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HomeMy WebLinkAbout84-535 CerasoMr. Louis H. Ceraso City Solicitor Arnold, PA 15068 Dear Mr. Ceraso: Mailing Address. STATE ETHICS COMMISSION P.O. BOX 1 179 HARRISBURG, PA 17108 TELEPHONE: (717) 783 -1610 March 13, 1984 ADVICE OF COUNSEL 84 -535 RE: City Council; Consulting Corporation; Investment Management Services; Sections 3(a), 3(b) and 3(c) This responds to your letter of January 12, 1984, in which you, as Solicitor for the City of Arnold, requested advice from the State Ethics Commission. Issue: You ask whether the Arnold City Council may enter into a contract for investment management services with a consultant corporation in which the City Controller holds stock. Facts: The City of Arnold is considering contracting with a professional investment management service for investment of both police pension fund and the officers and employees pension fund. The funds currently are not being invested by a professional investment manager, and at the same time, the City lacks a financial program for the source and use of the funds, specifically a forecast of the money flow into and out of the pension assets. EMCO Consulting, Incorporated, (EMCO) is an investment advisor registered with the United States Security and Exchange Commission. EMCO has proposed to assume the responsibilities of investment, management, and financial planning for both pension funds, and the annual fee for this service would be .60% of the market value of the assets in these funds. You state that, conceptually, financial planning would consist of an annual review with City Council of the source and use of funds in these two plans. In addition, the investment program developed would be tailored to the financial planning, and would only be implemented with the approval of City Council. EMCO would have no access to any funds, nor would it assume any of the treasurer's functions which consist of the record - keeping for the pension funds. You indicate that the City is hesitant to enter into a contract with EMCO because the City Controller is a stockholder in EMCO. You have, therefore, requested advice from the State Ethics Commission. State Ethics Commission • 308 Finance Building • Harrisburg, Pennsylvania Mr. Louis H. Ceraso March 13, 1984 Page 2 Discussion: In light of the fact that the City Controller is generally subject to the requirements of the Ethics Act, 65 P.S. 401 et seq., the hesitation shown by the Arnold City Council to contract with EMCO is well - founded. However, while the Ethics Act contains some restrictions against a public official's or a public employee's contracting with the governmental body with which he is associated, 65 P.S. 403(c), the Act does not totally prohibit such activities. Before reviewing Section 3(c) of the Act, however, we wish to review other provisions of the Act first. Both the City Council and the City Controller should be aware of some of the restrictions applicable to the City Controller under the Act. Section 3(a), 65 P.S. 403(a), prohibits any public employee or public official from using his public employment or confidential information received through his holding public employment to obtain financial gain for himself or his family or a business with which he is associated. In addition, Section 3(b), 65 P.S. 403(b), precludes any person from offering a public employee anything of value, including a promise of future employment, based on the understanding that his official actions would be influenced thereby. These restrictions are cited not to indicate any violations of the Ethics Act in the situations described herein, but to serve as a point of reference and guide for conduct in general. As metioned above, Section 3(c), 65 P.S. 403(c), 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 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). Emphasis added. Mr. Louis H. Ceraso March 13, 1984 Page 3 See Howard, 79 -044. Previous opinions of the Commission have held that the term "governmental body" in Section 3(c) refers to the governmental body with which the public official is "associated." Bryan, 80 -014 and Lynch, 79 -047. The governmental body with which the City Controller is associated is, obviously, the City. Therefore, the "open and public process" limitation of Section 3(c) would apply, in this instance, if the City Controller stands in the relationship with EMCO, as set forth in Section 3(c) above, seeks to contract with the Arnold City Council in excess of $500. If, however, neither the Controller nor a member of his immediate family enjoy the relationship with EMCO described in Section 3(c), the EMCO - County contract may be made without reference to or compliance with Section 3(c) of the Ethics Act. It must be emphasized, however, that even if Section 3(c) is applicable, there is no absolute prohibition on EMCO's contracting with the City. In such a circumstance, the contract is acceptable under Ethics Act provided that it is awarded in an open and public process. In its opinion in Howard, 79 -044, the Commission stated that an "open and public" process meets the following criteria: 1. prior public notice; 2. public disclosure of all proposals considered; and 3. public disclosure of the award of the contract. Essentially, competitors of EMCO should be given an opportunity to present proposals. If these standards are complied with, EMCO could contract with the Arnold City Council for a contract in excess of $500, even where Section 3(c) is applicable. We note that we have not addressed any questions regarding the conduct of the Controller himself with respect to the process of reviewing, auditing or approving this contract, as you have presented no facts regarding the Controller's role and responsibility over contracts in general and have asked no questions on this point. Conclusion: As a public official or employee, the City Controller should avoid conflicts of interest and the appearance of such conflicts by complying with the requirements of Sections 3(a) and 3(b) as outlined above. Under Section 3(c), if the City Controller holds stock in excess of 5% of the equity at fair market value of EMCO, EMCO may contract with the Arnold City Council for a contract valued at greater than $500 provided that such contract is awarded through an open and public process, as outlined above. If, however, the City Controller owns stock less than 5% of the equity at fair market value of EMCO, the open and public process requirement of Section 3(c) of the Ethics Act is inapplicable. Mr. Louis H. Ceraso March 13, 1984 Page 4 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. 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 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. CW /rdp Si ncerely, Sandra S. Ch stianson General Cou sel