Ellis' investment bank involved with $50 billion worth of bond issues by Texas public agencies, including billions with city of Houston, Harris County and Houston Metro; expert says work poses conflict.
A new warehouse for lunchroom food for the Houston school system. Reliant Stadium, the Toyota Center, the Harris County Civil Justice Center and the Hilton Americas Hotel next to Houston’s convention center. A giant water pipeline, seven miles long, to provide water to millions of Houston-area residents. A 15-story expansion of a tower at Texas Children's Hospital.
The projects have three things in common: They all cost millions of dollars to build. They were all paid for, or financed by, government agencies who would likely look to state Sen. Rodney Ellis to help them get things done in Austin. And Ellis' investment bank stood to profit from the construction of all of them.
Ellis’ Houston-based firm, formerly known as Apex Securities or Apex-Pryor but now largely using the name Rice Financial Products, has been involved in nearly $50 billion worth of bonds issued by government entities in Houston and elsewhere in Texas since Ellis took his Senate seat 20 years ago, a Texas Watchdog analysis found.
Additionally, Rice Financial, Apex’s New York-based parent company, has been involved in another $4 billion in bond transactions with Texas public entities since it bought Apex in 1998, records show.
Sen. Rodney Ellis, pictured on the cover of apublication commemorating his service asgovernor for a day in 2000.
Ellis’ firm has done bond business with nearly 80 public entities in Texas during his Senate tenure, including the city of Houston, Harris County, the Houston Independent School District and the Harris County-Houston Sports Authority, whose leaders would likely call on Ellis for changes they want to see in state law or state financial matters.
His firm has also worked on hundreds of millions of dollars in bond issues for transportation agencies, including Houston’s public transit system, Metro, while Ellis served on the state Senate committee overseeing transportation policy. Ellis has advocated for light-rail as a lawmaker, and at the same time, Ellis’ firm was involved in and stood to profit from the millions of dollars in bonds Metro has issued in the past two years to build additional light-rail lines.
(Click here to jump down to a spreadsheet listing the bond issues Ellis' firm has worked on with Texas governments.)
Ellis’ firm does not do business with the Texas state government – the agency that issues the state’s bonds, the Texas Public Finance Authority, felt Ellis' involvement with the company might pose a conflict of interest, Executive Director Dwight Burns said. But as a prominent political figure in Houston, Ellis’ work with local government agencies who would likely call on him for support or representation could also raise ethical questions.
“This is a problem of the first order,” said Russell Muirhead, the Robert Clements associate professor of democracy and politics at Dartmouth College in New Hampshire. "This points to one of the fundamental problems in money and politics and to the kinds of ethical conflicts of interest that can afflict people who are trying to do business with public entities at the same time they're trying to represent those entities.”
Others disagree.
"I think we have to realize that these guys are part-time legislators and full-time something else," said John Breeding, president of the Uptown Houston District, a small local agency overseeing a special tax zone around Houston’s swanky Galleria area. Rice and Apex have worked on six of the district’s bond issues, worth $83 million, since 2002.
"As long as there are ethics rules that our elected officials have to operate under, I'm comfortable with that,” Breeding said. “We also have rules we have to operate under, and as long as we meet those rules, I'm OK. I don't think you can make it perfect either way."
(A number of Texas legislators have faced potential conflicts of interest or other ethical issues in recent memory. Read our companion piece about lawmakers from both parties who have drawn controversy.)
Some other examples of the bond issues in which Ellis’ firm was involved and stood to profit:
- Construction of new schools in Aldine and Rosenberg, both in Houston's suburbs, in the early 2000s. Ellis’ firm made $13,000 profit off bonds sold by the Lamar Consolidated Independent School District in Rosenberg, records show.
- Construction of 15 additional stories on the West Tower of Texas Children's Hospital several years ago, a $100-million-plus project financed by a nonprofit arm of the Harris County government.
- Construction of a giant water pipe nearly 15 years ago to carry water from Lynchburg Reservoir, near the San Jacinto Battlefield Monument, to a City of Houston water plant for cleaning and treatment.
- The borrowing of nearly $240 million by Houston's Metro system last year to extend the city's light-rail system.
- The borrowing of $825 million last year by the North Texas Tollway Authority to fund additional construction of the Sam Rayburn Tollway and the President George Bush Turnpike Eastern Extension near Dallas.
Maturity schedule showing future interest payments for a bond issue on which Sen. Rodney Ellis' firmserved as an underwriter.
Exactly how much profit Ellis' firm has made off of its work in Texas is not clear, as many public agencies said they do not keep records of how many bonds are sold by each firm on a given bond issue, or of fees or profits paid to those firms.
Using the state public records law, Texas Watchdog sought such records for more than 100 bond transactions involving Rice or Apex in the past decade -- about a third of all the transactions the firm handled in Texas since 1992 – but found that the government agencies in question could make available records of underwriters' profits in less than two dozen cases. The total amount paid to Ellis' firm in that small group is $261,000.
The available records show Apex and Rice were minor players in most of the bond transactions the firm worked on in Texas, and, in that role, experts said Ellis’ firm would have likely garnered just a fraction of the profits off each set of bonds issued.
Through a spokesman, Ellis declined to comment for this story. A Democrat who, as a former Senate speaker pro tem, was once third in the state's line of succession, Ellis faces minimal opposition in the general election this November in his bid for a seventh Senate term.
Continued on Page 2: Harris County among bond underwriting clients for Sen. Rodney Ellis' firm
Later in the story:
Page 3: Finance director denies political influence in choosing Sen. Rodney Ellis' firm; expert sees ethical conflict
Page 4: Mayor Annise Parker: Sen. Rodney Ellis 'not an active participant' in city's bond business
Page 5: Sen. Rodney Ellis serves on transportation committee while Ellis' firm underwrites bonds for transportation agencies
Page 6: 'Politically connected': Sen. Rodney Ellis mixes business and politics, but profits hard to estimate
Ellis' firm's bond work with Texas public agencies
State Sen. Rodney Ellis' investment bank, initially called Apex Securities but later referred to as Apex-Pryor and more recently as Rice Financial, has been involved in nearly 400 bond issues with governments and public entities in Texas during Ellis' Senate career. The spreadsheet below includes bond issues Apex worked on from 1992 to the present -- Ellis took his Senate seat in 1990 -- as well as bond issues Rice Financial worked on since 1999 (Rice bought Apex in 1998). The list below does not include bond work by Pryor McClendon Counts prior to Rice's purchase of that firm, at which time Pryor was merged with Apex to create Apex-Pryor. The data was provided by Thompson-Reuters News Service, which publishes The Bond Buyer, a prominent trade publication.
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