Once again, the residents of Pacific Grove are taking an uncomfortably close look at their sewage.

The projected costs of fixing the city’s aging sewer system over the next 10 years outpace the revenues from a sewer collection surcharge. So in early March, P.G. City Council voted to start a process under Proposition 218, which gives residents a chance to weigh in on tax increases.

The city’s monthly sewer surcharge is now $25 per single-family household, on top of the PCA’s rate of $15. Under the proposed rate hike, the P.G. surcharge would increase over 10 years to $35 in July 2024.

The city will mail a notice of the proposed fee hike to its 6,168 customers, then hold a public hearing July 15. If a majority of affected property owners protest, the fee hike can’t go forward.

Public records provided to the Weekly suggest officials have messed up a few times on their way to this point.

First big oops: Almost three years ago, the city accidentally raised its sewer fees without issuing a Prop. 218 notice. P.G.’s fee was set at 173 percent of Monterey Regional Water Pollution Control Agency (PCA) rates. When PCA ratcheted up its rates in July 2012, P.G. officials failed to lower the city’s sewer fee as a percentage of those rates – so the surcharge went up.

Now, city officials have to decide what to do about the mistakenly collected fees: $607,000, by PCA General Manager Keith Israel’s calculations.

P.G. City Attorney David Laredo says the city can issue refunds (an average of almost $100 per customer), or apply the overcharge as a bill credit if P.G.’s proposed sewer fee hike moves forward.

It’s not like the city blew the money, Laredo says: “The moneys are there; they are dedicated for the sewer.”

Although city officials are now confronting the overcharge, they could have prevented it. A May 2012 letter from PCA Finance Director Tom Buell to P.G. City Manager Tom Frutchey flagged the issue in advance of the PCA rate increase, asking if the city would like to adjust the percentage surcharge in order to keep its sewer fee flat.

Frutchey says it was a case of getting lost in the inbox. “I’m sure they sent [the letter]. I was not aware of it,” he says. “In any case, we did not write back to them. So our rates have gone up now for three consecutive years without the [Prop.] 218 process being followed.”

In an April 14 letter to Frutchey and Israel, Penn Valley-based attorney Michael Colantuono advises the overcharge doesn’t violate Prop. 218.

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“We collected the money, and we haven’t spent it,” Frutchey says. “No refunds will be necessary.”

One more wrinkle. In January, the P.G. council agreed to pledge the city’s roughly $10 million sewer fund as collateral in an application for state financing for the P.G. Local Water Project.

That commitment raises the question: If the sewer funds are committed to the state as collateral, is the $607,000 overcharge available for refunds? Laredo did not respond to requests for clarification, but Frutchey offered a non-legal viewpoint. “We have adequate moneys in the sewer fund to serve as the needed collateral,” he wrote by email, “even if the additional funds collected were not available.”

The council was scheduled to meet in closed session April 15 regarding “anticipated litigation” over sewer rates.

Editor's Note: This article was updated July 6 to reflect the current scheduled date of the protest hearing, July 15.

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