News

Palo Alto appeals ruling over 'illegal tax' on gas customers

City Council votes to challenge order to repay over $12M

Palo Alto Utilities workers respond to a gas leak on Dec. 28, 2017. Photo by Veronica Weber.

After being ordered to refund more than $12 million to its gas customers, Palo Alto suffered another court setback this month, when a Santa Clara County Superior Court judge rejected the city's plan to pay back half the funds in small increments over the next decade.

The city was ordered to issue refunds following a lawsuit from resident Miriam Green, who challenged the city's historic practice of transferring funds from municipal utilities to the general fund, which pays for police, fire, libraries and other basic community services. While the court affirmed the city's ability to make the transfers from its electric fund, it concluded that the transfers from the gas utility constituted an "illegal tax" under Proposition 26, which governs rate increases.

Since the 2020 ruling, the city and Green's attorneys have struggled to reach a consensus on the payment plan. The city proposed paying 50% of the sum immediately and spreading the rest out over the next decade by paying 5% per year. Green's attorneys rejected the idea. And now, so has the court.

In a Sept. 7 judgment, Superior Court Judge Sunil Kulkarni ordered the city to immediately issue refunds for the first half of the $12.6 million judgement and to pay the remaining half, or $6.3 million, in a lump sum over the next two years. In the judgment, Kulkarni concurred with the suggestion from Green's attorneys that spreading out the payments over 10 installments would entail more costs, given the large size of the class.

"Fewer payments mean fewer administrative costs," Kulkarni wrote in the judgment. "And the City has not adequately shown why it needs 10 years to pay the remaining 50% of the judgment."

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Kulkarni also ordered the city to pay 75% of the cost for the public noticing process for the payments, given that it was the city that chose to pay off the fees in multiple installments stretched out over several years.

Given the order, Palo Alto would have had to issue 50% of the refunds in the first week of October had the council not approved in a Monday night closed session an appeal of the court ruling. The city filed the appeal with the state's 6th District Court of Appeal on Tuesday, according to court records.

On Friday, the city issued a statement explaining its reason to appeal. The statement notes that while Proposition 26 was approved in 2010, it has never been applied to a municipal gas utility. As such, "significant open questions about the measure remain to be answered by the courts."

"The results of this lawsuit will have important implications for Palo Alto, as well as for other municipal utilities and cities in California," the city's statement reads. "The Council therefore authorized an appeal to seek guidance from the Court of Appeal on these novel legal questions."

One point of dispute between the city and Green is whether the gas transfers constitute an illegal tax or a voter-authorized method for managing finances. The city's attorneys point to the city charter, which lays out how the utility revenue should be spent. Under language that voters approved in 1950, the charter authorizes the city to use utility revenues for all the necessary employee, operational, maintenance, debt and capital costs and states the "remainder shall be paid into the general fund by quarterly allotments."

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While the city had contended that this charter provision effectively makes the equity transfers "voter-approved" and, hence, legal, the court disagreed.

The language, Kulkarni wrote, makes it clear that the voters "did not approve a specific GFT (general fund transfer) or a specific methodology for calculating the (transfer)."

"Moreover, as a matter of voter intent, it is hard to imagine (and we have precious little evidence) that the voters knew if they were approving a "fee" or a "tax." … Thus, in the Court's view, the 1950 vote by Palo Alto voters does not help the City's case," Kulkarni wrote in the Sept. 7 order denying the city's motion for a new trial.

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Palo Alto appeals ruling over 'illegal tax' on gas customers

City Council votes to challenge order to repay over $12M

by / Palo Alto Weekly

Uploaded: Fri, Sep 24, 2021, 5:16 pm

After being ordered to refund more than $12 million to its gas customers, Palo Alto suffered another court setback this month, when a Santa Clara County Superior Court judge rejected the city's plan to pay back half the funds in small increments over the next decade.

The city was ordered to issue refunds following a lawsuit from resident Miriam Green, who challenged the city's historic practice of transferring funds from municipal utilities to the general fund, which pays for police, fire, libraries and other basic community services. While the court affirmed the city's ability to make the transfers from its electric fund, it concluded that the transfers from the gas utility constituted an "illegal tax" under Proposition 26, which governs rate increases.

Since the 2020 ruling, the city and Green's attorneys have struggled to reach a consensus on the payment plan. The city proposed paying 50% of the sum immediately and spreading the rest out over the next decade by paying 5% per year. Green's attorneys rejected the idea. And now, so has the court.

In a Sept. 7 judgment, Superior Court Judge Sunil Kulkarni ordered the city to immediately issue refunds for the first half of the $12.6 million judgement and to pay the remaining half, or $6.3 million, in a lump sum over the next two years. In the judgment, Kulkarni concurred with the suggestion from Green's attorneys that spreading out the payments over 10 installments would entail more costs, given the large size of the class.

"Fewer payments mean fewer administrative costs," Kulkarni wrote in the judgment. "And the City has not adequately shown why it needs 10 years to pay the remaining 50% of the judgment."

Kulkarni also ordered the city to pay 75% of the cost for the public noticing process for the payments, given that it was the city that chose to pay off the fees in multiple installments stretched out over several years.

Given the order, Palo Alto would have had to issue 50% of the refunds in the first week of October had the council not approved in a Monday night closed session an appeal of the court ruling. The city filed the appeal with the state's 6th District Court of Appeal on Tuesday, according to court records.

On Friday, the city issued a statement explaining its reason to appeal. The statement notes that while Proposition 26 was approved in 2010, it has never been applied to a municipal gas utility. As such, "significant open questions about the measure remain to be answered by the courts."

"The results of this lawsuit will have important implications for Palo Alto, as well as for other municipal utilities and cities in California," the city's statement reads. "The Council therefore authorized an appeal to seek guidance from the Court of Appeal on these novel legal questions."

One point of dispute between the city and Green is whether the gas transfers constitute an illegal tax or a voter-authorized method for managing finances. The city's attorneys point to the city charter, which lays out how the utility revenue should be spent. Under language that voters approved in 1950, the charter authorizes the city to use utility revenues for all the necessary employee, operational, maintenance, debt and capital costs and states the "remainder shall be paid into the general fund by quarterly allotments."

While the city had contended that this charter provision effectively makes the equity transfers "voter-approved" and, hence, legal, the court disagreed.

The language, Kulkarni wrote, makes it clear that the voters "did not approve a specific GFT (general fund transfer) or a specific methodology for calculating the (transfer)."

"Moreover, as a matter of voter intent, it is hard to imagine (and we have precious little evidence) that the voters knew if they were approving a "fee" or a "tax." … Thus, in the Court's view, the 1950 vote by Palo Alto voters does not help the City's case," Kulkarni wrote in the Sept. 7 order denying the city's motion for a new trial.

Comments

JS1
Registered user
Another Palo Alto neighborhood
on Sep 25, 2021 at 9:40 pm
JS1, Another Palo Alto neighborhood
Registered user
on Sep 25, 2021 at 9:40 pm

Hey City Hall,

You were greedy in charging your own citizens for essential utilities.
Your hand was caught in the cookie jar.
Rather than fess up and refund the money, you spent some more of our money to fight it in court.
You lost in court and still don’t get it.
Now, you are going to spend even more money fighting it again in court.
The optics of this are SO bad.
Give it up and resign in mass.


William Hitchens
Registered user
Mountain View
on Sep 26, 2021 at 4:56 pm
William Hitchens, Mountain View
Registered user
on Sep 26, 2021 at 4:56 pm

Will any senior members of the City government or the City council be held accountable and disciplined for this illegal theft of money from utility users? I'm not holding my breath.


Rebecca Eisenberg
Registered user
Old Palo Alto
on Sep 27, 2021 at 11:00 am
Rebecca Eisenberg, Old Palo Alto
Registered user
on Sep 27, 2021 at 11:00 am

Once again Palo Alto City Council is using taxpayer money to fight against the taxpayers.

Despite what Molly Stump may be trying to say, the question was asked and answered by the court. The City of Palo Alto wrongfully overcharged taxpayers for utilities. Instead of refunding the overcharges -- as any honest organization would do -- the City of Palo Alto is fighting tooth and nail to keep the illegal amounts it charged us. City Council should be ashamed. Their actions are immoral and, as the court continues to tell them, illegal. They owe us $12 million dollars. They need to pay us what they owe.

These are the council members whose candidacies were endorsed by this publication. Whether or not I decide to run again, I hope that the PAW will get out of the business of pushing for candidates, because their track record is atrocious. Not even one person on the seven-person council is standing up for residents with this. It's appalling.


Kathy
Registered user
Evergreen Park
on Sep 27, 2021 at 11:03 am
Kathy, Evergreen Park
Registered user
on Sep 27, 2021 at 11:03 am

The CIty is expending more funds fighting paying back residents for what was judged an 'illegal tax.' Isn't it time to pay up? And cut back expenses if that's what's necessary?


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 27, 2021 at 11:33 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 27, 2021 at 11:33 am

Enough is enough. Pay us back with interest and stop stealing from us now and in the future. How dare they make US pay for THEIR appeal.

They've been "overcharging" us $20,000,000 for the last few years and now that they might not be able to keep doing that, they immediate hike our rates. Such chutzpah.


Fr0hickey
Registered user
Old Palo Alto
on Sep 27, 2021 at 11:38 am
Fr0hickey, Old Palo Alto
Registered user
on Sep 27, 2021 at 11:38 am

I’m ok with 50% now and 5% every year for 10years. However, the 5% payment should include a 20% interest rate year over year. That’s only fair. Banks charge interest on loans too.


Local Resident
Registered user
Crescent Park
on Sep 27, 2021 at 11:55 am
Local Resident, Crescent Park
Registered user
on Sep 27, 2021 at 11:55 am

$12 million / 26,000 households = $461 per household. Not really that much but nevertheless funding all those non-utility staff salary increases instead of going to the backlog of utility infrastructure.


Judith Schwartz
Registered user
Old Palo Alto
on Sep 27, 2021 at 1:11 pm
Judith Schwartz, Old Palo Alto
Registered user
on Sep 27, 2021 at 1:11 pm

Miriam Green's lawsuit is misguided. It is standard practice for Municipal Utilities to make general fund transfers in lieu of taxes (see copy below). It's a feature not a bug. When your favorite City service has to be cut back, please don't whine while you are thanking Ms. Green for that extra $461 in your pocket. Our utility workers are not overpaid compared to other utilities in the state and in fact, it is difficult to recruit personnel because they can't afford to live in the City with those salaries.

Web Link
"Public power utilities provide affordable, reliable electricity to the customers they serve. These community-owned utilities are not beholden to any shareholders and are driven only by the mission to serve customers and the community.

In addition to affordable electricity, public power utilities provide a direct benefit to their communities in the form of payments and contributions to state and local government. These contributions come in many forms — property-like taxes, payments in lieu of taxes, transfers to the general fund, and free or reduced cost services provided to states and cities."


Local Resident
Registered user
Community Center
on Sep 27, 2021 at 3:44 pm
Local Resident, Community Center
Registered user
on Sep 27, 2021 at 3:44 pm

@Judith That transfer did not go to utility workers salaries but rather to non-utility city employee workers salaries. Quoting some random utility website does not mean the transfer from to the General Fund was ok and certainly was not sufficiently transparent. Remember a judge found the city at fault in a court of law given the facts.


long view
Registered user
South of Midtown
on Sep 27, 2021 at 9:06 pm
long view, South of Midtown
Registered user
on Sep 27, 2021 at 9:06 pm

If you find Palo Alto a good place to live with generally good services, then what is to complain about? Over the years, transfers from utilities to the general fund have allowed Palo Alto to fund quality services. Yes, the letter of the law needs to be followed, as the judge determines. I don't see harm or bad intent in the transfers. And we still benefit from our local utility service over using PG&E.


Judith Schwartz
Registered user
Old Palo Alto
on Sep 27, 2021 at 9:24 pm
Judith Schwartz, Old Palo Alto
Registered user
on Sep 27, 2021 at 9:24 pm

@Local Resident, I did not cite a RANDOM website. The American Public Power Association is the voice of not-for-profit, community-owned utilities that power 2,000 towns and cities nationwide. APPA represents public power before the federal government to protect the interests of the more than 49 million people that public power utilities serve, and the 96,000 people they employ. The group advocates and advises on electricity policy, technology, trends, training, and operations.

Transfers go to the General Fund which means they support the operation of libraries, parks, swimming pools and other services. I think the people who work at those jobs deserve a living wage and our gratitude instead of spiteful resentment from the citizens of Palo Alto.

There are also comparable groups: EEI for Investor Owned Utilities and NRECA for member owned Coops.


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 27, 2021 at 10:54 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 27, 2021 at 10:54 pm

Remember that the $12,600,000 due us isn't for ALL of the MANY years the city "overcharged" us $20,000,000 for more than 5 years and they STILL haven't put in backup power.

Just yesterday on NextDoor folks from Midtown were complaining about their power outage due to a fallen branch and asking each other when power would be restored since the city hadn't bothered to notify them.

For $20,000,000 a year they might improve their outreach and services.


peppered
Registered user
Community Center
on Sep 27, 2021 at 11:14 pm
peppered, Community Center
Registered user
on Sep 27, 2021 at 11:14 pm

@long view: Quality services? <guffaw>.
Give me a break. Try overly generous pensions and inefficient, bloated bureaucracy.

The question is not whether the city should payback the gas taxes that were illegally transferred to the general fund. They should.

The question is why shouldn't they also be refunding the same on the electricity charges.


Andy
Registered user
Community Center
on Sep 28, 2021 at 11:34 am
Andy, Community Center
Registered user
on Sep 28, 2021 at 11:34 am

If it's legal, I would like to see the city ask citizens if they would like to opt out of the refund. I don't want to see the services I enjoy cut for this. It seems to me that the city acted in good faith as this was approved by voters decades ago.


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 29, 2021 at 11:27 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 29, 2021 at 11:27 pm

Andy, I don't recall voting to approve this and I've been here decades. But if that's the case, let the city bring it to a vote again after they've "overcharged" us $20,000,000 a year without making the needed improvement to services.

Did we also vote that it should take objections from 11,000 utility users to get the city to reconsider rate increases, objections that have to be made through a a complicated multi-step process? If so, let's take another vote on that, too.


PA Community Advocate
Registered user
Another Palo Alto neighborhood
on Oct 2, 2021 at 5:06 am
PA Community Advocate, Another Palo Alto neighborhood
Registered user
on Oct 2, 2021 at 5:06 am

+1 Rebecca Eisenberg FTW


Chris
Registered user
Charleston Meadows
on Oct 5, 2021 at 1:03 pm
Chris, Charleston Meadows
Registered user
on Oct 5, 2021 at 1:03 pm

Most of you anti Palo Alto kooks are in favor of draconian state takeovers and Joe Biden's MASSIVE 5 trillion dollar budget proposals so I find your outrage to be humorous


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