Request By:
Mr. Russell R. McClure
Secretary
Executive Department for
Finance and Administration
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Capital Plaza Authority, under KRS 58.215(1), is composed of five members: The Governor, Secretary of the Executive Department for Finance and Administration, the Attorney General, and a city member and a county member appointed by the mayor of Frankfort and the Franklin County Judge respectively. These five (5) persons are a body corporate constituting a public corporation and governmental agency and instrumentality of the Commonwealth.
Within the Capital Plaza Complex is the Fountain Square Shopping Center, consisting primarily of small retail specialty stores. Approximately four years ago one of these stores was leased for a two year term to Mrs. Ruby Burch, who does business as "Burch Interiors." At the expiration of her original two year lease term, Mrs. Burch renewed her lease for an additional two year term. The first renewal term of Mrs. Burch's lease has recently expired and it is assumed that she plans to renew it since she is continuing to do business there.
About a year ago, Mrs. Burch was appointed by the Mayor of Frankfort to serve as the city's member on the Capital Plaza Authority.
Your question: Does Mrs. Burch's membership on the Capital Plaza Authority while simultaneously holding a tenancy under the Capital Plaza Authority constitute a conflict of interest or a violation of any conflict of interest statute or rule of law? Generally, the answer is "no".
As pointed out above, the Capital Plaza is a state governmental agency and instrumentality of the Commonwealth. Since the state members constitute a majority, the Authority is under the direction and control of the central state government. There is nothing in the statutes [KRS 58.210 et seq.] prohibiting Mrs. Burch from serving, as a lessee, on the Authority. Cf. KRS 58.310, prohibiting an officer of the Authority from having an interest in the sale or purchase of any bonds of the Authority. Actually, as you know, the Capital Plaza project was constructed under bonds issued by the State Property & Buildings Commission. Note that a lease may be executed by the Authority to any citizen or person. KRS 58.210(8) and KRS 58.220(5). No restrictions on this broad concept are mentioned.
It is well established that administrative functions of a board may be vested in interested persons. 1 Am.Jur.2d, Administrative Law, § 60, p. 857. Kentucky recognizes this principle, for in Kentucky Milk Mktg. & Anti-Mon. Com'n v. Borden Co., Ky., 456 S.W.2d 831 (1970) 838, the court wrote that "the fact that an administrative agency may be composed of private persons and even persons interested in the subject to be regulated will not make the appointment of the board invalid." The court said that many times in the makeup of a commission it is desirable to get those people who have a particular interest in the field in which they are to work. The National Rail and Adjustment Board is composed of representatives of railroads and unions. This was held not to violate due process. Slocum v. Delaware, L. & W.R. Co., 339 U.S. 239, 70 S. Ct. 577, 94 L. Ed. 795 (1950). As Mr. Justice Black in the latter case wrote, "Its (the board's) members understand railroad problems and speak the railroad jargon. Long and varied experiences have added to the Board's initial qualifications." Here the Supreme Court of the United States, in its constitutional and pragmatic wisdom, explicitly recognized the principle that administrative boards can well use the perspective and accumulated experience of persons who have some interest in the subject to be regulated.
However, the broad principle is subject to one basic reservation. The board membership should not be permitted to function such that self-dealing by one of the members emerges. Public policy, in the absence of an express statute, would not permit self-dealing. Norrell v. Judd, Ky., 374 S.W.2d 192 (1964) 193. KRS 61.096(4) provides in effect that no officer of any state agency shall, as a member of the functioning board or agency, transact business with himself or herself.
In general, we are of the opinion that Mrs. Burch's membership on the Capital Plaza Authority, while being at the same time a tenant of the Authority, does not constitute a conflict of interest or a violation of any conflict of interest statute or rule of law. However, it is our opinion that when the Authority deals with matters relating to her own lease, she should not participate in the proceedings of the Authority on that question.
See OAG 70-135, copy enclosed, of related interest.