Karen M. Steentofte General Counsel Sacramento County Office of Education May 2, 2008 -secs: 87100, 87103, 82048, 82041, 87100, 82030. 2, 87103, 87100, 87103, 87103, 87103, 82041, 82030. 2, 87103, Regs: 18700. 18, 18700. 1, 1

May 2, 2008
Karen M. Steentofte

General Counsel

Sacramento County Office of Education

10474 Mather Blvd.

P.O. Box 269003

Sacramento, CA 95826

Re: Your Request for Informal Assistance

Our File No. I-08-047
Dear Ms. Steentofte:
This letter is in response to your request for advice on behalf of the Sacramento County Office of Education regarding provisions of the Political Reform Act (the “Act”).¹ Because you do not name the employees in question, we can provide you only informal assistance.  Informal assistance may be requested by a person who is an authorized representative of a public official, or by a person who has a duty to advise public officials about their responsibilities under the Act.² (Regulation 18329(c)(1).) You note that under Education Code Sections 1241.5 and 42636 the County Superintendent of Schools, the person you advise, is obligated to examine and approve school district expenditures within the superintendent’s jurisdiction.
Additionally, please note, our advice is limited to obligations arising under the Act. We do not address the applicability, if any, of other state or local law such as statutes regulating the making of gifts with public funds, common law conflicts of interest, or Government Code Section 1090.
QUESTION
May officials at a school district who will benefit from a severance package participate in the construction and enactment of their own severance package?

CONCLUSION
No. The employees may not participate in decisions in their public capacity because there will be a personal financial effect on the employees.

FACTS
A school district in your county employs 20 management employees, some employed by contract. The district is merging with two other districts in the county. The management employees of the district propose a severance package for those persons who do not wish to work for the merged district. The school board will consider the package. Under Education Code Section 42636, the county superintendent is charged with examining disbursements of district funds to determine if the payments are proper.
ANALYSIS
The Act’s conflict-of-interest rules (Sections 87100 et seq.) prohibit a public official from making, participating in making, or using his or her official position to influence a governmental decision in which the official has a financial interest. Section 87103 provides that a public official has a “financial interest” in a governmental decision if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official, a member of his or her immediate family, or on any of the official’s economic interests.

The Commission has developed an eight-step process for deciding whether an official has a disqualifying conflict of interest in a given governmental decision; we generally describe this process below. (Regulation 18700(b)(1)-(8).)

 

Steps 1 and 2. Are the individuals in question public officials who may make, participate in making, or use their official position to influence a governmental decision?
The Act’s conflict-of-interest provisions apply only to “public officials.” (Sections 87100, 87103; Regulation 18700(b)(1).) “Public official” is defined as “every member, officer, employee or consultant of a state or local government agency....” (Section 82048.) A “local government agency” means a county, city or district of any kind, including any county board or commission. (Section 82041.) Generally, school board members and other high-level employees of a school district are considered public officials. Since the officials in question are in management, we will assume that they are public officials for the school district regardless of whether they are formal employees or work as independent contractors.
The Act’s conflict-of-interest provisions apply only where a public official “make[s], participate[s] in making or in any way attempt[s] to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest.” (Section 87100; Regulation 18700(b)(2).) The Commission has adopted a series of regulations that define “making,” “participating in making,” and “influencing” a governmental decision and that provide certain exceptions to these actions. (Regulations 18702-18702.4.)
Making or Participating in Making a Governmental Decision: A public official “makes a governmental decision” when the official, acting within the authority of his or her office or position, votes on a matter, obligates or commits his or her agency to any course of action, or enters into any contractual agreement on behalf of his or her agency. (Regulation 18702.1.) A public official “participates in making a governmental decision” when, acting within the authority of his or her position and without significant substantive or intervening review, the official negotiates, advises or makes recommendations to the decision-maker regarding the governmental decision. (Regulation 18702.2.)
Using Your Official Position to Influence a Governmental Decision: Public officials are also prohibited from “influencing” a governmental decision. There are two rules as to whether a public official uses or attempts to use his or her official position to influence a governmental decision. The first rule applies when the governmental decision is within or before the public official’s own agency or an agency appointed by or subject to the budgetary control of the public official’s agency, but the public official is not a decision-maker per se. (Regulation 18702.3(a).) In that case, if “the official contacts, or appears before, or otherwise attempts to influence, any member, officer, employee or consultant of the agency” then he or she is attempting to influence a governmental decision. This includes, but is not limited to, “appearances or contacts by the official on behalf of a business entity, client, or customer.” (Ibid.)
The second rule applies when the governmental decision is within or before an agency other than the public official’s own agency, or an agency appointed by or subject to the budgetary control of the public official’s agency. (Regulation 18702.3(b).) Under this rule, the official cannot act or purport “to act on behalf of, or as the representative of, his or her agency to any member, officer, employee or consultant of an agency” to influence a decision. (Ibid.)
Exceptions: Regulation 18702.4(a)(3) and (b)(3) provides that making or participating in making a governmental decision and influencing do not include:

• 
  Actions by public officials relating to their compensation or the terms or conditions of their employment or contract.
  

• 
  Negotiation of an official’s own compensation or the terms and conditions of his or her employment or contract.
  

The first of those exceptions recognizes the “government salary” exception set forth in Section 82030(b)(2), which generally exempts an official’s salary from being a economic interest that can create a disqualifying conflict of interest under Section 87103(c). For the reasons discussed in steps five and six below we conclude that this exception does not apply here.

The second of these exceptions recognizes that a public official is not precluded under Section 87100 from negotiating his or her own compensation. However, under the facts you present, the officials in question apparently, on their own, conceived of, analyzed and prepared the severance package while acting in their official capacities and, also in their official capacities, presented the package for approval to the school district board in the form of a staff proposal to the board. Under these circumstances, we think these officials were doing more than merely negotiating the terms of their compensation. Here, they were actually participating in the school district’s deliberations on their own severance package.³
Step 3. What are the official’s economic interests?
The Act’s conflict-of-interest provisions apply only to conflicts of interest arising from economic interests. A public official has an economic interest in:

 

• 
  A business entity in which he or she has a direct or indirect investment of $2,000 or more (Section 87103(a); Regulation 18703.1 (a)); or in which he or she is a director, officer, partner, trustee, employee or holds any position of management (Section 87103(d); Regulation 18703.1(b));
  

 

• 
  Real property in which he or she has a direct or indirect interest of $2,000 or more (Section 87103(b); Regulation 18703.2);
  

• 
  Any source of income, including promised income, which aggregates to $500 or more within 12 months prior to the decision (Section 87103(c); Regulation 18703.3);
  

• 
  Any source of gifts to him or her if the gifts aggregate to $390 or more within 12 months prior to the decision (Section 87103(e); Regulation 18703.4);
  

• 
  His or her personal finances, including those of his or her immediate family -- this is the “personal financial effects” rule. (Section 87103; Regulation 18703.5.)
  

 

Because a school district is a government agency under Section 82041, the salary and benefits paid by the district to district employees would presumably not be considered “income” under Section 82030(b)(2), the “government salary exception” to the Act’s definition of “income,” which excludes from consideration:

“Salary and reimbursement for expenses or per diem received from a state, local, or federal government agency and reimbursement for travel expenses and per diem received from a bona fide nonprofit entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code.”⁴

However, a personal financial effect on government salary and benefits may still be disqualifying as an effect on personal finances as discussed below.

Step 4. Are the economic interests directly or indirectly involved in the decision?
“In order to determine if a governmental decision’s reasonably foreseeable financial effect on a given economic interest is material, it must first be determined if the official’s economic interest is directly involved or indirectly involved in the governmental decision.” (Regulation 18704.5.)
Thus, under Regulation 18704.5 a public official is deemed to be directly involved in decisions that have any financial effect on the official's personal finances, even a penny’s worth. A decision to create a severance package would have a financial effect on the personal finances of the officials covered by the package. Therefore, the official’s economic interest in their personal finances would be directly involved in the decision.
Steps 5 and 6. Will there be a material and foreseeable financial effect on the economic interests?
Once a public official identifies his or her relevant economic interests, the official must evaluate whether the decision will have a material financial effect on any of those economic interests. The official must find the applicable materiality standard in Commission Regulations. (Section 87103; Regulation 18700(b)(5), Regulation 18705, et seq.) Since the officials’ interest is directly involved in the decision, Regulation 18705.5 applies:
“(a) A reasonably foreseeable financial effect on a public official's or his or her immediate family's personal finances is material if it is at least $ 250 in any 12-month period . . . .

1 The Political Reform Act is contained in Government Code Sections 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Fair Political Practices Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regulations. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated.

2 Informal assistance does not provide the requester with the immunity provided by an opinion or formal written advice. (Section 83114; regulation 18329(c)(3), copy enclosed).

3 ^ You ask if our analysis would change if the idea for the severance package originated with the school district board or an employee not affected by the severance package and the officials in question prepared the package in response to a request from the board or the unaffected employee. Facts of this nature may assist the inquiry of whether an official is negotiating his or her compensation, as permitted under Regulation 18702.4(a)(3) and (b)(3), as opposed to actually participating in or trying to influence the agency’s decision to offer the severance package. But if the officials go beyond mere preparation of the package as requested and advocate its adoption to either the school district board or persons advising the board, we would view that as more than mere negotiation of one’s compensation.

4 ^ Also, see Regulation 18232, which includes benefits received as part of government employment within the definition of “government salary.”