The Atherton council voted to approve the refunds on a 3-1 vote, with Mayor Kathy McKeithen opposed, at the Feb. 17 City Council meeting. Councilman Jim Dobbie was absent.
"If it keeps the town from lawsuits, that's worth a lot," said Councilman Jerry Carlson.
Road-impact fees are a matter of legal controversy, according to Atherton's city attorney, Wynne Furth. A 2005 court case in Southern California touches indirectly on the issue and says that California vehicle code pre-empts any local impact fees for damage to roads.
In December, Atherton officials decided it would be prudent to rescind the fee, rather than risk a lawsuit. They also acknowledged that the town improperly raised the impact fees by 40 percent in August 2007, tying the increase to construction value calculations rather than a nexus study of the actual cost of road repairs.
Even so, the town is legally obligated only to refund fees collected in the 90 days prior to the date in December when the council rescinded the road-impact fee, according to Ms. Furth. For the sake of fairness, council members said they would expand the time-frame for refunds.
From July 2001 through June 2009, the town collected a total of $5.17 million in road-impact fees. Road-impact fees paid for about half of all of the street reconstruction projects done in Atherton last year, Public Works Director Duncan Jones told The Almanac.
The plan adopted by the council, to refund anyone who paid the fee from July 2006 to December 2009, was proposed by a volunteer citizen group that convened to advise the City Council on the refund issue. During that two-and-a-half-year time period, the town collected $2.7 million in road fees. Anyone who paid the fee would have to apply for a refund.
"We request that you acknowledge that this was of questionable legality," said Jeff Wise, a member of the citizen group.
Mr. Wise said his group was OK with capping the total refunds at $1.6 million.
Councilman Charles Marsala pointed out that probably not everyone who paid the fee would request a refund. Atherton recently refunded improperly assessed business license taxes, and only 42 percent of those entitled to a refund applied for it, Mr. Marsala said.
Mayor McKeithen espoused different parameters and time-frames for refund eligibility, saying she was concerned that some in town would see the refunds as a gift of public funds to builders. Councilwoman Elizabeth Lewis said she thought a simple, straightforward solution was best.
"The less explanation we have to make, the better," she said
Mr. Carlson said he hoped people receiving the refunds would consider making charitable donations to nonprofits that support the town, such as the Holbrook-Palmer Park Foundation.
Even with the cap on the refunds, the town's bottom line is going to be affected. City Manager Jerry Gruber said the town is heading into a fiscal crisis next year. A mid-year budget amendment on the evening's agenda authorized $540,000 of deficit spending by tapping into the town's general fund reserves and building department operating reserve fund. The vote was 4-0 to authorize the budget adjustment.