Economic Development Advisory Commission
Meeting Minutes
Wednesday, August 1, 2007
Commissioners Present
Laura Battaglia (Secretary)
Mark Green
Mark Lockenmeyer
Mark Luckenbach
Scot Marsters (Chair)
Harold Schuette
Commissioners Not Present
Connie Barton Barba
Gary Wiessinger (Vice Chair)
Staff Present:
Brian Moura, Assistant City Manager/Acting Economic Development Manager
Bob Lanzone, City Attorney
Al Savay, Community Development Director
Colette Meunier, Principal Planner – PAMF Project
Anna Shimko, Special Legal Counsel, Cassidy Dawson Shimko Kawakami
Matt Francois, Special Legal Counsel, Cassidy Dawson Shimko Kawakami
1. Call to Order
The meeting was called to order at 7:09 p.m. by EDAC Chair, Scot Marsters at the Hiller Aviation Museum at 601 Skyway Road in San Carlos.
2. Consideration of Financial and Economic Development Impact – Palo Alto Medical Foundation (PAMF) – Proposed Development
EDAC Chair Scot Marsters welcomed the audience and discussed the meeting rules. The focus of the meeting is Economic Development. Speakers will be limited to two minutes each with the option of combining a couple of speakers up to a maximum of 10 minutes.
Assistant City Manager and Acting Economic Development Manager Brian Moura gave the staff report on the proposed Palo Alto Medical Foundation (PAMF) development. The focus of the hearing in front of EDAC is the financial and economic development impacts of the PAMF proposal.
The proposed project is on an 18 acre site at 301 Industrial Road formerly owned by CPI/Eimac and later Varian which was used for the manufacture of high power microwave tubes. The proposal from PAMF involves construction of a proposed clinic, hospital and medical office building. It is a 4 story building that is 83 feet high and contains 436,500 square feet. It includes 97 hospital beds, 120 physicians, 826 staff members, 1,280 parking spaces and 359,000 square feet of landscaping.
The Environmental Impact Report for this project was certified by the City Council in April after earlier hearings of the Transportation Circulation Commission and also the Planning Commission. A month later, in May, the Palo Alto Medical Foundation submitted an Addendum to the project which reduced the project in size to the statistics that you see here tonight. This particular hearing is one of four that is going to be part of the merits of the project phase.
Subsequent hearings in this phase of the project review include hearings in front of the Transportation and Circulation Commission (late August), Planning Commission (scheduled for late September) and the City Council (scheduled for October.)
Last year, the Economic Development Advisory Commission (EDAC) requested referral of this project for Commission review, given its potentially significant financial and economic development impacts on the community. EDAC's charge, in this particular project, is to study the economic development options and opportunities in the community and to provide advice and input to the City Council in these areas. From the Staff's perspective, there are three areas that would be relevant for EDAC to comment on this proposal, namely the financial impacts, the economic development impacts, and the Development Agreement Term Sheet.
Brian Moura discussed the Fiscal Impact Report on the PAMF proposed development with EDAC. This is a document prepared by Jim Rabe, of Keyser Marston Associates, Los Angeles. Mr. Rabe was charged with preparing an independent expert review of the proposed project and its potential economic impacts on the community. The focus of the project was to analyze both for-profit uses of the site, as well as the PAMF proposal. The consultant was tasked with projecting the annual net benefit, or loss, to the City for this project, as well as each alternative use.
Prior to the purchase of this site by PAMF, the City received a number of inquiries about the property from a variety of different types of uses -- retail, commercial, industrial and housing. The consultant looked at uses including retail, auto sales, and industrial (similar to the prior use) as well as revenues the City would receive from each type of use in several categories (sales and use tax, property tax, hotel tax, fees and fines. Mr. Rabe looked at the site over a 50-year horizon. The consultant felt that that was a fair estimate of the use of this particular building and facility. A subsequent analysis by the City’s Medical and Hospital Expert, John Cronin of Cronin and Associates also confirmed this finding.
Brian Moura then turned to a discussion of the draft Term Sheet that spells out the key terms in the draft Development Agreement between the City and PAMF. Under California state law, cities and developers are allowed to enter into what's called Development Agreement. These agreements are commonplace when a large complex project, such as this one, is considered. The Development Agreement basically provides assurances both to the developer and to the City as it relates to zoning, use of the land, and requirements on both sides.
In terms of the timeline of this Development Agreement, the Staff of the City and Palo Alto Medical began working on a Term Sheet which outlines the major points in the Development Agreement. In 2006, last year, an initial draft of that document which primarily focused on the monetary aspects of the Development Agreement was sent to the City Council last November and was also shared with the public prior to that meeting on the City’s web site and email service. In June, a second draft Term Sheet was discussed by the City Council and additional direction on the negotiations with PAMF was provided by the City Council to the City Staff.
Brian Moura reviewed key elements of the Draft Term Sheet with EDAC. They include payment of $5 Million by PAMF into an endowment, followed two years later by a second payment of $4 Million. The initial payment would be based on the earlier of either the issuance of the first building permit for the project or a week after all approvals are final and the approvals are no longer subject to any legal or electoral challenges. The second payment would then follow at the earlier of either 24 months, or two years later, or with the issuance of a so-called CO, or a Certificate of Occupancy.
From the endowment funds, the City would receive guaranteed payments of $630,000 per year with a 2.5 per cent per year escalator over a 50 year term along with guaranteed payments of $152,000 per year with a 3 per cent per year escalator over a 50 year term to cover sales and use tax revenues. The City would also receive a guaranteed one-time payment of $722,000 from construction-related use tax revenues generated by the construction of the project. In addition, PAMF would provide two one-time community grants – a $1 Million grant to the City for Athletic Fields and a $1.5 Million grant to the San Carlos Education Foundation for services at the schools in San Carlos. City Staff estimates the value of these payments over the 50 year life of the project to be nearly $91 Million. This assumes that the endowment will be held over its 50 year life and will not have its principal reduced by the City in the future.
Brian Moura also described the City Council’s interest at their June meeting of receiving payments in advance of the initial payment of when the first $5 million endowment was deposited. Staff held negotiations with PAMF; and reached a proposed settlement. The proposed settlement involves a payment to the City of $250,000 in year one and year two after the first endowment deposit is made. That is roughly a 5 percent return on the $5 Million first endowment payment and is consistent with the City’s investment pool returns from the Local Agency Investment Fund (LAIF).
Wrapping up the Staff Report, Brian Moura covered potential Economic Development impacts of the PAMF proposal. He also commented on written correspondence that EDAC had received from Pat Bell and Margaret Desmond regarding PAMF’s policy on Medicare transfers (letters referred to PAMF for reply), an email from Christine Perris regarding PAMF co-payment charges (referred to PAMF for reply), letter from Tim Gordon indicating he believes the PAMF site is in the flood zone (a review has indicated that it is not) and an email from Ellen Cox indicating that she believes the project would generate unacceptable traffic levels if approved (the letter has been included in the record and referred to the staff working with the Transportation and Circulation Commission).
Additional letters included one from Louise Della Maggiora, a San Carlos resident and a representative of Sequoia Hospital concerning traffic impacts and a potential shortage of workers and nurses for this facility, if approved (traffic impacts referred to Transportation and Circulation Commission, staffing questions referred to PAMF) and a letter from April Vargas representing the SEIU. Ms. Vargas believes that the need for this facility has not been established; PAMF should make additional payments to the City for police and fire services and that we should look at housing payments similar to what is done at UCSF. Staff has reviewed the letter and has met with Ms. Vargas. Staff believes that the annual payment to the City is a more flexible approach than earmarking the payments from PAMF for specific items. The City Council – and future Councils – can always direct funds to specific areas if they desire, should the project be approved.
EDAC then moved into questions from the Commission to staff. Commissioner Laura Lee Battaglia asked if there is a medical care specialization that would attract other businesses to San Carlos. Brian Moura said that the John Cronin report indicated the PAMF project would pull in additional medical and biotech related uses but was not more specific.
Commissioner Mark Green asked about the revised PAMF proposal and whether this impacted the Term Sheet. It did not. Commissioner Green also asked questions about the rate of return on the endowment vs. the annual inflation adjustment in the payments to the City and the requirement for a 4/5 vote of the City Council before the City can take money from the endowment, thereby lowering the overall compensation to the City over the life of the project.
Commissioner Hal Schuette asked about the annual guaranteed payments by PAMF and how that related to the potential need for more City Staff to serve the project, if approved. Brian Moura indicated that this was reviewed but the benchmark approach was felt to be more appropriate when establishing the Term Sheet in this case.
Commissioner Mark Lockenmeyer discussed the guaranteed payments to the City and the 2.5% and 3% escalation factors. He felt that the agreement was being pegged to interest rates that are now at “historic lows”. Brian Moura indicated that the escalation factors were reviewed by the City Staff and a financial advisor to the City. He also noted that the City’s investments tend to be focused on safety and liquidity vs. return.
Commissioner Mark Luckenbach asked about the general nature of the term sheet and asked if the Development Agreement language would be more formal. Staff replied that the final document will indeed be more detailed. Commissioner Luckenbach also questioned including a non-City entity (San Carlos Education Foundation) in a City agreement. He also asked about the possibility of not restricting the $1 Million grant to the City to Athletic Fields only and wanted added detail on why PAMF elected to downsize their proposed facility in San Carlos.
Commissioner Scot Marsters asked why the $1 Million grant to the City was restricted to Athletic Fields vs. another City use such as Police or Fire. Staff indicated the proposal for the grant and its use was from PAMF. Since it exceeded the benchmark amount in the Rabe study, the City Staff did not object to the proposal. Commissioner Marsters also questioned whether development that was stimulated by PAMF would generate revenue for the City or not. Staff answered that it would be very much dependent on the type of development.
Cecilia Montalvo, Vice President of Development, Palo Alto Medical Foundation addressed some of the Commission’s earlier questions. The change in sizing of the project came after PAMF had a chance to refine their analysis of the community’s needs. In terms of providing funds specific to Athletic Fields and Schools, these are two areas PAMF sees as important to the community. Ms. Montalvo also indicated that the project would feature stepped construction with varying floor sizes and the project would likely open in 2011 or 2012. She also commented that PAMF is involved in nurse training to address the nurse shortage issue.
On an earlier question, she noted that PAMF participates in the Medi-Cal program administered by Health Plan of San Mateo. While she cannot comment on a specific patient’s situation, she indicated that PAMF has become aware of “carve out plans” that seem to be excluded from the PAMF contract. This is being reviewed.
In response to questions about the project’s environmental features, David Jury, Vice President at PAMF joined Cecilia Montalvo to comment. Both indicated that they plan to continue to work with the City Staff to address the City’s interest in “green” features in this proposed development including use of the Green Guidelines for Hospitals. Other features would include a par course, some benches and quiet areas rather than active recreational uses.
EDAC Chair Marsters then opened the public hearing. The Commission heard from a number of members of the public. Some of the speakers commented on the financial and economic development aspects of the PAMF Proposal while others talked about their support or opposition to the project itself.
Comments during this portion of the hearing came from Dr. Allan Rosenberg, Bonnie McClure, Howard Girdlestone, Dr. Sidney Marcussen, Dr. Marvin Richards, Wayne Kennedy, Pat O’ Meara, Joanne Kemist, Phil Maresca, Kathy Lynch, Heidi Skrenta, Ron Collins, Sol Kutner, Bob Black, Joanne Jung, Tim King, Michael Takamoto, Roseanna Robertson, Margery Ranch, Glenn Stewart, Marlene Ross, Michelle Margiotta, Chris Wuthmann, Laura Neish Winslow and Jane Lockwood. The Commission then voted to close the public testimony portion of the item and discuss the matter.
Commissioner Battaglia asked if the payments to the City are discretionary or not. Funds from the annual payments to the City can be used by the City at the discretion of the City Council. The only funds that carry restrictions are the one-time grants by PAMF to the City for Athletic Fields ($1 Million) and to the Education Foundation for the San Carlos School District schools ($1.5 Million).
Commissioner Green asked if the Staff has reviewed the PAMF Development Agreement terms in Palo Alto and Mountain View as well as other facilities. The Staff has reviewed these agreements and feels the San Carlos Term Sheet is at or above the others based on a size and square foot basis.
Commissioner Schuette asked about the proposed development agreement and testimony about “broken promises”. Staff indicated that the City’s legal staff and special counsel feel that the Development Agreement has adequate protections in it. It was also noted that the endowment funds will be held by a foundation, not PAMF or Sutter.
In response to a question from Commissioner Lockenmeyer, Cecilia Montalvo from PAMF indicated that their total investment in the project could exceed $400 Million once the facility was built, if the proposed is ultimately approved.
Commissioner Luckenbach asked about studies that had been done about the PAMF proposal and the question of need for added medical facilities. Staff indicated that County Supervisor Jerry Hill had looked into this question a few years ago. He also asked about what happens if there is a change in use of the facility. Staff said that the Development Agreement has been structured such that the guaranteed payments to the City continue if the site remains in a hospital or non-profit use for the 50 year term.
EDAC Chair Marsters asked about testimony indicating that any PAMF payments for traffic improvements would revert to PAMF based on the five year law. Staff indicated that there is no such law or requirement. The current proposal by Staff is for a 15 year commitment for such funding by PAMF but the length of that commitment could be changed by mutual agreement. Chair Marsters also asked about the possibility of PAMF changing their focus to outpatient care. Anna Shimko indicated that the Development Agreement obligates PAMF to provide hospital services comparable to other facilities in the area and to maintain an emergency room.
Commissioners Green, Marsters and Lockenmeyer discussed the impact that this proposal might have on potential development and economic development in the Harbor Industrial Area (HIA). Staff noted that the Cronin report suggests that the PAMF proposal would encourage biotech and medical uses. Al Savay also noted that the upcoming General Plan will look at future development in the area and attempt to facilitate that through specific reviews as part of that process.
Commissioners Battaglia, Luckenbach and Lockenmeyer also discussed the key financial terms in the proposed Term Sheet. Their interest was to insure that the City was made whole if the project was to move ahead. There was also interest in exploring some items including the annual increase, the restriction on the $1 Million grant and alternative uses of the landscaped area in the proposal.
Motion: Commissioner Mark Luckenbach moved that EDAC adopt the initial Staff Recommendation with the addition of the two $250,000 payments from PAMF in years one and two with four modifications by the Commission:
1. Traffic – The cost of Traffic Improvements at Holly Street/Highway 101 and Brittan Avenue/Industrial Road will be shared by PAMF as a condition of project approval to preserve future Economic Development opportunities in San Carlos.
2. Landscaped Area – The City Staff should explore with PAMF the possibility that some of the newly added landscaped area in the project be converted to public recreational facilities.
3. Convert $1 Million Grant for Athletic Fields – This amount should be converted to an undesignated grant to the City that could be used by the City Council for any purpose. This amount could alternatively be added to the two existing endowment payments from PAMF to significantly increase the amount of unrestricted funds the City is receiving from PAMF over the 50 year term of the agreement.
4. Interest Rate – The City Staff should review the interest rate used for the annual increase in payments from PAMF to a higher level. The Economic Development Advisory Commission (EDAC) believes that the historical interest rates used in the current Term Sheet are too conservative and do not protect the City if investment returns or inflation are higher in future years.
Commissioner Mark Lockenmeyer seconded the motion.
Action: The motion to adopt the Staff Recommendations with the four modifications noted above was approved unanimously by the Commissioners present in a unanimous roll call vote.
3. Public Comment
There was no public comment.
4. Adjournment
The EDAC meeting adjourned at 10:43 p.m. The next EDAC meeting is scheduled to be held on September 5, 2007 at 4:00 p.m. in Room 207 at San Carlos City Hall.
