Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
C-2775 - Sales Tax Consulting Services
L r On November 22, 1995, the City of Newport Beach, California (City) entered into an agreement with Municipal Resource Consultants (MRC) whereby MRC would provide a variety of sales tax consulting services to City. City and MRC agree that the November 22,1995 agreement, any and all other subsequent agreements or amendments between City and MRC, (collectively the "Agreement "), and all aspects of the contractual and professional relationship that may exist between the parties is hereby concluded. No further work will be done by MRC for Newport Beach except as may be agreed to under a new and separate agreement. City and MRC agree that within 14 days of the effective date of this agreement, City shall pay MRC the lump sum amount of $210,000 (two hundred ten thousand dollars) as full and final payment for all invoices, billings, and services provided by MRC pursuant to the Agreement, as well as any contingency amounts that may become due under the Agreement. Both parties agree that any disputes or disagreements regarding the Agreement, invoices, billings, services provided, and all other aspects of the contractual relationship between the parties and /or money due MRC are all resolved and settled with this payment. MRC is relieved of any further obligations under the Agreement to provide services; any work in process by MRC is now being taken over by the City. This agreement is entered into by mutual agreement of the parties effective as of the last date written below. Municipal Resource Consultants /MRC By: /r, --- Marc Herman Title: Chief Operating Officer Date: S /'� i/ i: �,- ;Kevin Cerutti V Title: Chief Financial Officer Date: APPRO D AS TO ORM: N it 4@1retK6n, Corporate Counsel Title: City Manager Date: As, ow ATTEST: CITY CLERK APCVED S TO FORM: ITY ATTORNEY PROPOSAI./AGREEMENT TO AMEND SCOPE OF REVENUE ENHANCEMENT & INFORMATION SERVICES FOR THE CITY OF NEWPORT BEACH October 27,1995 by Municipal Resource Consultants ��uRCEc om MILIAAL RESOURCE CONSULTAN4 32107 W. Lindero Canyon Road j� RC y A partnership of john T. Austin, Inc. & Allen W. Charkow, Inc. Suite Westlake Village, CA 91361 (818) 991 -5220 Fax: (818) 991 -5365 Tustin (714) 258 -30W Madera San Ramon Sacramento (209) 432 -6039 (510) 838 -1115 (916) 971 -4732 October 27,1995 Mr. Glen Everroad Revenue Manager City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92663 Re: Revenue Enhancement /Information Scope Amendment . Dear Glen Enclosed you will find a proposal/ agreement for MRC to amend the scope of revenue enhancement and information services presently provided to Newport Beach to include additional sources of revenue. MRC proposes to provide the amended services on a self- funded basis without creating an expenditure impact on the City's budget. Under this plan, the amended services are entirely funded by: ❑ New revenue generated by MRCs services 0 State reimbursement for the cost of complying with mandated reporting of business license information In this regard, enclosed please find the following: ❑ Executive Summary ❑ Amended Consultant Services Agreement ❑ Brochure describing MRCs Business License Services ❑ Brochure describing MRCs Progressive Revenue Services If you have any questions or would like to discuss how the services could be further tailored to the City s needs, please call me at (800) 247 -4406. i Sincerely, Donald Harrison DH:kg Enclosures EXECUTIVE SUMMARY Municipal Resource Consultants (MRC) agrees to amend the scope of revenue enhancement and information services presently provided to the City of Newport Beach (City) to include additional sources of revenue. MRCs amended services are to be provided on an entirely self- funded basis without creating an expenditure impact on the City's budget TAX AUDIT & INFORMATION SERVICES Since September 1989, MRC has provided the City with sales tax audit and information services. As of the first quarter of 1995, MRCS sales tax audit service produced $1,215,438 of net new revenue for the City, for a return on the City's investment of 390 %. In conjunction with the audits, each quarter MRC provides the City with a Sales Tax Analysis and Reporting Service (STARS) which consists of a quarterly updated onsite Query System and bound Digests. The STARS Query System includes confidential data on all the City's sales tax generators. The STARS Digests reflect MRCS monitoring and analysis of the City's sales tax revenue and generators, to identify revenue performance, trends, gains, declines, projections, issues and opportunities. In addition, MRC has provided audit services related to transient occupancy tax in 1993, has provided Geobased Revenue Information Program (GRIP) services to the City since 1993, and has provided Business License Information Services to the City since 1995. We have also assisted the City with its Business Cooperation Program (BCP) since July 1995, wherein businesses are contacted and advised how they might maximize the revenue flow to the City from taxes the business is already paying but which might be flowing to the City. Transient occupancy tax audits have resulted in $74,939 in new revenue found for the City. The GRIP and BCP services will net the City considerable more revenue as their impact is realized in next two years. MRC proposes to progress its relationship with the City to amend the scope of revenue enhancement audits to allow the City greater flexibility in its utilization of MRCs services. i 0 • PROGRESSIVE REVENUE SERVICES Business License Information Service (BLIS) is comprised of two individual services: 1) a business inventory management service; and 2) an optional business license administration service. BLIS establishes and maintains a current, comprehensive and valid inventory of all the City's businesses. BLIS includes: MRC's proprietary software; physical canvassing of every street and commercial /industrial facility within the City's borders; continuous development of the business inventory using MRCS geobased data integration technology; increased efficiency in registration, renewal, billing, collection, data entry and overall City business license administration; ongoing software/data maintenance, training and support as described in Exhibit "A." MRC shall install the software on a City computer and train staff within 45 working days of receipt of the amended agreement approved by the City. Each month MRC shall update the City's business inventory database and provide the Franchise Tax Board (FTB) with corrected, standardized, enhanced and properly formatted (according to FTB requirements) business license tax information. MRC's Business License Information Service is eligible for State reimbursement. Revenue Enhancement Audit Program (REAP) is designed to assist the City in realizing all of the revenue to which it is entitled, but may not be receiving, from the following sources - business license tax, documentary transfer tax, franchise fees, property tax, sales /use tax, transient occupancy tax and other revenue sources authorized by the City- as described in Exhibit "B." MRCs REAP service results in the detection, documentation and correction of errors and omissions causing deficiencies and thereby produces new revenue that would not otherwise have been realized by the City. MRC shall commence the REAP service within 10 working days following receipt of the amended agreement. Geobased Revenue Information Program (GRIP) includes a computerized database of all the City's land parcels, major buildings and users (commercial, industrial, institutional, governmental, residential), and major sources of general revenue including, but not limited to, business license tax, franchise fees, property tax, sales /use tax, state subventions and transient occupancy tax, as described in Exhibit "C." Quarterly, MRC shall update the GRIP database, train authorized staff in the use of the GRIP Query System, and review with designated City personnel the GRIP Digest with regard to revenue performance, trends, gains, declines, projections, issues and opportunities and provide the City with hardcopy analysis of the City's revenue generators and sources. ii 0 LEVERAGED E MRC has developed a unique package of revenue audit and information services that progressively build on each other to capitalize on the common tasks accomplished, data developed and results produced. MRC calls this "leveraged efficiencies." MRCs Progressive Revenue Services capitalize on these leveraged efficiencies to maximize client revenues, cost savings and return on investment MRC is thus able to provide the City with a comprehensive package of extremely valuable, unique services that are entirely self - funding. SELF - FUNDING COMPENSATION MRC has structured the BLIS, REAP and GRIP services to be entirely self- funding for the City, as follows: Business License Information Service (BLIS) - is entirely eligible for SB 90 reimbursement and MRCs compensation is not payable until the City has received the service and the State has reimbursed the City for BLIS. In the event the State does not fully reimburse the City for BLIS, the amount not reimbursed by the State is not due to MRC until the City has received full reimbursement from the State. The Business Inventory Management Service shall be provided for an annual fee of $95,568, and the optional Business License Administration Service shall be provided for a one -time fee of $15,000, and an annual maintenance fee of $2,000 starting in the second year. Revenue Enhancement Audit Pro gram (REAP) - shall be provided on a self-funded basis, whereby MRCS compensation is entirely predicated and dependent upon the results produced for the City. MRCS compensation is 25% of the deficiency recoveries from eligible prior periods. When MRCS service results in the detection and correction of errors /omissions that the City and MRC mutually agree will produce ongoing (rather than one -lime) benefits to the City, MRCs compensation is 25% of the incremental revenue realized by the City during the first twelve quarters following correction. Geobased Revenue Information Program (GRIP) - compensation for ongoing service of the GRIP database is a monthly fee of $1,500. MRCS compensation for providing the initial and ongoing GRIP service is payable after the City has received the services being invoiced and has sufficient funds to cover the charges from accrued Audit Efficiency Credits (see below) and /or the City's share of new revenue produced from MRCS revenue enhancement audits. MRC Audit Efficiency Credits - Efficiencies and savings are realized by MRC from common tasks accomplished and data developed in providing the REAP and GRIP services. In this regard, MRC proposes to offer to the City, in the form of Audit Efficiency Credits, an opportunity to reduce the compensation paid MRC by the City. These are detailed in Exhibit B, Section 5.1. iii • i EXAMPLE OF SELF - FUNDING AND USE OF AUDIT EFFICIENCY CREDITS The following illustrates a hypothetical example using new revenue generated by MRCS audit services and state reimbursement to fund services provided during the first year of the amended agreement. Revenue Self - Funded to Cost to City City BLIS reimbursement to City from State $110,568 Less: business inventory management service < 95,568> Less: business license administration service < 15,000> New revenue to City from MRCs REAP services $240,000 (including sales /use tax audits) Less: MRC compensation at 25% 60,000 GRIP service charge for first full year 18,000 ($12 months @ $1,500) MRC Audit Efficiency Credits <46,000> TOTALS $240,000 $32,000 City may apply Audit Efficiency Credits to MRCS audit fees and GRIP. iv TABLE OF CONTENTS AMENDED CONSULTANT SERVICES AGREEMENT EXHIBIT A BUSINESS LICENSE INFORMATION SERVICE Attachment A -1 Licensing Agreement for BLIS EXHIBIT B REVENUE ENHANCEMENT AUDIT PROGRAM EXHIBIT C SALES TAX ANALYSIS & REPORTING SERVICE (STARS) EXHIBIT D GEOBASED REVENUE INFORMATION PROGRAM Attachment D -1 Licensing Agreement for GRIP EXHIBIT E GENERAL PROVISIONS AMENDED CONSULTANT SERVICES AGREEMENT THIS AGREEMENT is made at Newport Beach, California, as of 1995, by and between the City of Newport Beach, a municipal corporation (hereafter referred to as "City") and Municipal Resource Consultants (hereafter referred to as "Consultant' or "MRC'), who agree as follows: 1. Services. Subject to the terms and conditions set forth in this Agreement, Consultant shall provide to City the services described in Exhibits "A ", "B" and "C' (the "Exhibits ".) Consultant shall provide said services at the time, place, and in the manner specified in the Exhibits. Consultant shall not be compensated for services outside the scope of the Exhibits. 2. Payment City shall pay Consultant for services rendered pursuant to this Agreement at the times and in the manner set forth in the Exhibits. The payments specified in the Exhibits shall be the only payments to be made to Consultant for services rendered pursuant to this Agreement, unless the City approves additional compensation for additional service. Consultant shall submit all billings for services rendered pursuant to this Agreement to City in the manner specified in the Exhibits. 3. Facilities and Equipment. Consultant shall, at its sole cost and expense, furnish all facilities and equipment which may be required for furnishing services 1 - pursuant to this Agreement, with the exception of the computer equipment specified in the Exhibits. I 4. Exhibits. All Exhibits referred to herein are attached hereto and are by this reference incorporated herein i • • EXECUTED as of the day and year first above stated. CITY OF NEWPORT BEACH By: Title: MUNICIPAL RESOURCE CONSULTANTS PARTNER: JOHN T. AUSTIN, INC. By: John T. Austin Title: President Date: October 27, 1995 ` ! i EXHIBIT A BUSINESS LICENSE INFORMATION SERVICE Municipal Resource Consultants (MRC) proposes to provide to the City of Newport Beach (City) a Business License Information Service (BLIS) that is comprised of two individual services: 1) a business inventory management service; and 2) an optional business license administration service. The objectives, scope, procedures, system requirements, custom specifications, software license, timing, support and compensation are set forth as follows: 1. BACKGROUND In 1984 the state legislature enacted Revenue and Taxation Code Section 195561 requiring most California cities to furnish the state Franchise Tax Board (FTB) specific business tax information each year. In this regard, Government Code Section 17561 2 provides for reimbursement to cities for certain costs incurred from state - mandated local programs; also known as SB 90 reimbursement. The FTB utilizes the cities' business community data to monitor compliance with the State Income Tax, and Bank and Corporation Tax. This program has proven to be successful in allowing the FTB to increase state revenue, but it has become apparent to the FTB that there is a strong correlation between the quality and frequency of the data received and the amount of the revenue that could be raised for the State. Furthermore, research has shown that cities throughout California experience changes in their business base at an average rate exceeding 20% per year - due to business openings, closings, expansions, consolidations, relocation, mergers, acquisitions and other events. Given this situation, a valid listing of a city's businesses typically does not exist. As a result, much of the data received by the FTB is not of the desired quality, frequently in the wrong format, missing important data (e.g. SIC codes), not standardized as to address and name, includes closed businesses not purged from city files, missing many new businesses and it is received only once a year. I Revenue and Taxation Code Section 19556 requires any California city which maintains or has access to a computerized recordkeeping system, and which assesses a business tax, to annually furnish the Franchise Tax Board specified business tax information on all businesses subject to the tax in the preceding fiscal year. The Government Code further specifies that access to the business tax information is to be kept confidential and shall be disclosed only to the FTB. 2 Government Code Section 17561 provides for the State Controller's Office to reimburse cities for certain cost incurred for state - mandated local programs. City - incurred costs that are eligible for such reimbursement include administrative, operational and related costs which are reasonably necessary to implement and maintain an FTB compliance program. This includes costs for staff, independent consultants, automated and manual system modifications, data collection and reasonable allocation of overhead expenses. 1 MRCS BLIS business inventory management service creates and maintains a comprehensive and valid inventory of current businesses operating within the City's boundaries. The inventory is created by combining MRCs geobased data integration technology, which extracts relevant business data from a large variety of data sources (including the City's existing business license records), and physical canvassing of the City which captures those firms that elude electronic data sources. The combined data is corrected, standardized and enhanced (e.g. business name, address, SIC code) and formatted according to FTB requirements. Each month the data is updated and delivered to the FTB and the City. The business inventory provided to the City is placed on a personal computer designated by the City and is accessible through MRC's proprietary compliance software. The optional BUS business license administration service provides the City with MRCS proprietary business license administration software. This service greatly increases the efficiency of the registration, renewal, billing, collection, data entry and overall administration of a city's business license operation. It is adaptable to existing business license forms, is compatible with all standard accounting packages and can operate through most computer systems or platforms. BLIS is eligible for State reimbursement 2. OBJECTIVES MRCS BLIS is designed to assist the City achieve the following objectives: ❑ Build and Maintain an Accurate Business Inventory ❑ Produce State- Mandated Business Tax Information that Qualifies for State Reimbursement ❑ Increase License Registration and Renewal Efficiency (optional service) ❑ Reduce Data Entry Errors, Processing Time and Costs (optional service) 2 I I 3. SCOPE OF SERVICE MRC shall provide the City with a Business License Information Service which includes: ❑ Creation and maintenance of a comprehensive and valid inventory of the City's businesses that is continuously updated ❑ Monthly progress reports to the City on the status of the business inventory which shall include the current business inventory ❑ Production of business inventory data on appropriate media and in appropriate format provided to meet the mandate reporting deadline of March 31 each year ❑ License to use MRC's proprietary business inventory management software ❑ License to use MRC's proprietary business license administration software ❑ Ongoing software upgrades, training and support ❑ Assistance with Franchise Tax Board (FTB) reporting and SB 90 reimbursement claims 4. PROCEDURES MRC responsibilities: ❑ Review the City's business license tax ordinance for enforceability, coverage, billing and collection efficiency ❑ Review the City's business license forms for opportunities to simplify taxpayer reporting, capture economic development data (number of employees, building space, etc.) and FTB- mandated information, and increase processing efficiency ❑ Secure from the City on electronic media a current listing of all businesses registered with the City, and convert the data to a BLIS- readable format 3 9 • ❑ Develop and maintain a computerized inventory of businesses operating in the City by: o Physically canvassing every street and commercial /industrial facility within the City's borders o Preparing an aggregated list of business entities on electronic media; this list is derived from multiple private and public hard copy and electronic sources, including specialized business listings and directories, the CiVs business tax, other confidential revenue payment files, and other sources of information obtained by the City (with permission to use) o Cleaning and standardizing, in address- order, each entity's business name, address, and payment file information to eliminate redundancies ❑ Provide monthly data cleaning, standardization and multiple source integration using MRCS proprietary software for compliance and enforcement ❑ Install the BLIS software, provide ongoing software upgrades,; training and support ❑ Assist City and /or the City's consultant in preparing the claim for state reimbursement by providing the substantiating documentation and rationale to support the SB 90 claim and represent same with the FTB and the State Controller's Office City staff responsibilities: ❑ Establish a record for each registered business to include FfB- mandated information; ❑ Each month provide MRC with a current listing of all businesses registered with the City on electronic media; ❑ Submit to the appropriate State agency an estimated claim for BLIS reimbursement by the deadline for submitting estimated claims for compliance with State mandates each year (November 30 of the fiscal year in which the expense is incurred, or other deadline as may be established by the State); and ❑ Submit to the appropriate State agency a claim for actual expenses incurred for BLIS by the deadline for submitting claims for reimbursement of State mandated local programs (November 30 following the fiscal year in which the expense is incurred, or other deadline as may be established by the State). 4 5. SYSTEM REQUIREMENTS The BLIS software component requires the following hardware: o Any 486 based IBM or compatible PC with 4 MB RAM o Hard disk with free space of 1 MB per 1,000 licenses 0 3.5" or 5.25" floppy disk (1.2 MB or 1.44 MB) o SVGA or VGA monitor o Parallel (Centronics compatible) printer interface o Any Centronics - compatible parallel printer o Modem (min. 14.4 baud rate 28.8 preferred) and dedicated telephone line Software required includes: o MS or PC DOS version 5.0 or later o Communications software for the modem o Word processing software with mail merge capability, i.e., WordPerfect, Microsoft Word, etc. for optional business license administration service Should the City desire, MRC will assist in evaluating and procuring the necessary hardware and /or software. 6. CUSTOM SPECIFICATIONS The BLIS business license administration software can be customized to fit the City's specific needs. The basic software includes the required state- mandated fields, state tax report and standard revenue reports. Additional fields, reports and other detailed specifications can be added on a pre- quoted time and materials basis. MRC will customize the business license administration software to accomodate the efforts of the City's fire department to capture a more complete and accurate business inventory at no charge to the City. 7. SOFTWARE LICENSE, TIMING AND SUPPORT BLIS includes the attached software license and maintenance agreement (see Attachment A -1). Within 30 working days of contract authorization, MRC shall: ❑ Install BLIS software on City hardware ❑ Provide staff with up to 16 hours of training with easy -to -use operating manuals MRC shall also provide ongoing software and documentation upgrades, data updates, and up to 12 hours of annual support onsite or remotely by telephone and /or modem on an as- needed basis. �6 • 1 ! 8. COMPENSATION Pursuant to Government Code Section 17561, MRCS fees for BLIS are eligible for reimbursement by the State. To make BLIS entirely self - funding for the City, MRCS compensation is payable only after MRC has installed the BLIS software on City computer system, has trained City personnel on the use of the software, has produced the business license inventory in the appropriate format and on appropriate media and delivered same to the FTB to meet the State reporting mandate, and the City has been paid on its estimated claim for State reimbursement for BLIS. MRCS fee for BLIS is due within ten days thereafter. In the event the State does not fully reimburse the City for BLIS, the amount not reimbursed is not due MRC until the State has reimbursed it to the City. The annual Business Inventory Management Service is provided for a fee of $95,568, and the optional Business License Administration Service shall be provided for a one -tune fee of $15,000, and an annual maintenance fee of $2,000 starting in the second year. There is no fee for using additional electronic sources of information provided by the City on the business inventory management service provided that the source is provided to MRC on electronic media with permission to use it MRC shall assist the City and /or the City's consultant in preparing the necessary claim for state reimbursement by providing the substantiating documentation, rationale, and cost breakdown to support the SB 90 claim and represent same with the FTB and the State Controller's Office. 9. AUTHORIZATION The City of Newport Beach hereby authorizes MRC to provide the following BLIS service(s): Business Inventory Management Service Business License Administration Service (Optional) ❑ Authorized ❑ Not Authorized EXECUTED as of this day CITY OF NEWPORT BEACH IN Title: MUNICIPAL RESOURCE CONSULTANTS PARTNER: JOHN T. AUSTIN, INC. By: Title: President Date: October 27, 1995 Attachment A -1 LICENSING AGREEMENT for BUSINESS LICENSE INFORMATION SERVICE (BLIS) This Agreement is made at Newport Beach, California, as of 1995, by and between the City of Newport Beach, a municipal corporation (hereafter referred to as "City") and Municipal Resource Consultants (hereafter referred to as "MRC'), who agree as follows: 1. License. Subject to the terms and conditions set forth in this Agreement, MRC shall provide to the City a license to use MRCS software, database, and other property (hereafter referred to as "Property") as further described in Exhibit "A ". MRC shall provide said Property at the time, place, and in the manner specified in Exhibit "A ". MRC shall not be compensated for property outside the scope of Exhibit "A ". 2. Restrictions. Said Property shall only be used by the City. The City shall not sublet, duplicate, or modify said Property. Said Property may only be used for the purposes described in Exhibit "A". Said Property shall be returned to MRC at the time the license expires. MRC may terminate the license, at its sole option, if City violates any of the stated restrictions. The Property remains the sole and exclusive property of MRC. The license granted hereunder shall not imply ownership by City of said Property, rights of City to sell said Property, or rights to use said Property for the benefits of others. This license is transferable only with MRCS written consent 3. Payment City shall pay MRC for license rendered pursuant to this Agreement at the times and in the manner set forth in Exhibit "A". The payments specified in Exhibit "A" shall be the only payments to be made to MRC for license rendered pursuant to this agreement, unless the City approves additional compensation for additional property. MRC shall submit all billings for license rendered pursuant to this Agreement to City in the manner specified in Exhibit W. 7 4. Attachments and Exhibits. All Attachments and Exhibits referred to herein are appended hereto and are by this reference incorporated herein. 5. Proprietary Information. As used herein, the term "proprietary information' means any information which relates to internal controls, computer, or data processing programs; data that has been modified by MRC proprietary techniques resulting in standardized, specifically correlated, or integrated information; electronic data processing applications, routines, subroutines, techniques, or systems; or business affairs and methods of operation or proposed methods of operation of MRC, except such information which is not obtained through this Agreement or which is in the public domain at the time of its disclosure to the other party. City shall hold in confidence using levels of effort consistent with its own policies applicable to its confidential information and shall not disclose to any other party any MRC proprietary information (as such term is herein defined) which may be disclosed to City by MRC in connection with this Agreement or otherwise learned or obtained by City in connection with this Agreement. The parties further agree not to take any other action inconsistent with the confidential nature of MRC proprietary information. The obligations imposed by this Paragraph shall survive any expiration or termination of this Agreement. 6. Waiver. No waiver of any breach or failure or delay in exercising any right, power, or remedy shall constitute a waiver of same or of any provision hereof and no waiver shall be effective unless in writing and signed by an authorized representative of the party against whom enforcement of such waiver is sought. 7. Severabilitv. The provisions of this Agreement are severable, and the unenforceability of any provision of this Agreement shall not affect the enforceability of this Agreement or any other provision hereof. In addition, in the event that any provision of this Agreement is determined by a court to be unenforceable as drafted, the parties acknowledge that it is their intention that such provision be construed in a manner designed to effectuate the purposes of such provision to the fullest extent enforceable under applicable law. 8. Taxes. City shall be responsible for the payment of any applicable taxes in connection with the Agreement, except for any tax based on MRCS net income. 9. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction hereof. U 10. Remedies Cumulative. AN remedies in this Agreement are cumulative and in addition to and not in lieu of, any other remedies a party may have at law or in equity. 11. Entire Agreement. This Agreement and the Exhibits hereto, which is hereby incorporated herein by reference, shall constitute the entire agreement between City and MRC with respect to its subject matter, shall supersede all prior agreements and understandings, if any, between the parties respecting the subject matter hereof and may be modified only by written agreement of the parties. EXECUTED as of the day and year first above stated. CITY OF NEWPORT BEACH Title: MUNICIPAL RESOURCE CONSULTANTS PARTNER: JOHN T. AUSTIN, INC. By John T. Austin Title: President Date: October 27, 1995 0 f ..rrt REVENUE ENHANCEMENT AUDIT PROGRAM Municipal Resource Consultants (MRC) presently provides to the City of Newport Beach (City) a Revenue Enhancement Audit Program (REAP) to assist the City in realizing all of the revenue to which it is entitled from sales /use tax, and agrees to amend the scope to include business license tax, documentary transfer tax, franchise fees, property tax, sales /use tax, transient occupancy tax and other revenue sources authorized by the City. The purpose, scope, procedures, timing, reports and compensation are set forth as follows: 1. BACKGROUND Many California cities are not realizing all of the revenue to which they are entitled from existing tax sources due to administrative errors and omissions by businesses and third -party intermediaries (such as the state, counties, and utility companies) responsible for collecting the revenue and remitting it to the cities. Administrative errors and omissions are inevitable given the non - standard, complex nature of state and local taxes with regard to applicability, rates, exceptions, exemptions, quirks and inconsistencies. Rapidly changing technology, deregulation, human fallibility, fragmented responsibilities and employee turnover further compound the problem. Because there are time limitations on a government agency's ability to recover revenue to which it has been deprived, it behooves the City to have revenue enhancement audits conducted as thoroughly and rapidly as possible. 2. PURPOSE & SCOPE The purpose of MRCS revenue enhancement audits is to assist the City in recovering all of the revenue to which it is entitled from the following sources: ❑ Business License Tax ❑ Documentary Transfer Tax ❑ Franchise Fees ❑ Property Tax ❑ Sales /Use Tax ❑ Transient Occupancy Tax ❑ Other City revenues MRCS Revenue Enhancement Audit Program results in the detection, documentation and correction of errors and omissions causing deficiencies and thereby produces new revenue that would not otherwise have been realized by the City. MRC will commence the audit of each of these revenues upon mutual agreement of MRC and City to proceed and written authorization by the City to commence audit of that particular revenue. 1 0 3. PROCEDURES In general, MRC shall: ❑ Meet with City's designated staff to review service objectives, scope, workplan schedule, public relations and logistical matters; MRC will also establish an appropriate liaison with the City's coordinator and logical checkpoints for reviewing progress ❑ Review applicable provisions of the City's municipal code and ordinances adopted by the City ❑ Represent the City for purposes of examining records pertaining to the revenue sources listed above (see Section 2) to identify and confirm any errors/ omissions that are resulting in deficient payment to the City ❑ For each error /omission identified and confirmed, submit substantiating documentation to designated staff in order to facilitate recovery of revenue due from prior periods ❑ Meet with designated City official(s) as necessary to review our findings and recommendations ❑ Provide additional assistance as necessary to support the City in recovering and preventing tax deficiencies Specifically, for sales /use tax audits (SUTA), MRC shall: ❑ Procure a computer tape of sales /use tax permit records from the State Board of Equalization (SBE) ❑ Establish master file from tape data provided in previous task ❑ Clean -up, standardize and computerize data from City's sales tax distribution reports provided by SBE for eight (8) previous quarters, current quarter and each future quarter service is provided ❑ Perform an initial physical canvassing of every business with taxable sales within the City's boundaries within 90 days of the contract authorization date 2 9 0 ❑ Develop a target list of potential point -of- sale /use taxpayer reporting errors based on a physical canvassing and evaluation of sales /use tax generating businesses located in the City. These businesses are to be analyzed based on proprietary guidelines established by MRC, formulated through expert knowledge of corporate mergers and acquisitions, sales tax versus use tax, business marketing organization and methods, commercial /industrial sales /use tax reporting practices, and other conditions contributing to reporting errors ❑ Contact personnel in sales, operations and /or tax accounting at each target business to determine whether a point -of -sale /use reporting error exists Note: this is accomplished with the highest regard to discretion and professional conduct, as evidenced by the fact that MRCs allocation audits have involved more than 800,000 direct contacts with taxpayer businesses without a single complaint from a taxpayer, client or the State Board of Equalization. Our allocation audits are predicated on a noncontroversial, constructive, public relations approach which emphasizes the importance of each business to the City and the mutual benefits of correcting reporting errors ❑ Provide to the City and State Board of Equalization, reports addressing each taxpayer reporting error individually, including the business name, address, telephone number, California sales tax permit number, individuals contacted, date(s) of contact, nature of business, reason(s) for error, recommended corrective procedure and, if available, estimated sales/ use tax revenue which should be forthcoming to the City ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge ❑ Receive and process sales /use tax quarterly distribution reports provided to City by SBE ❑ Monitor and analyze the quarterly distribution reports with audit focus on the following: o Those accounts with previously detected reporting errors to ensure that the corrections are made for current quarters plus retroactive adjustments for eligible amounts improperly distributed in prior quarters 3 i , 0 0 o Those accounts representing 40% of the City's total sales /use tax revenue to identify and investigate significant aberrations (e.g., negative fund transfers, declines, deficiency assessments, etc.) o Those accounts having a use tax designation to ascertain why the tax is being classified as use tax rather than sales tax o Those accounts that are properly reporting but have potential to generate even more revenue to the City by modifying their operation o Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Review the City's purchases to identify opportunities for the City to recover the local allocation on transactions subject to use tax; MRC will also prepare the necessary documentation to facilitate recovery, including advisory assistance in preparing and filing the returns ❑ For each misallocated account detected, MRC will coordinate with the business and SBE to make the necessary corrections plus retroactive adjustments for eligible amounts of sales /use tax improperly distributed in prior quarters. The sales /use tax audit schedule follows. 4 Sales Tax Audit & Information Schedule & Progress Chart (Preliminary) Month Month Month Month Month Month Month Month Monti Month Month Month Month DESCRIPTION , 2 3 a 5 6 7 a s io ti 12 13 Contract Authorization x Mobilization/Orientation X Procure Permit Listing & Quarterly Distribution Reports XX Clean- up,Standardize & Computerize Permit Listing & QDR Data XXXxx XX Deliver & Review with City STARS Reports & Inquiry System X Physically Canvas and Evaluate Businesses in City Xxxxx xxxx Develop Target List of Potential Misallocalions X XXXxx Review MRC Field Protocol with City X X Contact Each Business on Target List XXXXX xxxxX Prepare, Deliver & Review Initial Audit Reports X Coordinate wrraxpayers & SBE to Correct Mlsallocated Accounts Receive, Process, Monitor & Analyze Quarterly Distribution Reports Ongoing Detection & Correction of Misallocated Accounts Deliver Ongoing Audit & Information Service Reports Prepare & Submit Quarterly Audit Progress Reports X Full Time Effort = Part Time Effort As Required C� i E Specifically, for business license tax audits, MRC shall: ❑ Review the City's business tax code and applicable ordinance adopted by the City ❑ Based on an inventory and evaluation of all businesses with operations in the City, develop an automated target list of businesses that appear not to comply with the City's code /ordinance ❑ Through physical canvassing and telephone/ personal contact, determine whether each target business is or is not in compliance with the City's code /ordinances Note: This is accomplished with the highest regard for discretion and professional conduct, as evidenced by the fact that MRCS revenue enhancement audits for California cities have involved more than 800,000 direct contacts with taxpayer businesses without a single complaint. Our revenue enhancement audits are predicated on a constructive public relations approach which emphasizes the importance of each business to the City and the mutual benefits of correcting errors. Specifically, for documentary transfer and property tax audits, MRC shall: U ❑ Establish a comprehensive inventory of every parcel located within the City, including the database elements needed to facilitate a comparison analysis with County secured and unsecured taxable values and the California State Board of Equalization taxable assessed values ❑ Review County assessment practices, systems and procedures for determining property tax value, calculating and allocating property tax revenue to the City under AB 8 and Community Redevelopment Law Section 33670 ❑ Procure from the County a detailed listing indicating for the period 1990 to present the documentary transfer tax distribution payments to the City including for each property transferred, identification (street address and APN), description, transfer date and actual or allocated transaction value ❑ Research private and public record sources (beyond the County) to compile data on City propertiej involved in change -of- ownership transactions since 1990, including real estate sales /purchases and business mergers and acquisitions Specifically, for franchise fees audits, MRC shall: 0 • ! ❑ Review City's franchise agreements with utility and cable television companies to determine the basis for calculating payments ❑ Review City's franchise fee payment receipt records ❑ Inventory and analyze utility service providers /users subject to the City's code /ordinances ❑ Validate on a test basis that the rate calculation components have been accurately computed ❑ Review the City's payments for utility /telecommunications services to determine whether the City is being billed under the most cost - effective tariff application available to meet the City's needs ❑ Throughout the above process, be available to meet with City to review findings and recommendations, and receive directions regarding auditing of taxpayers. Specifically, for transient occupancy tax (TOT) audits, MRC shall: ❑ Review the guest registration process and associated documentation for revenue tracking, tax collection and exempt - status qualification ❑ Verify accuracy of filed TOT returns with daily and monthly activity summaries; review a random sample of the daily and monthly summaries to determine if the daily summaries reconcile to the monthly summaries ❑ Review bank statements to verify that deposits reconcile with the reported revenue on the TOT returns ❑ Review exempted revenue for proper qualifying documentation; review a random sample of exempted guest revenue and trace registration and /or other source documents to verify compliance with the City ordinance ❑ Where possible, compare the state and federal tax filings with the TOT returns ❑ Schedule and conduct audit finding review meetings with each property operator to explain the findings and allow the operator full opportunity to provide additional documentation that might mitigate the audit findings ❑ Prepare and document any changes to the audit findings and their effects on the final billing of any potential remaining tax, interest or penalty amounts due the City 7 4. TIMING & REPORTS MRC shall commence the revenue enhancement audits within 10 working days of authorization (unless instructed otherwise by the City) with the objective of delivering the initial audit reports within 90 to 120 working days. Thereafter, MRC shall provide the City with audit progress reports to include, but not be limited to, the following: ❑ Status of 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(s) for error /omission and recommended corrective procedure ❑ Actual revenue produced for the City by MRCs service on a quarterly and cumulative basis ❑ Projected revenue forthcoming to the City as a result of MRC's audit service, specified according to source, timing and one -time versus ongoing ❑ 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.) 5. COMPENSATION & EXPENSES To make MRC's service self - funding for the City, MRCS compensation for providing the Revenue Enhancement Audit Program (REAP) shall be entirely predicated and contingent upon the audits producing new revenue that would not otherwise have been realized by the City. The contingent compensation is further described below: SALES /USE TAX MRC's compensation for conducting the sales /use tax enhancement audits is 25% of the new sales /use tax revenue collected by the City as a result of MRC detecting, documenting and correcting the related point -of- sale /use reporting error. Said 25% applies to each correction for fund transfers (i.e., retroactive adjustments from eligible prior periods) and the first six consecutive reporting quarters following completion of the audit by MRC and confirmation of corrections by the State Board of Equalization. �u MRC shall only claim credit for detecting those misallocated accounts that: ❑ Have been located in the City for at least nine months; and ❑ Have not been detected by someone other than MRC one quarter (or more) prior to MRC doing so (see 6.0 below, Backstop Audit Programs) Sales /use tax audit invoices are submitted quarterly after the City has received the revenue from the correction and quarterly distribution report verifying it Each invoice is to include the business name, permit number, local allocation amount received by the City and amount due MRC. Invoices are due and payable upon receipt. If litigation is necessary to collect the revenue identified by MRC, the net cost to the City of said litigation shall be deducted from the amount recovered before MRCS compensation is calculated. OTHER REVENUE SOURCES MRC's compensation for conducting enhancement audits for revenue sources other than sales /use tax (e.g. business license tax, documentary transfer tax, franchise fees, property tax and transient occupancy tax, etc. shall be entirely predicated and contingent upon the results achieved. Under this arrangement, the City agrees to pay MRC an amount equal to 25% of the deficiency recoveries from eligible prior periods (plus associated charges for interest and penalties.) Said recoveries include amounts recovered, refunded, credited or any other consideration given to the City in lieu or as a result of the audit findings. When MRCS audits result in the detection and correction of errors /omissions that the City and MRC mutually agree will produce ongoing (rather than one -time) benefits to the City, MRC's compensation shall be 25% of the incremental revenue collected by the City during the first twelve consecutive quarters following correction. If litigation is necessary to collect the revenue identified by MRC, the cost to the City for any outside counsel utilized for said litigation shall be deducted from the amount recovered before MRCS compensation is calculated. Note: MRC shall not be compensated for business license tax revenue recovered by the City as a result of information provided to the City by MRC unless the City authorizes MRC to perform.full business license tax audits. E In this regard, the City agrees to: ❑ Invoice the responsible party for tax deficiencies (plus associated charges for penalties and interest) identified and confirmed by MRC within 30 days following receipt of MRCs report; and ❑ Notify MRC within 10 days following receipt by the City of payments (cash payments, installment payments, or other compensation directly benefiting the City) resulting from MRCS audit service. Upon being notified of receipt of payment(s), MRC will then invoice the City. Earned compensation is due and payable upon receipt of invoices. All expenses incurred by MRC in providing the revenue enhancement audits and information services are absorbed by MRC. These expenses include items such as employee salaries and benefits, insurance, airfare, auto rentals, meals, lodging, keypunching, computer processing, clerical meetings, telephone, mail, etc.) photocopying, overhead and miscellaneous out-of-pockets for consumable supplies and research materials such as maps, directories, etc. 11• 5.1 MRC AUDIT EFFICIENCY CREDITS Efficiencies are realized by MRC from common tasks accomplished and data developed in providing multiple revenue audit services and GRIP. In this regard, MRC proposes to offer to the City, in the form of Audit Efficiency Credits, an opportunity to reduce the compensation paid MRC as follows: First Tier Audit Efficiency Credits - the City can qualify for First Tier Audit Efficiency Credits if, in addition to BLIS, the City elects to utilize MRCs REAP and GRIP services. This will provide a credit of $46,000, which may be used to reduce MRC earned compensation from REAP and /or GRIP services for the period described below each year commencing July 1, 1996. Second Tier Efficiency Credits - the City can qualify for Second Tier Audit Efficiency Credits if, in addition to BLIS, the City elects to utilize MRCS REAP service (but not GRIP). This will provide a credit of $23,000, which may be used to reduce MRC earned compensation from the REAP service for the period described below each year commencing July 1, 1996. In addition, to qualify for Audit Efficiency Credits, the City must: ❑ Authorize MRC to proceed with the appropriate services for the Tier of Audit Efficiency Credits sought; ❑ Submit to the appropriate State agency an estimated claim for BUS reimbursement by the deadline for submitting estimated claims for compliance with State mandates each year (November 30 of the fiscal year in which the expense is incurred, or other deadline as may be established by the State); and ❑ Submit to the appropriate State agency a claim for actual expenses incurred for BUS by the deadline for submitting claims for reimbursement of State mandated local programs (November 30 following the fiscal year in which the expense is incurred, or other deadline as may be established by the State). Audit Efficiency Credits are granted July 1 of each year and are applied to MRC billings between that July 1 and the following June 30 to reduce the amount due MRC as earned compensation for providing REAP and /or GRIP services. Audit Efficiency Credits may not be carried over beyond June 30 of any year. As stated above, MRCs revenue audit and information services are being provided as a package. Should the City elect to terminate any of the services provided by MRC, or should there be a fundamental change in the funding or administration of any of the revenue sources subject to MRC services, or should the State cease to mandate and /or fund the city business license reporting program, the Compensation and Audit Efficiency Credits sections of the package agreement would be subject to modification by mutual agreement of the City and MRC. 11 6. BACKSTOP AUDIT PROGRAMS MRCS revenue enhancement and information services described in this and the following exhibit are to be provided on a self - funding basis without creating an expenditure impact on the City's budget. Accordingly, if the City has an additional ( "backstop ") revenue enhancement audit program (staffed by internal or external personnel), it is understood and agreed that those personnel must detect and document in writing (on behalf of the City) to the taxpayer and /or responsible intermediary (e.g., state, utility company, etc.) each individual error /omission at least one full calendar quarter prior to MRC doing so. Otherwise, MRC shall be entitled to receive compensation for detecting and documenting any such error /omission which has resulted in deficient payment to the City. For this purpose, the City and MRC shall provide copies to each other of notices submitted to taxpayers and /or intermediaries (state agencies, county, utility service providers, etc.). 12 EXHIBIT C SALES TAX ANALYSIS & REPORTING SERVICE (STARS) MRC's Sales Tax Analysis and Reporting Service (STARS) consists of a Query System, bound STARS reports, and related consulting as follows: 1. STARS QUERY SYSTEM MRC shall install and update quarterly, the City's sales tax registration and allocation data on IBM compatible PCs designated by the City. MRC shall also train authorized City staff in the use of the STARS Query System and furnish an easy -to- follow user manual (provided under separate cover). The STARS Query System enables City staff to analyze the contribution of sales tax revenue from each taxpayer in the City, on an individual, grouped, or sorted basis by business name, business type, permit number, size ranking, street address, development, shopping center, or other geographic area (also by social security number or federal employer identification number, if available). All sales tax data processed by MRC is located on the STARS Query System. MRC has made the Query System extremely user - friendly, even incorporating different types of name and address searches. For example, the address search only needs the street name and will fill in the direction and proper abbreviation for the street type. Also, in looking up a particular type of business segment, a listing of business codes is shown on a "pop up' menu to help the user identify which code to select The Query System can be used to geo -code specific areas such as districts, shopping centers, and redevelopment areas. MRCs Query System will even generate the geo -coded addresses, thus eliminating the need to manually place a code by each firm in a geo -area. The Query System will also eliminate a geo - area in a global command rather than having to eliminate geo -coded accounts one-by -one when removing a geo -area. Because the STARS Query System contains confidential information, access is limited to authorized personnel by making the system password - protected. 1 0 2. STARS REPORTS n Quarterly, MRC shall provide the City with an updated set of the bound STARS reports. The scope of MRC's STARS reports includes, but is not limited to, the following: ❑ Cleaning up, standardizing, and automating data from the City's sales /use tax distribution reports provided by SBE for eight (8) previous quarters, current quarter, and each future quarter of service. This is done to provide two benchmark years in the initial report to the City. Amounts for the most recent quarter are included in each STARS reports, but are not used for benchmark purposes as many accounts are incomplete due to late- paying businesses MRC clients use STARS reports to gain a better understanding of where their sales tax comes from, determine what trends, good or bad, are occurring to their sales tax base, and identify those businesses on which the jurisdiction is most dependent for its sales tax revenue ❑ Receiving and processing sales tax distribution reports quarterly ❑ Reorganizing and refining the computerized sales tax data for the City using MRC's STARS ❑ Analyzing the City's major sales tax producers All major sales tax producers and business categories are monitored and analyzed quarterly based on the following reports: o Management Summary, Sales Tax Digest, Charts - MRC's STARS reports include a confidential Management Summary, a non- confidential Sales Tax Digest, and five color charts that portray graphically the City's sales tax performance and composition. o Analysis Section - The Analysis Section of MRC's STARS reports compares the sales tax performance for the latest complete quarter /report benchmark year to previous quarters and years. This section, which is an exclusive MRC report, replaces cumbersome manual comparisons between quarters and years. 2 The Analysis Section includes the following: (1) historical performance of the top 100 accounts for up to 4 years, (2) a computerized analysis of the changes that occurred by economic category and by business sector with the specific businesses that made the major contribution to the change delineated, and (3) an analysis by magnitude of change indicating which key businesses grew or declined, measured in absolute dollars and percentages. Quarterly aberrations due to SBE audits, fund transfers, and other causes are also identified and analyzed for budget planning and revenue forecasting purposes. o Major (and Top 100) Sales Tax Producers - Sales tax performance of the top 100 sales tax accounts is shown in order of sales tax produced with the results for the most recent five quarters prominently displayed. The proportion of City sales tax produced is also shown by each account. o Sales Tax Accounts by Business Code - This report shows the various business codes assigned by the SBE and the accounts assigned those codes in order of sales tax produced. Five quarters of sales tax data are shown for each account. The City may select the cut -off level of this report (that is, all accounts or just accounts that produce over a certain amount per year). Misclassified sales tax accounts are corrected to make the report a true reflection of the sources of the City's sales tax income. o Sales Tax Trend Report - Data are summarized by economic category and by business sector making up each category. Sales tax trends are shown by quarter and by successive benchmark years. Percent of sales tax is also shown to indicate trends in sales tax composition as well as performance. Growth and decline comparisons are indicated by various categories for forecasting and analysis. o Sales Tax By Account /Sub -Number - The SBE does not provide the specific sales tax amounts generated by each individual location of a firm with multiple locations in the same City and County. Such a breakdown is needed if the City is to track sales tax by specific geo- areas, such as shopping centers, redevelopment areas, business districts, and industrial parks. STARS allocates sales tax by location and even customizes difficult allocations such as auto dealers with showrooms, leasing, used cars, and body repair shops. This report shows the amounts allocated to each individual location for a firm with multiple locations in the City and County. 3 o Geo- Coding - Tracks sales tax performance within designated areas of the City (for example, key shopping centers, redevelopment project areas, and downtown business districts) Charts and printed reports are included for each geo -area. o Cross Reference Reports - These reports allow the user to look up any account shown in the STARS reports by name, address or account number. o Special Business Tax Report - MRCs STARS reports include a report that is specifically designed to facilitate the City's business license tax administration by replacing the manual yellow registration control cards and /or the registration diskette(s). The cards come in no particular order and are cumbersome to use. The diskettes are hard to use due to non - standard address fields and business names and require staff time to produce the list of sales tax permit registration changes. MRC produces a printed report each month that lists all changes to the City's sales tax records by the type of change (that is, new firms, closed firms, new addresses, new owners, other). Under each type of change are the accounts in clean address order. By correcting, cleaning up, and standardizing addresses, business names and business classifications on all of the City's sales tax generators, MRC is able to provide the City's business license staff with another valuable audit tool. MRC will also provide the City with a copy of the cleaned up sales tax files on floppy disk or 9- track tape if the City wishes to add the data to its database. o Corollary Information Services - In addition to the STARS report, MRC provides as a part of the information service, a quarterly updated sales tax forecast for the current and subsequent fiscal year, regional per capita analysis reports, and the MRC Insights, which contains valuable economic analysis on a regional and countywide basis plus current issues of interest. 4 3. COROLLARY CONSULTING In conjunction with the STARS Query System and STARS reports described above, MRC shall provide corollary consulting as follows: ❑ Prepare and analyze a list of the City's major sales tax generators to assist the City in developing a public relations program to prevent the loss of these important businesses • Profile for Economic Development /Community Redevelopment personnel, the most economically desirable and undesirable types of developments or business uses and the reasons why • Assist in defining specific geographic areas for which the City would have an interest in knowing the sales tax produced (for example, within Redevelopment Agency project areas) ❑ Serve as a resource to assist the City on an "as- needed" basis by providing legal and technical support on sales /use tax issues and questions regarding proposed legislation, estimated revenue on proposed projects, revenue - sharing negotiations, retail sales leakage, budget projections, and any other areas 4. DELIVERABLES TIMING MRC shall commence preparing the STARS Query System and STARS Digest within 10 working days following receipt of: ❑ Contract approval and resolution designating MRC as the authorized City Consultant to examine sales and use tax records (See Attachment C -1); and, ❑ State Board of Equalization quarterly distribution reports for most recent nine (9) consecutive quarters The initial STARS Query System shall be delivered and installed on IBM compatible PCs designated by the City, together with the STARS Digest, within 45 working days following receipt of the above. The quarterly updated Query System and STARS Digests will be delivered to the City within 30 working days following receipt of the Quarterly Distribution Reports. MRC will provide corollary consulting to the City in conjunction with delivery of the STARS Query System and STARS Digests following completion of the enhancement audits. 5 5. COMPENSATION MRC shall provide the Sales Tax Inquiry System and STARS reports for $1,500 per quarter, payable only after the City has received the Sales Tax Inquiry System, STARS report(s) and sufficient funds to cover the charges from the City's share of new tax revenue produced from MRC's audit service. 6. CERTIFICATION OF CONFIDENTIALITY Section 7056 of the State of California Revenue and Taxation Code specifically limits the disclosure of confidential taxpayer information contained in the records of the State Board of Equalization (SBE). Section 7056 specifies the conditions under which a City may authorize persons other than City officers and employees to examine State Sales and Use Tax records. By this agreement, MRC is: ❑ Authorized to examine sales and use tax records of the SBE provided to the City pursuant to contract under the Bradley -Burns Uniform Sales and Use Tax Law ❑ Required to disclose information contained in, or derived from, those sales and use tax records only to an officer or employee of the City who is authorized by resolution to examine the information ❑ Prohibited from performing consulting services for a retailer during the term of this agreement ❑ Prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this agreement has expired Information obtained by examination of SBE records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the City as set forth by resolution adopted pursuant to Section 7056(b) of the Revenue and Taxation Code. MRC hereby certifies that any and all information used in the conduct of work performed is to be used only for those purposes authorized by the City and by the Bradley -Burns Uniform Local Sales and Use Tax Law. T 0 0 EXHIBIT D GEOBASED REVENUE INFORMATION PROGRAM Municipal Resource Consultants (MRC) hereby agrees to provide to the City of Newport Beach (City) a Geobased Revenue Information Program (GRIP). The purpose, scope, procedures, timing, deliverables, compensation and licensing agreement (attached) are set forth as follows: 1. BACKGROUND 1.1 THE NEW REALITY. SELF - RELIANT CITIES The 1990s ushered in a new reality for every city in California: fiscal self - reliance. Faced with permanent cutbacks in federal and state assistance, each city is dependent upon the revenue generated from its own economic base to define the level of services it can afford to provide. 1.2 CITY SERVICE FUNDING EQUATION To sort out and better understand the strategic significance and ramifications of self- reliance for California cities, MRC has developed what we call the "City Service Funding Equation" to express the fundamental elements of this new reality, as follows: Economic Base X Revenue Structure = City Service Funding Capacity MRCS City Service Funding Equation simply says that a city's service funding capacity is determined by - and the product of - its revenue structure applied, across its economic base. Economic Base - Includes land, buildings and the users thereof (commercial, industrial, institutional, residential, governmental) that are located in the City. Revenue Structure - Consists of: ❑ Non - Discretionary Taxes - Those revenue sources that a city does not have the authority to directly control, such as: o Property Tax o Sales /Use Tax o State Subventions ❑ Discretionary Taxes - Those revenue sources that a city does have the authority to directly control, such as: o Business License Tax o Transient Occupancy Tax o Franchise Fees o Utility Users Tax 1 0 0 1.3 THE ONLY CONSTANT: CHANGE Given this new reality, each city needs to have a better understanding of its economic base and revenue structure. This is a formidable challenge in that the economic base and revenue structure are dynamic - not static - due to: ❑ Chan ing_Business Base - Cities experience changes in their business base at an average rate exceeding 20% per year - due to business openings, closings, expansions, consolidations, relocations, mergers, acquisitions and other events. ❑ Changing and Outmoded Revenue Structure - Application of a city's revenue structure to its economic base is constantly subject to change from legal decisions, legislation, regulation, deregulation and emerging technology, especially in the area of telecommunications. 2. PURPOSE & APPLICATIONS MRC shall maintain a database to monitor and analyze revenue generated from the City's economic base and revenue structure and input the data elements into GRIP - MRCs Geobased Revenue Information Program. GRIP facilitates the reorganization, monitoring and analysis of revenue contribution on a total amount, segregated and aggregated basis according to revenue source, business type, industry, business, land use, facility, development and designated geographic area. GRIP is a leading edge analytical and management tool which will enable MRC to assist Newport Beach develop and implement strategies to preserve and enhance the City's revenue base (and therefore service funding capacity) through applications such as: ❑ Economic Development • Business Retention • Business Attraction • Business Expansion • Business Cooperation ❑ Land Use Planning ❑ Revenue Productivity Analysis' • Budgeting & Revenue Projections • Business License Strategic Analysis ❑ Fiscal & Economic Impact Analysis* ❑ Benefit Assessment Districts MRC recommends that elements of physical presence (e.g., number of employees, land arealbuilding space, etc.) be included in the GRIP database to maximize the value of these applications to the City. 2 0 3. SCOPE Sections 3, 4, 5 and 6 describe the scope, procedures, timing and deliverables for the Core GRIP Services. Optional GRIP Services are described under Section 7. GRIP provides the City with standardized, integrated and quarterly- updated data on all key revenue sources and revenue generators in one database. Specifically, the GRIP database shall encompass: ❑ The land parcels, major buildings, and users (commercial, industrial, institutional, governmental, residential) located within the. City's boundaries; and ❑ The City's major sources of general fund revenue including, but not limited to, the following: • Business License Tax • Franchise Fees • Property Tax • Sales/ Use Tax • State Subventions • Transient Occupancy Tax MRC defines a revenue generator as any entity that has a physical presence within the City. Such an entity may either occupy or own a parcel within the City, or be conducting business that generates revenue to the City. The GRIP database has at least one record for each revenue generator. As an add on feature to the GRIP database MRC shall expand the database to include physical presence information (number of emplo ees nd /building size) for each type of land use in each area of the City. Pe City's Core Revenue Generators. A Core Revenue Generator is defined as being one of the City's most significant entities in terms of revenue generation. A city typically has up to 150 Core Revenue Gener tors. GRIP is a relational database, designed for extraction of information by structuring appropriate queries. Imbedded in the database is geographic locational information that allow queries to be address - specific, address range - specific or parcel- specific. Should the City already possess an operational GIS system, GRIP will be customized to link with the existing systems parcel index. MRC's multi- disciplined staff also designs digitized mapping systems for cities. (See Section 7.0 Optional Services - Electronic Mapping.) 3 4. PROCEDURES In providing the Core GRIP Services, MRC shall: ❑ Meet with City's designated staff to review service objectives, scope, procedures, 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 ❑ Study City - provided data such as current yea's budget, financial statements, general plan, aerial photos, maps, special reports and studies (economic, market, feasibility, fiscal, etc.) that provide relevant background or insight ❑ Inventory the land parcels and commercial, industrial, institutional, governmental and residential (other than single family) revenue generators located within the City's boundaries ❑ For each residential revenue generator, ascertain address and /or assessor parcel number, revenue source and amount received by the City during the most current year available (to be compiled for future years) ❑ For each business, ascertain name, address, assessor parcel number, business category, revenue source, and City's portion of revenue generated (to be compiled for future years) • Electronically integrate all applicable revenue sources by business for each address location by matching name to address and "sanitizing" all data to assure its accuracy • Update the data accuracy, completeness and integration each quarter as a byproduct of our ongoing Revenue Enhancement Audit Program • Arrange revenue receipts on a modified accrual basis for each period • Assign each revenue generator a business category number ❑ Maintain, update and integrate the database for the duration of the contract ❑ Prepare and install quarterly- updated GRIP Query System for onsite access by authorized City staff in formats that provide for confidential and non - confidential outputs 4 0 0 ❑ In conjunction with the quarterly updates, MRC will conduct a 1 -to -2- hour session to train authorized staff in the use of the GRIP Query System and user manual ❑ Using standard GRIP Query System menu output, format data to be compatible with City's GIS to link through assessor parcel numbers ❑ Prepare and personally present to the City quarterly- updated GRIP Digests, which reflect MRC's monitoring and analysis of the City's revenue, and revenue generators, to identify revenue performance, trends, gains, declines, projections, issues, opportunities and options 5. CITY SUPPORT The City agrees to support MRC by providing or arranging to provide (to the best of its ability) the following: ❑ Letters of introduction (as required) ❑ Requests for information (as required) from third parties (such as the state, county, utility companies, etc.) ❑ Codes/ ordinances covering each tax imposed by the City ❑ Current year's budget report ❑ Revenue receipt information for City- imposed taxes and state subventions • Special reports and studies such as general plan (and proposed amendments), economic, market, feasibility, etc. that would provide additional background or insight • Maps (and related information) that would provide additional background or insight, such as: o Engineering and zoning maps of City (100' or 20(Y per inch scale) o Zoning maps with street delineations o Copy of Assessor's book/ page maps for entire City o Tax Rate Area (TRA) maps (and list of City and RDA TRAs) o RDA project boundary maps o Most recent aerial photograph(s) of entire city 5 ❑ Computer equipment and related software Hardware 0 486/33,486/50 or 486/66 PC System 0 17" SVGA monitor o VESA LB video SVGA(not an ORCHID, preferably GENOA) 0 16 MEG RAM 0 500 MEG internal IDE drive 0 4X CD ROM drive o Mouse (serial port) o Mouse pad o Modem (min. 14.4 baud rate 28.8 preferred) and dedicated telephone line o HP compatible Printer (e.g. Brother HL630 -645, Epson Actionlaser, HP 2 series) with 2 MEGs of memory o Print Drivers for the above selected printer o FONTS (required for GRIP applications) Font Size Arial 8,10, 11,12,14, 24 Courier 10,12 Courier New 10 MS Sans Serif 8,10,12,14,15, 24 Small Fonts 8 Terminal 9,14 Software: o QEMM 7.03 o Windows for Workgroups 3.11 o DOS 6.2 Should the City so desire, MRC will assist the City in evaluating and procuring the necessary computer equipment. IT 6. TIMING & DELIVERABLES MRC shall provide the Core GRIP Services following contract authorization (including the GRIP licensing agreement) with the objective of meeting with the City each quarter, to: ❑ Deliver and install the quarterly- updated GRIP Query System ❑ Train authorized City staff in the use of the GRIP Query System (an easy - to -follow user manual is also furnished by MRC) ❑ Review and discuss the quarterly- updated GRIP Digests 6.1 GRIP QUERY SYSTEM Each quarter, MRC shall deliver and install the quarterly- updated GRIP database on a City - designated IBM compatible PC to allow onsite access by authorized City staff. Should the City so desire, MRC shall furnish the necessary equipment and peripherals at MRCS cost. The GRIP Query System includes data for each of the City's major sources of general fund revenue as follows: ❑ All revenue information is integrated according to revenue generator name and geographic location ❑ Revenue contributions for individual and aggregate sources of revenue are displayed for each revenue generator ❑ Combined revenue information for multiple revenue generators is presented in user-defined geographic areas Since the GRIP database contains information that is deemed confidential by businesses, state agencies and the major utility companies, the GRIP data is encrypted and the System is password - protected to ensure access by authorized personnel only. (See Attachment D -1 for GRIP software licensing agreement.) In addition to providing training for authorized staff, MRC will also provide technical support free of charge via telephone on an as- needed basis for up to 10 hours per quarter. MRC shall maintain, update and integrate the database on a quarterly basis for the duration of the contract. The accuracy and completeness of the GRIP database will continually improve as a byproduct of MRCs ongoing Revenue Enhancement Audit Program. 7 The updates shall include revenue generator, address and /or parcel number, business category code, business identification number, historical payments and the most current revenue data available. MRC's GRIP Query System will enable City staff to analyze the contribution of revenue (from individual or aggregated sources) by each revenue generator in the City, on an individual, grouped or sorted order by business name, business type, business identification number, size ranking, street address, assessor parcel number, or specific user - defined geographic areas. The GRIP Query System can also be used to geo -code additional user - defined areas such as City Council Districts, business industrial parks, redevelopment project areas, etc. The GRIP Query System provides the City with a leading -edge analytical and, management information tool for a broad range of fiscal, economic and strategic applications. 6.2 GRIP DIGEST Each quarter, MRC shall prepare and deliver to the City quarterly- updated confidential and non - confidential versions of the GRIP Digest. Each issue of the GRIP Digest reflects MRCs monitoring and analysis of the City's continually changing economic base and revenue structure, and subsequent identification of revenue performance, trends, gains, declines, projections, issues and opportunities. MRCS GRIP Digest will enable the City to answer questions such as: ❑ How is the City's economic base performing in terms of revenue generation? ❑ What changes are occurring in the City's economic base and how will those changes impact the City's revenue? ❑ Where is the City's tax revenue coming from? ❑ What trends, good or bad, are occurring to the City's general fund revenue base? ❑ Which businesses is the City most dependent on for its tax revenue? ❑ Which business types are the most economically desirable /undesirable? ❑ How are specific geographic areas (mutually defined by City/MRC) performing? ❑ How will actual/ potential changes to the City's revenue structure (legal decisions, legislation, regulation, deregulation, technological change, etc.) impact the City's revenue? N E IThe scope of each GRIP Digest shall include, but not be limited, to: ❑ Monitoring and analyzing the City's revenue, and most significant revenue generators, based on the following: o Management Summary & Charts - GRIP Digest includes a confidential and non - confidential Management Summary with supporting color charts that graphically portray revenue composition and performance for the City. o Analysis Section - The Analysis Section of MRCS GRIP Digest compares the revenue performance of the most significant revenue generators for the latest complete quarter benchmark year to the same period in the prior year(s). The Analysis Section includes the following: (1) historical performance to be compiled for up to four years; (2) an analysis of the changes that occurred by business sector; and (3) an analysis by magnitude of change indicating which key businesses grew or declined, measured in absolute dollars and percentages. Note: Historical data will be shown as it is compiled in preparing future GRIP Digests. For example, the initial year will show no historical data, and the second year will show one year's history together with the current year. o General Fund Trend Report. Data is summarized by type of revenue in summary form in order to develop revenue trends which are shown using successive benchmark years. Percentage of revenue contributed is also shown by successive benchmark year to indicate trends in revenue composition as well. o Ton 100 Revenue Generators - Revenue generated by the City's top 100 Revenue Generators is shown in order of aggregate revenue, including historical performance. o Ton 20 Revenue Generators by Revenue Source - This report shows the 20 largest revenue generators within each revenue source. 2 0 0 7. ADD-ON AND OPTIONAL GRIP SERVICES The scope of MRCS GRIP Services can be customized to fit the City's specific needs by adding to the Core GRIP Services one or more of the Add-On or Optional GRIP Services briefly described below. The Optional GRIP Services can be added to the Core GRIP Services from the outset or at any time during the term of the contract. ❑ GRIP DATABASE AND QUERY SYSTEM ENHANCEMENT o Revenues. The Database and Query System currently being provided to the City will be enhanced with the inclusion of additional capacity to show miscellaneous revenues (i.e. those revenues in addition to sales /use tax, property tax, state subventions, business license tax and transient occupancy tax) related to individual revenue generators. Itemization of all miscellaneous revenue sources for a specific revenue generator will be shown on a special screen. The main GRIP Query System screen will include a revenue source column showing the aggregation of all miscellaneous revenue. This revenue can be related to a specific revenue generator, parcel number or address. • Service Expenditures. The Database and Query System currently being provided to the C' completed with the inclusion of additional capacity to sho n6-se ce expenditures related to individual revenue generators. Expen itures for police, fire and "other" services will be shown on the main GRIP Query System screen. Itemization of "other" service expenditures for a specific revenue generator will be shown on a special screen. The expenditure information shown for a specific entity will be based either on a formula which distributes expenditures among each revenue generator (i.e. individual businesses and residences) in the database, or on data provided by the City on electronic media which specifies the expenditure amount to be related to specific entities. If the City desires to use a formula to distribute expenditures, MRC will work with the City to develop a formula that meets City objectives. These expenditures can be related to a specific revenue generator, parcel number or address. o Net Revenue. The main GRIP Query System screen will contain a column showing net revenue for each entity. Net revenue is defined as total revenue generated by an entity less the expenditure for the provision of services to that entity. o The completion of the revenue and service expenditures elements of the GRIP Database and Query System described above will result in a model which the City can use to review the revenue and expenditure impact of revenue generators and revenue generation categories on a City-wide basis and by selected geographical areas. T 0 0 o Data Clean -up. Revenue and expenditure data provided by the City to MRC requiring modification and clean -up prior to input into the database will involve a "data clean -up" cost based on MRCs direct costs to make the data conform to the database parameters. All data must be provided on electronic media. Clean -up costs will be determined at the time data is received and will be paid by the City on a contingency basis. o Cost. The cost of the services described above under "Database and Query System Enhancement' (except for the cost associated with "Data Cleanup" above) is $55,000. Of this amount $15,000 will paid upon the completion of the capacity for additional revenue sources on the Query System, $40,000 will be paid upon the completion of the capacity for expenditure data and calculation of net revenue on the Query System. ❑ UPDATE FISCAL IMPACT MODEL The City is currently using a fiscal impact model, developed as part of MRCS GRIP Services, which measures the fiscal impact of specific land uses. This model should be updated to reflect the most current City expenditure and revenue data. This component requires the participation of a sub - contractor and therefore an exact cost cannot be provided until requested by the City, the projected cost for the update is $4,000. ❑ FocusED EcoNoNuc DEVELOPMENT STRATEGIES By analyzing City- specific information derived from the GRIP database, MRC can assist the City in developing and implementing focused strategies for business retention, attraction, expansion, and cooperation. ❑ TAX REVENUE MODELING RELATED To IMPACT ON CITY SERVICES Each city is becoming increasingly dependent on its own economic base and discretionary (city- imposed) taxes to fund general services. MRC will provide analytical services to assist the City in evaluating the fairness and equity of its tax structure, including the relationship between revenue generation by entities and the cost to provide City services to them. MRCs services will include the necessary modeling to evaluate the impact of various scenarios and related meetings and worksessions. The cost of this service is $86,000. 11 0 By analyzing City - specific information derived from the GRIP database, MRC can assist the City by conducting interactive worksessions to facilitate strategic decision - making based on: o Interrelatedness of City's economic base & revenue structure o Identification & analysis of City's fiscal and economic SWOTS' o Exploration, development & prioritization of feasible strategies to improve the City's fiscal and economic stability o Consensus building In addition to facilitating strategies worksessions, MRC is also available to assist the City on an as- needed basis by participating in presentations, public hearings or other types of meetings with members of City staff or Council, the Chamber of Commerce, media, citizen advisory groups, committees, etc. ❑ INFORMATION DISPLAY MODULE Ironically, the most important and dramatic use of mapping technology is not for maps, but for database management; data extraction by geographical area, mass updating of data, and presentation of information graphically. The extraction, analysis and presentation of GRIP database information can be significantly enhanced by the visual display of GRIP Query System output maps. MRCs GRIP Information Display Module, which is tied to the GRIP Query System, allows Query System users to display information output on a map depicting the City. 0 SPECIAL ANALYSIS AND REPORTS Given the many possibilities for the use of GRIP information, MRC can assist the City in undertaking a variety of special analyses using GRIP data alone or in conjunction with other data sources. ' Strengths, Weaknesses, Opportunities, Threats 12 i • 8. COMPENSATION • Efficiencies and savings are gained by MRC from the common tasks accomplished and data developed in providing the GRIP service in conjunction with REAP. Accordingly, MRCs compensation (including expense reimbursement) for providing the Core GRIP services to the City shall be $1,500 per month, plus any cost for clean -up of data supplied by the City to MRC. The total cost for Core GRIP services and data clean -up shall not exceed $2,670 per month, for as long as MRC continues to the services to provide the City, which include: • Continuous maintenance, updating and integration of the database and software support • Delivery and installation of the quarterly updated GRIP Query System ❑ Training authorized staff (as needed) in the use of the Query System and user manual ❑ Preparing and delivering the quarterly updated GRIP Digests MRCS compensation for providing the ongoing GRIP service is payable after the City has received the services being invoiced and has sufficient funds to cover the charges from a combination of accrued Audit Efficiency Credits (see Exhibit B, Section 5.1) and the City's share of new revenue produced from MRCS revenue enhancement audits. Invoicing and payment for providing the GRIP service is thus deferred until there is adequate revenue from a combination of MRCS Revenue Enhancement Audit Program and /or Audit Efficiency Credits to cover it 8.2 ADD -ON AND OPTIONAL GRIP SERVICES Should the City desire optional/ additional GRIP services, such as those described above, MRC will only charge an additional fee if the City and MRC so agree in advance. The data elements required for the GRIP service are typically provided in a computer accessible format. Should we encounter a situation where this is not the case and the City decides to have MRC assume responsibility for conversion of data into a computer accessible format, MRC will only charge the City for actual cost reimbursement In the event the City requires these or other add -on or optional services that require an additional charge which has been stated in Section 7, MRC shall provide the City with a not -to- exceed budget in advance. MRC's compensation /cost reimbursement for the add -on and optional services is also eligible for the self- funding program as previously described. 13 0 • Attachment D -1 LICENSING AGREEMENT for GEOBASED REVENUE INFORMATION PROGRAM This Agreement is made at Newport by and between the City of Newport Beach, to as "City") and Municipal Resource Cox who agree as follows: Beach, California, as of 1995, a municipal corporation (hereafter referred sultants (hereafter referred to as "MRC'), 1. License. Subject to the terms and conditions set forth in this Agreement, MRC shall provide to the City, a license to use MRCs software, database and other property (hereafter referred to as "Property') as further described in Exhibit "C'. MRC shall provide said Property at the time, place, and in the manner specified in Exhibit "C ". MRC shall not be compensated for property outside the scope of Exhibit "C'. 2. Restrictions. Said Property shall only he used by the City. The City shall not sublet, duplicate or modify said Property. Said Property may only be used for the purposes described in Exhibit "C'. Said Property shall be returned to MRC at the time the license expires. MRC may terminate the license, at its sole option, if City violates any of the stated restrictions. The Property remains the sole and exclusive property of MRC. The license granted hereunder shall not imply ownership by City of said Property, rights of City to sell said Property or rights to use said Property for the benefits of others. This license is transferable only with MRCS written consent. 3. Payment City shall pay MRC for license rendered pursuant to this Agreement at the times and in the manner set forth in Exhibit "C'. The payments specified in Exhibit "C' shall be the only payments to be made to MRC for license rendered pursuant to this agreement, unless the City approves additional compensation for additional property. MRC shall submit all billings for license rendered pursuant to this Agreement to City in the manner specified in Exhibit "C'. 4. Exhibits. All Exhibits referred to herein are attached hereto and are by this reference incorporated herein. 5. Proprietary Information. As used herein, the term "proprietary information", means any information which relates to internal controls, computer or data processing programs, data that has been modified by MRC proprietary techniques resulting in standardized, specifically correlated or integrated information, electronic data processing applications, routines, subroutines, techniques or systems, or business affairs and methods of operation or proposed methods of operation of MRC except such information which is not obtained through this Agreement or which is in the public domain at the time of its disclosure to the other party. City shall hold in confidence using levels of effort consistent with its own policies applicable to its confidential information and shall not disclose to any other party any MRC proprietary information (as such term is herein defined) which may be disclosed to City by MRC in connection with this Agreement or otherwise learned or obtained by City in connection with this Agreement. The parties further agree not to take any other action inconsistent with the confidential nature of MRC proprietary information. The obligations imposed by this Paragraph shall survive any expiration or termination of this Agreement 6. Waiver. No waiver of any breach or failure or delay in exercising any right, power or remedy shall constitute a waiver of same or of any provision hereof and no waiver shall be effective unless in writing and signed by an authorized representative of the party against whom enforcement of such waiver is sought 7. Severability. The provisions of this Agreement are severable and the unenforceability of any provision of this Agreement shall not affect the enforceability of this Agreement or any other provision hereof. In addition, in the event that any provision of this Agreement is determined by a court to be unenforceable as drafted, the parties acknowledge that it is their intention that such provision be construed in a manner designed to effectuate the purposes of such provision to the fullest extent enforceable under applicable law. 8. Taxes. City shall be responsible for the payment of any applicable taxes in connection with the Agreement, except for any tax based on MRCS net income. 9. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction hereof. 0 10. Remedies Cumulative. All remedies in this Agreement are cumulative and in addition to and not in lieu of, any other remedies a party may have at law or in equity. 11. Entire Agreement. This Agreement and the Exhibits hereto, which is hereby incorporated herein by reference, shall constitute the entire agreement between City and MRC with respect to its subject matter, shall supersede all prior agreements and understandings, if any, between the parties respecting the subject matter hereof and may be modified only by written agreement of the parties. EXECUTED as of the day and year first above stated. CITY OF NEWPORT BEACH Title: Date: MUNICIPAL RESOURCE CONSULTANTS PARTNER: JOHN T. AUSTIN, INC. By: Title: President Date: October 27, 1995 GENERAL PROVISIONS 0 EXHIBIT E 1. Independent Contractor. At all times during the term of this Contract, Municipal Resource Consultants (Consultant) shall be an Independent Contractor and shall not be an employee of the City of Newport Beach (City). City shall have the right to control Consultant only insofar as the results of Consultant's services rendered pursuant to this Agreement; however, City shall not have the right to control the means by which Consultant accomplishes services rendered pursuant to this Agreement. 2. Liability City shall not be called upon to assume any liability for direct payment of any salaries, wages, or other compensation to any Consultant personnel or subcontractor performing services hereunder for City, or any liability other than provided for in this Agreement. City shall not be liable for compensation or indemnity to any Consultant employee or subcontractor for injury or sickness arising out of his /her employment, or for any negligent actions of the Consultant or its employees. All persons employed in the performance of such services and functions shall be employees of Consultant, and as such shall not, for any purposes, be considered employees of City and therefore shall have no right to any City service, civil service, or other City status. 3. Subcontracts. Any subcontracts entered into by Consultant for services to be rendered towards the completion of Consultants portion of this Agreement shall be for Consultant's benefit alone, and as such shall be its responsibility with no liability resting on the City. Consultant agrees to provide a list of all subcontractors to be used in connection with services to be rendered toward the completion of its portion of this Agreement to the City within ten (10) working days of execution of this Agreement. 4. Licenses, Permits, Etc. Consultant represents and warrants to City that he has all licenses, permits, qualifications and approvals of whatsoever nature which are legally required for Consultant to practice his profession. Consultant represents and warrants to City that Consultant shall, at his sole cost and expense, keep in effect or obtain at all times during the term of this Agreement any licenses, permits, and approvals which are legally required for Consultant to practice his profession. 0 0 GENERAL PROVISIONS PAGE 2 5. Time. Consultant shall devote such time to the performance of services pursuant to this Agreement as may be reasonably necessary for satisfactory performance of Consultants obligations pursuant to this Agreement. Neither party shall be considered in default of this Agreement to the extent performance is prevented or delayed by any cause, present or future, which is beyond the reasonable control of the party. 6. Insurance. a. Public Liability. During the term of this Agreement, Consultant shall maintain in full force and effect a policy of public liability insurance with minimum coverages as follows: $1,000,000 for injury to one person in any one occurrence; $1,000,000 aggregate; and, $50,000.00 for property damage. Consultant shall cause the City, its officials and employees to be named on all liability policies described above as insured as respects: (1) activities performed for the City by or on behalf of the named insured, (2) products and completed operations of the Named Insured, and (3) premises owned, leased or used by the Named Insured. b. Worker's Comyensation. During the term of this Agreement, Consultant shall fully comply with the terms of the law of California concerning worker's compensation. Said compliance shall include, but not be limited to, maintaining in full force and effect one or more policies of insurance insuring against any liability Consultant may have for worker's compensation. 7. Consultant Not Agent Except as City may specify in writing, Consultant shall have no authority, express or implied to act on behalf of City in any capacity whatsoever as an agent. Consultant shall have no authority, express or implied, pursuant to this Agreement to bind City to any obligation whatsoever. 8. Assignment Prohibited. No party to this Agreement may assign any right or obligation pursuant to this agreement. Any attempt of purported assignment of any right or obligation pursuant to this Agreement shall be void and of no effect. 2 • • GENERAL PROVISIONS PAGE 9. Personnel. Consultant shall assign only competent personnel to perform services pursuant to this Agreement. In the event that City, in its sole discretion, at any time during the term of this Agreement, desires the removal of any person or persons assigned by Consultant to perform services pursuant to this Agreement, Consultant shall remove any such person immediately upon receiving notice from City of the desire of City for the removal of such person or persons. 10. Standard of Performance. Consultant shall perform all services required ! pursuant to this Agreement in the manner and according to the standards observed by a competent practitioner of the profession in which Consultant is engaged in the geographical area in which Consultant practices his /her profession. All products of whatsoever nature which Consultant delivers to City pursuant to this Agreement shall be prepared in a substantial, first class and workmanlike manner and conform to the standards of quality normally observed by a person practicing in Consultant's profession. 11. Reports, Charts or Other Products. All reports, charts and other products resulting from the performance of this agreement are the property of the City. 12. City Representative. The City Manager or his /her designee is the representative of the City and will administer this Agreement for the City. 13. Termination. This Agreement may terminate on ten (10) days written notice by either party, or within such time as both parties may find necessary to conclude the work currently under way and to summarize Consultant's findings for City. 14. Indemnity and Hold Harmless. Consultant shall assume the defense of, and indemnify and save harmless, the City, its officers, employees, and agents, and each and every one of them, from and against all actions, damages, claims, losses or expenses of every type and description to which they may be subjected or put, by reason of, or resulting from, the performance of the work, provided that such action, damage, claims, loss, or expense is attributable to bodily injury, sickness, disease or death, or to injury to, or destruction of property, whether upon or off the work, including the loss of use thereof, and is caused in whole or in part by any negligent act or omission of the Consultant, and subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, whether or not it is caused in part by a party indemnified hereunder. 3 0 0 GENERAL PROVISIONS PAGE 15. Waiver of Breach No waiver of the breach of any of the covenants, agreements, restrictions or conditions of this Agreement by any partner shall be construed to be a waiver of any succeeding breach of the same or other covenants, agreements, restrictions or conditions of this Agreement. No delay or omission of any partner in exercising any right, power or remedy herein provided in the event of default shall be construed as a waiver thereof, or acquiescence therein, nor shall the acceptance of any payments made in a manner or at a time other than as herein provided be construed as a waiver of or variation in any of the berms of this Agreement 16. Whole and Entire Agreement This instrument contains the whole and entire agreement of the parties hereto relating to their partnership and correctly sets forth the rights, duties and obligations of each to the others as of its date. Any prior agreements, promises, negotiations or representations not expressly set forth in this Agreement are of no force and effect 17. Equal Employment Opportunity: During the performance of this Agreement, Consultant, for itself, its assignees and successors in interest, agrees as follows: a. Comvliance With Regulations: Consultant shall comply with the Executive Order 11246 entitled `Equal Employment Opportunity": as labor regulations (41 C.F.R. Part 60), hereinafter referred to as the "Regulations." b. Nondiscrimination: Consultant, with regard to the work performed by it after award and prior to completion of the work pursuant to this Agreement, shall not discriminate on the ground of race, color, religion, sex or national origin in the selection and retention of subcontractors, including procurements of materials and leases of equipment C. Equipment In all solicitations either by competitive bidding or negotiations made by Consultant for work to be performed under any subcontract, including procurements of materials or equipment, such potential subcontractor or supplier shall be notified by Consultant of Consultant's obligation under this Agreement and the Regulations relative to nondiscrimination on the ground of race, color, religion, sex or national origins. 4 • r GENERAL PROVISIONS PAGE5 d. Information and Reports: Consultant shall provide all information and reports required by the Regulations, or orders and ,instructions issued pursuant thereto, and will permit access to its books, records, accounts, other sources of information and its facilities as may be determined by the City to be pertinent to ascertain compliance with such Regulations, orders and instructions. Where any information required of Consultant is in the exclusive possession of another who fails or refuses to furnish this information, Consultant shall so certify to the City and shall set forth what efforts it has made to obtain the information. e. Sanctions for Noncompliance: In the event of noncompliance by Consultant with the nondiscrimination provisions of this Agreement, the City shall impose such contract sanctions as it may determine to be appropriate, including, but not limited to: 1 (1) Withholding of payments to Consultant under the contract until s Consultant complies; a (2) Cancellation, termination, or suspension of the Agreement, in whole or in part i f. Incorporation of Provisions: Consultant shall include the provisions of j paragraphs "a" through "e" in every subcontract, including Regulations, order, or instructions issued pursuant thereto. Consultant shall take such action with respect to any Regulations, order or instructions issued pursuant thereto. Consultant shall take such action with respect to any subcontract or procurement as the City may direct as a means of enforcing such provisions, including sanctions for noncompliance; provided, however, that in the event Consultant becomes involved in, or is threatened with, litigation with a subcontractor or supplier as a result of such direction, Consultant may request City to enter such litigation to protect the interests of the City. 5 GENERAL PROVISIONS PAGE 6 18. Notices. Any notice to be given from one party to the other pursuant to this Agreement shall be deposited with the United States Postal Service postage prepaid and addressed as follows: To City: City Administrator CITY OF NEWPORT BEACH 3300 Newport Blvd. Newport Beach, CA 92663 To Consultant: John Austin MUNICIPAL RESOURCE CONSULTANTS 32107 W. Lindero Canyon Road Suite 233 Westlake Village, CA 91361 Nothing in this Paragraph shall be construed to prevent the giving of notice by personal service. 11 5. Previous Agreements. This agreement incorporates and supercedes all previous agreements between the City and MRC. EXECUTED as of the day and year first above stated. CMOF 1 ►T PORT i Title: Date: MUNICIPAL RESOURCE CONSULTANTS PARTNER: JOHN T. AUSTIN, INC. By: John T. Austin Title: President Date: October 27, 1995 0 0 C -2775 CITY OF NEWPORT BEACH SECOND AMENDMENT TO CONSULTANT SERVICES AGREEMENT THIS AMENDMENT is made at Newport Beach, California, as of 7- 1993, by and between the City of Newport Beach, a Municipal corporation (hereinafter referred to as "CITY") and Municipal Resource Consultants (hereinafter referred to as "MRC "), who agree as follows: 1. CITY and MRC previously entered into a consultant services agreement as of September 11, 1989, to provide services related to sales tax information, auditing services and corollary consulting services, (the "Agreement "). The agreement was amended as of September 12, 1990, to extend the term of the agreement two years and the City has renewed that agreement, as provided for in the amendment, an additional two years through and including September 11, 1994. 2. CITY and MRC desire to expand the Scope of Service set forth in EXHIBIT "A' to the Agreement. NOW, THEREFORE, the parties agree as follows: 1. The Scope of Services set forth in EXHIBIT "A" to the Agreement shall be expanded in accordance with the Scope of Services set forth in EXHIBIT "C" attached to this second amendment. The services described in EXHIBIT "C" shall be subject to all the General Provisions contained in EXHIBIT'B" to the Agreement. 1 E.' 2. All expenses incurred by MRC in providing the services in EXHIBIT "C" are absorbed by MRC. These expenses include items such as employee salaries and benefits, insurance, airfare, auto rentals, meals, lodging, keypunching, computer processing, clerical, communications (e.g., personal meetings, telephone, mail, etc.), photocopying, overhead and miscellaneous out -of- pockets for consumable supplies and research materials such as maps, directories, etc. 3. All documents and work product become the property of the CITY. Printing in excess of twenty final draft and thirty -five final copies of the study shall be provided and billed at cost outside of the total contract amount. The service provider shall also provide all text on 3 1/2 inch computer disks in MS -DOS WordPerfect 5.1 and spreadsheets in Microsoft Excel 4.0 or higher. effect. 4. All terms and conditions of the Agreement shall remain in full force and .5. This Amendment to Consultant Services Agreement is executed as of the day and year first above stated. 2 ATTEST: By: J ity Clerk APPROVED AS TO FORM: CITY OF NEWPORT BEACH MUNICIPAL RESOURCE CONSULTANTS PARTNER: JOHN T. AUSTIN, INC. a 9 • 0 Exhibit C CITY OF NEWPORT BEACH EXPANDED REVENUE ENHANCEMENT AND INFORMATION SERVICES PROPOSAL MUNICIPAL RESOURCE CONSULTANTS JANUARY 12, 1993 ' URCf 4w �o R � C J� aY MUNIVAL RESOURCE CONSULTANT A partnership of john T. Austin, Inc. & Allen W. Charkou, Inc. January 12,1993 Mr. Craig T. Bluell Principal Planner Mr. Glen Everroad Revenue Manager City of Newport Beach P. O. Box 1768 Newport Beach, CA 92659 -1768 Re: Response to City of Newport Beach request for technical assistance in the preparation of a Fiscal J=act/Econcmic Base Sbidy and a Business License Tax Assessment Dear Craig and Glen: Southern Cablonna 32107 W. Lindero Canyon Road Suite 233 Westlake Village, CA 91361 (818) 991 -5220 Central California (209) 432 -6039 Northern California (415) 838.1115 In response to your requests, Municipal Resource Consultants (MRC) hereby proposes to provide to the City of Newport Beach (City) technical assistance for preparation of a fiscal impact/ economic base study and a business license tax assessment. We have materially expanded the traditional scope of work in order to meet the requirements of what we believe you are seeking: a set of analytical tools that will allow the City to optimize its land use while achieving and maintaining a fair and responsible tax structure that provides financial security for both the City and its business community. Sincerely John Tenfelder 19 TABLE OF CONTENTS 1. Proposal Summary ......................................................................................... ............................... l 1.1. Proposed Services .................................................................................. ............................... 2 I.I.I. Expanded Audit Services ......................................................... ............................... 2 1.1.2. Multi Application GRIP Database ............................................ ..............................3 1.1.3. Fiscal Impact /Economic Base Application ............................. ............................... 3 1.1.4. Tax Structure /Business License Application .......................... ..............................4 11. Fees and Funding Option Summary .................................................... ..............................5 1.3. Confidentiality and Non Disclosure .................................................... ............................... 6 2. Economic Stability Discussion ....................................................................... ............................... 7 2.1. Long Term Revenue Trends ................................................................. ............................... 7 2.2. Fair Share Concept ................................................................................ ............................... 7 2.3. Service vs. Taxes Dilemma ................................................................... ............................... 8 2.4. Revenue Equation .................................................................................. ..............................8 3. Revenue Enhancement Audits ...................................................................... .............................10 3.1. Audit Service Background .................................................................... .............................10 3.2. Audit Service Objective ......................................................................... .............................10 3.3. Audit Service Scope ............................................................................... .............................10 3.4. Audit Service Procedures ..................................................................... .............................11 3.5. Audit Service Schedule and Deliverables ............................................ .............................11 4. GRIP Database 13 4.1. Background ............................................................................................ .............................13 4.2. Terminology ........................................................................................... .............................14 4.3. Economic Fact Base Objectives ............................................................. .............................15 4.4. Scope ....................................................................................................... .............................15 Table 4.1 Data Elements included in Newport Beach GRIP Database.....................................................:......... .............................18 4.5. Procedures 0 19 0 0 4.6. Deliverables and Schedule .................................................................. ............................... 20 4.6.1. GRIP Database ........................................................................ ............................... 20 Table 4-2 Example Non Confidential Information Available through Custom Query System on Newport Beach's GRIPDatabase ................................................... ............................... 21 4.6.2. GRIP Database Workpl an ...................................................... ............................... 22 Figure 4-1 Condensed GRIP Database Timeline .............. ............................... 22 5. Fiscal Impact /Economic Base Model .......................................................... ............................... 23 5.1. Background and Objective ...........................................:..................... ............................... 23 5.2. Scope ....................................................................................................... .............................24 5.3. Procedures ........................................................................................... ............................... 25 53.1. Query System: Data Input for Fiscal Impact Model .......... ............................... 25 53.2. Prepare a Cost Allocation of Services .................................... ............................... 26 5.3.3. Prepare a Revenue Allocation ................................................ ............................... 28 5.3.4. Create a Revenue /Expenditure Profile for Each Type of Land Use 34 63. and in Each Area of the City .................................................. ............................... 28 5.3.5. Create the Fiscal Impact Model's Computational Spreadsheet ......................... 28 5.3.6. Perform Economic Studies for All Commercial Areas ........ ............................... 29 5.4. Deliverables and Schedule .................................................................. ............................... 30 5.4.1. Fiscal Impact/ Economic Base Model .................................... ............................... 30 5.4.2. Schedule ..................................................................................... .............................31 6.5.3. City- Specific, Computerized Business License Tax Model . ............................... 37 Figure 5 -1 Initial Schedule: Fiscal Impact /Economic Base Model ................ 31 39 Figure 5 -2 Completion Schedule: Fiscal Impact /Economic Base 6.5.4.1. Description of Ordinance Revision Recommendations Model................................................................. ............................... 32 6. Tax Structure /Business License Application ............................................. ............................... 33 6.1. Background ............................................................................................ .............................33 6.1.1. Fair Share Principle ................................................................. ............................... 33 6.12. Fiscal Self- Reliance and the Business License Tax ............... ............................... 34 62. Purpose ................................................................................................ ............................... 34 63. Scope: ................................................................................................................................... 34 6.4. Methodology .......................................................................................... .............................35 6.5. Proposed Services ................................................................................ ............................... 35 6.5.1. Strategic Review & Assessment Of Existing Ordinance ...... ............................... 36 6.5.2. Optional Consensus Building Meetings ............................... ............................... 37 6.5.3. City- Specific, Computerized Business License Tax Model . ............................... 37 6.5.4. Recommendations Report ...................................................... ............................... 39 6.5.4.1. Description of Ordinance Revision Recommendations Process...................................................................... ............................... 39 6.5.4.2. Finalizing the Recommendations ........................... ............................... 40 6.5.43. Recommended Business License Tax Structure ................................... 41 6.5.4.4. Draft of Revised Business License Ordinance Provisions ................... 42 6.5.43. Final Formal Report And On -Site Oral Presentation .......................... 42 6.5.5. Administrative Manual .......................................................... ............................... 42 6.6. Schedule ............................................................................................... ............................... 42 Figure 6-1 Initial Schedule: Tax Structure /Business License Service................................................................ ............................... 42 Figure 6-2 Completion Schedule: Tax Structure /Business License Service................................................................ ............................... 43 7. Team Organization & Individual Qualifications ........................................ ............................... 44 7.1. Management And Staffing ................................................................. ............................... 44 7.2. Biographies ............................................................................................ .............................45 8. Compensation ................................................................................................. .............................49 8.1. Revenue Enhancement Audits ........................................................... ............................... 49 8.1.1. Documentary Transfer Tax, Franchise Fees, and Transient OccupancyTax ........................................................................ ............................... 49 8.1.2. Sales and Use Taxes ................................................................ ............................... 49 8.2. Grip Database and Other Information Services ................................ ............................... 50 8.3. Contingent Payment Pool Clarification ............................................. ............................... 52 8.4. Additional Services/ Charges ............................................................. ............................... 52 8.4.1. Annual Update of GRIP Database.. ........................................ ............................... 53 9. Certification Of Confidentiality ................................................................... ............................... 54 10. Qualifications ................................................................................................ ............................... 55 10.1. Prior Related Experience ..................................................................... ............................... 55 10.2. Representative References .................................................................. ............................... 56 11 0 Expanded Revenue Enhancement & Information Services Proposal 1. PROPOSAL SUMMARY Municipal Resource Consultants (MRC) hereby proposes to expand the scope of the revenue enhancement and information services we currently provide the City of Newport Beach (City). We propose to expand our services to include four major service elements. Our first proposed service, Expanded Audit Services, will result in the City receiving new revenue without any changes to the City s tax structure. Because MRC is already under contract to assist the City's Revenue Department in auditing the City's sales tax receipts for allocation errors, this contract expansion — to also include franchise fees and property, transient occupancy, and documentary transfer taxes —will result in MRC having access to magnetically stored data on virtually all significant sources of tax revenue being paid directly and indirectly to the City, with the exception of business license tax, but the City can easily provide that as well. Like all California cities, Newport Beach has multiple tax sources administered by numerous third parties (state and county agencies, and utilities). Thus, there are multiple tax payment files — none of which is linked to any of the other tax files, and all of which have varying degrees of missing, incorrect, or different versions of what is supposed to be the same data element (like owner's name or business address). This makes it impossible to easily answer the two most basic questions that taxpayers and public policy- makers often want the answers to, that is: "Who Pays ?" and "How much ?" As a necessary part of the audit process, MRC does.a partial file record linkage and "data clean-up" in order to identify and correct numerous data and tax payment errors and omissions in each of the separate revenue data files. However, successful auditing does not demand, or result in, a complete data clean-up or intricate linking of the multiple data files' records; so the significant informational value for decision makers that would result from "purified" revenue data records being intricately linked will still be latent after MRC finishes its proposed auditing. Because MRC's Expanded Audit Service will ultimately result in MRC having access to the partially linked and "cleaned up" raw data — and with all of it residing on a common computer system — MRC is in a position to offer the City other services that might otherwise not be economical. Our second proposed service is designed to unlock the informational content of the City s diverse revenue files for the City's staff and public policy- makers by providing a multi application data tool upon which sound planning, tax structuring, and economic development decisions can be based. MRC can aggregate all of the City's diverse revenue and economic base data (including the confidential data) into a common, geo -based revenue database. Such a database is capable of providing highly useful, yet non - confidential, information that can serve as a factual foundation for city planning purposes and for the development of responsible revenue strategies. We call this the GRIP (Geobased Revenue Information Program) Database service. /L • • I, 1 Page 2 City of Newport Beach Proposal Summary. January 12,1993 The ability to perform the GRIP Database service does not depend on the acceptance of the Expanded Audit Services; but the proposed fees for, and the funding of, the other services does depend on such acceptance. Understandably, additional fees for performing the initial (partial) GRIP Database record linkage and "data clean-up" would have to be included in the cost of the second service, if the Expanded Audit Services are not accepted. Both of the other proposed services are applications that depend upon the GRIP Database for their informational inputs. The Fiscal Impact /Economic Base Study would necessarily be materially different — and in our opinion, substantially less valuable — if the GRIP Database service is not accepted. The Tax Structure Model would not be possible without the database and the knowledge upon which business license changes could be based, would be impaired. Although MRC could offer to perform traditional fiscal impact and business license studies, we have chosen not to do so as a result of our understanding of the City's desire to have the highest quality tools at a fair price and a low cost, rather than marginally adequate tools at a low price and a high cost. (Price is paid once at the time of purchase, costs are incurred every day when low price tools prove inadequate for the job.) Although not proposed herein, the GRIP Database can also serve as the factual basis for annual revenue forecasting models, revenue and economic development strategies, and the staff, community, and council consensus building worksessions needed to create and implement such strategies. 1.1. PROPOSED SERVICES 1.1.1. EXPANDED AUDIT SERVICES Many California cities do not receive all of the revenue to which they are entitled. Much of the non - compliance is due to administrative errors and omissions by both the revenue - generating entities and the intermediaries (State, counties, and utility companies) who are responsible for collecting the tax revenue and remitting it to the cities. Administrative errors and omissions are inevitable given the non - standard; complex nature of state and local taxes. Human fallibility, fragmented responsibilities, and employee turnover further compound the problem. Because there are time limitations on the City's ability to recover revenue it has been deprived of, it behooves the City to detect tax deficiencies as quickly as possible, before they become non - recoverable. MRC proposes to expand the scope of the revenue enhancement audit service presently being provided to the City for sales /use tax to include the following revenue sources. Franchise Fees Documentary Transfer Tax Transient Occupancy Tax 17 0 MUNICIPAL RESOURCE CONSULTANTS Page 3 Expanded Revenue and Information Services Proposal January 12,1993 1. 1.2. MULTI APPLICATION GRIP DATABASE Geobased Revenue Information Program Database (GRIP Database). MRC proposes to develop a comprehensive database which captures the relationships between the City's structure and economic base — the land, buildings, and users thereof in Newport Beach. MRC will input all City - selected data elements into GRIP — MRC's confidential and . proprietary Geobased Revenue Information Program. Data will be cross- indexed by address and parcel number. Additionally, MRC will determine the annual revenues contributed to the City by each user (Revenue Generator) for all significant assignable revenue sources. ■ One of the GRIP Database- dependent proposed applications is to provide the City with a basis for allocating general fund expenditures back to each user based on their relative physical presence within the City. The important conclusions will be to show which developments and industries are likely net revenue contributors to the City and which are likely deficit producers. ■ The other proposed application is to provide the City with the factual basis needed to create and maintain a responsible tax structure that is effective, equitable, economically efficient, and acceptable to the City's residents and businesses. 1.1.3. FISCAL IMPACT/ECONOMIC BASE APPLICATION ■ Cost AIlocation of Services. We will use the City's historical data, multiple regression techniques, and others' experience to allocate all significant public service costs to not only the different land uses, but also to the City's individual businesses and land parcels. The basic methodology is to first determine which groups in the database benefit from each City- provided service and to then determine each group's perceived benefit relative to a selected base group (normally the largest beneficiary group of a particular service). The costs are then allocated to the individual entities that comprise the group based on their level of physical presence within the City. For example, a particular City- provided service might be perceived as benefiting primarily the lodging and restaurant industries with a secondary benefit to retail stores and a minor benefit to residents. The entire cost of the service would be allocated to the beneficiaries in a manner that first took into consideration their relative perceived benefit and then their number of employees (where applicable), and square feet of building occupied. MRC has selected Ultra- Resources, Inc. (U -R), an experienced provider of traditional fiscal impact studies, to assist in this and other tasks that will become part of the City's more sophisticated fiscal impact analysis tools being proposed. ■ Revenue Assignment. We will use the City's historical revenue data and MRC's unique position of access to that confidential information to develop a precise revenue model. The bulk of the historical business and resident revenue data will not be allocated. Rather, it will be exactly what the City received from its revenue generators. The resident and business classifications will be the same as used for cost allocation. • • Page 4 City of Newport 13vach Proposal Summary January 12,1993 Using actual revenue information rather than allocated revenue allows precise assignment of revenue expectations for different proposed land uses based on the City's actual experience. This facilitates fact -based decision - making rather than forcing reliance on "rules of thumb" and " average" revenue extrapolations that fail to account for the true distribution of revenue returns possible in any single instance. ■ Revenue/Expenditure Profile for Each Type of Land Use and in Each Area of the City. We will create a menu -driven Query System that accesses the proposed GRIP Database in order to provide any possible type of Revenue /Expenditure Profile desired. The Database will associate all revenue and expenditures within the City to specific parcels and addresses as well as to the specific individuals and businesses that own or occupy those parcels. This allows virtually infinite profiling of the statistical distribution of expected revenues and expenses by not only land use or area of the city, but also by expected business types that will inhabit a particular parcel or group of parcels — such as might occur in the case of a regional mall, office complex, or redevelopment area. Economic Studies Tool. The GRIP Database serves as the input basis for performing economic studies for any or all commercial areas. Some business revenue data are confidential. Such data will be resident in the database but unavailable on an individual business basis (except to persons authorized to receive such confidential information). Instead, complete statistical analysis of the aggregated data for different business -type classifications will be available. Extracted information will include sum, average, median, variance, and standard deviation information, as well as histograms showing dollar per employee and dollar per square foot distributions for each business -type classification and scatter graphs showing the relationship of absolute size to relative revenue productivity (or allocated cost of service) for each business -type classification Monte Carlo simulation capability will be a built -in feature of the model, so that the probability of expected outcomes can be determined from actual revenue return distributions that do not follow standard statistical distributions. 1.1.4. TAX STRUCTURE/BUSINESS LICENSE APPLICATION Strategic Reoiew and Assessment of City's Existing Tax Ordinances. We will investigate the City's existing ordinances' fairness, equity, and fiscal impact on the City and its business community. We will compare the City's general fund tax structure to that of its neighbors and other similar-size cities. We will share our preliminary findings with any group or advisory committee designated by the City. We will rely upon the City's decision makers to provide policy guidance before making final recommendations. Although our study will include all revenue sources, we will focus on the business license tax because of its singular ability to function as the City's fiscal counterbalance in its efforts to achieve fairness, equity, and fiscal stability. �y J '. 0 MUNICIPAL RESOURCE CONSULTANTS Page 5 Expanded Revenue and Information Services Proposal January 12,1993 ■ Optional Consensus Building Meetings with City Staff, Council, and members of the City's Business Community to share .findings of the Review and Assessment and to build consensus for effective, equitable, and economically efficient changes to the existing business license ordinance. For each meeting, we will issue a formal, concise report on the issues raised, consensus achieved, and issues yet to be resolved. ■ A Newport Beach Tax Structure Model that will allow the City to analyze the effects of different tax structures. This financial spreadsheet model will allow the input of theoretical discretionary tax rates and tax offsets for different business or residential classes. The expected revenue effects of any proposed tax change on the City and the expected cost effects on each of its businesses or residents as a class can be reliably and responsibly analyzed prior to making any change recommendations. This model is particularly useful for structuring a modern business license ordinance that can be relied upon to deliver a chosen level of revenue without placing any of the community's businesses at a significant competitive disadvantage. This is not a tool for "raising taxes'; instead, it is a tool for responsibly structuring taxes in an equitable manner. Quite often, such an analysis reveals businesses for which current tax rates should be lowered. It will reveal classes of business that are apparently paying more, as well as those that are apparently paying less, than their proportionate share of local taxes. ■ Business License Tax Ordinance Recommendations Report that will include: • Draft of suggested business license ordinance provisions • Draft of other tax ordinances' provisions, if deemed in need of change • Recommended tax structure detailing responsible tax rate and tax offset ranges for each of the separate residential and business classes in the database, and • Explanation of the economic considerations that affected the selection of the responsible tax rate ranges and offsets for each different business class. • Oral presentation of the findings in the formal report ■. A Business License Tax Administrative Manual that includes: All forms and instructions needed by businesses to comply with whatever ordinance is adopted Complete set of procedures designed to effectively and efficiently administer revised ordinance and ensure compliance, and Troubleshooting Guide in a flowchart format that allows faster problem resolution than typical text -based procedural descriptions. 1.2. FEES AND FUNDING OPTION SUMMARY We understand that the scope of the four proposed services (and their price) is substantially greater than that anticipated for just the traditional Fiscal Impact /Economic Base Study that the initial RFP addressed. The price for our most comprehensive service is $240,000, versus the City's initial budget of $90,000. We propose to "self fund" the difference. 1 0 r] Page 6 City of Newport Beach Proposal Summary January 12,1993 To the degree that the MRC /U -R Project Team's compensation for providing the service exceeds $90,000, we propose that funding for the differential portion be contingent upon MRC's revenue enhancement audits producing new revenue for the City. Under this arrangement, payment for services rendered in excess of $90,000 is deferred until such time that the City receives sufficient funds from the City's share of new revenue produced by MRC's enhancement audits for sales tax or other revenue sources. Should MRC fail to generate sufficient funds for the City to cover the full cost of this multi-part project, MRC /U -R will still deliver all of the services being proposed —but will receive something less than the full fee and something less, than the new revenues secured for the City. MRC's revenue enhancement audits are designed to recover revenue to which the City is fully entitled from existing sources but is not currently receiving. Such situations typically arise because of unintentional errors and omissions by either taxpayers or third party collection agencies — like utility companies, counties, and the State Board of Equalization It should be noted that MRC's fees are not based on any increase in any tax rate or imposition of any new taxes. Only the correction of payment errors and omissions to existing ordinances provides the source of MRC's funding for the additional services being proposed. 1.3. CONFIDENTIALITY AND NON DISCLOSURE Much of the business data needed to assist the City create a responsible business license ordinance is considered confidential by the businesses themselves, as well as by the third party intermediaries (such as the State Board of Equalization and utility companies) that are responsible for collecting and remitting various tax revenues to the City. The businesses and intermediaries allow Municipal Resource Consultants access to their confidential revenue data for three important reasons: (1) MRC requires access to confidential data to conduct compliance audits; (2) MRC is specifically authorized by each of its client cities to examine confidential data; and (3) MRC provides services to government agencies, exclusively. We do not serve the private sector. Firms that serve private sector clients are deemed to have a potential conflict of interest and are therefore not allowed access to revenue data that is considered confidential by businesses or third party intermediaries. However, MRC can provide the City with non -confidential information extracted from confidential data — so Newport Beach's decision makers can have all the benefits of using confidential data, but without ever having access to it. J� I 2. ECONOMIC STABILITY DISCUSSION 2.1. LONG TERM REVENUE TRENDS California cities are becoming more fiscally self - reliant. They are gradually being fiscally isolated by State and federal governments that are unwilling or unable to help fund city services. Increasingly, cities must depend on the tax, revenues generated by their own economic base to fund their chosen levels of service. There is a long -term Ioss of local revenue trend that cannot be managed by implementing traditional short term budget - balancing measures such as deferring capital spending and reducing personnel or other operating costs year after year. Many California cities are now into their fifth consecutive year of reduced revenues from traditional sources. The State's fiscal crises are not over. For the foreseeable future, we expect the State to continue to use portions of the cities' traditional revenues to balance its own budget. 2.2. FAIR SHARE CONCEPT Members of the business community expect cities to support and protect their operations, customers, suppliers, and employees. Cities provide public safety, infrastructure, and other services. In return, cities can expect their business community to fund the services provided. Whenever a business in a fiscally self- reliant city generates insufficient revenue to fund its "proportionate share" of municipal services, either the city's residents or its other businesses must fund the difference. A "fair share" is not necessarily an equal, or proportionate, share. There are many good reasons — legal, moral, social, and economic — why decision makers do not want the tax burden strictly proportional. However, aside from valid reasons for not paying a proportionate share, taxpayer non - compliance, outdated or inequitable ordinances, State preemption, or some other reason can result in a business paying less than its fair share. Someone must pay for local services. If one member or group of the community contributes Iess than its fair share, another must contribute an unfair share. An unfair or inequitable sharing of the tax burden is usually the result of: ■ a lack of knowledge caused by inadequate information available at the time the tax structure was created, ■ changes in the economy that made the existing tax code obsolete, or ■ legal restrictions. Inequitable and unfair local sharing of the tax burden becomes less tolerable and more economically dangerous as the city's economic base funds an ever larger portion of the City's local services cost. IS 1� 0 0 Page 8 Economic 2.3. SERVICE VS. TAXES DILEMMA City of Newport Local governments are being forced to make difficult choices between the reduction of service levels or the selection of new tax bases, tax sources, and tax rates — who, what, and how much to tax. Such decisions (or non decisions) will have an impact on the local economic base. A city's economic base includes: ■ Land parcels comprising the city ■ Buildings and other structures located in the city ■ Commercial, industrial, institutional, residential and governmental users of above. Continued budget - balancing through spending reductions can result in local governments not maintaining their communities' human, infrastructure, and economic assets — the very assets the community needs to prosper. Most California cities' real spending per capita is less today than a decade ago, despite significant gains in real income per capita during the same time period. All California cities are spending less of their community's wealth than they did a decade ago, while trying not to reduce community services. Cities simply cannot continue to consume their assets in order to provide services. 2.4. REVENUE EQUATION The funding of local services depends upon a tax (revenue) structure and an economic base, or revenue foundation. The discretionary portion of the revenue structure consists of locally imposed and controlled taxes.. These include revenue sources such as business license, utility users', transient occupancy, documentary transfer, admissions, parking, pari- mutuel and other various taxes, fees, fines and forfeitures. The revenue foundation consists of taxable bases that can be made subject to the revenue structure. The City's Revenue Equation, as shown below, highlights the interdependence of the tax structure and the City's economic base on its service levels. If a tax structure impedes the development or maintenance of the economic base, the level of service that can be provided will decline. The economic development activities of both the City and its private developers and landlords will not result in the attraction of businesses capable of paying their proportionate share if the City has a, tax structure that would cause them to pay more than a fair share. if economic development brings businesses to town that are precluded from, paying their fair share of the City's service costs, some other entities will have to make up the difference — or they might relocate out of the City to lower their local tax burden. Tax Structure: Economic Base: Service Various Taxes & Rates X Various Taxable Bases = Funding Levels As part of the Planning Department's recent RFP, MRC proposed to provide Newport Beach with a Geobased Revenue Information Program Database that will accurately describe the City's Economic Base as it exists in FY1993. This database will allow the City to answer the question, "Who pays, and how much ?" What will be left to determine is, "Who should pay, and how much ?" Therefore, we are also proposing a Tax Structure /Business License service to assist the City in answering that question '23 MUNICIPAL RESOURCE CoN uLTANTs Page 9 Expanded Revenue and Information Services Proposal January 12,1993 Currently, most local governments do not have the tax economists on staff and automated information systems that are available to state and federal decision makers. They simply lack the decision support systems necessary for managing a tax structure composed of a high level of locally- controlled, discretionary taxes. In the absence of reliable information to guide staffs and councils through tax structuring decisions, cities have been unable to assess how effective and equitable their discretionary tax sources are, or can be, given the unique nature of each city's economic base. MRC will work with Newport Beach to develop a Tax Structure Model which will include all significant revenue sources, but will specifically focus on business license tax. This application will use the city- specific database also being proposed for the City's planning purposes. The Tax Structure Model can assure that any tax restructuring decisions are done responsibly, after consideration of all the pertinent facts. This is not a tool for "raising taxes ", instead, it is a tool for responsibly structuring taxes. Quite often, such an analysis reveals business types for which current tax rates should be lowered. It will reveal business types that are apparently paying Iess, and more, than their proportionate share of local taxes. MRC has the expertise to continue assisting the City use the GRIP Database. to create and maintain an economically sound and politically acceptable tax structure that is best suited to the City's own economic base. /6 3. REVENUE ENHANCEMENT AUDITS 3.1. AUDIT SERVICE BACKGROUND Part of the recurring revenue shortfall problem can be attributed to the fact that, year after year, many California cities do not receive all of the revenue to which they are entitled. Much of the non -compliance is due to administrative errors and omissions by both the revenue-generating entities and the intermediaries (State, counties and utility companies) who are responsible for collecting the tax revenue and remitting it to the cities. Administrative errors and omissions are inevitable given the non - standard, complex nature of state and local taxes with regard to applicability, rates, exceptions, exemptions, quirks and inconsistencies. Human fallibility, fragmented responsibilities, and employee turnover further compound the problem. Because there are time limitations on the City's ability to recover revenue it has been deprived of, it behooves the City to detect tax deficiencies as quickly as possible, before they become non - recoverable. 3.2. AUDIT SERVICE OBJECTIVE The objective of MRC's revenue enhancement audits is to assist the City in realizing all of the revenue to which it is entitled from its major sources of general fund revenue (see Scope below). MRC's revenue enhancement audits result in the detection, documentation, and correction of errors and omissions that are causing tax payment deficiencies. Thereby, new revenue is produced that would otherwise not have been realized by the City. 3.3. AUDIT SERVICE SCOPE MRC proposes to expand the scope of the revenue enhancement audit service presently being provided to the City for sales /use tax to include the following revenue sources: ■ Franchise Fees Documentary Transfer Tax Transient Occupancy Tax MUNICIPAL RESOURCE CONsuLTAN7's Page 11 Expanded Revenue and Information Services Proposal January 12,1993 3.4. AUDIT SERVICE PROCEDURES MRC's revenue enhancement audit procedures are summarized below. ■ 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 offcial(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. 3.5. AUDIT SERVICE SCHEDULE AND DELIVERABLES 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 2. Actual revenue produced for the City by MRC's audit service on a quarterly and cumulative basis 3. Projected revenue forthcoming to the City as a result of MRC's audit service, delineated according to source, timing and one -time versus ongoing / �/ 0 Page 12 City of Newport Beach Revenue Enhancement Audits January 12,1993 4. 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.) .fi� • i 4. GRIP DATABASE 4.1. BACKGROUND The success of a plan (or strategy) depends on the quality of the information used to develop the plan. Any plan that envisions municipal economic stability as an objective would benefit greatly from precise knowledge about the City's revenue generators. But, some business revenue data are confidential, and are normally unavailable for use in planning, economic development, and policy- setting activities. MRC, through applications that rely on its GRIP Database, provides a unique service that captures virtually all of the informational content in confidential data without revealing any portion of an individual business' confidential data. That way, the confidentiality of the data is assured, even as the utility of the information available therein is unlocked for those who guide or decide the City's policies — but cannot have access to confidential data — such as community leaders, chambers of commerce, council members, planners, economic development staffs, redevelopment agencies, and so on. Both the businesses and the third party intermediaries (such as the State Board of Equalization and utility companies) that are responsible for collecting and remitting various tax revenues to the cities allow MRC access to their confidential revenue data for three important reasons: ■ MRC is specifically authorized by each of its client cities to examine confidential data ■ MRC requires access to confidential data to conduct compliance audits ■ MRC provides services to government agencies, exclusively — MRC does not serve the private sector. Firms that serve private sector clients are deemed to have a potential conflict of interest and are therefore not allowed access to revenue information that is considered confidential by businesses or third party intermediaries. MRC is thus able to provide cities with Fact -Based Decision Support ServicessM that firms serving private sector clients are precluded from providing. MRC will be providing usable, non confidential revenue information and analyses through the City to other members of the Project Team and any other persons or businesses the City wishes to involve. M 14 4.2. TERMINOLOGY City of Newport Beach The GRIP (Geobased Revenue Information Program) Database is part of a new generation of analytical and management tools. Accordingly, some terminology may be unfamiliar or used unconventionally. A partial glossary is provided below. ■ CORE (BUSINESS ACTIVITY) REVENUE GENERATORS City's most significant entities in terms of actual or potential revenue generation from business activities within the City ■ DISCRETIONARY REVENUE (TAX) SOURCES Tax sources which the City has the discretionary authority to directly control (such as admissions tax, business license tax, parking tax, transient occupancy tax, and utility users' tax) ■ ECONOMICBASE Land, buildings, and users thereof located in the City ■ FISCALLY SELF - RELIANT CITY City which relies on the revenue generated from its own economic base to fund the municipal services it provides ■ BUSINESS ACTIVITY REVENUE GENERATORS Revenue Generators other than single family residential (such as condominiums and homes); includes all apartments and commercial, industrial, institutional, and governmental entities ■ REVENUE GENERATOR Any entity that has a physical presence within the City; Revenue Generators may do business or own property under several different legal names and /or addresses (One GRIP option is to link such occurrences into Citywide Revenue Generators) ■ SWOTs Acronym for Strengths, Weaknesses, Opportunities and Threats, in terms of revenue generation ■ TAX(REVENUE)STRUCrURE City's discretionary and non - discretionary tax revenue sources • i MUNICIPAL RESOURCE CONSULTANTS Page 15 Expanded Revenue and Information Services Proposal January 12,1993 4.3. ECONOMIC FACT BASE OBJECTIVES An analytical modeI's predictive capability is always limited by the quality and quantity of the data available to be used as inputs. This is known as the GIGO principle: Garbage In, Garbage Out. With the City's concurrence, MRC can create, update, and maintain the GRIP database which will contain all significant available data — including confidential revenue data on each of the City's businesses — necessary to develop non - confidential informational inputs for not only the two models proposed herein (Fiscal Impact and Tax Structure Models), but also for other analytical and forecasting models that deal with the City's tax structure and economic base. The GRIP Database is an integral component of both our proposed Fiscal Impact Model and Tax Structure /Business License Model. It serves as the basis for meeting the City's needs for the entire scope of work outlined in the City's recent Fiscal Impact/Economic Base Study RFP. It will also enable the City to perform sophisticated tax modeling activities which can serve as the factual basis for creating a tax structure that is effective, equitable, and economically efficient. Although not proposed herein, it can also serve as the factual basis for annual revenue forecasting models, revenue and economic development strategies, and the staff, community, and council consensus building worksessions needed to create and implement such strategies. 4.4. SCOPE The GRIP database shall encompass: a The land parcels, major buildings, and users ( commercial, industrial, institutional, governmental, residential) located within the City of Newport Beach's borders; and ■ The City's major sources of general fund revenue including, but' not limited to, the following. • Business License Tax • Franchise Fees • Property Tax (to include secured real and personal property plus unsecured personal property) • Sales /Use Tax • Transient Occupancy Tax i • Page 16 City of Newport Beach , GRIP, Database January 12, 1993 A GRIP Database contains records with a varying number of fields for each identified potential revenue generator. MRC defines a potential revenue generator as any entity (tax - paying or tax - exempt) that has either a physical presence within the City or a distinct revenue generating potential — such as a City-owned boat slip. Such an entity may either partially or completely occupy or own a parcel within the city, or be conducting some business that generates revenue to the City. Where available' and applicable, each potential revenue generating entity will have associated with it: _ ■ parcel number occupied, current zoning and exemptions, parcel acreage, and parcel owner's name and address ■ business' number of employees, square feet of building occupied, primary business SIC Code, gross business revenuez, and revenue contributed by entity to the City from the assignable revenue sources. On average, California cities experience changes in their business mix at the rate of 20% per year due to business openings, closings, expansions, consolidations, relocations, mergers, acquisitions, and other events. For this reason, MRC's analysis will include a physical canvassing of every street with commercial /industrial facilities within the City's borders. This physical inventory is used to develop a current, comprehensive, and valid listing of all the City's businesses. By computerizing this data, MRC will create and cross -index address -based and parcel -based geographic data for all the businesses located in Newport Beach. The GRIP Database is relational, so it will be able to extract any type of desired input data by merely structuring queries. Queries dealing with land use, type of business, number of employees, etc. can be easily constructed and the data moved into the Fiscal Impact Model for analysis or forecasting use. Because the GRIP Database will also be geo- coded, it will be possible to extract information by specifying either address ranges or the map coordinates of any encircling polygon as defined by the City's GIS (Geographic Information System). MRC intends to link to the City's GIS system through the City's unique parcel tag numbers. Our understanding is that the City will be able to provide a linkage between its own parcel tag numbers and the assessor's parcel numbers. If this is not possible, MRC can perform the necessary data linkages to the City's parcel tag numbers and include the geo -data in our proposed GRIP Database at MRC's out -of- pocket expense. 'Data "holes" (data that is believed to be available in the City's records but isn't) can be either filled (by MRC or the City) or ignored — depending on the City's desires. MRC will fill any "data holes" at our out -of- pocket expense. zwhen available from business license or sales tax files .� l 0 0 MUNICIPAL RESOURCE CONSE&TANTS Page 17 Expanded Revenue and Information Services Proposal January 12,1993 The GRIP Database will be the source of most city- specific inputs to the proposed computerized Fiscal Impact Model. (Other input data series — such as inflation, local employment statistics, etc. — can also be part of the model.) The revenue portion of the model does not require validation or history- matching because it uses actual data. The expense allocation component will require validation and can be accomplished using models developed for other cities as well as history matching Newport Beach's own experience. The GRIP Database will be the source of all historical data inputs to the Tax Structure Model. (Other input items — such as economically efficient tax rate ranges for various types businesses — will also be part of the model.) M City of Newport Beach Ianuary 12.1993 Table 4-1 shows the data elements that will reside in the Newport Beach GRIP Database to be prepared by MRC. TABLE 41 DATA ELEMENTS INCLUVED IN NEWPORT BEACH GRIP DATABASE •• Qi ai YI il .Nr d yQi rY y d Database Elements cs a fn C4 c: Property Owner Name & Address X X Business Name & Address and Business Owner X Revenue Conblbutfons by Source Business License Tax X X Fiarrchise Fees X Property Taxes (Secured, Unsecured, & Personal) X X X Sales/Use Tax X Transient Cccupancy Tax X Utility Uses' Tax X X State Subventions X X Other lndividvally- Assignable Taxes Paid X X X Ma fnifestat& m of Physkl Presence Number of Employees ( Full & Part Time) X X Square Feet of Building Occupied X X X Acres of Land Owned & Used, if any X X X Number of Rental Units X X Business Activity Dafa Gross Revenues (if available) X X SIC Code (Standard htdustrial Classification) X X Yellow Pages Listing Group X X Tax Rate Area Location & Rates X X X Unlimited Expense Allocation Field X X X • • MUNICIPAL RESOURCE CONSULTANTS Page 19 Expanded Revenue and Information Services Proposal January 12,1993 4.5. PROCEDURES MRC's GRIP Database service is summarized below. ■ 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. 1 Study City - provided data such as current year's budget, financial statements, general plan, maps, special reports and studies (economic, market, feasibility, etc.) that provide relevant background or insight. ■ Evaluate regulatory provisions for each of the City's discretionary tax 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 51 Page 20 City of Newport Beach GRIP Database January 12,1993 ■ 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. (Note: 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. 4.6. DELIVERABLES AND SCHEDULE 4.6.1. GRIP DATABASE The GRIP Database will provide confidential revenue data (as listed above in Table 4-1) about individual businesses that comprise the economic base to only those who the City authorizes access. Usually Finance Department personnel have a need to use this confidential data for both enforcement and planning purposes. For the Planning Department's Fiscal Impact Model, this same GRIP database will also provide non confidential revenue productivity information about groups of businesses through an MRC- created custom Query System. Some examples of the types of information available through the Query System for use in the Fiscal Impact model are given in Table 4-2. MUNICIPAL RESOURCE CONSIILTANTs Page 21 Expanded Revenue and Information Services Proposal January 12,1993 TABLE M2 EXAMPLE NON CONFIDENTIAL INFORMATION AVAILABLE THROUGH CUSTOM QUERY SYSTEM ON NEWPORT BEACH'S GRIP DATABASE Examples of Possible Measured Revenue u , Productivities & Allocated Unit Cost Expense Information Available from Query System a w .a °» (Also: Sum, Median, Revenue Return w tv 0 [ a• d d Distribution Histograms, Standard Deviation, Variance, and Other Statistical Information) m O '4�- O a Revenue From Property Ownership Activity By Land Use X X X By Business Type X X X By Parcel(s) X X X By Planning or Transportation Area X X X Revenue From Business Activity By SIC Code X X By Land Use X X By Business Type X X By Parcel(s) X X By Planning or Transportation Area X X Expense Allocations For Public Safety By Land Use X X By Business Type X X By Parcel(s) X X X By Planning or Transportation Area X X i4� 0 0 Page 22 City of Newport Beach GRIP Database January 12,1993 4.6.2. GRIP DATABASE WORKMAN The timeline, below, Figure 4-1 presents a summary view of our proposed workplan. (Not all line numbers and tasks are visible, some have been collapsed into summary task descriptions.) The Perform Data Clean -Up And Linkages project will continue until about the sixth to ninth month after commencement of. the project. Its completion time is dependent upon the amount of data clean-up required and the difficulties encountered in establishing record linkages . FIGURE 4-1 CONDENSED GRIP DATABASE TIMELINE ID Task Description Quarter 1 Month 1 I Month 2 Month 3 Month 4 1 Create Geo -data Revenue Input Database w �+ A ! 0 0 MMMMM N i! . 2 Secure Authortzatlon Letters 6 Assemble magnetic data sources 7 Secure Sales Tax tapes V SHE 11 Secure Secured Prop Tax tapes 15 Secure Unsee'd Prop Tax tapes 19 Secure CI a Discreffortary Tax Data 26 Secure Other Tax Data 46 Perform Data Clean-up and Unkages � 47 Mount All Data Tapes 48 Combine records 49 Correct name and address discrepancies 5o Create Custom Diabonary of Corecdons 51 Perform Manuai Correctlons on top 20T Rev Galls 52 Perform Postal Zone Check 53 Recombine Records 54 Relate records to GIS s5 Associate physical presence items to pamels 56 Identify data Was ID Task Descripton Quarter -1 Month -2 Month -1 Quarter t Month 1 Month 2 57 Secure si nificant missing data . 58 Mail out data requests to businesses 59 Mail out second data requests to businesses 6o Input reamed data Into database 61 Build Corredore Ubrary 62 On -site visits tD sewre missirm data from top 20% 63 Complete Data Input & Clean-up 64 Derive non - material data 65 Check derived data for reasonableness 66 Calibrate data and make eorrectionsfad'ustments 67 �7 0 0 5. FISCAL IMPACT/ECONOMIC BASE MODEL 5.1. BACKGROUND AND OBJECTIVE If all businesses generated sufficient revenue to cover their proportionate share of the City's service costs, the fiscal impact of any one business on the City would be zero. Businesses that generate more than a proportionate share are Economic Benefit Producers and have a positive fiscal impact on the City. Businesses that generate less than a proportionate share are Economic Deficit Producers and have a negative fiscal impact on the City. Value judgments are required to determine what a fair share revenue contribution is for different businesses. Before value judgments can be applied about who should contribute more and who should contribute less, it behooves a City to determine its "zero- impact" position. An ideal fiscal impact analysis: ■ Would include all factors that have significant cost or revenue consequences for the City, ■ Would include the full costs of development, not just the marginal costs of projected infrastructure or capital improvement costs typically recovered by development impact fees, ■ Would be more comprehensive than a user service analysis that seeks to recover some or all of the allocated costs for easily- quantified City services from the actual users of those services, ■ Would encompass social, legal, environmental, ecological, opportunity, and other costs as well as the above - mentioned capital improvement and service costs, ■ Would be reliably measurable, and ■ Would be comparable for different types and sizes of land use, developments, users, and defined geographic areas. Unfortunately, any fiscal impact analysis that attempts to directly measure the costs mentioned above (social, legal, environmental, ecological, opportunity) would be highly subjective instead of reliably measurable. It would not be capable of being used to make meaningful comparisons; nor could it be applied in an equitable manner. What is needed is a meaningful fiscal impact analysis tool that is also measurable. MRC defines "fiscal impact" as the City's financial and economic consequences that result from any entity's physical presence within the City. Physical presence may take the form of a land use, development, or user (commercial, industrial, residential, institutional, or governmental). Our definition is based on the premise that there is a strong correlation between physical presence and fiscal impact. If there is no physical presence, there is no significant fiscal impact. Meaningful measures of fiscal impact relate physical presence to cost allocations based on perceived service benefits and to revenue generation Revenue measures are obtained by dividing an entity's total revenue contribution by the same entity's measurable manifestations of physical presence within the City. This provides a valid size - adjusted measurement to relate an entity's fiscal impact with its revenue productivity. 23 _� 0 0 r s Page 24 City of Newport Beach Fiscal Impact/ Economic Base Model January 12, 1993 Cost allocation measures are obtained by first identifying the groups within the City that benefit from a given service and then allocating weighted costs based on their perceived relative benefit and their measurable manifestations of physical presence within the City. This provides a valid size - adjusted measurement to relate an entity's fiscal impact with its service costs. Different classifications of businesses attract different numbers of customers and suppliers per square foot of space occupied and persons employed. The City s cost of providing public safety and infrastructure therefore differs by, the type of business. The social, legal, environmental, ecological, opportunity, and other costs imposed upon a community by a particular type of business, institution, or government entity are directly related to the physical presence which can be measured in terms of land area/building space occupied, number of employees, toxic emissions, or some composite factor. A responsible goal for a fiscally self -reliant city's is to ensure that all its future development programs result in at least a zero fiscal impact upon the City on a "net" basis. In order to determine the true net benefit of economic development, it is necessary to measure the development's direct and indirect revenue benefits to the City and to estimate its full cost to the City. MRC will use the physical presence elements collected in the GRIP Database to determine the relative revenue productivities and service cost allocations in dollars per employee, dollars per square foot of building occupied, and dollars per acre for different land uses, geographic areas, and types of businesses. 5.2. SCOPE MRC will take into account the significant differences in the cost of service provision to different types of businesses because of their different industries. We will create multiple business categories for different businesses that occupy similar types of zoned land or share similar customer and supplier bases. Not only will manufacturing be separated from commercial land uses, but different types of uses within each land -use category will also be analyzed. Example: Along with other categories created by grouping SIC (Standard Industrial Classification) Codes; medical businesses, small retail, and restaurants would be separately aggregated. Because each of these business types serves a different number of customers per employee and per square foot of building occupied, they are reasonably expected, as a class, to have different cost impacts on the City. MRC reasons that the services provided by the City benefit its businesses and their employees, customers, and suppliers by protecting or improving the value of their lives and property. For a given class of business, the number of customers served and suppliers used is roughly proportional to its physical presence, that is, the size of the business as measured by its employee count and working space occupied. Thus, employee count and occupied building size can be reasonably used as a basis for comparing the net relative revenue contribution received or expected from similar businesses. �y M i • MUNICIPAL RESOURCE CONsuL.TANTS Page 25 Expanded Revenue and Information Services Proposal January 12, 1993 Using actual revenue information rather than allocated revenue allows precise assignment of revenue expectations for different proposed land uses based on the City's actual experience. This facilitates fact -based decision - making rather than forcing reliance on "rules of thumb." The ability to correlate expected revenue with other data series (such as inflation, unemployment rates, wage negotiation results, etc.) will also be available as forecasting tools in the model. The GRIP Database serves as the input basis for performing revenue self sufficiency studies for any or all commercial areas. The actual average City revenue dollars per square foot and dollars per employee generated by a type of business or similarly -zoned parcels will be accessible in a non -confidential format. 5.3. PROCEDURES 5.3.1. QUERY SYSTEM: DATA INPUT FOR FISCAL IMPACT MODEL Individual business revenue data are confidential. Such data will be resident in the GRIP database but unavailable on an individual business basis to the expected users of the Fiscal Impact Model. (Persons authorized to receive such confidential information, such as the City's Revenue Department will have access to the confidential information.). Instead, complete statistical analysis of the aggregated data for different business -type classifications will be available as part of the Financial Analysis Model. A menu-driven Query System will extract the data in a manner that will allow the model to import it in a non - confidential form. MRC will ensure that no confidential data is released to anyone but City personnel by setting up a procedure whereby all Project Team members who are not MRC employees will receive all their working information through the City rather than from MRC. Extractable information will include sum, average, median, variance, and standard deviation information, as well as input data for histograms showing revenue dollar per employee and dollar per square foot distributions for each business -type classification and scatter graphs showing the relationship of absolute size to relative revenue productivity (or allocated cost of service) for each business -type classification. Information on the amount of actual revenue generated for the City by both primary business activity and real property ownership activity will also be available for each business -type classification. For analytical purposes, businesses that own their own land are deemed to be involved in two businesses — their primary business and the owning of real estate. (If they ceased their primary business operations, they would still own the real estate and would presumably rent it.) • • w Page 26 City of Newport Beach Fiscal Impact /Economic Base Model. January 12,1993 When given a proposed land use and expected building area, the City will be able to reasonably forecast both the expected revenue range to the City and the number of employees and customers or suppliers attracted to the site by its likely business tenants. By assigning time -based arrival distributions to the number of expected trips generated, the model can be used to forecast demand for transportation to the site. Once sufficient historical data are captured, it will be possible to review the history of economic development in an area with a similar land use and business mix to that being proposed. The City will then be better able to predict the expected associated economic development that will occur as a result of any proposed development. The City will also be able to track the impact of others' actions —such as the opening of a competing business in another city — on its own businesses. Such data can be used to create a heuristic model that will result in more reliable forecasts of the expense and revenue reactions to exogenous actions. This analytical capability will provide the City with forecasting capabilities.far beyond the capability. of even the best developers. That is because the City will have the benefit of access to accurate non - confidential information derived from confidential revenue data about each business within the city. 5.3.2. PREPARE A COST ALLOCATION OF SERVICES We will use City's historical data, multiple regression techniques, and others' experience to allocate all significant public service costs to not only the different land uses, but also to the City's individual businesses and land parcels. For residential parcels, we propose allocating all variable service costs based on a single factor. This variable factor, residential building area, is easily determined and bears a direct, general relationship to both property value and number of residents. Any fixed component of residential service costs would be allocated by residential parcels.. We reason that the services provided by the City primarily benefit its residents by increasing the quality of their lives and the value of their property. Within a given class of residential housing, the number of people served and value of their property is roughly proportional to the size of the structure. Thus, building area can be reasonably used as a basis for allocating variable service benefits — and accordingly, costs — to individual properties within a group of similar residential properties. The City may choose however many different residential property groups (such as single family detached, condominium, and apartments) for which it desires to have different cost allocation factors. It is not constrained by zoning. Different neighborhoods of similarly -zoned land can be assigned different allocation formulas when there is evidence to support such treatment. MRC's proposed solution provides geo-based data that can be extracted by simply specifying area boundaries on a City map. MA • 0 MUNICIPAL RESOURCE CONSULTANTS Page 27 Expanded Revenue and Information Services Proposal January 12, 1993 The residential cost allocation formula will be of a simple slope- intercept form: "ax +c" — where "a" — public service provision unit costs for the given class of property — is expressed in $ /sq. ft., "x" equals the residential building area in square feet as reported on the county's property tax roll, and "c" equals the fixed service cost per residential parcel. Allocation values for "a" and "c" will be determined through a combination of multiple regression, others' experience, and consultants' /planners' intuition for the different categories of residential land use. All costs are allocated relative to one of two baseline formulas, so this phase consists of two major components: establishing appropriate relative baseline formulas for both business and residential land uses and determining the scaling factors to be applied to the relative baseline formulas for the different classes of service recipients. To best meet the City's needs in determining the baseline expense allocation formulas and appropriate scaling factors, we have chosen to form a joint venture team consisting of expense allocation experts from the firm of Ultra- Research, Inc. (U -R) and revenue allocation experts from MRC. Both our firms have extensive computer modeling capabilities and experience. We believe that the combined MRC /U -R team that will perform your work includes the most knowledgeable experts available. For businesses, initial service cost allocations will be performed with a multi- factor formula based on public service provision costs per square foot of building occupied and service provision costs per employee. The business cost allocation formula will be of the form: "ax +by +c +d" —where "a" is expressed in $ /sq. ft., "x" equals the business' occupied building area in square feet, "b" is expressed in $ /employee, "y" equals the number of employees, "c" equals the fixed service cost per business, and "d" equals the fixed service cost per parcel. (This will be the relative base business cost allocation formula; other desired factors — like hazardous materials disposal costs — can be added, if or when data are available.) Our expense allocation will take into account the significant differences in the cost of service provision to different types of businesses because of their different industries. We will create multiple business categories for different businesses that occupy similar types of zoned land or share similar customer and supplier bases. Not only will manufacturing be separated from commercial land uses, but different types of uses within each land -use category will also be analyzed. Example: Along with other categories created by grouping SIC (Standard Industrial Classification) Codes; medical businesses, small retail, and restaurants would be separately aggregated. Because each of these business types serves a different number of customers per employee and per square foot of building occupied, they are reasonably expected, as a class, to have different cost impacts on the City. Our methodology allows different scaling factors to be applied to the relative base business cost allocation formula in order to better allocate costs to any business, based first on its SIC, and second, on its actual size as measured by number of employees and space occupied. err • • Page 28 City of Newport Beach Fiscal Impact /Economic Base Model January 12,1993 We reason that the services provided by the city benefit its businesses and their employees, customers, and suppliers by protecting or improving the value of their lives and property. For a given class of businesses, the number of customers served and suppliers used is roughly proportional to its physical presence, that is, the size of the business as measured by its employee count and worldng space occupied. Thus, employee count and occupied building size can be reasonably used as a basis for allocating variable costs within a group of similar businesses. The dty can choose however many different business classification groups to which it desires to have different cost allocation factors. The number of business and residential categories created for cost allocation is not limited, but in practice only a limited number are needed. Both revenue and cost allocations must have the same classification groups. The number of business classes created is expected to be dependent on the City's tax structure. Usually, fewer than twenty business -type classifications are needed to create an accurate forecasting tool. 5.3.3. PREPARE A REVENUE ALLOCATION We will use the City's historical revenue data and MRC's unique position of access to that confidential information to develop a precise revenue model based on the Multi Application Geo -data Input Database described in Phase I. The bulk of the historical business and resident revenue data udll not be allocated. Rather, it will be exactly what the City received from its revenue generators. The resident and business classifications will be the same as used for cost allocation. Using actual revenue information rather than allocated revenue allows precise assignment of revenue expectations for different proposed land uses based on the City's actual experience. This facilitates fact -based decision- making rather than forcing reliance on "rules of thumb." 5.3.4. CREATE A REVENUE/EXPENDITURE PROFILE FOR EACH TYPE OF LAND USE AND IN EACH AREA OF THE CITY The menu - driven Query System that is part of the proposed GRIP Database will provide the City with an almost limitless number of possible types of Revenue /Expenditure Profiles. The GRIP Database will associate all revenue and expenditures within the City to specific parcels as well as to the specific individuals and businesses that own or occupy those parcels. This allows virtually infinite profiling of expected revenues and expenses by not only land use or area of the city, but also by expected business types that will inhabit a particular parcel or group of parcels —such as might occur in the case of a regional mall, office complex, or redevelopment area. 5.3.5. CREATE THE FISCAL IMPACT MODEL'S COMPUTATIONAL SPREADSHEET Sophisticated Monte Carlo forecasting techniques will be built into the Fiscal Impact ModeL The user will be allowed to select any standard or custom- created statistical distribution (such as from the histograms discussed earlier and in the next Phase) to use as an expected revenue or expense input on a land use, business, or residential category basis. The ability to correlate expected revenue and expenses with other data series (such as inflation, unemployment rates, wage negotiation results, etc.) will also be available as forecasting tools in the model. �f� MUNICIPAL RESOURCE CONSULTANTS Page 29 Expanded Revenue and Information Services Proposal January 12,1993 The model will run under Microsoft© Excel 4.0. MRC will maintain the model's underlying geo -based data and provide training and assistance in using the forecasting tools for as long as the City desires. Maintenance fees for this service will be at MRC's standard rates. The selected amount of service will determine the cost to the City. 5.3.6. PERFORM ECONOMIC STUDIES FOR ALL COMMERCIAL AREAS The GRIP Database serves as the input basis for performing economic studies for any or all commercial areas. The actual average gross revenue dollars per square foot and dollars per employee of gross revenue generated by each business, each parcel, or each group of businesses or similarly -zoned parcels will be resident in MRC's geo-based revenue /expense database where that data are provided the City through either sales tax or business license tax data. Individual business revenue data are confidential. Such data will be resident in the database but unavailable on an individual business basis (except to persons authorized to receive such confidential information). Instead, complete statistical analysis of the aggregated data for different business -type classifications will be available as part of the Fiscal Impact Model. A menu - driven Query System will extract the data in a manner that will allow the model to import it in a non - confidential form. Extracted information will include sum, average, median, variance, and standard deviation information, as well as input data for histograms showing dollar per employee and dollar per square foot distributions for each business -type classification and scatter graphs showing the relationship of absolute size to relative revenue productivity (or allocated cost of service) for each business -type classification Information on the amount of actual revenue generated for the City by both primary business activity and real property ownership activity are also available for each business -type classification. For analytical purposes, businesses that own their own land are deemed to be involved in two businesses — their primary business and the owning of real estate. If they ceased their primary business operations, they would still own the real estate and would presumably rent it. When given a proposed land use and expected building area, the City will be able to reliably forecast both the revenue to the City and the number of employees and customers or suppliers attracted to the site by its likely business tenants. By assigning time -based arrival distributions to the number of expected trips generated, the model can be used to forecast demand for transportation to the site. Once sufficient historical data are captured; it will be possible to review the history of economic development in an area with a similar land use and business mix to that being proposed. The planner will then be better able to predict the expected associated economic development that will occur as a result of any proposed development. ai Lr • 9 Page 30 City of Newport Beach Fiscal Impact /Economic Base Model January 12,1993 The City will also be able to track the impact of others' actions — such as the opening of a competing business in another city — on its own businesses. Such data can be used to create a heuristic model that will result in more reliable forecasts of the expense and revenue reactions to exogenous actions. This analytical capability will provide the City's planners with forecasting capabilities far beyond the capability of even the best developers. That is because the City's planners will have the benefit of access to accurate non -confidential information derived from confidential revenue data about each business within the city. Only MRC with its access to confidential revenue data can provide such accurate, but still non -confidential, information. 5.4. DELIVERABLES AND SCHEDULE 5.4.1. FISCAL IMPACT/ECONOMIC BASE MODEL The Fiscal Impact/Economic Base Model will run under Microsoft© Excel 4.0 and be platformed on a 486 personal computer. The database that provides the input will be an xBase compatible database capable of exporting data to virtually all modem spreadsheet and word processing programs. A users manual documenting the basic functions with examples of how to perform and interpret typical analyses will be provided. Print macros for all output will be provided. MRC will maintain the model's underlying geo -based data and provide training and assistance in using the analysis and simulation tools for as long as the City desires. Maintenance fees for this service will be at MRC's standard rates. The selected amount of service will determine the cost to the City. MUNICIPAL RESOURCE CONSULTANTS Page 31 Expanded Revenue and Information Services Proposal January 12,1993 5.4.2. SCHEDULE The first schedule (Figure 5 -1, Months 1-4) below shows MRC's plan for the initial stage of this engagement. FIGURE 5-1 INITIAL SCHEDULE: FISCAL IMPACT/ECONOMIC BASE MODEL ID Task Description Quarter I Month 1 I Month 2 1 Month 3 Month 4 68 Prepare Cost Allocation of Services 1 69 Identify Public Service Costs Impacted by Develo meat 73 Develop Base Formulas 79 80 Prepare Revenue Match 81 Create Revenue Query System 82 Create Revenue Report Generator 83 84 Create Revenue/Expenditure Profile Toole 85 Create Expense Allocation Query System 86 Create Expense Report Generator 87 Link revenue and expense menus and reports 88 89 Creata Fiscal Im act Model 90 Create initial prqduct Tequlrements 91 Build Alpha version of model 92 Create formal product specirficallons 93 Formally agree on product specifications 94 Test/Demonstrate, Alpha model 95 Build Beta version of model 96 Release Beta version to City 97 Produce User Manual for Fiscal Impact Model 2 j Page 32 City of Newport Beach Fiscal Impact /Economic Base Model January 12,1993 The second schedule (Figure 5 -2, Months 5 +) shows our schedule if the database work is proceeding without a delay. Realistically, we expect to encounter delays that could stretch the completion date into the eighth or ninth month. However, we would expect the beta version of the model to be delivered and usable (within limits) by the end of the sixth month. FIGURE 5-2 COMPLETION SCHEDULE: FISCAL IMPACT/ECONOMIC BASE MODEL ID Task Description QuartW 2 Month 5 Month 6 Quarter 3 Month 7 Month 8 68 Prepare Cost Allocation of services nP 69 Identity Public Service Costs Impacted by Development 73 Develop Base Formulas 79 88 Prepare Revenue Match 81 Create Revenue cuwy system 82 1 Create Revenue Reoort Generator 83 84 Create RevenuelE nditure Profile Tools 85 Create Expense Allocation Query System 86 Create Expense Report Generator 87 Link revenue and exoense menus and reports 89 Create Fiscal Impact Model iz Create ink" product requirements 91 Build Alpha version of model 92 Create formal product specifications 93 Formally agree on roduct specificaWns 94 Test/Demonstrate Aloha model 95 Build Beta version of morel s6 Release Beta version to CltV 9T Produce user Manual for Fiscal impact Model #,2 6. TAX STRUCTURE/BUSINESS LICENSE APPLICATION 6.1. BACKGROUND 6.1.1. FAIR SHARE PRINCIPLE If all businesses generated sufficient revenue to cover their proportionate share of the City's service costs, the fiscal impact of any one business on the City would be zero. Businesses that generate more than a proportionate share have a positive fiscal impact on the City, and businesses that generate less, have a negative one. The City's decision makers are responsible for making value judgments about what constitutes a fair share (as opposed to a proportionate share) for different taxpaying entities. However. before making value judgments about which entities should contribute more and which should contribute less than a proportionate share, it behooves a City to determine its approximate zero- impact position. If a City's tax structure was such that all entities would contribute a proportionate share of revenue sufficient to offset their service costs, then the City could be properly ambivalent — from a financial standpoint — about what land uses occur within its boundaries. The fiscalization of land use dilemma would not exist, because all land uses would be fiscally self- supporting due to the tax structure. Obviously, tax exemptions for certain entities make it impossible to achieve such a state of financial ambivalence. Still, it is worthwhile to determine tax structure equations (tax rates times taxable components of the economic base) that could reasonably approximate such a state of fiscal ambivalence over land use. By comparing such hypothetical tax structures with the existing tax structure, decision makers would then be well prepared to work through the fair share process of deciding who should pay more or less than their proportionate share, and how much those differences should be. Different classifications of businesses attract different numbers of customers and suppliers per square foot of space occupied and persons employed. The City's cost of providing public safety and infrastructure therefore differs by the type of business. The social, legal, environmental, ecological, opportunity, and other costs imposed upon a community by a particular type of business, institution, or government entity are directly related to the physical presence which can be measured in terms of land area /building space occupied, number of employees, toxic emissions, or some composite factor. Newport Beach's GRIP Database and Fiscal Impact /Economic Base Model will allow the City to compare each business' total revenue contribution and cost allocations from both business operations and real estate ownership activities on a dollars per employee and dollars per square foot of building or land basis. This is the fast step in creating an equitable tax structure: establishing the proportionate share analysis that lets decision makers compare likely costs to known benefits (size - adjusted revenue contributions) to the general fund by each business or type of business. ?4 Page 34 City of Newport Beach Tax Structure /Business License Application January 12,1993 6.1.2. FISCAL SELF-RELIANCE AND THE BUSINESS LICENSE TAX As California cities move towards fiscal self - reliance on their economic bases, they are depending more heavily upon their discretionary taxes, especially utility user's and business license taxes. What is emerging is that the business license tax can be used as an uniquely flexible fiscal counterweight for balancing the City's two strategies of revenue replacement and economic development Historically, business license tax has not been a significant revenue source for Newport Beach. We understand that Newport Beach's.business license tax is outdated and due for updating in order to better reflect the current make -up of the City's economic base and to counteract other changes that have affected the City's revenue position, such as the State's recent unilateral action on property tax distributions and unfavorable SBE (State Board Of Equalization) rulings concerning the Aerospace Case, auctioneers, and leasing companies. 6.2. PURPOSE The purpose of this portion of MRC's expanded service is to assist Newport Beach in modeling its general fund tax structure and in reviewing and revising its discretionary tax ordinances, especially business license, so that the fairness and equity of the ordinances, along with the City's fiscal self- reliance, can all be simultaneously improved. MRC will assist Newport Beach in developing a business license ordinance based on findings drawn from the City's GRIP Database. The ordinance will be designed to function as a counterweight for balancing the City's strategies for revenue replacement and economic development on both a near and long -term basis. 6.3. SCOPE MRC's proposed Tax Structure /Business License service includes considerations of ■ the City's comparative tax structure to other nearby or similar-size cities, ■ the total revenue contribution being made to the City by any entity — not just the business license tax portion, ■ the ability, or competitive need, of a specific type of business to avoid paying a local discretionary tax, like business license — not just their perceived ability to pay because of national average profitability data, ■ the need to build consensus amongst the City's elected officials, staff, and business community for determining the fair share revenue contributions expected from certain business types, ■ the operational requirements needed to administer effective discretionary tax programs, and ■ the need for example ordinances. Although the entire tax structure will be formally assessed and reviewed, our primary focus will be on the City's business license tax. X71 0 0 MUNICIPAL RESOURCE CONSULTANTS Page 35 Expanded Revenue and Information Services Proposal January 12,1993 6.4. METHODOLOGY We conduct our complete analyses with the presumption that all businesses should pay their fair (not proportionate) share of the cost of City- provided services — and not just for services supplied directly to the business, but also for services provided indirectly to the business' employees, customers, and suppliers. We use the database to match each business' physical presence to the total revenue it contributes to the City. This allows the use of revenue productivity values, such as dollars per employee or dollars per square foot of building, to assess the equitability of any proposed changes to the ordinance. To arrive at a fair share recommendation, we begin with a proportionate share analysis and then include considerations of why some businesses might be candidates for differential tax treatment based on ability to pay or competitive need to avoid considerations. These are the adjustments that ultimately allow a fair share determination. As a municipal tax consulting firm, we analyze the City's tax structure from a comparative standpoint relative to its neighbors —but more importantly —we also analyze the City's tax structure in terms of its likely effects on its economic base. MRC believes it makes no sense to have a tax structure that is what other consultants call "competitive', unless the City is sure that its "competitors" are achieving their economic development and revenue goals with the tax structures they have in place. Otherwise, the City could merely find itself comfortably positioned in the middle of a pack of losers, rather than being a part of the group that is breaking out to win. Our goal is to present information and, ultimately, recommendations that will allow the City to fairly balance its revenue replacement and economic development strategies. To assist the City in reaching a realistic fair share goal, we will use the City's GRIP Database to supply physical presence data inputs for a tax structure model. The model will be initialized by forcing it to End potential proportionate share solutions to the City's revenue requirements. From that starting point, adjustments can be made to arrive at a fair share model. 6.5. PROPOSED SERVICES This section describes the services we are proposing for reviewing and revising the City's business license tax. This proposal is based on our understanding of the City's needs and budget constraints. We propose to provide: • Strategic Review and Assessment of City's Current Tax Ordinances • Optional Consensus Building Meetings with City Staff, Council and members of the City's Business Community • A computerized Newport Beach Tax Structure Model • Business License Ordinance Recommendations Report and Oral Presentation • Administrative Manual 7� i • Page 36 City of Newport Beach . Tax Structure /Business License Application January 12,1993 6.5.1. STRATEGIC REVIEW & ASSESSMENT OF EXISTING ORDINANCE Our Strategc Review and Assessment of City's Existing Tax Ordinances includes our findings and recommendations for possible areas of revision. Our work will include the following items. ■ 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 discretionary tax ordinances. ■ Conduct interviews with City personnel. ■ Develop understanding of the discretionary tax ordinances, and especially the business license tax 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? • How many businesses presently located in the City are covered or not covered by the discretionary tax 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.tax 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? 0 0 Mu acIPAL RESOi1RCE CONsuLTANTS Page 37 Expanded Revenue and Information Services Proposal January 12,1993 6.5.2. OPTIONAL CONSENSUS BUILDING MEETINGS MRC will 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. We will issue a formal, concise report on the issues raised and results achieved at each meeting. Should the City so desire, MRC will, for an additional fee: ■ Be available to meet with business leaders, citizen advisory groups, the Chamber of Commerce, media, and others 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 tax 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. MRC will implement the City's desired program in a timely and professional manner. MRC recommends that the City create or name a small advisory committee to work with us in developing a business license ordinance. This Business License Advisory Committee should also be capable of providing business license revenue policy guidance and should be capable of presenting the business community's concerns over the ordinance and its administrative burdens. The committee can be drawn from any members of the City or its business community. Neither the City nor MRC can share confidential revenue data with any individual or firm that represents any private business concern. Normally, the committee being suggested would include such people; therefore as part of this service, MRC will convert all confidential data into generalized, non - confidential information that can be shared with committee members. 6.5.3. Crnr- SPECIFiC, COMPUTERIZED BUSINESS LICENSE TAX MODEL The Newport Beach Tax Structure Model will allow the City to analyze the effects of different tax structures. This financial spreadsheet model will allow the input of theoretical business license tax rates and tax offsetsl for different business classes. This provides the capability to review both the expected revenue effects of any proposed business license change on the City as well as the expected cost effects on each of its businesses. Thus, the effects of different tax structures can be reliably and responsibly analyzed prior to making any ordinance change recommendations. lfor other City - received revenues from other sources that are also generated by the business 3� Page 38 City of Newport Beach Tax Structure /Business License Application January 12,1993 This model will be provided in a common PC spreadsheet format, MicrosoftO Excel 4.0. The economic base data used as the basis for the model will be provided by the City's GRIP Database, which was proposed earlier. Businesses that are expected to have similar profit levels or serve similar markets are already grouped together in the GRIP Database. The use of separate taxable bases allows the balancing of competitive need to avoid and ability to pay concerns, which are typically applied after proportionate share determinations to arrive at fair share determinations. Different tax rates can be applied to groups that have distinct social, legal, or economic reasons for differential treatment. MRC will initially provide the City with a proportionate share model, wherein all businesses that can be legally taxed under a business license ordinance will have a relatively equal (in proportion to their physical size and fiscal impact) business activity tax burden. To do this, we will use the City's GRIP Database which contains information about the total tax burden for each business in the City. We will also provide a range of business license tax rates and potential offsets that can be responsibly applied to each business class — without causing that class to be placed at a significant competitive disadvantage that might motivate its members to relocate. As part of the next service item, the Recommendation Report, MRC will provide the economic rationale for making or not making adjustments for other revenue contributions a business makes to the City. We will address ability to pay concerns there and provide this model with the capacity to quickly change from a proportionate share model to a fair share model once given the City's desired revenue policies. The initialization state of the model will be changed at the direction of the City s decision makers who can apply any fair share policy considerations that the City may have regarding the spreading of the total business activity tax burden. The model can be used to solve for business license tax rates, taxable bases, and tax offsets to be applied to each business classification and still secure a specific amount of revenue. By matching a desired level of revenue to a set of tax rates and offsets, the City can develop a business license tax structure that can be relied upon to meet its current and future revenue needs. Future additional revenue, when and if required, can be reliably and responsibly secured by selecting a different set of acceptable tax rates. The multi- factor business license tax model will include provisions for variable tax offsets. The model's Taxable Base Factors include measurable or determinable items such as gross receipts, business -type classification, or elements of physical presence such as employee count, square feet of building occupied, and land acres controlled. Factors for which data are currently unavailable, or for which there is no desire on the City's part to use, can be easily ignored by setting their tax rate coefficients equal to zero. The tax- offset factors are measurable or determinable items such as a business' revenue category, other revenue contributions, or absolute size. Each factor can then be multiplied by any coefficient selected by the City's decision- makers to see what the revenue result will be. This computer program allows the City to conduct accurate "what -if' analysis on its tax structure. A forecasting option package is also available, or the City can build its own forecasting capability, if desired. • ! MUNICIPAL RESOURCE CONsuLTANTs Page 39 Expanded Revenue and Information Services Proposal January 12,1993 6.5.4. RECOMMENDATIONS REPORT MRC's Tax Structure and Business License Recommendations Report will include: Recommended tax structure detailing recommended tax rate and tax offset ranges for each of the separate business classes and taxable base items in the GRIP Database, Explanation of the economic considerations that affected the selection of the recommended tax rates and offsets for each different business class, and Draft of a suggested business license ordinance for City Attorney's review. Unless directed otherwise, we will initially provide the City with business license ordinance recommendations that are economically efficient. We will develop a comprehensive revenue equation for a revised business license tax ordinance. MRC will prepare and explain a general, multi- factor mathematical equation that is comprehensive enough in its form to allow it to be used as the basis for any future tax structuring analyses. The report will detail, in writing, what the computer model is doing. We will share our preliminary findings with any group or advisory committee designated by the City. We will wait for and rely upon the City's decision makers to provide policy guidance after we deliver our preliminary findings. Final recommendations will be made after policy guidance and feedback on our review and assessment are given. Neither the City nor MRC can share confidential revenue data with any individual or firm that represents any private business concern. As part of this service, MRC will convert all confidential data into generalized, non - confidential information that can be shared with those amongst the City's decision makers who are legally precluded from viewing the City's confidential business data. 6.5.4.1. DESCRIPTION OF ORDINANCE REVISION RECOMMENDATIONS PROCESS Our initial goal is to state a general business license revenue equation that includes all potentially significant taxable base factors (what & who can be legally taxed). There are two possible methods that can be used to initially focus the ordinance revision process solely on the definition and understanding of the City's economic base. The tax rates in the business license revenue equation can be set to either zero or left at their current values in order to focus the initial task on creating a new and viable tax structure. The taxable base, taxable elements, and tax offset factors can then be stated without consideration of the equitability of including or excluding any potential element of the City's economic base. Rather than trying to simultaneously select tax rates and identify potential tax bases, this methodology effectively focuses all equitability discussions solely on the setting of tax rates. The basic tax structure and all potential tax bases will already have been identified and defined by the time that decision - makers address the equitability of the tax rates that will occupy the improved tax structure. �r �x- Page 40 City of Newport Beach Tax Structure /Business License, Application January 12, 1993 The next step is to evaluate the reasonable range of values for the revenue equation factors' coefficients. These are the tax rates that could be responsibly applied to each taxable base factor without placing the subject businesses at a significant competitive disadvantage. This part of the study focuses on establishing the upper limit of tax rates that could be responsibly applied to the already defined taxable base. It will contain no recommendations that tax rates be set at any level. Instead, it merely contains a reasoned discussion of the underlying economic facts that influence the range of tax rates that may be applied to each tax base element (measure of physical presence. for a given type business) without inducing significant competitive disadvantages amongst businesses subject to the tax. Whenever a potential competitive disadvantage limitation is encountered, a potential tax offset factor is described, if one exists. For example, if a particular class of very competitive businesses were going to be adversely affected by a business license tax rate, we would ,describe that specific problem and identify a tax offset factor that could be used to mitigate the potentially damaging situation without giving other business types an unwarranted tax reduction. We will state a general business license tax revenue equation with all taxable base factors and offset factors identified, along with the establishment of reasonable ranges for those factors' coefficients. Armed with knowledge about what taxable base items exist and what tax ranges can be responsibly applied to them, the City's decision makers can then select the tax rates to be used in the business license tax revenue equation. Use of the computerized tax model allows the City to achieve a chosen level of revenue, yet be assured that the revised business license tax ordinance is being effectively used as the counterweight to balance the City's strategies for revenue replacement and economic development. After we supply the City's decision makers with MRC's Revenue Policy Considerations and the zero -base (or existing state) Revenue Equation, the City's decision makers are expected to supply MRC with policy guidelines that will then be used to create a custom set of business license ordinance recommendations —each of which is ensured of efficiently raising a specific amount of revenue. 6.5.4.2. FINALIZING THE RECOMMENDATIONS The pros and cons of the different elements that can comprise a revised business license tax will be formally evaluated based on the counterweight criteria described under Methodology. Discussion about the pros and cons of using different factors — such as gross revenue, number of employees, building area occupied, land area occupied, air pollutants released, hazardous waste generated, or some combination of factors — as a business license tax base element will be presented in detail. Also included are analyses of all expected beneficial and detrimental economic effects to each type -of- business classification that might result from the use of specific factors, especially revenue offset factors, as part of the revenue equation. The need for considering offsets arises from a typical city's desire to retain and attract businesses that directly contribute above - average revenue to sources other than business license tax. For example, some companies engaged in business - to-business transactions (like high -tech equipment sales forces) can generate millions of dollars per employee in sales subject to sales tax. However, these businesses are highly portable and are known to be willing to 0 0 MUNICIPAL RESOURCE CONSULTANTS Page 41 Expanded Revenue and information Services Proposal January 12,1993 move in order to avoid being adversely affected by a business license tax on gross receipts. Even though the business license tax may appear equitable in isolation, the City's entire tax structure should be considered when seeking true equitability in a business license tax. After the City provides MRC with a revenue target for one or more discretionary revenue sources, we will present the City with a limited set of feasible (from a legal and economics viewpoint) discretionary tax rate and tax base recommendations. The City can then choose that set of factors (rates and bases) that best meets its current situation Each set of recommendations will be designed to raise a.specific level of revenue. The City's decision - makers can then select from multiple sets of tax rate and tax offset coefficient options in order to best balance the need to min�e the cost to the City's business community with the need to generate revenue responsibly. 6.5.4.3. RECOMMENDED BUSINESS LICENSE TAX STRUCTURE Our delivered report will provide separate explanations and evaluations of a recommended business license revenue equation's component parts. We will review both the primary and secondary effects each component can have on the City tax structure. Included are sections dealing with: Taxable Base Subjects or the businesses which can pay the tax. Recommended industry groupings are formally discussed. Evaluation of each group's markets (where they meet their competitors and customers) and mobility (a business' ability, willingness, or competitive need to avoid business license taxation through relocation out of area) are provided. These discussions are critical components of the ability to pay and competitive need to avoid considerations. Taxable Base EIements or tangible manifestations of physical presence that can be the basis for the tax. These are measurable elements of a business' physical presence within the City — number of employees, square feet of building occupied, acres of land used — as contained in the proposed GRIP Database. Tax hate Range which can be responsibly applied to the identified taxable base. They are developed in light of the tax structure's need to achieve economic efficiency; that is, not place members of the City's business community at a significant competitive disadvantage. The goal is to only secure the revenue needed to fund chosen service levels. Legally and economically acceptable ranges are likely to be larger than the City's politically acceptable revenue requirements. MRC will not recommend a politically unacceptable tax rate, if the City chooses to have MRC conduct business community consensus building. If this option is not selected, the City will need to devote considerable time to establishing politically acceptable tax rates. We also determine the business license tax's revenue capacity; that is, the maximum amount of revenue that can be raised reliably and responsibly by this revenue source. 3Z- �J� Page 42 City of Newport Beach Tax Structure /Business License Application January 12, 1993 6.5.4.4. DRAFT OF REVISED BUSINESS LICENSE ORDINANCE PROVISIONS Although MRC does not practice law, we do and will provide draft recommendations of certain revised provisions for consideration by the City Attorney. 6.5.4.5. FINAL FORMAL REPORT AND ON -SITE ORAL PRESENTATION MRC will present its formal recommendations and final report to any group the City selects. The final report will be a non - confidential document. 6.5.5. ADMINISTRATIVE MANUAL MRC will supply the following: • All forms and_ instructions needed by businesses to comply with the ordinance, • Complete set of procedures designed to effectively and efficiently administer revised ordinance and ensure compliance, and • Troubleshooting Guide in a flowchart format that allows faster problem resolution than typical text -based procedural descriptions. 6.6. SCHEDULE The first schedule (Figure 6-1, Months 1-4) below shows our "fasttrack" plan for the initial stage of this engagement. FIGURE 6 -1 INITIAL SCHEDULE: TAX STRUCTURE/BUSINESS LICENSE SERVICE ID Task Descri Hon Month -1 Quarter 1 Month 1 Month 2 1 Month 3 1 Tax Structure/Siz License Project Toffii PMEP �4 A q=MW *° NNW ■ ■ t• 1 ■ ■ ■ 2 Skategic Assessment 7 . Consensus Building a' Fiscal Sel"ufflciency Recommendations 1s informational Workshops 20 Wimhops on Problem Idendlicalnl5olutlon Prlorttles 27 - Wkshops on Goal Conewsuslob eadve Iden011catn 31 Workshops on Objectivesiftfichn 36 Tax structure Model 37 Build model 38 Proponionate share determinations 39 SWOT analysis 40 Fair share detsrmiiaHons 41 Recommendations RWorl 42 1 Tex rate ranges by business class 43 Tax offsets by business class 44 Draft provisions 45 Formal Repart 46 Administrative Manual 47 Forms and instructions 48 Procedures 49 7roubleshoo' Guide o/ MUNICIPAL RESOURCE *SULTANTS Page 43 Expanded Revenue and Information Services Proposal January 12, 1993 The second schedule (Figure 6-2, Months 3 +) shows our completion schedule if the database work is ahead of schedule. Database development delays could stretch the ultimate completion date into the seventh month However, we expect the model to be usable for business license tax structure analysis and revision by April 1, 1993 assuming this contract is accepted before February 1, 1993. FIGURE 6 -2 COMPLETION SCHEDULE: TAX STRUCTUREIBUSINESS LICENSE SERVICE ID Task Description Month 3 Quarter 2 Month 4 Month 5 Montle 6 1 Tax Structure/Biz License Project Total mmmowaqp A 2 Strategic Assessment 7 Consensus Building 8 Fiscal Self-Sufficlency Recommendations 1s Informational Workshops 26 Wksho s on Problem kientiflcafilSoiutlon Priorities 27 Wkshops on Goat Coneensus/Ob ec ive Identiticatri 31 Workshops on Ob ectives/Pollcies 36 Tax structure Model 37 Build model 38 Proportionate share determinations 39 SWOT analysis 40 Fair share determinations 41 Recommendations Report 42 Tax rate ranges by business class 43 Tax offsets try business class 44 Dratt provisions 45 Formal Report 46 Administrative Manual 47 Forms and instructions 48 Procedures 49 Troubleshooting Guide 33 15-F 7. TEAM ORGANIZATION & INDIVIDUAL QUALIFICATIONS 7.1. MANAGEMENT AND STAFFING Our team for the proposed service is to be comprised of staff from MRC (prime contractor) and Ultra- Research, Inc. (subcontractor). Each firm is an industry leader within its respective area of concentration in providing fiscal analysis and consulting services to local government agencies. Proieecct Director - Allen Cbmiow As project director, Allen is responsible for the overall quality control and timeliness of the project. He is also responsible for making MRC's resources available to the project and assisting in the technical direction, management and liaison activities. Allen has overall responsibility for the development and implementation of MRC's data processing and geographic information systems As project co- director, John also has responsibility for the overall quality control and timeliness of the project. John is responsible for the overall design and provision of MRC's services, contract negotiations and client relations. He will be personally involved in the provision of the service. As project manager, John is responsible for the overall technical direction and coordination of the project, including the methodology and procedures utilized and development of the logic and rationale to support MRC's analyses and recommendations. In this capacity, his duties include creation and implementation of the detailed workplan, scheduling, and provision of coordinating and monitoring the activities of other project team members including coordinating efforts with Ultra- Research John will develop the analytical models. Doug is responsible for providing technical assistance in coordinating efforts between the data processing group and the analysis team . Doug will also assist in the analysis of data, the development of program logic and rationale and the development and production of management reports. He assists and supports the project manager in all phases of the project. Ted is Managing Director of MRC's Strategic Planning Group which specializes in assisting state and local government agencies restructure existing resources and implement change through economic and organizational development. Ted will be responsible for managing the team that conducts the City /Community consensus building if that option is selected. Ultra- Research will assist MRC in the provision of the proposed service by lending its experience and special services to the project. <J 0 9 MUNICIPAL RESOURCE CONSULTANTS Page 43 Expanded Revenue and Information Services Proposal January 12,1993 7.2. BIOGRAPHIES Tohn Austin As a co- founder of MRC, John has overall responsibility for the design and provision of the firm's revenue enhancement audit services, contract negotiations and client relations. John has been an economic development and tax consultant to California municipalities for more than 20 years, principally focused on the enhancement of revenue through economic development, redevelopment and audits. He received a BS Degree in Business Economics and Marketing from the University of Southern California. Allen is a co-founder of MRC and has overall responsibility for the design and provision of the firm's data processing and geo -based information systems for auditing, monitoring and analyzing revenue sources. Allen was in municipal finance for more than 17 years, 14 of which were in the capacity of Director and 1 year as Assistant City Manager. He received a BA in Business Management from Fresno State and an MBA from the University of Santa Clara. Allen pioneered computerized information systems for revenue auditing and analysis on behalf of California cities. Allen is a frequent guest speaker on the subject of revenue enhancement and analysis before municipal finance and economic development groups. Arne Dresslar Arne will assist in the development of the cost analysis model. Prior to joining MRC, Arne was a supervising Senior Tax Accountant with two International public accounting firms, as well as his own accounting practice where he specialized in corporate tax planning, tax compliance and computerized accounting systems. Arne has a BS in Accounting from California State University, Fresno and an MBA in taxation from Golden Gate University - San Francisco Scott Eckman Scott is responsible for the preparation and digitization of maps to facilitate electronic map querying, extraction and other geo based information system functions for MRC's tax audits and information systems. Scott joined MRC immediately following graduation from California State University Fresno where he received a BA degree in Geography. Ted Gaebler Ted has extensive experience and expertise in facilitating worksessions focused on the development of practical strategies for cities' fiscal needs. He is a nationally recognized authority in the field of public entrepreneurial management. Ted received a BA Degree in Public Administration from Miami University and Master of Governmental Administration from Wharton Graduate School of Business Administration, University of Pennsylvania. Ted's public service includes 10 years as a City Manager and 10 years as an Assistant City Manager. He is a member of the International City Management Association, American Society of Public Administration and Western Governmental Research Association. Ted is a co-author of the book Reinventing Government. He is also a frequent lecturer before local government groups across the nation. 3� M Page 46 City of Newport Beach Team Organization & Individual Qualifications January 12,1993 Jim Gledhill Jim is responsible for the analysis of data for MRC's revenue enhancement audits and geo- based information systems. Prior to joining MRC, Jim was a financial and economic analyst for a major financial institution Jim received his BS Degree in Finance from Long Beach State University and his MBA from Cal Poly Pomona. II 7Cfil�iL[i Doug is actively involved in the design and provision of MRC's revenue enhancement audits and geo -based revenue information systems. Prior to joining MRC, Doug was Chief Operating Officer and general contractor with a NYSE listed developer - builder. He has been involved in many major land development projects in Southern California. Doug completed his undergraduate work at California Lutheran University where he majored in math and physics. John O'Sullivan John is responsible for the logistical and administrative interface between the City and MRC. He will work closely with the project manager and be available to meet with the City to review overall progress. He is a former city manager and finance director with over 20 years experience in city and county government. His expertise includes general management, finance, community and economic development. He has a BS and BA from California State University, Long Beach and has served on numerous committees for the League of California Cities, the California and national organizations for finance officers , and the International City Managers Association John Tenfelder Mr. Tenfelder will manage this project. For over 20 years John has been managing complex technical assignments for scores of clients throughout the world. He has extensive computer modeling experience, having served as a computer simulation engineering manager in the oil and gas industry and vice president of the Western /US financial consulting operations for the respected international consulting firm Arthur D. Little. John has served as an expert witness in major tax cases, is a California registered professional engineer, and a member of the Los Angeles Society of Financial Analysts. He received two engineering degrees (cum laude) from the University of Missouri at Rolla and an MBA (magna cum laude) from UCLA. Jim is responsible for the design and development of computer software systems for MRC's tax audits and geo -based information systems. Prior to joining MRC, Jim was with the City of Fresno for more than 20 years, serving in the capacities of Data Base Administrator, Program Development Supervisor, Systems Analyst and Programmer. Prior to that, Jim was a Computer Programming Specialist in the U.S. Air Force for four years. Jim received an AA Degree in Data Processing from Fresno Community College and a BS Degree in Business Quantitative Analysis from Fresno State University. Jim taught Computer Programming and Systems Analysis at California State University Fresno and the Electronic Computer Programming Institute. Jim is a co- developer of QDAMS - Quickdraw Automated Mapping System. 0 9 M14gICIPAL RESOURCE CONSULTANTS Page 47 Expanded Revenue and Information Services Proposal January 12,1993 Dr. Egbert has over 15 years of experience in working with various governmental agencies relative to the development of computerized mathematical models to predict and /or evaluate the costs and benefits of land use patterns, fiscal impacts of land use, energy consumption, company financial performance, and school district enrollment forecasting. He has also been involved in the design and development of various computerized management information systems. Dr. Egbert is a Full Professor of mathematics at California State University at Fullerton He is involved in research and teaching of various courses in mathematics, statistics, engineering analysis and applied mathematics. Previously he was a member of the Brigham Young University faculty. Dr. Egbert has a B.A. in mathematics from the University of California and both a M.A. and Ph.D. in mathematics from the University of Arizona. John G. Rau (Subcontractor) Mr. Rau has over 20 years of experience in working with governmental agencies, from the local to the federal level, in providing consulting and technical support services covering a broad range of activities including environmental impact assessment, land use economics, housing programs, redevelopment activities, socioeconomics of land use, use of computer techniques, budgeting and fiscal forecasting, demographic surveys, school district enrollment forecasting, and general economic analyses. Mr. Rau received his B.A., cum laude, in mathematics from the University of California and an M.A. in mathematics from the University of Washington He previously taught at the University of Minnesota, the University of Washington, and U.C.L.A. and has authored a book titled Optimization and Probabdity in Systems Engineering and co- authored a book titled Environmental-Impact nalya;a H ndbook. Legal Sunnort - Don Mavnor & Toe Vinatieri MRC utilizes Don Maynor and Joe Vinatieri as legal counsel, on an as- needed basis, in the following capacities: Don Maynor provides his specialized legal expertise to assist MRC in evaluating franchise fee agreements and utility users tax ordinances and gaining access to necessary information (which the utility companies resist providing) as well as the discovery and recovery of payment deficiencies. Don is a recognized authority in the franchise fee and utility users tax field, representing cities in numerous legal areas. He is frequently called upon to testify as an expert witness before the California Public Utility Commission regarding utility issues and other related matters. He received a B.A. from the University of Arizona and a law degree from Case Western Reserve University School of Law. Don is a member of the California Bar Association. Page 48 City of Newport Beach Team Organization & Individual, Qualifications January 12,1993 Joe Vinatieri is a partner in the Whittier law firm of Bewley, Lassleben & Miller where he specializes in matters of California state and local taxation. Joe provides legal counsel to MRC and MRC's clients when questions or issues arise elated to sales /use and property tax law. He is former deputy to Honorable Ernest J. Dronenburg, Jr., member of the California State Board of Equalization, where Joe was responsible for preparation of franchise /income tax, property tax and sales and use tax cases to be heard by Judge Dronenburg. He was also responsible for legislative, administrative and political liaisons. Joe received his BA degree, cum laude, from Westminster College and his JD degree from the University of San Diego. He is Chairman of the State and Local Subcommittee of the Tax Section of the Los Angeles County Bar Association and a member of the Tax Section of the California State Bar. He is also a member of the Institute of Property Tax for which he has spoken nationally. 8. COMPENSATION 8.1. REVENUE ENHANCEMENT AUDITS 8.1.1. DOCUMENTARY TRANSFER TAX, FRANCHISE FEES, AND TRANSIENT OCCUPANCY TAX MRC's compensation for conducting revenue enhancement audits of Newport Beach's documentary transfer tax, franchise fees, and transient occupancy tax shall be entirely predicated and contingent upon the results achieved. Under this arrangement, the City agrees to pay MRC an amount equal to 25% of the deficiency recoveries from eligible prior periods (plus associated charges for penalties and interest). When MRC's audits result in the detection and correction of errors /omissions that the City and MRC mutually agree will produce ongoing (rather than one -time) benefits to the City, MRC's compensation shall be 25% of the incremental revenue realized by the City during the first twelve (12) consecutive quarters following correction. 8.1.2. SALES AND USE TAXES The terms and conditions of MRC's existing contract with the City to provide sales and use tax audit services shall be unchanged by this scope expansion to that agreement. Under this arrangement, the City will continue to pay MRC an amount equal to 25% of the new sales /use tax revenue realized by the City as a result of MRC detecting, documenting, and correcting a related point of sale /use distribution error. Said 25% applies to each correction for fund transfers (i.e., retroactive adjustments for eligible amounts improperly distributed in prior quarters) and the first six consecutive reporting quarters following completion of the audit by MRC and the confirmation of corrections by the State Board of Equalization. In accordance with the existing contract, MRC shall only claim credit for detecting a misallocated sales /use tax account under the following conditions: • The business must have been located in the City for at least nine months; and MRC must have detected the misallocated account at least one quarter prior to the City doing so (for this purpose, the City and MRC will provide copies to each other of the misallocation notices when submitted to the SBE). 7� Page 50 City of Newport Beach Compensation January 12,1993 ' 8.2. GRIP DATABASE AND OTHER INFORMATION SERVICES MRC's compensation for providing the GRIP Database and User Application Services is $240,000, which includes the following. GRIP Database Development: Capture and relate elements of physical presence to revenue contribution, allocate costs to beneficiaries, and provide Query System modules for on -site access by City. $90,000 Fiscal Impact/Economic Base Model Application Prepare revenue /expenditure profiles for different land uses and areas of City and develop economic studies tools. 55,000 Tax Structure/Business License Application: Conduct assessment of existing ordinances, build computerized model of City's tax structure, provide business license recommendations report and administrative procedures and manuals. 65,000 Expenses Included Above: Computer processing, clerical, communications (e.g. telephone, mail, express, etc.), photocopying, overhead, and out -of- pocket costs for travel (airfare, auto, meals, lodging, etc.), data lists, consumable supplies, and research materials such as maps, directories, etc. Subtotal• $210,000 Optional Community Consensus Building Application: Two or more MRC consultants preparing for,participating in, and following up on meetings with City and community leaders to facilitate five City revenue worksessions to: • Explore and develop tax structures that capitalize on strengths and opportunities and minimize or eliminate weaknesses and threats • Build consensus for an economically efficient tax structure 30,000 Expenses Not Included Above, but available at MRC's cost. Filling data holes such as GIS system parcel areas; City's parcel tag number to assessor parcel number cross- references, and unavailable employee count /building area data for non -core business activity revenue generators The total charge for the Project Team to provide the proposed database and all related information services is $240,000 which includes expenses. The City will be billed for progress payments in accordance with the workplan schedules presented in Figures 4-1, 5-1&2, and 6- 1&2 MUNICIPAL RESOURCE CONSULTANTS Page 51 Expanded Revenue and Information Services Proposal January 12,1993 The payment of progress billings after a fixed minimum of $90,000 shall be contingent upon MRC's revenue enhancement audits producing new revenue for the City. Of the $90,000 fixed minimum fee for the GRIP Database and other information services, City will only be liable for a maximum of $45,000 prior to the completion of the entire project. The remaining $45,000 will be due upon completion. All other progress payments will be contingent upon MRC's ability to generate new revenue for the City. Under this arrangement, progress payment for services rendered in excess of the first $45,000 is deferred until such time that the City receives sufficient funds from the City's share of new revenue produced from MRC's enhancement audits for sales tax and /or other revenue sources. For this purpose, audit revenue must be received by the City after the date this proposed service is authorized. A final fixed payment of $45,000 is due upon completion of all the GRIP Database and other information services detailed in this contract expansion. The following computations illustrate hypothetical examples of this funding provision: New revenue produced for City from MRC's Example1 Example 2 Example enhancement audits for sales tax and /or other revenue sources $100,000 $500,000 $800,000 Less MRC compensation for revenue enhancement audit service @ 25% <25,000> <125,000> <200,000> Less Project Team compensation for economic development strategy services (lesser of [$240,000 - 90,000]. or maximum available) <75.000> <150,000> <150.000> Net new revenue to City after compensating MRC for enhancement audits, GRIP Database, Fiscal Impact /Economic Base Study and Tax Structure /Business License service $4 522@,2QQ SO MRC's Total Compensation for GRIP Database, Fiscal Impact /Economic Base Study and Tax Structure /Business License service $165,000 $240,000 $240,000 MRC's Total Compensation for Expanded Audit Services $25,000 $125,000 $200,000 Should MRC's revenue enhancement audits fail to generate sufficient new revenue for the City to fully pay for the economic development strategy services, then the Project Team members shall each absorb their share of the shortfall amount. 37 Page 52 City of Newport Beach Compensation January 12,1993 8.3. CONTINGENT PAYMENT POOL CLARIFICATION City revenues that will be part of the MRC contingent payment pool include only: • revenues that the City receives after the date of acceptance of this agreement and which • are the result of MRC's audit efforts and, for which, the City compensates MRC. For example, take a hypothetical case where MRC has corrected a sales tax allocation error that currently results in the City continuing to receive a $10,000 per quarter benefit. Assume that this example situation involved a correction made eight quarters earlier and that the City is no longer compensating MRC for having made the correction'. Although the City continues to receive revenue from this MRC- induced correction, no portion of this revenue would be part of the contingent payment pool because MRC is no longer receiving compensation from the City for this correction For the next example, take a hypothetical case where MRC corrected a use tax allocation error that currently results in the City continuing to receive an $8,000 per quarter benefit. Assume in this example: • that the correction was made just four quarters earlier, • that the City is still compensating MRC for having made the correction, • that the City will be receiving $8,000 per quarter, and • that MRC will be compensated $2,000 for each of the next two quarters. The $6,000 ($8,000 received by the City, less $2,000 paid to MRC) net revenue that the City receives during each of those next two quarters would become part of the contingent payment pool as would all of the City's portion of the new revenue it receives as a result of MRC's documentary transfer, franchise fee, and transient occupancy tax audits. 8.4. ADDITIONAL SERVICES /CHARGES If the City requires additional copies of reports, reproduction charges will be billed at the rate of ten cents per page. If the City desires additional services beyond those provided for in the proposal, they will be billed at the standard rate per consultant, plus reimbursement for expenses. In the event the City requires these or other additional services that require an additional charge, we will provide the City with a not -to- exceed budget figure in advance. 'MRC participates for the first six consecutive reporting quarters following completion of the salesluse tax audit by MRC and the confirmation of corrections by the State Board of Equalization. 4 '' • • ` MUNICIPAL I2EsouRCE CONSULTANTS Page 53 Expanded Revenue and Information Services Proposal January 12,1993 8.4.1. ANNUAL UPDATE OF GRIP DATABASE The cost for an annual update to the GRIP Database will be based on a time and materials basis, but not to exceed $32,000 plus a CPI (Consumer Price Index) adjustment for each of the next two years. MRC will consider, but does not herein commit to, performing this work on a contingent fee basis. Af 9. CERTIFICATION OF CONFIDENTIALITY The GRIP Database and Tax Structure /Business License Query System will contain information that is deemed confidential by taxpayers and regulatory agencies. Accordingly, access is limited to authorized City personnel and MRC as the City's authorized representative. MRC hereby certifies that the confidential database information gathered to prepare the GRIP and GRIP Query System shall only be used by MRC for those purposes authorized by the City of Newport Beach. Section 7056 of the State of California Revenue and Taxation Code specifically limits the disclosure of confidential taxpayer information contained in the records of the State Board of Equalization. This section specifies the conditions under which a City may authorize persons other than City officers and employees to examine State Sales and Use Tax records. ■ MRC is authorized by this Agreement to examine sales and use tax records of the State Board of Equalization provided to City pursuant to contract under the Bradley -Burns Uniform Sales and Use Tax Law. ■ MRC is required to disclose information contained in, or derived from, those sales and use tax records only to an officer or employee of the City who is authorized by resolution to examine the information. ■ MRC is prohibited from performing consulting services for a retailer during the term of this Agreement. ■ MRC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. Information obtained by examination of State Board of Equalization records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the City as set forth by resolution adopted pursuant to Section 7056(b) of the Revenue and Taxation Code. MRC hereby certifies that any and all information utilized in the conduct of work performed is to be utilized only for those purposes authorized by the City and by the Bradley -Burns Uniform Local Sales and Use Tax Law. 69 10. QUALIFICATIONS Based on a unique blend of multi - discipline expertise from the fields of State & Local Tax, Geographic Information Systems, and Economic Development, Municipal Resource Consultants (MRC) specializes in providing proprietary revenue enhancement services to California municipalities, principally in the areas of sales tax, use tax, business license tax, property tax, property transfer tax, utility users tax, and franchise fees. MRCS multi- revenue enhancement services are complemented by geo -based management information programs and consulting services. We specialize in areas such as revenue structuring, strategic planning, economic development, and redevelopment. In 1978, MRC pioneered the concept of revenue - enhancement consulting with its sales tax services for California cities. Since then, MRC has established a track record of consistently impressive results by providing ongoing revenue enhancement, information, and consulting services to more than 100 California cities — all of which have measurable economic returns many times greater than the amount they invested in our services. MRC has a staff of 55 consultants serving California cities from five in -state locations. MRC's quarterly updated database contains geo -based revenue information on more than 65% of the businesses in California. 10.1. PRIOR RELATED EXPERIENCE v s fix � vmm_I MRC is currently under contract and has provided, or is in the process of providing, its proprietary Geobased Revenue Information Program (GRIP) to four California client cities. GRIP provides a city with a more reliable and informed basis for analyzing its economic base and the relative fiscal impact of various land uses. The Decision Support Service mentioned in our proposal is a derivative of our.GRIP service. GRIP is a sophisticated database - driven economic model that captures and relates elements of physical presence to revenue contribution. In the process, MRC develops a current, comprehensive and valid inventory of the land parcels, buildings and other major land improvements located within the city's borders together with the commercial, industrial, institutional, residential and governmental users thereof, MRC then determines for each taxpaying entity, parcel, land use, facility and designated geographic area, the revenue generated from individual and aggregated general fund revenue sources. We then capture elements of physical presence (such as land /building size, number of employees, toxic emissions, a composite factor, etc.) and relate to revenue contribution in size - adjusted equivalent units of measurement. This city- specific information enables MRC to provide the client with the computerized fiscal impact modeling capability to simulate the impact that alternative land uses and revenue structures would have on the City under various "what if" scenarios. 3f ie Page 56 City of Newport Beach Qualifications January 12,1993_ MRC believes that its GRIP program is superior to any other computerized fiscal impact modeling program available. The development and implementation of a computerized model as comprehensive and sophisticated as GRIP makes MRC eminently qualified to provide the service desired by the City. W(WWf4T7RqM , Ultra- Research (U -R) has provided many and varied services to local government agencies in the last five years. Among those services was the development of computerized fiscal impact models for over 16 cities and counties. These models were used to assess the economic impact in terms of revenue generated and cost incurred by the agencies due to land use development plans. U =R staff have also conducted economic feasibility assessments of land use proposals from the perspective of fiscal impacts on governmental agencies and developed computerized growth tracking and monitoring models to evaluate development trends. Additionally, U -R staff have conducted numerous cost benefit studies, land use economic studies, socioeconomic studies, market analysis studies and provided financial forecasting for their local government clients. 10.2. REPRESENTATIVE REFERENCES MRC is providing, or in the process of providing Decision Support Services to the cities listed below: City of El Segundo 350 Main Street El Segundo, CA 90245 Mr. Steve Klotzsche (310) 607 -2240 City of Richmond 2600 Barrett Avenue Richmond, CA 94804 Mr. Jay Goldstone (510) 620 -6740 City of San Mateo 330 W. 20th Avenue. San Mateo, CA 94403 Mr. John L. deRussy (415) 377 -3400 City of Santa Clara 1500 Warburton Santa Clara, CA 95050 Ms. Kristin Machnick (408) 984 -3261 MRC also provides revenue enhancement services for 8 out of the 10 largest cities in California, as shown below: City of Anaheim 200 S. Anaheim Blvd. Anaheim, CA 92803 Mr. George Ferrone (714) 254 -5119 City of Long Beach 333 W. Ocean Blvd. Long Beach, CA 90802 Mr. Anthony Walstrum (310) 590 -6169 City of Los Angeles City Hall, Room 101 Los Angeles, CA 90012 Mr. Donald DeBord (213) 485 -3923 City of Oakland 1 City Hall Plaza Oakland, CA 94612 Mr. David L. King (510) 238 -2245 City of Sacramento 915 "1" Street Sacramento, CA 95814 Mr. Greg Norton (916) 264 -7728 City of San Diego 202 "C" St., MS-9B San Diego, CA 92101 Ms. Patricia Frazier (619) 236 -6070 City of San Jose 801 N. 1st Street San Jose, CA 95110 Mr. John Guthrie (408) 277 -4288 City of Santa Ana 20 Civic Center Plaza Santa Ana, CA 92702 Mr. Rod R. Coloma (714) 647 -5420 7/ MUNICIPAL RESOURCE C�SULTANTS 0 Page 57 _ -Expanded Revenue and Information Services Proposal January 12,1993 Ultra- Research, Inc. has provided fiscal impact analyses services to a number of local government agencies, of which the following are representative: City of Anaheim P. O. Box 3222 Anaheim, CA 92803 Mr. Joel Fick Planning Director (714) 254 -5139 City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92676 Mr. Tim Tomlinson Planning Director (714) 493 -1171 Ultra- Research staff have provided specialized planning services to the City of Anaheim in the development and use of computerized models for fiscal impact analyses, land use cost/benefit assessment, and growth tracking /monitoring. A survey of underdeveloped parcels was also conducted. Ultra- Research staff have provided a variety of services to the city including the evaluation and analysis of the Commercial/ Industrial Incentives Committee questionnaires and the conduct of fiscal impact analyses for both the city's general plan and individual projects �/'a CITY OF NEWPORT BEACH TO CONSULTANT SERVICES 0 C - z77� THIS AMENDMENT is made at Newport Beach, California, as of September 12, 1990, by and between the City of Newport Beach, a Municipal corporation (hereinafter referred to as "CITY ") and Municipal Resource Consultants (hereinafter referred to as "MRC"), who agree as follows: 1. CITY and MRC previously entered into a consultant services agreement to provide services related to sales tax information, auditing services and corollary consulting services, (the "Agreement "). The Agreement, dated September 15, 1989, will expire September 11, 1990. 2. CITY and MRC desire to extend the Agreement for an additional two years with an option to CITY to automatically extend an additional two years thereafter. NOW, THEREFORE, the parties agree as follows: 1. The Agreement shall continue and be effective through and including September 11, 1992. CITY, through its Finance Director, shall have the option to automatically renew the Agreement an additional two years upon written notice to MRC prior to 1 a September 11, 1992. Notwithstanding the foregoing, the Agreement is subject to termination pursuant to Paragraph 12 of Exhibit "B" of the Agreement. 2. All other terms and conditions of the Agreement shall remain in full force and effect. 3. This Amendment to Consultant Services Agreement is executed as of the day and year first above stated. ATTEST: BY: AL�" , City Clerk 7r APPROVED AS TO FORM: By: aucbt� City Att rney TMH \CONSULT.AGR CITY OF NEWPORT BEACH A Municipal Corporation By: RUTHELYN EQLUMMER, Mayor 2 RESOURCE CONSULTANTS By: JO tT T. AUSTIN, Partner 0 CONSULTANT SERVICES AGREEMENT C - a 773� THIS AGREEMENT is made at Newport Beach California, as of 1989, by and between the City of Newport Beach a municipal corporation (hereafter referred to as "City ") and Municipal Resource Consultants (hereafter referred to as "Consultant" or "MRC"), who agree as follows: 1. Services. Subject to the terms and conditions set forth in this Agreement, Consultant shall provide to City the services described in Exhibit "A ". Consultant shall provide said services at the time, place, and in the manner specified in Exhibit "A ". The Consultant shall not be compensated for services outside the scope of Exhibit "A". 2. Payment. City shall pay Consultant for services rendered pursuant to this Agreement at the times and in the manner set forth in Exhibit "A". The payments specified in Exhibit "A" shall be the only payments to be made to Consultant for services rendered pursuant to this Agreement, unless the City approves additional compensation for additional service. Consultant shall submit all billings for services rendered pursuant to this Agreement to City in the manner specified in Exhibit "A ". 3. Facilities and Equipment. Consultant shall, at its sole cost and expense, furnish all facilities and equipment which may be required for furnishing services pursuant to this Agreement. 4. General Provisions. The general provisions set forth in Exhibit "B" are part of this Agreement. In the event of any inconsistency between said general provisions and any other terms or conditions of this Agreement, the other term or condition shall control insofar as it is inconsistent with the general provisions. 4 5. Exhibits. All Exhibits referred to herein are attached hereto and are by this reference incorporated herein. EXECUTED as of the day and year first above stated. By: Title: Date: By: Title: Date: ATTEST: CITY CLERK ATTEST TO FORM: CITY OF NEWPORT BEACH A Municipal Corporation '�YJZ2�l�L /S -A9 MUNICIPAL RESOURCE CONSULTANTS T. Austin /T �ce7n z� 2 0 EXHIBIT "A" 0 Additional terms of this Agreement are as follows: OBJECTIVES MRC shall provide a Sales Tax Information, Audit and Corollary Consulting service designed to achieve the following objectives: Sales Tax Information Computerize the City's sales tax data utilizing MRC's Sales Tax Analysis & Reporting System (STARS) to readily facilitate the City's monitoring, analysis and forecasting of its sales tax revenue. Sales Tax Audit Conduct an initial and ongoing sales to identify and correct point of sale reporting errors and thereby generate income for the City. MRC's sales tax encompass all City businesses and not firms. Corollary consulting :ax audit in order taxpayer new sales tax audit shall just the major As an outgrowth of the sales tax information and audit services, MRC shall identify additional opportunities for the City and /or MRC to enhance the City's revenue base in areas such as sales tax, property tax, business license tax, utility users tax and defined economic development goals. SCOPE OF SERVICE The scope of service includes, but is not limited to, MRC performing the following tasks: Sales Tax Information o Procure a computer tape of sales tax permit records from the State Board of Equalization. o Establish master file in STARS from tape data provided in previous task. Cl 1-1 o Input data from sales tax distribution reports provided by State Board of Equalization for most recent six (6) consecutive quarters. o Receive and process sales tax distribution reports quarterly. o Reorganize and refine computerized sales tax data for the City utilizing MRC's Sales Tax Analysis and Reporting System (STARS) o Prepare and submit STARS reports on a quarterly basis principally focusing on the major sales tax producers. Major sales tax producers are defined as those businesses meeting or exceeding a specified quarterly revenue threshold and comprising in aggregate ninety percent (90 %) or more of the sales tax revenue generated from businesses located in the City. All major sales tax producers and business categories are monitored and analyzed quarterly based on reports to include the following: Management Summary & Charts. Based on MRC's analysis and evaluation of the STARS reports and other data, each quarterly report includes a comprehensive Management Summary. The Summary features a general analysis regarding statewide trends that may affect the City's sales tax plus a specific analysis of the City's sales tax composition, changes and performance. Twelve color charts are included in each report to graphically illustrate the data and analysis presented in the Summary. The Management Summary and Charts do not contain confidential information and can therefore be distributed to key City personnel and the City Council. Ranks in descending order according to level of sales tax produced. 0 0 Business Classification. Groups and ranks major producers by business classification according to level of sales tax produced. Sales Tax Trend Reports. Indicates growth and decline comparisons by various categories for forecasting and analysis. Geo- Coding_ Tracks sales tax performance within specific areas of the city (e.g., key shopping centers, redevelopment project areas, downtown business districts, etc.) Charts and printed reports are included for each geo -area. (Note: Each client is entitled to at least one geo -area at no charge. If numerous geo -areas are desired, there many be a nominal charge. NIRC will advise the City in advance of any such charge, which would be at MRC's cost). Status Report. MRC cleans up addresses on all permits and provides a status report on all changes to the sales tax files, that is equally useful for business tax enforcement. The report shows all new permits, address changes, owner changes and closed permits and effectively replaces the yellow registration cards that are cumbersome to use. By comparing the data which is in a clean address order with the business tax files, unlicensed business can be identified and billed, or business tax records can be updated for new addresses or owners, or purged if closed. The "cleaned up" data from the State Board of Equalization can be transferred to the City's computer via floppy diskette or 9 -track tape if the City desires to have the information for other purposes. Sales Tax Audit o Develop a target list of potential point of sale reporting errors based on a comprehensive inventory and evaluation of all businesses in the City of Newport Beach. These businesses are to be analyzed based on proprietory guidelines established by MRC, formulated through expert knowledge of corporate mergers and acquisitions, sales vs. use tax, business marketing organization and methods, commercial sales tax reporting practices, and other conditions contributing to reporting errors. o Contact each target business to determine whether a point of sale reporting error exists. Note: This shall be accomplished with the highest regard to discretion and professional conduct. MRC sales tax audits shall be predicated on a constructive public relations approach which emphasizes the importance of each business to the City and the mutual benefits of correcting reporting errors. o Provide to the City and State Board of Equalization reports addressing each point of sale reporting error individually, including the business name, address, telephone number, California sales tax permit number, individuals contacted, date(s) of contact, nature of business, reason(s) for error, recommended corrective procedure and, if available, estimated sales tax income which should be forthcoming to the City of Newport Beach. o Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections plus retroactive adjustments for eligible amounts improperly distributed in prior quarters. o On a quarterly basis, monitor and analyze STARS reports with audit focus on the following: Those accounts with previously reported point of sale distribution errors to ensure that the corrections are made for current quarters plus retroactive adjustments for eligible amounts improperly distributed in prior quarters. 4 9 0 Those major accounts comprising approximately ninety percent (90 %) of the City's total sales tax revenue to identify any irregularities (e.g., negative fund transfers, significant increases, decreases, etc.) and ensure that the City is not getting less than it is entitled. Those accounts having a use tax designation to ascertain why the tax is being classified as use tax rather than sales tax. Corollary Consulting o Make specific recommendations (for City staff and /or MRC) to further enhance the City's revenue base in areas such as sales tax, property tax, business license tax, transient occupancy tax, utility users tax and defined economic development goals. o Provide City employees with post audit sales tax orientation: Conduct technical seminar on California's local sales tax distribution process. Train staff in the fundamentals of sales tax auditing should the City desire to assume responsibility for future maintenance of local retail accounts internally. o Analyze list of City's major sales tax producers in order to advise and assist the City in developing a public relations program to prevent the loss of these important businesses. o Profile for Economic Development /Community Redevelopment and Chamber of Commerce personnel the most economically desirable /undesirable types of developments /business users and the reasons why. o Provide a list of businesses located in the City that are not presently producing sales tax to the City of Newport Beach but could be through constructive changes in marketing and /or purchasing procedures. o Assist in defining specific geographic areas for which the City would have an interest in knowing the sales tax produced (e.g., within Community Redevelopment Agency boundaries). 5 MIN Service under this contract shall commence within ten (10) days following receipt of the following: City Council contract approval and resolution designating MRC as the authorized City contractor to examine sales and use tax records (see Exhibit "C "); and State Board of Equalization quarterly distribution reports for most recent six (6) consecutive quarters. Sales Tax Information STARS reports shall be provided to City on a quarterly basis within thirty (30) working days following receipt of the quarterly distribution reports. Sales Tax Audit The initial report identifying point of sale reporting errors shall be provided within sixty (60) to ninety (90) working days following receipt of the above. Corollary Consulting This will occur within a reasonable time after delivery of the initial STARS reports and /or completion of the Sales Tax Audit. P i PERIOD COVERED AND CHARGES The term of this Agreement shall be for a one (1) year period commencing sentember 111 1989 In order to make the proposed services self- funding for the City of Newport Beach, MRC's compensation for providing the initial and ongoing sales tax audits and STARS reports is entirely predicated and contingent upon MRC's ability to produce new sales tax revenue for the City, further described as follows: Sales Tax Audit Service MRC's compensation for providing the audit service is 25* of new sales tax revenue realized by the City as a result of MRC identifying and correcting the related point -of -sale distribution error. Said 25% applies to each correction for fund transfers (i.e., retroactive adjustments for eligible amounts improperly distributed in prior quarters) and the first six consecutive reporting quarters following completion of the audit by MRC and confirmation of corrections by the State Board of Equalization. Sales tax audit invoices are submitted quarterly after the City has received the revenue from the correction and quarterly distribution report confirming it. Each invoice is to include the business name, permit number, local allocation amount received by the City and amount due MRC. Invoices are due and payable upon receipt. STARS Reports MRC proposes to provide STARS Reports for $6,000 for the first year, or $1,500 per quarter, payable only after the City has received the quarterly STARS report(s) and sufficient funds to cover the STARS charges from the City's 75% share of new sales tax revenue produced from MRC's audit service. The following computation illustrates a hypothetical example: New sales tax revenue produced $100,000 for City from MRC audit service Less MRC compensation for audit - 25,000 service @ 25% City's share of new sales tax $ 75,000 revenue @ 75% Less STARS charge for full year -$ 6,000 @ $1,500 per quarter Net new sales tax revenue to City 00 after compensating MRC for audit service and STARS reports 7 0 Should MRC's audit service fail sales tax revenue for the City out of the City's 75% share, shortfall amount. Expenses to generate sufficient new to cover the STARS charges then MRC shall absorb the All expenses incurred by MRC in providing the audit service and STARS reports are absorbed by MRC. These expenses include items such as employee salaries and benefits, insurance, airfare, auto rentals, meals, lodging, keypunching, computer processing, clerical, communications (e.g., personal meetings, telephone, mail, etc.) photocopying, overhead and miscellaneous out -of- pockets for consumable supplies and research materials such as maps, directories, etc. i • CERTIFICATION OF CONFIDENTIALITY Section 7056 of the State of California Revenue and Taxation Code specifically limits the disclosure of confidential taxpayer information contained in the records of the State Board of Equalization. This section specifies the conditions under which a City may authorize persons other than City officers and employees to examine State Sales and Use Tax records. A. MRC is authorized by this Agreement to examine sales and use tax records of the State Board of Equalization provided to City pursuant to contract under the Bradley - Burns Uniform Sales and Use Tax Law. B. MRC is required to disclose information contained in, or derived from, those sales and use tax records only to an officer or employee of the City who is authorized by resolution to examine the information. C. MRC is prohibited from performing consulting services for a retailer during the term of this Agreement. D. MRC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. Information obtained by examination of State Board of Equalization records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the City as set forth by resolution adopted pursuant to Section 7056(b) of the Revenue and Taxation Code. The resolution shall designate MRC as a person authorized to examine sales and use tax records and certify that this Agreement meets the requirements set forth above and in Section 7056(b)(1) of the Revenue and Taxation Code. MRC hereby certifies that any and all the conduct of work performed is to be purposes authorized by the City and by Uniform Local Sales and Use Tax Law. information utilized in utilized only for those the Bradley -Burns GENERAL PROVISIONS 0 EXHIBIT "B° 1. Independent Contractor. At all times during the term of this Contract, Municipal Resource Consultants (Consultant) shall be an Independent Contractor and shall not be an employee of the City of Newport Beach (City). City shall have the right to control Consultant only insofar as the results of Consultant's services rendered pursuant to this Agreement; however, City shall not have the right to control the means by which Consultant accomplishes services rendered pursuant to this Agreement. 2. Liability. City shall not be called upon to assume any liability for direct payment of any salaries, wages, or other compensation to any Consultant personnel or subcontractor performing services hereunder for City, or any liability other than provided for in this Agreement. City shall not be liable for compensation or indemnity to any Consultant employee or subcontractor for injury or sickness arising out of his /her employment, or for any negligent actions of the Consultant or its employees. All persons employed in the performance of such services and functions shall be employees of Consultant, and as such shall not, for any purposes, be considered employees of City and therefore shall have no right to any City service, civil service, or other City status. 3. Subcontracts. Any subcontracts entered into by Consultant for services to be rendered towards the completion of Consultant's portion of this Agreement shall be for Consultant's benefit alone, and as such shall be its responsibility with no liability resting on the City. Consultant agrees to provide a list of all subcontractors to be used in connection with services to be rendered toward the completion of its portion of this Agreement to the City within ten (10) working days of execution of this Agreement. 4. Licenses, Permits, Etc. Consultant represents and warrants to City that he has all licenses, permits, qualifications and approvals of whatsoever nature which are legally required for Consultant to practice his profession. Consultant represents and warrants to City that Consultant shall, at his sole cost and expense, keep in effect or obtain at all times during the term of this Agreement any licenses, permits, and approvals which are legally required for Consultant to practice his profession. GENERAL PROVISIONS PAGE 2 5. Time. Consultant shall devote such time to the performance of services pursuant to this Agreement as may be reasonably necessary for satisfactory performance of Consultant's obligations pursuant to this Agreement. Neither party shall be considered in default of this Agreement to the extent performance is prevented or delayed by any cause, present or future, which is beyond the reasonable control of the party. 6. Insurance. (a) Public Liability. During the term of this Agreement, Consultant shall maintain in full force and effect a policy of public liability insurance with minimum coverages as follows: $1,000,000 for injury to one person in any one occurrence; $1,000,000 aggregate; and, $50,000.00 for property damage. Consultant shall cause the City, its officials and employees to be named on all liability policies described above as insured as respects: (1) activities performed for the City by or on behalf of the named insured, (2) products and completed operations of the Named Insured, and (3) premises owned, leased or used by the Named Insured. (b) Worker's Compensation. During the term of this Agreement, Consultant shall fully comply with the terms of the law of California concerning worker's compensation. Said compliance shall include, but not be limited to, maintaining in full force and effect one or more policies of insurance insuring against any liability Consultant may have for worker's compensation. 7. Consultant Not Agent. Except as City may specify in writing, Consultant shall have no authority, express or implied to act on behalf of City of any capacity whatsoever as an agent. Consultant shall have no authority, express or implied, pursuant to this Agreement to bind City to any obligation whatsoever. 8. Assignment Prohibited. No party to this Agreement may assign any right or obligation pursuant to this agreement. Any attempt of purported assignment of any right or obligation pursuant to this Agreement shall be void and of no effect. GENERAL PROVISIONS PAGE 3 0 9. Personnel. Consultant shall assign only competent personnel to perform services pursuant to this Agreement. In the event that City, in its sole discretion, at any time during the term of this Agreement, desires the removal of any person or persons assigned by Consultant to perform services pursuant to this Agreement, Consultant shall remove any such person immediately upon receiving notice from City of the desire of City for the removal of such person or persons. 10. Standard of Performance. Consultant shall perform all services required pursuant to this Agreement in the manner and according to the standards observed by a competent practitioner of the profession in which Consultant is engaged in the geographical area in which Consultant practices his profession. All products of whatsoever nature which Consultant delivers to City pursuant to this Agreement shall be prepared in a substantial, first class and workmanlike manner and conform to the standards of quality normally observed by a person practicing in Consultant's profession. 11. City Representative. The City Manager or his designee is the representative of the City and will administer this Agreement for the City. 12. Termination. This Agreement may terminate on ten (10) days written notice by either party, or within such time as both parties may find necessary to conclude the work currently under way and to summarize Consultant's findings for City. 13. Indemnity and Hold Harmless. Consultant shall assume the defense of, and indemnify and save harmless, the City, its officers, employees, and agents, and each and every one of them, from and against all actions, damages, claims, losses or expenses of every type and description to which they may be subjected or put, by reason of, or resulting from, the performance of the work, provided that such action, damage, claims, loss, or expense is attributable to bodily injury, sickness, disease or death, or to injury to, or destruction of property, whether upon or off the work, including the loss of use thereof, and is caused in whole or in part by any negligent act or omission of the Consultant, and subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, whether or not it is caused in part by a party indemnified hereunder. .'GENERAL PROVISIONS PAGE 4 14. Equal Employment Opportunity: During the performance of this Agreement, Consultant, for itself, its assignees and successors in interest, agrees as follows: a. Compliance With Regulations: Consultant shall comply with the Executive order 11246 entitled "Equal Employment Opportunity,: as labor regulations (41 C.F.R. Part 60), hereinafter referred to as the "Regulations." b. Nondiscrimination: Consultant, with regard to the work performed by it after award and prior to completion of the work pursuant to this Agreement, shall not discriminate on the ground of race, color, religion, sex or national origin in the selection and retention of subcontractors, including procurements of materials and leases of equipment. C. either by competitive b. Consultant for work to be including procurements of potential subcontractor o� Consultant of Consultant's the Regulations relative to race, color, religion, sex nd Equipment: In all solicitations idding or negotiations made by performed under any subcontract, ' materials or equipment, such supplier shall be notified by obligation under this Agreement and nondiscrimination on the ground of Dr national origins. d. Information and Reports: Consultant shall provide all information and reports required by the Regulations, or orders and instructions issued pursuant thereto, and will permit access to its books, records, accounts, other sources of information and its facilities as may be determined by the City to be pertinent to ascertain compliance with such Regulations, orders and instructions. Where any information required of Consultant is in the exclusive possession of another who fails or refuses to furnish this information, Consultant shall so certify to the City and shall set forth what efforts it has made to obtain the information. e. Sanctions for Noncompliance: In the event of noncompliance by Consultant with the nondiscrimination provisions of this Agreement, the City shall impose such contract sanctions as it may determine to be appropriate, including, but not limited to: (1) Withholding of payments to Consultant under the contract until Consultant complies; (2) Cancellation, termination, or suspension of the Agreement, in whole or in part. GENERAL PROVISIONS PAGE 5 f. Incorporation of Provisions: Consultant shall include the provisions of paragraphs a through a in every subcontract, including Regulations, order, or instructions issued pursuant thereto. Consultant shall take such action with respect to any Regulations, order or instructions issued pursuant thereto. Consultant shall take such action with respect to any subcontract or procurement as the City may direct as a means of enforcing such provisions, including sanctions for noncompliance; provided, however, that in the event Consultant becomes involved in, or is threatened with, litigation with a subcontractor or supplier as a result of such direction, Consultant may request City to enter such litigation to protect the interests of the City. 15. Cost of Litigation: if any legal action is necessary to enforce any provision hereof or for damages by reason for an alleged breach of any provisions of this Agreement, the prevailing party shall be entitled to receive from the losing party all costs and expenses in such amount as the court may adjudge to be reasonable attorneys' fees.