| Date: | 11/05/1992 |
|---|---|
| Organization: | State Ethics Commission |
Section 7 prohibits an employee of a state agency from having a financial interest in state subsidized rents (or other state benefits paid directly to the state employee in exchange for goods or services) unless she can rely upon an exemption to section 7. In addition, section 23 prohibits a state employee from initiating private business relationships with person over whom she exercises official authority.
You are the general counsel to the Department of Public Welfare (the Department). You wish to know under what circumstances a Department employee who owns rental property may rent her property to recipients of public assistance benefits. You have described various forms of public assistance benefits and request advice under each circumstance.
You inform us that various state and federal governmental entities administer a series of benefit programs designed to assist low-income individuals and families to meet their basic necessities. Some of these programs are designed to provide eligible individuals and families with a monthly grant which the recipient is then entitled to use as he or she sees fit. Other programs are intended to meet a particular living expense, so that the benefits can only be used for that particular purpose.
You also inform us that, for all the programs administered by the Department, caseworkers in the Department's 48 local offices determine eligibility and benefit levels pursuant to Department regulations and written procedures which implement state and federal law. Caseworkers have direct, face-to-face contact with welfare clients; their job responsibilities include taking applications for benefits, calculating eligibility, interviewing clients for redetermination of benefits, explaining a client's rights and responsibilities and authorizing appropriate benefit programs.
Benefits programs can be grouped into two categories: (1) those programs which provide a cash grant to the recipients, and (2) those programs in which the benefit can be used only for a specified purpose.
Cash Grant programs include Aid to Families with Dependent Children (AFDC), Emergency Aid to the Elderly, Disabled and Children (EAEDC), and Supplemental Security Income (SSI). These programs are designed to meet general subsistence needs. Although one such need is the cost of housing, the amount of the monthly benefit paid to eligible recipients does not vary based on actual housing costs. Thus, you inform us, a family whose rent is $200 per month will receive the same grant as one whose rent is $400. However, there may be a small rental "add-on" to the grant for those living in private, unsubsidized housing.
AFDC is a program administered by the Department in which eligible families receive two checks per month. The grant is intended to meet the basic subsistence needs of the family, including housing, utilities, food, and clothing. Individual families may, however, choose to allocate the grant amount to meet their needs. The amount of the grant is fixed according to family size, and may vary depending on other sources of income. The program is partially funded by the federal government and is subject to federal regulations. Although funds have been appropriated for certain housing assistance "add-ons" for eligible recipients, the money may be used by the recipients in any way they wish.
EAEDC replaced the former General Relief program in Massachusetts. Its primary focus is to assist those who are elderly or disabled and who do not qualify for SSI, or who have children and do not qualify for AFDC. The amount of assistance may vary depending on other sources of income. Similar to AFDC add-on programs, EAEDC also provides for additional "rent allowances" which, in actuality, may be used by the recipient in any way they wish. This program is not subject to federal regulation.
SSI is a federal government program, funded in part by the Commonwealth. It provides a monthly check to individuals who are elderly, blind or disabled. The Commonwealth provides a supplement to the federal basic grant level. The amount of state supplement is fixed by regulation. A Department caseworker's contact with an SSI applicant is generally limited to those situations in which the recipient also receives a benefit that is administered by the Department, such as Medicaid or Food Stamps. (Eligibility for SSI automatically qualifies a recipient for Medicaid.)
Targeted assistance programs involve benefits that can be used only for a specified purpose. Included among the described programs are those programs which are administered by the Department, but which may have no relationship to housing. Included among these programs are Food Stamps, Medicaid, Emergency Assistance (EA), Housing Subsidies, and Direct Vendor Payments. Page 457
The Food Stamps program is fully funded by the federal government but is administered by the Department. It provides food coupons which can be exchanged only for food products. The benefit level is determined by a variety of factors, including the amount of rent paid by a recipient. Although a food stamps recipient may also receive AFDC, EAEDC, SSI or Medicaid, that is not necessarily the case.
Medicaid is a federal/state cost-sharing program administered by the Department. The program provides for the payment of medical expenses for eligible recipients. Payments are made directly to the providers of medical services. Eligibility for Medicaid is determined by Department workers who review whether an applicant meets financial and categorical requirements. Families or individuals who receive AFDC or SSI receive Medicaid automatically. The amount of a recipient's rent is not a factor in determining eligibility.
EA is a federal/state cost-sharing program administered by the Department, and is intended to address one-time crisis situations. For example, a family facing a utility shut-off for non-payment of bills can receive a payment to the utility company for the arrearage. EA payments may also be made directly by the Department to a landlord to pay up to three months' back rent for recipients facing imminent eviction. The Department may also make payments for emergency shelter or mortgage arrearages. These benefits can generally be provided only once in a twelve month period. In these cases, the Department pays the actual charges submitted by the vendor (that is, there is no schedule of charges promulgated by the Department under such circumstances).
Housing subsidies consist of programs administered or regulated by the state Executive Office of Communities and Development (EOCD), or by local housing authorities. Benefits are designed to help low-income families meet their housing costs. Eligibility for these subsidies is not determined by Department staff, although Department staff may assist recipients of Department programs to apply for housing subsidies.
There are two basic sources of housing subsidies: federal and state. Federal subsidies (referred to as Section 8 assistance) and Massachusetts subsidies (described by you as Chapter 707 assistance) are paid by the administering agency directly to landlords. A recipient cannot receive either subsidy if her rent exceeds a maximum allowable rent, which is a standard established for each local community by EOCD or the federal Department of Housing and Urban Development. The amount of the subsidy is dependent upon the actual rent (subject to the maximum) and the recipient's income. For example, an eligible holder of a Chapter 707 certificate will pay thirty percent of her income to the property owner, with the balance of the monthly rent being paid by EOCD or the local housing authority. While recipients of such subsidies may also receive AFDC, EAEDC, SSI, Medicaid, Food Stamps, or some combination of these programs, subsidies are also available to those who receive no other public assistance.
Direct vendor payments are designed to assist AFDC or EAEDC recipients in managing their money so certain expenses, such as rent, do not go unpaid. Thus, an AFDC or EAEDC recipient who is having difficulty with cash management can choose to have her rent deducted from the cash grant and sent directly to the landlord by the Department. The Department, under certain conditions, may decide to place a recipient in the program if it determines that the recipient has mismanaged funds. You inform us that Department caseworkers make a subjective assessment about the client's ability to manage funds in such cases.
Given the above facts, under what circumstances may a Department employee, who owns rental property, rent to recipients of public assistance benefits? What conditions apply?
A Department employee may rent property to recipients of public assistance benefits only if the employee complies with all of the restrictions of G.L. c. 268A, s. 7 and s. 23. In addition, other restrictions under c. 268A may apply.
In order to determine whether Department employees may rent property to Department clients, it is necessary to first determine whether the public assistance programs described above constitute "contracts" for purposes of G.L. c. 268A, s. 7. Page 458
Section 7 of c. 268A prohibits a state employee[1] 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, of which interest he has knowledge or has reason to know. See, e.g., EC-COI-92-2. Section 7 does, however, contain certain exemptions which would permit a state employee to hold such a financial interest under certain circumstances, as more fully described below.
Both the courts and this Commission have given the term "contract" a broad meaning to cover any arrangement in which goods or services are to be provided in exchange for something of value. See Quinn v. State Ethics Commission, 401 Mass. 210 (1987); EC- COI-89-14 (agreement need not be formalized in writing to be a contract for s. 7 purposes); EC-COI-81- 64 (a state grant is a contract).
Section 7 does not, however, cover all situations in which a state employee receives money for goods and services which may be compensated out of funds derived from the state treasury. For example, if a state employee rents an apartment to a state consultant, the state employee will not be regarded as having a financial interest in the consultant's contract with the state for s. 7 purposes. The contract between the consultant and the state is independent of the consultant's lease agreement with the state employee. See, e.g., EC-COI-83-173.
The critical question in determining whether a contract exists has always focused upon whether the parties have agreed to an exchange of goods or services where that exchange is supported by some consideration. See, e.g., Conley v. Ipswich, 352 Mass. 201 (1967); Quinn, supra; EC-COI-92-1: 89-14: 87 40.
The Commission has previously suggested that the receipt of money under entitlement programs such as general relief might not be considered a contract where the funds are made available pursuant to statutorily defined criteria and eligibility guidelines and are administered by governmental bodies. EC-COI-87-40 (funds distributed by agency lottery to award scholarships to eligible families for daycare were held to constitute a contract because funds were distributed to private providers who agreed to abide by a provider agreement in exchange for the funds).
Based upon the present facts, we conclude that cash grant public assistance program benefits such as AFDC, EAEDC, and SSI (as currently constituted), which are administered by state or federal governmental agencies, are not contracts for the purposes of G.L. c. 268A, s. 7. None of these program benefits is supported by consideration and each is made available pursuant to statutorily defined criteria and eligibility guidelines. Thus, no issues will arise under s. 7 for a state employee who has a direct or an indirect financial interest in such benefits.
On the other hand, several targeted assistance programs,[2] such as Chapter 707 (state) subsidies,[3] certain EA and direct vendor payments, do constitute contracts made by a state agency for purposes of s. 7, see EC-COI-81-189, where a state agency provides payments directly to a third party in exchange for goods or services for or on behalf of the recipient.[4] Thus, issues under s. 7 will arise for a state employee who has a direct or an indirect financial interest in such benefits. For example, a Department employee who wishes to rent property to a recipient of public assistance will (without an available exemption) violate s. 7 if the employee receives payments under Chapter 707 or some other program where payments are made directly to the employee and are specifically targeted for housing needs (for example, certain EA and direct vendor payments).
Because the Chapter 707 program is administered by a state agency other than the Department (EOCD), a fulltime Department employee may rely upon a s. 7(b) exemption in order to rent property to a Department client (subject to other restrictions described below).[5] For each of those programs which are administered by the Department (including certain EA and direct vendor payments), however, a full-time Department employee must look to the "public assistance" exemption, if applicable, to determine whether the s. 7 restrictions apply to them.
The public assistance exemption provides that the restrictions of s. 7 do not apply to a state employee who provides services or furnishes supplies, goods and materials to a recipient of public assistance, provided that such services or such supplies, goods and materials are provided in accordance with a schedule of charges
Page 459
promulgated by the department of public welfare or the rate setting commission and provided, further, that such recipient has the right under law to choose and in fact does choose the person or firm that will provide such services or furnish such supplies, goods and materials.
The Commission has given the public assistance exemption a reasonable reading in the past, particularly in light of the purposes of the safeguards which were intended to insure that state employees do not misuse their insider status to take advantage of a vulnerable constituency. See EC-COI-86-1. Although the Commission has not previously addressed whether current Department landlord payment arrangements are sufficiently "scheduled" or "promulgated" by the Department for purposes of this exemption, we now conclude that they are. As long as there exist established Department standards for rental payment levels, whether on a state-wide or community-wide basis, the Commission will defer to the Department's conclusions that the public assistance exemption is satisfied. See id.[6] However, without such standards, the public assistance exemption would not be available.
Aside from the public assistance exemption, there are no other exemptions which would permit a full-time Department employee to have a financial interest in a contract for direct housing payments administered by the Department. Other exemptions, however, may apply to certain Department employees who are not full-time state employees. See G.L. c. 268A, s. 7(d) and 7(e) (exemptions applicable to special state employees).[7]
In addition to the above, additional restrictions will arise under G.L. c. 268A, s. 23. Section 23 of G.L. c. 268A contains standards of conduct that apply to all public employees. In particular, s. 23(b)(2) provides that no public employee may use or attempt to use his official position to secure unwarranted privileges of substantial value for himself or others. Section 23(b)(3) prohibits a public employee from engaging in conduct that gives a reasonable basis for the impression that any person or entity can improperly influence him or unduly enjoy his favor in the performance of his official duties.
In EC-COI-92-7, we clarified that a public employee's private business relationship with a subordinate employee, a vendor whose contract he supervises, or a person or entity within his regulatory jurisdiction, violates s. 23, unless (1) the relationship is entirely voluntary; (2) it was initiated by the person under the supervisory employee's jurisdiction; and (3) the supervisory employee's public written disclosure under s. 23(b)(3) states facts clearly showing elements (1) and (2). Thus, failure to meet elements (1) or (2) will violate s. 23(b)(2); failure to make the disclosure required by (3) will violate s. 23(b)(3).
Applying these principles to the present case, we conclude that Department employees may not initiate private business dealings (such as the renting of property) with Department clients with whom they have official dealings or over whom they exercise any regulatory authority.[8] Moreover, even if the client voluntarily initiates the business relationship, the Department employee must make the s. 23(b)(3) disclosure referred to above, in addition to meeting the s. 7 requirements described above.
Further, s. 23(e) provides, in pertinent part, that nothing in s. 23 shall preclude any constitutional officer or head of a state agency from establishing and enforcing additional standards of conduct. Thus, the Department, if it chooses to do so, could prohibit all Department employees from having any private business relationships with Department clients or family members under any circumstances, regardless of the application of c. 268A.
Finally, given the scope of both s. 7 and s. 23, it is unnecessary to address fully how s. 6 would also affect Department employees. Briefly, however, s. 6 would prohibit a Department employee from participating[9] in any particular matter[10] which directly or foreseeably will affect his or her own financial interest, or the financial interest of an immediate family member.[11] For example, a Department employee could not refer, in his or her official capacity, a Department client to rental property owned by the employee or an immediate family member. Section 6 further provides that any state employee whose duties would otherwise require him to participate in such a particular matter must make full disclosure of the financial interest to his or her appointing authority. The appointing authority would then have to determine whether the employee may participate in the matter in question. Copies of the written determination must be filed with the Commission. Page 460
