KAMALA D. HARRIS Attorney General ANYA M. BINSACCA Deputy Attorney General AGO 12-409 No. 12-409 California Attorney General Opinions Office of the Attorney General State of California January 28, 2016 THE HONORABLE MICHAEL HESTRIN, RIVERSIDE COUNTY DISTRICT ATTORNEY, has requested an opinion on the following question: Does Government Code section 1090 prohibit an arrangement under which a contract city attorney's compensation for providing the city with additional "bond counsel" services is based on a percentage of the city's bond issuances? CONCLUSION Government Code section 1090 prohibits an arrangement under which a contract city attorney's compensation for providing the city with additional "bond counsel" services is based on a percentage of the city's bond issuances. ANALYSIS Cities without sufficient legal work to support the employment of a full-time city attorney often contract with a private attorney to perform city attorney legal services at an agreed-upon rate.1 We are informed that many such contract city attorneys include in their services contracts a provision that, should the city issue bonds2 during the contract period, the contract attorney will also act as "bond counsel" for the city and be paid a percentage of the bond issuance for providing such services.3 We are asked whether such an arrangement violates Government Code section 1090, which dictates that specified public officials, including "city officers or employees[,] shall not be financially interested in any contract made by them in their official capacity."4 While the term "bond counsel" lacks a universally accepted meaning and may be used in a variety of ways,5 we do not believe the precise nature of the work performed is determinative for purposes of analyzing the question posed. What matters is that the lawyer in question is a contract city official who will be paid for his or her bond services only if the city issues bonds, and will be paid more if the bond issuance amount is higher. Is such a compensation scheme permissible under Government Code section 1090? For the reasons that follow, we conclude that it is not. Government Code section 1090 Government Code section 1090 (section 1090) codifies "[t]he truism that a person cannot serve two masters simultaneously."6 It "was enacted to insure that public officials 'making' official contracts not be distracted by personal financial gain from exercising absolute loyalty and undivided allegiance to the best interest of the entity which they serve, and at least with respect to those contracts, it does so by removing or limiting the possibility of their being able to bring any direct or indirect personal influence to bear on an official decision regarding them."7 In analyzing a conflict question under section 1090, we must first ascertain whether the individual at issue is a public official—such as a city officer or employee— covered by section 1090. In this instance, we readily conclude that a city attorney is a city officer,8 whether he or she is employed by the city directly as a full-time city attorney, or a private attorney hired to perform that function by contract.9 As we have previously observed, the Legislature, in amending section 1090 to apply to employees in addition to officers, "intended to apply the policy of the conflicts of interest law . . . to independent contractors who perform a public function and to require of those who serve the public temporarily the same fealty expected from permanent officers and employees."10 Thus, private attorneys hired by contract to work as city attorneys are subject to section 1090's anti-conflict restrictions.11 The question then becomes whether the contract city attorney, who has become a city official by virtue of his or her services contract with the city,12 improperly participates in the making of another contract in which he or she is financially interested when providing bond counsel services contingent on the city's issuance of bonds. To answer this question, we must determine (1) whether the city's bond issuance is a public contract, (2) whether performing bond counsel legal services constitutes the "making" of such a contract, and (3) whether the city attorney's existing legal services contract with the city, which provides that the attorney is to be paid based on a percentage of the bond issuance amount, confers on the attorney a prohibited financial interest in the contemplated bond issuance contract. City bond issuances are public contracts We first consider whether a city's issuance of bonds amounts to a contract within the meaning of section 1090. "In determining whether a contract is present for purposes of the statutory prohibition, we apply traditional contract principles."13 At its most basic, "[a] contract is an agreement to do or not to do a certain thing,"14 and the elements of a contract are capable parties, their consent, a lawful object, and sufficient consideration.15The selling of bonds satisfies these elements. Cities may authorize the issuance of bonds,16 and the bonds may be sold at public or private sale.17 A bond forms a contract when the buyer pays for the bond that the issuer delivers. The bond is the issuer's contractually enforceable promise to make payments as set forth in the bond. Courts have accordingly construed the issuance and delivery of bonds as a contract18 and subjected them to the general rules applicable to contracts, such as the prohibition against impairment of contract.19 Thus, we conclude that bonds are public contracts upon issuance and therefore subject to the strictures of section 1090. Participation in the "making" of the bond contract Would the contract city attorney hypothesized in this question be involved in the making of that contract? We believe so. The "making" of a contract is interpreted broadly in the context of section 1090. As our Supreme Court has observed, "we are not here concerned with the technical terms and rules applicable to the making of contracts. The Legislature instead seeks to establish rules governing the conduct of governmental officials. In this sense, is an act done or an agreement 'made' only when the final, objective affirmation is communicated? It is true that no rights and duties accrue and no contract is technically made until such time, but the negotiations, discussions, reasoning, planning and give and take which goes beforehand in the making of the decision to commit oneself must all be deemed to be a part of the making of an agreement in the broad sense."20 Because a city attorney "advise[s] city officials in all legal matters pertaining to city business"21 and the services contract in this example contemplates the city attorney providing "bond counsel" services, we believe that he or she would be involved in the "preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans and specifications and solicitation for bids"22 surrounding the bond issuance and, therefore, would be participating in the making of that public contract within the meaning of section 1090. Financial interest Turning now to the question of financial interest, we find that interest evident, even inherent, under the described contingent arrangement. Contrary to the urging of several commenters, the contract city attorney need not be a party to the bond contract for section 1090 to apply. "A public officer need not acquire an interest in a contract (as in the case of self-dealing) or share in the contract's profits to come within the Government Code section 1090 proscription."23 Rather, an official "has an interest the moment he places himself in a situation 'where his personal interest will conflict with the faithful performance of his duty as trustee.'"24 As with other terms and elements of the statute, "the term 'financially interested' in section 1090 cannot be interpreted in a restricted and technical manner."25 "The defining characteristic of a prohibited financial interest is whether it has the potential to divide an official's loyalties and compromise the undivided representation of the public interests the official is charged with protecting."26 "Put in ordinary, but nonetheless precise, terms, an official has a financial interest in a contract if he might profit from it."27 Under this broad definition, the city attorney here is financially interested in the bond contracts. The attorney will be paid only if the bonds issue, and the attorney will be paid correspondingly more for a larger bond issuance, thereby giving rise to a temptation to influence the bond issuance process in a way that would maximize his or her compensation—even if the issuance of bonds, or the issuance of a larger amount of bonds, may not be in the city's best interest.28 This is precisely the kind of financial motive that section 1090 seeks to prevent. Our finding of a financial motive under these circumstances comports with our earlier opinion in 66 Ops.Cal.Atty.Gen. 376 (1983).29 There, a city proposed to hire by contract a team of three individuals: a redevelopment agency consultant, a redevelopment agency financial officer, and a city attorney (who would also fill the roles of city administrator and redevelopment agency counsel). The team would be paid based on the potential increase in value of parcels within the redevelopment agency's boundaries.30 We found that the proposed arrangement would violate section...
