REPORT TO COUNCIL
SUBJECT
Title
Action on Amendments to Agreement with Principal Bank for Investment Portfolio Custody Services to the City
Report
COUNCIL PILLAR
Manage Strategically Our Workforce Capacity and Resources
BACKGROUND
In July 2020, subsequent to a formal competitive solicitation process, the City Council approved an agreement with Wells Fargo Bank, N.A. (Wells Fargo) to provide investment portfolio custody services for the City of Santa Clara’s (City) securities portfolio through Wells Fargo’s Institutional Retirement and Trust (IRT) business division. The Wells Fargo agreement, inclusive of all terms and conditions, was subsequently assigned to Principal Bank (Principal) following the acquisition of Wells Fargo’s IRT business division by Principal.
It is crucial to obtain a trusted financial institution to act as an independent third-party custodian to protect and oversee City’s invested assets. The custody services provided include, but are not limited to, settlement, safekeeping, and reporting of the City’s investment securities portfolio, which is managed by PFM Asset Management, the City’s external investment manager in accordance with the City’s Investment Policy. As of March 31, 2025, the City’s portfolio, consisting of high-quality fixed-income marketable securities, totals over $1.1 billion and is held at Principal while all securities are registered in the name of the City.
DISCUSSION
Principal’s (formerly Wells Fargo) IRT business division has been providing custody service to the City since 2005 and has consistently demonstrated its ability to provide excellent value and customer service. The relationship manager and customer service team have remained in place following the acquisition by Principal.
In addition to Principal’s proven outstanding customer service to the City, another key factor in its original selection to provide investment portfolio custody services was its competitive pricing. Compared to the next lowest bid, with five total proposals submitted, Principal’s annual pricing was $24,000 lower, saving the City more than $120,000 over the initial five-year term.
As the initial term of the Agreement will expire on August 25, 2025, staff is exercising the option to extend the term by five (5) additional years through August 25, 2030. Staff is requesting authorization to execute Amendment 1 to the Agreement to increase the not-to-exceed contract amount by $38,000 from $115,000 to $153,000 for the period ending on August 25, 2030. Staff is additionally requesting approval to exercise up to two additional 1-year extensions option or one 2-year extension, which would extend this Agreement through August 25, 2032. There will be no change in pricing; however, the total not-to exceed contract amount would increase from $153,000 to $198,000, including the additional two years to August 2032. This increase is due to the growth in City’s investment portfolio size. Securities held at Principal grew from $720 million in August 2020 to over $1.1 billion at the end of March 2025. It should be noted that the City’s investment portfolio is comprised of citywide cash for all funds, including utility enterprises. The majority of these funds are reserved and/or encumbered to fund operations and capital projects.
City’s investment portfolio grew more than $300 million during this period due to accumulated interest earnings of $63.7 million and increases to various City operating reserves of approximately $245.7 million.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to the CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Furthermore, the action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
The agreement has an amended not-to-exceed amount of $153,000 through August 25, 2030. Funding for the agreement is included in the FY 2025/26 & 2026/27 Proposed Biennial Operating Budget. The potential not-to-exceed amount will increase to $198,000, should the two optional years extension through August 25, 2032 be exercised. Funding for the remaining term will be incorporated into future operating budgets.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Approve and authorize the City Manager to execute Amendment No. 1 to the Agreement with Principal Bank for Custody Services to increase compensation by $38,000 for a revised total maximum amount not-to-exceed $153,000 for the initial term of the Agreement to end on August 25, 2030, subject to the appropriation of funds and approval as to form by the City Attorney; and
2. Authorize the City Manager to exercise options, by an amendment of the Agreement subject to review and approval as to form by the City Attorney, to extend the term of the Agreement for two additional years to August 25, 2032 and increase compensation by $45,000 for a revised total maximum amount not-to-exceed $198,000, subject to the appropriation of funds.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Amendment No. 1 to Custody Services Agreement Amendment with Principal Bank
2. Consignment agreement with Principal Bank
3. Custody Services Agreement with Wells Fargo Bank