Untitled Texas Attorney General Opinion ( 1984 )

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 V.T.C.S., repealed in 1983.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