California Avenue merchants scored a political victory Monday night when Palo Alto officials reaffirmed their plan to construct a garage with two basement levels and more than 600 parking stalls on a Sherman Avenue lot.

By an 8-1 vote, with Councilman Adrian Fine dissenting, the City Council voted to reject a staff recommendation to eliminate one of the basement levels as part of a strategy to contain the project's rapidly rising costs. The long-awaited project now has an estimated price tag of about $40.4 million, roughly four times what it was in 2013, when the council was putting together its infrastructure plan.

Most of the increase can be attributed to the Bay Area's construction market, which continues to sizzle. Assistant Public Works Director Brad Eggleston said the market-driven escalation raised the price tag to about $34.8 million. The council's subsequent decision to "maximize" the parking capacity of the new garage and pursue a bigger facility than initially envisioned added another $6 million to the cost, Eggleston said. The 2013 plan calls for 460 parking stalls.

The decision to "go big" pleased area merchants, who have consistently lobbied for more parking. But it also aggravated the city's growing funding gap for infrastructure, which is now estimated at about $56 million, according to Eggleston.

To address this gap, staff proposed removing one of the two basement levels, which would result in a loss of about 100 spots and a reduction of about $6 million. According to a recent staff report, the recommendation was driven in part by the new Residential Preferential Parking programs in the neighborhoods around California Avenue, which helped alleviate some of the area's parking shortages. Staff also pointed to the city's new Comprehensive Plan and Sustainability Implementation Plan, both of which place a premium on switching from cars to other modes of transportation.

In addition, the city's traffic surveys showed that demand for additional parking is generally limited to the lunchtime hours of noon to 2 p.m., the report stated.

But the proposal to reduce the size of garage met a swell of resistance from residents and business owners -- groups that haven't always seen eye to eye on the issue of parking. More than 30 property owners and managers from California Avenue co-signed a letter decrying the proposed change and characterizing it as a betrayal of the city's promise to the merchants.

"The 11th-hour change caught area business by surprise with almost no time for review and response," stated the letter, which was penned by Jack Morton, chair of the California Avenue Area Business Association. "The garage design and capacity have been reviewed several times with area businesses and residents and the proposal with two sub-levels was approved by the City Council last spring.

"The proposal to significantly reduce the capacity of the new parking facility is nothing less than a breach of faith with the business community that has worked collaboratively with the City for so many years on this project."

The position was shared by the vast majority of area merchants, including owners of La Bodeguita del Medio, Terun, Italico, Printer's Café, Zareen's Restaurant, Izzy's Bagels, Country Sun, Mollie Stone's and Mediterranean Wraps. Terry Shuchat, whose camera store, Keeble & Shuchat, was an area mainstay for decades before closing last year, argued that as the business strip continues to experience a building boom, a garage with more than 600 spots will only become more necessary.

"This will probably be your last chance to get additional parking in the area for many years," Shuchat said.

Jessica Roth, owner of The Cobblery, agreed and told the council that "easy parking" is critical for small businesses.

"If you want small businesses to continue to thrive on California Avenue, maximizing the spaces and getting the promised spots is so important," Roth said.

Roth was among the more than dozen constituents who attended the meeting and urged the council to stick with the plan. They were countered by a handful of speakers who asked the council to scrap the garage plan altogether and to pursue a solution that is more sustainable, both financially and environmentally.

David Coale, representing the group Carbon Free Palo Alto, argued that the council should reconsider the project altogether. The money saved by scrapping the garage could be used to pursue anti-traffic initiatives like bike projects and transit passes.

"You have a great opportunity to take a second look at these projects and realign them with our current environmental and fiscal conditions and make better choices," Coale said. "Please reconsider parking garages and give the much cheaper parking programs time to work before these garages are built."

Fine largely endorsed this view. Adding a garage will not solve the area's traffic and parking problems, he argued. It will simply encourage more cars to enter the area and fill up the new spots. Though Fine had supported the garage project in the past, he said Monday that he had reconsidered his position after talking to community members.

"All the research points to the fact that if you build parking and give it away (for free), people will come and use it," Fine said. "You'll get more traffic on California Avenue and the parking will fill up."

The rest of the council, however, sided with the merchants who said they need more parking and the residents who said they are tired of having their streets used for parking by commuters and lunchtime visitors. Councilman Greg Scharff made the motion to stick with last year's plan and seven of his colleagues supported him.

"We build this once," Scharff said. "It's probably the last public garage that gets built for a very long time and it's important that we do it right."

Mayor Liz Kniss said this is "one of those times where promises made should be promises kept." She cited the recent "traumas" that area merchants had to put up with -- the 2009 episode where all the trees on California Avenue were cut down with little warning and the subsequent streetscape project that widened the sidewalks and added an assortment of pedestrian and bike amenities.

The street that has long been a "stepchild" to University Avenue is now undergoing its own transition into a more vibrant and pleasant strip, Kniss said. Councilwoman Karen Holman agreed that the council should honor its promises and stick with the plan.

"If we're going to do a job, we need to do a quality job," Holman said.