Title
Recommendation to Authorize the City Manager, or Designee, to Execute a New Agreement with Urban Futures, Inc. (UFI) to Complete a Financial Forecasting Model and Associated Strategies, in an Amount Not to Exceed $80,000, plus $12,500 in Contingencies, which are in Addition to the Existing Pension Strategy and Modeling Agreement between the City and UFI, Previously Executed by the City Manager in March 2020, in an Amount Not to Exceed $45,000. (City Manager)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
Financial stability is critical to the effectiveness of the organization. In an effort to provide greater visibility on the City of Alameda’s (City) financial situation and to develop a strategy for addressing operations, capital, and pension and other post-employment benefits (OPEB), staff solicited consultant interest. After reviewing proposals, staff moved forward with pension and OPEB work with UFI earlier this year. Staff is now recommending that Council approve an agreement for forecasting, modeling, and strategy development for the non-pension and OPEB related finances. This work will come together in the form of a forecasting model and strategy that the City can use for budgeting and planning purposes.
BACKGROUND
Alameda is a full-service city with a total budget of approximately $252 million for Fiscal Year (FY) 2019-20, including a General Fund budget of approximately $100 million. Both estimated values were prior to the negative anticipated impacts on the City’s revenues. In addition to delivering a variety of programs and services associated with City operations and addressing City priorities, the City is responsible for addressing various unfunded pension and other post-employment benefits (OPEB), as well as a significant amount of deferred infrastructure and facility maintenance.
To assist the City in addressing these needs, in the fall of 2019 the City solicited consultant proposals for developing a financial forecasting model and strategies (see Exhibit 1, Request for Proposal). Management Partners, NBS, and UFI submitted very responsive proposals. All three firms were interviewed by the Finance Director, Assistant City Manager, and City Manager. Based on the written proposals and the consultant interviews, staff selected UFI. At the time, it was decided that the City would pursue the pension strategy and options in advance of other forecasting and strategy work to best align with our mid-cycle budget preparations. The pension strategy and model agreement has a not to exceed contract amount of $45,000 and the agreement was executed on March 3, 2020.
Budget challenges associated with the coronavirus provided staff with an opportunity to re-evaluate our approach to the overall financial strategy project. Based on that review, staff is now planning to bring the financial forecasting and strategy project back together to develop a ‘complete picture’ with a forecast and strategy options/scenarios that staff and the City Council can use to address priorities and develop the budget for fiscal year 2021/22 and beyond.
DISCUSSION
UFI’s proposed scope of work for the financial forecast modeling services and strategy is attached as Exhibit 2. The focus of the project will be on developing a comprehensive baseline financial forecast for the City’s General Fund, which will be comprised of three integrated phases. In addition to the forecast and modeling work associated with the General Fund, the scope also includes support for strategy development, including custom scenarios, which will be developed in consultation with staff and the City Council (shown in the Table 1 - Scope of Work & Budget below as Phase 4).
Table 1 - Scope of Work & Budget
|
Phase |
Description |
Cost |
|
1 |
Develop baseline forecast model for General Fund revenues, labor costs and expenses |
$25,000 - $32,000 |
|
2 |
Develop customized scenarios and modules for the forecast model |
$22,500 - $34,000 |
|
3 |
Review forecast with city management and determine next steps (e.g., additional modules/capacities for the forecast, expansion of forecast to include other funds, development of financial strategies/scenarios, etc.) |
$3,500 - $5,000 |
|
4 |
Additional work to develop recommended financial strategies and/or plan |
$20,000 - $40,000 |
|
|
Total for Forecast/Model & Strategy Support |
$71,000 - $111,000 |
As mentioned in the Background section of this report, in addition to the general fund modeling, UFI has engaged in performing a pension and OPEB strategy and modeling work. The contract for that work has a not to exceed amount of $45,000 and is described more fully in Exhibit 3. The City Manager’s office anticipates a final recommendation to the City Council prior to the October financial review.
While the range for the work is $71,000 to $111,000, staff is recommending a not to exceed amount for the financial forecasting, modeling and strategy work of $80,000 with approval for the City Manager to authorize change orders up to 12,500 (10% of total contract amount). Combined with the $45,000 pension work, the total UFI contract will have a not to exceed amount of $125,000. If additional funding is required, staff would return to City Council to present progress and make a separate request.
ALTERNATIVES
Staff is recommending a scope of work and not to exceed budget of $80,000, plus $12,500 in contingencies, for financial forecasting, modeling and strategy work. Alternatives to this recommendation might include:
• Allocating more than $80,000, up to $111,000 inclusive of contingencies, for this project may create more flexibility for the project and create more flexibility for the project and strategy development;
• Allocate less than $80,000, as low as $71,000 (with or without contingencies), and direct staff to manage the project to the low end of the projected range; or
• Do not fund the project.
FINANCIAL IMPACT
There is funding set aside in Professional/Consulting services budgets within the City Manager’s Office and Finance Department in Fiscal Year (FY) 2019-20 to account for the complete $80,000 amount recommended in this staff report. A significant portion of those funds would need to be carried over to FY 2020-21, when the majority of the work will be completed.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This project is addressing the City Council’s “Preparing Alameda for the Future,” Work Plan Priority, which was described as:
• Long-term Financial Planning - Develop plan to assist with long-term City finances, including pension, operating and capital needs
And “Ensuring Effective & Efficient Operations,” Work Plan Priority, which was described as:
• Balanced Budget - Create a budget and capital improvement plan that reflects project expenditures and operating costs, detailed by department and fund
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines section 15601(b)(3), which is known as the “General Rule” exemption and is used where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report. However, effectively managing finances will be critical to funding implementation of the 2019 Climate Action & Resiliency Plan.
RECOMMENDATION
Authorize the City Manager, or designee, to execute an agreement with Urban Futures, Inc. (UFI) to complete a financial forecasting model and associated strategy, for an amount not to exceed $80,000 and to authorize the City Manager to approve up to an additional $12,500 in contingencies.
CITY MANAGER RECOMMENDATION
The City Manager recommends approval of the contract with UFI in the amount of $80,000 in a financial forecast model. We were planning on having a financial review prior to the COVID-19, but now with the potential loss in revenues, I believe this project is even more timely, to provide the City Council with a financial review of our status at the end of the FY 2020-21.
Respectfully submitted,
Gerry Beaudin, Assistant City Manager
Financial Impact section reviewed,
Nancy Bronstein, Human Resources Director/Interim Finance Director
Exhibits:
1. Request for Proposals
2. Modeling Strategy
3. Agreement #1
4. Agreement #2