On Friday of this week, the towns of Durham, Northfield, Peterborough, and Salem learned that the NH Supreme Court had denied their motion to intervene relative to the Local Government Center (LGC) V. NH Bureau of Securities Regulation case. The Supreme Court also denied their motion to stay.
It is believed the Supreme Court felt the aggrieved towns had alternative remedies, namely action in Superior Court. This was in fact argued by the Bureau of Securities Regulation in its brief to the court regarding the towns' complaint.
Durham Town Administrator Todd Selig states, "This circumstance was envisioned by us as a possibility from the start and with the decision by the Supreme Court now in hand, Durham, Salem, Peterborough, and Northfield, on behalf of a larger coalition of similarly situated aggrieved communities, are actively evaluating a Superior Court action that would include a request for injunctive relief." The City of Concord is also evaluating similar action.
"With respect, we’re disappointed with the Supreme Court’s decision, but view it as representing a clear directive to proceed to Superior Court if we desire to argue our case on behalf of local taxpayers," states Selig.
In terms of the history regarding this issue, the towns of Durham, Northfield, Peterborough, and Salem, on behalf of a coalition of fourteen municipalities (Auburn, Bennington, Canaan, Durham, Greenfield, Henniker, Lyndeborough, Meredith, Northfield, Peterborough, Plainfield, Raymond, Salem and Temple), filed a complaint with the NH Bureau of Securities Regulation in December 2012 regarding the return of surplus methodology adopted by the Local Government Center.
The Bureau of Securities Regulation (BSR) found wrongdoing in the management of the Local Government Center’s risk pools. It ordered millions of dollars held by the Local Government Center (LGC) to be returned to current members of the pools.
Selig states, "The BSR, however, did not distinguish among members. Some joined the risk pools early or late, some left early or late, and some joined, left, and later rejoined. By ordering the money returned to current members, it created windfalls for some, but inadequate recompense for others. That is, some members will receive an arbitrarily larger share than their contribution, and some an arbitrarily smaller share. This situation is inherently inequitable as contributions made to the LGC by the aggrieved towns, contributions which were later found by the BSR to be in excess of that required for insurance purposes and illegally withheld by the LGC, will in effect be returned to other communities."
To fix this, the four towns petitioned the NH Supreme Court in January of this year to allow them to intervene, and to address the hearings officer’s failure to fashion a remedy that will allow refunds in proportion to members’ contributions. Due to the dates they joined and left, these four towns – Durham, Northfield, Peterborough, and Salem – believe they represent all members whose share of the refund will be inadequate compared to the share of the money they contributed.
The Local Government Center notified members during the week of June 19, 2013 that, "barring legal intervention," the organization plans to distribute funds in a manner that would specifically exclude Durham, Northfield, Peterborough, Salem, and numerous other political subdivisions across the state in similar situations, from their proportional share of the return of surplus.
This is inherently unfair to the local taxpayers of Durham, Northfield, Peterborough, Salem, and numerous other political subdivisions across the state.
The towns seek an equitable approach to distributing the surplus generally requiring the LGC to calculate the amount of surplus that accrued each year from the year that the LGC first unlawfully retained excess surplus, and to allocate the surplus proportionally amongst the members of the Trusts by year.
"Such an annual, proportional remedy calculation could be easily applied and would be equitable. In short, it would be fair," according to Selig.
LGC Case Background & Details on Coalition of Communities' Petition to NH Supreme Court
In the Order dated August 16, 2012, State of NH hearings officer Donald Mitchell found that the Local Government Center (LGC) had engaged in actions or inactions that resulted in multiple violations of RSA 5-B.
These statutory violations, which commenced in 2003 and continued through 2010, were attributable to, amongst other things, a failure by LGC to distribute to Trust members on an annual basis excess earnings and surplus, improper transfers of monies 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 the Local Government Center Real Estate Inc. without consideration.
In sum, the Order found that but for these illegal actions, there would have been additional excess earning and surplus that would be available to return to LCG members on an annual basis – members such as Durham, Northfield, Peterborough, and Salem.
The Order: What The LGC Has To Pay Back
$33.2 million from HealthTrust
$17.1 million the Property-Liability pool siphoned from HealthTrust
$3.1 million from Property-Liability for communities that joined after June 14, 2010
Total: $53.4 million
Subsequent to the filing with the BSR, the Bureau of Securities Regulation’s outside counsel, Andru Volinsky told Annmarie Timmins of the Concord Monitor, “The bureau will need to look at this…There is nothing in the law that says you have to be a member to get your surplus back.”
To date, the Towns have received no formal response from the BSR.