The Attorney General of Texas 

January 5, 1981 

MARK WHITE 

Attorney General 

Honorable Joe Resweber 

Harris County Attorney 

1001 Preston, Suite 634 

Houston, Texas 77002 

Opinion No. MV-290 

Re: Whether a county may expend 

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 
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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 

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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 improvements 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 1851 and 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 

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