CEO 96-23 -- August 29, 1996

CONFLICT OF INTEREST

CITY COUNCIL MEMBER EMPLOYED BY FINANCIAL SERVICES

COMPANY ACTING AS UNDERWRITER FOR CITY BOND ISSUE

To: (Name withheld at the person=s request.)

SUMMARY:

A prohibited conflict of interest would be created under Section 112.313(7)(a), Florida Statutes, were a city council member to accept employment with a multinational financial services company, one division of which contracts to underwrite city bond issues, as he would be employed with a business entity that is doing business with his agency. CEO 88-80 and CEO 85-29 are referenced. The fact that past business dealings with the city count negatively as one of ten selection criteria used in evaluating bond underwriters does not mean that the business is awarded under a rotation system that would create an exemption to the prohibition, pursuant to Section 112.313(12)(a), Florida Statutes.

QUESTION:

Would a prohibited conflict of interest be created were you, a city council member, to accept employment with a multinational financial services company, one division of which contracts to underwrite city bond issues?

Under the circumstances presented, your question is answered in the affirmative.

In your letter of inquiry, you advise that you serve as a member of the Jacksonville City Council and that you have been offered a position as a stockbroker with a large, multinational financial services company. In that position, you would act as a financial consultant and stockbroker, selling retail financial services and securities in the local area.

You also advise that the City from time to time issues bonded debt using a number of investment bankers as bond underwriters. One of these is the financial services company which has offered you a position. Your position would not be directly connected to the company=s institutional division, which underwrites municipal bonds.

Further, you advise that the City selects bond underwriters through a procedure that does not involve the City Council. The City=s purchasing code specifies procedures that delegate selection of bond underwriters to a Professional Services Evaluation Committee within the executive branch of City government. For each bond issue, the Committee recommends to the Mayor a ranked list of up to ten bond underwriters. The Mayor has the discretion to approve the ranked list selection of the bond underwriting team. The Committee then negotiates with as many bidders as necessary for the work, in the order in which they are ranked. At the completion of the negotiations, the Mayor approves the financial team. Thus, the City=s selection of bond underwriters is entirely an executive, rather than a legislative, function.

At the time the Mayor selects the bond underwriter(s), you advise, there is no contract entered into between the City and the underwriters. When a City bond issue is to be sold, the City Council approves a bond purchase agreement with the underwriter(s), as negotiated by the administration. That agreement provides for the issuance, maturities, rate of interest on the bonds, and rate of compensation and reimbursement of expenses to the bond underwriter(s). Thus, while the City Council has no actual participation in the evaluation or selection of underwriter(s), it does approve the bond purchase agreement.

The Code of Ethics for Public Officers and Employees provides in relevant part:

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.]

In a previous opinion, CEO 88-80, we concluded that this provision would prohibit a county commissioner from being employed with a national brokerage firm if the firm were contracting with the county to provide underwriting services for a proposed bond issue. CEO 88-80 involved a situation where a portion of the underwriter selection process was delegated to a selection and negotiation committee composed of a number of upper-level management personnel and one or more county commissioners. The committee was responsible for evaluating all proposals, ranking them in order of preference, and making a recommendation for selection to the county commission, which made the final selection. We concluded that the brokerage firm would be Adoing business@ with the county if it were to contract with the county to serve as an underwriter.

Similarly, in CEO 85-29 (question 2), we concluded that a prohibited conflict of interest would be created were a brokerage firm that employed a city commissioner to be selected by the city as underwriter for one or more city bond issues. There, the city commission interviewed all interested companies and then selected the underwriter based on the proposals and interviews.

We are of the opinion that, as in CEO 88-80 and CEO 85-29, you would be employed by a business entity that is doing business with your agency, in violation of Section 112.313(7), if you accept employment with the company and the company serves as an underwriter of City bonds. Although you advise that the Mayor is responsible for selecting the bond underwriters, you also advise that there is no contract entered into between the City and the underwriters until the City Council approves the bond purchase agreement with the underwriters. It is that agreement which provides for the rate of compensation and reimbursement of expenses to the underwriters, as well as for the issuance, maturities, and rate of interest on the bonds. Therefore, in our view, the City Council, of which you are a member, is doing business with the underwriter(s) when it authorizes and approves the contract with the underwriter(s).

You question whether the situation would fall within the exemption for transactions awarded under a rotation system. Section 112.313(12)(a), Florida Statutes, provides an exemption to Section 112.313(7) if:

Within a city or county the business is transacted under a rotation system whereby the business transactions are rotated among all qualified suppliers of the goods or services within the city or county.

The City=s purchasing provisions for professional services contracts, including bond underwriters, specify the following as one of the ten selection criteria to be evaluated: AThe volume of current and prior work performed for using agencies shall be considered a minus factor.@

The application of this criterion shall include an assessment of the volume of work previously awarded to the firm. This criterion is considered to be a negative factor inasmuch as the firm that has been awarded the most business will receive the lowest score. Qualities and indicators that should receive consideration should generally include the number, type, and dollar value of all present and past work performed within the past five years on behalf of the City and the various independent authorities. In applying this criterion, more emphasis should be extended to those projects that have been awarded to the respondent in recent years. [City Purchasing Bulletin, No. 12, Revision 9 (Sept. 1, 1993).]

You advise that this policy results in the City=s bond underwriting business being distributed over a number of financial firms during the past five years.

While we agree that this policy tends to distribute the City=s bond underwriting business among firms within the City, we do not believe that the City=s purchasing criteria truly result in the Arotation system@ among Aall qualified suppliers@ that was contemplated by the Legislature. Instead of knowing when each firm will be serving as senior manager or co-manager for which upcoming issue, the amount of business done with an underwriter is only one of ten criteria to be evaluated; further, the Mayor retains the discretion to approve or not approve the evaluation committee=s recommendation.

Accordingly, we find that a prohibited conflict of interest would be created were you to accept employment with a financial services company that serves as bond underwriter for a City bond issue. In addition, please note that compliance with the voting conflicts law (Section 112.3143, Florida Statutes) does not obviate a conflict that is prohibited by Section 112.313(7). See CEO 94-5.

ORDERED by the State of Florida Commission on Ethics meeting in public session on August 29, 1996, and RENDERED this 3rd day of September, 1996.

____________________________________

Mary Alice Phelan

Chair