This Advisory Opinion concerns the following issues as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on August 8, 2003, basing its approval solely on the facts and circumstances stated herein.
 

ISSUE 1.  May a potential home-buyer participate in a loan and grant program through the city to reduce mortgage payments and/or closing costs if the potential home-buyer purchases a house through a real estate agency which employs one of the city’s alderman as a part-time real estate agent when the alderman will not be the sales agent handling the home purchase and when the alderman is paid solely from commissions on sales that the alderman personally acts as the sales agent?

ISSUE 2. May a potential home-buyer participate in a loan and grant program through the city to reduce mortgage payments and/or closing costs if the potential home-buyer has the alderman as a sales agent?

State law restricts the Mississippi Ethics Commission to interpreting and issuing opinions on Sections 25-4-101 through 25-4-119, 1972 Mississippi Code Annotated and Article IV, Section 109, Mississippi Constitution of 1890.  Therefore, this opinion does not address the Mississippi laws outside the Commission’s jurisdiction nor the governmental entity’s internal rules and regulations.

The pertinent conflict of interest laws to be considered here are:

Constitutional Section 109 states:

“No public officer or member of the legislature shall be interested, directly or indirectly, in any contract with the state, or any district, county, city, or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member, during the term for which he shall have been chosen, or within one year after the expiration of such term.”

Code Section 25-4-101 states:
 

“The legislature declares that elective and public office and employment is a public trust and any effort to realize personal gain through official conduct, other than as provided by law, or as a natural consequence of the employment or position, is a violation of that trust.  Therefore, public servants shall endeavor to pursue a course of conduct which will not raise suspicion among the public that they are likely to be engaged in acts that are in violation of this trust and which will not reflect unfavorably upon the state and local governments.”

Code Section 25-4-103(c), (d), (f)(i)(ii), (g)(ii)(v), (h), (i), (k)(i)(ii), (l), (m), and (p)(i)(ii)(iii) states:
 

“(c) ‘Business’ means any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, holding company,  self-employed individual, joint stock company, receivership, trust or other legal entity or undertaking organized for economic gain, a  nonprofit corporation or other such entity, association or organization receiving public funds.

(d) ‘Business with which he is associated’ means any business of which a public servant or his relative is an officer, director, owner, partner, employee or is a holder of more than ten percent (10%) of the fair market value or from which he or his relative derives more than One Thousand Dollars ($1,000.00) in annual income or over which such public servant or his relative exercises control.

(f) ‘Contract’ means:

(i) Any agreement to which the government is a party; or

(ii) Any agreement on behalf of the government which involves the payment of public funds.

(g) ‘Government’ means the state and all political entities thereof, both collectively and separately, including but not limited to:

(ii) Municipalities; and
 
(v) Any department, agency, board, commission, institution, instrumentality, or legislative or administrative body of the state, counties or municipalities created by statute, ordinance or executive order including all units that expend public funds.

(h) ‘Governmental entity’ means the state, a county, a municipality or any other separate political subdivision authorized by law to exercise a part of the sovereign power of the state.

(i) ‘Income’ means money or thing of value received, or to be received, from any source derived, including but not limited to, any salary, wage, advance, payment, dividend, interest, rent, forgiveness of debt, fee, royalty, commission or any combination thereof.

(k) ‘Material financial interest’ means a personal and pecuniary interest, direct or indirect, accruing to a public servant or spouse, either individually or in combination with each other.  Notwithstanding the foregoing, the following shall not be deemed to be a material financial interest with respect to a business with which a public servant may be associated:

(i) Ownership of any interest of less than ten percent (10%) in a business where the aggregate annual net income to the public servant therefrom is less than One Thousand Dollars ($1,000.00);

(ii) Ownership of any interest of less than two percent (2%) in a business where the aggregate annual net income to the public servant therefrom is less than Five Thousand Dollars ($5,000.00).

(l) ‘Pecuniary benefit’ means benefit in the form of money, property, commercial interests or anything else the primary significance of which is economic gain.  Expenses associated with social occasions afforded public servants shall not be deemed a pecuniary benefit.

(m) ‘Person’ means any individual, firm, business, corporation, association, partnership, union or other legal entity, and where appropriate a governmental entity.

(p) ‘Public servant’ means:

(i) Any elected or appointed official of the government;
 
(ii) Any officer, director, commissioner, supervisor, chief,  head, agent or employee of the government or any agency thereof, or of any public entity created by or under the laws of the State of Mississippi or created by an agency or governmental entity thereof, any of which is funded by public funds or which expends, authorizes or recommends the use of public funds; or

(iii) Any individual who receives a salary, per diem or expenses paid in whole or in part out of funds authorized to be expended by the government.”

Code Section 25-4-105(1), (2) and (3)(a) states:
 

“(1) No public servant shall use his official position to obtain pecuniary benefit for himself other than that compensation provided for by law, or to obtain pecuniary benefit for any relative or any business with which he is associated.

(2) No public servant shall be interested, directly or indirectly, during the term for which he shall have been chosen, or within one (1) year after the expiration of such term, in any contract with the state, or any district, county, city or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member.

(3) No public servant shall:

(a) Be a contractor, subcontractor or vendor with the governmental entity of which he is a member, officer, employee or agent, other than in his contract of employment, or have a material financial interest in any business which is a contractor, subcontractor or vendor with the  governmental entity of which he is a member, officer, employee or agent.”

Pertinent facts and circumstances provided by the requestor, absent identifying data, are set forth as follows and considered a part of this opinion.
 

The City would like an Official Opinion indicating whether or not there would be a violation of the Ethics laws or the Mississippi Constitution regarding the following scenario.

 
The City is a special charter municipality with a Mayor and two (2) Aldermen, each of whom has an equal vote and no one official has any veto powers; therefore, a majority of two (2) votes will carry any motion or official act.  The three elected officials are full-time.  In addition to the full-time job as an elected official, the Alderman, also has a license to sell real estate and is a part-time real estate sales person for a Real Estate company.  The Real Estate company has one broker and two (2) real estate sales agents.

The City receives grants and loans through various federal agencies and other non-profit corporations to assist home-buyers with mortgage reduction and/or closing costs.  Most of these programs are available only for low to moderate income households or for first time home-buyers.  These program funds are granted to the City and the City administers the program.  The City checks the qualifications and eligibility of the loan applicants and, if an applicant qualifies for the particular program, ultimately lends or grants the money to the potential homeowner.

Generally, when a real estate sales agent is involved in finding a home for a homeowner, there is a commission of 6% to be paid to the real estate broker(s) and a portion of the real estate broker’s fee goes to the particular real estate agent involved.  A real estate broker could receive as much as 6% and as little as 1 ½%.  A real estate agent could receive as much as 3% or as little as 1 ½% of the commission.

The issue is whether or not it would be a violation of the law for any of the clients of the Real Estate company to receive a home-buyer grant or loan from the City or does the prohibition only involve the clients of the Alderman?  Can the clients of another sales agent with the Real Estate company apply for and receive the housing grants and/or loans from the City?

Based solely on the facts and circumstances presented by the requestor, the Commission’s opinion is as follows.

ISSUE 1: Constitutional Section 109 and Code Section 25-4-105(2), both cited above, prohibit a member of a governmental body, such as an alderman,  from having an interest, direct or indirect, in any contract authorized by the governmental body of which he is a member during his term and for one year thereafter.

 
In Frazier v. State, 504 So. 2d 675, (Miss. 1987), the Mississippi Supreme Court set forth the following four elements necessary to apply the Constitutional Section 109 prohibition, and thereby the Code Section 25-4-105(2) prohibition:
 

1. Is there a governmental contract with the state, county, municipality or district?

2. Does the public officer have an interest, direct or indirect, in the contract?

3. Is the contract authorized by a law passed or order made by a board or public body of which the public officer is a member?

4. Was the authorizing law or order passed during the public officer’s term or within one year after the expiration (or termination) of such term?

The requestor’s facts clearly reveal that the mayor and board of aldermen have approved programs that authorize loans or grants to prospective home-buyers. These loans or grants are governmental contracts for purposes of Constitutional Section 109 and Code Section 25-4-105(2). Therefore, the approval and/or authorization of the loans or grants to prospective home-buyers will result in elements 1, 3 and 4, as cited above, being met.

Based on the above, the single question in ISSUE 1 is whether the alderman will have an interest, direct or indirect, in the individual home-buyer’s city grant or loan by way of the subsequent commission to the real estate agency/broker and the other sales agent.  Thereby meeting element 2 as set forth in Frazier.

This Commission is ever mindful that Constitutional Section 109, and thereby Code Section 25-4-105(2), serve the policy of protecting the public interest by “preventing graft of every possible sort, and secure[ing] the honest and clean administration of [governmental] affairs.”¹

The Commission is also aware that the Mississippi Supreme Court has directed that Constitutional Section 109 must not be interpreted too expansively, without regard to common sense, considering modern, current circumstances and conditions.  The Court has said it will not require that which is “thoroughly impracticable.”²

 
In Jones , et al. v. Howell et al., 827 So. 2d at 698 (2000), the Supreme Court also ruled, “legislators’ interest in Medicaid appropriations is so remote as to remove them from the purpose of Section 109.  We accept the legislators’ argument that no decision Howell or Read make in voting on a Medicaid appropriation bill can affect the amount of reimbursements they receive.  They cannot negotiate a contract with the state for a better or different price which they can charge. The reimbursement rates for prescription drugs are fixed by law. Miss. Code Ann. § 43-13-117(9) . In their individual decisions to purchase medications, Medicaid recipients themselves, not the Legislature, control whether Howell and Read receive reimbursements.”

The Court’s finding in Howell was based on a Medicaid agreement between the State and a legislator’s pharmacy employer having non-negotiable terms at fixed rates, controlled by federal and state laws, and on there being an intervening third party, i.e., the Medicaid recipient, who chooses which Medicaid provider to use.

The Commission finds the situation, as presented in the facts above, is similar to that found in Howell.  In fact, the circumstance presented herein is even more remote and removed from that set forth in Howell. The city loans and grants available to a potential home-buyer are not only controlled by federal rules but the real estate agency, and thereby the sales agent, is not a direct party to these governmental contracts as were the legislators who signed the Medicaid agreements in Howell.  Also, it is an intervening third party, i.e., the home-buyer, that must qualify and decide to participate in the city loan/grant program.

Therefore, based on the above finding, it is this Commission’s position that, in this particular instance, the alderman, as a sales agent working part-time and solely on a commission basis for the real estate agency, has an interest in a city loan and grant contract that is outside the “edge of the target” necessary for violating Constitutional Section 109 and Code Section 25-4-105(2) when the home-buyer receiving assistance through the city loan or grant is represented by the other sales agent employed by the real estate agency.³

ISSUE 2.  Notwithstanding the finding in ISSUE 1, Constitutional Section 109 and Code Section 25-4-105(2) will absolutely prohibit the alderman from representing a home-buyer as his sales agent and receiving a commission as a result of the home-buyer purchasing a house through the real estate agency when the home-buyer received assistance through a city loan or grant. This finding is based on the purchase by the home-buyer resulting in a personal and pecuniary benefit accruing to the alderman in the form of the commission for the successfully completed sale which was facilitated by a reduction of mortgage payments and/or closing costs through a loan or grant approved and/or authorized by the board of aldermen of which the alderman is a member.  Thereby resulting in the alderman having a prohibited interest in the city loan and grant contract in violation of Constitutional Section 109 and Code Section 25-4-105(2). [Emphasis added to bold text]
 

The real estate agency and its sales agents not being parties to the city loan or grant contract avoids a violation of the above cited Code Section 25-4-105(3)(a) on the part of the alderman.⁴

Notwithstanding the above findings, the requestor is cautioned to advise the alderman to remain keenly aware of the above cited Code Section 25-4-105(1) and Code Section 25-4-101.

Code Section 25-4-105(1) prohibits a public servant, including an alderman, from using his official position to obtain a pecuniary benefit for a “business with which he is associated.”

The definition set forth in Code Section 25-4-103(d), cited above, clearly reveals that the real estate agency is a business with which the alderman is associated by way of the alderman being a part-time sales agent for the real estate agency.

Therefore, the only way the alderman can avoid violating Code Section 25-4-105(1) is to totally and completely recuse from all matters coming before the mayor and aldermen that would concern a loan or grant to clients of the real estate agency.

An abstention is a vote with the majority of the governing entity’s board and therefore does not qualify as a recusal.

A total and complete recusal requires that the public servant not only avoid debating, discussing or taking action on the subject matter during the official meeting, but also avoid discussing the subject matter with other board members, staff or any other person prior to and after the official meeting.  This includes casual comments, as well as detailed discussions, made in person, by telephone or by any other means.

Also to properly recuse oneself from a matter,  the public servant must leave the room or area where such discussions, considerations and/or actions take place.  The minutes of the governing entity’s board should state the public servant left the meeting by showing him or her absent for that matter.
 
 
As stated above, the issue presented by the requestor also must be viewed as it relates to Code Section 25-4-101. This code section sets the tone for the conflict of interest laws as the Legislature’s “Declaration of Public Policy.” This public policy can be summarized as any circumstance having the potential of creating suspicion among the public and reflecting unfavorably upon the state or local government should be closely reviewed by public servants with the intent to reduce or eliminate any suspicion on the part of the public which detracts from the public’s trust in state or local government.

Specifically, Code Section 25-4-101, in part, states, “The legislature declares that elective and public office and employment is a public trust and any effort to realize personal gain through official conduct, other than as provided by law, or as a natural consequence of the employment or position, is a violation of that trust.” In short., a public servant, must never place himself or herself, or be placed by his or her governmental entity, in a situation where a private interest is competing or appears to be competing with his or her public interest.

Therefore, Code Section 25-4-101 is another reason why the alderman must totally and completely recuse from all matters coming before the mayor and aldermen that would concern a loan or grant to clients of the real estate agency.

The requestor is cautioned to advise the alderman that a recusal or an abstention will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2). Even without a board member’s vote, the authorization by the member’s board nonetheless results in a contract in which the board member has a prohibited interest. [Emphasis added to bold text]
 
 

Scott Rankin
Executive Director

¹ Noxubee County Hardware Co. v. City of Macon, 90 Miss. 636, 43 So. 304, 305 (1907).

² Frazier, supra, 504 So. 2d 675, 695 (Miss. 1987).

³ Frazier, 504 So.2d 695 (citing Cassibry v. State, 404 So.2d 1368).

⁴ In Mike Moore, ex. rel. v. Byars, 757 So. 2d 243 (2000), the Supreme Court ruled that a city manager did not violate §25-4-105(3)(a) when he had a material financial interest in a dental practice by way of a lease as a loan agreement between the dentist and the city did not result in a contractor relationship as anticipated by §25-4-105(3)(a). [Emphasis added to bold text]