An expected decision to dismiss the Chapter 11 reorganization ruling for Mercy of Northern New York's finances has area community leaders scrambling to find out what went wrong and what will become of the Stone Street facility.

"This changes the dynamics of this issue dramatically," said Donald C. Alexander, Community Assisted Living Corp. spokesman. "It's a major issue; the sad part about it is that it has been going on for some time."

Mercy has 270 unionized employees and provides more than 200 beds.

City officials believe that a U.S. Bankruptcy Court judge will dismiss the 2005 Chapter 11 ruling at a hearing in mid-November. Both Mayor Jeffrey E. Graham and City Manager Mary M. Corriveau said they expect the ruling will allow creditors to recoup funds that they are owed.

The move effectively would leave Mercy at the whim of creditors and could force it to close within two to three years. General Electric Capital Corp. is the facility's largest secured creditor and is asking that the judge liquidate the facility's assets.

If the facility were to close, Mr. Graham said, he's concerned that the city will be saddled with the expense of either maintaining or demolishing the two-block building.

The state Department of Health also is pushing to have the case dismissed. The agency does not feel that Mercy is providing acceptable care and would rather have two nursing homes built in the county that can provide 120 to 160 beds each, according to a letter written by DOH representative Nancy Hershey Lord to Judge Cecelia G. Morris.

"Continued long term usage of the Mercy of Northern New York facility, which is an older hospital building, is inconsistent with the model which would provide the best long term care services in the area," Ms. Lord wrote.

Suzanne B. Steinau, Mercy's chief executive officer, provided written comments to the Times Friday afternoon.

"The only thing everyone is in agreement on is that the case should not be converted to a Chapter 7, which would be liquidation," she wrote. "Mercy is not going to close any time soon, but its restructuring has already begun."

If the case is dismissed, Mercy will continue to work with creditors, which might include reducing payments and extending the length of payment, Mrs. Steinau wrote.

Mrs. Steinau also said that DOH is trying to push Mercy out of the picture.

"There is clearly a need to restructure service delivery in the north country," she wrote. "Mercy appears to be one of the places where NYS would like to see that restructure begin to play out."

Mrs. Steinau lambasted the facility's employees union in her comments.

"Every effort to decimate Mercy, including the loss of the veteran's affairs clinic, the loss of the dialysis clinic and the loss of the 76 nursing home beds has been supported by, if not led by, the union."

Here are the positions of the following parties based on letters written to the judge:

■ City of Watertown: Draw up another "negotiated resolution" that will allow Mercy to continue operating while under Chapter 11.

■ Service Employees International Union Local 1199 Upstate: Dismiss the Chapter 11 ruling and find a new owner for the facility.

■ Mercy of Northern New York: Redraw terms for Chapter 11 and keep the facility open. Mercy lawyers maintain that the company has operated at a profit, but not at a level that allows it to keep up with bankruptcy payments.

■ U.S. Bankruptcy Court Trustee Diana G. Adams: Dismiss the case because the facility, based on current finances, will not be able to meet any restructured deal.

■ General Electric Capital Corp.: Liquidate Mercy's assets, allowing creditors to recoup what is owed.

■ State Department of Health: Dismiss the case and allow Mercy to close.

Meanwhile, local officials have taken cover and will await the judge's decision.

"I am writing to express my deep concern about the dire situation facing Jefferson County and the surrounding region as a result of the continued deterioration of Mercy of Northern New York's financial condition," state Sen. Darrel J. Aubertine, D-Cape Vincent, wrote Thursday in a letter to state DOH Commissioner Richard F. Daines.

The letter continues: "I note that, given the magnitude of the problem, Jefferson County will need additional resources from New York State beyond technical assistance."

Mr. Alexander said Community A.L. will need to meet within the next few weeks to determine the best course of action based on the judge's decision. The group is made up of health care officials and lawmakers and aims to strengthen health care in Jefferson County.

"In my view, this is very critical. There is a mental health component and other types of care being delivered at Mercy," Mr. Alexander said. "The first thing is, we must get a complete understanding of the problem. We need to, in heaven's name, figure out what's going on here."

An independent contractor needs to be hired to assess the state of health care in Jefferson County, especially if it appears Mercy will close, he said.

"In my view, we need outside help, really quickly," Mr. Alexander said. "We have a plan and we're modifying that plan as fast as possible to include components we didn't know we would need."

Jefferson County Legislator James A. Nabywaniec, R-Calcium, Health and Human Services Committee chairman, echoed Mr. Alexander's concerns.

"Phone calls are being made just to figure out what's going on and what might happen," he said. "We want to keep what we're doing moving forward. How Mercy falls in the mix, we're just trying to find a solution with that segment of the housing. There's still a lot to be answered."

Whatever the outcome, the patients served at Mercy need to be taken care of, said County Legislator Carolyn D. Fitzpatrick, R-Watertown.

The facility is within the district Mrs. Fitzpatrick represents.

"We'll look at the dollars and cents, but we need to focus on the people; the people need to be our highest priority and making sure they're served," she said. "It's not our card game yet, but we're waiting and we're watching and we'll do our homework before that decision is made."

The judge will hold the hearing Nov. 18 in Poughkeepsie. It was erroneously reported in an article on Friday that the hearing would be held Nov. 16, a Sunday.

Times staff writer Rebecca Madden contributed to this report.