BRADENTON, Fla. – In rural Alabama, the Chilton County Health Care Authority cut the ribbon Oct. 2 on the community's new $44 million hospital in Clanton, even though a
The new St. Vincent's Chilton hospital replaced an old facility serving the county's 44,000 residents that closed in 2012.
The Chilton County Health Care Authority issued $38.13 million of bonds in November 2015 to finance construction of the new 30-bed hospital.
The bonds are backed by a 1-cent sales tax, authorized in a local bill by the Alabama Legislature, and overwhelmingly approved by 80% of local voters in a June 2014 referendum.
Even before the hospital opened, it faced a class-action lawsuit brought by Roy Burnett, a local accountant.
The six-count suit, filed June 9, contends that the 1-cent sales tax was illegally imposed because Alabama legislators improperly voted in March 2014 to approve the local bill authorizing the tax.
The complaint seeks to have the tax repealed and refunds issued to those who paid it.
"We have gone through a good bit of effort to protect the people of Chilton and to protect our 1-cent sales tax," said Sibley Reynolds, secretary of the Chilton County Health Care Authority.
It would be "devastating" if the tax is struck down as a result of the lawsuit because there is no other funding source for the bonds, said Reynolds, who is also a Chilton County Circuit Court Judge.
"I guess we would have to beg forgiveness" from bondholders until a new tax bill could be passed by the Legislature, he said, when asked if the loss of the tax would constitute a default on the bonds.
The new hospital received a warm welcome. "Chilton County is so Blessed to have a highly regarded & respected medical service team for their care. Thank you St. Vincent's!" one resident wrote on the hospital's
Reynolds said he hopes a statewide amendment on the Nov. 8 ballot will rectify the Legislature's vote on the local bill, averting a lapse in tax collections.
Amendment 14 would ratify hundreds of local bills passed by state lawmakers since 1984 that did not comply with voting requirements in Alabama's constitution.
"What's at stake for local government would be local laws that prescribe the operational and financial process used by almost every city and county in Alabama," said Sonny Brasfield, executive director of the Association of County Commissioners of Alabama.
"A challenge to these laws would be expensive and, as an alternative, the re-passage of all of these local laws would be just as costly and would be a procedural nightmare," said Brasfield, whose organization is encouraging voters to say "yes" to Amendment 14.
While amendment supporters believe hundreds of local bills could be upended if the measure fails, opponents have said statutes of limitations protect most bills from legal challenges such as the suit brought in Chilton County.
The issue first came to light in connection with a measure state lawmakers passed in 2015 allowing Jefferson County to refinance $595 million of school warrants backed by an existing 1-cent sales tax.
The deal would have marked the county's first return to the bond market since emerging from bankruptcy in December 2013, but it was torpedoed when a court threw out the legislative authorization vote.
In addition to the refunding, the local bill would have allowed Jefferson County to use excess sales tax collections – after paying debt service on the refunding warrants – to pay for capital, transit and local zoo expense.
The bill also provided $3.6 million a year for discretionary use by the county's local legislative delegation.
When the county filed a lawsuit to validate the warrants in court, a group of local taxpayers represented by attorney Calvin Grigsby filed a legal challenge citing various constitutional violations, including an improper vote by the Legislature in approving the Jefferson County bill.
In December 2015, Circuit Judge Michael Graffeo ruled that the voting procedure used by state representatives failed to comply with requirements of the constitution - even though similar procedures had been used for decades to approve measures for cities and counties across the state.
Graffeo said that a vote of three-fifths of the representatives present must vote to approve a local bill, when that bill is being considered by the Legislature before an annual budget has been passed.
In Jefferson County's case, 35 state representatives abstained from voting on the bill, as part of a longstanding custom in which House members abstain on local bills outside their districts, while 13 voted to approve it, and three voted against it. After that, the bill was approved by the Senate and signed by Gov. Robert Bentley.
Graffeo's ruling has been appealed to the state Supreme Court, where Jefferson County attorneys have requested that the case be stayed until the Nov. 8 election.
Supporters of Amendment 14 hope the measure will cure deficiencies in all prior votes by the Legislature.
"The issue is critical to the validation of almost 700 local bills passed by the Alabama House of Representatives," said Jefferson County Commission President Jimmie Stephens. "Our school tax refunding is one of those bills."
Grigsby disagrees.
He believes that the amendment could apply to only two bills – those passed for Jefferson County and Chilton County – because the time has run out to file legal challenges on other local bills due to statutes of limitations.
The case before the Supreme Court centers on one issue involving voting procedures, although Grigsby's suit cites several other constitutional issues as being problematic for Jefferson County's school bonds that he said must still be resolved by the court.
In Chilton County, the 105-member House voted 25-0 to approve the local 1-cent sales tax bill, according to the suit filed by Roy Burnett.
However, 59 representatives abstained from voting on the measure, the document said.
In addition, the suit contends that the bill originated in the Senate, but the state constitution requires measures that raise revenue originate in the House.
Jeff Sewell, an attorney with Sewell Sewell McMillan LLC, said Burnett does not oppose the new hospital.
Sewell said his client questioned the legality of the sales tax Chilton County residents were paying because of legal questions raised in Jefferson County's sales tax bill dispute, which he said has been widely publicized.
Chilton County is about 54 miles south of Jefferson County, where Birmingham is the county seat.
Sewell, who served as Jefferson County's in-house attorney for many years, said he also questioned why the official statement for the Chilton County Health Care Authority's bond issue did not disclose the pending lawsuit in Jefferson County.
Reynolds, the Health Care Authority's secretary, said Tuesday that when the authority's bonds were sold in November 2015 he was not aware that Jefferson County's lawsuit had been filed five months earlier.
"I don't have any reason to have known that," he said.
Reynolds was asked if the authority's bond attorneys, Balch & Bingham LLP, discussed Jefferson County's August 2015 validation suit prior to issuing the Health Care Authority's bonds.
"I was not involved in any discussions to my memory," he said.
The Balch & Bingham law firm filed the bond validation suit for Jefferson County that resulted in the legal challenge that is pending before the Supreme Court.
The firm also served many years as Jefferson County's bond counsel.
Reynolds said that Burnett's suit against the Chilton County Health Care Authority was filed about four months ago, and that's when the connection to Jefferson County's case came to light for him and work began on legislation authorizing Amendment 14.
The authority has not disclosed the suit on the Municipal Securities Rulemaking Board's EMMA filing system.
The filing of a lawsuit is not necessarily an event that must be reported by the continuing disclosure agreement under Securities and Exchange Commission Rule 15c2-12, said Chilton bond attorney J. Hobson Presley Jr., a partner at Balch & Bingham.
Presley said the Health Care Authority's bonds closed before the trial court struck down Jefferson County's sales tax bill validation suit because of the improper legislative votes and the matter now is awaiting a decision by the state Supreme Court.
"Our analysis is that the matter is pending at the Supreme Court," he said. "If they render an adverse opinion that would have an effect on Chilton County, and would be something you would report.
"We thought then, and think now, that the tax is valid," he said. "It's unfortunate we are going through all this."
The authority's bonds, underwritten by Stifel, Nicolaus & Co., priced Oct. 28, 2015. They were rated AA-minus by Fitch Ratings, with a stable outlook.
Even if Amendment 14 passes, Sewell said he believes it will have no effect on his client's lawsuit, or the suit filed in Jefferson County.
Litigants who file lawsuits that are already proceeding through the judicial system are protected constitutionally from being manipulated by retroactive legislation, he said.
"The statute proposing Amendment 14 was drafted by Jefferson County's lawyers for the purpose of validating a scheme to divert education sales tax money from public schools in Jefferson County to slush funds for Jefferson County politicians," Sewell said.
"Amendment 14 is otherwise a legal nothing," he said. "I don't think it will make a difference in Jefferson County, any more than it will in Chilton County."
