Ethics in Local Government: Elected Officials Serving On Nonprofit Boards

Photo of New Bern Board of Aldermen Meeting taken on March 22 2022
New Bern Board of Aldermen Meeting – March 22 2022 (photo by Wendy Card)

According to the North Carolina Center for Nonprofits, “On December 9, 2021, Governor Cooper signed S.L. 2021-191 into law. This local government transparency law added NCGS § 14-234.3, which requires local government elected officials who serve on nonprofit boards to recuse themselves from decisions to provide grants, contracts, or appropriations to those organizations. The new law took effect on January 1, 2022.”

During the New Bern Board of Aldermen Meeting on March 22, 2022, Tom Carruthers, Senior Assistant General Counsel with the NC League of Municipalities, reviewed the laws governing ethics for elected officials and answered questions related to the new law.

Before we review what was said, we asked Board members to provide the names of the boards that they serve on. Here’s the list:

Mayor Outlaw

– St Johns #3, Scottish Rite, Shrine Temple

Alderman Aster

– Friends of the Firemen’s Museum Board

Alderman Bengel

– Swiss Bear – ex-officio voting member

– C1A – ex-officio non-voting member

Government Boards:

– Tourism Development Authority – At Large member elected by the TDA members

– New Bern Craven County Library – member appointed by Board of Aldermen

– Hwy 17/64 Association – member appointed by Board of Aldermen

– New Bern Redevelopment Commission – ex-officio non-voting member

Alderman Best

– Pleasant Hill Community Association as treasurer

– M L King Outreach Ministry a member

Alderwoman Harris

– Young Urban Professionals of ENC – Co-Founder/ BOD

– Riverside Leadership Academy – BOD

– NAACP-Member

– Sigma Gamma Rho Sorority, INC – Member

Alderman Kinsey – None

Alderman Odham

– CarolinaEast Health Systems

– Craven 100 Alliance (C1A)

Government Boards:

– New Bern Area MPO

– Tourism Development Authority

Watch discussion here:

Here’s the transcript of the discussion and questions:

Mr. Carruthers: As of January 1, a new law came into effect…It is very common in North Carolina for elected officials to serve on boards of directors of nonprofit corporations that work to benefit the people. It’s never been a problem in conflict of interest analysis before January 1. And the reason is…when you serve on a board of directors of a nonprofit you are not paid. Because of some unfortunate situations…the law now says that that is a conflict of interest.

This applies whenever the elected is a director of the nonprofit, an officer of the nonprofit, or a governing board member of the nonprofit. The elected cannot deliberate, or vote, or seek to influence anyone else and to do so, is a crime. However, if the elected recuses, then the board can continue with the contract. And the vote to adopt, unlike the previous direct benefit, we just discussed, the vote can proceed and there is no  issue.

Let’s talk about the two conflicts of interest under Chapter 160 D, The land development use. For any vote under 16o D, has as a direct, substantial financial impact on (inaudible), which I think is this, in this instance would be on rezoning. And that’s a much higher standard than the personal financial interest, then you would not be able to vote.

Here’s the best example. If you need to have your land rezoned and you’re an elected official, you can’t vote on it. This is something I know that you already know. And you would never think that you would want to do because it’s not in the public interest. You can always vote on the comprehensive land use or the city-wide land use plan, because again, your interest is the same as anybody else who owns property in town. If you were to vote on the historic preservation matter, and it only benefits your property, that would be a substantial direct financial impact. But if you’re making a vote on the downtown business district, and you have (inaudible) building in the district, your interest is the same as everybody else who owns property in the district will not trigger the analysis.

The next item only applies to rezoning…And the law focuses on, when is the relationship with the person seeking to rezone too close. They can either be close familial relationships, close for business relationships, or close associational relationships. And that’s the wording of the statute. And the statute defines what the familial relationships are. They’re everything, their spouse, parent, child, brother, sister, grandparent, grandchild, half relations, step relations and in-laws. You can’t vote on your mother-in-law rezoning.

The law does not define what a close business relationship is, or a close association relationship. And again, that’s when you need to pick up the phone and talk to your attorney. But if it’s your business partner, I would argue that that is a close business relationship. Now, what are you missing? This is one of the final, what is a close associational relationship? Maybe, maybe not. But these are things that need to be discussed with your attorney as if it is necessary to discuss in public before it votes.

So how are you excused from voting? The method you use is exactly the method that is used throughout North Carolina. And it is not ever specified in absentia, it’s the common rule. You may or may not talk to your lawyer, you tell your board you have a conflict, and out of respect the board will excuse you from the (inaudible). Now, in 160 D, the state is not specific enough to give us some direction, and under 160 D, which is rezoning, if the elected believes they have a conflict, or if elected is alleged to have a conflict, then the elected declares whether or not the content exists, and then if the board disagrees, they can vote to overturn it, so just specify that 160 D has nothing to do with all the other body of the law in North Carolina 160 A.

The best way is to rely on your attorney and talk. I’ve had important discussions with elected at the time I representated them. Before the meeting, where they have come to my office, and we have talked and it’s given me time to reflect on their unique situation, and then finally make a decision. And what I’ve realized now is it’s always better even to disclose potential conflict, even if you don’t think it prevents you from running. Now, not every run of the mill is a small thing. But if you’ve thought about it, someone else is thinking about it. Don’t take the risk that a community member or colleague will accuse you of violating your ethical duties. What you should do is address it publicly if it’s a close call, because the courts will are willing to give the elected officials the benefit of the doubt. So, if you have a close call, and you discuss it on the record and reflect upon the minutes, and you make your decision with the advice of your attorney and your board supports, then the courts are going to typically give that great weight. And also, in this time of heightened tensions. It shows the public that you believe in transparency and you’re willing to have the tough discussions publicly. And I’m sure this board will do this simply…

8:52 – Alderwoman Harris: In regard to the new statute passed for nonprofits, last year the board decided to work on a nonprofit that I co-founded (inaudible). This year they decided to work with us again to utilize the firemen and things of that nature, I would have to recuse myself.

9:15 – Tom Carruthers: Correct for the law with if you’re a member of the board of directors or an officer of the corporation. All within that definition in the law requires you to recuse yourself, but the board can still move forward.

9:29 – Alderman Odham: Question, actually as to the nonprofit, so we as elected officials oftentimes get appointed to various boards, like an economic development board, for example on the city representative, I’m voting right on that board of directors. Can you clarify because there’s a lot of question throughout the community about what this new general statute covers.

9:52 – Tom Carruthers: And it’s not entirely all set button unless the nonprofit is formed by the state, it is going to fall within these definitions. Now I am aware of one legal opinion that says it has to really be a 501 (c)(3), which is, you know, a sub type of call because when you look at the statute, the wording is exactly the same as the IRS definition as the 501 (c)(3). But the law does not specifically address that. So that is exactly the type of opinion that your city attorney would need to render, because he has the statutory duty to provide legal advice.

10:36 – Alderman Odham: And just to clarify what you’re not supposed to vote on, it is for this governing body that funds that nonprofit, or is it any vote for the nonprofit because they receive funds from the government?

10:57 – Tom Carruthers: It affects the electeds ability to vote, once the elected has moved to the nonprofit role he’s no longer sitting as an elected, in my opinion, that law does not apply.

11:10 – Alderman Odham: Okay, so technically, I probably should not vote on our budget because our budget includes funding for the C1A. But I’m okay to vote with C1A board, because they received funding from the city.

11:23 – Tom Carruthers: That is correct. And your manager and your attorney to come up with very innovative ways to address the budget issue. I know one thing some towns are now talking about on the listserv, which is the chat rooms for the school is for there to be a set budget for nonprofit funding in the budget. But then after that the board votes individually on what nonprofits received what and when you would recuse if necessary.

11:55 – Alderwoman Harris: In your expert opinion, do you think it should be appropriate because it is the statute for all these representatives to disclose what boards they sit on because it is public record and would allow for constituents to know?

12:10 – Tom Carruthers: The law requires each town or city to adopt a code of ethics. And I have not reviewed your code of ethics.

12:18 – Alderman Bengel: Can I take that one step further? So, in many cases we are ex officios on boards and don’t necessarily have a voting status on a board because we started as ex officios because of our roles as elected officials. In that case is that?

12:38 – Tom Carruthers: Well, again, this is going to be where your attorney comes into play cause the wording of the statute says a member of the board or official board manager, you may have to look at the exact statute, it does not say ex officio. But query is ex officio member of the board as a non-voting, it’s a classic gray area…

13:55 – Mayor Outlaw: I’m a little puzzled maybe you can help me out. In the spirit of what you’re saying, how can we get a quorum together to pass a budget?

14:11 – Tom Carruthers: That’s when you have to rely on your manager and your attorney. Local governments are all talking about this because the budget is a complex problem. I think the recommended practice is to create a set asides in the budget that would go to nonprofits that have a specific vote on the board and to the nonprofit’s not an option for the actual budget. Because everybody needs to participate when you adopt a budget if possible.

14:42 – Mayor Outlaw: Are you saying that the way we do the budgets in the future we would amend this could you elaborate on what you’re saying?

14:51 – Alderman Bengel: I would say there’s two separate votes. The voting on the budget and a vote for the nonprofit.

14:56 City Attorney Scott Davis: Well, we would adopt your budget with a pool of would be called of nonprofit funds. And then subsequent to that you would vote to take that pot of money and fund specific nonprofits for each of you recusing yourself, depending on the nonprofit.

16:26 – Alderman Bengel: So as an in kind…so, you know, our annual Swiss Bear Mumfest, the city provides in-kind services, such as public works, or police, whatever and that it’s not a monetary figure. It’s that I don’t know if we consider that part of our budget, I assume, because the salaries and the overtime are all considered in a budget. And there’s that instance where we vote on the whole budget. So that will make it interesting this year, if you’re saying that in kind, would been treated as the same?

17:00 – Tom Carruthers: I’m just going to say it’s an interesting question that wasn’t fully thought out…

17:33 – Mayor Outlaw: How many of these individuals are we we’re going to be doing? (Inaudible.)

17:29 – Alderwoman Harris: It’s only three people that I think sit on the board that may be affected by the budget, so you still have a quorum to vote. But you there can still be a forum…So each one in the long run separately….Only because you have to officially ask the board to recuse you, the board has to vote to recuse you, and then they vote, and then you have to ask them to come back.

18:20 – Alderman Bengel: I’m going to make sure I understood you to say that you can’t participate in the discussion?

18:30 – It says that you should not participate in the deliberation.

18:35 – Alderman Bengel: And no comments can be made for or against?

18:41 – Mayor Outlaw: Is it a good idea that from what you’re saying from this and we’re on board in the future with transparency on board member sitting on the board or something then they in writing write out their position on the board and hand it to the clerk (inaudible) or just is all of this verbal or should be in writing or what? To say that I’m on a board that gets $10,000 (inaudible)…should I recuse.

19:08 – Tom Carruthers: It can be done either way. I just advise it be done to give a heads up to your attorney before the meeting. Because when you’re two hours into a meeting, it’s easy to make a mistake.

In case you missed it, we covered Ethics in Local Government: What Happens in a Closed Session in a previous article.

We hope this information was helpful. We are always looking for fellow citizens to cover topics like these.

Let us know if you’d like to get involved or if you have any comments or questions by sending an email.

Wendy Card, Editor