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12/18/2002 - STAFF REPORTS (13)
DATE: December 18, 2002 TO: City Council FROM: Director, Department of Parks, Recreation and Facilities PALM SPRINGS AQUATICS AGREEMENT RECOMMENDATION: That the City Council approve one of two options for an agreement between the City of Palm Springs and Palm Springs Aquatics (PSA) to provide a quality swim program for the citizens of Palm Springs. SUMMARY: City Council is being asked to approve one of two options for an agreement between the City of Palm Springs and PSA to provide a quality swim program for the citizens of Palm Springs. PSA's compensation to the City for use of the Palm Springs Swim Center over the term of the agreement will be $75 per month. Payment is due at the beginning of the month. BACKGROUND: At the beginning of July, John Cyganiewicz (Coach Cy), who, at that time,was the Piranhas Swim Team (PST)coach, approached staff about the possibility of getting some pool time just in case things with PST did not work out. Apparently, there were some problems between Coach Cy and the PST parents and some board members. During the same time frame, a PST board member approached staff to inform them that the PST board, more than likely, was not going to renew Coach Cy's contract as team coach. On July 11, Coach Cy submitted an "Application for Swim Center Use," with a starting date of September 1, for his newly-formed PSA swim team.At that time, Coach Cy asked about getting a contract/agreement similar to what the City currently has with PST. Staff informed him of the process, which was to submit a proposal and it would be presented to the Parks and Recreation Commission for its recommendation. Coach Cy's proposal was presented to the Parks and Recreation Commission at its September 18 meeting. Members of the PST board and parents of some of its swimmers were also present at this meeting.They stated during public comments that safety is a main concern and they feel overcrowding the pool is dangerous. After discussion, the commission directed staff to meet with the coaches and representatives of the two clubs to work out swim center usage times. f' PALM SPRINGS AQUATICS AGREEMENT DATE: December 18, 2002 PAGE: Two To address the safety issues, staff sent an e-mail to USA Swimming on October 1, inquiring as to what the standard is, if any, regarding the number of swimmers who can train in a lane. Kim Holmes, USA Swimming, responded on October 9. She stated that there is no formal standard for lane usage. Many teams can fit as many as 8-10 young kids in a 25-yard lane. An average senior team of teenagers may have 5-8 in a lane, and masters swimmers tend to feel cramped with more than 2 in a lane. She stated that it depends on how many lanes are available, how good people are at circling and going 5 or 10 seconds apart, and how many people are in the workout. At the direction of the Parks and Recreation Commission, staff met with representatives of PST and PSA swim teams to attempt to work out some reasonable schedule to accommodate PSA swim team. For over 30 years, the City has had an agreement with PST to provide a quality swim program for the youth of Palm Springs. The agreement provides times that would be available for PST for training. Staff met with the representatives of the two swim teams on Wednesday, October 2. At that meeting, staff provided a list of the current users with and without agreements and their requested times. At the beginning of the meeting, a PST board member stated that he could not make any decisions without the full PST board's approval. Any and all issues would need to go back to the PST board for its approval. Representatives of the swim teams were provided a summary of the meeting and asked to let staff know no later than October 8 if any issues had been omitted or anything was not made clear. PST responded with a letter dated October 4, which was delivered to staff on October 7 and implied that it would not agree to any times that put PSA in the pool at the same time as PST. At the October 9 Parks and Recreation Commission meeting, staff gave an overview of the October 2 meeting with the swim teams. Being that PST's board could not agree to what was discussed at the October 2 meeting, staff proposed some options regarding PSA for the commission to consider. The Parks and Recreation Commission directed staff to negotiate an agreement with PSA. In addition, the commission directed staff to meet with representatives of PST and PSA, making sure the representatives could make decisions without going back to their respective boards for approval. �l�z PALM SPRINGS AQUATICS AGREEMENT DATE: December 18, 2002 PAGE: Three Staff met with representatives of the two teams on October 30. A PST board member stated that PST would not agree to any times that conflicted with PST's pool usage. Furthermore, it was alleged by the PST coach and brought to the attention of City staff that the PSA coach had recently been observed and heard using profanity on deck at the Palm Springs Swim Center. Staff advised the PSA coach, in writing, that behavior of this nature was a clear violation of the rules and use of such language would not be tolerated by the City. The PSA coach acknowledged the City's warning, although he denied all the allegations and staff was subsequently unable to substantiate the charges through its own investigation of the matter. Currently, PSA is using the schedule given in Option A. Because pool usage matters could not be resolved to the mutual satisfaction of PSA and PST and because the Parks and Recreation Commission had previously provided staff with direction to negotiate an agreement with PSA, both the commission and City staff felt that the best course of action would be to present the City Council with two different option agreements as proposed. City Council is being asked to approval one of the two agreements, each with a different option as to pool usage times. In all other respects, the two agreements are the same. Option A (greatest number of shared-use hours with PST and most desirable use time for PSA swim club members): TYPICAL SCHEDULE OF PRACTICE SESSIONS: 5:00 a.m. to 7:00 a.m. Monday - Wednesday - Friday 3:00 p.m. to 5:00 p.m. Monday -Wednesday - Friday* 5:00 p.m. to 6:30 p.m. Monday -Wednesday - Friday** 3:00 p.m. to 6:30 p.m. Tuesday - Thursday* 7:00 a.m, to 9:00 a.m. Saturday*** * Maximum: 3 lanes ** 1 lane plus shallow area *** Except on dates Piranha Swim Team has duel meets scheduled Option B (least number of shared-use hours with PST and less desirable use time for PSA swim club members): TYPICAL SCHEDULE OF PRACTICE SESSIONS: 5:00 a.m. to 7:00 a.m. Monday - Wednesday - Friday 2:00 p.m. to 4:00 p.m. Monday through Friday 6:30 p.m. to 9:00 p.m. Monday through Friday 7:00 a.m. to 9:00 a.m. Saturday* * Except on dates Piranha Swim Team has duel meets scheduled. !!e 3 PALM SPRINGS AQUATICS AGREEMENT DATE: December 18, 2002 PAGE: Four The term of both agreements is for a period of one (1) year, with two (2) one-year (1-year) options, renewable at the sole discretion of the City. At the present time,teams are not assigned specific lanes fortheir practices. In the PSA agreement containing shared usage options, staff is recommending lane assignments for its practices and it will need to make that work for whatever number of swimmers it may have during the workouts. The City does not provide lifeguard services for any swim team practices that occur when the swim center is closed. Teams are responsible for the health and safety of their respective team members while they are training at the pool. This issue is reflected in the PSA agreement. S"COTT MIKESELL, Director Department of Parks, Recreation and Facilities APPROVED City Manager ATTACHMENTS: 1. Agreement 2. Minute Order (2 - Option A; Option 13) REVIEWED BY DEPI OF FINANCE AGREEMENT This Agreement is made and entered into this day of 2002 between the City of Palm Springs, California, hereinafter referred to as "City," and Palm Springs Aquatics, hereinafter referred to as "PSA." RECITALS WHEREAS, the City and PSA are mutually interested in and concerned with providing quality recreational activities for the citizens of Palm Springs; and WHEREAS, it is recognized that through a cooperative agreement between the City and PSA the community will be afforded the fulfillment of one of its recreational goals for citizens. NOW THEREFORE, the City and PSA do hereby mutually agree as follows: 1. INTENT OF AGREEMENT 1.1. It is the intent of this Agreement to describe the responsibilities of the City and PSA in their cooperative effort to effectively promote and provide competitive swimming for an average of twenty-five (25)youth and adults. 1.2. It is the intent of this agreement that PSA identify the City's Swim Center pool as its "home" pool for all swim meets held for or on behalf of this PSA. 1.3. It is the intent of this Agreement to solidify a supportive and working relationship between PSA and the City. 1.4. It is the intent of this Agreement that both the City and PSA acknowledge and direct their efforts toward the development of quality swim programs at the City's Swim Center. 2. AREAS OF RESPONSIBILITY 2.1. Fees and Charges 2.1.1. PSA agrees to reimburse the City for pool rental monthly. The monthly payments shall be$75 for the term of this contract. Payment is due at the beginning of each month. 2.2. Pool Use and Scheduling 2.2.1. The City shall make the Swim Center available on a shared, non- exclusive basis, which does not interfere with the City's other recreation programs. Notwithstanding the foregoing,it is understood that PSA shall be permitted to utilize the Swinn Center in accordance with the schedule below. This schedule is subject to change with the approval of the Contract Officer and in accordance with Section 2.2.2. In the event of scheduling conflict,the City has sole discretion to resolve such conflicts,but the City shall act in a timely mamier. „��" AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Two. During high school water sports season,Palm Springs Unified School District schools shall have priority use of Swim Center. TYPICAL SCHEDULE OF PRACTICE SESSIONS: 5:00 a.m. to 7:00 a.m. Monday - Wednesday - Friday 3:00 p.m. to 5:00 p.m. Monday - Wednesday - Friday* 5:00 p.m. to 6:30 p.m. Monday - Wednesday - Friday** 3:00 p.m. to 6:30 p.m. Tuesday - Thursday* 7:00 a.m. to 9:00 a.m. Saturday*** * Maximum: 3 lanes * I lane plus shallow area ** Except on dates Piranha Swim Team has duel meets scheduled 2.2.2. Written request by PSA for seasonal practice schedules must be submitted at least thirty (30) days in advance of beginning date of schedule. 2.2.3. PSA members shall not enter the Swim Center facility for meets or practices until a coach or designated PSA adult representative is on deck to supervise tulless that PSA member has paid the public fee to use the pool. 2.2.4. When the Swim Center is closed for maintenance,the monthly rental rate will be adjusted accordingly. 2.3. Coaching Staff 2.3.1. PSA shall have complete responsibility for the control and supervision of its coaching staff. 2.3.2. PSA shall be responsible for the control and safety of its members and guests within the confines of the pool deck, locker rooms and pool. 2.3.3. It is the responsibility of PSA to insure that all coaching staff is currently certified in C.P.R., First Aid and lifeguard training. The United States Swimming Coach's Certification in First Aid can apply to this qualification. Proof of such certification must be presented by PSA on a yearly basis. City will not provide lifeguard services for practiceshneets. 11,44P AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Three. 2.4. Equipment and Storage 2.4.1. PSA shall install equipment necessary to conduct practice and swim meets with the exception of starting blocks. In a like manner, PSA shall remove, in a timely fashion, all equipment that is installed to conduct practice and swim meets (with the exception of starting blocks). 2.4.2. PSA shall repair or replace, at its expense, damaged equipment if damage occurred as a result of negligence by PSA or its officers, employees, members or invitees. 2.4.3. The City shall repair or replace damaged equipment,if damaged other than by PSA, at City's expense and in a timely manner. 2.4.4. PSA shall notify the City of any damaged equipment in need of repair. As non-performance of requested repairs occurs,PSA shall be held harmless from any claim filed against PSA for injury resulting from said damaged equipment. 2.4.5. If the rental of joint-use equipment is deemed appropriate, a charge of$40/day will be imposed. All proceeds will be donated back to the City for purchase of more joint-use equipment. 2.5. PSA Bylaws 2.5.1. PSA must maintain on file two (2) copies of its Articles of Incorporation, Bylaws, and Rules and Regulations with the City Clerk's office. Any revisions must be submitted to the Parks and Recreation Manager prior to action by PSA's Board. 3. INSURANCE AND INDEMNIFICATION 3.1. PSA shall procure and maintain, at its sole cost and expense, in a form and content satisfactory to City, during the entire term of this Agreement, including any extension thereof, the following policies of insurance: a. Comprehensive General Liability Insurance. A policy of comprehensive general liability insurance written on a per-occrurence basis with a combined single limit of$1,000,000. a,4 7 AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Pour. b. Worker's Compensation Insurance. A policy of worker's compensation insurance in such amount as will frilly comply with the laws of the State of California and that shall indemnify, insure and provide legal defense for both PSA and the City against any loss, claim or damage arising from any injuries or occupational diseases occurring to any worker employed by or any person retained by PSA in the course of carrying out the work or services contemplated in this Agreement. C. Automotive Insurance. A policy of comprehensive automobile liability insurance written on a per-occurrence basis in an amount not less than either(i)bodily injury liability limit of$250,000 per person and$500,000 per occurrence and property damage liability limits of $100,000 per occurrence and $250,000 in the aggregate, or (ii) combined single limit liability of$500,000. Said policy shall include coverage for owned, non-owned, leased and hired vehicles. All of the above policies of insurance shall be primary and shall name the City, its officers, employees and agents as additional insureds. The insurer shall waive all rights of its subrogation and contribution it may have against the City, its officers, employees and agents and their respective insurers. All of said policies of insurance shall provide that said insurance may not be amended or canceled without providing thirty (30) days prior written notice by registered mail to the City. In the event any of said policies of insurance are canceled, PSA shall, prior to the cancellation date, submit new evidence of insurance in conformance with this Section 3.1 to the Contract Officer. No work or services under this Agreement shall continence until PSA has provided the City with Certificates of Insurance or appropriate insurance binders evidencing the above insurance coverage and said Certificates of Insurance or binders are approved by the City. PSA agrees that the provisions of this Section 3.1 shall not be construed as limiting in any way the extent to which PSA may be held responsible for the payment of damages to any persons or property resulting from PSA's activities or the activities of any person or persons for which PSA is otherwise responsible. In the event PSA subcontracts any portion of the work or services, the contract between PSA and such subcontractor shall require the subcontractor to maintain the same policies of insurance that PSA is required to maintain pursuant to this Section 3.1. Pht AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Five. 3.2. Indemnification. PSA agrees to indemnify the City, its officers, agents and employees against,and will hold and save them and each of them harmless from,any and all actions,suits,claims,damages to persons or property,losses,costs,penalties, obligations,errors,omissions or liabilities(herein"claims or liabilities")that may be asserted or claimed by any persons,firm or entity arising out of or in comlection with the negligent performance of the work, operations or activities of PSA, its agents, employees, subcontractors or invitees, provided for herein, or arising from the negligent performance of or failure to perform any term, provision, covenant or condition of this Agreement, whether or not there is concurrent passive or active negligence on the part of the City, its officers, agents or employees, but excluding such claims or liabilities arising from the sole negligence or willful misconduct of the City, its officers, agents or employees who are directly responsible to the City and, in connection therewith: a. PSA will defend any action or actions filed in connection with any of said claims or liabilities and will pay all costs and expenses,including legal costs and attorneys' fees, incurred in connection therewith; b. PSA will promptly pay any judgment rendered against the City, its officers, agents or employees for any claim or liabilities arising out of or in comlection with negligent performance of or failure to perform such work, operations or activities of PSA hereunder; and PSA agrees to save and hold the City, its officers, agents and employees harmless therefrom; C. In the event the City, its officers, agents or employees, is made a party to any action or proceeding filed or prosecuted against PSA for such damages or other claims arising out of or in connection with the negligent performance of or failure to perform the work,operation or activities of PSA hereunder,PSA agrees to pay the City, its officers, agents or employees, any and all costs and expenses incurred by the City, its officers, agents or employees, in such action or proceeding, including, but not limited to, legal costs and attorneys' fees. 3.3. Sufficiency of Insurer or Surety. Insurance or bonds required by the Agreement shall be satisfactory only if issued by companies qualified to do business in California rated "A" or better in the most recent edition of Best Rating Guide, The Key Rating Guide or in the Federal Register, and only if they are of a financial category Class VII or better, unless such requirements are waived by the Risk Manager of the City ("Risk Manager")due to unique ciremnstances. In the event the Risk Manager of the City determines that the work or services to be performed under this Agreement creates an increased or decreased risk of loss to the City, PSA agrees that the minimum limits of the insurance policies and the performance bond required by this Section 3 may be changed accordingly upon receipt of written notice from the Risk AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Six. Manager; provided that PSA shall have the right to appeal a determination of increased coverage by the Risk Manager to the City Council of City within ten (10) days of receipt of notice from the Risk Manager. 4. WAIVER OF UTILITY FAILURE 4.1. PSA expressly waives any and all claims to the City for compensation for any and all losses or damages sustained for any reason or any defect, deficiency or impairment of any utility system, water supply system, drainage system, electrical apparatus or wires serving the Swim Center. 5. ENFORCEMENT OF AGREEMENT 5.1. California Law. This Agreement shall be construed and interpreted both as to validity and to performance of the parties in accordance with the laws of the State of California. Legal actions concerning any dispute, claim or matter arising out of or in relation to this Agreement shall be instituted in the Superior Court of the County of Riverside, State of California, or any other appropriate coint in such county, and PSA covenants and agrees to submit to the personal jurisdiction of such court in the event of such action. 5.2. Disputes. In the event of any dispute arising under this Agreement,the injured party shall notify the injuring party in writing of its contentions by submitting a claim therefor. The injured party shall continue performing its obligations hereunder so long as the injuring party commences to cure such default within ten (10) days of service of such notice and completes the cure of such default within forty-five (45) days after service of the injured party; provided that if the default is an immediate danger to the health, safety and general welfare, such immediate action may be necessary. Compliance with the provisions of this section shall be a condition precedent to termination of this Agreement for cause and to any legal action, and such compliance shall not be a waiver of any party's right to take legal action in the event that the dispute is not cured, provided that nothing herein shall limit City's or PSA's right to terminate this Agreement without cause pursuant to Section 5.8. 5.3. Retention of Funds. PSA hereby authorizes City to deduct from any amount payable to PSA (whether or not arising out of this Agreement) (i) any amounts for which payment may be in dispute hereunder or are necessary to compensate City for any losses, costs, liabilities or damages suffered by City, and(ii) all amounts for which City may be liable to third parties, by reason of PSA's acts or omissions in performing or failing to perform PSA's obligation under this Agreement. In the event that any claim is made by a third party, the amount or validity of which is disputed by PSA,or any indebtedness shall exist which shall appear to be the basis for a claim or lien, City may withhold from any payment due, without liability for interest because of such withholding, an amount sufficient to cover such claim. The failure lr � ia AGREEMENT. City of Palm Springs & Palm Springs Aquatics Page Seven. of City to exercise such right to deduct or to withhold shall not, however, affect the obligations of PSA to insure, indemnify and protect City as elsewhere provided herein. 5.4. Waiver. No delay or omission in the exercise of any right or remedy by a non- defaulting party on any default shall impair such right or remedy or be construed as a waiver. A party's consent to or approval of any act by the other party requiring the party's consent or approval shall not be deemed to waive or render unnecessary the other party's consent to or approval of any subsequent act. Any waiver by either party of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Agreement. 5.5. Rights and Remedies are Cumulative. Except with respect to rights and remedies expressly declared to be exclusive in this Agreement,the rights and remedies of the parties are ctmmlative and the exercise by either party of one or more of such rights or remedies shall not preclude the exercise by it, at the same or different time,of any other rights or remedies for the same default or any other default by the other party. 5.6. Legal Action. In addition to any other rights or remedies,either party may take legal action,in law or in equity,to cure,correct or remedy any default,to recover damages for any default, to compel specific performance of this Agreement, to obtain declaratory or injunctive relief, or to obtain airy other remedy consistent with the purpose of this Agreement. 5.7. Termination Prior to Expiration of Term. This section shall govern any termination of this Agreement. The City reserves the right to terminate this Agreement at any time,with or without cause,upon thirty(30)days'written notice to PSA,except that where termination is due to the fault of PSA,the period of notice may be such shorter time as may be determined by the Contract Officer. In addition, PSA reserves the right to terminate this Agreement at airy time,with or without cause,upon sixty(60) days' written notice to City, except that where termination is due to the fault of the City, the period of notice may be such shorter time as PSA may determine. 5.8. Attorneys' Fees. If either party to this Agreement is required to initiate or defend or made a party to any action or proceeding in any way comlected with this Agreement, the prevailing party in such action or proceeding,in addition to any other relief which may be granted,whether legal or equitable, shall be entitled to reasonable attorneys' fees. Attorneys'fees shall include attorneys'fees on any appeal. In addition,a party entitled to attorneys' fees shall be entitled to all other reasonable costs for investigating such action, taking depositions and discovery, and all other necessary costs the court allows that are incurred in such litigation. All such fees shall be deemed to have accrued on commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Eight. 6. CITY OFFICERS AND EMPLOYEES: NON-DISCRIMINATION 6.1. Non-liability of City Officers and Employees. No officer or employees of the City shall be personally liable to PSA or any successor in interest in the event of any default or breach by the City or for any amount that may become due to PSA or to its successor or for breach of any obligation of the terms of this Agreement. 6.2. Conflict of Interest. No officer or employee of the City shall have any financial interest, direct or indirect, in this Agreement nor shall any such officer or employee participate in any decision relating to the Agreement that affects his financial interest or the financial interest of any corporation,partnership or association in which he is directly or indirectly interested, in violation of any state statute or regulation. PSA warrants that it has not paid or given and will not pay or give any third party any money or other consideration for obtaining this Agreement. 6.3. Covenant Against Discrimination. PSA covenants that, by and for itself, its heirs, executors, assigns and all persons claiming under or through them,there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, sexual preference, domestic partnership status,national origin or ancestry in the performance of this Agreement. 7. MISCELLANEOUS PROVISIONS 7.1. Notice. Any notice, demand, request, document, consent, approval or commmrication either party desires or is required to give to the other party or any other person shall be in writing and either served personally or sent by pre-paid,first- class mail,in the case of the City,to the City Manager,CITY OF PALM SPRINGS, P. O. Box 2743, Palm Springs, California 92263, and, in the case of PSA, to the person at the address designated on the execution page of this Agreement. Either party may change its address by notifying the other party of the change of address in writing. Notice shall be deemed communicated at the time personally delivered or in seventy-two (72) hours from the time of mailing if mailed as provided in this section. 7.2. Interpretation. The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of this Agreement or any other rule of construction that might otherwise apply. 7.3. Integration;Amendment. It is understood that there are no oral agreements between the parties hereto affecting this Agreement and this Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements and understandings, if any, between the parties and none shall be used to interpret this Agreement. This Agreement may be amended at any time by the mutual consent of the parties by an instrument in writing. AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Nine. 7.4. Severability. In the event that any one or more of the phrases, sentences, clauses, paragraphs or sections contained in this Agreement shall be declared invalid or unenforceable by a valid judgment or decree of court of competent jurisdiction,such invalidity or unenforceability shall not affect any of the remaining phrases,sentences, clauses, paragraphs or sections of this Agreement that are hereby declared as severable and shall be interpreted to carry out the intent of the parties hereunder unless the invalid provision is so material that its invalidity deprives either party of the basic benefit of their bargain or renders this Agreement meaningless. 7.5. Corporate Authority. The persons executing this Agreement on behalf of the parties hereto warrant that (i) such party is duly organized and existing, (ii) they are duly authorized to execute and deliver this Agreement on behalf of said party, (iii)by so executing this Agreement, such party is formally bound to the provisions of this Agreement,and(iv)the entering into this Agreement does not violate any provision of any other agreement to which said party is bound. 8. COORDINATION OF WORK 8.1. Representatives of PSA. The following principals of PSA are hereby designated as being the principals and representatives of PSA, authorized to act in its behalf with respect to the work specified herein and make all decisions in connection therewith: President or Board of Directors' Designee I I 1 I Tahquitz Canyon Way, Ste. 103 Palm Springs, CA 92262 It is expressly understood that the experience,knowledge, capability and reputation of the foregoing principals were a substantial inducement for City to enter into this Agreement. Therefore,the foregoing principals shall be responsible during the term of this Agreement for directing all activities of PSA and devoting sufficient time to personally supervise the services hereunder. However,if,through the course of this contract, the representatives of PSA change, written notice of such change shall be submitted to the City. A change in representatives shall not represent a change in the intent or direction of the contractual agreement between the City and PSA. 8.2. Contract Officer. The Contract Officer shall be such person as may be designated by the City Manager of City. It shall be PSA's responsibility to assure that the Contract Officer is kept informed of the progress of the performance of the services and PSA shall refer any decisions that must be made by the City to the Contract Officer. Unless otherwise specified herein,any approval of City required hererunder shall need the approval of the Contract Officer. The Contract Officer shall have authority to sign all documents on behalf of City required hereunder to carry out the terms of this Agreement. /�Ai3 AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Ten. 9. TERM 9.1. Unless earlier terminated in accordance with Section 5.7 of this Agreement, this Agreement shall continue in frill force and effect for a period of one(1)year from the date hereof,with two (2) one-year(I-year) options, renewable at the sole discretion of the City. IN WITNESS WHEREOF,the parties have executed and entered into this Agreement as of the date first written above. ATTEST: CITY OF PALM SPRINGS, a municipal corporation By: By: City Clerk City Manager APPROVED AS TO FORM: Palm Springs Aquatics By: By: David J. Aleshire Board Member City Attorney Board Member Board Member Board Member Board Member Board Member Address City State Zip AGREEMENT City of Palm Springs & Palm Springs Aquatics Page Two. During high school water sports season,Palm Springs Unified School District schools shall have priority use of Swim Center. TYPICAL SCHEDULE OF PRACTICE SESSIONS: 5:00 a.m. to 7:00 a.m. Monday - Wednesday - Friday 2:00 p.m. to 4:00 p.m. Monday through Friday 6:30 p.m. to 9:00 p.m. Monday through Friday 7:00 a.m. to 9:00 a.m. Saturday* * Except on dates Pirard-ia Swim Team has duel meets scheduled. 2.2.2. Written request by PSA for seasonal practice schedules must be submitted at least thirty (30) days in advance of beginning date of schedule. 2.2.3. PSA members shall not enter the Swim Center facility for meets or practices until a coach or designated PSA adult representative is on deck to supervise wlless that PSA member has paid the public fee to use the pool. 2.2.4. When the Swim Center is closed for maintenance,the monthly rental rate will be adjusted accordingly. 2.3. Coaching Staff 2.3.1. PSA shall have complete responsibility for the control and supervision of its coaching staff. 2.3.2. PSA shall be responsible for the control and safety of its members and guests within the confines of the pool deck, locker rooms and pool. 2.3.3. It is the responsibility of PSA to insure that all coaching staff is currently certified in C.P.R., First.Aid and lifeguard training. The United States Swimming Coach's Certification in First Aid can apply to this qualification. Proof of such certification must be presented by PSA on a yearly basis. The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics The Piranha Swim Team The Piranha Swim Team is a 501(c)3 non-profit organization based in Palm Springs. We have been in the city of Palm Springs and the Palm Springs Aquatic Center for over 30 years. During that period we have served well over 3000 kids and the city of Palm Springs by providing a top quality competitive swim program, swim lessons, and learn to swim programs which have served thousands more. Past Piranha swimmers have qualified for the USA Olympic team as well as Olympic Trials and National Meets bringing attention and renown to the city of Palm Springs. In the recently concluded Southern California Swimming Junior Olympics, Piranha swimmers did very well and placed the team 7th at the conclusion of the individual events. Each time a Piranha swam he or she was announced as, "In lane _is swimming for the PALM SPRINGS PIRANHAS!" The Piranha Swim Team has become synonymous with the city of Palm Springs in the swimming community. In addition, we hold 3 swim meets each year bringing in upwards of 1200 swimmers and officials AND their families (approximately 3000 plus people) for a weekend of fun and swimming in sunny Palm Springs. Most of these families are from further than 2 hours away, some as far as Phoenix, and this brings in an estimated $2.3 million to local businesses annually. More difficult to quantify are the benefits the team brings to the community in terms of the positive character traits that our athletes develop and bring along with them - time management skills, self discipline, courage, self control, perseverance and determination, goal setting and achievement, dedication and commitment. Swimmers have the highest SAT scores for any high school athletes, and the highest percentage of athletes who go on to college. Recent Problems for the Piranha In recent years Piranha membership has plummeted from an all time high of over 500 swimmers to below 60 due to a combination of coaching problems, lack of leadership and pool space, and an almost exclusive focus by the head coach John "Cy" Cyganiewicz on a few (as in 3 or 4) select swimmers to the exclusion and detriment of the rest. In an effort to provide a broader service to the community and to revitalize the organization, and because of self-control and other issues, the Piranhas Board of Directors recently voted not to renew the contract of the coach and to hire a new head coach. In an ' The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics attempt to "pressure" the team to retain the old coach, our then President and Parks & Recreation Commission Chairman Mr. Bruce Bushore's wife Lynn, the parent of one of the very swimmers who was receiving the exclusive attention from that coach, contacted a 96 year old sponsor who had donated $75,000 to the team upon Mrs. Bushore's solicitation, and obtained from her a demand for part of the money back unless Coach Cy was retained. When it was obvious that approach was not going to work, Mrs. Bushore told another parent, Mrs. Beardshear, whom she thought supported their cause, that she would just "start our own team!" When asked about funding the new team she replied that she (Mrs. Bushore) could get the money! That was on July 10, 2002. On the very next day, Coach Cy filed an application for pool use during the very same times allotted to the Piranhas.The following day, on July 12, Mrs. Bushore registered the Internet domain name "PSAquatics.org" under her own name. Mr. Bushore and coach Cy remained as active voting board members on the Piranha board, even proposing that we return the money to the donor, and Mr. Bushore took every opportunity as the then President of our team to encourage us to return the money ($25,000) to the donor, while at the same time Mrs. Bushore was trying to raise funds for their newly started swim team PSA (Palm Springs Aquatics). By not disclosing their conflict of interest and trying to influence the team as board members, Mr. Bushore and coach Cy probably broke every law governing non-profit board members regarding fiduciary duty and the duty of loyalty, one of the principle legal requirements of non-profit board members. (appendix 1 & 2) In addition, on July 31 coach Cy signed a contract agreeing to remain off the pool deck during team practices in exchange for the Piranhas paying for his expenses to the Junior National swim meet in Florida that he wanted to attend and allowing him to remain as a temporary coach for Mr. Bushore's son and 2 other swimmers until the Junior Olympics and Junior Nationals. He signed this contract already knowing that he would violate it because he had already applied for pool time back in July 11, 2002. The contract was signed on behalf of the Piranhas by none other than Mr. Bruce Bushore as President, when his wife had also already applied for the Internet domain name "PSAquatics.org" on July 12, 2002, and On July 29, 2002 Mr. Bushore's wife, Lynn, along with Coach Cy and Thomas Dozci, a long time friend of the Bushores, filed organization papers with the 2 The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics Secretary of State for incorporation of the non-profit corporation, Palm Springs Aquatics, with Mrs. Bushore listed as the CFO. Mr. Bushore remained as President of the Piranhas until Aug 7., 2002 working the entire time to undennine the Piranha organization from within, trying to solicit the return of the aforementioned $25,000. In response to evidence that Mr. and Mrs. Bushore were involved in starting another swim team and trying to raise funds for it in direct conflict of interest with the Piranhas, the Board demanded and received a letter of resignation from Mr. Bushore dated Aug. 7, 2002. Relevance of This History This above history lays the foundation for the conflict between the Piranha Swim Team and Mr. Bruce Bushore, Chairman of the Parks and Recreation Commission and the swim team that Mrs. Bushore helped conceptualize, fund and start. Problems with Parks & Rec staff and Parks & Rec Commission Since Sept 1, the Piranhas have had 2 or 3 lanes formerly assigned to us taken away and assigned to Parks & Rec Chairman Bushore's team, PSA. We have been forced to squeeze our swimmers into as few as 4 lanes on some occasions resulting in a dangerous situation for the kids.(see appendix 3) At the same time, PSA has applied for a contract to use the facilities at a discounted rate. They were put on the Parks & Rec Commission meeting agenda for Sept 18, 2002. On Sept 17, One of our members, Mrs. Beardshear, had a telephone conversation with Commissioner Shelly Saunders. During the conversation, Ms Saunders stated that she had heard that there had been an even split in the team with half the families leaving the team with Coach Cy. Since in fact only 4 families out of 53 had actually left, Ms Saunders was asked where she had obtained that information, to which she replied that she had obtained it from Chairman Bushore (in violation of all conflicts of interest laws and creating a factual bias!)(see appendix 4, pg. 4) When we applied to be placed on the agenda at that same meeting to . discuss disallowing PSA from using the pool at the same time as the The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics Piranhas, and our concerns regarding the overcrowding and resulting safety issues, we were refused placement on the agenda for Sept 19. We were forced to limit our input to the 3 minute public comment period. Commissioners who tried to ask us questions were told that since we were not on the agenda we could not be questioned. We were also subject to several very hostile comments from Commissioner Saunders referring to the 3 non Palm Springs families ( out of 53) who were present at the meeting and who spoke up during the public comment on behalf of the Piranhas, i.e. "since most of them are from down valley, why are we even listening to them?" Every Piranha parent who spoke up that day requested that Chairman Bushore abstain from participating in any way in the issue of the proposed PSA contract due to the obvious conflict of interest, but Director Mikesell had been well prepared by Mr. Bushore and quoted from the Parks & Rec Manual that Mr. Bushore did not have a conflict of interest because he did not have any income exceeding $250 from PSA! The Piranhas contacted the City Clerk and obtained detailed instructions on how to get on the agenda for the Oct 9 meeting. We followed the instructions to the "T" and had it checked out by our attorney and submitted a request for placement on the agenda, to limit the use of the pool to the Piranhas only during the times specified in the current contract between the Piranhas and the city, and disallow PSA the use of the pool at the same times as the Piranhas, on the basis of safety issues and potential contract violations (see appendix 5). The swim center staff initially refused to even accept the application. It was only under pressure that they accepted our application, only to have the application rejected by Parks & Rec Director Scott Mikesell's decision because we had "no action to be taken". We had requested PSA to be removed from our lanes during our practice times! How could that be no action to be taken? Our request was placed as "written communications", again denying us a platform to voice our concerns, in contrast to Chairman Bushore's team. As potential evidence in any possible future dispute, I set up a video camera to record the commission meeting on Oct 9. 1 was approached by Mr. Mikesell and informed that I could tape the meeting for my own use but I could not show the recording to anyone else without obtaining a release from every person in the room. This is in complete violation of California Government code 54953.6. (see appendix 6) 4 The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics Again during the Oct 9 meeting we were limited to public comments of 3 minutes each, and again some commissioners had questions that we had answers to, but again they were not allowed to ask us anything because we were not on the agenda. Again we asked that Chairman Bushore refrain from participating in any way in the discussion or voting , but again he refused and instead led and directed the discussion, and eventually a decision was made to approve a contract with PSA that would allow them to use the pool and potentially reduce their annual pool use fees by up to $37,000 per year. This extremely hostile environment that the Piranhas find themselves in is a direct result of the conflict of interest that Chairman Bushore has allowed to manifest in his official public duties. 1) Conflicts Of Interest Under the Political Reform Act (appendix 7 & 8) Under the Act public officials are disqualified from making, participating in making, or using his official position to influence the making of that decision at any level of the decision making process in government decisions in which they have a financial interest. Mr. Bushore qualifies as having a direct financial interest because the contract would reduce his personal share of the cost, calculated at the number of swimmers in PSA at the time the contract was proposed (9), to be over $4,000 per year if the costs were equally divided among all the swimmers. Since Mr. Bushore's son is an elite swimmer, his fees are traditionally twice that of a beginner, and so his share may be more. In any case it is reasonably foreseeable that his personal expenses would be materially affected, certainly more than the $250 threshold prescribed by the Act (regulation 18702.1(a)(4)). As an interesting coincidence, as soon as PSA received a bill for $3,400 dated Oct 1, 2002 for the use of the pool, our representing attorney received an email dated Oct 4 from Mr. Bushore requesting that we return the $25,000 to the donor that Mrs. Bushore had solicited for the team, and also claiming that Mrs. Bushore, Coach Cy and himself still had control over some of the other funds in Piranha accounts donated by that same donor. 5 The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics As a public official with a qualifying financial interest, Chairman Bushore is prohibited from participating in the decision making process in anyway. He may not vote, which he has (I8700(b)(1)-(4)). He may not participate in the negotiations or discussions, or even advise, all of which he has [18700(c)]. He is even disqualified from addressing his own Parks & Rec Commission on the subject in any way on the subject, even at the 3 minute public comment period! [18700.1(a) and (b)(1)]. He is not permitted to in any way attempt to use his position to influence the decision, which he has (discussing the issue with Commissioner Saunders prior to the Sept 18 meeting). Contacts with agency personnel regarding this issue.are prohibited. [I8700.1(a)]. These violations are misdemeanor crimes punishable by fines of up to $5,000 per violation, removal from office and disqualification from elective office. Those aiding and abetting in the commission of a violation are also liable to civil, criminal and administrative sanctions. Plaintiffs may also be awarded legal fees. 2) Conflicts of interest in Contracts (appendix 9 & 10 ) Government code Section 1090 provides that an official may not participate in any way at any stage of a contract in which he has a financial interest. The contract making process begins at the time the idea for the contract is conceived and continues through the actual execution of the contract. If an official is a member of a multimember Commission which executes the contract, he is conclusively presumed to be involved in the making of the contract and any such contract made is void. This absolute prohibition applies regardless of whether the contract is fair and equitable or the official abstains from all participation in the decision (see appendix 10, pg 48). This prohibition applies virtually to all local officers and multimember bodies, whether elected or appointed. It even applies to members of advisory bodies if they participate in the making of a contract through their advisory function. The purpose of section 1090 is to make certain that "...every public officer be guided solely by public...rather than personal interest, when dealing with contracts in an official 6 The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics capacity.....provides public officials with a strong incentive to avoid conflict of interest situations scrupulously." Financial Interest Broadly Defined (see appendix 9, 4.5) Section 1090 does not define financial interest. However, the courts have applied the prohibition liberally to include a broad range of interest both direct and indirect, no matter how twisted and winding the trail may be. In addition to a direct financial interest such as Mr. Bushore has, an example of a relationship which constitutes a financial interest under Section 1090 is an officer of a nonprofit corporation which is a contracting party (Mrs. Bushore is the CFO of PSA). This indicates that an official can legally have a financial interest even though he does not have a personal interest in the contract ( which he does!) The interests of the official's spouse are also considered the official's interests. Harsh Penalties and Remedies (appendix 9, 4.7) Any contract made in violation of Section 1090 is void and cannot be enforced. An official who commits a violation of Section 1090 is subject to criminal, civil and administrative sanctions, and could face felony conviction and permanent loss of office in California. The Proposed PSA Contract Parks and Rec Chairman Bushore has disqualifying direct and indirect financial interests in the proposed PSA contract. Because of the ABSOLUTE prohibition against a contract in this case, as good citizens of Palm Springs the Piranhas should never have been subject to the hostility and unjust treatment by Parks & Rec staff and Commission members. The contract should never even have been brought up. 3) Common Law Conflicts of Interest (appendix 11 & 12) In addition to the statutory prohibitions on conflicts of interest by public officials, there is also the common law (court-made) doctrine against conflicts of interest. This provides that a public officer is impliedly bound to exercise his powers with disinterested skill, zeal and diligence primarily for the benefit of the public. A personal interest, whether financial or 7 -The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics non-financial, that interferes with his official actions would violate the common law rule and could form the basis of an allegation of willful misconduct in office. The California Attorney General's Office has advised that "where a common law conflict of interest exists, the official is disqualified from taking part in any part of the discussion and vote regarding the particular matter" (appendix 12 pg. 91). Parks & Rec Commission Chairman Bushore has certainly not refrained from any part of the discussion and vote in this matter. In fact, at the Oct 9, 2002 meeting it was brought to the attention of the Commission that at the May 24, 2000 Commission meeting, then Vice Chair Bushore abstained from a vote on renewing the Piranhas pool contract because "his child is a participant in the Piranhas organization" (see appendix 13 pg. 2). And yet now, when he wishes to add his own swim team to an already overcrowded pool against the recommendation of every single swim coach currently using the pool (Coach Skinner, Palm Springs High School; Coach Fleener, Cathedral City High School; and Coach Lybeck, Piranha Swim Team, see appendix 14, pg. 2), he has refused to disqualify himself and participated in every stage of the discussion and voting regarding this issue. Violation of the common law duty to avoid conflicts of interest can constitute official misconduct and result in a loss of office. Other avenues to address our concerns? Given our hostile reception by Parks and Rec staff and commission members after over 30 years of good citizenship, we are understandably concerned about bringing our case before City Council where the Mayor is Mrs. Bushore's brother in law. Official Misconduct? If you read through all the attached documents regarding the various conflict of interest laws, any reasonable person would concede the high probability that many ethical violations, and probably many legal violations have occurred, with the exception of section 1090 which only becomes a violation when the contract is executed, at which time a felony may have been perpetrated. There may also have been some instances of others aiding 8 The Case for the Piranha Swim Team concerning Parks & Rec Commission Chairman Bruce Bushore, and the newly formed Palm Springs Aquatics and abetting in the commission of these violations, who may also then be liable to civil, criminal and administrative sanctions under Govt. Code Sect. 83116.5, and 91006,( Appendix 8, p41). Our Request Please help correct an injustice; take the opportunity to do the right thing and stop this void, unenforceable and illegal contract from happening. Please also prohibit Chairman Bushore from having anything to do with ANY issue which affects the Piranha Swim Team, given the history of his deception, conflict of interest both while in the team as well as after being ejected from the team, and his highly unethical behavior as Parks & Rec Chairman. Gerald Lim 71595 Sahara Rd. Rancho Mirage, CA 92270 Piranha Swim Team Vice President 9 ,A$oard Intel: Frequently Asked Questions Page 1 of 3 WHAT ARE THE LEGAL RESPONSIBILITIES OF NONPROFIT BOARDS? Under well-established principles of nonprofit corporation law, a board member must meet certain standards ADDmONALQUESTIONS? of conduct and attention in carrying out Ask our his or her responsibilities to the consultants or organization. Several states have call 202-452- statutes adopting some variation of 6262. these duties which would be used in court to determine whether a board member acted improperly. These standards are usually described as the duty of care, the duty of loyalty and the duty of obedience. Duty of Care The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the duty of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that a board member owes the duty to http://www.boardsource.org/intel/gaff O.htm 10/6/02 Board Intel: Frequently Asked Questions Page 2 of') exercise reasonable care when he or she makes a decision as a steward of the organization. Duty of Loyalty The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization. Duty of Obedience The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission. From The, _._,LegalUbligations_ _ of • Nonprofit _Boards.. A, Guidebook_ __for Board Members. Washington, DC: http://www.boardsource.org/intel/qaflO.htrn 10/6/02 Board Intel: Frequently Asked Questions Page 3 of 3 BoardSource, 1997. Check out more __ _Frequently__ Asked Questions. If your question is not covered, ask__our consultants. BoardSource Bedctoty Home ConoctUs ©copyright This site was BoardSource made possible GEFund Last updated: October in part by a grant Ir 2002 from the http://www.boardsource.org/intel/gaflo.htm 10/6/02 BoardSource Online Bookstore Page 1 of 2 browse bysubject Select a subject �. r LEGAL ISSUES PROCEED TO CHECKOUT Legal Obligations of P ' Nonprofit Boards A Guidebook for Board r Members (Revised) by Jacqueline C. Leifer&Michael B. --- Glomb.32 pages. 1997. (#39) $21.00 members nrLel $28.00 non- se teh-lt 1 �1`I iii 163 ibllS members ufA7ora)�4llaank Advanced This best-selling primer on the legal responsibilities of nonprofit boards has been revised and updated to reflect changes in law enacted since it was SAVE 7 S% originally published in 1992.Written by two attorneys with extensive nonprofit experience for those without a legal background,this booklet The New translates technical law into everyday language to help board members Governance Series better understand their legal and fiduciary responsibilities. Informative yet eminently This revised edition includes new sections on the Lobbying Disclosure Act, readable,these short the Volunteer Protection Act, private inurement, intermediate sanctions, booklets provide a solid base and changes to the Internal Revenue Code that increase the obligation of of information for nonprofit tax-exempt organization to publicly disclose federal tax returns. In addition, leaders: the booklet outlines how to avoid personal liability,how to structure contracts with outside parties,standards of conduct for board members ■Ten Basic Responsibilities and more. of Nonprofit Boards ■Financial Responsibilities of Nonprofit Boards ■structures and Practices of Nonprofit Boards PROCEED TO_CHECKOUT ■Fundraising Responsibilities of Nonprofit Boards ■Legal Responsibilities of Nonprofit Boards ■The Nonprofit Board's Role in setting and Advancing Mission ■The Nonprofit Board's Role in Planning and Evaluation ■ How to Help Your Board Govern More and Manage Less ■Leadership Roles in Nonprofit Governance members $125.00 non- MOM. http://www.boardsource.org/cgi-bin/generate.pl?p-39 10/6/02 Board Intel: Board Q&As Page I of 2 CAN CCNFUCf OF RMREST BE AN CIRSTACLE TO BOARD SERVICE? A: It is probably impossible to find a board member who will never have any conflicts of interest. An active board ADDMONALQUESTIONS? member often has numerous Ask our professional and personal affiliations consultants and undoubtedly some of them cross or call 202-452- paths with his or her activities as a 6262. member of your organization. He or she may have been chosen as a board member because of these particular associations or contacts. However, if a board candidate has a major obstacle to fulfilling the duty of loyalty, one of the main legal obligations, it may be necessary to re-evaluate his or her suitability to serve on this board right now. Examples might include: . The chief executive of the organization is a spouse or close relative of the board member. . The board candidate is also the http://www.boardsource.org/inte!/a,-c r n cu i2.htrn O/02 Board Intel: Board Q&As Page 2 of 2 chief executive of an organization . with a similar mission and program structure. a The board candidate is expected to participate in fund-raising but he or she is already affiliated with an organization that is competing for the same funding. For further reference: Kurtz, Daniel L. Managing Conflicts of Interest, BoardSource, 2001 . Order #269 through the Online Bookstore, or call 800-883-6262. Return_to„Questons and Answers BoardSourct Boatotoo Home C"ctus © ,copyright This site was BoardSource made possible GEFund ; Last updated: in part by a October 1, 2002 grant from the http://www.boardsource.org/intel/arc it „:shun Board Intel: Frequently Asked Questions Page I of 6 ll HOW DO WE SAFEGUARD AGAINST CONFLICT OF INTEREST!' i Y When the personal or professional concerns of a board member or a staff member affect his or her ability to put the welfare of the organization before ADDMONALQUESTIONS? personal benefit, conflict of interest Ask our exists. Nonprofit board members are consultants or likely to be affiliated with many call 202-452- organizations in their communities, 6262. both on a professional and a personal basis, so it is not unusual for actual or potential conflict of interest to arise. Why must we be concerned about conflict of interest? Board service in the nonprofit sector carries with it important ethical obligations. Nonprofits serve the broad public good, and when board members fail to exercise reasonable care in their oversight of the organization they are not living up to their public trust. In addition, board members have a legal responsibility to assure the prudent management of an organization's http://www.boardsource.org/intel/gaf3.htm 10/6/02 Board Intel: Frequently Asked Questions Page 2 of 6 resources. In fact, they may be held liable for the organization's actions. A 1974 court decision known as the "Sibley Hospital case" set a precedent by confirming that board members can be held legally liable for conflict of interest because it constitutes a breach of their fiduciary responsibility. Does conflict of interest involve only financial accountability? No. Conflict of interest relates broadly to ethical behavior, which includes not just legal issues but considerations in every aspect of governance. A statement by INDEPENDENT SECTOR describes three levels of ethical behavior: obeying the law; decisions where the right action is clear, but one is tempted to take a different course; and decisions that require a choice among competing options. The third level of behavior can pose especially difficult ethical dilemmas for nonprofit board members. What can we do to prevent conflict of interest situations? http://www.boardsource.org/intel/gaf3.htm 10/6/02 Board Intel: Frequently Asked Questions Page 3 of 6 Self monitoring is the best preventative measure. Institute a system of checks and balances to circumvent actual or potential conflict of interest, beginning with well defined operating policies on all matters that might lead to conflict. Most important, create a carefully written conflict of interest policy based on the needs and circumstances of the organization. Ask each board and staff member to agree in writing to uphold the policy. A conflict of interest policy should be reviewed regularly as part of board self assessment. What should be included in a conflict of interest policy? A policy on conflict of interest has three essential elements: 1. FULL DISCLOSURE. Board members and staff members in decision-making roles should make known their connections with groups doing business with the organization. This information should be provided annually. 2. BOARD MEMBER ABSTENTION http://www.boardsource.org/intel/gaf3.htm 10/6/02 Board Intel: Frequently Asked Questions Page 4 of 6 FROM DISCUSSION AND VOTING. Board members who have an actual or potential conflict of interest should not participate in discussions or vote on matters affecting transactions between the organization and the other group. 3. STAFF MEMBER ABSTENTION FROM DECISION-MAKING. Staff members who have an actual or potential conflict should not be substantively involved in decision- making affecting such transactions. For a sample conflict of interest policy and disclosure form, see the BoardSource booklet, Managing Conflicts of Interest What are some examples of actual and potential conflict of interest? . Organization policy requires competitive bidding on purchases of more than $1 ,000, but a printing firm owned by a board member's spouse receives the $25,000 contract for the annual report and no other bids are solicited. . A board member serves on two boards in the community and finds http://www.boardsource.org/intel/`gaf3.htm 10/6/02 Board Intel: Frequently Asked Questions Page 5 of 6 himself in the position of approaching the same donors on behalf of both organizations. . A staff member receives an honorarium for conducting a workshop for another group in the organization's field of interest. Should an organization contract with a board member for professional services, such as legal counsel or accounting? Attorneys, accountants, and other professionals can contribute valuable expertise to a board. Due to the potential for conflict of interest, their contributions should be voluntary. At the very least, a board member who is associated with a firm competing for a contract should abstain from discussion and voting in the selection process. If a competitive bidding process results in the selection of that board member's firm, he or she should disclose the affiliation and abstain from voting on future board actions connected with that firm's contract with the organization. http://www.boardsource.org/intel/gaf3.htm 10/6/02 Board Intel: Frequently Asked Questions Page 6 of 6 Check out more„_. Frequently_ Asked Questions. If your question is not covered, as_k___our consultants. BoardSoumc BsO tptGp Home ContecSUs ©copyright This site was BoardSource made possible GEFund Last updated: October in part by a grant 1, 2002 from the http://www.boardsource.org/intel/gaf3.htin 10/6/02 About BoardSource Page I of 4 ABOUT BOARDSOURCE BoardSource, formerly the National Center for Nonprofit Boards, is the premier resource for practical information, tools and best practices, training, and leadership development CONTACT US for board members of nonprofit BoardSource organizations worldwide. Through our 1828 L Street, highly acclaimed programs and NW services, BoardSource enables Suite 900 organizations to fulfill their missions Washington, DC by helping build strong and effective 20036-5114 nonprofit boards. 202-452-6262 or BoardSource provides: 800-883-6262 Fax 202-452- ■ Resources to nonprofit leaders 6299 through workshops, training, and E-mail an extensive Web site at BoardSource www.boardsource.org. . Governance consultants who Get driving and work directly with nonprofit metro directions leaders to design specialized to BoardSource. solutions to meet an organization's needs. http://www.boardsource.org/aboutus/index.htm 10/6/02 i Main Points of the 3 Minute Public Comment Address, vParks & Rec Commission Meeting, Oct 9, 2002 • Gerald Lim, 71595 Sahara Rd, Rancho Mirage. Piranha Board member. Under well established principles of non-profit corporation law, a board member must meet certain standards of conduct which would be used in court to determine whether a board member acted improperly. These are the duty of care, the duty of loyalty and the duty of obedience. The duty of loyalty is a standard of faithfulness: a board member must give undivided allegiance when making decisions affecting the organization. He must never use information obtained as a member for personal gain, but must act in the best interest of the organization. If a board member has a major obstacle to fulfilling the duty of loyalty, one of the main legal considerations, he should not serve. Conflicts of interest involve not only financial accountability, but relate broadly to ethical behavior and every aspect of governance. By starting a competing organization while still Board members of the Piranha Swim Team, Mr. Bushore and Coach Cy have failed in their legal obligations to the Piranhas and may have broken these laws. By applying for pool times at the same time as our practices, these same Board members may have broken these same laws. By remaining involved in the decision making process regarding funds given to the Piranhas, by in fact proposing and trying to get the Piranhas to return the money while at the same time trying to raise funds for their own team, they may have acted improperly and broken the law. By not disclosing their affiliations with a competing organization while still serving on the Board of the Piranhas, they have broken the law. In fact, once the conflict of interest came to light, the Piranhas demanded and received the resignation of our former Board President, your chairman, Mr. Bushore. Main Points of the 3 Minute Public Comment Address, -Parks & Rec Commission Meeting, Oct 9, 2002 Court decisions have confirmed that, I quote, "Board members of Non-Profits can be held legally liable for the conflict of interest because it constitutes a breach of fiduciary duty". And while it may be argued that Mr. Bushore may not have involved in or even been aware of Mrs. Bushore's actions in starting PSA, I find that difficult to believe given Mr. Bushore's keen interest and heavy involvement in his son's swimming career. In addition there is a matter of the breach of contract. The Piranhas allowed Coach Cy to act as a Piranha coach and paid Coach Cy's expenses to 2 competitions when he was no longer in our employ with the understanding that he would stay off the deck at the team pool during team practices. By putting Coach Cy and Mr. Bushore's Team on deck at the same time as the Piranhas, by arbitrarily refusing to put us on the agenda twice while at the same time giving Mrs Bushore and coach Cy a platform on the agenda, Parks and Rec has created an extraordinarily hostile enviroment for the Piranhas and become an unwitting accomplice in these highly unethical and improper actions which jeopardize the safety, well-being and indeed the very existence of this fine Piranha organization. Now that you have been informed, you no longer need be an unwitting accomplice. You have the opportunity to correct the situation, to do the right thing before this becomes a matter of public interest and concern. PLEASE, take this opportunity! We wish to state again for the public record that we object to Mr. Bushore's involvement in these discussions due to the obvious conflict of interest. 3 minute Address at the Parks and Recreation Commission Meeting on 9/18/2002 During the Public Comment Period My Name is Gerald Lim from the Piranha Swim Team. My address is 71595 Sahara Rd. Rancho Mirage, CA 92270. I have 2 girls who swam competitively for the last 6 years. l swam at club,high school and regional level for 10 years and swam masters for the last 3 years. First, I'd like to explain how swim lanes are utilized at swim practice so you can understand so you can understand the limits on lane usage and the effects of overcrowding on safety and usability. -swimmers share a lane by swimming up the pool on one side and back on the other to prevent collisions. - -they are sent off at 5 sec intervals to allow enough separation. -the maximum number of swimmers per lane is 6 or the first swimmer may return before the last swimmer leaves. Longer sets give more time for the faster athletes to catch up and lap slower athletes so then each lane can accommodate fewer swimmers. Realistically, 4 swimmers per lane would work well for lanes with minor variations in swimmer ability. - When these guidelines are not followed,what results is faster swimmers passing slower i swimmers in the middle of a 6 ft. wide lane,risking collision of heads or arms with !► swimmers coming the other way. If the lane is even more crowded, you get the scenario where 2 swimmers are trying to pass in the middle of the lane while going in opposite directions. They are closing in at 6 miles an hour- jogging speed. Imagine jogging to the edge of a small pool and diving in, crashing into the opposite wall with your head. That would be the impact of those 2 swimmers colliding. -modem swim technique'requires looking down at the pool floor to maintain a horizontal streamlined position so looking ahead to prevent collision is not good form This past Monday at 5.30 p.m., water polo was using the entire deep end, adult lap swims occupied 3 lanes, and 2 lanes were used by Mr. Bushore's team. Our entire team was relegated to 4 lanes, one of which has the added hazard of 2 steel posts in the middle of the pool along the lane lines. Our seniors and masters teams were combined in just 2 lanes. Our entire advanced age group team had to share one lane, and one other lane held our entire beginning age group team. There were up to 8 swimmers of varying ability in each lane. This is not even high school swim season yet, and our team is growing rapidly! This is a flagrant and irresponsible disregard for public safety and possibly a violation of our pool contract. I urge the Board/Commission to correct this dangerous and irresponsible overcrowding, and not to rent non-existent pool space to yet another year round competitive swim team. I also respectfully request that Mr. Bushore disqualify himself from voting on this issue due to the clear conflict of interest on this issue of renting pool space to a swim team that his son swims on and that he and his wife were instrumental in conceptualizing, raising funds for and organizing in. Tough Questions And Tight Spots: Everyday Ethics for Local Officials Page 1 of 6 This isGoogIe's cache of ham://www.westerncity_.com/Apr02To4ghQuestions.htm. G o o g I e's cache is the snapshot that we took of the page as we crawled the The page may have changed since that time. Click here for the current-page wit highlighting. To link to or bookmark this page, use the following url: http: //www. google. com/search? q=cache:Bk1EGGA20rIC:www.westerncity. com/Apr02ToughQuest ions. htm+fac 2Bbias&h1=en&ie=UTF-8 Google is not affiliated with the authors of this page nor responsible for its content. These search terms have been highlighted: factual bias Cr April 2002 Tough Questions And Tight Spots: Everyday Ethics for Local Officials This column is a joint effort of the members of the Institute for Local Self Government's advisory panel on ethics. This month's Tough Question: I am a council member in a small community. In a few weeks, I will be voting on a proposal that will dramatically reduce a good friend's property value. The friend was one of my earliest and most enthusiastic supporters when I made the decision to run for the council; he even made a small contribution to my campaign. Frankly, I feel loyal to him. But many people in the community are supportive of the proposed use, and it will bring much- needed revenue to the community. What is the ethical thing to do? Answer: As a city official, you were elected to exercise your best judgment on behalf of everyone in your community. Your decision-making analysis should reflect this and be free of personal bias. This is where the WIPLA (whole http://216.239.33.100/search?q=cache:Bkl EGGA20rIC:www.westerncity.corn/AprO2Tough... 10/20/02 Tough Questions And Tight Spots: Everyday Ethics for Local Officials Page 2 of 6 community, individual rights, process, legality and alternatives) framework described in the February 2002 issue of Western City can help. Whole Community First ask yourself: What decision will benefit the community as a whole? You were elected to serve the interests of the community as a whole - not just your friends. At this stage of your analysis, you must set aside your friend's interests. What are the communitywide benefits of the proposal before you? What will the costs be? How do these two balance? Do the benefits outweigh the costs? The financial effect on the city is one consideration in this analysis, but so is the effect of the proposed use on the community's character and quality of life. Will the community as a whole truly be a better place if the use is approved? Individual Rights Examine the individual rights, including your friend's, at stake in your decision. Is the proposed use a surprise because it involves a zone change, or should residents in your friend's neighborhood understand that this kind of use is permitted? Are the individuals (including your friend) being asked to bear a burden that ought to be borne by the community as a whole? How great is the burden compared to the benefit? How would you evaluate the burden if the individuals affected did not include your friend? If the burden is great and the benefits are small, then this project may not be good for the community, regardless of your friend's interests and your relationship with him. Explain that you cannot make a decision prior to the hearing, and that your decision must be made after considering all the evidence and testimony presented in the hearing. Process The next step is to look at the process the city will use to seek public input on the proposal. Will the process be well publicized and timed so as many people as possible can participate? During the hearing process, are you actively listening to what people are saying and recognizing the validity of every perspective shared? Do you thank people for taking the time to share their views and indicate that you will consider their points in making your decision? Are you respectful of your fellow council members' views, even if you disagree with their position? Does your conduct during the hearing (and in any one-on-one discussions with constituents) indicate that you are fairly considering all viewpoints and working to http://216 239.33.100/search?q=cache:BkI EGGA2OrIC:www.westemeity.com/Apr02Tougb... 10/20/02 Tough Questions And Tight Spots: Everyday Ethics for Local Officials Page 3 of 6 'approach your decision with an open mind? • Don't leave your friend out of the process. Encourage him to come to the hearing and share any concerns with the council as a whole. Suggest that he bring any neighbors who share his concerns. Explain to him what your duties are as an elected representative of the entire community, and that you and your fellow council members will be making your decision based on the information you receive as part of the public hearing process. Legality The law does not, strictly speaking, require you to disqualify yourself because of friendships or campaign contributions. The Political Reform Act generally covers financial relationships and, for purposes of this discussion, we are assuming there are'no financial ties between you and your friend. Moreover, under the Political Reform Acts, receiving political contributions generally does not disqualify city council members from voting on matters brought before the council. Of course, there are reporting requirements for campaign contributions, so community members are likely to know that your friend is a campaign contributor. • The financial effect on the city is one consideration in this analysis, but so is the effect of the proposed use on the community's character and quality of life. In addition, there is a doctrine known as "common law bias" that you may want to review with your city attorney, particularly if you will be sitting in a quasi-judicial capacity on this land use matter. Quasi-judicial matters include variances, use permits, annexation pro-tests, personnel disciplinary actions and licenses. Quasi- judicial proceedings tend to involve the application of generally adopted standards to specific situations, much as a judge applies the law to a particular set of facts. The categories of common law bias include 2: . Personal Interest in the Decision's Outcome. For example, one court found a council member was biased and should not participate in a decision on a proposed addition to a home in his neighborhood when the addition would block the council member's view of the ocean from his apartment.3 http://216.239.33.100/search?q=eache:BkI EGGA20rIC:www.westemcity.com/AprO2Tough... 10/20/02 Tough Questions And Tight Spots: Everyday Ethics for Local Officials Page 4 of 6 . Party Bias. An example of party bias is strong animosity about a permit applicant, based on his conduct outside the hearing. Conceivably, a strong personal loyalty to your friend could bias you against the applicant's interests. . Factual Bias. An example of factual bias is information that a council member might receive outside the public hearing, causing the council member to have a closed mind to any factual information presented in the hearing. This is a variation of the ex parte communications doctrine, which suggests that in quasi-judicial matters all communications to you about the merits (or demerits) of the proposed use should occur during the course of the public hearing. There are basically two ways to analyze the common law bias issue. One is whether, in your heart, you know that you cannot put aside your friendship and make an impartial decision. This is an issue only you can decide. The other way to analyze the issue is to determine whether a disappointed applicant will have a legal basis for challenging the council's decision (in the event the proposed use is turned down) as being tainted by bias. The courts approach a review of a council decision with a presumption that the decisionmakers acted with integrity and honesty. Anyone challenging the council's decision will have to establish, with evidence, that there was an "unacceptable probability" that decisionmakers were biased in any of the three ways described above.4 This is where you will want to discuss candidly with your city attorney what kinds of conversations and relationships you have had that might cause others (both the community and a reviewing court) to believe that you are not able to serve as an impartial decisionmaker. It won't do your friend any good to have the proposed use rejected, only to have the council's decision overturned by the courts. Needless to say, such a sequence of events could also be embarrassing for you and the city. Will a disappointed applicant have a legal basis for challenging the council's decision as being tainted by bias? Alternatives If you and your city attorney both conclude you can serve as an impartial http://216.219.33.I00/search?q=cache:Bk 1 EGGA20rIC:www.westemeity.com/AprO2Tough... 10/20/02 Tough Questions And Tight Spots: Everyday Ethics for Local Officials Page 5 of 6 _decisi6nmaker, you may proceed to the next step of the analysis. As you consider the impact of your decision on both the whole community and individuals within the community, would any alternatives create better "win-win" situations (more community benefits or fewer individual burdens)? Have you discussed the availability and feasibility of these alternatives with staff before the meeting at which the decision will be made? (Meeting with staff beforehand will enable them to be prepared with answers at the meeting and help you with the process of making a decision that is both best for the whole community and respectful of individual rights.) For example, if an undesirable use will be locating in your friend's neighborhood, can steps be taken to minimize its effects? Will the community as a whole truly be a better place if the use is approved? Walking the Talk Now that you have analyzed and approached the decision-making process with these ethical principles in mind, think about explaining your ultimate decision in terms of these values. Explain why you feel your decision is best for the whole community and articulate the steps taken to protect individuals' interests. Alternatively, explain why the decision is not best for the whole community and/or unduly treads on individual interests. If financial considerations for the city are a factor, explain why you believe that the extra financial resources will make the community a better place (money is rarely an end in and of itself). It is important for your constituents to hear that you have engaged in a reasoned and value-based decision-making process - not one based on a personal relationship. How great is the burden compared to the benefit? It is also imperative to have a conversation with your friend about your decision, explaining that you take your duties as a public servant very seriously - particularly your duty to act in the best interests of the community as a whole. Explain that you cannot make a decision prior to the hearing, and that your decision must be made after considering all the evidence and testimony presented in the hearing. hftp://216.239.33.100/search?q=cache:Bk I EGGA2OrIC:www.westemeity.eom/Apr02Toagh... 10/20/02 Tough Questions And Tight Spots: Everyday Ethics for Local Officials Page 6 of 6 You may find that, based on your analysis, the ethical approach is to approve the proposed use. If so, tell your friend that the decision was difficult, because you do value the friendship, but you also know that friendship is based on mutual respect. Explain that you believe one reason you are friends is that you both respect and understand each other's point of view, including your ethical and legal duties as an elected official. This column launches a bimonthly feature of Western City, which will apply the ethical framework introduced in the February 2002 issue to every-day situations confronting local officials. (See "The Benefits of Value-Based Decision-Making: A Discussion City_Off_icials." about_Westem_City articles subscribe advertise_ job-opportunities municipal marketplace search home http://216.239.3 i.100/search?q=cache:BkI EGGA20rIC:www.westemeity.com/AprO2Tough... 10/20/02 REQUEST FOR PLACEMENT ON OCTOBER 9, 2002 PALM SPRINGS PARKS & RECREATION COMMISSION AGENDA A. Request for Placement of Issue on Parks & Recreation Commission Agenda The Palm Springs Piranhas Swim Team (the Piranhas)requests that the issue of limiting the number of club swim teams with permission to use the Palm Springs Swim Center Swimming Facility during the hours specified in the City's contract with the Piranhas be limited to the Piranhas Swim Team only. The Piranhas request that this issue be placed on the October 9, 2002 Agenda for the Parks& Recreation Commission for discussion and action. B. Proposal The Piranhas Swim Team proposes that there presently is not sufficient room on deck for more than one swim club to use the Palm Springs Swim Center Swimming Facility at the same time. Therefore, in the interest of safety and in keeping with the mission statement of the Piranhas, to serve all swimmers within the Coachella Valley, the Piranhas believe that the interests of the community and swimmers will best be served by limiting to the Piranhas Swim Team, use of the Palm Springs Swim Center Swimming Facility during the hours specified in the'current contract between the City and the Piranhas. This proposal is based upon overcrowding and safety issues that are presently occurring with shared use of the Swim Center pool, and that will continue to occur in the event the City permits use of the Swim Center by other club teams at the same time and on the same days as the Piranhas. C. Request for Action The Parks& Recreation Commission is requested to take such action consistent with the proposal set forth herein, such that the Piranhas Swim Team may continue to enjoy the express and implied terms of its contract with the City, all for the benefit of the swimmers who daily use the Swim Center pool. Dated: September 30, 2002 PIRANHAS SWIM TEAM i - � . CA Codes(gov:54950-54962) Page 5 of 36 giving testimony in private before a grand jury, either as individuals or as a body. 54953 . 3 . A member of the public shall not be required, as a condition to attendance at a meeting of a legislative body of a local agency, to register his or her name, to provide other information, to complete a questionnaire, or otherwise to fulfill any condition precedent to his or her attendance. If an attendance list, register, questionnaire, or other similar document is posted at or near the entrance to the room where the meeting is to be held, or is circulated, to the persons present during the meeting, it shall state clearly that the signing, registering, or completion of the document is voluntary, and that all persons may attend the meeting regardless, of whether a person signs, registers, or completes the document . 54953 . 5 . (a) Any person attending an open and public meeting of a legislative body of a local agency shall have the right to record the proceedings with an audio or video tape recorder or a still or motion picture camera in the absence of a reasonable finding by the legislative body of the local agency that the recording cannot continue without noise, illumination, or obstruction of view that constitutes, or would constitute, a persistent disruption of the proceedings . (b) Any tape or film record of an open and public meeting made for whatever purpose by or at the direction of the local agency shall be subject to inspection pursuant to the California Public Records Act (Chapter 3 . 5 (commencing with Section 6250) of Division 7 of Title 1) , but, notwithstanding Section 34090, may be erased or destroyed 30 days after the taping or recording. Any inspection of a video or tape recording shall be provided without charge on a video or tape player made available by the local agency. 54953 . 6. No legislative body of a local agency shall prohibit or otherwise restrict the broadcast of its open and public meetings in the absence of a reasonable finding that the broadcast cannot be accomplished without noise, illumination, or obstruction of view that would constitute a persistent disruption of the proceedings . 54953 . 7 . Notwithstanding any other provision of law, legislative bodies of local agencies may impose requirements upon themselves http://www.icginfo.ca.gov/cgi-bin/displaycode?section=gov&group=54001-55000&file=54950-54962 10/19/02 Ethics Orientation for State Officials presented by The California Attorney General's Office and the Fair Political Practices Commission © California Attorney General's Office, 1999 Table of Contents 1. Conflicts Of Interest Under The Political Reform Act 1.1 Overview of the Political Reform Act The Political Reform Act is the single most important conflict of interest law in California. It includes several conflict of interest provisions that are covered in this ethics orientation program. 1.1.1 The Fair Political Practices Commission The Fair Political Practices Commission administers the Political Reform Act. The Commission is available to provide telephone or written advice to officials, or their representatives, concerning their duties under the Act. Written advice from the commission is a discloseable public record. The Commission also can provide you with fact sheets and brochures as well as copies of its regulations and opinions. You may contact the Commission by telephone, letter, fax, e-mail or on the web. At the end of this orientation, you will be given this and additional reference information. 1.1.2 Disclosure Requirement The Political Reform Act also requires state and local officials to file Statements of Economic Interests. Officials who are required to complete these statements may be required to disclose investments and positions in business entities, interests in real property and sources of income and gifts. This orientation is not a tutorial on disclosure, although reference will sometimes be made to these disclosure requirements. htq):Hcaag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials- Conflicts Of Interest Under The Political Reform A...Page 2 of 14 1.1.3 Defining Some Terms • Finally, a brief note about terms that are used throughout this orientation: . official or public official refers to elected or appointed officers and employees . officer refers to high level officials who exercise some portion of the sovereign power . employee refers to a person who is not an officer and who is employed by a government agency . designated employee refers to an officer or employee who is covered by the disclosure and disqualification provisions of an agency's Conflict of Interest Code Let's now begin with the first provision under the Political Reform Act. 1.1.4 Conflicts of Interest , Under the Political Reform Act, a public officlal';irlgy not take any part in�a governmental decision in which the official has a disqualifying conflict of nterestit A public official has a conflict of interest with regard to a particular governmental decision if it is reasonably foreseeable that the decision will have a material financial effect;on one ppm.ore of the official's economic i rests. Economic interests are particular kinds of financial stakes held by public officials, such as investments in real property or for-profit businesses, or individuals or organizations which have provided income or gifts to public officials. A public official's conflict of interpst,is-disqualifying if the financial effect bn his or her economic interest is distinguishable from the financial effect of too decision on the pubH6 generally To avoid violating this law, one should learn to recognize the economic interests from which a conflict of interest can arise. No one ever has a conflict "on general principles" under the Political Reform Act--a conflict can only • arise from the particular kinds of economic interests covered by the Act, which are subsequently explained. http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform A...Page 3 of 14 Remember These Points This law applies only to financial conflicts, that is, conflicts arising from particular kinds of economic interests. The most important proactive step a public official can take to avoid conflict of interest problems is learning to recognize the economic interests from which conflicts can arise. 1.2 The eight-step process for determining if a disqualifying conflict of interest exists. The regulations of the California Fair Political Practices Commission (FPPC), establish an eight step approach for determining whether a public official has a disqualifying conflict of interest under the Political Reform Act. If you recognize that one or more of your economic interests is involved in a government decision, you should consult with your agency's legal counsel and think through the eight steps to decide if a conflict of interest actually exists. If you violate the conflicts of interest provisions, you may be subject to monetary fines or misdemeanor criminal penalties. We will now explore the eight step process for analyzing a conflict of interest under the Political Reform Act. 1.3 Step One:The Political Reform Act conflict-of-interest rules apply," ply to pvblimfficials. The Political Reform Act's conflict-of-interest rules apply to "public officials," as defined in the Government Code. Every member, officer, ,employee or consultant of a state or local government agency is a"public official fore purposes of the Act. Judges and court commissioners, members of the Board of Governors and designated employees of the State Bar of California, members of the Judicial Council, and members of the Commission on Judicial Performance are not public officials, for purposes of the Act. Be aware that sometimes difficult issues can surround consultants, individuals who manage public investments, and quasi-public bttp://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform A...Page 4 of 14 organizations. If you have questions about whether a given individual is a public official covered by the Act, consult your legal counsel or contact the FPPC for advice. Remember This Point The Act's conflict-of-interest restrictions apply only to "public officials," but that term is defined broadly. 1.4 Step Two: The PRA's conflict-of-interest rules apply only to public officials as they are making, participating in making, or influencing i governmental decision. The Act's conflict-of-interest rules apply when a public official: . Makes a governmental decision (for example, by votin§or making an appointment). . Participates in making a governmental decision (for example, bYgivir ` g advit 8 or mak ng;recommendations 0 the decision maker). . Influences a.governmeryatal declion by communicating with the decision makep� A good rule-of-thumb for deciding whether a given public official's actions constitute making, participating in making, or influencing a governmental decision is to ask whether he or she is 4ercising discret on -or judgment with,{ regard to the decision,If the answer is "yet" then his or her conduct with regard to the decision is most probably covered by the conflict-of-interest males. Remember This Point If a public official is exercising discretion or judgment with regard to a governmental decision, his or her conduct is probably covered by the Political Reform Act's conflict-of-interest provisions. 1.5 Step Three: Recognizing the economic interests from which conflicts • of interest may arise is the most important step in complying with the law. http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform A...Page 5 of 14 The Act's conflict-of-interest provisions apply only to conflicts arising from economic interests. There are five kinds of such economic interests from which conflicts can arise. . Economic interests in business entities . Economic interests in real property . Economic interests in sources of income to the public official . Economic interests in sources of gifts to the public official . The personal financial effects rule 1.5.1 Step Three: Economic Interest Type 1: Economic Interests in Business Entities A public official has an economic interest in a for-profit business entity if either of the following is true: . The official has a direct or indirect investment of$2,000 or more in the business entity; or • The public official is a director, officer, partner, trustee, employee, or, holds any position of management in the business entity. A direct investment means an official personally owns an investment. An indirect investment means the official's spouse, the official's dependent children or anyone acting on the official's behalf has an investment. In addition, a public official who owns 10% or more of a business entity has an indirect investment in any investment owned by the business entity in proportion to the public official's ownership stake. If a public official has an economic interest in a business entity, the official must be constantly aware of whether that business entity is involved in or affected by governmental decisions in which the official takes part. If such a business is directly or indirectly involved, a conflict of interest is possible. Remember These Points A public official has an economic interest in a business entity if- * The official has a direct or indirect investment; or http://caaa.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform A...Page 6 of 14 o The official holds a position in the business. Let's Review Rosa is a member of a state board. In her private capacity, she works for Madison's Hardware. Her husband owns 100 shares of Microsoft. In which, if any, of the following business entities does Rosa have an economic interest? a. Madison's Hardware b. Microsoft c. Both Madison's Hardware and Microsoft d. None of the above Answer: c. Both Madison's Hardware and Microsoft; Way to go, this answer is correct. Rosa has an economic interest in Madison's Hardware because it is her employer, and she has an economic interest in Microsoft because she has indirect investment via her husband. 1.5.2 Step Three, Economic Interest Type 2: Economic Interests in Real Property A public official has an economic interest in real properly if the official has an equity or leasehold interest in real property valued at $2,000 or more. The official's interest includes the official's direct, as well as indirect, interests. A direct interest in real property means an official personally holds the interest. An indirect interest means the official's spouse, the official's dependent children or anyone acting on the official's behalf has an interest in real property. In addition, a public official who owns 10% or more of a business entity has an indirect interest in any real property held by the business entity in proportion to the public official's ownership stake. If a public official has an economic interest in particular real property, the official must be constantly aware of whether that real property is involved in or affected by governmental decisions in which the official takes part. If such real property is involved, directly or indirectly, a conflict of interest is possible. http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform A...Page 7 of 14 Remember These Points Interests in real property cover both equity and leasehold interests. Direct and indirect interests are also covered. Let's Review Locke is a member of a state commission and an attorney. He and his wife own a single-family home. He leases office space for his law practice. He also owns two of the ten limited partnership shares in a limited partnership which owns a downtown office building. Determine which of the following answers describe Locke's economic interest(s)? a. The home b. The office space he leases for his law practice c. The downtown office building Answer: a, b, and c . a. He has an economic interest in his home because he and his spouse own it. b. The office space he leases for his law practice; As to the leased office space, an economic interest in real property does not necessarily require ownership of the real roperty; a lease may be an economic interest in real property. c. The downtown office building; As to the downtown office building, he has an economic interest because his two shares exceed 10% of the partnership. Even if the title to the building is in the name of the limited partnership, the investors in the limited partnership are considered to have an economic interest in the real property if their interest is 10% or greater. 1.5.3 Step Three, Economic Interest Type 3: Sources of Income to the Public Official A public official has an economic interest in sources of income to the official. A source of income to a public official is anyone, whether an individual, + business entity or an organization, that provides or promises $500 or more in income to the official within 12 months prior to the government decision-in- http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials- Conflicts Of Interest Under The Political Reform A...Page 8 of 14 question. A person or entity that provides income to an official, either directly or indirectly, may be a source of income to the official. Indirect sources include the following: Source of Income to the Official's Spouse In California, a public official has a community property interest in his or her spouse's income. Therefore, a person or entity that provides income to an official's spouse may be a source of income to the public official, as well. Source of Income to a Business Entity A public official who owns 10% or more of a business entity is deemed to receive "pass-through" income from the business's clients in proportion to the public official's ownership stake. Therefore, the business's clients may be sources of income to the public official, if the official's proportionate share of the payments is $500 or more. If a public official has an economic interest in a person because that person is a source of income to the official, the official must be constantly aware of whether that source of income is involved in or affected by governmental decisions in which the official takes part. If such a source of income is involved, directly or indirectly, a conflict of interest is possible. Remember These Points A public official has an economic interest in most individuals and entities that provide income to the official. Sources of income to a public official's spouse or to a business in which the official has an investment may also be a source of income to the public official. Even if a public official does not have an economic interest in a business entity by virtue of investment or by holding a position in the business, the business may still be an economic interest if it provides income to the public official. Let's Review http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform A...Page 9 of 14 Hobbes is a state board member. Her husband, Calvin, is employed by Chimerical Industries. She owns 5% of a heating oil business. Her share of the profits from the heating oil business was over $5,000 last year. This business supplies fuel to many local businesses and residences. Determine which of the following describe Hobbes' source(s) of income? a. Chimerical Industries b. The heating oil business c. The customers of the heating oil business who have purchased more than $5,000 worth of heating oil in the past twelve months Answer: a and b a. Yes, Chimerical Industries is a source of income to Hobbes because she has a community property interest in Calvin's income from the company. b. Yes, the heating oil company is a source of income to her because she received more than $500 in income from the company last year. c. No, the customers of the family heating oil business cannot be • sources of income to Hobbes because she owns less than 10% of the family corporation--the required threshold for indirect income from a business entity. 1.5.4 Step Three: Economic Interest Type 4: Sources of Gifts to the Public Official A public official has an economic interest in anyone, whether an individual, business entity or organization, that provides gifts to the official totaling $320 or more within 12 months prior to the governmental decision-in-question. Do not confuse an economic interest stemming from a gift with an economic interest stemming from a source of income that provides or promises $500 or more in income. If a public official has an economic interest in a person or entity because that person is a source of gifts to the official, the official must be constantly aware of whether that source of gifts is involved in or affected by governmental decisions in which the official takes part. If such a source of gifts is involved, • directly or indirectly, a conflict of interest is possible. Remember This Point http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform... Page 10 of 14 A public official has an economic interest in any individual, business entity or organization that provides the official with gifts totaling $320 or more within 12 months. Let's Review Holmes is a director of a state department. He receives two gifts from a friend's business which is interested in his department's activities. In October, he receives two tickets to a San Francisco 49er game valued at $100. In February of the next calendar year, he receives a framed photograph of Yosemite valued at $240. In June, he is considering a decision that would affect his friend's business. Does Holmes have an economic interest in his friend's business? a. Holmes has an economic interest in his friend's business because he has received $340 value in gifts during the 12 months prior to the decision. b. Holmes does not have an economic interest because the gifts were received in separate calendar years. Answer: a. Holmes has an economic interest in his friend's business because he has received $340 value in gifts during the 12 months prior to the decision. This is correct! b. Holmes does not have an economic interest because the gifts were received in separate calendar years. This answer is wrong because Holmes has received $340 value in gifts during the 12 months prior to the decision, as opposed to receipt during separate calendar years. 1.5.5 Step 3.- Economic Interest Type 5 Pers'o ►al Financial Effects Rule A public official has an economic interest in the amount of his or her own personal l ame, expense , assets, or, abilit ,es,jas well as those of his or her immediate family%'The interestees tribgered when—a government decision will either increase or decrease the personal income, expenses,,assets or liabilitieg of th. e off ca ;or tlie'official's unmedrate family. This is often called the 0 "personal financial effects" rule. Previously, we have discussed economic interests in business entities and in http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform... Page 11 of 14 real property. These interests are separate and distinct from the personal financial effects rule. For example, a decision to fine an official for littering would be covered by the personal financial effects rule because the fine will directly affect the official's personal finances. However, a decision that affects the value of the official's home would not be covered by the personal financial effects rule because the decision would affect the official's interest in real property. One place where the personal financial effects rule may arise is in an exception to an exception. Under what is commonly called the "government salary" exception, a public official does not have a conflict of interest where the decision affects only the salary, per diem, or reimbursements for expenses received by the public official or his or her spouse from a government agency. However, under the personal financial effects rule, this exception does not apply when the decision singles out the public official's spouse in a way that would particularly affect income, expenses, assets or liabilities. For example, a decision to hire or fire, promote or demote, etc. would fall under the personal financial effects rule and would constitute an economic interest. Remember This Point An official.has an economic interest in decisions that directly affect the; personal finances of the-official'or the official's spouse or immediate family. Let's Review Maria is a deputy director of the Department of Finance. Her husband works for another state department as a civil service employee. Maria is working on a pay raise for state civil service employees, including Maria's husband. Does Maria have an economic interest under the personal financial rule? Answer yes or no. Answer: The answer is no. Even though a pay raise will increase her husband's income and he is a member of her immediate family, the government salary exception applies since the decision affects only his civil service salary and he is affected by the decision no differently than any similarly situated employee. http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform... Page 12 of 14 1.6 Steps Four through Six: Once an economic interest is potentially involved, how does an official determine if a conflict exists? Now that you have completed Step 3, the most important step of the Eight- Step Process, let's look at Steps 4-6. 1.6.1 Making A Calculated Prediction To determine whether a conflict of inter;,% exist, the official must make a calculated prediction I*reasonably foreseeable thd�tIhe governmental decision will have a material financial effect on the public official's economic interests? 1.6.2 Defining Some Terms Before we evaluate the interplay between "reasonably foreseeable" and "material financial effect," let's first define them. The phrase "reasonably foreseeable" means substantially likely. Deciding whether a financial effect is substantially likely must be based on the entire factual situation. The phrase "material financial effect" refers to the impact of a governmental decision on an official's economic interests. As used in the phrase "material financial effect," the word "material" means important. There are specific dollar thresholds in the FPPC's regulations -- called materiality standards -- for evaluating whether a financial effect on an economic interest is material. There are two factors that control which materiality standard will apply to any given conflict of interest situation. The first factor is the economic interest itself. That is, there is one set of materiality standards for business entities, another for sources of income, etc. The second factor is whether the Official's-:interest will be directly or�a indirectly involved in the decision. An economic interest which is (firectly involved' n a governmental=declsiorl:creates a bigger risk of a eonfi%ct of iritere t than does an economic interest which is http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Tthics Orientation for State Officials- Conflicts Of Interest Under The Political Reform... Page 13 of 14 indirectly involved in a decision. 1.6.3 Steps 4-6 of the Eight-Step Process There are specific FPPC regulations that define the materiality standards for each type of economic interest depending on whether the interest is directly or indirectly involved. These regulations are much too complex to discuss them further in this ethics orientation. For purposes of this orientation, it is sufficient that you understand the framework of the eight step process. To actually analyze a real conflict of interest situation, you must have the materiality standards in your possession as you apply Steps Four through Six. Step Four: By referring to FPPC regulations, decide whether the economic interest is directly involved in the governmental decision Step Five: Armed with the information from Step Four, examine the materiality standards for the type of economic interest at-issue. For example, if the public official has an economic interest in a person because that person is a source of income to the public official, the official should go to the materiality standards for sources of income. Step Six: For each of the public official's economic interests, ask whether it is substantially likely that the material financial effect will occur. If the answer to this question is yes, then the public official has a conflict of interest unless the "public generally exception" discussed in Step Seven. If the answer is no, then the public official does not have a conflict. 1.7 If a conflict of interest exists, does the public generally exception apply? Or is the conflict disqualifying? Not all conflicts of interest result in disqualification. If the public generally exception applies, a public official may take part in a governmental decision despite the conflict of interest. This exception exists because a public official is less likely to be biased by a financial impact on one of his or her economic interests when a significant segment of the population is likely to feel a substantially similar impact from a governmental decision that the public official's economic interests are likely to feel. http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 Ethics Orientation for State Officials - Conflicts Of Interest Under The Political Reform... Page 14 of 14 The "public generally" exception must be considered with care. You may not . just assume that it applies. There are specific rules for identifying the significant segments of the population with which you may compare your economic interest, and specific rules for deciding whether the financial impacts are substantially similar. Remember This Point Not all conflicts of interest are disqualifying--but the public generally exception must be rigorously analyzed and may not be assumed. 1.8 Step Eight: Despite a disqualifying conflict of interest, participation is occasionally legally,requiredc; In certain very rare circumstanw , a public official may be called upon to take part in a governmental decision despite the fact that he or she has a disqualifying conflict of interest. This legally required participation rule applies only in certain very specific circumstances where,-the government agency would be paralyzed_from acting: Public officials are most strongly encouraged to seek advice from agency legal counsel or the FPPC before acting under this rule. Remember This Point The legally required participation rule is rarely applied':; Next You have completed the Conflicts Of Interest Under The Political Reform Act module. The next module is 2. Gift Limitations. Table-of Contents http://caag.state.ca.us/ethics/accessible/conflicts.htm 10/19/02 CONFLICTS OF INTERESTS OFFICE OF THE ATTORNEY GENERAL DANIEL E. LUNGREN Attorney General WAYNE R. SMITH Special Assistant Prepared by the Civil Division Robert L.Mukai Chief Assistant Attorney General Linda A. Cabatic Senior Assistant Attorney General Ted Prim, Editor Deputy Attorney General Leslie Lopez Deputy Attorney General I. CONFLICT OF INTERESTS PROVISIONS UNDER THE POLITICAL REFORM ACT OF 1974 Government Code Section 87100 Et Seq.* A. OVERVIEW The Political Reform Act, Government Code section 81000 et seq. (hereinafter "PRA" or "act"), was enacted by initiative measure ("Proposition 9") in June 1974. It is the starting point in any consideration of conflict of interests laws in California. Chapter 7 of the act (Gov. Code, §§ 87100-87500)' deals exclusively with conflicts of interests. The act also limits the receipt of specified gifts and honoraria and will be addressed in section K of this chapter separately from the general disqualification provisions of section 87100. One of the legislative findings recited as a reason for the act sheds some light on the purpose of the conflict of interests provisions: "Public officials,whether elected or appointed,should perform their duties in an impartial manner, free from bias caused by their own financial interests or the financial interests of persons who have supported them." (§ 81001(b).) The stated intent of the act was to set up a mechanism whereby"Assets and income of public officials which may be materially affected by their official actions . . . [are] disclosed and in appropriate circumstances the officials . . . [are] disqualified from acting in order that conflicts of interest may be avoided." (§ 81002(c).) The Fair Political Practices Commission (hereinafter the "FPPC" or "commission") is the agency primarily charged with the responsibility of advising officials and the public and enforcing the conflict of interests provisions of the act. B. THE BASIC PROHIBITION Under the act,public officials are disqualified from participating in government decisions in which they have a financial interest. The act does not prevent officials from owning or acquiring financial interests which conflict with their official duties nor does the mere possession of such interests require officials to resign from office. The disqualification provision of the act hinges on the effect a decision will have on a public official's financial interests. When a decision is found to have the requisite effect,the official is disqualified from making,participating in the making,or using his or her official position to influence the making of that decision at any level of the decision making process. *Selected statutory and regulatory materials appear in appendices A(at 93),B (at 94),C(at 96), and D (at 104). 'All section references in this chapter hereafter refer to the Govemment Code unless otherwise specified. 1 By establishing a broad objective disqualification standard,the PRA attempted to cover both actual and apparent conflicts of interests between a public official's private interests and his or her public duties. It is not necessary to show actual bias on the part of the official and it may not even be necessary to show that an official's assets or the amount of his or her income will be affected by a decision in order to trigger disqualification. Other more attenuated effects may also bring about an official's disqualification. Even though this is a broad disqualification requirement, it is by no means all inclusive. Conflicts arising out of matters other than a financial interest are outside the purview of the act, e.g., friendship,blood relationship, or general sympathy for a particular viewpoint. To determine whether a conflict of interests exists under the act, five questions must be asked: 1. Is a public official involved? (See section C of this chapter.) 2. Does the official have a statutorily defined economic interest? (See section E of this chapter.) 3. Is the official making, participating in the making of, or using his or her official position to influence the making of a governmental decision? (See section D of this chapter.) 4. Is it reasonably foreseeable that the decision could materially affect the official's economic interest? (See sections F&G of this chapter.) 5. Will the effect of the decision on the public official's economic interest be distinguishable from its effect on the public generally? (See section H of this chapter.) If the answer to all five of these questions is yes, a conflict of interests exists and the disqualification requirement is activated. It should be noted at the outset that the act deals with conflict of interests situations on a transactional,or case-by-case,basis. This means that situations must be assessed for possible conflicts of interests in the light of their individual facts. The act demands continual attention on the part of officials. They must examine each transaction from the act's perspective to determine if a conflict of interests exists which triggers the disqualification requirement. When an official is disqualified, the financial interest creating the conflict as well as the act of disqualification, should be publicly announced. (See section K of this chapter for a discussion of the limits on gifts and honoraria.) C. PERSONS COVERED By its terms the act applies to "public officials." (§ 87100.) As that phrase is used in the act, it encompasses not only elected and appointed officials in the ordinary sense of the word,but also any "member, officer,employee or consultant of a state or local government agency." (§ 82048.) The term "public official" also includes individuals who perform substantially the same duties as an individual holding an office or a position listed in Government Code section 87200,including"other public officials who manage public investments"as that term 2 is defined in commission regulations. (C.C.R.,tit. 2, §§ 18700(a); 18720.) Officials of all special purpose districts in the state are included, along with virtually all officers and employees at every level of state and local government. Note that by definition judges of courts and certain other judicial officials and the State Bar are expressly npt included within the disqualification provisions otherwise applicable to all public officials. (§ 82048.) Economic disclosure provisions are,however,applicable to judges and court comrnissioners, as discussed infra. (§ 87200.) Neither the act nor commission regulations specifically defines the terms officer or employee. However,the commission has defined the term"member" and "consultant." As to "members," the FPPC has, in keeping with the broad scope of the act,interpreted the act to apply to the members of all boards or commissions with decision making authority. (C.C.R., tit. 2, § 18700(a)(1).) It makes no difference whether such board members are salaried or unsalaried. (Commission on Cal. State Gov. Org. & Econ. v. Fair Political Practices Com. (1977)75 Cal.App.3d 716.) For example,the "public members" on boards and commissions are subject to the provisions of the act. (I.L. 75-58.) The FPPC has determined that a board or commission possesses decision-making authority whenever: 1. it may make a final governmental decision (C.C.R., tit. 2, § 18700(a)(1)(A)) (In re Maloney,No. 76-082, 3 FPPC Ops. 69); 2. it may compel or prevent the making of a governmental decision by its action or inaction (C.C.R.,tit. 2, § 18700(a)(1)(B));or 3. its recommendations are routinely and regularly followed (C.C.R., tit. 2, § 18700(a)(1)(C)) (In re Rotman,No. 86-001, 10 FPPC Ops. 3). Regulation 18700,subsection(a)(1)(C),refers to bodies which are technically advisory,but which the FPPC views as decision making, since their"advice"generally is followed by the recipient body. This standard involves the determination of whether the board or commission in question has established a track record of having its recommendations regularly or routinely adopted. (See Commission on Cal. State Gov. Org. &Econ. v.Fair Political Practices Com., supra, 75 Cal.App.3d 716;In re Rotman, No. 86-001, 10 FPPC Ops. 3, for a discussion of redevelopment project area committees.) The final category of officials affected by the act is that of"consultant." To qualify as a consultant, an individual must either be delegated specified decision making authority or function as an officer or employee of a government agency. Examples of the type of delegated decision making authority which may make one a consultant include the power to approve a rule or regulation, adopt or enforce a law, or issue, deny, or suspend a permit, license or entitlement. Persons who contract to provide services or advice to a government agency which do not satisfy the criteria set forth in the regulation are not consultants for purposes of the act. 3 D. ACTIONS COVERED • A government official's actions are covered when the official: (1)makes,(2)participates in the making of, or(3) influences or attempts to influence a decision. 1. Actually Making A Decision Decision making includes voting on a matter, appointing a person to a position, obligating one's agency to a course of action on an issue, or entering into a contract for the agency. (C.C.R., tit. 2, § 18700(b)(1)-(4).) Determining not to act in any of those ways is also"making a decision" under the act. (C.C.R.,tit.2, § 18700(b)(5).) 2. Participation In Decision Making The proscriptions of the act encompass a broad range of activities beyond the most obvious actions such as voting or contracting, since the language "participate in making . . . a governmental decision" is included in the general prohibition. (Gov. Code, § 87100.) The FPPC has interpreted"participation"to include(1)negotiations and (2) advice by way of research, investigations, or preparation of reports or analyses for the decision maker,if these functions are performed without significant intervening substantive review. (C.C.R., tit. 2, § 18700(c).) Three areas of activity which would otherwise fall within the literal definition of participating in the making of a decision have been expressly excluded. • First,participation does not include actions which are solely ministerial,secretarial, manual, or clerical. (C.C.R., tit. 2, § 18700(d)(1).) These functions are excluded from the definition of participation because they do not involve policy making judgment or discretion. Since the official performing these activities has no substantive role in the decision,there is no fear that the decision will be affected as a result of his or her financial interests. Accordingly, there is no purpose in disqualifying the official from performing these functions. Second,a public official may appear at a hearing or otherwise before a public agency to represent his or her own personal interests if the official does so in his or her private capacity and if the matter in question relates only to the official's private interests and not to his or her official duties. (C.C.R., tit. 2, § 18700(d)(2).) The purpose of this exclusion is to allow citizens to exercise their constitutional rights to communicate with their government. However, the exclusion is limited in that it applies to situations in which the decision will solely affect the official's personal interests (e.g., real property or business solely owned by the official or members of his or her immediate family). To the extent that there are other persons who have the same interest, e.g. other stockholders in a corporation, the official with the conflict is disqualified from addressing his or her agency in any way on that issue. With respect to appearing before one's own agency,see subsection 3,Influencing Decision Making,below, and C.C.R.,tit. 2, § 18700.1(a) and(b)(1). Third, by necessity,participation also does not include actions by a public official with regard to his or her compensation for services or the terns or conditions of his or her employment or contract. (C.C.R., tit. 2, § 18700(d)(3).) 4 3. Influencing Decision Making The act,in section 87100,prohibits a public official from"in any way attempting to use his or her official position to influence a governmental decision" when the official has a financial interest. The addition of this final category of prohibited activity was intended to ensure that public officials do not act indirectly to affect their private economic interests by utilizing their official status or activities. It specifically includes attempting to affect any decision within the official's own agency or any agency appointed by or subject to the budgetary control of his or her agency. (C.C.R., tit. 2, § 18700.1(a).) Contacts with agency personnel or other attempts to influence on behalf of an official's business entity,client or customers are prohibited. (C.C.R., tit. 2, § 18700.1(a).) The commission regulations specifically exempt oral or written communications by an official as a member of the general public solely to represent his or her personal interests. Personal interests include: an interest in real property; or a business entity which is wholly owned by the official or members of his or her immediate family; or a business entity over which the official or the official and his or her spouse exercise sole control. (C.C.R.,tit.2, § 18700.1(b)(1)(A)-(C).) Communications with the media or general public, negotiation with one's own agency regarding compensation, and specific written and oral architectural presentations also are exempt from coverage. (C.C.R.,tit. 2, § 18700.1(b)(2)-(5).) In addition to the general provisions of the act, the Legislature created a special prohibition for state officials, including members of all state advisory bodies. Section 87104 specifically provides that no state official: • shall for compensation act as agent or attorney for any other person; • before his or her state agency; • if the appearance or communication is made for the purpose of influencing a contract, grant, loan,license, permit or other entitlement for use. The prohibition contained in section 87104 is not applicable to local government officials. However, the disqualification requirement contained in section 87100 generally would reach the same result since public officials may not make, participate in making, or use their official position to influence the making of government decisions which materially affect their sources of income. (Note: Section 87104 covers all state advisory bodies, whereas section 87100 only covers those advisory bodies with decision making authority. See C.C.R., tit. 2, § 18700(a)(1)(C).) With regard to a decision which is not before the official's own agency, or an agency over which the official's agency has budgetary control,the official is attempting to use his or her official position to influence the decision if, for the purpose of influencing the decision,the official purports to act on behalf of his or her agency in communications with any official of an agency. Such actions include the use of official stationery. (C.C.R., tit. 2, § 18700.1(c).) 5 As noted at the outset (chapter I, section B, The Basic Prohibition, supra), several elements must be present for a conflict of interests to exist. Having discussed the issues of who is a covered public official and the types of actions (e.g., making decisions), that are covered,it still must be determined if the official has a statutorily defined economic interest;if it is reasonably foreseeable that his or her governmental decision could affect that interest materially;and if that effect is distinguishable from the effect of that decision on the public generally. If the answer to all three inquiries is yes, the official has a prohibited financial interest under the act. E. ECONOMIC INTERESTS COVERED* (For more discussion of economic interests and their required disclosure under the act, see chapter II of this pamphlet.) Many variables come into play in determining when an official has a financial interest in the outcome of a decision sufficient to require the official to abstain from action on the matter. Specifically, the act addresses five kinds of interests: (1)investments in business entities, (2) interests in real property, (3) sources of income, (4) holding positions with business organizations, and (5)donors of gifts and their agents or intermediaries. (§ 87103(a)-(e).) In the case of each category (except the fourth),the act specifies the minimum amount of holdings,income or gifts which must exist before an "interest" is created. An official with a holding, income or gift which is less than the minimum, need not be concerned with the act's provisions since such property or income does not constitute an "interest" under the act. But a holding,income or gift in excess of the minimum creates the potential,in terms of the act, for a "material financial effect" on the official's economic interests, should the official be called upon to make a decision in his or her public capacity which affects the official differently from the way the decision affects the public generally. 1. Business Investments With regard to investments in a "business entity," any direct or indir c investment of$1,000 or more creates an "interest" for the official. "Business entity" is defined in the act and essentially means an organization which is operated for profit. (§ 82005.) Business entities include: corporations,partnerships,joint ventures, sole proprietorships and any other type of enterprise operated for a profit. Investments do not include: bank accounts; interests in mutual funds, money market funds or insurance policies; or government bonds or securities. (§ 82034.) By opinion, the FPPC defined the investment relationship between limited and general partners. (In re Nord, No. 83-004, 8 FPPC Ops. 6.) A limited partner is deemed to have an "investment" in his or her general partner, as well as in the partnership itself,if the limited partnership is "closely held" as defined by statute. *Selected statutory materials appear in appendix B (at 94). 6 When the limited partner has such an investment,he or she must be disqualified with respect to decisions affecting the general partner personally or through business entities controlled by the general partner. However, limited partners do not have an investment in other limited partners. The commission also has defined the economic relationship between parents, subsidiaries and otherwise related business entities. An official who has an economic interest in one such entity is also deemed to have an interest in all other such entities. A parent corporation has a 50 percent or greater ownership interest in a subsidiary corporation. (C.C.R.,6t. 2, § 18236(a).) One business entity is otherwise related to another business entity, if the one business entity or its controlling owner is a controlling owner of the other business entity or if management and control is shared between the entities. (C.C.R., tit. 2, § 18236(b).) "Indirect investment"is also defined and includes investments owned by an official's spouse, as either separate or community property, or owned by dependent children, as well as investments owned by someone else on behalf of the official,i.e., a trust arrangement. (§ 82034; § 87103; C.C.R., tit. 2, §§ 18234, 18235.) Indirect investment also includes any investments held by a business entity in which the official,his or her spouse,and their dependent children collectively have a 10 percent interest or greater. (§ 82034.) In I.L. 76-35 this office advised that one of the South Central Regional Coastal Commission's members had a conflict of interests and should be disqualified from participation, where the official owned more than $1,000 worth of stock in a corporation which was party to an appeal to the state commission. The stock had been placed in trust with the official's spouse and children as income beneficiaries. The commissioner was trustor. The official thus had both an investment and an income interest which gave rise to a "financial interest" under the act. (See In re Biondo,No. 75-036, 1 FPPC Ops. 54.) 2. Interests In Real Property An official has an "interest in real property" when the official, spouse or dependent children have a direct or indirect equity, option, or leasehold interest of$1,000 or more in a parcel of property(e.g.,ownership,mortgages, and deeds of trusts, options to buy and joint tenancies) located in, or within two miles of, the geographical jurisdiction of the official's agency(e.g.,within two miles of city boundaries for city officials). (§§ 82033, 82035.) It should be noted that the$1,000 threshold applies to the value of the int r st as opposed to the value of the property itself. Special provisions exist with respect to the disclosure of, or disqualification in connection with,leasehold interests. (See § 82033;C.C.R., tit. 2, § 18233;In re Overstreet,No. 80-010, 6 FPPC Ops. 12.) 7 3. Source Of Income And Gifts a. Income A public official has a financial interest in any source of income which is either received by or promised to the official (other than loans from commercial lending institutions in the ordinary course of business)and which totals $250 or more in the 12 months prior to the decision in question. (§ 87103(c).) An elected officer may not accept personal loans of$500 or more unless the officer complies with specified requirements set forth in section 87461. (See also section 87460 which prohibits a public official from receiving personal loans from persons who contract with or are employed by the official's agency.) The FPPC regulations make it clear that a conflict of interests results whenever either the amount or the source of an official's income is affected by a decision. (C.C.R.,tit.2, §§ 18702(b), 18702.1(a)(1) and(4); see also Win v.Morrow(1977)70 Cal.App.3d 817.) Detrimental as well as positive effects on the amount or source of income can create a conflict of interests. Thus,a decision which foreseeably will materially affect an official's employer, for example, would necessitate disqualification even if the amount of income to be received by the official were not affected. (In re Sankey,No. 76-071, 2 FPPC Ops. 157.) Income generally includes earned income such as salary or wages; gifts; reimbursements of expenses; proceeds from sales, regardless of whether a profit was made; certain loans; and monetary or nonmonetary payments or benefits,whether tangible or intangible. (§ 82030(a).) Income also includes the official's community property interest in his or her spouse's income(the official would meet the $250 threshold if the spouse received $500 of income), and all of the dependent children's income. Common exclusions from the definition include campaign contributions, government salaries and benefits, certain payments from nonprofit organizations,informational materials,inheritances,interest received on time deposits,dividends, or premiums from savings accounts,and dividends from securities registered with the Securities and Exchange Commission. (§ 82030(b).) With the exception of gifts,the definition of income does not include payments from a source outside of the jurisdiction which does not do business in the jurisdiction,does not plan to do so,and has not done so within the past two years. (§ 82030(a).) This office interpreted the income provisions of the act in I.L. 75-249 where this office concluded that no conflict of interests existed where the wife of a deputy superintendent of schools was a supervisor in the same county. Her community property share of her husband's salary from the county was not "income" within the meaning of the act because it was a government salary specifically exempted by section 82030(b)(2). This exemption does not apply to a decision to hire,fire,promote, demote or discipline the spouse,or to set a salary for the spouse that is different from salaries paid to other employees in the same job classification or position. (C.C.R., tit. 2, § 18702.1(c)(2).) 8 For purposes of disqualification, the FPPC determined that income from a former employer does not create a conflict of interests if(1)the income was accrued or received in its entirety before the official assumed his or her public position; (2) it was received in the normal course of employment; and (3) there was no expectation on the official's part that the official would resume employment with the same employer. (C.C.R., tit. 2, § 18704.) b. Gifts Although gifts are included in the definition of income(§ 82030),a separate disqualification provision for gifts was placed in section 87103(e). That section provides that a public official has a financial interest in the donor of gifts aggregating $250 or more in the 12 months prior to the decision in question. As is the case with income,this section covers gifts received by or promised to the public official in the 12-month period. In addition to donors, this section also applies to persons who act as agents or intermediaries in the making of gifts. The Legislature has provided that the $250 threshold be adjusted on a biennial basis to correspond with the gift limit established in section 89503. For the years 1997 and 1998 the disqualification threshold has been raised to $290. (C.C.R.,tit.2, §§ 18940.1 and 18954.) The disqualification threshold for sources of income pursuant to section 87103(c)remains at$250. (See section K of this chapter for a discussion of the definition of a gift,the valuation of gifts, and limitations on the receipt of gifts and honoraria.) Ordinarily,the receipt of property or services by a public official without the payment of consideration constitutes a gift to the public official. However, under limited circumstances, a gift is made to a public agency rather than to a public official. (C.C.R., tit. 2, § 18944.2.) In order for a gift to qualify as a gift to an agency rather than an official, four criteria must be satisfied. First,the agency must receive and control the payment. Second,the payment must be used for official agency business. Third, the agency in its sole discretion must determine the specific official or officials who will use the payment. The donor may identify a specific purpose for use of the payment, but may not designate the officials who will utilize the payment. Fourth,the agency must memorialize receipt of the payment in a written public record. This writing must embody the first three criteria, identify the donor,identify the officials receiving or using the payment,describe the use of the payment, and set forth the amount of the payment. This writing must be filed within 30 days with the person charged with the responsibility of maintaining the agency's statements of economic interests. • 9 There is a partial exception for specified gifts made to public colleges and universities. (C.C.R., tit. 2, § 18944.2(b).) In addition, special procedures • have been adopted concerning the receipt of passes or tickets by an agency. (C.C.R., tit. 2, § 18944.1.) 4. Business Positions An official has an economic interest in any business entity in which he or she is an officer, director, employee, or holds any business position,irrespective of whether he or she has an investment or receives income from the entity. F. FORESEEABILITY An official is not required to abstain from participating in a decision unless the effects of the decision which give rise to the conflict of interests are reasonably foreseeable under all of the circumstances at the time the decision is made. The concept of foreseeability hinges on the specific facts of each individual case. For the effect of a decision to be foreseeable, it need not be either certain or direct. However, the possibility that the contemplated effects will in fact occur must be more than merely conceivable. It must appear that there is a reasonable possibility, based on all the facts available to the official at the time of the decision, that the effects which would bring about the conflict of interests will occur. (Downey Cares v.Downey Community Development Com. (1987) 196 Ca1.App.3d 983,; Witt v.Morrow,supra, 70 Cal.App3d 817.) In Downey Cares v.Downey Community Development Com., supra, 196 Ca1.App3d 983, the court analyzed the issue of foreseeability in the context of an ordinance amending a city's redevelopment plan. Plaintiffs brought suit contending that the amendment was invalid because a councilmember's property and business would be foreseeably affected by the amendment. The court stated at pages 991-992: "In determining the reasonably foreseeable effects of the adoption of the redevelopment plan, the court may justifiably consider that the very purpose of redevelopment is to improve the property conditions in the redevelopment area. (Health&Saf.Code, §33037.) [Fn.omitted.] The fact that it might be possible to conceive of specific redevelopment projects which might fail to affect Mr. Santangelo's property and business does not show the trial court's decision was wrong. The test is whether it was reasonably foreseeable that the adoption of the plan would have a material financial effect on Santangelo's property and business, and we find the trial court's decision supported by reasonable inferences and the record. . . Not only did Mr. Santangelo own a valuable property in the amended area which was the site of a real estate business employing 32 persons of which he was the sole proprietor, and own 4 parcels of real property in the original redevelopment area,but also several of his properties were specifically mentioned in reports as possible areas for specific projects. [Fn. omitted.]" • In an opinion to the Marin Municipal Water District (In re Thorner, No. 75-089, 1 FPPC Ops. 198), the FPPC discussed foreseeability in the context of granting exceptions to the 10 county's water moratorium. In the case of one district director, the FPPC concluded that it was not foreseeable that a decision on the moratorium would affect the director's husband's private employer. The commission based its decision on the fact that her husband was on salary rather than commission, he was working outside the county, and his employer had only done one project in the county within the past ten years. However,another director,who was closely connected to a building supply company which was in competition with many other firms in the county, was found to have a possible conflict of interests, since there was a reasonable possibility (hence, it was reasonably foreseeable) that decisions on exemptions from the moratorium might either affect the amount of his or her own income or have an effect on his or her business entity. In In re Gillmor, No. 76-089, 3 FPPC 38, the commission interpreted the foreseeability requirement in the context of property owned by Gillmor near a redevelopment area. ". . .Thus,it is intended and anticipated that redevelopment will have a financial impact on real property and business located in and near the redevelopment zone. "In the present case,we think it is `reasonably foreseeable'that these types of positive financial consequences will occur if the property in question is rezoned and the senior citizens' housing complex constructed. . . ." In I.L. 75-58, this office concluded that the decisions of a state board regulating certain advertising would not materially affect a board member's source of income. In that case, the board member, as a condition of his contract with a television station,recorded a series for an industry,some of whose advertising was regulated by the board. This office reasoned that it was too remote and speculative that a decision to regulate the advertising of a particular industry would materially affect the television station which was the board member's source of income. G. MATERIAL EFFECT* To create a conflict of interests under the act, the effect of an official's governmental decision on his or her economic interest must be "material." The FPPC has promulgated a series of regulations which outline specific circumstances and monetary thresholds for determining when the effects of a decision are"material." (See C.C.R.,tit. 2, § 18702.1 et seq.) Initially, one must determine whether the economic interest is directly involved in the decision. (C.C.R., tit. 2, §§ 18702(a), 18702.1.) If the official's economic interest is not directly involved in the decision, or the effect of the decision is not material under regulation 18702.1, then it must be determined if the effect is material under regulations 18702.2 through 18702.6. If the provisions of regulations 18702.2 through 18702.6 also are not applicable, one should consult the general materiality standard set forth in regulation 18702. Regulation 18702 states that the effect of a decision is material whenever it would have a "significant" effect on an official's economic interest. *Selected regulations appear in appendix C (at 96). 11 The materiality requirement also contains a knowledge element. Section 87100 provides that the official must "know or have reason to know" of the effects of the decision in question. The FPPC has determined that in addition to an official's actual knowledge, he or she is under a duty of reasonable inquiry for a person in similar circumstances. (In re Cohan,No. A-82-197.) Thus,if a person is on notice that a decision may have certain effects,the official is under a duty to inquire into the facts so that he or she can make a reasonable judgment about the materiality of the proposed decision. Moreover,an official is under a duty to make a reasonable inquiry where the surrounding circumstances or the nature of the proposed decision would signal a reasonable person to seek further information. Even though the disqualification test contains a knowledge component, the test is not a subjective standard. Materiality exists whenever an official knows or has reason to know, that a decision will significantly affect an official's economic interest as those terms are defined by commission regulations. Once the requisite thresholds are satisfied and that fact is known, or should have been known by the official,the effect will be considered material. An official's statement to the effect that he or she can act in an impartial manner,free from bias, is not sufficient to dissipate a finding of materiality resulting from application of the objective standards of the regulation. By relying on a numerical trip-wire in the form of dollar or percentage effects on an official's economic interest, the FPPC regulations determine materiality in an objective manner without the need to look into an official's mind to determine whether he or she is capable of acting impartially. A brief summary of the FPPC materiality regulations is set forth below. 1. Direct Involvement Commission regulation 18702.1 is divided into two categories. (C.C.R., tit. 2, § 18702.1.) The first category applies whenever the official's economic interest is directly involved in the decision. Where direct involvement is present,the regulation generally dictates disqualification. For example: decisions to rezone property in which the official has an interest, or to grant a business license to the official's employer,are decisions in which the official's economic interest is directly involved. However,disqualification is not required if,notwithstanding the direct involvement, there is no financial effect on the official's economic interest which reasonably could result from the decision. (C.C.R., tit. 2, § 18702.1(c).) Subsections (a)(1)and(a)(2)of regulation 18702.1 require disqualification when a source of income to the official or business entity, in which the official has an investment or holds a position,is directly involved in a decision before the official's agency. A person or business entity is directly involved in a decision before an official's agency if the person or entity is a named party to the proceeding conducted by the official's agency or initiates the proceeding by filing an application, claim, appeal or similar request,or is otherwise the subject of a proceeding. (C.C.R.,tit. 2, § 18702.1(b).) In addition,regulation 18702.1, subsection (a)(1), establishes the requirement that an official disqualify himself or herself whenever there is a "nexus" between the purpose for which the official receives income and the governmental decision. The nexus test means that if a person is paid to promote or advocate the policies or position of an individual or group, the official may not then participate in a governmental decision which draws into consideration that policy or position. Under 12 the regulation, a nexus exists if the official receives income in his or her private capacity to achieve a goal or purpose which would be achieved, defeated, aided,or hindered by the governmental decision. (C.C.R., tit. 2, § 18702.1(d).) The commission has advised that the executive director of an organization, who as a part of his or her duties advocates pro-growth positions endorsed by his or her organization, was disqualified from participating in any decisions in his or her capacity as a member of a board which would advance or inhibit the accomplishment of his or her organization's goals. (In re Best,No. 81-032; see also In re Hensen,No. 81-501.) Regulation 18702.1(a)(3) clarifies when decisions directly involving real property (e.g., zoning, annexation, sale, lease, actual or permitted use of, or taxes or fees imposed on real property) in which the official has an interest will necessitate disqualification. It explicitly includes certain redevelopment decisions where the official owns property in the redevelopment area. These decisions are the major ones which involve establishing or amending the redevelopment plan. (Downey Cares v. Downey Community Development Com., supra, 196 Ca1.App.3d 983.) Regulation 18702.1,subsection(a)(4)requires disqualification whenever a decision will affect the expenses, income, assets or liabilities of the official or his or her immediate family by$250 or more in a 12 month-period. If an official's economic interest is directly involved in the decision but materiality is not present under regulation 18702.1, the official must still determine whether materiality is present under the regulations governing indirect involvement. (C.C.R., tit. 2, § 18702(a).) 2. Indirect Involvement The second category of regulations (C.C.R., tit. 2, §§ 18702.2-18702.6) applies whenever the official's economic interest is not directly involved in the decision,but it is reasonably foreseeable that the economic interest will be affected by the decision. For example, a decision to rezone property across the street from property owned by a source of income to the official is a situation where the official's economic interest(i.e., the source of income)is not directly involved in the decision. However, it may be reasonably foreseeable that the rezoning decision will have a material financial effect on the official's source of income. Under the second category of regulations, a standard is provided for measuring the materiality of a financial effect in such situations. Materiality is present if the decision will have the specified effects on the gross revenues, assets, or liabilities of the business entity in which the investment is held, or permits the business entity to avoid the expenditure of a designated amount of funds. (C.C.R., tit. 2, § 18702.2.) Whether an effect on a business entity will be considered material depends on the financial size of the business entity. (C.C.R.,tit. 2, § 18702.2.) For example, an effect of only$10,000 on the gross revenues or assets of a small business is material (C.C.R.,tit. 2, § 18702.2(g).), while an effect of less than $1 million dollars on the gross revenues or assets may not be material on a Fortune 500 company. (C.C.R., tit. 2, § 18702.2(a).) 13 a. Real Property Materiality is present if the decision will have the specified effects on the fair market value or the income-producing potential of the property. (C.C.R.,tit. 2,§ 18702.3.) Subsection(a)provides that disqualification is required when the decision involves another's real property located within a 300-foot radius of the official's property, unless the decision will have no financial effect on the official's property. The 300-foot radius is taken from planning law concepts, which require notice to owners of property within 300 feet of the subject property. (C.C.R.,tit. 2, § 18702.3(a)(1).) An official would also be disqualified if the decision involves construction of or improvements to public facilities such as water, sewer or streets, which will result in the official's property receiving new or substantially improved services. (C.C.R., tit. 2, § 18702.3(a)(2).) When a decision affects another's property which is more than 300 feet from the official's property, the regulation provides standards for determining whether the effect will be material. (C.C.R., fit. 2, § 18702.3(a)(3).) The primary standard is whether the decision will effect the fair market value of the official's property by $10,000, or the rental value by $1,000, in a 12- month period. Subsection (d) of the regulation provides some factors to consider in determining whether the requisite change in value is likely to occur. These factors include proximity,the effect on development potential, and the character of the neighborhood. Subsection (b) of the regulation provides that a decision will not have a material financial effect when an official's property is located more than 2,500 feet from the subject property, nu less certain criteria are met. First,to be material, there must be specific factors present which make it likely that the value of the official's property will be affected by $10,000 or more, or $1,000 in rent in a 12-month period. Second, assuming that there are more than 10 separately owned properties within a 2,500 foot radius of the official's property, less than 25 per cent of the properties surrounding the official's property will be affected in the same manner as the official's property. This exception provides some degree of certainty that an official is not disqualified from participating in decisions affecting another's property, which is located a substantial distance from the official's property, malm there are specific circumstances which dictate disqualification. Subsection(c)merely is a catch-all for dealing with those decisions affecting real property which are not site-specific or which directly involve an official's property but are excluded from coverage under regulation 18702.1. For example, a decision to amend the set-back requirement for a particular zone would not have a"subject property"from which to measure a radius. Under such circumstances the basic monetary test discussed above would apply. b. Leasehold Interests Regulation 18702.4 governs when an official is required to disqualify himself or herself because the decision will affect real property in which the official has a leasehold,as opposed to an ownership interest. The regulation focuses 14 on those changes which will affect the lessee's use of the property. The regulation also provides a standard for determining materiality when the decision does not directly involve the leased property but does involve property nearby. C. Nonprofit Entity Regulation 18702.5 defines materiality in the context of a nonprofit entity which is indirectly affected by a decision. This regulation parallels the structure of the regulation governing effects on business entities. It sets up a series of criteria based upon the monetary size of the nonprofit entity. Very large nonprofit entities such as Stanford University and the University of Southern California would be subject to the same materiality standards as Fortune 500 companies. Smaller nonprofit entities would be subject to lower standards. d. Individuals Regulation 18702.6 establishes standards for determining materiality when a governmental decision will have a material effect on an individual who is a source of income or gift to an official. The regulation establishes a materiality threshold of $1,000 and incorporates the standards for real property in regulations 18702.3 and 18702.4. H. THE PUBLIC GENERALLY If an official has a financial interest within the meaning of the act and the governmental decision in question will foreseeably have a material effect on that interest, the official still may not be disqualified from participating in the decision. One last variable must be considered: whether the decision will affect the official's personal interest differently than it does those of the"public generally." (§ 87103.) If the official is participating in a decision on an issue, which will affect the general public's financial interests in the same manner as it does the official's own,the fact that it is affecting the official's interest materially does not create a conflict of interests for the official. Recognizing that no decision will affect every member of the public in the same way, the FPPC, by regulation has defined the term "public generally" to include a "significant segment" of the public. (C.C.R., tit. 2, § 18703.) For a conflict of interests to be avoided, the official's interests must be affected in substantially the same manner as the interests of all members of the group which is determined to constitute a significant segment. If the interests of some members of the significant segment will be affected differently from the interests of others, the official may not avoid disqualification because the effect on his or her interests is distinguishable from the effect of the interests of at least some members of the segment. In general,the FPPC requires a group of people to be large in number and heterogeneous in nature for it to qualify as a significant segment of the public. (In re Overstreet, supra,No. 80-010, 6 FPPC Ops. 12; In re Ferraro, No. 78-009, 4 FPPC Ops. 62.) To the extent it appears to be a narrow,special interest group,it generally would not qualify as a significant segment. (I.L. 75-58;In re Brown,No. 77-024,4 FPPC Ops. 19;In re Legan,No. 85-001, 9 FPPC Ops. 1.) 15 The Fair Political Practices Commission has established specific percentage and numerical thresholds for determining when a group of people constitute a significant segment of the • general public, as summarized below: Ten percent or more of the population in the jurisdiction of the official's agency or the district which the official represents. (C.C.R., tit. 2, § 18703(a)(1)(A)(i).) • Ten percent or more of all property owners, homeowners or households in the jurisdiction of the official's agency or the district which the official represents. (C.C.R.,tit. 2, § 18703(a)(1)(A)(ii).) • Fifty percent of all businesses in the jurisdiction of the agency or the district which the official represents, so long as the businesses are comprised of other than a single industry, trade or profession. (C.C.R., tit. 2, § 18703(a)(1)(A)(iii).) • Five thousand residents of the jurisdiction. (C.C.R.,tit. 2, § 18703(a)(1)(B).) With respect to an elected state officer, an industry, trade or profession;with respect to any other elected official, an industry, trade or profession which is predominant in the jurisdiction or district which the official represents. (C.C.R., tit. 2, §§ 18703(a)(1)(C), 18703.2.) Under limited circumstances, a member of a board or commission may be appointed to represent the interests of a specific economic group or interest. In those circumstances,the group or interest constitutes a significant segment of the general public. (C.C.R., tit. 2, § 18703.3.) Accordingly, so long as the official's interests are affected in substantially the same manner as those of the group or interest in question, the conflict of interests is vitiated and the official may participate in the making of the decision. In order for a member to represent a specific economic group or interest, the following criteria must be met: • The statute, ordinance, or other provision of law which creates or authorizes the creation of the board or commission contains a finding and declaration that the persons appointed to the board or commission are appointed to represent and further the interests of the specific economic interest. • The member is required to have the economic interest the member represents. • The board's or commission's decision does not have a material financial effect on any other economic interest held by the member, other than the economic interest the member was appointed to represent. • The decision of the board or commission will financially affect the member's economic interest in a manner that is substantially the same or proportionately the same as the decision will financially affect a significant segment of the persons the member was appointed to represent. If the statute creating the board or commission does not expressly provide that the member represents the industry, trade or profession,it may be inferred that the Legislature impliedly authorized such representation based upon the language of the enabling provision of law,the 16 nature and purposes of the program,legislative history,and any other relevant circumstances. (C.C.R., tit. 2, § 18703.3(b).) In addition to the foregoing, the commission has adopted special rules interpreting the general public exception in connection with states of emergency(C.C.R.,tit.2, § 18703(c)); rate making decisions, including those by landowner/water districts (C.C.R., tit. 2, § 18703(b)); and decisions affecting the principal residences of elected officials in small jurisdictions(C.C.R., tit.2, § 18703.1). Notwithstanding the specific thresholds established in the regulation, exceptional circumstances may nevertheless justify application of the general public exception. (C.C.R., tit. 2, § 18703(a)(1)(D).) Section 87103.5 provides a special interpretation of the public generally doctrine which addresses specific problems concerning retailers in small communities. (See C.C.R.,tit.2, § 18703.5 for numerical thresholds.) To summarize, if a public official's financial interests will be affected in substantially the same manner as all members of the public generally, or a significant segment thereof, no conflict of interests exists. The policy supporting this provision is that an official probably is not reacting to his or her financial interests to the detriment of the community which the official represents when the official's interests are in harmony with those of the general public or a significant segment of it. Thus, there is no "conflict" when there is a harmony or confluence of interests with a significant segment of the members in the jurisdiction. I. LEGALLY REQUIRED PARTICIPATION-- THE RULE OF NECESSITY There is an exception in the act itself to the general prohibition against an official's participation in decision making when a financial conflict of interests exists. The exception applies when the individual public official involved must act in order that a decision be made or official action be taken. Under such circumstances and because of the necessity that government continue to function, the official may proceed despite the conflict, after following certain prescribed procedures. The exception expressly does not include the situation in which the official's vote is merely needed to break a tie. (§ 87101.) This exception is similar to, but is different in several important respects from,the common law rule of necessity. The necessity provision has been rather narrowly construed by this office. In 58 Ops.Cal.Atty.Gen. 670(1975),this office advised that participation is legally required under the act(and therefore the exception is applicable) only when the official is faced with the isolated,nonrecurring situation involving a conflict of interests. Government Code section 17 81003 provides, "This title should be liberally construed to accomplish its purposes" as authority for this interpretation. If the exception were to be broadly construed, the central purpose of the act could be vitiated. Stressing the"necessity" character of the exception,the FPPC has said in its regulations that an official is "legally required to make or to participate" within the meaning of this section only if there is no reasonable alternative manner of decision making. (C.C.R., tit. 2, § 18701(a).) In determining what is a"reasonable" alternative,the purposes and terms of the statute authorizing the decision must be examined. (Affordable Housing Alliance v. Feinstein (1986) 179 Cal.App.3d 484.) The regulations promulgated by the FPPC detail several steps to be taken by officials who wish to exercise the "necessity" exception. (C.C.R., tit. 2, § 18701.) Initially, the official must disclose the existence of the financial interest in the outcome of the particular action involved and make it a matter of public record. This disclosure is to include a description of the particular nature of the conflicting personal interest. The official is required by the regulations not to use his or her official position to influence any other public official with regard to the matter. Also,for the record, the official must state exactly why there is no alternative route by which action can be taken. And finally,the official must limit his or her participation to acting only so far as is legally required. (C.C.R., tit. 2, § 18701(b)(1)-(4).) In In re Hudson,No. 77-007,4 FPPC Ops. 13,the commission outlined its interpretation of the legally required participation exception when multiple members of a body are disqualified. The commission concluded that if a quorum of the body were still available to participate in the making of the decision, the disqualifications must stand. If the disqualifications leave less than a quorum of the board's membership available to act, the legally required participation exception is activated. However, unlike the common law, all disqualified members do not return to voting and participating status;rather,only the number of members needed to reconstitute a quorum are rehabilitated. (See also In re Brown,supra, No. 77-024, 4 FPPC Ops. 19, 25, fn. 4; Hamilton v. Town of Los Gatos (1989) 213 Cal.App.3d 1050.) The process by which disqualified members may return for this limited role may be accomplished by a random draw or by any other fair and impartial method. In In re Hopkins,No. 77-022, 3 FPPC Ops. 107,the commission concluded that the legally required participation exception could not be used to rehabilitate board members who were disqualified by virtue of the acceptance of gifts. In issuing this opinion,the commission was concerned that a person appearing before a board or commission could make lavish disqualifying gifts to all members of the board and still be able to gain a favorable decision when a quorum of the board members was rehabilitated. The prospect of rendering one's public agency helpless to act was intended to be a strong deterrent against the acceptance of disqualifying gifts. J. DISQUALIFICATION MUST BE ANNOUNCED PUBLICLY Once a public official determines that he or she has a financial interest in a decision under the act, necessitating disqualification, the official must publicly announce the economic interest which is the subject of the potential conflict of interests, and the fact that the official is disqualifying himself or herself from any participation in the decision. (C.C.R., tit. 2, § 18700(b)(5).) If the official is an employee rather than a member of a board,commission, or council,the official's announcement is required to be in writing and given to the official's supervisor, appointing power or other specified individual. (C.C.R., tit. 2, § 18700(b)(5).) 18 V. PENALTIES,ENFORCEMENT AND PROSPECTIVE ADVICE UNDER THE POLITICAL REFORM ACT OF 1974 Government Code Sections 83114-83123 And 91000 Et Seq. A. PENALTIES AND ENFORCEMENT The Political Reform Act of 1974(hereinafter"PRA"or"act")provides administrative,civil and criminal penalties for its violation. In past years,the Fair Political Practices Commission (hereinafter "FPPC" or"commission") and local district attorneys have brought numerous enforcement actions which have resulted in hundreds of thousands of dollars of fines. If you have a question about a potential violation of the PRA you should contact the FPPC's enforcement division (428 J Street,7th Floor,Sacramento, CA 95814, (916) 322-6441) or your local district attorney. The Attorney General and the commission have concurrent jurisdiction with district attorneys over criminal violations. (Gov. Code, §§ 91000(d), 91001(a).)' Administrative penalties are levied by the FPPC after a hearing or stipulation. (§ 83116.) Administrative penalties include a$5,000 fine per violation, cease and desist orders, and orders to file reports, etc. (§ 83116.) The FPPC has the authority to bring administrative actions against both state and local officials. (§ 83123; see also McCauley v.BPC Direct Marketing (1993) 16 Cal.AppAth 1262, 1268-69 (certain provisions of the act can only be addressed by an FPPC administrative action).) Injunctive relief may be sought by the civil prosecutor or any person residing in the official's jurisdiction. (§ 91003.) The court, in its own discretion, may require a plaintiff to file a complaint with the commission prior to seeking injunctive relief. In the event the action would not have been taken but for the conflict of interests, the court is empowered to void the decision. (§ 91003.)(Downey Cares v.Downey Community Development Com.,supra, 196 Ca1.App.3d 983.) The civil prosecutor also may seek civil damages for violations of the act. (§§ 91004, 91005 & 91005.5.) In addition, any person who purposely or negligently causes any person to commit a violation,or aids and abets in the commission of a violation, is liable to civil, criminal and administrative sanctions. (§§ 83116.5, 91006.) A plaintiff who prevails in an action brought pursuant to this section may be awarded attorneys fees. (§ 91003.) The standard for awarding fees is determined by application of the standards and case precedent established for attorney fee awards under Code of Civil Procedure section 1021.5, including the use of a multiplier. (Downey Cares v. Downey Community Development Com.,supra, 196 Cal.App.3d 997.) A prevailing defendant,however,may be awarded attorney's fees only if the plaintiffs suit is frivolous, unreasonable or without foundation. (People v.Roger Hedgecockfor Mayor Com. (1986) 183 Cal.App.3d 810, 816- 19; see also Community Cause v.Boatwright(1987) 195 Cal.App.3d 562, 574-77.) The act also provides misdemeanor criminal sanctions for knowing or willful violations of the act. (§ 91000.) Generally,persons convicted of violating the act may not be a candidate for elective office or act as a lobbyist for four years after the conviction. (§ 91002.) BAIL section references in this chapter hereafter refer to the Government Code unless otherwise specified. 41 In the past,violations of section 87100 were enforceable by injunctive relief only. However, the PRA was amended in 1979 to apply all of the enforcement remedies of the act to violations of section 87100. (§ 87102.) Generally legislators and other elected state officers are exempt from administrative,civil and criminal penalties for violation of the disqualification requirement contained in Government Code section 87100; however, in 1990, the Legislature adopted limited disqualification requirements for legislators and other elected state officers. These disqualification requirements are only subject to administrative enforcement by the commission. (§§ 87102.5 - 87102.9.) Persons who violate the gift or honoraria limits set forth in Government Code section 89500 et seq.are subject to a civil action brought by the Fair Political Practices Commission for up to three times the amount of the unlawful gift or honoraria. (§ 89521.) Violators are also subject to administrative sanctions,which include fines of up to$5,000 per violation,but are exempt from the civil or criminal penalties contained in section 91000 et seq. (§ 89520.) The statute of limitations for civil and criminal enforcement actions is four years from the date of violation. (§§ 91000(c)and 91011(b).) The statute of limitations for administrative actions brought by the commission is five years from the date of violation. (§ 91000.5.) The chart which follows briefly describes who has authority to initiate enforcement proceedings under the Political Reform Act. With respect to each type of proceeding (administrative, civil and criminal) the chart indicates who has the authority to initiate actions against both state and local officials for violations of the act. 42 ENFORCEMENT AUTHORITY FOR THE POLITICAL REFORM ACT Type of Enforcement Actions Against Actions Against Action State Officials Local Officials Administrative The FPPC may impose The FPPC may impose (§ 83115 et seq.) administrative sanctions. administrative sanctions. Civil The FPPC is the civil The DA is the civil (§§ 91001(b), 91001.5, prosecutor of state prosecutor. 91003 et seq.) officials. The elected city attorney The AG is civil prosecutor of a charter city may act of the FPPC and its as a civil prosector of employees. city violations. If the civil prosecutor fails If the civil prosecutor fails to act, individual residents to act, individual residents may file civil suit. may file a civil suit. The DA may authorize the FPPC to file a civil suit whenever an individual resident could file suit. Criminal The AG, the commission The AG,the commission (§§ 91001(a), 91001.5) and the DA have concurrent and the DA have concurrent authority. authority. The elected city attorney of a charter city may act as criminal prosecutor of city violations. 43 APPENDICES • APPENDIX A Government Code Sections 87100, 87101, 87103, 87103.5 § 87100. No public official at any level of state or local government shall make,participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest. § 87101. Section 87100 does not prevent any public official from making or participating in the making of a governmental decision to the extent his participation is legally required for the action or decision to be made.The fact that an official's vote is needed to break a tie does not make his participation legally required for purposes of this section. § 87103. A public official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally,on the official,a member of his or her immediate family,or on any of the following: (a)Any business entity in which the public official has a direct or indirect investment worth one thousand dollars ($1,000) or more. (b)Any real property in which the public official has a direct or indirect interest worth one thousand dollars ($1,000) or more. (c)Any source of income,other than gifts and other than loans by a commercial lending institution in the regular course of business on terms available to the public without regard to official status, aggregating two hundred fifty dollars($250)or more in value provided to,received by or promised to the public official within 12 months prior to the time when the decision is made. (d)Any business entity in which the public official is a director,officer,partner,trustee,employee, or holds any position of management. (e)Any donor of,or any intermediary or agent for a donor of, a gift or gifts aggregating two hundred fifty dollars ($250) or more in value provided to, received by, or promised to the public official within 12 months prior to the time when the decision is made. The amount of the value of gifts specified by this subdivision shall be adjusted biennially by the commission to equal the same amount determined by the commission pursuant to subdivision (f) of Section 89503. For purposes of this section,indirect investment or interest means any investment or interest owned by the spouse or dependent child of a public official, by an agent on behalf of a public official, or by a business entity or trust in which the official, the official's agents, spouse, and dependent children own directly, indirectly, or beneficially a 10-percent interest or greater. 93 § 87103.5. Notwithstanding subdivision(c)of Section 87103,a retail customer of a business entity engaged in retail sales of goods or services to the public generally is not a source of income to an official who owns a 10-percent or greater interest in the entity if the retail customers of the business entity constitute a significant segment of the public generally, and the amount of income received by the business entity from the customer is not distinguishable from the amount of income received from its other retail customers. APPENDIX B Government Code Sections 82030, 82033, 82034 § 82030. (a) "Income"means, except as provided in subdivision (b), a payment received, including but not limited to any salary, wage, advance,dividend,interest,rent,proceeds from any sale,gift,including any gift of food or beverage, loan, forgiveness or payment of indebtedness received by the filer, reimbursement for expenses,per diem,or contribution to an insurance or pension program paid by any person other than an employer, and including any community property interest in the income of a spouse. Income also includes an outstanding loan. Income of an individual also includes a pro rats share of any income of any business entity or trust in which the individual or spouse owns, directly,indirectly or beneficially,a 10-percent interest or greater. "Income," other than a gift,does not include income received from any source outside the jurisdiction and not doing business within the jurisdiction, not planning to do business within the jurisdiction,or not having done business within the jurisdiction during the two years prior to the time any statement or other action is required under this title. (b) "Income" also does not include: (1) Campaign contributions required to be reported under Chapter 4 (commencing with Section 84100). (2) Salary and reimbursement for expenses or per diem received from a state, local, or federal government agency and reimbursement for travel expenses and per diem received from a bona fide nonprofit entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. (3)Any devise or inheritance. (4)Interest,dividends,or premiums on a time or demand deposit in a financial institution,shares in a credit union or any insurance policy,payments received under any insurance policy,or any bond or other debt instrument issued by any government or government agency. (5)Dividends,interest, or any other return on a security which is registered with the Securities and Exchange Commission of the United States government or a commodity future registered with the Commodity Futures Trading Commission of the United States government,except proceeds from the sale of these securities and commodities futures. (6)Redemption of a mutual fund. (7)Alimony or child support payments. 94 (8)Any loan or loans from a commercial lending institution which are made in the lender's regular course of business on terms available to members of the public without regard to official status if: (A)The loan is secured by the principal residence of filer; or (B)The balance owed does not exceed ten thousand dollars ($10,000). (9) Any loan from or payments received on a loan made to an individual's spouse, child, parent, grandparent,grandchild,brother, sister,parent-in-law,brother-in-law,sister-in-law,nephew,niece, uncle, aunt,or first cousin, or the spouse of any such person,provided that a loan or loan payment received from any such person shall be considered income if he or she is acting as an agent or intermediary for any person not covered by this paragraph. (10)Any indebtedness created as part of a retail installment or credit card transaction if made in the lender's regular course of business on terms available to members of the public without regard to official status, so long as the balance owed to the creditor does not exceed ten thousand dollars ($10,000). (11)Payments received under a defined benefit pension plan qualified under Internal Revenue Code Section 401(a). (12)Proceeds from the sale of securities registered with the Securities and Exchange Commission of the United States government or from the sale of commodities futures registered with the Commodity Futures Trading Commission of the United States government if the filer sells the securities or the commodities futures on a stock or commodities exchange and does not know or have reason to know the identity of the purchaser. § 82033. "Interest in real property" includes any leasehold, beneficial or ownership interest or an option to acquire such an interest in real property located in the jurisdiction owned directly, indirectly or beneficially by the public official, or other filer, or his or her immediate family if the fair market value of the interest is one thousand dollars ($1,000) or more. Interests in real property of an individual includes a pro rata share of interests in real property of any business entity or trust in which the individual or immediate family owns, directly, indirectly or beneficially, a 10-percent interest or greater. § 82034. "Investment" means any financial interest in or security issued by a business entity, including but not limited to common stock, preferred stock, rights, warrants, options, debt instruments and any partnership or other ownership interest owned directly, indirectly or beneficially by the public official,or other filer,or his or her immediate family,if the business entity or any parent, subsidiary or otherwise related business entity has an interest in real property in the jurisdiction, or does business or plans to do business in the jurisdiction, or has done business within the jurisdiction at any time during the two years prior to the time any statement or other action is required under this title. No asset shall be deemed an investment unless its fair market value equals or exceeds one thousand dollars ($1,000). The term "investment" does not include a time or demand deposit in a financial institution, shares in a credit union, any insurance policy, interest in a diversified mutual fund registered with the Securities and Exchange Commission under the Investment Company Act of 1940 or a common trust fund which is created pursuant to Section 1564 of the Financial Code, or any bond or other debt instrument issued by any government or government agency.Investments 95 of an individual includes a pro rata share of investments of any business entity,mutual fund,or trust in which the individual or immediate family owns,directly,indirectly or beneficially,a 10-percent interest or greater. The term "parent, subsidiary or otherwise related business entity" shall be specifically defined by regulations of the commission. APPENDIX C California Code of Regulations, Title 2, Sections 18702, 18702.1, 18702.2, 18702.3 18702.4, 18702.5, 18702.6 §18702. (a)Specific Rules.The following specific rules,governing specific types of governmental decisions which affect certain specific types of economic interests, shall be utilized in determining whether the reasonably foreseeable effects of the decision will be material with respect to the economic interest. (1) Where an official's economic interests are directly involved in the decision, Section 18702.1 applies. (2) Where an official's economic interests are indirectly involved in the decision, the following apply: (A)Business entities--Section 18702.2; (B)Ownership interests in real property--Section 18702.3; (C)Leasehold interests in real property--Section 18702.4; (D)Nonprofit source of income--Section 18702.5; and (E)Individual source of income--Section 18702.6. (3)In order to determine if a decision's effect is material,it must first be determined if the official's economic interest is directly involved and the effect of the decision is material under Section 18702.1. If the official's economic interest is not directly involved in the decision, or the effect of the decision is not material, under Section 18702.1, then it must be determined if the effect is material under the appropriate regulation of Sections 18702.2 through 18702.6. (4)For purposes of Title 2,Division 6 of the California Code of Regulations, the term "economic interest" includes the interests specified in Government Code Section 87103(a) through (e), and direct effects on the official or a member of the official's immediate family as set forth in Government Code Section 87103 and Section 18702.1(a) (4). (b) General Rule. Whenever the specific provisions of Sections 18702.1 through 18702.6, inclusive, cannot be applied, the following general rule shall apply: The financial effect of a governmental decision is material if the decision will have a significant effect on the official or a member of the official's immediate family, or on the source of income, 96 the source of gifts, the business entity, or the real property, which is an economic interest of the official. (c)Public Generally Exception. Notwithstanding any determination that the reasonably foreseeable effect of a decision is material under this regulation or under Sections 18702.1 through 18702.6, an official is not disqualified from participation in a governmental decision if the decision affects the official's interest in a manner which is not distinguishable from the manner in which the decision will affect the public generally as set forth in Section 18703. (d)Even if the specific provisions of Section 18703 do not apply, the following "public generally" exceptions shall apply,provided that all of the requirements for the specific exception are met. (1)Public Generally: Small Jurisdictions;Principal Residence-- Section 18703.1. (2)Public Generally: Industries, Trades, or Professions -- Section 18703.2. (3)Public Generally: Appointed Members of Boards and Commissions--Section 18703.3. (e)For purposes of Government Code Section 87102.5 (Members of the Legislature) and Government Code Section 87102.8 (elected state officers), the "public generally" exception in Section 87102.6(b) (2) applies. §18702.1. (a)The effect of a decision is material if any of the following applies: (1) Source of Income or Gifts--Any person (including a business entity) which has been a source of income to the official of$250 or more, or of gifts of$290 or more, in the preceding 12 months is directly involved in a decision before the official's agency or there is a nexus (as defined in subdivision(d))between the purpose for which the official receives income and the governmental decision; or (2)Investment in Business Entity--Any business entity (other than one covered by Section 18702.2(a)or(b))in which the official has a direct or indirect investment of$1,000 or more, any business entity covered by Section 18702.2(a)or(b)in which an official has a direct or indirect investment of$10,000 or more,or any business entity in which the official is an officer, director, partner,trustee, employee, or holds any position of management, is directly involved in a decision before the official's agency. Note: With respect to any business entity covered by subdivision (a) or(b)of Section 18702.2 in which an official has a direct or indirect investment of$1,000 or more,but less than $10,000, materiality must still be analyzed pursuant to Title 2,Division 6, Section 18702.2 of the California Code of Regulations. (3)Interest in Real Property-- (A)The decision involves the zoning or rezoning, annexation or deannexation, sale,purchase, or lease,or inclusion in or exclusion from any city, county, district or other local governmental subdivision,of real property in which the official has a direct or indirect interest(other than a leasehold interest)of$1,000 or more, or a similar decision affecting such property; 97 (B)The decision involves the issuance, denial or revocation of a license, permit or other land use entitlement authorizing a specific use or uses of such property; (C)The decision involves the imposition, repeal or modification of any taxes or fees assessed or imposed on such property; or (D)The decision is to designate the survey area,to select the project area, to adopt the preliminary plan, to form a project area committee, to certify the environmental document,to adopt the redevelopment plan, to add territory to the redevelopment area, or to rescind or amend any of the above decisions; and real property in which the official has an interest, or any part of it is located within the boundaries (or the proposed boundaries) of the redevelopment area. (E)For purposes of this subdivision, the terms "zoning" and "rezoning" shall refer to the act of establishing or changing the zoning or land use designation on the subject property. The terms "zoning" and "rezoning" shall not refer to an amendment of an existing zoning ordinance or other land use regulation (such as changes in the uses permitted, or development standards applicable, within a particular zoning category) which is applicable to all other properties designated in that category,which shall be analyzed under Title 2,Division 6, Section 18702.3(c) of the California Code of Regulations. (4)The Official or Immediate Family--The decision will result in the personal expenses, income, assets, or liabilities of the official or his or her immediate family increasing or decreasing by at least$250 in any 12-month period. Section 18702.1(a)(4) does not apply to a financial effect on the value of real property owned directly or indirectly by the official, or a financial effect on the gross revenues, expenses, or value of assets and liabilities of a business entity in which the official has an investment interest. • (b)A person or business entity is directly involved in a decision before an official's agency when that person or entity, either personally or by an agent: (1)Initiates the proceeding in which the decision will be made by filing an application, claim, appeal, or similar request or; (2)Is a named party in, or is the subject of, the proceeding concerning the decision before the official or the official's agency. (3)A person or business entity is the subject of a proceeding if a decision involves the issuance, renewal, approval,denial or revocation of any license,permit, or other entitlement to, or contract with, the subject person or business entity. (c)Notwithstanding subdivision (a) an official does not have to disqualify himself or herself from a governmental decision if: (1)The decision only affects the salary,per diem, or reimbursement for expenses the official or his or her spouse receives from a state or local government agency. This subdivision does not apply to decisions to hire, fire,promote, demote, or discipline an official's spouse, or to set a salary for an official's spouse which is different from salaries paid to other employees of the spouse's agency in the same job classification or position; • (2)Although disqualification would otherwise be required under subdivision (a)(1), (a)(2), or 98 (a)(3) the decision will have no financial effect on the person or business entity who appears before the official, or on the real property. • (d)There is a nexus between the purpose for which an official receives income and a governmental decision if the official receives income to achieve a goal or purpose which would be achieved, defeated, aided,or hindered by the decision. §18702.3. The effect of a decision is material as to a business entity in which an official has an economic interest if any of the following applies: (a)For any business entity listed on the New York Stock Exchange or the American Stock Exchange: (1)The decision will result in an increase or decrease to the gross revenues for a fiscal year of $250,000 or more, except in the case of any business entity listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. corporations, in which case the increase or decrease in gross revenues must be$1,000,000 or more; or (2)The decision will result in the business entity incurring or avoiding additional expenses or reducing or eliminating existing expenses for a fiscal year in the amount of$100,000 or more, except in the case of any business entity listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. corporations, in which case the increase or decrease in expenses must be$250,000 or more;or (3)The decision will result in an increase or decrease in the value of assets or liabilities of $250,000 or more, except in the case of any business entity listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. corporations, in which case the increase or decrease in assets or liabilities must be$1,000,000 or more. (b)For any business entity listed on the National Association of Securities Dealers National Market List(securities of companies on this over-the-counter market list are registered with and subject to the Security and Exchange Commission's rule requiring tape reporting of last sale information [17 CFR Section 240.77 Aa3-1]): (1)The decision will result in an increase or decrease in the gross revenues for a fiscal year of $150,000 or more; or (2)The decision will result in the business entity incurring or avoiding additional expenses or reducing or eliminating existing expenses for a fiscal year in the amount of$50,000 or more; or (3)The decision will result in an increase or decrease in the value of assets or liabilities of $150,000 or more. (c)For any business entity not covered by subdivisions (a) or(b) but which is listed on the Pacific Stock Exchange or is qualified for public sale in this state and is listed on the Eligible Securities List maintained by the California Department of Corporations (which applies to partnerships and other business entities as well as corporations): 99 (1)The decision will result in an increase or decrease in the gross revenues for a fiscal year of $30,000 or more; or (2)The decision will result in the business entity incurring or avoiding additional expenses or reducing or eliminating existing expenses for a fiscal year in the amount of$7,500 or more; or (3)The decision will result in an increase or decrease in the value of assets or liabilities of $30,000 or more. (d)For any business entity not covered by subdivision (a)which meets the financial standards for listing on the most recently published Fortune Magazine Directory of the 1,000 largest U. S. corporations, the tests in subdivision (a) applicable to non-Fortune 1,000 business entities listed on the New York or American Stock Exchanges may be applied. (e)For any business entity not covered by subdivisions (a) or(b) which meets the financial standards for listing on the New York Stock Exchange, the tests in subdivision (b) may be applied. The standards are as follows: The business entity has net tangible assets of at least $18,000,000 and had pre-tax income for the last fiscal year of at least$2,500,000. (f)For any business entity not covered by subdivisions (a)or(b) which meets the financial standards for listing on the National Association of Securities Dealers National Market List, the tests in subdivision (c)may be applied. The standards are as follows: The business entity has net tangible assets of at least$4,000,000, and had pre-tax income for the last fiscal year of at least $750,000, with net income from that period of at least$400,000. (g)For any business entity not covered by subdivisions (a), (b), (c), (d), (e) or(f): (1)The decision will result in an increase or decrease in the gross revenues for a fiscal year of $10,000 or more; or (2)The decision will result in the business entity incurring or avoiding additional expenses or reducing or eliminating existing expenses for a fiscal year in the amount of$2,500 or more;or (3)The decision will result in an increase or decrease in the value of assets or liabilities of $10,000 or more. §18702.3. (a)The effect of a decision is material as to real property in which an official has a direct, indirect or beneficial ownership interest(not including a leasehold interest), if any of the following applies: (1)The real property in which the official has an interest, or any part of that real property, is located within a 300 foot radius of the boundaries (or the proposed boundaries) of the property which is the subject of the decision, unless the decision will have no financial effect upon the official's real property interest. (2)The decision involves construction of, or improvements to, streets, water, sewer, storm drainage or similar facilities, and the real property in which the official has an interest will receive new or substantially improved services. 100 Lnics Orientation for State Officials - All Contractual Conflicts - California Department of. Page 1 of 6 Ethics Orientation for State Officials presented by The California Attorney General's Office and the Fair Political Practices Commission Table of Contents 4, AHIIC��ractuai, Confliewo, 4.1 What Does Government Code Sectiow, ohibit? Government Code section 1090 provides that an off cer or, employeomay,A%ift' in* ac ct in which whiichIe or she is financially interestedpi p Any articipatiorf by an officer or an employee in the--, ,9.pp ss,,by which pr _ ch such a contract is developed, negotiated and vmuted is a VMatioi ft--,of section 1090. IT the governmental decision in question does not involve a contract, or ifa-contracf in which an officer or employee has a financial interest is fi, tel 4.2 ContractRpqniremeit For the prohibition of section 1090 to apply, there must-, e AcontracE Section 1090 does not apply to other types of governmental action such as adopting regulations, issuing permits or licenses, conducting investigations, issuing reports etc. Section 1090 applies not only to w4iM-enns te contracts it also applies to of 1 o #11, -;Ind purchases made outside of the formal contract process. Grants generally qualify as contracts for purposes of section 1090. Let's Review The Department of Cyberspace is considering adopting regulations which would regulate access to the Internet, and thereby adversely affect stocks owned by the director. Does section 1090 apply? Answer yes or no. • Answer: http://caag.state.ca.us/ethics/accessible/contract.htm 10/19/02 ' srhies Orientation for State Officials -All Contractual Conflicts - California Department o... Page 2 of 6 No is correct, because section 1090 does not apply to the making of regulations. 4.3 Most Officials Covered The prohibition of section 1090 applies to virtually all state and local officers, employees and multimember bodies, such as boards or commissions, whether elected or appointed, at both the state and local levels. 4.4 Paxt c patiowin.the M, along of Contract 4.4.1,'Gen,eral Rul`el, An official p ipates-hl the making of a contract ilhe official is involved with its ptrparation at�at :stagelin the process. The contract making process begins at the t12ne°,the itie folrthe contract is conceived and coriinues through the:actualt,Qxecutiomof the contract. That means that Oftwung, determining the f se;ipe o f the contract, drafting plans and speep,,j,,:,fi setGirg contract terms,;; evaluatri g app-licai ts, and negot atingoare a11.included. Under the general rule, • officials may avoid a violation of section 1090 by disqualifying themselves fr6 parti'cipatioit in the making of the contract whenever they have a ftrtatneial.interest in the contract. There are limited exceptions to the general rule which are strictly interpreted. 4.4.2 The Rule As Applied To M1�lintcinber.;Bodie� 1Vleinbers,Tt°1f bQd with contracting power are c lvely presumed toit partiicipat .`ui the:faking of cQntraelis under the body's jurisdiction Ifr meridbex of a multrneinbex°body with co.:ntracting power has a fuiancia in a contract, section 1090 generally'pr6vides that the contract gaunt be made even tf the member has disqualified himselfr herself from actually particlpatmg m the contract. The law does provide several limited exceptions which will permit a financially interested board member to disqualify himself or herself and allow the remaining members of the body to enter into the contract. These exceptions are termed "rtmot&i-ntterest exceptions." They are quite limited and are,rstnW- yt filer ret`c'cl Let's Review Tom is an employee in the statistics division of the department. He spoke with http://caag.state.ca.us/ethics/accessible/contract.htm 10/19/02 -thies Orientation for State Officials -All Contractual Conflicts - California Department o... Page 3 of 6 his supervisor concerning the benefits of contracting with a private vendor for certain services. Subsequently, the department decided to solicit bids from vendors for the performance of such services. laid Tom's conversation with his supervisor constitute "participating in the making of a contract" according to section 1090? Answer yes or no. Answer: Yes is correct. Tom participated in the early idea development and reasoning stages of the contract making process. 4.5; Finan.ciaL Interest Broadly Defined; Section 1090 does not define when an official is financially interested in a contract. However, the t*Wts;have appl,ed tlae:prohibition:to include a broad: raaige�of interests. The courts have continually reiterated that no 1a. att�er lrowf twisted and wending the trail may he iftbe�aonnection between the fmahcial inC rest ofthc official,ai d i co'ntractican be id-i de, a violation of section VWw�'1"l'be,`foand. Under section 1090, financial interests are often defined in terms of relationships. For example, if you have an employment relationship with the person or entity which, seeks to contract with your agency, you are deemed to have a financial interest in the contract. Other examples of economic relationships which constitute a financial interest within the meaning of section 1090 include: o attorney, agent or broker of a contracting party; e supplier of services or goods to a contracting party; e landlord or tenant of a contracting party; and •�o qi or employe;;E,of*nonprofit:corporation which,is a contracting V The offre s4fixtereft also..includes the cq,,,r xmi., ty prpperty and separ, t ; property interests of the official's.spouse Let's Review Under section 1090, the term "financial iri er,-st" is specifically defined in statutes and regulations. True or false? Answer: http://caag.state.ca.us/ethics/accessible/contract.htm 10/19/02 ,sthics Orientation for State Officials- All Contractual Conflicts - California Department o... Page 4 of 6 False is correct because the term "financial interest" is not defined in section 1090 or in regulations, but rather has been given broad construction by court decisions. Let's Review The separate property of an official's spouse :is not a financial interest under section 1090. True or false? Answer: False is the correct answer. 4.6 Timing is Crucial As you know by now, section 1090 prohibits officials with financial interests from making contracts in their official cap-acity. If a person has previously entered into a contract with the state prior to .appointment or employment with a government agency, the contract is unaffected by section 1090. However, section 1090 would apply to any modification, option, renewal or extension of the contract. 7'Iarsh;Penalfies and Remedies A ty contradt made in violation of section 1090 is �oz d canxlo ber' en�olice�l An c5f���ial why commits a vt�'laticilof section 1090 is subject to crlTnlzll, cay>�l acid a 1ri1s at ve sanctbs. f person convicted of violating Section 1090 is also fore ,er disqualified from Bolding any ofci2.-Cli's stake. Recent court decisions underscore the adverse consequences of violating section 1090. T,hbm*6 v, Ca. l-fln this case, a cit y cnan lmember had sale w jar&eLo dparty, which in turn reftsold;ft property to t11w4dJ1yP, e 'f the fact that the counclhneinber had abstai_necl from the council vote which authorized die city's acquisition of the property, and hall acted':;throughout.in,good faith the California S�pren icTCofirt concluded that he had violates section 1090 fAs a sanctlq , the Court required the ceunc hnember ft rfelt-the entire" saps pree rsf$258,OOO:; vhile the city_was perrnitte'd to retain the http://caag.state.ca.us/ethics/accessible/contract.htm 10/19/02 ethics Orientation for State Officials-All Contractual Conflicts - California Department o... Page 5 of 6 ptoped wheresection 1090"is violated, thegove c,y. Thus, jum, ent an get its,money back kbqul-hhaving,to,re-store any of the benefits - received under the contract. The fact-that the contract isfair, or even high-,jy, ,-advantageous to the government, is irrelevantA. People v. Honig: The State Superintendent of Public Instruction was found guilty of violating section 1090 by entering into official contracts in which he had a financial interest. Superintendent Honig was criminally convicted of this offense, and eventually was required to relinquish his public office as a result. Let's Review Violation of section 1090 can lead to which of the following? Click on all four answers to see if you were correct. a' A,yold,contr4,4 b. Stato relams enefit any paymeYLt.recelVecl m ust-,be returned 10 11 -U�epnvict Utz T. d. Fexmexll„loss of pdn California Answers: a, b, c, and d a. Yes, W section 1090 can ldad-,,toa,yoid c0ntrac�l b. Yes, violation of section 1090 can lead to the state n# bftett and the contractor having lo return any payment received. c. Yes, violation of sectionl090 c&n lead to a3'1-4 y.t6hii6fidh. d. Yes, violation of section 1090 can lead to perm ig loss,of office in California. Remember These Points Applies to contracts Participation at any stage of the process cotrats Financial interests broadly defined Violation voids contract, but government ke,-1ps the benefits http://caag.state.ca.us/ethics/accessible/contract.htm 10/19/02 Ethics Orientation for State Officials-All Contractual Conflicts - California Department o... Page 6 of 6 Felony and permanent ban from holding office Next You have completed the contractual conflicts of interest, all contracts module. The next module is 5. Statontract Cori-i e C 4,t:s. Table of Contents http;//caag.state.ca.us/ethics/accessible/contract,htm 10/19/02 K � l � CONFLICTS OF INTERESTS - - � 2\\ - � 1998 CALIFORNIA ATTORNEY GENERALS OFFICE � r VI. CONFLICTS OF INTERESTS IN CONTRACTS Government Code Section 1090 Et Seq.* A. OVERVIEW The common law prohibition against"self-dealing"has long been established in California law. (City of Oakland v. California Const. Co. (1940) 15 Ca1.2d 573, 576.) The present Government Code section 1090,9 which codifies the prohibition as to contracts,can be traced back to an act passed originally in 1851 (Stats. 1851, ch. 136, § 1, p. 522) and has been characterized as "merely express legislative declarations of the common-law doctrine upon the subject." (Stockton P. &S. Co. v. Wheeler(1924) 68 Cal.App. 592, 597.) Frequently amended in its details,the concept of the prohibition has remained unchanged. In fact, this office and the courts often refer to very early cases when discussing possible violations of this fundamental precept of conflict of interests law. (See, for example,Berka v. Woodward(1899) 125 Cal. 119.) In 59 Ops.Cal.Atty.Gen. 604 (1976), this office specifically concluded that the Political Reform Act(hereinafter"PRA" or"act")did not repeal section 1090 et seq. ". . .but that the PRA will control over section 1090 et seq. where the PRA would prohibit a contract otherwise allowable under section 1090 et seq." Government Code section 1090 basically prohibits the public official from being financially interested in a contract or sale in both his or her public and private capacities. In Thomson v. Call(1985)38 Ca1.3d 633,649,the California Supreme Court reiterated the long-standing purpose and framework of section 1090. The purpose of section 1090 is to make certain that . . every public officer be guided solely by the public interest, rather than by personal interest, when dealing with contracts in an official capacity. Resulting in a substantial forfeiture, this remedy provides public officials with a strong incentive to avoid conflict-of-interest situations scrupulously." (Id. at p. 650.) The Court also stated: ". . .the principal has in fact bargained for the exercise of all the skill, ability and industry of the agent, and he is entitled to demand the exertion of all of this in his own favor.' [Citation.]" (Thomson v. Call,supra, 35 Cal. 3d at p. 648; see also Campagna v. City of Sanger(1996) 42 Cal.AppAth 533, 542.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *Selected statutory materials appear in appendix G(at 112). 'All section references in this chapter hereafter refer to the Government Code unless otherwise specified. 45 "It follows from the goals of eliminating temptation, avoiding the appearance of impropriety, and assuring the city of the officer's undivided and uncompromised allegiance that the violation of section 1090 cannot turnon the question of whether actual fraud or dishonesty was involved. Nor is an actual loss to the city or public agency necessary for a section 1090 violation. . . ." (Id. at p. 648; emphasis in original.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "In short, if the interest of a public officer is shown, the contract cannot be sustained by showing that it is fair,just and equitable as to the public entity. Nor does the fact that the forbidden contract would be more advantageous to the public entity than others might be have any bearing upon the question of validity. (Capron v.Hitchcock(1893)98 Cal.427.) . . ." (Id. at p. 649.) B. THE BASIC PROHIBITION Section 1090 provides that an officer or employee may not make a contract in which he or she is financially interested. Any participation by an officer or an employee in the process by which such a contract is developed, negotiated and executed is a violation of section 1090. If the governmental discussion in question does not involve a contract,or if a contract in which an officer or employee has a financial interest is not ultimately executed, no violation exists. A board member is conclusively presumed to have made any contract executed by the board or an agency under its jurisdiction, even if the board member has disqualified himself or herself from any and all participation in the making of the contract. The prohibition applies to virtually all state and local officers,employees and multimember bodies,whether elected or appointed,at both the state and local level. Section 1090 does not define when an official is financially interested in a contract. However, the courts have applied the prohibition to include a broad range of interests. The remote interest exception set forth in section 1091 enumerates specific interests which trigger abstention for board members but which do not prevent the board from making a contract. The interests set forth in section 1091.5 are labeled "non-interests" in that, once disclosed, they do not prevent an officer, employee or board member from participating in a contract. Any contract made in violation of section 1090 is void and cannot be enforced. In addition, an official who commits a violation may be subject to criminal, civil and administrative sanctions. C. PERSONS COVERED Virtually all board members,officers,employees and consultants are public officials within the meaning of section 1090. (Thomson v. Call,supra, 38 Cal.3d 633,councilmember; City Council v.McKinley(1978) 80 Cal.App.3d 204,councilmember;People v. Vallerga(1977) 67 Cal.App.3d 847, county employee; People v. Sobel (1974) 40 Cal.App.3d 1046, city employee; 70 Ops.Cal.Atty.Gen. 271 (1987), contract city attorney; 46 Ops.Cal.Atty.Gen. 74(1965),consultant.) Beginning in 1986,section 1090 became applicable to school boards ispursuant to Education Code section 35233. Section 1090 also applies to members of advisory bodies if they participate in the making of a contract through their advisory 46 function. (Millbrae Assn.for Residential Survival v.City of Millbrae(1968)262 Cal.App.2d 222.) Board members are conclusively presumed to be involved in the making of all contracts under their board's jurisdiction. (Thomson v. Call,supra,38 Cal.3d at p.649.) With respect to all other public officials, it is a question of fact as to whether they were involved in the making of the contract. D. PARTICIPATION IN MAKING A CONTRACT Having determined that a public official is involved, the next issue is whether the decision in question involves a contract which was "made" in his or her official capacity. The use of the term "made" in the statute indicates that a contract must be finalized before a violation of section 1090 can occur. Once a contract is made, section 1090 would be violated if the official had participated in any way in the making of the contract. (See People v. Sobel, supra, 40 Cal.App.3d 1046.) In People v. Sobel, supra, 40 Cal.App.3d at p. 1052, the court outlined the broad reach of section 1090: .The decisional law,therefore,has not interpreted section 1090 in a hypertechnical manner but holds that an official(or a public employee)may be convicted of violation no matter whether he actually participated personally in the execution of the questioned contract,if it is established that he had the opportunity to, and did, influence execution directly or indirectly to promote his personal interests." In determining whether a decision involves a contract,one should refer to general contract principles. Two situations which were not readily apparent have been analyzed by this office. In 78 Ops.Cal.Atty.Gen. 230 (1995) this office determined that a development agreement between a city and a developer was a contract for purposes of section 1090. In 75 Ops.Cal.Atty.Gen.20(1992), section 1090 was interpreted to prohibit a hospital district from paying the expenses for a board member's spouse to accompany the board member to a conference. The opinion concluded that the board member had a financial interest in the payment of his or her spouse's expenses and that the payment itself constituted a contract. Participation in a decision to modify, extend or renegotiate a contract constitutes involvement in the making of a contract under section 1090. In City of Imperial Beach v. Bailey (1980) 103 Cal.App.3d 191, the city entered into a contract for construction and operation of a concession stand on a pier. Later, one of the owners was elected to the city council. Under the contract, the provider had an option to renew the contract and seek an adjustment of rates. The court concluded that exercise of this option would require the city council to affirm the contract and negotiate a rate structure. In so doing, the city would be making a contract within the meaning of section 1090. With respect to the making of a contract,the court in Millbrae Assn.for Residential Survival v. City of Millbrae,supra, 262 Cal.App.2d 222, held that the test is whether the officer or employee participated in the making of the contract in his or her official capacity. The court defined the making of the contract to include preliminary discussions, negotiations, compromises, reasoning,planning, drawing of plans and specifications and solicitation for 47 bids. (See also Stigall v. City of Taft (1962) 58 Cal.2d 565; People v. Sobel, supra, 40 Cal.App.3d at p. 1052.) These, and similar interpretations, make it clear that the prohibition contained in section 1090 also applies to persons in advisory positions to contracting agencies. (Schaefer v. Berinstein (1956) 140 Ca1.App.2d 278; City Council v. McKinley, supra, 80 Cal.App.3d 204.) This is because such individuals can influence the development of a contract during preliminary discussions,negotiations,etc.,even though they have no actual power to execute the final contract. If an official is a member of a board or commission which executes the contract, he or she is conclusively presumed to be involved in the making of his or her agency's contracts. (Thomson v. Call, supra, 38 Cal.3d at pp. 645, 649.) This absolute prohibition applies regardless of whether the contract is found to be fair and equitable(Thomson v. Call,supra, 38 Cal.3d 633;People v.Sobel,supra,40 Cal.App.3d 1046)or the official abstains from all participation in the decision. (Fraser-YamorAgency,Inc. v. County of Del Norte(1977)68 Cal.App.3d 201.) In I.L. 92-407 the issue concerned whether a water district could enter into an employment contract with a member of the board of trustees on the proviso that the individual would not be paid any compensation until he resigned his position on the board. The board member in question would disqualify himself from any participation in the board's decision. This office concluded that the proposed contract would violate Government Code section 1090 since board members are conclusively presumed to make all contracts made by the district. Once the board member retires,the district may enter into an employment contract with the former board member, so long as no discussions concerning such employment took place between the board member and his or her colleagues or staff prior to the date of retirement. See also I.L. 91-210 in which Government Code section 1090 was interpreted to prohibit a contract between the school district and a member of its governing board to serve as a substitute school teacher. (See also Gov.Code, § 53227, which prohibits an employee of a local agency from simultaneously serving on the legislative body of the local agency; Ed. Code, § 35107(b), which specifically applies the same prohibition to school employees. These code sections were enacted subsequent to Eldridge v.Sierra View Local Hospital Dist. (1990)224 Cal.App.3d 311 (in which a hospital employee was permitted to hold office as an elected member of the hospital board of directors). This office has applied Government Code section 1090 to a city airport commission's award of a contract for the construction of a new airport terminal. (77 Ops.Cal.Atty.Gen. 112 (1994).) The design of the terminal also had to be approved by the city arts commission,and all modifications ordered by the arts commission had to be made free of charge to the city, Under these circumstances, this office concluded that the contract was made by both the airport commission and the arts commission. The question posed was whether the contract could be awarded to an architectural firm where a member of the firm simultaneously was a member of the arts commission. The opinion concluded that a member of the firm who sat as a member of the arts commission would have a financial interest in the contract because each modification ordered by the arts commission would impose costs on the architectural firm which could not be recouped from the city. Accordingly, the opinion concluded that the contract could not be awarded to an architectural firm where a member of the firm simultaneously was a member of the arts commission. 48 hi Stigall v. City of Taft, supra, 58 Cal.2d 565, the court concluded that where a councilmember had been involved in the preliminary stages of the planning and negotiating process, but had resigned from the council prior to its vote on the contract, the councilmember had been involved in the making of the contract. In City Council v. McKinley, supra, 80 Cal.App.3d at p. 212,the court followed this reasoning and stated: ". . .the negotiations, discussions,reasoning,planning, and give and take which go beforehand in the making of a decision to commit oneself must all be deemed to be a part of the making of an agreement in the broad sense [citation] . . . . If the date of final execution were the only time at which a conflict might occur, a city councilman could do all the work negotiating and effecting a final contract which would be available only to himself and then present the matter to the council,resigning his office immediately before the contract was executed. He would reap the benefits of his work without being on the council when the final act was completed. This is not the spirit nor the intent of the law which precludes an officer from involving himself in the making of a contract." In 66 Ops.Cal.Atty.Gen. 156 (1983), this office concluded that county employees who proposed that their functions be accomplished through private consulting contracts were barred from contracting with the county to perform such services. This office stated: "We are told that the persons involved, while employees of the county, and as employees of the county, have provided input in the formulation of the contract. . . . By that participation in the give and take that went into such `embodiments'of the contract as the negotiations,discussions, reasoning, planning, and drawing of plans and specifications, the county employees had the opportunity to,and did bring their influence to bear on the ultimate contract itself. While no fraud or dishonesty may have been involved, we are nonetheless satisfied that in so doing they participated,not in their personal capacities but in their official ones as county employees,in the `making of the contract'within the meaning of section 1090. . . ... (Id. at 160.) (See also 63 Ops.Cal.Atty.Gen. 19 (1980), where county officials were prohibited from bidding on surplus county land because of participation in the land sale process in their official capacity.) In I.L. 92-1212 the issue was whether a former planning commissioner could contract with the city to perform consulting services in connection with revisions of the general plan. The policy decisions, including budgetary considerations, were discussed by the commission prior to the former member's resignation. This office's informal opinion concluded: "In short, the former commissioner was an active participant in the overall city policy decision to `contract-out' much of the general plan revision. Accordingly,he cannot now benefit from such participation. (Cf. 66 Ops.Cal.Atty.Gen. 156 (county employees could not propose agreement for consultant services,then resign,and • provide such consulting services).)" 49 In Santa Clara Valley Water Dist. v. Gross(1988)200 Ca1.App.3d 1363,at 1369 and 1370, the court concluded that participation in a statutorily mandated process in connection with the sale of property through eminent domain did not constitute involvement in the making of a contract. In that case, a water district initiated eminent domain proceedings against a landowner who was a member of the water district's board of directors. In order to recover litigation expenses,Code of Civil Procedure section 1250.410 requires the parties to file a final demand and offer respectively. Believing they were barred from participating in the demand and offer process by section 1090,the parties failed to file the required documents. The court concluded that participation in the demand and offer process was mandated by statute and did not violate section 1090 and therefore refused to allow litigation expenses. The court stated: ". . . Once a condemnation action has been filed, however, the property owner and his agency become adversaries, subject to the rules of court and civil procedure which govern the course of litigation. A settlement achieved pursuant to these rules can be supervised by the court and receive the imprimatur of court confirmation. Government Code section 1090 is directed at dishonest conduct and at ""conduct that tempts dishonor"" (Thomson v. Call (1985) 38 Ca1.3d 633, 648 [214 Cal.Rptr. 139, 699 P.2d 316]);it has no force in the context of a condemnation action where the sale of property is accomplished by operation of law and each side is ordinarily represented by counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "`The Legislature [in § 1250.410] did not direct the parties to "apprise" each other or "communicate" with each other about an offer or demand.' (City of San Leandro v. Highsmith, supra, 123 Ca1.App.3d at p. 155.) Rather it directed that each file with the court, and serve upon the other, a formal offer and demand, as an absolute prerequisite to an award of attorney's fees. This procedure is not the equivalent of negotiations between the parties and consequently does not run afoul of section 1090." When an employee,rather than a board member, is financially interested in a contract,the employee's agency is prohibited from making the contract only if the official was involved in the contract-making process. So long as the employee plays no role whatsoever in the contracting process(either because such participation is outside the scope of the employee's duties or because the employee has disqualified himself or herself from all such participation) the employee's agency is not prohibited from contracting with the employee or the business entity in which the official is interested. In 80 Ops.Cal.Atty.Gen 41 (1997),firefighters were permitted to sell a product,which they invented in their private capacity,to their fire department so long as they did not participate in the sale in their official capacity. In 63 Ops.Cal.Atty.Gen. 868 (1980), a real estate tax appraiser could purchase property within the county at a tax deeded land sale where he did not participate in or influence the appraisal. (See I.L.72-143 re disqualification of advisory board member.) (See I.L. 73-146,re state employee;but see Pub. Contract Code, § 10410, prohibiting contracts between state employees and state agencies;see also chapter VII of this pamphlet.) 50 E. PRESENCE OF REQUISITE FINANCIAL INTEREST • For section 1090 to apply,the public official in question must have a financial interest in the contract in question. Although the term "financial interest"is not specifically defined in the statute, an examination of case law and the statutory exceptions to the basic prohibition indicate that the term is to be liberally interpreted. In Thomson v. Call,supra, 38 Cal.3d at p. 645, the court stated that the term financial interest included both direct and indirect interests in a contract. As an example of an indirect interest, the court cited Moody v. Shuffleton(1928)203 Cal. 100,in which a county supervisor sold his business to his son in return for a promissory note secured by the business. Because the business helped to secure the value of the official's mortgage, a conflict existed when county printing contracts were awarded to the son. The court also stated that an official who was a stockholder in a corporation had an indirect interest in the contracts of the corporation. Although special statutory exemptions may negate the full effect of the section 1090 prohibition, the following economic relationships generally constitute a financial interest: employee of a contracting party;attorney,agent or broker of a contracting party;supplier of services or goods to a contracting party;landlord or tenant of a contracting party; officer or employee of a nonprofit corporation which is a contracting party. Prior to 1963, section 1090 applied to all interests, not merely financial ones. However, since most reported cases prior to 1963 involved financial interests, these older cases still represent viable interpretations of the law. Even where these cases do not involve a financial interest, they are still instructive on the issue of whether there is a sufficient connection between the contract and the interest held by the official in order to bring the transaction under the coverage of the prohibition. In People v.Deysher(1934) 2 Cal.2d 141, 146, the court stated that: "`However devious and winding the chain may be which connects the officer with the forbidden contract, if it can be followed and the connection made, the contract is void."' (See also People v. Honig (1996) 48 Cal.AppAth 289, 315.) The court went on to say that section 1090 attempted to prohibit any measure of duality in contractual situations because officials, as trustees of the public,may not exploit their public positions for private benefits. In Stigall v. City of Taft,supra, 58 Cal.2d at p.571,the court stated: "The legislation with which we are here concerned seeks to prohibit a situation wherein a man purports to deal at arm's length with himself and any construction which condones such activity is to be avoided. . . ." Below is a discussion of several decisions and opinions in which public officials in question have possessed the requisite financial interest. (Complex multi-party transaction)--In the 1985 California Supreme Court case of Thomson v. Call, supra, 38 Cal.3d 633, the court found that a complex multi-party transaction . involving the sale of property from a city councilmember through an intermediary corporation to the city constituted a violation of section 1090. The corporate intermediary obtained the land to convey to the city for use as a park and the corporation was to be issued 51 a use permit for construction of a high rise building on adjacent property. If the corporation failed to obtain the councilmember's property,the corporation was to pay to the city a sum of money with which it could acquire the land through eminent domain. Had there been no discussions between the city and the corporation regarding the property to be acquired for the park prior to the corporation's acquisition of the councilmember's property, the section 1090 prohibition might not have been invoked. However,in Thomson,the court found that the purchase by the corporation of the councilmember's land was part of a pre-arranged agreement with the city. Under these circumstances, the court concluded that the city councilmember was financially interested in the contract that conveyed the land to the city. (Shareholder insulated from contract payments)--In Fraser-YamorAgency, Inc. v. County of Del None,supra,68 Cal.App.3d 201,the court concluded that a public official,who was a shareholder in an insurance brokerage firm,had a financial interest in the firm despite the creation of a financial arrangement which would assure that payments under an insurance contract with a county would not be used to pay the shareholder's compensation or the business expenses of the brokerage firm. The court concluded that the volume of business to the firm affected the value of the interested official's investment in the firm. Thus,to the extent that the firm benefited by increased business, so did the official, despite the fact that the benefit was in some way indirect.10 (Contingent payment)--In People v. Vallerga, supra, 67 Cal.App.3d 847, the court found that a county employee had a financial interest in a contract where his private consulting contract was contingent upon the execution of the county's contract with the city. The court found that the requisite financial interest existed where the contracting entity is in a position to render actual or potential pecuniary gain to the official by virtue of the award of the contract. (Primary shareholder in contracting parry)--In People v.Sobel,supra,40 Cal.App.3d 1046, section 1090 was applied to remedy a classic self-dealing situation. There,a city employee, involved in purchasing books, awarded contracts to a corporation in which, unknown to the city,he and his wife were the primary shareholders. (Debtor-creditor relationship) -- In People v. Watson (1971) 15 Cal.App.3d 28, the court concluded that a debtor-creditor relationship constituted a financial interest within the meaning of section 1090. (See also Moody v. Shuffleton, supra,203 Cal. 100.) In People v. Watson,supra,the defendant was a harbor commissioner whose corporation had loaned money to a corporation which subsequently was attempting to negotiate a lease with the commission. While the loan was still outstanding, defendant voted as a commissioner to approve the proposed lease, thereby violating section 1090. (Spousal property)--An official also has an interest in the community and separate property income of his or her spouse. (Nielsen v. Richards (1925) 75 Cal.App. 680.) In 78 Ops.Cal.Atty.Gen. 230 (1995), this office concluded that an city councilmember had a financial interest in a contracting party by virtue of the fact that the councilmember's spouse was a partner in a law firm which represented the contracting party on matters unrelated to the contract. Since the spouse's property is attributed to the official, exemptions which 10The court indicated that it did not have enough evidence to determine whether or not the interest was remote. 52 would be applicable if the official possessed the interest directly are also attributed to the spouse's property. (See section I of this Chapter for a discussion of remote interests.) In 69 Ops.Cal.Atty.Gen. 255 (1986), this office discussed this interest and the application of the exemption in section 1091.5(a)(6)to a school board member and a teacher who were married. (See 65 Ops.Cal.Atty.Gen. 305 (1982), regarding an interested superintendent's participation in labor negotiations;see also section J, subsection(6)of this chapter for further discussion.) In 69 Ops.Cal.Atty.Gen. 102 (1986), this office discussed participation of a school board member in a collective bargaining agreement with the union which represented the member's spouse who was a tenured teacher. 75 Ops.Cal.Atty.Gen. 20(1992), was interpreted to prohibit a hospital district from paying the expenses for a board member's spouse to accompany the board member to a conference. The opinion concluded that the board member had a financial interest in the payment of his or her spouse's expenses. (Public officers to receive commission) --In 66 Ops.Cal.Atty.Gen. 376 (1983), this office concluded that the terms of the compensation package for the city attorney and other city personnel made them financially interested in all land development contracts to which the city was a party. Compensation for these officials was tied to increases in land value,based on the approval of land developments. The opinion pointed out that in approving land developments, a number of policy issues, aside from land value, must be considered, e.g., the ratio between commercial and residential development, density factors, etc. In basing compensation solely on land values, there was an incentive to consider only land value factors. (Employee of contract provider)--In 58 Ops.Cal.Atty.Gen. 670,supra, this office advised that a local mental health director was in violation of section 1090 where he also was employed by the contract provider of mental health services to the county. In his official position,he was required to advise the county board of supervisors regarding contracts for mental health services, and in his private capacity he received a fixed yearly salary from the contract provider. Thus,he was interested in the county's contracts for mental health services in both his public and private capacities. F. TEMPORAL RELATIONSHIP BETWEEN FINANCIAL INTERESTS AND THE CONTRACT The essence of the 1090 prohibition is to prevent self-dealing in the making of public contracts. In determining whether self-dealing has occurred, the timing of events may be crucial. Factors such as the date that the official assumed or resigned from office, the date the contract was executed and the duration of the contract are important and may prove to be dispositive. Thus, an official who has contracted in his or her private capacity with the government before the official is elected or appointed does not violate the section, and the official may continue in his or her position as such contracting party for the duration of that contract. The official's election or appointment does not void it. (Beaudry v. Valdez(1867) 32 Cal. 269.) When the time comes for the contract to be renegotiated, the official faces a new set of problems. 53 In the case of a board member, the official must resign from office or eliminate the private interest to avoid the proscription of section 1090. (City of Imperial Beach v.Bailey,supra, 103 Cal.App.3d 191; see also I.L. 92-407,I.L. 75-170.) A new contract between the board member and the city, county or district, which the board member represents, may not be executed. (But see Pub. Contract Code, §§ 10410, 10411 regarding state employees discussed in chapter VII of this pamphlet.) However, simply resigning a public post may not cure a conflict in all situations. Timing is essential. In Stigall v. City of Taft,supra,58 Cal.2d 565,the court ruled that a public official may not resign from office at the last minute in order to take private advantage of a contract in whose formation the official had participated in his or her public capacity. In that case, a city councilmember owned a plumbing business which was awarded a plumbing subcontract in connection with construction of a city civic center. The official had taken part in the planning,preliminary discussions,compromises,drawing of plans and specifications, and solicitation of bids for the civic center project. The court held that this councilmember had participated in the "making" of the contract within the meaning of section 1090, even though the official resigned from office before the contract was finally awarded. (See City Council v.McKinley,supra, 80 Cal.App.3d 204; 66 Cal.Ops.Atty.Gen. 156, supra; I.L. 92-1212, supra.) Since board members are conclusively presumed to have made all contracts under their jurisdiction,it is possible that a court could conclude that a board member had, as a matter of law, participated in the making of any contract, the planning for which had been commenced during the board member's time in office. In the case of an employee, a contract may be renegotiated, so long as the employee totally disqualifies himself or herself from any participation, in his or her public capacity, in the making of the contract. In the past,this office has issued oral advice concerning the manner in which a contract consultant, e.g., a city attorney, may renegotiate a contract without violating section 1090. In general, this office advised that such contractors retain another individual to conduct all negotiations. In so doing, the official would minimize the possibility for a misunderstanding to arise concerning whether the contractor's statements were made in the performance of the contractor's public duties or in the course of the contractual negotiations. In the absence of special circumstances,the fact that a contract city attorney's advice to initiate or defend litigation would increase the amount of payments under an existing contract, generally would not violate section 1090. G. EFFECT OF SPECIAL STATUTES Some statutes contain special provisions which alter or eliminate the general rule set forth in section 1090 in a specific situation. For example, in Old Town Dev. Corp. v. Urban Renewal Agency (1967) 249 Ca1.App.2d 313, an individual was employed both as a consultant with the redevelopment corporation and as a member of an advisory panel reviewing redevelopment bids and making recommendations to the city regarding them. The court seemed to say that this duality of interests did not, in and of itself,create a conflict of interests vitiating the resulting contract for redevelopment which the city made with the individual's private employer. (Id., at 328-329.) However,the case involved a special conflict of interests code section(Health&Saf. Code, §33130)which is directed to government officers and employees involved in redevelopment planning. That section directs such an individual with property or some other interest in an 54 area slated for redevelopment immediately to disclose such interests to his or her governmental agency. He or she may then participate in redevelopment planning regardless of his or her interest. Since the advisor in Old Town disclosed his interest in accordance with section 33130, it was assumed that the city took his advice with that relationship in mind. The special law took precedence over the more general law of section 1090. Similarly,in 51 Ops.Cal.Atty.Gen.30(1968),this office advised that"when the organic act under which a particular commission has been formed contains a very specific conflict of interest rule, neither general statutes nor the common law need be consulted." (Ibid.) Education Code section 35239 provides that governing board members of school districts with an average daily attendance of 70 or less may contract with their districts under specified circumstances. For special rules concerning hospitals and health care districts, see section 37625 (municipal hospitals),Health and Safety Code section 1441.5(county hospitals), and Health and Safety Code section 32111 (healthcare districts). It should be noted that such special statutes may not take precedence over the PRA unless they are adopted in accordance with the procedures set forth in Government Code section 81013. H. CONTRACT MADE IN VIOLATION OF SECTION 1090 IS VOID AND UNENFORCEABLE In addition to the proscription against officials making contracts in which they have a financial interest,a contract made in violation of section 1090 is void. Any payments made to the contracting parry, under a contract made in violation of section 1090 must be returned and no claim for future payments under such contract may be made. In addition,the public entity is entitled to retain any benefits which it receives under the contract. (Thomson v. Call, supra, 38 Cal.3d at p. 650.) Section 1092 provides that every contract made in violation of section 1090 may be avoided by any parry except the official with the conflict of interests. (See § 1092.5 for exception concerning good faith parties involved in the lease, sale or encumbrance of real property.) Despite the wording of the section "may be avoided," case law demonstrates that any contract made in violation of section 1090 is void,not merely voidable. (Thomson v. Call, supra, 38 Cal.3d 633;People ex rel.State of Cal. v.Drinkhouse (1970)4 Cal.App.3d 931.) Courts often give public policy reasons for this holding (see City of Oakland v. California Const. Co.,supra, 15 Cal.2d 573), and note the general rule that a contract made in violation of an express statutory provision is always void. (Stockton P. &S. Co. v. Wheeler, supra, 68 Cal.App. 592;Smith v.Bach (1920) 183 Cal. 259.) In Stockton, the court said, "'where a statute provides a penalty for an act, a contract founded on such act is void, although the statute does not pronounce it void, nor expressly prohibit it."' (Id., at 601.) A contract can be rendered void even if made without the participation of the official with the conflicting interest if he or she is a member of the contracting body. (§ 1092; Thomson v. Call, supra, 38 Cal.3d 633.) Contracts made in violation of section 1090 are unenforceable, and no recovery will be afforded the contracting party for services rendered 55 under the contract. (Thomson v. Call, supra, 38 Cal.3d 633; County of Shasta v. Moody (1928)90 Cal.App. 519,523-524.) In Shasta,the court said, "The contracts being void under the express provisions of the statute, and also being against public policy,there is no ground for any equitable considerations,presumptions or estoppels." (Id., at 523; see also County of San Diego v. Cal. Water ETC. Co. (1947) 30 Cal.2d 817, 830.) In addition to the contract being void under section 1092, section 1095 provides that payment of any evidence of indebtedness against the state,city,or county which has been purchased, sold, received, or transferred contrary to section 1090 or section 1093 is specifically disallowed. Any entitlement to payment pursuant to a contract,made in violation of section 1090, is effectively rendered worthless by this section. In Thomson v. Call,supra, 38 Cal.3d 633,the court stated: "Clearly, no recovery could be had for goods delivered or services rendered to the city or public agency pursuant to a contract violative of section 1090 or similar conflict-of-interest statutes. (Moody v. Shufj`leton, supra, 203 Cal. 100; Berka v. Woodward, supra, 125 Cal. at pp, 121, 123-124;Domingos v. Supervisors of Sacramento Co. (1877) 51 Cal. 608; Salado Beach ETC. Dist. v.Anderson(1942)50 Ca1.App.2d 306, 310 [123 P.2d 86];Miller v. City of Martinez, supra, 28 Cal.App.2d at pp. 370-371; Hobbs, Wall & Co. v. Moran, supra, 109 Cal.App. at p. 320; County of Shasta v.Moody,supra,90 Cal.App. at pp. 523-525.) Moreover,the city or agency is entitled to recover any consideration which it has paid, without restoring the benefits received under the contract. (Berka, supra, at pp. 123-124;Miller,supra, at p. 370; County of Shasta, supra, at pp. 523-524.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "Mitigating factors--such as Call's disclosure of his interest in the transaction, and the absence of fraud--cannot shield Call from liability. Moreover, the trial court's remedy--allowing the city to keep the land and imposing a money judgment against the Calls--is consistent with California law and with the primary policy concern that every public officer be guided solely by the public interest,rather than by personal interest, when dealing with contracts in an official capacity." (Id. at 646-647, 650.) In Campagna v. City of Sanger,supra,42 Cal.AppAth 533, a city attorney was required to forfeit a finder's fee which he received in connection with a contract between the city and a private law firm. I. REMOTE INTERESTS OF MEMBERS OF BOARDS AND COMMISSIONS 1. The Exception And Its Operation A public official who is a member of a public board or commission with only a • "remote interest" in a contract will not be deemed to have an "interest" within the meaning of section 1090. It is to be noted that"remote" always refers to the private 56 interest an official has in the contract. The official's public interest either exists or it does not. An official whose interest falls into one of the "remote interest" categories (see discussion below)must, however, (1)disclose the official's interest to his or her agency,board, or body and (2) have it noted in the official records of that body. An official who intentionally fails to disclose the existence of a remote interest before action is taken on the contract in question would violate section 1090 and would be subject to criminal prosecution. (See discussion of sanctions,below.) However,such a violation would not void the contract unless the private contracting party knew of the official's remote interest at the time of contracting. (§ 1091(d).) When an official claims a remote interest,the board or agency may take action on the sale, purchase, or other contract involved if it acts in good faith and if the vote to authorize,approve,or ratify is sufficient without countine the vote or votes of those with remote interests. The provision which requires the action to be taken,without counting the interested official's vote, has been interpreted by this office to require complete disqualification of the interested officials. (78 Ops.Cal.Atty.Gen. 230,237 (1995); 67 Ops.Cal.Atty.Gen. 369, 377, fn. 8 (1984); 65 Ops.Cal.Atty.Gen. 305, supra.) If an official with a remote interest in a contract fails to disqualify himself or herself or if the official influences or attempts to influence a colleague's vote on the matter, the official may not utilize the remote interest exception. (§ 1091(c).) The term "remote" has a special statutory meaning in the context of section 1090 et seq. When the terms "remote" or"speculative" are used in other contexts,they are general terms concerning the potentiality of whether certain effects will occur. Use of these terms in the general context should not be confused with the term "remote" in the specific context of section 1090. • 57 2. Definition Of Remote Interests As used in this section, the concept of"remote interests" is not vague or general; rather "remote interests" are carefully defined in the statutes. Set forth below is a brief description of the remote interest exceptions. a. Officer or Employee of a Nonprofit Corporation An officer or employee of a nonprofit corporation has only a remote interest in the contracts,purchases,and sales of that corporation. (§ 1091(b)(1).) By adopting this exception,the Legislature made it clear that corporate officers had a financial interest in their corporations even if the corporations were nonprofit. This exception indicates that an official can legally, under section 1090, have a financial interest even though the official does not have a personal interest in the contract. See also § 1091.5(a)(8)concerning "noncompensated officers" of specified tax exempt corporations.) b. Employee or Agent of a Private Contracting Party An employee or agent of a private contracting party may have only a remote interest in its contracts when (1) the private party has 10 or more other employees and(2) the officiallemployee has been an employee or agent of that party for at least three years. Some latitude is allowed in computing the three-year period, to permit an employee of a business, which has gone through a reorganization or some other metamorphosis, to count time employed before the change,as long as the "real or ultimate ownership of the contracting party" remains substantially unchanged. 'Real or ultimate ownership"is further defined to include"stockholders,bondholders,partners, or other persons holding an interest. . . . " (§ 1091(b)(2).) (See Fraser-Yamor Agency, Inc. v. County of Del Norte, supra, 68 Ca1.App.3d 201, for a discussion of agent relationship.) C. Employees Are Agents; Special Contracts Section 1091(b)(3)provides that an official who is an employee or agent of a contracting party has a remote interest in the contract if all of the enumerated factors set forth in the subsection are present. First,the official must be an officer in the local agency located in a county with a population of 400,000 or less. Second, the contract must be competitively bid, and the contracting party must be the lowest bidder. Third,the official must not hold a primary management position with the contracting party, the official must not be an officer or director of the contracting party,and the official must not hold any ownership interest in the contracting party. In addition,the official may not have directly participated in formulating the bid of the contracting party. Fourth, the contracting party must have at least 10 other employees. i 58 L. LIMITED RULE OF NECESSITY This office and the courts have applied a limited rule of necessity to the application of section 1090. In 69 Ops.Cal.Atty.Gen. 102, 109, supra, this office described the rule of necessity as follows: "`With respect to contractual conflicts of interest the "rule of necessity" may be said to have two facets. The first, . . . to permit a governmental agency to acquire an essential supply or service despite a conflict of interest. The contracting officer, or a public board upon which he serves,would be the sole source of supply of such essential supply or service, and also would be the only official or board permitted by law to execute the contract. Public policy would authorize the contract despite this conflict of interest. [Citation.] The second facet of the doctrine. . . . [citation] arises in nonprocurement situations and permits a public officer to carry out the essential duties of his office despite a conflict of interest where he is the only one who may legally act. It ensures that essential governmental functions are performed even where a conflict of interest exists." (Fn. omitted.) The first facet of the rule of necessity concerns situations where a board must contract for essential services and no source other than that which triggers the conflict is available. In 4 Ops.Cal.Atty.Gen. 264 (1944), a city was advised that it could obtain nighttime service from a service station owned by a member of the city council, where the town was isolated and his station was the only one open. This office cautioned that "An event that can be reasonably anticipated,such as the repeated failure of a battery or the necessity for periodic service, would not be considered an emergency" so as to give rise to the rule of necessity. Other arrangements would be required in such cases. (But see Gov. Code, § 29708, which flatly prohibits a county officer or employee from presenting a claim to the county for other than his or her official salary.) The second facet of the rule of necessity focuses on the performance of official duties rather than upon the procurement of goods and services. In 69 Ops.Cal.Atty.Gen. 102, supra,this office applied the rule of necessity to permit a school board to enter into a memorandum of understanding with a teachers' association despite the fact that a member of the school district board was married to a tenured teacher. A similar conclusion was reached in 65 Ops.Cal.Atty.Gen. 305, supra, where this office concluded that the Superintendent of Education could enter into a memorandum of understanding with school employees, despite the fact that he was married to a permanent civil service school employee. Both opinions concluded that the labor agreements with the teachers' association were necessary and that there was nothing in the history of section 1090 that suggested a person should be required to resign his or her employment because of marital status. Accordingly,to the extent that the noninterest exception for public official spouses set forth in section 1091.5(a)(6)was not applicable, this office advised that the rule of necessity would permit issuance of a memorandum of understanding. When the rule of necessity is applied to a member of a multimember board, as opposed to a single official or employee, this office has concluded that the board member must abstain from any participation in the decision. In other words, the effect of the rule of necessity is to permit the board with a substantially interested member to nevertheless make a contract, but the board member is still prohibited from participating in its making. In the case of a single official or employee, application of the rule of necessity permits the official or 66 employee to participate in the making of the contract. (69 Ops.Cal.Atty.Gen. 102,supra,at p. 112, school board trustee abstention; 67 Ops.Cal.Atty.Gen. 369, supra, at p. 378, board member abstention; 65 Ops.Cal.Atty.Gen. 305,supra, at p. 310, superintendent of schools permitted to participate.) M. PENALTIES FOR VIOLATION BY OFFICIALS Any officer or person, who is found guilty of willfully violating any of the provisions of section 1090 et seq.,is punishable by a fine of not more than$1,000 or imprisonment in state prison. (§ 1097.) For an official to act"willfully,"his or her actions concerning the contract must be purposeful and with knowledge of his or her financial interest in the contract. (People v.Honig,supra,48 Ca1.App.4th 289,334-339.) The statute of limitations for 1090 prosecutions is three years after discovery of the violation. (Id., at p. 304,fn. 1;Penal Code, §§ 801 and 803.) Additionally, such an individual is forever disqualified from holding any office in this state. (§ 1097.) When a state or local government agency is informed by affidavit that a board member or employee has violated section 1090, the agency may withhold payment of funds under the contract pending adjudication of the violation. (§ 1096.) One example of a conviction under section 1097 is People v.Sobel,supra,40 Ca1.App.3d 1046. In that case,a deputy purchasing agent for a county had a financial interest in a book seller which sold books to the county pursuant to contracts made by that agent. His conviction was based on the prosecution having established that he had the opportunity to and did influence execution of purchase contracts, directly or indirectly, to promote his personal interests. For a discussion of other consequences which may result from a violation of section 1090, see section H (contract made in violation of § 1090 is void and unenforceable) of this chapter. 67 — Aa•y Institute For Local Self Government•Publlc Confidence Project 35 DISQUALIFICATION BASED ON COMMON LAW BIAS Although California statutes largely determine when public offi- cials must disqualify themselves from participating in decisions, common law(judge-made) principles still require a public official to exercise his or her powers free from personal bias. This is a judicial expression of the public policy against public officials using their official positions for private benefit." These princi- ples are not superseded by the enactment of the Political Reform Act in 1974.51 Basic Requirement Under the common law doctrine,an elected official has a fiduci- ary duty to exercise the powers of office for the benefit of the public and is not permitted to use those powers for the benefit of private interest 60 In addition,due process principles require a decision-maker to be fair and impartial when the decision-making body is sitting in what is known as a"quasi-judicial"capacity. Quasi-judicial mat- ters include variances, use permits, annexation protests,personnel disciplinary actions, and licenses. Quasi-judicial proceedings tend to involve the application of generally adopted standards to specific situations,much as a judge applies the law to a particular set of facts. The kinds of common law bias include the followings' • Personal Interest in the Derision's Outcome. For example, one court found a council member was biased and should not participate in a decision on a proposed addition to a home in his neighborhood when the addition would block the council mem- ber's view of the ocean from the council member's apartment.', 58 See Terry a Bender,143 Cal.App.2d.198,206,300 R2d 119(1956). 59 See Clark o.Ciry ofHermaae Beach,48 Cal.App.4th 1152,1171,56 Cal.Rper.2d 223 (1996). 60 See Narrbaum a Week,,214 Cal.App.3d 1598,1597-98.263 Cal.Rprr.360,365-66 (1989). 61 See Breakamne Bilhardr a.City ofTarrance,81 Cal.App.4th 1205,1234 n.23,97 Cal. Rpa.2d 467(2d Dist.2000)(finding no common law bias). 62 See Clark a Ciry of He mma Beach,48 Cal.App.4th 1152,56 Cal.Rprr.2d 223(2d Dist. 1996)(finding common law bias). a YY'ry i Institute For Local Self Government•Public Confidence Project 37 Campaign Contributions And Bias The California Supreme Court has considered whether bias can exist as the result of an official's receipt of campaign contribu- tions. The court determined that a city council member who receives a campaign contribution from a developer is not auto- matically barred from acting on the developer's land use permit application." The court did leave open the possibility that this scenario could, under certain circumstances, create a problem. This is why it is particularly important that elected officials be judicious in accepting contributions from those who will appear before the decision-making body on which the elected official sits. (See also the discussion regarding campaign contributions under the Political Reform Act). Consequences Of Biased Decision-Making When a quasi-judicial decision is involved, the issue is whether a disappointed applicant or member of the public will have a legal basis for challenging the agency's decision as being tainted by bias. The courts approach a review of an agency's decision with • a presumption that the decision-makers acted with integrity and honesty. Anyone challenging the agency's decision will have to establish,with evidence, that there was an "unacceptable proba- bility" that decision-makers were biased in any of the above three ways 67 Officials also should be aware that violation of the common law duty to avoid conflicts of interest can constitute official miscon- duct and result in a loss of office." 66 Woodl nd Nfllr RaidenuA.rsodadon P.City Council,26 Cal.3d 938,164 Cal.Rpte 255 (1980). Bur see Cal.Gov't Code§84308 and 2 Cal.Code of Reg.%1843848438.8 (defining who is disqualified from acting on a land use entitlement applieauon after receipt of a campaign conaibution). 67 See Break one,81 Cal.App.Orb at 1234. 6B See Nussbaum,214 Cal.App.3d or 1597-98,263 Cal.Rpu.ar 365-66, � CONFLICTS OF INTERESTS 1�j �/ � 1998 CALIFORNIA ATTORNEY GENERAL'S OFFICE � ». xH. THE COMMON LAW DOCTRINE AGAINST CONFLICTS OF INTERESTS A. OVERVIEW Courts and this office have, in the past,found conflicts of interests by public officials to be violative of both the common laws' and statutory prohibitions. (See the discussion in Kaufmann, The California Conflict of Interest Laws, (1963) 36 So. Cal.L.Rev. 186.) Although this office continues, for the sake of completeness, to refer to the common law doctrine in our opinions (see, e.g., 67 Ops.Cal.Atty.Gen. 369, 381 (1984) and citations therein)it could be argued that its application has been severely limited by the passage of the Political Reform Act of 1974, In this regard I.L. 76-69 stated: "Though one might urge . . . the Political Reform Act of 1974 has now preempted the common law doctrine against conflict of interests, and therefore that which is not specifically prohibited is now permitted,we would caution against such a conclusion for the reasons (1) that the courts have traditionally predicated their decisions on the dual basis of the statutes and the common law rule, see 58 Ops.Cal.Atty.Gen. 345, supra, at pp. 354-56, and(2) were a violation of the common law rule found to exist, such could form the basis of an allegation of willful misconduct in office within the meaning of section 3060 et seq." (See also 59 Ops.Cal.Atty.Gen. 604 (1976).) B. THE BASIC PROHIBITION A good expression of the common law doctrine is found in Noble v. City of Palo Alto(1928) 89 Cal.App.47, 51: "A public officer is impliedly bound to exercise the powers conferred on him with disinterested skill,zeal,and diligence and primarily for the benefit of the public. [Citations.]" This office has cautioned that where no conflict is found according to statutory prohibitions, special situations could still constitute a conflict under the longstanding common law doctrine. (53 Ops.Cal.Atty.Gen. 163 (1970).) That opinion advised that the inquiry to be made was into the possibility that an official's private interests might be enhanced through his or her "The common law is a body of law which has been made by precedential court decisions and can be found in the reported California Supreme Court and Appellate Court cases. This law differs from statutory law which is created by the combined action of the State Legislature and the Governor. 90 official action. Another judicial explication of the common law doctrine was in Terry v. Bender (1956) 143 Cal.App.2d 198. In that case the court stated: "Public officers are obligated, . . . [by virtue of their office],to discharge their responsibilities with integrity and fidelity." (Id., at 206.) In 26 Ops.Cal.Atty.Gen. 5, 7 (1955), this office advised that if a situation arises where a common law conflict of interests exists as to a particular transaction, the official "is disqualified from taking any part in the discussion and vote regarding"the particular matter. In Clark v. City of Hermosa Beach(1996)48 Cal.App.4th 1152,the court concluded that in an adjudicatory hearing, the common law is violated if a decision maker is tempted by his or her personal or pecuniary interests. In addition, the doctrine applies to situations involving a nonfinancial personal interest. (Id. at p. 1171,fn. 18.) 91 MINUTE ORDER NO. APPROVING A ONE-YEAR AGREEMENT, WITH TWO ONE- YEAR RENEWABLE OPTIONS, (OPTION A), ONASHARED-USE BASIS, BETWEEN THE CITY OF PALM SPRINGS AND PALM SPRINGS AQUATICS TO PROVIDE A QUALITY SWIM PROGRAM FOR THE CITIZENS OF PALM SPRINGS. I HEREBY CERTIFY that this Minute Order, approving a one-year agreement,with two one- year renewable options, (Option A), on a shared-use basis, between the City of Palm Springs and Palm Springs Aquatics to provide a quality swim program for the citizens of Palm Springs, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 18`" day of December, 2002. BY: PATRICIA A. SANDERS City Clerk ll � Cad MINUTE ORDER NO. APPROVING A ONE-YEAR AGREEMENT, WITH TWO ONE- YEAR RENEWABLE OPTIONS, (OPTION B), ON A NONSHARED-USE BASIS, BETWEEN THE CITY OF PALM SPRINGS AND PALM SPRINGS AQUATICS TO PROVIDE A QUALITY SWIM PROGRAM FOR THE CITIZENS OF PALM SPRINGS. I HEREBY CERTIFY that this Minute Order, approving a one-year agreement,with two one- year renewable options, (Option B), on a nonshared-use basis, between the City of Palm Springs and Palm Springs Aquatics to provide a quality swim program for the citizens of Palm Springs, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 181" day of December, 2002. BY: PATRICIA A. SANDERS City Clerk