                         QBfficeof ttp !iTlttornep@eneraI
                                     i&ate    of ?D;exae
DAN MORALES                            December 11,199l
 .*TToRNEY
       GENERAL

      Honorable Carmen Rivera-Worley                Opinion No. DM-66
      Val Verde County Attorney
      207 East Losoya                               Re: Whether a hospital district may
      Del Rio, Texas 78840                          construct a building to lease to a private
                                                    physician and whether it may use excess
                                                    monies in its interest and sinking fund
                                                    account to finance construction of the
                                                    building (RQ-122)

      Dear Ms. Rivera-Worley:

              You have requested our opinion regarding whether the Val Verde Hospital
      District (hereinafter the “hospital district”) may construct a building to lease to a
      private physician. You have informed us that the hospital district currently leases a
      portion of its physical plant at Val Verde Memorial Hospital (hereinafter the
      “hospital”) to private physicians who operate the Angelo Dialysis Center, Inc. The
      private dialysis center provides renal care for patients of the hospital. The dialysis
      clinic currently needs to expand its facilities, and there is no additional space
      available at’the hospital. The hospital district has agreed to build a separate
      structure on the hospital grounds which it intends to lease to the dialysis clinic for a
      period of ten years. The dialysis clinic would make monthly lease payments for the
      use of the building. The hospital district also proposes to use excess funds from its
      Interest and Sinking Fund Account to pay for the construction of the building.

             With respect to the hospital district’s plans, you ask the following:

                     (1) whether the hospital district may construct a building on
                the hospital grounds owned by the hospital district to lease to a
                private physician for the purpose of providing dialysis services;
                and

                    (2) whether the hospital district may use the excess funds in
                its Interest and Sinking Fund Account to finance the
                construction of the building.




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Honorable Carmen Rivera-Worley - Page 2                         (DM-66)




         Generally, a special-purpose district, such as a hospital district, may “exercise
only such powers as have been expressly delegated to it by the Legislature, or which
exist by clear and unquestioned implication.” Tri-CityFresh Water SupplyDirt. No. 2
of Hamk County v. Mann, 142 S.W.Zd 945, 946 (Tex. 1940). Implied powers are
those that are “indispensable to . . . the accomplishment of the purposes of [the
district’s] creation.” Id at 947; see also Attorney General Opinion JM-258 (1984).
With these principles in mind, we first consider whether the hospital district may
construct the building to lease to a private physician for the purpose of providing
dialysis services.

        The hospital district is a county-wide hospital district created by a special law
of the 64th Legislature, under the authority of article IX, section 9, of the Texas
Constitution. See Acts 1975, 64th Leg., ch. 658, at 1977.1 Article IX, section 9, of
the Texas Constitution does not expressly authorize the hospital district to construct
a building to lease to a private physician. See Attorney General Opinion JM-258.
The hospital district’s enabling statute, however, confers upon the hospital district
the express authority to construct buildings on its premises: “mhe district shall
provide for the establishment of a hospital system by the purchase, construction,
acquisition, repair, or renovation of buildings and equipment. . . .” Acts 1975, 64th
Leg., ch. 6.58,5 2, at 1977. In addition, section 10 of the enabling statute provides in
part as follows:

                 The district, through its board of directors, is authorized to
            enter into an operating or management contract with regard to
            its facilities or a part thereof, or may lease all or part of its
            buikiingsand facilities upon terms and conditions constiered to be
            to the best interest of its inhabitants,provided that in no event
            shall any lease be for a period in excess of 25 years from the
            date entered.

Id 3 10, at 1982 (emphasis added).* We conclude that the foregoing provision
expressly authorizes the hospital district to lease a building on its premises to any
person or entity, including a private physician, provided that the board of directors


        ‘Certain sectionsof     the hospitaldistrict’senabling statutewereamended   in 1983. Acts 1983,
68th Leg.. eh. 1087, at 5708.


        *See also Health & Safety Code 5 285.051(a).




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determines that the terms and conditions of the lease are in the best interests of the
inhabitants of the hospital district.

        The determination that the hospital district has the express authority to lease
a hospital building is not the end of our analysis, however. We must also consider
whether the hospital district’s plan would serve a “hospital purpose” consistent with
the requirements of article IX, section 9, which charges the hospital district with the
purpose of providing medical care, particularly medical care for the needy, and
article III, sections 51 and 52, which generally prohibit the use of public funds for
private purposes. See Sullivanv. Anahws County, 517 S.W.Zd 410 (Tex. Civ. App.--
El Paso 1974, writ ref d n.r.e.); Attorney General Opinions JM-258; H-966 (1977);
H-16 (1973); M-912 (1971); M-256 (1968).) In Attorney General Opinion M-912,
this office concluded that a hospital district could contract with a private hospital for
laboratory services. By contrast, in Attorney General Opinion JM-258, this office
considered whether it was permissible for the Titus County Hospital District to lease
office space to private physicians. This offke concluded that “[wlhereas laboratory
testing is a hospital function, offkes for the private practice of medicine are not
‘hospital purposes’ or the provision of ‘medical or hospital care for the needy.“’
Attorney General Opinion JM-258 at 3.

        You have informed us that the dialysis clinic which will lease the building is
able to provide renal services to patients at a lesser cost than the hospital district,
and that the dialysis clinic will serve primarily Medicare and Medicaid patients.
You further state that it is important to patients that the dialysis clinic be located
within walking distance of the hospital and that there is no suitable site near the
hospital that the dialysis clinic might purchase to build a facility. Furthermore, the
information you submitted to this office suggests that the hospital district will
receive an adequate quid pro quo for the lease. Under these circumstances, we
conclude that the construction and leasing of a building for the purpose of providing
cost-effective dialysis services adjacent to the hospital would serve a “hospital
purpose.” Because the hospital district has express authority to construct buildings
and to lease all or part of its buildings and because leasing a building to a dialysis
clinic for the purpose of providing renal services adjacent to the hospital would

         “You state that Attorney      General Opinion JM-258 is distiihable        because   the hospital
district’s enabling statute confers the express power to lease its property, suggesting that since the
hospital district has express authority, we need not consider whether leasing a hospital building to a
dialysk clinic serves a “hospital purpose.’ The enabling statute, however, must be read in light of
relevant constitutional provisions.   Acts 1975,64th Leg., ch. 658.0 23, at 1985.



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Honorable Carmen Rivera-Worley - Page 4                         (DM-66)




serve a “hospital purpose,” we conclude that the hospital district’s plan to build and
lease the facility is permissible?

        Next, we consider whether the hospital district may use the excess monies in
its Interest and Sinking Fund Account to finance the construction of the building.
You state that the hospital district’s bond indebtedness will be retired in January
2002. You estimate that approximately $638,000.00 will be required to pay the
principal and interest due on the bond indebtedness in 1991 and 1992, and that the
current balance of the Interest and Sinking Fund Account is approximately
$938,800.00. You inform us that the hospital district would like to withdraw a
portion of these excess monies to construct the building. Despite this surplus in the
account, however, we conclude that the hospital district does not have the authority
to finance the construction of the building in this manner.

        In Berm County Hosp. Dirt. v. Crosby, 327 S.W.Zd 445, 448 (Tex. 1959),
addressing a similar sinking fund, the Texas Supreme Court stated that a hospital
district holds “in trust for the bondholders taxes levied specifically to retire certain
bonded indebtedness.” The district cannot apply those funds to any purpose “except
the retirement of that bonded indebtedness.” Id. (citations omitted). Relying on
Bexar County Hospital District, this office has determined that absent specific
statutory authority to the contrary, monies in an interest and sinking fund may be
used for no other purpose than the one for which it was created. Attorney General
Opinion JM-142 (1984) at 2; see r&o Attorney General Opinions H-1254 (1978);
M-841 (1971); V-157 (1947).5

        Section 8 of the enabling statute authorizes the hospital district to create an
Interest and Sinking Fund Account “to pay the interest on and principal of said
bonds as same mature . . . .” Acts 1975, 64th Leg., ch. 658, 9 8, at 1981. Neither
article IX, section 9, of the Texas Constitution nor other provisions in the enabling
statute confer upon the hospital district the express power to use monies in its
Interest and Sinking Fund Account to finance construction of a building. In

        ‘You   do not ask, and we do not address, whether       the lease most be obtained    through
competitive bidding.


         sAlthough these authorities clearly hold that excess monies may not be diverted from an
interest and sinking fund account prior to the retirement of the bond indebtedness, we note that there
has been some controversy    regarding the proper disposition   of surplus interest and &king    fund
account monies following the retirement of the bond indebtedness.   See Attorney General Opinion JM-
142 (overruling Attorney General Opinion MW-97 (1979)).




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Honorable Carmen Rivera-Worley - Page 5                         (DM-66)




contending that the hospital district has the authority to use excess monies in the
Interest and Sinking Fund Account for other purposes, you rely on the following
language in section 11 of the enabling statute:

             [Tlhe district may incur no obligation payable from any revenues
             of the district, taxes or otherwise, except those on hand or to be
             on hand within the then current and following fiscal year of the
             district.

Id. 5 11.6 Section 11, read as a whole, however, merely establishes general
limitations on the purchases and expenditures of the hospital district. It does not
give the hospital district the express authority to use funds in the Interest and
Sinking Fund Account for the purpose of constructing a building. Nor does article
752a, V.T.C.S., the other statutory provision cited in your request, grant such
authority. That provision, which has been repealed,’ dealt solely with interest and
sinking funds for public road bonds.

        You also contend that because the bonds were originally issued to fund the
construction and acquisition of hospital buildings, it would be appropriate to use the
excess monies in the Interest and Sinking Fund Account to finance the construction
of the proposed building. We disagree. The Interest and Sinking Fund Account
consists of taxes collected to pay the bond indebtedness. It does not consist of bond
revenues. Under Berur County Hospital District, the hospital district holds the
Interest and Sinking Fund Account in trust for the bondholders and cannot apply
those funds to any purpose except the retirement of the bond indebtedness, without
specific statutory authority., You have pointed to no specific statute authorizing the
hospital district to use the excess monies in its Interest and Sinking Fund Account
for any purpose other than to pay interest and principal on the bond indebtedness.
In the absence of such specific statutory authority, we must conclude that the
hospital district may not use excess monies in the Interest and Sinking Fund
Account to finance construction of the building.




       6Seetion 11 was amended      in 1983. See Ads     1983, 68th Leg., eh. 1087, 3 2, at 5710.   The
amendments   are not sign&ant   to our analysis.

       ‘See Acts &983,@3th Leg., eh. 288.5 2, at 1526.




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Honorable Carmen Rivera-Worley - Page 6              (DM-66)




                                   SUMMARY

              The Val Verde Hospital District has express authority
         pursuant to its enabling statute to constmct buildings and to
         lease all or part of its buildings. Leasing of a hospital district
         building to a dialysis clinic for the purpose of providing cost-
         effective renal services adjacent to the Val Verde Memorial
         Hospital would serve a “hospital purpose.” Under these circum-
         stances, the hospital district is authorized to construct the
         proposed facility to lease to a private physician. The hospital
         district is not authorized to use excess monies in its Interest and
         Sinking Fund Account to finance construction of the building.

                                                 Very truly yours,




                                                 DAN      MORALES
                                                 Attorney General of Texas

WILL.PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

JUDGE ZOLLIE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General




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