in Houston, Texas

(Continued from page 1.)

So how does Ellis’ firm profit from the district’s financial dealings?

Here’s how it works: A Dallas investment bank, First Southwest, contracts directly with Houston ISD to issue the district’s bonds and determine the extent of its borrowing capacity.

Rice Financial, Ellis’ firm, works hand-in-hand with First Southwest as a district subcontractor and receives no direct fees from the district--and school officials say they don't keep records pertaining to Rice Financial's work on file.

But the state senator's company, which also does business as Apex Securities, is still in line to make a hefty chunk of change from the district’s financial transactions.

As a part of First Southwest’s most recent contract with HISD, the minority partner and co-financial adviser (in this case, Rice Financial) is eligible to receive 30 percent of First Southwest’s fees.

If First Southwest issues $400 million in bonds or more -- as it would have done after voters approved the 2007 bond campaign -- the district pays the company up to $287,250. As the minority partner, Rice Financial is eligible to receive as much as 30 percent of that, or $86,000.

(Uhl did confirm that Rice’s work with First Southwest covers the district’s minority participation clause. J. Donald Rice, the CEO of the company that bears his name, is African-American, as are all four of the company’s partners. Ellis is the former chairman of Apex, which Rice acquired in 1998. After the sale, Ellis became a partner at Rice and on the company’s Web site is listed second from the top after only the CEO.)

Although municipal bond transactions are complex, this much is simple: Ellis' company stands to gain if the school district issues bonds.

And, up to a certain point, the larger the size of the bond package, the larger the firm’s compensation. So while Ellis may have had valid reasons for supporting the district’s 2007 financial plan, his firm still stood to make a lot more money if voters heeded the lawmaker’s endorsement.

Ellis, Rice Financial could not be reached

It’s not known to what extent Ellis’ stature as a state senator helped his company cozy up to First Southwest. The state senator didn’t return repeated phone calls and e-mail messages left for him beginning March 4 from Texas Watchdog, nor did anyone at Rice. But Black Enterprise magazine reported in a 2000 feature story that Ellis' side job as a legislator certainly comes in handy for a company in the bond business.

“Rodney Ellis has contacts in municipal government through several elected and appointed positions,” reads the article which is posted prominently on Rice Financial’s Web site. “These relationships have helped Rice Financial win new derivatives business.”

It's hard to imagine that Ellis' relationships have hurt his firm's municipal bond business either. The state senator's firm has worked with his hometown school district for at least 10 years, Uhl says. During that stretch, Ellis' firm, doing business as Apex, partnered with First Southwest on HISD's bond transactions.

So just how much money did Ellis' firm receive from the district?  Here's how to figure that out: HISD public records show that even before its latest $805 million bond package, the district paid First Southwest nearly $500,000 from 2001 to 2007. Since First Southwest's contract with the district encourages the bank to redirect as much as 30 percent of its compensation to its minority partner, Ellis' firm received as much as $150,000 in fees.

So when the state senator intervened in a tense debate, went against the position of the NAACP and endorsed HISD's 2007 bond package, his firm had already profited nicely from the district's bond transactions. If he told that to anyone--voters, reporters, school trustees--we haven't heard a thing.

The Senator Banker

This is hardly the first time Ellis has appeared to have blurred the lines between his positions as a lawmaker and businessman. In 1995, in Texas Monthly’s roundup of the state’s Best and Worst Legislators, the magazine placed Ellis among the best and recognized him for being an effective and principled lawmaker. But the magazine rebuked the state senator for filing bills that encouraged the use of “Historically Underutilized Businesses,” which could have aided his own company at the time.

“The knock against him is that he goes overboard on the issue of guaranteeing contracts for minority-owned firms, known as HUBs (historically underutilized businesses),” read the story. “It has not escaped notice that Ellis is the majority owner of an investment banking firm that is a state-certified HUB, and while the firm does no business with the state, it certainly benefits from a political climate in which HUBs are regarded as a proper means of doing business.”

The Texas Monthly write-up, which is eagerly awaited by those who follow the legislature, may have chastened Ellis. In the next session, in 1997, the Houston Democrat filed no bills related to HUBs.

But in 1999 he authored several more. One of those focused on “increasing the competitiveness of historically underutilized businesses in state procurement.” Senate Bill 1636 died in committee.

Contact Matt Pulle at matt@texaswatchdog.org or 713-980-9777.

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