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ED 13
Prohibit School Board Members from Doing Business Directly or Indirectly with their Districts

Summary

Current conflict of interest laws do not prevent members of local boards of trustees from doing business with the school districts they serve, which could lead to a perception of impropriety by the public. Although board members are required to declare their interests in businesses and abstain from voting on issues that involve contracts with those businesses, there is clear evidence that board members are benefiting from contracts obtained within these guidelines from business dealings with the districts they serve. To ensure that all business transactions made by a school district are truly independent of any undue influence, are highly ethical and are always conducted in the best interest of the students and taxpayers of the community, board members should be prohibited from doing business either directly or indirectly with the school district they are serving as elected officials.

Background

The Texas Local Government Code, Section 171.004(a), requires local public officials with a substantial interest in a business entity or real property to file affidavits stating the nature and extent of the interest before a vote or decision on any matter concerning the business entity or real property. Local public officials also are required to abstain from voting on such matters. A substantial interest in a business entity is defined in Section 171.002(a) as a person owning 10 percent or more of the voting stock or shares of the entity, or 10 percent or more or $15,000 or more of the entity’s fair market value, or income from the business entity exceeding 10 percent of his or her gross income for the previous year.

Section 171.002 also says that a person has a substantial interest in real property if the interest is an equitable or legal ownership with a fair market value of $2,500 or more. Also, a local public official is considered to have a substantial interest under this section if a person related to the official in the first degree by consanguinity or affinity, as determined under Chapter 573, Government Code.

Section 171.003 states that a public official commits an offense if he or she knowingly violates Section 171.004. Section 171.004 states that if a local public official has a substantial interest in a business entity or in real property, the official must file, before a vote or decision on any matter involving the business entity or the real property, an affidavit stating the nature and extent of the interest and must abstain from further participation in the matter if:

  • in the case of a substantial interest in a business entity the action on the matter will have a special economic effect on the business entity that is distinguishable from the effect on the public; or
  • in the case of a substantial interest in real property, it is reasonably foreseeable that an action on the matter will have special economic effect on the value of the property, distinguishable from its effect on the public.

This affidavit must be filed with the official record-keeper of the governmental entity. If a local public official required to file such an affidavit does so, he or she is not required to abstain from further participation in the matter if a majority of the members of the governmental entity in question comprises people who are likewise required to file and who do file affidavits of similar interests on the same official action.

In the Ysleta Independent School District (ISD), the Comptroller’s Texas School Performance Review (TSPR) reviewed board minutes for 1996-97 and found inconsistent application of the conflict of interest policy. Some board members abstained from votes and filed affidavits while others did not. Administrators told the review team that there was some confusion about when affidavits needed to be filed and when board members must abstain from votes. After disclosure by TSPR, by February 19, 1998, all board members had filed affidavits disclosing a substantial interest in a business entity.[1] No contracts, however, were terminated, and according to comments from a May 2000 TSPR progress report, business continued as usual on a large financial transaction made that year.[2]

This issue, however, continues to be a concern for the current school board. In an October 16, 2002 newspaper article, an Ysleta ISD trustee called for the resignation of the board president, citing a “flagrant conflict of interest” in a September technology meeting between district officials and a representative of Sun Microsystems. The representative of the company is a personal tax client of the board’s president, who is a certified public accountant, and payments from this company constitute 0.1 percent of the president’s gross income.[3] Whether the allegations are founded or not, the perception within the community is that some board members may be making biased business decisions for the district.

In the San Antonio ISD, complaints and allegations resulted in a 1995 investigation by an outside legal firm into business transactions between the district and the former board president. During the March 2000 review, TSPR found evidence of affidavits from this board member, but current voting records did not clearly show that the board member was abstaining from voting on the contract with the board member’s company.[4] In another, larger district, which is currently under review by TSPR, the appropriate affidavits are signed, and voting appears to be handled as designated in law; however, the companies of four board members have received more than $1.5 million in payments from the district over the last three years. Again, members of the community who felt that tax dollars were not used wisely brought these incidents to TSPR’s attention.[5]

In some smaller school districts, such as Wimberley ISD, a number of community members expressed concern that certain board members were doing business inappropriately with the district. Upon examination, TSPR commended the board for having all of the required affidavits on file and for making a special effort to dispel any appearance of a potential conflict of interest by separating agenda items related to the company owned by the board member, so that the board member can abstain for the record.[6] Despite these efforts to provide assurances to the community that all transactions with this company are unbiased, the perception of impropriety remained.

In some small, remote Texas districts, there are few vendors and even fewer individuals willing to take on the responsibility of board membership. In such situations, there may be compelling reasons for a district to conduct business with a company owned or operated by a board member. In the absence of such compelling circumstances, community members, taxpayers, parents and students deserve to know that every business transaction entered into by a school district serves the best interest of the student.

Recommendation

Local Government Code, Chapter 171, should be amended to prohibit public school board members from doing business directly or indirectly with the school district they serve as an elected official.

In some smaller, sparsely populated school districts, to be defined by commissioner rule, where there is only one vendor in the community capable of providing goods or services to the school district, and that business is directly or indirectly associated with a sitting board member, evidence must be presented to the board in open meeting that the price negotiated is market value or better, and that there is no other vendor within a 50-mile radius capable of providing the same or better quality goods or services at the same or lower cost.

Fiscal Impact

Prohibiting board members from conducting business with the school district they service should have no cost to the state or to local school districts.


Endnotes

[1]Texas Comptroller of Public Accounts, Texas School Performance Review of the Ysleta ISD (Austin, Texas, April 1998), pp. 59-60.

[2]Texas Comptroller of Public Accounts, Ysleta School Performance Review Progress Report (Austin, Texas, May 2000), p. 17.

[3]“YISD Trustee Lerma calls for board President Belise to quit,” El Paso Times, October 16, 2002.

[4]Texas Comptroller of Public Accounts, Texas School Performance Review of the San Antonio ISD (Austin, Texas, March 2000), pp. 46-47.

[5]Interview with Jana Upshaw, project manager with the Texas School Performance Review, Texas Comptroller of Public Accounts, Austin, Texas, October 16, 2002.

[6]Texas Comptroller of Public Accounts, Texas School Performance Review of the Wimberley ISD (Austin, Texas, June 1998), p. 45.