Ethics Advisory Opinion No. 99
Issued By: City Attorney’s Office
May a spouse of an individual who has an ownership interest in business that contacts with the city serve on a city board that is more than advisory in nature?
The spouse of a member of a city board that is more than advisory in nature is a shareholder in a firm that has a contract with the city. The spouse holds a less than 10% ownership interest. The board in question has no authority or involvement with the contract. The member asks whether the Ethics Code prohibits her membership on the board or restricts her activities on the board in any way.
The City Charter and the Ethics Code both prohibit city officers and higher-level staff members from having an interest in a contract with the city. Section 141 of the City Charter states:
“No officer or employee of the City shall have a financial interest, direct or indirect, in any contract with the City, or shall be financially interested, directly or indirectly, in the sale to the City of any land, materials, supplies, or service, except on behalf of the City as an officer or employee. Any willful violation of this Section shall constitute malfeasance in office, and any officer or employee guilty thereof shall thereby forfeit his office or position. Any violation of this Section, with the knowledge, expressed or implied, of the person or corporation contracting with the Council shall render the contract involved voidable by the City Manager or the Council.”
Ethics Code, Section 2-52; City Charter, Section 141.
“City officers” include
(A) the Mayor or any Council member;
(B) a Municipal Court Judge or Magistrate; and
(C) a member of any board or commission which is more than advisory in nature. The term does not include members of the board of another governmental entity even if some or all of these members are appointed by the city.
The designation of a board as advisory or more-than-advisory is critical. This prohibition applies only to city boards or commissions members where the board is more than advisory in nature. The board in this matter is more than advisory, so the member is subject to the “prohibited contracts” restrictions.
An officer is presumed to have the prohibited financial interest if any of the following is a party to the agreement:
§ the officer himself or herself;
§ the officer’s spouse, sibling, parent, child or other family member within the first degree of consanguinity or affinity;
§ any business entity in which the officer or his or her parent, child or spouse directly or indirectly own 10% or more than the voting stock or fair market value.
The sanction for an officer found to have willfully violated this prohibition is the forfeiture of the board member’s position with the city. The violation also renders that contract voidable by the City Manager or City Council. City Charter, Section 141. It is immaterial the official’s board would have no involvement in the proposed agreement with the city. The “prohibited contracts” provision strictly forbids an officer, his or her family members or the businesses in which they hold a 10% or greater ownership interest from having a contract with the city.
In this instance, the officer (board member) has not contracted with the city. However, she has an indirect interest in the contract because her husband is a partial owner of the contracting firm. Under the ethics code, though, his ownership interest in the contracting entity must be 10% or more to trigger the restriction. Because the ownership interest of the spouse is less than 10%, the board member does not have a “prohibited interest” in the contract and she may continue to serve on the board.
IV. Conflicts of Interest
There is no indication that the board in question will ever have any involvement in the contract with the firm of the member’s spouse. However, should any issue come before the board that could affect the financial interests of the member, her spouse or her spouse’s firm, the member will be required to recuse herself from any participation in the matter. Ethics Code, Section 2-43.
The member does not have a prohibited interest in the contract between the city and the firm in which her husband’s holds a less than 10% interest. The “prohibited contracts” provision, therefore, does not present any impediment to her continued service on the board.