Board Member Financial Interest: Mapping the Points on the Continuum

We say it until we’re blue in the face: municipal and county governing board members have a duty to vote. There is no authority to abstain, or to be excused for a mere “appearance of impropriety.” Instead, state law is specific about when members can be excused from voting. Previous blog posts about these statutes are here, and here. Most often, questions about voting center around a board member’s financial interest in a matter that comes before the board. Municipal and county governing boards make lots of decisions that affect citizens’ pocket books. Governing board members are citizens too. Clearly, members can’t be excused from voting on every decision that affects them financially to any extent. There would be no one left to vote on some matters. How should a board determine which financial interests are sufficient to allow, or require, that a board member be excused from voting? A common approach is to consider the different types of financial interests as lining up along a continuum: that is, along a line which has, at one end, a situation in which the board member is affected in the same way as all other citizens (such as, when voting on the property tax rate), and on the other end, a situation where the board member is the only person affected (such as, when the matter involves only the board member’s property or business and no one else’s). Of course, most of the situations boards face fall somewhere in between these two extremes. In addition, due process requirements and statutory voting provisions affect the standard to be applied, depending upon the nature of the matter that is the subject of the vote. This blog post summarizes the standards that apply to different types of issues that boards face, and suggests some factors to consider in reaching a conclusion about what constitutes a matter involving a board member’s financial interest.

What’s the question being voted on and what standard applies? When there is an issue about whether a board member may or must be excused from voting, the first thing to determine is what type of matter is involved. Specific statutes govern the standard that should be applied, depending upon the nature of the matter that is before the board for a vote.  Some of these standards focus on financial interest, but others deal with additional requirements to meet due process requirements for impartial decision-making. Here is a short list that will help identify what standard applies to the question of whether a person can vote on a particular matter: 1. If the matter involves a legislative land use matter (such as a rezoning or text amendment) the standard is: board member shall not vote where the outcome of the matter is reasonably likely to have a direct, substantial, and readily identifiable financial impact. See, G.S. 160A-381(d); 153A-340(g). 2. If the matter involves a quasi-judicial function (such as the issuance of a special use permit or an appeal of a personnel decision), the standard is: board member shall not participate or vote if they have a fixed opinion (not susceptible to change) prior to the hearing, undisclosed ex parte communications, a close familial, business, or other associational relationship with an affected person, or a financial interest in the outcome. See G.S. 160A-388(e1); 153A-345(e1). 3. If the matter involves a contract from which the member, or the member's spouse, derives a direct benefit (this only comes up if the contract is allowed under an exception to the statute), the standard is: the board member is prohibited from participating or voting. G.S. 14-234(b1). 4. For all other matters that come before the governing board for a vote, the standard is: the board member may be excused from voting if the matter involves the member’s own financial interest or official conduct. G.S. 160A-75; 153A-44 (hereinafter, the “general voting statutes”). The general voting statutes specifically acknowledge a conflict under any of the other three statutes as grounds for being excused. Note that each of the first three specific statutes prohibits the member from voting, whereas the general voting statutes appear to be permissive. Please see my earlier blog post for a discussion about what that might mean, and what process might be used to determine when a person is excused. In addition, note that the first three standards apply to any type of board, but the general voting statutes apply only to city and county governing boards. Other boards should apply the same standard, as it reflects common law conflict of interest principles. A final observation is that the only time relational (as opposed to financial) conflicts are considered is in the quasi-judicial setting. Although personal or business relationships often raise concerns of bias, there is no authority to consider them as grounds  for being excused under the general voting statutes. How does North Carolina case law define financial interest? North Carolina courts have often ruled on matters involving conflicts of interest. (School of Government Professor Fleming Bell fully explores the case law on conflicts of interest in his book,  Ethics, Conflicts, and Offices: A Guide for Local Officials.) It’s important to note, however, that some of these cases arise in the context of constitutional due process considerations or contracting matters, and these types of matters are now governed by specific statutes, which incorporate the standards from the cases. (School of Government Professor David Owens analyzes the case law on conflicts of interest in land use matters in his book, Land Use Law in North Carolina.) Other matters are governed by the general voting statutes, which contain the more broadly stated “own financial interest” standard. Several cases involving general legislative and administrative decisions suggest a deferential judicial posture. See, e.g., Kistler v. Randolph County, 233 N.C. 400 (1951)(board members’ ownership of property near the area in which school site was located insufficient to constitute conflict of interest); City of Albermarle v. Security Bank and Trust, 106 N.C. App. 75 (1993)(council members’ direct ties to competing financial institutions did not require them to abstain from voting on proposed condemnation of portion of bank’s land.) These holdings seem appropriate given the underlying obligation to vote, as well as the usual judicial deference to local government decisions in the absence of a clear abuse of discretion. What factors should be considered in determining whether a matter involves a board member’s own financial interest? Reading the cases and statutes together, I’ve listed below some of the factors that may be used to determine when a person may be excused from voting under the general voting statutes. The number of people affected. This goes to the heart of the continuum concept. If the effect on the board member is the same as the effect on a significant number of citizens, then it is fair to allow the individual to vote. The board member is affected as part of a large group of citizens and the vote can serve to represent that group. The extent of the financial interest (either benefit or detriment). As noted in another blog post the general voting statutes refer to financial interest, not financial benefit, as some of the other statues do. This means that a positive or a negative financial impact may be a basis for excusing a member from voting. An insignificant financial interest, however, whether positive or negative, is not enough to sway a person’s vote and should not be used to avoid the duty to vote. Obviously, the significance of a financial interest must be considered in relation to the individual’s particular situation, although it might be assessed based on what a reasonable person would do in that situation. The likelihood that the financial impact will occur. Sometimes an alleged financial interest involves several actions, in addition to the specific vote in question, to actually materialize. For example, a person who is a real estate agent votes in favor of a loan, which will facilitate a project, which the real estate agency might have the opportunity to offer for sale. Without more to suggest that the sales opportunity will actually arise and will be available to the board member, this type of chain of events is probably too speculative to form a basis for being excused from voting. Multi-step decisions; considering each vote separately. Governing boards often take separate votes making a series of distinct decisions on a particular matter. First there may be a motion to take up the issue for discussion. Later comes a motion to set a matter for public hearing. Next, a possible vote to authorize negotiations, or to define a scope of work, or to identify groups of businesses or properties to be covered by a regulation or tax. The effect of each vote during this type of process may vary, such that a member might be allowed to vote on preliminary matters, but not on matters that become more specific, and regarding which a financial interest is more direct. Alternatively, it may be that each step toward the final decision is necessary to arrive at the final vote, such that a person with a financial interest in the final vote must be excused from all of them. It is too simplistic, I think, to assume that a person is always conflicted out of all or none of the votes in these situations. Instead, it makes sense to look at each vote separately and analyze the interest affected by that particular vote.