OPINION NUMBER - 121
ADOPTED - 1989/06/30
SUBJECT - Conflicts of Interest.
REQUESTED BY: P.J. Morgan, Mayor, City of Omaha
QUESTION: 1) Is an individual assuming the office of Mayor of the City of Omaha required to liquidate his business and real estate holdings or place his interest in a blind trust? 2) If the Mayor of Omaha places his assets and real estate holdings in a blind trust is he exempted from fulfilling the requirements of Section 49-1499 and Section 49-14,103.01?
As to question #1 no. As to question #2 see Analysis.
Upon his election Mayor Morgan inquired as to whether or not he needed to liquidate his holdings or place them in a blind trust. Contemporaneous with his inquiry he filed a Statement of Financial Interests disclosing his sources of income of more than $1000 and his business associations. Many of these sources of income and business associations appear to be within the City of Omaha and many appear to hold real property within the City.
Neither the philosophy nor the provisions of the Nebraska Political Accountability and Disclosure Act prohibit a public official from having a potential conflict of interest. Instead the Act requires a disclosure of potential conflicts of interest and prescribes a course of conduct for public officials who have such a potential conflict. The prescribed course of conduct, in most cases, is for a public official with an actual potential conflict of interest to remove himself or herself from the decision making process.
Section 49-1499 describes a conflict of interest as a situation in which a public official is faced with making an official decision or taking an official action which may cause financial benefit or detriment to the official, a member of his or her immediate family, or a business with which he or she is associated. Section 49-1499 does not apply to all public officials in the State, but it does apply to the Mayor of Omaha. See Section 49-1493(9). Upon being faced with a potential conflict of interest the affected public official is required to:
1) prepare a written statement describing the matter requiring the action or decision and the nature of the potential conflict;
2) deliver a copy of the statement to the Commission; and
3) deliver a copy of the statement to his or her immediate superior, if any or, if he or she has no immediate superior, he or she shall take such steps as the Commission prescribes or advises to remove himself or herself from the influence over the actions and decisions on the matter.
Section 49-1499(b) goes on to state that the restrictions shall not prevent a person from making or participating in the making of a governmental decision to the extent that the individual's participation is legally required for the action or decision to be made. However, the written statement would still need to be filed with the Commission.
An elected city official of the City of Omaha may also have requirements under the Act by virtue of a contract with the City in which the official, a member of his or her immediate family, or a business with which the official is associated has an interest. Section 49-14,103.01 generally prohibits such an interest. The existence of such an interest renders the contract voidable. However, the prohibition against such an interest does not apply if the elected city official: 1) discloses on the record the nature and extent of his or her interest prior to the official consideration of the contract; 2) does not vote on the matter of granting the contract; and 3) does not act for the governing body which is party to the contract as to inspection or performance under the contract in which he or she has an interest.
Having considered the applicable law, we proceed to respond to your specific questions.
Question #1 - There is nothing in the Act which requires an elected city official or any other public official or employee to liquidate their holdings even if those holdings may give rise to a potential conflict of interest or give rise to an interest in a contract. On the contrary, since the Act prescribes the steps which must be taken, it does, in effect, presume that liquidation of assets will not take place simply by virtue of taking public office.
Question #2 - Your second inquiry is whether or not assets placed in a blind trust would eliminate the need to comply with Section 49-1499 and 49-14,103.01. Before considering this question we must define, for the purposes of this opinion, the terms associated with trusts in general.
A trust is a fiduciary relationship in which one person is the holder of title to property subject to an equitable obligation to keep or use the property for the benefit of another. Bogert, Trust 6th Ed, Section 1. The property held can either be real property (land) or personal property.
The settlor (often called trustor) is the owner of the assets who places them in trust. The settlor may also be the beneficiary.
The trustee is the holder of legal title to the assets of the trust for the benefit of the beneficiary.
The beneficiary is the individual or group of individuals who is to receive the benefits of the trust. For example, the beneficiary may receive the income produced by the assets of the trust.
The res property held by the trustee for the benefit of the beneficiary. The res is often referred to as the trust property or the assets of the trust.
For the purposes of this opinion we are considering a blind trust to be a trust in which the trustee makes all of the decisions concerning the management and investment of trust assets. Neither the beneficiary or the settlor have any control over management. The trustee is prohibited from disclosing the assets of the trust but may disclose the total value of the trust assets. The beneficiary is entitled to the income produced by the trust assets.
For the most part, the Nebraska Accountability and Disclosure Act is silent as to the obligations incurred by a public official as the result of being the beneficiary of a trust. An exception is Section 49-1497(2), but that provision does not apply here. The Act is completely silent as to the matter of blind trusts. Other states, however, in their laws relating to public officials do make specific provisions regarding public officials and trusts. For example, California requires a public official to disclose his interest in the assets of a trust if he or she has an interest in the trust of 10% or more. West's Annotated California Government Code Section 87103. Wisconsin requires a public official to report the assets of a trust if he or she is the owner of the trust. A public official is considered the owner of the trust if he or she is eligible to receive income or other beneficial use of the assets. Wisconsin Statutes Annotated Section 19.44. Alaska requires a public official to identify the trust, disclose its assets, and disclose the nature of the public official's interest in a trust. AS Section 39.50.030. Alaska also has specific provisions for the use of a blind trust by public officials. AS Section 39.50.040. The Nebraska Political Accountability and Disclosure Act is not silent in stating, however, that a public official has certain obligations when he or she becomes aware or should reasonably have become aware of a potential conflict of interest. In Advisory Opinions #77 and #78 we interpreted this to mean that he or she has a conflict of interest and an obligation to take the steps prescribed by Section 49-1499 when a financial benefit or detriment becomes reasonably foreseeable. In many cases an intervening blind trust could relieve the public official of his obligations to make filings under Section 49-1499 because the blind trust will eliminate the "awareness" factor or the forseeability of the benefit or detriment.
As to interest in contracts, we note that Section 49-14,103.01 makes a contract in which there is a prohibited interest voidable only when there is "actual knowledge" of the interest. Again, a blind trust could serve to prevent that actual knowledge.
As to Mayor Morgan in particular there are specific reasons as to why a blind trust would not accomplish the normal goals of such a trust. As stated, most of his holdings and sources of income are land, land holding corporations and land holding partnerships. A trustee functioning under a blind trust would be prohibited from disclosing the assets of the trust or the assets of any entity in which the trust has an interest to the settlor, the beneficiary, or anyone else. However, the ownership of land is a matter of public record. We have serious questions as to how blind a trust could really be when the res of the trust consists of real property and land holding entities. We recognize that the trustee could liquidate the assets of the trust and reinvest in other areas. However, interests in partnerships are closely held corporations are not necessarily the most marketable of assets. Also, even under the best of circumstances this type of liquidation is likely to take a great deal of time.
In summary, there is nothing in the Nebraska Political Accountability and Disclosure Act which would require Mayor Morgan to liquidate his holdings or place them in a blind trust. It is the position of the Commission that given the nature of the Mayor's assets and holdings, a truly blind trust could not be established and therefore the normal goal of a blind trust could not be accomplished. In any case, the Commission is without the authority to recommend the establishment of a trust. The provisions of Section 49-1499 and Section 49-14,103.01 provide a system by which a public official is removed from the process of decision making on matters in which he or she has an interest.