HomeMy WebLinkAboutCC 2026-06-23_11a Canyon Crest Off Site Wastewater TreatmentItem 11.a.
MEMORANDUM
TO: City Council
FROM: Andrew Perez, Interim Director of Community Development
SUBJECT: Pre-application 26-001; Canyon Crest Off-Site Wastewater Treatment
DATE: June 23, 2026
RECOMMENDATION:
1) Confirm informal support for the applicant’s proposal to consolidate wastewater service
from the Canyon Crest HOA to the South San Luis Obispo County Sanitation District’s
treatment facility, which would require the City to approve an annexation agreement to
coordinate infrastructure use, responsibilities, and service delivery prior to LAFCO
approval of annexation; and
2) Find that the recommended actions are not subject to the California Environmental
Quality Act (“CEQA”) because these efforts have no potential to result in either a direct,
or reasonably foreseeable indirect, physical change in the environment. (State C EQA
Guidelines, §§ 15060 (c)(2) and (3), 15378).
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
No financial impact is associated with the pre-application discussion. Financial
implications associated with the wastewater consolidation project are described in the
report.
BACKGROUND:
The Canyon Crest homeowners association (Canyon Crest HOA) serves a 55-lot
subdivision located between Stagecoach Road and Huasna Road, outside city limits. The
subdivision is comprised of 54 single-family residential lots and the final lot dedicated for
the leach field that supports a wastewater system for the tract. The Canyon Crest Mutual
Benefit Water Company (the “Water Company”) operates the wastewater treatment
system that was permitted under regulatory standards in effect at the time of development
approval by the County of San Luis Obispo. Individual septic tanks collect wastewater
from each residential lot, which is then discharged into the community leach field.
On October 14, 2022, the Central Coast Regional Water Quality Control Board (RWQCB)
issued the Water Company a Notice of Violation (NOV) because the septic system
discharges are resulting in elevated nitrate concentrations in the underlying groundwater.
The NOV notes that elevated nitrates in groundwater present a public health and
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Item 11.a.
City Council
Pre-application 26-001; Canyon Crest Off-Site Wastewater Treatment
June 23, 2026
Page 2
environmental concern, as groundwater impacts extend beyond individual parcels and
affect surrounding water resources. In response to the NOV, the Water Company
explored two potential solutions:
Building an on-site wastewater treatment facility to serve the 54 residential units ;
or
Consolidating wastewater and conveying it to the South San Lu is Obispo County
Sanitation District (the “Sanitation District”) treatment plant.
Consolidation of the wastewater for conveyance to the Sanitation District for treatment
has been deemed the preferred solution by the applicant, the Canyon Crest HOA. The
HOA prepared a project description which is included as Attachment 1. The applicant
prepared a cost analysis for both the initial startup costs and the ongoing operation costs
for the two solutions (Attachment 2). Costs for the wastewater consolidation solution will
require an initial investment of $700,000-$1.0 million with annual operation costs of
approximately $50,000-$60,000. Establishing an on-site wastewater treatment facility will
cost approximately $1.5-2.0 million, plus an additional $83,000-$108,000 annually for
operations. The RWQCB supports wastewater consolidation and off-site treatment to
prevent further degradation of the groundwater.
The purpose of the pre-application discussion is to provide the City Council with an
opportunity to provide comments to the applicant regarding the proposed solution. If the
Council conceptually supports wastewater consolidation, the applicant would embark on
additional technical, engineering, and capacity analyses to further evaluate the feasibility
of the project and prepare a formal application.
ANALYSIS OF ISSUES:
Project Description
To abate the violations, the 54 homes would discontinue on-site wastewater treatment
and disposal and instead consolidate wastewater service for treatment by the Sanitation
District. This would be accomplished by the installation of approximately 1,000 feet of 8-
inch sewer pipe between the connection point in the Canyon Crest development and the
existing manhole located on Huasna Road, near Pearwood Drive, to convey wastewater
through the City’s sewer infrastructure to the Sanitation District treatment plant.
Attachment 3 shows the points of connection and approximate location of the new 8 -inch
sewer line. Maintenance of the new sewer main extension between Canyon Crest and
the point of connection on Huasna Road would be the responsibility of the Water
Company. Those specific terms and maintenance responsibilities would be described in
an annexation agreement and plan for service.
The annexation agreement would involve three separate parties, subject to San Luis
Obispo Local Agency Formation Commission (LAFCO) approval:
Canyon Crest HOA;
Sanitation District; and
City of Arroyo Grande.
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Item 11.a.
City Council
Pre-application 26-001; Canyon Crest Off-Site Wastewater Treatment
June 23, 2026
Page 3
The Sanitation District has already confirmed that the treatment plant has capacity to treat
the wastewater volumes Canyon Crest is anticipated to produce. However, to serve as
the primary service provider for wastewater treatment, Canyon Crest would need to be
annexed into the Sanitation District’s service area. The City would need to approve a
three-party annexation agreement discussed above in order for such annexation to occur.
Attachment 4 shows the location of the Canyon Crest subdivision in relation to the
boundary of the service area. Annexation, in this context would only consist of a change
to the boundary of the service area of the Sanitation District and would not involve
annexation of Canyon Crest subdivision into the City. The application for annexation
would specify that a maximum of 59 parcels would be annexed into the service area. This
number consists of the 54 existing residential parcels and up to five additional parcels. If
the wastewater consolidation is accomplished, Canyon Crest HOA intends to sell the
existing leach field parcel to a third-party developer for the construction of up to five new
homes after site remediation to help offset the costs associated with this project.
LAFCO is authorized to approve or deny t he annexation request by Canyon Crest into
the Sanitation District service area. LAFCO is a regional planning and regulatory agency
with county-wide jurisdiction established by State Law to encourage orderly and efficient
provision of governmental services, such as water, sewer, and fire protection. This
responsibility includes reviewing and approving proposed agency jurisdictional boundary
changes, including annexations and detachments of territory to and/or from cities and
special districts, incorporations of new cities, formations of new special districts, and
consolidations, mergers, and dissolutions of existing districts. City staff have met with
LAFCO on multiple occasions to understand the procedure for annexation of the Canyon
Crest subdivision into the Sanitation District. That process is described in Attachment 5.
The process for annexation begins with the three parties—the Canyon Crest HOA, the
Sanitation District, and the City—negotiating a Memorandum of Understanding (MOU) to
establish the framework for the annexation agreement. The MOU would identify items
that need to be mutually agreed upon and included in the annexation agreement. These
items include infrastructure use, maintenance responsibilities, service delivery,
connection and service fees, and any other items deemed necessary by the parties. Upon
concurrence of the framework, the applicant would prepare and submit the application for
annexation to LAFCO.
The City’s role in the proposed arrangement includes allowing pass-through of
wastewater effluent to the Sanitation District treatment facility. This would also require the
City to provide billing and administration for the new customer wastewater account.
Canyon Crest receives water from the Oceano Community Service District (OCSD) that
is wheeled through City water system infrastructure. Under this existing arrangement, the
City tracks water usage and sends the bill to OCSD. If the City were to be supportive of
wastewater consolidation, the City would receive applicable connection and capacity
fees. The project would also make a financial contribution towards an upgrade to Lift
Station No. 3, which is located in the proximity of Huasna Road and Callie Court. The
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Item 11.a.
City Council
Pre-application 26-001; Canyon Crest Off-Site Wastewater Treatment
June 23, 2026
Page 4
upgrade would include the installation of a generator to improve system reliability. The
exact amount of fees will be determined during the MOU negotiations.
Should the Council be conceptually supportive of the annexation, staff negotiation of the
MOU would center on items that limit City expense and protection of the system existing
residents have paid to maintain, including requiring the Water Company to maintain the
newly installed sewer pipes, should maintenance be required.
ALTERNATIVES:
The following alternatives are provided for the Council’s consideration:
1. Discuss applicant’s proposal to engage in further technical studies and analysis
for the preparation of an application for annexation to the Sanitation District service
area for wastewater consolidation, and following such study and analysis, the
applicant would return to City for formal approval of an annexation agreement
between the City, Sanitation District, and Canyon Crest;
2. Provide other direction to staff.
ADVANTAGES:
The City’s participation in the wastewater consolidation project will allow for the
abatement of a public health and environmental concern that potentially impacts
groundwater beyond this development. The City would also receive development impact
fees for the new residences that will use City infrastructure, as well as a contribution to
the upgrades to Lift Station No. 3.
DISADVANTAGES:
Canyon Crest would become a new customer and will require staff time for meter reading
and billing on a bi-monthly basis, however the sewer fees collected would offset those
costs. Additionally, concerns have been expressed regarding continued urban
development into unincorporated areas as a result of this expansion of infrastructure.
ENVIRONMENTAL REVIEW:
The pre-application discussion will not result in the approval of a project. Therefore, it is
not subject to the California Environmental Quality Act (“CEQA”) because these efforts
have no potential to result in either a direct, or reasonably foreseeable indirect, physical
change in the environment.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
ATTACHMENTS:
1. Project Description
2. Cost Comparison Analysis
3. Sewer Line Extension Exhibit
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Item 11.a.
City Council
Pre-application 26-001; Canyon Crest Off-Site Wastewater Treatment
June 23, 2026
Page 5
4. Sanitation District Service Area
5. LAFCO Annexation Process Overview
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Canyon Crest Wastewater Consolidation
The Canyon Crest community is an existing residential development consisting of 54 single-family
homes served by a privately operated on-site wastewater treatment and disposal system. A 55th
parcel within the community is currently dedicated exclusively to use as a leach field supporting
wastewater disposal for the existing residences. No residential development currently exists on
that parcel.
The on-site wastewater system was permitted under regulatory standards in effect at the time of
development in the 1990s. Since that time, environmental regulations and groundwater
protection requirements have become more stringent. The Central Coast Regional Water Quality
Control Board has issued a Notice of Violation (NOV) related to elevated nitrate concentrations,
confirming that the existing wastewater treatment and disposal system no longer meets current
water quality and permitting requirements. Elevated nitrates in groundwater present a public
health and environmental concern, as groundwater impacts extend beyond individual parcels and
affect surrounding water resources.
The Regional Water Quality Control Board has expressed strong support for wastewater
consolidation as the most viable and protective solution to address the NOV and prevent ongoing
groundwater degradation. Achieving compliance is mandatory and time-sensitive, and continued
reliance on on-site treatment is no longer a feasible long-term option for this community.
The proposed project would discontinue on-site wastewater treatment and disposal and instead
consolidate wastewater service by conveying flows from Canyon Crest to existing public sewer
infrastructure. Wastewater would be conveyed through the City of Arroyo Grande’s sewer system
for conveyance purposes only and treated by the South San Luis Obispo County Sanitation District,
which has confirmed available treatment capacity.
Upon connection to public sewer service, the existing leach field would be permanently
abandoned in accordance with regulatory requirements, eliminating a known source of
groundwater risk. To help offset the substantial costs associated with achieving environmental
compliance, the leach field parcel may be sold to a third-party developer for the construction of
up to five (5) single-family homes, subject to all applicable land use approvals. If approved, the
wastewater consolidation request would therefore serve a maximum of 59 homes (the existing 54
residences plus up to 5 additional units). No additional development or intensification beyond this
limited scope is proposed.
The fundamental purpose of this project is environmental and public health protection, not
growth, increased density, or profit. This request is distinct from surrounding properties and
neighboring communities because it is driven by a documented State regulatory violation and the
need to remediate groundwater impacts affecting the broader area, rather than by development
objectives.
ATTACHMENT 1
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Water service for Canyon Crest has already been addressed through a separate Outside User
Agreement with Oceano Community Services District, with water wheeled through the City of
Arroyo Grande. This project addresses the second and remaining component of the community’s
infrastructure compliance challenge by resolving wastewater service in a manner consistent with
current environmental standards.
The project does not request City of Arroyo Grande water service, since it was previously obtained
as referenced above, and no annexation into the City is requested or required. Canyon Crest
Mutual Benefit Water Company would remain the single customer of record for wastewater
service, avoiding the creation of multiple individual sewer accounts. Utility management would
comply with City standards and existing methods. Meter-reading data would be provided to the
City six (6) times per year, or more often if requested, and billing would follow the City’s normal
billing process and be performed by City of Arroyo Grande Public Works. Operations and
maintenance of on-site components would be provided by Nviro, a third-party contracted
provider.
Wastewater flows from Canyon Crest are relatively low, estimated at approximately 8,000 gallons
per day, representing less than one percent of the City’s average daily wastewater flow. All
residences are served by individual septic tanks, resulting in pre-treated wastewater with relatively
low solids and organic strength.
The project would be fully funded by the applicant, including all planning, engineering, permitting,
construction, and City staff time associated with review and implementation. In addition, the
project proposes a capital contribution toward upgrades to Lift Station #3, including installation of
a generator, improving system reliability and emergency preparedness in a manner consistent
with City-identified infrastructure needs. Applicable impact and connection fees would be paid.
This pre-application review is requested to obtain the City of Arroyo Grande’s concurrence with
the proposed approach and to authorize initiation of the technical, engineering, and capacity
analyses necessary to fully evaluate the wastewater conveyance and consolidation. The purpose
of this meeting is to confirm that the project framework is appropriate for further study and
interagency coordination, not to seek approval at this stage.
Following completion of the required analyses and technical review, the project would return to
the City for formal consideration, at which time the City would evaluate the complete record and
determine whether to approve or deny the proposed wastewater conveyance arrangement.
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Canyon Crest Annexation Cost Analysis
Option A: On Site Treatment Option B: City Sewer Connection
1. Gravity sewer: Install 2,000 linear feet of 8" PVC
gravity sewer with 3 new sewer manholes and two
system connnections to City (see display)
N/A $500k to $700k
2. Wastewater treatment plant for 50% nitrogen
removal, 0.02 mgd, equipment only assuming least cost
alternative (Orenco Systems)
$700k to $1M N/A
3. Wastewater treatment plant installation and
commissioning $800k to $1M N/A
4. Future treatment upgrade to achieve less than 10
mg/L total nitrogen
Undefined risk factor not included,
but could exceed $1M N/A
5. City sewer impact fees for 54 homes, assuming $1850
per home ($0.59 per sq ft) for City and $2475 for
SSLOCSD
N/A $200k to $300k
Total Estimated Capital Cost $1.5M to $2.0M $0.7M to $1.0M
Operating/Life Cycle Item Description Option A: On Site Treatment Option B: City Sewer Connection
1. City sewer fees per year assuming $48/mo SSLOCSD,
$30/mo City N/A $50k to $60k per year
2. Contract operations for wastewater treatment
facility, including power and consumables $50k to $60k N/A
3. Regional Board annual fees $9k to $12k N/A
4. Lab and sampling fees $4k to $6k N/A
5. Minimum recommended capital reserve for
equipment replacement $20k to $30k N/A
Total Estimated Operating Cost $83k to $108k per year $50k to $60k per year
Estimated Cost Range (Low to High)
Capital Cost Item Description
ATTACHMENT 2
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ATTACHMENT 3
POINT OF
CONNECTION
CONNECT TO
EXISTING SEWER
MANHOLE
APPROX 1,000 FT
OF 8" GRAVITY
SEWER
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Canyon Crest
(Tract 1819)
ATTACHMENT 4
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Page | 1
MEMORANDUM
TO: INTERESTED PARTIES
FROM: LOCAL AGENCY FORMATION COMMISSION
SUBJECT: LAFCO PROCESS OVERVIEW FOR CANYON CREST ANNEXATION INTO
SOUTH SAN LUIS OBISPO COUNTY SANITATION DISTRICT
Purpose
The memorandum is intended to outline LAFCO’s procedural steps to facilitate
annexation of the Canyon Crest development into the South San Luis Obispo
County Sanitation District’s service area. The process outlined below reflects
continued coordination among affected agencies, feasibility considerations,
and adherence to applicable provisions of the Government Code.
Background
The Canyon Crest Mutual Benefit Water Company operates a wastewater
treatment system that includes wastewater collection, treatment, and disposal
service for 54 residential homes in the Canyon Crest neighborhood in
unincorporated Arroyo Grande. Each residence has an individual septic tank.
Wastewater from residential units is conveyed to dosing tanks before it is
discharged to a community leach field. The Central Coast Water Board issued a
notice of violation in October 2022 to the Canyon Crest Mutual Water
Company, noting that its septic system discharges are causing an increase in
nitrate in the underlying groundwater. Addressing this issue would require
either substantial upgrades to the existing onsite wastewater treatment system
or consolidation with a nearby public wastewater system. The nearest public
system service provider is the South San Luis Obispo County Sanitation District
(SSLOCSD).
Procedure
Consistent with LAFCO policies and regulations, the most logical and orderly
change of governmental organization is annexation into the SSLOCSD. The
following steps outline key procedural steps:
1.Pre-Application Coordination
•A three-party annexation agreement will be required between the
following parties, subject to LAFCO approval. This does not need to be
finalized prior to application submittal but will be required prior to the
San Luis Obispo Local Agency Formation Commission
COMMISSIONERS
Chairperson
HEATHER MORENO
County Member
Vice-Chair
DAVID WATSON
Public Member
DAWN ORTIZ-LEGG
County Member
ED WAAGE
City Member
STEVE GREGORY
City Member
ED EBY
Special District Member
NAVID FARDANESH
Special District Member
ALTERNATES
BRUCE GIBSON
County Member
CARLA WIXOM
City Member
VACANT
Special District Member
MICHAEL DRAZE
Public Member
STAFF
ROB FITZROY
Executive Officer
IMELDA MARQUEZ-VAWTER
Senior Analyst
MORGAN BING
Analyst
MELISSA MORRIS
Commission Clerk
HOLLY WHATLEY
Legal Counsel
ATTACHMENT 5
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LAFCO hearing. A Memorandum of Understanding (MOU) is recommended; see the
bullet further below. Parties include:
o Applicant (Canyon Crest Homeowners Association)
o SSLOCSD (primary service provider for wastewater)
o City of Arroyo Grande (to allow pass-through of effluent to the SSLOCSD treatment
facility, no annexation into the City is necessary)
• While not required, the three parties may consider entering into a Memorandum of
Understanding (MOU) to establish a mutually agreed-upon framework prior to
undertaking significant work. Early discussion and coordination of a potential MOU
during the pre-application phase is recommended to support project success;
however, execution of a final agreement would not be necessary until a later stage in
the process.
• The annexation agreement should address infrastructure use, responsibilities, service
delivery, and any other factor deemed necessary by any party
• A Plan for Service consistent with Government Code Requirements is also required.
This does not need to be finalized prior to application submittal but will be required
prior to the LAFCO hearing.
2. Application Submittal
• The applicant shall submit a petition of application to LAFCO proposing annexation to
SSLOCSD
3. Agency Referrals
• Upon receipt of the application, LAFCO will initiate the standard referral process,
including:
o Referral to all affected agencies
o Referral to the County Assessor
The County Assessor initiates the property tax exchange negotiation period
per Section 99 of the Revenue and Taxation Code
4. 60-Day Termination Period
• Per Government Code Section 56857, upon receipt of the application by the LAFCO
Commission, SSLOCSD will have 60 days to adopt and submit a resolution to LAFCO
requesting termination of the proceedings
o The resolution requesting termination shall be based upon written findings
supported by substantial evidence in the record that the request is justified by a
financial or service-related concern.
• If no request for termination is received, LAFCO will continue processing the
application.
5. Three Party Annexation Agreement and Plan for Service
• If SSLOCSD does not make the required findings to terminate the proceedings, the next
phase of the process should focus on development of a detailed Three-Party
Annexation Agreement and a comprehensive Plan for Service.
6. Agency Consideration of Each Required Item
• City of Arroyo Grande
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o City Council consideration of the Three-Party Annexation Agreement should occur
first
• SSLOCSD
o Following the City’s action, SSLOCSD should consider the following items:
Three-Party Annexation Agreement
Plan for Service
Property Tax Exchange Agreement
• All approvals should be structured as “Subject to LAFCO Approval”
7. LAFCO Consideration
• Following agency approvals and once the application is found complete and acceptable
for filing:
o LAFCO will set the item for hearing
o LAFCO will consider the annexation proposal at a public hearing and has the
authority to approve, conditionally approve or deny the application.
8. Protest Proceedings
• If approved by LAFCO, the proposal will proceed to the protest hearing process
• Depending on the level of protest received:
o The annexation may be ordered
o An election may be required
o Or the proposal may be terminated
The above represents a high-level overview, and numerous details remain to be addressed as
the process advances. Throughout the application review process, staff may request additional
information. Given the unique nature of this proposal, the process is expected to take
approximately 9 to 12 months. However, the timeline by be extended if delays are
encountered.
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