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Staff Report 8778
City of Palo Alto (ID # 8778) City Council Staff Report Report Type: Action Items Meeting Date: 8/27/2018 City of Palo Alto Page 1 Summary Title: Animal Shelter Direction on Operating Agreement with Pets In Need Title: Discussion and Direction on an Operating Agreement with Pets In Need and Interim Improvements for the Palo Alto Animal Shelter From: City Manager Lead Department: Community Services Recommendation Staff recommends that the City Council provide direction on site use, facility improvements, operational changes and ongoing staff support that would be needed to bring a draft contract between Pets In Need and the City of Palo Alto for an Operating and Management Agreement and Site Use Agreement for the City’s Animal Shelter to City Council. Background California requires that cities and counties provide animal control and sheltering services for the purpose of ensuring the safety of people and animals, providing for the proper care and sheltering of abandoned or neglected domestic animals, licensing domestic animals and providing humane disposal of animals when necessary. There are several ways local jurisdictions meet these requirements; some agencies manage their own animal shelters and animal control services, while others do not provide services within their city limits and instead partner with other agencies to take advantage of economies of scale and to reduce costs. Historically, Palo Alto has maintained its own shelter. Palo Alto currently provides animal control and sheltering services for Palo Alto and two partner cities, Los Altos and Los Altos Hills. In May 2012, following the loss of the City of Mountain View as an animal shelter partner agency, the financial sustainability of the City’s Animal Shelter was discussed at City Council, and at the Policy and Services Committee and the Finance Committee. The Council directed staff to reduce costs and increase revenues to ensure the Animal Shelter remain financially sustainable absent the revenue that had previously been received from the City of Mountain View, which was approximately $500,000 annually. Despite making a variety of service level changes over the following two years, the Animal Shelter was not able to regain financial sustainability. In fact, the cost impact on the City grew. City of Palo Alto Page 2 In June 2014, the Palo Alto Humane Society (PAHS) expressed interest in partnering with the City to operate the Animal Shelter, and in April 2015 the City Auditor presented an audit concluding that Animal Services could not become revenue neutral under its current financial model. The 2015 audit can be reviewed here. Further, the Audit noted that the Animal Shelter faced challenges that were unlikely to be resolved if the City continued to operate the shelter as a city-managed function without a significant increase in general fund subsidy, donations, and/or revenue generating contracts. In approving the Fiscal Year 2016 budget, the City Council directed staff to pursue an alternative service model and allocated $250,000 to assist with possible transition costs with an alternate provider. To date, the City has drawn on some of the $250,000 fund to pay for a facility improvement study and a capital campaign feasibility study. During Fiscal Year 2016, the City Manager’s Office continued outreach and engagement with various community and City department stakeholders, including the Friends of the Palo Alto Animal Shelter (FoPAAS) and PAHS. Staff conducted two Requests for Proposals (RFP) in search of alternative services providers. The first RFP received only one response, which was from Pets in Need. Due to the low response rate and in accordance with procurement best practices, staff conducted debriefing sessions with local animal care providers who did not submit a response to understand why they did not respond. These included Peninsula Humane Society, Silicon Valley Animal Control Authority, Humane Society of Silicon Valley and the County of Santa Clara. The consistent feedback was that the initial RFP was too prescriptive and limited the provider’s ability to apply existing business models and best practices. City staff met with community stakeholders and the SEIU about the feedback. In collaboration with the stakeholders, the City re-issued a revised RFP with a less prescriptive scope of services. The second RFP received two proposals: one from Pets In Need and one from the County of Santa Clara as well as a letter from the Humane Society of Silicon Valley which recommended that the City close the Shelter and partner with other nearby sheltering agencies. Staff conducted an evaluation of the three responses and concluded that the most advantageous responder to the City was from Pets In Need; the response from the County of Santa Clara was more costly and less comprehensive. PIN’s initial response anticipated total expenses of about $1.25 million annually while the County’s proposal anticipated costs of approximately $1.53 million. In September 2016, Council directed staff to proceed with exclusive negotiations with Pets in Need. Since that time, the City has been in negotiations with PIN on terms for a public-private partnership to operate the Palo Alto Animal Shelter. Because the City Auditor found that the existing Animal Shelter is outdated and inadequate to meet modern animal-care standards, the City and PIN have concurrently negotiated an Operations and Management Agreement for City of Palo Alto Page 3 the existing shelter, a Capital Improvement Plan for the City to fund needed improvements at the current facility, and an evaluation of the potential for PIN to launch a successful capital campaign to fundraise for a new shelter facility. Contract terms between the City and PIN that require further Council direction Pets In Need was selected through the RFP process to manage the Palo Alto Animal Shelter for a variety of reasons including their commitment to: - Provide a high quality, full-service shelter operation in Palo Alto - Lead a fundraising campaign to build a new shelter - Work closely with FoPAAS and PAHS - Provide services in a cost effective manner - Maintain partnership agreements with Los Altos and Los Altos Hills While the opportunity to enter into a public-private partnership with PIN remains an exciting opportunity and staff is drafting the necessary contracts terms that are agreeable to PIN, there are a number of considerations for Council to evaluate in approving a contract with PIN. Below are the terms that staff would like to highlight for further Council direction. Since these have emerged more clearly since the Council’s initial direction, Council review of these are an important prelude to finalizing an agreement to bring to Council. 1. Site Usage The Animal Shelter is located in the Baylands Conservation Area adjacent to the Municipal Service Center on Bayshore Road. For several years, the City has leased an adjacent portion of the site to Honda for their excess auto inventory storage. This lease has provided approximately $100,000 per year in general fund revenues. PIN is requesting use of the area currently leased to Honda for Animal Shelter use, specifically for an office/classroom modular unit and an expanded pet exercise area. If the City were to agree to the additional Municipal Service Center space for the Animal Shelter, the City would forgo the ongoing $100,000 in revenues the site currently generates. The Animal Shelter site map can be seen at the end of this report as Attachment C. 2. Facility Improvements As recommended in the City Auditor’s report, the facility is in need of substantial remodeling or possibly rebuilding. The current facility does not sufficiently keep incompatible animals apart nor meet modern kennel size standards, among other issues. Should the City retain animal sheltering services in-house or partner with PIN, the City will need to develop a plan to remodel or rebuild the Animal Shelter. Specifically, PIN requests that the City commit $3.4 million over the next three to five years for the following improvements, which they see as essential to their ability to enter into an agreement with the City: 1) Remodel and expand the medical suite 2) Install a modular office/classroom at the front of the site City of Palo Alto Page 4 3) Add 16 new dog kennels 4) Minor improvements to the existing dog kennels 5) Abatement of hazardous materials in the medical suite area The above improvements will allow PIN to offer reliable services at the Shelter and to house more dogs than the City has been able to house in the past. The medical suite upgrades will allow PIN to offer a separate entrance and lobby area for veterinary customers, as well as expand storage areas and offer additional privacy during procedures. These upgrades are expected to cost approximately $3.4 million over the next three to five years. A portion of the funding for the above capital improvements is budgeted in the FY 2019 Capital Budget, currently funded at $831,000 in CIP PE-19002, which leaves a capital funding gap of $2.6 million that would need to be identified and budgeted in balance with other City capital needs and interests. Staff estimates that approximately funding of $600,000 of that figure may need to be found in FY 2019. (The remaining $2 million would need to be funded in the CIP by FY FY2022.) In addition to the improvements above, the City has signed a Letter of Intent (LOI) to rebuild the Animal Shelter in partnership with Pets In Need (Attachment A). In the attached LOI, the City committed to explore the feasibility of public financing; potentially covering up to 50 percent of design and construction of a new shelter, offset by PIN’s private fundraising. The probable fundraising success for a new shelter, as seen in the BuildingBlox Fundraising Feasibility Study (Attachment B), is between $6 million to $8.8 million. This is less than 50 percent of what it would cost to build a new shelter. It is possible and may be likely that the probable fundraising success for a new Animal Shelter will increase after PIN begins operating the Animal Shelter. 3. Shelter Operations Changes The City’s contract with Pets In Need mandates that PIN continue to provide all of the same services that have been provided by the City’s current Animal Shelter operation and that Shelter access remain at least as extensive as it has been under City operation. Staff expects that customer service and access will be enhanced under PIN’s operation, as they increase operating hours and increased volunteer opportunities. Pets In Need will continue to maintain Palo Alto’s “We Care Alliance” membership with other local shelters, and has a “no kill” philosophy, which staff believes will be a philosophy that has broad community appeal. Only one current shelter service would not be provided if PIN operates the City Shelter: owner requested euthanasia for their pets. This service is typically provided as requested by pet owners for pets with untreatable illnesses. PIN will only euthanize animals at their discretion and in keeping with the principles of their no-kill mission. There are other nearby private and public clinics and shelters that provide this service. Some risk of escalating operating costs to the City exists if the Animal Shelter takes in more than 600 cats and dogs annually, which is the assumed intake level that PIN built into their City of Palo Alto Page 5 operating budget. PIN has indicated they would expect to re-open compensation negotiations if this occurs. 4. City Staff and Ongoing Staffing with a Pets In Need Agreement The City’s current Fiscal Year 2019 budget includes staffing for 10.56 Full-Time Equivalent (FTE) positions in the Animal Services program. Of the budgeted positions, four FTE are dedicated to Animal Control (including one Lead Animal Control Officer and three Animal Control Officers). As planned under the PIN partnership, the four Animal Control positions will remain as City staff housed within the Police Department and will not be included in the transition to Pets In Need. Animal Control Officers will share the Animal Shelter facility with PIN and have been working closely together to ensure a smooth transition. Relationship and facility sharing terms are also described clearly in the Operating Agreement between the City and PIN. City representatives have negotiated an agreement with SEIU local 521 for the five impacted employees at the Palo Alto Animal Shelter who will be laid off should this contract be adopted. SEIU 521 and the City have negotiated a severance package beyond that which is currently outlined in the SEIU 521 contract. The severance package is expected to cost approximately $75,000 which staff proposes to fund out of the $250,000 transition cost funds. A public-private partnership with Pets in Need would be managed by the Community Services Department. This partnership will require oversight as City staff will need to oversee short-term facility improvements and assist in PIN’s onboarding success. Staff also anticipates that the capital campaign and major facility improvements will require City staff assistance and guidance to ensure the new facility meets both the City’s and PIN’s needs. Staff recommends that a 0.48 FTE Management Specialist be added to the Community Services Department’s Administrative Division should this partnership move forward. This position will add approximately $60,000 in staff costs in FY 2019. The need for this position may change in future years. The necessary augmentation to the Community Services Department’s budget will be brought forward along with the final contract for Pets In Need, should the City Council choose to pursue to that option. Conclusion If the City wants to provide a full-service Animal Shelter in Palo Alto, staff believe Pets In Need remains the best option to do so. The costs however will require the City to make some significant near term capital investments in the Animal Shelter as seen above. When we entered into the Letter of Intent with Pets in Need, we acknowledged that our current facility is inadequate. The cost for these investments is more than our initial estimates and will require finding funding in an environment of rising, competing needs. An alternative to a contract with PIN would be to continue to manage the Animal Shelter operations in-house, however, capital improvements would also be needed, and the City would City of Palo Alto Page 6 need to re-hire staff to fill vacant positons at the Animal Shelter and invest in additional staff to effectively operate the shelter. Staff estimates the overall operating costs for the City running the shelter as it should would be more expensive per year than a contract with PIN. In fact the differential in the cost could be $500,000 annually. Resource Impact To date the City has spent $108,000 of the $250,000 which was assigned for the transition to a non-profit partnership. The $108,000 was used for a conceptual design for remodeling or rebuilding the animal shelter and for a fundraising study by BuildingBlox. If this contract moves forward, the remaining $142,000 will be used to pay for negotiated severance packages for laid- off employees and for transitionary start-up costs for PIN. The larger issue is funding an additional $2.6 million in capital expenses over the next few fiscal years. That is a better tradeoff than the City running the shelter as it should be run, which would require adding $500,000 annually to operating costs. There also would be approximately $2 million in capital improvements under the City scenario (versus $3.4 under the Pets In Need plan). But that $1.4 million gap would be offset within three years given the savings of $500,000 per year in Operating Costs under a Pets In Need agreement. Therefore, the staff would recommend returning with an agreement with Pets In Need. If Council disagrees, the only other option would be closing the Animal Shelter and contracting with another service provider, such as SVACA. Policy Implications and Environmental Review Comprehensive Plan Policy C-3.2 - Reinvest in aging facilities to improve their usefulness and appearance. Avoid deferred maintenance of City infrastructure. Attachments: Attachment A: Letter of Intent between Pets In Need and the City of Palo Alto Attachment B: Fundraising Feasibility Estimate by BuildingBlox Attachment C: Facility Map of Animal Shelter Attachments: Attachment A: Letter of Intent Attachment B: BuildingBlox Fundraising Projections Attachment C: Palo Alto Animal Services Site A A P 8 R D T " a c a C T P s T P l A D a it a i w p c T a t s O I M a o August 21, 2 Al Mollica, Ex Pets In Need 871 5th Aven RE: Letter of Dear Mr. Mo The City of "Parties"), in and the Palo components and its partn City, togethe This Letter o Partnership t service for P The existing Palo Alto an ong‐term fu Auditor’s An Department and achievin ts mission t animal a lovi n Palo Alto, will be const programs an comprised o The Parties agreements, the Parties a submitted to Operations a nitially, and Meyers Milia and manage of beginning 017 xecutive Dir d nue Redwood Intent Rega ollica, Palo Alto ( n collaborati o Alto Human s: (1) PIN ass ner cities of L er with sust of Intent re to accomplis alo Alto resi Palo Alto A d its partner unding. Reno nimal Service . The City de ng long‐term to advance t ing home. Th initially in th tructed on C nd services w f excellent c are intere subject to m gree to nego o the City Co and Manage d subject to as Brown Ac ment agreem PIN’s role w ector d City, CA 94 arding Opera (the "City") on with com ne Society (P suming anim Los Altos an tainable long presents th sh these goa dents. nimal Shelte r agencies. A ovation of t es Audit fro esires a mod m financial su the no‐kill m he parties in he current sh ity‐owned la will be enha communicat sted in und mutually acc otiate in goo ouncil and PI ement Servic legal requi ct, the City a ment provid within the M 4063 ation and Re and Pets I mmunity par PAHS), wish mal shelterin d Los Altos H g‐term fund e Parties co als resulting er is inadequ At the same the existing m April 201 dern and ad ustainability movement, r ntend to adv helter facilit and in Palo A nced with a ion and mut dertaking a ceptable term od faith tow N Board of D es Agreeme irements inc nd PIN inten ding for PIN t arch to July ebuilding of t n Need (“P rtners the F to collabora g operations Hills; and (2) ding of ongo ommon inte in a sustain uate in size time, shelte facility is n 15 and a sta dequate Anim for shelter p reduce pet vance these g ty, and subse Alto. The Pa strong pub tual understa nd complet ms and cond ards develop Directors for nt for Existin cluding the nd to negoti to operate t 2018 timefr the Palo Alto PIN”) (each Friends of Pa ate and nego s in Palo Alt ) the buildin oing program erests and c able and co and design ering operat not recomm ff assessme mal Shelter programs an homelessne goals by PIN equently in a arties envisio lic‐private p anding. ting the Pr ditions. On e pment of th r their consid ng Shelter obligation iate and ent the City’s ex rame. o Animal She a "Party" a alo Alto Anim otiate on a p to to serve r ng of a new A ms and serv commitment mmunity‐su to meet the tions lack st mended as d ent from the facility whil nd services. ess, and find N assuming s a new and e on that the A partnership b roject in ac execution of e two agree deration. to meet an ter into a co isting anima elter and collectiv mal Shelter ( project inclu esidents of Animal Shelt vices (“the P t to a Publi upported ani e sheltering able and su described in e City’s Publ le stabilizing PIN seeks to d every dog, sheltering op expanded fac Animal Shelt between the ccordance w f this Letter o ements, whic nd confer u mprehensiv al shelter, wi 1 vely, the (FoPAAS) uding two Palo Alto ter in the Project”). c Private imal care needs of stainable the City ic Works g funding o expand , cat and perations cility that ter’s core e Parties, with two of Intent, ch will be nder the ve service ith a goal DocuSign Envelope ID: CD3D7A06-3772-48EC-9B19-FD4537BD7DD5 2 It is the parties’ goal to continue an Operations and Management Services Agreement until a new Shelter is constructed, and a replacement management and operations agreement for the new facility is negotiated. The parties intend to ensure that the existing facility meets PIN’s operating requirements. Capital Fundraising and Construction Agreement for New Animal Shelter At the same time that the Parties are negotiating and finalizing an Operations and Management Agreement for the existing shelter, the City and PIN also intend to begin negotiations toward the building and operation of a new Animal Shelter. The parties contemplate that a new shelter Capital Fundraising and Construction Agreement will include at least the following elements: Define the roles and responsibilities of the City and PIN, and their community partners FoPAAS and the PAHS, regarding the funding, building and operation of a new Animal Shelter. Identify an appropriate site for a new Shelter. It is the City’s goal to identify and provide existing City land, without cost, for this purpose. Define programmatic and conceptual shelter design, or several design options, together with construction and operations budgets. The City of Palo Alto provided PIN $50,000 in the spring of 2017 for a facility and program needs assessment, which was completed on May 24 2017. The parties will negotiate regarding the City’s and PIN’s responsibilities for funding and conducting design development, including environmental review, and the timing of these activities. Design options shall be presented to the City Council for consideration. Establish a capital funding plan for design, construction and operation of a new Shelter. To that end: o The City intends to immediately provide funding in the amount of $60,000 for the Parties to undertake a Capital Fundraising Campaign Planning Study to evaluate the likely private fundraising capacity for a new Shelter. o Recognizing the potential need for a public funding component for a new Animal Shelter, staff may advance for City Council consideration a recommendation to explore the feasibility of public financing, which could include a tax measure to be submitted to the voters or other new public revenue source, potentially covering up to 50% of design and construction. Exploration of a public financing component is contingent on the outcome of the Capital Fundraising Campaign Planning Study, and agreement on preliminary design concept, scope of programs and services, and ongoing operating costs. o PIN intends to engage in a campaign to raise private funds sufficient, when combined with available public funding, to fund design and construction of a new facility, and to establish stable and sustainable funding, including reserves, for ongoing operations of a new facility. o FoPAAS and PAHS agree to provide community organizing and fundraising assistance for a shared vision that is mutually beneficial under the direction of PIN. Establish a plan for post‐construction operations and management of the new Shelter, including an operations and management budget, definition of the Parties roles and responsibilities, and a plan for sustainable long‐term funding. DocuSign Envelope ID: CD3D7A06-3772-48EC-9B19-FD4537BD7DD5 3 The potential timeline for the Capital Campaign Planning Study, defining a funding plan for a new Animal Shelter and the transition to PIN operating the existing Animal Shelter is as follows: August to December 2017: PIN to continue development of site review and preliminary programmatic and conceptual designs for a new Animal Shelter PIN to conduct Capital Fundraising Campaign Planning Study Parties to prepare Operations and Management Services Agreement for PIN to operate the existing Animal Shelter pending construction of a new Animal Shelter Parties to develop a proposed financing plan for a new Animal Shelter based on approved preliminary programmatic and conceptual designs, and taking into account the results of the Capital Fundraising Campaign Planning Study City and PIN to evaluate interim capital improvements necessary for PIN to begin operations at the existing Animal Shelter and/or other site needs January to March 2018: Council to review and approve an Operations and Management Services Agreement with PIN and initiate environmental review on a proposed Capital Improvement Plan for a new facility to include a financing plan based on the results of the Capital Fundraising Campaign Study Upon Council approval of aforementioned items, PIN prepares to assume operations of the existing shelter City, in collaboration with PIN, completes any interim capital improvement projects at existing shelter March to July 2018: PIN begins operating the existing shelter Capital Campaign for a new Animal Shelter begins Any new facility will be require the Parties to obtain and maintain all required City permits and other authorizations, comply with state and local law, including the California Environmental Quality Act (CEQA), and furnish or caused to be furnished any financial and non‐financial security, during the construction, as appropriate. Upon request, PIN will provide to the City, insurance, indemnity, lien waivers, performance and payment bonds and covenants, among other things. All design and construction work will be reviewed by one or more of the City's Departments of Community Services, Planning and Community Environment, Development Services, Utilities, and Public Works. Design and construction will be reviewed and approved, as appropriate, by the City's boards and commissions, including, but not limited to, the Architectural Review Board, the Planning and Transportation Commission and the City Council. The City will provide reasonable staff support and other assistance, upon request, in connection with the execution of the Project. This letter is not intended to be a binding contract between the Parties with respect to the Project. It is intended to facilitate discussion of the key contract terms and conditions of the agreement relating to the Project, and it is only an expression of the parties’ intentions for further negotiations. DocuSign Envelope ID: CD3D7A06-3772-48EC-9B19-FD4537BD7DD5 4 The City requests PIN's acknowledgement of this letter in order that the City may proceed with PIN to develop the key terms and conditions of the two agreements concerning the Project. Once these key terms and conditions have been identified, the City will draft agreements for submission to the City Council and PIN Board. Final agreement is subject to approval of the City Council, in its sole discretion. Sincerely, James Keene City Manager Pets In Need hereby acknowledges a mutual interest in developing appropriate agreements and plans between the Parties to complete the Project as described above. ________________________ Al Mollica, Executive Director Pets In Need DocuSign Envelope ID: CD3D7A06-3772-48EC-9B19-FD4537BD7DD5 FEASIBLITY CALCULATIONS 43 85% Confidence 65% Confidence Identified Probable Major Donors # Projected $ Ask Projected Low %Projected Low $ Projected High %Projected High $ Tier 0 & 1 26 $9,725,000 25%$2,431,250 38%$3,646,875 Tier 2 66 $6,375,000 34%$2,167,500 45%$2,868,750 Tier 3 74 $2,575,000 25%$643,750 45%$1,158,750 Sub Total 166 $18,675,000 28%$5,242,500 41%$7,674,375 Probable Donors to Be Added 20-30 $2,500,000 20%$500,000 30%$750,000 Community Campaign Many NA NA $250,000 NA $400,000 Total $5,992,500 $8,824,375 B a y s h o r e F r e e w a y B a y s h o r e F r e e w a y W e st B a y s h o re R o a d E a st B a y s h o r e R o a d a n e A l m a n o r L a n e This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Project Site 0' 150' Palo Alto Animal Services CITY O F PALO A L TO I N C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors ©1989 to 2016 City of Palo Alto rrivera, 2018-07-09 11:15:35PaloAltoAnimalServices PetsInNeed (\\cc-maps\Encompass\Admin\Personal\rrivera.mdb)