April 5, 2002
This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on April 5, 2002, basing its approval solely on the facts and circumstances stated herein.
May a mayor be employed by a nonprofit corporation when the city the mayor serves transferred a home health agency to the nonprofit corporation and entered into a HOME FUNDS grant to construct apartments for which the nonprofit corporation was selected by the city as the developer during his previous term of office?
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 25-4-1
states:
“The Legislature hereby declares it essential to the proper operation of democratic government that public officials and employees be independent and impartial; that governmental decisions and policy be made in the proper channels of the governmental structure; that public office not be used for private gain other than the remuneration provided by law; that there be public confidence in the integrity of government; and that public officials be assisted in determinations of conflicts of interest.”
Code Section 25-4-101
states:
“The legislature declares that elective and public office and employment is a public trust and any effort to realize personal gain through official conduct, other than as provided by law, or as a natural consequence of the employment or position, is a violation of that trust.Therefore, public servants shall endeavor to pursue a course of conduct which will not raise suspicion among the public that they are likely to be engaged in acts that are in violation of this trust and which will not reflect unfavorably upon the state and local governments.”
Code Section 25-4-103(c),
(f)(i)(ii), (g)(ii), (h) 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, anonprofit corporation or other such entity, association or organization receiving public funds.(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:
(ii) Municipalities.
(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.(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.”
Pertinent facts and circumstances in the form of the requestor’s
letters, absent identifying data, are attached hereto and considered a
part of this opinion.A summary of
the facts is set forth below.
SUMMARY OF FACTS
On February 27, 2001, the requestor wrote the Commission for an official advisory opinion.In his letter, the requestor advised he was mayor of a City that operated a Home Health Agency.During his first term of office, the City transferred its Home Health Agency to a Nonprofit Corporation.The requester sought an advisory opinion on the question of him becoming an employee of the Nonprofit Corporation that now owns and operates the Home Health Agency.Specifically, the facts provided were:
The Mayor and Board of Aldermen of the City passed a Resolution, dated January 31, 1996, transferring the City’s Home Health Agency to the Nonprofit Corporation; and
The Mayor and Board of Aldermen of the City passed an Order, dated April 17, 1996, to execute all documents necessary to transfer ownership of the furniture and fixtures of the Home Health Agency purchased with the funds derived from a certain promissory note executed by the City, dated February 6, 1995, in the original amount of $33,418.75, to the Nonprofit Corporation [note: the City never made a payment on the promissory note] andtransfer ownership of the Home Health Agency’s 1994 Ford Crown Victoria automobile to the Nonprofit Corporation.
The Commission issued Official Advisory Opinion No. 01-034-E, on April 6, 2001, in response to the requestor’s February 27th letter.Opinion No. 01-034-E stated the Commission’s opinion that the requestor’s employment by the Nonprofit Corporation was prohibited by Constitutional Section 109.Also, Opinion No. 01-034-E stated that Code Section 25-4-101 would prohibit the mayor from being employed, being compensated or otherwise receiving a pecuniary benefit from the Nonprofit Corporation that received the transfer of the Home Health Agency from the City.
In a letter dated January 22, 2002, the mayor requested the Commission to reconsider Opinion No. 01-034-E. The mayor’s request for reconsideration puts forth the argument thatthe City’s transfer of its Home Health Agency to the Nonprofit Corporation is not a contract for purposes of Constitutional Section 109 and Code Section 25-4-105(2).
Attorneys for the mayor attended the Commission’s meeting on February 1, 2002.The mayor’s attorneys set forth the mayor’s position that the City’s Home Health Agency transfer to the Nonprofit Corporation is not a contract as contemplated by Constitutional Section 109 or the Mississippi Ethics Laws. The position is based upon the fact that this transfer created no obligations, responsibilities, terms, conditions or continuing relationship of any kind between the parties.Further, except for a State Health Department moratorium that existed at that time, the City could have terminated its operation of the Home Health Agency and the Nonprofit Corporation could have applied for a license [Certificate of Need (CON)] outright.
During the Commission’s February 1st meeting, the Commission staff informed the Commission members and the mayor’s attorneys of additional facts that were not provided by the mayor in his original request letter dated February 27, 2001 and were therefore not known nor considered by the Commission when Official Advisory Opinion No. 01-034-E was issued on April 6, 2001.The additional facts arose from a letter the mayor provided the Commission in mid-2001 in regard to a separate inquiry and concern a HOME FUNDS grant the City obtained and the Nonprofit Corporation’s selection by the City as the developer of the apartments built with the HOME FUNDS grant monies.Specifically, the additional facts arising from the mayor’s second request letter and the Commission staff’s request for additional information pertaining to that letter are as follows:
The Minutes of the Mayor and Board of Aldermen of the City dated March 4, 1997, authorize the mayor to sign a 1997 HOME FUNDS application on the City’s behalf and appoint the Nonprofit Corporation as developer of the proposed housing project. Also, these Minutes authorize an Owner’s Repayment Plan. The HOME FUNDS grant was approved by the State and the City in October of 1997 in the amount of $400,000.00;
A 1999 Agreement established a Limited Liability Company (LLC) to own the apartments built with the HOME FUNDS grant. In the Agreement, the Nonprofit Corporation and two other entities form the LLC with the Nonprofit Corporation receiving 98% of profits, income and other distributions of the LLC;
A 1999 Correction Warranty Deed whereby the Nonprofit Corporationtransfers 2.87 acres to the LLC where the apartments are located;
A 1999 Land Deed of Trust whereby the LLC is the grantor and the City is the Beneficiary, the indebtedness being $400,000.00 and the land described being the 2.87 acres the Nonprofit Corporation deeded to the LLC; and
A 1999 Installment Promissory Note whereby the LLC promises to pay the City the sum of $400,000.00 in 480 monthly payments over 10 years.
The Commission at its February 1st meeting tabled the mayor’s request for reconsideration of Opinion No. 01-034-E to allow the mayor’s attorneys the opportunity to review the documents discussed pertaining to the HOME FUNDS grant awarded the City for the apartments that the Nonprofit Corporation developed and the related matters.
The Commission’s executive director wrote a letter to the mayor’s attorneys on February 5, 2002.In the letter, the executive director advised the mayor’s attorneys that the mayor’s request had been tabled.Also, the executive director provided the mayor’s attorneys with copies of documentation on the HOME FUNDS grant and the related matters and advised the mayor’s attorneys that additional documentation relating to the City and its housing projects were available in the Commission’s office for review. The additional documentation having been originally provided to the Commission by the mayor.
On February 25, 2002, the Commission received the mayor’s attorneys’ letter dated February 22, 2002.In the letter, the attorneys reiterate their position on the Home Health Agency transfer.In addition, the attorneys provided their position on the HOME FUNDS grant and the related matters. Specifically, their position on the HOME FUNDS matter is as follows:
The LLC is an independent, not for profit corporation.Its only relationship with the City is that the City served as a sponsor and conduit for a HUD pass through federal grant to the Nonprofit Corporation, an independent, not for profit corporation, which could only be used for the specific purpose of constructing the apartment complex.The City had no discretion to use it otherwise.Additional funds were obtained from an out-of-state bank and a local bank by the Nonprofit Corporation.No City monies, as such, were contributed to this project and no City monies are now or ever will be used for its operation and management.The Nonprofit Corporation’s relationship with the LLC consists of construction of the complex and management thereof.The Nonprofit Corporation receives approximately $500.00 per month as a management fee; and
The Nonprofit Corporation’s Board passed a resolution providing that the Nonprofit Corporation will relinquish the daily operation and management of the apartments to an independent individual and not accept any maintenance or management fees from the apartments.Further, monies collected for the apartments will be deposited in a separate bank account and will not be commingled with other funds of the Nonprofit Corporation and no funds will be used from the apartments to pay the mayor if he is employed as a consultant by the Nonprofit Corporation.
The Commission has attached Advisory Opinion No. 01-034-E hereto, and thereby, formally incorporates it into this opinion.
Based solely on the facts and circumstances presented by the requestor, the Commission’s opinion is as follows.
The requestor is advised that this Commission has consistently held that mayors of code chartered municipalities are board members for purposes of the conflict of interest laws.They are considered working members of their boards of aldermen with discretion and superintending powers and duties affecting their municipalities.Specifically, they have the duty to preside at all meetings of their boards, the power to veto actions of their boards and to give deciding votes.[1]
The mayor’s attorneys have asserted that Code Section 25-4-101 is merely a preamble and thereby does not impose any responsibility on the mayor to comply with its mandate.The same is expected to be their position in regard to the public policy declaration set forth in Code Section 25-4-1.
However, the Legislature has historically set forth the state’s public policies in “preambles” to legislative acts.
The Mississippi Supreme
Court, in the case of Hinds Community College District v. Muse,
725 So. 2d 207 (Miss. 1998), addressed both Code Section 25-4-1
and Code Section 25-4-101
as the legislative directive in determining injury and damages to the public
in conflict of interest cases. Quoting from paragraphs 14 and 15 of Muse,
supra, the Court said:
“¶ 14. Conflict of interest laws are designed to instill public confidence in the integrity of government.Nepotism and self?dealing are two of the more pernicious threats to our democratic ideals. The Mississippi Legislature has concisely enunciated the Legislative purpose underlying the conflict of interest laws: The Legislature hereby declares it essential to the proper operation of democratic government that public officials and employees be independent and impartial; that governmental decisions and policy be made in the proper channels of the governmental structure; that public office not be used for private gain other than the remuneration provided by law; [and] that there be public confidence in the integrity of government.Miss.Code Ann. § 25-4-1(Supp.1997).Moreover, "... elective and public office is a public trust and any effort to realize personal gain through official conduct ... is a violation of that trust...." Miss.Code Ann. § 25-4-101.The injury inflicted in the case sub judice is not an injury to Hinds Community College resulting from inadequate teaching by [the president’s spouse].Her competence is irrelevant for our present consideration.Rather, the injury is to the public's perception of Hinds Community College, its administration and its faculty.By employing his wife, Dr. Muse presented an appearance of improper self?dealing.He appeared to use his public office to obtain pecuniary benefit for himself and his wife.¶ 15.The legislative directive focuses on the wrongful gain to the violative public servant as a measure of damages to the public trust.The injury is the loss of public trust; the damages are the benefits wrongfully gained.”
The Court has said very clearly that the public policy of this state is “found in its constitution and statutes.”[2]In insurance cases involving indemnity clauses, the courts have said that contracts may be invalid because they violate public policy.[3]
In addition, the Mississippi Supreme Court has addressed certain instances where public servants are limited in their actions by public policy.In Board of Trustees v. Mississippi Publishers Corp., 478 So. 2d 269 (Miss. 1985), the Court ruled that the Institution of Higher Learning (IHL), regardless of the reasons benefitting IHL, could not ignore the clearly established public policy set out in the Open Meetings Law.[4]Also, the Court ruled in Friedhof v. City of Biloxi, 232 Miss. 20 (1957), that city council members may not vote on matters directly concerning their personal interests as it is against public policy.[5]
The state’s public policy of public service being a public trust is clearly expressed in Code Sections 25-4-1 and 101.The mayor’s employment as a consultant with the Nonprofit Corporation that his City, during his tenure as mayor, has transferred ownership of the Home Health Agency andhas assisted in obtaining funding for construction and operation of apartments through a HOME FUNDS grant for the LLC of which the Nonprofit Corporation has an 98% interest must be balanced against the clear statutorily declared public policy of public trust.
The mayor has a public trust obligation to avoid the appearance of realizing personal gain through official conduct and/or any course of conduct that can be expected to create suspicion among the public and reflect unfavorably upon the City and the mayor’s office.Clearly, the mayor accepting employment as a consultant with the Nonprofit Corporation under the circumstances addressed herein is a course of conduct that can be expected to create suspicion among the public and reflect unfavorably upon the City as it raises the appearance of self-dealing.
Therefore, the mayor can only comply with the public trust obligation and public policy mandate set forth by the Legislature in both Code Sections 25-4-1 and 25-4-101 by decliningemployment with or compensation and otherwise pecuniary or personal benefits from the Nonprofit Corporation while serving as the City’s mayor.
APPLICATION OF CONSTITUTIONAL SECTION 109
Constitutional Section 109, cited above, 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.”
In its deliberation of the prohibition imposed by Constitutional Section 109 in Frazier v. State of Mississippi, 504 So. 2d 675 (1987), the Mississippi Supreme Court stated:
“This section prohibits any public officer or member of the legislature from:
(a) having any direct or indirect interest in any contract(b) with the state or any political subdivision
(c) executed during his term of office or one year thereafter, and
(d) authorized by any law, or order of any board of which he was a member.”
In Muse, supra, the Mississippi Supreme Court, in paragraph 9, stated, “Our Ethics in Government Act stems from the provisions of Section 109 of the Mississippi Constitution of 1890 which provides as follows: 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.”
Also, the Mississippi Court of Appeals, in Shelton v. Town of Hickory Flat, 725 So. 2d 1075 (Miss. App. 1998), addressed the Mississippi Ethics Commission’s authority to investigate and enforce Constitutional Section 109 in denying a private individual’s attempt to enforce an alleged Constitutional Section 109 violation. The Court of Appeals, in paragraph 12 of Shelton, stated, “Moreover, the Mississippi Ethics Commission is statutorily empowered to investigate any alleged violation of law by a public official, Miss. Code Ann. § 25-4-19 (Supp. 1998), and any complaint for such violation ‘may be initiated only by the Mississippi Ethics Commission or the district attorney of the county in which the violation occurred.’ Miss. Code Ann. § 25-4-107(1) (Rev. 1991).”[6]
As stated in the attached Advisory Opinion No. 01-034-E, it is the Commission’s opinion that the City’s transfer of the Home Health Agency to the Nonprofit Corporation is a contract for purposes of the state conflict of interest laws as it is an agreement to which the City is a party as state law prohibits the City from donating to a private corporation.
In support of this finding, the Commission refers the mayor’s attorneys to an Attorney General’s Opinion issued to the mayor in regard to the City’s authority to own and operate the Home Health Agency in a multi-county health service area.This opinion is not identified or attached as it would identify the mayor.However, the mayor should be able to provide a copy to his attorneys as it was issued to the mayor.Also, the Commission’s staff will provide a copy of the Attorney General’s Opinion to the mayor’s attorneys upon request.
In the Attorney General’s Opinion, the Attorney General opined that the City’s legal authority to own and operate the Home Health Agency in a multi-county health service area was the Community Hospital laws set forth in Chapter 13, Title 41, 1972 Mississippi Code Annotated (amended).
Specifically, the Attorney General noted that Code Section 41-13-10(c) provides, “‘Community hospital’ means any hospital, nursing home and/or related health facilities or programs, including without limitation, ambulatory surgical facilities, intermediate care facilities, after-hours clinics, home health agencies and rehabilitation facilities, established and acquired by boards of trustees or by one or more owners which is governed, operated and maintained by a board of trustees.” [Emphasis added to bold text]
Relying on Code Section 41-13-10(c), the Attorney General, in his opinion to the mayor, stated, “In response to your inquiry and based on our stated assumptions, it is the opinion of this office that the above quoted statutory provisions constitute the legal authority for the [City] to continue as the owner of the [Home Health Agency] and for said agency to operate in its multi?county service area.¶We make no comment on the reference to the home health agency as "a department of the city" or the several resolutions adopted by the municipal governing authorities.We direct your attention to Mississippi Code Annotated § 41-13-29 (1) (Revised 1993) which provides that ‘(w)here such community hospital is owned solely . . . . by a municipality, the trustees shall be residents of the owning entity’.”
Based on the Attorney General’s Opinion that the City’s authority to own the Home Health Agency arises solely from the Community Hospital laws, the City’s authority to dispose of the Home Health Agency, i. e., to transfer the Home Health Agency to the Nonprofit Corporation, must also arise from the Community Hospital laws.[7]
The authority to convey the property, real and personal, comprising a community hospital and its assets to a nonprofit entity is found in Code Section 41-13-15(7)(b).
Specifically, Code Section 41-13-15(7)(b) provides:
“Owners may sell and convey all or part of the property, real or personal, comprising a community hospital, including any related facilities, wherever located, and/or assets of such community hospital, to any individual, partnership or corporation, whether operating on a nonprofit basis or on a profit basis, or to the board of trustees of such community hospital or any other owner or board of trustees, subject to the applicable provisions of subsections (8) and (10) of this section.Such sale and conveyance shall be upon such terms and conditions as may be agreed upon by the owner and the purchaser that are consistent with the requirements of this section, and the parties may make such provisions for the transfer of operating funds or for the assumption of liabilities of the facility, or both, as they deem appropriate.However, such sale and conveyance shall be conditioned upon (i) the facility continuing to operate in a manner safeguarding community health interests;(ii) the proceeds from such sale being first applied against such bonds, notes or other evidence of indebtedness as are issued pursuant to Section 41-13-19 as and when they are due, provided that the terms of the sale shall cover any indebtedness pursuant to Section 41-13-19;and (iii) any surplus proceeds from the sale being deposited in the general fund of the owner, which proceeds may be used for any lawful purpose.However, owners may not sell or convey any community hospital to the University of Mississippi Medical Center unless first the University of Mississippi Medical Center has obtained authority to purchase such hospital under specific terms and conditions from the Board of Trustees of State Institutions of Higher Learning.” [Emphasis added to bold text]
APPLICATION OF CONSTITUTIONAL SECTION 109 TO THE HOME FUNDS GRANT
The mayor’s attorneys propose a “Chinese wall” solution to the HOME FUNDS grant circumstance as a solution to the mayor having a prohibited contract interest in the HOME FUNDS grant, the Land Deed of Trust and the Installment Promissory Note.
The “Chinese wall” solution consists of a Resolution passed by the Nonprofit Corporation to do the following:
The Nonprofit Corporation relinquishes its daily operation and management of the LLC’s apartments to an independent individual; thereby, not accepting any maintenance or management fees from said LLC;
The monies collected from the LLC’s apartments will be deposited in a separate bank account and will not be commingled with funds of the Nonprofit Corporation, Inc.; and
The Nonprofit Corporation will not use funds from the LLC’s apartments to pay the mayor if and when he is employed as a paid consultant by the Nonprofit Corporation.
Notwithstanding the proposed “Chinese wall” solution pertaining to the management agreement between the Nonprofit Corporation and the LLC and the related management fee, it is the Commission’s position that the following facts will result in the mayor violating Constitutional Section 109 if he accepts employment with the Nonprofit Corporation as he will have a prohibited interest in the following contracts authorized during his previous term of office:
The 1997 HOME FUNDS grant the City received for which the Nonprofit Corporationwas the developer as agreed by the City’s mayor and board of aldermen in their Minutes;
The 1999 Land Deed of Trust whereby the LLC is the grantor and the Cityis the Beneficiary, the indebtedness being $400,000.00 and the land described being 2.87 acres on which the apartments are located. The mayor’s prohibited interest arising from the Nonprofit Corporation receiving 98% of profits, income and other distributions by way of the 1999 agreement establishing the LLC; and
The 1999 Installment Promissory Note whereby theLLC promises to pay the Citythe sum of $400,000.00 in 480 monthly payments over 10 years. The mayor’s prohibited interest arising from the Nonprofit Corporation receiving 98% of profits, income and other distributions by way of the 1999 agreement establishing the LLC.
Scott Rankin
Executive Director