TXP / TABCCF: The potential economic and tax revenue impact of Texas' Fair Access Laws

Undoubtedly, Texas has become a major player in the world economy, ranking as the 8th largest economy globally and hosting more Fortune 500 company headquarters than any other state. A big reason for this success is Texas' business-friendly environment, with low taxes and limited regulations that attract various industries and companies. More recently, Texas is seeing growth in the financial services industry, which has most often centered around places like New York and Illinois. By the end of 2023, for example, almost a million people in Texas were working in financial services, compared to fewer than 800,000 five years earlier. This growth is largely due to companies from around the world seeing the opportunities Texas offers.

However, according to a recent TXP / Texas Association of Business Chambers of Commerce Foundation (TABCCF) white paper, there's a problem: Texas is making it harder for banks to compete in the bond market because of a law passed in 2021 called the Fair Access law. This law is apparently leading to some big banks like Citi and Barclays being stopped from helping with government bond deals, and more banks might be affected soon. The paper explains that this matters because when there is less competition, it means higher costs for things like interest rates and transactions, which hurts businesses and the government's ability to provide services.

During the 87th Session of the Texas Legislature, new laws were passed (Senate Bills 13 & 19) to prevent municipalities in Texas from working with banks that limit funding to oil & gas companies or discriminate against firearms businesses. According to the paper, a study in 2023 called "Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies" by Dr. Dan Garrett and Dr. Ivan Ivanoff found that these laws reduced competition in public finance and increased interest costs by 0.144 percent.

Looking closer at the costs of issuing debt, particularly the underwriters' fees, the white paper notes there was a noticeable rise after the laws were put into action from 2022 to 2023. By comparing this to previous years, it's estimated that there were extra costs of $270.4 million. When considering the impact on the Texas economy, it translates to a loss of $668.7 million in economic activity, $342.6 million in value added, $180.7 million in earnings, 3,034 full-time jobs, and $37.1 million in tax revenue. In simpler terms, to make up for these extra costs and losses in public revenue, the economy would need to produce about $2.84 billion more.

Read the full text of The potential economic and tax revenue impact of Texas' Fair Access Laws here.