PREPARED BY: ARTURO CASTILLO DATE OF MEETING: 11/16/2026
SUBJECT:
TITLE
CONSIDER ADOPTING A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN PABLO AUTHORIZING THE CITY MANAGER TO EXECUTE A FIRST AMENDMENT TO THE OCTOBER 1, 2022 AGREEMENT WITH HINDERLITER DE LLAMAS & ASSOCIATES (HDL) FOR TRANSACTIONS AND USE (SALES) TAX AUDITING AND RELATED SERVICES, TO ADD MEASURE R SALES TAX RECEIPTS (NOVEMBER 3, 2026 GENERAL MUNICIPAL ELECTION), WITH TWO COMPONENTS OF COMPENSATION: (1) FOR MEASURE R SALES TAX ECONOMIC ANALYSIS, FORECASTING, REPORTS, AND CONSULTING SERVICES, $300 PER MONTH, ADJUSTED ANNUALLY BY CPI-U, NOT TO EXCEED $25,000 THROUGH DECEMBER 31, 2032; AND (2) FOR ALLOCATION AND AUDIT RECOVERY SERVICES, FEES OF 25% OF NEW RETROACTIVE ADJUSTMENTS TO MEASURE R SALES TAX REVENUE RECEIVED BY THE CITY RESULTING FROM HDL’S AUDIT AND RECOVERY WORK
CEQA: This proposed action is not a project as defined by CEQA.
Label
CITY MANAGER RECOMMENDATION
Recommendation
Adopt Resolution
Body
WORKPLAN COMPLIANCE STATEMENT
Continue Best Management Practices, Fiscal Excellence, and Fiscal Transparency is a major policy goal contained in the adopted Fiscal Year 2025-2027 City Council Priority Workplan, effective April 7, 2025; Measure R will fund programs under the Build a Healthy Community, Enhance Community Resilience, and Improve Public Safety goals.
BACKGROUND
Since Measure Q (June 5, 2012), the City has funded general municipal services with voter-approved, temporary local transactions and use taxes (“Sales Tax”) administered and collected by the California Department of Tax and Fee Administration (“CDTFA”), including:
1) Measure Q, which established a 0.5% Sales Tax for the first five (5) years, decreased to 0.25% for the next five (5) years (Chapter 3.25 of the San Pablo Municipal Code), and expired September 30, 2022;
2) Measure S, approved by 79.19% of voters on November 3, 2020, which reenacted the Measure Q Sales Tax effective October 1, 2022 at 0.5%, steps down to 0.25% on October 1, 2027, and terminates in 2032 (references to Measure S in this report are to the 2020 Sales Tax measure, not the rent control initiative designated Measure S on the November 3, 2026 ballot);
3) Measure K, approved by 71% of voters on June 3, 2014, which authorized a special purpose 0.25% local Sales Tax increase in perpetuity to fund emergency medical services; and
4) Measure R, approved by over 71% of voters on November 3, 2026, described in further detail below, to take effect April 1, 2027 and terminate March 31, 2037.
On July 13, 2026, pursuant to Resolution 2025-035 (March 3, 2025), the City Council adopted Resolution 2026-121 (Legistar File 26-379) placing on the November 3, 2026 ballot an ordinance adding Chapter 3.27, “2026 Transactions and Use Tax,” designated Measure R - San Pablo City Services Measure by the Contra Costa County Registrar of Voters: a general tax (simple majority) of 0.50% for five years and 0.25% for the following five years, then terminating, estimated to generate approximately $2,000,000 and $1,000,000 annually, respectively, for general municipal services (crime prevention, police protection, illegal dumping abatement, the daily senior meal program, youth scholarships, homeless assistance, and street maintenance), with all funds staying in San Pablo, an annual independent audit, and a citizens’ oversight committee (Ordinance Section 3.27.140). Measure R addresses the City’s structural General Fund deficit of nearly $4.4 million over FY 2026-27 and FY 2027-28 - driven by stagnating revenue (the San Pablo Lytton Casino provides nearly 59% of General Fund revenue, with projected ten-year growth slowed from 5.6% to 0.6%) and rising health, pension, and liability insurance costs - which the October 1, 2027 Measure S step-down will widen by an additional $1 million annually, and which the Biennial Budget closed only with short-term “Fiscal Discipline” measures (frozen vacancies, reduced non-essential contracts, and one-time reserves).
At the November 3, 2026 election, Measure R was approved by 71.59% of the votes cast (2,605 Yes to 1,034 No) according to the Contra Costa County Elections Division’s unofficial Election Night Final results; the County’s official canvass is due by December 3, 2026, and the City Council is expected to declare the results on December 7, 2026, in conjunction with its reorganization (as it did on December 16, 2024 pursuant to Resolution 2024-150 and on December 7, 2020 pursuant to Resolution 2020-156). Under Ordinance Section 3.27.020 - and because Senate Bill 762 (Arreguin), which authorizes the City to impose up to 0.50% outside the 2% combined-rate limit of Revenue and Taxation Code Section 7251.1, was approved by the Governor on August 17, 2026 as an urgency statute (Chapter 109, Statutes of 2026) - the Measure R Operative Date is April 1, 2027 (the first calendar quarter beginning more than 110 days after the election) and the tax expires March 31, 2037. The City’s total sales tax rate, now 9.50%, becomes 10.00% on April 1, 2027 (Measure R takes effect, raising the City’s locally controlled share of the rate from 1.75% to 2.25%); 9.75% on October 1, 2027 (Measure S step-down); 9.50% on April 1, 2032 (Measure R step-down); 9.25% on October 1, 2032 (Measure S expires); and 9.00% on April 1, 2037 (Measure R expires).
HdL has provided the City’s Sales Tax auditing and related services since Measure Q began in 2012 and was designated pursuant to Resolution 2020-153 (December 7, 2020; Legistar File 20-420) to examine the City’s Sales Tax records at CDTFA. Because Revenue and Taxation Code Section 7056 limits access to confidential taxpayer records to consultants named in the agency’s contract and resolution, CDTFA required the HdL contract on file to identify each measure specifically, and the City Council approved the current Agreement for Consulting Services for Transactions and Use Tax Auditing and Related Services, effective October 1, 2022 through December 31, 2032 (Resolution 2022-168; Legistar File 22-454), covering Measures Q and S at $200 per month per measure (not to exceed $50,000 over the term) plus 25% of new retroactive Sales Tax adjustments recovered through HdL’s audit work. The same requirement applies to Measure R; HdL proposed, and the City Attorney’s Office concurred, that Measure R be added by amendment to this measure-specific 2022 Agreement rather than under the March 1, 2026 HdL Master Services Agreement for general sales and use tax services (Resolution 2026-037; Legistar File 26-110).
The proposed First Amendment (Attachment B), effective November 17, 2026, adds Schedule A, “Premium Services - Transactions and Use Tax,” for Measure R - substantially the scope HdL provides for Measure S: a database of CDTFA seller’s permit registrations and quarterly allocations within the Measure R district (available through HdL’s software); quarterly allocation-change reports by business, group, and category, including aberrations from State audits, fund transfers, and late or double payments; quarterly summary analyses for the City Council, Chamber of Commerce, and public and budget-forecasting reports; a quarterly presentation by an HdL Sales Tax Principal; deficiency and allocation reviews, taxpayer contacts, and CDTFA submittals to recover back-quarter payments; and as-needed consulting. Schedule A incorporates the Section 7056(b)(1) confidentiality conditions required by CDTFA and HdL’s insurance requirements (workers’ compensation; $2,000,000 property damage; $1,000,000 bodily injury; $1,000,000 professional liability); all other terms of the 2022 Agreement, including its December 31, 2032 expiration, remain in effect. Consistent with the 2022 Agreement, compensation has two components:
a) $300 per month, billed quarterly in arrears and adjusted annually by the Consumer Price Index for All Urban Consumers (CPI-U), for Measure R reports and economic analysis/forecasting, plus as-needed consulting at Schedule A rates ($195 to $325 per hour; $3,000 one-time or $2,000 recurring for staff training or elected-official seminars; $2,600 for ballot estimates, on-site visits, or non-core reports), not to exceed $25,000 through December 31, 2032; and
b) 25% of the initial amount of new retroactive adjustments to Measure R Sales Tax revenue received by the City from HdL’s audit and recovery work, applied only to back-quarter corrections confirmed by CDTFA and not to any prospective quarter.
As in 2022, the fixed fee is within the City Manager’s contracting authority, but the contingent audit recovery fees - paid only from the additional revenue HdL recovers - may exceed it over the remaining term, so the First Amendment requires City Council approval. Measure R transactions begin April 1, 2027 (“Operative Date”) (HdL expects its first CDTFA allocation data in approximately September 2027), but HdL must transmit the executed First Amendment to CDTFA Legal, with the Section 7056 resolution, as part of the City’s Measure R implementation packet in advance of the Operative Date. Because the election results are not yet certified, the resolution authorizes execution on or after November 17, 2026 and provides that the First Amendment is void if the certified results do not confirm Measure R’s approval. Consistent with the Measure S implementation in 2020 (Legistar File 20-420; Resolutions 2020-152 and 2020-153), staff will present the CDTFA implementation items - resolutions authorizing the CDTFA Preparatory and Administration Agreements and the Section 7056 examination of Measure R records by designated City officers and HdL, plus a minute order for conforming amendments - to the Budget, Fiscal & Legislative Standing Committee on December 2, 2026 and to the City Council no later than December 21, 2026,. The City Council must establish the Measure R citizens’ oversight committee within 90 days after the Operative Date (by June 30, 2027; Section 3.27.140), to be coordinated with the Measure K and S committee procedures (Resolution 2024-052), and a successor agreement will be needed for the remainder of Measure R’s term (through March 31, 2037) when the 2022 Agreement expires on December 31, 2032.
FISCAL IMPACT
The two cost components of the First Amendment are:
1. Fixed fees of $300 per month ($3,600 per year), CPI-U adjusted, beginning April 1, 2027: up to approximately $900 in FY 2026-27, $3,600 in FY 2027-28, and approximately $22,000 through December 31, 2032 ($20,700 before CPI), within the $25,000 not-to-exceed amount, which is in addition to the $50,000 authorized by Resolution 2022-168 for Measures Q and S. The cost will be charged to the Finance Department professional services budget line item (100-1420-43600); sufficient funds are available in the adopted FY 2026-27 & FY 2027-28 Biennial Budget, so no new appropriation is needed; and
2. Audit recovery fees of 25% of retroactive Measure R adjustments recovered, due only if HdL’s work produces additional revenue; the amount is unknown, but there is no net fiscal impact because the fees are offset by the revenue recovered, and the City may receive increased Measure R revenue as a result.
Measure R is estimated to generate approximately $2,000,000 annually at 0.50% (April 1, 2027 through March 31, 2032) and $1,000,000 annually at 0.25% (April 1, 2032 through March 31, 2037) to the General Fund (Fund 100), with first CDTFA remittances late in FY 2026-27 and the first full year in FY 2027-28; estimates will be refined with HdL once CDTFA data is available.
Reference: Legistar Files 22-454 (Resolution 2022-168 and 2022 Agreement), 26-379 (Resolution 2026-121 and Measure R Ordinance), 20-420 (Resolutions 2020-152 and 2020-153), and 26-110 (Resolution 2026-037)
ATTACHMENTS
Att A - RES 2026-### HINDERLITER DE LLAMAS & ASSOCIATES (HDL)
Att B - Proposed First Amendment to Agreement for Consulting Services for Transactions and Use Tax Auditing and Related Services with Hinderliter de Llamas and Associates.
Att C - AGR Hinderliter deLlamas HdL audit svcs 100122-123132