CEO 96-19 -- August 29, 1996
FINANCIAL DISCLOSURE; CONFLICT OF INTEREST
APPLICABILITY OF FINANCIAL DISCLOSURE LAW TO MEMBERS OF COUNTY FINE ARTS COUNCIL; COUNCIL'S FUNDS BEING INVESTED VIA MEMBER'S FIRM
To: (Name withheld at the person's request.)
SUMMARY:
A county fine arts council is not an "advisory body" and thus its members are "local officers" required to file financial disclosure as specified in Section 112.3145, Florida Statutes. A prohibited conflict of interest would be created under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, were such a council to purchase securities or other investments via a firm of one of its members. CEO's 95-28, 94-3, 86-24, and 81-50 are referenced and CEO 90-52 is distinguished.
QUESTION 1:
Is the Hernando County Fine Arts Council an "advisory body" under Section 112.312(1), Florida Statutes, such that its members are not "local officers" required to file financial disclosure under Section 112.3145, Florida Statutes?
Your question is answered in the negative.
By your letter of inquiry and additional correspondence with our staff, we are advised that . . . serves as a member of the Hernando County Fine Arts Council. The Council, you advise, was created pursuant to Section 265.32, Florida Statutes, and is, like other county fine arts councils, possessed of the purposes and functions set forth in that statute. The membership of the Council (which consists of residents/electors of the County who serve without compensation), you advise, is appointed by the County Commission. You advise that the Council has no land-planning, zoning, or natural resources responsibilities, that the amount of the Council's budget is less than $100,000, and that the amount of the Council's budget is less than one percent of the County's total budget.[[1]]
Further, you advise that the Council has no jurisdiction or authority to finally determine or adjudicate any personal or property rights and has no obligations or duties other than those relating to its internal operations. Also, you state that to the best of your knowledge the Council has not been granted authority or power to issue, refund, or take other action with respect to revenue bonds, as provided for in Section 265.32(6), Florida Statutes.[[2]] You advise that the Council rarely makes recommendations to other officials or governmental bodies (other than to recommend persons to the County Commission for membership on the Council) and that the Council essentially operates internally with no input or oversight from the County Commission (other than the appointment of Council members), its decisions relating to the promotion or art in the County.[[3]]
The Code of Ethics for Public Officers and Employees provides in relevant part:
(1) For purposes of this section, unless the context otherwise requires, the term:
(a) 'Local officer' means:
1. Every person who is elected to office in any political subdivision of the state, and every person who is appointed to fill a vacancy for an unexpired term in such an elective office.
2. Any appointed member of a board; commission; authority, including any expressway authority or transportation authority established by general law; community college district board of trustees; or council of any political subdivision of the state, excluding any member of an advisory body. A governmental body with land-planning, zoning, or natural resources responsibilities shall not be considered an advisory body.
3. Any person holding one or more of the following positions: mayor; county or city manager; chief administrative employee of a county, municipality, or other political subdivision; county or municipal attorney; chief county or municipal building inspector; county or municipal water resources coordinator; county or municipal pollution control director; county or municipal environmental control director; county or municipal administrator, with power to grant or deny a land development permit; chief of police; fire chief; municipal clerk; district school superintendent; community college president; district medical examiner; or purchasing agent having the authority to make any purchase exceeding $1,000 for any political subdivision of the state or any entity thereof. [Section 112.3145(1)(a), Florida Statutes.]
Each state or local officer and each specified state employee shall file a statement of financial interests no later than July 1 of each year. Each state or local officer who is appointed and each specified state employee who is employed shall file a statement of financial interests within 30 days from the date of appointment or, in the case of a specified state employee, from the date on which the employment begins, except that any person whose appointment is subject to confirmation by the Senate shall file prior to confirmation hearings or within 30 days from the date of appointment, whichever comes first. [Section 112.3145(2)(b), Florida Statutes.]
'Advisory body' means any board, commission, committee, council, or authority, however selected, whose total budget, appropriations, or authorized expenditures constitute less than 1 percent of the budget of each agency it serves or $100,000, whichever is less, and whose powers, jurisdiction, and authority are solely advisory and do not include the final determination or adjudication of any personal or property rights, duties, or obligations, other than those relating to its internal operations. [Section 112.312(1), Florida Statutes.]
Persons who are "local officers" based upon their being appointed members of councils or other enumerated governmental bodies are required to file certain disclosures, including Statements of Financial Interests (CE Form 1's), with the applicable supervisor of elections at the times specified in the statute, unless the council or other governmental body on which they serve is an "advisory body."
We have yet to opine on the issue of whether a county fine arts counsel is an advisory body. However, in CEO 90-52 we found that the Florida Arts Council was an advisory body and thus that its members were not subject to the requirement of filing Statements of Financial Interests. Our reasoning in that opinion was based upon the Florida Arts Council's having no budget and was based upon its powers, jurisdiction, and authority being solely advisory.
While the County Fine Arts Council's budget, due to the fact that it is below the one percent/ $100,000 threshold in amount, is not a factor which disqualifies it from advisory body status, it is nevertheless distinguishable from the Florida Arts Council in that it is not "solely advisory." In CEO 90-52, we recognized that the Florida Arts Council's duties listed in Section 265.285(2), Florida Statutes, were solely advisory, the Florida Arts Council merely making recommendations to the Secretary of State who made all final decisions. Contrastingly, while many of the statutorily enumerated purposes of the County Fine Arts Council under Section 265.32(1) mirror the statutorily enumerated duties of the Florida Arts Council under Section 265.285(2) [i.e., stimulating appreciation for the arts], the County Fine Arts Council apparently has (unlike the Florida Arts Council) the ability to go beyond merely making recommendations to other governmental officials or entities, possessing the power to make substantive decisions on its own. For example, according to your representations, the County Fine Arts Council raises and spends its own funds and rarely makes recommendations to other officials or governmental bodies; and Section 265.32(1) apparently accords to the County Fine Arts Council the power or ability to contract for artistic services, performances, and exhibits, the power or ability to develop a center or complex of physical facilities for the use of the arts, and the power or ability to provide financial and technical assistance to artists, arts institutions, and audiences. Thus, because of its independent operations and decision making powers, we find the County Fine Arts Council is not an advisory body.[[4]]
Accordingly, we find that the subject member of the Hernando County Fine Arts Council is a local officer subject to filing financial disclosure under Section 112.3145, Florida Statutes.
QUESTION 2:
Would a prohibited conflict of interest be created under Section 112.313(3) or Section 112.313(7)(a), Florida Statutes, were the Council member to invest Council funds in securities purchased through a brokerage firm which employs the member, where the member's brokerage fees from the investments are donated back to the Council?
This question is answered in the affirmative.
In addition to the representations summarized or set forth above under Question 1, you advise that the member is employed by a stock brokerage firm located in a neighboring county, that he is not an officer or director of the firm, and that the Council is considering investing its funds via the firm, in order to move the funds from certificates of deposit to higher-yielding investments. You advise that the member would be the stockbroker handling the Council's investments, that he would donate his brokerage fees back to the Council, but that the firm will receive some type of commission for handling the Council's securities and the member "cannot require [the firm] to [donate its commission back to the Council]." You question whether such a situation can constitute a "sale" or "doing business," under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, and, if so, whether the advisory board exemption of Section 112.313(12), Florida Statutes, would apply to negate a conflict.
Sections 112.313(3) and 112.313(7)(a) provide in relevant part:
DOING BUSINESS WITH ONE'S AGENCY.--No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer's or employee's spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer's or employee's 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 the officer's or employee's own agency, if he or she is a state officer or employee, or to any political subdivision of any agency thereof, if he or she 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 or when such offices are on property wholly or partially owned by the legislator. 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), Florida Statutes.]
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.]
The first part of Section 112.313(3) would be violated were the Council to purchase securities or other investments through the member's brokerage firm, if the member, or his spouse or child, is an officer, partner, director, or proprietor of the firm, or if the member, his spouse or child, or any combination of them, holds a material interest[[5]] in the firm. The second part of Section 112.313(3) would be violated were the member to act in a private capacity to sell securities to the Council, regardless of whether or not he or his spouse or child occupy the statuses or relationships to the firm relevant under the first part of the statute.
The first part of Section 112.313(7)(a) would prohibit the member's holding employment or a contractual relationship with the firm if the firm were doing business with the Council (the member's public agency). The second part of Section 112.313(7)(a) would prohibit the member's holding employment or a contractual relationship, regardless of whether the employment or contractual relationship is with a business entity that is doing business with the Council, if the employment or contractual relationship would create a continuing or frequently recurring conflict between the member's private interests and the performance of his public duties or would impede the full and faithful discharge of his public duties.
Inasmuch as it appears that neither the member, nor his spouse or child, is an officer, director, etc. of the firm, the member's status with the firm being characterized by you as merely that of an employee, we find that the first part of Section 112.313(3) would not be violated were the Council to purchase investments via the firm. However, the second part of Section 112.313(3) is not dependent on one's particular status or relationship to the business entity that is involved with one's public agency but, rather, can be violated where one acts in a private capacity to sell to his public agency. See, for example, CEO 81-50 and CEO 94-3. Therefore, inasmuch as you represent that the member would be the stockbroker handling the Council's investments with the firm, we find that he would be acting in a private capacity to sell to his public agency, due to his personal involvement with the sale.
Notwithstanding that the member would donate his brokerage fees back to the Council, the fact that the firm apparently would retain its portion of the brokerage fees supports a characterization of the dealings between the firm and the Council as a "sale" rather than merely a donation of brokerage services or other purely gratuitous transfer. Further, even were the firm also to donate its fees back[[6]] to the Council, the securities or other investments themselves[[7]] still would be sold to the Council via the member's actions in a private capacity[[8]].
Under the first part of Section 112.313(7)(a), we find that a prohibited conflict would be created were the Council to purchase securities or other investments via the member's firm. The member would hold employment with a business entity (the firm) which would be doing business with his public agency (the Council). We have found "doing business" to exist where one party to an arrangement would have a cause of action against the other in the event of a default or breach. See, for example, CEO 86-24. Certainly, the Council would have a cause of action[[9]] against the firm and the member/stockbroker were the Council's investments to be mishandled by the firm or the member/stockbroker.
Further, notwithstanding that the member would ultimately receive no commission for his handling of Council investments and notwithstanding that the firm would realize a relatively small commission on the Council's investments, we find that a continuing or frequently recurring conflict or impediment to the full and faithful discharge of public duty would be created under the second part of Section 112.313(7)(a) were the Council to invest via the firm. The member would be tempted not to perform his public duties to objectively scrutinize the Council's investments, the firms, brokers, or other institutions or persons selected or not selected to handle the investments, or their quality of investment management and related matters, due to his private employment with the firm and his contractual relationship, in a private capacity, with the Council/investor (his public agency). We have consistently found that a public official cannot "wear two hats," one public and one private, in relation to the same subject matter. See Zerweck v. State Commission on Ethics, 409 So. 2d 57 (Fla. 4th DCA 1982).[[10]]
Also, having determined that the Council is not advisory in nature, we find that the conflicts under Section 112.313(3) and 112.313(7)(a) are not susceptible to exemption[[11]] under the language of Section 112.313(12), Florida Statutes, which provides in relevant part:
EXEMPTION.--The requirements of subsections (3) and (7) as they pertain to persons serving on advisory boards may be waived in a particular instance by the body which appointed the person to the advisory board, upon a full disclosure of the transaction or relationship to the appointing body prior to the waiver and an affirmative vote in favor of waiver by two-thirds vote of that body. In instances in which appointment to the advisory board is made by an individual, waiver may be effected, after public hearing, by a determination by the appointing person and full disclosure of the transaction or relationship by the appointee to the appointing person.
Accordingly, we find that a prohibited conflict of interest would be created under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, were the Council to invest through the member's firm.
ORDERED by the State of Florida Commission on Ethics meeting in public session on August 29, 1996, and RENDERED this 3rd day of September, 1996.
____________________________________
Mary Alice Phelan
Chair
[1] You elaborate that the Council does not have a budget, per se, but that the Council will, from time to time, sponsor various activities related to the arts on an ad hoc basis and has one main fundraiser event per year (the Masaryktown Fine Arts Festival), held in May, from which the Council makes approximately $5,000 after all expenses are paid. You state that you are not aware of the County's provision of any funds to the Council.
[2] Section 265.32(6)(a), Florida Statutes, enables a county commission, by resolution, to empower a county fine arts council to issue, refund, or take any other action with respect to revenue bonds to finance or refinance a capital project.
[3] Until the summer of 1995, you advise, the Hernando County Clerk of the Circuit Court, who handles the finances and funds of the County Commission, also handled the funds of the Council, and the Council utilized the County's sales tax exemption certificate in making purchases. But that it was subsequently determined that the Council was essentially a separate organization from the County. Thus, you advise, the Council now has its own tax-exempt certificate number and oversees the investment of its funds without the aid of the Clerk.
[4] The description of the Florida Arts Council in Section 265.285(1)(a), Florida Statutes, as an "advisory body," though not controlling of our determination in the instant matter, is noteworthy, since Section 265.32(1), Florida Statutes, rather than according that same term ("advisory body") to county fine arts councils, describes a county fine arts council as "a public agency corporate and politic."
[5] Defined at Section 112.312(15), Florida Statutes.
[6] It is likely that the earning or receipt of brokerage fees by the member or the firm from the Council's investments and the subsequent "donation back" of the fees, as opposed to a situation where no fees were ever earned, charged, or expected, would, per se, constitute a sale and a gift rather than lack of a sale.
[7] Obviously, the companies issuing the securities or other investments which the Council would purchase via the firm are not giving those interests to the Council free of charge.
[8] Assuming that the member had no private capacity involvement in purchasing or administering the Council's investments obtained via the firm, including no use of any professional/regulated licensure or certification he may hold, a conflict would not be present under the second part of Section 112.313(3). However, a conflict would still be present under Section 112.313(7)(a), as discussed infra.
[9] Assuming arguendo that a "donation back" to the Council of the member/stockbroker's and the firm's commissions would mean that the arrangement between the Council and the firm/member did not include an exchange of consideration, a cause of action would still appear to be present in the event of a breach, given the regulated and licensed nature of the securities/ investment business. See, for example, CEO 95-28 in which we found that a certified appraiser had a contractual relationship with clients of a registered appraiser for whom he signed real estate appraisals, even though the certified appraiser received no compensation for his services.
[10] We do not find that the member actually would succumb to such temptation and thereby compromise his public duties in favor of his private interests. The statute is entirely preventative in nature.
[11] Section 112.313(12) also contains other exemptions, including the "competitive bidding" exemption and the "$500 per calendar year" exemption. The "sole source" exemption would not appear to apply to the instant situation, the member's firm not being located in Hernando County.