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 9, 2004, basing its approval solely on the facts and circumstances stated herein.
 

May a newly elected legislator avoid a conflict by totally divesting himself of any employment or other financial interest in a family held corporation which is a contractor with the state?

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(a), (c), (d), (e), (f)(i)(ii), (g)(v), (h), (i) (k)(i)(ii)(iii)(iv), (l), (p)(i)(ii)(iii) and (q) states:
 

“(a) ‘Authority’ means any component unit of a governmental entity.

(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.

(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) ‘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.

(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.

(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);

(iii) The income as an employee of a relative if neither the public servant or relative is an officer, director or partner in the business and any ownership interest would not be deemed material pursuant to subparagraph (i) or (ii) herein; or

(iv) The income of the spouse of a public servant when such spouse is a contractor, subcontractor or vendor with the governmental entity that employs the public servant and the public servant exercises no control, direct or indirect, over the contract between the spouse and such governmental entity.

(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.

(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.

(q) ‘Relative’ means the spouse, child or parent.”

Code Section 25-4-105(1), (2), (3)(a) and (4)(b) 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.

(4) Notwithstanding the provisions of subsection (3) of this section, a public servant or his relative:
 
(b) May be a contractor or vendor with any authority of the governmental entity other than the 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 he is a member, officer, employee or agent where such contract is let to the lowest and best bidder after competitive bidding and three (3) or more legitimate bids are received or where the goods, services or property involved are reasonably available from two (2) or fewer commercial sources, provided such transactions comply with the public purchases laws.”

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

Tomorrow, January 6, 2004, I will be sworn in as a newly elected legislator.  For a number of years, I have been a salaried employee of and have served as secretary-treasurer of a corporation, a small contracting business providing services primarily for small commercial businesses.  My father is the president of the company and my mother is the vice-president. Some of our customers with whom we contract are state agencies and county and municipal governing bodies.

I would like to request an official advisory opinion from the Ethics Commission addressing the following questions:

• May I continue to be an employee or an officer of this company after I become a member of the Legislature?
• If I am not permitted to be an employee of or be an officer of this company after taking office, is there any problem after I take office with being paid or receiving income from the proceeds of any contracts executed or work performed before the date that I take office?
• If I should terminate my employment with and divest myself of any financial interests in the company, could I continue to be named as a joint owner or beneficiary of any certificates of deposit, bank accounts, securities, financial investments or other property also owned by my father or mother, although none of these accounts or property is owned by the company or maintained for the benefit of the company?

Please address any other potential conflicts of interest that you deem advisable and offer any suggestions about how I might avoid any such conflicts.

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 legislator from having an interest, direct or indirect, in a contract authorized by the Legislature during his term or within one year thereafter. The Mississippi Supreme Court in Frazier v. State, 504 So. 2d 675 (1987) and in Cassibry v. State,  404 So. 2d 1360 (1981), ruled that an appropriation bill funding contracts with the State in which legislators are interested are laws authorizing the contracts subject to Constitutional Section 109 and Code Section 25-4-105(2).  The Frazier court also set forth the following four elements necessary to apply the Constitutional Section 109 and Code Section 25-4-105(2) prohibitions:
 

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?

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?

This Commission has repeatedly concluded that an employee of a corporation has an indirect interest in all its business contracts. All officers and directors of corporations also have a direct interest in all its business contracts. Due to these prohibited interests that the requestor currently has in the family held corporation’s contracts, Constitutional Section 109 and Code Section 25-4-105(2) will absolutely prohibit the family held corporation from contracting to perform work on state projects funded by legislative appropriation during the requestor’s term and for one year thereafter, if the requestor maintains his current relationships with the corporation.

The Constitutional Section 109 and Code Section 25-4-105(2) conflict would arise when the Legislature of which the requestor is a member appropriates funds or authorizes the expenditure of funds which will, directly or indirectly, go to pay contracts in which the corporation has an interest. Thus, this legislator will not violate the law by having an interest in contracts funded before he became a member of the Legislature. However,  considering the date of this opinion, the Commission strongly urges the legislator to immediately resign all positions he holds with the corporation and completely divest himself of all financial interests he may have in the corporation to avoid the inevitable conflict which will result when the current Legislature begins acting on appropriation measures.

The requestor is advised that receiving income from current contracts with the corporation, even if arising from state contracts entered into before being sworn into office as a legislator, can result in a violation of Code Section 25-4-105(3)(a), cited above. Code Section 25-4-105(3)(a), also prohibits a legislator from having a “material financial interest” in any business that is a contractor, subcontractor or vendor with the state. A “material financial interest” is defined in the above cited Code Section 25-4-103(k)(i)(ii)(iii)(iv).

There are very narrow statutory exceptions to the Code Section 25-4-105(3)(a) proscription which are found in Code Section 25-4-105(4)(b), cited above, in regard to any contracts the corporation has with state authorities other than the Legislature. These exceptions are: (1) where such contract is let to the lowest and best bidder after competitive bidding and three (3) or more legitimate bids are received, and (2) where the goods, services or property involved are reasonably available from two (2) or fewer commercial sources, provided such transactions comply with the public purchases laws.” However, these exceptions do not apply to violations of Constitutional Section 109 or Code Section 25-4-105(2).

Based strictly on the facts provided by this requestor and solely for the purposes of this opinion, the Commission finds that a conflict will not arise simply because the legislator has a joint interest with his parents in assets which are not owned by the corporation and do not benefit the corporation. Yet future joint investments involving funds derived from state contracts could result in a conflict, and the legislator should take whatever means necessary to avoid such circumstances. This finding applies only to this particular factual situation.

As a precaution, the requestor is also advised to remain keenly aware of the above cited Code Section 25-4-105(1).

Code Section 25-4-105(1) prohibits a public servant, including a legislator, from using his official position to obtain a pecuniary benefit for a business with which he is associated.  The family held corporation is a business with which the requestor is associated as his parents will remain officers in the corporation. Code Section 25-4-103(d), cited above, defines the term “a business with which he is associated.”

The requestor is advised that a violation of Code Section 25-4-105(1) may be avoided by a total and complete recusal on any matter before the Legislature that could provide a pecuniary benefit to the family held corporation.

A total and complete recusal requires that a legislator not only avoid debating, discussing or taking action on such matters in the Capitol, but also avoid discussing the subject matter with other legislators, staff or any other person. 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 legislator must leave the room or chamber where such discussions, considerations and/or actions take place. Legislative records should show the member absent for that matter.

The requestor is advised  that while a total and complete recusal can avoid a violation of Code Section 25-4-105(1), it will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2) and (3)(a). Even without the vote or participation of a particular legislator, authorization by the Legislature, nonetheless, results in a contract in which the non-participating legislator has a prohibited interest.
 
 

Scott Rankin
Executive Director