In 2000 the South Tahoe Public Utility District (District) began to master plan the recycled water system for the next 20 years. They were compelled to evaluate the physical facilities by a number of infrastructure problems and contractual issues. The District board was also ready to abandon the old philosophy of disposing of wastewater and adopt a new philosophy of receiving a benefit in return for the valuable water resource. Interviews, record searches, field surveys and analyses of ranching practices and reservoir functions provided an understanding of the existing system. This paper discusses the problems and issues, which are summarized as follows: existing rancher contracts may expire as early as 2008 and the District must prepare to renegotiate or replace those contracts; recycled water application area is inadequate for current and projected flows (the 1530 acres of currently irrigated land was just adequate for flows in 2000, but could not accept increased volume in the future); the Harvey Place storage reservoir is reaching capacity, and by 2021 the winter production of recycled water is expected to completely fill the operating volume, leaving no room for further expansion of the system; existing emergency disposal options are undersized and risky (during the wet spring of 1996, the emergency disposal trenches filled up with stormwater and drained so slowly that there was no capacity for excess recycled water); the only other emergency disposal has been to transmit recycled water in ditches that also carry storm drainage and creek water, then spread the recycled water on fields that are already saturated or frozen; application areas are being lost to development (four of the six ranches had been transferred to new owners or divided among heirs since 1972 and portions of some ranches have been subdivided, and 5-acre parcels are being sold and developed as rural residential home sites unsuitable for recycled water application; and, existing application rates and tailwater cause potential human contact risks. Fields are flood irrigated with recycled water and fresh water, allowing tailwater to flow across neighboring properties. Open ditches border several of the five-acre parcels.