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SR 09-26-2017 3L City Council Report City Council Meeting: September 26, 2017 Agenda Item: 3.L 1 of 6 To: Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Award Contract for Banking Services Recommended Action Staff recommends that the City Council: 1. Award RFP# 120 to MUFG Union Bank, N.A., a California-based company, to provide banking services. 2. Authorize the Director of Finance/City Treasurer to negotiate and execute an agreement with MUFG Union Bank, N.A. in an estimated amount of $300,000 over a five-year period, with future year funding contingent on Council budget approval. 3. Authorize the City Manager to negotiate and execute a second modification to contract #9669 in an estimated amount of $75,000 with Wells Fargo Bank, a California-based company, to provide banking services on a month-to-month basis expiring no later than June 30, 2018. This will result in an amended five- year and three-month agreement with a new total estimated amount not to exceed $450,000. Executive Summary The City has been using Wells Fargo Bank for general banking services since 2013. The current contract with Wells Fargo Bank expires on March 31, 2018. New City policies have imposed sanctions on financial institutions that promote outcomes antithetical to the values of our community. At its February 28, 2017 meeting (Attachment A), Council adopted Resolution No. 11025 (City Council Series) and Resolution No. 34 (Successor Agency) directing staff to divest the City’s and the Successor Agency’s funds from Wells Fargo Bank due to its improper sales practices and financial support of the Dakota Access Pipeline. In May 2017, the City issued a Request for Proposals (RFP) for banking services to replace the expiring contract with Wells Fargo. Staff recommends MUFG Union Bank, 2 of 6 N.A. (Union Bank) as the best qualified firm and recommends that the City negotiate and execute a five-year contract in an estimated amount of $300,000. This amount is based on the estimated annual costs to provide banking services for five years and a contingency amount to cover any legislative action or changes in City business practices that could increase service levels and costs. The Wells Fargo contract modification covers costs associated with changes to service and investment strategy. In April 2014, the City Manager approved a modification to add lockbox services to the Wells Fargo contract. Staff anticipated being able to cover associated additional costs within the contract and did not add budget at that time. In 2016, the City initiated a strategy to maintain a lower bank account balance and invest the surplus funds in the City’s investment portfolio. This change has generated approximately $250,000 in additional investment earnings. However, because bank fees are partially offset by an earnings allowance on monthly account balances, the lower account balances also resulted in higher fees. Staff estimates the additional cost associated with these changes at approximately $75,000 through the contract termination date ($50,000 for lockbox services and $25,000 associated with increased fees). The modification would bring the total estimated contract amount to $450,000. Staff also recommends that Council authorize staff to extend the term with Wells Fargo Bank on a month-to-month basis, expiring no later than June 30, 2018, to ensure sufficient time to complete the transition to Union Bank. The City could terminate the contract at an earlier date if staff is able to complete transition to the new bank prior to June 30, 2018. Background On November 27, 2012 (Attachment B), Council approved a contract with Wells Fargo Bank for banking services for a five-year term in an amount not to exceed $375,000. The contract was implemented in March 2013, after a Request for Proposals (RFP) selection process. On April 7, 2014, the City Manager approved a first modification to add lockbox services with no change to the contract amount. The contract terminates on March 31, 2018. 3 of 6 On February 28, 2017, Council and the Successor Agency Governing Boards approved resolutions directing staff to divest City and Successor Agency funds from Wells Fargo Bank due to the bank’s improper sales practices and financing of the Dakota Access Pipeline. Included in the resolutions was the specific direction to issue a Request for Proposals (RFP) for banking services. Additionally, these resolutions disqualified banking institutions that have been subject to a consent order by the Consumer Financial Protection Bureau (CFPB) for improper sales practices from providing banking services to the City if the consent order was issued within five years of the City’s solicitation for such services. Discussion City operational needs and State legal requirements limit the pool of banks able to provide City banking services. City bank deposits are approximately $650 million annually with a similar amount of payments issued to vendors. These deposits come from a variety of traditional sources, such as direct payments of wire transfers, ACH payments, checks, cash and credit cards to the City for taxes and services, as well as other types of deposits such as on-line payments, payments by mobile devices, and deposits from lockbox facilities. Payments to vendors are also made in several different ways. This high level of financial activity, the complexity of the City’s financial operations, and the need to provide a safe and prudent stewardship of taxpayer funds require a full service financial institution with experience providing banking services for large government entities. This full suite of services includes “positive pay” to limit fraudulent check activity; quick processing of City payroll; timely processing of all types of deposits; a sophisticated on-line banking system providing an array of reporting, reconciliation, and payment services; a purchasing card system; advanced technology that increases the efficiency of banking transactions, such as the use of the remote deposit scanner; and certain investment services. In addition to the above considerations, banks must have sufficient capitalization to meet State legal guidelines regarding public funds, such as the requirements that all deposits in excess of FDIC insured amounts be collateralized. Finally, banks must have a Community Redevelopment Act (CRA) rating of “Satisfactory” or better to qualify for public fund deposits. The Community Reinvestment Act is intended to encourage depository 4 of 6 institutions to help meet the credit needs of the community in which they operate, including low-and moderate-income neighborhoods, consistent with safe and sound operations. Consultant Selection On May 19, 2017, the City issued a Request for Proposals (RFP) for banking services. The RFP was posted on the City’s on-line bidding site, and notices were advertised in the Santa Monica Daily Press in accordance with City Charter and Municipal Code provisions. Three hundred seventy-nine (379) vendors were notified and twenty (20) vendors downloaded the RFP. Five firms responded. Proposals were received from the following five firms:  Bank of the West  US Bank  Comerica Bank  J.P. Morgan Chase  MUFG Union Bank, N.A. The City disqualified J.P. Morgan Chase and US Bank from the selection process due to consent orders issued against them by the Consumer Financial Protection Bureau for illegal sales practices. An evaluation panel composed of representatives from the Finance and Housing and Economic Development Departments reviewed the remaining three proposals (MUFG Union Bank, N.A.(Union Bank), Bank of the West, and Comerica Bank) using the criteria set out in the RFP, and then conducted interviews with each of the three banks. Based on selection criteria in SMMC 2.24.073, staff recommends Union Bank as the best qualified firm to provide banking for a five-year period at an estimated amount of $300,000. Union Bank was selected based on the firm’s ability to meet legal and other qualifications, ethical business practices, technology solutions, financial strength and capacity, ability to provide required services and availability of optional services and/or additional services, creative solutions that can reduce the cost of services while 5 of 6 improving operational efficiencies and effectiveness, local community involvement, and pricing. Also included in this decision was the fact that Union Bank currently maintains a CRA rating of “Outstanding.” For the transition from Wells Fargo Bank to Union Bank to have minimal impact on the public, City vendors, entities disbursing tax payments and other funds to the City, and City staff, the City must maintain both accounts open simultaneously for approximately four to six months. The second modification to the Wells Fargo Bank contract would extend the contract term to no later than June 30, 2018 on a month-to-month basis and increase the contract amount by an estimated $75,000 to ensure adequate transition time and to cover the additional fees from the City’s addition of lockbox services and the shift in investment strategies. Staff will work to transition banking services from Wells Fargo Bank to Union Bank and does not foresee any issues with the transition. The request to change the contract term is a precautionary measure to ensure a smooth transition and plan for any complications or issues that may arise. Financial Impacts and Budget Actions Fees for banking services are based on average monthly cash balances that depend on the City’s operations, cash flow, and investment strategies. Based on the projected monthly cash average balance, staff estimates cost of services over the five-year life of the contract with Union Bank, N.A. to be $300,000, or $60,000 per year. The contract modification to be awarded to Wells Fargo Bank is for an estimated amount of $75,000, resulting in a not to exceed amount of $450,000. Funds are available in the FY 2017-19 biennial budget in account Object 522180 (Bank Fees) in various funds where banking fees are charged. Future year funding is contingent on Council budget approval. 6 of 6 Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council Attachments: A. February 28, 2017 Staff Report (Weblink) B. November 27, 2012 Staff Report (Weblink) C. MUFG Union Bank Oaks Form D. Wells Fargo Bank Oaks Form REFERENCE:    CONTRACT NO. 10555 AND  SECOND MODIFICATION TO  CONTRACT NO. 9669  (CCS)