Lawyers for the state described the Local Government Center as ‘unscrupulous’ and ‘unethical’ at an administrative hearing Monday.
Regulators accuse the Local Government Center – which provides insurance to cities and towns – with violating multiple state laws.
The Local Government Center says it’s acted in good faith to provide services to communities across New Hampshire.
Dan Gorenstein (DG): Attorney Andru Volinsky – special counsel to the Securities Bureau - came out swinging.
Volinsky: “The evidence in this case will show that the Local Government Center violated the spirit, intent and letter of the law.”
DG: In his opening remarks, Volinsky says the LGC board treated their health insurance business – which in 2010 underwrote $415 million dollars of coverage– like a cash cow.
Milking it as needed.
Volinsky: “The money was spent to subsidize a failing worker’s comp program. The money was spent to give the outgoing executive director a $100,000 no work contract for after he retired.”
DG: Volinsky says these acts clearly violate the basic tenant of RSA 5-B, the law regulating groups like LGC.
Specifically, the statute says public risk pools must return all earnings and surplus outside of what it needs to do business.
A big part of Volinsky’s job during the two week hearing is to catalog the multiple ways LGC has spent money on services that have nothing to do with health insurance.
If you add it up, Volinsky believes LGC owes New Hampshire cities and towns some $70 million dollars for transgressions dating back to 2003.
Volinsky says the worst part of the case is that LGC knew they shouldn’t use healthcare money for other purposes.
He points to board meeting minutes 9 years ago.
Volinsky: “They called all of these practices wrong before they adopted them. So it’s not some outsider saying this is wrong. They knew what the statute required and then through 2003 and then they flipped.”
DG: Volinsky sees those meeting minutes as proof of wrong-doing.
LGC lawyers see the minutes as proof that good, decent people did the best they could to help their clients, New Hampshire cities and towns.
It’s no secret the Local Government Center plays a vital role in civic life here.
The group helps municipalities do everything from navigate tricky legal disputes to conduct workshops on chainsaw safety.
The problem, says LGC attorney Bill Saturley is that the law regulating risk pool behavior is extraordinarily vague.
Saturley: “In the absence of specificity, and in the absence of any rules that have ever been issued in terms of how the board is supposed to make decisions, then the board is and must use its best judgment.”
DG: Central to Saturley’s defense is that the state is trying to penalize LGC for breaking rules that were never spelled out.
Saturley’s task is to explain LGC officials weren’t looking for personal gain.
Instead, he must persuade the hearing officer that the non-profit organization was competing in a challenging marketplace.
That these people were so loyal to the mission –improving local government to serve the public – that they did what they believed was right.
Saturley: “It is our case that for over a decade they have exercised that judgment in good faith, they have exercised more than ordinary prudence and they have exercised that judgment in the best interest of the organization, that is what they have done.”
DG: One attorney representing an LGC employee said the organization is being punished for its success.
In some way that’s true.
LGC has grown beyond anything lawmakers imagined when they first created these public risk pools in 1987.
Rhetorically their lawyers are asking, can you really fault an organization that’s committed to keeping taxpayer costs as low as possible?
Securities Bureau attorney Andru Volinsky argues LGC changed so much, that somewhere along the way priorities shifted.
Preserving and strengthening the organization in the face of business competition superseded the original mission.
Volinsky: “The statute was designed to create a Chevrolet. And they built a Cadillac. And the purpose of this legal action is simply to ask them to return the money to the taxpayers and operate as the Chevrolet the Legislature intended them to be.”
DG: If that happens, and LGC is ordered to return up to $70 million dollars, attorneys say the organization will be weakened.
And they warn, that would mean higher costs for New Hampshire cities and towns.