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04-1116_MBIA MUNISERVICES COMPANY_Personal Services Agreement PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made and entered into this 16th day of November, 2004, by and between the City of San Juan Capistrano and the San Juan Capistrano Community Redevelopment Agency (hereinafter collectively referred to as the "City") and MBIA MuniServices Company (hereinafter referred to as "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal to conduct Property Tax Revenue and Sales and Use Tax Audit; and, WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by Consultant shall consist of those tasks as set forth in Exhibit "A," attached and incorporated herein by reference. Consultant warrants that all of its services shall be performed in a competent, professional and satisfactory manner and in accordance with the prevalent standards of its profession. Section 2. Term. This Agreement shall commence on the effective date of this Agreement and shall continue in full force and effect for a period of one (1) year. Due to the type of services rendered by Consultant and their compensation schedule as outlined in Section 3 below, City shall remain obligated after termination to provide Consultant such information as is necessary for Consultant to calculate its compensation due as a result of receipt of revenue by City and City shall remain obligated to pay Consultant's invoices in accordance with the terms of this Agreement. Section 3. Compensation. 3.1 Amount. Property Tax Audit. Total compensation for property tax audit work identified in the Scope of Work shall not exceed twenty-five(25%)percent of the misallocated revenues identified in the secured and unsecured audits. This fee applies to reallocations for the fiscal year during which the Date of Correction falls and any i SD eligible prior period revenues corrected. The fee also applies to Corrected Allocations for three (3) subsequent Roll years from the Date of Correction. Sales and Use Tax Audit. Total compensation for the Sales and Use tax audit work identified in the Scope of Work shall not exceed twenty-five (25%) percent of misallocated revenue. This fee applies to six(6)quarters after the Date of Correction and any eligible prior quarters back to and including the three (3) quarters prior to the ate of Knowledge quarter. As used herein, the Date of Knowledge is the quarter during which Consultant notifies the State Board of Equalization of the existence of a misallocation. As used herein, The Date of Correction refers to the quarter in which the taxpayer has correctly reported the local tax and SBE distributes the local tax properly to City based on the taxpayer's reporting, together with any prior period reallocations. 3.2 Method of Payment Consultant shall separate and support said reallocation and provide City with an itemized invoice showing all amounts due as a result of revenue recovery or reallocation. City shall pay audit fees after Consultant's submittal of evidence that corrections have been made by the appropriate Agency. Payment to Consultant shall be made after City receives its first remittance advice during the fiscal year for which the correction applies. For extra work not part of this Agreement, a written authorization from City is required prior to Consultant undertaking any extra work. Extra work will be billed according to the Rate Schedule in Section 3.3. 3.3 Rate Schedule. The services identified in the Scope of Work as Corollary Consulting Services shall be billed to the City at the hourly rate set forth below. Included within the compensation are all the Consultant's ordinary office and overhead expenses incurred by it, its agents and employees, including meetings with City representatives and incidental costs to perform the stipulated services. Hourly Rates: Principal $175.00 per hour Director $150.00 per hour Manager $125.00 per hour Senior Analyst $100.00 per hour Analyst $ 75.00 per hour Administrative $ 50.00 per hour 3.4 Records of Expenses. Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made 2 • • available at reasonable times to City. Section 4. Independent Consultant. It is agreed that Consultant shall act and be an independent Consultant and not an agent or employee of City, and shall obtain no rights to any benefits which accrue to City's employees. Section 5. Limitations upon Subcontracting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to City for the acts and omissions of its sub Consultant as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any sub Consultant and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; and, (2) it is familiar with the City; and, (3) it understands the facilities, difficulties and restrictions of the work under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations 3 of federal, state and local government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Indemnity. Consultant agrees to protect, defend and hold harmless City, its elected and appointed officials and employees from any and all claims, liabilities, expenses or damages of any nature, including attorneys' fees, for injury or death of any person or damage to property or interference with use of property and for errors and omissions committed by Consultant arising out of or in connection with the work, operation or activities of Consultant, its agents, employees and sub Consultants in carrying out its obligations under this Agreement. Section 12. Insurance. Insurance required herein shall be provided by Admitted Insurers in good standing with the State of California. 12.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in the following minimum amounts: $1,000,000 property damage; $1,000,000 injury to one person/any one occurrence/not limited to contractual period; $2,000,000 injuryto more than one person/any one occurrence/not limited to contractual period. 12.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including owned, hired and non- owned vehicles in the following minimum amounts: $1,000,000 property damage; $1,000,000 injury to one person/any one occurrence/not limited to 4 contractual period; $2,000,000 injury to more than one person/any one occurrence/not limited to contractual period 12.3 Worker's Compensation. If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Worker's Compensation Employer's Liability Insurance in the statutory amount as required by state law. 12.4 Proof of Insurance Requirements. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self-retention amount, and an additional insured endorsement to the Consultant=s general liability and umbrella liability policies using ISO form CG 20 10 1185 (in no event with an edition date later than 1990) to the City's General Counsel for certification that the insurance requirements of this Agreement have been satisfied. 12.5 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty(30)days'written notice is given to City, except that ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 12.6 Terms of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. 12.7 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed", verifying that the Consultant has complied with all insurance requirements of this Agreement. Section 13. Termination. City and Consultant shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to the other party In addition,this Agreement may be terminated for cause by providing ten (10)days' notice to the other parry of a material breach of contract. If the other party does not cure 5 the breach of contract, then the agreement may be terminated subsequent to the ten (10) day cure period. Section 14. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or to such other addresses as may be designated by written notice. These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Douglas D. Dumhart To Consultant: MBIA MuniServices Co. 7335 N. Palm Bluffs Ave Fresno, CA 93711 Attn: Corporate Counsel Section 15. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys'fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 16. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, the dispute shall be resolved by binding arbitration under the auspices of the Judicial Arbitration and Mediation Service ("JAMS"). Section 17. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. ATTEST: CITY OF N JU APISTRANO: ar aret R. Monahan, City Clerk Joe Sot , Mayor APPROVED AS TO FORM: MBIA MUNISERVICES COMPANY/MMC: John R. Shaw, City Attorney Mark Her an, President ATTEST: SAN JUAN CAPISTRANO COMMUNITY REDEVELOPMENT AGENCY f� l ar aret R. Monahan, Agency Secretary Diane Bathgate, Chai er on APPROVED AS TO FORM: APPROVED AS TO FORM: l/ l� John R. Sh w, Agency Counsel ei Ackerman, Corporate Counsel EXHIBIT A SCOPE OF SERVICES PROPERTY TAX MBIA MuniServices Company (MMC) shall provide to the City of San Juan Capistrano / San Juan Capistrano RDA (CITY), MMC's Property Tax Compliance Services which consists of Discovery, Audit and Recovery Services. OBJECTIVES AND METHODS MMC's property tax audit assists CITY in recovering all of the revenue to which it is entitled from its Property Tax and RDA Tax Increment. Administrative errors and omissions combined with general compliance problems are inevitable given the non-standard, complex nature of state and local property taxes. Error rates rise with respect to property tax applicability, rates, exceptions, exemptions, quirks and other inconsistencies. Because there are time limitations on the CITY's ability to recover misallocated revenue, prompt correction of these errors and omissions is essential to maximizing revenue potential. The following steps are taken in conducting MMC's Property Tax Audit: o Contact CITY's designated staff to review service objectives, scope, workplan schedule, public relations and logistical matters. MMC will also establish an appropriate liaison with the CITY's coordinator and logical checkpoints for progress reviews. o Represent the CITY for purposes of examining records pertaining to property tax and RDA tax increment to identify and confirm any errors/omissions that are resulting in deficient payment of tax revenues to the CITY. o 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 (collectively "Misallocations"). o Meet with designated CITY official(s)as necessary to review our findings and recommendations. o Prepare and forward to the appropriate parties requests for corrective action and revenue recovery for Misallocations. The date appropriate parties receive and acknowledge these requests is the Date of Knowledge. o Provide additional assistance as necessary to support the CITY in recovering and preventing tax allocation errors/omissions. From the Date of Knowledge, the County Assessor's office will review the identified Misallocations, and for those Misallocations for which a correction is required, an Assessor's Roll Correction (ARC) will be processed by the County correcting those Misallocations, typically triggering a reallocation. The Roll Year in which the assessments 8 0 • first appear corrected is the Date of Correction. Corrected assessments result in proper allocations in subsequent Roll Years ("Corrected Allocations"). Specifically, MMC shall: o Establish a comprehensive inventory of every parcel located within the City and within the RDA project(s), including the database elements needed to facilitate a comparison analysis with County secured and unsecured taxable values. o Conduct an audit of the CITY local secured and unsecured valuations, on a parcel-by-parcel basis to determine tax rate area(TRA)miscoding errors and omissions. TIMING AND REPORTING MMC shall commence the revenue enhancement audits and annual report services 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, MMC shall provide the CITY with audit progress reports to include, but not be limited to,the following: o Actual revenue produced for the CITY by MMC's service on an annual and cumulative basis. o Projected revenue forthcoming to the CITY as a result of MMC's audit service, specified according to source,timing and one-time payment versus ongoing. o Listing of all errors/omissions detected for the CITY 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.). o Status of the work including copies of reports provided by the County addressing each reporting error/omission individually, the Incorrect Parcel Number, Correct Parcel Number, Assessee, Correct TRA assignment, Business ID, Address, Secured and Unsecured Valuation, Exemptions, Net Total Valuation of misallocated assessments. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may request. Consulting services otherwise included in this Addendum will not be subject to MMC's fees for Corollary Consulting as set forth below. CITY OBLIGATIONS 9 MMC shall invoice CITY for the above fee on no less frequently than a quarterly basis, based on recoveries actually received by CITY. Because MMC's Service may result in collection of deficiencies after termination of the Agreement, CITY's obligation to collect fees and notify MMC, and MMC's right to continue to receive payment, shall survive termination of this Addendum or the Agreement for any reason. 10 r SALES AND USE TAX AUDIT (SUTA) OBJECTIVES AND METHODS MMC's sales and use tax audit service is designed to maximize the City's income - and minimize the cost of lost revenue - by detecting and documenting misallocations of sales and use tax activity within the statute of limitations on recoverability. In performing the sales and use tax audit program MMC shall: ❑ Identify and correct the sales/use tax reporting errors of businesses that, based on the nexus of their activities, are not properly registered with the City. ❑ Identify and correct the reporting of businesses that are improperly reporting tax to state and county pools (i.e. classifying sales tax as use tax) and thereby depriving the City of sales tax revenue. ❑ Detect, document and correct sales/use tax reporting errors/omissions and thereby generate new, previously unrealized revenue for the City. ❑ Ensure through comprehensive audit measures that the revenue information used for ongoing economic analysis includes all sales/use tax generators. ❑ Assist the City with strategies to preserve and even enhance sales and use tax revenue generated by existing businesses within the City. MMC's proposed sales/use tax allocation audit services for the City includes five distinct types of audits: ❑ Taxable Nexus Field audits ❑ Permitization audits ❑ Deficiency assessment audits ❑ Accounts payable audits ❑ Quarterly Distribution Report audits TAXABLE NEXUS FIELD AUDITS MMC's initial and periodic taxable nexus field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this undertaking, significant misallocations will remain undetected. MMC's field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue. The result is new or 'found' revenue for the City. PERMITIZATION AUDITS Wholesalers, contractors, processors, manufacturers and other non-retail businesses will frequently not have a sales or use tax permit properly registered to the City in which they are located because their business operations do not include a point-of-sale qualifying activity. However, these companies will often generate local sales/use tax from the State Board of Equalization (SBE)audit deficiency assessments,occasional sales(i.e., mergers and acquisitions), and self-accrual of use tax on purchases. MMC's field audits facilitate the identification and correction of improperly registered permits for companies having point-of-sale operations in the City. DEFICIENCY ASSESSMENT AUDITS When the California State Board of Equalization audits taxpayers for sales/use tax compliance, it is not uncommon for the taxpayer to receive a substantial deficiency assessment due to underpayments and/or under-collections. In many cases, the local allocation portion of the deficiency assessment is distributed in error to the State pool, county pools, or other jurisdictions. Accordingly, MMC has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by MMC's allocation audit service. ACCOUNTS PAYABLE AUDITS When California taxpayers purchase tangible personal property for which title passes out- of-state,the transactions are subject to use tax(rather than sales tax)which is collected by the vendor who in turn remits it to the SBE, with the local allocation typically distributed statewide or countywide through the pools. Under certain conditions, the seller may allocate the local tax by situs or the City may elect to self-accrue the use tax and remit it directly to the SBE, in which case the local portion will come back to the City in the same manner as sales tax. MMC's accounts payable audit will include a review of the City's purchases to identify opportunities for the City to capture the I% local allocation on purchases subject to use tax. In this regard, MMC will prepare the documentation to facilitate the election, including assistance in preparing and filing the tax returns. QUARTERLY DISTRIBUTION REPORT AUDITS Every three months,the City and MMC receive a Quarterly Distribution Report(QDR)from the SBE with the local allocation amount reflected by permit number. MMC's QDR audits detect and correct taxpayer reporting errors and thereby generate new, previously unrealized sales/use tax revenue for the City. MMC's QDR audits focus on those accounts where MMC observes a substantial decline in the sales/use tax revenue allocation for a particular business entity in a given quarter. In most cases, accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next quarter's QDR. Therefore, six months must lapse before the QDRs indicate whether a zero balance account can be attributed to a late 12 payment or a misallocation. Cities and counties may only recover misallocated revenue for three quarters prior to the SBE being notified of the reporting error. Therefore QDR audits must be conducted in a timely manner in order to preserve the opportunity for the City to recover misallocated revenue. MMC shall conduct the QDR audit each and every quarter to minimize the potential of lost revenue to the City. SUTA DETECTION AND DOCUMENTATION MMC shall represent the City for purposes of examining SBE records pertaining to sales and use tax to identify errors and omissions. MMC's procedures for detecting and documenting misallocations are as follows: ❑ Review applicable provisions of the City's municipal code and ordinance adopted by the City to determine applicability. ❑ Procure a computer tape of sales/use tax permit records from the State Board of Equalization (SBE). ❑ Analyze sales tax distribution reports provided by the SBE for five or more of the most recent consecutive quarters. ❑ Clean-up, standardize and computerize data from City's quarterly sales tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Prepare an aggregated list of business entities on electronic media; this list is derived from multiple private and public sources (hard copy and electronic), including specialized business listings and directories, and the City's revenue payment files. ❑ Clean, standardize and integrate, in address-order, each entity's business name, address and payment file information, to eliminate redundancies, using MMC's proprietary software. ❑ Physically canvas commercial/industrial area within the City's borders. ❑ Develop a target list of potential point of sale/use reporting errors/omissions based on: 1)An electronic comparison of MMC's comprehensive inventory against the SBE's quarterly distributions for the City, and 2)An analysis of each potentially misallocated account based on proprietary guidelines established by MMC. ❑ Meet with designated City official(s) to review service objectives and scope, MMC workplan schedule, public relations and logistical matters. 13 ❑ 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. MMC's allocation audits are predicated on a non-controversial, 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 SBE 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. ❑ MMC may also provide suggested language for letters to be sent to the taxpayers and/or SBE from the City (or from MMC on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. ❑ Receive and process sales tax distribution reports quarterly. ❑ Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect eligible back quarters amounts. ❑ Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1) Accounts with previously reported point-of-sale/use distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2) Major accounts comprising 90%or more of the City's total sales tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue than it is entitled to. 3) Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Identify opportunities for the City to recover local allocation on purchase transactions subject to use tax. MMC will prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may 14 t request. Consulting services otherwise included in this Addendum will not be subject to MMC's fees for Corollary Consulting as set forth below. SUTA DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MMC 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. MMC coordinates and communicates between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and State Board of Equalization personnel and the in-state/out-of-state district offices. Correction of the account is considered to have been made once the payments on identified taxpayer accounts are being properly allocated by the taxpayer to the City in the period in which the payment was made. As needed, MMC will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MMC shall commence auditing the sales/use tax and preparing the sales tax Query System within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MMC as the authorized City Consultant to examine sales and use tax records. CONFIDENTIALITY PROVISIONS MMC 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. MMC 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. MMC is prohibited from performing consulting services for a retailer during the term of this Agreement. MMC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MMC's and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. 15 CITY RESPONSIBILITIES MMC's services performed hereunder may result in corrections of misallocations after cessation of services by MMC for City. Therefore, City agrees that with regards to misallocations identified to the State Board of Equalization whose Date of Knowledge occurred during MMC's performance of services for City,that City's obligation to pay MMC in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. In the event that City identifies, documents, and notifies the State Board of Equalization of a reporting error or misallocation as those terms are used herein, City agrees to notify MMC of City's discovery no later than ten (10) days after the Date of Knowledge. If City fails to so notify MMC and MMC later detects, documents, and reports the misallocation or reporting error to the State Board of Equalization, or if MMC has established a Date of Knowledge with the State Board of Equalization prior to notification to the Board by City, then MMC shall be entitled to compensation for the affected account in accordance with this Addendum. 16 EXHIBIT A SCOPE OF SERVICES PROPERTY TAX MBIA MuniServices Company (MMC) shall provide to the City of San Juan Capistrano/ San Juan Capistrano RDA (CITY), MMC's Property Tax Compliance Services which consists of Discovery, Audit and Recovery Services. OBJECTIVES AND METHODS MMC's property tax audit assists CITY in recovering all of the revenue to which it is entitled from its Property Tax and RDA Tax Increment. Administrative errors and omissions combined with general compliance problems are inevitable given the non-standard, complex nature of state and local property taxes. Error rates rise with respect to property tax applicability, rates, exceptions, exemptions, quirks and other inconsistencies. Because there are time limitations on the CITY's ability to recover misallocated revenue, prompt correction of these errors and omissions is essential to maximizing revenue potential. The following steps are taken in conducting MMC's Property Tax Audit: o Contact CITY's designated staff to review service objectives, scope, work plan schedule, public relations and logistical matters. MMC will also establish an appropriate liaison with the CITY's coordinator and logical checkpoints for progress reviews. o Represent the CITY for purposes of examining records pertaining to property tax and RDA tax increment to identify and confirm any errors/omissions that are resulting in deficient payment of tax revenues to the CITY. o 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 (collectively "Misallocations"). o Meet with designated CITY official(s)as necessary to review our findings and recommendations. o Prepare and forward to the appropriate parties requests for corrective action and revenue recovery for Misallocations. The date appropriate parties receive and acknowledge these requests is the Date of Knowledge. o Provide additional assistance as necessary to support the CITY in recovering and preventing tax allocation errors/omissions. From the Date of Knowledge, the County Assessor's office will review the identified Misallocations, and for those Misallocations for which a correction is required, an Assessor's Roll Correction (ARC) will be processed by the County correcting those Misallocations,typically triggering a reallocation. The Roll Year in which the assessments 8 first appear corrected is the Date of Correction. Corrected assessments result in proper allocations in subsequent Roll Years ("Corrected Allocations"). Specifically, MMC shall: o Establish a comprehensive inventory of every parcel located within the City and within the RDA project(s), including the database elements needed to facilitate a comparison analysis with County secured and unsecured taxable values. o Conduct an audit of the CITY local secured and unsecured valuations, on a parcel-by-parcel basis to determine tax rate area (TRA)miscoding errors and omissions. TIMING AND REPORTING MMC shall commence the revenue enhancement audits and annual report services 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, MMC shall provide the CITY with audit progress reports to include, but not be limited to,the following: o Actual revenue produced for the CITY by MMC's service on an annual and cumulative basis. o Projected revenue forthcoming to the CITY as a result of MMC's audit service, specified according to source, timing and one-time payment versus ongoing. o Listing of all errors/omissions detected for the CITY 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.). o Status of the work including copies of reports provided by the County addressing each reporting error/omission individually, the Incorrect Parcel Number, Correct Parcel Number, Assessee, Correct TRA assignment, Business ID, Address, Secured and Unsecured Valuation, Exemptions, Net Total Valuation of misallocated assessments. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may request. Consulting services otherwise included in this Scope of Services will not be subject to MMC's fees for Corollary Consulting as set forth below. 9 CITY OBLIGATIONS MMC shall invoice CITY for the above fee on no less frequently than a quarterly basis, based on recoveries actually received by CITY. Because MMC's Service may result in collection of deficiencies after termination of the Agreement, CITY's obligation to collect fees and notify MMC, and MMC's right to continue to receive payment, shall survive termination of this Scope of Services or the Agreement for any reason. SALES AND USE TAX AUDIT (SUTA) OBJECTIVES AND METHODS MMC's sales and use tax audit service is designed to maximize the City's income - and minimize the cost of lost revenue - by detecting and documenting misallocations of sales and use tax activity within the statute of limitations on recoverability. In performing the sales and use tax audit program MMC shall: ❑ Identify and correct the sales/use tax reporting errors of businesses that, based on the nexus of their activities, are not properly registered with the City. ❑ Identify and correct the reporting of businesses that are improperly reporting tax to state and county pools (i.e. classifying sales tax as use tax) and thereby depriving the City of sales tax revenue. ❑ Detect, document and correct sales/use tax reporting errors/omissions and thereby generate new, previously unrealized revenue for the City. ❑ Ensure through comprehensive audit measures that the revenue information used for ongoing economic analysis includes all sales/use tax generators. ❑ Assist the City with strategies to preserve and even enhance sales and use tax revenue generated by existing businesses within the City. MMC's proposed sales/use tax allocation audit services for the City includes five distinct types of audits: ❑ Taxable Nexus Field audits ❑ Permitization audits ❑ Deficiency assessment audits ❑ Accounts payable audits ❑ Quarterly Distribution Report audits 10 TAXABLE NEXUS FIELD AUDITS MMC's initial and periodic taxable nexus field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this undertaking, significant misallocations will remain undetected. MMC's field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue. The result is new or 'found' revenue for the City. PERMITIZATION AUDITS Wholesalers, contractors, processors, manufacturers and other non-retail businesses will frequently not have a sales or use tax permit properly registered to the City in which they are located because their business operations do not include a point-of-sale qualifying activity. However, these companies will often generate local sales/use tax from the State Board of Equalization (SBE)audit deficiency assessments, occasional sales(i.e., mergers and acquisitions), and self-accrual of use tax on purchases. MMC's field audits facilitate the identification and correction of improperly registered permits for companies having point-of-sale operations in the City. DEFICIENCY ASSESSMENT AUDITS When the California State Board of Equalization audits taxpayers for sales/use tax compliance, it is not uncommon for the taxpayer to receive a substantial deficiency assessment due to underpayments and/or under-collections. In many cases, the local allocation portion of the deficiency assessment is distributed in error to the State pool, county pools, or other jurisdictions. Accordingly, MMC has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by MMC's allocation audit service. ACCOUNTS PAYABLE AUDITS When California taxpayers purchase tangible personal property for which title passes out-of-state, the transactions are subject to use tax (rather than sales tax) which is collected by the vendor who in turn remits it to the SBE, with the local allocation typically distributed statewide or countywide through the pools. Under certain conditions, the seller may allocate the local tax by situs or the City may elect to self-accrue the use tax and remit it directly to the SBE, in which case the local portion will come back to the City in the same manner as sales tax. MMC's accounts payable audit will include a review of the City's purchases to identify opportunities for the City to capture the 1% local allocation on purchases subject to use tax. In this regard, MMC will prepare the documentation to facilitate the election, including assistance in preparing and filing the tax returns. QUARTERLY DISTRIBUTION REPORT AUDITS Every three months,the City and MMC receive a Quarterly Distribution Report(QDR)from the SBE with the local allocation amount reflected by permit number. MMC's QDR audits detect and correct taxpayer reporting errors and thereby generate new, previously unrealized sales/use tax revenue for the City. MMC's QDR audits focus on those accounts where MMC observes a substantial decline in the sales/use tax revenue allocation for a particular business entity in a given quarter. In most cases, accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next quarter's QDR. Therefore, six months must lapse before the QDRs indicate whether a zero balance account can be attributed to a late payment or a misallocation. Cities and counties may only recover misallocated revenue for three quarters prior to the SBE being notified of the reporting error. Therefore QDR audits must be conducted in a timely manner in order to preserve the opportunity for the City to recover misallocated revenue. MMC shall conduct the QDR audit each and every quarter to minimize the potential of lost revenue to the City. SUTA DETECTION AND DOCUMENTATION MMC shall represent the City for purposes of examining SBE records pertaining to sales and use tax to identify errors and omissions. MMC's procedures for detecting and documenting misallocations are as follows: ❑ Review applicable provisions of the City's municipal code and ordinance adopted by the City to determine applicability. ❑ Procure a computer tape of sales/use tax permit records from the State Board of Equalization (SBE). ❑ Analyze sales tax distribution reports provided by the SBE for five or more of the most recent consecutive quarters. ❑ Clean-up, standardize and computerize data from City's quarterly sales tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Prepare an aggregated list of business entities on electronic media; this list is derived from multiple private and public sources (hard copy and electronic), including specialized business listings and directories, and the City's revenue payment files. ❑ Clean, standardize and integrate, in address-order,each entity's business name, address and payment file information, to eliminate redundancies, using MMC's proprietary software. ❑ Physically canvas commercial/industrial area within the City's borders. 12 r ❑ Develop a target list of potential point of sale/use reporting errors/omissions based on: 1)An electronic comparison of MMC's comprehensive inventory against the SBE's quarterly distributions for the City, and 2) An analysis of each potentially misallocated account based on proprietary guidelines established by MMC. ❑ Meet with designated City official(s) to review service objectives and scope, MMC work plan schedule, public relations and logistical matters. ❑ 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. MMC's allocation audits are predicated on a non-controversial, 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 SBE 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. ❑ MMC may also provide suggested language for letters to be sent to the taxpayers and/or SBE from the City (or from MMC on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. ❑ Receive and process sales tax distribution reports quarterly. ❑ Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect eligible back quarters amounts. ❑ Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1) Accounts with previously reported point-of-sale/use distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2) Major accounts comprising 90% or more of the City's total sales tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue than it is entitled to. 13 3) Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Identify opportunities for the City to recover local allocation on purchase transactions subject to use tax. MMC will prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may request. Consulting services otherwise included in this Scope of Services will not be subject to MMC's fees for Corollary Consulting as set forth below. SUTA DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MMC 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. MMC coordinates and communicates between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and State Board of Equalization personnel and the in-state/out-of-state district offices. Correction of the account is considered to have been made once the payments on identified taxpayer accounts are being properly allocated by the taxpayer to the City in the period in which the payment was made. As needed, MMC will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MMC shall commence auditing the sales/use tax and preparing the sales tax Query System within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MMC as the authorized City Consultant to examine sales and use tax records. CONFIDENTIALITY PROVISIONS MMC 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. MMC 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. MMC is prohibited from performing consulting services for a retailer during the term of this Agreement. 14 MMC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MMC's and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. CITY RESPONSIBILITIES MMC's services performed hereunder may result in corrections of misallocations after cessation of services by MMC for City. Therefore, City agrees that with regards to misallocations identified to the State Board of Equalization whose Date of Knowledge occurred during MMC's performance of services for City, that City's obligation to pay MMC in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. In the event that City identifies, documents, and notifies the State Board of Equalization of a reporting error or misallocation as those terms are used herein, City agrees to notify MMC of City's discovery no later than ten (10) days after the Date of Knowledge. If City fails to so notify MMC and MMC later detects, documents, and reports the misallocation or reporting error to the State Board of Equalization, or if MMC has established a Date of Knowledge with the State Board of Equalization prior to notification to the Board by City, then MMC shall be entitled to compensation for the affected account in accordance with this Scope of Services. SALES/USE TAX ANALYSIS & REPORTING SERVICE (STARS) OBJECTIVES AND METHODS MMC's STARS Digest provides a summary that 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. Report graphically illustrates the data and analysis presented in the Summary. Each MMC STARS Digest includes the Quarterly Management Summary. The MMC STARS Digest also includes specialized reports that provide analysis of the City's sales tax economic base and performance for the latest complete quarter and benchmark year. TIMING& REPORTS MMC shall: ❑ Provide the City with quarterly updated STARS Digests. ❑ Install the STARS Query System on a City designated PC ❑ Update quarterly the City's sales tax registration and allocation data from the State Board of Equalization (SBE) from MMC's proprietary STARS 15 Query System on IBM compatible PCs with Microsoft Access export capacity. (note: STARS is provided in encrypted formats) ❑ Train authorized City staff in the use of the STARS Query System. QUARTERLY STARS DIGEST MMC will provide the City with quarterly updated bound STARS Digests including accounts from which the City receives sales tax revenue. The primary reports included in the STARS Digest are: ❑ Allocation Summary - Reconciles SBE advances, cleanup payments and pool allocations with budget projections to assist the City with revenue forecasting and receipt monitoring. ❑ Cash Analysis-Quarterly aberrations due to SBE audits,fund transfers, and other causes are also identified and analyzed for budget planning and revenue forecasting purposes. U Top 100 Five-Year - Historical performance of the top 100 accounts comparing current benchmark year ranking and sales tax produced with that of prior years. ❑ Top 100 Detail — Sales tax performance of the City's 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. ❑ Economic Category Performance — An analysis of the changes that occurred by economic category and segment with the specific businesses responsible for the significant changes delineated. o Significant Change Analysis—A report reflecting magnitude of change, indicating which key businesses grew or declined, measured in absolute dollars and percentages. ❑ Business Code Classification-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 significant account. ❑ Historical Economic Composition-Data are summarized by economic category and segment by quarters and benchmark years. Percentage of total sales tax generated by each category and segment is also shown to indicate trends in sales tax composition as well as performance. L] Geo-Area Reports - Tracks sales tax performance within designated areas of the City (e.g., key shopping centers, business parks, and downtown /business districts,). Charts and printed reports are included for each geo-area. 16 ❑ Cross-Reference Reports-These reports allow the user to lookup any account shown in the STARS Digest by name, address or account number. STARS QUERY SYSTEM MMC shall install the STARS Query System (a software program) on a City designated, IBM-compatible PC. Each quarter, MMC shall provide the City with updated information from SBE on CD-ROM. The data shall be provided in an encrypted format allowing the City to export sales tax information from the Query System in an Access-compatible format. ❑ The Query System enables City staff to analyze the contribution of sales/use tax revenue from each taxpayer in the City on an individual, grouped or sorted-order basis by business name, business type, permit number, size ranking, street address, development, shopping center or other geographic area. Reports may be generated by any year (i.e., calendar, fiscal, benchmark) or for any particular quarter for all periods stored in the historical database. The initial STARS Digest and Sales Tax Query System shall be delivered and installed within 45 working days following receipt of a fully executed contract, confidentiality resolution and the SBE sales tax registration and payment data. Subsequent quarterly Query System updates and STARS reports will be delivered to the City within 30 days following receipt of the quarterly distribution reports from the SBE. COST PROPOSAL The STARS Digest and Query System are available for an annual fixed fee of$4,000 per year, paid $1,000 quarterly. The Annual Fee shall be adjusted at the beginning of each calendar year by the percentage change in the Consumer Price Index—West Urban (CPI- W U)as reported by the Bureau of Labor Statistics,with the first adjustment to occur at the beginning of the Calendar year following the first full calendar year of service. The current available CPI-W U is 193.0 based on August 2004 index. The adjustments thereafter will be based on the CPI-W U from the last month of the prior calendar year. Each Annual Fee adjustment shall not be less than two percent (2%) or greater than ten percent (10%). LICENSE AGREEMENT The STARS Query System is licensed software provided by MMC. The terms and conditions of the STARS Query System License Agreement are provided to City upon installation. By installing and using the STARS Query System, City agrees to be bound by the terms of the License Agreement. CITY CLERK'S DEPARTMENT-ACTION REMINDER TO: Douglas Dumhart, Economic Development Manager FROM: Mitzi Ortiz, Deputy City Clerk DATE: October 17, 2005 SITUATION: At their meeting on November 16, 2004, the City Council of the City of San Juan Capistrano approved a Personal Services Agreement with MBIA MuniServices Company related to a Property Tax Revenue and Sales and Use Tax Audit. ACTION REQUESTED: Said agreement is for a period of one year and is due to expire on November 15, 2005. Please notify this office if agreement has been completed or will be extended. ACTION TO BE TAKEN: DATE WHEN NEXT ACTION (S) SHOULD BE TAKEN: SIGNATURE OF OFFICIAL TAKING ACTION: DATE SIGNED: 'FOR CITY CLERK'S DEPARTMENT USE ONLY"' Tickler Date: 10/17/05 Deadline Date: 11/15/05 cc: Department Head (600.30/mbia) QjXa� a/�'v v JAN 5 2005 OHRHO h i l b rogal & hobbs' ` Enclosed please find the Renewal Certificate of Insurance for MBIA MuniServices Company. If you have any questions/concerns, please contact Patricia Kemsley, MBIA Muniservices Company @ 559-271-6868. Client#: 14012 MBIAINC 'ACORD, CERTIFIC OF LIABILITY INSU NCE 12/2904DYVYY) PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION WHIG Rogal&Hobbs ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.THIS CERTIFICATE DOES NOT AMEND,EXTEND OR 100 Park Avenue ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. 14th Floor New York, NY 10017 INSURERS AFFORDING COVERAGE NAIC# INSURED INSURERA. Hartford Insurance Company 19682 MBIA MuniServices Company I INSURER B Federal Insurance Company 20281 Attn: Patricia Kemsley INSURER C: 7335 N. Palm Bluffs Dr. wsURER O. Fresno, CA 93711 INSURER E' COVERAGES THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED.NOTWITHSTANDING ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. NSR TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS LTR NSR DATE MMIDD/VV DATE MMIDDIYY A GENERAL LIABILITY 1000NTS9309 12/30/04 12/30/05 EACH OCCURRENCE $1,00-0,00-0— X 1000000X COMMERCIAL GENERAL LIABILITY DAMAGE TO RENTED $50,000 CLAIMS MADE 51OCCUR MED EXP(Anyone person) s51000 PERSONAL&ADV INJURY S1,000,000 GENERAL AGGREGATE s2.000.000 GEN'L AGGREGATE LIMIT APPLIES PER. PRODUCTS-COMP/OP AGG $1000000 POLICY JET _71 LOC A AUTOMOBILE LIABILITY 1000NTS9309 12/30/04 12/30/05 COMBINED SINGLE LIMIT X ANY AUTO (Ea accident) $1,000,000 X ALL OWNED AUTOS BODILY INJURY $ SCHEDULED ALTOS (Per person) X HIREDAUTOS BODILY INJURY $ X NON-OWNED AUTOS (Peraccident) PROPERTY DAMAGE $ (Per accident) GARAGE LIABILITY AUTO ONLY-EA ACCIDENT $ ANYAUTO OTHER THAN EA ACC $ 0 AUTO ONLY AGG S B EXCESS/UMBRELLA LIABILITY IORHUTT0173 12/30/04 12/30/05 EACH OCCURRENCE $5,000,000 X OCCUR F�CLAIMS MADE AGGREGATE s5,000,000 DEDUCTIBLE $ RETENTION $ $ A WORKERS COMPENSATION AND 1OWBKZ7580 12/30/04 12/30/05 WC STATU-EMPLOYERS'LIABILITY E.L.EACH ACCIDENT $500,000 ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED' E.L.DISEASE-EA EMPLOYEE $500,000 If yes,describe under SPECIAL PROVISIONS below E.L.DISEASE-POLICY LIMIT $500,000 OTHER DESCRIPTION OF OPERATIONS I LOCATIONS/VEHICLES/EXCLUSIONS ADDED BY ENDORSEMENT/SPECIAL PROVISIONS The City of San Juan Capistrano, its agents,officers, servants and employees are named as additional insureds with respect to the operations / and work performed by the named insured as written by contract. CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION City of San Juan Capistrano DATE THEREOF,THE ISSUING INSURER WILL XMI)CMI XR MAIL An DAYS WRITTEN Attn: Douglas D. Dumhart NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,XRXOM6l1[O XRAAXKMX 32400 Paseo Adelanto IMMRX0.=NRK11901C0.EU KXXXRRROr MKRXIM*7t)Cn4%XMX]HNfJMXRKXXX San Juan Capistrano, CA 92675 X K KX AUTHORIZED REEPPREESSEN�TATIVE C ` &V� ACORD 26(2001/08) 1 of 2 #M92213 AMC 0 ACORD CORPORATION 1988 ISOI Commercial General Liability Forms 107/01/04 POLICY NUMBER: COMMERCIAL GENERAL LIABILITY CG 20 26 07 04 THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. ADDITIONAL INSURED - DESIGNATED PERSON OR ORGANIZATION This endorsement modifies insurance provided under the following: 10 UUN TS9309 COMMERCIAL GENERAL LIABILITY COVERAGE PART MBIA INC., MBIA MUNISERVICES COMPANY SCHEDULE City of San Juan Capistrano Attn:City Clerk The City of San Juan Capistrano,its agents,officers,servants and employees are named as additional insureds with respect to the operations and work performed by the named insured as written by contact Information required to complete this Schedule, if not shown above, will be shown in the Declarations. Section II—Who is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for"bodily injury'. "property damage" or personal and advertising injury" caused, in whole or in part, by your acts or omissions or the acts or omissions of those acting on your behalf: A. In the performance of your ongoing operations; or B. In connection with your premises owned by or rented to you. CG 20 26 07 04 © ISO Properties, Inc., 2004 ©ISO Properties, Inc. ©2004 Insurance Reference Systems, Inc. All Rights Reserved. daim" 32400 PASEO ADELANTO SAN JUAN CAPISTRANO,CA 926751,y IWIPORRlm MEMBERS OF THE CITY COUNCIL (949)493-1171 • MIRIAM ' )961 SAM ALLEVATO (949)493-1053 FAX 1776 DIANE L.BATHGATE www.sanjuancapistrano.org WYATT HART JOE DAVIDD M.M.SWERDLIN December 9, 2004 MBIA MuniServices Company 7335 N. Palm Bluffs Dr. Fresno, CA 93711 RE: Compliance with Insurance Requirements -Property Tax Revenue & Sales & Use Tax Audit \ The following insurance documents are due to expirC: ✓ General Liability Certificate 12/30/20040)/-- V 2/30/2004✓ General Liability Endorsement Form naming the City of San Ju Capistrano and the San Juan Capistrano Community Redevelopme) Agency as additional insureds. ✓ Automobile Liability Certificate 12/30/2 0 ✓ Workers Compensation Certificate 12/30/2004 Please submit updated documentation to the City of San Juan Capistrano, attention City Clerk's office, 32400 Paseo Adelanto, San Juan Capistrano, CA 92675 by the above expir dates If have any questions, please contact me at (949) 443-6309. f 1 , a ara Admini t tive Secretary cc: Douglas D. Dumhart, Economic Development Manager Dec 02 04 11 : 42a • . p. 2 01t.ma: 14012 _ MBUUNC ACORD- CERTIFICATE OF LIABILITY INSURANCE illi� oi°Y"" ' PRODUeEN TNR:CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION Hllb Royal 8,Hobbs ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE 100 Park Avenue ALTER THIS CERTIFICATE DOES NOT AMEND,EXTENO OR ALTER TIE COVERAGE AFFORDED BY THE POLICIES BELOW. 14th Floor New York,NY 10017 INSURERS AFFORDING COVERAGE NAIL a NSDRaD .iwwRA: Federal lnsuraneeCompany 20281 MBIA MunlSerview Company 4SLIRER B Attn:PnMcia Kemskry ISURER c 7338 N.Palm Bluffs Dr. vSURER D Fresno,CA 53711 4SURER E COVERAGES THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE WAUWE NAAEO ABOVE FOR THE POLICY PERM INDICATED.NOTVNTHSTANDINO ANY REQUIREMENT,TERNI OR CONDITION OF ANY CONTRACT OR OTHER DOCUMI=.NTVWTH RESPECT TO WHICH THIS CERTIFICATE MAY HE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DES(;RM)HEREIN IS SUBJECT TO ALL THE TERMS,EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAM.: Ln;MURN iYPEOPRUINIANCE POLICY NUMBER_ LaUTs A GINBRAL LIABILITY 38291862 12'30/03 12130/04 EACH OCCURRENCE $1,000,000 X COMMERCIALGENERALLUBLITV CA MA -RE CLAIMS MADE ❑X OCCUR MEDEXPOWQm A I SB000 PERSONAL&ADV INJURY r:O: GE NERAL AGGREGATE GI AOORECATE LNR APPLIES PER: PRODJM-COMFYOPAGG PIX1CYLC A AUTOMOBILE LANLITY 3.5291862 12130/03 12/30N4 COMBINED SINGLE LIMITANYAUTO IS.-COMSAB ALLOWHEDAUTOS9CXEIXX®AUTOSPW ILWIfe1) X HIREDAUTOB BODILY INJURY X NONOWNED AUTOS IPN ACciwq f PROPERTYGAMAGE i (Per iCIeP110 GARAGE UAINUTY —' AIRNON.Y.EA ACCIOEIJT 7 ANY AUTO OTHER THAN EA ACC $ AUTO ONLY: AGO f A EIICES&ANAMRELUA LIABILITY 79660701 12130103 12/30/04 EACH OOCURRENCE $8 000 000 X OCCUR M CLAIMS MADE AGGREGATE f6 OOO 000 I DEDUCTIBLE f RETENTION $ f A WORKERS COMPENSATION AND 71808583 12130103 12/30104 1W FATU. cANR ROPRI TORWLIABILTY E.L.EACH ACCIDENT 1511113.000 6TH- ANY PROPRI&TORFARTNERE%L�l1TIVE OFFICEAIMF9AEER ExCLUOEDi E.L.DISEASE-EA EMPL( SM.WO M tlYcriM Wfder PR __ E.L.DEBASE•POtlq'LINT I S580,000 A DTNIM Commercial U 79880701 1213=3 12/3004 DlEGNPTN)N w PPEIUTION&I LOGAT WNa I VEHICLES I EXCLUSI NSADDED BY NNDORNMSIn I BPECAL MOVISIONa The City of San Juan Capistrano and the Community Redevelopment Agency.Its agents, officers,servants and employees are named as additional Insureds with respect to the operations and work performed by the named insured as written bt contract. CERTIFICATE HOLDER CANCELLAIM _— 31.01-13 ANY d THE ASI DESC POLNXp NGNWELLE)WMI THEEAPIRATION City of San Juan Capistrano and DaTE THMEOP,THE 1150119 NsuaeA OvulaEerraufNLAu& __2k_ WLYSWNTTEH the Community Redevelopment Ag. NOTICE TO THE OENTIFICATE NCLOER NAMED TOTHE UFT, Attn:Douglas D.Dumhart mdou= 32400 Paseo Adelanto IaaeonvaaX San Juan Capalatrano, CA 92878 A)TIICa1XSD RBPRESEWATIVa ACORD 26(2001101) 1 of 2 989876 JOH a ACORD CORPORATION IM Dec 02 04 11 : 42a • P' 3 L.abift.' Insurance Elldarse,meat .. Pmicy Penc l' December 30:2003 d. Eitxee Oe s Decemlxr 30,2004 , AaIry,NUM, lar 3129-kM2 MTO 'MBIA,INC. : . .. . .Name a?Ca.,Pang FEDERAL INSURANCE.CoanPANY oau3rsdued :December2,2004 . • •Tha Eodommeac appiia to ma tudowicH fb=: GENERAL[.LABILITY . Uadcr who Is 1 cruces; die louowia;pmrisima is added: . Who Is Insured Designated Person Or .+,ay p=a ar c:gmvndoa,desigaamd betow is an Udured hui.oaly with respect m liab[licy ariaiad Organization. nuc of YOU Opel edoas Or premlacs awned by Or maxd to piu. - .11rnHca[cd Pm'-,a Or oryan#=On The City of San Juan Capistrano and the Community Rsd!,N810pm60it Agency, Its agents,officers,servants and employees pre named as additional insureds-with respect to the. opsiatidn and work pedormed by the named insured as required by contract. tiaBiGfy ywr,rra AdaAanal 1nxwvd•cQlrq .tllld Pw Or cmam"a'n :. cw n Md 'farm adtl2.77dT(Ea.4-9J) endersamane� _ - -----�— p. l Dec 02 94 11 : 42a 7935 N.pakn Sk&Ohre ar FnarM #3711 850 bb0 al 8181 MBIA Mum$ervic ea Company 558 2718815 Fox 502750/71 FAX From- Fan r m- Faxs `l� �� �j'- !O ':> �j Pages: Phones 1 `1 - b 3y;tj � D pAr O ueyent ❑For ReAWW O Please Can spent ❑Please Ropy ❑Please R.eyele 11/16/2004 D3 AGENDA REPORT TO: Dave Adams, City Manager FROM: Douglas D. Dumhart, Economic Development Manager SUBJECT: Consideration of Consultant Services to conduct a Property Tax Revenue and Sales Use Tax Audit (MBIA MuniServices Co.) RECOMMENDATION: By motion, (1) Approve the Personal Services Agreement with MBIA MuniServices Co. for Property Tax Revenue and Sales and Use Tax Audit Services; and (2) Adopt a Resolution granting MBIA authorization to examine all Sales and Use Tax records. SUMMARY: Staff believes now is the appropriate time to once again audit the County Assessor's allocation of property tax revenues and the State Board of Equalization reporting of Sales and Use Tax. This procedure is performed from time to time to ensure the community is getting its fair share of taxes and there are no misallocated revenues due to the City or the Community Redevelopment Agency. Staff has identified MBIA MuniServices Co. (MMC) to assist the City and Agency in identifying and obtaining revenue that would otherwise be lost. MMC works exclusively for governments and has identified and restored over $600 million of revenues for their clients. In addition to approving the Personal Services Agreement the City Council will need to adopt a Resolution granting MMC access to confidential revenue data pursuant to California Revenue and Taxation Code Section 7056. To that end, Staff has prepared a Personal Services Agreement with MBIA MuniServices Co. for audit services. The Agreement is provided as Attachment 1 to the Agenda Report. MBIA MuniServices Co. Scope of Work can be found as Exhibit A of the attached Agreement. The requisite resolution to authorize examination of confidential records is provided as Attachment 2. FINANCIAL CONSIDERATIONS: The Consultant's fee for Property Tax audit is 25% of any misallocated revenue identified in the audits for the fiscal year during which the date for correction falls and the three subsequent roll years. CADouglasWgendas 2004\11-16 sales use tax audit.doc Agenda Report Page 2 November 16, 2004 The Consultant's fee for Sales and Use Tax audit is 25% for the misallocated revenue for the three (3) quarters prior to the discovery and six (6) quarters after. If no misallocation is found, the Consultant is paid nothing. Payment to the Consultant will be made after the City or Agency receives its first remittance during the fiscal year for which the correction applies. The Consultant also prepares quarterly reports with graphic representation of the City's sales tax analysis. Each quarterly report is $1,000. The Agreement is for one (1) year. NOTIFICATION: ' MBIA MuniServices Co. RECOMMENDATION: By motion, (1) Approve the Personal Services Agreement with MBIA MuniServices Co. for Property Tax Revenue and Sales and Use Tax Audit Services; and (2) Adopt a Resolution granting MBIA authorization to examine all Sales and Use Tax records. Respectfully submitted, t� el G Douglas D. Dumhart Economic Development Manager Attachments: 1. Personal Services Agreement 2. Resolution authorizing MBIA access to confidential records CADouglas\Agendas 2004\11-16 sales use tax audit.doc PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made and entered into this 16th day of November, 2004, by and between the City of San Juan Capistrano and the San Juan Capistrano Community Redevelopment Agency (hereinafter collectively referred to as the "City") and MBIA MuniServices Company (hereinafter referred to as "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal to conduct Property Tax Revenue and Sales and Use Tax Audit; and, WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by Consultant shall consist of those tasks as set forth in Exhibit 'A" attached and incorporated herein by reference. Consultant warrants that all of its services shall be performed in a competent, professional and satisfactory manner and in accordance with the prevalent standards of its profession. Section 2. Term. This Agreement shall commence on the effective date of this Agreement and shall continue in full force and effect for a period of one (1) year. Due to the type of services rendered by Consultant and their compensation schedule as outlined in Section 3 below, City shall remain obligated after termination to provide Consultant such information as is necessary for Consultant to calculate its compensation due as a result of receipt of revenue by City and City shall remain obligated to pay Consultant's invoices in accordance with the terms of this Agreement. Section 3. Compensation. 3.1 Amount. Property Tax Audit. Total compensation for property tax audit work identified in the Scope of Work shall not exceed twenty-five(25%)percent of the misallocated revenues identified in the secured and unsecured audits. This fee applies to reallocations for the fiscal year during which the Date of Correction falls and any i ATTACHMENT eligible prior period revenues corrected. The fee also applies to Corrected Allocations for three (3) subsequent Roll years from the Date of Correction. Sales and Use Tax Audit. Total compensation for the Sales and Use tax audit work identified in the Scope of Work shall not exceed twenty-five (25%) percent of misallocated revenue. This fee applies to six (6)quarters after the Date of Correction and any eligible prior quarters back to and including the three (3) quarters prior to the ate of Knowledge quarter. As used herein, the Date of Knowledge is the quarter during which Consultant notifies the State Board of Equalization of the existence of a misallocation. As used herein, The Date of Correction refers to the quarter in which the taxpayer has correctly reported the local tax and SBE distributes the local tax properly to City based on the taxpayer's reporting, together with any prior period reallocations. 3.2 Method of Payment Consultant shall separate and support said reallocation and provide City with an itemized invoice showing all amounts due as a result of revenue recovery or reallocation. City shall pay audit fees after Consultant's submittal of evidence that corrections have been made by the appropriate Agency. Payment to Consultant shall be made after City receives its first remittance advice during the fiscal year for which the correction applies. For extra work not part of this Agreement, a written authorization from City is required priorto Consultant undertaking any extra work. Extra work will be billed according to the Rate Schedule in Section 3.3. 3.3 Rate Schedule. The services identified in the Scope of Work as Corollary Consulting Services shall be billed to the City at the hourly rate set forth below. Included within the compensation are all the Consultant's ordinary office and overhead expenses incurred by it, its agents and employees, including meetings with City representatives and incidental costs to perform the stipulated services. Hourly Rates: Principal $175.00 per hour Director $150.00 per hour Manager $125.00 per hour Senior Analyst $100.00 per hour Analyst $ 75.00 per hour Administrative $ 50.00 per hour 3.4 Records of Expenses. Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made 2 available at reasonable times to City. Section 4. Independent Consultant. It is agreed that Consultant shall act and be an independent Consultant and not an agent or employee of City, and shall obtain no rights to any benefits which accrue to City's employees. Section 5. Limitations upon Subcontractina and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to City for the acts and omissions of its sub Consultant as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any sub Consultant and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; and, (2) it is familiar with the City; and, (3) it understands the facilities, difficulties and restrictions of the work under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations 3 of federal, state and local government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Indemnity. Consultant agrees to protect, defend and hold harmless City, its elected and appointed officials and employees from any and all claims, liabilities,expenses or damages of any nature, including attorneys' fees, for injury or death of any person or damage to property or interference with use of property and for errors and omissions committed by Consultant arising out of or in connection with the work, operation or activities of Consultant, its agents, employees and sub Consultants in carrying out its obligations under this Agreement. Section 12. Insurance. Insurance required herein shall be provided by Admitted Insurers in good standing with the State of California. 12.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in the following minimum amounts: $1,000,000 property damage; $1,000,000 injury to one person/any one occurrence/not limited to contractual period; $2,000,000 injury to more than one person/any one occurrence/not limited to contractual period. 12.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including owned, hired and non- owned vehicles in the following minimum amounts: $1,000,000 property damage; $1,000,000 injury to one person/any one occurrence/not limited to 4 contractual period; $2,000,000 injury to more than one person/any one occurrence/not limited to contractual period 12.3 Worker's Compensation. If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Worker's Compensation Employer's Liability Insurance in the statutory amount as required by state law. 12.4 Proof of Insurance Requirements. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self-retention amount, and an additional insured endorsement to the Consultant=s general liability and umbrella liability policies using ISO form CG 20 10 11 85 (in no event with an edition date later than 1990) to the City's General Counsel for certification that the insurance requirements of this Agreement have been satisfied. 12.5 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty(30)days'written notice is given to City,except that ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 12.6 Terms of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. 12.7 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed", verifying that the Consultant has complied with all insurance requirements of this Agreement. Section 13. Termination. City and Consultant shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to the other party In addition,this Agreement may be terminated for cause by providing ten (10)days' notice to the other party of a material breach of contract. If the other party does not cure 5 the breach of contract, then the agreement may be terminated subsequent to the ten (10) day cure period. Section 14. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or to such other addresses as may be designated by written notice. These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Douglas D. Dumhart To Consultant: MBIA MuniServices Co. 7335 N. Palm Bluffs Ave Fresno, CA 93711 Attn: Corporate Counsel Section 15. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 16. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, the dispute shall be resolved by binding arbitration under the auspices of the Judicial Arbitration and Mediation Service ("JAMS"). Section 17. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. 6 • • IN WITNESS WHEREOF, the parties hereto have executed this Agreement. ATTEST: CITY OF SAN JUAN CAPISTRANO: Margaret R. Monahan, City Clerk Joe Soto, Mayor APPROVED AS TO FORM: MBIA MUNISERVICES COMPANY/MMC: John R. Shaw, City Attorney Mark Her an, President ATTEST: SAN JUAN CAPISTRANO COMMUNITY REDEVELOPMENT AGENCY Margaret R. Monahan, Agency Secretary Diane Bathgate, Chairperson APPROVED AS TO FORM: APPROVED AS TO FORM: John R. Stfiw, Agency Counsel iqeirAckerman, Corporate Counsel EXHIBIT A SCOPE OF SERVICES PROPERTY TAX MBIA MuniServices Company (MMC) shall provide to the City of San Juan Capistrano / San Juan Capistrano RDA (CITY), MMC's Property Tax Compliance Services which consists of Discovery, Audit and Recovery Services. OBJECTIVES AND METHODS MMC's property tax audit assists CITY in recovering all of the revenue to which it is entitled from its Property Tax and RDA Tax Increment. Administrative errors and omissions combined with general compliance problems are inevitable given the non-standard, complex nature of state and local property taxes. Error rates rise with respect to property tax applicability, rates, exceptions, exemptions, quirks and other inconsistencies. Because there are time limitations on the CITY's ability to recover misallocated revenue, prompt correction of these errors and omissions is essential to maximizing revenue potential. The following steps are taken in conducting MMC's Property Tax Audit: o Contact CITY's designated staff to review service objectives, scope, workplan schedule, public relations and logistical matters. MMC will also establish an appropriate liaison with the CITY's coordinator and logical checkpoints for progress reviews. o Represent the CITY for purposes of examining records pertaining to property tax and RDA tax increment to identify and confirm any errors/omissions that are resulting in deficient payment of tax revenues to the CITY. o 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 (collectively "Misallocations"). o Meet with designated CITY official(s)as necessary to review ourfindings and recommendations. o Prepare and forward to the appropriate parties requests for corrective action and revenue recovery for Misallocations. The date appropriate parties receive and acknowledge these requests is the Date of Knowledge. o Provide additional assistance as necessary to support the CITY in recovering and preventing tax allocation errors/omissions. From the Date of Knowledge, the County Assessor's office will review the identified Misallocations, and for those Misallocations for which a correction is required, an Assessor's Roll Correction (ARC) will be processed by the County correcting those Misallocations,typically triggering a reallocation. The Roll Year in which the assessments 8 first appear corrected is the Date of Correction. Corrected assessments result in proper allocations in subsequent Roll Years ("Corrected Allocations"). Specifically, MMC shall: o Establish a comprehensive inventory of every parcel located within the City and within the RDA project(s), including the database elements needed to facilitate a comparison analysis with County secured and unsecured taxable values. o Conduct an audit of the CITY local secured and unsecured valuations, on a parcel-by-parcel basis to determine tax rate area(TRA)miscoding errors and omissions. TIMING AND REPORTING MMC shall commence the revenue enhancement audits and annual report services 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, MMC shall provide the CITY with audit progress reports to include, but not be limited to,the following: o Actual revenue produced for the CITY by MMC's service on an annual and cumulative basis. o Projected revenue forthcoming to the CITY as a result of MMC's audit service, specified according to source, timing and one-time payment versus ongoing. O Listing of all errors/omissions detected for the CITY 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.). o Status of the work including copies of reports provided by the County addressing each reporting error/omission individually, the Incorrect Parcel Number, Correct Parcel Number, Assessee, Correct TRA assignment, Business ID, Address, Secured and Unsecured Valuation, Exemptions, Net Total Valuation of misallocated assessments. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may request. Consulting services otherwise included in this Addendum will not be subject to MMC's fees for Corollary Consulting as set forth below. CITY OBLIGATIONS 9 MMC shall invoice CITY for the above fee on no less frequently than a quarterly basis, based on recoveries actually received by CITY. Because MMC's Service may result in collection of deficiencies after termination of the Agreement, CITY's obligation to collect fees and notify MMC, and MMC's right to continue to receive payment, shall survive termination of this Addendum or the Agreement for any reason. 10 SALES AND USE TAX AUDIT (SUTA) OBJECTIVES AND METHODS MMC's sales and use tax audit service is designed to maximize the City's income - and minimize the cost of lost revenue - by detecting and documenting misallocations of sales and use tax activity within the statute of limitations on recoverability. In performing the sales and use tax audit program MMC shall: ❑ Identify and correct the sales/use tax reporting errors of businesses that, based on the nexus of their activities, are not properly registered with the City. ❑ Identify and correct the reporting of businesses that are improperly reporting tax to state and county pools (i.e. classifying sales tax as use tax) and thereby depriving the City of sales tax revenue. ❑ Detect, document and correct sales/use tax reporting errors/omissions and thereby generate new, previously unrealized revenue for the City. ❑ Ensure through comprehensive audit measures that the revenue information used for ongoing economic analysis includes all sales/use tax generators. ❑ Assist the City with strategies to preserve and even enhance sales and use tax revenue generated by existing businesses within the City. MMC's proposed sales/use tax allocation audit services for the City includes five distinct types of audits: ❑ Taxable Nexus Field audits ❑ Permitization audits ❑ Deficiency assessment audits ❑ Accounts payable audits ❑ Quarterly Distribution Report audits TAXABLE NEXUS FIELD AUDITS MMC's initial and periodic taxable nexus field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this undertaking, significant misallocations will remain undetected. MMC's field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue. The result is new or 'found' revenue for the City. PERMITIZATION AUDITS Wholesalers, contractors, processors, manufacturers and other non-retail businesses will ii frequently not have a sales or use tax permit properly registered to the City in which they are located because their business operations do not include a point-of-sale qualifying activity. However, these companies will often generate local sales/use tax from the State Board of Equalization(SBE)audit deficiency assessments,occasional sales(i.e., mergers and acquisitions), and self-accrual of use tax on purchases. MMC's field audits facilitate the identification and correction of improperly registered permits for companies having point-of-sale operations in the City. DEFICIENCY ASSESSMENT AUDITS When the California State Board of Equalization audits taxpayers for sales/use tax compliance, it is not uncommon for the taxpayer to receive a substantial deficiency assessment due to underpayments and/or under-collections. In many cases, the local allocation portion of the deficiency assessment is distributed in error to the State pool, county pools, or other jurisdictions. Accordingly, MMC has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by MMC's allocation audit service. ACCOUNTS PAYABLE AUDITS When California taxpayers purchase tangible personal property for which title passes out- of-state, the transactions are subject to use tax(rather than sales tax)which is collected by the vendor who in turn remits it to the SBE, with the local allocation typically distributed statewide or countywide through the pools. Under certain conditions,the seller may allocate the local tax by situs or the City may elect to self-accrue the use tax and remit it directly to the SBE, in which case the local portion will come back to the City in the same manner as sales tax. MMC's accounts payable audit will include a review of the City's purchases to identify opportunities for the City to capture the 1% local allocation on purchases subject to use tax. In this regard, MMC will prepare the documentation to facilitate the election, including assistance in preparing and filing the tax returns. QUARTERLY DISTRIBUTION REPORT AUDITS Every three months, the City and MMC receive a Quarterly Distribution Report(QDR)from the SBE with the local allocation amount reflected by permit number. MMC's QDR audits detect and correct taxpayer reporting errors and thereby generate new, previously unrealized sales/use tax revenue for the City. MMC's QDR audits focus on those accounts where MMC observes a substantial decline in the sales/use tax revenue allocation for a particular business entity in a given quarter. In most cases, accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next quarter's QDR. Therefore, six months must lapse before the QDRs indicate whether a zero balance account can be attributed to a late 12 payment or a misallocation. Cities and counties may only recover misallocated revenue for three quarters prior to the SBE being notified of the reporting error. Therefore QDR audits must be conducted in a timely manner in order to preserve the opportunity for the City to recover misallocated revenue. MMC shall conduct the QDR audit each and every quarter to minimize the potential of lost revenue to the City. SUTA DETECTION AND DOCUMENTATION MMC shall represent the City for purposes of examining SBE records pertaining to sales and use tax to identify errors and omissions. MMC's procedures for detecting and documenting misallocations are as follows: ❑ Review applicable provisions of the City's municipal code and ordinance adopted by the City to determine applicability. ❑ Procure a computer tape of sales/use tax permit records from the State Board of Equalization (SBE). ❑ Analyze sales tax distribution reports provided by the SBE for five or more of the most recent consecutive quarters. ❑ Clean-up, standardize and computerize data from City's quarterly sales tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Prepare an aggregated list of business entities on electronic media; this list is derived from multiple private and public sources (hard copy and electronic), including specialized business listings and directories, and the City's revenue payment files. ❑ Clean, standardize and integrate, in address-order,each entity's business name, address and payment file information, to eliminate redundancies, using MMC's proprietary software. ❑ Physically canvas commercial/industrial area within the City's borders. ❑ Develop a target list of potential point of sale/use reporting errors/omissions based on: 1)An electronic comparison of MMC's comprehensive inventory against the SBE's quarterly distributions for the City, and 2)An analysis of each potentially misallocated account based on proprietary guidelines established by MMC. ❑ Meet with designated City official(s) to review service objectives and scope, MMC workplan schedule, public relations and logistical matters. 13 • i ❑ 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. MMC's allocation audits are predicated on a non-controversial, 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 SBE 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. ❑ MMC may also provide suggested language for letters to be sent to the taxpayers and/or SBE from the City (or from MMC on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. ❑ Receive and process sales tax distribution reports quarterly. ❑ Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect eligible back quarters amounts. ❑ Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1) Accounts with previously reported point-of-sale/use distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2) Major accounts comprising 90% or more of the City's total sales tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue than it is entitled to. 3) Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Identify opportunities for the City to recover local allocation on purchase transactions subject to use tax. MMC will prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may 14 request. Consulting services otherwise included in this Addendum will not be subject to MMC's fees for Corollary Consulting as set forth below. SUTA DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MMC 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. MMC coordinates and communicates between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and State Board of Equalization personnel and the in-state/out-of-state district offices. Correction of the account is considered to have been made once the payments on identified taxpayer accounts are being properly allocated by the taxpayer to the City in the period in which the payment was made. As needed, MMC will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MMC shall commence auditing the sales/use tax and preparing the sales tax Query System within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MMC as the authorized City Consultant to examine sales and use tax records. CONFIDENTIALITY PROVISIONS MMC 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. MMC 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. MMC is prohibited from performing consulting services for a retailer during the term of this Agreement. MMC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MMC's and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Bums Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. 15 CITY RESPONSIBILITIES MMC's services performed hereunder may result in corrections of misallocations after cessation of services by MMC for City. Therefore, City agrees that with regards to misallocations identified to the State Board of Equalization whose Date of Knowledge occurred during MMC's performance of services for City,that City's obligation to pay MMC in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. In the event that City identifies, documents, and notifies the State Board of Equalization of a reporting error or misallocation as those terms are used herein, City agrees to notify MMC of City's discovery no later than ten (10) days after the Date of Knowledge. If City fails to so notify MMC and MMC later detects, documents, and reports the misallocation or reporting error to the State Board of Equalization, or if MMC has established a Date of Knowledge with the State Board of Equalization prior to notification to the Board by City, then MMC shall be entitled to compensation for the affected account in accordance with this Addendum. 16 EXHIBIT A SCOPE OF SERVICES PROPERTY TAX MBIA MuniServices Company (MMC) shall provide to the City of San Juan Capistrano/ San Juan Capistrano RDA (CITY), MMC's Property Tax Compliance Services which consists of Discovery, Audit and Recovery Services. OBJECTIVES AND METHODS MMC's property tax audit assists CITY in recovering all of the revenue to which it is entitled from its Property Tax and RDA Tax Increment. Administrative errors and omissions combined with general compliance problems are inevitable given the non-standard, complex nature of state and local property taxes. Error rates rise with respect to property tax applicability, rates, exceptions, exemptions, quirks and other inconsistencies. Because there are time limitations on the CITY's ability to recover misallocated revenue, prompt correction of these errors and omissions is essential to maximizing revenue potential. The following steps are taken in conducting MMC's Property Tax Audit: o Contact CITY's designated staff to review service objectives, scope, work plan schedule, public relations and logistical matters. MMC will also establish an appropriate liaison with the CITY's coordinator and logical checkpoints for progress reviews. o Represent the CITY for purposes of examining records pertaining to property tax and RDA tax increment to identify and confirm any errors/omissions that are resulting in deficient payment of tax revenues to the CITY. o 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 (collectively "Misallocations"). o Meet with designated CITY official(s)as necessary to review our findings and recommendations. o Prepare and forward to the appropriate parties requests for corrective action and revenue recovery for Misallocations. The date appropriate parties receive and acknowledge these requests is the Date of Knowledge. o Provide additional assistance as necessary to support the CITY in recovering and preventing tax allocation errors/omissions. From the Date of Knowledge, the County Assessor's office will review the identified Misallocations, and for those Misallocations for which a correction is required, an Assessor's Roll Correction (ARC) will be processed by the County correcting those Misallocations, typically triggering a reallocation. The Roll Year in which the assessments 8 first appear corrected is the Date of Correction. Corrected assessments result in proper allocations in subsequent Roll Years ("Corrected Allocations"). Specifically, MMC shall: o Establish a comprehensive inventory of every parcel located within the City and within the RDA project(s), including the database elements needed to facilitate a comparison analysis with County secured and unsecured taxable values. o Conduct an audit of the CITY local secured and unsecured valuations, on a parcel-by-parcel basis to determine tax rate area(TRA)miscoding errors and omissions. TIMING AND REPORTING MMC shall commence the revenue enhancement audits and annual report services 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, MMC shall provide the CITY with audit progress reports to include, but not be limited to,the following: o Actual revenue produced for the CITY by MMC's service on an annual and cumulative basis. o Projected revenue forthcoming to the CITY as a result of MMC's audit service, specified according to source, timing and one-time payment versus ongoing. o Listing of all errors/omissions detected for the CITY 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.). o Status of the work including copies of reports provided by the County addressing each reporting error/omission individually, the Incorrect Parcel Number, Correct Parcel Number, Assessee, Correct TRA assignment, Business ID, Address, Secured and Unsecured Valuation, Exemptions, Net Total Valuation of misallocated assessments. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may request. Consulting services otherwise included in this Scope of Services will not be subject to MMC's fees for Corollary Consulting as set forth below. 9 CITY OBLIGATIONS MMC shall invoice CITY for the above fee on no less frequently than a quarterly basis, based on recoveries actually received by CITY. Because MMC's Service may result in collection of deficiencies after termination of the Agreement, CITY's obligation to collect fees and notify MMC, and MMC's right to continue to receive payment, shall survive termination of this Scope of Services or the Agreement for any reason. SALES AND USE TAX AUDIT (SUTA) OBJECTIVES AND METHODS MMC's sales and use tax audit service is designed to maximize the City's income - and minimize the cost of lost revenue - by detecting and documenting misallocations of sales and use tax activity within the statute of limitations on recoverability. In performing the sales and use tax audit program MMC shall: ❑ Identify and correct the sales/use tax reporting errors of businesses that, based on the nexus of their activities, are not properly registered with the City. ❑ Identify and correct the reporting of businesses that are improperly reporting tax to state and county pools (i.e. classifying sales tax as use tax) and thereby depriving the City of sales tax revenue. ❑ Detect, document and correct sales/use tax reporting errors/omissions and thereby generate new, previously unrealized revenue for the City. ❑ Ensure through comprehensive audit measures that the revenue information used for ongoing economic analysis includes all sales/use tax generators. ❑ Assist the City with strategies to preserve and even enhance sales and use tax revenue generated by existing businesses within the City. MMC's proposed sales/use tax allocation audit services for the City includes five distinct types of audits: ❑ Taxable Nexus Field audits ❑ Permitization audits ❑ Deficiency assessment audits ❑ Accounts payable audits ❑ Quarterly Distribution Report audits 10 TAXABLE NEXUS FIELD AUDITS MMC's initial and periodic taxable nexus field audits include a physical canvassing and evaluation of sales/use tax generating businesses located in the City. In the absence of this undertaking, significant misallocations will remain undetected. MMC's field audits focus on those businesses located in the City from which the City has not been receiving sales/use tax revenue. The result is new or 'found' revenue for the City. PERMITIZATION AUDITS Wholesalers, contractors, processors, manufacturers and other non-retail businesses will frequently not have a sales or use tax permit properly registered to the City in which they are located because their business operations do not include a point-of-sale qualifying activity. However, these companies will often generate local sales/use tax from the State Board of Equalization (SBE)audit deficiency assessments,occasional sales(i.e., mergers and acquisitions), and self-accrual of use tax on purchases. MMC's field audits facilitate the identification and correction of improperly registered permits for companies having point-of-sale operations in the City. DEFICIENCY ASSESSMENT AUDITS When the California State Board of Equalization audits taxpayers for sales/use tax compliance, it is not uncommon for the taxpayer to receive a substantial deficiency assessment due to underpayments and/or under-collections. In many cases, the local allocation portion of the deficiency assessment is distributed in error to the State pool, county pools, or other jurisdictions. Accordingly, MMC has developed proprietary criteria and techniques to detect and correct SBE deficiency assessment misallocations and thus expand the benefits produced by MMC's allocation audit service. ACCOUNTS PAYABLE AUDITS When California taxpayers purchase tangible personal property for which title passes out-of-state, the transactions are subject to use tax (rather than sales tax)which is collected by the vendor who in turn remits it to the SBE, with the local allocation typically distributed statewide or countywide through the pools. Under certain conditions, the seller may allocate the local tax by situs or the City may elect to self-accrue the use tax and remit it directly to the SBE, in which case the local portion will come back to the City in the same manner as sales tax. MMC's accounts payable audit will include a review of the City's purchases to identify opportunities for the City to capture the 1% local allocation on purchases subject to use tax. In this regard, MMC will prepare the documentation to facilitate the election, including assistance in preparing and filing the tax returns. 11 QUARTERLY DISTRIBUTION REPORT AUDITS Every three months,the City and MMC receive a Quarterly Distribution Report(QDR)from the SBE with the local allocation amount reflected by permit number. MMC's QDR audits detect and correct taxpayer reporting errors and thereby generate new, previously unrealized sales/use tax revenue for the City. MMC's QDR audits focus on those accounts where MMC observes a substantial decline in the sales/use tax revenue allocation for a particular business entity in a given quarter. In most cases, accounts showing zero balances have either relocated or simply reported late, in which case the payments will not be reflected until the next quarter's QDR. Therefore, six months must lapse before the QDRs indicate whether a zero balance account can be attributed to a late payment or a misallocation. Cities and counties may only recover misallocated revenue for three quarters prior to the SBE being notified of the reporting error. Therefore QDR audits must be conducted in a timely manner in order to preserve the opportunity for the City to recover misallocated revenue. MMC shall conduct the QDR audit each and every quarter to minimize the potential of lost revenue to the City. SUTA DETECTION AND DOCUMENTATION MMC shall represent the City for purposes of examining SBE records pertaining to sales and use tax to identify errors and omissions. MMC's procedures for detecting and documenting misallocations are as follows: ❑ Review applicable provisions of the City's municipal code and ordinance adopted by the City to determine applicability. ❑ Procure a computer tape of sales/use tax permit records from the State Board of Equalization (SBE). ❑ Analyze sales tax distribution reports provided by the SBE for five or more of the most recent consecutive quarters. ❑ Clean-up, standardize and computerize data from City's quarterly sales tax distribution reports provided by SBE for previous quarters, current quarter and each future quarter service is provided. ❑ Prepare an aggregated list of business entities on electronic media; this list is derived from multiple private and public sources (hard copy and electronic), including specialized business listings and directories, and the City's revenue payment files. ❑ Clean, standardize and integrate, in address-order, each entity's business name, address and payment file information, to eliminate redundancies, using MMC's proprietary software. ❑ Physically canvas commercial/industrial area within the City's borders. 12 ❑ Develop a target list of potential point of sale/use reporting errors/omissions based on: 1)An electronic comparison of MMC's comprehensive inventory against the SBE's quarterly distributions for the City, and 2)An analysis of each potentially misallocated account based on proprietary guidelines established by MMC. ❑ Meet with designated City official(s) to review service objectives and scope, MMC work plan schedule, public relations and logistical matters. ❑ 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. MMC's allocation audits are predicated on a non-controversial, 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 SBE 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. ❑ MMC may also provide suggested language for letters to be sent to the taxpayers and/or SBE from the City (or from MMC on behalf of the City) urging cooperation in promptly correcting the distribution error. ❑ Respond to negative findings by SBE with timely reconfirmation documentation in order to preserve the City's original dates of knowledge. ❑ Receive and process registration control record information monthly. ❑ Receive and process sales tax distribution reports quarterly. ❑ Coordinate with the taxpayer and State Board of Equalization to make the necessary corrections and collect eligible back quarters amounts. ❑ Monitor and analyze the quarterly distribution reports with an audit focus on the following: 1) Accounts with previously reported point-of-sale/use distribution errors to ensure that the corrections are made for current quarters and all eligible back quarters. 2) Major accounts comprising 90%or more of the City's total sales tax revenue to identify any irregularities or unusual deviations from the normal pattern (e.g. negative fund transfers, significant decreases, unusual increases, etc.) and ensure that the City is not receiving less revenue than it is entitled to. 13 3) Those accounts receiving deficiency assessments to ensure that the City receives its local allocation ❑ Identify opportunities for the City to recover local allocation on purchase transactions subject to use tax. MMC will prepare the necessary documentation to facilitate recovery, including assistance in preparing and filing the returns. COROLLARY CONSULTING Upon mutual agreement between MMC and the CITY as to the scope of services to be provided, MMC shall provide to CITY such additional consulting services as CITY may request. Consulting services otherwise included in this Scope of Services will not be subject to MMC's fees for Corollary Consulting as set forth below. SUTA DETECTION TIMING CONSIDERATIONS For each misallocated account detected, MMC 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.MMC coordinates and communicates between typically four parties; sales/operations personnel at the taxpayer's local operation, tax personnel at the company's corporate headquarters, and State Board of Equalization personnel and the in-state/out-of-state district offices. Correction of the account is considered to have been made once the payments on identified taxpayer accounts are being properly allocated by the taxpayer to the City in the period in which the payment was made. As needed, MMC will represent the City before state officials, boards, commissions and committees for the purpose of correcting sales tax distribution errors that have deprived the City of revenue to which it is entitled. TIMING MMC shall commence auditing the sales/use tax and preparing the sales tax Query System within 10 working days of receipt of a fully executed contract and Confidentiality Resolution designating MMC as the authorized City Consultant to examine sales and use tax records. CONFIDENTIALITY PROVISIONS MMC 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. MMC 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. MMC is prohibited from performing consulting services for a retailer during the term of this Agreement. 14 MMC is prohibited from retaining the information contained in, or derived from, those sales and use tax records, after this Agreement has expired. This Agreement, and MMC's and CITY's obligations with respect to confidentiality of taxpayer data pursuant to the Bradley Burns Revenue and Taxation Code, shall continue until final payment for all services rendered hereunder. CITY RESPONSIBILITIES MMC's services performed hereunder may result in corrections of misallocations after cessation of services by MMC for City. Therefore, City agrees that with regards to misallocations identified to the State Board of Equalization whose Date of Knowledge occurred during MMC's performance of services for City, that City's obligation to pay MMC in accordance with the above compensation language shall survive expiration or termination of this Agreement for any reason. In the event that City identifies, documents, and notifies the State Board of Equalization of a reporting error or misallocation as those terms are used herein, City agrees to notify MMC of City's discovery no later than ten (10) days after the Date of Knowledge. If City fails to so notify MMC and MMC later detects, documents, and reports the misallocation or reporting error to the State Board of Equalization, or if MMC has established a Date of Knowledge with the State Board of Equalization prior to notification to the Board by City, then MMC shall be entitled to compensation for the affected account in accordance with this Scope of Services. SALES/USE TAX ANALYSIS & REPORTING SERVICE (STARS) OBJECTIVES AND METHODS MMC's STARS Digest provides a summary that 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. Report graphically illustrates the data and analysis presented in the Summary. Each MMC STARS Digest includes the Quarterly Management Summary. The MMC STARS Digest also includes specialized reports that provide analysis of the City's sales tax economic base and performance for the latest complete quarter and benchmark year. TIMING& REPORTS MMC shall: ❑ Provide the City with quarterly updated STARS Digests. ❑ Install the STARS Query System on a City designated PC ❑ Update quarterly the City's sales tax registration and allocation data from the State Board of Equalization (SBE) from MMC's proprietary STARS 15 Query System on IBM compatible PCs with Microsoft Access export capacity. (note: STARS is provided in encrypted formats) ❑ Train authorized City staff in the use of the STARS Query System. QUARTERLY STARS DIGEST MMC will provide the City with quarterly updated bound STARS Digests including accounts from which the City receives sales tax revenue. The primary reports included in the STARS Digest are: ❑ Allocation Summary - Reconciles SBE advances, cleanup payments and pool allocations with budget projections to assist the City with revenue forecasting and receipt monitoring. ❑ Cash Analysis-Quarterly aberrations due to SBE audits,fund transfers, and other causes are also identified and analyzed for budget planning and revenue forecasting purposes. ❑ Top 100 Five-Year - Historical performance of the top 100 accounts comparing current benchmark year ranking and sales tax produced with that of prior years. ❑ Top 100 Detail — Sales tax performance of the City's 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. ❑ Economic Category Performance — An analysis of the changes that occurred by economic category and segment with the specific businesses responsible for the significant changes delineated. ❑ Significant Change Analysis—A report reflecting magnitude of change, indicating which key businesses grew or declined, measured in absolute dollars and percentages. ❑ Business Code Classification-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 significant account. ❑ Historical Economic Composition-Data are summarized by economic category and segment by quarters and benchmark years. Percentage of total sales tax generated by each category and segment is also shown to indicate trends in sales tax composition as well as performance. ❑ Geo-Area Reports - Tracks sales tax performance within designated areas of the City (e.g., key shopping centers, business parks, and downtown /business districts,). Charts and printed reports are included for each geo-area. 16 ❑ Cross-Reference Reports-These reports allow the user to look up any account shown in the STARS Digest by name, address or account number. STARS QUERY SYSTEM MMC shall install the STARS Query System (a software program) on a City designated, IBM-compatible PC. Each quarter, MMC shall provide the City with updated information from SBE on CD-ROM. The data shall be provided in an encrypted format allowing the City to export sales tax information from the Query System in an Access-compatible format. ❑ The Query System enables City staff to analyze the contribution of sales/use tax revenue from each taxpayer in the City on an individual, grouped or sorted-order basis by business name, business type, permit number, size ranking, street address, development, shopping center or other geographic area. Reports may be generated by any year (i.e., calendar, fiscal, benchmark) or for any particular quarter for all periods stored in the historical database. The initial STARS Digest and Sales Tax Query System shall be delivered and installed within 45 working days following receipt of a fully executed contract, confidentiality resolution and the SBE sales tax registration and payment data. Subsequent quarterly Query System updates and STARS reports will be delivered to the City within 30 days following receipt of the quarterly distribution reports from the SBE. COST PROPOSAL The STARS Digest and Query System are available for an annual fixed fee of$4,000 per year, paid $1,000 quarterly. The Annual Fee shall be adjusted at the beginning of each calendar year by the percentage change in the Consumer Price Index—West Urban (CPI- W U)as reported by the Bureau of Labor Statistics,with the first adjustment to occur at the beginning of the Calendar year following the first full calendar year of service. The current available CPI-WU is 193.0 based on August 2004 index. The adjustments thereafter will be based on the CPI-W U from the last month of the prior calendar year. Each Annual Fee adjustment shall not be less than two percent (2%) or greater than ten percent (10%). LICENSE AGREEMENT The STARS Query System is licensed software provided by MMC. The terms and conditions of the STARS Query System License Agreement are provided to City upon installation. By installing and using the STARS Query System, City agrees to be bound by the terms of the License Agreement. 17 0 RESOLUTION NO. 04-11-16-01 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JUAN CAPISTRANO, CALIFORNIA, DESIGNATING A CITY CONSULTANT AS THE AUTHORIZED CITY REPRESENTATIVE TO EXAMINE SALES AND USE TAX RECORDS WHERAS, pursuant to California Revenue and Taxation Code Section 7200, et. seq., the City of San Juan Capistrano has adopted a sales and tax ordinance which imposes tax and provides a measure therefore that can be administrated and collected by the State Board of Equalization along the same and existing statutory and administrative procedures followed by the State Board of Equalization in administering and collecting the California State Sales and Use Taxes; and WHEREAS, pursuant to California Revenue and Taxation Code Section 7056, the City of San Juan Capistrano, by resolution, may designate any officer, employee or any other person to examine all of the sales and use tax records of the Board pertaining to sales and use taxes collected for the City; and WHEREAS, the City of San Juan Capistrano has entered into an agreement for sales tax audit and information services with the firm of MBIA MuniServices Company, to designate MBIA MuniServices Company as the authorized Consultant to examine such sales tax records maintained by the Board on behalf of the City of San Juan Capistrano; and WHEREAS, all legal prerequisites prior to the adoption of this Resolution have occurred. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Juan Capistrano as follows: 1. In all respects as set forth above, the City Council of the City of San Juan Capistrano hereby certifies to the State Board of Equalization that MBIA MuniServices Company is the designated representative of the City of San Juan Capistrano to examine all of the sales and use tax records of the Board pertaining to sales and use taxes collected by the Board on behalf of the City of San Juan Capistrano. 2. Pursuant to California Revenue and Taxation Section 7056 (b), the City Council of the City of San Juan Capistrano certifies that MBIA MuniServices Company (hereinafter referred to as "Consultant") meets all of the following conditions: a. Consultant has an existing contract with the City to examine sales tax records; b. Consultant is required by the contract to disclose information contained in, or derived from, those sales tax records only to an officer or employee of the City who is authorized by resolution to examine the information; 1 11-16-2004 0 0 c. Consultant is prohibited by the contract from performing consulting services for a retailer during the term of the contract; and d. Consultant is prohibited from retaining the information contained in, or derived from, those sales tax records after the contract has expired. PASSED, APPROVED, AND ADOPTED t is 16h y o No mber 2004. a Joe S/61 Mayor ATT "ST: R ARET R. MONAHAN, CITY CLERK STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss' CITY OF SAN JUAN CAPISTRANO ) I, MARGARET R. MONAHAN, appointed City Clerk of the City of San Juan Capistrano, do hereby certify that the foregoing Resolution No. 04-11-16-01 was duly adopted by the City Council of the City of San Juan Capistrano at a regular meeting thereof, held the 16 day of November 2004, by the following vote: AYES: COUNCIL MEMBERS: Allevato, Bathgate, Swerdlin, Hart & Mayor Soto NOES: COUNCIL MEMBERS: None ABSTAIN: COUNC -7B RS: None MVARET R. MONAHAN, City Clerk 2 11-16-2004 J«a► 32400 PASEO ADELANTO SAN JUAN CAPISTRANO,CA 92675 jy iA(ulOAliFt MEMBERS OF THE CITY COUNCIL (949)493-1171 (ABtllttft I 1961 SAM ALLEVATO (949)493-1053 FAX 1776 . DIANE L.BATHGATE W W W.sa11)UaRLapi.straAlO.Org WYATr HART • • JOE SOTO DAVID M.SWERDUN NOTIFICATION OF ME OTENTIAL INTEREST OF THE SAN JUAN CAPISTRANO CITY COUNCIL The City Council of San Juan Capistrano will meet at 7:00 p.m. on November 16, 2004 in the City Council Chamber in City Hall, to consider: "Consideration of Consultant Services to Conduct a Property Tax Revenue and Sales Use Tax Audit (MBIA MuniServices Co.)" — Item No. D3 If you have specific thoughts or concerns regarding this item, you are encouraged to participate in this decision making process. You can communicate with the City Council through correspondence addressed to the Council and/or by attending the meeting and speaking to the Council during the public meeting. Correspondence related to this item must be received at City Hall by 5:00 p.m. on Monday, November 15, 2004 to allow time for the Council to consider its content. If you would like to speak at the meeting, please complete a blue 'Request to Speak" form found inside the entrance to the Council Chamber. This form is turned in at the staff table, just in front of the Council dais. You will be called to speak by the Mayor when the item is considered. You have received this notice at the request of the City staff member Douglas D. Dumhart, Economic Development Manager. You may contact that staff member at (949)443-6316 with any questions. The agenda, including agenda reports, is available to you on our web site: www.sanivancapistrano.org. If you would like to subscribe to receive a notice when agendas are posted to the web site, please make that request by sending an e-mail to: council-agendas(�sanivancapistrano.org. Meg Monahan, CMC City Clerk cc: MBIA MuniServices Co.*; Douglas D. Dumhart, Economic Development Manager * Received staff report San Juan Capistrano: Preserving the Past to Enhance the Future