HomeMy WebLinkAboutStaff Report 7858
City of Palo Alto (ID # 7858)
City Council Staff Report
Report Type: Informational Report Meeting Date: 4/11/2017
City of Palo Alto Page 1
Summary Title: City Banking Contracts
Title: Status of the City's Banking Contracts
From: City Manager
Lead Department: Administrative Services
Recommendation
This in an informational report and no Council action is necessary.
Background
Staff has received recent inquiries related to the City’s banking relationships, apparently in
response to recent negative news about Wells Fargo. Due to the number of inquiries staff
wanted to provide the same information to the City Council and broader community through
the City Council report process.
Discussion
In 2014, through a competitive solicitation process, the City selected four banks to provide
banking and related services at competitive prices (City Council Staff Report ID # 4905). These
contracts are for six years as follows:
1) US Bank – This is the City’s main banking contract for all banking needs except for the
services listed below. Examples include payroll and accounts payable processing,
depositary and account reconciliation services and credit acceptance via Elavon (a
wholly owned subsidiary of US Bank).
2) Union Bank – for custodial services related to the City’s investment portfolio.
3) JP Morgan Chase – for purchase cards used by City employees to make City approved
purchases.
4) Wells Fargo – for processing utility bill (check) payments (aka “lockbox” services).
Wells Fargo has been providing this service prior to 2014, meeting all the service
requirements and having the lowest cost. By dollar amount approximately 43 percent
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and by number of payments approximately 28% of utility customer payments are
processed through this service. The remainder of the Utility payments are processed
by US Bank via City initiated deductions from the customers checking/savings account,
credit card (in person, on-line, via phone), through third party electronic bill payment
service providers, and cash.
In addition to these, the City uses eight broker/dealers, including Wells Fargo, to invest the
City’s cash. Currently, via administrative action, Wells Fargo has been suspended as a
broker/dealer related to the publicized opening of fraudulent accounts.
Previously, staff looking into banking services provided by local banks, credit unions and found
that they do not offer the breadth of services required by the City. If this changes in the future
the City will reevaluate using credit unions.
Prior to 2020, staff may conduct a new solicitation process for banking services or extend some
or all of the existing contracts. Before then, staff may evaluate options for lockbox services
from providers other than Wells Fargo, however, such a transition would require staff effort,
not currently planned, to ensure a process that doesn’t compromise utility payments being
processed properly. In the meantime, customers wishing to minimize transactions with Wells
Fargo can enroll in automated bank draft service for utility payments. Staff is aware that the
banks listed above may have invested in projects such as pipelines and drilling, which may be
unpopular. Given the scope of banking services required by the City, staff believes it must
continue its banking relationships in the near term to ensure the efficient and effective
operation of City business including utility billing. In the long-term, if more attractive
alternatives become available those alternatives will be evaluated based on services offered
and cost.