CEO 80-42 -- May 21, 1980

CONFLICT OF INTEREST

CITY COMMISSIONER SERVING AS DIRECTOR OF BANK ENTERING INTO SALE AND REPURCHASE AGREEMENT WITH CITY

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

Prepared by: Phil Claypool

SUMMARY:

Reference is made to CEO's 76-73 and 78-73, in which it was found that s. 112.313(3), F. S., would prohibit a city councilman from serving as director or officer of a bank doing business with the city. It was further found in those opinions, however, that, under s. 136.02(5), F. S., a city councilman may serve as an officer or director of a bank acting as a depository of city funds when the governing body of the agency had made an investigation and determined that there had been no favoritism on the part of the public officer. Section 136.02(5), by its own terms, is limited to situations when a bank acts as the depository of funds; in CEO's 76-115, 77-184, and 79-29 it was determined by this commission that a school board member was prohibited from serving as a director of a bank which was lending money to that board. See also AGO 073-94. An examination of ch. 136 in its entirety suggests that the exemption was intended to apply only in situations when a bank is acting as a depository. When a city commissioner wishes to know whether he may serve as an officer or director of a bank entering into agreements with the city for the sale and repurchase of governmental securities, the situation does not involve a deposit of money with a bank as contemplated by ch. 136, even though the net effect of a sale and repurchase transaction may be the same as a savings deposit or certificate of deposit. Accordingly, a prohibited conflict of interest would be created under such circumstances, and the city commissioner therefore is prohibited from serving on the board of directors of a bank involved in a sale and repurchase agreement with the city.

QUESTION:

Would a prohibited conflict of interest exist were a city commissioner to serve as an officer or director of a bank entering into agreements for the sale and repurchase of governmental securities?

Your question is answered in the affirmative.

In your letter of inquiry and a telephone conversation with our staff you advise that ____ is a member of the City Commission of the City of Leesburg and that he is also a director of a local bank. You question whether a prohibited conflict of interest would be created were the bank to enter into an agreement to sell to the city certain governmental securities at a given price and to repurchase the securities at the end of a definite period of time for a certain price, the price being determined by negotiation for an interest rate return on these securities. Thus, you advise, the net effect of the transaction would be the same as a savings deposit or certificate of deposit.

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.

(d) Beginning public employment.

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

In previous advisory opinions we have advised that this provision would prohibit a city councilman from serving as director or officer of a bank doing business with the city. See CEO's 76-73 and 78-73. However, in those opinions we also found that the following provision of the Florida Statutes creates a partial exception to the application of s. 112.313(3), above:

The fact that a county or municipal officer or member of a public board or body, including a district school officer and an officer of any district within a county[,] is a stockholder or an officer or director of a bank will not bar such banks from qualifying as a depository of funds coming under the jurisdiction of any such county or municipal officer, provided it shall appear in the records of the state or county agency that the governing body of such agency has investigated and determined that such county officer or member of a public board or body as aforesaid has not favored such bank or banks over other qualified banks and that there is no violation of subsection (1). [Section 136.02(5), F. S.]

Thus, in those previous advisory opinions the commission concluded that a city councilman may serve as an officer or director of a bank acting as a depository of city funds, when the governing body of the agency had made an investigation and determined that there had been no favoritism on the part of the public officer.

Section 136.02(5), however, by its own terms is limited to situations when a bank acts as the depository of funds. Thus, in CEO's 76-115, 77-184, and 79-29, we advised that a school board member was prohibited from serving as a director of a bank which was lending money to the school board. See also AGO 073-94, in which the Attorney General came to the same conclusion prior to the existence of this commission.

In our view, the exemption to s. 112.313(3) created by s. 136.02(5) is limited also by its context only to situations when a bank is acting as a depository. Chapter 136, F. S., is entitled "County Depositories," and contains several sections specifying the manner in which a bank may qualify and act as a depository for county funds. For example, s. 136.04 specifies that depositories are to keep checking accounts separate from all savings or timed deposit accounts, specifies how funds may be transferred among these accounts, and specifies that interest is to be computed and credited quarterly. Section 136.06 describes how funds are to be drawn from depositories, and s. 136.07 requires each bank acting as a depository to file a monthly report as to each account on deposit with it.

An examination of these provisions, along with the remainder of ch. 136, leads us to believe that the chapter, and specifically s. 136.02(5), was intended to exempt only situations when a bank is acting as a depository. The situation you have described, on the other hand, does not involve a deposit of money with a bank as contemplated by ch. 136, even though the net effect of a sale and repurchase transaction may be the same as a savings deposit or certificate of deposit.

Accordingly, we find that a prohibited conflict of interest would be created were a city commissioner to serve as a director or officer of a bank entering into agreements with the city for sale and repurchase of governmental securities. Please note that there are several other possible exemptions to s. 112.313(3) contained in subsection (12), including an exemption when a sealed, competitive bidding procedure is used. As your letter of inquiry did not include facts which would indicate that any of these exemptions might apply, our opinion has not addressed their possible application.