State Cuts Loan for Sewers in Los Osos

Despite years of alleged pollution from septic tanks in Los Osos, a state agency has withdrawn a $135-million loan for new sewage facilities in the Central Coast community because local officials stopped work on an approved treatment plant and insisted on moving it.

The vote by the state Water Resources Control Board last week leaves the tiny Los Osos community services district without funding to replace residential septic systems that state regulators say have polluted shallow groundwater and caused bacteria to seep into the neighboring Morro Bay National Estuary.

“They’ve chopped us off at the knees,” Lisa Schicker, president of the local district, said Monday. “This is big government versus little government. It is not about clean water ... it is a power struggle.”

The low-interest loan was supposed to pay for the first sewage system in the town of 15,000 and to solve pollution problems that had prompted state water-quality officials two decades ago to place a moratorium on new septic tank hookups in most of Los Osos.

But voters who objected to having a treatment plant near their community center and other buildings narrowly passed a ballot measure in September to relocate the facility to nearby farmland. Heeding the vote, newly elected community services district directors suspended construction on the treatment plant, although $6 million already had been spent.

However, the state water board refused to go along with the relocation, saying that new studies and government reviews would delay the project for years.

On Friday, the board voted 4 to 0 to pull back funding, saying that the money could be used to finance water cleanup in other California communities.

“This loan is over. The money is going elsewhere,” board spokesman Bill Rukeyser said Monday, adding that Los Osos officials can apply for a new loan for the alternative project if they receive county and Coastal Commission approval.

Schicker said the district intends to seek funding for a project outside of town. In the meantime, she said, the district will fight a state agency that she says has exaggerated the town’s pollution problems and saddled residents with a costly loan that was not approved by residents.

On Nov. 30, the district submitted a claim to the state, seeking unspecified damages for alleged breach of the loan contract, including withholding funds.