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My Turn: Here’s why Concord and others have gone to court

On Monday, the city of Concord and the towns of Durham, Salem, Peterborough, Northfield, Temple, Meredith, Plainfield, Bennington and Auburn filed suit in superior court against the Local Government Center and the New Hampshire secretary of state.

The matter stems from an Aug. 16, 2012, order from a hearing officer of the secretary of state’s office who found that the LGC had engaged in actions or inactions that resulted in multiple violations of state law, starting in 2003 and continuing through 2010. The illegalities included a failure to distribute excess earnings and surpluses to member towns, cities, school districts, counties and local special districts on an annual basis, improper transfers of money from the Health Care Trust and Property Liability Trust to the Workers Compensation Trust, and a transfer of the Health Care Trust’s and Property Liability Trust’s respective interests in real estate to Local Government Center Real Estate Inc., without consideration. The order found that but for these irregularities, there would have been additional excess earnings and surpluses available for return to LGC members on an annual basis.

Pursuant to that order, the LGC is required to distribute $33.2 million from the Health Trust and $3.1 million from the Property Liability Trust to political subdivisions that were members of the programs on Aug. 16, 2012. For a variety of reasons, the communities bringing suit were no longer members of the LGC programs on that date.

The order required the LGC defendants and the state Bureau of Securities Regulation, which regulates the LGC, to enter into an “agreed-upon plan” to return excess earnings and surplus to the political subdivisions that participated in the programs at any time after June 14, 2010, and which were responsible for making payments that enabled the surplus to exist. However, failing any such agreement, the hearing officer did not order LGC to return excess earnings and surplus to the participating political subdivisions responsible for making the payments that enabled the surplus to exist. The hearing officer’s order instead only required the return of excess earnings and surplus to “current members” of the Health Trust and Property Liability Trust.

The Bureau of Securities Regulation and the LGC defendants did not reach an agreement. As a result, the hearing officer’s resulting order did not distinguish among members in the manner that would have been necessary for its order to constitute restitution. By ordering the money returned only to current members, it created windfalls for some but inadequate recompense for others.

It was entirely unforeseeable that the hearing officer would order payment to political subdivisions in a manner wholly disconnected from those members’ actual contributions.

The hearing officer’s order is the subject of a pending appeal in the New Hampshire Supreme Court. Several of the plaintiffs in this case attempted to intervene and stay the arbitrary distribution of the excess funds. Those efforts were denied by the court.

If the LGC makes a payout pursuant to this order, the refunds would not meet the standard articulated in the order because they are not “in proportion to each member’s contributions.” Further, they would not be in compliance with state law, as the payouts would not be consistent with the statute, namely RSA 5-B:5, I(c) requiring each pooled risk management program to “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.”

Concord, Peterborough, Durham, Salem and many other political subdivisions throughout the state, would have been able to recoup a refund had the order’s operative date been June 14, 2010 – the date set by the order if the Bureau of Securities Regulation and LGC reached an agreement.

To fix this, the plaintiff communities have petitioned for declaratory and injunctive relief. In fashioning an appropriate remedy, we have asked the court to recognize that there are other entities who are also entitled to receive restitution, and that in order for payment to constitute “restitution” under the law, all entities contributing to the surplus should be placed, as nearly as possible, in the position they would have occupied had LGC made annual distributions of excess surplus and earnings as required by law.

Absent action by court on or before Sept. 1, the LGC will make the improper distribution, including payment of excess and undeserved funds to some municipalities and other political subdivisions in the various LGC programs. Once that happens, the LGC may have fully met its obligations under the order, but the legally deserving plaintiff communities in this case will be unable to obtain money to which we are legally entitled.

(Todd I. Selig is the Durham town administrator.)

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