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What is a conflict of interest?
For the purposes of the City's Ethics
Ordinance (PDF), a person has a conflict of interest when it is likely that the
outcome of a municipal decision will have a significant impact on his or her
economic interests, and that impact is distinguishable from its effect on the
public generally.
Why does the City have conflict of interest rules?
These rules exist to reinforce the public's confidence that City leaders are
acting in the public's best interest, and not to further their own self-interest.
City Officials may not use their official position to influence a municipal
decision in which they have a personal financial interest. If it is likely that
the outcome of a municipal decision will have a significant impact on the personal
finances of a City Official, and if that impact is not also felt by a significant
segment of the public, then it at least creates an appearance that the official
may be acting out of self-interest as opposed to the public interest. Therefore,
conflict of interest rules require City Officials to withdraw from participating
in municipal decisions when a decision could have an impact on their personal
finances.
How do I know if I have a conflict of interest?
The answer to this question depends on how your particular set of facts fit
into the City's and State's conflict laws. The City's Ethics Ordinance and the
State's Political Reform Act both contain laws applicable to conflicts of interest.
These laws can be quite complicated, and whether or not a particular law applies
depends on your exact situation. The questions that follow are ones you can
ask yourself when faced with a potential conflict.
Am I a "City Official," within the meaning
of the Ethics Ordinance?
When evaluating the potential existence of a conflict of interest under the
San Diego Ethics Ordinance, the first step involves determining whether or not
you are considered a "City Official." For the purposes of the Ethics
Ordinance, you are a "City Official" if you are required to file a
Statement of Economic Interests pursuant to the
California Political Reform Act of 1974, and are (1) an elected or appointed
City officeholder; (2) a member of a City board, commission, committee, or task
force; (3) an unclassified City employee; or (4) a consultant of the City.
Am I making, participating in making, or influencing
a governmental decision?
The second step in the process involves deciding if you are engaging in the
kind of conduct regulated by the Ethics Ordinance's conflict of interest rules.
The Ethics Ordinance's conflict of interest rules apply when you (1) make a
governmental decision (e.g., a Planning Commissioner casting a vote during a
meeting); (2) participate in making a governmental decision (e.g., giving advice
or making recommendations to the decision-maker); or (3) influence a governmental
decision by communicating with the decision-maker. A good rule of thumb for
deciding whether your actions constitute making, participating in making, or
influencing a governmental decision is to ask yourself if you are exercising
discretion or judgment with regard to the decision. If the answer is "yes,"
then your conduct with regard to the decision is probably covered.
What is my economic interest?
In this step, you must identify the possible sources of a financial conflict
of interest. Conflict of interest provisions apply only to conflicts of interest
arising from economic interests. The Ethics Ordinance, at section 27.3561, identifies
six specific kinds of economic interests from which conflicts of interest can
arise for City Officials:
(1) Business Investment. You have an economic interest in a business entity in which you, your spouse, or your dependent children have invested $2,000 or more.
(2) Business Employment or Management. You have an economic interest in a business entity for which you or a member of your family is a director, officer, partner, trustee, employee, or hold any position of management.
(3) Real Property. You have an economic interest in real property in which you, your spouse, your dependent children or anyone acting on your behalf has invested $2,000 or more.
(4) Sources of Income. You have an economic interest in anyone, whether an individual or an organization, from whom you or a member of your immediate family has received (or by whom you have been promised) $500 or more in income within twelve months prior to the making of a related municipal decision.
(5) Gifts. You have an economic interest in anyone, whether an individual or an organization, from whom you or a member of your immediate family has received gifts which total $420 or more within twelve months prior to the making of a related municipal decision.
(6) Personal Financial Effect. You have an economic interest in your personal expenses, income, assets, or liabilities, and those of your immediate family.
If the specific provisions of the foregoing six kinds of economic interests do not apply, you must still consider the general rule: It is unlawful for a City Official to knowingly influence a municipal decision if it is reasonably foreseeable that the municipal decision will have a material financial effect on the City Official or a member of his or her immediate family, if the material financial effect is distinguishable from its effect on the public generally.
What kinds of financial impacts on my economic interests
are considered important enough to trigger a conflict of interest?
At the heart of deciding if you have a conflict of interest is whether or not
it is "substantially likely" that the municipal decision will have
a "material financial effect" on your economic interests. The City's
Ethics Ordinance has incorporated regulations adopted by the Fair Political Practices Commission (FPPC) that contain detailed analyses of what constitutes a material financial effect.
The FPPC has adopted rules for deciding what kinds of financial effects are important enough to trigger a conflict of interest. These rules are called "materiality standards." These standards are criteria or guidelines for judging what kinds of financial impacts resulting from municipal decisions are considered material. Briefly, these rules involve the following factors:
(1) If the economic interest is directly involved in the municipal decision, the standard or threshold for deeming a financial impact to be material is stricter (i.e. lower). This is because an economic interest that is directly involved in a municipal decision presents a bigger conflict of interest risk for the City Official who holds the interest.
(2) On the other hand, if the economic interest is not directly involved, the materiality standard is more lenient because the indirectly involved interest presents a lesser danger of a conflict of interest.
(3) There are different sets of standards for the different types of economic interests. That is, there is one set of materiality standards for business entities, another set for real property interests, and so on. The rules vary by the size and situation of the economic interest. For example, it is clear that a $20,000 impact resulting from a municipal decision may be crucial to a small business, but may be relatively insignificant for a big corporation. The materiality standards distinguish between large and small businesses, and between real property which is close or far from property which is the subject of the municipal decision.
Do City laws also provide that economic opportunities
may constitute a conflict of interest?
Yes. The City of San Diego has adopted a conflict of interest law that is even
more stringent than what is contained in the State's conflict laws. City law
prohibits City Officials from participating in a municipal decision in instances
where a party to the municipal decision has given the City Official, promised
to give the City Official, or acted as an intermediary for the City Official
to have, an opportunity for compensation.
This law prevents a City Official from being involved in a municipal decision
even if the official doesn't have one of the economic interests
listed above. The purpose behind this law stems from the public's interest in
preventing City Officials from being improperly influenced by being given special
opportunities, not available to the general public, for financial reward.
Does the City's "economic opportunities"
law extend to opportunities given to a City Official's family members?
It depends. Opportunities for compensation provided to a City Official do include
opportunities for compensation provided to the City Official’s immediate
family (an individual’s spouse and dependent children). When such an opportunity
for compensation is provided to a member of the City Official’s immediate
family, the City Official is prohibited from participating in a municipal decision
involving a party to the municipal decision unless the City Official had no
knowledge of, or involvement in, securing the opportunity for compensation.
Is it substantially likely that the governmental
decision will result in one or more of the materiality standards being met for
one or more of my economic interests?
Answering this question involves deciding whether it is substantially likely
that the outcome of the municipal decision will have an important impact on
your economic interests. What does "substantially likely" mean? Put
another way, how "likely" is "likely enough?" The Political
Reform Act uses the words "reasonably foreseeable." The FPPC
has interpreted these words to mean "substantially likely." Generally
speaking, the likelihood need not be a certainty, but it must be more than merely
possible. A concrete way to think about this is to ask yourself the following
question: Is it substantially likely that one of the materiality standards I
identified in the answer to the previous question will be met as a result of
the government decision? This step calls for a factual judgment, not necessarily
a legal one. You must look at your economic interest and how it fits into the
entire factual picture surrounding the decision.
If I have a conflict of interest, does the "public
generally" exception apply?
Not all conflicts of interest prevent you from lawfully taking part in the municipal
decision at hand. Even if you otherwise have a conflict of interest, you are
not disqualified from the decision if the "public generally" exception
applies. This exception exists because you are less likely to be biased by a
financial impact when a significant part of the community is substantially likely
to feel essentially the same impact from a governmental decision that your economic
interests are likely to feel. If you can show that a significant segment of
your jurisdiction feels a financial impact which is substantially similar to
the impact on your economic interest, then the exception applies. The "public
generally" exception must be considered with care. You may not just assume
that it applies. There are specific rules for identifying the specific segments
of the general population with which you may compare your economic interest,
and specific rules for deciding whether the financial impact is substantially
similar. Contact the Ethics Commission or the FPPC
for advice and details.
Can my participation be required even though I
have a disqualifying conflict of interest?
In certain rare circumstances, you may be called upon to take part in a decision
despite the fact that you have a disqualifying conflict of interest. This "legally
required participation" rule applies only in certain very specific circumstances
in which the City would be paralyzed and unable to act without your participation.
You are strongly encouraged to seek advice from the Ethics Commission or the
FPPC before you act under this rule.
What if the "municipal decision" involves a City contract?
When the "municipal decision" involves a City contract, stricter laws
are involved. These laws mandate that City bodies may make contracts only if
their members are free of influences that could interfere with their loyalty
to the public. Under the City's "Financial Interest in Contracts"
law:
This law applies if any member of the City body involved with making a contract has a financial interest in that contract. Financial interests are interests that prevent a City Official from exercising absolute loyalty and undivided allegiance to the best interests of the City. Unlike other municipal decisions where the refusal of a person with a financial interest allows the rest of the decision making body to proceed with a matter, refusal has no effect when the matter involves a contract. If it is determined that a member had a financial interest in a contract, the contract is void even if that member did not vote or participate in the decision to make the contract.
What if a financial interest in a contract is considered
to be a "remote interest" or a "non-interest"?
The City Council or any City board or commission may involve itself in making
a contract if the financial interest of one of its members does not rise to
anything more than a "remote interest" or a "non-interest."
The City of San Diego has incorporated into its Ethics
Ordinance the State's definition of a "remote interest" as set
forth in California Government Code section 1091, and the State's definition
of "non-interest" as set forth in California Government Code section
1091.5. If a City Official has a remote interest in a prospective contract of
the City, and that official sits on a body that is involved with the contract,
then that official must disclose the existence of the remote interest to the
body, and the City Official must abstain from influencing or participating in
the creation, negotiation, review, and approval of the contract.
I still have questions regarding a potential conflict
of interest. How can I get help?
If you have questions regarding a particular set of facts and wish to obtain
prospective advice from the Ethics Commission, please review the Commission's
policies and procedures regarding formal and informal advice.
Formal written advice from the Ethics Commission, based upon accurate and complete
facts, may provide you with immunity from an enforcement action initiated by
the Ethics Commission and is evidence of good faith in any other proceeding
if you have relied upon the advice in good faith. Keep in mind that the Ethics
Commission can provide you with immunity only if you seek advice before you
participate in a municipal decision.
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