HomeMy WebLinkAbout2001-12-10 City Council (7)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL 5
FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE
SERVICES
DATE:DECEMBER 10, 2001 CMR:436:01
SUBJECT:APPROVAL OF CONTRACT RENEWALS WITH BANK OF
AMERICA FOR BANKING SERVICES AND UNION BANK
FOR INVESTMENT SECURITY SERVICES
RECOMMENDATION
Staff recommends that Council authorize the Director of the Administrative Services
Department to sign forms and agreements that renew banking services from Bank of America
and investment security services from Union Bank of California. With Council approval,
staff will execute agreements with these banks to provide services for one year, with the
option to renew for an additional two years or through December 31, 2004.
BACKGROUND
The City currently has contracts with Bank of America for banking services and Union Bank
of California for investment security services for City securities. Banking services include:
maintaining the City’s various checking accounts; wiring funds for purchases of goods and
services and for deposits in overnight funds; depositing and processing cash, credit card and
check payments; maintaining City credit and purchase card payments; and providing a
variety of reports to enhance cash management and internal controls. Investment security
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 August 1998, staff issued a Request for Proposal (RFP) for banking and custodial services.
The RFP process resulted in four proposals for banking services and three proposals for
investment security safekeeping services. After considerable review and analysis of
proposals from Wells Fargo, Union Bank of California, Bank of the West, and Bank of
America, the latter was awarded a three-year contract with an option to renew for an
CMR: 436:01 Page 1 of 4
additional three years. Staff’s analysis of the banking proposals stated, "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 (CMR:448:98)." All
of the banking proposals were highly competitive with no one proposal showing significant
savings over another over a three-year period. Union Bank was awarded a one-year
investment security services contract renewable for an additional two years based on its
highly competitive proposal and the quality of its services.
DISCUSSION
Banking Services
In anticipation of the banking contract expiring, staff requested that Bank of America (B of
A) submit a contract renewal proposal. Staff emphasized the importance, given financial
constraints facing the City, of lowering or maintaining current charges to the City. Currently,
City banking costs range from $60,000 to $65,000 annually depending upon the volume of
transactions. Bank of America returned with a proposal that met recommended guidelines.
B of A is prepared to maintain its current fee structure if the City commits to a three-year
contract. At a 3 percent inflation rate, this will save the City approximately $6,000 over the
next three years. Based on proposed fees, staff expects annual net banking fee savings of
$1,484 or a 2.5 percent decrease over fiscal year 2000-01 banking costs. In addition, B of
A is implementing Web based products that will reduce City transaction costs over time.
Prior to receiving B of A’s fees, staff received a proposal from a local institution offering
banking services. A comparison of the fee structures with associated transactions showed
nearly identical total costs (see Attachment A). Much like information gathered in the last
RFP process, banking fees are competitive and fairly similar across institutions in terms of
total costs.
In addition, there are other advantages to maintaining the current relationship. B of A’s large
market share of checking and other transactions (34 percent) in the area, allows the City a
float advantage enabling excess cash to be immediately invested. By not converting to a new
bank, the City avoids the costs and potential problems of converting to a new banking
system. These costs consist of new check stock, deposit supplies, potential new equipment,
delays in converting or linking to new computer systems, and substantial staff time devoted
to the conversion process. It is estimated that a minimum .25 FTE would be needed for a
conversion at an approximate cost of $28,000. While the latter is a ftxed cost, it would divert
staff time from ongoing operations.
Investment Security Services
For investment security services, staff recommends the contract with Union Bank of
California be continued. The City has been receiving excellent service from Union Bank at
CMR: 436:01 Page 2 of 4
a price that is more than competitive. 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, the City does not require a complex or costly custodial system. It is important
to note that there are a minimal number of institutions offering custodial services. During
the last RFP process, the fees of these institutions were far in excess of those at Union Bank.
Staff recommends, therefore, that the contract with Union Bank of California, which costs
around $3,000-$4,000 annually be extended for three years.
In most instances, it is cost-effective to periodically send out requests for proposals. Staff
will engage in an RFP process for banking services prior to December 2004, should Council
approve staff’s recommendation in this report. Based on data gathered from other banking
institutions in the last RFP process and in the last few months, staff believes there is a solid
rationale for extending current banking services through December 2004.
RESOURCE IMPACT
The City’s general banking service fees range from $60,000 to $65,000 a 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 mostly paid through compensating balances, which means the City
maintains checking account balances at a sufficient level to avoid paying fees directly. Fees
are then deducted from interest earned on the compensating balances. In 2001-02, staff has
a budget of $2,000 to cover any fees not paid through compensating balances.
The City’s investment security costs are approximately $3,000-$4,000 annually, not to
exceed $5,000. 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 costs for banking and custodial services is $63,000-
$69,000.
POLICY IMPLICATIONS
The recommendation in this report somewhat digresses from the City’s policy of requesting
proposals for services. Based on recently gathered data and a prior RFP experience for
banking services, staff believes that the purpose of the RFP process - obtaining responsive
service at competitive prices - will be achieved by renewing current contracts.
ENVIRONMENTAL REVIEW
This is not a project under the California Environmental Quality Act.
CMR: 436:01 Page 3 of 4
ATTACHMENTS
.Attachment A: Comparison of Banking Service Fees
PREPARED BY:
Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
C~,I~ YEATS/
Director, Adm~istrative Services
CITY MANAGER APPROVAL:
CHRIS MO~’~SEN
Assistant to the City Manager
CMR: 436:01 Page 4 of 4
Attachment A
Comparison of Banking Service Fees
Bank of America vs. Local Institution
Typical Activity for One Month
General Account Services
Account Maintenance
Total General Account Services
Depositor).’ Services
Vault Deposit-Regular Hours
Cur>Coin Dept. Per $100 VLT-CA
Vault Deposit-Extended Hour
Substitute Duplicate Dep. Slips
Bofa Items Dep-Fully Encoded
Cks Dep-Fully Enc CalifClngs
Other 12th Dist Cks-Dep Fully En
Cks Dep-Fully Enc All Other
Foreign Checks Dep-Fully Encoded
Checks Deposited-Bofa Items
Checks Deposited Non-Bofa ltems
Encoded Check Reject Rate Charge
Deposited Item Returned
Deposited Item Recleared
Deposit Correction-Cash-CA
Missing/Non-Std. Carrier Receipt-CA
Total Depository, Services
Paper Disbursement Services
Checks Paid Against Account
Barn Stop Pay-48 Stop
Barn Stop Pay-Items Confirmed
Print Chg Ck!Dep
Image OnSite CD ROM Monthly Maint.
Image OnSite CD ROM Per Item
Total Paper Disbursement Ser~,ices
General ACH Services
Direct Deposit-Mo Maint. (first Co. ID)
Typical Local Cost
Monthly B of A Local Institution Difference
ActiviD’B of A Monthly Institution Monthly B of A vs
Volume (Unit Price)Costs (Unit Price)Costs Local Inst.
16.000 $96.00
$96.00
16.00
35 1.100 $38.50 1.35
1,767 0.100 176.70 0.12
255 1.100 280.50 1.35
3 2.000 6.00
3,953 0.032 126.50 0.08
1,657 0.038 62.97 0.08
14,626 0.045 658.17 0.06
3,152 0.065 204.88 0.08
1 1.000 1.00 25.00
1,403 0.085 119.26 0.08
6,019 0.085 511.62 0.08
45 0.300 13.50 0.25
29 2.500 72.50 5.00
46 1.000 46.00 t .50
4 3.000 12.00 2.50
1 5.000 5.00 2.50
2,335.08
$96.00 $
$96.00 $
Consumer Debits-Mo. Maint. (First Co. ID)
Direct Deposit-On Us Items
Direct Deposit - Off-Us Items (<5,000)
EFTPS Fed Tax by Phone
EPS Debits Received On-Us
EPS Debits Received From ACH
EPS Credits Received On-Us
EPS Credits Received From ACH
$47.25 $(8.75)
212.04 (35.34)
344.25 (63.75)
6.00
316.24 (t89.74)
132.56 (69.59)
877.56 (219.39)
252.16 (47.28)
25.00 (24.00)
112.24 7.02
481.52 30.10
11.25 2.25
145.00 (72.50)
69.00 (23.00)
10.00 2.00
2.50 2.50
3,038.57 (703.49)
1 100.000 100.00 50.00 50.00 50.00
1 50.000 50.00 -50.00
378 0.050 18.90 0.13 49.14 (30.24)
2,112 0.100 211.20 0.13 274.56 (63.36)
2 5.000 10.00 10.00 20.00 (10.00)
28 0.080 2.24 0.10 2.80 (0.56)
7 0.100 0.70 0.10 0.70
247 0.080 19.76 0.10 24.70 (4.94)
2 0.080 0.16 0.10 0.20 (0.04)
4,620 0.100 462.00 0.10 462.00
19 16.000 304.00 6.00 ll4.00 190.00
31 0.100 3.10 3.10
N/A Cost 106.78 N/A 106.78
50.00 N!A 50.00
4,620 0.040 184.80 N/A 184.80
1,110.68 576.00 534.68
WANDA-ACH Returns (101-300)
Direct Deposit Transmit
Direct Deposit-Deletes-Reversals (I-I 0)
Consumer Debits-Faxing Reporting
Express Tax Mail Receipt
Express Tax Fax Receipt
Origination-ACH Notif. Of Change
Total General Ach Services
Wires and other Transfer Services
Outgoing Wire, Rep.
Outgoing Fedwire-Phone
Incoming Wire Transfer
Total Wire and Other Transfer Services
Information Services
B of A Direct Previous Day Reporting
B of A Direct Previous Day Per ltem
Total Information Services
Investment!Custody Services
Repo Investment
Total Investment/Custody Ser~qces
Total Activity Charges
Typical
Monthly
Activity
Volume
B of A
(Unit Price)
Local Cost
B of A Local Institution Difference
Monthly Institution Monthly B ofA vs
Costs (Unit Price)Costs Local Inst.
1
3
4
1
2
2
2
4.000 4.00 7.50 7.50 (3.50)
25.000 75.00 -75.00
20.000 80.00 35.00 140.00 (60.00)
25.000 25.00 25.00
1.000 2.00 5.00 t0.00 (8.00)
1.000 2.00 5.00 10.00 (8.00)
1.250 2.50 -2.50
603.46 589.60 13.86
1 7.000 7.00 11.00 ll.00 (4.00)
9 18.000 162.00 11.00 99.00 63.00
17 7.500 127.50 10.00 170.00 (42.50)
296.50 280.00 16.50
1
5,000
100.000
0.I00
100.00
500.00
600.00
100.00
100.00
5,141.72
60.00
0.10
100.000 N!A
60.00 40.00
500.00
560.00 40.00
100.00
100.00
5,140.17 1.55