BILL ANALYSIS Ó
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