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Stanford hospitals submit revised, expanded community benefits proposal to City of Palo Alto

Artist's rendering of the new Stanford Hospital

Artist's rendering of the new Stanford Hospital

Stanford Hospital & Clinics and Lucile Packard Children's Hospital today announced that they have presented a revised proposal to the City of Palo Alto in relation to the approval process for the Stanford University Medical Center Renewal Project. The rebuilding of Stanford Hospital and expansion of Packard Children's Hospital are designed to meet earthquake safety requirements, assure adequate capacity for patient care and modernize outdated facilities. In a letter submitted to the City, the Hospitals have increased the value of the direct community benefits package associated with the project from $124 million proposed in June 2009 to $173 million for the current proposal.

"This proposal reflects the extensive community dialogue that has occurred over nearly four years of the negotiations, including analysis of the Draft Environmental Impact Report and public input process; careful review of all the detailed studies; extensive, in-depth discussions with City staff; and input we have received from community members through our ongoing outreach efforts," said Michael J. Peterson, Vice President for Special Projects, who has represented the Hospitals in discussions with the City. "We believe our proposal will provide substantial benefit to the community in addition to the primary benefit of modern, safe hospital facilities and the assurance of access to outstanding healthcare for our community."

Highlights of the revised proposal to the City of Palo Alto include:

  • Increasing the total value of the community benefits by $49 million
  • $126 million in transportation-related benefits
  • $12 million to the City for use in projects and programs addressing climate change, such as those identified in the City's Climate Action Plan and investments in renewable energy and energy conservation
  • $23.2 million to the City to support affordable housing and sustainable neighborhood and community development
  • Accelerating the payment schedule in key areas to provide early revenue generation for the City

The new community benefits proposal has been increased in the following areas:

  • Climate Change/Sustainable Communities: The Renewal Project will be built to the highest green building and sustainable standards that are in keeping with requirements of the Office of Statewide Health Planning and Development (OSHPD), the State of California agency that oversees hospitals. In addition, the Hospitals propose to contribute $12 million to the City of Palo Alto for projects and programs that address climate change, such as those identified in the City's Climate Action Plan and investments in renewable energy and energy conservation.
  • Expanded Transportation Measures/Traffic Reduction: In relation to the Hospitals' commitment to provide Caltrain Go Passes to employees, the revised proposal reflects a cost increase from $65 million to $91 million over 51years. If the Caltrain ridership by Hospital employees reaches the same level as has been achieved by University employees, this program would result in offsetting all peak-hour trips from the Project's new employment. An additional $10 million over 51 years has been added for a TDM Coordinator, capital and operating support for AC Transit and the U-line, and leased parking spaces at the Ardenwood Park and Ride lot in the East Bay. As outlined in the initial proposal, the Hospitals are proposing to expand the free Stanford Marguerite shuttle service with the addition of four new shuttles and increased funding for shuttle operations. The total value of these and other voluntary transportation measures over the life of the project is $126 million.
  • Early Revenue Generation & Fiscal Benefits for the City: For the affordable housing fees and the climate change contribution, the Hospitals have offered to provide these funds in three equal payments: the first upon receiving full and complete project entitlements from the City of Palo Alto; the second upon approval of foundation permits of the first Hospital buildings; the last payment upon issuance of occupancy permits for the first constructed of the Hospital buildings. Typically, fees are not paid until later in the development process when individual building permits are issued or at final occupancy. Additionally, the Hospitals and the Stanford School of Medicine have proposed to contribute $1.1 million to the City in the event of a potential operating deficit from the City servicing the Project. While the Fiscal Impact Report prepared by the Hospitals' economic consultant CBRE shows an operating surplus of about $8.4 million for the City over the 30 year Development Agreement period, a report prepared by the City's consultant shows a potential deficit of $1.1million. The $1.1 million contribution proposed by the Hospitals and the School of Medicine would cover the City in the case of a possible revenue deficit.

Over the Development Agreement period, an additional $750,000 is projected by the Hospitals voluntarily obtaining a use tax direct payment permit from the State of California in order to increase the local tax allocation of the Hospitals' purchases.

"Packard Children's Hospital and Stanford Hospital & Clinics provide a wide array of services, particularly emergency and trauma services, along with participation with the City in disaster planning and management," Peterson said. "All of these services create a health and safety net for the community."

Peterson added many of the community physicians in Palo Alto and on the Peninsula received their training at the Stanford School of Medicine. He underscored that while the two hospitals are part of Stanford University, they are separate financial entities. "When it comes to clinical services, the Hospitals, not the University, are responsible. The mitigations, costs, community benefits and fees from the project will come from the Hospitals, not from Stanford University," he said.
Other Community Benefits in the package include:

  • Affordable Housing Contribution: Although the Hospitals are exempt from the City's housing impact fee requirements on hospital space developed, the proposal includes a contribution of $23.2 million to the City to support affordable housing and sustainable neighborhood and community development in Palo Alto.
  • Community Health Contributions: The Hospitals will contribute $4 million to the City for community health, wellness, and /or safety programs within Palo Alto. The Hospitals will work with the City to assist in selecting possible community or services to receive funding. The Hospitals will also provide $3 million over 10 years for in-patient and out-patient services at both Hospitals to assist Palo Alto residents who have self-payment responsibility that is greater than their financial means. This program is in addition to the Hospitals' charity policies and any coverage by the new federal Health Care and Education Reconciliation Act.
  • Transit Linkages: To further encourage the use of Caltrain, bus and other transit services and enhance pedestrian and bicycle connections between the Hospitals and downtown Palo Alto, the Hospitals will provide up to $3.35 million for pedestrian and roadway improvements linking the Palo Alto Transit Station to El Camino Real, Quarry and Welch Roads.
  • Fiscal Benefits: Beyond the community benefit of having new hospitals and the community benefits package offered, the Renewal Project is also estimated to provide $18 million in taxes and fees to the City of Palo Alto as a result of the proposed construction of new facilities. The Hospitals, which have some 7,000 employees at the Stanford University Medical Center, are undertaking the Renewal Project. Overall, a total of 1.3 million square feet of net new space is expected by 2025. The replacement of the Stanford School of Medicine laboratories will be limited to the amount of square footage currently being used. At a time when the healthcare industry is one of the few sectors of the economy that is continuing to make new hires, the report predicts that SUMC will have 2,243 additional employees by 2025.

"We will continue to work with the City on how best allocate the community benefit contained in our offer," said Peterson. "However, considering the growing economic challenges facing the Hospitals, our flexibility is limited to the dollar value of the additional offered community benefits contained in the updated proposal."