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Napa grand jury urges area cities to perform audits

NORTH BAY - Finance directors from every city in Napa County will soon discuss the formation of a region-wide hotel-tax audit system that would safeguard the county from the loss of possible under-reported taxes.

The roundtable follows a recent grand jury report that alleged current practices are disconnected and in some cities partially absent.

On June 8, the citizen watchdog jury released a report evaluating the transient occupancy tax audit practices of the county and local municipalities. The document asserted that as a whole the system is sporadic and that specifically the practice in the cities of St. Helena and Napa, which has the highest concentration of rooms, is inadequate. The report also pointed out that more enforcement should be done on vacation rentals, particularly as more part-time residents rent out their summer homes as a result of the recession.

"I don't know if there is a lot we are not getting, but in my perspective, we can't be hurt from implementing the jury's recommendations as quickly as possible to make sure we are effectively tapping this important funding source. People at least need to know that they will be checked," said Napa Mayor Jill Techel.

"It might be most effective for us to work together and create a standard for all cities."

Finance leaders in both cities agreed that the system could be improved, but even with an external audit they didn't think revenues would greatly increase as suggested in the report.  The grand jury report calculated that Yountville, for example, missed about $20,000 in 2005 due to reporting errors, and about $64,000 fell through the cracks in Calistoga.

"It has been quite a bit since we've done an audit, but as far as lost revenue, I doubt there has been any," said Karen Scalabrini, St. Helena director of finance and treasurer.

"Some payers we have had forever, and they often let us know if others are breaking the rules. ... It's also easy to look at the revenues from month to month and say, why did they drop at this establishment so significantly, or if we know they had an event, the rooms should have gone up."

Implemented in the county with its first hotel in 1954, the tax charges 12 percent per occupied room per night, except in American Canyon where the rate is 10 percent. The funding goes directly to each city's general fund and can be used for a variety of purposes from police departments to tourism marketing and visitors centers.

City governments collect and internally evaluate the taxes monthly, but the grand jury said regular, external audits should be performed. Currently, county leadership, which collects from establishments in unincorporated areas, as well as Yountville and Calistoga are the only areas that hire an external agency on a regular basis.

St. Helena officials said audits have been performed in the past but not for some time. The city of Napa will soon complete a bidding process to conduct its first-ever, outside agency TOT tax audit. Both are expected to submit an official response to the report sometime next month.

"I feel we are collecting the majority of the money that is due. We track closely new openings and expansions and project revenues based on their best guess and our best guess," said Napa Finance Director Carole Wilson.

The city of Napa collected about $8.8 million in TOT in 2008, compared with $3.4 million in Calistoga, $1.5 million in St. Helena, $462,000 in American Canyon and $3.3 million in Yountville. The county collected a total $9.7 million that year for hotels in unincorporated areas.

Looking at Napa's neighbor to the west, standardized audit practices could also be implemented in Sonoma County where again, only few perform regular external audits and some, including Healdsburg, never do.

"I've seen revenues go up as much as $45,000 from one establishment," said Sonoma County administrative analyst Christina Rivera. The governing body performs an audit of unincorporated areas annually.

Petaluma Interim Finance Director Tamera Haas said it has been several years since the city performed an audit. She also said it is especially important for those that don't do them regularly to pick an agency that is "business-friendly" because city management needs to maintain an amicable relationship with hotel owners.

"It would be nice if we had a region-wide system, where everyone had the same process and audited at the same time, but we don't," she said.