BILL ANALYSIS

S.B. 2403

By: Middleton

State Affairs

Committee Report (Unamended)

BACKGROUND AND PURPOSE

The Texas Ethics Commission (TEC) is tasked with promoting transparency and accountability in government by enforcing campaign finance, lobbying, and personal financial disclosure laws. However, the bill sponsor has informed the committee that over time, concerns have emerged about the TEC's procedures for complaint resolution, enforcement actions, and general responsiveness to the public and those it regulates and that critics have pointed to the TEC's lack of consistency, outdated notice procedures, vague standards for violations, and limited transparency in how cases are prioritized and resolved. The bill sponsor has also informed the committee that state law offers few requirements on how the TEC categorizes violations, conducts discovery, or prioritizes complaints and that the absence of clear rules has led to lengthy cases and perceived unfairness—particularly for minor or technical infractions that receive disproportionate scrutiny. The bill sponsor has further informed the committee that many TEC notices and documents must still be delivered by traditional mail, slowing down processes and increasing administrative burden. S.B. 2403 seeks to address these issues and reinforce trust in the ethics system by modernizing the TEC's operation, strengthening safeguards for respondents and the public, and ensuring that enforcement actions are timely, proportionate, and rooted in fairness.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Texas Ethics Commission in SECTIONS 10, 14, 19, and 21 of this bill.

ANALYSIS

S.B. 2403 amends the Government Code and the Election Code to review the Texas Ethics Commission (TEC) under the Texas Sunset Act in 2037 and to implement certain recommendations of the Sunset Advisory Commission regarding TEC duties and functions, including revising filing requirements and violation classifications, changing the structure of TEC preliminary review hearings, and implementing recommendations regarding commission member trainings.

Changes to Certain Political Reporting Requirements

S.B. 2403 repeals the following Election Code provisions relating to an exemption to electronic filing requirements for certain reports, affidavits applicable to that exemption, and itemization requirements for credit card expenditures:

· the authorization for a candidate, officeholder, or political committee that is required to file a report with the TEC under statutory provisions governing political reporting to file reports by specified means other than electronic transfer, given the following conditions:

o the candidate, officeholder, or campaign treasurer of the committee files with the TEC an affidavit stating that the applicable entity does not use computer equipment to keep the current records of political contributions, political expenditures, or persons making political contributions to the candidate, officeholder, or committee; and

o the candidate, officeholder, or committee does not, in a calendar year, accept political contributions that in the aggregate exceed $20,000 or make political expenditures that in the aggregate exceed $20,000;

· the requirement to file an affidavit with such a report and a provision establishing the affidavit's required contents; and

· the requirement for the TEC, in prescribing the format of a report, including a report filed with an authority other than the TEC, to ensure that the report requires the following for political expenditures made with a credit card:

o that the expenditures be reported in a single itemized list; and

o that the list include, stated by credit card issuer, the name of the issuer, the date and amount of each expenditure, and the date the issuer was repaid for the expenditure.

S.B. 2403 amends the Election Code to do the following with respect to civil penalties assessed for late campaign finance reports:

· make the person required to file the first semiannual campaign finance report following the primary or general election with respect to a specific-purpose committee liable to the state for a civil penalty of $500 by removing the provision excluding that person from that liability;

· change the civil penalty for which the person required to file the first semiannual campaign finance report following the primary or general election with respect to a general-purpose committee is liable from $500 for the first day the report is late and $100 for each day thereafter that the report is late to $500;

· change the civil penalty for which a person required to file the first semiannual report following the primary or general election with respect to a candidate is liable from $500 for the first day the report is late and $100 for each day thereafter that the report is late to $500; and

· establish that, for a person required to file certain reports due not later than the eighth day before an election that is subject to liability to the state for a civil penalty of $500 for the first day the report is late and $100 for each day thereafter, the recurring $100 penalty continues only through the day of the election.

These provisions apply only to a report that is required to be filed under statutory provisions governing political reporting on or after the bill's effective date. A report that is required to be filed before the bill's effective date is governed by the law in effect on the date the report was required to be filed, and the former law is continued in effect for that purpose.

S.B. 2403 does the following regarding the monthly campaign finance reporting schedule for general-purpose committees:

· changes the filing deadline for a monthly report from the fifth day of the month following the period covered by the report to the 10th day of the month following that period;

· changes the deadline by which a report covering the month preceding an election in which the committee is involved must be received by the applicable authority from the fifth day of the month following the period covered by the report to the 10th day of the month following that period;

· changes the period covered by a monthly report from the period beginning the 26th day of each month and continuing through the 25th day of the following month to the period beginning the first day of each month and continuing through the last day of the month and removes the exception that the period covered by the first report begins January 1 and continues through January 25; and

· changes the period covered by the first monthly report for a general-purpose committee for which the campaign treasurer appointment is filed after January 1 of the year in which monthly reports are filed from the period that begins the day the appointment is filed and continues through the 25th day of the month in which the appointment is filed, unless the appointment is filed the 25th or a succeeding day of the month, in which case the period continues through the 25th day of the month following the month in which the appointment is filed, to the period that begins the day the appointment is filed and continues through the last day of the month in which the appointment is filed.

Method of Providing Certain Notices

S.B. 2403 repeals Government Code provisions that do the following:

· require each written notice, decision, and report required to be sent under statutory provisions relating to the TEC to be sent by registered or certified mail, restricted delivery, return receipt requested; and

· authorize the TEC, after written notice under applicable state law regarding the filing of a sworn complaint has been mailed by the TEC to a person in such a manner, to send the person any additional notices regarding the complaint by regular mail unless the person has notified the TEC to send all notices regarding the complaint by registered or certified mail, restricted delivery, return receipt requested.

S.B. 2403 amends the Government Code to require the TEC by rule to prescribe the method by which the TEC will provide a notice required under statutory provisions relating to the following:

· the registration and reporting of lobbyists;

· the TEC;

· personal financial disclosures, standards of conduct, and conflicts of interest; or

· regulating political funds and campaigns under the Election Code.

The bill authorizes the method the TEC prescribes for providing such notices to include electronic mail.

Reporting Threshold Adjustments

S.B. 2403 revises the statutory requirement for the TEC to adjust the reporting thresholds set by the TEC or a law administered and enforced by the TEC in accordance with the percentage increase for the previous year in the Consumer Price Index for Urban Consumers as follows:

· changes the frequency with which the TEC is required to make such adjustments from annually to decennially;

· changes the amounts such calculations are rounded to after adjustment from upward to the nearest multiple of $10 to the following:

o the nearest multiple of $10 if the amount is less than $100;

o the nearest multiple of $100 if the amount is $100 or more but less than $10,000; or

o the nearest multiple of $1,000 if the amount is $10,000 or more; and

· makes the adjustment requirement inapplicable to statutory provisions relating to the reporting of compensation or reimbursement paid by each person who reimburses, retains, or employs a person required to register as a lobbyist for the purpose of communicating directly with a member of the legislative or executive branch or on whose behalf the registrant communicates directly with a member of the legislative or executive branch.

Complaint Procedures and Hearings

Categorization of Violations

S.B. 2403 revises the categorizations of violations under statutory provisions relating to TEC complaint procedures and hearings as follows:

· changes the definition of "Category One violation" from a violation of a law within jurisdiction of the TEC as to which it is generally not difficult to ascertain whether the violation occurred or did not occur, including certain current Category One violations, to a technical, clerical, or de minimis violation of a law within jurisdiction of the TEC;

· specifies that a "Category Two violation" is a violation of a law within the TEC's jurisdiction that is not a Category Three violation, in addition to not being a Category One violation as under current law; and

· establishes a "Category Three violation" as a serious violation of a law within the TEC's jurisdiction.

S.B. 2403 repeals a provision relating to the enhancement of violation category and sets out provisions that do the following:

· require the TEC to categorize each violation of law within the TEC's jurisdiction as a Category One violation, a Category Two violation, or a Category Three violation;

· authorize a violation of law to be categorized as more than one category of violation;

· require the TEC to consider the following, as applicable, in determining the category of a violation:

o the dollar amount at issue for a violation;

o the timing of the report relative to an election or legislative session;

o the penalty of any criminal offense associated with a violation;

o the potential a violation has to conceal evidence of a person's influence over a public official or to distort a public disclosure; and

o any other consideration the TEC determines necessary to prevent harm to the public;

· require the TEC to publish on the TEC's website these violation categorizations; and

· require the TEC, before adopting a new violation categorization or changing an existing violation categorization, to publish the proposed violation categorization in the Texas Register for a period determined by TEC rule and hold an open meeting to obtain public comment on the proposed violation categorization.

Dismissal of Certain Complaints Alleging a Category One Violation

S.B. 2403 authorizes the TEC, at any stage of a proceeding under statutory provisions governing TEC complaint procedures and hearings, to dismiss a complaint that alleges a Category One violation if the TEC determines that the seriousness of the violation does not justify further use of TEC resources. However, the bill requires the TEC, at any stage of such a proceeding, to dismiss a complaint that alleges a Category One violation if the TEC determines that the seriousness of the violation does not justify further use of TEC resources and the respondent against whom the complaint is filed has been the subject of not more than two prior sworn complaints.

S.B. 2403 requires the TEC, if dismissing a complaint under these provisions, to provide to the respondent and to the complainant written notice of the dismissal not later than the fifth day after the date of the dismissal. The notice to the respondent must:

· be written in plain language designed to be easily understood;

· identify the alleged violation and include the relevant laws and requirements applicable to the alleged violation;

· include a statement informing the respondent of the following:

o that the respondent may be subject to an investigation of the alleged violation if the TEC receives additional complaints against the respondent; and

o that the investigation may be prioritized as a result of the alleged repeated violations; and

· remain confidential.

Required Policy on Prioritizing Complaints

S.B. 2403 requires the TEC to adopt a written policy on prioritizing the investigation of sworn complaints in accordance with statutory provisions governing TEC complaint procedures and hearings based on the risk the TEC determines the violation alleged in the complaint poses to public disclosure integrity. The bill requires the TEC, in adopting the policy, to ensure a sworn complaint is prioritized based on the following:

· the category of the violation alleged in the complaint;

· whether evidence exists demonstrating an intent in connection with the violation alleged in the complaint to conceal a person's influence over a public official or distort a public disclosure;

· the compliance record of the respondent with laws within the TEC's jurisdiction based on previous sworn complaints filed against the respondent, repeat violations committed by the respondent, and any reviews the TEC conducted under applicable state law of a statement or report filed by the respondent;

· negative media attention of the matter that is the subject of the complaint; and

· any other risk-based factors the TEC identifies.

The policy the TEC adopts must include a process for the TEC to reprioritize the investigation of a sworn complaint as the TEC determines necessary. The bill requires the TEC to do the following with regard to the policy:

· publish the policy on the TEC's website;

· train TEC staff on using the policy in processing sworn complaints; and

· before adopting or changing the required policy, publish the proposed policy in the Texas Register for a period determined by TEC rule and hold an open meeting to obtain public comment on the proposed policy.

Discovery Requirements

S.B. 2403 requires the TEC to adopt rules that prescribe the procedure required of TEC staff and respondents to agree to a discovery control plan to conduct discovery in connection with a sworn complaint. The rules must do the following:

· outline a period during which all discovery must be completed and set appropriate limits to the amount of discovery that may be requested; and

· comply with the Texas Rules of Civil Procedure, except that the TEC must determine the level of discovery under Rule 190 of those rules appropriate for the category of the violation alleged in a complaint and the policies the TEC adopts under the bill's provisions on prioritizing the investigation of complaints.

Preliminary Review and Preliminary Review Hearings

S.B. 2403 does the following regarding preliminary reviews initiated on receipt of a written complaint or on a motion adopted by an affirmative vote of at least six TEC members without a sworn complaint:

· revises the requirement for the respondent, if the alleged violation is a Category One violation, to respond to the required written notice sent by the TEC under statutory provisions relating to the processing of complaints not later than the 10th business day after the date the respondent receives the notice by making the requirement applicable to all categories of violation and by extending the response deadline from not later than the 10th business day after the date the respondent receives the notice to not later than the 30th business day after that date;

· accordingly, repeals the provision requiring the respondent, if the alleged violation is a Category Two violation, to respond to the required written notice sent by the TEC under statutory provisions relating to the processing of complaints not later than the 25th business day after the date the respondent receives the notice;

· replaces the requirement for the TEC to conduct the preliminary review hearing with a requirement for a panel of two TEC members to conduct the hearing;

· requires the procedures adopted by the TEC for the conduct of preliminary review hearings to include a deadline on the convening of a panel to conduct a preliminary review hearing;

· requires the TEC to adopt rules for the selection of TEC members to serve on those panels and requires those rules to ensure that a panel is composed of two TEC members selected on a rotating basis and that each member of the panel is a member of a different political party;

· changes the condition that triggers a preliminary review hearing following preliminary review from the TEC and the respondent failing to agree to the disposition of the complaint or motion to the respondent rejecting the resolution proposed by TEC staff of the complaint or motion;

· includes in the written notice that the TEC is required to provide to the complainant, if any, and the respondent prior to a hearing a statement that if the TEC orders a formal hearing because the complaint could not be resolved and settled as a result of the preliminary review hearing, the formal hearing may result in a higher sanction than the one the panel proposes for the preliminary review hearing;

· transfers the TEC's duties relating to conducting and resolving a preliminary review hearing to the panel with the exception of the TEC's duties to provide to the complainant, if any, and the respondent the following:

o a copy of the decision stating the determination that there is credible evidence to determine a violation has occurred and written notice of the resolution and the terms of the resolution;

o a copy of the decision stating the determination that there is credible evidence to determine that a violation has not occurred and written notice of the dismissal and the grounds for dismissal; and

o a copy of the decision stating the determination that there is insufficient credible evidence to determine a violation has occurred and written notice of the grounds for the determination; and

· revises provisions relating to the resolution of a preliminary review hearing as follows:

o with regard to a panel's decision stating whether there is credible evidence to determine that a violation has occurred, replaces the requirement for the panel to state whether the violation is technical or de minimis with a requirement for the panel to state whether the violation is a Category One violation;

o changes the resolution process for a complaint or motion for which the panel determines there is credible evidence to determine that a violation within the TEC's jurisdiction has occurred by requiring the panel to propose to the respondent a resolution to resolve and settle the complaint or motion, instead of the TEC resolving the complaint or motion as under current law, and does the following accordingly:

§ with regard to a successfully resolved and settled complaint or motion, changes the deadline by which the TEC must provide to the complainant, if any, and the respondent the applicable documents regarding the panel's decision from the fifth business day after the date of the final resolution to the fifth business day after the date the respondent accepts the proposed resolution; and

§ with regard to an unsuccessfully resolved and settled complaint or motion, changes the deadline by which the panel must provide certain documents to the complainant, if any, and the respondent from the fifth business day after the date of the decision to the fifth business day after the date the panel determines that there is credible evidence to determine that a violation has occurred or the date the respondent rejects the panel's proposed resolution;

o requires the panel to order a formal hearing if, because of a tie vote, the panel cannot issue a decision regarding whether a violation within the TEC's jurisdiction has occurred;

o requires the TEC to notify the complainant, if any, and the respondent of the date, time, and place of the formal hearing not later than the fifth business day after the date of the vote;

o requires the panel, except as provided by other law or TEC rule, to submit a proposed resolution that is accepted by the respondent under these provisions to the TEC for approval; and

o establishes that a TEC member that serves on a preliminary review hearing panel is not required to be recused from a formal hearing held under applicable provisions.

Formal Hearings

S.B. 2403 authorizes the TEC to conduct a formal hearing under provisions regarding the categorization of violations and complaint procedures and hearings, as revised by the bill, or delegate the responsibility of conducting such a formal hearing to the State Office of Administrative Hearings (SOAH). The bill requires the TEC to provide notice to each respondent informing the respondent of the following:

· that the respondent may submit a request under these provisions for SOAH to conduct a formal hearing on the complaint; and

· that, if the respondent requests SOAH to conduct the hearing, the respondent must pay the costs associated with conducting the hearing in accordance with these provisions.

S.B. 2403 requires the TEC to refer to SOAH the responsibility of conducting a formal hearing under statutory provisions governing TEC complaint procedures and hearings if the respondent submits to the TEC a request for SOAH to conduct the hearing. The bill requires a respondent who submits such a request for SOAH to conduct a formal hearing of a complaint to pay the costs associated with conducting the hearing in an amount the administrative law judge sets for the hearing. The bill requires the administrative law judge to ensure the costs are set in an amount that, as follows:

· allows SOAH to recover all or a substantial part of its costs in holding the hearing; and

· does not exceed the maximum billing rate permitted under law for hearings conducted by SOAH, including the General Appropriations Act.

S.B. 2403 requires the TEC to adopt rules of practice regarding a formal hearing referred to SOAH, including rules addressing the following:

· which party bears the burden of proof;

· what standard of evidence is required;

· evidence that may be applicable;

· subpoena power; and

· contempt power.

Proceedings for a formal hearing conducted by SOAH are governed by the Administrative Procedure Act. The bill requires the TEC to ensure rules of practice the TEC adopts under that act applicable to the proceedings for a formal hearing do not conflict with rules SOAH adopts.

Civil Penalties for the Late Filing of Certain Statements and Reports

Civil Penalty Waivers

S.B. 2403 requires the TEC to waive the civil penalties imposed for the late filing of the following documents if the TEC has no record of providing an applicable late filing notice:

· a registration or report filed by a person required to register as a lobbyist;

· a personal financial statement filed by non-exempt state officers, partisan or independent candidates for an office as an elected officer, and state party chairs; and

· a report required to be filed with the TEC under Election Code provisions relating to political reporting generally.

Graduated Penalties and Penalty Schedule

S.B. 2403 authorizes the TEC to assess graduated penalties against a person who repeatedly files late statements or reports in violation of statutory provisions relating to the following:

· the registration and reporting of lobbyists;

· the TEC;

· personal financial disclosures, standards of conduct, and conflicts of interest; or

· regulating political funds and campaigns under the Election Code.

The bill requires the TEC to establish and publish on the TEC's website a penalty schedule that outlines the full range and scope of penalties the TEC may assess under a law within the TEC's jurisdiction. The bill requires the TEC to ensure the penalty schedule includes the specific statutes or TEC rules under which the TEC may assess a penalty and takes into consideration aggravating and mitigating factors related to the assessment of a penalty, including the severity of a violation and graduated penalties for repeat violations. The bill requires the TEC to consider the same factors the TEC considers in assessing a sanction when assessing a civil penalty for a violation of a law within the TEC's jurisdiction.

TEC Training Requirements

S.B. 2403 updates TEC member training requirements to apply certain of the Sunset Advisory Commission's across-the-board recommendations. These training requirements apply to a TEC member appointed before, on, or after the bill's effective date. A TEC member who, before the bill's effective date, completed the training program under statutory provisions relating to member training, as that law existed before the bill's effective date, is only required to complete additional training on the subjects added by the bill's provisions to that training program. Such a member may not vote, deliberate, or be counted as a member in attendance at a meeting of the TEC held on or after December 1, 2025, until the member completes the additional training.

Repealed Provisions

S.B. 2403 repeals the following provisions:

· Sections 254.036(c), (c-1), and (g), Election Code;

· Section 571.032, Government Code;

· Section 571.1212, Government Code; and

· Section 571.1242(b), Government Code.

EFFECTIVE DATE

September 1, 2025.