Texas Legislative and Regulatory Update

During this panel discussion, our experts will give a recap of the developments in the last legislative session. Additionally, they will identify what the pressure points are as well as legislative priorities for the state and their impact on Texas public finance in the upcoming year.
  • Senate bill 19 and 13
  • Revenue and economic development
  • Public initiatives and housing 
  • Resilience planning 
Transcription:

Leonard Jones: (00:08)

Hello. Hello everyone. We're going get started with our next panel, on behalf of Moody's and Estrada Hena Hilsa, I like to introduce our next panel, which is gonna talk out Texas legislative and regulatory update. Tina Arias, Peterman is going to moderate. Thank you.

Tina Arias Peterman: (00:29)

Great. Thanks Lenny. Hi, good afternoon. Welcome again. My name is Tina Arias Peterman. I'm a director with Masterson Advisors and we all drew the short straw. And so we are going to be, I'm just kidding. So excited to be here with my longtime colleagues. Let me introduce my fellow our panelists. So to my left, we have Clay Holland attorney with Hunt and Andrews Curth and he's sitting or next to him is James Hernandez attorney with, ORG, and sitting next to James is Colin Parrish with Statehouse Consultants. Colin has been a strong advocate of our public finance industry at this at the state legislature through CRIF, which is the coalition. I gotta read this coalition for responsible infrastructure finance. So we're grateful to him and his efforts, over these last couple of sessions. So just real quickly wanted to give you guys a rundown of what we're gonna be talking about. So hopefully you don't leave. We are going to, Colin is gonna provide a brief overview of the 87th legislative session. Play is gonna talk about Senate bill 13. James is gonna talk about Senate bill 19. We're gonna have a few questions back and forth. We will leave time for Q and A at the end. And, then Colin is gonna talk a little bit about what we can in the next legislative session. So with that, I'm gonna ask Colin, if you'll go ahead.

Colin Parrish: (02:10)

Okay. Is this on? It is excellent. First of all, I'd like to say thank you for having me. It is always an honor to be here. I've participated in a number of Bond Buyer events. It's always a good time. It's also very humbling cuz as we were walking in the entire crowd from the previous event was leaving. So, it definitely keeps us humble for those of you that stayed. We recognize that we're keeping you from happy hour and we offer you an extremely good time. So, I'm gonna give a brief recap of this past legislative session. It has been a number of months since the last legislative session. So I'm not going to go into extreme detail. All of you I'm sure have had legislative updates and things that are, applicable to your various firms. I'm sure you have had an in depth, crash course in all of these pieces of legislation. The one takeaway that I hope you see when I go through this list, is there are some kind of competing interests legislatively at the same time while we were saying debt is a four letter word and we need to do everything to make sure we don't go into it. We are simultaneously asking the markets to take on an increasingly higher amount of public debt. And that paradigm is very interesting to watch. So a few of the bills as I just wanted to point out HB 1869 was a bill that at one point completely, outlawed, any kind of debt that was not voted, in its final form. There were carve outs for, self-supporting debt, some, emergency notes refunding renovating existing buildings and equipping existing buildings, vehicles, and equipment terrors, TRZ's, and designated infrastructure among other things. So from its initially filed form, we were able to talk about the practicalities of some of these proposals and really get something that was, far less I impactful or not impactful. It was very impactful, far less hostile, I suppose. HJR 99 and prop two, you may be following some of this, this deals with allowing, counties to, fully utilize the tax increment financing zone from, TRZ the Transportation Reinvestment Zones, it's interesting because 115 members did sign onto that bill since it's a constitutional amendment that did pass with 63 out of the vote, the required passage rate is a hundred votes, 115 members signed on in the house. So I thought that was pretty remarkable when the bill was going through, because it really did demonstrate a bipartisan, support of that bill. It is currently tied up in litigation because the lawsuit, I believe says that the, proposition language will is, significant substantially misleading. I'm looking to James, he might have more clarification on.

James Hernandez: (04:46)

Yeah, that's, what's been alleged. I think it's not true, but that's, what's been alleged,

Colin Parrish: (04:52)

Right? They they're alleging that it didn't tell you that it was going to raise taxes, but those of you know, tha, reinvestment zones are just tax increment, that's used, so it's up for debate. It has not been certified yet. Experts expect that it will eventually, some other of the bills dealing with winter storm early were SB3, dealing with, winter storm, early response SB 2154, which changes the makeup of the public utility commission HB 1520, which is rate relief bonds, HB 4492, which was Airco securitization, HB 1510 electric utilities, securitization, HB 1580, which is electric co-op securitization. I highlight those because they took up the vast majority of the capacity of the legislature, but that was an event that didn't even happen until the legislature was well underway. The session was, you know, probably a third done by the time the storm happened. So I highlight that to say next session, who knows what the next jury is gonna be, right? Who knows what's going to change course and really significantly change things. And then I will also point out that there are proposals that come up regularly, HB 35 did not pass HB 35 is an example of a bill that basically said any entity in the state issuing debt, had to take it to the voters. Didn't matter. The source of repayment. It didn't matter whether it was an issuing entity didn't matter whether it was private activity, bonds. They all had to go for a vote of the local jurisdiction. And, that bill has been filed on several sessions consecutively this past session. It did actually get scheduled for a hearing. And I highlight that to say that some of these proposals look good in a vacuum and after they're filed a few sessions, they start to look, from the collective legislature standpoint, more reasonable. And so we can't take those for granted that something that, you know, people in the industry look at and say, oh, this will never happen. This is ridiculous. It's not gonna happen. That they're not going to advance through the system and progress through the system, significantly. And with that, it's probably a good segue into SB 13. Speaking of one of those.

Tina Arias Peterman: (06:53)

Yes, it is.

Clay Holland: (06:56)

Okay. I get the benefit, Thanks Colin for covering the breadth. Now I get to go deep on SB 13, which was a bill that addressed companies boycotting energy companies. And there are two main components of the bill. One of them was a contract of verification requirement for companies entering into contracts with governmental entities. And the other was, prohibition on investment and provisions for divestment, on behalf of state governmental entities that invest funds that, boycott energy companies. So taking the in turn first, there's the contract prohibition. So Texas governmental entities, and that is defined as state agencies and political subdivisions. Political subdivisions is further defined, to include counties, cities and entities that, special district purposes, a special district entity, sorry and authorities absent from that list and pointed out by the attorney general helpfully in a letter that they sent are nonprofit corporations that act on behalf of government entities. So local government corporations are not caught in the prohibition or on the contract provision requirement. So governmental entities who are entering into a contract for goods or services with a company other than a sole proprietorship with 10 or more full-time employees for a contract with a value of a hundred thousand dollars or more that is paid holier, partly from public funds, cannot enter into a contract unless the company signs a written verification that it does not quote boycott energy companies and will not boycot energy companies, during the term of the contract, that contract restriction went into effect when the bill went into effect on September 1st. And so we've been living under that regime now for several months in implementing that the Texas attorney General's office for contracts that went to their office for approval and connection with bond financings, they provided an all bond counsel letter that dictated not only do you have to have these written verifications in the contract, we also want the companies covered by these contracts that are going to their office to provide a standing letter to the attorney general confirming that they can indeed make those representations that they are already making in the contract itself. So they, went to that extra step of, requiring and imposing this standing letter regime, that several financial companies have been working through and providing the attorney general over the last several months. The second component is the investment and divestment provisions. Those are dependent on the control or developing a list of companies that boycott energy companies, and that is an ongoing process. And in fact, just a couple weeks ago, the control or sent out a letter to 19 financial companies, with a request for information to allow them to make verification that they do or do not boycott energy companies, therefore, may or may not end up on the final list. So once the comptroller makes that list, that list will be provided to state agencies and the retirement systems and the permanent school fund are required to look at that list, determine whether they maintain any investments and the prohibited companies, and then are given, a period of time in which to divest themselves of those investments unless they, for fiduciary, reasons are required to maintain that investment. And there are certain other exemptions there that allow them to continue, to invest in those prohibited or listed companies in the event that it would cause the investment, economic harm. So those are the, two components of SB 13. And I think we'll, get into the details and of course that's where the devil lies. So, we'll get into that in a moment.

James Hernandez: (12:02)

Thanks, Clay. Next up is Senate bill 19 and Senate bill 19 deals with, firearms and guns and like Senate bill 13. It has a contract verification requirement. But unlike Senate bill 13, it does not have a, restriction on investments, provision, Senate bill 13 is substantially similar to the no boycott Israel law, which the legislature, adopted back in 2017, which has with the contract verification requirement and the investments, restriction Senate bill, 19 only has the contract verification requirement and, similar to set bill 13. It applies to contracts for the purchase or sell of goods or services between a company with 10 or more employees and a governmental entity. And as clay defined, that is paid for, with, public funds of the governmental entity. And it has a value of a hundred thousand dollars or more, and through guidance that the attorney general, office issued and connected with boycott Israel and that they, reaffirmed, recently with SB 13 and SB 19. We know now that, contract, bond purchase agreements are govern or covered contracts for purposes of all of these statutes. No, boycott Israel Senate bill 13, Senate bill 19. And, one of the things that's been challenging and in dealing with the this law is that there's a lot of rhetoric about what the law says that's different than what the law actually requires. And, there's not a flat out prohibition on companies having gun policies. Companies can have gun policies. What Senate bill 19 says is that your gun policy, cannot have prohibitions on, providing financing for, the manufacturer or sell of guns. You can have restrictions, you can have, heightened diligence requirements before you decide to enter into a transaction to provide for financing, but you can't have a flat out prohibition. And, the attorney General's office has issued some, some guidance on what this means. And, as a result of that guidance, there's several firms that, have, have not been actively participated in the Texas market. But one thing I will point out as clay noted is that, both of these bills apply to, contracts that are, entered into, by a governmental entity. And that term, governmental entity does not include nonprofit corporations. So, there are in addition to local government corporations and, public facility corporations, and other types of governmental entity, non non-profit corporations, there are also conduit corporations that issue bonds for health facilities and industrial, development projects, manufacturing facilities and, higher education facilities and charter schools and things like that. And those conduit issuer, nonprofit corporations are not covered by, this, by any of these statutes as well.

Tina Arias Peterman: (15:24)

So, James, is it fair to say that, if public dollars are being used to support the debt, that that's pretty much the bright line test?

James Hernandez: (15:35)

That's certainly one of the factors that you're look into because in looking at whether or not the contract is a covered contract, one of the factors that you that goes into that analysis is whether or not the contract is paid for, with public funds. And, so, yeah, that's something you would look at. You'd also have to look at whether or not the contract is a contract for the purchase or sell of goods or services. And some of us have tried to argue that bond purchase agreements are not contracts for the purchase of sale or goods or services, but we've not been successful with that argument.

Tina Arias Peterman: (16:08)

So, on that note, when we've first saw the legislation, of course it folks in our industry we thought about underwriting and bond purchase agreements, but the rules are actually even broader than that. And we've seen, we're starting to see potential concerns around particularly long lived contracts because the financial institution be able to make, maybe able to make the representation, on a BPA, which has a very finite term. But when you're looking at things like bank facilities, a credit agreement paying agent agreements, swap counterparties, what are you, what are you seeing in terms of these types of providers?

James Hernandez: (16:57)

A couple things.

Tina Arias Peterman: (16:57)

And that's for anyone.

James Hernandez: (16:58)

One is that is the verification that needs to be made under all of these statutes has to be made at the time the contract is entered into, and it also has to be good for the life of the contract. So with Bob purchase agreements, which have a short life, that's you only have to generally look at, the time the contract is being entered into, but for all those other kind of contracts, you mentioned, it does raise an issue about, can the company make the verification for the life of the contract and for some contracts paying agreements and others that, arguably have a value of less than a hundred thousand dollars, you can stipulate in the contract or somewhere in your bond proceedings, that the value is less than a hundred thousand dollars. And that kind of gets you out of that. But for other contracts like, credit facilities or swaps, the provider, the company needs to be comfortable making that contract for the life of the making that verification statement for the life of the contract, or potentially the contract could become void or voidable, if the statement no longer becomes true during the term of the contract.

Tina Arias Peterman: (18:12)

Great, That's wonderful. So I think one of the things that we're all struggling with is in the comptroller spoke about this. And during his remarks, you have the legislators who are creating the policy, the office of the comptroller is implementing the policy. Thank you. What does enforcement look like?

Clay Holland: (18:39)

Well, in terms of SB 13, we seen, as soon as it went into effect on the contract verification component, I mean, the governmental entities were responsible for implementing it and enforcing it. So you saw, RFPs and RFQs incorporating those contract verifications. And then shortly thereafter, we saw the attorney general step in for contracts that were going before their office. So, they have a hand in the enforcement of that as well, and viewing the public securities. But by and large, there's no enforcement provision, because it's a required contract. And as, retired contract provision, and as James indicated kind of goes to the validity of the contract, if it's not there, it could be void or avoidable, attorneys who are involved in the transactions and our giving opinions regarding the validity will be certainly looking for those in and enforcing the requirement that it that'd be there.

James Hernandez: (19:43)

I should mention clay mentioned the standing letter process, which the AG instituted, back in September. And, that is a additional hurdle that, financial companies, have to and other contracting parties have to have to jump through, but it was actually designed to make it easier. So that issuers, underwriters, Bond council firms and others could rely on re the representation that was being made, and have a centralized place to go look for. So there's standing letters that are posted on the website of the Texas Mac and also with the attorney general and theoretically, that should help sort of with the due diligence that so people can get comfortable without having to go back and individually review individual policies of three or four or five syndicate members who were making the reps in your BPA. And so that, is an additional hurdle, but it was designed to facilitate transactions and make it easier, to get deals done

Clay Holland: (20:47)

On the investment side of SB 13. The comptroller is currently developing the list, and is responsible for developing and maintaining that list of, companies that are boycoting energy companies. And then, that once they're on the list that triggers all the, consequences of dives, and then statutorily, the attorney general is responsible for enforcing, the provisions of the divestment statute.

James Hernandez: (21:15)

But, one thing I wanna point out, I think it's, important to note that even though those inquiry letters went out a week or so ago, there was press coverage last week. My understanding is there actually is no list as of today. There's just a, an inquiry being made. And that's what the statute provides and requires. And, firms have a chance to rebut whether or not, their policies, or at least respond to that inquiry and argue, that their policies do not. In fact, boycott, fossil fuel companies.

Tina Arias Peterman: (21:46)

Yes, and I think the comptroller made that, statement as well that said the, bill Senate bill 13, does state that the comptroller, it is the comptroller's responsibility to create a list. So eventually a list will in theory, a list will exist.

James Hernandez: (22:05)

Correct. And that, the same thing happened, no, boycott Israel legislation. And there's a list that's posted on the controller's website that lists the companies that, have been determined to not be in compliance with the no boycott Israel law. And at some point a similar list will get posted on the website, for Senate bill 13.

Tina Arias Peterman: (22:27)

So I wanna go back to your comment on the standing letter. So, One other, category of provider that we haven't talked about yet, are bidders potential bidders for escrows, repurchase agreements, gigs, those the type of things that, will generally be out for, advance fundings, some of those financial institutions aren't in the bond underwriting business. And so they, they wouldn't, or out of ordinary business necessarily have a need to go through the standing letter process. So any thought on that?

James Hernandez: (23:11)

Yeah. A couple of thoughts on that one is that, some of those, those, products you mentioned are instruments might not be, contracts for the purchase of seller goods. And if that's the case that maybe they're not covered by these statutes, there's attorney general guidance that says that a purchase of investments is not a contract for the purchase of seller. Good. So if it's an investment, if you can characterize the purchase as an investment, then maybe you're not covered by Senator bill 13th hundred 19. But, with that said, I think what would happen on sort of those one-off cases with companies who are not typically involved in the, participating in Texas municipal finance deals, but they're gonna be bidding on a gig or something like that. Then the bid documents would probably specify that they need to come, make those verifications. And, then in order to get your transaction approved by the ag they'll need to individually provide the verifications in their contracts.

Tina Arias Peterman: (24:20)

That make sense.

James Hernandez: (24:21)

If they're covered contracts.

Tina Arias Peterman: (24:23)

Right.

Clay Holland: (24:26)

The same with apply and be true if even if the contract was not one that was going to the attorney General's office, I mean, they'd still need to Include those in the bids picks. And

Tina Arias Peterman: (24:36)

So what's the process for figuring out whether or not it's a covered contract.

James Hernandez: (24:40)

That's a great question. I think right now what's happening is there's sort of a overreaction and determining is that everything's covered and everybody's asking for, or verification statements, regardless of whether the contract is covered or not. I think, we know the bond purchase agreements are, unless the issuer is a nonprofit corporation. So, for other types of contracts, I think you just have to do a case by case, determination or analysis to see if an exception applies, is it a purchase for investments? Is it a contract for the purchase of seller goods? You know, maybe there are some real estate related contracts that would not fall into that category. And there are investment contracts that would not fall into that category. And then you have to look valuation also, you know, is the value of the contract a hundred thousand dollars or more. And I think an argument can be made particularly on the bond purchase agreement side, that we're MIS valuing those contracts, the way the AG looks at it is the amount of the bonds is how they're valuing the contract, but I'm not sure that's really a right way to value those contracts. So you'd have to look at all those factors to see, you know, whether the contract fit within the definition of the statutes or not.

Clay Holland: (26:00)

Yeah and regarding the substantive definitions in the statute, you know, for example, boycott energy company, you know, there is a definition in the statute by the, it's one thing to say what the words say and another to say what it actually means, right. And it's, it's not clear what that means. One of the, kind of the carve outs there in the statute and the definition of boycott energy company is that without an ordinary business purpose, it undertakes certain and activities, that limit commercial relations with the company, because the company engages in fossil fuel energy and does not commit or pledge to meet environmental standards applicable federal and state law, or does business with a company described by that paragraph. And so there, there are some words there that require definition that aren't defined like ordinary business, ordinary business purpose.

Clay Holland: (26:58)

And there are lots of scenarios there regarding, funds that have mutual funds that might have one or two investments that limit investment in energy companies and others that don't, is it do they have to have a blanket policy? Is it one, you know, one, it poisons the well and they can't. So there are definitely judgment calls to be made and analysis that needs to happen. And it's been interesting that, in the development, as I said, initially went into effect the onus was on the companies to go through that analysis and decide and interpret what they thought these words meant. And then the attorney general came along with their standing letter requirement and in their standing letter, they refused to allow any qualification or elaboration on what the parties to the agreement thought those words meant, because they, it needed to just repeat what the law said and that's that you can't put your gloss on it. You're gonna be bound by whatever the law is as interpreted by those enforcing it. And so that's been interesting and now we've come to the stage where the comptroller is is going to have to put a gloss on what that means as he puts the list together of covered companies. And you can tell, from the questions that were asked to the financial companies that received the letter already, so some of the questions were about, commitments or pledges to meet environmental standards that go beyond applicable federal and state law. Are those commitments mandatory? How are they monitored internally? What are the consequences for not me eating those commitments, do they have written policies and procedures or guidelines that restrict investments and energy companies, and how is the company's leadership involved in making those determinations? Then lastly, there was a request to list all, mutual funds and ETFs and other publicly traded securities that had restrictions on investment in energy companies. So, it's kind of an evolving standard. And, it'll be interesting to see what it ends up with with respect to the energy companies, at least from the controllers process.

James Hernandez: (29:25)

Well, while these bills were moving through the legislative process, we were trying to get consistency in the two bills and the ordinary business purpose carve out in Senate bill 13 is the same carve out that's in the no boycott Israel statute. And there's some case law that actually addresses that some first amendment challenges to the no boycott Israel statute. So you can pull that up. And the attorney general has filed briefs in that litigation taking, analyzing what the term ordinary business purpose means. And essentially they said it means, taking actions in the ordinary course of business. And we had hoped that we'd be able to have consistent.

Tina Arias Peterman: (30:02)

They came up with that all by themselves.

James Hernandez: (30:06)

No, no. There's actually some.

Clay Holland: (30:08)

That was very careful legal analysis.

James Hernandez: (30:09)

There's some bankruptcy case law that they alluded to, which uses a similar term. And, then I can get you sites figure anybody's interested in this to, if you wanna, up to run that trail down. But we had hoped to have the same carve out in Senate bill 19, so that implementations of the laws would be similar, but unfortunately the carve out in Senate bill 19 is different. It's a traditional business reason carve out. And that traditional business reason has to be specific to the customer. And the AG has issued some guided in saying that you can't have a quote unquote blanket, gun restriction or gun prohibition that is specific to the customer. So there has to be some customer specific elements, undergirding your policy if you want it to pass muster under Senate bill 19.

Tina Arias Peterman: (31:01)

So Colin. We are all wondering, first Israel and firearms and fossil fuels. Do you anticipate a continuation of this type of legislative practice of trying to regulate behavior?

Colin Parrish: (31:23)

Well, first, so let me thank whoever thought I looked significantly dehydrated. If this gives you any indigestion, come up, you can have some water and take your pills to settle your stomach, but yes, it's not only going to be a situation where you have a clarification of these pills. 13 and 19, I expect that if the perception from the legislature is that, you know, there are too many people taking advantage of the loopholes or the ways the bills are structured. There's going to be clarification to make it more difficult and close some of those loopholes. So you're going to have that. You are also going to have the fact that now really they started in 2017. Now that you've had a few sessions where this, philosophy through policy, is being applied. You're going to see people start to choose more things that they're interested in. One of note recently, there's a representative out of Baytown, representative Brisco Kane sent a, cease and desist letter to a couple of my on profits and a financial services firm, because they had issued clarification that said some I'm gonna paraphrase. So good thing. I have my lawyers here to protect me. It basically said, because of laws that states had recently passed, we will pay for your transportation for those women's health services that you should require in a nearby state, basically saying that since Texas has passed, that will drive you out of state for those, those, health needs. He has now said that when he got a Grumpi letter back from these nonprofits and the financial services firm, that he's going to pursue legislation to that effect. So now you've taken Israel, firearms, fossil fuels, and you've thrown a garnish of abortion on that. Right. And that is going to be every single thing that people want to start, pushing for. So they can go back to their voters and say, we're protecting you for these things. Or we're ensuring that these things are happening. They're going to start, coming and more often, and we're going to need further clarification if the takeaway is call your lawyer, right? Because it, when, in doubt, you need to call your lawyer. There's some good ones here, but there's also some in the audience, because to that point, the things that are happening in Ukraine at the moment, right, we have a bill that was past this last session. It was SB 2116, it's a Texas lone star protection act. And it, and essentially says, you know, public entity may not contract with a company who's headquartered in China, Iran, North Korea, Russia, or a designated country. Well, I'm pretty sure that, if enough things happen that the governor who is the designator of you know, bad countries may want to throw a few more on there, right. Then how do we apply those? How do we, go through and deal with those things. So, yes, it is bad and it's going to get worse.

James Hernandez: (34:21)

I think that's a great point. I mean, I think the key takeaway is elections have consequences and winners of elections get to implement policy changes that align with the choices of the folks that voted for them. And, we've seen now that the use of these Statute and local government contracting power is one way to, kind of implement those policy changes that you favor, that your constituents favor, who put you in office. And, I think we'll see more of that. In 2023, not only to tweak, some of the loopholes perhaps, but also in response to some of the, first amendment challenges to the no boycott, Israel's statute, there's a lawsuit pending right now out of Houston, where, the statute was found to be unconstitutional. But the, judge's decision was a very narrow decision. And the injunction that was issued was very specific. So it only applied to that one particular contractor, that case still has to have a trial on the merits. And so there could be a broader injunction if ultimately, but I suspect the legislature will take a look at that case and tweak the law so that it fits, within the ruling and it's no longer unconstitutional. And then there will be additional policy preferences of the winners of this next election who will, I thank look at the success of Senate bill 13 and Sanate bill 19, and say what, let's try to, achieve some additional policy goals with the state and local government contracting powers.

Colin Parrish: (36:06)

I think you will likely see some religious freedom, items added. I think you will, depending on what stage of the COVID curve that we are in at the moment, I think, the third call, special legisla session did have a bill that, prohibited employers from having any kind of, vaccine mandate or verification process. I expect, depending on where we are on the curve at the moment, I expect you would see that sort of thing as well present,

James Hernandez: (36:30)

Right. And then I think these, statutes also will get exported to other states. I mean, I think that's already happening.

Clay Holland: (36:37)

You see that the energy companies have spread quite a bit. And the same thing happened with the boycott Israel provision. We definitely expect that.

Colin Parrish: (36:46)

While, I don't think while it's clear to me that the fossil fuels bill in particular is not a red or blue issue, the SB 19 firearms bill could be split more of a red blue type this, but you could see the counter bills being filed in what are traditionally blue states, right. Where, okay, you must have a policy that X, Y, Z, and that would further complicate, things for folks that do things in states other than in Texas.

Tina Arias Peterman: (37:12)

So I'm gonna take us back to something a little more technical and tactical. James and clay, in your role as bond council, how have you seen issuers handle competitive sales with respect to these firms that may not be able to make the certification? We are a capitalist economy. More participants is generally better. And, particularly with large competitive sales. I mean, some of the firms that at this point are not doing business in the state were historically very significant buyers of competitive Bonds, competitively bid Bonds.

Clay Holland: (38:01)

I don't know that there's much to do other than include the requirements and the notice of sale and insist that the bidders make the verification.

James Hernandez: (38:09)

And one of those firms has quote unquote, reentered the market. And I think, you know, with the standing letter process that the AG has established, you know, that was put in place so that if and bond council and, underwriting firms and others could rely on a statement from a senior officer of these companies that their verifications are true and correct. And so I think if a company has a standing letter on file that should be an indication that you can, award the bid to that company. Now I know that there's some, additional diligence that's going on where, additional questions are being asked for firms that have been named in the press, or that may be perceived as having SB 19 problems and now perhaps even SB 13 problems. So I think that sort of unofficial, kind of check and balance and guidance and due diligence will continue to take place. But, there's still that standing letter process, which the ag has blessed, which should give some comfort that awarding, you know, a bid to any company that has a standing letter on file that has not been withdrawn, is something that should get approved by the AGS office.

Tina Arias Peterman: (39:27)

So there's not really, if you post your standing letter in theory, you're supposed to be good, right?

James Hernandez: (39:36)

Yes.

Tina Arias Peterman: (39:37)

We'll see. Okay. So I'm gonna bring us back to, what are some things that our issuer clients, and as constituents that we can do to help support our industry. So Colin, in some of your introductory remarks, you talked about out some of this legislation, for example, all debt, including, self-supporting or revenue debt must be voted, as our issuers, what can we do to help educate our legislators, what that would do to our ability to fund our infrastructure that is critically needed.

Colin Parrish: (40:20)

Yeah, I think the main thing is to be active, not just in your community, but with your elected officials at just the local level and, state level. Because a lot of the times when, let me back up on the advocacy front, it's important to be there because this is a complicated it subject matter, right? It is not as cut and dry as voted dead, good, non voted, dead bad. And to that point, you know, when the CRIF organization you mentioned earlier was formed, we realized that it was many times a misunderstanding of the mechanics that caused the problems with the legislation. So CRIF was formed not to advocate for, or against particular measures. It was there to be a resource to clarify for those legislators and or staff about how things worked. And, that went a long way to help diffuse some of the incredibly bad legislation.

Colin Parrish: (41:14)

As we just talked through how it worked and SB 13 and SB 19 in their filed forms, if you ever want to fall out of your seat, just go back and look at the file bills and imagine what that would've done. If they passed as is what it would've done to your, to your industry. So to that point, being early engaged with your local elected officials, and probably most importantly, your state Senator and state representative to just talk through the issues. Because when you talk through the fact that look, this doesn't necessarily represent a increase on your voters tax bills, we understand those pressures, but we also have to look at how the system runs efficiently, how you pay for maintenance, how would you do X, Y, and Z that you need communicating those things early? So that all of a sudden, when you walk through the door saying this is going to destroy my industry, you're not, coming in as the evil, greedy self-serving, whatever it is that you are.

Tina Arias Peterman: (42:11)

So we have about five minutes left before they open up. Cocktails wanted to offer up if we've got any questions in the audience and keep in mind, we all would like to be employed after this. So go easy on us, please. Any questions? No. All right.

Colin Parrish: (42:32)

It's got to be one.

Audience Member: (42:41)

As issuers we've been advocating on these issues. But we felt a little bit alone and I'll tell you the legislature certainly doesn't listen to the cities. So if you, and maybe everyone here lives in a big city, I don't know, but get your rural clients to go talk to their folks. Those are the people from municipalities who have power. They don't listen to big cities, just, so if we have reach across the state with some of our smaller local governments, they're are going to have more influence than Dallas will or Houston or San Antonio.

Colin Parrish: (43:21)

I think it is less of a I think a urban versus rural environment than it was in the past. But I think your point is exactly right on not every issuer is a great advocate for every elected official. And so also recognizing and being situationally aware is probably a critical, so.

Tina Arias Peterman: (43:47)

Right.

Audience Member 2: (43:50)

If an issuer gets a low bid from a company that says, I can't make the verification, and they don't accept it, are they exposed to a damage action for depriving the company's, civil rights and the first amendment, under section 1983 or otherwise, does that mean, does the issuer have any or risk if it's even though told to do so by the legislature, if it is infringing on the first amendment rights of a bidder?

James Hernandez: (44:31)

The first question I'd ask is what do the bid documents say? Does it say that we're only gonna accept, you know, bid from a company that can make the verification or not? Yeah, I mean, I would say then the issuers less at risk at rejecting that bid for, not being, not in comply with the bid requirements, but the larger point you're making about the first amendment challenges is an important one, because I think what we've seen with the litigation that's been filed, the federal litigation that's been filed on the boycott Israel challenges is that there are significant first amendment issues with that bill, with that legislation and Senate bill 13 is cop. I mean, it is a mirror image of no boycott Israel. Senate bill 19 is a little bit different, but I think it has many of the same issues. So, I think that there are significant first amendment, issues with whether or not those, all of these laws are constitutional or not. But, our legislature has shown that it's not shy about pushing the envelope when it comes to constitutional issues and being sort of on the forefront of what is, or is not constitutional.

Tina Arias Peterman: (45:51)

And, Rick, on that note, these bills apply to all industries and all sectors. It's not just ours. So the, case that James was, was mentioning is not even in the financial services arena.

James Hernandez: (46:08)

The most recent case out of Houston is a, an engineer that had a yeah.

Tina Arias Peterman: (46:13)

He and air conditioning or something like that.

James Hernandez: (46:14)

Routine engineer contract with the city of Houston that, could not make the, no boycott Israel verification or refused to make the no boycott Israel verification and, sued over it. And, similar to the earlier legislation back in 2017 involving Fluville ISD, of the same sort of arguments were made in the Fluville case that those were sole proprietors. So it was fluville and some other school district and colleges, those were all sole proprietors. So when that, when the statute was found to be unconstitutional back then, well, what did the legislature do? They, they changed the law so that it no longer applies to sole proprietors. You have to have a company with 10 or more employees. So now if, fast forward to this city of Houston case that involves this engineer, I think if you read the, that judge's decision, there's a way to modify the no boycott Israel statute and likewise, the Senator bill 13 to fit within that rule. So that if that same judge was making the determination, I think would determine if you made those changes. It would not be unconstitutional, but I say all this, this is before the trial on the merit. So it could be that as the record is developed further, he may find some additional reasons for not liking the statutes or not finding, requesting the constitutionality of the statutes.

Tina Arias Peterman: (47:37)

So I hear I'm hearing two takeaways. One is as clear as mud, nobody really knows it. It's all evolving. And we heard the comptroller say that very thing. And the in James, I think you said it best elections matter. So and elections have consequences. So with that, concludes our panel. Thank you everyone.