City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: February 5, 2024
Report #:2401-2481
TITLE
Approval of Contract No. C23187298C with Hinderliter, de Llamas, and Associates (HdL) for Business Tax and Business Registry Certificate Program Fee Consulting Services in a Total Not- To-Exceed Amount of $860,555 Over a Three-Year Term; CEQA Status – Not a Project
RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager or his designee to execute the attached contract with Hinderliter, de Llamas, and Associates (HdL) (Attachment A, Contract No. C23187298C) in an amount not-to-exceed $860,555 for business tax and business registry certificate program fee program administration, fee payment collection, reporting, and compliance services over a three-year term ending June 30, 2026.
EXECUTIVE SUMMARY
Staff recommends that Council approve the attached contract with HdL for ongoing administration, collection, and compliance activities for the BT and BRC. HdL has implemented the City’s filing and payment portal for the Business Tax (BT) and Business Registry Certificate (BRC) program. To expedite implementation, staff executed a contract in fall 2023, totaling $30,000 for implementation services, targeting October 2023 as go live for the filing and payment portal. HdL completed the project, along with supporting stakeholder engagement sessions.
BACKGROUND
A Request for Proposal (RFP) for tax and fee consulting services was issued in Spring 2023. The RFP solicited proposals for support administration, reporting, and auditing of certain taxes and to also implement the City’s new Business Tax (BT), as passed by the voters in November 2022.
On June 19, 20231, the City Council approved contract number C23187298A with MuniServices, LLC for tax and fee consulting services. Tasks in the contract include:
1. Sales tax analysis, information, and reporting services
2. Administration, reporting, and audit services for:
a. Business Tax (BT)
b. Business Registry Certificate Program (BRC)
c. Business Improvement District (BID)
d. Transient Occupancy Tax (TOT)
e. Telephone Users Tax (TUT)
In June 2023, the City Council approved a contract with MuniServices for BT and BRC administration, collection, and compliance services. In August 2023, the City issued a notice to MuniServices partially suspending services item #2a and #2b in the above list due to failure to adhere to the schedule of performance (see Exhibit B of contract number C23187298A) for implementation of BT collection services.
HdL submitted a proposal for the RFP issued in Spring 2023 and was the only other firm to submit a proposal for BT and BRC administration and collection services. Staff executed a contract totaling $30,000 for BT and BRC implementation costs. The attached contract is for the ongoing administration and collection of the BT and BRC.
ANALYSIS
Procurement Process
Detailed discussion of the procurement process for these services can be found in the June 19, 2023 report to CouncilError! Bookmark not defined.. Below is a summary of the RFP process:
Table #1: Summary of Request for Proposal2
Proposal Description Tax and Fee Consulting Services (RFP #187298) Issue Date February 9, 2023
Proposed Length of Project Ongoing
Number of Vendors Notified 1,485
Number of Proposal Packages Downloaded 12
Proposal Due Date / Total Days to Respond
to Proposal
March 2, 2023 / 22 calendar days
Pre-Proposal Meeting None
1 City Council, June 19, 2023, Item #33, Report #2304-1337:
https://portal.laserfiche.com/Portal/DocView.aspx?repo=r-704298fc&id=65895 2 Tax and Fee Consulting Services Request for Proposal posted on PlanetBids:
https://pbsystem.planetbids.com/portal/25569/bo/bo-detail/102065 Table #1: Summary of Request for Proposal2
Number of Proposals Received Three
Proposal Price Range $111,800 to $1,292,300
Public Link to Solicitationhttps://pbsystem.planetbids.com/portal/25569/ bo/bo-detail/102065
Based on the evaluation committee review, MuniServices was selected for tax and fee collection and administration services. HdL submitted a proposal for the same services as MuniServices and was ranked second for these services, after MuniServices. However, through the implementation of the Business Tax, a change to a new provider was necessary to ensure a supported and timely implementation of the new business tax. HdL, as the second highest scored provider was evaluated and engaged to assist in administration of this tax as discussed above.
Table 2 compares fees for the BT and BRC services with HdL and previous contract with MuniServices for ongoing administration of the Business Tax and Business Registry Program (BRC). The attached contract with HdL assumes a three-year term, while the contract with MuniServices was a five-year term. The table below includes three-year costs for comparison purposes. Total basic services and additional services in the three-year HdL agreement is $860,055, while the three-year contract with MuniServices was $898,050. While this shorter agreement term represents a 4.4% increase in cost, staff and HdL significantly increased compliance and enforcement services, from approximately $20,000 per year to $117,425 per year, to bolster discovery efforts and shift from as needed compliance review and audit to quarterly compliance review and ongoing tax audit. Maintaining this increased level of audit and compliance review will ensure more accurate and solid tax and demographic data for BT and BRC on an ongoing basis. While collection and administration services increased by approximately 12% annually, HdL has demonstrated robust engagement, support, and capacity to problem solve.
Table #2: Cost Comparison of HdL and MuniServices Contracts
SERVICE PREVIOUS
$163,610/YEAR
NEW
APPROX. $259,865/YEAR
Collection &
Administration
5-yr basic services: $718,050
(approx. $143,610/year)
Annual flat fee: $10,000
Annual $13/participant fee
3-yr basic services: $424,320
(approx. $141,440/yr)
Per processed account fee: $17/ per filing
(~4 filings per year for each business)
Compliance &
Enforcement
5-yr basic services: $100,000
(3approx. $20,000/yr)
Discovery:
Minimum annual fee: $7,500
35% contingency
3-yr basic services: $352,275
(approx. $117,425/yr)
Discovery & Audit: 35% applied to all
monies received resulting from consultant
discovery and audit work
Implementation costs are not listed in the above table, however both firms proposed $30,000 for this task.
Business Tax Implementation
The BT and BRC filing and payment portal went live in early October 2023. The implementation calendar can be found on the City’s website3. Collection and administration of the business tax portal will be done by HdL. The 2023 calendar year business tax filing was due January 1 and businesses have until the end of January to file without penalty or interest. Staff and HdL, have been actively meeting with business to provide support through notifications, information sessions, and individual virtual consultations, assisting larger businesses with complex filings and helping smaller businesses simplify their filings.
Temporary staff resources are dedicated to manage the program; provide in-house tax administrator support (as defined by the business tax ordinance); tax analysis and review beyond the consultant’s scope of work; and customer service and support for the City’s business community. The Administrative Services Department (ASD) will evaluate future staffing needs once service needs have stabilized and filings are submitted and processed at a regular, quarterly cadence.
FISCAL/RESOURCE IMPACT
As discussed, the service cost for BT and BRC administration, collection, and compliance services are higher with HdL compared to the previous consultant. HdL has demonstrated adherence to the City’s implementation timeline and responsive customer service and expertise in implementation and the ongoing administration of the business tax. The average annual cost of the agreement with HdL is $259,865, approximately fifty percent more of what was included in the FY 2024 Adopted Budget ($177,000). Staff will include a request in the FY 2024 Mid-Year Budget Review for $41,000 ($217,850 basic service costs for FY 2024, less $177,000 included in the FY 2024 Adopted Operating Budget). Funding for future contract years will be subject to City Council review through the annual budget process.
First year cost to implement and begin collection of the business tax is estimated to be $247,850, broken down as follows:
•Implementation: $30,000 (separate contract with HdL)
3 www.cityofpaloalto.org/businesstax
Audit: $100/hour Collection: 25% applied to all revenue received
Payment Processing N/A 3-yr basic services: $3,000
ACH/eCheck fee: $0.50/transaction
•Administration and Collection: $136,000
•Compliance and Enforcement: $80,850
•Payment Processing: $1,000
During the development of the business tax, preliminary administrative cost estimates ranged between $0.5 million to $1.0 million. Business tax revenue, net of administrative expense, will be allocated each year as part of the City Council’s annual budgeting process, per the Advisory Spending Guidelines for Business Tax Proceeds that were adopted by Council on August 22, 20224. In total, current administrative costs for tax administration are estimated at $0.6 million including the recommended contract ($0.3 million) and staff resources ($0.3 million). A formal action to adjust the Table of Organization will be forth coming in a future budget process as staff continues to assess needs through the implementation process versus ongoing administration, collection and enforcement, as noted above, this program is currently using the equivalent of 1.0 FTE to support administration.
STAKEHOLDER ENGAGEMENT
Engagement with the business community has been extensive including information sessions, individual appointments for support, and targeted discussion with both large and small companies to support a smooth roll out of the new business tax. HdL has been instrumental in providing this facilitation and service. Staff worked closely to evaluate and select the contract award for these services given the importance and complexities of this new tax.
ENVIRONMENTAL REVIEW
This activity is not a project under California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378(b)(4) (government fiscal activities which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment).
ATTACHMENTS
Attachment A: Contract No. C23187298C with Hinderliter, de Llamas, and Associates (HdL) Business Tax and Business Registry Program Fee Consulting Services APPROVED BY:
Kiely Nose, Assistant City Manager
4 City Council, August 22, 2022, Item #AA1: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/agendas-minutes/city-council-agendas-minutes/2022/20220822/20220822pccsm-amended-redacted- linked.pdf#page=313