THE ATTORXEY GENERAL 

OF TEXAS 

March 11, 1987 

Honorable Elizabeth C. Jandt 

Guadalupe County Attorney 

105-A North Austin 

Seguin, Texas 78155 

Opinion No. J-M-642 

lb: The authority of the Guadalupe 

Valley Hospital to borrow funds to 

purchase equipment and renovate the 

hospital under article 4494i, 

V.T.C.S. 

Dear Ms. 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 generated by 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 generated by 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 

borrow money for hospital 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-county hospital from 

borrowing money in this manner. 

The nature of a joint city-county hospital controls the scope of 

its powers. Article 44941 authorizes the creation of a joint citycounty hospital and authorizes any county and city or town to delegate 

to the hospital's board of managers the authority to establish and 

operate the hospital. Sets. 1. 4. 7. Article 4494i does not contemplate the creation of a distinct political subdivision. see sec. 4 

(board's actions taken as though such action had 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-county hospital can 

hold no powers greater than those held by the county or the city which 

created the hospital. Conversely, a joint city-county hospital also 

holds powers held by the county and the city. See Attorney General 

Opinion Nos. m-274, JM-220 (1984). Counties andyties possess only 

p. 2908 
Honorable 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 Colorado River Authority v. City of San Marcos, 

523 S.W.2d 641 (Tex. 1975) (home rule city has plenary powers, 

controlled primarily by the cityis charter). This rule applies-to the 

creation of debt. See Brown v. Jefferson County, 406 S.W.2d 185 (Tex. 

1966) (counties); c E&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 1 of article 44941 provides, in part: 

Such cities or towus and counties that have 

heretofore issued and sold bonds for the specific 

purpose of jointly establishing, erecting, 

=quipping I maintaining and operating such joint 

county-city hospital 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 such purposes. 

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 

generated by the operation of the hospital. 

Because article 44941 does not expressly authorize a joint 

city-county hospital to borrow money for hospital improvements, the 

dispositive issue is whether such power way be implied from the grant 

of authority to establish and equip a hospital and to issue bonds 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 for purposes which 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 Foster v. City of Waco, 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 

cannot be implied. See also First Bank 6 Trust Co., Booker, v. Dmsas 

Independent School District, Duwas, 527 S.W.2d 499 (Tex. Civ. App. - 

p. 2909 
Honorable Elizabeth C. Jaudt - Page 3 (JM-642) 

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

government warrants and promissory notes). 

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 county warrants issued for public 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 

that means. Lasater v. Lopes, 217 S.W. at 376. 

In Lasater v. Lopes, the court determined that the county had the 

authority to issue nonnegotiable warrants in lieu of bonds. The court 

stated that 

[ilt could not have been absent from the mind of 

the Legislature in the passage of the Act of 1903 

that in some counties it might be possible for the 

Commissioners’ Court to accomplish the desired 

road improvement within 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 ,of resorting to bonds. The authority in 

such instances to make lawful use 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 absolutely require the issuance of bonds 

in all cases by all counties where it is necessary 

to contract a debt of extended maturity 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 improvements by all other means, 

the authority, where necessary, to use it for that 

purpose through the issuance of warrants still 

remains in the Commissioners’ Courts and may be 

lawfully exercised. (Emphasis added). 

217 S.W. at 377. The court’s decision was 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 to build and improve roads. See 217 

S.W. at 375-76. 

- 

p. 2910 
Eonorable 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 

Opinions V-904. V-779 (1949); see also Attorney Goneral 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 to bonds in all cases. This opinion applies only to a 

hospital organized under article 44941. 

The second issue raised by your request is whether a county and 

city may delegate to an article 44941 hospital's board of managers 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-county hospital. 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 

simply by approving budgets submitted by the board and that the county 

and city are "obligated" to approve expenditures which the board of 

managers deems necessary, including an expenditure involving a bank 

loan. This is not an accurate construction of the powers which may be 

delegated under article 44941. 

Several sections of article 44941 are relevant to your inquiry. 

Section 4 of article 44941 provides that the joint board of managers 

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. 

(Emphasis added). 

p. 2911 
Eonorable Elizabeth C. Jandt - Page 5 (JM-642) 

Section 7 of article 44941 provides: 

In connection with the erection and equipping 

of such hospital or hospitals said Board of 

Managers shall have the authority to determine the 

manner of expending any funds that may have been 

provided by such county and such city or town for 

such purpose, whether by the issuance of bonds or 

other obligations, or by appropriations from other 

funds of such county and city or town, it being 

the intention by this Act 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 

appoint members to such Board of Managers and to 

approve the annual budget hereinabove provided 

for. - (Emphasis added). 

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 

language in article 44941. 

Section 5 of article 44941 provides: 

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 city or town shall appropriate or set 

aside for the use of such Board of Managers in the 

operation of such hospital or hospitals the amount 

of money which seems proper and necessary for such 

purpose. (Emphasis added). 

This section does not mandate that the county and the city shall 

approve any amount of funding which the board deems necessary. 

Although the county and city's authority to approve specific 

hospital expenditures may be purely ministerial, their authority to 

incur debt to fund the hospital is discretionary. In Commissioners 

Court of Harris County v. Fullerton, 596 S.W.2d 572 (Tex. Civ. App. - 

Eouston [lst Dist.] 1980, writ ref'd n.r.e.), the court reviewed a 

p. 2912 
Honorable 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 equipment requested by the county auditor is ministerial; the 

comfssioners court must 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 

legislature granted the commissioners court the power to determine 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 expenditures made 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 improvements under article 44941 rests with the county rather 

than with 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, they must 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 the Texas Constitution provides, in part, 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 

levying and collecting a sufficient tax to pay the 

interest thereon and provide at least two percent 

(2%) as a sinking fund. . . . 

See also Tex. 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 obligation will not create "debt" within the meaning 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 [lst Dist.] 1982, writ ref'd n.r.e.); see Texas -- 

Public Building Authority V. Mattox. 686 S.W.2d 924 (Tex. 1985) 

(construing Tex. Const. art. III. 449); City of Nederland V. Callihan, 

299 S.W.2d 380 (Tex. Civ. App. - Beaumont 1957. writ ref'd n.r.e.) 

p. 2913 
Eonorable Elizabeth C. Jandt - Page 7 (JM-642) 

(construing Tex. 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 generated by the transaction and 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 McNeil1 V. City of Waco, 33 S.W. 322 (Tex. 1895), the 

Texas Supreme Court held that no debt existed for purposes 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" is made that a tax is not necessary to retire the "debt," the 

city is not required by article XI, section 7, to levy a tax. 33 S.W. 

at 323-24. The court did, however, suggest that there should exist, 

at the date of the contract, a fund in the treasury, 

legally applicable thereto, out of which the parties 

contemplated that such claim should be paid. 

33 S.W. at 324. 

Controversies over the existence of an unconstitutional "debt" 

revolve around 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 Stevenson V. Blake, 113 S.W.2d 525, 

527 (Tex. 1938). Similarly, rthe Commission of 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 agreement between a county and three 

railway companies and an interurban company in which.the county agreed 

to indemnify the companies for liability that might arise in the 

future from the use of a jointly-constructed drawbridge. The court 

held that the parties could not have reasonably anticipated that this 

"debt" could be satisfied out of current revenues for the year or out 

of some fund then within the immediate control of the county. 

S.W.2d at 715.- 

169 

The Texas Supreme Court, however, qualified these two 

commission of appeals holdings. 

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.2d at 189. The court upheld a contract in which the countyagreed 

to assume uncertain indemnity liability, to "hold and save" harmless 

p. 2914 
Eonorable Elizabeth C. 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 the bridge influenced the court. 406 S.W.2d at 188. 

A Jefferson County taxpayer alleged that article XI, section 7, 

requires that such obligations be funded by 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 constitutional provision requires 

is that a 'sufficient' tax be levied. (Citations 

omitted). Until some liabili ,ty ascertainable in 

arises, no money would need be collected 

from the county's tax resources. (Emphasis added). 

406 S.W.2d at 189. An obligation will be stricken under article XI, 

section 7. "only when it is made to appear that the limited tax 

resources of the municipality are insufficient when the obligation is 

made to discharge 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's decision in Brown V. Jefferson County. 

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 

reasonably anticipated. 

The case you present with regard to.a joint city-county hospital 

established under article 44941 fits within the Texas Supreme Court's 

decision in Brown V. Jefferson Counte. You indicate that the hospital 

reasonably anticipates that a loan for hospital equipment and improvemeats can be repaid from revenues generated by the hospital. The 

county and city have taxing authority under 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 the hospital. Additionally, it has not been 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 the obligation in question if it should become 

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 
. 

Honorable Elizabeth C. Jandt - Page 9 (JM-642) 

city in good faith believe could be raised through a combination of 

hospital revenues, taxing power 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 

proof must be shouldered bv the uartv that challenaes an oblination to 

show that it exceeds the constitutional "debt" limit. irown v. 

Jefferson County, 406 S.W.2d at 189. Consequently, under I lrown v. 

Jefferson County, the Texas courts would not invalidate a "d; ebt" for 

equipment and improvements for a joint city-county hospital when it is 

reasonably anticipated that the obligation can be repaid from revenues 

generated by the hospital and the obligation has not been shown to 

exceed the county and city's unconneitted taxing authority for hospital 

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 the hospital when it is 

reasonably anticipated that the loan can be repaid 

from funds generated by the operation of the 

hospital and it has not been shown that the amount 

of the loan is not within the amount which the 

county and city in good faith believe could be 

raised through a combination of hospital revenues, 

taxing power under 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 

approve a loan for hospital improvements. 

Attorney General of Texas 

JACK EIGETOWRR 

First Assistant Attorney General 

WARY KELLER 

Executive Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Jennifer Riggs 

Assistant Attorney General 

p. 2916