Director Conflicts: the Effect of Disclosure-part I
| Publication year | 1988 |
| Pages | 461 |
1988, March, Pg. 461. Director Conflicts: The Effect of Disclosure-Part I
Over the past few years, memoranda have been circulated among the "municipal bar" concerning conflicts of interest. In most instances, these efforts have attempted to discuss guidelines for the behavior of directors of municipal entities in a variety of situations. While such efforts may be helpful, given the vastly different facts encountered in each "conflict" situation, recent court dicta and ill-advised bench rulings have compelled a rethinking.
This two-part article considers conflicts of interest relative principally to directors of special districts, although most of the rules also apply to other governmental entities. This focus has been chosen because special districts seem to represent the most fertile ground for both real and imagined conflict situations. The point here is to distinguish the real from the imagined conflicts and the effect of this disclosure. Part I of this article considers and discusses the nature of conflicts of interest in general. Part II, to be published in the April issue, will address the effect of disclosing such conflicts.
The operation of a special district begins with the developer who forms the district and uses available financing powers to meet the development goals disclosed in a service plan. Normally, the developer's role is eventually replaced by a homeowners' district where the homeowners operate the district, providing continuing services for their own benefit. Therefore, all members of the special district's board of directors own property or reside within the boundaries of the district. Accordingly, the directors will have numerous opportunities to make decisions either directly or indirectly affecting their own properties or personal interests.
Classically, this situation is considered to be fraught with the temptation of self-dealing and placing personal interests above those of other electors. Indeed, some courts and legislatures have prohibited the creation of this situation. In Brown v. Kirk,(fn1) the Illinois Supreme Court found that a state statute prohibited certain tenants from serving on the board of a housing authority because they lived within its jurisdiction:
Like most other conflict of interest provisions, it is aimed at not only actual bad faith abuse of power for an officer's own personal benefit, but is also designed to prevent the creation of relationships which carry in them the potential of such abuse, by removing the possibility of temptation.(fn2) (Emphasis added.)
The key phrase in Brown, emphasized above, distinguishes that situation and the one involving Colorado special district board members. Colorado law requires the creation of the exact relationship prohibited in Brown. The directors must be "electors" of the district; that is, a resident of or the owner or spouse of an owner of property within the district.(fn3) The prohibition stated in the Brown decision and others like it is inapplicable. Therefore, the focus of this examination must be directed not at the position of the directors but at their activities.
Colorado statutes provide some guidance. CRS §...
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