More Local Government Center Stuff

Some Issues to Consider:

$33.2 million to be returned from the LGC Trusts to their members.

Surplus will only be returned to members who participated any time after June 14, 2010.

The $17.1 million given to the Property and Liability (P&L) Trust for the workers comp fund from the Health Trust Fund and later declared a loan, still needs to be paid back to the Health Trust.

Real Estate shares in LGC have been distributed to the Health Trust and P&L Trust in proportion to their initial contributions and subsequent cash contributions, as stated in a letter from George Bald, the LGC’s acting executive director.

The LGC and their Trusts must return all earnings and surplus in excess of any amounts required for administration, claims, reserves, and purchase of excess insurance to the participating political subdivisions, as required by RSA 5B and the hearing officers final order.

“As you may have heard, however, a small number of former Health Trust members have challenged the distribution set by the Order because they failed to qualify for the return of surplus. They also asked the Court to stay (place on hold) the distribution of the 2010 surplus until their challenge is decided.” Quoted from a letter George Bald has sent to all Health Trust members.

“10. All amounts in excess of fifteen percent (15%) of claims or in excess of an RBC 3.0 actuarial analysis which must be approved by the BSR consistent with its supervisory authority and which it shall exercise in good faith, or the lesser of the two calculations, shall annually be returned in the form of cash, dividends or similar cash equivalents to members.” From the Administrative hearing officers Final Order.

And Here’s What I Think:

Since my last blog the Local Government Center (LGC) has met to restructure their bylaws for their Health and Property and Liability Trusts and for the LGC. This move is in preparation for converting the Trusts and the LGC from for profit LLCs (that were formed illegally in Delaware) back to legally conforming not for profit entities registered in New Hampshire, as defined in RSA 5B. In addition the LGC will cease to exist and the New Hampshire Municipal Association (NHMA) will become a stand alone entity with no oversight or connections to the Trusts. 

Originally the LGC wanted the change from LLCs to not for profits to be completed by July 1. However there was concern by the Bureau of Securities Regulation (BSR) that there were just too many unanswered questions to be able to move as quickly as the LGC wanted. I addressed many of the BSR’s concerns in my last blog.

Also  this past week, George Bald, the LGC’s acting executive director announced through a letter that was also posted on their website, that the $33.2 million that was determined to be surplus from the Trusts (by the hearing officer) would be returned to their members. Unfortunately there are some former members who left the LGC and are now demanding that they also receive a share of the retuned surplus. This demand by former members may have the effect of delaying the return of the surplus to current members.

But here’s the irony in all this, as I wrote in another earlier blog. The former members who are complaining about not being included in the distribution of the surplus are the same folks who were represented on the board of directors of the Trusts. They are the same members who supported the LGC when they made the rules that would prevent former members from receiving any surplus distributions if they left the Trusts before the distribution of the surplus occurred.

The problem is these board members were trying to serve two masters. Their communities and the LGC. It appears they failed miserably on both counts. And since some of these board members were employed as administrators in their own communities, whose interests do you think should have taken precedence. The communities that hired and paid them or the LGC. Now that these individuals have been caught trying to play both sides against each other they are crying foul. The only foul here is the fowl smell coming from their self righteous protestations.

Many of the LGC’s and their Trust’s by laws were biased in favor of the LGC over their members. The fact that the board members (who all represented their communities) would allow the LGC to have an advantage over their communities is beyond comprehension. 

But back to more current issues. There is a disagreement between some that the LGC’s Trusts do not have the funds available to pay back the surplus without having to dip into long term investments that would incur financial penalties. I have been assured by the LGC that they do have the funds available (to pay back the surplus) without incurring breakage fees for terminating longer term investments.

I have also been informed that the LGC has reimbursed their Trusts for investment in real estate that the Trusts were not compensated for when the LLCs were formed in 2003.

But there are still some rough waters ahead. The LGC is still trying to find a way to negotiate with the BSR and withdraw their appeal to the New Hampshire Supreme Court. But... the LGC continues to challenge the hearing officers rulings (in his final order) as to how the LGC and their Trusts need to move forward to be in compliance with State Law (RSA 5B).

The LGC still has issues concerning the money that was given to the workers comp fund from the Health Trust, that was later declared a loan. They are contesting the order that they purchase reinsurance.  And they feel they should be able to retain more then 15% in excess of the claims they pay. Retaining more for reserves and less to be returned to members as surplus.

There is the issue of whose calculations are used when setting premiums. And there is the issue of whether the LGC is using numbers that are more reflective of an insurance company (which they are not and that needs to generate a profit for their share holders) then using figures that would be more reflective of a risk management pool (a not for profit) that can go back to its members should a shortfall occur.

And there are still concerns - even though the issue of the return of surplus seems to have been resolved - the Trusts may use a formula (actuarial estimates - guesstimates) to raise their premiums in order to keep a higher then allowed reserve, that otherwise would be considered a surplus to be returned to their members.

The argument relating to the reserves and surplus appears to favor the ruling by the hearing officer. The LGC has never had a year when they did not have the funding to pay for claims. Where they did show red ink were in administrative expenses. And one can argue (and it has been) that some of those costs had nothing to do with administrating the Trusts and everything to do with propping up a failing workers comp program and funding administration's costs for programs that the Trusts members were forced to join, but are not allowed under RSA 5B.

I believe the LGC when they say they want to resolve these outstanding issues. But I don’t believe that their solution will best serve their members, or meet the final order’s rulings. I believe that the LGC is still having difficulty fully accepting the magnitude of how far they strayed from the intent and purpose of RSA 5B when they formed illegal LLCs in 2003. And I believe the LGC’s actions in trying to change the rules to better fit their current business practices (rather than the intent of RSA 5B) continues to reflect their unwillingness to let go of their past mistakes and move forward in a manner that is beneficial to their members and the reason RSA 5B allows risk management pools to operate in New Hampshire.