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HomeMy WebLinkAbout01-25-1993 Item #6. L • TO: FROM: SUBJECT: • • Suggested Action City Council Meeting January 25. 1993 Agenda Item No. CITY OF NEWPORT BEACH Mayor and Members of the City Council JAN 2 5 1993 Economic Base Model and Assistance with Restructuring of Business License Tax oy) C- 2775 If desired, authorize the proposed study and direct staff to execute the proposed contract with Municipal Resowee Consultants. Discussion In response to a variety of issues currently before the City Council involving land use allocation changes the Council expressed concern about the impact of land use allocation changes on municipal revenue. In response to the City Council's concern staff suggested that a fiscal impact /economic base study could be performed. The purpose of the proposed fiscal impact /economic base study is to create a parcel by parcel geobased tool to evaluate existing and proposed land use allocations in various areas of the City for their impact on municipal revenue. Within the parameters of the geobased model, the model will provide fiscal impact information, in addition to other considerations such as traffic and community character, to guide land use decisions . After a proposal, reference check and interview process a contract with Municipal Resource Consultants (MRC) is recommended for approval. Because of the Revenue Department's familiarity with MRC's expertise in the area of municipal revenue, staff requested during the interview that the consultant revise the study to include assistance with the City's current business license restructuring effort. The purpose of this restructuring effort is to create a more stable fiscal environment for the City. The revised and recommended service proposal involves four major areas. The first service area is development of a Geobased Revenue Information Program (GRIP) Database. This parcel by parcel database is the foundation of the study; it will create a basis for allocation of revenues and expenditures and enable the creation of a fiscal impact /economic base model. The City will receive an on line geobased database from which future analyses can draw necessary information. While revenue information will be entered at the parcel level, all confidential information will be protected by the model. The GRIP Database will be developed as follows. TO: CiAuncil - 2. • Meet with City's designated staff to review service objectives and scope, MRC workplan schedule, public relations, and logistical matters; MRC will also establish . an appropriate liaison with the City's coordinator and define logical checkpoints for reviewing progress. .., S, id};City- provided data such as current year's budget, financial statements, general plan, maps, special reports and studies (economic, market, feasibility, eta) that provide relevant background or insight. • Evaluate regulatory provisions for each of the City's discretionary revenue sources. Consider enforceability, coverage, fairness, equity, local competitiveness, and motivation for businesses to expand or locate within the City. • Develop an inventory of the land parcels, major buildings, commercial, industrial, institutional, governmental and residential (other than single family) revenue generators located within the City's borders. • Link payments from each of the City's Core Business Activity Revenue Generators to determine the total contribution from each entity. Link any "exact match" Revenue Generator entity names to produce limited Citywide Revenue Generator identification. • Capture all available or taxpayer - provided elements of physical presence (e.g., land, buildings, employees) for each of the City's Core Business Activity Revenue Generators. • Capture magnetically available land and buildings areas for each of the City s Residential Revenue Generators. • Convert all data into a common electronic medium. • For each Core Business Activity Revenue Generator: ascertain name, address, primary business activity, assessor parcel number, parcel size, land use (building space occupied and number of employees to be included where available), revenue source, and City's portion of revenue generated. • • Determine revenue productivities (in $ /employee, $ /square foot of building occupied, and $ /acre of owned land) and, similarly, per unit allocated expenses for each Core • Business Activity Revenue Generator on both an individual and group basis. The individual revenue basis is confidential and is not able to be shared outside the City's Revenue Department. • Prepare and install GRIP Query System for on -site access by City. TO: City Council - 3. Another function of the GRIP Database is to provide the City with the factual basis to is create and maintain a municipal revenue structure. This is a second area of proposed work. It will involve evaluation of all City revenue sources and a recommendations report concerning the City's revenue sources. Even though this portion of the study will involve all sources of revenue, the primary focus of the work will be the restructuring of the City's business license revenue, the activity for which staff requested assistance. The recommended business license revenue structure is scheduled to be completed and ready for the public hearing process by March. The revenue rate ranges will be ready for public hearing the following month. The City will receive a city spec computerized business license revenue model which will allow the City to analyze the effects of different revenue structures. A administrative manual will also be provided. The process to accomplish this area of work is as follows. • Meet with City's designated personnel to establish appropriate liaison procedures and review items such as service objectives and scope, MRC workplan schedule and milestones, City data sources, public relations, and logistical matters. • Review City's existing business license and other revenue ordinances. • • Conduct interviews with City personnel. • Develop understanding of the discretionary revenue ordinances, and especially the business license revenue ordinance, in the City's overall revenue strategy. • Determine what effects the changing nature of the local economy and business mix have had on the City. • Assess the existing ordinances' strengths, weaknesses, opportunities and threats based on criteria and considerations such as: * How does Newport Beach compare to neighboring and similar -size cities across all taxes, revenue per capita, and revenue per million dollars of assessed value? * To what degree is the City's revenue sufficient, stable, and predictable? * Do the ordinances take into account an individual business type's ability to • pay based on profitability, competition, or locational advantages /disadvantages? * Does proximity to infrastructure amenities, natural resources, or other attractions provide competitive advantages for the City's businesses? * How does the ordinance provide for fairness and equity? Does each business class generate sufficient revenue to fund its relative share of municipal services? TO: City Council - 4. How many businesses presently located in the City are covered or not covered by the discretionary revenue ordinances? To what extent do the same or different classes of business likely to contribute similar amounts of revenue in proportion to their physical presence within the City, given the existing revenue structure? * Competitiveness. Does the ordinance enhance or impair the City's ability to attract and retain businesses. * Motivation. Does the ordinance create an economic incentive for businesses to generate revenue to the City from other sources, such as sales tax or use tax? * Diversification. Does the ordinance provide for a revenue structure that is broadly based and evenly distributed across numerous types of businesses and revenue generators - -or is it heavily dependent on just a few major sources? * Effectiveness. Does the ordinance encourage compliance and lend itself to enforcement? • Meet with City staff, Council, and members of the City's Business Community to share findings of the Strategic Review and Assessment and to build consensus for effective, equitable, and economically efficient changes to the existing business license ordinance. Issue a formal, concise report on the issues raised and results achieved at each meeting. • Be available to meet with business leaders, citizen advisory groups, the Chamber of Commerce, media, and other to explain the service objectives and to answer other related questions. • Facilitate City goal - setting worksessions to include discussion of criteria to be considered in reviewing and revising the City's business license revenue ordinance as a counterweight to balance the City's strategies for revenue replacement and economic development. • Formally document City's business climate and business community's input on the subject. Any combination of meetings, phone surveys, and questionnaires can be selected by the City. The City's desired program will be implemented in a timely and professional manner. A third part of the proposal is the fiscal impact /economic base model. The City will receive a menu - driven query system model that accesses the GRIP Database in order to provide revenue and expenditure profiles for each type of land use in each area of the City. A users manual will also be provided. This economic study tool will enable the evaluation of existing and proposed land use allocations in various parts of the City for their impacts on municipal revenue. The fiscal impact /economic base model is scheduled for completion by i • l • • • TO: City Council - 5. July /August. The process for completion of the fiscal impact /economic base model is as follows. • Prepare a cost allocation of City services using City's historical data provided by City staff, multiple repression techniques, and experience to allocate all significant public service costs. • Prepare a revenue allocation from City's historical revenue data. • Create a revenue /expenditure profile for each type of land use in each area of the City. • Create the Fiscal Impact Model's computational spreadsheet. • Perform economic studies for all commercial areas in the City. The fourth work area is an expanded revenue audit service. During the interview the consultant proposed that the difference between the amount budgeted for the study and the fee for the study could be "self funded" by the City's contract revenue audit service and that the contract audit service be expanded to include other revenue sources to help.generate funds. MRC currently provides the City a contract sales /use tax audit service. The current contract sales /use tax audit service would be expanded to include franchise fees, documentary transfer tax, and transient occupancy tax. The fee for the audit service is 25% of the one -time amounts recovered for all four sources of revenue and 25% of incremental amounts that the City and MRC agree will produce ongoing revenues. Fees on ongoing revenues realized from sales /use tax will continue to be paid for six quarters and fees on ongoing revenues realized from franchise fees, documentary transfer tax, and transient occupancy tax will continue to be paid for twelve quarters. The City's portion of the revenue discovered by the contract audit service would be paid as collected to cover the already performed and unbudgeted portion of the study. The City will be liable to pay only additional revenue actually received after the date of this contract, that results from MRCS audit effort and are subject to an audit fee, towards the unbudgeted portion of the study fee. Utilizing the revenue audit receipts to pay for the study commits the City to collection of delinquent revenues found by the consultant. The unbudgeted portion of the study fee is the maximum amount of money to come from the City's portion of consultant discovered revenue. If the consultant does not discover sufficient revenues through the expanded audit service to pay for the entire unbudgeted portion of the study fee, the consultant does not receive the full fee for the study. The expanded revenue audit service is an ongoing service. The City would pay up to one half of the budgeted funds during the initial phase of the study and the other half upon completion of the study. Payment of the study fee from consultant discovered revenue would be payable when the City receives the money. There may be future model update costs if staff requires assistance with updating of the model during the first year or two of operation. The maximum cost of annual update assistance would be a not -to- exceed fee. This fee would be a function of the amount of work preformed by staff. TO: Citykuncil - 6. The process used to implement the audit service is as follows. • Meet with City's designated staff to review service objectives and scope, MRC • workplan schedule, public relations and logistical matters. MRC will also establish an appropriate liaison with the City's coordinator and define logical checkpoints for reviewing progress. • Review applicable provisions of the City's municipal code and ordinances adopted by the City. • Physically canvass and evaluate the revenue generating elements of the City's economic base, such as the land parcels, major buildings, commercial, industrial, institutional and governmental users. • Represent the City for the purpose of examining records pertaining to franchise fees, documentary transfer tax, and transient occupancy tax in order to identify and confirm errors /omissions that are resulting in deficient payment to the City. • For each error /omission identified and confirmed, prepare documentation to substantiate and facilitate recovery of revenue due from prior periods (plus applicable interest and penalties) and prevent recurring deficiencies in current and • future years. • Prepare and forward to the appropriate parties "date of knowledge" requests for corrective action and revenue recovery. • Meet with designated City official(s) as necessary to review and discuss our findings and recommendations. • Provide additional assistance as necessary to support the City in recovering and preventing tax deficiencies. • On a quarterly basis, MRC shall provide the City with audit progress reports that include, but are not limited to, the following: Status of audit work in progress, including copies of reports provided to taxpayers /intermediaries addressing each reporting error /omission individually, including where applicable the business name, address, telephone number, account identification number, individuals contacted, date(s) of • contact, nature of business, reason for error /omission and recommended corrective procedure. Actual revenue produced for the City by MRCS audit service on a quarterly and cumulative basis. Projected revenue forthcoming to the City as a result of MRCS audit service, delineated according to source, timing and one -time versus ongoing. TO: • 0 0 City Council - 7. * Alphabetical listing of all errors /omissions detected for the City by MRC including, for each: the account number, correction status, payment amount received by the City, period to which payment is related and payment type (e.g., reallocation, deficiency assessment, etc.). Respectfully submitted, PLANNING DEPARTMENT JAMES D. HEWICKER, Director By / i.> /A Craig T. 131u 011 Principal Ph inner • CrB \SRECON9r UDY Attachment: Contract with Exhibit "C ", the proposal. • S