Subject: SELECTION OF MBIA MUNISERVICES COMPANY TO PROVIDE REVENUE COMPLIANCE AND CONSULTING SERVICES
Adoption of resolutions:
a) Authorizing the City Manager to negotiate and execute an agreement with MBIA MuniServices Company to provide during the period of June 26, 2001 to June 30, 2002 (1) sales tax revenue compliance services compensated on a percentage basis and capped at a total amount not to exceed $400,000 for claims successfully made; and (2) consulting services in an amount not to exceed $145,000, with three one-year options to extend the term at the same rate of compensation for each additional option year, and with a completion services period to end not later than June 30, 2008, in order for MBIA to resolve claims identified during the term.
b) Designating MBIA Muni-Services Company as a representative of the City authorized to examine all sales and use tax records of the California State Board of Equalization.
c) Authorizing the City Manager, the City Auditor, the Budget Director and the Director of Finance, and any other officer or employee of the City designated in writing by the City Manager, to examine all sales and use tax records of the California State Board of Equalization.
On March 6, 2001, the Finance Department issued a Request for Proposal (RFP) to eight firms for compliance and consulting services related to sales and use tax and other revenues. The City received proposals from MBIA MuniServices Company (MMC), The HDL Companies (HDL), Municipal Analytics, Revenue Management Systems and Municipal Revenue Advisors. An interdepartmental committee from Finance, the City Auditor’s Office, the City Manager’s Budget Office, the Office of Economic Development and the Redevelopment Agency reviewed the proposals and interviewed all five proposers.
The interdepartmental committee narrowed the list of candidates to two vendors, MMC and HDL, for additional review. Both of these vendors offered competitive pricing and a broader range of services than the other three companies. After subsequent demonstration and analysis of their respective services, staff recommends the selection of MMC to provide the following revenue consulting and compliance services:
§ Sales and use tax errors and omission compliance;
§ Sales and use tax analysis and reporting services;
§ Geo-based revenue information services; and
§ Business tax identification and compliance services.
In addition to providing services related to the collection of local sales and use taxes, MMC will also provide City Departments with services related to other governmental functions of the City, such as budgeting and financial projections. These revenue compliance and consulting services individually and together add value to various City Departments and are essential for additional protection of the City’s sales and use tax and other revenues.
For example, the City Manager’s Budget Office relies on our revenue consultants to assist with the forecasting of sales and use tax. In addition, MMC will serve as a complement to the City Auditor’s Office in reviewing the State Board of Equalization’s (SBE) sales tax database for errors and omissions of collected sales and uses tax generated by City businesses. Further, both the Finance Department and the City Auditor’s Office believe that it is important to have an outside vendor also review the SBE records for errors and omission to ensure that the City is receiving all the revenues to which it is entitled. The City Auditor’s Office and MMC have worked cooperatively in the past in this regard. As done previously, the proposed agreement would require MMC to wait 2 quarters before filing a claim to the SBE, and if both the City and MMC file a claim for the same account during the same quarter, the City’s filing will take precedence.
Staff recommends selection of MMC for the following reasons:
§ MMC has demonstrated assertiveness in filing submissions of its findings to the SBE. This assertiveness works to the City’s advantage in generating more revenues for the City;
§ MMC has proven that they are able to provide a high level of service to City staff and has been able to meet the deadlines established;
§ MMC has a proven record of accomplishment with 138 client cities in California;
§ MMC is a wholly owned subsidiary of MBIA, Inc., with access to a broad pool of resources; For instance, in the area of budget forecasting, MMC has the additional resource of the parent company’s economist;
§ MMC already has the necessary data loaded in their systems, which enables them to continue to work on the City’s behalf without interruption. If the City were to switch vendors, there would be a time lag in establishing and loading the necessary data.
The term of the agreement is for the period between June 26, 2001 and June 30, 2002. Subject to appropriations by the Council, the agreement may be extended by the City Manager up to three additional one-year terms, until June 30,2005.
For any sales and use tax errors identified by MMC during the initial term, MMC has a three year period from the date of discovery to resolve or complete those claims. This is the completion services period of the agreement. The primary services period of the agreement is the first year of the agreement and any option year(s) that the City exercises. It is during the primary services period of the agreement that the vendor is identifying errors and omissions and providing additional revenue consulting services. Completion services would begin at the expiration or termination of the primary services, whichever is sooner. It is during the completion services of the agreement that the consultant would resolve any unresolved claims with the SBE that were identified during the primary services period. For each option year, there would be a three year completion period as described above. The completion period will extend no later than June 30,2008.
Subject to appropriations by the Council, the agreement may be extended by the City Manager up to three additional one-year terms at an amount not to exceed $545,000 for each option year.
The compensation for each year of the term is based on the following formula:
· Sales Tax Analysis Services $15,000 per year
· Geo-based Revenue Information Services $65,000 per year
· Business Inventory Management Services $65,000 per year
· Sales and use tax errors and omissions compliance: 15% of new revenue received by
City for 11 quarters as a result of MMC’s claims filed with SBE, subject to a cap of $400,000.
With respect to the sales tax compliance services, the maximum number of quarters for which MMC may be compensated for any given taxpayer will not exceed eleven (11) quarters. This number is arrived at by including the two quarters preceding the quarter in which the error or omission is identified plus eight (8) quarters for which MMC is eligible to receive compensation for revenue received by the City as a direct result of its services under this Agreement. Additionally, there is a cap on the total compensation to be paid to MMC for the sales tax compliance services. For the successful claims made by MMC during each year of the term, MMC will be paid up to a maximum of $400,000. It is possible that a finding by the SBE will be made at or near the expiration of the completion services period. In that event, MMC will be compensated for eight (8) quarters that extend beyond the anticipated expiration date of the completion services period. However, in no event will MMC be compensated for the tax compliance work performed that exceeds the maximum compensation allowed under the Agreement, i.e. $400,000 for each year, including each year for the completion service period, for a total amount not to exceed $2,800,000.
RESOLUTIONS AUTHORIZING ACCESS TO TAX RECORDS
On February 20, 2000, the City Council adopted Resolution No. 69420 authorizing certain officials of the City, as well as any other officer or employee of the City designated in writing by the City Manager, to examine sales and use tax records of the State Board of Equalization. Pursuant to State law, Resolution No. 69420 will be amended to make clear that the information obtained from the SBE may be used for tax collection purposes and other purposes related to other governmental functions of the City, such as financial projections and budgeting.
Similarly, on February 20, 2000, Resolution No. 69464 was adopted authorizing MMC to have access to sales and use tax records of the SBE for tax collection purposes under a separate agreement. A new resolution will be adopted specifically authorizing MMC to have access to SBE records under the terms of this Agreement for tax collection purposes and other purposes related to other governmental functions of the City.
The RFP was issued to eight potential proposers and was posted on the City’s internet page.
Fund: General Fund – 001
Budget Amount: $1,200,000
Budget Documents: 2001-2002 Proposed Operating Budget, pg. 609
SCOTT P. JOHNSON
Director, Finance Department