Opinion  EC-COI-85-66

Date:	08/13/1985
Organization:	State Ethics Commission

A city councilor may not also serve as the paid executive director of a municipal community development corporation because he would have a financial interest in an employment contract with a municipal agency.

Facts

You are planning to run for a position on the ABC City Council in the fall.^[1] Currently, you serve as the Executive Director of a Community Development Corporation (CDC) in the same community. By statutory definition, a CDC is a quasi-public nonprofit corporation organized under the General Laws to carry out certain public purposes..." G.L. c. 40F, §1. The CDC was, accordingly, established under Chapter 180 and in conformance with the guidelines set forth in Chapter 40F to promote economic and community development in ABC.

The funding for CDC projects appears to originate from the federal and state level, including HUD Community Development Block Grants (CDBG) and funds from the State Offices of Labor and Economic Affairs, Executive Office of Communities and Development and Community Development Finance Corporation. You state that there is only one area in which the City has anything to do with the CDC funding sources: the line item for the CDC in the City's application for a Community Development Block Grant, The money from the CDC line item ($100,000 for CDC's revolving loan fund and $15,000 for rent and a part-time administrative aid's salary) passes directly to CDC as the sub-grantee. Before the City's overall CDBG proposal is submitted, it goes before the City Council. You state, however, that the City Council has traditionally approved the bottom line grant figure only, without discussion of the program makeup of the application.

Question

Does G.L. c. 268A permit you to hold the office of City Councilor in light of your employment as the Executive Director of the CDC?

Answer

No.

Discussion

As a City Councilor, you would be a municipal employee within the meaning of G.L. c. 268A, §1(g), and so would be subject to the provisions of the conflict of interest law. The sections of the conflict of interest law relevant to your situation would be §§ 19, 20 and 23. However, the initial inquiry is whether the CDC is considered a municipal agency for Chapter 268A purposes.

1. Status of the CDC

Prior opinions of the Commission have identified several criteria useful to an analysis of what constitutes a public entity under the conflict law. See, e.g. EC-COI-84-66; 84-65. Among those criteria are:

1. the existence of a statutory or regulatory impetus for the creation of the entity;
2. whether the entity performs an 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.

None of these factors standing alone is dispositive; rather, the Commission has considered the conjunctive effect produced by the extent of each factor's applicability to a given entity. For example, the Commission concluded that local private industry councils are municipal agencies within the meaning of c. 268A, § 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]. Analyzing the CDC under the four factors listed above, the Commission concludes that the CDC has all the indicia of a public entity.

First, there is the statutory impetus for the creation of the CDC. While a community is not required to establish a CDC, if it chooses to do so, it must follow the guidelines set forth in the enabling statute of the Massachusetts Community Development Finance Corporation (CDFC). See G.L. c. 40F, § 1. A CDC is statutorily defined as: "a quasi public" non-profit corporation organized under the General Laws to carry out certain public purposes and with by-laws providing that:

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 non-profit 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 appropriate census. G.L. c. 40F, § 1.

The fact the statute itself refers to a CDC as a "quasi public" body created to "carry out public purposes" indicates the legislative intent that CDCs be treated as public entities. Moreover, the by-laws of the CDC contain all the required elements enumerated above. The creation of the CDC pursuant to the statutory set-up provided in CDFC's enabling statute distinguishes it from other local development corporations, which were not so created and are not eligible for the same financing arrangements with CDFC. See, e.g. EC-COI-84-76 (a municipality's "business development corporation," while chartered by an Act of the General Court, must raise its own revenues to further its purposes, which were not defined as public purposes: thus, the Commission held that such an entity did not have public status).

Similarly, the CDC has indicia of public status under the remaining three criteria. The CDC is designed to "carry out certain public purposes," including projects in partnership with CDFC, which is specifically stated to be performing "an essential governmental function." G.L. c. 40F, § 2. The materials you have provided concerning the operations of the CDC clearly indicate that the CDC receives and expends public funds, primarily from the state and federal level. Finally, the control and supervision exercisable by government officials or agencies over the CDC is evidenced by:

1. the CDC's by-laws providing elected officials as a category of appointing authorities for those CDC Directors who are appointed;
2. the CDC's financial data reporting requirements to the state agencies it is in partnership with (see, e.g. G.L. c. 40F, (4).

In light of the above, it is the Commission's determination that the CDC is a municipal agency for Chapter 268A purposes.

2. Application of G.L. c. 268A to you

Section 20 of the conflict law prohibits a municipal employee from having a financial interest in a municipal contract. This section is intended to prevent municipal employees from using their positions to obtain contractual benefits from the city and to avoid any public perception that municipal employees have an "inside track" on such opportunities. In § 20, the term "contract" refers not only to a formal, written document setting forth the terms of two or more parties' agreement, but also has a much more general sense. Basically, any type of agreement or arrangement between two or more parties under which each undertakes certain obligations in consideration of the promises made by the other constitutes a contract. Thus, the Commission has previously held that the term "contract" includes employment arrangements. See, e.g. EC-COI- 84- 91; 83-38; In the Matter of Henry M. Doherty, 1982 Ethics Commission 115.^[2]

Based on this precedent, your employment contract as Executive Director of the CDC would constitute a financial interest in a municipal contract within the meaning of § 20. Accordingly, you would be prohibited from maintaining your employment arrangement with the CDC if elected to the City Council, unless you were able to Comply with one of the exemptions in § 20. Although there are two exemptions which are potentially relevant to your situation, the Commission advises you that you would be eligible for neither exemption. 

a. Under G.L. c. 268A, § 20(b):

a municipal employee may have a financial interest in a municipal contract if the employee...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 and . . . does not participate in or have official responsibility for any activities of the contracting agency, if the contract is made after public notice or where applicable, through competitive bidding, and if the municipal employee files with the clerk of the city or town a statement making full disclosure of his interest and the interest of his immediate family; and if in the case of a contract for personal services

1. the services will be provided outside the normal working hours of the municipal employee.
2. the services are not required as part of the municipal employee's regular duties, the employee is compensated for not more than five hundred hours during a calendar year,
3. the head of the contracting agency makes and files with the clerk of the city or town a written certification that no employee of that agency is available to perform those services as part of their regular duties, and
4. the city council, board of selectmen or board of aldermen approve the exemption of his interest from this section.

You would not be eligible for this exemption because your full-time position as Executive Director of the CDC exceeds five hundred hours annually.

b. Section 20 also contains the following exemption, inserted by St. 1982, c. 107:

This section shall not prohibit an employee or an official of a town from holding the position of selectman in such town nor in any way prohibit such an employee from performing the duties of or receiving the compensation provided for such office; provided, however. that such selectman shall not, except as hereinafter provided, receive compensation for more than one office or position held in a town. but shall have the right to choose which compensation he shall receive; and provided, further, that no such selectman may vote or act on any matter which is within the purview of the agency by which he is employed or over which he has official responsibility; and provided, further, that no such selectman shall be eligible for appointment to any such additional position while he is still a member of the board of selectmen or for six months thereafter. Any violation of the provisions of this paragraph which has substantially influenced the action taken by any municipal agency in any matter, shall be grounds for avoiding. rescinding or cancelling the action on such terms as the interest of the municipality and innocent third parties may require. No such selectman shall receive compensation for more than one office or position held in a town, but shall have the. right to choose which compensation he shall receive.

The Commission has previously concluded that the intent of the General Court in enacting c. 107 was to create an exemption limited solely to members of boards of selectmen, reflecting the reasonable legislative judgement that City Councilors and other elected municipal officials who exercise comparable legislative powers should remain subject to the provisions of § 20. EC-COI-83-38.

In summary, because you would not qualify under any § 20 exemptions, you would be subject to the § 20 prohibition against a municipal employee having a financial interest in a municipal contract.^[3] In light of this prohibition, it is unnecessary for the Commission to address the applicability of §§ 19 and 23 to your situation.

 

End Of Decision

^[1] The Commission's advisory opinion process address a public employee's prospective conduct only, and thus is not appropriate medium for the Commission to be passing on whether current or past conduct violated the conflict law.

^[2] These citations refer to prior Commission conflict of interest opinions and Commission Decisions and Orders. Copies of advisory opinions with identifying information deleted and Commission decisions and orders are available for public inspection at the Commission offices.

^[3] Again, this advisory opinion addresses the conflict of interest law provisions as they apply to your prospective conduct, i.e. to running for City Council while serving as the Executive Director of CDC. For your information only, § 20 allows a municipal employee to remedy an ongoing violation of this section if it is done in good faith within 30 days of learning of such a violation.