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HomeMy WebLinkAbout96-554 WrightDonald E. Wright, Jr., Esquire Knox, McLaughlin, Gornall & Sennett 120 West Tenth Street Erie, PA 1 6501 -1 461 STATE ETHICS COMMISSION 309 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL May 21, 1996 96 -554 Re: Conflict, Public Official /Employee, Secretary /Executive Director, Housing Authority, Immediate Family, Spouse, Business With Which Associated, Non - Profit Corporation, Methodist Towers, Inc., U.S. Department of Housing and Urban Development (HUD). Dear Mr. Wright: This responds to your letter of April 5, 1996 in which you requested advice from the State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Law presents any prohibition or restrictions upon the Secretary and Executive Director of a City Housing Authority whose spouse is the Executive Director of a non - profit corporation, where the Authority is considering loaning the corporation $1.4 million for capital improvements, and the corporation may be forced to cease its operations and suffer foreclosure by creditors as to its only asset, a senior citizens' apartment building, if the Authority does not loan it the money. Facts: You have been authorized by John Horan (Horan), who is the Executive Director and Secretary of the Housing Authority of the City of Erie (Authority), to request an advisory on his behalf. The facts which you have submitted are as follows. Methodist Towers, Inc. is a non - profit corporation which owns as its sole asset Methodist Towers, an apartment building located in Erie which serves senior citizen residents of the City, most of whom are on fixed incomes. In addition to providing housing, Methodist Towers also provides meals and socialization activities for its residents. Methodist Towers was built in 1973 under the provisions of Section 236 of the Housing Act which permitted Methodist Towers, Inc. to borrow money for the project at an interest rate of 1% over 40 years. However, Section 236 also requires Methodist Towers to remit all excess income to HUD on a monthly basis. You state that over the years the excess income has amounted to nearly $600,000, exclusive of interest. Because of this provision requiring the remittance of all excess income to HUD, Methodist Towers has been unable to retain any reserves for capital improvements. Wright /Horan, 96 -554 May 21, 1996 Page 2 In 1996, Methodist Towers, Inc. will need $1.4 million for capital improvements to the facility. The corporation has attempted unsuccessfully to get money from the Commonwealth of Pennsylvania, HUD, and the Federal Home Loan Banks and has received only minimal support from the City of Erie. Methodist Towers, Inc. presently does not have any money in its reserves for the improvements. Without the receipt of capital funds in the near future, the facility will no longer be able to operate, resulting in a foreclosure action by Methodist Towers' creditors and a forced sale of the apartment building. In recognition of the services that Methodist Towers, Inc. provides, the Authority is considering lending $1.4 million to the corporation for the capital improvements, based upon a 20 year repayment at an interest rate of approximately 6 %. HUD will also have to agree to satisfy, forgive, or forebear the balance of the current debt of $1.9 million. In exchange, Methodist Towers, Inc. will agree to continue to serve low income residents for the 20 year term of the loan. Future rent increases and annual budgets will have to be approved by the Authority. Also, any "excess income" will be maintained in a reserve account which will be jointly controlled by the Authority and Methodist Towers, Inc. to be used for future capital improvements. The Authority is concerned about the appearance of a conflict of interest as to this proposal because Horan's wife is the Executive Director of Methodist Towers, Inc. Mrs. Horan is strictly a salaried employee whose duties include directing the services that are provided to the residents (meals, social events, etc.). She is not an officer of the corporation and she does not sit on its Board of Directors. She does not possess any voting power, and you state that she does not stand to derive any private pecuniary benefit from the financing arrangement described above. The Authority has five voting members who will decide whether to enter into this transaction and Horan is not a voting member of this group. You state that you have reviewed the applicable provisions of the Ethics Law as well as various Commission Opinions and it is your position that the action being considered by the Authority and the conduct of Horan does not constitute a conflict of interest. Your opinion is based upon the following: First, you proffer your view that neither Horan nor his wife stand to derive any private pecuniary benefit from the proposed financing arrangement. Second, you state that because Horan does not have any voting power in his capacity as Secretary and Executive Director of the Authority, he does not have the ability to use the "authority of office" for a prohibited private pecuniary benefit. The decision to enter into the financing arrangement lies solely with the Authority. Horan is not a voting member of this group and does not have the authority or ability to control the voting members in any manner. Third, you contend that because the definition of "business" contains the phrase "any legal entity organized for profit," the inference is that a non- profit corporation such as Methodist Towers, Inc. would be exempt from the conflict of interest provision. Lastly, you cite Coploff, Opinion 83 -005, as being factually distinguishable from Horan's situation in that Coploff involved a for - profit corporation while Methodist Towers, Inc. is a non - profit corporation and the public official in Coploff was a voting member while Horan does not possess any voting power. Wright /Horan, 96 -554 May 21, 1996 Page 3 While you believe that Coploff supports your analysis that a conflict does not exist in Horan's situation, you state that it raises another issue. Although Horan has no voting power, he does participate in Authority meetings and it is foreseeable that the financing arrangement with Methodist Towers, Inc., which would last for 20 years, could be discussed at such meetings. In addition to seeking clarification as to whether this matter constitutes a conflict of interest for Horan, you are also seeking an opinion as to whether Horan would be required to remove himself from such discussions in order to comply with the Ethics Law. It is your opinion that this would not be necessary given what you believe to be the distinguishing characteristics between this matter and Coploff. Discussion: It is initially noted that pursuant to Sections 7(10) and 7(1 1) of the Ethics Law, 65 P.S. §§407(10), (11), advisories are issued to the requestor based upon the facts which the requestor has submitted. In issuing the advisory based upon the facts which the requestor has submitted, the Commission does not engage in an independent investigation of the facts, nor does it speculate as to facts which have not been submitted. It is the burden of the requestor to truthfully disclose all of the material facts relevant to the inquiry. 65 P.S. §§407(10), (11). An advisory only affords a defense to the extent the requestor has truthfully disclosed all of the material facts. As the Executive Director and Secretary for the Housing Authority of the City of Erie ( "Authority "), John Horan ( "Horan ") is a public official /public employee as defined under the Ethics Law, and hence he is subject to the provisions of that law. Section 3(a) of the Ethics Law provides: Section 3. Restricted Activities. (a) No public official or public employee shall engage in conduct that constitutes a conflict of interest. The following terms are defined in the Ethics Law as follows: Section 2. 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. "Conflict" or "conflict of interest" 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 which he or a member of his immediate family is associated. Wright /Horan, 96 -554 May 21, 1996 Page 4 "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. "Immediate family." A parent, spouse, child, brother or sister. "Business." Any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, self - employed individual, holding company, joint stock company, receivership, trust or any legal entity organized for profit. "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 has a financial interest. In addition, Sections 3(b) and 3(c) of the Ethics Law provide in part that no person shall offer to a public official /employee anything of monetary value and no public official /employee shall solicit or accept anything of monetary value based upon the understanding that the vote, official action, or judgement of the public official /employee would be influenced thereby. Reference is made to these provisions of the law not to imply that there has been or will be any transgression thereof but merely to provide a complete response to the question presented. Section 3(j) of the Ethics Law provides as follows: Section 3. Restricted activities (j) 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 Wright /Horan, 96 -554 May 21, 1996 Page 5 has abstained shall be permitted to vote to break the tie vote if disclosure is made as otherwise provided herein. If a conflict exists, Section 3(j) requires the public official /employee to abstain and to publicly disclose the abstention and reasons for same, both orally and by filing a written memorandum to that effect with the person recording the minutes or supervisor. In the event that the required abstention results in the inability of the governmental body to take action because a majority is unattainable due to the abstention(s) from conflict under the Ethics Law, then in that event participation is permissible provided the disclosure requirements noted above are followed. age, Mlakar, Advice 91- 523 -S. In applying the above provisions of the Ethics Law to the circumstances which you have submitted, pursuant to Section 3(a) of the Ethics Law, 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. As a non - profit corporation, Methodist Towers, Inc. is within the definition of "business" as set forth in the Ethics Law. See, e.g., Confidential Opinion No. 89 -007. The Commission finds the definition of "business" in Act 9 of 1989 to be extremely broad. Novak, Opinion No. 91 -009. On its face, the definition specifically includes j[ corporations. The final phrase, "or any legal entity organized for profit," is at the end of a long list of various types of entities and is read as just one more entity. The phrase does not modify the preceding list of entities but is itself a separate one. Methodist Towers, Inc. is therefore a "business," and it is a business with which a member of Horan's immediate family -- his spouse -- is associated. Mrs. Horan's employment by the corporation is sufficient to meet that element. Therefore, pursuant to Section 3(a), and under the facts and circumstances which you have presented, it is clear that Horan would have a conflict of interest in matters pertaining to the loan by the Authority to Methodist Towers, Inc. If the corporation does not get the money for the necessary capital improvements in the very near future, it will not be able to continue operations, its creditors will foreclose, and there will be a forced sale of the apartment building which is the corporation's only asset. Thus, the granting of the loan would clearly constitute a pecuniary benefit to Methodist Towers, Inc., a business with which Horan's spouse is associated. Most likely, Mrs. Horan would also receive a private pecuniary benefit in the nature of continued employment. In each instance of a conflict of interest, a public official /public employee is required to abstain fully from any participation. The use of authority of office encompasses more than mere voting: it encompasses every facet of the position. Juliante, Order No. 809. Thus, Horan would have to abstain from any participation as to the loan, including but not limited to participation in discussions by the Authority. It is further noted that Section 3(a) also prohibits any use of confidential information which a public official /public employee has access to by being in his position for a prohibited private pecuniary benefit. Horan would likewise be required to refrain from any use of confidential information in violation of Section 3(a). Wright /Horan, 96 -554 May 21, 1996 Page 6 A conflict of interest presents restrictions for the individual who has it . Section 3(a) does not apply to restrict a governmental body simply because one of its employees has a conflict of interest under the Ethics Law. Thus, Horan's conflict of interest under Section 3(a) of the Ethics Law would restrict Horan, but it would not restrict the Authority as to the proposed loan transaction. The propriety of the proposed conduct has only been addressed under the Ethics Law; the applicability of any other statute, code, ordinance, regulation or other code of conduct other than the Ethics Law has not been considered in that they do not involve an interpretation of the Ethics Law. Specifically not addressed herein is the applicability of the Municipalities Authorities Act or any HUD - related restrictions. Conclusion: As Executive Director and Secretary for the Housing Authority of the City of Erie ( "Authority "), John Horan ( "Horan ") is a public official /public employee subject to the provisions of the Ethics Law. John Horan would have a conflict of interest in matters involving a loan by the Authority to Methodist Towers, Inc., which is a business with which his spouse is associated. In each instance of a conflict of interest, Horan would be required to abstain fully and to fully satisfy the disclosure requirements of Section 3(j). Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Law.. Pursuant to Section 7(11), 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 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. 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, - Vincent J. Do ko Chief Counsel