81.09

OPINION NO. 81-9

The State Ethics Commission has received a request from the Community Development Administration (CDA) concerning whether it may make loan awards to local government officials associated with the housing rehabilitation program who wish to rehabilitate investment property.

The Maryland Housing Rehabilitation Program (an operating program within CDA) makes loans to limited income owners of residential property and commercial property owners in community areas, who have shown that they are unable to acquire private loans. The statute provides for allocation of funds to counties and for political subdivisions "certified by the Department *of Economic and Community Development* as capable of administering a rehabilitation program *to* originate and administer loans made by the Department from the annual allocation." Article 41, §257L, Annotated Code of Maryland. CDA's Program Administrator also indicates that there are "joint administration" procedures under which the political subdivisions "prepare a plan for using funds within their jurisdiction and provide a local staff person to accept applications. In certain instances local political subdivisions take on additional responsibilities up to and include approval of program loans." CDA has issued regulations setting forth local certification criteria and procedures at COMAR 05.01.08.10.

The question has been presented as to two loan applications involving:

1) a town administrator who is not directly involved in the processing of applications with his jurisdiction [who] wishes to obtain financing to rehabilitate residential rental properties within the community in which he is employed, [and]
2) a local administrator responsible for processing program loans [who] wishes to obtain financing to rehabilitate residential rental properties in a community other than the one in which the local official is employed.

Both of these individuals (the Applicants) are employed by political subdivisions that have approved plans to accept loan applications in accordance with CDA regulations. The applications are forwarded to CDA for approval consistent with the procedure for joint State/local administration.

The issue raised here is the potential application to the Applicants of section 3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law).1 Section 3-103(a) prohibits "an official or employee" from having ownership interests in entities subject to the authority of or having contractual relationships with his agency. Section 1-201(h) of the Ethics Law defines "employee" to be "any person employed by the executive or the legislative branch or in the judicial branch of State government other than a State or public official." Sections 1-201(v), (z) and (bb) define "official" to include certain State elected and constitutional officers and "any individual in the legislative branch, in the executive branch, or in an executive agency of the State government" who meets certain compensation or other substantive criteria.

The Applicants are employees of local governments whose responsibilities on behalf of their local employer may include matters related to a program managed cooperatively by a State Department and a local subdivision. These employees are compensated by their locality and not the State. They would appear to be acting on behalf of the local subdivision in carrying out its duties under a plan approved by the State Department. There is nothing in the rehabilitation program's law to indicate that they thereby become State employees. Nor would the Ethics Law appear to compel this result. The Ethics Law carefully defines officials and employees to be individuals in the various branches of State government. It establishes a program for adoption of local ethics programs; and where it intends special treatment of otherwise local officials it expressly so provides. (See, e.g., section 6-203.)

We agree that these situations may raise questions concerning a potential appearance of conflict. However, absent some indication of an intention to cover the myriads of local employees who are involved in jointly managed State/local programs, we conclude that there is no basis under the Ethics Law for this Commission to exercise jurisdiction over these Applicants. The CDA may wish to implement some conflict of interest criteria in the administration of its program. However, whether it wishes to or has the authority to establish such criteria is a policy and legal decision that must be made by the agency and its legal advisors.

Herbert J. Belgrad, Chairman
    Jervis S. Finney
    Reverend John Wesley Holland
    Barbara M. Steckel

Date: April 6, 1981

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1 It should be noted here that the Ethics Law deals with employees and employee conduct; it does not as a general matter control official actions of State agencies. The issue, then, is how, if at all, CDA's handling of these grant applications would affect the ethical responsibilities of employees or officials subject to the Ethics Law. As no facts are presented involving persons employed directly by CDA, the sole issue is the application of the Ethics Law to these two Applicants.