November 19, 1996

 

FACTS:

A. Background


You were hired by the one state agency ("Hiring State Agency")
and were assigned to work full-time for another state agency, the
Massachusetts Executive Office of Communities and Development
("EOCD"), which in a recent governmental reorganization has become
the Department of Housing and Community Development ("DHCD").
Although you are on the Hiring State Agency's payroll and receive
benefits through that agency, you report to DHCD personnel,
who supervise you, assign you work and evaluate your job performance.

You recently purchased a residential rental property
("Building") containing three apartment units ("Units"). Two Units
are occupied by rent-subsidized tenants, one subsidized through the
Massachusetts Rental Voucher Program ("MRVP Program") and the other
subsidized through the Section 8 Program.

 


B. MRVP Program and Section 8 Program


We will generally describe the MRVP Program and the Section 8
Program (collectively, "Programs").[1]


1. MRVP Program


In 1992, the Massachusetts Legislature replaced the former so-
called Chapter 707 Rental Assistance Program ("Chapter 707
Program") with the MRVP Program. Under the Chapter 707 Program and
its replacement MRVP Program, qualifying, low-income tenants' rents
in privately owned housing accommodations were and are subsidized
with monies that originate at the state level. DHCD, succeeding
EOCD, now administers the MRVP Program; EOCD and/or the former
Massachusetts Department of Community Affairs ("DCA") administered
the Chapter 707 Program.

Under the MRVP Program, there are two types of rent subsidies:

(i) so-called tenant-based subsidies that follow a specific tenant,
rather than being "attached to" particular residential units or
developments and (ii) so-called "project-based" subsidies for
certain tenants in particular residential units or developments,
such as those financed by the Massachusetts Housing Finance Agency,
provided through project-based housing vouchers.[2]


a. State MRVP ACC Contract


In implementing the MRVP Program, DHCD enters into annual
contributions contracts ("State MRVP ACC Contracts") with various
"local housing agencies" ("LHAs")[3] pursuant to which DHCD agrees
to fund the LHA for MRVP Program rent subsidies administered and
disbursed by the LHA. DHCD is currently a party to such State MRVP
ACC Contracts with the following LHAs: 159 Massachusetts city or
town housing authorities, including the Housing Authority, as
defined below; the Franklin County Regional Housing Authority; and
nine Massachusetts regional, non-profit corporations.


b. MRVP Voucher Payment Contract


When a subsidized MRVP Program tenant has located a qualifying
residential unit, the LHA contracts with the unit's landlord ("MRVP
Voucher Payment Contract") to subsidize the tenant's rent by paying
the subsidized portion thereof directly to the landlord. DHCD is
not a party to the MRVP Voucher Payment Contract.[4]


c. Lease


The tenant pays the balance of the rent to the landlord
pursuant to the tenant's separate leasing contract ("lease") with
the landlord. Neither DHCD nor the LHA is a party to such
leases.[5]


2. Section 8 Program


Under the Section 8 Rental Certificate Program and Rental
Voucher Program ("Section 8 Program"),[6] qualifying, very low-
income tenants' rents in privately owned housing accommodations are
subsidized with monies that originate at the federal level and are
regulated initially by the United States Department of Housing and
Urban Development ("HUD").


a. Federal s. 8 ACC Contract

In implementing the s. 8 Program, HUD enters into annual
contributions contracts ("Federal s. 8 ACC Contracts") for the
administration and disbursal of its Section 8 Program rent
subsidies only with "public housing agencies" ("PHAs")[7] as
described below.

(i) HUD enters into Federal s. 8 ACC Contracts directly with
Massachusetts city, town or county/regional public housing
authorities (collectively, "Non-State PHAs"). DHCD is not a

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party to and plays no substantive role in such Federal s. 8
ACC Contracts or in the administration or disbursal of the
associated Section 8 Program rent subsidies;[8] or

(ii) HUD enters into Federal s. 8 ACC Contracts directly with
DHCD ("State PHA").[9]

We shall describe in parts b., c. and d. below only that component
of the Section 8 Program described in clause (ii) above in which
DHCD serves as HUD's State PHA ("State-Managed s. 8 Program")
through which you receive Section 8 Program rent subsidies, not
that component in which Non-State PHAs contract directly with HUD.


b. State s. 8 ACC Subcontracts - State-Managed s. 8 Program


As permitted (but not required) by HUD, DHCD enters into
annual contributions subcontracts with other entities ("State s. 8
ACC Subcontracts") to administer and disburse the Section 8 Program
rent subsidies.[10] DHCD is currently a party to State s. 8 ACC
Subcontracts with ten entities: eight Massachusetts regional, non-
profit corporations; the City of Lynn Housing Authority; and the
Franklin County Regional Housing Authority (collectively,
"Subcontractors").[11] Pursuant to each State s. 8 ACC
Subcontract, DHCD agrees to fund the Subcontractor for Section 8
Program rent subsidies administered and disbursed by it.

Even though, DHCD has the Subcontractors undertake
administration and disbursal obligations, DHCD retains ultimate
responsibility for assuring that HUD's Section 8 Program
requirements are satisfied. To that end, DHCD establishes policies
and procedures for Subcontractors' administration and disbursal of
Section 8 Program rent subsidies, disburses monies to the
Subcontractors and monitors each Subcontractors' performance.


c. HAP Contracts - State-Managed s. 8 Program


When a subsidized Section 8 Program tenant has located a
qualifying residential unit, the Subcontractor contracts with the
unit's landlord ("Housing Assistance Payment" or "HAP
Contracts")[12] to subsidize the tenant's rent by paying the
subsidized portion thereof directly to the landlord.


d. Lease - State-Managed s. 8 Program


The tenant pays the balance of the rent to the landlord
pursuant to the tenant's separate lease with the landlord. A HUD-
required addendum must be included in such lease.


C. Your Rent-Subsidized Tenants


You receive rent subsidies through the two Programs, as
summarized below.[13]


a. MRVP Program Tenant


This tenant's rent is paid to you, in part, by the tenant
pursuant to a lease and, in part, by a certain municipality's
housing authority ("Housing Authority"), as an LHA, pursuant
to an MRVP Voucher Payment Contract.[14] The Housing
Authority receives the funds to cover its payments of such
rent subsidies pursuant to its State MRVP ACC Contract with
DHCD.


b. Section 8 Program Tenant


This tenant's rent is paid to you, in part, by the tenant
pursuant to a lease and, in part, by a certain Massachusetts
regional, non-profit corporation ("Corporation"), as a
Subcontractor, pursuant to a Section 8 Program HAP Contract.
The Corporation, as a Subcontractor, receives the funds to
cover its payments of such rent subsidies pursuant to its
State s. 8 ACC Subcontract with DHCD. DHCD, as State PHA,
receives the funds to cover its payments to the Corporation
pursuant to its Federal s. 8 ACC Contract with HUD.


QUESTION:


Does your financial interest in the MRVP Program and/or
Section 8 Program rent subsidies toward your tenants' rents violate
G.L. c. 268A, s. 7.


ANSWER:


Yes.


DISCUSSION:


You were hired and are paid by the Hiring State Agency. You
have been assigned to work full-time for DHCD and have reported to
and been supervised, assigned work and evaluated by DHCD personnel.
You are a state employee[15] of the Hiring State Agency within the
meaning of G.L. c. 268A, and you participate in and have official
responsibility for some DHCD activities.[16]

Page 665

As a state employee, you are subject to the restrictions of s.
7, which prohibits a state employee from having a direct or
indirect financial interest in a contract made by a state agency in
which the Commonwealth or a state agency is an interested party
unless he is eligible for and has received an exemption. The
restrictions of s. 7 will not apply, however, to a state employee
who, in good faith and within thirty days after he learns of an
actual or prospective violation of the section, makes a full
disclosure of his financial interests to the contracting agency and
terminates or disposes of the interest. G.L. c. 268A, s. 7(a).

The theory behind s. 7 is well stated in the above-cited law
review article by William Buss:

Section 7 announces a rule the basis of which is that, if
no exemption is applicable, any state employee is in a
position to influence the awarding of contracts by any
state agency in a way which may be financially beneficial
to himself. In a sense, the rule is a prophylactic one.
Because it is impossible to articulate a standard by
which one can distinguish between employees in a position
to influence and those who are not, all will be treated
as if they have influence.

W. G. Buss, The Massachusetts Conflict-of-Interest Statute: An
Analysis,
45 B.U. Law Rev. 299, 374.


1. MRVP Program


Under the MRVP Program, landlords receive rent subsidies for
qualifying tenants under contracts with LHAs, which in turn have
contracts with DHCD. As applied to your situation, two questions
arise under s. 7. First, is the State MRVP ACC Contract between
DHCD and the Housing Authority, as an LHA, to provide MRVP Program
rent subsidies that will subsidize your tenant's rent a contract
made by a state agency in which a state agency is an interested
party? Second, do you have a financial interest in that Contract?

Beginning at least as early as 1981, the Commission determined
that Chapter 707 Program contributions contracts between EOCD or
DCA, as the administering state agency, and an LHA, which then paid
rent subsidies to the landlord/state employee, was a contract made
by a state agency in which the state agency was an interested party
and in which the landlord/state employee had a financial interest.
EC-COI-81-189 (state legislator/partner in realty trust owning
Chapter 707 Program rent-subsidized units would have impermissible
financial interest in Chapter 707 contributions contract between
DCA and the LHA even though the trust/landlord was not a party to
that contract); 84-109 (judge/landlord of Chapter 707 Program rent-
subsidized units had impermissible financial interest in contract
between DCA and the LHA). In EC-COI-87-14, involving state
agencies' financing low income housing projects, the Commission
cited and adopted the rationale of its earlier opinions. See also
EC-COI-92-35
.

The MRVP Program is in all material respects the same as the
former Chapter 707 Program. Thus, consistent with our precedent,
we conclude (i) that DHCD's State MRVP ACC Contract with the
Housing Authority to pay the Housing Authority for a portion of
your tenant's rent obligation is a contract made by a state agency,
namely DHCD, in which DHCD is an interested party and (ii) that,
because you receive the subsidized portion of your tenant's rent
from the Housing Authority pursuant to your MRVP Voucher Payment
Contract, which is funded pursuant to the State MRVP ACC Contract,
you have a financial interest in that state Contract.


2. Section 8 Program


a. State-Managed s. 8 Program


Under the State-Managed s. 8 Program, landlords receive rent
subsidies for qualifying tenants under contracts with
Subcontractors, which in turn have contracts with DHCD, which in
turn has contracts with HUD. As applied to your situation, the
same two questions arise under s. 7 as we posed in our analysis of
your receipt of MRVP Program rent subsidies. First, is the State
s. 8 ACC Subcontract between DHCD (as the State PHA) and the
Corporation (as the Subcontractor) to provide Section 8 Program
rent subsidies that will subsidize your tenant's rent a contract
made by a state agency in which a state agency is an interested
party? Second, do you have a financial interest in that
Subcontract?

There does not appear to be any meaningful distinction between
(i) DHCD's involvement, as a State PHA, in its State s. 8 ACC
Subcontracts with Subcontractors such as the Corporation under the
Section 8 Program and (ii) DHCD's involvement in its State MRVP ACC
Contracts with LHAs such as the Housing Authority under the MRVP
Program. In both Programs, DHCD plays a significant, substantive
role, is an interested party to the subject contract and
administers and disburses the funds to the entity that eventually
contracts with the landlord to provide the rent

Page 666

subsidy. The fact that the Section 8 Program funds originate at the federal 
level and the MRVP Program funds originate at the state level does not change 
our view. Among other reasons, that is because DHCD retains ultimate responsibility 
for assuring that HUD's Section 8 Program requirements are satisfied, 
establishes policies and procedures for Subcontractors' administration and 
disbursal of Section 8 Program rent subsidies, disburses monies to the Subcontractors 
and monitors each Subcontractors' performance.

The Commission has on several occasions considered a state
employee/landlord's receipt of State-Managed s. 8 Program rent
subsidies. EC-COI-84-105 involved a state legislator/landlord who
was to receive Section 8 Program rent subsidies through the same
type of multi-level contractual arrangements as you do. The
Commission concluded that the legislator had an impermissible
financial interest in EOCD's Section 8 ACC Subcontracts with the
Subcontractor. In EC-COI-82-12, a state employee/landlord was to
receive Section 8 Program rent subsidies through contractual
arrangement in which EOCD, as State PHA, contracted with HUD and
then entered the HAP Contract directly with the landlord, i.e.,
EOCD had no Subcontractor.[17] The Commission concluded that the
state employee had an impermissible financial interest in a state
contract. Compare, EC-COI-81-189, involving the state
legislator/partner in a realty trust that received Section 8
Program rent subsidies emanating from a HUD Federal s. 8 ACC
Contract with a Non-State PHA in which EOCD played a minimal role
and was not a party to any contracts, where the Commission
determined that such an interest would not implicate s. 7 for the
legislator but specifically limited its conclusion to the facts of
the case, reserving "its right to rule on the propriety of other
contractual arrangements under the Section 8 Program which involve
EOCD or DCA as a party to the contract." Id. n. 4.

Thus, as DHCD's role in the State-Managed s. 8 Program is in
all material respects the same as its role in the management of the
MRVP Program and consistent with our precedent, we conclude (i)
that DHCD's State s. 8 ACC Subcontract with the Corporation to pay
the Corporation for a portion of your tenant's rent obligation is
a contract made by a state agency, namely DHCD, in which DHCD is an
interested party[18] and (ii) that, because you receive the
subsidized portion of your tenant's rent from the Corporation
pursuant to your HAP Payment Contract, which is funded pursuant to
that Subcontract, you have a financial interest in that
Subcontract.


b. Section 8 Program Rent Subsidies - Managed by Non-State PHAs


In reaching the conclusion above regarding State-Managed s. 8
Program rent subsidies in which DHCD plays a substantive and
contractual role, we do not alter our precedent addressing Section
8 Program rent subsidies that flow directly from HUD to Non-State
PHAs, with no substantive involvement of any state agency, where we
concluded that no state contract was involved. EC-COI-84-109; 81-
189
. In other words, this opinion does not pertain to Section 8
Program rent subsidies that are funded by non-state sources
and managed by Non-State PHAs in which state agencies are not parties
to contracts and play no substantive role.


3. Termination/Disposition of Financial Interests in Contracts


As you have a financial interest in DHCD's State MRVP ACC
Contract with the Housing Authority and in DHCD's State s. 8 ACC
Subcontract with the Corporation and there are no s. 7 exemptions
available to you,[19] you must make full written disclosure to DHCD
of your financial interests in those two contracts and terminate or
dispose of your interests.[20] In certain opinions involving
housing and rent subsidies paid to a state employee/landlord, the
Commission has permitted extra time in order to avoid undue
hardship to innocent third parties, namely the tenants. EC-COI-84-
109; 84-105; 82-12; 81-189
, all cited above. See also, EC-COI-83-
117
(municipal employee/landlord) and 83-63 (county
employee/landlord).


4. Possible Legislative Amendment


We are aware that this conclusion gives rise to concerns for
other state employees who own residential rental properties that
are or may be rented to tenants receiving MRVP Program or Section
8 Program rent subsidies. Indeed, it appears to have been for that
reason that, in 1985, after issuing its 1983 and 1984 opinions
cited above ( EC-COI-84-105; 84-109; 83-117; 83-63 ), the Commission
drafted, filed and supported the Legislature's enactment of a bill
(House No. 1564) that would have permitted state, county and
municipal employees to receive "housing assistance payments" on
behalf of eligible tenants pursuant to a program of leased housing
or rental assistance provided that the state, county or municipal
employee, as the case may be, did not participate in or have
official responsibility for the activities of the administering
state, county or municipal agency, respectively.

Page 667

That bill was not enacted. However, in 1987, the Legislature
amended s. 20, the counterpart provision of s. 7 applicable to
municipal employees, by adding clause (h), exempting from s. 20's
general prohibition "a municipal employee who is the owner of
residential rental property and rents such property to a tenant
receiving a rental subsidy administered by a local housing
authority, unless such employee is employed by such local housing
authority in a capacity in which he has responsibility for the
administration of such subsidy programs." See EC-COI-92-31
(involving a leased housing inspector for a municipal housing
authority who, as a private landlord, received from the authority
housing subsidy payments on behalf of a tenant and qualified for
the s. 20(h) exemption).

The Legislature did not enact a parallel amendment of s.
7.[21] If it had, such an amendment would have narrowed
significantly the restrictive effects of s. 7 by exempting from s.
7's general prohibition a state employee, such as you, who is the
owner of residential rental property and rents such property to a
tenant receiving a rental subsidy administered by a state agency,
unless such employee is employed by such state agency in a capacity
in which he has responsibility for the administration of such
subsidy programs.


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


[1] The Directors of each of the Programs provided us
information about the history, administration and operation of the
Programs.

[2] The MRVP Program subsidies are currently approximately 60%
tenant-based and approximately 40% project-based. The tenant-based
component is known as the MRVP Mobility Program because tenants
have more flexibility in choosing housing accommodations. Tenants
entitled to MRVP Program rent subsidies receive either "mobile"
vouchers or project-based housing vouchers.

[3] The regulations governing the MRVP Program define "Local
Housing Agency (LHA)" as "Local Housing Authority, a Regional Non-
Profit Corporation or other entity under contract to the Department
to administer the [MRVP] Program." 760 Code Mass.
Regs. s. 49.03.

[4] When DHCD's predecessor state agencies administered the MRVP
Program and the Chapter 707 Program, they were not parties to any
such contracts with landlords either.

[5] The former Chapter 707 Program was somewhat different in that
the LHA, the landlord and the tenant were all parties to one
contract, which combined the operative provisions of what are now
the separate MRVP Voucher Payment Contract and the lease. However,
in all respects material to this analysis, the former Chapter 707
Program and the MRVP Program are similar.

[6] The vast majority of Section 8 Program rent subsidies in
Massachusetts are tenant-based.

[7] The federal regulations governing the Section 8 Program define
"Public Housing Agency (PHA)" and "Housing Agency (HA)" as the
"same thing," namely, "A State, county, municipality or other
governmental entity or public body (or agency or instrumentality
thereof) authorized to engage in or assist in the development or
operation of low-income housing . . . ." 24 C.F.R. s. 982.4. HUD
is not authorized to and does not enter into Federal s. 8 ACC
Contracts with private entities.

[8] DHCD performs a merely pro forma sign-off function on such
Federal s. 8 ACC Contracts between HUD and Non-State PHAs.

[9] Of the 57,000 Section 8 Program rent subsidies for
Massachusetts tenants, 74% flow directly from HUD to Non-State
PHAs, without DHCD involvement; the other 26% flow from HUD to
DHCD, a State PHA. (The foregoing figures are approximate.)

[10] DHCD is authorized to perform such functions itself if it so
elects. In fact, before 1990 in the Greater Boston area, EOCD and
DCA did not subcontract such responsibilities. Rather, they dealt
directly with and disbursed Section 8 rent subsidies directly to
landlords of subsidized tenants.

[11] We are informed that a public housing authority may serve as
a Non-State PHA under a Federal s. 8 ACC Contract with HUD for
certain Section 8 Program funds at the same time as it serves as a
Subcontractor under a State s. 8 ACC Subcontract with DHCD for
State-Managed Section 8 Program funds. Furthermore, such a housing
authority may simultaneously serve as an LHA under a State ACC
Contract with DHCD for MRVP Program funds.

[12] Such HAP Contracts incorporate and impose HUD's requirements
as well as DHCD's own requirements for the administration and
disbursal of Section 8 Program subsidies.

[13] When you purchased the Building, you believed that both rent-
subsidized tenants were subsidized through the Section 8 Program.

[14] This tenant receives and presents MRVP "mobile" housing
vouchers.

[15] "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 serving with or without compensation, on a full, regular,
part-time, intermittent or consultant basis, including members of
the general court and executive council. . . . G.L. c. 268A, s.
1(q).

[16] Because nothing in this opinion turns on whether you are also
a "state employee" of DHCD, we need not decide that issue.

[17] Presumably, this took place in the Greater Boston area, where
(before 1990) EOCD did enter HAP Contracts directly with landlords.

[18] To the extent that our brief reference in EC-COI-92-35, n.3.,
to the Section 8 Program suggests otherwise, based on the facts we
have now been provided, we clarify that a State-Managed Section 8
Program rent subsidy does involve a contract made by a state agency
in which a state agency is an interested party within the meaning
of s. 7.

Page 668

19] The s. 7(b) exemption is available only to state employees who
are not employed by the contracting agency and do not participate
in or have official responsibility for any activities of the
contracting agency.

[20] You have said that you intended to dispose of your
interest in the Building if the Commission were to reach this conclusion.

[21] We also note that the Legislature did not enact a parallel
exemption for county employee/landlords.

Page 669

 

End of Decision