City of San Antonio, Texas

 

Ethics Advisory Opinion No. 78

 

August 20, 2004

 

Issued By:  City Attorney’s Office

 

I.  Issue

 

1)  When must a city official recuse himself from official action that may affect his non-city employer or business interests?

 

2)  What other limitations does the Ethics Code impose regarding a city official’s actions concerning his non-city employer or business interests?

 

 

II.  Background Information

 

A city official would like to consider an employment or ownership opportunity with a non-city business entity. This non-city business entity and its customers or clients have contracts and other business associations with the city. The official inquires whether he may accept the employment or ownership opportunity. If so, in what situations must the official recuse himself from official action regarding the non-city entity. 

 

 

III.  Discussion

 

A.  Prohibited Interest in Contracts

 

Section 141 of the City Charter and Part B, Section 10 of the Ethics Code (currently codified in Ethics Code Section 2-52) bar a city officer or employee from having a financial interest, direct or indirect, in a contract with the city or its agencies. Under Part B, Section 10 (currently codified in Ethics Code Section2-52), a city officer is any member of council, a municipal court judge or magistrate or a member of any board or commission that is more than advisory in nature.[1] In this inquiry, the official is a member of a board that is more than advisory in nature.

An officer or employee[2] is presumed to have a prohibited interest in a city contract if one of the following is a party to the contract:

 

            1)  the officer;

 

2) the officer’s spouse, sibling, parent, child or other family member within the first degree of consanguinity;

 

3) a business entity in which the officer, or the officer’s parent, child or spouse, directly or indirectly owns:

            A) 10% or more of the voting stock or shares of the business entity; or

            B) 10% or more of the fair market value of the business entity; or

 

4) a business entity of which any individual or entity listed above is

            A) a subcontractor;

            B) a partner;

            C) a parent or subsidiary entity.

 

Ethics Code Part B, Section 10(b). (currently codified in Ethics Code Section 2-52(b))

 

If the city officer or an immediate family member is a party to a contract with the city, the officer would have a “prohibited interest” in that contract, the penalty for which is forfeiture of his city office.[3]  Recusal from action concerning the business interest is insufficient to remedy the violation.  This also applies if the officer or a close family member holds a 10% or greater interest in a business that is contracting with the city, or in a business that is a subcontractor, partner or parent company of a city contractor.[4]   

 

The “prohibited interest in contracts” sections, however, would not apply if it is a client or a customer of the officer that contracts with the city.  For example, if the officer held a greater than 10% interest in a business entity, and that entity has a client who contracts with the city, this would not create a prohibited interest in the contract for the officer under the charter or the code.

 

Further, the “prohibited interest in contracts” sections do not apply if the officer or a close family member is merely an employee of a city contractor.  The officer could accept employment with a city contractor without violating Section 141 of the Charter or Part B, Section 10 of the Ethics Code (currently codified in Ethics Code Section 2-52), so long as he and his family members did not have an ownership interest greater than 10% of that entity’s voting stock or fair market value.

 

The City Charter Section 141 and Part B, Section 10 of the Ethics Code (currently codified in Ethics Code Section 2-52) address the official’s business or contractual relationships with the city.  The prohibition against taking improper economic benefits discussed in the next section concerns not the official’s business or contractual relationships with the city, but rather speaks to circumstances where an official’s actions within the scope of his city responsibilities might affect his, his family or his family’s business interests. 

 

 

B.  Improper Economic Benefit

 

Part B, Section 1(currently codified in Ethics Code Section 2-43) provides that a city official or employee[5] shall not take any official action that he knows is likely to affect the economic interests of:

 

            1)  the official or employee’s own economic interests;

 

2) his or her parent, child, spouse, or other family members within the second degree by blood or marriage;

 

3)  his or her outside client;

 

4)  a member of his or her household;

 

5)  the outside employer of the official or employee or his or her spouse, parent or child, unless the child is a minor;

 

6) a business entity in which the official or employee knows that any individual listed above holds an economic interest;

 

7) a business entity which the official or employee knows is an affiliated business or partner of a business entity in which any individual listed above holds an economic interest;

 

8)  a business or nonprofit entity for which the city official or employee serves as an officer or other policy-making position;

 

9) a person or business entity from whom:

A) the official or employee or that person’s spouse has, in the preceding 12 months ,

                        i) solicited,

                        ii) received and not rejected; or

                        iii) accepted

            an offer of employment; or

           

B) the official or employee or that person’s spouse, is directly or indirectly engaged in negotiations regarding a business opportunity.

 

This is a “conflict of interest” rule. In contrast to the “prohibited interests in contracts” provisions that forbid certain city officers and employees from engaging in business with the city on penalty of forfeiting of their position, this section requires only recusal from official action affecting a personal economic interest.  In addition, this section differs from the “prohibited contracts” provision because it applies to all officials and employees and concerns the economic interests of a wider group of people or business entities associated with the official or employees. In addition, this section pertains to economic interests of any level.  There is no threshold of a 10% ownership interest required to trigger its application.[6] 

 

Accordingly, if a city official were to become employed by a business entity or to acquire an ownership interest in a business, the official would be required to recuse himself from any official action that he knew would affect that organization’s financial interests. This would also be true if the action would affect the economic interests of any customer or client of the official or those of his employer or his business association.  

 

This provision would also apply for any action affecting the interests of a business with whom the official had engaged in employment negotiations in the preceding 12 months, unless he has formally rejected the offer of employment.  Further, the official must abstain from any action involving a person or business with whom he is negotiating, directly or indirectly, a business opportunity.

 

Part A, Section 2(o) (currently codified in Ethics Code Section 2-42(v)) defines “official action” as

 

(1) any affirmative act (including the making of a recommendation) within the scope of, or in violation of, an official or employee’s duties, and        

 

(2) any failure to act, if the official or employee is under a duty to act and knows that inaction is likely to affect substantially an economic interest of the official or employee or other closely related person or entity.

 

For purposes of the “improper economic benefit” provision, an action is likely to affect an economic interest if it is likely to have an effect on that interest that is distinguishable from its effect on members of the public in general or a substantial segment of the public. The term “client” refers to a business relationship of a highly personalized nature, and not ordinary business-customer relationships.   Ethics Code Part B, Section 1(c) (currently codified in Ethics Code Section 2-43(a)(3)

 

If the official encounters a situation that requires him to take official action that would affect the interests discussed in this section, the official must recuse himself from the action and file the appropriate disclosure form with the City Clerk’s Office.

 

C.  Unfair Advancement of Private Interests

 

Part B, Section 2 (currently codified in Ethics Code Section 2-44) prohibits the use of a city official or employee’s position to unfairly advance or impede the private interests of another or to grant or secure for any person, including the official or employee himself, any form of special consideration beyond that which is lawfully available to other persons.  This section is related to the provision prohibiting improper benefits. Under this section, the official could not use his official position to unfairly advance the interests, financial or otherwise, of himself, his family or their associated business interests.  

 

This section, though, has even broader application. The official cannot use his position to unfairly advance any private interest, regardless of whether it has a personal connection to him, his family or their associated business interests. An official should take action on the merits of the issue and not based on that person’s position with the city.

 

D.  Representation of Private Interests

 

Under Part B, Section 5 (currently codified in Ethics Code Section 2-47), a city official or employee cannot represent for compensation any person, group, or entity other than himself or herself, or his or her spouse or minor children before the city. In connection with any representation for himself or his immediate family or on behalf of a business without compensation, the city employee shall not:

 

A.  assert the prestige of the official’s or employee’s city position for the purpose of advancing private interests; or

 

B.  state or imply that he is able to influence city action on any basis other than the merits.

 

Part B, Section 5(b)(3) (currently codified in Ethics Code Section 2-47).

 

If the official were to accept non-city employment or acquire an ownership interest in a business entity, the official could not represent the interests of that employer or the business association or any clients or customers of these entities for compensation before the city. 

 

This prohibition includes representation of any person, group or entity, other than the official himself, his spouse or children, in any litigation to which the city is a party, if the interests of the client are adverse to the city.  Ethics Code Section 2-2-47(d) (Formerly Part B, Section 5(c)).

 

 

E.  Conflicting Outside Employment

 

Part B, Section 6 (currently codified in Ethics Code Section 2-48) states that a city official or employee cannot solicit, accept or engage in concurrent outside employment that could impair or interfere with the employee’s official duties. If the official’s other employment responsibilities would hinder his ability to carry out his duties for the city, this section would require him to either forego the other employment or structure his obligations to prevent the impairment or interference.

 

F.  Confidential Information 

 

As a city official or employee, an individual may have access to confidential information not available to the public. Under Part B, Section 4 (currently codified in Ethics Code Section2-46), that individual cannot obtain or disclose confidential information for any purpose other than the performance of his or her official duties.  

 

G.  Public Property and Resources

 

A city official or employee cannot use, request or permit the use of city facilities, personnel, equipment or supplies for private purposes except to the extent and according to the terms that those resources are lawfully available to the public. Part B, Section 7 (currently codified in Ethics Code Section 2-49). The official, therefore, could not use any city resource for a private purpose, including attending to outside business interests.

 

III.  Conclusion

 

The City Charter and the Ethics Code impose standards of conduct that may affect a city official in connection with that official’s employment outside the city or an ownership interest in a business entity.  

 

Under City Charter Section 141 and Part B, Section 10 of the Ethics Code (currently codified in Ethics Code Section 2-52), the official is presumed to have a prohibited interest in any city contract to which he, his immediate family or any business in which he or his family hold a 10% or greater interest in voting stock or fair market value. Under the charter, the sanction for knowingly violating this provision is forfeiture of office.

 

The official must also be cognizant of the city’s conflict-of-interest provision in Part B, Section 1 of the Ethics Code (currently codified in Ethics Code Section 2-43). If his official actions might affect the financial interests in a manner distinguishable from its effect on members of the public in general or a substantial segment of the public of himself, his immediate family, members of his household, his outside clients, his or his family’s outside employers, any businesses in which these individuals hold interest and any person or entity with whom the official has negotiated for employment in the last 12 months or negotiated a business opportunity, the official must recuse himself and file the disclosure form with the City Clerk’s Office.

 

The official should also remain aware that he cannot represent, for compensation, the interests of any outside employer or business association in which he holds an ownership interest or any of their clients or customers before the city.  Further, he cannot accept outside employment if it would interfere with his ability to perform his responsibilities to the city, nor can he use any city resources for his private interests. 

 

Accordingly, so long as the official abides by the standards of conduct discussed above, he may accept outside employment or acquire ownership interest in the business entity.

 

 

[7][1]   The definition of the term “officer” as it is used in Section 141 of the City Charter and Part B, Section 10 of the Ethics Code (currently codified in Ethics Code Section 2-52) is narrower than the definition of “official” as this latter term is used in the other provisions of the code. Part B, Section 10(e) . (currently codified in Ethics Code Section Section 2-52(e)). 

[8][2]  For purposes of the “prohibited interests in contracts” provisions in the charter and the code, the term “employee” is limited to city personnel who are required to file financial disclosure statements under the Ethics Code Section Part G, Section 1 (currently codified in Ethics Code Section 2-73).  Part B, Section 10(e) (currently codified in Ethics Code Section 2-52(e).

[9][3]  City Charter Section 141 and City Ethics Code Part B, Section 10(b). (currently codified in Ethics Code Section Section 2-52(b).

[10][4]  Id.

[11][5]  In contrast to use of the term “officer” as used in the “prohibited interest” in contracts provisions of the City Charter and Part B, Section 10 of the Ethics Code (currently codified in Ethics Code Section 2-52 ), the term “official” here refers to the general meaning as set out in Part A, Section 2(u) (currently codified in Ethics Code Section  Section 2-42(u). The term “employee”, is also more broadly defined, meaning any individual on the city payroll. Part A, Section 2(o). (currently codified in Ethics Code Section 2-42(n). 

 

[12][6]  Part A, Section 1(x))  (currently codified in Ethics Code Section 2-42(x)) provides that ownership of an interest in a mutual or common investment fund that holds securities or other assets does not constitute direct or indirect ownership of such securities or other assets unless the person in question participates in the management of the fund.

 

 

 



[1]   The definition of the term “officer” as it is used in Section 141 of the City Charter and Part B, Section 10 of the Ethics Code is narrower than the definition of “official” as this latter term is used in the other provisions of the code.    Ethics Code Part B, Section 10(e). 

[2]  For purposes of the “prohibited interests in contracts” provisions in the charter and the code, the term “employee” is limited to city personnel who are required to file financial disclosure statements under the Ethics Code Part G, Section 1.  Ethics Code Part B, Section 10(e).  

[3]  City Charter Section 141 and City Ethics Code Part B, Section 10(b).

[4]  Id.

[5]  In contrast to use of the term “officer” as used in the “prohibited interest” in contracts provisions of the City Charter and Part B, Section 10 of the Ethics Code, the term “official” here refers to the general meaning as set out in Part A, Section 2(u).   The term “employee”, is also more broadly defined, meaning any individual on the city payroll.   Part A, Section 2(o). 

 

[6]  Part A, Section 1(x) provides that ownership of an interest in a mutual or common investment fund that holds securities or other assets does not constitute direct or indirect ownership of such securities or other assets unless the person in question participates in the management of the fund.