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HomeMy WebLinkAbout25 - Amendment of Regulation Section 18705OF NEWPORT BEACH i Council Staff aff Re p ICI r I Agenda Item No. 25 February 28, 2012 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Attorney's Office Aaron C. Harp, City Attorney 949 - 644 -3131, aharp @newportbeachca.gov PREPARED BY: Aaron Harp, City Attorney APPROVED: _7I C I-PA- TITLE: RESOLUTION NO. 2012- 22 SUPPORTING THE PETITION TO AMEND REGULATION SECTION 18705.5 RELATING TO COUNCIL MEMBER APPOINTMENTS ABSTRACT: The staff of the Fair Political Practices Commission ( "FPPC ") recently issued a new interpretation of an existing statute as prohibiting city council members from participating in the process to appoint themselves to governmental boards, committees, or commissions (collectively, "Committee') that pay $250 or more a year. This interpretation is inconsistent with existing statutory law that specifically excludes salary, reimbursement, or other benefits received from governmental agencies from the definition of income in the conflict of interest provisions. The City of Newport Beach has joined a number of other cities to petition the FPPC to amend Regulation Section 18705.5 to be consistent with state statutory law. The cities' Petition is scheduled to be heard by the FPPC at its March 15, 2012 meeting. RECOMMENDATION: Read by title only, and adopt Resolution No. 2012 -22 supporting the Petition to amend Regulation Section 18705.5 to make it consistent with state statutory law excluding . salary, reimbursement, and other benefits from the definition of income. FUNDING REQUIREMENTS: There is no fiscal impact related to this item. Petition to Amend Regulation Section 18705.5 February 28, 2012 Page 2 DISCUSSION: In late 2011, the FPPC staff issued violation letters /notices to city council members throughout the State of California for perceived violations of Regulation Section 18705.5. Specifically, the FPPC alleged it was a conflict of interest for council members to participate in decisions to appoint themselves to a Committee that pays $250 or more in a 12 -month period. The FPPC staffs position is inconsistent with the government salary exemption in California Government Code Section 82030(b)(2), which excludes from the definition of income salary, reimbursement, or other benefits received from a local, state, or federal government agency. In addition, the FPPC's Regulation and staff interpretation is contrary to sound public policy and good government principles relating to multi - jurisdictional governmental bodies. The City of Newport Beach along with the cities of Anaheim, Dana Point, Irvine, La Palma, San Clemente, Villa Park and Yorba Linda retained outside counsel to submit a Petition to the FPPC asking for an amendment to Regulation Section 18705.5. The Petition seeks to bring the Regulation and the OPC staffs interpretation in alignment with California Government Code Section 82030(b)(2). The FPPC is currently set to consider the Petition at its meeting on March 15, 2012. Outside counsel has requested the City adopt a formal resolution (attached) supporting the Petition. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Submitted by: A, C_ f� -�- Aaron C. Harp City Attorney Attachment: Resolution No. 2012- RESOLUTION NO. 2012- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA SUPPORTING THE PETITION BEFORE THE FPPC TO AMEND REGULATION SECTION 18705.5 RELATING TO COUNCIL MEMBER APPOINTMENTS WHEREAS, the staff of the Fair Political Practices Commission ( "FPPC ") recently issued a new interpretation of Regulation Section 18705.5, which interpretation prohibits council members throughout the State of California from participating in decisions regarding their appointment to governmental boards, committees, and commissions that pay $250 or more in a 12 -month period; and WHEREAS, the FPPC's Regulation and staff interpretation is inconsistent with state statutory law that specifically excludes from the definition of income any salary, reimbursement, or other benefits received from a local, state, or federal governmental agency; and 22 WHEREAS, the FPPC's Regulation and staff interpretation is contrary to sound public policy and good government principles relating to multi - jurisdictional governmental bodies; and WHEREAS, the City of Newport Beach ( "City ") along with the cities of Anaheim, Dana Point, Irvine, La Palma, San Clemente, Villa Park and Yorba Linda retained outside counsel to submit a Petition to the FPPC asking for an amendment to Regulation Section 18705.5; and WHEREAS, the cities' Petition is scheduled to be considered by the FPPC at its March 15, 2012 meeting; and WHEREAS, the City desires to express its support for the Petition through the adoption of this resolution. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City of Newport Beach supports the Petition before the FPPC, and encourages the FPPC, to amend Regulation Section 18705.5 to be consistent with California Government Code Section 82030(b)(2). Section 2: The City Council finds this action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) -1- of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 3: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 28th day of February, 2012. ATTEST: Leilani I. Brown, City Clerk -2- 22 Nancy Gardner, Mayor Petition to Amend FPPC Regulation Section 18705.5 Currently scheduled for FPPC consideration on March 15, 2012 Government Salary Exception Traditionally, by practice and statute, the definition of income for conflict of interest purposes excluded salary or benefits received from a governmental agency. "`Income'...does not include... Salary and reimbursement for expenses or per diem, and social security, disability, or other similar benefit payments received from a state, local, or federal government agency...." (Cal. Gov. § 82030(b)(2); 2 CCR §18232.) New FPPC Interpretation In 2011 the FPPC issued an advice letter to the Ventura City Attorney (I- 11 -172) finding that a city council member may not participate in the process (discussion /vote) to appoint themselves to a governmental board or position that pays more than $250 in a twelve month period. The FPPC relied upon a2005 amendment to Regulation Section 18705.5 to support its interpretation. Specifically, Section 18705.5(b) provides in part: "The financial effects of a decision which affects only the salary, per diem, or reimbursement for expenses the public official... receives from a federal, state, or local government agency shall not be deemed material, unless the decision is to app�... promote ... the official ...or to set a salary for the official... which is different from salaries paid to other employees of the government agency in the same job classification or position...." (Emphasis added.) FPPC Complaints In October of 2011, a resident of Tustin filed FPPC complaints against 69 city council members throughout Orange County alleging each council member violated Regulation Section 18705.5 when they voted to place themselves on a board or position that pays more than $z50 in a twelve month period. In response to these complaints, the FPPC issued a series of violation notices /warnings to council members throughout Orange County. Erroneous FPPC Interpretation The FPPC's Regulation and staff interpretation is inconsistent with state statutory law that specifically excludes from the definition of income any salary, reimbursement, or other benefits received from a local, state, or federal governmental agency. Further, the FPPC's Regulation and staff interpretation is contrary to sound public policy and good government principles relating to multi - jurisdictional governmental bodies. Petition to Amend Regulation The City of Newport Beach along with the cities of Anaheim, Dana Point, Irvine, La Palma, San Clemente, Villa Park and Yorba Linda submitted a Petition to the FPPC asking for an amendment to Regulation Section 18705.5 to bring it into conformity with state statutory law that excludes government salary and benefits from the definition of income. The cities' Petition is scheduled to be considered by the FPPC at its March 15, 2012 meeting. Questions? �u *25- 1,Ao.lz Direct Dial: (650) 320 -1515 E -mail: apirayou @rutan.com December 20, 2011 VIA FACSIMILE (916) 322 -0886 AND OVERNIGHT DELIVERY Fair Political Practices Commission Zachery P. Morazzini, General Counsel Attn: John Wallace 428 J Street, Suite 620 Sacramento, CA 95812 Re: Petition to Amend Regulation 18705.5 Dear Mr. Wallace: This law firm represents the following public agencies that have authorized this petition to be sent to the California Fair Political Practices Commission ( "Commission ") relating to certain provisions of the Political Reform Act' (the "Act "): the City of Anaheim; the City of Dana Point; the City of Irvine; the City of La Palma; the City of Newport Beach; the City of San Clemente; the City of Villa Park; and the City of Yorba Linda ( "Clients "). Our Clients have several council members who are appointed by a vote of each respective city council to serve on the governing boards of legally - established joint powers authorities, special districts or other similar agencies that remunerate the appointed councilmember $250 or more in a 12 -month period ("Appointed Paid Boards "). This letter petitions the Commission to amend Regulation 18705.5. This request is made pursuant to Section 11340.6 .2 Our clients specifically request that this petition for amendment be placed on the Commission's March 2012 meeting agenda. I attach to this petition our firm's previous letter to the Commission outlining our position relating to the issues raised by the amendments adopted by the Commission in 2005 relating to Regulation 18705.5 ( "November Letter ") (Exhibit A) and our proposed amendment (Exhibit B). 1 The Political Reform Act is contained in Government Code Sections 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regulations. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated. 2 The Commission is subject to the provisions of the Administrative Procedures Act as it existed in 1974, when the Political Reform Act was adopted. In 1974, the Government Code section corresponding to current Section 11340.6 was Section 11426. The old and new sections are substantially similar. Rutan & Tucker, LLP 1 3000 El Camino Real, Suite 200. Palo Alto, CA 94306 650- 320 -1500 1 Fax 650- 320 -9905 2480/022 2760595.2 a12/19/01 12/l9/ll Orange County I Palo Alto I www.rutan.com RU TAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 2 Background In 2005, as set forth in our November Letter, the Commission considered amendments to Regulation 18705.5 that inserted the term "appoint" in the regulation. As we have previously outlined, the practical implications of the amendments in 2005 to Regulation 18705.5 are far reaching. Subsequently, in your reply letter to our firm dated December 6, 2011 ( "General Counsel December Letter "), you advised us that the Commission, in 1985, based upon amendments made by the Legislature to Section 87103, adopted Regulation 18702.1 to include the following language found in subdivision(c)(2): The decision only affects the salary, per diem, or reimbursement for expenses the official or his or her spouse receives from a state or local government agency. This subsection does not apply to decisions to hire, fire, promote, demote, or discipline an official's spouse which is dierent from salaries paid to other employees of the spouse's agency in the same job classification or position. (Emphasis in original). As set forth in the General Counsel December Letter, this language was included by the Commission as a way to interpret the new revisions made by the Legislature, in 1985, via AB 670 (Klehs), which amended Section 87103 to add the following new phrase: An official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official, a member of his or her immediate family, or on any of the following: (Emphasis in original and footnote omitted). This is commonly referred to as the "personal financial effects" (PFE) rule. In the General Counsel December Letter, you further stated as follows: The record is clear that as of 1985 the Commission decided the new amendment to Section 87103 applied even to government income and explicitly stated so in the 1985 regulation in the second sentence of (c)(2) -- the "exception to the exception" as it were (hereafter the "hire - fire" rule). It appears from your letters that you focused exclusively on Section 82030 and its relationship to Regulation 18705.5, and that you may not have been aware that the 24801022390 -0002 2760595.2 .12119111 RUTAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 3 Commission had to also consider the 1985 amendment to Section 87103 and sought to harmonize the two acts of the legislature. The Commission at the time made a reasonable policy interpretation of the new statutory language and had the advantage of contemporaneous knowledge of the legislative history that is hard to reconstruct after the fact. (Emphasis in original and footnote omitted.) The essence of the position expressed in the General Counsel December Letter is that the Commission believes the 1985 legislative amendments to Section 87103 necessitated the creation of the so- called "hire- fire" rule that excluded such decisions from the exception of "government income" found in Section 82030(b)(2). It appears, further, that you do not cite any information in the Legislative Counsel's Digest relating to AB 670 that would suggest the Legislature intended to create an "exception to the exception" for purposes of Section 82030(b)(2). Presumably, if the Legislature had so intended, it would have, in parallel to adopting amendments to Section 87103, amended Section 82030(b)(2), the Act's definition of "income." Further, as we explained in our November Letter, the Commission's previous advice letters (specifically Gutierrez Advice Letter, A- 00 -15) suggest that the Commission had subsequently (in 2000) rejected the application of the "personal financial effects" rule in a fashion that effectively would swallow up or undermine the "government salary exception" to the Act's definition of "income" found in Section 82030(b)(2). Subsequent to our November Letter, we have discovered additional information indicating that the Commission, at times, has sought to "make it clear that personal financial effects will not in the future be employed in a `reanalysis' of effects secondary to an impact on government salary" and "that the Commission should announce that personal financial effects may not be used to nullify the ,government salary exception." (Emphasis in original.) (See, Fair Political Practices Commission Memorandum — February 17, 2000: "Adoption of Regulations Developed in Conflicts Projects E, P, and G (Phase 2): Personal Financial Effect Rule; Government Salary Exception; and Materiality Standards For Governmental Entities Which are Sources of Income. ") Accordingly, it appears that to the extent that the original 1985 regulation applied the "hire -fire" rule to the 'spouse and not the immediate family'or to the official himself, and the 2005 amendments of Regulation 18705.5 expanded the "hire- fire" rule to create an "appoint - hire -fire" rule that applied not only to the official's spouse or immediate family, but to the official in the context of appointments to Appointed Paid Boards, the Commission should develop a comprehensive and reasonable policy approach that would consider the practical application of these rules to the daily governance issues facing municipalities in California. 2490/022390 -0002 2760595.2 al2/19111 RUTAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 4 Petition For Amendment Attached as Exhibit B to this letter is our Clients' proposed amendment to Regulation 18705.5 as currently adopted. The proposed amendment adds subsection (c) to address the issues identified in our November Letter, including the ability of a public official to participate, without limitation, including voting, in a decision as to whether the public official can be appointed to serve on Appointed Paid Boards. Reasons For Request While we intend to provide a more detailed explanation as to the need for the proposed amendment to Regulation 18705.5 in advance of the Commission's March 2012 meeting (assuming this request is placed on that meeting agenda), below is a summary of the key reasons for this request: 1. The current Regulation is contrary to the Act's express language as set forth in Section 82030(b)(2), as outlined in our November Letter. 2. The Commission's stated policy purposes for amending Regulation 18705.5 in 2005 related to concerns arising from appointments of a public official's spouse versus concerns relating to participation in decisions to appoint oneself to an Appointed Paid Board. 3. Arguably, while the Commission's efforts to "harmonize the two acts of the Legislature" should be commended in 1985, a vigorous analysis must be undertaken to evaluate whether the express language of the Act found in Section 82030(b)(2), as adopted in 1974 by the voters, can be swallowed up and undermined by the Commission's subsequently adopted regulation in 1985 relating to a different statute as amended by the Legislature (i.e., Section 87103). 4. The concerns that were addressed by the 1985 amendments to Section 87103 and the subsequent language proposed at the time by the Commission contained a specific limitation to the PFE rule: the treatment of a spouse by the official that was somehow different than the treatment of other employees in the same classification in the same agency. The aim of this specific language (arguably) even in 1985 was to stop certain abuses, such as those outlined in the Commission's 2005 Staff memorandum (e.g., where a public official made a decision to increase his spouse's salary when she was the only person in that classification or where a mayor appointed his spouse to an unsalaried position), versus impacting the very public process for making appointments to Appointed Paid Boards. 2480/022390 -0002 2760595.2 a12/19/11 RUTAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 5 5. To the extent that the PFE rule, the expansion of the "hire -fire" rule to appointments, and the Act's specific statutory language found in Section 82030(b)(2) are in conflict, the regulated community should be provided the opportunity to address this conflict with the Commission, as requested in this petition. 6. Any policy decision that results in the expansion of the "hire -fire" rule by the application of the PFS rule to appointments to Appointed Paid Boards should be done after careful consideration of the practical governance issues arising from such a rule, as outlined in our November Letter. 7. The proposed amended Regulation 18705.5 would make it clear that it is limited in application to appointments of public officials to Appointed Paid Boards versus any decision of the public official as it relates to his or her immediate family or the official himself in those situations unrelated to appointment (e.g., the public official is an employee of the agency). Authority For Commission To Take Action Requested The Commission has clear authority to take the action requested. Section 83112 permits the Commission to "adopt, amend and rescind rules and regulations to carry out the purposes and provisions of this title." On behalf of our Clients, I respectfully request that this petition to amend Regulation 18705.5 be granted and that the matter be set for hearing in accordance with the Administrative Procedures Act and the Commission's regulations. Additional Request In addition, as set forth in the attached copy of the letter to the Enforcement Division (Exhibit C), we are respectfully requesting that the Enforcement Division take no further action for a period of thirty (30) days, including, but not limited to, proceeding with any administrative prosecution of the matters such as conducting any further investigations into the allegations or posting any warning letters on the Commission's website. 2480/022390 -0002 2760595.2.12/20 /11 RUTAN ATTORNEYS AT LAW Pair Political Practices Commission December 20, 2011 Page 6 Thank you for your consideration regarding this matter. If you have any questions relating to this letter, please contact me at (650) 320 -1515. 24801022090 -0002 1760595.2 e12/19/11 RU�TA�N� & TUCKER, LLP Ash Pirayou AP:jI Attachments cc: City of Anaheim City of Dana Point City of Irvine City of La Palma City of Newport Beach City of San Clemente City of Vil la Park City of Yorba Linda Philip D. Kohn, Rutan & Tucker, LLP John Ramirez, Rutan & Tucker, LLP 24801022090 -0002 1760595.2 e12/19/11 Ti t RUT-AN RUTAN S TUCKER. LLP November 14, 2011 VIA FACSIMILE (916) 322 -0886 AND OVERNIGHT DELIVERY Fair Political Practices Commission Ann Ravel, Chairperson Zachery P. Morazzini, General Counsel Gary S. Winuk, Chief Enforcement Division 428 J Street, Suite 620 Sacramento, CA 95812 Re: ApDointed Boards and the Political Reform Act Dear Chairperson Ravel, Mr. Morazzini, and Mr. W inuk: Ash Pirayou Direct Dial: (650) 320 -1515 E -mail: apirayou@rutan.com This law firm represents the following public agencies which have authorized this letter to be sent to the California Fair Political Practices Commission ( "Commission ") relating to certain provisions of the Political Reform Act' (the "Act "): the City of Anaheim; the City of Dana Point; the City of Irvine; the City of La Palma; the City of Newport Beach; the City of San Clemente; the City of Villa Park; and the City of Yorba Linda ( "Clients "). Our Clients have several council members who are appointed by a vote of each respective city council to serve on legally - established joint powers authorities or similar special districts ( "Appointed Boards "). Some council members of these city councils received a complaint similar to the (redacted) complaint attached to this letter (Exhibit A) alleging that the council members' decision to participate in the vote to make such appointments to such Appointed Boards allegedly violates the Act's conflict of interest provisions. For the reasons set forth in this letter, our Clients respectfully request that the Commission consider the following actions: (1) dismiss any conflict of interest complaints filed against any members of the city councils of the above - listed cities; and (2) consider immediate modifications to the Commission's Regulation 18705.5 and related regulations at the next Commission meeting in order to clarify the Commission's regulations and advice letters, particularly in light of the Act's clear statutory directive with respect to the "government salary exception" for conflicts of interest. I The Political Reform Act is contained in Government Code Sections 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regulations. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated. Rutan & Tucker, LLP I Five Palo Alto Square, 3000 El Camino Real, Suite 200 Palo Alto, CA 94306 -9814 1 650- 320 -1500 1 Fax 650 -320 -9905 24801099999 -0084 Orange County I Palo Alto I www.rutan.com 2619864.1.11/14 /11 RUTAN q�tul ciuCil[II. LLP Fair Political Practices Commission November 14, 2011 Page 2 A. ANY ENFORCEMENT MATTER ALLEGEDLY BROUGHT PURSUANT TO REGULATION 18705.5 IS CONTRARY TO THE ACT'S EXPRESS LANGUAGE AS SET FORTH IN SECTION 83020(b)(2). "The Aces conflict -of- interest provisions apply only where a public official 'make[s], participate[s] in making or in any way attempt[s] to use his [or her] official position to influence a governmental decision in which lie [or she] knows or has reason to know he [the official] has a financial interest. "' (See, Fair Political Practices Commission Memorandum — April 26, 2005: "Adoption of Ainendments to Regulation 18705.5 — Materiality Standard: Economic Interest in Personal Finances" at footnote 2, citing Section 87100; regulation 18700(b)(2). ( "Adoption Memorandum "). (Emphasis added.) Section 82030(b)(2) provides as follows: "Income" does not include: Salary and reimbursement for expenses or per diem, and social security, disability, or other similar benefit payments received from a state,, local, or federal govermnent agency and reimbursements for travel expenses and per diem received from bona fide nonprofit entity exempt from tax under Section 501(c)(3) of the Internal Revenue Code. § 82030(b)(2). (Emphasis added.) Importantly, since being added by initiative measure in 1974 as part of the initial adoption of the Act, the only major legislative amendment to Section 82030(b)(2) has been to add the words "and social security, disability, or other similar benefits payments" in 2004. In other words, for nearly 40 years, the definition of "income" has excluded the salary and benefits received by a local official from a local government agency. Equally important, in the seminal Commission Opinion interpreting both Sections 87100 and 82030(b)(2), In re Moore ((1977) 3 FPPC Ops. 33), Ore Commission took an expansive view of what constituted "income" for purposes of 82030(b)(2) relying on statutes outside of the Act's purview and stating as follows: We turn, therefore, to consideration of the applicability of Section 82030(b)(2) to a pension from a county retirement system. When an employee agrees to work for the County, he is entitled to certain benefits which comprise his compensation. He receives, for example, a monthly salary, vacation and sick leave and retirement benefits which, by law, must be provided as an additional element of compensation. Thus, as the California Supreme Court has observed, retirement benefits, such as a pension, "do not represent the beneficient (sic) gratuities of the employer; they are, rather, part of the consideration earned by the employee.... A pension, 24801099999 -0084 2619864.1 01/14/11 RUTAN R,.µ6TU�n.— Pair Political Practices Commission November 14, 2011 Page 3 therefore, is essentially a type of deferred salary whereby an employee agrees to receive a small payment while working in exchange for the security of receiving the remaining portion of his compensation after he retires. Since a pension is, in essence, a deferred salary payment, we conclude that it is included in "salary," as that term is used in Section 82030(b)(2) .... Accordingly, we conclude that the pension is "salary ... fTom ... a local government" agency and is, therefore excluded from the definition of income by Section 82030(b)(2). We recognize that this conclusion authorized participation by the retired employee board member in some decisions which involve a potential "conflict of interest" in the sense that the decisions can have an impact on the amount of his pension benefits. This potential "conflict," however, is not qualitatively different than the conflict of interest faced by other board members who are currently county employees. Current county employee board members participate in decisions which will affect the amount of their contributions to the retirement plan, and thus also affect the amount of their income. They can do so because Section 82030(b)(2) clearly eliminates as their salary as disqualifying financial interest. In concluding that the retired employee board member also can participate in decisions which may affect his income because a public pension falls within the ambit of Section 82030(b)(2), we avoid the anomaly of treating the retired board member differently than the other board members when he is, in reality, similarly situation. We think this is consistent with the provisions and the intent of the Political Reform Act. In re Moore, supra, at page 4 -5. (Emphasis added.) (Citations and footnotes omitted.) The situation facing our Clients and individual council members serving on our Clients' city councils is similar: they are, pursuant to enabling legislation of the respective Appointed Boards, authorized by law to receive compensation which can be viewed as an "additional element of compensation." The fact that the Appointed Boards might directly pay a council member versus reimbursing our Clients the compensation due to each council member (such that our Clients would then pay the council member directly as per any local salary ordinance) should not change the analysis per section 82030(b)(2). Consistent with the Act's express language and 24901099999 -0094 2619864.1 Donau RUTAN Pair Political Practices Commission November 14, 2011 Page 4 intent, it would appear that the Commission would want "to avoid the anomaly" where public agencies must create different accounting methods to pay public officials with public funds. The Commission's own regulations interpreting Section 82030(b)(2) bolster the argument that the definition of "income" is an expansive one and includes any "income" derived from serving on Appointed Boards as falling within the exception created by Section 82030(b)(2): For purposes of Government Code section 82030(b)(2), the following definitions apply: (a) "Salary" from a state, local, or federal govermment agency means any. and all payments made by a government agency to a public official, or accrued to the benefit of a public official, as consideration for the public official's services to the government agency. Such payments include wages, fees paid to public official as `consultants" as defined in California Code of Regulations, Title 2, section 18701(a)(2), pension benefits, health and other insurance coverage, rights to compensated vacation and leave time, free or discounted transportation, payment of indemnification of legal defense costs, and similar benefits. (c) "Reimbursement for expenses" received from a state, local or federal government agency means a payment to a public official, in compensation for otherwise uncompensated actual expenses incurred or to be incurred within 60 days by the public official in the course of his or her official duties. Regulation 18232. (Emphasis added .)2 By its express terms, Regulation 18232 does not specify that the government agency must be only the agency that a public official has been elected to versus being appointed to and includes very broad terms such as "any and all payments" and "payments" that "accrue" to the benefit of the public official. Given the express language of Section 87100, Section 83020(b)(2), Regulation 18232, and the precedent established by In re Moore, the Commission has issued several advice letters applying the "government salary exception" broadly. 2 Regulation 18232 was last amended in 2002 with the latest version being operative as of February 15, 2002, nearly 3 years before the Commission Staff presented the Commission with the proposed changes to Regulations 18705.5, as further discussed below. 2480/099999 -0084 2619864.1.11 /14/11 RUTAN Fair Political Practices Commission November 14, 2011 Page 5 Unfortunately, many of these opinions not only contradict the express language of Section 82030(b)(2) but also contradict each other, creating significant confusion for the regulated community. A summary of these letters is attached to this letter as Exhibit B. Importantly, any regulation "promulgated by [the Commission] in exercise of its duties imposed upon it by the [Act]" must clarify "any ambiguity that may exist in the practical application of the statute" and are deemed "valid so long as they are consistent and not in conflict with the statute and reasonably related to of %ctuate the purpose of the statute." (Watson v. FPPC (1990) 21.7 Cal. App. 3d 1059, 1076.) (Emphasis added.) Here, given the clear language of the statute, the promulgated regulations, and the past advice letters, the fact.that the Commission has issued so many advice letters in direct conflict with each other and the statute, the prosecution of any complaints filed against our Clients would seem to be nearly impossible given the substantial ambiguity caused by the Commission's regulations and advice letters. Furthermore, per section 83111, the "Commission has primary responsibility for the impartial, effective administration and implementation" of the Act" Section 83111. (Emphasis added.) In fact, Section 83112 provides that the "Commission may adopt, amend and rescind rules and regulations to carry out the purposes and provisions of [the Act], and to govem procedures of the Commission...." Section 83112. Arguably, as demonstrated in the analysis of the advice letters in Exhibit B the Commission cannot administer or implement the Act until it resolves the central questions of (1) whether some of its regulations must be amended or completely rescinded and (2) whether some of its previous advice letters must be superseded because they have sanctioned the application of the so- called "personal financial effects" rule in a fashion that undermines the "government salary exception" to the Act's definition of "income." B. ANY ENFORCEMENT MATTERS WOULD BE CONTRARY TO THE STATED POLICY PURPOSES BEHIND AMENDING REGULATION 18705.5(b). Regulation 18705.5 provides as follows: (a) A reasonably foreseeable financial effect on a public official's or his or her immediate family's personal finances is material if it is at least $250 in any 12 -month period. (b) The financial effects of a decision which affects only the salary, per diem, or reimbursement for expenses the public official or a member of his or her immediate family receives from a federal, state, or local government agency shall not be deemed material, unless the decision is to appoint, hire, fire, promote, demote, suspend without pay or otherwise take disciplinary action with financial sanction against the official or a member of his or 2480109999NO084 2619864.1 e1 VI 4/11 RUTAN Fair Political Practices Commission November 14, 2011 Page G her immediate family, or to set a salary for the official or a member of his or her immediate family which is different from salaries paid to other employees of the government agency in the same job classification or position, or when the member of the public official's immediate family is the only person in the job classification or position. Regulation 18705.5. (Emphasis added.) This regulation is referred to as the "materiality standard: economic interest in personal finances" and became operative as of November 23, 1998. The amendment of subsection (b) to add the single term of "appoint" was filed on June 21, 2005, and became operative on July 2, 2005. In stating the reasoning for the inclusion of the term "appoint," the Commission staff explained as follows: Staff has identified two issues that are not addressed by the regulation: I. The regulation permits public officials to participate in decisions to set a salary for a member of their immediate family, if the member of his or her immediate family is the only person in a job classification or position. 2. The regulation refers to hiring and firing, but not appointments, by the public official. To remedy this situation, staff proposes amendments to regulation 18705.5 to declare material the financial effect of a decision by a public official that has a "unique" financial effect on a member of the official's immediate family; and to include "appointments" as decisions which could have material financial effects on the public official or a member of his or her immediate family. By adding the word "appoint" to the regulation, the Commission would make it clear to a public official that it is unlawful for a public official to appoint the official or his or her spouse to a position that is salaried, or that is unsalaried but offers monetary benefits. By adding the suggested language to the end of the regulation, the Commission would make it clear to a public official that it is unlawful for a public official to increase the government salary of a member of his or her immediate family, when the family member is the only individual in the job classification or 2480109999.0084 2619864.1 uU n4 /11 RUTAN Fair Political Practices Commission November 14, 2011 Page 7 position. (See, Fair Political Practices Commission Memorandum — March 8, 2005: "Pre- Notice Discussion of Amendments to Regulation 18705.5 — Materiality Standard: Economic Interest in Personal Finances." ( "Pre- notice Memorandum. ") (Emphasis added.) The examples provided in the Commission's Pre - notice Memorandum as being the "current advice" (as of 2005) were as follows: In 1997, the executive director of the Victor Valley Community College made a decision to significantly increase his spouse's salary. His spouse was a manager at the college and the only one in her classification. The Enforcement Division was not able to pursue the case because the language of the regulation did not make the conduct a violation. In 1997, the Mayor of Oakland appointed his spouse to an unsalaried position on the Oakland Port Authority. At the time, the Oakland City Attorney advised the mayor that he did not have a conflict of interest that prohibited him from making the appointment, even though his spouse received a cell phone, membership to an exclusive dinner club, and a car allowance as a result of the appointment. The city attorney based her advice on the language of the regulations, which refers to hiring and firing, but does not refer to appointment. Pre - notice Memorandum. (Emphasis added,) Besides citing one example (nearly 10 years earlier) relating to an appointment arising from advice provided by a city attorney versus the Commission, at the pre - notice discussion stage of the amendment of Regulations 18705.5, the Commission Staff did not discuss in any way the implications of adding the term "appoint" to Regulation 187505.5(b) as it would be applied to situations where a city council is considering the appointments of its members to outside agencies. In addition, the focus of both examples — provided by the Commission Staff as illustrating the "problem" the amended Regulation 18705.5 was addressing — involved cases relating to public officials acting to benefit their spouses. 2480/099999 -0084 2619864.1 al 1114111 RUTAN PoRUIa,VCxCP. uv Fair Political Practices Commission Novelrrbei 14, 2011 Page 8 Furthermore, it appears that the Commission itself also did not have any discussions about the implications of the term "appoint" as it would be applied to votes to appoint council members to outside agencies, as evidenced by the subsequent Staff Memorandum to the Commission at the time of adoption of the proposed amendments.3 (See, Adoption Memorandum.) In fact, it appears that as part of the adoption of the amended regulation, the history of the Commission's past actions relating to the issues facing our Clients, as set forth in Exhibit B, were not raised or discussed in any way by the Commission Staff or the Commissioners. This lack of discussion would seem to be particularly concerning to public officials serving in the State of California. C. THERE ARE A NUMBER OF PRACTICAL AND POLICY IMPLICATIONS RELATING TO THE COMMISSION'S "PERSONAL FINANCIAL EFFECTS" RULE. There are a number of other public policy implications relating to governance of Appointed Boards that must be carefully considered by the Commission, and have been outlined by other members of the regulated community (e.g., when is it permissible for a council member to express an interest to serve on Appointment Boards, in light of the conclusions in the Floward Advice Leiser, No. I -07 -109 and I -07 -117)? (See, Exhibit C: Letter from Woodruff, Spardline & Smart, dated November 10, 2011.) Furthermore, it is unclear whether the Commission, as part of its process in creating the amendment to Regulation 18705.5 by adding the term "appoint," contemplated in any manner what the potential "solutions" or the impacts would be for our Clients and other California public agencies, besides the option outlined in the Peak Advice Letter, No. I -05 -065:. the official could vote on his or her appointment to Appointed Boards so long the official "waives the stipend." For example, one possible solution might be for our Clients to appoint someone other than the city council members (e.g., citizens) to the Appointed Boards but such an appointment might be in prohibited by a particular joint powers agreement and could also result in inefficiencies (e.g., communication breakdowns between the council members and the appointed citizens) that might ultimately lead to a potential loss of accountability to and control by the citizens elected council representatives. 3 The following is the only information provided in the Adoption Memorandum relating to the "pre- notice" discussion hearing held by the Commission in March 2005: "At the pre- notice meeting on this regulatory amendment, Commissioner Huguenin pointed out that the Attorney General has opined that a determination not to act is still considered participation in a government decision under certain circumstances. He asked how determinations not to act would be considered under this regulation." 2480/099999 -0084 2619864.1 .11114/11 RUTAN eVi�x c iYCVEF. W Fair Political Practices Commission November 14, 2011 Page 9 Or, in order to comply with the amended Regulation 18705.5(b) provisions, our Clients might have to allow a single council member (e.g., the Mayor) to handle all of the appointments to the various Appointed Boards with the understanding that the particular council member would be deemed ineligible to serve on the Appointed Boards. This outcome might not be. viewed by the citizens of our Clients as being particularly desired in some communities given that it concentrates power in one councilmember in a manner that is not an accepted or desired practice in most cities. Finally, as outlined above, during the deliberate process in making the amendment to Regulation 18705.5 to add the term "appoint," neither the Commission Staff nor the Commission appears to have discussed the application of the "rule of necessity" (per Section 87101) to our Clients' efforts to make decisions as to who should serve on Appointed Boards, given the Commission's statements in the Howard Advice Letter (No. I -07 -109 and 1 -07 -117) relating to the fact that council members cannot cure any issues under Regulation 18705.5 even if they "withdraw" their "expression of interest" which could lead to a situation where the decision to make appointments to such boards is made with less than a quorum of council members participating. Accordingly, we respectfully request that all enforcement matters be dismissed and that the Commission immediately conduct a thorough evaluation of its regulations as applied to decisions to appoint council members to Appointed Boards, particularly in light of the Commission's recent advice letter in the Calonne Advice Letter, No. I -11 -172, which applied the revised Regulation 18705.5 to hold that "[a] councilmember nominated to be mayor may not vote on his or her appointment as mayor because it is a decision to appoint, promote the councilmember to a higher class, or hire the councilmember into the mayor class." Thus, the Commission continues to sanction applications of the "personal financial effects" rule in a fashion that undermines the "government salary exception" to the Act's definition of "income" as outlined in the letter. Our clients take very seriously their obligations under the Act and appreciate the Commission's careful consideration of this letter. 248o/o99999 -0084 2619664.1 ell /14/11 RUT-AN Fh,:µ ne,zn. P Fair Political Practices Commission November 14, 2011 Page 10 If you have any questions relating to this letter, please contact me at (650) 320 -1515. RUTAN & TUCKER, LLP 116 =-4 Ash Pirayou APjI Attachments cc: City of Anaheim City of Dana Point City of Irvine City of La Palma City of Newport Beach City of San Clemente City of Villa Park City of Yorba Linda Phil Kohn, Rutan & Tucker, LLP John Ramirez, Rutan & Tucker, LLP 2480/09999MOM 2619864.1 ell /14/11 ��1 � �/ �� 1-' T' T TI iT� � P H rE-) FAIR POLITICAL PRACTIC13S CONIMISSION 428 I Street • Suito 620 • S=emento, CA 95914-Z329 (916) 322 -5660 . Fe (916) 322 -0886 November 1, 2011 Re: Swom Complaint against Dear mxIr The Fair Political Practices Commission CTPPC') has received a complaint against you. Enclosed you will fi nd a copy of that complaint. At this time, we have not made any determination about the allegation(s) made in the complaint. We are simply providing you with a copy as a courtesy. Within 14 days of receipt of the complaint, the complainant will be notified of the FPPC's decision regarding the complaint. A copy of that letter will be forwarded to you as well. We maybe contacting you again to discuss this matter. Should you have any comments on the allegation(s), your comments must be submitted in writing, jam; Gary S. Winnk Chief, Enforcement Division GSW(tr Enclosures AV- RECEIVED FAIR POLITICAL, __,.____:- -_- -_ r. ArIICES... COMMISSI (l[d .::....:..:........... SWORN COMPLAIINT FORM I I OCT 31 AN IQt 23 (Form May Be Subject to Public Disclosure)* AS REQUIRED BY GOVERNMENT CODE SECTION 83115, please complete the form below to file a sworn complaintwit i the Fair Political Practices Commission: This form must be completed in its entirety and all pertinent information must be stated on this form, not as an attachment, Mail the complaint to: Enforcement Division Fair Political Practices Commission 428 J Street, Suite 620 Sacramento, California 95814 Person Making Complaint Lastname: Delaney FirstNinne: Matthew Street Address: 17602 9102 PMB 104 City: Tustin State: CA. Zip: 92780 - Telephone: 714 401 - 0529 Fax: (� E -mail: *UIPDRTANE•NOTICE Under the California Public Records Act (Gov. Code Section 6250 and following), this sworn complaint and your Identity as the complainant may be subject to public disclosure. Unless the Chief of Enforcement deems otherwise, within three business days of receiving your sworn complaint we will send a copyof ittothe persom(s)you allege Violated the law•, .__. ._. In some circumstances, the FPPC.may claim your identity Is confidential, and therefore pot subject to disclosure. A court of low could ultimately make the determination of confidentiality. If you wish the FPPC to consider your identity confidential, do not file the complaint before you contact the FPPC (916 -322 -5660 or toll free at 866 -ASK -FPPC) and discuss the complaint with an Enforcement Division attorney. Complaint Person or Persons who Allegedly Violated the Political Reform Act: (if there are multiple parties involved, attach additional pages as necessary,) Last Name: (� First Name: Street Address: City; State: Zip: Telephone: ILA—) . Fax: (—) E -mail: Provision or Provisions of the Political Reform Act Allegedly Violated: (If specific sections are not Imown, please provide a brief summary of the nature of the violation(s), and when it (they) occurred.) 'You must state the suspected violations) on this form. Violation of Section 87100. Description, With as Much Particularity as Possible, of Facts Constituting Alleged Violation and how you have personal knowledge that it occurred" office. * *Please attach copies of any available documentation that is evidence of the violation, (for example, checks, campaign materials, etc., if applicable to the complaint). Note that ' a newspaper article is NOT considered evidence of a violation. Name and Addresses of Potential Witnesses, in addition to yourself, if Known: Last Name; ' First Name: Street Address: City: State: Zip; Telephone: tax: ( ) Umail: Last Name: First Name: Street Address: City: Zip: Telephone: (_ ) Fax: �) E -mail: Last Name: First Name: Street Address: State: City: State:. _ Zip: Telephone: Fax: E -mail: I declare under penalty of perjury under the laws of the State of California that the. foregoing is true and correct, IwI CQ 10/26/2011 �6ignnim ) (Date) Matthew Delaney (Please print your name) ��; �� r � �- r- *-r�� � - T -� -� r-- �-, _ I�. EXHIBIT B, Black Advice Letter, No. A -99 -010 In 1999, in Black, that Commission began to attempt to address the issue of whether any conflicts of interest would arise from council members seeking appointment to Appointed Boards. The Commission was asked whether a county supervisor could represent a county on a joint powers authority board given that the county supervisors selected two of its members to serve on the joint powers authority board. The Commission concluded as follows: The Act would not prohibit [a supervisor] from representing the [county on the joint powers authority board], but he cannot participate as a member of the Board of Supervisors in a decision to appoint him to the Board of Directors if the appointment would have a personal financial effect upon hint. If [the supervisor] serves on the Board of Directors he would be prohibited from participating in any decision by the Board of Directors that would have a reasonably foreseeable material financial effect on any of his economic interests, that is distinguishable from the effect on the public generally. (Emphasis added.) The Commission then provided the following analysis: ... a governmental decision has a personal financial effect on a public official if the decision will result in the personal expenses, income, assets, or liabilities of the official or his or her immediate family increasing or decreasing. (Regulation 18703.5.) On that basis, we have previously concluded that a fire district board member may not participate in a vote by the district board to hire himself to perform computer services for the district. (Aitken Advice Letter, No. A -97 -345.) Similarly, we have concluded that a city council member, who is also employed by the city as a part - time secretary may not participate in a vote by the city council to change her position from a part-time to a full -time position. (Koski Advice Letter, No. I -96 -289.) However, Regulation 18705(c) states that, notwithstanding Regulations 18705.1 through 18705.5, an official does not have to disqualify himself or herself from a governmental decision if: The decision only affects the salary, per diem, or reimbursement for expenses the official or his or her spouse receives from a state or local government agency. Because the Commission was not provided information about the "personal financial effects" at issue, it was not "able to make a determination as to whether a decision regarding whether to appoint' the supervisor would create a conflict of interest. 24801099999 -0084 2619590.1 all /14/11 GutierrezAdviee Letter, No. A -00 -015 The Commission held that a councilmember does not have a conflict of interest in a city's decision as to whether to provide a defense to an election contest challenging her election (by one vote) to the council, even if the council member had an "economic interest in the defense insofar as she receives a salary and benefits" (per Government Code Section 36516) in excess of $250 in any 12 month period." In applying the "exception" outlined in Section 82030(b)(2), the Commission stated as follows: In one of its first formal Opinions, the Commission determined that this "government salary exception" to the definition of income included pension benefits paid by a government entity. [citing In re Moore, supra .... Since the Moore Opinion, we have applied the government salary to many forms of employment- related benefits paid by government entities ... By operation of the "government salary exception," the salary and employment - related benefits [the council member] receives through her position on the city council are not "income" within the meaning of the Act. A decision to fund a defense to the election contest, even though it could potentially affect her government salary benefits, does not therefore affect her "income" within the meaning of Section 87103 or Regulation 18703.5. Nor can such a decision have any other personal financial effect. If the immediate impact of a decision on a public official's "government salary" is excluded from conflicts analysis by operation of the "government salary exception," derivative effects may not be admitted to change that outcome. We understand that the loss of an official position may well cause a large change in an official's economic well - being, which my in turn affect the official's assets, expenses, or liabilities [as per Regulation 18703.5]. But these effects, when they are secondary to an effect on "government salary," are not potentially disqualifying "personal financial effects." We have not always been consistent in describing an official's obligations in this area [citing the Owen Advice Letter, No. A -99- 108 and stating that] [t]he Owen Advice Letter applied the `personal financial effects" rules in a fashion that effectively swallowed up the "government salary exception," and was superseded by the Commission at its public meeting on March 3, 2000 ... More generally, the Owen Advice Letter is superseded to the extent that it sanctions application of the `personal financial effects" rule in a fashion that undermines the "government salary exception" to the Act's definition of income." (Emphasis added.) (Citations omitted.) 2480/099999 -0084 2619580.1 ell /14/11 -2- Critically, the Owen Advice Letter, published in 1999, specifically outlined the presumed regulatory bases for the so- called "personal financial effects" rule: Regulation 18703.5, Regulation 18704.5, and Regulation 18705.5. Regulation 18703.5 states as follows: "[f]or purposes of disqualification under Govermnent Code sections 87100 and 87103, a public official has an economic interest in his or her personal finances and those of his or her immediate family. A governmental decision will have an effect on this economic interest if the decision will result in the personal expenses, income, assets, or liabilities of the official or his or her immediate family increasing or decreasing." Regulation 18703.5. (Emphasis added.) Regulation 18704.5 provides as follows: "[a] public official or his or her immediate family are deemed to be directly involved in a govermnent decision which as any financial effect on his or her personal finances or those of his or her immediate family." Regulation 18704.5. (Emphasis added.) As it relates to Regulation 18705.5, Owen stated as follows: "[t]he Commission has promulgated a series of regulations containing guidelines for determining whether the foreseeable effect of a decision is material. The appropriate standard for determining whether a personal financial effect is material is contained in Regulations 18705.5. Under this standard, a reasonably foreseeable personal financial effect is material if the effect will be $250 or more in any 12- month." (Emphasis added.) Dixon Advice Letter. No. 1-02 -098 In Dixon, that Commission (arguably) squarely addressed the issue of whether any conflicts of interest would arise from council members seeking appointment to Appointed Boards. In Dixon, the "mayor of the City of Costa Mesa" was "contemplating seeking appointment to the Orange County Fairgrounds Board of Directors" and asked whether a conflict of interest would exists, if he was "appointed" to the Board of Directors. The advice letter did not provide any other "facts" as to whether the Commission considered the Orange County Fairgrounds to be a State Agency or who was going to make the appointment.' The Commission concluded as follows: Your positions as mayor of the City of Costa Mesa and as a member of the Orange County Fairgrounds Board of Directors are not economic interests which could be affected by decisions of either the Orange County Fairgrounds Board of Directors or the City of Costa Mesa. The Act's conflict -of- interest provisions ensure that public officials "perform their duties in an impartial manner, free from bias caused by their own financial interests ..." (Section 81001.) Specifically,. Section. 87100 prohibits any public official from making, participating in making, or otherwise using his or her 1 The appointment to the Fairgrounds Board is done by the Governor and the Fairgrounds is considered a "state agency." See, httn:lAvww. ocfair .com /ocf /AboutUslboard.asp and httn://www. ocfair .com /ocf /About Us/PublicMeetinFs New /Meetings.asp. 2480/099999 -0084 2619580.1 .11114111 -3- official position to influence a governmental decision in which the official has a financial interest. A public official has a "financial interest" in a governmental decision within the meaning of the Act, if it is reasonably foreseeable that the governmental decision will have a material financial effect on one or more of the public official's economic interests. (Section 87103; Regulation 18700(a).) Among other things, an economic interest is any source of income, including promised income, which aggregates to $500 or more within 12 months prior to the decision (Section 87103(c); Regulation 18703.3). However, income does not include: Salary[] and reimbursement for expenses or per diem received from a state, local, or federal government agency and reimbursement for travel expenses and per diem received from a bona fide nonprofit entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. (Section 82030(b)(2).) [citing Regulation 18232(a).] Consequently, you do not have an economic interest in the City of Costa Mesa, nor do you have an economic interest in the Orange County Fairgrounds. Since a conflict of interest will arise only when it is reasonably foreseeable that a decision will have a material financial effect on a public official's economic interest, your governmental positions[] do not create a conflict of interest under the Act. In addition to the economic interests separately listed in section 87103, a public official always has an economic interest in his or her personal finances, and may have a conflict of interest in any decision foreseeably resulting in an increase or decrease in the personal expenses, income, assets or liabilities of the official or his or her immediate family, in the amount of $ 250 or more over a l2- month period. (Regulation 18703.5.) When the only potentially disqualifying economic interest is governmental salary as defined in section 82030(b)(2) and regulation 18232, no potentially disqualifying economic interest exists under either section 87103(c) or the personal financial effects rule described in regulation 18703.5. However, governmental salary is a disqualifying economic interest if there is a unique effect on the official or his or her immediate family as described in regulation 18705.5(b)." (Emphasis added.) (Citations and footnotes omitted.) The Commission did not provide any additional analysis of Regulation 18705.5(b) but appears to have rejected, like the Gutierrez Advice Letter, the application of the "personal financial effects" 2480/099999-0084 2619580.1 at 1/14/11 -4- rule in a fashion that undennined the "government salary exception" to the Act's definition of "income" as it applied to Appointed Boards. Svlvia Advice Letter, No. 1 -02 -176 In Sylvia, the Commission addressed whether under Regulation 18705.5(b) "financial effects" test, a public official's "economic interest in his wife's income may disqualify him from voting on collective bargaining agreements with his wife's bargaining unit" at the school district where he served as member of the board of education. The Commission advised the City Attorney of San Francisco as follows: To the extent that his wife receives "income" as defined under the Act, you correctly understand that [the official] would have a community property interest in that income, and in the source of that income, as well as an interest in the "personal financial effects" of any governmental decision materially affecting the income or expenses of himself or his spouse. You recognize that, because the [d]istrict is a government agency under § 82041, the salary paid by the [d]istrict to [the official's] wife is not considered "income" under § 82030(6)(2), the "government salary exception" to the Act's definition of "income, "... . While noting this exception, you are concerned that some terms of a collective bargaining agreement may involve "income" not covered under the "government salary exception." In addition to the statutory "government salary exception" of § 82030(b)(2), subdivision (b) of regulation 18705.5 contains a parallel exception making clear that "personal financial effects" potentially causing a conflict of interest do not include the financial effects of a decision which affects only the salmy, per diem, or reimbursement for expenses received by a public official or members of the official's hnnrediate family. In particular, we conclude that provisions of a collective bargaining agreement such as tl professional development triter advancement, and restrictions on e days and hours to be worked, a for continued employment or outside employment, are "salary" provisions which, when provided by a state, local or federal government agency, fall within the exception provided at § 82030(b)(2) and regulation 18232(a). Govemmental decisions relating to such terms will not give rise to a "personal financial effect" under the Act, so long as the decision does not concern [the official] or his wife alone, as provided in regulation 18705.5(b) .... (Emphasis added.) 2480/099999 -0084 2619580.1 x11/14111 -5- Thorson Advice Letter, 1-03-28 Notwithstanding the strong statements in favor of the strict construction of Section 8200230(b)(2), Regulation 18232, the Gutierrez Advice Letter or the Dixon Advice Letter, in December of 2003, nearly 15 months before the Commission's recent amendment to Regulation 18705.5 in 2005, the Commission again addressed the issue presented in the complaint against some of the council members serving on our Clients' city councils in the Thorson Advice Letter. In Thomson, the Commission provided the following analysis: If the city council for the City of Mission Viejo (the "city ") appoints one of its members to serve as its representative on joint powers agencies for which the city is a member, may the member who is being considered for the appointment participate in that decision? Since a decision to appoint one of its members to a board or commission would increase only that member's salary, per diem or reimbursements from the appointing agency which is different from the salary, per diem or reimbursements paid to other members of the city council, the councilmember who is the subject of the appointment may not participate in the decision. The City of Mission Viejo is a member of numerous joint powers agencies. The city council appoints one of its own members to serve as their representative on each agency. The city council anticipates making 'several appointments at its January 5, 2004, meeting and is questioning whether a council member who is being considered for appointment to a specific agency may also participate in that decision. A public official also has an economic interest in his or her personal expenses, income, assets, or liabilities, as well as those of his or her immediate family, a.k.a. the "personal financial effects" rule. (Section 87103, regulation 18703.5.) The two possible economic interests that may be affected by making an appointment to the joint powers agency are: 1) a council member's stipend, per diem or reimbursements from the joint powers agency and, 2) his personal expenses, income, assets, or liabilities (or those of his immediate family). Salary, per diem and reimbursement for expenses from a state, federal, or local governmental agency are expressly exempted from the definition of "income" for purposes of the Act. (Section 82030(b)(2); regulation 18232.) Ajointpowers agency is a local governmental_ agency. (Section 82041.) The salary, per diem or reimbursements paid by the joint powers agency to a city 2480N9999M084 2619580.1 a] 1 /14/11 -6- council member for services on the joint . powers agency is therefore not potentially disqualifying "income" within the meaning of the Act's conflict -of- interest provisions. (Bordsen Advice Letter, No. A -95 -347.) Under the "personal effects" rule, a conflict of interest exists where a decision would foreseeably result in a public official's personal expenses, income, assets, or liabilities (or those of his or her immediate family) increasing or de- creasing by $250 or more, regardless of the source of that increase or decrease. (Section 87103; regulations 18703.5; 18704.5; 18705.5(a); Beardsley Advice Letter, No. I -99 -003; Daniels Advice Letter, No. I -98 -297.) The personal effects test does not require disqualification if the decision affects only the salary, per diem, or reimbursement for expenses an official may receive from a local government agency, unless the decision is to hire, fire, promote, demote, suspend without pay or otherwise take disciplinary action against the official or a member of his or her immediate family, or to set a salary for the official or a member of his or her immediate family which is different from salaries paid to other employees of the government agency in the same job classification or position. (Regulation 18705.5(b).) For example, in the Jordan Advice Letter, No. I -00 -119, a candidate for school board was advised that, if elected, he would be able to participate in contract negotiations for teachers' contracts even though his spouse was a teacher with the district. He was advised however, that a conflict of interest may still exist in decisions on the hiring, firing, promotion, demotion or discipline of his spouse, or setting a salary for his spouse which is different from salaries paid to other employees in the same job classification or position. Applying this analysis to the question you pose, since a decision to appoint one of its members to a board or commission would increase only that member's salary, per diem or reimbursements which is different from the salary, per diem or reimbursements paid to other members of the city council, the exception in regulation 18705.5(b) applies and the councilmember who is the subject of the appointment may not participate in the decision. (Emphasis added.) Under Thorson, like Owen, the Commission appears to have followed the same logic that it had squarely rejected in Gutierrez, relying on the language of three Commission- issued regulations (i.e., 18703.5, 18704.5, and 18705.5(a)) and less than a handful of Commission issued advice letters (e.g., Beardsley Advice Letter, No. I -99 -003; Daniels Advice Letter, No. I- 2480/099999 -0064 2619580.1 a] 1114111 -7- 98 -297; and Jordan Advice Letter, No. I -00 -119) to sanction an application of the "personal financial effects" rule in a fashion that undermined the "government salary exception" to the Act's definition of income in the context of appointments. Houston Advice Letter, A -04 -248 Nevertheless, in 2005, less than 120 days from the issuance of the Thorson, the Commission appeared to have (again) rejected any interpretation of the Act and its regulations to suggest that the "personal financial effects" rule had eviscerated the "government salary exception.' In Houston, the Commission permitted aboardmember of the Orange County Rater District to participate in "a decision" regarding whether the district should switch from a "privately run pension" plan to the California Public Employees Retirement System, which the boardmember was already a member, given his previous tenure as a council member in a city that participated in CaIPERS. The Commission held that the boardmember had "no economic interest which would disqualify him from participating in the CaIPERS decision" citing specifically the "government salary exception" under Section 82030(b)(2)) and In re Moore. Importantly, the Commission stated as follows: "[p]lease note that, ... [the boardmember] may have an economic interest under the 'personal financial effects' rule. However, because the exception of regulation 18705.5(b) applies, we do not further analyze this economic interest [citing the previous language of Regulation 18705.5(6) without the term "appoint "] and went on to conclude "[ b]ecause [the boardmember's] income and benefits are not included in the definition of income and because regulation I8705.5(b) applies, he has no economic interest which would disqualify him from participating in the CaIPERS decision ..: ' (Emphasis added.) The Houston Advice Letter was dated March 14, 2005, almost one week after the Commission Staff's memorandum relating to amendments of Regulation 17505.5 which included the term "appoint" in the language of 18705.5, as outlined above. In other words, even while attempting to fix a "problem" relating to appointments, in the Houston Advice Letter the Commission appears to have emphatically rejected the notion, like Gutierrez, that the "personal financial effects" rules including 18705.5 in , any way undermine the "government salary exception" to the Act's definition of income. If this analysis is deemed by the Commission not to be the case, the Gutierrez Advice Letter's statement that the Commission has "not always been consistent in describing an official's obligations in this area" is' even more relevant especially given the fact that any confusion created by the Commission in its regulations in direct contradiction to the Act's strict language creates fundamental due process issues in terms of comptiance and enforcement matters. Peak Advice Letter, No. 1 -05 -065 On June 28, 2005, a week after the amended Regulation 18705.5 was "filed" but before it became "operative" (as of July 21, 2005), the Commission, in the Peak Advice Letter, concluded that a member of a city council can "vote on his or her own appointment to an unsalaried position on a joint powers authority where the only payment the official receives from the position is a stipend and the official waives the stipend" and that the appointed city councilmember would "be prohibited from participating in decisions relating to reimbursement 2480/099999-0084 2619580.1 ell /14111 -8- of expenses incurred by the councilmember during the course of his or her work for the joint powers authority" if "the amount of the reimbursement would total $250 or more in a 12 -month period." (Emphasis added.) Relying on the Thorson Advice Letter, the Commission provided the following reasoning: Normally, this stipend would constitute an economic interest in the appointed official's personal finances and would be material if it amounted to $250 or more in any 12 -month period. (Thorson Advice Letter, No. I -03 -287.) However, if the stipend is waived by the official, and the official receives no remuneration for serving in the position, there will be no economic interest to trigger potential disqualification on the decision to appoint. Absent the economic interest, there is no conflict of interest presented. On the other hand, in the event reimbursement decisions come before the city council regarding expenses incurred by the appointed official in serving on the joint powers agency, the "personal financial effects" rule would prohibit him or her from participating in the decision if it is reasonably foreseeable that there would be a material financial effect, ($250 or more in any 12- month period), on the his or her personal finances as a result of the decision. (Section 87100, Regulation 18705.5(a); Thorson, supra.) In that event, the public official would have a conflict of interest and may not participate in the governmental decision. (Emphasis added.) The Peak Advice Letter's conclusions relating to the "rehnbursement decisions" were reached without any discussion of Section 82030(b)(2), Regulation 18232, In re Moore, or the Gutierrez Advice Letter, which was written in 2002 by the Commission's Associate General Counsel who subsequently became the Commission's General Counsel by the time the Peak Advice Letter was issued in 2005. Put simply, the Peak Advice Letter like the Owen Advice Letter sanctioned the application of the "personal financial effects" rule in a fashion that completely undermined the "government salary exception" to the Act's definition of income, without any analysis of the issues. Humes Advice Letter, No. A -06 -230 Even after the adoption of the amended Regulation 18705.5 adding the term "appoint," the Commission continued to provide inconsistent opinions in its advice letters. In Humes Advice Letter, No. A -06 -230, the Commission advised that the Act's conflict -of- interest provisions did not "prohibit Attorney General -Elect Jerry Brown from appointing" his spouse (Arnie Brown) to a "volunteer position" in the Department of Justice even though she would be entitled to "workers' compensation benefits" and "reimbursed for travel expenses" in accordance with the Department's policies. Remarkably, the Commission did not analyze whether the workers' compensation benefits could have a "personal financial effect" on Ms. Brown but merely concluded based upon the "government salary exception" contained in Section 82030(b)(2) and without any substantial analysis as follows: 2480/099999-0084 2619580.1 .11!14111 -9- It is possible for volunteers to receive potentially disqualifying income from a governmental entity that may trigger disqualification on the basis of an official's personal financial effects. However, we have advised that certain payments received by volunteers are exempt governmental salary, not income. (Section 82030(b)(2).) For example, in the Fisicaro Advice Letter, No. A -94 -178, we advised that where a volunteer firefighter was compensated for services on a per -call basis and was provided meals at the firehouse while on call, the payments were salary from a governmental entity. Therefore, there, the payments did not create a disqualifying conflict -of- interest. Howard Advice Letter, No. I -07 -109 and I- 07 -11: and Howard Advice Letter. No. A -07 -182. In a series of letters to the City Attorney of the City of Glendale, the Commission continued to conclude that in the context of decisions relating to appointments to serve on Appointed Boards, the "personal financial effects" rules (in essence) trump the statutory "govermnent salary exception" as outlined in the Gutierrez Advice Letter (No. A -00 -015) such that a city council member's decision who was nominated to be mayor to participate in the discussion relating to the position of mayor would lead to a conflict of interest under the "personal financial effects" rules. The Commission stated its rationale as follows: "[iln contrast to Section 87103(c), which focused on the source of income, the personal financial effects rule focuses on the stream of the income to the official and effects on that stream resulting from the decision" although the Commission did not cite a single authority for this rationale. Howard Advice Letter, No. A -07 -182. (Emphasis is in original.) The Commission also held that the mayor of the City of Glendale could not participate in the city council vote to support "appoint" himself to a local airport authority citing Regulation 18705.5(a). Howard Advice Letter, No. I- 07 -109 and I- 07 -11. Ararda Advice Letter, No. 1- 11 -059a In other similar circumstances, i.e., the applicability of gifts rules and conflicts of interest provisions, the Commission recently advised as follows: "[f]ree meals provided by public -entity employers to board members at the public entity's board of directors meetings is not considered a gift if the member provided consideration of equal or greater value for payment. The payment for meals is not considered income under Section 82030(b)(2) since they are part of salary and per diem from a government agency." In Aranda, the California Special Districts Association ( "CSDA ") posed three "hypotheticals" which "[iln each case, the recipient board member" was "participating as a board member in CSDA board meetings." (Emphasis added). While the advice letter did not discuss whether the board of directors of CSDA were appointed by their respective public -entity employers, the application of Section 82030(b)(2) to exempt payments to public officials serving in similar situations as those serving on Appointed Boards is again evidence that the Commission has taken a broader view of the exception created by Section 82030(b)(2). 2480/0999990084 2619580.1 all /14/11 -10- � \� r ✓ I I ,tom '' ' �' / f ��� %WOODRUFF, SPRADLIN U SMART DAVID KENDIG DIRECT DIAL: (714) 415 -1083 DIRECT FAX: (714) 415 -1183 E -MAIL: DKENDIG ©WSS- LAW.COM November 10, 2011 VIA FACSIMME AND FIRST CLASS MAIL Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission 428 J Street, Suite 620 Sacramento, California 95814 2329 Re: Complaints Against City of Tustin Council Members; Appointments to Boards of Governmental Agencies that Provide a Salary or Stipend Dear Mr. Winuk, I serve as the City Attorney for the City of Tustin. This letter will serve as a response to the complaints received by Mayor Jerry Amante and Mayor Pro Tern John Nielsen submitted by Matthew Delaney pertaining to the City Council's appointments to outside agencies and boards. We are aware that many other council members from surrounding cities received the same complaint. At its first meeting in December each year, the Tustin City Council considers the appointment of its members as representatives to outside agencies. Many of these agencies require that the City- appointed representatives must be members of the City's legislative body (e.g., its City Council). And some of the outside agencies provide a stipend to the appointed board members for attendance at their meetings, as authorized by law. Mr. Delaney's complaints assert that Mr. Amante and Mr. Nielsen violated Government Code Section 87100. As demonstrated below, neither the Mayor nor the Mayor Pro Tern had a financial interest in the decision, so the Commission should determine the complaint to be without merit and reject it. A. California Government Code Section 87100 prohibits public officials, such as the members of the Tustin City Council, from making, participating in making, or in any way attempting to influence a governmental decision in which he /she knows or has reason to know he /she has a financial interest. 555 ANTONBOULEVARO, SUITE 1200 o COSTA MESA, CA 92626 -7670 a (714) 558 -7000 0 FAX (714) 835 -7787 W W W. WSS- LAW.COM 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 2 B. Mr. Amante and Mr. Nielsen Had No Financial Interest in the Decisions to Appoint• Government Code Section 87103 provides that a public official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official or on any of the following: (a) a business entity in which the official has an investment of $2,000 or more; (b) any real property in which the official has an interest worth $2,000 or more; (c) any source of income, except gifts or loans by a commercial lending institution on terms available to the public, aggregating $500 or more in value within 12 months prior to the time when the decision is made; (d) any business entity in which the public official is an officer or manager; (e) any donor of any gift aggregating $250 or more (currently $420, indexed for inflation) from a single source within 12 months prior to the time when the decision is made. The only financial implications of the decision to appoint Mayor Amante and Mayor Pro Tern Nielsen to their appointed positions with the outside agencies is the receipt by each of a legal and authorized salary stipend for each meeting. (Those payments are reported by those local agencies to the Internal Revenue Service in the form of W2s or 1099s issued to their appointed board members.) However, those payments are expressly excluded from the definition of "income" for purposes of the Political Reform Act. Government Code Section 82030(6)(2) provides that the term "income" does not include salary and reimbursement for expenses paid by a state, local, or federal government agency. Specifically, Section 82030(b)(2) provides; "(b) `Income' also does not include: (1) [omitted] (2) Salary and reimbursement for expenses or per diem, and social security, disability, or other similar benefit payments received from a state, local, or federal government agency and reimbursement for travel expenses and per diem received from a bona fide nonprofit entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 3 Cal. Gov't Code § 82030(b)(2) [emphasis added]. Thus; salary stipends provided by governmental. agencies have been deliberately and expressly excluded from the definition of "income" in the Political Reform Act. Similarly, the payments do not fall within any of the other categories of "financial interest" delineated in Section 87103 that might otherwise give rise to -a disqualifying conflict. In short, straightforward statutory interpretation establishes that Mr. Amame and Mr. Nielsen receive no "income" from, and therefore have no financial interest in or resulting from, their appointments to the outside agencies. C. FPPC Regulations and Informal Opinions May Not Contradict the Exemption Notwithstanding the foregoing provisions of the Political Reform Act, we understand that FPPC Regulation 18705.5 purports to create an exception to Government Code Section 82030(b)(2) [apparently an "exception within an exception "] when a governmental decision is to appoint a public official to an agency that provides a salary or stipend. That regulation and FPPC opinions applying it' assume that a public official's personal finances will be affected by $250 or more — but that assumption and that approach defeat the purpose of the statutory exemption of public agency payments from "income ". What Government Code Section 82030(b)(2) giveth, FPPC Regulation 18705.5 taketh away. But in doing so, the FPPC Regulation exceeds the limits of its authority: California Government Code Section 83112 requires the Commission's regulations to be consistent with the Political Reform Act. By treating payments which are, by deliberate statutory design, exempt from the definition of "income" as nevertheless having the financial effect of income under the Act, the Regulation and the opinions applying it impermissibly contradict and rewrite Section 82030 of the Government Code. Thus, we respectfully submit that Regulation 18705.5 should be construed and, if necessary, revised in a manner which honors the exemption of government agency payments from the definition of "income" consistent with Section 82030(b). 1 2007 Scott Howard Informal Opinion (FPPC File Nos. 1 -07 -109 and 1 -07 -117) and the 2011 Ariel Caloane Opinion (FPPC File No. I -11 -172) 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 4 D. Prohibiting All Potential Nominees to Refrain From Attempting To Influence the Appointment Decisions is Infeasible. It is worth mentioning that the position asserted by Mr. Delaney, if accepted by the FPPC's enforcement division, creates a practical and unworkable problem for many cities. Requiring a city council member nominee(s) to recuse themselves and to leave the room prior to deliberation and taking action on the appointment is contrary to fundamental open and transparent government principles and will undoubtedly serve to deprive members of the public from meaningful and active participation in the council's appointment process. For example, requiring two city council member nominees to recuse themselves and to leave the room before any deliberation or action is taken on the appointment, will deprive other members of the city council the opportunity to question the nominees as to their interest level in the appointment, their qualifications, their background, and as well as their experience. Likewise, since the council's appointment process is fully noticed and agendized pursuant to the Ralph M. Brown Act, members of the public are legally entitled to address the city council before any-action is taken on the appointment. Often times, this public participation includes members of the public asking similar questions as to the nominees' qualifications, experience, viewpoints, and interest in being appointed to serve on the board of another local agency. Such participation by both council members and members of the public alike often promotes spirited public participation and debate in compliance with basic open meeting laws, which laws would be thwarted if all council member nominees were required to leave the room. As to the practical problems created by Regulation 18705.5 and the foregoing opinions, please provide cities guidance regarding the following situations, which city councils will most likely encounter if they must follow the interpretation of the Political Reform Act urged by Mr. Delaney: o A Council member is willing to serve as appointee to a local joint powers authority board of directors that pays a stipend of $50 per meeting for monthly meetings. When would it be permissible for him/her to express his/her willingness to sery e? (a) During a Council meeting? (b) In a private conversation with one other Council member? (c) In a private conversation with the City Clerk? If one concludes that the stipend is income that has a material financial effect, wouldn't any such expressions of willingness to be appointed be an impermissible 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 5 "attempt to influence the governmental decision "? What are the permissible means for finding out who is willing to serve on certain boards? Suppose there is an appointment available to a popular and prestigious board that meets monthly and provides a $50 per meeting stipend. All five council members want to be appointed to the board. (a) May a Council member nominate himself/herself and then leave the room, or is that impermissible participation in decision - making? (b) Three Council members are nominated for consideration and each leaves the room so there is no longer a quorum to take action; quorum is then defeated and the meeting cannot legally proceed. Will the City Clerk have to draw lots to ensure there are three council members present to vote? (c) Two Council members are nominated and they leave the room. Would it be impermissible participation in the decision - making if one of the remaining council members suggests that helshe would be better suited for the appointment and votes "no" on either nominee in an effort to force a second round of nominations and a hoped -for nomination for himself/herself? My office, as well as my client the City of Tustin, continue to support all ethics rules promulgated pursuant to the Political ,Reform Act, as well as the related FPPC regulations; however, we necessarily require clarification and guidance regarding this issue. We look forward to hearing from you soon. If you have any questions or concerns, please feel free to contact me at (714) 415 -1083. Respectfully submitted, WOODRUFF, SPRADLIN & SMART A rofessional Corporation DAVID E. KENDIG City Attorney, City of Tustin cc: Mayor Jerry Amante Mayor Pro Tem John Nielsen City Council City Manager Bill Huston 795493.1 i1 v ,) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 REVISIONS TO 18705.5 (Regulations of the Fair Political Practices Commission, Title 2, Division 6, California Code of Regulations.) § 18705.5, Materiality Standard: Economic Interest in Personal Finances. (a) A reasonably foreseeable financial effect on a public official's or his or her immediate family's personal finances is material if it is at least $250 in any 12 -month period. When determining whether a governmental decision has a material financial effect on a public official's economic interest in his or her personal finances, neither a financial effect on the value of real property owned directly or indirectly by the official, nor a financial effect on the gross revenues, expenses, or value of assets and liabilities of a business entity in which the official has a direct or indirect investment interest shall be considered. (b) The financial effects of a decision which affects only the salary, per diem, or reimbursement for expenses the public official or a member of his or her immediate family receives from a federal, state, or local government agency shall not be deemed material, unless the decision is to appoint, hire, fire, promote, demote, suspend without pay or otherwise take disciplinary action with financial sanction against the official or a member of his or her immediate family, or to set a salary for the official or a member of his or her immediate family which is different from salaries paid to other employees of the government agency in the same job classification or position, or when the member of the public official's immediate family is the only person in the job classification or position. (c) Notwithstanding subsection (b), pursuant to Government Code Section 82030(b)(2) and California Code of Regulations, Title 2, section 18232, a public official may make, participate in making, or use his /her official position to influence or attempt to influence, a government decision of his /her appointment to a committee, board, or commission of a public agency, including, but not limited to, a special district, a joint powers agency or authority, a ioint powers insurance agency or authority, or a metropolitan planning organization, because such government decision is not deemed to have a material financial effect on the public official's economic interests in his/her personal finances. 24801022390 -0002 2741792.1 a12/16111 BE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Comment: Cross - references: For the definition of "immediate family" see Government Code section 82029. Note: Authority cited: Section 83112, Government Code. Reference: Sections 87100, 87102.5, 87102.6, 87102.8 and 87103, Government Code. 2480/022390 -0002 2741792.1 al2/16/11 -2- 1 2 3 4 5 6 7 8' 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HISTORY 1. New section filed 11- 23 -98; operative 11 -23 -98 pursuant to the 1974 version of Government Code section 11380.2 and title 2, California Code of Regulations, section 18312(d) and (e) (Register 98, No. 48). 2. Change without regulatory effect amending section heading filed 3 -26 -99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 13). 3. Editorial correction of 1 (Register 2000, No. 25). 4. Amendment of section heading and section filed 1 -17 -2001; operative 2- 1- 2001. Submitted to OAL for filing pursuant to Fair Political Practices Commission v. Office ofAdnzinistrative Law, 3 Civil C01 0924, California Court of Appeal, Third Appellate District, nonpublished decision, April 27, 1992 (FPPC regulations only subject to 1974 Administrative Procedure Act rulemaking requirements) (Register 2001, No. 3). 5. Amendment of subsection (a) filed 1 -16 -2002; operative 2 -15 -2002 (Register 2002, No. 3). 6. Amendment of subsection (b) filed 6 -21 -2005; operative 7 -21 -2005 (Register 2005, No. 25). 7. Amendment of subsection (a) filed 12 -I8 -2006; operative 1 -17 -2007. Submitted to OAL for filing pursuant to Fair Political Practices Commission v. Office ofAdminislrative Law, 3 Civil CO10924, California Court of Appeal, Third Appellate District, nonpublished decision, April 27, 1992 (FPPC regulations only subject to 1974 Administrative Procedure Act rulemaking requirements) (Register 2006, No. 51). 2480/022390 -0002 2741792,1 a12/16/11 RUTAN ATTORNEYS AT LAW December 20, 2011 VIA FACSIMILE (916) 322 -0886 AND OVERNIGHT DELIVERY Fair Political Practice Commission Enforcement Division Attn: Teri Rindahl, Political Reform Consultant 428 J Street, Suite 620 Sacramento, CA 95814 -2329 Ash Pirayou Direct Dial: (650) 320 -1515 E -mail: apimyou@mtan.com Re: FPPC File No. 11/1041; Sworn Complaint against the Public Officials representing the City of Anaheim, City of Dana Point, City of Irvine, City of La Palma, City of Newport Beach, City of San Clemente, City of Villa Park, and City of Yorba Linda. Dear Ms. Rindahl: In response to your recent letter and its enclosures, dated December 15, 2011, regarding our above - listed City Clients and their Public Officials (See Exhibit A: "List Of Public Officials "), and, as per our discussion today with Mr. Gary S. Winuk, I write to confirm the following: (1) for those Public Officials who received a warning letter, for a period of up to 30 days from today ending on January 20, 2012, the Enforcement Division (a) will not post any warning letters on the FPPC website, (b) will not require a response from these Public Officials within ten days of the warning letter as to whether the Public Official accepts the warning letter or requests a hearing, and (c) will not proceed with the prosecution of the matters against these Public Officials until the 30 -day time period has ended; and (2) for those impacted Public Officials who have been asked to provide "any explanations and /or advice from legal counsel' (per your letter) relating to the matters no later than December 30, 2011, the Enforcement Division will not require any response by these Public Officials by December 30, 2011 and will instead provide them an additional 30 days from today ending on January 20, 2012 to present the requested information relating to explanations or advice so that the Enforcement Division can properly evaluate the complaint. Rutan & Tucker, LLP 1 3000 El Camino Real. Suite 200, Palo Alto, CA 94306 650- 320 -1500 1 Fax 650- 320 -9905 24901022390-0002 Orange County I Palo Alto I www.rutan.com 2777060.1 at2n0111 RUTAN ATTORNEYS AT LAe Fair Political Practice Commission December 20, 2011 Page 2 If my understanding is incorrect, I respectfully request you immediately contact me at (650) 320 -1515. Very Truly Yours, RUTAN & TUCKER, LLP c Ash Pirayou AP JI Attachment: Petition Letter Relating to Regulation 18705.5 cc: General Counsel's Office City of Anaheim City of Dana point City of Irvine City of La Palma City of San Clemente City of Villa Park City of Yorba Linda Philip D. Kohn, Rutan & Tucker, LLP John Ramirez, Rutan & Tucker, LLP 24801022390-0002 2777060.1 a1Y20111 �u *25- 1,Ao.lz Direct Dial: (650) 320 -1515 E -mail: apirayou @rutan.com December 20, 2011 VIA FACSIMILE (916) 322 -0886 AND OVERNIGHT DELIVERY Fair Political Practices Commission Zachery P. Morazzini, General Counsel Attn: John Wallace 428 J Street, Suite 620 Sacramento, CA 95812 Re: Petition to Amend Regulation 18705.5 Dear Mr. Wallace: This law firm represents the following public agencies that have authorized this petition to be sent to the California Fair Political Practices Commission ( "Commission ") relating to certain provisions of the Political Reform Act' (the "Act "): the City of Anaheim; the City of Dana Point; the City of Irvine; the City of La Palma; the City of Newport Beach; the City of San Clemente; the City of Villa Park; and the City of Yorba Linda ( "Clients "). Our Clients have several council members who are appointed by a vote of each respective city council to serve on the governing boards of legally - established joint powers authorities, special districts or other similar agencies that remunerate the appointed councilmember $250 or more in a 12 -month period ("Appointed Paid Boards "). This letter petitions the Commission to amend Regulation 18705.5. This request is made pursuant to Section 11340.6 .2 Our clients specifically request that this petition for amendment be placed on the Commission's March 2012 meeting agenda. I attach to this petition our firm's previous letter to the Commission outlining our position relating to the issues raised by the amendments adopted by the Commission in 2005 relating to Regulation 18705.5 ( "November Letter ") (Exhibit A) and our proposed amendment (Exhibit B). 1 The Political Reform Act is contained in Government Code Sections 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regulations. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated. 2 The Commission is subject to the provisions of the Administrative Procedures Act as it existed in 1974, when the Political Reform Act was adopted. In 1974, the Government Code section corresponding to current Section 11340.6 was Section 11426. The old and new sections are substantially similar. Rutan & Tucker, LLP 1 3000 El Camino Real, Suite 200. Palo Alto, CA 94306 650- 320 -1500 1 Fax 650- 320 -9905 2480/022 2760595.2 a12/19/01 12/l9/ll Orange County I Palo Alto I www.rutan.com RU TAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 2 Background In 2005, as set forth in our November Letter, the Commission considered amendments to Regulation 18705.5 that inserted the term "appoint" in the regulation. As we have previously outlined, the practical implications of the amendments in 2005 to Regulation 18705.5 are far reaching. Subsequently, in your reply letter to our firm dated December 6, 2011 ( "General Counsel December Letter "), you advised us that the Commission, in 1985, based upon amendments made by the Legislature to Section 87103, adopted Regulation 18702.1 to include the following language found in subdivision(c)(2): The decision only affects the salary, per diem, or reimbursement for expenses the official or his or her spouse receives from a state or local government agency. This subsection does not apply to decisions to hire, fire, promote, demote, or discipline an official's spouse which is dierent from salaries paid to other employees of the spouse's agency in the same job classification or position. (Emphasis in original). As set forth in the General Counsel December Letter, this language was included by the Commission as a way to interpret the new revisions made by the Legislature, in 1985, via AB 670 (Klehs), which amended Section 87103 to add the following new phrase: An official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official, a member of his or her immediate family, or on any of the following: (Emphasis in original and footnote omitted). This is commonly referred to as the "personal financial effects" (PFE) rule. In the General Counsel December Letter, you further stated as follows: The record is clear that as of 1985 the Commission decided the new amendment to Section 87103 applied even to government income and explicitly stated so in the 1985 regulation in the second sentence of (c)(2) -- the "exception to the exception" as it were (hereafter the "hire - fire" rule). It appears from your letters that you focused exclusively on Section 82030 and its relationship to Regulation 18705.5, and that you may not have been aware that the 24801022390 -0002 2760595.2 .12119111 RUTAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 3 Commission had to also consider the 1985 amendment to Section 87103 and sought to harmonize the two acts of the legislature. The Commission at the time made a reasonable policy interpretation of the new statutory language and had the advantage of contemporaneous knowledge of the legislative history that is hard to reconstruct after the fact. (Emphasis in original and footnote omitted.) The essence of the position expressed in the General Counsel December Letter is that the Commission believes the 1985 legislative amendments to Section 87103 necessitated the creation of the so- called "hire- fire" rule that excluded such decisions from the exception of "government income" found in Section 82030(b)(2). It appears, further, that you do not cite any information in the Legislative Counsel's Digest relating to AB 670 that would suggest the Legislature intended to create an "exception to the exception" for purposes of Section 82030(b)(2). Presumably, if the Legislature had so intended, it would have, in parallel to adopting amendments to Section 87103, amended Section 82030(b)(2), the Act's definition of "income." Further, as we explained in our November Letter, the Commission's previous advice letters (specifically Gutierrez Advice Letter, A- 00 -15) suggest that the Commission had subsequently (in 2000) rejected the application of the "personal financial effects" rule in a fashion that effectively would swallow up or undermine the "government salary exception" to the Act's definition of "income" found in Section 82030(b)(2). Subsequent to our November Letter, we have discovered additional information indicating that the Commission, at times, has sought to "make it clear that personal financial effects will not in the future be employed in a `reanalysis' of effects secondary to an impact on government salary" and "that the Commission should announce that personal financial effects may not be used to nullify the ,government salary exception." (Emphasis in original.) (See, Fair Political Practices Commission Memorandum — February 17, 2000: "Adoption of Regulations Developed in Conflicts Projects E, P, and G (Phase 2): Personal Financial Effect Rule; Government Salary Exception; and Materiality Standards For Governmental Entities Which are Sources of Income. ") Accordingly, it appears that to the extent that the original 1985 regulation applied the "hire -fire" rule to the 'spouse and not the immediate family'or to the official himself, and the 2005 amendments of Regulation 18705.5 expanded the "hire- fire" rule to create an "appoint - hire -fire" rule that applied not only to the official's spouse or immediate family, but to the official in the context of appointments to Appointed Paid Boards, the Commission should develop a comprehensive and reasonable policy approach that would consider the practical application of these rules to the daily governance issues facing municipalities in California. 2490/022390 -0002 2760595.2 al2/19111 RUTAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 4 Petition For Amendment Attached as Exhibit B to this letter is our Clients' proposed amendment to Regulation 18705.5 as currently adopted. The proposed amendment adds subsection (c) to address the issues identified in our November Letter, including the ability of a public official to participate, without limitation, including voting, in a decision as to whether the public official can be appointed to serve on Appointed Paid Boards. Reasons For Request While we intend to provide a more detailed explanation as to the need for the proposed amendment to Regulation 18705.5 in advance of the Commission's March 2012 meeting (assuming this request is placed on that meeting agenda), below is a summary of the key reasons for this request: 1. The current Regulation is contrary to the Act's express language as set forth in Section 82030(b)(2), as outlined in our November Letter. 2. The Commission's stated policy purposes for amending Regulation 18705.5 in 2005 related to concerns arising from appointments of a public official's spouse versus concerns relating to participation in decisions to appoint oneself to an Appointed Paid Board. 3. Arguably, while the Commission's efforts to "harmonize the two acts of the Legislature" should be commended in 1985, a vigorous analysis must be undertaken to evaluate whether the express language of the Act found in Section 82030(b)(2), as adopted in 1974 by the voters, can be swallowed up and undermined by the Commission's subsequently adopted regulation in 1985 relating to a different statute as amended by the Legislature (i.e., Section 87103). 4. The concerns that were addressed by the 1985 amendments to Section 87103 and the subsequent language proposed at the time by the Commission contained a specific limitation to the PFE rule: the treatment of a spouse by the official that was somehow different than the treatment of other employees in the same classification in the same agency. The aim of this specific language (arguably) even in 1985 was to stop certain abuses, such as those outlined in the Commission's 2005 Staff memorandum (e.g., where a public official made a decision to increase his spouse's salary when she was the only person in that classification or where a mayor appointed his spouse to an unsalaried position), versus impacting the very public process for making appointments to Appointed Paid Boards. 2480/022390 -0002 2760595.2 a12/19/11 RUTAN ATTORNEYS AT LAW Fair Political Practices Commission December 20, 2011 Page 5 5. To the extent that the PFE rule, the expansion of the "hire -fire" rule to appointments, and the Act's specific statutory language found in Section 82030(b)(2) are in conflict, the regulated community should be provided the opportunity to address this conflict with the Commission, as requested in this petition. 6. Any policy decision that results in the expansion of the "hire -fire" rule by the application of the PFS rule to appointments to Appointed Paid Boards should be done after careful consideration of the practical governance issues arising from such a rule, as outlined in our November Letter. 7. The proposed amended Regulation 18705.5 would make it clear that it is limited in application to appointments of public officials to Appointed Paid Boards versus any decision of the public official as it relates to his or her immediate family or the official himself in those situations unrelated to appointment (e.g., the public official is an employee of the agency). Authority For Commission To Take Action Requested The Commission has clear authority to take the action requested. Section 83112 permits the Commission to "adopt, amend and rescind rules and regulations to carry out the purposes and provisions of this title." On behalf of our Clients, I respectfully request that this petition to amend Regulation 18705.5 be granted and that the matter be set for hearing in accordance with the Administrative Procedures Act and the Commission's regulations. Additional Request In addition, as set forth in the attached copy of the letter to the Enforcement Division (Exhibit C), we are respectfully requesting that the Enforcement Division take no further action for a period of thirty (30) days, including, but not limited to, proceeding with any administrative prosecution of the matters such as conducting any further investigations into the allegations or posting any warning letters on the Commission's website. 2480/022390 -0002 2760595.2.12/20 /11 RUTAN ATTORNEYS AT LAW Pair Political Practices Commission December 20, 2011 Page 6 Thank you for your consideration regarding this matter. If you have any questions relating to this letter, please contact me at (650) 320 -1515. 24801022090 -0002 1760595.2 e12/19/11 RU�TA�N� & TUCKER, LLP Ash Pirayou AP:jI Attachments cc: City of Anaheim City of Dana Point City of Irvine City of La Palma City of Newport Beach City of San Clemente City of Vil la Park City of Yorba Linda Philip D. Kohn, Rutan & Tucker, LLP John Ramirez, Rutan & Tucker, LLP 24801022090 -0002 1760595.2 e12/19/11 Ti t RUT-AN RUTAN S TUCKER. LLP November 14, 2011 VIA FACSIMILE (916) 322 -0886 AND OVERNIGHT DELIVERY Fair Political Practices Commission Ann Ravel, Chairperson Zachery P. Morazzini, General Counsel Gary S. Winuk, Chief Enforcement Division 428 J Street, Suite 620 Sacramento, CA 95812 Re: ApDointed Boards and the Political Reform Act Dear Chairperson Ravel, Mr. Morazzini, and Mr. W inuk: Ash Pirayou Direct Dial: (650) 320 -1515 E -mail: apirayou@rutan.com This law firm represents the following public agencies which have authorized this letter to be sent to the California Fair Political Practices Commission ( "Commission ") relating to certain provisions of the Political Reform Act' (the "Act "): the City of Anaheim; the City of Dana Point; the City of Irvine; the City of La Palma; the City of Newport Beach; the City of San Clemente; the City of Villa Park; and the City of Yorba Linda ( "Clients "). Our Clients have several council members who are appointed by a vote of each respective city council to serve on legally - established joint powers authorities or similar special districts ( "Appointed Boards "). Some council members of these city councils received a complaint similar to the (redacted) complaint attached to this letter (Exhibit A) alleging that the council members' decision to participate in the vote to make such appointments to such Appointed Boards allegedly violates the Act's conflict of interest provisions. For the reasons set forth in this letter, our Clients respectfully request that the Commission consider the following actions: (1) dismiss any conflict of interest complaints filed against any members of the city councils of the above - listed cities; and (2) consider immediate modifications to the Commission's Regulation 18705.5 and related regulations at the next Commission meeting in order to clarify the Commission's regulations and advice letters, particularly in light of the Act's clear statutory directive with respect to the "government salary exception" for conflicts of interest. I The Political Reform Act is contained in Government Code Sections 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regulations. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated. Rutan & Tucker, LLP I Five Palo Alto Square, 3000 El Camino Real, Suite 200 Palo Alto, CA 94306 -9814 1 650- 320 -1500 1 Fax 650 -320 -9905 24801099999 -0084 Orange County I Palo Alto I www.rutan.com 2619864.1.11/14 /11 RUTAN q�tul ciuCil[II. LLP Fair Political Practices Commission November 14, 2011 Page 2 A. ANY ENFORCEMENT MATTER ALLEGEDLY BROUGHT PURSUANT TO REGULATION 18705.5 IS CONTRARY TO THE ACT'S EXPRESS LANGUAGE AS SET FORTH IN SECTION 83020(b)(2). "The Aces conflict -of- interest provisions apply only where a public official 'make[s], participate[s] in making or in any way attempt[s] to use his [or her] official position to influence a governmental decision in which lie [or she] knows or has reason to know he [the official] has a financial interest. "' (See, Fair Political Practices Commission Memorandum — April 26, 2005: "Adoption of Ainendments to Regulation 18705.5 — Materiality Standard: Economic Interest in Personal Finances" at footnote 2, citing Section 87100; regulation 18700(b)(2). ( "Adoption Memorandum "). (Emphasis added.) Section 82030(b)(2) provides as follows: "Income" does not include: Salary and reimbursement for expenses or per diem, and social security, disability, or other similar benefit payments received from a state,, local, or federal govermnent agency and reimbursements for travel expenses and per diem received from bona fide nonprofit entity exempt from tax under Section 501(c)(3) of the Internal Revenue Code. § 82030(b)(2). (Emphasis added.) Importantly, since being added by initiative measure in 1974 as part of the initial adoption of the Act, the only major legislative amendment to Section 82030(b)(2) has been to add the words "and social security, disability, or other similar benefits payments" in 2004. In other words, for nearly 40 years, the definition of "income" has excluded the salary and benefits received by a local official from a local government agency. Equally important, in the seminal Commission Opinion interpreting both Sections 87100 and 82030(b)(2), In re Moore ((1977) 3 FPPC Ops. 33), Ore Commission took an expansive view of what constituted "income" for purposes of 82030(b)(2) relying on statutes outside of the Act's purview and stating as follows: We turn, therefore, to consideration of the applicability of Section 82030(b)(2) to a pension from a county retirement system. When an employee agrees to work for the County, he is entitled to certain benefits which comprise his compensation. He receives, for example, a monthly salary, vacation and sick leave and retirement benefits which, by law, must be provided as an additional element of compensation. Thus, as the California Supreme Court has observed, retirement benefits, such as a pension, "do not represent the beneficient (sic) gratuities of the employer; they are, rather, part of the consideration earned by the employee.... A pension, 24801099999 -0084 2619864.1 01/14/11 RUTAN R,.µ6TU�n.— Pair Political Practices Commission November 14, 2011 Page 3 therefore, is essentially a type of deferred salary whereby an employee agrees to receive a small payment while working in exchange for the security of receiving the remaining portion of his compensation after he retires. Since a pension is, in essence, a deferred salary payment, we conclude that it is included in "salary," as that term is used in Section 82030(b)(2) .... Accordingly, we conclude that the pension is "salary ... fTom ... a local government" agency and is, therefore excluded from the definition of income by Section 82030(b)(2). We recognize that this conclusion authorized participation by the retired employee board member in some decisions which involve a potential "conflict of interest" in the sense that the decisions can have an impact on the amount of his pension benefits. This potential "conflict," however, is not qualitatively different than the conflict of interest faced by other board members who are currently county employees. Current county employee board members participate in decisions which will affect the amount of their contributions to the retirement plan, and thus also affect the amount of their income. They can do so because Section 82030(b)(2) clearly eliminates as their salary as disqualifying financial interest. In concluding that the retired employee board member also can participate in decisions which may affect his income because a public pension falls within the ambit of Section 82030(b)(2), we avoid the anomaly of treating the retired board member differently than the other board members when he is, in reality, similarly situation. We think this is consistent with the provisions and the intent of the Political Reform Act. In re Moore, supra, at page 4 -5. (Emphasis added.) (Citations and footnotes omitted.) The situation facing our Clients and individual council members serving on our Clients' city councils is similar: they are, pursuant to enabling legislation of the respective Appointed Boards, authorized by law to receive compensation which can be viewed as an "additional element of compensation." The fact that the Appointed Boards might directly pay a council member versus reimbursing our Clients the compensation due to each council member (such that our Clients would then pay the council member directly as per any local salary ordinance) should not change the analysis per section 82030(b)(2). Consistent with the Act's express language and 24901099999 -0094 2619864.1 Donau RUTAN Pair Political Practices Commission November 14, 2011 Page 4 intent, it would appear that the Commission would want "to avoid the anomaly" where public agencies must create different accounting methods to pay public officials with public funds. The Commission's own regulations interpreting Section 82030(b)(2) bolster the argument that the definition of "income" is an expansive one and includes any "income" derived from serving on Appointed Boards as falling within the exception created by Section 82030(b)(2): For purposes of Government Code section 82030(b)(2), the following definitions apply: (a) "Salary" from a state, local, or federal govermment agency means any. and all payments made by a government agency to a public official, or accrued to the benefit of a public official, as consideration for the public official's services to the government agency. Such payments include wages, fees paid to public official as `consultants" as defined in California Code of Regulations, Title 2, section 18701(a)(2), pension benefits, health and other insurance coverage, rights to compensated vacation and leave time, free or discounted transportation, payment of indemnification of legal defense costs, and similar benefits. (c) "Reimbursement for expenses" received from a state, local or federal government agency means a payment to a public official, in compensation for otherwise uncompensated actual expenses incurred or to be incurred within 60 days by the public official in the course of his or her official duties. Regulation 18232. (Emphasis added .)2 By its express terms, Regulation 18232 does not specify that the government agency must be only the agency that a public official has been elected to versus being appointed to and includes very broad terms such as "any and all payments" and "payments" that "accrue" to the benefit of the public official. Given the express language of Section 87100, Section 83020(b)(2), Regulation 18232, and the precedent established by In re Moore, the Commission has issued several advice letters applying the "government salary exception" broadly. 2 Regulation 18232 was last amended in 2002 with the latest version being operative as of February 15, 2002, nearly 3 years before the Commission Staff presented the Commission with the proposed changes to Regulations 18705.5, as further discussed below. 2480/099999 -0084 2619864.1.11 /14/11 RUTAN Fair Political Practices Commission November 14, 2011 Page 5 Unfortunately, many of these opinions not only contradict the express language of Section 82030(b)(2) but also contradict each other, creating significant confusion for the regulated community. A summary of these letters is attached to this letter as Exhibit B. Importantly, any regulation "promulgated by [the Commission] in exercise of its duties imposed upon it by the [Act]" must clarify "any ambiguity that may exist in the practical application of the statute" and are deemed "valid so long as they are consistent and not in conflict with the statute and reasonably related to of %ctuate the purpose of the statute." (Watson v. FPPC (1990) 21.7 Cal. App. 3d 1059, 1076.) (Emphasis added.) Here, given the clear language of the statute, the promulgated regulations, and the past advice letters, the fact.that the Commission has issued so many advice letters in direct conflict with each other and the statute, the prosecution of any complaints filed against our Clients would seem to be nearly impossible given the substantial ambiguity caused by the Commission's regulations and advice letters. Furthermore, per section 83111, the "Commission has primary responsibility for the impartial, effective administration and implementation" of the Act" Section 83111. (Emphasis added.) In fact, Section 83112 provides that the "Commission may adopt, amend and rescind rules and regulations to carry out the purposes and provisions of [the Act], and to govem procedures of the Commission...." Section 83112. Arguably, as demonstrated in the analysis of the advice letters in Exhibit B the Commission cannot administer or implement the Act until it resolves the central questions of (1) whether some of its regulations must be amended or completely rescinded and (2) whether some of its previous advice letters must be superseded because they have sanctioned the application of the so- called "personal financial effects" rule in a fashion that undermines the "government salary exception" to the Act's definition of "income." B. ANY ENFORCEMENT MATTERS WOULD BE CONTRARY TO THE STATED POLICY PURPOSES BEHIND AMENDING REGULATION 18705.5(b). Regulation 18705.5 provides as follows: (a) A reasonably foreseeable financial effect on a public official's or his or her immediate family's personal finances is material if it is at least $250 in any 12 -month period. (b) The financial effects of a decision which affects only the salary, per diem, or reimbursement for expenses the public official or a member of his or her immediate family receives from a federal, state, or local government agency shall not be deemed material, unless the decision is to appoint, hire, fire, promote, demote, suspend without pay or otherwise take disciplinary action with financial sanction against the official or a member of his or 2480109999NO084 2619864.1 e1 VI 4/11 RUTAN Fair Political Practices Commission November 14, 2011 Page G her immediate family, or to set a salary for the official or a member of his or her immediate family which is different from salaries paid to other employees of the government agency in the same job classification or position, or when the member of the public official's immediate family is the only person in the job classification or position. Regulation 18705.5. (Emphasis added.) This regulation is referred to as the "materiality standard: economic interest in personal finances" and became operative as of November 23, 1998. The amendment of subsection (b) to add the single term of "appoint" was filed on June 21, 2005, and became operative on July 2, 2005. In stating the reasoning for the inclusion of the term "appoint," the Commission staff explained as follows: Staff has identified two issues that are not addressed by the regulation: I. The regulation permits public officials to participate in decisions to set a salary for a member of their immediate family, if the member of his or her immediate family is the only person in a job classification or position. 2. The regulation refers to hiring and firing, but not appointments, by the public official. To remedy this situation, staff proposes amendments to regulation 18705.5 to declare material the financial effect of a decision by a public official that has a "unique" financial effect on a member of the official's immediate family; and to include "appointments" as decisions which could have material financial effects on the public official or a member of his or her immediate family. By adding the word "appoint" to the regulation, the Commission would make it clear to a public official that it is unlawful for a public official to appoint the official or his or her spouse to a position that is salaried, or that is unsalaried but offers monetary benefits. By adding the suggested language to the end of the regulation, the Commission would make it clear to a public official that it is unlawful for a public official to increase the government salary of a member of his or her immediate family, when the family member is the only individual in the job classification or 2480109999.0084 2619864.1 uU n4 /11 RUTAN Fair Political Practices Commission November 14, 2011 Page 7 position. (See, Fair Political Practices Commission Memorandum — March 8, 2005: "Pre- Notice Discussion of Amendments to Regulation 18705.5 — Materiality Standard: Economic Interest in Personal Finances." ( "Pre- notice Memorandum. ") (Emphasis added.) The examples provided in the Commission's Pre - notice Memorandum as being the "current advice" (as of 2005) were as follows: In 1997, the executive director of the Victor Valley Community College made a decision to significantly increase his spouse's salary. His spouse was a manager at the college and the only one in her classification. The Enforcement Division was not able to pursue the case because the language of the regulation did not make the conduct a violation. In 1997, the Mayor of Oakland appointed his spouse to an unsalaried position on the Oakland Port Authority. At the time, the Oakland City Attorney advised the mayor that he did not have a conflict of interest that prohibited him from making the appointment, even though his spouse received a cell phone, membership to an exclusive dinner club, and a car allowance as a result of the appointment. The city attorney based her advice on the language of the regulations, which refers to hiring and firing, but does not refer to appointment. Pre - notice Memorandum. (Emphasis added,) Besides citing one example (nearly 10 years earlier) relating to an appointment arising from advice provided by a city attorney versus the Commission, at the pre - notice discussion stage of the amendment of Regulations 18705.5, the Commission Staff did not discuss in any way the implications of adding the term "appoint" to Regulation 187505.5(b) as it would be applied to situations where a city council is considering the appointments of its members to outside agencies. In addition, the focus of both examples — provided by the Commission Staff as illustrating the "problem" the amended Regulation 18705.5 was addressing — involved cases relating to public officials acting to benefit their spouses. 2480/099999 -0084 2619864.1 al 1114111 RUTAN PoRUIa,VCxCP. uv Fair Political Practices Commission Novelrrbei 14, 2011 Page 8 Furthermore, it appears that the Commission itself also did not have any discussions about the implications of the term "appoint" as it would be applied to votes to appoint council members to outside agencies, as evidenced by the subsequent Staff Memorandum to the Commission at the time of adoption of the proposed amendments.3 (See, Adoption Memorandum.) In fact, it appears that as part of the adoption of the amended regulation, the history of the Commission's past actions relating to the issues facing our Clients, as set forth in Exhibit B, were not raised or discussed in any way by the Commission Staff or the Commissioners. This lack of discussion would seem to be particularly concerning to public officials serving in the State of California. C. THERE ARE A NUMBER OF PRACTICAL AND POLICY IMPLICATIONS RELATING TO THE COMMISSION'S "PERSONAL FINANCIAL EFFECTS" RULE. There are a number of other public policy implications relating to governance of Appointed Boards that must be carefully considered by the Commission, and have been outlined by other members of the regulated community (e.g., when is it permissible for a council member to express an interest to serve on Appointment Boards, in light of the conclusions in the Floward Advice Leiser, No. I -07 -109 and I -07 -117)? (See, Exhibit C: Letter from Woodruff, Spardline & Smart, dated November 10, 2011.) Furthermore, it is unclear whether the Commission, as part of its process in creating the amendment to Regulation 18705.5 by adding the term "appoint," contemplated in any manner what the potential "solutions" or the impacts would be for our Clients and other California public agencies, besides the option outlined in the Peak Advice Letter, No. I -05 -065:. the official could vote on his or her appointment to Appointed Boards so long the official "waives the stipend." For example, one possible solution might be for our Clients to appoint someone other than the city council members (e.g., citizens) to the Appointed Boards but such an appointment might be in prohibited by a particular joint powers agreement and could also result in inefficiencies (e.g., communication breakdowns between the council members and the appointed citizens) that might ultimately lead to a potential loss of accountability to and control by the citizens elected council representatives. 3 The following is the only information provided in the Adoption Memorandum relating to the "pre- notice" discussion hearing held by the Commission in March 2005: "At the pre- notice meeting on this regulatory amendment, Commissioner Huguenin pointed out that the Attorney General has opined that a determination not to act is still considered participation in a government decision under certain circumstances. He asked how determinations not to act would be considered under this regulation." 2480/099999 -0084 2619864.1 .11114/11 RUTAN eVi�x c iYCVEF. W Fair Political Practices Commission November 14, 2011 Page 9 Or, in order to comply with the amended Regulation 18705.5(b) provisions, our Clients might have to allow a single council member (e.g., the Mayor) to handle all of the appointments to the various Appointed Boards with the understanding that the particular council member would be deemed ineligible to serve on the Appointed Boards. This outcome might not be. viewed by the citizens of our Clients as being particularly desired in some communities given that it concentrates power in one councilmember in a manner that is not an accepted or desired practice in most cities. Finally, as outlined above, during the deliberate process in making the amendment to Regulation 18705.5 to add the term "appoint," neither the Commission Staff nor the Commission appears to have discussed the application of the "rule of necessity" (per Section 87101) to our Clients' efforts to make decisions as to who should serve on Appointed Boards, given the Commission's statements in the Howard Advice Letter (No. I -07 -109 and 1 -07 -117) relating to the fact that council members cannot cure any issues under Regulation 18705.5 even if they "withdraw" their "expression of interest" which could lead to a situation where the decision to make appointments to such boards is made with less than a quorum of council members participating. Accordingly, we respectfully request that all enforcement matters be dismissed and that the Commission immediately conduct a thorough evaluation of its regulations as applied to decisions to appoint council members to Appointed Boards, particularly in light of the Commission's recent advice letter in the Calonne Advice Letter, No. I -11 -172, which applied the revised Regulation 18705.5 to hold that "[a] councilmember nominated to be mayor may not vote on his or her appointment as mayor because it is a decision to appoint, promote the councilmember to a higher class, or hire the councilmember into the mayor class." Thus, the Commission continues to sanction applications of the "personal financial effects" rule in a fashion that undermines the "government salary exception" to the Act's definition of "income" as outlined in the letter. Our clients take very seriously their obligations under the Act and appreciate the Commission's careful consideration of this letter. 248o/o99999 -0084 2619664.1 ell /14/11 RUT-AN Fh,:µ ne,zn. P Fair Political Practices Commission November 14, 2011 Page 10 If you have any questions relating to this letter, please contact me at (650) 320 -1515. RUTAN & TUCKER, LLP 116 =-4 Ash Pirayou APjI Attachments cc: City of Anaheim City of Dana Point City of Irvine City of La Palma City of Newport Beach City of San Clemente City of Villa Park City of Yorba Linda Phil Kohn, Rutan & Tucker, LLP John Ramirez, Rutan & Tucker, LLP 2480/09999MOM 2619864.1 ell /14/11 ��1 � �/ �� 1-' T' T TI iT� � P H rE-) FAIR POLITICAL PRACTIC13S CONIMISSION 428 I Street • Suito 620 • S=emento, CA 95914-Z329 (916) 322 -5660 . Fe (916) 322 -0886 November 1, 2011 Re: Swom Complaint against Dear mxIr The Fair Political Practices Commission CTPPC') has received a complaint against you. Enclosed you will fi nd a copy of that complaint. At this time, we have not made any determination about the allegation(s) made in the complaint. We are simply providing you with a copy as a courtesy. Within 14 days of receipt of the complaint, the complainant will be notified of the FPPC's decision regarding the complaint. A copy of that letter will be forwarded to you as well. We maybe contacting you again to discuss this matter. Should you have any comments on the allegation(s), your comments must be submitted in writing, jam; Gary S. Winnk Chief, Enforcement Division GSW(tr Enclosures AV- RECEIVED FAIR POLITICAL, __,.____:- -_- -_ r. ArIICES... COMMISSI (l[d .::....:..:........... SWORN COMPLAIINT FORM I I OCT 31 AN IQt 23 (Form May Be Subject to Public Disclosure)* AS REQUIRED BY GOVERNMENT CODE SECTION 83115, please complete the form below to file a sworn complaintwit i the Fair Political Practices Commission: This form must be completed in its entirety and all pertinent information must be stated on this form, not as an attachment, Mail the complaint to: Enforcement Division Fair Political Practices Commission 428 J Street, Suite 620 Sacramento, California 95814 Person Making Complaint Lastname: Delaney FirstNinne: Matthew Street Address: 17602 9102 PMB 104 City: Tustin State: CA. Zip: 92780 - Telephone: 714 401 - 0529 Fax: (� E -mail: *UIPDRTANE•NOTICE Under the California Public Records Act (Gov. Code Section 6250 and following), this sworn complaint and your Identity as the complainant may be subject to public disclosure. Unless the Chief of Enforcement deems otherwise, within three business days of receiving your sworn complaint we will send a copyof ittothe persom(s)you allege Violated the law•, .__. ._. In some circumstances, the FPPC.may claim your identity Is confidential, and therefore pot subject to disclosure. A court of low could ultimately make the determination of confidentiality. If you wish the FPPC to consider your identity confidential, do not file the complaint before you contact the FPPC (916 -322 -5660 or toll free at 866 -ASK -FPPC) and discuss the complaint with an Enforcement Division attorney. Complaint Person or Persons who Allegedly Violated the Political Reform Act: (if there are multiple parties involved, attach additional pages as necessary,) Last Name: (� First Name: Street Address: City; State: Zip: Telephone: ILA—) . Fax: (—) E -mail: Provision or Provisions of the Political Reform Act Allegedly Violated: (If specific sections are not Imown, please provide a brief summary of the nature of the violation(s), and when it (they) occurred.) 'You must state the suspected violations) on this form. Violation of Section 87100. Description, With as Much Particularity as Possible, of Facts Constituting Alleged Violation and how you have personal knowledge that it occurred" office. * *Please attach copies of any available documentation that is evidence of the violation, (for example, checks, campaign materials, etc., if applicable to the complaint). Note that ' a newspaper article is NOT considered evidence of a violation. Name and Addresses of Potential Witnesses, in addition to yourself, if Known: Last Name; ' First Name: Street Address: City: State: Zip; Telephone: tax: ( ) Umail: Last Name: First Name: Street Address: City: Zip: Telephone: (_ ) Fax: �) E -mail: Last Name: First Name: Street Address: State: City: State:. _ Zip: Telephone: Fax: E -mail: I declare under penalty of perjury under the laws of the State of California that the. foregoing is true and correct, IwI CQ 10/26/2011 �6ignnim ) (Date) Matthew Delaney (Please print your name) ��; �� r � �- r- *-r�� � - T -� -� r-- �-, _ I�. EXHIBIT B, Black Advice Letter, No. A -99 -010 In 1999, in Black, that Commission began to attempt to address the issue of whether any conflicts of interest would arise from council members seeking appointment to Appointed Boards. The Commission was asked whether a county supervisor could represent a county on a joint powers authority board given that the county supervisors selected two of its members to serve on the joint powers authority board. The Commission concluded as follows: The Act would not prohibit [a supervisor] from representing the [county on the joint powers authority board], but he cannot participate as a member of the Board of Supervisors in a decision to appoint him to the Board of Directors if the appointment would have a personal financial effect upon hint. If [the supervisor] serves on the Board of Directors he would be prohibited from participating in any decision by the Board of Directors that would have a reasonably foreseeable material financial effect on any of his economic interests, that is distinguishable from the effect on the public generally. (Emphasis added.) The Commission then provided the following analysis: ... a governmental decision has a personal financial effect on a public official if the decision will result in the personal expenses, income, assets, or liabilities of the official or his or her immediate family increasing or decreasing. (Regulation 18703.5.) On that basis, we have previously concluded that a fire district board member may not participate in a vote by the district board to hire himself to perform computer services for the district. (Aitken Advice Letter, No. A -97 -345.) Similarly, we have concluded that a city council member, who is also employed by the city as a part - time secretary may not participate in a vote by the city council to change her position from a part-time to a full -time position. (Koski Advice Letter, No. I -96 -289.) However, Regulation 18705(c) states that, notwithstanding Regulations 18705.1 through 18705.5, an official does not have to disqualify himself or herself from a governmental decision if: The decision only affects the salary, per diem, or reimbursement for expenses the official or his or her spouse receives from a state or local government agency. Because the Commission was not provided information about the "personal financial effects" at issue, it was not "able to make a determination as to whether a decision regarding whether to appoint' the supervisor would create a conflict of interest. 24801099999 -0084 2619590.1 all /14/11 GutierrezAdviee Letter, No. A -00 -015 The Commission held that a councilmember does not have a conflict of interest in a city's decision as to whether to provide a defense to an election contest challenging her election (by one vote) to the council, even if the council member had an "economic interest in the defense insofar as she receives a salary and benefits" (per Government Code Section 36516) in excess of $250 in any 12 month period." In applying the "exception" outlined in Section 82030(b)(2), the Commission stated as follows: In one of its first formal Opinions, the Commission determined that this "government salary exception" to the definition of income included pension benefits paid by a government entity. [citing In re Moore, supra .... Since the Moore Opinion, we have applied the government salary to many forms of employment- related benefits paid by government entities ... By operation of the "government salary exception," the salary and employment - related benefits [the council member] receives through her position on the city council are not "income" within the meaning of the Act. A decision to fund a defense to the election contest, even though it could potentially affect her government salary benefits, does not therefore affect her "income" within the meaning of Section 87103 or Regulation 18703.5. Nor can such a decision have any other personal financial effect. If the immediate impact of a decision on a public official's "government salary" is excluded from conflicts analysis by operation of the "government salary exception," derivative effects may not be admitted to change that outcome. We understand that the loss of an official position may well cause a large change in an official's economic well - being, which my in turn affect the official's assets, expenses, or liabilities [as per Regulation 18703.5]. But these effects, when they are secondary to an effect on "government salary," are not potentially disqualifying "personal financial effects." We have not always been consistent in describing an official's obligations in this area [citing the Owen Advice Letter, No. A -99- 108 and stating that] [t]he Owen Advice Letter applied the `personal financial effects" rules in a fashion that effectively swallowed up the "government salary exception," and was superseded by the Commission at its public meeting on March 3, 2000 ... More generally, the Owen Advice Letter is superseded to the extent that it sanctions application of the `personal financial effects" rule in a fashion that undermines the "government salary exception" to the Act's definition of income." (Emphasis added.) (Citations omitted.) 2480/099999 -0084 2619580.1 ell /14/11 -2- Critically, the Owen Advice Letter, published in 1999, specifically outlined the presumed regulatory bases for the so- called "personal financial effects" rule: Regulation 18703.5, Regulation 18704.5, and Regulation 18705.5. Regulation 18703.5 states as follows: "[f]or purposes of disqualification under Govermnent Code sections 87100 and 87103, a public official has an economic interest in his or her personal finances and those of his or her immediate family. A governmental decision will have an effect on this economic interest if the decision will result in the personal expenses, income, assets, or liabilities of the official or his or her immediate family increasing or decreasing." Regulation 18703.5. (Emphasis added.) Regulation 18704.5 provides as follows: "[a] public official or his or her immediate family are deemed to be directly involved in a govermnent decision which as any financial effect on his or her personal finances or those of his or her immediate family." Regulation 18704.5. (Emphasis added.) As it relates to Regulation 18705.5, Owen stated as follows: "[t]he Commission has promulgated a series of regulations containing guidelines for determining whether the foreseeable effect of a decision is material. The appropriate standard for determining whether a personal financial effect is material is contained in Regulations 18705.5. Under this standard, a reasonably foreseeable personal financial effect is material if the effect will be $250 or more in any 12- month." (Emphasis added.) Dixon Advice Letter. No. 1-02 -098 In Dixon, that Commission (arguably) squarely addressed the issue of whether any conflicts of interest would arise from council members seeking appointment to Appointed Boards. In Dixon, the "mayor of the City of Costa Mesa" was "contemplating seeking appointment to the Orange County Fairgrounds Board of Directors" and asked whether a conflict of interest would exists, if he was "appointed" to the Board of Directors. The advice letter did not provide any other "facts" as to whether the Commission considered the Orange County Fairgrounds to be a State Agency or who was going to make the appointment.' The Commission concluded as follows: Your positions as mayor of the City of Costa Mesa and as a member of the Orange County Fairgrounds Board of Directors are not economic interests which could be affected by decisions of either the Orange County Fairgrounds Board of Directors or the City of Costa Mesa. The Act's conflict -of- interest provisions ensure that public officials "perform their duties in an impartial manner, free from bias caused by their own financial interests ..." (Section 81001.) Specifically,. Section. 87100 prohibits any public official from making, participating in making, or otherwise using his or her 1 The appointment to the Fairgrounds Board is done by the Governor and the Fairgrounds is considered a "state agency." See, httn:lAvww. ocfair .com /ocf /AboutUslboard.asp and httn://www. ocfair .com /ocf /About Us/PublicMeetinFs New /Meetings.asp. 2480/099999 -0084 2619580.1 .11114111 -3- official position to influence a governmental decision in which the official has a financial interest. A public official has a "financial interest" in a governmental decision within the meaning of the Act, if it is reasonably foreseeable that the governmental decision will have a material financial effect on one or more of the public official's economic interests. (Section 87103; Regulation 18700(a).) Among other things, an economic interest is any source of income, including promised income, which aggregates to $500 or more within 12 months prior to the decision (Section 87103(c); Regulation 18703.3). However, income does not include: Salary[] and reimbursement for expenses or per diem received from a state, local, or federal government agency and reimbursement for travel expenses and per diem received from a bona fide nonprofit entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. (Section 82030(b)(2).) [citing Regulation 18232(a).] Consequently, you do not have an economic interest in the City of Costa Mesa, nor do you have an economic interest in the Orange County Fairgrounds. Since a conflict of interest will arise only when it is reasonably foreseeable that a decision will have a material financial effect on a public official's economic interest, your governmental positions[] do not create a conflict of interest under the Act. In addition to the economic interests separately listed in section 87103, a public official always has an economic interest in his or her personal finances, and may have a conflict of interest in any decision foreseeably resulting in an increase or decrease in the personal expenses, income, assets or liabilities of the official or his or her immediate family, in the amount of $ 250 or more over a l2- month period. (Regulation 18703.5.) When the only potentially disqualifying economic interest is governmental salary as defined in section 82030(b)(2) and regulation 18232, no potentially disqualifying economic interest exists under either section 87103(c) or the personal financial effects rule described in regulation 18703.5. However, governmental salary is a disqualifying economic interest if there is a unique effect on the official or his or her immediate family as described in regulation 18705.5(b)." (Emphasis added.) (Citations and footnotes omitted.) The Commission did not provide any additional analysis of Regulation 18705.5(b) but appears to have rejected, like the Gutierrez Advice Letter, the application of the "personal financial effects" 2480/099999-0084 2619580.1 at 1/14/11 -4- rule in a fashion that undennined the "government salary exception" to the Act's definition of "income" as it applied to Appointed Boards. Svlvia Advice Letter, No. 1 -02 -176 In Sylvia, the Commission addressed whether under Regulation 18705.5(b) "financial effects" test, a public official's "economic interest in his wife's income may disqualify him from voting on collective bargaining agreements with his wife's bargaining unit" at the school district where he served as member of the board of education. The Commission advised the City Attorney of San Francisco as follows: To the extent that his wife receives "income" as defined under the Act, you correctly understand that [the official] would have a community property interest in that income, and in the source of that income, as well as an interest in the "personal financial effects" of any governmental decision materially affecting the income or expenses of himself or his spouse. You recognize that, because the [d]istrict is a government agency under § 82041, the salary paid by the [d]istrict to [the official's] wife is not considered "income" under § 82030(6)(2), the "government salary exception" to the Act's definition of "income, "... . While noting this exception, you are concerned that some terms of a collective bargaining agreement may involve "income" not covered under the "government salary exception." In addition to the statutory "government salary exception" of § 82030(b)(2), subdivision (b) of regulation 18705.5 contains a parallel exception making clear that "personal financial effects" potentially causing a conflict of interest do not include the financial effects of a decision which affects only the salmy, per diem, or reimbursement for expenses received by a public official or members of the official's hnnrediate family. In particular, we conclude that provisions of a collective bargaining agreement such as tl professional development triter advancement, and restrictions on e days and hours to be worked, a for continued employment or outside employment, are "salary" provisions which, when provided by a state, local or federal government agency, fall within the exception provided at § 82030(b)(2) and regulation 18232(a). Govemmental decisions relating to such terms will not give rise to a "personal financial effect" under the Act, so long as the decision does not concern [the official] or his wife alone, as provided in regulation 18705.5(b) .... (Emphasis added.) 2480/099999 -0084 2619580.1 x11/14111 -5- Thorson Advice Letter, 1-03-28 Notwithstanding the strong statements in favor of the strict construction of Section 8200230(b)(2), Regulation 18232, the Gutierrez Advice Letter or the Dixon Advice Letter, in December of 2003, nearly 15 months before the Commission's recent amendment to Regulation 18705.5 in 2005, the Commission again addressed the issue presented in the complaint against some of the council members serving on our Clients' city councils in the Thorson Advice Letter. In Thomson, the Commission provided the following analysis: If the city council for the City of Mission Viejo (the "city ") appoints one of its members to serve as its representative on joint powers agencies for which the city is a member, may the member who is being considered for the appointment participate in that decision? Since a decision to appoint one of its members to a board or commission would increase only that member's salary, per diem or reimbursements from the appointing agency which is different from the salary, per diem or reimbursements paid to other members of the city council, the councilmember who is the subject of the appointment may not participate in the decision. The City of Mission Viejo is a member of numerous joint powers agencies. The city council appoints one of its own members to serve as their representative on each agency. The city council anticipates making 'several appointments at its January 5, 2004, meeting and is questioning whether a council member who is being considered for appointment to a specific agency may also participate in that decision. A public official also has an economic interest in his or her personal expenses, income, assets, or liabilities, as well as those of his or her immediate family, a.k.a. the "personal financial effects" rule. (Section 87103, regulation 18703.5.) The two possible economic interests that may be affected by making an appointment to the joint powers agency are: 1) a council member's stipend, per diem or reimbursements from the joint powers agency and, 2) his personal expenses, income, assets, or liabilities (or those of his immediate family). Salary, per diem and reimbursement for expenses from a state, federal, or local governmental agency are expressly exempted from the definition of "income" for purposes of the Act. (Section 82030(b)(2); regulation 18232.) Ajointpowers agency is a local governmental_ agency. (Section 82041.) The salary, per diem or reimbursements paid by the joint powers agency to a city 2480N9999M084 2619580.1 a] 1 /14/11 -6- council member for services on the joint . powers agency is therefore not potentially disqualifying "income" within the meaning of the Act's conflict -of- interest provisions. (Bordsen Advice Letter, No. A -95 -347.) Under the "personal effects" rule, a conflict of interest exists where a decision would foreseeably result in a public official's personal expenses, income, assets, or liabilities (or those of his or her immediate family) increasing or de- creasing by $250 or more, regardless of the source of that increase or decrease. (Section 87103; regulations 18703.5; 18704.5; 18705.5(a); Beardsley Advice Letter, No. I -99 -003; Daniels Advice Letter, No. I -98 -297.) The personal effects test does not require disqualification if the decision affects only the salary, per diem, or reimbursement for expenses an official may receive from a local government agency, unless the decision is to hire, fire, promote, demote, suspend without pay or otherwise take disciplinary action against the official or a member of his or her immediate family, or to set a salary for the official or a member of his or her immediate family which is different from salaries paid to other employees of the government agency in the same job classification or position. (Regulation 18705.5(b).) For example, in the Jordan Advice Letter, No. I -00 -119, a candidate for school board was advised that, if elected, he would be able to participate in contract negotiations for teachers' contracts even though his spouse was a teacher with the district. He was advised however, that a conflict of interest may still exist in decisions on the hiring, firing, promotion, demotion or discipline of his spouse, or setting a salary for his spouse which is different from salaries paid to other employees in the same job classification or position. Applying this analysis to the question you pose, since a decision to appoint one of its members to a board or commission would increase only that member's salary, per diem or reimbursements which is different from the salary, per diem or reimbursements paid to other members of the city council, the exception in regulation 18705.5(b) applies and the councilmember who is the subject of the appointment may not participate in the decision. (Emphasis added.) Under Thorson, like Owen, the Commission appears to have followed the same logic that it had squarely rejected in Gutierrez, relying on the language of three Commission- issued regulations (i.e., 18703.5, 18704.5, and 18705.5(a)) and less than a handful of Commission issued advice letters (e.g., Beardsley Advice Letter, No. I -99 -003; Daniels Advice Letter, No. I- 2480/099999 -0064 2619580.1 a] 1114111 -7- 98 -297; and Jordan Advice Letter, No. I -00 -119) to sanction an application of the "personal financial effects" rule in a fashion that undermined the "government salary exception" to the Act's definition of income in the context of appointments. Houston Advice Letter, A -04 -248 Nevertheless, in 2005, less than 120 days from the issuance of the Thorson, the Commission appeared to have (again) rejected any interpretation of the Act and its regulations to suggest that the "personal financial effects" rule had eviscerated the "government salary exception.' In Houston, the Commission permitted aboardmember of the Orange County Rater District to participate in "a decision" regarding whether the district should switch from a "privately run pension" plan to the California Public Employees Retirement System, which the boardmember was already a member, given his previous tenure as a council member in a city that participated in CaIPERS. The Commission held that the boardmember had "no economic interest which would disqualify him from participating in the CaIPERS decision" citing specifically the "government salary exception" under Section 82030(b)(2)) and In re Moore. Importantly, the Commission stated as follows: "[p]lease note that, ... [the boardmember] may have an economic interest under the 'personal financial effects' rule. However, because the exception of regulation 18705.5(b) applies, we do not further analyze this economic interest [citing the previous language of Regulation 18705.5(6) without the term "appoint "] and went on to conclude "[ b]ecause [the boardmember's] income and benefits are not included in the definition of income and because regulation I8705.5(b) applies, he has no economic interest which would disqualify him from participating in the CaIPERS decision ..: ' (Emphasis added.) The Houston Advice Letter was dated March 14, 2005, almost one week after the Commission Staff's memorandum relating to amendments of Regulation 17505.5 which included the term "appoint" in the language of 18705.5, as outlined above. In other words, even while attempting to fix a "problem" relating to appointments, in the Houston Advice Letter the Commission appears to have emphatically rejected the notion, like Gutierrez, that the "personal financial effects" rules including 18705.5 in , any way undermine the "government salary exception" to the Act's definition of income. If this analysis is deemed by the Commission not to be the case, the Gutierrez Advice Letter's statement that the Commission has "not always been consistent in describing an official's obligations in this area" is' even more relevant especially given the fact that any confusion created by the Commission in its regulations in direct contradiction to the Act's strict language creates fundamental due process issues in terms of comptiance and enforcement matters. Peak Advice Letter, No. 1 -05 -065 On June 28, 2005, a week after the amended Regulation 18705.5 was "filed" but before it became "operative" (as of July 21, 2005), the Commission, in the Peak Advice Letter, concluded that a member of a city council can "vote on his or her own appointment to an unsalaried position on a joint powers authority where the only payment the official receives from the position is a stipend and the official waives the stipend" and that the appointed city councilmember would "be prohibited from participating in decisions relating to reimbursement 2480/099999-0084 2619580.1 ell /14111 -8- of expenses incurred by the councilmember during the course of his or her work for the joint powers authority" if "the amount of the reimbursement would total $250 or more in a 12 -month period." (Emphasis added.) Relying on the Thorson Advice Letter, the Commission provided the following reasoning: Normally, this stipend would constitute an economic interest in the appointed official's personal finances and would be material if it amounted to $250 or more in any 12 -month period. (Thorson Advice Letter, No. I -03 -287.) However, if the stipend is waived by the official, and the official receives no remuneration for serving in the position, there will be no economic interest to trigger potential disqualification on the decision to appoint. Absent the economic interest, there is no conflict of interest presented. On the other hand, in the event reimbursement decisions come before the city council regarding expenses incurred by the appointed official in serving on the joint powers agency, the "personal financial effects" rule would prohibit him or her from participating in the decision if it is reasonably foreseeable that there would be a material financial effect, ($250 or more in any 12- month period), on the his or her personal finances as a result of the decision. (Section 87100, Regulation 18705.5(a); Thorson, supra.) In that event, the public official would have a conflict of interest and may not participate in the governmental decision. (Emphasis added.) The Peak Advice Letter's conclusions relating to the "rehnbursement decisions" were reached without any discussion of Section 82030(b)(2), Regulation 18232, In re Moore, or the Gutierrez Advice Letter, which was written in 2002 by the Commission's Associate General Counsel who subsequently became the Commission's General Counsel by the time the Peak Advice Letter was issued in 2005. Put simply, the Peak Advice Letter like the Owen Advice Letter sanctioned the application of the "personal financial effects" rule in a fashion that completely undermined the "government salary exception" to the Act's definition of income, without any analysis of the issues. Humes Advice Letter, No. A -06 -230 Even after the adoption of the amended Regulation 18705.5 adding the term "appoint," the Commission continued to provide inconsistent opinions in its advice letters. In Humes Advice Letter, No. A -06 -230, the Commission advised that the Act's conflict -of- interest provisions did not "prohibit Attorney General -Elect Jerry Brown from appointing" his spouse (Arnie Brown) to a "volunteer position" in the Department of Justice even though she would be entitled to "workers' compensation benefits" and "reimbursed for travel expenses" in accordance with the Department's policies. Remarkably, the Commission did not analyze whether the workers' compensation benefits could have a "personal financial effect" on Ms. Brown but merely concluded based upon the "government salary exception" contained in Section 82030(b)(2) and without any substantial analysis as follows: 2480/099999-0084 2619580.1 .11!14111 -9- It is possible for volunteers to receive potentially disqualifying income from a governmental entity that may trigger disqualification on the basis of an official's personal financial effects. However, we have advised that certain payments received by volunteers are exempt governmental salary, not income. (Section 82030(b)(2).) For example, in the Fisicaro Advice Letter, No. A -94 -178, we advised that where a volunteer firefighter was compensated for services on a per -call basis and was provided meals at the firehouse while on call, the payments were salary from a governmental entity. Therefore, there, the payments did not create a disqualifying conflict -of- interest. Howard Advice Letter, No. I -07 -109 and I- 07 -11: and Howard Advice Letter. No. A -07 -182. In a series of letters to the City Attorney of the City of Glendale, the Commission continued to conclude that in the context of decisions relating to appointments to serve on Appointed Boards, the "personal financial effects" rules (in essence) trump the statutory "govermnent salary exception" as outlined in the Gutierrez Advice Letter (No. A -00 -015) such that a city council member's decision who was nominated to be mayor to participate in the discussion relating to the position of mayor would lead to a conflict of interest under the "personal financial effects" rules. The Commission stated its rationale as follows: "[iln contrast to Section 87103(c), which focused on the source of income, the personal financial effects rule focuses on the stream of the income to the official and effects on that stream resulting from the decision" although the Commission did not cite a single authority for this rationale. Howard Advice Letter, No. A -07 -182. (Emphasis is in original.) The Commission also held that the mayor of the City of Glendale could not participate in the city council vote to support "appoint" himself to a local airport authority citing Regulation 18705.5(a). Howard Advice Letter, No. I- 07 -109 and I- 07 -11. Ararda Advice Letter, No. 1- 11 -059a In other similar circumstances, i.e., the applicability of gifts rules and conflicts of interest provisions, the Commission recently advised as follows: "[f]ree meals provided by public -entity employers to board members at the public entity's board of directors meetings is not considered a gift if the member provided consideration of equal or greater value for payment. The payment for meals is not considered income under Section 82030(b)(2) since they are part of salary and per diem from a government agency." In Aranda, the California Special Districts Association ( "CSDA ") posed three "hypotheticals" which "[iln each case, the recipient board member" was "participating as a board member in CSDA board meetings." (Emphasis added). While the advice letter did not discuss whether the board of directors of CSDA were appointed by their respective public -entity employers, the application of Section 82030(b)(2) to exempt payments to public officials serving in similar situations as those serving on Appointed Boards is again evidence that the Commission has taken a broader view of the exception created by Section 82030(b)(2). 2480/0999990084 2619580.1 all /14/11 -10- � \� r ✓ I I ,tom '' ' �' / f ��� %WOODRUFF, SPRADLIN U SMART DAVID KENDIG DIRECT DIAL: (714) 415 -1083 DIRECT FAX: (714) 415 -1183 E -MAIL: DKENDIG ©WSS- LAW.COM November 10, 2011 VIA FACSIMME AND FIRST CLASS MAIL Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission 428 J Street, Suite 620 Sacramento, California 95814 2329 Re: Complaints Against City of Tustin Council Members; Appointments to Boards of Governmental Agencies that Provide a Salary or Stipend Dear Mr. Winuk, I serve as the City Attorney for the City of Tustin. This letter will serve as a response to the complaints received by Mayor Jerry Amante and Mayor Pro Tern John Nielsen submitted by Matthew Delaney pertaining to the City Council's appointments to outside agencies and boards. We are aware that many other council members from surrounding cities received the same complaint. At its first meeting in December each year, the Tustin City Council considers the appointment of its members as representatives to outside agencies. Many of these agencies require that the City- appointed representatives must be members of the City's legislative body (e.g., its City Council). And some of the outside agencies provide a stipend to the appointed board members for attendance at their meetings, as authorized by law. Mr. Delaney's complaints assert that Mr. Amante and Mr. Nielsen violated Government Code Section 87100. As demonstrated below, neither the Mayor nor the Mayor Pro Tern had a financial interest in the decision, so the Commission should determine the complaint to be without merit and reject it. A. California Government Code Section 87100 prohibits public officials, such as the members of the Tustin City Council, from making, participating in making, or in any way attempting to influence a governmental decision in which he /she knows or has reason to know he /she has a financial interest. 555 ANTONBOULEVARO, SUITE 1200 o COSTA MESA, CA 92626 -7670 a (714) 558 -7000 0 FAX (714) 835 -7787 W W W. WSS- LAW.COM 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 2 B. Mr. Amante and Mr. Nielsen Had No Financial Interest in the Decisions to Appoint• Government Code Section 87103 provides that a public official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official or on any of the following: (a) a business entity in which the official has an investment of $2,000 or more; (b) any real property in which the official has an interest worth $2,000 or more; (c) any source of income, except gifts or loans by a commercial lending institution on terms available to the public, aggregating $500 or more in value within 12 months prior to the time when the decision is made; (d) any business entity in which the public official is an officer or manager; (e) any donor of any gift aggregating $250 or more (currently $420, indexed for inflation) from a single source within 12 months prior to the time when the decision is made. The only financial implications of the decision to appoint Mayor Amante and Mayor Pro Tern Nielsen to their appointed positions with the outside agencies is the receipt by each of a legal and authorized salary stipend for each meeting. (Those payments are reported by those local agencies to the Internal Revenue Service in the form of W2s or 1099s issued to their appointed board members.) However, those payments are expressly excluded from the definition of "income" for purposes of the Political Reform Act. Government Code Section 82030(6)(2) provides that the term "income" does not include salary and reimbursement for expenses paid by a state, local, or federal government agency. Specifically, Section 82030(b)(2) provides; "(b) `Income' also does not include: (1) [omitted] (2) Salary and reimbursement for expenses or per diem, and social security, disability, or other similar benefit payments received from a state, local, or federal government agency and reimbursement for travel expenses and per diem received from a bona fide nonprofit entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 3 Cal. Gov't Code § 82030(b)(2) [emphasis added]. Thus; salary stipends provided by governmental. agencies have been deliberately and expressly excluded from the definition of "income" in the Political Reform Act. Similarly, the payments do not fall within any of the other categories of "financial interest" delineated in Section 87103 that might otherwise give rise to -a disqualifying conflict. In short, straightforward statutory interpretation establishes that Mr. Amame and Mr. Nielsen receive no "income" from, and therefore have no financial interest in or resulting from, their appointments to the outside agencies. C. FPPC Regulations and Informal Opinions May Not Contradict the Exemption Notwithstanding the foregoing provisions of the Political Reform Act, we understand that FPPC Regulation 18705.5 purports to create an exception to Government Code Section 82030(b)(2) [apparently an "exception within an exception "] when a governmental decision is to appoint a public official to an agency that provides a salary or stipend. That regulation and FPPC opinions applying it' assume that a public official's personal finances will be affected by $250 or more — but that assumption and that approach defeat the purpose of the statutory exemption of public agency payments from "income ". What Government Code Section 82030(b)(2) giveth, FPPC Regulation 18705.5 taketh away. But in doing so, the FPPC Regulation exceeds the limits of its authority: California Government Code Section 83112 requires the Commission's regulations to be consistent with the Political Reform Act. By treating payments which are, by deliberate statutory design, exempt from the definition of "income" as nevertheless having the financial effect of income under the Act, the Regulation and the opinions applying it impermissibly contradict and rewrite Section 82030 of the Government Code. Thus, we respectfully submit that Regulation 18705.5 should be construed and, if necessary, revised in a manner which honors the exemption of government agency payments from the definition of "income" consistent with Section 82030(b). 1 2007 Scott Howard Informal Opinion (FPPC File Nos. 1 -07 -109 and 1 -07 -117) and the 2011 Ariel Caloane Opinion (FPPC File No. I -11 -172) 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 4 D. Prohibiting All Potential Nominees to Refrain From Attempting To Influence the Appointment Decisions is Infeasible. It is worth mentioning that the position asserted by Mr. Delaney, if accepted by the FPPC's enforcement division, creates a practical and unworkable problem for many cities. Requiring a city council member nominee(s) to recuse themselves and to leave the room prior to deliberation and taking action on the appointment is contrary to fundamental open and transparent government principles and will undoubtedly serve to deprive members of the public from meaningful and active participation in the council's appointment process. For example, requiring two city council member nominees to recuse themselves and to leave the room before any deliberation or action is taken on the appointment, will deprive other members of the city council the opportunity to question the nominees as to their interest level in the appointment, their qualifications, their background, and as well as their experience. Likewise, since the council's appointment process is fully noticed and agendized pursuant to the Ralph M. Brown Act, members of the public are legally entitled to address the city council before any-action is taken on the appointment. Often times, this public participation includes members of the public asking similar questions as to the nominees' qualifications, experience, viewpoints, and interest in being appointed to serve on the board of another local agency. Such participation by both council members and members of the public alike often promotes spirited public participation and debate in compliance with basic open meeting laws, which laws would be thwarted if all council member nominees were required to leave the room. As to the practical problems created by Regulation 18705.5 and the foregoing opinions, please provide cities guidance regarding the following situations, which city councils will most likely encounter if they must follow the interpretation of the Political Reform Act urged by Mr. Delaney: o A Council member is willing to serve as appointee to a local joint powers authority board of directors that pays a stipend of $50 per meeting for monthly meetings. When would it be permissible for him/her to express his/her willingness to sery e? (a) During a Council meeting? (b) In a private conversation with one other Council member? (c) In a private conversation with the City Clerk? If one concludes that the stipend is income that has a material financial effect, wouldn't any such expressions of willingness to be appointed be an impermissible 795493.1 Gary S. Winuk Chief, Enforcement Division Fair Political Practices Commission November 10, 2011 Page 5 "attempt to influence the governmental decision "? What are the permissible means for finding out who is willing to serve on certain boards? Suppose there is an appointment available to a popular and prestigious board that meets monthly and provides a $50 per meeting stipend. All five council members want to be appointed to the board. (a) May a Council member nominate himself/herself and then leave the room, or is that impermissible participation in decision - making? (b) Three Council members are nominated for consideration and each leaves the room so there is no longer a quorum to take action; quorum is then defeated and the meeting cannot legally proceed. Will the City Clerk have to draw lots to ensure there are three council members present to vote? (c) Two Council members are nominated and they leave the room. Would it be impermissible participation in the decision - making if one of the remaining council members suggests that helshe would be better suited for the appointment and votes "no" on either nominee in an effort to force a second round of nominations and a hoped -for nomination for himself/herself? My office, as well as my client the City of Tustin, continue to support all ethics rules promulgated pursuant to the Political ,Reform Act, as well as the related FPPC regulations; however, we necessarily require clarification and guidance regarding this issue. We look forward to hearing from you soon. If you have any questions or concerns, please feel free to contact me at (714) 415 -1083. Respectfully submitted, WOODRUFF, SPRADLIN & SMART A rofessional Corporation DAVID E. KENDIG City Attorney, City of Tustin cc: Mayor Jerry Amante Mayor Pro Tem John Nielsen City Council City Manager Bill Huston 795493.1 i1 v ,) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 REVISIONS TO 18705.5 (Regulations of the Fair Political Practices Commission, Title 2, Division 6, California Code of Regulations.) § 18705.5, Materiality Standard: Economic Interest in Personal Finances. (a) A reasonably foreseeable financial effect on a public official's or his or her immediate family's personal finances is material if it is at least $250 in any 12 -month period. When determining whether a governmental decision has a material financial effect on a public official's economic interest in his or her personal finances, neither a financial effect on the value of real property owned directly or indirectly by the official, nor a financial effect on the gross revenues, expenses, or value of assets and liabilities of a business entity in which the official has a direct or indirect investment interest shall be considered. (b) The financial effects of a decision which affects only the salary, per diem, or reimbursement for expenses the public official or a member of his or her immediate family receives from a federal, state, or local government agency shall not be deemed material, unless the decision is to appoint, hire, fire, promote, demote, suspend without pay or otherwise take disciplinary action with financial sanction against the official or a member of his or her immediate family, or to set a salary for the official or a member of his or her immediate family which is different from salaries paid to other employees of the government agency in the same job classification or position, or when the member of the public official's immediate family is the only person in the job classification or position. (c) Notwithstanding subsection (b), pursuant to Government Code Section 82030(b)(2) and California Code of Regulations, Title 2, section 18232, a public official may make, participate in making, or use his /her official position to influence or attempt to influence, a government decision of his /her appointment to a committee, board, or commission of a public agency, including, but not limited to, a special district, a joint powers agency or authority, a ioint powers insurance agency or authority, or a metropolitan planning organization, because such government decision is not deemed to have a material financial effect on the public official's economic interests in his/her personal finances. 24801022390 -0002 2741792.1 a12/16111 BE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Comment: Cross - references: For the definition of "immediate family" see Government Code section 82029. Note: Authority cited: Section 83112, Government Code. Reference: Sections 87100, 87102.5, 87102.6, 87102.8 and 87103, Government Code. 2480/022390 -0002 2741792.1 al2/16/11 -2- 1 2 3 4 5 6 7 8' 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HISTORY 1. New section filed 11- 23 -98; operative 11 -23 -98 pursuant to the 1974 version of Government Code section 11380.2 and title 2, California Code of Regulations, section 18312(d) and (e) (Register 98, No. 48). 2. Change without regulatory effect amending section heading filed 3 -26 -99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 13). 3. Editorial correction of 1 (Register 2000, No. 25). 4. Amendment of section heading and section filed 1 -17 -2001; operative 2- 1- 2001. Submitted to OAL for filing pursuant to Fair Political Practices Commission v. Office ofAdnzinistrative Law, 3 Civil C01 0924, California Court of Appeal, Third Appellate District, nonpublished decision, April 27, 1992 (FPPC regulations only subject to 1974 Administrative Procedure Act rulemaking requirements) (Register 2001, No. 3). 5. Amendment of subsection (a) filed 1 -16 -2002; operative 2 -15 -2002 (Register 2002, No. 3). 6. Amendment of subsection (b) filed 6 -21 -2005; operative 7 -21 -2005 (Register 2005, No. 25). 7. Amendment of subsection (a) filed 12 -I8 -2006; operative 1 -17 -2007. Submitted to OAL for filing pursuant to Fair Political Practices Commission v. Office ofAdminislrative Law, 3 Civil CO10924, California Court of Appeal, Third Appellate District, nonpublished decision, April 27, 1992 (FPPC regulations only subject to 1974 Administrative Procedure Act rulemaking requirements) (Register 2006, No. 51). 2480/022390 -0002 2741792,1 a12/16/11 RUTAN ATTORNEYS AT LAW December 20, 2011 VIA FACSIMILE (916) 322 -0886 AND OVERNIGHT DELIVERY Fair Political Practice Commission Enforcement Division Attn: Teri Rindahl, Political Reform Consultant 428 J Street, Suite 620 Sacramento, CA 95814 -2329 Ash Pirayou Direct Dial: (650) 320 -1515 E -mail: apimyou@mtan.com Re: FPPC File No. 11/1041; Sworn Complaint against the Public Officials representing the City of Anaheim, City of Dana Point, City of Irvine, City of La Palma, City of Newport Beach, City of San Clemente, City of Villa Park, and City of Yorba Linda. Dear Ms. Rindahl: In response to your recent letter and its enclosures, dated December 15, 2011, regarding our above - listed City Clients and their Public Officials (See Exhibit A: "List Of Public Officials "), and, as per our discussion today with Mr. Gary S. Winuk, I write to confirm the following: (1) for those Public Officials who received a warning letter, for a period of up to 30 days from today ending on January 20, 2012, the Enforcement Division (a) will not post any warning letters on the FPPC website, (b) will not require a response from these Public Officials within ten days of the warning letter as to whether the Public Official accepts the warning letter or requests a hearing, and (c) will not proceed with the prosecution of the matters against these Public Officials until the 30 -day time period has ended; and (2) for those impacted Public Officials who have been asked to provide "any explanations and /or advice from legal counsel' (per your letter) relating to the matters no later than December 30, 2011, the Enforcement Division will not require any response by these Public Officials by December 30, 2011 and will instead provide them an additional 30 days from today ending on January 20, 2012 to present the requested information relating to explanations or advice so that the Enforcement Division can properly evaluate the complaint. Rutan & Tucker, LLP 1 3000 El Camino Real. Suite 200, Palo Alto, CA 94306 650- 320 -1500 1 Fax 650- 320 -9905 24901022390-0002 Orange County I Palo Alto I www.rutan.com 2777060.1 at2n0111 RUTAN ATTORNEYS AT LAe Fair Political Practice Commission December 20, 2011 Page 2 If my understanding is incorrect, I respectfully request you immediately contact me at (650) 320 -1515. Very Truly Yours, RUTAN & TUCKER, LLP c Ash Pirayou AP JI Attachment: Petition Letter Relating to Regulation 18705.5 cc: General Counsel's Office City of Anaheim City of Dana point City of Irvine City of La Palma City of San Clemente City of Villa Park City of Yorba Linda Philip D. Kohn, Rutan & Tucker, LLP John Ramirez, Rutan & Tucker, LLP 24801022390-0002 2777060.1 a1Y20111 Petition to Amend FPPC Regulation Section 18705.5 Currently scheduled for FPPC consideration on March 15, 2012 Government Salary Exception Traditionally, by practice and statute, the definition of income for conflict of interest purposes excluded salary or benefits received from a governmental agency. "`Income'...does not include... Salary and reimbursement for expenses or per diem, and social security, disability, or other similar benefit payments received from a state, local, or federal government agency...." (Cal. Gov. § 82030(b)(2); 2 CCR §18232.) New FPPC Interpretation In 2011 the FPPC issued an advice letter to the Ventura City Attorney (I- 11 -172) finding that a city council member may not participate in the process (discussion /vote) to appoint themselves to a governmental board or position that pays more than $250 in a twelve month period. The FPPC relied upon a2005 amendment to Regulation Section 18705.5 to support its interpretation. Specifically, Section 18705.5(b) provides in part: "The financial effects of a decision which affects only the salary, per diem, or reimbursement for expenses the public official... receives from a federal, state, or local government agency shall not be deemed material, unless the decision is to app�... promote ... the official ...or to set a salary for the official... which is different from salaries paid to other employees of the government agency in the same job classification or position...." (Emphasis added.) FPPC Complaints In October of 2011, a resident of Tustin filed FPPC complaints against 69 city council members throughout Orange County alleging each council member violated Regulation Section 18705.5 when they voted to place themselves on a board or position that pays more than $z50 in a twelve month period. In response to these complaints, the FPPC issued a series of violation notices /warnings to council members throughout Orange County. Erroneous FPPC Interpretation The FPPC's Regulation and staff interpretation is inconsistent with state statutory law that specifically excludes from the definition of income any salary, reimbursement, or other benefits received from a local, state, or federal governmental agency. Further, the FPPC's Regulation and staff interpretation is contrary to sound public policy and good government principles relating to multi - jurisdictional governmental bodies. Petition to Amend Regulation The City of Newport Beach along with the cities of Anaheim, Dana Point, Irvine, La Palma, San Clemente, Villa Park and Yorba Linda submitted a Petition to the FPPC asking for an amendment to Regulation Section 18705.5 to bring it into conformity with state statutory law that excludes government salary and benefits from the definition of income. The cities' Petition is scheduled to be considered by the FPPC at its March 15, 2012 meeting. Questions?