Health Commission backs nonbinding term sheet for senior housing at Laguna Honda while pushing to restore 120 skilled-nursing beds

The San Francisco Health Commission on a voice vote endorsed a draft, nonbinding term sheet between the city and Mercy Housing California to develop senior housing on the Laguna Honda Hospital and Rehabilitation Center campus and pressed Department of Public Health officials on the status of a 120-bed waiver request with the Centers for Medicare & Medicaid Services.

The endorsement clears the way for Mercy Housing to submit planning and entitlement applications and advances predevelopment work on an affordable senior housing project described in the term sheet as two phases: a Phase 1 development with roughly 131 one‑bedroom units and an early childhood education center and a Phase 2 development of about 90 studio units and an adult day health center. Supervisor Matt Haney/Melgar (commenting in support at the meeting) and Mercy Housing presented the term sheet during the meeting.

The endorsement is nonbinding, the commission emphasized. Director of Public Health Daniel Tsai told commissioners the department submitted a 119‑page waiver request to CMS two weeks earlier seeking to restore 120 Laguna Honda beds that were offline after recertification issues. “We had originally received a no from CMS and we sent a strong letter,” Tsai said, adding that the letter outlines the city’s legal and regulatory arguments and accompanying exhibits. He warned there is no fixed regulatory timeline for a CMS response.

Why it matters: Laguna Honda is one of the nation’s largest skilled‑nursing facilities. Restoring beds and adding on‑campus senior housing — including units set aside for residents discharged from Laguna Honda — affect bed capacity, discharge pathways and where low‑income seniors will find affordable assisted‑service options. Public commenters and commissioners pressed for clarity on how many units would be reserved for Laguna Honda residents, accessibility and transportation, and the project’s affordability levels.

What the commission endorsed and next steps - The draft term sheet describes a two‑phase affordable housing concept. MOHCD (the mayor’s office of housing and community development) is listed as the likely ground lessor and lender for predevelopment and permanent financing; Mercy Housing would be the developer and property manager. The term sheet envisions using local senior operating subsidy dollars, low‑income housing tax credits, state tax‑exempt bonds and other typical affordable housing sources. - The term sheet contemplates reserving a portion of units for Laguna Honda referrals but does not set a firm number; officials said unit allotments will depend on demand, available operating subsidies and further planning. - The commission’s endorsement instructs Department of Public Health staff to continue working with MOHCD and Mercy Housing and authorizes MOHCD and Mercy Housing to submit planning and public‑works applications. The resolution explicitly states endorsement is not a commitment to approve implementation, and alternatives or mitigation measures remain possible.

CMS waiver and bed restoration Director Tsai outlined the city’s arguments to CMS that Laguna Honda should be allowed to bring 120 beds back online. He said the department’s letter argues the 2016 CMS regulation reducing maximum residents per room should not apply retroactively to Laguna Honda because the facility was certified prior to the rule and offers larger rooms. “We think it is a very robust, clear articulation of our priorities,” Tsai said. He said the department is awaiting CMS’s formal response.

Commissioners and public commenters urged rapid follow‑up. Commissioner Ed Chao called the letter “very well written,” and several public speakers — including community advocates and neighborhood organizations — thanked the department and urged aggressive follow‑through. One public commenter noted the letter appears to have been written with legal input and said the city should consider litigation if CMS again denies the waiver.

Laguna Honda operational updates and JCC review Laguna Honda’s Joint Conference Committee reported admissions activity and other operational matters: the committee noted Laguna Honda admitted 46 new residents in March, including former residents from a closing nursing home, and encouraged clearer admission materials online. The JCC also reviewed the draft term sheet and expressed support while flagging concerns about eligibility criteria, transportation and potential impacts on staff and residents.

Public comment and neighborhood concerns Public comment was mixed. Supporters — including neighborhood homeowner associations and elder‑care providers — urged the commission to advance entitlements quickly so the project can compete for state capital funds and help address an acute shortage of senior housing on the city’s west side. Other residents and clinicians expressed concern the planned units might be too small for people with significant care needs, that the project could lack sufficient on‑site clinical staffing, and that replacing a previously proposed licensed Residential Care Facility for the Elderly (RCFE) model with “housing with enhanced supportive services” could change the scope of care available. Dr. Teresa Palmer (remote) urged the commission to ensure deep affordability and adequate clinical space and asked for regular Laguna Honda census updates at future meetings.

Ending note Commissioners said the endorsement reflects support for beginning the entitlement process but reiterated the commission’s continuing concerns about eligibility, accessibility, financing and the need to preserve clinical capacity. Commissioners directed monthly project updates to the Laguna Honda JCC and agreed the JCC and full commission will monitor progress as the project advances through planning and any future approvals.