Loading...
HomeMy WebLinkAbout04-015 WhitlockJohn M. Whitlock, Deputy Chief Counsel Pennsylvania Department of Community and Economic Development Commonwealth Keystone Building 400 North Street, Fourth Floor Harrisburg, PA 17120 Re: Conflict; Public Official; Authority Member; Commonwealth Financing Authority; Legislative Appointee; Voting Conflicts Exception; Contracting; Open and Public Process; Prior Public Notice; Jurisdiction. Dear Mr. Whitlock: I. ISSUE: OPINION OF THE COMMISSION Before: Louis W. Fryman, Chair John J. Bolger, Vice Chair Donald M. McCurdy Michael J. Healey Paul M. Henry Raquel K. Bergen DATE DECIDED: 9/21/04 DATE MAILED: 10/1/04 04 -015 This Opinion is issued in response to the advisory request letters of Frank L. Newburger, III, former Chief Counsel of the Pennsylvania Department of Community and Economic Development, which letters were dated August 25 -26, 2004. Whether, pursuant to Section 1103(j) of the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa.C.S. § 1103(j), a legislative appointee to the Commonwealth Financing Authority ( "Authority ") may, with disclosure, vote despite a conflict of interest in a matter for which the consent of all four legislatively appointed Authority Board members is statutorily required; whether an Authority Board member may enter into financing transactions or related subcontracts with the Authority under the First Industries Program pursuant to 64 Pa.C.S. §1552 or the Second Stage Loan Program pursuant to 64 Pa.C.S. §1553 without the requirements of Section 1103(f) of the Ethics Act for prior public notice being satisfied, if such transactions typically involve urgency and demands by the companies involved for confidentiality until an agreement is reached; and whether compliance with Section 1103(j) of the Ethics Act and to the extent required Section 1103(f) of the Ethics Act as to the above matters would constitute compliance with the State Adverse Interest Act, 71 P.S. § 776.1 et seq. Whitlock, 04 -015 October 1, 2004 Page 2 II. FACTUAL BASIS FOR DETERMINATION: All members of the Board of the Commonwealth Financing Authority ( "Authority ") have authorized the instant advisory request based upon the following submitted facts. The Authority Board is composed of the Secretary of Community and Economic Development or a designee, the Secretary of the Budget or a designee, the Secretary of Banking or a designee, and four legislative appointees. 64 Pa.C.S. § 1512(a). The consent of all four legislative appointees is statutorily required for certain types of matters considered by the Board: (d) Quorum — Five members of the board shall constitute a quorum, and the following shall apply: (1) The consent of at least five members of the board, with at least four of the consenting members being appointed under subsection (a)(4) [the legislative appointees], shall be necessary to take action on behalf of the authority for any of the following: (i) Adopting bylaws. (ii) Hiring professionals under section 1513(a)(5) and (6) (relating to powers). (iii) Authorizing bonds. (iv) Approving projects and contracts under Subchapter E (relating to programs). (v) Adopting guidelines relating to the implementation of Subchapter E. (2) A majority of the board shall be necessary to take any other action on behalf of the authority. 64 Pa.C.S. §1512(d) (Emphasis added). Three questions have been posed for review by this Commission. The first question is whether, pursuant to Section 1103(j) of the Ethics Act, a legislative appointee to the Authority may, with disclosure, vote despite a conflict of interest in a matter for which the consent of all four legislatively appointed Authority Board members is statutorily required. With regard to this question, it has been noted that the Authority can take no action on a matter described in 64 Pa.C.S. §1512(d)(1) if any one of the four legislatively appointed board members is required to abstain. It has been argued that the clear language as well as the apparent intent of Section 1103(j), as interpreted by this Commission, would permit an Authority Board member who is a legislative appointee to vote despite a conflict as long as he would make the required disclosures. The second question is whether an Authority Board member may enter into financing transactions or related subcontracts with the Authority under the First Industries Program pursuant to 64 Pa.C.S. §1552 or the Second Stage Loan Program pursuant to 64 Pa.C.S. §1553 without the requirements of Section 1103(f) of the Ethics Act for prior public notice being satisfied, if such transactions typically involve urgency and demands by the companies involved for confidentiality until an agreement is reached. We parenthetically note that the question as originally posed extended beyond the conduct of the Authority Whitlock, 04 -015 October 1, 2004 Page 3 Board members who authorized the request, and so has been modified to fit within the parameters of the authorization. With regard to the second question, it has been argued that the requirements of Section 1103(f) should not apply to economic development transactions undertaken by the Authority because it would not be practical to make a prior announcement to allow competitors to submit counter - proposals. It has been argued that having to comply with the requirements of Section 1103(f) of the Ethics Act would greatly restrict the ability of the Authority to carry out the economic development financing transactions under these programs, due to factors of urgency and demands by companies seeking to enter into such economic development financing transactions for confidentiality until an agreement is reached and the project is publicly announced. The advisory request notes that competitive bidding is not required under any of the economic development financing programs operated by the Authority. This Commission has been asked to determine that an Authority Board member may enter into financing transactions or related subcontracts with the Authority without violating Section 1103(f) of the Ethics Act provided that there would be disclosure at the time of the award of the Board member's interest in the contract or subcontract, and further provided that the Board member would have no supervisory or overall responsibility for the administration of the contract. The third question posed is whether compliance with Section 1103(j) of the Ethics Act and to the extent required Section 1103(f) of the Ethics Act as to the above matters would constitute compliance with the State Adverse Interest Act. By letter dated August 31, 2004, your office was notified of the date, time and location of the public meeting at which the instant advisory request would be considered. At the public meeting on September 21, 2004, you appeared and offered commentary, which may be fairly summarized as follows. You reiterate that for the two particular programs in question, it would not be feasible to provide advance notice of the contracting opportunity because these programs often operate in a very condensed time frame and involve demands for confidentiality until a decision is made on the financing. You additionally assert that in the context of these two particular programs, there would be no "competing proposals" because each economic development matter would be addressed entirely on its own merits and there would be no reason why multiple proposals could not be accepted. Although you acknowledge that this Commission lacks express authority to waive the requirements of Section 1103(f) of the Ethics Act, you contend that we should grant the Authority Board members a "carve -out" from the prior public notice requirements of Section 1103(f) of the Ethics Act, under a "rule of reason" analysis. It is administratively noted that the Authority is a public instrumentality of the Commonwealth performing essential governmental functions (64 Pa.C.S. § 1522). The Authority Board members "stand in a fiduciary relationship with the Commonwealth and the authority as to the moneys in the accounts of the authority and investments of the authority." 64 Pa.C.S. § 1512(f). The Authority Board members are subject to the Ethics Act. 64 Pa.C.S. § 1511(m). 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 Whitlock, 04 -015 October 1, 2004 Page 4 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. As noted above, Members of the Authority Board are public officials subject to the provisions of the Ethics Act. Sections 1103(a) and 1103(j) of the Ethics Act provide: § 1103. Restricted activities (a) Conflict of interest. - -No public official or public employee shall engage in conduct that constitutes a conflict of interest. (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 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(a), (j). 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. Whitlock, 04 -015 October 1, 2004 Page 5 "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. "Financial interest." Any financial interest in a legal entity engaged in business for profit which comprises more than 5% of the equity of the business or more than 5% of the assets of the economic interest in indebtedness. 65 Pa. C. S. § 1102. 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. In each instance of a conflict, Section 1103(j) requires the public official /public 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. The abstention requirement is not limited merely to voting, but extends to any use of authority of office including, but not limited to, discussing, conferring with others, and lobbying for a particular result. Juliante, Order 809. 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. 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 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 Whitlock, 04 -015 October 1, 2004 Page 6 65 Pa.C.S. § 1103(f). 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. The term "contract" is defined in the Ethics Act as follows: § 1102. Definitions "Contract." An agreement or arrangement for the acquisition, use or disposal by the Commonwealth or a political subdivision of consulting or other services or of supplies, materials, equipment, land or other personal or real property. The term shall not mean an agreement or arrangement between the State or political subdivision as one party and a public official or public employee as the other party, concerning his expense, reimbursement, salary, wage, retirement or other benefit, tenure or other matters in consideration of his current public employment with the Commonwealth or a political subdivision. 65 Pa.C.S. § 1102. 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. Having set forth the above relevant provisions of the Ethics Act, we shall now review the questions that have been posed. The first question is whether, pursuant to Section 1103(j) of the Ethics Act, a legislative appointee to the Authority may, with disclosure, vote despite a conflict of interest in a matter for which the consent of all four legislatively appointed Authority Board Whitlock, 04 -015 October 1, 2004 Page 7 members is statutorily required. With regard to this question, it has been noted that the Authority can take no action on a matter described in 64 Pa.C.S. §1512(d)(1) if any one of the four legislatively appointed board members is required to abstain. In response to the first question, you are advised that in a matter for which the consent of all four legislatively appointed Authority Board members is statutorily required, a legislative appointee to the Authority may vote despite a conflict of interest as long as he first satisfies the disclosure requirements of Section 1103(j) of the Ethics Act. This conclusion is based upon a straightforward application of the voting conflicts exception at Section 1103(j) that permits a public official to vote despite a conflict of interest when the following conditions are met: (1) the board is unable to take any action on the matter before it because the number of members required to abstain from voting under the provisions of the Ethics Act makes the majority or other legally required vote of approval unattainable; and (2) prior to voting, such members with conflicts under the Ethics Act disclose their conflicts as required by Section 1103(j). Pavlovic, Opinion 02 -005. However, you are cautioned that the exception allows for voting only —it does not permit other forms of participation, such as discussing the matter that is the subject of the vote or otherwise using the authority of office to advance a private pecuniary benefit. Klutzaritz, Order 1078; Pavlovic, supra. The second question is whether an Authority Board member may enter into financing transactions or related subcontracts with the Authority under the First Industries Program pursuant to 64 Pa.C.S. §1552 or the Second Stage Loan Program pursuant to 64 Pa.C.S. §1553 without the requirements of Section 1103(f) of the Ethics Act for prior public notice being satisfied, if such transactions typically involve urgency and demands by the companies involved for confidentiality until an agreement is reached. In response to the second question, you are advised that the averred circumstances of urgency and demands by the companies involved for confidentiality would not impact upon the applicability of Section 1103(f) of the Ethics Act. Based upon the submitted facts, the restrictions and requirements of Section 1103(f) of the Ethics Act would apply and would have to be fully observed as to such financing transactions or related subcontracts with the Authority valued at $500 or more. Such requirements would include prior public notice. You have essentially asked this Commission to carve out an exception or grant a waiver from the requirements of Section 1103(f) of the Ethics Act, which we do not have the authority to do. Ziegler, Opinion 98 -001; Long, Opinion 97 -010; Marsh, Opinion 93 -007; Richardson, Opinion 93 -006. As for the assertion that it would not be practical to have to comply with the requirements of Section 1103(f) of the Ethics Act, the necessary response is that if that is so, the Authority Board member(s) in question should forego the private business opportunity(ies) rather than transgress the Ethics Act. See, Kurtz, Order 1116 at 49. The third question posed is whether compliance with Section 1103(j) of the Ethics Act and to the extent required Section 1103(f) of the Ethics Act as to the above matters would constitute compliance with the State Adverse Interest Act. We may not address the third question in that this Commission does not have the statutory jurisdiction to issue advisories regarding compliance with the State Adverse Interest Act. 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. Specifically not addressed herein is the applicability of the State Adverse Interest Act or the fiduciary duty of an Authority Board member under 64 Pa.C.S. § 1512(f). IV. CONCLUSION: Members of the Board of the Commonwealth Financing Authority ( "Authority ") are public officials subject to the provisions of the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa.C.S. § 1101 et seq. In a matter for which the consent of all four legislatively appointed Authority Board members is statutorily required, a legislative Whitlock, 04 -015 October 1, 2004 Page 8 appointee to the Authority may vote despite a conflict of interest as long as he first satisfies the disclosure requirements of Section 1103(j) of the Ethics Act. The restrictions and requirements of Section 1103(f) of the Ethics Act would apply and would have to be fully observed as to financing transactions or related subcontracts valued at $500 or more between an Authority Board member and the Authority under the First Industries Program pursuant to 64 Pa.C.S. §1552 or the Second Stage Loan Program pursuant to 64 Pa.C.S. §1553. Act. The propriety of the proposed conduct has only been addressed under the Ethics 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