Opinion  EC-COI-81-189

Date:	12/22/1981
Organization:	State Ethics Commission

May a member of the General Court maintain financial interests in a realty trust where the units receive rental subsidies from the federal and state government?

EC-COI-81-189

Dear [Redacted]

You are a member of the General Court.  You are also a partner in a realty trust which purchased several rental properties in [municipality] X.  Two of the rental units receive Section 8 Housing Assistance Payments from the federal government[1] and two other units are subsidized under the Chapter 707 Rental Assistance Program.[2]  Both programs are operated and administered by X Housing Authority (XHA).  You ask whether your participation in this real estate venture violates the state conflict of interest law, General Laws Chapter 268A.  For the reasons set forth below, the Commission concludes that, while you remain a state employee, you may maintain your financial interest in those unites receiving Section 8 federal subsidy payments but that you may not maintain your financial interest in those units receiving Chapter 707 subsidies.

In rendering this opinion, the Commission has relied upon the facts as you have stated them and has not made any independent investigation of those facts.  

As a member of the General Court, you are a state employee as that term is defined in G.L. c. 268A § 1(q).  See, EC-COI-81-31.  As a state employee you are prohibited by § 7 from having “a financial interest, directly or indirectly, in a contract made by a state agency in which the commonwealth or a state agency is an interested party…”  On the basis of its review of the contracts involved in both subsidy programs and the degree of state involvement in the funding process, the Commission advises you that your financial interest in rental units will be subject to the restrictions set forth below.

Section 8 Program

The XHA and HUD have entered into a contribution contract under which qualified tenants in two of your building units would receive from the XHA a rent subsidy.  The subsidy, as determined by the XHA and HUD, would be funded by the federal government and paid directly to the tenants.  Although the State Executive Office of Communities and Development (EOCD) is neither a party of the contract nor a funding source for the subsidy, EOCD will periodically review and sign-off on such contribution contracts.  The Commission concludes that your financial interest in the contribution contract would not violate G.L. c. 268A § 7 inasmuch as you would have a financial interest in a contract made by a municipal rather than a state agency.[3]  The review and sign-off authority periodically exercised by EOCD would not make EOCD a party to the contribution contract for the purposes of § 7.  See, W.G. Buss “The Massachusetts Conflict of Interest Statute: An Analysis.”  45 B.U. Law Rev. 299, 367 (1965).[4]

The Commission also advises you that G.L. c. 268A § 23 does not prohibit your financial interest in contracts made by the XHA and subsequently reviewed by state agencies such as EOCD.  Under § 23(d), you must refrain from using or attempting to use your official position as a member of the General Court to secure unwarranted privileges or exemptions for yourself or others.  See, EC-COI-81-99.  This section is particularly relevant to your dealings with EOCD as a member of the General Court.  See, EC-COI-81-110.  The Commission finds, however, that the potential for your exerting improper influence over EOCD in its dealings with the XHA is remote.  You neither serve in a legislative leadership position nor are assigned to a legislative committee which would provide an opportunity to affect the course of the legislation and budget of EOCD. 

Although the Commission finds that § 23(d) does not automatically prohibit your financial interest in contracts made by EOCD, you should exercise caution in your dealings with EOCD in accordance with the principles of § 23(d).

Chapter 707 Rental Assistance Program

You also receive rental assistance payments for certain other tenants from the Department of Community Affairs (DCA) under the Chapter 707 Rental Assistance Program.  See, G.L. c. 121B, §§ 41-44A.  Pursuant to an annual contribution contract between the XHA and DCA, the DCA will allocate state funds to the XHA for tenant rental assistance.  The amount of rental subsidy is determined by the XHA and DCA and is submitted directly to the realty trust as owner of the building units.  The Commission advises you that your receipt of Chapter 707 rental subsidies would constitute a financial interest in a contract made by DCA, a state agency.  G.L. c. 126A, § 8.   DCA is not only a signatory and party to the contribution contract but is also an interested party in view of the use of funds of the commonwealth and in the substantial involvement which DCA plays in the administration of the Chapter 707 Program.  None of the exemptions contained in § 7 apply to you.  In particular, the § 7 (c) exemption[5] for members of the General Court is inapplicable since your 15% ownership interest in the realty trust exceeds the 10% condition for exemption eligibility.  Further, the process under which DCA designates eligible unites does not constitute competitive bidding or offer comparable protections.  Compare, EC-COI-81-97. 

Accordingly, the Commission advises you that you may maintain your financial interest in those units receiving Section 8 federal subsidy payments but that you may not maintain your financial interest in those units receiving Chapter 707 subsidies.[6]

[1] See, 42 U.S.C. 1437 (f).

[2] See, St. 1966 c. 707

[3] Local housing authorities are municipal agencies for the purposes of G.L. c. 268A.  See, G.L. c. 121B, § 7; EC-COI-81-11.

[4] The Commission’s conclusion regarding the application of § 7 to the Section 8 contribution contracts is limited to the facts of your particular case.  The Commission reserves 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.

[5] G.L. c. 268A §7, provides that §7 shall not apply

“(c) to the interest of a member of the General Court in a contract made by an agency other than the General Court as 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 percent for 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.”

[6] To avoid any undue hardship on the tenants of your units subsidized under the Chapter 707 Program, the prohibitions of §7 will become effective following the expiration of the current lease.  See, EC-COI-80-122.