The City received a formal application from the Palo Alto Medical Foundation (PAMF) on January 23, 2004 that was deemed complete on August 31, 2005. The City established a project review team comprised of City staff members, the City Attorney, Special Legal Counsel and other consulting professionals to review and process the application.

The City prepared a Draft Environmental Impact Report (DEIR), held a public hearing on April 3, 2006, and is in the process of preparing a Final Environmental Impact Report/Response to Comments. Tentatively, staff anticipates publishing the Final EIR in late December; review by the Traffic and Transportation Commission in January, with transmittal to the Planning Commission and City Council in February, 2007. If the EIR is certified as complete in February, the project may be considered on its merits in Spring, 2007.

Approval of the PAMF project (as submitted or with modifications) would require, amongst other entitlements, a General Plan and Zoning amendment. Staff has been working with the applicant to prepare a Development Agreement for future City Council consideration consistent with the project’s scope, size and complexity. The Development Agreement, if approved by both parties, would constitute a contract between the City and PAMF establishing conditions under which the project would proceed and would require City Council adoption by ordinance at a formally noticed public hearing.

The City commissioned an economic analysis of the proposed project in an effort to better understand the economic implications of the PAMF proposal in comparison to other possible development scenarios at the 301 Industrial Road site. This report, prepared by Keyser Marston Associates (KMA) and distributed separately, outlined revenue and cost implications to the City for a variety of projects. Using the KMA analysis, staff worked with PAMF representatives in an effort to construct a “term sheet” representative of business points that might be included and considered by the City Council in a formal development agreement. The term sheet is transmitted as Attachment 1, and includes the following provisions:

1. A Nine Million Dollar ($9,000,000) endowment contribution. The endowment would be used to generate a target revenue stream of $630,000, inflated by 2.5 per cent per year. PAMF would guarantee the target revenue stream (i.e., make up the difference between any shortfall of the endowment fund performance and target annual payment).
2. A One Million Dollar ($1,000,000) contribution toward improving athletic facilities and fields.
3. A One Million Five Hundred Thousand Dollar ($1,500,000) contribution to the San Carlos Education Foundation for support of health-related programs in the San Carlos schools.
4. A Use Tax guarantee of $772,000 during the construction period; and $152,000 annually thereafter, inflated by 3 per cent per year.

In effect, the terms as currently drafted would generate a minimum of $782,000 per year in annual revenue ($630,000 from the endowment and $152,000 from the Use Tax) while the $9 million endowment is intact; additional one-time contributions toward parks ($1 million), schools ($1.5 million) and the City from the construction period use tax ($772,000) would be available for use upon receipt.

There is much work to be done to convert the proposed term sheet into a formal legal and binding development agreement. Staff believes that the terms outlined above, however, represent a good faith effort towards fairly addressing economic considerations specific to the PAMF project proposal. Staff will work with PAMF representatives to incorporate the terms outlined above into a formal development agreement for future City Council consideration unless otherwise directed by the City Council.

Attachment: Draft Term Sheet Submitted by Palo Alto Medical Foundation to the City (PDF, 52 kb)