Staff had recommended, based on the need to access immediate lines of credit, to go forth with at least 15 million and up to 30 million dollars to finance the upcoming public works surface water supply project and the water utility. The recommendation was that, as a whole, the City turn away from its longstanding commitment to local bankers and approve an agreement with Wells Fargo.
Convinced that local banks should be given another opportunity to make a more competitive bid, Councilmember Rochelle Swanson moved, “We reject all proposals of the current RFP and order new RFPs for both banking services with the line of credit, and for what they would look like separately, so we would have an apples-apples-comparison.”
Finance Director Paul Navazio argued on Tuesday that the line of credit was critical and the amount of money that the city would save from this bid was in the hundreds of thousands. Moreover, he told the council that in many cases the line of credit is contingent upon the city entering into a more general agreement on banking services.
Mr. Navazio argued that most of the banks only had slight degrees of differentiation of cost and the services they could provide. “The seven that did submit responses, I would submit, were all responsive bids and clearly demonstrated an ability to be able to provide the service,” Mr. Navazio told council on Tuesday night.
“The main issue, I think, that has led to the staff recommendation, has to do perhaps less with the underlying everyday banking services and operations, but as we highlighted last time and in the staff report,” he said, “the issue that arises when at the same time we are soliciting proposals for banking services, we are also in the process of soliciting proposals for short-term credit to facilitate several of our major utility capital projects.”
Councilmember Stephen Souza said, “If all we were doing was banking services, it’s an easy call. The difference is minor. It’s $1766 between Wells Fargo and First Northern, it’s a no-brainer. I could go with that today. That fits within the parameters of trying to do everything we can to keep our money local”
The issue was the line of credit. “The question here is,” Mr. Souza continued, “How much more do we want to spend for that line of credit. What’s it worth to deal locally? Is it worth $142,000? Is it worth $284,000? Is it worth a million dollars?”
“To me, I have a responsibility to the rate payers who are going to pay that money to get the best deal that I can. And I bet everyone in this room that’s in the banking business would say you better do that Councilman Souza.” However, he said, “I would like to see if we can get from our local banks a competitive bid, because I would like to keep that interest they’re going to gain on that money lent to members of our community and in the area. It’s much better in the long run to do it.”
“Because of the change and, frankly, upheaval in the banking industry, financial markets, and most specifically the credit market and municipal credit markets, access to short-term credit is not as straightforward as it was just two or three years ago,” Paul Navazio told the council. “Many of the channels that the city has previously pursued for this kind of financing have been greatly reduced.”
He argued for the staff recommendation of entering into an agreement with Wells Fargo, “in large part due to the favorable terms of the line of credit.”
Bernie Goldsmith, a former attorney who worked with banks, argued passionately for the need for the city to enter into an agreement with local banks – arguing that when a local bank’s success is tied to the success of a municipality, that produces the best possible outcome for all involved.
Moreover, he disputed the central claim from Paul Navazio, in terms of the line of credit being the key differentiating factor.
“I started researching this issue by discussing the matter with local banks,” Mr. Goldsmith told the Council on Tuesday. “The feedback I received was it was their opinion that they could match or beat the interest rate offered by Wells Fargo on the line of credit, the $15 million line of credit. I have an assurance from the CEO at River City Bank that he can match the interest rates offered by Wells Fargo.”
Mr. Goldsmith told the council that the local banks felt shortchanged in the process and that they did not get the opportunity to communicate with the city.
“They felt they were shut out of the bidding process. They felt that they weren’t getting a fair shake at the city’s business,” he said.
“[The bids] don’t reflect the rates that the banks are willing to give us for this line of credit,” Mr. Goldsmith added. “They reflect an imperfect bidding process; they don’t reflect what we can get.”
Dean Baldwin from River City Bank told council, “One of the primary distinguishing factors between the RFPs was the credit facility, it has already been mentioned, but we are certainly prepared to match that pricing.”
“This relationship is not too large or too complex for us,” he said, “We will be able to provide the terms and the line of credit on our balance sheet and we would continue to hold that for the entire length of the relationship.”
“Any loan made by River City Bank is kept here, to support the local economy,” Mr. Baldwin continued.
Jeff Adamsky, Senior Vice-President and Senior Loan Officer for First Northern Bank, also told council they could match Wells Fargo’s bid.
“We are not asking for the city to pay disproportionately to deal locally,” he said. “We should all be competitive. We’re more than willing to be competitive in this process as we go forward.”
Mr. Adamsky asked for the council to pause, have some conversations, and he believes they can come back with a series of proposals from local banks that would be competitive.
“I can assure you First Northern Bank can be competitive, we compete against Wells Fargo Bank all the time in lots of other areas and we do really well,” he concluded.
He also pointed out, while this is a large loan for a community bank to make, and there are only a few banks that can make this size a loan, that two of them were there on Tuesday night – First Northern and River City.
Council clearly wanted to give local banks the opportunity to earn the bid. Accusations, however, flew that the process itself was unfair.
Jeff Adamsky argued that the process did not work properly or fairly.
“When I heard this recommendation,” he told council, “It upset me. This process did not work smoothly. And I don’t think it worked fairly.”
“There are certain organizations that have existing relationships and already had additional information, and they could also respond to the loan portion rather quickly and thoroughly and I don’t think any of us quite anticipated that it was going to have the weight that it did at the end of the day,” he continued.
Bernie Goldsmith had fundamental disagreements with the information provided by Paul Navazio. “It is my opinion that the figures that he’s presenting to you in this proposal regarding the cost of these respective vendors for our loans are not accurate.”
He added that he’s heard that Mr. Navazio has been unresponsive on the issue and they’ve tried to approach him and they have been rebuffed.
Part of this may be due to the nature of the RFP process, how the proposals are made and how the city chooses the bids. It is not a deliberative or bargaining process.
Rochelle Swanson defended Mr. Navazio arguing, “Paul’s focus, I believe, was really on the integrity of the process, the RFPs were out there, and [his] not wanting to go back and forth.”
Stephen Souza was more pointed in his criticism of Mr. Goldsmith on this point. He argued in vintage Stephen Souza fashion, “We can disagree as to whether our consultants that evaluated [the rates] with our finance director, [as to] what those rates are. Frankly, Mr. Goldsmith, I’m going to go with the experts, that’s what they do for a living.”
“You’re an attorney sir,” he continued, pointedly ignoring the fact that Mr. Goldsmith said he was an attorney that had worked with bankers, “and frankly you may not know all that they know and how they calculate this. You may be correct, but from my perspective I’m going to go with my finance director and with our consultant that came up with this.”
Mr. Souza added, “ And I’ll do this when this comes back, because they are the people that I’m entrusting to give me the information to make the best fiduciary decision I have to, on behalf of the residents of this community.”
—David M. Greenwald reporting
Apparently, instead of “bids” (where no participant knows what the others are offering), we should go with an “auction”. Why River City/First Northern didn’t ‘sharpen their pencils’ on the original request for proposals eludes me. Perhaps they saw it as an opportunity to profit from ‘home field advantage’. Perhaps not. If they can match Wells Fargo on rates, why didn’t they either lower their rates or indicte that the rates could fall in a certain range and/or was negotiable?
Putting the HRMC (Historic Resources) into the Planning Commission would have caused a bigger problem. Since the City of Davis is a Certified Local Government (CLG) it is [u]required[/u] to have a separate commission, otherwise any project within the area near a historic property would have to go to the Office of Historic Preservation – Parks Department of the state of California to be approved, causing more delays for any project near these properties. Doesn’t seem the city did their homework well or have a clue on what that particular commission stands for.
I watched last night and I believe I heard Paul N say as a disclosure that the RFP did not clearly state the request for line of credit. True? It seemed the information brought forward by the 7 was different because it was asked differently. To me if true the process was flawed.
Reverse is the favorite gear for this council, so far.
Souza’s comment: “You’re an attorney sir,” he continued, pointedly ignoring the fact that Mr. Goldsmith said he was an attorney that had worked with bankers, “and frankly you may not know all that they know and how they calculate this. You may be correct, but from my perspective I’m going to go with my finance director and with our consultant that came up with this.”
Go with your finance director no matter what the evidence reveals, even though there is a question as to whether the RFP process was fair or not? At least Rochelle Swanson was willing to take a second look at this in light of revelations the process may have been either intentionally or unintentionally flawed.
I listened to this discussion last night, and was perplexed. I could understand Navazio’s concern about perhaps not being able to obtain a line of credit from a banking institution that the city is not doing regular business with. There is no question it is a different financial world out there post recession/with new banking reform. But nevertheless I was also curious about why Navazio was PERCEIVED to be uncommunicative with local banks.
Rochelle’s suggestion to back up and take a second look by redoing the entire RFP process, where everyone has a clear picture of what is being asked of them made perfect sense to me. Supporting local businesses is very important in Davis, if we want to keep what business that we do have alive and well in this city. Also, local businesses have more of a stake in the community and often give back to the local economy in so many tangible and intangible ways.
The matter was appropraitely addressed by Council last night.
Here is an updated letter I sent to Council in two posts.
September 17, 2010
To: Mayor Saylor and Council Members
Fr: David Thompson
Re: Creating a Sustainable Economy and Choosing the City’s Bank
cc: Paul Navazio, Assistant City Manager
On the City Council Agenda for September 21 is a recommendation that the City of Davis transfer its city banking relationship to Wells Fargo.
And on September 23rd there is an important workshop (see below) “…to improve our business climate and create a sustainable economy.”
I think we should put on hold transferring the City’s banking relationship to Wells Fargo until the City decides what role it wants to play in creating a sustainable economy. Let’s first take a longer look at how we might measure the creation of a sustainable economy.
In a number of regions in the world which have become known for economic sustainability one of the differentiating components has been the retention of local banking transactions within local or regional banks. The regions of Emilia Romagna in Italy and the Mondragon/Basque region in Spain are enriched by locally owned and controlled banks. Not only that, but they are regions of measurable lower unemployment, higher savings rates, more investment in local firms, creation of local jobs, higher paid jobs, better health and more culture. Money that stays locally achieves more and works harder for our city. Reciprocity is a watchword in Emilia Romagna among its citizens, its government and local enterprises.
Wells Fargo is now the largest bank in Davis with over 30% market share. Wells Fargo and Bank of America now control over 50% of all deposits in Davis. We now have 25% fewer financial institutions in Davis v Woodland. Can we achieve sustainability if two international banks ship over half of our savings out of Davis every night!
I think we need to know more about what Wells Fargo and other banks do for our community before we turn over our banking to them.
The Council should look at requiring an annual “Community Investment Report” from each of the entities who would like to win the City’s contract. Let’s judge the applicants across a number of specifics and ask them the following questions broken down by annual activity.
Within the past five years in Davis:
How many home loans have they made?
How many small business loans have they made?
How many loans have they made to minority and women run businesses?
How many WISH and IDEA loans have they made for home ownership opportunities?
What is the level of donations they have made to Davis organizations?
What Community Reinvestment Act (CRA) activities have they fulfilled?
How much have they granted to affordable housing in Davis?
What % of local deposits has been lent out to Davis community members?
How much stays in our community and how much leaves our community?
I am sure the Council and other community members will have other valid questions to add to this list?
Allow me to show an example of the value of looking at all the banking economic relationships to measure what we get.
WISH awards are a $15,000 grant to first time homebuyers
In the 2010 WISH awards for home ownership from the Federal Home Loan Bank, Wells Fargo obtained $135,000 to use in California, Nevada and Arizona, whereas First Northern obtained $150,000 for their four county area and Yolo Federal Credit Union won $350,000 just for Yolo County. I don’t think a WISH grant through Wells Fargo has made it to Yolo County.
AHP Awards are major funds that go towards multi-family affordable housing
For example, I do not think that Wells Fargo has ever made a major grant for affordable housing in Davis.
First Northern Bank has made a number of grants through their role in the Federal Home Loan Bank. Let’s look at the outcome of First Northern’s grants.
First Northern awarded Eleanor Roosevelt Circle a $327,000 grant. That was $327,000 fewer dollars that the City did not have to come up with. The $327,000 equity investment was used as leverage to allow ERC to borrow in total about $11 million dollars. By using OPM (other people’s money) we have been able to do more affordable housing projects because we use OPM and are not reliant just on our own City money. Of course First Northern’s action helped Davis meet its regional share for affordable housing. The biggest social feature is that we leveraged First Northern’s grant into affordable housing for 60 units of senior housing.
This is all important because First Northern Bank has done four of these grants in Davis. Their actions so far have amounted to $973,000 grant dollars which has been the yeast for 168 units of affordable housing (about $30 million dollars of value). As a result, about 450 people have an affordable place to live in Davis.
Let’s measure all the relevant economic factors and the dollars that banks are bringing to Davis before we make a decision about where the City banks? Let’s reward based upon a more complete profile of the true community investment of local banks.
WORKSHOP OBJECTIVES
The September 23 event will be an action-oriented workshop to build on these discussions and expand the effort to improve our business climate and create a sustainable economy. The objectives for this workshop are:
– Articulate a community vision for Davis’ future economy.
– Assess our strengths and weaknesses and identify the opportunities and threats facing our community’s economic future.
– Identify strategic issues that we need to address to support and sustain our economic future while retaining and celebrating our community values.
-Create a timeline for specific actions to be taken by the City, the business community, and other partners.
–
PS: I am using First Northern Bank only because they were the first (and continue to be the most active) to see the value of getting grants for affordable housing in Davis and using their resources to strengthen our community. However, we ought to ask the questions I listed above, gather the facts and then make a judgment as to which bank is helping us create a “sustainable economy.”
PPS: River City Bank also obtained a $477,000 grant for affordable housing for Cesar Chavez Plaza.
[quote]“Many of the channels that the city has previously pursued for this kind of financing have been greatly reduced.”[/quote] Whatever this is intended to mean, it suggests we’ve competed our loan needs in the past without having to toss in all of our banking business. Or course, the days of easy credit are over, but is Paul arguing that we haven’t been able to secure financing when we’ve sought it in the past year or so? Any specifics? Incidentally, does Wells Fargo have any exceptional track record of making favorable loans to the City?
How important is this overriding benefit anyway? Were the conditions and costs to stay the same as long as we remained with Wells Fargo? Were costs permanently established by the proposal for all other banking services, or could the loan rate have turned out to be a loss leader that might have been made up on increasing charges in the future for our other business?
I hope Harriet is protecting our interests in these banking RFPs. Banks haven’t exactly earned sterling reputations for their dealings with customers lately.[quote]“How much more do we want to spend for that line of credit. What’s it worth to deal locally? Is it worth $142,000? Is it worth $284,000? Is it worth a million dollars?”[/quote] It’d be nice have more specific data than Paul’s “hundreds of thousands” statement before considering Stephen’s question. It seems that the big difference in the bids for credit should have raised red flags. When such a large amount of our financial system cash is coming from the same source at the same cost to banks, shouldn’t one ask what could account for the big difference in proposals?
Could it reflect a problem with the RFP itself rather than be a financial bonanza for the City? If the RFP process doesn’t allow the staff to communicate, clarify and/or revise, banks could end up bidding on “different” things. It’s just odd that the RFP results appear to show Davis’ banks can be competitive on everything [u]except[/u] credit rates. Was WF’s bid unreasonably low or were the others unreasonably high?
Good on Rochelle! It looks as though she stood up for what’s right in spite of the pressure from Stephen and Paul to ignore and discredit the questions that she and others raised.
[quote]Reverse is the favorite gear for this council, so far.
[/quote]We did not reverse ourselves. Council simply didn’t follow staff recommendation. This is not uncommon. In fact, we did not follow staff recommendation on another major item last night.
Also, we did have specific numbers. According to the comparative interest rate table, Wells Fargo offered lower rates. Paul calculated that the Wells Fargo rates would save us (I think it was) $140,000 for the wastewater treatement plant loan, and perhaps more if we include surface water financing. I asked if the Well Fargo rates were guaranteed at that level when we needed them, and Paul said that they weren’t. What we did was to allow the local banks a second chance to match the Wells Fargo rates.
One downside of an RFP process is that, as JustSaying mentions above they may have ambiguities. I’ve never seen a perfect RFP. Many RFPs contain a final interview round for the top finalists as well which can often clear up problems. It sounds like our staff is too busy (doing what?) to talk to these banks about a relationship involving millions of dollars.
It seems odd that Wells Fargo’s cost of capital would be so much lower that we could save hundreds of thousands, but who knows?
There seems to be a consensus that everything else equal (or almost so) its better to go with a local bank. I’d agree, but I also think a bank with expertise in how to best arrange these bridge type loans would also be useful and if Wells Fargo could give the City a better deal or better expertise I’d say go with them. But once again we have a City process that leaves us with more questions than answers. Not everyone is going to be pleased in any democratic process. Some folks on this blog will want to go with a local bank no matter what.
What we should not accept is a staff or council process that leaves us again and again with so many questions. Who exactly is minding the store?
This is an interesting discussion to follow….I have a couple of observations:
1. What bank is “local to Davis River City (Natomas) and First Northern (Dixon) are close by, but not Davis based. Wells Fargo is a few miles further, but still nearby in SF. Is “small” or “closely held” and “located within 20 miles” what the group really means by local? Or perhaps it is “what have they done for us lately?”
2. Access to credit when you need it is a very, very critical fundamental tenet to business and municipal survival. Credit at low cost is almost as important, but almost no financial institution will promise rates in the future, unless significant fees are paid to “hold” the rate. If having access to credit is “assured” at Wells and questionable at the other banks, then the staff recommendation may be the right one.
3. Situations and conditions can change rapidly at financial institutions, so the city should not place itself in an untenable situation by promising or contracting to hold its deposits at any one location for long periods of time. The city should be able to move its banking business later, if at the time we need credit, a different institution provides a better solution for us.
[quote]…almost no financial institution will promise rates in the future…[/quote]
They should be able to give the City a guaranteed line of credit tied to some standard rate (e.g., LIBOR). Otherwise I agree with Mr. Smith’s comments. The RFP should have a clause allowing the City to opt out if need be.