# The Attorney General ofTexas January 5, 1981 MARK WHITE Attorney General

Honorable Joe Resweber Harris County Attorney 1001Preston, Suite 634 Houston, Texas 77002 Opinion No. MV-290 Re: Whether acounty may expend proceeds of the sale of bonds and other county **funds** to construct permanent improvements onleased land Dear Mr. Resweber: You.have requested our opinion on the following question relating to county expenditures:

Can Harris County expend proceeds ofthe 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 hasleased? Center Pavilion Hospital is owned by the Harris County Hospital District established under article 4494r, V.T.C.S. Inaddition, you have also asked a number ofquestions about the county auditor’s responsiblities in connection with the bondproceeds and lease agreement. The bonds in question were issued under the authority ofarticle 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). Inour opinion, the underlined language authorizes the county to acquire abuilding 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 abond issue to pay for the improvement of “suchbuildings,” that is, buildings acquired under section L Thus, webelieve 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 ofarticle 23’704section 3;and the proceeds may therefore beused for the purpose you inquire about.

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The county may use public ftmds to improve leasehold estates without violating article III, section 52ofthe Texas Constitution, which provides inpertinent part:

[Tlhe Legislature shall have no power to authorize any county.

.. to lend its credit or to grant public money orthing of value in aid of, or to any individual, association or corporation whatsoever, or to become a stockholder in such corporation, association or company. InAttorney 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 inexchange 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). Webelieve the reasoning of Attorney General Opinion H-403 applies to the improvement ofleasehold estates by the county. See also Attorney General Opinion H-445 (1974)(county may use bond proceeds to enlarge hospital andlease back to private, non-profit corporation). You express concern that the improvements financed out ofbondproceeds would be subject to the mortgage of the Center Pavilion HospitaL However, bythe terms of section 6(b)of the lease agreement, any improvements removeable vnthout damage to the building are not subject to the lien ofthe mortgage. Second, this isan authorized county mortgage under article 4494~2, V.T.C.S., and, as such, clearly comes within the purview ofthe language inarticle 2370basto buildings “otherwise acquired” bythe county. Youalso ask the following question: Can Harris County expend county funds other than bond proceeds to remodel or improve portions ofthe Center Pavilion Hospital building? Webelieve the county may use finds other than bond proceeds to remodel or improve portions ofthe 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 ineffect passed on the validity ofthe underlying lease agreement, This question asks our office to review its official action in approving bonds under article 4398, V.T.C.S., which webelieve isinappropriate for us to do. Consequently, wewillnot 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. Asto the first

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year, 1980,the county auditor can certify asto availability of funda assuch 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, useofbondproceeds 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 maybecharged. 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 beset upasofthat date. You inquire about the auditor’s responsibility with respect to the bond proceeds. Section 6ofthe lease provides that the county has control ofthe bond proceeds. The auditor has broad authority to audit county funds. V.T.C.S. art. 1851;Attorney General Opinion H-777 (1978). It isthe auditor’s responsibility to audit proceeds from the sale ofbonds andto audit the disposition ofproceeds. You ask whether the county must have the property covered by insurance. Section 7ofthe lease places this responsibility onthe county. Youalso wishto know whether the county may approve payment ofoperating 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 bythe 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 ofthe Texas Trust Act. See V.T.C.S. arts. 7425b1 to 7425b-47. The trustee isresponsible for accounting for orauditing such earnings You ask whether the auditor has aresponsibility 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 improvements as these payments are made pursuant to a valid and binding obligation of the county.

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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 beapproved asto legality by the county attorney. As the county wlll be the recipient of the payments due on the sublease, audit ofthe stileases isclearly within the province ofthe 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.



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Attorney General ofTexas JOHNW.PAINTER, JR. First Assistant Attorney General RICHARD E.GRAYIII Executive Assistant Attorney General Prepared bySusan Lee Voss Assistant Attorney General APPROVED: OPINIONCOMMlTTEE Susan L.Garrison, Acting Chairman Rick Gilpin Susan LeeVoss

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