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Stanford Hospitals Move Toward Approval, But Issues Remain

Expansion of Stanford and Lucile Packard Children's hospitals are the biggest projects in our city's history. Can the agreements and assumptions being made hold up for the next 30-50 years?

The Palo Alto Planning Commission plans to finalize comments and approvals on the development agreement for a massive expansion of Stanford's Lucile Packard Children's Hospital at its meeting Wednesday, sending the project to the City Council for final action on June 6. This is by far the largest development proposed in the 115-year history of Palo Alto.

After more than four years, the project's scope, impacts and conceptual development schedule have been discussed and somewhat revised, but the final project is very much as Stanford first proposed it. However, we have been able to get increased mitigations and payment of anticipated city and community costs associated with the project. Examples are payments to subsidize below-market housing, increased Margarite shuttle service, payments for residents to receive hospital services, traffic mitigations and funding of employee transit use. Menlo Park negotiated the traffic mitigation payments.

On paper it all sounds reasonable, but there are some pitfalls that must be addressed.

The project is expected to take 30 years for completion. Construction will be sporadic over that time. Impacts may hit sooner than expected. Payments may be stretched out over so long a period that they may lose value and be unable to cover actual costs of planned mitigations. 

For example, one mitigation is $3 million for Palo Alto residents to pay part or all of medical procedures that their insurance may not cover, or that Stanford provides better. Sounds good at first, but there are catches. The $3 million will be set aside, earning 4.5 percent interest until 2025. At that time, if the redevelopment project has not generated enough Construction Use Tax Revenue, the difference will be made up from the health care fund and interest. No payments for medical services to residents will be made until 2025. That maximum payment is $300,000 per year for 10 years, which may not buy much by 2035.

This is one example. The development agreement and environmental impact report contain a number of costs that may be underestimated, because they continue for up to 51 years, and, conversely, benefits and compensative payments may be worth much more when paid out in 30-50 years than if they were paid next year.

An unstated assumption is that the project approved will be adequate and need no significant changes for more than 50 years. However, that is very unlikely considering changes in treatments and patient care, and how likely it is that facilities and functions that are normal now will not be needed or used in the future.  They will be replaced by procedures and facilities we can only guess at. Nevertheless, Palo Alto will enter into a firm agreement that grants the Stanford and Children’s hospitals development rights and rights to build that may be unnecessary in five or 10 years but are locked into the hospital plans. 

There should be a way to modify the specific plan and agreements if unforeseen events require changes in the future.

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