Some business owners in Malibu fear they will go under. Others said their expansions are on hold. Many are unsure what will happen.

It’s all the result of a decision by water quality officials this month to phase out septic tanks in the Civic Center area of the wealthy seaside town and require the city to build an expensive sewage system.

However, despite estimates the system could cost $52 million to build and cost each business thousands of dollars a month to be hooked up to it, some surprisingly favor the idea.

Those businesses – including billionaire A. Jerrold Perenchio’s Malibu Bay Co., one of the area’s biggest landowners – are calling the system critically important to clean up the city’s polluted beaches, which have stained Malibu’s reputation and turned off tourists.

“As an owner of a business in the city of Malibu, what I would tell you is that I do believe that there needs to be a centralized water treatment system and I’m willing to pay my fair share,” said Michael Koss, principal of Koss Financial Group, which owns the Malibu Country Mart shopping center. “There are more positives than negatives.”

After years of wrangling between environmentalists, residents, surfers and businesses, the Los Angeles Regional Water Quality Control Board approved a plan Nov. 5 that would prohibit new septic systems and gradually phase out existing ones altogether in the main commercial area of Malibu, stretching from Pepperdine University to roughly the Malibu Pier. The board also directed the city to develop a plan to build a central wastewater treatment system.

The move rendered obsolete some property owners’ recent multimillion-dollar septic system upgrades. And it has put at least one company’s expansion plans in limbo.

Until a final plan is in place, the exact costs for businesses will not be known. However, initial city projections suggest the plan could cost commercial property owners as much as $17,000 a month. That sum, which would presumably be passed on to tenants, is not insignificant for the T-shirt vendors, surf shops and small restaurants that line the stretch of Pacific Coast Highway.

Not only could the additional expense drive existing companies out of business, some local leaders fear, but the prohibitive costs would likely prevent other companies from locating in Malibu.

“In five years, I honestly don’t know how many businesses we’ll have here,” said Rebekah Evans, chief executive of the Malibu Chamber of Commerce. “They won’t be able to survive.”

Bold plan

Under immense pressure from environmentalists and surfers who frequent the beaches, the water board approved an ambitious plan to phase out septic systems. At the board’s recent meeting, which lasted for 10 hours, a number of surfers told tales of infections and illnesses suffered from swimming in waters polluted by raw sewage leaking from septic tanks.

“It is a problem, a severe problem,” agreed Mary Ann Lutz, chair of the water board.

Under the board’s plan, businesses have until 2015 to phase out their septic tanks and hook into a central sewer system; residents have until 2019 to comply. Surprisingly, the water board’s plan was stricter than a separate proposal put forth by the city and supported by environmental groups.

That proposal called for a smaller treatment facility that targeted specific Malibu neighborhoods. It also did not include a moratorium on septic tank usage. Lutz said the board considered the proposal, but the city’s plan was insufficient.

Malibu, however, was caught off-guard by the water board’s decision.

The Mayor’s Office said last week it was dismayed that the water board rejected “a more targeted and scientifically feasible wastewater treatment plan offered by the city of Malibu.” According to the city’s projections, businesses will have to pay between $6,800 and $17,000 per month and residents will incur about $500 in monthly charges to finance a water treatment facility, which is estimated to cost upwards of $50 million.

Mayor Andy Stern said the city may ask the State Water Resources Control Board to overturn the regional board’s decision.

“We must now consider other options because the wastewater treatment system required by the regional board’s action does not appear to be scientifically or economically feasible,” Stern said in a statement.

The Chamber of Commerce also is looking to challenge the plan.

“Do we fight this? Do we get our lobbyists? Do we get our consultants? I think that’s the way we’re going to have to go,” Evans said. “We are going to meet in the next couple of weeks and decide what our next step is.”

She said the chamber will likely take the issue to Gov. Arnold Schwarzenegger, who has been known to frequent the shops in Malibu.

‘Difficult situation’

In the meantime, though, Evans said the business community is simply trying to figure out what the water board’s decision means.

“I have small and large businesses that don’t even understand what the water board is wanting them to do,” she said. “It’s so convoluted.”

Malibu Inn Bar & Restaurant, a long-tenured establishment across the street from Malibu Pier, has halted plans to expand its facilities due to the uncertainty surrounding the costs of the centralized wastewater treatment system.

“It’s going to be an obstacle,” said Alex Hakim, the restaurant’s manager, who added that most of the business owners he has talked to are unhappy about the water board’s action.

A number of business owners declined to speak on the record, but most approached by the Business Journal said they were uneasy over the implications of the water board’s action.

“It’s going to be a difficult situation financially,” said Jefferson Wagner, the longtime owner of Zuma Jay, a surf shop in Malibu. “And I say ‘difficult’ with great emphasis.”

Wagner said he does not know how much his company, which now owns the building it has occupied for the past 35 years, will have to pay as a result, but he is concerned.

“We don’t understand the full impact yet,” he said, but added that in the long run the action will be beneficial to residents and surfers like himself.

Wagner is one of scores of surfers blaming Malibu’s polluted waves for a series of eye and ear infections. These days, he said, he will not go in the water after a rainstorm, which can wash untreated wastewater into the ocean. Indeed, water quality concerns have won out for some local businesses.

David Reznick, president of Perenchio’s Malibu Bay company and a member of the Malibu chamber’s board, said restoring confidence in the water quality is vital to the area’s economic health. The company owns 30 acres of beachfront property in the city’s downtown.

“At the end of the day, if Malibu’s beaches aren’t clean, the businesses are going to have a big negative impact because people aren’t going to come to Malibu,” he said.

What’s more, he said, while operating a central treatment system can be costly, the expense would be partially offset by no longer having to maintain individual septic tanks.

Malibu’s reliance on septic tanks was actually a major factor in the city’s formation.

The city was incorporated in 1991 in part to fight efforts by Los Angeles County officials to install sewer systems in the community, which residents feared would lead to overdevelopment. But as Malibu’s septic systems have fallen into disrepair, area beaches have experienced a corresponding drop in water quality.

Indeed, the city’s beaches often receive failing grades on the annual water quality report card released by Heal the Bay, an environmental group that has been fighting to reform Malibu’s wastewater treatment system since the city was founded.

“Malibu arguably has one of the most beautiful coastlines in all of California, but Surfrider Beach, which is one of the iconic surfing beaches, has some of the worst water quality,” said Mark Gold, president of Heal the Bay. “It’s great to see that Malibu is finally going to be held accountable.”