1. Presented by: Megan Macy
The Trojan Horse Syndrome: When Is a Gift (or Contract) Too Good to Be True? CASBO CBO Symposium November 17, 2016
Presented by:
Megan Macy
Cover Page

2. Financial Consultants
Overview of Topics
The Conflict Rules
Financial Consultants
Construction Team
Vendor Gifts

3. The Conflict Rules

4. California Government
Conflict Landscape
California Government
Code Section 1090
Political Reform Act
Common Law
Each of these different types of conflicts has different rules and analysis that applies. Something may not be prohibited under one but may be prohibited by another conflict rule. What is okay for a conflict under the Political Reform Act is not necessarily okay under Government Code §1090 or under the Education Code, etc. Thus, each potential conflict must be analyzed under the applicable statutes. Consult with legal counsel when in doubt. 4

5. Government Code Section 1090
District employees shall not be ... financially interested in any contract made by them ... or by any body or board of which they are members.
“Section 1090 recognizes the truism that a person cannot serve two masters simultaneously” Lexin v. Superior Court (2010) 5

6. The Prohibition is Absolute
An impairment of judgment can occur even in the most well-meaning person our conflict of interest statutes are concerned with what might have happened rather than merely what actually happened.
(People v. Honig (1996) 48 Cal.App.4th 289.)
Public officers may not be financially interested in a contract.
Prohibits participating in the development, negotiation, or execution of the contract.
Applies to both oral and written contracts.
The School District/Board cannot enter into a contract if a member has a financial interest in the contract.
Abstention does no good.
(Gov. Code, § 1090)
1090 applies regardless of whether:
the contract is fair or equitable
the contract is let for bid
the official abstains 6

7. Who is covered?
Virtually all state and local officers, employees and multimember bodies such as boards or commissions, whether elected or appointed. 7

8. The “Making” of a Contract
Making” a contract includes every stage in the process – planning, negotiations, preparation – not just actually signing or approving an agreement.

9. Types of Financial Interests
An employment relationship
Attorney, agent or broker of a contracting party
Supplier of services or goods to a contracting party
Landlord or tenant of a contracting party
Officer or employee of a nonprofit corporation that is a contracting party
Community property and separate property interests of the official's spouse 9

10. Penalties & Remedies
Contract is void and unenforceable and may result in disgorgement.
Criminal, civil, and administrative sanctions, including felony jail time and fines.
If convicted, public official is forever banned from holding any office.
No specific intent required for criminal penalties. 10

11. Remote Interest exception
Limited Exceptions
Remote Interest exception
Non-interest exception
Rule of Necessity
Remote Interest exception (Gov. Code § 1091)
Non-interest exception (Gov. Code § )
One spouse has a non-interest in the other spouse’s employment or holding office if it has existed for at least one year prior to his or her election or appointment to office. (Govt. Code § (a)(6).)
Rule of Necessity (essential goods or services).
Disclosure & abstention required. 11

12. The Political Reform Act
A public official may not take any part in a governmental decision if it is reasonably foreseeable that the decision will have a material financial effect on one or more of the official’s economic interests, or on those of his or her immediate family.
Economic interests include:
Investments or positions in business entities;
Interests in real property;
Sources of income;
Sources of gifts; and
Personal finances. 12

13. Eight Step Process 13 Step One: Is the individual a public official?
Step Two:
Is the official making, participating in, or influencing a governmental decision? Step Three:
What are the official’s economic interests?
Step Four:
Is the economic interest directly or indirectly affected by the decision? Step Five:
How will the official’s economic interests be affected by the decision? (materiality)
Step Six:
Is it reasonably foreseeable that the economic interest will be affected?
Step Seven:
The “public generally” exception
Step Eight:
Legally required participation (a.k.a. rule of necessity) 13

14. Conflicts of Interest under Common Law
“A public officer is impliedly bound to exercise the powers conferred on him with disinterested skill, zeal, and diligence and primarily for the benefit of the public Actual injury is not the principle the law proceeds on. [T]he law will not permit him to place himself in a position in which he may be tempted by his own private interests to disregard those of his principal.”
(Clark v. City of Hermosa Beach (1996) 48 Cal.App.4th 1152.) 14

15. Perception is reality
Picture of perception is reality (full screen overlay) with perception as reality as words over the top.

16. Steering your team from trouble
NEED ANOTHER PICTURE HERE OVERLAY WITH WORDS “YOUR JOB”
Steering your team from trouble

17. Financial Consultants

18. AG Opinion
Public agency entry into a contingent-fee arrangement with a municipal finance firm that includes pre-election services where the payment for such services is contingent on a successful campaign. 18 18

19. Casting a Wide Net
Investment bankers, financial advisors, and bond attorneys.
(i.e., opinion surveys, public information programs, preparing the project list, preparing bond ballot measure language, and drafting the district’s resolution of intention), 19 19

20. AG Opinion
Potential for a conflict of interest where a bond counsel firm charges a percentage fee, based on amount of the bonds issued by the agency.  20 20

21. Best Practices
Avoid entering into agreement with a municipal finance firm where either the sole or partial purpose is to induce the firm to contribute to the bond-election campaign (financially or with in-kind services).
Do not enter into an agreement where the municipal finance firm’s fee for its post-election services is inflated to account for its campaign contributions.
For bond counsel services, avoid a fee arrangement where the fee is a percentage of dollars of bonds sold (par amount). 21 21

22. Construction Team

23. Lease-Leaseback Cases
June 2015
Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261
Held that a contractor or consultant hired to perform preconstruction services may be disqualified from being awarded a contract for the same project due to a potential conflict of interest.
May 2016
McGee v. Balfour Beatty Construction (2016) 247 Cal.App.4th 235
Agreed with Davis’ holding regarding the potential conflict of interest issue. 23

24. Competitive Selection
Competitive Selection – an asset not a burden

25. Relationships Matter
Picture of caution

26. Creativity is great Except when its not
Picture of creativity – have “creativity is great come on screen first, then trigger “except when its not”
Except when its not

27. Vender Gifts
BREAK SLIDE – VENDOR GIFTS

28. The Gift Limit = $460 Annually
Gifts worth $50 from any gift-giver must be reported.
From any one source 28 28

29. Who is Subject to the Gift Limit?
Elected local officials and candidates for local office, among others
Persons listed as "designated employees" in an agency's conflict of interest code
Discuss Form 700 statement of economic interests
What information is reported on the SEI/Form
700?
Investments
Income
Loans
Real property interests
Business positions
Gifts (over $50, not from relatives)
Travel payments 29

30. Keeping Your District and Board Out of Trouble
Know the rules
Have a plan for educating District staff and Board
Monitor expenditures

31. Questions
Questions Slide

32. Attorney Biography Megan Macy Partner
Megan Macy is a Partner in Lozano Smith's Sacramento office and an active member of the Labor and Employment and Charter Schools Practice Groups. She is also co-chair of the firm's Facilities and Business Practice Group. Ms. Macy provides general counsel to school districts and special districts with a focus on fire protection districts, routinely advising clients on the Brown Act, Public Records Act, conflict of interest issues and development of governing board policies. Her primary goal is to assist educational agencies in maximizing their limited resources through risk management, preventative legal services and effective planning. Ms. Macy utilizes her litigation background to counsel clients on effective risk management strategies in the facilities and business arena, including public bidding issues, real property transactions and negotiation of school facilities agreements related to new residential development. Those skills are also invaluable in handling the array of labor and employment issues school districts routinely encounter, from employee discipline issues to labor disputes. 
Sacramento Office
One Capitol Mall, Suite 640
Sacramento, CA 95814
T: (916)
F: (916)
Bio slide

33. Back Slide
Disclaimer: These materials and all discussions of these materials are for instructional purposes only and do not constitute legal advice. If you need legal advice, you should contact your local counsel or an attorney at Lozano Smith. If you are interested in having other in-service programs presented, please contact or call (559)
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