August 1, 1990

 

FACTS:

Page 308

You are counsel to the ABC Fund (Fund). You have asked whether
G.L. c. 268A, the Massachusetts conflict of interest law, applies
to the Fund.

The Fund is a trust created by a trust agreement by and among
the DEF Agency (DEF), the Union (Union), and the Board of the Fund
(Board). The Fund is the successor in interest to a trust created
pursuant to a Declaration of Trust by and among DEF's predecessor
and the XYZ Bank.

The trust agreement was created pursuant to the provisions of
a Pension Agreement by and between DEF and the Union, as amended
(Pension Agreement). DEF was authorized to enter into the Pension
Agreement by statute (cites omitted).

The Pension Agreement establishes the Board as administrator
of the Fund. Board membership is as follows: (a) three members of
the Board are appointed by DEF, (b) one member is elected by a vote
conducted by DEF by members of the Fund who are not members of the
Union, (c) two members are designated by the Union, and (d) one
member, who holds an honorary position, is elected by the other six
members (but has no vote except as provided in the Pension
Agreement).

Each Board decision must be made by a vote of at least four
members, including the vote of at least two members appointed by
DEF and the votes of at least two members designated under either
(b) or (c) above.[1]

All monies contributed to the Fund are irrevocable and are to
be used solely to provide benefits to Union members. No part of the
corpus or income shall thereafter be used for, or be diverted to
purposes other than, the exclusive benefit of members and retired
members of the Union.

In an undated letter written by a DEF manager for
consideration in this matter, DEF states that "individuals
presently employed by the Board are not employees of DEF and,
accordingly, do not receive any compensation from DEF."
 


QUESTION:


Are the Board's members and employees state employees for
purposes of G.L. c. 268A?
 


ANSWER:


Yes.
 


DISCUSSION:


Chapter 268A defines a state employee as 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." G.L. c. 268A, s.1(q). The issue of whether the
Board's members and employees are considered state employees
therefore depends upon whether the Board is a state agency, which
is defined by the conflict of interest law 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 thereof or thereunder." G.L.
c. 268A, s.1(p).

In its previous determinations concerning the public status
of an entity for the purposes of c. 268A, the Commission has
focused on the following factors:

(1) the means by which it 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, e.g., EC-COI-84-65. None of these factors

Page 309

standing alone is dispositive. For example, the Commission
concluded that local private industry councils are municipal
agencies within the meaning of G.L. c. 268A, s.1(f) because of the
role they play in the implementation of the Federal Job Training
and Partnership Act, namely in the decision-making role they share
with local elected officials in the development of job training
plans, the selection of grant recipients and the expenditure of
public funds. EC-COI-83-74; see also, EC-COI-82-25 (regional school
district is a municipal agency for c. 268A purposes because it is
supported solely by public funds and it provides a service which
each municipality in the Commonwealth is required by law to
provide).


1. Creation


The Board was not created by direct legislative enactment or
by administrative rulemaking or regulation, but rather was
established pursuant to the Pension Agreement made between DEF and
a private entity (the Union). Although this Commission has
exercised jurisdiction over entities formed by an Act of Congress,
state legislation and executive order (See, EC-COI-83-74; 88-16;
84-147; 84-55),
it has generally declined to do so where the entity
is created by a private instrument even where one of the parties
was a governmental actor. See, e.g., EC-COI-88-19 (notwithstanding
the participation of governmental officials in organizational
efforts, an entity stemming from a contract between a private
corporation and a mayor (as the issuing authority) does not rise
to the level of a governmental agency); See also, EC-COI-84-65 (a
governmental agency cannot be created by a will). Generally, the
presence of a law, rule or regulation creating the entity is
necessary. EC-COI-82-81 (task force created by Inspector General
not a state agency because it was not created pursuant to any
statute, rule or regulation); 88-19; 88-24 (city development
authority's administrative decision to create separate corporation
was prompted by statutory mandate).

In making a determination as to governmental creation,
however, the Commission looks to the impetus for the creation as
well as the affiliation of the entity's organizers. See, EC-COI-
88-24; Cf. EC-COI-84-147
, in which the Commission concluded that
a private, not-for-profit corporation formed by a state agency was
a state agency for the purposes of the conflict of interest law.
In that opinion, the Commission found that the corporation was
formed for the purpose of performing some of the state agency's
duties under the law, namely to maintain the competitiveness of a
teaching hospital through the development of new ventures.

Similarly, in EC-COI-89-24, this Commission recently found
that a not-for-profit corporation whose major corporate purpose
was to "support, enhance and extend" the research program of a
state agency's academic department[2] was itself a state agency for
c. 268A purposes. The corporation was established to transform
research products developed by the academic department into
marketable items. Revenues generated by the corporation from its
activities would directly accrue to the academic department or the
state agency itself.

Here we are dealing with a trust rather than a corporation,
but the applicable principle is the same, that is, that the trust
was created pursuant to the broad authorization given to DEF by
statute to continue and modify a pension plan already in place. The
faa that the Fund is unique among entities established for the
benefit of Massachusetts state employees does not diminish its
legislative underpinnings. Although the legislative underpinning
is indirect, it is enough to satisfy this factor. See, EC-
COI-89-24.


2. Governmental Functions


The Board's sole purpose is to provide and administer pensions
and other benefits to Union members who are state employees. The
provision of such benefits to state workers is a function
traditionally provided by a state government. As noted above, for
most state employees, this function is regulated by statute, but
DEF employees were exempted from those provisions. The fact that
DEF employees are not covered by this statute, however, in no way
diminishes the Commonwealth's historic responsibility to provide
such benefits to its employees.


3. Public Funds


The Fund receives a significant portion (approximately 76%)
of its funding from or on behalf of a state agency (DEF).[3] The
Commission finds that the Trust's substantial reliance on public
monies satisfies this factor. See, EC-COI-90-3 (although a
foundation's funding was derived in most part from private sources,
the Commission found that the provision of some state funds was
enough to satisfy this factor).


4. State Government Control of the Board


Because members of the Union are employed by DEF and are the
beneficiaries of the Fund, the Pension Agreement provides that the
Fund be administered through a Board consisting of several

Page 310

members connected with DEF. These provisions for administration of
the Fund appear to derive out of the Pension Agreement's provisions
for some DEF accountability on the part of the Fund's managers.
Thus a plurality of the Board members are DEF officials.

Although as with all trustees of trusts, the three DEF
appointees acting in their trustee capacities owe a duty of loyalty
to the Fund first, not DEF, and themust administer the Fund
solely with a view to the accomplishment of the purposes of the
Fund, Scott on Trusts, s.379 (3d. ed. 1967), where the purpose of
the Fund is to provide benefits for DEF employees, and virtually
all the members of the Board are in fact DEF employees, the
existence of the Trust does not negate the fact that there is
obvious governmental (as opposed to private) control of the Board.
See EC-COI-83-74 (an entity is a municipal agency even where a
majority of its membership is selected from the private sector);
see also EC-COI-90-3 (the potential and reality of significant
governmental control can satisfy this factor).

Thus we distinguish this case from EC-COI-84-65, where a trust
for the benefit of a municipality was established by a private
instrument (a will). Although a majority of the trustees who were
appointed by the will were also municipal employees, this
Commission found that the individual trustees were acting in their
private capacities as trustees, notnicipal employees, in
carrying out the functions of the trust. The distinction between
the two cases lies in the genesis and purpose of the trusts. The
trust established in 84-65 arose from a will and was established
by a private citizen to perform a laudable but not essential
governmental function. Here, the trust was created as a vehicle for
accomplishing a required state function and was, in part at
leastFed project agreement. This result will continue to apply unless
and until you receive written permission from the mayor to participate,
pursuant to the conditions established in s.19(b)(1).


3. Section 20


Under this section, a municipal employee may not have a
financial interest in a contract made by a municipal agency, unless
an exemption applies. While s.20 is relevant to you in light of
your stock ownership in a company which may have an indirect
financial interest in an ABC contract, your ownership of less than
1% of XYZ stock qualifies you for an exemption. This result will
continue to apply as long as your stock ownership remains at less
than one percent of XYZ's total stock. EC-COI-83-147.


4. Section 23


This section establishes certain safeguards to avoiding actual
or apparent undue favoritism towards the project proposal in your
official ABC capacity. Assuming that you receive written permission
under s.19(b)(1) to participate, s.23 should pose no problems for
you. We would add, however, that:

1. you many not use your official position to secure
unwarranted privileges or exemptions of substantial value for XYZ
(s.23(b)(2)), and

2. you may not disclose the XYZ or its subsidiary any
confidential information which you have acquired


Page 316

as an ABC member (s.23(c)).

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

[1] "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.

[2] We concur with your view that appreciation in your XYZ
stock cannot be regarded as compensation for s.17 purposes in view
of the absence of "services" and is more appropriately addressed
under s.20. See, G.L. c. 268A, s.1(a). EC-COI-89-13.

 

End Of Decision