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City Council Regular
Meeting Date: 01/09/2018  

Authorize the execution of a three-year agreement with two, one-year renewal options with Hinderliter, de Llamas and Associates (HdL) to provide franchise fee audit services in an amount not-to-exceed $225,000.  
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 objective in selecting a qualified consultant for franchise fee audit services is to guarantee complete and accurate remittance of franchise fees.

Finance staff is proposing an agreement with HdL for franchise fee audit services.  Currently, the City receives franchise fee revenue from utilities and other industries such as electric, gas, trash, and cable providers for the use of City property to distribute their services.  Cities are permitted by law to collect rental fees, also known as “franchise” fees, for the use of public property.  The consultant will charge a 45% contingency fee on any new revenues remitted to the City for thirty-six (36) months.  The not-to-exceed amount of $225,000 is based on the amount of franchise fees collected over the past five (5) years of approximately $9.8 million multiplied by a maximum error rate of 5% multiplied by the 45% contingency fee. 
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)).
By utilizing the contingency fee option of the proposed contract, the revenue recovered will be offset by the contingency fee.  Once the franchise fee audits have been completed, staff will bring forward a budget amendment to cover the cost of the contract and gross up franchise fee revenue which will have no impact on the General Fund ending fund balance. 

Franchise Fee Audit Services Agreement

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