CEO 77-36 -- March 9, 1977

 

CONFLICT OF INTEREST

 

SCHOOL BOARD MEMBER ALSO PRESIDENT AND DIRECTOR OF BANK WHICH OWNS CAPITAL IMPROVEMENT BONDS ISSUED BY SCHOOL BOARD

 

To:      James Fountain McCollum, Attorney, Highlands County School Board, Sebring

 

Prepared by:   Phil Claypool

 

SUMMARY:

 

Section 112.313(7)(a), F. S. 1975, prohibits a public officer from having employment or a contractual relationship with a business which is doing business with his public agency. Therefore, a school board member who is president and director of a bank has employment with that bank and, where the bank holds capital improvement bonds issued by the school board, it may be said to be doing business with the board inasmuch as it possesses a cause of action against the school district in the event that the district defaults on the bonds. See CEO 76-125. The school board member therefore is prohibited from serving as president and director of a bank which purchases bonds issued by the school board during the time he has served on such board. Where the bonds were purchased prior to his being elected to the board, however, he is deemed to be "grandfathered" in. Reference is made to CEO's 76-118 and 75-195.

 

QUESTIONS:

 

1. Does a prohibited conflict of interest exist where a school board member is also president and a member of the board of directors of a bank which owns and holds capital improvement bonds issued by the school board and obtained prior to his membership on the school board?

2. Would a prohibited conflict of interest be created were a school board member also to be president and member of the board of directors of a bank which purchases capital improvement bonds issued by the school board while he is a member?

 

Question 1 is answered in the negative.

In your letter of request you have stated that you are the attorney for the Highlands County School Board and that Mr. Ken Grady has been recently elected as a member of that school board. Mr. Grady is president of and a member of the board of directors of two local banks, one of which has purchased a number of capital improvement bonds issued several years ago by the board before his election to the board.

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 . . . . 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.

[Section 112.313(3), F. S. 1975.]

 

We have found previously that this provision prohibits a school board member from serving on the board of directors of a bank which is lending money to the board. See CEO 76-115. We also have construed this provision together with s. 136.02(5), F. S. 1975, to allow a member of a development authority to serve as officer and director of a bank with which the authority has checking and savings accounts. See CEO 76-20.

However, here the relationship between the bank and the school board involves neither a loan nor a checking or savings account. Instead, the bank which the subject school board member serves as officer and director has purchased capital improvement bonds from the school board. As the above-quoted provision only prohibits the purchase of goods or services for a public agency or the sale of goods or services to the agency, we find that it does not apply to the present situation.

The Code of Ethics also 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 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 private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. [Section 112.313(7)(a), F. S. 1975.]

 

This provision prohibits a public officer from having employment or a contractual relationship with a business entity which is doing business with his agency. As a member of the school board, Mr. Grady is a public officer, s. 112.313(1), F. S. 1975, whose agency is the school district. Section 112.312(2), F. S. (1976 Supp.). As president of the bank, and as a director of the bank if he is compensated for serving in that position, he has employment or a contractual relationship with the bank, a "business entity" as that term is defined in s. 112.312(3), F. S. (1976 Supp.). Inasmuch as the bank possesses a cause of action against the school district in the event the district defaults on the bonds, the district is doing business with that bank for purposes of the Code of Ethics. See CEO 76-125. Therefore, the subject school board member seemingly is prohibited from serving as president and director of a bank which has purchased bonds issued by the school board.

However, in this case the bonds were issued by the school board prior to the election of Mr. Grady to the board. In two previous opinions, CEO's 76-118 and 75-195, we found no violation of the above-quoted provision where a prohibited loan transaction between an officer's agency and his bank had occurred prior to the time that the subject official took office. We take a similar view in the instant case.

Accordingly, we find that the Code of Ethics for Public Officers and Employees does not prohibit a school board member from serving as president and member of the board of directors of a bank which has purchased capital improvement bonds issued by the school board prior to his membership on the school board.

 

Question 2 is answered in the affirmative.

Although s. 112.313(3), quoted above, does not apply here for the reasons stated in our answer to your first question, s. 112.313(7)(a) would prohibit the subject school board member from serving as president and as director (if he is compensated for serving in that capacity) of a bank which has purchased bonds issued by the school district. The exception for transactions entered into prior to a public officer's taking office would not apply here, as it did in the situation presented by your first question.

Accordingly, we find that the Code of Ethics for Public Officers and Employees prohibits a school board member from serving as president and as director (if he receives compensation for serving as director) of a bank which has purchased capital improvement bonds issued by the school board.