August 27, 2015 Meeting Minutes

  MINUTES
 

DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

CHICAGO MARRIOTT NAPERVILLE
NAPERVILLE, ILLINOIS

AUGUST 27, 2015

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 9:32 a.m. A quorum was present. Roll call was taken with the following members present:

John Bredenkamp
Sung Do Kang
Daniel Kim
Young B. Kim
Paul Kwak
Jerry Lewicki
John Polak

Also present were:

H. Patrick Eriksen, Program Administrator’s Office
John J. McCarthy, Program Counsel
Yong Kim, Program Administrator’s Office

PRELIMINARY BUSINESS

The minutes from the July 23, 2015 Council meeting were reviewed. On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the minutes were approved by a vote of 7-0.

  APPROVAL OF PROGRAM BILLINGS
  Mr. Eriksen noted there were two (2) bills before the Council for their review and approval. They were:
 

1. Williams & Company Consulting, Inc         $66,776.00
Standard flat fee billing for July 2015, licensing, underwriting, claims processing and site inspections.

 

2. John J. McCarthy                                      $3,130.00
Professional legal services to the Council for the period of July 1, 2014 through August 10, 2015.

 

On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the bills were approved by a vote of 7-0.

It was noted since the Council did not have an approved appropriation budget for FY16, these bills could not be paid at this time.

  CLAIM PAYMENTS IN EXCESS OF $75,000
 

Mr. Eriksen noted there were three (3) claim payment requests in excess of $75,000 requiring Council review and action.

  1. Shin’s Pride Cleaners, Chicago, IL; Claim #50374, Site #0001626:
   

Mr. Eriksen reviewed background information on the facility noting post-remedial site investigation activities, completion of the RACR and site restoration costs are needed at the facility. The estimated cost to complete these activities is $43,000, including contingency costs.

On a motion by Mr. Lewicki and a second by Mr. Young Kim, the Council approved the Administrator’s request of $43,000 in additional budget costs by a vote of 7-0.
  2. Lee’s L&L Cleaners, Arlington Heights, IL; Claim #50262, Site #0001313:
   

Mr. Eriksen reviewed background information on the facility noting remediation is complete but the offsite drinking water well needs to be closed and site restored for damages incurred in installing the water line to the offsite property. The estimated costs to complete these activities total $6,000 including contingency costs.

On a motion by Mr. Young Kim and a second by Mr. Lewicki, the Council approved the budget request of $6,000 by a vote of 7-0.
  3.

P&J Cleaners, Oak Part, IL; Claim #50377, Site #0001436:

   

Mr. Eriksen reviewed background information on the facility noting site investigation activities have been completed at this facility. The consultant is requesting budget approval to prepare the RAP. The estimated cost is $6,000 including contingency costs.

On a motion by Mr. Young Kim and a second by Mr. Lewicki, the Council approved the budget request of $21,500 by a vote of 7-0.
  NDI COMPLIANCE PROGRAM ISSUES
 

Mr. Eriksen referenced background information stating the Council had discussed NDI’s failure to meet the 2014 site inspection requirements at the past two Council meetings. The Council had requested at the last meeting for Ms. Heidi Park to provide information as to the ownership and management of NDI. The Administrator received via email on August 13, 2015 a letter from Mr. Chong Nam, chairman of NDI, stating NDI no longer wished to change the name of the compliance program and NDI would no longer be operating with Ms. Heidi Park. In addition the Administrator received on August 24, 2015 via email a letter from Ms. Heidi Park addressing issues with the NDI Compliance Program.  

Mr. Eriksen’s August 20, 2015 Council memo on NDI Compliance Program Issues outlined the discussion from the July 23, 2015 Council meeting and noted NDI had not addressed the information the Council requested of NDI per the Administrator’s July 29, 2015 letter. The memo also noted the issues he outlined in his July 16, 2015 memorandum to the Council had not been addressed by either the Council or NDI and he was requesting definitive direction from the Council regarding the NDI Compliance Program.

Mr. McCarthy stated NDI’s email of August 13, 2015 and Ms. Park’s letter of August 24, 2015 addressed the issues of NDI’s request to transfer the compliance program and change the program name. Mr. Eriksen said the second issue for discussion was the failure of NDI to meet the Council’s requirements for the 2014 site inspections as outlined in his July 16, 2015 memo and NDI’s operational management as Ms. Park has informed the Council she no longer would be working for NDI as she did not have time based on her other commitments.
 
The Council conducted a general discussion of NDI’s failure to meet the Council’s requirements for 2014 site inspections and operational management of NDI’s Compliance Program.  Questions were asked of Mr. Nam as to how NDI would respond to compliance program questions with Mr. Brandon Stirmell (Ms. Park’s replacement) being away at college as a full time student.  Mr. Nam stated he would assist in responding to questions. Ms. Park said Mr. Stirmell would respond to questions via email or voice mail. Mr. Nam was asked what NDI’s role with the industry would be on a going forward basis. A definitive answer was not provided.

Mr. Charles Kwon of the Environmental Drycleaners Compliance Program addressed the Council and reiterated the importance of strict compliance by all programs with the Council’s requirements. Ms. Sue Kratz of the S&ECC Compliance Program concurred with Mr. Kwon’s comments.

Mr. Polak stated the key issue is what confidence does the Council have that NDI’s new management can address and fix the issues outlined by the Administrator. Mr. Eriksen commented the site inspections completed in December by Ms. Park were of better quality than the inspections received in June, the majority of which were completed by the conditionally approved site inspectors.

Ms. Park commented NDI has historically helped drycleaners in completing paperwork required by the Fund for licensing and insurance purposes but that was not a requirement of the compliance programs. It is her intent to continue helping the industry with this paperwork. Mr. Polak asked Ms. Park if she was done working for NDI? She responded yes she was done working for NDI.

Mr. Chang Lee, KADA President, addressed the Council asking the Council treat all compliance programs fairly.

Mr. Polak commented he believes the Council has two choices. One would be to decertify NDI’s compliance program for failure to meet the Council’s requirements. The second would be to give them a set time period to come into compliance with the Council’s requirements and demonstrate they have the management capabilities and personnel to meet the Council’s requirements going forward. Mr. Daniel Kim indicated he was supportive of Mr. Polak’s second choice. Mr. Kang stated as the manager of NDI prior to becoming a Council member, NDI helped their members complete paperwork, performed site inspections, sold drycleaning supplies, etc. and it appears there is confusion on what services NDI currently provides.

Mr. Richard Kim of the ESM Compliance Program addressed the Council expressing his opinion the Council should hold all compliance programs to the same performance standard.

Mr. Kwak asked Mr. Nam if he was capable of communicating Fund issues/positions with NDI’s members. A definitive answer was not provided. Mr. Kwak also expressed concern NDI does not have an approved site inspector.

Mr. Polak summarized the discussion stating the issue is does the Council feel NDI’s management and staff are capable to operate NDI’s compliance program in a manner to meet the Council’s requirements for an approved compliance program? Ms. Park interjected Mr. Nam asked her to work part time in managing the NDI program and she agreed. Mr. Polak asked when this arrangement occurred in as much as Ms. Park had earlier in the meeting stated she was no longer working for NDI due to other commitments.  Ms. Park responded as of a few minutes ago.

Mr. Bredenkamp made a motion to decertify NDI’s Compliance Program based on their failure to comply with the Council’s compliance program requirements. The motion was seconded by Mr. Lewicki, and on a roll call vote, passed by a vote of 4-2, with Mr. Bredenkamp, Mr. Kwak, Mr. Lewicki and Mr. Polak voting in favor of the motion and Mr. Young Kim and Mr. Daniel Kim voting in opposition. Mr. Kang abstained. Mr. McCarthy indicated the Council’s decision was appealable to the administrative law judge.

Mr. Polak recessed the meeting at 10:30 am for a break. The meeting reconvened at 10:45 am.

Mr. McCarthy noted upon further review of the Trust Fund Act and associated regulations, NDI does not have standing to appeal the Council’s decertification decision. Mr. Polak directed Mr. McCarthy to draft a letter outlining why NDI cannot appeal the Council’s decertification decision.

Mr. Polak commented the majority of the remainder of the meeting would be spent on the Council’s annual Strategic Planning Session.
  STRATEGIC PLANNING SESSION
  I. Review of Program Status and Evaluation of Past Goals:
   

A.

Review of Policies and Procedures

     

The Council reviewed each of the policy changes they adopted since the August 28, 2014 Strategic Planning meeting as to the remedial and insurance claims, licensing, underwriting, compliance programs, and receivables and collection policies and procedures.

 

B.

Review of Fiscal 2015 Goals and Statistics:

     

Mr. Eriksen reviewed with the Council the status of their goals for fiscal 2015. The goals involve Fund solvency, legislation, pollution prevention and communication.

Regarding Fund solvency, at the Council’s request, Rep. Zalewski introduced HB209 which would extend the Fund’s sunset date to June 30, 2030. The bill currently resides in the House Rules Committee.

As of June 30, 2015, 183 active and 3 inactive remedial claims remain eligible for remedial program benefits. The remaining cost to clean up these facilities is estimated to be $22.4 million.

Regarding legislation, no new legislation was passed that impacted the Fund.  HB3146 was introduced to extend the Drycleaner Trust Fund Task Force repeal date to December 31, 2018 and the bill resides in the House Rules Committee.

Regarding pollution prevention, the Administrator conducted 60 site inspections during the year. The inspection results indicated a majority of the drycleaners inspected are in substantial compliance with the Fund’s and State’s environmental rules and regulations. The most frequent non-compliance issue continues to be drycleaners not having proper or adequately sized secondary containment around hazardous waste disposal containers or wastewater vaporizer/misters.

The Council modified the compliance program requirements at their August 21, 2013 and March 12, 2014 meetings. The CEU requirements were eliminated and replaced with completion of the online Best Environmental Management Practices for Perc Drycleaners course. The compliance programs must inspect each drycleaning facility once every four years using the Council approved inspection form. The inspections must be submitted to the Fund within 90 days of the inspection and may be submitted electronically. NDI failed to meet the new requirements for calendar year 2014 site inspections.

Regarding communication, the Council updated the drycleaning industry via special mailings on best management practices, the need to keep all records onsite, and the lack of an FY16 appropriation to reimburse remedial action costs.
    C. Update on Program Statistics:
      i. General Program Statistics:
       

Mr. Eriksen reviewed various program statistics including the June and July 2015 monthly activity reports and financial statements. The Fund’s July 31, 2015 financial statements reflect a fund balance of $1,069,870. The following graphs were reviewed with the Council:

  • Licensed versus insured drycleaners since the program’s inception
  • Licenses issued since the program’s inception
  • Claim payment dollars paid to date
  • Cash balances compared to approved budgets
  • Listing of licenses by license category for hydrocarbon and chlorine-based solvents
  • Solvent usage over the period from 2005 through 2014
  • Number of NFR letters issued
      ii. Enforcement Efforts:
       

Mr. Eriksen referenced a listing of drycleaners who did not renew their 2014 license. Seventy (70) drycleaning facilities that were licensed in 2014 did not renew their license for 2015; 25 of these facilities closed; 11 facilities converted to a “drop store” and staff is working on getting the remaining 34 facilities licensed or determine they are no longer operating as a licensed drycleaning plant. The status of these 34 facilities was reviewed with the Council. In addition, a summary of enforcement actions handled by the Attorney General’s Office was reviewed along with a summary of dollars collected to date via enforcement actions.

    D. Review of Fund Financial Projections for the Period of July 1, 2015 Through January 1, 2020:
     

Mr. Eriksen reviewed financial projections for the period of July 1, 2015 through the Fund’s sunset date of January 1, 2020. He outlined changes made in the projection assumptions as compared to the projections reviewed at the March 12, 2015 Council meeting. Projected total claim expenses decreased by $3,611,000 to reflect projected reduction in remediation costs to address indoor air regulations implemented in July of 2013. The Administrator is estimating 160 of the remaining 186 claims will require additional site investigation and implementation of a “building control technology” at an average cost of $12,500. Reductions in the projected number of licensed drycleaners and taxable gallons of solvent reduced projected revenues by $243,000.

The net impact of the assumption changes resulted in a net decrease in the projected Fund deficit of approximately $3,997,000. Assuming all of the relevant assumptions remain valid through the sunset date of the program, the Fund is facing a $16,821,259 deficit as of January 1, 2020. Mr. Eriksen noted this projected deficit would not be eliminated by extending the sunset date to June 30, 2030 unless the revenue stream increased and/or expenditures were reduced.

Without additional revenue or an extension of the sunset date, it is unlikely additional claims could be released for funding
        Segregation of Insurance Program Funds:
       

The Council reviewed the pro forma financial statements and related assumptions for segregating the insurance program monies from the total Fund monies. If the insurance fund were segregated, it would have a balance as of June 30, 2015 of $9,267,681 The budget for fiscal year 2016 reflects potential excess revenues over expenditures of $99,000.

      i. Actuarial Review:
       

The Fund has had two (2) actuarial reviews, with the last review conducted in January 2009, which reduced the initial actuarial determined premium of $1,400 to $1,100 per year. The actuary had to rely heavily on data from private insurance companies inasmuch as the Fund insurance claim history was limited.

Issue: Does the Council wish to engage in a new actuarial review of the insurance premium or update the existing actuarial study?

Mr. Bredenkamp stated due to the limited financial resources of the Fund and since there was limited new data to update the review, it would be his recommendation the study be tabled.

On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the Council voted 7-0 to table an actuarial review.
 

Mr. Polak recessed the meeting at 11:40 A.m. for lunch. The meeting reconvened at 12:47 p.m.

  II. Program Goals Fiscal 2016:
   

The Program goals for fiscal year 2016 are a continuation of those that have been set previously by the Council and include a focus on Fund solvency, legislative initiatives, pollution prevention and communication.

    A. Fund Solvency:
     

Mr. Eriksen reviewed that since the sunset date of the program is only 4 ½ years away, it is important the Council consider a plan of action to address the fund solvency issue and accomplish the legislative intent of the Illinois Drycleaner Environmental Response Trust Fund Act. Legislative intent is best summarized by Section 75 of the Trust Fund Act (415 ILCS 135/75):

Adjustment of fees and taxes. Beginning January 1, 2000, and annually after that date, the Council shall adjust the co payment obligation of subsection (e) of Section 40, the drycleaning solvent taxes of Section 65, the license fees of Section 60, or any combination of adjustment of each, after notice and opportunity for public comment, in a manner determined necessary and appropriate to ensure viability of the Fund and to encourage the owner or operator of a drycleaning facility to use green solvents. Viability of the Fund shall consider the settlement of all current claims subject to prioritization of benefits under subsection (c) of Section 25, consistent with the purposes of this Act.

Mr. Eriksen noted as defined in Section 75 of the Trust Fund Act, the Council has the authority to adjust the license fees, solvent taxes, remedial program deductibles, or any combination of each, in order to ensure viability of the Fund. Viability of the Fund is defined to consider the settlement of all current claims.

Council options not requiring legislation are:
1. Increase the license fee. All license fees would need to increase by approximately $7,000 per year beginning January 1, 2016 in order to eliminate the projected fund deficit by January 1, 2020.
2. Increase the solvent taxes.
3. Increase the remedial action deductible.

All other options would require legislative action.

Revenue enhancement options previously discussed by the drycleaning industry and the Council (starting with the least onerous) include:

1. Extension of the Fund’s sunset date
2. Licensing of drop stores
3. Assessment of fees on solvent distributors and solvent manufacturers
4. Implementation of a gross receipts tax
5. Implementation of a sales tax on all drycleaning services
6. Require drycleaners who received cleanup benefits and subsequently sold their drycleaning facility to pay the Fund any gain realized on the sale less the total amount paid into the Fund (i.e. license fees, solvent taxes, and insurance premiums), up to the total amount of cleanup benefits received from the Fund.
7. Any drycleaner receiving cleanup benefits from the Fund must continue to pay into the Fund (i.e. license fees, solvent taxes, and insurance premiums) until the sunset date of the Fund.

Mr. Eriksen noted there are other factors to consider:

1. Time remaining to initiate and complete all cleanups by January 1, 2020 – Active remediation (from start to finish) takes approximately 4 years. This suggests all remaining cleanups must begin by January 1, 2016.
2. Limited number of environmental consultants working on Fund eligible claims - If unlimited funding was available to address the contamination remaining at the 186 drycleaning sites with open remedial claims, additional environmental consultants would be needed to work on the cleanup of this contamination during the next 4½ years. This would result in increased cleanup cost inasmuch as the larger regional and national environmental firms have chosen not to participate in the remediation of Fund eligible claims due to the rates reimbursed by the Fund.
3. The Council has no control over the regulatory requirements of the Illinois Environmental Protection Agency (IEPA) or of the Federal Environmental Protection Agency. Changes in regulations (such as the new proposed air inhalation regulations by IEPA) can potentially add tens of thousands of dollars to the cleanup costs of an existing claim.

Attached as Exhibit 1 was a revenue trend for the program for fiscal years 2008 through 2015. During that time period, the number of licensed drycleaners decreased from 1,197 to 868. Correspondingly the total revenue went from $4,540,000 to $2,525,000, which is a decrease of almost $900 in average revenue per drycleaner over that period of time.

Mr. Eriksen stated the main question for the Council on Fund solvency is do they wish to modify their current plan of action contained in HB209.

The Council conducted a lengthy discussion of Fund solvency. Discussion focused on the following:
Increasing the solvent tax on hydrocarbon solvents
Increasing the remedial program deductible
Increasing the license fees
Licensing drop stores

Discussion focused on increasing the deductible or implementing a sliding scale deductible based on the dollar amount of the cleanup. Mr. Eriksen stated implementing a sliding scale deductible would require a legislative change.

Concern was expressed the drycleaning industry could not absorb increased license fees or solvent taxes at this time. Licensing of drop stores would require legislation.

Mr. Bredenkamp made a motion that the Council increase the solvent tax on hydrocarbon solvents from $2 per gallon to $5 per gallon and increasing the annual license fee for all drycleaners by $250. The motion was seconded by Mr. Lewicki. On a roll call vote, the motion failed by a vote of 3-4 with Mr. Bredenkamp, Mr. Lewicki, and Mr. Polak voting in favor of the motion. Mr. Kang, Mr. Daniel Kim, Mr. Young Kim and Mr. Kwak voted in opposition.

Mr. Kwak made a motion to increase the remedial program remediation deductible from $15,000 to $30,000, increase the perc solvent tax from $10 per gallon to $14 per gallon, and increase the hydrocarbon solvent tax from $2 to $7 per gallon. The motion was seconded by Mr. Lewicki. On a roll call vote, the motion failed by a vote of 3-4 with Mr. Kwak, Mr. Lewicki, and Mr. Young Kim voting in favor of the motion. Mr. Kang, Mr. Daniel Kim, Mr. Bredenkamp and Mr. Polak voted in opposition.
      i. Claims Prioritization Review of Updated Rankings & Statistics
       

Mr. Eriksen reviewed the updated prioritization results with the Council noting that as of June 30, 2015, there were 183 open, eligible, active remedial claims receiving program benefits from the Fund and three (3) inactive, open, eligible remedial claims. He reviewed the current status of those claims that have been released for full funding.

During the past year, the prioritization ranking changed for a number of facilities based on new site investigation information received during the year. Mr. Eriksen reviewed in detail the updated prioritization rankings for 112 facilities. There are still approximately 29 claims in which the Fund does not have enough information to determine if they would be able to get a risk based closure under the IEPA TACO regulations or if actual remediation would be required. These facilities have a very low score due to the lack of available data.
      ii. June 30, 2015 Cash Flow Analysis:
       

Mr. Eriksen reviewed the worksheet labeled “Cash Flow Analysis – Fiscal Year 2016” which outlined the anticipated revenue sources less current funds committed for outstanding budgets and grandfathered/released remedial claims. The estimated dollars remaining are available for the first prioritization pool. This is currently a negative number. For discussion purposes, he included a second column which is the Administrator’s analysis of the maximum dollar amount that would most likely be spent for each category in fiscal year 2016. Using the projected maximum funding number for released claims, there are no additional funds available that the Council could earmark for additional cleanup.

Mr. Eriksen stated based on the current revenue stream and the number of fully released claims currently in remediation, it is doubtful any new claims can be released for full funding unless the Fund’s sunset date is extended or a new revenue source is found.
    B. Legislative Issues:
     

Mr. Eriksen commented he would continue to work on the Council’s behalf to seek passage of HB209, which encompasses all of the Council’s previously approved legislative initiatives. He will also continue to monitor HB3146.

    C.

Pollution Prevention:

     

Mr. Eriksen reviewed updated site inspection information with the Council, noting site inspections are one of two separate mechanisms promoting pollution prevention. The second is participation in a Council approved compliance program.

Mr. Kwak raised the issue if inspections by the Administrator are necessary in as much as the drycleaners are being inspected once every four years by the compliance programs and more frequently by county and/or city inspectors. He stated most violations found during the inspection process involve not having the appropriate paperwork at the drycleaning facility at the time of inspection. Eliminating these site inspections would save the Fund approximately $16,000 in administrative expenses Mr. Polak commented he believes the Council would be short-sighted if they eliminated the inspections just to save $16,000 in administrative expenses.  Preventing one insurance claim would offset several years of site inspection fees.

After additional discussion by the Council, on a motion by Mr. Kwak and a second by Mr. Young Kim, on a roll call vote the Council voted 4-3 to eliminate site inspections by the Administrator. Mr. Kang, Mr. Daniel Kim, Mr. Young Kim and Mr. Kwak voted in favor of the motion. Mr. Bredenkamp, Mr. Lewicki and Mr. Polak voted in opposition.
    D. Communication:
     

The Council continues to emphasize the need to communicate with the drycleaning industry. Mr. Eriksen summarized communication efforts that have taken place during the past fiscal year.

    E. Other Issues:
     

The next Council meeting is tentatively scheduled for Wednesday, October 15, 2015. The Council members the date did not present a conflict for them.

  PUBLIC COMMENT PERIOD
 

Mr. Polak asked if there were any comments from the public. There were none.

  CLOSED SESSION
 

Mr. Eriksen noted there were no issues for discussion in Closed Session.

There being no further business, on a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the Council meeting adjourned at 2:58 p.m.
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