That the City Council:
A.  Authorize the City Manager to enter into a Master Services Agreement with Hinderliter de Llamas & Associates (HdL) to provide services in connection with taxes administered by the California Department of Tax and Fee Administration;

B.  APPROVE AND ADOPT RESOLUTION NO. CC 2024-__ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA, CALIFORNIA, AUTHORIZING THE CITY MANAGER TO EXECUTE AGREEMENTS WITH THE CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION FOR IMPLEMENTATION OF A LOCAL TRANSACTIONS AND USE TAX; and,

C.  APPROVE AND ADOPT RESOLUTION NO. CC 2024-__ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA, CALIFORNIA, AUTHORIZING EXAMINATION OF SALES OR TRANSACTIONS AND USE TAX RECORDS.

At its Regular Meeting of August 5, 2024, City Council approved Resolution No. CC 2024-21 regarding the La Habra Emergency Services/Neighborhood Safety/Community Protection Measure. That resolution placed Ordinance No. CC 2024-03 on the ballot for the November 5, 2024 General Municipal Election. The ordinance, reauthorizing the City’s existing 0.5% transactions and use tax at a new 1.0% rate, appeared on the ballot as Measure V. Measure V (and therefore Ordinance No. CC 2024-03) was adopted by the voters at the election.

Transactions and use taxes (often referred to as local sales taxes) are administered by the California Department of Tax and Fee Administration (“CDTFA”). In order for CDTFA to prepare, collect, administer, and operate the City’s local Measure V tax, the City must enter into a “Preparatory Agreement” and an Administration Agreement with CDTFA. The Preparatory Agreement enables CDTFA to do the work necessary to set up the Measure V tax prior to its start date. The Administrative Agreement allows CDTFA to administer and collect the Measure V tax on the City’s behalf. In order for the new Measure V tax to be implemented on April 1, 2025, CDTFA requires that these agreements be executed by the City and sent to the CDTFA no later than December 27, 2024.

Since 2009, the City has utilized the services of Hinderliter de Llamas & Associates (HdL) to provide tax allocation and audit recovery services in connection with the City’s existing local Measure T transaction and use tax. These services help ensure that CDTFA correctly allocates the Measure T tax to the City and that allocation information is correctly reported to CDTFA by taxpayers. HdL also provides the City with economic analysis/forecasting reports (and associated services) in order to analyze and project revenue streams from both the Bradley-Burns sales and use tax and the local transaction and use tax. Staff recommends that the City Council approve an agreement to continue these services for the new Measure V tax. Via a separate 1998 agreement with HdL, HdL provides similar services to the City with respect to the 1% Bradley-Burns sales and use tax. That agreement with respect to the Bradley-Burns tax (and the separate fees charged for those services) will remain in place and unchanged.

In the course of administering taxes for local jurisdictions in California, CDTFA creates and receives tax records that contain confidential information. This information can be useful to the City in order to ensure that taxes are being properly collected and remitted, and to have information that is useful for the City’s budget planning and policy development. The information is also utilized by HdL to provide its services to the City. Pursuant to Section 7056 of the State of California Revenue and Taxation Code, in order for HdL and City staff to access these records, the City Council must adopt a resolution requesting that HdL and staff be given access, naming which staff will have access, stating the authorized purposes for that access, assuring that information will not be used improperly, and stating certain other facts.

Attachment 1 to this staff report is a new agreement with HdL that staff recommends be approved by the City Council. HdL’s compensation under this agreement will be $300 per month (adjusted annually for inflation), plus 25% of any mis-allocated or uncollected transactions and use tax revenues received by the City as a result of HdL's audit and recovery efforts. The 25% recovery rate is consistent with the existing agreement in place for the City's local Measure T tax.

Attachment 2 to this staff report is a resolution that authorizes the City Manager to execute the CDTFA Preparatory Agreement and Administration Agreement.  Those agreements are attached to the Resolution.

Attachment 3 to this staff report is a resolution that authorizes HdL and specified City staff to access CDTFA records for purposes related to the collection of taxes and for budget and other planning purposes, and takes certain related actions.

If approved by Council and upon implementation by the CDTFA, it is anticipated that the City's local Measure V transaction and use tax will generate an estimated $15.6 million annually for the City's General Fund.

General Plan Relevance: ED 9.1 – Balanced Fiscal Practice
           
Goal 2, Objective A: Closely monitor revenues, expenditures, and fiscal trends to ensure the City’s long-term fiscal stability