If your bank provides public fund depository accounts, investments to governmental units, or finance leases (e.g. school buses, fire trucks), then you need to be aware of a change to Texas law that took effect as to contracts entered into beginning January 1, 2016. Although the Texas Ethics Commission reviewed possible rule changes on June 1, those proposals will not significantly change the requirements outlined below.
Scope. Business entities like banks that contract with governmental entities must file a certificate of interested parties. This applies to any government contract over $1MM or which is acted on by the governing board of an entity (e.g. city council, county commissioners, school board, MUD board). Thus, it applies to public fund depository contracts, investment contracts and finance leases. Typical governmental entities include cities, counties, school, water and hospital districts, and MUDs. Because most of these vote on all contracts, the $1MM threshold is largely irrelevant.
Content of Certificate. The certificate must list the names of controlling parties. This includes shareholders with more than 10% ownership and directors for entities with boards of ten or fewer. Finally, the four most highly compensated officers must be listed. Proposed rule changes will exempt publicly traded companies from listing these officers. The certificate requires the name, city, state, and country. In addition to controlling parties, “intermediaries” must be listed. This includes a person who actively participates in facilitating a contract or negotiating the terms, including a broker, intermediary, adviser or attorney who receives compensation from the entity for the person’s participation, who communicates directly with the governmental entity on behalf of the business, and is not an employee of the business. So, an operations officer who negotiated a public fund contract but is not on the board and is not a controlling shareholder would not be listed; however, your attorney who reviewed the contract and gave comments directly to the governmental entity would be required to be listed on the disclosure form.
Form Completion Process.
The certificate form is on the Texas Ethics Commission web site at https://www.ethics.state.tx.us/whatsnew/elf_info_form1295.htm
. The bank must complete the form online. The Texas Ethics Commission (“TEC”) will provide a certification of filing that contains a unique certification number. This form must then be printed out. Then an authorized agent of the bank must sign the printed copy of the form and have it notarized. This completed form with the certification must then be filed with the governmental body with which the business is contracting.
The governmental entity will notify the TEC, using the filing application, of the receipt of the filed Form 1295 with the certification of filing not later than the 30th day after the contract binds all parties. Then the TEC will post the form to its website within seven business days after receiving notice. Without this filing process, the governmental entity is forbidden to enter into the contract! However, there is no enforcement mechanism in the law. The TEC was authorized to promulgate rules, but it was not given authority to enforce.
Impact on Existing Contracts. The rules apply as to Texas government contracts entered into after January 1, 2016. However, the TEC has defined “contract” to include an amended, extended, or renewed contract.