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HomeMy WebLinkAbout12-561 Durkin ADVICE OF COUNSEL September 21, 2012 Lawrence A. Durkin, Esquire Durkin MacDonald LLC SNB Plaza 108 North Washington Avenue Suite 1000 Scranton, PA 18503 12-561 Dear Mr. Durkin: This responds to your letters of July 27, 2012, and August 2, 2012, 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 the nine current Members of the Scranton Composite Pension Board (“Pension Board”), each of whom is an active employee, retired employee, or elected official of the City of Scranton (“City”), or an employee of Lackawanna County who might receive a City pension, with regard to a request by the City Mayor for the Pension Board to consider investing up to $16,000,000 into taxable City Municipal Bonds. Facts: You have been authorized by the nine current Members of the Pension Board to request an advisory from the Pennsylvania State Ethics Commission on their behalf. You have submitted facts, the material portion of which may be fairly summarized as follows. The City is a City of the Second Class A. It is administratively noted that pursuant to state law, a City of the Second Class A is authorized to establish by city ordinance a retirement system for city employees, which is to be administered by a city retirement board comprised of certain city officials or their representatives and a city employee selected by the city employees. 53 P.S. § 30552. The Municipal Pension Plan Funding Standard and Recovery Act (“Act 205”), 53 P.S. § 895.101 et seq., provides a recovery program for financially distressed municipal pension systems. Section 895.607(b) of Act 205 provides, in pertinent part, as follows: § 895.607. Remedies applicable to various recovery program levels (b) AGGREGATION OF TRUST FUNDS.--If the municipality has established and maintained more than one pension plan Durkin, 12-561 September 21, 2012 Page 2 for its employees and there are pension funds associated with those pension plans, the municipality may aggregate the assets to the credit of the various pension funds into a single pension trust fund. Subsequent to the aggregation, the pension trust fund shall be the funding mechanism for all pension plans connected with the aggregation. …. (6) The aggregated pension trust fund shall be managed by a board of trustees. The board of trustees shall include at least one representative of the active membership of each pension plan included in the aggregated pension trust fund, who shall be elected by the active membership of the applicable pension plan. The remaining members of the board of trustees shall be drawn from the managing boards or entities of the associated pension plans, in a number equal to the members elected by the employees. If there is a deadlock, the members of the managing boards or entities shall mutually agree upon a member of the general public to cast the deciding vote. 53 P.S. § 895.607(b). Pursuant to Act 205, the City aggregated the assets of various City pension plans, including the City Police Pension Fund, Fire Pension Fund, and Non-Uniform Pension Fund, into a single pension trust fund (“Pension Trust Fund”) via City Ordinance. Section 99-98 of the Code of the City of Scranton (1997) (the “Code”) provides, in pertinent part, as follows: § 99-98. Aggregation of trust funds. A. The City of Scranton, has established and maintained various pension plans for its employees and there are pension funds associated with these pension plans. The various pension plans are the policemen’s pension plan, the firemen’s pension plan, the nonuniform pension plan, the widows of deceased retired firemen and the widows of deceased retired policemen. The City of Scranton hereby aggregates the assets to the credit of the various pension funds into a single pension trust fund. Subsequent to the aggregation, the pension trust fund shall be the funding mechanism for all pension plans connected with the aggregation. …. Section 99-98 of the Code. The City further established the Pension Board to manage the Pension Trust Fund. Section 99-103 of the Code provides, in pertinent part, as follows: § 99-103. Management of the pension trust. The aggregated pension trust fund shall be managed by a Board of Trustees. The Board of Trustees shall be named the City of Scranton Composite Pension Board…. Section 99-103 of the Code. Durkin, 12-561 September 21, 2012 Page 3 You have submitted a copy of the “By-laws of the City of Scranton Municipal Composite Pension Board” (“Pension Board By-laws”), which document is incorporated herein by reference. The Pension Board By-laws provide, in pertinent part, as follows: ARTICLE II COMPOSITION Section 1. Number. The Board shall be comprised of nine (9) members, consisting of the Mayor of the City of Scranton, the President of the Scranton City Council, and the Controller of the City of Scranton. The remaining six (6) members shall be taken from membership of the Firemens’ Pension Plan, Police Pension Plan, and the Non-Uniformed Pension Plan. Section 2. Election and Term. The Mayor, the President of the Scranton City Council and the Controller of the City of Scranton shall be appointed by virtue of their office. Their terms as members of the Pension Board shall be concurrent with the terms of their respective city positions. With regard to the remaining six (6) members, one (1) member shall be elected from the participating Pension Plan membership of the Police Plan, one (1) member shall be elected from the participating Pension Plan membership of the Firemens’ Plan, and one (1) member shall be elected from the participating Pension Plan membership of the Non-Uniformed Plan. These three (3) members shall be elected by the participating Pension Plan memberships of the three (3) Unions. The final three (3) members shall be elected from each of the Pension Fund Boards of the three Plans. These three (3) members shall likewise be elected by the participating Pension Plan memberships of the three (3) Unions. The six (6) members not appointed by virtue of their office shall be elected for a term of five (5) years. The selection/election/removal process of the six (6) members not appointed by virtue of their office shall be established by the individual Pension Funds. …. ARTICLE III ADMINISTRATION Section 1. General Duties and Responsibilities. All general duties and responsibilities of the Pension Board shall be granted in accordance with 53 Pa.C.S. §895, 101, et seq. [sic]. Section 2. Investments and Disbursements. The Pension Board shall meet and establish investment criteria and policy for investments and disbursements of all Pension Fund monies. Section 3. Contracts. Durkin, 12-561 September 21, 2012 Page 4 The guidelines, rules, regulations and ordinances of the City of Scranton and the Home Rule Charter shall be followed when advertising for services and products on behalf of the Pension Board. The Pension Board shall establish bid specifications for all needed products and services and submit said specifications to the Business Administrator’s office. After all bids are received, said bids shall be submitted for review to the Pension Board. After review of all bids, the Pension Board shall make a written recommendation to the Mayor and the Scranton City Controller. Pension Board By-Laws, at 1-2, 5-6. The Pension Board is currently comprised of the following nine Members (hereinafter collectively referred to as “the Nine Pension Board Members”), each of whom is an active City employee, retired City employee, elected City official, or an employee of Lackawanna County who might receive a City pension:  John O’Shea, President of the Pension Board, Scranton Police Department, retired;  Ryan McGowan, City Business Administrator, proxy for the City Mayor;  Roseanne Novembrino, City Controller;  Nancy Krake, City Clerk, proxy for City Council;  Gary DeStefano, Scranton Fire Department, Firefighter, Pvt.;  Robert Zoltewicz, Scranton Fire Department, Firefighter, Pvt;  John Hazzouri, Scranton DPW, Pave Cut Inspector;  Ernest Reich, Information Technologies Technician, Scranton Public Library; and  Ann Marie Stulgis, Scranton Police Department, retired. The Pension Trust Fund is the source of payment for pensions to retirees of the City. You state that the Pension Board owes a fiduciary obligation to both current and future beneficiaries of the Pension Trust Fund who have earned retirement through their employment with the City. You state that the City is currently in the midst of a significant cash flow crisis. On July 18, 2012, the Mayor submitted a formal request to the Pension Board, asking the Pension Board to consider investing a sum of funds, not to exceed $16,000,000, into taxable City Municipal Bonds and stating that the cash infusion from the bond proceeds would allow the City to meet current year obligations for payroll and debt service. You state that the Pension Board did not take formal action on the Mayor’s request at its meeting on July 25, 2012, but instead tabled the Mayor’s request. You seek guidance as to whether any of the Nine Pension Board Members would have a conflict of interest with regard to the Mayor’s request that the Pension Board consider investing a sum of up to $16,000,000 into taxable City Municipal Bonds. 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. Durkin, 12-561 September 21, 2012 Page 5 As officials of the Pension Board serving either ex officio or through election/appointment, the Nine Pension Board Members would be considered “public officials” subject to the provisions of the Ethics Act. See, 65 Pa.C.S. § 1102; 51 Pa. Code § 11.1. 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 employee, a member of his immediate family or a business Durkin, 12-561 September 21, 2012 Page 6 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. 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 use of authority of office is not limited merely to voting, but extends 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. In each instance of a conflict of interest, a public official/public employee would be required to abstain from participation, which would include voting unless one of the statutory exceptions of Section 1103(j) of the Ethics Act would be applicable. Additionally, the disclosure requirements of Section 1103(j) of the Ethics Act would have to be satisfied in the event of a voting conflict. It is noted that the above statutory definition of "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. 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 applying the above provisions of the Ethics Act to the submitted facts, it appears that each Pension Board Member could be financially impacted by the Pension Board’s decision as to whether to invest up to $16,000,000 into taxable City Municipal Bonds. Specifically, each Pension Board Member’s own pension and/or ability to receive compensation from the City could be impacted. However, through a straightforward application of the Ethics Act’s definition of “conflict” or “conflict of interest,” you are advised that a Pension Board Member would not have a conflict of Durkin, 12-561 September 21, 2012 Page 7 interest under Section 1103(a) of the Ethics Act with regard to the Pension Board’s decision as to whether to invest up to $16,000,000 into taxable City Municipal Bonds, subject to the condition that the de minimis exclusion or the class/subclass exclusion contained within the Ethics Act’s definition of "conflict" or "conflict of interest," 65 Pa.C.S. § 1102, would be applicable as to such Pension Board Member. 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. Conclusion: The nine current Members of the Scranton Composite Pension Board (“Pension Board”), hereinafter collectively referred to as “the Nine Pension Board Members,” are public officials subject to the provisions of the Public Official and Employee Ethics Act (“Ethics Act”), 65 Pa.C.S. § 1101 et seq. Under the submitted facts that: (1) each of the Nine Pension Board Members is an active employee, retired employee, or elected official of the City, or an employee of Lackawanna County who might receive a City pension; (2) the Pension Trust Fund is the source of payment for pensions to retirees of the City; (3) the City is currently in the midst of a significant cash flow crisis; (4) on July 18, 2012, the Mayor submitted a formal request to the Pension Board, asking the Pension Board to consider investing a sum of funds, not to exceed $16,000,000, into taxable City Municipal Bonds and stating that the cash infusion from the bond proceeds would allow the City to meet current year obligations for payroll and debt service; and (5) the Pension Board did not take formal action on the Mayor’s request at its meeting on July 25, 2012, but instead tabled the Mayor’s request, you are advised as follows. Under the submitted facts, it appears that each Pension Board Member could be financially impacted by the Pension Board’s decision as to whether to invest up to $16,000,000 into taxable City Municipal Bonds. Specifically, each Pension Board Member’s own pension and/or ability to receive compensation from the City could be impacted. However, through a straightforward application of the Ethics Act’s definition of “conflict” or “conflict of interest,” you are advised that a Pension Board Member would not have a conflict of interest under Section 1103(a) of the Ethics Act with regard to the Pension Board’s decision as to whether to invest up to $16,000,000 into taxable City Municipal Bonds, subject to the condition that the de minimis exclusion or the class/subclass exclusion contained within the Ethics Act’s definition of "conflict" or "conflict of interest," 65 Pa.C.S. § 1102, would be applicable as to such Pension Board Member. 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. Durkin, 12-561 September 21, 2012 Page 8 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