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Judge Blames Ala. for Precipitating Jefferson Co. Bankruptcy Filing

BRADENTON, Fla. — In a ruling denying Birmingham, Ala., the ability to sue bankrupt Jefferson County over maintaining a hospital for the indigent, the judge overseeing the Chapter 9 case repeatedly blamed the state of Alabama for precipitating the county's bankruptcy filing in November 2011.

Birmingham Mayor William Bell and the city had asked the bankruptcy court to allow a lawsuit to be filed in state court to stop the County Commission from closing inpatient and emergency-room care at the county-owned Cooper Green Mercy Hospital for the indigent. Birmingham is the county seat.

Federal Judge Thomas Bennett on Wednesday detailed his reasoning for enforcing a provision known as the automatic stay, which goes into effect when a bankruptcy case is filed. The stay prevents new and existing lawsuits from going forward.

Bennett would not lift Jefferson County's stay, which prevents Birmingham from suing the county.

Bennett also said that there is no legal requirement for the county to have a hospital, and that it is only required to pay the cost of indigent care that is not fully reimbursed by other governmental programs or third-party payers.

The judge's 41-page opinion also focused heavily on what drove the county to file the country's largest municipal bankruptcy with $4.1 billion in debt, mostly related to its sewer system.

"Contrary to what many have written and what others have assumed was the sole impetus for Jefferson County's bankruptcy filing — its sewer system indebtedness — a major cause was actually beyond the county's control," Bennett said. "The initiating act was the Alabama Legislature's elimination of a…tax that had been in place for a number of years and working as designed."

Bennett provided a concise discourse on how Alabama state courts struck down the county's occupational tax, which was a major source of revenue for the general fund, and that the Legislature failed to enact a replacement tax. Alabama counties do not have home rule, so lawmakers must approve nearly all taxes that are imposed.

"The loss of this unencumbered revenue source was rooted in the inability of the state of Alabama and its Legislature to properly enact a statute," Bennett said. "All those who attribute Jefferson County's bankruptcy case and Cooper Green's plight only to conduct and actions by the county are ill-informed."

"The state of Alabama and its legislators are a significant, precipitating cause," he said. "Both before and after filing its Chapter 9 case, the county's revenue-seeking activities with Alabama have been to no avail."

In addition to losing the job tax, the county's cash-flow problems were worsened because of routine deficits at Cooper Green hospital that ranged from $40 million in fiscal 2012 to $10 million in a year in 2011 and other recent years even though the hospital benefitted from $40 million a year from a designated sales tax. The hospital also had hundreds of employees to service an average of 40 inpatients a day.

While halting some major services at the indigent-care hospital has been highly controversial, Bennett pointed out that it is "surrounded by a massive health-care infrastructure operated by numerous other medical providers, including the largest in Alabama, the University of Alabama at Birmingham."

"Jefferson County is currently transitioning Cooper Green Mercy Hospital into a sustainable, 21st century health-care model," the county said in a rare press release announcing Bennett's ruling. "Cooper Green Mercy will discontinue inpatient and emergency room services at the end of business Dec. 31, 2012."

The county-run hospital will open an urgent care center on Jan. 1, and will continue to operate primary and subspecialty care clinics. The county also is entering agreements with local hospitals to provide other types of care for the poor.

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