New York State
Ethics Commission


Advisory Opinion No. 91-19: Application of Public Officers Law §74 to an OMRDD employee selling real property to a provider of services which is certified and has its rates set by OMRDD.

Introduction

The following advisory opinion is issued in response to inquiries from the New York State Office of Mental Retardation and Developmental Disabilities ("OMRDD") concerning the application of Public Officers Law §74 to the circumstance where an OMRDD employee proposes to sell real property to a voluntary provider of services which is certified and has its rates set by OMRDD. Public Officers Law §74(3) governs conflict of interest situations for State employees; §74(3)(i) precludes State employees from selling goods or services to any entity which is licensed or whose rates are fixed by their State agency.

The issues before the Commission are whether §74(3)(i) "goods or services" includes real property, and, if not, whether any other standard of §74(3) would be violated by the proposed transaction.

Pursuant to Executive Law §94(15), the State Ethics Commission ("Commission") concludes that it would not be a violation of Public Officers Law §74(3) for nonpolicy-making employees of OMRDD who are not involved in the certification process to sell real property to a provider of services that is certified and has its rates set by OMRDD under circumstances where the employee-seller negotiates the sale with the provider rather than with OMRDD employees.

Background

[An employee at] OMRDD has inquired whether an employee of the agency may contract for the sale of real property to a voluntary provider of services for the purposes of developing a community facility which would be certified and would have its rates set by OMRDD.(1) According to OMRDD counsel, the issue has arisen with some frequency in areas where a large number of OMRDD employees reside.

Community facilities are defined as places in the community where programs and services for the mentally retarded and developmentally disabled are provided pursuant to an operating certificate issued by OMRDD.(2) They are often referred to as "group homes." Voluntary providers are corporations organized pursuant to the Not-for-Profit Corporation Law and Article 41 of the Mental Hygiene Law for the purpose of providing local services for the mentally retarded and developmentally disabled.

According to [an employee] at [ ] an OMRDD facility serving mentally retarded and developmentally disabled residents of [ ] County), an employee of an OMRDD facility in another district contacted the [county office] to offer his home in [town] for sale to [a not-for-profit voluntary provider which operates a number of group homes for individuals with developmental disabilities.(3)] The OMRDD employee is [] employed at an agency facility in [ ] County; his job responsibilities do not involve the certification process providers follow to receive OMRDD approval to operate a group home. OMRDD has not designated the employee as serving in a policy-making position.

The [employee] made an appointment to look at the house with representatives of [the proposed buyer] to evaluate its appropriateness as a group home.(4) The [employee] and representatives from [the proposed seller] concluded that the site had potential as a group home. Neither OMRDD or [the proposed seller] has taken any further action, pending the Commission's determination of whether the proposed sale violates Public Officers Law §§73 or 74.

OMRDD's regulations detail the many steps and reviews necessary before OMRDD will issue an operating certificate required of a provider to be reimbursed from the State for the purchase of the site.(5) Specifically, prior to a provider's purchase of the property, OMRDD must complete two independent fair market appraisals of the site. OMRDD's real property unit would review the appraisals to determine the property's market value. Pursuant to its regulations, OMRDD is not permitted to go above this value in computing reimbursement funds available to the provider for the purchase of the property.(6) Other OMRDD units would conduct other reviews. The facilities unit would review the design of the house and determine its appropriateness as a group home for the agency's clients; OMRDD architects would review any renovation proposals; the fiscal unit would also review the provider's proposal. These reviews would then be compiled into a "Prior Property Approval Package" for submission, pursuant to 14 NYCRR Part 621.10(h), to the New York State Division of the Budget ("DOB") which approves the use of State funds to reimburse the provider for the site purchase.

Once DOB approves the use of State funds, the voluntary provider and the seller enter final negotiations for the sale. According to OMRDD, the agency may or may not be involved in the actual negotiations between the provider and seller.(7) Following the acquisitions of the property from the seller, the voluntary provider must make all necessary renovations to the property before OMRDD will issue an operating certificate and before State funds can be released. Once OMRDD is satisfied that all necessary renovations have been made by the provider and the proposed site qualifies as a group home, OMRDD issues the certificate. The voluntary provider and OMRDD can proceed to close on the mortgage by which title to the property passes from the provider to the State and the provider is able to receive reimbursement for the site purchase. Finally, OMRDD provides the voluntary provider with an operating rate which sets out the fees that the provider may charge agency clients for services provided.

Discussion and Conclusion

The specific ethical standard contained in §74(3)(i) provides the following:
No officer or employee of a state agency employed on a full-time basis nor any firm or association of which such officer or employee is a member nor corporation a substantial portion of the stock of which is owned or controlled directly or indirectly by such officer or employee, should sell goods or services to any person, firm, corporation or association which is licensed or whose rates are fixed by the state agency in which such officer or employee serves or is employed.

This standard creates a blanket prohibition against the sale of goods and services by a State officer or employee to entities subject to the employing State agency's licensing or rate setting powers, irrespective of the State officer's or employee's role in the agency. The Commission must determine whether the restriction also bars the sale of "real property."

Black's Law Dictionary defines the word "goods" as follows:

A term of variable content and meaning. It may include every species of personal property or it may be given a very restricted meaning. Items of merchandise, supplies, raw materials, or furnished goods. . . . Also includes the unborn of animals and growing crops and other identified things attached to realty as fixtures. [Uniform Commercial Code §2-105(1)]. (emphasis added.)

Personal property, in turn, is defined as "everything that is subject to ownership, not coming under the denomination of real estate." (Emphasis added.)(8)

Clearly, the phrase "goods or services" which refers to tangible items of personal property and services does not include real property such as in this case, the employee's home. McKinney's Statutes §94 states that the Legislature is presumed to mean what it says, and if there is no ambiguity, it is generally construed according to its plain terms. In this case, the Legislature expressly barred State employees from selling only goods or services to entities regulated by their employing State agency. The Commission will not extend the meaning of §74(3)(i) beyond its express terms or the reasonable implications of its language.

Notwithstanding the Commission's conclusion that Public Officers Law §74(3)(i) does not apply to restrict the sale of real property to regulated persons or entities, the fact that an OMRDD employee contacted other employees of his agency concerning the sale of his home to an entity certified by the agency raises questions of whether the offer constituted an appearance of a conflict of interest.(9) In this regard, the following ethical standards of Public Officers Law §74(3) must be addressed:

. . . .
  1. No officer or employee of a state agency . . . should use or attempt to use his official position to secure unwarranted privileges or exemptions for himself or others.

    . . . .

  2. An officer or employee of a state agency . . . should endeavor to pursue a course of conduct which will not raise suspicion among the public that he is likely to be engaged in acts that are in violation of his trust.

In assessing whether the OMRDD employee's proposal to sell his home to a provider has the appearance of a conflict of interest, the Commission considered a number of factors. It could be argued that his contact to offer his home could raise suspicions among the public that he intended to use his position and knowledge as an OMRDD employee to influence the agency's action, and that such ability to influence is not available to members of the general public. It is because of the employee's familiarity with OMRDD and the fact that his home is located in [ ] County that he initiated his inquiry with the [OMRDD facilty].

Conversely, the Commission considered that the OMRDD employee/seller works at a facility other than the [OMRDD facility] which would regulate the purchase of his property, and that OMRDD regularly responds to specific offers from individuals interested in selling real property to voluntary providers. Furthermore, a series of checks and balances takes place within the agency and the Division of the Budget to ensure that State funds will be used to reimburse the provider of services only for the fair market value of the employee's home.

An ameliorating circumstance here is that OMRDD has not participated in the purchase negotiations with the voluntary provider and the seller. The Commission would find an appearance of a conflict of interest if the OMRDD employee/seller were to negotiate the price of his home with other OMRDD officials rather than with the provider.

The Commission would be inclined to find a Public Officers Law §74 violation in these circumstances if the employee/seller were a policymaker or involved in the certification process. As this is not the case, no violation of Public Officers Law §74 is found.

If the case is other than has been explained to the Commission and the OMRDD employee had directly negotiated for the sale of his home with OMRDD officials, then his actions would lead the Commission to conclude that there is reasonable cause to believe that an appearance of a conflict of interest under Public Officers Law §74 had occurred.

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 opinion.

All concur:

Joseph M. Bress, Chair

Angelo A. Costanza
Donald A. Odell, Members

Dated: October 1, 1991


Endnotes

1. Public Officers Law §73(1)(b) defines "licensing" as "any state agency activity . . . respecting the grant, denial, renewal, revocation, enforcement, suspension, annulment, withdrawal, recall, cancellation or amendment of a license, permit or other form of permission conferring the right or privilege to engage in . . . any business or activity regulated by a regulatory agency . . . which in the absence of such license, permit or other form of permission would be prohibited." In interpreting the term "license" as it is used in Public Officers Law §74(3)(i) the Commission shall consider the §73 definition that a certification to operate a group home is a form of licensing.

2. See 14 NYCRR Part 621.17.

3. OMRDD states that it either issues Requests for Proposals (RFPs) for sites, or it responds to specific inquiries, as in the present case.

[ ]

4. The Commission does not allege any wrongdoing on the part of the program development specialist by these acts. He also has requested the opinion of the Commission on the propriety of the employee's sale of the real property to [the proposed buyer].

5. The reimbursement funds are authorized pursuant to Mental Hygiene Law §41.37 which allows for 100% reimbursement for the necessary costs of the ownership of the property. The reimbursement funds would come from bonds that the Facilities Development Corporation would issue.

6. A voluntary provider can purchase the property for more than the fair market value established by OMRDD but the reimbursement from State funds may not exceed this amount.

7. According to the [employee], [the proposed buyer's] experience in real property purchases is such that OMRDD would not need to be involved in the negotiations with the seller.

8. The common law tradition has generally treated real estate to be unique and requiring specific performance or transfer of the property when a contract for its sale has been breached. Personal property is usually not considered unique and thus money damages are awarded for a breach of contract.

9. Clearly, the Public Officers Law prohibits a State employee from having any interest in a provider. OMRDD's regulations, contained in 14 NYCRR Part 621.16, specifically bar State employees from owning, controlling or directing providers that receive reimbursement funds, directly or indirectly, in connection with a site acquisition.



URL: http://www.nysl.nysed.gov/edocs/ethics/91-19.htm