Is CPMC Having Second Thoughts Over San Francisco Project?

by Randy Shaw on July 11, 2011

Last week brought another bizarre development in the increasingly strange saga of CPMC’s planned mega-hospital on San Francisco’s Cathedral Hill. After responding to Mayor Ed Lee’s proposed development agreement right before the July 4 weekend, CPMC did not attempt further negotiations before issuing a July 5 press release announcing its strong rejection of the city’s terms. CPMC’s pattern of negotiating through the media is not something any elected official appreciates, and it took a further slap at Mayor Lee by repeating its claim (already denied by the mayor) that the city is seeking a $2 billion package (the actual number is closer to $148 million). CPMC’s rejection of the Mayor’s plan, and its far weaker alternative, also angered the Good Neighbor Coalition and other groups seeking a community benefits agreement from the hospital giant. On June 21, 2011, CPMC Chief Executive Officer Warren Browner announced that the hospital “cannot agree to negotiate a separate agreement with the Coalition.” CPMC’s actions give credence to rumored disagreements among parent Sutter Health Board members about going forward with the project.

CPMC’s Cathedral Hill project has such a huge financial upside that it has long been considered a done deal, with the only question the terms of approval. But recent events raise questions about CPMC’s ultimate intent, particularly as it actions are inconsistent with an institution eager to get a deal done.

Inconsistent Negotiating Posture

At a SPUR luncheon in the fall of 2009, CPMC gave a power point presentation on its proposed CPMC project and sounded excited about getting the project done. This attitude continued through the fall of 2010, as CPMC representatives strongly desired to sit down with community representatives and reach a deal.

But when negotiations finally began in the Mayor’s Office January 28, 2011, CPMC appeared uninterested in quickly reaching a deal. Part of their attitude was caused by the GNC’s high starting point for its housing demand, but as negotiations moved to other topics (the February 15 meeting discussed workforce issues, February 22 addressed healthcare, and housing returned on March 1) it became clear members that CPMC would never offer anything near what it would take to reach agreement through this process.

So after spending months pushing for negotiations to begin, CPMC never made anything close to a serious offer. And now that Browner has acknowledged that CPMC has no intention of negotiating a separate community benefits agreement, the four meetings in the mayor’s office appear to have been an utter waste of everyone’s time.

This has not sat well with many GNC member groups. Unlike developers that typically build community support as the approval process proceeds, CPMC is moving in the reverse direction.

This is among the factors raising doubts about its intentions to go forward.

Relations with the Mayor’s Office

Doubts about CPMC’s intentions are also evident from their relations with Mayor Lee.

Developers in San Francisco know that they need the mayor’s support. If there has been any development opposed by a sitting mayor that got approved and built, it is news to me.

CPMC understands this, yet appears to be going out of its way to alienate Mayor Lee.

It is no secret that the low-key Lee likes to work out “win-win” deals without theatrics and public confrontations. So what does CPMC do? It issues a press release denouncing Mayor Lee’s proposal rather than addressing it privately. And it repeats the $2 billion figure knowing the Mayor believes it is more like $148 million, casting doubt on the credibility of the political leader upon whose support their project depends (CPMC continues to include the cost of fifty years of charity care payments, even though this requirement is distinct from any development agreement).

CPMC knows that negotiating via press release is a not a sound strategy for getting Mayor Lee on their side. But it does fit a larger strategy of creating a public record that CPMC can point to as justification for walking away from the project.

Another good way to kill a deal is to inject completely new and vague terms into the negotiations. To this end, CPMC now proposes to create “a new Center for Tenderloin Health to support community-based providers and improve access to care at CPMC.”

I asked TNDC’s Stephan Woo, who has been centrally involved with the GNC from the outset, if he had any idea what CPMC was proposing here. Woo said he “knew nothing about it.”

Instead of embracing Mayor Lee’s plan and putting the community in the more challenging position of opposing the deal over issues other than health care, housing, and the project’s transit and pedestrian impacts in the adjacent Tenderloin neighborhood (the labor issues cannot be fully addressed in the city’s agreement under federal law), CPMC is taking a different approach. It is daring the mayor to oppose a project that will create a large number of jobs and help the city meet its longterm health needs.

This hardball approach has served Sutter Health well in less progressive cities, but it does not, and will not, work in San Francisco.

Sutter Health and San Francisco

If CPMC’s San Francisco-based leadership were calling the shots, reaching a development agreement would not be a problem. But multiple sources have told me that key forces on Sutter Health’s Sacramento Board are livid about what San Francisco is asking CPMC to pay.

The problem is not the economics of the deal. Because CPMC is financing the project by issuing its own bonds, it can use low-cost money to generate high health care profits.

The problem is the principle. Like the Republican millionaires who oppose paying higher taxes even though they would not miss the money, some Sutter Board members see San Francisco’s proposal as extortion and do not want to pay.

In my experience negotiating lawsuit settlements, reaching agreement is difficult when it can’t be solved by money. Here, I’m told that some Sacramento-based Sutter Health Board members want to send a message to San Francisco, and are setting up a scenario so that if CPMC walks, San Francisco city officials will be blamed.

This certainly would explain CPMC’s negotiating with the mayor via press release, inconsistent negotiating posture with the community, injection of a major new term late in the process, and its insistence that its own plan offers the city $1.1 billion in benefits.

I still think the potential profits are much too big for Sutter’s Board to pull the plug, but if this happens, the signs were there.

Randy Shaw is Editor of Beyond Chron and Director of the Tenderloin Housing Clinic, a member of the Good Neighbor Coalition.

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