August 29, 1989

 

FACTS:


ABC state college is an institution of higher education with a
statutory purpose to "provide, without discrimination, education
programs, research, extension and continuing education services in
the liberal arts and sciences and in the professions." G.L. c. 75,
s.2. Two faculty members of an academic department (Department)
have organized a non-profit coloration known as the Institute, Inc.
(Institute). The Institute has been provisionally approved by the
head of ABC.

According to its by-laws, the major purpose of the Institute is
to "support, enhance and extend the research program of the
Department." Other purposes include:

(a) To consider and act on problems regarding computer science
and computer engineering research and graduate education;

(b) To foster interaction and affect technology transfer between
ABC and non-college computer science and computer engineering
research communities;

(c) To interact with and inform public and private groups about
computing research and education; and

(d) To research and develop technological applications in the
field of computer science.

The nature of the non-profit corporation's work is to transform
basic research developed by Department faculty into useful
industrial applications and to market the resulting products.
Thus, the Institute will collaborate with industry and government
to provide technical and educational services to companies,
facilitate product development, furnish technical consulting and
license technology. For example, a new design for a computer chip
is invented in the Department labs. The Institute would pay the
legal and administrative costs to obtain a US patent in the name
of ABC. The Institute would also market the new technology to
industry. Excess revenues generated by the sale or licensing of the
chip would be returned to the Department and ABC. Similarly, the
Institute may take computer software developed in the Department
lab, adapt the software for use in industry, market the software
and instruct industry in its use. It is anticipated that
information gained from the Institute will enhance the Department's
basic research program and that the availability of the Institute
will assist in attracting faculty to ABC.

The Institute's Board of Directors (Board) consists of
Department faculty and two members of the ABC administration
appointed by the head of the college. It is the intention of ABC
to interact closely with the Institute. The officers of the
Institute are elected by the Board from the Board. The Chairman
of the Institute is the Chairman of the Department.

It is anticipated that the Board will direct all of the
activities of the Institute but daily management will be provided
by an administrative staff. Board decisions will be made by a
majority vote except that by-law changes will require a two-thirds
vote. It is also anticipated that the Department faculty members
will serve as consultants to the Institute and that some faculty
members who work part-time or are on sabbatical may be employed on
the Institute staff.[1] Consulting activities will be governed by
a trustee

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document limiting each faculty member to one day per week of
outside consulting.

The Institute does not utilize ABC facilities and will lease
space, off campus, for its labs and offices. The Institute will
permit the Department to utilize the Institute's research
facilities. Presently, the Institute does not have funding but it
is anticipated that the Institute's sources of funding will be
loans, possibly from state supported development programs, fees for
services, licensing fees, product sales and industry donations.
 


QUESTION:


For purposes of G.L. c. 268A is the Institute considered a state
agency?
 


ANSWER:


Yes.[2]
 


DISCUSSION:


G.L. c. 268A, s.1(p) defines a state agency 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 or agency, but not an agency of a
county, city or town." Prior opinions of the Commission have
identified several criteria useful to an analysis of whether a
particular entity is a public instrumentality for the purposes of
G.L. c. 268A. These factors are:

(a) the impetus for the creation of the entity (e.g.,
legislative or administrative action);

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

(c) whether the entity receives and/or expends public funds; and

(d) the extent of control and supervision exercised by
government officials or agencies over the entity.

None of these factors standing alone is dispositive. The Commission
considers the cumulative effect produced by the extent of each
factor's applicability to a given entity, as well as analyzing each
factual situation in light of the purpose of the conflict of
interest law. With these precedents in mind, the Commission
concludes that the Institute is a state agency within the meaning
of G.L. c. 268A, s.1.


a. Creation


As a private, non-profit corporation, the Institute was created
by filing its articles of organization and by-laws with the
Secretary of State. Though the Institute's organizational
structure is that of a corporation rather than a traditional public
sector agency or department, the Commission has not conditioned
the application of G.L. c. 268A on the organizational status of an
entity. In the Matter of Louis Logan, 1981 SEC 40, 45. Rather,
the Commission examines the impetus for the creation of the entity.
The Commission has found governmental creation where a state
agency, on its own initiative, resolved to form a non-profit
corporation to further its legislatively mandated functions. EC-
COI-89-1; 84-147; 88-24
(governmental creation found where
municipal agency formed non-profit to further its statutory
mandate). In comparison, no governmental creation was found where
a municipality created a non-profit corporation to fulfill
obligations imposed by a contract or where an entity was created
by a private will. EC-COI-88-19; 84-65.

In the present situation, the legislative mandate of ABC
includes the provision of educational programs and research in the
liberal arts, sciences and professions. To fulfill its mandate,
ABC has established various academic departments, including the
Department.

The major purpose of the Institute, pursuant to its by-laws, is
to support, enhance and extend the Department's research program.
The Institute will serve its purposes by linking the Department
with the industrial sector. The Institute's purpose comports with
ABC guidelines (Guidelines) which require that any ABC/industry
agreements relate to the purposes of ABC. According to the
Guidelines,

as a state college, ABC has specific responsibilities and
obligations in the fulfillment of its tripartite mission of
teaching, research and public service. The creation of new
knowledge, the dissemination of knowledge, and the application
of knowledge for the public good are the purposes of ABC. ABC
has an obligation to fulfill its purpose in concert with other
sectors of the intellectual, political, racial and financial
life of the Commonwealth in accordance with state law.

The Commission includes that the impetus for the creation of the
Institute is to further ABC's
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legislatively mandated functions of education and research In
addition, the permanent character and formal organization of the
non-profit corporation distinguishes it from temporary ad hoc
advisory committees which the Commission has regarded as exempt
from the definition of state agency. See, EC-COI-87-28
(neighborhood council with fluid membership, lack of organizational
requirements and discretionary power not municipal agency); 85-6
body serving as outside resource to agency and not delegated any
authority by agency not a state agency).


b. Governmental Function


For the reasons stated above, the Commission finds that the
Institute will perform an essentially governmental function. ABC
is required by statute to provide education and research and to
disseminate knowledge for the public good. The principal purpose
of the Institute is to support and extend one of the academic
departments at ABC in its pursuit of education and research. As an
extension of the Department's research program, the non-profit
corporation will actively participate in the work product of the
Department. See, EC-COl-89-1. It is anticipated that the Institute
will provide a system by which basic research developed at ABC can
be processed for industrial application. During this process the
Institute will also provide educational experiences for the
Department's doctoral students, research facilities and ideas for
further Department research.

Lastly, the Institute will serve a governmental function of
producing revenue to support the Department and ABC. EC-COI-89-1;
84-127
(development of new sources of revenue for University
hospital within domain of state responsibility). All of the
Institute's purposes serve to facilitate ABC's statutory purposes.


c. Public Funds


The Institute's funding sources are uncertain at this time.
Even if they obtain private funding for its activities, the
Commission concludes that the Institute is benefiting from public
funding by the use of ABC facilities, ABC resources and ABC faculty
in the development of the initial product for the Institute. See,
EC-COI-88-24
(use of agency employees and facilities by non-profit
corporation constitute substantial use of public funds).


d. State Agency or Governmental Control Exercisable Over the
Non-profit Corporation


Presently the entire Board of Directors is college-affiliated,
either as Department faculty or as representatives of the ABC
administration. The Commission recognizeses that the two
administrative representatives would not constitute a majority for
purposes of Board decisions. However, the Commission finds that,
under the circumstances, the faculty board members' interests are
so closely aligned with the administrative interests of ABC that
the Board and The Institute are effectively controlled by ABC. The
Board members share an interest in directing the non-profit
corporation for the benefit of one of the academic departments of
ABC. Further, as the officers of the corporation are selected by
the Board of Directors from the Boards ABC control is self-
perpetuating.

In summary, we find that the Institute is a state agency for
purposes of G.L. c. 268A because it is created to further
legislatively mandated purposes, it performs inherently
governmental functions, it benefits from public resources and it
is controlled by ABC employees.

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

[1] As the Commission concludes that the Institute is a state
agency, G.L. c. 268A will apply to ABC faculty members who serve
as consultants, board members or employees of the Institute. The
pertinent sections of the statute are s.s.4,6,7, and 23. See,
EC-COI-84-113
(professor prohibited from being compensated by non-
state parties in relation to matters submitted to data bank
developed by him at university); EC-COI-84-95 (university
attorney's private activities limited to s.s.4,7 and 23). Faculty
members involved in the Institute are advised to seek an opinion
from the Ethics Commission regarding how G.L. c. 268A applies to
their particular situation.

[2] This advisory opinion is based on the facts as you relate them
to be at the present time. It does not preclude the possibility
of a different result should these facts change.

 

End Of Decision