OPINION NUMBER - 168
ADOPTED - 1996/11/01
SUBJECT - Conflicts of Interest
REQUESTED BY: Anthony F. Raimondo, Chairman, Nebraska Economic Development Commission
QUESTION: 1) Does a member of the Economic Development Commission have a conflict of interest if a business with which he is associated applies for a grant from the Nebraska Department of Economic Development? 2) Can a member of the Economic Development Commission have an interest in a contract with the Nebraska Department of Economic Development?
As to question #1, see analysis. As to question #2, see analysis.
Behlen Manufacturing Company (Behlen) of Columbus, Nebraska has applied for a grant pursuant to the Customized Job Training Program. This is a state developed economic incentive program which is administered by the Nebraska Department of Economic Development (DED). If approved, the grant would provide $50,000 to Behlen for the purpose of providing training in connection with fifty jobs which Behlen is considering transferring from Indiana to Nebraska. The requestor is the president and chief executive officer of Behlen.
According to a publication of the Nebraska Department of Economic Development entitled STATE OF NEBRASKA'S CUSTOMIZED JOB TRAINING PROGRAM- Instruction Guidelines and Application:
The purpose of customized job training is to provide State assistance on projects which offer an opportunity for economic development in Nebraska... In general, the types of companies qualifying are those engaged in activities which sell goods/services primarily to a non-Nebraska market: manufacturing, processing, warehousing, and headquarter facilities are some examples.
In practice, DED does not simply wait for some interested business to apply for these grants. Instead, it depends on an informal network of contacts throughout the state to bring to its attention businesses which are considering the expansion of existing operations or which are considering locating within the state. The department may actually make the initial contact with the business. If the business is interested in the job training program, a DED employee under the direction of the DED Job Training Coordinator will meet with representatives of the business. The employee will assist the business with the application process.
Upon receipt of the application, the Job Training Coordinator reviews it for completeness. It is then forwarded to the Department review team. The review team recommends approval or disapproval of the application to the Director of DED. A recommendation to approve includes a recommendation as to the amount of the grant and conditions of the grant. If the Director approves the grant, a job training grant agreement is prepared and signed by DED and the business.
Section 49-1499 of the Nebraska Political Accountability and Disclosure Act identifies a potential conflict of interest as a situation in which a public official is faced with making a decision or taking an action which may cause a financial benefit or detriment to: a) the public official; b) a member of his or her immediate family; or c) a business with which he is associated. In addition, the benefit or detriment must be distinguishable from the effect experienced by the general public or a broad segment of it.
Section 49-1408 defines "business with which the individual is associated" as a business in which "the individual is a partner, limited liability company member, director, or officer." A person may also have a business association by virtue of holding stock with a certain dollar value or representing a certain equity interest. The requestor has a business association with Behlen based upon his being its president and chief executive officer.
The question becomes whether the requestor is faced, in his official capacity, with making a decision or taking an action which could result in a financial benefit or detriment to Behlen. It is the position of the Commission that he is not.
Section 81-1201.02 of the state statutes provides for the establishment of the Department of Economic Development and the Economic Development Commission. It further provides that:
The purpose of the department and the commission shall be to maintain and develop the economy of the state and to provide opportunities for the people which will enhance and expand the quality of their lives.
The balance of §81-1201.02 includes other general statements of authority as to DED and the Economic Development Commission. Subsequent sections of this series of statutes establish the process by which members of the Economic Development Commission are appointed, their qualifications, payment of expenses, and a requirement of at least four meetings per year. While these subsequent statutes provide for certain powers and duties of the Department of Economic Development, there is no specific mention of further powers or duties for the Economic Development Commission.
Sections 81-1202 through 81-1210 of the state statutes pertain specifically to Job Training Grants. These sections became operative in 1995. There is no reference to the Economic Development Commission in these sections.
Title 85, Chapter 1 is a rule of DED entitled Rules Relating to the Administration of the Nebraska Job Training Grant. This rule was developed pursuant to the provisions of §81-1210. There is no reference in Title 85, Chapter 1 to the Economic Development Commission.
While many agencies of the State of Nebraska are governed by boards or commissions, the Department of Economic Development is not one of them. The Economic Development Commission does not choose the DED director or make any decisions binding on the agency. It is essentially an advisory body and a forum for discussion of economic development issues and broad state policy in the area of economic development. In neither law or practice does it have any role in process of making grants pursuant to the Customized Job Training Program.
Based upon the foregoing, it does not appear that the member of the Economic Development Commission will be faced with taking any official action or making any official decision with regard to the grant application of Behlen. He does not, therefore, have a conflict of interest. However, the fact that there is no conflict of interest is not dispositive of the matter.
Section 49-14,102 of the Nebraska Political Accountability and Disclosure Act provides in part as follows:
[N]o 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 contract awarded... This section shall not apply to a contract when the public official or public employee does not in any way represent either party in the transaction.
The nature of a Job Training Grant is one of contract. That is, the applicant agrees to do something in exchange for money from the state. The instruction guidelines and rules of DED also refer to the post award document signed by it and the applicant as a contract. Because the requestor has a business association with Behlen, he has an interest in the contract. Section 49-14,102 prohibits such an interest unless the requirements of the section are met.
In past advisory opinions, the Commission has addressed the concept of an "open and public process." It has stated that a bidding process is an open and public process. It has also stated that an open and public process includes one in which the matter of awarding a contract is an agenda item for a meeting of a governing body if the meeting is publicized in the normal manner of the governing body. See Advisory Opinions #61, #87 and #154. These are not necessarily the only processes which can be considered open and public.
The process prescribed in STATE OF NEBRASKA'S CUSTOMIZED JOB TRAINING PROGRAM- Instruction Guidelines and Application is not an open and public process. While not confidential, the application and approval process is not one which would ever likely come to the attention of the public. There is no prior public notice of the submission of the application, the recommendation of the review team, nor the decision of the Director of DED.
Part of §49-14,102 quoted above provides that the section shall not apply to a contract in which the public official does not in any way represent either party to the transaction. In Advisory Opinion #39, the Commission took the position that the president of a corporation "would necessarily represent...one of the parties to the proposed contract". That situation involved a for-profit corporation in which the president was involved in the day to day operations of the corporation. In Advisory Opinion #154 the Commission acknowledged that a president of a corporation would not always necessarily represent one party to the transaction. A determination is dependent upon the manner in which the business is conducted. The situation addressed by Advisory #154 involved the president of an international membership organization in which the president served a one year term and had no day to day role in the operation.
The circumstances in the matter before us are more analogous to the situation addressed in Advisory Opinion #39. In his capacity as president and chief executive officer of Behlen, the requestor necessarily represents one party to the transaction. It is our opinion, therefore, that the exception to §49-14,102 does not apply.
A member of the Economic Development Commission may only have an interest in a contract with the Department of Economic Development if the contract is awarded through an open and public process. The current process is not open and public. If DED wants to develop a different process for awarding these grants, the Commission would be willing to review the process in order to determine if it meets the open and public process test.
Compliance with the provisions of §49-14,102 is important for least two reasons. The first is that a contract entered into contrary to the provisions of §49-14,102 is voidable by a court of competent jurisdiction. See §49-14,103. The second is that the provisions of §49-14,101(3) prohibit a public official from using his or her public office, or confidential information received through the holding of a public office for personal financial gain, that of an immediate family member, or a business with which he or she is associated. Having a prohibited interest in a contract with a governing body could be evidence of a violation of §49-14,101(3).
Finally, we note the existence of Attorney General's Opinion #87012 which was issued in 1987. That opinion takes the position that a member of the Economic Development Commission may not directly receive a grant administered by DED. However, the opinion did not address the application of §49-14,102. It is the Commission's position that §49-14,102 clearly contemplates that public officials may have an interest in a contract with a state agency as long as the statutory criteria are met.
Absent an open and public process for awarding a Customized Job Training grant, a member of the Economic Development Commission who has a business association with a grantee has a prohibited interest in a contract as provided by §49-14,102.
A member of the Economic Development Commission does not have a conflict of interest if a business with which he is associated applies for a Customized Job Training Grant from the Department of Economic Development because he is not faced with taking an official action or making an official decision in connection with the application. The member may not have an interest in a contract with the Department of Economic Development unless the contract is awarded through an open and public process.