A Lakefront Brawl Poisons Oregon’s Most Exclusive Waters

Green slime and a shareholder revolt poison the waters of Lake Oswego.

This story first ran in the April 27, 2005, edition of WW.

On a clear spring afternoon, the view from the eastern end of Oswego Lake is like a page out of a Sierra Club calendar.

Towering Douglas firs cling to hillsides that slope down to sparkling waters. A lone kayaker pauses to watch a soaring osprey, his silhouette framed by a lakeshore lined with some of the state’s most expensive residential real estate.

Lake Oswego is Oregon’s most affluent city—every week last year, at least one home sold for more than $1 million—and any real-estate agent will tell you why: Oswego Lake. “Without the lake, we’re just another little town,” says Sally Knauss, who has been selling houses next to the water for 27 years.

For visitors, it’s tempting to stop in lakefront Millennium Plaza Park downtown to dip a toe in the waters. But they’d best beware the three brass plaques on the water’s edge: “Private lake,” the plaques warn. “Please stay on the steps.”

That’s right. In a state famous for its public coastline, the only major lake in the metro area is completely off limits to out-of-towners. And except for a couple of swim parks, most residents of Lake Oswego are prohibited from using the lake. That privilege belongs only to the “shareholders” of the private Lake Oswego Corporation, whose exclusivity was safeguarded by an act of Congress in 1976.

“Even if you came in by helicopter and dropped a canoe in the middle of the lake, the police would get you,” says Travis Williams of the water watchdog Willamette Riverkeeper.

Until recently, Oswego Lake has been of little interest to anyone except the city’s 36,000 residents.

But over the past six months, caustic disputes over lake governance have ripped the waterfront community’s velveteen social fabric and spawned a boardroom battle worthy of the most dysfunctional corporation.

The problem is a slimy, foul-smelling mass of algae that has poisoned the lake—giving rise to the nickname “Lake Pesto”—and threatens to depress property values, send utility bills soaring and irreparably change Lake Oswego’s identity.

As a consequence, the lake community has split, with the sides as hostile to each other as Iraq’s Shiites and Sunnis. “I’ve never seen division like this,” says Knauss, who has lived in Lake Oswego for 36 years.

Toss Mayberry and Palm Springs into a blender, and the result might look something like Lake Oswego.

For many people, Lake Oswego means money-per-capita income is twice the state average. But longtime residents say what really makes the town different from other Portland suburbs is its close-knit culture and sense of place.

“This is a nuclear community,” says Paul Graham, who owns a stationery store in town as well as ones in Oregon City, Canby and Milwaukie. “We have a thriving downtown, and the people who live here feel a very strong connection to the community-and feel like they can have influence in it.”

Lake Oswego’s style—a Rolex hidden under the cuff of a dirty gardening glove—is on display at Wizer’s, a 75-year-old mom-and-pop grocery store on Avenue A.

The store’s decor and staff haven’t changed much since JFK occupied the White House. But shoppers can find such items as a house-brand chutney imported from India and a $44-a-bottle olive oil. Downstairs, a wine cellar holds more than 25,000 bottles.

Although Lake Oswego is remarkably homogeneous—African Americans, for example, make up 0.6 percent of the city’s population—divisions do exist. The rivalry between the town’s high schools, Lake Oswego and Lakeridge, both academic and athletic powerhouses, is intense.

A more fundamental division exists between those who live on the lake and those who do not. “People on the lake are a group unto themselves and keep to themselves,” says Sherry Finnigan, a longtime neighborhood activist.

There are 690 lakefront property owners. Another 515 families belong to 20 waterfront easement associations-essentially private beaches. In total, less than 10 percent of the town’s population has the privilege of piloting their boats over to Blinn’s Boathouse Restaurant at the east end of the lake for a drink.

But in the past year, bitter controversy has divided the select group of those with access to the lake, pitting neighbor against neighbor.

Supporters of the Lake Oswego Corporation, the privately held company that manages Oswego Lake, are under attack from the “Concerned Shareholders Committee,” which argues that the Lake Corp’s board’s secrecy and mismanagement threaten the destruction of the very thing the board is supposed to protect: the lake.

The critics began their campaign last October with a series of aggressive letters to all shareholders. More recently, the hostilities between the groups have colored the town’s normally genteel social discourse.

Last month, Lake Corp board member Don Burdick publicly buttonholed Sally Knauss at breakfast at the Tillamook Creamery in downtown Lake Oswego.

The two served amicably together for 15 years on the Lake Corp board but disagree strongly today. Burdick says he asked Knauss, who sold her lakefront home recently, to drop her support of board critics.

Knauss felt attacked. “He called me a ‘traitor,’” she says.

Next week, some angry shareholders are organizing a tag sale, the proceeds of which will go toward paying a lawyer to sue the Lake Corp.

“This whole situation is unique in my experience,” says Burdick, a retired banker who joined the board in 1976. “I’ve asked longtime lake residents, and they’ve never seen anything like this before.”

The warring factions agree on one thing: If the lake were a person, it would be rolling into the intensive-care unit with clergy on call.

“I won’t let my children swim in that water,” says Cathy Schroyer, a city resident for more than 30 years. “The last time my daughter swam in it, she came out and her hair was dripping with green goo.”

Oswego Lake wasn’t always sick. Avia athletic-shoe company founder Jerry Stubblefield, who lives on a four-acre island in the lake, says the water was clear when he first moved in 18 years ago. He used to see crawfish and schools of minnows in his boathouse, he says, but over time the water grew increasingly opaque.

Last summer, the explosive growth of algae in the lake stunned him. “It started in the bays and shallows in July, then spread across the whole lake,” Stubblefield recalls. “People who waterskied came out green like Kermit the Frog, and everything smelled like sewage.”

The problem with Oswego Lake is simple: It contains too much phosphorus, which fertilizes naturally occurring algae.

After two unusually heavy rainstorms last summer, the combination of sunlight, nutrient-rich runoff and stagnant water created perfect conditions for algae growth. As the algae died, they produced microcystin toxins, which can cause liver damage in humans if ingested.

Just how much of a danger the toxins presented is unclear. Dr. David Stone, a toxicologist with the Oregon Health Division, says one of the samples taken in the lake exceeded state safety guidelines. Some lake residents claim at least one dog died from drinking toxic water, but there is no official confirmation of that claim.

In any case, the Lake Corp closed the lake to swimmers and waterskiers for the rest of the season on Sept. 28.

The closure made news and scared at least one property buyer away. Knauss says a family was moving into a lakefront house right after the lake closed. While movers shifted boxes, the husband strolled down to the shore, where he saw a sign saying the lake was closed to humans and animals. “They put the house right back on the market and took a loss,” she says.

While everybody around the lake agrees the algae is a problem, they disagree about how it got that way and what to do next. In effect, when the algae turned toxic, so did relations between many lakefront property owners and the Lake Oswego Corporation.

Founded in 1941, the nonprofit Lake Oswego Corporation operates on a $1.3 million annual budget derived mostly from assessments on lakefront property. Property owners are assigned shares in proportion to their lake frontage-island-dwelling Stubblefield is the largest shareholder with about 3 percent of the shares. The easements collectively own about 10 percent.

The Lake Corp rules its waters like a sovereign nation. It owns nearly the entire lake bottom and the concrete buffer that rings the lake. It licenses all boats, sets speed limits, regulates the lengths and types of boats allowed, and must approve all structures that abut or cover lake surface.

In 2001, a shareholder failed to pay both his mortgage and his assessment to the Lake Corp. A Clackamas County judge found that the Lake Corp’s claim on the landowner’s assets was superior to the mortgage company’s.

Until last fall, however, nobody had ever challenged the board. That’s when Stubblefield, who was a record-setting discus thrower at the University of Oregon, emerged from the 3,500-square-foot home workshop where he tinkers with new inventions and began talking to neighbors about his concerns.

The economic consequences worried him. “I’m sitting on the biggest piece of property on the lake, and it’s being depreciated by the actions of the Lake Corp board,” he says.

Stubblefield began asking questions. “We tried to get water-quality and financial information from the board and couldn’t,” he says. “I found there were others who’d been trying to get that same information for 10 years. That astounded me.”

He and other critics formed the Concerned Shareholders Committee in October. Over the winter, the group gathered steam and members.

Stubblefield began by sending angry missives to shareholders, excoriating the board for hoarding information, spending big money without consultation-and, most importantly, botching water quality.

The Lake Corp’s 12-member board may have failed to keep algae at bay, but not for lack of trying. In 1996, the board slashed inflow from the lake’s largest water source, the Tualatin River, to reduce phosphorus and thus algae.

In 2001, the Lake Corp spent nearly $1 million to attach six 30-foot-tall aerators to the lake bottom, in another effort to decrease algae growth. More recently, the board bought a custom-made skimmer barge to collect algae from the surface.

The results have been mixed. The Lake Corp has charts showing that the aerators have improved the water quality. Stubblefield, who holds 24 patents, scoffs at those results. “The aerators stir the water at deeper depths but don’t do much to get more oxygen in the water,” he says.

Karen Williams, a water-quality expert with the Oregon Department of Environmental Quality who tested the lake last summer, is also skeptical about the aerators. “I have not seen that or heard of them being used elsewhere,” Williams says. “I think the effect is mostly aesthetic.”

The Lake Corp’s water-quality consultant, Harry Gibbons, says aerators have been successful in other lakes. He also defends the decision to reduce flow from the Tualatin, which critics say has simply made the lake water warmer and more stagnant, promoting algae growth.

Last month, the Concerned Shareholders Committee proposed its own slate of directors for the Lake Corp’s 2005 annual meeting-essentially proposing a boardroom coup.

Such hardball tactics are more typical of angry shareholders in fractious publicly traded corporations such as Walt Disney than a homeowners’ association. “Nobody’s ever done that before,” says Knauss.

When shareholders gathered for their annual meeting and board election last week, more than 300 lakefront residents turned out, about five times the number board president Dave Schulz says is normal.

Schulz, 60, a genial electrical-equipment executive who favors sweater vests, did his best to unite the divided audience around a common interest: keeping the lake private.

“My brother, who lives in Gresham, could be eating at Manzana’s overlooking the lake and want to walk down to the steps and put his foot in the water,” Schulz told the shareholders. “We don’t want that. We have to work to keep out people who want access to our lake.”

Board members ignored questions about why they had failed to share financial and water-quality information. They also rejected a request to open future board meetings to shareholders. “I used to think that was a good idea,” board member Paul Ash said. “But what would happen to honest, open debate if every word were written down?”

On Tuesday, the Lake Corp announced its slate of directors had defeated the insurgents—news that prompted a promise from the Concerned Shareholders Committee to demand a recount.

But no matter what the result, the battle that began as a private dispute between members of an elite group is now a matter of public interest.

That’s because the privately held Lake Corp is seeking to solve the lake’s woes using public funds. Earlier this year, the board asked the mayor of Lake Oswego, Judie Hammerstad, to use the city’s taxing authority on its behalf.

On March 1, the Lake Oswego City Council responded by approving $8 million in new stormwater bonds. Much of the money will be spent to divert or clean up runoff that now enters Oswego Lake at more than 60 town-controlled access points.

The bonds will be repaid by a hike in the monthly stormwater fees that all Lake Oswego residents pay.

Lake Oswego residents already pay some of the highest storm-water management fees in the region, nearly twice the rate of their neighbors in adjoining West Linn, for instance (but about half the rate in Portland)-and those bills will now get bigger. A 10 percent increase goes into effect in July.

There is some logic in spending public money to clean up the lake. Real-estate agents say property values across the city benefit from the value of lakefront property. More importantly, the town’s surface water carries lawn fertilizer, animal waste, leaves and other pollutants into the lake.

Still, taxpayers will be shelling out extra money to pay for a lake most can barely see, let alone use. The city owns a small swim park and the school district owns a larger one, but Mayor Hammerstad (who does not live on the lake or belong to a swim easement) concedes most residents are essentially shut out from the waters that give the town its name.

“They [non-shareholders or easement holders] don’t have any real access,” she says.

Those with limited access to the lake say their political power is similarly circumscribed. “When push comes to shove, City Council does what the Lake Corp wants,” says Jim Bolland, chairman of the Lake Oswego neighborhood association First Addition Neighbors. “If the Lake Corp expects taxpayers to foot the bill, it’s only fair that taxpayers have access to the lake. But that’s never going to happen.”

At a time when Oregonians have given private property rights priority over land-use planning and President George W. Bush extols an “ownership society,” Oswego Lake’s woes provide a cautionary tale.

In a supreme irony, some of the state’s fiercest proponents of private property rights are seeking a public fix for their problems.

(The city has also agreed to spend $65,000 on bronze cattails, which will be placed like a fence at the bottom of the steps leading to the lake at Millennium Plaza Park to deter those who ignore the “Keep Out” signs.)

But even with the expenditure of public money, there’s no guarantee that Oswego Lake’s problems can be solved. Although it’s early in the season, the algae are already blooming at a prodigious rate.

And while shareholders await the results of last week’s board elections, the Lake Corp is proceeding with a massive experiment recommended by its water-quality consultant. At a cost of about $250,000, employees are dumping nearly one million pounds of alum and sodium bicarbonate in shallow parts of the lake, coloring the water an iridescent green. The compound will neutralize phosphorus. At least that’s the plan.

Stubblefield says the alum is yet another big expense about which shareholders were not consulted-and he worries that the experiment won’t solve anything. “It’s like putting a Band-Aid on cancer,” he says.

The Parker House

While water-quality concerns are driving the effort to replace the existing Lake Oswego Corporation board, an entirely different issue originally galvanized shareholder discontent: the board’s deal with a convicted cocaine dealer back in March 2004.

Had board president Dave Schulz and his colleagues handled that transaction differently, they might have spent their winter in peace, rather than wriggling in the crosshairs of the Concerned Shareholders Committee.

In 2002, Jeffrey Irving Parker paid $800,000 for the last undeveloped lot on the lake. Now a successful homebuilder, Parker racked up a 1984 Multnomah County conviction for coke dealing and a 2001 conviction for preventing his estranged wife from calling the police during a domestic dispute. (He declined WW’s interview requests.)

On his lakefront lot, Parker wanted to build a three-story home with garage space for five vehicles. To do so, he sought approval to cut down a couple of dozen trees, sink steel I-beams into the lake bottom and dump 4,000 cubic feet of fill into the water so he could build a foundation for a deck extending 20 feet out into the lake.

To fill in part of the lake, Parker needed permission from the U.S. Army Corps of Engineers, the Division of State Lands and, most important, the Lake Corp. All three approved.

Parker’s plans enraged members of the Forest Hills Easement Association, whose beach and boat docks are adjacent to his property. Association members, who pay Lake Corp dues, say the board sold them out.

Specifically, neighbors were outraged that the board allowed Parker to fill in the lake and build on the newly created real estate. The resulting house, they argued, would be in the lake, rather than set back like most shorefront residences, and would exceed coverage guidelines. The size of the home, both in height and square footage, would dwarf the lot, opponents claim, towering over their beach and blocking both views and the flow of water.

Association members, including Shelley Lorenzen, a politically active former corporate lawyer, appealed or challenged all of Parker’s permits. They also focused their unhappiness on the Lake Corp board.

“How could a board that supposedly cares about improving water quality approve a plan that will block water circulation and ruin a beach used by 200 children-all of whose families pay dues to the Lake Corp?” Lorenzen asks.

Schulz says his group was looking for middle ground. “We tried to accommodate both sides,” he says.

Larry Derr, Parker’s attorney, says the homebuilder has already made big compromises. “He’s doing significantly less than he’s allowed to,” Derr says.

Critics are not impressed. Over the winter, they joined forces with Stubblefield’s Concerned Shareholders Committee in the battle against the board.

Having delayed Parker’s progress for a year, Lorenzen and her allies are threatening to sue the Lake Corp board for breach of fiduciary duty. “They’ve ignored, insulted and threatened us,” she says. “And we’re their shareholders.” -NJ

Fun Facts

The Lake Oswego Corporation is a successor to Oregon Iron and Steel, which operated a blast furnace on the lake shore in the 1890s and tried to make the city of Lake Oswego the Pittsburgh of the west.

According to a history of Lake Oswego, Ann Fulton’s Iron, Wood and Water, Oregon Iron and Steel chucked industry and plunged into land development for good in 1912, when the company asked the U.S. Geographic Board to change the name of Sucker Lake (named after a prevalent species of trash fish) to Oswego Lake.

A total of 27 Oregon lakes were closed last summer due to toxic-algae concerns. Two other metro-area lakes, Blue Lake and Vancouver Lake, suffer significant algae problems.

The average lakefront home in Lake Oswego had an assessed market value of more than $1 million last year, according to the Clackamas County assessor’s office. Houses on bays and canals (where algae problems are the worst) were worth slightly less.

The lack of lake access is partially the town’s fault. In 1963, according to Iron, Wood & Water, a large public swimming and boating park that was open to all comers was offered for sale. The town passed and so developers pounced, ending the longstanding public access to the lake.

The city takes its name from Oswego, N.Y., the town on Lake Ontario where founder Albert Alonzo Durham was born.

In 1976, U.S. Sen. Mark Hatfield got federal legislation passed that ended Oswego Lake’s designation as a navigable waterway, which was necessary to block public access; he later arranged for the small hydroelectric dam at the lake’s eastern end to be exempted from federal oversight, clinching private status.

Even though the city is among the Lake Corp’s largest shareholders, it does not have a seat on the board. “I never thought about that until now,” says Mayor Judie Hammerstad.