Nearly four decades after the Palo Alto Fire Department and Stanford University entered into a partnership for fire-protection services, the two sides have hit a rocky patch in their relationship and are preparing for possible litigation.
At the heart of the conflict is the May 2012 closure of Station 7, which was located on Sand Hill Road and serviced SLAC National Accelerator Laboratory. Since then, Stanford and the city have been at odds over how the closure should impact the long-standing financial arrangement between them. Earlier this year, Stanford accused the city of breaching its agreement and overcharging the school, according to documents obtained by the Weekly. On Monday night, the City Council is scheduled to go into a closed session to discuss "anticipated litigation" involving Stanford.
The relationship between the City of Palo Alto and Stanford goes back to 1976, when they merged their respective fire departments. The move came four years after a giant fire destroyed a wing at Encina Hall. The goal was to both save Stanford money and increase its firefighting capacity. In exchange, the university has been footing the bill for about 30 percent of the Palo Alto Fire Department costs, or about $7.44 million annually.
Today, the only fire station on Stanford property is Station 6, on Serra Road, and Stanford has been arguing that its proportion of the fire department cost should drop from 30 to 15 percent. Stanford has also accused the city of not turning over to the university requested documents detailing the service costs (accusations that the city has denied). The university is also demanding refunds of charges for the past three years, based on the revised formula.
Craig Bristol, senior counsel at Stanford, made the case for the smaller amount in a June 26 letter to Palo Alto City Manager James Keene. The letter also notified Keene that Stanford is pursuing a claim against Palo Alto for overcharging the university.
"In direct discussions, Stanford has communicated to the city that it believes it is being significantly overcharged for fire protection services," Bristol wrote. "The discussions to date have not produced any meaningful movement from the city or resolution of the disputes described below."
The protracted dispute has, until now, remained largely out of the public eye. Despite threats of litigation, Palo Alto firefighters have continued to serve the university, and Fire Chief Eric Nickel said that won't change. Stanford, for its part, said it has no issue with the fire department's service or staffing levels only the costs.
Yet the two-and-a-half-year-old dispute continues to fester, at one point pushing Stanford to shop around for a new fire-protection service. In October 2013, Stanford notified the city that it wanted to get out of the contract. The following month, Stanford put out a "request for proposals" for fire-protection agencies in Santa Clara County and San Mateo County. Palo Alto was the only respondent, Nickel said.
Now, the two sides are trying to avoid a court battle by seeking mediation. According to letters exchanged by the two sides earlier this year, a significant gap remains between Stanford's "final" offer of about $5 million per year and the city's latest proposal of $6.5 million.
In explaining Stanford's position, Bristol wrote that not only is Stanford's share of the cost "excessive" but the city's calculation of the actual cost of serving Stanford in fiscal years 2013 and 2014 was "inaccurate."
The existing agreement, he noted, specifically states that Stanford's share will be based on the "extent of fire protection services provided to the Stanford campus" in comparison to the extent of such services provided within the city limits of Palo Alto.
Bristol noted that in 2004-05, when the city and Stanford reviewed the 1976 agreement, the city took the position that the percentage being paid by Stanford was "appropriate based upon the number of stations located on Stanford property."
"The closing of the SLAC station was a significant event that, as actual experience has demonstrated, resulted in the city providing substantially less fire-protection services to Stanford," Bristol wrote.
Stanford's share, he argued, should be adjusted down to 15.4 percent or less, retroactive to 2012.
Jean McCown, Stanford's assistant vice president for government and community relations, made the point concisely.
"We had two fire stations," McCown told the Weekly. "Now we have one."
The university, she noted, has offered to pay the full costs of the single station, including all the overhead costs despite the fact that the station, in addition to serving Stanford, also serves parts of the city. McCown said data shows that Station 6 personnel respond to Palo Alto calls about twice as often as other stations respond to Stanford.
"We feel paying fully for that station, which is maybe more service than we need for the number of calls, is a fair allocation," McCown told the Weekly.
City officials have agreed that the charge can be reduced, but they have taken issue with the numbers offered by Stanford. A June letter from Keene to Debra Zumwalt, Stanford's vice president and general counsel, alludes to an April conference call in which a consultant for Stanford characterized the discussions as "approximately $500,000 apart."
"From that understanding, Stanford appears to have taken a nearly $1,000,000 step backwards," Keene wrote.
The letter from Keene argued that there have been reductions in costs to Stanford through system efficiencies as well as the elimination of a rescue company and cuts in overhead personnel, even though there have also been increases in pension costs and a large expenditure (a new ladder truck).
Keene's letter also noted that the City Council has a longstanding policy that city-funded services will not be offered at below cost to surrounding communities. This includes the fire department's ambulance services, which Keene wrote have substantially better levels of service and faster response than other providers in the county. The cost of this service, Keene wrote, is about $400,000 more than the revenue recovered from users.
"Stanford's unwillingness to contribute to this gap presents Palo Alto with a dilemma," Keene wrote. "Is the university asking that the city's general fund subsidize service to the campus, or is Stanford requesting a lower service level than provided in the city and historically at Stanford?"
Keene wrote that while the city does not desire for Stanford to pursue other options, it is "nonetheless obligated to ensure that the risks and consequences of these decisions are fully understood."
The two sides do agree on one thing: The university has been receiving good service from the Palo Alto Fire Department. Stanford also had consultants look into existing staffing levels, and McCown said the independent analysis concurred with the Fire Department's methodology for allocating staff. Though Stanford rejected the city's response to the request for proposals (effectively extending the existing agreement), Nickel said, "Their issue is not the level of service. Their issue is cost."
McCown concurred that it was the service costs that drove the university to consider other options in 2013.
To resolve the impasse, Stanford has proposed mediation. In late June, the two sides signed a "tolling agreement," which suspends the statute of limitations that would normally apply to Stanford's claim against the city. According to the agreement, the parties "deem it in their mutual benefit to determine whether or not it may be possible to resolve Stanford's claim through negotiations without resort to litigation." McCown said the mediator has not yet been picked, though some names have been proposed.
Nickel said the goal of the upcoming City Council closed session, which will follow the regular Oct. 26 meeting, is to get council direction before heading into the talks with the mediator. Nickel called it "a good sign" that Stanford asked for mediation.
"Both parties have been negotiating to try to find some mutually beneficial resolution," Nickel said. "We think we found it with a mediated process."