New Financial Forecasting Program Eyed To Help Pittsfield's Long-term Policies
PITTSFIELD, Mass. — There are a lot of moving parts to a $151 municipal budget and policy decisions made today could impact the city's finances five years from now.
With the help from the state, the city is now building a tool to assess the impacts of all the pieces of the city's finances - from aspects of contracts, to assessed property values, to the levy ceiling, to revenues - now and in the future. It may not be a flashy part of government, but one the administration feels will pay great dividends when it comes to policy decisions.
"One of the things I am always on a mission to do is modernize government. We are too stuck in old ways. We have a tendency to get bogged down. We've always done it this way. This is an exercise, while may not be very sexy it is not like cutting a ribbon or creating all of these jobs, but it is for internal purposes and the way we govern. This is a modernization that is well overdue," Mayor Linda Tyer said.
Through the state's Community Compact program, headed by Lt. Gov. Karyn Polito, the city received $25,000 to contract with the Edward J. Collins Jr. Center for Public Management to revamp two areas of the city's financial components: the creation of a long-term forecasting model, and a new budget document. The consultants have been gathering tons of data points about the city's finances and creating programs to bring all the numbers into one big picture.
"It is the path to data-driven decisions. The data doesn't lie. You can do the 'what if' scenarios and modify it to test certain theories. But it is data-driven so when we are thinking about municipal budgets or how we are going to establish various policies to help us confront these challenges, we've got the data," Tyer said.
When it comes to forecasting, Director of Finance Matthew Kerwood said essentially the program is a giant Excel spreadsheet. Various spreadsheets containing information from the past, current, and future projections, are created for various pieces of the economic picture and it all feeds back to a master.
"Essentially is a big, massive Excel spreadsheet when you really boil down to it," Kerwood said. "They are not done. There are still data points they are gathering. But what we've seen to date is a big spreadsheet that all these different data points, numbers associated with those points, and stand-alone scenarios that all feedback into a master. That master is the culmination of all that data laid out."
For example, a spreadsheet has outlined the impacts of a negotiated labor contract currently in place and feeds to the master to show how it will contribute to a budget to be crafted in five years. When negotiating new contracts, those numbers can be plugged in to show those impacts on the whole.
"The whole point of this is to bring it all together into one functioning tool so you can can then make adjustments and analyze different scenarios," Kerwood said.
As time goes on, and some of the assumed data - such as revenues - become clearer, that information can be plugged into the program and will alter the forecast.
"As we learn more about conditions, we can plug that into the model and continue to keep it fresh and updated. That is the beauty of it," Tyer said.
The program can also help spot trends so adjustments can be made sooner to avoid getting stuck in a bad situation down the road.
"It allows us to be in a positions where we can be proactive when we think about revenue and expenses, rather than being in a constant reaction mode," Kerwood said. "To me, that is a huge benefit."
It isn't that the city didn't have the data, Kerwood said there are computers full of information, but that there was never an easy way to pull it all together. Kerwood said just creating the program to more accurately forecast the economic conditions is a massive undertaking that the city hadn't taken on in the past.
"It should have been done but in the day-to-day work that we do, projects like this sometimes fall to the bottom. They are important and should be done. But in the world with everything else going on, it is tough to get it done," Kerwood said. "The level of intensity and focus they've brought to this is beyond the scope of something I, sitting at my desk, could do on top of everything else going on."
The Collins Center brings an independent eyed, looks over the numbers, builds in the assumptions, and creates the program and formulas. Then it will be up to the city to keep up with inputting the data as it becomes available. Tyer said the information will help guide policy decisions, not just for the next budget year but for the long-term.
"Budgets always felt like a snapshot in time. This is what we are doing this year. And, I really feel strongly because of the challenges we are confronted with that we've got to do a better job of thinking more long-term," Tyer said.
Another example is with revenues, the forecast allows the administration to set a more focused target on where to get revenues to fund a budget down the road. If the administration opts for a policy to raise the fees for parking passes by a certain percent by a certain year, the fees can be raised little by little over that time instead of all at once. The administration can set a desired tax rate for 2020 and then see exactly the type of numbers the management team needs to target to there and see how each individual decision impacts that end goal.
"It allows us to focus in and hone in on priorities and the mayor can build strategies around those priorities. We can do it as a collective management team so everyone involved can see how the dots get connected and how moving the needle here has an impact on everything," Kerwood said.
The forecasting will help guide decisions on investing, changes to health care plans, managing free cash, managing debt, and reserves.
"It really does help us focus in on things like, what is going to be our long-term policy for how much we want to set aside for stabilization? Do we have enough within this model to put aside $500,000 to stabilization? You plug that in, it makes the adjustment," Tyer said.
Tyer hopes to create a set of written financial policies - something the city doesn't currently have. That is going to be part of the second aspect of the Collins Center work. The consultants are sifting through the budget document itself and making recommendations on how to become more transparent. Any financial policies created will be added to that document to help tell the full story of the city's financial position.
"The budget document we used back in 2004 is the same one we are using in 2016. I have often felt that, based on other budgets that I've seen, that it wasn't robust enough. I felt committed to really assessing the budget document we currently have and looking at other models," Tyer said.
The current budget has a lot of information but isn't put together in a way that is understandable for all audiences, Tyer said. Kerwood said while the document makes a lot of sense to those in government, but isn't crafted in a way that is informative to the other audiences.
"Right now I would argue that the document is very much an 'inside baseball' document. It is really designed for one audience and that audience is the City Council," Kerwood said.
Tyer hopes to add forecasting, more historical data, long-term capital planning, and snapshots of the community which includes employment numbers, property values and the like.
The new budget document isn't just planned to provide more detail and tell a deeper story but also ease the process for Kerwood and department heads. Currently, Kerwood creates a brand new budget document every year, manually transfers the prior year's numbers into the new one, asks for each department head's requests, and hand types those into the master. He sees the future being a master program in which department heads can type their information directly into the program.
"It is just a clunky process. There is the document piece and the process piece," Kerwood said.
The Collins Center is expected to be completed with the work on the forecasting model by the end of the year, so aspects of that will be able to guide decisions on the fiscal year 2018 budget which has already begun to be crafted. Kerwood said that work is about 80 percent complete. The budget document is further behind and is only about 50 percent complete so the mayor isn't expecting a massive overhaul for the 2018 document but she does plan to include some pieces.
"This is their sole function for us. They are our consultant. Everybody on the team working with them have a long history of being involved in this type of work," Kerwood said.
