Loading...
HomeMy WebLinkAbout1998-12-14 City Council (20)’6City of Palo Alto City Manager’s Report ............ TO:HONORABLE CITY COUNCIL .FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:DECEMBER 14, 1998 CMR:448:98 AWARD OF CONTRACT WITH BANK OF AMERICA AND UNION BANK OF CALIFORNIA FOR BANKING AND CUSTODIAL SERVICES AND APPROVAL OF RESOLUTION THAT AUTHORIZES THE DIRECTOR OF ADMINISTRATIVE SERVICES TO SIGN FORMS AND AG~EMENTS ON BEHALF OF THE CITY REPORT IN BRIEF of California for custodial services. Since a proposal process for these services has not been conducted since 1987, staff recently requested proposals for these services. Seeking cost- effective services of a high caliber and the technological capacity to meet current and future needs, staff interviewed three banks providing banking services and two banks providing custodial services. After thoroughly analyzing and discussing each proposal, it is staff’s recommendation to enter into an agreement with Bank of America and Union Bank of California to continue their provision of excellent and competitively priced services. CMR:448:98 Page 1 of 6 RECOMMENDATION Staffrecommends that Council approve the attached resolution authorizing the Director of Administrative Services to sign forms, agreements, and negotiable instruments with Bank of America for banking services and with Union Bank of California for custodial or safekeeping services on behalf of the City of Palo Alto. With Council approval of this request, staff will execute agreements with these banks to provide respective banking and custodial services for one year, with the option to renew for an additional two years, through December 31,2001. BACKGRO~ The City currently has contracts with Bank of America for banking services and Union Bank of California for custodial or safekeeping services. Banking services include: maintaining the City’s various checking accounts, wiring funds for purchases of goods and for deposits in overnight funds, processing cash and credit card payments, and providing a variety of reports to enhance cash management. Safekeeping services include: taking custody of investment securities purchased by the City, paying interest and principal due from securities, and providing monthly statements which show the book, par and market values of securities in the City’s portfolio. In 1995, .Council granted a staff request to negotiate a sole source banking services agreement with Bank of America for three years, or through December 31, 1998. Staff’s request for a sole source agreement was based on staffing constraints that p_revented a full R-eques[ for Proposals (RFP) process. Council approval of a sole source contract was contingent upon bank charges not exceeding the cost oftheprior contract by more than the increase in the Bay Area Consumer Price Index (CPI). This requirement was met. Based on input from the Finance Committee in 1995, and since an RFP for banking services has not been issued since 1989, staff distributed an RFP for banking and custodial services in August 1998. The RFP asked for a three-year agreement for services.. DISCUSSION The City received four banking service proposals, from Union Bank of California, Wells Fargo, Bank of America, and Bank of the West; and three custodial or security safekeeping proposals, from Union Bank of California, Wells Pargo, and Bank of New York Western Trust Company. The City was seeking cost-effective services ofa high caliber and the technological capacity to meet current and future needs. Based on these criteria, and after careful examination of the proposals, staff eliminated proposals from Bank of the West and the New York Western Trust Company, prior to th~ Page 2 of 6 interview process for final candidates. Bank of.the West was dropped as a result of the location of vault services in the East Bay andbeeauseits~teehnologieal-serviees-werea~ot-as. comprehensive as its competitors. The New York Western Trust Company proposal was rejected principally on the basis of cost. To evaluate the remaining proposals, a committee consisting of staff from the Admires" trative Services Department (Treasury and Accounting Sections and the Budget Division) was formed to interview finalist banks on their proposals. Banking Services The three remaining banking service proposals were competitive in terms of service and price. The highest cost proposal was submitted by Wells Fargo and the lowest by Union Bank. On an annual basis, Bank of America’s proposal was lower than Wells Fargo by $6,400 and higher than Union Bank’s by $3,400. While the City could realize a modest savings in the first year of an agreement with Union Bank, the following factors affected the committee’s unanimous recommendation to select Bank of America: . Bank of America c.harges to the City of Palo Alto are to remain fixed for each year of the proposed three-year contract, reducing the annual benefit of a contract with Union Bank to an estimated $2,100 in the second year and around $800 in the third year (Wells Fargo and Union Bank proposed yearly increases based on CPI). ¯As a result of Bank of America’s large depository market share, the City enjoys a significant advantage. Approximately 20 percent ofthe City’s current deposits are Bank of America checks. This means, for example, that_a_ u~ity payment_on_a_Bank_. ............ " b-f-Am~fica-ehec~is Credited to the City’s bank account immediately. This allows the City to invest cash promptly and earn interest that would otherwise be foregone. This advantage is estimated to be worth approximately $6,500 annually, and more than offsetsthe benefits of the lowest proposal. (Wells Fargo’s market share of Palo Alto transactions is estimated at 14.0 percent, while Union Bank’s is 4.2 percent.) Bank of America lowered its existing discount rate on credit card transactions from 2.05 percent to 1.87 percent. As the City, and particularly the utilities funds, move toward increased usage of crediteard payments, a lower discount means higher net revenues (Union Bank proposed a 2.1 percent rate while Wells Fargo offered a 1.87 percent rate). A one-time, $2,000 incentive to renew the current.contract was offered by Bank of America (Wells Fargo offered no incentive while Union Bank offered a $2,500 credit toward conversion costs). By maintaining a banking relationship with Bank of America, the City avoids the costs and potential problems of converting to a new banking system. These costs CMR:448:98 Page 3 of 6 consist of new check stock, deposit supplies, potential new equipment, delays in converting or linking to new computer systems, and substantial stafftime devoted to the conversion process. It is estimated that a minimum .25 FTE would be devoted to the conversion at an approximate cost of $20,000. While the latter is indeed a fixed cost, it would divert stafftime from ongoing operations, such as investments. Requesting banking proposals was a valuable process to undergo. While staff was most impressed with the credentials and services of respondents, the process confirmed that Bank of America provides outstanding services at competitive prices. In addition, staff found that all of the finalist banks were well positioned for increased automated electronic transaction activity, for transactions via the Internet, and for compliance with Year 2000 requirements. .Custodial Services Of the two finalist proposals for security custodial or safekeeping services, staff recommends Union Bank of California. The City has been receiving excellent service from Union Bank at a very competitive price. The proposed pricing submitted by Wells Fargo was double Union Bank’s. Given the City’s strict buy-and-hold philosophy, which results in a minimum of trading activity, and the relative homogeneity of its investment instruments held by a custodian (Federal Agency Securities and U. S. Treasury Notes), the City does not require a complex or costly custodial system. Renewal of the contract with Union Bank, therefore, is advised. .............. N_ew B_a3a:k~.. i_n~ Se~ices ............... To optimize the investment of excess cash, staff proposes using Bank of America’s automatic, .overnight investment "sweep" facility. At the close of each business day, collected funds over a pre-specified balance would be swept from the City’s general checking account and invested overnight in Repurchase Agreements. These investments are collateralized by government securities and fall within the City’s permitted investments guidelines. The next business day the amount invested is returned to the City’s account and the overnight interest is credited to that account. A monthly fee of $100 is charged for this service. Currently, staffmust project excess daily cash balances and wire them to one of the City’s liquid funds. Since it is difficult to precisely project end-of-the-day balances, the City typically has excess balances that earn no interest. Based on an average excess balance of around $250,000, staff estimates that from utilizing the automatic sweep, the City can realize approximately $9,000 annually in additional interest, net of bank charges for the service. The thirty-day average yield for the sweep account as of September 30, 1998, was 4.08 percent. CMR:448:98 Page 4 of 6 In addition to the overnightsweep account, staff recommends opening a new Money Market Investment Fund that complies with the City’s Investment Policy. That fund has slightly . higher yields than the sweep account, but are still slightly lower than the .City’s existing money market fund with Fidelity. However, transaction processing fees for moving funds in and out of the new account are less than the transaction fees charged for moving funds in and out of Fidelity. Therefore, Fidelity will continue to be used for placing cash for a period of over 2-3 weeks, for example, while the new money market account will be used only for investing funds for short periods of time, for example, only 2-5 days. Approval of Attached Resolution In order to enter into a new three-year agreement with the Bank of America and Union Bank of California, staff requests Council approval of the attached resolution. It authorizes the Director of Administrative Services to sign banking agreements, forms, and negotiable instruments for the City. RESOURCE IMPACT The City’s current general banking service fees are approximately $60,000 a year. With the addition of the sweep account, charges are expected to average approximately $61,200 per year. These fees include banking maintenance activity for checking accounts, supplies, federal deposit insurance, special deposit processing, wiring of funds, reports and other miscellaneous fees. Banking fees are paid through compensating balances, which means the City must maintain checking account ba!~ees .at a su_fficie_nt leyel t0_avo~dj~ayingpenalties arid fees directly, Fees are then deducted from interest earned on the compensating balances. Through the use of a sweep account, staff expects to realize an additional $9,000 in interest income by investing checking account balances that exceed the required compensating balance. In 1998-99, staffhas a budget of $2,000 that will cover any fees not paid through compensating balances. The City’s custodial or safekeeping fees have been averaging around $3,000 per year and cannot, by contract, exceed $5,000 per year. The current fee structure and maximum costs for custodial services will not change under the new agreement with Union Bank. In summary, the estimated annual cost for banking and custodial services is $64,000, ¯ POLICY IMPLICATIONS There are no policy implications related to this request. CMR:448:98 Page 5 of 6 ENVIRONMENTAL ASSESSMENT This does not comtitute a project under the California Environmental Quality Act. Therefore, no environmental assessment is needed. ATTACHME~S Attachment A- Resolution of the Council of the City of Palo Alto Authorizing the Director of Administrative Services to Sign Documents Relating to the Bank Accounts of the City of Palo Alto; and Rescinding Resolution No. 7561 PREPARED BY: Joe Saccio, Senior Financial Analyst DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL:~, ~ HARRISON Assistant City Manager -- .CC:rda CMR:448:98 Page 6 Of 6 RESOLUTION" NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING THE DIRECTOR OF ADMINISTRATIVE SERVICES TO SIGN DOCUMENTS RELATING TO THE BANK ACCOUNTS OF THE CITY OF PALO ALTO; AND RESCINDING RESOLUTION NO. 7561 WHEREAS, the City of Palo Alto is a chartered municipal corporation of the State of California and as such has the legal authority to enter into agreements for banking services; NOW THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE as follows: ~. Each of the Banks or financial institutions designated below (hereinafter referred to as ~Bank" or ~Banks") is hereby selected and designated as a depository of funds of the City of Palo Alto and such deposit account or accounts may be established and maintained by and in the name of the City of Palo Alto at such office or offices of each Bank-and upon and subject to such terms and conditions as the City of Palo Alto and the Bank may agree upon: Bank of America Union Bank of California ~. The Director of Administrative Services (also referred to as~the City_.Treasureri,_.or_.~ny_Dther_person he_mayo.~om time to time designate by written certification, is hereby authorized to act on behalf of the City of Palo Alto and to sign any and all documents relating to the bank accounts and banking services of the City of Palo A~to ~. All checks, drafts, orders, receipts, and other instruments drawn, accepted or given by the City of Palo Alto for payment from any such account or at any such office shall be signed on behalf of the City of Palo Alto by the Director of Administrative Services, or his designee. ~. The City Clerk, or any Assistant City Clerk of the City of Palo Alto is hereby authorized and directed to certify to the Banks that this resolution has been duly adopted and is in conformity with the charter and by-laws or other governing instrument of the City of Palo Alto and further to certify to each Bank a copy of this resolution, and the name and specimen signature of the present Director of Administrative Services, and the fact of any change of said Director of Administrative Services, together with the name and specimen signature of the successor. 950412 la~ 0032079 ~T~_~. This resolution and each such certification shall remain in full force and effect, and each Bank is authorized and requested to rely and act thereon and shall be indemnified and saved harmless from all liability and loss incurred by it continuing to act in pursuance~of this resolution (even though it may have been changed) until it shall ~eceive at its office, or offices if more than one, to which a certified copy of this resolution is delivered, a certified copy of a further resolution of the City Council amending or rescinding this resolution; and the Banks are authorized to honor any instrument and agreement signed by any new person in respect of whom it has received any new certification as successor with the same force and effect as if said new person were named in this resolution. Resolution No. 7561 is hereby rescinded. SECTION 7. The City Council finds that this action does not constitute a project under the California Environmental Quality Act. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM: Senior Asst. City Attorney City Manager Director of Administrative Services 2 9.~04121~ 0032079