Request By:
Mr. William J. Froehlich
Daviess County Judge Executive
Courthouse
Owensboro, Kentucky 42301
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Recently, you were elected to serve as the thirteenth member on the board of directors of a local bank. In Daviess County, there are three banks and two savings and loan associations. The Daviess Fiscal Court conducts business with all five.
Before continuing much further as a bank board member, you request the opinion of this office as to whether or not there is a conflict of interest.
We assume the fiscal court deposits county money in or procures loans from all five banks at some time or other. We also assume that you are a stockholder in the bank of which you are a member of the board of directors.
Let us first look at this question from the viewpoint of your bank being chosen as a depository bank for county money. The choosing of depository banks rests with the fiscal court. KRS 67.080(1)(c), and
Pulaski County v. Richardson, 225 Ky. 556, 9 S.W.2d 523 (1928).
In OAG 82-134, copy enclosed, we concluded in a similar situation (only the county's deposits in banks were involved) that we saw no conflict of interest or incompatibility. In
Commonwealth v. Withers, 266 Ky. 29, 98 S.W.2d 24 (1936), the disqualifying interest was stated to be pecuniary or proprietary by which the public officer stands to gain or lose something. However, the court pointed out, the interest is not sufficient to disqualify the officer if the opportunity for self-benefit is a mere possibility or is so remote or collateral that it cannot be reasonably calculated to affect the officer's judgment or conduct in the making of a contract. In addition, the case of
McCloud v. City of Cadiz, Ky.App., 548 S.W.2d 158 (1977), holds that the deposit of money by a city with a bank where certain city officers are directors does not violate KRS 61.280 (which prohibits city officers from being interested, directly or indirectly, in city contracts). The court said that "Any benefit that the city officers might have received from the lending use of such money is too speculative and remote as to suggest a conflict of interest. " Further, the court in McCloud observed that "Statutes such as KRS 61.280 are designed in part to protect the value of goods and services received by the public. In a government regulated activity such as banking there can be no question as to value received. There is, therefore, no opportunity for imposition on the public."
In the deposit situation, the county is depositing its funds in a bank. The county will not pay any money out of its treasury for that service. In fact, the deposits may very well involve interest to be paid into the county treasury. We therefore conclude that the deposit transactions will involve no conflict of interest or incompatibility of responsibilities.
Now let us consider the situation involving the county's borrowing money from banks, including your bank.
KRS 61.220(1) prohibits any member of the fiscal court from becoming interested, directly or indirectly, in any contract for work to be done for the county or in any claim against the county.
Where your bank lends money to the county, the county will have to pay interest on the loan. Thus the borrowing contract will involve a claim against the county treasury.
The rule is that a public official cannot contract with himself in behalf of the public, unless he is specially authorized by statute to do so. Further, the court, in
Knox Fiscal Court v. Davis, 267 Ky. 155, 101 S.W.2d 409 (1936) 413, observed that "the statute (prototype of KRS 61.220) was intended to prevent members of the fiscal court from entering into contracts with the county for the salutary purpose of protecting the county 'against the sinister influences and purposes of its fiscal agencies, who might for the purpose of gain enter into contracts much to their own advantage and greatly to the detriment of the county.'"
Under the facts given, it is our opinion that the county's borrowing money from your bank would create a conflict of interest on your part. See Commonwealth v. Withers, above, and Knox Fiscal Court v. Davis, above. See OAG 79-555, copy enclosed, of related interest.
In addition, KRS 61.190 expressly prohibits any public officer from receiving, directly or indirectly, any interest or profits arising from the use or loan of public funds in his hands. The penalty is confinement in the penitentiary for not less than one (1) nor more than five (5) years.