| Date: | 06/23/1981 |
|---|---|
| Organization: | State Ethics Commission |
A state employee who has a financial interest in a housing project that received a loan from the Massachusetts Housing Finance Agency (MHFA) must obtain an exemption pursuant to G.L. c. 268A, § 7. Based on the facts provided, the state employee may use the § 7(b) exemption to retain a financial interest in the MHFA loan while also serving as state employee.
Dear
You have held the position of (title omitted) (date at the state agency ABC since (date omitted). In (date omitted) prior to becoming a state employee, you purchased a 9.5 percent interest, as a limited partner in a housing project. This project was the recipient of a mortgage loan from Massachusetts Housing Finance Agency (MHFA). You ask whether you can maintain this interest in this business venture without violating G.L. c. 268A. The Commission concludes that you may, subject to the limitations described below.
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.
G.L. c. 23A, Appendix Sections 1-3 created and placed the MHFA in the Department of Community Affairs (DCA) and designated it a public instrumentality. As such, it is a state agency as that term is defined in § 1(p) of Chapter 268A. See also EC-COI-80-60. The purpose of the MHFA is to make mortgage loans to sponsors of housing projects in areas where there is a need for low-income housing. These loans may be in the form of construction loans and permanent loans. G.L. c. 23A, Appendix, Sections 1-5. The MHFA has developed criteria to be met by a proposed project in order to satisfy this need. These criteria have been in effect since 1970.
MHFA does not grant a mortgage to every applicant. The sponsor of a proposed project must first get approval for the site where it is to be located. A project can be rejected on this basis. Only after site approval may a sponsor submit an MHFA Application for Mortgage Financing. The MHFA staff evaluates the proposed project in all respects to see whether it meets the MHFA Housing Development Selection Criteria. These threshold considerations concern overall design of the project, expertise and experience of the sponsor, contractor and architect, and their financial history in meeting obligations to MHFA and other lenders. The sponsor must demonstrate the availability of sufficient financial resources to complete construction and guarantee complete and full payment of any construction loan. Based on all these factors, the MHFA staff recommends whether or not the proposed project's application should be subject. to an MHFA mortgage loan commitment. See, MHFA Processing Handbook, April 1980.
As an employee of the state agency ABC you are a state employee as that term is defined in Section 1(o) of Chapter 268A. Section 7 of Chapter 268A prohibits you 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." Your partnership, DEF made application to the MHFA for a mortgage and construction loan. This application resulted in a non-renewable MHFA mortgage loan commitment. The Commitment was the result of your partnership's showing that its proposed project was one that would meet MHFA qualifications and goals. Accordingly, your acquisition of an MHFA loan commitment constitutes a contract with a state agency. See, EC-COI-81-13. As a limited partner who purchased an interest in the project, you have a financial interest in a contract made by a state agency. Moreover, this contract is one where the MHFA is an interested party. Although you were not a state employee at the time you acquired your financial interest, the prohibitions of Section 7 of Chapter 268A still apply. There is the potential for influence by a state employee in the maintenance of a state contract as well as in its award.[1]
Although the Commission finds that you do have a financial interest in a contract made by a state agency, it has determined that your situation comes within an exemption to Section 7. G.L. c. 268A, § 7(b) states:
The Commission finds that this exemption to Section 7 applies because your financial interest in the project is less than ten percent[2] and because the MHFA mortgage commitment process which was applied to your project proposal offers the same protections against abuse inherent in the competitive bidding process authorized by the statute. Your project had to satisfy several criteria, including design development and economic analysis, before the MHFA decided that it was a project which they wanted built and thus was deserving of a low interest MHFA loan.
In conclusion, the Commission has determined that, based upon the factors discussed above, you may continue in your state employee status while maintaining your financial interest in this project, as long as your interest does not equal or exceed ten percent.
End Of Decision
