Council vote splits over bank transfer

ESCANABA — Despite multiple council members stating they believed transferring roughly $26 million of surplus and retirement funds to the bank where the city’s former treasurer now serves as a vice president was a conflict of interest, the council moved forward Thursday with approving a service agreement with First Bank for the management of the funds.

“I don’t understand the conflict at all,” said City Manager Patrick Jordan.

The rationale for the city going with First Bank was presented by the new City Treasurer Kim Gustafson, who has only served in the position for a couple weeks.

“I feel that we’ve already partnered with First Bank on other investments and stuff, and with Mr. (Bob) Valentine excelling in what he has already done for investments for the city and our public safety retirement board, it makes sense to keep it with First Bank now that he’s the vice president over there with the investment management,” she said.

Valentine retired from the city last month after 28 years. During that time, he served as the city treasurer and human resources director.

“Prior to my departure there had been conversations with the manager and others about whether or not I would be interested in a consulting arrangement post-retirement. My response while I was working here was that, ‘I’ll have to let you know because I’m not sure where I’m going to land post-retirement,'” Valentine told the council Thursday. “And so once it became clear that I was going to be working with the bank I simply circled back and said, ‘If the city’s interested, I will throw that option out.’ I’ve been doing it for 28 years for the city and I thought we had a pretty good track record doing it, so I simply made the offer.”

However, Council Member Ron Beauchamp raised concerns about entering into the agreement, claiming a month or two prior to Thursday’s meeting, Jordan had made him aware there was a possibility this scenario would occur. He also raised concerns over an email included in the board packet.

“It appears to me at least, even though it’s been redacted — the to and from listings on the email have been blocked out — it appears to me the outgoing treasurer had drafted or at least laid the foundation to transfer this money over to First Bank knowing that he would be working for First Bank and be in control of the funds. To me that seems like a conflict of interest,” said Beauchamp.

The email sent by Valentine to Jordan on July 11 stated, “I would personally manage the account, and I would have sole responsibility for the holdings within.” It also laid out the fees for the investment’s management as 10 basis points (one-tenth of a percent of the total assets under management) annually, or approximately $26,000 per year.

During Thursday’s meeting, Jordan stated he had asked Valentine for the explanation in the email.

“The fee quote came down after I left the city,” Valentine told the council.

According to Valentine, to manage the retirement funds, a bank would need to have trust management capabilities. He said only First Bank and Wells Fargo, which left that portion of its services intact after the local branch became Flagstar, were capable of offering the services in Escanaba.

Multiple council members praised Valentine’s money management skills, which they saw as overriding any conflict of interest.

“To throw out a great opportunity because it’s a conflict of interest, I donno. I think I’d go ahead and let it happen,” said Council Member Ralph Blasier.

Because no requests for proposal where sent to the other banks the city has designated as depositories, Beauchamp made a motion to send out RFPs. The motion failed with only Beauchamp and Council Member Mike Sattem voting in favor of the motion.

When it came time to vote on whether or not to enter into the agreement with First Bank, only Sattem and Beauchamp opposed entering into the agreement.

Near the end of the meeting and after public comment critical of the decision, the issue was revisited by both Blasier and Beauchamp. Beauchamp’s primary concern was there would never be another opportunity for a different banking institution to take on the role because they could never compete with Valentine’s experience.

“Certainly another vendor would make a claim (to be better), but the claim would be untestable until we got in there and found out if they were right or wrong — which could cost — and implausible based on what we know from his 28 years of experience. So I think what we did wasn’t stupid, wasn’t illegal, was good for the city — and I can’t prove it,” said Blasier.