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LGC questions how it will pay back $17.1 million to trust

New Hampshire Union Leader

February 25. 2013 5:38PM

CONCORD - The New Hampshire Local Government Center is unsure how it will be able to repay $17.1 million its Property and Liability Trust has been ordered to repay cities and towns which subsidized the LGC workers' compensation program.

But the man who has contested the organization for over a decade said cities and towns could be on the hook.

Since its inception in 2000, the workers' compensation program has lost money annually and has been subsidized by contributions from LGC's health insurance risk pool and from members of the property and liability risk pool. The Secretary of State's Office in August ordered LGC to repay the money, along with $36 million more from the health insurance and property and liability pools, to towns and cities in the health insurance pool by Dec. 1. The LGC has appealed the order to the state Supreme Court.

"It is a large amount of money," said Wendy Parker, deputy director for risk pool operations. "I wish we had some leniency on how to repay that."

The health insurance pool and property and liability program each have cash assets beyond the amount required to be repaid by the order, but the workers' compensation program has none, leaving the LGC scrambling to figure out where the money will come from.

"It's a priority and the (Property and Liability Trust) Board is working on that," Parker said. "But we do not have details at this time."

David Lang, president of the Professional Fire Fighters of New Hampshire, said he believes towns and cities participating in the workers' compensation program would have to pay the obligation.

Lang, who led a decade-long battle to force LGC to publicly disclose how it was spending money collected from its risk pool, cited a state law, RSA 281-a, which says: "Each year, as actuarially determined, the legislative body shall appropriate sufficient funds to create a financial reserve until all outstanding claims are disposed of. If additional funds are needed to increase the loss fund in any given year, the legislative body shall appropriate such funds as are necessary."

Lang said LGC, by subsidizing the program, failed to acquire those funds all along.

"The LGC is not some proprietary, standalone organization. It's merely a collection of cities and towns who got together to share risk," he said. "Therefore, by their very nature, as I read the law, they are required to share the gain and, at the same time, share the pain."

Parker said LGC's legal counsel has opined that RSA 281-a does not apply to the Secretary of State order. She pointed out that the Secretary of State's order calls for the Property and Liability Trust, which is the workers' compensation program's parent entity, to repay the money.

She said this places the order under the auspices of another state law, RSA 5-b, which says, in part, that participation of a political subdivision in a risk pool, such as the workers' compensation program, "shall not subject any such political subdivision to any liability to any third party for the acts or omissions of the pooled risk management program."

"As such, the provisions of RSA 281-a are not applicable in this scenario." she said. "Furthermore, we do not believe that the law which governs our risk pool would allow the workers' comp program's member towns, cities and school districts to be on the hook individually for repaying the money."

Lang, however, said LGC's own rules would indicate that the towns and cities would have to pay. He provided the New Hampshire Union Leader with a copy of the workers' compensation program's agreement with member cities and towns - which he acquired through a right-to-know request - and which reads that the Workers' Compensation Trust: "shall be entitled to assess the applicable Participants of the Workers' Compensation Plan and/or Unemployment Compensation Plan the amounts necessary to indemnify such other Plan, (Property and Liability Trust) or LGC."

Asked for response to Lang's claim, Parker on Friday night repeated what she said was LGC legal counsel's opinion.

In a lengthy report in the New Hampshire Sunday News last week, LGC Board Chairman Thomas Enright said the workers' compensation program would have to close unless the Supreme Court reverses the Secretary of State Office's ruling.

Parker said LGC staff and board members are doing all they can to prevent the workers' compensation program from collapsing.

"I can't say definitively that it's not going to happen," she said. "However, the board is 100 percent committed to finding a solution to this issue."

No matter what happens to the program, existing claims would be covered through a secure guaranty of about $11.4 million that is under the control of the Department of Labor. Parker said the guaranty, a security deposit held at Merrimack County Savings Bank, is backed by a claims reserve the workers' compensation program holds of $11.4 million in investment securities.

Lang had long contended that the health insurance program was subsidizing workers' compensation. He said the claims reserves that, according to audits, are held under workers' compensation were funds derived from contributions by the health insurance and property and liability programs. He said this is problematic because the risk pool members are not identical, meaning taxpayer funds paying into one pool are subsidizing members of a different pool.

Parker said the assertion is correct and that contributions by the other programs, which were as much as $4 million annually, helped fund the workers' compensation program to pay for reinsurance, operating costs, current claims and to build a claims reserve.

The Secretary of State's order said the practice of using health insurance funds to subsidize the program was illegal and, according to audits, that practice has ceased.

However, Parker said, "Property and Liability Trust continues to assist and support workers' compensation."

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