A Government Relations Bulletin
The Ohio Ethics Commission recently issued guidance on conflicts of interest that can arise with public- and private-sector partnerships. “Public-Private Partnerships: Information Sheet No. 11 summarizes the law on a series of topics that commonly arise between public and private entities, and provides some practical examples of situations that can arise in each case. The guidelines can be found on the Commission’s website.
As the economy slowly regains momentum, more and more public and private entities are joining forces to share much-needed resources. While most private entities—both for profit and nonprofit—are aware that Ohio Ethics Laws apply when they seek a public contract, they should also be aware that economic development grants, incentives and other public programs are considered “public contracts” that could trigger a conflict of interest. Additionally, if a private organization has a public official or employee serving on a board, conflicts of interest can arise any time the public and private entities interact.
The following are examples of conflict-of-interest situations that can arise when public and private entities interact:
Economic Development and Public Contract Issues
Public support or incentives to promote economic development (e.g., grants, loans, tax incentives, etc.) constitute a “public contract.” Therefore, the public entity giving the support and the private entity seeking such aid should be diligent about avoiding any conflict of interest that can arise if a public official, their business associates or their family members have an interest in the same contract.
When these situations occur, it is usually not sufficient for the public official to simply withdraw from participating in the matter and avoid the conflict of interest. If a public official has a prohibited interest in a public contract issued by his or her public entity, a conflict of interest can occur even if he or she withdraws from participating in the matter. In addition, as a result of a recent amendment in the law, contracts issued in violation of this prohibition can be void and unenforceable.
There are some exceptions in the law that may allow the private entity to move forward with the contract, even if a public official has an interest in the same matter. For example, if the contract is considered in a fair and open process, and the program is expected to fully fund all qualified applicants, the transaction may move forward. However, if any public official or private entity suspects there could be a conflict of interest, they should consult with legal counsel or contact the Ohio Ethics Commission.
Service on Nonprofit Boards
Many public officials serve on nonprofit boards in support of their communities, either for pay or on a voluntary basis. Such service creates a fiduciary and/or economic interest in public contracts issued to the nonprofit by the public entity on which the official serves. At a minimum, the public official should withdraw from any decision or activity that impacts the nonprofit entity. However, a public official may also be prohibited from serving on the nonprofit board if the nonprofit receives a public contract from the public agency on which the official serves.
Exceptions to these restrictions occur when the public official serves the nonprofit in an “official capacity.” For example:
- A public agency either creates or participates in a nonprofit entity;
- A public agency formally appoints an official to represent it on the nonprofit’s board of directors;
- A public agency instructs the official to represent the agency’s interest;
- An official does not otherwise have a conflict of interest.
Gifts, Donations and Other Compensation
Ohio Ethics Laws prohibit anyone with business before a public agency from giving anything of value (e.g., travel, meals, entertainment or other gifts that have more than a nominal or de minimus value) to an official or employee of the agency. A “person” includes a company or vendor selling goods and services to the agency, as well as a nonprofit or other entity seeking benefits or incentives from the agency.
Private organizations are allowed to make donations to a public entity only when the gift does not directly benefit an official or employee of the agency. Public-Private Partnerships: Information Sheet No. 11 provides examples of proper and improper donations to illustrate the point. For example, a private company could voluntarily donate industrial and safety equipment so long as no employee benefits personally from the donation. However, a private company may not provide travel expenses to a public official even if the travel would benefit the agency, because a personal benefit would accrue to the public official.
A private organization is also prohibited from supplementing the salary of a public official. Conflicts of interest can arise when a school’s booster organization rewards a coach for a winning season, or a community group provides funds to boost a public salary for purposes of luring candidates to the job. See, for example, Ohio Ethics Commission Advisory Opinion No. 2008-01 which addresses these issues. Additional compensation from any private source for performance of public duties is prohibited.
Changing from a public to a private-sector job can trigger ethical restrictions for both the employer and the employee. Private employers who seek to recruit public employees should remember that the promise of future employment is a thing of value. Prospective employers who seek to hire a public employee away from an agency that regulates the employer, or with which the employer seeks to do business, should be mindful that such a decision can create an ethical dilemma for both parties.
If a public employee can completely disassociate himself from participating in any matter involving the private employer, then the public employee can consider and accept the job offer. A public employee who cannot effectively withdraw from a matter is prohibited from accepting the job. Public employees should also remember that they cannot profit from a contract that they helped to create or award when they move to a private-sector position.
The Commission’s Common-Sense Prohibitions
The Commission concluded its information sheet with a list of common-sense prohibitions that could arise in public and private partnership situations.
- The law prohibits a public official from having an interest in a contract, grant or loan between the official’s agency and a private employer, or from authorizing any contract, grant or loan to a private employer.
- The law prohibits a public official from serving as an officer or trustee of a nonprofit organization that has a contract with, or receives a grant or loan from, the public agency.
- A public official is not prohibited from serving as an officer or trustee of a nonprofit organization if service is in an “official capacity” representing the public agency.
- The law prohibits giving consulting fees, gifts, personal entertainment, travel, meals and lodging, and other things of substantial value to a public official. (The law does not prohibit voluntary donations to a public agency, as long as no individual official benefits personally.)
- The law prohibits any level of compensation to a public official for the performance of the official’s duties.
- The law prohibits a private-sector entity from promising or giving the offer of employment to a public official who is engage in regulatory, business or other activity regarding the private entity.
- The law prohibits a public official from soliciting or using a public position to secure employment from a party with a nexus to the public agency.
- A public official may be able to withdraw from regulatory, business or other duties related to a private entity in order to seek or accept employment from the party.
Violations of Ohio Ethics Laws can result in serious penalties to the parties involved, including some criminal penalties. In other cases, a public contract can be voided and unenforceable if it is issued in violation of the Ethics Laws. Further questions should be addressed directly with the Ohio Ethics Commission or legal counsel for assistance.