OPINION NUMBER - 102

ADOPTED - 1987/06/19

SUBJECT - Conflicts of Interest/Interests in Contracts with Governmental Bodies and Prohibited Acts.

REQUESTED BY: Joe E. Hanna, Secretary, Board of Education, Omaha School District.

QUESTION: (1) If a school board enters into a contract with a corporation, a wholly-owned subsidiary of that corporation, or a separate entity selling the products of that corporation, does a board member who is the holder of stock in that corporation worth more than $10,000 but which represents less than a 5% equity interest in that corporation have a prohibited interest in the contract between the school board and the corporation?

CONCLUSION

No

FACTS

You indicate that a member of the Board of Education of the School District of Omaha is a stockholder in a corporation. This publicly traded stock is worth more than $10,000 at fair market value, but represents less than a 5% equity interest in the corporation. The School District apparently foresees some possibility of entering into a contract for the purchase of food or other products from the corporation, from one of its wholly-owned subsidiaries, or from a vendor that supplies the corporation's products. The board questions whether this board member would have a prohibited interest under the provisions of Section 49-14,103.01 and is concerned with the steps this board member must take with respect to voting either on the award of the contract or the payment of a claim for such purposes.

ANALYSIS

As you have noted in your request for an advisory opinion the prohibition found in Section 49-14,103.01 arises when an official has a "business association" with a business involved in a contract with a governing body. Section 49-1408 defines a business association as one in which the official is, among other things, "a stockholder with publicly traded stock worth $10,000 or more at fair market value or which represents more than 10% equity interest". You also note in your request for an advisory opinion that Section 49-14,103.01(5) states that "the ownership of less than 5% of the outstanding shares of a corporation shall not constitute an interest within the meaning of this section". This apparent conflict is reconcilable.

Section 49-1408 is a definition which generally applies throughout the Act. Section 49-14,103.01 is statute which applies specifically to the officials of counties, school districts, municipalities and natural resource districts. We therefore interpret Section 49-14,103.01(5) as being the controlling definition of "business interest" in situations in which Section 49-14,103.01 is applied to such officials.

In light of this interpretation, the board member with the above described stock interests would not have a prohibited interest in any contract between the school board and the corporation.

(2) Does a school board member who will receive a commission as the result of the payment by the board of part of an employees salary to an employee-designated insurance company constitute a conflict of interest?

Yes.

You state that the Board of Education of the Omaha School District has adopted a VOLUNTARY SALARY REDUCTION POLICY for all employees which generally provides that an employee may request that deductions be made from his or her salary for tax sheltered annuities, health insurance, supplemental term life insurance, credit union, U.S. savings bonds and united appeal. You further state that with regard to tax sheltered annuities, it is the employee who selects an annuity policy from any one of the many insurance companies which write such policies. By filling out a particular form the employee designates what portion of his salary will be transferred to the insurance company. Apparently, such a tax sheltered annuity contract is a matter which is strictly between the employee and the insurance company and the school district is not involved in the contract in any way nor does the board approve or disapprove such annuities. You state that a member of the board of education is an employee of one such insurance company and the beneficial owner of publicly traded stock of that company worth more than $10,000 but which represents less than a 5% equity interest. Several district employees have selected this insurance company for their tax sheltered annuity policies. In addition, the board member receives a small commission with respect to certain district employee tax sheltered annuity purchases made from this company.

Because this situation is one in which there is no contract between the school board and the insurance company, we must apply Section 49-1408 to determine if the insurance company is a business association of the board member. Under this definition the ownership of publicly traded stock with a value of more than $10,000 constitutes a business interest. Thus, the board member in this situation has a business interest in the insurance company. Section 49-14,101(3) provides that no public official shall use his or her office or any confidential information received through the holding of that office to obtain financial gain for himself or herself, a member of his or her immediate family, or a business with which the individual is associated. This situation is distinguishable from our answer in question number 1 in which we held that the business interest definition found in Section 49-14,103.01(5) applied. In that question we were considering whether or not the board member had a prohibited interest in a contract between the school board and a corporation. Section 49-14,103.01 generally governs contractual interests between school boards and other entities in which a school board member has an interest. This question, however, does not involve a contract between the board and a business in which the board member has an interest. Any contract is strictly between the district employee and the insurance company. Therefore, the business interest definition found in Section 49-14,103.01(5) does not apply and the definition of business interest found in Section 49-1408 does apply.

The question becomes whether a vote by the board member to pay the amount designated by the employee to the designated insurance company constitutes a benefit to the board member or to a business with which he is associated. An analysis of this situation reveals that if the board member votes on this matter he will, in effect, be voting to pay certain funds to a certain insurance company and upon the receipt of these funds by the insurance company the board member will receive some sort of commission. While it is arguable that this transaction may be considered one in which the school board merely directs an employee's funds as directed by the employee, the inescapable fact is that the school board member is voting to pay out school district funds knowing that part of those funds will ultimately be received by the board member. Thus the board member may be required to abstain from participating or voting on the matter since it could constitute a violation of Section 49-14,101(3). In Advisory Opinion #69, the Commission stated that action taken which constitutes an abuse of power or use of public office which is the proximate if not the direct cause of obtaining ascertainable financial gain would be evidence of a violation of this section. The opinion goes on to state that a vote by the board member in such a situation where only the minimum number of votes necessary for the action to be taken occurs, would constitute a violation.

It does seem appropriate to insert a note of caution in this matter. It is possible that the facts provided describe a situation in which a board member is selling insurance policies to an employee. While such a situation is not prohibited per se it is the obligation of the board member to avoid the use of the "power" of his office or any confidential information received through that office to sell insurance policies to district employees.

(3) May a school board member judge a debate tournament and accept a fee for doing so even if the source of the fee is a school activity fund, part of which funds are budgeted by the school board?

Yes.

You state that a school member was invited to judge a debate tournament sponsored by a high school of the School District of Omaha. According to your request for this opinion, it is the practice of high schools sponsoring debate tournaments to pay a fee of $8 to the judge for each hour-long round judged. Normally a debate judge would review and critique no more than 5 or 6 rounds per tournament. Payment to the judges is made by check drawn upon the school's activity fund account. You state that the following are the sources of funds in this account:

(1) The entry fees paid by other high schools participating in the tournament; (2) funds generated by other activities and concessions of the high school; and (3) a small amount from the School District's General Fund allocated by the board of education as a subsidy to the school's activity fund.

The debate judges are normally selected by the high school debate coaches.

Section 49-14,101(3) prohibits a public official or public employee from using that person's public office or any confidential information received through the holding of that office to obtain financial gain for himself or herself, a member of his or her immediate family, or a business with which the individual is associated. The question here then becomes whether or not the acceptance of a judge's fee is prohibited by Section 49-14,101(3) or if a vote by the board member to subsidize a school's activity fund is prohibited by Section 49-14,101(3). We note that in voting on the subsidy, the board member is not voting money to himself, to a family member, or to a business with which he is associated. In addition, it is our understanding that the board member would not necessarily know if any of the money voted into the activity fund would ever be used to pay any fees to him or her. This is because (1) there are other sources of funding to the activity fund which are more substantial than the voted subsidy and (2) the board member is not necessarily aware at the time of the vote whether he will be invited to judge. Thus, any benefit is rather speculative and indirect. Therefore, we see no reason why the board member cannot act as judge, accept the fees therefrom, and vote to subsidize activity funds.

We do, however, caution the board member that the use of his public office or any confidential information received through that public office to increase the opportunities to act as judge would constitute a violation of the Nebraska Accountability and Disclosure Act.

(4) May a school board member who is a registered official in two associations officiate at high school athletic games and receive a fee therefore even though the fee comes from a fund which is partially subsidized by the school district?

Yes.

In your request for this Advisory Opinion you state that a board member is a registered official with the Nebraska School Activities Association and has been designated to officiate high school varsity athletic games by the Metropolitan Activity Association (Metro Conference). The schools in the Omaha-Council Bluffs area including all seven School Districts of Omaha high schools. The Metro Conference assigns officials for each high school varsity game. The board member is also a member of the Nebraska-Iowa Referee Association which assigns its members to junior varsity games played by the high school teams. The official's compensation ranges from $15 to $40 per varsity or junior varsity game as determined by the Metro Conference. The host high school has no voice in the selection of the official. It does pay the official's fee from the school activity fund which is described in the prior question. The only additional factor is that gate receipts from these athletic competitions are also placed in the activity fund.

The analysis for the prior question applies to this question. If anything, the benefit to the board member is even more remote than in the prior question because an entity not within the control of the school district (the Metro Conference) decides who will officiate and what their rate of pay will be. At best, by voting for a subsidy to a school activity fund, the board member may be benefiting a class of people to which he or she belongs. The board member may officiate at these contests, accept a fee for officiating, and vote to subsidize school activity funds.

As in the prior question, the board member is cautioned that he or she should not make use of his or her office in such a way so as to increase the opportunities to officiate.