Foundation adds perks to its offer - City Council set to hear proposal next week

Palo Alto Medical Foundation is close to clearing a major hurdle in its effort to persuade San Carlos to allow construction of a new hospital near Highway 101.

The foundation on Monday will present the City Council a list of proposed terms should it win approval to build the proposed 478,500-square-foot medical center on an 18.1-acre plot of land.

Officials have raised concerns about a potential loss of city revenue if the medical foundation, a nonprofit corporation that wouldn't be required to pay property or sales tax to the city, were to build on the land rather than a for-profit company, like a big-box retail store.

In response, the medical foundation has drawn up a list of financial incentives to convince to persuade the city to pick its project over one that would pay more taxes. The foundation says it would generate more than $25 million for the city over 30 years. Among the terms are:

-- A $9 million endowment held by a third party;

-- A guaranteed 7 percent rate of return on the endowment, which comes to $630,000 paid to the city for the first year and would inflate by 2.5 percent every year;

-- A guaranteed payment to the city of $152,000 per year, inflating at 3 percent every year, from taxes on equipment purchases;

-- One-time donations of $1 million for the development of athletic fields and $1.5 million to the San Carlos Educational Fund.

The terms have not been approved by the council and would be part of a development agreement drawn up later in the approval process. Instead, the terms give a preview of what PAMF would be willing to offer to make up for the taxes it wouldn't be paying.

Officials at the medical foundation say those financial perks should quiet concerns over a study exploring other uses for the 18.1-acre plot. The report by Keyser Marston Associates, commissioned by the city last month, found that an auto mall or large retailer would generate much more revenue for the city in the form of taxes than the nonprofit medical center.

"We think with the development agreement we've addressed economic concerns that were raised about the project, especially in comparison to retail or an auto mall or another use for that site," said Ben Drew, spokesperson for the Palo Alto Medical Foundation.

City Council members will have a chance to comment Monday on whether they agree, but Assistant City Manager Brian Moura, who helped broker the agreement, says city staff believe it should settle the issue.

"We think that it is a good deal for the city and the community, and we think that it takes the financial issue off the table from the city's perspective," he said.

The city hopes to have completed an Environmental Impact Report on the project by next month and will begin public hearings early next year.