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NYS Comptroller

THOMAS P. DiNAPOLI

The Academy for New York State's Local Officials

Protecting the Public’s Interest: A Tutorial on Local Government Ethics and Transparency in New York State

Module 1 - Conflict of Interest of Municipal Officers and Employees

Text for Video - Statutory Exceptions

Assuming there is a contract and there is an interest in the contract and we have established that you have powers and duties that can give rise to a prohibited interest, your last step is to determine whether there are a statutory exceptions that apply. Otherwise, you would have a prohibited interest under Article 18 of the General Municipal Law. So why do we have these exceptions? Generally, the exceptions apply to contracts in situations where the municipal officer or employee does not either have a material financial stake in the transaction or an opportunity to exert improper influence in the transaction or the transaction is otherwise in the public interest. One of these exceptions we will talk about is in Section 801 of the General Municipal Law. All the other exceptions we’ll talk about are in Section 802 of the General Municipal Law. Section 801 expressly permits the payment of lawful compensation and necessary expenses to an officer or employee in one or more positions of public employment the holding of which is not prohibited by law. Thus, Article 18 does not prohibit a municipal officer or employee from receiving reimbursement for actual and necessary expenses incurred in the performance of their official duties. When I am giving a speech to a live audience, I usually talk to them and say, "I’m guessing many of you come to this conference, you may have had to stay in a hotel, maybe you have to drive here. In either case, this exception allows you to be reimbursed for those expenses." I usually get a smile in the crowd. They are happy to know that they can get reimbursement. But for the purposes of taping today, I just want you be aware that this exception is out there. Also, this exception applies when one person is being compensated for serving a municipality in more than one position, assuming of course, that those positions are compatible. Again, as I mentioned before, compatibility of office is not going to be part of the discussion of this presentation today.

The next exception that I would like to talk about is the Duties and Remunerations Exception. This exception applies to a situation where your interest in a contract is prohibited solely because either you are either an officer or an employee of the private entity. However, keep in mind, this exception only applies if you meet two criteria. The first criteria you have to meet is, does your private remunerations, which is fancy word for compensation, is not directly affected as a result of the contract. And the duties of your private employment whether you are an officer or an employee do not directly involve the procurement, preparation, or performance of the contract. An example that I would like to use is, let's say you have a board member who works in the sales department of a vehicle dealership and the municipality has entered into a contract with the dealership for repair services. In that situation, if the board member is receiving a salary and is receiving no direct compensation as a result of the contract with the dealership to deal with the repair services and has no involvement in the procurement, preparation, or performance of that contract with the municipality. In essence, they have nothing to do with the repair part, they are only involved in the sales department of the dealership, the exception would apply.

Another exception that is out there, you will actually find this in Section 802 (1)(h) of the General Municipal Law. And this is contracts entered into prior to the time the municipal officer or employee is elected or appointed to your municipal position. Keep in mind this exception does not apply for renewal contracts. So if you are in a situation where a contract is entered into prior to the time you were elected or appointed, this exception could apply. However, while you are sitting, for example, on the board that contract comes up for renewal, this exception will not apply. Also, keep in mind, contracts with the corporation, there is an exception as well, for contracts in the corporation if the officer or employee directly or indirectly owns or controls less than 5 percent of outstanding stock. I discussed earlier in the presentation that you may fall into a situation where you have a deemed interest in a corporation if you own stock in that corporation, in this case one share of stock, and the municipality in which you are a municipal officer or employee has entered into a contract with that corporation. This exception is designed to help the you in situation where you have very limited amount of stock, in this case, less than 5 percent. So I am assuming where you only own one share in that large corporation stock it's most likely is less than 5 percent and this exception would apply.

Also, keep in mind another exception that is out there is Contracts with Membership Corporations or Other Volunteer Not-for-Profit Corporations or Associations. Usually this includes fire protection contracts because most fire departments and corporations are not-for-profit corporations or associations. Also, another exception is out there. You will find this in Section 8O2 (2)(e) of the General Municipal Law. This provides that with a total consideration payroll under all contacts in which an officer or employee has an interest during a fiscal year is less than or does not exceed $750, this exception will apply. Where does this exception usually come into play? It is usually a situation where the municipality has entered into a contract to purchase like a light bulb from the local hardware store - something along those lines. It’s clearly under the $750 amount. But again this is not a large number and just be aware that the exception is only available if it does not exceed $750.

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