SR 09-26-2017 3L
City Council Report
City Council Meeting: September 26, 2017
Agenda Item: 3.L
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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,
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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.
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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
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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
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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.
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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)