Submitted by: Ron Brooks
Submitting Department: Finance
Agenda Section: Consent
Item Title:
title
Awarding of a Contract to Conduct a 10 Year Financial Forecast of City Finances
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Suggested Action:
recommendation
I move the Mayor and Council authorize the City Administrator to execute a contract for professional services with Sudsina and Associates at a cost not to exceed $80,000 to conduct a 10 Year Financial Forecast that upon completion will provide additional clarity in key areas of City’s finances long-term. Including but not limited to identifying factors that may result in the reduction and/or increases of revenue and expenditure estimates within the stated period. Additionally, the consultant is required to provide an executive-level summary with impacts on City Reserves, provide a financial manager-level summary at the fund balance impact level and provide the City Treasurer a user-friendly proactive forecasting model that includes a what-if format to simulate scenarios around impacts to increase/loss of revenues and expenditures. This forecasting model will be used by the Treasurer annually in preparation of the General Operating Budget.
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Summary Background:
The City Treasurer produces a five-year forecast which is updated annually and submitted as an attachment to the annual City Administrators Budget which is required per ARTICLE V Finance and Section C5-5 of the Charter and code.
However, given several factors to include but not limited to, an increase in the City’s population via the 2020 national census, the addition of new housing developments, the renovation of an existing City facility for a new Police Public Safety Building, including the possibility of additional facilities upgrades in the near term, all of which we have varying effects, on City operations within the next ten years.
In late October 2022, the City issued a solicitation for Financial Forecast Services to conduct a 10 Year Financial Forecast that upon completion will provide additional clarity in key areas of City’s finances long-term. Additionally, including but not limited to identifying factors that may result in the reduction and/or increases of revenue and expenditures estimates within the stated period, provide an executive-level summary with impacts on City Reserves, provide a financial manager-level summary at the fund balance impact level, and to provide the City Treasurer a user-friendly proactive forecasting model that includes a what-if format to simulate scenarios around impacts to increase/loss of revenues and expenditures. This forecasting model will be used by the Treasurer annually in preparation of the General Operating Budget.
Proposals were received from the firms of Bakertilly, Perfect Alignment Resources, Raftelis, Sudsina and Associates, Quantum Financial Advisors, Thomas Michael LLC, Jeezny, Cost Management Solutions
The proposed cost estimates ranged from $40,000 to $207,023 respectively.
After a thorough review of each proposal Sudsina and Associates was determined to have the best responsive proposal based on their historical knowledge of City finances, including previously servicing as the City’s Financial Advisor on the various bonds and note debt issues.
Purpose of the Ten-Year Forecast
• Establish baseline revenue and expenditure assumptions that include any recommendations for process improvements (i.e. “best practices”). These baseline assumptions must include maintaining fund reserves, remaining competitive regionally by meeting pension obligations, sustaining internal service funding to meet replacement cycles, fulfilling the City’s debt service obligations, and other major factors that staff will identify with the consultant at the outset.
• Provide revenue estimates for the current year and subsequent ten years for the following General Fund categories: Real Property Tax, Personal Property Tax, Sales Tax, Operating Tax, Franchise Fees, Business License Taxes, Fines, Forfeitures, Penalties, Real Property Transfer Tax, Licenses and Permits, Medical Cannabis-related Tax, Income Taxes, Interest Income, Highway Tax Revenues, Admissions Taxes, and Intergovernmental Charges for current services.
• Provide expenditure estimates for the current year and subsequent ten years for the following General Fund categories: Salaries, Overtime, and Benefits to include Medical Premiums, Vision and Dental, Long-Term Disability, Life Insurance Premiums, Employee Assistance Program, Medicare, Federal Income Tax, and Pension Obligations that can adjust to change in conditions, Services and Supplies, Other Post-Employment Benefits (OPEB), and Equipment, Capital Outlay, Debt Service, Internal Service Fund Charges, “Other” Charges that include grants and transfers out, Termination Pay-outs, Legal Fees. Distinguish Capital Improvement Program (CIP) labor, retiree medical premiums, and non-labor expenditures, including debt service.
• Provide a work document that is scenario driven. This means the work document must visualizes graphically all revenues (section b), expenditures (section c), required general fund reserve limits, and with a graphic representation of any impact to actual reserves (i.e. a “bottom line” analysis). Related graphs must be dynamic in nature, but also understandable, repeatable, and flexible.
• Provide a work document that allows the end-user to make changes using an “if this, then that” approach or scenarios. For instance, if the City adds 2 officers to the police department, then the impact to reserves will be X, running a deficit by fiscal year XXXX. Or, if the City introduces revenue measure Y, the impact on general fund reserves would generate a surplus in fiscal year YYYY. This forecast will not be utilized to predict the future, but rather provide insight to elected officials and the City’s executive team as an intellectual exercise.
• Provide a work document that offers the end-user the ability to adjust the forecast with contemporaneous information-a downturn in the economy, a revenue measure impact, or labor negotiation impacts.
• In the work document each category listed should have associated sensitivity analyses to show how significant an impact any subsequent changes would have on fund reserves. If a significant tax generator leaves the City, how sensitive will General Fund revenues be to each of the top ten economic drivers.
• Describe the methodology for the revenue and expenditure estimates as well as the modeling for the ten-year forecast period. Provide any “best practices” incorporated into the forecast extended out ten years.
• The work document must display information on both a calendar and fiscal year basis, the latter the fiscal year being required.
• The work document must display information in the following formats: 1) an executive-level summary with impacts on City Reserves; and 2) a Treasurer and/or financial manager-level summary at the fund balance and service-delivery impact level. The second format must provide scenarios around impacts to increase/loss of revenues and expenditures.
• The estimates will be provided twice annually, with a preliminary estimate typically provided in late October/early November and the final forecast provided in late January/early February for incorporation into the City’s General Fund Ten-Year Forecast that is released prior to the ensuing fiscal year. The consultant shall be responsible for maintaining the workbook on an annual basis or as frequently as staff requests it.
• Provide local and national economic forecasts concerning topics to be selected by the City, including but not limited to: Employment, Unemployment, Inflation, Gross Domestic Product (GDP), and Housing Prices.
• Provide a written overview of the current and forecasted economic conditions at the local, state and national levels. This written overview should incorporate local economic drivers and the relative significance of their business has on the General Fund.
• Prepare a ten-year budget model for the City’s General Fund (as an Excel workbook), which an intermediate user of Excel could operate.
• Meet with City staff on the forecast twice annually and potentially present information to the City Administrator, Mayor and City Council.
Next Steps:
Upon approval by Council enter into an agreement with Sudsina and Associates NTE $80,000.
Fiscal Impact:
The proposed amount for this contract is included in the current FY23 City Operating Budget.
City Administrator Comments:
Recommends approval.
Community Engagement:
N/A
Strategic Goals:
Goal 2 - Ensure the Long-Term Economic Viability of the City
Legal Review Required?
Pending