This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on February 4, 2000, basing its approval solely on the facts and circumstances stated herein.
May a school board member be indirectly employed and compensated by a bank as an agent for an insurance company owned by the bank when the bank is the school district's depository or otherwise contracts with the school district?
State law restricts the Mississippi Ethics Commission to interpreting and issuing opinions on Sections 25-4-101 through 25-4-119, 1972 Mississippi Code Annotated and Article IV, Section 109, Mississippi Constitution of 1890. Therefore, this opinion does not address the Mississippi laws outside the Commission's jurisdiction nor the governmental entity's internal rules and regulations.
The pertinent conflict of interest laws to be considered here are:
Constitutional Section 109 states:
"No public officer or member of the legislature shall be interested, directly or indirectly, in any contract with the state, or any district, county, city, or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member, during the term for which he shall have been chosen, or within one year after the expiration of such term."
Code Section 25-4-103(c), (e), (f)(i)(ii), (g)(iii), (h), (i) and (p)(i)(ii)(iii) states:
"(c) 'Business' means any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, holding company, self-employed individual, joint stock company, receivership, trust or other legal entity or undertaking organized for economic gain, a nonprofit corporation or other such entity, association or organization receiving public funds.
(e) 'Compensation' mean money or thing of value received, or to be received, from any person for services rendered.
(f) 'Contract' means:
(i) Any agreement to which the government is a party; or
(ii) Any agreement on behalf of the government which involves the payment of public funds.
(g) 'Governmental' means the state and all political entities thereof, both collectively and separately, including but not limited to:
(iii) All school districts.
(h) 'Governmental entity' means the state, a county, a municipality or any other separate political subdivision authorized by law to exercise a part of the sovereign power of the state.
(i) 'Income' means money or thing of value received, or to be received, from any source derived, including but not limited to, any salary, wage, advance, payment, dividend, interest, rent, forgiveness of debt, fee, royalty, commission or any combination thereof.
(p) 'Public servant' means:
(i) Any elected or appointed official of the government;
(ii) Any officer, director, commissioner, supervisor, chief, head, agent or employee of the government or any agency thereof, or of any public entity created by or under the laws of the State of Mississippi or created by an agency or governmental entity thereof, any of which is funded by public funds or which expends, authorizes or recommends the use of public funds; or
(iii) Any individual who receives a salary, per diem or expenses paid in whole or in part out of funds authorized to be expended by the government."
Code Section 25-4-105(2) states:
"(2) No public servant shall be interested, directly or indirectly, during the term for which he shall have been chosen, or within one (1) year after the expiration of such term, in any contract with the state, or any district, county, city or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member."
Pertinent facts and circumstances provided by the requestor, absent identifying data, are set forth as follows and considered a part of this opinion.
Per the instructions from your office, I am writing to request an opinion about a possible conflict of interest relating to my position as a board member of the School District.
In January of 1999, I accepted a position as an insurance agent with Insurance Agency. In March of 1999, I was appointed for a full term to the School Board. In October, 1999 the insurance agency was purchased by Bank. The agency is now Insurance, a Subsidiary of Bank. As a result of this acquisition by the bank, I am now indirectly an employee of Bank.
At our January meeting the school board discussed letting bids for our interest bearing funds. When this subject came up, it occurred to me for the first time that a conflict of interest might now exist. This board voted only to allow the Superintendent to publish a bid notice, and I abstained from discussion and voting on this matter.
There have been no substantial changes in my day to day job activities, my office has not been moved to the bank, and I still report to the original agency principles. I have no position, title, or authority within either organization. I am just an agent selling insurance and my income is based on sales produced for the insurance company.
My employment contract and compensation agreement are with the insurance company, not with the bank. However, my paycheck is issued by the bank's payroll department. It may be important to note here that the bank issues the payroll to all insurance company employees mainly to facilitate the use of direct deposit by employees. The insurance company then reimburses the payroll expense to the bank, so the insurance company is actually paying me.
Considering these facts, I cannot see where I have an interest in the School District's choice of banks. The bids are there for all to see and the best deal is obvious. I also questioned our Superintendent on this procedure and was told that she opens the bids, makes the decision, and acts accordingly. Our board does not vote on this matter, so where would the conflict be?
I am under the impression that the law on this matter is influenced by the population, and whether or not the town has a population of 7,000 or more. If so, this is also a difficult issue. At last census, the City counted approximately 6,500 residents, now we may have 6,000 or 7,000.
If, in your opinion, a conflict does exist, this could be a real problem in many small towns. In this day of acquisitions and mergers we are often connected to interests we might not even know about. In places like this city the pool of people qualified to serve the community will be greatly diminished.
Does a conflict of interest exist? If so, is there a remedy that will allow me to remain on the school board? As the father of two children in the Schools and a citizen interested in what is best for all our students, I will be greatly disappointed if I am no longer allowed to serve due to events beyond my control.
Based solely on the facts and circumstances presented by the requestor, the Commission's opinion is as follows.
Constitutional Section 109 and Code Section 25-4-105(2), both cited above, absolutely prohibit a member of a governmental body, including a school district board of trustees, from having an interest, direct or indirect, in any contract authorized by the governmental body of which he is a member during his term and for one year thereafter.
Therefore, Constitutional Section 109 and Code Section 25-4-105(2) absolutely prohibit a member of a school district's board of trustees from having a direct or indirect interest in a bank selected as the school district's depository or that contracts in any other way with the school district.
The prohibition of the school district contracting with the bank applies not only during the term of a school board member but also for one year thereafter.
As an "indirect" employee of the bank through his position as an insurance agent for the insurance company owned by the bank, the requestor has a prohibited interest in the bank's contracts with the school district as anticipated in Constitutional Section 109 and Code Section 25-4-105(2).
Therefore, Constitutional Section 109 and Code Section 25-4-105(2) will absolutely prohibit the requestor from serving on the school board due to his prohibited interest in the bank's contracts authorized by the school board to serve as a depository through opening accounts with the bank while an approved depository; through determining the amount of funds to be deposited, transferred or invested with the bank while an approved depository; and/or through the obtaining of any other goods or services from the bank.(1)
The requestor is advised that a recusal or an abstention will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2). Even without a board member's vote, the authorization by the member's board nonetheless results in a contract in which the board member has a prohibited interest.(2) Also, the requestor is advised that a "no vote" will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2).(3)
Also, the prohibitions imposed by Constitutional Section 109 and Code Section 25-4-105(2) are not limited or restricted by population.
Notwithstanding the above, the amendment during the 1997 Legislative Session to Section 37-7-333, 1972 Mississippi Code Annotated (amended), referenced in footnote 1, also must be considered by the requestor's school board. This amendment addresses a circumstance such as that presented herein by the requestor. Therefore, the Commission does offer the following analysis of Constitutional Section 109 in light of the amendment to Code Section 37-7-333; even though the Commission's statutory authority to issue advisory opinions to public officials is limited to interpretations of the state conflict of interest laws.
In Frazier v. State, 504 So. 2d 675, (Miss. 1987), the Mississippi Supreme Court set forth the four elements for applying the prohibition imposed by Constitutional Section 109. The four elements are:
1. Is there a governmental contract with the state, county, municipality or district?
2. Does the public officer have an interest, direct or indirect, in the contract?
3. Is the contract authorized by a law passed or order made by a board or public body
of which the public officer is a member?
4. Was the authorizing law or order passed during the public officer's term or within
one year after the expiration (or termination) of such term?
It seems that the only effect that the 1997 amendment to Code Section 37-7-333 could have on whether Constitutional Section 109 continued to apply to a school board member's prohibited interest in a depository's contract or contracts would be if the contract or contracts with the depository where no longer authorized by an order made by the school board. In other words, to eliminate Element 3 set forth in Frazier.
In order to avoid a violation of Constitutional Section 109 by fully eliminating Element 3, it seems clear that not only must the school board be fully and completely removed and replaced by a designated entity for the purposes of soliciting bids from depositories and for selecting depositories but also the following is necessary.
The school board also must be removed and replaced by a designated entity for purposes of selecting and opening accounts; for approval of securities pledged in the bids; for the transfer and deposit of funds between depositories; and for all other such related functions. The designated entity must replace the school board in relation to its normal responsibilities and duties regarding depositories and the superintendent of education and/or other school employees must address depository matters with the designated entity just as they normally would with the school board had not a school board member had a prohibited interest in one or more of the depositories.
In other words, the removal of the local governing body from the selection process of the depositories alone does not eliminate the discretionary authority of the local governing body to open bank accounts with each depository; to determine the type of bank accounts opened with each depository; to determine the amount of funds deposited in the bank accounts of each depository; and the approval of the securities pledged in the bid.(4)
In regard to the requestor's observations relating to individuals being prohibited by Constitutional Section 109 and Code Section 25-4-105(2) from serving in public office because of their private interests, the Commission refers the requestor to Frazier v. State, 504 So. 2d 675 (1987). The Mississippi Supreme Court, in Frazier, regarding Constitutional Section 109, stated:
"First, it is clear this section is to protect the government. It is not a provision to protect individual rights. It is not concerned with whether some individual or class of individuals may suffer from its enforcement. As noted in Noxubee County Hardware Co., supra, the transgression test is intended to be mechanistic and objective, and motives and intentions of persons who violate it are immaterial. Its purpose is to remove any temptation to invade its proscription. It is also, a self-executing section, and more specific than many, perhaps most, constitutional provisions. See, e. g. Bucklew v. State, 192 So. 2d 275 (Miss. 1966) (175 held self-executing); In re Initiative Petition No. 281 v. Rogers, 434 P. 2d 941 (Okla. 1967). It prohibits an individual having an interest in a contract when he as a public officer served on the official body which enabled the contract to come into being. It is simple. Being self-executing, its provisions cannot be modified or encroached upon by the Legislature. Opinion of the Justices, 251 So. 2d 755, 759 (Ala. 1971); Frost v. Johnston, 90 S. W. 2d 1045, 1048 (Ky. 1936); State v. Smith, 194 S. W. 2d 302, 305 (Mo. 1946)."
This advisory opinion is not intended to address whether a violation
of the conflict if interest laws has already occurred as an advisory opinion
is not the proper process to determine that question. An investigation
is the only method whereby a determination can be made as to whether probable
cause exists to believe that a violation of the state conflict of interest
laws has occurred.
Ronald E. Crowe
Executive Director
1. Code Section 37-7-333, in part states: " The school boards of all school districts shall have full control of the receipt, distribution, allotment and disbursement of all funds which may be provided for the support and maintenance of the schools of such district . . . All such allotments or funds shall be placed in the depository or depositories selected by the school board in the same manner as provided in Section 27-105-305 for the selection of county depositories. The bids of financial institutions for the privilege of keeping school funds may be received by the school board at some subsequent meeting, but no later than the regular June meeting; and the selection by the school board of the depository or depositories shall be effective on July 1 of each year. School boards shall advertise and accept bids for depositories, no less than once every three (3) years . . ." [Emphasis added to bold text]
2. Towner v. Moore, 604 So. 2d 1093 (1992): "The fact that Mary Towner did not vote to hire her husband, or, in her words, 'attempt to influence members . . . to vote for such employment' is beside the point. Both constitution [Section 109] and statute [Code Section 25-4-105(2)] speak of contracts authorized while she was a member of the board, however she may have voted or abstained.
3. Waller v. Moore, 604 So. 2d265 (1992): "Waller argues that his negative vote on hiring his wife insulated him from the violation and liabilities . . . There is no such provision exempting him from the prohibition of Section 109 and 25-4-105(2). It is his interest in his wife's contract, not his vote, that is prohibited."
4. See attached Attorney General's Opinion to Ronald E. Crowe dated September 3, 1999.