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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 6468

September 29, 1987

CONFLICT OF INTEREST:

Member of Legislature serving on the board of directors of a health maintenance organization holding contract with state agency

PUBLIC OFFICERS AND EMPLOYEES:

Conflict of interest--service of member of Legislature on board of directors of a health maintenance organization which contracts with state agency

Const 1963, art 4, Sec. 10, and 1968 PA 318 are not violated by a member of the Legislature who serves as a member of the board of directors of a health maintenance organization which contracts with the Department of Social Services to provide health services.

The member of the Legislature serving upon such board of directors must disclose the interest in the contract between the health maintenance organization and the Department of Social Services whenever voting upon appropriations to fund the contract.

Honorable Teola P. Hunter

State Representative

The Capitol

Lansing, Michigan 48913

You have requested my opinion on whether it would be a conflict of interest for a state representative to serve on the board of directors of a health maintenance organization. The health maintenance organization is a nonprofit corporation which has a contract with the Michigan Department of Social Services to provide services to Medicaid recipients.

Const 1963, art 4, Sec. 10, provides:

"No member of the legislature nor any state officer shall be interested directly or indirectly in any contract with the state or any political subdivision thereof which shall cause a substantial conflict of interest. The legislature shall further implement this provision by appropriate legislation."

The Legislature implemented Const 1963, art 4, Sec. 10, by enacting 1968 PA 318, MCL 15.301 et seq; MSA 4.1700(21) et seq. Act 318, Sec. 2, provides:

"No member of the legislature, herein referred to as a 'legislator', nor any state officer shall be interested directly or indirectly in any contract with the state or any political subdivision thereof which shall cause a substantial conflict of interest.

In Act 318, Sec. 4, the Legislature has, in pertinent part, provided:

"The word 'interested' as used in section 2 refers to a pecuniary interest if there is a conflict of interest on the part of a legislator or state officer in respect to a contract with the state or a political subdivision thereof, in order to come within the prohibitions of this act, his personal interest must be of such substance as to induce action on his part in promoting the contract for his own personal benefit. In the following cases, there shall be deemed to be no conflict of interest which is substantial:

"(b) In respect to a contract between the state or any political subdivision thereof and:

"(i) a corporation in which a legislator ... is a ... director, ...;

"(iv) ... if the legislator or state officer does not solicit the contract, takes no part in the negotiations for or in the approval of the contract or any amendment thereto, and does not in any way represent either party in the transaction and if the contract is not with or authorized by the department or agency of the state or a political subdivision thereof with which the state officer is connected."

OAG, 1973-1974, No 4799, p 116, 119 (February 1, 1974), concluded that Act 318, Sec. 4, represents a "fair effort to explicate rather than restrict" the definition of "substantial conflict of interest" employed by the people in Const 1963, art 4, Sec. 10.

Section 4(b)(iv) was more recently reviewed in OAG, 1983-1984, No 6211, p 246, 255-256 (March 21, 1984), wherein it was concluded that:

"It follows that 1968 PA 318, Sec. 4(b)(iv), supra, must be read that no substantial conflict of interest in a contract with the state exists if a state officer is not with the state agency entering into the contract, even though the state officer may take part in the negotiations with the contracting state agency. No prohibited conflict of interest exists because the state officer's public duties do not extend to acting on behalf of the contracting state agency. This construction of 1968 PA 318, Sec. 4(b)(iv), supra, is consonant with Const 1963, art 4, Sec. 10 and in harmony with the manifest intent of the Legislature in its enactment of 1968 PA 318, supra...."

The application of Sec. 4(b)(iv) to state legislators was considered in the Letter opinion of the Attorney General [Rep. Teola P. Hunter (March 25, 1986) ]. The question addressed was whether a legislator who owns a day care services corporation or business would be in a substantial conflict of interest if the corporation contracts with the Department of Social Services for the provision of day care services. The opinion stated:

"In the case of a day care services corporation owned or controlled by a legislator or by doing business under an assumed name, the legislator, in negotiating and entering into a contract with the Department of Social Services, would not be in a substantial conflict of interest because the legislator, as part of the legislative branch of state government, has no duty to act and has not acted in the negotiations on behalf of the Department of Social Services."

The following caveat was set forth in the opinion:

"Contracts can, of course, only be entered into by state agencies with funds appropriated by the Legislature for that purpose. Sound public policy in my opinion, therefore, requires that any legislator financially interested in a contract with a state agency disclose that interest when voting upon appropriations for that agency."

Letter opinion of the Attorney General [Rep. David Honigman (March 13, 1987) ], stated that Act 318 does not prohibit a state representative from sitting on the board of trustees of two nonprofit corporations:

"A state representative serving upon the board of trustees of a charitable organization has no pecuniary interest in contracts or lobbying efforts entered into between the charitable organization and state agencies. However, the legislator may be called upon to vote on bills appropriating funds or grants to those state agencies contracting with the respective charitable organizations. In that event, the position of the legislator on the board of the charitable organization should be disclosed at the time of the vote."

It is my opinion, therefore, that a substantial conflict of interest does not exist where a state representative serves on a board of directors of a nonprofit health maintenance organization which receives revenues from the state under a Medicaid contract with the Department of Social Services. It is my further opinion that where the state representative is called upon to vote on appropriations for the Department of Social Services to fund the contract with the health maintenance organization, sound public policy requires that the legislator disclose the interest when voting upon the appropriation.

Frank J. Kelley

Attorney General


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