Local Government Ethics Law. Opinions of the Office of the Attorney General

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1 Local Government Ethics Law Opinions of the Office of the Attorney General Subject: A Joint Insurance Fund as a "Local Government Agency" pursuant to the Local Government Ethics Law. The following is the full text of advice issued by the Office of the Attorney General and received by the Local Finance Board. The content is a verbatim reproduction of the document received by the Board. It has been reformatted to make it accessible to the public through the Board s web site. *** October 16, 1992 Barry Skokowski, Sr. Deputy Commissioner Department of Community Affairs CN 800 Trenton, New Jersey Re: : A Joint Insurance Fund as a "Local Government Agency" pursuant to the Local Government Ethics Law. Dear Deputy Commissioner Skokowski: You have requested advice as to whether a joint insurance fund organized pursuant to N.J.S.A. 40A:10-36 et seq. is a "local government agency" pursuant to the Local Government Ethics Law, N.J.S.A. 40A: et seq., and whether the commissioners of a joint insurance fund are "local government officers" pursuant to the Law. For the reasons stated below, you are advised that a joint insurance fund is a "local govern-ment agency" and the commissioners are "local government officers." The purpose of the Law is to provide a State-wide ethical code applicable to persons who serve in local govern-ment and to require "local government officers" to file annual financial disclosure statements. N.J.S.A. 40A: General-ly, all local

2 government agencies, except purely advisory bodies and school boards are within the scope of the Law. N.J.S.A. 40A:9-22.3(e). In the absence of action by the county or municipal governing body to establish a local ethics board, the Code of Ethics is enforced by the Local Finance Board in the Department of Community Affairs. N.J.S.A. 40A: The governing body of any local unit, including a contracting unit, may agree to join together with any other local unit to establish a joint insurance fund for the purpose of insuring against liability, property damage, and workers' compensation and the providing of group health insurance or group term life insurance. N.J.S.A. 40A:10-36(a). The appointing authority of each member shall appoint one member of the governing body or employee to represent the local unit as an insurance fund commissioner. N.J.S.A. 40A: Further, each member may also appoint an alternate insurance fund commissioner who shall be a member of the governing body or employee of the unit. Ibid. If the total number of members exceeds seven, the commissioners are annually required to select no more than seven commissioners, and seven alternates, to serve as the executive committee. Ibid. The commissioners may employ necessary clerical assistants, whose compensation shall be fixed and paid by the member local unit, invest funds in such securities as it deems appropriate, adopt rules and regulations for the control and investment of the fund, and fix reasonable rates of premium of all insurance carried by the insurance fund. N.J.S.A. 40A: Further, the commissioner or the executive board, as appropriate, is subject to the requirements of the Local Fiscal Affairs Law, N.J.S.A. 40A:5-1 et seq., the Local Public Contracts Law, N.J.S.A. 40A:11-1 et seq. and any other rules and regulations governing the custody, investment and expenditure of public funds by local units. N.J.S.A. 40A:10-38(c). The commissioners are required to adopt bylaws which shall include providing procedures for the organization and administration of the joint insurance fund, for the maintenance of appropriate reserves, for the purchase of commercial insurance or reinsurance, for the withdrawal or expulsion of a member, and for the termination and liquidation of the joint insurance fund. N.J.S.A. 40A: The Department of Community Affairs is empowered to approve or disapprove the bylaws and risk management plan of the commissioners to determine whether there has been compliance with regulations governing the custody, investment, or ex-penditure of public moneys. N.J.S.A. 40A: Further, the Department of Insurance is authorized to approve or disapprove the bylaws and the risk management plan. Ibid. Additionally, the Department of Insurance may suspend or terminate the authority of any joint insurance fund, to assume control over any joint insurance fund, or to take any

3 necessary action to enable the fund to meet its obligations, cover expected losses, to liquidate, rehabilitate, or modify its affairs. N.J.S.A. 40A: A "local government agency" includes [A]ny agency, board governing body, including the chief executive officer, bureau, division, office, commission or other instrumentality within a county or municipality, and any independent local authority, including any entirety created by more than one county or municipality, which performs functions other than of purely advisory nature, but shall not include a school board. [N.J.S.A. 40A:9-22.3(e)]. The term "local government agency" encompasses a myriad of local government bodies. The definition is very broad and specifically excludes only purely advisory bodies and school boards. A joint insurance fund is created by two or more units of local government for the purpose of providing insurance to the members. Further, a joint insurance fund performs a sig-nificant governmental role in the specialized area of insurance and it exercises its discretion independent of the members. This includes investment decisions, determination of premium amounts, the purchasing of commercial insurance, and the ex-pulsion of members. The joint insurance fund is subject to the requirements of the Local Fiscal Affairs Law, N.J.S.A. 40A:5-1 et seq., and the Local Public Contracts Law, N.J.S.A. 40A:11-1 et seq. Accordingly, a joint insurance fund is a "local government agency" within the meaning of the Local Government Ethics Law. To conclude otherwise is to ignore the legislative intent to provide a State-wide ethics code which governs the conduct of persons engaged in the performance of public duties. Clearly a joint insurance board is an entity which exercises significant and wide ranging public responsibilities in the specialized area of insurance on behalf of, but independent of, units of local government. Having concluded that a joint insurance fund is a "local government agency" subject to the Local Government Ethics Law, the next inquiry is whether the commissioners are "local government officers." Included as "local government officers" are 1) elected officials; 2) members of local bodies that have authority to enact ordinances, approve development applications, or grant zoning variances; 3) members of inde-pendent local authorities; and 4) persons who are "managerial executives" or "confidential employees." N.J.S.A. 40A:9-22.3(g). The commissioners of a joint

4 insurance fund are not within the first three classes of local government officers. The fourth and last category of "local government officer" is a person "who is a managerial executive or con-fidential employee of a local government agency, as defined in section 3 of the 'New Jersey Employer-Employee Relations Act.'..., but shall not mean any employee of a school district or member of a school board." N.J.S.A. 40A:9-22.3(g)(4). As the Local Government Ethics Law makes specific reference to the definitions contained in the Employer-Employee Relations Act, it is necessary to examine the latter Act. The Employer-Employee Relations Act, N.J.S.A. 34:13A-1 et seq., provides a mechanism for the resolution of labor disputes in the private and public sectors. N.J.S.A. 34:13A-2. The Act is admin-istered by the State's Public Employment Relations Commission (PERC). N.J.S.A. 34:13A-5.2. The Act defines "managerial executives" of a public employer as persons who formulate management policies and practices, and persons who are charged with the responsibility of directing the effectuation of such management policies and practices... [N.J.S.A. 34:13A-3(f)] "Confidential employees" of a public employer are defined as employees whose functional responsibilities or knowledge in connection with the issues involved in the collective negotiations process would make their membership in any appropriate negotiating unit incompatible with their official duties. [N.J.S.A. 34:13A-3(g)] The significance of "managerial executives" and "confidential employees" under the Employer-Employee Relations Act is that these individuals are excluded from membership in the local collective bargaining unit comprising of local public em-ployees. N.J.S.A. 34:13A-5.3. PERC has established guidelines for determining whether a person formulates management policy and direct its effectuation and is accordingly a "managerial executive." A person formulates policies when he develops a particular set of objectives designed to

5 further the mission of the governmental unit and when he selects a course of action from among available alternatives. A person directs the effectuation of policy when he is charged with developing the methods, means, and extent of reaching a policy objective and thus oversees or coordinates policy implementation by line supervisors. Simply put, a managerial executive must possess and exercise a level of authority and independent judgment sufficient to affect broadly the organization's purposes or its means of effectuation of these purposes. Whether or not an employee possesses this level of authority may generally be deter-mined by focusing on the interplay of three factors: (1) the relative position of that employee in his employer's hierarchy; (2) his functions and responsibilities; and (3) the extent of discretion he exercises. [Boro. of Montvale, 6 NJPER 507, (1980)] Thus, the determination as to whether a person is a "managerial executive" requires an examination of the person's position in the local agency's hierarchy, his job function and responsibilities, and the amount of individual discretion exer-cised by the individual. The analysis of these three factors is very often a position-by-position determination. The determination as to whether a person is a "confidential employee" also requires an individualized deter-mination. PERC has narrowly construed the term "confidential employee." County of Essex, 17 NJPER 256, 257 (1991). The "key" to status as a confidential employee "is an employee's access to, and knowledge of, material used in labor relations processes including contract negotiations, contract admin-istration, grievance handling and preparation of these pro-cesses." Ibid. Specifically, PERC makes this case-by-case analysis as follows: We (PERC) scrutinize the facts of each case to find for whom each employee works, what he does, and what he knows about collective negotiations issues. Finally, we determine whether the responsibilities or knowledge of each employee would compromise the em-ployer's right to confidentiality concern-ing the collective negotiations process if the

6 employee was included in a negotiating unit. [State of New Jersey, 11 NJPER 507, 510 (1985)] Thus, a "confidential employee" has access to confidential information of the employer which is relevant to the labor relations of the local government agency. We examined in detail in Attorney General Opinion No (September 20, 1991) the terms "managerial executives" and "confidential employees" in the context of the Local Government Ethics Law. We noted in the Opinion that the Legislature in using these terms to define "local government officer" was attempting to adopt an approach that would identify persons of a high level with policy-making responsi-bilities. We determined in Opinion No and in other related Opinions that certain persons serving in government were necessarily "managerial executives" or "confidential employee" and therefore "local government officers", because their statutory duties mandated that they exercise significant policy-making responsibilities. In examining the statutory duties of the Commissioners of a joint insurance fund discussed above, the commissioners exercise significant policy making responsibilities in the specialized area of insurance, independent of the member units. They make important decisions regarding the investment of public monies, the purchase of commercial insurance, and decide premium rates. Accordingly, the commissioners are necessarily "managerial executives" and therefore "local government officers." While the commissioners may not be involved in labor relations matters and therefore not "confidential employees," a "local government officer" is a "managerial executive" or "confidential employee." N.J.S.A. 40A:22.3(g)(4). A related question is whether the clerical staff and professional staff of a joint insurance fund are governed by the Local Government Ethics Law as "local government employees" or "local government officers." As previously noted, a joint insurance fund is authorized to employ clerical staff, whose compensation is fixed and paid by the member units. N.J.S.A. 40A: The joint insurance fund's clerical staff is within the definition of "local government employee." N.J.S.A. 40A:9-22.3(e), and these individuals are subject to the Code of Ethics. Moreover, the issue whether these individuals are "local government officers" requires an individualized fact/ legal analysis as suggested in Attorney General Opinion No (September 20, 1991). Concerning professional staff, the Joint Insurance Fund Law provides no guidance as to the re-lationship of these individuals to the joint insurance fund. We have previously noted that

7 professionals retained by a local government agency for a special limited purpose are not, in our view, subject to the Law. Attorney General Opinion No (September 20, 1991). However, this would be in contrast to a professional who has an ongoing and continuing relationship with a local government agency as its principal advisor. These individuals may be deemed "local government officers." Attorney General Opinion No (November 1, 1991). This determination requires an individual analysis and it is not within the scope of this opinion to examine each pro-fessional serving each joint insurance fund in the State. For the foregoing reasons you are advised that a joint insurance fund, established pursuant to N.J.S.A. 40A:10-36 et seq., is a "local government agency" for purposes of the Local Government Ethics Law, N.J.S.A. 40A: et seq., that commissioners of the joint insurance fund are "local government officers" for purposes of the Law and, therefore, must file a financial disclosure statement. Very truly yours, ROBERT J. DEL TUFO ATTORNEY GENERAL By: John J. Chernoski Senior Deputy Attorney General

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