City Council Agenda Report
Meeting Date: February 7, 2023
From: Scott Williams, Director of Finance
Department: Finance
Submitted by: Joaquin Leon, Deputy City Treasurer
Subject
Payment Process Services
Recommendation
A. Approve and authorize continued use of payment processing services as provided by an existing agreement with Global Payments Integrated (Global Payments), and approve an additional amount of $30,000 to be paid in fees incurred on existing accounts with Global Payments through July 2023; and
B. Approve and authorize the City Administrator to execute a new Merchant Application and related OpenEdge Check Services Merchant Application in order to establish three new merchant accounts and utilize Global Payments for payment processing through June 2024.
Background
In November 2013, the City entered into a service agreement with Payment Processing Inc. (now Global Payments) for payment processing services as an integrated solution to the City’s then new cashiering system, Tyler Cashiering. The initial term of the agreement was for three years, after which it would automatically renew each year for a consecutive twelve-month term until either party terminated the agreement. The initial service agreement was approved by the Finance Director at the time, as staff did not anticipate fees paid to the vendor to exceed $100,000 within the first three years of the agreement.
Since then, Global Payments has provided payment processing services which include credit card, check, and online payments. Global Payments collects fees for transactions processed both on a flat amount and percentage basis as identified on page 2 of the Merchant Application (Attachment 1). Based on this fee structure, and to avoid paying excessive fees, payments processed by the vendor excluded Utility Payments. Thus, payment processing fees averaged just under $45,000 per year. However, in an effort to assist the Vernon business community during the COVID-19 pandemic, the City lifted its credit card payment restriction for utility bills and allowed customers to pay utility bills with amounts due up to $30,000 via credit card. This adjustment was in effect from May 2020 through April 2022 which allowed struggling businesses to pay their utility bills and keep their accounts with the City current. This change increased the City’s payment processing fees to $77,827.08 in FY 2020-21 and $131,630.76 in FY 2021-22.
The additional payment processing costs were absorbed by the City in order to facilitate utility payments by businesses and were considered necessary to keep the City’s cash flows from being significantly impacted by the pandemic. In April 2022, the credit card payment restriction on utility bills was reinstated, immediately reducing processing fees. For Fiscal Year 2022-23, fees are estimated to be approximately $70,000, a 46.8% decrease from the past fiscal year.
During the span of the existing agreement, payment processing fees to Global Payments have totaled $472,726. Pursuant to Vernon Municipal Code (VMC) Section 3.32.030, Council approval is necessary for contracts that exceed $100,000. However, due to the way fees are collected by this vendor, staff only recently realized that the threshold for City Council approval had been exceeded. As the Finance Department sought to establish new merchant accounts necessary for the implementation of the City’s new Enterprise Resource Planning (ERP) system, Tyler Munis, this oversight was identified. Staff is now requesting City Council approval for the amount anticipated to be spent over the next few months on the existing accounts, approximately $30,000. Once the transition to Munis is implemented for cashiering, the existing accounts and accompanying agreement with Global Payments will terminate.
Prior to terminating these existing accounts and in order to maintain the payment process integration between Global Payments and Tyler Cashiering, it is necessary to establish three new merchant accounts with Global Payments to be used specifically with the City’s new ERP system. Thus, the Merchant Application (Attachment 1) and the OpenEdge Check Services Merchant Application (Attachment 2), are being presented to Council for approval. The new accounts will address the City’s good governance purchasing requirements outlined in VMC
3.32.220 which generally prohibit “evergreen” contract terms; in order to mitigate the vendor’s automatic renewal provision, an Indemnity Agreement (Attachment 3) allows the City to terminate the agreement at any point without penalty. Prior to June 2024, Finance staff will conduct a thorough review and competitive selection process to identify a vendor best suited to provide payment processing services for the City in the future.
The processing fees for the new accounts are not expected to begin until April 2023 once additional ERP system modules (Accounts Receivable, EnerGov, and web-based Tyler Cashiering) are implemented. At that point, it is estimated that annual payment processing fees will be between $75,000 to $105,000 annually and may vary depending on customer use of the payment processing services offered by the City.
Fiscal Impact
The fiscal impact is estimated at $75,000 to $105,000, but can vary depending on the transaction amount and the volume of transactions processed each month. Sufficient funds are available in the General Fund, Finance Department, Bank Services Fees Account No. 011-010-130-529010 for the current fiscal year and will be budgeted in subsequent fiscal years.
Attachments
1. Merchant Application
2. OpenEdge Check Services Merchant Application
3. Indemnity Agreement