Existing law prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract, as specified, made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions. Existing law identifies certain remote interests that are not subject to this prohibition if, among other things, the member or officer discloses the fact of that interest to the body or board, including, among others, that of a parent in the earnings of the parents minor child for personal services. Existing law imposes a criminal penalty on every officer or person who willfully violates these provisions.

This bill, on and after January 1, 2026, would include within the definition of remote interest that of a public officer if the public officers child is an officer or director of, or has an ownership interest of 10% or more in, a party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the public officer. By expanding these provisions, this bill would create a new crime and thus would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract, as specified, made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions. Existing law identifies certain remote interests that are not subject to this prohibition if, among other things, the member or officer discloses the fact of that interest to the body or board, including, among others, that of a parent in the earnings of the parents minor child for personal services. Existing law imposes a criminal penalty on every officer or person who willfully violates these provisions.

This bill, on and after January 1, 2026, would include within the definition of remote interest that of a public officer if the public officers child is an officer or director of, or has an ownership interest of 10% or more in, a party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the public officer. By expanding these provisions, this bill would create a new crime and thus would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract, as specified, made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions. Existing law identifies certain remote interests that are not subject to this prohibition if, among other things, the member or officer discloses the fact of that interest to the body or board, including, among others, that of a parent in the earnings of the parents minor child for personal services. Existing law imposes a criminal penalty on every officer or person who willfully violates these provisions.

This bill, on and after January 1, 2026, would include within the definition of remote interest that of a public officer in the financial interest of that public officers child, parent, or sibling, or the spouse of the child, parent, or sibling if the interest if the public officers child is an officer or director of, or has an ownership interest of 10% or more in, a party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the public officer. By expanding these provisions, this bill would create a new crime and thus would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Under existing law a public officer is not deemed to be interested in a contract entered into by a body or board of which the officer is a member if the officer has only a remote interest, as defined, in the contract and if the fact of that interest is disclosed to the body or board of which the officer is a member, noted in its official records, and the body or board authorizes, approves, or ratifies the contract by a vote of its membership sufficient for the purpose without counting the vote of the officer with the remote interest.

This bill would make nonsubstantive changes to these provisions.

 UNFINISHED BUSINESS  

Bill No: SB 1111

Author: Min (D)

Amended: 6/27/24

Vote: 21

SENATE LOCAL GOVERNMENT COMMITTEE: 6-0, 4/17/24

AYES: Durazo, Seyarto, Glazer, Skinner, Wahab, Wiener

NO VOTE RECORDED: Dahle

SENATE ELECTIONS & C.A. COMMITTEE: 6-0, 4/22/24

AYES: Blakespear, Nguyen, Menjivar, Newman, Portantino, Umberg

NO VOTE RECORDED: Limón

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/16/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Seyarto, Wahab

SENATE FLOOR: 37-0, 5/23/24

AYES: Alvarado-Gil, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

NO VOTE RECORDED: Allen, Archuleta, Newman

ASSEMBLY FLOOR: 75-0, 8/15/24 (Consent) - See last page for vote

SUBJECT: Public officers: contracts: financial interest

SOURCE: Author

DIGEST:

This bill expands the definition of remote interest to include the financial interests of a public officer if their child is an officer or director of a party to a contract entered into by the body or board of which the officer is a member.

Assembly Amendments

limit the bill to financial interests of public officers whose children are officers or directors of an entity that contracts with a public agency, instead of any interest of a child, parent, sibling or their spouse.

ANALYSIS:

Existing law:

1. Prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions.
2. Provides that a public officer shall not be deemed financially interested in contract if the officer only has a remote interest. Identifies certain remote interests, including the interest of a parent in the earnings of their minor child for personal services. Provides that in order to be deemed not interested in the relevant contract due to a remote interest, a public officer must disclose the interest, and the body or board must authorize, approve, or ratify the contract in good faith without counting the vote of the public officer with the remote interest.
3. Creates the Fair Political Practices Commission (FPPC) and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act of 1974 (PRA).

This bill adds, beginning January 1, 2026, a new remote interest for that of a public officer if their child is an officer or director of, or has an ownership interest of 10 percent or more in, a party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the officer.

Background

1. Government Code. California state and local officials who negotiate, make, or vote on public contracts are subject to two main conflicts of interest laws: Section 1090 et seq. of the Government Code (known simply as “Section 1090”) and the Political Reform Act of 1974.
2. Section 1090. The origins of Section 1090 formalized the longstanding common law rule prohibiting public officials—including board members, officers, and employees—from having a personal financial interest in the contracts they participate in making while exercising their official capacities. Financial interest has been liberally interpreted by the courts and includes the property and income of his or her spouse. The consequences of violating Section 1090 are severe: a contract that runs afoul of the law is void, even if it is fair and the affected official did not intend to receive a personal benefit. Willful violators can also face criminal penalties ranging from fines to prison time, plus a lifetime ban on holding public office.

Section 1090 contains several exceptions. In particular, state law identifies 17 situations that do not constitute financial interests, but that present some risk of undue influence. These “remote interests” include when a public contract would financially benefit a public official’s minor child or a nonprofit corporation at which a public official is also a non-salaried officer. Section 1090 requires an official with a remote interest to publicly disclose his or her interest, note the interest in the public record, and abstain from voting on the contract or influencing the other board members. The government body on which he or she sits may only approve the contract if there are sufficient votes to pass it without the interested official. Thus, only public officials that sit on multi-member boards may use the remote interest exception; officers and employees may not.

1. The Political Reform Act. In 1974, California voters passed Proposition 9 to create the Political Reform Act (PRA), along with the Fair Political Practices Commission (FPPC), the agency tasked with enforcing the PRA through administrative and civil penalties. In 2013, the Legislature expanded the FPPC’s jurisdiction to include Section 1090 (AB 1090, Fong, Chapter 650, Statutes of 2013). The PRA is broader than Section 1090 because it prohibits any state or local public official from using his or her official position to influence any “governmental decision” in which the official has a financial interest. The PRA also applies to decisions that will have a material financial effect on a member of the official’s “immediate family,” which the Legislature has defined as a government official’s spouse or dependent children. The PRA supersedes most other conflict of interest laws, including Section 1090, in the case of an inconsistency. Public officials must therefore consider whether a conflict exists under either the PRA or Section 1090, or both.
2. Conflict of Interests Controversy. In April 2021, the Orange County Board of Supervisors adopted a policy that allowed each Supervisor to determine how to award COVID-19 relief funding in their respective districts. Each of the five districts received an initial $10 million allocation, which the Board added another $3 million in June 2023, for a total of $65 million. Once each supervisor decided how to prioritize these funds, the board voted to approve the disbursement of funds. Starting in late 2023, news surfaced that an Orange County Supervisor awarded COVID-19 relief funding to an organization run by his daughter without disclosing the connection to the public. After public scrutiny over the contracts, news surfaced that the organization was also behind on required audits. Despite these concerns, the Supervisor continued to award funding to the organization.

Comments

1. Purpose of the bill. According to the author, “Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly affects a public official’s child, parent, sibling, or the spouse of a child, parent, or sibling. Government officials have the responsibility of handling millions of taxpayer dollars and approving contracts on their behalf. As such, they must be held to the highest ethical standards in order to avoid any conflicts of interest or perception of impropriety when conducting business on the public’s behalf. Public officials should not be using their positions to enrich themselves financially, directly or indirectly. SB 1111 would require government officials to abstain from voting when a family member has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.”
   
2. Raising the stakes. While this bill clearly prohibits public officials from voting on public contracts that would benefit their children, California judges can already use the common law doctrine against conflicts of interest to invalidate agreements tainted by this kind of self-dealing. However, officials who violate the common law doctrine are not subject to criminal prosecution. This bill significantly stiffens the penalties for a public official who makes or votes on a public contract benefitting his or her adult child, sibling, parent, or in-law. Should state law impose the same penalty in these cases as when a public official directly enriches him or herself?

Related/Prior Legislation

SB 1011 (Mendoza) of 2016 would have deemed a public officer to have a remote interest in a contract if the officer’s child, parent, sibling, or the spouse of the child, parent, or sibling, has a financial interest in the contract and that interest is actually known to the public officer. The bill was held under submission on the Assembly Appropriations Committee Suspense File.

SB 330 (Mendoza) of 2015 would have provided that an elected officer of a state or local governmental entity was deemed to have a remote interest in a contract made by the governmental entity if the officer’s spouse, child, parent, or sibling, or the spouse of the child, parent, or sibling, had a financial interest in the contract. The bill was held under submission on the Assembly Appropriations Committee Suspense File.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee:

• Annual costs of approximately $90,000 to the Fair Political Practices Commission, equivalent to half of a legal staff position, to handle increased requests for written advice in conflict-of-interest cases (General Fund).

SUPPORT: (Verified 8/15/24)

None received

OPPOSITION: (Verified 8/15/24)

None received

Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119

8/16/24 12:47:46

**** END ****

Date of Hearing: August 7, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

SBPCA Bill Id:SB 1111

Author:(Min) – As Amended Ver:June 27, 2024

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill expands, beginning January 1, 2026, the definition of “remote interest” applicable to a contracting decision to include certain instances when a public officer’s child is a party to a contract entered into by the body or board on which the officer serves, thus requiring the official to recuse themselves from voting on such matters.

A remote interest exists if the child is an officer or director of, or has an ownership interest of 10% or more in, the contracting party, and the information is actually known to the pubic officer.

FISCAL EFFECT:

Annual costs of approximately $90,000 to the Fair Political Practices Commission, equivalent to half of a legal staff position, to handle increased requests for written advice in conflict-of-interest cases (General Fund).

COMMENTS:

1. Purpose. According to the author:

Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly benefits a pubic official’s adult child…SB 1111 would require government officials to abstain from voting when their child has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.

1. Background.

Conflict of Interest. The Political Reform Act generally prohibits a public official from using their official position to influence any governmental decision in which the official has a financial interest, including a material financial effect on the official’s spouse or dependent child. Additionally, existing law applicable only to contracting decisions, referred to as “Section 1090,” generally prohibits a public official from making a contract in their official capacity in which the official has a financial interest. A public body or board is also prohibited from making a contract in which any member of the body or board has a financial interest, even if that member does not participate in the making of the contract. Contracts made in violation of Section 1090 are void, with willful violators subject to criminal penalties and a lifetime ban on holding public office.

Remote Interest. Existing law provides various exceptions to Section 1090. For example, an officer is not deemed to be financially interested in a contract if the officer has only a “remote interest” in the contract, and the following conditions are met: (a) the remote interest is disclosed to the body or board and noted in official records and (b) the body or board’s vote to award the contract does not count the officer’s vote. While the willful failure of an officer to disclose a remote interest would subject the officer to penalties, the contract cannot be canceled solely due to the violation. This bill creates a new remote interest under Section 1090 for an official with a child who is a party to a contract entered into by the body or board on which the officer serves, if the child is an officer or director of, or has an ownership interest of 10% or more in, the contracting party. Thus, while an officer with a child of such status in the contracting party may not necessarily have a “financial interest” in the decision, this bill would provide that the officer has a “remote interest” in the decision.

Unlike previously-established remote interests designed to narrow the reach of Section 1090 by reclassifying circumstances deemed to be financial interests as remote interests, this bill expands the scope of Section 1090. By providing a circumstance is a remote interest when it may not otherwise be a financial interest, an officer must now disclose the interest and not participate in the vote awarding the contract. As noted in the Assembly Elections Committee’s analysis of this bill, “if the precedent set by this bill fuels future efforts to require public officials to recuse themselves from decisions due to potential financial effects on family members, compliance with such laws could be considerably more challenging.”

1. Related Legislation. AB 3130 (Quirk-Silva) requires a member of a county board of supervisors to disclose a known family relationship with an officer or employee of a non-profit entity before the board appropriates money to the entity. AB 3130 is pending on the Senate Floor.
2. Prior Legislation. SB 1011 (Mendoza), of the 2015-16 Legislative Session, would have expanded the definition of remote interest to include the financial interest of an official’s child, parent, or sibling, or the spouses of those family members. SB 1011 was held on this committee’s suspense file.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: June 26, 2024

ASSEMBLY COMMITTEE ON ELECTIONS

Gail Pellerin, Chair

SBPCA Bill Id:SB 1111

Author:(Min) – As Amended Ver:March 19, 2024

AS PROPOSED TO BE AMENDED

SENATE VOTE: (vote not relevant)

SUBJECT: Public officers: contracts: financial interest.

SUMMARY: Requires, beginning in 2026, a public officer to recuse themself from voting on a contract made by the officer's governmental entity if the officer's child is an officer or director of, or has substantial ownership in, a party to a contract entered into by the body or board of which the officer is a member, if the child’s interest is known to the public officer. Specifically, this bill:

1. Provides, for the purposes of Government Code Section 1090 et seq. (Section 1090), dealing with conflicts of interests in contracts, that a public officer is deemed to have a remote interest in a contract for the purposes of Section 1090 if the officer's child is an officer or director of, or has an ownership interest of 10 percent or more in, a contracting party to a contract entered into by the body or board of which the officer is a member, and that interest is actually known to the public officer.
2. Provides for the provisions of this bill to become operative on January 1, 2026.

EXISTING LAW:

1. Prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Prohibits state, county, district, judicial district, and city officers or employees from being purchasers at any sale made by them in their official capacity, or from being vendors at any purchase made by them in their official capacity. Prohibits an individual from aiding or abetting a violation of these provisions. (Government Code §1090)
   
2. Provides that an officer shall not be deemed to be interested in a contract pursuant to Section 1090 if the officer has only a remote interest in the contract, as defined, if the fact of the interest is disclosed by the officer to the board or body of which the officer is a member and that interest is noted in its official records, and the body or board authorizes, approves, or ratifies the contract without counting the vote of the officer or member with the remote interest. Provides that the term "remote interest" includes, among other interests, a parent's interest in the earnings of the person’s minor child for personal services. (Government Code §1091)
   
3. Enumerates various financial interests for which an officer or employee is deemed not to be interested in a contract pursuant to Section 1090. (Government Code §1091.5)
4. Provides that a contract made in violation of Section 1090 may be voided by any party to the contract, except for the officer who had an interest in the contract in violation of Section 1090, as specified. Provides that the willful failure of an officer to disclose a remote interest in a contract does not void the contract unless the contracting party had knowledge of the fact of the remote interest of the officer at the time the contract was executed. (Government Code §§1091(d), 1092)
   
5. Provides that a person who willfully violates Section 1090, or who willfully aids or abets a violation of Section 1090, is punishable by a fine of not more than $1,000 or by imprisonment in the state prison, and is forever disqualified from holding any office in the state. (Government Code §1097)
   
6. Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA). (Government Code §§83100, 83111)
   
7. Gives the FPPC the authority to commence an administrative or civil enforcement action for a violation of Section 1090 and related laws. (Government Code §§1097.1-1097.5)
   
8. Prohibits a public official, pursuant to the PRA, from making, participating in making, or in any way attempting to use the person’s official position to influence a governmental decision in which the official knows or has reason to know that the official has a financial interest. Provides that a public official has a financial interest in a decision if the decision will have a material financial effect, as specified, on the official's spouse or dependent child. (Government Code §§82029, 87100, 87103)
   
9. Makes violations of the PRA subject to administrative, civil, and criminal penalties. (Government Code §§83116, 91000-91005.5)

FISCAL EFFECT: Unknown. State-mandated local program; contains a crimes and infractions disclaimer.

COMMENTS:

1. Proposed Amendments: Based on discussions between the author and the committee chair, the author has agreed to accept amendments to this bill that amend the language on page 9, lines 35-39 of the bill as follows:

(18) That of a public officer in the financial interest of that if the public officer’s child, parent, or sibling, or the spouse of the child, parent, or sibling, except a public officer’s financial interests do not include any financial interest of those other persons unless the interest is actually known to the public officer. child is an officer or director of, or has an ownership interest of 10 percent or more in, a party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the public officer.

These amendments are designed to ensure that the bill addresses the concern identified by the bill’s author while minimizing the possibility that this bill will create significant governance and compliance issues for governmental bodies. This analysis reflects those proposed amendments.

This bill has been double-referred to the Assembly Local Government Committee. Due to impending committee deadlines, if this bill is approved in this committee today, it is scheduled to be heard in the Assembly Local Government Committee later this morning. If this bill were amended in this committee today, however, it would not be able to be heard in the Assembly Local Government Committee later this morning as scheduled.

In light of this fact, while this bill is being heard in committee today as proposed to be amended, committee staff recommends that any motion to approve this bill be to approve it without amendments at this time, but with the author’s commitment to take these amendments subsequent to passage by this committee.

1. Purpose of the Bill: According to the author:

Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly benefits a public official’s adult child. Government officials are responsible for handling millions of taxpayer dollars and approving contracts on their behalf. As such, they must be held to the highest ethical standards in order to avoid any conflicts of interest or perception of impropriety when conducting business on the public’s behalf. Public officials should not be using their positions to enrich themselves financially, directly or indirectly. SB 1111 would require government officials to abstain from voting when their child has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.

1. Orange County Background: In late 2023, LAist, which describes itself as “an independent, nonprofit newsroom that is also home to [Los Angeles’] largest [National Public Radio] station,” reported that an Orange County Supervisor awarded COVID-19 relief funding to a nonprofit organization run by his adult daughter without disclosing the connection to the public. LAist subsequently reported that the organization also had failed to submit required audits related to the COVID-19 relief funding that the organization received. Despite these concerns, the Supervisor continued to award funding to the organization. In all, LAist reports that the Supervisor directed $13.5 million in government funding to the nonprofit organization without public disclosure of the fact that the Supervisor’s daughter was an officer of the organization.
2. Conflict of Interest Rules: As detailed above, public officials in California are subject to two main conflict of interest laws that are intended to prevent public officials from using their official positions for personal financial benefit. The PRA generally prohibits a public official from using the person’s official position to influence any governmental decision, as defined, in which the official has a financial interest. The PRA's conflict of interest rules also prohibit public officials from participating in decisions that have a material financial effect, as specified, on the official's spouse or dependent child. Violations of the PRA's conflict of interest rules are punishable by administrative penalties, and in certain cases, by civil or criminal penalties. Criminal violators of the PRA's conflict of interest rules additionally are prohibited from being a candidate for elective office or from acting as a lobbyist for four years after the conviction.
   
   Section 1090, on the other hand, applies only to contracting decisions. Section 1090 generally prohibits a public official or employee from making a contract in the person’s official capacity in which the person has a financial interest. In addition, a public body or board is prohibited from making a contract in which any member of the body or board has a financial interest, even if that member does not participate in the making of the contract. For the purposes of Section 1090, an official or employee also has an interest in the property and income of the person’s spouse. Contracts made in violation of Section 1090 are void, and willful violators of Section 1090 are subject to criminal penalties and a lifetime ban on holding public office in the state.
3. Limitations on Section 1090: Various provisions of state law provide exceptions to, or limitations on, Section 1090. State law provides that an officer or employee is not deemed to be interested in a contract if the person’s financial interest meets one of 14 different specified conditions. Additionally, state law provides that an officer shall not be deemed to be financially interested in a contract entered into by a body or board of which the officer is a member if the officer has only a "remote interest" in the contract and if certain other conditions are met, including requirements that the officer disclose the remote interest to the officer's board or body, and that officer's vote not count in determining whether to award the contract. While the willful failure of an officer to disclose a remote interest in a contract would subject that officer to the penalties outlined above, the contract itself cannot be canceled due to the violation unless the contracting party had knowledge of the fact of the remote interest of the officer at the time the contract was executed.
   
   This bill creates a new "remote interest" under Section 1090, establishing a situation under which the financial interests of an elected official's child could create a remote interest for the official. Most previously-established remote interests were designed to narrow the reach of Section 1090, by taking interests that were found by legal opinions to be financial interests under Section 1090, and redefining those interests as "remote interests." This bill, on the other hand, seeks to expand the scope of Section 1090 through the creation of a new remote interest.
4. Breaking New Ground: California's existing conflict of interest laws are designed to prevent public officials from using their governmental positions to enrich themselves financially. As a result, those laws regulate situations where a public official's actions may have a direct financial impact on the official. Because actions that affect the financial interests of a public official's spouse or dependent child may have a corresponding impact on the official, existing conflict of interest laws generally recognize that the financial interests of an official's spouse or dependent child can create a conflict of interest for the official. In essence, existing conflict of interest rules are based on an objective standard: namely, those rules apply to situations where a public official's finances may be affected by the person’s official actions.
   
   This bill seeks to protect against situations where a public official’s finances are not affected by the person’s official actions, but where the official’s ability to act in a disinterested manner may be called into question due to the effect that the action will have on the finances of the official’s child. In contrast to the relatively objective standard that underlies existing conflict of interest rules, the determination about situations where a public official’s ability to act in a disinterested manner may reasonably be called into question is more subjective. This bill deems a public official's ties with the official’s child to be sufficiently important as to prohibit the official from participating in a contracting decision that will affect certain financial interests of a child. Such a change from the traditional understanding of a financial interest raises policy issues that the committee should carefully consider.
   
   The proposed amendments to this bill narrow it considerably and, in doing so, also reduce the likelihood that compliance will create major challenges for governance. That being said, if the precedent set by this bill fuels future efforts to require public officials to recuse themselves from decisions due to potential financial effects on family members, compliance with such laws could be considerably more challenging. It is not always easy or straightforward for a public official to assess whether the official has a financial interest in a governmental decision (as that term is used in state law) such that the official must recuse themself from participating in the decision. It is even more challenging for a public official to assess whether another, financially independent adult has a financial interest in a governmental decision, particularly if the official does not have detailed information about that other person’s financial interests.
   
5. Common Law Doctrine against Conflicts of Interest: Although the situation that was the impetus for this bill did not create a conflict of interest for the county supervisor under the PRA or under Section 1090, the common law doctrine against conflicts of interest may nonetheless deal with the situation that the author describes as the impetus for this bill.
   
   In a January 2009 opinion by the Office of the Attorney General (No. 07-807), the common law doctrine against conflicts of interest was suggested as a potential source of authority in a situation where both the PRA and Section 1090 were found to be inapplicable to a redevelopment agency board member whose independent adult son sought a commercial loan from the board.

According to that opinion, "[t]he common law doctrine 'prohibits public officials from placing themselves in a position where their private, personal interests may conflict with their official duties,'" and it notes that while the PRA and Section 1090 focus "on actual or potential financial conflicts, the common law prohibition extends to noneconomic interests as well." The opinion noted that even though the conflict of interest rules in the PRA and Section 1090 did not apply in that situation, "…it is difficult to imagine that the agency member has no private or personal interest in whether her son's business transactions are successful or not. At the least, an appearance of impropriety or conflict would arise by the member's participation in the negotiations and voting upon an agreement that, if executed, would presumably redound to her son's benefit."

For that reason, the opinion concluded that "…the agency board member's status as the private contracting party's parent…places her in a position where there may be at least a temptation to act for personal or private reasons rather than with 'disinterested skill, zeal, and diligence' in the public interest, thereby presenting a potential conflict…Under these circumstances, we believe that the only way to be sure of avoiding the common law prohibition is for the board member to abstain from any official action with regard to the proposed loan agreement and make no attempt to influence the discussions, negotiations, or vote concerning that agreement."

1. Previous Legislation: AB 785 (Mendoza) of the 2011-12 Legislative Session would have provided that a public official has a financial interest in a governmental contracting decision if an immediate family member of the public official, as defined, lobbies the agency of the official on that decision or is a high ranking official in a business entity on which it is reasonably foreseeable that the decision would have a material financial effect. AB 785 was approved by the Assembly Elections & Redistricting Committee (the predecessor to this committee) on a 6-0 vote, but failed in the Assembly Local Government Committee.
   
   SB 330 (Mendoza) of 2015 would have provided, beginning in 2017, that an elected officer of a state or local governmental entity was deemed to have a remote interest in a contract made by the governmental entity if the officer's spouse, child, parent, or sibling, or the spouse of the child, parent, or sibling, had a financial interest in the contract. SB 330 was approved by the Assembly Elections & Redistricting Committee on a 5-0 vote, but was held on the Assembly Appropriations Committee's suspense file.
   
   SB 1011 (Mendoza) of 2016 was substantially similar to this bill as currently in print. SB 1011 was approved by the Assembly Elections & Redistricting Committee on a 6-0 vote and by the Assembly Local Government Committee by a 5-0 vote, but was held on the Assembly Appropriations Committee's suspense file.
   
2. Related Legislation: AB 2946 (Valencia), which is pending in the Senate Local Government Committee, provides that the Board of Supervisors of Orange County shall appropriate district discretionary funds only if the board approves, by a majority vote, appropriating the district discretionary funds. AB 2946 was approved by the Assembly by a 71-1 vote.
   
   AB 3130 (Quirk-Silva), which is pending in the Senate Local Government Committee, requires a member of the board of supervisors for a county to disclose a known family relationship with an officer or employee of a nonprofit entity in an open and public meeting before the board appropriates money to that nonprofit entity. AB 3130 was approved by the Assembly by a 72-0 vote.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Ethan Jones / ELECTIONS / (916) 319-2094

Date of Hearing: June 26, 2024

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Juan Carrillo, Chair

SBPCA Bill Id:SB 1111

Author:(Min) – As Amended Ver:March 19, 2024

AS PROPOSED TO BE AMENDED

SENATE VOTE: 37-0

SUBJECT: Public officers: contracts: financial interest

SUMMARY: Requires, beginning in 2026, a public officer to recuse themselves from voting on a contract made by the officer's governmental entity if the officer's child is an officer or director of, or has substantial ownership in, a contracting party to a contract entered into by the body or board of which the officer is a member, if the child’s interest is known to the public officer. Specifically, this bill:

1. Provides, for the purposes of Government Code Section 1090 et seq. (Section 1090), dealing with conflicts of interests in contracts, that a public officer is deemed to have a remote interest in a contract for the purposes of Section 1090 if the officer's child is an officer or director of, or has an ownership interest of 10 percent or more in, a contracting party to a contract entered into by the body or board of which the officer is a member, and that interest is actually known to the public officer.
2. Provides for the provisions of this bill to become operative on January 1, 2026.
3. Makes a number of technical and clarifying changes.
4. Provides that no reimbursement is required by this bill pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this bill creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, as specified, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

EXISTING LAW:

1. Prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Prohibits state, county, district, judicial district, and city officers or employees from being purchasers at any sale made by them in their official capacity, or from being vendors at any purchase made by them in their official capacity. Prohibits an individual from aiding or abetting a violation of these provisions. [Government Code (GC) § 1090]
   
2. Provides that an officer shall not be deemed to be interested in a contract pursuant to Section 1090 if the officer has only a remote interest in the contract, as defined, if the fact of the interest is disclosed by the officer to the board or body of which the officer is a member and that interest is noted in its official records, and the body or board authorizes, approves, or ratifies the contract without counting the vote of the officer or member with the remote interest. Provides that the term "remote interest" includes, among other interests, a parent's interest in the earnings of the person’s minor child for personal services. [GC § 1091]
   
3. Enumerates various financial interests for which an officer or employee is deemed not to be interested in a contract pursuant to Section 1090. [GC § 1091.5]
4. Provides that a contract made in violation of Section 1090 may be voided by any party to the contract, except for the officer who had an interest in the contract in violation of Section 1090, as specified. Provides that the willful failure of an officer to disclose a remote interest in a contract does not void the contract unless the contracting party had knowledge of the fact of the remote interest of the officer at the time the contract was executed. [GC §§ 1091(d), 1092]
   
5. Provides that a person who willfully violates Section 1090, or who willfully aids or abets a violation of Section 1090, is punishable by a fine of not more than $1,000 or by imprisonment in the state prison, and is forever disqualified from holding any office in the state. [GC § 1097]
   
6. Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA). [GC §§ 83100, 83111]
   
7. Gives the FPPC the authority to commence an administrative or civil enforcement action for a violation of Section 1090 and related laws. [GC §§ 1097.1-1097.5]
   
8. Authorizes a person subject to Section 1090 to request the FPPC to issue an opinion or advice with respect to that person's duties under Section 1090 and related laws. Permits the FPPC to issue such an opinion or advice, subject to certain conditions. [GC §§ 1097.1(c)]
   
9. Prohibits a public official, pursuant to the PRA, from making, participating in making, or in any way attempting to use the person’s official position to influence a governmental decision in which the official knows or has reason to know that the official has a financial interest. Provides that a public official has a financial interest in a decision if the decision will have a material financial effect, as specified, on the official's spouse or dependent child. [GC §§ 82029, 87100, 87103]
10. Makes violations of the PRA subject to administrative, civil, and criminal penalties. [GC §§ 83116, 91000-91005.5]

FISCAL EFFECT: According to the Senate Appropriations Committee, “Ongoing Fair Political Practices Commission (FPPC) costs of approximately $90,000 annually for 1/2 PY of legal staff time to handle increased requests for written advice in conflict-of-interest cases. (General Fund).”

COMMENTS:

1. Proposed Amendments. According to the Assembly Elections Committee analysis of this bill: “Based on discussions between the author and the committee chair, the author has agreed to accept amendments to this bill that amend the language on page 9, lines 35-39 of the bill as follows:

(18) That of a public officer in the financial interest of that if the public officer’s child, parent, or sibling, or the spouse of the child, parent, or sibling, except a public officer’s financial interests do not include any financial interest of those other persons unless the interest is actually known to the public officer. child is an officer or director of, or has an ownership interest of 10 percent or more in, a contracting party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the public officer.

These amendments are designed to ensure that the bill addresses the concern identified by the bill’s author while minimizing the possibility that this bill will create significant governance and compliance issues for governmental bodies.”

This analysis reflects these proposed amendments. Due to committee deadlines, Elections Committee is unable to adopt these amendments. Instead, these amendments should be adopted by this Committee.

1. Bill Summary. As proposed to be amended, this bill establishes that public officers must recuse themselves from voting on contracts made by their governmental entity if their child is an officer or director of, or has an ownership interest of 10 percent or more in, a contracting party to a contract entered into by the body or board of which the officer is a member, if this information is actually known to the public officer.

This bill has a delayed operative date of January 1, 2026.

The author is the sponsor of this bill.

1. Author’s Statement. According to the author, “Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly affects a public official’s child, parent, sibling, or the spouse of a child, parent, or sibling. Government officials have the responsibility of handling millions of taxpayer dollars and approving contracts on their behalf. As such, they must be held to the highest ethical standards in order to avoid any conflicts of interest or perception of impropriety when conducting business on the public’s behalf. Public officials should not be using their positions to enrich themselves financially, directly or indirectly. SB 1111 would require government officials to abstain from voting when a family member has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.”
2. Orange County. Starting in late 2023, news surfaced that an Orange County Supervisor awarded COVID-19 relief funding to an organization run by his daughter without disclosing the connection to the public.^[1] After public scrutiny over the contracts, news surfaced that the organization was also behind on required audits.^[2] Despite these concerns, the Supervisor continued to award funding to the organization.^[3]

According to an April 8, Los Angeles Times Article, “In September 2022, with the five supervisors’ districts splitting federal coronavirus relief funds earmarked for ‘social needs,’ the board voted unanimously to approve $6.9 million in discretionary funds for Do’s district.

According to public records obtained by The Times, Do’s office sent $2.2 million of that money to the Viet America Society between December 2022 and March 2023 and an additional $1 million in October 2023 for a Vietnam War Memorial. The board had decided that proper uses for the coronavirus relief money included parks, infrastructure, ‘projects and programs.’

“In June 2023, the board voted unanimously to approve $3 million in discretionary funds, this time from the county’s general fund, for each of the districts. Do directed his $3 million to the Viet America Society in August 2023. According to LAist, the news site that has spearheaded reporting on the controversy, Do has directed as much as $13.5 million in government money to the nonprofit, often without placing it on a public agenda and without disclosing his daughter’s connection to the group.”^[4]

According to Orange County, the Orange County Board of Supervisors agendized and voted on all discretionary spending requested by individual supervisors. The process was initially noticed and approved by the Board on April 27, 2021 and included authorization to allow each Supervisor to develop their own approach to meet the needs of their respective districts.

1. Conflict of Interest Rules. Public officials in California are subject to two main conflict of interest laws that are intended to prevent public officials from using their official positions for personal financial benefit. The PRA generally prohibits a public official from using the person’s official position to influence any governmental decision, as defined, in which the official has a financial interest. The PRA's conflict of interest rules also prohibit public officials from participating in decisions that have a material financial effect, as specified, on the official's spouse or dependent child. Violations of the PRA's conflict of interest rules are punishable by administrative penalties, and in certain cases, by civil or criminal penalties. Criminal violators of the PRA's conflict of interest rules additionally are prohibited from being a candidate for elective office or from acting as a lobbyist for four years after the conviction.
   
   Section 1090, on the other hand, applies only to contracting decisions. Section 1090 generally prohibits a public official or employee from making a contract in the person’s official capacity in which the person has a financial interest. In addition, a public body or board is prohibited from making a contract in which any member of the body or board has a financial interest, even if that member does not participate in the making of the contract. For the purposes of Section 1090, an official or employee also has an interest in the property and income of the person’s spouse. Contracts made in violation of Section 1090 are void, and willful violators of Section 1090 are subject to criminal penalties and a lifetime ban on holding public office in the state.
2. Limitations on Section 1090. Various provisions of state law provide exceptions to, or limitations on, Section 1090. State law provides that an officer or employee is not deemed to be interested in a contract if the person’s financial interest meets one of 14 different specified conditions. Additionally, state law provides that an officer shall not be deemed to be financially interested in a contract entered into by a body or board of which the officer is a member if the officer has only a "remote interest" in the contract and if certain other conditions are met, including requirements that the officer disclose the remote interest to the officer's board or body, and that officer's vote not count in determining whether to award the contract. While the willful failure of an officer to disclose a remote interest in a contract would subject that officer to the penalties outlined above, the contract itself cannot be canceled due to the violation unless the contracting party had knowledge of the fact of the remote interest of the officer at the time the contract was executed.
   
   This bill creates a new "remote interest" under Section 1090, establishing a situation under which the financial interests of an elected official's child could create a remote interest for the official. Most previously-established remote interests were designed to narrow the reach of Section 1090, by taking interests that were found by legal opinions to be financial interests under Section 1090, and redefining those interests as "remote interests." This bill, on the other hand, seeks to expand the scope of Section 1090 through the creation of a new remote interest.
3. Breaking New Ground. California's existing conflict of interest laws are designed to prevent public officials from using their governmental positions to enrich themselves financially. As a result, those laws regulate situations where a public official's actions may have a direct financial impact on the official. Because actions that affect the financial interests of a public official's spouse or dependent child may have a corresponding impact on the official, existing conflict of interest laws generally recognize that the financial interests of an official's spouse or dependent child can create a conflict of interest for the official. In essence, existing conflict of interest rules are based on an objective standard: namely, those rules apply to situations where a public official's finances may be affected by the person’s official actions.
   
   This bill seeks to protect against situations where a public official’s finances are not directly affected by the person’s official actions, but where the official’s ability to act in a disinterested manner on an action may be called into question due to the effect that the action will have on the finances of the official’s child. In contrast to the relatively objective standard that underlies existing conflict of interest rules, the determination about situations where a public official’s ability to act in a disinterested manner may reasonably be called into question is more subjective. This bill deems a public official's ties with the official’s child to be sufficiently important as to prohibit the official from participating in a contracting decision that will affect certain financial interests of a child. Such a change from the traditional understanding of a financial interest raises policy issues that the committee should carefully consider.
   
   The proposed amendments to this bill narrow it considerably and, in doing so, also reduce the likelihood that compliance will create major challenges for governance. That being said, if the precedent set by this bill fuels future efforts to require public officials to recuse themselves from decisions due to potential financial effects on family members, compliance with such laws could be considerably more challenging. It is not always easy or straightforward for a public official to assess whether the official has a financial interest in a governmental decision (as that term is used in state law) such that the official must recuse themselves from participating in the decision. It is even more challenging for a public official to assess whether another, financially independent adult has a financial interest in a governmental decision, particularly if the official does not have detailed information about that other person’s financial interests.
   
4. Common Law Doctrine against Conflicts of Interest. Although the situation that was the impetus for this bill did not create a conflict of interest for the county supervisor under the PRA or under Section 1090, the common law doctrine against conflicts of interest may nonetheless deal with the situation that the author describes as the impetus for this bill.
   
   In a January 2009 opinion by the Office of the Attorney General (No. 07-807), the common law doctrine against conflicts of interest was suggested as a potential source of authority in a situation where both the PRA and Section 1090 were found to be inapplicable to a redevelopment agency board member whose independent adult son sought a commercial loan from the board.

According to that opinion, "[t]he common law doctrine 'prohibits public officials from placing themselves in a position where their private, personal interests may conflict with their official duties,'" and it notes that while the PRA and Section 1090 focus "on actual or potential financial conflicts, the common law prohibition extends to noneconomic interests as well." The opinion noted that even though the conflict of interest rules in the PRA and Section 1090 did not apply in that situation, "…it is difficult to imagine that the agency member has no private or personal interest in whether her son's business transactions are successful or not. At the least, an appearance of impropriety or conflict would arise by the member's participation in the negotiations and voting upon an agreement that, if executed, would presumably redound to her son's benefit."

For that reason, the opinion concluded that "…the agency board member's status as the private contracting party's parent…places her in a position where there may be at least a temptation to act for personal or private reasons rather than with 'disinterested skill, zeal, and diligence' in the public interest, thereby presenting a potential conflict…Under these circumstances, we believe that the only way to be sure of avoiding the common law prohibition is for the board member to abstain from any official action with regard to the proposed loan agreement and make no attempt to influence the discussions, negotiations, or vote concerning that agreement."

1. Arguments in Support. None on file.
2. Arguments in Opposition. None on file.
3. Related Legislation. AB 2946 (Valencia) specifies that the board of supervisors of Orange County must only appropriate district discretionary funds if the board approves by majority vote. Requires the board to post a log of appropriated district discretionary funds on its website and places limitations on a member of the board who is on a ballot as a candidate. AB 2946 is pending in the Senate Local Government Committee.

AB 3130 (Quirk-Silva) requires a member of a county board of supervisors to disclose a known family relationship, as specified, with an officer or employee of a nonprofit entity before the board appropriates money to that nonprofit entity. AB 3130 is pending in the Senate Local Government Committee.

1. Previous Legislation. SB 1011 (Mendoza) of 2016 was substantially similar to this bill. SB 1011 was held by the Assembly Appropriations Committee.
   

SB 330 (Mendoza) of 2015 would have provided, beginning in 2017, that an elected officer of a state or local governmental entity was deemed to have a remote interest in a contract made by the governmental entity if the officer's spouse, child, parent, or sibling, or the spouse of the child, parent, or sibling, had a financial interest in the contract. SB 330 held by the Assembly Appropriations Committee.

AB 785 (Mendoza) of 2011 would have provided that a public official has a financial interest in a governmental contracting decision if an immediate family member of the public official, as defined, lobbies the agency of the official on that decision or is a high ranking official in a business entity on which it is reasonably foreseeable that the decision would have a material financial effect. AB 785 failed passage in the Assembly Local Government Committee

1. Double-Referral. This bill is double-referred to the Elections Committee, where it is set to be heard on June 26, 2024.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Claire Norton / L. GOV. / (916) 319-3958

1. https://laist.com/news/politics/andrew-do-rhiannon-do-investigation-warner-wellness-orange-county-viet-america-society-pham ↑

2. https://laist.com/news/politics/orange-county-taxpayer-money-andrew-do-viet-america-society-warner-wellness ↑

3. https://laist.com/news/politics/orange-county-supervisor-andrew-do-taxpayer-money-daughter-viet-america-society-warner-wellness-rhiannon-do ↑

4. https://www.latimes.com/california/story/2024-04-08/scandal-shadows-andrew-dos-final-year-on-the-o-c-board-of-supervisors ↑

 THIRD READING  

Bill No: SB 1111

Author: Min (D)

Amended: 3/19/24

Vote: 21

SENATE LOCAL GOVERNMENT COMMITTEE: 6-0, 4/17/24

AYES: Durazo, Seyarto, Glazer, Skinner, Wahab, Wiener

NO VOTE RECORDED: Dahle

SENATE ELECTIONS & C.A. COMMITTEE: 6-0, 4/22/24

AYES: Blakespear, Nguyen, Menjivar, Newman, Portantino, Umberg

NO VOTE RECORDED: Limón

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/16/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Seyarto, Wahab

SUBJECT: Public officers: contracts: financial interest

SOURCE: Author

DIGEST:

This bill expands the definition of remote interest to include the financial interests of a public officer’s child, parent, or sibling, or the spouses of those individuals.

ANALYSIS:

Existing law:

1. Prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions.
2. Provides that a public officer shall not be deemed financially interested in contract if the officer only has a remote interest. Identifies certain remote interests, including the interest of a parent in the earnings of their minor child for personal services. Provides that in order to be deemed not interested in the relevant contract due to a remote interest, a public officer must disclose the interest, and the body or board must authorize, approve, or ratify the contract in good faith without counting the vote of the public officer with the remote interest.
3. Creates the Fair Political Practices Commission (FPPC) and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act of 1974 (PRA).

This bill adds, beginning January 1, 2026, a new remote interest for the financial interests of the public officer’s child, parent, or sibling, or the spouse of a child, parent or sibling, if those interests are actually known to the public officer, as specified.

Background

Government Code Section 1090. Section 1090 formalized the longstanding common law rule prohibiting public officials—including board members, officers, and employees—from having a personal financial interest in the contracts they participate in awarding while exercising their official capacities. Financial interest has been liberally interpreted by the courts and includes the property and income of a public official’s spouse. The consequences of violating Section 1090 are severe: a contract that runs afoul of the law is void, even if the affected official did not intend to receive a personal benefit. Willful violators can also face criminal penalties ranging from fines to prison time, plus a lifetime ban on holding public office.

There are several exceptions where the financial interest involved is deemed a “remote interest” or a “noninterest.” If a “remote interest,” is present, the contract may be made if (1) the officer in question discloses his or her financial interest in the contract to the public agency, (2) such interest is noted in the entity’s official records, and (3) the officer abstains from any participation in the making of the contract. If a “noninterest” is present, the contract may be made without the officer’s abstention, and generally, a noninterest does not require disclosure.

Remote interests apply only to members of multi-member bodies. Common remote interests in contracts include those situations where an official is:

• An officer or employee of a nonprofit corporation.
• Employed by a private contracting party that has 10 or more employees (other than the official) where he or she has been employed for at least three years prior to initially joining the public body, owns less than 3% of the stock, is not an officer or director, and did not directly participate in formulating the bid of the private contracting party.
• A landlord or tenant of a contracting party.
• A supplier of goods or services that have been supplied to the contracting party by the official for at least five years prior to his or her election or appointment to office.

Common noninterests in contracts include those situations where an official is:

• A recipient of public services generally provided by the public body or board of which they are a member, on the same terms and conditions as all other recipients.
• A noncompensated officer of a nonprofit tax-exempt corporation, which has at least one primary purpose that supports the functions of the body or board or to which the body or board has a legal obligation to give particular consideration.

Section 1090 requires an official with a remote interest to publicly disclose their interest, note the interest in the public record, and abstain from voting on the contract or influencing the other board members. The government body on which they sit may only approve the contract if there are sufficient votes to pass it without the interested official. This means that only public officials that sit on multi-member boards may use the remote interest exception; officers and employees may not. The courts and the Attorney General have found there is an additional, non-statutory exception to Section 1090: a “rule of necessity” that allows an interested public official to participate in a contract if (1) the government agency must contract for essential services but no other source is available, and (2) the board or official is the only authority that can legally act on the matter.

Political Reform Act of 1974. In 1974, California voters passed Proposition 9, an initiative commonly known as the PRA. Proposition 9 created the FPPC and codified significant restrictions and prohibitions on candidates, officeholders, and lobbyists. The Legislature is permitted to amend the PRA, but the amendments must further the purposes of the PRA and requires a two-thirds vote of both houses of the Legislature.

In 2013, the FPPC’s jurisdiction was expanded to include Section 1090 with the passage of AB 1090 (Fong), Chapter 650, Statutes of 2013. The PRA is broader than Section 1090 because it prohibits any state or local public official from using their official position to influence any “governmental decision” in which the official has a financial interest. The PRA also applies to decisions that will have a material financial effect on a member of the official’s “immediate family,” which the Legislature has defined as a government official’s spouse or dependent children. The PRA supersedes most other conflict of interest laws, including Section 1090, in the case of an inconsistency. Public officials must therefore consider whether a conflict exists under either the PRA or Section 1090, or both.

Conflict of Interests Controversy. Beginning in late 2023, LAist reported that an Orange County Supervisor awarded COVID-19 relief funding to an organization run by the supervisor’s daughter without disclosing the connection to the public. After public scrutiny over the contracts, news surfaced that the organization was also behind on required audits. Despite these issues, funding continued to be awarded to the organization.

Comments

1. According to the author, Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly affects a public official’s child, parent, sibling, or the spouse of a child, parent, or sibling. Government officials have the responsibility of handling millions of taxpayer dollars and approving contracts on their behalf. As such, they must be held to the highest ethical standards in order to avoid any conflicts of interest or perception of impropriety when conducting business on the public’s behalf. Public officials should not be using their positions to enrich themselves financially, directly or indirectly. SB 1111 would require government officials to abstain from voting when a family member has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.
2. Double Referral. Prior to being heard by the Senate Committee on Elections and Constitutional Committee, this bill was heard in the Senate Committee on Local Government where it was approved with a vote of 6-0.

Related/Prior Legislation:

SB 1011 (Mendoza) of 2016 would have deemed a public officer to have a remote interest in a contract if the officer’s child, parent, sibling, or the spouse of the child, parent, or sibling, has a financial interest in the contract and that interest is actually known to the public officer. SB 1011 was held under submission on the Assembly Committee on Appropriations’ Suspense File.

SB 330 (Mendoza) of 2015 would have provided that an elected officer of a state or local governmental entity was deemed to have a remote interest in a contract made by the governmental entity if the officer’s spouse, child, parent, or sibling, or the spouse of the child, parent, or sibling, had a financial interest in the contract. The bill was held under submission on the Assembly Committee on Appropriations’ Suspense File.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Appropriations Committee,

• Ongoing Fair Political Practices Commission (FPPC) costs of approximately $90,000 annually for 1/2 PY of legal staff time to handle increased requests for written advice in conflict-of-interest cases. (General Fund

SUPPORT: (Verified 5/17/24)

None received

OPPOSITION: (Verified 5/17/24)

None received

Prepared by: Jonathan Peterson / L. GOV. / (916) 651-4119

5/17/24 18:48:59

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1111 (Min) - Public officers: contracts: financial interest

Bill Summary:

SB 1111 would expand the definition of what constitutes a remote interest in a contract to include the financial interest of a public officer’s child, parent, or sibling, or the spouse of that child, parent, or sibling, as of January 1, 2026.

Fiscal Impact:

• Ongoing Fair Political Practices Commission (FPPC) costs of approximately $90,000 annually for 1/2 PY of legal staff time to handle increased requests for written advice in conflict-of-interest cases. (General Fund)

Background:

Existing law prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from having a financial interest in any contract made in their official capacity, or by any body or board of which they are members. (Government Code Section 1090) Existing law also specifies circumstances under which an officer or employee is exempt from the prohibitions against having a financial interest in public contracts. Specifically, existing law identifies 17 circumstances that do not constitute financial conflicts, but present some risk of undue influence as “remote interests.” A public official with a remote interest must publicly disclose their interest, note the interest in the public record, and abstain from voting on the contract or influencing other board members. The government body or board must authorize, approve, or ratify the contract in good faith without counting the vote of the public officer with the remote interest.

Existing law authorizes the FPPC to enforce Section 1090 violations by bringing an administrative or civil action against a person subject to public contract conflict-of-interest provisions, as specified. Existing law also authorizes public officials who are subject to Section 1090 to request an opinion or advice from the FPPC regarding prohibitions against having a financial interest in public contracts.

Proposed Law:

SB 1111 would expand the definition of what constitutes a remote interest in a contract to include the financial interest of a public officer’s child, parent, or sibling, or the spouse of that child, parent, or sibling, as of January 1, 2026. To be considered a remote interest, the financial interest of those individuals must be known to the public officer.

Related Legislation:

SB 1011 (Mendoza, 2016) and SB 330 (Mendoza, 2015), both of which were held on the Assembly Appropriations Committee Suspense File, included provisions that were substantially similar to this bill, although SB 330 also included the public official’s spouse in the conflict-of-interest provisions.

AB 1090 (Fong), Chap. 650/2013, expanded FPPC authority regarding enforcement of violations of Government Code Section 1090, dealing with elected officials’ conflicts-of-interest in public agency contracts, and required FPPC to provide opinions and advice with respect to Section 1090.

Staff Comments:

This bill is intended to be a response to recent contracting controversies in Orange County. Specifically, beginning in late 2023, LAist reported that an Orange County Supervisor awarded COVID-19 relief funding to an organization run by the supervisor’s daughter without disclosing the connection to the public. After public scrutiny over the contracts, news surfaced that the organization was also behind on required audits. Despite these issues, funding continued to be awarded to the organization. While this bill would not explicitly prohibit a local agency from entering into a contract where one of its members has a financial interest, it would require the board member to notify the public of the remote interest and recuse themselves from voting on the contract.

The FPPC anticipates that this bill will result in an increase in requests from public officials for Section 1090 legal opinions and advice to determine whether they may have a remote financial interest in a contract as a result of a family relationship that would require disclosure and recusal. The FPPC estimates it would incur additional ongoing costs of approximately $90,000 annually for ½ PY of staff time within its legal division, as specified above.

By expanding the types of remote interests related to local agency contracts that would require disclosure and recusal by local officers, the bill creates a new crime, thereby imposing a state-mandated local program. Any local costs related to the enforcement of the new crimes are not reimbursable from the state, pursuant to the California Constitution and existing statute.

-- END --

SENATE COMMITTEE ON

ELECTIONS AND CONSTITUTIONAL AMENDMENTS

Senator Catherine Blakespear, Chair

2023 - 2024 Regular

Bill No: SB Hearing Date: 4/22/24

Subject: Public officers: contracts: financial interest

DIGEST

This bill expands the definition of remote interest to include the financial interests of a public officer’s child, parent, or sibling, or the spouses of those individuals.

ANALYSIS

Existing law:

1. Prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in a contract made by them in their official capacity or by any body or board of which they are members, subject to specified exceptions.
2. Provides that a public officer shall not be deemed financially interested in contract if the officer only has a remote interest. Identifies certain remote interests, including the interest of a parent in the earnings of their minor child for personal services. Provides that in order to be deemed not interested in the relevant contract due to a remote interest, a public officer must disclose the interest, and the body or board must authorize, approve, or ratify the contract in good faith without counting the vote of the public officer with the remote interest.
3. Creates the Fair Political Practices Commission (FPPC) and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act of 1974 (PRA).

This bill:

1. Adds, beginning January 1, 2026, a new remote interest for the financial interests of the public officer’s child, parent, or sibling, or the spouse of a child, parent or sibling, if those interests are actually known to the public officer, as specified.

BACKGROUND

Government Code Section 1090. Section 1090 formalized the longstanding common law rule prohibiting public officials—including board members, officers, and employees—from having a personal financial interest in the contracts they participate in awarding while exercising their official capacities. Financial interest has been liberally interpreted by the courts and includes the property and income of a public official’s spouse. The consequences of violating Section 1090 are severe: a contract that runs afoul of the law is void, even if the affected official did not intend to receive a personal benefit. Willful violators can also face criminal penalties ranging from fines to prison time, plus a lifetime ban on holding public office.

There are several exceptions where the financial interest involved is deemed a “remote interest” or a “noninterest.” If a “remote interest,” is present, the contract may be made if (1) the officer in question discloses his or her financial interest in the contract to the public agency, (2) such interest is noted in the entity’s official records, and (3) the officer abstains from any participation in the making of the contract. If a “noninterest” is present, the contract may be made without the officer’s abstention, and generally, a noninterest does not require disclosure.

Remote interests apply only to members of multi-member bodies. Common remote interests in contracts include those situations where an official is:

• An officer or employee of a nonprofit corporation.
• Employed by a private contracting party that has 10 or more employees (other than the official) where he or she has been employed for at least three years prior to initially joining the public body, owns less than 3% of the stock, is not an officer or director, and did not directly participate in formulating the bid of the private contracting party.
• A landlord or tenant of a contracting party.
• A supplier of goods or services that have been supplied to the contracting party by the official for at least five years prior to his or her election or appointment to office.

Common noninterests in contracts include those situations where an official is:

• A recipient of public services generally provided by the public body or board of which they are a member, on the same terms and conditions as all other recipients.
• A noncompensated officer of a nonprofit tax-exempt corporation, which has at least one primary purpose that supports the functions of the body or board or to which the body or board has a legal obligation to give particular consideration.

Section 1090 requires an official with a remote interest to publicly disclose their interest, note the interest in the public record, and abstain from voting on the contract or influencing the other board members. The government body on which they sit may only approve the contract if there are sufficient votes to pass it without the interested official. This means that only public officials that sit on multi-member boards may use the remote interest exception; officers and employees may not. The courts and the Attorney General have found there is an additional, non-statutory exception to Section 1090: a “rule of necessity” that allows an interested public official to participate in a contract if (1) the government agency must contract for essential services but no other source is available, and (2) the board or official is the only authority that can legally act on the matter.

Political Reform Act of 1974. In 1974, California voters passed Proposition 9, an initiative commonly known as the PRA. Proposition 9 created the FPPC and codified significant restrictions and prohibitions on candidates, officeholders, and lobbyists. The Legislature is permitted to amend the PRA, but the amendments must further the purposes of the PRA and requires a two-thirds vote of both houses of the Legislature.

In 2013, the FPPC’s jurisdiction was expanded to include Section 1090 with the passage of AB 1090 (Fong), Chapter 650, Statutes of 2013. The PRA is broader than Section 1090 because it prohibits any state or local public official from using their official position to influence any “governmental decision” in which the official has a financial interest. The PRA also applies to decisions that will have a material financial effect on a member of the official’s “immediate family,” which the Legislature has defined as a government official’s spouse or dependent children. The PRA supersedes most other conflict of interest laws, including Section 1090, in the case of an inconsistency. Public officials must therefore consider whether a conflict exists under either the PRA or Section 1090, or both.

Conflict of Interests Controversy. Beginning in late 2023, LAist reported that an Orange County Supervisor awarded COVID-19 relief funding to an organization run by the supervisor’s daughter without disclosing the connection to the public. After public scrutiny over the contracts, news surfaced that the organization was also behind on required audits. Despite these issues, funding continued to be awarded to the organization.

COMMENTS

1. According to the author: Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly affects a public official’s child, parent, sibling, or the spouse of a child, parent, or sibling. Government officials have the responsibility of handling millions of taxpayer dollars and approving contracts on their behalf. As such, they must be held to the highest ethical standards in order to avoid any conflicts of interest or perception of impropriety when conducting business on the public’s behalf. Public officials should not be using their positions to enrich themselves financially, directly or indirectly. SB 1111 would require government officials to abstain from voting when a family member has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.
2. Double Referral. Prior to being heard by this committee, SB 1111 was heard in the Committee on Local Government where it was approved with a vote of 6 – 0.

RELATED/PRIOR LEGISLATION

SB 1011 (Mendoza) of 2016 would have deemed a public officer to have a remote interest in a contract if the officer’s child, parent, sibling, or the spouse of the child, parent, or sibling, has a financial interest in the contract and that interest is actually known to the public officer. SB 1011 was held under submission on the Assembly Committee on Appropriations’ Suspense File.

SB 330 (Mendoza) of 2015 and would have provided that an elected officer of a state or local governmental entity was deemed to have a remote interest in a contract made by the governmental entity if the officer’s spouse, child, parent, or sibling, or the spouse of the child, parent, or sibling, had a financial interest in the contract. SB 330 was held under submission on the Assembly Committee on Appropriations’ Suspense File.

POSITIONS

Sponsor: Author

Support: None received

Oppose: None received

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SENATE COMMITTEE ON LOCAL GOVERNMENT

Senator María Elena Durazo, Chair

2023 - 2024 Regular

Public officers: contracts: financial interest

Expands the definition of remote interest to include the financial interests of a public officer’s child, parent, or sibling, or the spouses of those individuals.

Background

California state and local officials who negotiate, make, or vote on public contracts are subject to two main conflicts of interest laws: Section 1090 et seq. of the Government Code (known simply as “Section 1090”) and the Political Reform Act of 1974.

Section 1090. Section 1090 formalized the longstanding common law rule prohibiting public officials—including board members, officers, and employees—from having a personal financial interest in the contracts they participate in awarding while exercising their official capacities. Financial interest has been liberally interpreted by the courts and includes the property and income of a public official’s spouse. The consequences of violating Section 1090 are severe: a contract that runs afoul of the law is void, even if the affected official did not intend to receive a personal benefit. Willful violators can also face criminal penalties ranging from fines to prison time, plus a lifetime ban on holding public office.

Section 1090 contains several exceptions. In particular, state law identifies 17 situations that do not constitute financial interests, but that present some risk of undue influence. These “remote interests” include when a public contract would financially benefit a public official’s minor child or a nonprofit corporation at which a public official is also a non-salaried officer. Section 1090 requires an official with a remote interest to publicly disclose their interest, note the interest in the public record, and abstain from voting on the contract or influencing the other board members. The government body on which they sit may only approve the contract if there are sufficient votes to pass it without the interested official. Thus, only public officials that sit on multi-member boards may use the remote interest exception; officers and employees may not. The courts and the Attorney General have found there is an additional, non-statutory exception to Section 1090: a “rule of necessity” that allows an interested public official to participate in a contract if (1) the government agency must contract for essential services but no other source is available, and (2) the board or official is the only authority that can legally act on the matter.

The Political Reform Act. In 1974, California voters passed Proposition 9 to create the Political Reform Act (PRA), along with the Fair Political Practices Commission (FPPC), the agency tasked with enforcing the PRA through administrative and civil penalties. In 2013, the Legislature expanded the FPPC’s jurisdiction to include Section 1090 (AB 1090, Fong). The PRA is broader than Section 1090 because it prohibits any state or local public official from using his or her official position to influence any “governmental decision” in which the official has a financial interest. The PRA also applies to decisions that will have a material financial effect on a member of the official’s “immediate family,” which the Legislature has defined as a government official’s spouse or dependent children. The PRA supersedes most other conflict of interest laws, including Section 1090, in the case of an inconsistency. Public officials must therefore consider whether a conflict exists under either the PRA or Section 1090, or both.

Common Law Conflict of Interest. In 1850, California’s first Legislature adopted the English common law as the state’s basic legal framework, insofar as it did not conflict with state statutes or the state and federal Constitutions. This legal framework remains in place today. Independent of Section 1090 and the PRA, California courts continue to apply the common law doctrine against conflicts of interests to invalidate public contracts tainted by self-dealing, even in situations when Section 1090 or the PRA do not apply. In several recent opinions, the Attorney General’s Office has suggested the common law doctrine against conflicts of interest is broader than Section 1090 and the PRA, even prohibiting public contracts that raise only potential conflicts of interest, or even the mere appearance of impropriety. For example, the Attorney General has opined that a contract that benefits the adult child of a public official might be prohibited under common law, even though neither the PRA nor Section 1090 consider it a financial interest. Courts can void a contract that violates this common law doctrine.

Recent conflict of interest controversies. Starting in late 2023, news surfaced that an Orange County Supervisor awarded COVID-19 relief funding to an organization run by his daughter without disclosing the connection to the public.^[1] After public scrutiny over the contracts, news surfaced that the organization was also behind on required audits.^[2] Despite these concerns, the Supervisor continued to award funding to the organization.^[3]

The author wants to ensure that board members notify the public when a contract would benefit a family member, and recuse themselves from voting on the contract.

Proposed Law

Senate Bill 1111 expands the definition of what constitutes a remote interest to include the financial interest of the child, parent, or sibling of a public officer, or the spouse of a child, parent, or sibling. To be considered a remote interest, the financial interest of those individuals must be known to the public officer. These provisions become effective on January 1, 2026.

Comments

1. Purpose of the bill. According to the author, “Current law prohibits public officers from entering into state contracts that directly benefit them financially. However, the law does not apply when the contract directly affects a public official’s child, parent, sibling, or the spouse of a child, parent, or sibling. Government officials have the responsibility of handling millions of taxpayer dollars and approving contracts on their behalf. As such, they must be held to the highest ethical standards in order to avoid any conflicts of interest or perception of impropriety when conducting business on the public’s behalf. Public officials should not be using their positions to enrich themselves financially, directly or indirectly. SB 1111 would require government officials to abstain from voting when a family member has a financial interest or may benefit from the outcome of a public contract decision under the jurisdiction of that official. At a time where we see public officials direct millions in taxpayer dollars to groups without publicly disclosing family ties, this legislation is necessary.”

2. Sure, but will it work? This bill is motivated by concerns that the financial interests of family members may be unduly influencing official decisions in public contracting, thereby undermining public confidence in government. Existing law does not expressly forbid state and local officials from awarding public contracts to their adult children, parents, siblings, in-laws, or other relatives. Adding benefits to family members to the list of remote interests does not prohibit a local agency from entering into a contract where one of its members has a financial interest, instead it requires the board member to notify the public of the interest and recuse themselves from voting on the contract. So, if there are enough votes to award the contract without the vote of the board member with a family interest, the contract may go forward anyway. On the one hand, this ensures that family ties do not interfere with the county’s ability to award contracts to the entity most qualified to do the work. On the other hand, a public official could still benefit, albeit indirectly, from a contract. In other words, if a county supervisor is the sole owner of the construction company, the county could not award the supervisor’s company the contract. However, if the supervisor’s daughter owns the construction company, the county could award the contract to her company. SB 1111 would not prohibit awarding the contract to the daughter’s company, but require the supervisor to publicly acknowledge the interest and recuse themselves from voting on it. Does SB 1111 sufficiently address recent instances where board members have sought to award contracts to family members?

3. Raising the stakes. While SB 1111 would clearly prohibit public officials from voting on public contracts that would benefit certain close family members, California judges can already use the common law doctrine against conflicts of interest to invalidate agreements tainted by this kind of self-dealing. However, officials who violate the common law doctrine are not subject to criminal prosecution. SB 1111 would significantly stiffen the penalties for a public official who makes or votes on a public contract benefitting his or her adult child, sibling, parent, or in-law. Should state law impose the same penalty in these cases as when a public official directly enriches him or herself?

4. Universally remote. The remote interest statute only applies to public officials that sit on multi-member boards. Thus SB 1111 does not prevent a public employee or other public officer from participating in a contract that would benefit their family members. If it is improper for a board member to participate in these contracts, it may also be improper for employees or other public officials who make similar decisions.

5. Not the first time. SB 1111 furthers the intent of Section 1090, which was originally enacted to codify common law prohibitions against conflicts of interest in contracting. It also adds much needed clarity to common law by unequivocally stating that it is unacceptable for public officials to participate in contracts that benefit their families and in-laws. While SB 1111 responds to recent contracting controversies in Orange County, this is not the first time the Legislature has tried to deal with this issue. A 2015 audit of the City of Industry found the former mayor and his family benefited from favorable contracts totaling more than $326 million over 20 years. This lead to a series of legislative efforts to address contracts favoring family members. SB 1011 (Mendoza, 2016) and SB 330 (Mendoza, 2015) included provisions substantially similar to SB 1111. Both bills were held under submission in the Assembly Appropriations Committee.

6. Mandate. The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because SB 1111 expands the definition of a crime, Legislative Counsel says that the bill imposes a new state mandate. SB 1111 disclaims the state’s responsibility for providing reimbursement because the costs are due to expanding a crime.

7. Coming and going. The Senate Rules Committee has ordered a double referral of SB 1111: first to the Senate Local Government Committee to hear issues related to local government, and second to the Senate Elections and Constitutional Amendments Committee.

Support and Opposition

(4/12/24)

Support: None submitted.

Opposition: None submitted.

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1. https://laist.com/news/politics/andrew-do-rhiannon-do-investigation-warner-wellness-orange-county-viet-america-society-pham ↑

2. https://laist.com/news/politics/orange-county-taxpayer-money-andrew-do-viet-america-society-warner-wellness ↑

3. https://laist.com/news/politics/orange-county-supervisor-andrew-do-taxpayer-money-daughter-viet-america-society-warner-wellness-rhiannon-do ↑