Conflicts of interest may arise for municipal officials when exercising legislative authority as well as for municipal officials and employees when exercising employment interests.

Three types of conflicts of interest regulate the authority of an official voting on matters before the governing body. In the context of municipal officials and employees, the term ‘‘conflict of interest’’ has several forms and definitions. Statutory law specifies what constitutes a “direct interest” and an “indirect interest” in a contract. In addition, T.C.A. § 8-17-103 requires the local adoption of a Code of Ethics and requires the defining of “personal interests.” Descriptions of direct and indirect interests are found on this page, and a description of personal interests and statutory requirements for addressing personal interests can be found here.

T.C.A. §§ 6-54-107, 6-54-108, 12-4-101, 12-4-102 prohibit public officers from having a “direct interest” in a contract with their city. Specifically, T.C.A. § 12-4-101(a) provides the following prohibition for all Tennessee public contracts:

It is unlawful for any officer, committee member, director, or other person whose duty it is to vote for, let out, overlook, or in any manner to superintend any work or any contract in which any municipal corporation, county, state, development district, utility district, human resource agency, or other political subdivision created by statute shall or may be interested, to be directly interested in any such contract.

T.C.A. § 6-54-107(a) provides similar prohibitions specific to municipalities:

No person holding office under any municipal corporation shall, during the time for which such person was elected or appointed, be capable of contracting with such corporation for the performance of any work that is to be paid for out of the treasury. Nor shall such person be capable of holding or having any other direct interest in such a contract.

“Direct interest” in T.C.A. § 6-54-107(a) and “directly interested” in T.C.A. § 12-4-101(a) are both defined as, “any contract with any business in which the official is the sole proprietor, a partner, or the person having the controlling interest. Controlling interest includes the individual with the ownership or control of the largest number of outstanding shares owned by any single individual or corporation.” Various audit reports include findings of prohibited direct interests in contacts by officials, including when a town paid the mayor for mowing services (see report) and when a county mayor purchased rental property already rented by the county and then collected rent (see report).

These statutory regulations also prohibit public officers from being “indirectly interested” in a contract with their city unless the interest is publicly disclosed. T.C.A. § 12-4-101(a) provides the following prohibition for all Tennessee public contracts:

It is unlawful for any officer, committee member, director, or other person whose duty it is to vote for, let out, overlook, or in any manner to superintend any work or any contract in which any municipal corporation, county, state, development district, utility district, human resource agency, or other political subdivision created by statute shall or may be interested, to be indirectly interested in any such contract unless the officer publicly acknowledges such officer's interest.

T.C.A. § 6-54-107(b) provides similar prohibitions specific to municipalities: “No officer in a municipality shall be indirectly interested in any contract to which the municipality is a party unless the officer publicly acknowledges such officer's interest.

“Indirect interest” in T.C.A. § 6-54-107(b) and “indirectly interested” in T.C.A. § 12-4-101(b) are both defined as, “any contract in which the officer is interested but not directly so but includes contracts where the officer is directly interested but is the sole supplier of goods or services in a municipality.”

The Tennessee Attorney General has opined the following: “This Office has concluded that an official is indirectly interested in a contract between a governmental agency and his or her spouse if the two commingle assets.” Tenn. Op. Atty. Gen. No. 05-017 (Feb. 3, 2005) (citing Tenn. Op. Atty. Gen. No. 00-181 (Nov. 22, 2000)); see also Tenn. Op. Atty. Gen. No. 88-122 (July 13, 1988), Tenn. Op. Atty. Gen. No. 84-030 (Jan. 27, 1984). While the Attorney General opinions are specific to spouses or other relatives, a court may also conclude that the commingling of assets between any two individuals creates an indirect interest under the statute when the non-official is subject to a vote before the governing body. T.C.A. § 12-4-101 simply requires that an official publicly acknowledge any indirect interest in a contract with the municipality if the official has the duty to vote for, let out, or superintend that contract, but the statute does not require recusal of the official for an indirect interest. In addition, audit reports have included findings when an alderman had a direct interest and was considered a sole supplier but failed to disclose the conflict of interest publicly.