Ethics Commission advice has been requested as to whether a member of the State Roads Commission (and by virtue of this an ex officio member of the Maryland Transportation Commission) may enter into a transaction to purchase real property from the State Highway Administration. We advise that this transaction should not proceed as long as this individual continues to serve on these two State commissions.
The State Roads Commission is established in Article 40A of the Maryland Constitution, which provides that
where ... property is needed by the State for highway purposes, the General Assembly may provide that such property may be taken immediately upon payment therefor to the owner or owners thereof by said State Roads Commission, or into Court, such amount as said State Roads Commission shall estimate to be of the fair value of said property, provided such legislation also requires the payment of any further sum that may subsequently be awarded by a jury.
The Commission is chaired by the Administrator of the State Highway Administration (SHA) and includes 7 members representing regions of the State appointed by the Secretary with the approval of the Governor. By virtue of their position on the State Roads Commission, these regional representatives also serve on the Maryland Transportation Commission, the advisory board to the Secretary of Transportation as to the State's transportation system. The SRC originally had more significant authority regarding the SHA's land transactions. When the Department of Transportation was organized and the Highway Administration created in 1977, most of the functions of the SRC were assigned to the Administration. In view of the particular Constitutional provision as to condemnation, however, the Commission was continued with this relatively narrow function of authorizing the condemnation of land for highway uses. 1 According to the agency, the Commission meets twice a month and processes about 500 real estate purchase transactions per year (about half of SHA's annual real property purchases). Agency staff indicate that only the Commission has eminent domain authority for highway land purchases, which is exercised based on recommendations developed by the Office of Real Estate.
The Requestor was appointed to the Commission in 1990 representing the Baltimore, Harford and Howard County region. He is the majority owner of a retail business that does business throughout the region. One of the retail stores is located on property leased from a partnership in which the Requestor owns a minority interest (the Business property). This property is directly adjacent on its south wall to a piece of property owned by the SHA, which has been vacant since the relocation of an adjoining road (the SHA property). The State Highway Administration is authorized under §8-309 to dispose of excess property in a variety of ways, including conveyance to an adjacent property owner. Though the State Roads Commission has no role in this process, the property appraisal is arranged by and the process conducted through SHA's Office of Real Estate. The SHA property was purchased by the State in 1960 as part of right-of-way purchases for the Baltimore Beltway, and was found to be surplus in 1986 after the road was relocated. After this time a public auction of the property was noticed, but a sale was not completed.
In late 1993 or early 1994 the Requestor expressed an interest to the SHA Administrator (with whom he serves on the SRC) in purchasing the SHA property through a partnership (including the Requestor and family members) that owns the Business property. According to agency staff, as there is nothing in the highway program or the Consolidated Transportation Plan in this area, the 1986 determination of excess is viewed as the current status of this property. Given this status of the property and in response to the Requestor's inquiry, the Office of Real Estate undertook to procure an independent appraisal as required by the statute, and an appraisal was conducted by an independent vendor. Based on its size, shape and topography, the appraiser concluded that the highest and best use of the property would be absorption into the adjoining property, or the Business property. Pursuant to the appraisal report and agency review, a fair market value was generated. The transaction was then suspended pending Ethics Commission review, given the Requestor's official status with the agency. There has in the interim, however, also been some suggestion that the property could be offered for public auction.
Section 3-103(a) of the Ethics Law provides that officials and employees, including members of boards and commissions, may not be employed or have a financial interest in an entity that contracts or is negotiating a contract with their agency (subsection (a)(1)(i)), or have any other employment relationship that would impair their impartiality or independence of judgment (subsection (a)(1)(ii)). As the Requestor has an employment and interest relationship with the Business (which leases the property adjoining the SHA property), and a partnership interest in the entity that proposes to purchase the SHA property directly from the agency, his entering into this transaction while he remains on the State Roads Commission would seem to be clearly prohibited by this section of the Law.
The Ethics Law allows for several possible exceptions/exemptions from the employment and interest prohibitions, but in the absence of an agency or Gubernatorial request under §§2-103(h) or 3-103(a)(3), the only one potentially applicable here is the regulatory exception established in §3-103(a).2 This exception is possible under the proviso in the section that the prohibition applies except as provided by regulation of the Commission where there is no conflict of interest or appearance of conflict. The Commission regulations (published at COMAR 19A.02.01 and .02) include a series of guideline criteria designed to evaluate the relationships between an individual's official duties and proposed private activities. They consider, for example, whether the individual's duties involve direct impact on the private entity and whether the individual's unit or supervisor directly impact on the entity. The criteria also look to the nature of the person's functions in the private activity. Account is also taken of the general circumstances and the potential application of other provisions of the Law, as well as appearance concerns. Generally exception has been allowed only where the Commission is convinced that the relationships are genuinely remote and that the possibility of conflict or appearance of conflict is unlikely.
The Commission has also in the past considered several situations involving real property transactions between agencies and agency employees or board members. Though there have been a few special circumstances where such transactions have been allowed, we have generally not allowed employees or officials to engage in real estate dealings with their own agency. Opinions No. 80-11 and No. 79-1, for example, involved prohibition of board and commission members from having direct real estate dealings with their agency. More particularly, Opinion No. 80-11 involved a member of the Maryland Transportation Commission (MTC), and reflected Ethics Commission concerns regarding dealings with a DOT administration by an appointee serving in this general advisory capacity. (Opinions published in COMAR Title 19A.)
We believe that this situation presents substantial issues under these prior opinions and the exception criteria. The Requestor's official duties involve one board that has significant and substantial impact on economic and program aspects of the SHA's highway building program and another board with broad Departmental overview. His official activities involve his direct, frequent and ongoing interaction with the Office of Real Estate, the same unit of the agency that is substantially involved in the private transaction. To the extent that there is any dispute about the sale price or any negotiations between the agency and the potential purchaser, these would necessarily involve this agency unit in interactions with private interests with which the Requestor would have continuing relationships. Also, his official duties involve his regular work with the SHA Administrator, who is Chairman of the Commission and also the supervisor and final decision maker as to the property sale. In the past we have applied the exception criteria strictly, allowing such exceptions where the circumstances are so clearly remote that there can be no appearance of conflict. We do not believe that such a finding is supported by the circumstances presented here.
We are aware that the Requestor has suggested he would remove himself from the family partnership that owns the adjoining property and would thus not directly and personally be a purchaser of the SHA property. We are concerned, however, since he would continue to have significant financial and employment relationships with his retail business located on the adjoining property, which could be impacted by the transaction. Also, we have not in the past accepted a mechanical transfer of interest, particularly where it involves family members, in order to meet the technical requirements of the Law as a basis for allowing a relationship that would otherwise be barred, particularly where there are appearance concerns as here. Another factor here is that the transaction to seek purchase of the property was instituted by the Requestor himself while he was a part of the partnership.
In summary, we believe that the circumstances and the substantial appearance concerns presented require a conclusion that this transaction is prohibited by the employment provisions of §3-103(a) (including the impairment provision), raises potential concerns under the prestige provision of §3-104 of the Ethics Law, and that exception cannot be applied to overcome these prohibitions. We therefore advise the Requestor and the agency that the Requestor should not remain on these boards if the purchase of this property is going to be pursued.
Mark C. Medairy, Jr., Chairman
Michael L. May
Charles O. Monk, II
April E. Sepulveda
May 17, 1995
1 Note that the Ethics Commission does not have the authority to interpret or apply the provision in §8-217 of the Transportation Article that members of the State Roads Commission may not have any financial interest in any contract made for work, material, or otherwise in connection with any of the activities of the Administration.
2 Two special exemptions for board and commission membersthe licensing board and time of appointment exemptionswould not appear apply here, as this is not a licensing board, and there is no applicable Time of Appointment Disclosure.