When Larry Peter purchased the Petaluma Creamery in 2004, the local agricultural community celebrated the move as a means of preserving the North Bay’s dairy industry.

“It’s a way to keep agriculture and the dairy industry part of Sonoma and Marin counties,” Peter, the owner of Spring Hill Jersey Cheese, who has family roots in the North Bay’s agricultural community, told the Press Democrat when news of the acquisition broke.

Unfortunately, Peter’s Petaluma Creamery quickly began to miss bills and rack up fines. By September 2010, the business owed the city of Petaluma $604,720 in unpaid water bills and fines, according to press coverage from the time.

The city of Petaluma, home of the Butter and Egg Days Parade, regards agribusiness as a core part of its identity and modern heritage. But should Petaluma use tax dollars to keep a mid-sized creamery alive when it is not operating sustainably—all in the name of preserving its agricultural roots? City managers have grappled with this question for more than a decade.

In a 2010 letter to Peter threatening to shut off the plant’s water unless he paid some of his debt, then-City Manager John Brown indicated that the city had been lenient in an effort to save the Petaluma Creamery, which was founded as the Petaluma Cooperative Creamery in 1913.

Brown wrote that the city had worked with the Creamery “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. Nonetheless, the city’s water/wastewater ratepayers cannot subsidize the creamery.” 

Despite Brown’s threat and the city’s continued efforts to work with the Creamery for the past 10 years, Peter has racked up additional unpaid bills and failed to obtain city safety permits. The Creamery has also run afoul of a regional air quality regulator and Peter is currently being sued by former employees for allegedly violating employment laws.

To cap things off, two small fires at the Creamery last year—one in June and another on Dec. 7—brought renewed attention regarding the safety of the facility.

On Dec. 21, Petaluma City Manager Peggy Flynn sent a letter threatening to press civil or criminal charges against Peter if he continues to discharge wastewater without receiving city approval by March 1.

The Creamery currently owes $1,425,258.54 to the city in wastewater discharge fees, sewer capacity rental fees and permit violation fines, according to Flynn’s letter. Peter did not respond to requests for comment.

Broken Promises

Flynn’s letter, and other public records obtained by the Bohemian, indicate that Peter often started to collaborate with the city, but ultimately failed to follow through on promises.

For instance, in 2015, the Creamery completed a safety report known as a Process Hazard Analysis (PHA), a list of recommendations for safety and regulatory compliance. The city began to work with the Creamery to complete the list, but the Creamery ultimately failed to provide the city with evidence that it has completed “over 100 items” included in the most recent version of the PHA, according to the Dec. 21 letter.

The city is now requiring that the Creamery provide proof it has completed the PHA before March 1 in order to continue storing ammonia on the premises for use in a refrigeration system. “Anhydrous ammonia is a toxic gas that may cause severe injury or death if inhaled,” Flynn’s Dec. 21 letter states.

In April 2018, the city took legal action against the Creamery in an effort to collect the Creamery’s mounting bills.

The city’s legal action followed the completion of a February 2018 audit of the city’s wastewater pretreatment procedures by an Environmental Protection Agency contractor, which reminded the city of its obligation to increase its enforcement efforts instead of simply issuing the Creamery more fines.

The “Petaluma Creamery has been chronically violating the City’s [Biological Oxygen Demand] BOD and oil and grease local limits since 2008. The City regularly issues notices of violation… but has not escalated enforcement,” the audit reads in part, according to a legal filing by the city of Petaluma. 

In November 2018, a judge ordered the Creamery to pay the city $624,046.06 in 24 monthly installments, ending on Dec. 31, 2020.

The Creamery failed to pay the complete amount, according to Jordan Green, a deputy City Attorney. The remaining unpaid amount is included in the $1.425 million the city says the Creamery owes them.

Green says the city is considering placing a tax lien on the Creamery, an option included in the November 2018 settlement if Peter failed to pay the installments.

On May 24, 2018, the Bay Area Air Quality Management District (BAAQMD) filed a lawsuit against the Petaluma Creamery. A BAAQMD engineering report obtained by the Bohemian shows that the Petaluma Creamery repeatedly filed for permits to operate various pieces of machinery, but then failed to complete the steps required to receive final approval.

A BAAQMD spokesperson told the Bohemian that Peter paid a fine resulting from the lawsuit, but that the agency is currently investigating the plant for compliance with air quality requirements. The spokesperson declined to comment on the specifics of the ongoing investigation.

Three recent lawsuits against Peter, brought by former dairy employees, allege a series of labor violations. The cases—two of which are ongoing—ask the court for over $100,000 in damages due to unpaid wages and other labor violations.

On Monday, Dec. 7, a fire broke out at the Creamery’s headquarters at 621 Western Ave., six months after another smaller fire broke out at the business. According to December press coverage, employees reported smelling smoke and discovered a fire in the rafters above a decommissioned boiler.

Although the Creamery’s sprinkler system activated and put out much of the fire, the Creamery does not have an alarm system, and the fire was detected and reported to the Fire Department by an employee. Fire fighters cut a hole in the roof to finish the job. All told, there were about $25,000 in damages, the city estimates.

A cause for the fires has not been determined, but the city is requiring the Creamery to install an alarm system which would automatically alert the city’s emergency dispatch service, according to Green, the Petaluma deputy city attorney. 

The city has not provided a deadline for the installation of the alarm system and is working to help the Creamery comply, Green said. 

Last year, as his bills mounted, Peter found an unlikely ally in Verizon Wireless. 

The cell phone company filed an application with the city to install equipment on top of one of the Creamery buildings. In exchange for the use of his roof real estate, Verizon would pay Peter an unknown amount of rent for many years to come.

While some Petaluma residents opposed the proposal, it was set for consideration at a Monday, Jan. 26, Planning Commission meeting.  

But, on Friday, Jan. 22, an attorney for Verizon informed the city that the company had decided to withdraw its application. 

“Verizon Wireless has chosen to withdraw the application immediately in light of the recently-discovered compliance matters affecting the subject property that are unrelated to the proposed wireless facility, as well as the recent fire that affected an adjacent structure,” a company attorney wrote.

Verizon may restart the permit process once the Creamery comes into compliance, the attorney added.

Government Cheese

In a Jan. 5 email to concerned neighbors of the Creamery, Flynn, the current city manager, took a similar approach to Brown, her predecessor who sent a letter to the Creamery back when Peter owed less than half of what he does today.

“As you may know, the Petaluma Creamery has a long and historic presence in our City,” Flynn wrote to the neighbors. “It has been an important link to our agricultural community and a vital amenity for processing and providing local dairy products to consumers.”

“As part of our efforts, they have made some corrections, but the compliance hasn’t been consistent and the agreed upon next steps have not been completed to date,” Flynn continued. The tipping point which led the city to increase its enforcement actions was a growing concern for public safety, Flynn concluded.

The Creamery’s appeal of the November 2018 judgement requiring the Creamery to pay the city $624,046 indicates that Peter’s business struggled from the start. The business did not operate as a processing plant between September 2005 and July 2007, and then ran at “vastly reduced levels until 2012 due to the recession,” according to a February 2019 appeal written by Peter’s attorney.

The broader trends in the dairy industry—which is increasingly dominated by fewer, larger producers—likely didn’t help Peter’s business either.

While the number of dairies in Sonoma County has dropped from 800 at the height of the local industry down to 56 licensed cow dairies in 2018, the amount of milk produced has remained relatively steady over the decades. The county produced 500 million pounds in 1969 and 466 million pounds in 2017, according to Sonoma County crop reports.

In fact, Sonoma County’s 2018 crop report notes that “the challenges facing Sonoma County dairies today largely revolve around an oversupply of organic milk” by producers nationwide, leading to a low price for the North Bay’s producers.

Across the country, the dairy industry has struggled to match demand for specific products as consumers’ tastes change. 

The status quo is supported by large amounts of money from the federal government. A 2018 report commissioned by the Dairy Farmers of Canada found that the U.S. dairy industry received $22 billion dollars in direct and indirect federal subsidies in 2015, allowing American dairies to produce milk despite the fact that the sale price does not cover production costs.

Unfortunately for small farmers, the federal government’s generous subsidies don’t necessarily trickle all the way down, meaning that small farms struggle while some large producers prosper.

In 2019, President Donald Trump’s agriculture secretary Sonny Perdue put it bluntly after visiting the World Dairy Expo: “In America, the big get bigger and the small go out.”

In response to these and other problems, some commentators have called on the government to help dairy farmers transition into other industries.

Still, the question remains, should Petaluma continue to subsidize the Petaluma Creamery as it has for 10 years?