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Class action lawsuit claims city must refund residents for years of Menlo Park utility taxes

Menlo Park Utility Users Tax 2020-21. Of the roughly $1.4 million the city of Menlo Park collected in utility users taxes in the 2020-21 fiscal year, a majority came from electric and water uses. Data courtesy city of Menlo Park.

Menlo Park residents David Fogel, Kirill Pertsev and Kaitlin Darke have filed a class action lawsuit looking for a refund of utility users taxes from the city of Menlo Park, alleging that the City Council has failed to properly reauthorize the tax collection since 2014.

Menlo Park's Utility Users Tax (UUT) was approved by voters in 2006 and imposes a maximum 3.5% tax on gas, electrical and water usage and a maximum 2.5% tax on cable, telephone and wireless services, according to the city website. The taxes are collected by the utility service providers and sent monthly to the city's finance division.

The taxes, which have been set at 1% since 2007, also set a cap of $12,000 for the total amount a user can pay for electric, gas and water utilities. In the 20-21 fiscal year, the city collected about $1.4 million in utility users taxes, and the amount collected annually since the 2012-13 fiscal year has generally fluctuated between roughly $1.1 million and $1.7 million.

An Oct. 28 demand letter by attorney James Pistorino on behalf of Fogel, Pertsev and Darke states that these residents are demanding that the city stop collecting utility users tax and provide a refund.

According to the lawsuit, filed Dec. 28, each person who paid Menlo Park's utility users tax past Dec. 31, 2016, "is entitled to a refund (with interest) of all such monies paid."

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When asked whether Menlo Park residents might see a tax refund in their future, City Attorney Nira Doherty said in an email to The Almanac, "The City now has the opportunity to file a responsive pleading to the class action lawsuit. The lawsuit is in the very early stages; any determinations on the allegations, including those related to a tax refund, would be premature."

At the time the tax was approved in 2006, Pistorino writes in the initial demand letter, those pushing to have the measure passed argued that the city faced a recurring budget deficit of $2.2 million and needed the utility users taxes to avoid "drastic cuts" and help pay for police, emergency preparedness, libraries, street repairs, park maintenance and senior and youth programs. The law passed by a narrow 67-vote majority.

A class action lawsuit claims that years of utility user taxes were improperly collected because the Menlo Park City Council failed to properly reauthorize the law. Almanac file photo.

In the municipal code, it says that the tax would need to be reviewed every two years, and to be reauthorized, the City Council would have to, by a two-thirds majority, make findings that the tax is "necessary for the financial health of the city." If it didn't, the tax would be terminated at the end of the calendar year. That's what happened when the council allegedly neglected to reauthorize the tax any time after 2016, Pistorino argues.

Furthermore, under the California Constitution, it says that governments are not permitted to "impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote." Since Menlo Park voters haven't voted on it since the tax allegedly lapsed, the city is allegedly in violation of the state constitution, the lawsuit claims.

According to Pistorino, citing city documents he obtained, the City Council made the needed findings in 2008, 2010, 2012 and 2014, but hadn't been made in 2016 or any year beyond that, and as a result, the UUT would have expired at the end of 2016 which, by extension, means that any taxes collected after then were illegally collected.

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The group bring forward the lawsuit is making it a class action lawsuit on behalf of all of the households who paid the utility users tax after its authorization lapsed; estimated to be more than 12,000 households or entities, according to the legal complaint.

The lawsuit requests that the judge determine that the UUT is no longer in effect, bar the city from collecting any more UUT, order the city to refund those taxes, including interest, and award the plaintiffs and class members litigation expenses and legal relief.

The claimants' research into the UUT began after Aug. 31, 2021, when now Mayor Betsy Nash, Vice Mayor Jen Wolosin and Councilwoman Cecilia Taylor expressed favor toward increasing the utility users tax to the maximum 3.5% up from the current 1% rate to generate funds to help low-income households replace gas power with electric power. The votes "prompted increased scrutiny of the UUT itself and, as a result, this demand letter," Pistorino wrote.

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Class action lawsuit claims city must refund residents for years of Menlo Park utility taxes

by / Almanac

Uploaded: Thu, Jan 13, 2022, 2:00 pm

Menlo Park residents David Fogel, Kirill Pertsev and Kaitlin Darke have filed a class action lawsuit looking for a refund of utility users taxes from the city of Menlo Park, alleging that the City Council has failed to properly reauthorize the tax collection since 2014.

Menlo Park's Utility Users Tax (UUT) was approved by voters in 2006 and imposes a maximum 3.5% tax on gas, electrical and water usage and a maximum 2.5% tax on cable, telephone and wireless services, according to the city website. The taxes are collected by the utility service providers and sent monthly to the city's finance division.

The taxes, which have been set at 1% since 2007, also set a cap of $12,000 for the total amount a user can pay for electric, gas and water utilities. In the 20-21 fiscal year, the city collected about $1.4 million in utility users taxes, and the amount collected annually since the 2012-13 fiscal year has generally fluctuated between roughly $1.1 million and $1.7 million.

An Oct. 28 demand letter by attorney James Pistorino on behalf of Fogel, Pertsev and Darke states that these residents are demanding that the city stop collecting utility users tax and provide a refund.

According to the lawsuit, filed Dec. 28, each person who paid Menlo Park's utility users tax past Dec. 31, 2016, "is entitled to a refund (with interest) of all such monies paid."

When asked whether Menlo Park residents might see a tax refund in their future, City Attorney Nira Doherty said in an email to The Almanac, "The City now has the opportunity to file a responsive pleading to the class action lawsuit. The lawsuit is in the very early stages; any determinations on the allegations, including those related to a tax refund, would be premature."

At the time the tax was approved in 2006, Pistorino writes in the initial demand letter, those pushing to have the measure passed argued that the city faced a recurring budget deficit of $2.2 million and needed the utility users taxes to avoid "drastic cuts" and help pay for police, emergency preparedness, libraries, street repairs, park maintenance and senior and youth programs. The law passed by a narrow 67-vote majority.

In the municipal code, it says that the tax would need to be reviewed every two years, and to be reauthorized, the City Council would have to, by a two-thirds majority, make findings that the tax is "necessary for the financial health of the city." If it didn't, the tax would be terminated at the end of the calendar year. That's what happened when the council allegedly neglected to reauthorize the tax any time after 2016, Pistorino argues.

Furthermore, under the California Constitution, it says that governments are not permitted to "impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote." Since Menlo Park voters haven't voted on it since the tax allegedly lapsed, the city is allegedly in violation of the state constitution, the lawsuit claims.

According to Pistorino, citing city documents he obtained, the City Council made the needed findings in 2008, 2010, 2012 and 2014, but hadn't been made in 2016 or any year beyond that, and as a result, the UUT would have expired at the end of 2016 which, by extension, means that any taxes collected after then were illegally collected.

The group bring forward the lawsuit is making it a class action lawsuit on behalf of all of the households who paid the utility users tax after its authorization lapsed; estimated to be more than 12,000 households or entities, according to the legal complaint.

The lawsuit requests that the judge determine that the UUT is no longer in effect, bar the city from collecting any more UUT, order the city to refund those taxes, including interest, and award the plaintiffs and class members litigation expenses and legal relief.

The claimants' research into the UUT began after Aug. 31, 2021, when now Mayor Betsy Nash, Vice Mayor Jen Wolosin and Councilwoman Cecilia Taylor expressed favor toward increasing the utility users tax to the maximum 3.5% up from the current 1% rate to generate funds to help low-income households replace gas power with electric power. The votes "prompted increased scrutiny of the UUT itself and, as a result, this demand letter," Pistorino wrote.

Comments

Observer
Registered user
Menlo Park: Central Menlo Park
on Jan 13, 2022 at 2:23 pm
Observer, Menlo Park: Central Menlo Park
Registered user
on Jan 13, 2022 at 2:23 pm

Regarding their hopes to increase the utility tax the cabal of three need to be reminded that they were not elected as Robin Hood and his merry followers. They need to also remember that their desire to convert from gas to electric is only an idea, not a done deal, and will likely face legal opposition.


Enough
Registered user
Menlo Park: other
on Jan 13, 2022 at 8:31 pm
Enough, Menlo Park: other
Registered user
on Jan 13, 2022 at 8:31 pm

It looks like their hope to raise our taxes is about the backfire on them and instead they are going to have to pay back, with interest, 5 years of illegally collected taxes and not collect more until a vote by the residents of Menlo Park approves a new tax. Personally I think that will be a hard sell with everything else going on at the moment. I look forward to my refund check...


MenloVoter.
Registered user
Menlo Park: other
on Jan 14, 2022 at 7:16 am
MenloVoter., Menlo Park: other
Registered user
on Jan 14, 2022 at 7:16 am

Keep in mind that PG&E and their lapdog, the CPUC have just made solar power extremely expensive and no longer an easy answer to get people into electric. So the pushback is going to be even stronger than it would have before. The cabal needs to keep in mind they are working for the citizens of MP and not saving the world.


Peter Carpenter
Registered user
Menlo Park: Park Forest
on Jan 14, 2022 at 1:15 pm
Peter Carpenter, Menlo Park: Park Forest
Registered user
on Jan 14, 2022 at 1:15 pm

Cabal is defined as "a secret political clique or faction."

I would suggest that posters not to use this term unless they can also provide evidence that the individuals involved are indeed operating in secret.


MenloVoter.
Registered user
Menlo Park: other
on Jan 14, 2022 at 2:43 pm
MenloVoter., Menlo Park: other
Registered user
on Jan 14, 2022 at 2:43 pm

Peter:

Where there's smoke there's usually fire. I don't think you can deny the optics of this little gang of three. Especially, with their inept attempt at a closed meeting excluding other members of council.


kbehroozi
Registered user
Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Jan 14, 2022 at 5:07 pm
kbehroozi, Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
Registered user
on Jan 14, 2022 at 5:07 pm

Not sure why this discussion is focused, yet again, on this alleged "cabal."

Peter's right: unless you can show definitive evidence that these three councilwomen have behaved in a secretive and unethical way (as opposed to committing the sin of embracing policy preferences different from yours), then what you are doing amounts to speculative, anonymous character assassination.

It's also a weird distraction from the costly and regrettable error that was the subject of this article: the city's failure to reauthorize the Utility Users Tax over three consecutive cycles. It's the kind of screw-up that would get one or more people fired in the private sector.

I wish the Almanac would dig a little deeper here. How did something this important fall through the cracks, and what can our city leadership do to prevent future such oversights? ​

There was an exodus of senior staff back in the summer of 2015 (including Assistant City Manager Jerome-Robinson and Finance Director Corbett). Did they create transition memos explaining the process by which the tax was reauthorized? Were those shared? Or was the incoming team (led by Nick Pegueros) expected to just figure it out? What was the role/responsibility of the city attorney, who was touted as a fount of institutional knowledge, and a bulwark aside the revolving door of senior city managers? How much oversight did then-city-manager Alex McIntyre provide to the team preparing the budget, and should he not have noticed the omission?

Perhaps--and I say this gingerly--the outgoing city management team that commenters are extolling made some mistakes. Perhaps they were even discussed in closed session. One can only speculate.


Menlo Voter.
Registered user
Menlo Park: other
on Jan 14, 2022 at 6:48 pm
Menlo Voter., Menlo Park: other
Registered user
on Jan 14, 2022 at 6:48 pm

Katie:

I think it is fine it was not reauthorized. It was meant as a temporary measure to shore up finances after the Great Recession. When the city no longer needed the extra funds it should not been approved for renewal. This oversight has the effect of doing what should have been done with the unfortunate side effect that the city will now have to come out of pocket for taxes that shouldn’t have been collected in the first place.

This whole thing just reinforces the old saying there is no such thing as a temporary tax. This tax was to be temporary, instead it was running on its own and if it hadn’t been for several council members desire to virtue signal at our expense by raising the tax it probably would have continued with the error undiscovered.


Enough
Registered user
Menlo Park: other
on Jan 14, 2022 at 10:13 pm
Enough, Menlo Park: other
Registered user
on Jan 14, 2022 at 10:13 pm

You would think the current "gang of three" that is discussed above would have looked into the tax before floating raising the tax for all the residents of Menlo Park. I find it appalling that in a time where we are having inflation of 7% and the three city council members are discussing forcing residents to spend potentially thousands of dollars to convert to electricity that they would even consider raising our taxes on utilities from 1% to 3.5%. Are they really that out of touch?


Enough
Registered user
Menlo Park: other
on Jan 14, 2022 at 10:17 pm
Enough, Menlo Park: other
Registered user
on Jan 14, 2022 at 10:17 pm

"Peter's right: unless you can show definitive evidence that these three councilwomen have behaved in a secretive and unethical way (as opposed to committing the sin of embracing policy preferences different from yours), then what you are doing amounts to speculative, anonymous character assassination."

Web Link

Just to be clear, this is what you are defending. Is this the actions you want to see from your city government? It isn't the ones I want to see from mine.


mickie winkler
Registered user
Menlo Park: The Willows
on Jan 16, 2022 at 10:01 am
mickie winkler, Menlo Park: The Willows
Registered user
on Jan 16, 2022 at 10:01 am

As an aside, this tax should never have been passed in 2006. The city manager, who suggested the tax to shore up city coffers, neglected to tell the city council or the city what he already knew until immediately before the election--that we had a $3million surplus that year. He knew it. We did not. It would never have passed IMO, as the narrow margin of victory suggests, if residents had known.

Not surprisingly, he (Dave Boesch) left the city shortly after to become San Mateo County Manager.


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