What can I do about a horrible neighbor?

This guy is just too much. No one in our town likes him. He's very mentally unstable too and OCD. He has always complained about dogs barking in our neighborhood and I even got rid of one because of him! We live on over an acre and our houses are a decent amount apart. We live in a private ociation residental area but it is more rural than a regular subdivision. This past year, I got 2 Sheltie puppies after not having dogs for years becaue of him. They do bark as do ALL DOGS. We have a fenced in back yard for them but they spend most of the time indoors. They do bark at squirrels and deer. The longest they bark is a couple of minutes and I bring them in. He reported us to animal control and the officer said you can't let your dogs bark at all!?? What I don't understand is that you can run noisy construction equipment that is a thousand times more annoying than barking puppies all day long and if your dog barks for a minutes, it's not allowed? (Cont'd)