A Texas law geared to help energy, firearms industries comes at multimillion-dollar cost

A 2021 Texas law designed to protect the energy and firearms industries is costing the state hundreds of millions of dollars in business-related activity while increasing costs for state and local governments to borrow money to build highways, schools and countless other public projects, according to a new report by an economic analysis and public policy consulting firm.

According to a study by Austin-based firm TXP released Wednesday, the so-called Fair Access law, which prevents governmental entities from doing business with financial institutions that have environmental, social and governance policies against fossil fuels and firearms, is making financing big-ticket projects more expensive and forcing some high-end lenders out of Texas.

“These findings illustrate that when government attempts to mandate values, no matterwhat kind, to businesses, the market loses,” said Jon Hockenyos, TXP president and author of the report conducted on behalf of the Texas Association of Business Chambers of Commerce Foundation.

TXP's report largely praises Texas' historically business-friendly policies, which the analysis found are largely responsible for the state's sustained economic growth dating back decades. But it acknowledges that many businesses, including financial institutions, have chosen to adopt environmental, social and governance policies, commonly called ESGs, at the behest of shareholders and employees.

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By eliminating these companies from participating in the bond market and other segments of the economy, the report said, competition is limited, thereby removing some forces that drive down the cost of doing business in Texas.

As a result, the report said, the state stands to lose:

• $668.7 million in lost economic activity
• $180.7 million in decreased annual earnings
• 3,034 fewer full-time, permanent jobs
• $37.1 million in losses to state and local tax revenue

Since the Fair Access law took effect, financial powerhouses Citigroup and Barclays "have been forced to exit Texas' municipal finance market due to a perception of discrimination."

On its website, Barclays says it is committed to reducing greenhouse emissions "through energy efficiency, electrification of our buildings and vehicles, renewable electricity sourcing and replacing fossil-fuel-powered infrastructure with low-emission alternatives."

"We also continued to pursue the integration of ESG considerations and expectations into processes throughout the procurement lifecycle," the company's website says.

That stance prompted Texas Attorney General Ken Paxton in January to declare Barclays to be part of the United Nation's "Net Zero Alliance," which aims to achieve net-zero greenhouse gas emissions by 2050. As such, Paxton's office said, "until further notice, we will not approve any public security issued on or after today’s date in which Barclays purchases or underwrites the public security or is otherwise a party to a covered contract relating to the public security.” 

The TXP study said that ordinarily when one or two companies either withdraw or are forced out of the marketplace, others can be counted on to quickly step in to fill the void. But that's not the case in the highly complex and specialized financial bond markets, the study said.

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Last year, local governments in Texas issued more than $47 billion in bonded debt, and the state issued $10.6 billion on top of that. That's about $10 billion more than the entities issued in 2022, the first year of the Fair Access law's implementation. Similar amounts of debt were issued in the two years before the law went on the books.

But the costs associated with managing the debt in the two years after the law went into effect have more than doubled compared with the debt issued in 2020 and 2021.

Still, Lt. Gov. Dan Patrick, who presides over the Texas Senate and is a strong supporter of the Fair Access law, said that he had no regrets about its effect.

“My stance on Environmental, Social, Governance (ESG) and Diversity, Equity, and Inclusion (DEI) policies have not and will not change," he said in a statement in January around the time Paxton took action against Barclays. "They should not be part of any funding agreement in Texas."