title
AUTHORIZE THE CITY MANAGER TO APPROVE CONTRACTS FOR REVENUE AUDIT AND CONSULTING SERVICES
recommended action
RECOMMENDATION
It is recommended that the City Council, by motion:
1. Approve findings pursuant to Stockton Municipal Code section 3.68.070 in support of an exception to the competitive bidding process; and
2. Authorize the City Manager to enter into a five-year agreement with Hinderliter, de Llamas & Associates (HdL) for revenue audit and consulting services for Sales and Use taxes in the amount of $605,000 and Transaction and Use Taxes in the amount of $94,000;
3. Authorize the City Manager to enter into a five-year agreement with HdL Software, LLC for revenue audit and consulting services for Business License Tax in the amount of $100,000 and Transient Occupancy Tax in the amount of $123,500;
4. Authorize the City Manager to enter into a five-year agreement with HdL Coren & Cone for revenue audit and consulting services for Property Tax in the amount of $187,500;
5. Authorize the City Manager to enter into a five-year agreement with MuniServices, LLC (MuniServices) for revenue audit and consulting services for Utility User Tax in the amount of $475,000;
6. Authorize the City Manager to enter into a five-year agreement with MuniServices, LLC for revenue audit and consulting services for Franchise fees in the amount of $81,250;
7. Authorize the City Manager to take necessary and appropriate actions to carry out the purpose and intent of this motion.
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Summary
Staff recommends awarding contracts to HdL and MuniServices to conduct revenue audits and to provide consulting services of significant revenues to the City’s General Fund including:
• Sales and Use Tax
• Transaction and Use Tax
• Business License Tax
• Transient Occupancy Tax
• Property Tax
• Utility User Tax
• Franchise Fees
These revenues are critical to provide City services such as police, fire, libraries, parks, etc. These audit services generate approximately $1.50 million in additional revenue to the City annually.
DISCUSSION
Background
The City began contracting with outside vendors in 1994 for Sales and Use Tax auditing and consulting services to enhance revenue. Since then, the City has expanded its auditing and consulting services contracts to include Transactions and Use Tax, Business License Tax, Transient Occupancy Tax, Property Tax, Utility User Tax, and Franchise Fees.
The City's primary revenue enhancement services goals to be attained by the firms are:
• To ensure the proper and accurate remittance of taxes and fees due to the City.
• To educate business operators on the proper collection and remittance of respective taxes and fees.
• To provide City staff information and analysis on tax and fee revenue trends.
• To acquire and disseminate information about new or proposed legislation that could affect the City’s tax and fee revenue.
Present Situation
Staff issued a Request for Proposals for Revenue Audit and Consulting Services on March 13, 2025. On April 3, 2025, the City received proposals from three firms:
1) Hinderliter de Llamas & Associates, located in Diamond Bar, California
2) MuniServices, LLC, located in Fresno, California, and
3) DDC Tax Services, located in Centerton, Arkansas.
All three firms met the minimum qualifications; however, the City selected the two top-ranked firms based on pricing and familiarity with services. These firms can provide overall audit and recovery services the City is currently utilizing, Short-Term Rental Management Services, enhanced recovery methods, enhanced reporting, and revenue projections for the City’s annual budget.
Hinderliter de Llamas and Associates, HdL Software, LLC, and HdL Coren & Cone are affiliates and operate as a single, coordinated unit providing over 400 agencies with a variety of integrated services and software products.
MuniServices has been providing revenue audit and consulting services to public sector clients for over 40 years. MuniServices understands the critical need to maximize local tax revenues.
Findings
SMC section 3.68.070 provides an exception to the competitive bidding process in cases where the City Council has approved findings that support and justify an exception.
The following findings support and justify an exception to the competitive bidding process:
1) The City does not have the staff, technology, resources or capacity required to perform specialized audits.
2) Use of the RFP process is appropriate for these Professional Services Agreements because it relies on the evaluation of professional qualifications and performance as the basis for selection of a vendor. Use of these criteria helps ensure selection of a vendor that will provide the highest quality professional service, which is in the public interest.
3) The City negotiated contracts following the solicitation of competitive proposals in accordance with SMC section 3.68.070.A.3.
FINANCIAL SUMMARY
The fee structure includes a component based on a percentage of revenue recovered on behalf of the City. Revenue recoveries may vary from year to year during the five year term. The annual cost is estimated to be approximately $333,250 per year, based on what the City is currently paying. The five year total cost is estimated to be approximately $1,666,250.
• Annual expenses will be charged to the General Fund Tax Collection & Election budget account 2010-016-670001-100-000-10-20-000-000.
• Annual Property Tax consultant service expenses of $32,500 will be split equally between the General Fund and the Successor Agency Administration Fund.
• Annual audit and consulting services related to the transaction and use tax revenues of $3,200 will be charged to Measure W (200 fund) and Strong Communities (210 fund).
The FY 2025-26 Proposed Annual Budget includes sufficient appropriation for the estimated annual contract costs. Since the total cost will be a combination of fixed fees and contingency fees (based on how much revenue the vendors recover for the City), staff cannot definitively state the actual cost of each contract. Any fees in excess of existing appropriations will be supported by the collection of additional City revenue.
The table below shows how staff calculated the estimated contract costs.
|
Revenue Source |
Vendor |
Annual Flat Fee |
Revenue Recovery Rate |
Estimated Contingency Amount |
Total Annual Estimated Cost |
Total Estimated Contract Cost |
|
Property Tax |
HdL |
32,500 |
25% |
5,000 |
37,500 |
187,500 |
|
Sales and Use Tax |
HdL |
21,000 |
15% |
100,000 |
121,000 |
605,000 |
|
Transaction and Use Tax |
HdL |
10,800 |
25% |
8,000 |
18,800 |
94,000 |
|
Utility Users Tax |
MuniServices |
95,000 |
0% |
- |
95,000 |
475,000 |
|
Franchise Tax |
MuniServices |
- |
25% |
16,250 |
16,250 |
81,250 |
|
Business License |
HdL |
- |
25%-35% |
20,000 |
20,000 |
100,000 |
|
Hotel/Motel (TOT) |
HdL |
24,700 |
0% |
- |
24,700 |
123,500 |
|
|
|
|
|
|
333,250 |
1,666,250 |
Attachment A - Agreement with Hinderliter, de Llamas & Associates
Attachment B - Agreement with HdL Software, LLC
Attachment C - Agreement with HdL Coren & Cone
Attachment D - Agreement with MuniServices, LLC - Utility User Tax Services
Attachment E - Agreement with MuniServices, LLC - Franchise Fee Services