State Securities Board Questions Intent of Abbott's Veto

Four months after the end of this year's legislative session, more than $200 million in state funds approved by the Texas Legislature but vetoed by Gov. Greg Abbott remain in legal limbo. Now one state agency is making a novel argument in the hope of unlocking its share of the pot: maybe it wasn’t really a veto at all.

In a brief sent last week to Attorney General Ken Paxton, who has been tasked with settling the veto debate, the State Securities Board casts doubt on whether Abbott’s veto of a budget rider directing $1.2 million toward raises for board employees was intended to reduce the agency's funding. The board argued that the combination of the rider's unusual wording and Abbott's vague veto statement suggests that this particular veto should be viewed separately from more than a dozen other disputed vetoes of budget riders. 

“The wording and issues associated with Rider 3 … are much different than those your office is considering for other riders,” Texas State Securities Board Chair Beth Ann Blackwood wrote to Paxton in a letter accompanying the brief. “I am hopeful that you will conclude that appropriations made by the Legislature during the 84^th Legislative Session should be released by the Comptroller to the State Securities Board as soon as possible.”

Abbott spokesman John Wittman said Tuesday that Abbott absolutely intended to veto the State Securities Board’s rider. He declined to comment further.

In June, Abbott vetoed $227.6 million from the $209.4 billion two-year state budget. The Legislative Budget Board argued that Abbott had exceeded his constitutional authority because the vetoes targeted budget riders — directives to state agencies that are included in the budget but do not actually make any appropriations. The budget board cited previous court opinions to contend that a governor has the power to veto appropriations, but not riders. Abbott has strongly defended the legality of the vetoes and said that “unelected bureaucrats” were interfering with the governor’s constitutional power to strike spending items from the budget.

Among the budget riders Abbott vetoed were several contingency riders, which would only have been implemented if a certain bill passed during the session. In each of those cases, the bills failed, making the riders moot. For those vetoes, Abbott wrote the same, short explanation: “This veto deletes a contingent rider for a bill that did not pass.”

Abbott offered the same explanation in vetoing Rider 3 in the State Securities Board’s budget. But that rider is in a category of its own, according to the board, because it was written to only go into effect if a certain bill failed to pass. The measure, House Bill 2493, would have designated the board a “self-directed and semi-independent agency,” allowing its leaders to approve their own budget and set fees to pay for it. Unlike the other contingency riders that Abbott vetoed, the contingency in Rider 3 came to be. HB 2493 died in the Senate after passing out of the House.

"In each case involving a similar rider such a veto had no meaningful effect on an agency or its appropriations — with one exception,” the board writes. “The one exception was Rider 3 for the State Securities Board."

The board suggested that the lack of a more detailed explanation of Abbott’s veto of “the uniquely written Rider 3” is key in “evaluating the intent and effect” of the veto and suggested that it wasn’t intended to actually block the agency’s funding. It compared Abbott’s short statement on his veto of Rider 3 to longer explanations he provided for vetoes of large public projects and money for research at colleges and universities.

"These statements reveal that in every instance in which appropriations were intended to be vetoed, the Governor clearly said so,” the board wrote.

The board has said it needs to pay its financial professionals more to keep them from being poached by other employers and to reduce turnover. The agency had a turnover rate of 4.2 percent in 2014, according to a state audit, among the lowest in state government. Board spokesman Bob Elders said the agency’s turnover is much higher specifically among its financial professional positions.

At a House hearing on HB 2493 in April, Securities Board Commissioner John Morgan noted that the federal Securities and Exchange Commission was gearing up to hire more financial examiners.

“If the past is any indication, the people on our staff who have the most experience will be prime targets for the new positions,” Morgan said.

Even if the veto is upheld, the Securities Board argued that it should get the funding anyway because Abbott vetoed the rider, not the appropriation tied to it in the budget.

In a brief sent to Paxton’s office last week defending all of its budget vetoes, Abbott’s office disputed that argument.

“There is no question that the veto reduces the overall amount appropriated to the Securities Board,” Abbott’s office wrote.

Lawmakers budgeted $15.6 million for the Securities Board in the two-year budget. Last year, the State Securities Board fined Paxton $1,000, after he admitted he had solicited investment clients for a friend and business partner without properly registering with the state.