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AGENDA BILL Agenda Item No. 6(B) Date: October 17,201 1 To: El Cerrito Municipal Services Corporation Board From: Lori Treviio, Redevelopment Manager Subject: Adoption of Conflict of Interest Policy ACTION REQUESTED Adopt the attached Resolution of the El Cerrito Municipal Services Corporation adopting its Conflict of Interest Policy. BACKGROUND The Corporation is applying to the Internal Revenue Service (the "IRS") for tax exempt status. The IRS encourages applicants to adopt its model conflict of interest policy for tax-exempt charitable organizations (the "IRS Policy") and, as part of the applic'ation, specifically asks whether or not the applicant has done so. ANALYSIS The IRS Policy is designed to ensure that the activities and transactions engaged in by directors, principal officers, lcey management staff persons, or members of a committee with governing-board-delegated powers, primarily benefit the tax-exempt charitable organization. Applicants that do not adopt the IRS Policy often must then address additional inquiries from the IRS and provide additional information to document that there are adequate safeguards in place to prevent directors, or others, from obtaining any substantial benefit from transactions with the organization. For the Corporation, applicable provisions of the California Corporations Code and the California Government Code already place more stringent requirements on the decision-making process of the Corporation than the IRS Policy. Additionally, the City's conflict of interest policy amended in July includes the Corporation and would generally provide more stringent conflict requirements. Nevertheless, to avoid any unnecessary delay in obtaining the Corporation's determination as a tax-exempt charity from the IRS, it is prudent for the Corporation to adopt the IRS Policy. LEGAL CONSIDERATIONS The proposed resolution, including the Conflict of Interest Policy, incorporated by reference and attached as Exhibit A, was drafted and is recommended by Corporate Counsel. Attachments 1. Resolution of the Board of Directors of the El Cerrito Municipal Services Corporation to adopt a Conflict of Interest Policy 2. Conflict of Interest Policy ---PAGE BREAK--- Agenda Item No. 6(B) Attachment 1 MUNICIPAL SERVICES CORPORATION RESOLUTION NO. XX RESOLUTION OF THE BOARD OF DIRECTORS OF THE EL CERRITO MUNICIPAL SERVICES CORPORATION ADOPTING A CONFLICT OF INTEREST POLICY WHEREAS, the Board of Directors (the "Board') of the El Cerrito Municipal Services Corporation, a California nonprofit public benefit corporation (the "Corporation"), has determined that it is in the best interest of the Corporation to apply to the Internal Revenue Service (the "IRS") for recognition as a tax-exempt charitable organization pursuant to Section 5 0 1 of the Internal Revenue Code of 1 986, as amended (a "Charitable Organization"); and WHEREAS, the IRS has published a model of conflict of interest policy to set forth the process by which a Charitable Organization should implement decisions regarding transactions or arrangements between the Charitable Organization and members of the Charitable Organization's board of directors and other individuals (the "IRS Policy"); and WHEREAS, under provisions of California law, including, but not limited to, certain provisions of the California Corporations Code and the California Government Code, the Board is subject to more stringent duties and obligations than the requirements set forth in the IRS Policy; and WHEREAS, to demonstrate the Board's commitment to engage only in activities and transactions for the primary benefit of, and that are in the best interests of, the Corporation, the Board desires to adopt the conflict of interest policy attached to this resolution as Exhibit A (the "Conflict of Interest Policy"), which is hereby incorporated into this resolution by this reference. The Conflict of Interest Policy is consistent with the IRS Policy; and WHEREAS, to the extent there is any conflict between the Conflict of Interest Policy and the requirements of any applicable City of El Cerrito, state or federal law or regulation now or hereafter enacted, it is the intent and desire of the Board that the Corporation comply with the most stringent requirement regarding matters set forth in the Conflict of Interest Policy. NOW THEREFORE, BE IT RESOLVED, AS FOLLOWS: 1. The Board of Directors finds that the above recitals are true and correct. 2. The Board of Directors hereby adopts the Conflict of Interest Policy attached hereto as Exhibit A. 3. This Resolution shall become effective immediately upon its adoption. I CERTIFY that at a regular meeting on October 17, 201 1, the Board of Directors of the El Cerrito Municipal Services Corporation passed this Resolution by the following vote: ---PAGE BREAK--- Agenda Item No. 6(B) Attachment 1 AYES: BOARD MEMBERS: NOES: BOARD MEMBERS: ABSENT: BOARD MEMBERS: IN WITNESS of this action, I sign this document on October-, 201.1. Cheryl Morse, Corporate Secretary APPROVED: Ann Cheng, Board Chairperson ---PAGE BREAK--- Agenda Item 6(B) Attachment 2 RESOLUTION 201 1-XX, EXHIBIT A CONFLICT OF INTEREST POLICY (El Cerrito Municipal Services Corporation) ARTICLE I PURPOSE The purpose of the conflict of interest policy (the "Policy") is to protect the interests of El Cerrito Municipal Services Corporation, a California nonprofit public benefit corporation (the "Organization") when the Organization is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of the Organization or might result in a possible excess benefit transaction. The Policy is intended to supplement but not replace any applicable state and federal laws governing conflict of interest applicable to nonprofit and charitable organizations, including, but not limited to California Corporations Code Section 5227, California Government Code 1090, California Government Code 8 1 000, or any applicable rule or regulation of the City of El Cerrito, all as may be enacted, or amended from time to time (collectively, the "Applicable Laws"). To the extent this Policy conflicts with all or any Applicable Laws, the Organization shall comply with the more stringent requirement in favor of the Organization. This Policy is intended to supplement, but not replace, the requirements set forth in the Organization's bylaws. ARTICLE I1 DEFINITIONS 1. Interested Person. Any director, principal officer, key management staff person, or member of a committee with governing board delegated powers, who has a direct or indirect financial interest, as defined below, is an Interested Person. 2. Financial Interest. A person has a financial interest if the person has, directly or indirectly, through business, investment, or family: a. An ownership or investment interest in any entity with which the Organization has a transaction or arrangement, b. A compensation arrangement with the Organization or with any entity or individual with which the Organization has a transaction or arrangement, or c. A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Organization is negotiating a transaction or arrangement. Compensation includes direct and indirect remuneration as well as ---PAGE BREAK--- Agenda Item 6(B) Attachment 2 RESOLUTION 2011-XX, EXHIBIT A gifts or favors that are not insubstantial. A financial interest is not necessarily a conflict of interest. Under Article 111, Section 2, a person who has a financial interest may have a conflict of interest only if the appropriate governing board or committee decides that a conflict of interest exists. ARTICLE I11 PROCEDURES 1. Duty to Disclose In connection with any actual or possible conflict of interest, an Interested Person must disclose the existence of the financial interest and be given the opportunity to disclose all material facts to the directors and members of committees with governing board delegated powers considering the proposed transaction or arrangement. 2. Determining Whether a Conflict of Interest Exists After disclosure of the financial interest and all material facts, and after any discussion with the Interested Person, the Interested Person shall leave the governing board or committee meeting while the determination of a conflict of interest is discussed and voted upon. The remaining board or committee members shall decide if a conflict of interest exists. 3. Procedures for Addressing the Conflict of Interest a. An Interested Person may make a presentation at the governing board or committee meeting, but after the presentation, the Interested Person shall leave the meeting during the discussion of, and the vote on, the transaction or arrangement involving the possible conflict of interest. b. The chairperson of the governing board or committee shall, if appropriate, appoint a disinterested person or committee to investigate alternative to the proposed transaction or arrangement. c. After exercising due diligence, the governing board or committee shall determine whether the Organization can obtain with reasonable efforts a more advantageous transaction or arrangement from a person or entity that would not give rise to a conflict of interest. d. If a more advantageous transaction or arrangement is not reasonably possible under circumstances not producing a conflict of interest, the governing board or committee shall determine by a majority vote of the disinterested directors whether the transaction or arrangement is in the Organization's best interest, for its own benefit, and whether ---PAGE BREAK--- Agenda Item 6(B) Attachment 2 RESOLUTION 201 1-XX, EXHIBIT A it is fair and reasonable. In conformity with the above determination, the governing board or committee shall make its decision as to whether to enter into the transaction or arrangement. 4. Violations of the Conflicts of Interest Policy a. If the governing board or committee has reasonable cause to believe a member has failed to disclose actual or possible conflicts of interest, it shall inform the member of the basis for such belief and afford the member an opportunity to explain the alleged failure to disclose. b. If, after hearing the member's response and after making further investigation as warranted by the circumstances, the governing board or committee determines the member has failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action. ARTICLE IV RECORDS OF PROCEEDINGS 1. Records of Proceedings The minutes of the governing board and all committees with board delegated powers shall contain: a. The names of the persons who disclosed or otherwise were found to have a financial interest in connection with an actual or possible conflict of interest, the nature of the financial interest, any action taken to determine whether a conflict of interest was present, and the governing board's or committee's decision as to whether a conflict of interest in fact existed. b. The names of the persons who were present for discussions and votes relating to the transaction or arrangement, the content of the discussion, including any alternative to the proposed transaction or arrangement, and a record of any votes taken in connection with the proceedings. ARTICLE V COMPENSATION 1. Compensation of Directors, Independent Contractors, and Key Management Staff Persons. ---PAGE BREAK--- Agenda Item 6(B) Attachment 2 RESOLUTION 201 1-XX, EXHIBIT A a. A voting member of the governing board or key management staff persons who receive compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that person's compensation. b. A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member's compensation. c. A voting member of the governing board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization, either individually or collectively, is prohibited from providing information to any committee regarding compensation. ARTICLE VI ANNUAL STATEMENTS 1. Keeping the Organization's Annual Statements. Each director, principal officer and member of a committee with governing board delegated powers shall annually sign a statement which affirms such person: Has received a copy of the Organization's Conflicts of Interest Policy, b. Has read and understands the Policy, c. Has agreed to with the Policy, and d. Understands the Organization is charitable, and in order to maintain its federal tax exemption, it must engage primarily in activities which accomplish one or more of its tax-exempt purposes. ARTICLE VII PERIODIC REVIEWS 1. Periodic Reviews of the Organization. To ensure the Organization operates in a manner consistent with charitable purposes and does not engage in activities that could jeopardize its tax-exempt status, periodic reviews shall be conducted. The periodic reviews shall, at a minimum, include the following subjects: a. Whether compensation arrangements and benefits are reasonable, based on competent survey information and the result of ann's length bargaining, and ---PAGE BREAK--- Agenda Item 6(B) Attachment 2 RESOLUTION 2011-XX, EXHIBIT A b. Whether partnerships, joint ventures, and arrangements with management organizations conform to the Organization's written policies, are properly recorded, reflect reasonable investment or payments for goods and services, charitable purposes and do not result in inurement, in~permissible private benefit or in an excess benefit transaction. ARTICLE VIII USE OF OUTSIDE EXPERTS 1. The Organization's Policy on Use of Outside Experts. When conducting the periodic reviews as provided for in Article VII, the Organization may, but need not, use outside advisors. If outside experts are used, their use shall not relieve the governing board of its responsibility for ensuring periodic reviews are conducted. ARTICLE IX CALIFORNIA CORPORATIONS CODE REQUIREMENTS If circumstances so require, the Organization shall annually furnish to all directors the written statement described in Section 6322 of the California Corporations Code (the "6322 Statement"). The 6322 Statement shall list covered transactions ("Covered Transactions") in which the Organization, its parent, or any subsidiary was a party and in which any director, key management staff person, or officer of the Organization, its parent, or any subsidiary had a direct or indirect financial interest as defined above in Article 11. A mere common directorship is not a direct or indirect financial interest. For the purpose of this Article IX, Covered Transactions required to be reported are any transaction during the previous fiscal year involving more than Fifty Thousand Dollars ($50,000), or (ii) which was one of a number of transactions in which the same Interested Person had a direct or indirect financial interest, and which in the aggregate involved more than Fifty Thousand Dollars ($50,000). The 6322 Statement shall contain the following information: a. A brief description of the Covered Transaction. b. The names of the Interested Person or Interested Persons. c. A brief description of the Interested Person's or Interested Persons' relationship to the Organization. d. A brief description of the nature of the Interested Person's or Interested Persons' interest in the Covered Transaction, and where practicable, the amount of such interest. In the ---PAGE BREAK--- Agenda Item 6(B) Attachment 2 RESOLUTION 2011-XX, EXHIBIT A case of a Covered Transaction with a partnership in which such an Interested Person is a partner, only the interest of the partnership need be stated. e. A brief description of the amount and circumstances of any indemnifications or advances aggregating more than Ten Thousand Dollars ($10,000) paid during the fiscal year to any current or former officer or director of the Organization.