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As Palo Alto prepares to usher in a new era for animal care, city officials are struggling to determine what to do with the animal shelter on East Bayshore Road — a facility that they see as both absolutely crucial and painfully inadequate.

The fate of the city-run animal shelter remains the most glaring wildcard in the city's prolonged negotiations with Pets In Need, the Redwood City-based nonprofit that is poised to take over operations of Palo Alto's animal services. Last August, the city and Pets In Need signed a "letter of intent" that calls for the nonprofit to assume operations at the shelter with the understanding that the two sides will ultimately construct a new, state-of-the-art facility on city land.

The letter, signed by City Manager James Keene and Pets In Need Executive Director Al Mollica, calls the existing shelter "inadequate in size and design to meet the sheltering needs of Palo Alto and its partner agencies," a description that also has been corroborated by a damning 2015 report by the City Auditor's Office. As part of its letter of intent, the city has agreed to make "interim capital improvements" to the current shelter so that Pets In Need could take over this summer.

That timeline has proved grossly optimistic. A year after the letter was approved, the two sides are still struggling to agree on what types of improvements should be made to a facility that everyone agrees needs to be replaced.

The question, which the council is scheduled to debate on Aug. 27, has become trickier as cost estimates have swelled. Palo Alto initially budgeted about $831,000 for the improvements that Pets In Need requested — namely, additional space for its new staff, an improved medical area and more kennels. The nonprofit, however, pegged these improvements at about $1.85 million.

A recent estimate by the city concluded that when one considers design work and other "soft costs," the price tag would actually be about $3.4 million.

City officials acknowledge that some investment is necessary for a facility that had become increasingly costly to run since 2011, when the city of Mountain View departed from its long-standing partnership in the shelter. Though the operation still serves Los Altos and Los Altos Hills, the loss of Mountain View's annual $450,000 contribution raised the shelter's annual cost to about $900,000, according to the audit.

The switch to Pets In Need was intended to address the shelter's failing economics. The letter of intent notes that the city desires a "modern and adequate shelter" while "stabilizing funding and achieving long-term financial sustainability for shelter programs and services." Thus, there is some reluctance among city officials to invest significant funds in the short-term fixes, particularly given the long-term plans to replace it with an expanded facility.

"We'd really like to build a new shelter and that really calls into question how much to put into the existing facility," Deputy City Manager Rob de Geus told the Weekly. "If we're going to invest in existing infrastructure, we want to make sure it'll be there for a long period of time."

De Geus said city staff had two sessions with Pets In Need officials last week to discuss this topic, as well as other outstanding issues. Despite the long negotiation period since the letter of intent, de Geus said he remains confident that an agreement is in sight. The two sides, he said, are now trying to narrow down which improvements Pets In Need requires to begin operations and which can wait until later.

Pets In Need has already pondered that issue, Mollica said. Though the entire shelter needs upgrades, Mollica told the Weekly that the organization has identified three areas that "absolutely need attention": more space for employees, improvements to the medical area and additional kennels.

City officials concur that the shelter is too small to function properly. The 2015 audit noted that one carpeted room in the shelter "serves as an eating area for staff and also as housing for birds, small prey animals such as hamsters and rabbits, and predatory animals such as snakes, which should be housed separately." Mollica said the shelter should be large enough to accommodate 14 to 15 employees (up from the traditional level of 10 to 11) — an expansion that can be facilitated through installation of a modular unit, Mollica said.

In addition, Mollica said his organization would like to have space for its educational programs — a critical means to strengthen the connection between Pets In Need and the community.

"We have a vibrant education program that we run out of our shelter in Redwood City, and we want a similar one in Palo Alto," Mollica said.

De Geus said the city estimated that it would cost between $1 million and $1.5 million to provide the modular units and to improve the medical clinic. The other component — adding 16 new kennels to supplement the existing 26 — is expected to cost about $2 million but doesn't have to be installed immediately, de Geus said.

Mollica concurred. Though he maintained that the shelter needs "better kennels and more of them," he noted that that improvement is not as urgent as the other two. Mollica said he understands the city's reluctance to spend money on a facility that will ultimately be replaced. At the same time, he noted that it will be years before the city and Pets In Need make headway on a brand new animal shelter.

"Realistically, we'll be operating out of this shelter for some number of years, not a few weeks or months," Mollica said. "I know you don't want to spend $3 million on a shelter that we're not going to use after six months or so, but that's not going to be the case."

He noted that a fundraising campaign for a new shelter will take about two to three years to ramp up and another two to three to complete. Even if Pets In Need started its campaign tomorrow, Mollica said, the city would realistically be looking at four or five years before the shelter would actually be built.

A new fundraising study that city had commissioned to explore its prospects for a new shelter confirmed that view. Conducted by the form BuidingBlox Consulting, the study assessed the likely ability of Pets In Need and Friends of Palo Alto Animal Services (a volunteer group that supports animal services) to raise money for the new facility, which the city estimates will likely cost between $9 million and $20 million.

The study concluded that a campaign to raise $10 million would have only a 30 percent chance of success. An $8.8 million campaign, meanwhile, would have a 65 percent chance of success, while a $6 million campaign would be 85 percent likely to succeed, according to the study, which was provided to the Weekly.

The study notes that it will take "time and effort to make probably donors aware of PIN and the challenges facing the exiting Palo Alto shelter." It also stresses the importance of having board members — and the city — contribute to the capital campaign. The city's contribution, the report noted, is important to "address some donors' concerns about the extent of Palo Alto's commitment to the project's success."

Mollica said he wasn't particularly surprised with the results of the study. For all of its success in Redwood City, the nonprofit has not had a high profile in Palo Alto, Los Altos and Los Altos Hills. And this was the first time that potential donors were asked about the fundraising campaign for a new shelter.

"If we spend the next six months or a year or so building closer rapport with the communities and elevating our profile within the community, I have no doubt that the confidence levels will go up and the number of people who are able to contribute will go up," Mollica said.

De Geus agreed. Though the hope is still to build a new shelter, the study underscores the fact that getting to the finish line will take some time.

"I really think they need to get in and start operating and win the hearts and minds of the community and build relationships with all the folks who care about the animal shelter and pets," De Geus said.