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Conflicts of Interest

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 reasonably foreseeable 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-interests. City Officials may not generally use their official position to influence a municipal decision in which they have an economic interest. If a municipal decision will have a significant impact on an official's economic interests, and if that impact is not also felt by a significant segment of the public, then there is at least the appearance that the official is acting out of self-interest rather than acting in the public's interest. Conflict of interest rules require City Officials to withdraw from participating in municipal decisions when such decisions could impact their economic 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 complicated, and whether or not a particular law applies will depend on your specific factual 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 decisionmaker. 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.

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What are my economic interests?

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 $440 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 reasonably foreseeable that the municipal decision will have a "material financial effect" on your economic interests. The 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.

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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 earning or obtaining money or other financial benefits. 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 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.

Will I be disqualified from a decision that impacts me the same as everyone else?

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 going 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 assume that it applies without considering relevant facts. 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:

(1) It is unlawful for any City Official to be financially interested in any contract made by him or her in an official capacity; and,

(2) It is unlawful for any contract to be made by the City Council or any City board or commission if any individual member of the body has a financial interest in the contract.

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 ask for formal or 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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