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SR 11-14-2023 5F City Council Report City Council Meeting: November 14, 2023 Agenda Item: 5.F 1 of 5 To: Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Award RFP No. 380 and Enter into an Agreement with Hinderliter, de Llamas & Associates to Provide Sales and Use Tax Audit and Information Services Recommended Action Staff recommends that the City Council: 1. 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. 2. Award RFP 380 to Hinderliter, de Llamas & Associates to provide sales and use tax audit and information services for the Finance Department. 3. Authorize the City Manager to negotiate and execute a professional services agreement with Hinderliter, de Llamas & Associates, a California Corporation, in an estimated amount of $516,000 for five years with one three-year renewal option, with future year funding contingent on Council budget approval. Summary The City of Santa Monica is proposing to contract with Hinderliter, de Llamas & Associates (HDL) to provide sales and use tax auditing and information services. These services are needed to ensure that the amount of sales tax owed to the City for taxable transactions is recovered and to protect the City’s vital General Fund revenues. The City has previously contracted with HDL since 2001, and HDL has recovered approximately $15 million in sales and use taxes for the City. During these uncertain economic times, it is important to maximize the City's revenue. Staff recommends a five- year agreement with one three-year renewal option with HDL in an estimated amount of $516,000 to provide sales and use tax auditing and information services. 5.F Packet Pg. 63 2 of 5 Discussion The California Department of Tax and Fee Administration (CDTFA) processes a high volume of returns from sales/transactions and use taxes statewide. The complexity in the State's “point-of-sale” regulations compounded with the constant turnover, selling and consolidation of businesses, factual errors on tax forms, and evolving regulations impact CDTFA’s ability to properly allocate the 1% local portion of these taxes as well as the 1% Transaction and Use Tax (Measure GSH). The amount of audit fieldwork and analysis needed to identify and correct these errors makes it inefficient for CDTFA or the City to identify or correct these errors themselves. The use of a consultant with specialized knowledge and expertise in tax laws and regulations ensures that the City receives accurate and timely information and guidance. The services provided would help minimize potential risks by ensuring compliance with tax laws, identifying potential areas of non-compliance, implementing appropriate measures to mitigate risks, and revenue enhancement. Since HDL began providing sales tax audit services to the City of Santa Monica in 2001, the firm has recovered a total of $14,819,103 in sales and use tax through calendar year 2022. An additional $201,133 was recovered from ongoing audits of the City’s transactions and use tax. HDL would pursue the correction of all misallocations allowable within the statute of limitations on recoverability and work with the CDTFA and taxpayers to correct errors that result in underpayments of tax to the City. HDL staff emphasizes cooperation when contacting taxpayers and provides an educational approach as well as guidance related to CDTFA rules that pertain to proper sales tax allocation. HDL’s systematic and coordinated approach to revenue management, tax administration and economic data analysis is currently being utilized by over 700 agencies nationwide. HDL also provides critical economic data and analysis that would aid the City in revenue forecasting. HDL's cost to provide tax information and analysis would be $13,200 annually (plus annual CPI increases). The fees for audit services are on a contingency basis of the amounts recovered. HDL's contingency rates are a 15% contingency fee for sales and use tax audit recoveries and 25% contingency fee for 5.F Packet Pg. 64 3 of 5 transactions and use tax audit recoveries. The 15% fee for the sales and use tax audit recovery applies to monies received in the first eight consecutive reporting quarters. The 25% fee for transactions and use tax audit recovery applies to retroactive adjustments only. Based on the last three years, the cost of audit recovery fees is estimated to be approximately $90,000 annually. The amount requested for FY 2023- 24 is prorated to reflect the estimated cost for seven and a half (7.5) months. Consultant Selection Bidder Recommendation Best Bidder Hinderliter, de Llamas & Associates (HDL) Evaluation Criteria Experience with similar projects of comparable complexity and working with municipalities, technical competence, value-added- breath of services, ability to meet work plan/timelines, and cost of services. Municipal Code SMMC 2.24.190 RFPs Received Avenue Insights & Analytics, LLC (MuniServices, LLC) HdLCompanies (Hinderliter, de Llamas & Associates) RFP Data Date Posted Posted On Advertise In (City Charter & SMMC) Vendors Downloaded Date Publicly Opened 9/13/2023 City's Online Bidding Site Santa Monica Daily Press 12 10/04/2023 Justification to Award 5.F Packet Pg. 65 4 of 5 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 award agreement will provide sales and use tax auditing and information services to the City. Therefore, it can be seen with certainty that the agreement would not result in adverse physical impacts on the environment, and as such, is categorically exempt from CEQA. Financial Impacts and Budget Actions Staff seeks authority to approve funding from the General Fund to award an agreement with Hinderliter, de Llamas & Associates for sales and use tax auditing and information services for an estimated annual amount of $13,200 plus approximately $90,000 for the cost of audit recovery services on a contingency basis resulting in an estimated five- year total of approximately $516,000, which would be more than offset by the additional Based on the criteria in SMMC 2.24.190, staff recommends HDL as the best bidder due to their 40 years of experience providing revenue enhancement and consulting services to local governments as well as their knowledge of Santa Monica. HDL currently serves over 700 cities, counties, and special districts across the nation and has recovered more than $3 billion in revenue. HDL developed California’s first computerized sales tax management program and was responsible for securing legislation (AB 1611) that allowed independent verification of state allocations. HDL maintains the largest privately held sales, property, and business tax databases in California. This proprietary database serves as the base for identifying emerging economic trends and developing budget projections that take those trends into account. The City’s current agreement with HDL terminates on November 5, 2023. While 12 firms downloaded the Request for Proposal, only two proposals were submitted. Staff reached out to several firms for feedback on why they did not submit a proposal. Some firms that downloaded the proposal later determined that the scope of service did not fit with their firms’ business or declined to comment. 5.F Packet Pg. 66 5 of 5 revenue recoveries from audits. Please note that the amount requested for FY 2023-24 is prorated to reflect the estimated contingency cost for seven and a half (7.5) months. Agreement Request FY 2023-24 Request Estimated Amount Future Years Estimated Amount Department Account # Total Estimated Contract Amount $64,500 $451,500 01300005.552010 $516,000 Future year funding is contingent on Council budget approval. Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council Attachments: A. HdL OAKS Initiative Form 5.F Packet Pg. 67 CITY OF SANTA MONICA OAKS INITIATIVE NOTICE NOTICE TO APPLICANTS, BIDDERS, PROPOSERS AND OTHERS SEEKING DISCRETIONARY PERMITS, CONTRACTS, OR OTHER BENEFITS FROM THE CITY OF SANTA MONICA Santa Monica’s voters adopted a City Charter amendment commonly known as the Oaks Initiative. The Oaks Initiative requires the City to provide this notice and information about the Initiative’s requirements. You may obtain a full copy of the Initiative’s text from the City Clerk. This information is required by City Charter Article XXII—Taxpayer Protection. It prohibits a public official from receiving, and a person or entity from conferring, specified personal benefits or campaign advantages from a person or entity after the official votes, or otherwise takes official action, to award a “public benefit” to that person or entity. The prohibition applies within and outside of the geographical boundaries of Santa Monica. All persons or entities applying or receiving public benefits from the City of Santa Monica shall provide the names of trustees, directors, partners, and officers, and names of persons with more than a 10% equity, participation or revenue interest. An exception exists for persons serving in those capacities as volunteers, without compensation, for organizations exempt from income taxes under Section 501(c)(3), (4), or (6), of the Internal Revenue Code. However, this exception does not apply if the organization is a political committee or controls political committees. Examples of a “public benefit” include public contracts to provide goods or services worth more than $25,000 or a land use approval worth more than $25,000 over a 12-month period. In order to facilitate compliance with the requirements of the Oaks Initiative, the City compiles and maintains certain information. That information includes the name of any person or persons who is seeking a “public benefit.” If the “public benefit” is sought by an entity, rather than an individual person, the information includes the name of every person who is: (a) trustee, (b) director, (c) partner, (d) officer, or has (e) more than a ten percent interest in the entity. Therefore, if you are seeking a “public benefit” covered by the Oaks Initiative, you must supply that information on the Oaks Initiative Disclosure Form. This information must be updated and supplied every 12 months. 5.F.a Packet Pg. 68 Attachment: HdL OAKS Initiative Form (6069 : Award RFP No. 380 and Enter into an Agreement with HdL) CITY OF SANTA MONICA OAKS INITIATIVE DISCLOSURE FORM In order to facilitate compliance with the requirements of the Oaks Initiative, the City compiles and maintains certain information. That information includes the name of any person or persons who is seeking a “public benefit.” If the “public benefit” is sought by an entity, rather than an individual person, the information includes the name of every person who is: (a) trustee, (b) director, (c) partner, (d) officer, or has (e) more than a ten percent interest in the entity. Public benefits include: 1.Personal services contracts in excess of $25,000 over any 12-month period; 2.Sale of material, equipment or supplies to the City in excess of $25,000 over a 12- month period; 3.Purchase, sale or lease of real property to or from the City in excess of $25,000 over a 12- month period; 4.Non-competitive franchise awards with gross revenue of $50,000 or more in any 12-month period; 5.Land use variance, special use permit, or other exception to an established land use plan, where the decision has a value in excess of $25,000; 6.Tax “abatement, exception, or benefit” of a value in excess of $5,000 in any 12- month period; or 7.Payment of “cash or specie” of a net value to the recipient of $10,000 in any 12- month period. Name(s) of persons or entities receiving public benefit: Name(s) of trustees, directors, partners, and officers: Name(s) of persons with more than a 10% equity, participation, or revenue interest: Prepared by: ____________________________Title: __________________________ Signature: ______________________________________ Date: ________________ Email: ____________________________________ Phone: ____________________ FOR CITY USE ONLY: Bid/PO/Contract # ____________________________ Permit # ___________________________ 5.F.a Packet Pg. 69 Attachment: HdL OAKS Initiative Form (6069 : Award RFP No. 380 and Enter into an Agreement with HdL)