CHAPTER 223. HOSPITAL PROJECT FINANCING ACT

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HEALTH AND SAFETY CODE

TITLE 4. HEALTH FACILITIES

SUBTITLE A. FINANCING, CONSTRUCTING, AND INSPECTING HEALTH

FACILITIES

CHAPTER 223. HOSPITAL PROJECT FINANCING ACT

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 223.001. SHORT TITLE. This chapter may be cited as the

Hospital Project Financing Act.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.002. DEFINITIONS. In this chapter:

(1) "Authority" means a public health authority, including a

hospital authority created under Chapter 262 or 264.

(2) "Bond" includes a note.

(3) "Issuer" means an authority, municipality, county, or

hospital district.

(4) "Hospital project" means existing or future real, personal,

or mixed property, or an interest in that property, other than a

nursing home licensed or required to be licensed under the

authority of this state, the financing, refinancing, acquiring,

providing, constructing, enlarging, remodeling, renovating,

improving, furnishing, or equipping of which is found by the

governing body of an issuer to be necessary for medical care,

research, training, or teaching in this state. A hospital project

may include one or more of the following properties if found by

the governing body of an issuer to be necessary or convenient for

the project:

(A) land, a building, equipment, machinery, furniture, a

facility, or an improvement;

(B) a structure suitable for use as:

(i) a hospital, clinic, health facility, extended care facility,

outpatient facility, rehabilitation or recreation facility,

pharmacy, medical laboratory, dental laboratory, physicians'

office building, or laundry or administrative facility or

building related to a health facility or system;

(ii) a multiunit housing facility for medical staff, nurses,

interns, other employees of a health facility or system, patients

of a health facility, or relatives of patients admitted for

treatment or care in a health facility;

(iii) a support facility related to a hospital project such as

an office building, parking lot or building, or maintenance,

safety, or utility facility, and related equipment; or

(iv) a medical or dental research facility, medical or dental

training facility, or another facility used in the education or

training of health care personnel;

furnishing of a hospital project and other similar items

necessary or convenient for the operation of a hospital project;

and

(D) any other structure, facility, or equipment related or

essential to the operation of a health facility or system.

(5) "Nonprofit organization" means:

(A) a nonprofit corporation established under the Texas

Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's

Texas Civil Statutes); or

(B) an association, foundation, trust, cooperative, or similar

person no part of the net earnings of which is distributable to

any private shareholder or individual and that incurs a

contractual obligation with an issuer with respect to a hospital

project under this chapter.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.003. HOSPITAL PROJECT COSTS. (a) Hospital project

costs include costs related to:

(1) the acquisition of land, a right-of-way, an option to

purchase land, an easement, or another interest in land related

to a hospital project;

(2) the acquisition, construction, repair, renovation,

remodeling, or improvement of a structure to be used as or with a

hospital project;

(3) site preparation, including demolishing or removing a

structure the removal of which is necessary or incident to

providing a hospital project;

(4) expenses necessary or incident to planning, providing, or

determining the feasibility and practicability of a hospital

project, including architectural, engineering, legal, and related

services, plans and specifications, studios, surveys, and cost

and revenue estimates;

(5) machinery, equipment, furniture, and facilities necessary or

incident to the equipping of a hospital project for operation;

(6) financing charges and interest accruing before and during

construction, and after completion of construction for not more

than two years;

(7) the start-up of a hospital project during construction and

after completion of construction for not more than two years;

(8) hospital project financing, including:

(A) legal, accounting, and appraisal fees, expenses, and

disbursements;

(B) printing, engraving, and reproduction services; and

(9) the provision of the hospital project by the issuer,

including:

(A) costs incurred directly or indirectly by the issuer;

(B) reimbursement of reasonable sums to the issuer for time

spent by its employees in providing the hospital project and its

financing; and

(10) the authorization, preparation, sale, issuance, and

delivery of bonds under this chapter, including:

(A) related fees, charges, and expenses;

(B) expenses and costs described by Section 223.029(b); and

to hospital project bonds.

(b) The listing of items of cost in Subsection (a) is not

inclusive of all hospital costs.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

SUBCHAPTER B. FINANCING HOSPITAL PROJECTS

Sec. 223.011. PROVIDING HOSPITAL PROJECTS. (a) An issuer

acting for itself or through a nonprofit organization may provide

one or more hospital projects by acquisition, construction, or

improvement. An acquisition may occur by purchase, devise, gift,

lease, or a combination of those methods.

(b) A hospital project must be located in this state and within

or partially within the issuer's boundaries, except that a

hospital project of a municipality may be located:

(1) outside the municipality's limits if it is within the

municipality's extraterritorial jurisdiction; or

(2) in another municipality if the governing body of the other

municipality consents to the former municipality's provision of

the project.

nonprofit organization that has been in existence and has

operated the hospital project for at least three years before the

date of acquisition by the issuer.

(d) An issuer must affirmatively find that the cost of an

acquired hospital project is not more than:

(1) the actual audited cost of the hospital project to the date

of acquisition; or

(2) the fair market value of the hospital project at the date of

acquisition as determined by an appraisal obtained by the issuer.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.012. TITLE TO PROJECTS. (a) An issuer may vest title

to a hospital project provided under this chapter in a nonprofit

organization.

(b) If the issuer vests the title in a nonprofit organization,

it may retain a mortgage interest in the hospital project. The

mortgage interest expires when all bonds of the issuer sold to

provide the hospital project are paid or provision has been made

for their final payment.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.013. CONTRACTS RELATING TO HOSPITAL PROJECT. (a) An

issuer may execute a contract, including a lease, with a

nonprofit organization with respect to a hospital project. A

contract may authorize the nonprofit organization to use,

operate, or acquire the hospital project on the terms, including

payment provisions, the issuer's governing body determines to be

advisable.

(b) A contract may include the sale of a hospital project to a

nonprofit organization, including a nonprofit organization using

the hospital project. The terms of the sale may include

installment payments. The sale must be fully consummated when all

bonds of the issuer issued to provide the hospital project are

paid or provision is made for their final payment if, during the

time the bonds or interest on the bonds remains unpaid, there is

no failure to make any payments owing under any lease or contract

at the time and in the manner as the payments come due.

by the parties and may provide that the contract continues until

the bonds specified in the contract, or refunding or substitution

bonds issued in place of those bonds, are fully paid or provision

is made for their final payment.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.014. AUTHORITY OF ISSUER. An issuer has full and

complete authority relating to its bonds, a lease agreement in

which the issuer is a lessor, or a sale or other contract,

subject only to this chapter.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.015. OBLIGATIONS LIMITED. (a) The issuer may not

incur a financial obligation under this chapter that cannot be

paid from the proceeds of hospital project bonds, revenues

derived from operating a hospital project, or other revenues that

may be provided by a nonprofit organization in accordance with

this chapter.

(b) The legislature or an issuer may not make an appropriation

to pay any part of a cost of a hospital project or any operating

cost of a hospital project.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.016. EMINENT DOMAIN. (a) Under this chapter, an

issuer may not acquire by eminent domain a hospital project, or

any part of a hospital project, to be sold or leased under this

chapter.

(b) Land previously acquired by eminent domain by an issuer may

be sold or leased under this chapter if the governing body of the

issuer determines that:

(1) the use of the land will not interfere with the purpose for

which the land was originally acquired or that the land is no

longer needed for that purpose;

(2) at least seven years have elapsed since the date the land

was acquired by eminent domain; and

(3) the land was not acquired for park purposes or, if the land

was acquired for park purposes, the sale or lease of parkland has

been approved at an election held under Section 1502.055,

Government Code.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Amended by Acts 2001, 77th Leg., ch. 1420, Sec. 8.250, eff. Sept.

1, 2001.

SUBCHAPTER C. HOSPITAL PROJECT BONDS

Sec. 223.021. ISSUANCE OF HOSPITAL PROJECT BONDS. (a) An

issuer may provide for the issuance of negotiable revenue bonds

or other evidences of indebtedness for paying hospital project

costs. The bonds may be issued subject only to the requirements

of this chapter.

(b) As the governing body of the issuer determines to be in the

best interest of the issuer, one or more series of bonds may be

issued for each hospital project, or more than one hospital

project may be combined in one or more series of bonds, but each

hospital project may be considered separately with respect to

Subsections (c), (d), and (e), and Sections 223.022-223.024.

adopt a resolution:

(1) declaring its intention to issue bonds; and

(2) stating the maximum amount of bonds proposed to be issued,

the purpose for which the bonds are to be issued, and the

tentative date, time, and place at which the governing body

proposes to authorize the issuance of the bonds.

(d) Unless the governing body of the issuer orders an election

on the issuance of the bonds, a substantial copy of the

resolution shall be published three times in a newspaper of

general circulation in the territorial limits of the issuer. The

first publication must be made not earlier than the 45th day

before the tentative date stated in the resolution. The third

publication must be made not later than the 11th day before the

tentative date.

(e) Before authorizing the issuance of any bonds or ordering an

election on any matters authorized by this chapter, the issuer

must deposit with the chief administrative officer of the issuer

a complete description of any proposed hospital project,

including a detailed listing and explanation of projected costs,

the reasons for the hospital project, and the name of each owner

of the nonprofit organization for whom the hospital project is to

be constructed. The required description is public information.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.022. ELECTION ON BONDS. (a) The governing body of an

issuer shall order and hold an election on the question of the

issuance of hospital project bonds if at least five percent or

20,000 of the voters qualified to vote in an election held by the

issuer, whichever is less, file a written protest against the

issuance of the bonds before the close of business on the

business day before the tentative date in the resolution for the

authorization of the bonds.

(b) The issuer's governing body may order an election on its own

motion without the filing of a protest.

the election order must specify the location of and the presiding

judge and alternate judge for each polling place.

(d) Notice of a bond election shall be published three times in

a newspaper of general circulation in the territorial limits of

the issuer. The first notice must be published not earlier than

the 45th day before the date set for the election, and the third

notice must be published not later than the 11th day before the

date set for the election.

(e) The election shall be conducted in accordance with the

general laws pertaining to bond elections in municipalities,

except as modified by this chapter.

(f) The ballot shall provide for voting for or against the

proposition: "The issuance of revenue bonds or notes or other

evidences of indebtedness for the hospital project or hospital

projects."

(g) The governing body shall declare whether a majority of the

voters voting in the election approve the proposition.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.023. ELECTION RESULTS. (a) If the proposition is

approved by a majority of the voters voting in the election, the

issuer may authorize the bonds.

(b) If the proposition is not approved, an election on the

issuing of revenue bonds for the hospital project that was the

subject of the election may not be ordered within six months

after that election, and bonds may not be issued for the hospital

project until a majority of the voters voting in an election held

for that purpose approve the issuance of the bonds.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.024. PROTEST NOT FILED. If a protest requiring an

election is not filed under Section 223.022(a) and an election is

not called under Section 223.022(b), the issuer may issue the

bonds under the resolution without an election for two years

after the tentative date specified in the resolution.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.025. LIMITATIONS ON BONDS. (a) Bonds issued in

accordance with this chapter are not general obligations or a

pledge of the faith and credit of this state, the issuer, or

another political subdivision of this state. The bonds are

payable solely from revenues of the hospital project for which

they are issued or from other revenues provided by a nonprofit

organization. Money of this state or a political subdivision of

this state from any source, including tax revenue, but excluding

revenue of the hospital project being financed with the bonds,

may not be used to pay the principal of, any redemption premium

for, or interest on revenue bonds or refunding bonds issued under

this chapter.

(b) Each revenue bond must state on its face that:

(1) this state, the issuer, or any political subdivision of this

state is not obligated to pay the principal of, any redemption

premium for, or interest on the bonds except from the revenues

pledged for that purpose; and

(2) the faith, credit, or the taxing power of this state, the

issuer, or any political subdivision of this state is not pledged

to the payment of the principal of, any redemption premium for,

or interest on the bonds.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.026. FORM AND TERM OF BONDS. (a) The issuer shall

determine the form of the bonds, the date of the bond issue, the

price and interest rate of the bonds, and the maturity for the

bonds, which may not be more than 40 years after its date.

(b) The issuer may:

(1) make the bonds redeemable before maturity and determine the

prices and conditions for early redemption;

(2) determine:

(A) the interest coupons to be attached to the bonds;

(B) the denominations of the bonds; and

redemption premium, and interest;

(3) issue the bonds in coupon or in registered form, or both;

(4) make the bonds payable to a specific person;

(5) provide for the registration of coupon bonds as to principal

or as to principal and interest; and

(6) provide for the conversion of coupon bonds into registered

bonds without coupons and for the reconversion into coupon bonds

of any registered bonds without coupons.

imposed on a trustee in a trust agreement, the substituted bonds

need not be reapproved by the attorney general, and the bonds

remain incontestable.

(d) The issuer may provide for execution of the bonds and any

coupons using a facsimile signature under Chapter 618, Government

Code. If the signature or a facsimile signature of a person who

has been an officer appears on a bond or coupon, the signature or

facsimile signature is valid and sufficient for all purposes,

regardless of whether the person is an officer when the bonds are

delivered.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Amended by Acts 2001, 77th Leg., ch. 1420, Sec. 8.251, eff. Sept.

1, 2001.

Sec. 223.027. DEDICATED REPAYMENT REVENUE. The principal of,

any redemption premium for, and interest on hospital project

bonds are payable from and secured, as specified by the

resolution of the governing body or in any trust agreement or

other instrument securing the bonds, by a pledge of all or part

of the revenues of the issuer to be derived from:

(1) the ownership, operation, lease, use, mortgage, or sale of

the hospital project for which the bonds have been issued; or

(2) other revenues provided by a nonprofit organization.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.028. SECURITY FOR BONDS. (a) Bonds issued under this

chapter may be secured by a trust agreement between the issuer

and a trust company or bank having the powers of a trust company

in this state.

(b) A trust agreement may pledge or assign lease income,

contract payments, fees, or other charges to be received from a

nonprofit organization. The governing body of the issuer may

secure the bonds additionally by a mortgage, a deed of trust

lien, or other security interest on a designated hospital project

vesting in the trustee the power to sell the hospital project for

the payment of the indebtedness, the power to operate the

hospital project, and any other power for the further security of

the bonds.

(1) evidence a pledge of all or any part of the revenue of the

issuer from the ownership, operation, lease, use, mortgage, or

sale of a hospital project for the payment of principal of, any

redemption premium for, and interest on the bonds when due and

payable;

(2) provide for the creation and maintenance of reserves;

(3) set forth the rights and remedies of the bondholders and of

the trustee;

(4) restrict the individual right of action by bondholders as is

customary in trust agreements securing bonds and debentures of

corporations;

(5) contain provisions the issuer considers reasonable and

proper for the security of the bondholders; and

(6) provide for the issuance of bonds to replace lost, stolen,

or mutilated bonds.

(d) A trust agreement or resolution providing for the issuance

of bonds may provide for protecting and enforcing the rights and

remedies of the bondholders as reasonable and proper, including

covenants setting forth the duties of the issuer and the

nonprofit organization in relation to:

(1) the acquisition of property and the construction,

improvement, maintenance, repair, operation, and insurance of the

hospital project in connection with which the bonds are issued;

and

(2) the custody, safeguarding, and application of all money.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.029. USE OF PROCEEDS. (a) The proceeds of the bonds

may be:

(1) used only for the payment of hospital project costs for

which the bonds are issued; and

(2) disbursed in the manner and subject to the restrictions

provided in the resolution authorizing the issuance or in the

trust agreement securing the bonds.

(b) The issuer shall be paid, from the proceeds of its bonds,

money in the amount equal to:

(1) the issuer's actual expenditures for financing, legal,

printing, and other expenses incurred in issuing, selling, and

delivering the bonds; and

(2) the compensation paid to the issuer's employees for the time

the employees spent on activities related to the issuance, sale,

and delivery of the bonds.

project for which the bonds are issued, the excess shall be

deposited to the credit of the sinking fund for the bonds.

(d) The governing body of the issuer may provide for a bond

reserve fund in the resolution authorizing the bonds or an

instrument securing the bonds and may set aside amounts from the

proceeds for payments into the reserve fund.

(e) Proceeds from the sale of bonds may be invested in:

(1) direct, indirect, or guaranteed obligations of the United

States that mature in a manner specified by the resolution

authorizing the bonds or another instrument securing the bonds;

(2) certificates of deposit of a bank or trust company if the

deposits are secured by obligations described by Subdivision (1).

(f) The issuer's governing body may designate a trust company or

a bank with trust powers to act as depository for proceeds of

bonds or revenues from a lease or other contract. The bank or

trust company shall furnish indemnifying bonds or pledge

securities as required by the issuer to secure the deposits.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.030. TEMPORARY OBLIGATIONS. (a) Before the issuance

of definitive bonds, the issuer may issue interim receipts or

temporary bonds, with or without coupons, exchangeable for

definitive bonds when those bonds are executed and are available

for delivery.

(b) The term of an interim receipt or temporary bond may not be

more than two years.

bonds to the attorney general in accordance with Section 223.031.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.031. EXAMINATION OF BONDS. (a) After issuance of the

bonds is authorized and before delivery of the bonds to their

purchasers, the bonds and the proceedings authorizing their

issuance and securing the bonds shall be presented to the

attorney general for examination.

(b) If the bonds state that they are secured by a pledge of all

or part of the revenues of the issuer to be derived from a lease

or other contract, the contract shall also be submitted to the

attorney general.

authorized in accordance with state law and any contract securing

the bonds has been made in accordance with state law, the

attorney general shall approve the bonds and contract.

(d) The comptroller shall register the bonds when they are

approved. After approval and registration, the bonds and contract

submitted with the bonds are valid and binding obligations

according to their terms and are incontestable.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.032. REFUNDING BONDS. (a) An issuer by resolution may

authorize the issuance of revenue bonds to refund:

(1) outstanding bonds or other evidences of indebtedness that

have been issued to provide a hospital project; or

(2) outstanding obligations, mortgages, or advances issued,

made, or given by a nonprofit organization for the cost of a

hospital project.

(b) The amounts refunded may include the principal of and any

redemption premium for the bonds or other evidences of

indebtedness, and any interest accruing to the date of

redemption.

need not have been issued under this chapter and need not have

been originally issued by the issuer of the refunding bonds.

(d) This subchapter governs the issuance of refunding bonds, the

maturities and other details of the bonds, the rights of the

bondholders, and rights, duties, and obligations of the refunding

bond issuer.

(e) The issuer may issue the refunding bonds in exchange or

substitution for outstanding bonds or other evidences of

indebtedness or may sell the refunding bonds and use the proceeds

for paying or redeeming outstanding bonds or other evidences of

indebtedness.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.033. ENFORCEMENT OF AGREEMENTS. (a) An agreement made

under this chapter may provide, in the event of default in the

payment of the principal of, interest on, or any redemption

premium for bonds subject to the agreement or in the performance

of an agreement contained in the proceedings, mortgage, or

instruments relating to the bonds, for enforcement of the payment

or performance by:

(1) mandamus; or

(2) the appointment of a receiver in equity with power to charge

and collect rates, rents, or contract payments and to apply the

revenues from the hospital project in accordance with the

resolution, mortgage, or instruments.

(b) A mortgage to secure hospital project bonds may provide for

foreclosure and the sale of the property secured by the mortgage

on default in the mortgage payment or the violation of an

agreement contained in the mortgage. The foreclosure and sale may

occur under proceedings in equity or in any other manner

permitted by law. The mortgage may provide that a trustee under

the mortgage or the holder of any of the bonds secured by the

mortgage may be the purchaser at a foreclosure sale if the

trustee or bondholder is the highest bidder.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.034. MEMBERSHIP OF GOVERNING BODY NOT SUBJECT TO

CHANGE. The resolution authorizing the issuance of hospital

project bonds, the trust agreement securing the bonds, or any

other agreement relating to the bonds may not prescribe the

method of selecting or the term of office of any member of the

issuer's governing body.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.035. BONDS TAX EXEMPT. The bonds issued under this

chapter, their transfer, and interest from the bonds, including

profit made from their sale, are exempt from taxation by this

state and a municipality or other political subdivision of the

state.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.036. BONDS AS SECURITIES. (a) Bonds issued under this

chapter and any interest coupons are investment securities under

Chapter 8, Business & Commerce Code, and are exempt

securities under The Securities Act (Article 581-1 et seq.,

Vernon's Texas Civil Statutes).

(b) A lease agreement, sales agreement, or other contract under

this chapter is not a security under The Securities Act.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.037. BONDS AS INVESTMENTS. (a) Unless the bonds

issued under this chapter are ineligible for investments in

accordance with the criteria established in other statutes,

rulings, or regulations of this state or the United States, the

bonds are legal and authorized investments for:

(1) a bank;

(2) a savings bank;

(3) a trust company;

(4) a savings and loan association;

(5) an insurance company;

(6) a fiduciary;

(7) a trustee or guardian; and

(8) a sinking fund of a municipality, county, school district,

or other political corporation or subdivision of this state.

(b) The bonds may secure the deposits of public funds of this

state or a municipality, county, school district, or other

political corporation or subdivision of this state. The bonds are

lawful and sufficient security for those deposits at their face

value if accompanied by all appurtenant unmatured coupons.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

Sec. 223.038. COST OF CERTAIN REQUIRED ALTERATIONS. The

relocation, raising, lowering, rerouting, changing of grade, or

altering of construction of a highway, railroad, electric

transmission line, telegraph or telephone property or facility,

or pipeline made necessary by the actions of an issuer shall be

accomplished at the sole expense of the issuer or nonprofit

organization, which shall pay the cost of the required activity

as necessary to provide comparable replacement, minus the net

salvage value of any replaced facility. The issuer shall pay that

amount from the proceeds of the bonds.

Acts 1989, 71st Leg., ch. 678, Sec. 1, eff. Sept. 1, 1989.

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