The purpose of this report is to make a recommendation to the City Council regarding long-term animal shelter alternatives for the City of Sunnyvale. Current information is provided on the proposed Silicon Valley Animal Control Authority (SVACA or Authority) animal shelter and related operating expenses. The report also advances a competing proposal for the City of Sunnyvale (Sunnyvale or City) from the City of Palo Alto Animal Services (PAAS) to provide animal shelter services at substantially reduced rates for both capital and operating expenses compared to what we pay currently.

The key issues for the City in seeking an alternative to SVACA’s shelter plan and in questioning continuing participation in the Authority are:

• Rising operating costs are out of line with other publicly operated animal shelters in the Bay Area; and,
• The Board-approved construction estimate for SVACA’s proposed animal shelter exceeds the amount Sunnyvale agreed to pay when the Authority was created.

As a result of these issues, staff was directed to investigate the situation and to report their conclusions and present alternative shelter options to the Council, if available. The findings clearly indicate that under the SVACA model the City will continue to pay much more for these services than it should and that a much more cost-effective alternative exists.

Prior to Authority formation, certain assumptions were made and information gathered by Sunnyvale concerning alternatives to forming a JPA. Two of those alternatives were to partner with Palo Alto Animal Services of the City of Palo Alto or the Humane Society of Santa Clara Valley. At the time these agencies were pursued, they were not able to accommodate Sunnyvale’s animal shelter needs. As a result, the Cities of Campbell, Cupertino, Monte Sereno, Santa Clara, Saratoga, Sunnyvale and the Town of Los Gatos decided to form the Authority, as this was the only remaining alternative capable of meeting the cities’ collective long-term animal shelter goals.

Currently, the Authority’s field service is operational and it provides animal control services to six of the seven member cities. SVACA currently has a short-term animal shelter contract with the Humane Society of Santa Clara Valley for all seven cities (Sunnyvale included). The current contract expires June 30, 2003, however the Humane Society has submitted a proposal extending it for three years.

SVACA completed its first full year of field operations during FY 2001-02. Since its first year, the Authority continued to expand its operation by hiring a General Manager, filling key staff positions, acquiring vehicles, installing support operations and performing all of the necessary tasks associated with starting-up a new field services operation.

The development of SVACA’s day-to-day field operations has progressed, but several challenges emerged concerning the development of SVACA’s proposed animal shelter. First, the Board-approved shelter plan and request for funding addressed to the Sunnyvale City Manager on September 6, 2002, proposes a shelter that is larger than originally planned, requiring each of the participating cities to appropriate additional capital funding. The additional amount requested from the City of Sunnyvale was originally estimated on October 22, 2002, and calculated to be $431,000. Three new options were introduced at the SVACA Board of Directors February 24, 2003 meeting, all three of which have a lower cost requirement. The original September 6^th option was also included. All four of these options, detailed in Attachment A, will be addressed later in this report.

Second, challenges emerged with the proposed animal shelter site on Reed Street in the City of Santa Clara. The challenges relate to an existing hydrocarbon plume and a "right of way take possibility" from BART for a test track and the BART Around the Bay public transit project. Attachment B includes the complete text of a letter from Ron Garratt, Assistant City Manger, City of Santa Clara to Deborah Biggs, General Manager, SVACA, detailing the challenges of the site. The attachment also includes an aerial photo of the site, a detailed plat map prepared by Steve Yoshino, City Engineer, City of Santa Clara, and an additional aerial photograph received on November 25, 2002 showing the proposed test track within the "take" area. While mitigation plans have been discussed, no additional documentation is available detailing the specifics of the mitigation plan or any guarantee that the plan will work and that the proposed shelter will be constructed on this property.

Lastly, Sunnyvale’s sheltering costs have increased dramatically since joining SVACA. Before SVACA was formed the City contracted directly with the Humane Society. Its annual shelter costs were low and predictable. The last three years of this direct billing arrangement were Fiscal Years 1998-99, 1999-00 and 2000-01. For these years the costs were $130,000, $135,000 and $164,000, respectively. Under the SVACA arrangement things changed regarding the level and the predictability of the cost structure.

SVACA’s first adopted budget in Fiscal Year 2001-02 was $439,239. This was not only a dramatic increase over what the City was accustomed to paying, it increased steadily during the budget planning process from an initial amount of $380,740. For Fiscal Year 2002-03 it was much the same, except costs went in the other direction. The original proposed budget was $528,037, but was later adopted at $398,708. It was later revised mid-fiscal year to $321,249. A table illustrating this cost history for Sunnyvale is included in Attachment C.

A draft of SVACA’s preliminary budget for FY 2003-2004 was made public on March 6^th and the initial figure is $283,206. While the trend is in the right direction, the Council needs to hold this figure up to the backdrop of our projected costs of $561,630 when the SVACA shelter is fully staffed and operational. These additional costs will result when the new SVACA building is finished and SVACA completes hiring its entire staff of between 20 to 33.5 full time equivalent staff.

Now that Sunnyvale has a two-year operating history with SVACA, comparative analysis was undertaken to assess its operating expense growth and how its costs compare with other publicly operated shelters in this area. These data confirmed the results of the informal inquiry requested of staff previously. Shortly thereafter the City of Palo Alto, through its Animal Services unit, submitted a proposal to the City of Sunnyvale for long-term animal shelter services. See Attachment D for the complete text of the proposal submitted by Frank Benest, City Manager, City of Palo Alto, dated November 19, 2002.

In addition, Sunnyvale staff secured a short-term shelter arrangement for the City with the Humane Society of Santa Clara Valley through 2006. The purpose of this short-term plan is to bridge the "shelter gap" between the time the servicing arrangement with SVACA ends and the Palo Alto shelter is remodeled. Further, this short-term plan is at a reduced cost compared to what is currently charged by SVACA and will result in an immediate cost savings of approximately $114,000 for the City of Sunnyvale during the first year of direct billing. The projected three-year savings is estimated at $342,000.

Given all of the above, the City Council must now decide which alternative best meets the animal sheltering needs and objectives of the City. In summary, Sunnyvale can:

• Continue to participate in SVACA, requiring an estimated $1.6 to $2.6 million to build a new shelter and agree to pay estimated annual operating expenses ranging from $331,614 to $501,683 per year; or,
• Accept the animal shelter proposal from the City of Palo Alto, requiring an estimated $1.1 million for capital expenses to expand its existing shelter and pay an estimated annual operating expense of $324,059 the first year and an inflation adjusted amount every year there after beginning at $251,000.

It is important to note the importance of time in making this decision. First, the City is required to notify the JPA by March 31, 2002, if it does not wish to participate in the JPA past June 30, 2003. If Sunnyvale does not withdraw by this date the next available date for withdrawal is December 31, 2003. This time frame meets the notification requirements of the JPA for withdrawing for Fiscal Year 2003-04. To put off withdrawal will result in continued high cost for service and lost opportunity for the Palo Alto alternative. Added to this urgency is the notice from the City of Palo Alto that Sunnyvale must inform it of our decision by May 15, 2003.

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.

On September 6, 2002, a letter was received by the City Manager from the SVACA General Manager indicating that the City’s share of the shelter construction cost was to be $2.6 million, approximately $500,000 higher than the 1999 appropriated amount. This increase in cost caused concern.

The $8.0 million price tag for the new building was approved on August 12, 2002 by the SVACA Board of Directors. It is relevant to note here that Sunnyvale’s original eight-city share was $1.8 million, prior to Milpitas pulling out of SVACA. (The City of San Jose had already pulled out.) The costs then increased to $2.1 million under the new, seven-city JPA. The cost now stands at $2.6 million, unless a new SVACA option is adopted advancing a lower cost structure. Four such options were submitted by SVACA on February 24^th, one at the $2.6 million level and three others of lesser cost.

It is unknown if SVACA will remain a seven-city JPA, regardless of what Sunnyvale decides. There are other member cities in the JPA that are considering shelter alternatives other than SVACA. If Sunnyvale chooses to remain in the JPA, the City of Sunnyvale will be required under the terms of the JPA to absorb operating costs formerly borne by any departing member city or cities.

On December 19, 2002, the Cities of Cupertino, Los Gatos and Sunnyvale presented an independent analysis of SVACA to its Board. The focus of the analysis was to make a comparison between the operating costs of SVACA and publicly operated animal shelters in the Bay Area. The results of the analysis are included in Attachment E.

Presented below are the possible fiscal impacts, based upon information available at this time:

Continuing with the current SVACA arrangement and the contemplated building plan, per the September 6^th letter from SVACA to the City Manager, requires a budget modification appropriating an additional $431,000 to the Animal Shelter capital project already budgeted at $2,201,319. Given the challenges at the Reed Street property and value engineering activities, the $431,000 figure is very likely to change, up or down. The additional funds for this project will come from the General Fund Non-Recurring Events Reserve, reducing the balance from $1,579,892 to $1,148,892, as of March 11, 2003, assuming the current $431,000 additional cost estimate remains unchanged. Further, future operating costs are unknown at this time and will be driven by the size and configuration of the building. Sunnyvale will continue to pay 32.41% (or a modified pro rata share) of these operating costs. It is also important to note that Sunnyvale’s share of SVACA costs will increase on June 30, 2003, if the City of Cupertino withdraws from SVACA.

1. Authorize staff to complete negotiations and to enter into a long-term contract with the City of Palo Alto and a short-term contract with the Humane Society.

This alternative is a long-term service provider change. This approach includes activating a short-term service provider contract with the Humane Society in order to provide shelter services until the Palo Alto shelter expansion is completed. The City must also notify SVACA before March 31, 2003 of the decision to end participation in the JPA as of June 30, 2003.

2. Wait until on or before September 30, 2003 before deciding on a course of action.

Staff recommends Alternative 1.