ADVISORY OPINION 2009-7

Application of the Code of Ethics for Public Officials to a Member of the Renewable Energy Investments Board

Introduction

            The Citizen’s Ethics Advisory Board issues this advisory opinion at the request of Timothy Bowles, chairman of the Renewable Energy Investments Board, who inquires as to the “the general circumstances that would give rise to an actual or substantial conflict of interest so as to require recusal by Board members from deliberating or voting on matters before the [Renewable Energy Investment] Fund.”[1]   

Background

            Mr. Bowles’s inquiry arises in the context of the following facts.  The Renewable Energy Investment Fund—also known (and hereinafter referred to) as the Clean Energy Fund—is established under General Statutes § 16-245n.  The Clean Energy Fund is financed by a surcharge on residential and commercial electric bills,[2] and its purpose (as articulated on its website) is to promote, develop, and invest “in clean energy sources for the benefit of Connecticut ratepayers.”[3] 

The Clean Energy Fund is “within” Connecticut Innovations, Inc., a quasi-public agency,[4] but for administrative purposes only.[5]  It is overseen by the Renewable Energy Investments Board (hereinafter the “Clean Energy Fund Board”), which is statutorily authorized to act on matters related to the fund, “including, but not limited to, development of a comprehensive plan and expenditure of funds.”[6] 

The fifteen-member Clean Energy Fund Board consists of the Consumer Counsel, the heads of three state agencies[7] (or their designees), and eleven appointed members.[8]  Of the eleven appointees, three are appointed by the Governor, six by legislative leaders, and two by the Board of Directors of Connecticut Innovations.[9]  Each appointee must have a particular expertise or background, including one “representative of organized labor . . . .”[10]  The current labor representative is John Olsen, president of the Connecticut chapter of the American Federation of Labor and Congress of Industrial Organizations (“Connecticut AFL-CIO”). 

            At its April 27, 2009 regular meeting, the Clean Energy Fund Board considered a loan request submitted by Plainfield Renewable Energy, LLC (“PRE”), which is proposing to build “a 37.5 MW (net) Class I biomass gasification power plant that will be located in Plainfield, Connecticut, on an approximately 27 acre industrial zoned parcel of land.”[11]  During the meeting’s public-comment period, a member of the public stated “that Mr. Olsen should recuse himself from voting on the PRE application as the jobs that would be created should the PRE project move forward could/would be union jobs, thereby benefiting Mr. Olson’s employer, the AFL-CIO, and, by extension, Mr. Olsen.”[12]  

Question

            Mr. Bowles asks whether those facts “give rise to a conflict of interest requiring [Mr. Olsen] to recuse himself from voting on funding requests that, if approved, could create jobs or work for presently employed workers within the State.”[13] 

Conclusion

            Based on the facts presented, we conclude that Mr. Olsen has neither a substantial nor a potential conflict of interests for purposes of the Code of Ethics for Public Officials (“Code”), meaning that he may take official action regarding the PRE loan request.

Analysis

1.         “Public officials” or “members of an advisory board”

            The threshold issue is whether members of the Clean Energy Fund Board are “public officials,” as defined in General Statutes § 1-79 (k), and thus subject to the Code. 

Under § 1-79 (k), the term “public official” includes, among others, individuals appointed to any office of the legislative, judicial, or executive branch of state government by the Governor, by an appointee of the Governor, or by a member of the General Assembly, but does not include a member of an advisory board.  Here, members of the Clean Energy Fund Board are (as noted above) appointed to their positions by either the Governor, gubernatorial appointees (i.e., members of the Board of Directors of Connecticut Innovations), or members of the General Assembly.  In terms of their appointment, therefore, they meet the definition of “public official.”  The question is whether they also meet the definition of “member of an advisory board,” for if so, they are not subject to the Code.

“Members of an advisory board”—who, again, are not bound by the Code—include individuals

(1) appointed by a public official as [a] . . . member of a committee, commission or council established to advise, recommend or consult with a public official or branch of government or committee thereof, (2) who receives no public funds other than per diem payments or reimbursement for his actual and necessary expenses incurred in the performance of his official duties, and (3) who has no authority to expend any public funds or to exercise the power of the state.[14]

In Advisory Opinion No. 2000-13, the State Ethics Commission (“SEC”) concluded that members of the Renewable Energy Investments Advisory Committee—the predecessor entity to the Clean Energy Fund Board—satisfied the three-part definition of “member of an advisory board.”  It did so based on these facts: (1) members of the advisory committee were appointed simply to assist Connecticut Innovations in matters related to the Clean Energy Fund; (2) they received nothing more than reimbursement for necessary expenses incurred in performing their official duties; and (3) they were not authorized to expend public funds or exercise state power, but rather functioned in a purely advisory capacity to Connecticut Innovations.[15] 

           

           In 2007, the legislature eliminated the Renewable Energy Investments Advisory Committee, replaced it with the Clean Energy Fund Board, and required the latter to act on matters related to the Clean Energy Fund, “including, but not limited to, development of a comprehensive plan and expenditure of funds.”[16]  Thus, unlike their predecessors, members of the Clean Energy Fund Board exercise state power and expend public funds, and therefore fail to satisfy the third part of the three-part definition of “member of an advisory board.”  This means that, given the manner of their appointment (see above), members of the Clean Energy Fund Board are “public officials,” as defined in § 1-79 (k), and therefore subject to the Code.

2.         Legislative waiver

            Although those who meet the definition of “public official” are generally subject to the Code in its entirety, Mr. Bowles, asserting the doctrines of inherent conflicts and legislative waiver, states: “by creating a Board which specifically includes persons with extensive business experience, expertise in renewable energy, as well as a representative of organized labor, the legislature itself has created a structure in which Board members will appear to have conflicting interests or duties.”[17]  Hence, he argues, “because the conflict is legislatively created, any such conflicts should be deemed waived.”[18]   

            For support, Mr. Bowles points to Advisory Opinion No. 80-20.  There, it was asked whether a member of the State Alcohol and Drug Abuse Commission (“Commission”) could also serve on the board of directors of a community-based program that received Commission funding, provided that he would abstain from taking any official action affecting the program.[19]  The SEC answered no, explaining that this individual was a “public member” of the Commission, who was not statutorily required to have any particular background or expertise.[20]  He was therefore “apparently . . . to be free of entanglement with agencies seeking grants from the Commission,” and would have to abandon one position or the other.[21]  In other words, the SEC concluded that he had an inherent (or per se) conflict of interests that could not be cured by way of abstention from Commission action affecting the program.

            The SEC distinguished that Commission member from two others, the heads of the Department of Correction and of Mental Health, ex-officio Commission members whose agencies also received Commission funding.[22]  After noting that “[t]he General Assembly specifically designated them to be Commission members, knowing that they head State agencies receiving funds from the body to which they were appointed,” the SEC stated:

When the General Assembly provides for the appointment to a . . . commission of someone in a position such that there is an inherent conflict of interest, it in effect grants that person a waiver of certain conflict-of-interest provisions of the Code . . . with which the public members of the same agency must conform. The expertise or other contribution made by the member with the conflict of interest no doubt is considered worth the risk of harm, which can be minimized when the conflict of interest is apparent.[23]

The SEC picked up on this theme in Advisory Opinion No. 2001-3, in which it applied the Code to the private investment work of a member of the Investment Advisory Council, whose enabling statute required that its public members “be experienced in matters relating to investments.”  The SEC stated that, “[w]hen, as in this instance, a public official’s appointment provisions specifically require a certain expertise, [it] has explicitly recognized that the General Assembly intended that such expertise not be viewed as, per se, impairing one’s independence of judgment or constituting a conflict of interests . . . .”[24]  It then went on to explain how two of the Code’s conflict-of-interest provisions would apply to the council member while serving in that capacity.[25]    

What those advisory opinions mean for our purposes is this: Because the enabling statute for the Clean Energy Fund Board mandates that one of its members be “a representative of organized labor,” the Code’s conflict-of-interests provisions, General Statutes §§ 1-84 through 1-86, will not prohibit Mr. Olsen from serving as a board member by the mere fact that he happens to be president of the Connecticut AFL-CIO.[26]  However, they will limit his activities while serving as such.     

3.         Conflict of interests

The conflict-of-interests provisions relevant to the question posed are §§ 1-85 and 1-86 (a), which define and proscribe substantial and potential conflicts of interests.

A.        Substantial conflict of interests

Under § 1-85, a public official has a substantial conflict of interests and may not take official action on a matter under these circumstances: “if he has reason to believe or expect that he, his spouse, a dependent child, or a business with which he is associated will derive a direct monetary gain or suffer a direct monetary loss . . . by reason of his official activity.”[27]  The Code’s interpretive regulations explain that an individual has reason to so “believe or expect,” “when there is a written contract, agreement, or other specific information available to the individual which would clearly indicate to a reasonable person that such a direct benefit or detriment would accrue or when the language of the . . . matter in question would so indicate.”[28]  For purposes of this rule, the term “direct” has been defined, by way of declaratory ruling, to mean “absolute, immediate, or without intervening conditions.”[29]

A clear-cut example of a substantial conflict (as provided in the regulations) would be “a state employee required, in the course of his or her official duties, to determine whether a consulting contract should be awarded to his or her spouse . . . .”[30]  Another would be “if a legislator is on the board of directors of a for-profit corporation”—making it “a business with which the legislator is associated”—and “if the corporation applied to the General Assembly for bonding . . . .”[31]

A not so clear-cut example of a substantial conflict (but a substantial conflict nonetheless) is illustrated in Advisory Opinion No. 2002-14.  In that opinion, Senator Win Smith asked whether he could seek legislation to empower the city of Milford to issue bonds in order for it to raise funds to purchase the property upon which the Milford Academy was located.[32]  Under an agreement between the city and the academy, after the city purchased the property, the academy would use the sale’s proceeds to reimburse its creditors—one of which was the senator’s law firm (a business with which he was associated).[33]  In concluding that Senator Smith had reason to “believe or expect” that his firm would receive a direct financial benefit following passage of the legislation at issue—and that he therefore had a substantial conflict under § 1-85—the SEC explained:          

It can be argued . . . that the potential payment to Senator Smith’s law firm is insufficiently immediate to qualify as “direct,” since an intervening condition, the purchase of the Academy property by the City, must first occur. In reality, however, the Agreement between the City and the Academy predates the request that Senator Smith now obtain the necessary municipal bonding authority to implement the deal.  Given this fact, there is, at this time, no meaningful intervening condition, i.e., additional, substantive prerequisite, which must take place for the payment to the Senator’s law firm to occur.[34]

So the question here is whether Mr. Olsen would have reason to believe or expect that he or a business with which he is associated[35] would derive a direct monetary gain from action taken by the Clean Energy Fund Board to approve the PRE loan request.  And that depends on whether there is a written contract, agreement, or other specific information available to Mr. Olsen that would clearly indicate to a reasonable person that such a direct financial gain would accrue.[36]  If so, then Mr. Olsen would have a substantial conflict and be prohibited by § 1-85 from taking official action on the matter.   

Starting with Mr. Olsen’s personal financial interests, the specific information available is described by Mr. Bowles thus: Mr. Olsen’s salary “is set by attendees at the annual convention of the AFL-CIO”; it “is not affected in any way by the status of either the PRE project or any project that may come before the Fund seeking funding”; and it is not “affected in any way by the number of union jobs created generally within the State.”[37]  Absent any other facts to the contrary, Mr. Olsen would not have reason to believe or expect that he personally would derive a direct financial gain from action taken by the Clean Energy Fund Board to approve the PRE loan request. 

That leaves two questions.  The first is whether the Connecticut AFL-CIO is, for Mr. Olsen, a “business with which he is associated”—a Code-defined term that includes, among others, the president of “any . . . entity through which business for profit or not for profit is conducted . . . .”[38]  If so, the second question is whether there is specific information available to Mr. Olsen that would clearly indicate to a reasonable person that the Connecticut AFL-CIO would derive a direct financial gain from action taken by the Clean Energy Fund Board to approve the PRE loan request.

To answer them, we look to a 1993 informal staff letter, in which § 1-85 was applied to a remarkably similar fact pattern.[39]  The facts involved a member of the General Assembly who was president of the Thames Labor Coalition, whose affiliate unions included the Waterford Federation of Teachers Local 2038 and the Lawrence and Memorial R.N. Local 5049.[40]  The legislator asked whether she could vote on legislation that would provide funding to the Lawrence & Memorial Hospital or to the Waterford school system.[41]  After noting that the term “business with which he is associated” includes “not for profit entities of which the public official is a . . . president,” a SEC staff attorney concluded that the Thames Labor Coalition was, for the state senator, an associated business, meaning:

Consequently . . . you are prohibited [by § 1-85] from voting on a matter if you have reason to believe or expect that the [Thames Labor] Coalition will derive a direct monetary gain or suffer a direct monetary loss. . . . It appears that any vote allocating monies for specific programs will not affect the Coalition specifically but instead will have an indirect benefit to individual members or potential members of the Coalition.  Therefore, you may vote on a bill which will provide money to a specific hospital or programs for a specific school system.[42]

The facts here warrant similar conclusions, the first being that the Connecticut AFL-CIO—of which Mr. Olsen is president—is a “business with which he is associated.”  Again, that term includes, among others, the president of “any . . . entity through which business . . . not for profit is conducted . . . .”[43]  To borrow language from Advisory Opinion No. 79-18, “[c]onsidering the broad definition which ‘business’ may be given”[44]—and has been given[45]—it is logical to conclude that the Connecticut AFL-CIO is a “business” with which its president (i.e., Mr. Olsen) is associated.[46]     

We also conclude, based on the facts at hand, that action taken by the Clean Energy Fund Board to approve the PRE loan request would accrue directly to PRE’s financial benefit—but not to the Connecticut AFL-CIO’s.  In fact, according to Mr. Bowles, there is absolutely no written contract, agreement, or other specific information available to suggest that the Connecticut AFL-CIO would derive any financial gain from such action—much less the direct (i.e., immediate) financial gain that is required under § 1-85.  Absent any other facts to the contrary, Mr. Olsen would not have reason to believe or expect that the Connecticut AFL-CIO would derive the requisite direct financial gain from action taken by the Clean Energy Fund Board to approve the PRE loan request. 

Lacking reason to believe or expect that either he personally or the Connecticut AFL-CIO would derive a direct financial gain from action taken by the Clean Energy Fund Board to approve the PRE loan request, Mr. Olsen does not have a substantial conflict under § 1-85.

B.        Potential conflict of interests

Although a particular scenario may not pose a substantial conflict under § 1-85, it may pose a potential one within the meaning of § 1-86 (a).[47]  A potential conflict exists when a public official, in the discharge of his official duties, “would be required to take an action that would affect a financial interest of such official . . . such official’s . . . spouse, parent, brother, sister, child or the spouse of a child or a business with which such official . . . is associated . . . .”[48]  No potential conflict exists if the financial impact is de minimis (i.e., less than $100 per person per year) or indistinct from that of a substantial segment of the general public (e.g., all homeowners).[49]  Potential conflicts—unlike substantial conflicts—do not require “that the financial impact . . . be direct . . . .”[50]  But “there . . . must be a reasonable expectation on the part of the individual that there will be some financial impact based on his actions.”[51] 

By way of example, in Advisory Opinion No. 1999-18, the SEC was asked whether the Secretary of the Office of Policy and Management (“OPM”) could rule on a property-revaluation waiver to be submitted by the city of Waterbury, where he was a homeowner.  Absent a waiver, the city would lose almost $10 million in state aid, which (in the SEC’s words) “almost certainly” would trigger an increase in the city’s mill rate, followed by an increase in property taxes to the city, followed by an estimated $300 annual increase in the Secretary’s property tax.[52]  According to the SEC, “[c]learly, the Secretary of OPM will be required to take an action which would affect his financial interest,” and “the interest is neither de minimis (defined . . . as less than $100 per year) nor is it shared by a ‘substantial segment’ of the general public (defined . . . as equivalent to ‘all licensed drivers, all homeowners, all parents, etc.’).”[53]  Therefore, the SEC concluded, he had a potential conflict under § 1-86 (a).[54] 

Applying § 1-86 (a) (and the reasonable-expectation standard) here, Mr. Olsen has a potential conflict if the following holds true: Under the existing facts, a reasonable person would “expect”—that is, “consider likely,”[55] as opposed to merely conceivable—that action taken by the Clean Energy Fund Board to approve the PRE loan request would affect Mr. Olsen’s own financial interests or the financial interests of the Connecticut AFL-CIO[56] in an amount exceeding one hundred dollars. 

Regarding the financial interests of Mr. Olsen, the facts presented, again, are that his salary is set by the attendees at the AFL-CIO’s annual conference, and is affected neither by the status of the PRE project (or any other such project) nor by the number of union jobs created generally within the State.  Based on those facts, a reasonable person would have no reason to expect that action taken by the Clean Energy Fund Board to approve the PRE loan request would affect Mr. Olsen’s personal financial interests. 

That leaves the financial interests of the Connecticut AFL-CIO.  According to Mr. Bowles, the Connecticut AFL-CIO is funded by its affiliate unions based on a twenty-four month rolling average of each affiliate’s membership.  Thus, he notes, for it to benefit financially from approval of the PRE loan request, the following chain of events would have to take place:

1.      The PRE project developer hires a contractor who utilizes union labor.

2.      The contractor, because of the work involved, hires additional workers.

3.      The additional workers work more than seven days and therefore have to join the union.

4.      Because of the new union members, the union local’s average number of members over the twenty-four month running average increases.

5.      For each such additional union member increase in the twenty-four month running average, the Connecticut AFL-CIO receives roughly eighty-five cents per month.  

Is it conceivable that this chain of events would unfold?  Certainly.  But as to whether it is likely to do so, Mr. Bowles states that it would be “the sheerest of speculation to believe that this chain of events could be known by any one individual to likely play out in the context of the PRE vote . . . .”[57]  Indeed, regarding even the first link in that chain (i.e., the hiring of a contractor who utilizes union labor), Mr. Bowles states that contractors potentially involved in the PRE project are unknown to members of the Clean Energy Fund Board; that the Clean Energy Fund Board “has no control over who (union or non-union labor) PRE may hire to work on the project”[58]; and that “the Connecticut AFL-CIO cannot require contractors to employ union workers.”[59]  Accordingly, based on the facts presented, a reasonable person would have no reason to expect—i.e., consider likely, as opposed to merely conceivable—that action taken by the Clean Energy Fund Board to approve the PRE loan request would affect the financial interests of the Connecticut AFL-CIO.[60] 

Because the facts presented would not lead a reasonable person to expect that action taken by the Clean Energy Fund Board to approve the PRE loan request would affect Mr. Olsen’s or the Connecticut AFL-CIO’s financial interests in an amount exceeding one hundred dollars, Mr. Olsen does not have a potential conflict under § 1-86 (a).  He may therefore take official action regarding the PRE loan request without violating that provision. 

But even if we had we concluded that Mr. Olsen has a potential conflict under § 1-86 (a), that would not necessarily preclude him from taking official action regarding the PRE loan request. 

How to proceed when faced with a potential conflict (as opposed to a substantial conflict, which always demands recusal) depends on whether the individual is a “member of a state regulatory agency,” a term defined by regulation to include, among others, “a member of any . . . board . . . which is authorized by law to regulate, i.e., control, administer, or oversee, any . . . fund . . . .”[61]  If an individual is a member of a state regulatory agency, he has two options when faced with a potential conflict, the first being abstention from the matter.  The other option is to act on it, but only after filing a § 1-86 (a) statement: namely, a written statement (to be placed in the journal or minutes of the individual’s agency, with a copy delivered to the Office of State Ethics), signed under penalty of false statement, describing the matter requiring action and the nature of the potential conflict, and explaining why, despite the potential conflict, he can act fairly, objectively, and in the public interest. 

Here, because the Clean Energy Fund Board is authorized by law to regulate a fund, it is (for purposes of § 1-86 (a)) a “state regulatory agency,” and Mr. Olsen is a “member” thereof, meaning that, even if he has a potential conflict regarding a particular matter, he may act on it, provided that he files a § 1-86 (a) statement. 

C.        Appearance of a conflict of interests

We finish by addressing the concern raised by Mr. Bowles regarding the appearance of a conflict of interest.  In his words, “by virtue of the expertise and experience mandated by the legislature for Board members, it is inevitable that situations will arise that may have the appearance of a conflict of interest or duties.”[62]  But as noted correctly by the SEC, “[t]he Code . . . does not speak of appearances of conflict, only actualities.”[63]  That being the case, in “interpreting and enforcing the Code . . . [we are] limited, by statute, from addressing appearances or perceptions of conflict of interest.”[64]

By order of the Board,

Dated___8/27/09__________                               _____________/s/____________           

Sister Sally J. Tolles, Vice Chairperson