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Government Contracts - Texas Banks

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.
For more information, contact Karen Neeley.

Update on Fair Lending

The upcoming Heart of Texas Compliance Officers (HOTCO) meeting will feature Kennedy Sutherland attorney, Karen Neeley, as she provides an update on fair lending. During the meeting, Neeley will review the current status of fair lending following the U.S. Supreme Court decision on fair lending and the Equal Credit Opportunity Act (ECOA.) In addition, she will look at the recent CFPB redlining cases and discuss what they mean for banks.

HOTCO is an association for compliance officers at banks and credit unions in Travis County and surrounding areas. The meeting will take place on May 24, 2016 at 6 pm. at Morelia Mexican Grill in Pflugerville. Additional information regarding the meeting can be found on the Independent Bankers Association of Texas (IBAT) website.

Sutherland to Present at Texas Rural Challenge

Kennedy Sutherland attorney, Dub Sutherland, is honored to present at the 17th Annual Texas Rural Challenge Conference “Small Towns Big Ideas” which is being held in Waco, Texas on June 9-10. Other speakers at the conference included representatives from the governor’s office and the Texas Workforce Commission, as well as mayors, county judges, city managers and economic development directors from rural areas. Notable keynote speakers included Agriculture Commissioner Sid Miller and Texas Secretary of State Carlos Cascos.

The Texas Rural Challenge conference is organized annually by the University of Texas at San Antonio Rural Business Program, which is part of the Small Business Development Center network. The Small Business Development Center network focuses on providing assistance to small businesses and works with local leaders in typically underserved cities and towns in Texas to create revitalization strategies intended to increase economic opportunity and improve the quality of life in rural communities. At the conference Mr. Sutherland will discuss opportunities by utilizing state and federal tax credits for many small businesses who remain challenged by a lack of capital and the ability to build assets. Other panelist joining Mr. Sutherland on the Innovative Financing for Public and Private Projects at the Texas Rural Challenge Conference include:

  • Amber Howard, US EPA Region 6
  • Bill Cummings, The P4 Group
  • Sheri Woodsgreen, The P4 Group
  • JD King, BBVA Compass

Increase Asset Threshold Under Small Bank Holding Company Policy Statement

On April 14, 2016, the House of Representatives passed H.R. 3791 with a vote of 247-171. Introduced by Congresswoman Mia Love (R-UT-04) and passed out of the Financial Services Committee, HR 3791 requires the Federal Reserve to increase the consolidated asset threshold under the Small Bank Holding Company Policy Statement to $5 billion from $1 billion. If enacted into law, institutions of up to $5 billion in total assets would be able to increase their use of debt to raise bank capital, repurchase stock, or make acquisitions. In addition, consolidated capital rules do not apply and capital adequacy is judged at the bank level only. Qualifying institutions would be prohibited from engaging in any non-banking activities involving significant leverage and may not have a significant amount of outstanding debt that is held by the general public. The bill next goes to the Senate.
While 90% of  S corp holding companies have total assets of  less than $1 billion in total assets, passage of this bill could have a significant impact on the ability of those in the $1 – $5 billion asset range to raise capital and to expand. Please let us know if this is important to your institution.

Text of HR 3791

Congresswoman Love’s remarks on the legislation

FDIC Rescinds De Novo Time Period

The Federal Deposit Insurance Corporation (FDIC) on April 6th rescinded Financial Institution Letter (FIL) 50-2009, Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Depository Institutions.

The FIL, among other measures, extended the de novo period for newly organized, state nonmember institutions from three to seven years for examinations, capital maintenance, and other requirements. It was issued as a result of an elevated number of newly insured institutions that had either failed or had been identified as problem banks during the financial crisis of the last ten years.

Since the issuance of the guidance, the FDIC adopted regulations and guidance that apply to all supervised institutions to strengthen their resiliency and risk-management practices. Further, the FDIC has enhanced its programs and procedures through a more forward-looking approach to supervision. Collectively, the processes and guidance address the supervisory objectives of the 2009 FIL.

FDIC Chairman, Martin J. Gruenberg recently said, “The entry of new banks has helped to preserver the vitality of the community banking sector over time. De novo institutions fill important gaps in our local banking markets, providing credit and services to communities that may be overlooked by larger institutions. The FDIC welcomes applications for deposit insurance.”

In addition, the FDIC issued FIL-24-2016 to provide guidance in the form of supplemental “Questions and Answers” (Q&As) to aid applicants in developing proposals for deposit insurance. The supplemental Q&As, which address business planning, provide additional transparency to the application process and supplement the guidance issued November 20, 2014, through Financial Institution Letter (FIL) 56-2014.

Supplemental Guidance

FIL-24-2016

ICBA’s statement of FDIC’s New De Novo Policy

Kennedy Sutherland Attorney Recognized as 2016 Super Lawyer

Kennedy Sutherland is proud to announce that senior attorney, Karen M. Neeley, has been recognized as a Texas “Super Lawyer” for 2016 in banking. Only 5 percent of practicing attorneys in the state are named to Super Lawyers each year. She was first recognized by Super Lawyers in 2005 and has remained on the list for eleven straight years. Neeley is widely recognized throughout the Texas financial institution community in the areas of regulatory and compliance law. She has counseled and provided services to an array of businesses that are increasingly becoming subject to complex federal regulatory schemes.

About Super Lawyers

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys. The Super Lawyers lists are published nationwide in Super Lawyers Magazines and in leading city and regional magazines and newspapers across the country.Super Lawyers Magazines also feature editorial profiles of attorneys who embody excellence in the practice of law. For more information about Super Lawyers, visit SuperLawyers.com.

Government Contracts: Certificate Of Interested Parties

Effective for Texas government contracts entered into after January 1, 2016, businesses that contract with governmental entities must file a certificate of interested parties.

Scope.  This applies to any government contract with a “value” of over $1MM or which “requires an action or vote by the governing body of the entity or agency before the contract may be signed.”   There is no clarification as to the meaning of “value.”  Neither is there any clarification as to application to various business arrangements which do not have signed contracts. “Contract” would include financing arrangements as well as public fund depositary agreements.  Thus, credit transactions are covered (e.g. school bus finance lease, loans to purchase vehicles, etc.).

For purpose of this law, “governmental entity” means a municipality, county, public school district or special purpose district or authority.  The rule also applies to state agencies. The term “business entity” means any entity recognized by law through which business is conducted.  This would include banks.

Rulemaking. The law (Section 2252.908 Gov Code) gives the Texas Ethics Commission the authority to promulgate rules to implement it including authority to prescribe the disclosure form, which it has done.

Process.  The law and rules require the following steps:

  1. Business entity submits a disclosure of interested parties to the Texas Ethics Commission (TEC).  This is an online form, completed electronically.
  2.  Business entity prints a copy of the completed form, which will include a certification of filing from the TEC with a unique certification number.
  3. Authorized agent of the business must sign the printed copy of the form and have it notarized.
  4. Completed form with certification of filing must be filed with the governmental entity or state agency.
  5. The governmental entity or state agency notifies the TEC, using the TEC’s filing application, of the receipt of the disclosure form not later than the 30th day after the date the contract binds all parties to the contract.
  6. TEC posts the completed form to its website within seven business days after receiving notice from the governmental entity or state agency.

Contents of Business Disclosure.  The business disclosure must include a list of each “interested party” of the business.  “Interested Party” includes a person who has a controlling interest or who “actively participates in facilitating the contract or negotiating the terms of the contract.” This includes a broker, intermediary, adviser, or attorney for the business.   The rules-not the statute-define “controlling interest.”  This includes an ownership interest that exceeds 10%, directors if the board consists of not more than 10, and the four most highly compensated officers.  The rules clarify that an intermediary is one who actively participates in the facilitation or negotiation who–

  1. Receives compensation from the business entity for his participation
  2. Communicates directly with the governmental entity or state agency on behalf of the business entity AND
  3.  Is NOT an employee of the business entity.

Impact on Contract.  The law says that the governmental entity or state agency “may not enter into a contract” unless the disclosure of interested parties is made.  This creates the question of whether or not a contract entered into without such disclosure is void or voidable or effective regardless of the filing.

Impact on Banks.  This new law would appear to apply to all public fund agreements.  Although it is difficult to determine the “value” of such agreements, they are acted on by the governmental entity.  A bank’s cashier/COO who negotiates such an agreement would not be an intermediary under the rules.

Auto-Renew Contracts.   Public fund deposit agreements are highly regulated.  The Local Government Code, chapters 106, 116, and 117 apply.  Contract terms can be five years for counties and court funds and up to four for municipalities.  School district contracts are regulated by chapter 44 of the Education Code.  An auto renewing contract would appear to violate the contracting provisions of Texas law applicable to these governmental entities.

Potential Issues.  There is no definition of “value.”  Since the law captures contracts where there is action by a governing board, this issue does not appear to be a significant one for banks.

Next, must the agreement be signed by both the governmental entity and the business?  There are many arrangements that are not subject to such an agreement.  Right now, the definition of contract does not require both to sign.

“Intermediary” is defined by using the language of the statute without clarifying the meaning of “actively participates in the facilitation of the contract.”  It explicitly can include an attorney according to the statute.  Would this include drafting the agreement for a business?  To be safe, include the bank’s attorney as an intermediary if there is any negotiation of terms to the agreement.

For more information contact: Karen M. Neeley.

Additional information on House Bill 1295.

NPS Releases 2015 Historic Tax Credit Study

The National Park Service (NPS) has released its Federal Tax Incentives for Rehabilitating Historic Buildings Annual Report for Fiscal Year 2015 and a supplementary Statistical Report and Analysis for Fiscal Year 2015. With over 41,250 completed projects since its inception in 1976, the historic tax credit program has generated over $78 billion in the rehabilitation of income-producing historic properties. According to the report, in fiscal year 2015, the number of approved proposed projects were 1,283. The investment in these projects totaled an estimated $6.63 billion, while the investment in the 870 certified completed projects totaled $4.47 billion. The median cost for proposed projects was $937,865 and $950,000 for certified projects. Completed Historic Tax Credit projects certified in fiscal year 2015 created an estimated 85,058 jobs, and 48 percent of completed projects certified in fiscal year 2015 used both federal and state historic tax credits. The four states with the most historic rehabilitation activity in fiscal year 2015 were Lousiana, Virginia, Missouri and Ohio.

The study further states, “While the historic preservation tax credit encourages the rehabilitation of historic buildings of national, state, and local significance, it also stimulates major private investment in our older, disinvested neighborhoods. Older cities and small towns across the country rely upon the historic tax credit program as an important tool to foster economic revitalization. Sometimes it takes only a single project to be a catalyst for other development on a Main Street or in a downtown neighborhood. Other times, several historic tax credit projects scattered within a commuity are needed to have a similar effect.”

Funding Strategies for Endangered Structures

Join Kennedy Sutherland LLP at the Preservation Texas 2016 Summit on February 18, 2016 at the historical Central Christian Church located on 1110 Guadalupe Street in Austin, Texas. The Preservation Texas 2016 Summit include education sessions, announcement of the 2016 Most Endangered Places list and the presentation of the 2016 Honor Awards. Join us and others for an excellent opportunity to learn, network and celebrate historic preservation in Texas!

See the Agenda & Register

MAKING HOMES FOR THE ARTS IN SACRED PLACES: The briefing will present findings from research conducted by Karen DiLossi, Director of the Arts in Sacred Places program at Partners for Sacred Places. Building on Partners’ successful Arts in Sacred Places program, the space needs of dance, theater, and other performing arts groups in Austin along with Baltimore and Detroit were examined in a national study. This presentation will focus on Austin’s results.  Representative sacred places in Austin were assessed to determine the availability of space and willingness to share it with Austin’s artists. The findings illuminate the dire situations faced by these artists and include recommendations for potential space-sharing models that can be adopted across the country.

HISTORIC TRUSS BRIDGES IN TEXAS: Over the past 30 years, Texas lost approximately 90% of its metal truss bridges due to deterioration, increased traffic needs like oil and gas exploration, and lack of continued maintenance.  Only 140 truss bridges remain in vehicular service across the state, so the Texas Department of Transportation (TxDOT) is developing a management plan to ensure these bridges remain in viable use.  TxDOT is partnering with the Texas Historical Commission and the Historic Bridge Foundation on these planning efforts.  Rebekah Dobrasko, a historic preservation specialist at TxDOT, will explain the benefits of a management plan and will highlight some of TxDOT’s toolkits and support for local owners and bridge enthusiasts wanting to maintain and save their historic truss bridges.

TEXAS FREEDOM COLONIES: DIASPORIC IDENTITY AND MEMORY: From 1870 to 1890, in the shadow of Reconstruction, former slaves founded more than 500 “Freedom Colonies” or Freedmen’s Towns across Texas.  For those settlements threatened by development, gentrification, or population loss, accessing resources and technical assistance can be challenging.  The panelists will share insight into how identity and memory among the descendants associated with Freedom Colonies catalyze their planning and historic preservation activities, including the example of Shankleville’s preservation and heritage tourism activities, research on a network or “cultural region” of Deep East Texas Freedom Colonies and lessons learned from public engagement with descendants of Freedom Colonies in Austin.

SAVING HISTORIC RURAL PLACES: Across rural Texas, changing demographics impact the continuity of important traditions, institutions and infrastructure.  The preservation of rural historic resources, from dance halls to churches to small schools to bridges, often requires advocates to reach beyond their local communities and build statewide networks around a specific building type.  Hear from Texans engaged in saving rural Texas by building grassroots support and local political commitment, including a county judge who has been dedicated to preserving his rural county.

THE FINANCIAL SUSTAINABILITY OF HISTORICAL ORGANIZATIONS: A recent report by the Summerlee Foundation sought to answer the question: What makes some history-based organizations sustainable, and others not?  By studying a range of organizations in Texas, the report reached some important conclusions.  Findings will be presented, with examples of sustainability practices being implemented at Dallas Heritage Village, one of the study’s participants.  This session will demonstrate that authentic historic places with integrity, strong and collaborative leadership, sound governance, diverse revenue streams and a business-minded plan for the future can thrive in Texas.

FUNDING STRATEGIES FOR ENDANGERED STRUCTURES: Many at-risk historic places are owned by nonprofit organizations.  The struggle to find the funds necessary to restore and rehabilitate these buildings can be daunting, particularly for smaller organizations that are struggling to operate day-to-day.  Learn about a powerful new opportunity for nonprofits to participate in the state historic preservation tax credit program, and about grant programs with the Texas Historical Foundation, Texas Historical Commission and National Trust for Historic Preservation that can be leveraged to make your project a success. Speakers include:

 Sehila CasperField Officer, National Trust for Historic Preservation
 Lisa Harvell – Texas Preservation Trust Fund Grant Program Coordinator,
                      Architecture Division, Texas Historical Comm.
 Patrick J. Kennedy, Jr., Esq.Kennedy Sutherland LLP
 Gene Krane – Executive Director, Texas Historical Foundation

HANDS-ON PRESERVATION TRAINING: NEEDS AND OPPORTUNITIES: At its core, preservation is about protecting and repairing historic resources to ensure that they remain standing for generations to come.  Yet there is a lack of opportunity for people to learn how to properly maintain and restore old buildings.  With greater access to hands-on preservation training, it might be possible to preserve much more of our irreplaceable past. Participants will share programs that are happening across Texas, and will discuss how we might expand those efforts statewide to benefit projects in your community. Speakers include:

PRESERVING THE LEGACY OF THE MODERN CIVIL RIGHTS MOVEMENT: Over the last sixty years, Texans of diverse backgrounds have worked to ensure that African-Americans, Mexican-Americans and LGBT citizens are able to share in the ideals of liberty that are at the foundation of our democracy.  Documenation, protection and interpretation of sites associated with those efforts and the people who were at the forefront of the civil rights movement is an essential part preserving the legacy of a turbulent period in our state and history.  Advocates working to protect these places and the complicated stories they tell will share their experiences and insight from a preservation perspective.

Kennedy Sutherland to Present at Bank Conference in Iowa

Kennedy Sutherland LLP attorney, Patrick J. Kennedy, Jr. will be presenting at the Bank Holding Company Association’s one day seminar on March 15, 2016 in Moravia, Iowa at the Honey Creek Resort. Kennedy will be covering “How to Make the Most of your S Election.”

Other speakers include:

  • Beau Hurtig, Fredrikson & Byron law firm: “A Look at the Community Bank M&A Landscape”
  • Don Johnson and Rhea Hemish from Eide Bailly: “Strategies for Ownership Succession Planning”
  • Patrick Dix, former WHO-TV anchor, now Senior P.R. manager for Shazam: “Turn your Marketing Expense into a High-yielding Investment”
  • Stevie Ray of Stevie Ray’s Improv Company: “Leadership at Every Level”

Lunch is joint event with Heritage Clubs International, the trade group for bank club directors.

The BHCA “Mini” Seminar is only $84 for the entire day! You do not need to be a BHCA member to attend this event. Click here for more information and to see the day’s agenda.

Don’t Wait; Register NOW!