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LGC to refund $22.5 million

Last modified: 10/13/2012 12:00:00 AM
The Local Government Center announced yesterday it would return $22.5 million in surplus funds to its members. But state regulators said the move doesn't resolve an August order that the group return $52 million in improperly retained funds.

The Bureau of Securities Regulation is even considering placing the LGC into receivership in order to prevent it from squandering more money, said Andru Volinsky, special counsel to the bureau.

'It raises the question of receivership to prevent further squandering of resources or encumbrance of resources,' Volinsky said. 'We've heard from a number of LGC members that they would rather see a resolution of this matter over continued multimillion-dollar spending on legal fees.'

Maura Carroll, the LGC's executive director, rejected the idea of receivership. She noted the LGC accrued those fees - the group estimates them at $1.9 million - in a legal proceeding brought by the bureau.

'I don't think there's any need for receivership,' she said. 'We responded to a legal proceeding . . . and now we are doing what we always do, which is return surplus to members. And if Mr. Volinsky thinks that is squandering LGC resources, I think it is exactly what the statute provides.'

The LGC operates pooled risk programs that provide local governments in New Hampshire with health and property insurance. Securities regulators last year accused the group of financial mismanagement and improperly retaining money that should have been refunded to member towns and school districts.

After an administrative hearing, the hearing officer in August ordered the LGC to return $52 million to its members and change its operating practices.

The LGC's request for reconsideration was denied last month, as was a similar order filed by the securities bureau. Carroll said the LGC must decide by Oct. 24 whether to appeal to the New Hampshire Supreme Court.

But yesterday, the group announced it would return $22.5 million in surplus funds to its members this year, comprising $20.8 million in surplus health insurance funds and $1.7 million in unneeded property insurance funds.

Carroll described it as a routine practice, unrelated to the August order. She said the group sets target reserve levels each year based on the previous year's audit, and then returns surplus money to members if appropriate.

The main difference this year, she said, is that the LGC plans to return the surplus in a 'contribution holiday,' a reduction in future payments, rather than using the money to reduce the rates paid by members.

That was a change favored by state legislators as well as the securities bureau, she said.

'While we don't believe it's required by the statute, it's clearly the preference of the regulator,' Carroll said. 'So we're trying to be proactive. . . . If that's the way we need to respond going forward, that's the way we're going to do it.'

In addition, she said, an extra $9 million is being returned this year because the target reserve levels were set lower than usual.

'This reflects a move to a less conservative position, but one the board is confident will maintain a reasonable level of reserves in today's risk environment to respond to unanticipated claims,' said Tom Enright, the LGC board's chairman, in a statement.

But Volinsky said the $22.5 million surplus payout doesn't resolve the problems identified by state regulators.

'The public and members need to understand that in context,' he said. 'Their revenues for 2011 came in about $20 million higher than they had announced at the time at the trial. So this doesn't begin to address the $52 million the hearing officer ordered them to return, and it's so misleading for the LGC to not tell their members that.'

He added, 'This is far too little, far too late.'

Regulators could take more drastic action soon. He said the securities bureau is considering taking over the LGC's finances by placing it into receivership, but he declined to discuss how that might happen.

'One of the concerns we have is that the LGC not squander or encumber its resources, and thereby be unable to meet the terms of the order issued in the case in August,' Volinsky said. 'So $20 million or $22 million is a lot of money, obviously, and there is the concern that they not take actions to make themselves unable to comply with the order of the hearing officer.'

(Ben Leubsdorf can be reached at 369-3307 or bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)


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