Ethics: Advisory Opinion No. 2004-14

Advisory Opinion No. 2004-14
Advisory Opinion No. 2004-14 Advisory Opinion No. 2004-13

Application of the Revolving Door Provisions of the Code of Ethics for Public Officials to the Secretary of the Office of Policy and Management

The Secretary of the Office of Policy and Management (“OPM”), Marc S. Ryan, has asked a number of questions regarding the application of the Code of Ethics for Public Officials, Conn. Gen. Stat. 1-79 et seq., to him as he considers leaving state service to take a job in the private sector.  This opinion addresses several general questions asked by Secretary Ryan, and then addresses a specific factual situation he has raised.

Secretary Ryan has asked three general questions regarding a job search. First, he has asked whether he is barred from discussing potential job opportunities with private entities.  Secondly, he has asked whether he is barred from responding to job opportunities or contacting a firm or company that does business with the state or has benefited from a state policy, appropriation or revenue initiative undertaken by the administration.  Finally, he has asked whether he is barred from responding to inquiries from or contacting a company if he had previously been involved in that company’s contracting with the state, whether he ultimately signed the contract or it was signed by another agency head of the administration.

In answer to the first question, as a public official, Secretary Ryan may not use his state office or position for financial gain.  Conn. Gen. Stat. 1-84(c).  In the context of the question asked, this means that, while he is actively pursuing a particular job opportunity, he should have nothing to do with his potential outside employer’s state business.[1]  Under Conn. Gen. Stat. 1-86(a), he would be required to notify the Governor of the potential conflict of interest, and she must then refer the particular matter to someone at his level or above him.  Conn. Gen. Stat. 1-86(a).  The State Ethics Commission will make every effort to help ensure compliance with 1-86(a) should the need arise.

Turning to Secretary Ryan’s second and third questions, the mere fact that a prospective employer may have, at some time during the course of his tenure as Secretary of OPM, benefited from an administration program or policy does not prohibit him from seeking employment with that business.  Of course, no public official may solicit or accept anything of value, including a promise of future employment, based on any understanding that his vote, official action or judgment would be or had been influenced thereby.  Conn. Gen. Stat. 1-84(f), 1-84(g).  Also,  if he participated substantially in, or supervised, the negotiation or award of a state contract valued at $50,000 or more, and the contract was signed within one year before Secretary Ryan leaves state service, he may not accept employment with a party to the contract other than the state for one year after his departure.  Conn. Gen. Stat. 1-84b(f).  This restriction applies regardless of whether he or another agency head was the ultimate signatory on the contract.

Secretary Ryan has also asked a series of questions regarding the application of the revolving door law to a specific set of facts.  These facts are presented by Secretary Ryan as follows:  As Secretary of OPM, Mr. Ryan has generally played a role in the procurement and contract negotiation of state employee and retirement health care, and for the HUSKY A and B managed care programs.  In the case of the former programs, Secretary Ryan indicates that in some years, he negotiated directly with the HMOs, while in other years, he has simply given direction to other OPM staff, who have then participated in the negotiations between the providers and the Comptroller’s Office.  Ultimately, the Comptroller’s Office is the signatory for the State on the contracts.  In some years, as Secretary of OPM, he has been required to declare deficiencies in the account, in order to supply the appropriate funding as negotiated.

Secretary Ryan states that, with regard to the HUSKY contracts, he has regularly participated in the negotiations with a Deputy Commissioner from the Department of Social Services (“DSS”).  These negotiations generally occur as a joint session with all the participating HMOs, although, infrequently, there may be different increases for different HMOs.  Secretary Ryan participated in these negotiations for contracts that were ultimately signed in December of 2003, retroactive to October of 2003, and continuing to September 30, 2004.  The DSS Commissioner or her designee is the signatory on the contract.  For almost every year, the State must declare a deficiency in Medicaid for HUSKY A, because the legislature has consistently budgeted a lower rate increase than what is needed to keep the program functioning, and because the administration has attempted to maintain a budget minimum for negotiating purposes.

Secretary Ryan also indicates that the state’s discretion in the area of rate increases is somewhat limited by a theoretical rate-increase cap that is set from year to year by the federal Centers for Medicare and Medicaid Services (“CMMS”) and the Office of Management and Budget (“OMB”).  Secretary Ryan states that CMMS must approve the rate increases from year to year, and that the cap established for increases in recent years has been in the 4 percent range.  HMOs generally seek increases in the high single digit range, and the state generally has had to default to the CMMS/OMB ceiling.

Given this factual background, Secretary Ryan has asked a series of questions.  The first is whether his involvement in the 2003 contract process has precluded him from accepting employment in the HMO industry and, if so, for what period of time?  If (1) Secretary Ryan participated substantially in the negotiations of the contract that was signed on December 30, 2003; (2) the changes to the contract were more than routine  modifications (see below); and if he left state service before December 30, 2004, then he would have to wait one year before he took a job with one of the HMOs that was a party to the contract.  See explanation of Conn. Gen. Stat. 1-84b(f), above.  If, however, his participation was not substantial, or the changes were simply routine modifications such as are described below in connection with the subsequent 4-month 2004 contract, then he would not be subject to the one-year ban of 1-84b(f).

Secondly, Secretary Ryan has asked whether his involvement in the 2004 contract precludes him from taking a job with one of the parties under Conn. Gen. Stat. 1-84b(f).  According to Secretary Ryan, in its most recent session, the General Assembly approved legislation that allows the state to negotiate with the HMOs the “carve-out” of certain benefits that have previously been part of the total HMO coverage.  In particular, the State was authorized to negotiate for the removal of dental, mental health and/or pharmacy benefits from the HMO contract.  The carving out of any one of these coverages would necessarily reduce the monthly amount received by the HMO per member.

Over the past several months, Secretary Ryan states, he has met with two or three of the HMOs in question.  The two sides did not engage in negotiation: instead, these sessions were an opportunity for the HMOs to outline their position with regard to the potential carve-outs.  According to Mr. Ryan, the representatives from the State listened to the HMOs, and indicated that these positions would be considered when negotiations began.  Thereafter, Secretary Ryan told DSS Deputy Commissioner Michael Starkowski that he, Mr. Ryan, in order to comply with the ethics laws, would not participate in the negotiations for the new contract.  Some time later, Deputy Commissioner Starkowski informed Secretary Ryan that DSS had sent a letter to the HMOs offering a four-month extension of the existing contract, with a 4% inflationary rate increase.  This was the rate that had been allowed in the previous contract, although the HMOs had requested a 7% increase.  Mr. Ryan indicates that he took no part in the decision to send the letters or to offer the 4% number.  The current budget had allotted 2%, but Mr. Ryan states that that number is traditionally considered a base line only.  Mr. Ryan did participate in internal discussions regarding the federal guidelines for rate-setting, which were in line with the 4% number.  Mr. Ryan indicates that, in recent years, the State has relied heavily on the federal guidelines for rate setting.  The contractual terms of the contract remained the same except for the additional inflationary increase and the term of the contract, which is four months.  This contract was signed by DSS and the HMOs.  The carve-out issue was not addressed.

In the context of another section of the Code of Ethics, the State Ethics Commission has held that “the routine modification of a contract, making changes which are not seriously inconsistent with the original contract, does not appear to be ‘entering into a contract’ as that term is used” in the open and public process contracting requirement of Conn. Gen. Stat. 1-84(i).  See, for example, State Ethics Commission Advisory Opinion No. 81-2, “Contracts Between the State and a Business With Which a Public Official is Associated,” 42 Conn. Gen. Stat. Law J. 39, p.10 (3/24/81).  Applying this rule to Secretary Ryan’s set of facts, if, as it appears, the 4-month extension did not modify the terms of the existing contract in any way other than those described above, then this new contract does not create a one-year ban under Conn. Gen. Stat. 1-84b(f).

It is anticipated by Secretary Ryan that DSS Deputy Commissioner Starkowski will now negotiate with the HMOs regarding the carve-outs, and that DSS will keep certain officials of OPM informed of their progress although OPM will not participate in the negotiations themselves.

Once DSS and the HMOs have reached a proposed agreement, it will be necessary for Secretary Ryan, as part of his statutory responsibilities, in the case of both the 4 % increase and also in the case of any carve-out overruns, to certify that there are sufficient funds to cover any additional cost to the state.    Secretary Ryan has asked whether this action on his part constitutes “substantial participation” in the negotiation or award of the HMO contract under Conn. Gen. Stat. 1-84b(f).

Because Secretary Ryan is not participating in the negotiation of the contract itself, his action in approving or disapproving the deficiency amount does not appear to be substantial participation in the contract negotiations themselves.  A second section of the Code of Ethics also contains “substantial participation” language, however.  Under Conn. Gen. Stat. 1-84b(a), a former state employee or public official may never represent anyone other than the state regarding a particular matter in which he participated personally and substantially while in state service, and in which the state has a substantial interest.  Commission regulations define substantial participation in a particular matter under 1-84b(a) as “participation that was direct, extensive and substantive, not peripheral, clerical or ministerial.”  Regulations of Agencies, 1-81-32.  Certainly, Secretary Ryan’s action in approving a cost overrun has a direct, extensive and substantive effect on the process.  Therefore, should he take a position with one of the HMOs after leaving state service, he may not represent that HMO with regard to any contract that was funded as a result of his official action.  Because this ban has no time limit, the Commission has construed its application narrowly.  Thus, in this instance, the ban would not extend to a subsequent contract neither negotiated nor funded by Secretary Ryan.

Finally, Secretary Ryan has asked how the revolving door provisions of the Code of Ethics affect his ability to seek or accept employment with an in-state or out-of-state holding, parent or sister company of the one of the HMOs described in this opinion. 

This issue has been addressed by prior Commission opinions.  For example, in Advisory Opinion No. 88-5, 49 Conn. Law J. No.43, p. 46B (4/26/88), the Commission held that it would be a violation of Conn. Gen. Stat. 1-84b(d) [the previous statutory cite for the current 1-84b(f)] for a state employee to work for either a parent or sister organization to a partnership that had contracted with the state, where the signatory to the state contract was the president of the parent organization and the general partner in two subsidiary partnerships.  It was this individual who had offered employment to the state employee.  In its decision, the State Ethics Commission stated:  “To hold otherwise would vitiate subsection 1-84b(d), for it would allow avoidance of the subsection through the routine creation of alternative business organizations.”

Certainly there is absolutely no reason to believe in the matter now before the Commission that the HMO parent or holding company was created to somehow circumvent  the one-year prohibition of 1-84b(f).  Nevertheless, the language of 1-84b(f), and the policy concerns raised in Advisory Opinion No. 88-5, do suggest that the relevant issue is whether or not the private party to a state contract has sufficient control over, or input in, the hiring decisions of its parent, sister, or related holding company, such that the private party could facilitate a job offer being made to a state employee or public official in appreciation for the work performed by the state servant during the negotiation of the contract.  Therefore, if, in Secretary Ryan’s case, the HMO that is a party to the 2003 state contract does not have any authority to facilitate his hiring by a parent, holding or sister company, then he need not refrain from accepting employment with that company before December 30, 2004.

If, however, Secretary Ryan accepts employment with an outside company and  then remains for a period of time in the position of Secretary of OPM, he must not take any action in his official capacity that would benefit his future employer.  See Conn. Gen. Stat. 1-84(b) and/or 1-84(c).  If, during the remainder of his tenure as Secretary, such an issue does arise, then pursuant to 1-86(a), he must notify his immediate supervisor, the Governor, who must then assign the matter to someone at the Secretary’s level or handle it herself.  See Regulations of Connecticut State Agencies 1-81-29.  Should an issue arise in which the Governor is precluded from participation, then, again under 1-86(a), the Secretary must notify the State Ethics Commission and “take such steps as the Commission shall prescribe or advise."  For example, if a statute mandates that a particular action may only be taken by an official of OPM, and Mr. Ryan cannot act, then the action would have to be taken by an OPM deputy secretary.  Under these unique circumstances, i.e., that the matter must be referred to someone subordinate to Mr. Ryan, the deputy commissioner should notify the State Ethics Commission in writing of his or her actions.

Finally, of course, the remaining revolving door provisions will apply to Secretary Ryan after he leaves state service.  See Conn. Gen. Stat. 1-84a, 1-84b(b).

By order of the Commission,

Hugh Macgill,

[1] In previous informal staff opinions, active pursuit of a job opportunity has been defined as the point at which the state employee or official is scheduled for an interview with the prospective employer.  In contrast, a state employee who sends in a resume in response to an advertisement, but has not yet heard back from the employer, would not need to comply with the notification and recusal requirements of 1-86(a).

Content Last Modified on 9/7/2005 8:05:18 AM