Since 2004, Malibu and the regional water board, a state agency, have operated under an agreement that allows the city to issue wastewater disposal permits to single-family homes and small commercial developments.
The project expects to open in February, several months behind schedule, with shops including Tory Burch, James Perse, Kitson and Planet Blue. Two restaurants are also planned.
Developers Richard Weintraub and Richard Sperber, both locals, spent more than $3 million constructing a state-of-the-art on-site water treatment system at the shopping center -- before receiving a permit.
The city contended that it could issue the permit because the project's first phase would produce less than 3,200 gallons of sewage a day.
The water board disagreed, saying it had jurisdiction because the addition of the restaurants would cause the amount of sewage to soar to 17,000 gallons a day.
On Dec. 11, after Malibu relented, the water board approved the Malibu Lumber Yard system's permit but imposed conditions, including daily monitoring and a requirement that the system be hooked up to the city's proposed centralized water treatment plant within six months of its completion.
The increasingly disgruntled board has informed the city that it intends to terminate its agreement to allow Malibu to do some of its own permitting. It said it also might seek a prohibition on septic tanks in the Civic Center area.
That could spell trouble for other developments in the pipeline in a city that came to be because of its adamant opposition to sewers.
"How this is all going to play out is completely up in the air," Gold said. But the result could be that "the most critical section of Malibu, which has been demonstrated to exacerbate the pollution problems, would be off septic systems."