City sees a silver lining in states virtual cloud

August 6, 2012
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When state Treasurer Andy Dillon conceived the Municipal Services Authority, he did so with struggling cities like Pontiac and Benton Harbor in mind. But Dillon knew his new concept also had to include a few cities that weren’t in that category to get his virtual cloud airborne. He suggested Livonia, the state’s ninth largest city.

When he took his idea to Gov. Rick Snyder, the governor insisted last January that Grand Rapids be part of the MSA start-up. City commissioners agreed to participate in the effort because they felt it would make some of the city’s functions more cost effective and efficient.

“It created a structure, an authority in which you can hang various services across it. The structure will already be in place in the MSA, and we can simply spin the service delivery over to the MSA and not have to create something from whole cloth,” said Mayor George Heartwell.

“From our perspective, the one that really caught our attention was financial-management services. We’ve got, quite honestly, a bit of a clunky software package that we are using to do our financial-management reporting and we know there are far better products out there. But we also know these can cost anywhere from two to four times as much as our system costs us,” he said.

Dillon told commissioners a few weeks ago that managing finances was one of the seven problems with which most cities in the state were having difficulty because, like Grand Rapids, these municipalities don’t have the latest software and can’t afford to buy one of the “Cadillac” systems.

“So he said, ‘Let’s take the management-services software and run it through the MSA and put it in the cloud.’ What I understand that to mean is there will be a software package with fiscal-management software that will be based at a server site, and any member organization can have access to that,” said Heartwell.

The mayor said Dillon told him the software would be a comprehensive, top-of-the-line product. He estimated its cost at between $3 million and $5 million, an expenditure cities can’t justify at this time. Heartwell then said Dillon told city officials MSA members would have access to the software and be able to use it at a fraction of the cost than if they bought it on their own.

Using the cloud software also benefits Dillon because all the financial reports the MSA cities file with the state would be in the same format. “He then can better help track them to fiscal solvency,” said the mayor.

“It makes sense for any number of services — perhaps an HR service or a records-management service — and it should create a tool that will allow us and any other member city to be more efficient,” Heartwell said.

When Dillon was here, he indicated the state would use funds from the Economic Vitality Incentive Program to get the MSA going, and the city has filed its application for that money. The EVIP is a pool of cash that replaced statutory revenue sharing to cities. Dillon didn’t commit to a dollar figure when he spoke to commissioners, and the Business Journal asked the mayor if he was concerned about the lack of a solid funding commitment from the state.

“I’m not too concerned about it. We submitted our financial application for the financial-management package. It was an estimate and we went to the top of the range. You heard Dillon say that should be a relatively easy one for them to approve because it not only benefits the city in our consolidation efforts, it’s also a tool he can use for struggling cities across the state. So I don’t think that’s going to be a problem,” said the mayor.

“But the question is what happens when the next software package for, let’s say, human resources services is suggested. Will the state pony up the money for that? Will they come back to the EVIP fund? Will they ask us to contribute? I don’t know. But I know that we’re in a position where we can opt in or not, for any or all of it,” he added.

Heartwell also mentioned that city officials know the financial-services software will be helpful through the transformation process and beyond, so he said it was practically a no-risk decision as to whether the city should climb aboard.

“Nothing is mandated here. For us, it’s a voluntary basis. So if they come back and say, ‘You need to make an investment of $1 million if you want to get the HR service,’ we can decide if that makes sense for us or not,” he said.

The ability to leave at any juncture also eased Heartwell’s mind about the state having a majority of the seats on the MSA’s board of directors and the executive committee, which will oversee the daily operations. He said that situation was only of marginal concern to him because Grand Rapids and Livonia successfully negotiated seats on both panels, which, for now, is an exclusive position to be in.

“We know that if we end up with 50 cities in this, only Grand Rapids and Livonia are going to be at the ultimate, decision-making table that is the executive committee. If you read the by-laws for this organization, with exception of annual approval of the budget and a couple of other matters, the governing board doesn’t have a lot of authority, whereas the executive committee is granted a very high-level decision-making authority on behalf of the MSA,” said Heartwell.

“So the two cities have two seats on the (executive committee) and the governor has three. It does give the state the majority, and I suppose that could be troubling to us. But at the same time, if it ever came to where there was some decision made by the three governor’s members that was contrary to our best interest, we’d simply say ‘sayonara’ and we’d walk away from the partnership.”

City commissioners are expected to appoint two representatives to the MSA’s board and one to the executive committee next week. Once the appointments are made and Grand Rapids’ EVIP funding request is approved in Lansing, Heartwell said the city can begin its partnership with the state and start shopping for the financial-management software.

“We’ve done enough research over the years that we know there are probably two or three systems out there that would be sort of the ‘Cadillac’ systems that we would like to look at. It’s going to take some number of months to do that research, to negotiate the purchase, to begin implementation. So I think you’ll see those as the next steps,” said Heartwell.

The mayor added that Livonia is going in a different direction and will use the MSA to proceed with a consolidation of the fire systems in its Wayne County neck-of-the-woods. So, at this point, a city in the MSA can chose the initiative it wants to place in the cloud and the other city doesn’t get dragged along on a project in which it doesn’t find any value.

“It’s like they’ve created the legal structure and kind of the operational structure, and we can just come in with the various services we want to consolidate, in our own region or statewide, in the MSA,” said the mayor. “On the other hand, if it’s something that looks pretty attractive to us, we might say, ‘Hey, we’d like to be a part of this as well.’”

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