The Cincinnati Situation II - Conflicts and Indirect Benefits
A government official's relationships -- to family, employer, business -- are very important to determining whether
conflicts exist. Both the
type and the directness of each relationship are also important.<br>
<br>
Here again are the basic facts of the situation in Cincinnati that I
will be using to touch on a variety of issues (see <a href="http://www.cityethics.org/content/cincinnati-council-members-situation-… previous blog
post</a> for a list of the issues). A council member works for a development company owned by his father
and his uncle, but has no ownership interest in the firm. The firm owns
or has development rights to nine properties within three blocks of a proposed
streetcar line, which has come before the council on a few occasions,
and will have to be finally approved by the council. The firm has also
proposed a $100 million development project, which would involve tax increment
financing (TIF) money and a tax abatement from the city. The
development would, it appears, be built near the proposed streetcar route.<br><br>
<br>
Different jurisdictions have different rules concerning relationships,
both in general and with respect to particular provisions. Different
types of relationship -- family and business -- may be dealt with
differently in the general conflict provisions, gift provisions, and
contract provisions of the same ethics code. And some provisions may include
indirect relationships, such as the business of a relative, while
others do not. Such inconsistencies can cause serious confusion.<br>
<br>
If only direct relationships are considered in determining conflicts,
an enormous opening is left for government officials to benefit themselves indirectly through benefits to their family, their businesses, and their family businesses.<br>
<br>
Benefits to a spouse directly benefit the official's household, but
even these are often not considered benefits to the official for the
purposes of determining conflicts.<br>
<br>
Benefits to a sibling, parent, or child do not directly benefit the
official, but there are many ways in which they can indirectly benefit
the official. The official's indirect benefits could come from (i) the
satisfaction of benefiting family members, (ii) lowering the need of
paying for care to parents or children, (iii) untaxed gifts from
these family members up to $13,000 a year, and (iv)
future bequests. Benefits to a relative's business are effectively
direct benefits to them.<br>
<br>
Benefits to a business the official works for can have many direct and
indirect benefits to the official, including commissions, bonuses,
raises, and promotions. Benefits to a business in which the official
has an ownership interest are effectively direct benefits.<br>
<br>
In addition, there is often as great an appearance of impropriety tied
to indirect benefits as there is to direct benefits. To take the
current situation, increasing the value of a family firm's property, or
getting them TIF money and tax abatements, are generally seen as just
as problematic as increasing one's own property and getting city money
for oneself. People view immediate families as a group, especially when
they are working together. In the current situation, the fact that the
council member's uncle is a former Cincinnati mayor increases the
appearance of impropriety in benefiting the family firm.<br>
<br>
With respect to the proposed $100 million development, a 2008 state EC
advisory opinion (attached; see below), concerning another council
member whose development firm was seeking TIF money, determined that,
pursuant to a state law (and possibly a local ordinance, as well), the
development firm could not seek such money as long as someone with an
ownership interest sat on the council.<br>
<br>
The state provision, <a href="http://codes.ohio.gov/orc/2921.42" target="”_blank”">R.C.
2921.42(A)(3)</a>, is
clearly intended to prevent an official from entering into a contract
authorized by himself or by the body on which he sits. There is nothing
said about family or other indirect interests. And the 2008
advisory opinion expressly speaks of a financial benefit "which is a
definite and direct
result of the public contract."<br>
<br>
<a href="http://library.municode.com/index.aspx?clientId=19996&stateId=35&stateN…; target="”_blank”">Cincinnati
Municipal
Ordinance</a> §101-01 reads in part, "A
member of council shall not be interested in any
contract with the city" and then says, in an odd way, that anyone
interested in a contract forfeits his seat. It too says nothing
either way about indirect interests, but whereas the state law speaks
in terms of "positions of profit," the ordinance speaks only in terms
of "interests," a term which is arguably more likely to include
indirect interests.<br>
<br>
The council member feels that his situation is not covered by the state
or local laws relating to contracts, because he will receive no direct
benefit or profit from the streetcar project, the TIF money, or the tax
abatement. And legally he is most likely correct. But in terms of the
appearance of impropriety, I think he is wrong. The money his family
firm, the firm he works for, will get from the city will be seen as
money going to him.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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