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Cincinnati Situation V - Officials Entering Into Contracts with Their City
Friday, June 11th, 2010
Robert Wechsler
The family firm's $100 million development takes this matter beyond
ordinary conflicts, due to state and local laws on officials entering into public contracts with their city. What makes this issue far more
serious than an ordinary conflict, which can be dealt with responsibly through
recusal, is that both state and local law require the official to choose
between his government position and an interest in a public contract.
It is this far more drastic remedy that has recently escalated emotions
surrounding the council member's situation.
The state rule is R.C. 2921.42(A)(3), which prohibits an official from having a "position of profit in the prosecution of" a public contract with the city. The local rule is Cincinnati Municipal Ordinance §101-01, which reads in part, "A member of council shall not be interested in any contract with the city" and then says, in an odd way, that anyone who is so interested in a contract forfeits his seat.
The first issue is whether receiving tax increment financing (TIF) money and a tax abatement from the city would constitute a public contract. That issue was dealt with in a state EC advisory opinion two years ago, in a matter involving another Cincinnati council member (the advisory opinion is attached; see below). Courts had previously found that a city's designation of a development as a TIF is effectively the city's purchase of economic or community development and, therefore, is a public contract.
The big difference between the 2008 case and the current case is that the past council member's interest in the developer was as a member of an LLC, effectively a partner, while the current council member has no direct ownership interest in the developer.
The second issue then is, whether family ownership in a developer for which the council member works is sufficient to be considered a "position of profit" or an interest in the public contract. At first blush, one would have to say No. These provisions are clearly intended to prevent an official from entering into a contract authorized by himself or by the body on which he sits. There is nothing said about family or other indirect interests or benefits. In fact, the 2008 advisory opinion, in interpreting the term "position of profit" expressly speaks of a financial benefit "which is a definite and direct result of the public contract."
The council member's benefit would come from any reward he would get from the company for bringing in the public contract, something that is indefinite, unless some commission, bonus, raise, or promotion has already been promised; from the satisfaction of benefiting his father and uncle; and from the other indirect benefits listed in my blog post on indirect benefits in this situation. However, such indefinite and indirect benefits do not seem to have been contemplated by the state legislature in drafting these provisions.
Although the use of the term "interest" in the local ordinance does not require the stronger "position of profit," it still does not expressly include indefinite or indirect benefits. However, the interest of an employee or family member of principals benefiting from a public contract might be considered sufficient.
But whatever the laws say, the appearance of impropriety is strong here. The question is, is recusal sufficient to deal responsibly with this appearance of impropriety, whatever the law might be? Is it ever acceptable for the company a council member works for, or for a company run by his immediate family, to seek to enter into a contract with the city?
Robert Wechsler
Director of Research-Retired, City Ethics
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The state rule is R.C. 2921.42(A)(3), which prohibits an official from having a "position of profit in the prosecution of" a public contract with the city. The local rule is Cincinnati Municipal Ordinance §101-01, which reads in part, "A member of council shall not be interested in any contract with the city" and then says, in an odd way, that anyone who is so interested in a contract forfeits his seat.
The first issue is whether receiving tax increment financing (TIF) money and a tax abatement from the city would constitute a public contract. That issue was dealt with in a state EC advisory opinion two years ago, in a matter involving another Cincinnati council member (the advisory opinion is attached; see below). Courts had previously found that a city's designation of a development as a TIF is effectively the city's purchase of economic or community development and, therefore, is a public contract.
The big difference between the 2008 case and the current case is that the past council member's interest in the developer was as a member of an LLC, effectively a partner, while the current council member has no direct ownership interest in the developer.
The second issue then is, whether family ownership in a developer for which the council member works is sufficient to be considered a "position of profit" or an interest in the public contract. At first blush, one would have to say No. These provisions are clearly intended to prevent an official from entering into a contract authorized by himself or by the body on which he sits. There is nothing said about family or other indirect interests or benefits. In fact, the 2008 advisory opinion, in interpreting the term "position of profit" expressly speaks of a financial benefit "which is a definite and direct result of the public contract."
The council member's benefit would come from any reward he would get from the company for bringing in the public contract, something that is indefinite, unless some commission, bonus, raise, or promotion has already been promised; from the satisfaction of benefiting his father and uncle; and from the other indirect benefits listed in my blog post on indirect benefits in this situation. However, such indefinite and indirect benefits do not seem to have been contemplated by the state legislature in drafting these provisions.
Although the use of the term "interest" in the local ordinance does not require the stronger "position of profit," it still does not expressly include indefinite or indirect benefits. However, the interest of an employee or family member of principals benefiting from a public contract might be considered sufficient.
But whatever the laws say, the appearance of impropriety is strong here. The question is, is recusal sufficient to deal responsibly with this appearance of impropriety, whatever the law might be? Is it ever acceptable for the company a council member works for, or for a company run by his immediate family, to seek to enter into a contract with the city?
Robert Wechsler
Director of Research-Retired, City Ethics
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