Full opinion text
Opinion WERDEGAR, J. This case is a residuum of the fiscal crisis that swept the City of San Diego (City) over the last decade. That crisis, arising from the City’s failure to fund its employee retirement system adequately, led to federal investigations of the City’s bond disclosures, suspension of the City’s credit rating, class action lawsuits against the City for underfunding, the mayor’s resignation, and amendments of the City’s charter to change the composition of the board overseeing the retirement system. The six defendants below, Cathy Lexin, Mary Elizabeth Vattimo, Teresa Aja Webster, Sharon Kay Wilkinson, John Anthony Torres, and Ronald Lee Saathoff (collectively the Lexin defendants), were trustees of the board administering the City’s retirement system. They have been charged with felony violations of state conflict of interest statutes (Gov. Code, § 1090 et seq.) for allegedly voting to authorize an agreement allowing the City to limit funding of its retirement system in exchange for the City’s agreeing to provide increased pension benefits to City employees, including the Lexin defendants. The Lexin defendants brought a Penal Code section 995 motion to set aside the information against them because, they argued, Government Code section 1090 and its exceptions were not intended to criminalize the making of contracts by parties whose only financial stake was their interest in government pension benefits. The trial court denied the motion because it concluded pension benefits were not “salary” of the sort the Legislature intended to excuse when it created the government salary exception to section 1090. (See § 1091.5, subd. (a)(9), hereafter section 1091.5(a)(9).) The Court of Appeal rejected this reasoning, but affirmed the denial because it found section 1091.5(a)(9) inapposite for other reasons and because it further concluded the public services exception (§ 1091.5, subd. (a)(3), hereafter section 1091.5(a)(3)) did not apply. We reverse as to five of the six defendants. We conclude that, with one exception, the defendant trustees’ actions fall within statutory exceptions to section 1090, and accordingly their motion to dismiss the information against them should have been granted. This case turns on our conclusion that the trustees of the City’s retirement system board were not burdened by a conflict of the sort section 1090 prohibits: a division in the loyalties of public servants between the public interests of their constituents and private opportunities for their own personal financial gain. Rather, by intentional legislative design, many of the board’s trustees were members of the retirement system and thus had interests in common with the membership as a whole. That the Lexin defendants were financially interested in the agreement here — like thousands of their fellow retirement system members — was a consequence of this fact. The public services exception to section 1090 — section 1091.5(a)(3)— recognizes that financial interests shared with one’s constituency do not present the dangers the state’s conflict of interest laws were designed to eradicate. Accordingly, it excepts such interests from section 1090’s purview. As applied here, the provision covers the actions of five of the six defendants. The sixth, Ronald Saathoff, could on the preliminary hearing record reasonably be suspected of having obtained a unique, personalized pension benefit as a result of voting to approve the retirement board’s contract with the City. Such individually tailored benefits pose genuine conflict problems and do not fall under any statutory exception. Accordingly, we affirm as to Saathoff, reverse as to all other defendants, and remand for further proceedings. Factual and Procedural Background I. The San Diego City Employees’ Retirement System San Diego is a charter city. It maintains a pension plan for its employees, the San Diego City Employees’ Retirement System (SDCERS). (San Diego City Charter, art. IX, § 141; San Diego Mun. Code, § 24.0101.) SDCERS is a defined benefit plan in which benefits are based upon salary, length of service, and age. (San Diego Mun. Code, §§ 24.0402-24.0405.) The plan is funded by contributions from both the City and its employees. (San Diego City Charter, art. IX, § 143; San Diego Mun. Code, § 24.0402.) Membership is compulsory. (San Diego Mun. Code, § 24.0104, subd. (a).) As of June 2008, the plan had nearly 20,000 members. (SDCERS Comprehensive Annual Financial Rep. (2008) p. 29.) The pension fund is overseen by a 13-member board of administration (SDCERS Board or Board). (San Diego City Charter, art. IX, § 144.) Although established by the City, the Board is a separate entity. (Ibid.; Bianchi v. City of San Diego (1989) 214 Cal.App.3d 563, 571 [262 Cal.Rptr. 566].) The SDCERS Board is a fiduciary charged with administering the City’s pension fund in a fashion that preserves its long-term solvency; it must ensure that through actuarially sound contribution rates and prudent investment, principal is conserved, income is generated, and the fund is able to meet its ongoing disbursement obligations. (Cal. Const., art. XVI, § 17; San Diego City Charter, art. IX, § 144.) Consistent with that central mission, the SDCERS Board has a range of ancillary obligations, including but not limited to providing for actuarial services, determining member eligibility for and ensuring receipt of benefits, and minimizing employer contributions. (Cal. Const., art. XVI, § 17, subds. (b), (e); San Diego City Charter, art. IX, §§ 142, 144; San Diego Mun. Code, § 24.0901.) To carry out these duties, the Board is granted the power to make such rules and regulations as it deems necessary. (San Diego City Charter, art. IX, § 144; San Diego Mun. Code, §§ 24.0401, 24.0901; see generally Bianchi, at p. 571; Grimm v. City of San Diego (1979) 94 Cal.App.3d 33, 39-40 [156 Cal.Rptr. 240],) The composition of the Board is fixed by San Diego’s charter; as of 2002, the charter provided for three ex officio positions (the city manager, treasurer, and auditor), one trustee elected by fire safety members, one elected by police safety members, one elected by retired members, three elected by the active membership, and four appointed by the city council. (San Diego City Charter, art. IX, former § 144.) All six Lexin defendants were trustees of the SDCERS Board. Cathy Lexin, Mary Elizabeth Vattimo, and Teresa Aja Webster were the ex officio designees; Sharon Kay Wilkinson and John Anthony Torres were elected from the active membership; and Ronald Lee Saathoff was the fire safety representative. The six were also City employees: Lexin was the City’s human resources director, Vattimo was the City treasurer, Webster was the City’s assistant auditor and comptroller, Wilkinson was a City management analyst, Torres was a fingerprint examiner for the City police department crime lab, and Saathoff was a City fire captain. II. Contract Negotiations A. City Manager’s Proposal 1 Until 1996, the City made contributions to the SDCERS pension fund according to an actuary’s annual determination of the rate. In 1996, the City proposed, and the Board approved, an agreement modifying the method of calculating the City’s contribution. Under this agreement, commonly known as the City Manager’s Proposal 1 (MP1), the City contributed at a set rate, which was less than an actuarially determined rate, under an agreed-upon schedule. The schedule required the City’s contribution rate to increase by 0.5 percent per year as a percentage of payroll until the City’s annual contribution rate equaled the actuarial rate. At the time the MP1 was adopted, the retirement system was 92.3 percent funded. As part of the MP1, there was a safety valve provision, known as the “trigger,” that called for a balloon payment if the funded ratio of the system dropped below 82.3 percent. In 2001, in part because of the “dot-com” stock market crash, SDCERS earnings began falling significantly. (See Perry, Fall from Frugality Puts San Diego on Fiscal Brink, L.A. Times (Sept. 1, 2004) p. 1.) By October 31, 2001, the fund had earned only $14.1 million dollars, a decrease of 87 percent from the previous year. In February 2002, SDCERS actuary Rick Roeder completed a draft actuarial report showing the funded ratio had dropped from 97 percent to 90 percent in one year. The City was concerned the 82.3 percent trigger would be met, which would have required it to make an additional contribution to the pension fund of approximately $25 million within one year. B. Union Negotiations At the same time, the City entered meet-and-confer negotiations with its municipal unions over new labor agreements (memoranda of understanding or MOU’s), with defendant Lexin, the City’s Director of Human Resources, acting as lead negotiator. The County of San Diego had agreed in February to increase the retirement multipliers for its employees. The City’s four municipal unions, the San Diego Municipal Employees Association (MEA), San Diego Police Officers Association (POA), San Diego City Firefighters IAFF Local 145 (Firefighters), and American Federation of State, County and Municipal Employees Local 127 (AFSCME), sought comparable improvements in the City’s retirement benefits. According to assistant city manager Lament Ewell, if the SDCERS funded ratio had continued to fall and the trigger had been reached, the resulting balloon payment would have seriously hampered the City’s ability to deliver services and would have led to layoffs. Consequently, the City elected to condition any increase in pension benefits on its obtaining relief from the SDCERS Board from the effect of hitting the trigger. In May, it reached agreements with the MEA, the Firefighters, and AFSCME that included enhanced retirement benefits, but each agreement was expressly conditioned on the SDCERS Board’s granting the City contribution relief by lowering the MPl’s trigger to 75 percent. The City was ultimately unable to agree on a contract with its fourth municipal union, the POA, and so declared an impasse and imposed its last, best, and final offer; like the agreements with the other unions, that offer included an SDCERS Board contingency. Negotiations with the Firefighters and its president and lead negotiator, defendant Ronald Saathoff, involved a unique issue. Some union presidents, including Saathoff, were paid by their unions for serving as president. Beginning in approximately 1989, the POA president began contributing to his pension based on the president’s salary paid him by his union. In 1997, the MEA president secured the same right. During the 2002 negotiations, Saathoff sought similar treatment. Concerned about potentially higher pension payments for union presidents, the City considered discontinuing the existing program. However, the city attorney advised that the unions would sue and might prevail based upon their presidents’ detrimental reliance on years of informal agreements. Ultimately, the city council, acting on the advice of the city attorney, decided to provide equivalent rights to the union presidents of POA, MEA, and Firefighters, but only as to those presently holding that title and certain former POA presidents; future presidents would not be eligible. Michael McGhee, a principal negotiator for the City with the Firefighters, testified that he understood at the time that this incumbent union president benefit was contingent on the Board’s lowering the trigger. On cross-examination, however, he indicated he had never heard anyone say that the incumbent union president benefit was contingent on anything the SDCERS Board did, nor was there a document that so stated. C. Initial Discussions with SDCERS On May 29, 2002, City Manager Michael Uberaaga presented the SDCERS Board with the City’s proposal to modify the MP1 to (1) lower the trigger to 75 percent and (2) add a five-year phase-in period for the payment of increased contributions to reach the full actuarial rate if the trigger was hit. Uberaaga told the Board a reduction in the trigger was a contingency of the tentative labor agreements with three of the four municipal unions in the City. The proposal ran into opposition. After the meeting, Board President Frederick Pierce requested a meeting with Deputy City Manager Brace Herring. On June 7, Pierce, Herring, defendant Lexin, and SDCERS administrator Lawrence Grissom met, at which time Pierce objected to the linkage between the Board’s actions and union benefits. Herring indicated he thought the city council would refuse to drop the linkage. The Board’s fiduciary counsel, Robert Blum, also criticized the City’s proposal, warning the Board in a draft letter dated June 12 that adoption of the proposal would pose a “material risk that a court would find that approval by the Retirement Board of the proposed amendment^] including the reduction in the ‘floor’ in [MP1] to 75 [percent] was not a prudent exercise of the Board’s fiduciary responsibilities, particularly if insufficient mitigating actions were taken by the Board.” In response to criticisms of the City’s proposal, the City modified the proposal so as to accelerate the presumptive rate at which it would increase its contribution in the event the trigger was not hit, offering a 1 percent of payroll annual increase in lieu of the 0.5 percent the MP1 called for. Deputy City Manager Herring presented this modified proposal to the Board on June 21. Following a lengthy discussion of the City’s proposal, the Board elected to defer a vote and to seek more information and analysis. A decision on the proposal was trailed for a future special meeting. In advance of that special meeting, the City was aware that a Board trustee might offer a counterproposal to the City’s proposal. Lexin and Deputy City Attorney Elmer Heap wrote the mayor and city council, explaining that they “anticipate^] a motion from a Board member which would further modify the proposal before the Board, by eliminating the request to lower the funded ratio floor [the trigger], and including the five year phase-in if the trigger (82.3% funded ratio) is effectuated.” Lexin and Heap sought and obtained authorization to agree to this counterproposal. D. The July 11 SDCERS Board Meeting At the July 11 special SDCERS Board meeting, the Board discussed in detail the merits of the existing MP1, the City’s proposal to reduce the trigger to 75 percent, and an alternative funding mechanism presented by the Board’s actuary, Rick Roeder. Roeder was concerned, as he had been at the June 21 meeting, about the effects of the City’s request for contribution relief. Fiduciary Counsel Blum was of the opinion that if the Board accepted the City’s proposal, there was a “material risk” that a court would find the Board had not properly exercised its fiduciary responsibility. Others spoke in support of the City’s proposal. Lexin made a motion to accept the City’s proposal to lower the trigger to 75 percent, and Webster seconded it. Several Board trustees, including Saathoff, expressed an intent to vote against the City’s proposal. As Saathoff put it: “[T]his proposal as it[’]s currently written doesn’t appear to pass muster in terms of fiduciary counsel’s opinion and[,] frankly, the actuary’s.” He told the Board that the City’s proposal was not within what he considered a “fiduciarily prudent guideline and should the motion not be successful, I will have another motion to make that hopefully will address the [C]ity’s concerns and give us comfort that the actions we are taking are fiduciarily prudent as members of this Board.” Trustee Diann Shipione made a formal motion to continue the matter. Saathoff opposed the motion, indicating he thought it important to move forward. Shipione’s motion was not seconded. Saathoff then made his substitute proposal, which, with some changes, ultimately came to be known as City Manager’s Proposal 2 (MP2). Saathoff moved that (1) the 82.3 percent trigger be kept in place; (2) if the trigger was not hit, the City would increase its contribution rate at 1 percent per year until it reached the full actuarial rate; and (3) if the trigger was hit, the City would have until 2009 to increase its contributions to reach the actuarial rate, in lieu of a balloon payment of $25 million or more. The substitute proposal would be subject to the fiduciary counsel’s and the actuary’s approval, as well as to negotiation of a formal written contract with the City. After substantial further discussion, the motion to adopt the City’s proposal was withdrawn and the Board adopted Saathoff’s proposal by a vote of eight to two. Board President Pierce, John Casey, and the six Lexin defendants— Lexin, Vattimo, Webster, Wilkinson, Torres, and Saathoff — voted in favor of the proposal. Thomas Rhodes and David Crow opposed the motion. Ray Gamica abstained. Trustees Shipione and Richard Vortmann left the meeting before the vote. E. Final Approval of Benefit Enhancements From July 11 to November 15, Fiduciary Counsel Blum negotiated with the City to memorialize Saathoff’s counterproposal as a written agreement. During this time period, according to Deputy City Attorney Heap, there were “sticking points,” and an agreement, though likely, was not absolutely certain. For example, Blum and Heap debated a nullification clause Blum wanted inserted that would allow the Board to unilaterally rescind the agreement in the future, with Blum ultimately prevailing. On October 7, the POA, the Firefighters, and the MEA signed finalized MOU’s with the City, each effective retroactively to July 1. These final MOU’s eliminated any contingency requiring action by the SDCERS Board for benefit increases to take effect. On October 21, the city council voted unanimously to adopt and approve the MOU’s. The city council also enacted the incumbent union president benefit without any reference to contingencies or action by the SDCERS Board. The City agreed to base retirement benefits for incumbent union presidents on their highest one-year combined City and union salary. In contrast, pension contributions for future union presidents would be based solely on their City salary. Under the MOU’s, defendants Wilkinson and Torres, who were classified general City employees, received the same benefits as all other classified general employees, including an increase in their age-55 pension multipliers from 2.25 percent to 2.50 percent, with corresponding 0.25 percent adjustments of the multiplier for each year above age 55. Defendants Lexin, Vattimo, and Webster were unclassified general employees but received the same increased retirement benefits under a City policy that afforded unclassified employees the same benefits as classified employees. Defendant Saathoff, as a classified safety employee, did not receive an increased multiplier but did receive the pension increase accorded incumbent union presidents. F. Final Approval of the MP2 On November 15, the SDCERS Board was presented with a draft of the MP2, which, with some minor changes, essentially reflected the terms of defendant Saathoff’s counterproposal. Fiduciary Counsel Blum gave a presentation to the Board emphasizing the MP2’s advantages over the MP1, including an acceleration of increases in the contribution rate and a date certain by which the City had to accomplish full actuarial funding. The finalized MP2 also granted the Board the right to nullify the agreement “to the extent required by its duties established under the California Constitution” and required the City to pay any costs incurred to secure enforcement of the agreement’s terms. Blum had tried, but failed, to get the City to agree to language precluding it from “bargaining] additional benefits conditioned on some approval of . . . funding relief’ going forward. Blum opined that the MP2 represented a “proper exercise” of the Board’s fiduciary duties. Actuary Roeder offered a series of opinions about the positive and negative aspects of the proposal but no bottom line conclusion. A vote on the MP2 was taken, and the Board approved it, 10 to two. Defendants Vattimo, Webster, Wilkinson, Torres, and Saathoff, as well as trustees Casey, Crow, Gamica, Pierce, and Vortmann, voted for the contract. Trustees Rhodes and Shipione voted against it. Defendant Lexin was absent. The final MP2 agreement was approved by the City and signed by the Board on December 3, 2002, and by the City on December 11. Under its terms, the 82.3 percent trigger would be kept in place, but in the event the trigger was hit, the City would be given until 2009 to reach the actuarial rate, rather than having to pay a $25 million balloon payment within one year. HI. Procedural History In May 2005, the Lexin defendants were charged with felony violations of section 1090. After a preliminary hearing, a magistrate found probable cause to suspect the Lexin defendants had violated the conflict of interest laws. The magistrate concluded the Lexin defendants had participated in the making of the MP2. He also found sufficient evidence had been presented to support a reasonable suspicion that the Lexin defendants were financially interested in the MP2 because pension benefit increases were contingent on its approval. As to defendant Saathoff, the magistrate specifically found that whether Saathoff’s individual union president benefit was also contingent on the Board’s granting the City contribution relief was a question of fact, and at least one line of evidence supported the conclusion that it was contingent. Finally, the magistrate rejected the Lexin defendants’ defense that a statutory exception to section 1090, the government salary exception (§ 1091.5(a)(9)), applied because he concluded pension benefits were not “salary” within the meaning of the statute. Each Lexin defendant was bound over for trial. After an information was filed, the Lexin defendants moved to set it aside (Pen. Code, § 995), alleging inter alia that (1) section 1090 did not apply to their actions, and (2) even if it did, their interest in the contract, i.e., pension benefits, constituted government salary and was permitted under section 1091.5(a)(9). The trial court denied the motion. In holding there was probable cause to believe the Lexin defendants had violated section 1090, the trial court explained that, in its view, by participating in discussions concerning MP1 modification at a time when the City’s tentative MOU’s made enhanced pension benefits contingent on rate relief, and by approving a counterproposal modifying the MP1 trigger, the Lexin defendants had made a contract in which they had a financial interest. The trial court also rejected the Lexin defendants’ section 1091.5(a)(9) defense, concluding that the defense applied only to a financial interest in government “salary, per diem, or reimbursement for expenses” (§ 1091.5(a)(9)), categories not intended to include pension benefits. The Lexin defendants filed a petition for a writ of prohibition with the Court of Appeal, seeking the issuance of a writ ordering the trial court to grant their motion to set aside the information. The Court of Appeal summarily denied the petition. We granted review and transferred the matter to the Court of Appeal for issuance of an order to show cause. On remand, the Court of Appeal again denied review, this time in a published opinion. Recognizing that retirement benefits are just a deferred form of employment compensation, the appellate court disagreed with the trial court’s conclusion that under section 1091.5(a)(9) pensions were not salary. It nevertheless rejected application of section 1091.5(a)(9) because, it concluded, the benefits of the contracts at issue flowed to the respective individual departments of the Lexin defendants, and section 1091.5(a)(9) was inapposite when one’s own department was directly involved in a contract. It further rejected the Lexin defendants’ alternate statutory ground for relief, the public services exception (§ 1091.5(a)(3)), primarily because it concluded the provision of pension benefits was not a “public serviced generally provided” (ibid.) within the meaning of that provision. We granted review to resolve the significant questions of first impression this case raises concerning the application of the state’s conflict of interest laws. Discussion Penal Code section 995 allows a defendant to challenge an information based on the sufficiency of the record made before the magistrate at the preliminary hearing. (People v. Crudgington (1979) 88 Cal.App.3d 295, 299 [151 Cal.Rptr. 737].) In reviewing the denial of a Penal Code section 995 motion to set aside an information, we “in effect disregardf] the ruling of the superior court and directly review[] the determination of the magistrate holding the defendant to answer.” (People v. Laiwa (1983) 34 Cal.3d 711, 718 [195 Cal.Rptr. 503, 669 P.2d 1278]; accord, People v. San Nicolas (2004) 34 Cal.4th 614, 654 [21 Cal.Rptr.3d 612, 101 P.3d 509].) Insofar as the Penal Code section 995 motion rests on issues of statutory interpretation, our review is de novo. (People v. Superior Court (Ferguson) (2005) 132 Cal.App.4th 1525, 1529 [34 Cal.Rptr.3d 481].) Insofar as it rests on consideration of the evidence adduced, we must draw all reasonable inferences in favor of the information (Rideout v. Superior Court (1967) 67 Cal.2d 471, 474 [62 Cal.Rptr. 581, 432 P.2d 197]; People v. Gnass (2002) 101 Cal.App.4th 1271, 1288-1289 [125 Cal.Rptr.2d 225]) and decide whether there is probable cause to hold the defendants to answer, i.e., whether the evidence is such that “a reasonable person could harbor a strong suspicion of the defendant’s guilt” (Cooley v. Superior Court (2002) 29 Cal.4th 228, 251 [127 Cal.Rptr.2d 177, 57 P.3d 654]; accord, People v. Slaughter (1984) 35 Cal.3d 629, 636 [200 Cal.Rptr. 448, 677 P.2d 854]; People v. Uhlemann (1973) 9 Cal.3d 662, 667 [108 Cal.Rptr. 657, 511 P.2d 609]). I. Section 1090 and Prohibited Conflicts of Interest Section 1090 provides in relevant part: “Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.” It codifies the long-standing common law rule that barred public officials from being personally financially interested in the contracts they formed in their official capacities. (Brandenburg v. Eureka Redevelopment Agency (2007) 152 Cal.App.4th 1350, 1361 [62 Cal.Rptr.3d 339]; People v. Honig (1996) 48 Cal.App.4th 289, 317 [55 Cal.Rptr.2d 555] [“Section 1090, it has been said, is an embodiment of the common law with respect to conflicts of interest.”].) The common law rule and section 1090 recognize “[t]he truism that a person cannot serve two masters simultaneously . . . .” (Thomson v. Call (1985) 38 Cal.3d 633, 637 [214 Cal.Rptr. 139, 699 P.2d 316]; see Stockton P. & S. Co. v. Wheeler (1924) 68 Cal.App. 592, 601 [229 P. 1020] [the bar against being financially interested in the contracts one makes in an official capacity “is evolved from the self-evident truth, as trite and impregnable as the law of gravitation, that no person can, at one and the same time, faithfully serve two masters representing diverse or inconsistent interests with respect to the service to be performed”].) “The evil to be thwarted by section 1090 is easily identified: If a public official is pulled in one direction by his financial interest and in another direction by his official duties, his judgment cannot and should not be trusted, even if he attempts impartiality.” (Carson Redevelopment Agency v. Padilla (2006) 140 Cal.App.4th 1323, 1330 [44 Cal.Rptr.3d 881].) Where public and private interests diverge, the full and fair representation of the public interest is jeopardized. Accordingly, section 1090 is concerned with ferreting out any financial conflicts of interest, other than remote or minimal ones, that might impair public officials from discharging their fiduciary duties with undivided loyalty and allegiance to the public entities they are obligated to serve. (Stigall v. City of Taft (1962) 58 Cal.2d 565, 569 [25 Cal.Rptr. 441, 375 P.2d 289].) Where a prohibited interest is found, the affected contract is void from its inception (Thomson v. Call, supra, 38 Cal.3d at p. 646 & fn. 15) and the official who engaged in its making is subject to a host of civil and (if the violation was willful) criminal penalties, including imprisonment and disqualification from holding public office in perpetuity (§ 1097; see People v. Honig, supra, 48 Cal.App.4th at pp. 333-338). The Legislature has ameliorated the harsh consequences of section 1090 by creating two categories of interests subject to lesser or no restrictions. First, section 1091 defines a series of “ ‘remote interest^].’ ” Where an interest is remote, a board member may comply with section 1090 by making full disclosure of the interest, noted in the entity’s official records, and abstaining from voting on the affected contract or influencing other board members in any way. (§ 1091; People v. Honig, supra, 48 Cal.App.4th at p. 317; 89 Ops.Cal.Atty.Gen. 121, 123 (2006), hereafter Fellows.) Second, section 1091.5 defines a series of noninterests (also occasionally referred to as “minimal interests,” e.g., People v. Honig, supra, 48 Cal.App.4th at p. 318), interests that, while technically within the scope of the financial interests covered by section 1090, as a practical matter do not raise the sorts of conflict of interest problems with which section 1090 is concerned and thus are statutorily excluded from its purview. (83 Ops.Cal.Atty.Gen. 246, 247 (2000), hereafter Cardoza [§ 1091.5 identifies instances where “the Legislature has determined that the particular interest is insufficient to merit application of the prohibition”].) While a section 1091 remote interest requires disclosure and abstention, a section 1091.5 noninterest generally is no bar at all to participation in the making of a contract, though in some instances the definition of the noninterest includes specific disclosure requirements. (E.g., § 1091.5, subd. (a)(7) [requiring disclosure of nonsalaried membership in a nonprofit corporation]; § 1091.5(a)(9) [requiring disclosure of government salary interest]; see 89 Ops.Cal.Atty.Gen. 217, 220 (2006), hereafter Strickland.) To determine whether section 1090 has been violated, a court must identify (1) whether the defendant government officials or employees participated in the making of a contract in their official capacities, (2) whether the defendants had a cognizable financial interest in that contract, and (3) (if raised as an affirmative defense) whether the cognizable interest falls within any one of section 1091’s or section 1091.5’s exceptions for remote or minimal interests. (§§ 1090, 1091, 1091.5; People v. Gnass, supra, 101 Cal.App.4th at p. 1288, fn. 6; People v. Honig, supra, 48 Cal.App.4th at p. 322.) Proof of a violation of section 1097, the provision criminalizing violations of section 1090, requires a further showing that the section 1090 violation was knowing and willful. (§ 1097; Gnass, at p. 1305; Honig, at pp. 333-338.) II. Applicability of Section 1090 What differentiates section 1090 from other conflict of interest statutes such as the Political Reform Act of 1974 (Political Reform Act) (§ 87100 et seq.) is its focus on the making of a contract in which one has an impermissible interest. (People v. Honig, supra, 48 Cal.App.4th at p. 333.) The information alleges the Lexin defendants illegally made the MP2 contract. The evidence supports, indeed is undisputed, that the Lexin defendants participated in the making of the MP2 contract. Furthermore, the evidence is such that a reasonable person could conclude the Lexin defendants had two separate financial interests in that contract. “[T]he term ‘financially interested’ in section 1090 cannot be interpreted in a restricted and technical manner.” (People v. Honig, supra, 48 Cal.App.4th at p. 315.) The defining characteristic of a prohibited financial interest is whether it has the potential to divide an official’s loyalties and compromise the undivided representation of the public interests the official is charged with protecting. (See Stigall v. City of Taft, supra, 58 Cal.2d at p. 569.) Thus, that the interest “might be small or indirect is immaterial so long as it is such as deprives the [people] of his overriding fidelity to [them] and places him in the compromising situation where, in the exercise of his official judgment or discretion, he may be influenced by personal considerations rather than the public good.” (Terry v. Bender (1956) 143 Cal.App.2d 198, 208 [300 P.2d 119]; see also Thomson v. Call, supra, 38 Cal.3d at p. 645 [direct and indirect interests are equally prohibited].) The Lexin defendants participated in making a contract between the SDCERS, on whose Board they served, and the City, for which they each worked and from which they would receive present and future employment compensation. Under section 1090, this is a potential conflict of interest; indeed, it is a paradigmatic conflict of interest. We and the Courts of Appeal have long recognized that where public officials on behalf of a public entity participate in making a contract with a second entity for which they work, the scenario poses at least the risk that the officials will be compromised by serving “two masters.” (Thomson v. Call, supra, 38 Cal.3d at p. 645 & fn. 14; People v. Gnass, supra, 101 Cal.App.4th at p. 1303; Miller v. City of Martinez (1938) 28 Cal.App.2d 364, 370 [82 P.2d 519] [contract with the petroleum company for which a city council member works is void]; see also 86 Ops.Cal.Atty.Gen. 138, 139-140 (2003) [contract with a city council member’s law firm is not permitted].) The People focus on a second set of alleged interests: the Lexin defendants’ interest in enhanced pension benefits arising from the various City MOU’s and from defendant Saathoff’s incumbent union president benefit. The Lexin defendants, the People argue, considered whether to pass the MP2 proposal at a time when approving it would have satisfied a condition inserted in the MOU’s and enhanced the likelihood of future benefits for them. Engaging in such deliberations at a time when they stood to benefit financially from approval of the MP2, and ultimately approving it, constitutes the making of a contract in which they had a prohibited financial interest. The record offers substantial evidence such that a reasonable person could believe as much. SDCERS Board approval of a contribution rate reduction was inserted as a condition precedent in each of the City’s MOU’s with the MEA, the Firefighters, the POA, and AFSCME in May 2002. Also in May, the City tentatively approved an incumbent union president benefit for defendant Saathoff. With the contingency in place, the City presented, and the SDCERS Board considered, a rate reduction agreement at meetings in June and July. On July 11, the SDCERS Board preliminarily approved the MP2, which granted the City relief from having to make an immediate $25 million payment if pension funding fell below the 82.3 percent trigger. Each of the Lexin defendants participated in these deliberations and the July 11 vote. Evidence in the record further supports the conclusion that the City viewed the preliminary approval of the MP2 as sufficient to satisfy the MOU contingencies and, in reliance on it, thereafter agreed to remove the contingencies and award the additional pension benefits. In October 2002, MOU’s were signed that dropped the condition precedent and the City separately passed a resolution formally approving Saathoff’s benefit. In November, the MP2 was finalized, and in December it was signed. In response, the Lexin defendants argue they had no conflict of interest because any linkage between the MOU’s and the MP2 contract had been severed by the time the SDCERS Board finally approved the MP2 contract in November 2002. However, that all MOU contingencies technically were first removed is, for purposes of section 1090, not dispositive. If the record is otherwise sufficient to support an inference that the Lexin defendants participated in making a contract in which they were financially interested, evidence of severance will not at this stage rebut it. The essence of this point we established nearly half a century ago. In Stigall v. City of Taft, supra, 58 Cal.2d 565, we considered whether the following scenario violated section 1090: A city council member owned shares in a plumbing company and also was head of the city’s building committee. The city solicited bids for plumbing work, with the council member’s company submitting the low bid. In short order, the city council member resigned from the city council and, after accepting his resignation, the city council voted to award the contract to his company. We concluded such a scenario could in fact violate section 1090, notwithstanding that the council member technically had removed himself from the city council before a final, formal contract was approved. As we there explained, an interpretation of section 1090 that focused only on contract formalities might permit the following subterfuge: “A council member could participate in all negotiations giving a contract its substance and meaning, be instrumental in establishing specifications and schedules most advantageous to his or his firm’s particular mode of operation, participate in the selection of his or his firm’s offer, resign just prior to formal acceptance of that offer and execute the contract as the other party thereto.” (Stigall, at p. 570.) Similarly, in Thomson v. Call, supra, 38 Cal.3d 633, a city council approved rezoning that would allow a private developer to construct a highrise complex and in a separate action also agreed to have the developer acquire certain private lands for conveyance to the city for creation of a city park. Thereafter, the developer purchased the private land from, inter alia, one of the city council’s members. No purchase contract existed at the time the city council gave its zoning approval, and the contract had neither an express term nor a condition that the developer purchase any land from the affected council member. Nevertheless, all parties contemplated that the subsequent land purchase would occur. That, we concluded, was enough to establish a financial interest in the actions taken earlier and ultimately to violate section 1090. (Thomson v. Call, at pp. 644 — 646; see also People v. Gnass, supra, 101 Cal.App.4th at pp. 1299-1301 [financial interest extends to expected or foreseeable future benefits]; People v. Vallerga (1977) 67 Cal.App.3d 847, 866-867 [136 Cal.Rptr. 429] [same].) Here too, it matters not that any contingencies linking the MOU’s and the MP2 were removed before formal, final execution of the MP2. From the preliminary hearing record, a reasonable person could conclude the Lexin defendants considered and preliminarily approved the MP2 when they stood to benefit financially from its execution. From that same record a reasonable person could also conclude that the contingencies were removed only because all concerned believed the preliminary approval the Lexin defendants and the SDCERS Board gave for the MP2 would ripen into signed, contractually binding rate relief for the City. Thus, the evidence supports the People’s argument that the Lexin defendants were financially interested in the making of the MP2. The financial interest for defendant Saathoff is slightly different; it allegedly arose from the incumbent union president benefit, rather than from a pension formula multiplier increase. The Lexin defendants argue there is no proof this benefit was conditioned on any specific action by Saathoff or the SDCERS Board and it thus was not a financial interest in the MP2. At this stage of the proceedings, however, the only question we may ask is whether a reasonable person could harbor a “strong suspicion” of a connection between the benefit and the SDCERS Board approving the MP2. (People v. Uhlemann, supra, 9 Cal.3d at p. 667.) The magistrate concluded it was at least a question of fact whether one could infer from the sequence of events in the negotiations an implicit message that the incumbent union president benefit would be looked on more favorably if the SDCERS provided rate relief. We agree. While the evidence is disputed, for purposes of a Penal Code section 995 motion we focus on the evidence supporting an inference that Saathoff’s benefit was contingent on the Board’s granting the City rate relief. Circumstantially, in April 2002, City negotiators recommended refusing to extend the incumbent union president benefit to Saathoff. In May, the city council met and, against that recommendation, favored extending the benefit to Saathoff. However, final approval of the benefit was withheld until October, after Saathoff had presented the counterproposal that became the MP2. More directly, in a May 21 e-mail from defendant Webster to Michael McGhee, a lead City negotiator on the Firefighters contract, Webster asked: “The [Firefighters] write up you sent out did not state that their increased offset was contingent on the Board [relaxing the trigger .... I thought ALL retirement improvements {including the presidential leave (?)) were contingent on the trigger .... [E\specially need Ron [Saathoff\ behind releasing the trigger since he runs the show at [SD]CERS . . . .” (Italics added.) In an e-mail reply, McGhee confirmed the retirement benefits were contingent. At the preliminary hearing, McGhee testified that he understood Saathoff’s incumbent union president benefit was contingent on the SDCERS Board providing relief. “[Prohibited financial interests are not limited to express agreements for benefit and need not be proven by direct evidence. Rather, forbidden interests extend to expectations of benefit by express or implied agreement and may be inferred from the circumstances.” (People v. Honig, supra, 48 Cal.App.4th at p. 315; accord, People v. Gnass, supra, 101 Cal.App.4th at pp. 1298-1299.) At the stage of a motion to set aside the information, the People’s evidence is, under this standard, strong enough to proceed. We turn to the question whether any exception applies that categorically excludes the Lexin defendants’ interests from the scope of section 1090. As we shall explain, each financial interest the Lexin defendants arguably had is (at least as to five of the six Lexin defendants) covered by an exception. First, any financial interest the Lexin defendants had arising from the formal fact of their employment with the City falls within section 1091.5(a)(9). Second, while any financial interest arising from linkage between the MP2 and the MOU’s falls outside section 1091.5(a)(9), it is nevertheless covered by section 1091.5(a)(3). Finally, as to defendant Saathoff, we conclude no exception covers his alleged interest in an incumbent union president benefit and accordingly the prosecution of Saathoff may proceed. III. The “Government Salary” Exception (Section 1091.5(a)(9)) A. Interpretation of Section 1091.5(a)(9) Like the parties, we focus first on section 1091.5(a)(9), the government salary exception. Under that exception, “[a]n officer or employee shall not be deemed to be interested in a contract if his or her interest is any of the following: HQ ... [f] (9) That of a person receiving salary, per diem, or reimbursement for expenses from a government entity, unless the contract directly involves the department of the government entity that employs the officer or employee, provided that the interest is disclosed to the body or board at the time of consideration of the contract, and provided further that the interest is noted in its official record.” (§ 1091.5(a)(9).) In analyzing the exception’s scope, we will, as in every case of statutory interpretation, begin with its language. (Microsoft Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 758 [47 Cal.Rptr.3d 216, 139 P.3d 1169].) If the language is clear, our search for meaning is at an end; if it is ambiguous, we may then turn to other tools to divine the Legislature’s intent. (Ibid.) The language of the government salary exception suggests it was intended to apply to situations where the body or board of which an official is a member is contemplating a contract with — or on behalf of — a government entity for which the official also works. “Body or board” is used in section 1090, and again in section 1091.5(a)(9), to reference the entity of which the official is a member and which he or she is serving “in [his or her] official capacity.” (§ 1090.) “Government entity” is used in section 1091.5(a)(9) to reference the party to the prospective contract with whom the official has an employment relationship. Nothing in the language of the statute compels a reading that the “government entity” need be distinct from the “body or board.” Thus, the provision may apply both to contracts made with one’s employer and contracts made on behalf of one’s employer. The text suggests a second point. Section 1091.5(a)(9) creates an exception to the government salary exception for situations where the contract “directly involves the department of the government entity that employs the officer or employee . . . .” (Italics added.) Thus, section 1091.5(a)(9) assumes the covered interest is an interest in an existing employment relationship. The exception to the exception, for contracts that “directly involve[]” the official’s or employee’s own department, limits this provision slightly. We infer that while the subdivision was intended to excuse an existing government employment relationship as itself insufficient to give rise to a conflict, where a particular contract involved the official’s own department, the risk that it might have personal impacts, generating additional income or other benefits for the employed official, was in the Legislature’s eyes too great a risk to permit. Thus, while section 1091.5(a)(9) excludes from section 1090 an existing interest in government salary, it does not permit contracts — those with or directly involving one’s own department — that pose a risk of potentially changing the official’s salary or other employment financial interests. Prophylactically, contracts directly affecting the official’s department are excluded. We recognize, however, that section 1091.5(a)(9) is no model of clarity; its text alone is insufficiently clear to establish definitively its meaning. (See People v. Gnass, supra, 101 Cal.App.4th at p. 1302 [“We are at somewhat of a loss to figure out what section 1091.5, subdivision (a)(9) means from its language alone.”]; 78 Ops.Cal.Atty.Gen. 362, 369 (1995), hereafter Aguiar [“The scope of subdivision (a)(9) is not readily apparent.”].) We thus turn to other sources such as legislative history to supplement our understanding. (See Microsoft Corp. v. Franchise Tax Bd., supra, 39 Cal.4th at p. 758.) Here, the legislative history strongly supports the reading suggested by the text. Under the statutory scheme prior to 1991, it had been a conflict of interest for an individual who was separately employed by a public entity to participate in the making of contracts involving that public entity. Thus, it would have been illegal for an individual who worked as a city police officer, in his simultaneous capacity as a city council member, to also vote on any contracts the city made, because he had a financial interest (his salary) in one of the parties to all such contracts (the city for whom he worked). (See Assem. Com. on Elections, Reapportionment, and Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as amended May 15, 1991, p. 1; Sen. Com. on Governmental Organization, background information request for Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as introduced Mar. 7, 1991, p. 1.) The Legislature added section 1091.5(a)(9) to reduce the number of such conflicts by limiting section 1090’s prohibition to a public employee’s participation in contracts affecting the specific department for which the employee works. (See Assem. Com. on Elections, Reapportionment, and Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as amended May 15, 1991, p. 1.) Thus, the aforementioned city council member/police officer could not make contracts relating to the police department, but would now be permitted to participate in making other city contracts, as those would not directly affect or benefit his own employment status. (Ibid/, see Assem. Com. on Elections, Reapportionment, and Const. Amends., Republican Analysis of Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as introduced Mar. 7, 1991, p. 1 [bill “simply clarifies the practice of participating in decisions that do not directly benefit the city councilmember”].) The 1991 legislation, as noted, still treated as a conflict of interest a public employee’s participation in any contract dealing with the specific department for which that employee worked. (Assem. Com. on Elections, Reapportionment, and Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as amended May 15, 1991, p. 1; Aguiar, supra, 78 Ops .Cal. Atty. Gen. at pp. 370-372.) In 1999, the Legislature clarified that in this circumstance, absent any personal financial gain, the interest involved would be only a remote interest under section 1091, so a board with an affected member could still act provided the affected member recused himself or herself. (§ 1091, subd. (b)(13), added by Stats. 1999, ch. 349, § 1.) The intent of the amendment was to “define as a ‘remote interest’ a situation where the contract is with the specific unit that employs the official which does not result in any direct financial gain to that official.'” (Assem. Com. on Local Government, Analysis of Sen. Bill No. 689 (1999-2000 Reg. Sess.) as amended June 30, 1999, p. 2, italics added.) Thus, while the 1999 amendment adding section 1091, subdivision (b)(13) relaxed the prohibition against contracting in a way that affected one’s own department, it did so only so long as the contract in question would not result in personal financial gain. By inference, that same restriction is implied in section 1091.5(a)(9). If a contract with an employee’s own department qualifies as a remote interest, so long as it involves no direct financial gain to the employee, then a contract with one’s government employer not directly affecting one’s own department may qualify as a noninterest, provided it too does not involve direct financial gain. Section 1091.5(a)(9) excuses conflicts that arise from the identity of the party with or on whose behalf one is contracting (one’s employer, other than one’s own specific department), but not conflicts that arise from the actual terms of the contract. The result is a logical statutory scheme. If a contract an official considers in his or her official capacity is with the official’s government employer and involves direct financial gain, the official is prohibited from participating under section 1090. If the contract involves no direct financial gain, but is with or affects the official’s own department, the official’s interest is a remote interest under section 1091, subdivision (b)(13) and subject to the disclosure and recusal requirements of section 1091. Finally, if the contract involves no direct financial gain, does not directly affect the official’s employing department, and is only with the general government entity for which the official works, the interest is a minimal or noninterest under section 1091.5(a)(9) and no conflict of interest prohibition applies. Court of Appeal and Attorney General opinions interpreting section 1091.5(a)(9) are consistent with this understanding. For example, in Strickland, supra, 89 Ops.Cal.Atty.Gen. 217, the Attorney General considered whether a community college district board member could participate in collective bargaining negotiations when his own personal health benefits, as a retired faculty member, were directly tied to those of the faculty with whom the district board would be negotiating. The Attorney General correctly concluded that, notwithstanding section 1091, subdivision (b)(13) and section 1091.5(a)(9), the board member could not. (Strickland, at p. 221 & fn. 6.) While the retirement health benefits qualified as government salary for purposes of the two provisions, the contract nevertheless created a personal financial interest — the board member’s health benefits would rise or fall according to the results of the negotiations. The board member thus faced a “two masters” problem: as a board member he was obligated to conserve the district’s resources, while personally he stood to benefit if the board was lavish in increasing faculty benefits. In People v. Gnass, supra, 101 Cal.App.4th 1271, the leading Court of Appeal treatment of section 1091.5(a)(9), the court likewise recognized that the provision was not intended to insulate all participation in contracts that carry the prospect of changes in one’s own government salary. In Gnass, a city attorney was criminally prosecuted for (1) representing his city’s public financing authority in forming a series of joint powers agencies and then (2) being hired by the resulting joint powers agencies to serve as bond disclosure counsel for the subsequent floating of public bonds. Defendant Gnass moved to set aside the indictment on, inter alia, the ground that the grand jury should have been instructed on section 1091.5(a)(9) as a potential defense. The Court of Appeal correctly concluded the provision did not apply. It reasoned that the provision should be “understood to apply to contracts under consideration between two public agencies, one of which employs the interested person. Where, for- example, the person is an employee of public agency A and a board member of public agency B (or is otherwise in a position to influence agency B’s decision), a conflict of interest might arise if agency B were considering making a contract with agency A.” (Gnass, at p. 1303.) In such a scenario, a court would then be called upon to decide whether the requisites of section 1091.5(a)(9) had been satisfied. In contrast, the case before the Gnass court involved no such contract between two existing government entities, with an employment relationship with the second entity already extant; rather, it involved participation in a contract that carried with it the prospect of future new government employment. (Gnass, at p. 1303 [“Gnass’s conflict of interest, if any, existed before the [new joint powers agencies] were created, on the chance that, if they were, he might be hired as disclosure counsel.”].) As Gnass and Strickland, supra, 89 Ops.Cal.Atty.Gen. 217, demonstrate, that a financial interest involves only government salary is a necessary, but not sufficient, condition for section 1091.5(a)(9) to apply; contracts that may result in future changes to one’s government compensation are still excluded from the exception. In contrast, where the financial interest is only in an existing government salary, and the proposed contract is generally with one’s employer but carries no prospect of personal financial benefit, the section 1091, subdivision (b)(13) and section 1091.5(a)(9) exceptions may apply. Thus, a deputy county counsel can serve on a city council and participate in making a contract for law enforcement services between the city and county that does not involve the county counsel’s office and thus qualifies for an exception under section 1091.5(a)(9) (85 Ops.Cal.Atty.Gen. 115, 117-119 (2002), hereafter Battersby)-, a city council member can participate in approving a contract for law enforcement services with another city for which the council member once worked, and from which he receives benefits, because those benefits will be unaffected by the contract (85 Ops.Cal.Atty.Gen. 6, 7 (2002)); and a deputy sheriff can serve on a city council and, provided he recuses himself under section 1091, subdivision (b)(13), the rest of the council may negotiate with the county sheriff for the provision of police services (Cardoza, supra, 83 Ops.Cal.Atty.Gen. at pp. 248-250). To summarize: section 1091.5(a)(9), the government salary exception, applies to at least two archetypal scenarios. The first, the scenario the Legislature expressly contemplated, involves a first party contract: an official has an existing employment relationship with government entity A and also, in a separate capacity, has the power to make or influence contracts made by A (other than those sought by his or her own specific department), as with the city police officer/city council member. (Assem. Com. on Elections, Reapportionment, and Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as amended May 15, 1991, p. 1; Sen. Com. on Governmental Organization, background information request for Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as introduced Mar. 7, 1991, p. I.) The second involves a second party contract: an official who makes or influences contracts on behalf of government entity A is put in a position of considering a contract with government entity B, for which he or she also works. (See, e.g., Battersby, supra, 85 Ops.Cal.Atty.Gen. 115.) In each of these scenarios, section 1091.5(a)(9) is a defense if one’s financial interest in a proposed contract is only the present interest in an existing employment relationship with a first or second party to the proposed contract, and thus an interest in whatever indirect or incidental benefits might arise from the simple fact of contracting with or on behalf of one’s employer. It does not extend further to contracts that more directly affect one’s interests by involving one’s own department, or most directly affect one’s interests by actually altering the terms of one’s employment; such interests directly implicate the “two masters” problems section 1090 was designed to eliminate. B. Application of Section 1091.5(a)(9) We consider section 1091.5(a)(9)’s application to the two financial interests we have identified: the Lexin defendants’ interests arising from their ongoing employment with the City and their interests arising from 2002 changes to their pension benefits. The application of the provision to the first set of interests is undisputed; indeed, the People have never identified these interests as illicit. We nevertheless address them briefly by way of illustration of the sorts of interests section 1091.5(a)(9) was intended to encompass. The Lexin defendants are City employees. In their official capacities, they participated in formation of a contract between the SDCERS Board, on which they serve, and the City. Their interests fall squarely within section 1090; they had an employment contract with the entity with which they were negotiating. In the abstract, there is a concern that public officials negotiating with another entity for which they work will have divided loyalties and fail to ensure that the agency they represent (here, SDCERS) obtains the best deal from the entity that employs them (here, the City). However, these interests also fall squarely within the bounds of section 1091.5(a)(9). The Lexin defendants’ interests in their existing employment contracts consisted of government salary, disclosed to all as a matter of public record (given especially that their City employment was a necessary condition of their service on the Board). The MP2 contract was with the City as a whole. Section 1091.5(a)(9) allowed the Lexin defendants, as a general matter, to contract with the City notwithstanding that the City also employed them; the