Memorandum. FROM: Julia H. Cooper TO: HONORABLE MAYOR AND CITY COUNCIL. SUBJECT: BANKING SERVICES REP DATE: June 23, 2017 REASON FOR ADDENDUM

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1 COUNCIL AGENDA: 06/27/17 ITEM: 3.7 CAPITAL OP SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL Memorandum FROM: Julia H. Cooper SUBJECT: BANKING SERVICES REP DATE: June 23, 2017 Approved utv C>S^LI Date REASON FOR ADDENDUM The addition of this item to the June 27, 2017 City Council Agenda provides to the City Council a recommendation on adding measurable social responsibility criteria to the Banking Services Request for Proposal ( RFP ) scheduled to be released this summer pursuant to Council direction provided at the March 7, 2017 meeting. Deferral of consideration of this recommendation to August would delay the release of the Banking Services RFP and result in a need to extend the agreement with the current banking services provider. RECOMMENDATION Accept staffs recommendation to include socially responsibility criteria in the upcoming Request for Proposals for Banking Services, including scoring of Bank s compliance with the Community Reinvestment Act (CRA) and Bank s commitment to corporate citizenship and practices which promote environmental stewardship, consumer protection, human rights, diversity, and participation in activities such as charitable programs and scholarships, with each Bank responding to be evaluated, in part, on their CRA rating. These criteria are not applicable to investment banking, underwriting, lending or trustee services related to the issuance and management of the City s and related entities debt portfolio. OUTCOME City Council approval of staffs recommendation will allow for the inclusion of a social responsibility criteria in the Banking Services RFP scheduled for release this summer and allow for the process to be completed prior to the expiration of the agreement with the current banking services provider.

2 Page 2 BACKGROUND At the March 7, 2017 City Council meeting direction was provided to staff to include in the Public Safety Finance and Strategic Support ( PSFSS ) Committee s workplan by the end of the fiscal year to determine whether social responsibility criteria should be added to the Banking Services Request for Proposal scheduled to be released this summer. The item was inadvertently not added to the PSFSS Committee workplan. At the PSFSS Committee meeting on June 16, 2017 staff verbally noted this omission to the Committee and committed to providing a recommendation directly to the City Council at the June 27, 2017 meeting for consideration along with the acceptance of the FY Third Quarter Financial Report. At the same Council meeting in March, the Council directed the review of the Investment Policy and consideration of amendments to the Policy to include language that demonstrates the City s commitment to fair and responsible business practices in the next prioritization process. The Banking Services Request for Proposal is being undertaken this summer due to the expiration of the Banking Services Agreement with Wells Fargo Bank, N.A. on June 30, The Agreement had an initial term of July 1, 2009 to June 30, 2012 with three additional twoyear options. The City exercised the third and final option in The current agreement with Wells Fargo includes the following services: General Banking Services Lockbox Services Merchant Card Processing Securities Custody Services The Banking Services Request for Proposal under development includes solicitation for the following range of banking services: City s General Banking and Lockbox Services Bill Print Services Merchant Card Processing Securities Custody Services ANALYSIS After the March City Council meeting, the Finance Department sent an inquiry to the Chief Financial Officers/Finance Directors of the thirty largest cities in the United States. The Finance Director is a member of this informal group of CFOs and used the list serve to solicit their feedback regarding utilization of social responsibility criteria in their evaluation of commercial banking services and in their investment policies. Responses were received from four agencies (Milwaukee, Portland, San Diego, and Washington, DC) with a broad range of

3 Page 3 application of social responsibility criteria in commercial banking solicitation processes. City of Seattle information was independently obtained. In this limited survey of municipalities, common criteria for evaluating social responsibility was an examination of the bank s Community Reinvestment Act review by the Office of the US Comptroller of the Currency ( OCC ) or the US Federal Reserve Bank. Given that this is a rating/evaluation which is provided for all FDIC-insured depository institutions and a review undertaken by other agencies, it is the recommended criteria for the City to consider in the upcoming Banking Services RFP. The OCC generally conducts a CRA evaluation of a bank every three years and it may occur more frequently for reasonable cause or when changes have occurred through bank mergers, acquisitions, and branch openings. A significant challenge for San Jose is the limited staffing resources to undertake a broad reaching program for evaluating and monitoring social responsibility activities of commercial banks as undertaken in San Diego, Portland, and Seattle. For example, San Diego has established a separate committee that evaluates whether a bank is responsible or not based on information provided by the financial institution. Given the heightened awareness surrounding cyber security, PCI compliance and security of the City s and our customers financial data is critical. The RFP will place significant weight on these criteria. Additionally, as noted above given our limited resources to manage the City s complex banking relationship, streamlining and consolidating services under as few agreements as possible is key for successful management of the City s banking services. The City has a complex relationship with its current bank that includes 26 accounts with 23 associated services. Significant services the City utilizes from our current banking service provider includes employee paycards, online payments, receivables consolidation, merchant card services, commercial card payment, interface file management, and in process, bill printing services. Monthly average processing of various banking services includes: 92,500 receipts through six lockbox accounts 159,000 monthly credit card receipts, with an annual value of $85.6 million in revenue 11,000 electronic and manually deposited checks Over 1.5 million in deposited coins each month Staff is recommending that the Banking Services RFP include social responsibility criteria including scoring of bank s compliance with the Community Reinvestment Act (CRA) and Bank s commitment to corporate citizenship and practices which promote environmental stewardship, consumer protection, human rights, diversity, and participation in activities such as charitable programs and scholarships, with each Bank responding to be evaluated, in part, on their CRA rating. Additionally, staff is recommending that use of social responsibility criteria in evaluation specifically exclude investment banking, bond underwriting, lending or trustee services. San

4 Page 4 Diego does not include the criteria for these services. These services are excluded due to the need to base the evaluation on objective analysis and cost efficiencies, i.e. producing the lowest cost of capital for the City s taxpayers and ratepayers and to ensure protection of investors. Additionally, not all service providers in these areas have CRA ratings and to include as part of the evaluation criteria could impact the evaluation process. For example, investment banking firms with no commercial banicing services do not have a CRA rating, nor do foreign banks or pension funds which often times respond to RFPs for lines or letters of credit. It is staffs objective to have the procurement completed in a timeframe such that, if there is a change in the banking services provider, a transition can be complete prior to June 30, However, transitioning a banking relationship is a long process due to the complexity of the City s service needs (such as bill print services, web payments, and merchant card services) and the time needed to fully implement a transition. The entire process may take up to a year to complete and it may be necessary to extend the current agreement with Wells Fargo an additional year to maintain services during the transition. EVALUATION AND FOLLOW-UP Finance staff will conduct its regular review of the Investment Policy. Consideration of amendments to the Policy to include language that demonstrates the City s commitment to fair and responsible business practices will be included in the next prioritization process. PUBLIC OUTREACH This memo will be posted to the Council Agenda website prior to the June 27, 2017 Council meeting. COORDINATION This memo has been coordinated with the City Manager s Budget Office and the City Attorney Office. COMMISSION RECOMMENDATION/INPUT No commission recommendation or input is associated with this action.

5 Page 5 CEOA Not a Project, File No. PP10-066, Agreements/Contracts. /s/ JULIA H. COOPER Director of Finance For questions, please contact Julia H. Cooper, Director of Finance, at (408)