Caught in a tug of war between angry residents and pleading developers, Palo Alto officials sided with the former on Monday night and agreed to strike from the city's books a list of provisions that have long allowed downtown builders to "underpark" their projects.

The laws, originally intended to encourage downtown development, are now viewed by staff and the City Council as obsolete and counter-productive. With downtown's residential areas inundated with commuters' cars, the city is now pursuing a wide range of solutions, including new parking garages, a "transportation demand management" program that offers workers incentives to trade commuting in cars for alternative modes, and a Residential Parking Permit Program that would set time limits for parked cars not belonging to residents.

Compared to those broad and potentially game-changing efforts, the Monday vote was a relatively small step (in the words of Councilman Larry Klein, a "very, very small step"). One change, which the council adopted unanimously, permanently extended a moratorium that the council adopted last December on a "floor area parking exemption," which subtracted the property's lot size from the calculation used to determine parking requirements. (This means that for a 10,000-square-foot lot, the developer would not have to provide parking for the first 10,000 square feet of the new building.) That provision was tossed into the dustbin of history Monday with little debate and no disagreements.

Other proposals proved more complex and generated extensive discussion. Ultimately, by a 8-1 vote, with Liz Kniss dissenting, the council voted to scrap a provision pertaining to "transfer of development rights," which had allowed developers who perform historic and seismic rehabilitation at other properties to get parking exemptions at downtown sites; and an ordinance that gives a 200-square foot bonus to downtown projects that don't qualify for the "transfer of development rights" exemption.

The council also considered eliminating an exemption pertaining to "grandfathered uses and facilities." The exemption allows developers to replace certain old buildings with new developments and continue to receive the parking exemptions that went with the old buildings. The council chose not to vote on this provision after Interim Planning Director Aaron Aknin said staff needs more time to discuss the exemption with the city attorney.

Before its vote, the council heard from both camps: the downtown residents seeking relief from the commuter cars filling their blocks during work hours and the downtown developers who argued that the city is unfairly changing the rules of the game and violating its prior commitments.

Katie Morganroth, who is developing a commercial property at 301 High St., was one of several developers who urged the council to slow down. Her project had already gone through the design-review process, she said, and applying new rules to it now would force her to change the building's the design and reduce its square footage very late in the game.

"The proposed ordinance is an unfair and one-sided approach," Morganroth said.

David Kleiman, who last week received the green light from the Architectural Review Board for his four-story development at 636 Waverley St., also asked the council to proceed with caution.

"The business community in Palo Alto is entitled to a reasonable amount of certainty when conducting business," Kleiman said. "Any major changes in the code should allow sufficient time for businesses to adopt to these changes."

Downtown residents took the opposite views and argued that the time to act is now. They argued that the parking exemptions, adopted in 1986 when the city was trying to encourage growth, no longer apply.

"Times have changed and our now super-vibrant commercial districts no longer need to provide incentives," said Michael Griffin, a Downtown North resident and former planning commissioner.

Downtown's vibrancy, he said, has come at a price.

"Neighborhoods surrounding downtown are inundated with commuter cars and most observers agree that these streets from the San Francisquito Creek well into Professorville constitute a huge parking lot. As long as developers are allowed to keep under-parking their projects this parking lot will expand into Crescent Park, Old Palo Alto, Town Center and what have you."

The ordinance would impact six downtown projects now going through the development process, staff said. In most cases, this means either providing an extra parking spot or paying about $60,000 in "in-lieu fees" for each spot that was supposed to be provided but was not. The one glaring exception is 240 Hamilton, a proposed four-story building that relied on a series of exemptions (including the transfer of development rights, the "200-square-foot bonus" rule and the exemption of a 2,000-square-foot "mezzanine" from parking assessments) to reduce the number of required parking spots by nine. The rule change means the developer, Sal Giovannotto, would have to pay more than $500,000 in-lieu fees.

The biggest dispute among council members was over whether the new rules should apply to projects already going through the planning process. Klein said they should not and argued that the "integrity of the city is at stake."

"That to me is a rock solid question of our integrity," Klein said. "Are we going to be fair to people?"

Applying the changes to projects that have already committed significant funds to their projects is not fair, he argued.

Klein's proposal ultimately faltered by a single vote, with Vice Mayor Nancy Shepherd, Kniss and Gail Price joining him. The other five members sided with Karen Holman and Mayor Greg Scharff, both of whom argued that developers have known for years that the city is revising its parking policies and that the changes should not have come as a surprise.

"Fairness is a very important thing to me," Holman said. "At the same time, I don't see how people who have applications in front of the city could not have known something was afoot in the last couple of years."

Shepherd also raised concerns about the "transfer of development rights" exemption and argued that this might lead to fewer historical and seismic rehabilitations. City Manager James Keene said the city will look for other ways to provide incentives for such projects, though it will seek to decouple these incentives from parking.

"Using the parking exemption as an incentive is outdated," Keene said.

Councilman Pat Burt agreed with the council majority that it's time to move forward with the changes and saw some benefit in the business community's new-found engagement on the high-profile issue of downtown's parking shortage.

"I think it's a positive development that downtown property owners are getting engaged on this issue and looking at possible significant solutions," Burt said. "I will say if this change got them engaged, what's on the horizon is going to get them really engaged. Because this is just nominal compared to the impact of the Residential Parking Permit Program and the TDM (transportation-demand management) program, including how we would fund the TDM program."

Burt suggested that the funding mechanism for the TDM program would be a business tax of sorts, with the amount depending on the level of occupancy. He lamented the fact that the business community is just now starting to get engaged in finding a solution for the parking "crisis," a process that he said should have kicked off more than a year ago.

Others shared his view that this is just a small step in the long process of bringing parking relief to downtown residents, or as Scharff called it, "low-hanging fruit."

"It's important to go ahead and get rid of, as staff put it, the low-hanging fruit, ones that don't make sense anymore," Scharff said. "I think all of these parking exemptions do that. I think we do want to move toward projects fully parking themselves."