Battle for the Sewer: East Palo Alto Sanitary District fights potential city takeover

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When Jeff Poetsch became head of the Ravenswood Shores Business District about 12 years ago, change was in the air.

The East Palo Alto City Council was in the final phases of approving a new vision for the 350-acre Ravenswood area in the northeast section of the city, between University Avenue and the Palo Alto Baylands. The plan, which was adopted in 2013, called for transforming this underdeveloped area into the city’s new downtown, with well-designed buildings, neighborhood parks, bike lanes and jobs, a key amenity for a city whose unemployment rate was about 19% at the time of the plan’s adoption.

Poetsch was eager to help facilitate that vision. His group includes Ravenswood-area businesses like Catered Too and Knotty Hole Cabinet and nonprofits like EPACENTER Art and Ravenswood Family Health Center, landowners who he said make up about 75% of the district. The group worked with East Palo Alto officials on issues of common interest, including flood protection from the San Francisquito Creek and infrastructure upgrades that would be required to facilitate the kind of growth that the council was imagining.

“We have a pretty diverse group, and we were really looking at the entire area from an infrastructure perspective,” Poetsch said in an interview.

Before long, however, Poetsch and other Ravenswood stakeholders found themselves on the frontlines of East Palo Alto’s most complex and politically charged conflict: the battle over the city’s aged sewer lines. Built in the early 1940s as part of the Federal Works Progress Administration (WPA), the sewer system has been serving the vast majority of East Palo Alto and a small portion of Menlo Park since 1942. Throughout that whole time, it has been managed by the East Palo Alto Sanitary District, an agency that was formed in 1939 and that is charged with maintaining and, when needed, expanding a system that includes 160,000 linear feet of sewer lines.

Poestch believes that the district has grossly failed this mission. Again and again, he said, the Sanitary District would require developers both in the Ravenswood area and elsewhere to pay what he deemed to be astronomical fees before it would provide a “will serve” letter, an agreement to hook up new buildings to its sewage network. Local developers and members of the East Palo Alto City Council had been flagging these problems for years, though the conflict escalated in 2022, when the city formally requested that the district be dissolved and become a subsidiary of the city. 

Now, the city is on the cusp of realizing its goal. 

Last month, the city received a key vote of support from a county commission that is charged with resolving jurisdictional disputes, a decision that could have ramifications for both East Palo Alto’s ratepayers and developers. The East Palo Alto Sanitary District is preparing to go to court to reverse this decision, with a hearing set for Aug. 16. 

The two sides disagree on almost everything, though each believes that the stakes are high. The City Council believes that control of the sewer system is necessary to achieve its vision of promoting economic development, building housing and creating jobs. Once it takes control, it would contract out the maintenance of the system to the West Bay Sanitary District, which currently serves most of Menlo Park and portions of Atherton, East Palo Alto, Portola Valley, Redwood City and Woodside. 

The District counters that the city doesn’t have the expertise to run the system and that its planned “takeover” would hurt the ratepayers and force them to subsidize new developments. The battle is expected to only escalate as election season heats up, with several candidates who are affiliated with the District recently declaring their intention to join the City Council.

For the district’s critics, the most infamous and commonly cited example of the agency’s intransigence is the Light Tree development at 1895 East Bayshore Road. Spearheaded by the nonprofit EPACANDO and Eden Housing, the project refurbished 94 affordable apartments and added 91 new ones. The City Council approved it in 2019 but the developers almost saw the funding collapse because of lengthy negotiations with the Sanitary District over hookup fees. 

“It was literally an extortion,” Poestch said in an interview.

According to numerous people familiar with the negotiations, the Sanitary District had initially demanded that the developers of Light Tree pay $5 million to upgrade the trunk line, the 24-inch pipe that collects sewage from smaller pipelines throughout the system and ferries it to the Regional Water Quality Control Plant in the Baylands. With political pressure mounting and just days to go until the grant deadline, the district and the developer settled for a $2.5 million fee.

While Light Tree survived, other projects went down the drain. There was The Primary School that the Chan Zuckerberg Initiative was preparing to construct in 2019 on a vacant site at 1200 Weeks St. After getting a $4 million quote for sewage hookup fees from the Sanitary District, the foundation opted to instead rent the former Brentwood Academy building at 2086 Clarke Ave from the Ravenswood City School District.

There was also the nonprofit resource center that the Sobrato Organization was preparing to build at 2519 Pulgas Ave., a building that would have provided space for nonprofits like the Ravenswood Family Health Network, which is headquartered on Bay Road. The project fizzled after the Sanitary District demanded $6.6 million for a sewer connection. Luisa Buada, former CEO of the Ravenwsood Family Health Network, lamented the demise of the project at a November public hearing.

“We specifically, along with a lot of the nonprofits in the city, lost the opportunity to have a nonprofit resources center right on Pulgas Avenue that would have been lease-free for many nonprofits,” Buada said. “We would have been able to get out of buildings that could collapse in 7.1 earthquakes because of potential liquefaction. At this point, the nonprofits are stuck in this situation because that opportunity was lost.”

Buada delivered her comments at a November 2023 meeting of the San Mateo County Local Agency Formation Commission, a normally obscure bureaucratic entity that concerns itself with issues of boundaries and jurisdictions. In 2022, the commission received a study that evaluated the capacity and operations of the sanitary district. Funded by area developers, including the Sobrato Organization and EPA CANDO, the Municipal Services Review echoed the concerns of city officials and builders that the sewer system’s lack of capacity is an “impediment to development in the city” and cited concerns that the costs to connect are “prohibitively expensive” for many. 

According to the study, East Palo Alto had about 20 unconstructed development projects in the pipeline as of the end of 2021, consisting of 1,469 housing units and 4.6 million square feet of nonresidential development, with most of the growth in the Ravenswood and 4 Corners area. These include the East Palo Alto Waterfront, which comprises 260 housing units and 1.39 million square feet of commercial and community space; the Four Corners proposal by Sand Hill Property Company that includes 180 housing units, 500,000 square feet of laboratory space, 30,000 square feet of commercial space and a new community building; and The Landing, which would feature 90 apartments and 922,000 square feet of office space.

This publication has spoken to numerous developers who declined to be named because of ongoing negotiations with the district over pending projects. They expressed common frustrations about the Sanitary District presenting them with quotes for sewer hookups that were exponentially higher than expected. In some cases, this led to prolonged negotiations. In others, projects simply died.

It wasn’t just the large mixed-use projects that were getting clogged up in the system. The development pipeline included about 12 accessory dwelling units that, according to the report, were stalled because they had been unable to get approval for connection to the Sanitary District’s system, according to the 2022 report.

Over the course of the November 2023 hearing, the board heard from numerous elected leaders who effectively accused the Sanitary District of usurping their land use powers and compromising the city’s growth plans.

“The City Council has tried to work with the Sanitary District to find a path forward for nearly three years with no result,” City Council member Lisa Gauthier, who at the time was serving as mayor, told the LAFCo board. “Within those three years, the council and the community have approved projects, including projects that could serve nonprofits, that have either been stalled or abandoned because the Sanitary District could not serve the projects for a fair cost.”

Like others on the council, she argued that it’s time for the city of East Palo Alto to take control of the sewer system operations. The city filed a formal application to LAFCo to change the governance structure. After commissioning a study, surveying the property owners and hearing from the various stakeholders, the LAFCo board voted at the Nov. 15, 2023, meeting to grant East Palo Alto’s request to effectively strip away the district’s independence and make it a subsidiary of the city.

Council member Ruben Abrica, a longtime supporter of consolidation, said in an interview that he has been struck over the years by the district’s failure to provide justification for its exorbitant fees. He said he has heard from developers who complained about the Sanitary District just “throwing out numbers left and right about what they’re supposed to pay.” 

Sand Hill Properties, which proposed to build 605 apartments in the Woodland Park neighborhood on the west side of the city, was quoted about $8 million for hookups fees, Abrica said, which was roughly four times the amount that Sand Hill’s experts said would actually be required to fund the needed upgrades.

“They refused to do that because they felt the numbers aren’t based on any factual financial analysis,” Abrica said. “That’s a sign to me of unprofessional and irresponsible erratic behavior and stopping a development that is providing additional low-income and market-rate housing.”

Other developers and nonprofit leaders expressed similar concerns. Among them is Duane Bay, executive director of EPACANDO, a local nonprofit that teamed up with Eden Housing to build the Light Tree project. Bay, who at various points of his long political career had served on both the East Palo Alto City Council and the East Palo Alto Sanitary District, has lobbied for consolidation. He claimed in a May 2022 letter to LAFCo that the Sanitary District has been demanding that developers pay not only the standard connection charges but also a “developer’s share” for upgrades to the collection system. In some cases, it has been quoting “duplicative charges” to different developers, a practice that he called “patently unfair, and arguably illegal.”

In one instance, Bay wrote, the district quoted developers of three different projects add-on fees to pay 100% of the cost of upsizing the system’s trunk line. In another instance, the district “unapologetically quoted add-on connection fees at $14 million for a four-house subdivision,” Bay wrote.

Bay suggested that the Municipal Services Report that was commissioned by LAFCo actually understates the extent to which the district hampers East Palo Alto’s development. He asserted that the district has been “overstepping its approved powers” and proposed that the report include the following language:

“By not actively addressing the capacity issues that are impeding proposed and approved development within the City, and by neither publishing standard fee schedules and calculation methods nor negotiating ad hoc fees in good faith, EPASD has in effect imposed a moratorium on all development.”

According to the city, even the projects that advance only do so after extensive negotiations that take months if not years to complete. John Lê, East Palo Alto’s city attorney, rattled off numerous projects that took more than six months to get the green light during the LAFCo hearing. These include the affordable-housing complex at 965 Weeks St., which entailed more than seven months of negotiations; the commercial development that Emerson Collective and JobTrain are developing at 2435 Pulgas Ave., which he said took eight months; and the office building at 1788 East Bayshore Road, which was proposed four years ago and which remains in negotiations.

Earlier this month, Lê asserted in a legal filing that the District’s failure to provide will-serve letters is undermining the city’s development plans.

“The District’s connection fees for those developments are often not predictable or reasonable, defeating many vital projects approved by the City,” Lê wrote.

The District fights back

Kelly Fergusson, a former Menlo Park City Council member who in June joined the East Palo Alto Sanitary District Board of Directors, firmly rejects the notion that East Palo Alto has anything resembling a moratorium on new development. 

Far from hindering East Palo Alto’s growth, the district has been working hard to update aged infrastructure and prepare for new developments, Fergusson said. During an Aug. 8 tour, she pointed to two recent projects that the Sanitary District had recently completed: an extension of a feeder line that runs under O’Connor street between Pulgas Avenue and the Baylands and replacement of sewer lines along Beech Street, Clarke Avenue and Green Street.

On Aug. 8, Fergusson helped lead a tour of the O’Connor project, which district officials say was designed to accommodate the Light Tree development. Critics of the district may point to the housing project as an example of the District’s intransigence, but to Fergusson and her colleagues on the board, it’s an example of “creative problem-solving.”

Extending the O’Connor line between Pulgas and the Baylands wasn’t easy, said Dennis Scherzer, chair of the district’s Board of Directors. The Sanitary District had to obtain permits from regulatory agencies such as the U.S. Army Corps of Engineers and the California Department of Fish and Wildlife and it had to navigate a narrow construction window to avoid disturbing sensitive habitat.

Scherzer also highlighted the district’s efforts to upgrade lines in the area along and around Beech Street, which required working around existing water lines and avoiding underground electric cables.

“We managed to do it, and it’s been installed,” Scherzer said.

Fergusson and her colleagues do not mince words when asked about the movement to dissolve the district. The consolidation, in her view, is nothing less than a “takeover” by the city that will strip many customers of representation. 

She believes the LAFCo decision was unfair because the agency had failed to consider the various studies that the district has been using to justify its rates or its record of maintaining a system that does not overflow even during major storms. 

“The decision was purely political – they didn’t rely on facts or evidence,” Fergusson said in an interview.

Because of the nature of the work, such projects are all too easy to miss. Unlike the projects they serve, the pipelines that are being upgraded by the Sanitary Districts are underground. To a passerby, the only indicator that the pipeline on O’Connor has been replaced is a strip of land that runs through an otherwise grassy section of the nature preserve. The pipe is under this strip.

“We removed the existing pipe and put in a new pipe that will be here for another 100 years,” said Akin Okupe, general manager of the Sanitary District, as he pointed out the area where the new collector line is buried. The large pipe connects to the trunk line, which is located across San Francisquito Creek and which brings the sewage to the treatment plant.

“Everything is done, the developers are happy and everyone is happy,” Okupe said. “This project was completed on time and on schedule.”

The recently completed pipeline project in the east end of the city is the first of two phases that the district hopes to construct in this area. The second phase, which would involve installing a new trunk line between the O’Connor area and the Ravenswood district, would bring the system to a level where it could accommodate all development in the city’s plans, Okupe said. He said the $13 million job would take about a year to construct.

The fate of the project, however, is far from certain. The LAFCo decision didn’t just create an existential threat for the district; it has also frozen the district’s $25 million reserve. Once the consolidation is completed, these assets will belong to the city.

District officials flatly deny assertions that they are interfering with the city’s growth plans. The problem, they say, is that the aged system simply isn’t able to accommodate the level of development that the city of East Palo Alto is planning for without significant investments from the builders.

“The district is not stopping any development project. We’ve just been cautious and professional in the way we do it to minimize the cost impact on existing residents,” Okupe said.

Fergusson made the same point at last month’s LAFCo meeting, shortly before the board reaffirmed its November 2023 decision and supported consolidation by a 6-0 vote. She pointed to the high number of new developments that East Palo Alto has been seeing over the past few years. 

“You walk around East Palo Alto today — it’s booming with new housing developments,” Fergusson said at the July 17 LAFCo meeting. “It’s only a handful of snowflake developers asking for special treatment and for the City of East Palo Alto to do this takeover.”

The district takes particular pride in holding its rates steady for residents. Fergusson noted that the district’s sewage fees had stayed flat at $600 per year for the past five years, though it recently voted to raise them to $660. Prior to that, the rates held steady at $575 per year for four consecutive years. 

In fighting consolidation, district officials have been invoking the specter of rates doubling once the city takes over, an idea that city leaders firmly reject.

“That means a lot to residents who are on a fixed income,” Fergusson said.

Fergusson pushed back against assertions that the fees that the district charges developers are excessive or arbitrary. The district, she noted, has undertaken numerous studies to gauge the system’s capacity, survey the condition of the pipes and explore the improvements that would need to be made to accommodate future growth. It was these studies that prompted the Sanitary District to increase the one-time sewer connection fee for all new developments from $6,096 to $14,464 for each new dwelling unit, a 138% hike. The increase was based on a study by Hildebrand Consulting, which analyzed the cost of expanding the sewer system.

Some developers see these fees as excessive. Fergusson sees them as fair.

“These are billionaire developers and residents should not be made to subsidize their profits,” Fergusson said.

But from the county’s perspective, the district’s commitment to keeping yearly rates low has its downside. A LAFCo study concluded in 2022 found that the district is in a “strong financial position,” thanks in large part to property tax revenues that it collects (which supplement its service charges) and a relatively low-cost structure. This financial position, according to the Municipal Service Review, enables the district to maintain low annual charges to ratepayers when compared to other jurisdictions.

The study also concluded, however, that the district’s commitment to keep the rates low hampers its ability to upgrade its infrastructure and can hurt ratepayers in other ways, namely by depriving them of development projects that improve the community and enhance the local economy.

“Low rates that do not account for the need to address projected surcharging and potential sewer overflows can adversely affect ratepayers financially in the long run,” the Municipal Service Review states. “Lack of staff resources contributes to an inability to provide clear, up-to-date, and transparent information to ratepayers, the City of East Palo Alto, property owners and developers, and other stakeholders; and produces insufficient financial planning to establish cost-effective and equitable infrastructure financing to facilitate plans adopted by the City of EPA which represents a majority of EPASD residents.”

The study also noted that the lack of future development capacity “indirectly affects ratepayers who are also residents of the City of East Palo Alto, as the inability to serve new development reduces growth in City revenues for services and financial resiliency, provides fewer affordable housing opportunities, and constrains the community’s commercial base and job growth.”

While everyone agrees that the system needs some upgrades and repairs, Fergusson challenged the notion that the district does a poor job maintaining its lines. She and others noted that the district has not been experiencing customer complaints and that its system has not had overflows even during major storms.

“Without a doubt, the East Palo Alto Sanitary District is a very well-run district, with a well- reasoned capital improvement plan supported by extensive pipe condition reports and implementation plans,” Fergusson said at the July 17 meeting.

City leaders aren’t so sure. In arguing for consolidation, they point to what they say is the district’s history of consistent failure to maintain its aged system. Both sides agree that some pipelines need urgent repairs, though the extent of the work and its cost remain under dispute.

In October 2022, the district hired the firm Sierra West Consultants to conduct a CCTV survey to evaluate the condition of more than 500 pipelines in three sections of the sewer system (the consultant subsequently did a separate survey for another area and for the trunk line). The camera survey found many segments of the system in disrepair, with some pipelines sagging, others showing grease build up and others cracked or broken in numerous places. One pipeline, which is under Daisy Lane, had a “few locations with chunks of pipe missing,” according to the survey. Another, under Garden Street, was shown to be broken in five sections. 

The Sierra West study concluded that it would cost $53 million to perform structural upgrades on the roughly 76,000 linear feet of pipeline that showed signs of damage. If the district were to focus only on those pipes that most urgently need replacing, the cost would be about $20.9 million, the report states.

Okupe conceded at the Aug. 8 meeting that some of the pipes in the system are in “deplorable” condition but pegged the cost of improving the structural integrity of the system at $12 million, which does not include an expansion to accommodate new developments. He also said that it would cost about $40 million to increase the capacity of the system such that it could accommodate the type of growth that the City Council wants to see.

City Manager Melvin Gaines was among those who attended the Aug. 8 meeting, and he questioned the district’s assumptions on capital repairs, which he suggested understate the extent of the work that needs to be done. He said the district needs to do a better job explaining how it arrived at the $12 million figure for necessary repairs.

“This appears to be another attempt to mislead the public and cast the City in a negative light, suggesting that the City wants to raise sanitary sewer rates solely to accommodate new development,” Gaines said in an email after the meeting. “In reality, EPASD’s own study shows that the existing system requires $53 million in repairs, independent of any new development.”

What comes next?

Proponents of consolidation scored a critical victory on June 17, with LAFCo voting 6-0 to support the city’s application to take over the Sewer District. Before the vote, the county agency surveyed the 9,672 registered voters in the district area about the potential consolidation, which would be terminated if more than 50% of the respondents were to oppose and which would go to an election if the protest level hits the 25% threshold. The district received letters of protest from 1,012 voters, or 10.46% of registered voters.

The survey also showed that 936 of the 6,567 landowners in the area, or 14.25%, have registered their opposition. While the number is not insignificant, it was also well below the 25% threshold.

Some residents and District supporters slammed the process. Webster Lincoln, a former candidate for the East Palo Alto City Council who is once again seeking a council seat, argued in a letter to LAFCo that the notice for the protest hearing was insufficiently publicized and that the agency gave only “minimal time” for collecting written protests, which he argued “could be seen as limiting community engagement in a decision of considerable consequence.” 

Fergusson was even more blunt.

“This is the sneakiest and most secretive process I’ve seen in 16 years of public service,” LAFCo board member Kati Martin was not impressed.

“This is not a new issue,” Martin said after Fergusson made her comments. “This has been on our agenda for four years and I think we need to move on.”

“The takeover being forced on EPASD deserves full and due consideration, and we will clearly articulate the flaws of the City’s attempted action and harm to ratepayers and voters during the hearing,” Scherzer said in a statement. “We seek justice for our community, and we will have our day in court.”

But even after losing the battle, the Sanitary District hopes it can win the war. Just after the LAFCo vote, the district celebrated a decision by a San Mateo County Superior Court judge to hold a hearing on the merits of the LAFCo decision. On Aug. 16, the court will consider a legal challenge that the Sanitary District has filed against LAFCo, which contends that the agency acted illegally and in a biased manner when it voted to support the city’s consolidation attempt.

The lawsuit from the District argues that LAFCo had failed to consider the district’s “unique ability” to provide sanitary services and that it failed to consider new information such as the district’s recently approved capital improvement plan and its decision to lower development fees. The suit also pushes back against arguments that the District has been hindering the city’s development.

“Despite the City’s failure to consult the District when approving significant growth in its service area, the District tirelessly worked to accurately project the costs of the new demand so,” the suit states. “It retained numerous consultants and repeatedly attempted to collaborate with the City and developers directly so it could set a fair and equitable connection fee. But, because paying their fair share cut into their profits, developers successfully lobbied the City to pursue the pending reorganization.”

The city, meanwhile, is asking the court to allow the consolidation without any further delays. In its opposition brief, the city’s attorneys contend that the District continues to fail in its duties to maintain the sewer system, even as it wastes an increasing amount of public funds for legal fees. Any delay would harm the public and the ratepayers because it will “give the lame-duck Board months to spend District funds and delay progress toward a better-funded, better-managed utility.”

“The Legislature had good reason to set short timelines for reorganizations—to avoid incompetence or misconduct by lame-duck boards. LAFCO’s decision that the City would best serve ratepayers is amply supported by the record and worthy of deference. And finally, that same record demonstrates the urgent need for more capable leadership of this ailing utility,” the city’s opposition brief states.

In addition to the legal challenge, the Sanitary District is mounting a political one. Fergusson has formed a political group called Residents for an Independent Sanitary District to oppose consolidation. The group is raising money from residents to support its “STOP THE TAKEOVER!” campaign, according to the committee’s website. 

Opponents of consolidation are arguing that the move will, among other things, rob Menlo Park residents of the ability to choose their representatives. Chuck Bernstein, who lives in Menlo Park, testified at the November meeting of LAFCo that East Palo Alto’s proposal to take control of the district would “disenfranchise” him. The City Council tried to address this concern by creating a five-person advisory body with two seats for Menlo Park residents, one appointed by the Menlo Park City Council and another by the East Palo Alto City Council. But the move, which the East Palo Alto council unanimously approved on July 16, has not swayed the critics.

“I’d like to say there is a difference between being able to vote for someone and being on an advisory commission. They aren’t the same thing,” Bernstein told the LAFCo board.

Fergusson agreed and called the proposal to give Menlo Park residents seats on the advisory board “just insulting.”

District supporters aren’t just seeking to defeat the City Council in the consolidation battle. They are also hoping to join the council. Scherzer, who is now in his ninth term on the district’s Board of Directors, has filed papers to run for council, which will have two vacancies this year. Lincoln, who was narrowly edged out for a seat four years ago, and Gail Wilkerson, a former council candidate who opposes the consolidation, are also running.

On the other side of the debate is incumbent City Council member Carlos Romero, a long-time critic of the district, and Mark Dinan, who had also run in the past and who, like Romero, strongly supports the consolidation.

Even as LAFCo’s recent survey suggests that the community has a diversity of opinions about consolidation, the current council appears to be in lockstep on the topic. Council member Ruben Abrica noted that in the past numerous council members had been skeptical about consolidating the district and had tried to work with district officials to address their differences. Once that effort failed, they became supportive of the consolidation. 

Among them was Larry Moody, a former mayor who served on a committee that tried to negotiate with the district. During the LAFCo hearing in November, Moody was among those who argued in favor of consolidation.

“We want to put shovels in the ground,” Moody said. “We want to build our capacity. We want cranes in the air. We want job creations in our local community. We can’t do that if all of our projects that go forward are denied by the Sanitary District.”

Abrica said in an interview that the council’s recent votes to support consolidation have been unanimous, which would not have been the case in the past. Doomed projects like The Primary School and Sobrato’s proposed nonprofit resource center have chipped away at the District’s long-held narrative about “big evil developers, an incompetent City Council and a city government that is gaining up on ratepayers.

“The Sanitary District board is just an entrenched little power group with some support in the community,” Abrica said. “But they’ve been losing that support, I feel.”

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