Meade: Community Banks Are in the Business of Providing Solutions – Rio Grande Guardian

As the year comes to a close, I cant help but think about what seemed like a never-ending 87th Legislative Session. The regular session ended in May and was, without a doubt, an interesting one. The Session didnt officially conclude; however, until the third Special Session was adjourned in mid-October.

Regular sessions are 140 days and are convened every other year, from mid-January through May. Those with something to advocate, show up in January and leave in late May. Not this time. The 87th began with many unknowns because of the pandemic. The usual bustle of the State Capitol was replaced with empty hallways, elected officials in quarantine, committee hearings conducted via Zoom, mandatory Covid-19 testing prior to entering the building, and other unfamiliar rituals. The clock kept ticking as always and time was running out.

Then suddenly, around mid-March, the activity began to pick up and the Capitol was bustling again. Everyone was trying to make sure their bills got heard despite knowing the Lieutenant Governor, Speaker of the House, and Governor all had a list of priorities they wanted to pass. Your bill had to either align with leaderships priorities or fight its way to the Governors deskone hearing, one chamber vote at a time. With the first half of the session taking place via Zoom, there was no time to waste.

One such entity who advocated for change this session was, Texas Regional Bank (TRB). With the help of State Rep. Eddie Lucio III (Brownsville), who filed HB 654, and Sen. Nathan Johnson (Dallas), with co-sponsor Sen. Chuy Hinojosa (McAllen) who filed SB 1377, a companion bill to HB 654, the TRB team was determined to amend the Rule Against Perpetuities (RAP).

TRB, together with the Independent Bankers Association of Texas (IBAT), the incredible team at the Texas Bankers Association (TBA), and many other community banks worked tirelessly together to change the very outdated lawa law that for the past 10 sessions has seen several banks step up to modify it.

So, what is the RAP and why is this change important to community banks? The TBA put it best in a letter sent to Governor Abbott late this Session, in which it asked for his support. The Rule Against Perpetuities is an antiquated legal principal based on English feudal law that defines a permissible duration for certain trusts, it read in part. Texas current RAP statute generally requires that an interest in a trust be settled no later than 21 years after some life in being at the time of the creation of the trust. The restrictive nature of Texas RAP statute not only limits Texans choices as they develop estate and gift plans, but it also puts the state at an economic disadvantage because the estate plans of Texans are being developed in one of the numerous other states that have already extended their RAP statutes, it continues. These dollars leave the state for generations.

In other words, a trust in the state of Texas has an expiration date of roughly 121 years, whereas in other states, a trust can exist for 300 years. When someone wants to open a trust in Texas at their local community bank, the financial advisor must make them aware of the trusts short life span; thus, risk losing the opportunity to gain a new client and their investment to a bigger bank with branches in states with a longer trust life. Basically, this statute was making Texas less competitive, and as a result, billions of dollars were leaving Texas.

In fact, a studyconducted in 2003 and featured in the Yale Law Journal, found that a states abolition of the RAP increased its average reported trust assets by $6 billion and its average trust account size by $200,000. In addition, approximately $100 billion in trust funds have moved to take advantage of states where RAP has been abolished.

Although this study is very outdated, one can only speculate that the average reported trust assets are now in the double digits. However, assuming they are not, an increase of $6 billion in trust assets with a 1% annual management fee would equate to $60 million in revenues staying in Texas.

These additional fees and resources by your local bank would contribute to significant growth in the states economy, producing new jobs to support the additional and growing accounts. HB 654 not only supports trust asset growth in Texas but it allows community banks to remain competitive.

Fortunately for Texas, as the legislative session progressed, Texas Regional Bank quickly learned it wasnt the only one who understood a change in this law made economic development sense. With the help of Rep. Lucio III, his Chief of Staff, Sergio Cavazos, Sen. Johnson, his Chief of Staff, Deisy James, Sen. Hinojosa, his Chief of Staff, Luis Moreno, Sen. Lucio, his Chief of Staff, Ruben OBell, IBAT and TBA, HB 654 was approved by both the House and Senate where it was then sent to the governors office for signature.

House Bill 654 was signed into law on June 16, 2021. It became effective September 1, 2021. As a result, the life of a trust in the state of Texas was extended to 300 years.

It is not by coincidence that I often compare community banks to economic development corporations. EDCs, simply put, are tasked with improving the economic well-being and quality of life of a community. Similarly, community banks work strategically to create meaningful economic impact in the communities they serve.

Community banks are in the business of providing solutions. They must be proactive and take bold action to keep investments from leaving their community. They do all they can to retain and serve clients to help grow their community. Whether its providing the right type of checking account, loan, financial guidance, or enduring a never-ending Legislative Session to help change state law, providing solutions that contribute to the growth of communities is what local banks do best.

Editors Note: The above guest column was penned by Alex Meade, executive vice president for economic development and public finance at Texas Regional Bank. The column appears in The Rio Grande Guardian International News Service with the permission of the author. Meade can be reached by email via: [emailprotected]

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Meade: Community Banks Are in the Business of Providing Solutions - Rio Grande Guardian