This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CONFLICTS OF INTEREST -- Powers and Duties (execution of fire district bonds and payment of principal and interest on bonds)
GENERAL MUNICIPAL LAW, §§800(2),(3), 801; LOCAL FINANCE LAW, §61.00(a); TOWN LAW, §177: When a secretary-treasurer of a fire district performs the functions of executing the district's bonds and issuing checks for the payment of principal and interest, and has no other powers and duties with respect to the sale, issuance or payment of bonds, the secretary-treasurer would not have a contractual interest prohibited by article 18 of the General Municipal Law if he or she purchased bonds issued by the district. 32 Opns St Comp No. 1976, p 80 superseded to the extent inconsistent.
You ask whether the secretary-treasurer of a fire district would have a conflict of interest if he or she were to purchase bonds to be issued by the district. In this instance, the secretary-treasurer has the duty to execute the bonds, and to issue checks for the payment of principal and interest, but has no other powers or duties with respect to the sale, issuance or payment of the bonds. You indicate that the secretary-treasurer had no direct or indirect involvement in the negotiation of the terms of the bonds which are to be sold at private sale.
Article 18 of the General Municipal Law (§800 et seq.) contains the provisions of law which relate to conflicts of interest of municipal officers and employees (see General Municipal Law, §800,). A municipal officer or employee has an "interest" in any contract with the municipality if he or she receives a direct or indirect pecuniary or material benefit as a result of the contract (see General Municipal Law, §800). For this purpose, a "contract" includes any express or implied claim, account or demand against or agreement with a municipality (see General Municipal Law, §800). An interest in a contract is prohibited if the officer or employee, individually or as a member of a board, has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or authorize 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 General Municipal Law, §802 is applicable (General Municipal Law, §801).
Any contract willfully entered into in which there is a prohibited interest is null, void and unenforceable (General Municipal Law, §804) and any officer or employee who willfully and knowingly violates these provisions may be guilty of a misdemeanor (General Municipal Law, §805). We also note that, if an officer or employee has an interest in a contract that is not prohibited under the provisions of article 18, General Municipal Law, §803 nonetheless generally requires that the nature and extent of the interest be disclosed in writing as soon as the officer or employee has knowledge of the actual or prospective interest. The written disclosure must be included in the official record of the governing board's proceedings. Disclosure is not required under §803 in the case of an interest in a contract which is not prohibited under subdivision two of §802 (General Municipal Law, §803).
A bond issued by a fire district is a "contract" because it is an "agreement" by the district to pay principal and interest and constitutes a "claim" against the district for the payment thereof (see General Municipal Law, §800; Local Finance Law, §51.00, -; see also NY Const, art VIII, §2; 32 Opns St Comp 1976, p 80). A fire district secretary- treasurer who acquires a bond issued by the district would have an "interest" in a contract with the district because he or she would receive a direct or indirect pecuniary benefit as a result of the contract in the form of, inter alia, interest payments (see General Municipal Law, §800). That interest in the contract would be prohibited, however, only if the secretary-treasurer has any of the powers and duties enumerated in General Municipal Law, §801, and none of the exceptions in General Municipal Law, §802 are applicable (see General Municipal Law, §801).
The treasurer of a fire district is the district's "chief fiscal officer" for purposes of the Local Finance Law (see Local Finance Law, §2.00[f]). As such, the finance board of the fire district may delegate to the treasurer certain functions with respect to the sale and issuance of bonds by the district (see, e.g., Local Finance Law, §§50.00, 56.00), and the treasurer is required to execute the district's bonds unless the finance board designates another officer to perform the function (see Local Finance Law, §61.00[a]). The treasurer is also required to issue checks for the payment of principal and interest on obligations issued by the district, without prior audit by the board of fire commissioners (see Town Law, §§176[4-a], 177). Moreover, the secretary of a fire district or, under certain circumstances, the treasurer may serve as "fiscal agent" and perform functions pertaining to the payment, registration, conversion and reconversion of bonds issued by the district (see Local Finance Law, §70.00[a], 71.00-75.00).
In this instance, however, the secretary-treasurer's functions are limited to executing bonds and issuing checks for the payment of principal and interest. In this regard, we have previously concluded that the power to execute a properly authorized contract, or to issue a check to pay a properly audited and lawful claim, does not constitute the power to "approve" or "authorize" a contract or payment thereunder within the meaning of General Municipal Law, §801, because the execution of a contract or issuance of a check under such circumstances is a ministerial function (see 1986 Opns St Comp No. 86-7, p 11; 1982 Opns St Comp No. 82-319, p 406; see also 1989 Opns St Comp No. 89-32, p 74). Further, the execution of a bond has been characterized as a "purely ministerial" function, which may be enforced by mandamus where there is no doubt as to the regularity of the proceedings leading up to the execution of the bond (see Finigan v Zuber, 156 Misc 2d 479, 281 NYS 930; see also 15 McQuillin, Municipal Corporations [3rd Ed, Rev.], §43.56). Finally, although the treasurer's payment of principal and interest on fire district obligations is not subject to prior audit, the function is ministerial in nature because the treasurer is required by statute to make the payment (see Town Law, §177), the payment must be made in accordance with the terms of the obligations (see Local Finance Law, §51.00,,-,), and the payment may be compelled by judicial action (see Local Finance Law, §51.00; Flushing National Bank v Municipal Assistance Corp, 40 NY2d 731, 390 NYS2d 22; 11 Opns St Comp 1955, p 171; see also NY Const, art VIII, §2; Van Derzee v City of Long Beach, 265 App Div 1059, 39 NYS2d 401). Therefore, we believe that neither the function of executing a duly authorized bond, nor the function of issuing a check for the payment of principal and interest on such a bond, constitutes a power or duty within the scope of section 801.
Thus, when the secretary-treasurer of a fire district performs the functions of executing the district's bonds and issuing checks for the payment of principal and interest, and has no other powers or duties with respect to the sale, issuance or payment of the bonds, the secretary- treasurer would not have a contractual interest prohibited by article 18 if he or she were to acquire a bond issued by the district (cf. General Municipal Law, §805-a[b] prohibiting a municipal officer or employee from using confidential information to further personal interests). The secretary-treasurer's interest in the bond, however, would have to be disclosed as required by General Municipal Law, §803.
In 32 Opns St Comp, 1976, supra, we presumed that a city auditor, as the "city's chief fiscal officer", possessed one or more of the powers or duties enumerated in General Municipal Law, §801 with respect to the sale or issuance of the notes. Therefore, we concluded that a city auditor would have a prohibited contractual interest if he purchased notes directly from the city. To the extent that opinion suggests that a chief fiscal officer will always possess section 801 powers or duties in connection with the sale or issuance of obligations it is hereby superseded.
Although the secretary-treasurer may not technically have a contractual interest prohibited by article 18, 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 the intent of the statute, are inconsistent with public policy, or suggest self interest or partiality or economic impropriety (see, e.g., Zagoreos v Conklin, 109 AD2d 281, 491 NYS2d 358 [2nd Dept 1985]; Matter of Tuxedo Conservation Taxpayers Ass'n v Town Board of the Town of Tuxedo, 69 AD2d 320, 418 NYS2d 638 [2nd Dept 1979]; Conrad v Hinman, 122 Misc 2d 531, 471 NYS2d 521 ). Also, under certain circumstances, the secretary-treasurer of a fire district may have an obligation to protect district funds by refusing to execute a bond or issue a check to pay principal and interest (see Local Finance Law, §166.00; Finigan, supra; Opn No. 86-7, supra). Based on these considerations, we caution that a court might find that a secretary-treasurer has a prohibited conflict of interest if he or she were to acquire a bond issued by the district even though the power or duty to execute the bond and issue checks for the payment of interest and principal do not technically constitute section 801 functions (see Opn No. 86-7, supra; see also Opn No. 89-32, supra). Therefore, the secretary-treasurer may wish to refrain from purchasing a bond issued by the fire district.
Finally, the fire district's code of ethics, if any, should be consulted to determine whether it contains any pertinent provisions. In this regard, we note that pursuant to General Municipal Law, §806, fire districts are authorized, but not required, to adopt codes of ethics which contain standards relating to the conduct of officers and employees with respect to, among other things, the holding of investments in conflict with official duty (see 1989 Opns St Comp No. 89-20, p 44). Such codes of ethics may regulate or prescribe conduct which is not expressly prohibited by article 18, but may not authorize conduct otherwise prohibited.
March 29, 1991
Peter A. Carriero, Secretary-Treasurer
Stillwater Fire District