BILL ANALYSIS Ó
SB 330
Page 1
Date of Hearing: July 1, 2015
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Sebastian Ridley-Thomas, Chair
SB
330 (Mendoza) - As Amended June 1, 2015
SENATE VOTE: 40-0
SUBJECT: Public officers: contracts: financial interest.
SUMMARY: Provides, beginning in 2017, that an elected officer
of a state or local governmental entity is deemed to have a
financial interest in a contract made by the governmental entity
if the officer's spouse, child, parent, or sibling, or the
spouse of any of those individuals, has a financial interest in
the contract. Specifically, this bill:
1)Provides that a public officer who is an elected member of any
state or local body, board, or commission, is deemed to have a
financial interest in a contract under Government Code Section
1090 (Section 1090) if the public officer's spouse, child,
parent, sibling, or the spouse of the child, parent, or
sibling has a financial interest in any contract made by the
public officer in his or her official capacity, or by any
body, board, or commission of which the public officer is a
member.
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2)Provides that the determination of a financial interest of an
officer's family member under this bill shall be made
according to the same standards that apply in determining
whether a public officer has a conflict under Section 1090.
3)Provides that for the purposes of determining a financial
interest under this bill, an individual lobbying on behalf of
a contracting party is construed to be an agent of the
contracting party.
4)Provides that for the purposes of this bill, only a member of
the governing entity deemed to have a financial interest under
this bill shall be subject to the prohibitions of Section
1090.
5)Provides that the provisions of this bill shall become
operative on January 1, 2017.
6)Makes corresponding changes.
EXISTING LAW:
1)Prohibits members of the Legislature and state, county,
district, judicial district, and city officers or employees,
pursuant to Section 1090, from being financially interested in
any contract made by them in their official capacity, or by
any body or board of which they are members. Prohibits state,
county, district, judicial district, and city officers or
employees from being purchasers at any sale made by them in
their official capacity, or from being vendors at any purchase
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made by them in their official capacity. Prohibits an
individual from aiding or abetting a violation of Section
1090.
2)Provides that an officer shall not be deemed to be interested
in a contract pursuant to Section 1090 if the officer has only
a remote interest in the contract, as defined, and if the body
or board approves the contract without counting the vote of
the officer or member with the remote interest.
3)Enumerates various financial interests for which an officer or
employee is deemed not to be interested in a contract pursuant
to Section 1090.
4)Provides that a contract made in violation of Section 1090 may
be voided by any party to the contract, except for the officer
who had an interest in the contract in violation of Section
1090, as specified.
5)Provides that a person who willfully violates Section 1090, or
who willfully aids or abets a violation of Section 1090, is
punishable by a fine of not more than $1,000 or by
imprisonment in the state prison, and is forever disqualified
from holding any office in the state. Gives the Fair
Political Practices Commission (FPPC) the authority to
commence an administrative or civil enforcement action for a
violation of Section 1090 and related laws.
6)Authorizes a person subject to Section 1090 to request the
FPPC to issue an opinion or advice with respect to that
person's duties under Section 1090 and related laws. Permits
the FPPC to issue such an opinion or advice, subject to
certain conditions.
7)Prohibits a public official, pursuant to the Political Reform
Act (PRA), from making, participating in making, or in any way
attempting to use his or her official position to influence a
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governmental decision in which the official knows or has
reason to know that he or she has a financial interest.
Provides that a public official has a financial interest in a
decision if the decision will have a material financial
effect, as specified, on the official's spouse or dependent
child.
FISCAL EFFECT: According to the Senate Appropriations
Committee, FPPC costs of up to $211,000 (General Fund) annually
for 1/2 personnel year (PY) of legal staff to handle increased
requests for written advice in conflict-of-interest cases, and 1
PY of staff for increased enforcement caseload (1/2 PY of legal
staff and 1/2 PY of investigative staff).
COMMENTS:
1)Purpose of the Bill: According to the author:
The public perception that political decisions are
wrongly influenced by personal financial interests is
pervasive. Public officers may be seen as having
biases in their public contract decisions when a
specific contract decision may affect their spouse,
child, parent, sibling, or the spouse of a child,
parent, or sibling.
Governmental conflict of interest laws across our
nation extend beyond the individual to include the
individual's family, family unit, household
(regardless of relationship), and others. For example,
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Arizona prohibits government officials from acting on
matters involving their family (Arizona Revised
Statutes § 38-503). In Washington D.C., public
officials are prohibited from acting on matters
involving a member of the official's household (DC ST
§ 1-1106.01). Kentucky and Alabama prohibit a public
officeholder from acting on matters where they or
their family member may have a financial interest (ALA
CODE § 36-25-1 and Kentucky Revised Statutes, §
6.731).
In California, we have conflict of interest policies
in our public universities. For example, at the
University of California, Berkeley, the conflict of
interest policy regarding purchasing decision-making
extends to siblings, parents and in-laws (BUSINESS AND
FINANCE BULLETIN G-39, Policy Regarding
Employee-Vendor Relationships (August 19, 1982)).
Conflict of interest policies also extend to the
private sector. Best Buy, for example, prohibits
individuals representing the company from acting on
matters where they or their spouse, child, parent,
sibling, or the spouse of their child, parent, or
sibling have an interest (Best Buy Conflict of
Interest Policy). Hewlett Packard requires its
representatives to recuse themselves from acting on
company matters relating to their family or friends
(Hewlett Packard, Our Standards of Business Conduct,
Page 11)?.
California is at the forefront in defining the
potential consequences of a violation of conflict of
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interest policies. However, in light of allegations
involving our state in the last several years, it is
time to expand and strengthen our definition of a
conflict of interest.
2)Government Code Section 1090: Section 1090 generally prohibits
a public official or employee from making a contract in his or
her official capacity in which he or she has a financial
interest. In addition, a public body or board is prohibited
from making a contract in which any member of the body or
board has a financial interest, even if that member does not
participate in the making of the contract. Violation of this
provision is punishable by a fine of up to $1,000 or
imprisonment in the state prison, and any violator is forever
disqualified from holding any office in the state.
Additionally, contracts that are made in violation Section
1090 can be voided by any party to the contract except the
officer interested in the contract. For the purposes of
Section 1090, a public official is generally considered to
have a financial interest in a contract if that official's
spouse has a financial interest in the contract. The
prohibitions against public officers being financially
interested in contracts that are contained in Section 1090
date back to the second session of the California Legislature
(Chapter 136, Statutes of 1851).
Various provisions of state law provide exceptions to, or
limitations on, Section 1090. Among other provisions, state
law provides that an officer shall not be deemed to be
financially interested in a contract if the officer has only a
"remote interest" in the contract and if certain other
conditions are met, including requirements that the officer
who has the remote interest must disclose the remote interest
and that officer's vote not count in determining whether to
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award the contract. Similarly, another section of state law
provides that an officer or employee is not deemed to be
interested in a contract if his or her financial interest
meets one of a number of different enumerated conditions.
A public official can be subject to felony penalties for a
violation of Section 1090 even if the official did not intend
to secure any personal benefit, did not intend to violate
Section 1090, and did not know that his or her conduct was
unlawful.
3)Breaking New Ground: California's existing conflict of
interest laws are designed to prevent public officials from
using their governmental positions to enrich themselves
financially. As a result, those laws regulate situations
where a public official's actions may have a direct financial
impact on the public official. Because actions that affect
the financial interests of a public official's spouse or
dependent child may have a corresponding impact on the
official, existing conflict of interest laws generally
recognize that the financial interests of an official's spouse
or dependent child can create a conflict of interest for the
official.
This bill, however, would break new ground by extending the
conflict of interest provisions of Section 1090 to situations
where a governmental decision does not have the potential for
having a financial impact on an elected official. Instead,
this bill would deem a public official's ties by blood or
marriage with siblings, children, parents, and the spouses of
those relatives to be sufficiently important as to prohibit
the official from participating in a contracting decision.
Such a change from the traditional understanding of a
financial interest raises policy issues that the committee
should carefully consider.
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First, providing that a public official has a "financial
interest" in a contract based solely on family relationships
ignores situations where an official does not have close ties
to a family member who has a financial interest in a contract
that the official's governmental body is considering. Under
the provisions of this bill, for instance, a public official
could be deemed to be financially interested in a contracting
decision if the estranged sibling of that public official
worked for the company that was awarded the contract, even if
the official had no contact with the sibling. In fact, such a
policy could even be used by an unscrupulous company to force
the disqualification of an unfriendly public official in a
contract decision involving that company.
Second, as currently in effect, Section 1090 primarily is
concerned with avoiding situations where a public official's
loyalties may be called into question because the official may
be financially affected by a decision. Prohibiting a public
official from using his or her position in this manner when it
could result in a personal financial benefit provides a
relatively clear-cut philosophical underpinning for a
conflict-of-interest law. On the other hand, attempting to
protect against undue influence of a public official is a more
nebulous undertaking, and it will be difficult to craft a
policy that appropriately deals with the potential for undue
influence while avoiding the regulation of situations where no
such potential exists.
For example, this bill could require the disqualification of a
public official in a contracting decision if the spouse of
that official's sibling has a financial interest in a
contract, in an attempt to prevent undue influence. By the
same logic, couldn't a godparent, cousin, or neighbor of the
official also have undue influence? On the other hand, as
noted above, this bill may require the disqualification of a
public official even where no potential for undue influence
exists-where the official is estranged from a sibling or
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parent, for example.
Finally, in order for a public official to be sure that he or
she is complying with the provisions of this bill, that
official necessarily will need to have information about-and
be familiar with-the financial interests of various family
members. Given the list of family members that could trigger
the provisions of this bill, an official easily could be
required to consider the financial interests of a dozen family
members or more in order to determine whether the official is
able to participate in awarding a contract. Further
complicating that task, the public official would have no way
to verify the financial interests of all family members. If a
public official participated in the making of a contract, only
to realize subsequently that a family member had a financial
interest in that contract, could the public official face
criminal charges as a result?
4)Common Law Doctrine against Conflicts of Interest:
Notwithstanding the difficulty of creating a clear
conflict-of-interest rule that protects against the potential
for undue influence, as discussed above, the common law
doctrine against conflicts of interest may nonetheless deal
with the problem that the author raises.
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 Section 1090 were found to be
inapplicable to a redevelopment agency board member whose
independent adult son sought a commercial loan from the board.
According to that opinion, "[t]he common law doctrine
'prohibits public officials from placing themselves in a
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position where their private, personal interests may conflict
with their official duties,'" and it notes that while the PRA
and Section 1090 focus "on actual or potential financial
conflicts, the common law prohibition extends to noneconomic
interests as well." The opinion noted that even though the
conflict of interest rules in the PRA and Section 1090 did not
apply in that situation, "?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 concluded 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?. 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."
To the extent that the common law doctrine against conflicts
of interest applies to situations like those raised by the
author, this bill may be unnecessary.
5)Arguments in Support: In support of this bill, the Orange
County Employees Association writes:
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
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efforts or financial interests of family members beyond an
official's household may be unduly influencing official
decision in public contracting, thereby undermining public
confidence in government. 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.
6)Arguments in Opposition: The Valley Ag Water Coalition
(VAWC), which has an oppose unless amended position on this
bill, writes:
VAWC opposes SB 330 as it would significantly expand
the prohibition regarding conflict of interest
statutes. The June 1, 2015 amendments to SB 330 move
the provisions of the bill closer to reflect the
Author's intent; i.e., that where a public official
has a familial relationship in regard to a potential
contractor with the local agency on which he or her
serves, that the public official would be required to
recuse himself or herself. However, the governing body
could approve the contract without the participation
of the public official. This situation describes a
"remote interest" that is addressed in current law in
Section 1091 of the Government Code. It is not a
direct interest. Rather than adding a new section of
law as proposed by SB 330, which blurs the distinction
between a direct financial interest and a remote
interest, it would be far better to amend the remote
interest provisions of the Government Code?.
VAWC does not object to SB 330 moving forward in the
legislative process as we believe there is ample time
remaining in the current session to reach agreement on
the proposed amendments. Pending resolution of our
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differences, however, VAWC will remain opposed to SB
330.
7)Related Legislation: SB 704 (T. Gaines), which is pending in
this committee, would establish a new "remote interest"
exception to Section 1090 for certain individuals who are
serving on advisory boards or committees.
8)Previous Legislation: AB 1090 (Fong), Chapter 650, Statutes of
2013, authorized the FPPC to bring civil and administrative
enforcement actions for violations of Section 1090 and
required the FPPC to provide opinions and advice with respect
to Section 1090.
SB 952 (Torres), Chapter 453, Statutes of 2014, prohibited an
individual from aiding or abetting a violation of Section 1090
and related laws.
AB 785 (Mendoza) of the 2011-12 Legislative Session would have
provided that a public official has a financial interest in a
governmental contracting decision if an immediate family
member of the public official, as defined, lobbies the agency
of the official on that decision or is a high ranking official
in a business entity on which it is reasonably foreseeable
that the decision would have a material financial effect. AB
785 was approved by this committee on a 6-0 vote, but failed
passage in the Assembly Local Government Committee on a 0-6
vote.
REGISTERED SUPPORT / OPPOSITION:
Support
City of Norwalk
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Orange County Employees Association
Opposition
Valley Ag Water Coalition (unless amended)
Analysis Prepared by:Ethan Jones / E. & R. / (916)
319-2094