October 27, 2005
We have been asked by the Secretary of the Department of Transportation to review the application of the nonparticipation provisions of §15-501 of the Public Ethics Law (Md. Code Ann., State Gov't Title 15 (Supp. 2005)) to him in regard to two Fortune 500 companies who are vendors of the Department. Each vendor employs one adult child of the Secretary in locations outside of Maryland and in divisions or programs unrelated to the vendors' business with the Department. Based on the information presented and the specific circumstances of this situation, we advise that an exception to the prohibition on participation may be granted with respect to both vendors.
The Secretary has management and oversight authority for the operations of the Department and its several modal agencies. 1 The Department includes the Maryland Aviation Administration, State Highway Administration, Maryland Port Administration, Maryland Transit Administration and the Maryland Vehicle Administration. The Secretary also sits as the Chair of the Maryland Transportation Authority. The Department and its modal agencies have an annual budget in excess of $3.5 billion including federal funds and in excess of 9,000 staff positions.
Generally, the administrators of the modal administrations of the Department are responsible for procurement and contractual matters in their respective agencies. The Administrators are signatories of contracts with vendors and modal agency staff monitors the contracts. The Secretary is the signatory for contractual matters that are at the Department's Headquarters.
Vendor No. 1 is a large publicly traded corporation in the information technology industry. It manufactures computer equipment and develops software. It has in excess of 330,000 employees worldwide and reported annual revenues in excess of $90 billion dollars. The Department through the Port Administration initially acquired mainframe services from the vendor in the 1980's. In the 1990's the Department and the Motor Vehicle Administration retained the vendor for mainframe services. The Department and its modal administrations have also contracted with the vendor for hardware and software maintenance agreements and other professional services. The Secretary anticipates that the vendor will respond to future Department and modal administration procurements and requests for proposals for information technology services. According to the Comptroller's directory of businesses doing business with the State in calendar year 2004, Vendor No. 1 had approximately $19.5 million in business with all State agencies. A little less than $1 million was with the Department and its modal agencies.
An adult son of the Secretary has been employed by Vendor No. 1 for four years. He is a Financial Analyst and he works out of the vendor's Durham, North Carolina office. He is part of a financial planning group in the vendor's special product division working on industry standard server systems. He has no involvement with contracts or sales of the vendor's services or products to customers. His primary responsibility relates to development of internal estimates of worldwide gross profits for the particular product line. The son has participated in the retirement savings and stock purchase plans offered by Vendor No. 1 to all its employees in the past although he currently is not participating.
Vendor No. 2 is a large publicly traded financial services corporation. It has in excess of 6,100 offices in North America and reportedly manages more than $400 billion in assets through 150,000 professional staff. The Department of Transportation, acting with the Office of the State Treasurer, has procured services from banking institutions to act as bond registrars, paying agents and trustees in connection with various financing transactions associated with construction at various modal administrations such as the Maryland Aviation and Transit Administrations. Vendor No. 2 has two contracts with the Department and the State Treasurer related to these "certificates of participation" matters to finance improvements to Pier B at the airport and a parking garage at an Amtrak/MARC station. The contracts are administered by the vendor's office in Columbia, Maryland. The vendor also serves as an escrow agent in connection with a dredging project of the Port Administration. The Administration deposits funds in the escrow account to provide the local match for federal funds provided by the Army Corps of Engineers to carry out the dredging project. Finally, Vendor 2 serves as a trustee in connection with bonds issued by the Maryland Economic Development Corporation ("MEDCO") to finance construction of a new Department headquarters building. The Department is not a signatory to this agreement, which is between MEDCO and Vendor No. 2.
An adult daughter of the Secretary has been employed by Vendor No. 2 for three years. She is presently an "e-business consultant" and works out of the vendor's headquarters in San Francisco, California. Her duties are limited to developing strategies to market the vendor's financial services through its Internet channel and assisting customers on Internet accounts. She has had no interaction with the corporate trust division of Vendor No. 2 in Maryland. She participates in the matched 401k plan offered by the vendor to its employees.
The Secretary has served in his position with the Department for a little over two and one-half years. During that time, one matter involving Vendor No. 1 was brought to his attention. He recused himself from any participation in the matter and in a written directive designated the Deputy Secretary to act in his place. The Secretary apparently had one matter involving Vendor No. 2 come to his attention related to the vendor's service as an escrow agent for payments from the Port Administration to the Army Corp of Engineers for dredging work in the harbor. The Secretary has asked for our review because he believes there would be no conflict of interest from his participation should matters arise in the future with either of the vendors.
The Maryland Public Ethics Law, Md. Code Ann., State Gov't Title 15 (Supp. 2005) provides in part at §15-501(a) that an official or employee of the State may not participate in a matter if a party to that matter is a business entity that employs the official's or employee's spouse, parent, child, brother or sister. 2 However, §15-501(b) of the law allows us to grant exceptions by opinion. 3
The Public Ethics Law counsels State employees and officials to avoid conflicts of interest and even the appearance of conflict. The Legislature, in establishing the requirements of §15-501, defined situations or circumstances where it believed that participation in a State matter by an official or employee created a conflict of interest or the appearance of conflict. Obviously non-participation is a key ethics tool to avoid the appearance of conflict or possible impropriety. The Legislature also recognized that there could be some circumstances where an exception from the non-participation provision could be allowed by us based on our specific review of the circumstances. The law instructs us to do so by advisory opinion and we have looked to the remoteness of the relationships and whether it was sufficient to grant an exception.
After a full review of the facts, we conclude that the present situation is sufficiently remote to allow an exception. 4 The Secretary's son and daughter work in divisions of the vendors that are not involved in the work at the Department. They are adults maintaining their own households in areas that are a significant distance from Maryland and the Secretary. The vendors' service contracts initially preceded the appointment of the Secretary. His children's employment with the vendors also preceded his appointment as Secretary. Given the size of the vendors' operations, the Secretary is not in a position to benefit the vendor in such a way as to benefit his children. Neither of the children is a high-level manager with their respective vendors although we recognize that they may participate, as do other employees, in stock purchase plans offered by their employers and in that regard benefit to the extent the overall financial operations of the companies are successful. However, the portion of any of that success that could be attributable to dealings with the Department is minimal.
We conclude, therefore, that under these particular facts, the Secretary may participate in matters where his son's employer and daughter's employer are vendors to the Department. This exception would require further review should the Secretary's children change positions with their respective employers or be assigned additional responsibility or authority in any interaction between the Department or any of its modal administrations.
Julian L. Lapides, Chair
Dorothy R. Fait
Ava S. Feiner, Ph.D *
Robert F. Scholz
* Dr. Feiner was a member of the Commission when this opinion was considered but resigned prior to the issuance of the opinion.
1 See §§2-102 and 2-103, Transportation I Article, Annotated Code of Maryland.
2 Section 15-501(a)(1) prohibits an official or employee from participating in a matter if the official or employee or a qualifying relative of the official or employee has an interest in the matter. Section 15-501(a)(2) also prohibits participation by an official or employee in six defined situations where a business entity has certain relationships to the official, employee, or a qualifying relative of the official or employee. Section 15-102(gg) defines "qualifying relative" to mean "a spouse, parent, child, brother, or sister" of an official or employee.
3 See Opinion Nos. 04-02, 90-15 and 90-2.
4 The Secretary recused himself from a matter involving Vendor No. 1. He apparently executed the escrow agreement with Vendor No. 2 which committed the Department to a total expense of $750 annually. There have been no other matters requiring his attention related to Vendor No. 1 or Vendor No. 2. Because there have been only two matters in two and one half years, it does not appear to us that his recusal was a detriment to the Department in carrying out its mission. Our general advice in such situation would be to continue to recuse in any matters that may arise in the future. However, he has asked for an exception and based on all the circumstances we find the relationships sufficiently remote to warrant an exception should there be matters in the future.