Legal Corner: Conflict of Interest Laws

Christina Estes-Werther, League General Counsel

When we hear the phrase "conflict of interest" in the news, it is often about a potential violation, which leads many to believe that they must avoid having a conflict altogether. But conflicts are a part of life as we develop relationships in personal and professional capacities with various members of our neighborhoods and communities. The key to avoiding a violation is to be able to recognize a conflict and follow the proper procedure if a conflict exists.

What Is A Conflict of Interest?
A conflict of interest occurs when a public officer or employee (or a relative) has a substantial interest in any decision of a public agency. A.R.S. § 38-503. A public officer includes any elected or appointed member of a city or town and "relative" means a spouse, child, grandchild, parent, grandparent, any siblings and their spouses, and a spouse's parent, sibling or child. A.R.S. § 38-502. "Substantial interest" means any pecuniary or proprietary interest, either direct or indirect, that is not a remote interest. If all these factors are met, then the public officer or employee has a conflict of interest.

In order to determine whether an interest is substantial, Arizona law provides nine categories of "remote interests" to assist with an analysis. If the matter is a remote interest, then it is not substantial and there is no conflict.

Arizona law specifies the following remote interests. Is the public officer or employee (including relatives):

  1. A nonsalaried officer or member of a nonprofit corporation?
  2. A landlord or tenant of the contracting party?
  3. An attorney of a contracting party?
  4. A member of a nonprofit cooperative marketing association?
  5. An owner of less than three percent of the shares of a corporation with an interest in a matter with the city or town? This is subject to income restrictions and excess payments.
  6. Being reimbursed only for actual or necessary expenses incurred in performance of official duties?
  7. Receiving municipal services in the same manner as a person who is not a public officer?
  8. An officer or employee of another political subdivision, a public agency and the decision would not directly confer a benefit or detriment upon the public officer or employee?
  9. A member of a trade, business occupation, profession, or class of persons with no greater interest than other members of that trade, business, occupation, profession or class? Class is defined as ten or more persons.
If a public officer or employee answers "yes" to any of these criteria, then the matter may be categorized as a remote interest and may not be a conflict of interest. A public officer or employee is strongly encouraged to seek guidance from the city or town attorney when reviewing these factors to ensure proper application based on the specific situation. There are some exceptions that may apply including certain purchases for school districts, or allowances for a city or town to purchase supplies, material, and equipment based on certain transaction amounts and annual approval. An attorney is best suited to assist a public officer or employee determine whether a conflict exists. It is important that a public officer or employee discuss the issue with an attorney before a matter is heard or addressed in the city or town to avoid any impropriety or violations of the law.

What If I Have A Conflict?
If a public officer or employee determines that the interest is not remote and there is a pecuniary or proprietary interest, the public officer or employee must disclose the interest to the city or town clerk who maintains the official record. This disclosure notifies the council, public and other interested parties that you are ineligible to participate in that issue. State law prohibits the public officer or employee with a conflict of interest from voting or participating in any decision including matters involving a contract, sale, purchase or service for the city or town. This restriction prevents undue influence on other council members and staff during discussions and deliberations, and also protects the public officer or employee from allegations of misconduct.

If a conflict exists, disclosure of the interest is not only mandated by law but it is also a measure of transparency to the residents of the city or town. It is not unlawful to have a conflict, but the violation is committed when a public officer or employee fails to disclose the conflict and continues to participate in the decision-making process when there is a substantial interest.

Allegations of misconduct or violations may result in criminal penalties and forfeiture of office or employment. A.R.S. § 38-510. Any person affected by a decision of the city or town can file an action to enforce the law and a court may order civil penalties including reasonable attorneys' fees. A.R.S. § 38-506. Further, this type of conduct may jeopardize contracts or services related to the conflict since state law allows these contracts to be nullified, which may significantly affect city or town functions. A.R.S. § 38-506. And while not stated in the law, a failure to disclose and recuse oneself when a conflict is identified may result in public distrust of the council and municipal government.

Other Prohibitions
Along with the substantial interest test to determine a conflict of interest, state law outright prohibits certain actions involving public officers or employees based on their unique role in government. For example, it is unlawful to be compensated for representing another person before the council or other municipal department within one year after the officer or employee leaves city or town service if the public officer or employee was directly involved in the matter being represented. And a public officer or employee cannot financially benefit from any information obtained as a public officer or employee for two years after leaving the city or town, and is prohibited from disclosing any confidential information. A.R.S. § 38-504.

For current officers or employees, it is illegal to receive any additional compensation in matters pending before the city or town unless specifically allowed by law. A.R.S. § 38-505. And a public officer or employee cannot leverage their position to obtain anything of value that would not be received in the normal course of their duties. A.R.S. § 38-504.

The conflict of interest laws mandate high standards for public officers and employees in order to protect the public and "remove or limit the possibility of personal influence which might bear upon an official's decision." Yetman v. Naumann, 16 Ariz.App. 314, 317, 492 P.2d 1252, 1255 (1972). These laws have been in place for decades and are an integral part of our government structure that safeguards the integrity of the decision-making process in cities and towns by ensuring decisions are being made in a fair and neutral manner.

These statutes can be difficult to understand and any public officer or employee who has a question or concern about whether a conflict exists should consult with their city or town attorney to assist with a conflict of interest determination.

Additional Resources
League Publications
Arizona Revised Statutes
Title 38, Chapter 3, Article 8

Arizona Agency Handbook, Chapter 8: Conflict of Interest

League of Arizona Cities and Towns
1820 W. Washington St.
Phoenix, AZ  85007
Phone: 602-258-5786
Fax: 602-253-3874

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