Texas AG says school districts can’t pressure their vendors not to work with charters

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Texas school districts can’t legally refuse to do business with vendors just because those companies also work with charter schools or other organizations that school districts object to, the state attorney general’s office says.

“A school district may not take into account a vendor’s relationship with any organization while engaged in contracting and procurement,” the AG opinion, issued last week, states.

The office found that a court would reasonably regard the statute regarding vendors as applying to all stages of procurement from the beginning to the contract phase. It would apply not only to financial and other services contracts but also to the purchase of goods and supplies.

The opinion comes eight months after The Texas Monitor published communications among six public school financial officers discussing the exclusion of such vendors. They succeeded in getting Hilltop Securities, one of the state’s larger financial services firms, to swear off business with charters.

The effort targeted attorneys and bond underwriters, who are responsible for selling school districts’ bonds that fund school upgrades, new schools, sports facilities and other improvements.

State Sen. Kelly Hancock (R-North Richland Hills) in May sent a letter to the AG’s office asking how state statute would align with a public school district’s consideration of whom a potential vendor does business with “such as a charter school.”

“I am concerned that some school districts in Texas may be requiring vendors to agree not to work with Texas charter schools as a requirement to either contract with or continue to contract with such school districts …” Hancock said in a May 1 letter to the AG. His worry was that “school districts may be diminishing the ability of a vendor to work with a school district based a relationship with an organization such as a charter school.”

Mark Youngs, chief financial officer in the Keller school district, wrote in a January email to six finance director colleagues that “There has been a clear desire to move to vendors who do not assist charters in competing with us. All this caused me to review a number of our vendor relationships … .”

“I am aware that there have been some conversations among our Supt.’s regarding using vendors – Underwriters, FA’s, Attorney’s, etc. who also do business with charters who compete with us as ISD’s,” Youngs wrote.

There was other conversation in the financial community regarding the sentiments of the CFOs, and in January Youngs received an email from Hill Feinberg, CEO of Hilltop Securities, one of the top bond underwriters for Texas school districts.

“It has come to my attention that you have serious concerns with our prior financial advisory representation of charters schools in Texas,” Feinberg wrote. He vowed that Hilltop would halt representation of charters.

The move resulted in the departure of several employees from Hilltop to launch their own firm to represent charter schools, among other clients.

Feinberg did not respond to an email seeking an interview.

Not long after Feinberg’s letter was sent out, Sarah Orman, an attorney with the Texas Association of School Boards, sent out a notice to the Texas Council of School Attorneys  that refusing to do business with vendors who also work with charters violates state law.

Youngs told Texas Monitor in March that the move to exclude vendors with charter connections was “dead” in the wake of the legal warnings. However, Orman said in an interview at about the same time that “I’m not sure what has happened after that was sent out.”

Hancock said in an interview with Texas Monitor this week that the AG opinion “provides more clarification and to further emphasize that this is an illegal practice.”

“They are spending taxpayer dollars and we want to make sure that is based on cost effectiveness and merit, not who else they do business with,” he said.

It can be difficult for charter schools to find bond underwriters and other financial expertise, as those schools represent a much smaller segment of the market.

“It’s fairly fast growing but still five percent of student enrollment in the state,” Seth Winick, acting spokesman for the Texas Charter Schools Association, told Texas Monitor in March.

A spokesman for the charter schools association did not respond to an email or phone message seeking comment for this story.

Since the Hilltop letter was issued in January, according to state records, several school districts have used Hilltop, including Dallas and Socorro, on the east side of El Paso. Those records, which are required of public entities entering into contracts over $1 million or requiring a vote of a governing body, are not required of charter schools.

Drew Masterson had expected to spend most if not all of his career with Hilltop until he read Feinberg’s letter in The Texas Monitor. The veteran banker said he had watched for the past two years as some financial firms exerted pressure on public schools.

“Some of our competitors were out there saying, ‘We don’t do charter schools — hire us and fire them,’ ’’ said Masterson, who left Hilltop and started his own finance group, Masterson Advisors. Its first order of business was to service charter schools.

“When [Hilltop] made this decision to exit the charter school market, charters had been a third of what I did,” he said. He took eight of his Hilltop colleagues with him.

Charters have become part of what critics contend is a dual education system that drains funds from public schools, with much less accountability.

While Masterson supports the idea of charters schools, he said, the move to service charters when others are focused on public schools “was a business decision, not a political one.”

Steve Miller can be reached at [email protected].

7 COMMENTS

  1. the state attorney general is indicted on federal charges and his political cronies keep him from being tried. he has no right to comment.

  2. Kind of a pointless ruling as Texas cannot force ISDs to do business with charter schools either. What a waste of taxpayer money

  3. Charter schools ARE public schools, but, yes, with less accountability. If a charter school is successful (and let’s be real – some of them are three-year money vacuums) because of fewer restraints, then let the other schools also be free of those restraints.

    Still, I fear that most folks are looking for (metaphorical) magic beans.

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