BILL ANALYSIS                                                                                                                                                                                                    



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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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