Opinion  EC-COI-90-14

Date:	09/12/1990
Organization:	State Ethics Commission

The superintendent of a regional school district who also owns a software company may donate to the district a software package, subject to certain restrictions. In particular, he may not officially participate in the matter as superintendent nor may he act as his company's agent in its dealings with the district.

Facts

You are the legal counsel to a Regional Vocational Technical High School District (District). The District is managed by a District School Committee whose members are elected from certain municipalities, and which serves as the appointing official for superintendent ABC. You seek this opinion on behalf of both the District and ABC.

Outside of his superintendent responsibilities, ABC is a 26% equity owner of XYZ (XYZ) which has entered into a distribution agreement with a manufacturer STU to distribute a software package which is manufactured by STU. The software has educational applications in the areas of finance, scheduling and general education and administration and is considered a major upgrade of the District's present software. The software package has an approximate retail value of $20,000. ABC has purchased for himself a copy of this software at a wholesale price and has donated it to the District at no cost to the District. This software has been installed in the District's computer system and is ready to be used, although it has not been used to date.

XYZ plans to incorporate the software into the financial management and student administration systems of the District, to help the District maintain the system, and to make any necessary modifications to the system, all at no cost to the District. The system will be examined, investigated and evaluated for a period of one year. If proved useful the software will be adopted by the District at no cost. If the system has no benefit to the District, the software will be returned to ABC. In no event will the District be paying either ABC or XYZ for the software or its maintenance.

Other than the long-term benefits that may accrue to ABC as a stockholder of XYZ should the District utilize the system, ABC is not receiving any compensation of any kind from either XYZ or the manufacturer with regard to the installation or utilization of the software.

If the software is used, both the manufacturer and XYZ will consider the District as a test site. Utilization of the software on a day-to-day basis by the District will allow the manufacturer and the distributor the opportunity to observe the software package under actual working conditions. As a result of its use by the District, corrections and modifications will be made to the package which will ostensibly serve as an enhancement to it. XYZ draws its primary benefits from this arrangement by receiving an opportunity to have the program used under actual conditions.

You state that this would not be the first occasion in which a software company has donated a package to the District. Approximately two years ago, the District accepted and implemented an offer of software from an out-of-state company, at no cost to the District. Pending before the District School Committee is the decision as to whether to accept and implement the software donated by ABC.

Question

Does G.L. c. 268A permit the District to accept ABC's software gift under the arrangement described above?

Answer

Yes, subject to certain conditions.

Discussion

1. Application of G.L. c. 268A to ABC

The District is considered a regional municipal agency for the purposes of G.L. c. 268A. See EC-COI-82-25; In the Matter of Norman McMann, 1988 SEC 379. As an employee of the District, ABC is therefore a "municipal employee" for the purposes of G.L. c. 268A.

Section 19

This section places restrictions on ABC's official activities as superintendent. Specifically, G.L. c. 263A s.19 prohibits ABC from participating[2] officially as superintendent in any decision or other particular matter[3] in which either he or XYZ has a financial interest. In construing s.19, the Commission applies a reasonable foreseeability test to financial interests. EC-COI-84-96. Thus, if either ABC or XYZ has a reasonably foreseeable financial interest in decisions regarding the implementation of the software, ABC must abstain from official participation in those decisions. The abstention requirement applies to discussion as well as recommendations.

Based on the information you have provided, we conclude that both XYZ and ABC have a reasonably foreseeable financial interest in the District's acceptance of the software package. If the package proves successful, XYZ will be able to market the product to other school systems as software which has successfully been test-marketed in a school system. It is reasonably foreseeable, therefore, that the District's decision to accept the software will affect XYZ's marketing prospects for the software, and thus, the financial interest of XYZ. As a 26% equity owner of XYZ, ABC shares the financial interest of XYZ in the test-marketing decision. It is well established that a public employee who owns stock or an equity interest in a company which wishes to test-market a product is prohibited from participating officially in any decisions relating to the testing or implementation of the same product. See, In the Matter of John Hanlon, Raymond Sestini and Louis Sakin, 1986 SEC 253-259.

Notwithstanding the prohibition of s.19, ABC may participate in matters in which either he or XYZ has a financial interest if he discloses to the District School Committee the relevant facts surrounding the financial interest and he receives a written determination by the School Committee that the interest is not so substantial as to be deemed likely to affect the integrity of the services which the municipality may expect from him. G.L. c. 268A, s.19(b)(1). Unless and until such determination is made, however, ABC must continue to abstain from any official participation as superintendent in the decision to accept or implement the software.

Section 17(c)

This section places limitations on the private activities of ABC. Under G.L. c. 268A s.17(c), a District employee may not represent or otherwise act as agent for anyone other than his District in connection with any particular matter in which the District is either a party or has a direct and substantial interest. Thus, ABC may not represent XYZ or act as XYZ's agent in connection with the District decision to accept or implement the software. To avoid any potential problems under s.17, XYZ should designate an individual other than ABC to represent its interest in the particular matter before the School Committee.

Section 23(b)(2)

This section prohibits a District employee from using his official position to secure an unwarranted privilege or exemption of substantial value not properly available to similarly situated individuals. As applied to ABC, he must conduct his work for XYZ entirely outside of his District work schedule and refrain from using District resources such as telephones and computer equipment for his XYZ activities. He must also refrain from granting any unwarranted official endorsement to XYZ. See, In the Matter of Byron Battle, 1988 SEC 369.

2. Application of G.L. c. 268A to District School Committee Members

District School Committee members are also subject to the limitations of s.23(b)(2) and must therefore avoid granting any unwarranted privileges or exemptions of substantial value to either ABC or XYZ. Based on the information you have provided, District members would not violate s.23(b)(2) by accepting the DMZ Commissioner on policy, program development and priorities for mental health programs; and (3) participating with DMZ in conducting public hearings to obtain DMZ area board and citizen input into DMZ programs and services, you participate as a Council member in activities of DMZ. See, EC-COI-86-7; 85-80. Accordingly, you do not qualify for an exemption under s.7(d) with respect to your financial interest in a DMZ contract. Your financial interest would be permissible, however if you received a gubernatorial exemption under s.7(e)[6] or if your services for DMZ qualified under an exemption designed for services to mental health institutions or clients.[7]

[*] Pursuant to G.L. c. 268B, s.3(g), the requesting person has consented to the publication of this opinion with identifying information.

[1] "State Agency", any department of 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, instrumentality or agency, but not an agency of a county, city or town. G.L. c. 268A, s.1(p)

[2] The fact that the Council may have had its origin in a federal statute does not detract from the Council's status as a state agency. See, EC-COI-83-30; EC-COI-84-55.

[3] Jurisdiction has consistently been based on the destination of the services which a state employee provides rather than on the identity of the appointing official of the employee. Otherwise, jurisdiction under G.L. c. 268A would result in anomalies such as judges being considered employees of the governor and executive branch.

[4] Even if, for the sake of argument, we were to conclude that the Council is a separate state agency, independent of DMZ, the conclusion which we reach in applying G.L. c. 268A, s.7 would be unchanged. For the purposes of s.7(d), the key issue is not the identity of the agency with which a special state employee is
associated, but rather whether the special state employee participates in or has official responsibility for any activity of the contracting agency. It follows that if DMZ is the contracting agency, a special state employee does not qualify for a s.7(d) exemption if the employee participates in or has official responsibility for any activity of DMZ while serving as a special state employee.

[5] Section 7(d) states that the prohibition of s.7 does not apply to a special state employee who does not participate in or have official responsibility for any of the activities of the contracting agency and who files with the state ethics commission a statement making full disclosure of his interest and the interest of his immediate family in the contract ...

[6] Section 7(e) exempts from s.7:

... a special state employee who files with the state ethics commission a statement making full disclosure of his interest and the interests of his immediate family in the contract, if the governor with the advice and consent of the executive council exempts him.

[7] The final paragraph of s.7 provides as follows:

This section shall not prohibit a e employee from being employed on a part-time basis by a facility operated or designed for mental health care, public health, correctional facility or any other facility principally funded by the state which provides similar services and which operates on an uninterrupted and continuous basis; provided that such employee does not participate in, or have official responsibility for, the financial management of such facility, that he is compensated for such part-time employment for not more than four hours in any day in which he is otherwise compensated by the commonwealth, and at a rate which does not exceed that of a state employee classified in step one of job group XX of the general salary schedule contained in section forty-six of chapter thirty, and that the head of the facility makes and files with the state ethics commission a written certification that there is a critical need for the services of the employee. Such employee may be compensated for such services, notwithstanding the provisions of section twenty-one of chapter thirty.