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HomeMy WebLinkAbout97-625 ConfidentialSTATE ETHICS COMMISSION 309 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL November 18, 1997 97 -625 Re: Public Official /Employee, Superintendent, School District, FIS, Disclosure, Loan, Judgment Note, Equity, Residence, Immediate Family, In -Law. This responds to your letters of October 13 ,1997 and October 23, 1997 by which you requested advice from the State Ethics Commission. Issue: Whether the Public Official and Employe Ethics Law requires a School Superintendent to file amended Statements of Financial Interests to disclose various loans related to the construction of his home, which loans were secured by judgment notes. Facts: You have been authorized by Mr. A to request an advisory on his behalf. Mr. A is the Superintendent of School District B. Recently, Mr. A was contacted by the Auditor General's Office relative to a loan which he and his wife had taken out in October, 1994. It was suggested by the Auditor General's Office that the loan should have been reported on Mr. A's Statement of Financial Interests (FIS). You submit the following factual background. In 1992, Mr. and Mrs. A finished construction of their personal home. During the course of construction, numerous problems had arisen with the contractor. Ultimately, the contractor was thrown off the job by the bank which had provided the primary mortgage on the premises. Because of such problems, the expenses on the home were approximately $40,000 more than had originally been contemplated. As a result, Mr. and Mrs. A borrowed $25,000 from their credit union and $16,000 from their brother -in -law and sister -in -law to offset some of that expense. Again, in 1994, Mr. and Mrs. A borrowed $10,000 from Mr. and Mrs. C. You state that all of the above loans were necessitated by the construction of Mr. and Mrs. A's new home. All of these loans were secured by judgment notes Confidential Advice of Counsel, 97 -625 November 18, 1997 Page 2 which were signed by both Mr. and Mrs. A so that they could be, at the option of the creditors, recorded against the marital residence. The above loans were not included on Mr. A's FIS's for the years they were in existence. You proffer that the reason that these loans were not disclosed on the FIS's was that they were "secured by the equity in the personal residence." (Letter of October 13, 1997 at 1). The $25,000 credit union loan was paid off in April, 1997 when a second mortgage was taken against the house to consolidate existing debts. At that time, a substantial payment was made on the loan from Mr. and Mrs. C using the proceeds of the mortgage. The balance of the note has since been paid in full. The loan from Mr. and Mrs. A's brother -in -law and sister -in -law was, and is, being repaid monthly. You state that Mr. A did not believe that it was necessary to disclose on his FIS a loan that was secured by a judgment note, which you characterize as being against the equity in his primary residence. However, you state that Mr. A does not want to be in violation of the Ethics Law and is prepared to file amended FIS's if it is determined that he must do so. Discussion: It is initially noted that pursuant to Sections 7(10) and 7(11) 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. It is further noted that pursuant to Sections 7(10) and (11) of the Ethics Law, an opinion /advice may be given only as to prospective (future) conduct. If the activity in question has already occurred, the Commission may not issue an opinion /advice but any person may then submit a signed and sworn complaint which will be investigated by the Commission if there are allegations of Ethics Law violations by a person who is subject to the Ethics Law. In this case, although your inquiry involves past FIS's, there is a question as to future conduct. Specifically, you inquire as to whether Mr. A would be required to file amended Statements of Financial Interests. Thus, this Advice is issued in order to address the proposed future conduct of Mr. A in that regard. As Superintendent for School District B, Mr. A is a public official as that term is defined in the Public Official and Employe Ethics Law ( "Ethics Law "), and hence he is subject to the provisions of that law. Pursuant to Section 4(a) of the Ethics Law, Mr. A is required to file a Statement of Financial Interests with School District B each year he holds the position as Superintendent and the year after he leaves said position. 65 P.S. §404(a). The financial disclosure which Mr. A is required to provide in the Statement of Financial Interests form is statutorily mandated in detail at Section 5 of the Ethics Law, Confidential Advice of Counsel, 97 -625 November 18, 1997 Page 3 65 P.S. §405. The pertinent subparagraph of Section 5 which pertains to your inquiry provides as follows: (b) The statement shall include the following information for the prior calendar year with regard to the person required to file the statement. 65 P.S. §405(b)(4). The term "immediate family" is defined in the Ethics Law as follows: Section 2. Definitions 65 P.S. §402. (4) The name and address of each creditor to whom is owed in excess of $5,000 and the interest rate thereon. However, loans or credit extended between members of the immediate family and mortgages securing real property which is the principal or secondary residence of the person filing shall not be included. "Immediate family." A parent, spouse, child, brother or sister. In applying the above provisions of the Ethics Law to the facts which you have submitted, it is clear that a brother or sister is a member of immediate family, but a brother -in -law or sister -in -law is not included in the definition. It is also clear that a judgment note is not a mortgage and consequently, would not fall within the exception to disclosure for "mortgages securing real property which is the principal or secondary residence of the person filing." Consequently, the mere fact that a debt is secured by a judgment note would not relieve a public official /public employee from the statutory duty to disclose the name and address of the creditor and the interest rate. With regard to the 1992 loan of $25,000 from the credit union, based upon the facts which have been submitted, such loan was secured by a judgment note and not by a mortgage. Therefore, that debt would be subject to disclosure on the Statement of Financial Interests form. With regard to the 1992 loan of $16,000 from Mr. and Mrs. A's "brother -in -law and sister -in -law," it is noted that the facts as submitted preclude a determination of whether a member of Mr. A's immediate family was a creditor. It is not clear whether either of the individuals from whom these funds were borrowed was a brother or sister of Mr. A. The relationship such individuals may have with Mrs. A is irrelevant in that she is not the person required to file the Statement of Financial Interests. In the absence of more precise facts, this Advice shall be limited to providing the following general guidance. Any such debt obtained exclusively from member(s) of Mr. A's immediate family need not be disclosed. On the other hand, any such debt for which Confidential Advice of Counsel, 97 -625 November 18, 1997 Page 4 any one or more of the creditors is not a member of Mr. A's immediate family must be disclosed. With regard to the 1994 loan of $ 10,000 from Mr. and Mrs. C, the facts as submitted do not represent that such individuals are members of Mr. A's immediate family. Therefore, the debt would be subject to disclosure on the Statement of Financial Interests. Finally, with regard to the 1997 second mortgage taken against the house for the purpose of consolidating existing debts, based upon the facts submitted, that debt would be a mortgage against the principal residence. It would therefore be within the statutory exceptions to disclosure and would not be subject to disclosure on the Statement of Financial Interests. In response to your specific inquiry, amended Statements of Financial Interests should be filed. The Ethics Law requires that the forms be kept on file for five years, 65 P.S. §407(9). The earliest of the reportable loans were taken out in 1992. Such loans would have properly been disclosed in the Statement of Financial Interests due May 1, 1993. Such forms would still be within the five year period for remaining on file for public disclosure and copying. Disclosure must be made as to each year such loans were in existence: Conclusion: As Superintendent of School District B, Mr. A is a public official subject to the provisions of the Ethics Law, and specifically the requirement to file Statements of Financial Interests. A judgment note is not a mortgage, and the mere fact that a debt is secured by a judgment note does not relieve a public official /public employee from the statutory duty to disclose the name and address of the creditor and the interest rate pursuant to 65 P.S. §405(b)(4). Mr. A is advised to file amended Statements of Financial Interests to disclose: the 1992 loan in the amount of $25,000 from his credit union, which loan was secured by a judgment note and not by a mortgage; the 1992 loan of $16,000 from Mr. and Mrs. A's "brother -in -law and sister - in -law, to the extent that any such creditor was not a member of Mr. A's immediate family; and the 1994 loan of $10,000 from Mr. and Mrs. C. Disclosure must be made as to each year such loans were in existence. The 1997 second mortgage taken against the A's house need not be disclosed. 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. Confidential Advice of Counsel, 97 -625 November 18, 1997 Page 5 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 1. 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. S,u cerely, Vincent opko Chief Counsel