10/24/2014

Attorney General Issues Opinion Prohibiting Cities from Contracting with "Financially Interested" Council Members

On October 16, 2014, the Office of the Attorney General issued an opinion finding, that except in instances of actual necessity, Government Code Section 1090 prohibits a city from purchasing products from a business in which a city council member has an ownership interest, even if the council member disqualifies themselves from any influence or participation in the purchase or ordering decision.

The opinion was written in response to State Senator Anthony Cannella's question of whether a city may lawfully procure products or services from a glass company in which a city council member has an ownership interest.

After considering the issue, the Attorney General found that since the city council member was half-owner of a glass business, any contract made between the city and the glass company would make him financially interested. The mere fact that the council member would abstain from participating in purchasing decisions did not place the transaction outside the scope of Section 1090. As a matter of law, the council member's financial interest in the company alone made the council member an actual participant in the transaction.

The Attorney General discussed several exceptions to Section 1090. The Government Code allows a contract to be made without the officer's abstention, if a "noninterest" or "remote interest" is present. A public officer has a "remote interest" where the officer has been a supplier of goods or services to the city for at least five years before their most recent election to office. Here, the exception did not apply because the council member was a co-owner of the contracting party, rather than a supplier. A "noninterest" exists if a public officer owns less than 3 percent of a business and the income from the business accounts for 5 percent or less of the officer's income. Here, the council member had a 50 percent ownership interest, which placed her outside the exception.

Lastly, the Attorney General considered the common-law "rule of necessity". The rule of necessity provides that a government agency can only acquire "essential" goods or services from a conflict-producing source if: 1. actual necessity exists after all possible alternatives have been explored; and 2. only in cases of real emergencies. The Attorney General concluded that the rule of necessity did not apply when there are other businesses within the general vicinity that can provide the products and services required by the City. Furthermore, the simple fact that obtaining services or products outside the city might increase costs did not negate the potential conflict between the council member and the city.

If you have questions or need further explanation, please contact Iain MacMillan, Deputy City Attorney, at Alvarez-Glasman & Colvin (562) 699-5500 or send an email to imacmillan@agclawfirm.com.



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