CEO 02-14 -- July 30, 2002

 

CONFLICT OF INTEREST; VOTING CONFLICT

 

SCHOOL BOARD MEMBER EMPLOYEE OF INVESTMENT BANKING FIRM MARKETING SCHOOL DISTRICT BONDS

 

To:            Edward Garcia, Member of School Board of Palm Beach County (West Palm Beach)

 

SUMMARY:

 

A prohibited conflict of interest does not exist where a school board member is employed by an investment banking firm marketing school district bonds under an agreement entered into before the member took office; and a prohibited conflict of interest would not be created were the agreement to be renewed, as provided in the agreement, for two additional one-year terms, provided the provisions of the renewed agreement remain the same as those of the original.  Section 112.316, Florida Statutes, acts as a "grandfather clause" to negate the literal language of Section 112.313(7)(a), Florida Statutes, regarding contracts entered into prior to one's taking public office.

 

The member would be subject to the voting conflicts law codified at Section 112.3143(3)(a), Florida Statutes, regarding district votes/measures concerning bond issues involving his employer or the district's senior underwriting firm connected to his employer.  CEO's 80-88, 85-29, 85-40, 87-14, 88-80, 91-7, 95-13, and 96-23 are referenced.

 

QUESTION 1:

 

Does a prohibited conflict of interest exist under Section 112.313(7)(a), Florida Statutes, where you, a School Board member, are employed by an investment banking firm that markets School District bonds under an agreement entered into prior to your taking public office?  

 

Your question is answered in the negative.

 

By your letter of inquiry, a memorandum accompanying the letter, a written response to a request to you from our staff for additional information, and materials supplied in your behalf since we initially considered your opinion request at a previous meeting of ours,[1] we are advised that you serve as a member of the School Board of Palm Beach County, having been appointed by the Governor to fill a vacancy on the Board (taking office January 16, 2002).  In addition, we are advised that the Board awarded (by its vote of December 12, 2001) a contract for two firms[2] to act as senior underwriters (or senior managers) for bond issues for School District capital projects.  Further, we are advised that one of the senior underwriters, Salomon Smith Barney (SSB), includes in the arrangement with the Board the use of a Statewide and inter-local minority business enterprise certified firm (MBE)[3] which employs the member.  Also, we are advised that SSB and MBE, along with other firms, act as managers for District financings, but that the member (as an employee of MBE) will not be involved in MBE's delivery of services; that MBE is not SSB's agent; that with respect to the transactions for which SSB acts as senior manager, its role is similar to MBE's, in that it is responsible for marketing the District's bonds/certificates of participation (COPs) to potential buyers; that MBE is a co-manager for District capital offerings (although you also represent that the contract awarded in December does not name MBE as a contracting party); that SSB does not facilitate the buying of District bonds/COPs from MBE, but, rather, SSB simply agreed to accept a lower participation level in the District's financings (forty percent rather than forty-four percent) as senior manager, in exchange for the District's inclusion of MBE as a four percent co-manager; that MBE is responsible for marketing its allocation of District bonds/COPs to potential buyers and receives only its level of takedown (which it earns on an individual or group basis) pursuant to the agreement between the underwriters and pursuant to the District's approved priority of orders; and that the only contract between SSB and MBE is the standard Agreement Among Underwriters (that is based on The Bond Market Association's form), of which all members of the District's underwriting team are parties and which is executed in connection with each District financing.

 

The Code of Ethics for Public Officers and Employees provides in part[4]:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.--No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee . . .; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties, or that would impede the full and faithful discharge of his or her public duties. [Section 112.313(7)(a), Florida Statutes.]

 

In previous opinions we have found that a prohibited conflict of interest exists under Section 112.313(7)(a) where a company which employs a public officer acts as an underwriter for bond issues of the officer's public agency, absent "grandfathering" under Section 112.316, Florida Statutes, or the applicability of an exemption under Section 112.313(12), Florida Statutes.  See CEO 96-23, CEO 88-80, and CEO 85-29. 

 

In accord with our precedent, we find that your situation regarding Question 1 is "grandfathered," and thus that it is not conflicting under Section 112.313(7)(a), inasmuch as the contract under which your private employer is a District bond/COPs underwriter was entered into in behalf of the School District prior to your becoming a member of the District's governing Board, a time when you possessed no public office or public powers which you would have been tempted to compromise due to your private employment.[5]  See CEO 80-88.[6]

 

QUESTION 2:

 

Would a prohibited conflict of interest be created under Section 112.313(7)(a) were the contract under which MBE is a District underwriter to be renewed or extended for one or two additional terms of one year each, as provided for in the original contract?

 

The question also is answered in the negative.

 

Although we have found that public agency actions regarding business relationships with private entities (actions sometimes labeled "contract renewals") can remove a situation from the "grandfathering" effect of Section 112.316 (see, for example, CEO 95-13), we also have found that where an original contract specifically provides for time-certain extensions, then "grandfathering" will not be inapplicable due to exercise of the renewals, provided the terms of the contract remain the same as those of the original.  See CEO 85-40.  We find that the applicable contract in the instant situation[7] does in fact provide for such time-certain extensions, under SECTION 1--Term of Contract, which states:

 

This contract shall be for the period beginning December 13, 2001 through December 12, 2004.  The contract may be renewed for two additional one-year periods at the annual anniversary date.  The contract will not extend beyond the fifth year.

 

Thus, we find that your situation in Question 2 is in accord with CEO 85-40 and that renewals whereby MBE remains a District underwriter under circumstances the same as those of the original contract involving itself, SSB, and the District will be "grandfathered" and will not create a prohibited conflict of interest.  However, please be advised that you must comply with the voting conflicts law [Section 112.3143(3)(a), Florida Statutes] regarding votes/measures concerning the renewals, inasmuch as they would affect MBE (your employer/a principal by whom you are retained).

 

QUESTION 3:

 

Would a voting conflict requiring your abstention and other compliance with Section 112.3143(3)(a), Florida Statutes, exist regarding School Board measures concerning District bond issues involving MBE or involving extensions or renewals of SSB's contract with the School Board?

 

This question is answered in the affirmative.

 

Section 112.3143(3)(a), Florida Statutes, the portion of the voting conflicts law applicable to elected, local public officers such as yourself,[8] provides:

 

No county, municipal, or other local public officer shall vote in an official capacity upon any measure which would inure to his or her special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom he or she is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained, other than an agency as defined in s. 112.312(2); or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer.  Such public officer shall, prior to the vote being taken, publicly state to the assembly the nature of the officer's interest in the matter from which he or she is abstaining from voting and, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes.

 

We find that the statute is applicable to District votes/measures involving MBE and SSB, inasmuch as MBE (your employer/principal) is affected by votes/measures that concern its business/money-making interface with the District and that concern SSB's (the company that facilitates its proprietary interface with the District) relationship with the District.

 

QUESTION 4:

 

Would a voting conflict exist regarding measures concerning the other senior co-manager (the co-manager not connected to MBE), such as extensions or renewals of the competitor's contract with the District?

 

In addition to your representations to us referred to at the beginning of this opinion, you advise that the bond-issue transactions will be alternated between two senior managers (SSB and a competitor[9] of SSB's) and that MBE will not receive orders from transactions where the competitor is the designated senior underwriter.

 

We decline to answer this question, inasmuch as it is not sufficiently framed.  In other words, there likely are factual variables [such as the particulars of the process whereby another senior manager, possibly SSB (which is connected to MBE), would be selected in lieu of the competitor] concerning a particular, concrete measure  which may actually come before the School Board that would affect our answer.  Therefore, we invite you to contact us (or our staff) for further advice if and when particular measures come before the Board.

 

QUESTION 5:           

 

Would a voting conflict exist regarding measures concerning school renovation/construction possibly necessitating financing through bond issues?


Again, we decline to answer because of the lack of a specific, concrete measure.  However, suffice it to say that a voting conflict likely would exist in situations in which bond financing for renovation/construction seems likely and in which only SSB/MBE and the one competitor are poised for the resulting underwriting business.  See CEO 91-7.

 

             Accordingly, we find that your existing situation is grandfathered; that the renewals will be grandfathered; that votes/measures concerning SSB/MBE necessitate your abstention and other compliance with the voting conflicts law; and that your other voting inquiries are not specific enough to be answered.[10] 

 

ORDERED  by the State of Florida Commission on Ethics meeting in public session on July 25, 2002 and RENDERED this 30th day of July, 2002.

 

 

 

__________________________

Patrick K. Neal

Chair

 

 



[1]Items supplied since our initial consideration: Contract between the School Board and UBS PaineWebber, Inc., dated December 12, 2001; Contract between the School Board and Salomon Smith Barney, Inc., dated December 12, 2001; Agreement Among Underwriters dated February 25, 2002; Agreement Among Underwriters dated March 13, 2002; Salomon Smith Barney response to School District RFP; letter from School Board's Chief Counsel received July 12, 2002.

[2]Salomon Smith Barney and UBS PaineWebber.

[3]Sterling Financial Investment Group, Inc.

[4]We see no indication that Section 112.313(3), Florida Statutes, is applicable to your inquiry, inasmuch as you represent that you will not be acting on behalf of MBE to provide District-related services and inasmuch as you have not indicated that you hold a leadership position or material interest in MBE.  Section 112.313(3) provides:

 

No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer's or employee's spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer's or employee's spouse or child, or any combination of them, has a material interest.  Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to the officer's or employee's own agency, if he or she is a state officer or employee, or to any political subdivision of any agency thereof, if he or she is serving as an officer or employee of that political subdivision.  The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator's place of business or when such offices are on property wholly or partially owned by the legislator.  This subsection shall not affect or be construed to prohibit contracts entered into prior to:

  (a)  October 1, 1975.

  (b)  Qualification for elective office.

  (c)  Appointment to public office.

  (d)  Beginning public employment.

[5]The language of Section 112.316, which we have recognized as supporting Agrandfathering@ which negates the literal language of Section 112.313(7)(a), provides:

 

CONSTRUCTION.--It is not the intent of this part, nor shall it be construed, to prevent any officer or employee of a state agency or county, city, or other political subdivision of the state or any legislator or legislative employee from accepting other employment or following any pursuit which does not interfere with the full and faithful discharge by such officer, employee, legislator, or legislative employee of his or her duties to the state or the county, city, or other political subdivision of the state involved.

[6]We have not overlooked the issue you raise regarding whether or not MBE is Adoing business with@ the School District for purposes of Section 112.313(7)(a).  However, in view of the Agrandfathering@ recognized herein, consideration of the issue is not necessary to our decisions in this opinion.  Nevertheless, notwithstanding that the District's contract award to SSB and UBS PaineWebber did not name your employer (MBE/Sterling Financial) as a contracting party, we likely would find it difficult to determine that your employer is not doing business with the District, given that it is responsible for underwriting/managing/marketing a portion of the District's bonds/COPs. 

[7]Contract between the School Board and Salomon Smith Barney, Inc., dated December 12, 2001.

[8]Your Gubernatorial appointment notwithstanding, you are not subject to Section 112.3143(4), Florida Statutes, because the position you hold is not an appointive position; rather, it is a position which is regularly filled by election.  See CEO 87-14. 

[9]UBS PaineWebber.

[10]Section 230.23(10)(I), Florida Statutes, mentioned in your inquiry, is not within our jurisdiction to interpret.  We suggest that you contact the Office of the Attorney General regarding the statute.