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Santa Monica
City Council Meeting: June 21 2011
Agenda Item:
To: Mayor and City Council
From: Marsha Jones Moutrie, City Attorney
Subject: Implementation of the Laws Regulating City Contracts with City Officials
Recommended Action
Staff recommends that Council review the conflict laws relating to contracts, which
prohibit the City from making contracts with City officials in most situations, and provide
direction to staff on implementing these laws and on any related actions that may be
necessary to both ensure compliance and maximize opportunities for community
members to participate in local government by serving as board, commission and
taskforce members.
Executive Summary
Recently, questions have arisen about conflicts arising from potential or actual contracts
between the City and City officials. Both California Government Code Section 1090
and City Charter Section 1302 address such conflicts and significantly limit the City's
authority to enter into contracts with individuals serving as public officials, including
members of City boards, commissions and taskforces. Like the Political Reform Act
(PRA), these laws serve the purpose of fostering clean government and thereby
preserving public trust. However, they are significantly different from the PRA because
they impose actual limits on the City's power, rather than simply establishing a process
for excluding the conflicted official from decision making. Thus, under the Political
Reform Act, an official with financial involvement in a matter may simply recuse him or
herself from participating in consideration of that matter; and the body may act. In
contrast, Section 1090 disables the City from making the contract. And, the penalties
are harsh, including forfeiture of the contract benefits and felony prosecution.
Given the impact of these statutes, it is very important that the Council, other City
officials, City staff, and the community understand their operation. And, it is also
important that they be carefully implemented in Santa Monica for a number of reasons.
These include, not only ensuring objectivity in selecting contractors and preserving
public confidence, but also maximizing participation in City government, particularly by
those who are willing and able to serve the community as members of boards,
commissions and taskforces.
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Background
Most conflicts that arise in the course of officials' work for the City are addressed by the
Political Reform Act. Government Code section 81000, and following. It prohibits a
local official from participating in making a decision that will impact his or her personal,
financial interests. If the decision falls into that category, then the Political Reform Act
requires the official to recuse him or herself from participating. Such recusals are
common in the City and are a normal part of municipal business, particularly in a small
city where many community members both live and work. However, the law addressing
conflicts arising in conjunction with the making of government contracts operates
differently. It is narrower in scope, applying only to contracts and not to other financial
interests. And, it is harsher in impact, disabling the entire body from action and either
voiding the contract or making it voidable.
The Statutes Limiting City Contracts
City Charter Section 1302 addresses conflicts arising both from contracts and from
other financial interests. It prohibits City Council members from having any financial
interest in a City contract. It also prohibits all City officials and employees from being
interested in a City contract if that contract "comes before" them or "before" the
department with which the official or employee "is connected." Finally, it prohibits a
Council member or other officials from voting on or "participating in" any contract in
which she or he has a financial interest. The exact language is as follows:
"No member of the City Council shall be financially interested, directly or
indirectly, in any contract, sale or transaction to which the City is a party
and neither shall any City official or employee be interested in any
contract, sale or transaction to which the City is a party and which comes
before said official or employee, or the department of the City with which
said official or employee is connected, for official action. Any such
contract or transaction in which there shall be such an interest shall
become void at the election of the City, when so declared by resolution of
the City Council
No member of the City Council, City official or employee shall be
deemed to be financially interested, within the meaning of the foregoing
provisions, in any contract made with a corporation by reason of the
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ownership of stock in such corporation unless said stock owned by said
person shall amount to at least three (3%) percent of all the stock of such
corporation issued and outstanding. No City Councilmember or member
of any board or commission shall vote on or participate in any contract or
transaction in which the councilmember is directly or indirectly financially
interested whether as a stockholder of the corporation or otherwise. If any
officer of the City, during the term for which the officer was elected or
appointed, shall so vote or participate or shall be financially interested as
aforesaid, upon conviction thereof, the official shall forfeit his or her office."
The meaning of the some of the terms contained in Section 1302 is somewhat unclear
(e.g., "comes before" "connected" and "participating in"). However, in general, Section
1302 appears to encompass both the prohibitions of Section 1090 and the general
prohibition contained in the Political Reform Act.
Government Code Section 1090 is much more succinct. It provides, in pertinent part,
that "city 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."
A large body of law, including regulations, co.:.t decisions and Attorney General
Opinions, explains this prohibition and thereby facilitates its application. For example,
that body of lauv explains what constitutes "making" a contract. Basically, the term is
very broadly defined to include all actions that might influence the selection of a
contractor or alter the scope of the contract. Thus, even though the City Council is the
only local legislative body that actually votes to approve contracts, the Section 1090
prohibition also applies to the work of boards, commissions, taskforces and City
employees insofar as they influence the selection of contractors or the scope of contract
work.
In analyzing potential conflicts arising from contracts, legal staff keeps the City Charter
provision in mind but applies Section 1090. Our reliance on Section 1090 is based
partly on the Court of Appeals decision in San Diego v. McKinley, 145 Cal.Rptr. 461
(1978), which explained that charter language similar to Section 1302 serves basically
the same purpose as Section 1090. Our reliance on Section 1090 is also based on the
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body of law that makes Section 1090 much easier to enforce by explaining its terms,
purpose, and application. No similar aids are available to assist in applying Section
1302. Thus, staff interprets Section 1302 to mandate strict compliance with the
requirements of Section 1090 (and the Political Reform Act) in Santa Monica, rather
than to dictate standards different from state law.
Some History of the Issues
Questions as to whether the City could contract with City officials have come to the City
Attorney's Office only occasionally in the past. In one or more instances a question was
raised as to whether the City could contract with an official for a small amount of work
that was completely unrelated to the work of the board or commission on which the
official served. On at least one such occasion, legal staff advised that, under the
reported circumstances, the law did not prohibit the contract but that staff should take
extra care to ensure objectivity in the selection process.
In one or more other cases, the official served on board or commission because of his
or her expertise in a particular field and that same expertise made the official the best
choice for a City contract related to the board, commission or taskforce's work.
However, the contractor was not to be selected and the contract was not to be
administered by the same City department that staffed the board or commission. In
such cases, legal staff provided advice as to keeping the contractor selection and
contract administration separate from the work of the body on which the official served
and the staff that worked with that body. Moreover, legal staff advised that, apart from
Section 1090, the appearance of favoritism in awarding the contract and of misuse of
office to gain a financial advantage should be considered by the City and by the official.
Today, these seldom asked but important questions have arisen again. A large amount
of planning and development work is ongoing in the City at present, and members of the
Planning Commission, who are professionals in the field of architectural design and/or
development, have either received or submitted proposals for City contracts. One of
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commissioners submitted to Planning Department staff a proposal to work on the
specific and neighborhood plans which are called for by the Land Use and Circulation
Element (LUCE) of the General Plan. To his credit, the commissioner also asked legal
staff to assess whether the application created a conflict.
Staff analyzed the potential conflict under Government Code Section 1090 and
concluded that, if the official was chosen for contract work, a conflict would exist that
could disable the Planning Commission from considering the specific and neighborhood
plans. This conclusion rested on a number of facts, including: (1) the Planning
Commission's. role in formulating the LUCE model that calls for specific and
neighborhood plans; (2) the extensive use of contractors for work on the LUCE and
related long-range planning work and the history of the contractors' work being
expanded over time; and (3) the likelihood that the Planning Commission would propose
modifications to any specific or area plans that it reviewed and thereby increase the
contractors' work. Based on these circumstances and the law interpreting Government
Code Section 1090, legal staff concluded that substantial Section 1090 problems
existed and suggested possible alternatives. The Commissioner opted to resign in
order to pursue the contract work.
In response to that situation, legal staff received many questions. This report is
intended to provide answers to some of them and to seek Council input on additional
steps that staff .can take to ensure compliance with legal requirements governing
contracts between the City and officials.
Discussion
In order to formulate any directions, staff recommends that Council first review the
breadth and purpose of Government Code Section 1090.
The courts construe the statute very broadly. Thus, as noted above, the activity of
"making" of a contract is not limited to approving the contract. Instead, it is defined by
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case law to include all aspects of formulating the contract, including preliminary
discussions, negotiations, compromises, planning, soliciting bids and other activities
related to contract formulation and scope. People v. Gnass, 125 Cal.Rptr.2d 225
(2002). The courts have explained that, "however devious and winding the trail may be
that connects the officer with the forbidden contract, if it can be followed and the
connection made, the conflict is established." People v. Honig, 55 Cal.Rptr.2d 555
(1996).
The Honig decision explains the scope of the Section 1090 prohibition. In that case, the
Court of Appeal upheld the felony conviction of the former California Superintendent of
Schools for participating indirectly in the making of a contract between school districts
and his wife's consulting firm. On appeal, the felony conviction was affirmed des ite
the facts that the contract was for fair value, the consulting firm was the only one of its
kind in the state, and the Superintendent's intentions were good. In reaching this result,
the appellate court quoted California Supreme Court decisions explaining that the
purposes of Section 1090 required this broad application:
"The duties of public office demand the absolute loyalty and undivided,
uncompromised allegiance of the individual that holds the office. Yet, it is
recognized that an impairment of impartial judgment can occur in even the
most well-meaning men when their personal economic interests are
affected ... Consequently, our conflict-of-interest statutes are concerned
with what might have happened rather than merely what actually
happened. They are aimed at eliminating temptation, avoiding the
appearance of impropriety, and assuring the government of the officer's
undivided and uncompromised allegiance. ... In view of the purposes of
our conflict-of-interest statutes, it is well established that their scope is not
limited to instances of actual fraud, dishonesty, unfairness or loss to the
governmental entity, and criminal responsibility is assessed without regard
to whether the contract in question is fair or oppressive ... such matters
are irrelevant under section 1090."
55 CaLRptr at 567, ug oting Thomson v Call, 214 Cal. Rptr. 139 (1985) and
Stigall v. City of Taft, 25 CaLRptr. 441 (1962) [citations and quotation
marks omitted; emphasis added].
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In keeping with this rationale, the courts apply Section 1090 with consistent rigor to
protect the public process and public confidence in government. For example, within
just the last year, the appellate courts issued four published opinions on Section 1090
cases, and the California Supreme Court issued one. In one case, the Court of
Appeals invalidated a solid waste franchise granted by the City of Compton even though
the allegedly conflicted "official" was neither a current elected/appointed City officer nor
a staff member but was, instead, an existing city contractor with influence over the
award of the waste management franchise. HUB Solid Waste Services v. City of
Compton, 112 Cal.Rptr.3d 647 (2011). In another case, the appellate court upheld the
felony conviction of a former Los Angeles City commissioner who, while seated on the
City's airport commission, took compensation in the form of a monthly retainer from a
private company that was seeking a new permit from a different commission to operate
at the Los Angeles International Airport (LAX). The court upheld the conviction,
rejecting the commissioner's arguments that he did not profit directly from the ultimate
issuance of the permit (since he was paid a retainer independent of the permit's ultimate
issuance) and that he was not a member of the commission that had jurisdiction.
People v. Wong, 113 Cal. Rptr.3d 384 (2010). And, in Lexin v. Superior Court, 103 CaI.
Rptr. 767 (2010), the California Supreme Court upheld the felony prosecution of a San
Diego pension board member who received an atypical benefit as a result of a board
vote, explaining that "Section 1090 is concerned with ferreting out any financial conflicts
of interest, other than remote or minimal ones, that might impair public officials from
discharging their fiduciary duties with undivided loyalty and allegiance to the public
entities they are obligated to serve." 103 Cal. Rptr. at 785.
And, the courts are not alone. In this era of municipal scandals, the California
legislature is considering strengthening the already stringent requirements of Section
1090. AB 527 would require a public explanation of any claim that Section 1090 does
not apply because a contractual interest is so remote. It would also prohibit a city officer
or employee from authorizing any expenditure of funds or granting any approval in
which he/she had a financial interest. Violations would be crimes.
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The overall message could not be clearer: cities, city officials and city staff must take
care to avoid contractual conflicts of interest. And, that message applies to board,
commission and taskforce members, even though they do not vote to approve
contracts, as well as to Council members, who do. There-are a number of reported
decisions that,. like the Wong case described above, involve board or commission
members. For example, in San Diego v. McKinley, 145 Cal.Rptr. 461 (1978), the court
of appeal concluded that Section 1090 and San- Diego's City Charter both precluded the
City of San Diego from contracting with an architectural firm whose principal was a
member of the city planning commission. The court explained that both laws served the
same purpose of removing "all direct as well as direct influence of an interested officer
in the discharge of his duties" and that both provisions were not only to eliminate fraud
or dishonesty but to also "remove or limit the possibility or any personal influence either
directly or indirectly which might bear on an official's decision ...." 145 Cal.Rptr at 466.
Another example is a case considered by the Attorney General, involving the award of a
contract by San Francisco's Airport Commission for architectural work on the. City's
airport. One of the partners in the architectural firm was a member of the City's arts
commission. The Attorney General concluded that the Airport Commission could not
consider and approve the architectural design, even though the architect served on a
different commission. 77 Ops.Cal.Atty.Gen.112, Opinion No. 94-207. The Attorney
General reasoned that the airport design would be reviewed by the Arts Commission,
which might alter the design and thereby effectively modify the contract, thus affecting
the compensation paid to the architectural firm. Therefore, Section 1090 prohibited the
Airport Commission both from .making the contract and considering the design. This
case stands for the principle that if the applicant for a contract work sits on a board or
commission that will review and may modify the work, the prohibition in Section 1090
applies.
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The Attorney General's analysis in the San Francisco case figured significantly in the
conflict analysis done by the City Attorney's Office for the planning commissioner.
Based on that case and other authorities, the City Attorney's Office has concluded that
Section 1090 precludes the City's Planning Commission from reviewing work done by a
planning commissioner or commissioner's firm on a City contract even if planning staff
did not recommend hiring the commissioner and the planning department does not
oversee the work. This is so because planning commission review may well create
additional work for the contractor - a likelihood that is particularly apparent in the case
of work such as an area and neighborhood specific plans because review of such works
entails the exercise of such broad discretion.
Legal staff will continue to analyze potential conflicts as they come to our attention.
However, the risk of contractual conflicts should also be addressed systemically.
Therefore, in order to ensure legal compliance, avoid future possibilities of City boards
and commissions being legally precluded from doing their work, ensure compliance with
law, preserve public trust, provide board and commission members with certainty about
their obligations and choices, and apprise community members of the responsibilities of
office so that they can make informed decisions about serving as public officials, staff is
making several recommendations.
First, staff proposes to enhance training for City staff on the requirements of Section
1090. At present, all City officials must take ethics training every two years, but there is
no similar requirement for City staff. Legal staff is prepared to immediately provide
training to departmental personnel who are responsible for reviewing proposals and
recommending contractors.
Second, staff proposes to formulate mechanisms for alerting legal staff to the fact that a
public official is seeking a contract with the City. For example, staff can immediately
notify all board, commission and taskforce members that they should contact the City
Attorney's Office before seeking any contract with the City. And, it may be that the City
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should require disclosure of official status on all proposals and bids. (At present, City
officials may assume that staff working on bids or proposals is aware of their official
status; but that may not be the case, partly because of the large number of board,
commission and taskforce members.)
If legal staff is routinely notified by City officials and staff whenever an official is seeking
a contract, legal staff can analyze each situation as it arises. Presumably, Section 1090
and the City Charter will preclude some contracts but not others. For instance, if a
member of the Library Board were to submit a proposal to design public art for a new
City park, Section 1090 would probably not be implicated. In any event, assuming
Council supports these recommendations, legal staff will notify the Council of whatever
steps are taken to implement them.
In addition to new mechanisms intended to ensure appropriate legal analysis in the
future, staff also notes that the Council could consider the option of voiding existing
contracts with public officials as specified in Charter Section 1302. Legal staff
recommends against this option, particularly as an across-the-board approach. Instead,
legal staff proposes to address problems that may exist or arise under Section 1090 by,
to the extent possible, simply avoiding review by the body on which the contractor sits.
Alternatives
The City Council could direct staff to prepare an ordinance implementing Charter
Section 1302, which could establish a flat prohibition against the City entering -into a
contract with any City official. Such a law would be clear and easy to administer; and
they would eliminate any appearance of favoritism. The law could also prohibit making
contracts wherein City officials will serve as subcontractors. Both provisions could be
administered by changing the Request for Proposal forms to require disclosure of any
interest by any City officials: However, this is probably further than the City needs to go
to comply with existing State law; and Council may prefer to retain the options that State
law does allow for contracting with officials in areas unrelated to their public service.
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Financial Impacts & Budget Actions
There are no direct, significant financial impacts attendant upon the recommendations
made in this report.
Prepared by: Marsha Jones Moutrie
Approved:
Forwarded to Council:
Rod Gould
City Manager
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