Victor Dong’s goats graze on his lot in East Palo Alto. For five years, Victor Dong has been trying to build four single-family homes but the project, though approved by the city, has been stalled by the East Palo Alto Sanitary District, which is refusing to sign off on a sewer hookup unless he pays millions of dollars.

This summer was supposed to be a season of celebration for the Ravenswood Family Health Clinic in East Palo Alto: the grand opening of a 60,000-square-foot building, paid for by billionaire philanthropist John Sobrato, that would house 120 agency staff members, along with other nonprofits.

“There is a huge need for it in the community,” said Ravenswood Family Health Clinic CEO Luisa Buada. “It would be a lovely, highly subsidized space.”

Yet, the new building will not open this summer. It is not even under construction. The flat, fenced-in, 2.5-acre dirt lot at 2519 Pulgas St. shows no sign of bulldozers or excavators. And there is a real possibility that it never will be, according to Buada.

That is because the stalled project is one of more than a dozen East Palo Alto developments indefinitely on hold because of disagreements with the East Palo Alto Sanitary District, which critics say is refusing to provide service unless developers cough up millions of dollars that would pay for the modernization and expansion of the 1939-era sewer system.

The Ravenswood Family Health Center has been unable to build a 60,000-square-foot building because of the East Palo Alto Sanitary District.

Other projects that have been unable to go forward include a free private school for low-income kids, a job-training facility, an affordable housing project with 136 units and a dozen backyard “ADU” cottages and small subdivisions scattered throughout the city.

In the case of Ravenswood Family Health Clinic, which serves 22,000 low-income families, the sanitary district is demanding a $6.6 million payment to provide a half-block sewer connection to the new building. Buada says the real cost of the connection is about $600,000.

“There is just no progress. They are unwilling to negotiate. They are unwilling to take on the responsibility of fixing a very broken sanitary system,” Buada said.

The East Palo Alto Sanitary District is the sort of small local agency that you wouldn’t know exists unless you happen to be a customer: It owns a 32-mile underground sewer system that serves about 26,000 customers in a 1.8-square-mile area east of Highway 101.

At public hearings and in meetings, EPASD General Manager Akin Okupe has said the high fees are required because the large developments that East Palo Alto has approved will overwhelm the city’s sewer system, unless it is updated with high-capacity pipes.

Rather than increase rates for homeowners in the traditionally blue-collar neighborhoods, the solution is to make developers pay for it, he has said. Okupe did not return calls or emails seeking comment from The Chronicle.

In April, the San Mateo Local Agency Formation Commission, known as LAFCO, published a scathing 231-page report on the sanitary district, contending that “lack of EPASD sewer collection system capacity is an impediment to development in the City.”

The lot at 2519 Pulgas Ave. in East Palo Alto is where the Ravenswood Family Health Clinic hopes to put a 60,000-square-foot building.

“Developers have indicated concerns that the costs to connect are prohibitively expensive and that EPASD has been unwilling to discuss financing options to make connection more feasible,” the report states. “Efforts to date to resolve this issue have been largely unsuccessful.”

The LAFCO report also recommends that EPASD become integrated into either the city of East Palo Alto or the West Bay Sanitary District, which serves Menlo Park, Atherton and Portola Valley, as well as areas of East Palo Alto and Woodside.

In the meantime, critics say East Palo Alto can ill afford to have its residential development spigot shut off at a time when rising rents and home prices have already put pressure on the working-class neighborhood, a place that historically welcomed Black and Latino families who were excluded from buying or renting in the segregated white neighborhoods on the west side of 101. The median home price in East Palo Alto is $960,000, a 100% increase from a decade ago.

Already, issues with the sanitary district have created obstacles for two affordable-housing developments: 136 units at 965 Weeks St. and a 91-unit expansion of the Light Tree development at 1805 East Bayshore Drive, according to Duane Bay, executive director of EPA CAN DO, a local affordable-housing builder that is a partner in both developments.

While the challenges at Light Tree were eventually settled — the developer agreed to pay $2.5 million to connect to the system — the lack of a “will serve” letter at 1805 E. Bayshore Drive forced the development team to pass up $20 million in tax credit financing.

“We have put design on hold at this point and it has already delayed the process of applying for the tax credit,” said Bay. “It’s a site that has been zoned for housing for decades. It’s owned by the city and is a city-sponsored project.”

The East Palo Alto Sanitary District says it needs millions of dollars to upgrade a 1939-era sewer system.

Bay said the district seems to be taking an overly cautious position on the threat that development poses to the current sewer system. He also pointed to a state law that requires special districts to give priority to affordable housing.

“Basically the district’s own modeling methods show that the current system has adequate capacity,” he said. “All of us are on board with the notion that sewage should not be flowing out of the manholes.”

Next door to the Ravenswood Family Health Clinic expansion site, JobTrain and the Emerson Collective, a philanthropic for-profit founded by Laurene Powell Jobs, have approved plans to build a 100,000-square-foot facility.

JobTrain CEO Barrie Hathaway said the building will allow the organization to more than double its reach. The group trains workers in four industries: health care, construction trades, culinary arts and technology.

“We essentially have a big vision to expand our programs and expand our mission,” said Hathaway. “This holdup is costing the residents of East Palo Alto a lot.”

The group first applied for sanitary district access in August of 2020.

“The design is done but we can’t get a building permit without the ‘will serve’ letter,” he said. “What they are asking each project to pay is so much more than is reasonable. Honestly, it’s so frustrating all around. I just don’t know how this is allowed to happen. How is it possible that they could just say ‘no’ and hold up so much development?”

While some of the victims are larger nonprofits, the inability to get a sewer system hookup is also creating a crisis to small mom-and-pop developers like Victor Dong, a 55-year-old Chinese immigrant software engineer who borrowed against his Fremont home to buy a half-acre parcel in East Palo Alto.

Dong said his entire retirement is wrapped up in the Beech Street site, on which he won approvals to build four homes, including one for his 25-year-old daughter. The rectangular parcel, next to a row of single-family homes and a school, used to be a greenhouse. The project is his only venture into real estate development — he paid $1.2 million for the site and has spent another $300,000 getting it approved.

Victor Dong looks at a manhole cover on the street in front of the lot where he has been trying to build four single-family homes in East Palo Alto.

The project had unanimous support from his neighbors and Dong sailed through the planning process — the tentative map was approved by the East Palo Alto Planning Department in October of 2019 and the final subdivision map was recorded a year later.

The only thing he needed for building permits was a “will serve” letter from the sanitary district.

At first Dong said he clashed with Okupe over whether a $10,000 hydraulics analysis would be required. Eventually the general manager told him he would need to pay $4 million to get a hookup — a hefty sum for a development that would be worth less than $6 million when complete.

“First (Okupe) said you need $4 million to upgrade the system — then he said, ‘Forget it, it’s $40 million to upgrade the whole city,’” said Dong. “I begged him to give me the option again and told him in the past few months my life is totally destroyed, I cannot sleep, keep on worrying my financial and future.”

Dong said he would like to sell the parcel, and wipe his hands of the whole ordeal, but it’s worthless without the ability to connect to the sewer system.

“They caught me in a trap,” said Dong. “They could have declared a moratorium — just said, ‘Sorry, we cannot approve anything.’ That way somebody like me won’t have to spend $300,000. Nobody will go through the trouble.”

Meanwhile, as long as the development is stalled, the only two creatures living on the property are a pair of goats Dong acquired in order to keep the grass under control.

“They are a neighborhood favorite,” he said. “The kids in the school next door love them. I tell them, ‘Don’t feed the goats. They are supposed to be eating the grass.’”

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @SFjkdineen

J.K. Dineen covers housing and real estate development. He joined The Chronicle in 2014 covering San Francisco land use politics for the City Hall team. He has since expanded his focus to explore housing and development issues throughout Northern California. He is the author of two books: "Here Tomorrow" (Heyday, 2013) and "High Spirits" (Heyday, 2015).