BILL ANALYSIS Ó
SB 1011
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Date of Hearing: June 15, 2016
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Shirley Weber, Chair
SB
1011 (Mendoza) - As Amended March 17, 2016
SENATE VOTE: 38-0
SUBJECT: Public officers: contracts: financial interest.
SUMMARY: Requires, beginning in 2018, a public officer to
recuse himself or herself from voting on a contract made by the
officer's governmental entity if the officer's child, parent, or
sibling, or the spouse of the child, parent, or sibling, has a
financial interest in the contract that is known to the public
officer. Specifically, this bill:
1)Provides, for the purposes of Government Code Section 1090 et
seq. (Section 1090), dealing with conflicts of interests in
contracts, that a public officer is deemed to have a remote
interest in a contract for the purposes of Section 1090 if the
officer's child, parent, sibling, or the spouse of the child,
parent, or sibling, has a financial interest in the contract
and that interest is actually known to the public officer.
2)Provides for the provisions of this bill to become operative
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on January 1, 2018.
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
a remote interest in the contract, as defined, if the fact of
the interest is disclosed by the officer to the board or body
of which the officer is a member and that interest is noted in
its official records, and the body or board authorizes,
approves, or ratifies the contract without counting the vote
of the officer or member with the remote interest. Provides
that the term "remote interest" includes, among other
interests, a parent's interest in the earnings of his or her
minor child for personal services.
3)Enumerates various financial interests for which an officer or
employee is deemed not to be interested in a contract pursuant
to Section 1090.
4)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
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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.
5)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.
6)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.
7)Prohibits a public official, pursuant to the Political Reform
Act (PRA), 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.
Provides that 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.
8)Makes violations of the PRA subject to administrative, civil,
and criminal penalties.
FISCAL EFFECT: Unknown. Although the current version of this
bill is keyed non-fiscal, the Office of the Legislative Counsel
indicates that this bill should be keyed as a fiscal bill, as
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detailed below.
COMMENTS:
1)Purpose of the Bill: According to the author:
The perception that political agendas coincide with
personal financial interests is a common thread of
concern amongst the public. Although Public officers
are prohibited from entering into state contracts that
directly benefit them financially, Public officers may
be seen as having biases in their public contract
decisions when the specific contract decision directly
affects a child, parent, sibling, or the spouse of a
child, parent, or sibling.
2)Conflict of Interest Rules: As detailed above, public
officials in California are subject to two main conflict of
interest laws that are intended to prevent public officials
from using their official positions for personal financial
benefit. The PRA generally prohibits a public official from
using his or her official position to influence any
governmental decision, as defined, in which the official has a
financial interest. The PRA's conflict of interest rules also
prohibit public officials from participating in decisions that
have a material financial effect, as specified, on the
official's spouse or dependent child. Violations of the PRA's
conflict of interest rules are punishable by administrative
penalties, and in certain cases, by civil or criminal
penalties. Criminal violators of the PRA's conflict of
interest rules additionally are prohibited from being a
candidate for elective office or from acting as a lobbyist for
four years after the conviction.
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Section 1090, on the other hand, applies only to contracting
decisions. 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. For the purposes of Section
1090, an official or employee also has an interest in the
property and income of his or her spouse. Contracts made in
violation of Section 1090 are void, and willful violators of
Section 1090 are subject to criminal penalties and a lifetime
ban on holding public office in the state.
3)Limitations on Section 1090: Various provisions of state law
provide exceptions to, or limitations on, Section 1090. State
law provides that an officer or employee is not deemed to be
interested in a contract if his or her financial interest
meets one of 14 different specified conditions. Additionally,
state law provides that an officer shall not be deemed to be
financially interested in a contract entered into by a body or
board of which the officer is a member if the officer has only
a "remote interest" in the contract and if certain other
conditions are met, including requirements that the officer
disclose the remote interest to the officer's board or body,
and that officer's vote not count in determining whether to
award the contract. While the willful failure of an officer
to disclose a remote interest in a contract would subject that
officer to the penalties outlined above, the contract itself
cannot be canceled 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.
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This bill creates a new "remote interest" under Section 1090,
establishing a situation under which the financial interests
of an elected official's relatives could create a remote
interest for the official. Most previously-established remote
interests were designed to narrow the reach of Section 1090,
by taking interests that were found by legal opinions to be
financial interests under Section 1090, and redefining those
interests as "remote interests." This bill, on the other
hand, seeks to expand the scope of Section 1090 through the
creation of a new remote interest. Unlike most previous
legislative efforts to create new remote interests under
Section 1090, this bill makes interests that are not currently
covered by Section 1090 subject to that law by defining those
interests as "remote interests."
4)Breaking New Ground: California's existing conflict of
interest laws are designed to prevent public officials from
using their governmental positions to enrich themselves
financially. As a result, those laws regulate situations
where a public official's actions may have a direct financial
impact on the official. Because actions that affect the
financial interests of a public official's spouse or dependent
child may have a corresponding impact on the official,
existing conflict of interest laws generally recognize that
the financial interests of an official's spouse or dependent
child can create a conflict of interest for the official. In
essence, existing conflict of interest rules are based on an
objective standard: namely, those rules apply to situations
where a public official's finances may be affected by his or
her official actions.
At its essence, this bill seeks to protect against situations in
which outside individuals may have-or may appear to have-an
undue influence over governmental decisions made by public
officials. In contrast to the relatively objective standard
that underlies existing conflict of interest rules, the
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determination about what constitutes undue influence is more
subjective. This bill deems a public official's ties by blood
or marriage with siblings, children, parents, and the spouses
of those relatives to be sufficiently important as to prohibit
the official from participating in a contracting decision.
Such a change from the traditional understanding of a
financial interest raises policy issues that the committee
should carefully consider.
For example, providing that a public official has a "financial
interest" in a contract based solely on family relationships
may not account for situations where an official does not have
close ties to a family member who has a financial interest in
a contract that the official's governmental body is
considering. Under the provisions of this bill, for instance,
a public official could be deemed to be financially interested
in a contracting decision if the estranged sibling of that
public official worked for the company that was awarded the
contract, even if the official was not regularly in contact
with the sibling.
On the other hand, this bill may not address situations where
individuals other than family members may have a significant
influence on public officials. For example, it is possible
that the godparent, neighbor, friend, or pastor of a public
official could have an undue influence on an official's
decision, yet none of those relationships would be regulated
by this bill.
Finally, in order for a public official to comply with the
provisions of this bill, that official will need to consider
the financial interests of various family members when that
official is involved in making contracting decisions. Unlike
prior related legislation, which is described below, this bill
explicitly provides that the financial interest of a relative
in a contract must "actually [be] known to the public officer"
in order for that officer to be deemed to have a remote
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interest in the contract under Section 1090. While this
language may help protect public officials in situations where
they have no way of knowing about the financial interests of
their relatives (e.g., in situations where the official is
estranged from a relative), this bill nonetheless could force
a public official to consider the financial interests of a
dozen family members or more in order to determine whether the
official is able to participate in awarding a contract.
5)Common Law Doctrine against Conflicts of Interest:
Notwithstanding the difficulty of creating a clear conflict of
interest rule that protects against the potential for undue
influence, as discussed above, the common law doctrine against
conflicts of interest may nonetheless deal with the problem
that the author raises.
In a January 2009 opinion by the Office of the Attorney General
(No. 07-807), the common law doctrine against conflicts of
interest was suggested as a potential source of authority in a
situation where both the PRA and Section 1090 were found to be
inapplicable to a redevelopment agency board member whose
independent adult son sought a commercial loan from the board.
According to that opinion, "[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,'" and it notes 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 noted that even though the
conflict of interest rules in the PRA and Section 1090 did not
apply in that situation, "?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
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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."
For that reason, 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."
To the extent that the common law doctrine against conflicts
of interest applies to situations like those raised by the
author, this bill may be unnecessary.
6)Fiscal Bill and Suggested Amendment: Previous legislation
that was similar to this bill, as described below, was keyed
fiscal, and was identified as a state-mandated local program.
According to the Office of the Legislative Counsel, this bill
should be keyed fiscal, and identified as a state-mandated
local program; instead, this bill was erroneously keyed as a
non-fiscal bill. Committee staff recommends a technical
amendment to correct that error.
7)Previous Legislation: 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 approved by this
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committee on a 6-0 vote, but failed passage in the Assembly
Local Government Committee on a 0-6 vote.
SB 330 (Mendoza) of 2015 would have provided, beginning in 2017,
that an elected officer of a state or local governmental
entity was 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, had a financial interest in the contract. SB 330 was
approved by this committee on a 5-0 vote, but was held on the
Assembly Appropriations Committee's suspense file.
8)Double-Referral: This bill has been double-referred to the
Assembly Local Government Committee.
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REGISTERED SUPPORT / OPPOSITION:
Support
None on file.
Opposition
None on file.
Analysis Prepared by:Ethan Jones / E. & R. / (916)
319-2094