OEC advisory opinion clarifies restrictions on public officials employed by entities that receive public financial assistance . . . significant limitations remain

Many public officials maintain outside employment, sometimes at nonprofit corporations that receive financial support from the public agencies they serve. In response to a number of questions it has received over the years, the Ohio Ethics Commission (OEC) recently issued Advisory Opinion No. 2016-01 to offer guidance for public officials who are employed by a nonprofit that receives public funding. The opinion restates and clarifies information that the OEC issued in earlier advisory opinions regarding this subject and also incorporates new guidance acquired at recent commission meetings.

The commission reiterated that Ohio Revised Code Section 2921.42(A)(3) prohibits a public official or employee from occupying a “position of profit” in a public contract. This section, the commission wrote, generally “prohibits a public official from also being employed by a nonprofit or for profit corporation, company, or other entity, where the establishment or operations of the entity is dependent upon receipt of the public agency’s financial assistance or the public official would otherwise profit from the award of the contract.” However, determination of an entity’s dependency on public funding has often come into question at various levels of government throughout the state.

To clarify the restrictions and identify specific situations in which a risk of conflict exists, the commission established a “rebuttable presumption” to determine when a corporation is dependent upon public financial assistance. Absent a showing to the contrary, a nonprofit agency will be rebuttably presumed to be dependent on a public agency that provides 25 percent or more of its funding in a calendar or fiscal year. 

Although the opinion was drafted for a hypothetical city council member employed by a nonprofit corporation, the OEC made clear that the analysis applied to any public official or employee who is employed by a for-profit or nonprofit entity that received 25 percent of its funding from the public agency. Moreover, the commission made clear that R.C. 2921.42(A)(3) did not apply to public employees who served in unpaid positions with a nonprofit regardless of the amount of financial assistance the nonprofit received from the public agency.

While the guidance summarized above is helpful as to R.C. 2921.42(A)(3), public employees and officials must also remain cognizant of a companion provision in Ohio law that prohibits having “an interest in the profits or benefits of a public contract” contained in  R.C. 2921.42(A)(4). As the commission has often explained, and explained again in Advisory Opinion No. 2016-01, a prohibited interest under this section can either be pecuniary or fiduciary in nature and must be definite and direct. Public officials who have a fiduciary interest in their private employer’s contracts (usually board members serving on a nonprofit board, corporate officers or company managers with specific duties related to the public contract) may have issues related to RC 2921.24(A)(4) even if they are unpaid and even if the amount of public funding is less than 25 percent of the corporation's annual funding.

There are several exceptions to the provisions noted above that could apply to various specific situations. Public officials who suspect they may have a conflict of interest under either R.C. 2921.43(A)(3) or (4) should consult with their statutory legal counsel or the Ohio Ethics Commission for guidance on these potentially complex issues.   

This article was reprinted from the Summer 2016 Compliance Connections Newsletter. Download the complete issue here.