The Political Reform Act, Government Code section 81000 et seq. (hereinafter "PRA" or "act"), was enacted by initiative measure ("Proposition 9") in June 1974. It is the starting point in any consideration of conflict of interests laws in California. Chapter 7 of the act (Gov. Code, §87100-§87500) footnote No. 1 deals exclusively with conflicts of interests. The act also limits the receipt of specified gifts and honoraria and will be addressed in section K of this chapter separately from the general disqualification provisions of section 87100.

One of the legislative findings recited as a reason for the act sheds some light on the purpose of the conflict of interests provisions: "Public officials, whether elected or appointed, should perform their duties in an impartial manner, free from bias caused by their own financial interests or the financial interests of persons who have supported them." (§ 81001(b).)

The stated intent of the act was to set up a mechanism whereby "Assets and income of public officials which may be materially affected by their official actions . . . [are] disclosed and in appropriate circumstances the officials . . . [are] disqualified from acting in order that conflicts of interest may be avoided." (§ 81002(c).)

The Fair Political Practices Commission (hereinafter the "FPPC" or "commission") is the agency primarily charged with the responsibility of advising officials and the public and enforcing the conflict of interests provisions of the act.

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Under the act, public officials are disqualified from participating in government decisions in which they have a financial interest. The act does not prevent officials from owning or acquiring financial interests which conflict with their official duties nor does the mere possession of such interests require officials to resign from office.

The disqualification provision of the act hinges on the effect a decision will have on a public official's financial interests. When a decision is found to have the requisite effect, the official is disqualified from making, participating in the making, or using his or her official position to influence the making of that decision at any level of the decision making process.

*Selected statutory and regulatory materials appear in appendices A , appendices B, appendices C, and appendices D.

By establishing a broad objective disqualification standard, the PRA attempted to cover both actual and apparent conflicts of interests between a public official's private interests and his or her public duties. It is not necessary to show actual bias on the part of the official and it may not even be necessary to show that an official's assets or the amount of his or her income will be affected by a decision in order to trigger disqualification. Other more attenuated effects may also bring about an official's disqualification.

Even though this is a broad disqualification requirement, it is by no means all inclusive. Conflicts arising out of matters other than a financial interest are outside the purview of the act, e.g., friendship, blood relationship, or general sympathy for a particular viewpoint.

To determine whether a conflict of interests exists under the act, five questions must be asked:

1. Is a public official involved? (See section C of this chapter.)
2. Does the official have a statutorily defined economic interest? (See section E of this chapter.)

3. Is the official making, participating in the making of, or using his or her official position to influence the making of a governmental decision? (See section D of this chapter.)

4. Is it reasonably foreseeable that the decision could materially affect the official's economic interest? (See section F and section G of this chapter.
5. Will the effect of the decision on the public official's economic interest be distinguishable from its effect on the public generally? (See section H of this chapter.)

If the answer to all five of these questions is yes, a conflict of interests exists and the disqualification requirement is activated.

It should be noted at the outset that the act deals with conflict of interests situations on a transactional, or case-by-case, basis. This means that situations must be assessed for possible conflicts of interests in the light of their individual facts. The act demands continual attention on the part of officials. They must examine each transaction from the act's perspective to determine if a conflict of interests exists which triggers the disqualification requirement. When an official is disqualified, the financial interest creating the conflict as well as the act of disqualification, should be publicly announced. (See section K of this chapter for a discussion of the limits on gifts and honoraria.)

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A government official's actions are covered when the official: (1) makes, (2) participates in the making of, or (3) influences or attempts to influence a decision.

1. Actually Making A Decision

Decision making includes voting on a matter, appointing a person to a position, obligating one's agency to a course of action on an issue, or entering into a contract for the agency. (C.C.R., tit. 2, §18700(b)(1)-(4).) Determining not to act in any of those ways is also "making a decision" under the act. (C.C.R., tit. 2, §18700(b)(5).)

2. Participation In Decision Making

The proscriptions of the act encompass a broad range of activities beyond the most obvious actions such as voting or contracting, since the language "participate in making . . . a governmental decision" is included in the general prohibition. (Gov. Code, § 87100.) The FPPC has interpreted "participation" to include (1) negotiations and (2) advice by way of research, investigations, or preparation of reports or analyses for the decision maker, if these functions are performed without significant intervening substantive review. (C.C.R., tit. 2, § 18700(c).)

Three areas of activity which would otherwise fall within the literal definition of participating in the making of a decision have been expressly excluded.

First, participation does not include actions which are solely ministerial, secretarial, manual, or clerical. (C.C.R., tit. 2,§ 18700(d)(1).) These functions are excluded from the definition of participation because they do not involve policy making judgment or discretion. Since the official performing these activities has no substantive role in the decision, there is no fear that the decision will be affected as a result of his or her financial interests. Accordingly, there is no purpose in disqualifying the official from performing these functions.

Second, a public official may appear at a hearing or otherwise before a public agency to represent his or her own personal interests if the official does so in his or her private capacity and if the matter in question relates only to the official's private interests and not to his or her official duties. (C.C.R., tit. 2, § 18700(d)(2).) The purpose of this exclusion is to allow citizens to exercise their constitutional rights to communicate with their government. However, the exclusion is limited in that it applies to situations in which the decision will solely affect the official's personal interests (e.g., real property or business solely owned by the official or members of his or her immediate family). To the extent that there are other persons who have the same interest, e.g. other stockholders in a corporation, the official with the conflict is disqualified from addressing his or her agency in any way on that issue. With respect to appearing before one's own agency, see subsection 3, Influencing Decision Making, below, and C.C.R., tit. 2, § 18700.1(a) and (b)(1).

Third, by necessity, participation also does not include actions by a public official with regard to his or her compensation for services or the terms or conditions of his or her employment or contract. (C.C.R., tit. 2,§ 18700(d)(3).)

3. Influencing Decision Making

The act, in section 87100, prohibits a public official from "in any way attempting to use his or her official position to influence a governmental decision" when the official has a financial interest. The addition of this final category of prohibited activity was intended to ensure that public officials do not act indirectly to affect their private economic interests by utilizing their official status or activities. It specifically includes attempting to affect any decision within the official's own agency or any agency appointed by or subject to the budgetary control of his or her agency. (C.C.R., tit. 2,§ 18700.1(a).) Contacts with agency personnel or other attempts to influence on behalf of an official's business entity, client or customers are prohibited. (C.C.R., tit. 2, § 18700.1(a).)

The commission regulations specifically exempt oral or written communications by an official as a member of the general public solely to represent his or her personal interests. Personal interests include: an interest in real property; or a business entity which is wholly owned by the official or members of his or her immediate family; or a business entity over which the official or the official and his or her spouse exercise sole control. (C.C.R., tit. 2, § 18700.1(b)(1)(A)-(C).) Communications with the media or general public, negotiation with one's own agency regarding compensation, and specific written and oral architectural presentations also are exempt from coverage. (C.C.R., tit. 2, § 18700.1(b)(2)-(5).)

In addition to the general provisions of the act, the Legislature created a special prohibition for state officials, including members of all state advisory bodies. Section 87104 specifically provides that no state official:

• shall for compensation act as agent or attorney for any other person;
• before his or her state agency;
• if the appearance or communication is made for the purpose of influencing a contract, grant, loan, license, permit or other entitlement for use.

The prohibition contained in section 87104 is not applicable to local government officials. However, the disqualification requirement contained in section 87100 generally would reach the same result since public officials may not make, participate in making, or use their official position to influence the making of government decisions which materially affect their sources of income. (Note: Section 87104 covers all state advisory bodies, whereas section 87100 only covers those advisory bodies with decision making authority. See C.C.R., tit. 2, § 18700(a)(1)(C).)

With regard to a decision which is not before the official's own agency, or an agency over which the official's agency has budgetary control, the official is attempting to use his or her official position to influence the decision if, for the purpose of influencing the decision, the official purports to act on behalf of his or her agency in communications with any official of an agency. Such actions include the use of official stationery. (C.C.R., tit. 2, § 18700.1(c).)

As noted at the outset (chapter I, section B, The Basic Prohibition, supra), several elements must be present for a conflict of interests to exist. Having discussed the issues of who is a covered public official and the types of actions (e.g., making decisions), that are covered, it still must be determined if the official has a statutorily defined economic interest; if it is reasonably foreseeable that his or her governmental decision could affect that interest materially; and if that effect is distinguishable from the effect of that decision on the public generally. If the answer to all three inquiries is yes, the official has a prohibited financial interest under the act.

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(For more discussion of economic interests and their required disclosure under the act, see chapter II of this pamphlet.) Many variables come into play in determining when an official has a financial interest in the outcome of a decision sufficient to require the official to abstain from action on the matter.

Specifically, the act addresses five kinds of interests: (1) investments in business entities, (2) interests in real property, (3) sources of income, (4) holding positions with business organizations, and (5) donors of gifts and their agents or intermediaries. (§ 87103(a)-(e).) In the case of each category (except the fourth), the act specifies the minimum amount of holdings, income or gifts which must exist before an "interest" is created. An official with a holding, income or gift which is less than the minimum, need not be concerned with the act's provisions since such property or income does not constitute an "interest" under the act. But a holding, income or gift in excess of the minimum creates the potential, in terms of the act, for a "material financial effect" on the official's economic interests, should the official be called upon to make a decision in his or her public capacity which affects the official differently from the way the decision affects the public generally.

1. Business Investments

With regard to investments in a "business entity," any direct or indirect investment of $1,000 or more creates an "interest" for the official. "Business entity" is defined in the act and essentially means an organization which is operated for profit. (§ 82005.) Business entities include: corporations, partnerships, joint ventures, sole proprietorships and any other type of enterprise operated for a profit. Investments do not include: bank accounts; interests in mutual funds, money market funds or insurance policies; or government bonds or securities. (§82034.)

By opinion, the FPPC defined the investment relationship between limited and general partners. (In re Nord, No. 83-004, 8 FPPC Ops. 6.) A limited partner is deemed to have an "investment" in his or her general partner, as well as in the partnership itself, if the limited partnership is "closely held" as defined by statute.

*Selected statutory materials appear in appendix B.

When the limited partner has such an investment, he or she must be disqualified with respect to decisions affecting the general partner personally or through business entities controlled by the general partner. However, limited partners do not have an investment in other limited partners.

The commission also has defined the economic relationship between parents, subsidiaries and otherwise related business entities. An official who has an economic interest in one such entity is also deemed to have an interest in all other such entities. A parent corporation has a 50 percent or greater ownership interest in a subsidiary corporation. (C.C.R., tit. 2,§ 18236(a).) One business entity is otherwise related to another business entity, if the one business entity or its controlling owner is a controlling owner of the other business entity or if management and control is shared between the entities. (C.C.R., tit. 2, § 18236(b).)

"Indirect investment" is also defined and includes investments owned by an official's spouse, as either separate or community property, or owned by dependent children, as well as investments owned by someone else on behalf of the official, i.e., a trust arrangement. (§82034;§ 87103; C.C.R., tit. 2, § 18234,§ 18235.) Indirect investment also includes any investments held by a business entity in which the official, his or her spouse, and their dependent children collectively have a 10 percent interest or greater. (§82034.)

In I.L. 76-35 this office advised that one of the South Central Regional Coastal Commission's members had a conflict of interests and should be disqualified from participation, where the official owned more than $1,000 worth of stock in a corporation which was party to an appeal to the state commission. The stock had been placed in trust with the official's spouse and children as income beneficiaries. The commissioner was trustor. The official thus had both an investment and an income interest which gave rise to a "financial interest" under the act. (See In re Biondo, No. 75-036, 1 FPPC Ops. 54.)

2. Interests In Real Property

An official has an "interest in real property" when the official, spouse or dependent children have a direct or indirect equity, option, or leasehold interest of $1,000 or more in a parcel of property (e.g., ownership, mortgages, and deeds of trusts, options to buy and joint tenancies) located in, or within two miles of, the geographical jurisdiction of the official's agency (e.g., within two miles of city boundaries for city officials). (§82033, § 82035.) It should be noted that the $1,000 threshold applies to the value of the interest as opposed to the value of the property itself. Special provisions exist with respect to the disclosure of, or disqualification in connection with, leasehold interests. (See § 82033; C.C.R., tit. 2, § 18233; In re Overstreet, No. 80-010, 6 FPPC Ops. 12.)

3. Source Of Income And Gifts
1. Income

A public official has a financial interest in any source of income which is either received by or promised to the official (other than loans from commercial lending institutions in the ordinary course of business) and which totals $250 or more in the 12 months prior to the decision in question. (§ 87103(c).) An elected officer may not accept personal loans of $500 or more unless the officer complies with specified requirements set forth in section 87461. (See also section 87460 which prohibits a public official from receiving personal loans from persons who contract with or are employed by the official's agency.) The FPPC regulations make it clear that a conflict of interests results whenever either the amount or the source of an official's income is affected by a decision. (C.C.R., tit. 2, § 18702(b), § 18702.1(a)(1) and (4); see also Witt v. Morrow (1977) 70 Cal.App.3d 817.) Detrimental as well as positive effects on the amount or source of income can create a conflict of interests. Thus, a decision which foreseeably will materially affect an official's employer, for example, would necessitate disqualification even if the amount of income to be received by the official were not affected. (In re Sankey, No. 76-071, 2 FPPC Ops. 157.)

Income generally includes earned income such as salary or wages; gifts; reimbursements of expenses; proceeds from sales, regardless of whether a profit was made; certain loans; and monetary or nonmonetary payments or benefits, whether tangible or intangible. (§ 82030(a).) Income also includes the official's community property interest in his or her spouse's income (the official would meet the $250 threshold if the spouse received $500 of income), and all of the dependent children's income.

Common exclusions from the definition include campaign contributions, government salaries and benefits, certain payments from nonprofit organizations, informational materials, inheritances, interest received on time deposits, dividends, or premiums from savings accounts, and dividends from securities registered with the Securities and Exchange Commission. (§ 82030(b).) With the exception of gifts, the definition of income does not include payments from a source outside of the jurisdiction which does not do business in the jurisdiction, does not plan to do so, and has not done so within the past two years. (§82030(a).)

This office interpreted the income provisions of the act in I.L. 75-249 where this office concluded that no conflict of interests existed where the wife of a deputy superintendent of schools was a supervisor in the same county. Her community property share of her husband's salary from the county was not "income" within the meaning of the act because it was a government salary specifically exempted by section 82030(b)(2). This exemption does not apply to a decision to hire, fire, promote, demote or discipline the spouse, or to set a salary for the spouse that is different from salaries paid to other employees in the same job classification or position. (C.C.R., tit. 2, § 18702.1(c)(2).)

For purposes of disqualification, the FPPC determined that income from a former employer does not create a conflict of interests if (1) the income was accrued or received in its entirety before the official assumed his or her public position; (2) it was received in the normal course of employment; and (3) there was no expectation on the official's part that the official would resume employment with the same employer. (C.C.R., tit. 2, § 18704.)

2. Gifts

Although gifts are included in the definition of income (§ 82030), a separate disqualification provision for gifts was placed in section 87103(e). That section provides that a public official has a financial interest in the donor of gifts aggregating $250 or more in the 12 months prior to the decision in question. As is the case with income, this section covers gifts received by or promised to the public official in the 12-month period. In addition to donors, this section also applies to persons who act as agents or intermediaries in the making of gifts.

The Legislature has provided that the $250 threshold be adjusted on a biennial basis to correspond with the gift limit established in section 89503. For the years 1997 and 1998 the disqualification threshold has been raised to $290. (C.C.R., tit. 2, § 18940.1 and § 18954.) The disqualification threshold for sources of income pursuant to section 87103(c) remains at $250.

(See section K of this chapter for a discussion of the definition of a gift, the valuation of gifts, and limitations on the receipt of gifts and honoraria.)

Ordinarily, the receipt of property or services by a public official without the payment of consideration constitutes a gift to the public official. However, under limited circumstances, a gift is made to a public agency rather than to a public official. (C.C.R., tit. 2, § 18944.2.) In order for a gift to qualify as a gift to an agency rather than an official, four criteria must be satisfied. First, the agency must receive and control the payment. Second, the payment must be used for official agency business. Third, the agency in its sole discretion must determine the specific official or officials who will use the payment. The donor may identify a specific purpose for use of the payment, but may not designate the officials who will utilize the payment. Fourth, the agency must memorialize receipt of the payment in a written public record. This writing must embody the first three criteria, identify the donor, identify the officials receiving or using the payment, describe the use of the payment, and set forth the amount of the payment. This writing must be filed within 30 days with the person charged with the responsibility of maintaining the agency's statements of economic interests.

There is a partial exception for specified gifts made to public colleges and universities. (C.C.R., tit. 2,§ 18944.2(b).) In addition, special procedures have been adopted concerning the receipt of passes or tickets by an agency. (C.C.R., tit. 2, § 18944.1.)

4. Business Positions

An official has an economic interest in any business entity in which he or she is an officer, director, employee, or holds any business position, irrespective of whether he or she has an investment or receives income from the entity.

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An official is not required to abstain from participating in a decision unless the effects of the decision which give rise to the conflict of interests are reasonably foreseeable under all of the circumstances at the time the decision is made. The concept of foreseeability hinges on the specific facts of each individual case. For the effect of a decision to be foreseeable, it need not be either certain or direct. However, the possibility that the contemplated effects will in fact occur must be more than merely conceivable. It must appear that there is a reasonable possibility, based on all the facts available to the official at the time of the decision, that the effects which would bring about the conflict of interests will occur. (Downey Cares v. Downey Community Development Com. (1987) 196 Cal.App.3d 983,; Witt v. Morrow, supra, 70 Cal.App.3d 817.)

In Downey Cares v. Downey Community Development Com., supra, 196 Cal.App.3d 983, the court analyzed the issue of foreseeability in the context of an ordinance amending a city's redevelopment plan. Plaintiffs brought suit contending that the amendment was invalid because a councilmember's property and business would be foreseeably affected by the amendment. The court stated at pages 991-992:

     "In determining the reasonably foreseeable effects of the adoption of the redevelopment plan, the court may justifiably consider that the very purpose of redevelopment is to improve the property conditions in the redevelopment area. (Health & Saf. Code, § 33037.) [Fn. omitted.] The fact that it might be possible to conceive of specific redevelopment projects which might fail to affect Mr. Santangelo's property and business does not show the trial court's decision was wrong. The test is whether it was reasonably foreseeable that the adoption of the plan would have a material financial effect on Santangelo's property and business, and we find the trial court's decision supported by reasonable inferences and the record.

". . .Not only did Mr. Santangelo own a valuable property in the amended area which was the site of a real estate business employing 32 persons of which he was the sole proprietor, and own 4 parcels of real property in the original redevelopment area, but also several of his properties were specifically mentioned in reports as possible areas for specific projects. [Fn. omitted.]"

In an opinion to the Marin Municipal Water District (In re Thorner, No. 75-089, 1 FPPC Ops.198), the FPPC discussed foreseeability in the context of granting exceptions to the county's water moratorium. In the case of one district director, the FPPC concluded that it was not foreseeable that a decision on the moratorium would affect the director's husband's private employer. The commission based its decision on the fact that her husband was on salary rather than commission, he was working outside the county, and his employer had only done one project in the county within the past ten years.

However, another director, who was closely connected to a building supply company which was in competition with many other firms in the county, was found to have a possible conflict of interests, since there was a reasonable possibility (hence, it was reasonably foreseeable) that decisions on exemptions from the moratorium might either affect the amount of his or her own income or have an effect on his or her business entity.

In In re Gillmor, No. 76-089, 3 FPPC 38, the commission interpreted the foreseeability requirement in the context of property owned by Gillmor near a redevelopment area.

     ". . . Thus, it is intended and anticipated that redevelopment will have a financial impact on real property and business located in and near the redevelopment zone.

"In the present case, we think it is `reasonably foreseeable' that these types of positive financial consequences will occur if the property in question is rezoned and the senior citizens' housing complex constructed. . . ."

In I.L. 75-58, this office concluded that the decisions of a state board regulating certain advertising would not materially affect a board member's source of income. In that case, the board member, as a condition of his contract with a television station, recorded a series for an industry, some of whose advertising was regulated by the board. This office reasoned that it was too remote and speculative that a decision to regulate the advertising of a particular industry would materially affect the television station which was the board member's source of income.

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To create a conflict of interests under the act, the effect of an official's governmental decision on his or her economic interest must be "material." The FPPC has promulgated a series of regulations which outline specific circumstances and monetary thresholds for determining when the effects of a decision are "material." (See C.C.R., tit. 2, § 18702.1 et seq.) Initially, one must determine whether the economic interest is directly involved in the decision. (C.C.R., tit. 2, § 18702(a),§ 18702.1.) If the official's economic interest is not directly involved in the decision, or the effect of the decision is not material under regulation 18702.1, then it must be determined if the effect is material under regulations 18702.2 through 18702.6. If the provisions of regulations 18702.2 through 18702.6 also are not applicable, one should consult the general materiality standard set forth in regulation 18702. Regulation 18702 states that the effect of a decision is material whenever it would have a "significant" effect on an official's economic interest.

*Selected regulations appear in appendix C.

The materiality requirement also contains a knowledge element. Section 87100 provides that the official must "know or have reason to know" of the effects of the decision in question. The FPPC has determined that in addition to an official's actual knowledge, he or she is under a duty of reasonable inquiry for a person in similar circumstances. (In re Cohan, No. A-82-197.) Thus, if a person is on notice that a decision may have certain effects, the official is under a duty to inquire into the facts so that he or she can make a reasonable judgment about the materiality of the proposed decision. Moreover, an official is under a duty to make a reasonable inquiry where the surrounding circumstances or the nature of the proposed decision would signal a reasonable person to seek further information.

Even though the disqualification test contains a knowledge component, the test is not a subjective standard. Materiality exists whenever an official knows or has reason to know, that a decision will significantly affect an official's economic interest as those terms are defined by commission regulations. Once the requisite thresholds are satisfied and that fact is known, or should have been known by the official, the effect will be considered material. An official's statement to the effect that he or she can act in an impartial manner, free from bias, is not sufficient to dissipate a finding of materiality resulting from application of the objective standards of the regulation. By relying on a numerical trip-wire in the form of dollar or percentage effects on an official's economic interest, the FPPC regulations determine materiality in an objective manner without the need to look into an official's mind to determine whether he or she is capable of acting impartially.

A brief summary of the FPPC materiality regulations is set forth below.

1. Direct Involvement

Commission regulation 18702.1 is divided into two categories. (C.C.R., tit. 2, § 18702.1.) The first category applies whenever the official's economic interest is directly involved in the decision. Where direct involvement is present, the regulation generally dictates disqualification. For example: decisions to rezone property in which the official has an interest, or to grant a business license to the official's employer, are decisions in which the official's economic interest is directly involved. However, disqualification is not required if, notwithstanding the direct involvement, there is no financial effect on the official's economic interest which reasonably could result from the decision. (C.C.R., tit. 2, § 18702.1(c).)

Subsections (a)(1) and (a)(2) of regulation 18702.1 require disqualification when a source of income to the official or business entity, in which the official has an investment or holds a position, is directly involved in a decision before the official's agency. A person or business entity is directly involved in a decision before an official's agency if the person or entity is a named party to the proceeding conducted by the official's agency or initiates the proceeding by filing an application, claim, appeal or similar request, or is otherwise the subject of a proceeding. (C.C.R., tit. 2, § 18702.1(b).)

In addition, regulation 18702.1, subsection (a)(1), establishes the requirement that an official disqualify himself or herself whenever there is a "nexus" between the purpose for which the official receives income and the governmental decision. The nexus test means that if a person is paid to promote or advocate the policies or position of an individual or group, the official may not then participate in a governmental decision which draws into consideration that policy or position. Under the regulation, a nexus exists if the official receives income in his or her private capacity to achieve a goal or purpose which would be achieved, defeated, aided, or hindered by the governmental decision. (C.C.R., tit. 2, § 18702.1(d).)

The commission has advised that the executive director of an organization, who as a part of his or her duties advocates pro-growth positions endorsed by his or her organization, was disqualified from participating in any decisions in his or her capacity as a member of a board which would advance or inhibit the accomplishment of his or her organization's goals. (In re Best, No. 81-032; see also In re Hensen, No. 81-501.)

Regulation 18702.1(a)(3) clarifies when decisions directly involving real property (e.g., zoning, annexation, sale, lease, actual or permitted use of, or taxes or fees imposed on real property) in which the official has an interest will necessitate disqualification. It explicitly includes certain redevelopment decisions where the official owns property in the redevelopment area. These decisions are the major ones which involve establishing or amending the redevelopment plan. (Downey Cares v. Downey Community Development Com., supra, 196 Cal.App.3d 983.)

Regulation 18702.1, subsection (a)(4) requires disqualification whenever a decision will affect the expenses, income, assets or liabilities of the official or his or her immediate family by $250 or more in a 12 month-period.

If an official's economic interest is directly involved in the decision but materiality is not present under regulation 18702.1, the official must still determine whether materiality is present under the regulations governing indirect involvement. (C.C.R., tit. 2, § 18702(a).)

2. Indirect Involvement

The second category of regulations (C.C.R., tit. 2, § 18702.2-§18702.6) applies whenever the official's economic interest is not directly involved in the decision, but it is reasonably foreseeable that the economic interest will be affected by the decision. For example, a decision to rezone property across the street from property owned by a source of income to the official is a situation where the official's economic interest (i.e., the source of income) is not directly involved in the decision. However, it may be reasonably foreseeable that the rezoning decision will have a material financial effect on the official's source of income. Under the second category of regulations, a standard is provided for measuring the materiality of a financial effect in such situations.

Materiality is present if the decision will have the specified effects on the gross revenues, assets, or liabilities of the business entity in which the investment is held, or permits the business entity to avoid the expenditure of a designated amount of funds. (C.C.R., tit. 2, § 18702.2.) Whether an effect on a business entity will be considered material depends on the financial size of the business entity. (C.C.R., tit. 2, § 18702.2.) For example, an effect of only $10,000 on the gross revenues or assets of a small business is material (C.C.R., tit. 2, § 18702.2(g).), while an effect of less than $1 million dollars on the gross revenues or assets may not be material on a Fortune 500 company. (C.C.R., tit. 2, § 18702.2(a).)

1. Real Property

Materiality is present if the decision will have the specified effects on the fair market value or the income-producing potential of the property. (C.C.R., tit. 2,§ ; 18702.3 .) Subsection (a) provides that disqualification is required when the decision involves another's real property located within a 300-foot radius of the official's property, unless the decision will have no financial effect on the official's property. The 300-foot radius is taken from planning law concepts, which require notice to owners of property within 300 feet of the subject property. (C.C.R., tit. 2, § 18702.3(a)(1) .) An official would also be disqualified if the decision involves construction of or improvements to public facilities such as water, sewer or streets, which will result in the official's property receiving new or substantially improved services. (C.C.R., tit. 2, § 18702.3(a)(2).)

When a decision affects another's property which is more than 300 feet from the official's property, the regulation provides standards for determining whether the effect will be material. (C.C.R., tit. 2, § 18702.3(a)(3).) The primary standard is whether the decision will effect the fair market value of the official's property by $10,000, or the rental value by $1,000, in a 12-month period. Subsection (d) of the regulation provides some factors to consider in determining whether the requisite change in value is likely to occur. These factors include proximity, the effect on development potential, and the character of the neighborhood.

Subsection (b) of the regulation provides that a decision will not have a material financial effect when an official's property is located more than 2,500 feet from the subject property, unless certain criteria are met. First, to be material, there must be specific factors present which make it likely that the value of the official's property will be affected by $10,000 or more, or $1,000 in rent in a 12-month period. Second, assuming that there are more than 10 separately owned properties within a 2,500 foot radius of the official's property, less than 25 per cent of the properties surrounding the official's property will be affected in the same manner as the official's property. This exception provides some degree of certainty that an official is not disqualified from participating in decisions affecting another's property, which is located a substantial distance from the official's property, unless there are specific circumstances which dictate disqualification.

Subsection (c) merely is a catch-all for dealing with those decisions affecting real property which are not site-specific or which directly involve an official's property but are excluded from coverage under regulation 18702.1. For example, a decision to amend the set-back requirement for a particular zone would not have a "subject property" from which to measure a radius. Under such circumstances the basic monetary test discussed above would apply.

2. Leasehold Interests

Regulation 18702.4 governs when an official is required to disqualify himself or herself because the decision will affect real property in which the official has a leasehold, as opposed to an ownership interest. The regulation focuses on those changes which will affect the lessee's use of the property. The regulation also provides a standard for determining materiality when the decision does not directly involve the leased property but does involve property nearby.

3. Nonprofit Entity

Regulation 18702.5 defines materiality in the context of a nonprofit entity which is indirectly affected by a decision. This regulation parallels the structure of the regulation governing effects on business entities. It sets up a series of criteria based upon the monetary size of the nonprofit entity. Very large nonprofit entities such as Stanford University and the University of Southern California would be subject to the same materiality standards as Fortune 500 companies. Smaller nonprofit entities would be subject to lower standards.

4. Individuals

Regulation 18702.6 establishes standards for determining materiality when a governmental decision will have a material effect on an individual who is a source of income or gift to an official. The regulation establishes a materiality threshold of $1,000 and incorporates the standards for real property in regulations 18702.3 and 18702.4.

Return to Chapter 1

If an official has a financial interest within the meaning of the act and the governmental decision in question will foreseeably have a material effect on that interest, the official still may not be disqualified from participating in the decision. One last variable must be considered: whether the decision will affect the official's personal interest differently than it does those of the "public generally." (§ 87103.) If the official is participating in a decision on an issue, which will affect the general public's financial interests in the same manner as it does the official's own, the fact that it is affecting the official's interest materially does not create a conflict of interests for the official.

Recognizing that no decision will affect every member of the public in the same way, the FPPC, by regulation has defined the term "public generally" to include a "significant segment" of the public. (C.C.R., tit. 2, § 18703.) For a conflict of interests to be avoided, the official's interests must be affected in substantially the same manner as the interests of all members of the group which is determined to constitute a significant segment. If the interests of some members of the significant segment will be affected differently from the interests of others, the official may not avoid disqualification because the effect on his or her interests is distinguishable from the effect of the interests of at least some members of the segment.

In general, the FPPC requires a group of people to be large in number and heterogeneous in nature for it to qualify as a significant segment of the public. (In re Overstreet, supra, No. 80-010, 6 FPPC Ops. 12; In re Ferraro, No. 78-009, 4 FPPC Ops. 62.) To the extent it appears to be a narrow, special interest group, it generally would not qualify as a significant segment. (I.L. 75-58; In re Brown, No. 77-024, 4 FPPC Ops. 19; In re Legan, No. 85-001, 9 FPPC Ops. 1.)

The Fair Political Practices Commission has established specific percentage and numerical thresholds for determining when a group of people constitute a significant segment of the general public, as summarized below:

• Ten percent or more of the population in the jurisdiction of the official's agency or the district which the official represents. (C.C.R., tit. 2, § 18703(a)(1)(A)(i).)
• Ten percent or more of all property owners, homeowners or households in the jurisdiction of the official's agency or the district which the official represents. (C.C.R., tit. 2, § 18703(a)(1)(A)(ii).)
• Fifty percent of all businesses in the jurisdiction of the agency or the district which the official represents, so long as the businesses are comprised of other than a single industry, trade or profession. (C.C.R., tit. 2, § 18703(a)(1)(A)(iii).)
• Five thousand residents of the jurisdiction. (C.C.R., tit. 2, § 18703(a)(1)(B).)
• With respect to an elected state officer, an industry, trade or profession; with respect to any other elected official, an industry, trade or profession which is predominant in the jurisdiction or district which the official represents. (C.C.R., tit. 2, § 18703(a)(1)(C), § 18703.2.)

Under limited circumstances, a member of a board or commission may be appointed to represent the interests of a specific economic group or interest. In those circumstances, the group or interest constitutes a significant segment of the general public. (C.C.R., tit. 2, § 18703.3.) Accordingly, so long as the official's interests are affected in substantially the same manner as those of the group or interest in question, the conflict of interests is vitiated and the official may participate in the making of the decision. In order for a member to represent a specific economic group or interest, the following criteria must be met:

• The statute, ordinance, or other provision of law which creates or authorizes the creation of the board or commission contains a finding and declaration that the persons appointed to the board or commission are appointed to represent and further the interests of the specific economic interest.
• The member is required to have the economic interest the member represents.
• The board's or commission's decision does not have a material financial effect on any other economic interest held by the member, other than the economic interest the member was appointed to represent.
• The decision of the board or commission will financially affect the member's economic interest in a manner that is substantially the same or proportionately the same as the decision will financially affect a significant segment of the persons the member was appointed to represent.

If the statute creating the board or commission does not expressly provide that the member represents the industry, trade or profession, it may be inferred that the Legislature impliedly authorized such representation based upon the language of the enabling provision of law, the nature and purposes of the program, legislative history, and any other relevant circumstances. (C.C.R., tit. 2, § 18703.3(b).)

In addition to the foregoing, the commission has adopted special rules interpreting the general public exception in connection with states of emergency (C.C.R., tit. 2, § 18703(c)); rate making decisions, including those by landowner/water districts (C.C.R., tit. 2, § 18703(b)); and decisions affecting the principal residences of elected officials in small jurisdictions (C.C.R., tit. 2, § 18703.1). Notwithstanding the specific thresholds established in the regulation, exceptional circumstances may nevertheless justify application of the general public exception. (C.C.R., tit. 2, § 18703(a)(1)(D).)

Section 87103.5 provides a special interpretation of the public generally doctrine which addresses specific problems concerning retailers in small communities. (See C.C.R., tit. 2, § 18703.5 for numerical thresholds.)

To summarize, if a public official's financial interests will be affected in substantially the same manner as all members of the public generally, or a significant segment thereof, no conflict of interests exists. The policy supporting this provision is that an official probably is not reacting to his or her financial interests to the detriment of the community which the official represents when the official's interests are in harmony with those of the general public or a significant segment of it. Thus, there is no "conflict" when there is a harmony or confluence of interests with a significant segment of the members in the jurisdiction.

Return to Chapter 1

There is an exception in the act itself to the general prohibition against an official's participation in decision making when a financial conflict of interests exists. The exception applies when the individual public official involved must act in order that a decision be made or official action be taken. Under such circumstances and because of the necessity that government continue to function, the official may proceed despite the conflict, after following certain prescribed procedures. The exception expressly does not include the situation in which the official's vote is merely needed to break a tie. (§ 87101.) This exception is similar to, but is different in several important respects from, the common law rule of necessity.

The necessity provision has been rather narrowly construed by this office. In 58 Ops.Cal.Atty.Gen. 670 (1975), this office advised that participation is legally required under the act (and therefore the exception is applicable) only when the official is faced with the isolated, nonrecurring situation involving a conflict of interests. Government Code section 81003 provides, "This title should be liberally construed to accomplish its purposes" as authority for this interpretation. If the exception were to be broadly construed, the central purpose of the act could be vitiated.

Stressing the "necessity" character of the exception, the FPPC has said in its regulations that an official is "legally required to make or to participate" within the meaning of this section only if there is no reasonable alternative manner of decision making. (C.C.R., tit. 2, § 18701(a).) In determining what is a "reasonable" alternative, the purposes and terms of the statute authorizing the decision must be examined. (Affordable Housing Alliance v. Feinstein (1986) 179 Cal.App.3d 484.) The regulations promulgated by the FPPC detail several steps to be taken by officials who wish to exercise the "necessity" exception. (C.C.R., tit. 2, § 18701.) Initially, the official must disclose the existence of the financial interest in the outcome of the particular action involved and make it a matter of public record. This disclosure is to include a description of the particular nature of the conflicting personal interest. The official is required by the regulations not to use his or her official position to influence any other public official with regard to the matter. Also, for the record, the official must state exactly why there is no alternative route by which action can be taken. And finally, the official must limit his or her participation to acting only so far as is legally required. (C.C.R., tit. 2, § 18701(b)(1)-(4).)

In In re Hudson, No. 77-007, 4 FPPC Ops. 13, the commission outlined its interpretation of the legally required participation exception when multiple members of a body are disqualified. The commission concluded that if a quorum of the body were still available to participate in the making of the decision, the disqualifications must stand. If the disqualifications leave less than a quorum of the board's membership available to act, the legally required participation exception is activated. However, unlike the common law, all disqualified members do not return to voting and participating status; rather, only the number of members needed to reconstitute a quorum are rehabilitated. (See also In re Brown, supra, No. 77-024, 4 FPPC Ops. 19, 25, fn. 4; Hamilton v. Town of Los Gatos (1989) 213 Cal.App.3d 1050.) The process by which disqualified members may return for this limited role may be accomplished by a random draw or by any other fair and impartial method.

In In re Hopkins, No. 77-022, 3 FPPC Ops. 107, the commission concluded that the legally required participation exception could not be used to rehabilitate board members who were disqualified by virtue of the acceptance of gifts. In issuing this opinion, the commission was concerned that a person appearing before a board or commission could make lavish disqualifying gifts to all members of the board and still be able to gain a favorable decision when a quorum of the board members was rehabilitated. The prospect of rendering one's public agency helpless to act was intended to be a strong deterrent against the acceptance of disqualifying gifts.

Return to Chapter 1

Once a public official determines that he or she has a financial interest in a decision under the act, necessitating disqualification, the official must publicly announce the economic interest which is the subject of the potential conflict of interests, and the fact that the official is disqualifying himself or herself from any participation in the decision. (C.C.R., tit. 2, § 18700(b)(5).) If the official is an employee rather than a member of a board, commission, or council, the official's announcement is required to be in writing and given to the official's supervisor, appointing power or other specified individual. (C.C.R., tit. 2, § 18700(b)(5).)

Return to Chapter 1

1. Limits On Gifts

The act limits the amount of gifts which can be received by specified officials and candidates from a single source during the calendar year to $250, adjusted biennially by the Fair Political Practices Commission to reflect changes in the consumer price index. (§ 89503(f); C.C.R., tit. 2, § 18940.2.) These limits are separate from the prohibition against receiving gifts totaling $10 or more a month, provided by or arranged by a lobbyist. (§ 86204.) The covered officials and candidates, and corresponding gift limitations, effective until they are adjusted again on January 1, 1999 (C.C.R., tit. 2, § 18940.1), are set forth below:

• Elected State or Local Officer or Candidate: $290 (§ 89503(a) and § 89503(b);C.C.R., tit. 2, § 18940.1.)
• State Board Member or State or Local Designated Employee: $290 if the receipt of the gift would have to be reported as a gift or income from that source on the member's or designated footnote No. 2 employee's statement of economic interests (exception for part-time members of governing boards of institutions of higher education). (§ 89503(c); C.C.R., tit. 2, § 18940.1.)
• Any person covered by Section 87200 except Judges, but including Judicial Candidates: $290. (§ 89503(a),(b) and (d).)
2. Limits On Honoraria

The act prohibits the receipt of honoraria by elected state and local officers and candidates and by persons described in section 87200. (§ 89502(a) and (b); C.C.R., tit. 2, § 18930.1.) Members of state boards and state and local designated employees are prohibited from receiving honoraria from any source of income which is required to be reported on the official's statement of economic interests. (§ 89502(c); C.C.R., tit. 2, § 18930.1.) The prohibition does not apply to judges or part-time members of governing boards of institutions of higher education. (§ 89502(d).) The prohibition does, however, apply to judicial candidates. (§ 89502(b).)

3. Reportability Of Gifts

Gifts aggregating $50 or more in a calendar year from a single source generally must be reported. (§ 87207; C.C.R., tit. 2, § 18941.) Generally, the recipient of the benefit has the burden of demonstrating that any consideration paid was of equal or greater value than the benefit received. A gift is received when the recipient takes possession of the gift or exercises some direction or control over it. (C.C.R., tit. 2, § 18941(b).) In the case of a promise to make a gift, the gift is made on the date on which it is offered so long as the recipient knows of the offer and ultimately receives the gift. (C.C.R., tit. 2, § 18941(c).)

Both a source of a gift and any intermediary in the making of a gift must be disclosed. (C.C.R., tit. 2, § 18945.3.) The gifts of an individual donor are accumulated with any gift by an entity in which the donor is more than a fifty percent (50%) owner. (C.C.R., tit. 2, § 18945.1.) When a gift is made by multiple donors, the group of donors must be generally identified, and any individual donors of $50 or more must be named. (C.C.R., tit. 2, § 18945.4.)

Under specified circumstances, a gift may be made to a public agency rather than to an individual. (C.C.R., tit. 2, § 18944.2; see section E, subsection 3(b) of this chapter.)

4. Reportability Of Travel Expenses

When an official or candidate is required to report travel expenses, they should be reported on the special schedule created by the Fair Political Practices Commission for that purpose. (§ 87207(c), C.C.R., tit. 2, § 18950.1.)

5. Special Rules On Travel

A variety of special rules apply to the receipt of travel expenses. Depending on the circumstances surrounding the receipt of travel expenses, such expenses may be prohibited, limited, reportable or totally exempt from coverage under the act.

1. Totally Exempt
1. The following travel expenses, when provided to an official or candidate who gives a speech, participates in a panel or seminar, or performs a similar service, are not payments and are not subject to any prohibition, limitation or reporting obligation (see C.C.R., tit. 2, § 18950.3):
1. Free admission, refreshments and non-cash nominal benefits provided to a filer during the entire event
2. actual intrastate transportation to and from the event
3. any necessary lodging and subsistence provided directly in connection with the speech, panel, seminar or service, including meals and beverages on the day of the activity.

In other words, qualifying food, beverages, nominal benefits, accommodations and intrastate transportation in connection with giving a speech or appearing on a panel are not limited, prohibited, or reportable as either gifts, income, or honoraria under the act. In effect, these payments are invisible.

2. Travel expenses paid for from campaign funds are not honoraria or gifts so long as they are expressly authorized by section 89513(a). (§ 89506(d)(1); C.C.R., tit. 2, ;§ 18950.1(c)and § 18950.4.)
3. Travel expenses paid for by an official's public agency do not constitute honoraria or gifts. (§ 89506(d)(2); C.C.R., tit. 2, § 18950.1(d).)
4. Travel expenses which are reasonably necessary in connection with the operation of a bona fide business, trade or profession, which would qualify for a business deduction under the federal income tax laws (IRC 162 and 274) are not honoraria or gifts unless the predominate activity of the business is making speeches. (§ 89506(d)(3); C.C.R., tit. 2, § 18950.1(e).)
2. Reportable but Not Limited

The travel expenses discussed below are not subject to the gift and honoraria limits contained in the act. However, such travel expenses may trigger the basic disqualification requirement contained in section 87100. In addition, if the reporting threshold is reached, the expenses must be reported by the official or candidate on any applicable statement of economic interests.

Travel expenses are not subject to the limitations on gifts and honoraria if the travel is reasonably related to a legislative or governmental purpose or to an issue of public policy and either of the following apply:

1. the travel expenses are in connection with a speech given by an official or candidate; the lodging and subsistence is limited to the day before, the day of, and the day after the speech; and the travel is within the United States; or
2. the payment is provided by a government agency (foreign or domestic), an educational institution, or a nonprofit organization which is tax exempt under Internal Revenue Code section 501(c)(3).

(§ 89506(a); C.C.R., tit. 2, § 18950.1.)

Although not limited, these travel expenses are reportable unless they are exempt pursuant to California Code of Regulations, title 2, section 18950.3.

3. Both Reportable and Limited

To the extent that travel expenses are not exempt as described above, they are subject to both the disclosure requirement and the gift and honoraria limitations.

6. Definition Of Gift

A gift is anything of value, either tangible or intangible, provided to a public official or candidate for which the donor has not received equal or greater consideration. (§ 82028(a).) Gifts frequently include money, food, transportation, accommodations, tickets, plaques, and articles for household, office, or recreational use. A gift also includes a rebate or discount in the cost of a product or service, unless the rebate or discount is made in the regular course of business to members of the public without regard to official status.

The act and commission regulations contain a number of exemptions from the basic definition of a gift. Items which are exempt from the gift definition provisions are likewise exempt from any reporting or limitations placed on gifts. Unfortunately, the rules providing for these exemptions are extraordinarily technical and complex. Below is a summary of the major exemptions from the definition of gift.

1. Informational Material

Serves primarily to convey information and is provided to assist the official or candidate in the performance of his or her official duties, or the elective office he or she seeks. These materials may include books, magazines, maps, models, etc. (C.C.R., tit. 2, § 18942.1.) If the item is a scale model, pictorial representation, or map, and the value is $290 footnote No. 3 or more, the recipient has the burden of demonstrating that the purpose of the material is to assist the recipient in performing his or her official duties in order for the item to be exempt. (C.C.R., tit. 2, § 18942.1(b).) Travel is not informational material, except that on-site tours or visits designed specifically for public officials or candidates are informational material. However, transportation to and from the site does not constitute informational material unless there are no commercial or other normal means of travel to the site (such as by private auto). (§ 82028(b)(1); C.C.R., tit. 2, § 18942.1(c).)

2. Returned Unused

Gifts are exempt if unused and returned within 30 days to the donor or donated to a government agency or nonprofit entity exempt from taxation under § 501(C)(3) of the Internal Revenue Code so long as a charitable tax deduction is not taken. (§ 82028(b)(2); C.C.R., tit. 2, § 18943(a).) Specific procedures for returning gifts in order to avoid disqualification are set forth in California Code of Regulations, title 2, section 18943(b). A recipient may negate a gift or may reduce a gift's value by reimbursing the donor for some or all of the gift within 30 days of receipt or acceptance of the gift. (C.C.R., tit. 2, § 18943(a)(4).) As a general rule, a recipient may not negate the receipt of a gift by turning the item over to another person or discarding it. (C.C.R., tit. 2, § 18941(b) .)

3. Relatives

Gifts from close family relatives (e.g. spouse, children, siblings, grandparents, aunts and uncles) are specified as exempt. (§ 82028(b)(3); C.C.R., tit. 2, § 18942(a)(3).)

4. Campaign Contributions

Bona fide campaign contributions under either federal or state law are exempt. (§ 82028(b)(4); C.C.R., tit. 2, § 18942(a)(4).)

5. Plaques or Awards

A plaque or trophy which is personalized, for the recipient in question, and which has a value of less than $250 is exempt. (§ 82028(b)(6); C.C.R., tit. 2, § 18942(a)(6).)

6. Home Hospitality

Hospitality provided by an individual in his or her home is not a gift when the donor or a member of his or her family is present. (C.C.R., tit. 2, § 18942(a)(7).)

7. Exchange of Gifts

Gifts exchanged between an official or candidate and another individual, other than a lobbyist, in connection with birthdays, Christmas, other holidays or similar events are exempt, so long as the gifts exchanged are not substantially disproportionate in value. (C.C.R., tit. 2, § 18942(a)(8).)

8. Devise or Inheritance

Section 82028(b)(5); California Code of Regulations, title 2, section 18942(a)(5).

7. Valuation Of Gifts

Gifts are valued as of the date they are received or promised to the recipient. (C.C.R., tit. 2, § 18946(a).) The value is the fair market value of the gift on that date. If a gift is unique, the value of the gift is the cost to the donor if the cost is known or ascertainable to the recipient. In the absence of such knowledge, the recipient must exercise his or her best judgment in reaching a reasonable approximation of the gift's value. (C.C.R., tit. 2, § 18946(b).)

1. Passes and Tickets

A ticket providing a single admission to an event or facility, such as a game or theater performance, is valued at the price at which the ticket is offered to the public. However, the pass or ticket has no value unless it is either used or transferred to another. (C.C.R., tit. 2, § 18946.1(a).)

A pass or series of tickets which permits repeated admissions to events or facilities is valued as follows: For purposes of disclosure and gift limits the value is based on actual use by the recipient and the recipient's guests, and any possible use by transferees of the pass or tickets. For purposes of disqualification the value is the actual use by the recipient and the recipient's guests, and any possible use by transferees through the date of the decision in question plus the maximum reasonable value of the usage following the date of the decision. If this type of pass or tickets are returned prior to the date of the decision, the value is determined by actual use and the value of any retained tickets for future events. (C.C.R., tit. 2, § 18946.1(b).)

2. Testimonial Dinners

Where an official or candidate is honored at a testimonial dinner or similar event, other than a campaign event, the recipient is deemed to have received a gift in the amount of the pro rata share of the cost of the event plus the value of any specific tangible gifts received by the individual. (C.C.R., tit. 2, § 18946.2.)

3. Wedding Gifts

Generally, wedding gifts are considered to be made to both spouses equally. Therefore, one-half of the gift is attributable to each spouse. If a wedding gift is particularly adaptable to one spouse or intended exclusively for the use of one spouse the gift shall be allocated in whole to that spouse. (C.C.R., tit. 2, § 18946.3.) When wedding gifts are exchanged with another person the wedding gift may be exempt from reporting or limitations. (See section K, subsection 6(g), of this chapter.)

4. Tickets to Political and Nonprofit Fundraisers

Tickets to political fundraisers or fundraisers conducted by nonprofit organizations exempt from taxation under section 501(c)(3) of the Internal Revenue Code have no value. The value of tickets to other nonprofit, tax exempt organization fundraisers is the face value minus the value of any donations stated on the ticket, or where no such donation is set forth, the value is the fair market value of food, beverage, or other tangible benefits provided to each attendee. (C.C.R., tit. 2, § 18946.4.)

5. Prizes and Awards

Generally, prizes and awards are valued at their fair market value. However, a prize or award won in a bona fide competition unrelated to the recipient's status as an official or candidate is not a gift but is income and may be reportable, depending upon the source and amount. (C.C.R., tit. 2, § 18946.5.)

8. Definition Of Honoraria

In general, an honorarium is a payment made in consideration for any speech given, article published, or attendance at a public or private conference, convention, meeting, social event, meal, or similar gathering. (§ 89501; C.C.R., tit. 2, § 18931.) However, the definition excludes certain travel-related payments. For information concerning limitations on food, transportation, lodging, and subsistence, see section K, subsection 5, of this chapter.

A speech includes virtually any type of oral presentation including participation as a panel member. Comedy, dramatic, musical, or artistic performances do not constitute the making of a speech for purposes of the honoraria limitation.

For purposes of the honoraria limitation, a published article refers to a non-fiction written work which is published in a periodical, newsletter, or similar document. An article published in connection with a bona fide business, trade, or profession is exempt from the prohibition. (A bona fide business is defined in C.C.R., tit. 2, § 18932.1.) An individual is deemed to have received payment in connection with a published article if he or she receives payment for drafting any portion of the article, or is identified as an author or contributor to the work. (C.C.R., tit. 2, § 18931.2.)

1. Earned Income

Honoraria does not include earned income for personal services if both of the following apply:

• The services are provided in connection with an individual's business (including nonprofit entities) or employment in a bona fide business, trade, or profession (other than speech making). (C.C.R., tit. 2, § 18932(a)(1) and § 18932(b).)
• The services are customarily rendered as a part of the business. (C.C.R., tit. 2, § 18932(a)(2).)
2. Teaching Profession

For purposes of the honoraria limitations, an individual is presumed to be participating in the profession of teaching if:

• The individual is under contract or employed to teach at a school, college, or university which is accredited, approved, or authorized as an educational institution by the State of California, another state, the federal government or an independent accrediting organization. (C.C.R., tit. 2, § 18932.2(a).)
• The individual is paid to teach a course which is presented to maintain or improve professional skills and knowledge and where the course provides continuing education credits for members of the profession. (C.C.R., tit. 2 § 18932.2(b).)
• The individual is paid for teaching individuals who are enrolled in an examination preparation program such as a state bar examination review course. (C.C.R., tit. 2, § 18932.2(c).)
3. Return or Donation of Honoraria

The limitations on honoraria do not apply if within 30 days of the receipt of the honorarium, the honorarium is returned unused, or it is donated to the general fund of the agency in question. If the payment is not money and cannot be contributed to the general fund, the recipient may reimburse the donor for the value or use of the honorarium. (C.C.R.,tit. 2, § 18933.)

Donations made to a charity by a third person in return for a speech by an individual do not constitute honoraria to the individual pursuant to Title 2, California Code of Regulations section 18932.5, if all of the following conditions apply:

• the donation is made directly to the charity;
• the donation is not a condition of the speech or appearance;
• the donation is not claimed as a tax exemption by the individual;
• the donation will not have a foreseeable material financial effect on the individual or the individual's immediate family; and
• the individual is not identified to the recipient in connection with the donation.

Honoraria which is so donated or reimbursed need not be reported by the individual.

Return to Chapter 1

Although, pursuant to section 87102, elected state officers are exempt from the act's remedies for violation of section 87100, special disqualification prohibitions exist for these officials. (§§ 87102.5 - 87102.8.) With respect to legislators, these prohibitions generally are imposed where legislators have specified interests in non-general legislation, i.e., legislation which affects only a small number of persons and does not affect the general public. (§ 87102.6.) Members of the Legislature are also prohibited from participating in, or using their official position to influence state government decisions in which the member has a financial interest, and which do not involve legislation.

Elected state officers are prohibited from participating in decisions of their agency where the decision would affect a lobbyist employer which has provided compensation to that officer for appearing before a local board or agency, and where the decision will not affect the general public. (§ 87102.5(a) and § 87102.5(b); §87102.8(b).) With respect to legislators, this prohibition applies to persons who are not lobbyist employers as well. (§ 87102.5(a)(7).)

Return to Chapter 1

In the past, violations of section 87100 were enforceable by injunctive relief only. However, the PRA was amended in 1979 to apply all of the enforcement remedies of the act to violations of section 87100. (§ 87102.)

Generally legislators and other elected state officers are exempt from administrative, civil and criminal penalties for violation of the disqualification requirement contained in Government Code section 87100; however, in 1990, the Legislature adopted limited disqualification requirements for legislators and other elected state officers. These disqualification requirements are only subject to administrative enforcement by the commission. (§§ 87102.5 - 87102.8.)

Persons who violate the gift or honoraria limits set forth in Government Code section 89500 et seq. are subject to a civil action brought by the Fair Political Practices Commission for up to three times the amount of the unlawful gift or honoraria. (§ 89521.) Violators are also subject to administrative sanctions, which include fines of up to $5,000 per violation, but are exempt from the civil or criminal penalties contained in section 91000 et seq. (§ 89520.)

For a general discussion of penalties and enforcement under the PRA, see chapter V of this pamphlet.

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