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The Cincinnati Situation II - Conflicts and Indirect Benefits
Wednesday, June 9th, 2010
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.
Here again are the basic facts of the situation in Cincinnati that I will be using to touch on a variety of issues (see the previous blog post 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.
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.
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.
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.
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.
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.
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.
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.
The state provision, R.C. 2921.42(A)(3), 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."
Cincinnati Municipal Ordinance §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.
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.
Robert Wechsler
Director of Research-Retired, City Ethics
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Here again are the basic facts of the situation in Cincinnati that I will be using to touch on a variety of issues (see the previous blog post 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.
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.
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.
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.
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.
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.
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.
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.
The state provision, R.C. 2921.42(A)(3), 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."
Cincinnati Municipal Ordinance §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.
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.
Robert Wechsler
Director of Research-Retired, City Ethics
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 Cranley Opinion.pdf | 0 bytes |
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