Commitment to Nonprofit Causes and Public Service: Some Issues To Ponder, Part 2
This column is a service of the Institute for Local Government (ILG) Ethics Project, which offers resources on public service ethics for local officials. For more information, visit www.ca-ilg.org/trust. The following people contributed ideas and legal analysis for this column: Rob Ewing, city attorney, Danville; Pedro Gonzalez, mayor, City of South San Francisco; Roy A. Hanley, city attorney, Solvang and King City, Hanley and Fleishman; David Hirsch, city attorney, Simi Valley; Selma J. Mann, assistant city attorney, Anaheim; Michelle Sheidenberger, deputy city attorney, Roseville; Larissa Seto, assistant city attorney, Pleasanton; and Daniel G. Sodergren, assistant city attorney, Tracy.
Question Posed in Part 1
I just completed my first campaign for public office and am happy to report that I won. One of the issues that came up in the campaign was my extensive involvement in nonprofits in our area. I am the executive director of one nonprofit and serve on the board of another. I volunteer for a third. I think my extensive community involvement is one reason I was elected, but what issues should I be alert to now that I’m an elected official? I don’t want to make any missteps.
Part 1 of this article, which appeared in the August 2008 issue, explored the ethical issues for public officials to consider regarding relationships with nonprofit organizations. This column and the next focus primarily on the legal issues. (Part 1 is available at www.westerncity.com/nonprofitethics).
In fundraising or similar situations, public officials must take extraordinary care to separate their roles as fundraisers or representatives of a nonprofit and as public officials. They must strive to ensure that people from whom they’ve solicited a contribution for a charitable cause understand that such a contribution will not favorably influence their decision on a separate matter. Using one’s official position to, in essence, force donations to nonprofits violates state and federal laws that prohibit extortion1 and protect the public’s right to officials’ honest services.2
It doesn’t necessarily matter that a public official doesn’t financially benefit from a donation to a nonprofit. A few members of a committee bidding for the right to host the Olympic Winter Games found this out the hard way when they were successfully prosecuted for bribing and providing gifts to members of the International Olympic Committee (IOC). The court held that the site committee need not have obtained personal gain from their actions, but only needed to intend to deprive the public of the IOC members’ honest services.3
To create a degree of transparency in this area, the law says that the public has a right to know who is giving big money to charitable causes at a public official’s request. Under the law, when contributions from a single person or entity reach $5,000 over the course of a year, the official needs to write a memo to be kept with the agency’s custodian of records explaining this information:
- Which organization or person contributed
- What amount (of $5,000 or more) to
- Which cause, and
- When the money was given.
Some agencies have created a form to facilitate complete reporting. This disclosure needs to be made within 30 days of reaching the $5,000 threshold.4
The disclosure requirement applies if the public official is the one who requests or suggests that the donor make the donation. It also applies if the request for a donation is made by letter and the public official’s name appears on the solicitation (including as part of the letterhead). If the official’s name appears on a grant application, even as part of a listing of the board of directors, the disclosure requirement applies.5 In fact, any time someone donates to a cause in "cooperation, consultation, coordination or concert with" a public official, the disclosure requirement applies.6
What does the disclosure accomplish? It is one piece of information that can enable the public or media to assess if there is any correlation between a donation and a public official’s decision. The goal is to avoid the perception or reality that someone receives special treatment by virtue of having donated to a public official’s favorite causes.
As an ethical matter, it’s best to avoid asking for donations from those who have matters pending with one’s agency (or soon will). This way, the would-be donor does not feel like the decision to donate will affect how the official acts on the donor’s pending matter. This relates to the ethical value of fairness. It also avoids any claims by a donor that a public official is trying to secure such contributions in exchange for a favorable decision.
Seeking donations from agency employees presents similar ethical issues. Employees may feel they can’t say "no" without a risk that it could affect their employment. This is why the law prohibits public officials from seeking campaign contributions from employees.7 The same principle of fairness suggests that public officials voluntarily refrain from asking employees to contribute to the officials’ favorite causes.
Reporting Meals, Travel, Gifts and Expense Reimbursement
Most board members and volunteers for nonprofit organizations are unpaid. However, the nonprofit may pay for travel expenses and food or make other gestures that show appreciation to those who serve the nonprofit. A question under the ethics laws is whether these gestures should be treated as gifts, income or neither.
If the nonprofit is a 501(c)(3) organization, the issue is whether the public of-ficial has provided services or something else to the organization, such as a speech or participation on a panel. If the public official provided services of equal or greater value to the 501(c)(3), then travel reimbursement is not reportable and not subject to a value limit.8 If the public official has not provided services, then reimbursement of travel expenses from the 501(c)(3) is reportable but not subject to the value limit, as long as the travel is reasonably related to a governmental purpose or issue of public policy.9
For nonprofit organizations that are not 501(c)(3) eligible, the issue is whether travel expenses, meals and other gestures from the nonprofit are a form of compensation to the nonprofit’s leadership or volunteers. If so, then their value should be reported as income on an official’s Statement of Economic Interests, particularly if the value totals $500 or more.10 For these gestures to qualify as income (as opposed to gifts), an official needs to be able to demonstrate that he or she provided services equal to or greater than the value of the reimbursements, meals and other gestures.11 (Note that reimbursement for travel or meals is not reportable as income for purposes of state and federal tax laws.)
If no services were provided for the gestures, then the gestures’ value is reportable as a gift if they total $50 or more in a calendar year.12 The same is true if the payments are for purely social or recreational activities paid for by the nonprofit.13 The value of the gestures cannot total more than the annual gift limit ($390 for 2008).14 The exception is a gesture that is a personalized item (like a plaque) whose value doesn’t exceed $250. Such personalized items do not need to be reported as either a gift or income.15
Agency Financial Transactions With the Nonprofit
There may be times when the nonprofit has business with the agency. The nonprofit may want to lease agency property or perform services for the agency. It may be seeking a donation to support its operations or an event (see "For Whom the Whistle Blows," April 2005, Western City, on legal requirements related to making donations to nonprofits, online at www.westerncity.com). It’s important to note that there are two different laws an attorney will need to analyze for a public official if one of these situations exists.
1. One is a prohibition against public officials having certain kinds of interests in contracts involving their agency. Attorneys call this a "1090" issue, which refers to the section of the Government Code where the prohibition appears. The prohibition applies to public officials having a financial interest in a contract, but it is important to keep in mind that the definition of "financial interest" is very broad, and so is the definition of "contract."
2. The other is the Political Reform Act’s provisions that require public officials to step aside from decisions and the decision-making process if they have a financial interest in the decision. As with the prohibitions relating to contracts, the definition of "financial interest" is broad, and the analysis of how the prohibition applies is quite complex. One aspect of whether receiving travel reimbursement from a nonprofit creates a disqualifying conflict of interest was addressed in Part 1 of this article (online at www.westerncity.com/nonprofitethics).
The complexity of the analysis required under both laws makes it advisable to consult with your agency counsel as early as possible about these issues.
The third and final part of this column, which will appear in the December 2008 issue of Western City, analyzes conflict-of-interest and bias issues that public officials may encounter as a result of their involvement with nonprofit organizations.
1 See Cal. Penal Code § 518; 18 U.S.C. § 1951.
2 U.S. v. Kemp, 379 F. Supp. 2d 690, 697-98 (E.D. Penn. 2005), aff’d 500 F.3d 257 (3d Cir. 2007), cert. denied, 128 S. Ct. 1329 (2008).
3 U.S. v. Welch, 327 F.3d 1081 (10th Cir. 2003); U.S. v. Silvano, 812 F.2d 754, 760 (1st Cir. 1987). Cf. U.S. v. Bloom, 149 F.3d 649 (7th Cir. 1998) (finding personal gain necessary).
4 Cal. Gov’t Code § 82015(b)(2)(B)(iii).
5 Cal. Code Regs. § 18225.7(a) ("Made at the behest of" means made under the control or at the direction of, in cooperation, consultation, coordination, or concert with, at the request or suggestion of, or with the express, prior consent of." )
6 Sundberg Opinion , FPPC Advice A-05-087 (May 27, 2005).
7 Cal. Gov’t Code § 3205.
8 Cal. Gov’t Code §§ 82030(b)(2). See FPPC, Limitations and Restrictions on Gifts, Honoraria,
Travel and Loans: A Fact Sheet for Local Officials (January 2007) at 7. (http://www.fppc.ca.gov/factsheets/giftlocal.pdf). See also Benninghoven Advice Letter, FPPC No. I-93-298. (October 15, 1993); Kidwell Advice Letter, FPPC No. A-00-103 ( September 14, 2000 ).
9 Cal. Gov’t Code § 89506(a)(2). See FPPC imitations and Restrictions on Gifts, Honoraria, Travel and Loans: A Fact Sheet for Local Officials (January 2007) at 8. (http://www.fppc.ca.gov/factsheets/giftlocal.pdf). See also Benninghoven Advice Letter, FPPC No. I-93-298. (October 15, 1993); Kidwell Advice Letter, FPPC No. A-00-103 ( September 14, 2000 ) .
10 Benninghoven Advice Letter, FPPC No. I-98-177 (November 12, 1998); Benninghoven Advice Letter, FPPC No. I-93-298. (October 15, 1993).
11 Cal. Gov’t Code § 82028(a).
12 Cal. Gov’t Code § 87207(a)(1).
13 Kidwell Advice Letter, FPPC No. A-00-103 ( September 14, 2000 ) .
14 2 Cal. Code Regs. § 18940.2; Cal. Gov’t Code § 89503.
15 2 Cal. Code Regs. § 18942 (a)(6).
AB 1234 Self-Study Credit Available
Did you already complete the basic AB 1234 training two years ago? Would you like to expand your knowledge by doing something new this time to comply with AB 1234? Did you take the Fair Political Practices Commission’s online course, and do you need extra time to bring yourself up to the two-hour total requirement?
The Institute for Local Government (ILG) is offering this three-part article ("Commitment to Nonprofit Causes and Public Service: Some Issues to Ponder," Parts 1, 2 and 3, appearing in the August, October and December issues of Western City) for advanced AB 1234 ethics self-study credit to those officials who have already covered the basic materials required by AB 1234 (see www.ca-ilg.org/ab1234selfstudy).
To earn two hours of AB 1234 advanced self-study credit, you must complete two one-hour self-study exercises at www.ca-ilg.org/ab1234advancedcredit.
Each one-hour exercise costs $25. In each instance, local officials need to:
ILG will send your corrected test back to you with the answers and explanations, along with your proof of participation certificate(s). Processing may take up to four weeks.
Proceeds from the processing fees help cover ILG’s costs to develop these materials, grade the test and provide the proof of participation certificate(s). ILG thanks you in advance for supporting its work in public service ethics.