CONFLICT OF INTEREST; GIFT PROHIBITIONS;

VOTING CONFLICT OF INTEREST

CITY COUNCIL MEMBER SERVING ON
BOARD OF NONPROFIT CHARTER SCHOOL
RECEIVING CREDITS FROM CITY

To: Kyle S. Bauman, Destin City Attorney

SUMMARY:

Under the circumstances presented, a prohibited conflict of interest does not exist under Section 112.313(3) or 112.313(7)(a) were a City Council member to serve on the board of directors of a nonprofit charter high school receiving equivalent residential unit credits from the City. Although Section 112.313(3) prohibits the public officer from acting in her official capacity to purchase services for her agency from a business entity of which she is a director, the City Council is not purchasing services for itself from the nonprofit by virtue of its gratuitous transfer of credits thereto. Further, there is no conflicting employment or contractual relationship under Section 112.313(7)(a) because uncompensated service as president of the board of directors of a nonprofit charter high school does not constitute either employment or a contractual relationship with that organization. Further, the gratuitous transfer of credits from the City to the nonprofit will not constitute a direct or indirect gift to the member under Section 112.3148, Florida Statutes. Were the City Council to vote on the transfer of credits to the nonprofit, the member would not have a voting conflict under Section 112.3143(3), Florida Statutes, although it is recommended that she abstain from the vote pursuant to Section 286.012, Florida Statutes, to avoid any appearance of impropriety. CEO 90-24, CEO 92-43, CEO 07-11, CEO 08-1, CEO 14-12, CEO 16-1, CEO 19-1, CEO 19-3, CEO 19-13, CEO 20-3, and CEO 20-13 are referenced.¹

QUESTION 1:

Would a prohibited conflict of interest exist under Section 112.313(3) or 112.313(7)(a) were a member of a City Council to serve as the uncompensated president of the board of directors of a nonprofit charter school receiving a donation of water and sewer credits from the City?

Under the circumstances presented, Question 1 is answered in the negative.

In your letter of inquiry you state that you are requesting this opinion on behalf of a member of the Destin City Council (City Council). You state that in her private capacity the member serves on the Board of Directors as President² of the Destin High School, Inc. (High School), a nonprofit corporation with Internal Revenue Service (IRS) designated tax exempt status. You relate that the High School is a charter school that is completely unaffiliated with the City of Destin (City) but has been established to serve high school aged students from within and around the City's incorporated municipal limits. You state that the member is not paid or compensated in any way for her role with the High School and she is not a rank and file member of the organization.

You state that in furtherance of its mission, the High School purchased real property located in a geographical enclave surrounded by the City's incorporated limits and is in the process of renovating the property's existing building to accommodate the High School's facilities. You state that due to the property's expected more intensive use and the attendant impact on the water and sewer systems, Destin Water Users, Inc. (DWU),³ will require the High School to pay an estimated $28,574.00 in water impact fees and $30,352.00 in sewer impact fees. Water and sewer impact fees are calculated by the expected increase in equivalent residential units (ERU) on their water and sewer systems. You relate that the total number of ERUs DWU expects the High School to impact its system are 14 water ERUs and 14 sewer ERUs.⁴ You state that these impact fees must be paid by the time the High School is issued its certificate of occupancy, which is estimated to be early July 2021.

You state that due to the City's purchase of real property serviced by DWU, thereby resulting in less intensive water and sewer needs, the City currently possess a total of 79 ERU water credits and 73 ERU sewer credits. You relate that although ERU credits typically run with the land, DWU will allow entities with credits to transfer those credits to another entity. However, once a credit is transferred the transferring entity loses the right to apply the credit to any future development in a manner that would mitigate the entity's need to pay impact fees.

You relate that the High School plans to ask the City to transfer 14 water ERU credits and 14 sewer ERU credits to the High School. However, in light of the Council member's status as both an elected member of the City Council (the entity potentially transferring the credits without receipt of consideration), and as President of the Board of Directors of the High School (the entity potentially receiving the credits as a donation), the member seeks guidance regarding any ethics issues under the Code of Ethics for Public Officers and Employees (Code of Ethics) implicated as a result of the prospective transfer of credits.

The Code of Ethics provides in relevant part:

DOING BUSINESS WITH ONE'S AGENCY.—No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer's or employee's spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer's or employee's spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to the officer's or employee's own agency, if he or she is a state officer or employee, or to any political subdivision or any agency thereof, if he or she is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator's place of business or when such offices are on property wholly or partially owned by the legislator. This subsection shall not affect or be construed to prohibit contracts entered into prior to:

(a) October 1, 1975.

(b) Qualification for elective office.

(c) Appointment to public office.

(d) Beginning public employment.

[Section 112.313(3), Florida Statutes.]

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.—No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee . . .; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties. [Section 112.313(7)(a), Florida Statutes.]

Section 112.313(3) prohibits, in part, the City Council member from acting in her official capacity to purchase goods or services for her own agency from a business entity⁵ in which she serves as an officer, director, or proprietor, or has a material interest. See CEO 92-43 and CEO 14-12. However, the Commission on Ethics (Commission) has found that Section 112.313(3) does not apply when the sale, rental, or lease, is being made from an agency to an outside entity, rather than the reverse. See CEO 07-11, n.8, and CEO 20-3. Accordingly, we find that Section 112.313(3), Florida Statutes, will not apply.

In addition, Section 112.313(7)(a) prohibits the City Council member from holding employment or a contractual relationship with a business entity if the business entity is subject to the regulation of, or is doing business with, her public agency,⁶ and further prohibits the member from having a contractual relationship which would create a continuing or frequently recurring conflict between her private interest and the performance of her public duties or which would impede the full and faithful discharge of her public duties. The Commission has found that uncompensated directors of a nonprofit organization, such as the High School, who are not also personally themselves members of the corporation, have no employment or contractual relationship with the organization. See CEO 19-3 and CEO 20-13. As the member indicates that her service as President of the Board of Directors of the High School is uncompensated and that she personally does not maintain an individual membership in the organization, we find no prohibited conflict under Section 112.313(7)(a).

Thus, under the specific circumstances of your inquiry, we find that no prohibited conflict of interest would be created under Section 112.313(3) or 112.313(7)(a) were the City to gratuitously transfer ERU credits to a nonprofit charter High School wherein a member of the City Council serves in an uncompensated capacity.⁷

Question 1 is answered accordingly.

QUESTION 2:

Does a donation in the form of a gratuitous transfer of ERU credits from the City to the High School constitute a direct or indirect gift to the member?

Under the circumstances presented, Question 2 is answered in the negative.

As noted above, the High School is planning to ask the City to transfer 14 water ERU credits and 14 sewer ERU credits to the High School, absent any remuneration. You relate that the present day value of 1 water ERU is $2,041.00 and the present-day value of 1 sewer ERU is $2,168.00. Thus, were the transfer to occur, the total value of the 28 ERU credits transferred to the High School would be approximately $58,926 in offset impact fees.

The Council member is subject to the restrictions and disclosure requirements of Section 112.3148, Florida Statutes (the "gifts" law), as she is a "reporting individual" required to file financial disclosure. See CEO 16-1 and CEO 19-13. Section 112.3148, Florida Statutes, provides in relevant part:

A reporting individual or procurement employee or any other person on his or her behalf is prohibited from knowingly accepting, directly or indirectly, a gift from a vendor doing business with the reporting individual’s or procurement employee’s agency, a political committee as defined in s. 106.011, or a lobbyist who lobbies the reporting individual’s or procurement employee’s agency, or, directly or indirectly on behalf of the partner, firm, employer, or principal of a lobbyist, if he or she knows or reasonably believes that the gift has a value in excess of $100; however, such a gift may be accepted by such person on behalf of a governmental entity or a charitable organization. If the gift is accepted on behalf of a governmental entity or charitable organization, the person receiving the gift shall not maintain custody of the gift for any period of time beyond that reasonably necessary to arrange for the transfer of custody and ownership of the gift. [Section 112.3148(4), Florida Statutes]

Each reporting individual or procurement employee shall file a statement with the Commission on Ethics not later than the last day of each calendar quarter, for the previous calendar quarter, containing a list of gifts which he or she believes to be in excess of $100 in value, if any, accepted by him or her, for which compensation was not provided by the donee to the donor within 90 days of receipt of the gift to reduce the value to $100 or less, except the following:

1. Gifts from relatives.

2. Gifts prohibited by subsection (4) or s. 112.313(4).

3. Gifts otherwise required to be disclosed by this section. [Section 112.3148(8)(a), Florida Statutes]

Section 112.3148(4), Florida Statutes, prohibits a reporting individual, or anyone acting on his/her behalf, from accepting directly or indirectly any gift⁸ worth more than $100 from a lobbyist of his/her public agency, the partner, firm, employer, or principal of such a lobbyist, or a vendor of his/her public agency, or certain others identified in the statute (hereinafter, "prohibited donors"). Further, Section 112.3148(8), Florida Statutes, provides that reporting individuals are required to disclose the receipt of allowable gifts from non-prohibited donors if they exceeded $100 in value.

The situation you present does not involve a direct gift to the member because the transfer of ERU credits will be made by the City to the nonprofit High School and not to the member personally. See CEO 19-1 and CEO 19-13. Further, you state that the member is not paid or compensated in any way in her role as President of the Board of Directors of the High School. Thus, were the transfer of ERU credits from the City to the High School to occur, the Council member will not experience or receive any attributable value therefrom, and, therefore, no direct or indirect "gift" will arise due to the donation of ERU credits to the nonprofit.

Question 2 is answered accordingly.

QUESTION 3:

In the event that the City Council votes on the proposed transfer of ERU credits to the High School, will the member be presented with a voting conflict under Section 112.3143(3)(a), Florida Statutes?

Under the circumstances presented, Question 3 is answered in the negative.

You also inquire whether Section 112.3143, Florida Statues, the voting conflicts law, will prohibit the member from voting on a measure concerning the transfer of ERU credits to the High School were it to come before the City Council. Section 112.3143(3)(a), which is the portion of the voting conflict statute applicable to local, elective officers, provides:

No county, municipal, or other local public officer shall vote in an official capacity upon any measure which would inure to his or her special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom he or she is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained, other than an agency as defined in s. 112.312(2); or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer. Such public officer shall, prior to the vote being taken, publicly state to the assembly the nature of the officer’s interest in the matter from which he or she is abstaining from voting and, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum field with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes.

Section 112.3143(3)(a) prohibits the member from voting on, and requires disclosure and filing (CE Form 8B) regarding, any measure which would inure to the special private gain or loss of herself, her relative, her business associate, or a principal by whom she is retained. The term "principal by whom retained" is defined, in Section 112.3143(1)(a), Florida Statutes, to mean:

an individual or entity, other than an agency as defined in s. 112.312(2), that for compensation, salary, pay, consideration, or similar thing of value, has permitted or directed another to act for the individual or entity, and includes, but is not limited to, one's client, employer, or the parent, subsidiary, or sibling organization of one's client or employer.

Thus, the definition of "principal by whom retained" contained in Section 112.3143(1)(a) provides that a voting conflict is present when a public officer is presented with a vote/measure which would inure to the special private gain or loss⁹ of his or her client, employer, or the parent, subsidiary, or sibling organization of his or her client or employer.

In the instant matter, you relate that the member is not paid or compensated in any way in her role as President of the Board of Directors of the High School. The Commission has found that uncompensated service on the board of directors of a nonprofit corporation is not implicative of a "principal by whom retained" relationship. See CEO 14-12 and CEO 20-3. Moreover, nothing in the materials you have provided suggests that the member otherwise stands to experience any economic gain or loss as a result of a vote involving the City's transfer of its ERU credits to the nonprofit High School. Accordingly, we find that the member will not be presented with a voting conflict were the City Council to vote on the proposed transfer of ERU credits to the High School.

Nevertheless, while the member does not have a voting conflict under Section 112.3143(3)(a), we recognize it may not foster public confidence in government for her to vote on the transfer of ERU credits to a nonprofit entity wherein she serves as President. Were she to vote, her uncompensated service as President of the Board of Directors of the High School may create an appearance of impropriety concerning her objectivity on the measure. To avoid such an appearance, we suggest the member remove herself from involvement in decisions concerning the transfer of ERU credits and abstain from the vote pursuant to Section 286.012, Florida Statutes.¹⁰ This provision allows a public officer to abstain when there is, or appears to be, a possible voting conflict, in the interest of fostering transparency in government. Should the member abstain under Section 286.012, as recommended herein, she should comply with the steps for responding to a voting conflict as described in Section 112.3143(3)(a). See CE Form 8B.

Question 3 is answered accordingly.

ORDERED by the State of Florida Commission on Ethics meeting in public session on June 4, 2021, and RENDERED 9th day of June, 2021.

____________________________________

JoAnne Leznoff, Chair

^[1]Prior opinions of the Commission on Ethics can be viewed at www.ethics.state.fl.us.