CEO 85-40 -- May 23, 1985

CONFLICT OF INTEREST

CITY COUNCIL MEMBER OFFICER OF BANK DOING BUSINESS WITH CITY

To: Mr. John C. Wolfe, Chief Assistant City Attorney, City of St. Petersburg

SUMMARY:

No prohibited conflict of interest would be created were an officer of a bank doing business with a city as bond trustee and through a banking services agreement to be appointed to serve on the city council, as the relationships between the banks and the city would be "grandfathered in." CEO's 76-118, 77-36, and 82-10 are referenced. However, if the city were to negotiate new agreements with the bank, a prohibited conflict of interest would be created under Section 112.313(3) and (7), Florida Statutes, unless one of the exemptions in Section 112.313(12), Florida Statutes, applies.

QUESTION 1:

Would a prohibited conflict of interest be created were an officer of a bank doing business with a city as bond trustee and through a banking services agreement to be appointed to serve on the city council?

This question is answered in the negative.

In your letter of inquiry you advise that at the present time there is a vacancy on the St. Petersburg City Council which will be filled by appointment of the Council. One of the individuals being considered to fill the vacancy is the vice-president in charge of marketing for a local bank. You also advise that there are several agreements between the City and the bank under which the bank acts as trustee for various City bond issues. In addition, the City has awarded a banking services agreement to the bank after advertising for proposals. Under the agreement, the bank serves as a depository of City funds, agrees to provide certain services for the City and for City employees, and provides the City with a line of credit. The City has used some of the line of credit and presently has an outstanding loan from the bank in an amount less than the total credit line.

Section 112.313(3), Florida Statutes, prohibits a public officer from acting in his official capacity to purchase any services from a business entity of which he is an officer. In addition, Section 112.313(7), Florida Statutes, prohibits a public officer from being employed by a business entity which is doing business with his agency.

However, in previous opinions, such as CEO 76-118, CEO 77-36, and CEO 82-10, we have found that the Code of Ethics "grandfathers in" agreements entered into before a public official takes office. Therefore, we find that the Code of Ethics would not prohibit the subject bank officer from being appointed to serve on the City Council because of existing agreements between the bank and the City.

As future extensions of credit are contemplated by the banking services agreement which we find to have been grandfathered in, we conclude that the City could continue to take advantage of its line of credit with the bank if the bank's officer is appointed to the City Council. Nevertheless, the bank's officer would be prohibited from voting on future extensions of credit under the agreement by Section 112.3143, Florida Statutes (Supp. 1984), as such a loan would inure to the special gain of a principal by whom he is retained. Similarly, as the two-year banking services agreement contemplates a one-year extension by written consent of the City and the bank, we find that such an extension of the agreement also would be grandfathered in and that the bank's officer would be prohibited from voting on such an extension. See CEO 76-118, in which we approved of the annual renegotiation of a loan which had been grandfathered in, so long as the terms were substantially identical to the original loan.

Accordingly, we find that no prohibited conflict of interest would be created were the subject bank officer to be appointed to serve on the City Council while the bank is doing business with the City as bond trustee and under the banking services agreement.

QUESTION 2:

Would a prohibited conflict of interest be created were the bank to compete for and seek a similar banking services agreement upon the expiration of the present agreement, if the subject officer of the bank were serving on the City Council?

This question is answered in the affirmative, subject to the exemptions noted below.

Once the present banking services agreement expires, the prohibition of Section 112.313(3) and 112.313(7), Florida Statutes, noted above, will become effective. See CEO 80-88 regarding the expiration and renegotiation of insurance policies found to have been grandfathered in under the Code of Ethics.

Section 112.313(12), Florida Statutes, provides a number of exemptions to the prohibitions of Section 112.313(3) and 112.313(7). In particular, Section 112.313(12)(g) permits a municipal officer to serve as an officer of a bank which is acting as a depository of municipal funds, so long as the governing body of the municipality has determined that the officer has not favored his bank over other qualified banks. This exemption, however, would apply only insofar as the banking services agreement contemplates the bank serving as a depository. If the business were to be awarded under a system of sealed, competitive bidding to the lowest or best bidder, the exemption of Section 112.313(12)(b) would apply.

Accordingly, with the possible exception of these exemptions, we find that a prohibited conflict of interest would be created were the bank to obtain a similar banking services agreement upon the expiration of the present agreement, if the bank's officer were to serve on the City Council at that time.

QUESTION 3:

Would a prohibited conflict of interest be created were the bank to be the trustee on future bond issues of the City, if the subject officer of the bank were to be appointed to the City Council?

Our response to this question is the same as to your second question. Accordingly, we find that unless one of the exemptions of Section 112.313(12), Florida Statutes, applies, a prohibited conflict of interest would be created were the bank to serve as trustee on future bond issues of the City, if the subject officer of the bank were serving on the City Council at that time.