Request for Advice Our File No. A-99-032 Dear Mr. Jeffries




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March 11, 1999

Kevin Jeffries

17666 Grand Avenue

Lake Elsinore, California 92530


Re: Your Request for Advice

Our File No. A-99-032
Dear Mr. Jeffries:
This letter is in response to your request for advice regarding the provisions of the Political Reform Act (the “Act”).1 You have also requested advice regarding the Brown Act. As I informed you by telephone on February 5, 1999, we cannot provide advice regarding the Brown Act, which is outside the jurisdiction of the Commission.
QUESTIONS
1. May you make, participate in making, or attempt to use your official position to influence a governmental decision involving the payment of bills to business entities in which you have an economic interest?
2. If the board reviews the payment of bills by staff but takes no action, does that constitute making, participating in making, or attempting to use your official position to influence a governmental decision?
CONCLUSIONS
1. You may not make, participate in making, or attempt to use your official position to influence a governmental decision involving the payment of bills to business entities in which you have an economic interest if it is reasonably foreseeable that the decision will have a material effect on the business entity. See Analysis below.


2. Reviewing the bills paid by staff does not constitute making, participating in making, or attempting to use your official position to influence a governmental decision if no action is required, and you do not comment or question the payment of the bills.
FACTS
You are a director for the Western Municipal Water District (the “district”). You own stock in several publicly held companies that offer services within the boundaries of the district. You own between $1,000 and $10,000 in United States Filter Co., which is a provider of supplies to the district, is listed on the New York Stock Exchange (“NYSE”), but is not a Fortune 1,000 company. You own between $1,000 and $10,000 in AT&T, which provides phone service to the district, is listed on the NYSE, and is a Fortune 1,000 company. You own between $10,000 and $100,000 in Lucent Technologies, which is a provider of telecommunications supplies to the district, is listed on the NYSE, and is a Fortune 1,000 company.
In January 1999, payments to companies in which you have stock holdings were presented to the Board of Directors (the “board”) for ratification of the staff issued payments (as listed within the warrant register on the consent calendar section of the agenda). In all three cases, you disclosed your holdings, identified the warrant register/check number, and disqualified yourself from voting on the items.
On February 3, 1999, a new procedure was approved by a majority of the board, whereby the warrant register will now be listed as a “receive and file” item on the agenda. The intent, as you understand it, is to allow the board to review the bills/invoices that staff has paid, but not require the board of directors to formally “approve” the expenditures. With this new procedure, you desire to confirm what action, if any, you should take related to disqualifying yourself in the future.
Additionally, you have been appointed to serve on the district finance committee that reviews the warrant register before it is forwarded to the full board. The two board member finance committee meeting is a posted/noticed committee meeting, where committee consensus is sought on agenda items before they are considered by the full board. You would like to confirm what, if any, committee meeting disqualification action you should take on the warrant register relative to stock ownership issues.
ANALYSIS
I. Introduction of the General Rule Regarding Conflicts of Interest
The Act was voted into law by the people of the State of California, in part, to ensure that public officials perform their duties in an impartial manner, free from bias caused by their


financial interests. (Section 81001.) To accomplish this goal, Section 87100 of the Act provides:
“No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest.”
A public official has a financial interest in a decision if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally,2 on the official, a member of his or her immediate family, or on any of six economic interests delineated in Section 87103 and provided here:
“(a) Any business entity in which the public official has a direct or indirect investment worth one thousand dollars ($1,000) or more.

(b) Any real property in which the public official has a direct or indirect investment worth one thousand dollars ($1,000) or more.

(c) Any source of income, other than gifts and other than loans by a commercial lending institution in the regular course of business on terms available to the public without regard to official status, aggregating two hundred fifty dollars ($250) or more in value provided to, received by or promised to the public official within 12 months prior to the time when the decision is made.

(d) Any business entity in which the public official is a director, officer, partner, trustee, employee, or holds any position of management.



(e) Any donor of, or any intermediary or agent for a donor of, a gift or gifts aggregating two hundred fifty dollars ($250)3 or more in value provided to, received by, or promised to the public official within 12 months prior to the time when the decision is made....”



  1. You are a Public Official

  2. Are You Making/Participating in the Making/Influencing a

Governmental Decision?
You are a public official. (Section 82048.) See Regulations 18702.1-18702.44 (copies enclosed) for definitions of when a public official is making, participating in the making, or using his or her official position to influence a governmental decision. Regulation 18702.4 states that a public official is not making or participating in a governmental decision if the actions of the public official are solely ministerial, secretarial, manual, or clerical. However, we have previously advised that if a public official votes to pay a bill, he or she is making a governmental decision. (Hill Advice Letter, No. A-97-465.)
The variation that you have presented is when the public official does not vote whether to make the payments but merely reviews the actions of staff. In other words, is merely reviewing the payment of a bill considered to be making, participating in making, or attempting to use his or her official position to influence a governmental decision? The previous advice letters that are consistent with the Hill Advice Letter, supra, all involve the situation where a public official is voting to decide whether to pay a bill or where it is presupposed that a governmental decision is being made. (Loeffler Advice Letter, No. A-96-337; Kohn Advice Letter, No. A-93-052; Schectman Advice Letter, No. A-92-198; Hill Advice Letter, No. A-88-442; O’Shea Advice Letter, No. I-88-332.)
In the instant case, the district has delegated the bill paying duties to staff and has decided not to require any authorization of the payment by the board or subcommittee. The board and subcommittee will review the action via a receive and file item on the agenda. After consulting Regulations 18702.1 - 18702.4, we conclude that reviewing the payment of a bill, without any further action, does not result in the making of a governmental decision by the board members or subcommittee members.
Nonetheless, there are instances where this procedure could lead you to make, participate in making, or attempt to use your official position to influence a governmental decision. For example, if you questioned a particular payment or requested that a particular payment be changed or separately considered. Of course, you would be making a governmental decision if you voted on a payment of a bill that was taken from the receive and file item and considered separately.


If you are planning to make, participate in the making, or attempt to use your official position to influence a governmental decision, then you must consider whether you have a conflict of interest in the decision, i.e., determine if it is reasonably foreseeable that the decision will have a material financial effect on any of your economic interests. (See analysis below.) However, if you are merely reviewing staff actions without taking any further action, your analysis would stop here.


  1. Your Relevant Economic Interests

1. You have an Economic Interest in Lucent Technologies, AT&T, and

United States Filter Co.
You own at least a $1,000 interest in Lucent Technologies, AT&T, and United States Filter Co. Pursuant to Section 87103(a), you have an economic interest in each of those business entities. Therefore, we must determine if it is “reasonably foreseeable” that any financial effect on the business entities resulting from a governmental decision will be “material.”


  1. Identifying the Applicable Materiality Threshold

  2. Determining Whether it is Reasonably Foreseeable that the Materiality Threshold

Will be Met
To determine whether it is reasonably foreseeable that a decision will have a material financial effect, the applicable materiality threshold must be determined. The exact threshold depends on the type of economic interest involved in the decision and whether the economic interest is directly or indirectly involved in the decision. Once the precise materiality threshold is determined, you must determine if it is reasonably foreseeable that the materiality threshold will be met. An effect is reasonably foreseeable if there is a substantial likelihood that it will occur. (Regulation 18706.) The Commission is not the finder of fact when providing advice. (In re Oglesby (1975) 1 FPPC Ops. 71.)
1. Interest in a Business Entity Directly Involved
Lucent Technologies, AT&T, and United States Filter Co. are business entities. (Section 82005.) Pursuant to Regulation 18704.1, a business entity is directly involved in any governmental decision concerning a payment to the business entity. Regulation 18705.1(a) (copy enclosed) provides the applicable materiality standard for business entities directly involved.
For business entities directly involved in a governmental decision, the materiality standard is met if: (1) the investment interest is $1,000 or more in a business entity not listed on the NYSE or the NASDAQ; (2) the investment interest is more than $10,000 in a business entity listed on the NYSE or the NASDAQ; or (3) the investment interest is between $1,000 and $10,000 in a business entity listed on the NYSE or the NASDAQ and the materiality standard of



either Regulation 18705.1(b)(1) or Regulation 18705.1(b)(2) is met. For business entities listed on the NYSE see Regulation 18705.1(b)(1). For business entities listed on the NASDAQ, see Regulation 18705.1(b)(2).
Applying these standards to the business entities in which you have an economic interest, you could not make, participate in the making, or otherwise use your official position to influence a governmental decision involving the payment of a bill to Lucent Technologies (since you have more than a $10,000 interest in Lucent Technologies which is listed on the NYSE.) In addition, you may not make, participate in the making, or otherwise use your official position to influence a governmental decision involving the payment of a bill to AT&T and United States Filter Company in which you have an investment interest between $1,000 and $10,000 and which are both listed on the NYSE, if it is reasonably foreseeable that the applicable materiality threshold found in Regulation 18705.1(b)(1) will be met.
Regulation 18705.1(b)(1) states that for any business entity listed on the New York Stock Exchange the effect is material if:
(A) The decision will result in an increase or decrease to the gross revenues for a fiscal year of $250,000 or more, except in the case of any business entity listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. corporations, in which case the increase or decrease in gross revenues must be $1,000,000 or more; or

(B) The decision will result in the business entity incurring or avoiding additional expenses or reducing or eliminating existing expenses for a fiscal year in the amount of $100,000 or more, except in the case of any business entity listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. corporations, in which case the increase or decrease in expenses must be $250,000 or more; or

(C) The decision will result in an increase or decrease in the value of assets or liabilities of $250,000 or more, except in the case of any business entity listed in the most recently published Fortune Magazine Directory of the 1,000 largest U.S. corporations, in which case the increase or decrease in assets or liabilities must be $1,000,000 or more.
Regulation 18705.1(b)(1) provides higher dollar thresholds for companies that are Fortune 1,000 companies. AT&T is a Fortune 1,000 company; therefore the higher thresholds of subdivisions (b)(1)(A)-(C) apply. United States Filter Co. is not a Fortune 1,000 company; therefore the lower thresholds of subdivisions (b)(1)(A)-(C) apply.


Again, an effect is reasonably foreseeable if there is a substantial likelihood that it will occur. You have not given us the dollar amount of any payments the board may be making to either AT&T or United States Filter Co. Without this information, we cannot make a final determination. We leave that final determination to you.


  1. Conclusion

If the only action you take regarding the payment of bills to Lucent Technologies, AT&T, or United States Filter Co. is to review the payment of the bills by staff, then you do not have a conflict of interest. In addition, you may not make, participate in the making, or attempt to use your official position to influence a governmental decision involving a payment to Lucent Technologies. Finally, you may not make, participate in making, or attempt to use your official position to influence a governmental decision involving the payment of a bill to AT&T or United States Filter Co. if it is reasonably foreseeable that any of the materiality standards of Regulation 18705.1(b)(1) will be met.


If you have any other questions regarding this matter, please contact me at

(916) 322-5660.


Sincerely,

Steven G. Churchwell

General Counsel

By: Marte Castaños



Staff Counsel, Legal Division
SGC:MC:tls


1 Government Code sections 81000 - 91014. Commission regulations appear at title 2, sections 18109 - 18995, of the California Code of Regulations.

2 The public generally exception does not apply to your situation. See Regulation 18707.

3 This amount is adjusted for inflation and is currently $300.

4 Please note that the conflict-of-interest regulations were reorganized in November 1998. There were no substantive changes to the law.


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