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HomeMy WebLinkAboutPublic Handouts1-31-I2 Policy A-16 NEWPORT BEACH CITY COUNCIL POLICY MANUAL CONFLICT OF INTEREST PROCEDURES BACKGROUND The Newport Beach City Council and some Boards and Commissions are subject to laws pertaining to conflicts of interest. The Political Reform Act (PRA) prohibits public officials from participating in decisions that may have a financial affect on a source of income to, or the assets of the official. The City Charter and State statutes prohibit public officials from having a financial interest in any transaction to which the City is a party. The courts have ruled that public officials may be prohibited from participating in decisions based on the common law. In some cases, public officials may participate in decisions if their interests are minor and made public. PURPOSE The conflict of interest laws and regulations are complex and in many cases the advice of the City Attorney will not protect the official from civil or criminal sanctions. The City Council has adopted this policy to help officials comply with conflict of interest laws and obtain prompt advice from agencies responsible for enforcement. POLICY A. Notice. Every City official shall promptly notify the City Attorney when he/she becomes aware of facts that suggest his/her participation in a decision could give rise to a conflict of interest. The City Attorney will discuss the matter with the official and determine if the potential conflict of interest relates to the PRA, the City Charter or State statute. B. Procedure. The City Attorney shall assist the official in requesting guidance from the Fair Political Practices Commission (FPPC) if the potential conflict relates to the PRA. The City Attorney shall promptly prepare a legal opinion advising the official if the potential conflict relates to the City Charter and shall assist the official in obtaining appropriate advice if the conflict involves State law. C. Disqualification. When a member of the City Council, Board or Commission has, or reasonably believes he/she has, a conflict of interest, the official shall abstain from any participation in the decision. The member shall disclose the reason for the abstaining prior to the vote on the matter that involves the conflict of interest. In cases where the official has a remote interest that does not require disqualification, the official shall disclose the interest at the meeting. The official shall abstain from participation and disclose the interest in those cases where disclosure is a condition to action by the legislative body. In all cases, disclosure of the interest or conflict shall be made a part of the public record. D. Participation. Public officials shall participate in decisions unless he/she has reasonable belief that participation in a decision could give rise to a conflict of interest. Adopted - dune 22, 1998 Comments on May 31, 2012 Charter Update Agenda Items from: Jim Mosher (iimmosher(aD_yahoo.com ), 2210 Private Road, Newport Beach 92660 (949-548-6229) Item III. APPROVAL OF MINUTES • The minutes appear reasonably accurate as far as they go, but only a fraction of what was said in 1-1/2 hrs is reflected in them. • If it is not currently being done, the committee should consider asking that the proceedings be recorded and that the recordings become a permanent part of the record. • Among the many things not covered in the minutes is the suggestion that the expression "organic law" in the preamble to the Charter ("We, the People of the City of Newport Beach, State of California, do ordain and establish this Charter as the organic law of the City under the Constitution of the State.') indicates a vision of the Charter as a living, changing document. This is not, in fact, what the expression means. According to Webster's Dictionary, "organic lave' is "the law by which a government exists as such." In other words, it is the fundamental, foundational law creating and defining a "political organism" from which other laws can sprout and grow. And as the supreme law, it is generally expected to be more permanent and less changeable than the laws and regulations subservient to it. Like the foundation of a house, changes to the Charter should be approached with great caution since everything else is built upon it. The minutes also do not reflect the Acting Assistant City Attorney's assertion that the City has never, at any time, been in violation of the current Charter, and that the recommendations for change being offered to the Committee are solely suggestions for future improvement. A contrary view is that rather than correcting its practices to conform with the Charter, staff finds it more convenient to ask the committee to "correct" the Charter to conform with what the City has been doing, and would like to continue doing. Since the Charter is a document of the people, it should be apparent to the committee members which current practices are consistent with the Charter and which are not. Item IV. CHARTER SECTION DISCUSSIONS • Unlike in 2010 when the Charter Update Commission was provided with an advance "white paper" for each of the 15 changes under consideration -- explaining the problem that led to the suggestion for a change, and a variety of solutions — it appears the present committee will be shown, at least in writing prior to the meetings, only a series of recommended textual changes along with the single sentence explanations in Exhibit 2 to the committee's enabling resolution (Res. 2012-32 as modified by Res. 2012-34). May 31, 2012 Charter Update Committee comments by Jim Mosher Page 2 of 11 o It might also be noted that although the committee is restricted by its enabling resolution to reviewing "the issues approved by the City Council," the Council has seen only the single sentence explanations in Exhibit 2 and has never publicly reviewed on endorsed the recommended red -line changes in charter language. In addition, at the Acting Assistant City Attorney's recommendation, and again unlike in 2010, the agenda does not indicate any particular set of changes that will be considered at a particular meeting — the rationale being that too detailed a specification in the agenda would (under the Brown Act) preclude the committee from disposing of more than originally planned if it found itself with extra time. • As is common with efforts to circumvent the Brown Act, this questionable "efficiency" of not specifying exactly what will be discussed makes it difficult for staff, committee and the public to prepare for the meeting and to offer anything more than spur-of-the- moment comments. At least in my view it would be much better to follow the Brown Act, especially so members of the public would have a way of knowing whether a topic of interest to them was going to be discussed. That said, the May 24 minutes suggest discussion will most likely be confined to the recommended changes to Charter Sections 103 through 407, so I will offer my comments on those. Section 103 (Continuance of Present Officers and Employees.) • The proposal is to delete this entire section because it "is from the adoption of the original Charter and is no longer applicable" by which is presumably meant that none of the pre -Charter officers or employees to whom it would apply are still with the City (although did anyone actually check there are no retirees subject to pre -Charter employment contract terms?). • 1 see no reason for doing this, other than possibly staff's wish to divert voters' attention from more substantial changes to other sections by wrapping the controversial ballot suggestions in a package of inconsequential ones. o This seems to be a case of wanting to fix something that's not broken. o The section is of continuing historical significance as documentation of the City's good faith effort to make a smooth transition from general law to charter. o The deletion would provide no improvement I can think of, and would do harm by erasing the historical record. It would create a hole and leaves future readers of the Charter wondering what the "reserved" section formerly said. o It is simpler to leave the section as is, and that also avoids the need to submit a change for voter approval. May 31, 2012 Charter Update Committee comments by Jim Mosher Page 3 of 11 Section 105 (Pending Action and Proceedings.) • Staff wants, again, to delete what it feels is an outdated section. • Again, I see no reason for doing this, and my comment is the same as for the proposed deletion of Section 103. Section 106 (Effective Date of this Charter.) • Staff wants to add new language about the effective date of amendments being controlled by the California Constitution. • 1 see nothing wrong with this, but: o It seems out of place in "Article I - Incorporation and Succession" — normally provisions for revision and amendment come at the end of a document. o It seems superfluous since any provision in the California Constitution about the effective date of city charter amendments will automatically have precedence over any contrary provisions in the Charter. • It is interesting that the Newport Beach City Charter has never had a section detailing with the amendment process. This is probably because when our Charter was written in 1953, the process for creating and amending city charters was spelled out in detail in Article 11 of the California Constitution. o For example, in the 1879 Constitution, changes to a city charter could be recommended by the city's governing body but required the approval of 60% of those voting on it, as well as ratification by the state Legislature. o This section of the California Constitution was extensively revised in 1970 (subsequent to adoption of the Newport Beach City Charter), with many such "administrative details" of Article 11 moved to general law (now codified and modified in the California Elections Code and Government Code). Under the revised Constitution city charters, including presumably that of Newport Beach, can be modified by a simple majority vote (Article 11, Section 3(a)). o One might consider if the revised Constitution, and the authority granted to charter cities, allows an amendment procedure specific to Newport Beach to be formulated. • It is also interesting to note that in Article 11 (as the Constitution itself in Article 18) a distinction is drawn between "amendments" and "revisions." I believe an "amendment" is a section added without disturbing the original language, as in the 27 amendments to the US Constitution. A "revision" is a change in the language of an existing section. The distinction is significant because Article 11, Section 3(b) gives the governing body of a May 31, 2012 Charter Update Committee comments by Jim Mosher Page 4 of 11 city the power to present both to voters, but only amendments can be proposed by initiative. Most of the changes being proposed to the committee appear to me to be revisions rather than amendments. Section 200 (Powers.) Section 200 is probably the most significant, and most dangerous, of all the sections in the Newport Beach City Charter. It gives to the City government all possible powers that a municipal government can exercise subject only to the restraints explicitly mentioned in the Charter. In other words, by this clause the citizens of Newport Beach are giving their government the power to void and ignore the restraints on power enjoyed by the citizens of a California general law city. • This is quite different from the kinds of charter cities in which the citizens require their government to operate within the restraints of general law except for in a few carefully delimited areas in which the charter gives them permission to deviate. • Staff is wanting the committee to modify the promise to honor limitations found "in this Charter and in the Constitution of the State of California"to "in this Charter or in the Constitution of the State of California. " • Presumably staff's observation is that the existing language makes it sound like for a limitation to be honored it would have to be found in both the Charter and the California Constitution. • Although I suspect few would read the original language in this peculiar way, the staff's suggestion seems a good one to me. • Incidentally one might consider adding ""in this Charter or in the Constitution of the State of California or in the Constitution of the United States," although it seems unnecessary, to me, to say a city government cannot do something prohibited by the California or US Constitution. Section 402-A (Compensation.) / Section 402-B (Reimbursement for Expenses.) / Section 404 The Mayor. Staff is here, in my opinion, trying to pull a fast one by offering to the committee what might seem like an innocuous change of terminology — from "stipend" to "compensation" -- thereby legalizing the employment fringe benefits that City Council members have been paying themselves for the last 10 or 15 years even though it is clear from the Charter that the Council members were never intended to be regarded as employees. Whatever the merits of the change, the proposed language remains defective in that it does not specify which of the many Bureau of Labor Statistics Consumer Price Indexes May 31, 2012 Charter Update Committee comments by Jim Mosher Page 5 of 11 is to be used for making cost of living adjustment (compare to the more specific language in Section 404). The proposed language is also defective in that although it redefines the current unitemized expense stipend as a salary, it institutes, in the final paragraph, a new unitemized expense stipend at a level set by the Council which: o Allows the Council to increase their own monthly compensation essentially without limit. o Leaves open the question of whether that unitemized expense stipend is really a salary subject to benefits, or not. • As to the merits of the proposal, as indicated by the Charter History document provided to committee members in the May 24, 2012 agenda packet (Attachment A), a similar attempt to change the "stipend to cover expenses" into "compensation for services rendered" was offered to voters at the April 10, 1956 election and defeated by a nearly 4:1 margin. • It may be helpful to know that: o The permissible statutory council salary allowed in a general law city of the size of Newport Beach is $600/month (Government Code 36516(a)(2)(D)). o In the 2012-13 budget, Newport Beach City Council members will be receiving $1,227/month in expense reimbursement. Taxpayers will be paying another $1,587/month for "employment" benefits (medical, dental, vision and CalPERS retirement) not contemplated in the Charter. o According to a 2010/2011 OC Grand Jury report, the base amount (exclusive of benefits) was the second highest in all of Orange County (second only to Irvine). The total package, including the benefits not contemplated in the Charter, is the fourth highest in the county. o The city council in at least one Orange County city (Villa Park) serves with no compensation at all. o Newport Beach has non-fulltime employees who, although employees, receive very minimal benefits. o Under the proposed language, if the Newport Beach City Council were to regard its current monthly expense stipend as a salary, and retain that plus its currently unauthorized benefit package, and add to that the newly -allowed expense stipend in an amount similar to its current expense stipend, it would quite likely become the most highly compensated Council in all of Orange County. This does not appear to have been the original intent of the Charter, nor something voters would be likely to accept. May 31, 2012 Charter Update Committee comments by Jim Mosher Page 6 of 11 It may be helpful to know that Article 11, Section 5(b)(4) of the California Constitution gives city charters "plenary" (absolute) authority to set the compensation for its elected and appointed officers. • It may be helpful to know the original Charter language approved by voters on June 8, 1954 was: Section 402. Compensation. The members of the City Council shall receive no compensation for their services as such, but shall receive reimbursement on order of the City Council for Council authorized traveling and other expenses when on official duty. In addition, each member shall receive the sum of Fifty Dollars Per month, which amount shall be deemed to be reimbursement of other out-of-pocket expenditures and costs imposed upon him in serving as a City Councilman. Absence of a Councilman from all regular and special meetings of the Council during any calendar month shall render such Councilman ineligible to receive such sum for such calendar month. • Voters have since approved increasing the expense stipend, splitting the section into two parts and allowing for automatic cost of living increases, but have remained true to the concept of Newport Beach council members receiving "no compensation for their services as such." • Staff explanations of why Newport Beach City Council members are receiving more than the amount specified in the Charter: o In response to an inquiry in January 2011, City Finance Officer Dan Matusiewicz stated that when he began working for the City in the 1990's, the council expense stipends were reported to the IRS as miscellaneous income on Form 1099's. o His office recommended redefining this as wages subject to payroll taxes, withholding and W2 reporting in response to IRS Ruling 74-608 referencing Internal Revenue Code 3401(c). ■ It might be noted that although IRC Sec. 3401(c) regards elected officials as employees for tax purposes, IRC Sec. 3401(a) seems to regard as wages only "remuneration for services performed" and even then lists many kinds of remuneration that are not wages IRS Ruling 74-608 deals with the rather different situation of an independent Tax Collector who receives a percentage of the monies collected and how his employment status for tax purposes is affected by whether he takes the percentage out of the receipts collected before or after turning the payments over to the government agency. ■ However that may be, it is difficult to see how the IRS tax status of payments to the Council justifies paying more than the amount specified in the Charter. In Dan's own words: "My intent was not change the nature May 31, 2012 Charter Update Committee comments by Jim Mosher Page 7 of 11 of Council compensation but to report it in the manner consistent with the IRS regs." o Regarding the pensions, Dan says the "feds" began requiring "public agencies that do not participate in Social Security to provide minimum level of pension benefits, including part-time employees, starting around 1993" (IRC 3121) and that the City has to abide by CalPERS plan rules "concerning employees that previously participated in a CalPERS plan or part-time employees that work greater than 1,000 hours in a fiscal year. " Again, the correctness of the City's response to this is less than obvious. A much simpler alternative would have been to request the Council members to itemize the expenses which the Charter stipend is explicitly said to cover. o A July 2011 e-mail from then City Attorney David R. Hunt to KOCI news reporter Milo Schiff provided this justification for the amounts paid to them in excess of those allowed by the Charter: The health benefits the Council is receiving are under to the Public Employees Retirement System ("PERS'). Section 900 of the City's Charter authorizes and directs the City "to do and perform any act, and to exercise any authority granted, permitted, or required under the provisions of the Public Employees Retirement Act. " The Public Employee Retirement Act then specifies that "payment by a contracting agency of employer contributions and any other amounts for employer paid benefits under this system shall not be construed as receipt of salary or compensation by the elective officer for purposes of any statutory salary or compensation limitation. " (Government Code section 20322(0.) Thus, both under the Charter and state law, the PERS benefits are fully authorized. o The City Attorney's July 2011 arguments seem specious to me. ■ He seems to be reading much more into Charter Section 900 than was intended. It is difficult to believe the membership or non -membership of Council members in CalPERS would jeopardize the membership status of the true employees Section 900 was meant to protect. ■ It looks like the City Attorney is quoting a section of the California Government Code that PERMITS city council members to optionally elect to become members of CalPERS, but at least to me it is quite a stretch to see this as FORCING City staff to enroll them. ■ One could equally well, and seemingly more relevantly, quote • Gov. Code Sec. 20300: "The following persons are EXCLUDED from membership in this system:... (b) Independent contractors who are not employees.... " May 31, 2012 Charter Update Committee comments by Jim Mosher Page 8 of 11 or Gov. Code Sec. 20322: "(a) An elective officer is EXCLUDED from membership in this system unless the officer files with the board an election in writing to become a member. Upon electing to become a member, the officer may further elect at any time prior to retirement to receive service credit for his or her prior, excluded service by making the contributions as specified in Sections 21050 and 21051." ■ The business in the Government Code about CalPERS contributions not counting as compensation for purposes of statutory compensation limits would not appear to apply to a charter city like Newport Beach, which, as indicated above, has "plenary" authority to set the compensation of its elected officials under Article 11, Section 5(b)(4) of the California Constitution, subject only to the limitations in Article 11. • In addition to staff's concerns regarding the tax reporting requirements and benefit/pension obligations triggered by the Charter mandated stipend, there may also be concerns about this meshes with 2005's Assembly Bill 1234, which ostensibly applies to charter cities (although that has probably not been tested in court) and which not only requires ethics training, but also seems to outlaw "per diems" for government officials and suggests that all compensation for expenses must be for actual and necessary expenses documented by receipts (codified in Government Code Section 53232 et seq.). In summary, some revision to Sections 402-B and 404 may be necessary to maintain the original intention of the Charter that the only public moneys received by Council members are those necessary to reimburse them for the incidental extra costs associated with their service; but the proposed language legitimatizing payments above and beyond anything previously contemplated by voters does not appear to be the correct way of achieving that. Section 407 (Regular Meeting.) Staff is here trying to abrogate the City Council's charter obligation to meet with the public by holding a minimum of two regular meetings each month. • Whatever the merits of the proposal, it may be helpful to provide a clearer definition of what constitutes a "regular meeting" of the City Council and what distinguishes that from the "study sessions" the Council has been holding in recent years, and from the occasional "special sessions" held at irregular times but with 72 hour notice. The Brown Act provides little guidance in this, and its definitions are not necessarily the same as those assumed in our Charter. May 31, 2012 Charter Update Committee comments by Jim Mosher Page 9 of 11 • As to the merits of the proposal, leaving the number of meetings to the discretion of the Council seems unwise. o Historically, the Council fulfilled its responsibility to hold two or more meetings each month until the mid -1970's when, without explanation and in clear violation of the Charter, it ceased to hold the second required meeting in December. One might guess this was because of a lack of business to transact, but there is no evidence that prior to that time the volume of business conducted at the second December meeting was unusually light. o Beginning in 2007 the Council started skipping the second required meeting in August. Again, there is no evidence this was due to an unusually low work load at that time of year. Indeed, in August 2005 the Council held its normal two regular meetings, the first lasting 4 hours and the second lasting 5 hours and 40 minutes, as well as two Study Sessions of 1 and 2 hours, two General Plan Update meetings and a special meeting regarding the St. Andrew's Church expansion plan lasting over 7 hours. o In the absence of any Charter requirement, future Councils may choose to meet with their constituents even less frequently with similarly unfounded justifications. • In a February 4, 2011 letter to me ("Matter No.: Al 1-00135"), copied to Council, then City Attorney David R. Hunt offered the following explanation of why holding less than the minimum required number of meetings was not in violation of the Charter: City Charter Section 407 provides, in part, "[t]he City Council shall hold regular meetings at least twice each month at such times as it shall fix by ordinance or resolution... ". The City Council adopts a resolution annually establishing its meeting schedule; the most recent was Resolution 2011-3. As you observed, Resolution 2011-3 cancels the second meetings in August and December. Historically, the months of August and December experience Council and staff member absences and reduced legislative workloads due to the holidays. The cancellations save City resources and improve overall efficiency. Reading City Charter Section 407 in an inflexible manner that requires a second meeting when there is a lack of quorum or lack of pending legislative business results in inefficient practices (and is contrary to Charter Section 410 that allows a meeting to be adjourned for lack of a quorum). In essence, holding a meeting for the sake of a meeting is futile and, as stated by the United States Supreme Court, "The law does not require the doing of a futile act. " (Ohio v. Roberts (1980) 448 U.S. 56, 74 [overruled on other grounds].). Additionally, the Council will frequently hold special meetings as business demands it, for example the special meeting held December 6, 2010 to deal with pending business and tomorrow on February 8, 2011 for setting priorities. Under all of these circumstances, legal, historical, and practical, the current practice of cancelling the second meetings in August and December does not create a material deviation from the Charter. May 31, 2012 Charter Update Committee comments by Jim Mosher Page 10 of 11 • As indicated above, contrary to the City Attorney's assertion, the official Council minutes provide no historic evidence that Council workloads were unusually light in the second halves of August or December prior to the suspension of meetings at those times. • The City Attorney's reference to "Council and staff member absences and reduced legislative workloads due to the holidays" is odd in view of the fact that there are no legal holidays at any time during August, and this last August all the Council members except one were in the city (and attending public functions including committee meetings) around the time of the skipped second regular Council meeting. • The reference to the 1980 Supreme Court case Ohio v. Roberts is also odd. That case did not deal with the obligation of Council members to attend their required meetings. It had to do with a prosecutor's obligation to produce witnesses to confront the accused at a criminal trial as required by the Sixth Amendment to the United States Constitution, and even in that very different context both the majority and the dissenting justices noted one had to do something more than simply declare "futility" as the City Attorney does here: the prosecutor has to make a good faith effort to locate the witness ("the possibility of a refusal is not the equivalent of asking and receiving a rebuff"), and many of the justices did not think the Ohio prosecutor had made that effort. In the present case, using the reasoning advocated by the City Attorney, a good faith effort to fulfill the Charter obligation would require the City Clerk to announce and post the date and time of the second meetings in August and December. The futility of that act would then be established only if City staff and a quorum of Council members failed to appear to hear the public's concerns. And should that occur, the futility of the effort is certainly a matter which voters deserve to have made known to them and which they may wish to take into consideration at the next election. • 1 personally find absurd the idea that the Council can determine in January that it will have no work to perform in the second half of August or December, or at any other time they may wish to select under the new language. • Leaving the choice of meeting times to the Council, as proposed, means that "regular" meetings will no longer be regular and the citizens of our City will be left guessing as to when and if their Council will be meeting. May 31, 2012 Charter Update Committee comments by Jim Mosher Page 11 of 11 Item V. ADDITIONAL PROVISION(S) TO BE CONSIDERED The Acting Assistant City Attorney's recent assertion to the Special Events Advisory Committee that the California Constitutional prohibition against making gifts of public funds for private purposes does not apply to Newport Beach is disturbing, and should be corrected, if true. o This is only the tip of the iceberg of protections which citizens of Newport Beach assume they enjoy, but which they may not because of the blanket authority to override general law given to the City in Section 200. o In view of that it might be useful to consider a revision of Section 200, in particular a change to a style of government in which general law prevails except in those areas where permission to deviate from it is granted in the Charter. An Oct. 20, 2006 article in the Orange County Register quoted experts in eminent domain as saying that the words "sole purpose" in that year's Measure W (now codified as Section 424) rendered it no more restrictive than existing law, under which governments can force a transfer between private parties by eminent domain if there is a claimed public benefit. They regarded it as an example of a hastily conceived and ineffective response to a recent Supreme Court ruling. o A revision of the language of this section to achieve its original intent might be considered. • The growth limiting language of 2000's Measure S ("Greenlight" Initiative, codified as Section 423) has been similarly rendered largely ineffective by what is regarded as a mass voter approval of new growth limits when a revised General Plan is adopted, resetting all the growth "clocks." o A revision of the Greenlight language to more permanently implement the original intent of the voters might be considered. • The list of additions to the Charter which might be considered to insure a government that better serves the interests of its public is long, but a couple of examples might be: o Specifying a charter amendment/revision procedure that meets the needs of Newport Beach, to the extent that is possible within the constraints of California Constitution Article 11. For example, limiting the extent to which voters can be presented with a single yes -no vote on a package of unrelated changes, as was done in 2010, and will apparently be done again this year. o Requiring that all items that the Charter or other code requires to be published in a newspaper of general circulation be reproduced on the City website — a need (and possibility) that could not have been anticipated when the Charter was written in 1954.