BILL ANALYSIS Ó
AB 527
Page 1
Date of Hearing: April 27, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 527 (Hernández) - As Amended: April 14, 2011
SUBJECT : Public officials: financial interests.
SUMMARY : Prohibits state, county, district, judicial district,
and city officers or employees from authorizing the expenditure
of public funds, regardless of whether a contract is made in
furtherance of the expenditure, if any member of the body or
board is financially interested in the person or entity that
receives the expenditure. Specifically, this bill :
1)Prohibits state, county, district, judicial district, and city
officers or employees from authorizing the expenditure of
public funds, regardless of whether the contract is made in
furtherance of the expenditure, if any member of the body or
board is financially interested in the person or entity that
receives the expenditure.
2)Requires an officer who discloses his or her interest in a
contract involving the body or board in order to be deemed not
interested in that contract to disclose that interest at a
public meeting of that body or board and requires counsel or
another legal advisor of the body or board to identify a
statutory basis for classifying the interest as remote at a
public meeting
of the body or board.
3)Prohibits any body or board of a city or county, including,
but not limited to a planning commission, from approving any
project, plan, permit, or conveyance of land in which any
member of that body is financially interested unless all of
the following occurs:
a) The fact of that interest is disclosed to the body or
board by the financially interested member at a public
meeting of that body or board;
b) The financially interested member abstains from voting
on the project, plan, permit, or conveyance of land; and,
c) The body or board approves the project, plan, permit, or
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conveyance of land in good faith by a vote of its
membership sufficient for the purpose without counting the
vote or votes of the member with the remote interest.
4)Requires a member of a body or board to be deemed financially
interested if the approval of the project, plan, permit, or
conveyance will have a reasonably foreseeable financial effect
on the member, on the real property owned or leased by the
member, or on a business entity in which the member is an
employee, agent, contractor, or consultant of the business
entity.
5)Requires any project, plan, permit, or conveyance approved in
violation of these provisions to be void.
6)Requires a member of a body or board that is financially
interested in the approval of a project, plan, permit, or
conveyance of land and votes to approve the project, plan,
permit, or conveyance of land to be punished with a fine of
not more than $1,000 or by imprisonment in state prison, and
to be forever disqualified from holding any office in this
state.
7)Declares these provisions to be a statewide concern and
applicable to charter cities and charter counties.
EXISTING LAW :
1)Prohibits, under conflict of interest provisions, members of
the Legislature, as well as 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 a
member.
2)Requires a government officer to not be deemed to be
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," as defined, in the contract before the
body. Requires, however, the remote interest be disclosed to
the body or board which the officer is a member and noted in
its official records, and thereafter that the body or board
authorizes, approves, or ratifies the contract in good faith
by a vote of its membership, without counting the vote or
votes of the officer or member with the remote interest.
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3)Enumerates the circumstances that would lead to characterizing
an interest as remote.
4)Requires anyone who violates any conflict of interest
provision to be punished with a fine of not more than $1,000
or by imprisonment in the state prison, and to be forever
disqualified from holding any office in this state
5)Prohibits, under the Political Reform Act of 1974 (PRA), any
public official at any level of state or local government from
making, participating in making, or in any way attempting to
use his or her official position to influence a governmental
decision in which he or she knows or has reason to know he or
she has a financial interest.
FISCAL EFFECT : Unknown
COMMENTS :
1)Under existing law, conflict of interest provisions generally
prohibit a government official, in his or her official
capacity, from participating in the making of any contract in
which the official has a financial interest. At the same
time, however, existing law provides a number of exemptions to
this general rule where the member's interest is deemed
sufficiently "remote" and is properly disclosed and noted in
the official record. These exemptions generally reflect the
fact that officials who serve on various public entities may
occasionally have associations with private entities with whom
the public entity may wish to contract. Rather than impose a
complete ban on such contracts - which might severely limit
the public agencies contracting options - existing law
attempts to create safeguards that will eliminate any
potential conflicts of interest.
2)The PRA was approved by the voters in 1974 to regulate and
require disclosure of campaign contributions and expenditures,
candidates' and office holders' income, conflicts of interest,
and lobbying activities. Among its provisions is the
requirement no public official, including officials at any
level of local government, from using his or her official
position to influence a governmental decision in which he or
she knows or has to reason know he or she has a financial
interest.
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The PRA defines a financial interest as existing if it is
reasonably foreseeable the decision will have a material
financial effect, distinguishable from the effect on the
general public, on the official or a member of his or her
immediate family. It further specifies a financial interest
exists if the decision has a material effect on any business
entity or real property in which the public official has a
direct or indirect investment worth $2,000 or more; any source
of income, other than gifts or loans, aggregating $500 or more
provided to (or received by, or promised to) the public
official within 12 months prior to the time of the decision; a
donor of gifts aggregating $250 or more to the public official
within the 12 months prior to the time of the decision; or any
business entity in which the public official is a director,
officer, partner, trustee, employee, or holds any position of
management.
Any person who knowingly or willfully violates a provision of
the PRA is guilty of a misdemeanor, faces a monetary penalty,
and is barred from being a candidate for any elective office
or act as a lobbyist for four years following the date of
conviction.
3)According to the author, AB 527 helps restore the public's
faith in government by ensuring those who are given
decision-making powers do so in an ethical way. The author
points to recent examples of where local governments approved
the expenditure of public funds to persons or entities that
had financially interested relationships with members of the
legislative bodies of the local government or its employees.
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The author singles out the corruption charges for the City of
Bell's City Manager Robert Rizzo, whose partner in a
horse-racing venture was eventually awarded $10.4 million in
business contracts from the city. And, in Whittier,
Councilmember Bob Henderson was investigated in 2010 for
violating state conflict-of-interest laws when he voted to
approve the city's lease with Matrix Oil Company so that they
could drill into oil fields after Mr. Henderson received
royalties from the company for the mineral rights to his
house.
Mr. Rizzo's case of misappropriation was eventually dismissed,
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and Mr. Henderson was cleared of violating
conflict-of-interest laws because current law did not prohibit
their actions. The author says AB 527 would remedy these
situations, especially at a time when the public's approval
rating for elected officials is at an all-time low.
4)AB 527 prohibits any officer or employee of a state, county,
district, judicial district, or city from authorizing the
expenditure of public funds, even if there is a contract for
the expenditure, if any member of the body or board of the
state, county, district, judicial district, city is
financially interested in the person or entity receiving the
money. This language is overly broad so that an employee in a
county treasurer's office who releases a check of county funds
as part of a duly executed public works contract would face
prison time, a fine of not more than $1,000, and a lifetime
banishment from holding public office all because a
member of that employee's board was financially interested in
the contract and never declared his or her financial interest.
The Committee may wish to consider whether the overly broad
language of who is deemed financially interested in a contract
would cripple the business of the state, counties, districts,
judicial districts, and cities.
Also, AB 527 would require the state's, county's, district's,
judicial district's, and city's legal counsel to identify a
statutory basis for classifying a financial interest as remote
at a public meeting of the body or board. This new
requirement under conflict of interest provisions would
seemingly appear to hold legal counsel liable for the
financial interest of the officer. For instance, if legal
counsel did not adequately identify the financial interest,
legal counsel would face a penalty of prison time, a fine of
not more than $1,000, and a lifetime banishment from holding
public office. Legal counsel already is regulated by the
State Bar for malpractice and ethics violations so the
Committee may wish to consider whether it is necessary to add
a new layer of liability to these attorneys.
AB 527's provisions regarding the prohibition on a body or board
of a city or county from approving any project, plan, permit,
or conveyance of land in which any member of that body is
financially interested unless that interest is disclosed is a
hybrid of existing provisions in the PRA and conflict of
interest statutes. The PRA already prohibits public
officials, including officials at any level of local
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government, from using their official position to influence a
governmental decision in which they know or have reason to
know they have a financial interest. AB 527 just goes a step
further and stiffens the penalty for violating this principle
to be a penalty of prison time, a fine of not more than
$1,000, and a lifetime banishment from holding public office
rather than the just the penalty under the PRA, which is a
misdemeanor and being barred from being a candidate for any
elective office for four years following the date of
conviction. The Committee may wish to consider whether the
existing penalty for violating the PRA is already enough of a
deterrent to this type of behavior.
5)Support arguments: Supporters might say holding all levels of
government accountable for the conflicts of interest of board
members ensures all decisions made by a legislative body are
free of outside influence.
Opposition arguments: Opposition, Association of California
School Administrators, say
AB 527 unfairly places the burden of conflict of interest laws
on a staff member who may not know a conflict of interest for
a board member exists in an approved contract.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Concern
League of CA Cities
Opposition
Association of CA School Administrators
Analysis Prepared by : Jennifer Klein Baldwin / L. GOV. /
(916) 319-3958