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HomeMy WebLinkAbout88-543 LepovetskyMr. Howard Lepovetsky 525 N. Michael Street St. Mary's, PA 15857 Dear Mr. Lepovetsky: STATE ETHICS COMMISSION 308 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL April 8, 1988 88 -543 Re: Conflict of Interest, School Director, Contracting with District This responds to your letter of February 19, 1988, 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 president, treasurer, full -time employee and shareholder is one of the members of the school board. Facts: In your letter you state that you are the elected Director of the St. Mary's Area School District in Elk County, Pennsylvania, and that you assumed office the first Monday in December, 1987. In addition, you state that you are the president, treasurer, full -time employee and a shareholder who owns more than 5% of the stock of the Industrial Steel and Pipe Supply Corporation located at Depot Street, St. Mary's, Elk County, Pennsylvania. You note that the Industrial Steel and Pipe Supply Corporation has been awarded an annual contract for supplies through public bid for St. Mary's Area School District which contract exceeds $500. It is then noted by you that St. Mary's Area School District will also order specific items from Industrial Steel and Pipe Supply Corporation on a day -to -day basis at a contract price generally less than $500. In this regard you note that these latter items are not subject to prior individual school board action. After noting that your relatives also own stock in the Industrial Steel and Pipe Supply Corporation which collectively amount to a majority of the outstanding stock, you cite 324 of the School Code and request advice as to whether there is any possible conflict of interest under the Ethics Act. Mr. Howard Lepovetsky April 8, 1988 Page 2 Discussion: Initially, it should be noted that a member of a school board is a "public official" as that term is defined in the State Ethics Act. 65 P.S. 402. As such, your conduct must conform to the requirements of that law. Weaver, Opinion, 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 or absolute prohibition upon a public official's employment in a business that contracts with his governmental body. Section 3(a) of the Ethics Act provides: 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: Section 2. Definition. "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 this provision, the Ethics Commission has determined that the use of office by a public official to obtain a gain or benefit for himself which is not provided for in law constitutes a "financial gain other than compensation provided for by law." These determinations have been appealed to the Commonwealth Court of Pennsylvania which has affirmed the orders of the Commission. See McCutcheon v. State Ethics Commission, 77 Pa. Commw. 529,466 A.2d 283 (1983). See also Yocabet v. State Ethics Commission, Pa. Commw. , 531 A.2d 536 (1987). Of course, under this Mr. Howard Lepovetsky April 8, 1988 Page 3 provision, a school director may not use your public position to secure any financial gain for yourself or for the business which you 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 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 provisions 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 provisions of law. See, Weaver, Opinion 85 -014. In the instant situation, you are an employee, shareholder, treasurer, and president in the company which seeks to contract with the school district. Holding a position of this nature, in a particular business entity, is usually of such a substantial nature that the individual therein must be considered to be in a position of more than a mere employee. Because of this relationship, you are in the type of position with the business entity that would appear to implicate the above provision of law. As such, and based upon the prior rulings of this Commission, your business, Industrial Steel and Pipe Supply Corporation, would appear to be prohibited from receiving any funds from the school district for services rendered or in relation to any other Mr. Howard Lepovetsky April 8, 1988 Page 4 business transaction. Because that financial gain appears to be prohibited by law, then your receipt of this financial gain in and through your public position, would also appear to be prohibited by Section 3(a) of the State Ethics Act. See, Fvda Order 438 -R. 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 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 provision of law would not authorize that transaction. Additionally, if a 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 prohibition to such contracting, the above particular provision of law would require that an additional procedure be utilized when such business is transacted. This procedure, the open and public process, must be Mr. Howard Lepovetsky April 8, 198E Page 5 used in all situations were 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 application or proposals considered and; (4) public disclosure of the contract awarded and offered and accepted. See Cantor, Opinion 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 a school board member, you are a public official subject to the provisions of the Ethics Act. Based upon the information provided herein, the Ethics Act would prohibit a business in which a school board member is a president, treasurer, full -time employee and shareholder from receiving any financial gain that is strictly prohibited by law. A member of a school board, who received such compensation 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. 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 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. Mr. Howard Lepovetsky April 8, 1988 Page 6 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 material facts and committed the acts complained of in reliance on the Advice given. 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. VJD /sfd This letter is a public record and will be made available as Sincerely, ylzu Vincent . Dopko General Cousel