to his private engineering company, while concealing environmental violations.

In June 2011, the San Luis Obispo County Grand Jury said that the district board failed to recognize the conflict of interest between Wallace’s administration of the district and his private engineering firm, and that Wallace’s contract had never been competitively bid as required by law. The three-person district board led by Ferrara fired back a response saying that the Grand Jury’s allegations of district mismanagement “were largely inaccurate.”

The district currently owes the state a $1.1 million fine for a 2010 sewage spill determined to be the result of Wallace’s mismanagement. Several weeks ago, the district board under Ferrara’s leadership voted to sue the state over the fine. However, the new board is also planning to take another look at its previous decision to sue the state.



10. He’s nothing like the old mayor

9. He’s smart

8. He’s not arrogant

7. He’s a professional

6. He’s honest

5. He cares about the citizens of Arroyo Grande

4. He doesn’t make “backdoor deals”

3. He listens

2. He leads


1. Intestinal Fortitude


The following is something that might help justify the need for a forensic audit.

At the Grover Beach City Council meeting of July 16th, 2012, Debbie Peterson asked John Wallace some excellent questions regarding Wallace’s errors and omissions insurance for his role as Administrator for the sanitation district at the time of the sewage spill. It would be very informative to listen to a recording of this meeting if one still exists.

In response to two of Ms. Peterson’s questions, Mr. Wallace may have lied in one response and may have deliberately misled the Council in the other. These responses could be crucial with regard to who is ultimately responsible for paying any fines for operating negligence, and should be pursued as a part of any forensic audit.

When Ms. Peterson asked Wallace if his errors and omissions coverage for his job as Administrator had been cancelled, he stated something to the effect that there was some obscure clause in the policy that was changed or deleted, and that eliminated his coverage. And no one noticed. Who was supposed to notice? That was his job.

His answer clearly didn’t pass the smell test. It is illegal for an insurer to drop such coverage and not inform the insured. If a forensic auditor were to contact the insurer and obtain a copy of the correspondence and their file notes on the coverage termination, the facts might show something very different than what Mr. Wallace represented to the Grover Beach council. It might show he was aware of the cancellation and even took steps to try and prevent it.

After Ms. Peterson’s questioning established that Mr. Wallace’s Administrator E&O insurance had been cancelled, she asked him if he had any other liability coverage for his Administrator role. I believe everyone in the room including Mr. Wallace understood that she was asking him if there was another INSURANCE POLICY that would insure against the same losses covered by the cancelled insurance. He responded, “yes”, he was covered by his contract with the sanitation district.

Does anyone really believe his employment contract provided a redundant insurance policy that protects the sanitation district’s customers from loss in case the policy coverage he is supposed to maintain is cancelled and he doesn’t happen to notice?

His employment contract likely INDEMNIFIES HIM for his personal liability if he screws up. An example of a screw up for which he might be indemnified is him failing to notice he’s let insurance coverage lapse. In plain English, indemnification means the sanitation district and its customers are responsible for any uninsured loss, and not Mr. Wallace.

And WHEN and HOW did he inform the district board his coverage was cancelled and the district’s customers had exposure for any loss that would have been covered? It would have to be in the board minutes if it happened at all. Mr. Wallace had an absolute obligation to inform the board, but he sidestepped this obligation by claiming he didn’t know.

In summary, the key questions to be answered are the following. Would proof of appropriate cancellation notification by the insurer, and proof of a subsequent intentionally unreported coverage lapse by Mr. Wallace render Mr. Wallace’s indemnification invalid? If it does, would that give the district’s customers recourse against Mr. Wallace for any fines that are imposed for Administrator negligence that would have been covered by the cancelled policy? Wouldn’t that be something worth knowing? A forensic audit that included this as a part of it could find out.

On a somewhat related matter, if anyone thinks Wallace can be subject to litigation for massively overcharging the sanitation district, that is likely just wishful thinking unless Wallace actually submitted invoices for work not done. The district’s board of directors blessed (approved) every penny Wallace was ever paid. His ass is covered. Ferrara and Bill Nichols can be thanked for that.


This story is true, I was in attendance at this meeting and heard Wallace say “no one noticed”. He went on to say that clause in the policy had been dropped by the insurance carrier in 2009. “No one” noticed for a very long time that he wasn’t covered. It is the Administrators duty to review each years renewal and recognize if things change before re-upping the policy.

Someone please correct me if I’m wrong, but I don’t believe Wallace even tendered a claim for the district’s insurance to cover damages from the Dec. 2010 spill until Peterson brought this question up in mid-2012.

Of course, the claim was denied. Subsequently, the District the has sued the insurance company, SDRMA. That suit is ongoing.


Dig a little deeper and you’ll find another sex scandal cover up linked to Tony Ferraro,

John Wallace, and millions of dollars of tax payer dollars.

In 2010 the District’s newly hired lab tech was the subject of a Staff drive Sexual Harassment complaint. She came from a No. Calif municipality that just so happened to have a Coca Cola plant that John Wallace was providing engineering service to for the tune of about $5 Million per year.

The Lab Tech threatened Wallace that she’d expose his sleazy dealing at the San Dist to the American Canyon City Council and he’d lose his juicy little $5 Mil contract because of the fallout.

Tony Ferrara and John Wallace covered everything up till the Big Spill, and then the $hit hit the fan.


I don’t understand why Wallace wasn’t sued, along with the insurance company.

Mike Seitz was acting more as a personal attorney for Wallace than he was as an attorney for the SSLOCSD’s rate payers.

debbie peterson

Thank you, Toad for your comments.

Had it not been for you and many others who spoke out, I would not have been informed enough to initiate the changes that saved the district from bankruptcy. Keep speaking, and bring friends!

Audio of the July 16, 2012 meeting that Toad refers to is at: and starts at 18 minutes 50 seconds.

In this recording are other misleading comments. Mr. Wallace stated truthfully, “We had a diesel bypass pump at the head works and an emergency generator that cuts on automatically.”

He then said, “If we hadn’t had [the emergency generator] there would have been millions and millions of gallons of spilled waste water.” Although an electrical event is blamed for the spill, even with electrical power the flood would have occurred because:

Only one of the four electrical pumps was operational at that time, and

The diesel pump was ineffective because of a closed valve and because it shut down every hour.

My understanding is that the insurance was canceled because of the high number of workers’ comp claims. Every contract with Wallace or the Wallace Group indemnified him or his company, rather than the District and/or Ratepayers.

Finally, you will also hear in the audio that Mayor Shoals had been asked to replace Mr. Nicolls as his alternate numerous times. Mayor Shoals refused every time.


Hi Debbie, the facts regarding that diesel pump are as follows. It was spec’ed out by Wallace. If you contacted Paco pump or perhaps Grunfos,whoever they are now, in the bay area this can be verified through a paper trail. The pump arrived and did not meet the required specifications. It was shipped back to the manufacturer some 3 times for corrections. This went on for years literally. Upon its final return it still was not up to the task. Wallace then told the staff he could get a bargain rate on the pump because Paco was tired of messing with it and had changed companies to Grunfos pump? The staff told Wallace NO, NO and NO!!! it will not do the job!! in an emergency as it would stop running without notice etc,etc. Wallace against the staffs adamant pleas, said to bad were accepting it as is. It then sat in the shop and was later placed out near the headworks where it assume it sits.


Kind of sums up Arroyo Grande’s situation, Lots of floaters.


Here’s a real concern.

Hill and Shoals now serve on SSLOCSD because they are the Mayor’s of their cities. Health & Safety Code 4370 requires the presiding officer from each community to serve as the representative from their organization. This coming Wednesday night Oceano CSD is slated to change their Board make up, likely moving Mary Lucey up from VP to Pres. This would make her the representative from OCSD to serve on SSLOCSD.

At last weeks SSLOCSD meeting Lucey attended as an audience member. She made public comment near the end of the meeting (53:37 minutes into the audio tape available on the website where she suggested an audit is going back to “regurgitate and beat people down” and didn’t “see the point”. She also said, “I get very nervous when I hear ‘forensic audit’.”

Lucey is currently serving as chair on the Zone 3 Advisory Board where she sits with John Wallace, he represents Avila Beach CSD as it’s district engineer, on that board. She has become quite close to Paavo Ogren, (they were overheard planning a motorcycle ride for this Sun.) who has longtime associations with Wallace and was in charge of opening the flapgates and didn’t on the day of the flood that triggered the sewage spill (he probably would prefer no audit be done).

Jim needs help from the public. The public from the tri-communities can attend OCSD’s meeting Wed. at 6:30pm and make their concerns known. You want an OCSD President serving on SSLOCSD that is transparent, will open the books, and is willing to look back and see (through an operational audit) if monies were spent wisely. If wrongdoing is found, so be it, that would take it out of the public officials hands and put it into the DA’s hands.

Lessons from an audit can be very valuable as the SSLOCSD goes forward. Learn from the past and vow never to repeat it.


Thanks for the update, Julie.

Not good news about Lucey and Wallace.

I agree, it is important folks show up. Unfortunately, I am not available in the evenings, but I will have someone show up in my stead.



When DO you attend in person?

I’ve been to so many OCSD meetings that you chime in on, after-the-fact but only one meeting all these years that you’ve personally attended.

What’s up with that?

It IS important “folks show up”.

You are folks too.


I have a position where I need to be available at hours which usually exclude me from being available for meetings.

As Sun Tzu said (paraphrased), there are many types of warriors needed to win a war. There are calvary, generals, infantry, spies…even ambassadors who negotiate the terms of disengagement. All are important, and without them all, the process would fail.

The lesson from that, as I saw it, was that it is foolish to criticize someone involved in a battle just because the role they play is not the same of yours.

No role is more important than another. Each plays an integral part in the outcome of the war.


I don’t think “Mary Malone” shows up to anything because she does not exist. Do you know if this person does in fact exist. I have my doubts. “She” says things I think only a man would say.


What is Mary Lucie’s track record for recognizing mismanagement while on the OCSD?

Oh… I think I know. OUCH!


Monte, Geaslen, Curtis…three strikes you’re out Mary!


To quote a great poster’s name, Mary Lucey can “biteMe”!


Now that would be a mouthful, no thanks.


Careful..might get Ebola.


Mary Lucey , Matt Guerrero , and the Ogren Community Services District.

The last thing Lucey, Guerrero , and others want is a ” Forensic Audit ” in the South County Sanitation District at a time when they want to raise rates to cover mismanagement, corruption and wasteful spending.

The next forensic audit , grand jury investigation , state audit , or federal investigation, will lead to Lucey and Guerrero, and expose their failure to the people and legal violations.

Just take a look at their budget packet online for this week’s meeting. They continue to bleed red after years of increases, to develop a false crisis that could have been avoided with just some sound financial planning. They want their new rate increase !

Ask yourself just one question: Why is a small community water district , in a very poor area, with only a handful of employees, paying Paavo Ogren over $ 250,000 in pay and benefits and giving him so much power , at a time when they are in the red and taking loans to cover expenses.

We need Justice, a Forensic Audit , and to disband this corrupt district.


Tomorrow is the 33rd year of the SLO County Toy Run. Motorcycle riders meet in Avila and

take a ride to the Arroyo Grande Hall on Lopez Drive. They carry toys for children and there

is a BBQ and non motorcycle riders meet there also to deliver toys for kids. Hundreds of

people ride in this event. It is for charity and a tradition for many people in Oceano and the

south county. So, Mary Lucey and Paavo Ogren are going to take part in this charitable

event tomorrow. That is what was “overheard” . How pathetic you are. Why don’t you try

to do something productive for a change?


“Overheard” ? So, it’s gossip that you are quoting? And obvious assumptions you are making. Are you implying there is a sexual relationship between Ogren & Lucey? Now that’s a “real” concern … NOT ! But it IS how nasty rumors get started! For those of you who are equally misinformed…. The Bike Ride this Sunday IS A TOY RUN. PEOPLE RIDING IN IT ARE DONATING TOYS TO CHILDREN THROUGHOUT SAN LUIS OBISPO! You don’t have to ride to donate. Those who wish to donate a toy for Christmas for underprivileged children can bring a new unwrapped toy to Portuguese Hall. Thank you, Julie for promoting this event. It’s the largest Toy Drive in Central California- So, instead of spewing lies & trying to start rumors – please donate a toy!


I’d be happy to donate and will to my local toy drive here in Los Osos.

What I personally overheard (not a rumor) was, “Are we going riding Sunday?” — cozier than “meet you at Arroyo Grande Hall.” AND No, I’m in NO WAY saying I think there’s a romantic relationship between the two; Paavo has Maria and Mary is happily married to Nancy.

I’m not saying there’s anything wrong with going for a motorcycle ride with a friend, but what I will say is objectivity is lost when a Board member befriends their district’s GM. Ferrara and Wallace, Ferrara and Adams, are perfect examples.

As far as Mary Lucey’s track record with GM’s (Paavo is her 8th since elected in 2008), she has defended each of the past OCSD GM’s to a fault — which has directly cost the OCSD hundreds of thousands of dollars over her tenure. That’s real money that could have gone into the failing infrastructure; instead upwards of 90,000 gallons of water PER DAY is leaking from the OCSD system into the ground, lost forever.

Mary Lucey holds herself out as the OCSD’s foremost authority on water, wastewater (she even thinks the system is pressurized), personnel matters, grant writing, finances, and whatever the subject of the day is. Yet she adopted a budget some $280,000 in deficit and hired Paavo for a cool million bucks for his four year contract. Paavo makes more than the 5 staff he oversees combined.

My message here is you do not want her on the Sanitation District Board at this critical time.


Correction: Health and Safety Code 4730, not that stated above.


As a Hill supporter, I feel a bit like a proud parent!

That’s my boy! Go Jim!


You keep hitting like this Jim, and we’ll have to name you “Babe” Hill, the Sultan of Swat!


Where is the Insurance Carrier ?


If memory serves me right tonite, CCN reported that Wallace had let his liability insurance lapse and thus they are out of the loop — at least for the $1.3M fines. That may have something to do with why his buddy Ferrera was fighting the fines in court. He might be personally liable for them. (I hope so but Wallace is a slimy creature and will probably find a way to weasel out of that too.)


Then Wallace assumes financial liability for the fines, Not the ratepayers.


Omg, who in the world with this type of exposure would let their insurance lapse?

If this is true, it’s unbelievable, absolutely shocking.


Wallace’s O&E insurance carrier cancelled his coverage because of so many pending litigation cases. What does that tell you? It is imperative people push this audit thru as there are endless documents,invoices etc,etc, many in my possession,that prove beyond any reasonable doubt Wallace over billed and took advantage of his position. Now is the public’s golden opportunity to take back what is ours after decades of of corruption in local government.


Just a slight correction. The SSLOCSD was actually run reasonably well until the Wallace-Ferrara decade from what I have been able to determine. (Not “gold standard” well but “decent bang for the buck” well.)

debbie peterson

The history, as I’ve been told is that the District started up in 1963. In the early 80’s it was nearly bankrupt. Paul Karp turned it around and it ran well from the time he turned it around until 2005 when it broke even and went downhill from there until 2013 when it was turned around again by Paul Karp.


The lesson that we have learned is that many of these people are not very good people , and have abused their positions of power to advance their own personal and financial gain.

It is time for them to be held legally and financially responsible for their actions.

The revolt in Arroyo Grande is only the beginning as people all across the county begin to democracy.


” reclaim”


There are likely a few reasons why the former AG mayor wanted to fight the fine, none good, but should Wallace ever been found liable for the fine my guess is “The Wallace Group” or whatever his company name is will quickly file for bankruptcy trying to avoid the fine, then either he will start another company to continue to syphon for his government buddies or just retire. Lord knows he has stolen enough money from us alone to retire nicely


I may have had a slight error in my memory. I think that it was the SSLOCSD’s insurance that Wallace let lapse, not his own. That would mean that SSLOCSD is still on the hook with the RWQCB for the fines but might give them a basis to go after Wallace to recover the cost of them.


Oh, my. I just thought of something.

Ferrara was one of John Wallace’s biggest crony supporters.

Perhaps Ferrara is worried about what a forensic audit will find…you know, how it will implicate him and all…


[[hit “reply” too soon, I’ll try again]]


Oh, my. I just thought of something.

Ferrara was one of John Wallace’s biggest crony supporters.

Perhaps Ferrara is worried about what a forensic audit will find…you know, how it will implicate him and all, and THAT is why Ferrara has been such a nasty troglodyte since he lost to our new mayor, Jim Hill.

Kevin Rice

You just now realized that??? YES. YES. AND YES!

I’m going to give Shoals and Guerrero new, tentative, support. Come on guys!


and vice versa


QUOTING THE ARTICLE: “Arroyo Grande Mayor Jim Hill has asked the South San Luis Obispo Sanitation District to initiate a forensic audit of the district in an attempt to recover the cost of a fine and mismanagement attributed to the former plant administrator.”


Now THAT’s what I am talking about!

How freaking refreshing is it that a politician, once elected, actually starts doing what he said he was going to do?

Certainly not in AG’s history over the last decade.