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HomeMy WebLinkAbout10-587 Schreiber ADVICE OF COUNSEL June 18, 2010 Donald B. Hoyt, Esquire Blakey, Yost, Bupp & Rausch, LLP 17 East Market Street York, PA 17401 10-587 Dear Mr. Hoyt: This responds to your letters dated May 11, 2010, and May 12, 2010, by which you requested an 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 secretary of a city redevelopment authority, whose spouse is the co-owner of a company, with regard to participating in matter(s) pertaining to a loan application that said company has pending before the board of the city redevelopment authority. Facts: As Solicitor for the Redevelopment Authority of the City of York (“the RDA”), you have been authorized by Kevin J. Schreiber (“Mr. Schreiber”), Secretary of the RDA, to request an advisory from the Pennsylvania State Ethics Commission on his behalf. You have submitted facts, the material portion of which may be fairly summarized as follows. The RDA is an Urban Development Authority organized pursuant to the Urban Redevelopment Law, 35 P.S. § 1701 et seq. In May/June 2006, Mr. Schreiber was a staff person with the RDA. The Secretary of the RDA at that time obtained permission from the RDA Board to enter into an arrangement with PeoplesBank (“the Bank”) regarding the development of a City Restaurant Revolving Loan Fund (“the Loan Fund”). You have submitted a copy of a document entitled “Memorandum of Understanding By and Between the City of York, Pennsylvania Redevelopment Authority and PeoplesBank a Codorus Valley Corporation” (“the Memorandum”). The Memorandum was executed by the RDA and the Bank on June 20, 2006. It is noted that pursuant to the Memorandum, the RDA is responsible for the marketing and distribution of Loan Fund applications and for gathering all necessary background Hoyt, 10-587 June 18, 2010 Page 2 information of a Loan Fund applicant. It is further noted that per the Memorandum, the Bank, on behalf of the RDA, shall process the prepared loan package(s) for further review by a separate screening/loan approval committee (“the Advisory Committee”) appointed by the RDA, which committee will recommend to the RDA Board loans to be approved. It is additionally noted that pursuant to the Memorandum, the RDA Board shall vote whether to approve or deny applicant(s) for Loan Funds based upon loan packages prepared by the Bank. Loans from the Loan Fund are fully secured by government funding. You state that grant funding in the approximate amount of $100,000 from the U.S. Department of Agriculture’s Rural Business Enterprise Grant Program was matched with funds in the amount of $31,900 from the RDA and that this pool of money was placed with the Bank as seed money for applicants who desire funds from the Loan Fund. You have submitted a copy of various RDA documents (“the RDA Documents”) pertaining to the Loan Fund. Per the RDA Documents, the Loan Fund offers cash- secured term loans between $1,000 and $50,000. In the spring of 2009, Mr. Schreiber assumed the duties of the position of Secretary of the RDA. Mr. Schreiber is a full-time employee of the City of York (“City”), which pays his salary as both a City and RDA employee. You state that as Secretary of the RDA, Mr. Schreiber is responsible for recommending official action by the RDA Board in the areas of contracting or procurement, administering or monitoring grants or subsidies, planning or zoning, and inspecting, licensing, regulating or auditing any person. Mr. Schreiber’s spouse, Jennifer (“Mrs. Schreiber”), and another individual formed a company named “Green Bean Roasting Company, LLC” (“the Company”). The Company submitted an application to the Advisory Committee to obtain seed funding for the Company from the Loan Fund. You state that the Advisory Committee reviewed the Company’s Loan Fund application and awarded it sufficient points and that the Company’s Loan Fund application awaits a final decision by the Bank and action by the RDA Board. You further state that Mr. Schreiber did not participate in the review of the Company’s Loan Fund application or attend any meetings at which said application was discussed. Based upon the above submitted facts, you ask whether Mr. Schreiber would have a conflict of interest as to the Company’s Loan Fund application. You express your view that the benefit of a loan from the Loan Fund to the Company could be of de minimis economic impact since the funds would be loaned to the Company at standard rates or, in the alternative, that a loan from the Loan Fund to the Company would affect 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 Company. 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. It is further initially noted that, pursuant to the same aforesaid Sections of the Ethics Act, an opinion/advice may be given only as to prospective (future) conduct. To the extent that your inquiry relates to conduct that has already occurred, such past conduct may not be addressed in the context of an advisory opinion. However, to the extent your inquiry relates to future conduct, your inquiry may and shall be addressed. Hoyt, 10-587 June 18, 2010 Page 3 Preliminarily, it is noted that the submitted facts do not contain an official position description for Mr. Schreiber’s position as Secretary of the RDA. However, based upon the submitted facts as to Mr. Schreiber’s duties, you are advised that in his capacity as Secretary of the RDA, Mr. Schreiber is a public official/public employee subject to the Ethics Act. 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 related to Section 1103(a) 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 Hoyt, 10-587 June 18, 2010 Page 4 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 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. 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. The above statutory definition of the term "conflict" or "conflict of interest" contains two exclusions, referred to herein as the "de minimis exclusion" and the "class/subclass exclusion." The de minimis exclusion precludes a finding of conflict of interest as to an action having a de minimis (insignificant) economic impact. Thus, when a matter that would otherwise constitute a conflict of interest under the Ethics Act would have an insignificant economic impact, a conflict would not exist and Section 1103(a) of the Ethics Act would not be implicated. See, Kolb, Order 1322; Schweinsburg, Order 900. The Commission has determined the applicability of the de minimis exclusion on a case-by-case basis, considering all relevant circumstances. In the past, the Commission has found amounts ranging from $2 to approximately $500 to be de minimis. In Bixler v. State Ethics Commission, 847 A.2d 785 (Pa. Cmwlth. 2004), the Commonwealth Court of Pennsylvania held that a net profit in the amount of $561.77 resulting from business transactions between a township supervisor’s employer and the township would fall within the de minimis exclusion. In order for the class/subclass exclusion to apply, two criteria must be met: (1) the affected public official/public employee, immediate family member, or business with which the public official/public employee or immediate family member is associated must be a member of a class consisting of the general public or a true subclass consisting of more than one member; and (2) the public official/public employee, immediate family member, or business with which the public official/public employee or immediate family member is associated must be affected "to the same degree" (in no way differently) than the other members of the class/subclass. 65 Pa.C.S. § 1102; see, Kablack, Opinion 02-003; Rubenstein, Opinion 01-007. The first criterion of the exclusion is satisfied where the members of the proposed subclass are similarly Hoyt, 10-587 June 18, 2010 Page 5 situated as the result of relevant shared characteristics. The second criterion of the exclusion is satisfied where the individual/business in question and the other members of the class/subclass are reasonably affected to the same degree by the proposed action. Kablack, supra. With regard to government loan/grant programs, the State Ethics Commission has determined that in order to ensure that a public official or public employee does not have a conflict of interest when he, as a citizen, seeks to participate in a loan or grant program administered by the governmental body that he serves, he must: 1. Play no role in establishing the criteria under which the program is to operate, particularly with reference to the structure or administration of the program; 2. Play no role in establishing or implementing the criteria by which selections for program participation are to be made; 3. Play no role in the process of selecting and reviewing applicants or in awarding grants or funds; 4. Use no confidential information acquired during the holding of public office or public employment to apply for or to obtain such funds, grants, etc., and 5. Abstain and satisfy the disclosure requirements of Section 1103(j) above in cases where the public official/public employee is associated with administering the loan or grant program. The abstention and disclosure would be required not only as to his own application, but also as to similarly situated individuals with whom the public official/public employee might be competing for available funds. When Section 1103(f) of the Ethics Act would be applicable, that Section would expressly prohibit the public official/public employee from having any supervisory or overall responsibility as to the contract or program. Woodring, Opinion 90-001. In applying the above provisions of the Ethics Act to the instant matter, you are advised as follows. Mr. Schreiber’s spouse, Mrs. Schreiber, is a member of his “immediate family” as that term is defined in the Ethics Act. The Company is a business with which Mrs. Schreiber is associated in her capacity as an owner of the Company. Subject to the statutory exclusions to the definition of “conflict” or “conflict of interest” as set forth in the Ethics Act, 65 Pa.C.S. § 1102, pursuant to Section 1103(a) of the Ethics Act, Mr. Schreiber would have a conflict of interest in his capacity as Secretary of the RDA in matters that would financially impact him, his spouse, or the Company. In each instance of a conflict of interest, Mr. Schreiber would be required to abstain from participation, and in the event of a voting conflict, to abstain and fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. In response to your specific question, you are advised that Mr. Schreiber would have a conflict of interest and would be required to abstain fully with regard to the Company’s Loan Fund Application. (Cf., Adams, Opinion 07-010). The de minimis exclusion would not be applicable because, based upon the submitted facts, the Loan Fund offers cash-secured term loans between $1,000 and $50,000. The class/subclass exclusion would not be applicable because the Company would not be part of a subclass of similarly situated companies, but rather, would be a uniquely situated company affected by the RDA’s approval or disapproval of its Loan Fund application. Hoyt, 10-587 June 18, 2010 Page 6 The propriety of the proposed conduct has only been addressed under the Ethics Act. Specifically not addressed herein is the applicability of the Urban Redevelopment Law. Conclusion: As Secretary of the Redevelopment Authority of the City of York (“the RDA”), Kevin J. Schreiber (“Mr. Schreiber”) is a public official/public employee 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 facts that: (1) in May/June 2006, the RDA entered into an arrangement with PeoplesBank (“the Bank”) regarding the development of a City Restaurant Revolving Loan Fund (“the Loan Fund”); (2) loans from the Loan Fund are fully secured by government funding; (3) the Loan Fund offers cash-secured term loans between $1,000 and $50,000; (4) Mr. Schreiber’s spouse, Jennifer (“Mrs. Schreiber”), and another individual own a company named “Green Bean Roasting Company, LLC” (“the Company”), which has applied for a loan from the Loan Fund; (5) the Company’s Loan Fund application awaits a final decision by the Bank and approval or denial by the RDA Board; and (6) Mr. Schreiber did not participate in the review of the Company’s Loan Fund application or attend any meetings at which said application was discussed, you are advised as follows. Mr. Schreiber’s spouse, Mrs. Schreiber, is a member of his “immediate family” as that term is defined in the Ethics Act. The Company is a business with which Mrs. Schreiber is associated in her capacity as an owner of the Company. Subject to the statutory exclusions to the definition of “conflict” or “conflict of interest” as set forth in the Ethics Act, 65 Pa.C.S. § 1102, pursuant to Section 1103(a) of the Ethics Act, Mr. Schreiber would have a conflict of interest in his capacity as Secretary of the RDA in matters that would financially impact him, his spouse, or the Company. In each instance of a conflict of interest, Mr. Schreiber would be required to abstain from participation, and in the event of a voting conflict, to abstain and fully satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Mr. Schreiber would have a conflict of interest and would be required to abstain fully with regard to the Company’s Loan Fund Application. The de minimis exclusion would not be applicable because, based upon the submitted facts, the Loan Fund offers cash-secured term loans between $1,000 and $50,000. The class/subclass exclusion would not be applicable because the Company would not be part of a subclass of similarly situated companies, but rather, would be a uniquely situated company affected by the RDA’s approval or disapproval of its Loan Fund application. 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 Hoyt, 10-587 June 18, 2010 Page 7 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