1. 1 Overview of the statutes and case law governing conflicts of interest. How CA’s conflicts of interest laws apply to the Board and to the Executive Steering Committees. How CA law treats employees of governmental entities and employees of nonprofits. Questions. Conflicts of Interest

2. Government Code section 1090 The Political Reform Act. (Gov. Code, §§ 87100-87500.) Common law Resources: https://oag.ca.gov/sites/all/files/agweb/pdfs /publications/coi.pdf? (2010, 136 pages.) 2

3. Conflicts of Interest The general premise for all conflicts of interest laws is that government officials owe paramount loyalty to the public. Thus, personal and private financial considerations on the part of governmental officials should not be allowed to enter the decision-making process. 3

4. Government Code section 1090 Section 1090 codifies the common law prohibition against “self-dealing” with respect to contracts. Conflict of interest statutes are aimed at “eliminating temptation, avoiding the appearance of impropriety, and assuring the government of the officer's undivided and uncompromised allegiance.” (People v. Honig (1996) 48 Cal.App.4th 289, 314.) Their objective “is to remove or limit the possibility of any personal influence, either directly or indirectly which might bear on an official's decision....” (Stigall v. City of Taft (1962) 58 Cal.2d 565, 569.) 4

5. Government Code section 1090 Prohibits public officers and public employees 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 term “making” a contract has been construed broadly and includes preliminary discussions, negotiations, compromises, reasoning, planning, and soliciting bids. Contracts = Making grants. (People v. Honig (1996) 48 Cal.App.4th 289.) 5

6. Government Code section 1090 When a board member has the power to execute the contract, he or she is conclusively presumed to be involved in the making of his or her agency’s contract irrespective of whether he or she actually participates in the making of the contract. Does not matter that the contract was fair and equitable. Example: Can the BSCC purchase property owned by another board member for below market value? What if the board member who owned the property does not participate in the transaction? What if the board member resigns prior to purchase? 6

7. Government Code section 1090 The contract is VOID. (Gov. Code, § 1092.) Willful violations of section 1090 are punishable as a felony in the state prison. (Gov. Code, § 1097.) Lifetime disqualification from holding public office. (Gov. Code, §1097.) 7

8. ESC Members as Public Officers? A public officer is a public agent and as such acts only on behalf of his principal, the public… “The most general characteristic of a public officer, which distinguishes him from a mere employee, is that public duty is delegated and entrusted to him, as agent, the performance of which is an exercise of a part of the governmental functions of a particular political unit for which he, as agent, is acting.” (City Council v. Mckinley (1978) 80 Cal.App.3d 204, 210.) 8

9. ESC Members as Public Officers? 1. A tenure of office “which is not transient, occasional or incidental,” but is of such a nature that the office itself is an entity which incumbents succeed one another 2. The delegation to the officer of some portion of the sovereign functions of government, either legislative, executive, or judicial. ESC Members probably not public officers. 9

10. ESC Members as "Employees"? The definition of “employee” encompasses more than persons who are employed by a public entity. Includes private consultants acting on behalf of a public entity. Includes persons acting in advisory positions who have potential to exert considerable influence over the contracting decision of a public agency. 10

11. Are the ESC members acting on behalf of the public? ESC Members read and rate the RFPs. Is that role advisory or is that acting as an employee? Does scoring a proposal influence the outcome of the competitive bid process? Who is the “decision maker”? How often does the board make substantive changes to ESC recommendations? The Board expects the ESC members to serve the Board, which is a public entity. ESC members owe a duty to the public to rate proposals fairly. 11

12. Other Factors Has the body/board been created by statute? AB 1056 directs the Board to create the Prop 47 ESC. The ESC is subject to Bagley-Keene. (Bagley-Keene only applies to public entities.) Members of ESC are required to file Form 700s. Is the Board staff free to disregard recommendations from ESC members? Does the ESC take votes? Who drafts the RFP? ESC members or staff? 12

13. Conclusion Government Code section 1090 applies to members of the Board’s executive steering committee. Next Step: Do ESC members have a financial interest in ESC activities? 13

14. Financial Interests Government Code section 1090 involves financial interests. There is no exhaustive list, but includes anything that would not be considered a remote or non-interest, which are defined. Includes direct interests, financial loses, the possibility of financial loss, as well as financial gain. Example: A senior staff member working for a city (but not a member of the city council) could not work on a project (including negotiations or drafting the agreement) where the firm at which the staff member’s spouse worked would receive a contract for services even though the spouse would receive no income and had no ownership interest in the firm. (85 Ops.Cal.Atty.Gen.34 (2002) (Even w/ premarital agreement!) (94 Ops.Cal.Atty.Gen 22. (2011).) 14

15. Remote Interests Examples of types of remote interests: A person receiving salary, per diem, or reimbursement for expenses from a government entity. (Gov. Code, § 1091, subd. (b)(13).) Employee or officer of a nonprofit entity exempt from taxation pursuant to 501(c)(3) of the Internal Revenue Code. 15

16. Remote Interests Remote interests are financial interests that do not disqualify a board from entering into the contract, but only under specified circumstances: (1) The interest is disclosed to the body or board of which the officer is a member and noted in its official records; (2) The person with the remote interest recuses himself or herself from the process and does not influence or attempt to influence another member of the body or board; (3) Thereafter the body or board authorizes, approves, or ratifies the contract in good faith by a vote of its membership sufficient for the purpose without counting the vote or votes of the person with the remote interest. 16

17. Remote Interests Penal Code section 6025.1, a code section that specifically applies to the BSCC: “For purposes of Section 1090 of the Government Code, members of a committee created by the board, including a member of the board in his or her capacity as a member of a committee created by the board, have no financial interest in any contract made by the board, including a grant or bond financing transaction, based upon the receipt of compensation for holding public office or public employment.” (Added by Senate Bill 74, ch. 30, Stats. 2013.) 17

18. Remote Interests Persons with “remote interests” must recuse themselves from any participation in the making of contracts, which includes grants. The reasons financially interested government employees may participate in the ESC process is because of Penal Code section 6025.1. 18

19. “Non-Interests” These are interests that could create a potential conflict, but that the Legislature has deemed exempt from Government Code section 1090. Unlike remote interests, officials with non-interests may make contracts. Examples: Unsalaried members of nonprofit corporations; That of a person receiving salary from a government entity, unless the contract directly involves the department of the government entity that employs the officer or employee, provided that the interest is disclosed to the body or board at the time of consideration of the contract, and provided it is noted in its official record. 19

20. The Political Reform Act The Political Reform Act (Gov. Code, §§ 87100- 87500) also deals with conflicts of interest and prohibits a public official from making, participating in making, or in any way attempting to influence a governmental decision in which the official knows or has reason to know he or she has a financial interest. These conflict-of-interest provisions of the Political Reform Act apply only to “public officials.” A public official is defined as every member, officer, employee or consultant of a state or local government agency. (Gov. Code, § 82048, subd. (a).) The term “member” includes, but is not limited to, salaried or unsalaried members of boards or commissions with decision-making authority. 20

21. The Political Reform Act A committee, board, commission, group, or other body possesses decision-making authority whenever: It may make a final decision; It may compel or prevent a governmental decision either by reason of an exclusive power to initiate the decision or by reason of a veto that may not be overridden; or It makes substantive recommendations and, over an extended period of time, those recommendations have been regularly approved without significant amendment or modification by another public official or governmental agency. (Cal. Code Reg., tit. 2, § 18700, subd. (c)(2)(A).) 21

22. Any Other Questions? 22