                                                        .~
                              ATTORNEY GENERAL                   OF   TEXAS
                                           GREG       ABBOTT




                                               May 12,2004



The Honorable Tim Curry                                Opinion No. GA-0188
Tarrant County Criminal District Attorney
1025 South Jennings, Suite 300                         Re: Whether the Tarrant County Hospital District
Fort Worth, Texas 76104                                may expend funds to establish a self-insurance
                                                       program providing liability coverage for JPS
                                                       Physician Group, Inc. and its health-care-provider
                                                       employees (RQ-0139-GA)

Dear Mr. Cony:

        You ask whether the Tarrant County Hospital District (the “Hospital District” or “District”)
may expend fUnds to establish a self-insurance program providing liability coverage for JPS
Physician Group, Inc. (the “Physician Group”) and its health-care-provider employees.’

        According to your letter, the Hospital District was created in 1959 pursuant to article IX,
section 4 of the Texas Constitution and former article 4494n of the Revised Civil Statutes, which
is now codified as chapter 281 of the Health and Safety Code. See Request Letter, supra note 1,
at 1. You inform us that the Hospital District formed the Physician Group pursuant to chapter
281.0565 of the Health and Safety Code. See id. Section 281.0565 authorizes a hospital district to
“create a charitable organization to facilitate the management of a district health care program
by providing or arranging health care services, developing resources for health care services,
or providing ancillary support services for the district.” TEX. HEALTH & SAFETY CODE ANN.
5 281.0565(b) (Vernon 2001); see also id. 4 281.0565(a) (“In this section, ‘charitable organization’
means an organization that is exempt from federal income tax under Section 501(a) ofthe Internal
Revenue Code of 1986 by being listed as an exempt organization in Section 501(c)(3) or 501(c)(4)
of the code.“).

        A charitable organization created by a hospital district under section 281.0565 “is a unit of
local government for purposes of [the Texas Tort Claims Act,] Chapter 101, Civil Practice and
Remedies Code,” id. 5 281.0565(c), which limits the liability of governmental units and their
employees. See TEX. CIV. PFUC. & REM. CODE ch. 101 (Vernon 1997 & Supp. 2004). The
Physician Group’s bylaws provide that it is a section 501 (c)(3) corporation organized to benefit the


          ‘Letter from Honorable Tim Curry, Tarrant County Criminal District Attorney, to Honorable Greg Abbott,
Texas Attorney General at 2 (Nov. 21,2003) (on file with opinion Committee,also available at http://wwv.oag.state
.tx.us) [hereinafterRequest Letter].
The Honorable Tim Curry - Page 2                     (GA-0188)




Hospital District. See Request Letter, supra note 1 (Bylaws of JPS Physician Group, Inc. at 1). The
District is its sole member. See id. (Bylaws at 2). The bylaws also provide that the Hospital District
“shall not be liable for the debts, liabilities, or obligations of the Corporation.” Id. (Bylaws at 5).

        The Hospital District asks about its authority to expend funds to establish a self-insurance
fund for the Physician Group: “Specifically, we ask if the District may use its funds for the creation
of a . . self-insurance program that would cover [the Physician Group] and/or its physician and
other healthcare provider employees for health care and/or professional liability claims.” Request
Letter, supra note 1, at 2. You are particularly interested in whether expenditures for this purpose
would comport with article IlI, section 52(a) of the Texas Constitution, which limits local
governments and other political subdivisions’ authority to expend public funds. See TEX. CONST.
art. III, § 52(a).


         Before reaching your constitutional question, we review the Hospital District’s statutory
authority to expend funds to establish a self-insurance fund for the Physician Group. A hospital
district may only exercise those powers expressly delegated to it by the legislature, or those existing
by clear and unquestioned implication. See Mascarenhas v. Meridian Hosp. Auth., 560 F.2d 683,
685 (5th Cir. 1977) (citing Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945,946
(Tex. 1940) with respect to the authority of special districts); Jackson County Hosp. Dist. v. Jackson
County Citizensfor ContinuedHosp. Care, 669 S.W.2d 147,154 (Tex. App.Xorpus Christi 1984,
no writ); Tex. Att’y Gen. Op. Nos. GA-0102 (2003) at 4, JC-0268 (2000) at 1.

         No provision in chapter 281 of the Health and Safety Code authorizes a hospital district
to self-insure or to insure another entity. However, section 2259.031 of the Government Code
expressly authorizes a “govemmental unit” to “establish a self-insurance fund to protect the
governmental unit and its officers, employees, and agents from any insurable risk or hazard.” TEX.
GOV’T CODE ANN. 5 2259.03 l(a) (Vernon 2000). It further provides that the governmental unit may
“(1) issue public securities and use the proceeds for all or part of the fund; or (2) use any money
available to the governmental unit for the fund.” Id. 5 2259.031(b). Section 2259.032 declares that
“[tlhe issuance of a public security or the use of available money for a self-insurance fund under this
subchapter is a public purpose of the governmental unit.” Id. 4 2259.032.

         Chapter 2259 defines the term “governmental unit” to mean:

                     (A) a state agency or institution;

                     (B) a local government; or

                     (C) an entity acting on behalf of a state agency or institution or local
                     government.

Id. 9 2259.001(l).     The term “local government” includes “a municipality or other political
subdivision of this state.” Id. 5 2259.001(2). A hospital district is a political subdivision of this
state. See Salcedo v. El Paso County Hosp. Dist., 659 S.W.2d 30, 31 (Tex. 1983) (“The El Paso
Hospital District is a political subdivision of the State of Texas.“); Armendarez v. Tarrant County
The Honorable Tim Curry - Page 3                (GA-01 88)



Hosp. Dist., 781 S.W.2d 301,307 (Tex. App.-Fort Worth 1989, writ denied) (noting that Tarrant
County Hospital District is a state political subdivision). Thus, the Hospital District is a
governmental unit forpurposes ofchapter 2259. See TEX.GOV’TCODEANN.9 2259.001(1)(B), (2)
(Vernon 2000).

         Section 2259.031 authorizes the Hospital District to establish a self-insurance fund to protect
itself and its officers and employees. See id. 5 2259.031(a) (authorizing a “governmental unit” to
“establish a self-insurance fund to protect the governmental unit and its officers, employees, and
agents from any insurable risk or hazard”) (emphasis added). Clearly, this provision contemplates
that a governmental unit will insure itself and its own officers and employees. The Hospital District
may establish a self-insurance fund protecting officers and employees of the Physician Group
pursuant to section 2259.031 only if they are also offtcers and employees of the Hospital District.
It appears from your request letter that the Physician Group is an entity separate from the Hospital
District and that its officers and employees are not Hospital District officers and employees. See
Request Letter, supra note 1, at 2.

         The Physician Group, as an entity established to act on behalf of the Hospital District, is also
a “governmental unit” under chapter 2259. See TEX.GOV’TCODEANN. 5 2259.001(l)(C) (Vernon
2000) (defining “governmental unit” to include “an entity acting on behalf of a state agency
or institution or local government”). Thus, section 2259.031 authorizes the Physician Group to
establish a self-insurance fund to protect itself and its officers and employees. See id. 5 2259.03 l(a).

         By necessary implication, a hospital district’s express authority under section 281.0565 of
the Health and Safety Code to create a charitable organization “to facilitate the management of a
district health care program” authorizes a hospital district to contract with a charitable organization
it has created to set the terms for the charitable organization’s work on the hospital district’s behalf.
See TEX.HEALTH&~SAFETY          CODEANN. 8 281.0565(b) (Vernon 2001). The contract must relate to
the charitable organization’s statutory purpose to “facilitate the management of a district health care
program by providing or arranging health care services, developing resources for health care
services, or providing ancillary support services for the district,” id., and to the hospital district’s
authority to create the charitable organization for that purpose. Accordingly, the Hospital District
may by contract provide funds to the Physician Group for the Physician Group to establish a self-
insurance fund under section 2259.03 1, provided that the contract “facilitate[s] the management of
a district health care program.” Id.

        Article JR, section 52(a) of the Texas Constitution limits the authority of political
subdivisions, such as hospital districts, to expend public funds to aid private entities:

                [T]he Legislature shall have no power to authorize any county, city,
                town or other political corporation or subdivision of the State to lend
                its credit or to grant public money or thing ofvalue in aid of, or to any
                individual, association or corporation whatsoever. .

TEX. CONST.art. RI, 5 52(a). As the Supreme Court of Texas has held, in order to comport with
article III, section 52(a), the predominant purpose of a statute requiring a public expenditure must
The Honorable Tim Curry - Page 4                 (GA-0188)



be to accomplish a public purpose, not to benefit private parties, and the statute must retain public
control over the funds to ensure that the public purpose is accomplished and to protect the public’s
investment and ensure that the political subdivision receives a return benefit. See Tex. Mun. League
Intergovernmental RiskPool v. Tex. Workers ’Comp. Comm ‘n, 74 S.W.3d 377,383-84 (Tex. 2002).
This office has identified similar principles for determining if a particular expenditure serves a public
purpose: “In making an expenditure of [public] funds that benefits a private person or entity,           a
[political subdivision’s governing body] will avoid violating article III, section 52 ifit (i) determines
in good faith that the expenditure serves a public purpose and (ii) places sufficient controls on the
transaction, contractual or otherwise, to ensure that the public purpose is carried out.” Tex. Att’y
Gen. Op. No. GA-0078 (2003) at 4-5.

         Accordingly, article III, section 52(a) requires the Hospital District’s board to determine in
good faith that providing funds to the Physician Group for the Physician Group to self-insure serves
a public purpose of the District. See,id. The Hospital District asserts that the Physician Group “is
crucial to accomplishing” the District’s public purpose, providing medical and hospital services to
the needy: “In order to provide medical or other healthcare services on behalf of the District, [the
Physician Group] must employ or otherwise retain physicians and other healthcare providers. To
do so, [the Physician Group] must in some manner assure coverage for professional liability for these
healthcare providers.” Request Letter, supra note 1, at 3. It is for the Hospital District board to
determine in the first instance whether funding professional liability coverage for the Physician
Group and its officers and employees serves a District public purpose. See Tex. Att’y Gen. Op. No.
GA-0078 (2003) at 4 (citing Young v. City ofHouston, 756 S.W.2d 813,814 (Tex. App.-Houston
[lst Dist.] 1988, writ denied); City of Coleman v. Rhone, 222 S.W.2d 646, 649 (Tex. Civ.
App.-Eastland 1949, writ ref d)).

         Should the Hospital District board determine that providing funds for the Physician Group
to self-insure serves a District public purpose, the contract pursuant to which the District provides
funds to the Physician Group must place sufficient controls on the transaction to ensure that the
public purpose is carried out. See id. at 4-5. The Hospital District states that “[tlhe exact nature of
the contemplated self insurance program . is not yet known,” and indicates that the District has
not yet determined the contractual controls it will use to assure that funds are used for the District’s
public purpose. See Request Letter, supra note 1, at 3-4. The Hospital District also observes that
the Physician Group’s bylaws authorize the District to control District Rmds dedicated to a Physician
Group self-insurance program. Id. at 4; see also id. (Bylaws at 2-4, art. II, 5 5(a), (r)-(s)) (powers
reserved by sole member include power to develop, approve, adopt and modify capital and operating
budgets; to purchase, adopt or amend insurance coverage for the corporation, its officers and
employees; and to settle litigation). Contractual controls coupled with the Hospital District’s
authority under the Physician Group’s bylaws could provide sufficient controls to satisfy article III,
section 52(a).
The Honorable Tim Curry - Page 5              (GA-0188)




                                       SUMMARY

                        Section 281.0565 of the Health and Safety Code authorizes a
               hospital district to contract with a charitable organization that it has
               created “to facilitate the management of a district health care program
               by providing or arranging health care services, developing resources
               for health care services, or providing ancillary support services forthe
               district.” TEX.HEALTH&SAFETYCODEANN.§~S~.O~~~(~)(V~~~~
               2001). TheTarrant CountyHospital District maybycontractprovide
               funds to a charitable organization it has created under section
               281.0565 for the charitable organization to self-insure under section
               2259.031 of the Government Code if the contract facilitates the
               management of a district health care program. A Hospital District
               expenditure for this purpose will comport with article III, section
               52(a) of the Texas Constitution if the Hospital District’s board
               determines in good faith that the expenditure serves a public purpose
               of the Hospital District. In addition, the contract pursuant to which
               the Hospital District provides funds to the charitable organization
               must place sufficient controls on the transaction to ensure that the
               public purpose is carried out.

                                              Very truly yours,




BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General, Opinion Committee
