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    13.    
City Council Regular
Meeting Date: 12/12/2017  

SUBJECT:
REVENUE AUDIT AND CONSULTING SERVICES
 
RECOMMENDATION:
  1. Authorize the execution of a three-year agreement with two, one-year renewal options with Hinderliter, de Llamas & Associates (HdL) to provide sales and use tax consulting and audit services in an amount not-to-exceed $50,000.
     
  2. Authorize the execution of a three-year agreement with two, one-year renewal options with HdL Software, LLC (HdL Software) to provide business license and Transient Occupancy Tax (TOT) administration services in an amount not to exceed $285,000.
     
  3. Authorize the elimination of a Senior Account Technician and the addition of a Finance Intern position in the Finance Department.
BACKGROUND/ANALYSIS:
On August 24, 2017, the City issued a Request for Proposal to see what options were available for revenue audit and consulting services.  The revenue sources the City sought proposals for included:  sales and use tax, TOT, business license, and franchise fees.  On September 14, 2017, three proposals were received and evaluated by Finance staff based on the scope of work, company background/experience, staff qualifications and experience, reporting, and cost effectiveness. 
 
The main objectives in selecting qualified consultants included the following: 
  • To maintain and enhance the City’s revenue base.
  • To ensure complete and accurate remittance of taxes and franchise fees.
  • To receive regular and timely updates of trends and legislation affecting the City’s revenue sources.
  • To receive assistance in projecting future revenues.
  • To receive written and verbal economic analyses and reports, meaningfully organized.
  • To have a partner that is available to consult on miscellaneous revenue-related questions, as needed.
Sales and Use Tax Audit and Consulting Services
Finance staff is proposing an agreement with HdL for sales and use tax consulting services.  The City has contracted with HdL since July 1, 2002, to provide ongoing sales and use tax analyses and audit services.  They have consistently provided high quality services throughout the term of their engagement and have recovered over $500,000 for the City.  The recoveries represent a return of 398% to the City on all audit, reporting, and management fees paid to HdL over the term of the contract.  They have identified and recovered sales and use tax allocation errors and reported deficiencies and prepared necessary case submittals to the Board of Equalization.  The cost of these services is $450 per month along with a 15% cost recovery fee for all new sales and use tax revenues received by the City as a result of audit and recovery work performed by the firm.  Based on past experience, staff is proposing a contract that will cover cost recovery of approximately $150,000 over the life of the contract.

Business License and TOT Administration Services
Finance staff is proposing an agreement with HdL Software for business license and TOT administration services which is estimated to cost $57,000 annually.  Having performed business license process reforms and software installations for over 200 City business license tax departments in California, HdL Software has the unique experience of working intimately with business license staff across multiple jurisdictions.  Under the recommended solution, HdL Software will provide the following services:
  • Business license account and renewal processing.
  • Online services including reporting, application, renewal, and payment processing.
  • Business support services including 8 am - 5 pm business hours and multi-lingual support.
  • Collection services.
  • Budget and forecasting support.
  • One-time consulting services.
Current business license applications and renewals have been processed by a Senior Account Technician with assistance from the Accounting Technician II’s that process cash receipts.  The Finance Department currently has a vacant Senior Account Technician costing $93,766 that will not be filled as a result of the proposed agreement, but staff is requesting the addition of an Intern that would cost $22,000, resulting in a net savings of $71,766.  Business licenses associated with Home Occupation Permits or Certificates of Occupancy will continue to be processed through the Community Development Department and then transmitted to HdL for permit issuance and renewals.

HdL Software charges a processing fee of $14 per account which would have cost the City $48,594 based on the 3,471 business licenses that were processed in fiscal year 2016/17.  By using the services of HdL Software, the cost of the Munis software implementation and licensing, that is priced at $44,525 with ongoing maintenance costs of $3,600, can be utilized for other software modules.  The $71,766 salary savings netted against the proposed $57,000 annual cost of the contract will result in an ongoing savings of $14,766. Current staffing will continue to be utilized in Finance and further enable adequate backup and cross training in the department along with providing needed assistance with the implementation of the new Munis software. 

The cost of service will increase for renewals but remain the same for new applications as a result of providing an online application and renewal process for businesses.  Staff conducted a business license application processing cost survey of surrounding cities.  The fees range from $11 - $115.25 with an average of $35.  At an upcoming City Council meeting, staff will be proposing a revised fee for the business license application and renewal processing of $15, which is on the low end compared to surrounding cities. 
ENVIRONMENTAL (CEQA) REVIEW:
This proposed action is exempt from review under the California Environmental Quality Act (California Public Resources Code §§ 21000, et seq.; “CEQA”) and CEQA regulations (14 California Code Regulations §§ 15000, et seq.) because it does not involve any commitment to a specific project which could result in a potentially significant physical impact on the environment; and constitutes an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. Accordingly, this action does not constitute a “project” that requires environmental review (see specifically 14 CCR § 15378(b)(4-5))
FISCAL IMPACT:
There is sufficient funding in the Finance Administration operating budget to cover the HdL Software contract and the HdL contract for sales and use tax consulting services for the fiscal year 2017/18.   Future contract costs will be budgeted for in the appropriate fiscal year. 
REVIEWED BY OTHERS:
This item has been reviewed by the Community Development Director.
Attachments
Sales Tax Consulting Agreement
Business License / TOT Administration Agreement

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