Most cities provide compensation for council members for attending meetings and other official duties (albeit a very small wage for the vast majority of elected officials). In some cases, council members perform other services for their city government and volunteer for city projects and programs. City officials need to be cognizant of several state code restrictions on compensating council members as city employees or for performing work for the city as a contractor.
Council Members as Employees and Restrictions on Compensation
City council members and mayors are considered employees of the city and must be paid through the city’s payroll for any compensation that has been established by ordinance as required in Code of Iowa Section 372.13(8). Many cities have adopted ordinances that pay council members on a per meeting basis or through an annual wage to satisfy this requirement.
Section 372.13(8) also states “an elected city officer is not entitled to receive any other compensation for any other city office or city employment during that officer’s tenure in office, but may be reimbursed for actual expenses incurred”. However, there are some exemptions for city contracts provided in Section 362.5 (detailed below). Additionally, Section 372.13(10) allows a council member to hold the office of chief for the volunteer fire department or to serve as a volunteer firefighter.
Exceptions to Compensation Restriction
The state code provides a few exceptions to the prohibition on council members receiving other compensation during their tenure. Section 362.5 says a city officer or employee “shall not have an interest, direct or indirect, in any contractor job of work or material or the profits thereof or services to be furnished or performed for the officer’s or employee’s city” but then lists some contracts that are permitted:
- Contracts that are competitively bid, publicly invited and opened
- Contracts with volunteer firefighters or civil defense volunteers
- Contracts for the purchase of goods and services by a city, but the cumulative purchases must not exceed $6,000 in a fiscal year (this threshold was changed through legislation adopted in 2019)
Section 362.5 also exempts contracts in which a city officer or employee has an interest solely by reason of employment if the contract is done through competitive bid as well as contracts that were made before the time the officer or employee was elected or appointed (but such contracts may not be renewed).
Tips for When a Council Member Has Interest in City Contract
Code Section 362.5 allows city officials to enter into contracts with the city that are competitively bid, publicly invited and opened. This can include public improvement projects under Chapter 26 of the Code as well as other projects or services that are competitively bid. For such contracts, a council member could submit a competitive bid to the city that meets any bid criteria and requirements.
Once the bid process reaches the stage where the council will select a contractor and approve the contract, the council member will need to abstain from voting due to a conflict of interest. If the council member is awarded the contract, the city should view the member and his or her company as they would any other contractor or vendor. In this sense, any payments should be done in the same manner as any other contractor or vendor and no payments should be made through the city’s payroll. As with other contractors or vendors, if payments exceed $600 in a year the city will need to issue a Form 1099-MISC to the company or contractor.
As noted above, Section 362.5 allows city officials to be awarded goods or service contracts up to $6,000 in a fiscal year. The state code does not require such contracts to be competitively bid and a council member may perform services or provide goods and receive payment up to the thresholds.
In such situations, it is still recommended that the city council formally approve such work or services (with the council member performing the service abstaining from the vote due to a conflict of interest). With any city service or project the council should be aware of how the work will be completed and who will be doing the work. This is especially true when it is a member of the council as the city needs to ensure the provisions of Section 362.5 are adhered to.
Council Members as Volunteers
Many city council members volunteer to work on various city events, festivals and projects, which of course is greatly appreciated and important to the community. As with any time the city includes volunteers in the provision of a city service, the city must have insurance coverage for such activity (it is wise to check with the city’s insurance providers to see what type of coverage is in place for volunteer activities).
It is likely that council members, as city employees, are already included in the city’s insurance coverages. However, there may be certain activities that would fall outside of insurance coverage. For example, council members may not be covered to operate heavy equipment or vehicles and therefore should refrain from doing so. Again, city officials should consult with their insurance providers before allowing volunteer activities to occur.