A dangerous conflict-of-interest loophole

It is – or should be – obvious that a government official should not have a personal financial stake in his or her decisions.

In fact, one of the first laws passed by the Legislature after California became a state in 1850 was to prohibit such conflicts of interest, and currently, Government Code Section 1090, makes it a crime.

Dozens of state and local officials have wound up behind bars in recent decades for violating Section 1090 and other state and federal corruption laws by using their positions to line their pockets, including several legislators and the former top executive of the California Public Employees Retirement System.

That history should make us suspicious of any attempt to punch loopholes in Section 1090, as Assembly Bill 626 would do.

The state Fair Political Practices Commission and the courts have in some instances decreed that the conflict-of-interest prohibitions apply not only to elected and appointed officials, but some government contractors.

If, for instance, a city hired an architect to study the feasibility of constructing a new municipal office building, the architect could be prohibited from involvement in the subsequent construction contract.

The state Supreme Court, in a 2017 ruling, formalized the potential application of the law to contractors, saying, “We conclude that independent contractors are not categorically excluded from section 1090. Liability under the statute can extend to independent contractors who have duties to engage in or advise on public contracting.”

AB 626, carried by Assemblywoman Sharon Quirk-Silva, a Democrat from Buena Park, would carve out an exemption from the law for engineers, geologists, architects, landscape architects, land surveyors and planners.

It’s sponsored by their professional trade associations on the assertion that subjecting them to conflict-of-interest laws has become increasingly common in recent years but is unfair and deprives the public of their services.

It’s opposed by Associated General Contractors of California and other construction business groups, contending that an exemption would give the targeted professions an unfair advantage in obtaining contracts from governments that hired them originally for advice.

This week, Quirk-Silva attempted to mollify the critics by denying the exemption for any design-build projects in which one contract covers both the design and the construction.

Superficially, Quirk-Silva’s bill appears to be relatively benign, but history indicates that such exemptions could open a door best left closed.

Not only has California seen a spate of pocket-lining corruption scandals in recent years, but local public works projects are particularly susceptible to insider dealing.

One example, prior to reform legislation three years ago, was “lease-leaseback” contracting for school buildings to skirt competitive bidding requirements.

Typically a school district proposed a bond issue, a favored contractor donated campaign funds to get it passed, and district officials then provided land for the contractor to build a school with a long-term lease on the facility. However, once the project was completed, the district would cancel the lease and use the bond money to pay off the contractor and take ownership of the school.

California is a very big state and its state and local governments spend many billions of dollars each year to build and expand public facilities, from schools to highways to parks to water systems. With such huge stakes, everyone in the construction industry wants a piece of the action, which is why we must have strict and strictly enforced safeguards for the integrity of the bidding process.

If some professionals gain exemptions from Section 1090, it’s certain that others would seek such treatment for themselves and a tiny loophole could become a yawning invitation to miscreants.