September 24, 2002

 

SUBJECT:

Update on the Silicon Valley Animal Control Authority Animal Shelter, Ongoing Cost of Operations, and Alternative Shelter Opportunities

 

REPORT IN BRIEF

The purpose of this report is to provide the City Council with current information concerning the planned development of the Silicon Valley Animal Control Authority (SVACA) new 24,588 square foot animal shelter and related ongoing cost issues pertaining to this construction project. Current shelter services operating expense information is also provided.  In addition, a newly proposed alternative shelter opportunity is presented for consideration.

The City has received a letter from the SVACA Board of Directors requesting our confirmation by September 30, 2002 that full funding is available for the animal shelter project (Attachment A). Staff is recommending that the City send a letter to the SVACA Board requesting an extension of time for our reply.

BACKGROUND

On July 20, 2000, the City of Sunnyvale entered into a Joint Powers Authority agreement with six other cities to form the Silicon Valley Animal Control Authority (SVACA or “the Authority”) with the specific goal of providing animal field and shelter and related services to seven partnering cities.  Unlike the other city partners, who receive field services from the Authority, Sunnyvale elected to retain its existing animal control field services administered by the Department of Public Safety. Prior to the Authority being formed certain assumptions were made and information was gathered by Sunnyvale concerning alternatives to building a new facility. Among the various alternatives were contracting for services with the City of Palo Alto or the Humane Society of Santa Clara Valley.  At that time both of these entities were pursued, but neither of these alternatives were viable.  As a result, the partner cities decided to “start up” a new operation, as this was the only remaining alternative meeting the long-term animal shelter goals of the partnering cities.

Currently, the Authority’s field service is operational and it is providing animal control to six of the seven participating cities. SVACA has secured an animal shelter contract with the Humane Society for all seven partner cities (Sunnyvale included), which will provide continued shelter services until the proposed, new SVACA shelter is operational.

SVACA completed its first full year of field operations during FY 2000/2001.  During its first year and up to the present, the Authority continued to expand its operation by hiring a General Manager, filling other key staff positions, acquiring vehicles, installing its support operations (payroll, computers, policies/procedures, budget, etc.) and performing all of the necessary tasks associated with the start-up of a new operation to provide field services to its constituents.

While things have progressed concerning the development of the day-to-day field operations, several challenges have emerged concerning the development of SVACA’s new animal shelter.  First, the proposed shelter is larger than originally planned, requiring the partner cities to appropriate more capital funding.  Second, Sunnyvale’s sheltering costs have increased dramatically since joining SVACA. Finally, the City of Sunnyvale has received a preliminary alternative shelter plan from the City of Palo Alto.  The data suggests that further exploration of the draft proposal may be warranted.

Animal Shelter Size/Capital Costs

After review by the current SVACA staff, it was determined that the study upon which the JPA was formed was flawed, according to the General Manager, as reported to the SVACA Board of Directors at its August 12, 2002 meeting.  Faulty assumptions were made by the consultant hired to guide the JPA concerning the size of the facility, as determined by construction cost estimates, the number of animals, the configuration of the animal kennels and cages, among other deficiencies.  Correcting these assumptions resulted in a facility that is now 17% larger than SVACA’s original planned facility agreed to by the partnering cities.

The original agreement was for a 21,289 square foot building.  To correct the faulty assumptions mentioned above, a second consultant was brought in and proposed a 30,823 square foot building.  After discussion and thoughtful consideration, the SVACA staff and Board of Directors performed “value engineering” exercises and arrived at the current proposed building of 24,588 square feet.  This information is current as of September 6, 2002, as presented in a letter to Robert LaSala, City Manager, from Deborah Biggs, SVACA General Manager.  This item is shown in Attachment A.  As a result of this building size change, the original facility, which was presented to the partnering cities at an original estimated cost of between $5,222,354 and $6,507,567, is now estimated to cost $8,035,868, a 23.5% increase over the high-end estimate and a 53.9% increase over the low-end estimate.

As a result of the increased size of the facility, the initial cost estimate for Sunnyvale’s share of the shelter project has now increased from $2.1 million to $2.6 million, a 23.8% increase.  This assumes that the cost of the building will come in at the $8.0 million figure.  We have been assured by SVACA that a cost overrun is unlikely, due to the inclusion of a 10% design contingency and a 5% construction contingency.

Since the capital project amount has grown, the funds previously appropriated do not cover the entire estimated cost increase. Council action is necessary in the form of a budget modification if it is decided to fund the project in its current configuration and at its current projected cost.

Ongoing Costs of Shelter Operation

The size of the facility is one major factor at the heart of the discussion regarding costs, while operating expenses is the other.  This not only includes the capital costs to build the facility, but the ultimate size of the facility will impact the amount of operating funds necessary to staff and run it.

Concerns over the trend in operating expenses have emerged throughout the transition to SVACA shelter services.  The following chronology of shelter expenditures is offered for your consideration:

• In FY 2000/2001 Sunnyvale paid $164,630 in shelter services costs.  No SVACA administration costs were incurred during this period.

• In FY 2001/2002 Sunnyvale paid $169,570 in direct shelter services costs.  It also paid $269,669 in shelter administration costs for a total operating cost contribution of $439,239.

• In FY 2002/2003 Sunnyvale’s direct shelter services will cost $367,575.  Shelter administration is estimated at $31,133 for a total operating cost contribution of $398,708.

Sunnyvale staff has had discussions with SVACA regarding the methodology of allocating administration costs, and the formula was modified for FY 2002/2003. Despite these changes, staff still has concerns with the overall allocation formula/methodology.  A second concern is the apparent sharp increase in cost per animal served from our previous experience (see Attachment C).  The lack of any cost limiting cap or controlling index over the life of the JPA agreement remains another concern.

Alternative Shelter Opportunities

Given the realities of the increased cost estimates, Sunnyvale Council members serving on the SVACA Board of Directors asked if Sunnyvale staff could test the assumptions associated with the building project and identify possible alternatives.  This task was initiated and through that process it was discovered that the City of Palo Alto and the Humane Society of the Santa Clara Valley had, to our surprise, changed their policies concerning contract shelter arrangements and were now interested in providing shelter services to Sunnyvale.  This information was brought back to the City Manager and the SVACA Board members representing Sunnyvale, and ultimately provided to the entire SVACA Board and the respective City Managers from each represented city. 

Sunnyvale felt compelled to initiate a due diligence effort concerning the newly discovered alternatives, due to the magnitude of the possible savings in both capital and operating costs. Staff was dispatched to the potential service providers to encourage them to document prior conversations on this matter by providing us with serious and timely proposals.  The Humane Society at first agreed, going so far as to set a proposal presentation date and discussing the general terms of the agreement, only to abandon its commitment to present a formal document a day or two before the meeting. Political pressure was given as the reason for withdrawing from presenting its proposal. Informal discussions produced an estimated total annual operating cost for the City of Sunnyvale of between $225,000 and $250,000. Additionally, it is important to note that the Humane Society representative indicated that they would continue to provide shelter services to the City and all SVACA members for 3-5 years until their new shelter is constructed. 

The City of Palo Alto met with the Sunnyvale City Manager and staff on September 17^th and presented its written two-page proposal.  This item is presented as Attachment B.  In summary, an estimated annual contract cost for shelter services in FY 2002/2003 dollars would be $270,376 under the Palo Alto proposal.  Further, an initial capital cost of $475,852 would be required to provide additional capacity at their existing facility.

The Palo Alto proposal is compelling, even in its draft form.  While more work is needed to test its assumptions and to receive a final version, the total estimated capital expense of $475,852 compares favorably to our current SVACA capital expense share of $2,604,425.  Both of these numbers are “all in” estimates and are comparable.  The Palo Alto proposal is one-fifth the cost of the SVACA plan, and saves the City approximately $2.1 million which would be available for other purposes.

In either case, the Council must be mindful of the need to be realistic concerning future capital improvement costs beyond what is initially proposed. There will be additional facility costs, probably within the next ten years.  This is usually the case in any long-term arrangement involving a physical plant.  This is especially true concerning one that will be used every day of the year and every hour of the day. Palo Alto has indicated that it has a Ten-Year Capital Improvement Program and projects approximately $500,000 will be required for animal shelter projects during that time.  Under the proposal, Sunnyvale would share in that cost, paying approximately 22.8% of the total.

It is important to mention that the due diligence effort resulted in a strong negative reaction on the part of most of the SVACA Board members.  The SVACA Board members from Sunnyvale did state their responsibility to the citizens of Sunnyvale to have Sunnyvale staff pursue data collection and evaluation regarding these alternative shelter options.  However, they also felt strongly about continuing to make progress regarding the SVACA shelter construction timetable, so as to not unduly delay or sidetrack the SVACA shelter project, if none of the alternatives proved worthy of further consideration.  Concern was also expressed as to the impact Sunnyvale’s decisions regarding the building project will have on the SVACA partner cities now and in the future.  

EXISTING POLICY

Program Outcome Statement: Control animal disease and vicious animals, minimize animal nuisances, and promote the humane treatment of animals.

SDP 45301: Contribute to public health and safety as related to animal control issues concerning vicious, injured, and stray animals.

SDP 45302: Enhance public awareness and safety on animal control issues, decrease animal control calls for service and ensure that City, State and Federal animal control guidelines are met.

DISCUSSION

Two animal shelter alternatives worthy of serious consideration were brought to the attention of Sunnyvale staff at a very inopportune time in the evolution of the Silicon Valley Animal Control Authority’s young life.  Plans are now being developed for sizing and configuring the animal shelter facility, while a land lease is in final form for an appropriately sized, located and zoned piece of property in Santa Clara. Despite the poor timing of these alternatives, the responsible course of action was to advance the information to all of the affected parties and engage in a dialogue concerning the viability of the proposals and the seriousness of providing the service by those advancing the offers.  Despite an earlier strong expressed interest in meeting Sunnyvale’s animal shelter needs, the Humane Society of the Santa Clara Valley declined to submit a formal proposal. The City of Palo Alto submitted its proposal for discussion on September 17, 2002. 

In addition to the conundrum regarding the shelter alternative, questions concerning the cost structure of operating the Silicon Valley Animal Control Authority leave Sunnyvale staff feeling insecure regarding our ability to control costs and understand the value of the service we are getting.  Some of the relevant questions are:

• Why should the City of Sunnyvale pay more than its fair share of the operating expenses compared to its share of animals sheltered?

The City is in the process of clarifying answers to these questions.  The more important question is: Should we or should we not be paying for services at these levels?  A dialogue in this regard has been initiated with the other partner City Managers, who are largely in agreement that there is value in further discussion of whether or not we are equitably sharing SVACA’s operating cost burden.  Cost containment will be an essential element of that discussion.

We think it is important to note that all of the meetings with the participating City Managers have included the SVACA General Manager, Deborah Biggs.  While Ms. Biggs has agreed to place a thirty-day extension on the agenda of the SVACA Board of Directors meeting scheduled for September 30^th,this should not be construed as an endorsement of the extension request.

FISCAL IMPACT

Listed below are the possible fiscal impacts, based upon information provided and option selected:

• Continuing with the current SVACA arrangement requires a budget modification appropriating an additional $431,000 to the Animal Shelter capital project already budgeted at $2,201,319.  These funds would come from the General Fund Non-Recurring Events Reserve, taking the balance from $1,358,892 to $927,892. Further, future operating costs are unknown at this time; Sunnyvale will continue to pay 32.41% (or a modified pro rata share) of operating costs for the duration of the contract.

• Requesting a 30-day delay will allow City staff, in conjunction with the SVACA General Manager and member cities, to answer a number of questions regarding capital, operational costs and methods of cost share allocation. Depending upon the results, Sunnyvale may be able to identify capital and ongoing cost savings or may decide that participation in SVACA is the most cost-effective alternative available.

• Further investigating the Palo Alto alternative to shelter services may result in capital cost savings of $2.1 million and an estimated annual operating savings of $128,000.  This is based upon a preliminary proposal for animal sheltering services prepared by the City of Palo Alto on September 17, 2002. (Attachment B)

PUBLIC CONTACT

Public contact was achieved by posting the relevant Council agenda on the City's official notice bulletin board, posting the relevant Council agenda and report on the City's web page, publishing the relevant Council agenda in the San Jose Mercury News, and making this report available as a source report in the Department of Public Safety.

ALTERNATIVES

1. Request permission to send a letter to the SVACA Board of Directors on behalf of the Mayor and City Council requesting an extension of time to comply with its shelter construction appropriation request so that staff can obtain answers to operating and related cost allocation questions from SVACA.

2. Provide written confirmation to the SVACA Board of Directors that Sunnyvale has appropriated the necessary funds to cover the current estimated animal shelter construction costs. This will require approval of a budget modification appropriating an additional $431,000 from the General Fund Non-Recurring Events Reserve to the City’s Animal Shelter capital project.

3. Authorize staff to receive and evaluate the final proposal from Palo Alto Animal Services for Provision of Animal Sheltering Services.

RECOMMENDATION

Staff recommends Alternative 1, request an extension of time from the SVACA Board of Directors to comply with its appropriation request and Alternative 3, receiving and evaluating the final proposal from Palo Alto Animal Services for Provision of Animal Sheltering Services.

Prepared by:
David R. Johnson
Senior Management Analyst, Provisional, Department of Public Safety

Reviewed by:
Greg Kevin
Captain, Department of Public Safety

Irwin I. Bakin
Director, Department of Public Safety

Mary J. Bradley
Director of Finance

 

Approved by:
Robert S. LaSala
City Manager

 

Attachments

1. Letter to City Manager from SVACA indicating revised shelter construction estimated cost and showing the Sunnyvale cost allocation share

2. Proposal for Provision of Animal Sheltering Services by Palo Alto Animal Services

3. City of Sunnyvale  - Shelter Cost Comparisons

• Shelter Cost Comparisons

• FY 2002/2003 SVACA Shelter Contract v. Total Shelter Cost

• Animal Shelter Cost Comparisons