Overview to Conflict of Interest Laws
The following information was excerpted from Building Results through Organizational
Excellence: A Handbook about Organizational Development for California County Children and
Families Commissions, authored by Mike Smith of Social Entrepreneurs, Inc. for the Center for
As a public body, County Commissions must be very sensitive to the issue of conflict of interest.
Failure to adhere to conflict of interest rules can result in the overturn of decisions, penalties such as
fines and imprisonment for violating members, and damaging publicity within the local community.
Government Code section 87100 states that “no public official at any level of state or local
government may make, participate in making or in any way use or attempt to use his/her official
position to influence a governmental decision in which he/she knows or has reason to know he/she has
a disqualifying conflict of interest.” The Fair Political Practices Commission further notes that
“stripped of legal jargon, you have a conflict of interest with regard to a particular government
decision if it is sufficiently likely that the outcome of the decision will have an important impact on
your economic interests, and if the important impact on your economic interests is not also felt by a
significant segment of the jurisdiction.” The following information seeks to demystify the conflict of
interest laws. However, this information is only an overview and does not replace the need for
competent legal counsel on conflict of interest issues and understanding of the full text of the
applicable laws and regulations.
Overview of Conflict of Interest Laws
There are two areas of the California Government Code related to conflicts of interest that are of
particular importance to County Commissions:
Economic disclosure provisions under the Political Reform Act of 1974. The Political
Reform Act is set forth at Government Code sections 81000-91015, and Fair Political
Practices Commission regulations are contained in Title 2, Division 6 of the California Code
of Regulations. Of particular note are Government Code sections 87100 – 87350, which seek
to prevent conflicts of interests in two ways – disclosure and disqualification.
The financial disclosure rules are intended to alert public officials to personal interests that
might be affected while making governmental decisions, as well as to inform the public about
potential conflicts of interest. Each County Commission must adopt a conflict of interest code
that specifies the requirements for the extent to which each Commission member must
disclose their personal financial or “economic” interests. Disclosure is made on a form called
a Statement of Economic Interests (Form 700), which is available from the Fair Political
Practices Commission web site at www.fppc.ca.gov. The form must be filed each year. Filed
forms are public documents that must be made available to anyone who requests them.
If a Commission member has a conflict of interest with respect to any matter being considered
by the Commission, that member may be required to disqualify himself or herself from
making or participating in the decision, or in any way using their official position to influence
or attempt to influence a governmental decision. Specific guidelines to determine if
Commission members need to disqualify themselves from a particular issue are contained in
the next section.
Conflicts of interests in contracts. Government Code sections 1090 – 1091.5 specify that a
public officer or employee may not make a contract in which he or she is financially
interested. Any participation by the person in the process by which such a contract is
developed, negotiated and executed is a violation of section 1090. Unlike the provisions of
the Political Reform Act, an official cannot disqualify themselves from participation; the
contract simply cannot be executed. Any contract made in violation of section 1090 is void
and cannot be enforced. In addition, an official who commits a violation may be subject to
criminal, civil and administrative sanctions.
It is critical to note that in July 2001, AB 735 amended how Government Code section 1090
applied specifically to contracts executed by County Children and Families Commissions,
exempting Commissions from the conflict of interest in contract provisions as long as the
Commissioner or employee with the conflict stays completely out of all discussions and
voting related to the contract. Specifically, AB 735 added section 1091.3 to the Government
Code, which reads (emphasis added):
1091.3. Section 1090 shall not apply to any contract or grant made by a county children and
families commission, created pursuant to the California Children and Families Act of 1998,)
except where both of the following conditions are met:
(a) The contract or grant directly relates to services to be provided by any member of a county
children and families commission or the entity the member represents or financially
benefits the member or the entity he or she represents.
(b) The member fails to recuse himself or herself from making, participating in making, or in
any way attempting to use his or her official position to influence a decision on the grant
Steps to Determine if a Conflict of Interest Exists
The information contained in this section is derived from materials provided by the California Fair
Political Practices Commission and the California Attorney General’s office. Before getting into the
details, there are two overarching concepts to understand:
The conflict of interest laws most relevant to County Commissions apply only to financial
conflicts; that is conflicts arising from economic interests.
The most important proactive step that can be taken to avoid conflict of interest problems is
learning to recognize the economic interests from which conflicts can arise. No one ever has a
conflict "on general principles" – a conflict can only arise from particular kinds of economic
interests, which are explained below. If you learn to understand these interests and to spot
potential problems, the battle is mostly won because then you can seek help with the more
technical details of the law.
With these concepts in mind, two sets of guidelines are presented. The first set of rules can be used in
all situations to evaluate potential conflicts of interest, while the second set relates specifically to
contracts made by a public agency.
Guidelines for All Commission Decisions
Under rules adopted by the Fair Political Practices Commission (FPPC), deciding whether you have a
financial conflict of interest is an eight-step process. If you methodically think through the steps
(which are explained below) whenever you think there may be a problem, you can avoid most, if not
1. Are you a "public official," within the meaning of the rules? For all Commission members
and employees of the Commission, the answer is yes. The "tough cases" typically involve
consultants, investment managers and advisers, and public/private partnerships. If you have
any doubts, contact your agency's legal counsel or the FPPC.
2. Are you making, participating in making, or influencing a governmental decision? The
second step in the process is deciding if you are engaging in the kind of conduct regulated by
the conflict of interest rules. The conflict-of-interest rules apply to you when you:
Make a governmental decision (for example, by voting or making an appointment).
Participate in making a governmental decision (for example, by giving advice or
making recommendations to the decision maker).
Influence a governmental decision by communicating with the decision maker.
A good rule-of-thumb for deciding whether your actions constitute making, participating in
making, or influencing a governmental decision is to ask yourself if you are exercising
discretion or judgment with regard to the decision. If the answer is "yes," then your conduct
with regard to the decision is very probably covered.
3. What are your economic interests -- the possible sources of a financial conflict of interest?
From a practical point of view, this third step is the most important part of the law. The
conflict-of-interest provisions apply only to conflicts arising from economic interests. There
are six kinds of such economic interests from which conflicts can arise:
Business Investment. You have an economic interest in a business entity in which
you, your spouse, your dependent children or anyone acting on your behalf has
invested $1,000 or more.
Business Employment or Management. You have an economic interest in a
business entity for which you are a director, officer, partner, trustee, employee, or hold
any position of management.
Real Property. You have an economic interest in real property in which your spouse,
your dependent children or anyone acting on your behalf has invested $1,000 or more,
and also in certain leasehold interests.
Sources of Income. You have an economic interest in anyone, whether an individual
or an organization, from whom you have received (or by whom you have been
promised) $250 or more in income within 12 months prior to the decision you are
concerned about. When thinking about sources of income, keep in mind that you have
a community property interest in your spouse's income--a person from whom your
spouse receives income may be source of a conflict of interest for you, too. Also keep
in mind that if you, or your spouse or your dependent children, own 10% of more of a
business, you are considered to receive "pass-through" income from the business's
clients--in other words, the business’ clients may be considered sources of income to
Gifts. You have an economic interest in anyone, whether an individual or an
organization, who has given you gifts which total to $300 or more within 12 months
prior to the decision you are concerned about.
Personal Financial Effect. You have an economic interest in your personal expenses,
income, assets, or liabilities, as well as those of your immediate family--this is known
as the "personal financial effects" rule. If these are likely to go up or down as a result
of the governmental decision, then it has a "personal financial effect" on you.
On the Statement of Economic Interests (Form 700) filed each year, many of the economic
interests that could cause a conflict of interest are disclosed. However, be aware that not all of
the economic interests that may cause a conflict are listed on the Form 700. A good example is
your home; it is common for personal residence to be the economic interest that triggers a
4. Are your economic interests directly or indirectly involved in the governmental decision?
An economic interest which is directly involved in – and therefore directly affected by -- a
governmental decision creates a bigger risk of a conflict of interest than does an economic
interest which is only indirectly involved in the decision. The FPPC has established specific
rules for determining whether each kind of economic interest is directly involved in a
governmental decision or not. The details of these rules are beyond the scope of this guide,
but one general note is that decisions that impact business entities, sources of income and
sources of gifts are always considered to be directly involved. Consult the rules themselves as
each case arises.
5. Is the financial impact on your economic interests important enough to trigger a conflict of
interest? At the heart of deciding whether you have a conflict of interest is a prediction: Is it
sufficiently likely that the governmental decision will have a material financial effect on your
economic interests? As used here, the word "material" means important. You will have a
conflict of interest only if it is reasonably foreseeable that the governmental decision will have
an important impact on your economic interests. The FPPC has adopted rules for deciding
what kinds of financial effects are important enough to trigger a conflict of interest; these rules
are contained in California Code of Regulations sections 18705.1 – 18705.5. These rules are
called "materiality standards," that is, they are criteria or guidelines for judging what kinds of
financial impacts resulting from governmental decisions are considered material or important.
There are different sets of standards for the different types of economic interests. That is, there
is one set of materiality standards for business entities, another set for real property interests,
etc. There are too many of these rules to review here, so consult the regulations directly for
6. Does a conflict result - is it substantially likely that the governmental decision will result in
one or more of the materiality standards being met for one or more of your economic
interests? The heart of the matter is deciding whether it is sufficiently likely that the outcome
of the decision will have an important impact on your economic interests. What does
"sufficiently likely" mean? Put another way, how "likely" is "likely enough?" The Political
Reform Act uses the words "reasonably foreseeable." The FPPC has interpreted these words
to mean "substantially likely." This is a judgment call: the likelihood need not be a certainty,
but it must be more than merely possible. That which must be substantially likely is a material
financial effect on one of your economic interests. A concrete way to think about this is to ask
yourself the following question: Is it substantially likely that one of the materiality standards I
identified in step five will be met as a result of the government decision I'm concerned about?
Step six calls for a factual judgment, not a legal one. You must look at your economic interest
and how it fits into the entire factual picture surrounding the decision.
7. If you have a conflict of interest, does the public generally exception apply? Or is the
conflict disqualifying? Not all conflicts of interest prevent you from lawfully taking part in
the government decision at hand. Even if you otherwise have a conflict of interest, you are not
disqualified from the decision if a significant part of the community is substantially likely to
feel essentially the same impact from a governmental decision that your economic interests
are likely to feel. The "public generally" exception must be considered with care. You may
not just assume that it applies. There are specific rules for identifying the "specific segments"
of the general population with which you may compare your economic interest, and specific
rules for deciding whether the financial impact is "substantially similar."
8. Even if you have a disqualifying conflict of interest, is your participation legally required?
In certain rare circumstances, you may be called upon to take part in a decision despite the fact
that you have a disqualifying conflict of interest. This "legally required participation" rule
applies only in certain very specific circumstances where your government agency would be
paralyzed from acting. You are most strongly encouraged to seek advice from your agency
legal counsel or the FPPC before you act under this rule.
If, as a result of the eight-step process you determine that a disqualifying conflict of interest exists, you
are required to publicly disclose the conflict (e.g. through an announcement in a public meeting that is
recorded in the minutes) and then abstain from any and all participation in the matter. Remember, the
law states that a public official cannot “make, participate in making or in any way use or attempt to
use his/her official position to influence a governmental decision in which he/she knows or has reason
to know he/she has a disqualifying conflict of interest.”
As noted earlier, in 2001 AB 735 amended how Government Code section 1090 applies to contracts
executed by County Children and Families Commissions. As a result, the laws regulating conflicts of
interest in contracts will not apply to contracts executed by the Commission as long as the person with
the conflict recuses himself or herself from making, participating in making, or in any way attempting
to use his or her official position to influence a decision on the contract.
Regardless of the amendments passed by AB 735, other provisions in the Government Code exist to
allow a public body like a Commission to enter into a contract when the nature of the financial interest
of a member is classified as a “remote interest” according to the law or is clearly specified as a “non-
interest” that is exempt from Government Code section 1090. Without getting into a detailed
discussion of these terms, applying the provisions of law to common situations faced by Children and
Families Commissions, a county employee who serves as a Commission member would need to
disqualify themselves from involvement in a contract that would benefit his or her department in the
county (a “remote interest”) but could participate fully in decisions that could impact funding for
county programs other than the department that employs the person (a “non-interest”). The Board of
Supervisor’s representative on the Commission is not considered to be in conflict over a contract with
a specific county department because they supervise all the other county departments.
A special note is needed regarding the formation of the county strategic plan. If the strategic plan
identifies individual organizations or even indicates the types of organizations that are to receive
specific amounts of funding under the plan, then participating in the development of the plan when a
financial interest exists would be considered a conflict of interest since it can be viewed as a
contemplation of a contract. If the strategic plan is broad in its description of fund allocation (not
naming specific organizations or groups of organizations) or if no Commission member has a
financial interest in any organization or group named as intended recipients of funds, no conflict of
Guidelines for Preventing Conflict of Interest Problems
At the risk of being redundant, it is impossible to even begin to cover all of the rules and possible
situations that may be encountered related to conflicts of interests. All Commission members and
staff are strongly encouraged to err on the side of caution, obtaining expert advice any time there is a
remote possibility of a conflict of interest. There are, however, a few common sense steps that can be
taken to prevent problems with conflicts of interest.
Educate all Commission members and staff on conflicts of interests. Make sure the
Commission has adopted a formal conflict of interest code, then train all Commission
members and staff on the code and the provisions of the law during their orientation.
Continue to hold periodic discussions on the matter, such as an annual refresher workshop
offered for the benefit of all members and staff.
Call for conflict of interest disclosures before considering any question that involves
funding or a contract. Be proactive in recognizing which public meeting agenda topics could
involve discussions that relate to economic interests, and ask during the meeting whether any
member has a conflict of interest to disclosure before beginning discussion on the topic.
Properly announce and document all disclosures. Make sure all disclosures are clearly
announced in a public meeting and recorded in the official meeting minutes.
Get help if there are any questions. Ask your County Counsel or other local legal support if
you have any questions about a particular situation. For questions involving provisions of the
Political Reform Act, the Fair Political Practices Commission operates a technical assistance
hotline that can be accessed by calling (916) 322-5660.
By understanding the law and diligently adhering to the provisions of the law, County Commissions
can avoid damaging situations with conflicts of interest.