CEO 82-10 -- February 18, 1982

CONFLICT OF INTEREST

CITY COUNCIL MEMBER SERVING AS OFFICER, TRUSTEE, AND GENERAL COUNSEL OF NONPROFIT CORPORATIONS LEASING PROPERTY FROM CITY

To: James W. Martin, City Council Member, St. Petersburg

SUMMARY:

No prohibited conflict of interest exists where a city council member serves as an officer, trustee, and general counsel of two nonprofit corporations which have entered into an agreement with the city for the establishment of an art museum and into leases of property from the city prior to his appointment as a member of the council. Although the nonprofit corporations are doing business with the city, their relationship with the city has been fixed by contracts and through the leases prior to the individual's service on the city council. Therefore, as in CEO's 80-88, 77-37, 76-114, and 76-48, Section 112.316, Florida Statutes, provides the equivalent of "grandfather clause" exempting a situation which would have been prohibited if the relationship between the nonprofit corporation and the city had occurred while the council member was in office.

QUESTION:

Does a prohibited conflict of interest exist where you, a city council member, serve as an officer, trustee, and general counsel of two nonprofit corporations which have entered into an agreement with the city for the establishment of an art museum and into leases of property from the city prior to your appointment as a member of the council?

Your question is answered in the negative.

In your letter of inquiry you advise that approximately two years ago you were involved with a group of business people seeking to encourage an art museum to relocate to St. Petersburg. The project contemplated a State University System program under which the museum would be located in a building owned by the City of St. Petersburg, which the City would contribute to the project. In June, 1980, the Legislature appropriated two million dollars to the University System to be used as a grant to the City to fund the cost of renovating the building, relocating the museum, and setting up operations in St. Petersburg. Future fundings to support operating deficits of the museum in the first several years would come directly to the institute from the University System by State grants.

Further, you advise that the museum is operated by a nonprofit foundation of which you are the secretary, a trustee, and the general counsel. Although you are paid legal fees as counsel, you advise, you receive no compensation as trustee or secretary. You also advise that after the Legislature's appropriation for the museum project, a nonprofit institute was incorporated to raise funds and to establish an educational program involving the museum. You advise that you are the secretary, a trustee, and the general counsel also of this nonprofit corporation. Similarly, although you receive no compensation as trustee or secretary of the institute, you receive legal fees for your services as counsel.

In September, 1980, you advise, the City received the $2 million grant from the State and entered into a written agreement with the institute, the foundation, and the donor of the art collection. You negotiated and prepared the agreement on behalf of the institute and the foundation, while the City Attorney represented the City. At that time you were not a member of the City Council or any other body of the City.

Under the agreement, the City was to use a portion of the State grant to renovate and improve the building for the museum. This work has been substantially performed and completed by the City at the present time, and the museum is now occupied by the museum staff.

Under the agreement, the City was to allocate the rest of the State grant to the institute to use for relocating the collection and for start-up expenses, with funds being paid to the institute on request. The City has placed the funds into its fiduciary funds account and not into its general revenue account, since the funds are held in trust by the City because of the Legislature's intent to benefit the institute, with the funds. At the present time, you advise, funds exist in this account, and it is expected that it may be one year before these funds are fully drawn by the institute. The City Council does not take action on the draws, you advise, since the draws are purely ministerial acts handled by the staff of the City and the staff of the institute.

Also under the agreement, the City was to sever the completed building and improvements from its underlying realty and to transfer title of the building to the institute when construction was complete; the City also was to lease for one dollar a year the underlying realty to the institute at the same time.

In a telephone conversation with our staff, you advised that additional land surrounding the building has been leased to the institute also. Although the City could not convey the land and building to the institute, as had been initially contemplated, the City did transfer ownership of the building improved with the State grant and did lease the land for a substantial period. The terms of the leases are thirty years and five years, but if the City decides not to renew the leases, it is required to construct identical facilities for the museum at the City's expense, to move the museum at this expense, and to fully indemnify the museum of loss during the move. Thus, you advise, the leases have such harsh consequences for failure to renew that the leases are practically perpetual. All of the documents have been fully signed by the City and the institute, you advise, and the institute now owns the building and has the right to occupy the underlying land by virtue of the leases.

Finally, you advise that the City Council recently has decided to appoint you to a vacancy on the Council until the next election in March of 1983. For this reason you question whether your relationship with the nonprofit foundation and the nonprofit institute would create a prohibited conflict of interest with your responsibilities as a member of the City Council.

The Code of Ethics for Public Officers and Employees in part prohibits a public officer from being an officer or director of a business entity which is selling any realty, goods, or services to his own agency. Section 112.313(3), Florida Statutes (1981). We find that this provision does not apply to your situation, as neither the nonprofit institute nor the nonprofit foundation is selling any realty, goods, or services to the City. Rather, the institute is leasing realty from the City.

The Code of Ethics also provides:

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 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 private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. [Section 112.313(7)(a), F.S. (1981).]

The first part of this provision would prohibit a City Council member from having any employment or contractual relationship with a business entity which is doing business with the City. In previous opinions, we have advised that noncompensated service as an officer or as a member of the board of directors of a nonprofit corporation does not constitute an employment or contractual relationship with that entity. See, for example, CEO 80-46 and CEO 77-167. Your service as general counsel to each of the nonprofit corporations, on the other hand, would constitute a contractual relationship with each of those clients. See CEO 80-79.

We are of the opinion that each of the nonprofit corporations is a "business entity," as that term is defined in Section 112.312(3), Florida Statutes. In addition, we are of the opinion that the institute is doing business with the City by virtue of its leasing property from the City, if not by virtue of the agreement under which the City releases funds to the institute. A similar situation appears in CEO 80-10.

However, in determining whether a prohibited conflict of interest exists it is significant that the relationship between the nonprofit corporation and the City has been fixed prior to the time of your membership on the City Council. In that respect, the Code of Ethics 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 duties to the state or the county, city, or other political subdivision of the state involved. [Section 112.316, F.S. (1981).]

In previous advisory opinions, we have read this provision to imply a "grandfather clause" which would exempt from Section 112.313(7) business transactions occurring prior to the time the subject official took office. See CEO's 80-88, 77-37, 76-114, and 76-48. In light of this precedent, we are of the opinion that Section 112.313(7)(a) would not prohibit you from serving as a member of the City Council under the situation you have described. The leases, drafted before your service on the Council, for all practical purposes remove any element of discretion on the part of the City Council in the decision to renew them. Similarly, the payment of fiduciary funds from the City to the institute is made on the request of the institute and does not require any action by the City Council.

Accordingly, we find that no prohibited conflict of interest exists where you serve as an officer, trustee, and general counsel of the two nonprofit corporations while serving on the City Council.