Opinion  EC-COI-00-3

Date:	08/23/2000
Organization:	State Ethics Commission

The Allston-Brighton Community Development Corporation is not a state, county or municipal agency for conflict of interest law purposes

Facts

You are employed full-time as an attorney for the City of
Boston (City) Public Facilities Department (Department). You also
serve on the Board of Directors of the Allston-Brighton Community
Development Corporation (ABCDC). You seek advice that raises the
question: Is the ABCDC a state, county or municipal agency within
the meaning of G.L. c. 268A, the conflict of interest law?

The ABCDC was created in 1980 pursuant to G.L. c. 180 by
individual community activists. It operates in the City's
Allston-Brighton neighborhood and conforms with the description of
a community development corporation contained in G.L. c. 40F, s. 1
(40F/ CDC Standards). As such, it is eligible to receive for
qualifying projects financing. from the Massachusetts Community
Development Finance Corporation (State CDFC) pursuant to G.L. c.
40F, s.4, and loans and grants from Massachusetts Department of
Housing and Community Development (DHCD) for certain of its
programs.

The ABCDC's purposes are set forth in its Articles of
Organization (Articles) and are summarized in the notes to its 1998
and 1999 financial statements as follows:

The Agency's purpose is to improve the economic and social
conditions in the Allston-Brighton neighborhood of Boston,
Massachusetts. The Agency's activities include housing
development, job creation, revitalization of declining
commercial areas and resident involvement in development
issues, and enhancement of cultural diversity in the
community.

The ABCDC's primary focus has been to provide housing and, more
recently, to promote economic development in the Allston-Brighton
neighborhood.

The ABCDC's By-Laws, as amended (By-Laws), provide that anyone
who is at least 18 years of age and who lives or has a place of
business or employment in the Allston-Brighton neighborhood may be
a member.

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Members must pay annual dues. The ABCDC currently has
approximately 300 members, most of whom reside in the
Allston-Brighton neighborhood. of Directors is to consist of up to
22 persons, 18 of whom are to be elected by the ABCDC's members and
up to four of whom may be appointed by housing developments with
which the ABCDC is affiliated. By-Laws s. 4.03. The Board currently
has 18 elected members and one member appointed by a nonprofit,
joint tenants' council of the ABCDC's two nonprofit housing
developments, described below. The ABCDC's officers - president,
vice president, treasurer and clerk - are to be elected by the
Board from among its members. By-Laws s. 6.01. The Board hires and
oversees the Executive Director, who hires the staff. The ABCDC has
12 full-time and 3 part-time employees.

The ABCDC's initiatives are consistent with the Articles. The
Board formulates most of them. State and City authorities may
sometimes propose initiatives for the ABCDC's consideration, but
they do not control or dictate its undertakings, operations or
agenda.

The ABCDC has been involved in developing more than 350
affordable housing units. It retains equity interests in and/or
some degree of control over five housing developments (327 units).

For each of three of those housing developments, the ABCDC
created a separate for-profit subsidiary, which is the general
partner of a limited partnership whose limited partners are private
investors. The ABCDC owns a majority interest in its for-profit
subsidiaries. Each of the three limited partnerships owns its
respective housing development.

The ABCDC negotiated with private property owners to acquire
the other two housing developments for rehabilitation as affordable
housing. The ABCDC established two nonprofit corporations,
Commonwealth Housing, Inc. (Commonwealth Housing) and Glenville
Housing, Inc., each of which assumed the debt for, took title to
and is now operating one of the developments. Each entity has a
6-member board of directors, three of whom are appointed by the
ABCDC's Board of Directors[1] and three of whom are appointed by
the respective tenant councils. Commonwealth Housing and Glenville
Housing pay the ABCDC annual fees of $25,000 and $20,000,
respectively, to oversee the management of their developments.
The ABCDC and its subsidiaries and affiliates receive much of their
finding under contracts and through grants and loans that are
available on a competitive basis to entities other than community
development corporations. Approximately 60% or more of the ABCDC's
general operating revenues for the past four years were derived
from private sources. That percentage is expected to be
approximately the same for 2000.

Less than 10% of ABCDC's projected general operating revenues
for the year 2000 are expected to be derived from or flow through
City agencies. Approximately 30% of the ABCDC's general operating
revenues for 2000 are expected to be derived from state and federal
sources. The only benefit that the ABCDC currently receives from or
through the State CDFC is a $ 1000 annual fee for serving as a
"sponsor" for a State CDFC loan to a small business enterprise in
a neighboring community.[2]

The Articles provide that, upon the ABCDC's dissolution or
winding up, "any disposition made of the assets of the Corporation
shall be such as is calculated to carry out the purposes for which
the Corporations is formed." Articles, Provision (n).

Question

Is the ABCDC a state, county or municipal agency[3] within the
meaning of G.L. c. 268A, the conflict of interest law?

Answer

The ABCDC is not a state, county or municipal agency for
purposes of the conflict of interest law because it was created by
private citizens without governmental involvement; it does not
perform essentially governmental functions; a majority of its
funding is from private sources; and no governmental agency
controls or supervises its Board of Directors.

Discussion

When determining whether an entity, including a nonprofit
corporation such as the ABCDC, is a governmental[4] agency within
the meaning of the conflict of interest law, the Commission uses a
multi-factor analysis, which the Supreme Judicial Court has
recognized as appropriate. MBTA v. State Ethics Commission, 414
Mass. 582, 588 (1993). Those factors are:

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

(4) the extent of control and supervision of the entity
exercised by governmental officials or agencies.

Also, as suggested in MBTA, we take into consideration

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the extent to which there are significant private interest involved
in the entity under review or whether the state or its political
subdivisions have the powers and interest of an owner. MBTA, 414
Mass. at 588-589. See also EC-COI-95-10; 95-1; 94-7.

As to these factors, we have said that "[n]o one factor is
dispositive; rather the Commission will balance all of the factors
based on the totality of the circumstances." EC-COI-92-13. As we
recently said, "[w]hen reviewing and balancing the factors, we are
also mindful of the prophylactic purposes of the conflict of
interest law." EC-COI-00-2.

We now apply these factors and considerations to this case.

(1) Impetus for Creation

No statute, rule, regulation, order, ordinance or other law
required the ABCDC to be created. The ABCDC was created in 1980 by
private citizens. It does not appear that any governmental body was
involved in its creation. See EC-COI-95-10 (despite governmental
officials' participation in and funding of organization and initial
operations, entity created pursuant to contract that is to become
a "viable, independent entity after three years" not governmentally
created). Compare the following opinions, each concluding that the
subject entity was governmentally created, EC-COI-90-3; 89-24;
84147 (confirmed by 89-1); 84-66 (all involving non-profit
corporations established by state agencies); 00-02 (strong and
direct governmental impetus for creation of retirement board
established by town meeting pursuant to a comprehensive statutory
scheme); and 88-24 (municipal officials in a municipal agency
created a non-profit corporation to further the agency's statutory
purpose).

The ABCDC was established pursuant to G.L. c. 180, a
comprehensive statutory scheme governing all Massachusetts
nonprofit or "charitable" corporations, which does not
automatically render any such corporation a governmental agency.
The mere fact that the ABCDC conforms with the 40F/CDC Standard[5]
does not mean that a governmental impetus existed for its creation.
The 40F/CDC Standards are simply minimum eligibility requirements
with which a particular community development corporation must
conform, if it chooses, in order to qualify for financing for a
particular project from the State CDFC and for eligibility for
certain of DHCD's programs. s[6][7] See G.L. c. 40F, s.s. 1 and 4
and n. 6 below. See, e.g., EC-COI-92-1 (nonprofit community action
agency established by private citizens and complying with federal
and state statutes prescribing minimum standards for funding and
contract eligibility not governmentally created); 94- 7 (nonprofit
corporation satisfying state agency's qualification and eligibility
criteria for state home care contracts was not governmentally
created). Contrast G.L. c. 121C (statutory scheme for economic
development and industrial corporation, permitting a city council
or town meeting to create one such "public body politic and
corporate" for certain municipalities in designated areas of
"substantial unemployment").

(2) Essentially Governmental Function

We do not consider the provision of affordable housing or
promotion of economic development to be "uniquely within the
bailiwick of government." EC-COI95-10. Indeed, the ABCDC's primary
activities, providing affordable housing and promoting economic
development, are frequently performed by private entities, both
"non-profits" and "for-profits," often with federal and other
governmental loans, grants, subsidies and tax and other
incentives[8] We recognize that many of the ABCDC's purposes and
undertakings involving the provision of affordable housing and
promotion of economic development are public in nature and have
significant public benefits, but that alone does not render them
"essentially governmental functions."[9] Compare EC-COI-95-10, n.
11 (police, fire services, municipal infrastructure (water, sewer,
drainage, streets) and public school education are essential
governmental services).

We also find it significant that even in G.L. c. 40F, the
Legislature did not characterize a community development
corporation that qualifies for State CDFC financing as performing
an essentially governmental function. Rather, G.L. c. OF describes
a community development corporation quite differently from the
State CDFC, which provides financing to certain community
development corporations. A community development corporation is a
" quasi-public nonprofit corporation organized under the General
Laws to carry out certain public purposes." G.L. c. 40F, s.1
(emphasis added). In contrast, the State CDFC, which is authorized
to provide financing to such community development corporations, is
a " body politic and corporate" and a " public instrumentality"
created b) G.L. c. 40F, s.2 to perform "an essential governmental
function" (emphasis added).

(3) Whether the Entity Receives or Expends Public Funds

Approximately 60% or more the ABCDC's funding in recent years
has been derived from private sources, and only approximately 10%
or less is derived from City sources. The balance is derived from
state and federal sources.

(4) Extent of Governmental Control and Supervision

Neither the City nor any other governmental agency plays any
role in constituting the ABCDC's Board of Directors or appointing
its officers, none of whom are required by the By-Laws to be
governmental employees.[10] The Board hires the Executive Director
who hires

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the staff, now 15 people. While ABCDC personnel undoubtedly meet
with and report to various federal, stat and City agencies and
employees with respect to con tracts, loans, grants, acquisitions
and projects in which the governmental agencies are interested
or involved, those governmental employees do not control or
direct the ABCDC's operations, except to the extent that
contractual obligations and undertakings or permitting/approval
requirements apply.

The Board formulates most of the ABCDC's initiatives. While
state and City authorities may sometime propose initiatives for the
ABCDC's consideration, they cannot control or dictate its
undertakings, operations or agenda. Further evidencing the ABCDC's
control of its own operations are its establishment of and
relationships with its for-profit and nonprofit subsidiaries and
affiliates

(5) Additional Consideration

Finally, as to the additional consideration in the
Commission's jurisdictional analysis, we note that the Articles
provide that, upon the ABCDC's dissolution or winding up, "any
disposition made of the assets of the Corporation shall be such as
is calculated to carry out the purposes for which the Corporations
is formed." This provision does not require or suggest that the
ABCDC's assets be transferred to the state or any governmental
agency. It does not appear that state or any other governmental
agencies have the "powers and interests of an owner" any more than
they would over other nonprofit corporations formed under G.L. c.
180.

After weighing the various factors and considering the
totality of the circumstances, we conclude that the ABCDC is not a
state, county or municipal agency within the meaning of G.L. c.
268A.[11]

In reaching our conclusion, we clarify our holding in
EC-COI-85-66A[12]. In that opinion, the Commission determined,
without extensive review under our multi-factor analysis, that the
subject community development corporation was a municipal agency.
That conclusion appears to have rested, in large part, on the fact
that the subject community development corporation conformed with
the 40F/CDC Standards, rather than on an examination of the actual
manner in which the community development corporation was
established, funded, operated and controlled vis-a-vis governmental
and private influences.

We now clarify that, when considering whether a community
development corporation is a state, county or municipal agency
within the meaning of G.L. c. 268A, we will review it, just as we
do all other entities, by applying our multi-factor analysis. We
will not consider a community development corporation to be a
state, county or municipal agency for purposes of the conflict of
interest law simply because it may conform with the 40F/CDC
Standards, which may give it "threshold" eligibility for certain
governmental or public financing, grant and other programs and
contracts.

[1] The ABCDC's Board of Directors appointed you to serve on
Commonwealth Housing's board of directors.

[2] It also receives a $45,000 Community Enterprise Economic
Development (CEED) grant from DHCD and approximately $ 10,000
indirectly from the Massachusetts Office of Business Development.

[3] See G.L. c. 268A, s.s. 1(p), (c) and (f).

[4] Except where otherwise expressly stated, as used here and
elsewhere in this opinion, where the context admits, the words
"government" and "governmental" shall connote Massachusetts state,
county or municipal government.

[5] The CDFC regulations describe a community development
corporation that may be eligible for CDFC financing as a
"quasi-public nonprofit corporation organized under the General
Laws to carry out certain public purposes" whose by-laws provide:

(1) it is organized to operate within a specified geographic
area coincident with existing political boundaries;

(2) that membership in the corporation shall be open to all
residents of said area who are eighteen years or older;

(3) that at least a majority of its board of directors shall
be elected by the full membership with each member having an
equal vote;

(4) that the by-laws of the Community Development Corporation
shall provide that any other directors be either appointees of
elected state or local government officials or appointees of
other nonprofit organizations having as a purpose the
promotion of development in the designated geographic area;

(5) that said elections shall be held annually for at least
one third of the members of the board of directors so that
each elected director shall serve for a term of at least three
years;

(6) that the designated geographic area shall be consistent
with some existing, or combination of existing, political
district, provided that the aggregate population of such
geographic area shall not exceed one hundred and fifteen
thousand people based on the most recent federal census.

G.L. 40F, s. 1.

[6] Some DHCD financing programs for which community
development corporations are eligible do incorporate or adopt the
40F/CDC Standards. See 760 CMR 18.00 and 24.00 and 946 CMR 3.00.
Others do not. See 760 CMR 19.02, 23.02. See also DHCD's CEED
program created in 1978 through a state budget line item, to assist
in revitalizing neighborhoods, for which DHCD has promulgated no
regulations, but whose application form describes "eligibility
criteria" for community development corporation that are not
identical to and are more general than the 40F/CDC Standards.

Page 761

[7] We note that, according to the Massachusetts Association
of Community Development Corporations (MACDC), a private
organization with 65 current members, there are some community
development corporations in the Commonwealth that do not conform
with all of the 40F/CDC Standards.

[8] Government housing authorities as well as private property
owners may provide affordable rental housing. See EC-COI-96-4
(describing several types of rental housing subsidy programs
available to governmental and non-governmental entities). Economic
development and industrial corporations, created by municipalities
pursuant to G.L. c. 12 1 C, as well as chambers of commerce and
private businesses promote economic development. See, e.g.,
EC-COI-95-10 (downtown partnership whose purposes include
revitalizing business, is not governmental agency).

[9] We note that the ABCDC currently receives only $1000 per
year from the State CDFC for serving as a "sponsor" of a loan to a
small business enterprise in neighboring community. Even if we were
to consider the ABCDC to be performing an essentially governmental
function with respect to any future projects financed with State
CDFC monies, that would not mean that the ABCDC's overall purposes
and functions are essentially governmental.

[10] We note that the 40F/CDC Standards include alternative
methods for selecting members of the community development
corporation's board of directors, other than those elected by the
membership. Any "other, members may be appointed by (i) elected
state or local officials or (ii) other nonprofit organizations with
similar purposes. The ABCDC chose not to require governmental
officials to play a role in selecting the four members of its Board
of Directors who may be appointed, evidencing an intent not to be
subject to governmental control.

[11]Given our conclusion, G.L. c. 268A, s.s. 17, 19 and 23 may
be implicated as a result of your working for the Department and
serving on the boards of directors of the ABCDC and Commonwealth
Housing. We will provide you separate advice about those issues.
We note that our conclusion might differ if, in the future, for
example, the ABCDC's funding from the State CDFC and DHCD for
specific projects were to become a significant component of the
ABCDC's budget (which the modest $1000 is not) and there were
significant governmental control over the ABCDC. If the facts
change in any material way, please contact us for further advice.

[12] This discussion also applies to EC-COI-85-77, which,
without further analysis, rested on the earlier opinion.

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