Hospital Project Would Boost Palo Alto Coffers, Study Find

March 13th, 2009

By Diane Rogers — Stanford Report,

At a time of significant economic uncertainty, preliminary findings of a new fiscal impact study reveal that the Stanford University Medical Center Renewal Project will provide an estimated $18 million in taxes and fees to the city of Palo Alto as a result of the proposed construction of new facilities. That’s on top of approximately 2,200 new jobs.

Commissioned and paid for by the SUMC Renewal Project, the 125-page study is part of the process for seeking necessary city approval of the project. It accompanies an environmental impact report that is expected to be made public later this spring, and was compiled by CBRE Consulting Inc. of San Francisco, drawing on data, interviews and documents provided by city and hospital officials.

The study analyzes the fiscal impact of the projected $3.5 billion project to upgrade and expand Stanford Hospital & Clinics and Lucile Packard Children’s Hospital, and replace older laboratories at the School of Medicine. Palo Alto has retained an economic consulting firm to conduct a peer review of the study.

The projected one-time revenue benefits to the city include $8.2 million in sales and use taxes paid on construction activity and $10 million in impact fees for housing, transportation and community facilities. In addition, the Palo Alto Unified School District would receive just over $616,000 in fees.

On an annual basis, the report estimates that the SUMC project will generate about $639,000 in revenue for the city’s general fund. The major components of that annual revenue would be $297,000 for utility user taxes and $236,000 for sales and use taxes.

Increased expenditures by the city’s general fund, which will be necessary because of the expanded hospital facilities, are estimated at $635,000, with 63 percent of that amount going to police and fire services.

The net difference between the estimated revenues and expenditures on an ongoing basis “results in an annual surplus of $4,000” for the city’s general fund, the report notes.

Referring to the projected $18 million contribution resulting from construction activities and impact fees, the study concludes that “the large one-time revenue benefits generated during the construction period. . . will provide a substantial and significant surplus to the city of Palo Alto that will offset potential deficits.”

The financial benefits to Palo Alto that are outlined in the study “come at a time when the city is currently facing close to a $6 million deficit,” said Michael Peterson, vice president for special projects at the medical center. “And next year, they’re projecting a $10 million deficit, so the city budget is in need of infusion of funding.”

Peterson is scheduled to discuss the benefits of the renewal project on March 14 at a study session of the Palo Alto City Council. He recently assumed his new position as vice president responsible for all space and facilities projects, representing both LPCH and SHC. He had served as interim president and CEO of SHC from May 2001 through April 2002, when Martha Marsh was appointed. At that time he became chief operating officer through January 2009.

Peterson said the benefits of the hospital go beyond added revenues to city coffers. “One of the things we really want to emphasize is that the provision of health care to Palo Alto is the major community benefit of this project,” he said. “The children’s hospital and Stanford Hospital & Clinics provide a wide array of services, particularly emergency and trauma services, along with participation with the city in disaster planning and management. All of that creates a health and safety net for the city. We want to emphasize that we are committed to treating everyone, regardless of their ability to pay.”

Peterson added that the medical center trains many of the community physicians in Palo Alto and on the peninsula.

Peterson underscored that while the two hospitals are owned by and are part of Stanford University, they are separate corporations, with separate compensation systems, separately insured. “When it comes to clinical services, the hospitals—not the university—are expected to step up to the plate, and the mitigations, costs and fees will come from the hospitals, not from Stanford University,” he said.

The hospitals, which have some 7,000 employees at the medical center, are undertaking the renewal project to meet regulatory requirements and assure adequate capacity for patient care, as well as modernize their facilities.

The study has more than 70 detailed tables and exhibits and focuses on how the project will upgrade SHC and LPCH services, including tripling the size of the emergency department they share. As a result of the project, most accommodations will be single-patient rooms—the current standard for hospitals being built today. Overall, the construction will produce a total of 1.3 million square feet of net new space by 2025.

The replacement of the medical school laboratories will be limited to the amount of square footage currently being used.

At a time when the health-care industry is one of the few sectors of the economy that is continuing to make new hires, the report predicts that SUMC will have 2,243 additional employees by 2025. The number of annual outpatient visits to the hospitals is estimated to increase by 215,050 by 2025, which is an increase of 42 percent over 19 years.

The March 14 study session of the Palo Alto City Council will begin at 8:30 a.m. in the council chambers at City Hall. The meeting is open to the public.