This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CONFLICTS OF INTEREST -- Banking Transactions (designation of bank as depository when IDA governing board member and treasurer is stockholder) -- Stock Ownership (designation of bank as depository when IDA governing board member and treasurer is stockholder) -- Industrial Development Agency (designation of bank as depository when IDA governing board member and treasurer is stockholder)
GENERAL MUNICIPAL LAW, §§800(3), 802(2)(a), 803, 883: An individual who is a member of the governing board and treasurer of an IDA does not have a prohibited conflict of interest solely because he or she owns less than 1% of the stock of a bank named as a depository of the IDA. In addition, disclosure of interest pursuant to General Municipal Law, §803 is not required. The individual, however, should not participate in the discussion or vote on matters affecting the IDA's relationship with the bank.
You ask whether there would be a prohibited conflict of interest solely because an individual who is a member of the governing board of an industrial development agency (IDA) and treasurer of the IDA is also a stockholder of a local bank which has been named as one of the depositories for the IDA. You state that the individual in question owns less than 1% of the outstanding stock of the bank.
Initially, we note that, by informal agreement with the Attorney General's Office, this Office no longer renders opinions on the propriety of dual office-holding. Accordingly, for purposes of this opinion, we have assumed the individual in question is properly holding the offices of IDA governing board member and treasurer. You may wish, however, to contact the Attorney General's Office for an opinion on this issue.
Article 18 of the General Municipal Law (§800 et seq.) contains provisions of law which relate to conflicts of interest of officers and employees of a "municipality". The term "municipality" for this purpose is defined to include an IDA (General Municipal Law, §800; see also General Municipal Law, §883).
Pursuant to General Municipal Law, §800(3), a municipal officer or employee has an interest in any contract with his or her municipality if he or she receives a direct or indirect pecuniary or material benefit as a result of that contract. In addition, regardless of whether an officer or employee receives a direct or indirect pecuniary benefit from a contract, an officer or employee is deemed to have an interest in any contract of a corporation of which the officer or employee is a director, officer, employee or stockholder (General Municipal Law, §800[c],[d]). The term "contract" is defined for purposes of article 18 to include the designation of a depository of public funds (General Municipal Law, §800).
Section 801 provides that, except as provided in section 802, an interest is prohibited if the officer or employee, individually or as a member of a board, has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or approve payments thereunder; (b) audit bills or claims under the contract; or (c) appoint an officer or employee who has any such powers or duties. Section 801 further states that, except as provided in section 802, no chief fiscal officer, treasurer, or his or her deputy or employee, shall have an interest in a bank or trust company designated as a depository, paying agent, registration agent or for investment of funds of the municipality of which he is an officer or employee.
Any contract willfully entered into in which there is a prohibited interest is null, void and wholly unenforceable (General Municipal Law, §804) and any officer or employee who willfully and knowingly violates the provisions of article 18 may be guilty of a misdemeanor (General Municipal Law, §805). We also note that General Municipal Law, §803 generally requires that, if an officer or employee has an interest in a contract that is not prohibited under the provisions of article 18, the nature and extent of the interest must be publicly disclosed in writing and included in the official record of the governing board's proceedings. Disclosure is not required under section 803, however, in the case of an interest in a contract which is not prohibited under subdivision two of section 802 (General Municipal Law, §803).
As a shareholder of a bank designated as a depository of IDA funds, the individual in question is deemed to have an interest in the bank's contracts with the IDA (General Municipal Law, §800[d]; 1992 Opns St Comp No. 92-54, p 129; 1989 Opns St Comp No. 89-4, p 10; 1985 Opns St Comp No. 85-34, p 47; 23 Opns St Comp, 1967, p 841). Further, because this individual is a member of the IDA governing board and its treasurer, his or her interest in the bank would be prohibited under section 801, unless an exception in section 802 is applicable.
Pursuant to General Municipal Law, §802(2)(a), an interest in a municipal contract with a corporation is not prohibited when the municipal officer or employee has an interest by reason of ownership of less than five per centum of the outstanding stock of the corporation. Therefore, since we are informed that this individual owns less than 5% of the bank's outstanding stock, he or she would not have a prohibited interest by virtue of his or her holding of stock of the bank. Further, because an exception contained in subdivision 2 of General Municipal Law, §802 is applicable, there is no requirement that the interest be disclosed pursuant to General Municipal Law, §803.
Although there is no prohibited conflict of interest solely by reason of this individual's holding of less than 5% of the outstanding stock of the bank, we note that General Municipal Law, §806(1) authorizes IDAs to have a code of ethics setting forth for the guidance of its officers and employees the standards of conduct reasonably expected of them. The code of ethics must contain standards of conduct relating to, inter alia, the holding of investments in conflict with official duties. A code of ethics may not supersede the exception in section 802(2)(a). However, it could, among other things, prohibit a board member holding less than 5% of the outstanding stock of a corporation from participating in the discussion and vote on matters involving contracts between the municipality and the corporation (see 1992 Opns St Comp No. 92-30, p 78). Accordingly, the IDA's code of ethics should also be reviewed to determine whether it contains any pertinent provisions.
Finally, we note that the courts of this State have held public officials to a high standard of conduct and, on occasion, have negated certain actions which, although not violating the literal provisions of General Municipal Law, article 18 or a municipal code of ethics, violate the spirit and intent of these enactments, are inconsistent with public policy, or suggest self- interest, partiality or economic impropriety (see, e.g. Zagoreos v Conklin, 109 AD2d 281, 491 NYS2d 358; Matter of Tuxedo Conservation and Taxpayers Ass'n v Town Board of the Town of Tuxedo, 69 AD2d 320, 418 NYS2d 638; Conrad v Hinman, 122 Misc 2d 531, 471 NYS2d 521; see also, Cahn v Planning Board of the Town of Gardiner, 157 AD2d 252, 557 NYS2d 488). Therefore, even if the IDA's code of ethics does not so require, we believe that the individual should not participate in the discussion or vote on matters affecting the IDA's relationship with the bank.
October 31, 1994
Arthur Carl Spring, Esq., County Attorney
County of Fulton
J. Paul Kolodziej, Esq., Counsel
Fulton County Industrial Development Agency