Republican lawmakers in several states are attempting to follow in Texas’ footsteps by enacting bills that would subject banks to a litmus test of their treatment of the firearms industry in order to participate in municipal bond financing.
A law that went into effect in Texas on Sept. 1 prohibits state agencies from entering into contracts with companies, including banks, that underwrite bonds unless the contracts state in writing that their policies do not allow for denial or termination of firearms services shall be governed by corporation or trade association.
Similar bills have been introduced in Arizona, Indiana, Kansas, Kentucky, Ohio, Oklahoma and West Virginia, according to Mark Oliva, director of public affairs at the National Shooting Sports Foundation, a gun industry trade association, who said the measures focus on ammunition -Market.
“We are actively working in these states to get legislation like this to end discriminatory practices against the Constitution,” he said. “Our industry, the arms industry, is a constitutionally protected industry. Gun manufacturers do everything in accordance with the law.
What you are seeing is corporate activism from the boardroom.”
The proliferation of these kinds of laws is likely to increase the concerns of bankers on the front lines of public finance.
“From the bankers’ point of view, it’s frustrating to be faced with such restrictions on their businesses that have nothing to do with the municipal market,” said an ammunition industry observer who asked not to be named.
Matt Fabian, a partner at Municipal Market Analytics, said issuers are likely to be more at risk than underwriters.
“Underwriters are no longer making much money for underwriting a new issue, and larger companies are better able to absorb the low issuance fees,” he said. “So if a state shuts out the larger underwriters, it can slightly increase the cost of capital for local issuers. A greater effect is for individual bankers in the affected businesses and associated production, but the companies have less to lose overall.”
None of the bills were handed out from their original chamber. Regular legislative periods have already ended in two of the states: Indiana and West Virginia.
Oklahoma House Bill 3144 was approved earlier this month by a 5-2 vote by the chamber’s Public Safety Committee. A summary of the measure reads: “It provides that a government agency may not enter into a contract with a company for the purchase of goods or services unless the contract includes written acknowledgment from the company that it does not have a practice Has policy or guidance, or policy, that discriminates against a firearms company or firearms professional organization and does not discriminate against a firearms company or firearms professional organization during the term of the contract.”
Adrian Beverage, president and CEO of the Oklahoma Bankers Association, said the group does not support the bill’s current wording.
“However, we continue to work with all stakeholders as the process moves forward,” he added.
State Senator Casey Murdock, the Senate sponsor of the bill, said while “big power banks are choking the business with all that money,” the measure faces an uphill battle. “There are a lot of heavyweights that are going to fight it. All good laws that actually make a difference take a few years to pass,” he added.
A bill in Arizona House (HB 2472) would allow financial institutions to be sued for policies that discriminate against the firearms industry and potentially barred from doing business with the state government. The measure, which lists 21 of the chamber’s 31 Republicans as sponsors, has not yet left the committee. Wyoming’s governor signed a similar law into law last April.
Last year, the GOP-dominated Louisiana Legislature passed HB 597, but Gov. John Bel Edwards vetoed it in July.
“This law will have a significant cost to Louisiana taxpayers and will have no effect on changing a financial institution’s policies,” Edwards, a Democrat, said in his veto message.
In Ohio, HB 297 was the subject of two hearings after its introduction last May, but remains on committee. Senate Bill 482 in Kansas was recommended for passage from committee earlier this month. Kentucky’s HB 123 was moved to the House Appropriations and Revenue Committee last week.
Back in Texas, the bond underwriting business has been shaken since SB 19 went into effect on September 1st. Citigroup, JPMorgan Chase, Bank of America and Wells Fargo, all ranked in the top 10, were identified by bill sponsors as targets of the legislation when it was debated last April.
Goldman Sachs, which pulled out of a deal after the law went into effect, has not subscribed to Texas bonds since then, according to Refinitiv.
Republican sponsors, in their analysis of the legislation, said it was necessary to “ensure that no Texas company with policies that seek to restrict gun or ammunition sales is allowed to benefit from taxpayer dollars through state contracts.”
Citigroup and Wells Fargo have remained active in the busy Texas ammunition market and were among 38 bond companies that have filed letters on behalf of insurance syndicate officials since September, confirming they do not discriminate against the firearms industry, according to a list that was published in the Municipal Advisory website of the Texas Council. Texas bond issuance totaled $52.57 billion in 2021, the second largest amount of debt behind California.
In 2018, 2019, and 2020, Citigroup was the top insurer of Texas debt, but fell to 10th place last year, according to Refinitiv data. Between September 1, when the law went into effect, and March 10, Citigroup ranked 22nd, up from fifth for the same 2020-21 period.
RBC Capital Markets took over the position as the number one underwriter last year after ranking third in 2020 and fourth in 2019. Raymond James had been at the helm since September.
Citigroup’s running municipal insurance business in Texas has filed a lawsuit.
Oliva said the Shooting Sports Foundation’s appeal against the bank’s winning bid for $26.4 million in unlimited tax refund bonds from the Alamo Heights independent school district in November has not yet been resolved. The group sent a letter to Texas Attorney General Ken Paxton claiming “all available evidence indicates that Citi has done nothing to end its publicly stated discrimination.”
Paxton’s office did not respond to requests for comment, while a Citigroup spokesman declined to comment. The deal closed on December 14th.
In 2018, Citigroup announced a US commercial firearms policy that requires new retail customers to adhere to “best practices” to prohibit the sale of firearms to anyone who has failed a background check or is under the age of 21 is old and has no inventory or high priced stock to sell. capacity magazines. The move followed a shooting at Marjory Stoneman Douglas High School in Parkland, Fla. that killed 17 and sparked calls for tighter gun controls.
After the Alamo Heights deal, Citi won other competitive bond issues in Texas — $42.7 million in Commerce Independent School District bonds in January and $52 million in Upper Brushy Creek Water Control and Improvement District bonds with unlimited taxes in February.
Wells Fargo fell from ninth place in 2020 to 14th among underwriters in 2021, data from Refinitiv showed. It ranks seventh with 16 deals for state and local government agencies in Texas as of early September. The company declined to comment on its Texas Muni Bond business.
Bank of America, which announced in 2018 that it would stop financing companies that made military weapons for civilian use, was the lead manager for taxable asset-backed student loans for the North Texas Higher Education Authority in October, a bank spokesman said outside of the scope of the law.
JPMorgan Chase, meanwhile, remains on the fringes of the state’s ammunition market.
“While our business practices do not conflict with these laws, we have elected not to bid on most Texas government contracts at this time until it becomes clearer how these laws are interpreted and enforced,” the bank said in a statement .