June 7, 1994

FACTS:

The Executive Office of Elder Affairs ("EOEA"), a state
agency established pursuant to G.L. c. 19A, serves "to mobilize
the human, physical and financial resources available to plan,
develop and implement innovative programs to insure the dignity
and independence of elderly persons, including the planning,
development and implementation of a home care program for the
elderly in the communities of the Commonwealth." Additionally,
the EOEA must encourage and assist communities to develop and
plan home care programs, which must be operated either by a state
agency or any political subdivision of the Commonwealth or by
nonprofit corporations organized under G.L. c. 180 and designated
by the EOEA. Although c. 19A was passed in 1973, the statutory
language which authorized home care programs to be operated by
non-profit corporations was not added until 1985.

Councils on Aging ("COAs") are established by cities and
towns pursuant to G.L. c. 40, s. 8B. COAs coordinate and carry
out programs designed to meet the problems of the aging. COAs
also receive grants from the EOEA to provide programs and
services (such as congregate meals and transportation).
Additionally, COAs utilize municipal funds and receive other
grants to fund their programs and services.

In 1974, the EOEA decided to fulfill its statutory mandate
through contracts with non-profit corporations (notwithstanding,
as noted above, that explicit statutory authorization for
designating non-profit corporations as home care corporations did
not come about until 1985). Subsequent thereto, the EOEA
developed extensive policies and procedures for managing a "Home
Care Program" in the Commonwealth. The program was and continues
to be funded with state appropriations (currently approximately
$145 million), federal retained revenues and client copayments.
The Home Care Program includes community services (home care,
home health care and respite care) and protective services. The
primary goal of the program is to maintain elder independence and
dignity in a home setting. In 1974, the state was divided into 27
service regions. The EOEA established regulations concerning
client eligibility as well as the manner in which services would
be provided. The EOEA determined that it would contract with a
non-profit corporation in each region and known as a Home Care
Corporation ("HCC") to provide the services of the Home Care
Program. The EOEA sought proposals from prospective service
providers in each region. Contracts between the EOEA and 27 non-
profit corporations were awarded. Some of the HCCs which were
eventually awarded contracts had been in existence and were
providing elder services prior to 1974. Other organizations were
formed in response to the EOEA's requests for proposals.

Since 1974, the Home Care Program contracts have been the
subject of a request for proposals on a periodic basis (now every
5 years). HCCs, as non-profit corporations, are managed by a
board of directors and an executive director. Pursuant to G.L. c.
19A, s. 4(c), the majority of the governing board (board of
directors) of any home care provider must be appointed by the
COAs of the cities and towns serviced by the home care provider.
In addition, a majority of the governing body of designated home
care providers must be persons of sixty years of age or older who
reside in the cities or towns served. In general, HCCs
subcontract with other private organizations as well as with COAs
for the majority of the services provided under the Home Care
Program. There are, however, instances where a HCC, with the
approval of the EOEA, will provide certain services through its
own employees. Nevertheless, in most cases the HCCs serve to
manage/monitor the delivery of services by their subcontractors.
Finally, some HCCs provide a variety of elderly services in
addition

Page 569


to those they provide pursuant to the Home Care Program.
Such other programs are funded by various federal, municipal or
private sources.


QUESTION:

May compensated employees of COAs serve as unpaid members of
the board of directors for a HCC?


ANSWER:

Yes, subject to the limitations discussed herein.


DISCUSSION:

1. Jurisdiction


The Commission must first decide whether the non-profit HCCs
should be considered public, as opposed to private, entities for
purposes of applying the conflict of interest law.[1] We conclude
that HCCs are not public instrumentalities within the meaning of
G.L. c. 268A.

We start by noting that an entity organized in a corporate
form will not automatically be considered a private entity.
Rather, the Commission has traditionally applied a four factor
jurisdictional test to determine whether a particular entity
should be considered public for purposes of applying the conflict
of interest law to that entity's employees. Those factors are:

(1) the means by which the entity was created (e.g., legislative
or administrative action);

(2) the entity's performance of some essentially governmental
function;

(3) the extent of control and supervision of the entity exercised
by government officials or agencies; and

(4) whether the entity receives or expends public funds. See EC-
COI-91-12; 89-24; 89-1.

The Commission has on several occasions applied these
factors to conclude that private non-profit corporations should
be considered public instrumentalities. See EC-COI-92-26; 91-12;
89-1; 88-24
.

Recently, the Massachusetts Supreme Judicial Court affirmed
the Commission's jurisdictional test, stating:

we believe that the test provides an appropriate starting
point for determining whether an entity is an
instrumentality [of the Commonwealth] for purposes of G.L.
c. 268A. The test focuses on the method of formation,
operation, and purpose of the entity, all factors which the
Appeals Court recently noted to be central to the question
of an entity's status as an "instrumentality" under the
conflict of interest law. See McMann v. State Ethics
Commission
, 32 Mass. App. Ct. 421, 425 (1992). Massachusetts
Bay Transportation Authority Retirement Board v. State
Ethics Commission
, 414 Mass. 582, 588 (1993). ("MBTA")

The Court went on to discuss an additional consideration
utilized by the Internal Revenue Service ("IRS") when it decides
whether an entity is a public instrumentality under the federal
tax code: "whether there are any private interests involved, or
whether the states or political subdivisions involved have the
powers and interests of an owner." See, Rev. Rul. 57-128, 1957-1
C.B. 311; MBTA, 414 Mass. at 589. With this opinion, we will for
the first time take into account whether there are private
interests involved in the entity being examined.

The application of our jurisdictional analysis to HCCs leads
to the conclusion that HCCs are not public instrumentalities.
First, after examining the history of HCCs and the means by which
they were created, we do not find a statute, rule, regulation, or
other direct EOEA action. We note that, in 1974, the EOEA made a
determination that it would seek to provide home care services
through contracts with non-profit corporations ("HCCs"). Pursuant
thereto, the EOEA established qualifications and other criteria
for serving as a HCC. However, it appears that the EOEA was not
statutorily required or otherwise directed to establish HCCs, nor
did the EOEA take affirmative steps to specifically create the
non-profit corporations which were eventually awarded the
contracts. See EC-COI-88-19 (where there was no law, rule or
direct agency action resulting in corporation's creation, mayor's
involvement in selection of board of directors and executive
director went to the composition of the non-profit organization
rather than the impetus for its creation). In fact, until 1985,
there was no explicit statutory authorization for the EOEA's use
of non-profit corporations to assist in providing home care
services. Moreover, as we have noted, some HCCs existed prior to
1974. While it is clear that governmental action has in effect
enhanced the market for these services, thereby causing HCCs to
proliferate, it would not be accurate to say that HCCs were
created by governmental action.

Turning to the second factor, we conclude that the HCCs do
perform an essentially governmental

Page 570



function. While we recognize that the provision of home care
services to the elderly can be either publicly or privately
performed, we have previously concluded that an entity performs a
governmental function where the function is contemplated by state
or federal legislation. See EC-COI-88-19. Here, the EOEA is
statutorily obligated to implement home care programs in the
Commonwealth. The EOEA's enabling statute permits the provision of
such home care services by non-profit corporations designated by
the EOEA. Absent implementation by HCCs, a state agency or other
political subdivision of the Commonwealth must operate home care
programs for the elderly. The fact that the Home Care Program is
currently being carried out by a non-profit corporation does not
change the nature of the function from public to private. See
EC-COI-84-147
(private, non-profit corporation performing a portion
of duties which public entity is statutorily required to perform is
serving a governmental function); 89-24 (non-profit corporation
which furthers UMass' legislatively mandated function of education
and research performs governmental function). We therefore conclude
that the HCCs carry out an obligation statutorily imposed on the
EOEA and therefore perform an essentially governmental function.

Considering the third factor, we do not find governmental
control of the HCCs in a manner contemplated by our
jurisdictional test. We note that the EOEA exercises substantial
control and supervision (in the common sense meaning) over the
functioning of the HCCs. For example, by regulation, 651 CMR 2.00
et seq., the EOEA sets policy, issues program regulations and
guidelines, approves HCC budgets, conducts audits, sets out
reporting requirements and training and generally manages many
aspects of the day-to-day operations of the Home Care Program. In
addition, pursuant to 651 CMR 3.02, the EOEA is required, among
other things, to provide ongoing monitoring, assessment and
evaluation of the activities and operation of HCCs. However, the
Commission has not traditionally looked at governmental
regulation of an entity as evidence of governmental control.
Rather, we have previously considered governmental participation
in the selection of a corporation's board of directors or the
presence of a majority of board members appointed by a
governmental agency as an indicator of governmental control for
purposes of our jurisdictional test. See EC-COI-91-12; 90-3. In
each of these cases, however, the entity under consideration was
created by the actions of government officials, who then
controlled the selection process and composition of the entity's
governing body. See, e.g., EC-COI-84-147; 89-1, 91-12 (each
involving holding companies created by resolution of the Board of
Trustees of a state institution); 89-24 (non-profit corporation
created by actions of state officials); 90-3 (same). Here, by
contrast, HCCs were not first created and then controlled by the
government.

Additionally, we note that the Court in MBTA looked beyond
the mere appointment of each board member and considered to whom
the board members owe their loyalty. Where the Retirement Board
members owed their primary loyalty to the members and
beneficiaries of the retirement fund and not to the MBTA, the
Court did not find that the MBTA exercised the requisite control
or supervision over that board, notwithstanding the MBTA's
appointment of a portion of the Board members.

In the case before us, we note that, pursuant to statute, a
majority of the board members of a HCC must be appointed by the
local COAs served by the HCC. In addition, a majority of the
board members must be 60 years or older and must reside in the
communities served by that HCC. As a result of these two
statutory requirements, it appears that the principal legislative
goal was to provide HCCs with directors who could advise on
behalf of, and otherwise represent, the population most directly
affected by the services provided by the HCCs. In any event,
because the EOEA does not have appointing authority over any of a
HCC's board members, and because it does not appear to us that
the HCC board members owe their primary loyalty to the EOEA, we
do not find that the EOEA exercises the requisite control for
purposes of our jurisdictional test. See, e.g., EC-COI-84-65
(finding a lack of municipal government control over public
charitable trust whose trustees were city officials, because "the
three city officials acting in their trustee capacities owe a
duty of loyalty to the Fund").

As for the fourth factor, HCCs receive considerable funding
from the state by virtue of their Home Care Program contracts
with the EOEA. We have previously held that state funds paid
pursuant to a vendor contract would not alone indicate state
agency status where an entity received the majority of its
funding from the federal government. See EC-COI-85-78. See also
MBTA
at 582 (funds paid by state agency in which Commonwealth has
no continuing proprietary interest become private in nature once
they are paid out by the Commonwealth).[2] Here, by contrast,
where the Home Care Program services being provided by the HCCs
are statutorily mandated and where the state continues to have an
interest in how its program funding is expended, we find that the
HCCs receive and expend public funds in the manner contemplated
by our jurisdictional test.

As suggested by the Court in MBTA, we will also take into
consideration, when relevant, "whether there

Page 571

are any private interests involved, or whether the states or
political subdivisions have the powers and interests of an owner"
in examining entities, such as the HCCs, for jurisdictional
purposes. MBTA, 414 Mass at 589. As noted above, this
jurisdictional consideration is derived from the test used by the
IRS when it considers whether an entity is an instrumentality or
political subdivision of the state for federal taxation purposes,
specifically the Federal Insurance Contributions Act, 26 U.S.C.
3121(b)(7) and the Federal Unemployment Tax Act, 26 U.S.C.
3306(c)(7). The IRS examines whether there are any non-public
proprietary interests involved in the particular entity being
examined. For example, in Rev. Rul. 57-128, 1957-1 C.B. 311, 312,
the IRS determined that a voluntary unincorporated organization
formed by state insurance officials to promote uniformity in
legislation affecting insurance, to encourage departmental
rulings under the insurance laws of several states, to
disseminate information to insurance supervisory officials, and
to protect the interests of insurance policyholders in various
states, was a part of the "state government machinery for the
administration of the insurance laws of the respective states."
The IRS decided that the association was a state instrumentality,
in part, because

No proprietary interest in the association exists other than
those of the states themselves, which through the membership
of their officers have the powers and interests of an owner.
The states, through their officers, have the right
collectively to dispose of the assets of the association.
Therefore it follows that the association is an
instrumentality wholly owned by the states. Rev. Rul. 57-128
1957-1 C.B. 31.2

Similarly, in Rev. Rul. 65-196 1965-2 C.B. 389, the IRS
examined the existence (or lack of) private interests in a
"Sports Area Commission" organized by a city and two villages.
The IRS concluded that because all physical properties and other
assets of the commission were held and owned by the participating
municipalities, and because one of the municipalities was
responsible for the project's finances (as opposed to private
financing), there were no private interests involved and the
commission was "an instrumentality wholly owned by one or more
political subdivisions of the state." See also, Rose v. Long
Island Railroad Pension Plan, 828 F.2d 910, 918 (1987) (finding
that Long Island Railroad satisfies the IRS criterion concerning
public ownership interest as opposed to private interests where
governmental entity, the Metropolitan Transit Authority, wholly
owns the entity in question).

In contrast, the IRS determined that a soil and water
conservation district was not an instrumentality of the state or
any of its political subdivisions. Rev. Rul. 69-453 1969-2 C.B.
183. There, the district began as an unincorporated association
of landowners. Later, it was incorporated with the stated
purposes of making surveys and investigations and doing research
concerning problems of soil erosion, to cooperate with or enter
into agreements with landowners, to develop conservation
practices and to assist community conservation commissions and
provide soil maps for planning and zoning boards. The district's
relationship to the government was by virtue of a memorandum of
understanding between the district and the state Commissioner of
Agriculture in which both agreed to undertake various tasks in
cooperation with each other. In examining the district in light
of its test, the IRS based its decision that the district was not
a public instrumentality, in part on the fact that the district,
a private non-stock corporation, primarily acted on behalf of
private individuals in accordance with the purposes stated in its
certificate of incorporation. The IRS found that any benefits
conferred upon the public were incidental to the district's
primary purpose.

Considering the facts before us, we find that HCCs, which
are privately created, involve significant private proprietary
interests in addition to any interests of the Commonwealth or its
subdivisions. For example, it appears that neither the EOEA nor
the Commonwealth has the right of ownership with regard to the
entire inventory of a HCC's physical property. The EOEA, while
having the ability to approve of the budget of a HCC and to
conduct audits with regard to the services provided to the EOEA
pursuant to its contract, does not have the ability generally to
control and dispose of the assets of HCCs. Thus, we conclude that
the Commonwealth does not act as an owner of the HCCs, where a
key element of ownership is the unfettered ability to control and
dispose of that which is owned.

In summary, we recognize (a) that the HCCs' provision of
home care services to the elderly has been an essentially
governmental function since 1974, (b) that HCCs do receive
considerable state funding pursuant to the Home Care Program, and
(c) that the Commonwealth has a continuing interest in the
expenditure of those funds. Nevertheless, we believe that these
factors are outweighed by the fact that HCCs were not created
pursuant to statute, regulation or other direct action by the
EOEA, and that the EOEA does not exercise the requisite control
over HCCs, where HCC board members do not owe their primary
loyalty to the EOEA. These latter considerations best support a
finding that, notwithstanding extensive regulation of HCCs, HCCs
should not be deemed to be instrumentalities of the Commonwealth.
Rather, we conclude that HCCs are private entities due to the
significant private interests at play in the creation and
functioning of the HCCs as

Page 572

non-profit corporations. As a result of the foregoing conclusion,
a member of the board of directors of a HCC is not a public
employee by virtue of that position.

We will now apply G.L. c. 268A to those employees of the
local COAs, municipal agencies for purposes of the conflict of
interest law, who seek to be appointed to positions on the board
of directors of a HCC.


2. Application of the Conflict of Interest Law.


Section 17 prohibits a municipal employee from acting as an
attorney or agent or from receiving compensation from anyone
other than the municipality in connection with a particular
matter in which the municipality is a party or has a direct and
substantial interest. Under s. 17(c) therefore, a municipal
employee (by virtue of his employment with a COA), will be
prohibited from acting as an agent[3] for the HCC which he serves
as a director in connection with matters in which his
municipality has a direct and substantial interest.[4] For
example, such a COA employee could not serve as the agent of a
HCC in negotiating a subcontract for the provision of certain
home care services by the COA. We note that acting as an agent
includes appearing before the COA or other municipal agencies in
a representational capacity, as well as signing off on documents
which will be submitted to the COA or another municipal agency.
See EC-COI-92-18, 85-58; 84-6; 83-78.

Section 19, in relevant part, prohibits a municipal employee
from participating in a particular matter in which a business
organization in which he is serving as an officer, director,
trustee, partner or employee has a financial interest. For
purposes of s. 19, the financial interest may be of any
magnitude and may be of a positive or negative fashion. Under this section, a COA employee who also serves as a director of a HCC will be
prohibited from participating as a COA employee in a matter in
which the HCC with which he is affiliated has a financial
interest. See e.g., EC-COI-92-1 (municipal employee cannot vote
or otherwise participate in municipal funding decisions affecting
non-profit corporation/"community action agency" by which he is
employed). We note that participation includes not only final
decisions on matters, but discussion, debate, recommendations,
advice, etc., which lead to a final decision.[5]

Finally, s. 23(c) prohibits a public employee from
disclosing confidential information to which he may have access
as a public employee. For purposes of the prohibition,
confidential information is information which is not available
through a public records request. For example, under this
section, a COA employee could not disclose to the board of the
HCC which he is serving any confidential information to which he
may have access as a result of his COA position.

-----------------------------------


[*] Pursuant to G.L. c. 268B, s. 3(g), the requesting person
has consented to the publication of this opinion with identifying
information.

[1] In G.L. c. 268A, s. 1(p), "state agency" is defined as
any department of a state government including the executive,
legislative or judicial, and all councils thereof and thereunder,
and any division, board, bureau, commission, institution,
tribunal or other instrumentality within such department and any
independent state authority, district, commission,
instrumentality or agency, but not an agency of a county, city or
town.

[2] The Court in MBTA gives as an example public funds paid
to a private health care provider to provide services to public
employees. Such payments of public funds are a contractually
determined form of employee compensation. Therefore, unlike the
case at hand, upon payment, the Commonwealth arguably exercises
no continuing interest in the health care provider's expenditure
of those funds.

[3] HCC board members do not receive compensation and
therefore s. 17(a) is not relevant based on the facts presented.

[4] We note that s. 17 will apply somewhat less
restrictively if the municipal employment position in the COA has
been designated by the municipality's board of selectmen or city
council as a special municipal employee position. See G.L. c.
268A, s. 1(n).

[5] We note that s. 19 provides that a municipal employee
may participate in a matter, notwithstanding the prohibition of
that section, if the employee has first made a written disclosure
to his appointing authority of the financial interest of the
business organization with which he is affiliated, and if the
appointing authority makes a written determination that the
financial interest involved is not so substantial as to be likely
to affect the integrity of the services being provided by the
employee to the municipality.

Page 573

End Of Decision