A long-running effort to dissolve the San Simeon Community Services District (CSD) and transfer its responsibilities to San Luis Obispo County reached a significant milestone this month, as county Public Works unveiled a draft analysis outlining the costs, challenges, and potential paths forward for the coastal community.
The district first applied to the San Luis Obispo Local Agency Formation Commission (LAFCO) for dissolution in May 2024, citing ongoing financial and operational challenges. The application proposed transferring all district services—including water, sewer, road maintenance, street lighting, and hazardous weed abatement—to the county.
In response, LAFCO paused the application shortly after it was submitted, requesting a more comprehensive analysis of the district and its obligations.
“LAFCO indicated that the analysis should include a consideration of existing and future governance structures and services to be provided as well as a complete analysis of [San Simeon] CSD’s current challenges, regulatory issues, future obligations, potential benefits, reduced costs, etc., that must be considered by all agencies impacted to make a fully informed decision when considering the dissolution,” a June 10 CSD staff report stated.
That analysis, prepared by consulting firm NBS and funded through an agreement between the district and county, was presented to the CSD board during a June 10 special meeting.
“At the meeting, we gave the CSD board a three-part presentation,” San Luis Obispo County Public Works Director John Diodati told New Times. “The county is just doing its due diligence, to see what are the total costs necessary to bring the water and wastewater system [up to standard], covering the deferred maintenance costs, and then the known projects.”
Among the most significant future expenses are relocating the community’s aging wastewater treatment plant and constructing new drinking water storage reservoirs.
‘The county, if we take over, we need assurances that we can fund the projects that are mandated.’
—San Luis Obispo County Public Works Director John Diodati
The report found that while San Simeon’s water and wastewater systems remain functional, many key components have exceeded their anticipated service lives and will require major reinvestment, repairs, or replacement in coming years.
A major challenge facing the district is a Coastal Commission requirement that the wastewater treatment plant be relocated, creating what the report describes as a “non-discretionary capital project.”
According to the analysis, there are three primary options for maintaining services if the district dissolves: The county directly assumes responsibility, a new county service area is formed to take over operations, or the district consolidates with the Cambria Community Services District.
The report identifies the county and a newly formed county services area as the most viable options, noting that consolidation with Cambria could prove difficult because of governance and geographic considerations.
While the county has expressed a willingness to consider taking over services, Diodati said the process depends on establishing a sustainable funding source.
“The county, if we take over, we need assurances that we can fund the projects that are mandated,” Diodati said. “The wastewater treatment plant is a special condition from the Coastal Commission that has to be done. Otherwise, the entity that is there starts incurring fines.”
Because of those obligations, any future dissolution would likely require approval of utility rates capable of funding major infrastructure projects, he explained.
“The rates will need to increase,” Diodati said. “We’re not engaging in any formal process under Prop. 218 to raise water and sewer rates right now, but the information that we get out of the NBS report will help us refine what projects we know we need to do.”
According to Diodati, any formal rate-setting process remains roughly 18 months away at a minimum and would be tied to whatever dissolution structure ultimately moves forward.
At the same time, San Simeon CSD leaders are proposing their own rate increases to improve the district’s financial position while the dissolution process continues.
A district financial commitment proposal calls for significant water and sewer rate increases that have yet to be fully determined. A 32 percent increase on water rates was implemented in February along with a 36 percent increase in wastewater rates. Additional annual increases are being considered.
The county saidthe increases would allow the agency to address deferred maintenance, complete overdue audits, repair critical infrastructure such as the ocean outfall line and pipe bridge, and demonstrate to regulators and potential successor agencies that the community is committed to investing in its utility systems.
The proposal states that the increases would also “pave the way for additional CSA [county service area]-based Prop. 218 increases to begin the water and wastewater design, permitting, grant, and loan work.”
Even with project rate increases, county Public Works stressed that current cost estimates are possibly higher than what would be needed and could decrease substantially if outside funding becomes available.
“We have to look at this with a worst-case-scenario approach on rate,” Diodati said. “And then if we are the successor agency, our team would work on grant funding, low-interest loans, and explore alternatives for project implementation to bring the most reasonable and feasible cost to the ratepayers as possible.”
Diodati pointed to the county’s role in delivering the Los Osos wastewater project as an example of how future costs could potentially be reduced through grants and financing assistance.
For now, the dissolution process remains in its early stages. County staff will incorporate feedback received from district board members and residents before finalizing the report and presenting it to the county Board of Supervisors for direction.
“We’re at one milestone in a multi-year endeavor,” Diodati said. “I was just really optimistic with where we’re at. This was an important milestone to get to, and it was well received.”
The county Board of Supervisors will ultimately determine whether the county is willing to become San Simeon’s successor agency and under what conditions. Until then, Diodati said the county will continue supporting the community through its current CalWARN—California Water/Wastewater Agency Response Network—arrangement while exploring long-term solutions for the aging infrastructure.
“I think that after the CSD meeting, it was really apparent that everybody in the room wants us to be successful,” Diodati said. “The county wants us to be successful, the CSD wants us to be successful, LAFCO wants it to be successful.” ∆
Reach Staff Writer Chloë Hodge at chodge@newtimesslo.com.
This article appears in June 25 – July 2, 2026.
