Untitled Texas Attorney General Opinion ( 1984 )


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  •                                          The Attorney              General of Texas
    December 31.     1984
    A4     MAlTOX
    Attorney General
    Ms. Rita Honitz                                       Opinion   No. m-291
    Supreme Coufl Suildin9
    f- 0. son 1254s                       Executive Director
    , :s:in, TX. 78711. 2549              State Pension Revlw Iboard                            Re: Whether a member of the
    :.2!475-2501                          P. 0. Box 13498                                       board of trustees     of a local
    Telex 91wS74-1367
    Austin,  Texas    78711                               pension plan violates    article
    -   Im3Jplor    51214750288
    988b,    V.T.C.S..  In certain
    circumstances
    714 Jackson. Suite 700
    Plllas. TX. 75202-4506                Dear Ms. liorwite:
    U742.8944
    You seek au interpretation     of article   988b, V.T.C.S..   informally
    ‘-24 Albefla Ave.. Suile        160   known as the local     o!:flcials  conflict    of Interest act.    You ask tvo
    Paso, 7X. 799052793                questions    with regard     to the effect    of the act upon the board of
    blY5333S4                             trustees   of the Dallarr Police and Fire Pension Fund:
    iaxar.    Suite 700
    1. Does B board member’s $2500 investment                  in
    houiton,       TX. 77002.3111                      the     stock     of a business     entity   constitute          a 1
    713i22MSSS                                         ‘substantia:l       interest’   under .sectloa      2(a)        of
    article     9881)‘!
    SW3 Broadway. Suite 312
    Lubbock. TX. 79401.3479
    2.   Does a board member’s $2500 participation
    617476238
    in a deferred        compensation    program constitute  a
    ‘substantla:t      interest’     under   section   2(a) of
    article    9881,:!
    4309 N. Tenlh. SWe S
    :Allen. TX. 7S5Ol~lSSS
    21682.4Y7
    Article     988b III a comprehensive          local   conflict       of interest
    statute     vhich    applie:l    to a broad range of local           public    officials.
    Before the enactment of article             988b, no single     conflict      of interest
    D Main Plaza. Suite 400           statute     applied    generally    to all local public      officials.        See. e.g..
    m Antonio. TX. 182052797
    Woolridge v. Folsom, 
    564 S.W.2d 471
    (Tex. Clv. App. - Dallas                      1978. no
    cl12/225-4191
    writ).      Article   988b wplaced      article   988. V.T.C.S.,      repealed    in 1983.
    Acts 1983. 68th Leg., ch. 640, 57, at 4082.                  Article     988 was also a
    conflict      of interest      statute,    but it    applied   only to general            law
    cities.      
    Id. Article 088b
    is not limited      to general     lav cities.
    Article     988b a?l>lies   a fairly      narrow     conflict          of   interest
    prohibition     to a broad group of local public officials.                  Section    l(1)
    of article       988b defi,nes  “local   public     official”       to       include     the
    following:
    p. 1293
    Ms. Rlta    Horvftz   - Psge 2 (JM-291)
    a member of the goveruing             body or another officer,
    whether elected          or rqlpointed,     paid or unpaid,         of
    any      district       (incl.ctdlng    a    school     district),
    county,         city *      precinct,       central       appraisal
    district,       transit    aut’hority    or district.      or other
    local      governmental        entity   who exercises        respon-
    sibilities         beyond     ,%ose    that    are    advisory      in
    nature.        (Emphasis aacied).
    A  preliminary   question    must be resolved      of whether article        988b
    applies   at all to the Dallas         Police and Fire Pension Fund Board of
    TNSteeS.      No reported    cases deal directly      wfth the applicability          of
    article   988b to a similar       bo;lrd of trustees.       Nevertheless,      several
    courts   have dealt vith     similar    boards in other contexts;         these cases
    must be addressed    In an analysis      of article   988b.
    The court    in Bolen v. Board of Firemen, Policemen and Fire Alarm
    Operators       Trustees    of San AKtonio, Texas,          308 S.W.Zd 904-06        (Tex.
    Civ. App.       - San Antonio       195r, writ     ref’d),    held   that   a similarly
    constituted      board with powers parallel         to those of the board in issue
    was simply not a political           carporation     or a political      subdivlslon     of
    the state.        The court dealt with the pension board In the context                  of
    srticle     III, section     52 of the Texas Constitution.           a provision     which
    is not In issue here.         On the other     hand, prior to the Bolen case, the
    Commission       of Appeals    held    that;   although    contributi%?made          by a
    municipality       to a pension    fund pursuant      to article    6243a. the statute
    authorizing       the fund in question        here,    do not violate      article    III.
    section     52. such funds are ne\,ertheless         part of a "pblic       fund subject
    to the control         of the 1egis:tature.v         (Emphasis    ad&r        McGuire v.
    City of Dallas,        170 S.W.Zd 72i., 727-28 (Tex. 1943).
    The court in Creps v. BocEd of Firemen's Relief 6 Retirement       Fund
    Trustees     of Amarillo,   456 S.V.2d 434. 439 (Tex. Civ. App. - Amarillo
    1970, writ ref’d n.r.e.1.       heli  that a statutory  trust is not governed
    by the Texas Trust Act,          the laws noverninn- the administration     of
    private    trusts.    The court in !a      dealt with a fund created pursuant
    to article     6243e.
    Similarly,    this office    clecided that the board of trustees          of a
    Firamens’     Pension     and Retirement      Fund formed pursuant       to article
    6243e, V.T.C.S..       is a "govew,mental        body" for purposes    of the Open
    Meetings     Act,   article   6252-17.     V.T.C.S.     Attorney   General    Opinion
    MU-506 (1982).         The relationship       between municipalities       and their
    various   pension    fund boards cf trustees        as set forth in article     6243e
    and the article      which authoriz,zd    the creation    of the Dallas Police and
    Fire Pension Fund are analogol.;.          -See V.T.C.S. art.6243a.
    Consequently. the pension   fund board of trustees about which you
    inquire  may be a local  goveruaental   entity for some purposes and not
    p. 1294
    Ms. Rita   Horwitz    - Page 3       (JN-291)
    for others.      see also l4uzqui:c V. City of San Antonio,            
    586 F.2d 529
    (5th Cir.     1978) (a similar      fund may be “like          a municipality”     for
    purposes    of Civil    Rights Act.       42 U.S.C.    11983 (1982)).       Moreover,
    unlike    the phrase “or other       ,political    corporation    or subdivision,”
    which was construed       in the :)olen case not to include            a particular
    pension fund board of trwsteei),‘-ehe         test in article    988b was intended
    to address    a different    problem and is phrased broadly to lncludg             any
    entity   that “exercises    respon#;ibilities     beyond those that are advisory
    in nature.”     V.T.C.S. art. 98fRl. 11(l).
    The board of trustees          ia the instant        case Is composed of city
    officials     serving    ex officio      and of members of the fire              and police
    departments      elected    by the c~,ntributors        to the fund.         V.T.C.S.   art.
    6243a. il.      The city treasurer        serves as ex officio          treasurer    for the
    fund.     
    Id. 55. Article
       624:Ia grants      the board broad authority            to
    administer     the fund.       
    Id. )Il. lC,
    15.      Moreover, the board holds the
    power to reduce the percentages              (stipulated      in article      6243a) which
    deal with disabilities           or w11:b awards granted to beneficiaries.               
    Id. 51. Thus,
    the board clearly         “exercises     responsibilities       beyond those
    that are advisory         in nature.”       Accordingly,      article     988b applies     to
    the Dallas Police and Fire Pension Fund Board of Trustees.
    A    local   public   official     commits      a Class     A misdemeanor   under
    section    3(a)(l)   of article    9811b, except     in those    instances provided   in
    section     5, tf he “knowingly”
    participates     in II vote or decision        on a matter
    involving     a business      entity     in which the local
    public official       bar, a substantial       Interest   if it
    is reasonably      forelseeable      that   an action   on the
    matter would confer          an economic benefit        to the
    business    entity   inv,,:Lved. . . . (Emphasis added).
    The elements      of the offense         involve    several   factual    determina-
    tions.      See
    -     Attorney   General      Oplnlon     JM-178   (1984).    Your    question,
    however,      pertains   only to sec:t.ion 2 of the act, which indicates                 what
    constitutes        a “substantial       interest.”       In particular,       you inquire
    about the meaning of section            Z(a)(l);    this subsection     indicates     that a
    person has a substantial          inter,est    in a business     if
    the interest  is ovJnership of 10 percent or more
    of the voting     stock  or shares    of the business
    entity  or ownership of $2,500 or more of the fair
    market  value of the ~bunlness entity.   . . .
    Two different      interpretations       of this   language     have been suggested.
    It has been suggested     ,that the           legislature     meant to draw a
    distinction   in section 2(a)(L)    between         stock-issuing     corporations and
    p. 1295
    I&.   Rita   Rorwitz   - Page 4       (JM-:!!bl)
    business   entities   which do no1 issue   stock,   and to apply the $2500
    limitation   only to the latter.   In our opinion,     however, the language
    of the statute      cannot be so construed.       It is applicable    to the
    “ownership   of $2500 or more of the fair market value” of a “business
    lntfty.”
    You express     concern      that,    if the legislature           did intend a $2500
    Investment     in stock to be a oabstantial                 interest      undes. the statute,
    the board vould be paralyzed;             it   is quite likely         that individual     board
    members might own at least $2500 worth of stock in a large corporation
    in which the board might vaut                    to invest       pension      funds.     Section
    3(a)(l).,   article     988b. requires         officials      to abstain       from voting       on
    investment      decisions       involving       corporations         in which      they   own a
    substantial     interest.       If a $2500 stock investment              were interpreted        to
    he a substantial          interest.     abs,tentions       could be frequent.           Contrast
    art. 988b. 12(a)(l)~ with art. 6252-9b.                  12(12)(B).
    Nevertheless,  the langual:c! enacted    by the legislature       applies
    both the 10 percent       limit   and the $2500 limit      to “the business
    rntity . ” “Business  entity”   Is d.efined by the statute   to include
    a     sole     proprietorship,               partnership,         firm,
    corporation,     holding     cmpany,         joint-stock       company,
    receivership,        trust,,     or          an9      other      entity
    recognized    in lav.
    Ait:    988b,     11(2).       In construing    a statute,    it is no; ordinarily
    permissible       to imply an exceqtion          vhere none ma9 be found in the
    statute’s     literal    language.      Amrd v. Reard. 305 S.W.Zd 231 (Tex. Civ.
    APP. - Galveston          1957, writ-;ef     ‘d) .   We conclude    therefore     that a
    board member’s ownership of $2!iOO of the stock of any business                  entity,
    including     one that       issues  sto&.   constitutes   a “substantial     Interest”
    under section       2(a)(l).
    You also ask whether funds invested         by the board in a deferred
    compensation     program are subject       to article     988b.     The potential
    problem Is that a city offici,n:L who serves as a pension             fund trustee
    may have an interest       in a def’erred   compensation    system in which the
    pension   fund might vish     to Invest.     We must first      determine   vhether
    the board of trustees         may knvest     pension    funds    in a government
    employees’ deferred      compensat:ton   program at all.       The trustees     of a
    statutory    trust   have only thwe      powers and duties      set forth    in the
    statute   which authorized    the creation    of the oarticular     uension   fund.
    Creps v. Board .of Firemen’s_Relief            h Retirement     Fund Trustees       of
    Amarillo,   supra at 439.
    Section      15(b) of article   ,5243a is             a guide    for    those     investments
    the board is      authorized to make:
    p.   1296
    Ms. Rita   Horvitz    - Page 5 (Jh-291)
    In      making      investments        and       supervising
    investments,      members of the          Board of Trustees
    shall    exercise    the judgment        and care under the
    circumstances       then     prevailing,       which     men     of
    ordinary      prudence,     discretion      and Intelligence
    exercise     In the mana:gement of their           own affairs.
    not in regard        to ;tpeculation       but in regard         to
    probable     income thewfrom       as well as the probable
    safety    of their capital.
    Thus, unlike provisions       which   govern other,     similar      types   of pension
    fund trustees,     the board is nat expressly      limited     to specific      types of
    investments.      Compare art.     6%3a,    115(b) with      art.     6243e.   123;   see
    Attorney     General   Opinions   MU-506 (1982);n-607             (1970).     Thus, the
    board could conceivably       consi~ier investing     in some type of “deferred
    compensation”     program if the investment      met the test of article           6243a.
    section   15(b).
    You do not,        however,   indicate     just    what   sort    of   deferred
    compensation      program is in iwue.          As used by the legislature’           the
    term “deferred      compensation” refers      to deferred    compensation    plans for
    public    employees    as authorized    by article     6252-3b,   V.T.C.S.      Article
    6252-3b does not create a program involving             the sale of bonds or other
    investments;      thus it is not a program in which the board could invest
    pension      funds.      Compare V.:l.,C.S.. Title       1LOB. Public       Retirement
    Systems,     165.105 (1983 pamphlet) (authorizes          the Municipal     Retirement.
    System to issue        bonds).     Cowequently , if the board cannot             invest
    funds    in this     program,    no toard member could hsve           a conflict       of
    interest     by participating      in s board vote or decision            on a matter
    involving     investment    in this deferred    compensation    program.
    If, on the other hand, you refer to “deferred                  compensation”      in a
    generic     sense.     i.e.   with regal:cl to retirement       plans generally,       and in
    a context       otherthan        article    6252-3b,    a conflict      of interest      under
    article     988b depends upon the --       nature of the interest        held by the board
    member.       See, e.g.,       Creps v. _I)oard of Firemen’s         Relief    6 Retirement
    Fund Trustees        of Amarillo,      afa      at 437; cf. art. 6252-3b (contractual
    deferred      compensation        program may differfrom            retirement     program).
    Accordingly’        this office       cann3.c answer,    in the abstract,       vhether     all
    or any employees’             “deferred     compensation”     programs      could    cause      a
    conflict       of    interest      under     article    988b vithout         examining      the
    particular       program.       Board members will        have to acquaint        themselves
    vith the portfolio          of any such program in which they have an interest
    and refrain        from participating         in a board decision        when any security
    that is a part of that portfo1.i.o is the subject                  of a decision.      if the
    trustee’s      pro rata holding of that security              through the program is a
    substantial       interest     as defined by article       988b.
    ,>. 1297
    Ms. Rita     Ronitz       - Page 6      (JM-:291)
    Section    ?(a)(l)     of     article       988b.   V.T.C.S.,
    prohibits     a board member of the Dallas Police and
    Fire Pension Fund :Srom voting               to invest     pension
    funds in any business           entity     in which he holds a
    $2500 ownership         interest,       whether      or not that
    Interest     is   in a tlusiness          entity     which issues
    stock.
    Because a deferred      compensation     program under
    article    6252-3b    is not the sort      of program in
    which a pension fund board of trustees           could vote
    to Invest.    article   988b is inapplicable.
    JIM        UATTOX
    Attorney    General of Texas
    TOU GREEN
    First Assistant           Attorney   General         .
    DAVID R. RICEARDS
    Executive Assistant Attorney              General
    RICR GILPIN
    Chairman, Opinion           Committee
    Prepared     by Jennifer       Riggs
    Assistant     Attorney       General
    APPROVRD:
    OPINIONCOMMITTEE
    Rick Gilpln,   Chairman
    Susan Garrison
    Tony Guillory
    Jim Moellinger
    Jennifer  Riggs
    p. 1298
    

Document Info

Docket Number: JM-291

Judges: Jim Mattox

Filed Date: 7/2/1984

Precedential Status: Precedential

Modified Date: 2/18/2017