99.02

OPINION NO. 99-02

Advice has been requested from the President of an institution of the University of Maryland System (the Requestor) as to whether and how the Ethics Law applies in view of his substantial stock ownership in a bank that is a tenant in a building that is expected to be purchased by the University. We advise based on the information provided that this ongoing relationship would be inconsistent with the financial interest prohibition of §15-502 of the Public Ethics Law (State Government Article, §15-502, Annotated Code of Maryland, the Ethics law), and that if the University becomes the landlord of this particular business entity, the interest could only be continued if there is a special exemption pursuant to §15-502(d) of the Law.

The situation presented here relates to the substantial financial interest of the Requestor in a local bank (the Bank). He has held this interest, which exceeds $1 million in value, for many years, and this Commission has reviewed the circumstances and provided him advice regarding these holdings and potential interactions by the Bank with the University. The situation presented here involves the proposed purchase by the State for University use of a building located in the heart of the institution's campus (the Building). This is apparently one of the few office buildings with significant space possibilities in the campus area and has been on the institution's master development plan for several years. The Building has not in recent years been owned by or otherwise involved with the University.

During 1998, however, it was determined to include the acquisition of the Building in the University's capital budget. The project followed the normal course of review for such acquisitions, and though it was not initially included in the budget, was added as part of the supplemental budget developed after the Legislative Session started and it became clear that there would be a budget surplus. When this additional funding became available, the University System coordinated with the institutions and the Requestor's institution requested addition of funding for the acquisition of the Building. The project was in fact included in the supplemental budget in the amount of $2 million reflecting the anticipated possible purchase price based on Department of General Services appraisals acquired in the process of preparing the program plan for submission in the initial budget process. The property has changed hands during this process and is currently owned by a private owner who has an interest in selling it to the University with certain conditions related to uses by others in the area. Funds are apparently available and the Department of General Services is in a position to move forward with the process to purchase this property for the University System for use by the Requestor's institution. Assuming the transaction proceeds as planned, the property would transfer to the State for the benefit of the institution, with the bank as an existing leaseholder. According to State property personnel, the lease transfers with the building. It ends by its terms in 2005, but apparently could be terminated by the University at its discretion once it acquires the property.

This request involves application of the strict financial interest prohibition of §15-502 of the Ethics Law, which prohibits employees and officials from having a financial interest in an entity that contracts with or is negotiating a contract with their agency or an agency with which they are affiliated. The Requestor has a financial interest in the Bank. This is an entity that will have a contract for the lease of premises owned by the State for the use of the institution, a unit of the University of Maryland System. We are advised in these types of situations that while the State Department of General Services negotiates real property sales and leases on behalf of user agencies, the user agency is viewed as the landlord in lease situations. If the Bank continues as a tenant at the Building, the landlord would be the Requestor's institution, which would manage the lease and collect the rents. Also, of course, the institution would be the agency significantly involved in decision making regarding the use of the building and the primary agency responsible for any activities impacting on a current tenant as a result of renovations of other activities relating to the building. Under these circumstances, it is our view that the Requestor's interest in the Bank would be a financial interest in an entity that contracts with his agency for purposes of §15-502 of the Law, and would not be allowable unless an exception or exemption can be granted.

Exceptions are permitted under the Law under a variety of circumstances. The regulatory exception provision in §15-502(c)(1) of the Law allows exception by the Commission in accordance with Commission regulations where the Commission determines that there is no conflict of interest or appearance of conflict. The Commission's implementing regulations (COMAR 19A.02.02) address both the relationships between an official's agency duties and the entity and the official's responsibilities with the private entity. The Requestor is the Chief Executive Officer of a University institution and would be expected to have a role in decision making or supervising decision makers regarding the uses of buildings owned by the University. This would include at the outset, for example, the basic decision of whether to continue the Bank's lease or solicit other banking operations in the building, as well as dealing with a tenant in connection with proposed renovations and use of the building by the University.

We have taken into account that this is a real property situation and that frequently in the past we have looked at the special circumstances arising from the fact that real property and location needs often present unique concerns. (See, for example, Opinions No. 96-6, 84-16 and 84-20. Opinions published in COMAR Title 19A.) We are concerned, however, that the continuance as a tenant of an entity with which an official has a not insignificant financial relationship is not the same type of situation as with the actual purchase of property. Moreover, the Requestor as University President has significant duties regarding management of the University's resources. This is a potential conflict that has been known for years, and several sections of the Ethics Law are potentially at issue, including the nonparticipation provisions of §15-501. Though the University believes that transfer of policy and decision responsibilities regarding the property to the System Administration can adequately resolve issues relating to this situation, the Commission has not generally allowed nonparticipation as a cure of an interest or employment violation under §15-502 and in fact in several prior situations advised higher education board members and employees that they may not have affiliations with banks that deal with their agencies. (See, for example, Opinions No. 83-39 and No. 86-7.)

We are therefore unable to conclude that this situation meets either the remoteness or the statutory nonappearance of conflict criteria that have in the past justified allowance of a regulatory exception. We therefore advise the Requestor and the University that absent a Gubernatorial exemption the Requestor's interest in the Bank would be inconsistent with the requirements of the Public Ethics Law, if the Bank continues as a tenant after the University's purchase of this property.1

Charles O. Monk, II, Chairman,
    Michael L. May,
    April E. Sepulveda

Date: February 18, 1999

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1 Pursuant to §15-502(d) of the Law, the Ethics Commission may grant exemption upon the recommendation of the Governor under certain circumstances.