A routine audit of Santa Rosa property tax revenues recently revealed that a clerical error caused the county tax collector to shortchange the city's redevelopment agency by $600,000 over the past four years.
The error was discovered late last year by a Fresno-based company called MuniServices, which helps the city double check that it is getting all the tax revenue it deserves from the county.
The company works on a contingency basis, getting 25 percent of whatever it recovers for the city, which is normally very little.
But last year the contractor hit paydirt when it uncovered a significant error in the tax rolls relating to a downtown hotel.
"This is probably the biggest one that's ever popped up," Bruce McConnell, outgoing interim chief financial officer, told the city's redevelopment agency board Monday.
The $600,000 discovery will result in about a $157,000 finder's fee for the company this year, plus another $37,000 for each of the next two years, for a total payout of $231,000, according to city staff.
The rates are typical for the industry, McConnell said.
The company found the county had not updated the tax code for the Courtyard by Marriott Hotel in Railroad Square to reflect that it had become part of the sprawling Gateways redevelopment district in 2006.
The county acknowledged the error, fixed it and restored the money to the city's redevelopment agency in January, said Pam Johnson, assistant tax collector.
"Basically, it was missed and so it wasn't included in the calculations," Johnson said.
Creation of the controversial 1,102-acre district required the assessor's office to change the tax designations of hundreds of parcels in areas considered blighted along the city's central corridor.
All the parcels in the district had to be assigned a new tax code to ensure future increases in property taxes — referred to as the tax increment — were directed to the redevelopment agency for use in a variety of upgrades to the area.
It is possible the volume of data entry required to make the change played a role in the error, Johnson said.
"When you're working with large volumes things do get missed," she said.
After pass-through of a portion of the taxes to other public agencies, the redevelopment agency received a net boost to this year's budget of $483,000.
How exactly the error occurred is something the city is investigating, said Lawrence Chiu, the city's new chief financial officer.
Once that's determined, the city will discuss its options with the city attorney, Chiu said.
Redevelopment agency board member David Harris on Monday encouraged staff to find out exactly who made the error, wondering whether the county could be on the hook for the company's hefty fee if it is shown to be at fault.
But McConnell told Harris that kind of talk was premature.
"I wouldn't want to comment on that right now," he said.