BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 330


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          Date of Hearing:  July 15, 2015


                  ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING


                           Sebastian Ridley-Thomas, Chair


          SB  
          330 (Mendoza) - As Amended July 7, 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  
          remote interest in a contract made by the governmental entity if  
          the officer's spouse, child, parent, or sibling, or the spouse  
          of the child, parent, or sibling, has a financial interest in  
          the contract.  Specifically, this bill:  


          1)Provides, for the purposes of Government Code Section 1090  
            (Section 1090), dealing with conflicts of interests in  
            contracts, that a public officer who is an elected member of  
            any state or local body, board, or commission, is deemed to  
            have a remote interest in a contract for the purposes of  
            Section 1090 if the officer's spouse, child, parent, sibling,  
            or the spouse of the child, parent, or sibling, has a  
            financial interest in the 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 for the provisions of this bill to become operative  
            on January 1, 2017.


          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  
            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, if the fact of  
            the interest is disclosed by the officer to the board or body  
            of which the officer is a member and that interest is noted in  
            its official records, and the body or board authorizes,  
            approves, or ratifies the contract without counting the vote  
            of the officer or member with the remote interest.  Provides  
            that the term "remote interest" includes, among other  
            interests, a parent's interest in the earnings of his or her  
            minor child for personal services.

          3)Enumerates various financial interests for which an officer or  
            employee is deemed not to be interested in a contract pursuant  
            to Section 1090.










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          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.  Provides that the willful failure of an  
            officer to disclose a remote interest in a contract does not  
            void the contract unless the contracting party had knowledge  
            of the fact of the remote interest of the officer at the time  
            the contract was executed.

          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  
            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:  Unknown











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          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,  
               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  









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               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  
               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  









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            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).  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.



          Various provisions of state law provide exceptions to, or  
            limitations on, Section 1090.  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 14  
            different specified conditions.  Additionally, 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 to the  
            officer's board or body, and that officer's vote must not  
            count in determining whether to award the contract.  While the  
            willful failure of an officer to disclose a remote interest in  
            a contract would subject that officer to the penalties  
            outlined above, the contract itself cannot be canceled due to  
            the violation unless the contracting party had knowledge of  
            the fact of the remote interest of the officer at the time the  
            contract was executed.










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          This bill would create a new "remote interest" under Section  
            1090, establishing a situation under which the financial  
            interests of an elected official's relatives could create a  
            remote interest for the official.  Most previously-established  
            remote interests were designed to narrow the reach of Section  
            1090, by taking interests that were found by legal opinions to  
            be financial interests under Section 1090, and redefining  
            those interests as "remote interests."  This bill, on the  
            other hand, seeks to expand the scope of Section 1090 through  
            the creation of a new remote interest.  Unlike most previous  
            legislative efforts to create new remote interests under  
            Section 1090, this bill makes interests that are not currently  
            covered by Section 1090 subject to that law by defining those  
            interests as "remote interests." 
          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.   









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            Such a change from the traditional understanding of a  
            financial interest raises policy issues that the committee  
            should carefully consider.

          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  









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            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  
            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.  
              










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            According to that opinion, "[t]he common law doctrine  
            'prohibits public officials from placing themselves in a  
            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)Technical Issue:  The most recent amendments to this bill  
            modify an existing "remote interest" under Section 1090 in an  
            attempt to require elected public officers to recuse  









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            themselves from contracting decisions in which certain  
            specified family members have a financial interest.  However,  
            the existing remote interest applies to all public officers,  
            while the modified remote interest proposed by this bill  
            applies only to public officers who are elected members of  
            state or local bodies, boards, and commissions.  As a result,  
            for public officers who are not elected to their bodies,  
            boards, and commissions, this bill would eliminate an existing  
            provision of law that provides that the interest of a parent  
            in the earnings of his or her minor child for personal  
            services is a remote interest.  This change does not seem to  
            be consistent with the author's stated intent of this bill.

          If it is the committee's desire to approve this bill, the  
            committee and the author may wish to consider an amendment to  
            resolve this issue.  However, as indicated below (see the  
            comment titled "Double-Referral"), due to impending committee  
            deadlines, committee staff recommends against amending this  
            bill in committee today.

          6)Related Legislation: SB 704 (T. Gaines), which is also being  
            heard in this committee today, would establish a new "remote  
            interest" exception to Section 1090 for certain individuals  
            who are serving as appointed members of unelected boards or  
            commissions, among other provisions.

          7)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  









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            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.

          8)Double-Referral: After this bill was referred to this  
            committee, the Assembly Rules Committee instructed that this  
            bill should be referred to the Assembly Local Government  
            Committee upon approval by this committee. Accordingly, any  
            motion to approve this bill should provide for the bill to be  
            re-referred to the Assembly Local Government Committee.

          Due to impending committee deadlines, if this bill is approved  
            in this committee today, it is scheduled to be heard in the  
            Assembly Local Government Committee this afternoon.  However,  
            if this bill is amended in committee today, it will not be  
            able to be heard in the Assembly Local Government Committee  
            before this week's deadline for policy committees to hear and  
            report bills.  In light of this fact, if it is the committee's  
            desire to approve this bill with amendments, committee staff  
            recommends that this bill be passed out of committee with the  
                                              author's commitment to take those amendments subsequent to  
            passage by this committee.

          REGISTERED SUPPORT / OPPOSITION:




          Support











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          City of Norwalk (prior version)


          Orange County Employees Association (prior version)




          Opposition


          None on file.




          Analysis Prepared by:Ethan Jones / E. & R. / (916)  
          319-2094