Two years after Palo Alto officials agreed to allow the expansion of the Stanford University Medical Center, dubbed the largest construction project in Palo Alto's history, City Council members are deciding the best way to spend the spoils of the deal -- some $44 million.
During a Tuesday meeting of the council's Policy and Service Committee, David Ramberg, assistant director of the Administrative Services Department, said spending the funds sooner might be better than later. The timing of the investments would be affected by the quickly inflating costs for construction rising faster than interest rates, meaning that waiting for interest to accrue on the money before spending it could be counterproductive.
The committee agreed that the funds would be best used for relatively short-term investments -- already $2 million has been allotted to teen mental health initiative Project Safety Net and another $4.3 million has been used to fund a long-term loan to the Stevenson House rehabilitation project and a short-term loan for the controversial development at 567 Maybell Ave., which includes 60 units of housing for low-income seniors and 15 single-family residents.
The agreement with Stanford, which took several years of negotiations and which was signed in 2010, grants the city $44 million and gives the council plenty of discretion in how to spend it. The agreement allocates the funds in various categories, including $23.2 million for "infrastructure, sustainable neighborhoods and affordable housing," $12 million for "sustainability programs" and $4 million for community health and safety.
In exchange, Stanford received the permission to significantly exceed the city's zoning regulations as it embarked on a reconstruction of Stanford Hospital and Clinics, an expansion of the Lucile Packard Children's Hospital and major renovations to the Stanford University School of Medicine.
At previous discussions, council members indicated that they would like to spend the Stanford funds on major capital projects with a lasting impact, and that they would not use this funding source to plug budget gaps or support the operating budget. They also rejected a proposal to set these funds up as an endowment and only spend the interest generated from the endowment.
On Tuesday, Ramberg proposed a process in which the council would have two opportunities every year, one in the spring and one in the fall, to discuss the Stanford funds.
The three committee members, Councilman Larry Klein, Councilwoman Liz Kniss and Councilwoman Gail Price, moved to develop a ranked master list of potential uses for the funds that would be reviewed each year as part of the budget process until the funds are exhausted, with the idea that it should take 5 to 10 years to spend the money.
They also said that the use of the $4 million in funds set aside in the "community health and safety" category -- including the $2 million for Project Safety Net -- should be reviewed by the Policy and Services Committee instead of the Finance Committee. These funds, unlike the others, are expected to finance programs rather than infrastructure projects.
The decision to allocate these funds on a "parallel track" to the remaining $40 million was proposed by Councilwoman Gail Price and quickly accepted by her two committee colleagues (Karen Holman was absent).
The formation of the master list dovetails with a separate effort currently shepherded by the council's Infrastructure Committee. That committee is now narrowing down a list of the city's infrastructure priorities for possible inclusion in a November 2014 revenue bond. The Infrastructure Committee is expected to submit its priority list to the council later this year.
Klein, who sits on the Infrastructure committee, proposed having the Finance Committee and the full council review the list of infrastructure projects and the Stanford funds on an annual basis and make revisions as needed.
His colleagues quickly endorsed the process, with Kniss also suggesting that the city consider ways to leverage these Stanford funds for potential grants to fund long-lasting infrastructure projects. Klein noted that the Stanford pool of funds gives the city more discretion over capital spending than its normal budget capital-budget process, which typically focuses on routine repairs.
"In reality, there's not a lot of discretion in there," Klein said in reference to the city's regular capital-improvement project. "The Stanford money is like you've just come into a big inheritance and now you can afford to fix up your house and maybe add another room or something. That's how I see the Stanford money."