This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on September 6, 2002, basing its approval solely on the facts and circumstances stated herein.

May a city accept a donation from a beverage company in exchange for an exclusive contract with the beverage company to sell soft drinks on city property and at city functions, when a bottling company employing one of the city’s aldermen has an exclusive franchise with the beverage company for the area in which the city is located?

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 25-4-101 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), (d), (f)(i)(ii), (g)(ii), (h), (k)(i)(ii), (o) and (p)(i)(ii)(iii) state:
 

“(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.

(d) ‘Business with which he is associated’ means any business of which a public servant or his relative is an officer, director, owner, partner, employee or is a holder of more than ten percent (10%) of the fair market value or from which he or his relative derives more than One Thousand Dollars ($1,000.00) in annual income or over which such public servant or his relative exercises control.

(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.

 
(k) ‘Material financial interest’ means a personal and pecuniary interest, direct or indirect, accruing to a public servant or spouse, either individually or in combination with each other.  Notwithstanding the foregoing, the following shall not be deemed to be a material financial interest with respect to a business with which a public servant may be associated:
 

(i)  Ownership of any interest of less than ten percent (10%) in a business where the aggregate annual net income to the public servant therefrom is less than One Thousand Dollars ($1,000.00);

(ii) Ownership of any interest of less than two percent (2%) in a business where the aggregate annual net income to the public servant therefrom is less than Five Thousand Dollars ($5,000.00);

(o) ‘Public funds’ means money belonging to the government.

(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), (3)(a) and (4)(d) state:
 

“(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.

(3) No public servant shall:

 

(a) Be a contractor, subcontractor or vendor with the governmental entity of which he is a member, officer, employee or agent, other than in his contract of employment, or have a material financial interest in any business which is a contractor, subcontractor or vendor with the  governmental entity of which he is a member, officer, employee or agent.

(4) Notwithstanding the provisions of subsection (3) of this section, a public servant or his relative:
 

(d) May be a contractor, subcontractor or vendor with any authority of the governmental entity of which he is a member, officer, employee or agent or have a material financial interest in a business which is a contractor, subcontractor or vendor with any  authority of the governmental entity of which he is a member, officer, employee or agent: (i) where such goods or services involved are reasonably available from two (2) or fewer commercial sources, provided such transactions comply with the public purchases laws; or (ii) where the contractual relationship involves the further research, development, testing, promotion or merchandising of an intellectual property created by the public servant.”

Pertinent facts and circumstances provided by the requestor, absent identifying data, are set forth as follows and considered a part of this opinion.
 

On behalf of the Town, it is requested pursuant to Section 25-4-17 of the Mississippi Code that the Ethics Commission issue an advisory opinion as to the following:

The Town has a baseball and softball field that is owned and operated by the Municipality, which charges a nominal fee to users to defray operational costs.  Revenue for capital improvements is generated through appropriation from the Municipality, from civic clubs which donate money for specific improvements, and from the members of various civic organizations, who donate their labor.

Though solicitation by the Mayor, a beverage company has made a contract proposal to the Town wherein the beverage company would donate two (2) little league baseball scoreboards and a soccer scoreboard (the value of the scoreboards totaling approximately Twelve Thousand Three Hundred Four Dollars ($12,304.00); and, in addition, would donate Twenty Thousand Dollars ($20,000.00) to the Town in exchange for exclusive beverage rights at all city owned building and property within the Town.  According to the contract proposal, the Town would give the beverage company the exclusive right to furnish refreshment drinks for resale, which would be purchased from the beverage company for a stated amount.  All revenue received is to be paid to the Town.
 
One of the Alderman with the Town is employed by a soft drink bottling company which has the exclusive franchise for the beverage company for the Town area.  The Alderman is not a stockholder in the bottling company; has no ownership interest whatever in the bottling company, is not employed in either the marketing or sales department at the bottling company, and gets no compensation whatever, either directly or indirectly, from the sale of the beverage products at the Town.

We would appreciate an opinion as to whether or not the Town or the Alderman would have an ethical conflict with a contract such as the one proposed.

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, prohibit a public board member from having an interest, direct or indirect, in any contract authorized by the  board of which he or she is a member during his or her term and for one year thereafter.

For purposes of Constitutional Section 109 and Code Section 25-4-105(2),  the city board’s approval and obligation of the city to enter into a contract with a beverage company to donate two (2) little league baseball scoreboards and a soccer scoreboard in addition to a monetary donation to the city, in exchange for the city giving the beverage company exclusive beverage rights at all city owned buildings and property, would constitute a contract for purposes of Constitutional Section 109 and Code Section 25-4-105(2).

In Frazier v. State, 504 So. 2d 675, (Miss. 1987), the Mississippi Supreme Court set forth the following four elements necessary to apply the Constitutional Section 109 prohibition:
 

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?

First, as stated above, the city’s agreement to accept a beverage company’s donation contingent on the city assigning exclusive beverage rights to the beverage company at all city property and events, constitutes a contract with the city.

 
Secondly, the alderman would have an indirect interest in the city’s contract with the beverage company through his employment with the soft drink bottling company, which has the exclusive franchise for the beverage company and therefore, will benefit in a pecuniary or proprietary way.

Thirdly, the facts presented by the requestor disclose the city’s contract with the beverage company would be authorized by a law passed or order made by the board or public body of which the public officer is a member.

Lastly, the city’s contract with the beverage company would be during the board member’s term of office.

Therefore, a strict interpretation of Constitutional Section 109 and Code Section 25-4-105(2) will prohibit the city from entering into a contract during the alderman’s term and for one year thereafter with the beverage company, since the alderman is employed by the bottling company that owns the beverage company franchise.  The prohibition stems from the alderman having an indirect interest in the city’s contract with the beverage company by way of its franchise contract with his employer, the bottling company.  An employee clearly  has a personal and pecuniary interest in his employer’s contracts.

However, the Mississippi Supreme Court, in Frazier v. State, 504 So. 2d at 695, stated that “though Section 109 sweeps broadly, the court acknowledged that there is an edge to the target.”  Based on the facts presented by the requestor, i.e., the beverage company being a franchise of the company employing the alderman; the alderman not being employed in the sales or marketing department; and, the alderman not receiving compensation from the sale of products to his city; these circumstances might well be determined by a court of competent jurisdiction to be off the target.

Also in a recent opinion, Jones, et al. v. Howell, et al., No. 1998-CA-01523 (2002) , the Court held that in determining if a public official’s interest is beyond “the edge of the target” for purposes of applying Constitutional Section 109, it is appropriate to look at the potential for self-dealing and graft and whether the intent could reasonably be expected to influence the public official’s judgment.

Also, in Jones, the Court indicated that consideration can be given to whether the public official’s personal compensation is so unaffected by the contract as to be to remote an interest.
 
In addition, the Court also held in Jones, that the above consideration of remoteness of one’s interest is tempered by the potential of use of position or influence and the receipt of special privileges or advantages.

Notwithstanding the above, the Commission can not say that the circumstance set forth by the requestor is sufficiently void of any potential for self-dealing or use of influence by the alderman considering the special privilege and advantage that the beverage company will receive, and thereby his employer/bottling company will receive, that the prohibitions in Constitutional Section 109 and Code Section 25-4-205(2) are not applicable.  Although a close call, the Commission is compelled to advise against the contract based on the prohibitions imposed by Constitutional Section 109 and Code Section 25-4-105(2).

In addition, Code Section 25-4-105(3)(a), cited above, prohibits a public servant, including an alderman, from having a material financial interest in any business that is a contractor, subcontractor or vendor with the public servant’s governmental entity, including a city.

Code Section 25-4-105(3)(a) will prohibit the requestor from having a material financial interest in the bottling company if the bottling company is a subcontractor with the city through its franchise agreement with the beverage company contracting to be the sole supplier of soft drinks to the city.  For purposes of the conflict of interest laws, the Commission finds the bottling company by way of its exclusive franchise agreement with the beverage company would be a subcontractor in this instance.

In this instance, the requestor would have a material financial interest in the bottling company if the requestor receives from the bottling company an aggregate annual net income of Five Thousand Dollars ($5,000.00) or more, as set forth in the above cited Code Section 25-4-103(k)(ii).

The only applicable exception to a violation of Code Section 25-4-105(3)(a), in this instance, is found in the above cited Code Section 25-4-105(4)(d).  The applicable exception is where such goods or services involved are reasonably available from two (2) or fewer commercial sources, provided such transactions comply with the public purchases laws.

It is the Commission’s opinion that the geographical boundary of a local governmental entity is  not sufficient by itself to set in motion the above exception.  In most if not all areas of the state, goods and services are reasonably available in a neighboring city, county or district.

Furthermore, the exception set forth in Code Section 25-4-105(4)(d) does not apply to Constitutional Section 109 or Code Section 25-4-105(2).

 
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) and (3)(a).  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.

 
In addition, the State’s public policy mandate set forth in Code Section 25-4-101, cited above, is a sufficient reason, in this Commission’s opinion, for a city to avoid contracting or subcontracting with a business that employs its alderman.

Code Section 25-4-101 sets the tone for the conflict of interest laws as the Legislature’s “Declaration of Public Policy.” This public policy can be summarized as any circumstance having the potential of creating suspicion among the public and reflecting unfavorably upon the state or local government should be closely reviewed by public servants with the intent to reduce or eliminate any suspicion on the part of the public which detracts from the public’s trust in state or local government.
 
Specifically, Code Section 25-4-101, in part, 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.” [Emphasis added to bold text]

Clearly, the city entering into a contract for exclusive rights to sell soft drinks at all city property and events, without bidding those services, can be expected to create suspicion among the public and reflect unfavorably upon the public servant’s governmental entity as there will be a question of a division of loyalty on the part of the public servant.  A public servant should never place himself or herself, or be placed by his or her governmental entity, in a situation where a private interest is competing or appears to be competing with his or her public interest. [Emphasis added to bold text]

The requestor is also referred to the Attorney General’s Office and the Office of the State Auditor as the Commission does not opine on matters outside of the conflict of interest laws.  However, based on the facts presented by the requestor, the city might have problems with the state bid law requirements by receiving compensation for granting exclusive rights to furnish soft drinks for resale without bidding this service.  The Attorney General and State Auditor will need to address the bid law issue.
 
 
 

Scott Rankin
Executive Director