The Palo Alto City Council and administration set the stage Monday for what we hope will be a serious and productive discussion about how to bring the most benefit to the city from the $40 million that will begin flowing from Stanford later this summer.

The task is both exciting and daunting, and judging by the discussion at Monday night's meeting, most council members appeared appropriately circumspect by the responsibility to decide how this money should be invested or spent.

There was no talk of pet projects or other specific ideas, like the funding of a new police station, which was put on hold two years ago due to fiscal constraints. Instead, council members focused on the yet-to-be-defined process for deciding how to utilize the funds.

Although no formal vote was taken, comments suggested that the council will be looking for a project or projects that will bring visible, long-term impacts to the city. And even though the city faces substantial budget-balancing challenges in the coming years, no one was suggesting using the Stanford money as a means of avoiding cuts in services.

City Manager Jim Keene wisely recommended that the council proceed "methodically and cautiously" as they look for ways to leverage the funds into "transformative investments" for the community. The council's Policy and Services Committee and its Finance Committee will be the starting points for the discussion, according to Keene.

The only concrete action taken Monday was to direct Mayor Sid Espinosa to appoint two members to an advisory committee that will include two Stanford officials. The panel will advise the council how to spend $4 million that was specifically allocated for community health programs in the city's development agreement with Stanford, with the expectation that $2 million would be used to support Project Safety Net, the community collaborative formed in response to recent teen suicides.

Stanford's money will come in phases, starting with $15.7 million this year, which includes the $4 million for the community health safety programs, $7.7 million nominally dedicated to infrastructure and affordable housing and $4 million for sustainability programs, although the city is free to use the funds for whatever it chooses.

A second payment of $11.7 million is due next year with the funds allocated to the same categories. The final $11.7 million payment will not be received until January 2018.

During the discussion, several members were eager for details on how the work of the council's two committees would be managed and differentiated. Some potential uses for the funds might lend themselves to the Policy and Services Committee, while others, like infrastructure, might be more appropriate for the Finance Committee. City Manager Keene urged members to be patient as his staff develops more detailed recommendations for how the council should proceed.

We would urge the council to resist the temptations to begin spending these funds until the hospital construction is complete and the traffic and other impacts are fully realized. While not bound to use these funds to mitigate the direct impacts of the expansion of the adult and children's hospitals, the purpose is to make the city "whole" on costs that it will incur when the project is complete. Transportation needs and concerns should be at the top of that list.

Some council members, including Greg Scharff, want to make sure that the funds be used on projects that are "meaningful" and "transformative" and have at least a 20-year lifespan.

Mayor Espinosa said he will be looking for projects that have "real impacts that Palo Altans will notice, whether it is traffic or biking in particular that really have some connection to the (hospital) project and really are noticeable in their lives."

Palo Alto might be wise to take a lesson from Mountain View, which recently received a $30 million advance rent payment from Google and grappled with what to do with it. At first the city toyed with spending a portion of the funds to balance this year's budget, but in the end decided, at least for now, to bank the money and spend only the interest of about $1 million a year.

That would be a wise parameter for the council to impose on itself and the community as this unusual process begins.