                       The Attorney                 General          of Texas
                                             January   5, 1981
MARK WHITE
Attorney General


                   Honorable Joe Resweber                         Opinion No.   MV-290
                   Harris County Attorney
                   1001Preston, Suite 634                         Re: Whether a county may expend
                   Houston, Texas 77002                           proceeds of the sale of bonds and
                                                                  other county funds to construct
                                                                  permanent improvements on leased
                                                                  land

                   Dear Mr. Resweber:

                            You. have requested   our opinion on the following question relating   to
                   county    expenditures:

                                 Can Harris County expend proceeds of the sale of the
                                 $3,800,000 Harris County Office and Courts Building
                                 Bonds, Series 1979-A, to remodel, improve or equip
                                 portions of the Center Pavilion Hospital building
                                 which Harris County has leased?

                   Center   Pavilion Hospital is owned by the Harris County Hospital District
                   established under article 4494r, V.T.C.S. In addition, you have also asked a
                   number of questions about the county auditor’s responsiblities in connection
                   with the bond proceeds and lease agreement.

                          The bonds in question were issued under the authority of article 23704
                   V.T.C.S.     Section 1 of the statute authorizes the county to “purchase,
                   construct? reconstruct, remodel, improve and equip, or otherwise acquire an
                   office budding or buildings” for county purposes. (Emphasis added). In our
                   opinion, the underlined language authorizes the county to acquire a building
                   by leasing it or by executing a lease-purchase     agreement.     See Attorney
                   General Opinions H-23 Q973); M-832 (1971) (authority to acqje          includes
                   authority to acquire by lease or lease-purchase       agreement).    Section 3
                   authorizes a bond issue to pay for the improvement of “such buildings,” that
                   is, buildings acquired under section L Thus, we believe you have statutory
                   authority under article 2370b to issue bonds to pay for the improvement and
                   equipment of a building acquired by lease. The bond proposition tracks the
                   language of article 23’704 section 3; and the proceeds may therefore be used
                   for the purpose you inquire about.




                                                       p.   925
                                                                                      *.    -.




Honorable Joe Resweber    - Page Two         t.w-290)




       The county may use public ftmds to improve leasehold estates without violating
article III, section 52 of the Texas Constitution, which provides in pertinent part:

           [Tl he Legislature    shall have no power to authorize any
           county. . . to lend its credit or to grant public money or thing
           of value in aid of, or to any individual,         association or
           corporation whatsoever, or to become a stockholder in such
           corporation, association or company.

In Attorney General Opinion H-403 (1974), this office held that the similar language of
article Ill, section 50 of the constitution    did not prohibit a state agency from
constructing   a buildii  on leased land, if the expenditure was for a proper public
purpose and made in exchange for adequate public benefits. See also Attorney General
Opinion H-416 (1974) (Texas Aeronautics Commission may make grant for improvement
of municipal airport located on leased land). We believe the reasoning of Attorney
General Opinion H-403 applies to the improvement of leasehold estates by the county.
See also Attorney General Opinion H-445 (1974) (county may use bond proceeds to
enlarge hospital and lease back to private, non-profit corporation).

       You express concern that the improvements financed out of bond proceeds would
be subject to the mortgage of the Center Pavilion HospitaL However, by the terms of
section 6(b) of the lease agreement, any improvements removeable vnthout damage to
the building are not subject to the lien of the mortgage. Second, this is an authorized
county mortgage under article 4494~2, V.T.C.S., and, as such, clearly comes within
the purview of the language in article 2370b as to buildings “otherwise acquired” by the
county.

      You also ask the following question:

            Can Harris County expend county funds other than bond
            proceeds to remodel or improve portions of the Center Pavilion
            Hospital building?

We believe the county may use finds other than bond proceeds to remodel or improve
portions of the Center Pavilion Hospital building. See V.T.C.S. art. 23704 !$ Attorney
General Opinion H-403 (1974).

       You enclose a copy of the lease agreement between Harris County Hospital
District as lessor and Harris County as lessee and ask whether it is a valid binding
lease for Harris County. In approving the bond issue incident to the Center Pavilion
Project, the attorney general’s office in effect passed on the validity of the underlying
lease agreement,     This question asks our office to review its official action in
approving bonds under article 4398, V.T.C.S., which we believe is inappropriate for us
to do. Consequently, we will not address this question.
      You next ask whether the county auditor may properly certify that fu’uls are or
will be available to make payments on the lease as the debt matures. As to the first




                                              p. 926
.   t,




         Honorable Joe Resweber    - Page Ttiee      (Mv-290)




         year, 1980, the county auditor can certify as to availability of funda as such funda have
         been escrowed from the proceeds of the bonds pursuant to article VIII, section 8.3 of
         the restated bond order passed by the commissioners court. The lease agreement
         provides that thereafter the county auditor shall certify as to ftnds being available
         pursuant to article 1888a, V.T.C.S. That statute provides that the auditor certifies as
         to funds being available when the budget has been approved by the commissioners
         court.

                You inquire about the auditor’s responsibility regarding financial transactions
         arising from the lease; for example, payment of rent, use of bond proceeds to renovate
         the project, and operation, maintenance and insurance of the project.    Article 1888a,
         V.T.C.S., provides that once the commissioners court approves the budget the county
         auditor shall open an appropriation account for this budget item against which the
         financial transactions may be charged.

                You ask about the date as of which the auditor is required to set up an
         encumbrance for rent payments    Section 3 of the lease ageement provides that the
         leasehold estate shall commence as of the date of execution of the lease.      The
         encumbrance for any rent payment should be set up as of that date.

                You inquire about the auditor’s responsibility with respect to the bond proceeds.
         Section 6 of the lease provides that the county has control of the bond proceeds. The
         auditor has broad authority to audit county funds. V.T.C.S. art. 1851; Attorney General
         Opinion H-777 (1978). It is the auditor’s responsibility to audit proceeds from the sale
         of bonds and to audit the disposition of proceeds.

                You ask whether the county must have the property           covered   by insurance.
         Section 7 of the lease places this responsibility on the county.

               You also wish to know whether the county may approve payment of operating and
         maintenance costs of the building for the remaining months of 1980. It may do so,
         since it has legally incurred these obligations.

                You ask who controk the investment of money or deposit on the interest and
         sinking fund and whether the auditor has the responsibility for accounting for or
         auditing those earnings     Once the basic rent established by the lease moves from the
         appropriation account to the trustee for deposit in the Interest and sinking fund, the
         trustee as fiduciary has responsibility for investment of the money, subject to the
         provisions of the Texas Trust Act. See V.T.C.S. arts. 7425b1 to 7425b-47. The trustee
         is responsible for accounting for or auditing such earnings

               You ask whether the auditor has a responsibility to approve county payments to
         improve property belonging to the hospital district and pledges to Texas Commerce
         Bank as trustee tmder the hospital district indenture.    The county auditor has the
         ministerial duty of approving county payments relating to ‘Center Pavilion improve-
         ments as these payments are made pursuant to a valid and binding obligation of the
         county.




                                                    p. 927
Honorable Joe Resweber    - Page Four      pu- 290)




      You finally ask whether the county has a,responsibllity      for the subleases of the
p~perty.     The   county,   as lessor,  bears  responsibility for  subleases.   The lease
agreement requries that any such s&&ases should clearly be approved as to legality by
the county attorney.    As the county wlll be the recipient of the payments due on the
sublease, audit of the stileases is clearly within the province of the county auditor.

                                     SUMMARY

                Harris County may spend proceeds of bonds issued under
           article 23704 V.T.C.S., to improve or equip a building leased
           from the Harris County Hospital District. The county may also
           use funds other than bond proceeds to improve the leased
           building. The county auditor’s responsibilities with regard to
           the bond proceeds and the financial transactions under the lease
           may be determined by examining the lease agreement and
           articles 1851and 1888a, V.T.C.S.

                                           v$tm&&

                                              Attorney General of Texas

JOHN W. PAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney   General

Prepared by Susan Lee Voss
Assistant Attorney General

APPROVED:
OPINION COMMlTTEE

Susan L. Garrison, Acting Chairman
Rick Gilpin
Susan Lee Voss




                                          p. 928
