An advisory opinion has been requested concerning whether and how the provisions of the Public Ethics Law would apply to the newly organized Fund for Agricultural Resource Materials in Maryland Schools, Inc. (the Fund), and the participation in it of several officials in State government. We advise that the Law (Article 40A, Annotated Code of Maryland, the Ethics Law) would not apply to prohibit establishment of such an organization, or bar affiliation with it by State officials, within certain constraints. We further advise, however, that generally there are a variety of issues that can arise in these situations that cannot be addressed within the context of the Ethics Law, and that these aspects should be considered for administrative or legislative policy.
This request is presented by the Secretary of the Maryland Department of Agriculture. It involves a private corporation recently incorporated whose purpose is:
1) To provide financial support for the continued development of educational programs that help students understand the important role that agriculture has in this State and in the United States;
2) To provide financial support for the teaching of agricultural education in the schools of this State through curriculum development, training programs for teachers, textbook review, and any other appropriate means to achieve this purpose; and
3) To provide financial support generally for the continued development of agricultural education in the schools of this State.
The Fund is organized as a nonprofit charitable organization as defined in §501(c)(3) of the federal Internal Revenue Code, and has the general and usual powers of incorporated entities in this State. It was incorporated by the Secretary within the general statutory mission and mandate of the Department and the other State units involved, and reflects a program approach to develop State/private sector relationships in pursuing a variety of public concerns. The Corporation's affairs are to be managed by a Board of Directors of not more than 15 people nor less than three. This Board is to include three persons who serve by virtue of their office: the Secretary of Agriculture, the State Superintendent of Schools and the Chancellor of the University of Maryland System. The Board of Directors constitutes the membership and is of three classes: Class Athe Secretary of Agriculture, Class Bthe Superintendent and Chancellor, and Class Cthe remaining members.
The Articles provide for election of the remaining members by the Class A member, that is, by the Secretary of Agriculture. To date, the Secretary has elected 4 additional members. They include the Chairman for Agricultural and Extension Education at the University of Maryland and the Director of the Institute of Applied Agriculture at the University, both on the nomination of the Chancellor of the University, and two public elementary school teachers, on the nomination of the State Superintendent of Schools. The remaining members will be elected from the public sector, and the Corporation's counsel indicates that other names are now being solicited from a variety of sources, including agricultural groups such as the Grange and the Farm Bureau, and agribusiness entities.
The Fund will be engaging in fund-raising and in developing programs consistent with its goals of enhancing agricultural education in the State. It will be looking at the programs of other States, and could consider making grants and scholarships to teachers in the field, funding textbook development, or developing information materials aimed at particular school populations (such as a "Weekly Reader" type of publication for distribution to elementary age children). Currently, the Fund has a variety of relationships with the Department of Agriculture. The agency's address is listed as the entity's address, and an Assistant Attorney General in the Department of Agriculture is identified as its resident agent and has provided it legal services in developing its Articles and By-Laws.
It is anticipated that the Fund would eventually be more independent from the State, though in the beginning there is some expectation that the Department would provide grant funding or other assistance, particularly in support of the salary of an Executive Director. Legal Counsel indicates that an advertisement is currently in planning to recruit an executive director, who would not be anticipated to be a regular Department employee, although there is some possibility that a contractual employee at the Department would have this position.
This request presents issues under the outside employment provisions of §3-103(a) of the Ethics Law, as well as the participation, prestige and information provisions of §§3-101, 3-104, and 3-107. The activity would involve affiliation by State officials with an entity that is technically private, with no formal accountability to the State and its various control programs. Moreover, the entity is one whose subject matter concentration relates closely to the agencies' public activities and could significantly involve a variety of persons and organizations having regulatory or contractual relationships to the agencies. We have considered similar official relationships by agencies and their personnel in a variety of circumstances. This request is being considered in the formal review context in part because there have recently been several inquiries regarding similar types of activity, and it is believed that a general review and development of guidance is appropriate at this time. Some of the issues these situations present, such as activity authorization, procurement, personnel, auditing and fiscal accountability, are not specifically addressed by the Ethics Law. Other issues, however, do come within the proscriptions and limitations imposed by the Law on State employees and officials.
We have in the past considered service by officials on private boards in a variety of contexts. Service on the managing and operational boards of private entities has been found to be an employment relationship for purposes of the Ethics Law, even where there is no compensation, given the fiduciary relationships and duty of loyalty inherent in these positions. The service has been prohibited where the private entity had regulatory dealings (No. 82-45 and No. 83-13) or contractual relationships (No. 83-1 and No. 86-17) with the individual's agency. We have also indicated that as a general matter service on the operational boards of associations of persons licensed by an individual's agency would be inconsistent with the Law. (No. 87-1.) Where a private board's functions do not relate to a person's agency program or duties the affiliation has been allowed.
Service as a member of a private board that is part of an official's or employee's official duties has also been considered in several types of circumstances. We have, for example, in some instances allowed official involvement with independently established private entities where the agency's view was that the entity's mission was related to that of the agency. (Opinions No. 80-5, No. 82-11, No. 87-13, No. 88-9, and No. 88-24.) We have also allowed participation as part of a person's official duties where there is an agency contractual relationship and the participation is in furtherance of that relationship. (Opinions No. 83-33, No. 85-26, and No. 86-32.) These opinions related to affiliation with entities that are essentially private and have goals and purposes independent of their common interests with the State.
Other situations have also been presented, however, that are more like the question presented here where a private entity was in essence being created by and in coordination with the State, and has a more expressly public purpose. Opinion No. 87-4, for example, 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 (the federal Department of Housing and Urban Development). The entity's purpose was to further public housing planning and implementation. The entity was organized so that its membership and activities were subject to significant control by the State Regional Planning Council, and Council officials' participation was solely and clearly in advancement of an agency purpose. 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 the Opinion, could serve as officers of the private corporation.
In another Opinion (No. 87-11) we concluded that officials in the State and Baltimore City Health Departments could serve on the controlling board of a private nonprofit health systems organization that was organized by the Department. The entity's purpose was to implement a private grant from an out-of-State entity to coordinate and integrate the delivery of mental health services in Baltimore City. The organization was designed to apply a private corporate model while retaining responsible government control, and provided for ex officio appointment of several officials and for operation of the entity as a joint public/private venture. Though this situation involved a complex service delivery system in which the entity would be regulating and monitoring itself, we advised, based on the understanding that the service by the individuals with the entity was part of their official duties, that it would not be inconsistent with the employment provisions of the Ethics Law.
Informal advice has also been provided in the past regarding affiliations of employees and other relationships of agencies with private fund-raising organizations established with the limited function of raising funds for a particular public program. Close relationships were permitted between the Maryland Center for Public Broadcasting and the Public Broadcasting Foundation, for example, recognizing that the Foundation was established as a part of the Center's mandate to raise private funds, and in view of the fact that direct fund-raising was generally not done by Center employees and also that there were no employment of other direct economic relationships between Center officials and employees and the Foundation.1 Informal guidance has also been provided to the Department of Economic and Employment Development (formerly Housing and Community Development) regarding fund-raising organizations related to cultural facilities. An example is the Friends of Jefferson Patterson Park and Museum, where guidelines were provided to ensure that the private group was managed strictly as a private entity, with State officials serving as officers as long as they served in their official capacity and without compensation, and as long as they avoided direct fund-raising activities.
The result of these past reviews is a series of general principles that can be applied to particular facts, designed to address the ethics concerns directed to individual employees and the ethics goal of avoiding situations where employees have private economic interests that could impact on their performance of their State jobs.2 These guidelines are for the most part directed at ensuring that the employees' involvement, where appropriate, is strictly reflective of and controlled by the public purpose of the entity that is the basis for an agency's official involvement. These include that the relationship should result in no personal benefits to employees, such as salary increments, gifts, or unreasonable expense reimbursement, and that the employees must serve by virtue of their position or agency appointment, and that their actions must reflect agency policies. Also, the participation must be as employees covered by the provisions of the Ethics Law relating to use of prestige of office as well as misuse of confidential information. More specifically, the guidelines include:
1) The private entity may not provide compensation for State-related officers or employees.
2) Reimbursement of expenses should be in accordance with agency rules.
3) Private entity funds cannot be used to supplement salaries of State employees or otherwise benefit them in violation of State personnel and fiscal policies.
4) State-related board members or employees must serve at the pleasure of the agency, either by virtue of their agency position or agency appointment.
5) Views expressed and actions taken by State-related participants must reflect official agency policy.
6) Officials are subject to the other provisions of the Ethics Law, including §§3-104 (prestige) and 3-107 (misuse of information), and possibly the post-employment provisions. Officials, for example, could not provide the private entity or donors to the entity with information not otherwise public, or in their official State position allow such entities or donors to receive favored treatment based on their dealings with the private entity. Also, an official leaving State service would be subject to the post-employment provision of §3-103(b) of the Law, and could not (for compensation) assist the private entity in a dispute or a contract with the State if it involved matters in which he participated.
7) Fund-raising by employees or officials in the context of their private affiliation, particularly as to persons or entities regulated by or doing business with the agency, would be limited or prohibited depending on the circumstances.
The Fund, which was apparently established by the Secretary pursuant to proper State authorization, would, with limited adjustments relating to compensation, expenses, and the requirement that agency views be reflected, seem to comply with these guidelines. As noted above, however, the Ethics Law addresses the personal conflicts of interest of State employees, and our review can only speak to these concerns. The above general principles are thus designed to ensure that where a public entity such as a State agency properly establishes a private entity that is designed to further a State government purpose, public employees and officials that are affiliated with it act solely in the furtherance of this State interest, without the interference of any private interests. The Ethics Law does not, however, reach fiscal and general policy questions that might also be presented in these situations. Officials should therefore recognize that it is not possible for the Ethics Commission to rule on these issues or to decide the appropriate State policy. Any control mechanisms that need to be established to reach these concerns should be addressed by the Executive and the Legislature as part of ongoing policy development.
* M. Peter Moser, Chairman
Rev. C. Anthony Muse
Robert C. Rice, Ph.D.
Barbara M. Steckel
* Mr. Moser was a member of and Chairman of the Commission when this request was heard and decided, but his term expired on June 30, 1989, prior to formal issuance of the Opinion.
Date: August 3, 1989
1 The Legislature in its most recent consideration of ethics issues and foundation activity enacted legislation in the 1989 Session providing that the employment provisions of the Ethics Law do not bar noncompensated service by Center employees with the Foundation, subject to Ethics Commission approval of ethics guidelines regarding the service. Special provisions also appear in § 15-104 of the Education Article.
2 Generally there has been more latitude where the entity was clearly a State-created entity performing a State purpose than where the State was being represented on a board for control or contractual purposes.