February 2025
City of Santa Rosa Assessment Report:
Financial Model and Budget Process
Executive Summary for City Council Goal Setting Session Disclaimer
1 This report (“Report”) has been prepared solely for the use by the City of Santa Rosa (the “City”) based on instructions given by the City to Alvarez & Marsal Public Sector Services, LLC (“A&M”). This Report and the information contained herein (the “Information”) is confidential. This Report and the Information may not be reproduced, distributed or referenced without the prior written consent of A&M and the City. A&M assumes no duties or obligations to any recipient of this Report by virtue of their access hereto save as set forth in a separate written agreement between A&M and such recipient. The limiting conditions, assumptions and disclaimers set forth herein are an integral part of this Report, must be reviewed in conjunction herewith, and may not be modified or distributed separately.
Limitations of Report
The Information has been prepared and compiled to assist the City in evaluating the City’s finance department (the “Department”) and does not purport to contain all necessary information that may be required to evaluate the wholistic picture of the City’s fiscal and operational health. While the textual Information is believed to be accurate, in preparation of the Report, A&M has not independently verified any of the underlying source data which provided a basis for the Information. Accordingly, A&M makes no representation or warranty as to the accuracy, reliability or completeness of the Information and A&M is not responsible to any party, in any way, for any analysis contained in this report or for the future financial or operational performance of the Department or any related entity.
In the event this Report contains or involves prospective or forward-looking information, this information was prepared by the City’s management (“Management”) and our work did not constitute an examination, compilation or agreed-upon procedures in accordance with standards established by the American Institute of Certified Public Accountants, and A&M expresses no assurance of any kind on such information. Further, any references to estimated values included in this Report are not guarantees of any kind. Rather, estimates included herein are based upon the limited information as provided by the City, available public market information and various assumptions and are provided for informational purposes only. There will be differences between estimated and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Accordingly, no representation or warranty is made as to, and A&M takes no responsibility for, the achievability of the expected results anticipated by Management or otherwise described in this Report.
Accordingly, A&M is not responsible to any party, in any way, for the future financial or operational performance of the Department or any related entity.
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Executive Summary
2 A&M was engaged to conduct an independent validation of the City’s multi-year financial forecast model and evaluate the annual budget process to provide insights on opportunities for improvement and options for engaging zero-based budgeting.
Approach ObservationsRecommendations
Transformation PlanningBudget ProcessFinancial Model
• Reviewed long-term financial forecast
and supporting documentation
• Analyzed B2A trends
• Interviewed finance team
• Reviewed historical budgets and process
documentation
• Interviewed finance SMEs and department
leadership “customers”
• Compared approach to industry best practices
• Together with City leaders, identified the need to
consider broader transformation planning to reach
fiscal sustainability
• Precision of revenue estimates including
property tax and sales tax can be
improved
• Challenges accounting for vacancies
• Minor methodological inconstancies
• Lack of self-checking and scenario
modeling functioning
• Condensed budget process results in unrefined
submissions
• Spend not tied to programs or strategies
• Insufficient communication and management
across departments
• Does not challenge staffing and maintains
status quo by default
• Historically conservative approach has at times
undermined confidence in forecasts
• Narrow perspective on addressable spend across
departments
• Operations and organization are not aligned with
mandates and priorities, emphasis on stability over
innovation, staffing over other critical investments
• Refine forecasting methodology to
reduce variance
• Improve approach to vacancies
• Enhance model infrastructure (error
checks, scenario analysis, etc.)
• Redesign budget infrastructure and processes to
focus on programs rather than object codes
• Lengthen the budget process to support
thoughtful, analytical request submissions
• Increase communication and implement uniform
budget guidelines
• Improve consistency and trust in budget
communications
• Rationalize services and programs based on mandates
and priorities (including deferred capex)
• Optimize workforce composition, assignment, and
compensation
• Improve interdepartmental resource sharing
• Strengthen procurement to support transformation
A&M recommends the City take immediate action to not only address the findings of the assessment areas but to transform city financial operations and overall City operations in support of lasting sustainability.
The Case for Transformation
3 While the results of the assessment can support meaningful marginal improvements, these steps alone are insufficient to support lasting sustainability.
A&M recommends the City of Santa Rosa take decisive action to refocus city services on strategic priorities. • City structure is fragmented and siloed with
limited interdepartmental resource
coordination
• Norms remain unchallenged, and costs
which are assumed to be “fixed” are
outpacing revenue growth
• Years of incremental budgeting have
resulted in significant inefficiency
• Political leaders are not aligned on fiscal
realities, at times contributing to budget
growth
• The problem initially posed to A&M was two-
fold:
• Uncertainty as to the alignment of
forecasting with best practices
undermined certainty in forecasts
• The status quo budget process was
not well positioned to address major
budget deficits in the near future
Challenge Solution
Within Current
Approach
Transforming to Support
Council Strategy
• Refine the City’s approach to key
assumptions in the financial model, and
update long-term forecast
• Extend the budget timeline and increase
communication and engagement of
departments in the budget process
• Analyze “mandates” related to existing city
services, identify realignment opportunities,
and pursue comprehensive efficiency.
• Identify meaningful budget reductions that
preserve strategically important
investments
• Redesign budget process, and financial
engagement process to strengthen shared
sense of ownership, and reach clear
understanding of the tradeoffs which must be
considered for lasting sustainability
• Increased accuracy of model, decrease
variances, and provide a clearer picture of the
long-term financial outlook
• Improved strategic alignment, stakeholder
buy-in, and increased thoughtfulness in
budget submissions
• Minor improvements in long-term fiscal
sustainability
Outcome
• Redefine the City’s operating model to
adapt to the modern fiscal realities
• Challenge assumptions and leave “no
rock unturned” in a quest to improve
efficiency
• Invest limited resources on core services
based on impact and value to residents
• Undertake transformation guided by a shared
vision of reality and clear sense of
ownership for political and administrative
leaders
While addressing the recommendations identified by the assessment as initially scope will provide some functional improvement, course correction to get the City on the path to financial health requires an intentional focus and action on broader-scale transformation initiatives.
Next Steps to Support Transformation
A&M recommends that broader transformation efforts are planned immediately and undertaken based on the successful strengthening of financial planning infrastructure. 4 Santa Rosa should move quickly to implement financial model and budget process improvement recommendations, which will serve as the critical infrastructure required to support a broader transformation in pursuit of lasting fiscal sustainability. As identified by SOW Tasks
Recommended
to Support
Lasting
Sustainability
Transformation Timeline
Quick wins,
incremental
efficiency
improvements
Citywide
transformation
enacted through
FY26/27 budget
FY26 FY27
Planning &
Analysis
FY25
Transformation Implementation
Via FY26-27 Budget