We have found out that it is Demodex mange, and therefore treatable and not contagious. They also had their vet look at him to confirm.
They are going to get him tonight and bring him home , and very excited. I stopped by the shelter earlier today and met him. He is very sweet, well-behaved, and quite mellow for only being 1 year old. He's more interested in getting affection and being close to you than fetching/playing. Likes to nuzzle a lot. This dog really wants to go home with somebody and be loved.
Maybe the mange was stress-related of being in the shelter and not in a good home. He's very people oreinted.