The Local Government Center Appeals $50 Million Final Order

From a press release on 8/23/12 from the Local Government Center: 

“On August 21, at a meeting of the Board of Directors of LGC, the Board directed its attorney, William Saturley, to proceed with the next step in the Administrative Hearing process, which is to file a Motion for Reconsideration. The Board, in its unanimous vote, felt the final Order of 81 pages, offered sufficient grounds for further appeal if the Motion to Reconsider is denied.”

So while I had hoped the LGC wouldn’t appeal I can’t say I’m surprised they did. All along this agency has made the rules they played by and when they didn’t like the rules they made, they simply ignored them.

So the question becomes is this a delaying tactic hoping new legislation will negate some of findings of the hearing officer, Donald Mitchell, or does the LGC really believe they were treated unfairly? Either way guess who loses? You do. More legal costs, more delays and no certainty as to how the LGC will deal with their surplus and the reorganization of their various risk pools.

Let’s break this down a bit. First let’s look at the order that identifies $50 million as surplus that must be returned. In talking with others and in reviewing the testimony from the hearing, the LGC being allowed to keep 15% of claims as reserves appears to be generous. That converts to a rate based capitol model (RBC) of 3. Using  (RBC) in 1997 it was 1.22 and by 2008 it was 6.4. In 2003 net assets were $24.9 million and in 2008 they were $92.6 million. 

Why the jumping around from percent to RBC to net assets? The models used to calculate the surplus changed and as I mentioned in my last blog there were a number of years were records needed to be reconstructed.

Here’s a quote from  footnote #20 from the Final Order:  “In all years reported at hearing the combined premiums of all health trust members exceeded the cost of claims loss for which the trust was responsible.” So at no point, regardless of the size of the reserve, was the LGC unable to meet its financial obligations to pay claims. 

So let’s slice through the soft stuff and get real here. The LGC kept too much money. They spent it on activities not related to the trusts. They took assets away from the trusts and didn’t compensate them. It’s clear - even to me - if you have funds that can be used for expenses other then those relating to the trusts, than it is surplus. If it is surplus guess were it goes? That’s right, back to those who paid.

Now onto the other issue. Should the LGC be forced to have separate boards for each trust? So who is the board responsible to? The corporation or the shareholders? In this case the corporation is the Local Government Center and the shareholders are the municipalities and government entities that receive services from the Trusts. Some may argue the shareholders are the individuals that make up the municipalities and government entities. But let’s hope that the representatives of the government entities are looking out for the best interests of those they represent.

So let’s look at the first sentence of RSA 5-B:1 Purpose. -  “The purpose of this chapter is to provide for the establishment of pooled risk management programs and to affirm the status of such programs established for the benefit of political subdivisions of the state.”

Who the risk pools are being established for is clearly defined in this statute. It is not the corporation, but those being provided services by the corporation (LGC). In fact the sole reason for establishing pooled risk management programs, as defined in the statute, is for those who participate in these risk pools.

if there is one board and it is the LGC board how does that board look out for the best interest of the LGC, its real estate trust, the NH Municipal Association and the health, property and liability trusts? The answer is it doesn’t and that is why each trust must have its own board of directors.

Once again the communities and government entities that placed their trust in the Local Government Center are being denied what RSA 5B promises. (An RSA virtually written by John Andrews, the previous executive director of the LGC.) And once again money will be expended, not for providing services for the LGC’s members, but to preserve the egos of those who erred. 

It’s time for the Local Government Center to turn inwards, use some introspection and understand that  regardless of how they interpret the law and regardless that their lawyers may point to ambiguities in the RSA, that they (the LGC) did not live up to the intent of the statute. 

Again I’m hoping the LGC will put this to bed and mover forward. Move forward to provide a better product for their customers and move forward in becoming a stronger and more responsible organization.