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A first-of-its-kind program in California requiring Santa Rosa to offset pollution from its wastewater treatment plant by cleaning up other problem properties in the watershed is struggling to find enough suitable projects.

The city's Board of Public Utilities voted last week not to pursue a once-promising project to clean up a former dairy property where massive piles of cow manure sit less than 100 feet from Windsor Creek.

During a closed session, the board voted 6-0 to terminate negotiations with Marvin Nunes, the owner of the 177-acre Ocean View Dairy property west of Windsor, and a Rocklin broker that had sought to sell offsetting credits to the city, Wildlands Capital Partners LLC.

The setback demonstrates how difficult it is proving for the city to meet some of the strictest pollution control regulations imposed on any treatment plant in the state, said board chairman Stephen Gale.

"We're the first in the state with this particular regulation, and there are always challenges when you are on the leading edge," Gale said.

The city recycles about 98 percent of its treated wastewater, most of it through a 42-mile pipeline to The Geysers geothermal power plants, where it is injected underground to create steam. But the Llano Road treatment plant still needs to discharge about 2 percent of its treated water to the Laguna de Santa Rosa in a typical year, depending on the weather.

The Laguna is listed as an "impaired waterway" because of its levels of pollution, sediment and high summer temperatures, all of which create an inhospitable environment for aquatic wildlife. Juvenile cold-water fish such as threatened steelhead trout and endangered coho salmon are particularly vulnerable to such conditions.

So while regulators at the state North Coast Water Quality Control Board study how much waste the city should be permitted to safely discharge into the Laguna, they are requiring the city to adhere to a "zero net load" policy. That means if the plant puts in 50,000 pounds of nitrogen and phosphorus in a year, which is typical, it has to prevent the same amount of pollution from reaching the Laguna from other parts of the watershed.

But finding those potential projects, analyzing their value to the Laguna and getting them approved by the water board is proving confounding for the city.

In one case, the city spent more than two years and $300,000 trying to get regulators to approve a project to remove the invasive weed ludwigia from the Laguna. After what the city describes as a series of mixed signals from the board, the plan was never approved.

"We've put a lot of projects out there that we thought would be beneficial, and they have rejected them for various reasons," said David Guhin, director of the city's utilities department.

Two other projects continue to be pursued by the city with the water board's blessing.

One involves improvements to the way manure is managed at the Beretta Dairy on Llano Road. Upgrades include building impermeable areas to put manure from the farm's 450 head of cattle and creating buffer zones around Roseland Creek, which runs through the property.

The city is spending $295,000 on the project to get 2,900 credits per year for 20 years, or $5.55 per credit.

Another project involves improving the roads at Pepperwood Preserve, the 3,120-acre property atop the Mayacmas Mountains between Santa Rosa and Calistoga. The goal is to reduce erosion from the roads into creeks that feed into Mark West Creek, one of the main tributaries flowing into the Laguna and Russian River.

That project is expected to be far more cost effective, costing ratepayers $374,000 and generating 12,300 credits for 25 years, or $1.21 per credit.

But those credits aren't enough to offset the 50,000 pounds of nitrogen and phosphorus the city typically discharges annually. This year, an unusually dry one, the plant doesn't expect to discharge anything.

The city originally hoped it could receive 185,000 credits from the work at the Ocean View Dairy over four years. But water board staff only allowed the credits from the project to be accrued through January 2015, or an estimated 86,000 pounds.

That's because new regulations on dairies take effect in 2015, and the city can't generate credits for the improvements that landowners are otherwise required to do, explained Dave Smith, the city's wastewater permit consultant.

"This is new for us," Smith said. "This is new for the regulators. This is new for everyone."

To help it identify worthwhile watershed improvement projects, the city partnered with the Sotoyome Resource Conservation District, which last year won a $600,000 federal grant to establish a water quality trading market.

Valerie Minton, program manager with the district, said she's optimistic it can help the city find enough beneficial projects to accrue the credits it needs to meet the regulations.

She noted there are plenty of paved roads in the upper watershed that could be upgraded. But the challenge, as the Nunes dairy project highlights, is that evaluating potential projects takes a lot of time and money.

"These projects are challenging because you have to put a lot of resources into them to see if a project is even feasible in terms of credits," she said.