CEO 76-65 -- April 16, 1976

CONFLICT OF INTEREST

CITY COMMISSIONER DOING BUSINESS WITH THE CITY'S HOSPITAL

To: Stephen C. Watson, Assistant City Attorney, Lakeland

Prepared by: Gene Rhodes

SUMMARY:

A sheet metal company in which a city commissioner is a principal stockholder, officer, and director may not contract to do business with the city hospital so long as the commissioner holds office. Florida Statute s. 112.313(3)(1975) prohibits an officer of a political subdivision from acting privately to sell goods or services to any agency within that political subdivision. Although the hospital is autonomous in nature, it performs a function for the city and is subject to regulation by the city in that the city commission receives a copy of the hospital's annual audit, reviews the monthly financial reports submitted by the hospital, and is empowered to replace hospital board members should the budget not meet with the commission's approval. Accordingly, the hospital is deemed to be an agency of the city for purposes of the Code of Ethics, and the city commissioner's company is thus prohibited from transacting business with the hospital.

QUESTION:

Would a prohibited conflict of interest be created were a city commissioner to enter into a contract with the city's hospital board, the members of which are appointed by the city commission?

Your question is answered in the affirmative.

You have advised us that the subject city commissioner is a principal stockholder, officer, and director of a sheet metal company which previously has entered into contracts with the Lakeland General Hospital and may wish to do so again in the future. The members of the hospital board are appointed to 3-year terms by the city commission. Additionally, the city owns the property on which the hospital is located.

It is our understanding that the city and the hospital are separate legal entities inasmuch as each operates independent of control or management of the other. The city's budget includes no provision for the hospital either in terms of revenue or expenditures. The hospital's budgetary staff and administrators work exclusively for the hospital and have no responsibility to the city.

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

DOING BUSINESS WITH ONE'S AGENCY. -- No employee of an agency acting in his official capacity as a purchasing agent, or public officer acting in his official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his own agency from any business entity of which he or his spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or his 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 his own agency, if he is a state officer or employee, or to any political subdivision or any agency thereof, if he 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. 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.

[Emphasis supplied; Fla. Stat. s. 112.313(3)(1975).]

The italicized portion of the above-quoted provision prohibits an officer of a political subdivision from selling goods or services to that political subdivision or to any agency thereof. In previous opinions of this commission we have held that either owning a material interest in or being director of a business entity constitutes "acting in one's private capacity" to sell to his public agency where such sales are made. See CEO 75-196 and CEO 76-12. Accordingly, we also believe that being an officer of a business entity in such circumstances constitutes "acting in one's private capacity" to sell to one's agency. Consequently, as the principal stockholder, a director, and an officer of a business entity, there is no question but that the city commissioner would be acting in a private capacity to sell to the hospital board if said business entity were to sell to the board. Thus, the only issue remaining is whether the hospital board is an agency of the city.

The Code of Ethics defines the term "agency" to include any local or municipal government entity of this state and any department, division, bureau, commission or authority therein. Fla. Stat. s. 112.312(2)(1975). Notwithstanding the autonomous nature of the hospital board, it is our view that the board is performing a function that the city commission otherwise would have to perform and is therefore a division of the city, making it an agency of the city for purposes of the Code of Ethics. We have taken this view for several reasons.

First, as you advised us in your letter of inquiry, the city commission appoints members to the hospital board, and the city owns the property on which the hospital is built.

Secondly, the special act establishing the hospital board states that one of its duties is to manage and operate the hospital for the city. Laws of Florida, Special Acts, Ch. 57-1506(1). This statement implies that the hospital board is performing a function for the city and therefore constitutes a division of the city for our purposes.

Further, the special act establishing the hospital board clearly envisions the board's being subject to the regulation of the city commission. As evidence of this fact, we first point to the latest amendment of s. 2 of the special act which created the hospital board, which amendment states that the hospital board shall submit to the city commission a copy of the hospital's annual audit. Laws of Florida, Special Acts, Ch. 59-1483, s. 2(5).

Additionally, the most recent amendment to s. 4 of the establishing act requires that the hospital board supply the city commission with a copy of its proposed budget. This amendment goes on to require that the hospital board submit to the city commission a monthly financial statement showing the financial condition of the hospital. If the board fails or refuses to submit this statement, or if the statement exceeds the budget on the pro rata portion of the current year for 4 consecutive months, the city commission is empowered to declare any or all of the seats on the hospital board vacant and may appoint new members. Or, if the city commission so elects, it may take over the complete management and operation of the hospital. Laws of Florida, Special Acts, Ch. 63-1523, s. 4.

Inasmuch as the city commission is empowered to relieve hospital board members of their duties under specified circumstances, we deem the hospital to be an agency of the city for purposes of the Code of Ethics. We find this to be true regardless of whether the city commission actually exercises this power, as we must base our opinion on what the commission is authorized to do rather than on its actual practice.

In accord with these findings, the subject city commissioner is prohibited from holding that office while the business entity in which he is a principal stockholder, a director, and an officer sells goods or services to the hospital board.

The Code of Ethics further states:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP. --

(a) 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 is an officer or employee, excluding those organizations and their officers who, when acting in their official capacity, enter into or negotiate a collective bargaining contract with the state or any municipality, county, or other political subdivision of the state; 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 private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. [Emphasis supplied; Fla. Stat. s. 112.313(7)(1975).]

The emphasized portion of the above-quoted provision prohibits a public officer from holding a contractual relationship with an agency which is subject to the regulation of his agency.

It is clear from the above discussion that the hospital board is subject to the regulation of the city commission. Again, it is not compelling that the city commission exercise its regulatory power; having the authority to regulate is sufficient for purposes of the conflict of interest statutes. The question then turns on whether the subject city commissioner would have a contractual relationship with the hospital board were the business entity with which he is affiliated to contract with the hospital board. In our view, owning a material interest in or being a director or officer of a business entity which contracts with a public agency constitutes one's contracting with that agency.

Accordingly, the subject city commissioner is similarly prohibited by s. 112.313(7) from holding that office while the company of which he is a principal stockholder, officer and director contracts with the hospital board.