City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: March 9, 2026
Report #:2512-5610
TITLE
Stanford University Medical Center (SUMC) Annual Report to Council for Fiscal Year 2025 (FY 2025)
RECOMMENDATION
Staff recommends that the City Council:
1. Review the Stanford University Medical Center (SUMC) Annual Report for FY 2025, 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 D).
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) 2024-2025 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 2025.
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. The Development Agreement was amended in 2023 to modify the alternative transportation mode share targets, in response to changes to transportation patterns resulting from the COVID-19 pandemic.
This report covers activities by the SUMC Parties for FY 2025, which is the fourteenth year of the Agreement. The annual report prepared last year for FY 2024 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
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 2025 (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 2025.
1 Link to May 12, 2025 City Council Meeting Item 7:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16092.
Construction Activities and Net New Square Footage
Overall, at the Main SUMC site, SUMC is entitled to construct and use up to 3,534,090 total square feet of hospital/clinic and research buildings, as well as associated facilities and infrastructure improvements, including up to 1,265,272 net new square feet. Overall, at the Hoover Pavilion site, SUMC is entitled to construct and use up to 153,343 total square feet of medical office/clinic buildings, as well as associated facilities, including up to 46,169 net new square feet of medical/office buildings.
SUMC discusses their construction activities for FY 2025 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. A new proton therapy vault at 875 Blake Wilbur Drive (1,279 square feet) received a certificate of occupancy in FY 2025. School fees were paid for 919 net new square feet.
As reported in the SUMC Annual Report FY 2024-2025 (Attachment A), the following table summarizes the net new square footage for which a certificate of occupancy has been issued.
Table 1: SUMC Net New Square Footage
Traffic Mitigation and Reduced Vehicle Trips
SUMC implemented all required transportation demand management (TDM) obligations in FY 2025, such as purchasing of Caltrain Go Passes, funding for the AC Transit U-Line, and other activities. A full list of commuter benefits and other obligations can be found in Attachments A and C.
Alternative Mode Share Milestone Targets
SUMC previously achieved their alternative mode share milestone targets every year between 2013 and 2019. In 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, in response to trip disruption caused by the COVID-19 pandemic. Conditional approval of this delay was consistent with the procedures in Section 6(p) of the Agreement.
In FYs 2020-2023, 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. 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.3 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. No target was set for 2025; however, SUMC increased its alternative mode share from
30.5% in FY 2024 to 33% in FY 2025, showing progress toward its goal of 35% mode share by FY 2026 (Attachment A).
Construction Sales and Use Tax Monitoring Report
SUMC submitted the annual Construction Sales & Use Tax Monitoring Report on June 30, 2025, 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 2024 have totaled $5,556,174. This annual reporting assists in the process of ensuring that the City would receive no less than $8.1 million in construction sales and use tax revenue by December 31, 2025.
A shortfall in construction sales and use tax is expected, estimated to be $2.4 million. The likelihood of a shortfall has been acknowledged by the SUMC Parties. Account reconciliation will occur in August 2026, as required by the Development Agreement and payment of the 3 Link to Ord. 5602: First Amendment to the SUMC Development Agreement Amendment:
https://portal.laserfiche.com/Portal/DocView.aspx?id=69406&repo=r-704298fc shortfall is expected from SUMC no later than January 31, 2027. This is expected to be considered as part of the FY 2027 Budget process.
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 2024-25 reporting period.
Regarding fund usage during the Fiscal Year 2024-25 reporting period, the City authorized a transfer for the following in the FY 2025 City Operating Budget:
$4.1 million transfer from the Infrastructure, Sustainable Neighborhoods and Communities, and Affordable Housing Fund to Capital Improvement Project Fire Station 4 Replacement (PE-18004).
For additional information about the recent use of Agreement funds please refer to the following:
Fiscal Year 2025 Adopted Operating Budget, Special Revenue Funds section; and Fiscal Year 2025 Adopted Capital Budget document. 5
During the fiscal year, the following changes were made between the Operating Budget and the final audited balances:
$4,075,000 was transferred from the Expansion Cost Mitigation fund for the Fire Station #4 Replacement (PE-18004).
5 Fiscal Year 2025 Adopted Operating Budget:
https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy-2025-city- budget/adopted/palo-alto-adopted-operating-budget-book_final2.pdf; Fiscal Year 2024 Adopted Capital Budget:
https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy-2025-city- budget/adopted/palo-alto-adopted-capital-budget-book_final.pdf.
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 and reconciliation of the Construction Sales and Use Tax funding discussed above will be incorporated into the development of the FY 2027 Operating Budget.
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 beyond their presentation at City Council meetings. Entitlements for individual projects continue to be processed through the City’s standard review processes, including public notice, outreach, and/or public hearings.
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 SUMC project was prepared and certified by the City Council prior to approval of the Agreement.
ATTACHMENTS
Attachment A: SUMC Annual Report FY 2025
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