2011 CASE Conference - Ethical Issues for Directors- June 23-25, 2011


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Presentation at the 2011 CASE (Capital Area Suburban Exchange) Annual Conference in South Padre Island, Texas, on basic ethical issues for board members of water districts in the State of Texas, including qualifications for office, duties, conflicts of interest, nepotism, dual office holding and incompatibility,

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2011 CASE Conference - Ethical Issues for Directors- June 23-25, 2011

  1. 1. Ethical Issues for Directors<br />CASE 2011 Annual Conference<br />June 23-25, 2011<br />
  2. 2. Sworn Statement, Bond and Oath<br /><ul><li>Sec. 49.055.  SWORN STATEMENT, BOND, AND OATH OF OFFICE. (a) As soon as practicable after a director is elected or appointed, that director shall make the sworn statement prescribed by the constitution for public office.
  3. 3. (b)  As soon as practicable after a director has made the sworn statement, and before beginning to perform the duties of office, that director shall take the oath of office prescribed by the constitution for public officers.</li></li></ul><li>Official Oath<br />Sec. 1.  OFFICIAL OATH. (a) All elected and appointed officers, before they enter upon the duties of their offices, shall take the following Oath or Affirmation:<br />"I, (State your Name), do solemnly swear (or affirm), that I will faithfully execute the duties of the office of ______________________of the State of Texas, and will to the best of my ability preserve, protect, and defend the Constitution and laws of the United States and of this State, so help me God."<br />
  4. 4. Sworn Statement<br /><ul><li>(b)  All elected or appointed officers, before taking the Oath or Affirmation of office prescribed by this section and entering upon the duties of office, shall subscribe to the following statement:</li></ul> "I, _______________________, do solemnly swear (or affirm) that I have not directly or indirectly paid, offered, promised to pay, contributed, or promised to contribute any money or thing of value, or promised any public office or employment for the giving or withholding of a vote at the election at which I was elected or as a reward to secure my appointment or confirmation, whichever the case may be, so help me God."<br />
  5. 5. Bond<br /><ul><li>(c)  Before beginning to perform the duties of office, each director shall execute a bond for $10,000 payable to the district and conditioned on the faithful performance of that director's duties. All bonds of the directors shall be approved by the board and paid for by the district.</li></li></ul><li>Records of Statement, Bond and Oath<br /><ul><li>(d)  The sworn statement shall be filed as prescribed by the constitution. The bond and oath shall be filed with the district and retained in its records. A duplicate original of the oath shall also be filed with the secretary of state within 10 days after its execution and need not be filed before the new director begins to perform the duties of office.</li></li></ul><li>Disqualification of Directors<br /><ul><li>Sec. 49.052.  DISQUALIFICATION OF DIRECTORS. (a) A person is disqualified from serving as a member of a board of a district that includes less than all the territory in at least one county and which, if located within the corporate area of a city or cities, includes within its boundaries less than 75 percent of the incorporated area of the city or cities, if that person:</li></li></ul><li>Disqualification of Directors<br /><ul><li>(1)  is related within the third degree of affinity or consanguinity to a developer of property in the district, any other member of the board, or the manager, engineer, attorney, or other person providing professional services to the district;
  6. 6. (2)  is an employee of any developer of property in the district or any director, manager, engineer, attorney, or other person providing professional services to the district or a developer of property in the district in connection with the district or property located in the district;</li></li></ul><li>Disqualification of Directors<br /><ul><li>(3)  is a developer of property in the district;
  7. 7. (4)  is serving as an attorney, consultant, engineer, manager, architect, or in some other professional capacity for the district or a developer of property in the district in connection with the district or property located in the district;
  8. 8. (5)(A) is a party to a contract with or along with the district except for the purchase of public services furnished by the district to the public generally; or</li></li></ul><li>Disqualification of Directors<br /><ul><li>(B)  is a party to a contract with or along with a developer of property in the district relating to the district or to property within the district, other than a contract limited solely to the purpose of purchasing or conveying real property in the district for the purpose of either establishing a permanent residence, establishing a commercial business within the district, or qualifying as a director; or
  9. 9. (6)  during the term of office, fails to maintain the qualifications required by law to serve as a director.</li></li></ul><li>Disqualification of Directors<br /><ul><li>(b)  Within 60 days after the board determines a relationship or employment exists which constitutes a disqualification under Subsection (a), it shall replace the person serving as a member of the board with a person who would not be disqualified.
  10. 10. (c)  Any person who willfully occupies an office as a member of a board and exercises the powers and duties of that office when disqualified under the provisions of Subsection (a) is guilty of a misdemeanor and, on conviction, shall be fined not less than $100 nor more than $1,000.</li></li></ul><li>Disqualification of Directors<br /><ul><li>(d)  As used in this section, "developer of property in the district" means any person who owns land located within a district covered under this section and who has divided or proposes to divide the land into two or more parts for the purpose of laying out any subdivision or any tract of land or any addition to any town or city, or for laying out suburban lots or building lots, or any lots, streets, alleys, or parks or other portions intended for public use, or the use of purchasers or owners of lots fronting thereon or adjacent thereto.</li></li></ul><li>Officers and Their Duties<br /><ul><li>Sec. 49.054.  OFFICERS. (a) After a district is created and the directors have qualified, the board shall meet, elect a president, vice-president, secretary, and any other officers or assistant officers as the board may deem necessary, and begin the discharge of its duties.
  11. 11. (b)  After each directors election, the board shall meet and elect officers.</li></li></ul><li>Officers and Their Duties<br /><ul><li>(c)  The president is the chief executive officer of the district, presides at all meetings of the board, and shall execute all documents on behalf of the district unless the board by resolution authorizes the general manager or other employee of the district to execute a document or documents on behalf of the district. The vice-president shall act as president in case of the absence or disability of the president. The secretary is responsible for seeing that all records and books of the district are properly kept and may attest the president's signature on documents.</li></li></ul><li>Officers and Their Duties<br /><ul><li>(e)  The board may appoint another director, the general manager, or any employee as assistant or deputy secretary to assist the secretary, and any such person shall be entitled to certify as to the authenticity of any record of the district, including but not limited to all proceedings relating to bonds, contracts, or indebtedness of the district.</li></li></ul><li>Accountability Issues<br />State Laws <br />State Agencies<br />Voters<br />Residents<br />
  12. 12. Ethical Issues<br />Conflict of Interest<br />Nepotism<br />Dual Office Holding/Incompatibility<br />AG Handbook: Public Officers: Traps for the Unwary<br />http://www.oag.state.tx.us/open/publications_og.shtml<br />
  13. 13. Conflict of Interest<br />Why do we care?<br />Conflict of interest rules are directed at preventing public officials from using their authority for personal benefit rather than for the benefit of the public. Thus, they govern situations where an officer’s personal interest conflicts or may conflict with his or her public duty.<br />
  14. 14. Conflict of Interest<br />Common Law<br />If a public official directly or indirectly has a pecuniary interest in a contract, no matter how honest he may be, and although he may not be influenced by the interest, such a contract so made is violative of the spirit and letter of our law, and is against public policy. Meyers v. Walker<br />
  15. 15. Conflict of Interest<br />Prohibited Acts; Penalty<br />(a) A local public official commits an offense if the official knowingly:<br /> (1) violates Section 171.004;<br /> (2) acts as surety for a business entity that has work, business, or a contract with the governmental entity; or<br /> (3) acts as surety on any official bond required of an officer of the governmental entity.<br />(b) An offense under this section is a Class A misdemeanor – punishable by up to 1 year in jail and/or up to $4000 penalty.<br />
  16. 16. Conflict of Interest<br />Affidavit and Abstention From Voting Required<br /> (a) If a local public official has a substantial interest in a business entity or in real property, the official shall file, before a vote or decision on any matter involving the business entity or the real property, an affidavit stating the nature and extent of the interest and shall abstain from further participation in the matter if:<br /> (1) in the case of a substantial interest in a business entity the action on the matter will have a special economic effect on the business entity that is distinguishable from the effect on the public; or<br /> (2) in the case of a substantial interest in real property, it is reasonably foreseeable that an action on the matter will have a special economic effect on the value of the property, distinguishable from its effect on the public.<br />
  17. 17. Conflict of Interest<br />Substantial Interest in Business Entity<br /> (a) For purposes of this chapter, a person has a substantial interest in a business entity if:<br /> (1) the person owns 10 percent or more of the voting stock or shares of the business entity or owns either 10 percent or more or $15,000 or more of the fair market value of the business entity; or<br /> (2) funds received by the person from the business entity exceed 10 percent of the person's gross income for the previous year.<br />(b) A person has a substantial interest in real property if the interest is an equitable or legal ownership with a fair market value of $2,500 or more.<br />Applies to Spouse, Child and Parent Interests Too<br />
  18. 18. Nepotism<br />Prohibition Applicable to Public Official<br />A public official may not appoint, confirm the appointment of, or vote for the appointment or confirmation of the appointment of an individual to a position that is to be directly or indirectly compensated from public funds or fees of office if:<br />(1) the individual is related to the public official within a degree described by Texas Government Code, Section 573.002; or<br />(2) the public official holds the appointment or confirmation authority as a member of a state or local board, the legislature, or a court and the individual is related to another member of that board, legislature, or court within a degree described by Section 573.002.<br />
  19. 19. Nepotism<br /> Degrees of Relationship<br /> Except as provided by Texas Government Code, Section 573.043, this chapter applies to relationships within the third degree by consanguinity or within the second degree by affinity.<br />
  20. 20. Nepotism<br />
  21. 21. Nepotism<br />
  22. 22. Dual Office Holding<br />Article 16 - GENERAL PROVISIONS<br /> Section 40 - HOLDING MORE THAN ONE OFFICE; EXCEPTIONS; RIGHT TO VOTE<br /> (a) No person shall hold or exercise at the same time, more than one civil office of emolument, …<br />
  23. 23. Incompatibility<br />Self Appointment<br />Self Employment<br />Conflicting Loyalties<br />
  24. 24. Incompatibility<br />Self Appointment<br />“It is because of the obvious incompatibility of being both a member of a body making the appointment and an appointee of that body that the courts have with great unanimity throughout the country declared that all officers who have the appointing power are disqualified for appointment to the offices to which they may appoint.”<br />Ehlinger v Clark, 8 S.W.2d 666 (Tex. 1928).<br />
  25. 25. Incompatibility<br />Self Employment<br />Ordinarily, self-employment incompatibility will arise only where one position is an office and the other an employment.<br />But, can arise when position is subordinate to the governing body in some of its principal duties.<br />
  26. 26. Incompatibility<br />Conflicting Loyalties<br />both positions must be “offices” <br />the relationship between the positions creates conflict<br />if authorized to contract with each other<br />if both have the power of taxation<br />even if one district imposes an ad valorem property tax and the other imposes a sales tax that must be approved by the voters.<br />if boundaries overlap<br />whenever one governmental body has authority to impose its will on the other in any matter whatsoever.<br />
  27. 27. QUESTIONS?<br />
  28. 28. ETHICAL ISSUES<br />John J. Carlton<br />The Carlton Law Firm, P.L.L.C.<br />2705 Bee Cave Road, Suite 110<br />Austin, Texas 78746<br />john@carltonlawaustin.com<br />