Texas Attorney General Adds New Certification Requirement Following DEI Opinion

Background

On January 20, 2026, the Texas Attorney General’s office issued a letter To All Bond Counsel (ABC Letter) prescribing a new certification requirement for Texas issuers. For all municipal bond transcripts submitted by issuers to the Texas Attorney General for review and approval on or after January 26, 2026, issuers must certify that “bond proceeds will not be used for any unconstitutional purposes, including payments made pursuant to unconstitutional DEI programs and including any such DEI programs established by local ordinances or policies.” 

The ABC Letter was issued in the wake of Texas Attorney General Opinion No. KP-0505, dated January 19, 2026, which asserts that a broad range of state and local diversity, equity and inclusion (DEI) initiatives, including Historically Underutilized Business (HUB) and Disadvantaged Business Enterprise (DBE) programs, as well as other race and sex-based contracting, subcontracting, procurement, employment, enrollment, appointment, public funding and economic development preferences, are unconstitutional under both the U.S. and Texas Constitutions.

What Does This Mean for Municipal Bonds in Texas?

• Certification Requirement:
  For all bond transcripts submitted to the Texas Attorney General’s office on or after January 26, 2026, issuers must provide a certification confirming that bond proceeds will not be used for any unconstitutional purposes, including payments made pursuant to unconstitutional DEI programs and including any such DEI programs established by local ordinance or policy. 
• Programs in Focus:
  The analysis set forth in Opinion No. KP-0505 centers on HUB and DBE programs but also extends to any statutory or policy-based preferences based on race or sex, including but not limited to those involving contracting, subcontracting, procurement, employment, enrollment, government appointments, public funding and economic development initiatives.
• Bond Percentage Goals:
  The opinion specifically addresses statutory provisions that set percentage goals or requirements for participation by minority and women-owned businesses in connection with issuances and related contracts. Examples include mandates that a certain percentage of issuance costs or bond proceeds be awarded to such businesses, or that issuers attempt to meet specific participation targets. Opinion No. KP-0505 states that these preferences, whether framed as good faith efforts, attempts or mandatory benchmarks, are unconstitutional.
• Operational Impact:
  Issuers should be prepared to provide the certification, as described in the ABC Letter, and consult their qualified legal counsel with any questions regarding compliance with the ABC Letter and with existing law. 

Links to the ABC Letter can be found here and to Opinion No. KP-0505 can be found here. 

For details on the new requirement, please contact any of the Orrick Public Finance attorneys listed.