Article 18 of New York's General Municipal Law: the state conflicts of interest law for municipal officials.

• Author: Davies, Mark

INTRODUCTION

Article 18 of the New York State General Municipal Law sets forth the provisions regulating conflicts of interest for municipal officers and employees.(1) It applies to all municipalities in the state, except New York City.(2) "Municipality" is broadly defined to include not only counties, cities, towns, and villages, but a host of other local government entities as well, such as school districts, consolidated health districts, public libraries, and town and county improvement districts.(3) "Municipal officer or employee" is likewise broadly defined to include all officers and employees of the municipality, whether paid or unpaid, including board and commission members, and officers and employees paid from county funds.(4)

The provisions of Article 18 fall into five areas:(5) (1) the prohibitions on interests in contracts with the municipality;(6) (2) miscellaneous provisions on conflicts of interest (e.g., gifts, and appearances before municipal agencies);(7) (3) administration (local ethics laws, local ethics boards);(8) (4) disclosure in certain land use applications;(9) and (5) annual financial disclosure.(10) The purpose of this Article is to outline the various provisions governing municipalities and to suggest practical applications of Article 18 to the daily operation of municipalities.

1. PROHIBITED INTERESTS IN CONTRACTS

   Government ethics laws do not regulate ethics per se but rather, as a general rule, regulate financial conflicts of interest, that is conflicts between a public official's private financial interests and public responsibilities. Article 18 covers "pecuniary and material interests rather than expressions of personal opinion."(11) For example, many governmental ethics laws prohibit a public servant from engaging in certain outside employment or from taking any action as a public servant that would benefit the public servant personally.(12)

   In addition, state and local ethics laws seek to protect against divided loyalties on the part of public officers and employees. For example, a public servant may be prohibited from engaging in activities in conflict with his or her official duties or from acting on a matter that would financially benefit a member of the official's immediate family or his or her outside employer.(13) Likewise, a public servant may be prohibited from accepting gifts or gratuities from someone doing business with the official's government employer.(14) Finally, governmental ethics laws may contain miscellaneous provisions aimed at protecting privacy or preserving public confidence in the integrity of the governmental hiring or decisionmaking process or maintaining a level playing field among vendors. These provisions may restrict the use or release of confidential information, participation in certain political activities, the ability to enter into financial relationships with a subordinate or superior, or revolving door employment.(15)

   The focus of Article 18 lies almost entirely in prohibiting a municipal officer or employee from having an "interest" in contracts with his or her municipality if the officer or employee has some power or duty with respect to the contract.(16) This prohibition, which contains fifteen exceptions, including exceptions to the exceptions, is sufficiently complicated to puzzle experienced municipal attorneys; to a lay person, it is virtually unintelligible. In addition, this prohibition often seems senseless when applied to smaller communities.(17) Furthermore, only limited case law exists to provide guidance in the area; instead one must consult the plethora of opinions issued by the Comptroller's Office and Attorney General's Office.(18)

   When faced with an issue under section 801, the municipal attorney will need to engage in a five-step analysis, determining whether: (1) the individual is a "municipal officer or employee;"(19) (2) there is a "contract" with the municipality;(20) (3) the officer of employee has an "interest" in that contact;(21) (4) the officer or employee has the requisite power or duty under section 801; and (5) the officer or employee is covered by any of the exceptions in sections 801 or 802.(22) If elements one through four are all satisfied and none of the exceptions apply, then the contract is prohibited under section 801. If one or more of the exceptions apply, then the contract is not prohibited; disclosure, however, may be mandated under section 803, and recusal may be required under the common law or advisable as a matter of common sense.

   1. "Municipal Officer or Employee"

      As noted above, "municipal officer or employee" includes both compensated and uncompensated officers and employees of the municipality, with certain statutory exceptions.(23) Indeed, in many municipalities, unpaid officials, such as members of planning and zoning boards, wield the greatest power.

      The question sometimes arises whether Article 18 generally, and section 801 specifically, applies to members of an ad hoc advisory board. As a rule of thumb, one may conclude that, if the board is not subject to the Open Meetings Law because it is not a public body, then its members are probably not "municipal officers or employees." Thus, one may argue that the members of an advisory board are not subject to Article 18 if the board exists at the discretion of the appointing authority merely to give advice, has no quorum requirement, lacks authority to implement its recommendations or to act on behalf of the municipality, and, further, lacks the authority to restrict the power of the municipality to act.(24) Under such circumstances, an advisory board does not perform a government function or exercise sovereign power.(25)

      Another thorny question sometimes arises when an independent contractor with the municipality obtains another contract with the municipality. For example, in Surdell v. City of Oswego,(26) the city hired an insurance agency to draft specifications for the city's insurance needs for 1977 through 1979.(27) Based on those specifications, the city invited several agencies to make bids for the contract.(28) Two agencies responded, including the agency that had drafted the specifications and which was ultimately awarded the contract.(29) In a suit by the other agency to invalidate the contract as violative of section 801, the court concluded that the agency that drafted the specifications was not an "employee" of the city.(30) This problem should have been anticipated in the initial contract, which might have prohibited the agency from bidding on the insurance contract altogether or alternatively might have expressly permitted that bidding on certain terms and conditions designed to ensure that the specifications would not be tailored to the drafting agency and that the drafting agency could not trade on confidential city information. Contracts between municipalities and their counsel should contain similar provisions.(31)

   2. "Contract" with the Municipality

      Section 801 prohibits a municipal officer or employee from having an interest in certain "contracts" with the municipality. "Contract" is broadly defined as

      any claim, account or demand against or agreement with a

      municipality, express or implied, and shall include the designation

      of a depository of public funds and the designation of

      a newspaper, including but not limited to an official

      newspaper, for the publication of any notice, resolution,

      ordinance, or other proceeding where such publication is

      required or authorized by law.(32)

      While a law suit against the municipality would therefore be a "contract" with the municipality, neither an application for, nor the granting of, a zoning variance or subdivision approval would seem to constitute a "contract."(33) However, at least one lower court has held that an application for and issuance of a building permit is a contract between the applicant and the municipality within the meaning of Article 18.(34)

      One might attempt to distinguish between, on the one hand, building permits and special use permits, which arguably are subject to a "demand" once the applicant meets the underlying requirements, and, on the other hand, zoning variances and subdivision approvals, which require the exercise of discretion. Thus far, however, case law makes no such distinctions. To assume that all such applications constitute a contract with the municipality places the municipal attorney in the untenable position of, for example,' advising zoning board members that they cannot apply for an area variance to add a deck on their own homes.

      The common sense solution to this problem dictates that the official disclose and recuse himself or herself from acting on the matter and, whenever possible, communicate with the municipality on the matter only through a third person, such as an attorney, broker, or architect. Article 18 on its face, however, makes no provision for disclosure and recusal. Accordingly, the municipal attorney may feel it advisable to seek an opinion from the Attorney General.

      Attorneys should also exercise care in determining whether an admitted contract is, in fact, with the municipality. For example, in Rose v. Eichhorst,(35) a town board member acquired property in his town at a county tax sale.(36) The board member argued that the contract was with the county, not with the town.(37) However, the Court of Appeals concluded, based on the interrelations between the town and the county in the tax collection process, that the contract involved the town because the town board proposed the town budget and thus initiated the collection of taxes.(38) Accordingly, the tax sale violated section 801.(39)

   3. "Interest" in the Contract

      The prohibition in section 801 extends only to those contracts with the municipality in which the municipal officer or employee has an "interest," which is defined as "a direct or indirect pecuniary or material benefit accruing to a municipal officer or employee as the result of a contract with...