Memorandum 09-153

To:	Homer City Council
From:	Holly C. Suozzo
SUBJECT:	Identifying and Addressing ConflictS of Interest
CLIENT:	cITY OF hOMER
FILE NO.:	506742.1
Date:	November 13, 2009

I. Introduction

In many Alaskan communities, council members struggle to balance their roles as members of the community with their responsibilities as government officials. While it is often a council member’s connection to his or her community that drives his or her decision to run for a seat on city council, this same connection can often lead to financial interests in matters under consideration by the council. Thus, most city council members are constantly struggling to determine when an interest is merely an unavoidable byproduct of being an engaged participant in the community and when an interest requires the interested member to abstain from participating in or voting upon a matter. The purpose of this memorandum is to assist Homer City Council members in making this determination.

II. When Must a City Council Member Declare a Conflict of Interest?

It is well established that a City Council member may not deliberate on or vote upon a matter in which that member has a “substantial financial interest.” See HCC 1.18.030(b)(1); see also AS 29.20.010. While this is a straightforward principle in theory, determining when a “substantial financial interest” actually exists is often far more troublesome.

A “substantial financial interest” is defined in the Homer City Code as:

[A] financial interest that would result in a pecuniary gain or loss exceeding $1000 in a single transaction or more than $5000 in the aggregate in 12 consecutive months. HCC 1.18.020(o).

Under the Homer City Code, a financial interest includes financial interests of both a Council member and his or her immediate family. HCC 1.18.020(e)(1). The City Code specifically identifies certain situations that constitute a financial interest and situations that do not constitute such an interest. The following are specific examples of situations where a “financial interest” exists:

a. the involvement in or ownership of a business by a Council member or a member of his or her immediate family,

b. ownership of property or the existence of a relationship by a Council member or his or her immediate family that serves as a source of income or provides a financial benefit to that individual, and

c. an affiliation by a Council member or a member of his or her immediate family with an organization in which the individual holds management position, serves as an officer, director, trustee, employee, or a similar position. See HCC 1.18.020(e)(1).

A “financial interest” does not include volunteering with a nonprofit organization or any financial interest that is generally held in common by all citizens or at least a large class of citizens. See HCC 1.18.020(e)(2).

Despite the Homer City Code’s definition of what type of financial interest is “substantial,” common law may require certain interests that fall outside the Homer City Code definition also to be considered “substantial.” For example, in Griswold v. City of Homer, the Alaska Supreme Court found that a council member’s ownership of property affected by an ordinance amending the permitted uses in a particular zoning district constituted a “substantial financial interest” in that ordinance requiring both disclosure by the member and abstention from voting on the ordinance. In that case, the council member voted and advocated for an amendment to the zoning ordinance that he believed would increase property values. While he did not expect his own property value to increase from the change, evidence was presented that suggested that the value of his property, which was in the business district that would be affected by the change, would in fact increase. As a result, the Alaska Supreme Court found that the council member’s interest was “narrow and specific” and thus he had a substantial financial interest. Griswold, 925 P.2d 1015, 1026-1027 (Alaska 1996). Arguably, the finding of this case would not have changed even if the property was only worth $900.00. In an attempt to avoid potential problems under common law, the Council should seek the advice of counsel whether a member may be considered to have a “narrow and specific” financial interest “in the immediate subject of a regulation.” See Carney v. State Board of Fisheries, 785 P.2d 544, 548 (Alaska 1990).

Often an interest may be financial in nature but may not be “substantial” as defined under the Code or implied under common law. Anytime a Council member is unsure of whether or not he or she has a substantial financial interest, that member should disclose the interest in question to the Council.

III. What is the Procedure for Declaring Potential Conflict of Interest?

City Council members who have or may have a substantial financial interest in an action must disclose the facts concerning that interest to Council before the Council takes any official action. Additionally, any Council member may raise questions concerning a financial interest of a fellow Council member. Where such questions are raised, the potentially interested Council member must disclose any relevant facts concerning the financial interest asserted. See HCC 1.18.045(a). Once a Council member raises an existing or potential substantial conflict of interest, the Mayor or the mayor pro tem in the Mayor’s absence, will determine whether the interested member must be excused from participation in and vote upon a matter. If, however, the Council disagrees with the Mayor’s decision, it may immediately override his decision. See HCC 1.18.045(b).

When a City Council member is excused from participation, he or she shall leave the official table and shall not vote, debate, testify, or otherwise take part in the official action. However, an excused Council member who is an applicant in a matter from which they are excused may testify on his or her own behalf from the public testimony area. HCC 1.18.045(e).

IV. Can I Be Required to Participate in a Matter in which I have a Substantial Financial Interest?

In certain situations, it may be necessary for a Council member to participate in a matter in which he or she has a substantial financial interest. In these situations the “Rule of Necessity” is applied. However, the City attorney should always be consulted before this rule is applied. Under the Rule of Necessity, a Council member with a substantial financial interest in a matter is permitted to participate where:

(1) by reason of being excused for conflicts of interest the number of Council members eligible to vote is reduced to less than the number required to approve the official action,

(2) no other City body has jurisdiction and authority to take the official action on the matter, and

(3) the official action cannot be set aside to a later date, within a reasonable time, when the Council could obtain the minimum number of members to take action who are not excused for conflicts of interest. HCC 1.18.045(f).

If the Council determines that the Rule of Necessity does apply, all members, except the applicant when the applicant is a Council member, shall participate in the official action. HCC 1.18.045(f).

V. Seeking an Advisory Opinion Regarding a Conflict of Interest

In many cases it may be difficult to figure out whether or not a Council member has a substantial financial interest or whether or not a Council member should be excused from participating in an action. In cases where the Council is unclear, it should request an advisory opinion from the City attorney on the specific issue under HCC 1.18.060. The request for the advisory opinion should clearly state that it is a request for an advisory opinion and the Council member should provide the attorney with as many details as possible in his or her request. HCC 1.18.060(a). Once issued, the advisory opinion will be binding on the City for the particular set of facts and instances of conduct for which the opinion was requested.

VI. Conclusion

While this memorandum will likely assist Council members in determining when a conflict exists, it will not eliminate the need for Council members to rely on their judgment when ultimately deciding if a conflict warrants disclosure. Council members should always err on the side of disclosure and should become familiar with the definitions of what constitutes a substantial financial interest warranting disclosure under state and local law. In so doing, Council members will make great strides in protecting their decisions from scrutiny under the law.

HCS

Attachment: HCC 1.18

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Walt Wrede