February 28, 1990

 

FACTS:

Page 298

You are the President of ABC College (College), an institution
under the authority of the Board of Regents of Higher Education
(M.G.L. c. 15A, s.3) and the College Board of Trustees (M.G.L. c.
73, s.19). You also serve without compensation on the board of
directors of the ABC College Foundation, Inc. (Foundation). The
Foundation is a non-profit corporation, established in 1981 and
organized under M.G.L. c.180. It qualifies as a tax-exempt
organization under the Internal Revenue Service Code s.501(c)(3).

Based on information provided by you, we understand that the
establishment of the Foundation arose from the desires of College
faculty and staff members for a means to raise money for special
projects and programs which were not funded through the state
budget. The Foundation has access to funding sources normally
unavailable to public institutions. Additionally, proponents of the
non-profit foundation stated it was a means to "keep funds separate
from state coffers" and that similar organizations had been formed
in a number of state educational institutions.

According to its articles of organization, the Foundation was
formed as a "charitable educational corporation...to render
financial assistance and support to the educational programs and
development of the College...and to solicit, receive and accept
inter vivos and testamentary gifts of real and personal property,
administer, invest, reinvest, change investments, and...manage said
property..." Annual membership in the Foundation is open to any
individual contributing more than $100 in a fiscal year.

The Foundation's board of directors originally consisted of
six members of the College's administration who, via a
majority vote, selected five additional board members. As of June 29, 1989,
the Foundation's by-laws, provide for twenty (20) members on the
board of directors consisting of: (1) the College president; (2)
the College vice president of academic affairs; (3) one College
faculty member (elected by College faculty members); (4) two
College trustees (selected by the College Board of trustees); (5)
five alumni (ae) of the College (selected by Alumni Association);
(6) and ten directors not affiliated with the College (elected by
a majority of the Foundation directors). Additional "Honorary
Directors" may be elected by majority vote but serve as members who
do not vote. A Director's term is a three-year appointment with a
maximum tenure of two consecutive terms. Vacancies on the Board may
be filled by the directors. A quorum consists of one-half of the
directors holding office. A majority vote of the directors
attending a valid meeting is required for the board of directors
to take action. Directors may serve in the corporation "in any
other capacity and receive compensation for any such service."
Section 4.15.

The corporate officers of the Foundation, its chairperson,
vice chairperson, treasurer and clerk are annually elected by the
directors. Corporate officers may, but are not required to, be
members of the board of directors. The Foundation's executive
director acts as the corporation's chief executive officer and is
subject to the control of the directors. The executive director is
generally responsible for the operation and supervision of the
corporation. (Section 55). Legal documents (deeds, leases,
transfers, checks, etc.) are made by the chairperson and the
treasurer.

The Foundation's current Board of directors includes a 25%
representation of College alumni (ae) (or five seats). As indicated
above, this percentage requirement stems from the Foundation
by-laws, which incorporate the Alumni Association as a "permanent
undertaking of the Foundation according to an agreement reached on
March 10, 1986." Section 8. The Alumni Association's tax exempt
status is derived through the Foundation. The Alumni Association
has full use of certain College facilities and Foundation services.
The 1989 guidelines for the Alumni Association indicate that its
membership consists of College graduates and College students
completing one year of study. The Association helps the Foundation
with fundraising activities and the Foundation acts as the
repository for certain scholarship funds for the Association.
Changes in the Alumni Association's operation guidelines are
subject to review by the Foundation. In sum, the Alumni Association
operates as a "subsidiary" of the Foundation: the Foundation
primarily acts as a fundraising entity and the Association assists
the College by providing programs and publishing an alumni
newsletter. For example, the

Page 299

cost of postage for the 1988 Alumni Newsletters (which were
prepared, printed and distributed by the Association) was primarily
derived from Foundation funds. In addition, the College provided
$3500 towards the postage for the Newsletter.

The Foundation's funding is derived in most part from private
sources. In addition to paying for its own clerical and bookkeeping
personnel, the Foundation (and Alumni Association) receives support
from the College via the gratuitous use of: College office and
meeting room space; secretarial help; exhibition services; postage,
telephone, photo copying, bulk mail services; organizational
services for large projects, maintenance of alumni lists, and the
issuance of alumni identification cards. The College provides the
Foundation and the Association with a mailbox and someone to answer
day-to-day correspondence and phone calls. The College provides
additional support at its discretion.

Furthermore, the College's paid Director of Development and
Alumni Relations also acts as the Foundation's unpaid Executive
Director. The College also provides the Foundation with the
services, at no cost, of three College employees in the College's
development office. While there is no formal agreement as to the
use of these three employee's services, you state the College
"derives benefits in the form of gifts from the Foundation which
substantially exceed the value of services and supplies provided
by the College."


QUESTIONS:

1. Is the Foundation subject to the jurisdiction of the conflict
of interest law?

2. If so, how would the Foundation's board of directors be subject
to the conflict law?

3. Would changing the number of Directors to increase the number
of unaffiliated seats to comprise a majority of the Board change
the jurisdictional result?

4. Would G.L. c. 268A, s.s.8A or 23A prohibit appointment of
Foundation directors who hold positions in the College or on its
Board of trustees?
 

ANSWERS:

2. They would be subject generally to G.L. c. 268A. In particular,
they would be subject to s.s.7 and 23.

3. No.

4. No.
 


DISCUSSION:


I. Jurisdiction


The fundamental question posed by your request is whether the
Foundation, for the purposes of the conflict law, is a "state
agency" or an instrumentality or division of a state agency within
the meaning of M.G.L. c. 268A, s.1(p). That provision defines a
"state agency" as: "any department of a state government...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."

The Commission has previously determined that the
organizational structure of an entity is not dispositive of
jurisdictional status under the conflict of interest law. See,
EC-COI-88-19, 84-147
, citing In the Matter of Louis Logan, 1981 SEC
40, 45. The fact that the Foundation is organized as a non-profit
corporation in accordance with G.L. c. 180 therefore, is not a
sufficient basis to remove it from the definition of a state
agency. EC-COI-88-24; 89-24; cf. 88-19.

The Commission has, in prior opinions, identified four factors
which it will examine in determining whether an entity falls within
the jurisdiction of c. 268A. These 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) whether the entity receives and/or expends public funds;
and

(4) the extent of control and supervision exercised by
government officials or agencies over the entity. See,
EC-COI-88-2; 85-22; 84-65
.

None of these factors standing alone is dispositive. Rather,
the Commission considers the overall effect of these criteria in
light of the particular entity. EC-COI-84-65; 88-19; 89-1; 89-24.
In light of Commission precedent, we conclude that the Foundation
is a state agency within the definition of s.1(p).

Page 300


A. Creation:


The creation of the Foundation as a chapter 180, non-profit
corporation originated from the actions of College officials. The
fact that such officials would be considered "state employees"[1]
within the meaning of the conflict law, c. 268A, would not be
controlling in determining whether the Foundation is a governmental
creation. The Commission "looks to the impetus for the creation,
rather than merely the affiliation of the entity's
organizers." EC-COI-88-24 at p.3; EC-COI-88-19; cf. EC-COI-84-65.
For example, the Commission found governmental creation concerning a non-profit 
corporation formed by two state college faculty members where that corporation's 
primary purpose was to benefit and support their
state college department. EC-COI-89-24. The Commission concluded
in that opinion that the impetus for the corporation's creation
stemmed from the state college's "legislatively mandated functions
of education and research." Id. at p 5. In addition, the Commission
has previously found governmental creation where municipal
officials in a municipal agency created a non-profit organization
to further the agency's statutory mandate. EC-COI-88-24. Similarly,
where a state agency on its own initiative created a non-profit
corporation to further its legislative purpose, the Commission
confined a prior opinion and found the corporation was
governmentally created. EC-COI-89-1; EC-COI-84-147. See also,
EC-COI-84-66 (though created pursuant to specific state statute or
regulations, a committee would be considered governmentally created
where it would become part of a state agency's operations and would
function to promote that state agency's legislative purpose).

We conclude that the impetus for the creation of the
Foundation is akin to the aforementioned opinions and therefore is
a governmentally created entity. We base this conclusion on the
fact that the Foundation's primary purpose is to render financial
assistance and support to College programs by soliciting and
raising funds. This purpose is no different from the legislatively
mandated responsibilities ascribed to the College's Board of
Trustees under G.L. c. 15A, s.10(e). That provision states the
College trustees are responsible for seeking, accepting and
administering for faculty research, programmatic ant institutional
purposes grants, gifts and trusts from private foundations,
corporations and alumni as well as other sources. The statutory
responsibilities of the college trustees, therefore, are being
furthered by the Foundation and the Association. This result is
consistent with our conclusions in EC-COI-89-24; 88-24; 89-1 and
84-66. Furthermore, the reason behind the creation of Foundation
is dissimilar from other instances where the Commission has found
no governmental creation. EC-COI-84-65 (trust fund created by a
will not governmentally created); EC-COI-88-19 (governmental
creation did not apply to a non-profit corporation created by a
private contract).


B. Governmental Function


Closely related to the above analysis concerning the impetus
for the Foundation's creation is whether the Foundation is
performing some function which is essentially governmental in
nature. We conclude the Foundation and its Alumni Association are
performing a governmental function by raising funds to support and
subsidize the College, a public institution of higher education.
The Commission has previously determined that revenue raising for
a state college and a specific department within that college to
be a governmental activity. EC-COI-89-24. Similarly, the Commission
in EC-COI-89-1 stated governmental function will be found where the
legislature has imposed an obligation on a state institution's
board of trustees to finance and ensure the financial viability of
that institution. See also, EC-COI-88-19. The Foundation's primary
function, to raise money and to provide supplemental financial
assistance to the College, is clearly a function which the
legislature has deemed to be a responsibility of the College's
Board of trustees. G.L. c. 15A, s.10(e) and c. 73, s.1. Thus, the
Foundation both facilitates and carries out a statutory mandate.
CF. EC-COI-85-44.


C. Public Funds


The Foundation and Alumni Association raise most of their
funding from private sources. There is, however, significant
support from the College by means of in-kind support as well as
monetary assistance. For example, the College gave $3,500 to the
Foundation to help defray the costs of mailing the Alumni
newsletter. Also, the College provides the Foundation and Alumni
Association with free office and meeting room space, telephones,
photo copying, exhibition and other assistance for large projects,
alumni lists and bulk mailing services. The college also provides
the Foundation with a mailing address and with personnel to respond
to inquiries. Importantly, the College permits three of the
employees to render their services to the Foundation free of
charge, at its discretion. In addition, the College's Director of
Development and Alumni Relations also serves as the Foundation's
unpaid executive director. These facts indicate that considerable
state resources and public funds are used to sustain the Foundation
(and Alumni Association). EC-COI-88-24 (a non-profit entity's use
of public agency's employees and faculties is viewed as

Page 301

substantial use of public funds).


D. Governmental Control


The extent of governmental control over an entity may be
evidenced by the selection process and composition of that entity's
governing board. EC-COI-84-147; 89-1; 89-24. While the facts
considered here indicate less governmental control over the
Foundation than situations previously reviewed by the Commission,
we find that both the potential for, and the reality of,
significant governmental control exists under the facts you have
presented. On its face, the composition of the Foundation Board
appears neutral as only five of the twenty directors are College-
affiliated. However, since the by-laws are silent on the whether
the alumni directors may be College-affiliated individuals, there
is a potential for a majority of the director positions to consist
of College-affiliated individuals. Additionally, the Foundation's
executive director and staff are College employees.

Balancing all the factors discussed above, we conclude that
the Foundation is an instrumentality of the College.[2]
EC-COI-89-24; 89-1; 88-24; 84-147. Therefore, members of the board
of directors are "state employees" within the meaning of the
conflict law. Since Foundation directors serve in their positions
on an uncompensated basis, they would also be considered "special
state employees." See, s.1(o)(1). Generally, Foundation directors
would be subject to s.s.2, 3, 4, 6, 7, and 23 of the conflict law.
See, Guide to the Conflict Law for State Employees. In particular,
s.s.7 and 23 are relevant to your questions.


II. Relevant Sections of G.L c. 268A


A. Section 7


Section 7 prohibits a special state employee and a regular
state employee from having direct or indirect financial interest
in contracts made by state agencies. For example, absent an
exemption from s.7, a state employee is prohibited from having a
second paid state job. See, EC-COI-84-109. The purpose of this
section is to avoid the perception that state employees have an
inside track on state contracts.

Section 7, however, would not apply to a Foundation director
(special state employee) who has outside private employment which
is not funded by a state contract or who holds other unpaid state
positions. In addition, this section would not apply to any
Foundation director who serves in that position by virtue of his
college-affiliated position. EC-COI-84-147.[3] Section 7 would
apply to any Foundation director who holds a paid position which
is funded under a state contract and where that state position does
not envision his Foundation directorship. For example, absent
compliance with an exemption, a Foundation director would be
prohibited under s.7 from being a paid consultant to the Department
of Public Health because she would be a special state employee with
an impermissible financial interest in a contract made by a state
agency.


Exemptions from Section 7


Despite the general prohibition of s.7, there are a number of
exemptions from this section. A general exemption provided in
s.7(b) is available to a state employee who is not employed by the
contracting agency or an agency which regulates the activities of
the contracting agency and who does not participate in or have
official responsibility for any of the activities of the
contracting agency if the contract is made after public notice and
who files a disclosure form with the State Ethics Commission.
EC-COI-87-24. EC-COI-83-35; 83-158. Furthermore, if the contract
involves personal services, additional requirements must be met.
See, EC-COI-83-97.

A special state employee "who does not participate in or have
official responsibility for any of the activities of the
contracting agency and who files with the State Ethics
Commission a statement making full disclosure of his interest and the interest
of his immediate family in the contract" is eligible for an
exemption under s.7(d). This exemption is unavailable to any
special state employee whose official duties would require him to
oversee or interact with the contracting agency. See, EC-COI-86-7;
85-3; 84-87; 81-26
.

If an overlap exists between the special state employee's
duties and the contracting agency, a s.7(e) exemption is available
to a Board member who files with the State Ethics Commission a
statement making full disclosure of his contract, if the governor
with the advice and consent of the Executive Council exempts him.
This exemption may be necessary for a Foundation director who is
for example, also a parttime paid consultant to the College or to
the Foundation.

A special provision applies to a Foundation director who also
is a faculty member or teacher in a state educational institution.
Section 7(e), paragraph three states:

This section shall not prohibit a state employee from teaching
in an educational institution of the commonwealth; provided, that
such employee does not

Page 302

participate in, or have official responsibility for, the financial
management or such educational institution; and provided, further,
that such employee is so employed on a part-time basis. Such
employee may be compensated for such services, not withstanding the
provisions of section twenty-one of chapter 30.

Due to the numerous exemptions under s.7, individual
Foundation directors who may be subject to this provision are
advised to seek individual advice.[5]


B. Section 23


Section 23, the standards of conduct provision, applies to all
state employees. These supplemental provisions to c. 268A are
intended to avoid state employees from engaging in activity
presenting the appearance of a conflict of interest.

Section 23(b)(2) prohibits any Foundation director from using
his official position to secure for himself or others any
unwarranted privileges or exemptions of substantial value.[6] For
example, this section would prohibit a director from endorsing a
private venture with his official Foundation position
( EC-COI-83-82; 84-127 ) or from using Foundation facilities to
promote his private work ( 81-87; In the Matter of Frederick C.
Langone,
1984 SEC 187).

Additionally, s.23(b)(3) prohibits a state employee from
engaging in activity which could reasonably appear to improperly
or unduly influence the performance of his official party or
person. An exemption under this provision is available, however,
if the appointed state employee (director) discloses in writing to
his appointing authority (the entire Foundation Board) the facts
creating the appearance of a conflict. The disclosure under this
provision should be made in advance of activity proscribed by this
section.

Section 23(c) further prohibits a current and a former state
employee from using or improperly disclosing confidential
information which was learned in his state position. See,
EC-COI-85-23
. Under this section, confidential information is that
which would not be considered a public record under M.G.L. c. 4,
s.7.

Finally, s.23(e) provides that a constitutional officer or
head or an agency may establish and enforce additional standards
of conduct. See, EC-COI-85-12.[7]


C. Application of Section 8A


Section 8A provides:

No member of a state commission or board shall be
eligible for appointment or election by the members of such
commission or board to any office or position under the
supervision of such commission or board. No former member of
such commission or board shall be so eligible until the
expiration of thirty days from the termination of his service
as a member of such commission or board.

The applicability of s.8A turns on whether the Foundation is
under the "supervision" of the College board of trustees. The
Commission has previously considered the degree of independence of
an entity's finances, operational, control and organization with
respect to a state board. See, EC-COI-84-25. In EC-COI-84-147, the
Commission found that the non-profit holding company's activities
were not subject to the direct management and regulation by the
institution board and therefore, s.8A did not restrict institution
board members from being appointed company board members. The
Commission noted in that opinion that the threshold for finding
"supervision" under s.8A is "higher than for finding the factor of
'exercisable government control' in establishing jurisdiction under
chapter 268A." Id. at p. 6.

Applying s.8A to the Foundation's Board of directors we find
that the corporate by-laws provide that two College trustees,
selected by the College board of trustees, are to hold Foundation
director positions. There is no indication, based on the facts as
we currently understand them, that the College trustees supervise
the Foundation board of directors. The fact that the Foundation
by-laws allow trustees on its board of directors does not create
a level of interaction amounting to the trustees' supervision of
the directors.[8] See also, EC-COI-80-44. Thus, we conclude that
s.8A would not prohibit the appointment of College trustees to the
Foundation's board of directors.[9]
 


CONCLUSION:


In summary, for the purposes of the conflict law, the
Foundation is considered a state agency and thus Foundation
directors are considered special state employees, subject to the
provisions of G.L. c. 268A.

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

[1] "State employee," a person performing services for or
holding an office, position, employment, or membership in a state
agency, whether by election, appointment, contract of hire or
engagement, whether

Page 303

serving with or without compensation, on a full, regular,
part-time, intermittent or consultant basis, including members of
the general court and executive council. No construction contractor
nor any of their personnel shall be deemed to be a state employee
or special state employee under the provisions of paragraph (o) or
this paragraph as a result of participation in the engineering and
environmental analysis for major construction projects either as
a consultant or part of a consultant group for the commonwealth.
Such contractors or personnel may be awarded construction contracts
by the commonwealth and may continue with outstanding construction
contracts with the commonwealth during the period of such
participation; provided, that no such contractor or personnel shall
directly or indirectly bid on or be awarded a contract for any
construction project if they have participated in the engineering
or environmental analysis thereof.

[2] Even if the existing level of governmental control over
the Foundation was further reduced, this would not affect our
findings as to the other three factors discussed above. Therefore,
any further changes to or alteration of the Board's composition
would not be likely to affect the jurisdictional findings herein.

[3] The Commission has found s.7 not applicable to situations
where additional state services or compensation are attributable
to a state employee's primary state contract. See, EC-COI-84-148
(state employee's primary position envisioned his services on a
state committee under his agency's enabling legislation); 88-10 (a
municipal teacher's employment contract permitted the legitimate
extra curricular activities compensated by that school district
without violating s.20, a parallel provision to s.7). See also,
EC-COI-84-12.

[4] See, EC-COI-83-8; 81-24.

[5] Commission precedent also indicates that state college
faculty members are considered special state employees. See,
EC-COI-81-64; 84-147
. This status would not apply, for instance,
to other full-time College employees.

[6] An item of substantial value has been interpreted by the
Commission to be anything valued at $50 or more. See, Commission
Advisory No. 8
.

[7] Though not presented by your request, other provisions of
c. 268A may apply to Foundation directors. For instance s.4 may
apply to a director's private activities and s.6 may pertain to a
director's official actions which forseeably affect his financial
interests or those of his immediate family or business associates.
Individual directors may wish to seek opinions as to their specific
circumstances.

[8] As noted in EC-COI-82-156, footnote 4, there may be a
question as to whether the College board of trustees is a "State
board" within the meaning of s.8A.

[9] Although s.23A pertains to trustees of higher education
institutions, it would not affect College trustees' services on the
Foundation board of directors. Section 23A states in relevant part:

No trustee of any public institution of higher education
operated by the commonwealth shall be eligible to be appointed
to or hold any other office or position with said institution
for a period of three years next after the termination of his
services as such trustee, ...provided... that a trustee may
be appointed to or hold an unpaid office or position with said
institution after his service as such trustee.

Unlike s.8A, 23A applies to a trustee's future paid services
in positions within his own institution. See, EC-COI-79-28.
Assuming compliance with the provisions of s.7, s.23A would not
prohibit a trustee from simultaneously holding an unpaid position
with his own institution.

 

End Of Decision