Untitled Texas Attorney General Opinion ( 1987 )

THE ATTORXEY GENERAL
OF TEXAS
March 11, 1987
Honorable Elizabeth C. Jandt Opinion No. J-M-642
Guadalupe County Attorney
105-A North Austin lb: The authority of the Guadalupe
Seguin, Texas 78155 Valley Hospital to borrow funds to
purchase equipment and renovate the
hospital under article 4494i,
V.T.C.S.
Dear Ms. Jandt:
Article 44941, V.T.C.S., authorizes the joint establishment and
operation of hospitals by counties and cities or towns. You ask
whether an article 44941 hospital may borrow money to purchase
equipment and to renovate the hospital when it is reasonably
anticipated that the loan can be repaid over a period of five years
from funds generated by the operation of the hospital. You indicate
that the hospital does not seek to raise these funds through the
issuance of revenue bonds because the cost of issuance for the
relatively small amount needed is not economically advantageous in
light of the fact that the hospital anticipates that a loan can be
repaid from funds generated by the operation of the hospital. Your
question raises three related issues: (1) whether article 44941
contains statutory authority for a joint city-county hospital to
borrow money for hospital Improvements, (2) whether a county and city
may delegate to an article 4494i hospital's board of managers the
authority to borrow money, and (3) whether the Texas Constitution's
prohibition on certain "debts" prohibits a city-county hospital from
borrowing money in this manner.
The nature of a joint city-county hospital controls the scope of
its powers. Article 44941 authorizes the creation of a joint city-
county hospital and authorizes any county and city or town to delegate
to the hospital's board of managers the authority to establish and
operate the hospital. Sets. 1. 4. 7. Article 4494i does not contem-
plate the creation of a distinct political subdivision. see sec. 4
(board's actions taken as though such action had been takenby county
and city); see also Attorney General Opinion JM-552 (1986) (joint
city-county hospital board organized under article 4494i-1 is joint
agent of the county and the city). A joint city-county hospital can
hold no powers greater than those held by the county or the city which
created the hospital. Conversely, a joint city-county hospital also
holds powers held by the county and the city. See Attorney General
Opinion Nos. m-274, JM-220 (1984). Counties andyties possess only
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Honorable Elizabeth C. Jandt - Page 2 (JM-642)
the oowers nranted exuresslv or bv necessarv imlication in the Texas
Cons;itution and statutes. .Canal& v. Laughlin; 214 S.W.2d 451 (Tex.
1948) (counties); City of West Lake Hills v. Westwood Legal Defense
Fund, 598 S.W.2d 681 (Tex. Civ. App. - Waco 1980, no writ) (general
lawcities); cf. Lower Colorado River Authority v. City of San Marcos,
523 S.W.2d 641 (Tex. 1975) (home rule city has plenary powers,
controlled primarily by the cityis charter). This rule applies-to the
creation of debt. See Brown v. Jefferson County, 406 S.W.2d 185 (Tex.
1966) (counties); c E&eps' Bank v. City of Terrell. 14 S.W. 1003
(Tex. 1890) (cities).
Article 44941 does not expressly authorize a joint city-county
hospital to borrow money to purchase equipment and to renovate the
hospital. Section 1 of article 44941 provides, in part:
Such cities or towus and counties that have
heretofore issued and sold bonds for the specific
purpose of jointly establishing, erecting,
=quippingI maintaining and operating such joint
county-city hospital may finance such hospital or
hospitals out of general revenues and are each,
respectively, hereby authorized to levy and
collect a tax, not to exceed Ten (10) Cents per
oue hundred dollar valuation on the property
subject to taxes therein, for such purposes.
This section provides the only express authority to incur debt in
financing a joint city-county hospital. As indicated, however, the
hospital does not seek to raise these funds through the issuance of
revenue bonds because the cost of issuance for the relatively small
amount needed is not economically advantageous in light of the fact
that the hospital anticipates that a loan can be repaid from funds
generated by the operation of the hospital.
Because article 44941 does not expressly authorize a joint
city-county hospital to borrow money for hospital improvements, the
dispositive issue is whether such power way be implied from the grant
of authority to establish and equip a hospital and to issue bonds for
such purposes. As a general rule, when a law confers a power on a
governmental entity, the power carries with it the implied authority
to do all things which are necessary to effect the power granted.
Terre11 v. Sparks, 135 S.W. 519 (Tex. 1911). The authority to incur
debt for purposes which are not authorized or to incur debt in excess
of the limits on the amount of debt authorized or to incur debt
without observing prescribed procedures for incurring debt clearly
cannot be implied. Citizens' Bank v.``CC~y~of Terrell, 14 S.W. 1003,
1004 (Tex. 1890); see; 180 Foster v. City of Waco, 255 S.W. 1104, 1105
(Tex. 1923) (limits in city charter). Additionally, in Lasater v.
Lopez, 217 S.W. 373, 376 (Tex. 1919). the Texas Supreme Court stated
that the power to issue negotiable instruments must be express, it
cannot be implied. See also First Bank 6 Trust Co., Booker, v. Dmsas
Independent School District, Duwas, 527 S.W.2d 499 (Tex. Civ. App. -
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Honorable Elizabeth C. Jaudt - Page 3 (JM-642)
Waco 1975, writ ref’d n.r.e.1 (regarding nonnegotiable nature of
government warrants and promissory notes).
In Lasater v. Lopes, s, the Texas Supreme Court addressed a
question about the power to incur debt which is similar to the
question presented by article 44941. In Lasater v. Lopes, county
taxpayers sought the judicial invalidation of a series of interest-
bearing county warrants issued for public road improvements. The act
at issue expressly authorized the issuance of bonds but did not
expressly authorize any alternate method of financing. The court
framed the issue as whether the act’s grant of authority for the
issuance of negotiable county bonds for public road purposes negated
any authority to issue nonnegotiable county warrants for the same
purpose when a particular road improvement could be accomplished by
that means. Lasater v. Lopes, 217 S.W. at 376.
In Lasater v. Lopes, the court determined that the county had the
authority to issue nonnegotiable warrants in lieu of bonds. The court
stated that
[ilt could not have been absent from the mind of
the Legislature in the passage of the Act of 1903
that in some counties it might be possible for the
Commissioners’ Court to accomplish the desired
road improvement within the limits of the county’s
general power of taxation for such purpose by a
smaller expenditure than is ordinarily in view
where a bond issue is proposed, and hence without
the need ,of resorting to bonds. The authority in
such instances to make lawful use of the county’s
credit through the issuance of county warrants
cannot be denied because of the Act of 1903,
unless it is to be held that the effect of that
act is to absolutely require the issuance of bonds
in all cases by all counties where it is necessary
to contract a debt of extended maturity for road
improvements. If the authority to issue bonds
granted by the Act of 1903 does not exclude the
power in such cases to make use of a county’s
credit for road improvements by all other means,
the authority, where necessary, to use it for that
purpose through the issuance of warrants still
remains in the Commissioners’ Courts and may be
lawfully exercised. (Emphasis added).
217 S.W. at 377. The court’s decision was premised on its assumption
that the county’s authority to incur debt through nonnegotiable
warrants for public road improvements was implicit in the original
grant of authority to levy taxes to build and improve roads. -
See 217
S.W. at 375-76.
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Eonorable Elizabeth C. Jandt - Page 4 (JM-642)
Article 44941 provides express authority to maintain and equip a
joint city-county hospital. Section 1 of article 44941 authorizes
counties and cities to levy a special tax and to use general revenues
to fund a joint city-county hospital. As indicated, section 1
expressly authorizes the issuance of bonds. Further, section 7
provides for' "the issuance of bonds or other obligations, or by
appropriations from other funds of such county and city or town."
This language indicates that the legislature intended that the
financing of city-county hospitals is not limited to the issuance of
bonds. Prior Attorney General Opinions indicate that article 44941
authorizes forms of debt other than bonds. See Attorney General
Opinions V-904. V-779 (1949); see also Attorney Goneral Opinion V-683
(1948). Consequently, article 44941 contains the authority necessary
for a county and city to borrow money for hospital improvements; it
need not resort to bonds in all cases. This opinion applies only to a
hospital organized under article 44941.
The second issue raised by your request is whether a county and
city may delegate to an article 44941 hospital's board of managers the
authority to borrow money for hospital improvements. Section 1 of
article 44941 authorizes the county and city to delegate, by resolu-
tion or other appropriate action, to the hospital's board of managers
"full and complete authority to establish, erect, equip, maintain and
operate" a joint city-county hospital. This opinion assumes that the
full authority that may be delegated to the board of managers under
article 44941 has been delegated through appropriate actions of the
county and city. See generally Attorney General Opinion WW-1332
(1962). You suggest that the county and city may delegate authority
to the board of managers to borrow money for hospital improvements
simply by approving budgets submitted by the board and that the county
and city are "obligated" to approve expenditures which the board of
managers deems necessary, including an expenditure involving a bank
loan. This is not an accurate construction of the powers which may be
delegated under article 44941.
Several sections of article 44941 are relevant to your inquiry.
Section 4 of article 44941 provides that the joint board of managers
shall have full and complete authority to enter
into any contract connected with or incident to
the establishment, erection, =quipping, main-
taining or operating such hospital or hospitals,
and in this connection shall have authority to
disburse and pay out all funds set aside by such
county and such city or town for purposes con-
nected with such hospital or hospitals, and such
action by such city or toxn as though such action
had been taken by the Commissioners Court of such
county or governing body of such city or town.
(Emphasis added).
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Eonorable Elizabeth C. Jandt - Page 5 (JM-642)
Section 7 of article 44941 provides:
In connection with the erection and equipping
of such hospital or hospitals said Board of
Managers shall have the authority to determine the
manner of expending any funds that may have been
provided by such county and such city or town for
such purpose, whether by the issuance of bonds or
other obligations, or by appropriations from other
funds of such county and city or town, it being
the intention by this Act to grant to such Boards
the complete authoritv to manage and control all
matters affecting such hospitals, reserving to
such county and city or town the right only to
appoint members to such Board of Managers and to
approve the annual budget hereinabove provided
for. (Emphasis added).
-
both sections 4 and 7 provide that the county and city may
authorize the board to exercise broad authority with regard to
operating the hospital, the board's authority is referenced to funds
provided by the county and city. The last sentence in section 7,
which reserves to the county and city "only"~ the rights of appoint-
ment power and budget approval, must be read in light of all of the
language in article 44941.
Section 5 of article 44941 provides:
Once each year such Board of Managers shall
prepare and present to such Commissioners Court
and the governing body of such city or town a
complete financial statement of the financial
status of such hospital or hospitals, and shall
submit therewith a proposed budget of the
anticipated financial needs of such hospital or
hospitals for the ensuing year. On the basis of
such financial statement and budget the Commis-
sioners Court of such county and the governing
body of such city or town shall appropriate or set
aside for the use of such Board of Managers in the
operation of such hospital or hospitals the amount
of money which seems proper and necessary for such
purpose. (Emphasis added).
This section does not mandate that the county and the city shall
approve any amount of funding which the board deems necessary.
Although the county and city's authority to approve specific
hospital expenditures may be purely ministerial, their authority to
incur debt to fund the hospital is discretionary. In Commissioners
Court of Harris County v. Fullerton, 596 S.W.2d 572 (Tex. Civ. App. -
Eouston [lst Dist.] 1980, writ ref'd n.r.e.), the court reviewed a
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Honorable Elizabeth C. Jandt - Page 6 (JM-642)
commissioners court's refusal to approve certain items in the county
auditor's budget. The statutory language at issue in Fullerton is
similar to that in article 44941. See 596 S.W.Zd at 575. The court
determined that the duty of a ccmais~ners court to approve specific
items of equipment requested by the county auditor is ministerial; the
comfssioners court must take appropriate legal steps to procure such
items unless it finds the county auditor abused his discretion. 596
S.W.2d at 576. The item at issue, however, fell within the scope of
the county auditor's equipment budget. The court noted that the
legislature granted the commissioners court the power to determine the
reasonableness of "the monetary outlay necessary to foster the
budget's approval."
Similar considerations apply to the case at hand. The board of
managers of an article 44941 hospital has "complete authority" over
the actual expenditures made for hospital improvements. On the other
hand, article 44941 places the authority to levy taxes and incur debt
in the county and city. In Attorney General Opinion V-904 (1949),
this office indicated that the authority to incur debt to finance
hospital improvements under article 44941 rests with the county rather
than with the board of managers. The county and city have discretion
over whether to borrow money to finance improvements for an article
44941 hospital. Consequently, although the county and city may
approve the purchase of equipment and hospital improvements in the
budget process, they must take separate, specific action to approve a
loan for such.purposes.
The third and final issue raised by your request is whether the
Texas Constitution's prohibition on certain debts prohibits a city-
county hospital from borrowing money for equipment and improvements
through a bank loan to be repaid within five years. Article XI,
section 7, of the Texas Constitution provides, in part, that
no debt for any purpose shall ever be incurred in
any manner by any city or county unless provision
is made, at the time of creating the same, for
levying and collecting a sufficient tax to pay the
interest thereon and provide at least two percent
(2%) as a sinking fund. . . .
See also Tex. Const. art. XI, P5.
You indicate that the hospital reasonably anticipates that the
loan can be repaid from funds generated by the operation of the
hospital. An obligation will not create "debt" within the meaning of
article XI. section 7. when the transaction itself generates enough
revenue to cover the obligation of the governmental unit. Bathe
Halsey Stuart Shields, Inc. V. University of Houston, 638 S.W.Zd 920
(Tex. App. - Eouston [lst Dist.] 1982, writ ref'd n.r.e.); --see Texas
Public Building Authority V. Mattox. 686 S.W.2d 924 (Tex. 1985)
(construing Tex. Const. art. III. 449); City of Nederland V. Callihan,
299 S.W.2d 380 (Tex. Civ. App. - Beaumont 1957. writ ref'd n.r.e.)
p. 2913
Eonorable Elizabeth C. Jandt - Page 7 (JM-642)
(construing Tex. Const. art. XI, 95). In the present case, however,
it does not appear that the loan is repayable solely out of revenues
generated by the equipment to be purchased or the renovations to be
made.
Texas courts uphold "debt" transactions against constitutional
challenge under article XI, section 7. when current revenues or
revenues which are generated by the transaction and which are within
county or city control are sufficient to cover the "debt." --See Brown
V. Jefferson County. 406 S.W.2d 185, 189 (Tex. 1966). Case law has
not, however, always established a clear rule under article XI,
section 7. In McNeil1 V. City of Waco, 33 S.W. 322 (Tex. 1895), the
Texas Supreme Court held that no debt existed for purposes of article
XI, section 7, when the city reasonably anticipates that the
obligation can be satisfied out of current revenues or out of "some
fund then within the immediate control of the corporation." 33 S.W.
at 324. The McNeil1 court focused on "providing" for the retirement
of the debt; if the city anticipates in good faith at the time a
"debt" is made that a tax is not necessary to retire the "debt," the
city is not required by article XI, section 7, to levy a tax. 33 S.W.
at 323-24. The court did, however, suggest that there should exist,
at the date of the contract, a fund in the treasury,
legally applicable thereto, out of which the parties
contemplated that such claim should be paid.
33 S.W. at 324.
Controversies over the existence of an unconstitutional "debt"
revolve around the requirement that a fund actually exist at the time
the "debt" is made. The supreme court adopted a 1938 Commission of
Appeals decision which indicates that the parties to the debt must
contemplate that the entire obligation could be satisfied out of
current funds or revenues. See Stevenson V. Blake, 113 S.W.2d 525,
527 (Tex. 1938). Similarly, rthe Commission of Appeals decision in
T 6 N.O.R.R. Co. v. Galvesion County, 169 S.W.Zd 713.(Tex. 1943), the
court struck down the part of an agreement between a county and three
railway companies and an interurban company in which.the county agreed
to indemnify the companies for liability that might arise in the
future from the use of a jointly-constructed drawbridge. The court
held that the parties could not have reasonably anticipated that this
"debt" could be satisfied out of current revenues for the year or out
of some fund then within the immediate control of the county. 169
S.W.2d at 715.- The Texas Supreme Court, however, qualified these two
commission of appeals holdings.
In Brown V. Jefferson County,~s, the supreme court shifted
the focus of the article XI. section 7. inquiry from the current
existence of funds to whether necessary funds are reasonably
anticipated from sources within the control of the county. See 406
S.W.2d at 189. The court upheld a contract in which the countyagreed
to assume uncertain indemnity liability, to "hold and save" harmless
p. 2914
Eonorable Elizabeth C. Jandt - Page 8 (JM-642)
the federal government for the ownership, operation, and maintenance
of a federally-funded county bridge. The fact that the county had
control over the bridge influenced the court. 406 S.W.2d at 188.
A Jefferson County taxpayer alleged that article XI, section 7,
requires that such obligations be funded by a specific tax. The court
rejected this argument:
Article 11, 67 of the Texas Constitution does
uot require that a definite tax rate be set for
each year the 'debt' is to be outstanding. Tax
rates vary with assessed valuations, governmental
needs and the like and are set on a year to year
basis. e the constitutional provision requires
is that a 'sufficient' tax be levied. (Citations
omitted). Until some liabili,ty ascertainable in
arises, no money would need be collected
from the county's tax resources. (Emphasis added).
406 S.W.2d at 189. An obligation will be stricken under article XI,
section 7. "only when it is made to appear that the limited tax
resources of the municipality are insufficient when the obligation is
made to discharge the obligation." 406 S.W.2d at 190.
Despite the suprems court's decision in Brown V. Jefferson
County, some courts have invalidated "debts" on the basis that they
could not be paid out of actually available current revenues. See
City of Wichita Falls V. Kemp Public Library Board of Trustees, 593
S.W.Zd 834 (Tex. Civ. App. - Fort Worth 1980, writ ref'd n.r.e.);
Brodhead V. City of Forney, 538 S.W.2d 873 (Tex. Civ. App. - Waco
1976. writ ref'd n.r.e.). This narrow rationale. however. is not
mandated by the supreme court's decision in Brown V. Jefferson County.
For example, in City of Wichita Falls V. Kemp Pqblic T;ibrary, there
existed a question of control over funds to repay debt. In Brodhead
v. Fornex, the funds necessary to repay the "debt" could not be
reasonably anticipated.
The case you present with regard to.a joint city-county hospital
established under article 44941 fits within the Texas Supreme Court's
decision in Brown V. Jefferson Counte. You indicate that the hospital
reasonably anticipates that a loan for hospital equipment and improve-
meats can be repaid from revenues generated by the hospital. The
county and city have taxing authority under article 44941 and control
over hospital revenues through the budget approval process. Because
hospital revenues have been sufficient to operate the hospital, the
county and city have not found it necessary to levy taxes for the
support of the hospital. Additionally, it has not been shown that the
uncommitted tax resources for the year available to the county and
city for hospital purposes, are not reasonably anticipated to be
sufficient to discharge the obligation in question if it should become
necessary to do so. As indicated, it is not necessary that a fund
exist or a tax actually be levied. The amount which the county and
p. 2915
.
Honorable Elizabeth C. Jandt - Page 9 (JM-642)
city in good faith believe could be raised through a combination of
hospital revenues, taxing power under article 44941. and other taxing
authority available for hospital purposes is a fact question which
cannot be resolved in the opinion process. Moreover, the burden of
proof must be shouldered bv the uartv that challenaes an oblination to
show that it exceeds the constitutional "debt" limit. irown v.
Jefferson County, 406 S.W.2d at 189. Consequently, under Ilrown v.
Jefferson County, the Texas courts would not invalidate a "d;ebt" for
equipment and improvements for a joint city-county hospital when it is
reasonably anticipated that the obligation can be repaid from revenues
generated by the hospital and the obligation has not been shown to
exceed the county and city's unconneittedtaxing authority for hospital
purposes.
SUMMARY
A city and county with a joint hospital
organized pursuant to article 44941, V.T.C.S.,
hold the authority to borrow money to purchase
equipment and to renovate the hospital when it is
reasonably anticipated that the loan can be repaid
from funds generated by the operation of the
hospital and it has not been shown that the amount
of the loan is not within the amount which the
county and city in good faith believe could be
raised through a combination of hospital revenues,
taxing power under article 44941. and other taxing
authority available for hospital purposes. This
opinion is limited to an article 44941 hospital.
The county and city which establish an article
44941 hospital have discretion over whether to
borrow money and must take specific action to
approve a loan for hospital improvements.
Attorney General of Texas
JACK EIGETOWRR
First Assistant Attorney General
WARY KELLER
Executive Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Jennifer Riggs
Assistant Attorney General
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