Court Opinion

ID: 4130101
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:00:15.95624+00
Date Added: 2024-06-11T14:33:56.625281
License: Public Domain

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                                     &ate of Qexas
DAN MORALES                             January 34 1992
 ATTORNEY
      GENERAI.

      Honorable Temple Dickson                  Opinion No. DM-80

     Senate Economic Development                Re: Whether a municipal industrial
     committee                                  development corporation may use funds
     P.O. Box 12068                             generated by a sales tax for the purpose
     Austin, Tex& 78711                         of    aquirin~~     constructing,      and
                                                operating a *for profit” hospital or clinic
                                                @Q-101)

     Deer Mr. Dickson:

             You ask whether a for-profit hospital or cIin$c may be considered an
     “industrial faciliv pursuant to the Development Corporation Act of 1979, as
     amended, article 5190.6, V.T.CS.1 The Development Corporation Act permits the
     creation of nonprofit industrial development corporations to act on behalf of cities,
     counties, or water districts as issuers of bonds to Penance certaia projects, as defied
     in the act. As the interest on the boa under proper &cumstance~ is exempt from
     federal income taxation, the projects financed by these bonds may receive !hancing

                                           p. 400
Honorable Temple Dickson - Page 2                     (DM-80)

at interest rates substantially lower than the rates available with conventional
financing.*

        The projects that may be financed by the proceeds of bonds issued by an
industrial development corporation are defined by section 2(10) of the Develop-
ment Corporation Act. As a hospital is clearly not a transportation, waste disposal,
pollution control, water supply, distribution, or warehouse facility, a hospital would
only be within the act’s definition of project if the legislature intended the term
“manufacturing and industrial facilities” to be broad enough to encompass a
hospital, or if the legislature intended that a hospital could be found by the board of
directors of a development corporation to be a facility

           required or suitable for the promotion of commercial
           development and expansion and in furtherance of the public
           purposes of this Act, or for use by commercial enterprises, all as
           defined in the rules of the department.

Currently, to quality as a project as defined by section 2(10), facilities required or
suitable for the promotion of commercial development must be located in “blighted
or economically depressed areas, development areas or federally assisted new
communities located within a home-rule city or a federally designated economically
depressed county of less than 50,000 persons according to the last federal decennial
census.” As originally enacted, the Development Corporation Act included facilities
“required or suitable for the promotion of commercial or industrial development
and expansion” within the definition of “project,”as generally applicable to facilities
wherever located. Acts 1979,66th Leg., ch. 700,s 2, at 1676.

         %%e interest oo such bonds may be tax exempt under provisions of the Internal Revenue
Code that provide for federal iacome tax exemption oa the obligations of states aad political
subdivisions thereof.26 USC. 5 103. when the proceeds of such obligatioas are to be ased ia the
trade or business of a persoa other thaa a goverame~tal unit, tbue obligations arc referred to as
“private achity bonds’ Federal income tax exemption for the interest oa private activity bonds
requires compliaace with a number of provisioas of the Internal Revcauc Code. See general& 26
U.S.C. 0 141, d seq. Some projects eligiile for fmaaciag with tax exempt bonds uader the Internal
Revenue Code of 1954, md enumerated ia the Developmeat Corporation Act, are no longer so eligible
under the Internal Revenue Code of 19% While it appears clear that the legislature enacted the
Development Corporation Act to facilitate tax exempt fmanciag, tbc Development Corporation Act
does not make federal tax exemption a criterion for projects to be fmanced by industrial development
corporations. An industrial development corporation could fuwce a project through the issuaace of
taxable bonds.

                                               p.   401
 Honorable Temple Dickson - Page 3               (DM- 8 0 )

       In its original form, the Development Corporation Act authorized the
creation of medical development corporations in addition to industrial development
corporations, and included “medical research projects” as a discrete item
enumerated in section 2 of the act. Id While a medical research project is not
synonymous with a hospital or a clinic, the inclusion of a specific authorization for
such projects nevertheless indicates that the legislature considered medical facilities
to be conceptually distinguishable from industrial facilities.

         References to medical development corporations and medical research
projects were deleted from the Development Corporation Act in 1981. Acts 1981,
67th Leg., ch. 792, at 3025. In the same act, the legislature reworked the definition
of “project,” limiting projects for “commercial development” to facilities in certain
areas. Id at 3826. In the same session, the legislature enacted the Health Facilities
Development Act. Acts 1981, 67th Leg., ch. 783, at 2966 (now Health and Safety
Code section 221.001, et seq.). The Health Facilities Development Act permits the
creation of health facilities development corporations which may issue bonds on
behalf of cities, counties, or hospital districts for the purpose of financing health
facilities as defined in that act. Hospitals and clinics are expressly within the
definition of health facilities permitted to be financed by bonds issued by health
facilities development corporations, as are medical research facilities. Health &
Safety Code S 221.003(8)(B), (D).3

       The biIl analysis prepared by the House Committee on State Affairs with
respect to the bill that enacted the Health Facilities Development Act stated, in
part, as follows:

          3At the time that the Health Facilities Developmeat Act was enacted, for-profit health
facilities could take advantage ofthe provisions of section 103 of the 1954 Internal Revenue Code,
which permitted the tax exemption oa the interest of private activity bonds to apply to so-called ‘small
issuq* i.e. issues of bonds under a set dollar amount. Under that former provisioa, as with bonds
ismxi by iadostrial development corporations, the interest OILbonds issued by health facilities
development corporations to fmaace for-profit health facilities would have beea, under proper
circamstaaces, exempt t+om federal income taxation, permitting financing at advantageous iatcrest
rates. Under current federal tax law for-profit hospitals may DO longer qualify for the tax exemption
provided for small issues. Howcvcr, the Health Facilities Development Act does not make tax
exemption a criterion for a project to be financed by a health facilities development corporation.
Health facilities development corporations may fmaacc projects through the issuance of taxable bonds.

                                                p.    402
 Honorable Temple Dickson - Page 4          (DM-80)

          BACKGROUND

               Under present state law, hospital authorities and certain
          other public bodies are authorized to issue “tax-exempt” bonds
          to finance hospitals and related facilities operated by non-profit
          corporations. . . . However, many privately operated community
          hospitals, particularly those in less populated areas, are not
          organized under the state’s general non-profit corporation act
          and are therefore currently ineligible for such a financing
          Program.

          PURPOSE:

               This bill authorizes the creation of non-profit health
          facilities development corporations to finance privately operated
          hospitals and related facilities with “tax-exempt”bonds.

                 The bill analysis characterizes the enactment of the Health Facilities
Development Act as necessary to permit for-profit hospitals to take advantage of
tax-exempt financing. See note 2, mpra. The Development Corporation Act was in
existence at the time of the enactment of the Health Facilities Development Act.
The perceived necessity for the enactment of the Health Facilities Development
Corporation Act despite the existence of the Development Corporation Act
indicates the legislative view that the latter does not authorize the Snancing of
hospitals by industrial development corporations. In addition, the removal in 1981
of references to medical research facilities in the Development Corporation Act and
the provision in the same session for financing such facilities in the Health Care
Development Act indicates a legislative intent to provide for the iinancing of health
care facilities in a statutory framework discrete from that which provides for funding
of the kinds of facilities described in the Development Corporation Act See
Heerson      v. State, 758 S.W.2d 694 (Tex. App.-Austin 1988, writ dism’d) (when
construing acts passed at the same legislative session, the courts will read them as
one act).

      To summarize. we find that the legislature did not intend the terms
“manufacturing and industrial facilities” or facilities “required or suitable for the
promotion of commercial development” as used in the Development Corporation
Act to encompass medical or health care facilities. Such facilities may not be

                                       p.    403
Honorable Temple Dickson - Page 5             (DM-80)

financed by bonds issued by industrial development corporations created pursuant
to that statute.

                                     SUMMARX

               Hospitals are not “manufacturing or industrial facilities” or
          facilities “required or suitable for the promotion of commercial
          development” and may not be financed by bonds issued by
          industrial development corporations created pursuant to the
          Development Corporation Act of 1979, as amended.

                                                 DAN      MORALES
                                                 Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARYKELLER
Deputy Assistant Attorney General

JUDGE ZOLLIE STEAKLEY (Ret.)
Special Assistant Attorney General

RENEAHIcKs
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by John Steiner
Assistant Attorney General

                                       p. 404