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Hermosa Council Approves New Banking Contract

The lack of a formal proposal process to select banking services had some on the council questioning the city's transparency.

The Hermosa Beach City Council approved the city's new banking contract Tuesday in a vote that had two councilmen questioning the city's lack of formality and transparency in choosing the city's banking services.

In a 3-2 vote, the council approved a new five-year contract with incumbent provider Bank of America, which was considered along with 19 other banks for the contract. Mayor Pro Tem Kit Bobko and Councilman Michael DiVirgilio cast the two dissenting votes.

In recommending a new banking services contract, City Treasurer David Cohn said that staff reached out to 19 banks in the area and considered each based on criteria including the safety of deposits, experience dealing with municipalities, willingness to commit to a five-year contract, pricing and branch proximity to the city.

"Nobody had an advantage; it was a level playing field," Cohn said.

However, at least one bank, which sent a representative to Tuesday's meeting, said that it did not have a fair shot at the contract, nor an opportunity to submit a proposal.

Representing Citibank, Janice Webb told the council that the Citibank employee city staff said they had reached out to may not even be an employee at the bank. Webb also cited Citibank's extensive experience dealing with municipalities in California. 

"I would have welcomed the opportunity to submit a proposal on behalf of Citibank," said Webb. "It is unfortunate, that for whatever reason, the bank was not able to submit a proposal."

Webb's statements, in addition to Chase bank being excluded from the process, had DiVirgilio and Bobko questioning why there was not a formal and transparent public review process utilized in evaluating the new bank contract.

"This is why you do RFP's... What we do in this city is that we are transparent," said Bobko. "Anytime there is a process where we do not do that, people have reasonable grounds for suspicion and they wonder who in fact is making the decisions and why they are making them."

Councilman DiVirgilio called the whole process "sloppy" and cited hundreds of pages of emails between city staff and banks that he requested through a formal records request.

"What I saw was really uncoordinated work," DiVirgilio said, adding that many banks wrote back asking if there would be a formal RFP process. "You have a sloppy process, you get sloppy results," he said. 

A motion by Bobko to direct the treasurer to compile a more complete report and give Chase and Citibank the opportunity to compete did not garner enough support from the council to move forward.

Those opposed to Bobko's motion said that the new report would be a waste of valuable staff time and that banks already had plenty of time to get involved with the process.

"I think these institutions had the opportunity to compete," said Councilman Howard Fishman. "I don't believe anything has been done behind curtains."

Mayor Jeff Duclos agreed that the process had been thorough.

"I think to suggest that due diligence has not been done here... is just completely inappropriate and not correct," said Duclos.

In the end, Bank of America was chosen to provide the city's banking services.

A secondary motion by Mayor Duclos mandating that future bank service contracts go through an RFP process passed unanimously, but with some reservations from Bobko and DiVirgilio.

"When we had the chance to do it right, we chose not to," said DiVirgilio. "We get interested in following a process after we have violated it," he said.

A New Bank Contract

By landing a 5-year contract instead of the current 1-year contract, Cohn said that the city will save at least $24,000 per year in bank fees.

"The service fees are gone. Zero. Period," Cohn told the council.

Compared to its previous contract, the city will benefit from an increased earnings credit rate. This rate, set at .50 percent, is an increase from .15 percent, which the city was receiving in previous contracts.

In addition, the city also expects at least $22,000 per year in rebates from the bank when the city's e-Payables credit card system is fully functional. The system will allow customers to pay the city via credit card instead of paper checks.

In choosing a bank, Cohn also cited the city's dependence on coin-operated parking meters, which generate around $2 million per year in coinage that needs to be transported and deposited into a bank.

"We had to be sure (banks) either had a branch in the city or some means by which we could get $2 million a year deposited safely," said Cohn, adding that the Hermosa Beach Police Department currently escorts the money to the bank.

Cohn also added that switching to a new bank would cost the city around $75,000.

"It would be like uprooting a 70-year-old oak tree," said Cohn. "It is very expensive to move banks when you are dealing with municipalities."

Jeff Cohn October 11, 2012 at 10:50 PM
Sloppy? Do you have a personal issue with David Cohn Mr. Divirgilio and Mr. Bobko? Aren't you being hypocritical about the City Treasurer lacking transparency in the bank bidding process of 12 banks? Correct me if I am wrong but you are the same to 2 councilmen that negotiated a $17.5M settlement with any transparency and 1 oil company? You seem to think your backroom oil deal is justified because of the ongoing litigation but you did brought in a 3rd party without any bidders. Your lack of due diligence and transparency on this deal is appalling and speaks for itself. We are talking about saving money in a banking relationship of $50,000 per year in banking fees vs a $17.5M check you wrote without any bidders while jeopardizing the health and safety of its citizens. I think the two of you have some explaining to do to your constituency. Your hypocritical voting record speaks for itself. E&B loaned the City of HB $30M to settle the lawsuit with Macpherson. How many companies got to bid on this? Only 1 company sourced by Gary Brutsch and Michael Divirgilo and Kit Bobko. Why doesn't the LA Times investigate this?

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