ADVISORY OPINION 2008-8

Interpretation of General Statutes § 1-84 (n)

Accompanying Order of the Citizen's Ethics Advisory Board

(Amended July 22, 2010)

I.          INTRODUCTION

The Citizen’s Ethics Advisory Board issues this advisory opinion at the request of Catherine E. LaMarr, General Counsel to the Office of the Treasurer, who asks a question in regard to General Statutes § 1-84 (n), which provides in relevant part as follows:

The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to any firm which provides investment services when . . . a principal of the investment services firm has made a contribution . . . to, or solicited contributions on behalf of, any exploratory committee or candidate committee . . . established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer.[1]

 

II.        QUESTION

With respect to that provision, Attorney LaMarr asks the following question: If an individual makes a contribution to the State Treasurer’s campaign before becoming a principal of the investment services firm, and then becomes such a principal, will that contribution be attributed to the firm, thus prohibiting it from doing business with the Office of the Treasurer during the incumbent’s term of office?[2]

III.       ANSWER

Yes.  If an individual makes a contribution to the State Treasurer’s campaign before becoming a principal of the investment services firm, and then becomes such a principal, that contribution will be attributed to the firm, thus prohibiting it from doing business with the Office of the Treasurer during the incumbent’s term of office. 

IV.       ANALYSIS

            The answer to Attorney LaMarr’s question comes down to this: Did the legislature intend the business prohibition in § 1-84 (n) to be triggered by campaign contributions made only while the contributor is a principal of an investment services firm, or did it intend the statute to have a broader reach, capturing contributions made both before and after becoming such a principal?

            The answer to that question is a matter of statutory construction, the fundamental objective of which “is to ascertain and give effect to the apparent intent of the legislature.”[3]  Under General Statutes § 1-2z, when construing a statute, we look first to its text and its relationship to other statutes, and if, after doing so, “the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered.”  When a statute is not plain and unambiguous, we seek interpretive guidance from extrinsic aids, including, for example, the statute’s legislative history and the legislative policy it was designed to implement.[4]

A.                 Text of § 1-84 (n) 

            As mandated, we start with the text of § 1-84 (n), which has two parts, a definition section followed by a statement of the prohibition, the relevant portions of which provide as follows:

(1) As used in this subsection . . . “principal of an investment services firm” means (i) an individual who is a director of or has an ownership interest in an investment services firm, except for an individual who owns less than five per cent of the shares of an investment services firm which is a publicly traded corporation, (ii) an individual who is employed by an investment services firm as president, treasurer, or executive or senior vice president, (iii) an employee of such an investment services firm who has managerial or discretionary responsibilities with respect to any investment services, (iv) the spouse or dependent child of an individual described in this subparagraph, or (v) a political committee established by or on behalf of an individual described in this subparagraph.

(2) The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to any firm which provides investment services when . . . a principal of the investment services firm has made a contribution, as defined in section 9-601a, to, or solicited contributions on behalf of, any exploratory committee or candidate committee, as defined in section 9-601, established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer.  The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to such firms or principals during the term of office as State Treasurer, including, for an incumbent State Treasurer seeking reelection, any remainder of the current term of office.

            Attorney LaMarr argues that a strict reading of the definition of “principal of an investment services firm” in subdivision (1) indicates that the statute was intended to apply to contributions made by “individuals who were, at the time the contribution was made, principals of investment services firms.”[5]  In support, she points to the legislature’s consistent use of the present tense when defining “principal of an investment services firm”: “an individual who is a director,” “an individual who is employed by an investment services firm,” “an employee of such an investment services firm who has managerial or discretionary responsibilities . . . .”  The definition, she asserts, does not contemplate future possibilities by using the conditional tense, such as: “an individual who will become a director” or “an individual who will be employed by an investment services firm . . . .”

            The problem with Attorney LaMarr’s argument is that it focuses exclusively on the repeated use of the present tense throughout the definition of “principal of an investment services firm” in subdivision (1) of § 1-84 (n).  It ignores altogether the key language employed by the legislature in subdivision (2) of § 1-84 (n).  Indeed, her argument is upended when the present-tense definition of “principal of an investment services firm” (or at least a portion of it) is inserted into the language of subdivision (2), giving us this:

The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to any firm which provides investment services when . . . [an individual who is a director of . . . an investment services firm] has made a contribution . . . to . . . any exploratory committee or candidate committee . . . established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer.[6] 

            Focusing on the italicized language, let us assume that “[an individual who is a director of . . . an investment services firm] has made a contribution” to the State Treasurer’s campaign.  Based on that language, we know that an individual who is currently a director of the firm “has made” a campaign contribution, but not whether that contribution was made before or after becoming a director of the firm.  That is because the phrase “has made a contribution” is stated in the present-perfect tense (“has made”), which, according to standard usage,[7] expresses “action . . . occurring at no definite time in the past.”[8]  All we know for certain from that language is that an individual who is currently a director of an investment services firm has—at some indefinite point in the past, either before or after becoming a director—made a contribution to the State Treasurer’s campaign. 

           

            As noted by the Connecticut Appellate Court, “[t]he [legislature’s] use of a verb tense is significant in construing statutes.”[9]  By using the present-perfect tense in § 1-84 (n) (2), the legislature chose a verb tense with a broad, not narrow temporal range.  And if that broad present-perfect-tense language were to be construed in isolation, we would have to conclude that the legislature did not intend the business prohibition in § 1-84 (n) (2) to be triggered by campaign contributions made only while the contributor is a principal of an investment services firm; but rather that it intended to cast a broader net, to pull in contributions made both before and after becoming such a principal.

B.        Section 1-84 (n)’s Relationship to Other Relevant Statutes

            That conclusion stands firm when we consider the language of § 1-84 (n) (2) in relation to other relevant statutes. 

            Had the legislature intended to confine the reach of § 1-84 (n) (2) to contributions made only while the contributor is a principal of an investment services firm, it could have used the present tense, as it did in General Statutes § 9-612 (g) (2),[10] a similar campaign-contribution provision, enacted roughly ten years after the enactment of § 1-84 (n) (2).[11]

            While § 1-84 (n) (2) applies to a “principal of an investment services firm,” § 9-612 (g) (2) applies to a “principal of a state contractor or prospective state contractor.”[12]  Such a principal is prohibited, under subparts (A) and (B) of § 9-612 (g) (2), from making or soliciting certain campaign contributions.  Subparts (C) and (D) set forth the consequences of doing so: 

(C) If a . . . principal of a state contractor makes or solicits a contribution prohibited under subparagraph (A) or (B) of this subdivision, as determined by the State Elections Enforcement Commission, the contracting state agency or quasi-public agency may, in the case of a state contract executed on or after the effective date of this section void the existing contract with said contractor, and no state agency or quasi-public agency shall award the state contractor a state contract or an extension or an amendment to a state contract for one year after the election for which such contribution is made or solicited unless the commission determines that mitigating circumstances exist concerning such violation. . . .

(D) If a . . . principal of a prospective state contractor makes or solicits a contribution prohibited under subparagraph (A) or (B) of this subdivision, as determined by the State Elections Enforcement Commission, no state agency or quasi-public agency shall award the prospective state contractor the contract described in the state contract solicitation or any other state contract for one year after the election for which such contribution is made or solicited unless the commission determines that mitigating circumstances exist concerning such violation.[13]

            As is readily apparent, the legislature did not—as it did in § 1-84 (n) (2)—use the present-perfect tense (“has made or solicited”) in subparts (C) and (D) of § 9-612 (g) (2).  Instead, it chose the present tense (“makes or solicits”), which indicates that those provisions are to apply only to contributions made while the contributor is—but not before he or she has become—a “principal of a state contractor or prospective state contractor.”  The choice of a different verb tense in § 9-612 (g) (2) demonstrates a different legislative meaning from that expressed in § 1-84 (n) (2), namely, that a different temporal range is intended.[14]  This is especially so given that the legislature is presumed to have been cognizant at the time of § 9-612 (g) (2)’s passage of all of its prior enactments, particularly those similar to § 9-612 (g) (2), such as § 1-84 (n) (2).[15]

            According to Attorney LaMarr, however, § 1-84 (n) (2) must be construed in connection with another election provision, General Statutes § 9-612 (f) (2), which reads in relevant part as follows:

No principal of an investment services firm shall make a contribution to, or solicit contributions on behalf of, an exploratory committee or candidate committee established by a candidate for nomination or election to the office of State Treasurer during the term of office of the State Treasurer who pays compensation, expenses or fees or issues a contract to such firm.

            As noted correctly by Attorney LaMarr, § 9-612 (f) (2) was enacted in the same public act as was § 1-84 (n) (2),[16] and based on that fact, she argues essentially this: Sections 9-612 (f) (2) and 1-84 (n) (2) are reciprocal provisions that must be interpreted consistently, and because § 9-612 (f) (2) prohibits contributions made only while the contributor is a principal of an investment services firm, the legislature must have intended the business prohibition in § 1-84 (n) (2) to be triggered by campaign contributions made only while the contributor is such a principal.

            Although we lack jurisdiction to interpret § 9-612 (f), we nonetheless have no reason to disagree with Attorney LaMarr’s proposed interpretation of that provision.  However, we disagree that §§ 9-612 (f) (2) and § 1-84 (n) (2) were intended to be reciprocal provisions.  To demonstrate why we disagree, we return to § 9-612 (g) (2), the election provision discussed above, in which the legislature made explicit the reciprocal nature of that section’s provisions. 

            Section 9-612 (g) (2) provides in relevant part:

(A) No . . . principal of a state contractor . . . with regard to a state contract solicitation with or from a state agency in the executive branch or a quasi-public agency or a holder, or principal of a holder of a valid prequalification certificate, shall make a contribution to, or solicit contributions on behalf of (i) an exploratory committee or candidate committee established by a candidate for nomination or election to the office of Governor, Lieutenant Governor, Attorney General, State Comptroller, Secretary of the State or State Treasurer, (ii) a political committee authorized to make contributions or expenditures to or for the benefit of such candidates, or (iii) a party committee . . . .

(C) If a . . . principal of a state contractor makes or solicits a contribution prohibited under subparagraph (A) . . . of this subdivision, as determined by the State Elections Enforcement Commission, the contracting state agency or quasi-public agency may, in the case of a state contract executed on or after the effective date of this section void the existing contract with said contractor, and no state agency or quasi-public agency shall award the state contractor a state contract or an extension or an amendment to a state contract for one year after the election for which such contribution is made or solicited unless the commission determines that mitigating circumstances exist concerning such violation.

            That those provisions are reciprocal was made explicit by the direct reference in subpart (C) to the prohibition in subpart (A): “If a state contractor or principal of a state contractor makes or solicits a contribution prohibited under subparagraph (A) . . . of this subdivision . . . .”[17]  Further support for the provisions’ reciprocal nature is that they are located within the same subdivision of a statutory section (i.e., § 9-612 (g) (2)).     

            Now compare the close-knit relationship of subparts (A) and (C) of § 9-612 (g) (2) with the relationship between §§ 9-612 (f) (2) and 1-84 (n) (2).  Again, § 9-612 (f) (2) states in relevant part:

No principal of an investment services firm shall make a contribution to, or solicit contributions on behalf of, an exploratory committee or candidate committee established by a candidate for nomination or election to the office of State Treasurer during the term of office of the State Treasurer who pays compensation, expenses or fees or issues a contract to such firm.

            And § 1-84 (n) (2) provides in relevant part:

The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to any firm which provides investment services when (A) a political committee, as defined in section 9-601, established by such firm, or (B) a principal of the investment services firm has made a contribution, as defined in section 9-601a, to, or solicited contributions on behalf of, any exploratory committee or candidate committee, as defined in section 9-601, established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer.[18]

            The first difference is that § 1-84 (n) (2) refers not once to § 9-612 (f) (2)—despite the fact that it refers to other election provisions no fewer than three times.  That is, § 1-84 (n) (2) refers twice to General Statutes § 9-601 and once to General Statutes § 9-601a, but never to § 9-612 (f) (2).  Had the legislature intended §§ 1-84 (n) (2) and 9-612 (f) (2) to be reciprocal provisions, it could have made a direct reference in § 1-84 (n) (2) to the prohibition in § 9-612 (f) (2)—just as subpart (C) of § 9-612 (g) (2) refers directly to subpart (A).  But the legislature chose not to do so.  

            The other difference is that §§ 9-612 (f) (2) and 1-84 (n) (2) are located not only in different statutory sections (§§ 1 and 9, respectively), but in entirely different chapters of the General Statutes.  Section 9-612 (f) (2) is part of chapter 155, entitled “Elections: Campaign Financing,” whose interpretation is statutorily entrusted to the State Election Enforcement Commission; while § 1-84 (n) (2) is part of chapter 10, entitled “Codes of Ethics,” whose interpretation is statutorily entrusted to the Office of State Ethics. 

            The legislature therefore knows how to draft reciprocal provisions, as it did with subparts (A) and (C) of § 9-612 (g) (2), but chose not to do so with respect to §§ 1-84 (n) (2) and 9-612 (f) (2).  Notwithstanding their superficial similarities, §§ 9-612 (f) (2) and 1-84 (n) (2) are two distinct statutory provisions, located in different chapters of the general statutes, which are interpreted and administered by different agencies, with different statutory mandates.  The only thing apparently linking these provisions is that they originated in the same public act.  However, that fact is—to borrow language from the Connecticut Supreme Court—“without apparent significance other than convenience and because both sections pertain to related subjects.”[19]

            Thus, the language of § 1-84 (n), read in relation to similar election provisions, is plain and unambiguous, and compels us to conclude as follows: the legislature intended the business prohibition in § 1-84 (n) (2) to be triggered by campaign contributions made both before and after the contributor becomes a “principal of an investment services firm.”

C.        Absurd or Unworkable Results

That leaves for us to determine whether our interpretation of § 1-84 (n)

would yield absurd or unworkable results, within the meaning of § 1-2z.  According to our Supreme Court, the term “unworkable,” as it is used in § 1-2z, means “not capable of being put into practice successfully.”[20]  With respect to absurdity, our Supreme Court has “employed a reductio ad absurdum argument, illustrating that the proposed interpretation of a statute would yield a ridiculous result, and rejecting the interpretation on the premise that the legislature never would have intended such an absurd result.”[21]

            According to Attorney LaMarr, our interpretation of § 1-84 (n) would place in jeopardy existing business relationships between the Office of the Treasurer and investment services firms.  Further, it could place the Office of the Treasurer in “a position of defaulting on its obligations as a partner in a long-term investment arrangement, at a cost to the pension assets amounting to tens or hundreds of millions of dollars, per relationship.”[22]  “The Office of the Treasurer,” she concludes, “cannot believe that the Legislature could have intended such an absurd result.”[23] 

The “absurd result” described by Attorney LaMarr (i.e., default) derives not from our interpretation of § 1-84 (n), but rather from the State Treasurer’s conflicting interpretation of that provision, and the policies and procedures stemming from it.  Attorney LaMarr acknowledged as much at our September 2008 monthly meeting.  In our discussion as to whether to apply our opinion prospectively (i.e., only as to future contracts and contributions), Attorney LaMarr stated as follows: “Future contributions and future contracts I don’t have a problem with because I can put people on notice, and I can change my system of review.”[24]  If the State Treasurer had previously done so, then presumably the Office of the Treasurer would not be in the position of having to default on its existing obligations.  So the proposed absurdity is not a product of our interpretation of § 1-84 (n); it is the product of the State Treasurer’s current notification and review systems, which are premised on a conflicting interpretation of that provision.         

            Further, although our interpretation of § 1-84 (n) theoretically can yield harsh results, it is hardly absurd or unworkable.  The legislature reasonably could have intended just such results in order to plug a hole for investment services firms to selectively hire large campaign contributors, and/or solicitors of large campaign contributions, from outside the firm who could then leverage those contributions into business with the Office of the Treasurer.  

            Accordingly, because the meaning of § 1-84 (n) is plain and unambiguous and does not yield absurd or unworkable results, we need not resort to extrinsic aids, such as legislative history and policy, to determine § 1-84 (n)’s meaning.  But even if we were to conclude that the statutory language is ambiguous—and we do not—the next step would simply be to seek interpretive guidance from § 1-84 (n)’s legislative history and the legislative policy it was designed to implement—both of which support our interpretation of § 1-84 (n). 

D.        Legislative History of § 1-84 (n)

            Starting with the provision’s legislative history, § 1-84 (n) was adopted by the legislature in 1995,[25] “at the urging of then-Treasurer Christopher Burnham . . . .”[26]  As explained in the New York Times: 

In Connecticut, there have long been complaints about eager money managers sweetening their bids for pension business with cash campaign contributions—so much so that in 1994, the Republican candidate for treasurer made reform the cornerstone of his campaign.  After his election, Christopher B. Burnham and his chief of staff, Paul J. Silvester, wrote a state law keeping political money away from the state pension fund.[27]

According to Senator Win Smith, one of the sponsors of § 1-84 (n), the provision “is an attempt to place restrictions on the ability of . . . anyone who has contributed to the Treasurer’s campaign to subsequently contract for or otherwise provide services for the Office of the Treasurer.”[28]  Incidentally, Senator Smith says “anyone,” as opposed to a “principal of an investment services firm,” which makes sense given his subsequent reference to the federal rule on which § 1-84 (n) was based.  

Senator Smith explained that the “Treasurer’s office controls a significant amount of state funds or pension funds, upwards of $11 billion and it was believed . . . that some kind of parameter should be placed on this.”[29]  “The federal law, Rule G-37,” he asserted, “prohibits this kind of activity in other circumstances and I think it’s appropriate to apply it here in the State of Connecticut.”[30]

            The federal prohibition Senator Smith thought appropriate to apply here in Connecticut”—Rule G-37—was issued just one year before he made that comment.[31]  Rule G-37 represents the culmination of a movement against “pay-to-play” in the municipal securities industry.[32]  “Pay-to-play” is the practice “of requiring, either expressly or implicitly, municipal securities participants to make political contributions to municipal officials in order to be considered for an award of underwriting, advisory, or related business from the municipality.”[33]  This practice does not, in most cases, amount to outright bribery, given the absence of an express quid pro quo, “but it is simply an understanding that if you don’t give, you don’t get business.”[34]   

            To curtail that practice, the Municipal Securities Rulemaking Board[35] (“MSRB”) proposed, and the Securities and Exchange Commission approved, Rule G-37, under which

[n]o broker, dealer or municipal securities dealer shall engage in municipal securities business with [a government] issuer within two years after any contribution to an official of such issuer[36] made by . . . any municipal finance professional associated with such broker, dealer or municipal securities dealer . . . .[37]

The business prohibition of Rule G-37 could thus be triggered by political contributions made to government officials by certain employees of brokers/dealers, known as “municipal finance professionals.”  The term “municipal finance professional” was specifically defined in Rule G-37 to include, among others, “any associated person who solicits municipal securities business . . . .”[38]   

            The definition of “municipal financial professional” in Rule G-37—like the definition of “principal of an investment services firm” in § 1-84 (n)—is stated in the present tense (i.e., “person who solicits”).  By the logic of Attorney LaMarr’s present-tense argument, this might indicate that the MSRB did not intend the business prohibition of Rule G-37 to be triggered by political contributions made before one becomes a “municipal finance professional.” 

            However, the MSRB, in written guidance issued in April 1994, reached the opposite conclusion.  In its “Questions and Answers Concerning Political Contributions and Prohibitions on Municipal Securities Business: Rule G-37,” the MSRB interpreted the language in Rule G-37 as follows:

Q.  Prior to becoming associated with any dealer, a person makes a contribution to an issuer official.  Less than two years after making the contribution, that person becomes a municipal finance professional.  Would the hiring dealer be prohibited from engaging in municipal securities business with that issuer?

A.  Yes.  Rule G-37 attempts to sever any connection between the making of contributions and the awarding of municipal securities business by prohibiting the dealer from engaging in municipal securities business with the issuer for two years from the date the contribution was made.  [T]he dealer’s prohibition on business would begin when the municipal finance professional becomes associated with that dealer.  Thus, if the individual was hired, for example, six months after making the contribution, then the dealer’s prohibition on business would extend for one and one half years.

Q.  A person is associated with a dealer in a non-municipal financial professional capacity, and makes a contribution to an issuer official.  Less than two years after making the contribution, that person becomes a municipal finance professional.  Would the dealer be prohibited from engaging in a negotiated underwriting with that issuer?

A.  Yes, the dealer is subject to the prohibition for two years from the date the contribution was made.[39]

Thus, we know that the express purpose of Rule G-37, as articulated by the MSRB, is to “sever any connection between the making of contributions and the awarding of municipal securities business . . . .”[40]  We also know from Senator Smith’s comments that § 1-84 (n) was based on Rule G-37.  (“The federal law, Rule G-37,” he asserted, “prohibits this kind of activity in other circumstances and I think it’s appropriate to apply it here in the State of Connecticut.”[41]).  Although Rule G-37 and § 1-84 (n) are not identical, we find it safe to assume, based on Senator Smith’s comments, that they share a common purpose.  For that reason, our conclusion—which, like Rule G-37, severs any connection between the making of contributions and the awarding of state business with the State Treasurer’s Office—makes abundant sense.   

E.        Legislative Policy § 1-84 (n) Was Designed to Implement

            Moreover, to conclude otherwise would serve only to undermine the legislative policy § 1-84 (n) was designed to implement, which Representative Robert Landino articulated in these terms: “This bill addresses the public perception that the Treasurer’s Office was subject to undue influence by campaign contributors in investment, legal or bonding firms . . . .”[42]  How would the public perception of such undue influence improve if an individual can contribute to, and solicit contributions on behalf of, the State Treasurer’s campaign and be hired immediately afterwards as a principal of an investment services firm, which then enters into a contract with the State Treasurer’s Office?  How can the public be assured that the contract was awarded on the basis of merit—and not campaign contributions? 

            So even if we were to conclude that § 1-84 (n)’s language is ambiguous and therefore had to seek guidance from extrinsic aids, such as the provision’s legislative history and policy, there is not a shred of evidence to support Attorney LaMarr’s position that the legislature intended the business prohibition in § 1-84 (n) to be triggered by campaign contributions made only while the contributor is a “principal of an investment services firm.”  In fact, all the evidence points in the opposite direction.    

            Accordingly, we conclude that, if an individual makes a contribution to the State Treasurer’s campaign before becoming a principal of the investment services firm, and then becomes such a principal, that contribution will be attributed to the firm, thus prohibiting it from doing business with the Office of the Treasurer during the incumbent’s term of office.

By order of the Board,

Robert Worgaftik, Chairperson

Dated October 30, 2008