OPINION NUMBER - 134

ADOPTED - 1991/07/26

SUBJECT - Conflict of Interest.

REQUESTED BY: Kerry P. Egan, Deputy Lancaster County Attorney.

QUESTION: 1) Does a county official or county employee have a business association with a corporation when he or she serves on the governing body of that corporation by virtue of his or her public office or position?

2) Does the Nebraska Political Accountability and Disclosure Act prohibit a public official or public employee from serving on the governing board of a private, non-profit corporation which contracts with the political subdivision served by the public official or public employee?

CONCLUSION

As to Question #1, Yes.

As to Question #2, No.

FACTS

The Lancaster County Office of Mental Retardation (LOMR) is an agency of Lancaster County which is responsible for providing community based residential and vocational training to mentally retarded people. As part of the vocational training, LOMR established Lanco Industries. The purpose of Lanco is to procure contracts with companies in the private sector and to employ LOMR vocational clients in the fulfillment of these contracts. Currently, Lanco is simply a name under which Lancaster County does business. The county does not consider itself to be the employer of LOMR vocational trainees. Instead, the county considers it's operation of Lanco to be an extension of the vocational services offered through LOMR. The county is concerned that this creates an ambiguous employer/employee situation which could expose the county to certain liabilities. To avoid these difficulties, Lancaster County is considering establishing Lanco as a private, non-profit corporation.

Upon its establishment, Lanco would be responsible for providing training opportunities to mentally retarded people. It would be responsible for entering into contracts with the private sector. It is anticipated that some of the contracts procured by Lanco would be performed at LOMR facilities. The county and Lanco would enter into contracts for the purpose of Lanco compensating the county for Lanco's use of the county's facilities and resources.

It has been proposed that the governing body of Lanco consist of a standing committee composed of several members of an existing advisory committee of LOMR. The existing membership of the advisory committee will be modified. It will be composed of sixteen members appointed by the county board and five ex officio members who are chief financial office of LOMR, the administrator of LOMR, the vocational division director of LOMR, the residential division director of LOMR; and a member of the Lancaster County Board.

LOMR does not administer its own funds. No LOMR funds are expended without county board approval. LOMR does not enter into contracts in its own name. Contracts involving LOMR are actually with Lancaster County and approved by the County Board. Since it is intended that Lanco will be contracting with LOMR/Lancaster County, there is some concern about conflicts of interest. Four specific questions are posed as to the applicability of the Nebraska Political Accountability and Disclosure Act.

ANALYSIS

There is nothing in the Nebraska Political Accountability and Disclosure Act which would prohibit a member of the advisory committee of LOMR from serving on the governing board of Lanco. However, special requirements may apply.

From the description, Lanco will be a legal entity which is separate and apart from Lancaster County.

Section 49-1442 defines public employee as "an employee of the state or a political subdivision thereof". Lancaster County is a political subdivision of the state and the chief financial officer, administrator, vocational division director, and residential division of LOMR are employees of Lancaster County. They are, therefore, public employees.

Section 49-1443 defines public official in part as meaning "an official . . . of the state government or a political subdivision thereof". The members of the advisory committee of LOMR who are appointed by the county board are appointed for a specific term and have certain official duties. They, therefore, fall within the definition of public official.

Section 49-1407 defines business as "any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, self employed individual, holding company, joint stock company, receivership, trust, activity or entity". We note that this definition does not distinguish between non-profit and for-profit entities. A non-profit corporation fits the definition of business. Lanco, as proposed, would fit the definition of business.

Section 49-1408 defines business association in part as " a business in which the individual is a partner, director, or officer". We consider the term director to refer to a person who serves on the governing body of a business, regardless of the actual title given. Therefore, an individual serving on the governing body of Lanco would have a business association with Lanco.

Section 49-14,102 provides "no public official or public employee, a member of that individual's immediate family, or a business with which the individual is associated shall enter into a contract valued at two thousand dollars or more in any one year, with a governmental body unless the contract is awarded through an open and public process which includes prior public notice and subsequent availability for public inspection during the regular office hours of the contracting governmental body of the proposals considered and the contracted awarded".

This section goes on to provide that "the contract may not be divided for the purpose of evading the requirements of section 49-14,102". It further provides that section 49-14,102 does not apply to a contract when the public official or public employee does not in any way represent either party in the transaction.

Section 49-14,103 provides that a contract which is contrary to the provisions of section 49-14,102 is voidable by decree of a court of competent jurisdiction.

Besides the foregoing, there are additional provisions applicable to the county commissioner serving on the Lanco governing board. Section 40-14,103.01 generally provides that certain specific public officials (including a county commissioner) may not have an interest in any contract to which his or her governing body is a party. A county commissioner has an interest in such a contract if a business with which he or she is associated receives a financial benefit as a result of the contract. The existence of such an interest renders the contract voidable. However, there are certain steps which a county commissioner may take to qualify for an exception to this provision. In order to qualify the county commissioner must: (1) make a declaration on the record to the governing body responsible for approving the contract regarding the nature and extent of his or her interest prior to the time that the governing body considers the contract: (2) not to vote on the matter of granting the contract nor participate in the discussion of the matter; and (3) not act for the governing body as to inspection or performance of the contract. An additional requirement is that the contract entered into be subject to any applicable competitive bidding requirements and be fair and reasonable to the governing body. The provisions of section 49-14,103.01 are applicable to the county commissioner who is on the governing body of Lanco but not to the other members of Lanco's governing board.

We turn now to the specific questions which have been posed.

1) If Lanco is established as proposed, is it a conflict of interest or otherwise a violation of the Nebraska Political Accountability and Disclosure Act for a standing committee consisting of members of the LOMR advisory committee to act as the Lanco governing body?

No. As stated, there is nothing in the Act which prohibits an individual from serving on the advisory committee of LOMR at the same time that he or she serves on the governing board of Lanco. However, anyone serving on the governing board or governing body of Lanco has a business association with Lanco. Therefore, the provision of section 49-14,102 would apply to any situation involving a contract between Lanco and Lancaster County. Section 49-14,103.1 would also apply as to the county commissioner serving on the Lanco governing body.

2) Is there a conflict of interest or other violation of the Nebraska Political Accountability and Disclosure Act if the administrator, chief financial officer, the vocational division director and the residential division director of LOMR act as ex officio members of the LOMR advisory committee while also serving on the governing body of Lanco?

No. Again, there is nothing in the Act which prohibits one of these individuals from simultaneously serving on the LOMR advisory committee and the Lanco governing body. They, too, would have a business association with Lanco thus making applicable the provisions of section 49-14,102 in situations involving contracts between Lanco and Lancaster County.

3) Is it a conflict of interest or other violation of the Nebraska Political Accountability and Disclosure Act for the administrator of LOMR or the LOMR advisory committee members to act as incorporators for Lanco?

No. A review of sections 21-1927 through 21-1931 reveal that the role of an incorporator of a non-profit corporation is limited to bringing the corporation into being and calling for the organizational meeting of the board of directors named in the articles of incorporation. In such a case, they are acting strictly in their capacities as representatives of Lanco and not in their capacities as public officials or public employees. Since this is not a contract type situation, neither section 49-14,102 nor section 49-14,103.01 apply.

4) Is there a conflict of interest or other violation of the Nebraska Political Accountability and Disclosure Act for members of the Lanco governing body who are citizens representing area businesses, to participate in any manner with Lanco decisions or enter into contracts with businesses represented by those members?

No. The Nebraska Political Accountability and Disclosure Act has no applicability to an individual making a decision in his or her capacity as a member of a governing body or a private, non-profit corporation affecting a contract with another non-governmental entity in which the member has some sort of interest.

With regard to matters between the county board and Lanco which are not contractual in nature, the provisions of section 49-1499 apply. While we point out the existence of this particular statute, we do not analyze it here. For a full analysis of section 49-1499 reference is made to Advisory Opinion #124 which was issued in connection with a matter involving the Lancaster County Board of Commissioners.

A corollary issue to this fact situation is whether a public employee may use public resources, including government work time, to perform duties as a member of the governing board of a private, non-profit corporation. There is also a question as to whether a public employee may be required to serve on the governing board of a private, non-profit corporation. Though we acknowledge the existence of these issues, we do not analyze them as they are beyond the scope of the questions presented.

It should be noted that this opinion is an analysis of the applicability of the Nebraska Political Accountability and Disclosure Act to the proposed incorporation of Lanco. Obviously, there may be other legal factors affecting this proposal which fall outside of the jurisdiction of the Commission. Such areas as the fiduciary duties of the members of Lanco's governing body to Lanco have not been considered.