After two years of tension and turmoil, Palo Alto and Pets In Need are trying to mend their relationship with a new contract that will raise compensation for the nonprofit while scaling back the city's commitments to expand the aged animal shelter on East Bayshore Road.

The City Council will consider on Monday a proposal to retain Pets In Need as its animal services provider, a status that the nonprofit has enjoyed since January 2019. A failure to reach a new deal would leave the city without an animal services provider after May 15, when the current deal expires.

The partnership was in danger of collapsing in November 2021, when the organization gave the city notice that it will terminate the agreement within a year. Pets In Need had accused the city of failing to live up to its commitments to renovate and expand the shelter, which include construction of a new dog-kennel building. Though the city did follow through with other improvements, including construction of a new medical suite and a new modular building, it halted the kennel project after the design phase.

The two sides also clashed over the city's investigation of Pets In Need following an August 2021 incident in which nine puppies died inside a Pets In Need van while they were being driven from Central Valley to Palo Alto. Three Pets In Need employees were subsequently charged with misdemeanors following the incident.

Despite the tensions, the council signaled in February 2022 its intent to retain Pets In Need as the city's animal services provider. Council member Pat Burt, who supported extending the contract and working on a new deal, said at that time that dropping the agreement would lead to employee layoffs as well as disruption to the shelter's animal population.

"If it was not transitioned smoothly, it would be a very negative impact potentially on the animals themselves," Burt said.

The new deal, which Burt and his colleagues will review Monday, will raise compensation to Pets In Need from the current level of $703,000 to $1.37 million for the first year of operations and an annual escalator based on the consumer price index for subsequent years. A new report from Kristen O'Kane, director of the Community Services Department, states that Pets In Need had determined that the increase in compensation "generally reflects a workforce shortage, competitive market and increased costs in materials and supplies."

"PIN is proposing to adjust staff salaries to bring them up to market and make PIN a more competitive employer particularly for veterinary medical staff, such as Registered Veterinary Technicians," the report states.

The city would also be required to commit an additional $2.5 million to future shelter improvements. With Palo Alto having already spent about $1.8 million on improvements, this would bring the city's total investment to $4.3 million.

At the same time, Pets In Need is backing away from its prior insistence that the city build new kennels. Under the proposed agreement, the city and the nonprofit will have 60 days to come up with a capital improvement plan, which could include expanding the area for small animals or upgrading existing dog kennels.

And to limit future discord, the new deal proposes a "corrective action plan" that would be triggered if either side determines that it will not be able to meet one of its obligations. The program, according to the report, is intended to replace monetary penalties with a requirement that the two sides come together to discuss ways to resolve these problems. The plan, according to the report, "intended to hold both parties accountable while being more collaborative in developing solutions to issues and concerns."

The one area that remains unresolved is the city's policy over feral cats. Currently, Palo Alto prohibits the release of feral cats in Palo Alto or its two partner cities, Los Altos and Los Altos Hills. Pets In Need has requested that the city reconsider this policy to allow feral cats to be trapped, neutered and released into their former habitat.

"When you relocate a cat, it actually causes great distress and their survival rate is very low," Valerie McCarthy, a Pets In Need board member and former interim executive director, told the council last year.

Critics of the policy have argued that feral cats could endanger other species if released in sensitive habitats like the Baylands. The new staff report notes that staff is unsure if the community would support the type of "trap, neuter and release" program proposed by the nonprofit.

"Feral cat management programs evoke strong responses from stakeholders and would necessitate significant staff time to conduct outreach and gain support from environmental and wildlife advocate groups," the report states.

The council will not take any formal action on the contract on Monday, but members will have a chance to offer early feedback before the agreement returns to them for formal action prior to the May expiration of the existing contract.