As part of a larger project, the Fair Political Practices Commission adopted language amending the set of regulations that identify the standards for determining what constitutes a material financial effect of a public official’s conduct or decision with respect to interests in business entities. (Title 2, California Code of Regulations sections 18704.1 and 18705.1)
To determine whether or not a conflict of interest exists, the FPPC sets an analytical process in place. Once it is determined that a public official, participating in a governmental decision, has a statutorily defined economic conflict of interest, the question becomes whether that interest is directly involved in the governmental decision. From there, the analysis focuses on whether or not it is “reasonably foreseeable” that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official’s economic interest.
Notably, materiality depends upon the financial effect, if any, on the business entity, rather than any benefit to the official. The Commissions prior regulations regarding business entities was a cumbersome numbers game based upon a threshold, which, if breached, meant that the effect on the official’s business interest was material. For example, if the business entity is listed in the Fortune 500, then the financial effect of the government decision on the business entity is material only if it is reasonably foreseeable that the government decision will impact the business entity in the amount of $10 million or more.
The newly adopted language does away with numerical thresholds in favor of identifying decisions that will “automatically trigger” a finding of materiality. Examples of such triggering decisions include where the business entity offers to make a sale of a service or product to the official’s agency, the business entity bids on or enters into a written contract with the official’s agency, and where the business entity applies for a permit, license, grant, tax credit, exception, variance or other entitlement that the official’s agency is authorized to issue.
All other decisions will be subject to a test of “sufficient magnitude” to determine whether a decision will affect an adjustment in the value of the business entity: 1) with respect to investment interest under Regulation 87103(a); or 2) will factor into an official’s unbiased decision by creating a recognizable advantage or disadvantage for a business interest in which the official has an interest as identified in Regulation 87103(d).
According to the Commission’s website, these amendments will take effect on Jan. 14.
