An opinion has been requested from a former State employee concerning whether he, as an employee in the Community Development Administration (CDA), was permitted to provide private consulting services to a potential CDA applicant based on a referral from his supervisor.
This request was forwarded to the Commission on behalf of the former employee (the Employee) by an Assistant Attorney General in the Department of Economic and Community Development (DECD). The request involves actions taken by the Employee while he was employed by CDA. He is no longer employed in that capacity; the situation arose after his determination to leave CDA but before his employment actually ended. He indicates that his duties involved bond financing work, policy development in the housing area, and legislative liaison work. He occasionally became involved with particular projects. His duties also included service as Chairman of CDA's "Section 8 Allocation Committee."
The §8 Allocation Committee (the Allocation Committee) performs key functions in connection with CDA's administration of a housing program managed cooperatively by the State (through CDA) and the Federal government (through the Department of Housing and Urban Development (HUD)). Basically the program involves the CDA serving as a lender of funds to developers (who can be private or public entities); in coordination with this "permanent financing" provided by the State, HUD provides subsidy funds that are applied through the life of the project to reduce the periodic payments of the developer. The recipients must meet certain criteria regarding financial need and substantive housing needs in the area of the planned development. Though eligibility for HUD subsidies (and thus approval by that agency) is required for a project to proceed, the CDA is a key deciding agency, both in allocation of HUD subsidy funds and in awarding the State's "permanent financing."
At issue in this request is a proposed project to rehabilitate a building located in a medium sized Maryland city (the City). This project was initiated by a private developer and approved by HUD. Based on the recommendation of CDA's Housing Development Officer, the Allocation Committee determined that completion of the project as proposed was not feasible; it recommended termination of the project and transfer of HUD subsidy funds. HUD agreed in part, but insisted on retention of some funds for the project, based on its concerns about the housing needs in the area. Because of these concerns the project remained pending and was reactivated in August 1981, with HUD, CDA, the private developer and the City working together to consider various alternatives to getting the project going again.
One of the alternatives that was briefly considered was that the City take over as developer. In this connection the City contacted CDA for its recommendation of a consultant to evaluate the feasibility of this approach. According to both the Employee and his supervisor, the City was referred to him for advice regarding a consultant. The Employee agreed to provide the consulting services himself in his private capacity. He has indicated his initial intention of providing additional follow-up services (after termination of his State employment) to the City if the project had proceeded. The City, however, determined that take-over of the project by it alone was infeasible, and this alternative was dropped. The project continued to be pressed by HUD, however, and was subsequently approved as a joint project between the City and the private developer on land purchased by the City. The Employee indicates that he was not involved in the CDA review and approval process after his private work with the City.
His Supervisor agrees that the Employee did not participate in the latter stages of the review, as his intention to leave CDA was already known. Had he not been leaving the agency, however, he would apparently, as Chairman of the Allocation Committee, been substantially involved. His supervisor was apparently unaware that he had done the consulting work for the City himself, and expressed strong reservations as to the propriety of his doing this. Given the office's involvement in these projects and its relationships with developers, the Employee's supervisor states that the CDA staff might be expected to provide such evaluation services to developers or potential developers as part of their regular duties.
The Employee indicates that prior to undertaking any work on behalf of the City he contacted DECD's Chief Counsel regarding potential ethics problems. He apparently did not indicate to the Counsel's office how he knew of the availability of this consulting work; his main concern appears to have been with potential appearances before CDA if he were to undertake the second phase of the work after termination of his CDA employment. The details of the advice provided to him are not available, though it appears that the various provisions of the Public Ethics Law (Article 40A, Annotated Code of Maryland, the Ethics Law) were discussed with him. He was also advised to contact the State Ethics Commission; and he did in fact do so, though he discussed only the potential post-employment issue. He was advised that the situation raised questions and that he should request an advisory opinion.
It is not clear whether the issue of escrow pending decision was discussed with DECD counsel; it was not raised with the Ethics Commission. Nevertheless the Employee states that his impression after these conversations was that he could proceed with the first part of the work for the City pending issuance of a formal opinion, provided he placed any payment in escrow to be returned if the work was found to be prohibited by the Ethics Law. A request for an opinion was sent to the agency Chief Counsel. After this request, but before it was sent to the Ethics Commission, the Employee performed the work for the City. He notified the Chief Counsel of this, indicating that he was holding the funds in escrow.
This request raises issues under §§3-103(a) and 3-104 of the Ethics Law. §3-103(a)(1)(i) of the Law prohibits outside employment with an entity that has or is negotiating a contract with an employee's agency, or that is under his authority or that of his agency. There apparently was no existing contract between the City and CDA at the time of the Employee's work for the City. However, the purpose of his work was to determine the feasibility of a project that would result in such a contract. Also, even though he subsequently did not participate officially in this project, the Employee apparently continued as Chairman of the Allocation Committee, thus possibly bringing the potential applicant under his authority for purposes of §3-103(a)(1)(i). In our view these circumstances could potentially bring the Employee's outside employment within the strict provisions of §3-103(a)(1)(i). However, we do not believe that the issues under§3-103(a)(1)(i) need to be resolved here, as we believe that the situation more clearly raises issues under§3-103(a)(1)(ii).
This provision, in addition to the strict prohibitions of §3-103(a)(1)(i), prohibits any outside employment that could impair an official's impartiality or independence of judgment. Given the general nature of the Employee's duties and responsibilities while he continued as a CDA employee, we believe that outside work in the circumstances set forth here could be viewed as inconsistent employment under subsection (1)(ii) of §3-103(a). Arguably, the fact that he apparently was not involved in matters regarding this particular project after his outside employment could support a view that his impartiality and judgment were not impaired by his relationship with the City. This could not necessarily have been foreseen, however, at the time he accepted the work with the City, and his official job responsibilities appear to have included work on the Allocation Committee that would have been expected to include this project. In our view the inconsistent employment provisions in §3-103(a)(1)(ii) place a burden on employees to avoid outside employment relationships with individuals or entities whose activities may, at the time of the employment, be reasonably expected to come within an employee's substantive work responsibilities.
Another Ethics Law provision at issue here is §3-104, which prohibits the intentional use of prestige of office for one's own private gain or that of another. A question is raised under this §by virtue of the fact that the Employee originally learned of the City's interest in consulting services through his official duties, and, in fact, might have been expected to perform these services as part of his official duties. In our view this §of the Ethics Law was intended to address the very type of situation presented here. Employees who take advantage of information and contacts developed directly in the course of their official duties, to establish private contractual relationships, violate the Ethics Law's prohibition against the use of one's office for one's own private gain. Acceptance of a consulting job for oneself rather than providing a referral to another consultant as requested in connection with one's official job responsibility, in our view, is prohibited by §3-104 of the Ethics Law.
The Employee indicated shortly after his performing this work, and again in the context of his request, that he intended to hold any payment in escrow pending this Commission's opinion as to the interpretation of the applicable Ethics Law provisions. We have received notification that he has in fact, based on our informal advice at the conclusion of our consideration of his request, returned all funds (including out-of-pocket expense reimbursement) to the City.
Herbert J. Belgrad, Chairman
Jervis S. Finney
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: December 1, 1981