HomeMy WebLinkAbout10 - CC-8 - PSA with Hinderliter, De Llamas & Associ - 8/3/20211
CITY COUNCIL AGENDA REPORT
MEETING DATE: AUGUST 3, 2021 ITEM NUMBER: CC-8
SUBJECT: PROFESSIONAL SERVICES AGREEMENT WITH HINDERLITER, DE
LLAMAS & ASSOCIATES COMPANIES FOR AN ANNUAL AUDIT OF
CANNABIS TAX PROCEEDS PURSUANT TO ORDINANCE 2021-09 AND
AMENDMENT NO. FOUR TO AN EXISTING PROFESSIONAL SERVICES
AGREEMENT WITH HDL COMPANIES TO IMPLEMENT THE CITY OF
COSTA MESA RETAIL CANNABIS TAX AND REGULATION MEASURE
(MEASURE Q)
DATE: JULY 28, 2021
FROM: ECONOMIC AND DEVELOPMENT SERVICES DEPARTMENT/
PLANNING DIVISION
PRESENTATION BY: NANCY HUYNH, SENIOR PLANNER
FOR FURTHER INFORMATION
CONTACT:
NANCY HUYNH, (714)-754-5609
nancy.huynh@costamesaca.gov
RECOMMENDATION:
Staff recommends the City Council:
1. Authorize the City Manager and City Clerk to execute a Professional Services
Agreement (PSA) with Hinderliter, De Llamas & Associates (HdL) for as needed
annual auditing and compliance review services pursuant to Ordinance No. 2021-09
Title 9, Chapter I, Article 5, Section 9-29.5(f), subject to an annual increase not-to-
exceed three-percent based on the Los Angeles-Long Beach-Anaheim region
Consumer Price Index;
2. Authorize the City Manager and City Clerk to execute Amendment No. 4 to the
existing PSA with HdL for as needed cannabis permitting, compliance, and
consulting services for cannabis business permit application review, compliance site
inspections, and additional consulting services related to implementation and
administration of the cannabis program; and
3. Authorize the City Manager to execute future amendments to the existing PSA with
HdL including any potential increase in compensation as long as the amendment is
within the annual budget.
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ANALYSIS:
The City began contracting with HdL Companies on October 6, 2016 to implement the
cannabis permitting program pursuant to Measure X, which allows for non-retail cannabis
uses (excluding cultivation) in the City’s “Green Zone” subject to City regulations and
permits. During the November 2020 election, the voters approved Measure Q, allowing for
retail and non-storefront cannabis uses.
On June 1, 2021, the City Council approved establishing fees and service charges related
to cannabis business permits and conditional use permits. Subsequently on June 15, 2021,
the City Council adopted Ordinance No. 2021-08 and Ordinance No. 2021-09 providing the
administrative framework to implement Measure Q. The Ordinances established
regulations, a seven-percent retail tax rate, and a permitting process for retail cannabis
businesses similar to the process for Measure X uses.
New PSA for Annual Audits for Cannabis Businesses
Pursuant to Ordinance 2021-09, proceeds of the retail cannabis tax are subject to an
annual audit as scheduled by the City Manager or Director of Finance. HdL currently
audits the City’s sales tax and has the expertise required to perform auditing services for
retail cannabis businesses in the States of California, Colorado, and Nevada. A proposal
provided by HdL identified the cost for a financial audit for each retail cannabis business
at $6,150 and compliance review for each at $1,275. In anticipation of incoming retail
cannabis businesses, a professional services agreement for as needed annual auditing
services to ensure compliance with the approved ordinance.
Amendment No. 4 to existing PSA with HdL for Cannabis Permitting, Compliance,
and Consulting Services
The Development Services Department maintains an existing contract with HdL to assist
staff in the review and processing of Measure X applications. The existing contract is for an
annual not-to-exceed amount of $49,999. Due to the overlap in Measure X and Measure Q
processing requirements, it is most efficient to utilize HdL for cannabis permitting and
compliance services for Measure Q applications as well given their level of expertise and
familiarity with the City’s cannabis program.
A proposal provided by HdL identified the cost for review of a cannabis business permit
application at $3,500 per application and for site inspections at $1,600 per inspection. In
addition, the proposal identifies hourly rates for general consulting services, including a
provision of technical assistance and subject matter expertise. Since the number of
cannabis business permit applications processed each year under Measure Q will vary, staff
proposes to execute a PSA for as needed review of the applications, site inspections, and
consulting services to efficiently administer cannabis retail permitting under the
requirements of the approved ordinance. In addition, Amendment No. 4 would remove the
annual not-to-exceed contract amount since there is not a fixed cost and would vary based
on the as needed application review and consulting services. Staff also proposes that the
City Manager be authorized to execute future amendments to the existing PSA, including
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any potential increase in compensation as long as the amendment is within the department’s
budget allocated for cannabis consulting services.
ALTERNATIVES CONSIDERED:
City Council may approve staff’s recommendation to authorize the City Manager and City
Clerk to execute PSA for Annual Audits for Cannabis Businesses and/or Amendment
No.4 to the existing PSA with HdL for Cannabis Permitting and Compliance Services.
Council may also not approve the recommended actions and direct staff accordingly.
However, staff does not recommend these alternatives due to the potential delay of
processing permits and/or inspections of Measure Q cannabis businesses.
FISCAL REVIEW:
Based on a projected number of fifteen approved retail cannabis businesses, it is
estimated that the City may incur a cost of $92,250 for the annual audit required by
Ordinance 21-09 in FY 21/22. Sufficient funds to cover the cost of the proposed PSA are
included in the annual budget. Recently approved fees for processing cannabis operations
will offset these costs for a net neutral fiscal impact.
LEGAL REVIEW:
The attached PSA’s were prepared by the City Attorney’s Office and the staff report has
been reviewed and approved as to form.
CITY COUNCIL GOALS & PRIORITIES:
Achieve long-term fiscal sustainability.
CONCLUSION:
Staff recommends the City Council:
1. Authorize the City Manager and City Clerk to execute a Professional Services
Agreement (PSA) with Hinderliter, De Llamas & Associates (HdL) for as needed
annual auditing and compliance review services pursuant to Ordinance No. 2021-09
Title 9, Chapter I, Article 5, Section 9-29.5(f), subject to an annual increase not-to-
exceed three-percent based on the Los Angeles-Long Beach-Anaheim region
Consumer Price Index;
2. Authorize the City Manager and City Clerk to execute Amendment No. 4 to the
existing PSA with HdL for as needed cannabis permitting, compliance, and
consulting services, for cannabis business permit application review, compliance site
inspections, and additional consulting services related to implementation and
administration of the cannabis program; and
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3. Authorize the City Manager to execute future amendments to the existing PSA with
HdL including any potential increase in compensation as long as the amendment is
within the annual budget.
NANCY HUYNH JENNIFER LE
Senior Planner Director of Economic and Development
Services
________________________________ _________________________________
CAROL MOLINA KIMBERLY HALL BARLOW
Finance Director City Attorney
Attachments: 1. Amendment No. 4 to the Professional Services Agreement with HdL
for cannabis permitting and compliance services
2. Professional Services Agreement with HdL for annual auditing
services