FROM: CITY MANAGER DEPARTMENT:CITY MANAGER SUBJECT: FOUR-PARTY MEMORANDUM OF UNDERSTANDING TO RESOLVE MIDDLE SCHOOL CHALLENGE

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1 TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT:CITY MANAGER DATE: SEPTEMBER 10, 2001 CMR: 344:01 SUBJECT: FOUR-PARTY MEMORANDUM OF UNDERSTANDING TO RESOLVE MIDDLE SCHOOL CHALLENGE RECOMMENDATION Staff recommends that the City Council approve the Four-Party Memorandum of Understanding (MOU) to resolve the Middle School Challenge. BACKGROUND For approximately two years, four Palo Alto institutions have struggled to find a solution to the so-called Middle School Challenge. These four institutions include: the Palo Alto Unified School District (PAUSD), the City of Palo Alto, the Jewish Community Center (JCC), and Stanford University. Officials from these four institutions have negotiated a Memorandum of Understanding (MOU) to resolve all major issues in creating a comprehensive solution to the Middle School Challenge. Throughout the long negotiations between the City and the other three parties, the City Manager and other key City staff have met with the Council s Ad Hoc Committee on the Middle School Challenge. Chaired by Mayor Sandy Eakins, the Committee has provided guidance to the City negotiating team throughout the process. The Committee has reviewed the MOU and now passes it on to the full Council for consideration and approval. Once the MOU is approved by the four parties, the comprehensive solution can be implemented. DISCUSSION City Goals In respect to the Middle School Challenge, the City Council has identified the following goals: CMR:344:01 Page 1 of 9

2 Facilitate the transfer of the Terman Community Center from the City to the School District for the purposes of establishing a third middle school without undue financial hardship to either the City or the District. Secure the Mayfield site as a permanent location for Jewish Community Center as well as provide interim facilities for the JCC in order to settle all legal issues regarding the transfer of Terman, avoid interruption of JCC services, and preserve and enhance community services for Palo Altans. Promote joint use at both Terman and Cubberley. Five Inter-Related Transactions The Four-Party MOU consists of a complex set of transactions because the four institutions have different jurisdictions and primary responsibilities, while they share common interests and respect the need to work cooperatively. The primary interest of the District is to secure Terman as a middle school site. If the JCC is forced to move from Terman, then the primary interests of the JCC are to secure interim and permanent locations, avoid any interruption of services, and preserve its membership and financial base in the process. In providing Mayfield as a community center site for the JCC, Stanford desires flexibility in transferring its development rights in the Stanford Research Park. The primary interests of the City are to retain a community center and services in South Palo Alto; facilitate the transfer of the Terman site to PAUSD for a middle school, recognizing our financial investment in Terman; honor the legal rights of JCC as the City s tenant at Terman; and preserve JCC as a community institution and a key provider of health and human services for the Palo Alto community. The MOU incorporates conceptual approval of a set of five inter-related transactions. The actual agreements (e.g., Land Swap with PAUSD, Development Agreement with Stanford, Ground Lease between Stanford and the City for Mayfield, Sub-Lease with JCC) are to trail this conceptual MOU and require separate legal consideration and in several cases CEQA review. Several of these agreements have already been drafted and are attached for the Council s information. Again, the five separate transactions are part of a negotiated comprehensive solution to the Middle School Challenge. Achieving any one of these transactions is dependent upon achieving the other transactions. The five transactions are summarized below: 1. The City/PAUSD Land Swap CMR:344:01 Page 2 of 9

3 After many months of discussions, the City and the School District found a creative way of transferring the Terman Community Center site to the PAUSD for a middle school without financial hardship to either party. The land swap includes the following key provisions: a. PAUSD gets eight acres of buildings and parking lot at Terman. b. City gets eight acres of buildings and parking lot at Cubberley. c. Joint use by the City and PAUSD is promoted at both Terman and Cubberley. d. PAUSD is provided certainty to reclaim part of Cubberley for a small compact high school prior to lease expiration. The land swap is contingent on the City providing Terman to the District free of any tenancies; therefore, it is based on solving the relocation requirements of the JCC. This land swap was approved in concept by the City Council and the Board of Education in a joint meeting held on January 29, The formal property transfer agreement is now being drafted and will soon be presented to both governing bodies for approval. 2. JCC Interim Facilities Since it will take several years for the JCC to raise the $50-70 million in capital funds and then design and construct a new community center, the City and PAUSD have been meeting with the JCC to find interim space and facilities for the JCC. The interim facilities agreement includes the following: a. City will provide interim space for the JCC at Cubberley for non-childcare programs. b. PAUSD will provide interim space at Greendell for childcare and other children s programs. c. There will not be any interruption of JCC services. The City, PAUSD, and JCC have agreed to the provision and use of the interim facilities. 3. PAUSD Agreement With JCC to Provide Relocation and Other Assistance to JCC To address the legal rights of the JCC as a long-term tenant at Terman and to help the JCC relocate, PAUSD and the JCC have agreed to the following: CMR:344:01 Page 3 of 9

4 a. PAUSD pays to relocate JCC to interim and permanent sites. b. PAUSD pays a negotiated amount to JCC, including monies for JCC s depreciated improvements at Terman. c. PAUSD sets up JCC at Greendell (modulars, electrical hook-ups, etc.). d. JCC continues to use certain facilities at Terman (e.g., gym, pool) until those facilities are needed by PAUSD. The School Board and the JCC Board of Directors have announced their agreement on this relocation package. A formal relocation agreement has been approved by both governing bodies. 4. City-Stanford Agreement Regarding Mayfield Site On October 5, 2000, Stanford offered the Mayfield site at the corner of Page Mill and El Camino Real to the City for a community center site, which could be a long-term location for the JCC. In consideration for providing the Mayfield site for $1/year for 51 years, Stanford s offer letter required a transfer of development rights within the Stanford Research Park. City and Stanford representatives have been negotiating an agreement based on Program B-16 in the City s Comprehensive Plan, which recommends a transfer of development rights program and other measures that would provide greater development flexibility within the Stanford Research Park without creating significant adverse traffic impacts or increasing the allowable floor area. In these negotiations, the City has insisted that any new development in the Stanford Research Park be located within the City s existing Urban Growth Boundary, so as to protect the City s existing open space. Stanford and the City agreed that Stanford will abide by the current development rules for any of the sites where it uses the Mayfield entitlement. As it relates to the Mayfield entitlement, the City will not change the existing rules of the game during the life of the Development Agreement. Furthermore, and most importantly, Stanford has agreed that any added development in the Research Park will not exceed the existing permitted floor area ratio (FAR) in the areas where the ,000 square feet of Mayfield entitlement is sited. In terms of promoting housing in the Research Park, City representatives have negotiated several possible scenarios. As one possibility, Stanford would evaluate allowing units of affordable housing to be built over the community center for some consideration (consideration would not increase the transfer of development rights for Stanford elsewhere in the Research Park). CMR:344:01 Page 4 of 9

5 As another possibility, Stanford can put the entire 100,000 square feet of guaranteed new development on the Hillview site, located in the South Research Park (see attached map), or elsewhere in the Research Park if both Stanford and the City agree. As part of this arrangement, the City would vest the rights of Stanford over the term of the agreement to build or rebuild all of the currently permitted commercial square footage (plus the Mayfield entitlement square footage) on the Hillview site if and only if Stanford builds at least 240 units of housing in the Research Park (including a minimum of 15 percent of the units for the City s Below Market Rate Housing Program). Additional FAR would be allowed on the Hillview site (or other Research Park sites) to accommodate housing. In summary, the Development Agreement provides for the following: a. Stanford provides the Mayfield site to the City for $1/year for 51 years. b. City grants Stanford vested rights to build 100, ,000 square feet of added development in the Stanford Research Park within the City s existing Urban Growth Boundary. c. Development in the Research Park will not exceed existing permitted FAR. d. FAR allowed on individual sites in "South Research Park Area" could be increased up to 25 percent but total development in area could not exceed present FAR. e. Stanford plans to use 30,000 square feet of its Mayfield entitlement at the corner of Hanover and California. The redevelopment of the existing building will not exceed the existing allowed FAR for the site. f. Stanford will pay an additional $150,000 toward traffic calming projects benefiting College Terrace in connection with redevelopment of the Hanover site. g. Stanford is encouraged to locate up to 100,000 square feet of new development on the Hillview site if it builds at least 240 units of housing on the Hillview site (or elsewhere in the Research Park) at the same time, including 15 percent BMR units. 5. JCC Sub-Lease With City A critical part of the total comprehensive solution to the Middle School Challenge is securing a permanent location for the JCC. The JCC must raise the total cost of $50-70 million to design and construct the new ,000 square foot community center. The JCC has agreed to pay for all costs to operate and maintain the community center. To provide new City programs, the City will receive a dedicated gym, classroom, dance studio/fitness room, and storage space as well as rights to shared use of additional space in the community center. The CMR:344:01 Page 5 of 9

6 community center will be jointly programmed by the JCC and the City and both entities will share revenues from joint programs. JCC will also fund scholarships for memberships and programs for lower-income participants, including Palo Alto residents. Finally, the City would receive lease revenue from the JCC. The summary of the sub-lease with the JCC includes: a. JCC will raise all necessary funds to design and construct new community center and related improvements (approximately $50-70 million). b. JCC will pay all development and pre-development costs (excluding any housing costs). c. Total square footage of community center will not exceed 130,000 square feet. d. Facilities will include: - Gyms - Lounges - Pool - Dance rooms - Program rooms - Multi-purpose auditorium with stage - Fitness areas - Kitchen facilities - Snack bar and/or restaurant - Child care, pre-school, and school rooms - Office space for JCC and other existing nonprofit tenants e. Uses at the current JCC may be relocated to the permanent JCC at Mayfield. f. JCC will operate and maintain community center. g. City will receive dedicated (or first call ) space for gym, classroom, dance studio/fitness area and storage space, as well as rights to shared use of additional space in community center. h. City and JCC will establish a Joint Programming Committee that will meet regularly to oversee cooperative programming. i. City and JCC will share revenues from joint programming. j. JCC will fund scholarships for memberships and programs for lower-income participants including Palo Alto residents. Non-Palo Alto residents who are JCC members will receive Palo Alto resident program rates for City-sponsored programs at the center. k. JCC will pay $100,000 in lease payments to City plus three-quarters of CPI per year (market lease rate has been discounted to reflect funds raised for construction plus public benefits). CMR:344:01 Page 6 of 9

7 Certainty for All Parties For the comprehensive solution to actually work, and for us to move forward, there must be some level of certainty for all parties. The School District must have certainty that Terman is free of all tenancies so it can start renovation and re-open the facility as a third middle school by Fall, For the JCC to relinquish any of its legal rights as a longterm lessee at Terman, it must have certainty that it has an agreement to move to a new permanent location. It must also have certainty regarding an interim site so there is no interruption in JCC services. For the City to give up the Terman site, the City must have the agreement of the JCC and certainty about its ownership of eight acres at Cubberley as part of the property exchange. Finally, for Stanford to provide the Mayfield site, it must have legal certainty about the transfer of development rights, its legal ability to use its transfer of development rights over the term of the development agreement, and the City s acceptance of the site as mitigation for any community services impacts of its development under the County-approved General Use Permit. Without achieving a level of comfort for all parties, we do not have a comprehensive solution to the Middle School Challenge. NEXT STEPS Once the MOU is approved by all parties, the City will complete its environmental review and the Planning and Transportation Commission and City Council will hold public hearings on the Mayfield Development Agreement and related zoning matters. In addition, the City will consider planning and zoning approvals for the community center at the Mayfield site as well as conduct design review of the new facilities. The JCC will then begin its capital campaign to raise $50-70 million to construct the new community center. In the meantime, once the Property Exchange Agreement is approved by the Board of Education and the City Council and the existing Terman lease with JCC is amended, the District can begin renovation of Terman in order to open the new middle school in Fall RESOURCE IMPACT The School District receives eight acres of built space and parking lots at Terman (plus free use of the City's parkland) for the middle school by swapping a like amount of built space, tennis courts, and parking lots at Cubberley. No monies are exchanged. The existing JCC lease payments to the City (approximately $263,000) are replaced by an CMR:344:01 Page 7 of 9

8 equivalent reduction in the City s lease payments to PAUSD for Cubberley. As a temporary tenant at Cubberley until it can relocate to the Mayfield site, JCC will replace any lost rental revenue at Cubberley to the City as well as pay rent on any additional space desired. Stanford has offered the six-acre Mayfield site for $1 per year for 51 years if the City grants it vested rights to build new office/research space in a portion of the Stanford Research Park. This commercial space will not exceed the existing zoning and floor area ratio (FAR) already approved for the Research Park. In respect to the new JCC facility on the Mayfield site, the City will receive substantial public benefits. In addition to raising $50-70 million to construct the community center, JCC has agreed to provide at no cost to the City 10,600 square feet of dedicated space for City programming (i.e., gym, dance studio/fitness area, classroom) plus shared space for City services. A committee of City and JCC representatives will plan and oversee joint programming at the community center, and revenues from joint programs will be shared by the City and the JCC. Moreover, JCC will fund a significant scholarship program based on need for lower-income Palo Altans. The sub-lease stipulates that JCC will pay $100,000 per year to the City, which will increase annually by three quarters of the CPI. The annual lease payments by JCC to the City have been discounted to reflect the significant public benefits of the agreement as well as the $50-70 million in capital that JCC needs to raise for construction. POLICY IMPLICATIONS This comprehensive solution promotes a number of important Comprehensive Plan goals and policies, including working with the School District and nonprofits to promote adequate schools and community services. In addition, the MOU provides a mechanism to develop housing in the Research Park. Furthermore, the MOU implements the Comprehensive Plan program encouraging transfer of development rights among parcels in the Research Park. Specifically, this Four-Party MOU responds to the following Comprehensive Plan policies/programs: Policy C-4: Maintain a close, collaborative relationship with the PAUSD to maximize the use of school services and facilities for public benefit, particularly for young people, families, and seniors. Policy C-6: Continue and enhance City efforts to assist PAUSD in anticipating and addressing land development-related school enrollment. CMR:344:01 Page 8 of 9

9 Policy C-7: Actively work with private, nonprofit, and public community service organizations to avoid duplication and to coordinate the delivery of services like childcare, senior services, and recreation. Policy C-21: Where appropriate, maintain existing community facilities in public ownership to prevent potential shortages in the future. Program B-3: On an ongoing basis, evaluate opportunities for City involvement in public/private partnerships, including public investment in infrastructure and other improvements, siting of public art, and modification of land use regulations and other development controls. Program B-16 Study the feasibility of a transfer of development rights (TDR) program and other measures that would provide greater development flexibility within Stanford Research Park without creating significant adverse traffic impacts or increasing the allowable floor area. SUMMARY It has been a long, long arduous process to negotiate this comprehensive solution among the four institutions. The comprehensive solution involves five inter-related transactions. Achieving any one of those transactions is dependent upon achieving the other transactions. Moreover, each of the institutions needs legal certainty. It is now the time to all come together and resolve the Middle School Challenge for the good of the community. ATTACHMENTS Development Agreement Map Four-Party Memorandum of Understanding CITY MANAGER APPROVAL: FRANK BENEST City Manager CMR:344:01 Page 9 of 9