Winter 2017 Today - U.S. Bank€¦ · Winter 2017 Bank direct purchases may offer lower risk, lower...
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In this issue: Government Banking Winter 2017 Bank direct purchases may offer lower risk, lower cost for certain debt offerings Route optimization system helps reduce fleet fuel costs County government battles payments fraud with technology, training and tone Bank direct purchases may offer lower risk, lower cost for certain debt offerings Whenever the City of San Jose structures a debt financing, it seeks the lowest risk at the lowest cost, according to Steve Peters, a financial analyst for California’s third largest municipality. On multiple occasions in recent years, that mantra has led the City to arrange for a bank direct purchase of its bonds. For certain types of transactions, bank direct purchases (BDPs) have emerged as a popular alternative to more traditional competitive or negotiated municipal bonds. Banks like BDPs because they don’t have to worry about the higher capital coverage requirements that are found on letters of credit — a result of the Dodd-Frank Act. Meanwhile, municipal bond issuers benefit because BDPs save them time and expense compared to more traditional public bond offerings. Financing employer retirement contributions The City of San Jose began with two bank direct purchases of tax and revenue anticipation notes (TRANs) in 2010 and 2011. The City did its first BDP with U.S. Bank in 2012. In July 2012, U.S. Bank purchased a City of San Jose TRAN in the amount of $100 million to facilitate the prefunding of employer retirement contributions. Security for repayment was a pledge of the City’s 2012-2013 secured property tax and sales tax revenues plus all other legally available General Fund revenues, if required. The City fully repaid the note seven months later. A BDP made sense to address a relatively straightforward and short-term financing need, Peters says. “The City is very conservative, so we weren’t looking to go out long-term with anything like pension obligation bonds,” Peters explains. “It was to our advantage that we didn’t have to market any bonds to the public and undertake the disclosure necessary for a public offering. As such, we were able to avoid drafting an offering memorandum or other disclosure document.” Peters notes this can be labor-intensive and expensive. More specifically, with a BDP, an issuer doesn’t need to publish a notice of sale or pay underwriter, placement agent or rating agency fees. Legal fees are reduced as well. Today
Transcript of Winter 2017 Today - U.S. Bank€¦ · Winter 2017 Bank direct purchases may offer lower risk, lower...
In this issue:
Government Banking
Winter 2017
Bank direct purchases may offer lower risk, lower cost for certain debt offerings
Route optimization system helps reduce fleet fuel costs
County government battles payments fraud with technology, training and tone
Bank direct purchases may offer lower risk, lower cost for certain debt offeringsWhenever the City of San Jose structures a debt financing, it seeks the lowest risk at the lowest cost, according to Steve Peters, a financial analyst for California’s third largest municipality. On multiple occasions in recent years, that mantra has led the City to arrange for a bank direct purchase of its bonds.
For certain types of transactions, bank direct purchases (BDPs) have emerged as a popular alternative to more traditional competitive or negotiated municipal bonds. Banks like BDPs because they don’t have to worry about the higher capital coverage requirements that are found on letters of credit — a result of the Dodd-Frank Act. Meanwhile, municipal bond issuers benefit because BDPs save them time and expense compared to more traditional public bond offerings.
Financing employer retirement contributionsThe City of San Jose began with two bank direct purchases of tax and revenue anticipation notes (TRANs) in 2010 and 2011. The City did its first BDP with U.S. Bank in 2012.
In July 2012, U.S. Bank purchased a City of San Jose TRAN in the amount of $100 million to facilitate the prefunding of employer retirement contributions. Security for repayment was a pledge of the City’s 2012-2013 secured property tax and sales tax revenues plus all other legally available General Fund revenues, if required. The City fully repaid the note seven months later.
A BDP made sense to address a relatively straightforward and short-term financing need, Peters says.
“The City is very conservative, so we weren’t looking to go out long-term with anything like pension obligation bonds,” Peters explains. “It was to our advantage that we didn’t have to market any bonds to the public and undertake the disclosure necessary for a public offering. As such, we were able to avoid drafting an offering memorandum or other disclosure document.” Peters notes this can be labor-intensive and expensive.
More specifically, with a BDP, an issuer doesn’t need to publish a notice of sale or pay underwriter, placement agent or rating agency fees. Legal fees are reduced as well.
Today
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Converting a letter of credit to a BDPLater, in 2013, the City converted a U.S. Bank letter of credit (LC) supporting a publicly offered variable-rate demand bond into a BDP. The three-year LC backed $69 million in bonds. The bonds financed improvements to the City-owned Hayes Mansion Conference Center, and the acquisition and construction of the Ice Centre of San Jose, the largest ice rink facility in the Western United States.
“In addition to not having to update our disclosure, the direct purchase eliminated remarketing risk,” Peters says. He notes there’s always a risk that a disruption like the recession of 2008 and 2009 could dry up the market for municipal bonds. “We also avoided remarketing fees.”
Working with U.S. Bank to convert the LC was an easy process, Peters says. “It helped that we worked with the same financing team at the bank and were able to essentially use the same documents for the Hayes Mansion and Ice Centre deals, which were completed in the same time frame.”
Peters cautions that BDPs aren’t the best structure for all municipal debt financing. “When it comes to long-term fixed-rate bonds — especially those that have a large amount of money outstanding, or needed — generally traditional financing, where the bonds are offered publicly, is going to generate the lowest cost.”
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“It helped that we worked with the same financing team at the bank and were able to essentially use the same documents...”Steve Peters, financial analyst City of San Jose
This information is for general purposes only and represents the opinion of U.S. Bank. It contains information believed to be reliable, but is not guaranteed as to accuracy of completeness. This information is not intended to be a forecast of future events or a guarantee of future results.
U.S. Bank. Member FDIC. ©2017 U.S. Bank. 17-0889-B (11/17) CR-14734677
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Winter 2017 | 3U.S. Bank
Government Banking Today
Route optimization system helps reduce fleet fuel costs With government budgets perpetually tight, any way to stretch dollars without compromising the delivery of essential public services needs exploration. Even with significant reductions in diesel and gasoline prices since the price of crude oil declined sharply in 2014, many public entities have zeroed in on fleet fuel cost as an expense category ripe for savings.
The good news is that after negotiating fuel supply contracts, more savings may occur by optimizing refueling stops. The marriage of popular and powerful Apple and Google route navigation systems with fuel site and price data collection can enable public entities to reduce what they pay for fuel, often by as much as 10 cents a gallon, while further cutting costs by decreasing mileage.
These systems can direct drivers to the most price competitive fueling and service sites that don’t require a significant deviation from the driver’s original route.
U.S. Bank Voyager Mobile AppOne such offering, the U.S. Bank Voyager Mobile App, has the unique needs of public sector fleets in mind. It connects drivers with more than 230,000 retail and private fueling sites, truck stops, maintenance and service providers.
“If fleets are under a mandate to use a specific type of fuel, the Voyager app can direct drivers to find that product,” notes Marie LeMoine, senior vice president and product leader at U.S. Bank.
Similarly, when drivers are required to purchase exclusively from contracted fuel suppliers, Voyager Mobile App can point drivers to those specific suppliers.
Setting route criteriaFor drivers with relatively long distances to cover, the app can suggest routes. This can minimize the distance, regardless of the presence of contracted fuel suppliers along the way. It can also plot the shortest route with contracted suppliers dispersed at appropriate distances, to facilitate periodic fill-ups. Evolving traffic conditions can also factor into the app’s route recommendations.
The Voyager Mobile App is available to government agencies in conjunction with a card-based fuel-purchasing program from U.S. Bank. “That service delivers robust data for each transaction, and features a variety of controls, including PIN, odometer, vehicle/driver ID and customizable pump prompts to reduce fraud and prevent misuse,” LeMoine explains.
The Voyager Mobile App is also available independent of the card program for a fee.
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Distinguishing features capabilities of the U.S. Bank Voyager Mobile App• Print out optimized routes for drivers if the public entity forbids employees to use
smartphones while driving.
• Give route directions on a smartphone by voice, in addition to visually.
• Program the app to identify only fueling sites, such as truck stops that accommodate large vehicles.
• Filter routes according to whether fueling sites also have maintenance services available, including vehicle washing, and pay-at-the-pump capability.
In addition:
• Users can program the app to list only the fueling locations with prices below a given threshold.
• Users can update fuel price data at fuel stops to keep the database current and they can add comments about particular fueling stations that may be of interest to other drivers.
Route optimization systems such as the Voyager Mobile App can’t make the fiscal problems local and state government may have disappear, but they can help fuel budgets go the distance. In addition, many public sector entities are under mounting pressure to reduce fossil fuel consumption for environmental reasons and these systems can help agencies accomplish this.
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This information is for general purposes only and represents the opinion of U.S. Bank. It contains information believed to be reliable, but is not guaranteed as to accuracy of completeness. This information is not intended to be a forecast of future events or a guarantee of future results.
U.S. Bank. Member FDIC. ©2017 U.S. Bank. 17-0889-B (11/17) CR-14734677
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Winter 2017 | 5U.S. Bank
Government Banking Today
County government battles payments fraud with technology, training and tone The executive team for Wisconsin’s Dane County takes every reasonable precaution to safeguard the funds the county collects and administers. “We rely on the public’s trust and this isn’t our money,” says Donna Vogel, deputy treasurer.
With an annual budget of about $570 million, Dane County has 500,000 plus residents and encompasses numerous schools, including the University of Wisconsin- Madison, and 61 cities, villages and towns. Its diligence is warranted. In 2016, nearly three-quarters of U.S. businesses were targets of payments fraud, according to the 2017 AFP Annual Payments Fraud and Control Survey.
Clearly, all organizations need to take steps to reduce exposure to payments fraud. Vogel and her colleagues take a comprehensive approach. “We believe it takes many players to reduce the risk of fraud,” Vogel says. To that end, the county treasurer’s office has forged a strong partnership with its internal IT department in order to stay abreast of technology-based threats.
Vogel and her colleagues also leverage the robust security offered by U.S. Bank, the county’s banking partner. Dane County has deployed dual authorization for electronic payments, Positive Pay reconciliation for check disbursements, and other protections offered by the bank. The county also limits the number of employees with access to SinglePoint®, the U.S. Bank online treasury management system, to only those who truly need it to do their jobs. What’s more, only a few are authorized to initiate funds transfers using the system.
Securing payments through training Employee training also is critical to keeping funds secure, Vogel says. All employees who handle cash, credit or checks, along with their managers, receive training. The county prefers to conduct these sessions in person rather than online. “We know who shows up, and who’s paying attention,” she says.
The training addresses several common misperceptions about fraud. Employees often assume “it’s always big money, it’s always a single event, and it’s always a hacker,” Vogel says.
Few employees want to think their colleagues are involved in fraudulent activity, but internal fraud is a reality. The goal of training isn’t to foster suspicion, but rather to drive awareness of the ways in which fraud often occurs, and of the damage even smaller incidences can inflict, she adds.
Teaching sensitivity to patterns A key component of training is helping employees focus on patterns among transactions, including when payments tend to occur, the amounts, the methods — say, check versus wire — and the parties involved. That way, employees can be alert to transactions that veer from the norm, such as a spike in the amount of a monthly
“We believe it takes many players to reduce the risk of fraud”Donna Vogel, deputy treasurer, Wisconsin Dane County
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lease payment. Occasionally, these variances can indicate criminal activity. Thus, employees should understand their responsibility to question transactions that appear unusual before allowing them to proceed.
As an example, this discipline can help safeguard against business email compromise (BEC) scams, where a criminal sends an email, purportedly from one of an organization’s top executives, commanding an employee to transfer funds immediately to a certain account. Often, the employee is told to keep quiet about the transaction.
“Employee awareness training is critical,” says Steve Helgen, vice president, U.S. Bank Global Treasury Management. BECs are particularly dangerous, he says, because when employees are fooled and initiate the fraudulent payment, the payment instructions to the bank arrive fully authenticated. Nothing appears out of the ordinary.
Employees need to recognize that such a transaction is so outside the norm that it warrants further investigation, Vogel says. Just as important, they need to know they can bring any questionable transactions to their manager’s attention without fear of reprisal. “Our policy is, ‘if something bothers you, tell me,’” Vogel says.
Tone at the top A “tone at the top” that conveys integrity is key in conveying this message, Vogel says. Employees need to hear management emphasize that no theft is trivial, and fraud will be vigorously prosecuted.
Management also needs to demonstrate this commitment in interactions with employees. For instance, Dane County understandably expects employees to report their hours correctly. In return, Vogel says, employees must be able to count on managers not asking them to work off the clock.
At Dane County, along with employees, managers participate in training. They learn how to recognize subtle behavior that might indicate an employee is engaged in fraudulent actions. One example: a worker who won’t go on vacation, or accept help from coworkers at busy times. While the employee simply may be a hard worker, he or she could be covering up fraudulent activity.
During their training, managers also receive instruction on the appropriate steps to take when learning of a discrepancy that might indicate fraud. The goal is to handle simple mistakes simply, Vogel says. “Most people want to do better and aren’t nefarious.”
At the same time, Dane County will take action if it suspects criminal activity. “Mistakes are corrected, and fraud is investigated,” Vogel says.
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This information is for general purposes only and represents the opinion of U.S. Bank. It contains information believed to be reliable, but is not guaranteed as to accuracy of completeness. This information is not intended to be a forecast of future events or a guarantee of future results.
U.S. Bank. Member FDIC. ©2017 U.S. Bank. 17-0889-B (11/17) CR-14734677
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Bill Collins, Head of Government Banking 646.935.4574
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Karen Bigelow 614.232.8074
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Jill Dunn, East 208.383.7208
Government Banking Today
This information is for general purposes only and represents the opinion of U.S. Bank. It contains information believed to be reliable, but is not guaranteed as to accuracy of completeness. This information is not intended to be a forecast of future events or a guarantee of future results.
U.S. Bank. Member FDIC. ©2017 U.S. Bank. 17-0889-B (11/17) CR-14734677
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