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November 14. 2013 10:24PM

High Court to decide if LGC must repay $17m to members

CONCORD — A state hearing officer overstepped his statutory authority in ordering the Local Government Center to pay its members $52 million, an attorney argued Thursday before the state Supreme Court.

Last year, Bureau of Securities Regulations hearing officer Donald Mitchell ordered the LGC’s workers’ compensation trust to repay $17 million to members of the HealthTrust, saying the money had been wrongfully transferred between the two trusts.

The payment is due Dec. 1, but the court stayed the order until it decides on LGC’s appeal.

LGC’s attorney, William Saturley, told the court that paying the $17 million would leave the workers’ compensation trust insolvent because it only has assets of $10 million and no way to raise more money.

He said the order violates the LGC’s due process rights by using a standard not found in any rule or regulation, while state law clearly gives the organization’s board of directors the responsibility to determine what is needed in reserves and what is surplus to be returned to the cities, towns, schools districts and counties that belong to the organization.

Rules change

He said the Secretary of State’s Office had the opportunity to set those standards in rules and regulations, but chose not to do that.

Until 2008, the state’s public risk pools were essentially exempt from state regulation with only reporting requirements. But in 2008, lawmakers passed a law giving the Secretary of State’s Bureau of Securities Regulations authority over the risk pools.

The LGC, which has since reorganized into three separate organizations, decided to subsidize its workers’ compensation program by transferring $17 million from the trust for its health insurance program.

Saturley said the LGC in 1999 decided pooling resources among the organization’s three trusts benefited all members and resulted in rate savings of between 8 and 30 percent.

Justice Carol Ann Conboy asked if the $17 million transfer did not indicate the HealthTrust risk pool did indeed have a surplus.

“For me, that is the nub of this issue,” she said.

‘‘The statute authorizes these pools to pool together,” Saturley said.

‘Conflicting priorities’

The state’s attorney, Andru Volinsky, told the court that two-thirds of the LGC’s members did not belong to the workers’ compensation pool.

“The board had no authority under state statute to take Trust A’s money and give it to Trust B,” he said. He said it was done in a “nontransparent” manner to hide the subsidy.

Only later when members complained did the LGC call the transaction a loan, he said.

“It was a board with conflicting priorities,” Volinsky said. “At the time, they justified the transfer of $17 million to a failing workers’ compensation program.”

“What’s wrong with that,” asked Justice Gary Hicks. “They used the money against their competitors, and they still are (competitors).”

Conboy asked Volinsky if it didn’t make more sense for the state to agree to another way to repay the money rather than cash.

Volinsky said the ruling was like a civil decision awarding a settlement. Another hearing is held to determine how the settlement will be paid, he said.

Saturley objected to that characterization, saying the trust has no means to pay the $17 million which will make it impossible to find new clients.

He said the board of directors’ No. 1 job is to ensure the trusts are solvent, noting HealthTrust covers 170,000 people, while the liability and property trust covers 4,000 buildings worth $4 billion.

“A great deal of this happened 10 years ago when it was considered proper at the time. Now it’s considered to be improper,” Saturley said, and reiterated his contention that the hearing officer overstepped his authority and set a standard to be used and that caused the organization harm.

Conboy said looking at the entirety of the record, the court could say, “We believe there was wrongful conduct, that there was a conflict, and then say, ‘We worry about the hearings officer setting a particular rate.’”

The court did not indicate when it would issue an opinion in the case.

The LGC was also ordered to split up its subsidiaries, pay back surpluses of $33 million to HealthTrust members and $3.1 million to property and liability trust members.

The LGC made the first two payments on those orders earlier this year.

grayno@unionleader.com


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