One of Sonoma County's major milk processors is more than half a million dollars in arrears on its Petaluma water and sewer bill and the city is threatening to cut off service unless payment is received soon.
Petaluma Creamery owes $604,720, including $135,200 in wastewater discharge fines, according to the city.
In a strongly worded letter dated Sept. 9, City Manager John Brown told creamery owner Larry Peter that he has until Oct. 2 to pay July's $21,600 bill in full.
"If it is not," Brown wrote, "service to the creamery will be discontinued until such time as that payment, and any associated penalties and interest on that amount, are paid."
In a brief interview Thursday, Peter, who also owns the Spring Hill Jersey Cheese Company and dairy west of Petaluma, said Thursday he intends to pay the bills.
"I am going to get them paid," he said. "... I'm trying to get this thing worked out.
"If they do shut me down, there's going to be a hell of a lawsuit going on."
He said he has been treated unfairly by the city since his purchase in 2004 of the historic Western Avenue creamery, which was established by Sonoma and Marin county dairy farmers in 1913. The Dairy Farmers of America, a national cooperative, produced bulk cheese there until 2004.
Peter, a dairy man for 20 years, borrowed $10 million to refurbish the antiquated creamery. At the time, he said it cost $6 million annually to run the five-acre complex, which contains facilities to dry milk and produce cheese. The dried-milk production paid the bills, he said, but his plans included a greater commitment to premium cheese-making.
After opening the creamery, Peter briefly made bulk cheese but shut down following a dispute with the previous owners over milk supply. He reopened in 2007 with a focus on dried milk production.
Peter apparently has been delinquent on the City Hall bills for several months, perhaps as long as two years.
His debts may be even more widespread, according to others in the dairy industry and public documents. According to county records, several other creditors have unpaid liens totaling about $230,000 against him and his companies since February 2009. Creditors include the county, state and federal tax authorities.
County records also show Peter borrowed $1.3 million in 2006 from developer Clem Carinalli, who is facing bankruptcy with debts of $194 million. The records don't show whether the loans had been repaid.
Many dairies and related businesses are feeling the pinch, said Donna Pacheco, who with her husband Jim, runs the Achadinha Goat Cheese Company outside Petaluma.
"The industry is really in a bad place," she said. "A lot of the dairymen need a good place to sell their milk."
If a creamery can't pay for milk, dairies need to quickly seek other buyers in a difficult market, she said.
"I know he's having a hard time. I think it's the industry itself," she said.
According to city officials, Peter owed $506,500 in March, which included the outstanding balance on his water and sewer bill and $107,000 in fines for "failing to meet state discharge requirements."
The creamery is one of four industrial customers in Petaluma that is required to pre-treat wastewater before discharging it into the city's sewer system.
Peter said Thursday that the fines are related to a period of time when his city permits weren't in order.
Rem Scherzinger, the city engineering manager in the water department, said the fines involve improperly discharged wastewater.
Since March, the unpaid balance has grown to $604,720. In that time, according to the letter, the city has received one payment of $15,000 and two checks totaling $27,212 that bounced.
"This is an ongoing issue," Scherzinger said.
In his letter, Brown said the city has tried to work with Peter to settle the bill.
"We have done this because it is important to the city to support agribusiness and because we recognize the outlet the creamery provides local dairy farmers for their milk," he wrote. "Nonetheless, the city's water/wastewater ratepayers cannot subsidize the creamery."
Brown declined to talk specifically about the creamery account, saying a ratepayer has a right to privacy about his bill. He said the collection letter and threat to discontinue service wasn't part of a concerted effort to raise funds for the cash-strapped city by leaning on delinquent customers.
The letter proposes a payment plan that Peter must follow to stave off further enforcement. The city could place a lien on Peter's properties if the plan isn't followed.
Brown said the city doesn't want to hurt any business in financial straits, especially one that could affect others.
"Certainly when you're dealing with a large business and a fairly large employer, and a business that has a fairly large ripple effect, that's one of those areas where I am looking to try to work through the difficulties with them," he said.
City Councilman David Rabbitt said he hopes Peter and the city can negotiate an agreement. "He stepped into that situation in probably the worst economic times to carry on a tradition in Petaluma and to provide a place for a lot of dairies to bring their product," he said. "I'm hoping that the city can continue to work with the creamery so it can stay open for the jobs and income it provides."
Peter said he is planning to meet with city officials next week to work out a deal. "It will be resolved," he said.