This Advisory Opinion concerns the following issue as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on February 18, 2005, basing its approval solely on the facts and circumstances stated herein.
 

May a school district purchase from a large retail corporation which employs a member of the school board of trustees?

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)(iii), (h), (i), (k)(i)(ii) and (p)(i)(ii)(iii)  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’ means 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:

(iii) All school districts.

(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).

(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)(b)(d) states:
 

“(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.

(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.
 

I am requesting an Advisory Opinion on behalf of the Board of Trustees of the Municipal Public School District.  The factual background is as follows:

• One current Board member of the Board of Trustees is employed by a Wal-Mart as Manager of a Department.  The income of the Board member does exceed $5,000.00 annually.

• The Municipal Public School District does not currently purchase any goods from Wal-Mart Stores or Sam’s Club.

• Wal-Mart Corporation is a publicly  traded company.  As of November 30, 2004, Wal-Mart Corporation has 1,363 Wal-Mart Stores, 1,672 Wal-Mart Super Centers, 550 SAM’S CLUBS, and 76 neighborhood markets in the United States. Internationally, Wal-Mart Corporation operated units in Argentina (11), Brazil (148), Canada (146), China (42), Germany (92), South Korea (16), Mexico (687), Puerto Rico (54), and United Kingdom (277).

• Sales for the first three quarters October 31, 2004 were as follows (dollars in billions):
Wal-Mart Stores……………………………….$  136.373
Sam’s Club……………………………………$   27.139
Internationally…………………………………$   39.493
 Total…………………………………...$ 203.005

• Teachers have money provided by the State to spend in their classrooms at their discretion.  The teacher must first complete a purchase requisition and then a purchase order is issued by the Municipal Public School District.

• Other Municipal Public School District personnel follow the same procedure when making purchases for the District.

• As you are aware, Wal-Mart Stores and SAM’S CLUBS Stores offer a large variety of merchandise.

• According to the District’s Chief Financial Officer, prior to the Board Member becoming employed with Wal-Mart, the District spent approximately $25,000.00 annually with Wal-Mart.  The Municipal Public School District’s annual budget is $53.7 million.

• The local Sam’s CLUB has adopted an elementary school in the District as an Adopt A School Sponsor.  Also, $3,000.00 has been donated in the form of grants to the District.

The Board of Trustees request an Advisory Opinion regarding the following:

1. Can the Municipal Public School District purchase from Wal-Mart Stores with a current Board Member being an employee of Wal-Mart Stores?

2. Can the Municipal Public School District purchase from SAM’S CLUB Stores?

I respectfully call your attention to the case of Jones v. Howell, 827 So. 2d 691(MS. 2002).  In Jones v. Howell, the Mississippi Supreme Court states that “there are practical limits to the application of Section 109,” and that “common sense” must be applied to the analysis of Section 109.  I also call your attention to your official Advisory Opinion No. 04-027-E.  The Mississippi Supreme Court further stated in the Jones v. Howell, “Thus, while Section 109 is laudable, its application must be tempered and balanced according to the facts of each case.  The need for honesty in government must be balanced against the legitimacy of public officials having private interest.”

The Commission formally adopts Advisory Opinion No. 04-027-E in response to this request and by attachment incorporates it into this opinion.

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

These facts are similar to those in Advisory Opinion No. 04-027-E and those of Representative John Read, one of the appellees in Jones, et al. v. Howell and Read, et al., 827 So. 2d 691 (Miss. 2002). That case involved legislators who were pharmacists receiving payments from the Mississippi Division of Medicaid either directly or indirectly. Representative Read was employed by Controlex Enterprise, doing business as Sav Rex Pharmacy, in Gautier, Mississippi. Id. at  11. Read was not a shareholder of Controlex, but he was a salaried employee. Id. Medicaid reimbursements went directly to Controlex, and Read’s salary was in no way based on those Medicaid payments. Id.

The Commission notes that the facts given in this request reveal no connection between this school board member’s position in the corporation, his compensation from the corporation and the performance of the governmental sales transactions much like Read’s facts in Howell. This is a very large, international corporation, and this employee has nothing to do with the income generated by these sales. Any interest this board member might have in the sales between his employer and his board is so remote that a court could certainly deem it of no significance. To borrow a phrase from federal constitutional law, it does not rise to the level of constitutional scrutiny. Thus, while a strong case can be made for a contrary interpretation of the Court’s opinions, the Commission feels compelled under these facts and at this time to state the purchases in question, whether from Wal-Mart or SAM’S CLUB, would not violate Section 109 and Code Section 25-4-105(2).

However, Section 25-4-105(3)(a), Miss. Code of 1972, quoted above, prohibits a member of a school board, as well as any other public servant of the school district, from having a material financial interest in any business which is a contractor, subcontractor or vendor with the school district. If a public servant receives an “aggregate annual net income” of $5,000 or more from a business, then the public servant definitely has a material financial interest in that business. Section 25-4-103(k), Miss. Code of 1972. The definition of “business” includes “any corporation ... organized for economic gain.” Section 25-4-103(c), Miss. Code of 1972. The terms “contractor,” “subcontractor” and “vendor” are not defined in the statute, but “[w]here the legislature has not defined a term within the statutory scheme, we look to the term's common and generally accepted meaning.” Moore, ex rel. City of Aberdeen v. Byars, 757 So. 2d 243, 248 (15) (Miss. 2000). A “vendor” is defined, in part, as “[a] merchant, retail dealer, supplier, importer, wholesale distributor; one who buys to sell; a seller.” Black’s Law Dictionary 1079 (6th ed. 1991).

The various retail businesses named above are merely divisions of one corporation, Wal-Mart Stores, Inc. (Annual Report of Wal-Mart Stores, Inc. for 2004 at http://www.walmartstores.com/Files/annualreport_2004.pdf) Therefore, for purposes of Section 25-4-105(3)(a), no distinction can be made between Wal-Mart, SAM’S CLUB or any of the other divisions of Wal-Mart Stores, Inc. The requestor has stated the board member receives more than $5,000 in yearly income from that corporation. Wal-Mart Stores, Inc. is obviously a business as defined above, and it would clearly be acting as a vendor to the school district if the district were to make purchases from any of its retail divisions.

While there are a number of statutory exceptions to Section 25-4-105(3)(a), none appear to be applicable in this instance. The first potential exception is Section 25-4-105(4)(b) which would allow the board member’s employer to be a “vendor with any authority of the governmental entity other than the authority ... of which he is a member” if the employer is the lowest and best of at least three competitive bidders or “the goods ... are reasonably available from two (2) or fewer commercial sources.” (emphasis added) Here the board member’s  “authority” of the “governmental entity” is the school district itself. Section 25-4-103(a) and (h), respectively. Thus, this exception is inapplicable.

The second potential exception is found in Section 25-4-105(4)(d), the two-or-fewer-sources exception. This exception would allow the board member’s employer to be a vendor with any authority of the school district, in this case the district itself, if the goods “involved are reasonably available from two (2) or fewer commercial sources.” It seems unlikely that the types of general merchandise offered by Wal-Mart Stores, Inc. would not also be available from two other commercial sources. Mere inconvenience does not make availability unreasonable. Nor would increased costs incurred by using an alternative source necessarily make the use of that source unreasonable.

Thus, the Ethics in Government Laws compel the Commission to conclude that the board member in question will be in violation of Section 25-4-105(3)(a) if the school district purchases from any division of Wal-Mart Stores, Inc. while the board member holds a material financial interest in that corporation. This conclusion may seem excessively restrictive, but it is nonetheless inescapable under the clear statutory definitions.
 

Scott Rankin
Executive Director