News

Palo Alto reaches settlement in suit over gas transfers

Miriam Green challenged city's historic practice of using gas funds to pay for other city services

Palo Alto has reached a proposed settlement with resident Miriam Green, who sued the city for its historic practice of transferring funds from its gas utility to the general fund. Embarcadero Media file photo.

The city of Palo Alto would issue refunds totaling $17 million to its gas customers under a proposed settlement with Miriam Green, a resident who sued the city over its historic practice of transferring funds from its municipal utility to pay for basic city services.

Attorneys for both sides in the lawsuit filed last week a joint motion for "stipulated reversal," which would conclude the yearslong legal battle over gas transfers and which would require Palo Alto to refund funds to its gas customers. The agreement will need to be formally approved by the 6th District Court of Appeal and then the Santa Clara County Superior Court before it's official. Provided that happens, the deal would bring to a conclusion one of the most complex lawsuits in the city's recent history, one that has prompted extensive debate about appropriate use of utility rates and that has spurred the City Council to place a measure on this year's ballot to address this issue.

Under the agreement, which was reached through mediation, Palo Alto would issue the refunds in on-bill credits over three installments over the next 24 months. The first installment would be due after the final settlement order becomes official, the second one 12 months later and the final one 24 months after the order takes effect.

Former customers would be able to receive their refunds by check and customers over the age of 65 will be able to request the refund in a lump sum rather than through on-bill credits under the proposed settlement.

The settlement follows six years of litigation, a judgment against the city and appeals by both parties. Santa Clara County Superior Court Judge Brian Walsh contended in his 2020 ruling that the city's transfer of funds from its gas utility to its general fund constituted an illegal tax and violated Proposition 26, which limits utility rates to the "reasonable cost" of providing service. The city's transfers, the court found, exceeded this reasonable cost and thus constituted an illegal tax under state law.

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The two sides were also in dispute over the manner in which the refunds should be issued, with the city offering to do so through bill credits and Green's attorneys calling for checks that would be issued over two installments.

In its appeal last year, attorneys representing Palo Alto pointed to the City Charter, which includes language that voters approved in 1950 authorizing the city to use utility revenues to pay for all costs associated with the utility and pay the remainder into the general fund, which finances basic services such as public safety, parks and libraries. Superior Court Judge Sunil Kulkarni rejected that argument in September 2021 and suggested that voters in 1950 likely did not know whether they were approving a fee or a tax.

As the complex case moved to the California 6th District Court of Appeal, the two sides entered into the court's mediation program. Over discussions facilitated by mediator Bob Blum, they entered into an agreement that they say would lead to faster resolution and obviate further appeals to the state's highest court.

"This Court's order reversing and remanding for further proceedings consistent with the parties' settlement agreement would allow the trial court to consider the settlement, order the parties to give notice of the settlement terms to the class, and enable the City to provide relief to the class more quickly than if the parties litigated this appeal and, likely, sought Supreme Court review of the novel issues this case presents," the joint motion states.

City Attorney Molly Stump said that if the settlement is approved, the current Green lawsuit would be resolved. However, the two sides remain in disagreement over one issue: The rent that the city charges its gas and electric utilities for use of general fund assets. It's possible that that issue would be subject to future litigation, she said.

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She said it will likely take months for the two courts to finalize the settlement.

"The Court of Appeals now has to make a decision on whether they will advance this and send it back to the trial court with specific instructions to implement the settlement," Stump said.

The city maintains in the settlement agreement that it has not violated any laws or that there is "any basis for liability for any of the claims that have been, are, or might have been, alleged in the Litigation."

"Nonetheless, Respondent has concluded that it is desirable that the Litigation be fully and finally settled in the manner and upon the terms and conditions set forth in this Agreement," the settlement states.

Stump noted that because the Green lawsuit and settlement pertains to gas rates paid in the past, it will not have an impact on Measure L, a November measure that would reaffirm the city's historic practice of transferring funds from the gas utility to the general fund.

The measure would authorize the city to transfer no more than 18% of the gas utility's gross revenues to the general fund, which comes out to about $7 million per year. According to the measure, funds would support general services such as roads, parks, libraries, climate change reduction and public safety services.

The class action settlement agreement signed by Green, City Manager Ed Shikada and attorneys for both sides, notes that the settlement represents "the compromise of highly contested issues." Both parties "continue to believe that they can and will prevail on their respective appeals."

"On the other hand, the Parties acknowledge that a judgment has been entered and they have considered the risks and potential costs of continued litigation of the Consolidated Action and litigation of the Tolled Claims, on the one hand, and the benefits of the proposed settlement, on the other hand, and desire to settle the entire Litigation upon the terms and conditions set forth in this Agreement," the settlement agreement states.

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Gennady Sheyner
 
Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

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Palo Alto reaches settlement in suit over gas transfers

Miriam Green challenged city's historic practice of using gas funds to pay for other city services

by / Palo Alto Weekly

Uploaded: Fri, Sep 16, 2022, 3:51 pm

The city of Palo Alto would issue refunds totaling $17 million to its gas customers under a proposed settlement with Miriam Green, a resident who sued the city over its historic practice of transferring funds from its municipal utility to pay for basic city services.

Attorneys for both sides in the lawsuit filed last week a joint motion for "stipulated reversal," which would conclude the yearslong legal battle over gas transfers and which would require Palo Alto to refund funds to its gas customers. The agreement will need to be formally approved by the 6th District Court of Appeal and then the Santa Clara County Superior Court before it's official. Provided that happens, the deal would bring to a conclusion one of the most complex lawsuits in the city's recent history, one that has prompted extensive debate about appropriate use of utility rates and that has spurred the City Council to place a measure on this year's ballot to address this issue.

Under the agreement, which was reached through mediation, Palo Alto would issue the refunds in on-bill credits over three installments over the next 24 months. The first installment would be due after the final settlement order becomes official, the second one 12 months later and the final one 24 months after the order takes effect.

Former customers would be able to receive their refunds by check and customers over the age of 65 will be able to request the refund in a lump sum rather than through on-bill credits under the proposed settlement.

The settlement follows six years of litigation, a judgment against the city and appeals by both parties. Santa Clara County Superior Court Judge Brian Walsh contended in his 2020 ruling that the city's transfer of funds from its gas utility to its general fund constituted an illegal tax and violated Proposition 26, which limits utility rates to the "reasonable cost" of providing service. The city's transfers, the court found, exceeded this reasonable cost and thus constituted an illegal tax under state law.

The two sides were also in dispute over the manner in which the refunds should be issued, with the city offering to do so through bill credits and Green's attorneys calling for checks that would be issued over two installments.

In its appeal last year, attorneys representing Palo Alto pointed to the City Charter, which includes language that voters approved in 1950 authorizing the city to use utility revenues to pay for all costs associated with the utility and pay the remainder into the general fund, which finances basic services such as public safety, parks and libraries. Superior Court Judge Sunil Kulkarni rejected that argument in September 2021 and suggested that voters in 1950 likely did not know whether they were approving a fee or a tax.

As the complex case moved to the California 6th District Court of Appeal, the two sides entered into the court's mediation program. Over discussions facilitated by mediator Bob Blum, they entered into an agreement that they say would lead to faster resolution and obviate further appeals to the state's highest court.

"This Court's order reversing and remanding for further proceedings consistent with the parties' settlement agreement would allow the trial court to consider the settlement, order the parties to give notice of the settlement terms to the class, and enable the City to provide relief to the class more quickly than if the parties litigated this appeal and, likely, sought Supreme Court review of the novel issues this case presents," the joint motion states.

City Attorney Molly Stump said that if the settlement is approved, the current Green lawsuit would be resolved. However, the two sides remain in disagreement over one issue: The rent that the city charges its gas and electric utilities for use of general fund assets. It's possible that that issue would be subject to future litigation, she said.

She said it will likely take months for the two courts to finalize the settlement.

"The Court of Appeals now has to make a decision on whether they will advance this and send it back to the trial court with specific instructions to implement the settlement," Stump said.

The city maintains in the settlement agreement that it has not violated any laws or that there is "any basis for liability for any of the claims that have been, are, or might have been, alleged in the Litigation."

"Nonetheless, Respondent has concluded that it is desirable that the Litigation be fully and finally settled in the manner and upon the terms and conditions set forth in this Agreement," the settlement states.

Stump noted that because the Green lawsuit and settlement pertains to gas rates paid in the past, it will not have an impact on Measure L, a November measure that would reaffirm the city's historic practice of transferring funds from the gas utility to the general fund.

The measure would authorize the city to transfer no more than 18% of the gas utility's gross revenues to the general fund, which comes out to about $7 million per year. According to the measure, funds would support general services such as roads, parks, libraries, climate change reduction and public safety services.

The class action settlement agreement signed by Green, City Manager Ed Shikada and attorneys for both sides, notes that the settlement represents "the compromise of highly contested issues." Both parties "continue to believe that they can and will prevail on their respective appeals."

"On the other hand, the Parties acknowledge that a judgment has been entered and they have considered the risks and potential costs of continued litigation of the Consolidated Action and litigation of the Tolled Claims, on the one hand, and the benefits of the proposed settlement, on the other hand, and desire to settle the entire Litigation upon the terms and conditions set forth in this Agreement," the settlement agreement states.

Comments

Mondoman
Registered user
Green Acres
on Sep 16, 2022 at 6:59 pm
Mondoman, Green Acres
Registered user
on Sep 16, 2022 at 6:59 pm

Wow - 18% seems pretty high!


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 16, 2022 at 7:19 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 16, 2022 at 7:19 pm

"The measure would authorize the city to transfer no more than 18% of the gas utility's gross revenues to the general fund, which comes out to about $7 million per year"

But remember that's only for gas and the city''s been overcharging us $20,000,000 each and every year for our total bill.

"The first installment would be due after the final settlement order becomes official, the second one 12 months later and the final one 24 months after the order takes effect."

The city sure knows how to stall paying us back. I hope they'll be paying us the same interest that they charge us in late fees.

Vote NO on the Gas Transfer Tax that would enshrine the practice of them continuing to overcharge us and maybe they'll start practicing efficient project management to avoid drawn-out nonsense like the Casti hearings that went on for 6 years before they even asked the tough questions like who'd be monitoring the traffic and whether we or Casti would be paying for.

Other examples abound like the solar permitting debacle, the Junior Museum and Zoo rates, "surveys" that tell us we want Fiber with no way of saying we don't and that the 3,000+ people claiming a roundabout was dangerous were wrong and they were imagining things.

If the city must hire consultants with some local knowledge so they'd know that much of the JMZ visits were kids and caretakers using the toilets after playing nearby instead of $18 per person per potty visit.

Besides voting NO, I don't know how we can show that people are furious that CC and the City Manager negotiated with the business community about what they wanted to pay while ignoring us. If you've got a better idea of how to get through to our "leaders" there are lots of angry taxpayers who'd love to hear it.


Annette
Registered user
College Terrace
on Sep 16, 2022 at 9:45 pm
Annette, College Terrace
Registered user
on Sep 16, 2022 at 9:45 pm

I think Online Name is correct; P.A. voters should not be asked to make legal a practice that the Court ruled to be illegal.

Online Name is also correct about the business tax, which is more like a business "tap". The best interests of residents were poorly represented in this and the BBC (Big Business Community) made off like bandits. If this poor excuse for a business tax passes it is highly unlikely that Palo Alto will ever have a relevant-to-impact business tax, which is what is needed. The argument that this tax is "better than nothing" is not a good argument b/c this inadequate tax will stand in the way of CC proposing what should have been proposed in the first place: a specific tax of a rate that will end the "residents subsidize business impact" situation that exists now. We trusted CC to get this right b/c of its importance; unfortunately that didn't happen. It's a gamble, but I think we are better off defeating this tax and trying again in 2024.


Mondoman
Registered user
Green Acres
on Sep 16, 2022 at 9:56 pm
Mondoman, Green Acres
Registered user
on Sep 16, 2022 at 9:56 pm

All the above posters are correct :)


Jason Carswell
Registered user
Downtown North
on Sep 17, 2022 at 8:22 am
Jason Carswell, Downtown North
Registered user
on Sep 17, 2022 at 8:22 am

"Former customers would be able to receive their refunds by check and customers over the age of 65 will be able to request the refund in a lump sum rather than through on-bill credits under the proposed settlement."

Kudos to Miriam Green for pursuing this matter.

Curious as to how much the rebate will amount to in general (in real dollars and cents per household).

Existing/current PA residents under 65 should also have the option of requesting and receiving a lump sum rebate check.

Why should the city be allowed to float on what amounts to a considerable sum of money ($17 million) by dragging utility credits over 24 months?


Ariel Fine
Registered user
Old Palo Alto
on Sep 17, 2022 at 10:08 am
Ariel Fine, Old Palo Alto
Registered user
on Sep 17, 2022 at 10:08 am

"Show me the money" as in a rebate check regardless of age or former residency status.


peppered
Registered user
Community Center
on Sep 19, 2022 at 10:40 am
peppered, Community Center
Registered user
on Sep 19, 2022 at 10:40 am

These transfers were simply a way to get around Prop 13. The then mayors and city council members who allowed this to happen are the ones who should be held responsible.
They were able to do this because residents have no option but to use city utilities.

CPAU was never supposed to be a profit center. Past utility scandals are a testament to the corruption that is embedded in this dubious process.

Thank you Miriam Green.

Kill Measure L.


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 19, 2022 at 11:28 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 19, 2022 at 11:28 am

The whole "logic" that the annual "overcharge" of $20,000,000 a year each and every year is just ducky since PG&E pays a dividend to its shareholders is absolutely absurd. This "shareholder" -- like every other CPAU customer -- is still waiting for that dividend payment. Tick tock, tick, tock.


John Hackmann
Registered user
Professorville
on Sep 19, 2022 at 6:06 pm
John Hackmann, Professorville
Registered user
on Sep 19, 2022 at 6:06 pm

Could someone cut and past the settlement agreement here in the comments?


Eric Filseth
Registered user
Downtown North
on Sep 20, 2022 at 12:46 am
Eric Filseth, Downtown North
Registered user
on Sep 20, 2022 at 12:46 am

Just to make sure everybody still understands – if Measure K and L do not pass, there will be cuts to city services, most likely including libraries, police, fire, youth services, and others. This is simply reality.

The exact cuts will be up to the next city council, but these were major things cut in 2020 due to the Covid shortfall. They were then partially restored using Federal Stimulus money, which runs out next year. Without replacement funding, city services must be cut again.

Please note this is not an instruction on how to vote. Simply, people have the right to know what will happen if Measures K and L fail. If Measures K and L fail, there will be cuts to City services, most likely including libraries, police, fire, youth services, and others, as in 2020.


A couple footnotes. First, one poster’s repeated claim that the city illegally transfers $20M each year to the General Fund is false. A court struck down $4M/yr of the $20M/yr, but upheld the other $16M/yr. To claim $20M/yr is illegal, because a court struck down 20% of it, is not justified by facts.

The electric and gas transfers were both approved by a majority of voters in 1950 as part of the City Charter adoption. Measure L re-legalizes the $4M/yr to comply with revised state laws. If voters still want the services that the $4M/yr funds (see above), they should vote yes. If voters prefer to eliminate these services, then they should vote no.

A Measure K reboot in 2024 is unrealistic. For better or worse, these things take the City years to develop. The previous attempt was in 2008. My own best guess is that if Measure K fails, it will be a decade before somebody tries a business tax again in Palo Alto. Also, since businesses pay roughly half the gas transfer, the total business funding from the two Measures would be $11.6M, not $9.6M.

The bottom line is: if voters still want the services the two Measures fund, they should vote yes. If they prefer to cut these services, they should vote no.


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 20, 2022 at 1:40 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 20, 2022 at 1:40 pm

Eric, you and other politicians always threaten to cut the most popular services when proposing tax cuts. That's reality.

How about INSTEAD looking at making the city more efficient and not wasting OUR time and money on very expensive nonsense like the proposed Fiber network and basing that on ridiculously FLAWED surveys that offer no way to day we DON'T want it.

How much money did WE spend on the consultant who designed that ridiculous survey and did ANYONE bother to review the work??

Re the Gas Transfer, why will it take at least 3 MORE years for people to get our refunds?

Why did the Junior Museum and Zoo project base its decisions to charge high admission rates on the recommendation of an OUTSIDE consultant who missed the fact that much of the usage were kids and caretakers using the bathroom? Who's going to pay $18 per person whenever a kid needs to use the toilet? No one, as any resident could have told you instead of hiring consultants with little or no LOCAL knowledge.

Re the proposed business tax, resident taxpayers are furious negotiations EXCLUDED us while totally caving to big busine4sses that refuse to pay their fair share. The CC letters dismissing our concerns were arrogant and unhelpful.

When will the CC start the proposed Ask The City Manager at each council meetings so we can get some answers?


G. Thompson
Registered user
Duveneck/St. Francis
on Sep 20, 2022 at 1:44 pm
G. Thompson, Duveneck/St. Francis
Registered user
on Sep 20, 2022 at 1:44 pm

"The bottom line is: if voters still want the services the two Measures fund, they should vote yes. If they prefer to cut these services, they should vote no."

Not buying into the hype & veiled threats...voting NO.


resident3
Registered user
Another Palo Alto neighborhood
on Sep 20, 2022 at 2:33 pm
resident3, Another Palo Alto neighborhood
Registered user
on Sep 20, 2022 at 2:33 pm

@ online name,

"Eric, you and other politicians always threaten to cut the most popular services when proposing tax cuts. That's reality"

I was inclined to vote in favor of the gas fees "transfer" tax succumbing to the threats and protest to the measly $9 million tax collection from businesses but my blood pressure goes up with the idea of borrowing millions for fiber.

Maybe it's timing? The city asking people on fixed income to pay more TAXES to maintain valued services like the Junior ZOO, while caving to business lobbyists based on threats. Wonder what the campaign against the business tax would have claimed. Tears and threats about the City becoming Detroit if we asked for businesses to share the burden of having a safe community... given that many of those businesses attract the crime?

@Eric Filseth

It's all sticks and no carrots. When the businesses squeezed you, they may as well have put up a sign in front of City Hall that says "not open for business."

Maybe the measures squeak by, but those bowing out of both taxes will be saying enough is enough.


Carol
Registered user
another community
on Sep 21, 2022 at 2:06 pm
Carol, another community
Registered user
on Sep 21, 2022 at 2:06 pm

This account sounds like the City can continue to retain money that was collected from long time customers who are no longer currently living. As this lawsuit sounds as if it has been dragging on for years that has to be a pretty penny. I guess heirs are are footing the bill for the City's legal expenses. You're welcome.


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 21, 2022 at 6:27 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 21, 2022 at 6:27 pm

Having just read Mayor Pat Burt's defending spending $143,000,000 on the risky fiber network that could result in "catastrophic losses" unless the majority subscribe BECAUSE PA has such a "successful track record of PROFITING from residents for other city services like the airport and utilities!," I'm appalled.

Greer Stone had to point out to him that we have no choice with the utilities and the airport but we certainly do with fiber.

How politically tone deaf is he??


Resident
Registered user
Community Center
on Sep 21, 2022 at 8:51 pm
Resident, Community Center
Registered user
on Sep 21, 2022 at 8:51 pm

Pat Burt here. The article can only share snippets of what was a thoughtful, three hour discussion.
Just to clarify, I haven’t taken a position on whether we should pursue the FTTP project. In response to questions about whether the city has the ability to successfully manage an utility enterprise or similar enterprise project, I cited the various enterprises that the city has managed for years. That doesn’t mean that this proposal would be a right decision. Our staff and consultant will return before year end with answers to additional questions that the Council requested.


Online Name
Registered user
Embarcadero Oaks/Leland
on Sep 21, 2022 at 11:13 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Sep 21, 2022 at 11:13 pm

Mr. Burt, nice to see you. Were you misquoted saying the city had a successful track record in profiting from services delivered to resident / taxpayers? Does that justify pursuing a hugely expensive project in which the city has no expertise or competitive advantage against big established companies when we need so many other things like a reliable electrical grid, beefed up police and fire services, restored library services?

Did we --- the resident taxpayers -- have AN say in the business tax "negotiations" and get to negotiate the taxes WE want to pay like the business community?

Nope. We desperately need a REAL business tax but many of us will vote NO on the current ones as a protest. Don't misinterpret the NO votes.

We're tired of being treated like cash cows while the city never mentions providing being more efficient or working more cost-effectively.

We're frustrated at being dismissed. We share widely the dismissive responses we get from City Council to constructive ideas -- when anyone bothers to respond.

Helpful suggestions like having an Ask the City Manager session at each CC meeting are ignored.

But inefficiency and costly pie-in-the-sky projects continue.


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