AB 1234 Self-Study Opportunity, Part One Office-Holder Perks
Laws and Ethical Principles Related To Public Officials’ Personal Financial Gain and Office-Holder Perks
AB 1234 requires elected and appointed officials to take two hours of ethics training if they receive compensation for their services or are reimbursed for their expenses. The ethics training requirement may also apply to agency employees designated by the agency’s legislative body.
There are many ways to satisfy this requirement, including in-person training and self-study activities. Furthermore, like all ethics laws, AB 1234 is a floor, not a ceiling. Local officials can demonstrate their commitment to ethics in public service by going beyond AB 1234’s minimum requirements.
As a special service, Western City and the Institute for Local Government (ILG) are offering this article for one hour of AB 1234 self-study credit (or the first half of the minimum requirement). To claim self-study credit, log on to http://www.ca-ilg.org/post/ab-1234-self-study, print out and take the test, then mail it to the address indicated with a $25 processing fee. This fee covers grading the test, providing the correct answers (and explanations) and your proof of participation certificate.
Scope of This Self-Study Exercise
This article covers the first two areas of ethics training required by AB 1234:
- Laws related to personal financial gain by public officials (including bribery and conflict of interest laws); and
- Laws related to office-holder perks (also known as perquisites), including gifts and travel restrictions, personal and political use of public resources, and prohibitions against gifts of public funds.
It also covers ethics principles that are related to these laws and public service ethics in general.
The June 2006 “Everyday Ethics” column will provide a self-study opportunity to complete AB 1234 ethics training concerning governmental transparency and fair process laws.
Note that public service ethics laws are extraordinarily complex. The learning objective of both self-study and in-person AB 1234 training courses is to familiarize local officials with situations where they need to consult agency counsel, the attorney general or the Fair Political Practices Commission about what the law requires.
Furthermore, the ethics laws and training requirements of AB 1234 are minimum standards. Just because a course of action is legal doesn’t mean that it is ethical or that the public or media will perceive it to be so. Local officials are strongly encouraged to go beyond the minimum ethics training standards created by AB 1234 and participate in additional educational activities related to their legal and ethical obligations as public servants.
Laws Addressing Financial Gain
The principle underlying the financial gain laws is that the possibility of personal financial gain or loss cannot be a factor in your decisions as a public official. The laws in this area are designed to promote the general ethical values of responsibility and trustworthiness. Public servants have a responsibility to act always in the public’s interest, and the public must be able to trust that they will.
The following laws are designed to avoid both the reality and the appearance of personal financial gain influencing public servants’ actions.
- Bribery. Requesting, receiving or agreeing to receive money in exchange for an official action is a crime. Under the state’s criminal laws, a “bribe” includes anything of value; it also includes receiving “advantages.” The advantage can be a future one and need not involve the payment of money. The federal definition of bribery is even broader.
- Disqualification Based on Financial Interests. A public official may not make, participate in or influence a governmental decision that will have a foreseeable and material financial effect on the official, the official’s immediate family or any of the official’s economic interests. Note the breadth of the prohibition: It does not just apply to voting but the entire process leading up to voting. See “Financial Interests Affected by an Agency Decision: When to Seek an Attorney’s Advice” at left for a list of the kinds of financial interests that can give rise to potentially disqualifying conflicts of interests.
- Interests in Contracts Prohibited. A public official may not have a financial interest in any contract made by the board or body of which the official is a member. The law is very strict on this point. Such contracts are void — meaning that the public agency will not have to pay the official for the benefits provided to the agency under the contract. Under most circumstances, the prohibition cannot be avoided by disqualifying oneself from participating in the decision on the contract.
- Prohibition Against Property Acquisition in Redevelopment Areas. Generally speaking, public officials who have input into redevelopment project areas may not acquire property in those areas. Any existing interests must also be disclosed.
- Helping Prospective Employers. A public official may not influence agency decisions when the interests of a prospective employer are at stake. This situation arises when someone is negotiating or has any arrangement concerning prospective employment with someone who has business before the agency.
- Revolving Door. Effective July 1, 2007, elected officials and top-level managers cannot represent private individuals or entities for pay before their agencies for one year after leaving office.
Note that some local agencies have adopted even more restrictive prohibitions.
The consequences of violating these requirements can be severe. They include criminal felony or misdemeanor prosecutions under state and sometimes federal laws. Conviction can involve substantial fines, jail time and loss of office. Civil fines can also add up. For example, the administrative penalty for violation of the Political Reform Act is a fine of up to $5,000 per violation. In most instances, officials targeted for civil enforcement actions will pay tens of thousands of dollars in defense costs — significantly more in criminal cases.
There can also be other kinds of negative consequences. For example, if an official violates prohibitions against self-dealing related to contracts, the official may have to refund amounts paid under the contract. If a decision is tainted by the participation of someone who should have disqualified herself, the decision is subject to invalidation.
Laws on Personal Advantages And Perks
The principle underlying the “no perks” laws is that your status as a public servant and your access to public resources should not afford you special privileges. There are two categories of “no perks” laws. One relates to perks that others provide public officials (for example, gifts). The other involves advantages that officeholders provide themselves (for example, use of public resources).
The laws in this area are designed to promote the general ethical values of fairness, responsibility and trustworthiness. For example, receiving perks from others undermines the public’s trust that decision-makers are treating everyone who comes before them fairly and making decisions solely in the public’s interests.
When officeholders give themselves perks, it undermines the public’s trust that these officeholders are careful, public-minded stewards of taxpayer resources. To the extent that some of these perks involve political advantages, they undermine the fairness of campaigns and elections.
Generally speaking, the “no perks” laws bar some transactions and require disclosure of others, including the following.
Loans. Officials cannot receive loans from those within the agency or with whom the agency contracts (except for bank or credit card indebtedness made in the regular course of the company’s business). Personal loans of more than $500 from others must meet certain requirements (for example, they must be in writing and clearly state the date, amounts and interest payable).
Gifts. With certain exceptions, a public official must disclose most gifts of $50 or more on his or her Statement of Economic Interests and may not receive gifts from any one source that total more than $360 in a single year. Gifts include meals, certain kinds of travel payments, and rebates or discounts to public officials not offered to others in the usual course of business.
Travel Passes From Transportation Companies. State law strictly forbids elected and appointed public officials from accepting free or discounted travel from transportation companies. The penalty for violating the prohibition against accepting travel passes from transportation companies is severe — immediate forfeiture of office.
Travel Expenses From Non-Transportation Companies. Gifts of travel expenses (for example, airfare, lodging, meals and entertainment) from non-transportation companies are generally subject to the gift rules and must be reported on your Statement of Economic Interests as such.
Receiving Gratuities or Rewards. It is a crime to receive any kind of gratuity or reward for performing your duties as a public servant.
Honoraria. State law regulates the degree to which public officials may receive payments for giving a speech, writing an article or attending a public or private conference, convention, meeting, social event, meal or similar gathering. Generally such payments — known as honoraria — are prohibited. The assumption is that such communications are part of a public official’s service.
Personal Use of Public Resources. State law forbids public officials from using public resources for personal purposes. “Public resources” include such things as staff time, office equipment (telephones, fax machines, photocopiers and computers) and office supplies (stationery, stamps and other items). “Personal” use of public resources includes activities that are for personal enjoyment, private gain or ad-vantage. “Use” means the use of public resources that is substantial enough to result in a gain in advantage for the user and a loss to the local agency that can be estimated as a monetary value.
Expense Reimbursement. The general rule is that local agency officials may be reimbursed only for actual and necessary expenses. Effective Jan. 1, 2006, cities, counties and special districts that reimburse their elected and appointed officials must adopt expense reimbursement policies that specify the kinds of activities that will be reimbursable. Local agencies must use expense report forms, and all expenses must be documented with receipts. These documents are public records subject to disclosure.
Limits on Public Official Compensation. Typically there is a legal limit on elected public official compensation levels, either in state or local statutes. Public officials, particularly elected ones, may collect and retain only such compensation as the law allows. As protectors of the public purse, courts generally take a strict approach to public official compensation limits.
City and county officials typically receive a monthly salary for their service. Special district directors tend to be compensated by a daily stipend. With certain exceptions, this stipend compensates such directors for:
- A meeting of any “legislative body” as defined by the Brown Act;
- A meeting of an advisory body; and/or
- Conference attendance or educational activities, including ethics training.
Special districts may compensate officials for attendance at other events as specified in a written policy adopted in a public meeting.
Use of Public Resources for Political Purposes. The same statutes that prohibit the use of public resources for personal benefit also prohibit the use of such resources for campaign purposes. The prohibition applies to campaigns to elect candidates and campaigns in support of or opposition to ballot measures.
Mass Mailings at Public Expense. State law forbids sending mass mailings at public expense. The Fair Political Practices Commission has defined “mass mailings” as sending 200 or more identical pieces that contain the name or pictures of elected officials except as part of a standard letterhead. (For more information, see “Career-Saving Tips on Mass Mailings,” February 2006, Western City.)
Gifts of Public Resources or Funds. California’s Constitution forbids gifts of public funds. This prohibits, for ex-ample, paying for spouses to accompany public officials. It can also be an issue when a public agency contemplates charitable contributions.
Soliciting Political Support From Agency Employees. Soliciting campaign funds from agency officers or employees is also unlawful, as is conditioning employment decisions on support of a person’s candidacy. Compensation decisions may not be tied to political support either.
Speak with your agency counsel about the specifics of these requirements as they may apply to your situation.
The consequences of violating the “no-perk” laws can also be severe. For example, the prohibitions against the personal use of public resources are punishable by a $1,000 per day fine plus three times the value of the resource used. Criminal penalties include a two- to four-year prison term and disqualification from office. Prosecution under the federal income tax evasion laws is also a possibility. Again, this does not include the costs of hiring defense lawyers, which can run into tens of thousands of dollars or more.
Going Beyond the Law
Understanding and complying with public service ethics laws is a challenge, but the public expects even more of its public servants. Rather than making decisions purely on the fly, how can public officials maximize the likelihood that they will meet or exceed the public’s expectations for ethical conduct?
One way is to think in terms of ethical values. Some key values related to public service include responsibility, trustworthiness, respect and fairness. Assess decisions you have to make against these standards.
In addition, you can ask yourself these kinds of questions:
- What decision, behavior or course of action will best promote the public’s trust in my leadership and that of my agency?
- Would I want to read about a certain course of action on the front page of my local newspaper?
- How do I want to be remembered as a public official? What would make my family and parents proud of my work and legacy?
For example, even if you are not legally required to disqualify yourself from participating in a decision, you may want to voluntarily abstain from participating if you believe the public would reasonably question whether you could put personal relationships and interests aside in making a given decision.
Former British Prime Minister Benjamin Disraeli once observed, “ … all power is a trust; … we are accountable for its exercise.” As extensive and complicated as they are, the rules related to public service ethics are a reflection of that overarching quest for accountability and trust.
Financial Interests Affected By an Agency Decision:
When to Seek An Attorney’s Advice
Talk with your agency attorney when an action by your public agency may affect (positively or negatively) any of the following:
Income. Any source of income of $500 or more (including promised income) during the prior 12 months for you or your spouse or domestic partner.
Real Property. A direct or indirect interest in real property of $2,000 or more that you or your immediate family (spouse or domestic partner and dependent children) have, including such interests as ownership, leaseholds (but not month-to-month tenancies) and options to purchase, especially when any of these are located within 500 feet of the subject of your decision.
Personal Finances. Your or your immediate family’s (spouse or domestic partner and dependent children) personal expenses, income, assets or liabilities.
Gift Giver. A giver of a gift of $360 or more to you in the prior 12 months, including promised gifts.
Lender/Guarantor. A source of a loan (including a loan guarantor) to you.
Contract. You or a member of your family would have an interest (direct or indirect) in a contract with the agency.
Business Management or Employment. An entity for which you serve as a director, officer, partner, trustee, employee or manager.
Business Investment. An interest in a business in which you or your immediate family (spouse or domestic partner and dependent children) have a direct or indirect investment worth $2,000 or more.
Related Business Entity. An interest in a business that is the parent, subsidiary or otherwise related to a business if you:
- Have a direct or indirect investment worth $2,000 or more; or
- Are a director, officer, partner, trustee, employee or manager.
Business Entity Owning Property. A direct or indirect ownership interest in a business entity or trust of yours that owns real property.
Campaign Contributor. A campaign contributor of yours (if you are sitting on an appointed decision-making body). For example, this applies if you are a planning commissioner running for city council.
Other Personal Interests and Biases. You have important (but non-financial) personal interests or biases (positive or negative) about the facts or the parties that could prevent you from making a fair decision.
What Will Happen Next?
Your agency attorney will advise you whether a) you can participate in the decision and, b) if a contract is involved, whether the agency can enter into the contract at all. Counsel may suggest asking either the Fair Political Practices Commission or the state attorney general to weigh in. Keep in mind the attorney’s duty is to promote compliance with the ethics laws — not try to find ways around them.
The “Leave the Room” Requirement
If you are disqualified from participating on a specific agenda item under the conflict of interest rules established by the Political Reform Act, you must:
- At the meeting, publicly identify the financial interest or potential conflict of interest in sufficient detail to be understood by the public;
- Not attempt to influence the decision in any way (this includes pre-meeting discussions with staff or colleagues);
- Refrain from discussing or voting on the matter (you should ask for the item to be considered separately if it is on the consent calendar); and
- Leave the room until after the discussion, vote and any other disposition of the matter is concluded, unless the matter is on the consent calendar.
There are limited exceptions that allow a disqualified official to remain in the room and participate in the discussion as a member of the public when one’s “personal interests” are at stake. Consult with your agency attorney about what kinds of personal interests qualify.
Going Beyond the Minimum in Understanding Public Service Ethics
Like all ethics laws, AB 1234 sets minimum standards. The enforcement mechanism for complying with AB 1234’s requirements relies on public opinion and media attention. Records of officials’ compliance with AB 1234 (such as proof of participation certificates) are public records and must be maintained for at least five years.
In addition to maintaining records on compliance with the minimum standards imposed by AB 1234, local agencies may also want to maintain records of any training and study that local agency officials have engaged in beyond AB 1234’s minimum requirements. This will enable those inquiring to ascertain the agency’s and individual’s full scope of commitment to understanding the ethical and legal obligations associated with public service.
Resources for Further Information
The following resources offer more information about ethics laws and principles.
- Institute for Local Government Ethics Resource Center: www.ca-ilg.org/trust