DAN MORALES 

.*TToRNEY GENERAL 

QBffice of ttp !iTlttornep @eneraI 

i&ate of ?D;exae 

December 11,199l 

Honorable Carmen Rivera-Worley 

Val Verde County Attorney 

207 East Losoya 

Del Rio, Texas 78840 

Opinion No. DM-66 

Re: Whether a hospital district may 

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-City Fresh Water Supply Dirt. 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 

buikiings and 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 sections of the hospital district’s enabling statute were amended in 1983. Acts 1983, 

68th Leg.. eh. 1087, at 5708. 

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

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Honorable Carmen Rivera-Worley - Page 3 (DM-66) 

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 Sullivan v. 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. 

p. 331 
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 JM142 (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 costeffective renal services adjacent to the Val Verde Memorial 

Hospital would serve a “hospital purpose.” Under these circumstances, 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 

p. 334