(Julie Nemes, Revenue Manager) O,v (Karen Bareng, Senior Accountant) 7 ~ (Beth Rosen, Information Technology Management Analyst)~

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1 CITY COUNCIL UNFINISHED BUSINESS AUGUST 20, 2018 SUBJECT: APPROVAL OF BANKING SERVICES INITIATED BY: FINANCE & TECHNOLOGY SERVICES DEPARTMENT ai (Lorena Quijano, Director of Finance & Technology Services) -r-. (Carlos Corrales, Accounting Manager) ~ STATEMENT ON THE SUBJECT: (Julie Nemes, Revenue Manager) O,v (Karen Bareng, Senior Accountant) 7 ~ (Beth Rosen, Information Technology Management Analyst)~ The City Council will consider approving the recommendation from the Banking Request for Proposal (RFP) Evaluation Committee to select Wells Fargo Bank as the City's banking services provider. RECOMMENDATIONS: 1. Approve the award of an Agreement for Services with Wells Fargo Bank to provide banking services to the City of West Hollywood for a period of five years, with an option to renew for an additional three years, pending the successful negotiation of contract terms, and 2. Authorize the City Manager or designee to execute all documents incident to the Agreement. BACKGROUND /ANALYSIS: Overview of previous City Council meetings related to banking services: At the March 3, 2014 City Council meeting, the City Council approved a five year contract, with an option to renew for an additional three years, with Wells Fargo Bank (previously, banking services were provided by Bank of America). The original contract term is scheduled to expire on March 3, At the October 17, 2016 City Council meeting, the City Council directed Staff to research and evaluate options for responding to the Wells Fargo Bank scandal, including suspending future business with Wells Fargo Bank for a period of time or releasing a RFP For Banking Services. In addition, the City Council directed the Social Services Division to work with community partners to educate the public, specifically those most at risk, on potential financial abuse. At the December 5, 2016 City Council meeting, Staff provided an update regarding the response to the Wells Fargo Bank scandal. The item was approved as part of the Consent Calendar meaning services would continue with Wells Fargo Bank through the Page 1 of 12 AGENDA ITEM 4.A.

2 contract period, while also directing staff to work in conjunction with Wells Fargo Bank to provide educational opportunities to West Hollywood residents. At the February 21, 2017 City Council meeting, the City Council directed staff to reevaluate the City's relationship with Wells Fargo Bank based on the financial institution's business dealings with the President of the United States and its partial financing of the Dakota Access Pipeline. Additionally, the City Council directed Staff to develop socially conscious banking policies based on the City's principles and core values, and return to Council with an evaluation of Wells Fargo Bank based on these policies. On June 19, 2017, Staff prepared an item for the City Council agenda. However, staff requested that the item be tabled to a future meeting to allow for further discussion and review with the Finance & Budget Subcommittee. Staff subsequently met with the subcommittee and discussed the proposed socially conscious banking policy, rating criteria used by other cities, other financial institutions that could potentially provide banking services, the process of implementing a change in banking service providers, and the level of satisfaction of services currently provided by Wells Fargo Bank. At the August 21, 2017 City Council meeting, the City Council adopted Resolution No , "A Resolution of the City Council of the City of West Hollywood Adopting A Socially Conscious Banking Policy" and directed staff to develop an RFP for Banking Services that included the criteria adopted in the Policy. At the February 20, 2018 City Council meeting, the City Council approved the release of a "Request for Proposals for Banking Services" to all financial institutions. The RFP was issued on March 2, 2018 with a submission deadline of May 11, The RFP was publicized through s to those who expressed interest, posted on the City's website and California Society of Municipal Finance Officers (CSMFO) website, and posted at the City's public notice locations. At the May 7, 2018 City Council meeting, the City Council approved Staff's recommendation to expand requirements to allow national financial institutions to respond to the RFP, and to extend the submittal deadline to June 1, On June 1, 2018, the City received four proposals related to the Request for Proposals for Banking Services (Attachment A and B). The limited amount of proposals received is reflective of legislative, legal and technical requirements which limit the pool of financial institutions available to local governments. The (4) financial institutions that submitted an RFP were (in alphabetical order): Bank of the West Union Bank US Bank Page 2 of 12

3 Wells Fargo Bank Request for Proposals for Banking Services Summary The RFP solicited responses from qualified financial institutions and provided for a fiveyear contract with an option to extend the agreement for an additional three (3) years; the RFP did not include investment services. As discussed in a previous Staff Report, this type of long-term award for banking services is reflective of other cities due to the intense process and costs incurred by both the City and financial institutions when cities change banking services providers. Some of the key elements of the RFP were: 1. Proposers had to address how it met the City's Socially Conscious Banking Policy (Attachment C). 2. The RFP included a comprehensive set of questions which allowed the Committee to analyze and evaluate various services that will be provided; these included specific City banking requirements, service and experience with local governments, technical abilities and expertise assigned to the City, and financial responsibility. 3. Proposers had to address how it met the City's General Terms and Conditions, which includes: be a State of California chartered banking institution; be a qualified depository for public funds pursuant to California Government Code Section 53648; and have a have a Community Reinvestment Act (CRA) rating of "Satisfactory" or better in the State of California, as determined by the appropriate regulatory body. In addition, the RFP requested information on possible consent orders and a National CRA requirement rating of "Satisfactory" or better. 4. Proposers received extra points for having a full service branch within the City of West Hollywood and for having a government services division with experienced personnel that specialize exclusively in working with public agencies. 5. In addition, Proposers had to also address their physical presence and involvement in the City of West Hollywood; involvement in communities that have a strong representation in West Hollywood (LGBTQ, seniors, Russian, etc.); future commitment to the City; and adequate financial strength and credit rating. Evaluation of the RFP Each response to the RFP was extensively reviewed, analyzed, and scored by an Evaluation Committee ("Committee") of five (5) staff members consisting of the Director of Finance & Technology Services, Accounting Manager, Revenue Manager, Senior Accountant, and Information Technology Management Analyst. Page 3 of 12

4 The following is the evaluation criteria used by the Committee (maximum of 100 points): EVALUATION CRITERIA Points Required Points* A. Financial Institution must be a Federal or State of California chartered banking institution. B. Financial Institution must be a qualified depository for public funds pursuant to California Government Code Section C. Financial Institution must have a Community Reinvestment Act (CRA) rating of "Satisfactory" or better in the State of California, as determined by 3 the appropriate regulatory body. D. Financial Institution must have a relationship with the State Treasurer as an approved depository for Local Agency Investment Fund (LAIF) transactions or provide a process for transferring funds to/from LAIF that is equivalent to that of an approved depository. 3 E. Financial Institution must have an existing relationship with Los Angeles County as an approved depository for Los Angeles County Treasurer Pooled Investments (LACT) transactions or provide a process for 3 transferring funds to/from LACT that is equivalent to that of an approved depository. Sub-Total Required Points* 15 * Required Points - All Required Points must be met for Financial Institution to be considered for award of a contract. Services and Experience F. Qualifications, experience, availability to provide service needs of the City, and completeness and understanding of the RFP. 15 G. Full-service banking facilities located within the City of West Hollywood. 5 H. Government services division that provides services to local governments. 5 I. Conceptual plan, including implementation and conversion timeline. 5 J. Cost for Services, earning credit rate. 5 Sub-Total Services and Experience Points 35 Page 4 of 12

5 EVALUATION CRITERIA (Continued) Points Financial Responsibility K. Financial Institution's credit rating as determined by Standard & Pear's, Moody's and/or Fitch Ratings. 10 L. Financial Institution's financial health and stability as demonstrated by annual financial reports and other indicators 5 M. Financial Institution has on file with the California State Treasurer, an affidavit from one of its officers with the amount of capital stock and surplus that equal to or greater than the average monthly balance that the 5 City will maintain with the bank during the term of the agreement. Sub-Total Fiscal Responsibility Points 20 Social Responsibility N. No consent orders, issued within five years of the date of the RFP, for improper sales practices placed by the Consumer Finance Protection Bureau or other federal or California regulatory agency to protect consumers from improper sales practices; no orders from any other 5** Federal or California state enforcement agency; and has a National Community Reinvestment Act (CRA) rating of "Satisfactory" as determined by the appropriate regulatory body. 0. Investments that support community well-being; promote equality of rights regardless of sex, race, age, disability or sexual orientation; and 5 promote community economic development. P. Past, current, and commitment to future involvement in communities that have a strong representation in West Hollywood (LGBTQ, seniors, 5 Russian, etc.). Q. Investments made in entities that support a clean and healthy environment 3 R. Investments with under-served communities, including small/medium, sized businesses, non-profits, affordable- housing developers and 3 community facilities S. No investments in fossil fuel companies 3** T. No investments in tobacco or tobacco related products 3** Page 5 of 12

6 EVALUATION CRITERIA (Continued) Points U. No investments in private prisons, organizations or companies that support the production of weapons, military systems, or nuclear power 3** Sub-Total Social Responsibility Points 30** Grand Total Points 100 ** Financial Institutions will NOT receive the following 14 points if any of these items apply: Consent orders, issued within five years of the date of the RFP, for improper sales practices placed by the Consumer Finance Protection Bureau or other federal or California regulatory agency to protect consumers from improper sales practices; orders from any other Federal (5) or California state enforcement agency; and does not have a National Community Reinvestment Act (CRA) rating of "Satisfactory" as determined by the appropriate regulatory body. (Item N.) Investments in fossil fuel companies (Item S) (3) Investments in tobacco or tobacco related products (Item T).(3) Investments in private prisons, organizations or companies that support the production of weapons, military systems, or nuclear power (Item U) (3) The Committee conducted its due diligence in evaluating proposals against the above criteria. Prior to interviews, follow-up questions were asked of all four financial institutions to clarify data provided in the financial institutions' proposals (some proposals were not clear and did not specify clear data related to Social Responsibility items). Due to the vagueness of some information provided to the Committee and the importance of the City's Socially Conscious Banking Policy, staff considered articles affecting the financial institutions such as those listed in Attachment D. The Committee also requested that the financial institutions agree to submit an annual Social Responsibility report that can continue to address their progress to meet the City's criteria and all four proposers consented. Based on the information available, all proposals lost points on the Social Responsibility criteria. As an example, although not directly reported in the proposals, all financial institutions lost points for investing in the Dakota pipeline (note that the Committee took into account if the investment was under their parent company). Page 6 of 12

7 On the other hand, proposals received points in the Social Responsibility criteria due to positive investments that support community well-being; promote equality of rights regardless of sex, race, age, disability or sexual orientation; and promote community economic development. Proposals also received points for investments in entities that support a clean and healthy environment or investments with under-served communities, including small/medium, sized businesses, non-profits, affordable-housing developers and community facilities. This was the case with Wells Fargo Bank which lost 14 points due to its current scandals but also received higher points as compared to the other financial institutions based on the amount reported for past and current commitments (monetary and non-monetary) to both the City of West Hollywood and other communities throughout the nation. Based on the maximum 100 points available to each financial institution and the detailed analysis of all proposals, follow-up questions, related articles, and interviews, Wells Fargo Bank ranked at the top followed by Union Bank. The following is a summary of the average scores based on the five Committee members: Financial Institution Final Average Score Rank Wells Fargo Bank 84 1 Union Bank 72 2 US Bank 71 3 Bank of the West 67 4 Summary of all Four Proposals: The Committee has summarized some key points on all proposals below. information on the four financial institutions is in ranking order: The Wells Fargo Bank Wells Fargo Bank's proposal was deemed to be the most comprehensive. Wells Fargo Bank has seasoned, experienced personnel that specialize exclusively in working with public agencies.. Wells Fargo Bank's information technology infrastructure can best handle external security threats such as the ransomware virus. Wells Fargo Bank conducts ongoing testing against such threats and banking platform networks. Wells Fargo Bank has a layered security approach that includes the use of individual tokens for high-risk functions such as money movement and user administration, data encryption, secure session management, built-in advanced security features on products and services, fraud protection services, advanced technology on detecting suspicious online activity and fraud, unusual activity monitoring, systematic risk evaluation, and law enforcement coordination. Wells Fargo Bank has a significant physical presence in the community, with four bank branches located within the City of West Hollywood. Wells Fargo Bank is the largest and strongest financial institution among respondents with a holding company headquartered in California. Wells Fargo Page 7 of 12

8 Bank meets the City's requirement for a financially sound financial institution, and has one of the highest financial ratings of any bank in the United States. Wells Fargo Bank's flexible payroll transmission deadline enables the City to pay its employees on time. Wells Fargo Bank has the lowest fees among respondents. In addition, the City will not incur implementation fees, and will not need to incur future additional staff costs associated with payroll processing limitations offered by other financial institutions. Wells Fargo Bank has been a staunch community partner for many years (prior to the City becoming a client) by supporting various events located in the City including LA Pride and other similar events; by helping strengthen the LGBT community via donations and grants to LGBT service organizations; by providing many hours of volunteer hours to local nonprofit organizations; by assisting the local military community; and by providing education programs. Wells Fargo Bank has contributed over $1.9 million to organizations located in the City of West Hollywood. Although Wells Fargo Bank cannot commit to a specific amount, similar to other financial institutions, they have committed to continue contributing to the City in the future through both staff volunteering and financial contributions. Wells Fargo Bank disclosed areas that decreased its Social Responsibility criteria but it also provided data that allowed it to have higher scores as compared to some of the other financial institutions. Union Bank Union Bank has a robust information technology platform that provides extensive checks on handling external security threats that would benefit the City. Union Bank provides token authentication security level of its banking transactions. Union Bank has one full-service banking facility located within the City of West Hollywood. Union Bank's payroll transmission deadline is 10:00 a.m. which is two hours ahead of the City's current financial institution's deadline. The City would have to make changes to its payroll processes to meet Union Bank's deadline and may incur additional staffing costs in the process. Union Bank has the highest fees among respondents. Union Bank participates in various local organizations events located in the City of West Hollywood and, to date, has contributed $142,000 to various organizations. Although Union Bank cannot commit to a specific amount, they committed to continue contributing to the City in the future through both staff volunteering and financial contributions. Union Bank's proposal stated that it did not disclose information on investments in fossil fuel companies, tobacco or tobacco related products, private prisons, and organizations or companies that support production of weapons, military systems, or nuclear power. Therefore, points were deducted relating to Social Responsibility. During the review process, the Committee came across articles Page 8 of 12

9 that mentioned Union Bank's investment in fossil fuel companies and organizations that produce weapons. Union Bank also lost points on the Social Responsibility criteria due to orders issued by and settlements reached with two state and federal government agencies within the last five years. US Bank US Bank provides token authentication security level of its banking transactions. US Bank has one full-service banking facility located within the City of West Hollywood. US Bank is the second highest capitalized bank in terms of equity among respondents. US Bank's payroll transmission deadline is 10:00 a.m. which is two hours ahead of the City's current financial institution's deadline. The City would have to make changes to its payroll processes to meet US Bank's deadline and may incur additional staffing cost in the process. US Bank has the second highest fees among respondents. US Bank participates in various local organizations events located in the City of West Hollywood and, to date, has contributed $78,000 to various organizations. Although US Bank cannot commit to specific amount, they committed to continue contributing to the City in the future through both staff volunteering and financial contributions. US Bank's proposal stated that it did not invest in fossil fuel companies, tobacco or tobacco related products, private prisons, and organizations or companies that support production of weapons, military systems, or nuclear power. However, US Bank lost points on the Social Responsibility criteria due to the issuance of several consent orders within the last five years (consent orders were disclosed during follow up questions). During the review process, the Committee came across articles that mentioned US Bank's investment in fossil fuel companies, organizations that produce weapons, and prisons. Bank of the West Bank of the West's information technology security platform is not as robust as other respondents. While providing dual authentication, it does not provide a token authentication security level for its banking transactions (i.e., initiating wire). Bank of the West has no full-service banking facility located within the City of West Hollywood. Bank of the West is the least capitalized bank in terms of equity among the respondents. Bank of the West's original RFP response on payroll file transmission time stated that the file should be transmitted two days prior to the pay date which would require significant changes to the City's payroll process and require additional staff. On July 13, 2018, Bank of the West informed the Committee that they can accommodate the City's current transmission timeline. However, the risk of financial institution changing the transmission time in the future is a major concern as it would require additional staffing costs and significant changes to Page 9 of 12

10 the City's payroll processes, which already face time constraints and limited staffing. Changing banks is a complicated process; any additional changes to. payroll processes would require the City to negotiate the required payroll changes with its employee unions. While Bank of the West has participated in local organizations and LGBT events, its participation and commitment to the City of West Hollywood has been limited, both monetarily and non-monetarily. Bank of the West originally scored the highest on Social Responsibility criteria because the proposal stated it was not aware of any investments in fossil fuel companies and tobacco or tobacco-related products. However, points were subsequently deducted because staff became aware of Bank of the West's parent company, BNP Paribas, involvement with the Dakota Access Pipeline. During the review process, the Committee came across articles that mentioned that the parent company owns shares from two private prison companies that are contracted by Immigration and Customs Enforcement, to operate immigration detention facilities (Bank of the West noted that these were indirect investment in equities). Summary: The City of West Hollywood requires a financial institution that can meet the City's needs and meet State of California requirements imposed on banks that service local governments. The City currently maintains twelve accounts. Five of these accounts are subaccounts which sweep all balances into the General Account on a daily basis. In addition, the City has over 40 merchant accounts related to Visa/MasterCard and American Express transactions. The City's banking needs require an experienced financial institution that is fiscally strong, has a robust and secure online banking system, and is able to provide the City's required banking services on an uninterrupted basis. While Wells Fargo Bank has had an imperfect banking record, most notably the creation of unauthorized accounts and its funding to the Dakota Pipeline Project, all of the financial institutions reviewed have provided funding to the same project and had some matters that affected meeting all of the Social Responsibility criteria. As noted earlier, although Wells Fargo Bank lost points in the Social Responsibility criteria, it was not alone; all four financial institutions responding to the RFP lost points. Wells Fargo Bank has stated that they are taking necessary steps to remedy issues and have kept the City informed of how they are revamping their practices along with critical changes made to rebuild trust and better serve communities. Wells Fargo Bank is conducting an internal audit every six months to report compliance, will prepare a written report on each audit and has stated that they are committed to rebuilding trust, and increasing transparency and engagement with its stakeholders. As approved in the August 21, 2017 report to City Council, banking services proposals were to be evaluated in whole; individual proposals had to meet the minimum required points, but would not be disqualified if they did not meet individual criteria (except the Page 10 of 12

11 required points). Based on the proposals, interviews, and follow-up s as noted above, the Committee determined that Wells Fargo Bank was the most qualified financial institution to provide banking services to the City. Wells Fargo Bank's proposal was deemed to be the strongest by the Committee and is best able to provide the full range of services and functions that meet that City's banking needs. Specific decision factors were the bank's staff expertise, use of technology to increase efficiencies, financial strength, physical presence, and community involvement. CONFORMANCE WITH VISION 2020 AND THE GOALS OF THE WEST HOLLYWOOD GENERAL PLAN: This item is consistent with the Primary Strategic Goal(s) (PSG) and/or Ongoing Strategic Program(s) (OSP) of: PSG-3: Fiscal Sustainability. In addition, this item is compliant with the following goal(s) of the West Hollywood General Plan: G-2: Maintain transparency and integrity in West Hollywood's decision-making process. EVALUATION PROCESSES: Submitted proposals were evaluated by a committee according to criteria set forth in the RFP document. ENVIRONMENTAL SUSTAINABILITY AND HEALTH: The City ed the Request for Proposals to those who had expressed an interest and put the RPF on the City and CSMFO website. Efforts will be made to provide various statements and other information electronically to increase environmental sustainability. COMMUNITY ENGAGEMENT: The City will continue to monitor and work with the selected financial institution to ensure that they provide on-going educational services to City constituents. OFFICE OF PRIMARY RESPONSIBILITY: FINANCE & TECHNOLOGY SERVICES DEPARTMENT FISCAL IMPACT: Page 11 of 12

12 None at this time. Costs for banking services are budgeted annually as part of the Department's work plan and budget. Staff will incorporate activities related to this item into currently budgeted work plans. ATTACHMENTS: Attachment A: Request for Proposals (RFP) for Banking Services Attachment B: Request for Proposals (RFP) for Banking Services - Addendum #1 [Affected Section 1.2 (A), 2.4 and 2. 7 (B)] Attachment C: Resolution No "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST HOLLYWOOD ADOPTING A SOCIALLY CONSCIOUS BANKING POLICY" Attachment D: List of Articles Affecting Proposals Page 12 of 12