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