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CITY COUNCIL AGENDA REPORT
City of Anaheim
OFFICE OF THE CITY ATTORNEY
DATE: OCTOBER 8, 2024
FROM: OFFICE OF THE CITY ATTORNEY
SUBJECT: GIFT RESTRICTIONS FOR LOCAL OFFICIALS
ATTACHMENT (Y/N): YES ITEM # 23
GOVERNMENT CODE § 84308 APPLIES: NO
REQUESTED ACTION:
Discuss and provide direction to staff on (1) whether to present for the Council’s consideration a local ordinance restricting the acceptance of gifts from certain restricted sources, and (2) the general nature and scope of the restrictions of any ordinance so presented.
DISCUSSION:
At the request of Council Member Leon, working together with Council Member Diaz, the following report presents a summary of the State’s gift laws as they pertain to local officials, a general listing of exceptions to gifts, a brief overview of local ordinances adopted in jurisdictions that have further placed restrictions on gifts to officials (from restricted sources), possible approaches by the City pertaining to a local gift restriction from restricted sources, and what application or enforcement of proposed ordinance in Anaheim may look like if one were to be adopted. This summary is intended to aid the Council in its discussion of a potential local restriction on gifts, so that it can provide further direction to staff.
A. STATE GIFT RESTRICTIONS AND EXCEPTIONS
1. Introduction
A gift is a good or service provided to a government official for free or at a discount without equal consideration provided in return. It is important to track and regulate gifts for several reasons. Primarily, gifts can influence the decision making of government officials and in this way can be a tool for exerting undue influence. In the most severe cases, gifts can be given as outright bribes. And in all cases, gifts can give rise to the appearance of undue influence, especially “pay-to-play,” a form of political corruption whereby government officials or employees give favorable treatment to persons who provide them with things of value, or where those seeking decisions from government give, or believe they must give, things of value to secure a favorable outcome.
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2. Definition of Gift
A gift is specifically defined in the California Government Code (Political Reform Act, Section 82028) as “any payment that confers a personal benefit on the recipient, to the extent that consideration of equal or greater value is not received and includes a rebate or discount in the price of anything of value unless the rebate or discount is made in the regular course of business to members of the public without regard to official status.” A gift can be a monetary payment such as cash or a check. It can also be any good or service for which the recipient does not pay fair market value. Free or reduced-price travel, generally, is also a gift when received absent an exception.
3. State Law - Disclosure and the Annual Limit
City officials are required to file a Statement of Economic Interest (Form 700) to disclose aspects of their personal financial interests. As a fundamental tool to help government officials detect and avoid potential conflicts of interests, Form 700 filings help ensure that governmental actions are made without any regard to the official’s personal gain. The types of financial interests required to be reported are established in the law and are associated with the official’s governmental duties. These are also known as disclosure categories under the City’s conflict of interest code.
Under state law, individuals who are required to file the Form 700 must disclose gifts of $50 or more received from a disclosable source. Additionally, a Form 700 filer cannot accept gifts totaling more than $590 in a single year from a single source that would have to be reported on the individual’s Form 700. These two rules—Form 700 disclosure and the annual $590 limit—are the primary ways in which gifts to government officials are regulated under California law. The limit is intended to ensure that no government official or employee accepts an excessively large gift (or series of gifts) from any source that is a reportable source of income for that individual. The disclosure requirement is designed to help officials monitor when they may need to recuse themselves to avoid a conflict of interest and ensures that, when an official or employee accepts a gift from a reportable source that is under the $590 limit (but more than $50), the public is able to see that gift on public disclosures. These rules thus serve the dual purposes of prohibiting gifts that carry the greatest danger of undue influence while also creating transparency that supports accountable decision making.
4. Gift exceptions
State law, however, provides numerous exceptions to the disclosure requirement and the annual limit. Payments that meet one of the exceptions are not considered to be gifts under state law, and thus do not have to be disclosed on the Form 700 and are not subject to the $590 limit. Some of the exceptions are contained in the California Government Code and were created shortly after the passage of the Political Reform Act in 1974.
These exceptions generally include gifts that have been paid for, donated to charity, or returned to the source within 30 days; gifts given by immediate family members; and inheritances. Other exceptions to the state’s general gift definition were created more Gift Restriction Discussion
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recently and are contained in state regulations. These exceptions include gifts from “long term, close personal friends,” “acts of neighborliness,” and “acts of human compassion.” If an exception exists, then it is not considered to be a gift. 1 Furthermore, even when a gift made through a city department bestows a personal benefit on an official, state law provides that the following are exempted: (1) free tickets and passes distributed under a valid ticket policy, and (2) payments that are used for official agency business, including official agency travel.
Additionally, officials can “drop by” an event, and when food or drink is not generally consumed, then a gift is not provided.
It is also an important reminder that gifts provided or made by a disclosable source to a spouse or immediate family member (i.e., child) under certain circumstances are considered a gift made to the official.
Finally, as alluded to above, gifts generally returned within thirty days of receipt and those gifts that are paid for in full value are not considered to be a gift. It is important to be aware of these exceptions when assessing gift restrictions because often an official would not be restricted by way of disclosure, or limits, at the State or local level.
B. LOCAL GIFT RESTRICTIONS – A STEP BEYOND
Council member Leon requested that this staff report briefly discuss a sampling of local jurisdictions that have created local gift restrictions from restricted sources to further strengthen the restrictions in the Political Reform Act (the current $590 limit). If a local jurisdiction does not create its own additional gift restrictions, then only the State restriction is applicable.
1. Cities of Los Angeles, San Francisco, Oakland, Santa Ana and County of Orange gift restrictions
Many cities in California have created additional gift restrictions from restricted sources.
As will be discussed later in this report, a restricted source is a disclosable source of a gift that falls into a certain category which makes it more important to further restrict the amount of the gift that is provided and subsequently accepted. The list is long, and for purposes of this staff report, we have included the cities of Los Angeles, Santa Ana, Oakland, San Francisco and the County of Orange as a representative sampling of local jurisdictions with gift restrictions for their officials. Some of these jurisdictions have chosen to extend the restrictions to all employees, while others only apply the restrictions to Form 700 filing officials. Here is a summary:
The City of Los Angeles generally bans gifts from lobbyists and restricts gifts from other restricted sources to $100 for all Form 700 filers.
1 California Code of Regulations 18229.1 through 18950.3 provide for a detailed explanation as to exceptions to a gift and their application. These exceptions mentioned are not intended to be comprehensive.
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The City of Santa Ana generally bans gifts from all restricted sources (including lobbyists) for all Form 700 filers.
The City of Oakland generally places a $50 limit on gifts from all restricted sources (including lobbyists) for all Form 700 filers and non-filing employees. The City of San Francisco generally bans gifts from all restricted sources (including lobbyists) for all Form 700 filers and non-filing employees. The County of Orange generally bans gifts from all restricted sources (including lobbyists) for all Form 700 filers.
The above local entities have all placed restrictions on gifts from certain restricted sources. Some of them have a complete ban, while others allow for gifts between $50- 100. It appears that some choose to include all employees, while others choose to restrict officials with Form 700 filing obligations. It may be presumed that the County of Orange chose not to apply the restrictions to all employees, due to the sheer size of its workforce (which is approximately 40,000 employees). Applying and enforcing regulations to that large of a base could be deemed impractical or overreaching. Furthermore, the opportunity for undue influence usually resides in officials required to file Form 700’s.
In other words, Form 700 by virtue of their power, authority and duties are the officials that a local restriction such as the ones discussed herein would benefit the most.
It can be concluded that these and other local entities have a purpose behind lowering the allowable gift amount. The State’s $590 limit places a high dollar amount on a gift that an official may accept from a source that is influencing them by ways of lobbying or has a matter pending before them. A gift in the $50-100 range does not have the same potential effect as a $590 gift.
2. Why do cities further restrict gifts from restricted sources when a state limit already exists?
State lobbyist registration and disclosure under the Political Reform Act do not extend to local jurisdictions. This also applies to gift restrictions from lobbyists. Thus, cities have enacted their own local lobbying ordinances to create transparency, disclosure and restrictions. Gifts create a great potential for undue influence, and the State’s current $590 limit allows for substantial gifts to be made if local restrictions are not enacted.
Furthermore, those with business before a city, such as a contract, permit or license, create a further danger of undue influence. Hence, localities have created restrictions on what are sometimes referred to as restricted sources. In California, most metropolitan cities have placed these further gift restrictions on lobbyists and other restricted sources.
If Anaheim chooses to pursue this similar path it would create uniformity with these other local jurisdictions who have gone an extra step to help maintain local integrity by further restricting the limits on gifts.
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C. ANAHEIM’S OPTIONS TO LOCAL GIFT RESTRICTIONS
After reviewing the above local jurisdictions and how they have proceeded with local gift restrictions from restricted sources, the following are proposed paths for your consideration on how Anaheim may decide to also emulate local gift restrictions:
1. Gifts from Restricted Sources
In addition to the disclosure requirement stemming from the Form 700, and the $590 annual limit created under California law, the Council could impose local rules on gifts to City officials that come from restricted sources (as briefly discussed earlier). The source of a gift could be considered a restricted source if the person generally meets one of two definitions. First, a restricted source is any person doing business with or seeking to do business with the department of the officer or employee. This includes all City contractors that contract with the official’s department and those who are currently pursuing such a contract. Second, a restricted source is any person who during the prior 12 months knowingly attempted to influence the officer or employee in any legislative or administrative action. This would include any person who engages in a communication with the official or employee made for the purpose of supporting, promoting, influencing, modifying, opposing, delaying or advancing a governmental decision. Of course, these definitions could be further refined and expanded in greater detail.
The purposes of this possible restricted source rule would be to prevent the appearance of pay-to-play corruption and to preserve the public’s trust in City government. The rule would narrowly target sources that have contracts with the official or employee’s department, or who have sought to influence them in some official action, and classifies those sources as being inherently problematic. In order to reduce the risk of third parties attempting to curry favor with City officials, a restricted source gift restriction may be prudent.
The Council could, as a median point between what other jurisdictions have in place, restrict gifts from these restricted sources to $50 in any consecutive 12-month period (aligning with Form 700 annual reporting), which is significantly lower than the State’s $590 allowable limit. This $50 limit would fall squarely between the range of restrictions other localities have codified.
Furthermore, Anaheim’s proposed restrictions could provide for several additional exceptions to the restricted source rule. First, non-cash gifts of $10 or less (referred to as, nominal) would be exempt, and would not even be considered a gift. Second, gifts of food and drink that are shared within a city office could be exempt from the rule, with no limit on the value of the food and drink. Finally, accepting free attendance to a conference that is related to an official’s duties would not be subject to the restricted source rule.
In addition to these local exceptions which the Council could adopt, gifts that meet one of the state exceptions discussed above are also not subject to the restricted source rule.
Thus, by definition, many things of value that may be given to an official or employee Gift Restriction Discussion
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would not be limited by any proposed City restricted source rule which Anaheim may implement, including, but not limited to, gifts from long-term close, personal friends, gifts that constitute acts of human compassion, gifts given by a romantic partner, gifts of travel, and wedding gifts. Such gifts are therefore permitted, even if the source is a restricted source for the official or employee in question.
2. Lobbyist gift restrictions – an additional restricted source Under any proposed Anaheim City law which this Council could consider, registered lobbyists would also be prohibited from giving a gift to any City official or an official’s parent, spouse, domestic partner, or dependent child that are above $50 during a 12- month period. City officials would also be prohibited from soliciting or accepting any such gift from a lobbyist. Officials could also be prohibited from accepting a gift from someone who is not a lobbyist, if the official knows or has reason to know that the third party is providing the gift or gift of travel on behalf of a lobbyist.
The purpose of a proposed lobbyist gift rule (under the umbrella of the restricted source proposed gift rule) would be to prevent gifts from being used as a method to unduly influence City officials. Like the restricted source rule, the lobbyist gift rule could use the state law definition of gift. This means that state law exceptions would apply to the lobbyist gift rule. For example, a lobbyist could give a bereavement offering (which is exempted under state law) to an official notwithstanding the proposed rule.
Anaheim has already created a lobbying ordinance which requires registration and disclosure of lobbying activity. A proposed gift restriction of $50 could further strengthen that already existing law and fall further in line with other local entities that employ the same safeguards against local undue influence.
Under both the restricted source and lobbying restrictions, if Anaheim chooses to proceed with them, gifts that come from these sources would have a limit of $50, and as such, since state law requires Form 700 reporting for gifts that are at or above $50, these gifts will likely not require reporting.
3. Reportable Sources that would still require reporting even under local restrictions
Notwithstanding the proposed local restrictions that could limit gifts from restricted sources to $50 or less, there would certainly still be instances where gifts provided to an official that are not from restricted sources as defined above, but for which are still disclosable under the official’s agency’s conflict of interest code disclosure category would fall under the conundrum of the current state $590 limit. Reporting would be required on a Form 700 for these reportable gifts, as has been the current requirement if a gift is $50 or greater in value and accepted. An example would be, a business that is located within the city, but for which the gift giver is not a lobbyist, nor do they have business pending before the City that would fit under the restricted source definitions suggested earlier in this report. There are of course other scenarios in which a gift, that is otherwise not from a restricted source could stay within the State’s current allowable Gift Restriction Discussion
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limits and which does not present the potential danger for which lowering the limits is needed.
4. Would the Proposed Restrictions be limited to city officials or all employees? In Anaheim, the proposed regulations could impact those officials that are Form 700 filers within the City’s conflict of interest code, or also extend to all employees. Officials that traditionally face the greatest potential for undue influence from the receipt of gifts, are predominantly Form 700 filers. Additionally, local jurisdictions that are larger tend to only restrict these filers, and not all city employees. Anaheim’s employee count is certainly not as large as Los Angeles, which chooses not to extend restrictions to them since application and possible enforcement would be challenging.
5. What would possible application and potential enforcement look like? If Council further directs staff to prepare draft language on a proposed local gift restriction on restricted sources as discussed in the above report, it will seem logical to include it as part of the Sunshine Ordinance. A council policy would not have the effect of ensuring that the proposed restrictions should be taken seriously. On that note, there would be various options with respect to potential enforcement for violations. There may be a warning and/or compliance component, a graduated penalty structure for violations, or a referral to an outside agency for possible prosecution if there is intentional behavior that is discovered.
Finally, attached herein as Attachment A is a general flow-chart summarizing how a proposed local gift restriction (with the suggested $50 maximum) in Anaheim could function, from an official’s perspective.
IMPACT ON BUDGET:
This is an informational report which will have no budgetary impact.
Respectfully submitted, Respectfully submitted,
Robert Fabela Artin Berjikly
City Attorney Assistant City Attorney
Attachment:
1. Attachment A – Possible Gift Restriction Flow chart