Irresponsible Handling of a Possible Conflict by Four Local Government Officials

One problem in government ethics is that when conflict situations are dealt with responsibly, there is rarely a record of them. They pass quietly, failing to end up in the newspaper, at an ethics commission, or in court. So generally we're stuck learning from the times when conflict situations are dealt with irresponsibly. One of these situations, in Wausau, Wisconsin, made it to court, and a decision this week by the U.S. District Court for the Western District of Wisconsin sets the facts out clearly (the decision is attached; see below).

The Facts
The conflict situation involves a council member who met a developer who owned a piece of property with two buildings on it. The council member said she might be interested in moving her and her husband's marketing operation there. She also told him about a HUD grant program.

The developer met with the director of the Community Development Department about the possibility of getting a grant to help raze one building and gut the other, and then sell the property. The director suggested he might be able to give the developer a $25,000 interest-free loan via a HUD grant. The developer said that the council member was one of the people interested in buying the property, and the director suggested there might be a conflict if she did. The developer said that the council member had asked him not to mention her. It does not appear that the developer told the council member about the director's concerns about a future conflict.

The director consulted with the city attorney, but it is not clear what his advice was, if any. However, nothing was said to the council member about a possible conflict.

The loan was made. Such loans are normally reviewed by the council's Economic Development Committee, on which the council member sat, but for some reason no such review occurred, so the council member was not able to recuse herself from a vote on the loan.

A company owned by the council member and her husband purchased the property a year later.  No objection was raised to the purchase.

However, a few months later the director met with HUD officials about the purchase, seeking an investigation of the council member's purchase. Apparently, the director hoped to get a letter that would disqualify the council member from voting on the community block grant development program. Apparently toward that end, the director tried to rush the HUD officials so that the letter would arrive in time. The director said that the council member had personally benefited in the sum of $2,000 in interest saved, although he apparently had no knowledge of the terms of sale.

Not a word was said to the council member, so that she was unable to tell HUD her side of the story.

HUD concluded that the council member had personally benefited from the transaction and, therefore, that the loan was an ineligible use of HUD funds and the city would have to repay the funds or ask HUD to reconsider. The next day, the council member received a letter from the mayor, seeking a meeting on this matter. But no meeting took place.

Days later, the developer filed an affidavit with the mayor saying that the council member had told him about the money available and that she had asked that he keep her interest in the property confidential. The mayor immediately asked the council member to resign, and wrote a memo to the council about the allegations, saying that the council member had refused to meet with him about the allegations.

The council decided to refer the allegations to the city's ethics board. A responsible decision. Four months later, the ethics board held a hearing and recommended that the council censure the council member. But with her term ending thirteen days later, no censure was made.

The Suit
The council member argued in her suit that the city attorney and director of community development should have warned her that she had a conflict, but that instead they withheld this information and exaggerated the egregiousness of her actions so that she would be punished and so that her reputation would be seriously harmed.

The court concludes that "the right of elected officials to be free from retaliation for political speech was not clearly established at the time of the alleged conduct." In other words, it's not clearly wrong (or at least actionable) for officials to retaliate against other officials, especially when the official retaliated against was in a position of power, as a council member, relative to non-elected officials. But that concerns the law of retaliation for speech, not government ethics.

How the Council Member Handled the Conflict Situation
All the council member gave the developer was the knowledge that interest-free loans were available, which is the sort of thing council members are supposed to do to further development in their community (apparently, no one said that she wasn't telling others about the loans; in fact, she asked the mayor to advertise them better). She should not, therefore, have asked that her involvement be kept confidential, if she actually did (this was in dispute).

It appears that she was at war with the director and the mayor, so she might have been feeling paranoid. However, the best thing for a council member to do in such a situation is allow her involvement to be made public. If she did ask her name to be kept out of the matter, this showed poor judgment. But since she did nothing wrong, it was not unethical, at least not by itself.

Should the council member have purchased the property? In other words, is it a conflict for a council member to purchase a property that was developed partially with an interest-free government loan that, although with federal money, came through the city? She had nothing to do with the property being chosen for a loan. She had no interest in the property. She had no contract with the developer and, therefore, no guaranty of a future benefit. The only benefit she could have received is a price a bit lower than it would otherwise have been had the developer borrowed the $25,000 from a bank.

No one said that she was preferred over other possible buyers, or that she paid less than a fair market price for the property. No one said that she used confidential information or that there was any sort of quid pro quo or even a gift involved.

The council member could not recuse herself from involvement in the loan, because her only involvement was informing the developer. The only way she could have declared her conflict was to do so when she purchased the property. But what conflict would she have been declaring? That she had advised the developer about the loan? That doesn't qualify as a conflict. That she was benefiting from the loan? Anyone who purchased the property would have benefited equally from the loan, and she had nothing to do with the loan.

Should she have asked the ethics board for an advisory opinion? In retrospect, yes. But at the time, it may not have occurred to her.

That leaves only an appearance of impropriety. This is a tough appearance call. It clearly looked bad to the ethics board. If the council member were to have thought about how the entirety of the transaction might look to the public, if she had used her moral imagination, she would have sought an advisory opinion or decided not to purchase the property. This is why it is so important that officials, especially those with the most power and responsibility, be given ethics training that goes beyond the basics and the laws. They need to be taught how to think through matters with a moral imagination.

How the City Attorney Handled the Conflict Situation
If a city attorney has been asked for ethics advice from a party to a transaction with a city official, is the city attorney obligated to inform the city official of the possible conflict? It's not clear whether the city attorney gave any advice at all, but assuming he did, especially since there was no adversarial relationship between the council member and the official seeking his advice, I think he should have shared the advice with the council member.

If the city attorney were to have serious personal or political differences with the council member, so that personally he would not want to share advice with her, then I think he should have told the director of community development to seek advice elsewhere.

Even if the city attorney were told about the situation, but not asked for advice, does he, as the council member asserted, have an obligation to warn her about the possible conflict involved? I don't think such an obligation would be actionable, but I do believe it exists. It is no different than if a city attorney learns that conduct by a city official would violate any law. A city attorney is not a passive official waiting to be asked for advice. He or she is required to protect the city and its officials, at least where their interests are not in conflict.

But the fact is that many local government attorneys are political animals. Most high-level local government attorneys are political appointees, and some are even elected. They have allies and opponents, as do those who appoint them. It can be difficult for them to hand out unsought advice to help opponents, unless the opponent's conduct might harm the local government (as, it turns out, it did here). But that does not mean that there is no obligation. Only that such obligations are often ignored, and there is little or nothing that can be done (which is why these obligations can be so easily ignored for personal and political reasons).

How the Mayor Handled the Conflict Situation
When a top official learns of a possible conflict, and the local government has a formal procedure for dealing with conflicts, the most the official should do is refer the matter to the body or individual handling ethics matters. To ask for another official's resignation before the matter has even been investigated, especially without talking to the official, is a serious breach of procedure. It immediately politicizes and thereby undermines the ethics process. It is the opposite of good ethical leadership, made worse because it is done in the guise of someone trying to protect the city from unethical officials. It doesn't get much worse.

But apparently this mayor did get worse. Not only did he act without hearing the council member's side of the story, but he also apparently misrepresented the council member's agreeability to a meeting, saying that she refused to meet with him. This is not a government ethics matter, but if it is true, it is deeply unethical. It reflects an ethical environment of personal hatred and vendetta.

How the Director of Community Development Handled the Conflict Situation
The director could have taken the matter directly to the ethics board, but instead sought to get a quick letter from HUD in order to make an argument that the council member be excluded from participating in other matters involving community development. The goal of this was not to protect the community development process from her involvement, because she had apparently done nothing to affect any development decision to further her own interests. The apparent goal was to humiliate her and undermine her politically. And in the process the director jeopardized the city, because the HUD decision was not against the council member, but against the city.

Here is a perfect example of placing personal interest above public interest without anyone benefiting financially. And yet the conduct was unnecessary, harmful to the city, and undermined the city's ethics process. It is this sort of situation that emphasizes the need to extend the definition of "interest" to situations where no one benefits financially.

How the HUD Officials Handled the Conflict Situation
The HUD officials were wrong to reach a decision without any input from the council member. They don't even have the excuse of personal vendetta. They should also have reported to the mayor the pressure being put on them by the director of community development. They should not act in furtherance of any local official's personal or political goals.

How the Developer Handled the Conflict Situation
If the developer knew it might be against the city's ethics code for him to sell the property to the council member, why did he do it? The council member is the one who would go before the ethics board, but isn't aiding and abetting also wrong?

Robert Wechsler
Director of Research-Retired, City Ethics

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