Can a Texas county use property tax revenue to help fund a hospital district's ambulance service?

Plain-English summary

The Wheeler County Auditor asked several questions about interlocal agreements under which the county pays $300,000 lump sums to two in-county hospital districts (North Wheeler County and South Wheeler County) to help run their emergency medical service, also called ambulance service. The money comes mostly from county property taxes collected throughout the county. The auditor's concern was that a taxpayer who lives in one district still funds payments to both, without a vote or representation on the other district's board, and she also asked whether the payments create county "debt" for tax rate purposes. The AG noted up front that it does not construe specific contracts in the opinion process, so it answered the general legal principles rather than judging these particular agreements.

On the residency point, the AG was direct: when a county spends its own property tax revenue, the hospital district a taxpayer happens to live in or vote in is of no legal concern. The county sets its tax rate and adopts its budget under the Tax Code and Local Government Code, and those procedures do not turn on which sub-district a taxpayer resides in.

On the constitutional question, article III, section 52(a) forbids a county from gratuitously granting public money to another political subdivision, including a hospital district. But a transfer is not gratuitous if it satisfies the three-part test from the Texas Supreme Court: (1) the predominant purpose is a public purpose of the county, not a benefit to private parties; (2) the county retains enough control over the funds to ensure the public purpose is achieved; and (3) the county receives a return benefit. State law authorizes a county to provide emergency ambulance service and to contract with a hospital district for it (Health and Safety Code section 774.003), so that public purpose is available here. An agreement can supply the control and return-benefit prongs, for example through an annual accounting, though other arrangements could also work. Whether a given agreement actually meets the test is for the commissioners court to decide in the first instance, subject to judicial review, and the court can terminate an agreement under its own terms if the public purpose is no longer served.

On the debt question, "debt" under Tax Code section 26.012(7) requires, among other things, that the indebtedness be payable from property taxes in installments over more than one year. Reading "installment" by its common meaning of a periodic partial payment, and contrasting it with a lump sum (a single payment), the AG concluded that an amount paid in one lump sum over a period of a year or less is not "debt" under section 26.012(7). So such a payment would not require the county to calculate a debt rate on the worksheet's debt line.

What this means for you

If you serve on a county commissioners court

Based on this opinion, the county can use property tax revenue to fund a hospital district's ambulance service as long as the arrangement meets the three-part public-purpose test, and it is the commissioners court that decides in the first instance whether a given agreement meets it. The opinion notes the court can terminate an agreement under its terms if it concludes the public purpose is no longer being achieved or the county is not getting equivalent service.

If you are a county auditor or budget officer

The opinion treats the residency of taxpayers within sub-districts as legally irrelevant to how the county spends its own tax revenue. On the tax rate worksheet, the opinion's reading is that a single lump-sum payment over a year or less is not "debt" under Tax Code section 26.012(7), which is the definition the worksheet's debt line uses.

If you run or sit on a hospital district that receives county funds

The opinion frames the county's payment as defensible under the gift clause when the agreement secures a public purpose, county control, and a return benefit to the county. It describes an annual accounting as one way to satisfy the control and return-benefit prongs, while noting other arrangements could also work. The opinion does not bless any specific agreement; it sets out the test the agreement has to satisfy.

Common questions

Q: Can a Texas county pay a hospital district to provide ambulance service?
A: Yes. Health and Safety Code section 774.003 authorizes a county to provide emergency ambulance service and to contract with a hospital district for it. The payment must satisfy the gift-clause three-part test to avoid being an unconstitutional gratuitous grant.

Q: Does it matter that a taxpayer lives in one hospital district but helps fund another?
A: No, as the AG read it. The hospital district a county taxpayer resides in or votes in is of no legal consequence when it comes to how the county spends its own property tax revenue.

Q: What is the three-part test for a payment between governments?
A: The transfer is not a prohibited gift if (1) its predominant purpose is a public purpose, not a private benefit; (2) the paying government retains sufficient control to ensure that purpose is met; and (3) the paying government receives a return benefit.

Q: Does a lump-sum payment count as county "debt" on the tax rate worksheet?
A: The AG concluded that an indebtedness payable in a single lump sum over a period of one year or less is not "debt" as defined in Tax Code section 26.012(7), because "installments" means periodic partial payments, not a lump sum.

Background and statutory framework

Article III, section 52(a) of the Texas Constitution bars a county from gratuitously granting public money to another political subdivision (Fort Worth Indep. Sch. Dist. v. City of Fort Worth). A transfer escapes that bar if it meets the three-part test in Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n: public purpose, retained control, and return benefit. Using county funds to carry out a statutory function of the county generally serves a county public purpose, and Health and Safety Code section 774.003 expressly authorizes a county to provide ambulance service and to contract with a hospital district for it. Whether a particular expenditure satisfies the test is for the commissioners court to decide first, subject to judicial review.

For the tax rate question, chapter 26 of the Tax Code governs how a taxing unit calculates and adopts property tax rates. Section 26.012(7) defines "debt," and one requirement is that the indebtedness be payable from property taxes "in installments over a period of more than one year." Reading "installment" by its ordinary meaning of a periodic partial payment, in contrast to a lump sum (Maxim Crane Works, L.P. v. Zurich Am. Ins. Co.), the AG concluded a lump-sum payment over a year or less is not "debt" under that subsection.

Citations and references

Statutes and constitution:

• Tex. Const. art. III, § 52 — prohibition on gratuitous grants of public money
• Tex. Health & Safety Code § 774.003 — county authority to provide ambulance service and contract with a hospital district
• Tex. Tax Code § 26.012 — definition of "debt" for property tax rate calculation

Key cases:

• Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831 (Tex. 2000) — gift clause bars gratuitous grants between political subdivisions
• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377 (Tex. 2002) — three-part test for a non-gratuitous public expenditure
• Maxim Crane Works, L.P. v. Zurich Am. Ins. Co., 642 S.W.3d 551 (Tex. 2022) — clear statutory words are applied by their common meaning

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0435
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2023/kp-0435.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

March 7, 2023

Ms. Nichole Mock
Wheeler County Auditor
Post Office Box 69
Wheeler, Texas 79096

Opinion No. KP-0435

Re: Authority of a county to use tax revenue to pay a supplement to a hospital district in the county (RQ-0474-KP)

Dear Ms. Mock:

You ask several questions about agreements for emergency medical services—also referred to as "ambulance services"—between Wheeler County ("County") and two hospital districts.¹ You explain that both the North Wheeler County Hospital District and South Wheeler County Hospital District (collectively, "Hospital Districts") are located within the County and "[e]ach hospital district operates its own emergency medical service providing EMS/ambulance services to residents in either the NWCHD or SWCHD."² Request Letter at 1. You further explain that "[t]he County has previously entered into Interlocal Agreements" under which the County pays "a $300,000.00 lump sum payment" to assist each hospital district in "the operation of their respective EMS departments" (collectively, "Agreements"). Id. at 1–2 (referring to agreements authorized by the Interlocal Cooperation Act, Government Code, chapter 791). You tell us that the funds used to make the contractual payments come "primarily from Wheeler County tax revenue received from property owners throughout the [C]ounty." Id. at 2.

As an initial matter, we note that your questions ask us to opine about the nature of the Agreements. See id. at 1–3. This office does not construe contracts in the opinion process and thus, will not be opining about the nature of a particular contract. See Tex. Att'y Gen. Op. Nos. KP-0391 (2021) at 2 (explaining "this office does not approve or construe specific contracts in the opinion process"), KP-0366 (2021) at 1. Nevertheless, we can advise you generally as to legal principles pertinent to your questions.

Expenditure of County Revenue

Two of your questions concern the expenditure of county revenue. See Request Letter at 1–3. You first ask whether the County may use tax revenue to make the payments to the Hospital Districts "regardless of the hospital district residency of the taxpayers who fund" the payments. Id. at 1. You question whether it is permissible to send "taxpayer funds to another taxing entity for which the taxpayer has no representation/vote" as to the use of the funds.³ Id. at 2.

When it comes to the expenditure of county tax revenue, the hospital district in which the taxpayer resides is of no legal concern. See generally TEX. TAX CODE §§ 26.01–.18 (setting forth the procedure the county commissioners court uses to set the ad valorem tax rate); TEX. LOC. GOV'T CODE §§ 111.001–.096 (providing the procedures the commissioners court uses to adopt a budget).

You also ask about the requirement to expend County funds in compliance with article III, subsection 52(a) of the Texas Constitution. See Request Letter at 2–3. Article III, subsection 52(a) provides that "the Legislature shall have no power to authorize any county, city, town, or other political corporation or subdivision of the State to lend its credit or to grant public money or thing of value in aid of, or to any individual, association, or corporation whatsoever[.]" TEX. CONST. art. III, § 52(a). Subsection 52(a) is construed to prohibit a political subdivision, like a county, from gratuitously granting its funds to other political subdivisions, like hospital districts. See, e.g., Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 842–43 (Tex. 2000) (involving payment of city funds to a school district); Tex. Att'y Gen. Op. Nos. KP-0237 (2019) at 1 (involving payment of county funds to a school district), GA-0721 (2009) at 2 (involving payment of hospital district funds to a city).

A political subdivision's payment of funds to another political subdivision is not gratuitous if it meets a three-part test promulgated by the Texas Supreme Court. See Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002). The test requires that: (1) the predominant purpose of the expenditure be to accomplish a public purpose, not benefit a private party; (2) the public entity retain sufficient control over the expenditure to ensure the public purpose is accomplished; and (3) the public entity receive a return benefit. See id.

As to the first prong, the use of county funds to fulfill a statutory function of the county generally serves a public purpose of the county. See Tex. Att'y Gen. Op. No. KP-0237 (2019) at 2. A county may meet the second prong and retain public control over the funds by entering into an agreement that imposes upon a recipient of public funds the obligation to accomplish the public purpose. See id. Such an agreement may also serve to ensure the county receives a return benefit in satisfaction of the third prong. See id. An agreement could, as you suggest, provide for an "annual accounting" of the funds to satisfy the second and third prongs of the test. See Request Letter at 3. But there might also be some other way an agreement could satisfy those prongs.

Applying the three-part test here, we observe that state law authorizes a county to provide ambulance service. See, e.g., TEX. HEALTH & SAFETY CODE § 774.003 (authorizing the commissioners court of a county to provide for emergency ambulance service in the county and expressly authorizing a county to contract with a hospital district for such service); see also Tex. Att'y Gen. Op. Nos. GA-0472 (2006) at 2 (concluding a hospital district may, but is not generally required to, provide ambulance service), JC-0420 (2001) at 4 (concluding a municipality may expend tax funds to provide ambulance service within an article IX, section 9 hospital district). And, as you tell us, the County has entered into Agreements with each of the Hospital Districts regarding the responsibilities of the Hospital Districts in exchange for the payment of funds. See Request Letter at 1–2; Attachments at 1–2.

But you assert that neither of the Agreements contain sufficient controls to ensure that the public purpose is achieved and that the County receives services equivalent to its expenditures. See Request Letter at 2–3. It is for the county commissioners court to determine in the first instance whether a proposed expenditure satisfies the three-part test, subject to judicial review. See Tex. Att'y Gen. Op. No. KP-0338 (2020) at 3. Accordingly, we note that the county commissioners court has the ability to terminate the Agreements under the terms provided in the Agreements if it determines that a public purpose is no longer being achieved or that the County is not receiving service equivalent to its expenditures.

County Debt

Your remaining question asks whether the Agreements create "a debt obligation that would require the County to calculate a debt rate on Line 42 of the Tax Rate Calculation Worksheet[.]"⁴ Request Letter at 2. Line 42 of the Worksheet refers to "debt" as defined in Tax Code section 26.012. See Worksheet at 6.

Chapter 26 of the Tax Code sets forth the method by which a taxing unit must calculate and the procedures that a taxing unit must follow in adopting property tax rates (i.e., ad valorem tax rates). See generally TEX. TAX CODE §§ 26.01–.18. Section 26.012 defines "debt" to mean:

(A) a bond, warrant, certificate of obligation, or other evidence of indebtedness owed by a taxing unit that:

(i) is payable from property taxes in installments over a period of more than one year, not budgeted for payment from maintenance and operations funds, and secured by a pledge of property taxes; and

(ii) meets one of the following requirements:

(a) has been approved at an election;

(b) includes self-supporting debt;

(c) evidences a loan under a state or federal financial assistance program;

(d) is issued for designated infrastructure;

(e) is a refunding bond;

(f) is issued in response to an emergency under Section 1431.015, Government Code;

(g) is issued for renovating, improving, or equipping existing buildings or facilities;

(h) is issued for vehicles or equipment; or

(i) is issued for a project under Chapter 311, Tax Code, or Chapter 222, Transportation Code, that is located in a reinvestment zone created under one of those chapters; or

(B) a payment made under contract to secure indebtedness of a similar nature issued by another political subdivision on behalf of the taxing unit.

Id. § 26.012(7) (emphasis added).⁵ Because it appears to be the focus of your question, we examine only one portion of the definition of "debt"—indebtedness owed by a taxing unit that is payable "in installments over a period of more than one year[.]" See Request Letter at 2; TEX. TAX CODE § 26.012(7)(A)(i).

While not defined in chapter 26, the common meaning of the term "installment" indicates a payment for less than the total amount owed. See BLACK'S LAW DICTIONARY 916 (10th ed. 2014) (defining "installment" to mean "a periodic partial payment of a debt" and contrasting it with a lump sum payment); cf. also TEX. TAX CODE §§ 31.032, 33.02 (allowing installment payment of property taxes in certain instances). This stands in contrast to a "lump sum" which commonly means "[a] single payment made once, usu[ally] at a particular time, as opposed to a series of smaller payments." BLACK'S LAW DICTIONARY 1664 (10th ed. 2014). Relying on this common meaning, a court would likely conclude that an indebtedness payable in installments is one payable in periodic partial payments. See Maxim Crane Works, L.P. v. Zurich Am. Ins. Co., 642 S.W.3d 551, 557 (Tex. 2022) (providing that when a statute is clear and unambiguous, a court will apply its words according to their common meaning). And, thus, an indebtedness payable in one lump sum over a period of one year or less does not constitute a debt as defined in subsection 26.012(7).

S U M M A R Y

The hospital district in which a county taxpayer resides and votes is of no legal consequence when it comes to the expenditure of county property tax revenue.

A county entering into an agreement with a hospital district to provide ambulance services in the county will not violate article III, subsection 52(a) of the Texas Constitution as long as the county: (1) ensures that the transfer of funds is to accomplish a public purpose of the county, not to benefit private parties; (2) retains public control over the funds to ensure that the public purpose is accomplished and to protect the public's investment; and (3) ensures that the county receives a return benefit. Whether an agreement satisfies the three-part test is for the county commissioners court to determine in the first instance, subject to judicial review.

A "debt" as defined by Tax Code subsection 26.012(7) requires, among other things, that the indebtedness be "payable from property taxes in installments over a period of more than one year[.]" A court would likely conclude that an indebtedness payable in installments is one payable in periodic partial payments and, thus, an indebtedness payable in a lump sum over a period of one year or less does not constitute a debt as defined in subsection 26.012(7).

Very truly yours,

KEN PAXTON
Attorney General of Texas

BRENT E. WEBSTER
First Assistant Attorney General

LESLEY FRENCH
Chief of Staff

D. FORREST BRUMBAUGH
Deputy Attorney General for Legal Counsel

AUSTIN KINGHORN
Chair, Opinion Committee

CHRISTY DRAKE-ADAMS
Assistant Attorney General, Opinion Committee

¹ See Letter and Attachments from Ms. Nichole Mock, Wheeler Cnty. Auditor, to Off. of the Att'y Gen., Op. Comm. at 1–3 (Aug. 18, 2022), https://texasattorneygeneral.gov/sites/default/files/request-files/request/2022/RQ0474KP.pdf ("Request Letter" and "Attachments"); see also Tex. Att'y Gen. Op. No. JC-0420 (2001) at 1 (explaining that "emergency medical services" were formerly known more commonly as "ambulance services").

² The Hospital Districts were both "created under the authority of Section 9, Article IX, Texas Constitution[.]" TEX. SPEC. DIST. CODE §§ 1083.002, 1097.002.

³ You describe, "[a]s an example, a taxpayer living in and paying property taxes to NWCHD also pays County taxes, with a portion of the taxpayer's County taxes being paid to both" Hospital Districts via the Agreements, "even though the taxpayer does not reside in SWCDHD. The taxpayer does not have the right to vote in the elections for the governing board of directors for SWCHD and has no representative voice on that board as to how the [County payments] are used by SWCHD." Request Letter at 2.

⁴ See 2022 Tax Rate Calculation Worksheet Taxing Units Other than School Districts or Water Districts, TEX. COMPTROLLER OF PUB. ACCOUNTS, available at https://comptroller.texas.gov/forms/50-856.pdf ("Worksheet").

⁵ The Comptroller's Worksheet distills this definition into a four-part test, indicating that "[d]ebt means the interest and principal that will be paid on debts that: (1) are paid by property taxes, (2) are secured by property taxes, (3) are scheduled for payment over a period longer than one year, and (4) are not classified in the taxing unit's budget as M&O expenses." Worksheet at 6. The Worksheet instructs that "[d]ebt also includes contractual payments to other taxing units that have incurred debts on behalf of th[e] taxing unit, if those debts meet the four conditions above." Id. The Legislature has, in some instances, mandated that indebtedness be treated as "debt" for purposes of Tax Code subsection 26.012(7). See, e.g., TEX. EDUC. CODE § 45.108(a) (instructing school districts borrowing money for current maintenance expenses that "[n]otes issued for a term longer than one year must be treated as 'debt' as defined in Section 26.012(7), Tax Code").