This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on January 3, 2003, basing its approval solely on the facts and circumstances stated herein.
 

May a city enter into a HUD funded down payment assistance program agreement with its employees?

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(f)(i)(ii), (g)(i)(ii), (h), (l), (o) and (p)(i)(ii)(iii) states:
 

“(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.

(l) ‘Pecuniary benefit’ means benefit in the form of money, property, commercial interests or anything else the primary significance of which is economic gain.  Expenses associated with social occasions afforded public servants shall not be deemed a pecuniary benefit.

(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(1), (2), (3)(a) and (c) states:
 

“(1) No public servant shall use his official position to obtain pecuniary benefit for himself other than that compensation provided for by law, or to obtain pecuniary benefit for any relative or any business with which he is associated.

(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.

(c) Be a purchaser, direct or indirect, of any claim, certificate, warrant or other security issued by or to be paid out of the treasury of the governmental entity of which he is an officer or employee.”

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

Please be advised that the City has requested that I seek an opinion from your office.  The City is interested in participating in a down payment assistance program utilizing funds received from HUD through Fannie Mae whereby employees of the City can obtain a second mortgage for the purpose of purchasing a home.

 
The basic way in which the program would work is that the City would receive a pool of money in the form of a loan for HUD.  This money would be made available to City employees that meet qualifications based upon federal guidelines for use as down payment assistance in the purchase of a home.  This money would be placed in a depository bank, which serves as Trustee of the funds.  A secondary bank would service the loan by collecting the payments.  The City would hold a second mortgage on the property to secure the repayment of the down payment assistance.

It is further my understanding that the City would be responsible for the repayment of the interest which accrue on the loan during the first 12 months of receipt of the funds from HUD.  Thereafter the City would be responsible for the interest and principal payments regardless of the number of loans that have actually been made.  Further, the City would have a contingent liability arising out of the fact that should a homebuyer ever default on the loan, the bank holding the first mortgage would sell the property to satisfy its mortgage and if there were any residual proceeds then those proceeds would be applied towards the second mortgage held by the City.  In the event there are no residual proceeds or the residual proceeds are insufficient to satisfy the second mortgage, the City would be responsible for the repayment of the balance of the obligation for the individual homebuyer to HUD.

The question for the Ethics Commission is whether the City is prohibited from entering such an arrangement with City employees or in other words providing this program as a benefit for City employees?

Based solely on the facts and circumstances presented by the requestor, the Commission’s opinion is as follows.

The Commission is not authorized by state statute to opine on the question of whether any federal law or regulation preempts Constitutional Section 109 and the Ethics in Government law.  Notwithstanding, the Commission is duty bound to enforce the state conflict of interest laws in regard to state and local governmental entities and their respective public servants unless a court of competent jurisdiction rules otherwise.

Constitutional Section 109 and Code Section 25-4-105(2), both cited above, prohibit a mayor or a city council member from having an interest, direct or indirect, in any contract authorized by the board or body of which he or she is a member, during his or her term and for one year thereafter.

Therefore, it is the Commission’s position that Constitutional Section 109 and Code Section 25-4-105(2) will absolutely prohibit the mayor or a member of the city council from participating in the HUD loan program described by the requestor.
 
The requestor is cautioned to advise the mayor and council members that a recusal or an abstention will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2).  Even without their participation, involvement or vote, the authorization by the city board, nonetheless, results in a contract in which the mayor or board member has a prohibited interest.
 

Regarding other city public servants, other than the mayor or council members, the Commission’s opinion is as follows.

Code Section 25-4-105(3)(a), cited above, prohibits a public servant, such as a city employee, from being a contractor, subcontractor or vendor with his governmental entity, in this instance, the city.

The city employees would not be subcontractors or vendors in this instance. Therefore, the sole issue to be determined is whether the HUD loans and city mortgages will result in the participating city employees being contractors with the city as anticipated in Code Section 25-4-105(3)(a).

The ethics in government statute defines contract at Code Section 25-4-103(f), cited above, but does not specifically define contractor.

The Mississippi Supreme Court in Moore Ex Rel. City of Aberdeen v. Byars, 757 So. 2d 243 (Miss. 2000), used the strict sense of the term contractor as it related to Code Section 25-4-105(3)(a) as “one who contracts to perform a service for another and not in the broad sense of one who is a party to a contract.”

In the specific facts stated above, the city employees are receiving down payment assistance through a HUD program administered by the city. Therefore in a strict sense, it is the city that is  providing the service. The city employees are not required to perform any services for the city to participate in the program.  The only requirements necessary for the city employees to receive the funds are that they must meet qualifications set forth by HUD.  Under these specific circumstances, the city employees would meet the criteria as one who is a party to a contract with the city. However, the city employees would not be contractors with the city based on the Byars decision. Therefore, based on the specific facts presented, city public servants participating in the HUD program described by the requestor would not violate Code Section 25-4-105(3)(a) by receiving the down payment assistance administered by the city.

  In addition Code Section 25-4-105(3)(c), cited above, prohibits a public servant from being a purchaser, direct or indirect, of any claim, certificate, warrant or other security issued by or to be paid out of the treasury of the governmental entity of which he is an officer or employee.  The specific facts above clearly show the city employees will receive the down payment assistance funds based on qualifying for the HUD program and would not be purchasers of any claim, certificate, warrant or other security issued by the city.

Notwithstanding the above, the city employees must be made aware of Code Sections 25-4-105(1) and 25-4-101, both cited above.
 
Code Section 25-4-105(1) prohibits public servants, including city employees, from using their official positions to obtain a pecuniary benefit for themselves, a relative or a business with which they are associated.

To avoid  using their official positions to obtain a pecuniary benefit, the public servants must totally and completely recuse themselves from subject matters providing the pecuniary interests.  In this instance, the city public servants receiving the down payment assistance must recuse themselves from all matters related to the program included but not limited to reviewing and/or approving applications, qualifications, dispersions, administration and accounting.

A total and complete recusal requires that the public servant avoid discussing the subject matter with board members, staff or any other person related to the matter.  This includes casual comments, as well as detailed discussions, made in person, by telephone or by any other means.

In addition, 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.”

Clearly, the city public servants receiving down payment assistance from a program administered by the city can be expected to create suspicion among the public.  Therefore, the city and the city public servants should avoid situations related to the city public servants receiving down payment assistance, through a program administered by the city, if the city public servants appear to realize personal gain through official conduct to fully and completely comply with the public policy mandate set forth in Code Section 25-4-101.
 

Scott Rankin
Executive Director