SLO County city drops out of controversial water project. What happens next?

A controversial water recycling project appears doomed with the loss of one of the three South County partner cities involved in the project.

At its Tuesday meeting, the Arroyo Grande City Council voted 5-0 to withdraw its financial backing from the Central Coast Blue regional recycled water project’s financial agreement due to rapidly escalating costs, delays and changes in goals.

Last month, Central Coast Blue suffered a setback when it lost around $10 million in state funding due to the statewide budget deficit.

That loss of funding pushed the joint powers authority for the project — consisting of the cities of Arroyo Grande, Grover Beach and Pismo Beach — to put it on hold until a date uncertain and withdraw development permit requests to the California Coastal Commission and Grover Beach where facilities were planned to be built over the coming decade.

In Arroyo Grande’s case, the city simply doesn’t need as much water now as it did when the project was first conceived, with groundwater levels hitting a 10-year high and Lake Lopez at capacity, according to a city staff report.

However, though this version of the Central Coast Blue project may be sunk, Mayor Caren Ray Russom said she hopes Arroyo Grande and the cities of Grover Beach and Pismo Beach can find a new way to address water security in the region long term.

“It is important to have this happen with a sense of urgency because, as Councilmember (Kristen) Barneich said, now’s the time to do that — not when we’re under the gun and everybody’s freaking out,” Russom said during the meeting Tuesday. “I’m sure it fits into a council goal somewhere, but there’s nothing more important that we do than water, and there’s nothing that the public will get more upset about when it’s not there.”

South County community leaders, including Pismo Beach Mayor Ed Waage, left, and former Grover Beach Mayor John Shoals, spoke at the ribbon cutting and opening of Central Coast Blue, which included a new advanced water purification demonstration facility seen in background in 2018.
South County community leaders, including Pismo Beach Mayor Ed Waage, left, and former Grover Beach Mayor John Shoals, spoke at the ribbon cutting and opening of Central Coast Blue, which included a new advanced water purification demonstration facility seen in background in 2018.

Is Central Coast Blue dead in the water?

As noted in Tuesday’s staff report, the project was conceived during a period of extreme drought in the South County that stretched from 2013 to 2022.

The project was intended to add 900 to 1,000 acre-feet of water to south San Luis Obispo County’s groundwater basin each year, but thanks to two straight years of robust winter rains, reservoirs such as Lopez Lake are at decade highs.

With fewer immediate water concerns, the project’s rising costs — which spiked from a projected $85 million to $112 million in 2022 to between $134 million and $159 million in 2024 — made this version of the project unfeasible and potentially unnecessary, according to the staff report.

Most of the increases in cost were attributed to inflation and supply chain issues that have slowed the California construction and development industry for the past three years.

Arroyo Grande would have been on the hook for 25% of the project’s costs under its agreement with Pismo Beach and Grover Beach, which would have paid for 36% and 39% of the project’s costs, respectively.

From left, city managers raise a toast in 2018 before drinking purified water from Pismo Beach’s recycling facility: Matthew Bronson of Grover Beach; former city manager Jim Bergman of Arroyo Grande and former city manager Jim Lewis of Pismo Beach along with Arroyo Grande Councilwoman Kristen Barneich. Five Cities’ community leaders were in Pismo Beach for the ribbon-cutting and opening of Central Coast Blue’s advanced water purification demonstration facility.

In the wake of the project being put on hold, each city is in the process of examining its water supply outlook.

In Arroyo Grande, the 2023 and 2024 rains that fully charged the city’s reserves have effectively secured the city’s water supply needs for the next five to seven years, according to the staff report.

The staff report also acknowledged that the city’s water fortunes can worsen just as easily as they improved over the past two years, leaving the door open for project alternatives that are better fitted to the scope of the South County’s water needs.

If a drought were to threaten the city’s water supply over the next seven to 12 years, staff recommended either implementing more severe water conservation measures or purchasing water from the Oceano Community Services District or San Luis Obispo County.

Construction workers look on at a 2003 meeting of the Joint Powers Authority of Pismo Beach, Grover Beach and Arroyo Grande. The three cities met to discuss the best way to get local construction workers to complete the Central Coast Blue water recycling project.
Construction workers look on at a 2003 meeting of the Joint Powers Authority of Pismo Beach, Grover Beach and Arroyo Grande. The three cities met to discuss the best way to get local construction workers to complete the Central Coast Blue water recycling project.

What’s next for Central Coast Blue agreement?

To date, Arroyo Grande has already sunk a little over $2 million into Central Coast Blue between land purchases, pre-construction costs and operational costs, according to the staff report.

Some of the work that’s already been done can be used for future water projects, but the staff report indicated that future water reliability projects could be more modular in nature, rather than a single project that can provide additional water.

The council also instructed city manager Matt Downing to look into presenting a ballot measure at a future meeting that would allow the city to buy state water outside of emergency situations as a potential means of keeping water levels healthy going forward.

Staff recommended Arroyo Grande continue pursuing regional partnerships and encouraging conservation as the JPA looks into its next steps for the project.

In an email to The Tribune, Grover Beach city manager Matt Bronson said cost-effective water resiliency is an important need for the community’s future.

Grover Beach is in the process of re-evaluating its water supply needs and looking at project alternatives, and has set an agenda item for April 22 to present how the changes to Central Coast Blue’s funding will impact the city’s newly-updated water rate structure that was supposed to fund the project, Bronson said.

To date, Grover Beach has spent $3 million on Central Coast Blue, he said.

Similarly, Pismo Beach assistant city manager Mike James told The Tribune the city is still committed to finding a reliable water supply.

Pismo Beach — which has spent $3.5 million on Central Coast Blue so far — is also evaluating alternatives and analyzing its water need, James said.

While Arroyo Grande is off the hook to pay for the project, the City Council did not vote to leave the Joint Powers Authority, leaving the door open for future shared water projects.

“Let’s have a conversation first about Central Coast Blue itself, get that out of the way and then have a separate conversation about overall direction of our water outlook,” Russom said during the meeting.