On tonight’s council agenda is an item that would authorize the City Manager to execute an agreement with Wells Fargo Bank for the provision of banking services for a term of five years, with the option of annual yearly extensions thereafter.
The contract is drawing the ire of many residents who argue that Davis should keep banking with local banks, rather than sending huge amounts of city money out of the area. Money that stays locally achieves more and works harder for our city, most sustainable models will argue.
Davis has roughly 25 percent fewer financial institutions than Woodland.
A Facebook page entitled, “Tell the City Council that we should keep our city’s banking local!” was recently created arguing that Paul Navazio, soon-to-be acting City Manager, is recommending for “the council to take 15 million dollars of its business to “the lowest bidder” bank – a large multi-national conglomerate, Wells Fargo.”
“By recommending this, he is depriving our local banks of a fair chance to even make a bid for our city’s business, and is taking 15 million dollars of business out of our local economy and giving it straight to Wall Street,” the Facebook Group created by local resident Bernie Goldsmith says.
We have often argued that investment in local business keeps local monies local, and using that principle, Mr. Goldsmith argues the same point.
“You all know that shopping local and supporting local businesses and agriculture is important, but shopping local for your financial needs is perhaps the most important step of all – by taking our savings to local banking institutions, we make sure that this money stays in our local economy in the form of local home, auto, and business loans,” he says.
“Local banks bidding on this deal are prepared to keep this loan local for its entire duration,” he continues. “Their financial health will thus be tied to the financial health of our local community.”
“Local reinvestment acts have proven time and time again that a city keeping its business with local firms increases tax revenues and ensures a vital and resilient local economy,” he added. “These policies pay real, measurable dividends.”
The city staff report acknowledges the long-existing relationship between the city and local banking entities. “The City of Davis has conducted its banking business with the local branch of a major banking institution for over sixteen years,” says the staff report. “It has been a very positive relationship for the City, and we have been satisfied with level of services provided.”
However, now the city has sought an RFP. According to city staff this was “due to the length of our association, and consistent with the City’s fiduciary responsibility to ensure cost-effective services, a Request for Proposals (RFP) for banking services was issued to all of the banking institutions with branches located within the city limits.”
There were several requirements in this RFP, but some had to do with local community involvement.
“Information regarding each bank’s financial condition, related experience and commitment to the local community was also requested,” the staff report argued. “The maintenance of a branch office in Davis was made a requirement.”
A key note is made that several of the proposals were “of high quality, and clearly demonstrated the ability to provide the city with state-of-the-art banking services.” Furthermore the staff report adds, “It became apparent through staff’s review process that among the top-group of proposals, there was little differentiation between range of services offered, and individual institutions’ ability to serve the needs of the City.”
The staff report adds, “In addition, the fee structures included in most of the proposals were very similar, tightly grouped, and would generally result in annual costs that are well-below the costs of the City’s current banking services and – indeed – below the threshold requiring City Council authority.”
So given that, why not staff local – assuming one of the local banks offered a comparable proposal?
It appears that it comes down to credit, and ability to secure short-term credit.
“As a result of the lack of differentiation in both services and costs, the evaluation focused on two main factors. These include experience in providing full-service banking to comparable public sector agencies, and the ability of the banks to provide access to short-term credit on favorable terms. The latter has become increasingly important, given the difficulty in accessing credit, and the city’s need to secure short-term credit to provide bridge financing in support of major utility capital projects,” the staff report argues.
What the staff report may be alluding to is problems that one of the local banks had getting credit following the banking crisis. It is unclear if that is still a problem and the staff report does not lay out it explicitly.
However, Mr. Goldsmith is crying foul.
“When Paul Navazio made his presentation to the counsel, keeping our city’s banking business local wasn’t even considered by his office,” he writes. “He reduced it to simple numbers – who offers the best rates.”
“To make matters worse, we don’t even know that Wells Fargo indeed offers the lowest rate,” Mr. Goldsmith adds. “According to several local banks, his office didn’t even submit enough information to allow them to bid on the City’s business. He isn’t even giving them a chance to play.”
David Thompson of Neighborhood Partners, in a letter to the city council that has circulated through out the community, argues for an additional benefit of local investment. He noted that First Northern Bank has made at least four grants to fund affordable housing through their role in the Federal Home Loan Bank.
On the other hand, he does not believe that Wells Fargo has ever made a major grant for affordable housing in Davis.
“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,” Mr. Thompson writes.
The $327,000 equity investment was used as leverage to allow ERC to borrow in total about $11 million dollars,” he continued.
“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,” he writes. “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,” he continued.
As Mr. Thompson argued, this is about more than just costs to the city. There are a number of other relevant factors that should be the basis for the contract.
—David M. Greenwald reporting
The City of Davis should do business with local businesses. The big guys can always undercut the locals. The big guys would love to see the locals out of business. Why can’t our city council figure this out?
This sounds fishy. Who is our contract with now?
Why go to the time and effort of an RFP if it isn’t complete? When was the last time an RFP for banking was done? Why wasn’t an RFP gone for attorney services? More questions than answers!
Yolo Federal Credit Union , local and does a great job !
How much would the City save and/or what additional services would/could Wells Fargo provide?
I bank at USE because I don’t like WF or B of A but if the City has a legitimate reason to use a bigger bank or if WF can provide services for a substantially lower fee I would not have a serious problem. Yes it would be nice to keep the money locally, but the reality is that no matter where you put your money banks generally move it around. I had a mortgage with First Northern some time ago and they sold it off to Chase. THat was the last time I dealt with First Northern (Chase were slime balls and made my life miserable even though I paid by direct deposit every month). My mortgage is now with USE, not completely local since they are around the State, but I like credit unions.
If the City has a rational argument I’m all ears.
Then again our CC’s recent track record does not make me optimistic that they know what they are doing.
“A federal judge in California recently ordered Wells Fargo to pay customers more than $200 million for what he considered unjust and deceptive overdraft practices.
“Wells Fargo constructed a trap — a trap that would escalate a single overdraft into as many as 10 through the gimmick of processing in descending order,” U.S. District Judge William Alsup wrote in a 90-page ruling.” Ref. [url]http://www.google.com/hostednews/ap/article/ALeqM5isFgeTW6iZmXxNqUpxpJ0XKQLQTgD9ICDC0O1[/url]
See my post above. Wells Fargo is not a good bank. They cheat their customers.
I have more questions than answers at this point. The biggest issue, as I understand it, is that we are on the verge of borrowing more money for our new surface water and new waste water facilities than any City our size should ever have to borrow, and the issue is who can give us lower interest rates on those loans. At least that is how Paul Navazio described the problem during our last council meeting. Given the amount of money involved, he said that he feels that this is an important concern.
At the last meeting I asked to schedule discussions with our bond council in order to get a better understanding of the situation. I have heard nothing from Mr. Navazio concerning this request.
We finally received memos (an hour and a half before the meeting) detailing the difference in cost of our anticipated loan needs according to the various proposals from different banks.
I’ll be able to discuss this after the meeting tonight.
Sue:
Wouldn’t the City issue municipal bonds (tax free and at lower interest rates) for a waste water plant? Or is the amount too small.
Either way they ought to be talking to more knowledgable people than the folks at Wells Fargo (in addition to being crooked they aren’t that bright, though either are the folks at First Northern). I would go with competence over locality. I might know some people who could help.
Dr. Wu,
The staff report made reference to a bridge loan. I Paul has not made time to talk with me about this item yet.
I’d love advice, but you would have to e-mail me because I don’t know who you are.
[quote]”Yes it would be nice to keep the money locally, but the reality is that no matter where you put your money banks generally move it around. I had a mortgage with First Northern some time ago and they sold it off to Chase.”[/quote] Apparently this is not unusual. We got a US Bank new home loan this Spring (after months of screw-ups, delays, etc. even though we had excellent credit). Imagine our astonishment when we received a notice from Fannie Mae/Freddie Mac that our mortgage had been sold to them BEFORE OUR FIRST PAYMENT EVEN CAME DUE!
I’d say we should join the boycott of the big banks because they scammed the system and helped crash our economy–then took the bail-out money, used it to buy Treasury notes and make foreign investment–and still are refusing to provide home and small business loans. Why reward legalized piracy when we can support a local bank
I’m curious why conditions for a one-time “bridge loan” would drive the decision about which bank would better serve the City!?
Dear All: Here is what I sent to the Mayor and City Council.
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?
Second and last section
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: NP worked with River City Bank to obtain a $477,000 grant for affordable housing for Cesar Chavez Plaza.