Ethics Commission advice has been requested regarding application of the Ethics Law, including the Time of Appointment and other exemptions, to a member of the Maryland Aviation Commission who is a principal in an investment banking firm that has a variety of dealings with State financial transactions relating to airport facilities that are within the responsibility of the Aviation Commission. We advise that the Time of Appointment Exemption provided for in §15- 502(d) of the ethics Law may, based on the Member's disclosure in connection with his initial appointment and his consistent inclusion of this affiliation in his annual public financial disclosure, be applied to allow his continued service on the Aviation Commission, assuming that certain nonparticipation practices continue.

The Maryland Aviation Commission (the MAC) was established in 1994, with nine voting members, eight appointed by the Governor with the advice and consent of the Senate. The ninth voting member is the Secretary of the Department of Transportation, who serves ex officio and is Chairman, and the Secretary of the Department of Business and Economic Development serves as a non-voting ex officio member. The Commission's duties include establishment of policies to improve and promote BWI Airport as an airport of service to the Washington-Baltimore Metropolitan area, approval of regulations for the operation of State-owned airports prior to adoption by the Executive Director of the Maryland Aviation Administration, provision of direction to the Administration in developing and implementing airport management policy for all State-owned airports, and consideration of information and advice from air carriers, airport concessionaires, the airport support services industry, and citizen advisory groups. The Commission's primary focus is on the operation and management of BWI, where there are ongoing major construction programs.

According to the request submitted here the MAC is responsible for approving capital projects after their inclusion in the DOT's Consolidated Transportation Program. Funding for such projects and other DOT activities generally comes from the Transportation Trust Fund, which includes federal grants as well as resources from various State financing activities. Apparently neither the Maryland Aviation Administration nor the MAC have authority to issue bonds, and the MAC does not approve issuance of bonds or financing vehicles or have role in selection of financial advisors, bond counsel or underwriters. These supporting entities are selected usually by competitive bid, either by DOT or the Office of the Attorney General (as to bond counsel). According to the agency counsel, the member's firm is not DOT's financial advisor.

Three types of funding mechanisms have been addressed here. Consolidated Transportation Bonds are issued by resolution of the Secretary of DOT with the approval by the Board of Public Works. Certificates of Participation, which represent the proportionate interest in a conditional purchase agreement between the State and a Trustee bank, are sold by the DOT and the proceeds of one such recent issuance were used to finance improvements to BWI. The Certificate of Participation sales also are approved by the BPW without any direct involvement by the MAC, either in selecting the financing method or in approving the sale. The Member's firm, however, was a member of a syndicate that submitted an unsuccessful bid on a recent sale. A third type of financing instrument includes bonds issued by the Maryland Transportation Authority (MdTA, also a unit of the DOT), which approves issuance of its own bonds without MAC involvement. Special Obligation Revenue Bonds payable in part from passenger facility charges collected by the Aviation Administration were issued by the MdTA in 1994 to finance facilities at BWI. The Member's firm was one of a consortium of underwriters that purchased the these bonds at the prices set in the Official Statement.

The Member's firm is a regional investment banking firm serving the several states in the mid-Atlantic area. It specializes in all areas related to the issuance of municipal and corporate securities, investment banking services, underwriting, trading and sales, and has in the past done substantial business with the State involving other DOT administrations (though in fact this appears to have been quite limited in recent years), medical facilities, and various educational institutions. The firm is owned primarily by employees and the Member is its Chairman. Though the Member advises that the firm tends generally to want to participate in these types of transactions, he indicates further, however, that he has no involvement in the operational aspects of this work by the firm. He says that his work mainly involves corporate finance, research, equity trading, underwriting syndication in this area, and institutional equity sales. All of the bond work relating to public/government issues is handled by the firm's Public Finance Department, which reports to the Chief Operating Officer, not to the Member.

At the time of the Member's initial appointment to the Commission in 1995, he filed a Time of Appointment Exemption Disclosure Statement including a cover sheet that detailed the nature of his affiliation with his firm and its involvement with the State's bond financing program. The disclosure noted that in some circumstances the proceeds from such issuances would be used for capital projects relating to the State's airport facilities. At the time of his reappointment, his Time of Appointment Exemption Disclosure Statement did not reflect this information. The Member indicates that to the extent that he thought of this at all, he assumed that his prior disclosure was still on file and that further request was not required as there had been no changes. His affiliation with the firm and the firm's business relationship with the State has been public information, through his prior disclosures and other public documents.

This situation presents issues primarily under the employment and interest prohibitions of §15-502 of the Ethics Law (State Government Article, §15-502, Annotated Code of Maryland). This section prohibits public officials, including appointed members of boards and commissions, from being employed by or having an interest in an entity that contracts with or is subject to the authority of their agency or an agency with which they are affiliated (subsection (b)(1)), or from having any other employment that would impair their impartiality or independence of judgment (subsection (b)(2)). In the circumstances here, we believe that the Member's firm would in at least some of its financing transactions be viewed as having a contract with DOT, which has consistently been treated as the agency for officials and employees of the Department's several modal administrations. Also, from the prospectus documents for the three issuances addressed in this request, it is clear that the Aviation Administration itself is viewed as having some interest in them. All three of the documents discuss Aviation Administration projects in some detail in the transportation facilities and programs section of the document. Also in each situation, biographical materials are included as to the Administration's Administrator.

Under the circumstances, it is our view that the Member's affiliation with the firm would come within the strict prohibition of the Law and his service on the MAC would be prohibited while his firm continues to engage in these types of financing transactions with DOT, unless an exception or exemption is possible. Given the disclosure background in the Member's initial time of appointment disclosure, taken with his annual disclosure, we believe that the time of appointment exemption applies to allow his continued service with the MAC even if it is involved in financing matters dealing with aviation projects, as long the affiliation and the activity is consistent with the disclosures on file. This exemption, contained in §15-502(c)(4), allows an exemption for otherwise prohibited private employment and interests as to a member of a board who holds the employment or financial interest when appointed if the employment or financial interest is publicly disclosed to the appointing authority, the Ethics Commission, and, if applicable, the Senate of Maryland before Senate confirmation.

In his initial Time of Appointment Exemption Disclosure Statement the Member specifically identified the types of transactions in which the firm engaged with the State and the DOT, the same kinds of transactions presented in the current request. Current biographical materials would have been submitted to the Senate in connection with his reappointment, and would certainly have identified the Member's affiliation with the firm, a major local financing entity whose long-term involvement with the State was known.

We also note the agency counsel's information that the MAC does not itself have a role in the financing decisions for its projects, and that the Member has no duties relating to the financing matters that are the subject of his firm's relationships with DOT. Moreover, he has apparently in recent meetings of the MAC taken care not to participate in activities relating to consideration of capital projects or budget items that would be expected to be funded by financing mechanisms in which his firm would seek to participate. We believe that this disqualification should continue, and that the Member should refrain from any involvement in capital budget matters, and in other aspects relating to consideration of any discrete projects that would be likely to involve possible funding or other fiscal involvement by his firm. He should also, of course, take care in any future appointments to include full and timely disclosure of his firm's activities on a Time of Appointment Exemption Disclosure Statement, and should continue to include this information on his annual disclosure statements.

Dorothy R. Fait,
  Michael L. May,
  April E. Sepulveda

December 7, 1999