BILL ANALYSIS Ó
SB 704
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Date of Hearing: July 15, 2015
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Sebastian Ridley-Thomas, Chair
SB
704 (Gaines) - As Amended July 8, 2015
SENATE VOTE: 38-0
SUBJECT: Public officers and employees: conflict of interest:
contracts.
SUMMARY: Allows a governmental entity to enter into a contract
with a firm where an owner or partner of the firm serves as an
appointed member of an unelected board or commission to the
governmental entity if the owner or partner recuses himself or
herself from providing any advice to the contracting agency
regarding the contract between the firm and the contracting
agency, and if certain other conditions are met. Allows a
governmental board or body to enter into a contract with a firm
that employs a member of the board or body if the firm is a
consulting engineering or architectural firm and the employee is
a planner, or if the firm is a consulting planning firm and the
employee is an engineer, geologist, architect, or planner, if
certain conditions are met. Specifically, this bill:
1)Provides that the term "remote interest," for the purposes of
Government Code Section 1090 (Section 1090) relating to
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conflicts of interest in contracts, includes the interest of
an owner or partner of a firm who is serving as an appointed
member of an unelected board or commission of the contracting
agency if the owner or partner recuses himself or herself from
providing any advice to the contracting agency regarding the
contract between the firm and the contracting agency and from
all participation in reviewing a project that results from
that contract.
2)Provides that the term "remote interest," for the purposes of
Section 1090, includes the interest of a planner employed by a
consulting engineering or architectural firm, or the interest
of an engineer, geologist, architect, or planner employed by a
consulting planning firm, provided that the employee of the
consulting firm does not serve in a primary management
capacity and is not an officer or director of the consulting
firm.
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
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a remote interest, as defined, in the contract. Requires that
the remote interest be disclosed to the body or board of which
the officer is a member and noted in its official records, and
thereafter that the body or board authorizes, approves, or
ratifies the contract in good faith by a vote of its
membership, without counting the vote or votes of the officer
or member with the remote interest.
3)Provides that the term "remote interest" includes, among other
interests, the interest of an engineer, geologist, or
architect employed by a consulting engineering or
architectural firm. Provides that this remote interest
applies only to an employee of a consulting firm who does not
serve in a primary management capacity, and provides that it
does not apply to an officer or director of a consulting firm.
4)Enumerates various financial interests for which an officer or
employee is deemed not to be interested in a contract pursuant
to Section 1090.
5)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.
6)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.
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7)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.
FISCAL EFFECT: Unknown
COMMENTS:
1)Purpose of the Bill: According to the author:
[Section 1090] precludes owners of architectural firms
(and others) to serve as appointed volunteers on local
government bodies, such as design review boards and
planning commissions, and to have a contract to
provide services with the appointing jurisdiction if
the project for which the services are provided goes
before the board on which the architect sits.
If City A appoints architect and architectural firm
owner Joan to its design review board, and Joan's
business partner and fellow owner Tom gets a contract
with City A to provide architectural services, Joan
and Tom Architects has two options under existing law:
Joan and Tom Architects gives up the contract or Joan
resigns from the design review board?.
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This proposal would create a third option that would
allow Joan and Tom Architects to keep the contract and
allow Joan to continue serving on the design review
board. The proposal would allow the conflict of
interest (which is what the law considers this) to be
legally resolved with Joan recusing herself when this
project comes before the design review board.
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, as specified. 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.
Unlike conflicts of interest under the Political Reform Act
(PRA), it is generally not sufficient for a public official
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who has a financial interest in a contracting decision under
Section 1090 to recuse himself or herself from participating
in that decision in order to avoid the conflict. Instead,
under Section 1090, the board or body of which the official is
a member continues to be prohibited from making a contract in
which one of its members is financially interested even if
that member recuses himself or herself from participating in
the decision. This policy reflects a concern that remaining
board members' knowledge of their fellow member's interest
could lead the board to favor an award which would benefit the
recused member.
State law recognizes two categories of exceptions to Section
1090: "remote interests" and "non-interests." State law lists
14 types of financial interests that the Legislature has
chosen to exclude from the scope of Section 1090, commonly
referred to as "non-interests." Examples of "non-interests"
include: an ownership interest of less than 3% of a
corporation; interest in a spouse's employment, if the spouse
has held the same job for at least one year before the
official took office; or that of a public official being
reimbursed for his or her actual expenses related to the
performance of official government duties.
By contrast, where a government official has a "remote
interest," he or she must take three steps before the body on
which he or she sits may vote on that contract. First, the
official must disclose the interest to the government body.
Second, the interest must be noted in the government body's
official records. Finally, the official with the "remote
interest" must abstain from participating in making the
contract. State law lists 16 situations that qualify as
"remote interests," including that of an engineer, geologist,
or architect employed by an engineering or architectural
consulting firm. While the willful failure of an officer to
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disclose a remote interest in a contract would subject that
officer to the penalties outlined above, the contract itself
is not subject to cancelation 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.
When considering whether a public official is involved in the
making of a contract for the purposes of Section 1090, legal
opinions generally have broadly construed the "making" of a
contract to include governmental actions that go beyond the
award of the contract. For example, courts have found that
for the purposes of Section 1090, the "making" of a contract
includes preliminary discussions, negotiations, compromises,
reasoning, planning, drawing of plans and specifications, and
solicitation for bids. (Millbrae Association for Residential
Survival v. City of Millbrae (1968) 262 Cal.App.2d 222.) In
an informal opinion from 1993, the California Attorney General
(AG) concluded that a former member of a city planning
commission would violate Section 1090 if he entered into a
contract with the city to be a consultant with respect to the
city's general plan revision, because when the person was
still on the planning commission, it had adopted a policy to
use consultants rather than employees for the plan revision.
(Cal.Atty.Gen., Indexed Letter, No. IL 92-1212 (Jan. 26,
1993).)
Of particular relevance for the purposes of this bill, a 1994
opinion by the California AG concluded that a governmental
entity's review of work under a contract could be considered
to be part of the "making" of a contract for the purposes of
Section 1090 even if the entity reviewing the contract was not
involved in the awarding of the contract and was not a party
to the contract. In that opinion, the AG concluded that the
San Francisco Art Commission (Art Commission) would violate
Section 1090 if it considered and approved the design for a
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terminal at the San Francisco International Airport, because a
member of the Art Commission was a partner at an architectural
firm that was awarded the contract to design the terminal.
Even though it was the San Francisco Airports Commission, and
not the Art Commission, that awarded the contract to the
architectural firm, the opinion found that the review and
approval of the design by the Art Commission could be
considered part of the "making" of a contract, because the
review was similar to determining whether the original
contract should be affirmed or modified (the Art Commission
was required to review the design pursuant to the San
Francisco city charter). As a result, the opinion concluded
that the partner of the architectural firm would have to
resign from the Art Commission before the Art Commission could
consider the design of the airport terminal (77
Ops.Cal.Atty.Gen. 112 (1994)).
To the extent that design review boards, planning commissions,
and similar bodies are composed of architects and other
professionals who have expertise that may be relevant to the
work of those boards and commissions, the broad construction
of Section 1090 can create conflicts that limit the ability of
those boards and commissions to perform their intended
functions. In recognition of that fact, state law was
previously amended to provide that the interest of an
engineer, geologist, or architect employed by a consulting
engineering or architectural firm is a "remote interest" under
Section 1090, provided that the employee of the consulting
firm does not serve in a primary management capacity, and is
not an officer or director of the firm. This bill expands
that remote interest such that it also applies to planners and
to those employed by consulting planning firms.
Additionally, this bill creates a new "remote interest" under
Section 1090, providing that the interest of an owner or
partner of a firm serving as an appointed member of an
unelected board or commission of the contracting agency is a
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remote interest if the owner or partner recuses himself or
herself from providing any advice to the contracting agency
regarding the contract between the firm and the contracting
agency and from all participation in reviewing a project that
results from that contract.
3)Arguments in Support: The sponsor of this bill, the American
Institute of Architects, California Council, writes in
support:
SB 704 would allow and encourage more architects and
other professionals to serve their local communities
as volunteers on appointed boards and commissions such
as design review boards and planning commissions.
These boards and commissions, and thus the communities
they serve, benefit when architects and other
professionals volunteer their time and expertise
through service on these appointed bodies.
Unfortunately, existing law makes it difficult for
owners of a firm to serve on these appointed bodies.
The Government Code 1090 body of law does not allow an
owner of a firm to serve as a volunteer on an
appointed body and to have a contract with the local
government that appointed him or her. As a result,
architects and others who are active in their
communities either do not seek to volunteer on these
bodies or, if they do, resign from the body in order
to enter into a contract to provide services or goods.
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SB 704 proposes to allow owners of firms who serve as
volunteers on appointed bodies or commissions to enter
into a contract with the local government that
appointed them so long as they recuse themselves if
the subject of the contract ever comes before the
board and commission on which they serve.
This is not a new idea. The [PRA] allows for similar
types of conflicts to be resolved with the board or
commission member recusing him or herself from
participating in any decision on a matter in which the
member has a financial interest. The [PRA] recusal
option does not apply, however, if the matter is the
result of a contract between the member and the local
government that appointed the member.
In other words, if a city appoints an architect to a
design review board, and then wants to give that
architect a contract to design a facility at one of
its parks, the architect would either have to resign
from the design review board or not accept the
contract. However, an architect who serves on the
design review board may design a project for a private
sector client and remain on the design review board
when that project comes before the design review board
for approval, so long as the architect recuses him or
herself.
4)Related Legislation: SB 330 (Mendoza), which is also being
heard in this committee today, provides, beginning in 2017,
that an elected officer of a state or local governmental
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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.
REGISTERED SUPPORT / OPPOSITION:
Support
American Institute of Architects, California Council (sponsor)
Opposition
None on file.
Analysis Prepared by:Ethan Jones / E. & R. / (916)
319-2094
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