Withdrawal, Secrecy, and Misuse of Confidential Information Issues in an Economic Incentive Matter

Providing incentives to attract companies or get them to expand their operations in a city or county has always been a controversial issue. Incentives are seen as necessary to attract, keep, or expand jobs locally, but they can also be an unnecessary way to get local governments into bidding wars (or what is presented to them as a bidding war) with other local governments, to the benefit of companies who are going to build or expand no matter what local governments offer.

Providing incentives can also lead to ethical misconduct, or the appearance of impropriety. This is the case in High Point, NC, where Ralph Lauren was given both a sizeable incentive to expand (by both city and county) and land use changes, according to an article this week in the Greensboro Rhino Times.

A dispute arose when a council member provided a market survey to Ralph Lauren before the council met on its requests, but after the High Point Economic Development Corp, which recommends incentives to the council, had been dealing with the incentive request.

Upon advice from the city manager, mayor, and city attorney, the council member did not vote on any of Ralph Lauren's requests. But there is no information about the extent to which the council member otherwise participated in the matter.

The Definition of Withdrawal
There are three problems here. One is that everyone involved in this situation believes that withdrawing from a vote is all that is necessary. Even state laws appear to require nothing but withdrawal from votes where this a conflict. This means that a council member or other official could do everything possible to arrange for incentives and land use permits for a company it sought business from, or was even doing business with, as long as he didn't vote. I would like to see someone defend any law that would allow this to happen.

Secrecy
The second problem is that the provision of advice by high-level officials in this matter appears to have been kept secret from the public. And the council member refuses to provide further information about his involvement in the matter. According to the article, the council member "would not provide the market survey or any written communications between the company and himself. He would not describe the contents of any contacts he had with the company. Asked to identify the person at Ralph Lauren Corp. who approached him asking for the property market survey, he first asked, 'Why should I?' Then he cited confidentiality between himself and his Ralph Lauren contact."

So the public can only assume the worst.

Misuse of Confidential Information
The third problem is that, even while withdrawing from the votes, the council member insisted that he had no conflict:  "The reason for my [decision not to vote] has to do not with an existing conflict of interest but with appearance of a possible conflict," he wrote.

And the council member denied a conflict the mayor pointed out, which could not be cured by withdrawal. The mayor said that the council member knew that Ralph Lauren was going to expand and seek incentives, that it was kept confidential only from the press, not from officials. The council member said he didn't know about Ralph Lauren's request for an incentive, even though the company had asked him to look into expansion and it had asked for, and received, an incentive the last time it had expanded in High Point (in November 2010). According to the article, "Dozens of public officials were aware of the potential Ralph Lauren Corp. expansion at all levels of government."

If the council member sought business with a company based on information known only to public officials, this is a serious misuse of office to benefit himself. In his defense, he insists he never made a penny. But that isn't relevant. Seeking a benefit is sufficient. Failure to obtain the benefit would affect any penalty, however, because there would be no seeking of restitution.

What Needs to Be Done
It is impossible to know what the council member knew without an investigation. It would certainly help clear the air if the council member was to make documents available and provide the names of his contacts at Ralph Lauren. When a public official does business with a company that is receiving and seeking substantial benefits from his city, it is not private business, and both the company and the public official should realize this.

The city should establish a policy for providing independent ethics advice rather than turning it into a dispute among high-level officials. And the state should expand its definition of withdrawal from voting to any participation in a matter.

Robert Wechsler
Director of Research-Retired, City Ethics

203-859-1959