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MRSC has joined with Carl Neu, Director of the Center for the Future of Local Governance, P. Stephen DiJulio, Attorney, Foster Pepper PLLC, and Paul McClintock, Professional Registered Parliamentarian, to bring you the "Council/Commission Advisor." The Council/Commission Advisor will feature a new article each month with timely information and advice you can use.*
Public Officer Ethics: Some Do's and Don'ts
August 2006
Steve DiJulio, Attorney and Hugh Spitzer, Attorney
Foster
Pepper, PLLC
Elected officials and other key public officers all know that they must be careful to observe state ethics laws as they go about their public business. But occasionally, honest and well-meaning officials get themselves in trouble by doing something that seems perfectly reasonable on the surface but which turns out to conflict with Chapter 42.23 RCW, the Code of Ethics for Municipal Officers.
Two examples in the public finance realm demonstrate this point.
Employment by Financial Institution
RCW 42.23.030 states that “no municipal officer shall be beneficially interested, directly or indirectly, in any contract which may be made by, through, or under the supervision of such officer, in whole or in part …”
The term “officer” is broadly defined to include all elected and appointed officers of municipalities, “together with all deputies and assistants.”
One problem that sometimes occurs is when a bank officer serves on a city council or board of county commissioners. We are often asked whether a separate department of a bank (i.e., the bank’s public finance department) may lend money to a city or county (or special purpose district) if a bank officer is on the board of the issuing entity.
Many local officials are under the misimpression that if they simply don’t participate in the selection of the bank and “recuse” themselves from any decision on the matter, there is no ethics violation. Unfortunately, that is not the case.
In the absence of an exception, the action of the council or board would be void. Chapter 42.23 RCW has some exceptions to the “beneficial interest” rule, but they are very narrow. There are also “remote interests” that may permit a board or council member to recuse, but allow the government to proceed with the action. A municipal officer is treated as not being interested in a contract if that officer has only a “remote interest” such as:
the interest of a non-salaried officer of a non-profit corporation,
an ownership of less than one percent (1%) of the shares of a corporation that is contracting with the governmental entity; or
the status of being an employee of a contracting party where the compensation of the employee consists entirely of fixed wages or salary.
The remote interest exception often does not work when a city council member or commissioner is a bank officer. Bank officers often receive a bonus (or similar compensation) as part of their income. Even if the bonus has nothing to do with the performance of the bank’s public finance group, the fact that a banker on the city council receives any bonus whatsoever means that the remote interest exception will not apply.
Consequently, local governments should not borrow money from, sell their bonds to or enter into any other financial transactions (other than depositing municipal funds) with a bank if a council or board member is a bank officer or employee who receives anything other than fixed wages and salaries.
The consequence of violating this prohibition is that the contract between the municipality and the bank is void, which means it is as though it never existed.
On a few occasions, bankers serving on city or county councils or district boards have resigned their positions until the bond or borrowing transactions had occurred, and then are reappointed to the position. However, this is quite a bother (not to speak of the loss of seniority!).
Purchasing Government Bonds?
Another issue is where board or council members desire to purchase bonds issued by their local government. This may appear to make sense, since the purchase of bonds from your city or county is a real vote of confidence in that municipality. However, a municipal bond or note is a contract between the governmental issuer and the investor. Therefore, if a city council member purchases the city’s bonds, a contract springs into existence between the council member and the city. But, because municipal officers are not permitted to be “beneficially interested” in any contract made under their supervision, the bond with the council or board member will automatically be void, the member will not be permitted to receive any interest, and the transaction will have to be unwound. We often suggest that local government officials invest in bonds issued by the city or district next door, thus avoiding any possible problem.
Conflicts of Interest do not Include Personal Preferences
As noted above, Washington statutes (and common law) maintain strict standards governing public official conduct. However, there is nothing in the statutes that preclude an elected official from advocacy or expressions of views. One Court of Appeals decision summarized this issue as follows
…In a representative democracy, we elect our legislators precisely to carry out agendas and promote causes with full knowledge that “their own personal predilections and preconceptions” will affect their decisions. Evergreen Sch. Dist. 114 v. Clark County Comm. on Sch. Dist. Org., 27 Wn. App. 826, 833 (1980). As long as these predilections do not lead them to line their pockets or otherwise abuse their offices, we leave the wisdom of their choices to the voters. If the voters do not like their representatives’ agendas, or voting decisions, they are free to vote them out of office.
Barry v. Johns, 82 Wn. App. 865, 870 (1996).
The Barry v. Johns case explored a dispute among City of Mountlake Terrace council members. Two council members served on the board of a non-profit community organization that supported programs for at-risk youth. One council member challenged the other council members’ participation in the decision regarding contracting with the community organization. The Court rejected the challenge on the basis that RCW 42.23.030 applied only to municipal contracts involving business transactions, employment matters and other financial interests.
Good Faith is not a Defense
A more recent appellate court decision emphasized the extent of the municipal Code of Ethics. In a case involving a City of Raymond commissioner (at the time, Raymond was a commission form of government), a general contractor on a city public works job bought $11,917.80 worth of rock from that commissioner’s business. The Court found that “in spite of well-intentioned attempts to avoid a prohibited conflict of interest,” the commissioner violated the plain language of chapter 42.23 RCW. That the commissioner did not vote on the particular contract did not shield the commissioner from statutory violation. See City of Raymond v. Runyan, 93 Wn. App. 127 (1998).
Prohibited Acts Generally
Finally, local elected officials are reminded of the broad extent of the prohibition under the Code of Ethics that:
no municipal officer may use his or her position to secure special privileges or exemptions for himself, herself or others.
In 2002, the Washington State Supreme Court found this provision of the Code of Ethics to be a broad statement public policy, the potential violation of which could give rise to a lawsuit by a disgruntled former employee. See Hubbard v. Spokane County, 146 Wn.2d 699 (2002).
When your moral compass starts spinning, it is probably for a good reason. Be careful, and look for help from your available resources. The Municipal Research and Services Center of Washington maintains a number of articles and research for further information on the subject of municipal ethics. If there are questions concerning these issues, please check with your city or county prosecuting attorney.
P. Stephen DiJulio, a partner at Foster Pepper & Shefelman PLLC, focuses on litigation involving state and local governments, and land use and environmental law. Particular experience includes representation of jurisdictions on eminent domain, utilities (water, wastewater, storm water, solid waste systems), local improvement districts, facility siting and contractor litigation. More.
Carl Neu, author and consultant, is recognized nationally as an authority on, and an experienced practitioner of, the theory and application of governance and leadership to city councils and county boards, local government managers, and community leaders. More.
Paul McClintock is a Professional Registered Parliamentarian and Certified Parliamentarian, professionally serving organizations as parliamentarian at meetings, teaching workshops, and writing parliamentary opinions. He also is an active leader in the National Association of Parliamentarians and the American Institute of Parliamentarians at several levels. More.
*The Articles appearing in the "Council/Commission" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.