April 7, 2003
James R. Sutton, Esq.
Nielsen, Merksamer, Parrinello, Mueller & Naylor, LLP
591 Redwood Highway #4000
Mill Valley, California 94941-3039
Dear Mr. Sutton:
You requested the Ethics Commission’s advice regarding various provisions of the Taxpayer Protection Amendment, Proposition J in the November 2000 election, S.F. Campaign and Governmental Conduct Code sections 3.700-3.740.
The Ethics Commission provides two kinds of advice: written formal opinions or informal advice. S.F. Charter § C3.699-12. Written formal opinions are available to individuals who request advice about their responsibilities under local laws. Formal opinions provide the requester immunity from subsequent enforcement action if the material facts are as stated in the request for advice, and if the District Attorney and City Attorney concur in the advice. Id. Informal advice does not provide similar protection. Id.
Because your letter seeks general advice and does not pertain to particular persons or events, the Commission is treating your letter as a request for informal advice.
The General Prohibition under Proposition J
Under Proposition J, a City and County public official who "has exercised discretion to approve and who has approved or voted to approve a public benefit" may not receive a personal or campaign advantage1 from the public benefit recipient for a specified period of time ranging from two to six years from the date the official approves or votes to approve the public benefit. S.F. C&GC Code § 3.715(a). The prohibition does not apply when the public official’s approval of the public benefit is a ministerial function, or when the public official does not participate in, influence or attempt to influence the approval of the public benefit. Ethics Commission Regulation 3.715(a)-1.
1. Do volunteer members of the boards of directors of a nonprofit organization which received a grant from the City valued over $10,000, or a City contract valued over $50,000, qualify as "public benefit recipients"?
You ask whether Proposition J applies to nonprofit organizations that receive City grants that are valued over $10,000 or contracts that are valued over $50,000. You further ask whether the law also applies to volunteer members of the boards of directors of these nonprofit organizations such that the directors are prohibited from contributing to any candidate for City elective office who voted to approve the grants or contracts. You ask whether the Commission’s response would differ "if the contribution is not in any way connected to the City’s grant, and even if the volunteer board member does not in any way personally benefit from the grant."
The fundamental task of statutory construction is to determine the legislative intent in order to effectuate the law’s purpose. SeeWhite v. Ultramar, Inc. (1999) 21 Cal.4th 563, 572. "If the plain language of [an ordinance] is unambiguous, no court need, or should, go beyond that pure expression of legislative intent." Id., citations omitted. The plain language of Proposition J is clear with respect to whether volunteer members of boards of directors of nonprofit organizations that receive City grants or contracts are public benefit recipients. Therefore, we need not look beyond the words of the Ordinance.
S.F. C&GC Code section 3.710(b) states the following:
Those persons or entities receiving public benefits as defined in Section 3.710(a)(1)-(7) shall include the individual, corporation, firm, partnership, association, or other person or entity so benefiting, and any individual or person who, during a period where such benefit is received or accrues: (1) Has more than a ten percent (10%) equity, participation, or revenue interest in that entity; or (2) Who is a trustee, director, partner, or officer of that entity.
The plain language of the Ordinance provides that any entity that receives public benefits is a public benefit recipient. The plain language of the Ordinance also provides that the directors of any entity that receives public benefits are also public benefit recipients. No distinction is made between for-profit and nonprofit entities that receive public benefits, nor is a distinction made between volunteer and paid directors. The usual and ordinary meaning of the Ordinance’s words leads the Commission to conclude that nonprofit organizations that receive public benefits are public benefit recipients covered by Proposition J. For similar reasons, the Commission concludes that the directors of these nonprofit organizations are public benefit recipients.2
Although we believe that the Ordinance is clear, the language in Proposition J’s preamble supports the Commission’s conclusions. In adopting the initiative, the people of San Francisco sought to ensure that the use or disposition of public assets is not tainted by conflicts of interest among City officials who are entrusted with their management and control, and that decisions that confer private benefits are "arranged strictly on the merits for the benefit of the public, and irrespective of the separate personal or financial interests of involved public officials." S.F. C&GC Code § 3.705(a). The voters stated:
The people find that public decisions to sell or lease property, to confer cable, trash hauling and other franchises, to award public construction or service contracts, or to utilize or dispose of other public assets, and to grant special land use or taxation exceptions have often been made with the expectation of, and subsequent receipt of, private benefits from those so assisted to involved public ‘decision makers.’
The people declare that there is a compelling state interest in reducing the corruptive influence of emoluments, gifts, and prospective campaign contributions on the decisions of public officials in the management of public assets and franchises, and in the disposition of public funds. The people, who compensate public officials, expect and declare that as a condition of such public office, no gifts, promised employment, or campaign contributions shall be received from any substantial beneficiary of such a public decision for a reasonable period.
Id., § 3.705(b) and (c).
In deciding that they did not want decisions to award City contracts and grants to be based on whether the decision-makers received or would receive gifts or contributions from the public benefit recipients, the voters did not limit their concern to organizations that exist only for profit or to directors who serve only for pay. Instead, they used the term "any substantial beneficiary." Nonprofit corporations are substantial beneficiaries of public benefits and nothing in the legislative history suggests that they were to be excluded from the Ordinance’s reach.
2. Does Proposition J prohibit PACs sponsored by public employee unions from contributing to City candidates?
You note that Proposition J specifically excludes public employment from the term "public benefit." See S.F. C&GC Code § 3.710(a). You ask whether this exemption allows only individuals who work for the City to make contributions to candidates for City elective office, or whether the exemption also allows the various public employee unions that negotiate large City contracts on behalf of their members (memoranda of understanding or MOUs) to make such contributions. You indicate that several of these public employee unions sponsor political action committees (PACs) that often contribute to City candidates.
Proposition J provides that "the term public benefit does not include public employment in the normal course of business for services rendered." Id. § 3.710(a). It is unclear from the plain language of the Ordinance whether this exception applies only to public employees or whether it extends to the unions that represent public employees and are parties to MOUs. Accordingly, we must rely on the tools of statutory construction to determine the meaning of the phrase "public employment in the normal course of business for services rendered."
If the plain language of an ordinance is ambiguous or uncertain, we must look to the legislative history for assistance in interpreting the meaning of a law. See Halbert’s Lumber, Inc. v. Lucky Stores, Inc. (1992) 6 Cal.App.4th 1233, 1239. When the voters change a law, ballot arguments should be used as the legislative history. See Hodges v. Superior Court (1999) 21 Cal.4th 109, 113-115. If the legislative history does not provide an answer, we must apply common sense to the language and, if possible, interpret the words in a manner that makes them reasonable, in accord with common sense, and avoids an absurd result. See id. When interpreting the statutory language in a manner that makes the words reasonable, in accord with common sense, and avoids an absurd result, the language must be read not in isolation but in light of the overall statutory scheme. See Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387.
None of the paid arguments in support of or in opposition to Proposition J sheds light on the meaning of this phrase. See Voter Information Pamphlet and Sample Ballot, November 7, 2000 Consolidated Presidential General Election Ballot, at pp. P-128-132. Accordingly, we must interpret this phrase in a manner that makes its words reasonable, in accord with common sense, and avoids an absurd result.
To supply a reasonable interpretation of this phrase in a manner that is in accord with common sense and avoids an absurd result, we must examine the overall statutory scheme of Proposition J. As discussed above, the overall statutory scheme of Proposition J sets forth the goal of ensuring that the use or disposition of public assets is not tainted by conflicts of interest among City officials arising from the receipt of campaign contributions, gifts or promises of future employment. Specifically, the preamble to Proposition J identifies the "trading of special favors or advantage in the management or disposal of public assets and in the making of major public purchases" that "compromises the political process, undermines confidence in democratic institutions, deprives meritorious prospective private buyers, lessees, and sellers of fair opportunity, and deprives the public of its rightful enjoyment and effective use of public assets" as its core concerns. Accordingly, we must determine whether approval of MOUs by public officials who receive campaign contributions, gifts or future employment from unions implicates these concerns.
In order to make this determination, it is important to understand the role a union plays in negotiating an MOU on behalf of its members. Collective bargaining between the City and its employees is controlled by the Meyers-Milias-Brown Act. Cal. Gov’t Code § 3500 et seq. Under the Act, employee collective bargaining units have the authority to represent their employees in "all matters related to employment conditions and employer-employee relations, including, but not limited to, wages, hours, and other terms and conditions of employment." San Bernardino Public Employees Association v. City of Fontana (1998) 67 Cal.App.4th 1215, 1220 (citations omitted). The Act requires the City to negotiate exclusively with the collective bargaining units. Id. Under state and local law, both the City and the bargaining units are mutually obligated to negotiate in good faith. Cal. Gov’t Code § 3505; S.F. Charter § A8-409-3. Once an MOU has been negotiated and approved by the governing body of the public entity and the membership of the bargaining unit, it is binding on both parties for its duration. San Bernardino, supra, 67 Cal.App.4th at 1220. The Act does not permit individual employees to negotiate the terms of their employment, and ". . . a member of an employee bargaining unit is bound by the terms of a valid collective bargaining agreement, though he is not formally a party to it and may not even belong to the union which negotiated it." Id. at 1220-1221, citations omitted.
Thus, it is only through the collective bargaining units that individual employees may voice their concerns. In addition, individual employees are bound by the MOU, and they may not negotiate the terms of their own employment. Finally, the law prescribes that the City must negotiate exclusively with collective bargaining units that have been chosen to represent the City’s employees. These conditions lead the Commission to conclude that an MOU is not a special favor that deprives any person or entity of fair opportunity or that deprives the public of its right to the effective use and enjoyment of public assets.
Accordingly, to interpret the phrase "public employment in the normal course of business for services rendered" in a reasonable manner that is in accord with common sense and avoids an absurd result, the Commission determines that the exemption includes collective bargaining units that are designated by law to negotiate MOUs with the City on behalf of City employees.3 Public officials who approve MOUs may receive campaign contributions from PACs set up by these public employee unions. However, the Commission cautions that should such public employee unions receive grants or contracts or other public benefits from the City for purposes not related to the negotiations for the MOUs for City employees, such public benefits may be covered by Proposition J. In such a case, public officials who participated in the approval of the public benefit might be prohibited from receiving campaign contributions, gifts or employment from the unions for the specified time periods under the law.
3. Do the prohibitions in Proposition J apply to a supervisor who approves a public benefit during the budget process?
You state that several individuals and entities receive funding from the City through the annual budget process rather than through separate action by the Board of Supervisors. You explain that although Board members may debate certain line items in the budget during committee meetings or other public hearings, they generally vote on the budget as a whole rather than on individual line items in the budget. You ask whether a supervisor who approves the budget would be prohibited from accepting a contribution from the individual entity listed in a line item, assuming that the line item constitutes a public benefit (for example, a cash grant over $10,000). You state that although Board members technically "exercise discretion to approve" the line items, they do not really have the opportunity to vote against most line items, unless they choose to vote against the entire budget. Thus, you appear to contend that Board members do not exercise discretion to approve the line item contracts and grants. The Commission disagrees.
In considering the budget, the Board members necessarily exercise legislative judgment to determine how to prioritize key functions and responsibilities of City government and whether or not to fund certain benefits and services for local residents. As you indicate, supervisors often debate line items at committee meetings and other hearings. Even though line items may not be considered separately in the vote to approve the budget, their inclusion in the budget reflects both a determination by the supervisors that the items are not inconsistent with the policy choices being made and a decision by the supervisors to award a grant or contract to certain recipients. Indeed, members of the Board may propose amendments to the budget to add or delete these line items. In doing so, they exercise discretion.
In adopting Proposition J, the voters specifically sought to limit the trading of special favors or advantages in the management and disposal of public assets. To exclude contracts and grants that are awarded via a line item in the budget on the basis that supervisors do not exercise discretion to approve them would undermine the purpose of the Ordinance. Because the Commission finds that supervisors actually do exercise discretion when they vote on a budget that includes line items and are not engaged in a ministerial function, the Commission cannot agree that the supervisors "do not really have the opportunity to vote against most line items." As a result, the Commission concludes that Proposition J prohibits members of the Board of Supervisors from accepting personal or campaign advantages from public benefit recipients who are granted public benefits during the budget process.
4. Does a payment received from the City to settle a lawsuit constitute a "public benefit"?
You indicate that the City must defend itself against a wide range of lawsuits brought by individuals and entities, that the City Attorney often concludes that it is in the City’s best interest to settle these lawsuits rather than spending resources on trial, and that the Board of Supervisors typically has to approve these cash settlements. You ask if these settlements constitute a public benefit under Proposition J.
The fundamental task in statutory construction is to determine the legislative intent in order to effectuate the law’s purpose. See White, supra, 21 Cal.4th at 572. As discussed above, if the plain language of the ordinance is clear, there is no need for statutory construction. See id. But the literal meaning of a law must be in accord with its purpose. See Delaney v. Superior Court (1990) 50 Cal.3d 785, 798.
The plain language of the Ordinance states that the term public benefit includes a contract, benefit, or arrangement between the City and County and any person or entity "to receive cash or specie of a net value to the recipient in excess of $10,000 in any 12-month period." S.F. C&GC Code § 3.710(a)(7). Generally, the settlement of a lawsuit includes a monetary payment. Accordingly, it appears when examining the plain language of Proposition J that the settlement of a lawsuit constitutes a public benefit if the net value of the settlement to the recipient includes a monetary payment that is in excess of $10,000 in any 12-month period.
But this literal meaning may not be in accord with the Ordinance’s purpose. The voters adopted Proposition J to prevent the trading of favors "in the management or disposal of public assets" in a way that deprives meritorious persons of a fair opportunity to obtain public benefits and deprives the public of its effective use and enjoyment of public assets. See S.F. C&GC Code
§ 3.705(a) and (b). Because a final judgment in a lawsuit might otherwise cause the City to have a legal obligation to make a payment, it is unclear that including a settlement of a lawsuit before final judgment within the meaning of the term "public benefit" is in accord with the purpose of Proposition J.
Generally speaking, when a decision to settle a lawsuit is reached, the City has decided either that the City will make a monetary payment because it has exposure to a liability that may exceed the settlement amount, or that the costs of going forward with a trial exceed the possible return on the lawsuit or the settlement amount. Thus, settlement payments are compromises reached after negotiations by both the City and the affected parties. They do not appear to provide special favors to the recipients, nor do they deprive some other meritorious person or entity of fair opportunity for a public benefit or undermine the public’s effective use of public assets. Instead, they appear to ensure that public assets are used efficiently. Thus, settlement payments do not implicate the types of arrangements that were at the core of the concerns that Proposition J sought to address. Accordingly, the Commission does not believe that payments made to settle lawsuits constitute public benefits. The Commission cautions, however, that Proposition J authorizes civil actions by private citizens to enforce its provisions, and a court may reach a different conclusion.
5. Do City contracts for health care, telephone or other "services" constitute "selling or furnishing any material, supplies or equipment" to the City?
You state that the definition of public benefit includes certain but not all City contracts, namely, those contracts that exceed $50,00 for "personal services" or for "material, supplies or equipment." You indicate that the quoted terms are not defined in the ordinance or regulations, and you add that a January 21, 1997 memorandum from the City Attorney appears to define those terms narrowly in the context of Campaign and Governmental Conduct Code section 1.126. Thus, you ask whether, if the terms are narrowly defined for the Ordinance, board members of a nonprofit organization that has a contract with the City to provide health care services to low-income residents could contribute to a supervisor who voted to approve the contract. You also ask whether a company that provides long-distance telephone service to City offices and employees is covered under the law, as well as a law firm retained by the City Attorney to represent the City in a lawsuit. You further inquire how a candidate can distinguish between contracts that come under Proposition J and contracts that do not.
The Commission does not find that the terms "personal services" or "materials, supplies or equipment" are ambiguous with respect to the types of grants or contracts you referenced and does not believe that the January 21, 1997 memorandum from the City Attorney would cause the Commission to reach a different conclusion. The plain and ordinary meaning of the terms covers the grant or contract to provide health care services, long-distance telephone services or legal services, as long as the grant or contract otherwise meets the financial thresholds for coverage. Inasmuch as Proposition J covers such contracts, Proposition J forbids public officials who approved such contracts from receiving gifts or campaign contributions for periods of time ranging from two to six years from the date the contracts were awarded. If you have additional questions as to whether a specific contract is considered a public benefit, please do not hesitate to contact the Ethics Commission for further advice.
6. Are individuals and entities which receive "variances" or "permits" from the City exempt from all enforcement under Prop J?
You correctly state that the Commission has exempted variances and permits from the definition of public benefits. EC Reg. 3.710(a)-1. You also note that Proposition J sets forth three ways to enforce its provisions: through an enforcement action by the Ethics Commission, an action by the City authorities, or a civil lawsuit by a City resident. You ask whether the Commission’s regulation estops a civil lawsuit brought by the City or a City resident.
In adopting Regulation 3.710(a)-1, the Commission made a determination that it could not legally enforce Proposition J if the term "public benefit" included variances and permits. While a court may give weight to the Commission’s determination, a court may adopt another interpretation of the term. Thus, the Commission’s interpretation does not preclude or estop a lawsuit from either the City’s other enforcement authorities or private residents.
7. Does the "Public Benefit Recipient Report – By Supervisor" satisfy the "due diligence" requirement of Regulation 3.720(a)-1(a)?
You state that the Clerk of the Board of Supervisors distributes a document entitled "Public Benefit Recipients Report – By Supervisor" which "purportedly lists all actions approved by the Board which qualify as public benefits." In providing a copy of the document, you ask whether a supervisor who relies on the document in order to determine whether he or she may accept a contribution, has satisfied the due diligence requirements of Regulation 3.720(1)-1(a).
Under Regulation 3.720(a)-1, a public official satisfies the due diligence and monitoring requirements of the law if
(1) the public official’s board, commission or department establishes a record of public benefits conferred (a "departmental record");
(2) the departmental record identifies the public officials who exercised discretion to approve and approved or voted to approve the public benefits;
(3) the departmental record identifies the public benefit recipients; and
(4) the public official relies in good faith on the departmental record.
In examining the document you provided, it appears to identify the public officials who approved the public benefits. In some circumstances, the document lists the public benefit recipients; in other circumstances, it is not clear that it lists all the recipients. For example, for the contract approved on July 15, 2002, the public benefit recipient listed is "SF Institute for Criminal Justice Board of Directors." Under the law, the individuals who are the directors – and trustees, partners or officers, if applicable – are considered public benefit recipients and therefore their names should be listed. While the regulation provides that there is a rebuttable presumption that a public official relied in good faith on the departmental record, good faith cannot be premised on a record that contains insufficient information. Entries that contain all the required information satisfy the due diligence requirements, but entries with insufficient information do not.
I hope you find this letter responsive to your inquiry. Please do not hesitate to contact Deputy Executive Director Mabel Ng at (415) 581-2300 if you have questions.
By: Mabel Ng
Deputy Executive Director
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1 A personal or campaign advantage includes a campaign contribution, a gift or honoraria worth more than $50, and any employment for compensation. S.F. C&GC Code § 3.710(c) and EC Reg. 3.710(c)-1.
2 The Ethics Commission clarified that an individual or entity is deemed to be the recipient of a public benefit if the individual is a trustee, director, partner or officer of a party to the contract "at the time the public benefit is awarded." Ethics Com. Reg. 3.710(b)-1.
3 In light of the Commission’s conclusion, it need not reach the question of whether Proposition J’s prohibitions extend to a PAC established by a union given tha