After weeks of intense negotiations, city and Stanford officials have tentatively agreed on a deal that effectively resolves the thorniest component of the parties' "development agreement" — a document that would grant Stanford the right to exceed local zoning regulations in exchange for a set of "community benefits." The agreement is one of two major documents, along with the Final Environmental Impact Report, that the city must approve before Stanford can proceed with the hospital project.
Though the two sides had reached accord earlier this year on most aspects of the document, they remained split over "cost neutrality." Palo Alto has consistently demanded that Stanford include in the development agreement a guarantee that the hospital expansion would not drive up the city's operating costs. Stanford had offered an upfront payment of $1.7 million — an operating deficit that was projected by the city's economic consultant. The city considered this offer insufficient.
But on Wednesday, Stanford submitted a new offer that includes an upfront payment along with a guarantee that the city will receive at least $8.1 million in construction-use-tax revenue by the year 2025. Stanford will do that by requiring its major contractors to obtain onsite-use tax licenses that would direct construction-use taxes to the city.
Michael Peterson, Stanford's vice president for special projects, outlined the offer in a Wednesday memo to City Manager James Keene, who shared Wednesday night at a meeting of the City Council's Policy and Services Committee. The new offer addresses the city's major concerns about the project's impacts on the city's bottom line, he said.
The committee voted 2-1, with Councilwoman Karen Holman dissenting and Councilman Larry Klein abstaining, to recommend approval, in concept, of the latest draft of the development agreement. Committee Chair Gail Price and Councilman Pat Burt both said they support the proposed document.
"I'm glad to see that we'd been able to have a proposal come before us that appears to really for the most part address our concerns and I think that Stanford is to be commended for the goodwill they have shown," Burt said.
The full council will still have to approve the proposed development agreement.
In addition to the "cost neutrality" assurance, Stanford has offered a package of "benefits" that includes Caltrain Go Passes for all hospital employees ($90.9 million), four new Marguerite shuttles ($25 million), a permanent transportation demand management coordinator ($5.1 million over 51 years) and a contribution to AC Transit, along with a lease of parking spaces at Ardenwood Park and Ride ($5 million).
Stanford has also agreed to make payments to the city for community health programs ($4 million), patient benefits for low-income residents ($3 million), affordable housing programs ($23 million) and climate-change efforts ($12 million). The hospitals estimate the total value package to equal about $173 million.
City officials estimate the benefit package at about $43.6 million and claim that the Go Passes actually constitute a "mitigation" that Stanford is required to provide to get environmental clearance for the hospital project, which will bring 1.3 million square feet of new development and 2,242 new employees to the city.
Holman argued that Stanford should be asked to provide more benefits, including extending of the city's lease of El Camino Park, giving the city a right-of-way bike path near Gunn High School and provision of an upstream retention basin to protect the city and its neighbors against flooding from the San Francisquito Creek.
The city had earlier considered many of these proposed benefits, including the upstream basin, but ultimately discarded them because they are not directly related to the hospital and its impacts.
Peterson's letter also notes that Stanford's agreement on cost neutrality is contingent on the city not making more demands of the hospitals.
The hospital expansion includes a new Stanford Hospital & Clinics Building, an expanded Lucile Packard Children's Hospital and renovations to the Stanford University School of Medicine.