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HomeMy WebLinkAbout04-004 MooreOPINION OF THE COMMISSION Before: Louis W. Fryman, Chair John J. Bolger, Vice Chair Daneen E. Reese Donald M. McCurdy Michael J. Healey Paul M. Henry Raquel K. Bergen DATE DECIDED: March 12, 2004 DATE MAILED: March 26, 2004 04 -004 Reizdan B. Moore, Esquire Chief Counsel, Democratic Caucus House of Representatives 423 Main Capitol Building House Box 202020 Harrisburg, PA 17120 -2020 Re: Conflict; Public Official /Employee; Authority Board Member; Intergovernmental Cooperation Authority for Cities of the Second Class; Business With Which Associated; Contracting; ALCOSAN; Municipal Authorities; Private Pecuniary Benefit; Reimbursed Expenses. Dear Mr. Moore: This Opinion is issued in response to your advisory request dated February 24, 2004. I. ISSUE: Whether the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa.C.S. § 1101 et seq., would impose prohibitions or restrictions upon a member of the governing board of the Intergovernmental Cooperation Authority for Cities of the Second Class with regard to contracting between the member or his employer and the Allegheny County Sanitation Authority or other municipal authorities excluding the authority on which he serves. II. FACTUAL BASIS FOR DETERMINATION: As Chief Counsel for the House Democratic Caucus, you have been authorized by Representative H. William DeWeese, House Democratic Leader, and by James L. Smith, III ( "Mr. Smith "), an appointee of Representative DeWeese, to request an advisory Opinion from the State Ethics Commission under submitted facts that may be fairly summarized as follows. Mr. Smith has been appointed by Representative DeWeese to serve as a member of Moore 04 -004 March 26, 2004 Page 2 the governing board of the Intergovernmental Cooperation Authority for Cities of the Second Class (hereinafter "Intergovernmental Cooperation Authority "), created by Act No. 11 of 2004. In his private capacity, Mr. Smith is employed by Merrill Lynch in its Global Markets and Investment Banking Division. Mr. Smith's employment duties include responsibility for debt origination, and specifically, providing underwriting and investment banking services to corporate and governmental entities. Currently, Merrill Lynch does not provide underwriting or investment banking services to the City of Pittsburgh or to any municipal authority to which the Mayor of Pittsburgh has the legal authority to appoint board members, such as the Allegheny County Sanitation Authority ("ALCOSAN"). Neither Mr. Smith nor Merrill Lynch intends to contract to perform municipal finance work for the City of Pittsburgh or for the Intergovernmental Cooperation Authority. Further, you state that it is to be assumed that neither Mr. Smith nor Merrill Lynch would be contracting to perform municipal finance work with the Intergovernmental Cooperation Authority ALCOSAN is a body corporate and politic. It was created under the Municipality Authorities Act of 1945 pursuant to a resolution of the Board of County Commissioners of Allegheny County adopted February 26, 1946. Pursuant to a Certificate of Joinder issued by the Secretary of the Commonwealth of Pennsylvania on March 16, 1955, the City of Pittsburgh became a member of ALCOSAN. Per ALCOSAN's Articles of Incorporation, as amended, three of the seven members of the Board of ALCOSAN are appointed by the City of Pittsburgh and another member is jointly appointed by the City of Pittsburgh and Allegheny County. The ALCOSAN Board makes policy decisions regarding the financial, administrative and operational procedures governing ALCOSAN and sets rates and establishes rules governing the wastes discharged to the Sewer System. ALCOSAN has its own administrative, engineering, operating and maintenance staffs. In your advisory request letter, you state that the question to be decided is whether the provisions of the Ethics Act would prohibit Mr. Smith or his employer, Merrill Lynch, from contracting to perform municipal finance work with ALCOSAN or other municipal authorities including those to which the Mayor of Pittsburgh appoints board members but excluding the Intergovernmental Cooperation Authority itself. However, given: (1) the standing requirements for requesting an advisory Opinion under the Ethics Act; (2) the lack of any authorization from Merrill Lynch for your inquiry; and (3) the lack of any factual basis for concluding that a business entity such as Merrill Lynch would be subject to the conflict of interest provision of the Ethics Act, we shall address the question from the perspective of Mr. Smith. Specifically, we shall determine whether the Ethics Act would impose prohibitions or restrictions upon Mr. Smith as a member of the Intergovernmental Cooperation Authority Board with regard to contracting between Mr. Smith or his employer, Merrill Lynch, and ALCOSAN or other municipal authorities excluding the Intergovernmental Cooperation Authority. We take administrative notice of the following additional facts. Act No. 11 of 2004 (hereinafter referred to as "Act 11") establishes the Intergovernmental Cooperation Authority as "a body corporate and politic" and "a public authority and instrumentality of the Commonwealth, exercising public powers of the Commonwealth as an agency and instrumentality thereof." (Act 11, Section 201). Section 201 of Act 11 states, inter alia, "The exercise by the Authority of the powers conferred by this act is hereby declared to be and shall for all purposes be deemed and held to be the performance of an essential public function." Id. The powers and duties of the Intergovernmental Cooperation Authority are exercised by its governing board ( "Board "). The Board is composed of five Members, with one member being appointed by each of the following: President Pro Tempore of the Senate; Minority Leader of the Senate; Speaker of the House of Representatives; Minority Leader of the House of Representatives; and Governor. (Act 11, Section 202(a)). Additionally, the Secretary of the Moore 04 -004 March 26, 2004 Page 3 Budget and the director of finance of each assisted city serve as non - voting, ex- officio Members of the Authority Board. Id. The powers and duties of the Intergovernmental Cooperation Authority Board are set forth at Section 203 of Act 11. Such powers and duties shall not be recited fully here. Generally, the Intergovernmental Cooperation Authority is established for the purpose of assisting cities of the second class in solving their budgetary and financial problems. (Act 11, Section 203(a)). The specific powers and duties of the Intergovernmental Cooperation Authority, include, but are not limited to, the powers to negotiate, enter into and implement intergovernmental cooperation agreements with such cities; to receive revenues; to sue and be sued; to contract; to acquire and sell property; to appoint officers, agents, employees and servants, prescribe their duties and fix their compensation; and to retain counsel and auditors for professional services. (Act 11, Sections 203(b) -(d)). Section 202(g) of Act 11 prohibits Members of the Intergovernmental Cooperation Authority Board (except for the Secretary of the Budget), as well as the Executive Director and other employees and agents of the Intergovernmental Cooperation Authority, from seeking or holding other positions as public officials or party officers. Section 202(g) also sets forth certain conflict -of- interest prohibitions, including, inter alia, the following: (3) No member of the board or employee of the authority may directly or indirectly be a party to or be interested in any contract or agreement with the authority or with the assisted city. Any member or employee who shall willfully violate this provision shall forfeit his office or employment and shall be subject to such other criminal and civil sanctions as may be imposed by law. Any contract or agreement knowingly made in contravention of this provision is void. Act 11, Section 202(g)(3). Section 202(e) of Act 11 provides: (e) Expenses. —A member shall not receive compensation or remuneration, but shall be entitled to reimbursement for all reasonable and necessary actual expenses. Act 11, Section 202(e). Additionally, Section 202(h) of Act 11 provides, in pertinent part: (h) Statues applying to authority. — (1) The provisions of the following acts shall apply to the authority: (IV) The act of October 4, 1978 (P.L. 883, No. 170), referred to as the Public Official and Employee Ethics Law. Act 11, Section 202(h). By letter dated February 25, 2004, you were notified of the date, time and location of the public meeting at which your request would be considered. Moore 04 -004 March 26, 2004 Page 4 III. DISCUSSION: It is initially noted that pursuant to Sections 1107(10) and 1107 (11) of the Ethics Act, 65 Pa.C.S. §§ 1107(10), (11), advisories are issued to the requestor based upon the facts that the requestor has submitted. In issuing the advisory based upon the facts that the requestor has submitted, this Commission does not engage in an independent investigation of the facts, nor does it speculate as to facts that have not been submitted. It is the burden of the requestor to truthfully disclose all of the material facts relevant to the inquiry. 65 Pa.C.S. §§ 1107(10), (11). An advisory only affords a defense to the extent the requestor has truthfully disclosed all of the material facts. It is further initially noted that this Commission, in the exercise of its jurisdiction, is limited to making determinations under the Ethics Act. In making such determinations, it is necessary at times to review other laws for background information, in order to ensure a correct application of the Ethics Act. In the instant matter, we are reviewing certain provisions of Act 11 for background information regarding the Intergovernmental Cooperation Authority. However, it must be understood that our advice to you is limited to an application of the Ethics Act to your inquiry. We shall first consider Mr. Smith's status under the Ethics Act. We determine that in his capacity as an appointed member of the Intergovernmental Cooperation Authority Board, Mr. Smith would be a "public official" subject to the provisions of the Ethics Act. First, the General Assembly has specifically mandated that the Ethics Act is applicable to the Intergovernmental Cooperation Authority (Act 11, Section 202(h)(1)(IV)). Second, as Representative DeWeese's appointee, Mr. Smith would fall squarely within the Ethics Act's definition of "public official" as a person who is appointed by a "governmental body," specifically, an officer in the legislative branch of the Commonwealth of Pennsylvania: § 1102. Definitions "Governmental body." Any department, authority, commission, committee, council, board, bureau, division, service, office, officer, administration, legislative body or other establishment in the executive, legislative or judicial branch of a state, a nation or a political subdivision thereof or any agency performing a governmental function. "Public official." Any person elected by the public or elected or appointed by a governmental body or an appointed official in the executive, legislative or judicial branch of this Commonwealth or any political subdivision thereof, provided that it shall not include members of advisory boards that have no authority to expend public funds other than reimbursement for personal expense or to otherwise exercise the power of the State or any political subdivision thereof. 65 Pa.C.S. § 1102 (Emphasis added). (See, PA CONST. art. II, Section 9; Article VI, Section 3 ; cf., Cohen, Opinion 03 -006 (holding that the Governor, as a Constitutional officer within the Executive Department of the Commonwealth, would be considered a "governmental body" as that term is defined in the Ethics Act). Third, based upon the delineated powers of the Intergovernmental Cooperation Authority Board, it is clear that the exclusion within the Ethics Act's definition of "public official" for "members of advisory boards that have no authority to expend public funds other than reimbursement for personal expense or to otherwise exercise the power of the State or any political subdivision thereof" (65 Pa.C.S. § 1102) would not be applicable. Having determined Mr. Smith's status as a public official subject to the Ethics Act, we shall Moore 04 -004 March 26, 2004 Page 5 now set forth the remaining provisions of the Ethics Act that are pertinent to your inquiry. Section 1103(a) of the Ethics Act provides: § 1103. Restricted activities (a) Conflict of interest. - -No public official or public employee shall engage in conduct that constitutes a conflict of interest. 65 Pa.C.S. § 1103(a). The following terms pertaining to conflicts of interest are defined in the Ethics Act as follows: § 1102. 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. The term 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. "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. "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. 65 Pa.C.S. § 1102. Section 1103(f) of the Ethics Act provides as follows: § 1103. Restricted activities (f) Contract. - -No public official or public employee or his spouse or child or any business in which the person or his spouse or child is associated shall enter into any contract valued at $500 or more with the governmental body with which the public Moore 04 -004 March 26, 2004 Page 6 official or public employee is associated or any subcontract valued at $500 or more with any person who has been awarded a contract with the governmental body with which the public official or public employee is associated, 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. In such a case, the public official or public employee shall not have any supervisory or overall responsibility for the implementation or administration of the contract. Any contract or subcontract made in violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of the making of the contract or subcontract. 65 Pa.C.S. § 1103(f). Section 1103(f) does not operate to make contracting with the governmental body permissible where it is otherwise prohibited. Rather, where a public official /public employee, his spouse or child, or a business with which he, his spouse or child is associated, is otherwise appropriately contracting with the governmental body, or subcontracting with any person who has been awarded a contract with the governmental body, in an amount of $500.00 or more, Section 1103(f) requires that an "open and public process" be observed as to the contract with the governmental body. Pursuant to Section 1103(f), an "open and public process" includes: (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. Section 1103(f) of the Ethics Act also requires that the public official /employee may not have any supervisory or overall responsibility as to the implementation or administration of the contract with the governmental body. Section 1103(j) of the Ethics Act provides as follows: § 1103. Restricted activities (j) Voting conflict. - -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 Moore 04 -004 March 26, 2004 Page 7 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 has abstained shall be permitted to vote to break the tie vote if disclosure is made as otherwise provided herein. 65 Pa.C.S. § 1103(j). In each instance of a conflict, Section 1103(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 Act, then voting is permissible provided the disclosure requirements noted above are followed. See, Pavlovic, Opinion 02 -005. Having set forth the pertinent provisions of the Ethics Act, we initially note as to Section 1103(f) that you have indicated that this advisory Opinion is to be issued based upon the factual assumption that neither Mr. Smith nor Merrill Lynch would be contracting to perform municipal finance work with the Intergovernmental Cooperation Authority itself. Based upon that assumption and the similar lack of any factual reference to any other potential contracting or subcontracting that could implicate the restrictions of Section 1103( of the Ethics Act, we shall not address Section 1103(f) other than to note its requirements above and to state that such requirements would have to be observed if and when they would become applicable. In applying the remaining provisions of the Ethics Act to the instant matter, pursuant to Section 1103(a) of the Ethics Act, 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. Merrill Lynch is a business with which Mr. Smith is associated, given his status as an employee of that business. It is generally noted that a conflict of interest exists where a public official /public employee, in his official capacity, participates, reviews or passes upon a matter involving a business with which he is associated and /or private clients. Miller, Opinion No. 89 -024; Kannebecker, Opinion No. 92 -010. A reasonable and legitimate expectation that a business relationship will form may also support a finding of a conflict of interest. Amato, Opinion No. 89 -002; Garner, Opinion No. 93 -004; Snyder, Order No. 979 -2, affirmed Snyder v. SEC, 686 A.2d 843 (Pa. Commw. Ct. 1996), alloc. den., No. 0029 M.D. Allocatur Docket 1997 (Pa. December 22, 1997). This Commission has also held that it is a conflict of interest under Section 1103(a ) for a public official /public employee to pursue a private business opportunity in the course of public action. Metrick, Order No. 1037. In each instance of a conflict of interest, the public official /public employee must abstain from participation in his public capacity. The abstention requirement is not limited merely to voting, but extends to any use of authority of office. In Juliante, Order No. 809, this Commission recognized that the use of authority of office as defined in the Ethics Act includes, for example, discussing, conferring with others, and lobbying for a particular result. In each instance of a conflict of interest, the public official must also satisfy the disclosure requirements of Section 1103(j) set forth above. We shall now consider the specific question to be addressed, that is, whether the provisions of the Ethics Act would impose prohibitions or restrictions upon Mr. Smith as a member of the Intergovernmental Cooperation Authority Board with regard to contracting Moore 04 -004 March 26, 2004 Page 8 between Mr. Smith or his employer, Merrill Lynch, and ALCOSAN or other municipal authorities excluding the Intergovernmental Cooperation Authority. You are advised that ordinarily, Section 1103(a) of the Ethics Act does not apply to restrict a public official with regard to contracting with governmental bodies /political subdivisions other than the one he serves. However, in the instant matter, the question requires closer scrutiny, due to a provision in Act 11 that prescribes certain conditions to service as a member of the Intergovernmental Cooperation Authority Board. Specifically, Act 11 of 2004 provides: (3) No member of the board or employee of the authority may directly or indirectly be a party to or be interested in any contract or agreement with the authority or with the assisted city.... Any member or employee who shall willfully violate this provision shall forfeit his office or employment and shall be subject to such other criminal and civil sanctions as may be imposed by law. Any contract or agreement knowingly made in contravention of this provision is void. Act 11, Section 202(g)(3) (Emphasis added). The above provision would appear to preclude a person from serving as a member of the Intergovernmental Cooperation Authority Board if he would directly or indirectly be a party to or be interested in any contract with the assisted city. The submitted facts do not indicate whether contracting between Mr. Smith or his employer, Merrill Lynch, and ALCOSAN or other municipal authorities could cause Mr. Smith to run afoul of this provision through some involvement of the City of Pittsburgh. However, in order to provide a complete response to your inquiry, we shall address the impact such a scenario would have under the Ethics Act. If conditions would exist under which Mr. Smith could not lawfully serve as a member of the Intergovernmental Cooperation Authority Board, the resulting impact under the Ethics Act would be that any pecuniary benefit that Mr. Smith would receive as a result of unlawful service on the Board would be unauthorized in law and therefore a prohibited private pecuniary benefit contrary to Section 1103(a) of the Ethics Act. See, Hoak/ McCutcheon v. State Ethics Commission, 466 A.2d 283 (Pa. Commw. Ct. 1983); Confidential Opinion, 03 -003. However, as a practical matter, members of the Intergovernmental Cooperation Authority Board do not receive compensation or remuneration for serving on the Board. To the contrary, pursuant to Section 202(e) of Act 11 quoted above, it would appear that the only potential financial payment to Mr. Smith for serving as a member of the Intergovernmental Cooperation Authority Board would be reimbursement of reasonable and necessary actual expenses incurred as the result of such service. We hold that for purposes of applying Section 1103(a) of the Ethics Act to your inquiry, it would not be a pecuniary benefit for Mr. Smith to receive reimbursement for reasonable and necessary actual expenses incurred in service to the Intergovernmental Cooperation Authority Board, because such reimbursement would merely be a "wash" transaction making him whole as to expenses. Cf., Confidential Opinion, 97 -012. The necessary conclusion is that in the absence of any prohibited private pecuniary benefit, Section 1103(a) of the Ethics Act would not impose prohibitions or restrictions upon Mr. Smith as a member of the Intergovernmental Cooperation Authority Board with regard to contracting between Mr. Smith or his employer, Merrill Lynch, and ALCOSAN or other municipal authorities excluding the Intergovernmental Cooperation Authority. The propriety of the proposed conduct has only been addressed under the Ethics Act; the applicability of any other statute, code, ordinance, regulation or other code of conduct other than the Ethics Act has not been considered in that they do not involve an interpretation of the Ethics Act. Moore 04 -004 March 26, 2004 Page 9 IV. CONCLUSION: An appointed member of the governing board ( "Board ") of the Intergovernmental Cooperation Authority for Cities of the Second Class ( "Intergovernmental Cooperation Authority ") would be a public official subject to the provisions of the Ethics Act, including the restrictions and requirements of Sections 1103(a) and 11030), and Section 1103(f) to the extent applicable. In the absence of any prohibited private pecuniary benefit, Section 1103(a) of the Ethics Act would not impose prohibitions or restrictions upon the member with regard to contracting between the member or his employer and ALCOSAN or other municipal authorities excluding the Intergovernmental Cooperation Authority. It would not be a pecuniary benefit for the member to receive reimbursement for reasonable and necessary actual expenses incurred as a Board member. The propriety of the proposed conduct has only been addressed under the Ethics Act. Pursuant to Section 1107(10), the person who acts in good faith on this Opinion issued to him shall not be subject to criminal or civil penalties for so acting provided the material facts are as stated in the request. This letter is a public record and will be made available as such. Finally, a party may request the Commission to reconsider its Opinion. The reconsideration request must be received at this Commission within thirty days of the mailing date of this Opinion. The party requesting reconsideration must include a detailed explanation of the reasons as to why reconsideration should be granted in conformity with 51 Pa. Code § 21.29(b). By the Commission, Louis W. Fryman Chair Commissioner Paul M. Henry did not participate in the consideration of this matter.