CEO 76-125 -- July 26, 1976

CONFLICT OF INTEREST

CITY COMMISSIONER EMPLOYEE AND OFFICER OF BANK PARTICIPATING IN LOAN TO CITY

To: George T. Dunlap III, City Attorney, Bartow

Prepared by: Bonnie Johnson

SUMMARY:

The Code of Ethics prohibits a public officer from acting in his official capacity to indirectly purchase services for his own agency from any business entity of which he is an officer and from acting privately to sell services to his own agency. Fla. Stat. s. 112.313(3)(1975). Consequently, where a city borrows money from a bank, which bank plans to participate out part of the loan to a bank of which a city commissioner is an officer, the above-cited statute would be breached. The participating out of a loan constitutes indirect business for purposes of the law, just as loan participating makes possible one's indirectly selling services to his public agency. The code further prohibits a public officer from holding employment with a business entity which does business with his public agency. Inasmuch as the participating bank possesses a cause of action against the city in the event of a default, the city is doing business with that bank for purposes of the Code of Ethics. Accordingly, a city commissioner is prohibited from holding that public position and concurrently holding employment or officership in a bank which participates in loans to the city.

QUESTION:

Would a prohibited conflict of interest be created were a bank of which a city commissioner is an officer and employee to act as a participating bank in a loan to the city?

Your question is answered in the affirmative.

You advise us in your letter of inquiry that your city is in the process of borrowing money from a local bank, which bank must "participate out" part of the loan to other banks. The city would deal with the bank making the loan and would sign documents obligating itself only to that bank. The lending bank would then use its discretion in participating out certain amounts of the loan to other banks. You inform us that under this method the participating banks actually provide their funds and take the total risk of that portion of the loan. In the event of a breach by the borrower, each participating bank would have a cause of action against the borrower and could proceed directly against the city to enforce that part of the obligation.

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 agency thereof, if he is serving as an officer or employee of that political subdivision . . . . [Fla. Stat. s. 112.313(3)(1975).]

The first sentence of this provision prohibits a public officer from acting in his official capacity to indirectly purchase services for his own agency from any business entity of which he is an officer. In the instant case, the participating out of loans constitutes, in our view, such indirect business transactions as are prohibited by the above-quoted statute.

The second sentence of the provision prohibits a public officer from acting in a private capacity to sell services to his own agency. Although we have no reason to believe that the subject commissioner sought the participation of his employer bank in the loan at issue, we recognize that loan participating makes possible one's indirectly selling services to his agency. Consequently, this standard, too, would be breached in the above-described loan transaction.

The Code of Ethics additionally provides:

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 . . . . [Fla. Stat. s. 112.313(7)(1975).]

This provision prohibits a public officer from holding employment with any business entity which is doing business with his public agency. Inasmuch as the participating bank possesses a cause of action against the city in the event of a default, the city is doing business with that bank for purposes of the Code of Ethics.

Consequently, the subject city commissioner is prohibited by the Code of Ethics for Public Officers and Employees from holding that public position and concurrently holding employment with a bank which participates in loans to the city.