AUGUST 25, 2016 Meeting Minutes

 

MINUTES
DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

CHICAGO MARRIOTT NAPERVILLE
NAPERVILLE, ILLINOIS

AUGUST 25, 2016

 

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 9:40 a.m. A quorum was present. Roll call was taken with the following members present:

 

John Bredenkamp (joined via telephonic conference at 10:04 a.m.)
Sung Do Kang
Daniel Kim
Paul Kwak (arrived at 9:45 a.m.)
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 June 23, 2016 Council meeting were reviewed. On a motion by Mr. Lewicki and a second by Mr. Daniel Kim, the minutes were approved by a vote of 4-0.

  PUBLIC COMMENT PERIOD
 

Mr. Jeff Jeep, representing Joe Caldwell of Tailorite Cleaners, explained to the Council his client has been sued by the Illinois Attorney General's Office for failure to cleanup his facility located at Cottage Grove Avenue in Chicago. Due to an oversight by his client, his insurance coverage with the Fund lapsed in 2010 resulting in the loss of remedial benefits from the Fund. Mr. Jeep requested the Council consider reinstatement of benefits. His client would be willing to pay back insurance premiums, penalty, etc. It is his opinion if his client could get his remedial program benefits reinstated, the lawsuit would go away. The assistant attorney general handling this case encouraged Mr. Caldwell come to the Council and request reinstatement. Mr. Jeep stated they are not looking for a policy decision; just an opportunity to meet with Mr. McCarthy to discuss options/cost to reinstate remedial program benefits.

Mr. Kwak joined the meeting at 9:45 a.m.

Mr. Joe Caldwell addressed the Council noting Oct 2, 2016 he will have worked 60 years in the drycleaning business. The Illinois EPA directed him to cleanup his contaminated site or they would force the cleanup. Mr. Caldwell requested the Council consider potential avenues for him to reinstate his cleanup benefits. There were no questions from the Council. Mr. Polak noted the Council may have future questions and will discuss later in today's meeting if this issue should be placed on a future agenda for discussion.

Mr. Tae Su Jung, Fox Valley Cleaners, read a prepared statement regarding a possible change to the draft compliance program rules. Mr. Eriksen responded to his questions by outlining a time frame for completing the compliance program rules.

Mr. Dae Ho Yang, Alpha Cleaners, read a prepared statement regarding council procedures and decisions. The statement addressed the Public Comment Period and the third party administrator contractor.

Mr. Steve In asked if the summary of legal costs related to the NDI Compliance Program appeal was inclusive of all legal costs incurred to date. Mr. Eriksen replied it was.

Mr. Henry Parker, S&ECC Compliance Program inquired as to the funding status of a claim in Orland Park, IL. Mr. Eriksen replied the claim has not been released by the Council for funding.

Mr. Polak thanked everyone for their comments.

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.    $57,970.00

Standard flat fee billing for June 2016, licensing, underwriting, claims processing and site inspections.

2. John J. McCarthy                             $123.34

Professional legal services to the Council for the period of June 15, 2016 through June 30, 2016.

3. Williams & Company Consulting, Inc.     $64,716.00

Standard flat fee billing for July 2016, licensing, underwriting, claims processing and site inspections.

4. John J. McCarthy                             $475.00

Professional legal services to the Council for the period of July 1, 2016 through August 8, 2016.

Mr. Bredenkamp joined the meeting via telephonic conference at 10:04 a.m.

Mr. Eriksen noted a majority of the Council members had approved Williams & Company's and John McCarthy's June bills by email or telephone call in July so they could be paid prior to the close of the state's FY16 lapse period.

On a motion by Mr. Lewicki and a second by Mr. Daniel Kim, the bills were approved by a vote of 6-0.

Included in the Council packet was a detail listing of all legal fees incurred by the Council and Williams & Company in connection with NDI's de-certification appeal. This information was requested at the June 23, 2016 Council meeting and totaled $26,313.66.

  CLAIM PAYMENTS IN EXCESS OF $75,000
 

Mr. Eriksen noted there were two (2) claim payment requests in excess of $75,000 requiring Council review and action.

1. B & B Cleaners, Oak Lawn, IL; Claim #50395, Site #0002164:

Mr. Eriksen reviewed background information on the facility noting Illinois EPA had requested additional site investigation to delineate the horizontal extent of contamination and determine whether contaminates had impacted a sewer in the area. The estimated cost to complete these activities is $5,500, including contingency costs.

On a motion by Mr. Lewicki and a second by Mr. Kang, the Council approved the Administrator's budget request of $5,500 by a vote of 6-0.

2. Betty Brite Cleaners, Chicago, IL; Claim #50062, Site #0001056:

Mr. Eriksen reviewed background information on the facility noting remediation is substantially complete but installation of a sub-slab depressurization system is needed to address indoor air inhalation pathway exceedances. The estimated costs to install the system is $31,650, including contingency costs.

On a motion by Mr. Lewicki and a second by Mr. Kang, the Council approved the budget request of $31,650 by a vote of 7-0.

Mr. Eriksen noted a majority of the Council had approved this request in July via email or telephone call.

  THIRD PARTY ADMINISTRATOR'S CONTRACT
 

Mr. McCarthy reviewed his memorandum with the Council noting the contract had last been bid in 2009. That contract period was from December 7, 2009 through December 6, 2014. The contract provided for renewal of the contract and the Council voted to renew the contract for an additional two years on June 18, 2014. He stated the Council could renew the contract for an additional three years with the approval of the Director of Illinois EPA.

Mr. Kwak made a motion to put the contract out for bid. The motion was seconded by Mr. Kang. Mr. Kwak asked how long it would take to bid the contract. Mr. McCarthy estimated at least 6 months based on previous bidding timeframes. Mr. Kwak asked why this issue had not been brought to the Council prior to today if the bidding process takes six months. Mr. McCarthy replied as of the Council's last meeting (June 23, 2016) they did not have an appropriation for FY16 or FY17 and it was highly unlikely any company would bid on the contract without assurance they would be paid for their services. Mr. Polak commented Williams & Company worked for over one year without being paid due to the lack of an appropriation for FY16. Mr. Kwak withdrew his motion.

Mr. Lewicki noted except for the initial bid in 1998, no other firm had submitted a bid for the contract. Mr. Bredenkamp commented since the sunset date of the fund is January 1, 2020, it did not make sense to bid the contract at this time. Mr. Bredenkamp made a motion to renew the contract for an additional two years. The motion was seconded by Mr. Kwak. Mr. Kang asked if the Council could legally renew the contract without bidding. Mr. McCarthy replied the Council could legally renew the contract for a period of up to three years. Mr. Kang expressed concern about renewing the contract as he thinks the Council's By-laws require public bidding. Mr. McCarthy disagreed with Mr. Kang's statement.

After a brief discussion, Mr. Bredenkamp amended his motion to renew the contract for three years. On a roll call vote, Mr. Bredenkamp, Mr. Daniel Kim, Mr. Kwak, Mr. Lewicki and Mr. Polak voted in favor of renewing the contract for three years. Mr. Kang voted in opposition to the motion. Mr. McCarthy stated the Director of Illinois EPA must approve the renewal.

Mr. Polak commented the majority of the remainder of the meeting would be spent on the Council's annual Strategic Planning Session. He recessed the meeting at 10:32 a.m. for a brief break. Mr. Bredenkamp excused himself from the rest of the meeting.

The meeting resumed at 10:46 a.m.

  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 27, 2015 Strategic Planning meeting as to the remedial and insurance claims, licensing, underwriting, compliance programs, and receivables and collection policies and procedures.

Mr. Eriksen requested Council approval to meet with the four compliance programs and two industry associations to discuss a couple of proposed policy and procedure modifications his staff had requested. The modifications requested include shortening the time period for submitting site inspections and requiring 50% of all site inspections be completed by June 30th of each year. In addition, calendar year 2015 site inspections would be discussed along with any suggested policy changes from the compliance programs.

A summary of the meeting and proposed policy and procedure changes would be submitted to the Council for review and action at the October meeting. Any Council approved changes would be incorporated into the draft compliance program rules for review at the December meeting. Mr. Kang commented on the business issues faced by the compliance programs, mentioning some compliance programs have a minimal membership fee while other programs charge a higher fee. This fee disparity impacts the viability of the compliance programs. Mr. Kwak replied it is not the Council's issue as to the membership fee a compliance program charges or the amount of profit they make.

On a motion by Mr. Lewicki and a second by Mr. Daniel Kim, the Council approved by a vote of 5-0, the Administrator meeting with the compliance programs and industry associations to discuss compliance program issues.

B. Review of Fiscal 2016 Goals and Statistics:

Mr. Eriksen reviewed with the Council the status of their goals for fiscal 2016. 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 was not acted on by the legislature.

As of June 30, 2016, 181 active and 3 inactive remedial claims remain eligible for remedial program benefits. The remaining cost to clean up these facilities is estimated to be $21.3 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 but was not acted on by the legislature.

Regarding pollution prevention, the Administrator conducted only 4 site inspections during the year. The Council ceased site inspections beginning in FY16 except in limited situations. The compliance programs completed 52 site inspections. Staff review of these inspections noted 41 violations, with over 50% of the violations involving secondary containment issues.

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 2016 monthly activity reports and financial statements. The Fund's July 31, 2016 financial statements reflect a fund balance of $1,632,917. 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 2006 through 2015
  • Number of NFR letters issued

ii. Enforcement Efforts:

Mr. Eriksen referenced a listing of drycleaners who did not renew their 2015 license. Seventy seven (77) drycleaning facilities that were licensed in 2015 did not renew their license for 2016; 37 of these facilities closed; 7 facilities converted to a “drop store” and staff is working on getting the remaining 33 facilities licensed or determine they are no longer operating as a licensed drycleaning plant. The status of these 33 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, 2016 Through January 1, 2020:

Mr. Eriksen reviewed financial projections for the period of July 1, 2016 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 31, 2016 Council meeting. Projected total claim expenses increased by $964,000 to reflect reduced cleanup expenses in FY16 due to lack of an appropriation until June 30, 2016. Reductions in the projected number of licensed drycleaners and taxable gallons of solvent reduced projected revenues by $110,000. The fund balance was $1,358,000 higher than previously projected due to reduced remedial payments for FY16. Administrative expenses were projected to be reduced $12,000.

The net impact of the assumption changes resulted in a net decrease in the projected Fund deficit of approximately $296,000. Assuming all of the relevant assumptions remain valid through the sunset date of the program, the Fund is facing a $16,427,564 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.

The Council conducted a brief discussion of the fund solvency issue and recessed for lunch at 11:48 a.m. The meeting reconvened at 12:31p.m.

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, 2016 of $9,641,354. The budget for fiscal year 2017 reflects potential excess revenues over expenditures of $95,000.

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. Polak stated due to the looming sunset date of the program and since there was limited new data to update the review, it would be his recommendation the study be tabled.

By consensus, the Council agreed to table an actuarial review.

  II. Program Goals – Fiscal 2017
 

The Program goals for fiscal year 2017 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 3 1/2 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 copayment 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 $10,000 per year beginning January 1, 2018 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. Implementation of a gross receipts tax
  4. Implementation of a sales tax on all drycleaning services
  5. Contribution by real estate owner
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 already be in process.
  2. Limited number of environmental consultants working on Fund eligible claims - If unlimited funding was available to address the contamination remaining at the 184 drycleaning sites with open remedial claims, additional environmental consultants would be needed to work on the cleanup of this contamination during the next 3½ 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 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 2016. During that time period, the number of licensed drycleaners decreased from 1,197 to 829. Correspondingly the total revenue went from $4,540,000 to $2,412,000, which is a decrease of almost $900 in average revenue per drycleaner over that period of time.

Mr. Eriksen commented that each year extension of the sunset date would generate approximately $1.1 million dollars of revenue annually. Assuming all factors remain constant (i.e. the number of licensed drycleaners and the number of taxable gallons of solvent), the sunset date would have to be extended 16 years.

The Council conducted a lengthy discussion of Fund solvency, with the primary focus on licensing drop stores. Mr. Eriksen noted this would require legislation. Issues raised regarding licensing of drop stores included:

  • Defining what a drop store is for licensing purposes,
  • Identifying drop stores,
  • Fee structure,
  • Collection of the license fee, i.e. direct bill or bill through licensed drycleaning plant providing the drycleaning service,
  • Penalty for failing to license

Concern was expressed the drycleaning industry could not absorb increased license fees or solvent taxes at this time.

Mr. Polak suggested Mr. Eriksen build a “matrix” using several variables to provide the Council with some options for dealing with the fund solvency issue. Suggested variables include licensing of drop stores, extending the sunset date and increasing the license fee.

On a motion by Mr. Lewicki and a second by Mr. Kwak, the Council voted 5-0 directing Mr. Eriksen to build a financial matrix as described by Mr. Polak for review at a future Council meeting.

i. Claims Prioritization – Review of Updated Rankings & Statistics:

Mr. Eriksen reviewed the updated prioritization results with the Council noting that as of June 30, 2016, there were 181 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 several facilities based on new site investigation information received during the year. Mr. Eriksen reviewed in detail the updated prioritization rankings for 106 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, 2016 Cash Flow Analysis:

Mr. Eriksen reviewed the worksheet labeled "Cash Flow Analysis - Fiscal Year 2017" 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 2017. 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:

The Council agreed to continue pursing legislation to transfer processing of license fee payments from the Illinois Department of Revenue to the Council and amending the licensing definitions as outlined in Mr. Eriksen's memo.

C. Pollution Prevention:

Mr. Eriksen reviewed updated site inspection information with the Council, noting the Administrator conducted 4 site inspections in FY16 and the compliance programs completed 52. He noted staff identified 41 violations when reviewing the compliance program inspections.

Mr. Eriksen provided an update on Perc Operator Training noting only 6 drycleaners insured with the Fund have not completed the training as of June 30, 2016.

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 Thursday, October 13, 2016.

Mr. Polak discussed the issue of lost remedial program benefits raised during the Public Comment Period by Mr. Jeep and Mr. Caldwell. He noted other drycleaners besides Mr. Caldwell had lost their remedial program benefits for failing to maintain the required financial responsibility coverage. Mr. Kang asked how many other drycleaners lost remedial benefits for failing to maintain continuous financial responsibility coverage. Mr. Eriksen replied he did not know the number but estimated it to be less than fifty. Mr. Kang made a motion to put the Tailorite Cleaners issue of losing remedial program benefits on the October 13, 2016 Council meeting agenda for further discussion. The motion died for lack of a second.

  CLOSED SESSION
 

Mr. Eriksen noted there were several issues for discussion in Closed Session.

On a motion by Mr. Lewicki and a second by Mr. Kwak, the Council voted 5-0 to go into closed session at 2:28 p.m. to discuss matters of potential litigation.

The Council adjourned from closed session at 2:32 p.m. On a motion by Mr. Lewicki and a second by Mr. Kang, the Council voted to reduce the 2016 license late payment penalty for Wheaton 1 Hour Cleaners from $615 to $135. The motion passed 5-0.

There being no further business, on a motion by Mr. Lewicki and a second by Mr. Kang, the Council meeting adjourned at 2:34 p.m.

Respectfully submitted,

H Patrick Eriksen
Program Administrator

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