Attorney General Opinion JM-0178

JIM MAnOX Attorney General BUpIW7 P. Atntln. TX. 70lll- 2548 512/4752501 Telex 9lwEl711567 Tdwo~lor 5W475.0288 714 Jackson. Suit. 700 oallaa, TX. 752024506 214il42a44 4824 AlberM Avr. Buna 1w El Paso. TX. 7WO527W 01- 200 MaIn PIUL suna 400 Ban Antonlo. TX. 7Bm527w 512G254181 An Equal oppwtunlty/ Aftlmutlva Actton Empkwr The Attorney General of Texas June 22, 1984 Honorable Carl A. Parker c!-irun Senate Eduutha Codttee 'Texae State 8enate P, 0. Box 12068. Capitol Station ~Austln, Texu 78711 , Opioio~ NO. JM-178 Ile: Whether au officer of banklug inetitution who eerv am a member of the board of higher education authority eubject to article 988 V.T.C.S. Dear Senator Parker: You have .a&d the following two quutimcr relating to the bi frequently-referred to ae the Local Offlciale Conflict of Inter Bill: ,(l) Ia ac offlclal of a .backlcg inetitutlon l e~iog.ae a member of the board.:of dlrectora of a hlgber ,,..educatioa authority a 'local public .offlckl! under the.prwimlone of article 988b. j 7.T.C.S.T.~ .' ., 3r. (2) If eo, and if the financial lnetltutlon ,i yit~+tlch+qch~,boatd member 1~ meociated. or aa .>:'rqp .I ~~fl&i+~e~,~~laatltatlon~ acb am :1 I back, aolding -~'t ,- ~-. ( 2 c: .> $?qfmY~ $ ,av- t+.-makee::m :etudent:,.- ~loace ! :, >Ti I,)' 7 ,,;sutnnteca.~b~'il~hipher ~edacu:oa~cothorlty; .doee euch board member then vioIate the prwieione of ..,II •~~~1~,,,~988b .br~, particlpatlag In a vote or ..$e@eIpIL of.tha board .of dlrectoro If hla back or .,,filuncia~ lnetitutloca ~::~affillated therevith recelvea..ln~ereet..:Ancome '011 l n.~:eligible etudect $oan o~/procecde peld in the ,weat of default oc euch loan frao,,tho <guaraatee .fuad of the higher education l utborlty? He con&de that r-member of the board of directore of a high l ducatloc .aiihorlty ie l local.public official uithia the maniag the Local Officiala Zocflict of Intereat Bill and. therefore. subject to the applicable provieione of the act. It ie our opin thet a board member ufth a l ubetantial interest in a lend lcetltutloc vlolatee the urovleiono~ of thet act bv knovlc If Honorable Carl A. Parker - Page 2 (JIG178) participating in a vote ore decision of the board of directors if the member caa reasonably foreecc that such action vi11 result In receipt of Interest incolleeto the lending Institution from eligible student loans. Section l(1). article 988b. V.T.C.S. defines a "local public official" as* . a member of the governing body or another.offlcar. whether elected o t l ppolated, paid ot unpaid. of any district (lncludlnS e school district), -U-Y. city. precinct, central l ppralaal diatrlct. transit authority or district. or other local gave-ntal entity UhO' exercl8ee reaponsibilitiee beyond those that are advlaory ln nature. A higher education authority Is craated under chapter 53 of the Texas Education Code by the governing body of a city or cities. Sec. 53.11. .An -authority Isa "body politic .and corporate" which may sue and be cued and may Uke. rrcnd. aad repeal its bylaws. Sec. 53.13. It is a governmental body mhlch is subject to the Cpen Meetings Act, article 6252-17. V.T.C.S.. and to the Open Records Act, article 625247a. V.T.C.S. 'See Attorney General Opinion IfW-177 (1980). It %e a local .gove-ntal: entity vhlch is governed by ltn board of ~dltectora. Sec. 53.14. A member of -such 'a board clearly exercises reeponalbUltlea beyond thorn8 that are advisory in nature and is subject to tha provialoas in article 988b vrhlch prohibit certain conduct. -~: .A.~ .local~publlc-@rofflcial c&to a Claaa A tiedemeanor under .section:S(a)@) of l rt4cle 9SSb, ciecpt'ln those lnmtances prwidad.ln 'rection b~~-(~ich:-pn*~ldes'~~tar~~al~ for ~ibmtcntioa frop voting on utt~~wh&ivthe~&ffclaf la &atercsted) 3f he knwingly ._ c, ,. .~,.. partldpatea' ina'vote or 'dedision on a Utter invoWing ~.a bualnees entltp in ~whlch the local . publio iofficial.haa ‘a aubstaatlal interest If it is reaaonably~'foreseaable 'that 'an ~actlon on the rtter ~vould confer an 'ecoiioric .beneflt to the business entity iaoolved . . . . The elements of the offenae involve aeveral factual determinations. one of.uhich is vhethcr a local public official has a l ubstaatlal interest In the business entity. Under eection 2 of the act. a pereon has a oubstantlal Interest In a business if: (1) the lntercrt Is ownership of 10 percent or lora of the votluS stock or shares of the business p. 780 Honorable Carl A. Varker - Page 3 (J&178) entity or ownership of $2.500 ot ore of the fair rrket value of the business entity; or (2) :fuade received by the pereou from the ..bueineee eutlty: e.xceed,10~percent of,the person's gross lncoms for the previous yeet . . . . AIao. ao Interest of a peraon releted la the first or second degree by either affix&y or coneanguinlty to the local public official is a "eubetmtlal~lntereet."~ Sec. 2(c). ..::'+ ,. .~~,~~.loca.public offlclal must knowingly participate in a vote or d&i&m 'ou 'a' ratter .prohlbited by article 988b to violate the provlaiona of.tbat act. Section 3(a)(l) appears to refer to aa actlou ou a,.~eatter if .it ie .~reaeouably foreseeable that the action will coafer s l conoeic benefit to the business entity in queetloa, regardleer of the source or the emouat of ecouomic beaeflt. The student higher l ducatiou loaae in question usually are made by private leading inetitutione at interest ratee 'lover than the geuerally avaiIable rates. We understand that until the loan is in pay-back etatus, the holder of the loan recelvee from the federal gwe-t aa lntereet subsidy payment for the facial emouot of the interest plus a variable leaders l peclal l llmemce that brings the interest lucoms up to the regular market level of Interest. When the loan is la pay-back etatue. the student borrower pays the Interest eubeidy payments ou reeainlug unpaid balances. and the federal gwenmeet cootlnuee payment of the lenders epecial allovauce. In case of default, the higher education authority ~guaraateeing tha loan pays the l tudent'e unpaid principal and intereat. We believe that the interest income to a lending Institution that it receives l o the holder of a guaranteed atudeat loau constitutes au l couoeic benefit within the meealng of article 988b. Therefore, l eeuelug t&t a mmber of the board of directore of a higher l ducatlou l uthotity has a "eubetantlal interest" in a leading lnetltutloe. ve believe the hoard member vioIatee the provieioue of article 988b ff the member kwvlmgly pattlcipatea In a vote or decision of the board vhea the member can reasonably foresee that euch action vlll result la the leodiog inetltutiou receiving lnteteet iacorc oe eligible l tudent loaae or receiving any other eccmmic benefit from the higher education authority's student loan program. SUHMARY A camber of the board of directors of a higher education authority is a public official vithin the eaaning of article 988b. V.T.C.S. Such a hoard member with a aubetantiel iatereet in a p. 789 Honorable Carl A. Parker - Pa&e 4 (JH-178) lending inetitution vlolatee that act by knwingly participatiag la a vote or declelon of the board of directors if the Prober can reasonably foresee that such action wL:ll reeult in Interest Income to the lending inetltstion from guaranteed student loeae. Verytrulyyou J k fk JIM WATTOX Attorney General of Texee TOM GREEN First Assistant Attorney General DAVID R. RICRARDS Executive Assistant Attorney General Prepared by Nancy Sutton Aeeisteut Attorney General APPRGVRD: Rick Gilpln. Chaimea David Brooke Colln Carl Swan Garrieoo JlmHoelIlnger Nancy Sutton p. 790