Election or appointment to public office requires undivided loyalty from officers and employees to the local agency's interests and adherence to high ethical standards. Principles of ethical behavior are embodied in the California Political Reform Act of 1974 (the AAct@) (Gov. Code, ' 87100 et seq.), the common law, Government Code sections 1090 and 1126, the Education Code, and other sources. While the basic principles are simple, they are expressed in frequently complex statutory, regulatory, and judicial expressions which a board member may find puzzling. This article presents an overview of the various applicable legal doctrines. School district board members, citizen oversight committee (COC) members and staff are subject to several statutory and common law conflict of interest provisions: (1) the Act prohibits public officials from using their official position to influence a governmental decision in which they have a financial interest; (2) the “common law conflict of interest doctrine,” embodied in case law, requires public employees and officers to avoid placing personal interests above or in conflict with duty to the public; (3) Government Code section 1090 prohibits a governing board member from being financially interested in any contract made by the member in his or her official capacity; and (4) Government Code section 1126 prohibits public officers from holding “incompatible offices” or from otherwise engaging in activities considered incompatible with their duties as school board members. A. Education Code Requirements for COC Members COC members are also subject to Education Code Chapter 1.5, Article2, commencing at section 15278, including section 15282 which states in part: No employee or official of the district shall be appointed to the citizens' oversight committee. No vendor, contractor, or consultant of the district shall be appointed to the citizen's oversight committee. Members of the citizens' oversight committee shall, pursuant to Sections 35233 and 72533, abide by the prohibitions contained in Article 4 (commencing with Section 1090) and Article 4.7 (commencing with Section 1125) of Division 4 of Title 1 of the Government Code. (Ed. Code, S 15282, subd. (b).) The legislature imposed these sweeping limitations upon COCs, apparently to clarify that a COC will protect the interests of the public and taxpayers. It is unclear whether employees of a vender, contractor, or consultant to the District are also prohibited from COC membership because there is not yet any case law or attorney general opinions on this subject. However, because of the legislature’s intent to provide public oversight of the use of bond funds, the prohibition is probably intended to apply to employees of vendors, contractors, and consultants to the District. The statute does not distinguish between those involved in bond-funded projects and other vendors, contractors, and consultants of the District. B. The California Political Reform Act The Act provides that “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.” (Gov. Code, ' 87100.) An official has a financial interest in a decision if it is reasonably foreseeable that the decision will have a material financial effect on the official, on a member of the official's family, or on certain stated economic interests of the official. (Gov. Code, ' 87103.) 1. Five-Step Conflict of Interest Analysis To determine whether a conflict of interest exists under the Act, five questions must be asked: $ Is a public official involved? $ Does the official have a statutorily defined economic interest? $ Is the official making, participating in the making of, or using his or her official position to influence the making of a governmental decision? $ Is it reasonably foreseeable that the decision could materially affect the official's economic interest? $ Will the effect of the decision on the public official=s economic interest be distinguishable from its effect on the public generally? If the answer to all of the foregoing questions is “yes,” then a conflict of interest exists, and the conflicted board member must disqualify himself or herself from participation in the decision. However, transactions must be analyzed on a case-by-case basis because regulations of the Fair Political Practices Commission (“FPPC”) establish many factual variables that may come into play in particular transactions. The questions should therefore only be answered with reference to the following additional guidance: $ Is a public official involved? The Act applies to “public officials.” It encompasses not only elected and appointed officials but also any Amember, officer, employee or consultant of a state of local government agency.@ (Gov. Code, ' 82048.) School board members are clearly public officials subject to the Act. $ Does the official have a statutorily-defined economic interest? 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) gift donors and their agents or intermediaries. In each category, the Act specifies the minimum amount of holdings, income, or gifts that must exist before an Ainterest@ is created. For example, 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 $2,000 or more in a parcel of property located in, or within two miles of, the geographical jurisdiction of the official's agency. (Gov. Code, '' 82033, 82035.) Within each category, if the interest does not exceed the stated amounts, there is no disqualifying economic interest. $ Is the official making, participating in the making of, or using his or her official position to influence the making of a governmental 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. (Cal. Code Regs., tit. 2, ' 18702.1.) AParticipating in the making of a decision@ has been determined to include negotiations and advice by way of research, investigations, or preparation of reports of analyses for the decision maker. (Cal. Code Regs., tit. 2, ' 18702.2.) AInfluencing the making of a decision@ includes any attempt to affect his or her own private economic interests by using official status or activities. (See Cal. Code Regs., tit. 2, ' 18702.3.) $ Is it reasonably foreseeable that the decision could materially affect the official's economic interest? An official is not required to abstain from participating in a decision unless the effects of the decision that give rise to the conflict of interest are reasonably foreseeable under all of the circumstances at the time the decision is made. It must appear that there is a reasonable possibility, based on all the facts, that the effects that would bring about the conflict will occur. (Downey Cares v. Downey Community Development Com. (1987) 196 Cal.App.3d 983.) The economic interest must also be Amaterial.@ The FPPC has created numerous regulations that outline the specific circumstances and thresholds for determining when the effects of a decision are Amaterial.@ The regulations must be consulted in order to reach a conclusion concerning the materiality of an economic interest. $ Will the effect of the decision on the public official's economic interest be distinguishable from the decision's effect on the public generally? Under the Act, if the official is participating in a decision on an issue, and the decision will affect the public's financial interests in the same manner as it does the official, the fact that it is affecting the official=s interest materially does not create a conflict of interest for the official. 2. Disqualification Once a public official determines under the Act that he or she has a financial interest in a decision, he or she is disqualified from participating in the making of the decision. The official must publicly announce the interest that is the subject of the potential conflict and the fact that the individual is disqualifying himself or herself from participation. (Cal. Code Regs., tit. 2, 18702.1.) 3. Legally Required ParticipationCthe Rule of Necessity The Act is not intended to prevent the making of official decisions that are legally required to be made. This concept is articulated in California case law and is codified in the Act to allow conflicted government officials to participate in decisions where their participation is legally required for the action or decision to be made. (See Cal. Code Regs., tit. 2, '18708.) An official is legally required to make or participate only if there is no reasonable alternative manner of decision-making. In that case, the official must publicly disclose the existence of the financial interest involved, making it a matter of public record, and state why there is no alternative manner in which the decision may be made. 4. Disclosure Requirements –Form 700 The requirements for disclosure of economic interests by filing of the Fair Political Practices Commission’s Form 700 are slightly different than the standard for the applicability of the balance of the Act. Two types of public officials must file Form 700. The first category of persons that must file Form 700 is persons in positions listed in Government Code section 87200. That section lists various state, county and city officials as well as other “public officials who manage public investments.” It does not include an oversight committee. The second category of person subject to these disclosure requirements is persons in positions listed in a local agency conflict-of-interest code. The District’s Board Bylaws contain the District’s conflict of interest policy. This includes an appendix indicating the positions subject to Form 700 disclosure requirements. That appendix does not currently include the COC or any other committee of the District. 5. Application to COC. Education Code section 15282 does not mention the Political Reform Act as applicable to members of a COC. However, it also does not specifically exclude them from its application. The applicability of the Act to “members” could apply to members of committees, as well as of boards and commissions, that either make decisions, participate in decision-making, or influence decision-making for the District. The California Legislature may have intended that a COC not be part of the decision-making process, but only that it review decisions after the fact, and report to the public concerning actions taken by a school district’s board. The Act could, however, be held to apply to members of a proactive COC that makes recommendations to a district board of education prior to the board taking action under certain circumstances. If the board frequently relies upon those recommendations and if there is not significant intervening review by the board of the recommendation of the committee, the Act would probably apply to the COC. In all probability, the legislature intended the determination of the applicability of the Act to a specific committee to be based upon that committee’s actual function rather than upon the legislatively mandated function if the two differ. The determination of the applicability of the Act to the COC is certainly a fact-based question to be determined on a case-by-case basis. With regard to the applicability of the Form 700 disclosure requirements to the COC, the exclusion of the COC or any committee from the district’s conflict of interest policy (BB 9270) appears to exclude the COC from the scope of the Act’s requirement concerning financial disclosures. However, since the COC did not exist until passage of Proposition F in March 2002, the District may want to consider amending its conflict of interest policy to address the applicability of Form 700 to the COC. C. Common Law Conflict of Interest Doctrine Even though statutory conflict of interest schemes would seem to preempt this area of law, common law principles of conflict of interest still survive as an independent source of regulating public officials' conduct. (63 Ops.Cal.Atty.Gen. 19, 23 (1980).) The courts have made clear that even though “a specific conflict of interest situation does not come within the statutory proscription, such a conflict may still be condemned by the courts as violative of public policy which is always susceptible to broader interpretation than the express statutory provisions.” [Citation omitted] The fundamental policy is that “[a] public office is a public trust created in the interest and for the benefit of the people. Public officers are obligated . . . to discharge their responsibilities with integrity and fidelity.” (58 Ops.Cal.Atty.Gen. 345, 354 (1975)), quoting from 42 Ops.Cal.Atty.Gen. 151, 155 (1963).) The following excerpts from court decisions and Attorney General opinions provide a brief summary of the common law: [T]he law does not permit a public officer to place himself in a position in which he might be tempted by his own private interest to disregard the interests of the public. (40 Ops.Cal.Atty.Gen. 210, 212 (1962).) The general common law conflict of interest rule is not restricted to contractual relationships . . .. It strictly requires public officers to avoid placing themselves in a position in which personal interest may come into conflict with their duty to the public. (46 Ops.Cal.Atty.Gen. 74, 86 (1965).) Whether the interest was direct or indirect, remote or contingent, . . . if the interest of the member is sufficient to cause him to be swayed in the slightest degree from his duty to the public, it is a violation . . .. (People v. Darby (1952) 114 Cal.App.2d 412, 435, emphasis added.) The common law is violated if the board member Ahad such an interest . . . as would tend to prevent his exercise of a jealous concern for the best interests of the school district.@ (Darby, supra, at p. 429.) The common law doctrine prohibits participation by a board member in matters in which the member has an interest. This includes not only participation in votes or decisions, but also prior deliberations. AThe latter is of course to prevent the member from influencing unduly the outcome of the vote.@ (58 Ops.Cal.Atty.Gen. 345, 356 (1975), emphasis in original.) Where a public official has a common law conflict of interest, the California Attorney General has specified the following prophylactic approach: (1) [H]e or she should immediately disclose the interest; (2) he or she should withdraw from any participation in the matter; (3) he or she should refrain from attempting to influence another member of the board and should refrain from voting, and (4) all of this should be reflected in the minutes. (58 Ops.Cal.Atty.Gen. 345-356 (1975).) The common law conflict of interest doctrine also prohibits conflicts that create the appearance or impression of impropriety. Thus, public officers and employees should avoid interactions or dealings that might suggest that their actions are not in the best interest of the public. When they cannot avoid such interactions or dealings, they should comply with the Attorney General's four-part approach described above. The common law conflict of interest doctrine applies even where a decision might otherwise appear to benefit the district. Underlying all conflict of interest provisions is the maxim that a person cannot simultaneously serve two masters. D. Contractual Conflict of Interest (Gov. Code, ' 1090) 1. General Prohibition Government Code section 1090 et seq., prohibits a public official from having personal financial interest in a contract made in an official capacity. APersonal financial interests@ are at the core of the statutes. It is a violation of section 1090 for an officer or an employee to participate in the process by which such a contract is developed, negotiated, or executed. These contracts are void and cannot be enforced. (Gov. Code, ' 1092). Section 1092 also prohibits board members and employees from selling goods or services to their school district. Where a direct conflict of interest exists, courts and the California Attorney General agree that either the contract cannot be created or the interested board member must resign prior to the district considering such contract. Courts have strictly enforced prohibitions on public employees entering into contracts in which they have a financial interest. As early as 1950, the California Attorney General found that even an employee's indirect involvement with a contract could be construed as Amaking@ a contract. The Attorney General stated that when a public officer drafted the contract specifications and put the contract out to bid, the officer had Amade@ the contract and was banned from bidding even though the bidding procedure would result in awarding the bid to the lowest bidder and the commission for which the officer worked would vote upon and sign the contract. (See 15 Ops.Cal.Atty.Gen. 123 (1950).) Section 1090 does not define when an official is financially interested in a contract; however, courts have applied the prohibition to include a broad range of interests. Section 1090 et seq., does enumerate certain Aremote@ and Anon- interests@ that, once disclosed, do not prevent an officer from participating in the making of a contract. 2. Remote Interest A public official who is a member of a public board with only a remote interest in a contract will not be deemed to have an Ainterest@ within the meaning of section 1090. Unlike direct conflicts of interest, remote interests, as defined by Government Code section 1091, are not a basis for voiding contracts provided that the interested board member: (1) discloses the interest to his or her board; (2) disclosure is noted in the board=s official records; and (3) the interested board member refrains from participating in or voting on the particular contract. Section 1091 remote interests include, for example, the interest of a parent in the earnings of his or her minor child for personal services (Gov. Code, '1091, subd. (b)(4)), or the interest of a supplier of goods or services if the officer has been supplying such goods or services for at least a five-year prior to being elected or appointed to office. (Gov. Code, ' 1091, subd. (b)(8).) These are only a couple examples of remote interests under the statute. 3. No Disqualifying Interest For most transactions, the question of conflict of interest will not arise for members of a board of education or COC because there is no personal or financial connection between the member and the contracting party. However, other instances pose legitimate questions as to whether or not a conflict exists. In some situations, the issue will arise because of an obvious for members of a board of education or COC connection. The Legislature has listed some examples that do not create a conflict of interest. (Gov. Code, ' 1091.5.) One such example states that an officer is not interested in a contract if the interest is that of Aa spouse of an officer or employee of an officer or employee of a public agency in his or her spouse's employment or office holding if@ the spouse's employment existed at least one year prior to the officeholder's election or appointment. (Gov. Code, ' 1091.5, subd. (a)(6).) Miller Brown & Dannis has long advised its clients that the law contemplates that an employed spouse may remain employed but that the board could not act to improve the non-officer spouse's employment status. In Thorpe v. Long Beach Community College Dist. (2000) 83 Cal.App.4th 655, the Court of Appeal agreed, holding that the section 1091.5 exemption contemplated maintaining the status quo, but where, as in Thorpe, a board member would be voting upon his wife's promotion, the wife could not be considered for such promotion.[1] E. Doctrine of Incompatible Offices and Activities (Gov. Code, ' 1126) School board and COC members, as officers of local public agencies, are prohibited from holding what the law considers to be Aincompatible offices@ or otherwise from engaging in activities considered incompatible with their duties as school board or COC members. The doctrine of incompatible offices and activities has both a statutory as well as a common law basis. 1. Common Law Incompatibility of Offices Doctrine a. Prohibition on the Holding of Two Incompatible Public Offices Under California common law, offices are incompatible if there is any significant and actual or potential clash of duties or loyalties between the offices, or if one office has a supervisory, auditory, or removal power over the other. Only one significant clash of duties or loyalties, actual or potential, is necessary to make the offices incompatible. The common law rule is only applicable where two public offices are being held simultaneously, and does not apply when one of the offices is a non-governmental, private office. No cure exists when a public officer holds two offices that are incompatible. Historically, acceptance of the second office constitutes an automatic resignation from the first office. b. What Is a APublic Office?@ The California Attorney General has held that the requirements for determining what constitutes a Apublic office@ for purposes of the incompatibility doctrine may be stated in a three-part definition: a public office is a position in government that (1) is created or authorized by the Constitution or some law; (2) has a tenure that is continuing and permanent, not occasional or temporary; and (3) allows the incumbent to perform a public function for the public benefit and exercise some of the sovereign powers of the state. (68 Ops.Cal.Atty.Gen. 337.) The office of school board member is clearly a Apublic office.@ A school district superintendent also has been determined by the California Attorney General to be a public officer under the incompatibility of public office doctrine. (68. Ops.Cal.Atty.Gen. 337.) This common law doctrine may not apply to members of a COC since they do not exercise sovereign powers of the state. c. Examples of Incompatible Public Offices Various opinions of the California Attorney General have held the following offices to be incompatible: $ School trustee of a high school district and school trustee of an elementary school district that lies within the high school district (68 Ops.Cal.Atty.Gen. 171); $ School trustee and city councilman (73 Ops.Cal.Atty.Gen. 354); $ School trustee and county planning commissioner (56 Ops.Cal.Atty.Gen. 488); and $ School district superintendent and director of community services district (68 Ops.Cal.Atty.Gen. 337). 2. Statutory Incompatibility of Offices and Activities Government Code section 1126 prohibits a local agency officer or employee from engaging in: [A]ny employment, activity or enterprise for compensation which is inconsistent, incompatible with, in conflict with, or inimical to his or her duties as a local agency officer or employee or with the duties, functions or responsibilities of his or her appointing power of the agency by which he or she is employed. The officer or employee shall not perform any work, service, or counsel for compensation outside of his or her local agency employment where any part of his or her efforts will be subject to approval by any other officer, employee, board, or commission of his or her employing body. (Gov. Code, ' 1126.) Section 1126 is broader than the common law doctrine of incompatibility, as it applies to officers and employees of public agencies and prohibits more than just the holding of two incompatible public offices. Since Government Code section 1126 is mentioned in Education Code section 15282, the legislature apparently intended that it apply to COC members. It can prohibit a school board or COC member from engaging in outside employment or other activities considered to be in conflict with duties as a school board or COC member or require abstention from decisions that relate to that employment or activity. It may not be required that a member automatically resign or cease the incompatible activity. The California Attorney General has concluded that abstention is permitted on a transaction-by-transaction basis. The opinions suggest, however, that if the incompatibility is of such a continuing and pervasive nature that a public officer must constantly abstain from performing his or her duties because of a personal conflict, resignation from the board, or cessation of the conflicting activity appears to be required. (70 Ops.Cal.Atty. Gen. 157.) The California Attorney General has held that a person who was both a school trustee of a unified school district and owner of a for-profit private K-3 school within the school district had incompatible offices and activities under section 1126. (70 Ops.Cal.Atty.Gen. 157.) F. CONCLUSION It should be readily apparent that there exists a complicated scheme of statutes, regulations, and case law promulgated to protect the public's interest in the unqualified loyalty of its elected officials and appointed officers and employees. These boundaries for ethical behavior require constant scrutiny. E:\Wp\Clients\6876\10102\Ethical
Conduct of Bd Members 03.0211.MJC Revisions.V.3.doc [1] For K-12 districts, Education Code section 35107 prohibits a board member from voting upon a personnel matter that uniquely affects a relative. This does not prohibit board members from voting upon collective bargaining agreements or personnel matters that affect a class of employees to which the relative belongs. |