Now here is my problem - the city is also asking us to install a relief valve and an overflow tank with an alarm. The reason? They are concerned that if some one flushes the toilet in the unlikely event of city sewer flooding, there is a risk (however small) that the sewage will flow back into the house (not good!). Unfortunately the overflow tank with a built-in alarm is pretty expensive ($700-800).
It depends on what they mean by an overflow tank. If it is a standard ejector pump arranged so that only excess water goes into it, (and in that case you don't really need an alarm), then it is a good idea because the pump will be able to pump the water out even with the sewer in a flooded condition. At one time, and maybe still today, there were companies that made a combination backwater valve/pump system all in one, and they worked quite well to keep the house functional even when the city sewer had a problem. The advantage of a system such as this is that it also prevents flooding if something is stuck in the backwater valve and is allowing seepage or flow back into the house.