Loading...
HomeMy WebLinkAbout89-518 RulloDaniel W. Rullo, Esquire 146 West Main Street P.O. Box 775 Somerset, PA 15501 STATE ETHICS COMMISSION 308 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL March 20, 1989 89 -518 Re: Conflict of Interest, School Director, Contracting with District Dear Mr. Rullo: This responds to your letter of February 6, 1989, in which you requested advice from the State Ethics Commission. Issue: Whether the State Ethics Act presents any prohibitions upon a school district's contracting with a company whose owner or operator is one of the members of the school board. Facts: You state that you are the Solicitor for North Star School District and you have telephonically advised that the three board members whose conduct in question voted along with the board to authorize you to seek this advice from the State Ethics Commission. After noting that the North Star School District is a rather rural district in Somerset County, you inquire as to certain proposed business transactions by three board members of that district. The first member is an owner of a hardware store in Boswell, which is the only store of that type in the area, the next nearest hardware store being approximately 5 to 10 miles away. You advise that the North Star School District in the past has utilized the Boswell Hardware Store for such small items as nuts, bolts and small replacement items for the maintenance department of the school district. You then note that the second school director is the owner of a lawn and garden business and that the maintenance department of the school, when parts are needed, has appeared at that business establishment to Daniel W. Rullo, Esquire March 20, 1989 Page 2 acquire the items at the regular price. Finally, you state that the third board member is not the owner of a business establishment that transacts business with the school district but is the father -in -law of the owner of that business and that the board member has no equity interest in the business. After noting that you have expressed your concern to the board relative to the first two board members, you state that you do not see a problem regarding the third board member who does not have an equity ownership in his father -in -laws business. After noting that you have set forth the prohibition of Section 324 of the Public School Code as to those board members who have an ownership interest, you advise that state auditors have apparently expressed an opinion that they would approve such transaction provided you receive an authorization from this Commission allowing that transactions on the basis of the inconvenience of acquiring the replacement parts elsewhere. Discussion: Initially, it should be noted that members of a school board are "public officials" as that term is defined under the Ethics Act. 65 P.S. §402. As such, their conduct must conform to the requirements of that law. Weaver, 85 -014; Jersey Shore Area School District v. Ritner, 81 Pa. Commw. Ct. 30, 472 A.2d 1183, (1984). Generally, the State Ethics Act places no per se absolute prohibition upon a public official's employment in a business that contracts with his governmental body. The Act does, however, provide as follows: Section 3. Restricted Activities. (a) No public official or public employee shall use his public office or any confidential information received through his holding public office to obtain financial gain other than compensation provided by law for himself, a member of his immediate family, or a business with which he is associated. 65 P.S. 403(a). Within the above provision of law, no public official may use his position or any confidential information obtained therein in order to obtain a financial gain for himself or a member of his immediate family or a business with which he is associated. The Act defines business with which one is associated as follows: Daniel W. Rullo, Esquire March 20, 1989 Page 3 Section 2. Definitions. "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 holder of stock. 65 P.S. 402. Under Section 3(a) quoted above, the State Ethics Commission has determined that use of office by a public official /employee to obtain a financial gain for himself or a member of his immediate family or a business with which he is associated which is not provided for in law transgresses the above provision of law. Thus, use of office by a public official /employee to obtain a financial gain which is not authorized as part of his compensation is prohibited by Section 3(a): Hoak /McCutcheon, Orders No. 128, 129, affirmed McCutcheon v. State Ethics Commission, 77 Pa. Commw. Ct. 529, 466 A.2d 283 (1983); Yacobet, Order No. 412 -R, affirmed Yacobet v. State Ethics Commission, 109 Pa. Commw. Ct. 432, 531 A.2d 536 (1987). Similarly, Section 3(a) of the Ethics Act would prohibit a public official /employee from using public office to advance his own interests; Koslow, Order 458 -R, affirmed Koslow v. State Ethics Commission, Pa. Commw. Ct. , 540 A.2d 1374 (1988). Likewise, a public official /employee may not use the status or position of public office for his own personal advantage; Huff, Opinion 84 -015. Under the above provisions, school directors may not use their public position to secure any financial gain for themselves or a business with which they are associated. See Domalakes, Opinion 85 -010. In this respect, the Commission has determined if a particular statutory enactment prohibits an official's receipt of a particular benefit, then that official's receipt of such a prohibited benefit, in and through his public office, would also be a use of his office in violation of the Act. The Commission has been called upon, on various occasions, to determine whether a specific benefit or financial gain is prohibited by law. See, Allen, Advice 86 -518. In order to determine whether a particular benefit or gain is strictly prohibited by law, the provisions of the enabling legislation of the governmental body in question must be reviewed. In the instant situation, the Public School Code provides as follows: No school director shall, during the term of which he was elected or appointed, as a private person engage in any business transaction with the school district in which he is elected or appointed, be employed in any capacity by the school district in which he is elected Daniel W. Rullo, Esquire March 20, 1989 Page 4 or appointed, or receive from such school district any pay for services rendered to the district except as provided in this act. 24 P.S. §3 -324. The Public School Code does not appear to contain any exception to the above provision that is applicable in the instant situation. This Commission, has in the past, determined that where a school board member owns, operates, or has a vested financial interest in a business entity, that entity would be prohibited from receiving compensation for providing services or transacting business with the school district pursuant to the above provision of law. See, Weaver, Opinion 85 -014. In the instant situation, the first two school board members are either the owner or operator of companies which seek to contract with the school district. Because of this relationship, the first two school directors are in a position with a business entity that would appear to implicate the above provision of law. As such, and based upon the prior rulings of this Commission, their businesses, would appear to be prohibited from receiving any funds from the school district for services rendered or in relation to any other business transaction. Because that financial gain appears to be prohibited by law, the their receipt of this financial gain in and through their public position, would also appear to be prohibited by Section 3(a) of the State Ethics Act. See, Fvda, Order No. 438 -R. However, as to the third school board member, Section 3(a) would not impose any restriction upon that business establishment transacting business with the district provided that that third school board member is not associated with that business as the term "business with which he is associated" is defined under the Ethics Act. In addition to the foregoing, the State Ethics Act provides as follows: Section 3(c) of the Ethics Act provides: (c) No public official or public employee or a member of his immediate family or any business in which the person or a member of the person's immediate family is a director, officer, owner or holder of stock exceeding 5% of the equity at fair market value of the business shall enter into any contract valued at $500 or more with a governmental body 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. Any contract made in Daniel W. Rullo, Esquire March 20, 1989 Page 5 violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of making of the contract. 65 P.S. 403(c). In relation to the above provision of law, the State Ethics Commission has generally determined that this provision is a procedure to be used when a public official or employee contracts with his own governmental body in excess of $500. Bryan, Opinion 80 -014; Lynch, Opinion 79 -047. The Commission, however, has also determined that the above provision of law is not a general authorization for a public official to contract with his own governmental body where such is otherwise prohibited by law. The above provision of law clearly is intended to be a procedure to be utilized where contracting is otherwise allowed by law. For example, if a particular business transaction was prohibited under Section 3(a) of the State Ethics Act, this particular code prohibits a public official from being interested in a contract, this provision would not allow that interest. Parenthetically, where contracting is otherwise allowed or where there appears to be no expressed prohibitions to such contracting, the above particular provision of law would require that an additional procedure, the open and public process, must be used in all situations where a public official is otherwise appropriately contracting with his own governmental body in excess of $500. This open and public process would require: (1) prior public notice of the employment or contracting possibility; (2) sufficient time for a reasonable and prudent competitor /applicant to be able to prepare and present an application or proposal; (3) public disclosure of all applications or proposals considered and; (4) public disclosure of the contract awarded and offered and accepted. See, Cantor, 82 -004. Thus, in the event that contracting would be allowed, the above process must be employed. Lastly, it must be noted that the propriety of the proposed course of conduct has only been addressed under the Ethics Act. Conclusion: As school board members, the three individuals are public officials subject to the provisions of the Ethics Act. Based upon the information provided herein, the Ethics Act would Daniel W. Hullo, Esquire March 20, 1989 Page 6 prohibit a business in which a school board member is an owner or operator from receiving any financial gain that is strictly prohibited by law. A member of a school board, who received such compensation for his business entity, would be receiving a financial gain that is strictly prohibited by law. Such would, thus, be received in and through public office and would not be in accord with the State Ethics Act. However, as to the school board member who has no interest in a business so that said business is not a "business with which he is associated" under the Ethics Act, that business would not be precluded from transacting business with the school district. Parenthetically, in the event that there had been no such prohibition upon the receipt of this compensation, then the Ethics Act, generally, would not have been precluded in and of itself this contracting possibility. However, the school board member could not participate in any actions relating to the school district's employment of this particular company and all contracting or business transactions with such company must be accomplished through an open and public process as set forth above. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Act. Pursuant to Section 7(9)(ii), this 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, providing the requestor has disclosed truthfully all the material facts and committed the acts complained of in reliance on the Advice given. such. This letter is a public record and will be made available as Finally, if you disagree with this Advice or if you have any reason to challenge same, you may request that the full Commission review this Advice. A personal appearance before the Commission will be scheduled and a formal Opinion from the Commission will be issued. Any such appeal must be made, in writing, to the Commission within 15 days of service of this Advice pursuant to 51 Pa. Code §2.12. Sincerely, 0 Vincent . Dopko, General Counsel