Resources

_{As presented at National Grants Management Association 2022 Conference}

Maximizing and sustaining revenue is more important now than ever. Fiscal recovery funds and federal grants are a chief source of revenue across the board for state, local, and tribal governments. Agencies spend on average 30-40% of total program cost in indirect cost to support federally funded grant programs. However, much of this indirect cost ends up being subsidized by the general fund. It is critical that agencies understand their true costs in order to support their programs long-term. 

_{A CSMFO Educational Series}

The Fundamentals of Municipal Revenue series presented the basics of key revenue sources.  

• Module I provided an overview of California local government revenues and in-depth coverage of property tax.
• Module II focused on sales tax including discussion on tax rate components and allocations, and how sales tax revenues are administered.  In addition, the course covered revenue trends, how remote (online) sales taxes work, as well as tools for forecasting and maximizing sales tax revenue.
• Module III covered other taxes and fees that are important revenue sources for public agencies such as documentary transfer and property transfer taxes, hotel occupancy taxes, utility users taxes, franchises, royalties, rents, and licenses.

_{As presented at the MMASC Annual Conference}

The past couple of years have been anything but fiscally predictable, forcing organizations to think outside of the box when it comes to fiscal sustainability. HdL, Oliver Chi, Irvine City Manager and Dan Fox, Diamond Bar City Manager discuss how the pandemic affected local government and how it will change the way fiscal preparation is done.    

Executive Summary

Determining which construction projects may qualify for a direct allocation of local 1% tax is complex. A temporary allocation of local use tax associated with construction projects can provide an agency with a much-needed boost in local tax revenue. If a contractor or subcontractor does not elect to obtain a jobsite sub-permit however, local tax will be allocated to the countywide pool based on the jobsite location, and the agency would only receive their proportional share of the countywide pool allocation for that project, a mere fraction of the 1% local tax.

Throughout the construction of the City of Inglewood's SoFi Stadium, HdL worked with the general contractor to determine qualified contracts and ensure proper registration and tracking of the local 1% sales tax revenue.

The Challenge

Ensure the City of Inglewood received the maximum amount of local sales and use tax revenue from the SoFi Stadium's construction materials and retail, food, and beverage sales.

Background

Stan Kroenke, owner of the NFL's St. Louis Rams, planned to move the team back to Los Angeles (the team’s former home from 1946-1994). The City of Inglewood, with its rich history as a sports and entertainment mecca, was the logical choice for the next state-of-the-art venue. 

In 2014, Kroenke purchased a 60-acre parcel of land adjacent to the old Hollywood Park Racetrack. The acreage, however, proved not large enough for a stadium and parking. In 2015, the Inglewood City Council scrapped plans to convert the old track into a large office/retail/residential project, and instead, approved a plan to incorporate the land into a 70,000-seat football stadium.

The SoFi Stadium would be unique in that it would be built using 100% private funds, requiring zero taxpayer dollars. It would guarantee countless jobs – both during construction and upon opening. 

The City of Inglewood, already a HdL sales tax and property tax client, turned to HdL for additional support in capturing all local tax dollars associated with the project. 

Analysis

HdL met with project developers, contractors, and City staff to determine the best methods of tracking the new revenue stream and ensuring the City would receive the maximum amount of local tax revenue. Tax for construction contracts can be complex; oftentimes, contractors are both consumers and sellers of taxable goods for the same project. 

When contractors are merely consumers of materials, they pay the sales tax to the supplier of the materials which is allocated to the jurisdiction where the supplier’s sales office is located. If, for whatever reason, the contractor has not paid sales tax on the materials or is both the seller and consumer of the material, they are required to consider the jobsite as the place of use. As the jobsite is not a permanent place of business, the tax revenue is allocated via the county pools.

A contractor who enters into a construction contract equal to or greater than $5,000,000 may elect to obtain a sub-permit for the jobsite of the qualifying contract enabling the contractor to make a direct allocation of tax to the local jurisdiction in which the jobsite is located rather than through the countywide pool. The qualifying contract price applies to each contract or subcontract for work performed at the jobsite, not the total value of the prime contract.

Solution

HdL is well-versed in maximizing local tax revenue for construction projects and always encourages contractors and subcontractors to participate in use tax programs. We worked closely with the stadium’s general contractor, Turner-AECOM Hunt, to create a system that… 

• identified 50+ unique contractors or subcontractors, 
• determined if each contract was eligible for direct allocation of local tax, 
• and guided qualified contractors or subcontractors through proper registration and tracking of the local 1% sales tax revenue.

As with a project of this size, we were actively involved throughout the four-year construction timeline. We created specialized geographical area reports to capture all the local tax allocated to the project. We shared this data with Turner-AECOM Hunt quarterly (sometimes onsite donning hard hats!) to ensure nothing slipped through the cracks and with City staff to keep them apprised of the project’s progress, as well as current sales tax revenue to date. 

“It has been a great privilege to work with HdL on the SoFi Stadium. They are very knowledgeable and answered all of our teams and subcontractors’ questions. We could not have done it without HdL’s support on this mega job!” said Juanita Diaz, Turner-AECOM Hunt representative.

Conclusion

HdL continues to provide geographical reports to track SoFi’s ongoing revenue and insight on sales tax projections. “HdL has been a vital strategic partner and instrumental in assisting the City with expert analysis and innovative data collection services. They assisted Inglewood in evaluating the effectiveness of various contractual agreements,” said Christopher Jackson, Sr., Director of Economic and Community Development for the City of Inglewood.

These agreements include the SoFi Stadium - home of the Los Angeles Chargers and 2022 Champion Los Angeles Rams - and the Intuit Dome - the soon-to-be home of the Los Angeles Clippers – which will open in 2024. HdL assisted the City in its effort to make prudent financial and fiscal decisions which ultimately helped maintain their title as the “City of Champions.”

Additional Resource

Sales & Use Tax Guide for Construction Projects

HdL’s Best-of-Breed Local Tax Solutions with the City of Oakland

Enterprise resource planning (ERP) software solutions are a necessity for modern municipalities. However, as local governments quickly recognize, ERP solutions do have their limitations. These constraints can adversely impact your team’s performance in critical areas unless they are strategically supplemented with best-of-breed solutions. Locally administered revenue programs are one such area that is critical to local government operations but underserved by an ERP. HdL offers proven solutions to agencies unwilling to accept the limitations of an ERP.

ERP CHALLENGES AND HdL’s BEST-OF-BREED SOLUTION: PRIME

Margaret O’Brien, former Revenue and Tax Administrator for the City of Oakland, CA explained the dilemma of ERP limitations for locally administered revenue programs: “An ERP tends to rely more on the accounting end of things. The benefit of [HdL] Prime is that it is a comprehensive point-of-sale software solution which collects and processes revenue activities. The ERP system does one thing well but doesn’t do everything our revenue department needs. Prime lets City staff work to their strengths and not be limited by weaknesses in the ERP system.” O’Brien selected HdL to assist the City of Oakland out of several solution providers to meet the unique and sophisticated needs of the City’s municipal revenue administration programs.

HdL Prime’s superior ability is a reflection of how it was designed - by and for municipal finance leaders. HdL employs and consults with finance directors, revenue managers, certified revenue officers, business license/tax supervisors and even city managers. This incredible source of expertise, along with guidance from HdL’s 600+ municipal clients, ensure that our solutions excel in improving all aspects of the revenue administration process, including:

• Easy-to-use online taxpayer portals to apply, renew, pay, close, search and more
• Tax, license and registration processes for all locally administered cyclical revenue programs (such as business license, occupation tax, lodging tax, utility users tax, parking tax, rental unit registration, liquor tax, tobacco or cannabis tax and others)
• Internal and external communications including emails to taxpayers and municipal staff

HdL clients identify many benefits from utilizing HdL’s best-of-breed solution over an ERP module, including:

• Improved ease of use for businesses, the public and the municipality’s staff
• More responsive and higher quality customer service
• Higher return on investment, both through lower software costs and higher team productivity

EASY TO USE AND HIGH QUALITY CUSTOMER SERVICE

As a best-of-breed solution provider, HdL’s Prime local tax software was designed in every respect specifically for this unique area of municipal revenue operations. As a direct result, Prime is user-friendly, has a streamlined workflow to coordinate communication with various departments, and reliably captures the revenue and data needed to support daily operations. Prime is a cloud-based solution which eases the IT burden while securely storing and backing up data. Municipal staff agree that the software is easy to use, and taxpayers compliment the simplicity and flexibility of the online filing and payment process. Contrary to experiences with ERP provider support, municipalities find HdL’s customer service to be highly accessible, knowledgeable, and responsive.

One client reported, “The reliability and ease of use [with our ERP] were not there and the problems we encountered were not rectified by the provider in a timely manner. We were constantly calling on our own IT Department. Now with Prime, we have very few issues and we can often handle them ourselves. When we do need to call on HdL, the company is very responsive and answers our questions quickly and accurately.”

HdL is highly unique as a municipal software provider, offering top tier municipal finance expertise, services and support, in addition to our software solution. From software to assistance finding unlicensed businesses within your jurisdiction to an analysis of the equity of tax codes, HdL’s experts are ready to answer the call.

IMPROVED RETURN ON INVESTMENT

The revenue collection module of an ERP looks very appealing at first glance. It is presented as being tightly integrated, low cost to implement and provide a better customer service experience (as you only have one vendor relationship to manage). In practice, our clients report that none of these advantages prove true over time.

ERP solutions are often pieced together from various independent software solutions which were the result of corporate acquisition and are far from the tightly integrated and easy to use solution which was promised. Even if the module itself is offered for free, after data migration, integration, configuration, and training, then consulting costs are incurred, and the free module ends up costing far more than the best-of-breed solution. When support is needed, other core modules in the ERP receive the lion’s share of development and service attention, leaving support needs for municipal revenue collection often significantly delayed or simply ignored.

HdL is able to integrate with most ERPs (and offers an integration API for specialized needs) to ensure that the municipality’s ERP experience doesn’t suffer from using our solution. There is no need for the revenue department to suffer inefficiencies and support challenges by relying on an ERP module. HdL’s solution is often the most cost-effective option, in addition to being the highest quality option available, offering high quality data migration, turn-key system configuration, flexible implementation processes, and highly responsive and knowledgeable customer service.

One client expressed, “When deadlines approach, Prime makes it easy to select out the nonpayers and email them again. With the ERP, we had issues with emails not going out when we thought. We’ve never had that issue with Prime. We also had to close out one-by-one with the ERP, but Prime lets us close out by group. Everything is automated and there are fewer chances for mistakes.”

These client accolades for Prime are common. Connor Duckworth, Client Advisor at HdL states, “Municipalities tell us that HdL Prime is the best local revenue license, tax, and registration software on the market. We have a robust online portal for taxpayers, complete integration with the agency’s ERP and offer support and service.“

In the rare event that a municipality switches local revenue administration processes from HdL to their ERP solution, most switch back to HdL within three years. They find that the promised ROI for the ERP module never materializes, and in fact, generates a negative ROI through increased costs and decreased efficiency. Before making the sizeable investment in time and money which is required to implement an ERP module, consider their experiences and see if HdL Prime is a better solution for your agency.

Decrease operational costs. Increase revenue. Increase customer support. The HdL trifecta.

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_{As presented at the California Society of Municipal Finance Officers 2022 Annual Conference}

This session discussed best practices for managing the utility users tax (UUT) portfolio in your agency, industry perspective and history on why the revenue fluctuates, and why local governments have seen significant declines over the last several years. The City of San Luis Obispo shared their experience, the benefits, and the frustrations of turning over the administration of a UUT to a third party in a public-private partnership.