BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 330


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          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