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HomeMy WebLinkAbout10-554 Confidential ADVICE OF COUNSEL March 15, 2010 10-554 This responds to your letter of January 21, 2010, by which you requested a confidential advisory from the Pennsylvania State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. §1101 et seq., would impose any prohibitions or restrictions upon a Public Official A for Political Subdivision B with regard to matters before the Political Subdivision B Governmental Body C involving various governmental entities that are clients of a company in which the Public Official A and/or his immediate family member have a 50% ownership interest. Facts: You request a confidential advisory from the Pennsylvania State Ethics Commission based upon submitted facts that may be fairly summarized as follows. You state that on [date], you were appointed to serve on the Political Subdivision B Governmental Body C, hereinafter referred to as “the Board.” In a private capacity, you and/or an immediate family member have a 50% ownership interest in a [type of company] named [name of company], hereinafter referred to as “the Company.” The Company has on-going agreements with the following governmental entities to perform services: (1) Political Subdivision B, through Department D, hereinafter referred to as “the Department”; (2) Institution E; and (3) Political Subdivision F. You state that you disclosed these relationships during the appointment process. Re: Political Subdivision B G Projects: You state that several years ago, the Company entered into an agreement with Political Subdivision B through the Department to provide both H services and I services for [number] projects, hereinafter referred to as “the G Projects.” You state your understanding that the G Projects are fully funded by the state and federal governments. The Company has completed and has been compensated for the H services for the G Projects. You state that the Company remains obligated to provide I services for the G Projects, which services have not yet commenced. Confidential Advice, 10-554 March 15, 2010 Page 2 The Department is administered by Professional J, who provides administration and supervision of the G Projects. Professional J receives a salary from Political Subdivision B and serves at the will of the Board. Based upon the above facts, you pose the following specific questions: (1) Whether you would have a conflict of interest with regard to providing input in budget preparation and/or voting on the budget for Political Subdivision B where such budget would include funding for the G Projects (this submitted question would appear to be at odds with the submitted fact that the G Projects are fully funded by the state and federal governments); (2) Whether you would have a conflict of interest with regard to providing input in budget preparation and/or voting on the budget for Political Subdivision B where such budget would include funding for the Department and/or Professional J; and (3) Whether you would be in any way restricted by the Ethics Act in your dealings with the Department and/or Professional J. Re: Institution E: You state that several months prior to your appointment as a Public Official A, the Company entered into a services agreement with Institution E to provide services for a project that is hereinafter referred to as “the Institution E Project.” The Institution E Project is funded, at least in part, by a bond that Political Subdivision B floated prior to your appointment. The Company’s agreement with Institution E is not contingent on Institution E receiving a financial commitment from Political Subdivision B. You state that Institution E is a K sponsored by Political Subdivision B. You state your understanding that Political Subdivision B is statutorily mandated to provide operational funding to Institution E on a yearly basis. In the past, the Board has included funding for Institution E in the annual budget of Political Subdivision B. In addition, at the time you submitted your advisory request, the 2010 proposed budget included financial commitment(s) to fund on-going capital projects and a portion of the operating expenses of Institution E. You state that the Board appoints individuals to serve on Institution E’s Governing Board L. You state your understanding that the responsibilities of Institution E’s Governing Board L include, inter alia, entering into agreements and hiring consultants. Based upon the above facts, you pose the following specific questions: (1) Whether Institution E would be considered a “governmental body” with which you are associated for purposes of Section 1103(f) of the Ethics Act; (2) Whether you would have a conflict of interest with regard to participating in preparing and/or voting as to the budget of Political Subdivision B where such budget would either include or not include funding for Institution E; (3) Whether the answer to question 2 immediately above would vary depending upon whether funding provided in the budget of Political Subdivision B for Institution E would be dedicated to operations, capital projects, or the specific services the Company has agreed to provide; Confidential Advice, 10-554 March 15, 2010 Page 3 (4) If the Board would approve a budget with funding for Institution E, whether your subsequent vote on the monthly funding allocation to Institution E in accordance with such annual budget amount would present a conflict of interest; (5) Whether you would have a conflict of interest with regard to providing input or participating as to the appointment of Members of Institution E’s Governing Board L; and (6) Whether you would in any way be restricted under the Ethics Act in your dealings with Institution E. Re: Political Subdivision F: The Company has on-going agreements to provide services to Political Subdivision F. The Board appoints individuals to serve on Political Subdivision F’s Governing Board M. You state your understanding that the responsibilities of Political Subdivision F’s Governing Board M include, inter alia, entering into agreements and hiring consultants. Based upon the above facts, you pose the following specific questions: (1) Whether Political Subdivision F would be considered a “governmental body” with which you are associated for purposes of Section 1103(f) of the Ethics Act; (2) Whether you would have a conflict of interest with regard to appointing individuals to serve on Political Subdivision F’s Governing Board M; (3) To the extent Political Subdivision F would seek funding from Political Subdivision B or one of its departments, whether you would have a conflict of interest with regard to providing input and/or voting as to such funding; (4) Whether the answer to question 3 immediately above would vary depending upon whether the funding requested would be dedicated to operations, capital projects, or a project involving the Company; (5) Whether the Company would be prohibited from pursuing future contracts or work with Political Subdivision F; and (6) Whether you would be in any way restricted by the Ethics Act in your dealings with Political Subdivision F. In addition to the above, you seek guidance as to how to handle potential conflicts of interest under the Ethics Act. Discussion: It is initially noted that pursuant to Sections 1107(10) and 1107(11) of the Ethics Act, 65 Pa.C.S. §§ 1107(10), (11), advisories are issued to the requester based upon the facts that the requester has submitted. In issuing the advisory based upon the facts that the requester has submitted, the Commission does not engage in an independent investigation of the facts, nor does it speculate as to facts that have not been submitted. It is the burden of the requester to truthfully disclose all of the material facts relevant to the inquiry. 65 Pa.C.S. §§ 1107(10), (11). An advisory only affords a defense to the extent the requester has truthfully disclosed all of the material facts. As a Public Official A for Political Subdivision B, you are a public official as that term is defined under the Ethics Act, and therefore you are subject to the provisions of the Ethics Act. Confidential Advice, 10-554 March 15, 2010 Page 4 Sections 1103(a) and 1103(j) of the Ethics Act provide: § 1103. Restricted activities (a)Conflict of interest.-- No public official or public employee shall engage in conduct that constitutes a conflict of interest. (j)Voting conflict.-- Where voting conflicts are not otherwise addressed by the Constitution of Pennsylvania or by any law, rule, regulation, order or ordinance, the following procedure shall be employed. Any public official or public employee who in the discharge of his official duties would be required to vote on a matter that would result in a conflict of interest shall abstain from voting and, prior to the vote being taken, publicly announce and disclose the nature of his interest as a public record in a written memorandum filed with the person responsible for recording the minutes of the meeting at which the vote is taken, provided that whenever a governing body would be unable to take any action on a matter before it because the number of members of the body required to abstain from voting under the provisions of this section makes the majority or other legally required vote of approval unattainable, then such members shall be permitted to vote if disclosures are made as otherwise provided herein. In the case of a three-member governing body of a political subdivision, where one member has abstained from voting as a result of a conflict of interest and the remaining two members of the governing body have cast opposing votes, the member who has abstained shall be permitted to vote to break the tie vote if disclosure is made as otherwise provided herein. 65 Pa.C.S. §§ 1103(a), (j). The following terms are defined in the Ethics Act as follows: § 1102. Definitions "Conflict" or "conflict of interest." Use by a public official or public employee of the authority of his office or employment or any confidential information received through his holding public office or employment for the private pecuniary benefit of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated. The term does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the public official or public employee, a member of his immediate family or a business with which he or a member of his immediate family is associated. "Authority of office or employment." The actual power provided by law, the exercise of which is necessary to Confidential Advice, 10-554 March 15, 2010 Page 5 the performance of duties and responsibilities unique to a particular public office or position of public employment. "Immediate family." A parent, spouse, child, brother or sister. "Business." Any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, self-employed individual, holding company, joint stock company, receivership, trust or any legal entity organized for profit. "Business with which he is associated." Any business in which the person or a member of the person's immediate family is a director, officer, owner, employee or has a financial interest. "Financial interest." Any financial interest in a legal entity engaged in business for profit which comprises more than 5% of the equity of the business or more than 5% of the assets of the economic interest in indebtedness. 65 Pa.C.S. § 1102. Pursuant to Section 1103(a) of the Ethics Act, a public official/public employee is prohibited from using the authority of public office/employment or confidential information received by holding such a public position for the private pecuniary benefit of the public official/public employee himself, any member of his immediate family, or a business with which he or a member of his immediate family is associated. In each instance of a conflict of interest, the public official/public employee would be required to abstain fully from participation. The abstention requirement would not be limited merely to voting, but would extend to any use of authority of office, including, but not limited to, discussing, conferring with others, and lobbying for a particular result. Juliante, Order 809. Subject to certain statutory exceptions, in each instance of a voting conflict, Section 1103(j) of the Ethics Act requires the public official/public employee to abstain and to publicly disclose the abstention and reasons for same, both orally and by filing a written memorandum to that effect with the person recording the minutes. Sections 1103(b) and 1103(c) of the Ethics Act, 65 Pa.C.S. §§ 1103(b), (c), provide in part that no person shall offer or give to a public official/public employee anything of monetary value and no public official/public employee shall solicit or accept anything of monetary value based upon the understanding that the vote, official action, or judgment of the public official/public employee would be influenced thereby. Reference is made to these provisions of the law not to imply that there has been or will be any transgression thereof but merely to provide a complete response to the question presented. Section 1103(f) of the Ethics Act provides as follows: § 1103. Restricted activities (f)Contract.-- No public official or public employee or his spouse or child or any business in which the person or his spouse or child is associated shall enter into any contract valued at $500 or more with the governmental body with Confidential Advice, 10-554 March 15, 2010 Page 6 which the public official or public employee is associated or any subcontract valued at $500 or more with any person who has been awarded a contract with the governmental body with which the public official or public employee is associated, unless the contract has been awarded through an open and public process, including prior public notice and subsequent public disclosure of all proposals considered and contracts awarded. In such a case, the public official or public employee shall not have any supervisory or overall responsibility for the implementation or administration of the contract. Any contract or subcontract made in violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of the making of the contract or subcontract. 65 Pa.C.S. § 1103(f). The following terms relating to Section 1103(f) are defined in the Ethics Act as follows: § 1102. Definitions "Contract." An agreement or arrangement for the acquisition, use or disposal by the Commonwealth or a political subdivision of consulting or other services or of supplies, materials, equipment, land or other personal or real property. The term shall not mean an agreement or arrangement between the State or political subdivision as one party and a public official or public employee as the other party, concerning his expense, reimbursement, salary, wage, retirement or other benefit, tenure or other matters in consideration of his current public employment with the Commonwealth or a political subdivision. "Governmental body with which a public official or public employee is or has been associated." The governmental body within State government or a political subdivision by which the public official or employee is or has been employed or to which the public official or employee is or has been appointed or elected and subdivisions and offices within that governmental body. 65 Pa.C.S. § 1102. Section 1103(f) does not operate to make contracting with the governmental body permissible where it is otherwise prohibited. Rather, where a public official/public employee, his spouse or child, or a business with which he, his spouse or child is associated, is otherwise appropriately contracting with the governmental body, or subcontracting with any person who has been awarded a contract with the governmental body, in an amount of $500.00 or more, Section 1103(f) requires that an “open and public process” be observed as to the contract with the governmental body. Section 1103(f) of the Ethics Act also requires that the public official/public employee in his public capacity may not have any supervisory or overall responsibility as to the implementation or administration of the contract with the governmental body. In applying the above provisions of the Ethics Act to your inquiry, it is noted that Section 1103(a) of the Ethics Act pertaining to conflicts of interest does not prohibit Confidential Advice, 10-554 March 15, 2010 Page 7 public officials/public employees from having outside business activities or employment; however, the public official/public employee may not use the authority of his public position--or confidential information obtained by being in that position--for the advancement of his own private pecuniary benefit or that of a business with which he is associated. Pancoe, Opinion 89-011. Examples of conduct that would be prohibited under Section 1103(a) would include: (1) the pursuit of a private business opportunity in the course of public action, Metrick, Order 1037; (2) the use of governmental facilities, such as governmental telephones, postage, equipment, research materials, or other property, or the use of governmental personnel, to conduct private business activities, Freind, Order 800; Pancoe, supra; and (3) the participation in an official capacity as to matters involving the business with which the public official/public employee is associated in his private capacity (Gorman, Order 1041; Rembold, Order 1303; Wilcox, Order 1306), or private client(s) (Miller, Opinion 89-024; Kannebecker, Opinion 92-010). A reasonable and legitimate expectation that a business relationship will form may also support a finding of a conflict of interest. Amato, Opinion 89-002. Based upon the submitted facts, the Company is a business with which you and/or a member of your immediate family are associated. As a public official, you generally would have a conflict of interest in your official capacity in matters involving the Company and/or its clients. Kannebecker, supra; Miller, supra. You are advised that although a pecuniary benefit flowing solely to a governmental entity would not form the basis for a conflict of interest under Section 1103(a) of the Ethics Act (see, Confidential Opinion, 01-005; McCarrier, Opinion 98- 005; Warso, Order 974), where a governmental entity would be a client of the public official/public employee, or a client of a business with which the public official/public employee is associated, such client relationship itself would form the basis for a conflict of interest in matters involving the client. Cf., Kannebecker, supra; Sobel, Advice 08- 507; Confidential Advice, 07-539; Bruening, Advice 02-606. Your specific questions will now be considered. In response to your specific questions regarding the Political Subdivision B G projects, you are advised as follows. You generally would have a conflict of interest with regard to providing input, participating in preparing, and/or voting on the budget for Political Subdivision B where such budget would include funding for the G Projects, because the Company is providing contractual services as to same. You generally would have a conflict of interest with regard to providing input, participating in preparing, and/or voting on the budget for Political Subdivision B where such budget would include funding for the Department, to the extent the Department provides oversight or performs other duties with respect to Company agreement(s). You generally would have a conflict of interest with regard to providing input, participating in preparing, and/or voting on the budget for Political Subdivision B where such budget would include funding for Professional J, who provides administration and supervision with respect to the Company’s agreement(s) to provide services as to the G Projects. See, e.g., Confidential Opinion, 05-004; Elisco, Opinion 00-003 (pertaining to reciprocity of power). In each instance of a conflict of interest, you would be required to abstain fully from participation. The abstention requirement would extend beyond voting to include any use of authority of office. In each instance of a voting conflict, you would be required to abstain and to fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Confidential Advice, 10-554 March 15, 2010 Page 8 If budget item(s) presenting a conflict of interest for you would be voted on separately, your conflict of interest as to the approval of the Political Subdivision B budget would be limited to those particular item(s). In your public capacity, you would be restricted by Sections 1103(a), 1103(c), 1103(f), and 1103(j) in your dealings with the Department and/or Professional J. In your private capacity, the only provision of the Ethics Act that would apply to you would be Section 1103(b). In response to your specific questions regarding Institution E, you are advised as follows. Although Institution E would be considered a governmental entity (cf., Confidential Advice, 05-576), it would not be considered a governmental body with which you are associated because you are not employed by it and you have not been appointed/elected to serve within it. See, 65 Pa.C.S. § 1102 (definition of “governmental body with which a public official or public employee is or has been associated”). You generally would have a conflict of interest with regard to participating in preparing and/or voting on the budget for Political Subdivision B where such budget would include funding for Institution E, because Institution E is a client of the Company. The conflict would exist regardless of whether the funding provided in the budget would be dedicated to operations, capital projects, or the specific services the Company has agreed to provide. If the budget would not include funding for Institution E, you would only have a conflict of interest if there would be some other basis for a conflict to exist. As noted above, if budget item(s) presenting a conflict of interest for you would be voted on separately, your conflict of interest as to the approval of the Political Subdivision B budget would be limited to those particular item(s). You would not have a conflict of interest in voting to approve a monthly funding allocation to a Company client such as Institution E where such allocation would be limited to a pre-fixed, routine, uncontested amount based upon the budget amount previously approved by the Board without your participation. See, Yezzi, Order 825 at 58; Krushinski, Order 168; Pizonka/Rieder/Rittenhouse, Opinion 09-007; Maholick, Opinion 90-010; Brooks, Opinion 89-023. You would have a conflict of interest with regard to appointing Members of Institution E’s Governing Board L, because such individuals would be in a position to make decisions as to the Company’s services agreement for the Institution E Project. In each instance of a conflict of interest, you would be required to abstain fully from participation. The abstention requirement would extend beyond voting to include any use of authority of office. In each instance of a voting conflict, you would be required to abstain and to fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. In your public capacity, you would be restricted by Sections 1103(a), 1103(c), 1103(f), and 1103(j) in your dealings with Institution E. In your private capacity, the only provision of the Ethics Act that would apply to you would be Section 1103(b). In response to your specific questions regarding Political Subdivision F, you are advised as follows. Although Political Subdivision F would be considered a governmental entity, it would not be considered a governmental body with which you are associated because you are not employed by it and you have not been appointed/elected to serve within it. Confidential Advice, 10-554 March 15, 2010 Page 9 See, 65 Pa.C.S. § 1102 (definition of “governmental body with which a public official or public employee is or has been associated”). You would have a conflict of interest with regard to appointing individuals to serve on Political Subdivision F’s Governing Board M, because such individuals would be in a position to make decisions as to the Company’s on-going agreements to provide services to Political Subdivision F. To the extent that Political Subdivision F would seek funding from Political Subdivision B or one of its departments, you would have a conflict of interest with regard to providing input and/or voting as to such funding because Political Subdivision F is a client of the Company. The conflict would exist regardless of whether such funding would be dedicated to operations, capital projects, or a project involving the Company. In each instance of a conflict of interest, you would be required to abstain fully from participation. The abstention requirement would extend beyond voting to include any use of authority of office. In each instance of a voting conflict, you would be required to abstain and to fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Although you have not established legal standing to request advice on behalf of the Company as to whether the Company would be prohibited from pursuing future contracts or work with Political Subdivision F, it is generally noted that Political Subdivision F is a separate governmental body from the one with which you serve. In your public capacity, you would be restricted by Sections 1103(a), 1103(c), 1103(f), and 1103(j) in your dealings with Political Subdivision F. In your private capacity, the only provision of the Ethics Act that would apply to you would be Section 1103(b). The propriety of the proposed conduct has only been addressed under the Ethics Act; the applicability of any other statute, code, ordinance, regulation or other code of conduct other than the Ethics Act has not been considered in that they do not involve an interpretation of the Ethics Act. Specifically not addressed herein is the applicability of Code N. Conclusion: As a Public Official A for Political Subdivision B, you are a public official subject to the provisions of the Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. § 1101 et seq. Based upon the submitted fact that you and/or an immediate family member have a 50% ownership interest in a [type of company] named [name of company], hereinafter referred to as “the Company,” the Company is a business with which you and/or a member of your immediate family are associated. Section 1103(a) of the Ethics Act, 65 Pa.C.S. § 1103(a), would not preclude you from outside employment/business activity subject to the restrictions and qualifications as noted above. As a public official, you generally would have a conflict of interest in your official capacity in matters involving the Company and/or its clients, including clients that are governmental entities. You generally would have a conflict of interest with regard to providing input, participating in preparing, and/or voting on the budget for Political Subdivision B where such budget would include funding for project(s) for which the Company is providing services or has a reasonable expectation of providing services. You also generally would have a conflict of interest with regard to providing input, participating in preparing, and/or voting on the budget for Political Subdivision B where such budget would include funding for: (1) a department of Political Subdivision B that has oversight/duties as to Company agreement(s); (2) other Company client(s); or (3) those overseeing, administering, or supervising agreement(s) with the Company, regardless of whether Confidential Advice, 10-554 March 15, 2010 Page 10 such funding would specifically pertain to the Company or its services. If budget item(s) presenting a conflict of interest for you would be voted on separately, your conflict of interest as to the approval of the Political Subdivision B budget would be limited to those particular item(s). You would not have a conflict of interest in voting to approve a monthly funding allocation to a Company client where such allocation would be limited to a pre-fixed, routine, uncontested amount based upon the budget amount previously approved by the Board without your participation. You would have a conflict of interest with regard to appointing individuals to serve on the governing board(s) of entity(ies) that are Company client(s). In your private capacity, the only provision of the Ethics Act that would apply to you would be Section 1103(b). The other provisions of the Ethics Act discussed above would apply to you in your public capacity. In each instance of a conflict of interest, you would be required to abstain fully from participation. The abstention requirement would extend beyond voting to include any use of authority of office. In each instance of a voting conflict, you would be required to abstain and to fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Act. Pursuant to Section 1107(11) of the Ethics Act, an Advice is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any other civil or criminal proceeding, provided the requester has disclosed truthfully all the material facts and committed the acts complained of in reliance on the Advice given. This letter is a public record and will be made available as such. Finally, if you disagree with this Advice or if you have any reason to challenge same, you may appeal the Advice to the full Commission. A personal appearance before the Commission will be scheduled and a formal Opinion will be issued by the Commission. Any such appeal must be in writing and must be actually received at the Commission within thirty (30) days of the date of this Advice pursuant to 51 Pa. Code §13.2(h). The appeal may be received at the Commission by hand delivery, United States mail, delivery service, or by FAX transmission (717-787-0806). Failure to file such an appeal at the Commission within thirty (30) days may result in the dismissal of the appeal. Sincerely, Robin M. Hittie Chief Counsel