New Law Doubles Limits for Municipal Officers’ Beneficial Interest in Contracts with Their Agency
The state Code of Ethics for Municipal Officers, chapter 42.23 RCW prohibits municipal officers from having a beneficial interest in most contracts made by, through, or under their supervision. See, RCW 42.23.030. There are exemptions from this prohibition and also exceptions to the exemptions. In 2023, the state legislature made several changes to this law in SHB 1577.
This blog provides a brief overview and then discusses the new changes that generally double the size of allowed contracts from $1,500 to $3,000 per month for most public agencies and also reduce the population limits for towns and cities from 10,000 to under 5,000 in order to benefit from this dollar limit increase. For more comprehensive information about this law, see our webpage on Ethics and Conflicts of Interest.
What Is a Municipal Officer?
Let’s start with the broad definition of “municipal officers” in this code. RCW 42.23.020(2) provides:
(2) "Municipal officer" and "officer" shall each include all elected and appointed officers of a municipality, together with all deputies and assistants of such an officer, and all persons exercising or undertaking to exercise any of the powers or functions of a municipal officer...
So, this definition includes not only elected officials, such as council members, commissioners, and mayors, but also appointed officials, such as city managers, executive directors, police and fire chiefs as well as all of their deputies and assistants. This definition applies to officers of towns, cities, counties, and special purpose districts.
Avoiding a Prohibited Beneficial Interests in the Municipality’s Contracts
A municipal officer may not have direct or indirect beneficial interests in contracts their municipality undertakes, except as allowed in the exemptions outlined in RCW 42.23.030. Contracts include direct employment with the agency or serving as a contractor for the provision of vendor, services, or small public works contracts. At MRSC, we have received questions regarding contracts including (but not limited to) computer services, office supplies, tree removal, and snow plowing.
RCW 42.23.030 is a relatively long statute that begins with a broad prohibition followed by exceptions and then limits or furthers exceptions to the exemptions. This law provides, in relevant part:
No municipal officer shall be beneficially interested, directly or indirectly, in any contract which may be made by, through or under the supervision of such officer, in whole or in part, or which may be made for the benefit of his or her office, or accept, directly or indirectly, any compensation, gratuity or reward in connection with such contract from any other person beneficially interested therein. This section shall not apply in the following cases…
One important exemption from this prohibition against beneficial interests is for lower-value contracts, including those made with cities and towns with smaller populations.
Exceptions for Lower-Value Contracts
With the passage of SHB 1577, the most significant change in this law is the doubling of the dollar limit for smaller contracts as follows:
- From $1,500 in earnings per calendar month to $3,000 per calendar month, and
- From $18,000 in earnings per calendar year for certain seasonal contracts to $36,000 per year.
The last time these dollar amounts changed was in 1999 — almost 25 years ago — and this event changed the 1961 original limit of $750 per month. So, this doubling (again) of the amount is more of an update that accounts for the time value of money.
(a) The letting of any other contract in which the total amount received under the contract or contracts by the municipal officer or the municipal officer's business does not exceed $3,000 in any calendar month.
(b) However, in the case of a particular officer of a second-class city or town, or a noncharter optional code city, or a member of any county fair board in a county which has not established a county purchasing department pursuant to RCW 36.32.240, the total amount of such contract or contracts authorized in this subsection (6) may exceed $3,000 in any calendar month but shall not exceed $36,000 in any calendar year.
However, this exception does not apply to larger towns, cities, counties, or irrigation districts because RCW 42.23.030(6)(d)(ii) provides an exception to this exemption:
The letting of any contract by a county with a population of 125,000 or more, a city with a population of 5,000 or more, or an irrigation district encompassing more than 50,000 acres.
Reduction in Population Limits for Towns and Cities
This exception to the exemption means that the exception with new increased dollar amounts does not apply to towns and cities with populations of 5,000 or more. This change happened as the legislature considered the details of SHB 1577. Before this change the population limit for this contract exemption was under 10,000.
There are still more than 150 Washington towns and cities that are included under this exception, making up well over 50% of our state’s 281 towns and cities. However, almost 30 towns and cities with populations between 5,000 and 10,000 are now newly excluded because of this population reduction. If your town/city falls within this range, then I suggest meeting with your agency attorney before renewing or extending any current contracts where a municipal officer may have a beneficial interest.
For counties, the population limit remains the same — at less than 125,000. This still includes all but the 11 most populated of our state’s 39 counties.
For irrigation districts, the 50,000 acres or less geographical limit also remains unchanged.
A Reminder About Not Voting and Disclosure
Remember that a municipal officer may not vote on a contract that benefits them and must disclose these beneficial interests to the governing body (RCW 42.23.030). These requirements remain unchanged by SHB 1577 and apply even if one of the exemptions allows consideration of a proposed contract to proceed. Any interests must be disclosed by the municipal officer and noted in the official minutes before the formation of the contract.
Benefits of These Changes
Updating the dollar amounts in the Code of Ethics for Municipal Officers is a significant improvement, allowing more flexibility for municipalities, including smaller towns and cities.
Regarding the reduction in population for towns and cities to use this exception, this change appears to have been made so that these contracts with municipal officers are allowed only in smaller communities where there is presumably more of a true need at times to contract with those who are already part of their local governments.
These limited exceptions for employment and contracting with municipal officers benefit their municipalities by allowing public agencies greater flexibility in finding qualified contractors for a variety of needs when there may be limited options. There is also a benefit in encouraging additional people to consider running for election or seeking appointed positions in smaller communities while being able to keep or make contracts with smaller local governments.
Note that MRSC guidance is general and not meant to substitute for the legal advice of an agency’s own attorneys. Please consult with your legal counsel about contracts or proposed contracts that may involve a municipal officer’s beneficial interests.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.