Give us shelter

As the issue of funding for the Alameda Animal Shelter heads to Council in a couple of weeks, one thing ought to be made clear:

Contrary to the apparent beliefs of certain prominent Inner Ringers and their acolytes in the blogosphere, the Friends of the Alameda Animal Shelter is not a charity seeking a donation from the City.  Instead, it is a non-profit organization that, over the last four years, has saved the City $2.25 million by delivering municipal services the City is legally obligated to provide.

One can argue about how much it should cost to run an animal shelter that both complies with the Hayden Act (as the animal shelter run by FAAS does) and achieves a 95% “live-release” rate (as the FAAS-run shelter also does).  Indeed, we understand that representatives of FAAS and the City are continuing to discuss that very issue.

But it’s hard to argue – credibly – with the proposition that unless the City is willing and able to resume the task of providing the legally required services (with an equivalent success rate) itself at the same or lower cost, it should agree to supply FAAS with the funds it needs to get the job done.  That’s nothing more than just sound fiscal management.

(This being Alameda, we’re sure there are those who will dispute this proposition.  Let ‘em tweet away.)

To evaluate the benefits FAAS has conferred on the City since it took over operations of the animal shelter in January 2012, we’ll begin with a bit of historical context.

In 1997, Council repealed the existing Chapter VII of the Alameda Municipal Code and added a new chapter that began, “A public animal shelter is authorized and established, which animal shelter shall be located at a place to be designated by resolution of the City Council.”  (We couldn’t find the repealed chapter, but it appears that the City previously had been running what we’d think of as an old-fashioned pound.)  Unless and until Council gets rid of this ordinance, operating an animal shelter is a mandatory, not a gratuitous, municipal function.

The year after Council established the local animal shelter, the state Legislature passed the Hayden Act, which applied to any “depositary of live animals,” public or private.  The Act declared that it was the policy of the state that “no adoptable animal should be euthanized if it can be adopted into a suitable home” and “no treatable animal should be euthanized.”  (Civil Code section 1834.4; Food and Agricultural Code section 17005; Penal Code section 599d.)  It required shelters to “provide the animals with necessary and prompt veterinary care, nutrition, and shelter, and treat them kindly” (Civil Code section 1834), and established a host of specific rules for shelters to follow.

In Alameda, the animal shelter was considered a “program” within the jurisdiction of the police department.  Its expenses were paid out of the General Fund, and they weren’t insignificant:  $929,437 in Fiscal Year 2010-11 (which was offset by $108,858 in fees and fines).  Five full-time police department employees were assigned to the shelter; a captain and a lieutenant shared supervisory duties.

When John Russo took over as City Manager in June 2011, the City was in the midst of a budget crisis:  Controller Fred Marsh was projecting annual General Fund operating deficits rising from $6.2 million to $8.4 million over the next five fiscal years.  Staff and Council were struggling to find ways to “close the gap” between revenues and expenses, including across-the-board cost reductions.  One of the proposed cost-saving measures consisted of “out-sourcing” the operations of the animal shelter.

Enter FAAS.  Formed in 2009 to raise money to pay for veterinary care for animals living at the shelter, the citizens’ group offered to take the task of running the shelter off the City’s hands.  (Just about the same time, a different citizen’s group was forming to save another City asset deemed expendable by staff and the politicians, the Mif Albright par-three golf course.)  FAAS would shelter and provide medical care for stray and owner-surrendered animals, facilitate pet adoptions, and provide licensing services.  The police department would continue to pick up strays and conduct animal cruelty investigations and impounds.

Council approved a memorandum of understanding with FAAS in June 2011, and a 15-year lease in December 2011.  Under the lease, FAAS agreed to pay the City $1 a year in rent, and the City agreed to pay $300,000 per year (adjusted for inflation) toward the costs of operation.  (It also agreed to keep two part-time animal control officers on the City payroll and to maintain the foundation, roof, and structural and mechanical systems of the building “in good repair.”)  FAAS would need to raise the rest of the money required to run the shelter on its own.

The politicians hauled out one of their favorite phrases – a “win-win deal,” said Mayor Marie Gilmore – to praise the agreement.  And Mr. Russo hailed it as the first example of a new model for delivering municipal services:  the “public-private partnership.”  Barely three months after the handover occurred, the City Manager was “touting the shelter partnership as a success story – and a glimpse into the future of how city services will be delivered in Alameda as budgets shrink and needs grow,” Michele Ellson reported in The Alamedan.  “He envisions public-private partnerships that would see the city building facilities and nonprofit community groups operating them.”

Putting the back-slapping to one side, the most immediate financial benefit of the deal for the City was that it achieved the desired goal of reducing General Fund expenses.  By “out-sourcing” the operations of the animal shelter to FAAS, the City didn’t have to spend $929,437 on the animal shelter, as it had in FY 2010-11.  Instead, it was able to budget only $389,100 in shelter expenses for FY 2012-13 – a $540,337 cost saving.

Based on FAAS’s financial statements, the actual cost saving in FY 2012-13 was somewhat less than the City anticipated – $464,984.45 – but the financial benefits have kept on coming every year since then:  $451,963.38 in FY 2013-14, $625,336.12 in FY 2014-15, and $705,330.66 in FY 2015-16 – for a grand total of $2,247,614.61 over four years.  This is the additional amount the City would have had to pay out of the General Fund to run the animal shelter had FAAS not agreed to take on that job for $300,000 a year.  Thanks to FAAS, this amount became available for the politicians to use to help balance the General Fund budget – and to spend on other municipal services they deemed more important.

From the City’s perspective, the deal Mr. Russo negotiated turns out to have been a very good one indeed.

(This analysis assumes that, if the City had continued to operate the animal shelter itself after 2011, it would have incurred the same expenses as FAAS did.  Having invited City Manager Jill Keimach to assess FAAS’s performance over the last four years, we are fairly confident this assumption is true.  We asked Ms. Keimach whether the City contended that, since FAAS took over, it had provided services beyond those required by state law and the lease with the City.  She said no.  We also asked her whether the City contended that, during that period, FAAS had run the shelter inefficiently.  Again, she said no.)

The FAAS lease runs for another 10 years, and the City, of course, has no incentive to re-negotiate the terms of a deal that saves so much money for the General Fund every year. But the picture is not so rosy for FAAS.  Since the non-profit took over operation of the animal shelter, revenues (including the annual payment by the City) have been enough to cover operating expenses every year, but the margin is shrinking.  Indeed, the FY 2015-16 budget projected a $33,443 loss, and the shelter ended the year in the black only as a result of an unexpected large bequest.  And, when FAAS prepared its FY 2016-17 budget, it determined it would need to draw down cash reserves by $345,933.57 – which would virtually exhaust them – in order to pay the bills.

As a result, earlier this year FAAS approached City staff about revising the lease.  The parties have exchanged proposals and counter-proposals, and we see no point in nitpicking the details of any of them, especially since, as we understand it, negotiations are ongoing.  (One word of caution:  The City asked its usual financial consultant, Willdan Financial Services, to evaluate one of FAAS’s earlier proposals.  Reliance on the Willdan report to critique the parties’ current positions would be dangerous, since not only does it address a superseded proposal but it also does not purport to analyze the reasons given for specific proposed cost increases).

Nevertheless, if it’s not too late, we would respectfully suggest the following framework for the parties to use:

First, determine how much it should cost to run an animal shelter that complies with the Hayden Act and that achieves a 95% “live release” rate.  Necessarily, City staff will have to defer to the expertise of FAAS’s management on this issue.  After all, they’re the ones responsible for recruiting, training, and supervising the citizen volunteers – a total roster of 300, of which 225 are active – who have enabled the local shelter to meet the policy goals stated in the Hayden Act so well.  But this does not mean that City staff must agree with FAAS’s needs assessment in every respect – FAAS isn’t the fire department, for heaven’s sake.

(Moreover, although an accounting purist would object to mixing capital and operating expenses, we think this cost determination also should include funds for repairs and improvements.  If you’ve been to the animal shelter recently – as the Merry-Go-Round was last week – you’d be struck with the less-than-pristine condition of the facility.  We’re not saying FAAS needs a $14.4 million edifice to rival the new Emergency Operations Center and fire station a few blocks away on Buena Vista – but the roof ought not to leak when it rains.)

Second, determine how much FAAS should be expected to raise on its own.   The historical facts, of course, are the starting place for this part of the analysis.  Based on the last four years’ financial statements, FAAS appears to be able to raise around $350,000 a year in contributions from individuals and businesses and from fund-raising events.  This consistency is somewhat remarkable, since fund-raising efforts by newly formed non-profits often become less successful over time as the initial glow wears off and the donor base faces competing demands for its beneficence.

FAAS’s other major sources of revenue are grants and fees, and Sarah Henry, the City’s Chief Information Officer, told us that the City believes more aggressive efforts to collect pet license fees would boost fee revenue significantly.  Indeed, according to Ms. Henry, the City estimates that as much as $200,000 per year – seven or eight times the current amount – could be generated by such fees.

Then, subtract the revenues from the costs.  This is the amount that the City should pay FAAS to continue operating the animal shelter.  Such a payment would enable the City to fulfill its legal obligations and FAAS to cover its operating costs.  Moreover, although the cost savings to the City would not be as great as they have been in the past, this arrangement still would require less General Fund spending than if the City were paying the entire cost of running an animal shelter itself.

We don’t guarantee that this approach would result in a deal.  But we think it would be more productive than for the City or FAAS to follow the lead of those who prefer to argue their case by impugning the other side’s good faith instead of evaluating its arguments on the merits.  Fortunately, having spoken with both Ms. Keimach and FAAS Executive Director Nancy Baglietto, we have every reason to hope that people as intelligent and reasonable as these two will be able to find common ground.

Disclosure: Jane and Robert Sullwold have contributed annually to FAAS.  In addition, the Jane Sullwold for Council campaign committee gave $500 to FAAS when it was dissolved in 2014.

Sources:

FAAS’s audited financial statements and IRS filings can be found on the organization’s website: http://www.alamedaanimalshelter.org/about/annual-report-and-990.html

Municipal Code: ordinance-2747

Hayden Act: hayden-act

Pre-2012 animal shelter budget: fy-2010-11-budgetfy-2011-12-budgetfy-2012-13-budget-fy-2010-11-actuals

FAAS lease: 2011-05-31-cc-minutes2011-06-21-cc-minutes2011-12-06-staff-report-re-lease

 

 

 

 

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in City Council and tagged , , , , , , . Bookmark the permalink.

8 Responses to Give us shelter

  1. reylagraber@aol.com says:

    I don’t think FAAS should necessarily have to continue to expend so much time and energy on fundraising.
    To continue to raise 300,000 from fundraising may not be feasible. Why should we taxpayer have to continue to give, thousands of dollars over the years to FAAS when it should be coming out of the general fund. I think a more modest and realistic and feasible fundraising figure should be used in any computation as to what the City should be providing.

  2. Bill says:

    Another excellent blog. Thank you for offering the detail, facts and your opinions. They are very helpful in me better understanding the situation. There is a organization called Maddie’s Fund that support animal shelters. They used to be located out of Alameda, but have moved to Pleasanton. They could be a source for funding. Not sure what their requirements are to secure funding from them, but they have a policy of “no-kilkl” unless an animal is in very bad shape. This policy would seem to match FAAS’s approach to animal care and relocation. Thanks again Robert for your intelligent and well communicated blog here.

  3. Rich Sievers says:

    A synopsis of the city’s counter proposal can be found here:

    https://alamedaca.gov/FAAS

  4. Ken says:

    Excellent, fact-based in-depth article that really tells the objective story. None of the “Alternative Facts” that have been floating around.

  5. reylagraber@aol.com says:

    Did the $800,000 plus net figure for the City’s prior proposed budget for the Animal Shelter –did it include the City and police pension costs? If it did not, then a substantial additional percentage should be added on for those costs.
    Thank you for writing for this concise and informative, article on FAAS’s budget woes.

    • Reyla,
      Usually, the “personnel services” line item in a departmental budget does include benefits (e.g., pensions) as well as salary, but I can’t be sure that was true in 2011.

  6. Allison G Martin says:

    Thank RS for putting this into perspective. I hope the City and FAAS can come to an agreement soon with compromise on both sides. It shouldn’t be us vs them. It should be about the animals and what is best for them.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s