Sale of Revenue Bonds by Medical Care Commission

Subject:

Requested By: I. O. Wilkerson, Jr., Director Division of Facility Services Department of Human Resources

Question: May a member of the North Carolina Medical Care Commission purchase revenue bonds issued by that commission without giving rise to a conflict of interest?

Conclusion: Although a strict construction of the pertinent statutes does not prohibit such purchases, it is recommended that commission members refrain from purchasing bonds in order to avoid the appearance or impropriety, and the possible criminal penalty of G.S. 14-234.

The North Carolina conflict of interest statutes, G.S. 14-234, reads as follows:

"If any person appointed or elected a commissioner or director to discharge any trust wherein the State or any county, city or town may be in any manner interested shall become an undertaker, or make any contract for his own benefit, under such authority, or be in any manner concerned or interested in making such contract, or in the profits thereof, either privately or openly, singly or jointly with another, he shall be guilty of a misdemeanor . . ."

Since the bond itself evidences a contract and since a member of the Medical Care Commission is a commissioner within the meaning of the statute, a violation of G.S. 14-234 will be established if it appears that a commission member who purchases a bond is contracting for his own benefit.

The Health Care Facilities Finance Act, G.S. 131A-1 through 131A-25, authorized the issuance of revenue bonds by the Medical Care Commission. The commission is given the power under

G.S. 131A-11 to issue interim receipts or temporary bonds; to set restrictions governing the disbursement and use of proceeds; to replace lost or destroyed bonds; to determine when bonds mature, whether they are redeemable before maturity, and whether they will be registered or in coupon form; to establish authentication procedures; and to determine the form and manner of execution, the denominations to be issued, and the place at which principal and interest are to be paid. G.S. 131A-11 also imposes certain duties on the Local Government Commission, including approval of the issuance by the Medical Care Commission, fixing the interest rate, and determining the manner of sale and price. The same section requires, however, that the sale must be approved by the Medical Care Commission. It appears, therefore, that ultimate authority over every element of a bond issue is vested in the Medical Care Commission. A commissioner who intended to purchase a bond would clearly be in a position to benefit himself by exercising the powers outlined above. He might, for example, withhold approval of an issue with a low interest rate because it would diminish the value of any bonds he intended to buy even though low-interest financing is in the best interests of the commission. This conduct would be prohibited by G.S. 14-234.

The Health Care Facilities Finance Act contains its own conflict of interest section. G.S. 131A-22 provides that, in order to avoid a conflict of interest, a commission member who is interested in a contract with the commission must disclose his interest to the commission and must not participate in the commission’s authorization of the contract. However, there are compelling reasons for recommending that, despite G.S. 131A-22, commission members should not purchase bonds issued by the commission. The authorization of bonds, unlike the approval of ordinary purchase contracts, is a long and involved procedure which accounts for a large portion of the commission’s responsibilities. Abstention from the commission’s deliberations would prevent a commission member from fully performing the duties imposed on him by statute. Furthermore, even if the requirements of G.S. 131A-22 were met, there would be the appearance of a conflict of interest and possible violation of G.S. 14-234.

Rufus L. Edmisten Attorney General

Marilyn Rich Associate Attorney