Council incumbents defend choosing Chase Bank over credit unions

Less than a week after Council voted to approve a three-year depository services contract with JP Morgan Chase, much to the disappointment of the Occupy Austin movement, Council members up for re-election have been busy defending their votes at candidate forums.

Under the terms of the new contract, which was presented to Council three weeks after they passed a resolution directing staff to look into the possibility of shifting the city’s banking obligations from Bank of America to smaller banks and/or credit unions, the city will pay an estimated amount not to exceed $624,777 over 36 months, with two 12-month extension options not to exceed $230,364 for the first option and $308,507 for the second. State law requires that no municipal depository contract exceed a term of five years. The city’s current contract with Bank of America expires on May 31.

At issue for the Occupy movement and many others, including several Council members, was the role big banks, many of which were responsible for deleterious monetary practices that led to the 2008 recession, will play in the life of the city and its government. In an interview with KUT radio last month, Council Member Laura Morrison said the city has a responsibility to look at the consequences of its banking practices and partners just as individuals do.

 

“You know there’s been a lot of really important dialogue over the past six to 10 months about the whole issue of banking and choices that we’re making personally when we choose our banks and what we’re supporting,” Morrison said. “So, it has been raised as a question about where the city sits in all of this.”

 

The problem with moving city money to a credit union is that none of them has the capacity to handle the number of transactions or the amount of money the city deals with annually.

According to a memo sent by Interim Chief Financial Officer Elaine Hart to the mayor and Council members March 19, the city’s banking needs are too complex for credit unions to handle. The city has 32 separate bank accounts. Annually it deposits 1.3 million checks, issues $750 million in checks and $500 million in payroll checks, does 4,000 wire transactions, and deposits more than $5 billion.

In addition, the minimum collateral the city would need a banking institution to provide is $10 million. Hart said staff spoke to a local credit union and found that it could only provide collateral up to $250,000.

“Their services are really geared toward consumer services; they have limits on how much they can loan of their assets,” Hart told the Council. “They told us they couldn’t do the depository services.”

Council ended up voting unanimously in favor of the deal with JP Morgan Chase (with Morrison absent) but only after Council Member Bill Spelman made it clear he was “very unhappy” to make the motion to approve it.

That comment and that motion only seemed to stoke the irritation of those opposed to the move, including many of Spelman’s opponents in the race for Council Place 5 and members of Texans for Accountable Government, which held its Council candidate forum Monday night.

At that forum Spelman was asked by moderator Norman Horn why he voted to approve the agreement.

“Shortly after Occupy started I brought in the city controller and chief financial officer and asked them if we had a chance to avoid Chase, Bank of America, and Wells Fargo  – the only choices I’d heard yet,” Spelman answered. “They came back and said there’s no way to avoid them if we go to one bank. But if we go to several banks, we won’t be able to keep track of the money because we don’t have the control procedures for the cash. I didn’t want to go to those three banks but I didn’t see a reasonable alternative short of losing millions of dollars.”

This didn’t seem to satisfy the crowd, nor did it satisfy Place 5 challenger John Duffy, a self-described anarchist who spoke out against the Chase deal last Thursday.

After pointing out what he called the “many, many crimes” perpetuated by those larger banks, Duffy said Monday, “When the city manager comes back after 20 days on an RFP that was set for 60 days it seems like he’s not working very hard to reach out to form relationships with these alternative banking institutions.”

At Saturday’s Austin Progressive Coalition endorsement forum, meanwhile, Mayor Lee Leffingwell responded to complaints by saying Council’s hand was essentially forced by logistical and time issues.

“There was a time crunch,” Leffingwell said. “We do $5 billion in transactions every year, a lot of them electronic, and very few banks can handle those kinds of transactions. The lowest bidder was JP Morgan. We picked the best deal for the citizens of Austin.”

Another Council member running for re-election, Mike Martinez, told In Fact Daily after Thursday’s vote that he’s “optimistic we can figure out a way to invest our funds and hold our cash in accounts that are more localized as opposed to big national and international corporate banks.”