An opinion has been requested as to whether a violation of the Ethics Law results from a real estate transaction between the Department of Natural Resources (DNR or the Department) and a group of owners that includes a current DNR employee.
This request is presented by DNR's Assistant Secretary for Capital Programs (the Assistant Secretary), and involves the proposed purchase by the Department of a 580-acre tract of land in Charles County. According to the Assistant Secretary, the Capital Programs Administration (CPA or the Administration) is the DNR unit responsible for the agency's land use planning. This Administration coordinates with user entities in DNR (such as the Wildlife Administration) and develops a land acquisition program, which may include acquisition maps. The program also reflects the agency's collaboration with local governments and other State agencies, such as State Planning and the Department of Health and Mental Hygiene, that develop and implement land use and environmental plans.
Determinations as to what property will be purchased are made by CPA, based on whether the purchase fits within the program. Apparently the agency receives many offers of land for sale from all over the State, but only follows up on those where the property fills an agency program need. Property may be purchased for either long term or short term purposes. Short term purposes involve use by an agency unit in the near future, and after purchase and completion of the capital improvements, these properties are turned over to the DNR program unit for management. Long term purchases, on the other hand, may involve programs such as the Open Space Program, where property is purchased for the farther distant future, to ensure that it is not turned over to development and is available for future use. This type of property is held and continues to be managed by CPA until a more defined program use is established.
Generally, real property transactions are handled as a joint effort between the user agency (here DNR) and the Department of General Services (DGS). The user agency makes a program evaluation. This includes environmental assessments, review by appropriate local and State planning agencies, determination of boundaries or "take-lines," designation of use, and funding sources. Some of these aspects are also subject to legislative action. The user agency then notifies DGS that it wishes to purchase a piece of property. The DGS has an appraisal of the fair market value done by two independent appraisers. Based on review of these appraisals by DGS, an offering price is established, and a DGS negotiator contacts the property owners to negotiate a selling price. When there is an agreed upon selling price the user agency signs an option contract. The purchase transaction is submitted to the Board of Public Works on the DGS agenda, with a funding source identified. Though the matter is on the DGS agenda, user agency representatives participate in the meeting to respond to any program issues.
The transaction here involves purchase of land within the Patuxent River Basin as part of the Open Space Program, at a proposed purchase price in excess of $1 million. The purchase process for the property was begun in April 1982 with an offer from a broker. The property was reviewed by various DNR offices. The review included evaluation of location, access, topography, current uses, flora and fauna, existing wildlife, and other environmental assessment factors, and a determination was made that the purchase would be consistent with the agency's plans for the Patuxent River area, and also with the Patuxent River Policy Plan (the Plan) issued by the Department of State Planning in January, 1984. This Plan is in implementation of federal non-point source water pollution control planning requirements, and was developed by the Patuxent River Advisory Commission over a period of several years. It is in the process of being presented to and adopted by the local governments within the basin.
According to the Assistant Secretary, the next steps for purchasing the property were delayed by the unavailability of a DGS negotiator in this area. This problem was ultimately resolved by agreement between DNR and the National Capital Park and Planning Commission (concurred in by DGS) that the Commission would provide a negotiator on a consultant basis to process these and other land transactions for the agency. It is indicated that this acquisition followed the State process and was consistent with all State requirements. In anticipation of possible reimbursement through federal sources, it also complied with federal environmental, relocation and other limitations. The purchase was ready to be presented to the BPW but was withdrawn by DGS to allow for Ethics Commission consideration of ethics issues raised by the fact that a DNR employee is one of the property owners.
This employee, who owns approximately 14% of the property, is the Director of the Tidewater Administration's Waterway Improvement Division. The property is held in thirds and each one-third is represented by a "trustee," one of whom is the Director. He indicates that these three trustees have the responsibility for acting on behalf of the others in managing the property and arranging for its sale. He states, however, that he has not been involved in this transaction, except where his signature has been required as a technical matter. He states he is not familiar with the background of the transaction and has not had any direct contacts with the government officials involved in the negotiations.
Nor, according to the Director, has he been in any way involved in this transaction as part of his official duties, which generally involve implementation of the State Boat Act. His Division's responsibilities include construction of bulkheads and widening of channels, provision of hydrographic engineering services such as ice breaking and maintenance of aids to navigation, working with local governments in dredging activities, and implementation of a grant program involving finance and construction (sometimes with local governments) of projects beneficial to the boating public. According to the Director, neither he nor his Division are generally consulted regarding property decisions. He identified three situations as the only times he has been involved in such activities, and states that neither he nor his Division has been in any way involved in DNR's consideration of the purchase of this tract of property.
This request raises issues under the financial interest provisions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law), particularly subsection (a)(1)(i).1 This subsection prohibits an official or employee from being employed by or having a financial interest in an entity that has or is negotiating a contract with his agency. We have generally held that involvement with property held for commercial or investment purposes constitutes an interest in an entity. (For example, filers of financial disclosure statements are advised that rental property should be disclosed on the general schedule dealing with interests in a business entity.2) Also, given the estimated sale value of over $1 million, it is clear to us that the Director's 14 percent interest brings him within the concept of "financial interest" as that term is defined in §1-201(m) of the Law.
Under these circumstances, and since the DNR is involved significantly in this transaction, in part as a signator of the option contract, it is our conclusion that the Director's property interest in this transaction would be barred by subsection (a)(1)(i) unless the exceptions authorized by the introductory language to the section can be applied. This language provides that the prohibition applies "except as permitted by regulations of the Commission where such interest is disclosed or where such employment does not create a conflict of interest or appearance of conflict...." Our regulations implementing the financial interest aspects of this exception are set forth in COMAR 19A.02.02. The approach of the regulations is to establish guideposts for determining whether the relationships between an employee's agency's functions and his private affiliations are so remote that a conflict or appearance of conflict is unlikely. The regulations deal, for example, with whether the employee's duties significantly impact on the private entity, whether he is in the unit of his agency or has supervisory relationships with individuals that impact on the private entity, whether he has private management responsibilities relating to the private entity's compliance with agency regulations, and whether his private compensation is directly funded by agency contract. The regulations also provide for Commission determination that the general circumstances of the situation do not raise a potential conflict of interest or appearance of conflict.
We have reviewed the facts presented in this request in view of these regulatory criteria, and we believe that the situation warrants application of the exception to allow the transaction despite the Director's ownership interest. The Director's official responsibilities and job duties, both as defined in his job description and in actual practice, do not appear to involve him or his Division in the Department's property acquisition process, as a general matter or with regard to this particular transaction. On the private side of this transaction, the Director indicates that he has not been involved in negotiating the sale and the Department indicates that the seller's representative has been a broker or an attorney administering the estate of one of the original owners. Nor do we believe that the fact that the proceeds of the sale would accrue to the Director's benefit require application of item H of the criteria. This item was not intended to deal with single one-time transactions such as this, where the income to the individual entity is a result of total divestiture of the interest to the State.
We have also received the views of the Department's senior management regarding the circumstances of this situation. The Department indicates that the transaction is part of an agency acquisition program along the Patuxent, resulting from numerous watershed and pollution abatement studies. The transaction is presented as the result of an agency programmatic analysis of its consistency with Program Open Space as implemented by both the Departments of Natural Resources and State Planning. The Department states that acquisition of land for these purposes is a unique transaction, since only land along the river is acceptable to meet the needs of protecting the river. Also, this procurement process, as described to us, appears to have proceeded according to established procedures, and not involved the Director. Moreover, in addressing the issues related to this situation, the Department has indicated that the involvement of the Director would not result in a conflict of interest or appearance of conflict that would impair the credibility of the agency's mission.
Under all of these circumstances, we conclude that the relationships between the Director and his private interests, and his official duties and those of his Department are sufficiently remote to allow application of the exception to this transaction. This conclusion is based on the facts presented to us by the Department and DGS regarding the background of this transaction; we do not intend by it to approve or otherwise comment on the value or usefulness of this acquisition as a general matter.
Herbert J. Belgrad, Chairman
Reverend John Wesley Holland
Barbara M. Steckel
Thomas D. Washburne
Date: July 10, 1984
1 Given the relationship of the Director's job duties to this transaction, and the apparent absence of any actions on his part regarding this sale, we do not find any basis for concern under the disqualification and prestige provisions in §§ 3-101 and 3-104 of the Law. No do we believe the facts indicate that his relationship to the property and this sale transaction results in an employment relationship that would raise issues under the outside employment restrictions of §3-103(a)(1)(i), 3-103(a)(1)(ii), and 3-105.
2 See also our Opinions No. 82-56 and No. 82-27. Opinions are published in COMAR Title 19A.