THE A’CI’ORNEY GENERAL 

OF TEXAS 

AUMIWN. TIEKA~ 7t37ll 

November 7. 1974 

The Honorable Gerald W. Schmidt 

County Attorney 

Opinion No. H- 445 

Gillespie County Courthouse 

Fredericksburg,. Texas 78624 

Re: Financing of addition to 

hospital conveyed to county 

and leased back to original 

owner*. 

Dear Mr. Schmidt: 

You have requested our opinion aa to the propriety of a proposed 

transaction whereby Gillespie County will acquire ownership ‘of an 

existing hospital, will finance rather extensive improvement8 and then 

will lease the hospital back to its present owners. 

The hospital war erected and equipped at a coat of approximately 

$1,600,000 dollars. There is an existing lien against the property to 

aecure a loan of $300,000 included in the original cost. The present 

owner is Hill County Memorial Hospital, organized under the Texas 

Non-Profit Corporation Act, Article 1396, V. T. C. S. 

The rapid growth in the Gillespie County-Frederickeburg area n 

indicates the need to increase the size of the hospital at an estimated, 

coat of $650,000. You state that the only feasible way to raise’the’ 

necessary funds would be a county-wide bond issue. For thie reason 

it ia planned to convey the hospi,tal to the County of Gillespie and fork 

the County then to finance the improvements through a bond issue. 

After the improvemente have been financed, the hospital would be leased 

to Hill County Memorial Hoaptal for a period of 99 years. 

We have had numerous occasiona to review the powers and duties 

of a county acting through ite commissioners court. Generally, it is 

held that the powera of counties are those “specifically conferred upon 

them.” Canales v. Laughlin, 214 S. W. 2d 451. 453 (Tex. Sup. 1948) 

p. 2050 I 

f 
The Honorable Gerald W. Schmidt page 2 (H445) 

Anderson v. Wood, 152 S. W. 2d 1084 (Tex. Sup. 1941); Attorney General 

Opinions H-392 (1974); H-374 (1974); H-51 Q973); H-45 (19733; H-16 0973). 

Article 4478, V. T. C. S., amended in 1973 (Acts 1973, 63rd Leg., 

ch. 502. p. 1332), gives the counties such broad powers over hospitals 

that, in our opinion, there is ample authority “conferred” upon Gillespie 

County to carry out the proposed transaction. Article 4478 provides: 

The commissioners court of any county shall 

have power to establish a county hospital and any 

medical or other health facilities and to enlarge 

any existing hospitals or facilities for the care 

and treatment of persons suffering from any illness, disease oriujury, subject to the provisions 

of this chapter. At intervals of not less than twelve 

months, ten percent of the qualified property tax 

paying voters of a.county may petition such court 

to provide for the establishing or enlarging of a 

county hospital, or any medical or other health 

facilities, in which event said’court within tire 

time deaignated in such petition shall su,bmit to 

such ,voters at a special or regular election the 

proposition of issuing bonds in such aggregate 

amount as may be designated in said petition for 

‘the e,stabliahing or enlarging of such hospital or 

facilities. Whenever any such proposition shall 

receive a majority of the votee of the qualified 

property tax payers voting at such election, said 

commissioners court shall establish and maintain 

such hospital or facilities and shall have the following powers: 

1. To purchase and l,ease real property therefor, 

or acquire such real property, and easements therein, by condemnation proceedings. 

2. To purchase or erect all necessary buildings. . 

p. 2051 
. . 

. ‘. 

The Honorable Gerald W. Schmidt page 3 (H-445) 

make all necessary improvements and repairs and ’ 

alter any existing buildings, for the use of said 

hospital or facilities. The plans for such Erection, 

alteration, or repair shall first be approved by 

the State Health Officer, if his approval is requested 

by the said commissioners court. 

3. To cause to be assessed, levied and collected, I 

such taxes upon the real and personal property owned’ 

in the county as it shall deem necessary to provide 

the funds for the maintenance thereof, and for all ‘I 

other necessary expenditures therefor. 

4. To issue county bonds to provide funds for the 

establishing, enlarging and equipping of said hospital or facilities and for all other necessary permanent 

improvements in connection therewith; to do all other 

things that may be required by law in order to render 

said bonds valid. 

5. To appoint a board of managers for said hospital 

. or facilities, or both. 

6: To accept and hold in trust for the county,’ any, .“: 

grant or devise of land, or any gift.or bequest of 

money or other personal property or any donation to 

be applied, principal or income or both, for the benefit 

of said hospital or facilities, and apply the same in 

accordance with the terms of the gift. 

7. The commissioners court may lease all or part 

of any medical facility so constructed, purchased or 

acquired under this Act. 

See aleo V. T. C. S. art. 44941. 

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p. 2052 
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The Honorable Gerald W. Schmidt page 4 (H-445) 

However, there is another limitation on the authority of commissioners courts, i. e., the prohibition of Article 3, section 52 of 

the Texas Constitution that the Legislature may not authoriee any county 

to lend its credit or to grant public money or anything of value in aid 

of or to any individual, association or corporation. 

In construing this provision along with sections 50 and 51 of 

Article 3 and section 3 of Article 8, the courts have developed the 

rule that an expenditure of public funds, even if it benefits a private 

person, association or corporation, may nevertheless be upheld if it 

serves a proper public purpose. See, e&, Attorney General Opinion 

H-403 (1974) and the cases cited therein. 

You have not told us whether any consideration will be paid by 

the county for the conveyance of the hospital to it and, if so, how much. 

You have not indicated what disposition is to be made of the obligation 

of $300,000 secured by a lien on the hospital. Finally, you have not 

told us what rental will be paid to the county and the relationship it 

will bear to the financial obligation to be assumed by the couidy. All 

of these are facts pertinent to the decision as to whether the proposed 

expenditure would be for aproper public purpose. 

The construction and maintenance of hospitals has been held to 

constitute a publ.ic purpose, and bonds issued to finance construction 

of county-owned hospitals are therefore valid under Article 3, section 

52. Seydler v. Border, 115 S. W. 2d 702, 703 (Tex. Civ. App. --Galveston 

1938, writ ref’d). However, the constitutional prohibitions against 

lending of credit and donation of publ,ic money also impose upon a county 

that leases its facilities the duty to obtain both sufficient assurance that 

the public purpose will be accompl,ished by the lessee and an adequate 

rental. Gillham v. Citv of Dallas, 207 S. W. 2d 978 (Tex. Civ. App. 

-,-Dallas 1948, writ ref’d n. r. e.); Dodson V. Marshall, 118 S. W. 2d 621 

(Tex. Civ. App. --Waco 1938, writ dis’m.). 

Articles 44’78 and 44941 give counties the power to lease their 

hospital facilities, but the authority granted by ,these statutes must be 

conditioned upon compliance with the constitutional provisions. In 

po 2053 
The Honorable Gerald W. Schmidt page 5 (H-445) 

Gillham, the city sought to issue bonds to finance the building of refrigeration and cold storage facilities for preservation and conservation of 

perishable foods to be used in connection with a public market. After 

finding that the proposed use constituted a public purpose, the court 

indicated that the city was obligated to ensure that the facilities would be 

used for the contemplated purpose: 

So long as the City authorities supervise and 

control the contemplated buildings and the business 

conducted therein, and such buildings and use thereof 

serve some public market purpose . . . the statutes 

do not exclude the erection ,of such buildings by the 

expenditure of bond funds. 207 S. W. 2d at 983. 

Similarly, in Dodson, the court sanctioned the leasing of a portion 

of a courthouse rotunda for use as a concession stand, noting that adequate 

control over the use of the space was reserved by the commissioners court 

because the lease was terminable at will. 

Since the proposed lease of the hospital in question is for ninetynine years, the county should make some provision to retain some degree 

of control over future use of the facility. For example, the lease could ; 

require that one or more directors of the hospital corporation be appointed ” 

by the commissioners court, it could spell out in detail the obligations of. ‘.’ 

the hospital toward indigent patients, or it could contain other provisions 

insuring county authority. 

Moreover, the county must receive an adequate rental for the 

facility. If the county fails to receive adequate consideration for the 

transaction, it will have effectively made an unconstitutional “donation” 

to a private entity. Dodson v. Marshall, supra. at 624; Llano County v. 

Knowles, 29 S. W. 549 (Tex. Civ. App. 1895, no writ). The Attorney 

General is not in a position to assess all of the circumstances that must 

be considered in determining whether the rental. is satisfactory. Such 

factors as the value to the county of the facilities and the value of being 

relieved of the responsibility of hospital operation must be assessed by 

the commissioners court in light of its constitutional obligation. 

ps 2054 
The Honorable Gerald W. Schmidt page 6 (H-445) 

SUMMARY 

A county may issue bonds to finance additions 

to a hospital and may lease the hospital to a 

private non-profit corporation if there is sufficient 

assurance that the facility will be used only for county 

hospital purposes, and if the county receives an 

adequate rental. 

Very truly yours, 

JOHN L. HILL 

Attorney General of Texas 

AP RO ED.: 

\ 

:&p&444 2 

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DAVID M. KENDALL, Chairman 

Opinion Committee 

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