Sec 15-1637. Lease of property for health care institution; requirements; conditions; reports; directors, members and officers of nonprofit corporation; definition

A. The Arizona board of regents may lease real property, improvements or personal property owned by the board to a nonprofit corporation as lessee for purposes of operating a health care institution as defined in section 36-401. If the board leases such property for such purposes, whether title to improvements on the property rests in the board or in the lessee, the lease agreement and any amendments, renewals or extensions of the agreement shall be deemed binding and effective according to its terms. If, under the provisions of the lease, improvements or personal property related to the operation of a health care institution are conveyed to the nonprofit corporation, they shall be presumed to have been conveyed for their then fair market value.

B. Any lease agreement entered into pursuant to subsection A of this section may, at the discretion of the Arizona board of regents, contain provisions requiring the nonprofit corporation to acquire the approval of the Arizona board of regents prior to entering into any business transactions that may adversely affect the interests of this state or that are contained in subsection G, paragraph 2 of this section. The Arizona board of regents shall specify in the lease agreement the type and nature of such transactions which require prior approval of the board.

C. To satisfy the requirements of section 103 of the internal revenue code, as defined in section 43-105, any nonprofit corporation which is a lessee as described in subsection A of this section is declared to be:

1. A validly organized and existing body politic and corporate exercising its powers for the benefit of the people, to improve their health and welfare and to increase their prosperity.

2. Engaged in a purpose essential to public health care.

3. Performing an essential governmental function.

D. Any nonprofit corporation which is a lessee as described in subsection A of this section is exempt from property taxation by this state or any agency or subdivision of this state and possesses and may exercise only those powers of the Arizona board of regents which are delegated to the nonprofit corporation by the Arizona board of regents and which are necessary to satisfy the requirements of section 103 of the internal revenue code, as defined in section 43-105, as specified in the terms, conditions, restrictions and agreements of the lease agreement. These powers are in addition to all those powers granted to a nonprofit corporation by title 10, chapters 24 through 40.

E. Any nonprofit corporation which is a lessee as described in subsection A of this section may issue bonds and incur obligations and pledge its revenues as security for the payment of the bonds or other obligations for health care institutional purposes to the extent provided by the lease agreement or amendments, renewals or extensions of the agreement. Nothing in this section shall be construed to authorize the incurrence of a debt by the state within the meaning of any constitutional restriction on debt.

F. Except as provided in subsection G of this section, any nonprofit corporation which is a lessee as described in subsection A of this section may acquire by purchase, lease or otherwise, and may operate, other health care institutions and real and personal property for purposes of providing products and services related to the operation of health care institutions owned, leased or operated by it. Such acquisition or operation does not affect the powers, rights, privileges or immunities conferred on such nonprofit corporation by this section.

G. No nonprofit corporation which is a lessee as described in subsection A of this section shall:

1. Until September 1, 1986 enter into any agreement with a county or a nonprofit corporation to which property is conveyed pursuant to section 11-256.03, subsection A if the agreement provides for the conveyance of any ownership interest whatever in the nonprofit corporation to which property is conveyed pursuant to section 11-256.03, subsection A or in the property described in section 11-256.03, subsection A. After August 31, 1986 any such agreement must be approved by the Arizona board of regents and the legislature. This subsection does not prevent the grant of an option to purchase such property, provided that the option may not be exercised before September 1, 1986 and the exercise of the option must be approved by the Arizona board of regents and the legislature. Under no circumstances shall any state general fund monies be used to acquire any interest in such property.

2. Own, lease, manage or operate any other health care institution or other real or personal property unless such acquisition, management or operation either:

(a) Relates to and furthers the educational or research purposes and goals of the university of Arizona hospital.

(b) Promotes the efficient and economical operation of the university of Arizona hospital or any other health care institution acquired pursuant to paragraph 1 of this subsection.

H. A nonprofit corporation which is a lessee as described in subsection A of this section may manage and operate property described in section 11-256.03, subsection A subject to the restrictions of subsection G of this section. Any management or operation agreement shall provide that the nonprofit corporation which is a lessee as described in subsection A of this section shall not be liable for any bonds or other obligation of any kind relating to the ownership or operation of the property described in section 11-256.03, subsection A incurred before the property is conveyed to such nonprofit corporation in accordance with subsection G of this section.

I. A health care institution which is the subject of a lease agreement as described in subsection A of this section is subject to section 15-1630.

J. A nonprofit corporation which is a lessee as described in subsection A of this section shall make semiannual progress reports as to its financial status and deliver them on January 1 and July 1 of each year to the Arizona board of regents, the president of the senate, the speaker of the house of representatives and the governor. The nonprofit corporation shall present an independently audited financial statement to the auditor general within ninety days of the close of the previous fiscal year. The auditor general shall review such statements and transmit them together with a report to officers entitled to receive progress reports by this subsection.

K. Any nonprofit corporation which is a lessee as described in subsection A of this section shall:

1. Be organized as a nonprofit corporation pursuant to title 10, chapters 24 through 40 only upon the approval of the Arizona board of regents.

2. Be governed by a board of directors, the members of which are appointed by the Arizona board of regents, provided that no more than forty-nine per cent of the members of such board of directors of the nonprofit corporation shall be officers or employees of this state and of such forty-nine per cent only two members of such board of directors may be members of the Arizona board of regents. Members of the Arizona board of regents who are appointed to the board of directors of such nonprofit corporation shall be residents of different counties unless all members of the board of regents are residents of the same county.

3. Be organized under articles of incorporation or bylaws approved by the Arizona board of regents which shall provide among other things that:

(a) No earnings of the nonprofit corporation shall inure to the benefit of or be distributable to its members, directors, officers or other individuals, except that the nonprofit corporation shall be authorized to pay reasonable compensation for services rendered to it by individuals other than members of the board of directors of the nonprofit corporation acting solely in such capacity, to reimburse expenses in connection with services rendered to or expenses incurred on behalf of the nonprofit corporation and to make payments and distributions in furtherance of the purposes of the nonprofit corporation.

(b) Upon the dissolution or liquidation of the nonprofit corporation, the board of directors of the nonprofit corporation shall, after paying or making provision for the payment of all of the liabilities of the nonprofit corporation, distribute all of the assets of the nonprofit corporation to the Arizona board of regents or its successor.

(c) Neither the articles of incorporation nor the bylaws of the nonprofit corporation shall be amended without the approval of the Arizona board of regents.

(d) The board of directors of the nonprofit corporation may adopt nondiscriminatory rules and regulations providing for the use of the university of Arizona hospital by, and staff privileges for, any persons licensed under title 32, chapter 7, 13 or 17 whether or not such persons have a faculty teaching appointment with the school of medicine, providing, however, that such rules and regulations shall contain requirements sufficient to protect the educational and research purposes and goals of the university of Arizona hospital.

L. No member of the Arizona board of regents who is also a member or director of a nonprofit corporation which is a lessee as described in subsection A of this section shall as a regent vote upon any matter pertaining to such a corporation as may come before the Arizona board of regents.

M. For the purposes of this section "nonprofit corporation" means a corporation as defined in section 10-3140.