The Local Government Center is Back in the News

Well the Local Government Center (LGC) is back in the news again. Over the past couple of weeks Tim Buckland writing for the Union Leader had a trio of articles. It appears the LGC under the direction of interim Executive Director George Bald and with the concurrence of board Chairman Thomas Enright, has gotten it wrong once again.

Their latest scheme to fix the mess they made when they went to Delaware to form for profit corporations for their trusts in 2003 is to dissolve the LLCs and create not for profits entities for the Property and Liability Trust and the Health Trust. In addition there will be no more LGC and the New Hampshire Municipal Association (NHMA), will be a separate entity with no oversight of the various insurance pools or trusts.

Sounds good, right? But there are many stumbling blocks as the LGC attempts to correct their past mistakes. I have been told there is nothing illegal or particularly strange about converting a for profit to a not for profit. But in the case of the LGC there are any number of questions, because the for profit corporations the LGC established in 2003 were formed improperly (illegally?). So how do you transfer the value of an invalid corporation and make it legitimate. Can the LGC launder their ill gotten gains (and debt) and make them legitimate by funneling them into legally recognized not for profits and then dissolving their improperly formed LLCs?

And if the newly formed not for profits (as required by law) are required to give something in return for the value of the LLCs, how does that work? Where do the funds to pay the improperly formed LLCs come from? And who in their right mind would think that transferring legal assets to an invalid corporation is either legal or a good idea? 

Enright and Bald thought it was a god idea for about 5 seconds. That is until the Bureau of Securities Regulation (BSR) had a chat with them. You remember the BSR, they’re the organization that brought a halt to the LGC’s questionable activities. The ruling last summer by Donald Mitchell (the hearing officer) clearly stated the course of action the LGC and its Trusts must take to remain a Pooled Risk Management Program (under RSA 5-B) in New Hampshire. 

The LGC at first appealed Mitchell’s order to the New Hampshire Supreme Court. When that didn’t look promising they attempted to work out a compromise with the BSR. But that ship had sailed months ago. So now they are attempting to follow the hearing officers final order.

So when Thomas Enright, the board chairman was quoted with respect to the reorganization in one of the articles by Tim Buckland of the Union Leader;

"It seems fairly straightforward to me, I don't see that there's a lot here that I'm concerned with."

We should ask if those running and overseeing the LGC and its trusts have learned anything after spending over $1.5 million dollars on legal fees in losing the hearing and on the hook for an additional $500,000 (the amount the state spent to present their case at the hearing). Because the loser picks up all the legal fees. The short answer appears to be no, they haven’t learned a thing.

This week the LGC and its 2 trusts are having Public Hearings on Proposed and Restated Bylaws for the LGC and their Health and Property-Liability Trusts. Here’s the link with the proposed dates, time and places for theses meetings:

http://www.nhlgc.org/about/whatshappening_detail.asp?row=0

And here are some questions you should expect to be asked and answered before any reorganization occurs.

Are assets in the LLCs ill gotten gains (illegal, improper, invalid)?

How are assets transferred from LLCs to not for profits and from not for profits to LLCs, if the LLCs were formed improperly and are not recognized as valid corporations in New Hampshire?

Currently the workers compensation fund is having financial difficulty. They have been ordered to pay back $17 million to the Health Trust. Where does that money come from?

In addition to the $17 million that is owed the Health Trust, the LGC has been ordered to return $36 million to their members by December 1, of this year. It is my understanding that at least some of that surplus is tied up in long term investments (another problem for the LGC). If funds are taken out of the long term investments early, money is lost. Since it has been established by the hearing officer that those funds are surplus to be returned to the members, and since all funding from the Trusts comes from their members, where does the LGC and its Trusts get the funds to pay back the surplus to their members. 

Let’s get down to the serious stuff. In 2003 the LGC registered its Trusts as LLCs (for profit corporations) in Delaware against the advice of the Attorney Generals Office (AG) and the BSR. There is also a question of who authorized this transaction and who authorized the original transfer of funds from the Trusts to the LLCs (individuals or Boards) and whose name(s) appears on the documents of the LLCs.

So, who is responsible for dissolving the LLCs?

Who has to sign off on this? Are the Boards’ approvals necessary or just the person(s) who is the agent of record on the documents?

Who oversees the dissolution and the distribution of funds?  Assuming that the distribution of funds can be worked out. The hearing officer Donald Mitchell has the BSR as the oversight agency, but when the LGC appealed his Final Order the AG’s office became involved.

And what about the Internal Revenue Service’s interest in all of this. If in fact the LLCs are for profits wouldn’t the LGC and their Trusts owe taxes? In addition the LGC has claimed that it is a government entity and that relieves them from certain filing obligations. Maybe...maybe not.

So what happens if the IRS finds that the LGC owes taxes. Where does that money come from?

And let’s assume the LGC is successful in reorganizing from for profits to not for profits. What happens if after the formation of the not for profits the IRS rules that the LLCs owe taxes. Can the IRS go after the newly formed not for profits claiming that the reorganization was done to take funds from a tax owing corporation to a not for profit to avoid paying taxes. Would the newly formed not for profits  now be on the hook and where does that money come from since the LLCs would no longer exist?

There’s still the transfer of real estate or payment to the Health Trust from when the LLCs were formed and the Trusts weren’t compensated for their holdings. 

And finally what happens if the LGC and its Trusts can’t meet their obligations as determined in the Final Order from Donald Mitchell? Bankruptcy, receivership, a sale to an interested party? What happens to their members?

All in all the LGC has a huge mess that needs to be unraveled. And it is a mess that they created. It is a mess they knew they weren’t allowed to create. And it is a mess the members of the LGC’s Trusts continue to pay for.

The public hearings for the Trusts are this Tuesday and Thursday at 9:00 and Friday at 1:00 for the LGC - NHMA. For more information use the link above.

I’m planning on attending the public hearings this week. So I should have more for you early next week. In the meantime I’d buckle up, the ride is only going to get bumpier from here.

And here are the links to Tim Buckland’s Union leader articles:

http://www.unionleader.com/article/20130603/NEWS06/130609874/0/NEWS0602

http://www.unionleader.com/article/20130603/NEWS06/130609875/0/FRONTPAGE

http://www.unionleader.com/article/20130610/NEWS06/130619967/0/news04