CEO 01-9 -- May 21, 2001
CONFLICT OF INTEREST
CITY MAYOR CONTRACTING TO PROMOTE CHARTER SCHOOLS WITH SUBSIDIARY OF COMPANY DOING BUSINESS WITH CITY
To: Name withheld at person's request (Pembroke Pines)
SUMMARY:
A prohibited conflict of interest would be created under the second part of Section 112.313(7)(a), Florida Statutes, were a city mayor to contract with a company to promote charter schools, where the company is a subsidiary of a design-build firm contracting with the city to build its charter schools and other capital projects. The ongoing nature of the relationship between the city and the design-build firm, and the close ties between the design-build firm and its subsidiary, would create a continuing or frequently recurring conflict or an impediment to the full and faithful discharge of the mayor's public duties if he were to contract with the subsidiary to be a paid proponent of charter schools.
QUESTION:
Would a prohibited conflict of interest be created were a city mayor to contract with a company to promote charter schools, when the corporate parent of the company contracted with the city to build its charter schools and other capital projects?
Under the circumstances presented, your question is answered in the affirmative.
Through your letter of inquiry and subsequent correspondence with our staff, we are advised that this opinion is sought on behalf of Pembroke Pines Mayor . . . . You write that the City operates charter elementary, middle, and high schools which were built by a design-build contractor under contract with the City. Additionally, through agreements with the Broward County Commission and with Broward Community College, the City and this same contractor also built a regional library and a branch location for the College. The City continues to contract with the firm for maintenance and physical plant services, and it recently entered into another contract with the firm for projects which include another charter school.
You explain that after constructing the City's schools the design-build contractor created a subsidiary corporation to provide educational services, and they share officers, facilities, overhead, payroll, etc. However, they have separate Articles of Incorporation and file separate annual reports. This subsidiary corporation has entered into an alliance with a third corporation which will become the exclusive provider of educational management organization services to charter schools developed or co-developed in the future by the two companies. However, neither the subsidiary nor the third corporation has any contractual relationships with the City of Pembroke Pines.
With that factual predicate, you write that the Mayor has been offered an opportunity to join representatives of the subsidiary in making presentations to interested parties about charter schools and Pembroke Pines' experience in that regard. The proposed relationship would be a contractual relationship between the Mayor and the subsidiary and could involve presentations locally and throughout the United States. You question whether this proposed contractual relationship would create a conflict of interest prohibited by the Code of Ethics.
Section 112.313(7)(a), Florida Statutes, provides:
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 (2000).]
The first part of Section 112.313(7)(a) prohibits a public officer from having a contractual relationship with a business entity that is doing business with or regulated by his agency. The second part prohibits the public officer from having a contractual relationship which creates a continuing or frequently recurring conflict between private interests and the performance of public duties, or which impedes the full and faithful discharge of public duties.
Generally, we have treated corporate subsidiaries as separate business entities in applying the Code of Ethics. See CEO 85-31 and the opinions cited therein. However, in a limited number of circumstances, we have "pierced the corporate veil" and concluded that contracting with a holding company which held the assets of a subsidiary corporation which was doing business with or regulated by the public officer's agency violated the first part of Section 112.313(7)(a). See CEO 80-25 and CEO 91-24. In the situation presented, the Mayor would be contracting with the corporate subsidiary of a parent corporation which has been extensively involved in the City's foray into charter schools, not exactly the same situation posed by CEO 80-25, where a county commissioner was an officer of and owned stock in a holding company whose subsidiary acted as a promoter to book shows into the county owned and operated arena, or CEO 91-24, where the State Comptroller owned stock in bank holding companies whose subsidiaries were regulated by the Department of Banking and Finance. Those opinions appear to be based on the ownership of stock in the holding company which, in turn, owned the subsidiary corporation. Here, stock ownership is not the basis for the Mayor's contractual relationship with the subsidiary and his contractual relationship would be with that corporation rather than with its corporate parent. Therefore, we do not conclude that the first part of Section 112.313(7)(a) would be violated were the Mayor to contract with the subsidiary to make presentations advocating charter schools, even though the subsidiary is closely linked to its corporate parent, the design-build contractor under contract with the City.
Under the second part of Section 112.313(7)(a), a conflict would be created if the Mayor's contractual relationship with the subsidiary were to create a continuing or frequently recurring conflict with his duties as Mayor. It is not clear from the exchange of correspondence how often the Mayor will make presentations with the subsidiary, but it is presumed that his appearances will not interfere with the performance of his mayoral duties.[1] Notwithstanding, we are concerned that as long as the City continues to have a contractual relationship with the design-build firm, it is imperative for the City to be able to objectively evaluate the services it receives from the firm, and that objectivity would be compromised if the Mayor contracts with the subsidiary to promote charter school services, especially where the design-build firm and the subsidiary are so closely identified with each other and, in the eyes of some, could be synonymous. The City of Pembroke Pines has received many accolades for its municipal charter school system, and the design-build firm's success in Pembroke Pines--its first charter school project--is highlighted on the company's website.[2] For the subsidiary to use a City official to market its services to others, and for the official to receive compensation for participating in this endeavor, relying on his knowledge of charter schools obtained through the City's experiences, seems incompatible with the principles contained in the Code of Ethics. In CEO 91-19, we opined that a prohibited conflict of interest would be created where a city commission candidate was employed by the affiliate of a corporation which supplied third-party administration for the city's health insurance plan. The facts present in that opinion led us to conclude that the official's employment with the affiliate created a continuing or frequently recurring conflict prohibited by the second part of Section 112.313(7)(a).
This is not meant to discredit the Mayor and the work he has done in shepherding the City's innovative charter school system or to impugn the actions of the subsidiary. However, while he remains a public officer in Pembroke Pines and while the design-build firm is under contract with the City, we believe that a prohibited conflict of interest would be created under the second part of Section 112.313(7)(a), Florida Statutes, were the Mayor to contract with the firm's subsidiary to champion charter schools.
Your question is answered accordingly.
ORDERED by the State of Florida Commission on Ethics meeting in public session on June 7, 2001 and RENDERED this 12th day of June, 2001.
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Howard Marks, Chair