87.11

OPINION NO. 87-11

An Opinion has been requested by the Baltimore City Health Department (BCHD or the Department) concerning whether certain employees may serve in their official capacity on the Board of a non-profit health corporation being organized by the Department. Based on the information provided regarding the Department's involvement in this activity, and the proposed organization of the entity, we advise that this board service would not be barred by the Public Ethics Law.

This request involves the proposed service by the Commissioner of Health for Baltimore City, the City's Associate Commissioner for Human Behavior and Community Psychiatry, and the Administrator of the Mental Hygiene Administration, as directors of a private non-profit corporation, the Baltimore Mental Health Systems, Inc. (BMHS or the Corporation). The BMHS was recently incorporated for the purpose of carrying out a grant received by the BCHD from a private philanthropic foundation that makes grants to public and private organizations for projects focusing on health care. In addition to the grant, the program also includes low interest loans, and federal rent subsidies to assist in the housing portion of the program. The total dollar value of the program from these sources is approximately $6.3 million over a five-year period.

Health services in Maryland are provided by a State Department of Health and Mental Hygiene (DHMH) and local health departments in Baltimore City and each of the counties. The BCHD is funded locally and also receives funds from DHMH under a block grant. It is responsible, in addition to other functions, for delivery of all services to the chronically mentally ill in the City. It in turn makes grants in this effort to various private providers. According to the letter requesting this Opinion, these services are currently being provided "in a non-centralized manner by private, City and State entities with overlapping and competing jurisdictions and missions." The purpose of the BMHS is to implement the private grant to coordinate and integrate this delivery of mental health services in the City. It will be responsible for planning, program development, fiscal management and administrative monitoring and evaluation. A two-year planning phase is anticipated, and the Corporation may ultimately be the intermediate grantor and coordinator in Baltimore City of funds from all sources in this program area.

According to the Associate Commissioner, this project is one which has been strongly supported by health personnel in both the public and private sectors of the Baltimore City area. He indicates that the proposal included letters of support from then-Governor Hughes, then-Mayor Schaefer, and the Secretary of DHMH as well as many private and public health-related entities. Apparently the quasi-public corporation approach was one of the aspects of the proposal that made it acceptable to the private foundation. The plan to apply a private corporate model while retaining responsible government control was reflected in the initial proposal, which was supplemented by a later submission clarifying that officials of DHMH and the BCHD would serve on the Corporation's Board of Directors, and, with the coordination of the Mayor of Baltimore, basically have control over the entity.

This was to be accomplished by appointing the several named individuals, including the three State officials referenced here, to the Board of Directors. The general approach of the proposed By-Laws as presented to the Commission is to specifically provide for ex officio appointment of persons filling the positions identified, and to clarify that persons (or their designees) appointed under these provisions would be carrying out the direct policies and functions of the Baltimore City Health Department and the State Department of Health and Mental Hygiene. The By-Laws would also specifically provide that no remuneration would be paid to any person serving on the Board of Directors under an ex officio appointment. Also, no Baltimore City or State employees will receive any salary or other remuneration from the Corporation. The By-Laws will also include a provision allowing the Corporation's Board to provide for ex officio appointment of a President, who would fill this position under these same conditions.

The question presented here is whether these employees' service with BMHS (either on the Board or as President) would be within the employment prohibition of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). In interpreting the Law, we have consistently said that service on the controlling boards of private entities constitutes an employment relationship for purposes of §3-103(a). The BMHS would be an entity contracting with and under the authority of both the BCHD and DHMH, both in terms of the implementation of the private foundation grant, and in terms of its functions in carrying out the integrated health services program consistent with health department statutory and regulatory program and fiscal rules. However, we do not believe that service on the Board would be barred by the strict prohibitions of §3-103(a)(1)(i), since in our view it comes within the principles previously established by us concerning activities that are part of an individual's official duties.

This issue was most recently addressed in our Opinion No. 87-4. That Opinion also involved a private corporation established on the initiative of State and local agencies in order to take advantage of grant funds available through another entity (there the federal Department of Housing and Urban Development). As in this situation, the entity did not have competitors vying with it for agency funds, but was to be a mechanism for distributing funds to private entities. We concluded there that members of the Regional Planning Council, a State agency involved in the contract process and the entire program at issue in that Opinion, could serve as officers of the private corporation. That Opinion also referenced several other Opinions that the Commission has issued dealing with these types of circumstances.

From the By-Laws proposed for the Corporation, it seems to us that the BCHD intends to make clear that this project is to function as a joint venture, and that the public employees are to serve with the Corporation solely in their status as officials of the City and State. We therefore conclude that the situation can be viewed as covered by the principles set forth in Opinion No. 87-4, as long as the approach taken in the request letter is followed and the Corporation continues to be without competition. We recognize that this project represents a substantial amount of money, and could impact on a significant number of private entities already involved in the health services delivery system in Baltimore City. Also, the relationship of the various entities involved and the assignment of the Associate Commissioner as the contract manager basically means that the Corporation will function as a private entity subject to the contractual and regulatory provisions as any other grantee, but that the persons and entities responsible for monitoring compliance with the grant terms and the regulations will be individuals serving on the entity's Board of Directors and possibly in other positions.

To some extent, then, the entity will be regulating and monitoring itself, in a somewhat complex arrangement. It is not the function of this Commission to review general agency organizational arrangements, and we offer no view as to the service delivery approach adopted here. Based on this understanding that service by these individuals with BMHS is part of their agency duties, we advise that it would not be inconsistent with the employment provisions of the Ethics Law. Any individuals who serve in this capacity should be aware, however, that since their service is part of their official duties, their activities with the Corporation are subject to the continuing outside employment restrictions of §§3-103(a) and 3-105 and the prestige, gift solicitation and acceptance, and misuse of information provisions of §3-104 through 3-107 of the Law. Also, we wish to reiterate that any program or organizational conflicts presented by this arrangement are agency determinations, totally independent from the Ethics Law or interpretations of it by this Commission.

M. Peter Moser, Chairman
   William J. Evans
   Reverend John Wesley Holland

Date: July 16, 1987