Administrative
Report
H.7., File # 23-6516 Meeting Date: 8/15/2023
To: MAYOR AND CITY COUNCIL
From: EUGENE SOLOMON, CITY TREASURER
TITLE
APPROVE THE SECOND AMENDMENT TO THE AGREEMENT WITH BANK OF AMERICA, N.A.
FOR PROFESSIONAL SERVICES TO EXTEND THE TERM THROUGH MAY 2026 WITH OPTIONS
TO RENEW FOR TWO ADDITIONAL ONE-YEAR TERMS
APPROVE THE SERVICE MODIFICATION FORM FOR MERCHANT SERVICES EXTENDING THE TERM THROUGH JUNE 2027
APPROVE THE BANK OF AMERICA MERCHANT SERVICES PROGRAM GUIDE AND
AUTHORIZE THE MAYOR TO EXECUTE ON BEHALF OF THE CITY
EXECUTIVE SUMMARY
City Treasurer performance goals and objectives include implementation of banking services technology designed to streamline disbursement processes, automate cash management processes, enhance fraud prevention measures, and enhance collection efforts. The planning and implementation of banking service enhancements and technologies will serve to boost City-wide operational efficiency and productivity with respect to the City’s interaction with the public and City departments including the Department of Financial Services, Department of Information Technology, Office of the City Treasurer, and Office of the City Clerk.
For Council consideration is an amendment that will extend the provision of Bank of America general banking services for a three year, fixed-fee term through May 2026, with options to renew for two additional one-year terms. Additionally, City Treasurer’s Office recommends an extension of the merchant services agreement through June 2027.
To ensure the continued provision of high quality, competitively priced general banking services to the City, staff recommends approval of the following items:
· Second Amendment to the Agreement with Bank of America · Service Modification Form for Merchant Services
· Bank of America Merchant Services Program Guide
BACKGROUND
Bank of America has provided general banking services to the City continuously for several years.
During this term, the Bank has provided a wide array of services in both a cost-effective and responsive manner. Banking Services were last renewed May 2019. This contract extends the
H.7., File # 23-6516 Meeting Date: 8/15/2023
responsive manner. Banking Services were last renewed May 2019. This contract extends the agreement for three years with new favorable rates to the City.
Banking service enhancements achieved over the past several years are divided into three major categories including but not limited to:
· Fraud Prevention: Implementation of electronic payee positive pay, as well as annual audit of all bank accounts to ensure appropriate Automated Clearing House (ACH) blocks and filters are in place.
· Receipts Processing: Implementation of online payment and deposit services as well as “lockbox” services which allow bulk processing. · Disbursements: Consideration of check migration to ACH for accounts payable as well as consideration of processing of purchase card (P-card) transactions to enhance P-card rebates.
Bank of America has agreed to an earned interest rate of 3.75% and annual costs of general banking service of approximately $65,883 which will be largely offset by the new Earnings Credit Rate (ECR) of 3.75%.
This amended contract increases the rate of interest earned on applicable accounts from 1.45% to
3.75%. Estimated real interest earnings in the coming fiscal year from this agreement will exceed $639,350 of new revenue, based on an average balance of $17,049,375.
Cost savings from the ECR increase will exceed the total fees charged over Fiscal Year 2023-24 based on balance projections. Actual cost of banking services in Fiscal Year 2022-23 were approximately $16,770, after including the earnings credit rate (ECR) received over the year. This amended contract increases the earnings credit from 1.45% to 3.75%. All things being equal, the new rate of 3.75% would earn more than the analysis fees of approximately $65,883, effectively reducing the City’s banking fees to $0. The annual costs are reduced by ECR of 3.75% on the balances that are maintained within the applicable accounts.
Bank of America has confirmed a reduction in merchant processing costs by approximately $3,172 (23.93%) per year. With this contract in place, the new rate would be 0.05% plus $0.01 for every transaction. By choosing to continue its current merchant services relationship with Bank of America, the City will also realize significant efficiencies in service, technology, operating costs, and transaction fees.
After conducting an extensive request for information from competing institutions, the City Treasurer’s Department is confident that Bank of America continues to provide the optimal level of service that the City has experienced thus far. Bank of America has successfully been able to offer better banking services pricing, interest rates, and merchant services pricing compared to similar institutions such as US Bank, JP Morgan Chase, and Bank of the West.
COORDINATION
The City Treasurer’s Department coordinated this staff report and recommendation with the Financial Services Department. The Agreement has been approved as to form by the City Attorney’s office.
FISCAL IMPACT
Bank of America’s proposal provides for a three-year, fixed price term, with an option to renew for two subsequent one-year terms. While the activity volumes may vary from month to month, the rates charged by Bank of America for these services will not exceed the rates proposed in Exhibit C
H.7., File # 23-6516 Meeting Date: 8/15/2023
charged by Bank of America for these services will not exceed the rates proposed in Exhibit C Compensation - Fee Schedule and Disclosures.
The Interest-Bearing Checking Accounts (PFIC) will earn a rate of 3.75%, resulting in approximately $639,350 of annual additional hard interest earnings for the City, based on an estimated average balance of $21MM. Additionally, the remaining accounts will have an Earnings Credit Rate (ECR) of
3.75% to offset the account analysis fees that are charged by the Bank. Currently, the City has budgeted for annual expenses for banking services that will be offset with the increase in the ECR rate to 3.75%.
The Bank's proposal provides for a contract for merchant services until June 30, 2027. While the activity volumes may vary from month to month, the new rates charged will equate to a potential annual total savings of approximately $3,172.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
· Bank of America Banking Services Agreement
· Second Amendment to Agreement for Professional Services Bank of America · Service Modification Form, Bank of America Merchant Services · Bank of America Merchant Services Program Guide