City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: September 9, 2026
Report #:2606-6439
TITLE
Approval of Amendment No. 2 to Contract C23187298C with Hinderliter, de Llamas & Associates (HdL) to Add Sales Tax and Transactions Tax Analysis, Reporting, Forecasting, and Audit Recovery Services and Increase Compensation by $165,000 for a New Total Not-to-Exceed Amount of $3,035,000 over Two Years and Adoption of a Resolution Authorizing HdL and Designated City Staff to Examine Sales or Transactions and Use Taxes from the California Department of Tax and Fee Administration (CDTFA); CEQA Status - Not a Project
RECOMMENDATION
Staff recommends that the City Council:
1. Approve and authorize the City Manager of their designee to execute Amendment No. 2 to Contract C23187298C with Hinderliter, de Llamas, and Associates (HdL) to add sales tax and transactions tax analysis, reporting, forecasting, and audit recovery services and increase compensation by $165,000 for a revised not-to-exceed amount of $3,035,000 (Attachment A); and
2. Adopt a Resolution Authorizing HdL and Designated City Staff to Examine Sales or Transactions and Use Taxes from the California Department of Tax and Fee Administration (CDTFA) (Attachment B).
EXECUTIVE SUMMARY
This item recommends approval of Amendment No. 2 to the City’s existing agreement with Hinderliter, de Llamas, and Associates (HdL) to add sales tax and transactions tax analysis, forecasting, reporting, and audit recovery support services through June 30, 2028. The amendment increases the contract authority by $165,000 over the remaining two years of the contract term, for a revised not-to-exceed amount of $3,035,000. The City Council previously approved $2,870,000 for Business Tax and Business Registry administration, compliance, and related services over the full five-year agreement term.
Recent changes to California Department of Tax and Fee Administration (CDTFA) sales tax allocation methodologies, along with broader economic and consumer spending uncertainty, have increased the complexity and variability associated with sales tax forecasting, revenue
monitoring, and related financial analysis. The proposed amendment reassigns the City’s existing sales tax analysis and reporting services from the City’s current consultant, MuniServices LLC, to HdL. The amendment would also add similar services for local transactions and use tax measure, if approved by voters at the November 2026 election. Under the proposed service structure, these activities would be more closely aligned with the City’s financial planning and revenue monitoring processes and timelines and provide staff with greater information and flexibility to evaluate changing economic conditions and revenue assumptions.
The accompanying resolution is required by the CDTFA and updates the City’s authorization for HdL and designated City staff to examine confidential tax information necessary to perform these services.
BACKGROUND
In Spring 2023, the City completed a Request for Proposals (RFP) for tax and fee consulting services, including sales tax, Business Tax, Business Registry, Business Improvement District (BID), Transient Occupancy Tax (TOT), Utility Users Tax (UUT), and property tax services1. The RFP was structured to award services across multiple firms based on qualifications, experience, and operational needs associated with each service area. Since that time, the City has continued to evaluate and adjust service assignments among selected consultants in response to changing operational needs, evolving financial planning priorities, and external economic and regulatory changes.
Under this approach, HdL currently provides Business Tax, Business Registry, and property tax reporting and analytics, while MuniServices provides sales tax, TOT, and UUT services. The proposed amendment would reassign sales tax services from MuniServices to HdL. No other service assignments are proposed to change.
ANALYSIS
Sales tax is one of the City’s major revenue sources, accounting for approximately 10-15% of annual General Fund revenues. Recent changes to CDTFA sales tax allocation methodologies, along with broader economic and consumer spending uncertainty, have increased the complexity and variability associated with sales tax forecasting and revenue monitoring. As a result, timely analysis and the ability to respond to changing conditions have become increasingly important to the City’s financial planning efforts.
The proposed amendment would reassign the City’s sales tax analysis, reporting, forecasting, and audit recovery services from MuniServices to HdL. These services are critical to the City’s 1 City Council, June 19, 2023, Report #2304-1337
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82399&dbid=0&repo=PaloAlto ability to accurately project revenues, monitor economic trends, and ensure the timely recovery of sales tax revenue. Under the proposed service structure, these activities would be more closely coordinated with the City’s financial planning and revenue monitoring processes and timelines. Although the proposed amendment reflects a price increase relative to the City’s current agreement, staff recommends this transition, this structure would also provide staff with greater information and flexibility to evaluate changing economic conditions, refine revenue assumptions, and incorporate updated information throughout the budget and financial planning process.
The amendment also includes similar services for local transactions and use tax revenues. This would include the proposed 0.5% transactions and use tax measure, if approved by voters at the November 2026 election.
In accordance with California Revenue and Taxation Code 7056, Resolution 102223 authorizes MuniServices, HdL, and designated City staff to examine confidential sales and use tax information. The proposed resolution would replace Resolution No. 10222 to reflect the City’s current service providers and expand the authorization to include transactions tax information.
MuniServices would remain authorized to access confidential tax information only as necessary to complete any outstanding petitions under its previous agreement with the City.
This amendment does not change any underlying tax programs, tax rates, or City policies.
FISCAL/RESOURCE IMPACT
No additional funding is requested as part of this amendment. The amendment would increase contract authority by $165,000 through June 30, 2028, for fixed-fee analysis and reporting services, contingent audit recovery fees, reimbursable expenses, and optional services that the City may request. Pricing for the sales tax analysis and reporting services increased from $352 per month to $1,300 per month (or $11,376 annually). This price increase includes reporting on the City’s ½ cent (0.50%) transactions (sales) tax measure that is on November 2026 ballot.
Contingent fees are incurred only when additional tax revenues are successfully recovered.
Contingent fees for recovered sales and use tax revenue increased by three percentage points compared to the prior contract, from 15% to 18%. The fee applies to historical reallocations from audits and the subsequent eight reporting quarters following CDTFA confirmation of the correction. The amendment also includes a 25% contingent fee on revenue recovered for the ½ cent (0.50%) transactions (sales) tax.
3 Resolution 10222, passed by City Council on March 24, 2025:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=62115&dbid=0&repo=PaloAlto Staff expects to manage these costs within existing appropriations. Actual costs will vary based on audit recovery activity levels and any optional services requested by the City. Staff will monitor costs throughout the remaining agreement term. Any additional funding needs will be brought forward for City Council consideration through a future budget process. This contract and pricing is recommended to meet the service delivery and expectations critical to the city’s second largest revenue stream.
STAKEHOLDER ENGAGEMENT
The consultant was selected through the City’s Spring 2023 Request for Proposal (RFP) for tax and fee consulting services.
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: Amendment No. 2 to Contract No. C23187298C with HdL Attachment B: Resolution Authorizing Examination of Sales or Transactions and Use Tax Records
APPROVED BY:
Lauren Lai, Administrative Services Director