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HomeMy WebLinkAbout07 AUTHORIZE A PROFESSIONAL SERVICES CONTRACT FOR TREASURY CONSULTINGMEETING DATE TO: FROM: SUBJECT: SUMMARY: AGENDA REPORT APRIL 2, 2019 MATTHEW S. WEST, ACTING CITY MANAGER Agenda Item 7 Reviewed: City Manager Finafce Director JOHN A. BUCHANAN, FINANCE DIRECTOR JENNY LEISZ, DEPUTY DIRECTOR - FINANCIAL SERVICES AUTHORIZE A PROFESSIONAL SERVICES CONTRACT FOR TREASURY CONSULTING SERVICES INCLUDING ASSESSMENT OF BANKING SERVICES Staff is recommending that the City Council authorize a professional services contract with PFM Asset Management LLC for treasury consulting services, including an assessment of banking services and preparation of a Request for Proposal (RFP) for banking services. RECOMMENDATION: It is recommended that the City Council: 1. Authorize a professional services contract with PFM Asset Management LLC for treasury consulting services, including assessment of banking services and preparation of an RFP for banking services; and 2. Appropriate $50,000 from Land Sale Proceeds Fund (Fund 189) reserves for the project. FISCAL IMPACT: The contract amount with PFM Asset Management LLC, if authorized, is not -to -exceed $70,000. Funds for this project in the amount of $20,000 were budgeted in the FY 2018-2019 budget as part of the professional services budget in the Finance department. Therefore, staff is requesting an additional appropriation of $50,000 from Fund 189. CORRELATION TO THE STRATEGIC PLAN: Correlates with the City's Strategic Plan Goal C: Financial Strength, Item 3.c. Conduct an assessment for banking services to determine the best value for the services the City needs. AUTHORIZE A CONSULTANT AGREEMENT WITH PFM ASSET MANAGEMENT LLC FOR ASSESSMENT OF BANKING SERVICES Page 2 of 3 DISCUSSION: Bank of America has provided services for the City of Tustin for many years, with millions of dollars in transactions flowing through our accounts each year. The City has a fiduciary responsibility to its citizens to evaluate City services and identify ways to achieve cost neutrality. To accomplish this, the City's strategic plan includes conducting a thorough assessment of banking services to determine the best value for the services the City needs. As perspective, our banking fees from Bank of America totaled approximately $137,000 in fiscal year 2018, plus merchant services fees for online water activity of approximately $72,000 last fiscal year. A preliminary assessment by two outside experts indicates that our fees are "above average" for a City of our size and complexity. Four potential consultants were identified to help with the assessment process and the development of a banking services RFP. Proposals were received from three of the four proposing consultants. The consultants were evaluated based upon the following criteria: (a) knowledge, (b) experience with similar projects, (c) their approach and understanding of the scope of services, (d) availability, (e) proposed cost of services, and (f) references. After review and discussion with the consulting firms, staff recommends PFM Asset Management LLC. PFM offers comprehensive services, providing a complete and thorough evaluation of the City's treasury -related services and providing recommendations regarding efficiency and cost effectiveness. PFM has performed similar assessments with strong references for seven (7) California municipalities / utilities (listed in the attached proposal). PFM has a nationwide database of fees charged by most banks and has an extensive list of clients for comparative purposes. As detailed in the attached proposal, the scope of work includes: 1) a comprehensive and detailed assessment of current banking arrangements; 2) evaluating our organization's needs; 3) analyzing existing banking relationships; 4) reviewing how bank services fit into the cash management and investment systems; and 5) providing specific recommendations to improve our system. This analysis will help the City to improve efficiency, take advantage of new technology, strengthen controls, and reduce banking costs. AUTHORIZE A CONSULTANT AGREEMENT WITH PFM ASSET MANAGEMENT LLC FOR ASSESSMENT OF BANKING SERVICES Page 3 of 3 Staff recommends partnering with PFM Asset Management LLC to act as a consultant for these services, with the goal of conducting an assessment for banking services to determine the best value for the services the City needs. s ny Leisz Deputy Director - Financia Services elf", Joh Buchanan Finance Director Attachment: PFM Asset Management LLC proposal PfM City of Tustin Proposal to Provide Treasury Consulting Services February 26, 2019 PFM Asset 213 Market Street 717.232.2723 Management LLC Harrisburg, PA 17101 Pfm.com Expertise + Insight = Ingenuity We are avid problem -solvers, using our collective expertise to deliver the best solutions. We mine the experience of our colleagues, combining wisdom and agile thinking to develop answers and execute strategies for our clients. February 26, 2019 City of Tustin Treasury Consulting Services Table of Contents Cover Letter I. Firm Profile......................................................................................................1 Il. Personnel.........................................................................................................2 III. Treasury Consulting Services..........................................................................5 IV. Bank Pricing Database..................................................................................12 V. Preliminary Pricing Analysis..........................................................................13 VI. Success Stories.............................................................................................16 VII. Benefits of PFM's Banking Services Review & Rebidding Services.............21 VIII. Fee Proposal.................................................................................................22 PFM Asset 213 Market Street 717.232.2723 Management LLC Harrisburg, PA www.pfm.com 17101 U01 Pfm 213 Market Street Harrisburg PA 17101 pfm.com February 26, 2019 Jenny Leisz Deputy Director — Financial Services Finance Department City of Tustin 300 Centennial Way Tustin, CA 92780 Dear Jenny, PFM Asset Management, LLC ("PFM") is pleased to submit this proposal to provide treasury consulting services to the City of Tustin ("the City"). PFM has broad experience working with governmental entities across the country and can bring a unique perspective to this project. We have the technical resources and experience to help you to assess the City's current banking needs and to competitively procure those services at the most advantageous price. We can provide a unique local, as well as national, perspective of trends in the banking industry that will benefit the City through this engagement. PFM's treasury consulting team has worked on many engagements of similar size and complexity; a full list of clients we have worked with over the last five years, as well as several case studies, is included in the attached proposal. We are enthusiastic about this opportunity to work with the City and look forward to discussing this proposal with you in greater detail. If you have any questions, please feel free to call me at (717) 232- 2723 or email me at calvertd@pfm.com. Sincerely, PFFMAsset Management LLC J4.e, David J. Calvert, CFA Director I. Firm Profile PFM is a leading provider of independent investment advisory services to public and other not-for-profit organizations. The firm's original practice was founded in 1975 to provide independent financial advisory services to the public sector and began providing investment advisory services in 1980. PFM employs over 600 individuals located in 36 offices across the country. In addition to our asset management services, PFM is the nation's leading independent financial advisor in public finance, according to Thomson Reuters. We are indirect wholly-owned subsidiaries of a holding company known as PFM I, LLC. This holding company is 100% owned by the firm's Managing Directors, who set the firm's strategic direction. The PFM Group Holding Company (PFM I, LLC) Public Financial PFM Financial Advisors FinancialSenkes PFM Swap Advisors LLC PFM Group Consulting PFM Ventures LLC Management• tnc. LLC Management LLCLLC LLC Subsidlades: • PPM Fund distributors. Inc. • BondResource Partners, LP • Bond Resource Partners, LLC Treasury Management Consulting Treasury management consulting services are provided as part of PFM's comprehensive investment services. We have provided these consulting services since 1989. PFM is not affiliated with any bank or trust company; we are independent and give independent advice. The City of Tustin I Treasury Consulting Services II. Personnel PFM is committed to assigning a team of top professionals to work on this engagement with the City of Tustin. The relationship will be managed by David Walters, CFA, CTP, a Senior Managing Consultant with over 11 years of cash management and investment experience. David Calvert, CFA, Director, will provide oversight for the engagement. Analysts, Danton Ponzol, CTP, Ashley Loper, and Lauren Donley, will provide analytical and technical support for this engagement including summarizing information from account analysis statements and preparing pro -forma costs of proposal responses. David Calvert, CFA; Director David Calvert is a Director at PFM Asset Management LLC specializing in the delivery of treasury consulting services. He helps clients identify their banking needs and assists in the time consuming process of competitively procuring banking services. These engagements typically result in our clients receiving significant cost savings, new and improved services, and greater customer service from their banking partner. He has worked on treasury consulting projects with clients across the country in 28 different states. He has been a guest speaker at multiple conferences and training sessions for the Virginia Government Finance Officers' Association ("VGFOA"), Treasurers' Association of Virginia, North Carolina Local Government Investment Association, Texas Association of Counties, Texas Association of Community College Business Officers, and the Western Association of College and University Business Officers. He also provides a broad range of investment advisory and consulting services for clients located from Maine to South Carolina. These services include developing portfolio strategies, modeling cash flows, developing initial portfolio strategies, reviewing portfolio performance, and updating investment policies. After graduating from Boston College with a Master of Science degree in Finance, he joined PFM in 2000. He completed his Bachelor of Science degree in Business Administration with a dual concentration in Finance and Accounting from Bloomsburg University graduating Magna Cum Laude. Mr. Calvert holds the Chartered Financial Analyst (CFA) designation and is a member of the CFA Institute. Additionally, Mr. Calvert holds Financial Industry Regulatory Authority (FINRA) Series 6 and 63 licenses. The City of Tustin I Treasury Consulting Services David Walters, CFA, CTP; Senior Managing Consultant David Walters joined PFM's asset management practice in 2007 and is a Senior Managing Consultant in the Milwaukee, Wisconsin office. He is a project manager in PFM's treasury consulting practice, working with clients nationwide to review and enhance their cash management program. He provides clients with an independent analysis of their banking relationships, recommendations for process improvements, and assistance with the competitive procurement of banking services. Prior to joining the treasury consulting practice, Mr. Walters was a member of PFM's arbitrage rebate practice, specializing in providing post -issuance tax compliance services to issuers of tax -advantaged debt. He worked with issuers to help them understand complex arbitrage requirements and ease the burden of compliance. As part of his efforts to educate issuers, he has spoken on arbitrage rebate and post -issuance compliance topics at industry conferences and educational events across the country. Mr. Walters graduated Magna Cum Laude from the Pennsylvania State University with a Bachelor of Science degree in Finance with a minor in Business Law. He holds the Chartered Financial Analyst (CFA) and Certified Treasury Professional (CTP) designations and is a member of the CFA Institute and the CFA Society of Milwaukee. Danton Ponzol, CTP, Senior Analyst Danton Ponzol is a Senior Analyst in PFM's Harrisburg office. Mr. Ponzol started at PFM in July 2014. As part of PFM's treasury consulting practice, he is responsible for analyzing individual client's bank fees and services, conducting banking industry research, drafting RFPs for banking services, and evaluating proposal responses. In addition, he supports clients with all aspects of their investment programs, including investment policy development, cash flow modeling, portfolio structuring and analysis, investment performance analysis, and economic research and reporting. Mr. Ponzol graduated from Lafayette College with a Bachelor of Arts degree in Economics and Policy Studies. He holds the Certified Treasury Professional designation (CTP), as well as Financial Industry Regulatory Authority (FINRA) Series 6 and 63 licenses. Ashley Loper, Senior Analyst Ashley Loper is a Senior Analyst in PFM's Harrisburg office. Ashley began working at PFM in 2015, where she was involved with asset management for fixed income portfolios and local government investment pools (LGIPs). More recently, she has begun to work in the Treasury Consulting Group, where she is responsible for analyzing bank services and fees, as well as conduct banking industry research. Ashley also is involved with drafting RFPs for banking services and evaluating proposal The City of Tustin I Treasury Consulting Services responses on behalf of our clients. Additionally, she still supports clients with all facets of their investment programs, including cash management, investment policy development, portfolio structures, investment performance analysis and economic research and reporting. Ashley started out in personal finance, where she obtained her Series 7 license from the Financial Industry Regulatory Authority (FINRA) and provided advice to individuals on their investments. She also holds her Series 63 license with FINRA and earned the CFA Institute Investment Foundations certificate. Ashley graduated from Shippensburg University with a dual degree in Finance and Marketing, as well as a minor in Spanish. Ashley is currently enrolled with West Texas A&M University pursuing her MBA with an expected graduation date of May 2019. Lauren Donley, Analyst Lauren Donley is an Analyst in PFM Asset Management LLC's Harrisburg office. Lauren's primary job functionalities reside in PFM's Treasury Consulting practice. She is responsible for investment management reporting, cash flow modeling, economic research, and the development and analysis of portfolio strategies. In addition, she is also responsible for analyzing individual client's bank fees and services, conducting banking industry research, drafting RFPs for banking services, and performing detailed analysis on clients' account analysis statements to understand what services are currently being used and where opportunities may exist for greater efficiency. Lauren graduated Magna Cum Laude from Saint Vincent College. She holds a Bachelor of Science degree in Finance and Mathematics. Additionally, Ms. Donley holds Financial Industry Regulatory Authority (FINRA) Series 6 and 63 licenses. The City of Tustin I Treasury Consulting Services III. Treasury Consulting Services PFM has helped numerous clients design banking services to meet their needs, evaluate the services offered by competing banks, and re -bid banking services. For each client, we undergo a comprehensive and detailed assessment of current banking arrangements; we evaluate the organization's needs, analyze existing banking relationships, review how bank services fit into the cash management and investment systems, and make specific recommendations to improve the entire system. This thorough analysis has consistently allowed us to help our clients improve efficiency, take advantage of new technology, strengthen controls and reduce banking costs. The analysis process varies for each client based on the scope of the banking relationship, number of stakeholders involved, problems identified, and the client's timeframe. The general steps involved are described below. TASK 1: PRELIMINARY REVIEW OF BANKING RELATIONSHIPS At the onset of the engagement, PFM will request written policies, procedures, incumbent bank contracts, and agreements from the City, including: An organization chart of the treasury department Schematics defining treasury flows, if available Copies of current bank agreements and contracts Bank analysis statements for all accounts to be covered by the project (prior 12 months) Merchant card statements (prior 12 months) Purchasing card/ePayables rebate schedule PFM will review these documents to gain an understanding of the City's operations. We will perform this background review prior to our initial discussions so we can make the best use of your time. TASK 2: DISCOVERY MEETING WITH OFFICIALS AND KEY STAFF At the Discovery Meeting, we will review the City's banking arrangements with key staff members, including management, personnel handling the day-to-day banking responsibilities, information technology services and the procurement department. Interviews will focus on the following key areas: The City of Tustin I Treasury Consulting Services Account structure Collection procedures Cash concentration Accounts payable process Payroll processing Cash flow and liquidity requirements Disbursement methods Reporting requirements Credit facilities Service levels Collateralization of deposits Bank fees As part of the meeting, we will actively discuss alternative approaches or new services that can enhance productivity. This discussion will be interactive, so we can address any concerns or questions with staff and/or management. We view our role as finding viable, workable solutions for the City and not simply providing a laundry -list of services that may or may not work. TASK 3: EVALUATE AND PROVIDE RECOMMENDATIONS REGARDING THE CITY'S CURRENT USE OF BANKING SERVICES PFM will make recommendations for any changes to the existing use of banking services. This analysis will identify areas in which additional services could be beneficial, unnecessary services can be eliminated, physical processing of checks can be minimized, earnings on cash or sweep balances can be improved, the overall cost of banking services can be reduced, and/or operations can be streamlined. TASK 4: DEVELOP RFP FOR BANKING SERVICES After working with the City to define the level of required banking services, we will assist in preparing a Request for Proposal that incorporates the needed services and desired objectives. The RFP will be designed to obtain sufficient information while still providing bidders the flexibility to suggest new ideas and creative solutions. We will include questions in the RFP to address key issues raised by City decision makers, individual departments, IT, and/or accounting. The RFP will address these requirements and confirm that the bank will not only be able to comply, but have relevant experience complying with these requirements for other clients. Before proposals are received, we generally recommend a question -and -answer period. PFM will incorporate specific information into the initial RFP document to address the most frequently asked questions from the vendors. However, there are always a fairly large number of questions submitted. The City of Tustin I Treasury Consulting Services 6 We will consolidate all of the questions received and will prepare an initial draft of the responses. We will then forward the document to the City for review and assistance with questions we weren't able to answer. TASK 5: EVALUATION OF PROPOSALS/SELECT QUALIFIED FIRMS PFM will read and thoroughly evaluate the proposals received so we have a complete understanding of the proposing firms' capabilities and cost structure. Our assessment criteria include the proposer's financial condition, technical capabilities, staff experience, internal controls, reporting capabilities, level of automation, accounting system capabilities, disaster recovery plans and proposed fees. As part of our proposal review, we will compile detailed evaluation materials for the City. These materials will include: 1) Service Levels Matrix: The Service Levels Matrix extracts responses from key questions from the RFP and lists the banks' answers side-by-side. The Matrix is an important resource that will allow the City to easily compare answers provided by the banks. We highlight answers that stand out as positive or negative and identify gaps in the banks' proposals. In the past, our clients have used the Matrix as an aid while they read the proposals on their own. A portion of a sample Service Levels Matrix is shown below: Question Bank 1 Bank 2 Bank 3 Bank 4 Deposit Processing 1.a Number of bank 3 15 4 2 5 branches within 10 miles Yes/No: Direct or 1.b indirect discounted Unresponsive No Yes Yes Yes armored car services Cash Only - Imaged - 7:30pm 1.d Ledger cutoff time for 6 pm PST Spm PST Spm Unresponsive Check Only - deposits Check -Only - 6:30pm 7:30pm Mixed - 6pm Yes/No: Deposit bags 1.e provided by bank; Fee No; Yes No; Yes Yes; Yes Yes; Yes Yes; Yes for deposit bags? 1.f Yes/No: Accept loose or Yes Yes Yes Yes Yes rolled coin Willingness to cash any Yes, up to Yes, if payee is 1'g check from another bank Unresponsive Yes $100 No a Bank customer Remote Deposit Capture The City of Tustin I Treasury Consulting Services 7 3.c Yes/No: Use Intelligent Character Recognition Yes Yes Yes Yes Yes ACCOUNT MAINTENANCE b up to 999 $ 210 -CO $ 20.00 $ 120.07 $ 10.CC Limit on number of up to 500 items; up 200 up to Yes;cks more than ns 3.d checks contained in a items at one recommen checks 300 checks k 1,items $ 20.00 single deposit time ds 30-50 DEBITS POSTED 32 ,000 $ 12.80 $ 0.40 $ 12.80 checks $ 4.80 CREDITS POSTED 128 $ 0.40 $ 51.20 $ 0.40 $ 51.20 $ 0.15 $ 19.27 No, but will 6 Yes/No: Provide RDC $ 120.00 Yes; limit $ - $ - cover 50% of 3.e machines to the City at Yes; limit 2 1 Yes; limit 2 Yes; limit 4 cost of one $ no cost? 1 $ 20.00 $ 20.00 $ 20.00 $ 20.00 $ $ GCS TRANSACTION HISTORY 1 $ 5.00 $ 5.00 scanner 2) Quantitative Analysis: PFM will also prepare a detailed quantitative analysis of each firm's cost proposal on an "apples to apples" basis. The analysis will include both direct and indirect costs. This can be one of the most challenging parts of the proposal evaluation process. Pricing schedules from different banks can look quite different because banks take very different approaches to pricing. For instance, some banks bundle services together while others have a long list of charges. PFM's process compiles line item pricing in a pricing matrix. A portion of a sample pricing matrix is shown below: CURRENT COST . Volume Levelsl Unit Cost I Monthly Price Unit Cos[I Wrnhly Price I Unit Cost I Monthly Price GENERAL ACCOUNT SERVICES ACCOUNT MAINTENANCE b $ 35DO $ 210 -CO $ 20.00 $ 120.07 $ 10.CC $ 60.07 2BA MASTER ACCOUNT 1 $ 50.00 $ 50.00 $ 30.00 $ 30.00 $ 35.00 $ 35.00 ZBA SUBSI DI ARY ACCOUNT 1 $ 25.00 $ 25.00 $ 20.00 $ 20.00 $ 25.00 $ 25.00 DEBITS POSTED 32 $ 0.40 $ 12.80 $ 0.40 $ 12.80 $ 0.15 $ 4.80 CREDITS POSTED 128 $ 0.40 $ 51.20 $ 0.40 $ 51.20 $ 0.15 $ 19.27 DIRECT DDA STATEMENT PER ACCOUNT 6 $ 20.00 $ 120.00 $ - $ - $ - $ - CHECKS PAID - REPORT 3 $ 10.00 $ 30.00 $ 10.00 $ 30.00 $ $ FACSI MILE TRANSMI SSI ON 1 $ 20.00 $ 20.00 $ 20.00 $ 20.00 $ $ GCS TRANSACTION HISTORY 1 $ 5.00 $ 5.00 $ 5.07 $ 5.00 $ $ PHOTOCOPIES 2 $ 10.00 $ 20.00 $ 10.00 $ 20.00 $ 20.00 $ 40.00 PFM's quantitative analysis will compare the direct fees on specific services as well as indirect costs such as the impact of below market earnings credit rates or investment rates and availability schedules. The table below is an example of the "indirect" cost associated with maintaining balances in bank deposit accounts. For this client, the quoted earnings credit rate was 0.280%, but after accounting for the bank's 10% "reserve requirement" and deducting FDIC fees, the net rate on the collected balance was only 0.101%. The City of Tustin I Treasury Consulting Services Ledger Balance $26,796,405 Less Float $540,352 Total Collected Balance $26,256,053 Less Reserve Requirement 10% $2,625,605 Available Balance $23,630,448 Earnings Credit 0.28% $5,524 $23,630,448 " 0.28% " 30/365 0.15% Less FDIC Assessment $3,350 $3,350 / ($26,796,405 " (30/365)) Net Earnings Credit 0.099% on Ledger Balance $2,175 0.101 % on Collected Balance 3) Score Sheets: After reading and analyzing each proposal, PFM will score the banks on qualitative and quantitative criteria, assessing which institution we believe will best meet the City's operational, service, and technology needs. We will present our evaluation to the City and will help identify those firms that best meet the selection criteria and represent the best candidates to be invited in for the next phase of the RFP process — the finalist interviews. TASK 6: INTERVIEW SELECTED PROPOSING INSTITUTIONS The finalist presentation is one of the most important parts of the selection process. Although the proposing firm may have a lot to offer, much of the success or failure of a banking relationship is the result of the experience and commitment of the selected firm(s)' assigned account officer(s). The objective of the interview will be to evaluate the technical competence of bank personnel and obtain answers or clarification on questions from the RFP. The interview also provides an opportunity to discuss and/or negotiate fees, if permitted by local procurement rules. Vendor visits and product demonstrations may also be included in this phase of the selection process. During the interview phase, as an independent consultant, PFM can provide the City with information on the advantages and disadvantages of various services and the feedback of similar clients. Since The City of Tustin I Treasury Consulting Services we are actively reviewing and interviewing banks and bank representatives from across the country, we are knowledgeable about changes in the industry and product offerings. TASK 7: RECOMMENDATIONS After the finalist interviews, we will discuss the presentations with the City, provide recommendations and determine if additional information is needed before awarding the contract. If additional information is needed, PFM will work with the banks to get clarification on outstanding items. We will also update our quantitative analysis to reflect any financial changes made as part of the finalist interviews. TASK 8: CONTRACT/AGREEMENT NEGOTIATIONS Once the City has selected the bank with which it would like to work, we will assist in negotiating any revisions to the proposed fee schedule or other aspects of the bank's proposal. Our experience has shown that it is often possible to obtain fee concessions from the banks on certain aspects of the work. The quantitative analysis performed in Task 5 and PFM's database of bank pricing are valuable tools in this process. PFM's database of bank pricing contains a wealth of information about bank pricing, including both actual and proposed fees, from public and not-for-profit organizations across the country. The database is invaluable in assessing potential fee savings and in negotiating pricing. With the database, we are able to compare individual line item pricing to the pricing paid by other similarly sized organizations for banking services. As an example, here is the analysis for Checks Paid for one of our clients before the issuance of an RFP. The organization was paying $0.18 per item for each check paid. In the current highly competitive banking environment — where technology has driven down the cost of "commodity" services - we are seeing proposed pricing for this service at significantly lower levels. The chart shows per unit pricing for Checks Paid based on the overall size of the general banking relationship (annual fees). The symbols are color coded to show the source of the pricing as follows: The client's current pricing is shown with a square; Pricing before competitive procurements are designated by squares — green squares for the client's current bank and red squares for other banks; Pricing proposed by banks during competitive procurements are designated by diamonds — green diamonds for the client's current bank and blue diamonds for other banks. The City of Tustin I Treasury Consulting Services 10 Price Comparison Scatterplot Checks Paid $0..35 50.30 ■■ a PA banks Exisfing u $0.25 — ••[ ■ ■� Al Banks Pm ..rued ■ ■ H[ $0'20 � ■Client Bank Existing ��— ! � O ■ N ■ rt■ rt �. $57.75 • ■ • N •♦ it ♦ �e : ■ • ■ �[ : . punt bank `m ■ ■ _i a • ■ Prc urement a ■ ■ ■ • ■ ♦ ■ • ■ ■ m 59.10 ♦ a r [ a■�,a♦■»■a ,� - �■ i ■ - [Current Rela8cn9hip ♦ J ■ ♦ s ■ 50.00 - – • s ` . $0 $25,000 $50.000 575,000 $100.000 Size of Banking Relationship TASK 9: CONTRACT REVIEW Although many banks would like their customers to think that the contract for banking services is "standard", this is rarely the case. Bank contracts are often written by bank attorneys for the benefit of the bank. PFM will serve as a technical resource to the City's lawyers in making those changes to the "standard" contract needed to assure that the terms and pricing are fully documented. The City of Tustin I Treasury Consulting Services 11 IV. Bank Pricing Database One of the tools we will use to ensure that the City receives the most competitive pricing available is PFM's database of bank pricing. This database contains a wealth of information about bank pricing, including both actual and proposed fees, from public and not-for-profit organizations across the country. The database is invaluable in assessing potential fee savings and in negotiating pricing. Over the last decade, we have seen technology drive the costs for "commodity" banking services lower. With the database, we are able to compare individual line item pricing to the pricing paid by other similarly sized organizations for banking services. As an example, here is the analysis for Checks Paid for one of our clients before the issuance of an RFP. The organization was paying $0.18 per item for each check paid. In the current highly competitive banking environment, we are seeing proposed pricing for this service at significantly lower levels. The chart shows per unit pricing for Checks Paid based on the overall size of the general banking relationship (annual fees). The symbols are color coded to show the source of the pricing as follows: • The client's current pricing is shown with a square; • Pricing before competitive procurements are designated by squares — squares for the client's current bank and red squares for other banks; • Pricing proposed by banks during competitive procurements are designated by diamonds — green diamonds for the client's current bank and blue diamonds for other banks. Price Comparison Scatterplot Checks Paid $0.35 $0.30 v $0.25 m $0.20 8 a $0.05 $0.00 $0 All Banks Existing • All Banks Procurement r -Client Bank Existing $25,000 $50,000 $75,000 $100,000 Size of Banking Relationship Client Bank Procurement Current Relationship The City of Tustin I Treasury Consulting Services 12 ■ ■ N ■ ■ M _ ♦ N♦ ♦ ■ ♦ ♦ ■ ■ ■■ ■ ■ ■■N ♦ #41 ♦ ■♦ ■ ■ � ♦ - ♦ .■04 . ■ 0 No $0.00 $0 All Banks Existing • All Banks Procurement r -Client Bank Existing $25,000 $50,000 $75,000 $100,000 Size of Banking Relationship Client Bank Procurement Current Relationship The City of Tustin I Treasury Consulting Services 12 V. Preliminary Pricing Analysis PFM has reviewed the City's January 2019 account analysis statement for Bank of America to assess current fee levels. While this is not a comprehensive assessment of the fee savings the City may achieve through a competitive RFP process, it does provide a sample of the type of analysis PFM can perform. Hopefully, it also demonstrates the power of our pricing database. Based on the information we reviewed, it appears that the City is paying about $53,523 per year (excluding FDIC fees). Compared to the fees charged to other similarly sized institutions, we believe the City is incurring above average charges for most services. PFM'S DATABASE OF BANK PRICING We used the database of bank pricing to compare line item pricing on the City's account to the fees paid by other organizations; those currently paying less than $75,000 per year. We also compared pricing to the fees we have seen Bank of America charge other customers. As shown in the table below, the majority of services analyzed are above average when compared to database pricing. Account Maintenance $ 23.0000 4 Above Average Above Average Above Average ZBA Master Account $ 37.0000 1 Above Average Above Average Above Average ZBA Sub Account $ 22.0000 3 Above Average Above Average Above Average Debit Posting $ 0.4000 16 Maximum Above Average Above Average Credit Posting $ 0.4000 264 Above Average Above Average Above Average Deposit (Vault) $ 1.2000 20 Above Average Above Average Above Average Deposit (Vault) Mixed Coin & Currency (per $100) $ 0.1200 282 Above Average Above Average Above Average Image Clearings (ICL) - Transit $ 0.0600 4,699 Above Average Above Average Above Average Return Item $ 1 4.0000 2 1 Below Average Below Average Above Average Return Item Redeposit $ 1.1500 5 Below Average Below Average Below Average Positive Pay Maintenance $ 55.0000 1 Above Average Above Average Above Average Checks Paid $ 0.1500 445 Above Average Above Average Above Average Stop Payment (Automated) $ 10.0000 1 Above Average Average Average Stop Payment (Automated) $ 20.0000 6 Above Average Above Average Maximum Positive Pay Checks Paid $ 0.0300 158 Below Average Below Average Below Average Check Image Maintenance $ - 1 Minimum Minimum Minimum Check Image Item Retrieval $ 0.2500 2 Below Average Below Average Maximum CD-ROM $ 10.0000 1 Below Average Below Averaqe Above Average The City of Tustin I Treasury Consulting Services 13 A snapshot showing the pricing on one service is provided below. The scatterplot shows the City's current pricing for ACH Maintenance compared to the fees paid by other organizations for the same service. $120.00 $100.00 0 U $80.00 a� N r $60.00 c nom. $40.00 m v a $20.00 $0.00 4- $0 PFM Database -All Banks ACH Maintenance ■ ■ ■ ♦ IN ■♦■ ■ ■ IMM ♦ ■■ ■ i ■ ■ ♦ r■ $15,000 $30,000 $45,000 $60,000 Size of Banking Relationship All Banks Existing •All Banks Procurement :;Client Bank Existing Client Bank Procurement ■ ♦ Current Relationship M $75,000 If the City were able to reduce the fee on this single line item to the average price for this item in our database for organizations paying less than $75,000 per year ($106.25), it would realize annual savings of between $3,285 and $3,465 per year. The City of Tustin I Treasury Consulting Services 14 r err CD-ROM $ 10.0000 1 Below Average Below Average Above Average CD Rom Per Image $ 0.0450 445 Above Average Above Average Above Average Partial Reconciliation Maintenance $ 84.0000 2 Above Average Above Average Above Average Partial Reconciliation Item $ 0.0800 445 Above Average Above Average Maximum Account Recon Output Per Transmission $ 35.0000 1 Above Average Above Average Maximum ACH Maintenance $ 106.2500 3 Above Average Above Average Above Average ACH Item Originated - Debit via Transmission $ 0.0500 187 Below Average Below Average Below Average ACH Item Originated - Debit via Transmission $ 0.1000 876 Above Average Above Average Above Average ACH Item Originated - Credit vwa Transmission $ 0.0500 237 Below Average Below Average Below Average ACH Item Originated - Credit via Transmission $ 0.1000 1,428 Above Average Above Average Above Average ACH Item Originated - Same Day On -Us $ 0.0500 2 Below Average Below Average Below Average ACH Item Originated - Same Day Transit $ 0.5000 2 Maximum Below Average Maximum ACH Item Received - Debit $ 0.1200 39 Above Average Average Above Average ACH Item Received - Credit $ 0.1200 132 Above Average Average Above Average ACH Return Item $ 3.5933 6 Above Average Above Average Above Average ACH File Processing or Transmission $ 25.0000 19 Maximum Above Average Maximum ACH Debit Block Maintenance $ 14.0000 3 Above Average Above Average Below Average Wire Transfer Monthly Maintenance $ 30.0000 1 Above Average Above Average Maximum Automated Non -Repetitive Wire (Domestic) $ 11.0000 2 Above Average Above Average Above Average Incoming Wire (Domestic) $ 10.0000 2 Above Average Above Average Above Average Previous Day Reporting Transaction $ 0.1100 1,162 Above Average Above Average Above Average Bank Internet Portal Access $ 50.0000 1 Below Average Below Average Average Bank Internet Portal Access $ 48.0000 1 Below Average Below Average Below Average A snapshot showing the pricing on one service is provided below. The scatterplot shows the City's current pricing for ACH Maintenance compared to the fees paid by other organizations for the same service. $120.00 $100.00 0 U $80.00 a� N r $60.00 c nom. $40.00 m v a $20.00 $0.00 4- $0 PFM Database -All Banks ACH Maintenance ■ ■ ■ ♦ IN ■♦■ ■ ■ IMM ♦ ■■ ■ i ■ ■ ♦ r■ $15,000 $30,000 $45,000 $60,000 Size of Banking Relationship All Banks Existing •All Banks Procurement :;Client Bank Existing Client Bank Procurement ■ ♦ Current Relationship M $75,000 If the City were able to reduce the fee on this single line item to the average price for this item in our database for organizations paying less than $75,000 per year ($106.25), it would realize annual savings of between $3,285 and $3,465 per year. The City of Tustin I Treasury Consulting Services 14 On the City's entire banking relationship, we are projecting annual savings of 39% - 46% ($20,925 - $24,784) when the City rebids their services. EARNINGS CREDIT ANALYSIS We have computed the effective ECR at Bank of America by adjusting the stated ECR for a balance assessment (aka FDIC assessment) being charged. The table below shows the impact of this charge on the City's stated ECR of 0.25%. Ledger Balance $8,341,897 Less Float $169,574 Total Collected Balance $8,172,324 Less Reserve Requirement 0% $0 Available Balance $8,172,324 Earnings Credit 0.25% $1,735 $8,172,324 " 0.25%' 31/365 0.17% Less FDIC Assessment $1,219 $1,219/($8,341,897.(31/365)) Net Earnings Credit 0.07% on Ledger Balance $516 0.07% on Collected Balance The effective ECR on the City's account is much lower than what we are seeing at other banks, and much lower than what the City could likely earn in a liquid investment vehicle. During the RFP process, PFM will evaluate each of the proposers' ECRs, balance assessment fees, reserve requirements and potential sweep options to determine the optimal investment options for the City's balances. The City of Tustin I Treasury Consulting Services 15 VI. Success Stories In addition to improving internal operations, PFM's bank RFP process has consistently allowed our clients to achieve fee savings. The organizations listed below represent clients PFM has worked with during the past 5 years to re -bid banking services through a competitive RFP process.' These clients have achieved direct fee savings on general banking of 17% to 93% with average savings of 43%. Half have maintained banking relationships with their incumbent bank and half selected a different banking services provider. CLIENT STATE Municipalities / Utilities Alameda County Water District California Arlington County Treasurer's Office Virginia Chicago Public Schools Illinois City of Carlsbad California City of Charlottesville Virginia City of Glendale Arizona City of Mesa Arizona City of Napa California City of Newport Beach California City of Norfolk Virginia City of Norfolk Employee Retirement System Virginia City of Philadelphia Pennsylvania City of Santa Rosa California City of Scottsdale Arizona City of St. Louis Missouri City of Surprise Arizona City of Tucson Arizona Colorado Intergovernmental Risk Sharing Agency Colorado CPS Energy Texas This list was compiled as of December 31, 2018 and includes all complete treasury consulting engagements led by Barbara Fava or David Calvert over the last five years. Savings are based on general banking and cash management services and do not include other services such as merchant card processing or enhanced rebated schedules for purchasing cards. Savings represent past experiences and competitive conditions at the time of the engagements. Similar results may not be duplicated for all clients. Inclusion on this list does not necessarily represent endorsement of PFM services. The City of Tustin I Treasury Consulting Services 16 DC Water and Sewer Authority District of Columbia Hampton Roads Sanitation District Virginia Henrico County Virginia Huntsville Utilities Alabama Lexington -Fayette Urban County Government Kentucky Lincoln Electric System Nebraska Metropolitan Nashville Airport Authority Tennessee Prince William County Virginia San Bernardino County California Santa Clara Valley Transportation Authority California Santee Cooper South Carolina School Board of Broward County Florida State of Delaware Delaware State of Hawaii Hawaii State of Oregon Oregon Virginia State Non -Arbitrage Program Virginia Healthcare and Higher Education Baptist Healthcare System Kentucky Barnard College New York Brandman University California College of William & Mary Virginia Eastern Maine Healthcare Systems Maine Grand Valley State University Michigan Hackensack Meridian Health, Inc. New Jersey Harrington Healthcare System Massachusetts Independence Blue Cross Pennsylvania Michigan State University Michigan New Jersey Institute of Technology New Jersey Redlands Community Hospital California Rhode Island School of Design Rhode Island Roger Williams University Rhode Island Rush University Medical Center Illinois Rutgers University (Including the New Jersey Medical School) New Jersey Trinity University Texas University of Arizona Arizona University of Arkansas Arkansas University of Maine System Maine University of Redlands California University of Virginia Virginia University System of New Hampshire New Hampshire Virginia Polytechnic Institute & State University Virginia The City of Tustin I Treasury Consulting Services 17 Wellesley College Massachusetts Wentworth Institute of Technology Massachusetts These results are achieved by: 1) Structuring the RFP in a way to retain flexibility to pick and choose the most competitive proposal for each service. 2) Recognition by the banks that an independent third -party consultant is involved in the process. 3) Our ability to negotiate on the client's behalf to improve the pricing. The following case studies demonstrate how PFM's process can add real value: CITY OF LONG BEACH, CALIFORNIA r PFM worked with the City of Long Beach to rebid the City's banking relationships. The ti RFP was structured in a way that allowed banks to bid on one or more of the requested services, including: (1) General Banking Services, (2) Bill Printing and Mailing Services, (3) Investment Custody, (4) Payroll Card Program, and (5) Operation of onsite ATMs. The City received a total of eight proposals from this solicitation, and PFM conducted an extensive qualitative and quantitative review of each proposal. As a result of the procurement process, the City is expected to save $110,500 or 38% per annum for General Banking services. Investment Custody fees were cut by nearly 60% or $51,000 per year. ALAMEDA COUNTY WATER DISTRICT, CALIFORNIA ��CI� Alameda County Water District (ACWD) sought to streamline its 9L9,11f9911MA VWffFf90/S/9//.'7 banking operations to achieve greater efficiencies, while enhancing the payment experience for their customers. The RFP focused on General Banking, Retail Lockbox, and Electronic Bill Payment & Presentment (EBPP) services. PFM assisted the District in evaluating 15 different proposals and invited six firms to make finalist presentations. Since the scope of the RFP included many new or enhanced services, it was challenging to estimate the potential volume levels of particular services. Through our discussions, we emphasized the District was seeking a long-term partnership with these firms and encouraged the The City of Tustin I Treasury Consulting Services 18 firms to submit pricing that was reflective of the potential growth of the program in the future. This emphasis helped all parties reach a fair compromise on pricing. Once the selection process was completed, the District consolidated general banking and retail lockbox services with a single provider and received a generous transition credit of $77,000 to help offset banking costs during the first year. ACWD also partnered with a leading provider in EBPP services to offer a robust and comprehensive platform that allows its utility customers to have access to a powerful interactive website, electronic invoicing, and enhanced payment functionality such as text -to -pay services. SAN BERNARDINO COUNTY, CALIFORNIA The increased capital requirements imposed by Basel III caused San C&6�ar.a�oix 7 Bernardino County's (California) banking partner to fundamentally change the NTY nature of their banking relationship with the County. The bank imposed severe limitations on the amount of money they were willing to allow the County to hold on deposit. After multiple attempts to negotiate with the bank, the County hired PFM to review its current banking relationship and assist in the solicitation of a Request for Proposal. We customized the RFP to address the specific needs of the County's operations and processes. As the largest county in the United States by area, there were some unique challenges related to meeting the deposit needs of remote County offices. Through the competitive solicitation process, the County received proposals from five different vendors. The County selected a new banking provider that did not impose a limitation on the amount of collateralized bank deposits, and reduced its banking fees by 64% compared to the incumbent bank's pricing. CITY OF SURPRISE, ARIZONA The City of Surprise, Arizona hired PFM in 2015 to evaluate its current -/Ef&9h-- service providers, identify "best practices", and explore new bank services. S U R F R I S E During the discovery phase of the engagement, PFM determined that the AR""" A City's fees were high relative to other municipal entities we've worked with. PFM also identified several bank services that could improve efficiency and reduce the potential for fraud. The City of Tustin I Treasury Consulting Services 19 The RFP was structured to seek vendors for General Banking, Institutional Custody, Purchasing Card, Retail Lockbox, Bill Printing / Mailing and Online Collection, Merchant Card Processing, Payroll Card, Onsite ATMs, Armored Car, and Wholesale Lockbox. In total, the City received proposals from nine vendors. PFM prepared a detailed quantitative and qualitative evaluation of each proposal. The City selected four firms to provide the comprehensive suite of services included in the RFP. The City received aggressive pricing and a generous transition bonus, which resulted in savings of 52.7% for general banking services. The City also determined outsourcing the printing and collection of its utility bills was a more efficient and cost effective alternative, and it improved the customer experience. CITY OF TUCSON, ARIZONA The City hired PFM to procure comprehensive banking services, including general i banking services, institutional custody, corporate trustee services, lockbox services, and pre -paid cards. A second RFP was issued simultaneously for a purchasing card program/virtual card payments. This allowed the City to have a 16..-7 different Selection Committee to evaluate the responses for the purchasing card/virtual card payments from the general banking services. Through the RFP process, PFM was able to save or generate revenues of over $300,000 per year for the City. The City of Tustin I Treasury Consulting Services 0 VII. Benefits of PFM's Banking Services Review & Rebidding Services Organizations that have engaged PFM to provide treasury consulting services have realized a variety of benefits. The value added often differs from client to client because of their objectives and the situation of the treasury operation at the start of the project. However, regardless of the starting point, clients have consistently found that PFM's comprehensive process of reviewing and rebidding banking services has helped them to take their treasury operation to a new level. The following is a list of improvements that clients have found to be the most beneficial: Substantial fee savings; Improved earnings on cash balances; Identification of inefficiencies, costly processes and possible control problems in the treasury operation; Documentation of current processes (especially valuable when there has been recent staff turnover); Implementation of collection, cash handling and disbursement best practices; Evaluation of new banking technologies with the help of an independent (non-bank) advisor; Faster deposit of funds to reduce deposit float and increase earnings; Implementation of an integrated payables platform with expense reporting capabilities; value added from higher rebate, better controls, enhanced reporting, accounting system integration and faster reconciliation; Improved terms and rates on lines and letters of credit; Improved reporting and integration with General Ledger systems; Conversion of paper checks to electronic payments; value added from lower costs, better controls, elimination of escheating requirements and simplified account reconciliation; Better control and management of cash with the use of a treasury workstation; Improved efficiencies, which allow Treasury to do more and provide a higher degree of service to the organization and its constituents (students, patients, taxpayers, customers) without the need to add staff; and Faster implementation of new bank services and technologies. The City of Tustin I Treasury Consulting Services 21 VIII. Fee Proposal PFM is available to assist the City of Tustin with all of the Tasks outlined in Section III of this proposal. The table below outlines the engagement fee. Management Consulting Services EngagementTreasury Task 1: Preliminary Review of Banking Relationships Task 2: Discovery Meetings with Officials and Key Staff Task 3: Evaluate and Provide Recommendations Regarding the City's Current Use of Banking Services Task 4: Develop RFP for Banking Services Task 5: Evaluation of Proposals/Select Qualified Firms $60,000 Task 6: Interview Selected Proposing Institutions Task 7: Make Final Recommendations Task 8: Contract/Agreement Negotiations Task 9: Contract Review Additional On -Site Meetings $3,000 per Three on-site meetings are included in the engagement fee above. additional meeting Review of Additional Proposals $2,500 per If the City receives more than 6 proposals, an additional fee per proposal additional proposal reviewed would apply. We would also ask to be reimbursed for expenses related to travel, meals and lodging. Appropriate documentation and third -party receipts will be provided with each invoice. The City of Tustin I Treasury Consulting Services 22 PfM 213 Market Street Harrisburg, PA 17101 717.232.2723 pfm.com City of Tustin Treasury Consulting Project - Timeline Sign Contract April 2019 Project Kick Off Call April 2019 Data Request (Request Provided) April 2019 Preliminary Review of Material Late April 2019 On-site Meetings with City Staff Week of April 22nd OR May 22nd & 23rd OR Week of June 3rd Follow up Discussions and Data Requests June 2019 Prepare Recommendations Report June 2019 /early July 2019 Review and Discuss Recommendations with the City July 2019 Draft RFP Early August 2019 City Review of Draft RFP August 2019 Finalize RFP Early September 2019 Issue RFP Early September 2019 Receive Written Questions from Prospective Vendors Late September 2019 Respond to Written Questions Late September 2019 Receipt of Proposals Mid October 2019 Evaluate Proposals Late October -November 2019 Finalist Interviews and Demos Early December 2019 Negotiate Pricing with Preferred Vendors December 2019 / January 2020 Selection January 2020 Contract Review and Negotiations February 2020 Begin Implementation March 2020