BILL ANALYSIS Ó
SB 330
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Date of Hearing: July 15, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
SB
330 (Mendoza) - As Amended July 7, 2015
SENATE VOTE: 40-0
SUBJECT: Public officers: contracts: financial interest.
SUMMARY: Expands the definition of what constitutes a remote
interest for purposes of California law governing public
officials' conflicts of interest in contracting. Specifically,
this bill:
1)Deletes a provision stating that a remote interest includes
that of a parent in the earnings of his or her minor child for
personal services.
2)Provides, instead, that a remote interest includes that of a
public officer who is an elected member of any state or local
body, board, or commission, if that 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 that
public officer in his or her official capacity, or by any
body, board, or commission of which that public officer is a
member.
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3)Makes the bill's provisions operative on January 1, 2017.
4)Provides that no reimbursement is required by this bill
pursuant to Section 6 of Article XIII B of the
California Constitution because the only costs that may be
incurred by a local agency or school district will be incurred
because this bill creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a
crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime
within the meaning of Section 6 of Article XIII B of the
California Constitution.
EXISTING LAW:
1)Prohibits, pursuant to Government Code Section 1090 (Section
1090), members of the Legislature and state, county, district,
judicial district, and city officers or employees 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.
2)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.
3)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, that remote
interest is disclosed to the body or board of which the
officer is a member and noted in its official records, and the
body or board approves the contract without counting the vote
of the officer or member with the remote interest.
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4)Defines remote interest to include a number of interests,
including that of a parent in the earnings of his or her minor
child for personal services.
5)Provides that the willful failure of an officer to disclose
the fact of his or her remote interest in a contract 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 this state. That violation 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.
6)Allows the Fair Political Practices Commission (FPPC) to
commence an administrative or civil enforcement action for a
violation of Section 1090 and related laws.
7)Allows 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, and allows the
FPPC to issue such an opinion or advice, subject to certain
conditions.
8)Prohibits, pursuant to the Political Reform Act (PRA), a
public official 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.
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.
9)Provides that the common law of England, so far as it is not
repugnant to or inconsistent with the Constitution of the
United States, or the Constitution or laws of this State, is
the rule of decision in all the courts of this State.
FISCAL EFFECT: This bill is keyed fiscal.
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COMMENTS:
1)Bill Summary. This bill expands the definition of what
constitutes a remote interest under Section 1090. It deletes
a provision stating that a remote interest includes that of a
parent in the earnings of his or her minor child for personal
services. Instead, the bill defines remote interest to
include that of a public officer who is an elected member of
any state or local body, board, or commission, if that 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 that public officer in his or her official
capacity, or by any body, board, or commission of which that
public officer is a member. These provisions become effective
on January 1, 2017. This bill is sponsored by the author.
2)Author's Statement. According to the author, "The perception
that political agendas coincide with personal financial
interests is a common thread of concern amongst the public.
Public officers may be seen as having biases in their public
contract decisions when a specific contract decision may
affect a spouse, child, parent, sibling, or the spouse of a
child, parent, or sibling.
"It is not surprising that conflict of interest laws across
our nation extend beyond the individual and include the
individual's family, family unit, and household regardless of
relationship, and others. For example, Arizona prohibits its
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). Alabama and Kentucky 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).
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"We also 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 family member, including a spouse, child, parent,
sibling, or the spouse of the child, parent, or sibling, have
an interest (Best Buy Conflict of Interest Policy).
Hewlett-Packard requires its representatives to remove
themselves from acting on matters relating to their family or
friends and the company (Hewlett-Packard, Our Standards of
Business Conduct, Page 11)?California is at the forefront of
protecting the public by ensuring that officeholders do not
engage in 'self-dealing.' However, in light of the
allegations involving our state in the last several years, it
is time to strengthen our conflict of interest laws."
3)Background. Two conflict-of-interest laws specifically govern
the allowable conduct of government officials when they act in
their official capacity: Section 1090, and the PRA.
Section 1090 prohibits public officials or employees from
having a financial interest in any contract made by them in
their official capacity, or by any body or board of which they
are members. Willful violation of this provision is
punishable by a fine of up to $1,000 or imprisonment, and any
violator is forever disqualified from holding any office in
the state. In addition, contracts that are made in violation
of 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
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considered to have a direct financial interest in a contract
if that official's spouse has a financial interest in the
contract.
Existing law provides a number of exceptions to Section 1090.
Among other provisions, existing 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;
that fact is disclosed to the body or board of which the
officer is a member and noted in its official records; and,
the body or board thereafter approves the contract without
counting the vote of the member with the remote interest.
Among the numerous instances of what constitutes a remote
interest is an interest of a parent in the earnings of his or
her minor child for personal services. Willful violation of
this provision is punishable by a fine of up to $1,000 or
imprisonment, and any violator is forever disqualified from
holding any office in the state. However, a contract made in
violation of the remote interest statutes is not void, unless
the contracting party had knowledge of the fact of the remote
interest of the officer at the time the contract was executed.
The PRA 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, or that will have a material financial effect on a
member of the official's immediate family, which is defined to
include a spouse or any dependent children.
4)Common Law Doctrine Against Conflicts of Interest. In
addition to Section 1090 and the PRA, the common law doctrine
also governs conflicts of interests. The common law doctrine,
codified in the Civil Code, provides that the common law of
England, so far as it is not repugnant to or inconsistent with
the Constitution of the United States, or the Constitution or
laws of this State, is the rule of decision in all the courts
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of this State. The common law includes a prohibition against
self-dealing.
In January 2009, the Attorney General opined that "[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." The
opinion noted 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 stated that, even though the conflict of interest
rules in the PRA and Section 1090 did not apply to the case at
hand (which involved a redevelopment agency board member and
her son who sought a loan from the board), "?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."
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."
5)Policy Considerations. The Committee may wish to consider the
following:
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a) The state's conflict-of-interest laws collectively draw
the line around a public officer's financial interest to
include the financial interests of the officer's spouse and
minor children. This bill significantly expands this
circle of financial interest (albeit a "remote" one) to
include a public officer's (adult) child, parent or
sibling, as well as the spouse of a public officer's child,
parent, or sibling. As noted in prior analyses of this
bill and related legislation, it might be unreasonable to
expect a public officer to know the financial interests of
this universe of relatives, especially if the official has
a large number of them and/or if there are strained
relationships with any of these individuals. While the
penalty for violating the remote interest provisions of
Section 1090 requires "willful failure" to disclose a
remote interest, it could be difficult for public officials
to prove they were unaware of such a remote interest at the
time a contract was approved. In addition, expanding the
definition of a financial interest to encompass this much
broader group
of people begs the question of whether the financial
interests of these individuals truly represents a financial
interest for the related public official. The Committee
may wish to consider whether the potential merits of this
bill outweigh its potential unintended consequences.
b) Given the broad reach of Section 1090, the PRA, and the
common law doctrine over conflicts of interest by public
officials, the Committee may wish to consider whether this
bill is necessary.
6)Related Legislation. SB 704 (Gaines) establishes a new remote
interest exception to Section 1090 for certain individuals who
are serving on advisory boards or committees. SB 704 is
pending in the Assembly Elections and Redistricting Committee.
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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
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 held in the Assembly Local Government Committee.
8)Arguments in Support. The City of Norwalk, in support,
writes, "California is our nation's largest economy. The
impact of decisions made in the State Capitol is felt
throughout the world. However, California's impact is not
derived solely from decisions made inside the walls of the
State Capitol Building. Local public officials are repeatedly
faced with contract decisions that affect local jurisdictions
like cities, counties, and school districts. The public
perception that political decisions are wrongly influenced by
personal financial interests is pervasive...it is time to
strengthen our conflict of interest laws."
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9)Arguments in Opposition. None on file.
10)Conflicting Legislation. Provisions of this bill conflict
with SB 704 (Gaines) and may need amendments to address the
conflict, should both bills continue to move through the
legislative process.
11)Double-referred. This bill is double-referred to the
Assembly Elections and Redistricting Committee, where it is
scheduled to be heard on July 15, 2015.
REGISTERED SUPPORT / OPPOSITION:
Support
City of Norwalk
Opposition
None on file
Analysis Prepared by:Angela Mapp / L. GOV. / (916)
319-3958
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