Untitled Texas Attorney General Opinion ( 2008 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
August 1,2008
Ms. Martha Galarza Opinion No. GA-0652
Cameron County Auditor
Post Office Box 3846 Re: Whether a county's alleged underpayment to
Brownsville, Texas 78520 indigent health care providers is an unconstitutional
debt for purposes of article XI, section 7 of the
Texas Constitution (RQ-0672-GA)
Dear Ms. Galarza:
Your predecessor in office informed us that health care providers submitted invoices for the
fiscal year 2006-2007 for services provided to indigent residents of Cameron County in excess of
the amount budgeted by the county for indigent health care in the 2006-2007 fiscal year.! Thus, he
asked the following four questions about this excess amount:
1. Is this a "debt" within the meaning of Article XI, Section 7 of
the Texas Constitution?
2. If it is a "debt" within the meaning ofArticle XI, Section 7[,] is
it an "unconstitutional debt" prohibited by the Texas
Constitution?
3. Ifit is an "unconstitutional debt" can it be ratified or paid by the
Cameron County Commissioners Court?
4. If it is an "unconstitutional debt" is the Cameron County
Auditor prohibited from approving the claims under ... Local
Gov[ernment] Code, [section] 113.065?
Request Letter, supra note 1, at 1.
I See Letter from Robert A. Almon, Cameron County Auditor, to Honorable Greg Abbott, Attorney General of
Texas, at 1-2 (Feb. 1,2008) (on file with the Opinion Committee, also available at http://www.texasattorneygeneral.gov)
[hereinafter Request Letter].
Ms. Martha Galarza - Page 2 (GA-0652)
I. Background
The Indigent Health Care and Treatment Act, chapter 61 of the Health and Safety Code,
requires counties to provide a certain amount ofhealth care to qualified indigent residents. 2 See TEx.
HEALTH & SAFETY CODE ANN. §§ 61.001-.066 (Vernon 2001 & Supp. 2007). Under chapter 61,
the county is the payor of last resort for health care to persons who do not reside in the service area
of a public hospital or hospital district. fd. §§ 61.002(2) (defming "eligible county resident"), .022
(specifying county obligation) (Vernon 2001). A county may "provide health care services through
a local health department, a publicly owned facility, or a contract with a private [health care]
provider." fd. § 61.029(a); see also id. § 61.030 (selection of mandated provider).
We understand that in Cameron County, in the fiscal year 2006-2007, indigent health care
services were provided, and the indigent health care expenses at issue were incurred pursuant to
several contracts executed under Health and Safety Code section 61.029(a). See Request Letter,
supra note 1, at 2-3. It appears that pursuant to these contracts, invoices-including the invoices
at issue here-were submitted to the county for payment "when the service was provided." See id.
at 2. As we understand it, these invoices in the aggregate exceed the amount budgeted by the county
for indigent health care for the 2006-2007 fiscal year. fd. at 1-2. That budgeted amount, as we
understand it, was the total amount available for the payment of indigent health care services and
included eight percent of the county's general tax revenues and matching state funds for indigent
health care to be received for the 2006-2007 fiscal year. fd. at 1-3, 4; see also supra note 2.
II. Analysis
A. Unconstitutional Debt
The first two questions ask whether the indigent health care services invoices in excess of
the budgeted amount constitute "debt" subject to the prohibition in Texas Constitution article XI,
section 7. Article XI, section 7 prohibits a county or a city from incurring a "debt" without levying
a tax to pay the interest on the obligation and at least two percent of the principal:
'The county's maximum liability for each state fiscal year for health care services provided to each eligible
resident is limited to $30,000 or thirty days ofhospitalization or treatment. TEX. HEALTH & SAFETY CODEANN. § 61.035
(Vernon 2001). The county is eligible to receive state assistance to the extent of appropriated funds when the county
spends at least eight percent of its general revenue levy for indigent health care. Id. § 61.037 (b)(I) (Vernon 2001),
.0395 (Vernon Supp. 2007). If the state fails to provide the prescribed assistance-at least ninety percent ofthe actual
health care payments during the remainder of the state fiscal year after the county's eight percent expenditure level is
reached-"the county is not liable for payments for health care services provided to its eligible county residents after
the county reaches the eight percent expenditure level." !d. § 61.039 (Vernon 2001). We were not asked, and we do
not address whether Cameron County can be held liable for claims above its statutory obligation. See, e.g., Tex. All'y
Gen. Op. No. JM-637 (1982) at 3 (concluding thatthe Indigent Health Care and Treatment Act, as it existed at the time,
limited only a county's obligation and duty to provide health care assistance and notthe county's legal power to provide
such assistance).
Ms. Martha Galarza - Page 3 (GA-0652)
[N]o 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 per cent (2%) as a sinking fund[.]
TEx. CONST. art. XI, § 7. Any attempted creation or incurrence of a debt without also making such
provision for payment "is contrary to the express prohibition ofthe constitution, and void." McNeill
v. City ofWaco, 33 S.W. 322, 323 (Tex. 1895); see also Tex. & New Orleans R.R. Co. v. Galveston
County, 169 S.W.2d 713, 715 (Tex. 1943) ("If this provision is not made, the 'debt' is a nullity.").
"A contract which violates these constitutional provisions is void, and the governmental unit
involved need not pay any related obligation." City-County Solid Waste Control Bd. v. Capital City
Leasing, Inc., 813 S.W.2d 705, 707 (Tex. App.-Austin 1991, writ denied). The issue here is
whether the indigent health care services invoices in excess of the budgeted amount are obligations
related to contracts that violate the constitutional provision.
The term "debt" as used in article XI, section 7 "means any pecuniary obligation imposed
by contract." McNeill, 33 S.W. at 324; accord Stevenson v. Blake, 113 S.W.2d 525, 527 (Tex.
1938); Tex. & New Orleans R.R. Co., 169 S.W.2d at 715. However, a contract does not create a
"debt" if the parties lawfully and reasonably contemplate when the contract is made that the
obligation will be satisfied out of current revenues for the year, or out of some fund then within the
immediate control ofthe governmental unit. McNeill, 33 S.W. at 324. A party seeking recovery on
a contract bears the burden of showing that the obligation under the contract is not a "debt";
Prima facie, every pecuniary obligation attempted to be created by
contract is a debt, within the meaning ofthe constitutional provision[]
..., and a party attempting to recover against the [governmental unit]
must allege the facts showing a compliance with the constitution ...
or must allege such facts as bring the particular claim within the
exception ... in the definition of the word' debt.'
Id.; see also City ofBonham v. Sw. Sanitation, Inc., 871 S.W.2d 765,769 (Tex. App.-Texarkana
1994, writ denied) (stating that the party seeking recovery on the contract has the burden of alleging
and proving that the entire obligation could reasonably be paid from current revenues or funds on
hand; "[o]therwise the contract is void and no recovery can be had on it" (citing McNeill, 33 S.W.
at 323)). A contract that runs for more than one year is a commitment only of current revenues and
thus is not a "debt" if it reserves to the governing body the right to terminate the contract at the end
of each budget period. City ofBonham, 871 S.W.2d at 768; City-County Solid Waste Control Bd.,
813 S.W.2d at 707; see also TEX. LOc. GOV'TCODEANN. § 271.903(a) (Vemon2005) (commitment
of current revenues).
Your predecessor asked about the aggregate amount of the invoices submitted pursuant to
several contracts in excess ofthe amount budgeted by the county. See Request Letter, supra note
1, at 1. Based on the facts presented, we understand that under the several indigent health care
services contracts, amounts are payable, not on any specified date, but when services are provided.
Ms. Martha Galarza - Page 4 (GA-0652)
See id. at 2-3. But we have no other information regarding the contract dates and terms, including
whether they are one- or multi-year contracts or whether they contain the right to terminate atthe end
ofthe budget year. Accordingly, we carmot determine whether they create "debt" as a matter oflaw.
Cf City of Bonham, 871 S.W.2d at 768 (determining that a multi-year contract with no right of
termination at the end of each budget period was a "debt" unless payable from current revenues or
funds on hand); City-County Solid Waste Control Bd., 813 S.W.2d at 707 (determining that a
contract with an anticipated term exceeding one year is a "debt" uuless it reserves to the governing
body the right to terminate at the end of each year); see also Tex. Att'y Gen. Op. Nos. GA-0176
(2004) at 2-3 (determining that a county contract indemnifYing a third party for damages arising
from the third party's negligence would constitute a debt), JC-0582 (2002) at 7 (determining that a
multi-year county lease obligating the county to pay utilities and other maintenance charges was a
debt), JC-0395 (2001) at 3 (determining that a multi-year contract for leasing office equipment
constituted a "debt").
Thus, as your predecessor noted, the relevant test here is whether the county's pecuniary
obligations under the various contracts were--when the contracts were executed-lawfully and
reasonably contemplated to be made out of current revenues for the fiscal year 2006-2007 or out of
funds then within the immediate control of the county. See McNeill, 33 S.W. at 323-24; see also
Request Letter, supra note 1, at 4-5 (discussing relevant constitutional standard). This is a
"fundamental and necessary" question ofmaterial fact in determining whether the county obligation
undertaken by the various indigent health care services contracts is a debt. See County ofEctor v.
City ofOdessa, 492 S.W.2d 360, 362-63 (Tex. Civ. App.-EI Paso 1973, no writ); Tex. Att'y Gen.
Op. No. JM-642 (1987) at 7; see also Clay Bldg. Material Co. v. City of Wink, 141 S.W.2d 1040,
·1042 (Tex. Civ. App.-EI Paso 1940, no writ) (stating that the obligation's purpose, the extent
thereof, and the extent of a city's revenue may all have bearing on whether it is contemplated that
the obligation be paid from current revenues, but none of them is necessarily conclusive on this
question). This office carmot determine questions of fact in an attorney general opinion. See Tex.
Att'y Gen. Op. No. GA-0492 (2006) at 3 (stating that questions of fact carmot be resolved in the
opinion process). But, to provide guidance, we set out your predecessor's assertions as to the facts
and discuss the answer to the question should the assertions be correct.
In apparent reliance on statements made by your predecessor's predecessor and past practices
ofthe county, it appears that when the county entered into the indigent health care services contracts,
it did not contemplate that the entire pecuniary obligation thereunder would be paid from current
general tax revenues for the 2006-2007 fiscal year or other funds within the county's immediate
control. Request Letter, supra note 1, at 1-2, 5. 3 First, your predecessor asserted that "[t]he bottom
'Your predecessor did not reference or cite to any provisions in the indigent health care services contracts or
findings in conunissioners court orders authorizing these contracts. A court considering this issue would likely examine
the contract provisions and related commissioners court orders to determine whether the county contemplated paying
its obligations under these contracts with current revenues for the 2006-2007 fiscal year. See, e.g, Brown v. Jefferson
County, 406 S.W.2d 185, 188-89 (Tex. 1966) (examining county contract in determining whether indenmity provision
created an unconstitutional debt); Bexar County v. Hatley, 150 S.W.2d 980, 988 (Tex. 1941) (examining conunissioners
(continued...)
Ms. Martha Galarza - Page 5 (GA-0652)
line is [that] in fiscal year 2006-07 the County did not anticipate paying more [than] the amount
budgeted for indigent health care." Request Letter, supra note I, at 5; see also id at 1 ("Indigent
health care service providers, invoiced the County for the fiscal year 2006-07 for $2, 220, 929.96
more than the County had anticipated to be paid without the use of future tax revenues."). He
explained that, "after May 31 [], 2007, [when the County had exhausted the amount budgeted or
allocated for health care services], the County anticipated paying for 2006-07 indigent health care
services, if at all, after all County and State funds set aside for indigent health care in Cameron
County for the 2006-07 fiscal year had been spent, with 2007-08 general tax revenues." Id at 5.
Second, your predecessor informed, the same procedure has been followed in each ofthe past several
years: "[A]fter funds set aside for indigent health care were exhausted, indigent health care for
eligible county residents provided for the remainder of the fiscal year would be paid out of the
general tax revenue from the subsequent fiscal year." Id at 2.
If, as it appears to be suggested, the county did not contemplate when it entered into the
health services contracts that the entire pecuniary obligation thereunder would be paid from its
current general tax revenues for the 2006-2007 fiscal year or other funds within the county's
immediate control, the indigent health care services contracts created "debt" within the meaning of
article XI, section 7. See TEX. CONST. art. XI, § 7; McNeill, 33 S.W. at 324. And unless the county
levied a tax to pay interest on the "debt" and provide a sinking fund of at least two percent to pay
the principal, the contracts create "debt" that is prohibited by the constitutional provision. See TEx.
CONST. art. XI, § 7; McNeill, 33 S.W. at 324; City ofBonham, 871 S.W.2d at 768. Under these
circumstances, the indigent health care services invoices submitted in excess ofthe budgeted amount
that is at issue here would constitute "debt" prohibited by article XI, section 7. See Stevenson, 113
S.W.2d at 527 (stating that the entire obligation under a contract made in violation of article XI,
section 7 is void); City-County Solid Waste Control Bd, 813 S.W.2d at 707 (stating that a contract
violating article XI, section 7 is void, and "the govermnental unit involved need not pay any related
obligation"). We reiterate that the only amount in question is the aggregate excess amount, and our
conclusion, based on the assumption that your predecessor's factual assertions about what the county
contemplated are correct, is limited to this excess amount. We were not asked, and we cannot
determine whether any of the several contracts to which the invoices specifically relate is
unconstitutional and thus void in its entirety.
B. Ratification and Payment of Unconstitutional Debt
If the invoices for indigent health care services in excess of the budgeted amount constitute
"debt" prohibited by Texas Constitution article XI, section 7, your predecessor asked whether the
Cameron County Commissioners Court may ratify or pay it, and whether the Cameron County
Auditor is prohibited from approving such claims under Local Govermnent Code section 113.065.
'(...continued)
court's order recitals and contract provision in detennining whether expenditures were to be paid from currently available
funds); City-County Solid Waste Control Ed. v. Capital City Leasing, Inc., 813 S.W.2d 705, 707 (Tex. App.-Austin
1991, no writ) (examining anticipated tenn and tennination provisions ofa municipal lease in detennining whether the
lease created an unconstitutional debt).
Ms. Martha Galarza - Page 6 (GA-0652)
See Request Letter, supra note I, at I; see also TEx. Lac. GOY'T CODE ANN. § 113.065 (Vernon
2008) ("The county auditor may not audit or approve a claim unless the claim was incurred as
provided by law.").
We first consider ratification by the commissioners court. "As a general rule, void contracts
carmot be ratified.'" Richmond Printing v. Port of Houston Auth., 996 S.W.2d 220, 224 (Tex.
App.-Houston [14th Dist.] 1999, nopet.);see TCA Bldg. Co. v. Nw. Res. Co., 922 S.W.2d629, 634
(Tex. App.-Waco 1996, writ denied); Jackv. State, 694 S.W.2d391, 397 (Tex. App.-SanAntonio
1985, writ ref d n.r.e.). A contractual obligation incurred in violation ofarticle XI, section 7 is void.
See Tex. & New Orleans R.R. Co, 169 S.W.2d at 715 (stating that "debt" incurred in violation of
article XI, section 7 "is a nullity"); Stevenson, 113 S.W.2d at 527 (stating that the entire obligation
under a contract madein violation ofarticle XI, section 7 is void); City-County Solid Waste Control
Bd., 813 S.W.2d at 707 (stating that a contract violating article XI, section 7 is void, and "the
governmental unit involved need not pay any related obligation"). Accordingly, if the invoices for
indigent health care services submitted in excess ofthe budgeted amount constitute "debt" prohibited
by article XI, section 7, the Cameron County Commissioners Court carmot ratifY them. Cf Jack, 694
S.W.2d at 397 (upholding trial court's conclusion that lease made in violation of statute and thus
void could not be ratified by the county); Tex. Att'y Gen. Op. Nos. GA-0247 (2004) at 8 (concluding
that a commissioners court lacks authority to ratifY a contract entered into in violation ofpurchasing
statute); H-1237 (1978) at 1-2 ("The commissioners court is not authorized to order payment of a
claim under a contract made in violation of [a purchasing statute], and the auditor is prohibited from
paying such a claim.").
We next address approval and payment of the "debt" by the commissioners court and
the county auditor. Section 115.021 of the Local Government Code specifically requires a
commissioners court to "audit and settle all accounts against the county and [to] direct the payment
of those accounts." TEx. Lac. GOy'T CODE ANN. § 115.021 (Vernon 2008). Under this provision,
a commissioners court has a duty to "audit all claims against the county and to order paid those only
which are found to be just and legal demands." Padgett v. Young County, 204 S.W. 1046, 1052
(Tex. Civ. App.-FortWorth 1918, writdism'd); accord Navarro County v. Tullos, 237 S.W. 982,
987-98 (Tex. Civ. App.-Dallas 1922, writ ref d).
Additionally, under chapter 113 ofthe Local Government Code, a commissioners court may
not direct the payment of a claim until it has been examined and approved by the county auditor.
TEx. Loc. GOy'T CODE ANN. § 113.064(a)(Vernon 2008); see also Crider v. Cox, 960 S.W.2d 703,
706 (Tex. App.-Tyler 1997, writ denied) (stating that the county auditor's approval of a claim is
a prerequisite to the commissioners court's approval; without the county auditor's approval, the
commissioners court's approval of a claim is void). And "[t]he county auditor may not audit or
'This is true "so long as there has been no change in the law or in the facts as would cause the bargain to be valid
and enforceable if made at the time of ratification." TCA Bldg. Co. v. Nw. Res. Co., 922 S.W.2d 629, 634 (Tex.
App.-Waco 1996, writ denied) (quoting 6A CORBIN ON CONTRACTS § 1532, at 806 (1962)). There has been no change
in the relevant law and in the facts that we know of here that "would cause the bargain to be valid and enforceable" as
of its ratification.
Ms. Martha Galarza - Page 7 (GA-0652)
approve a claim unless the claim was incurred as provided by law." TEx. Lac. GOV'T CODE ANN .
§ 113.065 (Vernon 2008). "The language ofthese statutes is mandatory. They impose on the auditor
the responsibility, before approving a claim, to determine whether it strictly complies with the law
governing county finances." Smith v. McCoy, 533 S.W.2d 457, 459 (Tex. Civ. App.-Dallas 1976,
writ dism'd) (addressing the statutory predecessors to Local Government Code sections
113.064-.065); see also Crider 960 S.W.2d at 706 ("A claim against the county may not be approved
by the Auditor unless it was incurred in accordance with the law.") (citing Local Government Code
section 113.065).'
In answer to your predecessor's question, if the indigent health care services invoices
submitted in excess ofthe budgeted amount constitute "debt" prohibited by article XI, section 7, the
Cameron County Auditor is prohibited from approving the claims and the Cameron County
Commissioners Court is not authorized to direct their payment because they are not legal claims.
Cf Tex. Att'y Gen. Gp. No. GA-0247 (2004) at 4-5 (determining that section 113.065 prohibits a
county auditor from approving a claim under a contract awarded in violation of purchasing statute,
and the claim may not be approved by the commissioners court or paid by the county); H-1237
(1978) at 1-2 (concluding thatthe commissioners court is not authorized to order payment ofaclaim
under a contract made in violation of purchasing statute, and the auditor is prohibited from paying
such a claim). 6 Again, our conclusion here is limited to the excess invoice amount your predecessor
asked about.
5As indicated in part I of this opinion, the county is obligated by chapter 61 of the Health and Safety Code to
provide the indigent health care prescribed by the statute. See TEX. HEALTH & SAFETY CODE ANN. §§ 61.001-.066
(Vernon 2001 & Supp. 2007).
'We were not asked about, and we do not consider any legal theories on which a party to the contracts at issue
may seek relief in court.
Ms. Martha Galarza - Page 8 (GA-0652)
SUMMARY
Whether Cameron County contemplated when it entered into
indigent health care services contracts that the entire pecuniary
obligation thereunder would be paid from current general tax
revenues for the 2006-2007 fiscal year or other funds then within the
county's immediate control is a question of fact.
If, as suggested here, Cameron County did not contemplate
when it entered into indigent health care services contracts that the
entire pecuniary obligation thereunder would be paid from current
general tax revenues for the 2006-2007 fiscal year or other funds then
within the county's immediate control, such contracts created "debt"
within the meaning of Texas Constitution article XI, section 7. And
unless the county levied a tax to pay interest on the "debt" and
provide a sinking fund of at least two percent to pay the principal, the
contracts created "debt" prohibited by the constitutional provision.
Under these circumstances, indigent health care services invoices
submitted pursuant to the contracts in excess ofthe amount budgeted
by the county for such purposes at issue here would constitute "debt"
prohibited by article XI, section 7.
Ifthe indigent health services invoices in excess ofthe amount
budgeted by the county for such purposes constitute "debt" prohibited
by article XI, section 7, the Cameron County Commissioners Court
carmot ratifY them; the Cameron County Auditor is prohibited from
approving the claims; and the Cameron County Commissioners Court
is not authorized to direct their payment.
KENT C. SULLIVAN
First Assistant Attorney General
ANDREW WEBER
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Sheela Rai
Assistant Attorney General, Opinion Committee