The Attorney General of Texas
January 5, 1981
MARK WHITE
Attorney General
Honorable Joe Resweber Opinion No. MV-290
Harris County Attorney
1001Preston, Suite 634 Re: Whether a county may expend
Houston, Texas 77002 proceeds of the sale of bonds and
other county funds to construct
permanent improvements on leased
land
Dear Mr. Resweber:
You. have requested our opinion on the following question relating to
county expenditures:
Can Harris County expend proceeds of the sale of the
$3,800,000 Harris County Office and Courts Building
Bonds, Series 1979-A, to remodel, improve or equip
portions of the Center Pavilion Hospital building
which Harris County has leased?
Center Pavilion Hospital is owned by the Harris County Hospital District
established under article 4494r, V.T.C.S. In addition, you have also asked a
number of questions about the county auditor’s responsiblities in connection
with the bond proceeds and lease agreement.
The bonds in question were issued under the authority of article 23704
V.T.C.S. Section 1 of the statute authorizes the county to “purchase,
construct? reconstruct, remodel, improve and equip, or otherwise acquire an
office budding or buildings” for county purposes. (Emphasis added). In our
opinion, the underlined language authorizes the county to acquire a building
by leasing it or by executing a lease-purchase agreement. See Attorney
General Opinions H-23 Q973); M-832 (1971) (authority to acqje includes
authority to acquire by lease or lease-purchase agreement). Section 3
authorizes a bond issue to pay for the improvement of “such buildings,” that
is, buildings acquired under section L Thus, we believe you have statutory
authority under article 2370b to issue bonds to pay for the improvement and
equipment of a building acquired by lease. The bond proposition tracks the
language of article 23’704 section 3; and the proceeds may therefore be used
for the purpose you inquire about.
p. 925
*. -.
Honorable Joe Resweber - Page Two t.w-290)
The county may use public ftmds to improve leasehold estates without violating
article III, section 52 of the Texas Constitution, which provides in pertinent part:
[Tl he Legislature shall have no power to authorize any
county. . . to lend its credit or to grant public money or thing
of value in aid of, or to any individual, association or
corporation whatsoever, or to become a stockholder in such
corporation, association or company.
In Attorney General Opinion H-403 (1974), this office held that the similar language of
article Ill, section 50 of the constitution did not prohibit a state agency from
constructing a buildii on leased land, if the expenditure was for a proper public
purpose and made in exchange for adequate public benefits. See also Attorney General
Opinion H-416 (1974) (Texas Aeronautics Commission may make grant for improvement
of municipal airport located on leased land). We believe the reasoning of Attorney
General Opinion H-403 applies to the improvement of leasehold estates by the county.
See also Attorney General Opinion H-445 (1974) (county may use bond proceeds to
enlarge hospital and lease back to private, non-profit corporation).
You express concern that the improvements financed out of bond proceeds would
be subject to the mortgage of the Center Pavilion HospitaL However, by the terms of
section 6(b) of the lease agreement, any improvements removeable vnthout damage to
the building are not subject to the lien of the mortgage. Second, this is an authorized
county mortgage under article 4494~2, V.T.C.S., and, as such, clearly comes within
the purview of the language in article 2370b as to buildings “otherwise acquired” by the
county.
You also ask the following question:
Can Harris County expend county funds other than bond
proceeds to remodel or improve portions of the Center Pavilion
Hospital building?
We believe the county may use finds other than bond proceeds to remodel or improve
portions of the Center Pavilion Hospital building. See V.T.C.S. art. 23704 !$ Attorney
General Opinion H-403 (1974).
You enclose a copy of the lease agreement between Harris County Hospital
District as lessor and Harris County as lessee and ask whether it is a valid binding
lease for Harris County. In approving the bond issue incident to the Center Pavilion
Project, the attorney general’s office in effect passed on the validity of the underlying
lease agreement, This question asks our office to review its official action in
approving bonds under article 4398, V.T.C.S., which we believe is inappropriate for us
to do. Consequently, we will not address this question.
You next ask whether the county auditor may properly certify that fu’uls are or
will be available to make payments on the lease as the debt matures. As to the first
p. 926
. t,
Honorable Joe Resweber - Page Ttiee (Mv-290)
year, 1980, the county auditor can certify as to availability of funda as such funda have
been escrowed from the proceeds of the bonds pursuant to article VIII, section 8.3 of
the restated bond order passed by the commissioners court. The lease agreement
provides that thereafter the county auditor shall certify as to ftnds being available
pursuant to article 1888a, V.T.C.S. That statute provides that the auditor certifies as
to funds being available when the budget has been approved by the commissioners
court.
You inquire about the auditor’s responsibility regarding financial transactions
arising from the lease; for example, payment of rent, use of bond proceeds to renovate
the project, and operation, maintenance and insurance of the project. Article 1888a,
V.T.C.S., provides that once the commissioners court approves the budget the county
auditor shall open an appropriation account for this budget item against which the
financial transactions may be charged.
You ask about the date as of which the auditor is required to set up an
encumbrance for rent payments Section 3 of the lease ageement provides that the
leasehold estate shall commence as of the date of execution of the lease. The
encumbrance for any rent payment should be set up as of that date.
You inquire about the auditor’s responsibility with respect to the bond proceeds.
Section 6 of the lease provides that the county has control of the bond proceeds. The
auditor has broad authority to audit county funds. V.T.C.S. art. 1851; Attorney General
Opinion H-777 (1978). It is the auditor’s responsibility to audit proceeds from the sale
of bonds and to audit the disposition of proceeds.
You ask whether the county must have the property covered by insurance.
Section 7 of the lease places this responsibility on the county.
You also wish to know whether the county may approve payment of operating and
maintenance costs of the building for the remaining months of 1980. It may do so,
since it has legally incurred these obligations.
You ask who controk the investment of money or deposit on the interest and
sinking fund and whether the auditor has the responsibility for accounting for or
auditing those earnings Once the basic rent established by the lease moves from the
appropriation account to the trustee for deposit in the Interest and sinking fund, the
trustee as fiduciary has responsibility for investment of the money, subject to the
provisions of the Texas Trust Act. See V.T.C.S. arts. 7425b1 to 7425b-47. The trustee
is responsible for accounting for or auditing such earnings
You ask whether the auditor has a responsibility to approve county payments to
improve property belonging to the hospital district and pledges to Texas Commerce
Bank as trustee tmder the hospital district indenture. The county auditor has the
ministerial duty of approving county payments relating to ‘Center Pavilion improve-
ments as these payments are made pursuant to a valid and binding obligation of the
county.
p. 927
Honorable Joe Resweber - Page Four pu- 290)
You finally ask whether the county has a,responsibllity for the subleases of the
p~perty. The county, as lessor, bears responsibility for subleases. The lease
agreement requries that any such s&&ases should clearly be approved as to legality by
the county attorney. As the county wlll be the recipient of the payments due on the
sublease, audit of the stileases is clearly within the province of the county auditor.
SUMMARY
Harris County may spend proceeds of bonds issued under
article 23704 V.T.C.S., to improve or equip a building leased
from the Harris County Hospital District. The county may also
use funds other than bond proceeds to improve the leased
building. The county auditor’s responsibilities with regard to
the bond proceeds and the financial transactions under the lease
may be determined by examining the lease agreement and
articles 1851and 1888a, V.T.C.S.
v$tm&&
Attorney General of Texas
JOHN W. PAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
Prepared by Susan Lee Voss
Assistant Attorney General
APPROVED:
OPINION COMMlTTEE
Susan L. Garrison, Acting Chairman
Rick Gilpin
Susan Lee Voss
p. 928