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HomeMy WebLinkAbout10-004 CONFIDENTIAL OPINION OF THE COMMISSION Before: Louis W. Fryman, Chair John J. Bolger, Vice Chair Donald M. McCurdy Raquel K. Bergen Nicholas A. Colafella Mark Volk DATE DECIDED: 10/19/10 DATE MAILED: 11/4/10 10-2003/10-004 This Opinion is issued in response to your letter dated May 25, 2010, by which you requested a confidential advisory from this Commission. I.ISSUE: Whether, pursuant to Section 1512(a.2)(1) of the Pennsylvania Race Horse Development and Gaming Act (“Gaming Act”), 4 Pa.C.S. § 1512(a.2)(1), and Section 1103(a) of the Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. § 1103(a), a C would be permitted to accept a significantly reduced lodging rate while attending to official business, where such rate would be offered specifically to Cs by a hotel involved with a pending application (the “Application”) for a gaming license in Pennsylvania; and if so, whether the difference between such rate and the hotel’s advertised government rate or some other rate would have to be reported on the C’s Statement of Financial Interests filed pursuant to the Ethics Act when the aggregate of the discounts would meet the reporting threshold for transportation/lodging/hospitality received in connection with public office or employment. II. FACTUAL BASIS FOR DETERMINATION: As As for the Bs, each of you has been authorized by a C to request a confidential advisory from this Commission based upon the following submitted facts. The Cs who are the subject of your request seek guidance as to the propriety or impropriety of their securing lodging at a reduced rate offered specifically to Cs at the [name of hotel] (the “Hotel”), while attending to official business in [geographic location] (the “Area”). Under the submitted facts, the Cs would pay a reduced nightly lodging rate (the Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 2 “Rate”) offered by the Hotel specifically to Cs. The Rate would be significantly lower per night than the advertised nightly government rate offered by the Hotel. The Hotel’s general manager refers to this type of reduced rate as a “local negotiated rate.” The Hotel offers various local negotiated rates to others on a case-by-case basis. The Hotel’s manager has indicated that at least one private company from the Area receives a local negotiated rate that is less per night than the Rate. In addition to the above, you state that the Hotel is involved with a pending application (“the Application”) for a gaming license in Pennsylvania. Specifically, [description of involvement]. Based upon the above submitted facts, you pose the following specific questions: (1) Given the pending Application, whether the Rate would trigger the Gaming Act’s prohibition regarding complimentary services as contained in Section 1512(a.2)(1) of the Gaming Act; (2) Whether the acceptance of the Rate by the Cs would be permitted under the Ethics Act; (3) If acceptance of the Rate would be permitted, whether the difference between the Rate and the advertised government rate would have to be reported on a C’s Statement of Financial Interests, assuming the aggregate amount would exceed the reporting threshold for transportation/lodging/hospitality received in connection with public office or employment; and (4) Whether the involvement of the Hotel with the Application would affect the answers to Questions 2 and 3 above. By letters dated June 2, 2010, and August 23, 2010, you were notified of the date, time and location of the executive meetings at which your request would be considered. On June 15, 2010, this Commission received your letter Brief, which presents the following arguments as to your questions posed under the Ethics Act. You contend that pursuant to the Ethics Act, a C should be permitted to accept the Rate based upon your assertions that the Rate would be received as a result of frequent stays at the Hotel and not the C’s position as a public official, and that a similar rate would be available to others as a local negotiated rate. You describe the Rate as an “inherent benefit” from frequent or volume travel. With regard to financial disclosure, you contend that the discount provided by the Rate is not subject to disclosure pursuant to the Ethics Act. You contend that the discount is not a “payment for or reimbursement of actual expenses” for lodging so as to fall within the particular phraseology of Section 1105(b)(7) of the Ethics Act, 65 Pa.C.S. § 1105(b)(7). Essentially, you argue that the Rate is the expense of the lodging because it is what the Hotel chooses to charge the Cs. You assert that the guidance provided by Pennsylvania’s lobbying disclosure law (“Lobbying Disclosure Law”), 65 Pa.C.S. § 13A01 et seq., and the Lobbying Disclosure Regulations, 51 Pa. Code § 51.1 et seq., would set the value of a benefit received by a C based upon its cost in a marketplace transaction. You cite Section 55.1(k)(3) of the Lobbying Disclosure Regulations, which provides: “The value of gifts, transportation, lodging or hospitality must equal the costs to the registrant if the items or services to be valued were in fact obtained by the registrant in marketplace transactions.” 51 Pa. Code § Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 3 55.1(k)(3). You argue that the Rate is based on marketplace negotiations and that any discount is due to an economic choice by the Hotel to accept a rate lower than the advertised government rate in order to fill an otherwise vacant room. You assert that to the extent a C would be viewed as receiving any benefit from the discount, the valuation of such benefit would have to consider prices available in the marketplace from internet web sites offering discounted travel. Your letter Brief does not take a position as to your question posed under the Gaming Act. At the executive meeting on June 22, 2010, [names of individuals] appeared in support of this request. Individual D submitted an Affidavit of the Hotel’s general manager, which indicates that: (1) local negotiated rates are offered in the hotel industry to groups and organizations from the private, public and non-profit sectors; (2) local negotiated rates are based on a variety of factors, including group size, length of stay, time of year, room availability, and the number of previous stays by the group; (3) local negotiated rates are lower than generally advertised rates for which the group or organization would otherwise qualify; and (4) at least one business has a local negotiated rate with the Hotel that is lower than the Rate. Individual D stated that the use of the Rate for Cs at the Hotel reflects the nature of the lodging marketplace and is based upon a variety of factors as noted in the aforesaid Affidavit of the Hotel’s general manager. Individual D argued that Cs may accept the Rate and that acceptance of the Rate would require no reporting on a C’s Statement of Financial Interests based upon the assertion that the Rate reflects the “actual expense” and fair market value of the lodging as reflected by the discounts. Individual D referenced Section 1105(b)(7) of the Ethics Act, 65 Pa.C.S. § 1105(b)(7), and Section 17.6 of this Commission’s Regulations, 51 Pa. Code § 17.6. Individual E stated that the Rate has existed for some time and predates the Application. Individual E stated his understanding that the Rate initially was the result of a practice that developed between the Hotel and certain Cs who routinely stayed at the Hotel, but that now the Rate is of broader interest in Governmental Body F. Individual D confirmed that the Cs who have authorized the instant advisory request have not previously stayed at the Hotel or accepted the Rate. Individual D stated that as of [month] 2010, the Rate was [dollar amount] per night, which was $25.00 less per night than the advertised government rate of [dollar amount] per night. At the executive meeting on October 19, 2010, [names of individuals] appeared and explained Governmental Body F’s G expense process, including the fact that the Cs [feature of G expense process]. III.DISCUSSION: It is initially noted that determinations issued pursuant to Section 1512(a.5)(1) of the Gaming Act, 4 Pa.C.S. § 1512(a.5)(1), and advisories issued pursuant to Sections 1107(10) and 1107(11) of the Ethics Act, 65 Pa.C.S. §§ 1107(10), (11), are issued by the State Ethics Commission to the requesters based upon the facts that the requesters have submitted. In issuing a determination or 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. Id. A Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 4 determination only affords a defense to the extent the requester has truthfully disclosed all of the material facts. Id. As a C, each of the individuals on whose behalf you have inquired is a “public official” as that term is defined by the Gaming Act, 4 Pa.C.S. § 1512(a.5)(b), and by the Ethics Act, 65 Pa.C.S. § 1102. Section 1512(a.2)(1) of the Gaming Act provides: § 1512. Financial and employment interests. . . . (a.2) Complimentary services.— (1) No executive-level public employee, public official or party officer, or an immediate family member thereof, shall solicit or accept any complimentary service from an applicant or a slot machine licensee, manufacturer licensee, supplier licensee or licensed racing entity, or from any affiliate, intermediary, subsidiary or holding company thereof, which the executive-level public employee, public official or party officer, or an immediate family member thereof, knows or has reason to know is other than a service or discount which is offered to members of the general public in like circumstances. . . . 4 Pa.C.S. § 1512(a.2)(1) (Emphasis added). The Gaming Act defines the term “complimentary service” as follows: § 1103. Definitions. . . . “Complimentary service.” Any lodging, service or item which is provided to an individual at no cost or at a reduced cost which is not generally available to the public under similar circumstances. Group rates, including convention and government rates, shall be deemed to be generally available to the public. . . . 4 Pa.C.S. § 1103 (Emphasis added). The question that you have posed under Section 1512(a.2)(1) of the Gaming Act is of great importance to public officials such as the Cs. On its face, Section 1512(a.2)(1) of the Gaming Act prohibits a public official from soliciting or accepting from a gaming license applicant, or from an affiliate, intermediary, subsidiary or holding company of a gaming license applicant, a “complimentary service,” including discounted lodging, which the public official knows or has reason to know is other than a service or discount offered to members of the general public in like circumstances. 4 Pa.C.S. § 1512(a.2)(1). The Gaming Act provides criminal penalties for violations of Section 1512(a.2)(1). See, 4 Pa.C.S. § 1512(a.3). It is commendable that you are seeking a definitive answer to the question. Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 5 Nevertheless, we may not exceed our narrow jurisdiction under Section 1512(a.5)(1) of the Gaming Act, which is expressly limited to issuing a determination of whether a person is subject to Section 1512(a), (a.1), or (a.2) of the Gaming Act: § 1512. Financial and employment interests. . . . (a.5) State Ethics Commission.— The State Ethics Commission shall do all of the following: (1) Issue a written determination of whether a person is subject to subsections (a), (a.1) or (a.2) upon the written request of the person or any other person that may have liability for an action taken with respect to such person. A person that relies in good faith on a determination made under this paragraph shall not be subject to any penalty for an action taken, provided that all material facts set forth in the request for the determination are correct. . . . 4 Pa.C.S. § 1512(a.5)(1) (Emphasis added). We have no authority to interpret the restrictions of Section 1512(a.2)(1) of the Gaming Act. Our narrow jurisdiction under Section 1512(a.5)(1) of the Gaming Act stands in sharp contrast to our broader authority under the Ethics Act and Lobbying Disclosure Law to issue advisory opinions interpreting those laws and setting forth the duties of persons subject to them. 65 Pa.C.S. §§ 1102 (definition of “opinion”), 1107(10)-(11), 13A08(a). If the General Assembly had intended for this Commission to issue advisory opinions interpreting Section 1512(a.2)(1) of the Gaming Act it would have so stated. We conclude that this Commission lacks statutory jurisdiction to interpret Section 1512(a.2)(1) of the Gaming Act or the definition of the term “complimentary service” at Section 1103 of the Gaming Act to determine whether the particular Rate in question would constitute a complimentary service prohibited by the Gaming Act. Our response to your question under the Gaming Act must be limited to our determination that as public officials, the Cs on whose behalf you have inquired are subject to the restrictions of Section 1512(a.2)(1) of the Gaming Act. Given the importance of the question of whether the Rate would run afoul of Section 1512(a.2)(1) of the Gaming Act, it is suggested that you consider filing a declaratory judgment action with a court of appropriate jurisdiction. As for the Ethics Act, Section 1103(a) of the Ethics Act provides: § 1103. Restricted activities (a) Conflict of interest.-- No public official or public employee shall engage in conduct that constitutes a conflict of interest. 65 Pa.C.S. § 1103(a). The following terms related to Section 1103(a) are defined in the Ethics Act as follows: § 1102. Definitions Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 6 "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 whichhe 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. 65 Pa.C.S. § 1102. Subject to certain statutory exclusions discussed below, 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 statutory definition of "conflict" or "conflict of interest" includes two exclusions, hereinafter referred to 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. 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 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. In analyzing your questions under the Ethics Act, we hold that for purposes of the Ethics Act, the Rate would not be deemed to be available to a C as a result of a “marketplace transaction.” We note that the Lobbying Disclosure Regulations, which you have cited, define the term “marketplace transaction” as follows: Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 7 § 51.1. Definitions. Marketplace transaction—Includes the costs for: (i) Goods. The usual and normal charge for goods purchased in an arms-length transaction in the market in which they ordinarily would have been purchased. (ii) Services. The hourly or piecemeal charge for the services at a commercially reasonable rate prevailing at the time the services were rendered. 51 Pa. Code § 51.1. The Rate is neither a “usual and normal charge” nor a “prevailing commercially reasonable rate” for lodging at the Hotel. Rather, the Rate is a unique rate that is significantly lower than the advertised government rate and that is set by the Hotel specifically for Cs because of their status as Cs. But for their status as Cs, the public officials on whose behalf you have inquired would be relegated to paying the advertised government rate or such other rate for the lodging that would otherwise be available to them in the ordinary course of business through a disinterested third party. We determine that the discount provided by the Rate would constitute a private pecuniary benefit calculated as the difference between the Rate and the advertised government rate, or such other rate for the lodging that would otherwise be available to the C in the ordinary course of business through a disinterested third party, for example, “AAA,” Expedia.com, or Priceline.com. For purposes of the Ethics Act, the Rate itself would not be deemed to be available to a C in the ordinary course of business. You are advised that under the submitted facts, where a C would stay at the Hotel while attending to official business, and would pay the Rate for such lodging, the C’s actions would constitute a use of the authority of public office for a private pecuniary benefit. Therefore, the C’s acceptance of the discount provided by the Rate would transgress Section 1103(a) of the Ethics Act unless the de minimis exclusion or the class/subclass exclusion would be applicable. The question of whether the de minimis exclusion would apply would be determined on a case-by-case basis and would depend upon the aggregate amount involved. Cf., Bixler v. State Ethics Commission, 847 A.2d 785 (Pa. Cmwlth. 2004). The class/subclass exclusion would not apply unless receipt of the discount provided by the Rate would otherwise be lawful. In order for the class/subclass exclusion to apply, “the underlying action that the public official or public employee desires to take must be a legal action. This exception does not make an otherwise illegal action legal.” Russell v. State Ethics Commission, 987 A.2d 835, 841 (Pa. Cmwlth. 2009). If the Gaming Act would prohibit a C from receiving the discount provided by the Rate, the class/subclass exclusion would not be applicable. With regard to financial disclosure, Section 1104(a) of the Ethics Act provides that each public official/public employee must file a Statement of Financial Interests for the preceding calendar year, each year that he holds the position and the year after he leaves it. 65 Pa.C.S. § 1104(a). Section 1105(b)(6) of the Ethics Act sets forth requirements for disclosing gifts. 65 Pa.C.S. § 1105(b)(6). Section 1105(b)(7) of the Ethics Act sets forth requirements for disclosing transportation, lodging or hospitality received in connection with public office or employment. 65 Pa.C.S. § 1105(b)(7). As a result of recent amendments to the Ethics Act, the Ethics Act defines the term Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 8 “gift” to specifically exclude lodging. 65 Pa.C.S. §§ 1102, 13A03. Therefore, acceptance of the Rate would not trigger disclosure as a gift under Section 1105(b)(6) of the Ethics Act. Subject to certain statutory exceptions not applicable to this matter, Section 1105(b)(7) of the Ethics Act requires the filer to disclose on the Statement of Financial Interests the name and address of the source and the amount of any payment for or reimbursement of actual expenses for transportation and lodging or hospitality received in connection with public office or employment where such actual expenses exceed $650 in an aggregate amount per year: § 1105. Statement of financial interests . . . (b) Required information.-- The statement shall include the following information for the prior calendar year with regard to the person required to file the statement: . . . (7) The name and address of the source and the amount of any payment for or reimbursement of actual expenses for transportation and lodging or hospitality received in connection with public office or employment where such actual expenses for transportation and lodging or hospitality exceed $650 in an aggregate amount per year. This paragraph shall not apply to expenses reimbursed by a governmental body or to expenses reimbursed by an organization or association of public officials or employees of political subdivisions which the public official or employee serves in an official capacity. . . . 65 Pa.C.S. § 1105(b)(7). We determine that to the extent the discount provided by the Rate would be received by a C, it would be received “in connection with public office.” But for the status of the Cs as public officials holding the particular public offices they hold, they would not receive the discount provided by the Rate. We further determine that the discount provided by the Rate would constitute “payment for or reimbursement of actual expenses” for lodging calculated as the difference between the Rate and the advertised government rate, or such other rate for the lodging that would otherwise be available to the C in the ordinary course of business through a disinterested third party, for example, “AAA,” Expedia.com, or Priceline.com. As noted above, for purposes of the Ethics Act, the Rate itself would not be deemed to be available to a C in the ordinary course of business. To the extent the reporting threshold of Section 1105(b)(7) of the Ethics Act would be met, a C would be required to satisfy the disclosure requirements of Section 1105(b)(7) of the Ethics Act as to all discounts received from the Rate and as to all other Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 9 transportation, lodging, and/or hospitality received from the source of same during the applicable calendar year. Based upon the above, the involvement of the Hotel with the Application would impact the answer to Question 2 but would not impact the answer to Question 3 as listed above. Lastly, the questions that you have posed have only been addressed under the Gaming Act and the Ethics Act. IV.CONCLUSION: As a C, each of the individuals on whose behalf you have inquired is a “public official” as that term is defined by the Pennsylvania Race Horse Development and Gaming Act (“Gaming Act”), 4 Pa.C.S. § 1512(a.5)(b), and by the Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. § 1102. Based upon the submitted facts that: (1) the Cs seek guidance as to the propriety or impropriety of their securing lodging at a reduced rate offered specifically to Cs at the [name of hotel] (the “Hotel”), while attending to official business in [geographic location] (the “Area”); (2) the Cs would pay a reduced nightly lodging rate (the “Rate”) offered by the Hotel specifically to Cs; (3) the Rate would be significantly lower per night than the advertised nightly government rate offered by the Hotel; (4) the Hotel’s general manager refers to this type of reduced rate as a “local negotiated rate”; (5) the Hotel offers various local negotiated rates to others on a case-by- case basis; (6) local negotiated rates are lower than generally advertised rates for which the group or organization would otherwise qualify; (7) the Hotel’s manager has indicated that at least one private company from the Area receives a local negotiated rate that is less per night than the Rate; (8) per Governmental Body F’s G expense process, the Cs [feature of G expense process]; and (9) the Hotel is involved with a pending application (“the Application”) for a gaming license in Pennsylvania, specifically, [description of involvement], you are advised as follows. As public officials, the Cs on whose behalf you have inquired are subject to the restrictions of Section 1512(a.2)(1) of the Gaming Act. This Commission lacks statutory jurisdiction to interpret Section 1512(a.2)(1) of the Gaming Act or the definition of the term “complimentary service” at Section 1103 of the Gaming Act to determine whether the particular Rate in question would constitute a complimentary service prohibited by the Gaming Act. For purposes of the Ethics Act, the Rate would not be deemed to be available to a C as a result of a “marketplace transaction.” The discount provided by the Rate would constitute a private pecuniary benefit calculated as the difference between the Rate and the advertised government rate, or such other rate for the lodging that would otherwise be available to the C in the ordinary course of business through a disinterested third party, for example, “AAA,” Expedia.com, or Priceline.com. For purposes of the Ethics Act, the Rate itself would not be deemed to be available to a C in the ordinary course of business. Under the submitted facts, where a C would stay at the Hotel while attending to official business, and would pay the Rate for such lodging, the C’s actions would constitute a use of the authority of public office for a private pecuniary benefit. A C’s acceptance of the discount provided by the Rate would transgress Section 1103(a) of the Ethics Act unless the “de minimis exclusion” or the “class/subclass exclusion” to the definition of “conflict” or “conflict of interest” as set forth above would be applicable. The question of whether the de minimis exclusion would apply would be determined on a case-by-case basis and would depend upon the aggregate amount involved. The class/subclass exclusion would not apply unless receipt of the discount provided by the Rate would otherwise be lawful. If the Gaming Act would prohibit a C from receiving the discount provided by the Rate, the class/subclass exclusion would not Confidential Opinion, 10-2003/10-004 November 4, 2010 Page 10 be applicable. To the extent the discount provided by the Rate would be received by a C, it would be received “in connection with public office.” The discount provided by the Rate would constitute “payment for or reimbursement of actual expenses” for lodging calculated as the difference between the Rate and the advertised government rate, or such other rate for the lodging that would otherwise be available to the C in the ordinary course of business through a disinterested third party, for example, “AAA,” Expedia.com, or Priceline.com. For purposes of the Ethics Act, the Rate itself would not be deemed to be available to a C in the ordinary course of business. To the extent the reporting threshold of Section 1105(b)(7) of the Ethics Act would be met, a C would be required to satisfy the disclosure requirements of Section 1105(b)(7) of the Ethics Act as to all discounts received from the Rate and as to all other transportation, lodging, and/or hospitality received from the source of same during the applicable calendar year. The questions that you have posed have only been addressed under the Gaming Act and the Ethics Act. This letter is a public record and will be made available as such. By the Commission, Louis W. Fryman Chair Vice Chair John J. Bolger dissents.