How a Board Should Handle a Member's Contract Conflict

An interesting disagreement has arisen over what is required for a contract with a council member to constitute a conflict of interest in California. According to an article in the Valley Chronicle, the city of Hemet and the League of California Cities disagree with a grand jury about whether a particular council member has a conflict. The council member is the executive director, and her salary, taxes, etc. essentially the only expenditure, of a nonprofit organization running a program that is included in the city budget.

The city responded to the grand jury's findings and recommendations in a letter from the mayor, approved by the council on which the executive director still sits. With respect to the grand jury's finding of a conflict, the city said:

City disagrees with the finding only to the extent it concludes that participation in budget deliberations and approval was a conflict of interest under the law. Two successive City Attorneys for Hemet have concluded that no legal conflict existed. The City asked the General Counsel for the League of California Cities to independently review the conflict issues and the General Counsel also concluded that there was no conflict under the Political Reform Act or Government Code §1090.

Government Code §1090 reads:

...[C]ity officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members....

The city did, however, concede that there was an appearance of impropriety, and it anticipated the grand jury's recommendation by canceling the contract with the council member's organization.

Who was right? Did the council member have a financial interest in a contract "made by" the council, or is there no conflict because the contract was not "made by" the council but only approved by the council?

The problem is that the only council vote on the contract was a vote on the budget. The contract was a tiny portion of the budget, although $28,000 a year for the council member. Recusal on the budget would have been overkill in this situation. And it would not have fully solved the appearance of impropriety that occurs wehn a council approves a contract that directly benefits one of its members, especially when the contract is not competitively bid.

The way to deal with such a problem, when it arises, is for to the council to consider a budget amendment to cancel the contract. The executive director could recuse herself on this matter. The council could then openly and responsibly discuss the matter, considering the appearance of impropriety, the possibility and practicality of competitive bidding, the role of the executive director in proposing the program in the first place, and a more general council policy on contracts that involve its members.

The other issue where the city differs with the grand jury is the city's responsibility for oversight of the program. If the council were to have approved the contract after discussing the above issues, it should at least have required special city oversight of the program, considering the appearance of impropriety. Effectively, approval of the contract would have been a waiver of the council member's apparent conflict under the particular circumstances. A waiver such as this requires special oversight, so that the public knows its interests are being carefully protected.

For the council to have failed to act responsibly by openly considering the matter, and then for the council to insist it had no oversight responsibility was to be doubly irresponsible.

Robert Wechsler
Director of Research-Retired, City Ethics

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