Open, Ethical Leadership: Ethics, Disclosure & Conflicts of Interest Michael G. Colantuono P. Scott Browne CALAFCO Annual Conference Palm Springs, CA October 7, 2010

Michael G. Colantuono, Esq. Colantuono & Levin, P.C Pleasant Valley Road Penn Valley, CA (530) P. Scott Browne Law Offices of P. Scott Browne 131 So. Auburn Street Grass Valley, CA (530)

Agenda Political Reform Act Conflicts Other Conflict laws Other Political Reform Issues Constitutional Issues

Conflicts of Interest 6 Primary Conflict of Interest Issues 1.Gov’t Code § Political Reform Act 3. Common Law Bias / Due Process Requirements 4.Nepotism 5.Incompatible offices 6. Gov. Code § 1126

Gov’t Code §1090 “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.”

Gov’t Code §1090 (Cont’d)  Remote Interests  Non-Interests

Political Reform Act When Does a Public Official Have a Conflict?

Political Reform Act Who is a “Public Official?”

5 Components of a Conflict of Interest under PRA  Decision  Economic Interest  Reasonably Foreseeable  Material Effect  Distinguishable From Effect on “Public Generally” All components must exist

Is a Decision Involved?  Decision  Participating  Influencing

Economic Interests  Business Interests  Real Property Interests  Income Interests  Gift Interests  Personal Finances

Reasonably Foreseeable “Substantial Likelihood”

Material Effect Directly vs. Indirectly Involved

Material Effect (Cont’d) Directly Involved Real Property

Material Effect (Cont’d) Directly Involved Business Interests Income Gifts

Material Effect (Cont’d) Directly Involved Personal Finances

Material Effect (Cont’d) Directly Involved Economic Interests

Material Effect (Cont’d) “Regulatory Definitions of Material”

Public Generally Exception  Two Part Test  Significant Segment  Indistinguishable Effects

Public Generally Exception (Cont’d)  Four Step Analysis 1. Identify People / Property 2. Identify Rule 3. Apply Rule 4. Analyze Extent of Impact

Public Generally Exception (Cont’d)  Significant Segment Rules  Individuals  Real Property  Business Entities  Governmental Entities  Exceptional Circumstances

Public Generally Exception (Cont’d) Special Exception Rules

Legally Required Participation Allows Disqualified Members to Participate

Conflict of Interest What to do if you Have a Conflict

Conflict of Interest How to Obtain Advice

Remedies for PRA Violations

Common Law Bias / Due Process  Public officials cannot use their official position for private benefit.  Due process in an administrative hearing demands an appearance of fairness and the absence of even a probability of outside influence.  Doesn’t preclude holding opinions; just participation by someone with a closed mind.

Nepotism  No state laws against nepotism.  May be affected by “income” interest or definition of “family” under Political Reform Act.  Local agency may have anti- nepotism policy (personnel rules).  Federal funding requirements.

Incompatible Offices  Based on the theory that “One cannot serve two masters.”  Exists if any significant clash of duties exists between the offices, if the dual holdings would be improper because of public policy, or if one officer exercises supervisory, auditory or removal power over the other.

Gov’t Code §1126  “[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.”  Agency must adopt policy.

Political Reform Act Issues  Statements of Economic Interest (Form 700s)  Gifts  Travel Payments  Honoraria  Mass Mailing

Statement of Economic Interest  Government Code § requires members of city councils, planning commissioners, and other local government officials to disclose their economic interests.

Statement of Economic Interest  In addition, all local agencies must adopt conflict of interest codes. Certain categories of officials and employees of local government agencies fall under regulation by the Act if the agency’s conflict of interest code requires filing of a Form 700.

Form 700s (Cont’d)  Must be filed upon taking office, leaving office, and annually in between  Require disclosure of personal financial interests  Alert public officials to personal interests that might be affected.  Help inform the public about potential conflicts of interest

Gift Restrictions  No local elected office holder, candidate for local elected office, or designated employee of a local agency may accept any gift or gifts from a single source aggregating in excess of $490  Gifts aggregating $50 or more must be disclosed on a Form 700.

Gift Restrictions (Cont’d)  A gift is any payment that confers personal benefit on a recipient without consideration  A gift is accepted when the official takes actual possession of the gift or exercises direction or control over it.

Exceptions to Gift Restrictions Exceptions include:  Gifts returned or donated to charity (without claiming tax deduction)  Gifts from family members  Informational material (books, papers)  Birthday presents of equal value  A bequest or inheritance  Home hospitality

Honorariums  No local elected office holder, candidate for local elected office, or designated employee may accept any honorarium.

Honorariums  “Honorarium” means a payment for a speech, article, or attendance at any public or private conference, meeting or similar gathering.

Honoraria Exceptions Some payments are not prohibited nor required to be disclosed on a Form 700, for example:  An honorarium the official returns within 30 days.

Honoraria Exceptions (Cont’d)  An honorarium the official donates to his or her government agency's general fund within 30 days, and for which the official does not claim an income tax deduction.

Honoraria Exceptions (Cont’d)  An honorarium made directly to a bona fide charitable, educational, civic, religious, or similar tax-exempt, non- profit organization.

Gifts of Travel Certain travel payments may be subject to gift limit restrictions and/or may be reportable. Travel payments include payments, advances, or reimbursements for travel, including actual transportation as well as related lodging and subsistence.

Travel Exceptions  Travel payments in connection with an event at which filer (elected officials) official gives a speech or participates on a panel is reportable but not subject to gift limit if w/in US  payments to local filers (staff) not reportable nor subject to limit if w/in course & scope of employment, proper public expenditure and w/in U.S.

Travel Exceptions (Cont’d) Not subject to gift limit, but which may be reportable:  Travel in connection w/ bona fide business, trade, or profession, and which satisfies criteria for federal income tax deductions for business expenses.

Travel Exceptions Not subject to any limit but reportable by agency rather than official:  Travel payments provided by the official’s government agency or by any state, local, or federal government agency.

Mass Mailing Restrictions Items prepared or mailed at public expense may not:  Feature an elected officer of the agency which produces or sends the mailing; or  Include the name, office, photograph, or other reference to an elected officer if the item is prepared in coordination with the elected officer.

Other Resources  Confer with your Agency Counsel  Attorney General publications  FPPC Website - Fact sheets  FPPC Hotline ASK-FPPC  FPPC Advice letters

Transportation by Transportation Companies  California has a long history of attempting to prohibit public officials from being influenced by gifts of transportation.

Article XII, §7  A transportation company may not grant free passes or discounts to anyone holding an 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.

Elements of the Ban  This ban is violated when a transportation company makes a gift of transportation or discounts the price of transportation to a public officer.

Elements of the Ban (Cont’d)  The ban applies to both elected and non-elected public officers, but not to employees.

Elements of the Ban (Cont’d)  The ban applies to foreign and domestic carriers and to transportation received outside of California.

Elements of the Ban (Cont’d)  Applies whether the pass or discount was provided in connection with personal or public business.

Elements of the Ban(Cont’d)  Violation of the ban is punishable by forfeiture of office.

Points to Remember The prohibition on free transportation:  Applies to passes or discounts from transportation companies.  Applies only to officers; not employees.  Covers both personal and business use.  Covers inter-state, intra-state and foreign transportation companies.

Gifts of Public Funds All expenditures of public funds must be for a public purpose.  Cal. Const. Art. XVI, §6

Tests for Gifts of Public Funds Does the expenditure serve the public interest?

Extra Compensation Extra compensation paid to employees after services have already been rendered is generally prohibited.  Cal. Const. Art. XI, §10(a)

Exception to Prohibition on Extra Compensation  When retroactive compensation is paid to employees pursuant to terms of newly negotiated MOU covering the period for which retroactive compensation is paid

Questions & Answers