| Date: | 08/29/1989 |
|---|---|
| Organization: | State Ethics Commission |
A non-profit corporation formed by faculty at a state institution is a state agency for purposes of 268A where the purpose of the corporation is to enhance and support the faculty department, the non-profit corporation furthers the state institution's legislative mandate, and the corporation's Board of Directors is controlled by university employees.
ABC state college is an institution of higher education with a statutory purpose to "provide, without discrimination, education programs, research, extension and continuing education services in the liberal arts and sciences and in the professions." G.L. c. 75, s.2. Two faculty members of an academic department (Department) have organized a non-profit coloration known as the Institute, Inc. (Institute). The Institute has been provisionally approved by the head of ABC.
According to its by-laws, the major purpose of the Institute is to "support, enhance and extend the research program of the Department." Other purposes include:
(a) To consider and act on problems regarding computer science and computer engineering research and graduate education;
(b) To foster interaction and affect technology transfer between ABC and non-college computer science and computer engineering research communities;
(c) To interact with and inform public and private groups about computing research and education; and
(d) To research and develop technological applications in the field of computer science.
The nature of the non-profit corporation's work is to transform basic research developed by Department faculty into useful industrial applications and to market the resulting products. Thus, the Institute will collaborate with industry and government to provide technical and educational services to companies, facilitate product development, furnish technical consulting and license technology. For example, a new design for a computer chip is invented in the Department labs. The Institute would pay the legal and administrative costs to obtain a US patent in the name of ABC. The Institute would also market the new technology to industry. Excess revenues generated by the sale or licensing of the chip would be returned to the Department and ABC. Similarly, the Institute may take computer software developed in the Department lab, adapt the software for use in industry, market the software and instruct industry in its use. It is anticipated that information gained from the Institute will enhance the Department's basic research program and that the availability of the Institute will assist in attracting faculty to ABC.
The Institute's Board of Directors (Board) consists of Department faculty and two members of the ABC administration appointed by the head of the college. It is the intention of ABC to interact closely with the Institute. The officers of the Institute are elected by the Board from the Board. The Chairman of the Institute is the Chairman of the Department.
It is anticipated that the Board will direct all of the activities of the Institute but daily management will be provided by an administrative staff. Board decisions will be made by a majority vote except that by-law changes will require a two-thirds vote. It is also anticipated that the Department faculty members will serve as consultants to the Institute and that some faculty members who work part-time or are on sabbatical may be employed on the Institute staff.[1] Consulting activities will be governed by a trustee
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document limiting each faculty member to one day per week of outside consulting.
The Institute does not utilize ABC facilities and will lease space, off campus, for its labs and offices. The Institute will permit the Department to utilize the Institute's research facilities. Presently, the Institute does not have funding but it is anticipated that the Institute's sources of funding will be loans, possibly from state supported development programs, fees for services, licensing fees, product sales and industry donations.
For purposes of G.L. c. 268A is the Institute considered a state agency?
Yes.[2]
G.L. c. 268A, s.1(p) defines a state agency as "any department of a state government including the executive, legislative or judicial, and all councils thereof and thereunder, and any division, board, bureau, commission, institution, tribunal or other instrumentality within such department and any independent state authority, district, commission or agency, but not an agency of a county, city or town." Prior opinions of the Commission have identified several criteria useful to an analysis of whether a particular entity is a public instrumentality for the purposes of G.L. c. 268A. These factors are:
(a) the impetus for the creation of the entity (e.g., legislative or administrative action);
(b) the entity's performance of some essentially governmental function;
(c) whether the entity receives and/or expends public funds; and
(d) the extent of control and supervision exercised by government officials or agencies over the entity.
None of these factors standing alone is dispositive. The Commission considers the cumulative effect produced by the extent of each factor's applicability to a given entity, as well as analyzing each factual situation in light of the purpose of the conflict of interest law. With these precedents in mind, the Commission concludes that the Institute is a state agency within the meaning of G.L. c. 268A, s. 1.
As a private, non-profit corporation, the Institute was created by filing its articles of organization and by-laws with the Secretary of State. Though the Institute's organizational structure is that of a corporation rather than a traditional public sector agency or department, the Commission has not conditioned the application of G.L. c. 268A on the organizational status of an entity. In the Matter of Louis Logan, 1981 SEC 40, 45. Rather, the Commission examines the impetus for the creation of the entity. The Commission has found governmental creation where a state agency, on its own initiative, resolved to form a non-profit corporation to further its legislatively mandated functions. EC- COI-89-1; 84-147; 88-24 (governmental creation found where municipal agency formed non-profit to further its statutory mandate). In comparison, no governmental creation was found where a municipality created a non-profit corporation to fulfill obligations imposed by a contract or where an entity was created by a private will. EC-COI-88-19; 84-65.
In the present situation, the legislative mandate of ABC includes the provision of educational programs and research in the liberal arts, sciences and professions. To fulfill its mandate, ABC has established various academic departments, including the Department.
The major purpose of the Institute, pursuant to its by-laws, is to support, enhance and extend the Department's research program. The Institute will serve its purposes by linking the Department with the industrial sector. The Institute's purpose comports with ABC guidelines (Guidelines) which require that any ABC/industry agreements relate to the purposes of ABC. According to the Guidelines,
as a state college, ABC has specific responsibilities and obligations in the fulfillment of its tripartite mission of teaching, research and public service. The creation of new knowledge, the dissemination of knowledge, and the application of knowledge for the public good are the purposes of ABC. ABC has an obligation to fulfill its purpose in concert with other sectors of the intellectual, political, racial and financial life of the Commonwealth in accordance with state law.
The Commission includes that the impetus for the creation of the Institute is to further ABC's
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legislatively mandated functions of education and research In addition, the permanent character and formal organization of the non-profit corporation distinguishes it from temporary ad hoc advisory committees which the Commission has regarded as exempt from the definition of state agency. See, EC-COI-87-28 (neighborhood council with fluid membership, lack of organizational requirements and discretionary power not municipal agency); 85-6 body serving as outside resource to agency and not delegated any authority by agency not a state agency).
For the reasons stated above, the Commission finds that the Institute will perform an essentially governmental function. ABC is required by statute to provide education and research and to disseminate knowledge for the public good. The principal purpose of the Institute is to support and extend one of the academic departments at ABC in its pursuit of education and research. As an extension of the Department's research program, the non-profit corporation will actively participate in the work product of the Department. See, EC-COI-89-1. It is anticipated that the Institute will provide a system by which basic research developed at ABC can be processed for industrial application. During this process the Institute will also provide educational experiences for the Department's doctoral students, research facilities and ideas for further Department research.
Lastly, the Institute will serve a governmental function of producing revenue to support the Department and ABC. EC-COI-89-1; 84-127 (development of new sources of revenue for University hospital within domain of state responsibility). All of the Institute's purposes serve to facilitate ABC's statutory purposes.
The Institute's funding sources are uncertain at this time. Even if they obtain private funding for its activities, the Commission concludes that the Institute is benefiting from public funding by the use of ABC facilities, ABC resources and ABC faculty in the development of the initial product for the Institute. See, EC-COI-88-24 (use of agency employees and facilities by non-profit corporation constitute substantial use of public funds).
Presently the entire Board of Directors is college-affiliated, either as Department faculty or as representatives of the ABC administration. The Commission recognizes that the two administrative representatives would not constitute a majority for purposes of Board decisions. However, the Commission finds that, under the circumstances, the faculty board members' interests are so closely aligned with the administrative interests of ABC that the Board and The Institute are effectively controlled by ABC. The Board members share an interest in directing the non-profit corporation for the benefit of one of the academic departments of ABC. Further, as the officers of the corporation are selected by the Board of Directors from the Boards ABC control is self- perpetuating.
In summary, we find that the Institute is a state agency for purposes of G.L. c. 268A because it is created to further legislatively mandated purposes, it performs inherently governmental functions, it benefits from public resources and it is controlled by ABC employees.
