August 28. 2013 11:21PM

LGC officials say law needs clarifying to avoid confusion

State House Bureau

CONCORD — Local Government Center board members asked a legislative oversight committee to clarify sections of state law governing its self-insured risk pools for health, property, liability and workers compensation insurance.

The Committee to Review the Hearings Officer's Report with Regard to the New Hampshire Local Government Center heard officials say honest disagreements between the center and Secretary of State Bill Gardner's office led to the order issued about a year ago.

The hearings officer's order requires the organization to refund about $50 million to cities, towns, school districts and counties in surplus funds. The order also said the organization was incorporated illegally as nonprofit limited liability companies under Delaware law. Nonprofits cannot be LLCs under New Hampshire law, the order noted.

The LGC continues to contest the order, appealing it to the Supreme Court. The organization claims it retained the funds in order to "stabilize premiums" for its members and admitted it made a mistake incorporating under Delaware law.

On Wednesday, LGC officials denied the organization had done anything illegal, instead saying the problems stem from honest disagreements over the statutes that need to be clarified.

"We are not here from our perspective, because things went wrong," said Property and Liability Trust and LGC board member Karen Liot Hill. "There's always room to improve, but we did not do anything illegal."

She said the board was not aware of the Secretary of State's perspective that LLCs could not be nonprofits under state law, noting at all times the board believed the trusts were nonprofits and never acted otherwise.

Several committee members questioned how the board could have approved the arrangement, which organized the trust under the umbrella of the Local Government Center and allowed money to be moved between trusts.

Hill, Scott Myers, a health trust and LGC board member, and Health Trust legal counsel David Frydman, said the arrangement was meant to be more efficient, to save cities and towns money and to be more convenient for its members.

They said they want to clarify the rules so they are clear for all the public risk pools operating in the state so there is a level playing field.

Two other public risk pools, Primex and SchoolCare, reached agreements with the Bureau of Securities Regulations but the LGC did not.

Frydman told the committee there are five areas that need to be addressed, including how surplus is defined and how to determine what is the maximum and minimum reserves needed to ensure future claims are paid.

Frydman said the main disagreement is the amount of capital reserve needed to ensure future catastrophic costs such as a pandemic or a major windstorm are covered.

He said the organization used expert consultants to determine what level was necessary, but the hearings officer set a different standard.

Frydman said the boards of directors of the trusts made decisions using their best business judgment about the proper funding levels.

But David Lang, president of the Professional Fire Fighters of New Hampshire and a longtime critic of the LGC's handling of its trusts, said after the meeting that "it's not about business judgment, it's about bad judgment on the LGC's part."

The committee meets again on Wednesday at 10 a.m.