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A state legislator and candidate for Governor may not own a 23% interest in a company that has two contracts with Massport, when those contracts were not competitively bid.
A state legislator and candidate for Governor seeks advice with respect to how Section 7 of the conflict of interest law applies to him in his current and prospective positions, respectively. The legislator owns approximately 23% of Hyannis Air Service, Inc., d/b/a Cape Air (“Cape Air”), a regional airline which has two contracts with the Massachusetts Port Authority (“Massport”), the independent state authority that owns and operates Logan Airport. Cape Air’s two contracts with Massport include a Terminal Lease and an Operating Agreement. The Terminal Lease, executed April 4, 2003, between Cape Air and Massport, gives Cape Air the use of a portion of Terminal C, including gates, at Logan Airport, and requires Cape Air to pay annual rent and certain other charges for those premises according to a formula set forth therein. It is a month-to-month lease that continues until terminated by either Cape Air or Massport. The Operating Agreement, executed June 10, 2002, between Cape Air and Massport, permits Cape Air to provide air service at Logan Airport. It is a year-to-year agreement that extends automatically. The Operating Agreement requires Cape Air to pay specified fees to Massport. These contracts were not competitively bid, and were not made after public notice.
In both cases, the answer is no. Both of these situations raise a substantial issue under Section 7 of c. 268A, which prohibits state employees from having financial interests in state contracts, unless an exemption applies. There is no Section 7 exemption available to the legislator in his current position, nor is there an exemption that would be available to him if he became Governor. Consequently, to comply with the law, he must do one of the following: terminate the Cape Air contracts with Massport; entirely and permanently divest his holdings in Cape Air; or resign his current public office and discontinue his campaign for Governor.
Section 7 provides that a state employee may not knowingly have a financial interest, directly or indirectly, in a state contract, unless there is an applicable exemption. Cape Air has contracts with Massport under which it must pay rent and various charges and fees to Massport. Cape Air has a financial interest in those contracts. Therefore, the legislator, as the owner of at least 23% of Cape Air, has an indirect financial interest in those contracts for purposes of Section 7.
We most recently considered the application of Section 7 to a legislator’s financial interest in a state contract in 2011 in EC-COI-11-1. That opinion involved a state legislator who was the 100% owner of a small family business that had a contract with a state agency under which it provided certain services. The company had supplied such services to the agency for at least 30 years. The contract was a standard form contract and the terms were not individually negotiable. The contract was due to terminate in several months. We stated that, even though the evils aimed at by Section 7 – use of position by state employees to obtain contractual benefits, and public perception that state employees have an “inside track” to such opportunities – were not present, the legislator would have to divest himself of that contractual interest.
In earlier opinions involving state legislators and Section 7, we have consistently required them to divest their financial interests in state contracts, even where the financial interest pre-dated election to the General Court, or to avoid initiating such financial interests:
A state employee, including a state legislator, may comply with Section 7 by transferring a prohibited financial interest in a state contract irrevocably and in its entirety to someone else, including to his or her spouse or other immediate family member. We closely examine such transfers to immediate family, including inter-spousal transfers, “to determine whether the state employee has truly transferred all right and title to the interest and any benefit that might flow from it, or whether the purported transfer is merely ‘a contrivance to evade the reach of the conflict of interest laws.’” EC-COI-95-8, 89-14, 89-9. Among the factors that we have considered in determining whether there has been a relinquishment of a prohibited financial interest are (1) the consideration paid by the transferee, (2) whether the state employee’s initial investment has been liquidated, (3) whether the state employee continues to own the property transferred, and (4) whether the state employee continues to participate in the management and control of the business, such that it can fairly be said that he continues to deal with the property as his own. EC-COI-95-8. If the state employee genuinely and irrevocably relinquishes all right, title, and interest in a property and ceases to deal with it as his own, then, even if the transfer is to an immediate family member, we will not attribute to the state employee his immediate family member’s financial interest. In that situation, no exemption from Section 7 is required because the state employee does not have a financial interest in a state contract.
Absent either termination of Cape Air’s contracts with Massport, or complete and irrevocable divestment of the legislator’s ownership interest in Cape Air as just described, the legislator can only continue to have an indirect financial interest in the Massport contracts if there is an available exemption to Section 7. There is only one relevant exemption potentially available to members of the General Court. Under Section 7(c), a legislator may have a financial interest in “a contract made by an agency other than the general court or either branch thereof, if his direct and indirect interests and those of his immediate family in the corporation or other commercial entity with which the contract is made do not in the aggregate amount to ten per cent of the total proprietary interests therein, and the contract is made through competitive bidding and he files with the state ethics commission a statement making full disclosure of his interest and the interests of his immediate family.”
The language of the Section 7(c) exemption has not been changed in any relevant respect since 1962, when the conflict of interest law was first enacted. The April 1962 “Final Report of the Special Commission Established To Make An Investigation Of An Act Establishing A Code Of Ethics To Guide Employees and Officials Of The Commonwealth In the Performance Of Their Duties” described the effect of what is now Section 7 and its original exemptions as follows: “In summary, no state employee may contract with his own agency, and general officers and employees and members of the General Court may contract only in areas outside their official responsibilities, through open and competitive bidding, and where their interest is proportionately small in relation to the transaction involved.” Thus, the Section 7(c) exemption expresses a legislative intent, which has existed since the enactment of the conflict of interest law, that the exemption available to state legislators be more limited than those generally available to state employees. In fact, the exemption for legislators is notably stricter in that it also takes into consideration the financial interests of legislators’ immediate family. That is, a legislator cannot meet the Section 7(c) exemption’s limitation on the amount of ownership by retaining a less than 10% ownership interest and transferring the rest of his interest to immediate family, if, together, his and his immediate family’s ownership interests equal 10% or more.
Here, the legislator cannot satisfy the requirements of the Section 7(c) exemption because (1) he owns 10% or more of Cape Air; and (2) Massport’s terminal leases and operating agreements are not arrived at through a competitive bidding process. Because both requirements of Section 7 cannot be satisfied, it is not an option for the legislator to divest himself of a portion of the interest he has in Cape Air to bring his ownership interest under 10%; since contracts of these types are not competitively bid by Massport, the Section 7(c) exemption would not be available even if he did so divest. Also, because the Section 7(c) exemption is available only where the aggregate interest of the legislator and his family is less than 10% of the corporation, he also cannot resolve the issue by retaining less than 10% ownership and giving the remainder of his interest to his spouse and/or children. Therefore, the legislator’s choices are the following: to terminate Cape Air’s contracts with Massport; to divest himself entirely of his interest in Cape Air – including through a bona fide and irrevocable transfer of his entire ownership interest to his immediate family members, as discussed above; or to resign his current position.
The situation would not improve with respect to Section 7 if the legislator were elected Governor. If that were the case, the only potentially available exemption would be Section 7(b), not 7(c). The Section 7(b) exemption requires, among other things, that the contract in which the state employee has a financial interest have been made “after public notice or where applicable, through competitive bidding.” Because Cape Air’s contracts with Massport do not satisfy that requirement, he cannot meet the requirements of the Section 7(b) exemption, and therefore, would not be able to serve as Governor and still retain his interest in Cape Air.
Under the law, unless Cape Air’s contracts with Massport are terminated, the legislator must choose between his public office and retaining his financial interest in Cape Air. Section 7(a) requires that this be done within 30 days of learning one is in violation of Section 7. In the context of a request for advice from the Commission, we have construed this as meaning within 30 days of receipt of our response to such a request. Under these circumstances, and similar to our approach in EC-COI-11-1, we will consider providing a reasonable time extension for compliance, if requested. If the legislator chooses to retain his current position and dispose of his entire ownership interest through a transfer to his immediate family, such transfer will need to satisfy the requirement that he entirely and irrevocably relinquish his financial interest in Cape Air. Useful guidance may be found in EC-COI-89-9, which involved an attempt by a newly elected member of the General Court to comply with Section 7 by turning over to his wife a business with state contracts. In that opinion, we found that the legislator retained a financial interest in the company, because (1) no money passed hands in his transfer of the business to his wife; (2) his initial investment in the company was not liquidated; (3) he continued to participate in the management and control of the company; and (4) he continued to own the property from which the business operated. Any transfer by the legislator to a family member of his interest in Cape Air to comply with Section 7 would have to be a bona fide and irrevocable transfer that satisfied this standard.
End of Decision
Note: A regulatory exemption pertinent to the issues discussed in this opinion was promulgated on January 31, 2014.
 The only change that has been made to the wording of Section 7(c) is that, as originally enacted, the required disclosure was to be made to the State Secretary; the Commission was substituted for the Secretary in 1978, when it was created.
 Under Section 7(b), a state employee other than a state legislator and “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” may have a financial interest in a state contract, “if the contract is made after public notice or where applicable, through competitive bidding, and if the state employee files with the state ethics commission a statement making full disclosure of his interest and the interests of his immediate family in the contract, and if in the case of a contract for personal services (1) the services will be provided outside the normal working hours of the state employee, (2) the services are not required as part of the state employee’s regular duties, the employee is compensated for not more than five hundred hours during a calendar year; and (3) the head of the contracting agency makes and files with the state ethics commission a written certification that no employee of that agency is available to perform those services as a part of their regular duties.”
 Under these facts, there are additional impediments to meeting the requirements of the Section 7(b) exemption.