Before Stanford can begin construction on its vast hospital expansion project, it must first reach a development agreement with the city of Palo Alto — but the two are still at odds over what benefits Stanford should provide as it adds some 1.3 million square feet to its hospitals.

Stanford Hospital & Clinics and Lucile Packard Children’s Hospital have been planning a renewal project in response to a state law that requires hospitals to be earthquake-safe by 2013. Stanford has requested an extension until 2015, eyeing not just compliance with state seismic safety laws, but demolition and replacement of the current Stanford Hospital & Clinics complex and renovation and expansion of the Children’s Hospital.

Altogether, the $3.5 billion project would add 1.3 million square feet of infrastructure.

One of the reasons for a proposed expansion is the size of the current emergency department, said Shelley Hebert, a spokesperson for Stanford Hospital & Clinics.

“The emergency room was built for less than half of the patient volume it serves every day,” Hebert said. “We have to start diverting ambulances to other hospitals that are further away, and that would be a situation where someone’s life or well-being would be at stake.”

Hebert said a lack of beds at the hospital has caused “gridlock” since patients cannot be efficiently moved out of the emergency room to make space for incoming patients.

According to the renewal project’s Web site, 950 visitors left the emergency department last year before they could be seen by a doctor.

However, construction has been delayed due to ongoing negotiations with the city.

“This is the largest single development project in the history of Palo Alto,” said the city’s mayor, Pat Burt.

Burt listed traffic impacts and increased demand for housing as two of the most significant consequences of the project.

In June 2009, Stanford outlined public benefits worth $125 million to the city in exchange for the city’s permission. The benefits included subsidies for low-income patients, support for community health programs in Palo Alto and payment into the city’s housing fund.

Most expensive was the proposal to purchase Caltrain passes for all medical center employees in order to reduce traffic congestion. These purchases are estimated to cost $91 million over the project’s lifespan.

Burt, however, claimed many of the items listed as public benefits are “mischaracterizations.” He said a number of these benefits are required by California state law.

Meanwhile, Burt sought to clarify the city’s intention after reports that Palo Alto has requested that Stanford pay for the construction of a new police building. He said Palo Alto has already waived housing impact fees and has asked Stanford to pay $30 million to support local infrastructure.

“No one is asking Stanford to build a new police department,” Burt said. “Palo Alto has $500 million in backlogged infrastructure, and the $30 million as a public benefit would be used for a wide variety of identified backlog.”

The city and the school will not be able to finalize a development agreement until the publication of an environmental impact report, which is expected to be released in late spring. The report will include a number of studies on topics ranging from traffic impacts to water and electricity use.

Non-hospital spokespeople for the University declined to comment on the negotiations until the report is released. Hebert, however, seemed optimistic about the negotiations.

“We have a longstanding and very positive relationship with the city,” Hebert said. “All parties are encouraged by the fact that things do seem to be moving forward.”

Burt echoed Hebert’s sentiment.

“I think we’re making a lot of progress,” he said. “We’ve made a commitment to really try to move the process forward this year as expeditiously as possible.”

If a development agreement is reached, the project proposal would undergo a detailed review at the state level. If approved, construction would begin in 2011 and last for five years.