REPORT TO THE CITY COUNCIL FROM: HENRY FIERRO, Budget Director Budget and Management Studies Department BY: PEDRO RIVERA, Budget Manager Budget and Management Studies Department ERLYN NERI, Senior Budget Analyst Budget and Management Studies Department SUBJECT ..Title Actions pertaining to the RFP for FY 2025 Consultant Services for Sales and Use Tax auditing, Information services, Quarterly sales tax reporting and Revenue projection analysis (Forecasting) and auditing sales tax records: 1. *** RESOLUTION - Adopt Resolution designating and authorizing HdL Companies to examine all of the sales or transactions and use tax records collected for the City: Bradley-Burns 1% from the State transactions and use tax (Subject to Mayor's Veto) 2. ***RESOLUTION - Adopt Resolution designating and authorizing HdL Companies to examine all of the sales or transactions and use tax records for the City: Fresno Clean and Safe Neighborhood Parks Tax - Measure P .375% transactions and use tax (Subject to Mayor's Veto) 3. Approve a three (3) year consultant services agreement subject to two optional one-year extensions, exercised at the City's sole discretion with HdL Companies authorizing HdL Companies to perform sales and use tax auditing, information services, quarterly sales tax reporting and revenue projection analysis (forecasting) services; payment for audit services based on a percentage of corrected transactions plus up to $14,400 for management and reporting services (subject to an annual increase by the percentage increase in "CPI" for the preceding twelve-month period) 4. Authorize the Controller, or designee, to sign the consultant services agreement on behalf of the City. ..Body RECOMMENDATION Staff recommends that City Council approve a consultant services agreement with HdL Companies and Resolutions in order for the CDTFA to grant release of sales tax records to HdL Companies that correspond to both the Bradley-Burns 1% from the State transactions and use tax and Fresno Clean and Safe Neighborhood Parks Tax - Measure P transactions and use tax, identify and correct potential distribution errors, and authorize the Controller, or designee, to sign the consultant services agreement on behalf of the City. EXECUTIVE SUMMARY Approval of the consultant services agreement and Resolutions are required by the CDTFA in order for HdL Companies to have access to sales tax records both the Bradley-Burns 1% from the State transactions and use tax and Fresno Clean and Safe Neighborhood Parks Tax - Measure P transactions and use tax ordinance. By doing so, HdL Companies will perform quarterly tax audits to identify potential Bradley-Burns 1% and Measure P sales tax distribution errors and facilitate corrections in order for the City to receive maximum tax allocation owed to the City. In addition, HdL Companies will provide quarterly reports on Measure P sales tax distribution, including annual projections. BACKGROUND As many California cities are not receiving the sales and use tax revenue to which they are entitled due to point-of-sale and other types of taxpayer reporting errors, it is vital for the City to recover misallocations. It is critical for the consultant to detect, correct and recover sales and use tax revenue for the City based on CDTFA, Department records. This process includes, but is not limited to, the one percent of revenues generated by the Bradley-Burns Uniform Local Sales and Use Tax Law as well as Safe Neighborhood Parks Transaction and Use Tax (Measure P; District Tax). Currently, the City of Fresno receive sales and use tax audit & information services by MuniServices, an Avenue Insights & Analytics Company and have used their services since 1993. The Budget Department implemented a Request for Proposal (RFP) to seek proposals from interested consulting entities given the extensive duration with current consultant. The RFP was issued on September 1, 2023 with a proposal deadline date of October 2, 2023. Sales Tax revenue to the City of Fresno in FY 2024 is budgeted at $153,604,000. Sales and Use Taxes are the second largest revenue for the General Fund at 33.6 percent of total operating revenues. Historical trends and the health of the local economy are primary measures for projecting this revenue. The City of Fresno's Sales Tax rate is currently at 8.35 percent. Of the City's Sales Tax rate, the statewide base rate equates to 7.25 percent, which includes the Bradley-Burns 1.00 percent applied to all taxable sales within the city limits. The remaining 1.10 percent corresponds to the 0.375 percent Clean and Safe Parks Transaction & Use Tax within the city limits plus 0.725 percent sales tax applied across Fresno County (e.g. Measure C). The Budget Department received two (2) proposals via Planet Bids. Vendor presentations and virtual interviews conducted by a Review Committee were held on November 9, 2023. The Review Committee were representatives from the City of Fresno Budget and Management Studies Department, City of Fresno City Manager's Office, City of Fresno Finance Department, City of Fresno Purchasing Division, City of Fresno Police Department, and one external representative from the City of Reedley. HdL Companies' delivery and presentation, along with their 40 years of experience, expertise in analyzing tax data, quality customer service which was supported by outstanding references and their commitment to providing innovative solutions earned staff recommendations from the City of Fresno Review Committee. HdL was established in 1983 to maximize local government revenues and maintains the largest private held sales, property and business tax databases in California. HdL maintains Fresno's Sales and Use Tax database back to and including calendar year 1990 and updates the information each quarter. HdL is prepared to provide full reports, analysis, and budget projections within two weeks of approval of the contract for the quarter of approval. Once the contract is signed, the following implementation timeline is anticipated; 0-30 days Kick off meeting, Access to web applications, PDF reports are posted, audits are performed and documented and petitions are prepared, 31-60 days Follow up Field report and submittal of all confirmed misallocations are sent to CDTFA and work authorizations are sent to the City for approval, 61-120 days Invoices are submitted quarterly in February, May, August and November and quarterly meetings are scheduled within 3-6 weeks of the receipt of quarterly data from CDTFA. ENVIRONMENTAL FINDINGS This item is not a project as defined by California Environmental Quality Act. LOCAL PREFERENCE Yes, HdL Companies certified their qualifications as a local business pursuant to Fresno Municipal Code Section 4-109 with their branch office located in Fresno, CA. FISCAL IMPACT There is no impact to the General Fund as appropriations to perform this service for the City currently exists in the budget. Compensation to HdL Companies occurs when corrections generate new sales tax revenue to the City. Attachments: Resolution - Bradley-Burns Resolution - Measure P Consultant services agreement