State Ethics & Lobbying Laws Applications and Implications for Local Governments

1. State Ethics & Lobbying LawsApplications and Implications for Local Governments Municipal and County Administration Fall 2009 Norma Houston UNC-CH School of Government

2. Who Should Pay Attention? • Public officials and employees subject to the state’s ethics and lobbying laws • Individuals serving on state boards • Lobbyists and their principals • Local government officials, employees, and their attorneys • Individuals who seek to influence executive and legislative action even though they may not be considered a “lobbyist”

3. General Coverage of the Ethics And Lobbying Laws • Establishes statutory Ethical standards for certain state public officials by imposing obligations, prohibitions, and penalties for violations – G.S. Chapter 138A • Regulates Lobbyingwhich includes both direct and goodwilllobbying activities for both legislative and executive branch actions – G.S. Chapter 120C • Expands the Legislative Ethics Act for members of the General Assembly

4. Is It Ethics or Is It Lobbying? Ethics Law Applies in all contexts G.S. 138A Lobbying Law Applies generally in the context of lobbying and some other interactions with legislators and certain public officials G.S. 120C Some provisions overlap

5. Who is covered under the Ethics and Lobbying Laws?

6. Ethics Law – Who is Covered? • “Covered Persons” are . . . • Legislators • Judicial Officers(All justices and judges, DA’s, and Clerks of Court) • Public Servants • Includes individuals appointed or elected to these positions who have not yet assumed office, or persons working under contract in one of these positions • Legislative employees – are not “covered persons” but still subject to some provisions of the Act G.S. 138A-3(10),(21)

7. Constitutional Officers Chief Deputies and Chief Administrative Assistants Cabinet Secretaries Chief Deputies and Chief Administrative Assistants Confidential assistants and secretaries to all of the above Governor’s Office employees Certain exempt policy-making employees and their confidential secretaries Certain Judicial employees Voting members of non-advisory State Boards UNC and Community College trustees, presidents, chancellors and certain other officials G.S. 138A-3(30) Ethics Law – Who is a Public Servant?

8. Ethics Law – What is a “State Board”? “Any State board, commission, council, committee, task force, authority, or similar public body, however denominated, created by statute or executive order, as determined and designated by the Commission, except for those public bodies that have only advisory authority.”– G.S. 138A-3(1c) • Categories of Boards – Which are covered? - Statewide - Local Gov’t - Quasi-Statewide - Quasi-Local Gov’t

9. Ethics Law and Local Governments Question #1: Are Local Government Officials “Covered Persons”? Answer: NO! So Why Pay Attention? . . .

10. Ethics Law and Local Governments The Ethics Act may apply in some situations: • Local official or employee serving in a dual position that is a “covered person” • Some “local boards” may be covered • Potential application of conflicts of interest prohibitions • Potential application of lobbying laws

11. Lobbying Law – What is Lobbying? • Direct – Influencing or attempting to influence legislative or executive action through direct communication with a designated individual or that person’s immediate family • Indirect – Developing goodwill through communications or activities, including building relationships, with a designated individual or that person’s immediate family with the intent of influencing current or future legislative or executive action • Does notinclude communications and activities such as business, civic, religious, fraternal, personal or commercial relationships if not connected to legislative or executive action - G.S. 120C100(9)

12. Lobbying Law – Who Can Be “Lobbied”? A “designated individual” is a: • Legislator • Legislative employee • Public Servant • Includes individuals appointed or elected to these positions who have not yet assumed office, or persons who have filed notice of candidacy for office, or persons working under contract in one of these positions - G.S. 120C-100(2), -104

13. Lobbying Law – Who is a “Lobbyist”? Anyone who engages in “lobbying” and: • Represents another person or governmental unit, but is not an employee,and receives payment for services for the purpose of lobbying • Contracts for economic consideration for the purpose of lobbying • Is an employee whose job duties include lobbying as a significant part A person or governmental unit on whose behalf a lobbyist lobbies is a “principal” -G.S. 120C-100(a)(10), (11)

14. Lobbying Law – Are You Covered? You Might Be A Lobbyist If You Are . . . • Engaged in direct or indirect communications influencing or attempting to influence legislative or executive action AND • Communicating with or to a designated individual or that individual’s immediate family AND • Doing so for payment for services or as a significant part (or all) of your job duties

15. Lobbying Law – Who Is Exempt? • Elected or appointed local government officials and employees • Individuals expressing personal opinions • Persons invited to appear before committees • Professional services drafting bills or advising clients • News media • Persons responding to inquiries • Political committees - G.S. 120C-700

16. Lobbying Law – Who Is Exempt? Local Government Exemption: “A duly elected or appointed official or employee of the State, a county, municipality, school district, or other government agencywhen appearingsolely in connection with matters pertaining to the office and public duties” G.S. 120C-700(3)

17. Lobbying and Local Governments Question #2: Are Local Government RETAINED Attorneys Covered under the Local Government Exemption? Answer: YES! Appointed City and County Attorneys are considered “employees” for purposes of Lobbying Act -G.S. 120C-700(3)

18. Lobbying and Local Governments Question #3: Are Local Government RETAINED Contractors – such as architects or engineers - covered under the Local Government Exemption? Answer: NO! (They are not “employees”)

19. Ethics, Lobbying and Local Governments Question #4: Are Local Governments that hire lobbyists subject to the Ethics and Lobbying Laws? Answer: YES! They become “Principals” - G.S. 120C-100(a)(11)

20. Ethics, Lobbying and Local Governments Question #5: Are Local Governments that belong to the League of Municipalities or Association of County Commissioners subject to the Ethics and Lobbying Laws? Answer: (GENERALLY) NO! Only the Association that hires a lobbyist becomes a principal; its members do not simply because they are members of the Association - G.S. 120C-100(a)(11)

21. Lobbying Law – Legislative Liaisons “Liaison personnel” are state employees or officers whose principal duties include lobbying on behalf of state agencies – G.S. 120C-(8) Are not “lobbyists”, but still must Register with Secretary of State (no fee) File expenditure reports Comply with lobbyist gift ban for legislators and legislative employees Local Government employees are exempt from legislative liaison requirements. - G.S. 120C, Article 5

22. What is required and what is prohibited under the Ethics and Lobbying Laws?

23. Ethics Law – What is Required? • Publicly disclose economic interest(must file SEI prior to initial appointment/election/hiring and then annually) – G.S. 138A, Article 3 • Participate in ethics education programs- G.S. 138A-14 • Take an active role in furthering ethics in public service and ensuring compliance with the act(for Department heads and chairs of covered boards) – G.S. 138A-15 • Determine whether a conflict of interest exists before taking official action – G.S. 138A-35 • Where disqualifying conflict of interest is found, remove conflict or resign from position- G.S. 138A-39

24. Using or allowing use of public position for private gain, in private advertising, or using state funds for any advertisement– G.S. 138A-31 Accepting certain gifts – G.S. 138A-32 Receiving outside compensation for official duties – G.S. 138A-33 Using nonpublic information for personal financial gain – G.S. 138A-34 Participating in official actions where there is a personal financial interest - G.S. 138A-36, 37 Employing and/or supervising family members – G.S. 138A-40 Ethics Law – What is Prohibited?

25. Lobbying Law – What is Required? • Register with Secretary of State • Applies to Principals • Report lobbying expenditures • Applies to Principals • Participate in educational programs (not mandatory) • Identify himself or herself as a lobbyist and disclose his or her principal

26. No gifts to designated individuals Applies to Principals No campaign contributions Cannot serve as campaign treasurer No contingent fee compensation Cannot serve on body regulating activities of clients No use of cash or credit unless present – G.S. 120C, Article 3 Lobbying Law – What is Prohibited?

27. What is a “Conflict Of Interest” And How Can Local Governments Avoid It?

28. Ethics Law – Conflicts of Interest Public Servants and Legislators are prohibited from participating in an official action that may result in a “reasonably foreseeable financial benefit” to: • The Public Servant or Legislator, and • A person with whom they are associated -G.S. 138A-36, -37 Questions: • What is a “Financial Benefit”? • Who is “a person with whom associated”?

29. Ethics Law – Conflicts of Interest A “Financial Benefit” is “A direct pecuniary gain or loss to the legislator, the public servant, or a person with which the legislator or public servant is associated, or a direct pecuniary loss to a business competitor of the legislator, the public servant, or a person with which the legislator or public servant is associated.” -G.S. 138A-3(14c)

30. Ethics Law – Conflicts of Interest • “Person With Whom Associated” includes: • A member of their extended family • A client • A business with which they or their immediate family is associated • A non-profit corporation with which they or their immediate family is associated • The State, a political subdivision of the State, a board, or any other entity or organization created by the State or a political subdivision of the State that employs them or a member of their immediate family. -G.S. 138A(3)(27c), (27d)

31. Ethics Law – Conflicts of Interest What does this mean to Local Governments? A conflict of interest may exist where: • The Local Government employs: • A Legislator • A Public Servant • Immediate family members of a Legislator or Public Servant AND • That Legislator or Public Servant is in a position to take official action that results in direct pecuniary gain or loss to the Local Government

32. Ethics Law – Conflicts of Interest Some Questions Yet to be Answered: • What constitutes “direct pecuniary gain or loss” to a local government? • What constitutes “employed” in the context of local governments? Clarification can come from either the General Assembly or the State Ethics Commission – Stay Tuned!

33. Ethics Law – Conflicts of Interest Legislator Exemption: “Notwithstanding G.S. 138A‑37, if a legislator is employed or retained by, or is an independent contractor of, a governmental unit, and the legislator is the only member of the house elected from the district where that governmental unit is located, then the legislator may take legislative action on behalf of that governmental unit provided the legislator discloses in writing to the principal clerk the nature of the relationship with the governmental unit prior to, or at the time of, taking the legislative action.” -G.S. 138A-38(c)

34. To Give or Not To Give . . .

35. What is the “Gift Prohibition”? • Under the Ethics Law: Covered persons & legislative employees cannot RECEIVE gifts from certain individuals or under certain circumstances • Under the Lobbying Law: Lobbyists, their principals, and other individuals cannot GIVE gifts to covered persons & legislative employees except under certain circumstances

36. What is a “Gift”? • Anything of monetary value • Given or received without valuable consideration • By or from any of the following: • Lobbyist • Lobbyist principal • Liaison personnel • “Interested person” - G.S. 138A-3(15)

37. Who is an “Interested Person”? A person about whom the public servant knows or has reason to know any of the following: • Is doing or seeking to do business with the public servant’s employing entity • Is engaged in activities regulated or controlled by the public servant’s employing entity • Has a financial interest substantially or materially affected by the performance or nonperformance of public servant’s official duties G.S. 138A-32(d)

38. Who is a “Person”? “Any individual, firm, partnership, committee, association, corporation, business, or any other organization or group of persons acting together.” G.S. 138A-3(27)

39. Ethics and Local Governments Question #6: Is a Local Government a “Person,” for Purposes of the Gift Prohibition under the Ethics & Lobbying Laws? Answer: NO! (Local governments are exempt from the definition of “person” and are NOT subject to the “interested person” gift ban) - G.S. 138A-3(27); S.L. 2007-348, s.23

40. Ethics Law – Gift Prohibitions • Gifts from Lobbyists and Lobbyists Principals • No de minimus exception • Gifts from persons with business, regulatory, or material financial interest in a public servant’s officials duties (“interested persons”) • Gifts given as a “quid pro quo” • Honorarium (beyond actual expenses) • Solicitation of charitable contributions from subordinate employees

41. Ethics Law – Gift Prohibitions - G.S. 138A-32

42. Ethics Law – Gift Prohibition Exceptions • Exempted from “gift” are: - G.S. 138A-3(15) • Items for which fair market value is paid • Commercially available loans • Arrangements made in normal course of business • Academic and athletic scholarships • Lawful political campaign contributions • Expressions of condolence at an individual’s death • Other exceptions to “Lobbyist/Principal” gift ban and “Interested Persons” gift ban – G.S. 138A-32(e)

43. Ethics Law – “To Give or Not To Give” Gift-Giving Analysis • Is the item a “gift”? • Is the intended recipient a covered person? • Is the giver a lobbyist, principal, or “interested person”? . . .or . . . • Is the gift offered for a prohibited purpose (quid pro quo, honorarium)? • Is the otherwise prohibited gift allowed under an exception?

44. Local Government Reporting Requirements under the Lobbying Law Local Governments must still report to the Secretary of State: • Expenditures of more than $200 lobbying a designated individual per calendar quarter– G.S. 120C-800(a) • Expenditures of more than $200 for a designated individual (“scholarships”) to attend a conference, meeting, or similar event – G.S. 120C-800(c)

45. Enforcement

46. Enforcement Ethics – State Ethics Commission • Issues opinions and rules • Conducts investigations • Reviews Statements of Economic Interest Lobbying • State Ethics Commission • Conducts Investigations • Issues opinions and rules • Secretary of State • Manages registration of lobbyists and principals • Develops registration and reporting forms • Issues rules relating to registration and reporting

47. Enforcement • Violations of Ethics Law: • Grounds for disciplinary action • Constitute misfeasance, malfeasance, or nonfeasance in office • Violations of Economic Disclosure Requirements: • Failure to file or complete SEI = $250 Fine • Failure to disclose = Class 1 misdemeanor • Providing false information = Class H felony • May also constitute perjury = Class F felony

48. Ethics & Lobbying – Other Laws These laws do not override other existing ethics and conflict of interest laws • Influencing action through campaign contributions– G.S. 120C-301 • Other Conflict of Interest Prohibitions: • Contracting for self benefit – G.S. 14-234 • Building inspectors– G.S. 153A-35 • Project designers– G.S. 133-1,133-2 • Hospital authorities and public hospitals – G.S. 131E-21, 131E-14.2 • City and County officials’ voting – G.S. 153A-44, 160A-75 • Gifts from Contractors and Others– G.S. 133-32 • Misuse of Confidential Information– G.S. 14-234.1

49. Resources • State Ethics Commission (919) 807-4620 www.ethicscommission.nc.gov • Secretary of State Lobbyist Registration Section (919) 807-2219 www.secretary.state.nc.us/lobbyists/ • UNC-CH School of Government • Fleming Bell (919) 966-4210 bell@sog.unc.edu • Norma Houston (919) 843-1903 nhouston@northcarolina.edu • Local Government Law Bulletin # 116, October 2007 www.sog.unc.edu • General Assembly Bill Look-up www.ncleg.net (S.L. 2006-201, S.L. 2007-347, S.L. 2007-348, S.L. 2008-213)