OPINION NO. 07-01
STATE ETHICS COMMISSION
The Executive Director ("Requestor") of the PenMar Development Corporation ("PMDC" or "the Corporation") requested an advisory opinion related to the application of the post-employment provisions of the Ethics Law to his possible employment with a publicly traded real estate development trust ("the Developer") that purchased Ft. Ritchie from the PMDC in October 2006. The purchase was pursuant to a 2004 Purchase and Sale Agreement and a subsequent Development Agreement ("the 2004 Agreements") between PMDC and the Developer. At our December 2006 meeting we heard from the Requestor and the Chairman of the Board of Directors of PMDC. We also heard from the CEO of the Developer regarding potential employment of the Requestor as the "asset manager" for the Developer's Fort Ritchie Project. Subsequently at our January 2007 meeting we heard from the Developer and its attorney regarding a revised position description for the potential employment of the Requestor as the Developer's On-Site Representative. Based on the information presented regarding the sale of the property to the Developer, the overall history of the Ft. Ritchie base closure project, and the Requestor's duties and responsibilities while employed at PMDC, we advise that the post-employment limitations of §15-504(b) of the Maryland Public Ethics Law, Md. Code Ann., State Gov't Title 15 (Supp. 2006) bar his employment with the Developer to assist in any matters surviving the transfer of Ft. Ritchie to the Developer and which were anticipated by the 2004 Agreements as discussed below.
PenMar Development Corporation
Fort Ritchie, a United States Army military base located in Washington County, Maryland, was designated for closure by the federal Base Closure and Realignment Commission ("BRAC") in 1995.1 The base was officially closed on October 1, 1998. The BRAC laws require that a local redevelopment authority ("LRA") be established to help communities surrounding the military installation use the former base for economic development in the area. Initially, the Washington County Board of County Commissioners established the Fort Ritchie LRA. However, in 1997, Washington County proposed legislation to the Maryland General Assembly establishing the PenMar Development Corporation to replace the Fort Ritchie LRA. The General Assembly found that the creation of the public corporation would serve the public interest in accelerating "the transfer of facilities and sites into productive use in the private sector and cooperate with the governing body of Washington County in maximizing new economic opportunities for the citizens of the State." 2
An 18-member board of directors exercises the corporate powers and manages the PMDC. The Board of County Commissioners of Washington County appoints fifteen of the Board members. The Secretary of the State Department of Business and Economic Development, the executive director of the Maryland Economic Development Corporation, and the executive director of the Washington County Economic Development Commission serve as ex-officio members.3 PMDC's board of directors appoints an Executive Director subject to the approval of the Board of County Commissioners of Washington County. Article 83A, §5-1204(b) defines the powers and duties of the Executive Director as follows:
. . . (1) The Executive Director shall be the chief administrative officer for the Corporation and as such shall direct and supervise the administrative affairs and technical activities of the Corporation in accordance with policies and procedures established by the Board of Directors.
(2) The Executive Director, or the Executive Director's designee, shall among other things:
(i) Attend all meetings of the Board of Directors and act as secretary to the Board and keep minutes of all its proceedings;
(ii) Approve all accounts for salaries, per diem payments, and allowable expenses of the Corporation or of any of its employees or consultants as well as any expenses incidental to the operation of the Corporation; and
(iii) Perform any other duties that may be directed by the Board of Directors in carrying out the purposes of this subtitle. . . .
The testimony before us established that the Executive Director generally directed the day-to-day activities of PMDC. Of importance to our review and jurisdiction is the fact that PMDC was established as a "public instrumentality" of the State of Maryland, and its officers and employees are specifically subject to the Maryland Public Ethics Law. 4
The Fort Ritchie Property Agreements
In 2004, the PMDC's Board of Directors heard presentations from three business entities regarding the development of Fort Ritchie. The Board determined to negotiate with one of the presenting entities, a publicly traded real estate development trust ("the Developer") headquartered in Columbia, Maryland. The Board appointed a negotiation committee and subsequently PMDC and the Developer entered into a Purchase and Sale Agreement for the transfer of Ft. Ritchie on July 26, 2004, and later on November 12, 2004 an Agreement related to the Required Development of the property.
The Purchase and Sale Agreement provided that the Corporation would transfer the entire Ft. Ritchie property to the Developer for a purchase price of $9 million dollars payable over nine (9) years. 5 The agreement provided that the Developer could reduce the price by as much as $4 million dollar by meeting certain established goals for job creation on site. 6
The Purchase and Sale Agreement made the transfer of Ft. Ritchie contingent on the adoption of a "binding development agreement" between the Corporation and the Developer. This agreement was completed on November 12, 2004 and incorporated the Developer's proposed "Fort Ritchie Development Plan," previously approved by the PMDC board. The Plan included development of the fort property into a Historic Area, General and Restricted (secure) Business Areas, Residential Areas, and a Community Center. The Development Agreement also required the Developer to comply with all the requirements of the August 24, 2001 Memorandum of Agreement between the United States of America and the Corporation, and the December 18, 1997 Programmatic Agreement between the United States of America, the Maryland State Historic Preservation Officer and the Advisory Council on Historic Preservation for the closure and disposal of Ft. Ritchie.
The Purchase and Sale Agreement also made the transfer of Fort Ritchie contingent on the conveyance of fee simple title to the PMDC from the United States Army (a total of 591 acres) and the resolution of litigation that was pending in the United States District Court in 2004.7 The Purchase and Sales Agreement was subsequently extended and closing did not take place until October 6, 2006, when the United States Army transferred 499 acres to the PMDC, who then transferred it to the Developer. The remaining 91.5 acres are expected to be conveyed by the United State Army to the PMDC and then to the Developer in the spring of 2007.
Discussion of the Requestor's Activities and Request
The Requestor became Executive Director of PMDC on October 21, 2002. By all accounts, he has been an excellent employee and manager. He supervised a total of 10 employees. Six employees did maintenance work; three employees managed the rental properties on site, and one served as his administrative assistant. He advised us that he was involved with the PMDC Board of Director's negotiation committee in the 2004 discussions with the Developer "to provide necessary information on particular points" but that he was not consulted as to the price or the specific terms of the agreement. He had no final approval authority related to the 2004 Agreements. However, he worked with the community to encourage support of the development plan and defined tasks to accomplish the overall strategic objectives of PMDC. He also assisted in activities to resolve the litigation pending in the United States District Court between 2004 and 2006, which subsequently allowed the transfer of the property to the Developer. The Requestor was also the spokesperson for PMDC. In this regard, we view his activities as significant to PMDC and related to the 2004 Agreements.
The Developer's normal business practice has been to retain individuals working on commercial properties it purchases in order to maintain continuity of operations. The Developer and the Requestor advised us that they have not discussed potential employment of the Requestor with the Developer other than the Developer's interest in generally pursuing discussions if such employment is permissible under the Ethics Law. The Developer has indicated that it generally employs an individual to be its "asset manager" who serves as its "local on-site manager responsible for the property." The Developer has also advised that it would abide by any advice regarding limitations to the Requestor's duties if it is allowed to hire him. The Developer proposed some limitations in its presentation to us in January.
By virtue of its enabling statute in Section 83A, §5-1203(a), we view PMDC to be a "body politic" and a "public instrumentality of the State" subject to regulation by the State as determined by the General Assembly. The Legislature specifically determined, in Section 83A, §5-1210(b), that the "Corporation and its officers and employees are subject to the Public Ethics Law. . . ." Since its creation, the members of the board of directors of PMDC and the Executive Director have been required to file annual financial disclosure statements and have been subject to the conflict of interest provisions of the law.
2. Post-Employment Restriction of the Ethics Law.
The issue under consideration arises under the post-employment provision of §15-504(d) of the Ethics Law, Md. Code Ann., State Gov't Title 15 (Supp. 2006), which prohibits a former employee from assisting or representing a party other than the State in any matter involving the State if the matter is one in which he or she participated significantly while an employee. This section of the law does not prohibit all employment with an agency contractor or entity involved in a matter relating to the former agency. Rather, we look to identify particular or specific matters in which the individual was involved in a significant way in his or her service with the State agency. Section 15-504(d) forbids assistance or representation as to these matters on behalf of another party. The philosophical basis of the restriction is to avoid the appearance of "switching sides" in a particular matter and using special knowledge acquired in the context of one's State employment for the benefit of a party other than the State. Another goal is to avoid situations in which an individual may be seen to be using a State position to create a private employment opportunity.
We have issued several opinions providing post-employment advice. 8 We have addressed the concept of "matter" taking in to account substantial federal case law relating to similar federal requirements. In Opinion 97-11 we discussed factors to be considered in determining whether the matter is the same matter:
. . . The resulting basic criteria that we have considered in applying this provision are whether a matter involves the same matter as a previous activity, whether it involves "the same basic facts, related issues, the same or related parties, time elapsed, the same confidential information, and the continuing existence of an important [government] interest." As a particular example, in a 1987 enforcement matter (which was sustained by the Court) the Commission concluded that a property tax assessment for one year in which a former supervisor of assessments did not participate was nevertheless the same matter as a prior year assessment, since the key issue being contested by the former employee was one where he had been instrumental in the initial policy development. . . . 9 Emphasis added.
We recognize that the Requestor's situation is somewhat atypical in State government. PMDC was created and exists to accomplish a long-term objective involving the full economic development of the Ft. Ritchie property. The project could easily extend over 25 years. The Requestor suggested that the current PMDC "matter" was the planning process that resulted in the transfer and sale of the property to the Developer. He also suggested that the actual redevelopment of the property would be "new" matters that should not disqualify him from considering employment with the Developer.
We have very carefully reviewed and considered the facts of this matter. In our view, the Purchase and Sale Agreement for the transfer of Ft. Ritchie on July 26, 2004, and the Development Agreement, dated November 12, 2004, that also required the Developer to comply with all the requirements of the August 24, 2001 Memorandum of Agreement between the United States of America and the Corporation, and the December 18, 1997 Programmatic Agreement between the United States of America, the Maryland State Historic Preservation Officer and the Advisory Council on Historic Preservation for the closure and disposal of Ft. Ritchie, are so interdependent that they are one matter. The 2004 Agreements create financial and development obligations that have survived the actual transfer of Ft. Ritchie to the Developer and may continue for many years. The Development Agreement requires the Developer to spend $7.5 million on development and construction within 5 years or the property will transfer back to PMDC. There is a job creation requirement that could reduce the purchase price up to $4 million in nine years. The Developer is required by the PMDC approved development plan to complete work for an historical area, a general and restrictive business area, and a residential area. The Developer must also provide periodic reports to PMDC on the progress of the development and jobs created on site. PMDC also has responsibilities related to monitoring of the Developer's activities pursuant to the BRAC requirements that will continue for at least seven more years. It must also spend the funds it has accumulated (from the sale and the prior leasing of the property) for the benefit of the project. In this regard, PMDC and the Developer have discussed a joint effort to develop a community center on the property.
We determine that the Requestor would be prohibited from being employed by the Developer to assist in any activities that flow from the 2004 Agreements. The Developer in its supplemental presentation to us distinguished between using the Requestor to "oversee" activities on-site while having other management employees of the Requestor responsible for development and marketing activities. However, the statute uses the word "assist" and we view the proposed activities as described by the Developer as assistance. Therefore the Requestor may not oversee the proposed development activities that were promised in the Development Agreement, including the demolition projects and the new construction infrastructure projects. Nor could he market the property to potential tenants related to the development plan or manage environmental issues that may be part of the Developer's new obligation to comply with the Corporation's agreements with the United State Army and the State Historic Preservation Officer. Neither could he represent the Developer on the board of directors for the community center that was part of the Fort Ritchie Development Plan proposed by the Developer and approved by PMDC.
Therefore, we advise that the Requestor's proposed employment as the Fort Ritchie on-site asset manager or owner's representative for the Developer would be prohibited by the post-employment provisions of §15-504(d) of the Ethics Law. We note that, as discussed above, the Ethics Law does not generally prohibit all affiliations with entities involved with one's former agency. Other assistance or employment by the Requestor with the Developer that does not deal with the activities proposed or anticipated by the 2004 agreements at Ft. Ritchie would not be barred.10 We recognize that this result may have consequences to the Requestor's future employment opportunities. We commend him for recognizing the potential ethics issues and in presenting this matter to the Commission for its review before undertaking any change of employment.
Julian L. Lapides, Chair
H. Richard Duden, III
Janet E. McHugh
Robert F. Scholz
Paul M. Vettori
March 8, 2007
#1 Fort Ritchie is located in northeastern Washington County near the Pennsylvania State line. The land for the fort (approximately 600 acres) was originally purchased in 1926 by the State of Maryland to be developed as a Maryland National Guard training area. The Army during World War II established it as a military intelligence training center. Following World War II, the fort supported the Alternate Joint Communications Center and was headquarters for the 7th Signal Command. See the Base Realignment and Closure Act of 1990 and the 1995 Report of the BRAC Commission.
#2 Article 83A, §5-1202(c).
#3 See Article 83A, §§5-1203 and 5-1205.
#4 Article 83A, §§5-1203(a) and 5-1210(b).
#5 The contract required the Developer to deposit $500,000 upon execution of the contract, pay $3 million (less the deposit) at the time of closing on the property, $1 million one year after closing, $1 million two years after closing, and a final installment of $4 million nine years after closing.
#6 The contract provided a sliding scale that would reduce the purchase price by up to $4 million if the Developer could create the equivalent of 1,400 full time jobs.
#7 The litigation involved whether the U.S. Army and the Corporation properly followed all required BRAC processes and requirements.
#8 See Opinion Nos. 01-02, 99-5, 99-4, 97-13, 97-11, 97-87, 96-10, 95-10, 95-2, 92-11, 91-13, 91-2, 90-12, 89-11, 86-24, 85-14, 85-9, 84-33, 83-12, 82-24, 82-17, 82-3, 81-15, and 80-1. These Opinions may be accessed on the internet at the Secretary of State's, Division of State Documents, COMAR website.
#9 See http://www.dsd.state.md.us/comar/advisoryo/97.11 .
#10 For example, the Developer could hire the Requestor to market its development capabilities to other BRAC sites nationally. He could also serve on the Museum Board of Directors that was not part of any agreement prior to the transfer.