BILL ANALYSIS
C.S.H.B. 3109
By: Romo
04-03-95
Committee Report (Substituted)
BACKGROUND
Currently, the Texas Bond Review Board collects data from all state
agencies that issue state bonds for its yearly report as required
by statute. One of the concerns with the current format of the
report is its lack of cost breakdown in its bond negotiation fees,
such as financial advisory fees, bond counsel fees, rating agency
fees, known as cost of issuance fees. Additionally, the annual
report does not require issuers to report the underwriting spread
and syndicate profit/loss for negotiated and competitive bond
transactions. Another concern is the lack of breakdown fees
received by professional consultants, such as spreads earned on the
purchase and sale of securities in escrow restructuring, etc.,.
Many of these transactions are lumped together and made part of the
price of the securities and not reported as an expense to the
comptroller's office.
Recently, the National Economic Research Associates, Inc.,
conducted a disparity study as mandated by HB 2626, 73rd
Legislature. The report compiled information from all state
agencies and their business transactions with historically
underutilized businesses. Because a breakdown of the above
mentioned fees was not made available, none of these costs/fees was
included in the study. Given that these fees may total as high as
$75,000,000, their absence from this report is significant.
PURPOSE
HB 3109 would require the Texas Bond Review Board to submit
biennial reports and an annual report to the legislature on
underwriting spreads of state bond transactions that itemizes
management fees, expenses, and takedown, both priority and member
order, by transaction and by firm. This information would also be
made available to the joint committee charged with monitoring
historically underutilized business goals.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 1078, Article 717k-7, Vernon's Texas
Civil Statutes, by adding Section 7C. BOND
TRANSACTION REPORT.
(a) requires each entity, including the Texas Public Finance
Authority, that issues state bonds to report its bond transactions
to the Bond Review Board.
(b) states that each entity shall report in accordance with board
rules.
(c) requires the report be itemized and must state in dollar
amounts information required by Subsections (d) through (h) paid to
businesses, classifying the businesses based on the race,
ethnicity, and gender of the controlling ownership of each business
and if business is domestic or foreign.
(d) requires the report to state issuance costs, including cost of
bond counsel, financial advisor, rating agencies, official
statement preparation, official statement printing, bond printing,
paying agent/registrar, escrow agent, escrow verification agent,
trustee, attorney general, dealer fee, remarketing fee, credit
enhancement and any other cost not listed in Subdivisions 1 through
14. (e) requires that the report must state for bonds sold
competitively, (1) the components of the gross spread, including
the gross takedown, expenses and syndicate profit and loss; (2)
summary of bond orders and allotments by maturity, firm and order
type; (3) breakdown of the syndicate firms' gross takedown and
share of the syndicate profit and loss.
(f) requires the report must state for bonds sold through
negotiation, (1) the components of the spread including, management
fee, structuring fee, underwriting risk, takedown, and spread
expenses; (2) each firm's share of underwriting risk; (3) name of
underwriter's counsel; (4) summary of bond orders and allotments by
maturity, firm, and order type; and (5) breakdown of the syndicate
firms' share of management fee, structuring fee, underwriting risk
fee and takedown.
(g) requires that the report must state for bonds sold through
private placement, the (1) components of the private placement fee
including the management fee, placement agent fee and expenses, and
(2) placement agent's counsel's fee.
(h) provides that the report must state for refunding and escrow-related transactions the spread paid on the purchase or sale of
escrow securities.
(i) requires that on May 15 of each year, board shall send report
based on the information received under this section for the
preceding six-month period ending March 1 to the joint committee
charged with monitoring the implementation of the historically
underutilized business goals.
(j) requires that on November 15 of each year the board shall send
a report based on the information received under this section for
the fiscal year ending the preceding August 31 to the presiding
officer of each house of the legislature, members of the
legislature, and the joint committee.
SECTION 2. Establishes September 1, 1995, as the effective date of
Act.
SECTION 3. Emergency Clause.
COMPARISON OF ORIGINAL TO SUBSTITUTE
The substitute requires a more comprehensive report of the Bond
Review Board and more clearly spells out the requirements of the
report regarding the following:
issuance costs;
the components of the gross spread for bonds sold competitively;
a summary of the bond orders and allotments by maturity, firm, and
order type;
a breakdown of the syndicate firms' gross takedown and share of the
syndicate profit and loss;
bonds sold through negotiation;
bonds sold through private placement; and
refunding and escrow related transactions.
The dates for the submission of the reports have changed from April
15 of each year to May 15 of each year for the report to the joint
committee monitoring the implementation of the historically
underutilized business goals and from October 15 of each year to
November 15 of each year to the Legislature and the joint
committee.
SUMMARY OF COMMITTEE ACTION
The committee considered HB 3109 in a public hearing on April 3,
1995.
The committee considered a complete committee substitute for the
bill.
The following person testified in favor of the bill:
Robert Rodriguez representing himself and Southwestern Capital
Markets.
The following people testified neutrally on the bill:
Jose Hernandez representing himself and Texas Bond Review Board;
and
Anne L. Schwartz representing the Texas Public Finance Authority.
The motion to adopt the substitute for the bill and report the bill
favorably as substituted, with the recommendation that it do pass
and be printed and be sent to the Committee on Local and Consent
Calendars, prevailed by the following record vote: 9 Ayes, 0 Nays,
0 PNV, 0 Absent.