                              ATTORNEY GENERAL OF TEXAS
                                           GREG       ABBOTT




                                                May 9,2003



The Honorable Harvey Hilderbran                             Opinion No. GA-0068
Chair, Committee on State Cultural
   and Recreational Resources                               Re: Validity of ethics ordinance provisions
Texas House of Representatives                              proposed for adoption by the City of Seguin
P.O. Box 2910                                               (RQ-0626-JC)
Austin, Texas 78768-2910

Dear Representative     Hilderbran:

         Your predecessor as Chair of the House Cornrnittee on State Recreational Resources asked
whether two ethics ordinance provisions proposed by the City of Seguin are legally prohibited.
Seguin is a home-rule city with a city manager form of government overseen by a nine-member city
council.’

        Nonprofit Board Membership

         The first proposed provision     relates to a city council member’s       service on the board of a
nonprofit organization:

                 Nonprofit board membership. While membership is encouraged, a
                 councilmember     who serves on the board of a public or private
                 nonprofit organization shall have a voice but no vote on any funding
                 request or contract by that organization, unless the organization has
                 a board of directors or trustees appointed in whole or in part by the
                 city council.

Request Letter, supra note 1, at 1.




          ‘Letter from Honorable Edmund Kuempel, Chair, State Recreational Resources Committee, Texas House of
Representatives,   to Honorable John Corny-n, Texas Attorney General, at 1 (Oct. 24, 2002) (on file with Opinion
Committee) [hereinafter Request Letter].
The Honorable Harvey Hilderbran            - Page 2           (GA-0068)




         Your predecessor asked whether this provision is inconsistent with Local Government Code
section 17 1.009 or Texas connnon law.2 See id. at 2. He raised no other statute, and we limit our
discussion to Local Government Code chapter 171 and the Texas common law that it preempted.

         Local Government Code chapter 171 regulates conflicts of interest involving local public
officials including members of a home-rule city council. See TEX. LOC. GOV’T CODE ANN. ch. 171
(Vernon 1999 & Supp. 2003); see also id. 8 171 .001(l) (Vernon 1999) (“local public official”
includes a member of a city’s governing body). It preempted the common-law rule that until 1984
barred local governmental bodies from contracting with a business entity in which a member of the
governmental body had a personal economic interest. See id. 5 171.007(a) (Vernon 1999).3
Contracts that violated this rule were absolutely void. See Edinburg v. Ellis, 59 S.W.2d 99 (Tex.
Comm’n App. 1933, holding approved); Delta Elec. Constr. v. City of San Antonio, 437 S.W.2d 602
(Tex. Civ. App.-San Antonio 1969, writ ref d n.r.e.); Meyers v. Walker, 276 S.W. 305,307 (Tex.
Civ. App.-Eastland     1925, no writ) (holding public contract invalid because a member of the
contracting governmental body had a personal economic interest in it). Today, chapter 17 1 permits
a city council and other local governmental bodies to transact business with business entities even
though a member of the body has a financial interest in the transaction. It prohibits city council
members from participating in the transaction under the circumstances stated in Local Government
Code section 17 1.004:

                       (a) If a local public official has a substantial interest in a business
                  entity or in real property, the official shall file, before a vote or
                  decision on any matter involving the business entity or the real
                  property, an affidavit stating the nature and extent of the interest and
                  shall abstain from further participation in the matter if:

                           (1) in the case of a substantial interest in a business entity
                       the action on the matter will have a special economic effect
                       on the business entity that is distinguishable from the effect
                       on the public; or

                           (2) [substantial interest in real property] . . . .

TEX. Lot. GOV’T CODE ANN. 8 171.004 (Vernon                  1999).

         Local Government      Code section 17 1.001(2) defines “business entity” as “a sole
proprietorship, partnership, firm, corporation, holding company, joint-stock company, receivership,
trust, or any other entity recognized by law.” See id. § 171 .001(2). A nonprofit corporation is a


          2Although this office does not construe city ordinances or charter provisions, we make an exception when asked
to determine whether such provisions conflict with federal or state law. See Tex. Att’y Gen. Op. No. JM-846 (1988) at
1; Tex. Att’y Gen. LO-93-042, at 1.

         3The predecessor of Local Government Code chapter 17 1 was adopted in 1983 and became effective on January
1, 1984. See Act of May 30, 1984,68th Leg., R.S., ch. 640, $ 8, 1983 Tex. Gen. Laws 4079,4082.
The Honorable Harvey Hilderbran       - Page 3        (GA-0068)




business entity within this definition. See Tex. Att’y Gen. Op. No. JM-424 (1986) at 2; see also
TEX. LOC. GOV’T CODEANN. 9 171.002 (Vernon 1999) (defining “substantial interest” in a business
entity as local public officer’s ownership interest in it or income received from it; attributing close
relative’s substantial interest to officer). An interested officer who knowingly participates in the
proceedings when recusal is required commits a Class A misdemeanor. See TEX. LOC. GOV’T CODE
ANN. 8 171.003 (Vernon 1999); Walk v. State, 841 S.W.2d 430 (Tex. App.-Corpus             Christi 1992,
writ ref d) (affirming county judge’s conviction for knowing participation in a vote to purchase
office supplies from his son-in-law’s store). Unlike the common-law rule, a violation under chapter
171 “does not render an action of the governing body voidable unless the measure . . . would not
have passed the governing body without the vote of the person who violated the chapter.” TEX. LOC.
GOV’T CODE ANN. 8 171.006 (Vernon 1999).

         We turn to Local Government Code section 171.009, which provides as follows: “It shall
be lawful for a local public official to serve as a member of the board of directors of private,
nonprofit corporations when such officials receive no compensation or other remuneration from the
nonprofit corporation or other nonprofit entity.” Id. 8 17 1.009. The city ordinance does not prohibit,
and in fact, encourages city council members to serve as board members of private nonprofit
organizations. Thus, the ordinance and section 17 1.009 are not inconsistent in this respect. Whether
the ordinance is consistent with the statute in other respects requires further examination of section
171.009.

         Local Government Code section 17 1.009 was adopted in 1989 as an amendment to chapter
171. See Act of May 29, 1989, 71st Leg., R-S., ch. 475, 5 2, 1989 Tex. Gen. Laws 1647, 1648.
When a statute is amended, the entire statute must be construed as a harmonious whole. See
Schlichtingv. Tex. State Bd. ofMed. Exam ‘rs, 3 10 S.W.2d 557,563 (Tex. 1958), Burlington N. R.R.
v. Harvey, 717 S.W.2d 371, 376 (Tex. App.-Houston [14th Dist.] 1986, writ ref d n.r.e.). Section
171.009 authorizes a local public official to serve as an uncompensated director of a nonprofit
corporation, while the rest of chapter 171 addresses conflicts of interest in the context of local
governmental transactions.       Although section 171.009 does not expressly address conflicts of
interest, prior decisions of this office demonstrate that it is in harmony with the rest of chapter 17 1.
This office has found that common-law rules forbid transactions between a governmental body and
a nonprofit corporation when a member of the governmental body serves as a director of the
nonprofit corporation. See Tex. Att’y Gen. Op. Nos. DM-256 (1993)’ JM-1006 (1989)’ JM-884
(1988)’ MW-39 (1979), H-1309 (1978). Section 171.009 removes this restriction from local
governmental bodies.       See Tex. Att’y Gen. Op. No. DM-256 (1993) at 3 & n.2. A local
governmental body may now engage in transactions with a nonprofit corporation even if a member
of the local governmental body also serves as an uncompensated director of the nonprofit.

         Local Government Code section 17 1.004 requires recusal “[i]f a local public official has a
substantial interest in a business entity or in real property.”         TEX. LOC. GOV’T CODE ANN.
fj 171.004(a) (V emon 1999). An uncompensated director of a nonprofit corporation does not have
a “substantial interest” in the nonprofit and thus is not required to comply with section 17 1.004. See
Tex. Att’y Gen. Op. No. JM-1006 (1989) at 3. Local Government Code section 171.003(a), the
criminal penalty provision, applies if a local public official “knowingly . . . violates Section
The Honorable Harvey Hilderbran        - Page 4        (GA-0068)




171.004.” TEX. Lot. GOV’T CODEANN. 8 171.003(a) (Vernon 1999). Absent a substantial interest
in a business entity or real property, an individual cannot commit the offense defined in section
171.003(a). Service as an uncompensated director of a nonprofit corporation does not require a local
public official to recuse himself or herself from participation in a transaction with the nonprofit.

         Unlike chapter 17 1, the proposed ordinance prohibits a city council member from voting on
funding requests or contracts with a private, nonprofit corporation that the council member serves
as director. We consider whether the City of Seguin may adopt this restriction.

         Because Seguin is a home-rule city, it derives its legislative authority directly from the Texas
Constitution and may adopt any ordinance not inconsistent with the constitution or statute. See TEX.
CONST. art. XI, 8 5; Lower Colo. River Auth. v. City of San Marcos, 523 S.W.2d 641, 643 (Tex.
 1975). Moreover, chapter 171 “is cumulative of municipal charter provisions and municipal
ordinances defining and prohibiting conflicts of interests.”            TEX. Lot. GOV’T CODE ANN.
$171.007(b) (V emon 1999). Chapter 17 1 accordingly does not abrogate a municipality’s authority
to adopt provisions regulating conflicts of interests involving its officers. See Turner v. city of
Beaumont, 197 S.W.2d 114, 116 (Tex. Civ. App.-Beaumont               1946, writ ref d n.r.e.), City of Fort
 Worth v. State ex rel. Ridglea Vill., 186 S.W.2d 323, 328 (Tex. Civ. App.-Fort Worth 1945, writ
ref d w.o.m.) (annexation statute is cumulative of and does not supersede home-rule city authority
to annex territory pursuant to charter provisions).     The City of Seguin may regulate conflicts of
interest involving city council members by adopting ordinance provisions that are not inconsistent
with Local Government Code chapter 171. Thus, the city may not attempt to exempt its officers
from requirements imposed by Local Government Code chapter 17 1. See generally Young v. City
of Seagoville, 421 S.W.2d 485,486 (Tex. Civ. App.-Dallas 1967, no writ) (city could not authorize
operation of pool hall by ordinance when state statute prohibited operation of pool halls). We
conclude that the Seguin ordinance may add to the restraints imposed by chapter 171 by prohibiting
a city council member from voting on funding requests or contracts with a private, nonprofit
corporation the council member serves as director. See generally In re Sanchez, 81 S.W.3d 794
(Tex. 2002) (construing statutory authority of home-rule city to prescribe requirements                 for
candidate’s application for a place on the ballot). Thus, to the extent the proposed ordinance
addresses a city council member’s service with a private nonprofit corporation, it is not inconsistent
with Local Governrnent Code section 171.009.

         The proposed ordinance also applies to a council member’s service as director of a public
nonprofit corporation.    It is thus broader than section 171.009, which addresses only service as
director of a private nonprofit corporation. Statutes other than Local Government Code chapter 17 1
may be relevant to specific public nonprofit corporations. The legislature has created and authorized
the creation ofpublic nonprofit corporations to provide governmental services. See, e.g., TEX.EDUC.
CODE ANN. 5 57.1 l(a) (Vernon Supp. 2003) (Guaranteed Student Loan Corporation); TEX. Lot.
GOV’T CODE ANN. 8 394.003(8) (Vernon Supp. 2003) (housing finance corporation); TEX. TRANSP.
CODE ANN. ch. 43 1, subch. D (Vernon 1999 & Supp. 2003) (creation of local government
corporation to aid local government to accomplish governmental purpose); TEX. UTIL. CODE ANN.
tj 251.052 (V emon Supp. 2003) (Texas Underground Facility Notification Corporation). Because
a statute other than chapter 171 or a city ordinance may apply to a particular public nonprofit
corporation, we cannot determine as a matter of law whether this part of the proposed ordinance is
valid.
The Honorable      Harvey Hilderbran       - Page 5           (GA-0068)




         The proposed ordinance also allows a city council member to vote on a transaction when the
nonprofit organization “has a board of directors or trustees appointed in whole or in part by the city
council.” Request Letter, supra note 1, at 1. Statutes other than Local Governrnent Code chapter
171 may be relevant to these boards.          Moreover, some of these entities may function as
administrative units of the city and not be separate entities for purposes of chapter 17 1. Whether a
city council member may vote on a funding request from a public nonprofit organization or any
nonprofit with “a board of directors or trustees appointed in whole or in part by the city council”
must be determined on a case-by-case basis in light of the relevant statutes and any city ordinances
applicable to the entity.

II.      Political Activiw of City Council Members

          Your predecessor also asked whether the following proposed restriction on the political
activities of city council members would violate any constitutional right of free speech or
association:

                  Political activity.

                  1) General rule. Current members of city council who are seeking
                  reelection may engage in any campaign activity on behalf of their
                  own campaign efforts. However, councilmembers            are prohibited
                  from taking part in the management, affairs, or political campaign of
                  any other municipal candidate. The following activities are the only
                  activities that councilmembers    may engage in on behalf of a
                  municipal candidate:

                       l The placement of campaign signs on premises owned by
                       the councilmember.

                       l   The placement of bumper stickers on personal vehicles.

                       l  Attendance at a political rally or function for a city council
                       candidate, so long as the councilmember does not actively
                       participate in the rally or function.

                       l  The donation of a political contribution that does not
                       exceed the statutory limit for nonreportable contributions.4

Request Letter, supra note 1, at l-2. The rights of free speech and association are protected by the
First and Fourteenth Amendments of the United States Constitution and by Texas Constitution
article I, sections 3 and 27. See U.S. CONST. amends. I, XIV; TEX. CONST. art. I, $9 3,27.



        4A candidate must file a sworn statement giving the name and address of each person who contributed   moie than
$50. See TEX. ELEC.CODE ANN. $254.03 l(a)( 1) (Vernon Supp. 2003).
The Honorable Harvey Hilderbran           - Page 6          (GA-0068)




         Representative Kuempel’s letter notes that the provision closely tracks the language of the
federal Hatch Act, 5 U.S.C. $0 1501-08 (2000), which limits the political activity of certain federal
employees and also state and local employees whose principal employment is in connection with an
activity financed by federal loans or grants. See Request Letter, supra note 1, at 2; see also 5 U.S.C.
$5 1501(4), 1502 (2000) (state and local employees), 5 U.S.C. $5 7322, 7324 (2000) (restrictions
on federal employees).’ The Hatch Act provisions and state laws restricting partisan political activity
by federal and state employees and appointees have been upheld by federal courts and by the
Attorney General of Texas. See Broadrick v. Oklahoma, 413 U.S. 601 (1973) (state statute limiting
political activity by state employees), United States Civil Serv. Comm ‘n v. Nat ‘I Ass ‘n of Letter
Carriers, 413 U.S. 548, 565 (1973) (Hatch Act restrictions on federal civil service employees),
Wachsman v. City of Dallas, 704 F.2d 160, 161 (5th Cir. 1983) (city charter provisions limiting
political activity of city employees); Tex. Att’y Gen. Op. Nos. DM-408 (1996) (restriction on
political activity of appointed state officer), MW-243 (1980) (restrictions on political activity of
Department of Public Safety personnel), MW-149 (1980) ( same). The courts have held that the
Hatch Act and similar state restrictions on a public employee’s political activity do not violate an
employee’s rights of free speech under the United States Constitution if the restriction serves a
legitimate government interest. See Broadrick, 413 U.S. at 615; see also Letter Carriers, 413 U.S.
at 555 (federal service should depend upon meritorious performance not political service, and
political influence of federal employees on others and on the electoral process should be limited).
Restrictions on public employees’ political activities have been upheld when they served the interests
of efficient government, a government that enjoys public confidence, the right of individual citizens
to be free of governmental discrimination based on their political activities or connections, and the
right of governmental employees to be fi-ee of employer pressure in their personal political decisions.
See Wachsman, 704 F.2d at 166.

         While cases under the Hatch Act and similar state statutes address restrictions against the
political activities of public employees, the proposed ordinance provision restricts the political
activity of elected city council members concerning the candidacy of other persons for municipal
office. See Request Letter, supra note 1, at 2. It is argued that the provision inhibits constitutionally
protected rights of free speech and association, calling for strict scrutiny! Campaign debate about
the qualifications of candidates is a core First Amendment value. See Republican Party of Minn. v.
White, 536 U.S. 765, 773 (2002) (speech of judicial candidate), Eu v. San Francisco County
Democratic Cent. Comm., 489 U.S. 214’222-23 (1989) (speech by political party about candidates).
The First Amendment right of association is also given its highest protection in the context of
elections. See Eu, 489 U.S. at 224-25. Moreover, the First Amendment protects the voters’ right
to inform themselves about candidates’ qualifications.        See id. Accordingly, the United States
Supreme Court recently held that a restriction barring state judicial candidates from announcing their



          ‘See also Memo from Angela Dickerson-Nickel,   Seguin City Attorney, to City Councilmembers (July 12,2002)
attachment to Letter from Angela Dickerson-Nickel,   Seguin City Attorney, to Opinion Committee, Office of Attorney
General of Texas (Mar. 3,2003) (on file with Opinion Committee) [hereinafter Dickerson-Nickel      Memo].

          %ee Memo from W. David Friesenhahn, Friesenhahn Law Firm, to Mary Louise Gonzales & Bruno Martinez
(July 19,2002) attachment to Letter from Angela Dickerson-Nickel, Seguin City Attorney, to Opinion Committee, Office
of Attorney General of Texas (Mar. 3,2003) (on file with Opinion Committee).
The Honorable Harvey Hilderbran       - Page 7        (GA-0068)




views on disputed legal or political issues violated the candidate’s First Amendment right of speech,
absent a showing of a compelling state interest for the infringement. See Republican Party of Minn.,
536 U.S. at 774-75. The proposed restriction on a city council member’s political activity with
respect to candidates for municipal office encroaches on the council member’s First Amendment
rights of speech and association. It also encroaches on the candidate’s right of association because
it prevents him or her from seeking and receiving a city council member’s active participationin the
campaign. See generally Eu, 489 U.S. at 224-25 (burdens on freedom of association). It keeps the
voters from knowing the opinions of current city council members about candidates for city office,
information that might help the voters evaluate the potential impact on city government of the choice
in their choice of a candidate.

         We therefore conclude that the proposed restriction on city council members’ political
activity is subject to strict scrutiny. The city has the burden of showing that the restriction is (1)
narrowly tailored to serve (2) a compelling state interest. See Republican Party of Minn., 536 U.S.
at 775, Eu, 489 U.S. at 222.

          The city attorney argues that two factors support the constitutionality     of the proposed
restrictions on city council members’ political speech:

                First, they are narrow in scope and exclude most everyday forms of
                political expression . . . . Second, the policy statement at the
                beginning of the ordinance specifically enumerates the goals of
                making sure that “public officers and employees be independent,
                impartial and responsible only to the people of the city” and that “the
                city council be maintained at all times as a nonpartisan body.”

Dickerson-Nickel   Memo, supra note 5, at 2 (citations omitted).

         The city provides no explanation of how the restrictions achieve the purported goals of
ensuring that “the city council be maintained at all times as a nonpartisan body” or that “public
officers and employees be independent, impartial, and responsible only to the people of the city.”
Id. (quoting from policy statement of proposed ordinance). It is very possible that these goals may
be achieved even with unfettered free speech by council members. Moreover, the city attorney does
not explain the need for restrictions on partisanship in addition to those stated in the Election Code.
See TEX. ELEC.CODEANN. $9 143.002 (Vernon 1986) (name ofcandidate for city office may appear
on ballot only as an independent, subject to exception for home-rule city), 143.003 (home-rule city
charter may authorize nominations by political organizations for partisan candidates for city offices).
Nor does the city attorney address how the restrictions achieve the enumerated goals or show that
the goals are compelling interests that support a ban on core First Amendment speech. See generally
Republican Party of Minn., 536 U.S. at 778 (interest in preserving the judiciary’s impartiality and
its appearance of impartiality was not a compelling interest justifying prohibition on candidate for
judicial office from announcing views on disputed legal or political issues). Absent a showing that
 a proposed restriction on a city council member’s First Amendment right to engage in speech about
candidacies for city office is narrowly drawn and that it is supported by a compelling interest, a court
will not hold it constitutional.
The Honorable   Harvey Hilderbran     - Page 8        (GA-0068)




                                         SUMMARY

                         Pursuant to Local Government Code section 171.009, a city
                council may transact business with a nonprofit corporation on which
                a local public official serves as an uncompensated director, and the
                director is not required to follow the recusal procedures in section
                171.004. Local Government Code chapter 17 1, which pertains to
                conflicts of interest of local public officials, is cumulative of
                municipal charter provisions and municipal ordinances defining and
                prohibiting conflicts of interests. A home-rule city may adopt an
                ordinance regulating conflicts of interest of its officials that is not
                inconsistent with Local Government Code chapter 17 1.

                          A home-rule city ordinance that bars a city council member
                from taking part in the management, affairs, or political campaign of
                any municipal candidacy aside from his or her own candidacy limits
                a public officer’s speech about the qualifications of candidates for
                public office and thus burdens core First Amendment rights. It is
                subject to strict scrutiny, and its constitutionality depends on whether
                it is narrowly tailored to serve a compelling state interest.

                                                Very truly yours,




                                                            eneral of Texas



BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Susan L. Garrison
Assistant Attorney General, Opinion Committee
