Pacific Grove resident Pat Herrgott began getting suspicious when she realized that the City didn’t seem to be working on the sewers.

“We didn’t see any trucks. We didn’t see any construction. We didn’t see any work being done,” says Herrgott, who identifies herself as a local political watchdog who’s attended “a lot” of council meetings. “People started talking.”

And for good reason. Despite a federal court order, city officials had failed to adhere to the federally-mandated sewer system asset management plan (SSAMP). Stemming from a lawsuit brought against Pacific Grove by the Ecological Rights Foundation, a consent decree required the City to replace five “Grade F” sewer line segments, install seven spare pumps in pump stations and complete a force main inspection. Or the City could spend $500,000 or more on capital investments—which was the only way the City could get out of making the other improvements to the sewer system that Pacific Grove and ERF had agreed to in the consent decree.

So what confused and frustrated Herrgott and other citizens like her was the fact that the Pacific Grove budget clearly showed $500,000 available for sewer improvements.

“I don’t know if it’s illegal, but they certainly juggled the books,” Herrgott says. “They made it look like the money was there and these things were going to be done. If not illegal, it certainly qualifies as a lie.”

The out-flow pipe to this mess spills directly onto the desk of the new city manager. Jim Colangelo has been attempting to make sense of the financial sludge inherited from Ross Hubbard since taking over the job last spring. One of his first official actions was to order an in-depth audit of the city’s finances by San Francisco accounting firm Harvey M. Rose.

Yet his predecessor’s job performance has made Colangelo’s seat a hot one. In a pointed Nov. 11 letter to Colangelo, attorneys for the ERF accused Pacific Grove of gross negligence.

“The information provided to ERF states that the City failed to implement the required capital programs, and spent something in the range of $50,000 rather than $500,000,” it says. “Thus, in the first year of the decree, Pacific Grove has failed completely to implement the requirements of that order.”

In addition, the letter points out that during this same time period, Pacific Grove’s sewage spills doubled.

Colangelo acknowledges the City’s mistakes, but insists that he has been working on the problem with the ERF since receiving the scathing correspondence.

“The tone of that letter was pretty negative,” Colangelo says. “We had a meeting with them up in San Francisco after that letter was written. We’ve gotten to a place where we are working more cooperatively.”

The ERF attorneys, Christopher Sproul and Daniel Cooper, also point out that, after being tipped off by a Pacific Grove citizen last summer, they discovered that a number of manholes had completely eroded bottoms and were discharging sewage directly into the soil. When they brought this to the attention of the City, officials blamed an inadequate inspection form.

Yet according to the letter, an adequate manhole inspection form was part of the sewer management plan that the City was supposedly implementing.

“This raises the question of what other elements of the SSAMP have been ignored by Pacific Grove staff,” write Sproul and Cooper.

“We’ve acknowledged that the City did not comply with the consent decree,” Colangelo says. “We’ve moved forward on rectifying some things—like not spending enough money the first time. We want to work with them in a partnership.”

But in Pacific Grove, the sewer situation is only a small part of a much bigger financial problem.

“If you look at the Rose accounting report, there’s no money in the sewer fund, no money in the cemetery endowment fund, and we owe money to complete the golf course pro shop,” Herrgott says. “The workers’ comp fund is broke, the liability fund is broke, the retirement fund is broke. It’s a disaster.”

After examining the Rose document, the ERF attorneys concurred with Herrgott, calling Pacific Grove’s finances “extremely troubling.”

“The report documents the ‘very weak’ financial position of Pacific Grove, illegal ‘interfund loans’ between enterprise funds, almost $3.5 million in unfunded liability to employee health care and worker’s compensation, poor accounting practices, and zero or less than zero in funds available in the Sewer Operating Fund,” the letter says. “Thus, Ecological Rights Foundation has no indication that Pacific Grove has the wherewithal to implement the measures required by the Consent Decree.”

As a result, ERF has implemented a new set of deadlines for the sewer plan and continues to work with Colangelo and the City. The two parties have agreed that the first order of business is to improve communication.

If the City ever diverges from the consent decree, Colangelo says, he will report the divergence to ERF.

Previously, Pacific Grove ran into trouble with ERF when it contracted work out instead of following up on its promise to purchase a piece of sewer maintenance equipment. As it turned out, hiring contractors was a more cost-effective solution, but ERF argues that the City should have spoken to ERF officials before changing its plans.

In the meantime, Colangelo is taking dramatic steps to clearing up Pacific Grove’s muddled budget. The City Council recently approved another $30,000 for a more detailed audit of the City’s finances by Harvey M. Rose.

“They’re going to be looking at things more specifically,” Colangelo says. “They’re going to take a closer look at the golf course concession. They’re going to be looking at all the funds and revenues, other opportunities we’re missing in terms of revenue collection.”

Colangelo hopes they will discover “several opportunities to recover some if not all” of the audit’s expenses, but more importantly he hopes it affords Pacific Grove some “peace of mind.”

As for Herrgott, she’s quick to defend Colangelo.

“We think he’s done a tremendous job so far,” she says. “He’s stepped into a very difficult situation.”