Amended in Assembly August 1, 2016

Amended in Assembly June 21, 2016

Amended in Senate March 17, 2016

Senate Bill No. 1011

Introduced by Senator Mendoza

February 11, 2016

An act to amend, repeal, and add Section 1091 of the Government Code, relating to public officers.

LEGISLATIVE COUNSEL’S DIGEST

SB 1011, as amended, Mendoza. Public officers: contracts: financial interest.

Existing law prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract, as specified, made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions. Existing law imposes a criminal penalty on every officer or person who willfully violates these prohibitions. Existing law identifies certain remote interests that are not subject to this prohibition and other situations in which an official is not deemed to be financially interested in a contract, including, among others, that of a parent in the earnings of his or her minor child for personal services.

This begin delete bill would, end delete begin insert bill, end insert on and after January 1, 2018, begin insert would end insert include within the definition of remote interest that of a public officer in the financial interest of that public officer’s child, parent, begin insert or end insert sibling, or the spouse of the child, parent, or sibling, except a public officer’s financial interests begin delete do end delete begin insert would end insert not include any financial interest of those other persons unless the interest is actually known to the public officer. By expanding these prohibitions, this bill would create a new crime, and thus would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 1091 of the Government Code is amended
to read:

1091.  

(a) An officer shall not be deemed to be interested in a
contract entered into by a body or board of which the officer is a
member within the meaning of this article if the officer has only
a remote interest in the contract and if the fact of that interest is
disclosed to the body or board of which the officer is a member
and noted in its official records, and thereafter the body or board
authorizes, approves, or ratifies the contract in good faith by a vote
of its membership sufficient for the purpose without counting the
vote or votes of the officer or member with the remote interest.

(b) As used in this article, “remote interest” means any of the
following:

(1) That of an officer or employee of a nonprofit entity exempt
from taxation pursuant to Section 501(c)(3) of the Internal Revenue
Code (26 U.S.C. Sec. 501(c)(3)), pursuant to Section 501(c)(5) of
the Internal Revenue Code (26 U.S.C. Sec. 501(c)(5)), or a
nonprofit corporation, except as provided in paragraph (8) of
subdivision (a) of Section 1091.5.

(2) That of an employee or agent of the contracting party, if the
contracting party has 10 or more other employees and if the officer
was an employee or agent of that contracting party for at least three
years prior to the officer initially accepting his or her office and
the officer owns less than 3 percent of the shares of stock of the
contracting party; and the employee or agent is not an officer or
director of the contracting party and did not directly participate in
formulating the bid of the contracting party.

For purposes of this paragraph, time of employment with the
contracting party by the officer shall be counted in computing the
three-year period specified in this paragraph even though the
contracting party has been converted from one form of business
organization to a different form of business organization within
three years of the initial taking of office by the officer. Time of
employment in that case shall be counted only if, after the transfer
or change in organization, the real or ultimate ownership of the
contracting party is the same or substantially similar to that which
existed before the transfer or change in organization. For purposes
of this paragraph, stockholders, bondholders, partners, or other
persons holding an interest in the contracting party are regarded
as having the “real or ultimate ownership” of the contracting party.

(3) That of an employee or agent of the contracting party, if all
of the following conditions are met:

(A) The agency of which the person is an officer is a local public
agency located in a county with a population of less than 4,000,000.

(B) The contract is competitively bid and is not for personal
services.

(C) The employee or agent is not in a primary management
capacity with the contracting party, is not an officer or director of
the contracting party, and holds no ownership interest in the
contracting party.

(D) The contracting party has 10 or more other employees.

(E) The employee or agent did not directly participate in
formulating the bid of the contracting party.

(F) The contracting party is the lowest responsible bidder.

(4) That of a parent in the earnings of his or her minor child for
personal services.

(5) That of a landlord or tenant of the contracting party.

(6) That of an attorney of the contracting party or that of an
owner, officer, employee, or agent of a firm that renders, or has
rendered, service to the contracting party in the capacity of
stockbroker, insurance agent, insurance broker, real estate agent,
or real estate broker, if these individuals have not received and
will not receive remuneration, consideration, or a commission as
a result of the contract and if these individuals have an ownership
interest of 10 percent or more in the law practice or firm, stock
brokerage firm, insurance firm, or real estate firm.

(7) That of a member of a nonprofit corporation formed under
the Food and Agricultural Code or a nonprofit corporation formed
under the Corporations Code for the sole purpose of engaging in
the merchandising of agricultural products or the supplying of
water.

(8) That of a supplier of goods or services when those goods or
services have been supplied to the contracting party by the officer
for at least five years prior to his or her election or appointment
to office.

(9) That of a person subject to the provisions of Section 1090
in any contract or agreement entered into pursuant to the provisions
of the California Land Conservation Act of 1965.

(10) Except as provided in subdivision (b) of Section 1091.5,
that of a director of, or a person having an ownership interest of,
10 percent or more in a bank, bank holding company, or savings
and loan association with which a party to the contract has a
relationship of borrower or depositor, debtor or creditor.

(11) That of an engineer, geologist, architect, or planner
employed by a consulting engineering, architectural, or planning
firm. This paragraph applies only to an employee of a consulting
firm who does not serve in a primary management capacity, and
does not apply to an officer or director of a consulting firm.

(12) That of an elected officer otherwise subject to Section 1090,
in any housing assistance payment contract entered into pursuant
to Section 8 of the United States Housing Act of 1937 (42 U.S.C.
Sec. 1437f) as amended, provided that the housing assistance
payment contract was in existence before Section 1090 became
applicable to the officer and will be renewed or extended only as
to the existing tenant, or, in a jurisdiction in which the rental
vacancy rate is less than 5 percent, as to new tenants in a unit
previously under a Section 8 contract. This section applies to any
person who became a public official on or after November 1, 1986.

(13) That of a person receiving salary, per diem, or
reimbursement for expenses from a government entity.

(14) That of a person owning less than 3 percent of the shares
of a contracting party that is a for-profit corporation, provided that
the ownership of the shares derived from the person’s employment
with that corporation.

(15) That of a party to litigation involving the body or board of
which the officer is a member in connection with an agreement in
which all of the following apply:

(A) The agreement is entered into as part of a settlement of
litigation in which the body or board is represented by legal
counsel.

(B) After a review of the merits of the agreement and other
relevant facts and circumstances, a court of competent jurisdiction
finds that the agreement serves the public interest.

(C) The interested member has recused himself or herself from
all participation, direct or indirect, in the making of the agreement
on behalf of the body or board.

(16) That of a person who is an officer or employee of an
investor-owned utility that is regulated by the Public Utilities
Commission with respect to a contract between the investor-owned
utility and a state, county, district, judicial district, or city body or
board of which the person is a member, if the contract requires the
investor-owned utility to provide energy efficiency rebates or other
type of program to encourage energy efficiency that benefits the
public when all of the following apply:

(A) The contract is funded by utility consumers pursuant to
regulations of the Public Utilities Commission.

(B) The contract provides no individual benefit to the person
that is not also provided to the public, and the investor-owned
utility receives no direct financial profit from the contract.

(C) The person has recused himself or herself from all
participation in making the contract on behalf of the state, county,
district, judicial district, or city body or board of which he or she
is a member.

(D) The contract implements a program authorized by the Public
Utilities Commission.

(17) That of an owner or partner of a firm 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.

(c) This section is not applicable to any officer interested in a
contract who influences or attempts to influence another member
of the body or board of which he or she is a member to enter into
the contract.

(d) The willful failure of an officer to disclose the fact of his or
her interest in a contract pursuant to this section is punishable as
provided in Section 1097. 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.

(e) This section shall be repealed on January 1, 2018.

SEC. 2.  

Section 1091 is added to the Government Code, to
read:

1091.  

(a) An officer shall not be deemed to be interested in a
contract entered into by a body or board of which the officer is a
member within the meaning of this article if the officer has only
a remote interest in the contract and if the fact of that interest is
disclosed to the body or board of which the officer is a member
and noted in its official records, and thereafter the body or board
authorizes, approves, or ratifies the contract in good faith by a vote
of its membership sufficient for the purpose without counting the
vote or votes of the officer or member with the remote interest.

(b) As used in this article, “remote interest” means any of the
following:

(1) That of an officer or employee of a nonprofit entity exempt
from taxation pursuant to Section 501(c)(3) of the Internal Revenue
Code (26 U.S.C. Sec. 501(c)(3)), pursuant to Section 501(c)(5) of
the Internal Revenue Code (26 U.S.C. Sec. 501(c)(5)), or a
nonprofit corporation, except as provided in paragraph (8) of
subdivision (a) of Section 1091.5.

(2) That of an employee or agent of the contracting party, if the
contracting party has 10 or more other employees and if the officer
was an employee or agent of that contracting party for at least three
years prior to the officer initially accepting his or her office and
the officer owns less than 3 percent of the shares of stock of the
contracting party; and the employee or agent is not an officer or
director of the contracting party and did not directly participate in
formulating the bid of the contracting party.

For purposes of this paragraph, time of employment with the
contracting party by the officer shall be counted in computing the
three-year period specified in this paragraph even though the
contracting party has been converted from one form of business
organization to a different form of business organization within
three years of the initial taking of office by the officer. Time of
employment in that case shall be counted only if, after the transfer
or change in organization, the real or ultimate ownership of the
contracting party is the same or substantially similar to that which
existed before the transfer or change in organization. For purposes
of this paragraph, stockholders, bondholders, partners, or other
persons holding an interest in the contracting party are regarded
as having the “real or ultimate ownership” of the contracting party.

(3) That of an employee or agent of the contracting party, if all
of the following conditions are met:

(A) The agency of which the person is an officer is a local public
agency located in a county with a population of less than 4,000,000.

(B) The contract is competitively bid and is not for personal
services.

(C) The employee or agent is not in a primary management
capacity with the contracting party, is not an officer or director of
the contracting party, and holds no ownership interest in the
contracting party.

(D) The contracting party has 10 or more other employees.

(E) The employee or agent did not directly participate in
formulating the bid of the contracting party.

(F) The contracting party is the lowest responsible bidder.

(4) That of a parent in the earnings of his or her minor child for
personal services.

begin delete

(5) That of a public officer in the financial interest of that public
officer’s child, parent, sibling, or the spouse of the child, parent,
or sibling, except a public officer’s financial interests do not
include any financial interest of those other persons unless the
interest is actually known to the public officer.

end delete begin delete

(6)

end delete

begin insert (5) end insert  That of a landlord or tenant of the contracting party.

begin delete

(7)

end delete

begin insert (6) end insert  That of an attorney of the contracting party or that of an
owner, officer, employee, or agent of a firm that renders, or has
rendered, service to the contracting party in the capacity of
stockbroker, insurance agent, insurance broker, real estate agent,
or real estate broker, if these individuals have not received and
will not receive remuneration, consideration, or a commission as
a result of the contract and if these individuals have an ownership
interest of 10 percent or more in the law practice or firm, stock
brokerage firm, insurance firm, or real estate firm.

begin delete

(8)

end delete

begin insert (7) end insert  That of a member of a nonprofit corporation formed under
the Food and Agricultural Code or a nonprofit corporation formed
under the Corporations Code for the sole purpose of engaging in
the merchandising of agricultural products or the supplying of
water.

begin delete

(9)

end delete

begin insert (8) end insert  That of a supplier of goods or services when those goods or
services have been supplied to the contracting party by the officer
for at least five years prior to his or her election or appointment
to office.

begin delete

(10)

end delete

begin insert (9) end insert  That of a person subject to the provisions of Section 1090
in any contract or agreement entered into pursuant to the provisions
of the California Land Conservation Act of 1965.

begin delete

(11)

end delete

begin insert (10) end insert  Except as provided in subdivision (b) of Section 1091.5,
that of a director of, or a person having an ownership interest of,
10 percent or more in a bank, bank holding company, or savings
and loan association with which a party to the contract has a
relationship of borrower or depositor, debtor or creditor.

begin delete

(12)

end delete

begin insert (11) end insert  That of an engineer, geologist, architect, or planner
employed by a consulting engineering, architectural, or planning
firm. This paragraph applies only to an employee of a consulting
firm who does not serve in a primary management capacity, and
does not apply to an officer or director of a consulting firm.

begin delete

(13)

end delete

begin insert (12) end insert  That of an elected officer otherwise subject to Section 1090,
in any housing assistance payment contract entered into pursuant
to Section 8 of the United States Housing Act of 1937 (42 U.S.C.
Sec. 1437f) as amended, provided that the housing assistance
payment contract was in existence before Section 1090 became
applicable to the officer and will be renewed or extended only as
to the existing tenant, or, in a jurisdiction in which the rental
vacancy rate is less than 5 percent, as to new tenants in a unit
previously under a Section 8 contract. This section applies to any
person who became a public official on or after November 1, 1986.

begin delete

(14)

end delete

begin insert (13) end insert  That of a person receiving salary, per diem, or
reimbursement for expenses from a government entity.

begin delete

(15)

end delete

begin insert (14) end insert  That of a person owning less than 3 percent of the shares
of a contracting party that is a for-profit corporation, provided that
the ownership of the shares derived from the person’s employment
with that corporation.

begin delete

(16)

end delete

begin insert (15) end insert  That of a party to litigation involving the body or board of
which the officer is a member in connection with an agreement in
which all of the following apply:

(A) The agreement is entered into as part of a settlement of
litigation in which the body or board is represented by legal
counsel.

(B) After a review of the merits of the agreement and other
relevant facts and circumstances, a court of competent jurisdiction
finds that the agreement serves the public interest.

(C) The interested member has recused himself or herself from
all participation, direct or indirect, in the making of the agreement
on behalf of the body or board.

begin delete

(17)

end delete

begin insert (16) end insert  That of a person who is an officer or employee of an
investor-owned utility that is regulated by the Public Utilities
Commission with respect to a contract between the investor-owned
utility and a state, county, district, judicial district, or city body or
board of which the person is a member, if the contract requires the
investor-owned utility to provide energy efficiency rebates or other
type of program to encourage energy efficiency that benefits the
public when all of the following apply:

(A) The contract is funded by utility consumers pursuant to
regulations of the Public Utilities Commission.

(B) The contract provides no individual benefit to the person
that is not also provided to the public, and the investor-owned
utility receives no direct financial profit from the contract.

(C) The person has recused himself or herself from all
participation in making the contract on behalf of the state, county,
district, judicial district, or city body or board of which he or she
is a member.

(D) The contract implements a program authorized by the Public
Utilities Commission.

begin delete

(18)

end delete

begin insert (17) end insert  That of an owner or partner of a firm 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.

begin insert

(18) That of a public officer in the financial interest of that
public officer’s child, parent, or sibling, or the spouse of the child,
parent, or sibling, except a public officer’s financial interests do
not include any financial interest of those other persons unless the
interest is actually known to the public officer.

end insert

(c) This section is not applicable to any officer interested in a
contract who influences or attempts to influence another member
of the body or board of which he or she is a member to enter into
the contract.

(d) The willful failure of an officer to disclose the fact of his or
her interest in a contract pursuant to this section is punishable as
provided in Section 1097. 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.

(e) This section shall become operative on January 1, 2018.

SEC. 3.  

No reimbursement is required by this act 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 act 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.