Title
Amend Agreements with JPMorgan Chase Bank, N.A. and Chase Paymentech, LLC (Ordinance S-46448)
Description
Request authorization for the City Manager, or his designee, to extend terms of the current agreements with JPMorgan Chase Bank, N.A. and Chase Paymentech (collectively “Chase”) for five years with an option to extend for an additional three years. The Chase agreements include the Municipal Banking Services Agreement (MBSA) #135573, Merchant Card Services Agreement #135574, Custody Agreement, #135575, and the Single Use Account Services Agreement #137422 (collectively, the “Chase Agreements”). And request authorization to approve an exception of the liability provision in City Code 42-18 (A) and (B). Further request authorization for the City Controller to disburse all funds related to this item. The aggregate value of the five year period will not exceed $9,000,000.
Report
Summary/Information
As allowed by City Code, the City uses a single servicing bank for its banking services. The single service bank enables leveraging the large volume and variety of banking needs to obtain service integration and preferred pricing on critical banking products such as depository services, payment accounts, custodian services, merchant processing, and revenue producing products such as the commercial card program. The City manages resources for the activities of 250 bank accounts, 150 merchant accounts, 40 daily file transmissions, and 220 users (City employees) as part of the Chase Agreements. Examples of services include: 150 bank accounts and services for Police Neighborhood Block Watch accounts; 38 branches throughout Phoenix where customers can pay for City services; strong fraud prevention programs and lockbox services located in the City of Phoenix.
In July 2019, the Finance department conducted a survey and collected results from 28 local governments regarding their banking services procurement and contract process. Over 66 percent of the governments surveyed used a single service bank. The survey results also indicated that less than 20 percent of respondents changed banking services providers recently and comments specified that the transition process took multiple years. The City estimates changing banking services could cost at least $500,000 and take nine months to a year to fully transition services. The survey results further revealed that over 55 percent of local governments had maintained their current banking services provider for fifteen or more years. This is partly due to the complexities and integration of banking services with City technology and multiple processes.
The banking industry continues to change with new banking regulations, compliance requirements, as well as new laws for state and local governments. This limits the number of banks that can provide service at the scale and size required by the City. The City manages daily cash amounting on average from $50 to $80 million in the combined bank accounts. Per State law, the City's servicing bank is required to hold collateral in U.S. Treasuries at 102 percent of the City's bank balance. Chase has consistently met the City's collateralization requirement without an exception. Further, Chase has demonstrated its ability to perform essential banking and investment services in the event of a City emergency. These banking services requirements are essential in protecting public funds and ensuring the City is meeting its daily financial requirements.
Conclusion and Next Steps
The Chief Financial Officer recommends a five-year extension of the Chase Agreements plus an option to extend for three years. It is also recommended that the City Council approve an exception of the liability provision in City Code 42-18 (A) and (B) to reflect that the liability will be no more than three times the contract value for the MBSA agreement #135573. This authorization allows the City to continue to utilize the City’s single source banking agreements for multiple services, continue with citywide efficiencies, and continue to meet regulatory requirements in protecting public funds.
Contract Term
The Chase banking service contracts were effective March 1, 2013. Upon Council's approval the term of these contracts will be extended from July 1, 2020 to June 30, 2025 with an option to extend for three additional years.
Financial Impact
The estimated costs for the Chase Agreements will not exceed $9 million for five years. This estimate does not include any potential cost offsets for the earnings credit allowance and any revenues earned from the Single Use Account program. The funds are available in the City’s operating budgets including the General Fund and Enterprise funds.
Department
Responsible Department
This item is submitted by City Manager Ed Zuercher and Chief Financial Officer Denise Olson.