THE     A’CI’ORNEY   GENERAL
                          OF TEXAS
                        AUMIWN.   TIEKA~   7t37ll




                          November 7. 1974


The Honorable Gerald W. Schmidt                Opinion No. H- 445
County Attorney
Gillespie County Courthouse                    Re: Financing of addition to
Fredericksburg,.  Texas   78624                hospital conveyed to county
                                               and leased back to original
                                               owner*.

Dear Mr.   Schmidt:

        You have requested our opinion aa to the propriety of a proposed
transaction whereby Gillespie County will acquire ownership ‘of an
existing hospital, will finance rather extensive improvement8 and then
will lease the hospital back to its present owners.

         The hospital war erected and equipped at a coat of approximately
$1,600,000   dollars.  There is an existing lien against the property to
aecure a loan of $300,000 included in the original cost.    The present
owner is Hill County Memorial Hospital, organized under the Texas
Non-Profit Corporation Act, Article 1396, V. T. C. S.

         The rapid growth in the Gillespie County-Frederickeburg     area n
indicates the need to increase the size of the hospital at an estimated,
coat of $650,000.    You state that the only feasible way to raise’the’
necessary funds would be a county-wide bond issue.       For thie reason
it ia planned to convey the hospi,tal to the County of Gillespie and fork
the County then to finance the improvements through a bond issue.
After the improvemente have been financed, the hospital would be leased
to Hill County Memorial Hoaptal for a period of 99 years.

        We have had numerous occasiona to review the powers and duties
of a county acting through ite commissioners  court. Generally, it is
held that the powera of counties are those “specifically conferred upon
them.” Canales v. Laughlin, 214 S. W. 2d 451. 453 (Tex. Sup. 1948)


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                                                                              f
The Honorable Gerald W. Schmidt     page 2   (H445)




Anderson v. Wood, 152 S. W. 2d 1084 (Tex. Sup. 1941); Attorney General
Opinions H-392 (1974); H-374 (1974); H-51 Q973); H-45 (19733; H-16 0973).

        Article 4478, V. T. C. S., amended in 1973 (Acts 1973, 63rd Leg.,
ch. 502. p. 1332), gives the counties such broad powers over hospitals
that, in our opinion, there is ample authority “conferred” upon Gillespie
County to carry out the proposed transaction.   Article 4478 provides:

                    The commissioners     court of any county shall
               have power to establish a county hospital and any
               medical or other health facilities and to enlarge
               any existing hospitals or facilities for the care
               and treatment of persons suffering from any ill-
               ness, disease oriujury, subject to the provisions
               of this chapter. At intervals of not less than twelve
               months, ten percent of the qualified property tax
               paying voters of a.county may petition such court
               to provide for the establishing or enlarging of a
               county hospital, or any medical or other health
               facilities, in which event said’court within tire
               time deaignated in such petition shall su,bmit to
               such ,voters at a special or regular   election the
               proposition of issuing bonds in such aggregate
               amount as may be designated in said petition for
              ‘the e,stabliahing or enlarging of such hospital or
               facilities.  Whenever any such proposition shall
               receive a majority of the votee of the qualified
               property tax payers voting at such election, said
               commissioners     court shall establish and maintain
               such hospital or facilities and shall have the follow-
               ing powers:

                  1. To purchase and l,ease real property therefor,
               or acquire such real property, and easements there-
               in, by condemnation proceedings.

                 2. To purchase or erect all necessary    buildings.        .


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          The Honorable Gerald W. Schmidt      page 3 (H-445)




                       make all necessary improvements and repairs and ’
                       alter any existing buildings, for the use of said
                       hospital or facilities. The plans for such Erection,
                       alteration, or repair shall first be approved by
                       the State Health Officer, if his approval is requested
                       by the said commissioners    court.

                          3. To cause to be assessed,  levied and collected, I
                       such taxes upon the real and personal property owned’
                       in the county as it shall deem necessary to provide
                       the funds for the maintenance thereof, and for all     ‘I
                       other necessary expenditures therefor.

                          4. To issue county bonds to provide funds for the
                       establishing, enlarging and equipping of said hospi-
                       tal or facilities and for all other necessary permanent
                       improvements in connection therewith; to do all other
                       things that may be required by law in order to render
                       said bonds valid.

                         5. To appoint a board of managers for said hospital
                     . or facilities, or both.

                           6: To accept and hold in trust for the county,’ any, .“:
                        grant or devise of land, or any gift.or bequest of
                        money or other personal property or any donation to
                        be applied, principal or income or both, for the benefit
                        of said hospital or facilities, and apply the same in
                        accordance with the terms of the gift.

                           7. The commissioners    court may lease all or part
                        of any medical facility so constructed, purchased or
                        acquired under this Act.

                See aleo V. T. C. S.
                --                     art. 44941.



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The Honorable Gerald W. Schmidt       page 4 (H-445)




        However, there is another limitation on the authority of com-
missioners courts, i. e., the prohibition of Article 3, section 52 of
the Texas Constitution that the Legislature may not authoriee any county
to lend its credit or to grant public money or anything of value in aid
of or to any individual, association or corporation.

        In construing this provision along with sections 50 and 51 of
Article 3 and section 3 of Article 8, the courts have developed the
rule that an expenditure of public funds, even if it benefits a private
person, association or corporation, may nevertheless be upheld if it
serves a proper public purpose.     See, e&,   Attorney General Opinion
H-403 (1974) and the cases cited therein.

        You have not told us whether any consideration will be paid by
the county for the conveyance of the hospital to it and, if so, how much.
You have not indicated what disposition is to be made of the obligation
of $300,000 secured by a lien on the hospital.   Finally, you have not
told us what rental will be paid to the county and the relationship it
will bear to the financial obligation to be assumed by the couidy. All
of these are facts pertinent to the decision as to whether the proposed
expenditure would be for aproper public purpose.

         The construction and maintenance of hospitals has been held to
constitute a publ.ic purpose, and bonds issued to finance construction
of county-owned hospitals are therefore valid under Article 3, section
52. Seydler v. Border, 115 S. W. 2d 702, 703 (Tex. Civ. App. --Galveston
1938, writ ref’d).   However, the constitutional prohibitions against
lending of credit and donation of publ,ic money also impose upon a county
that leases its facilities the duty to obtain both sufficient assurance that
the public purpose will be accompl,ished by the lessee and an adequate
rental. Gillham v. Citv of Dallas, 207 S. W. 2d 978 (Tex. Civ. App.
-,-Dallas 1948, writ ref’d n. r. e.); Dodson V. Marshall, 118 S. W. 2d 621
(Tex. Civ. App. --Waco 1938, writ dis’m.).

        Articles 44’78 and 44941 give counties the power to lease their
hospital facilities, but the authority granted by ,these statutes must be
conditioned upon compliance with the constitutional provisions.     In


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The Honorable Gerald W. Schmidt       page   5 (H-445)




Gillham, the city sought to issue bonds to finance the building of refrigera-
tion and cold storage facilities for preservation and conservation of
perishable foods to be used in connection with a public market. After
finding that the proposed use constituted a public purpose, the court
indicated that the city was obligated to ensure that the facilities would be
used for the contemplated purpose:

                   So long as the City authorities supervise and
               control the contemplated buildings and the business
               conducted therein, and such buildings and use thereof
               serve some public market purpose . . . the statutes
               do not exclude the erection ,of such buildings by the
               expenditure of bond funds.     207 S. W. 2d at 983.

        Similarly, in Dodson, the court sanctioned the leasing of a portion
of a courthouse rotunda for use as a concession stand, noting that adequate
control over the use of the space was reserved by the commissioners     court
because the lease was terminable at will.

        Since the proposed lease of the hospital in question is for ninety-
nine years, the county should make some provision to retain some degree
of control over future use of the facility.  For example, the lease could       ;
require that one or more directors of the hospital corporation be appointed ”
by the commissioners    court, it could spell out in detail the obligations of.   ‘.’
the hospital toward indigent patients, or it could contain other provisions
insuring county authority.

          Moreover, the county must receive an adequate rental for the
facility.   If the county fails to receive adequate consideration for the
transaction, it will have effectively made an unconstitutional “donation”
to a private entity. Dodson v. Marshall, supra. at 624; Llano County v.
Knowles, 29 S. W. 549 (Tex. Civ. App. 1895, no writ).          The Attorney
General is not in a position to assess all of the circumstances that must
be considered in determining whether the rental. is satisfactory.       Such
factors as the value to the county of the facilities and the value of being
relieved of the responsibility of hospital operation must be assessed by
the commissioners      court in light of its constitutional obligation.



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     The Honorable Gerald W. Schmidt       page 6 (H-445)




                                     SUMMARY

                        A county may issue bonds to finance additions
                    to a hospital and may lease the hospital to a
                    private non-profit corporation if there is sufficient
                    assurance that the facility will be used only for county
                    hospital purposes, and if the county receives an
                    adequate rental.

                                                    Very truly yours,




                                                    JOHN L. HILL
                                                    Attorney General of Texas

    AP    RO ED.:
                                 \


:&p&444                                         2



                             ---
     DAVID M. KENDALL,       Chairman
     Opinion Committee




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