CITY OF DES MOmES, IOWA

Office of
Legal Department

TO: Council Member Christine Hensley

CC: City Attorney Jeffrey D. Lester
FROM:: Ann DiDonato, Assistant City Attorney
DATE: December 2,2015
SUBJECT: Conflict of Interest Question

CONFIDENTIAL ATTORNEY/CLIENT COMMUNICATION

SUMMARY
You have asked City Attorney JeffLester whether you are prohibited by a conflict of interest from
discussion of and votmg on matters fhat may indirectly relate to Midwest Housing Equity Group, Lac.
(MHEG). As has been addressed in a recent opmion by fhis of&ce, under Iowa law and the City Code,
no member of the City Council may vote or participate in the discussion before fhe Council on any issue

in which the member has a conflict of interest. The rule is based upon the philosophy that the public
deserves the undivided loyalty of the individuals empowered to act in fhe public's behalf, and that no
individual should be put into a position of having to choose between promoting their own personal
interest and promoting the public interest. What constitutes a disqualifying conflict of interest is more
fully discussed below.
Based on fhe facts and circumstances which have been provided by you and described in this opinion, it
is our conclusion that there is no conflict of interest under the Iowa Code or the City Code that would

proMbit your full participation in City Council actions regarding Iowa Finance Authority applications in
which MHEG and the applicant developers are not directly contracting with the City or otherwise
providing services to the City. However, there are sigmficant factors due to your MHEG board
membersMp and consultant cont-act that may create title appearance of a conflict or fhe potential for a

conflict fhat should be taken into serious consideration in determinmg your participation in discussion of
and voting on IFA applications in which MHEG has a potential interest and also those involvmg lowabased affordable housing developers. Should you wish to avoid even the appearance of a conflict, then
our recommendation would be that you abstain from voting on such matters.

FACTS & CIRCUMSTANCES

The specific matter in question is whether it is a conflict of interest for you to participate in the
discussion of and voting on the City's approval of "Exhibit 5S, Local Government Contribution" needed

to complete applications by low income housing developers to Iowa Finance Authority (IFA) when
seeking tax credits. Developers are required m the IFA applications to identify financers, including the
tax credit syndicators from which they have received a "letter of interest". You have mdicated that no

contract existed between the developer applicants and MHEG at the time of the November 23,2015
Council action.
MHEG is a non-profit tax credit syndicator operatmg to raise equity capital to invest into affordable
rental housing throughout the Midwest through use of the federal low income housing tax credit
program. You are a member of the mne member MHEG Board of Directors and work as an independent
contractor consultant under a one year contract which expires in December 2015. You and MHEG have
indicated fhat your compensation is not affected by or related to the securmg ofMHEG financed deals,
although duties under your consultant contract include "... to identify, develop and mamtain new and
existing relationships -with lo-wa-based affordable housing developers; work -with city and county
governments throughout Iowa to stimulate affordable housing development...".

For the purposes offhis opitiion, it is our understanding that the listing ofMHEG as a tax credit
syndicator by developers for low income housing tax projects does not denote a finalized arrangement
but is rather a revocable "letter of interest."

ANALYSIS
The existence of a conflict of interest does not disqualify an affected individual from serving on the City
Council. The existence of a conflict of interest simply disqualifies the mdividual from participatmg as a
member of the Council on the matter m which fhe individual has fhe conflictmg interest. In fhe event of
a conflict, the member should identify the existence of the conflict when the Mlayor calls the item, or as
soon thereafter as the member realizes fhat the member has a conflict of interest with the matter. The
member must thereafter abstain from the discussion and abstain from the vote by the Council under
Iowa law.

Statutory Law
Iowa Code:
For city public of&cials, the tmtial reference point for statutory analysis is Iowa Code Section 362.5.
That statute provides m relevant part that:
"1. When used in tins section, "contract" means any claim, account, or demand against or agreement
with a city, express or implied.
2. A city officer or employee shall not have aa interest, direct or indirect, m any contract or job of work
or material or fhe profits thereof or services to be furnished or performed for the officer's or employee's
city. A contract entered, into in violation of this section is void." (emphasis added)
There are a number of exceptions in Section 362.5, including the following:
e. Contracts in which a city officer or employee has an interest solely by reason of employment, or a
stock interest of the kind described in paragraph "i", or bofh, iffhe contracts are made by competitive

bid in writmg, publicly invited and opened, or if the remuneration of employment wiU not be du'ectly
affected as a result of the contract and the duties of employment do not directly involve the
procurement or preparation of any part of the contract. The competitive bid qualification of this
paragraph does not apply to a contract for professional services not customarily awarded by competitive

bid. (emphasis added)

Regarding the effect on the vote if a city council member with a conflict of mterest votes. Section 362.6
provides that:
A measure voted upon is not invalid by reason of conflict of interest in an officer of a
city, unless the vote of the of&cer was decisive to passage of the measure. If a specific
majority or unanimous vote of a municipal body is required by statute, the majority or
vote must be computed on the basis of the number officers not disqualified by reason of
conflict of interest. However, a majority of all members is required for a quorum. For
the purposes of this section, the statement of an officer that the officer declmes to vote by
reason of conflict ofmterest is conclusive and must be entered of record.
Section 362.6 is consistent with nearly identical language in Iowa Code Section 380.4.

A vote before fhe City Council approving a submittal for an. IFA application by a low income housing
developer regarding City tax abatement status of a project in which MHEG is indicated as providing a
letter of interest for a developer does not directly create a contract between the City and the developer or
with MHEG. There is no work or services to be performed for the City by virtue of the developer's IFA
application and resulting project. A similar conclusion was reached by the Iowa Attorney General on
the meaning of "contract" under the Code. See Op. Atty'y. Gen #92-2-5 (HUD program lien document
between city and non-profit is not a "contract" within meaning of Iowa Code 362.5). Therefore, you are

not strictly prohibited from discussing and vottttg on such IFA applications under Iowa Code Section
362.5.

Municipal Code of the City ofDes Momes:

We also need to examine City ordinances on this subject. The City ofDes Moines has adopted
ordmaaces on conflicts which are more restrictive than. Iowa Code Section 362.5. The Muoicipal Code
sections regarding conflict of interest by City Council members are found in Sections 2-713 and 94-3,
which concern direct financial mterests by a city officer on procurement matters:
Sec. 2-713. Conflict of interest in city procurements prohibited.

(a) No employee, officer or agent offhe city shall participate in selection or in the award or
admimstration of a contract or purchase order for fhe procurement of goods and/or services if a conflict
of interest, real or apparent, would be involved. Such a conflict would arise when any of the following
has a financial or other interest ia the firm or contractor selected for award:

(1) The employee, officer or agent;

(2) Any member of his or her immediate family;
(3) His or her partner; or
(4) An organization which employs or is about to employ any of the persons listed m
subsections (a)(l) through (3) of this section.

Sec. 94-3. Conflict of interest in public improvements and property acquisition.

(a) No city employee, officer or agent shall participate m selection, award, or administration of a
contract for fhe construction of a public improvement or a consulting contract for a public improvement
project, nor shall any employee, officer, or agent participate m the acquisition of property or property
interests for a city project or operation, if a conflict of interest, real or apparent, would be involved. Such

a conflict would arise when any of the following has a financial or other interest in a contractor selected
for award of a public improvement construction contract, m a consultmg firm on a public improvement
project, or in a property or property interest to be acquired m conjunction -with a city project or
operation:

(1) The employee, officer or agent;

(2) Any member of the employee's, officer's or agent's unmediate family;
(3) The employee's, officer's or agent's partner; or

(4) An organization which employs or is about to employ any of the persons listed in this
subsection.

Since there is no "award or administration of a contract" under consideration by the City by virtue of the

developer IFA applications and potential tax abatement eligibility for fhe proposed projects, there is no
conflict of interest under the City Code.

We caution that this opinion is based entirely on the wording offhe Iowa statute and City Code. Certain
other mrunicipal codes go further by prohibiting fhe appearance of impropriety and relationships beyond
contracts between a city and an entity in which a council member has a relationship that could come into
play in the matter at hand. One example of a code with broader restrictions prohibits any official action
related to a contract or transaction if a city officer or employee has an interest in any business entity
appearing on behalf of any person involved in such contract or transaction as opposed to actions related
to letting contracts. That is not the situation in fhe current City Code and Iowa statute.

Common Law
If no Iowa Code or City Code prohibition due to conflict of interest is present, we must next review this
matter under Iowa's common law which prohibits the potential for a conflict of interest. Although a
comprehensive review of the common law rule of conflict of interest was set out in a recent conflict of
interest opinion by this office, in order to provide a thorough discussion of this matter, much offhat

analysis will also be provided in this opinion.

The common law rule of conflict of interest demands:

Complete loyalty of the public ser/ant to the public .

Avoidance of making a choice between public duty and private advantage
Avoidance of all private advantages - not merely fmancial ones
Avoidance ofpotential conflicts - not just srfcuations where actual advantages are sought.
Therefore, under the common law, there is no requirement to show a particular decision was actually
motivated by an. improper influence. la the seminal Iowa case of Wilson v. Iowa City, the Iowa Supreme
Court found fhat a city council member who was employed by the University of Iowa as director of

community relations had a conflict of interest that prohibited him from voting on a resolution relatmg to
an urban renewal project in which fhe University owned real estate in fhe area and had publicly
advocated for the project and the councilmember was expected to work with fhe city on the renewal
project, even though there was no direct financial advantage to the councilman. On the other hand, the
Iowa Supreme Court held in lo-wa Farm Bureau Federation v. Environmental Protection Commission

that no common law conflict of interest existed prohibiting an EPA commissioner whose job duties with
the Iowa Environmental Council included policy research and advocacy from voting on a mle making
adopting standards advocated by such Council.

In this matter, it could be argued that an indirect finaacial interest concerning fhe vote on the IFA
developer applications could lead to an appearance of a conflict of interest. This argument would assert

that you could find your loyalties divided so that you would feel a need to vote in favor of any IFA
applications by developers for those projects for which MHEG has expressed sco. interest in working on

or to extend tax abatement eligibility for all multi-family projects in order to continue developing those
relationships or to help assure renewal of your consultant contract. Although membership on the board
of directors and work as a consultant, which mcludes developmg and maintaining relationsMps with.
affordable housing developers, does not create a statutory conflict of interest which would prohibit you

from fally discussmg and voting on IFA applications or on amending the urban revitalization plan to
extend tax abatement eligibility for all multi-family projects, there appear to be significant reasons for
you to seriously consider abstaining from discussion and voting on such matters in order to avoid the
appearance of a conflict. As a member of the MHEG board it would not be unreasonable for the public
to conclude fhat there may be a conflict of interest in any vote m which MHEG has indicated an interest
in a project. There is likewise an arguable appearance of a conflict of interest by virtue of your
consultant contract m which you are required to "develop and maintam" relationships with affordable
housing developers. It could reasonably appear to the public that you have an incentive to vote for any

project brought by such developers in order not to harm the relationship which you are paid to develop
and maintain.
la summary, the Iowa common law govemmg conflicts of interest is not clear, particularly since the
legislatare has modified parts of the Wilson case but not all of it. If you want to avoid even fhe
appearance of impropriety and the potential of a conflict of interest we recommend that you abstain from

discussion of and voting on matters before the City Council in which MHEG has provided a letter of
mterest or involving developers of affordable housing during your tenure as a consultant to or board
member ofMHEG.
I encourage you to contact City Attorney JeffLester if there is any doubt as to whether a conflict of
interest exists, particularly for matters not contemplated m this opinion.