HARMONY GROVE -- A state Local Agency Formation Commission officer says it would be illegal for the county to hire the city of Escondido to provide sewer service to a proposed housing project in unincorporated Harmony Grove.

At the same time, Escondido Creek Conservancy leaders warn that the city's treatment system can't handle the additional sewage and that wastewater could end up polluting the creek, which runs from Lake Wohlford to Solana Beach.

The reactions were inspired by a request from the county's Department of Public Works asking Escondido officials to consider connecting its sewer plant to 412 acres in Harmony Grove, where Santa Monica-based New Urban West developer intends to build a 730-home housing tract.

Harmony Grove residents now rely on septic systems.

In a letter dated April 9, state commission executive officer Michael Ott advised city and county officials that the two governments would violate state law if they signed a sewer contract for the proposed development in the rural area southwest of Escondido's city limits.

Ott noted that the state agency -- which advises and approves changes to city boundaries -- voted last September to override Escondido's City Council and take Harmony Grove out of the city's sphere of influence. That decision means that Escondido cannot provide city services to the area, Ott wrote.

"The purpose of this memorandum is to remind you that Government Code Section 56133 prohibits a local agency from providing services outside (its) jurisdictional boundary unless the territory is within the subject agency's sphere of influence," he wrote.

A sphere of influence is land the city plans to one day annex into its limits.

Ott was out of the office Monday and unavailable for comment.

But both city and council officials said that they had just read the letter and were determining how to proceed.

"I thought there was some flexibility in that decision," said Douglas Isbell, the county's deputy director of public works. "I am trying to get hold of Mr. Ott and talk to him about it."

Isbell added that the letter was merely exploring the county's sewer options and trying to see if the city was interested in making a little money through a sewer contract.

New Urban West's Vice President Tom Zanic, who was pushing for the city sewer agreement, said Monday he was unaware of the letter and could not comment on it. Zanic has said that if a deal could not be arranged with the city, the other option is for the county to build and operate a small sewage treatment plant in Harmony Grove.

Both sides maintain it is too early to estimate the cost of either option.

Pat Thomas, Escondido public works director, said he plans to keep the county's sewer request on the council's April 21 meeting agenda to determine whether the council is even interested in a sewer contract.

If the council decides it would like to start talks with the county, then Thomas will explore whether Ott is correct, he added.

"It seems like it is LAFCO's policy and there is some question if that is the correct interpretation of that policy," Thomas said. "But it may provide a whole new wrinkle in this agreement."

City Councilman Tom D'Agosta said there is no room for interpretation in the letter.

"It's illegal," D'Agosta said, pointing to the state code. "We can't do it."

But Mayor Lori Pfeiler pointed out that a precedent already exists for the city to contract with other local governments to provide sewer service, since Escondido already handles Rancho Bernardo's sewage treatment.

"To me, it's a business decision," Pfeiler said. "We have to look at it and see if we have available capacity to sell. We need to look at how much we would sell it for and would it be a benefit for our residents."

The city doesn't have the capacity to meet the demand, said former city councilwoman June Rady, the president of the board of the Escondido Creek Conservancy.

"The issue is, there is not enough capacity in (Escondido's) outfall line that carries the sewage to the ocean," Rady said. "The size of the pipe capacity to carry the sewer isn't big enough without doing some live discharge into the creek. The problem has been brewing for years."

Thomas said that enlarging the 14-mile pipe that runs to the ocean has been in the planning stages for years but is not needed now. The city's recent upgrades to its water treatment plant to allow for recycling wastewater has created less waste to the ocean.

"Therefore our outfall capacity is that much greater," Thomas said. "But we don't have a concise number. We have adequate capacity for today's usage and in the foreseeable future. But we are not sure we have it for build out."

Capacity or not, Harmony Grove resident Kevin Barnard doesn't think Escondido should consider the sewer contract, convinced the request is a way to circumvent the city's planning process.

"They take it (Harmony Grove) out of the sphere of influence, dramatically upzone it, and then they want to come back and get services from Escondido," Barnard said. "That is a violation of the spirit of Proposition S."

Passed by voters in 1998, Prop. S requires a citywide public vote for any project that would change the city's general plan by increasing density in residential areas or change residential land to commercial or industrial use.

Keeping the project in the county allows New Urban West to build more houses in the rural area, without a public vote. If the project stayed within the city's control, its zoning would allow about half of the 730 houses.

In fact, it was Harmony Grove residents, not the county or developer, who lobbied to get out of Escondido's sphere, with many saying they didn't trust Escondido because years ago city officials had tried to push an industrial project in the area.

During the initial public review process, New Urban West's Zanic remained neutral, while Harmony Grove residents divided on whether the county or the city would guarantee the least amount of development.

But some wonder if New Urban and the county are simply exploring their sewer options, or if more is at issue. Both D'Agosta and Councilman Ron Newman said they are fishing for answers behind the county's sewer request.

"It has definitely come onto my radar screen," Newman said. "I have lots of questions about how it came to us and what's behind it. I also have a concern about an asset like that (sewer) going to any outside person."

The two remaining council members did not return calls for comment.

Contact staff writer Erin Massey at (760) 740-5416 or emassey@nctimes.com.