City Manager*

The most recurring items of noncompliance were the lack of acceptable records and the underreporting of gross receipts by the operators. City Response to Finding 1: The City respectfully disagrees with that portion of the finding as it relates to the City's lack of acceptable records. The transient occupancy tax return provides all the necessary information needed to determine that the tax calculations are done correctly. As to the lack of acceptable records and underreporting of gross receipts by the operators, we cannot agree or disagree as TOT audits have not been conducted. The City will be contracting for transient occupancy tax audits beginning this fiscal year.

Not every local governmental agency provides adequate information to a new operator. City Response to Finding 2: The City partially agrees with this finding. TOT requirements are communicated in advance by City staff to new operators during both the planning/zoning approval and business license processes. The business license process triggers the TOT introductory package containing the ordinance, instructions and forms. A review of the Finance Department's TOT introductory package process found that the TOT ordinance has not always been included in the package. From now on it will consistently be part of the package.

There is a lack of communication between the Finance Departments and the licensing departments of the local governmental agencies. City Response to Finding 3: The City partially disagrees with this finding. We believe this may be an oversight on the part of the Grand Jury to include Napa in this reference as the Finance Department and business licensing department here are one and the same. As an additional control, the Community Development Department is preparing a process which would provide notification to the Finance Department when a certificate of occupancy is issued for a new or modified transient occupancy establishment verifying the number of rooms available for let for cross reference purposes.

Provisions in the municipal codes/ordinances for interest and penalties are not being executed. City Response to Finding 4: The City respectfully disagrees with this finding. To cite one example, the City filed litigation against an illegal operator who failed to comply with the City's TOT ordinance (Napa Municipal Code Chapter 3.20), and in 2007 the City obtained a judgment requiring a penalty payment from the offending operator. The City is actively investigating allegations of violations, and the City will take appropriate actions to enforce the TOT ordinance.

The tax administrator has sole discretion to waive TOT and/or interest and penalties due local governmental agencies. City Response to Finding 5: The City respectfully disagrees with this finding. The City Council has delegated limited authority to the City Manager to determine whether taxes, interest, or penalties have been imposed improperly, and to make corrections accordingly, pursuant to Napa Municipal Code Section 3.04.080, and City Council Policy Resolution No. 16.

Audits provided by the Cities and the County of Napa show past due TOT has not been collected from 2005 to the present. City Response to Finding 6: The City neither agrees nor disagrees with this finding. While City records indicate operators have remitted payments in full on a regular basis, individual operator audits have not been conducted to determine if underreporting has taken place which may result in past due TOT.

The City of Napa does not have an adequate method of tracking its TOT revenue, relying in part on an out-of-date manual accounting system. City Response to Finding 7: The City partially disagrees with this finding. While the current tracking system is entirely staff and spreadsheet driven, it does provide all needed data and does not negatively affect collection efforts, nor do they pose security issues, as suggested by the Report. The City agrees that more modern systems are available for use in tracking TOT and will evaluate these systems when resources are available.

Most local governmental agencies do not have an accurate record of how many rooms are available for transient occupancy. City Response to Finding 8: The City partially agrees with this finding. The number of rooms is reported by the lodging establishment at the time of establishing the account and is reported monthly on the TOT calculation form. Additionally, the Community Development Department is preparing a process which would provide notification to the Finance Department when a certificate of occupancy is issued for a new or modified transient occupancy establishment verifying the number of rooms available for let for cross reference purposes.

The Cities and County do not conduct audits with any degree of frequency or regularity. City Response to Finding 9: The City agrees with this finding and is preparing a Request for Proposal to address the need for audit services.

Potential revenue from uncollected TOT, interest, and penalties in the millions of dollars is being lost throughout the county. City Response to Finding 10: The City can neither agree nor disagree with this finding since no basis for the Grand Jury's conclusion was provided in their report.