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 5, 2003, basing its approval solely on the facts and circumstances stated herein.
 

May a state board continue to contract to fund a non-profit technology corporation when a member of the state board also serves as a member of the board of directors of the non-profit technology corporation?

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)(v), (h), (l), (o) 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.

(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) ‘Government’ means the state and all political entities thereof, both collectively and separately, including but not limited to:

(v) Any department, agency, board, commission, institution, instrumentality, or legislative or administrative body of the state, counties or municipalities created by statute, ordinance or executive order including all units that expend public funds.

(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) and (2) 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.”

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

As Co-chairman of a state board, I am requesting an official Ethics Commission Opinion pursuant to Miss. Code Ann. Section 25-4-1 et seq.

 
By virtue of my elected position as Commissioner of a state agency and as specified in the Miss. Code, I serve as Co-Chairman of the State Board along with the Executive Director of another state agency.  The State Board is composed of a certain number of members as set out in the Miss. Code.

In addition, I serve as Co-Chairman of the Steering Committee for a Project of a private, non-profit corporation that receives a large percentage of its funding from the state for technology-related endeavors.  The Steering Committee serves only in an advisory capacity for the Project.  Furthermore, in July 2003, I accepted a position on the private non-profit corporation’s Board of Directors.

The private non-profit corporation routinely makes application to the State Board requesting funding for various projects on behalf of the private non-profit corporation and/or the Project.  The private non-profit corporation administers any and all funds granted to the private non-profit corporation or the Project.  Is it proper for me to participate in the discussions and the votes concerning projects submitted to the State Board by the private non-profit corporation and/or the Project?  If not, is any potential conflict(s) remedied by my abstention from participation in the discussions and the votes for projects submitted to the State Board by the private non-profit corporation and/or the Project?

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

Before addressing the requestor’s specific inquiry, the Commission believes it will be helpful to set forth its position on the distinction between a non-profit organization, which is considered a business for purposes of the conflict of interest laws, and one that is governmental or quasi-governmental, and thereby, a governmental instrumentality for purposes of the conflict of interest laws.

First, it is crucial to this distinction to set forth the controlling statutory definitions.  “Business” is defined in the above cited Code Section 25-4-103(c). In pertinent part, Code Section 25-4-103(c) states, “business” means . . . a non-profit corporation or other such entity, association or organization receiving public funds.”  “Government” is defined in the above cited Code Section 25-4-103(g).  In pertinent part, Code Section 25-4-103(g) states, “government” means the state and all political entities thereof, both collectively and separately, including but not limited to: (v)  any . . . instrumentality, . . . or administrative body of the state, counties or municipalities created by statute, ordinance or executive order including all units that expend public funds.”

 
The distinction between a non-profit organization being a private entity, i.e., a ‘business’, or a governmental or quasi-governmental entity, i.e., a ‘government instrumentality’, is pivotal to the response to this opinion as the purpose of the conflict of interest laws is to prohibit private interests from competing with public interests and not to prohibit the competing interest of governmental entities.

In making this distinction, the Commission must not just consider whether a publicly funded non-profit organization advances a purpose that is beneficial to the general public in determining whether it is a business or a governmental instrumentality. The Commission’s considerations in making this distinction encompasses much more, including its creation and control by government; its dependancy on public funds; its authority to receive and expend public funds to carry-out  its function; and the overall governmental character and manner of its function.

The Commission has considered the facts and circumstances provided by the requestor concerning the non-profit technology corporation. In addition to the requestor’s facts, the Commission’s staff has ascertained the following additional facts.

The non-profit technology corporation was formed in response to recommendations provided in a report by a state commission which was first established by executive order of the Governor and later by state statute. The legislation has since been repealed. Although the non-profit technology corporation was recommended by the state commission, it has and continues to exist as a private, non-profit corporation pursuant to Sections 79-11-101, et seq.

Based on the above facts, the non-profit technology corporation does not owe its existence to the Constitution or statutes of the State and is not a part of “government” or a “governmental entity” for purposes of the Ethics in Government law. [See §25-4-103(g)(h).] In short, the non-profit technology corporation has the same legal character as any other private, non-profit corporation.  Even though it has as one of its purposes to promote economic development in the state and it does receive grants of public funds, such circumstances do not alter its status as a private, non-profit corporation. In fact, the receipt of public funds enhances the non-profit technology corporation’s status as a “business” for purposes of the Ethics in Government laws. [See §25-4-103(c).]

In view of its legal status as a private, non-profit corporation and its receipt of public funds, the Commission finds the non-profit technology corporation to be a business, i.e., a non-profit corporation or other such entity, association or organization receiving public funds.

Having determined that the non-profit technology corporation is a business for purposes of the Ethics in Government law, the requestor’s specific inquiry and the applicable conflict of interest laws are addressed in the remainder of the opinion.
 
Constitutional Section 109 and Code Section 25-4-105(2), both cited above, prohibits a governmental board member, including the requestor as a member of the state board, from having an interest, direct or indirect, in any contract authorized by the governmental board of which he is a member during his term and for one year thereafter.

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, and thereby the Code Section 25-4-105(2) 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 regarding element 1, the grant or loans from the state board that provide funding to the non-profit technology corporation are governmental contracts.  As the requestor did not provide any statutory authority to donate funds to the non-profit organization and since the Mississippi Constitution prohibits donations of public funds, then obviously this funding must be contractual in nature.¹

Regarding elements 2 and 3, the action to provide the funding will be by the state board of which the requestor is currently a member. Therefore, these two elements are clearly met.

Lastly regarding element 4, a board of directors member of a non-profit corporation, such as the requestor as a member of the board of directors of the non-profit corporation, has an interest in its contracts through his fiduciary obligations to the non-profit corporation as a board of directors member.

 
Therefore, based on the above, the state board will be prohibited by Constitutional Section 109 and Code Section 25-4-105(2) from authorizing grants, loans, or other contracts to provide funding to the non-profit technology corporation during the requestor’s term on the state board and for one year thereafter. This prohibition will apply for as long as the requestor remains a member of the board of directors of the non-profit technology corporation.

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 the board member’s vote or other participation, the authorization by the board, nonetheless, results in a contract in which the board member has a prohibited interest.

The issue presented by the requestor also must be viewed as it relates to Code Section 25-4-101, set forth above. This code section 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.

Clearly, a state board’s funding of a non-profit corporation that has a member of the state board as one of its board of directors, has the potential of creating suspicion among the public and reflecting unfavorably upon the state board.  Therefore, the state board should not authorize such funding as long as such dual service exists in order to comply with the public policy set forth in Code Section 25-4-101.

 An official written advisory opinion operates prospectively only. In other words, an official written advisory opinion’s purpose is not to serve to either validate or invalidate any past action or any prior course of conduct or policy. Therefore, we preface our following response regarding the requestor’s previous service on the referenced steering committee by stating that any opinions expressed herein cannot operate retrospectively to ratify or invalidate any past actions by a public officer or entity. This office does not offer opinions on past actions. Therefore, this opinion is for prospective purposes only. However, we offer the following observations by way of general information for future guidance.

Code Section 25-4-105(1), cited above, prohibit a public servant from using his official position to obtain a pecuniary benefit for a business with which he is associated.

 
As a public servant, the requestor may not use his official position on the state board, such as voting or influencing decisions, to provide a pecuniary benefit to the non-profit technology corporation as a member of its steering committee as such service may result in the non-profit technology corporation being a business with which the requestor is associated. Code Section 25-4-103(d), cited above, defines “a business with which he is associated” as 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.

Further, it is the Commission position that the steering committee service is also an issue that must be viewed as it relates to the Legislature’s “Declaration of Public Policy” set forth in Code Section 25-4-101.

Clearly, a state board’s funding of a non-profit corporation that has a member of the state board as its co-chairman of its steering committee, has the potential of creating suspicion among the public and reflecting unfavorably upon the state board. Therefore, the state board should not authorize such funding as long as such dual service exists in order to comply with the public policy set forth in Code Section 25-4-101.

In regard to service on the steering committee, the requestor is advised that avoidance of a violation of Code Section 25-4-105(1) and compliance with Code Section 25-4-101 may be obtained through a total and complete recusal as a member of the state board. Also, the requestor should totally and completely recuse himself from any discussion before the steering committee pertaining to funding from the state board so as to avoid public policy and public trust concerns.

An abstention is a vote with the majority of the governing entity’s board and therefore does not qualify.

A total and complete recusal requires that the public servant not only avoid debating, discussing or taking action on the subject matter during the official meeting, but also avoid discussing the subject matter with other board members, staff or any other person prior to and after the official meeting.  This includes casual comments, as well as detailed discussions, made in person, by telephone or by any other means.

Also to properly recuse oneself from a matter,  the public servant must leave the room or area where such discussions, considerations and/or actions take place. The minutes of the governing entity’s board should state the public servant left the meeting by showing him or her absent for that matter.

Again, 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).
 
 

Scott Rankin
Executive Director
 

¹ See Constitutional Sections 66 and 96 of the Mississippi Constitution of 1890 regarding prohibitions relating to donation of public funds.