BILL ANALYSIS Ó
AB 785
Page 1
Date of Hearing: January 11, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 785 (Mendoza) - As Amended: January 4, 2012
SUBJECT : Political Reform Act of 1974: public officers:
financial interest.
SUMMARY : Expands, for purposes of the Political Reform Act of
1974 (PRA), the definition of a financial conflict of interest
for state and local public officials to include situations
involving votes related to public contracting where specified
family members of the official have either acted to influence
the contracting decision or where the contracting decision would
have a foreseeable material financial effect on certain family
members. Specifically, this bill :
1)Declares a public official who is an elected or appointed
member of a state or local government agency to have a
financial interest in a governmental decision if the decision
both:
a) Involves a vote by the public official relating to the
approval, modification, or cancellation of a contract, and;
b) If an "immediate family member" of the public official
is either:
i) A person acting as an agent for, or otherwise
representing, any other person by making a formal or
informal appearance before, or by making an oral or
written communication to, the state or local government
agency, or an officer or employee thereof, for the
purpose of influencing the contracting decision; or
ii) A person who is a director, officer, or partner of a
business entity on which it is reasonably foreseeable
that the contracting decision will have a material
financial effect.
2)Defines "immediate family member" for purposes of this
provision to mean a spouse or domestic partner, child, parent,
sibling, or the spouse or domestic partner of a child, parent,
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or sibling of the public official.
3)Provides that no reimbursement is required by the bill's
provisions because the only costs that may be incurred by a
local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction,
or changes the definition of a crime within the meaning of the
Constitution.
4)Finds and declares that this bill furthers the purposes of the
Political Reform Act of 1974.
EXISTING LAW :
1)Prohibits a public official at any level of state or local
government from making, participating in making, or in any way
attempting to use his or her official position to
influence a governmental decision in which he or she knows or
has reason to know he or she has a financial interest. A
violation of the Political Reform Act of 1974 is subject to
administrative, civil, and criminal penalties.
2)Defines immediate family member to mean a spouse or dependent
child of the public official.
3)Requires any amendment of the PRA to be in furtherance of the
PRA's purposes and to be passed upon a two-thirds vote of each
house and in compliance with specified procedural
requirements.
4)The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated
by the state.
FISCAL EFFECT : Unknown
COMMENTS :
1)In 1974, voters passed Proposition 9 to create the Political
Reform Act of 1974, which generally prohibits a public
official at any level of state or local government - including
the Legislature - from making, participating in making, or in
any way attempting to use his or her official position to
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influence a governmental decision in which he or she knows or
has reason to know he or she has a financial interest. As the
Fair Political Practices Commission puts it: "stripped of
legal jargon, you have a conflict of interest with regard to a
particular government decision if it is sufficiently likely
that the outcome of the decision will have an important impact
on your economic interests..."
A public official is considered to have a financial interest in
a decision if it is reasonably foreseeable that the decision
will have a material financial effect, distinguishable from
its effect on the public generally, on the official, a member
of his or her immediate family, or other specified entities.
When an official is found to have a conflict, he or she is
disqualified from making, participating in making, or using
his or her official position to influence the making of that
decision at any stage of the decision-making process.
According to the Office of the Attorney General, even though
this is a broad disqualification requirement covering both
actual and apparent conflicts of interest, it is by no means
all-inclusive. "It is not necessary to show actual bias on the
part of the official and it is not even necessary to show that
an official's assets or the amount of his or her income will
be affected by a decision in order to trigger
disqualification. Other more attenuated effects may also
bring about an official's disqualification?İHowever,]
İc]onflicts arising out of matters other than a financial
interest, such as friendship, family, or general sympathy for
a particular viewpoint, are outside the purview of the Act."
2)This bill expands the scope of the PRA to prohibit a state or
local official from participating in a vote related to
contracting where certain "immediate family members" beyond
the spouse and dependent children (i.e. the parents, siblings,
and children of the official, and the spouses/domestic
partners thereof) of the official have engaged in lobbying on
the matter or would otherwise experience a material financial
effect from the decision.
The bill is motivated by concerns that the lobbying efforts or
financial interests of family members beyond an official's
household may be unduly influencing official decisions in
public contracting and thereby reducing public confidence in
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government. However, in expanding the range of relationships
that would force an official's recusal in contracting
situations, this bill introduces new complexity and confusion
to the issue area. The Committee may wish to consider that,
by significantly altering the foundational concept of what
constitutes a 'financial interest' and muddying the
distinction between the general law governing conflicts of
interest and statutes specifically aimed at conflicts related
to public contracting, this bill may spawn a host of
unintended consequences.
3)According to the author's office, the PRA currently fails to
address "matters of potential financial interest relating to
immediate family members" of public officials, in cases where
the official's domestic partner, non-dependent child, parent,
sibling or any spouse/domestic partner thereof could influence
that official's decision or otherwise be materially impacted
without triggering recusal on the part of the official.
The author's office cites a series of news reports where the
appropriateness of government contracting decisions were
called into question based on a decision-maker's family ties
with lobbyists. In particular, they point to a Los Angeles
Times article from January 4, 2011, on Los Angeles County
Supervisor Don Knabe, whose son Matt Knabe lobbies the county
for clients including IBM, an event promoter, and county
lifeguards, each of whom had business before the Board. The
article states that Matt Knabe "chooses to lobby his father's
colleagues and subordinates", who admits he has lobbied his
father on occasion. Supervisor Knabe presumably does not
recuse himself because, as the LA Times says, the arrangement
does not appear to violate the law as his son lives
independently from him. As a result, Supervisor Knabe "sees no
reason to distance his work from that of his son."
According to the author's office "this awkward convergence of
voting, family members, and contracts" demonstrates that "İi]t
is time to clarify appropriate interaction between elected
officials and their immediate family members when those
immediate family members stand to gain financially from a
contract under review in the official's elected capacity."
This bill expands the definition of "immediate family" solely
within the context of contracting decisions, thereby requiring
public officials to abstain from voting in cases where these
additional conflicts arise.
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4)The expansion of the application of the PRA and its recusal
requirement to go beyond shared economic interests to
relationships based solely on blood and law represents a
paradigmatic shift in the operation of the PRA and a major new
precedent that the Committee may wish to carefully consider.
Currently, the existing definition of "immediate family" is "the
spouse and dependent children" of a public official. The
reason for limiting the boundary of the definition to the
household can be traced back to the design of the PRA itself:
in the original findings and declarations, the PRA states in
part that "İp]ublic officials, whether elected or appointed,
should perform their duties in an impartial manner, free from
bias caused by their own financial interests or the financial
interests of person who have supported them." The boundary of
that financial interest was set to include only a spouse and
dependent children
because those individuals were presumed to operate with the
official as a single economic unit - money channeled to a
spouse or a dependent of a public official would theoretically
have an impact, whether direct or indirect, on the household
finances of the official, leading to the possibility of undue
influence or the appearance thereof. Economic interdependence
- having "skin in the game" - is what gives a public official
an "interest" in another's finances in the eyes of the PRA.
This bill does away with that distinction, deeming a public
official's ties of blood or marriage with siblings, children,
parents and their spouses/domestic partners sufficient to
trigger recusal, regardless of the actual relationship between
them. Aside from severely contorting the traditional
understanding of a 'financial interest', this bill poses two
new problems: cases where there is no actual 'relationship'
beyond blood or law, and the difficulty of knowing where the
threat of independent influence should logically end.
First, defining a financial interest based solely on family
ties overlooks a scenario where the official does not have a
close relationship with the family member triggering the
recusal, who perhaps is operating independently or even
counter to the official's interest. For example, an
unscrupulous vendor looking to neutralize an unfriendly
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councilmember before a tough contract vote might consider
hiring an estranged or unstable family member in need of money
to lobby a decision-making body simply to force that
official's recusal and change the outcome. As a result, the
likelihood that an elected official will be disqualified on
the basis of a presumed relationship rather than an actual
one, or that disqualification will be used as a tactical tool,
would be greatly increased.
Second, once unmoored from a concept of financial interest
based on economic interdependence, it is no longer clear where
the threat of undue influence ends: by the same logic, would
not a public official's in-laws have potential influence?
What about cousins of the public official? Adult
step-children? Nieces and nephews? Godchildren? Why not
look to relationships based on proximity or shared community
interests next: Neighbors? Fellow members of a religious
congregation? And as the circle of exclusion expands, the
uncertainty and potential for accidental conflicts and
unnecessary recusals increases as well.
5)This bill also represents a potentially confusing change in
public contracting law. Conflicts of interest in state and
local contracting have been largely, but not exclusively,
regulated by Government Code Section 1090, et seq., which
specifically prohibits public officials from being financially
interested in any contract made in an official capacity by
them or anybody of which they are a part. This bill creates
new provisions specific to public contracting, but inserts
them in the more general context of the PRA.
The punishment for violating Government Code Section 1090 is
severe: the contracts in question are void with profits and
benefits subject to disgorgement. A conflicted official who
willfully violates the statute is subject to a fine of not
more than $1,000 or imprisonment, and is forever disqualified
from holding any public office in this state. By comparison,
the PRA merely requires the interested official to announce
his/her conflict and recuse his/herself from the decision,
although administrative penalties ranging from a cease and
desist order to a potential $5,000 fine are available, and
civil action or criminal
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prosecution are theoretically possible. According to the
author's office, the lighter penalties of the PRA - primarily
the recusal requirement - were a motivating factor for the
choice to place the provisions of this bill within the context
of the PRA rather than Government Code Section 1090.
A secondary (and partially overlapping) source of existing law
relevant to conflicts of interest in public contracting comes
from Public Contract Code Sections 10410-11, which effectively
prohibits current and former state officers and employees from
having a financial interest in a state contract.
So while it is not the stated intent of the author to
supersede any provisions of existing law (as Government Code
Section 1090, et seq., is not repealed, amended, or even
referenced by the most current version of this bill), the
author may wish to clarify that its provisions are
supplementary to existing law and would not hamper the
operation of Government Code Section 1090.
Such amendments may wish to state the following:
Add to Government Code Section 87103.1: "(c) Nothing in
this section shall be construed as superseding or otherwise
limiting in any way provisions including, but not limited
to, Article 4, Division 4, Title 1 of the Government Code
(Section 1090, et seq.), or Article 8, Chapter 2, Part 2,
Division 2 of the Public Contract Code (Section 10410, et
seq.)."
6)Finally, this bill may be practically unnecessary, or at least
premature, in that it has not yet been shown that the common
law doctrine against conflicts of interest is unavailable to
deal with the problem that the author raises - financial
interests on the part of independent adult relatives of a
public official.
In a January 2009 opinion by the Office of the Attorney General
(No. 07-807), the common law doctrine against conflicts of
interest was suggested as a potential source of authority in a
situation where both the PRA and Government Code Section 1090
were found to be inapplicable to a redevelopment agency board
member whose independent adult son sought a commercial loan
from the board.
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The common law doctrine "prohibits public officials from
placing themselves in a position where their private, personal
interests may conflict with their official duties". The 2009
opinion notes that, even if the available statutes do not
apply because the son is not an immediate family member, "?it
is difficult to imagine that the agency member has no private
or personal interest in whether her son's business
transactions are successful or not. At the least, an
appearance of impropriety or conflict would arise by the
member's participation in the negotiations and voting upon an
agreement that, if executed, would presumably redound to her
son's benefit."
For that reason, the opinion found that "?the agency board
member's status as the private contracting party's parent ?
places her in a position where there may be at least a
temptation to act for personal or private reasons rather than
with "disinterested skill, zeal, and diligence" in the public
interest, thereby presenting a potential conflict. In an
earlier opinion, we
advised that a common law conflict of interest may "usually be
avoided by İthe official's] complete abstention from any
official action" with respect to the transaction or any
attempt to influence it. Under these circumstances, we
believe that the only way to be sure of avoiding the common
law prohibition is for the board member to abstain from any
official action with regard to the proposed loan agreement and
make no attempt to influence the discussions, negotiations, or
vote concerning that agreement."
This suggests that an established legal avenue of redress for
the issue raised by this bill still remains available to the
public, calling into question the need for this bill.
7)Support arguments: Supporters might argue that current law is
insufficient to combat the appearance of a conflict of
interest caused by independent family members of a
decision-maker who choose to influence contracting decisions
or otherwise have a material financial interest. This bill
will bar an official's participation in contracting votes
where a family member's interests are 'too close for comfort',
thereby helping restore public confidence.
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Opposition arguments: Opponents might argue that this bill
needlessly and hastily imposes new restrictions on the
operation of local government in an attempt to regulate
appearances alone. Genuine financial conflicts of interest
are already regulated by existing law. This bill also upends
foundational concepts of the PRA with little stakeholder
input, opening up state conflict of interest laws to
unintended consequences and guilt by association.
8)Amendments to the PRA that are not submitted to the voters,
such as those contained in this bill, must further the
purposes of the initiative and require a two-thirds vote of
both houses of the Legislature.
9)This bill is double-referred to this Committee and to the
Committee on Elections and Redistricting, where it is
scheduled to be heard on January 9, 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
League of California Cities
Analysis Prepared by : Hank Dempsey / L. GOV. / (916) 319-3958