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Home My WebLink AboutStaff Report 2509-5232CITY OF PALO ALTO CITY COUNCIL Monday, September 29, 2025 Council Chambers & Hybrid 5:30 PM Agenda Item 15.SECOND READING: Ordinance Amending Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code to Reflect Changes in Law (FIRST READING: September 8,2025 PASSED: 7-0) City Council Staff Report Report Type: CONSENT CALENDAR Lead Department: City Clerk Meeting Date: September 29, 2025 Report #:2509-5232 TITLE SECOND READING: Ordinance Amending Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code to Reflect Changes in Law (FIRST READING: September 8,2025 PASSED: 7-0) BACKGROUND The City Council heard this item on September 8, 2025 for a first reading and approved it on a 7-0 vote. No changes were made to the ordinance, and it is now before the City Council for a second reading. ATTACHMENTS Attachment A: Ordinance Amending PAMC 16.64 APPROVED BY: Mahealani Ah Yun, City Clerk *NOT YET APPROVED* 1 0290176_20250825_ms29 Ordinance No. Ordinance of the Council of the City of Palo Alto Amending Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code to Reflect Changes in Law The Council of the City of Palo Alto ORDAINS as follows: SECTION 1. Findings and Declarations. The City Council finds and declares as follows: A. Until recently, legislatively adopted development impact fees in California were governed principally by state statute (the Mitigation Fee Act, California Gov. Code §§ 66000-66025), which requires that fees and exactions imposed on development bear a “reasonable relationship” to the impacts created by the development. B. In Sheetz v. County of El Dorado, 601 U.S. 267 (2024), the United States Supreme Court rejected the previous rule, holding that in addition to the Mitigation Fee Act, development impact fees must also comply with the Takings Clause of the Fifth Amendment to the U.S. Constitution. C. Under Sheetz, development impact fees are appropriate only where there is an “essential nexus” between the fee and purpose of the permit and “rough proportionality” between the amount of the fee and the projected impact of the proposed development (the “Nollan/Dolan test”). D. In some cases, an applicant may contend that the City’s impact fees do not satisfy the Mitigation Fee Act’s “reasonable relationship” standard or the constitutional “essential nexus” and “rough proportionality” requirements with respect to the impact of the applicant’s proposed development. E. Currently, the City’s impact fee procedures provide a mechanism for applicants to pay the fees under protest while preserving a challenge to the fees under the Mitigation Fee Act. These procedures incorporate standards and requirements that are specific to the Mitigation Fee Act and do not account for constitutional challenges to the City’s fees. F. For this reason, the City Council now wishes to amend Chapter 16.64 to enhance the ability of an objector to administratively challenge the calculation of impact fees for their project. This amendment would adjust the City’s protest procedure to facilitate both protests under the Mitigation Fee Act and challenges by applicants who contend that the City’s legislatively adopted impact fees do not meet constitutional standards. SECTION 2. Section 16.64.060 (Notice of Protest Rights) of Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto *NOT YET APPROVED* 2 0290176_20250825_ms29 Municipal Code is hereby amended as follows (additions underlined; deletions struck-through): 16.64.060 Notice of protest rights. (a) Each applicant is hereby notified that, in order to protest the imposition of any impact fee required by this chapter, the protest must be filed in accordance with the requirements of this chapter and, if applicable to the protest, the Mitigation Fee Act. Failure of any person to comply with the protest requirements of this chapter and, if applicable, or the Mitigation Fee Act shall bar that person from any action or proceeding or any defense of invalidity or unreasonableness of the imposition, to the extent allowed by law. (b) On or before the date on which payment of the fee is due, the applicant shall pay the full amount required by the city and serve a written notice to the director of planning and development services with all of the following information: (1) for challenges under the Mitigation Fee Act, a statement that the required payment is tendered, or will be tendered when due, under protest; and (2) a statement informing the city of the factual elements of the dispute and the legal theory forming the basis for the protest. (c) The applicant shall bear the burden of proving, to the satisfaction of the director, entitlement to a fee adjustment. SECTION 3. Section 16.64.070 (Informal Hearing) of Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through): 16.64.070 Informal hearing and preparation of additional analysis. (a) The director shall schedule an informal hearing regarding the protest, to be held no later than sixty days after the imposition of the impact fees upon the development project service of the applicant’s written notice of protest, and with at least ten days' prior notice to the applicant (unless either alternative dates are otherwise agreed by the director and the applicant). (b) Either at the applicant’s request or upon the director’s initiative, the director may seek preparation, at the applicant’s expense, of additional analysis of the impacts created by the application. The time in which an informal hearing must be scheduled shall be tolled while these studies are prepared. (c) During the informal hearing, the director shall consider the applicant's protest, relevant evidence assembled as a result of the protest, and any additional relevant evidence provided during the informal hearing by the applicant and the city. The director shall provide an opportunity for the applicant to present additional evidence at the hearing in support of the protest. *NOT YET APPROVED* 3 0290176_20250825_ms29 (c d) The director shall issue a written determination regarding the protest directing that the fee shall remain unchanged or shall be increased or decreased based on the evidence presented at the hearing. The director's determination shall support the fee imposed upon the development project unless the applicant establishes, to the satisfaction of the director, entitlement to an adjustment to the fee. (d e) The director may elect to appoint an independent hearing officer or other designee to hear and decide a protest under this section. SECTION 4. Section 16.64.080 (Appeal of Director's Determination) of Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through): 16.64.080 Appeal of director's determination. Reserved. (a) Any applicant who desires to appeal a determination issued by the director shall submit a written appeal to the director and the city manager. A complete written appeal shall include a complete description of the factual elements of the dispute and the legal theory forming the basis for the appeal of the director's determination. An appeal received by the city manager more than ten calendar days after the director's determination may be rejected as late. Upon receipt of a complete and timely appeal, the city manager shall appoint an independent hearing officer to consider and rule on the appeal. (b) The independent hearing officer shall, in coordination with the applicant and the director, set the time and place for the appeal hearing, and provide written notice thereof. The independent hearing officer shall consider relevant evidence, provide an opportunity for the applicant and the city to present additional noncumulative evidence at the hearing, and preserve the complete administrative record of the proceeding. (c) Within thirty days after the independent hearing officer closes the hearing and receives post-hearing briefs (if any), the independent hearing officer shall issue a written decision on the appeal hearing which shall include a statement of findings of fact in support of the decision. The independent hearing officer's discretion shall be limited to a determination that either supports the director's determination or orders the city to refund all or a portion of the impact fees to the applicant. The applicant shall bear the burden of proving entitlement to a fee adjustment. The decision of the hearing officer is final and conclusive, and is subject to judicial review. SECTION 5. Section 16.64.090 (Cost of Protest) of Chapter 16.64 (Development Fee and In- Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code is hereby amended as follows (deletions struck-through): 16.64.090 Cost of protest. The applicant shall pay all city costs related to any protest or appeal pursuant to this *NOT YET APPROVED* 4 0290176_20250825_ms29 chapter, in accordance with the fee schedule adopted by the city. At the time of the applicant's protest, and at the time of the applicant's appeal, the applicant shall pay a deposit in an amount established by the city to cover the estimated reasonable cost of processing the protest and appeal. If the deposit is not adequate to cover all city costs, the applicant shall pay the difference within twenty days after receipt of written notice from the director. SECTION 6. If any section, subsection, clause or phrase of this Ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portion or sections of the Ordinance. The Council hereby declares that it would have adopted the Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid. SECTION 7. The Council finds that the Ordinance is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3) because it can be seen with certainty that there is no possibility that amending the City’s administrative appeal procedures for development impact fees may have a significant effect on the environment. // // // // // // // // // // // // // *NOT YET APPROVED* 5 0290176_20250825_ms29 SECTION 8. This ordinance shall be effective on the thirty-first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED AS TO CONTENT: City Attorney or Designee City Manager Director of Planning and Development Services