STATE OF NEW YORK
STATE ETHICS COMMISSION

Advisory Opinion No. 90-13: Application of §§73, 73-a and 74 of the Public Officers Law to subsidiary corporations of public benefit corporations.

INTRODUCTION

The following advisory opinion is issued in response to two inquiries concerning the application of §§73, 73-a and 74 of the Public Officers Law to subsidiary corporations of public benefit corporations.

The first inquiry is from the New York Convention Center Development Corporation ("CCDC") concerning application of the financial disclosure filing requirements of §73-a of the Public Officers Law to the members of its Board of Directors.

The second inquiry is from the New York City Housing Development Corporation ("HDC") concerning application of §73 or §74 of the Public Officers Law to the Chairman and Vice-Chairman of HDC and to the Chairman and Vice-Chairman of HDC's subsidiary, the Housing New York Corporation ("HNYC"), where the Chairman and Vice-Chairman of each of these public benefit corporations serve as both uncompensated members and as uncompensated officers of their respective entities.

Pursuant to the authority vested in the New York State Ethics Commission ("Commission") by §94(15) of the Executive Law, the Commission hereby renders its opinion that (1) all the members of the Board of Directors of CCDC are covered by the financial disclosure requirements of §73-a of the Public Officers Law because they are covered "officers" of a State agency and (2) the Chairman and Vice-Chairman of HDC and HNYC, are not subject to the provisions contained in §73 of the Public Officers Law, because they are uncompensated members of covered public benefit corporations, but are otherwise subject to the provisions of §§73-a and 74 of the Public Officers Law.

THE FIRST INQUIRY: BACKGROUND

New York Convention Center Development Corporation ("CCDC")

The first inquiry is whether CCDC, a subsidiary corporation of the Urban Development Corporation ("UDC"), (a public benefit corporation), is a "state agency" under §73-a of the Public Officers Law, whose members must file an Annual Statement of Financial Disclosure.

CCDC was created by the Legislature as a subsidiary public benefit corporation of the UDC pursuant to §5, Chapter 35 of the Laws of 1979. The function of CCDC is to develop a convention and exhibit center in the City of New York.

The "parent" public benefit corporation, UDC, and the Triborough Bridge and Tunnel Authority ("TBTA"), are the sole stockholders of CCDC. Pursuant to CCDC's By-laws, both UDC and TBTA are entitled to appoint two of the four members of the Board of Directors of CCDC.

The legislative findings and declarations to the New York Convention Center Development Corporation Act provide, in relevant part, the following:

It is . . . found and declared that the convention and exhibition center will provide significant economic and social benefits to the city, state and region, and that, consistent with social, economic, environmental and other considerations of state policy, locating the convention and exhibit center . . . is in the public interest . . . and the immediacy of the needs of the people of the city, state and region for the realization of the significant economic and social benefits to be derived from the convention and exhibit center.
. . . .

Therefore, it is hereby found and declared that it is in the public interest that a subsidiary of New York state urban development corporation, assisted by the state of New York, plan, design, construct and otherwise develop a convention and exhibition center . . . (Emphasis added.)1

In addition, the State Comptroller is empowered to examine the books and accounts of CCDC and to conduct a continuing audit of the subsidiary's receipts and disbursements. The State also must indemnify the subsidiary and its members, officers, and employees from all lawsuits which may be made or brought against them arising out of their official actions on behalf of CCDC.

THE FIRST INQUIRY: DISCUSSION

CCDC, concerned about the financial disclosure filing requirements of its members, has argued that, as a subsidiary public benefit corporation with no gubernatorial appointees, it does not meet the statutory definition of "state agency" and, therefore, §73-a of the Public Officers Law does not apply. They agree, however, if one of the members of the subsidiary corporation is appointed by the Governor, then the subsidiary would be a covered "state agency."

Section 73-a of the Public Officers Law defines "state agency" as:

1. (b) . . . any public benefit corporation, public authority or commission at least one of whose members is appointed by the governor . . .
The definitions of "state agency" in §§73 and 74 of the Public Officers Law are substantively identical to §73-a.

The Commission does not accept CCDC's argument that the sole test for application of §73-a to a subsidiary public benefit corporation is whether the Governor possesses the right to appoint at least one of the subsidiary's members. Such a test ignores the purpose for creating the subsidiary and its relationship with its parent public benefit corporation.

Subsidiary public benefit corporations are established in two different ways. Some are expressly established by an act of the Legislature; other subsidiaries are created by the parent public benefit corporation under its statutory authority.2

In determining whether a subsidiary corporation should be considered a "state agency" for purposes of application of §§73, 73-a and 74 of the Public Officers Law, the Commission shall consider whether a gubernatorial appointee sits as a member on the subsidiary's board; if one does, the subsidiary clearly falls within the definition of "state agency." If no gubernatorial appointee sits on the subsidiary's board, then the Commission will consider the following:

(1) whether the subsidiary has been created by, or is statutorily under the authority of a parent public benefit corporation, at least one of whose members is appointed by the Governor;

(2)whether the purpose for which a subsidiary public benefit corporation was created (either by the Legislature or the parent) was to facilitate a particular statutory State purpose or an interest of the parent public benefit corporation; and,

(3) whether the covered parent public benefit corporation owns or controls the subsidiary through stock ownership or the right to name a majority of the subsidiary's board of directors.

Under this approach, each subsidiary corporation would be considered on a case-by-case basis. If any one of the foregoing listed conditions is met, the Commission shall conclude that the subsidiary benefit corporation is covered by §§73, 73-a and 74 of the Public Officers Law, because there is a unity of entity and purpose between the covered parent and the subsidiary public benefit corporation.

In applying the tests set forth above, CCDC does not have a gubernatorial appointee on its board. However, it is a subsidiary of UDC, a covered "state agency"; CCDC was statutorily created to further a specific State interest and policy in establishing a convention and exhibition center in the City of New York; and, UDC and TBTA, another covered "state agency," own all of the subsidiary's stock with the power to appoint half of the subsidiary's board members, and are, therefore, one with the subsidiary. CCDC, being one with its sole owners (which are clearly State agencies), is also a public benefit corporation within the definition of "state agency."

Under §73-a(c)(iii), for purposes of financial disclosure, the definition of "state officer or employee" required to file a financial disclosure statement includes members or directors of public benefit corporations. There is no requirement that a member or director of a public benefit corporation be designated as serving in a policy-making position by his or her appointing authority. Therefore, each of the members of the board of directors of CCDC, a "state agency," must file an annual statement of financial disclosure.3

This result comports with 1980 Op. Atty. Gen. 51, where the Attorney General reached the conclusion that the directors of CCDC were subject to the provisions of then §§73 and 74 of the Public Officers Law. The threshold questions for the Attorney General were whether UDC, the parent corporation, and CCDC, were covered "state agencies." Since CCDC did not fall within the then definition of "state agency" under §73(1) of the Public Officers Law, the Attorney General found it necessary to examine the statutes under which the respective corporations were created.

The Attorney General found it significant that UDC and TBTA, as the sole owners of CCDC, were expressly subject to §§73 and 74 of the Public Officers Law under their respective enabling statutes, and that CCDC "should likewise be subject to such reasonable regulation." It was also of significance that CCDC was meant to function in the public trust as evidenced by the legislative findings and declarations contained in CCDC's enabling statute which refer to the convention center providing "significant economic benefits to the city, state, and region" (Emphasis added). The Attorney General, while recognizing that CCDC, in one sense, may be deemed a separate entity, also concluded that "it must be viewed as being one with its parent, and must, in consequence, be held subject to the same restrictions and limitations as are that parent."4

THE SECOND INQUIRY: BACKGROUND

The second inquiry is whether the uncompensated Chairman and Vice-Chairman of New York City Housing Development Corporation, who are also members of the New York City Housing Development Corporation and its subsidiary, Housing New York Corporation, are covered by §73 of the Public Officers Law, by virtue of their status as officers of the corporations.

New York City Housing Development Corporation ("HDC")

Pursuant to §651 of the Private Housing Finance Law, HDC was established as a public benefit corporation to provide low income housing, with the authority to issue bonds and notes to the investing public to obtain funds necessary to make mortgage loans.5

As specified by §653 of the Private Housing Finance Law, HDC has a board of seven members: the Commissioner of the Department of Housing Preservation and Development of the City of New York who serves as its Chairman, the Commissioner of Finance of the City of New York, the Director of Management and Budget of the City of New York, two public members appointed by the Governor, and two public members appointed by the Mayor of the City of New York. The members are not entitled to compensation for their services rendered as members of HDC. They are entitled to reimbursement for their actual and necessary expenses incurred in the performance of their duties.

HDC, pursuant to §654(6) of the Private Housing Finance Law, is also authorized to appoint officers, agents, and employees, prescribe their duties and qualifications and fix their compensation. Under Article II, Section 1 of the By-laws of HDC,6 the Chairman and the Vice-Chairman of HDC are specifically named as officers of the Corporation.7 The Chairman and the Vice-Chairman are not compensated for their services as officers of HDC.

Housing New York Corporation ("HNYC")

The HNYC was established by the Legislature as a subsidiary public benefit corporation of HDC, solely for the purpose of borrowing money and providing such moneys to the City of New York in accordance with the provisions of the Housing New York Program.8

Section 654-c(13) of the Private Housing Finance Law also provides that on or before January 31 of each year during which the City utilizes moneys pursuant to the Housing New York Program, HNYC shall, for the prior and current calendar year, submit a report to the Governor, the majority and minority leaders of the State Assembly and Senate, and the State Comptroller.

Under §654-c of the Private Housing Finance Law, the membership of HNYC shall consist of seven members, five of whom shall be the members of HDC (other than the two members of HDC appointed by the Governor), and two other members appointed by the Governor. The Commissioner of the Department of Housing Preservation and Development of the City of New York is designated to serve as the Chairperson of the subsidiary corporation. The members of HNYC are not entitled to any additional compensation for their services, although they receive reimbursement for their expenses.

The By-laws of HNYC9 are similar to the By-laws of HDC and specifically name the Chairman10 and Vice-Chairman as officers of HNYC. The By-laws of HNYC provides that the Vice-Chairman shall be elected or appointed from among the Members at each annual meeting of the Corporation. The Chairman and the Vice-Chairman receive no compensation for their work as officers of HNYC.

THE SECOND INQUIRY: DISCUSSION

It is clear that HDC, a "parent" public benefit corporation with Governor's appointees on its board, is a "state agency" under the definition contained in §73 of the Public Officers Law.

HNYC, HDC's subsidiary, was specifically established by the Legislature to further the State's interest and policy in implementing the Housing New York Program Act, and also has two members appointed by the Governor; that fact alone brings HNYC within §§73, 73-a and 74. Furthermore, under the tests outlined above, HNYC was created by a covered parent, to fulfill a State purpose, and its parent names a majority of the members of the board.

Having determined previously that HDC and HNYC are both "state agencies" and, therefore, covered public benefit corporations, the Commission must determine whether the members of HDC and HNYC, who are also named in their By-laws as officers of their respective public benefit corporations, are subject to the provisions of §73 of the Public Officers Law which set forth restrictions on the business and professional activities of State officers and employees.

The provisions of §73 of the Public Officers Law apply to "state officers and employees." This term is defined, pursuant to §73(1)(i), which provides, in relevant part, that "state officer or employee" shall mean:

(iii) officers and employees of state departments, boards, bureaus, divisions, commissions, councils or other state agencies other than officers of such boards, commissions, or councils who receive no compensation or are compensated on a per diem basis; and
(iv) members or directors of public authorities, other than multi-state authorities, public benefit corporations and commissions at least one of whose members is appointed by the governor, who receive compensation other than on a per diem basis, and employees of such authorities, corporations and commissions. (Emphasis added.)
The Chairman and Vice-Chairman of HDC and the Chairman and Vice-Chairman of HNYC, in their capacities as non-salaried members of public benefit corporations, are not subject to the provisions of §73 of the Public Officers Law because these individuals are uncompensated.11

The fact that the By-laws of the respective corporations name the Chairman and Vice-Chairman as officers, in addition to their holding positions as members of the Board of Directors of the corporation, does not bring them within the definition of employee contained in §73 of the Public Officers Law. The office is held by each individual solely by virtue of membership on the board of the corporation. The qualifying determinant is the basis of their holding the office--which is solely dependent on their "member" status. As such non-paid members, §73 does not apply to them and does not become applicable to them because the status of officer is mandated by the By-laws.

Notwithstanding the above, §74 of the Public Officers Law applies to officers and employees of all State agencies. Unlike §73 of the Public Officers Law, §74(1) contains no exclusions for uncompensated or per diem members or officers of public benefit corporations. Therefore, the Chairman and Vice-Chairman of HDC and HNYC are subject to §74 of the Public Officers Law because of their status as members of covered public benefit corporations.

CONCLUSION

The Commission finds that §§73, 73-a and 74 of the Public Officers Law apply to CCDC and HNYC. They are covered subsidiary public benefit corporations because of their relationship to their parent corporation and their functioning to further a particular State interest, and, in HNYC's case, the presence of Governor's appointees on the board.

However, the Chairman and Vice-Chairman of HDC and HNYC are not subject to §73 of the Public Officers Law; they serve as uncompensated members and officers of covered public benefit corporations. The Chairman and Vice-Chairman of HDC and HNYC are included under the broad coverage of §74 of the Public Officers Law because they serve as members of covered public benefit corporations.

This opinion, until and unless amended or revoked, is binding on the Commission in any subsequent proceeding concerning the person who requested it and who acted in good faith, unless material facts were omitted or misstated by the person in the request for an opinion.

All concur:

Elizabeth D. Moore, Chair

Angelo A. Costanza
Norman Lamm
Robert B. McKay, Members

Dated: June 21, 1990


ENDNOTES

1. Chapter 35 of the Laws of 1979, §1.

2. For example, under §6262 of the Unconsolidated Laws, UDC has the statutory right to exercise and perform its powers and functions through the creation of subsidiary corporations. UDC can organize a subsidiary by resolution, provided, that such resolution shall proscribe the purposes for which the subsidiary is to be formed. The created entity shall be deemed a subsidiary corporation as long as UDC retains more than half of the voting shares of the subsidiary corporation and a majority of the directors or members of the subsidiary are designees of UDC unless, as in the case of CCDC, the subsidiary corporation is directly created by the Legislature.

3. In Advisory Opinion No. 90-2, the Commission concluded that the members of the Board of Trustees of the Interest on Lawyer Account (IOLA) are subject to the filing requirements of §73-a if the members are designated as serving in policy-making positions by their appointing authority. IOLA is distinguishable from CCDC because the IOLA Board would come under the definition of "state officer and employee" contained in §73-a(1)(c)(ii) which imposes financial disclosure on officers of boards who receive annual compensation in excess of the filing rate or who hold policy-making positions as annually determined by their appointing authority.

4. The Commission has stated in previous Advisory Opinions that it will follow Opinions of the Attorney General, which were issued before the effective date of the Ethics in Government Act, where it is appropriate. 1980 Op. Atty. Gen. 51, issued in 1980 by the Attorney General interpreted the same definition of State agency--as it applies to public benefit corporations--in relation to CCDC. We see no basis to alter or revise that view taken by the Attorney General.

5. See Chapter 551 of the Laws of 1971, §1; amended by Chapter 661 of the Laws of 1980, §1.

6. Adopted August 25, 1988.

7. Pursuant to Article II, Section 2, the Chairman's role is to preside at all meetings of the Corporation and to exercise the powers and duties provided by law and in the By-laws. Article II, Section 3 of the By-laws provides that the Vice-Chairman shall be elected or appointed from among the members other than the Chairman at each annual meeting of the Corporation; the Vice-Chairman presides at meetings in the Chairman's presence. In addition to the Chairman and the Vice-Chairman, the By-laws of HDC name the President, an Executive Vice President, one or more Vice-Presidents, a Treasurer, a General Counsel, a Secretary and such other officers as may from time to time be appointed by the members of HDC, upon the recommendation of the President, as officers of the corporation.

8. See §5 of Chapter 32 of the Laws of 1986. The legislative findings and purpose provides, in relevant part, the following:

It is hereby found and declared that there exists in the city of New York a serious inadequate supply of safe, sanitary and affordable dwelling accommodations . . . that the existence of such conditions creates a serious threat to the health safety, welfare, comfort and security of the people of the state . . . (Emphasis added.)

9. Adopted August 26, 1986.

10. While the statute, §654-c of the Private Housing Finance Law, employs the term "Chairperson," the By-laws of HNYC refer to the term "Chairman."

11. Notwithstanding the above, the uncompensated members of HDC and HNYC are subject to the financial disclosure requirements of §73-a of the Public Officers Law because, pursuant to §73-a(c)(iii), the definition of "state officer or employee" includes members or directors of public benefit corporations.