Congratulations! In addition to your duties as an elected city official and your responsibilities to your private sector employment, you’ve now been asked to serve on a board or commission. Perhaps you’ve been asked to represent your city on a Council of Governments or Community Improvement Corporation. Perhaps you will serve on the board of a non-profit corporation or a state board or commission. In any case, your new position will trigger new ethical obligations that you must consider.
For the most part, public officials can identify potential conflicts of interest, recuse themselves from acting on a particular matter, and avoid an ethical problem. However, there are situations when recusal is not enough. There are also situations when recusal is not required, even if there seems to be a conflict of interest. Below, please find an overview of those unique situations where recusal is not the answer.
Before accepting any appointment, a public official should carefully consider his current duties and obligations, and decide if it is ethically and practically possible to carry out both roles. In addition to considering time constraints and possible prohibitions on the use of public resources, the nominee should decide whether the two positions are compatible.
The Ohio Attorney General has issued a number of formal opinions analyzing the compatibility of public offices and positions. The Compatibility of Public Officers or Positions Index (“Index”) lists hundreds of opinions that examine an official’s ability to simultaneously hold two public offices. The Index is available on the Ohio Attorney General’s Opinions web page and should be consulted before accepting a second public position.
When Recusal May Not Be Needed
In many instances where a public official serves on a board or commission in his official capacity, recusal may not be required when issues involving the city come before the board or commission. Ohio law generally prohibits a public official from having “an interest in the profits or benefits of a public contract entered into by, or for the use of, the political subdivision or governmental agency or instrumentality with which he is connected.” R.C. 2921.42(A)(4).
However, the Ohio Ethics Commission has adopted an “official capacity” exception, holding that the prohibitions of Ohio’s ethics laws do not apply to a public official who serves in his “official capacity” to represent his political subdivision’s interests on another board or commission. In a series of opinions, the Ohio Ethics Commission ruled that where a public official serves on a non-profit board or other body as part of his official duties, there is no duality of interests to distract the public official from carrying out his public duties. The Commission recognizes that political subdivisions may create or participate in non-profit corporations to provide necessary services for their constituents and may want to have a public official serve on those non-profits. See for example, Adv.Ops.No. 83-010 (Community Development), Adv.Ops.No. 92-012 (Hospital Services),Adv.Ops.No. 96-005 (Non-Profit MRDD Provider).
The Ohio Ethics Commission adopted a four-part test for determining whether the “official capacity” exception is met:
- The governmental entity must create or be a participant in the non-profit corporation.
- The legislative authority or appointing governing body of the political subdivision must formally designate the office or position to represent the political subdivision.
- The public official or employee must be formally instructed to represent the interests of the political subdivision.
- There must be no other conflicts of interest on the part of the individual appointee.
See Adv.Ops.No. 84-001, 88-005, 96-005.
The Ohio Revised Code also contains several specific exemptions from the ethics laws for designees of a political subdivision who serve on various types of public organizations. For example, R.C. 167.07 provides that membership on a regional council of governments “shall not constitute an interest, either direct or indirect, in a contract or expenditure of money by any” political subdivision. Similar provisions are found for joint economic development districts and community improvement corporations and elsewhere in the Revised Code. See R.C. 715.70(G) and 1724.10(A), for example.
In circumstances where the public official serves on another board or commission as a representative of the City, official recusal may not be necessary when City matters come before the other body. It is important to check the governing statutes regulating the public board or commission or, for non-profit entities, consider the Ohio Ethics Commission’s official capacity exception.
When Recusal Is Not Enough
While a public official can recuse himself from deliberations on most contracts that involve his private sector employer, there are certain types of contracts where recusal alone may not be sufficient to avoid a conflict of interest. Ohio Revised Code Section 2921.42(A)(3) prohibits a public official during his term of office, or for one year thereafter, from occupying any position of profit related to the public contract that either he or his board or commission authorized. A public official cannot:
. . . occupy any position of profit in the prosecution of a public contract authorized by him or by a legislative body, commission, or board of which he was a member at the time of authorization, unless the contract was let by competitive bidding to the lowest and best bidder.
Unlike other provisions in the ethics laws, this section prohibits a board member from occupying any position of profit that he or his board approved. Adv.Ops.No. 87-008 and 92-008. Because actions by the board or commission as a whole are also included, recusal from the deliberation of the contract at issue is not sufficient to avoid a conflict of interest under R.C. 2921.42(A)(3).
A public official can be deemed to profit from a public contract under Subsection (A)(3) where the official’s private sector salary or compensation is paid from or dependent upon the public contract, or if the official receives some other benefit from the contract. Therefore, a city councilmember who also is a shareholder in a corporation, or would otherwise be directly paid from the proceeds of the city contract, could be found to occupy “a position of profit” in a contract. Adv.Ops.No. 90-005, 93-001, 01-002.
If the councilmember will still personally benefit from council’s action, even if he recuses himself, R.C. 2921.42(A)(3) is triggered. When faced with a conflict of interest under Subsection (A)(3), the councilmember should recuse himself from all deliberations, and unless an exception applies, divest himself of all proceeds from the contract.
Similarly, recusal may not be sufficient to avoid a violation of R.C. 2921.42(A)(4), which provides that a public official is prohibited from knowingly having “an interest in the profits or benefits of a public contract entered into by or for the use of the political subdivision or governmental agency or instrumentality with which he is connected.” Subsection (A)(4) contains a blanket prohibition against having “an interest in a contract” entered into by the board or commission. Recusal from the deliberations of the public board or commission is still required by other provisions in the ethics laws, but may not completely remedy a conflict of interest under Subsection (A)(4).
The Ohio Ethics Commission previously held that directors or officers of a private corporation or partners of a law firm have a direct and definite fiduciary or pecuniary interest in the contracts of the corporation. See for example, Adv.Ops.No. 83-003, 88-008, as to corporate officers and Adv.Ops.No. 90-007 and 95- 004 as to law partners. To trigger a conflict of interest under Section (A)(4), the interest must be definite and direct and can be either fiduciary or pecuniary. Adv.Ops.No. 86-005, 89-008. Whether a conflict exists will depend on the facts and circumstances of a particular matter. For example, in Adv.Ops.No. 2001- 02, the Ethics Commission ruled that a member of a board of directors of a port authority, who was also an officer of a private company, had a direct interest in his company’s participation in a bond program administered by the port authority.
On the other hand, employees of a corporation generally do not have concerns under (A)(4) as a result of their public service on a board or commission because they generally do not have a “definite and direct” pecuniary or fiduciary interest in the contracts of their private companies. For example, in Adv.Ops.No. 92-008, the Ethics Commission found that an employee of a bank who was not a director, held no stock, and did not have any benefit or gain from deposits made in the bank, was simply an employee of the bank and had no direct interest in the contracts of the bank for purposes of Ohio ethics laws. Of course, there can be exceptions to the general rule based upon the specific facts of a case, and the appearance of impropriety should always be considered.
Thus, where a board member has an interest in the profits of a contract issued by his board because of his private sector business, R.C. 2921.42(A)(4) is implicated. As with Subsection (A)(3), the board member must recuse himself from deliberations on the matter. Unless an exception applies, he should also consider whether receiving any profits from the contract is permitted, even if he recuses himself.
Ohio ethics laws contain some limited exceptions that might apply to avoid conflicts of interest. For example, R.C. 2921.42(B) provides that a public official does not have an interest in a public contract or the investment of public funds when his interest is limited to owning or controlling shares of the corporation and do not exceed five percent of the outstanding shares of the corporation. To qualify for the exception, the individual must also file “an affidavit giving his exact status in connection with the corporation or other organization” with his political subdivision before the contract is made.
Another limited exception is found in R.C. 2921.42(C) when the subject of the public contract is either a necessary supply or service, is unobtainable elsewhere for the same or lower cost, or is being furnished to the political subdivision, or governmental agency or instrumentality as part of a continuing course of dealing established prior to the public official’s becoming associated with these involved entities. To qualify for the exception, the treatment accorded the political subdivision must be preferential to or the same as that accorded other customers or clients in similar transactions. The entire transaction must also be conducted at arm’s length and with full knowledge by the political subdivision involved.
As outline above, public board and commission members can generally avoid a conflict of interest with their private sector employment by recusing themselves from any matters involving their private employers. However, there are situations where recusal alone is not sufficient. If no exception applies, the board or commission member may need to divest all interest in the proceeds of a contract issued by the public entity he serves. At times, this may be a prudent course of action even if an exception may apply.
Public officials should always be wary of potential conflicts of interest in adherence to the Ohio ethics laws. This task becomes more complicated as public officials simultaneously serve in different roles in the public or private sector. Because of the penalties involved, not to mention the potential for negative media attention, public officials should be very careful when dealing with any potential conflicts of interest. Before undertaking any action that could constitute a conflict of interest, public officials are encouraged to discuss the matter with their city attorneys or consult with the Ohio Ethics Commission. The Ohio Ethics Commission web page at www.ethics.ohio.gov contains a number of resources and Advisory Opinions that can be useful in these situations. The Commission can also be reached at 614-466-7090.