A 2021 Texas law barring municipalities from working with banks that “discriminate” against the gun business has cost the state more upwards of $300m so far, according to a new study.
Last year, upset that some major financial institutions have been pulling back from their relationships with the firearms industry, Texas lawmakers passed SB 19, which requires banks to prove to the state attorney general they don’t “discriminate” against gunmakers and retailers.
“Any company that uses financial pressure in order to limit Texans’ ability to purchase guns or ammunition should not be tolerated,” Senator Charles Schwertner, a Republican and one of the authors of the legislation, said at the time the law was being debated.
Legislative researchers at the time estimated the bill wouldn’t add any extra costs to doing business in the state, but that’s been far from the case, according to research from a University of Pennsylvania professor and a Washington, DC-based Federal Reserve economist.
They found that with major lenders like JPMorgan Chase, Citibank, Bank of America, Fidelity, and Goldman Sachs doing less business in the state as a result of the law, municipalities ended up paying an extra $300m to $500m in borrowing cases, faced with fewer options at higher interest rates on the bond market. The five Wall Street firms had traditionally financed about 15 per cent of loans to Texas local governments, with average projects worth roughly $120m.
Such deals are used by school districts, airports, cities, and other entities looking for long-term funding on capital-intensive projects like infrastructure and stadiums.
“There’s a cost to making this political statement. We can say that cost for Texas is between $300 million and $500 million dollars,” Daniel Garrett of UPenn told The Houston Chronicle.
Barring any major changes, Texas governments can expect to pay an extra $445m a year, their research found.
It’s a major shift in Texas’s $50b municipal bond market, the second largest in the country behind California.
After 2018’s Parkland shooting, a number of banks changed how they did business with the gun industry. Bank of America cut off funding for those that manufactured military-style rifles for civilians, while Citigroup stopped lending to retailers that didn’t conduct background checks on gunbuyers.
At the time, Citi explained the decision was a “common-sense measures that would help prevent firearms from getting into the wrong hands”.
The Texas law hasn’t entirely scared off the big lenders.
In a letter to the state attorney general in May, JPMorgan touted its “longstanding business relationships” with gun businesses and said it “anticipates continuing such relationships into the future,” arguing its revised gun policies weren’t “discrimination”, but rather a more nuanced adjustment in its priorities.
“These commercial relationships are important and valuable,” it added.
The bank has led financing for gun deals worth $708m since 2020, according to data from Dealogic.
The recent shootings in Uvalde and Buffalo haven’t inspired the same kind of environmental and social governance (ESG) policy changes at major firms that happened after Parkland.
“The banks were willing to take these stands against guns before the Texas law, so why aren’t they standing up now,” Paul A Argenti, a business professor at Dartmouth told The New York Times.
States like Georgia, Wyoming, and Oklahoma have similar anti-gun “discrimination” laws for lenders.
As investors and consumers alike demand more from business leaders on social issues, conservative states have increasingly found themselves at odds with the major corporations in their areas.
In 2021, Republican lawmakers in Georgia battled with Delta and Coca-Cola, both headquartered in the state, because they opposed a new state law making it harder to vote.
Texas has also been critical of Lyft, which said it would help employees access abortion care in other states after Texas implemented new abortion restrictions.
