Date: September 13, 1995

FACTS:


You are the Solicitor of a City. You seek an opinion on
behalf of Ms. A, Chairperson of the City's Historic District
Commission ("Historic Commission"). Ms. A was appointed to this
uncompensated position by the City Council ("Council").

In 1993, the City, through the efforts of its Mayor and other
City officials, applied for and received from the Executive Office
of Communities and Development ("EOCD"), a [amount omitted] start-
up grant for use in developing an entity, which has evolved into
the [City] Downtown Association, Inc. ("Association"). Ms. A also
serves as a member of the Board of Directors of the Association.

EOCD Downtown Partnership Program

EOCD receives from HUD Community Development Block Grant
monies, some of which it awards to municipalities having
populations of fewer than 50,000.[1] One of those programs is the
Downtown Partnership or Downtown Revitalization Program
("Program"). The Program's major objective is the elimination of
urban slums and blight. Through the Program, EOCD seeks to involve
and assist private enterprises in developing an entity through
which they can work in partnership with their municipal governments
to improve their urban environment through various activities,
initiatives and projects (collectively, "Downtown Projects").

Municipalities can apply to EOCD for initial Program funding
to finance the start-up or so-called

Page 638

"emerging partnership" costs of an entity ("Downtown Entity"),
which is generally, if not always, formed as a Massachusetts
corporation under G.L. c. 180. EOCD refers to the cooperative
working relationship between a municipality and its Downtown Entity
as a "Downtown Partnership."[2]

Downtown Entities include among their governing bodies
representatives of a cross-section of the community, such as
businesses, institutions, churches, civic organizations, property
owners, community residents and municipal governments. EOCD
strongly encourages open lines of communication between the
municipality and the Downtown Entity constituting a Downtown
Partnership. Among various ways of achieving such communication
and information flow, EOCD generally recommends (but does not
require) that some municipal officials serve as ex officio
members[3] of the governing body of the Downtown Entity and,
likewise, that representatives of the Downtown Entity regularly
attend meetings of the municipality's governing body.

Once the Downtown Entity has been formed, the municipality can
apply to EOCD for, and may be awarded, up to three additional
Program grants in each of the Entity's first three years of
operation. That funding is provided for a variety of Downtown
Projects, such as:

training; goal-setting; planning for downtown economic
development; strategies for business retention,
recruitment and start-ups; improvement of local
regulations (zoning, permits, etc.); parking strategies;
cooperative services; loans/grants for building
rehabilitation (facades, signs); streetscape
improvements; studies and programs in promotions and
marketing; tourism development; downtown market analysis;
loans for new and expanding business activities; and
training and support for new businesses and
entrepreneurial ventures.

Typically, as a Downtown Entity gains more experience during
the three-year period working in a Downtown Partnership
relationship with its municipality, EOCD decreases the amount of
funding to be allocated to the Entity's project manager. At the
end of the three-year period, EOCD provides no further funding to
the municipality to support the Downtown Entity, which is expected
to operate self-reliantly thereafter with funds raised through its
own efforts, e.g., from members' dues and contributions, fund-
raising programs and events, and other government and private
loans, grants and contributions (collectively, "Other Funding
Sources").

If EOCD approves a municipality's application for Program
funding, EOCD enters into a grant agreement with the municipality,
which enters into a subgrant agreement with the Downtown Entity.
Pursuant to those two agreements, funding flows from EOCD to the
municipality and thence to the Downtown Entity, provided that, at
each contract level, the conditions for disbursing funds have been
satisfied.

Although no statute, rule, regulation, order, ordinance or
other law mandates the formation or maintenance of Downtown
Entities, through EOCD Program grants, municipalities promote and
support the formation, maintenance and operation of such Entities
during their early stages. Among their goals in providing such
funding, EOCD and the Program-grant-receiving municipalities hope
and expect that the Downtown Entities will survive long-term and
continue to work in Downtown Partnership relationships.

Twenty-three Downtown Entities have been funded with Program
grants and are involved in Downtown Partnership relationships with
Massachusetts municipalities.

Downtown Partnership: City and Association

With the help of EOCD's $[amount omitted] start-up grant, the
Association was incorporated in [date omitted] to work with the
City in a Downtown Partnership relationship. The Association's
Articles of Organization set forth its principal purposes, namely:

(1) To improve, better, market and revitalize the
businesses and business community in the City's Downtown
area;

(2) To foster and promote the development of business
and businesses in the City's Downtown area;


(3) To promote and enhance the visual quality and
appearance of the historic sites, businesses and
structures within the City's Downtown area;

(4) To preserve and enhance the visual quality and
appearance of the historic areas, and public areas
situated in the City's Downtown area;

(5) To educate and inform the public, and, in
particular, the citizens of the City, of the location and
background of historic sites in the City's Downtown area,
and to promote and

Page 639

encourage the study and utilization of these historic sites by
the public; and

(6) To seek federal, state and other grants for the
purposes of furthering the purposes set forth above.

The Association's by-laws ("By-Laws") provide that its members
may be "any person or business entity who has paid in full the dues
established by the Board." The annual dues are [amount omitted].
The Association currently has more than 60 members, the vast
majority of whom are representatives of local businesses, and
others of whom are elected or appointed City officials,
representatives of churches and unaffiliated individuals.

The By-Laws require that the Association have a 15-member
Board of Directors ("Board"). Five of the Board members serve ex
officio:[4] the Mayor; a representative of the Historic Commission
(currently Ms. A); a representative of the City's public school
system; and two private sector representatives, namely, the
President of the City's board of trade and an officer of a City
bank. The other ten Board members are elected by and from among
the Association's members. The ex officio Board members (except
for the Mayor) serve a one-year term. The other Board members
serve three-year terms. The Board currently has 14 members, 11 of
whom (including the two ex officio business members) represent
business interests[5] and three of whom are the ex officio City
officials.

The Association's president, secretary and treasurer are
elected by the Board from among its members. None of the
Association's officers is a City official or other City employee.

The Association retains its own legal counsel and its own
accountant. The Association's offices are located in a privately
owned office building; it has its own furnishings and equipment or
uses those of its private sector Board members.

Through a resolution adopted on [date omitted], the Council
authorized the Mayor (i) to apply for and "take any action
necessary to secure up to [amount omitted]" of Program funds "for
the implementation of Ready Resource grant-funded activities for
the Downtown Partnership of" the City and the Association; (ii) to
execute all grant documents on behalf of the City; and (iii) to
expend the grant monies in accordance with the grant application
and accompanying documents.[6] The Mayor submitted the Program
grant application to EOCD on [date omitted]. Through a Program
grant agreement ("Grant Agreement") dated [date omitted] with EOCD,
the City received a "Phase II" Program grant (for the first year of
EOCD's possible three-year funding period) in the amount of [amount
omitted] ("Grant") for the following Downtown Projects: Downtown
Manager's Salary/Benefits; Training and Technical Assistance;
Market Analysis; Parking and Traffic Study; Design Guidelines; and
Association's Administration.

At its [date omitted] meeting, the Council approved the
associated Program subgrant agreement (Subgrant Agreement). On
[date omitted], the City and the Association entered into the
Subgrant Agreement under which the Association was engaged as the
City's subgrantee to perform the following Downtown Project
services and functions, among others, for a maximum of [amount
omitted] ("Subgrant"):[7] (i) to hire a downtown manager
("Manager") to manage the day-to-day operations and finances of the
Association, including assisting with the development and
implementation of the Association's downtown revitalization
program, coordinating work group activities, developing and
overseeing promotional events, working with financial/lending
institutions and government agencies to develop support programs
for downtown businesses, preparing grant proposals, working with
businesses and civic groups to organize special events and
aesthetic improvements and promote the City's downtown, and
coordinating activities with the City's Community Development
Office;[8] (ii) to engage consultants to provide planning
assistance in architectural design of aesthetic improvements,
including commercial signs and facades; in professional fundraising
planning and development to sustain the Association on a long-term
basis; and in market analysis services to develop a market niche to
enhance the long-term economic viability of the City's downtown;
and (iii) to maintain and operate an Association office.

The Subgrant Agreement provides that the City's project
representative will be its Community Development Chief Planner,
specifies the method and schedule for disbursing the Subgrant, and
includes dispute resolution provisions, which designate the City's
Community Development Director as the first level of review and the
Mayor as the second and final (without further recourse) level of
review if the Association takes issue with amounts of payments or
with nonpayment by the City.

The City does not delegate its duties or powers to the
Association. Although the Association is subject to the terms and
conditions of the Subgrant Agreement, it does not require City
approval before it makes decisions or acts. It can and does act
independently of the City. For example, the


Page 640

Association has hired a Manager, selected an architect and will be
hiring other consultants to assist in market analysis and
fundraising efforts. It has conducted a "Summerfest" and other
events, business training seminars and breakfast gatherings for its
members; has purchased and installed flower barrels in the City's
downtown area; and has given City officials advice and input about
particular design and infrastructure projects affecting the
downtown area.

At the end of the EOCD funding period, the Association plans
to operate independently with revenues raised from Other Funding
Sources.


QUESTIONS:



1. Is the Association a municipal agency or a private entity
for purposes of the conflict of interest law?

2. May Ms. A serve as a member of the City's Historic
Commission while serving as a member of the Association's Board of
Directors?



ANSWERS:



1. The Association is a private entity for purposes of the
conflict of interest law.

2. Yes, subject to the limitations discussed below.


DISCUSSION:



A. Threshold Question

The threshold question is whether or not the Association is a
municipal agency[9] or a private entity for purposes of the
conflict of interest law.

To determine whether an entity (including a non-profit
corporation such as the Association) is a public agency or an
instrumentality thereof, the Ethics Commission ("Commission") has
developed and will consider the following four factors:

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

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

(3) the extent of the 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-94-7 (factors reviewed in state agency context); EC-COI-
92-26 (non-profit corporation is a municipal agency); EC-COI-88-19
(non-profit corporation is not a municipal agency).

In addition, following the suggestion of the Supreme Judicial
Court, the Commission also takes into consideration, when relevant,
whether and to what extent there are significant private interests
involved in the entity under review, or whether the state or its
political subdivisions have the powers and interests of an owner.
See EC-COI-94-7; MBTA v. State Ethics Commission, 414 Mass. 582,
(1993).

After considering the facts in light of those four factors and
the additional consideration, we conclude that the Association is
a private entity, not a municipal agency, within the meaning of the
conflict of interest law.

1. Impetus for Creation

No statute, rule, regulation, order, ordinance or other law
requires the Association to be created or to include municipal
officials on its governing body. The Association was formed
through the joint efforts of EOCD, municipal employees and
agencies, and private parties to become a vehicle that enters into
a contract to undertake and implement Downtown Projects through the
Downtown Partnership model.

The Commission observed in EC-COI-94-7, that, although it was
"clear that governmental action has in effect enhanced the market
for" the services of the subject home care corporations, thereby
causing such corporations to proliferate, those corporations were
not created by government action. A similar observation can be
made here, where governmental action, start-up funding and
continued funding through the Subgrant Agreement has encouraged
development of the Association, but it would not be accurate to say
that the Association was created by government action.

In EC-COI-88-19, we considered a newly formed, non-profit
corporation that was designated by a city pursuant to the city's
cable television license agreement to manage and operate public,
educational and local municipal access channels in the city and
whose board of directors and executive director were selected by
the city's mayor. There, we found that the corporation, having
been created pursuant only to a contract with the city (rather than
by law, rule or regulation), was not "governmentally created"
despite the participation of governmental officials in its
organizational efforts. Here, similarly, although those who were
instrumental in prompting the creation and procuring the funding
for formation and initial operation of the Association were
municipal

Page 641



employees, the Association was formed to perform services under a
contract -- the Subgrant Agreement -- not by law, rule or
regulation.

The Association is distinguishable from the non-profit
corporations that we found to have been governmentally created
because the impetus for their creation was a governmental agency
and they also performed a legislatively mandated function of the
creating agency. See EC-COI-90-3; 89-24; 84-147 (confirmed by 89-
1); 84-66 (all involving non-profit corporations established by
state agencies); and 88-24 (where municipal officials in a
municipal agency created a non-profit corporation to further the
agency's statutory purpose). In EC-COI-88-24, the non-profit
corporation was created by municipal officials to further the goals
of the municipal agency in which they served; had as its executive
director a senior administrator of the municipal agency; had a
board of directors, one third of whom were employees of the
municipal agency; had no staff or offices of its own, but rather
borrowed staff members from and occupied offices of municipal
agencies; and took action only upon the direction of municipal
agency personnel.

Here, by contrast, although some of the Downtown Projects that
may be undertaken by the Association are similar to functions of
City agencies, particularly the Community Development Office, on
these facts we cannot readily conclude that the Association
performs legislatively mandated functions of a City agency or
agencies. The Association (having its own Manager, officers and
consultants and its own offices, furnishings and equipment, and
having City employees constituting only a small minority of its
Board and its membership and no City employees as its officers) is
not inextricably entwined with the City. We are also mindful of
the fact that EOCD's and the City's purpose in fostering the
creation of the Association is to have it be a viable, independent
entity after three years.

In sum, the Association was not created by statute, rule,
regulation, order, ordinance or other law, but rather stems from a
contractual arrangement and does not appear to perform the
legislatively mandated functions of a City agency. For those
reasons, we conclude that the Association was not governmentally
created.

2. Essentially Governmental Functions

Depending on the particular Downtown Project, the
Association's purposes and functions may or may not be governmental
in nature. For example, sign, facade and landscaping improvements;
parking and traffic planning and improvements; loans to small
businesses; and training could be public, private or mixed
initiatives. It appears, however, that none of the Association's
purposes, functions or Downtown Projects is so uniquely within the
bailiwick of government[10] that they would be characterized as
essentially governmental functions.

3. Whether the Entity Receives or Expends Public Funds

Currently, the Association does indeed receive and expend the
Grant monies pursuant to the Subgrant Agreement, a contractual
arrangement. For purposes of this analysis, the Grant monies
become municipal funds once EOCD awards and pays the Grant to the
City. The Association is the City's contractor. The City has the
absolute right, without cause, to terminate the Subgrant Agreement
upon 15 days notice to the Association, in which case the City is
only required to pay for services already provided and accepted.
The City also has the right to withhold payment if it considers the
Association's performance to be inadequate. The Association
expects to develop and receive revenues from Other Funding Sources
and, thus, to become financially independent of the City within
three years, when additional Program funding is no longer
available. Thus, while municipal monies may be expected to
constitute the bulk of the Association's current revenues,
municipal funding is not expected to be the sole or even the
primary source of funding in the long-term.

Therefore, we conclude that the Association does indeed
currently receive and expend municipal monies; however, we do not
accord significant weight to this factor on the "public side" of
the balance, because that governmental funding situation appears to
be temporary.

4. Extent of Municipal Control and Supervision

Under the Subgrant Agreement, the City may be said to control
and supervise the contractual undertakings of the Association, in
that the City can unilaterally terminate the Subgrant Agreement
and/or (through its Community Development Director and Mayor) be
the final arbiter of the adequacy of Association's contract
performance and whether the Association will be paid. However, the
control and supervision does not extend to other aspects of the
Association's operations, e.g., hiring or engaging the Manager,
legal and accounting advisers, architects and other consultants or
making other management and operational decisions. Certainly,
after the termination of the Subgrant Agreement and other
comparable contracts that may be expected during the Program's
usual three-year funding period, it could not now be

Page 642

said that the City will control and supervise any aspect of the
Association's activities.

The three City officials who are ex officio members of the
Board do not and could not, even if they wished or were directed
to, control the 15-member Board or the Association. In fact, it


does not appear that the City even requires its officials to serve
on the Board, which the City presumably would if it sought to
control the Association. Furthermore, whatever control the City
may exert over the Association's operations through the three ex
officio city employee/Board members is diluted, because two of
those three individuals serve only one-year terms while most of the
other Board members serve three-year terms.

We conclude that, although the Association's performance of
the Subgrant Agreement obligations may be controlled and supervised
to some extent by the City, the Association is an independent
corporate entity that is not controlled by the City.

As to the additional consideration suggested by the Court in
the MBTA case, it appears to us that there are significant private
interests involved in the Association, because the vast majority of
its members are affiliated with local businesses and the
Association's purposes and projects are for their benefit. There
is no indication that any property acquired by the Association with
Subgrant or other funds will belong to anyone other than the
Association or its members. Furthermore, the Downtown Projects are
intended to revitalize the City's downtown area, and will at the
same time benefit local businesses, for example, in the form of
loans and facade, signage and/or streetscape improvements.

After weighing all factors and considerations, we conclude
that the Association is a private entity, because it has
significantly more attributes of a private entity than of a
municipal agency.

B. Application of the Conflict of Interest Law to Ms. A's
Situation

1. Section 17

Section 17(c) generally prohibits a municipal employee,
"otherwise than in the proper discharge of official duties," from
acting as agent or attorney for anyone other than the municipality
in connection with any particular matter[11] in which the
municipality is a party or has a direct and substantial
interest.[12] The rationale behind this is that public employees
should be loyal to their municipal employers, and where their
loyalty to their municipal employers conflicts with their loyalty
to a private party or employer, the municipality's interest must
win out. See EC-COI-82-176 (involving s.4, the state counterpart
to s.17).

Under s.17(c), Ms. A may not, for example, represent or
personally appear on behalf of the Association (whether formally or
informally, whether through written or oral communications and
whether in person or otherwise) to or before any City agency[13] or
personnel, EOCD, or anyone else in connection with the
Association's performance of its contractual obligations under the
Subgrant Agreement, the Subgrant, or any other matters in which the
City has a direct and substantial interest, including any future
Program subgrant. "Personally appearing" includes any contact with
the intent to influence. EC-COI-92-1; 87-27.

That prohibition may be tempered if Ms. A's representation of
the Association's interests is in the proper discharge of her
official duties as a member of the Historic Commission. If the
Council were explicitly and specifically to describe or approve Ms.
A's municipal duties so as to include her representation of the
Association in certain situations and/or before certain bodies or
personnel, then she could generally perform those authorized
functions in the proper discharge of her official duties. The
Council's awareness that Ms. A serves on the Historic Commission
and also as a member of the Association's Board does not by itself
constitute official affirmation. See EC-COI-83-20 (involving s.4,
the state counterpart to s.17(c), in which the Commission suggested
that a state employee required a written statement from his state
agency describing or approving his representation of an individual
employee of the agency). If the Council does not so expand Ms. A's
municipal duties, then she may not so represent the Association.

2. Section 19

Section 19, in relevant part, prohibits a municipal employee
from participating as such an employee in any particular matter[14]
in which (to his knowledge) he or a business organization[15] in
which he serves as an officer, director, trustee, partner or
employee has a financial interest unless the employee first
receives an exemption. "Participation"[16] includes both formal
and informal lobbying of colleagues, reviewing and discussing,
giving advice and making recommendations, as well as deciding and
voting on particular matters. EC-COI-92-30. The financial
interest may be of any size and may be either positive or negative.

EC-COI-84-96. It must, however, be direct and immediate or
reasonably foreseeable in order to implicate s.19.
EC-COI-86-25;
84-123; 84-98; 84-96.

Page 643

Notwithstanding that general prohibition, an appointed
municipal employee may participate in such a matter if he first
obtains an exemption under s.19(b)(1) by (i) giving his appointing
official written notice of the nature and circumstances of the
particular matter and making full disclosure of the financial
interest, and (ii) receiving a written determination from that
official that the interest is not so substantial as to be deemed
likely to affect the integrity of the services that the
municipality may expect from the employee.

As applied to this case, if the Historic Commission were asked
to consider a particular matter that would reasonably foreseeably


affect the Association's financial interest, Ms. A must abstain
from participating in any aspect of such matter unless she has
first receives an exemption determination, as described above. For
example, if the Historic Commission were charged with disbursing
historic renovation grant monies and the Association were an
applicant or potential recipient, Ms. A would need an exemption in
order to participate.

3. Section 23

Section 23 imposes standards of conduct that are applicable to
all public employees.


Section 23(b)(3), the so-called "appearances" section, is
pertinent to Ms. A's situation. It prohibits a public employee
from acting in a manner that would cause a reasonable person to
conclude that anyone can improperly influence him or unduly enjoy
his favor in the performance of his official duties. The section
requires the employee to dispel any such "appearance" by making a
written disclosure of the relevant facts.

Thus, even if s.19 would not require Ms. A to abstain from
participating in Historic Commission matters because such matters
do not affect the Association's financial interests, if such
matters are likely to affect other Association interests, Ms. A
should file a written disclosure of all relevant facts to her
appointing authority. She should also make a similar, oral, public
disclosure for inclusion in the minutes of the Historic
Commission's meeting(s) at which such matters are reviewed,
considered, voted or otherwise acted upon.

For example, if the Association were to publicly express its
support for or opposition to a construction project being proposed
by an Association member (or anyone else, for that matter) and part
of the project required Historic Commission review and approval,
Ms. A would be required to make such disclosure prior to
participating in the matter.


DATE AUTHORIZED: September 13, 1995

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

[1] HUD awards such CDBG grants directly to larger cities
without EOCD involvement.

[2] EOCD derived its model for Downtown Partnerships from The
National Trust for Historic Preservation's National Main Street
Center concept, through which public- and private-sector
representatives join together to work on various projects.

[3] According to EOCD and City personnel, there is no federal,
state or local requirement that municipal officials so serve.

[4] It appears from the By-Laws that the ex officio Board
members have the same rights and obligations (including voting) as
all other members.

[5] One of those business representatives is also a member of
the Council; another is also a member of the City's Zoning Board of
Appeal. We are informed that they serve on the Board in their
private capacities, not as City officials or representatives.

[6] When the Council adopted its resolution, its members
presumably knew that the Board included the three ex officio City
officials. However, it does not appear that the City requires the
three City officials to so serve.

[7] The $[amount omitted] difference between the Grant and
Subgrant amounts was paid under a separate contract for the traffic
and parking study done before the Association was in operation.

[8] The City's Chief Planner in the Community Development
Office has acted as a liaison between the Association and the City,
but he is not a member of the Association's staff, nor is his City
salary funded with Grant or Subgrant monies.

[9] "Municipal agency," any department or office of a city or
town government and any council, division, board, bureau,
commission, institution, tribunal or other instrumentality thereof
or thereunder. G.L. c. 268A, s.1(f).

[10] For example, responsibility for police and fire services,
municipal infrastructure (water, sewer, drainage, streets) and
public school education are classic essentially governmental
services.

[11] "Particular matter," any judicial or other proceeding,
application, submission, request for a ruling or other
determination, contract, claim, controversy, charge, accusation,
arrest, decision, determination, finding, but excluding enactment
of general legislation by the general court and petitions of
cities, towns, counties and districts for special laws related to
their governmental organizations, powers, duties, finances and
property. G.L. c. 268A, s.1(k).

[12] As Ms. A is not compensated for being a member of the
Board, the constraints contained in s.17(a) are not relevant here.

Page 644

[13] "Municipal agency," any department or office of a city or
town government and any council, division, board, bureau,
commission, institution, tribunal or other instrumentality thereof
or thereunder. G.L. c. 268A, s.1(f).

[14] "Particular matter," any judicial or other proceeding,
application, submission, request for a ruling or other
determination, contract, claim, controversy, charge, accusation,
arrest, decision, determination, finding, but excluding enactment
of general legislation by the general court and petitions of
cities, towns, counties and districts for special laws related to
their governmental organizations, powers, duties, finances and
property. G.L. c. 268A, s.1(k).

[15] A non-profit corporation is a "business organization"
within the meaning of the conflict law. EC-COI-88-4.

[16] "Participate," participate in agency action or in a
particular matter personally and substantially as a state, county
or municipal employee, through approval, disapproval, decision,
recommendation, the rendering of advice, investigation or
otherwise. G.L. c. 268A, s.1(j).

Page 645

End Of Decision