The Director of the Department of Assessments and Taxation (the Director) has requested an advisory opinion as to several situations involving potential conflicts of interest by his employees. First, he has inquired as to whether individuals employed as assessors for the Department may engage in outside employment activities doing property appraisals for private clients. The Director also has requested advice, second, as to whether DAT officials and employees may own private real estate which is subject to assessment by their Department, and, third, as to whether they may hold interests in business entities that are registered, chartered, or regulated by the Department.
The Department of Assessments and Taxation (DAT, or the Department) was established in Article 81, §231A, Annotated Code of Maryland, with general statewide responsibility to conduct assessments of real property in the State. It also has authority over corporations or other entities registered to do business in the State to the extent that it is involved in the registration or chartering of such entities, as well as in connection with its responsibilities for assessment and collection of personal property taxes.
As of the date of this request DAT had 934 employees, 360 of which were assessors, supervisors of assessors, or otherwise directly involved in the assessment process. Of this total, 344 DAT employees were involved in the program for assessment of real property, which is a decentralized function carried out primarily in State assessment offices located in the 23 counties and Baltimore City. The real property assessment is generated by actual review and on-site investigation of each individual property, and involves commercial and investment as well as residential property. The personal property program involves primarily auditing returns filed by business entities; for incorporated entities the process is centralized in the DAT Baltimore office, while returns of non-incorporated entities are filed and reviewed in local offices. The remainder of DAT's staff consisted of administrative, technical and clerical personnel.
The assessment process carried out by DAT involves what agency staff describe as "mass appraisal. " DAT assessors individually prepare sales analyses, market value determinations, cost data, and assessments for each and every piece of real property within the State. The development of an assessment involves an individual site review, but because of the tremendous volume of units involved this is often brief. In the interest of assuring uniformity the DAT assessors are generally bound by DAT guidelines such as cost manuals and formulas, though some aspects of the process involve the use of judgment and individual expertise. In addition, all assessments generated for a particular calendar year are based on adjusted market and other data of the preceding calendar year; all assessments reflect a value of the property as of the same date as all other property. For example, all assessments to be issued as of January 1, 1983 will reflect the assessed value of the property as of January 1, 1982, and be developed based on market and cost data for calendar year 1981.
The first issue raised by the Director has to do with whether employees may do outside appraisal work. It involves the activities of assessors in the 24 local assessment offices (though it may have some relevance for other DAT officials or employees who wish to engage in outside appraisal work), and relates primarily to the restrictions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). This section prohibits an official or employee from engaging in outside employment with an entity that is under the authority of his agency, or from having any other employment relationship that would impair his impartiality or independence of judgment.
Private appraisal activities by DAT officials and employees may take several forms. They could involve intermittent or regular work for an appraisal firm or a lending institution, or could involve a sole proprietorship activity where the individual provides services directly to private property owners. DAT staff indicate that this outside work tends to involve residential rather than commercial property. Assessment of commercial property involves substantially different and time-consuming factors that tend to make it unsuitable for part-time work.
The assessments developed by DAT are for the purpose of establishing taxable value of the property. Private appraisals may be conducted for many purposes: to establish value in connection with a sale or mortgage transaction; to be used in connection with a divorce or other dissolution action where property value must be known; for evaluation for insurance or estate purposes; or for use as evidence in an appeal of a DAT assessment. Private appraisals, because they involve one case at a time, unlike DAT's "mass appraisal" efforts: 1) often involve more time and more detailed information as to the particular property; and, importantly, 2) almost always are developed to reflect data current as of the date of the appraisal.
Unlike DAT, which requires uniformity and relies on past information and a single "finality" date (sometimes as long as a year before the actual assessment), a private appraisal client wants an appraisal based on comparable value as current as possible to the date of the appraisal. For example, in developing a market value for a property in September, 1982, a private appraisal could consider the value evidenced by a sale transaction involving comparable property where a sale contract exists but settlement is not complete at the time of the appraisal. A DAT assessment of the same property in September, 1982 would be of the value as of January 1, 1982, and would reflect only completed sales transactions in 1981. The more recent sales of comparable properties would not be taken into account.
The Director has asked for our general guidance regarding possible outside appraisal employment by DAT assessors, recognizing that different employees could present varying situations. As discussed above, for example, individuals could be employed by a real estate firm to do appraisals in sales transactions, or they could be hired directly by homeowners as consultants in litigation (such as a divorce suit) or other matters (such as an eminent domain action) where a property value is important. An employee assigned to a local assessment office could be engaged in outside activities either in his own area or a different geographical location. As we have advised in other cases (see Opinions No. 80-15 and 82-15), we can provide only very general advice in these situations, noting that application of general principles would depend on the facts of a particular situation. Application of §3-103(a)(1)(i), for example, could depend on whether the outside employment involved an entity that was specifically regulated by DAT; and whether employment would impair impartiality or independence of judgment as contemplated by §3-103(a)(1)(ii) would depend on the specifics of the person's DAT responsibilities and how they relate to his private job.
Also, the application of these provisions of §3-103(a) could be impacted by exception regulations adopted by us today pursuant to authority set forth in §3-103(a). See Notice of Final Action, 9:15 Md. R. 1517 (July 23, 1982). We can advise the Director, however, of our view that the provisions of §3-103(a) do not absolutely bar all outside employment doing appraisal work. Such employment is limited only when it is with a regulated or contracting entity or if it would impair an employee's fulfillment of his DAT duties. Employees should be aware, of course, of other provisions of the Ethics Law that would limit their activities even as to permissible employment. For example, §3-101 of the Law prohibits official participation in any matter in which the employee or certain relatives has an interest, or which involves as a party an entity with which the employee or certain relatives are involved. (See further discussion below.) Also, §3-104 prohibits an official or employee from using the prestige of his office for his own economic benefit or that of another, and §3-107 forbids the use of confidential official information for one's own benefit.
Taking into account these provisions and the limitations of §3-103(a), the Director may wish to establish internal guidelines for DAT employees (particularly assessors) who wish to engage in outside appraisal work. Section 1-103 of the Ethics Law specifically recognizes that regulations regulations more stringent than the Ethics Law may be applied. We have generally viewed this as a recognition that agency heads may, based on an understanding of their particular agency mission and circumstances, need to establish additional rules regarding employee conduct. See e.g. See e.g. Opinion No. 82-1. Commission staff will be available to work with the Director in developing these guidelines and assuring that they meet agency needs consistent with the provisions of the Ethics Law.
A second issue raised by the Director has to do with ownership by DAT employees of real property located in the State. This issue raises broad questions under §3-103(a) of the Law as to whether DAT officials and employees may own real property interests at all, since this section prohibits having an interest in any entity which is under the authority of one's agency. All real property in the State is subject to DAT's authority. To some extent, however, we believe that this question can be resolved by conclusion that ownership of real property need not necessarily constitute an interest in an entity. As to property owned as a personal residence, we believe that no "entity" exists, in the sense of that term as it is used in the Ethics Law.
We believe that this approach was intended under the general purpose of the Ethics Law, since engaging in such a fundamental and widespread activity as owning a personal residence would not necessarily be viewed by the public as raising, in itself, a conflict of interest, even for persons who are engaged in one of the many facets of the State's regulation of property ownership. However, the ownership of property, either alone or with others, that is held for commercial or business purposes is not so ordinary an activity as home ownership. Moreover, the holding of property for commercial or business purposes is more like the kind of "outside" activity or employment that is generally intended to be regulated by §3-103(a) of the Law.
Thus, we believe that a distinction may be drawn between property held for these different purposes, and that ownership of property for business or commercial purposes would generally constitute an interest in an entity while ownership of an interest in a personal residence generally would not. In our Opinion No. 80-19, we recognized that commercially held property could be viewed as an interest. The Law would thus appear to bar business activities in most instances involving real property subject to the Department's authority, unless that interest is excepted from the provision under regulations to be developed by the Ethics Commission pursuant to §3-103(a). Here again, the Director may wish to work with Commission staff to develop guidelines for disclosure and regulation of such business activities.
The Director and DAT employees should also keep in mind that other provisions of the Ethics Law apply to curtail their activities even where certain kinds of interests may be held. Section 3-101, in particular, prohibits an official or employee from participating in a non-ministerial way in any matter in which he or certain listed relatives has an interest, or which involves as a party a business entity with which he or any of the relatives is involved. Thus, DAT assessors, for example, may not participate in any way in an assessment involving any real property in which they have an interest, whether it is personal residential property or commercial property owned by an entity in which they have an interest. This disqualification principle should be applied as a general rule to all officials and employees, even those at higher levels having broad jurisdiction and responsibilities.1
The third issue raised by the Director relates to DAT's authority over corporations and other entities registered to do business in the State. The Department is responsible for the chartering of State corporations and registration of foreign corporations, and also has responsibilities regarding assessment and collection of personal property taxes as to these entities. In reviewing DAT's authority over corporations or other business entities, we have evaluated whether the provisions of §3-103(a) will be strictly applied to prohibit ownership of corporate stock or interests in other business entities by DAT employees: 1) directly involved in the chartering or personal property tax programs, or 2) engaged in DAT work not in any way related to the agency's authority over corporations. It appears that, as a technical matter, since such entities are clearly under the authority of DAT, the holding of interests in them would be prohibited by §3-103(a).
In our early implementation of the Ethics Law, we addressed several situations such as this where very broad agency coverage and remote outside economic interests resulted in technical application of §3-103(a) more restrictive than appeared to be intended by the Law. We recognize, for example, that, 1) a majority of DAT employees are involved in real property assessment activities unconnected with business entities in which they have an interest; 2) many of those having responsibilities dealing with such business entities perform purely ministerial functions; and 3) many of DAT's employees are assigned to local assessment offices where their duties are substantially and geographically narrowed to the particular jurisdiction.
As a result of our early review we recommended in our 1980 Legislative Report that the General Assembly consider amending §3-103(a) to allow the flexibility to deal with circumstances such as these. The Law was amended in the 1981 Session (Laws of 1981, Ch. 796) to provide for application of the §3-103(a) prohibition "except as permitted by regulation of the Commission where such interest is disclosed or where such employment does not create a conflict of interest or the appearance of conflict." Thus, we believe that the legislative response to our recommendation reflects general agreement that §3-103(a) was not intended to apply to remote or insubstantial interests not in any way related to an employee's official responsibilities. We have issued proposed regulations dealing with outside employment and are in the process of preparing regulations relating to economic interests. We suggest that the Director may wish to develop guidelines for disclosure and regulation of such interests where necessary to meet particular agency needs. Any situations raising real potential for conflict of interest or appearance of conflict arising out of such interests should be referred to the Commission for review of the specific circumstances in view of §3-103(a).
The Director and DAT employees should also be aware, of course, of the application of the §3-101 disqualification provisions to situations involving ownership interests in business entities subject to the Department's authority. As most of the agency's employees are involved in assessment work, they will be unlikely to be dealing in matters in which they have an interest by virtue of their financial holdings in a business entity. Also, in many situations the employee's participation would involve a clerical duty that would be viewed as "an administrative or ministerial duty which does not affect the disposition or decision with respect to" a matter, as set forth in the §3-101 non-participation provision. Employees should be aware, however, that their participation is forbidden where it would involve substantive non-ministerial action and the matter is one in which the employee or any of the specified relatives has an interest or if it involves a party with which the employee or any of the relatives is affiliated.
Herbert J. Belgrad, Chairman
Jervis S. Finney
Reverend John Wesley Holland
Barbara M. Steckel
Date: June 30, 1982
1 However, if, in the view of legal and management officials in DAT, certain officials are legally the only persons having the authority to act within their jurisdiction, then the provision of §3-101(b) may be relied upon. This subsection allows otherwise prohibited participation in matters, where the interest is disclosed and the official is the only person authorized to act.