BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |SB 330                           |Hearing    |4/15/15  |
          |          |                                 |Date:      |         |
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          |Author:   |Mendoza                          |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |2/23/15                          |Fiscal:    |Yes      |
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          |Consultant|Lewis                                                 |
          |:         |                                                      |
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                                 CONFLICTS OF INTEREST



          Provides that a public official has a prohibited financial  
          interest in a public contract if certain family members of the  
          public official, as defined, have a financial interest in the  
          contract.


           Background and Existing Law

           California state and local officials who negotiate, make, or  
          vote on public contracts are subject to two main conflicts of  
          interest laws: Section 1090 of the Government Code (known simply  
          as "Section 1090") and the Political Reform Act of 1974. 

          The origins of Section 1090 date back to a California statute  
          from 1851, which formalized the longstanding common law rule  
          prohibiting public officials from having a personal financial  
          interest in the contracts they form in their official  
          capacities.  The Legislature later codified this prohibition in  
          Section 920 of the former Political Code, and in 1943, moved it  
          to its current home in the Government Code with only minor  
          changes.  The consequences of violating Section 1090 are severe:  
          a contract that runs afoul of the law is void, even if it is  
          fair and the affected official did not intend to receive a  
          personal benefit.  Willful violators can also face criminal  
          penalties ranging from fines to prison time, plus a lifetime ban  
          on holding public office. 







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          Section 1090 contains several exceptions. Certain remote  
          interests do not fall within its purview. State law recognizes  
          16 situations as remote interests, including when a public  
          contract would financially benefit a public official's minor  
          child or a nonprofit corporation at which a public official is  
          also a non-salaried officer.  Section 1090 requires an official  
          with a remote interest to publicly disclose his or her interest,  
          and allows the government body on which he or she sits to  
          approve the contract only if that official abstains from voting.  
           Section 1091.1 classifies 14 further exceptions as  
          non-interests, which do not trigger the 1090 conflict of  
          interest prohibitions.

          In 1974, California voters passed Proposition 9 to create the  
          Political Reform Act (PRA), along with the Fair Political  
          Practices Commission (FPPC), the agency tasked with enforcing  
          the PRA through administrative and civil penalties. In 2013, the  
          Legislature expanded the FPPC's jurisdiction to include Section  
          1090 (AB 1090, Fong).  The PRA is broader than Section 1090  
          because it prohibits any state or local public official from  
          using his or her official position to influence any  
          "governmental decision" in which the official has a financial  
          interest.  The PRA also applies to decisions that will have a  
          material financial effect on a member of the official's  
          "immediate family," which the Legislature has defined as a  
          government official's spouse or dependent children. 

          In 1850, California's first legislature adopted the English  
          common law as the state's basic legal framework, insofar as it  
          did not conflict with state statutes or the state and federal  
          Constitutions. This legal framework remains in place today,  
          codified at Civil Code Section 22.22. Independent of Section  
          1090 and the PRA, California courts continue to apply the common  
          law doctrine against conflicts of interests to invalidate public  
          contracts tainted by self-dealing, even in situations when  
          Section 1090 or the PRA do not apply.  In several recent  
          opinions, the Attorney General's Office has suggested that the  
          common law doctrine against conflicts of interest is broader  
          than Section 1090 and the PRA, prohibiting public contracts that  
          raise only potential conflicts of interest, or even the mere  
          appearance of impropriety.  Proponents of stricter conflict of  
          interest laws want to expand Section 1090, bringing statutory  
          conflict of interest prohibitions closer in line with the common  








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          law doctrine. 


           Proposed Law

           Senate Bill 330 expands the list of family relationships that  
          give rise to a prohibited financial interest in a public  
          contract under Section 1090 of the Government Code to include a  
          public official's:

                 Spouse

                 Child

                 Parent

                 Sibling

                 And the spouse of an official's child, parent, or  
               sibling. 

          SB 330 requires that the same standards used to determine a  
          public officer's financial interest under current law must be  
          used to determine a financial interest with respect to any  
          person listed above.

          The bill directs that an individual lobbying on behalf of a  
          contracting party must be construed to be an agent of that  
          contracting party for purposes of determining a financial  
          interest pursuant to the bill's provisions.


           State Revenue Impact

           No estimate.


           Comments

            1.Purpose of the bill.  Existing law does not expressly forbid  
            state and local officials from awarding public contracts to  
            their adult children, parents, siblings, in-laws, or other  
            relatives. This bill is motivated by concerns that the  
            lobbying efforts or financial interests of family members  








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            beyond an official's household may be unduly influencing  
            official decisions in public contracting, thereby undermining  
            public confidence in government.  The author's office points  
            out that several other states' conflict of interest laws are  
            more expansive than California's.  For example, Arizona and  
            Indiana prohibit a public official from making or voting on a  
            contract that would benefit the official's spouse, parent,  
            sibling, child, stepchild, grandparent, grandchild, in-law,  
            and even unrelated persons who rely on the public official for  
            significant financial support.  Meanwhile, some states, like  
            Maine and West Virginia, even consider an official  
            "interested" in a contract if the contract would benefit the  
            official's "close business associate." SB 330 would bring  
            state and local agencies' conflict of interest restrictions  
            into line with policies adopted by other states, California's  
            public universities, and many private corporations. 


           2.Raising the stakes.  While SB 330 would clearly prohibit public  
            officials from making or voting on public contracts that would  
            benefit certain close family members, California judges can  
            already use the common law doctrine against conflicts of  
            interest to invalidate agreements tainted by this kind of  
            self-dealing.  However, officials who violate the common law  
            doctrine are not subject to criminal prosecution.  SB 330  
            would significantly strengthen these common law prohibitions  
            by making it a crime, punishable by fines or jail time, for a  
            public official to make or vote on a public contract  
            benefitting his or her adult child, sibling, parent, or  
            in-law.  SB 330 raises questions about whether state law  
            should distinguish between imposing criminal penalties for  
            willful 1090 violations in which a public official directly  
            enriches him or herself, and violations involving more remote  
            financial interests, such as those of an official's  
            stepparents and in-laws.

           3.Mandate  . Because a willful violation of Government Code  
            Section 1090's prohibitions is a crime, the Legislative  
            Counsel's Office says that SB 330's expansion of those  
            prohibitions creates a new crime.  By creating a new crime, SB  
            330 also creates a new state-mandated program.  But the bill  
            disclaims the state's responsibility for reimbursing local  
            governments for enforcing these new crimes.  That's consistent  
            with the California Constitution, which says that the state  








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            does not have to reimburse local governments for the costs of  
            new crimes (Article XIIIB, 6[a] [2]).

           Support and  
          Opposition   (4/9/15)


          Support  :  Unknown. 


           Opposition  :  Unknown. 



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