CONFLICTS OF INTEREST -- Purchases and Sales (mayor's purchase of real property from village IDA) -- Industrial Development Agency (mayor's purchase of real property from village IDA)
GENERAL MUNICIPAL LAW, §§800, 856: Although under the literal provisions of General Municipal Law, Article 18 a village mayor would not have a prohibited conflict of interest in a purchase of real property from the village industrial development agency, consideration should be given to whether the relationship between the village and the agency creates an identity or overlap of interest which brings the transaction within the statutory contemplation of Article 18. Prior opinions, including Opn No. 78-614, are superseded to the extent inconsistent.
You ask whether a prohibited conflict of interest would arise if the mayor of a village, in his private capacity, purchases a parcel of land from the village industrial development agency ("IDA"). In accordance with the enabling act establishing the IDA (General Municipal Law, §925), the members of the IDA are appointed by the governing body of the village. You informed us that the mayor is not an IDA member.
General Municipal Law, Article 18 (§§800, et seq.) contains provisions of law relative to conflicts of interest of municipal officers and employees. Pursuant to General Municipal Law, §800(3), an "interest" is defined as a direct or indirect pecuniary or material benefit to a municipal officer or employee as the result of a contract "with the municipality which such officer or employee serves." That interest is prohibited if the officer or employee has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or approve payments thereunder; (b) audit bills or claims under the contract; or (c) appoint an officer or employee who has any such powers or duties, and none of the exceptions contained in Article 18, including section 802, are applicable (General Municipal Law, §§801, 802).
The definition of "municipality" contained in Article 18 includes both villages and IDA's (General Municipal Law, §800). However, an IDA, which is a public benefit corporation, is a separate and distinct legal entity from the municipality for whose benefit the IDA was established (General Municipal Law, §856). As a result, since the mayor is neither an officer nor an employee of the IDA, under a literal reading of Article 18, he would not have an interest in a contract "with the municipality which such officer or employee serves" in this instance and there could be no prohibited conflict of interest.
Although the literal provisions of Article 18 may not result in a prohibited interest in this instance, we note that the courts of this State have held public officials to a high standard of conduct and, on occasion, have negated certain actions which, although not violating the literal provisions of Article 18 of the General Municipal Law, violate the spirit and intent of the statute, are inconsistent with public policy, or suggest self-interest, partiality or economic impropriety (see, e.g., Zagoreous v Conklin, 109 AD2d 281, 491 NYS2d 358; Matter of Tuxedo Conservation v Town Board of the Town of Tuxedo, 69 AD2d 320, 418 NYS2d 638; Conrad v Hinman, 122 Misc 2d 531, 471 NYS2d 521). One such case which is pertinent to the instant situation is Rose v Eichhorst, 42 NY2d 92, 396 NYS2d 837.
In Rose, supra, a town board member acquired, at county tax sale, land situated in the town in which the board member served. The Appellate Division had held that there was no prohibited conflict of interest under Article 18 because the board member was at all times dealing with the county rather than the town in acquiring the property (52 AD2d 198, 382 NYS2d 198). The Court of Appeals reversed the Appellate Division decision, however, holding that the "contract for sale, although in form concerning only the county, by implication also involves the town, and as such is within the statutory contemplation" of Article 18 (42 NY2d at p 97, 396 NYS2d at p 840).
In rejecting the assertion that a county treasurer, in conducting a tax sale, is seeking to collect sums owed to the county, the Court of Appeals stated as follows:
The Court further concluded that the role played by town board members in preparing the town budget and initiating the collection of taxes must be considered as part of the authorization and approval process resulting in the county tax sale. Accordingly, the Court stated that the board member's official interest in these matters, when contrasted with his personal acquisition of the property, "can only be described as conflicting." (42 NY2d at p 98, 396 NYS2d at p 840).
In the instant case, although the mayor is contemplating a contract with an entity of which he is neither an officer nor employee, the relationship between a village and a village IDA is such that there may be an "overlap" or "identity" of interest similar to the situation in Rose, supra. For example, since the village IDA is created for the benefit of the village and its inhabitants (General Municipal Law, §§856, 925), both the village and IDA serve the same constituents. Further, the village board and the mayor vote on the appointment and removal of IDA members and are eligible to be members of the IDA (General Municipal Law, §§856, 925; Village Law, §4-400). Therefore, even if the village board and mayor are not members of the IDA, they have direct control over the composition of the agency. Also, when the IDA ceases to exist, all rights, titles and interests and all obligations and liabilities of the IDA vest in the municipality (General Municipal Law, §882). Thus, upon dissolution of the IDA, the village becomes the IDA's successor in interest.
In view of the close connections between an IDA and the village, local officials should consider the possibility that, upon judicial review, a court, under an analysis similar to that expressed in Rose, supra, may hold that, although the contract for sale is with the IDA, the village's interest in the transaction overlaps that of the IDA and that the transaction, therefore, is in essence a village contract within the statutory contemplation of Article 18. We also note that the codes of ethics of the village and the IDA, if the IDA has adopted a code, should be examined to determine if they contain any pertinent provisions.
Prior opinions of this Office, including Opn No. 78-614, are hereby superseded to the extent inconsistent herewith.
June 3, 1988