BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1011|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 1011
Author: Mendoza (D)
Amended: 3/17/16
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 3/30/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SUBJECT: Public officers: contracts: financial interest
SOURCE: Author
DIGEST: This bill expands the definition of remote interest to
include the financial interests of a public officer's child,
parent, or sibling, or the spouses of those individuals.
ANALYSIS:
Existing law:
1)Prohibits members of the Legislature and state, county,
district, judicial district, and city officers or employees
from having a financial interest in any contract made in their
official capacity, or by any body or board of which they are
members. (Government Code Section 1090)
2)Specifies circumstances under which an officer or employee is
exempt from the prohibitions against having a financial
interest in public contracts, including non-interests and
"remote interests."
SB 1011
Page 2
3)Prohibits, under the Political Reform Act of 1974, state or
local public officials from participating in governmental
decisions where the official has a financial interest.
This bill:
1)Expands the definition of what constitutes a remote interest
under Section 1090 to include the financial interest of the
child, parent, or sibling of a public officer, or the spouse
of a child, parent, or sibling, if the financial interest of
those individuals is known to the public officer.
2)Makes the bill's provisions effective on January 1, 2018.
Background
California state and local officials who negotiate, make, or
vote on public contracts are subject to two main conflicts of
interest laws: Section 1090 et seq. of the Government Code
(known simply as "Section 1090") and the Political Reform Act of
1974.
Section 1090. The origins of Section 1090 formalized the
longstanding common law rule prohibiting public
officials-including board members, officers, and employees-from
having a personal financial interest in the contracts they
participate in making while exercising their official
capacities. Financial interest has been liberally interpreted
by the courts and includes the property and income of his or her
spouse. The consequences of violating Section 1090 are severe:
a contract that runs afoul of the law is void, even if it is
fair and the affected official did not intend to receive a
personal benefit. Willful violators can also face criminal
penalties ranging from fines to prison time, plus a lifetime ban
SB 1011
Page 3
on holding public office.
Section 1090 contains several exceptions. In particular, state
law identifies 17 situations that do not constitute financial
interests, but that present some risk of undue influence. These
"remote interests" include when a public contract would
financially benefit a public official's minor child or a
nonprofit corporation at which a public official is also a
non-salaried officer. Section 1090 requires an official with a
remote interest to publicly disclose his or her interest, note
the interest in the public record, and abstain from voting on
the contract or influencing the other board members. The
government body on which he or she sits may only approve the
contract if there are sufficient votes to pass it without the
interested official. Thus, only public officials that sit on
multi-member boards may use the remote interest exception;
officers and employees may not.
The Political Reform Act. In 1974, California voters passed
Proposition 9 to create the Political Reform Act (PRA), along
with the Fair Political Practices Commission (FPPC), the agency
tasked with enforcing the PRA through administrative and civil
penalties. In 2013, the Legislature expanded the FPPC's
jurisdiction to include Section 1090 (AB 1090, Fong, Chapter
650, Statutes of 2013). The PRA is broader than Section 1090
because it 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. The PRA also applies to decisions that will have a
material financial effect on a member of the official's
"immediate family," which the Legislature has defined as a
government official's spouse or dependent children. The PRA
supersedes most other conflict of interest laws, including
Section 1090, in the case of an inconsistency. Public officials
must therefore consider whether a conflict exists under either
the PRA or Section 1090, or both.
Comments
1)Purpose of the bill. Existing law does not expressly forbid
SB 1011
Page 4
state and local officials from awarding public contracts to
their adult children, parents, siblings, in-laws, or other
relatives. This bill is motivated by concerns that the
financial interests of family members beyond an official's
household may be unduly influencing official decisions in
public contracting, thereby undermining public confidence in
government. For example, a 2015 audit of the City of Industry
found that the former mayor and his family benefited from
favorable contracts totaling more than $326 million over 20
years. SB 1011 furthers the intent of Section 1090, which was
originally enacted to codify common law prohibitions against
conflicts of interest in contracting. It also adds much
needed clarity by unequivocally stating that it is
unacceptable for public officials to participate in contracts
that benefit their families and in-laws.
2)Raising the stakes. While SB 1011 clearly prohibits public
officials from making or voting on public contracts that would
benefit certain close family members, California judges can
already use the common law doctrine against conflicts of
interest to invalidate agreements tainted by this kind of
self-dealing. However, officials who violate the common law
doctrine are not subject to criminal prosecution. SB 1011
significantly stiffens the penalties for a public official
that makes or votes on a public contract benefitting his or
her adult child, sibling, parent, or in-law. Should state law
impose the same penalty in these cases as when a public
official directly enriches him or herself?
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified4/1/16)
None received
OPPOSITION: (Verified4/1/16)
SB 1011
Page 5
None received
Prepared by:Anton Favorini-Csorba / GOV. & F. / (916) 651-4119
3/31/16 15:46:02
**** END ****