City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: May 12, 2025
Report #:2502-4133
TITLE
Stanford University Medical Center (SUMC) Annual Report to Council for Fiscal Year 2024 (FY 24)
RECOMMENDATION
Staff recommends that the City Council:
1. Review the Stanford University Medical Center (SUMC) Annual Report for FY 24, and find that Stanford Hospitals & Clinics, Lucile Packard Children’s Hospital, and Stanford University (SUMC Parties) have complied in good faith with the terms and conditions of the SUMC Development Agreement;
2. Find that the SUMC Parties are not in default with the terms and conditions of the Agreement in all sections; and
3. Accept the City of Palo Alto’s (City) Annual Report Supplements regarding the funds received from the SUMC Parties, as required under Section 12(d) of the Development Agreement (Attachment E).
EXECUTIVE SUMMARY
The City Council is required to review the SUMC Development Agreement, an agreement between Stanford Hospital and Clinics, Lucile Packard Children’s Hospital, Stanford University (SUMC Parties), and the City of Palo Alto, (the “Agreement”), to confirm compliance with the Agreement’s terms. SUMC prepared their SUMC Annual Report for Fiscal Year (FY) 2023-2024 that discusses how they met their compliance obligations during the reporting time period (Attachment A). The City also uses this Annual Report to Council to provide information on the City’s compliance obligations, such as providing the required summary and description of how the City expended funds provided by SUMC per the Agreement.
As documented in this Annual Report to Council, both SUMC and the City are in compliance with the terms of the Agreement and Agreement Amendment Number 1 for the reporting period FY 24.
BACKGROUND
On June 6, 2011, the Council approved Comprehensive Plan amendments, zoning changes, a conditional use permit, annexation, and design applications for the Stanford University Medical Center Facilities Renewal and Replacement Project (the “Projects”). The Projects include the construction of the new Stanford Hospital and clinics buildings, an expansion of the Lucile Packard Children’s Hospital (LPCH), construction of new School of Medicine (SOM) buildings, renovation of the existing Hoover Pavilion, construction of a new medical office building and parking garage at Hoover Pavilion, roadway improvements along Welch Road and Durand Way, and SUMC design guidelines. The Development Agreement vesting these approvals became effective on June 6, 2011, and continues for thirty (30) years from the effective date to June 6, 2041.
This report covers activities by the SUMC Parties for FY 24, which is the thirteenth year of the Agreement. The annual report prepared for FY 24 also found the SUMC parties to be in compliance with the Agreement and Agreement Amendment Number 1.1 Previous annual reports and compliance documentation can be found via the weblinks in Attachment B.
ANALYSIS
Development Agreement Section 12, “Periodic Review of Compliance,” requires City Council to confirm SUMC Parties’ compliance with the terms of the Agreement. Discussion items in this report are intended to guide City Council through the many aspects that SUMC and City staff monitor and track throughout the year to ensure compliance.
The SUMC Annual Report for FY 24 (Attachment A) describes the activities related to Agreement implementation and ongoing annual progress toward meeting the following obligations in Section 5 of the Agreement, SUMC Parties’ Promises:
•Health Care Benefits;
•Fiscal Benefits;
•Traffic Mitigation and Reduced Vehicle Trips;
•Linkages (Pedestrian, Bicycle, and Transit);
•Infrastructure, Sustainable Neighborhoods & Communities, Affordable Housing; and •Climate Change.
Staff prepared a summary of the Section 5 obligations and the staff-confirmed compliance status (Attachment C). Agreement Section 12 also includes the requirement for demonstration of good faith compliance with the Agreement. Toward this end, SUMC has timely submitted all the reports required of the SUMC Parties for FY 24.
1 The SUMC Annual Report to Council Fiscal Year 2022-2023 went before City Council at their March 11, 2024 meeting, see Consent Calendar Item 6 at the following meeting weblink:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=1115.
Construction Activities and Net New Square Footage
SUMC discusses their construction activities for FY 24 in their SUMC Annual Report (Attachment A). City staff reviewed the information regarding SUMC net new square footage in the report and determined this information is complete and correct. No new construction received a certificate of occupancy in FY 2023-24 and therefore there was no change in net square footage.
Traffic Mitigation and Reduced Vehicle Trips
SUMC implemented all required transportation demand management (TDM) obligations in FY 2023-24, such as purchasing of Caltrain Go Passes, funding for the AC Transit U-Line, and other activities. Summaries of these activities can be found in Attachments A and C.
Alternative Mode Share Milestone Targets
SUMC previously achieved their 2021 alternative mode share milestone target of 33% for employee trips early, and every year between 2013 and 2019. The SUMC Parties maintained all TDM requirements in FY 2020 until Santa Clara County issued COVID-19 pandemic shelter-in- place orders in March 2020. On March 27, 2020, the City conditionally approved a one-year delay in the submittal of two reports; the FY 2020 Alternative Mode Share Report and Mitigation Measure TR 2.3 Enhanced Stanford University TDM Program report. Conditional approval of this delay was consistent with the procedures in Section 6(p) of the Agreement.
In Fiscal Years 2020-2021, 2021-2022, and 2022-2023, despite continuing to implement all TDM programs, as well as enhancing communications and promotions, the SUMC parties found that the alternative mode share milestone target of 33% was again not met. Under Agreement Section 5(c)(ix) Monitoring of TDM Programs, missing the alternative mode share milestone target for three consecutive years would have required SUMC to provide two $175,000 payments to the City for alternative transportation funding.
After submitting the FY 2021-2022 Alternative Mode Share report, SUMC sent the City a Notice of Intent to claim a permitted delay as outlined in the Development Agreement Section 18(c) Force Majeure. SUMC subsequently filed a Development Agreement Amendment application that proposed adjusted dates for achieving alternative mode share milestone target dates to account for the effect of the COVID-19 pandemic on SUMC employee use of alternative transportation modes. The City Council approved Ord. 5602: First Amendment to the SUMC Development Agreement Amendment.2 The amendment adjusted the alternative mode share milestone target dates, while still reaching 35.0% by 2026. The amendment also reset the interim target years, which trigger penalties in the event the targets are not met for two consecutive years.
The amendment includes an alternative mode share rate target of 33.0% by 2024, and 35.0% by 2026. Unfortunately, SUMC did not meet their 2024 target of 33.0%. Per the 2024 Alternative 2 Link to Ord. 5602: First Amendment to the SUMC Development Agreement Amendment:
https://portal.laserfiche.com/Portal/DocView.aspx?id=69406&repo=r-704298fc Mode Share Report (Attachment B), the 2024 alternative mode share was 30.5%. No penalty applies unless they also do not meet the 2024 target in 2025.
Construction Sales and Use Tax Monitoring Report
SUMC submitted the annual Construction Sales & Use Tax Monitoring Report on June 30, 2023, for the preceding calendar year. The City sent its required response. Based upon the City’s review of the annual Construction Sales and Use Tax Monitoring Report, revenues for calendar years 2011 through 2023 have totaled $5,497,299. This annual reporting assists in the process of ensuring that the City would receive no less than $8.1M in construction sales and use tax revenue by December 31, 2025.
Use of Development Agreement Funds (Supplement to the Annual Report) The funds received by the City through the Agreement represent funding for Operations and a significant portion of funding for implementation of the City’s Capital Infrastructure Plan.
Section 12 of the Agreement requires the City to prepare a Supplement to the Annual Report.
The Supplement is to include an accounting of the funds received from the SUMC Parties to satisfy the obligations outlined in Section 5 of the Agreement, a description of the account balances, and a summary and description of expenditures from the funds for each Fiscal Year (Attachment D). Section 12 mentions preparation of the Supplement within 45-days of the June and July receipt of the annual reports by SUMC, but there is no penalty for not doing so; after the close of the Fiscal Year, the City conducts an annual audit of the funds in Fall/Winter to demonstrate good faith in implementing the Agreement.
The SUMC Parties have already paid the City approximately $44.3 million in public benefit fees since June 6, 2011 through the FY 2023-24 reporting period.
Regarding fund usage during the Fiscal Year 2023-24 reporting period, the City authorized transfers for the following in the FY 2024 City Operating Budget:
•$366,000 transfer from the Community Health and Safety Fund to the General Fund (Police Department) for a Psychiatric Emergency Response Team (PERT); •$3.3 million transfer from the Infrastructure, Sustainable Neighborhoods and Communities, and Affordable Housing Fund to Capital Improvement Project Fire Station 4 Replacement (PE-18004); and
•$2.0 million transfer from the Infrastructure, Sustainable Neighborhoods and Communities, and Affordable Housing Fund to Capital Improvement Project Roth Building Rehabilitation (PF-23001).
For additional information about the recent use of Agreement funds please refer to the following:
•Fiscal Year 2024 Adopted Operating Budget document, Special Revenue Funds section; and
•Fiscal Year 2024 Adopted Capital Improvement Budget document. 3 The SUMC agreement Section 5(a)(iii) requires that a joint committee make annual recommendations to the City Council regarding proposed disbursements from the Community Health and Safety Program Fund, and the City Council may use reasonable discretion to accept, reject, or modify these recommendations. The joint committee includes SUMC representatives and City staff from the Office of Transportation, Administrative Services, and Public Works departments. Projects using Community Health and Safety funds have gained mutual support from members of the joint committee and approval from the City Council.
During the fiscal year, the following changes were made between the Operating Budget and the final audited balances:
•$366,000 was not transferred for a PERT team, as Police was unable to hire for this position(s);
•The total transfer from the Infrastructure, Sustainable Neighborhoods and Communities, and Affordable Housing Fund to Capital Improvement Project was slightly lower than budgeted, at $4,575,000; and
•$750,000 was transferred from the Expansion Cost Mitigation fund for the Fire Station #4 Replacement (PE-18004).
FISCAL/RESOURCE IMPACT
There are no fiscal or resource impacts resulting from City Council review of the SUMC Agreement to confirm compliance with its terms. Planning for use of SUMC funds occurs separately during the City’s Annual budgeting process.
STAKEHOLDER ENGAGEMENT
Community members and policy makers were extensively involved in the crafting of the Agreement and all other associated project enabling entitlements; however, no subsequent outreach has been required for the annual reports. Furthermore, subsequent related project entitlements continue to be processed through the City’s standard review processes, as discussed in the Development Agreement and other entitlements.
ENVIRONMENTAL REVIEW
Reviewing and making findings regarding SUMC and City compliance with the Agreement is not a project under the California Environmental Quality Act and no environmental assessment is required for the annual compliance review. An environmental impact report for the entire 3 Fiscal Year 2024 Adopted Operating Budget document, Special Revenue Funds section:
https://www.cityofpaloalto.org/files/assets/public/v/1/administrative-services/city-budgets/fy-2024-city- budget/adopted/fy-24-palo-alto-adopted-operating-budget-book.pdf; Fiscal Year 2024 Adopted Capital Improvement Budget document:
https://www.cityofpaloalto.org/files/assets/public/v/1/administrative-services/city-budgets/fy-2024-city- budget/adopted/palo-alto-adopted-capital-budget-book.pdf.
SUMC project was prepared and certified by the City Council prior to approval of the Agreement.
ATTACHMENTS
Attachment A: SUMC Annual Report FY 24
Attachment B: Weblinks to Prior SUMC Annual Reports
Attachment C: SUMC Development Agreement Section 5 Compliance Table Attachment D: Supplement to the Annual Report
APPROVED BY:
Jonathan Lait, Planning and Development Services Director