SR 05-09-2023 5F
City Council
Report
City Council Meeting: May 9, 2023
Agenda Item: 5.F
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue
Subject: Award Request for Proposal No. 10522 to Baker Tilly US, LLP for Business
License Tax Modernization Consulting Services
Recommended Action
Staff recommends that the City Council:
1. Award RFP# 10522 to Baker Tilly US, LLP (Baker Tilly) and to Hinderliter de
Llamas & Associates (HdL) for business license tax modernization consulting
services for the Finance Department.
2. Authorize the City Manager to negotiate and execute an agreement with Baker
Tilly, in amounts not to exceed $173,780 for three years with future year funding
contingent on Council budget approval.
3. Adopt a finding of no possibility of significant effect pursuant to Section
15061(b)(3) (Common Sense Exemption) of the California Environmental Quality
Act (CEQA) Guidelines.
Summary
The City of Santa Monica adopted its existing business license tax code on May 8,
1990, and since then no material changes to the business license tax ordinance have
been made, despite significant shifts in the way business is conducted . Recognizing
that our business community continues to face resource challenges as they recover
from the COVID-19 pandemic and economic uncertainty, staff believes that a strategic,
comprehensive review and modernization of the City’s Business License Tax program
aligns with the Council’s FY 2023-25 priority to Cultivate Economic Recovery & Expand
Community & Cultural Offerings. The modernized ordinance would aim to encourage
investment and innovation, assist Santa Monica businesses in rebounding, and position
the City to equitably and fairly tax existing and emerging businesses to support
essential services. It would also institute improvements that would promote business
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growth and align with the City’s priority to cultivate equitable and inclusive economic
opportunities for traditionally underserved communities including minority owned
businesses and microenterprises.
Staff recommends awarding the Business License Tax ordinance modernizat ion work to
two consultants, Baker Tilly US, LLP and Hinderliter de Llamas & Associates (HdL).
This report is only seeking authority to award a contract to Baker Tilly, as the amount of
the work to be performed by HdL, at a not to exceed level of $20,000, is within the City
Manager’s approval authority, however, it is helpful to discuss both consultants in
describing the project scope. The selected consultants will work in close coordination
with City staff to provide a comprehensive study of the existing B usiness License Tax
ordinance, incorporating insights from Santa Monica’s business community and other
stakeholders gained through extensive formal analysis and outreach. The final phase
will include tax modernization strategies, recommendations for admini strative changes
and tax reform proposals, and preparation of a proposed ballot measure for placement
on the November 2024 ballot.
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Background
The Finance Department’s Revenue Division is responsible for administration of the
Business License Tax program which includes the collection of taxes and associated
charges from approximately 23,000 businesses within the City. With a few exceptions,
the City’s annual business license taxes are based on the gross receipts of business on
their business classification, which varies from $1.25 to $5.00 per $1,000 of gross
receipts.
The City has had three comprehensive reviews of the business license tax ordinance in
the last 60 years: 1962, 1983 and 1990. Since the last major revision in 1990, the
ordinance has remained relatively unchanged. The number and types of Santa Monica
businesses, however, have evolved significantly. Growing sectors of science,
technology, information, mobility, and finance, including eCommerce and other internet-
based business models, are now common and have thrived in Santa Monica. With the
drastic change in business sectors since the 1990s, unique and complex issues have
arisen around the administration of the Business License Tax , such as the
apportionment of gross receipts, outdated tax classification descriptions, clearly defining
and expanding the definition of doing business in the City, the appropriate definition of
gross receipts, and a lack of incentives for new and minority owned businesses as well
as other underserved communities.
The option of proceeding with a full Business License Tax modernization has been
discussed at times in the past few years. In examining potential tax increases for the
November 2020 election, polling revealed strong public support for a business license
tax update when tested alone (62%). The City ultimately determined to postpone this
tax in favor of a documentary transfer tax measure proposed for the same election,
however, this poll’s findings indicate that voters tend to favor business license tax
changes.
At its February 8, 2022 meeting, Council directed staff to examine and analyze several
revenue measures for the November 2024 ballot including a business license tax
modernization measure. At the Budget Study Session on May 24, 2022, staff reported
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that while the need to modernize the business license tax ordinance exists, such a
change would require further analysis and time.
Discussion
The City’s business license tax modernization is intended to support economic growth
and job creation and to ensure a flexible, forward-looking, and equitable business
license program. The goals for this process includes increasing transparency, and
streamlining administration and compliance; and to support business growth and align
with the City’s community priority to Cultivate Economic Recovery & Expand Community
& Cultural Offerings.
With the proposed modernization, the City seeks to:
• Attract, retain, and encourage expansion of businesses within the City
• Create a fair, equitable and simple business license taxing system
• Support small businesses and microenterprises
• Address and appropriately tax emerging business models
• Ensure the taxing scheme is competitive with neighboring jurisdictions with
similar characteristics
• Protect the City’s fiscal position
• Make oversight and compliance less burdensome for City staff and affected
businesses, and ensure such review is consistent with other City laws, taxes, and
reporting procedures
Vendor Selection
Bidder Recommendation
Best Qualified
Person/Firms
Baker Tilly US, LLP and Hinderliter de Llamas & Associates (HdL)
Evaluation Criteria References; Work Plans/ Timelines; Experience/ Qualifications;
Project Team; Cost
Municipal Code SMMC 2.24.190
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RFPs Received
Baker Tilly US, LLP Hinderliter de Llamas & Associates (HdL) Moss Adams LLP
RFP Data
Posted On Posted On Vendors Downloaded Date Publicly Opened
10/06/2022 City's Online Bidding Site 19 12/23/2022
Justification to Award
Three firms submitted proposals for modernization of the Business License Tax
ordinance consulting services. Staff reviewed the three proposals submitted and
interviewed all the firms. Because more than one submission received exceeded the
City’s informal proposal threshold, staff reopened the bidding process and solicited
additional bids in the Santa Monica Daily Press on February 28, 2023, and requested
any new submission by March 10, 2023. During this time no new submissions were
received. The City also provided the existing three firms that previously submitted
proposals an opportunity revise their original submission. No changes were submitted.
Based on criteria in SMMC 2.24.190, staff recommends Baker Tilly and HdL as the best
qualified firms to provide business license tax modernization services.
Staff believes that contracting with two consultants will provide the best outcome for all
aspects of this comprehensive review and will ensure sufficient time for the required
work. The proposed award aligns with each selected vendor’s deepest area of
expertise, and will mean that data gathering, analysis, and modeling can take place in
parallel with broader research and with the stakeholder and business community
engagement that will be critical to ensuring that resulting recommendations for change
reflect stakeholder needs.
Baker Tilly has extensive experience with local government revenue measure
development, strategic planning and fiscal analysis, and stakeholder and community
engagement. In this experience the firm has demonstrated its ability to meet project
work plan goals in a timely manner and has a track record of success bringing forward
changes for voter and Council review and approval. Staff believes that it is the best firm
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to review the City’s existing business license tax code and propose recommendations
that are consistent with the City’s goals for the process.
HdL currently has three contracts with the City which include property tax data, audit
and consulting services, sales and use tax audit and information services and
centralized business tax management software. Due t o HdL’s extensive experience in
municipal tax revenue collection, analysis for multiple California cities, and familiarity
with the City’s business license structure, HdL is positioned to effectively provide data
analysis of the existing business license tax revenues and assist with modeling of the
financial impacts of proposed tax reforms in partnership with Baker Tilly. The amount of
the HdL contract related to the business license modernization contract meets the
threshold for City Manager approval.
Past Council Actions
Meeting Description
June 9, 2020
(Attachment A)
Council approved staff’s recommendation not to move forward
with a business license tax measure for 2020.
May 24, 2022
(Attachment B)
Council approved staff’s recommendation not to move forward
with a business license tax measure for 2022.
Environmental Review
The award agreement is categorically exempt from CEQA pursuant to Section
15061(b)(3) of the CEQA Guidelines. The award agreement is covered by the common
sense exemption which states that CEQA does not apply, “where it can be seen with
certainty that there is no possibility that the activity in question may have a significant
effect on the environment.” The agreements will provide the City with administrative
consulting services. Therefore, it can be seen with certainty that the proposed
agreement would not result in adverse physical impacts on the environment, and as
such, is categorically exempt from CEQA.
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Financial Impacts and Budget Actions
Staff seeks authority to approve available funding from the General Fund to award a
contract with Baker Tilly for business license tax modernization services. Funds will be
included in the FY2023-25 Biennial Budget.
Contract Request
Vendor FY 2022-23 Budget
Request Amount
Amount for Future
years Department Account # Total Contract
Amount
Baker Tilly $11,900 $161,800 01300005.552010 $173,780
Prepared By: David Carr, Assistant City Treasurer
Approved
Forwarded to Council
Attachments:
A. Attachment A - June 9, 2020 Meeting - Business license tax measure for 2020
(Web Link)
B. Attachment B - May 24, 2022 Meeting - Not to move forward with a business
license tax measure for 2022 (Web Link)
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