Could Washington's Health Care Facilities Authority buy a hospital facility and lease it to a public hospital district?

Plain-English summary

Washington's Health Care Facilities Authority could acquire a facility and lease it, with an option to buy, to a public hospital district under the 1993 law the AG reviewed. The transaction had to fully reimburse the Authority's costs, including financing and bond debt service. A hospital district qualified as a project participant under the statute.

The funding source mattered. Fees charged to the participating project could finance an acquisition that would be leased to those participants. Fees collected for the Authority's general administrative expenses could not. The opinion also identified revenue bonds, grants, contributions, and gifts as possible nonstate acquisition funds within the statutory scheme.

“Fees paid by participants in a project may be used by the Authority for the purpose of acquiring a health care facility that it will lease or sell to the participants. However, fees collected to defray the Authority's administrative expenses may not be used for this purpose.” (Official opinion)

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Could the Authority lease a facility to a public hospital district with an option to purchase?
A: Yes, if the arrangement met the statutory requirement to reimburse the Authority's costs.

Q: Could project fees pay for the facility purchase?
A: Yes. The AG allowed fees specific to the participating project that would receive the lease.

Q: Could general administrative fees pay for that purchase?
A: No. The opinion limited those fees to administrative expenses rather than facility acquisition.

Background and statutory framework

RCW 70.37.040(5) authorized acquisition and lease or sale of facilities to participants with full cost recovery. RCW 70.37.090 distinguished project fees from administrative fees. The AG also described nonstate financing sources available under the Authority's statute.

Citations and references

Statutes: RCW 70.37.040(5); RCW 70.37.090.

Source

• Landing page: https://www.atg.wa.gov/ago-opinions/ability-washington-health-care-facilities-authority-acquire-and-lease-health-care

Original opinion text

Attorney General Christine Gregoire

HEALTH CARE FACILITIES AUTHORITY‑‑HOSPITALS‑‑FEES--Ability of the Washington Health Care Facilities Authority to acquire and lease health care facilities

1. RCW 70.37.040(5) empowers the Washington Health Care Facilities Authority to lease or sell health care facilities which the Authority has acquired.

2. RCW 70.37.090 grants the Washington Health Care Facilities Authority the power to charge participants fees to finance projects and to defray the Authority's administrative expenses. Fees paid by participants in a project may be used by the Authority for the purpose of acquiring a health care facility that it will lease or sell to the participants. However, fees collected to defray the Authority's administrative expenses may not be used for this purpose.

September 20, 1993

John Van Gorkom
Executive Director
Washington Health Care Facilities Authority
1212 Jefferson Street SE #201, MS 40935
Olympia, WA 98504-0935 Cite as: AGO 1993 No. 15

Dear Mr. Van Gorkom:

By letter previously acknowledged you have requested an opinion on a question we have rephrased into three questions as follows:

1. May the Washington Health Care Facilities Authority, pursuant to chapter 70.37 RCW, acquire health care facilities and lease those facilities to public hospital districts, under an agreement providing for a lease with option to purchase which fully reimburses the Authority for its costs?

2. May the Authority make the acquisition described in Question 1 with funds derived from fees?

3. May the Authority make the acquisition described in Question 1 with funds derived from other nonstate sources?

We answer Questions 1 and 3 in the affirmative, and Question 2 as set forth below.

ANALYSIS

The Washington Health Care Facilities Authority is a political subdivision of the state operating under chapter 70.37 RCW.

The policy of chapter 70.37 RCW is as follows:

[T]o assist and encourage the building, providing and utilization of modern, well equipped and reasonably priced health care facilities, and the improvement, expansion and modernization of health care facilities in a manner that will minimize the capital costs of construction, financing and use thereof and thereby the costs to the pubic of the use of such facilities[.]

RCW 70.37.010. Chapter 70.37 RCW is to be liberally construed to carry out these purposes. Id.

Generally, the Authority's function is to issue bonds which provide funds for the construction, acquisition, or use by "participants of projects". RCW 70.37.040. "Participants" are local governments or private nonprofit entities operating health care facilities. RCW 70.37.020(4). A "project" is a specific health care facility, or combination of facilities, which is constructed, acquired, or operated by a participant or participants. RCW 70.37.020(5). The Authority issues bonds in its name. However, the bonds are not obligations of the Authority or of the state. The bonds are payable only from the special fund the Authority creates to retire the bond. RCW 70.37.040.

The Authority establishes a "special trust fund" for each project. RCW 70.37.070.[1] When the Authority receives project revenues from the project participant, the revenues are deposited into the special trust fund. Other moneys, such as grants, which the Authority receives for a particular project are also deposited into the special trust fund. RCW 70.37.040(1). Out of the project's special trust fund, the Authority pays bond principal and interest for project repairs and replacements, and the other special requirements of the bonds. RCW 70.37.070.[2]

The Authority sets up a second trust fund for each project into which are deposited bond sale proceeds.[3] Other money, such as grant money, may also be deposited in this fund. The fund moneys are to be spent only for the construction, acquisition, or use of a project, the Authority's expenses for the project, or other costs of the project. RCW 70.37.080.

Question 1:

May the Washington Health Care Facilities Authority, pursuant to chapter 70.37 RCW, acquire health care facilities and lease those facilities to public hospital districts, under an agreement providing for a lease with option to purchase which fully reimburses the Authority for its costs?

In addition to issuing bonds for participants' projects as described above, RCW 70.37.040(5) empowers the Authority

[to]lease to participants, lease to them with option to purchase, or sell to them, facilities which it has acquired by construction, purchase, devise, gift, or leasing: PROVIDED, That the terms thereof shall at least fully reimburse the authority for its costs with respect to such facilities, including costs of financing, and provide fully for the debt service on any bonds issued by the authority to finance acquisition by it of the facilities. To pay the cost of acquiring or improving such facilities or to refund any bonds issued for such purpose, the authority may issue its revenue bonds secured solely by revenues derived from the sale or lease of the facility . . . Such health care facilities may be acquired, constructed, reconstructed, and improved and may be leased, sold or otherwise disposed of in the manner determined by the authority in its sole discretion and any requirement of competitive bidding, lease performance bonds or other restriction imposed on the procedure for award of contracts for such purpose or the lease, sale or other disposition of property of the state, or any agency thereof, is not applicable to any action so taken by the authority.

(Emphasis added.)

The above provision grants the Authority the power to acquire health care facilities for the purpose of entering a lease with option to purchase agreement with "participants", so long as the terms of such a lease or purchase agreement fully reimburse the Authority for its financing costs. "Participant" means, among other things, "any . . . municipal corporation or agency or political subdivision of the state". RCW 70.37.020(4). A public hospital district is a municipal corporation. RCW 70.44.010. Therefore, since your question assumes that the Authority is fully reimbursed for its costs, the Authority has the power under RCW 70.37.040(5) to enter the lease described in your question.

Question 2

May the Authority make the acquisition described in Question 1 with funds derived from fees?

RCW 70.37.090 states in part as follows:

The authority shall have power to require persons applying for its assistance in connection with the investigation and financing of projects to pay fees and charges to provide the authority with funds for investigation, financial feasibility studies, expenses of issuance and sale of bonds and other chargesfor services provided by the authority in connection with such projects. All other expenses of the authority including compensation of its employees and consultants, expenses of administration and conduct of its work and business and other expenses shall be paid out of such fees and charges, out of contributions and grants to it, out of the proceeds of bonds issued for projects of participants or out of revenues of such projects; none by the state of Washington.

(Emphasis added.)

RCW 70.37.090 authorizes the collection of fees for two distinct kinds of expenses. The first kind are expenses incurred by the Authority that are specific to a particular project. The second category are the Authority's administrative expenses. We will address separately the Authority's power to charge a fee for these two kinds of expenses.

The first sentence of RCW 70.37.090 grants the Authority the power to charge fees to finance projects or to reimburse the Authority's expenses incurred in connection with a project. In our opinion, the Authority has the power to charge a fee to a participant (or group of participants) for the purpose of acquiring a facility that the Authority will then lease to the participant(s) paying the fee. Such a fee would be a project-specific fee authorized by the first sentence of RCW 70.37.090.

The other category of expense for which the Authority may charge a fee is "compensation of [Authority] employees and consultants, expenses of administration and conduct of [the Authority's] work and business and other expenses . . . ." When specific and general words are used in sequence, the specific words modify and restrict the interpretation of general words. State v. Reader's Digest Ass'n, 81 Wn.2d 259, 279, 501 P.2d 290 (1972). Here, the specific word "compensation" and phrase "expenses of administration" restrict the interpretation of the general phrase "conduct of its work and business and other expenses". In our opinion, the second sentence of RCW 70.37.090 empowers the Authority to assess fees to pay for salaries, office space, supplies and equipment, travel, and administrative expenses of a similar nature. The expense of purchasing a health care facility is not similar to such administrative expenses. We conclude that the Authority does not have the power to use fees charged for administrative expenses to purchase a heath care facility.

We note that the Authority's rule relating to fees is consistent with our interpretation of RCW 70.37.090. WAC 247-16-040 provides in part:

(1) Authorization to charge fees: The authority, pursuant to RCW 70.37.090, shall require applicants to pay fees and charges to the authority to provide it with funds for investigations, financial feasibility studies, expenses of issuance and sale of bonds, and other charges for services provided by the authority in connection with projects undertaken, as well as the operating and administrative expenses of the authority. In accordance with this authorization, an applicant shall pay to the authority such fees and charges as are necessary to meet any and all expenses incurred by the authority in connection with the processing of the application of the applicant, together with an annual service fee to defray expenses of the authority in administering and servicing the financing provided to the applicant and other allocable expenses of the authority.

Our conclusion that fees charged by the Authority for administrative expenses cannot be used to purchase a health care facility does not mean that the Authority would be acting beyond its power if it collected fees in excess of its actual expenses. It would be very difficult, if not impossible, for the Authority to anticipate with any preciseness what will be the Authority's expenses for a specific project, or what the Authority's administrative expenses will be in a given budget period. It is therefore probable that the fees collected by the Authority will not match exactly the Authority's actual project-specific or general administrative expenses. As a practical matter, when setting its fees, the Authority may provide for somewhat of a "cushion" in order to ensure that the Authority has collected sufficient fees to meet all of the Authority's expenses.[4]

In summary, in answer to Question 2, the Authority has the power to acquire a health care facility with a project-specific fee (or fees) collected from the project participant or participants that will lease the health care facility from the Authority. The Authority may not assess or use administrative expense fees to acquire a health care facility.

Question 3:

May the Authority make the acquisition described in Question 1 with funds derived from other nonstate sources?

There are other methods by which the Authority may finance the acquisition contemplated by your question.

First, RCW 70.37.040(5) provides the Authority with the power to issue bonds to meet the cost of acquiring a health care facility:

To pay the cost of acquiring or improving such facilities or to refund any bonds issued for such purpose, the authority may issue its revenue bonds secured solely by revenues derived from the sale or lease of the facility, but which may additionally be secured by mortgage, lease, pledge or assignment, trust agreement or other security device.

In addition to refunding or issuing bonds, RCW 70.37.090 grants the Authority the power to pay its expenses out of contributions and grants. If the Authority obtains contributions and grants which are not earmarked for a special project or projects, the Authority may use such money for the expense of acquiring a health care facility.

Furthermore, RCW 70.37.100 states that the Authority may "accept gifts for its purposes". We believe the Authority could apply donated money to the acquisition you describe.

We accordingly answer the third question by concluding that the money acquired through the other nonstate sources enumerated above may be used to acquire and then lease a health care facility.

We trust the foregoing will be of assistance to you.

Very truly yours,

CHRISTINE O. GREGOIRE

Attorney General

JEAN M. WILKINSON

Assistant Attorney General

JMW:aj

[1]RCW 70.37.100 also authorizes a single issue of revenue bonds and a single special fund covering more than one participant or project.

[2]The Authority may appoint trustees, depositories, or paying agents to perform the Authority's duties to handle deposits into and withdrawals from the trust fund. RCW 70.37.070.

[3]Similar to footnote 2, the Authority may appoint agents to handle deposits and withdrawals. RCW 70.37.080.

[4]The Authority's rules have contemplated such a situation by stating that it will refund surplus fees which exceed the actual project-specific or pro rata administrative costs of the Authority. WAC 247-16-040(3).