Loading...
HomeMy WebLinkAbout061599 CC AgendaIn compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the office of the City Clerk (909) 694-6444. Notification 48 hours prior to a meeting will enable the City to make reasonable arrangements to ensure accessibility to that meeting [28 CFR 35.102.35.104 ADA Title II] AGENDA A JOINT CITY COUNCIL/PLANNING COMMISSION COMMUNITY SERVICES COMMISSION/PUBLIC/TRAFFIC SAFETY COMMISSION/ OLD TOWN REDEVELOPMENT ADVISORY COMMITTEE/ OLD TOWN LOCAL REVIEW BOARD WORKSHOP MEETING CITY COUNCIL CHAMBERS 43200 BUSINESS PARK DRIVE JUNE 15, 1999 - 6:00 P.M. CALL TO ORDER: ROLL CALL: City Councilmembers: Comerchero, Lindemans, Roberts, Stone, Ford Planning Commissioners: Fahey, Mathewson, Naggar, Webster, Guerriero Public/Traffic Safety Commissioners: Connerton, Edwards, Markham, Telesio, Coe Community Services Commissioners: Henz, Meyler, Miller, Nimeshein, Edwards Old Town Redevelopment Advisory Committee: Jenkins, Testasecca, Wedeking Old Town Local Review Board: Allen, Baron, Blair, Mighell, Ross, Harker PUBLIC COMMENTS A total of 30 minutes is provided so members of the public may address the Council on items that appear within the Consent Calendar or ones that are not listed on the agenda. Speakers are limited to two (2) minutes each. If you desire to speak to the Council on an item which is listed on the Consent Calendar or a matter not listed on the agenda, a pink "Request to Speak" form should be filled out and filed with the City Clerk. When you are called to speak, please come forward and state your name for the record. For all Public Hearing or Council Business matters on the agenda, a "Request to Speak" form must be filed with the City Clerk prior to the Council addressing that item. There is a five (5) minute time limit for individual speakers. R:~Agenda\061099CIP 1 CITY COUNCIL/COMMISSION REPORTS Reports by the members of the City Council/Commissions on matters not on the agenda will be made at this time. A total, not to exceed, ten (10) minutes will be devoted to these reports. COUNCIL/COMMISSION BUSINESS 1 Brown Act/Conflict of Interest Training ADJOURNMENT Next City Council meeting: Tuesday, July 13, 1999, at 7:00 P.M., in the City Council Chambers, 43200 Business Park Drive, Temecula, California. Next Planning Commission meeting: Wednesday, June 16, 1999, at 6:00 P.M., in the City Council Chambers, 43200 Business Park Drive, Temecula. Next Community Services Commission meeting: Monday, July 12, 1999, at 7:00 P.M., in the City Council Chambers, 43200 Business Park Drive, Temecula. Next Public/Traffic Safety Commission meeting: Thursday, June 24, 1999, at 6:00 P.M., in the City Council Chambers, 43200 Business Park Drive, Temecula. Next Old Town Redevelopment Advisory Committee meeting: Tuesday, July 6, 1999, at 5:30 P.M., in the Community Development Meeting Room, 43200 Business Park Drive, Temecula. Next Old Town Local Review Board meeting: Monday, July 12, 1999, at 9:00 A.M., at the Temecula Community Center on Pujol Street, Temecula. R :~genda\061099CI P 2 Conflicts of Interest SUMMARY OF THE PRINCIPAL CONFLICT OF INTEREST LAWS THAT APPLY TO LOCAL AGENCY DECISIONS Kevin G. Ennis This portion of the program materials provides a general summary of the relevant conflict of interest laws and applicable conflict of interest regulations for typical decisions of a local agency. Also included is a summary of laws prohibiting the receipt of gifts and honoraria and limitations on the receipt of certain loans to public officials. This paper is general in nature and may not cover all aspects of an actual conflict of interest question. Thus it is not intended to constitute advice on specific conflict of interest questions. In the event of an actual conflict of interest issue, you should contact your city attorney or agency counsel for further advice. GENERAL CONFLICT OF INTEREST LAWS THAT ARE APPLICABLE TO DECISIONS OF AN AGENCY There are 'three principal sets of conflict of interest laws that apply to decisions of a local agency. There are also other laws that affect the ability of public officials to participate in governmental decisions, receive gifts, acquire property or hold another office. Those other laws will be summarized in the second part of this program material. The three principal sets of conflict of interest laws are summarized below: A. POLITICAL REFORM ACT The California Political Reform Act (Governmere Code Section 81000 et seq., "Act") is the principal law in California governing conflicts of interest for public officials.~-t Its conflict of interest provisions are found at Government Code Section 87000 et seq. The Fair Political Practices Commission ("FPPC") has interpreted the Act in a series of Regulations found at 2 Cal. Code of Regulations, Section 18109 et seq.1~ The Act requires public officials to disqualify themselves from making, participating in making, or in any way attempting to use their official position to influence a governmental 1/ At the end of this portion of the materials is a summary of additional provisions of the Political Reform Act that regulate gifts, honoraria and loans to public officials. 2/ All statutory references are to the California Government Code unless otherwise indicated. Regulations of the FPPC are referred to as "Regulation Section." 1999 SPRING SEMINAR Page 90 ~1999 Richard. Wanon & Getsboa I I I I i. I I I! li I I . I! I! I! Conflicts of Interest decision in which they know or have reason to know they have a financial interest (Section 87 100). An official has a f'mancial interest in a decision if it is reasonably foreseeable that the decision will have a material f'mancial effect, distinguishable from its effect on the public generally, on the official, a member of his or her immediate family, or on certain listed financial interests. The listed financial interests are: "(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 three hundred dollars ($300)!/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 .... " (Section 87103). The Regulations of the FPPC interpret and provide guidance to most of the terms used in the Act as well as provide standards for determining if each element of the Act's prohibitions has been satisfied. 1. The FPPC's Eight-Step Test for Analyzing Conflict of Interest Questions The FPPC recently adopted new regulations for deciding if a conflict of interest exists under the Act. At the beginning of those regulations is a new eight-step test that the FPPC 3/ The dollar amount in this paragraph (e) has been increased to $300 by the FPPC pursuant to Regulation Section 18940.2. 1999 SPRING SEMINAR ~1999 Riclmrd~, Watson & Ger~hon Page 91 Conflicts of Interest recommends be used when analyzing conflict of interest questions (Regulation Section 18700). That test is set forth below: STEP ONE: Is a Public Official Involved? Determine whether the individual is a public official within the meaning of the Act. A "public official" is defined to include a "member, officer, employee, or consultant" of a local government agency. Each one of those terms is defined to further clarify the categories of persons subject to the requirements of the Act (Regulation Section 18701). A "member" includes members of boards or commissions with decision- making authority. A board or commission possesses decision-making authority whenever it may make a final governmental decision, it may compel a governmental decision, or it makes substantive recommendations which are, and over an extended period of time have been, regularly approved without significant amendment or modification by another public official or governmental agency (Regulation Section 18701(a)(1)). A "consultant" includes an individual who, pursuant to a contract with a state or local government agency, is empowered to make a governmental decision or serve in a staff capacity with the agency (Regulation Section 18701(a)(2)). STEP TWO: Is There a Government Decision Involved? Determine whether the public official will be making, participating in the making, or using or attempting to use his/her official position to influence a governmental decision. A public official "makes" a governmental decision, when the official, acting within the authority of his or her office or position, votes on .a matter, appoints a person, commits his or her agency to a course of action, enters into a contract, or determines not to act unless such determination is made because of his or her financial interest (Regulation Section 18702.1). A public official "participates in making" a governmental decision, when the official, acting within the authority of his or her office or position, negotiates, without significant substantive review, with a third party, or advises or makes recommendations to a decision-maker (Regulation Section 18702.2). 1999 SPRING SEMINAR Page 92 cl999 Richards, Watson & Gersl~t I I i I I I I I I I. I I I I I. I. Conflicts of Interest A public official is "attempting to use his or her official position to influence" a decision if, for purpose of influencing the decision, the official contacts, or appears before, or otherwise attempts to influence any member, officer, employee or consultant of the agency- (Regulation Section 18702.4). Special and less restrictive rules apply when the official is attempting to influence a decision of another governmental agency or an agency not under the budgetary control of the public official's agency. Exceptions exist in situations where the public official appears before the public agency as a member of the general public to represent specific and limited "personal interests," speaks to the public or press, or negotiates his or her compensation or terms of employment (Regulation Section 18702.4). STEP THREE: What are the Public Official's Economic Interests that Are Affected? Identify the public official's economic interests. A public official's economic interests under the Act include those listed in Section 87103. They include investments and positions in business entities, interests in real property, sources of income and gifts, and the personal expenses, income, assets and liabilities of the public official (Section 87103 and Regulation Sections 18703 - 18703.5). STEP FOUR: Are those Interests Directly or Indirectly Involved? For each of the public official's economic interests, determine whether that interest is directly or indirectly involved in the governmental decision at issue. A person, including business entities and sources of income or gifts, is regarded as "directly involved" in a decision if that ~5erson or entity initiates or is a named party in a proceeding (Regulation Section 18704.1). An interest in real property is regarded as "directly involved" in a decision if the decision involves the zoning or rezoning, annexation, sale or lease of the real property, involves the issuance or denial of a license, permit or other entitlement, or certain other decisions the specifically involve the subject property (Regulation Section 18704.2). A public official's personal finances are deemed directly involved in a decision if the decision has any personal financial effect on him or her or his or her immediate family (spouse or dependent child) (Regulation Section 18704.5). Economic interests that do not qualify as being "directly involved" are deemed to be "indirectly involved" in the decision. 1999 SPRING SEMINAR 01999 Richarcts, Wats~ & C, ersl~on Page 93 Conflicts of Interest STEP FIVE: Which "Materiality" Standard Applies? Determine the applicable materiality standard for each economic .' interest. A. Business entities. Business entities are regarded as "materially" affected when those businesses are directly involved in the decision and are smaller in financial size than those permitted for listing on a national or regional stock exchange. Business entities that are directly involved in the decision and are large enough to be listed on a national or regional stock exchange are regarded as materially affected by the decision only if the public official's investment in the business entity is worth $10,000 or more (Regulation Section 18705.1). When business entities are only indirectly involved, the decision is regarded as materially affecting that business entity only if the decision is likely to have specified levels of financial effect depending on the size of the business entity (Regulation Section 18705.1 (b)). For business entities listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. Corporations, a decision will be found to materially affect the business entity if the decision will affect the gross revenues, expenses, assets or liabilities by $1,000,000 or more in a fiscal year or result in an increase or decrease in expenses by $250,000 or more in a fiscal year (Regulation Section 18705. l(b)(1)). Businesses not listed on that Directory but which are listed on the New York or American Stock Exchanges, are materially affected when the decision affects the gross revenues, expenses, assets or liabilities of the business entity by $250,000 or more in a fiscal year or results in an increase or decrease in expenses by $100,000 or more in a fiscal year (Regulation Section 18705.1 (b)(1)). Lower thresholds of materiality apply to businesses indirectly involved and which are listed, of eligible for listing, on 'NASDAQ or on regional stock exchanges .(Regulation Section 18705.1C0)(2) and (3)). For the smallest businesses, (those that have net tangible assets of less than $4 million, pre-tax income of less than $750,000 in the last fiscal year or net income for that period of less fixan $400,000) a decision will be found to materially affect the business entity if the decision will affect the gross revenues, expenses, assets or liabilities of that entity by $10,000 or more in a fiscal year or result in an increase or decrease in the entity's expenses by $2,500 or more in a fiscal year (Regulation Section 18705.1(b)(7)). 1999 SPRING SEMINAR Page 94 ~1999 Riclutrds, Warsoil & Gershon I I I Conflicts of Interest MATERIAL FINANCIAL EFFECTS WHERE BUSINESS ENTITY IS INDIRECTLY INVOLVED IN A DECISION (Regulation Section 18705.1) i i i / I Type of Business Listed on NYSE4j and Fortune 1000 Listed on NYSE or Meets Standards for Fortune 1000 Listed on NASDAQs-/ Or Meets Standards for NYSE~ Listed on Pacific Stock Exchange, Meets Standards for Public Sale in Cal. and Listed on State Eligibility List or Meets Standards for NASDAQ1~ All Others Increase or Increase or Increase or Decrease in Decrease in Decrease in Gross Revenues Expenses Assets/Liabilities 1,000,000 250,000 1,000,000 250,000 100,000 250,000 150,000 50,000 150,000 30,000 7,500 30,000 10,000 2,500 10,000 B. Real Property. Real property is "materially" affected by a decision when the property is directly' involved in the decision. Real property that is only indirectly involved in the decision is also "materially" affected when specified criteria is satisfied. First, real property is "materially" affect if the decision involves 4/ New York Stock Exchange. 5/ National Association of Securities Dealers National Market List. 6/ New York Stock Exchange Standards are net tangible assets of at least $18,000,000 and pre~tax income for the last fiscal year of at least $2,500,000. 7/ Standards for NASDAQ are net tangible assets of at least $4,000,000 and pre-tax income for the last fiscal year of at least $750,000, with net income from that period of at least $400,000. 1999 SPRING SEMINAR Page 95 · 1999 Richards, Watson & Gershon Conflicts of Interest construction of, or improvements to, streets, water, sewer, storm drainage or similar facilities, and the official's real property will receive new or substantially improved service (Regulation Section 18705.2(b)(1)(B)). Second, a decision is deemed to have a material financial effect on the official's real property, if the official's property is located within 300 feet of the boundaries of the property subject to the decision, unless there are unique facts to indicate that the decision will have no financial effect at all on the official' s real property interest (Regulation Section 18705.2(b)(1)(A)). Third, in situations where the official's real property is located outside a radius of 300 feet, but any part of the property is located within a radius of 2,500 feet of the boundaries of the property subject to the decision, the decision is regarded as materially affecting the official's property if the decision will have a reasonably foreseeable financial effect on the official's property of: (a) Ten thousand dollars ($10,000) or more on the fair market value of the real property; or (b) Will affect the rental value of the property by $1,000 or more per 12 month period (Regulation Section 18702.5((b)(1)(C)). Fourth, when the official's real property is located outside a radius of 2,500 feet of the boundaries of the property subject to the decision, the decision is presumed to not have a material financial effect on the value of the official's property unless: (a) There are specific circumstances regarding the decision, its effect, and the nature of the real property in which the official has an interest, which make it reasonably foreseeable that the fair market value will be affected by $10,000 or the rental value of the real property will be affected by. $1,000 or more in a 12 month period; and (b) Either of the following apply: (1) The effect will not be substantially the same as the effect upon at least 25 percent of all the properties which are within a 2,500 foot radius of the boundaries of the real property in which the official has an interest; or (2) There are not at least 10 properties under separate ownership within a 2,500 foot radius of the property in which the official has an interest (Regulation Section 18702.5(b)(2)). 1999 SPRING SEMINAR Page 96 ~1999 Ricl~ards, Watson & Ger~on Conflicts of Interest MATERIAL FINANCIAL EFFECTS WHERE REAL PROPERTY IS INDIRECTLY INVOLVED IN A DECISION (Regulation Section 18705.2) C, 0-300 feet - presumption of materialivy unless special circumstances 300-2500 feet - materialiVy found only if $10,000 impact or $1,000 effect on rental value in a 12-month period 2500 + - presumption of no materialiVy unless special circumstances C. Sources of Income of Gifts. Sources of income are "materially" affected if they are directly involved in the decision. Business entities or non-profit entities that are sources of income and are indirectly involved in the decision are "materially" affected when the decision affects the entity by specified thresholds depending on the financial size of the entity (Regulation Section 18705.3). Sources of income that are individuals are "materially" affected if the decision affects the individual's income, investments, liabilities or assets by $1,000 or more, affects their real property in the manner mentioned in the prior paragraph, or if there is a "nexus" between the official's receipt of the income and the governmental decision (Regulation Section 18705.3(b)(3) and (c)). Sources of gifts are "materially" affected if the 1999 SPRING SEMINAR Page 97 '~1999 Richards, Watson & C, ershon I I 1 t t I I I t t 1 I I I Conflicts of Interest source of the gift is directly involved in the decision or if the decision is likely to affect the source of the gift in a manner deemed. material for business entities, non- profit entities or individuals, whichever is applicable (Regulation Section 18705.4). STEP SIX: Does the Decision Affect the Economic Interests of the Public Official "Materially" ? Determine whether it is reasonably foreseeable that the governmental decision will have a material financial effect on each economic interest. A material financial effect on an economic interest is reasonably foreseeable if it is substantially likely that one or more of the materiality standards applicable to that economic interest will be met as a result of the governmental decision. (Regulation Section 18705.5) STEP SEVEN: Does the "Public Generally" Exception Apply? Determine if the reasonably foreseeable financial effect is distinguishable from the effect on the public generally. Once it is determined that it is reasonably foreseeable that the decision will have a material financial effect on a public official's financial interest or interests, the · decision must be evaluated under the "public generally" exception (Regulation Sections 18707 et seq.). The public generally exception provides that even if the decision will have a reasonably foreseeable material financial effect on the official's financial interest, disqualification is required only if the effect on the public official is distinguishable from the effect on the financial interests of the public generally or a significant segment of that public. The "public generally" is comprised of the entire jurisdiction of the public agency (In re Legan, 9 FPPC Ops. 1 (1985)). This "public generally exception" involves two core elements. First, the governmental decision must affect a "significant segment" of the public in the jurisdiction of the public agency. For decisions that affect a business entity in which the official has an economic interest, fifty percent of all businesses have to be affected by the decision. For decisions that affect an official's other economic interests, the decision must affect either ten percent of the population of the jurisdiction or ten percent of all property owners, all home owners, or all households in the jurisdiction or district the official represents. In addition, for decisions that affect any of the official's economic interests, the decision affects a "significant segment" if it will affect 5,000 individuals who are residents of the jurisdiction (Regulation Section 18707(b)(1)). 1999 SPRING SEMINAR o1999 Rioharris, Wagon & Gershon Page 98 Conflicts of Interest The second core element of the public generally exception is the governmental decision must affect the official's economic interest in substantially the same manner as it will affect the significant segment identified above (Regulation Section 18707(b)(2)). Specialized "public generally exceptions" exist for decisions to establish or adjust assessments, taxes, fees, charges, or rates (Regulation Section 18707.1), for decisions affecting an official's principal residence located in a "small jurisdiction" (having a population of 25,000 or less), decisions affecting principal industries, trades or professions in the jurisdiction (Regulation Section 18707.3), decisions made by' appointed members of certain types of board or commissions (Regulation Section 187047.4), decisions affecting sources of income to owners of retail business entities (Regulation Section 18707.5), or decisions in specified "states of emergency" (Regulation Section 18707.6)). STEP EIGHT: Is the Public Official's Participation Legally Required? Determine if the public official's participation is legally required despite the conflict of interest. A public official is permitted to participate in making a governmental decision, despite having a conflict of interest in the decision, if there exists no alternative source of decision consistent with the purposes and terms of the statute authorizing the decision. (Regulation Section 18708). This exception is applied when a quorum of a legislative body cannot be convened due to the disqualifying conflicts of interests of its members. In that situation, one, or as many members as is needed to create the minimum number for the quorum, may be selected at random to participate. In these situations, stringent disclosure requirements apply, not only regarding the basis of the selected member's conflict of interest, but also the reason why there is no alternative source of decision-making authority (Regulation Section 18708(b)). This rule is construed narrowly and may not be invoked to permit an official, who is otherwise disqualified, to vote to break a tie or to vote if a quorum can be convened of other members of the agency who are not disqualified, whether or not such other members are actually present at the time of the decision (Regulation Section 18708(c)). 2. Abstention When a public official has a conflict of interest under the Act, he or she is required to abstain from making, participating in the making, or using or attempting to use his or her official position to influence the local agency's decision regarding the project (Government Code Section 87103). Abstention avoids a violation of the conflict of interest provisions of the Act. Persons who are members of a legislative body should announce their abstention at 1999 SPRING SEMINAR Page 99 ~1999 Richards, Watson & Gershon Conflicts of Interest the meeting of the legislative body at which the decision is presented, and before the item is discussed. Their announcement is required to be accompanied by disclosure of the financial interest that causes the conflict of interest. These announcements must be carefully and fully - entered into the minutes of the legislative body. Upon an abstention, it is recommended that the public official step off the legislative body's dais and remain outside the legislative body's meeting room each time the legislative body considers the item. Public officials who are not members of a legislative body should announce their abstention in writing made to the official's supervisor or appointed power (Regulation Section 18702.1(1)(5)). A public official with a disqualifying conflict of interest in a decision is permitted to have limited contact with the public agency regarding that decision under certain circumstances. Recognizing that public officials have, at certain times, the need and right to represent their own personal interests, the FPPC has created an exception that permits a disqualified official to speak to a legislative body of which he or she is a member or a legislative body under the budgetary control of the legislative body of which they are a member (Regulation Section 18702.4(b)). This exception permits an official to appear in the same manner as any other member of the general public solely to represent his or her "personal interests." The term "personal interests" is defined to include an interest in real property or a business entity that is wholly owned by. the official or members of his or her immediate family (spouse or dependent children). It also includes business entities over which the official, or the official and his or her spouse, exercise sole direction and control. (Regulation Section 18702.4(b)). 3. Penalties for Violation Administrative, civil and criminal penalties exist for violation of the conflict of interest provisions of the Act. Administrative penalties are levied by the FPPC after hearing or entry of stipulated statement of facts and may include up to a $5,000 free per violation, a cease and desist order, and an order to file reports (Section 83116). Civil penalties include injunctive relief that may be sought by the district attorney or any' person residing in the jurisdiction (Section 91003). In the event a court finds that the actions would not have been taken but for the action of the official with the conflict of interest,. the court is empowered to void the decision (Section 91003). Misdemeanor criminal penalties are provided in situations where a knowing or willful violation of the act occurs (Section 91000) and, 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 (Section 91002). The statute of limitations for civil and criminal enforcement actions is four years from the date of the violation (Section 91000(c) and 9101 1(b)). The statute of limitations for administrative actions brought by the FPPC is five years from the date of the violation (Section 91000.5). 1999 SPRING SEMINAR Page 100 · 1999 Riclhar~s, Watson & Gersl~t 1 I I I I I I Conflicts of Interest 4. Seeking Advice on Conflict of Interest Questions It is important to note that only a formal advice letter from the FPPC staff can immunize a public official from potential enforcement by the FPPC or the District Attorney in the event the public official participates in a decision and someone subsequently alleges the public official had a prohibited conflict of interest. A formal advice letter usually takes the Commission staff at least a month to prepare and is only provided if the request relates to prospective acts as distinguished from past acts and it if contains sufficient facts upon which the FPPC is able to render a decision. Informal written advice (without immunity from potential enforcement action) may also be requested from the FPPC staff as well as informal telephonic advice through their technical assistance division at (916) 322-5660. Based on the time-frames required to obtain formal or informal written advice from the FPPC, it is important for public officials to consult their city attorney or local agency counsel as earlier as possible so as to provide adequate time to gather all relevant facts, draft a letter to the FPPC, and respond to the advice once given. B.. GOVERNMENT CODE SECTION 1090 Government Code Section 1090 provides: "Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity. "As used in this article, 'district' means any agency of the state formed pursuant to general law or special act, for the local performance of governmental or proprietary functions within limited boundaries.' The prohibition contained in Section 1090 is intended to preclude a public official from using his or her official position as a government officer or employee to obtain business or financial advantage. The purpose of the prohibition is to remove the possibility of any personal influence which might bear on an official' s decision-making activities with respect to contracts entered into by the governmental agency. Upon the enactment of the Political Reform Act of 1974, a question arose as to whether that new law impliedly repealed or preempted the provisions of Section 1090. This question was first addressed by the Attorney General in 1976 wherein that Office concluded in 59 Ops. Cal. Att'y. Gen. 604, 671 (1976) that the Political Reform Act did not impliedly 1999 SPRING SEMINAR Page 101 e1999 Richards, Walso~ & G~r~hon I ! II II II Ii II II i II I II I I I I I I I Conflicts of Interest repeal or preempt Section 1090. Since that time, courts and the Attorney General have consistently considered Section 1090 as having continuing effect (See, Fraser-Yamor Agency, Inc. v. County of Del Norte, 68 Cal. App.3d 201 (1977), People v. Vallerga, 67 Cal. App.3d 847 (1977), City Council v. McKinley, 80 Cal. App.3d 204 (1978), City of imperial Beach v. Bailey, 103 Cal. App.3d 191 (1980), Thomson v. Call, 38 Cal.3d 633 (1985), Campagna v. City of Sanger, 42 Cal. App.4th 533 (1996), rev. den. and Opinions of the California Attorney General at 67 Ops. Cal. Att'y Gem 369, 375 (1984), 69 Cal. Att'y. Gen. 102 (1986), 70 Ops. Cal. Att'y. Gen. 45, 47 (1987) and 73 Ops. Cat. Att'y. Gen. 191, 194-195 (1990)). More recently, in People v. Honig, 48 Cal. App.4th 289, 328-29 (1996), the defendant in a criminal case for violations of Section 1090 argued that the provisions of the Political Reform Act superseded Section 1090. The court declined to so rule, holding instead that the term "financially interested" in Section 1090 has a different meaning than the term "material financial effect" in the Political Reform Act. As recently as January of this year, a California Court of Appeal again held that the Political Reform Act and Section 1090 are "two different statutory schemes." (City of Vernon v. Central Basin Water Dist., 69 Cal. App.4th 508, 513 (1999)). Section 1090 is unlike the Political Reform Act and the Common Law Doctrine Against Conflicts of Interest which require the public official with the conflict of interest only to abstain from participation in the decision. Section 1090 prevents the local agency from even entering into the contract in which one of its officers or employees has a financial interest unless certain exceptions apply. Specifically, 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, at p. 649). This absolute prohibition applies regardless of whether the contract is found to be fair and equitable or the official abstains from all participation in the decision. (Thomson, supra, at p. 649-650, Fraser-.Yamor Agency, Inc. v. County of Del None, supra, at pp. 211-212, and City of imperial Beach, supra, at p. 195)). Only the existence of a "remote" or "non- interest" within the meaning of specified provisions discussed below provide an exception to this rule. 1. Three Principal Components to Section 1090 The prohibition contained in Section 1090 involves three principal components: (1) the person subject to the prohibition must be an officer or employee of one of the types of listed governmental entities; (2) the public officer or employee must be financially interested in the contract; and (3) the contract must be made either (i) by the public official in his or her official capacity; or (ii) by the body or board of which he or she is a member. 1999 SPRING SEMINAR ~'1999 Richards, Watson & Gcrshon Page 102 Conflicts of Interest I[ II , a. Officer or Employee of Listed Government Entity The first element is whether the person subject to the prohibition is an officer or employee of "the Legislature, state, county, district, judicial district," or a "city officer or employee.' Virtually every officer or employee or a municipality or local governmental district is subject to the prohibitions of Section 1090. b. Financial Interest in a Contract The second element of the prohibition is the existence of a direct or indirect financial interest in a contract. The term "financially interested" has been interpreted to include any direct interest, such as that involved when an officer enters directly into a contract with the body of which he is a member. It has also been interpreted to include indirect financial interests in a contract, where for example, a public official would gain something financially by the making of the contract (Fraser-Yamor Agency, Inc. v. County of Del None, 68 Cal. App.3d 201 (1977)). .Th..e scope of the financial interests to which Section 1090 applies is broad. In Thomson v. Call, supra, at p. 645-46, the California Supreme Court described the breadth of the statute this way: "Section 1090 forbids city officers such as Call from being 'financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.' The proscribed interest certainly includes any direct interest, such as that involved when an officer enters directly into a contract with the body of which he is a member. California courts have also consistently Voided such contracts where the public officer was found to have an indirect interest therein .... Neither the absence of actual fraud nor the possibility of a 'good faith' mistake on Call's part can affect the conclusion that this contract violates section 1090 and is therefore void." (Citations omitted, emphasis added.) In that case, a city councilman sold certain real property to a third party, knowing that the city was negotiating a deal to acquire multiple parcels of property in that area for a publid park. The third party then conveyed the councilman's property to the City, in an apparent attempt to evade the provisions of Section 1090. The court essentially "unwound" and invalidated the entire transaction based on the councilman's interest in the transaction. The court refused to focus on the isolated contract between the city and the third-party that bought the property from the councilmember, but rather viewed all of the successive contracts as one complex multi-party agreement. The court ordered the councilmember to disgorge all funds he received in the transaction and ordered that the City retain title to the 1999 SPRING SEMINAR Page 103 01999 Richards, Watson & Gershon Conflicts of Interest property. The court noted that this type of severe remedy was necessary to discourage violations of Section 1090. In People v. Vallerga, supra, at p. 867, the court summarized prior court decisions addressing financial interests under Section 1090 as follows: "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." The second part of this component is the existence of a "contract" within the meaning of Section 1090. General contract principles apply to this determination and include such arrangements as purchase and service contracts but also development agreements between a city and a developer (78 Ops. Cal. Att'y. Gen. 230 (1995)) and payments for conference attendance expenses (75 Ops. Cal. Atty. Gem 20 (1992)). C, Contract "Made" by the Official or by a Body or Board of which the Official is a Member The third element is that the contract has to be "made" either by the official or employee acting in his or her official capacity, or by any body or board of which the official is a member. The term "made," as used in the statute has been interpreted broadly by the courts to encompass such elements in the making of a contract as preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans or specifications and solicitation for bids (Mitbrae Association for Residential Survival v. City of MiIbrae, 262 Cal. App.2d 222, 237 (1968); City Council of San Diego v. McKinley, 80 Cal. App.3d 204, (1978)). A city council's approval of a simple purchase order as part of the approval of a demand warrant registrar is most likely to constitute the making of a contract within the scope of Section 1090. 2. Exceptions to Section 1090 There are two codi~ed sets of exceptions to Section 1090. The first is Section 1091 which specifies certain "remote interests." If an official merely has a remote interest, then the local agency may enter into the contract as long as the official abstains from participating in any way in the decision. The second set of exceptions is found in Section 1091.5. These exceptions are called the "non-interest" exceptions and provide that the interests which fall within those exceptions are excluded from the scope of Section 1090 altogether. 1999 SPRING SEMINAR Page 104 ~1999 Riehards, Watson & Gerslxm Conflicts of Interest 3. Penalties A violation of Section 1090 may result in severe penalties. A contract made in violation of Section 1090 is deemed void (Section 1092). Any person subject to Section 1090 who willfully violates Section 1090 is guilty of a felony and subject to a free and imprisonment in a state prison (Section 1097). He or she may also be forever barred from holding public office in this state (Section 1097). C. COMMON LAW DOCTRINE AGAINST CONFLICTS OF INTEREST The common law doctrine against conflicts of interest is the judicial expression of the public policy against public officials using their official positions for private benefit (see, Terry v. Bender, 143 Cal. App.2d 198,206 (1956)). This doctrine has been primarily applied to require a public official to abstain from participation in cases where the public official's private financial interest may conflict with his or her official duties (64 Ops. Cal. Atty. Gen. 795,797 (1981)). By virtue of holding public office, an elected official "is impliedly bound to exercise the powers conferred on him with disinterested skill, zeal, and diligence and primarily for the benefit of the public." (Noble v. City of Palo Alto, 89 Cal. App. 47, 51 (1928)). An elected official bears a fiduciary 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 a private interest/~; see also Nussbaum v. Weeks, 214 Cal. App.3d 1589, 1597-98 (1989)). This doctrine is an independent basis from the Political Reform Act for requiring local agency officials and employees to abstain from participating in local agency discussions or decisions involving matters in which they have a financial interest. Violation of the common law duty to avoid conflicts of interest can constitute official misconduct and result in a loss of office (See Nussbaum, 214 Cal. App.3d at 1597-98). H. OTHER SPECIALIZED CONFLICT OF INTEREST LAWS A. Incompatible Outside Activities (Government Code Section 1126 et seq.) California Government Code Section 1126 provides: "(a) Except as provided in Sections 1128 and 1129, a local agency officer or employee shall not engage in any employment, activity, or enterprise for compensation which is inconsistent, incompatible, 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 or the agency by which he or she is employed .... " 1999 SPRING SEMINAR Page 105 '~1999 Richazd~, Watson & Getshort Conflicts of Interest The provisions of Section 1126 prohibit officials and employees of a local government agency from engaging in outside employment or activities where any ~art of the employment or activity will be subject to approval by any other offleer, employee, board or commission of the local agency. Exceptions are created to permit a public official to engage in outside employment by a private business (Section 1127), and to permit an attorney employed by a local agency in a non-elective position to serve on an appointed or elected governmental board of another agency (Section 1128). However, the court in Mazzola v. City and County of San Francisco, 112 Cal. App.3d 141 (1980) ruled that Section 1126 provides only authorization to implement standards for incompatibility pursuant to paragraph (b) of Section 1126. The court ruled that the restrictions of Section 1126 are not self-executing because existing and future employees should have notice that specific outside activities are or are not compatible with their duties as an officer or employee of the local agency. Thus, Section 1126 would not bar a public official from holding a position outside their public agency unless the public agency in which they serve as a public official adopts an ordinance in compliance with the requirements of Section 1126 that specifies that the two positions or activities are incompatible. In light of the court's decision in Mazzola, the Attorney General ruled that Section 1126 did not apply to any elected official, such as a city councilmember, since elected officials do not have an "appointing power" that can promulgate guidelines for their activities pursuant to Section 1126. However, if a local agency adopts such guidelines, they can be made applicable to officers and employees subordinate to the legislative body of the local agency, including members of advisory boards and commissions. B. Common Law Doctrine Against Incompatible Offices The common law doctrine against incompatibility of offices arose from a concern that the public interest would suffer where one person holds two public offices which might possibly come into conflict. The California Supreme Court set forth the following test for incompatibility of office in People ex rel. Chapman v. Rapsey, 16 Cal.2d 636 (1940): "Two offices are said to be incompatible when the holder tannot in every instance discharge the duties of each. Incompatibility arises, therefore, from the nature of the duties of the offices, when there is an inconsistency in the functions of the two, where the functions of the two are inherently inconsistent or repugnant, as where antagonism would result in the attempt by one person to discharge the duties of both offices, or where the nature and duties of the 1999 SPRING SEMINAR Page 106 e1999 Riclm'ds, Wat.so~ & C, ershon Conflicts of Interest two offices are such as to render it improper from considerations of public policy for one person to retain both." (16 Cal.2d at 641-642). Incompatibility of offices is not measured only by conflicts which do exist, but also by those conflicts which might arise (People ex rel. Chapman, 16 Cal.2d 636, 641-642 (1940); 66 Cal. Atty. Gen. 382, 384 (1983); 64 Ops. Cal. Atty. Gen. 288,289 (1981)). In order to determine whether two positions are in conflict, it is necessary to determine first whether the positions are public offices. No statutory definition is given to the term "public officer." However, in People ex rel. Chapman v. Rapsey, supra, the court stated: "[A] public office is said to be the right, authority, and duty, created and conferred by law--the tenure of which is not transient, occasional, or incidental--by which for a given period an individual is invested with power to perform a public function for public benefit . . . "One of the prime requisites is that the office be created by the Constitution' or authorized by some statute. And it is essential that the incumbent be clothed with a part of the sovereignty of the state to be exercised in the interest of the public." (16 Cal.2d at 640). Incompatibility can be triggered if the duties of the two offices "overlap so that their exercise may require contradictory or inconsistent action, to the detriment of the public interest." (People ex. rel. Bagshaw v. Thomson, 55 Cal. App.2d 147, 150 (1942)). Only one significant clash of duties and loyalties is required to make offices incompatible (37 Ops. Cat. Atty. Gen. 21, 22 (1961). The policy set forth in People ex rel. Chapman v. Rapsey includes prospective as well as present clashes of duti.es and loyalties (63 Ops. Cat. Atty. Gen. 623 (1980)). : Disqualification 9f oneself from participating in those situations of potential conflict has not been authorized as a remedy for incompatible offices. The general rule provides: "The existence of devices to avoid.. . [conflicts] neither changes the nature of the potential conflicts nor provides assurances that they would be employed (38 Ops. Cal. Atty. Gen. 121, 125 (1961)). Accordingly, the ability to abstain when a conflict arises will not excuse the incompatibility or obviate the effects of the doctrine." (66 Ops. Cal. Atty. Gem 176, 177 (1983)). The effect of the doctrine of incompatibility of offices is that a public official who enters upon the duties of a second office must vacate the first office if the two are incompatible (People ex rel Chapman v. Rapsey, 16 Cal.2d 636, 644 (1940)). 1999 SPRING SEMINAR Page 107 e1999 Richards, WaL.~Cn & C~rshon Conflicts of Interest Ill III C. Redevelopment Conflicts Health and Safety Code Section 33130 requires any officer or employee of a city or redevelopment agency who is required to participate in the formulation of, or to approve plans or policies for, the redevelopmerit of a project area, to immediately disclose his or her ownership interest in any real property located within the proposed project area. This requirement applies to members of a city council, a planning commission and other officers and employees of a city or redevelopmerit agency. Failure to make the disclosure constitutes misconduct in office. Section 33130 also precludes any city or redevelopment agency official who is required to participate in the formulation of, or to approve plans or policies for, the redevelopment of a project area, from acquiring any interest in property located within the boundaries of the project area. This means that redevelopment agency employees and persons elected to the city council and serving as agency board members may not purchase property in the redevelopmerit agency's project area. Also, if the redevelopment agency commences the process to establish a new project area, city and redevelopment agency employees and officials involved in redevelopment decisions are precluded from acquiring any additional or new interests in property within that new project area boundary. As discussed below, there are three exceptions to the prohibition against acquiring interests in property in a project area. Upon acquiring any interest under one of these exceptions, disclosure of the interest is required. The first exception allows an officer or employee to acquire an interest for the purpose of participating as an owner or re-entering into business if that officer or employee has owned a substantially equal interest to that being acquired for three years immediately preceding the selection of the project area (Section 33130(b)). The second exception allows an officer or employee to enter into a rental agreement or lease of property for the purpose of the principal business, occupation, or profession of the officer or employee. However, this exception is limited to rental agreements or leases that have terms substantially equivalent to those offered the general public. Also the rental agreement or lease may not allow the property to be sublet at a rate in excess of the rate in the original rental agreement or lease (Section 33130(c)). The third exception allows for the purchase or lease of property for personal residential use, but only after the redevelopment agency has certified that all construction or improvements to the property have been completed (Section 33 130.5). 1999 SPRING S~-MINAR Page 108 ~1999 Richards, WaLson & Getshem Conflicts of Interest Ill De Discount Passes on Common Carriers (California Constitution, Article XII, Section 7) Article XII, Section'7 of the California Constitution states: "A transportation company may not grant free passes or discounts to anyone holding in office in this state; and the acceptance of a pass or discount by a public officer, other than a Public Utilities Commissioner, shall work a forfeiture of that office. A Public Utilities Commissioner may not hold an official relation to nor have a financial interest in a person or corporation subject to regulation by the commission." The Attorney General has explained this provision applies in the following manner: The prohibition applies to public officers, both elected and non-elected, but not employees. The prohibition applies to interstate and foreign carriers as well as domestic carriers, and to transportation received outside California. The prohibition applies irrespective of whether the pass or discount was provided in connection with personal or public business. 4. Violation of the prohibition is punishable by forfeiture of office. There have only been a few decisions that address this Constitutional prohibition. In one Opinion, the Attorney General granted leave to sue two members of a city council who accepted free airline tickets to London given by Laker Airlines as part of the airline's promotion of its new Los Angeles to London service. Despite the fact that the councilmembers were unaware of the prohibition, the Attorney General allowed a quo warranto suit that subsequently settled before judgment (See 76 Ops. Cal. Arty. Gen. 1, 3, (1993)). In another Opinion, the mayor of a city received an upgrade from a coach seat to a first class seat on Hawaiian Airlines (76 Ops. Cal. Atty. Gen. 3 (1993)). There, the mayor's ticket was one of 20 first-class upgraded tickets that the airline was allowed to provide to "high profile, prominent members of the community." At issue was whether that situation fit within an exception to the Constitutional prohibition for situations when the free transportation or discount is provided to a public officer as a member of a larger group unrelated to the official's position. The Attorney General ruled that the facts did not satisfy the exception and that a violation of the prohibition had occurred. 1999 SPRING SEMINAR Page 109 *1999 Richards, Watson & Gershon Conflicts of Interest The exception considered in that Opinion stemmed out of a 1984 Opinion of the Attorney General which held that a public officer could accept first-class ticket upgrades by virtue of the airline's policy to do so for all persons on their honeymoon. In 67 Ops. Cal. Atty. Gen. 81 (1984), the Attorney General concluded that a public officer, whose spouse was a flight attendant, could accept a free transportation pass or discount when such was offered to all spouses of flight attendants without distinction to the official status of the recipient. Consequently, if the pass or discount is provided to the official because of his or her position as a governmental official, the prohibition applies. If it is provided to the official as a member of a larger group that is not related to the functions of his or her office, the prohibition may not be applicable. 1]I. LAWS THAT PROHIBIT CERTAIN GIFTS, HONORARIA AND LOANS The Political Reform Act was mended in the last few years to preclude elected local officials from receiving certain gifts, honoraria and loans. These prohibitions apply whether or not the source of the gift, honorarium or loan is, or will ever be, affected by a decision of the official's agency. Additionally, these limitations apply to certain other designated local officials, including planning commissioners. A. Limitations on the Receipt of Gifts 1. General Gift Limitation - Government Code Section 89503(a) provides: "No elected state officer, elected officer of a local government agency, or other individual specified in Section 87200 [includes Planning Commissioners] shall accept gifts from any single source in any calendar year with a total value of more than two hundred mew dollars [$3001.' (Emphasis added). A similar limitation prohibits a city employee designated in a conflict of interest code from accepting gifts from a single source totaling more than $300 in value in any calendar year, if the gifts would be required to be reported on his or her statement of economic interests (Section 89503(c)). Biennial Gift Limit Adjustment - The Act authorizes the FPPC to make an inflationary adjustment of the limitations set forth in Section 89503 every two years (Section 89503(f)). The most recent adjustment became effective on January 1, 1999, and the gift limitation is now $300. 1999 SPRING SEMINAR Page 110 e1999 gich~rds, Watso~l & Getsboa Conflicts of Interest , Exceptions to Gifts and Gift Limitations Basic Exqeptions - FPPC Regulation Section 18942 is summarized below: None of the foliowing is a gift and none is subject to any limitation on gifts: (1) Informational Materials - such as books, calendars, videotapes, and free or discounted admission to educational conferences that are provided to assist the official in the performance of official duties. (2) Returned Gifts - A gift that is not used and that, within 30 days after receipt, is returned or donated pursuant Regulation Section 18943, or for which reimbursement is paid pursuant to Regulation Section 18943. However, a gift will still be regarded as accepted if the official returns the gift but takes an income tax deduction for the value of the returned gift. (3) Family Gifts - A gift from an individual' s spouse, child, parent, grandparent, grandchild, brother, sister, parent-in-law, brother-in-law, sister-in-law, nephew, niece, aunt, uncle, or fu:st cousin or the spouse of any such person, unless the donor is acting as an agent or intermediary for any other person. (4) Campaign Contributions - Please note, however, campaign contributions are required to be reported. (5) Inherited Money or Property - Any devise or inheritance. (6) Awards - A personalized plaque or trophy with an individual value of less than two hundred fifty dollars ($250). (7) Home Hospitality - Hospitality (including food, beverages, or occasional lodging) provided to an official by an individual in his or her home when the individual or a member of the individual's family is present. ,(8) Presents on Personal or Family Occasions - Presents exchanged between an official and an individual, other than a lobbyist, on holidays, birthdays, or similar occasions provided that the presents exchanged are not substantially disproportionate in value. 1999 SPRING SEMINAR Page 111 '~1999 Richards, Watson & Gershon Conflicts of Interest (9) Admission and Incidentals at Speaking Events - Free admission, and refreshments and similar non-cash nominal benefits provided to an official during the entire event at which the official gives a speech, participates in a panel or seminar, or provides a similar service, and actual intrastate transportation and any necessary lodging and subsistence provided directly in connection with the speech, panel, seminar, or service, including but not limited to meals and beverages on the day of the activity. These items are not payments and need not be reported by any official. (10) Campaign Travel - The transportation, lodging, and subsistence provided in direct connection with campaign activities, including attendance at political fundraisers. Gifts to a Public Official's Family - FPPC Regulation Section 18944 provides (in summary): a. Gifts given directly to members of an official's immediate family are not gifts to the official unless used or disposed of by the official or given by the recipient member of the official's immediate family to the official for disposition or use at the official's discretion. b. Gifts delivered by mail or other written communication are given directly to members of the official's immediate family if the family members' names or familial designations (such as "spouse") appear in the address on the envelope or in the communication tendering or offering the gift, and the gift is intended for their use or enjoyment. c. A gift given to the official, but designated for the official and spouse or family, is a gift to the official if the official exercises discretion and control over who will actually use the gift. d. If the official enjoys direct benefit from a singie gift, as well as members of the official's family, the full value of the gift is attributable to the official. Examples, include a television that is given to a member of the official's family but which is generally used by the entire family, including the public official. 1999 SPRING SEMINAR Page 112 01999 Richards, Watson & Gershon Conflicts of Interest Tickets to Political and Charitable Fundraisers - FPPC Regulation Section 18946.4 provides (in summary): a. Nonprofit Fundraiser - Except as provided in subdivision (b), a ticket to a fundraising event for a nonprofit, tax-exempt organization (that is not a political campaign committee) shall be valued as follows: (1) Where the event is a fundraising event for a nonprofit organization, and the ticket clearly states that a portion of the ticket price is a donation to the organization, then the value of the gift is the face value of the ticket or admission reduced by the amount of the donation. (2) If the ticket has no stated price or no stated donation portion, the value of the gift is the fair market value of any food, beverage, or other tangible benefits provided to each attendee. b. Fundraiser for a religious, charitable, scientific, literary or educational organization - Where the event is a fundraising event for an organization exempt from taxation under Section 501(c)(3) of the Internal Revenue Code, the ticket or other admission privilege has no value. c. Political Fundraiser - Where the event is a fundraising event for a campaign committee or candidate, the ticket or other admission privilege has no value. Prizes and Awards from Competitions - A prize or an award received shall be reported as a gift unless the prize or award is received in a bona fide competition not related to the recipient's status as an official or candidate. A prize or award which is not reported as a gift shall be reported as income. 7. Certain Gifts of Travel Exempt from Gift Limitations - FPPC Regulation Section 18950.1 provides (in summary): a. Travel In Connection With Speeches, Panels, and Seminars (1) A payment made for travel, including actual transportation and related lodging and subsistence, is not subject to the prohibitions or limitations on honoraria and gifts if: 1999 SPRING SEMINAR Page 113 01999 aich~rcts, Watson & C, ershon Conflicts of Interest e, (A) The travel is reasonably related to a legislative or governmental purpose, or to an issue of state, national, or international public policy, and (B) The travel, including actual transportation and related lodging and subsistence, is in connection with a speech given by the official or candidate; the lodging and subsistence expenses are limited to the day immediately preceding, the day of, and the day immediately following the speech; and the travel is within the United States. Travel Provided by Governmental Entity or Charity A payment made for travel, including actual transportation and related lodging and subsistence, is not subject to the prohibitions or limitations on honoraria and girls if: (1) The travel is reasonably related to a legislative or governmental purpose, or to an issue of state, national, or international public policy; and (2) The payment is provided by a government, a governmental agency, a foreign government, a governmental authority, a bona fide public or private educational institution, defined in Section 203 of the Revenue and Taxation Code, or by a nonprofit charitable or religious organization that is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code, or by a person that is domicfled outside the United States and that substantially satisfies the requirements for tax exempt status under Section 501(c)(3) of the Internal Revenue Code. TraVel Paid From Campaign Funds - A payment made for transportation and necessary lodging and subsistence, which payment is made from campaign funds as permitted by Government Code Section 89513, or which is a contribution, is not an honorarium or a girl. Travel Provided By Of~cial's Agency - A payment made for transportation and necessary lodging and subsistence, which payment is made by the agency of an official, is not an honorarium or a girl. Travel In Connection With Bona Fide Business - A payment made for transportation, lodging, and subsistence, which payment is reasonably necessary in connection with a bona fide business trade, or profession, and which satisfies the criteria for federal income tax deductions for business expenses specified in Sections 162 and 274 of the Internal Revenue Code, is 1999 SPRING SEMINAR Page 114 el999 Richards, Watson & C, ershon Conflicts of Interest , b, c, d, not an honorarium or gift unless the sole or predominant activity of the business, trade or profession is making speeches. Prohibitions on Receipt of Honoraria Basic Prohibition - Government Code Section 89502 provides that no elected officer of a local government agency nor any official listed in Government Code Section 87200 (which includes planning commissioners) shall accept an honorarium. An "honorarium" means any payment made in consideration for any speech given, article published, or attendance at any public or private conference, convention, meeting, social event, meal, or like gathering. Summary of Exceptions to Prohibition on Honoraria a, Earned Income Exception - "Honorarium" does not include income earned for personal services if: (1) The services are provided in connection with an individual's business or the individual's practice of or employment in a bona fide business, trade, or profession, such as teaching, practicing law, medicine, insurance, real estate, banking, or building contracting; and (2) The services are customarily provided in connection with the business, trade, or profession (Regulation Section 18932). Information Materials - "Honorarium" does not include information materials such as books, calendars, videotapes, or free or discounted admission to educational conferences that are provided to assist the official in the performance of official duties (Regulation Section 18932.4(a)). Family Payments - "Honorarium' does not include a payment received from one's spouse, child, parent, grandparent, grandchild, brother, sister, parent-in- law, brother-in-law, sister-in-law, nephew, niece, aunt, uncle or first cousin or the spouse of any such person. However, a payment from any such person is an honorarinm if the donor is acting as an agent or intermediary for any person not listed in this paragraph (Regulation Section 18932.4(b)). Campaign contributions - However, campaign contributions are required to be reported (Regulation Section 18932.4(c)). 1999 SPRING SEMINAR Page 115 o1999 Richards, Watson & Gershon I I I I I I I I I I I 1 I I I I ! I Conflicts of Interest Personalized Plaque or Trophy - Honorarium does not include a personalized plaque or trophy with an individual value of less than two hundred and fifty dollars ($250) (Regulation Section 18932.4(d)). Admission and Incidentals at Place of Speech - "Honorarium" does not include free admission, refreshments and similar non-cash nominal benefits provided to an official during the entire event at which the official gives a speech, participates in a panel or seminar, or provides a similar service, and actual intrastate transportation and any necessary lodging and subsistence provided directly in connection with the speech, panel, seminar, or service, including but not limited to meals and beverages on the day of the activity. (Regulation Section 18932.4(e)). g, Incidentals at Private Conference - "Honorarium" does not include any of the following items, when provided to an individual who attends any public or private conference, convention, meeting, social event, meal, or like gathering without providing any substantive service: (1) Benefits, other than cash, provided at the conference, convention, meeting, social event, meal, or gathering. (2) Free admission and food or beverages provided at the conference, convention, meeting, social event, meal, or gathering (Regulation Section 18932.4(f)). he Travel That Is Exempt From Gifts - Any payment made for transportation, lodging and subsistence that is exempted by the gift exceptions (Regulation Section 18932.4(g)). C. Prohibitions on Receipt of Certain Types of Loans Prohibition on Loans Exceeding $250 from Other City Officials, Employees, Consultants and Contractors - Effective January 1, 1998, elected officials and other city officials specified in Section 87200 (Planning Commissioners, City Managers, City Treasurers, City Attorneys, etc. ,) may not receive a personal loan that exceeds $250 at any given time from an officer, employee, member or consultant of your city or any local government agency over which your city exercises direction and control (Section 87460(a) and (b)). In addition, elected officials and other city officials specified in Section 87200 may not receive a personal loan that exceeds $250 at any given time from any individual or entity that has a contract with your city or any agency over which your city exercises direction and control (Section 87460(c) and (d)). 1999 SPRING SEMINAR ol999 Ricl~a-ds, Watson & Gershon Page 116 Conflicts of Interest Requirement for Loans of $500 or More front Other Persons and Entities to be in Writing - Elected local officials may not receive a personal loan of $500 or more unless the loan is made in writing and clearly states that terms of the loan. The loan document must include the names of the parties to the loan agreement, as well as the date, amount, interest rate, and term of the loan. The loan document must also include the date or dates when payments are due and the amount of the payments (Section 87461). Exceptions to Loan Limits and Documentation Requirements - The following loans are not subject to the limits and documentation requirements specified in subparts 1 and 2 above: Loans received from banks or other financial institutions, and retail or credit card 'transactions, made in the normal course of business on terms available to members of the public without regard to official status. Loans received by an elected officer's or candidate's campaign committee. Loans received from the elected or appointed official's spouse, child, parent, grandparent, grandchild, brother, sister, parent-in-law, brother- in-law, sister-in-law, nephew, niece, aunt, uncle, or first cousin, or the spouse of any such person unless he or she is acting as an agent or intermediary for another person not covered by this exemption. d. Loans made, or offered in writing, prior to January 1, 1998. Loans that Become Gifts Subject to the Gift Prohibition - Under the following circumstances, a personal loan received by any public official (elected and other officials specified in Section 87200, as well as any other local government official or employee required to file a Statement of Economic Interest) may become a gift and subject to gift and reporting limitations: a, If the loan has a defined date or dates for repayment and has not been repaid, the loan will become a gift when the statute of limitations for filing an action for default has expired. 1999 SPRING SEMINAR °1999 Richards, Watson & Gershon Page 117 II Conflicts of Interest If the loan has no defined date or dates for repayment, the loan will become a girl if it remains unpaid when one year has elapsed from-the later of: (1) the date the loan was made; (2) the date the last payment of $100 or more was made on the loan; or (3) the date upon which the official has made payments aggregating to less than $250 during the previous 12-month period. Exceptions -- Loans that Do Not Become Gifts - The following loans will not become gifts to an official: a. A loan made to an elected officer's or candidate's campaign committee. b, A loan on which the creditor has taken reasonable action to collect the balance due. A loan described above on which the creditor, based on reasonable business considerations, has not undertaken collection action. (However, except in a criminal action, the creditor has the burden of proving that the decision not to take collection action was based on reasonable business considerations.) d, A loan made to an official who has filed for bankruptcy and the loan is ultimately discharged in bankruptcy. e, A loan that would not be considered a gift as outlined in Part III (A)(3) of this Summary (e.g. loans from family members) (Section 87462). D. Penalties for violation of Gift and Honoraria Llmits Persons who violate the gift or honoraria limitations are subject to a civil action brought by the FPPC for up to three times the amount of the unlawful gift or honoraria (Section 89521). Violators are also subject to administrative sanctions, which include fines of up to $5,000 per violation, but they are exempt from civil or criminal penalties contained in Section 91000 et seq. (Section 89520). Persons who violate the loan restrictions are subject to administrative sanctions, which include fines of up to $5,000 per violation (Section 91005.5) and are also subject to civil or criminal penalties contained in Section 91000 et seq. 1999 SPRING SEMINAR Page 118 e1999 Richards, Watson & Gershon Conflicts of Interest We hope that this material is helpful to you. However, please remember that this general introduction to conflict of interest laws and the FPPC's regulations does not cover every potential decision of the local agency in which conflict of interest laws are implicated. The application of these laws must be analyzed on a case-by-case basis in light of each public offlcial's particular economic interests and the government decision being made. Thus, while certain generalizations can be drawn, it is important to seek conflict of interest advice from your city attorney or agency counsel whenever questions arise. 1999 SPRING SEMINAR Page 119 ~1999 Richards, Watson & Gershon