City of San Antonio, Texas

 

Ethics Advisory Opinion No. 9

March 9, 1999

Issued By: City Attorney’s Office

 

 

Whether the San Antonio Housing Trust may request its board members who are also board members of the San Antonio Housing Trust Reinvestment Corporation to serve on the Board of Directors of a Tax Increment Finance project or, in the alternative, its employees or agents.

 

The Neighborhood Action Department has asked whether the San Antonio Housing Trust may request its board members who are also board members of the San Antonio Housing Trust Reinvestment Corporation to serve on the Board of Directors of a Tax Increment Finance project or, in the alternative its employees or agents. The following facts are presented:

The San Antonio Housing Trust ("Trust") has three (3) "subsidiaries": the San Antonio Housing Trust Finance Corporation ("Finance Corp."), the San Antonio Housing Trust Investment Corporation ("Investment Corp."), and the San Antonio Housing Trust Reinvestment Corporation ("Reinvestment Corp."). The board and employees of the Trust make up the board and employees of each of the respective corporations.

As part of this year’s Affordable Parade of Homes Project, the Trust applied for designation of an area, known as the "Blanco/Pasadena" corridor, as a Tax Increment Finance ("TIF") zone, which zone was created on November 12, 1998. Administration of TIF zones under the City’s Tax Increment Financing ("TIF") Housing Program is done pursuant to a professional services contract between the City and the Reinvestment Corp.

The issue is whether a conflict of interest exists under the Ethics Code of the City of San Antonio should the board members of the Reinvestment Corp. serve on the Board of Directors of a Tax Increment Finance ("TIF") project or, in the alternative, its employees or agents.

The Tax Increment Financing Act provides for creation of a reinvestment zone to promote development or redevelopment of an area resulting from, among other things, the number of substandard structures. Section 311.005 of the Act allows such zone to be created by petition "by the owners of property constituting at least 50 percent of the appraised value of the property in the area." Once the area is so designated, a board of directors is established whose duties are to prepare a project plan and to adopt a financing plan detailing the use of the tax increment fund. Nine members constitute the board including, among others, individuals who own real property in the zone or their agents or employees, subject to appointment by the City Council. Once the board has adopted a plan, the City Council must approve it by ordinance, presentation for which will be brought forth by the Economic Development Department.

The Ethics Code defines "city official" to include, among others, "board members of any entity who are appointed by City Council to such board membership." This includes certain board members of a TIF, and as such, they are required to follow the standards of conduct as set out in the Ethics Code.

Improper Economic Benefit. As a general rule, a City official may not take official action that he knows is likely to have an effect on, among others, his economic interest, the economic interest of his outside employer or the economic interest of a non-profit entity for which he serves as an officer. To affect an economic interest, the effect must be distinguishable from the effect on the public in general. Should such occur, the City official is required to recuse himself immediately, refraining from any further participation in the matter, and disclose in writing to the City Clerk the economic benefit.

Under the facts presented, a board member of the TIF would also be a board member or employee of the Reinvestment Corp., the corporation under contract with the City to review and administer the City’s TIF projects. If the TIF board has to make a recommendation on a matter for which the board member is required to take action that may result in an economic benefit for the Reinvestment Corp., the board member must disclose his potential conflict to the City Clerk and recuse himself from any discussion or voting on the matter. Because the Reinvestment Corp. will be compensated for administration of the TIF project, any decision made by the TIF board will have an economic effect on said Corporation that is distinguishable from the effect on the public in general. Therefore, the TIF board member who is also a board member or employee of the Reinvestment Corp. will be required to recuse and disclose himself. Since the members would be required to recuse themselves from taking any official action, the board would be unable to accomplish its objectives.

The same rationale applies to an agent of the Trust. Because an agent is authorized to act for the Trust in its capacity, any decision made on behalf of the Trust has an economic effect on the Reinvestment Corp. that is distinguishable from the economic effect on the public in general. Therefore, any agent of the Trust appointed to the TIF board will be required to recuse himself and disclose the potential conflict to the City Clerk.

Prohibited Financial Interest. Part B, Section 10[1] of the Ethics Code prohibits City officers from having a financial interest in a contract with the City or its agencies, including SAWS. Under this section, a City officer includes, among others, "a member of any board or commission which is more than advisory in function."

Members of a TIF are not City officers for purposes of this section. Therefore, there is no violation of this section for TIF members. However, Trust board members are City officers as the Trust is more than advisory in nature. To be in violation of this section, the Trust board member must have a financial interest in a contract with the City. A financial interest includes, but is not limited to, a contract in which the board member is a party to the contract or owns 10% or more of the voting stock or shares of the business entity or owns 10% or more of the fair market value of the business.

 

Under the facts presented, the party to the professional services contract is the Reinvestment Corp. and not its individual board members. Moreover, it is the Reinvestment Corp. that is being paid for its services to the City and, pursuant to Section IV. CONFLICT OF INTEREST, no member of the board receives contract funds for services. Therefore, there is no violation of this section. However, because of the dynamics of each corporation’s relationship and its board of directors, the appearance of an improper economic benefit does exist.

 

SUMMARY

 

A member of the Board of Directors of the San Antonio Housing Trust who also sits as a board member of the San Antonio Housing Reinvestment Corporation or an employee or agent of the Trust may be appointed by City Council to a Tax Increment Financing project. However, as an appointee, the member must abide by the standards of conduct as set forth in the Ethics Code, including recusing and disclosing a conflict should one arise. This would require the five (5) members of the TIF Board who are also board members of the Reinvestment Corp. to recuse themselves, resulting in a board which lacks a quorum to accomplish its objectives.

 

 

FRANK J. GARZA

City Attorney

 

 



[1]   Currently codified in Ethics Code Section 2-52