SR-200-004 (8)
F:/finance/Treas/Share/bltaudit/City Council Staff Report.doc
City Council Meeting: December 9, 2003 Santa Monica, CA
To: Mayor and Council Members
From: City Staff
Subject: Professional Services Agreement with MBIA MuniServices Company for
Three Years Business License Tax Discovery and Audit Services
Introduction:
This report recommends that the City Council authorize the City Manager to negotiate
and execute a professional services agreement with MBIA MuniServices Company
(MMC) for a business license tax discovery and audit program.
Background:
The City annually issues approximately 20,000 business licenses generating nearly $18
million in revenue. Experience has shown that a number of businesses operate in the
City without a license. Given the current uncertain budget situation in the City, it is now
more important than ever that the City take steps to discover these businesses and
recover all revenues to which it is entitled.
A Request for Proposal (RFP) for business license tax discovery and audit services was
sent to five vendors who have experience with municipal business license tax issues.
MMC was the only vendor to submit a proposal.
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Discussion:
MMC currently provides the City with audit services for utility user taxes. Additionally,
MMC conducted a discovery program with the City in 1996 and has performed similar
services for other California cities including Pasadena, Beverly Hills, San Mateo,
Petaluma, and Belmont. The MMC proposal met all the RFP requirements. Based
upon its experience in providing this service, staff recommends selection of MMC for the
program.
The agreement will include both discovery and audit services. Discovery services are
designed to identify entities subject to taxation by the City that are not properly licensed
and/or not reporting fees to the City. Audit services are designed to identify entities
which are not properly reporting the full amount to which they are subject. City staff
previously conducted audits between FY 1985/86 through FY 1990/91. It is prudent to
re-instate an audit program to recover revenues from businesses that may not be
remitting the proper amount of tax to the City due to lack of knowledge of business
license requirements, errors in tax calculation, or other reasons.
The goal of the proposed program is to increase compliance with the Santa Monica
Municipal Code. Many businesses are unaware of the licensing requirements for a
business operating within the City’s jurisdiction. This program will aid businesses in
understanding the requirements for licensing and complying with those requirements.
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Staff proposes that MMC’s fee for both the discovery and audit services be on a
contingency basis related to the additional revenue realized by the City from the
services performed. A contingency fee is typical for these types of services. Based on
MMC’s proposal, staff proposes a three-year term for the agreement with the following
payment structure:
Year 1 30% of the revenues recovered for the current year and eligible
prior years, and revenues received from the identified businesses
for the two years following discovery.
Year 2 35% of the revenues recovered for the current year and any eligible
prior periods, and revenues received from the identified businesses
for the first year following discovery.
Year 3 40% of the revenues recovered for the current year and any eligible
prior periods only.
The 1996 discovery services fee was fixed at $115,000.
Budget/Financial Impact:
Implementation of this program will result in additional one-time and on-going revenues
to the City. While it is not possible to determine the amount of additional revenues at
this time, the similar one-year discovery services program conducted in 1996 generated
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approximately $250,000 in net additional revenues. The previous audit program
generated $50,000 to $175,000 annually before it was stopped. Staff expects greater
results than in prior years due to the length of time since the last audit and the addition
of many new businesses in the City.
Recommendation:
It is recommended that the City Council authorize the City Manager to negotiate and
execute a three year agreement with MBIA MuniServices Company to provide Business
License Tax discovery and audit services.
Prepared by: Steve Stark, Director of Finance
David Carr, Acting City Treasurer
Debby Sowers, License, Permit and Parking Citation Supervisor
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