THE 

### ATTORXEY GENERAL OF TEXAS

March 11, 1987

HonorableElizabethC. Jandt GuadalupeCountyAttorney 105-ANorthAustin Seguin,Texas 78155 OpinionNo. J-M-642

lb: The authorityof theGuadalupe Valley Hospital to borrow funds to purchase equipmentand renovate the hospital under article 4494i, V.T.C.S.

DearMs. Jandt:

Article 44941, V.T.C.S., authorizes the joint establishment and operation of hospitals by counties and cities or towns. You ask whether an article 44941 hospital may borrow money to purchase equipment and to renovate the hospital when it is reasonably anticipated that the loan can be repaid over a period of five years from funds generatedby the operation of the hospital. You indicate that the hospital does **not** seek to raise these funds through the issuance of revenue bonds because the cost of issuance for the relatively small amount needed is not economically advantageous in light of the fact that the hospital anticipates that a loan can be repaid from funds generatedby the operation of the hospital. **Your** question raises three related issues: (1) whether article 44941 contains statutory authority for a joint city-county hospital to borrowmoney forhospital Improvements, (2)whether a county and city may delegate to an article 4494i hospital's board of managers the authority to borrow money, and (3) whether the Texas Constitution's prohibition on certain "debts" prohibits a city-countyhospital from borrowingmoney in thismanner.

The nature of a joint city-countyhospital controls the scope of its powers. Article 44941 authorizes the creation of a joint citycountyhospital and authorizesany countyand cityor town **to** delegate to the hospital's board of managers the authority to establish and operate thehospital. Sets. 1. 4. 7. Article 4494i doesnot contemplate the creation of a distinct political subdivision. see sec. 4 (board'sactions taken as though such actionhad been takenby county and **city);** see also Attorney General Opinion JM-552 (1986) (joint city-county hospital board organized under article 4494i-1 is joint agent of the county and the city). A joint city-countyhospital can hold nopowers greater than thoseheldby the county or the citywhich created the hospital. Conversely, a joint city-countyhospital also holds powers held by the county and the city. See Attorney General OpinionNos. m-274, JM-220 (1984). Counties andyties possess only

p. 2908Honorable Elizabeth C. Jandt - Page 2 (JM-642)

the oowers nranted exuresslv or bv necessarv imlication in the Texas Cons;itution and statutes.

.Canal& v. Laughlin; 214 S.W.2d 451 (Tex. 1948) (counties); City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (Tex.Civ. App. - Waco 1980, no writ) (general lawcities); cf. Lower ColoradoRiver Authorityv. City of SanMarcos, 523 S.W.2d 641 (Tex. 1975) (home rule city has plenary powers, controlledprimarilyby the cityis charter). This rule applies-to the creation of debt. See Brownv. Jefferson County, 406 S.W.2d 185 (Tex. 1966) (counties); cE&eps' Bank v. City of Terrell. 14 S.W. 1003 (Tex. 1890) (cities).

Article 44941 does not expressly authorize a joint city-county hospital to borrow money to purchase equipment and to renovate the hospital. Section 1of article 44941provides, in part:

Such cities or towus and counties that have heretofore issued and sold bonds for the specific purpose of jointly establishing, erecting, =quippingI maintaining and operating such joint county-cityhospital may finance such hospital or hospitals out of general revenues and are each, respectively, hereby authorized to levy and collect a tax, not to exceed Ten (10) Cents per oue hundred dollar valuation on the property subject to taxes therein, for suchpurposes.

This section provides the only express authority to incur debt in financing a joint city-county hospital. As indicated, however, the hospital does not seek to raise these funds through the issuance of
revenue bonds because the cost of issuance for the relatively small amount needed is not economically advantageous in light of the fact that the hospital anticipates that a loan can be repaid from funds generatedby the operation of thehospital.

Because article 44941 does not expressly authorize a joint city-county hospital to borrow money for hospital improvements, the dispositive issue is whether suchpowerway be implied from the grant of authority to establish and equip a hospital and to issuebonds for such purposes. As a general rule, when a law confers a power on a governmental entity, the power carries with it the implied authority to do all things which are necessary to effect the power granted. Terre11 v. Sparks, 135 S.W. 519 (Tex. 1911). The authority to incur debt forpurposeswhich are not authorized or to incur debt in excess of the limits on the amount of debt authorized or to incur debt without observing prescribed procedures for incurring debt clearly cannot be implied. Citizens' Bank v.~~CC~y~ of Terrell, 14 S.W. 1003, 1004 (Tex. 1890);see; 180 Fosterv. City ofWaco, 255 S.W. 1104, 1105 (Tex. 1923) (limits in city charter). Additionally, in Lasater v. Lopez, 217 S.W. 373, 376 (Tex. 1919). the Texas Supreme Court stated that the power to issue negotiable instruments must be express, it cannotbe implied. See also First Bank 6 Trust Co., Booker,v. Dmsas Independent School District, Duwas, 527 S.W.2d 499 (Tex.Civ. App. -

p. 2909HonorableElizabethC. Jaudt - Page 3 (JM-642)

Waco 1975, writ ref’d n.r.e.1 (regarding nonnegotiable nature of governmentwarrants andpromissorynotes).

In Lasater v. Lopes, s, the Texas Supreme Court addressed a question about the power to incur debt which is similar to the question presented by article 44941. In Lasater v. Lopes, county taxpayers sought the judicial invalidation of a series of interestbearing countywarrants issued forpublic road improvements. The act at issue expressly authorized the issuance of bonds but did not expressly authorize any alternate method of financing. The court framed the issue as whether the act’s grant of authority for the issuance of negotiable county bonds for public road purposes negated any authority to issue nonnegotiable county warrants for the same purpose when a particular road improvement could be accomplished by thatmeans. Lasaterv. Lopes, 217 S.W. at 376.

InLasaterv. Lopes, the courtdeterminedthat the countyhad the authority to issuenonnegotiablewarrants in lieuof bonds. The court stated that

[ilt could not have been absent from the mind of theLegislature in the passage of theAct of 1903 that in some counties it might be possible for the Commissioners’ Court to accomplish the desired road improvementwithin the limits of the county’s general power of taxation for such purpose by a smaller expenditure than is ordinarily in view where a bond issue is proposed, and hence without the need,ofresorting to bonds. The authority in such instances tomake lawfuluse of the county’s credit through the issuance of county warrants cannot be denied because of the Act of 1903, unless it is to be held that the effect of that act is to absolutelyrequire the issuanceof bonds in all casesby all countieswhere it isnecessary to contract a debt of extendedmaturity for road improvements. If the authority to issue bonds granted by the Act of 1903 does not exclude the power in such cases to make use of a county’s credit for road improvementsby all other means, the authority,where necessary, touse it for that purpose through the issuance of warrants still remains in the Commissioners’ Courts and may be lawfullyexercised. (Emphasisadded).

217 S.W. at 377. The court’sdecisionwas premised on its assumption that the county’s authority to incur debt through nonnegotiable warrants for public road improvements was implicit in the original grant of authority to levy taxes tobuild and improveroads. See 217 S.W. at 375-76. -

p. 2910Eonorable Elizabeth C. Jandt - Page 4 (JM-642)

Article 44941 provides express authority to maintain and equip a joint city-county hospital. Section 1 of article 44941 authorizes counties and cities to levy a special tax and to use general revenues to fund a joint city-county hospital. As indicated, section 1 expressly authorizes the issuance of bonds. Further, section 7 provides for'"the issuance of bonds or other obligations, or by appropriations from other funds of such county and city or town." This language indicates that the legislature intended that the financing of city-county hospitals is not limited to the issuance of bonds. Prior Attorney General Opinions indicate that article 44941 authorizes forms of debt other than bonds. See Attorney General OpinionsV-904. V-779 (1949);see also AttorneyGoneral Opinion V-683 (1948). Consequently, article 44941 contains the authority necessary for a county and city to borrow money for hospital improvements; it need not resort tobonds inall cases. This opinion applies only to a hospital organizedunder article 44941.

The second issue raised by your request is whether a county and citymay delegate to an article 44941hospital'sboard ofmanagers the authority to borrow money for hospital improvements. Section 1 of article 44941 authorizes the county and city to delegate, by resolution or other appropriate action, to the hospital's board of managers "full and complete authority to establish, erect, equip,maintain and operate" a joint city-countyhospital. This opinion assumes that the full authority that may be delegated to the board of managers under article 44941 has been delegated through appropriate actions of the county and city. See generally Attorney General Opinion WW-1332 (1962). You suggest that the county and city may delegate authority to the board of managers to borrow money for hospital improvements simplyby approvingbudgets submittedby theboard and that the county and city are "obligated" to approve expenditureswhich the board of managers deems necessary, including an expenditure involving a bank loan. This isnot an accurate constructionof thepowerswhichmay be delegatedunder article 44941.

Several sections of article 44941 are relevant to your inquiry. Section 4 of article 44941provides that the jointboard ofmanagers

shall have full and complete authority to enter into any contract connected with or incident to the establishment, erection, =quipping, maintaining or operating such hospital or hospitals, and in this connection shall have authority to disburse and pay out all funds set aside by such county and such city or town for purposes connected with such hospital or hospitals, and such action by such city or toxn as though such action had been taken by the Commissioners Court of such county or governing body of such city or town. (Emphasisadded).

p. 2911EonorableElizabethC. Jandt - Page 5 (JM-642)

Section 7 of article 44941provides:

In connectionwith the erection and equipping of such hospital or hospitals said Board of Managers shallhave the authoritytodetermine the
manner of expending any funds that may have been provided by such county and such city or town for suchpurpose,whether by the issuance of bonds or other obligations,or by appropriationsfrom other funds of such county and city or town, it being the intentionby thisAct to grant to such Boards the complete authoritv to manage and control all matters affecting such hospitals, reserving to such county and city or town the right only to appointmembers to such Board of Managers and to approve the annual budget hereinabove provided for. - (Emphasisadded).

both sections 4 and 7 provide that the county and city may authorize the board to exercise broad authority with regard to operating the hospital, the board's authority is referenced to funds provided by the county and city. The last sentence in section 7, which reserves to the county and city "only"~the rights of appointment power and budget approval,must be read in light of all of the languagein article44941.

Section 5 of article 44941provides:

Once each year such Board of Managers shall prepare and present to such Commissioners Court and the governing body of such city or town a complete financial statement of the financial status of such hospital or hospitals, and shall submit therewith a proposed budget of the anticipated financial needs of such hospital or hospitals for the ensuing year. On the basis of such financial statement and budget the Commissioners Court of such county and the governing body of such cityor town shallappropriateor set aside for theuse of suchBoard of Managers in the operationof suchhospital or hospitals the amount ofmoneywhich seemsproperand necessary for such purpose. (Emphasisadded).

This section does not mandate that the county and the city shall approveany amountof fundingwhich theboard deemsnecessary.
Although the county and city's authority to approve specific hospital expendituresmay be purely ministerial, their authority to incur debt to fund the hospital is discretionary. In Commissioners Court of Harris Countyv. Fullerton, 596 S.W.2d 572 (Tex.Civ.App. - Eouston [lst Dist.] 1980, writ ref'd n.r.e.), the court reviewed a

p. 2912Honorable Elizabeth C. Jandt - Page 6 (JM-642)

commissioners court's refusal to approve certain items in the county auditor's budget. The statutory language at issue in Fullerton is similar to that in article 44941. See 596 S.W.Zd at 575. The court determined that the duty of a ccmais~ners court to approve specific items of equipmentrequestedby the county auditor isministerial; the comfssioners courtmust take appropriate legal steps to procure such items unless it finds the county auditor abused his discretion. 596 S.W.2d at 576. The item at issue, however, fell within the scope of the county auditor's equipment budget. The court noted that the legislaturegranted the commissionerscourt thepower todetermine the reasonableness of "the **monetary** outlay necessary to foster the budget's approval."

Similar considerations apply to the case at hand. The board of managers of an article 44941 hospital has "complete authority" over the actual expendituresmade for hospital improvements. On the other hand, article 44941 places the authority to levy taxes and incur debt in the county and city. In Attorney General Opinion V-904 (1949), this office indicated that the authority to incur debt to finance hospital improvementsunder article 44941restswith the county rather thanwith the board of managers. The county and city have discretion
over whether to borrow money to finance improvements for an article 44941 hospital. Consequently, although the county and city may approve the purchase of equipment and hospital improvements in the budget process, theymust take separate, specific action to approve a loan for such.

purposes.

The third and final issue raised by your request is whether the Texas Constitution's prohibition on certain debts prohibits a citycounty hospital from borrowing money for equipment and improvements through a bank loan to be repaid within five years. Article XI, section 7, of theTexas Constitutionprovides, inpart, that

no debt for any purpose shall ever be incurred in any manner by any city or county unless provision is made, at the time of creating the same, for levyingand collectinga sufficienttax topay the interest thereon and provide at least two percent (2%)as a sinking fund.

. . .
See alsoTex. Const. art.XI, P5.

You indicate that the hospital reasonably anticipates that the loan can be repaid from funds generated by the operation of the hospital. An obligationwill not create "debt"within themeaning of article XI. section 7. when the transaction itself generates enough
revenue to cover the obligation of the governmental unit. Bathe Halsey Stuart Shields, Inc. V. University of Houston, 638 S.W.Zd 920 (Tex.App. - Eouston [lstDist.] 1982,writ ref'd n.r.e.); see Texas -- Public Building Authority V. **Mattox.** 686 S.W.2d 924 (Tex. 1985) (construingTex. Const. art. III. 449);City ofNederlandV. Callihan, 299 S.W.2d 380 (Tex. Civ. App. - Beaumont 1957. writ ref'd n.r.e.)

p. 2913EonorableElizabethC. Jandt - Page 7 (JM-642)

(construingTex. Const. art. XI, 95). In the present case, however, it does not appear that the loan is repayable solely out of revenues generated by the equipment to be purchased or the renovations to be made.

Texas courts uphold "debt" transactions against constitutional challenge under article XI, section 7. when current revenues or revenues which are generatedby the transactionand which are within county or city control are sufficient to cover the "debt." See Brown V. Jefferson County. 406 S.W.2d 185, 189 (Tex. 1966). -- Case law has not, however, always established a clear rule under article XI, section 7. In McNeil1V. City of Waco, 33 S.W. 322 (Tex. 1895), the Texas SupremeCourt held thatno debt existed forpurposes of article XI, section 7, when the city reasonably anticipates that the obligation can be satisfied out of current revenues or out of "some fund then within the immediate control of the corporation." 33 S.W. at 324. The McNeil1 court focused on "providing" for the retirement of the debt; if the city anticipates in good faith at the time a "debt" ismade that a tax is not necessary to retire the "debt," the city isnot requiredby articleXI, section 7, to levya tax. 33 S.W. at 323-24. The courtdid,however, suggestthat there shouldexist,

at thedate of thecontract,a fund in the treasury, legallyapplicablethereto,out ofwhich theparties contemplatedthat such claim shouldbepaid.

33 S.W.at 324.

Controversies over the existence of an unconstitutional "debt" revolvearound the requirement that a fund actually exist at the time the "debt" is made. The supreme court adopted a 1938 Commission of Appeals decision which indicates that the parties to the debt must contemplate that the entire obligation could be satisfied out of current funds or revenues. See StevensonV. Blake, 113 S.W.2d 525, 527 (Tex. 1938). Similarly,rthe Commissionof Appeals decision in T 6 N.O.R.R. Co. v. Galvesion County, 169 S.W.Zd 713.(Tex. 1943), the court struck down the part of an agreementbetween a county and three railway companiesand an interurbancompany inwhich.the countyagreed to indemnify the companies for liability that might arise in the future from the use of a jointly-constructeddrawbridge. The court held that the parties couldnot have reasonablyanticipated that this "debt" couldbe satisfiedout of currentrevenues for theyear or out of some fund then within the immediate control of the county. S.W.2d at 715.- 169

The Texas SupremeCourt,however, qualified these two commissionof appealsholdings.

In Brown V. Jefferson County,~s, the supreme court shifted the focus of the article XI. section 7. inquiry from the current existence of funds to whether necessary funds are reasonably anticipated from sources within the control of the county. See 406 S.W.2dat 189. The courtupheld a contract inwhich the countyagreed to assume uncertain indemnity liability, to "hold and save" harmless

p. 2914Eonorable ElizabethC. Jandt - Page 8 (JM-642)

the federal government for the ownership, operation, and maintenance of a federally-funded county bridge. The fact that the county had control over thebridge influencedthe court. 406 S.W.2dat 188.

A Jefferson County taxpayer alleged that article XI, section 7, requires that suchobligationsbe fundedby a specific tax. The court rejected this argument:

Article 11, 67 of the Texas Constitution does uot require that a definite tax rate be set for each year the 'debt' is to be outstanding. Tax rates vary with assessed valuations, governmental needs and the like and are set on a year to year basis. e the constitutionalprovision requires is that a 'sufficient'tax be levied. (Citations omitted). Until some liabili,tyascertainable in

arises, no money would need be collected from the county'stax resources. (Emphasisadded).

406 S.W.2d at 189. An obligationwill be stricken under article XI, section 7. "only when it is made to appear that the limited tax
resources of themunicipality are insufficientwhen the obligation is made todischarge the obligation." 406 S.W.2d at 190.
Despite the suprems court's decision in Brown V. Jefferson County, some courts have invalidated "debts" on the basis that they could not be paid out of actually available current revenues. See City of Wichita Falls V. Kemp Public Library Board of Trustees, 593 S.W.Zd 834 (Tex. Civ. App. - Fort Worth 1980, writ ref'd n.r.e.); Brodhead V. City of Forney, 538 S.W.2d 873 (Tex. Civ. App. - Waco 1976. writ ref'd n.r.e.). This narrow rationale. however. is not mandated by the supreme court'sdecision inBrownV. JeffersonCounty. For example, in City of Wichita Falls V. Kemp Pqblic T;ibrary,there existed a question of control over funds to repay debt. In Brodhead
v. Fornex, the funds necessary to repay the "debt" could not be reasonablyanticipated.

The case you present with regard to.a joint city-countyhospital establishedunder article 44941 fitswithin the Texas Supreme Court's decision in BrownV. JeffersonCounte. You indicate that thehospital reasonablyanticipates that a loan forhospital equipmentand improvemeats can be repaid from revenues generated by the hospital. The county and city have taxing authorityunder article 44941 and control
over hospital revenues through the budget approval process. Because hospital revenues have been sufficient to operate the hospital, the county and city have not found it necessary to levy taxes for the support of thehospital. Additionally, ithas notbeen shown that the uncommitted tax resources for the year available to the county and city for hospital purposes, are not reasonably anticipated to be sufficient to discharge theobligation in question if it shouldbecome necessary to do so. As indicated, it is not necessary that a fund exist or a tax actually be levied. The amount which the county and

p. 2915. HonorableElizabethC. Jandt - Page 9 (JM-642)

city in good faith believe could be raised through a combination of hospital revenues, taxingpower under article 44941. and other taxing authority available for hospital purposes is a fact question which cannot be resolved in the opinion process. Moreover, the burden of proofmust be shoulderedbv theuartv that challenaesan oblination to show that it exceeds the constitutional "debt" limit. irown v. Jefferson County, 406 S.W.2d at 189. Consequently, under I lrownv. Jefferson County, the Texas courts would not invalidate a "d; ebt" for equipmentand improvementsfora joint city-countyhospitalwhen it is reasonablyanticipatedthat the obligationcanbe repaid from revenues generated by thehospital and the obligation has not been shown to exceedthe countyand city'sunconneitted taxingauthority forhospital purposes.

SUMMARY

A city and county with a joint hospital organized pursuant to article 44941, V.T.C.S., hold the authority to borrow money to purchase equipment and to renovate thehospitalwhen it is reasonablyanticipatedthatthe loan canbe repaid from funds generated by the operation of the hospitaland ithas notbeen shown that the amount of the loan is not within the amount which the county and city in good faith believe could be raised througha combinationofhospitalrevenues, taxingpowerunder article 44941.and other taxing authority available for hospital purposes. This opinion is limited to an article 44941 hospital. The county and city which establish an article 44941 hospital have discretion over whether to borrow money and must take specific action to approvea loan forhospital improvements.

Attorney General of Texas

JACKEIGETOWRR FirstAssistantAttorneyGeneral

WARY KELLER ExecutiveAssistantAttorneyGeneral

RICKGILPIN Chairman,OpinionCommittee
Preparedby JenniferRiggs AssistantAttorneyGeneral

p. 2916