HOSPITAL DISTRICT EXPANSION AND RELATED ISSUES

For hospital districts to expand, a district must begin by reviewing the applicable statutes in either the Special District Local Laws Code or Health & Safety Code. If there is no applicable statute, a district cannot expand without first amending its enabling legislation to permit the expansion. If an applicable statue exists, a district must follow the procedure outlined in the statute.

Hospital District Expansion in Texas

Types of Hospital Districts in Texas:

  • Created by special enabling legislation now codified in the Special District Local Laws Code; or
    • Each hospital district created by special enabling legislation is codified in a different chapter (Ex. Chapter 1023, Eastland Memorial Hospital District)
  • Created under the Health and Safety Code
    • Chapters 281 (urban), 282, 283, and 286 (most common) allows for the creation of a hospital district

Elections are held biannually in May and November. Voting to expand the district would take place in one of these months. The election process for Chapter 286.101 (governs district expansion for certain hospital districts) of the Health & Safety Code is outlined below:

  • Step 1: Registered voters of a territory that is not included in a hospital district may file a petition with the secretary of the board requesting the inclusion of the territory in the district. The petition must be signed by at least 50 registered voters (it is recommended that ~100 sign due to flaws in the completion of petitions) of the territory or a majority of those voters, whichever is less.
    • There are several general guidelines that might be used for petition(s)—Only registered voters residing in the boundaries of the proposed territory to be added to the district can sign the petition. The signatures of voters outside of the proposed territory to be annexed will not be counted toward the required signatures. There must be certain information indicated to verify signatures such as the signature itself (the only information that must be filled out in the voter’s handwriting, anything else can be filled out by someone else), the individual’s printed name, the date of signature, the residential address, and either the individual’s date of birth or voter registration number/ county of registration. O. Boxes are generally not acceptable as resident addresses unless the person does not have a street address. A petition may not be signed by an agent. Each person signing the petition must sign for himself or herself. This includes that one spouse cannot sign for another.
  • Step 2: The board by order shall set a time and place to hold a hearing on the petition. The hearing must be more than 30 days after the date the board issues the order.
  • Step 3: If the board finds that annexation would be feasible and benefit the district, the board may approve the annexation by the resolution.
  • Step 4: The election ballots shall be printed to provide for voting for or against the following, as applicable:
    • “Adding (description of territory) to the ________ Hospital District.”
    • “(Description of territory to be added) assuming its proportionate share of the outstanding debts and taxes of the ____________ Hospital District, if it is added to the district.”
  • Step 5: The election must be ordered, and notice of the elections must be given. Per Chapter 286, the election shall be held after the 45th day and on or before the 60th day after the date the election is ordered. However, under the Election Code, Sec. 41.001©, there is a “blackout” period during which a special election cannot be held within 30 days before or after the date of a general election, a general primary election, or a runoff primary election. Districts should contact legal counsel and/or SOS Elections Division to determine correct election date.
  • Step 6: Annexation of the territory is final when approved by (1) a majority of the voters at an election held in the district and (2) by a majority of the voters at a separate election held in the territory to be annexed.

Hospital District Sales and Use Tax

Hospitals that do not receive an ad valorem tax might implement a higher sales and use tax compared to hospitals that do. To perform a Hospital District Tax Rate Calculation, go here. Information on sales and use taxes under either Chapter 286 of the Health & Safety Code or Chapter 285 of the Health & Safety Code are found below:

  • If a district imposes a sales and use tax under Chapter 286, the territory added to the district must be located in a county or counties each with a population of 75,000 or less, and the addition of the territory may not result in a combined tax rate by the hospital district and other political subdivisions of this state of more than 2% at any location in the district.
  • If a district imposes a sales tax under Chapter 285, the provisions of sections 321.102 of the Tax Code, governing the application of a municipal sales and use tax in the event of a change in the boundaries of a municipality, apply in the event of a change in the districts; boundaries.

Overview of Expansion/Sales Tax Process under Chapter 285 of H&S Code

  • Section 102 of the Tax Code governs the application of the hospital district sales and use tax in the event of a change in a district’s boundaries. With some limited exceptions, a hospital district sales tax displaces the sales tax of another entity (such as municipality) that previously levied a tax within the expanded territory. In the event of expansion, the municipality’s sales tax in the expanded area is automatically reduced to an amount which, when added to the hospital district sales tax, does not exceed the local 2% cap. When the sales tax of an entity is reduced due to hospital district expansion, the municipality is kept whole by the comptroller’s deduction of a corresponding amount from the sales tax of the expanding hospital district. This amount is then paid to the municipality.

Section 321.102(c) of the Tax Code

  • If a hospital district changes its boundaries, the hospital district secretary shall send to the comptroller a certified copy of the ordinance that adds hospital district territory and that shows the effective date of the boundary change. The ordinance must be accompanied by a map clearly showing the added territory. Except as provided below, the tax takes effect in the added territory on the first day of the first calendar quarter after the comptroller receives the ordinance and map.

Section 321.102(d) of the Tax Code

  • If, within 10 days after the receipt of the ordinance and map, the comptroller notifies the secretary of the hospital district that more time is required, the effective date of the application of the tax is the first day of the first calendar quarter after the expiration of the first complete calendar quarter occurring after the date on which the comptroller receives the ordinance and map.

Section 321.102(e) of the Tax Code

  • If, as a result of the annexation, the overlapping local sales and use taxes in the area will exceed 2%, the entity’s sales and use tax is automatically reduced in that area to a rate that when added to the combined rate of local sales and use taxes will equal 2%.

Chapter 321.102(f) of the Tax Code

  • If an entity’s rate is reduced in accordance with Subsection (e), the comptroller will withhold from the hospital district’s monthly sales and use tax allocation an amount equal to the amount that would have been collected by the entity had the hospital district not annexed the area in the entity, less amounts that the entity collects following the hospital district’s annexation of the area. The comptroller will withhold and pay the amount withheld to the entity under policies or procedures that the comptroller considers reasonable.