H.B. 1234 78(R)    BILL ANALYSIS

H.B. 1234
By: Menendez
County Affairs
Committee Report (Unamended)



BACKGROUND AND PURPOSE 

As technological advances continue at an exponential pace and  most
current hospital capital infrastructure becomes increasingly obsolete,
flexibility in funding necessary upgrades becomes crucial for hospital
operations.  Options for capital funding under current state law are
limited to general obligation bonds or hospital revenue bonds and in some
cases, revenue anticipation agreements (secured by operations or tax
revenue and available only to finance operations and maintenance - not
typical capital items such as major equipment).  Revenue bonds are a
costly source for most capital funding.  Issuers of revenue bonds often
end up pledging tax revenue to cover debt service first, then raising
taxes to cover any shortfall in net revenue - a practice which should be
avoided.  On the other hand, general obligation (tax supported) bonds
produce an estimated cost of capital of 10-15 basis points lower than
revenue bonds but are very time-consuming to secure.   
A Commissioners Court has the authority to issue certificates of
obligation for county projects such as jail and courthouse construction or
improvements. However, a Commissioners Court does not currently have the
authority to issue certificates of obligation for a hospital district
project even though the Court approves the hospital district's budget and
sets its ad valorem tax rate. 
House Bill 1234 proposes to authorize Commissioners Court to approve
certificates of obligation for a hospital district established under
Chapter 281 of the Health and Safety Code.   The extension of the
availability of certificates of obligation to hospital districts will
allow more rapid response to changing capital acquisition needs. In a
hospital setting, rapid response can save lives.  Further, the use of
certificates of obligation to fund capital upgrades will result in lower
overall cost. 

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or
institution. 

ANALYSIS

Section 1.   Amends the heading of Subchapter F, Chapter 281 of the Health
and Safety Code, to add " and certificates of obligation" to the existing
text. 
 
 Section 2.  Amends Subchapter F, Chapter 281 of the Health and Safety
Code to add Section 281.106, which allows hospital districts, with the
approval of commissioners court, to issue certificates of obligation for
district purposes in accordance with the Certificate of Obligation Act of
1971, Subchapter C, Chapter 271, Local Government Code. 
 
 Section 3. Amends the heading of Section 281.121 of the Health and Safety
Code, to add "and certificates of obligation" to the existing text. 
 
 Section 4.  Amends Sections 281.121(a) and (c) of the Health and Safety
Code, to address rates, interest and sinking funds for certificates of
obligation secured by taxes and to authorize the use of tax revenues to
pay for certificates of obligation issued pursuant to Section 281.106 of
the Health and Safety Code. 
 
 Section 5.  Amends Section 271.043(7) of the Local Government Code by
adding "or hospital district established under Chapter 281, Health and
Safety Code" to the definition of "Issuer" to clarify that the provisions
of  Certificate of Obligation Act also apply to hospital districts. 

EFFECTIVE DATE

This act takes effect September 1, 2003.