Municipal bond underwriters face pro-gun test in Texas

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The nation’s largest municipal bond underwriters will soon begin operating under a Texas law that prohibits them from entering into contracts with the state if their policies are found to discriminate against the gun industry. fire.

Senate Bill 19, one of several pro-gun laws enacted by Governor Greg Abbott, comes into effect on September 1.

The law prohibits any company from receiving contracts from the state or other government agencies valued at $ 100,000 or more “unless the company verifies in writing that it does not have a policy. or internal directives that discriminate against members of the licit firearms or ammunition industries ”.

The new law appears to give Texas Attorney General Ken Paxton the discretion to determine whether financial institutions pass the state firearms rights litmus test.

Bloomberg News

Republican sponsors said in their analysis of SB 19 that it was necessary to “ensure that any business in Texas with a policy that attempts to restrict sales of firearms or ammunition will not be allowed to benefit from taxpayer money through state contracts “.

Some players in the municipal bond industry fear that the measure could be exploited in a busy year of political campaigns.

“The problem is, Texas bonds have to be approved by the attorney general’s office,” said Kevin Twining, co-chair of Locke Lord’s public finance group in Dallas. “The law requires companies to declare that they do not discriminate against the firearms industry.

“Our concern – issuers, bond advisers or whatever – is that we can make that representation, but the MA may not approve it. They can say, “We’re not going to approve. Then you have a failed bond offer and you have to break lots of contracts. “

Even as gun deaths and massacres escalated, Republicans in Texas have touted their affiliation with gun rights advocates, removing legal barriers to weapons.

Texas Attorney General Ken Paxton, who was indicted for securities fraud his entire first term, faces a top GOP challenge from Land Commissioner George P. Bush, nephew of former President and Governor of Texas George W. Bush and son of former Florida Governor Jeb Bush.

Paxton has been closely associated with the gun industry, joining attorneys general of 13 other states in a court challenge to a federal law banning so-called “bump stocks” on guns like those used in the 2017 Las Vegas concert massacre that left 60 dead and 411 injured. Bump stocks allowed semi-automatic weapons to fire more quickly from the sniper’s lair in the resort town of Mandalay Bay.

Paxton has often joined lawsuits against other states, including California, New York and New Jersey, which sought to limit access to so-called “assault rifles.”

“States do not have the right to dictate what is ‘necessary’ or ‘unnecessary’ with regard to constitutional rights, and demonizing certain rifles that are widely used across the country is a violation of the Second Amendment,” he said. Paxton said in a statement involving one of the lawsuits.

Paxton’s office has not responded to calls and emails seeking comment on the actions it plans to take regarding SB 19.

Texas Comptroller Glenn Hegar noted in a statement this summer that SB 19 applies not only to underwriters, but their counterparties as well.

“The new contractual arrangement will require potential counterparties to verify that they do not have a policy (written or otherwise) that discriminates against an entity on the basis of its status as a firearms entity or association. of these and that it will not discriminate against such an entity during the term of the contract, ”Hegar wrote. “If the banks (or other entities) do maintain such a policy, it will probably be difficult for them to sign such a contract in the future.”

During the legislative debate, major banks, including those specifically targeted to limit business with the gun industry, kept a low profile. An industry executive said banks appeared reluctant to lobby against the bill for fear of further targeting.

JPMorgan and Bank of America, two of the lenders cited in the House debate as discriminating against the arms industry, declined to comment on the enactment of the legislation.

Citi, another lender cited in the debate, defended its history of dealing with Texas governments dating back to the 1870s involving billions of dollars in public finances.

“We have determined that the law does not prevent us from serving our customers in Texas because our policy does not prevent us from working with retailers because they sell firearms,” ​​the bank said in a statement. “It just requires that our customers use best practices when selling firearms. We have continued to serve retail customers who sell firearms, including those in Texas who use these responsible practices. “

Another obstacle to state-issued bonds is the Texas Bond Review Board chaired by Governor Greg Abbott, with Lt. Gov. Dan Patrick, Hegar and Speaker of the House Dade Phelan as board members. All are Republicans, with Abbott and Paxton as staunch gun rights advocates.

Hegar, who relies on the big banks to underwrite billions of dollars in annual income anticipation notes and other investments, recently shot another company under the pretext of protecting Israel.

Much like the bill to protect the gun industry, Texas lawmakers in 2017 passed a bill banning doing business with a company that refused to pledge not to boycott Israel.

A federal court declared the law unconstitutional, leading to a narrower definition of those who were required to obey the covenant.

On July 22, Hegar cited the law announcing a possible blacklist of ice cream supplier Ben & Jerry’s and its parent company Unilever for policies Israel considered discriminatory. The glacier has announced that it will stop selling products in the Palestinian territories occupied by Israel.

Chapter 808 of the Texas Government Code defines “boycott of Israel” as “the refusal to deal with, terminate business activities with, or take any other action intended to penalize, inflict economic harm, or limit business relations. specifically with Israel or with a person or entity doing business in Israel or in territory under Israeli control.

“As with all of our enrollment decisions, my office, in cooperation with our research providers, will carefully review the statements and actions made by Ben & Jerry’s and Unilever to determine whether either entity is a suitable candidate. for the Texas list, ”Hegar said.

“The Texans have made it clear that they are on the side of Israel and its people,” Hegar said in a press release that included a pitch for Texas-based Blue Bell ice cream.

Hegar’s office said the controller had not received any campaign contributions from Blue Bell. Spokesman Chris Bryan said Hegar plans to enforce SB 19.

“It’s not a campaign issue,” Bryan said.

“The Comptroller is and will continue to be a very strong supporter of Second Amendment rights in Texas and enjoys spending time with his family in the great outdoors,” said Bryan. “He has made it clear that his office will implement SB 19 as passed by the Texas Legislature.”

During the SB 19 debate at Texas House, sponsor representative Giovanni Capriglione R-Keller said companies such as banks do not have civil rights, a claim that has provoked strong reluctance from Democrats. .

With Democrats alongside the banks and Republicans against business, both parties have experienced a strange form of role reversal.

In the past, Texas has made recruiting businesses its primary focus. But in recent years, Republicans have cracked down on business practices that appear to protect public health, safety, or environmental concerns.

In this year’s ranking of the most business-friendly states by economic news network CNBC, Texas slipped to fourth place after second place in the previous 2019 rankings.

“While it is never good for Texas to fall, the state has always ranked highly on measures most closely related to current and potential business conditions (including number one in terms of labor force). ‘work), ”said Texas economist Ray Perryman, director of the Perryman Group, told the bond buyer via email. “I don’t think CNBC’s analysis has a direct bearing on bond issuance.”

“Obviously, a bill that drastically reduces the options available for financing government needs is not a wise choice,” he added.

One potential complication concerns the border nation of Mexico, which last week sued U.S. arms manufacturers and distributors in U.S. federal court in Massachusetts for damage caused by illicit firearms.

The lawsuit seeks to “compel the corporate defendants to compensate the Mexican government for the damage caused by their negligent practices,” Foreign Minister Marcelo Ebrard said. The Mexican government estimates the damage caused by the economic losses at $ 10 billion.

Texas shares revenue with Mexico on a number of projects along the border, including bridges and waterways.

Advocates for victims of gun violence, who typically receive little attention in Texas, have sought to put the issue in a different perspective during the debate on SB 19 and beyond.

“It is tragic that the elected leaders of Texas ignored the many gunshot wounds and deaths in Texas during the 2021 regular legislative session and made it easier for people to access and carry guns,” said Gyl Switzer, director of the Gun Sense advocacy group, on the second anniversary of the El Paso massacre that left 23 dead and 23 injured.

“We need to do better for the victims, the survivors, the communities and all Texans.”

Four of the 10 deadliest mass shootings in U.S. history took place in Texas.

Texas Gun Rights and other pro-gun organizations have hailed the loosening of gun laws as a major civil rights victory.


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