Palo Alto will have to refund more than $900,000 to a downtown developer after a state appeals court ruled Monday that the city had illegally imposed parking fees on his project without having a real plan to spend this money on parking.
With its March 20 ruling, the 6th District Court of Appeal overturned a decision by a trial court in favor of the city and handed a victory to Charles "Chop" Keenan, a developer whose commercial properties in downtown Palo Alto include the Aquarius Theatre, the HanaHaus building that once housed Varsity Theatre and the mixed-use building at 135 Hamilton Ave. that went up on the corner of Hamilton and High Street. As part of the city's 2013 approval of the Hamilton Avenue project, Keenan's company paid $1.56 million in fees, which included a $972,000 "in-lieu parking fee."
At the time, the city had plans to use these fees to expand parking supply in the downtown area by building a garage. Council members had flirted with the idea of adding a public structure on an existing lot on Waverley Street and Hamilton Avenue and voted more than a decade ago to place the project on its official list of infrastructure priorities. But the council made an about-face in February 2019 and opted not to move ahead with the garage at 375 Hamilton Ave., choosing instead to pursue a comprehensive strategy for parking.
Since then, plans for the garage have remained in the city's infrastructure purgatory, with the council neither pursuing nor formally abandoning the project. In 2020, the council approved a resolution stating its intention to use the parking fees "for the purpose of constructing public parking spaces within the University Avenue parking assessment district to serve the parking needs of the district created by the developments that paid the fees." More recently, it amended its plans to explore the construction of housing and parking on city-owned lots, a strategy that the council included in its new Housing Element.
While Keenan's company, Hamilton and High LLC, has demanded its money back, a Santa Clara County Superior Court judge ruled in 2021 that the city's actions were legal. Judge Cynthia Lie warned in the ruling, however, that "there may come a time when the duration of the City's inaction on the parking garage — short of express abandonment — would warrant restitution on in-lieu parking fees."
That time arrived Monday, when a panel of three judges concluded that the city ran afoul of state law by failing to make findings every five years to account for the money in the fund, consistent with the Mitigation Fee Act. The city had argued that it didn't have to make these findings because the in-lieu parking fees — which developers pay to avoid providing actual on-site parking — are not governed by the Mitigation Fee Act.
The appeals court concluded Monday that they are. Writing for the majority, Justice Allison Marston Danner noted that the city had issued five-year reports for the parking fund in January 2009 and January 2014 and argued that the language of the law required the city to continue to do so, even for funds that were contributed years ago and were never spent.
"Five-year findings must report all unexpended fees in the account or fund, irrespective of the date at which the fees were deposited, as long as the account or fund during the five-year period contained a positive balance of unexpended fees," Danner wrote. "We therefore reject the City's contention that it was not required to make five-year findings on the unexpended portion of the parking fund for the fiscal year that ended on June 30, 2018."
While the ruling pertains only to the fees that Hamilton and High LLC contributed to the city, it also places in legal jeopardy other in-lieu payments that developers had made to the city. Between 2012 and 2015, Palo Alto collected $4.5 million from five different development projects, including 135 High St., according to the court opinion.
Danner recognized in her opinion that the court's prescribed remedy for an agency that fails to make the five-year findings "may be viewed as severe where the error or omission in making the required findings could be perceived as slight or emendable."
"However, such speculation about the preferred policy outcomes or possible mitigators goes beyond our role in interpreting the statutes," she wrote.
Read the court's full ruling:
Comments
Registered user
College Terrace
on Mar 21, 2023 at 9:26 am
Registered user
on Mar 21, 2023 at 9:26 am
That was one expensive decision that CC made a few years ago. I remember the meeting. Kniss saying times had changed; former mayor Kleinberg saying that the city was breaking a promise. Both were right. I doubt Chop Keenan needs the $972k but it is one heck of a punctuation mark. I hope there is an established fund for legal judgments against the city so that this payout has no impact on city services. Residents should not bear the brunt of this one.
Registered user
Embarcadero Oaks/Leland
on Mar 21, 2023 at 10:17 am
Registered user
on Mar 21, 2023 at 10:17 am
@Annette's absolutely right that residents shouldn't have to pay for yet another costly mistake but instead we're always on the hook.
Registered user
Evergreen Park
on Mar 21, 2023 at 10:49 am
Registered user
on Mar 21, 2023 at 10:49 am
I hope the ruling does not prevent requiring in-lieu fees that are more clearly worded as to the intended use. If a commercial developer builds a facility and gets an exception from providing parking at is own expense, it should be required to pay the City for the costs of mitigating the increased traffic and parking needs created by the facility. Mitigation can take many forms -- new parking spaces that the City builds (for which -in-lieu fees have never been sufficient to cover the real costs of construction) or investments in public transportation or ride share apps. Chop Keenan should know full well that he got a great deal by not providing parking for his own developments. Shame on his greed for asking for the money back.
Registered user
Barron Park
on Mar 21, 2023 at 11:08 am
Registered user
on Mar 21, 2023 at 11:08 am
Ugh. In lieu fees showing up again as the city's gift to developers that they always were. The developer gets what they wanted all along. No requirement to provide parking and a refund because the city attorney (?) neglected the requirement to report? At least, this is what it looks like. Who else will benefit from this ruling?
Registered user
Downtown North
on Mar 21, 2023 at 12:13 pm
Registered user
on Mar 21, 2023 at 12:13 pm
This is a good time to re-examine the benefits granted to certain landlords via the University Avenue Parking Assessment District(PAD). I admit that I have no legal expertise. The creation and original structrure of the PAD probably have legal authority. However, extensions of the PAD, perhaps into perpituity, are questions worth raising and answering by the City Council in public session.
Registered user
College Terrace
on Mar 21, 2023 at 12:55 pm
Registered user
on Mar 21, 2023 at 12:55 pm
Evergreen Park Observer used this phrase: "that are more clearly worded as to the intended use." and Online Name referenced "another costly mistake." City Hall should take note of both those comments and give some thought to factoring in more quality control over its own work. There was the in/famous typo that ultimately led to the eviction of the residents of the Hotel President, there's whatever happened with regard to the Ellsworth zone change, and now there's this $972 issue. I can easily imagine that there's more. With land costing what it does here, everyone making decisions that involve land use needs to do good, clean, unassailable work.
Registered user
College Terrace
on Mar 21, 2023 at 4:53 pm
Registered user
on Mar 21, 2023 at 4:53 pm
Editor: please correct my post above so that it reads $972k rather than $972. Big difference! Thank you.
Registered user
Duveneck/St. Francis
on Mar 21, 2023 at 8:59 pm
Registered user
on Mar 21, 2023 at 8:59 pm
The previous City Council knew the potential consequences. Likely then then City Manager, City Attorney and staff did as well. Was no one's assigned responsibility to track, manage and use this fee? I'm outraged at yet another CPA fiasco, especially as a creek nears overflowing and an observant PAWeekly reporter questions the effectiveness of the leadership.
Registered user
Old Palo Alto
on Mar 22, 2023 at 12:09 am
Registered user
on Mar 22, 2023 at 12:09 am
In lieu fees should never be granted !! No exceptions to zoning codes. The City has been playing withe this “ Monopoly money “ for years and it has always struck me as a resident a bit fishy. Especially now that we the residents will be paying this money back to the developer. I do not blame Chop Keenan, he didn’t have to provide parking which would have cost a pretty sum at the time. A lot of these land swap deals and HUGE assessed fees all seem related to developers making hefty profits on their buildings with providing poor public benefit and now with this one— no parking. PC .zones also were used by developers to make their profit with NO benefit to citizens…….a few iron artistic benches! Come on, City needs to assess legitimate building fees, not money going into a slush fund for the whims of whoever happens to sit on City Council or the City Manager.
Registered user
Downtown North
on Mar 22, 2023 at 8:33 am
Registered user
on Mar 22, 2023 at 8:33 am
You can charge these controversial in-lieu fees anymore, thank goodness. AB 2097 bars local governments from mandating parking spaces as part of housing, retail, and other commercial developments near transit stops. None of this matters anymore. It should have been mentioned in the article.
Registered user
South of Midtown
on Mar 23, 2023 at 9:38 am
Registered user
on Mar 23, 2023 at 9:38 am
More negligence and amateurish errors by our PA council and city manager it seems. Forfeiting $1M to improve our quality of life because they forgot to spend it? Just wow.
Registered user
University South
on Mar 23, 2023 at 10:46 am
Registered user
on Mar 23, 2023 at 10:46 am
Assessing In Lieu fees for projects that can not provide them on their property is a good thing. We have historic buildings and buildings where access is not even allowed (a new driveway on University) that make adding parking literally impossible. It is also far less environmentally impactful and more socially beneficial for the City to aggregate these fees and invest in an efficient public parking structure. To mandate very expensive subterranean garages on each parcel versus the alternative flies in the face of what Palo Alto stands for. We need more parking, all the studies have proven it. Businesses have said it. Shoppers and visitors have said it as well. Just because we are in a moment in time when the demand is down doesn't mean we should ignore it...it is the time to be proactive. Too bad the City took so long to never do the right and legal thing.
In Mr. Keenan's case, I recall the City having spent more than $1,000,000 to design a garage for the public lot across from the post office to actually invest the parking in lieu fees as they were required. After all the studies and consultants and years of work culminated in a Public Works request to move to construction, the Council denied it. If the City decides it doesn't need the parking it collected fees to build, then, as the Court has concluded, the must give it back.
The Council should direct staff to determine who else should get their fees back and proactively send it back. Same with the illegal fees that were paid by all utility users. Give it all back to those that paid it (residents and businesses). Why the Palo Alto council blames others and thinks they get to decide what to do with all this money is insane. They enforced the Utility Transfers even after being told they should stop and only after a long expensive court battle are they saying they will finally return the money - someday.
Anyone else see what they keep doing?
Registered user
Midtown
on Mar 23, 2023 at 10:50 am
Registered user
on Mar 23, 2023 at 10:50 am
Don't mess with Chop...ask HMB!