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HomeMy WebLinkAbout1986 i 1 j~ 1 BICKERS FAFF, HEATH V SMILEY 4Trv,4[K4R„A„ App WttT 14T4 lTIAMY. Unn,D OANN TOWER. Sant 1410, AUSTW Tout M?01~164 C. RODIAT HEATH WAATNA SMILSV TNOWAS M. OOLLAN ANN CLARK( SNILL It141 A/74Ut MAN T4L"00V ANLLMAN NO Alj«M [A ROLYN[ 11W tN 4LL DOVOLAi 0. CAROOM LINDA AAKCA JIMMY ALAN NALL SUSANC. O[NT2 June 13, 1986 AO«N A. CASEY KATIE S NO CAAOLwc SCOTT MANUILO. MLNOtf The Honorable Buddy Cole The Honorable Lee Walker 4YCDH[VW.;. N in County Judge Commissioner Denton County Courthouse Denton County Courthouse Dentont TX 76201 Denton, TX 76201 The Honorable Ruth Tansey The Honorable B. E. Switzer Commissioner Commissioner Denton County Courthouse Denton County Courthouse Denton, TX 76201 Dentont TX 76201 The Honorable Sandy Jacobs Commissioner Denton County Courthouse Denton, TX 76201 Dear Judge Cole and Commissioners, The proposed asset transfer agreement is generally based upon the recommendation of the Blue Ribbon Committee on Flow Memorial Hospital, The committee concluded that unless changes were made, the competitive position of the hospital would deteriorate and the city and county would be called upon to provide increasing amounts of financial assistance until the time that the hospital went out of business. The committee considered various options and ultimately recommended that the hospital be transferred to a non-profit corporation. The contract presented to the Commissioners' Court today is the result of the attempts of the City of Denton, the existing Flow Board, the new corporation board and Denton County to reach an agreement which would implement the recommendations of the Blue Ribbon Committee in a manner which was consistent with the requirements of th& law and was mutually advantageous. While the committee recommendation calls for a transfer of the hospital to a non-profit corporation, there are provisions of the Texas Constitution which would prohibit a gift of a public asset. Article rti, seotion 52 and article X14 section 3 of the State Constitution prohibit both the city and the county from making a grant or donation to a private corporation. The same two provisions of the Constitution prohibit the lending of credit. The authorities have generally provided, howevart that the constitution is not violated if there is adequate consideration for the transfer of the 1 Page 2 June 13, 1986 assets, The initial and fundamental issue then is whether the countyl will receive adequate consideration. The agreement requires that it will be presented to a court of competent jurisdiction and a final declaratory judgment stating that the agreement is lawful will be obtained prior to its becoming effective. This procedure will protect against future challenges to the transfer and will permit review by a disinterested party, 1 CONSIDERATION I We believe the contract as drafted provides sufficient consideration to permit the court to find that it meets the constitutional tests, A. VALUE OF THE HOSPITAL At the initial meeting of the parties at interest it was determined that it would be necessary to obtain an appraisal of the hospital's value so that the adequacy of the consideration could be Juudgeds The as the hospital rboardEtolobtaiineaivaluationrforathe hospital by going business. The final opinion of that firm was that the hospital had a value of approximately $61000,000, This estimate assumed that the facility would be subject to a covenant that it not be sold to a for profit corporation. If there were no restraint on future sales of the hospital, e.a,, if it were available to be sold to a for profit corporation, it would have a greater value. a• ELEMENTS OF CONSIDERATION There are essentially four elements of consideration. They are (1) the assumption of existing liabilities, (2) the promise to continue to operate the hospital as a non-profit facility which will generally maintain existing levels of service, (3) the provision of medical service to the city and county at a discounted rate of 80 t of perevelcesnof ndige tacarehon an►annual4basis, provision of specified (1) Ass tion f Existin Li biliti , The new corporation aftyress to assume all the county which exist o0 the at n the eclosing dateiand borelat~etto the hospital. There is an exception for malpractice claims which 1While this letter is addressed to the interests and requirements of the county, the considerations discussed are almost always equally applicable to the city. i Page 3 June 13, 1986 existed on the data of closing but had not been asserted on that date. Among the liabilities to be assumed are two hospital revenue bond issues which had initial principal amounts of $290,000 and $280,000. The agreement is contingent on either obtaining the consent of the holders of those bonds to release the city and the county from any liability or on the payment of the bonds in full, (2) ration of the H s ital s a Non-Profit Pacilit The 1 11 Blue Ribbon committee cons uded that there were banef is to having the hospital run by a non-profit rather than a for profit corporation. These include a desire to have the hospital run by persons based in t rates he community, a belief that a non-profit hospital can offer lower take a J planningdandna commitmentetohmaintainia structured thcost i-containment with the history of the facility. The agreement requires the hospital to be operated on a non-profit basis unless the consent of the city and the county is obtained. Prolri Aates(3)If the county fes ras to purchasei services rom the osp tal in a dition to those provided under the indigent Care Agreement, those services will be provided at 80 per cent of the hospital's standard charges. It is not possible to estimate the value of this portion of the agreement„ since it is uncertain whether the county will choose to avail i;self of the opportunity. It may have its needs met through the Indigent Care Agreement or it may decide to purchase services from another hospital where it is able to negotiate a more favorable rate, it will, however, have the opportunity to purchase services from Flow at less than the standard rate, (4) Yndi ant Care. The agreement of the hospital to provide indigent care is the key to the contract. The hospital agrees to provide care to eli ible indigents up to an amount equal to three r r cent of its patient service revenues, After October 1, 88 if gross revenues reach $20 million, the amount of indigent care increases to four per cent,2 The amount of care available is determined on the basis of the hospital revenues for the preceding fiscal year, 2The determination of whether the amount of indigent care will be three or four per cant is determined by the hospital's aarass revenue. The three or four per cent is measured, however, aal net revenue, Under generally accepted accounting hospital revenues are shown in terms of the hospitlpsista 7indard charges, Since the county will have the option of using one of two methods of crediting and both methods result in charges which are less than the hospital's standard charge, an adjustment must be made to ascertain the value of the services, The impact is seen more easily in the example in Table i. Page 4 June 13, 1986 The hospital will have an obligation to provide an ascertainable dollar amount of indigent care each year. That care will be billed at less than the hospital's standard charges, and the city and county will have the option to determine which of two methods of charges will be utilized. The first method is to utilize 80 per cent of the hospital's standard charges. Thus, if a procedure carried a standard charge of $100, the use of the procedure on an eligible indigent f would result in a debit of $80 against the amount available for I indigent care. The second method involves the use of Medicare DRd's. The Medicare system has traditionally been based on reimbursement of a hospital's cost of providing services. In a asst containment effort, the federal government has switched to a prospective payment system based on a series of diagnosis related groups (DRO'a). Reimbursement is based on diagnosis. A particular ailment will carry a specific reimbursement rate. Reimbursement will be the same no matter how long a patient stays in the hospital and no matter how many tests and other procodurss are performed, The system has a built-in incentive to reduce hospital stays and costs. Although the percentage of a hospital's charges which will be reimbursed will vary from hospital to hospital, statistics which were furnished to us by the Health Care Financing Administration show reimbursement in mid-1983 at 69 per cent of charges in a Medicare DRG system. Utilizing this information, it is possible to estimate the effect of the arrangement on the amount of indigent care to be provided. TABLE I PROjae-Ka AMOUNT" OF IUDIOM CARE "to rV67 "00 (Eased on (Aas1111e0gross i net (eased on ryls audit) revenue rill be at rY87 budget) aid points between SS audit 4 87 pro3ection) Gross revenue $19,993,088 $11,271,129 $22,549,200 Net Revenue 15,4041202 16,093,761 16,783,320 Indigent Care at 3 UPY06 i PY87) 41(PYOe) 462,126 482,813 671,333 value of care at 801 of charges 577,658 603,516 839,166 value of dare at 69t of charges (ORO) 669,740 699,729 972,946 Page 5 June 13, 1986 It should be noted that Table I level is reached In FY88, i,e. the shows that the four In actuality that level cannot be attained until the folsowiner went September 36, ng 1588, Since we do not have budget fi ending Year on four per cent level affects FY88r figurey,Y84, we have shown how eth, Obviously, the The amount a impact for future years 13 somewhat speculative. vailable in Future years will vary with the of the hospital's revenues. If the hospital revenues follow past available. trends and continue to rise, then increased amounts of care will be IMPACT OF Tax TRANSppR ON TUB COUNTY'S INDIQgNT CUB 081IOATION Beginning September 1, 1986, counties and have specific responsibilities for indigent health care under the Indigent Health care and Treatment Act public hospitals will Since there is currents a article 4438E County would not have dir et responaibEllterving the The count ~OT'C,3, M Y~ Denton responsibility would be for the public hospital, 8 to provide health care assistance to each eligible erefor lowow Meemmoorialrial, , county, V,T,C,S „ art, 4438f the S10,02faf, The city and the however, as owners of the hospital will have responsibility to provide sufficient funding to the hospital to permit It to county, V.T.C.9., art- 4438E have ultimate liability, while the county ma not now have the directlr0esponsibility.for indigentcare,tit does o significant y• e As Table II shows, the hoe ital has required thosr2 requirmentsmwould co funds in ntinue and perhaps nd 0& Isse,likel Y that CITY i COUNTY FUNDING Le FINN MEMORIAL HOSPITAL FY82 FY83 City FY84 FY85 County $125,000 $ 450,000 $ QO 00 Total $225__ 000 5 6 9 61 17 00 $300,00 $225,000 $740,617 $1,149,900 Page 6 June 13, 1986 If the hospital is transferred to a non-profit corporation, the specific requirement to Mike direct payments to the hospital should be eliminated, but the city- and county will continue to have an obligation to continue to serve eligible indigents and to provide the health care services which were provided prior to the passage of the Indigent Health Care and Treatment Act. V.T.C,S.0 art. 4438f, 514.01. This agreement will assist in addressing that responsibility. It must be understood that the proposed contract will not Fulfill all of the county's responsibiffties under the Ind sent Health care and Treatment Act. First, there are services required by the Act, most notably physician services, which are not provided by hospitals. The county and city will have a responsibility in this area, and it is not affected by the asset transfer agreement. Second, the agreement covers services provided at Flow Memorial Hospital. Even if Flow is the single mandated provider in Denton county, some services required by the Act will be provided elsewhere. Indigent residents may require emergency treatment at hospitals other than Flow, Some care will need to be given in large, tertiary hospitals such as parkland or other major Dallas facilities with more sophisticated equipment and staff. This highly specialized care is likely to be expensive. Third, there is no guarantee that the amount of care to be provided under the contract wAll cover the indigent care provided at Flow. There is no way to know precisely how much indigent care will be provided. One way to estimate is to compare the projected amount of indigent care to bo provided under the contract with the historical amount of indigent care provided at Flow. It must be understood, however, that the amounts shown as charity care at Flow almost certainly do not include all indigent care rendered to residents of Denton County since some residents would have received charity care at other hospitals, on the other hand, some charity 3The indigent Health Care and Treatment Act imposes the obligation on the governmental enkity which owned a hospital. This would impose liability on both tha city and the county, The city contends that the liability is solely the county's. While we firmly believe the city's contention is incorrect, it is likely that there will be a dispute over the city's responsibility, and litigation may ultimately be necessary. Even if it is agreed that the city and the county have a joint responsibility, the Act offers no guideline for determining the extent of each entity's obligation. The agreement specifically avoids committing either the city or the county on the potential liability of the other, Page 7 June 13, 1986 care delivered at Plow was presumably received by residents of other counties. It can reasonably be assumed, however, that the amount of care delivered to Denton County residents at other hospitals is larger than the amount of indigent care rendered to non-Denton County residents at Plow. I 1 TABLE III HISTORICAL LEVELS OF INDIGENT CARE FY 1983 FY 1984 FY 1985 Audit 6570733 1,019,028 1x056,813 Blue Ribbon 471,198 806,620 694,389 Amount Available under contracts at 3% 801 rate 463,329 5130981 577,657 DRO rate 537,193 595,920 669,748 at 40 80% rate 617,771 685,309 PRO rate 716e257 794* 770,210 ,561 892,997 * Hospital administ-.'itors state that the audited charity figure is an estimated allocation of uncollectibles between bad debt and charity while the Blue Ribbon i1gures involve an actual review and tabulation of charity cases, The amount available under the contract is computed by applying the contract formula to PY830 PY84 and PY85 historical net patient service revenue. Had the contract been used in those years the three per cent figure would have been in effect since gross revenues were under $20 million. Tho four per cent figure may be a more valid comparison, however, if .1.t is assumed that most of the contract will be performed after revenues exceed $20 million. page 8 June 13, 1986 ADVANTAGES AND RI3lC8 The commissioners' court should understand that there are risks involved in this transaction, it is disposing of a valuable asset in return for a contractual obligation to - ti hospital is unsuccessful and goes out of bu in as services. the county will provide not receive the bargained for consideration. The transaction is unsecured and the county cannot expect that the property would be returned if the hospital faces bankruptcy. In other types of { transactions, the count,P would not face this risk. In a regular sale, the county would have all of its cash in hand as soon as the ownershipwof theefaci.lity and would regain control o on bodies expiration or breach of the lease. Of course, both of these type of transactions have disadvantages. The policy considerations which sues desirability of a transfer to a non-profit corporation havetbeen considered by the county, the city and the Blue Ribbon Committee. The decision whether to continue with the current arrangement, to sell to a for profit company, to lease the facility or to enter into a transfer arrangement of the type at issue here is a policy one and will be affected by many factors including the current financial and physical condition of the hospital, the local competitive environment in health care, the needs and desires of the community regarding the availability of a non-profit facility, the desirability of divorcing the over nance of effect of the va ioushoptions onlthe from the availabilityiocal f nece sary capital financing. The contract which has been negotiated is designed to maximize the benefit to the county, A general tenet of all parties' position has been that the governmental bodies must receive adequate consideration while at the same time recognizing that the solution will not be successful unless the hospital is able to survive and prosper. The contract has been revised substantially to reflect and address the county's obligations under the Indigent Health Care and Treatment Act, and the annual consideration to the county has increased by more than 50 per cent from the original proposal. While, Page 9 June 13, 1986 as in any contract, every provision is not worded precisely as any one party would desire, the entire docoment is designed to fairly balance and recognize the needs of each of the contracting parties and to provide a workable arrangement which is beneficial to the city, the county and the hospital. We commend the documents to your consideration. Respectfully submitted, BYCRERSTAFF, HEATH 6 SMTLEY United Bank Tower, Suite 1419 400 West 15th Street (512) 0 AustiL472-8 exa 4He Sys C. Ro aBys L d~, AA er 1 FULBRICHT & JAWORSKI 2001 Bryan Tower, Suite 1900 Dallas, Texas 75201 i MBM0RANOUM T0; Denton City Council FROM: David C. Petruska, Esq, DATE: June 16, 1986 Steven C. Malin RE: Description of the Asset Transfer Agreement Relating to --the-Transfer -of-Flow-Memorial-Hospital The Asset Transfer Agreement (the "Agreement") is among Flow Regional Medical Center (the "New Corporation"), Denton County (the "County"), the City of Denton (the "City"), and the Board of Directors of Flow Memorial Hospital (the "doard") and concerns the transfer of Flow Memorial Hospital (the "Hospital") to the New Corporation. ARTICLE I 1.1 The County, the City, and the Board (referred to col- lectively as the "Transferors") shall transfer. to the Now Corporation all assets and records which consti- tute Hospital")rothat exist Fonwthe eclosing date. As cone sideration for the assets, h assume certain liabilities of the New Corporation to the Hospital, and further, provide certain in- patient and out-patient care (pursuant to §1.3). As additional consideration, the New Corporation promises to continue running the Hospital on a non-profit basis. 1.2 The New Corporation agrees to assume all liabilities of the Transferors relating to the Hospital existing on the closing date, except hospital medical malprac- tice claims that have not been both, (i) asserted by the closing date and (ii) described specifically by the Transferors, 1.3 a. i) The New Corporation agrees to provide to "eligible indigents" health care services of the types (1) provided by the Hospital pre- viously and (2) usually provided by compara- ble hospitals, The City and the County may grant permission to change the required services. Denton city council June 16, 1986 Page 2 ii) The value of the services provided by the New Corporation shall be up to the percent- age specified in §1,3(a)(iv), of the New Corporation's Net Patient Service Revenue (NPSR) for the preceding year. In the par- tial fiscal year commencing on the closing date, the services provided shall be up to 3% of the NPSR of the preceding year, multi- plied by a percentage determined by dividing the number of days remaining in the fiscal year of the New Corporation by 365, iii) The Net Patient Service Revenue (NPSR) shall mean the gross revenues from patients to the New Corporation (and any affiliated entity) less any contractual adjustments, and less provision for doubtful accounts. IV) (A) An "increase year" shall mean a year following a 13% year" in which the NPSR is greater than $20,000,000. A "de- crease year" shall mean a year follo:o- ing a 04% year" in which the NPSR is less than $15,000,000, (8) The percent will be 3% until the first increase year, when It will increase to 4%. It will remain at 4% until the next decrease year when it will revert to 3%, and so on. V) The v,ilue of services provided shall be as followa -Partial fiscal year 80% of standard charges -Full fiscal year (A) 80% of standard charges, or (8) the prospective payment rates under the Medicare Program vi) The New Corporation will be entitled to a credit (for payments made by it with respect to tort liabilities assumed under §1.2) against the amount of services it is re- quired to provide. Denton City Council June 16, 1986 Page 3 b, i) The eligibility standards shall be those established by the Indigent Health Care Act, provided that the City and the County may change the standard-, with sixty (60) days notice and further provided that, initiall/, the New Corporation will utilize the stan- dard that the Hospital PL'eviousLy used to meet its "Hill-Burton" obligation, ( i ii) If either the City or the County requests a change in eligibility standards to which the other doesn't agree, the standards shall be those specified under the Indigent Health Care Act. C. The County and the City shall be entitled to examine the records of the New Corporation. d, The parties intend that the City's obligation, if any, for indigent health care not be addressed by this contract. 1,4 a, Each mono Li,% New Corporation Mall subm±t to the City . +-ie County an accounting of hospital care provided to indigent patients, including; i) the patient's name, ii) an itemized statement of charges, Iii) the patient's admitting diagnosis, iv) documentation of patient .atisfacLion of eligibility standards, and v) a representation that all services were provided pursuant to Physicians' orders, b. After receipt of the accounting, the City or the County shall notify the New Corporation of: i) patients or services they determined were inoligible, or ii) any excess charges. If neither the City nor the County object to a particular accounting within thirty days of re- ceipt, they will be deemed to have accepted it as adequate, i Denton City Council June 16, 1986 Page 4 C. The parties shall meet to negotiate any objec- tions pursuant to an accounting. Amounts still in dispute thereafter shall not count towards satisfaction of the New Corporation's obligation, pending dispute resolution pursuant to §9,13, 1.5 The New Corporation shall attempt to ascertain whether any indigent patient is covered by Medicare or Medicaid, and if so, will assist that patient with his application for coverage, if the Medicare/Medicaid obligation is not determined within 30 days, the New Corporation may count the value of services given to such patient toward satisfaction of its obligation; however, if the patient is later determined to be eligible for Medicare or Medicaid, any amounts re- ceived shall be deducted from the value of services provided. The New Corporation agrees to use its best efforts to obtain reimbursement from any third party payor. 1.6 The closing of the asset transfer shall take place on 1986, or another agreed upon time. If any condition of the Agreement is not satisfied by the closing date, the party whose duty it is to satisfy such condition can postpone the closing until such condition has been either satisfied or waived, but not later than 1986 (unless otherwise agreed upon in writing), 1.7 At the closing; a, The Transferors shall execute and deliver to the New Corporation a special warranty deed and bill of sale and shall deliver possession of the as- sets, The deed shall restrict any voluntary transfer of property by New Corporation to any "for profit" entity but shall not restrict a pledge of such property to secure a bona fide loan, or any transaction connected with a foreclosure, b. The New Corporation shall deliver an instrument of assumption of obligations, c. Each party shall execute and deliver any other documents reasonably necessary to consummate the Agreement. All actions at closing will be deemed to have taken place simultaneously, i Denton City Co.incil June 16, 1986 Page S 1.8 After closing, the parties shall execute and deliver any additional documents as are reasonably necessary , to consummate this asset transfer. ARTICLE It The New Corporation represents and warrants to the Transferors as follows: 2,1 The New Corporation is a non-profit corporation duly organized, validly existing, and in good standing, 2.2 The New Corporation has the proper authority to oper- ate its business. 2,3 The New Corporation is authorized and empowered to execute the Agreement and to perform its obligations thereunder. 2.4 The Agreement has been or will have been executed and delivered by the New Corporation, and the terms there- in are binding upon it, except that: a. Enforceability may be subject to creditors' rights; and b. Some remedies may be limited by general princi- ples of equity. 2.3 Except for those already obtained, there is no permit, license, or other approval required to consummate this transaction. ARTICLE III The Transferors covenants with the New Corporation are as follows; 3,1 Pending the closing date, the Transferors will allow the New Corporation to examine the Hospital's assets and records as it may reasonably request, 3.2 The Transferors shall promptly notify the New Corporation of any material adverse change in the Hospital's financial condition. 3.3 The Transferors shall use their best eeforts to, a. Acquire all needed approvals; b. Cooperate with the New Corporation; and I Denton City Council June 16, 1986 Page 6 c, Take actions that are reasonably requested by the New Corporation to consummate this transaction . and to satisfy any condition precedent. 3.4 During the period pending the closing, the Transferors; a. Shall continue operating the Hospital consistent with past practices, to retain hospital employ- ees, to preserve the business, and use their best efforts to maintain satisfactory relationships with customers, suppliers, and others; b, Shall meet regularly with the New Corporation's representatives to discuss the status of the Hospital; and C. Shall notify the New Corporation of any material change in the normal course of the Hospital's business, ARTICLE IV 4.1 The New Corporation shall use its best efforts to; a. Cooperate with the Transferors and keep them informed; b. Acquire all needed approvals; and C. Take actions that are reasonably requested by the Transferors to consummate this transaction or satisfy any condition precedent, 4.2 The New Corporation agrees to use its best efforts to gain approval from the state and federal governments for the transfer of the Hospital, The New Corporation will assume all obligations of the Hospital under the Hill-Burton Act. The New Corporation agrees to bear all obligations and expenses of the Transferors relat- ing to any recovery by the federal government under the Hill-Burton Act, 4.3 The New Corporation represents that It has applied to be a 501(c)(3) corporation and that it is exempt from federal income tax, The New Corporation agrees that it will continue as a 501(c)(3) corporation, and it will do nothing to change that status or its status as a tax-exempt entity. 4,4 The New Corporation will not discriminate on the basis of race, color, national origin, or creed, Denton City Council June 16, 1986 Page 7 4.5 No member of the Hospital medical staff shall lose his or her membership solely as a result of the asset transfer. 4,6 The Board of Trustees and the Board of Advisors of the New Corporation shall have the following structure and powers: a. The Board of Trustees will consist of 9 members serving 6 year terms and will have the responsi- bility of running the Hospital; b. The Board of Advisors will consist of 28 members serving 4 year terms and will advise the Board of Trustees concerning affairs of the New Corporation. No person may serve on both Boards simultaneously, and members of the Board of Advisors cannot serve successive terms) C, Initially, Board members will be appointed by the City and the County; thereafter, vacancies will be filled through an election by the Board of Advisors; d. The Bylaws of the New Corporation shall prohibit it from engaging in a transaction: i) with any member of the Board of Trustees, any relative of a member, or any business entity in which 10% or more is owned by such member; ii) with any business entity in which a majority of the Board of Trustees has any equity interest; or lily with any business entity in which a member of the Board of Trustees owns an interest, unless a majority of the Board (such majori- tY having no equity in the entity) approve the transaction. 4.7 Any agreement made by the ' for management of. the Hospital wCoroion hilerasubjectrto dthe Hill-Burton Act shall contain the Following terms: a. Either: 0 the Board of Trustees retains authority to terminate the agreement at any time, or 1 Denton City Council June 16, 1986 Page 8 li) the agreement shall be submitted to the Department of Health and Human Services for review, and if found to jeopardize the Hospital's non-profit status then the Board can terminate the agreement with 30 days notice. b. No employee of the manager may be a member of the facility's Board of Trustees; and C. Any other provision necessary to ensure that the management agreement does not affect the New Corporation's eligibility to receive grants under the Hill-Burton Act. 4,8 To the extent the County or the City is responsible for services provided by the New Corporation, it is agreed that the party responsible will pay 80% of the New Corporation's standard charges for such services. ARTI~_ Cry Unless waived, the Transferors' obligations to consum- mate the transactions contemplated by the Agreement are subject to the satisfaction of the following conditions; 511 The New Corporation shall have satisfied all covenants and conditions in the Agreement. 512 All representations by the New Corporation shall be true and correct when given and at the time of closing. 5.3 There is no court order, judgment, or decree prohibit- ing the transfer, 514 The Bylaws of the New Corporation shall contain the provisions required by Section 4,6 above, 5,5 The Board of Trustees and the Board of Advisors shall have been appointed by the County and the City, 5.6 The New Corporation shall have obtained all required permits to own and operate the Hospital. 5.7 The New Corporation shall have qualified as a 501(c) (3) corporation. 5.8 The legality of the asset transfer shall have been affirmed by a court of competent jurisdiction. 5.9 Holders of Series 1975 and 1975-A Hospital Bonds re- viously issued shall have agreed to release the County and the City, or such bonds shall have been paid in full. Denton City Council June 16, 1986 Page 9 5.10 The City and the County shall have approved the Agreement and the transactions contemplated therein, ARTICLE VI Unless waived, the New Corporation's obligations to consummate the transactions contemplated by the Agreement are subject to the satisfaction of the following conditions; 6.1 The Transferors shall have satisfied all covenants and conditions in the Agreement, 6.2 The Transferors and the New Corporation shall have received all approvals and made all requisite filings. 6.3 There is no court order, judgment, or decree prohibit- s ing the consummation of the transaction. 6,9 No material adverse changes in the Hospital's finan- cial condition shall have occurred, 6.5 The New Corporation shall have obtained all required permits to own and operate the Hospital. 6.6 The New Corporation shall have qualified as a 501(c)(3) corporation, 6.7 The legality of the asset transfer shall have been affirmed by a court of competent jurisdiction, 6,8 The City and the County shall have approved the Agreement and the transactions contemplated therein, ARTICLE VII 7.1 On the closing date, all Hospital employees shall become employees of the Now Corporation, with no loss in status, sonority, or wages solely by reason of the asset transfer, 7.2 The sonority of Hospital employees shall be based upon their original date of hire. 7.3 The Hospital employees' cumulative sick leave and vacation time will be transferred to and honored by the New Corporation, ARTICLE VIII 8.1 a. The Transferors shall be in default if they fail to comply with any covenant within the required time limits, Denton City Council June 16, 1986 page 10 b, If the Transferors are in default, the New Corporation may; i) Terminate the Agreement; it) Enforce specific performance; or lit) Exercise any other remedy allowed in law or equity to recover amounts pursuant to Section 4.8. 8,2 a. The New Corporation shall be in default if it fails to comply with any covenant within the required time limits, b. If the New Corporation is in default, the Transferors may; i) Terminate the Agreement; ii) Enforce specific performance; and/or iii) Exercise any other remedy allowed at law or in equity, ARTICLE TX 9.1 The Agreement may be terminated on or before the clos- ing date by; a. Mutual consent of the parties; b, The New Corporation, if the Transferors have failed to comply with their obligations; C. The Transferors, if there has been a material misrepresentation or breach of warranty by the New Corporation, or the New Corporation has failed to comply with its obligations under the Agreement; and d. By either party, if the conditions precedent have not occurred, 9.2 Each party shall pay its own expenses in connection with the Agreement, 9,3 The Agreement, and the other documents executed pursu- ant thereto, contain the complete agreement among the parties and supersede all prior understandings, The parties have not made any representations other than set forth in the Agreement. Denton City Council June 16, 1986 Page 11 9.4 The Agreement may be executed in counterparts, each being considered an original. 9.5 All communications shall be mailed or hand delivered addressed to the listed addresses. Each communication shall be deemed sufficiently sent when it is either delivered to, or refused by, the addressee. 9.6 The Agreement shall be binding upon, and shall inure to the benefit of, the parties' heirs, successors, and assigns. 9.7 Texas law shall govern disputes arising out of the Agreement, 9.8 The Agreement may be modified only by a written in- strument executed by the parties affected. 9,9 If any provision of the Agreement is held invalid it shall be severable, and the Agreement shall, be con- strued as if the invalid portion was never a part thereof; the remaining Agreement shall not be affected by the severance, and there shall be added a provision as similar to the invalid provision as may be possible that allows the Agreement to remain still valid. 9.10 All representations shall survive the closing date. 9.11 Neither the Board, the City, the County, or the New Corporation, nor any officer or employee thereof shall be personally liable for any obligation arising from, or as a result of, the Agreement. 9.12 All obligations of the Transferors expressed or im- plied in the Agreement shall be limited so as to com- ply with all applicable laws. 9.13 a. All arbitration proceedings shall be: i) commenced promptly, ii) binding on the parties, and iii) subject to the Texas General Arbitration Act, in accordance with rules of the American Arbitration Association, Attorneys' fees may be awarded upon a determina- tion by the arbitrator that a party did not act in good faith. Denton City Council June 16, 1986 Page 12 b. The parties may agree to an alternative method of dispute resolution, D.C.P. 196fE 1 , l 1 BICKERSTAFF, HEATH 0 SMILEY CO WEST IS IH E7111EE7.UMTCO MW TOWER SURE I4I0, AVSRN,TEX,AS N101.16" ST EYE 13IC1,EPtlTAAA C ROBCPT HEATH MARTHA E. SMILEY THOMAS M POLLAN 01a) AIEJtOtI ANN CLARKE SNELL TELE COPY M AIE pEp ANOA EW KEVER CAROLYNE $HELLMAN OOUOlAtlO CAR DOW UNOA AAKER JIMMY ALAN HALL WSANC OEN72 May 6 1986 ROWNA CASEY ILSE SAILEY-ORANAM KATIE BOND CAROLINE SCOTT I \ MANUEL O. AWNDEt k CHAISTAL BROWN Commissioners Court tlvDNEVwruKtiJR Denton County Courthouse Denton, Tx 76201 Dear Judge Cole and Members of the Commissioners Courts The purpose of this letter is to progress of the negotiations on the proposed tansfor ofuFlow Memorial Hospital. We are providing copies of the letter to the city and to the board of the new corporation. The basic conclusion is that the fundamental issue has been whether the contract contains sufficient consideration to satisfy constitutional requirements, This is a fundamental legal issue which will determine whether the contract is valid. For various reasons, it has been difficult for the hospital to present an additional offer or documentation on the level of consideration. We are hopeful that now that the new board is in place that problem can be overcome and the consideration issue can be resolved. The basic face-to-face negotiations on the contract began on February 21, 1986, at a meeting in the Dallas offices of Fulbright & Jaworski. The session was attended by representatives of the city, county and hospital board as well as by attorneys for all parties. At that time, the fundamental constitutional issues were first addressed. Since the hospital is now owned by the city and county, any transfer must comply with the requirements of article i2i, section 52 and article Xi, section 3 of the Texas Constitution. These provisions prohibit the governmental entities from giving an asset away or lending their credit, it is especially important that any ttransaction be structured with the constitutional requirements in mind since a failure to comply with these provisions could invalidate the transaction and potentially subject the governmental entities and officials to litigation. The significance of the constitutional considerations is underscored by the fact that the contemplated transaction would result in the Irrevocable, unsecured transfer of a public asset to a private corporation without an exchange of cash, These factors make the transaction one which is especially subject to challenge. i Page 2 May 6, 1986 At the initial meeting in February, there were disagreements between the attorneys regarding whether the constitutional issues could be successfully addressed. Attorneys for the city had very serious legal questions regarding the lending of credit issue, but Mr. Morrow, one of the attorneys representing the city, devised an innovative means of resolving that issue through the use of a declaratory judgment action under a special statute, article 717m- 1, V.T.C.S. This suggestion was a key to the process, since it made it possible to avoid a major stumbling block. Since that time, the attorneys for the city and the county have been in agreement op virtually every issue. The remaining consideration will be received by the public entities whether the transfer of the hospital. if the city and county do not receive consideration which is roughly equivalent to the value of the hospital, the transaction will be subject to a very serious and likely successful challenge as an unconstitutional gift or grant of public property. Accordingly, at the initial meeting it was determined that an appraisal of the hospital should be obtained so that the adequacy of the consideration could be measured. Mr. Butterfield, the attorney for the hospital board, chose an r who e valuation stimated he wvalueeof pthe ovhosped by at h$10-11 million. once ithe ify was obtained, to see if wait became s constitutionally rsufficientnto quantthe the transfer of a $10-11 million asset. The initial suggestion of providing indigent care equivalent to three percent of the hospital's net patient service revenues was not felt by the attorneys for the public entities to meet the constitutional requirements. Accordingly, Mr. Butterfield agreed to review the matter with his client and to present a counteroffer. counteroffer on the representing consideration issue wboardlforthcoming, had insisted since on deferring all other issues until the consideration issue was resolved, little progress was made, interests of Butterfield has indicated the pu chauer although hish basic contact has representing withe th the old board. This has obviously presented a somewhat difficult situation, All of the attorneys have been hesitant to commit the new board to a contract which has been negotiated without its participation. That difficulty may now be resolved since the new board has been appointed. w Page 3 May 6, 1986 On April 3, 1986, the City Council met and asked that a contract be finalized within ten days. i indicated that it was possible that a contract could be drafted in that time if there was a resolution on the consideration issue. The attorneys met immediately after the conclusion of the council meeting. At that meeting, we presented the attorneys for the hospital with figures which quantified the value of the offer of indigent care. This was the first time that the consideration had been expressed in dollars and cents terms. We believed that approximately $1,000,000 per year would be the amount that would be expected to be generated by an asset of this values r Although the proposal called for indigent services to be performed' j on the basis of cost, we proposed translating these figures to a charge basis for the purpose of computing the level of consideration. This resulted in an increase in the level of consideration by approximately $120,000 at no additional cost to the hospital. Additionally, we proposed that other services be performed by the hospital for the city and county on a cost basis. This would further increase the value of the consideration at no net cost to the hospital. This brought the positions on consideration much closer, The attorneys then agreed to abandon the hospital board's position of not addressing the other issues until after the consideration issue was resolved. We agreed on as many issues as we could and assigned responsibility for drafting the provisions. At this time, the county assumed the primary responsibility for drafting, and Mr. Butterfield agreed to respond with a counteroffer on the consideration issue. The attorneys next met on April 141 1986. The new provisions had been drafted and circulated, but it was impossible to draft a final contract since the attorney for the hospital board had not received the information he felt was required before he would be able to present its counteroffer.2 Accordingly, it was necessary to again defer the resolution of the consideration issue. A major occurrence did transpire that day, however. The remaining members of the new hospital board were appo!,nted. This particularly important new since corporat on tbt i because i the c now dbothat ard had not been formed, his formal contacts had been with the existing 2This meeting was first delayed in convening and then recessed ,for a total of approximately four hours while the attorneys for the board were required to perform previously unanticipated negotiations with other parties on changes in a hospital management contract. Once the meeting reconvened, we were able to negotiate numerous ` provisions which did not directly relate to consideration. There may be some questions regarding specific portions of the provisions discussed at that meeting, since the hospital board lawyers were to present them to their client. We have not yet been notified of any specific objection. - i Page 4 May 6, 1986 board. Since the new corporation will be either blessed or saddlad with the agreement, we believed it was extremely important that it be involved in the processo once the new board was appointed, we very strongly urged that it make the decisions on the corporation's position. We stated that it should be free to seek advice and counsel from any source it desired, but that it should make the decision as to what its position would be. In summary, it is our view that the basic stumbling block is the same one that existed in February whether there is adequate consideration to support the transfer of the hospital to a private corporation. if the answer is no, the transfer will be banned by the Constitution and the governmental officials may be subjecting themselvem to potential liability. We are in the same position we have been in since that time, which is one of waiting for the hospital's counteroffer on consideration. The agreement can probably be completed expeditiously once the consideration issue is resolved. That issue, however, is a legal one and will be the major factor in determining whether the ultimate contract is valid. While there has been great difficulty in obtaining any movement on the consideration issues, the problem may have been caused by the reluctance of individuals to commit the nest board on such a fundamental issue. Now that the board which will have to implement and live with the decision is in existence, it may be easier to move forward. I hope this recap is helpful. If we can provide additional information, please do not hesitate to co tact us. Sincer ly, C, obert eat CRH/kkt V-fir ~I l Tim ATroRNEY GLNFRAT, w M Y G OF TFxAs AUSTIN. TlaxAa 7A~11 JOVIN L. "ILL AWTOU WV 0NNKRAL March 30, 1977 ( The Honorable John Lawhon Opinion No. H- 966 District and County Attorney Box 718 Res Authority of city-, Denton, Texas 76201 County Hospital Board to lease part of hospital grounds for construction of medical office building by private individuals. Dear Mr. Lawhon, You have requested our opinion regarding the authority of the Denton City-County Hospital Board to lease land to private persons for construction of a medical office building. Specifically, you ask, Whether or not the City-County Hospital Board may lease a portion of the hospital grounds to an individual or corporation for a medical-professional building, with a provision for reversion of the premises and building to the board at the conclusion of the lease period. The proposed building would be adjacent to the hospital and connected to it by a bridge at each level. The City-County Hospital Board would lease the land on a long term lease, and private persons would be responsible for financing, constructing, and managing the building. On completion of the lease, title to the building would revert to the City- County Hospital Board. The Board would not spend any public funds or assume any liabilities. The Denton City-County Hospital Board was created under article 44941-1, V.T.C.S. See Attorney General Opinion M- 762 (1970). The Hospital Board constitutes a "joint agent" of the county and city for, hospital purposes. V.T.C.S. art. 44941.-1, S 2. At present, title to the hospital grounds remains in the city and county, but section 5 of article p. 4026 f i c The Honorable John Lawhon - page 2 (H-966) 44941-1 authorizes the city and county to convey the hos- pital and the associated real property to the Hospital Board. The Board may lease property, subject to the ap- proval of the commissioners court and governing body of the city, V,T.C.S, art. 4494i-1, 59 4, S. The city and county may thereby assure themselves that the Board in making the lease has acted "solely for (their) joint benefit." V,T.C,S. -1 art, 44941-1, 5 2, The Hospital Board must act "for hos- pital purposes," Id, We believe it will act for hospital purposes if it arranges a lease that upon termination pro- vides them with a medical facility adjoining the hospital, and in the interim benefits hospital patients. See Sullivan v. Andrews County, 517 S.W,2d 410 (Tex, Civ. App. E Paso n74, wr re n,r,e.). Consequently, article 44941-1, V.T.C.S., authorizes the Board to make the proposed lease. The lease of hospital grounds also must comply with article 3, section 52 of the Texas Contitution, which pro- hibits any county or city from granting any "public money or thing of value in aid of, or to any individual, associa- tion or.corporation whatsoever . The city or county cannot accomplish through its agent something the Consti- tution forbids it to do. See Attorney General Opinion C-517 (1965). Therefore, _Me Denton City-County Hospital Board may lease hospital property only to accomplish a public purpose, and the lessee must pay an adequate con- sideration for use of the property. Sullivan v, Andrews County, su rat Attorney General Opinion TI9 In Sullivan v. Andrews County, the court found that the county could constitunally lease to doctors space in a medical office building adjoining the hospital where the evidence showed that hospital patients would benefit from the close- ness and ready availability of the treating physicians. You have not informed us about the terms of the proposed lease, so we cannot determine as a matter bf law whether it would accomplish this or an analogous public purpose. In drawing up and approving the lease, the Hospital Board, city govern- ment, and county commissioners should be certain that the lease will serve a public purpose and include sufficient controls so that the public purpose is actually accomplished. See Attorney General Opinion H-445 (1974). The rent should 5a set so that together with the reversion of the building at the end of the lease, the Hospital Board receives adequate consideration for the use of its property. See Attorney Gcn(,rnl Opinions H-912, I1-777 (1976)) 11-445 774). If 014.-;;c requireinonts are complied with, the proposed lease will not violate article 30 section 52 of the Constitution, p, 4027 i ,t r The Honorable John Lawhon - page 3 (H-966) S U M M A R Y Article 44941-1, V.T.C.S. authorizes the City-County Hospital Board to lease land adjacent to the hospital for construction of a medical office building by private individuals. Article 3, section 52 requires that the lease serve a public purpose and provide for payment of adequate rentals, ery truly yours, A 1 14- / - k~ /I (1A OHN L. HILL ttorney General of Texas APPROVEDi DAVI NDALL, rst Ass taut i C. R ET HA H, Ca rman Opinion Committee kml p. 4028 YCn, VYry 1I~ I f~ V p Y 1tL 11 7I A l~Tl}l~e 11 u~v~v,~ V~Y't~. yr R ~~~`i.~•i`i A~~~i.I r = ~ H l Tvnxt-km VIRAU'N'ORN), 4.1. 11.1'1dT(N AV7ATr~. TPm,%m 7•I3'7'll .~rr~~it~Mt• ah:~wrc.~r. Ncember 29, 1970 i Honorable John Lawhon Opinion No. M-762 District and County Attorney Denton County Courthouse Re: Does Article 44941-1, Denton, Texas 76201 V,C.S,,authorize a county-city hospital Dear Mr, Lawhon: board to borrow money? Rephrased, your question is as follows: We would like to know if the broad powers given to a joint county-city hospital board under , Article 44941-•1, V.C.S., `include the power to borrow money. Our answer is "no", this Article does not allow the board to borrow money, except by revenue bonds. We note, however, that even though the board is called a "body politic", its financial powers are limited in that it has neither the power to tax (Section 1)* nor to . , encumber, sell, lease or convey any real or personal property unless app roved prior to the final consummation thereof by reso- lutions of the commissioners court of said county and the governing body of said city, respectively," (Section 5), Article 44941.1 provides two major means of financing the hospital, The first is stated in Section 6, which reads, in part, as follows: *All references to Sections are to Sections of this Article 44941.11 V.C,5. r -3723- :ry • a Hon, John Lawhon, page 2 (M-762) "Sec, 6, For the purpose of carrying out any power, duty, or function authorized by this Act, said Hospital Board shall be authorized to issue its revenue bonds to be payable from, and secured by a pledge of, all or any part of the revenues, income, or resources of the Hospital Board and the hospital facilities of said Board." This section further states that the Board has no taxing power and that the bonds shall contain such statement. The second major source of funds is provided for in Section 9, which reads, in part, as follows; " it shall be the duty of said Board to establish and collect sufficient char es for r -2 services and facilities, WE to ut ze a~"otTier ava a e sources o revenues and income -1-M-0- er to pay 411 expenses n erscor ng added,) T oil I he funds to be derived pursuant to the underscored wording . all other available sources of revenues and income . , are limited to those funds acquired as a result of money received from the state or federal governments as set out and'authorized in Section S. Since the Legislature of financing theoverall ophas been eration of the ihospital tii.e.) revenue bonds, charges for services and facilities, and state and federal funds, all other means of financing are excluded, The statutory construction maxim of expressio unius is controlling here, 53 Tex.Jur.2d 206-207, Statutes 9142. The Board's right to create'a debt, even through revenue bonds, is subject to the approval of both the commis- sioners court and the governing body of the city, Section 8, govern- men y, mental Article eithersexoressly orzimtl3edl that power must be hold not to exist, pTarrant Count v, Rattikin Title Co,, 199 S.W.2d 269, 273 ex,civ, pp` M7, no wr t very reasonable doubt as to the existence of such a power in the circumstances is resolved against its existence. 82 C.J.S. 9170 Statutes §387, It is suggosted that in considering such legislative enactments due regard must be given also to any constitutional limitations prohibiting the creation of debt, Article I, Section 49, Constitution of Texas, -3724. ~t 4 ii Hon. John Lawhon, page 3 (M-762) We hold that the Board of a hospital created pursuant to Article 44941-1 is not authorized to borrow money to finance its operation, except by revenue bonds, as authorized in that Article, S--UMMLR Y A Joint county-city hospital board created i not n accordance with Article 44yy941-1, V.C.S,, is operation, except byrrevenueebonds, as nauthorized in that Article. V truly Yo rs, t CRAWteyD Attoene ralZof Texas Prepared by Melvin E, Corley Assistant Attorney General APPROVED; OPINION COMMITTEE Kerns Taylor, Chairman iv, E. Allen, Co-Chairman Tom Fortescue Pat Bailey Jerry Roberts James Mabry MEADE F. GRIPPIN Staff Legal Assistant ALFRED WALKER Executive Assistant NOLA WHITE First Assistant -3725. 1 r= ' R-168 'I'I M [1TTORNEY GENERAL ore TEXAS PRICE DANIEL AUNTIEN 11, 7%taXA14 ATTORNEY OENEAAL i may 10 1947 Hon, De He Utley Opinion No, V-173 County Auditor clay County Res Authority of the Oommis- Henrietta, Taxes sioners4 Court of Clay County to equip the "Clay County 3denorial Hospital", Dear Sirs Your request for an opinion of this Department on the above subject matter is as follows "Clay County oitimens have donated money and bought steak in a Hospital to be erected in Henrietta, same being called Clay Count yy►► Memorial Hospitei, The aontraet for areatton of this building has been let, "The County Government has oe interest so fer, The Hospital Committee has palled on the Oommissionerso Court for aid in equips ping the laboratoryo "Clay County has a contract with the Wichita Palls Clinic Hospital for the care of Clay County0s indiments Hospitalization, which in 1946 amounted to 13,400e "The question---Oat Oiny County legally equip the laboratory out of Permanent Improveft meat Tund oa a contract with said Hospital to care for dla Coantyos Indigents, until said County is re abursed for money used in equip* ping said laboratery7» We grsote from a letter of April lath from Henn A. So Modgosp County $uudgo of C!~qy F^+ufj?y, 4rl hn.j%y6r to our request for additional infaiuatieus "In reply to yyour letter of April i£ in reference to Clay Count investing money in sgtipsaent for a hospital Owned by stook heiderse we lure made no asntraat with disreotors at this Ron, A. H, Utley, Pale 2 VWl" time but before we put any money into it we will have a oontraot with the directors of this hospi. tai to the affeot that it will be owned by the County and the Title will be vested in the County until sash time that the County will be reimbursed by serviees from the hospital for indigent patients. We at this time have to make a oontraot with out of County hospitals to take care of our patients v+hioh is very inconvenient. The County proposes to pur- chase the said Laboratory egnipmeut out of the Per. manent Improvement rund." It has been repeatedly held that the 4omruissiono eras Court is a Court of limited jurisdiction and it may sxaroine only such authority as is conferred by the Con- stitution and statutes of this State. 'ire cite the follow+ lag authorities t Article V, 8ea4 18, Tex, COfmst.'; Art-. 2351, ReVo Oivo Stato of Texae$ Tex, 1tlfris.0 7016 110 5881 pages Oompab C e► fttehinson 48 S,W. 2d, 681; Mongva, Ompbell, 48 3.W, 24 518; Landman vs, State, 97 S.W. 2d 284; El Paso County vs► Elam, 106 S,':7. 2d 306 Howard vs. Henderson County, 116 $ ,YJ, 24 2'7 1; Hobson vs. Marshall, 118 B.W4 28, 821; Mille County vs, Lam- pasas County, 40 3.?l, 404, The authority of the Comsaissioners' Court to mice a oontraet en the oountyls behalf is strictly lim- itsd to that oonferrad either expressly or by reasonable iallioetien by the 8onstitution and statutes of this State, and a Bounty may ooatraot only in the manner and for the urposto provided by statute and is fast bound by a oon- reot foreign to its porpessa, 9eo Roper vs. Hell, 280 3,W, 2841 H,ic 9•A. Railway va► Uvalds County, 187 SoW, 94 305 F, The enthorrity of the Oomaissioners, court to establish or enlargM a oetnt hospital is found under Chapter 8, Title 71 Art, 44784 Vddodo The provisions of said Article pertain to only county hosppitals and would not, therefore, authorize the er.rPO ture of ooun- ty funds for the part14)seS of e~~uippi~,~r f;i.tfll not owned or operated by the county. We quote the following pertinent oonstitutional prorieienet Hobo Do H, Utlfiy, page 30 7.111 authorlso atiwmtre eltyi ttown or other taiit• 1661 eo ovaiJon or sebdi►isioo of the State to line its eredit at 46 araat pnblie mosey or thing of roles to file ot, or to say ladividuail assoelst $a or ear reties wM tsoever, {Arta It See. bsl 010 eouaty, elty or other Muiaipal eor, rho shall hereafter booome a subscriber to rho eapital of any private o0 oration or asso• alatien, a dons tc some. -Ir s o eo s e Any obligation heretofore undertakenypurauenteto lawn" (Art, X1, 9660 3) (W erseoring ours) We know of no oonetitutloaal or statutory pro- vision whieh world Authorize t M OoNlissioners+ t of clay Covet ,y to mike a eentra'et with the "Clay Q0ouutty Usmerlol Root tal■ a pprlvet• imstitalisso whereby the *east obligates i4sei t t• equip the laboratory or such hospital end the hsap144, 0ffoot$@ itself to oars for the eo m tyfe isdigests until the eoenty is reimbursed for the ospenditu n of money in egMippIAR the laboratory of sueh hospitals Moreover$ It to oov opinion that the togien~terni»ti t :00hiblted from authsrlslng the county eideretim Although Article µ41t 7tp,8,,oeuthorizingn a eedsty wbleh has ao o!tj with o ppulation of gore than 10P000 to ""not wth any i assesistion or hospital for the ears of theaL OW sioks said Artiole 4ann6t be eoastroed to authorize a a*atraet whloh mould violate the above quoted eonstitam tiomai provision, to the osse of An we* finalxnetl, 35 L0$oA, 9340 the Sepreme rt at Ohio eoastrued the oonstitationr $x provlsloi at SM 4tato whleh is V041, similar to Arti` 010 tt seed as# 3 oar dilate Conatit oss we quote the fohowiy from said ease on ops 941-944 9a oonat9f.serious n og Scation to 0 Artiale i d of 8 ttw Goaatitu9ion is as followea arks gendrel tewaoor wnehip,ebygvets of to altltans gory` otherwlss, to be"Me a teekhood er in any Joint. stook 084CqA oorporatt ~4$ or assoelstien whste evert or to raise money tole or loan its aredit lWb. D. No Utley, Page 4, 1-173 to, or in aid of, any ■uoh oonpSay corporation, or assooiation.l The full scope Of this section of the Oonstitution has not yat been determined by this oourt. In Walker vs. Oinoinnati, el Ohio 9t. 151 8 Am. Rep. E4 the oourt says: Me Ws. ohief whioh this section interdicts is a business partnership between a =Mpiyality or subdivision of the state and individuals and private corpora- tio,ss or associations. t orb 11 t e f 140 d va A r nA eas- e to a er n a o v. osa oun y omre , if it should be deemeduwiseoendaeooaonioel:to nd, authorize municipalities who own waterworks, or gas works, to lease them as a means for supp), ing the publio needs, we know of no constitutional impediment. But this is a different thing from investing publio mane tin the enterprises of others, Aid w monev ar credit. In one o ee, tuo ni ff proprxecary n Ores s in the pub- othersnthetreverserieytrue, Thistaeotionn of the noxstltation not only prohibits a obusiness partner- ablpo whioh carries the ides of a joixt or andivided interest but it goes further, and prohibits a au- aiaialiiy from bola$ the owner of part of a proper- ty w1loh is owned and oontrolled in part by a cor- poration or individual. h m ei 1 t mus be r and 0 - e a ea a can e a re , e so sar e w o wne 6RIP An con ro m s be in or o paration any Y may ease rom an in us - the use, or havi y property of wbich It may need does not needs itgmay lease the samneotowothers; , na a erras wi han a 0 a ns ru on 4 er o 0 o a r r v o as a Como A ed wla e o e oWna s con ro e an ar ~r p va _coW orat on. n~ o rscor`1ng aurw) Under the facts submitted, clay county would be contemplating the purchase of equipment to be used by insthe theplorAgorngrtuthoritobbritable ,such such a Y, a Hone. Do Ile Utley, page 61 7-173 prooedurs would violate Art, 112, Bea, 52, and Art, X11 See, 31 of our State Constitution in that publio aeaeys would be expended for the furtherenos of private enter. whiehlitninvestedaits publionfundantrol the property in Therefore it is our opinion that the Comais- sioners' Court of Okay County does not have the authori- ty to make a oontraot with the "Clay County Memorial Rog- pital", a private oha ritable institution, whereby the oousty obligates Itself to equip the laboratory of such hospital, and the hospital obligates itself to dare for the oounty's indigents until the county is reimbursed for the expenditure of money in equipping the hospital, SUMI&ARY The Commissioners' Court of Clay County does not have the authority to make a oontraot with the "Clay Countty ~ldereorial H'ospital", a, private oharitable institution, whereby the Bounty obligates itself to equip the laboratory of such hospital, and the hospital obligates itself to Care for the oounty's indigents un- til the oounty is reimbursed for the expendi. ture of money in equipping the hospital, Sao, 52, Art, 111 and 9eo, 3, Art, Y1, Texas Oonsti- tution, Yours very truly ATTORNEY' ORNERAL OF T11AS H I-P 4.4_~ John Reeves Assistant APP O"D MAY 1, 1947 AT1'O'ZhY 0EII RAI, 112' One orb