BILL ANALYSIS Ó
SB 1011
Page 1
Date of Hearing: June 29, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
SB
1011 (Mendoza) - As Amended June 21, 2016
SENATE VOTE: 38-0
SUBJECT: Public officers: contracts: financial interest.
SUMMARY: Expands the definition of what constitutes a remote
interest for purposes of California law governing public
officials' conflicts of interest in contracting. 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 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)Becomes operative on January 1, 2018.
3)Provides that no reimbursement is required by this bill
because the only costs that may be incurred by a local agency
SB 1011
Page 2
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, or changes the
definition of a crime, as specified.
EXISTING LAW:
1)Prohibits, pursuant to Section 1090, members of the
Legislature and state, county, district, judicial district,
and city officers or employees 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.
2)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.
3)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; that
remote interest is disclosed to the body or board of which the
officer is a member and noted in its official records; and,
the body or board approves the contract without counting the
vote of the officer or member with the remote interest.
4)Defines remote interest to include a number of interests,
including that of a parent in the earnings of his or her minor
child for personal services.
5)Provides that the willful failure of an officer to disclose
the fact of his or her remote interest in a contract is
punishable by a fine of not more than $1,000, or by
imprisonment in the state prison, and provides that such an
officer is forever disqualified from holding any office in
this state. A violation of remote interest laws does not void
the contract, unless the contracting party had knowledge of
SB 1011
Page 3
the fact of the remote interest of the officer at the time the
contract was executed.
6)Allows the Fair Political Practices Commission (FPPC) to
commence an administrative or civil enforcement action for a
violation of Section 1090 and related laws.
7)Allows a person subject to Section 1090 to request that the
FPPC issue an opinion or advice with respect to that person's
duties under Section 1090 and related laws, and allows the
FPPC to issue such an opinion or advice, subject to certain
conditions.
8)Prohibits, pursuant to the Political Reform Act (PRA), a
public official 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.
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.
9)Provides that the common law of England, so far as it is not
repugnant to or inconsistent with the Constitution of the
United States, or the Constitution or laws of this State, is
the rule of decision in all the courts of this State.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Bill Summary. This bill expands the definition of what
constitutes a remote interest under Section 1090. It provides
that a public officer is deemed to have a remote interest in a
contract 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
SB 1011
Page 4
to the public officer. The bill becomes operative on January
1, 2018. This bill is sponsored by the author.
2)Author's Statement. 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."
3)Background. Two conflict-of-interest laws specifically govern
the allowable conduct of government officials when they act in
their official capacity: Section 1090, and the PRA.
Section 1090 prohibits public officials or employees from
having a financial interest in any contract made by them in
their official capacity, or by anybody or board of which they
are members. Willful violation of this provision is
punishable by a fine of up to $1,000 or imprisonment, and any
violator is forever disqualified from holding any office in
the state. In addition, contracts that are made in violation
of Section 1090 can be voided by any party to the contract,
except the officer interested in the contract. For the
purposes of Section 1090, a public official is generally
considered to have a direct financial interest in a contract
if that official's spouse has a financial interest in the
contract.
Existing law provides a number of exceptions to Section 1090.
Among other provisions, existing law provides that an officer
shall not be deemed to be financially interested in a contract
if: the officer has only a remote interest in the contract;
SB 1011
Page 5
that fact is disclosed to the body or board of which the
officer is a member and noted in its official records; and,
the body or board thereafter approves the contract without
counting the vote of the member with the remote interest.
Among the numerous instances of what constitutes a remote
interest is an interest of a parent in the earnings of his or
her minor child for personal services. Willful violation of
this provision is punishable by a fine of up to $1,000 or
imprisonment, and any violator is forever disqualified from
holding any office in the state. However, a contract made in
violation of the remote interest statutes is not void, unless
the contracting party had knowledge of the fact of the remote
interest of the officer at the time the contract was executed.
The PRA 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, or that will have a material financial effect on a
member of the official's immediate family, which is defined to
include a spouse or any dependent children.
4)Common Law Doctrine Regarding Conflicts of Interest. In
addition to Section 1090 and the PRA, the common law doctrine
also governs conflicts of interests. The common law doctrine,
codified in the Civil Code, provides that the common law of
England, so far as it is not repugnant to or inconsistent with
the Constitution of the United States, or the Constitution or
laws of this State, is the rule of decision in all the courts
of this State. The common law includes a prohibition against
self-dealing.
In January 2009, the Attorney General opined that "[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." The
opinion noted 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
SB 1011
Page 6
opinion stated that, even though the conflict of interest
rules in the PRA and Section 1090 did not apply to the case at
hand (which involved a redevelopment agency board member and
her son who sought a loan from the board), "?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 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."
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."
5)Policy Considerations. The Committee may wish to consider the
following:
a) What is a Meaningful Financial Interest? The state's
conflict-of-interest laws collectively draw the line around
a public officer's financial interest to include the
financial interests of the officer's spouse and minor
children. This bill significantly expands this circle of
financial interest (albeit a "remote" one) to include a
public officer's (adult) child, parent or sibling, as well
as the spouse of a public officer's child, parent, or
sibling. Expanding the definition of a financial interest
to encompass this much broader group of people begs a
question the Committee may wish to consider: Do the
financial interests of these individuals truly represent a
SB 1011
Page 7
financial interest for the related public official?
b) How Will Public Officials Disprove Knowledge? While the
penalty for violating the remote interest provisions of
Section 1090 requires "willful failure" to disclose a
remote interest, and while this bill provides that the
remote interest would have to be "actually known to the
public officer," it could be difficult for public officials
to prove they were unaware of such a remote interest at the
time a contract was approved. Given the penalties for
violating Section 1090, the Committee may wish to consider
whether the potential merits of this bill outweigh its
potential unintended consequences.
c) Is Legislation Necessary? Considering the broad reach
of Section 1090, the PRA, and the common law doctrine over
conflicts of interest by public officials, the Committee
may wish to consider whether this bill is necessary.
6)Previous Legislation. SB 330 (Mendoza) of 2015 was
substantially similar to this bill.
SB 330 was held in the Assembly Appropriations Committee.
AB 785 (Mendoza) of 2011 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
held in the Assembly Local Government Committee.
SB 1011
Page 8
7)Arguments in Support. None on file.
8)Arguments in Opposition. None on file.
9)Double-Referred. This bill was heard by the Elections and
Redistricting Committee on
June 15, 2016, where it passed with a 6-0.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by:Angela Mapp / L. GOV. / (916)
319-3958
SB 1011
Page 9