July 11, 2018 Meeting Minutes

 

MINUTES
DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL OF ILLINOIS

SHERATON LISLE HOTEL
LISLE, ILLINOIS

AUGUST 17, 2018

  John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 10:06 a.m. A quorum was present. Roll call was taken with the following members present:
 

John Bredenkamp (via telephonic conference)
Robert Dunham
Sung Do Kang
Daniel Kim
Young B. Kimb
John Polak

Also present were:

H. Patrick Eriksen, Program Administrator's Office
Dr. Juho So, Program Administrator's Office
Yong Kim, Program Administrator's Office

  PRELIMINARY BUSINESS
 

The minutes from the July 11, 2018 Council meeting were reviewed. On a motion by Mr. Bredenkamp and a second by Mr. Dunham, the minutes were approved by a vote of 6-0.

  LEGAL REPRESENTATION

Mr. Polak noted the Council had voted 3-1 at the July 18, 2018 Council meeting not to enter into a contract with John McCarthy to provide day-to-day legal services to the Council for fiscal year 2019. Mr. Dunham, who voted against the motion, stated he wanted this issue discussed and reconsidered at this council meeting when all council members would be in attendance.

Mr. Polak referenced Mr. McCarthy's extensive knowledge of the fund and legal expertise has been beneficial to the fund over the years and made the motion to enter into a one (1) year contract with Mr. McCarthy for total costs not to exceed $29,999. Mr. McCarthy's hourly rates would remain the same at $190 per hour for professional services and $100 per hour for travel time. Mr. Bredenkamp seconded the motion and on a roll call vote, the motion failed by a vote of 3-3 with Mr. Bredenkamp, Mr. Daniel Kim and Mr. Polak voting in favor and Mr. Dunham, Mr. Kang, and Mr. Young B. Kim voting in opposition.

Mr. Polak asked the members voting no to explain their vote. Mr. Young B. Kim questioned Mr. McCarthy's advice regarding policy changes without public hearings. Mr. Eriksen explained only license fee or solvent tax adjustments require public hearings. Mr. Dunham's main issue is the attrition rate of drycleaners and the cost of legal services, i.e. reduced revenue and increased administrative expenses. If the state requires an attorney, they should provide an attorney. Discussion ensued regarding legal rates and should the state provide legal counsel. Mr. Eriksen noted the Attorney General's office position is that the council hire day-to-day legal counsel. Mr. Bredenkamp asked those members opposing Mr. McCarthy who do you want to provide legal representation? Mr. Dunham wants a local attorney that you will not have to pay travel time. Mr. Polak noted most Chicago attorneys charge $500 per hour, which is more than double Mr. McCarthy's rate. Mr. Polak addressed the potential liability to council members in making decisions without legal counsel.

Mr. Kang commented a lot of local attorneys only charge $200 per hour. His concern with Mr. McCarthy is previously he asked him many questions and believed he never got a clear answer. He also referenced the council never adopted Roberts Rules of Order for the meetings. Mr. Polak and Mr. Bredenkamp replied formal adoption was not necessary.

Mr. Dunham made a motion to table further discussion on this issue and allow the council members to identify attorneys who would be willing to serve at a cost lower than Mr. McCarthy. He would vote for Mr. McCarthy if we cannot find someone by the next meeting. Mr. Kang seconded the motion. Motion failed on a roll call vote of 3-3. Mr. Dunham, Mr. Kang and Mr. Young B. Kim voting for the motion and Mr. Bredenkamp, Mr. Daniel Kim and Mr. Polak voting against.

  DECERTIFICATION HEARING OF THE ESM COMPLIANCE PROGRAM

Mr. Eriksen reviewed the information contained in the council packet noting the ESM Compliance Program failed to timely complete the required 2015 site inspections in accordance with the council's compliance program policies and procedures. The required inspections were completed by March 31, 2016.

Mr. Richard Kim addressed the council noting he was dealing with various personal issues in 2015 including the death of his father in October 2015 which required his travel to and extended stay in Korea.

On a motion by Mr. Dunham and a second by Mr. Bredenkamp, the council voted 6-0 not to decertify the ESM Compliance Program.

  PUBLIC COMMENT PERIOD

Mr. Polak asked for public comment.

Mr. Chang Lee, representing the Korean American Dry Cleaners Association (KADA), commented due to the actions of Mr. Kang, the council has wasted a significant amount of time and money dealing with problems created by the NDI Compliance Program. In addition, it appears several of the council members do not review their council packet material in advance of the council meetings resulting in their lack of understanding of the material and inability to effectively discuss issues during the council meeting.

APPROVAL OF PROGRAM BILLINGS
 

Mr. Eriksen noted there were eight (8) bills before the council for their review and approval. They were:

1. Williams & Company Consulting, Inc. $ 57,520.00*

Standard flat fee billing for July 2018, licensing, underwriting, claims processing and site inspections.

On a motion by Mr. Bredenkamp and a second by Mr. Dunham, the bills were approved by a vote of 6-0.

  SOLVENT CLASSIFICATION SENSENE SOLVENT

Mr. Eriksen reviewed the memo in the council packet. Based on his review of the solvent's MSDS sheet, he is recommending the Council classify the solvent as petroleum-based solvent for the purposes of calculating the annual licensure fee and the applicable solvent tax.

After a brief discussion, on a motion by Mr. Dunham and a second by Mr. Young B. Kim, the council voted 6-0 to classify SENSENE solvent as a petroleum-based solvent.

  STRATEGIC PLANNING SESSION

Mr. Eriksen commented this year's strategic planning material is somewhat abbreviated compared to prior years, but the key discussion issue for today is fund solvency. The annual license fee and solvent tax revenue sunsets on January 1, 2020, which is in less than 18 months. It is his opinion the council needs to work with the drycleaning industry to develop legislation to either extend the program's revenue streams or else develop a plan to wind down the program by January 1, 2020.

  I. Review of Program Status:
 

A. Update on Program Statistics:

i. General Program Statistics:

Mr. Eriksen reviewed various program statistics including the June and July 2018 monthly activity reports and financial statements. The Fund's July 31, 2018 financial statements reflect a fund balance of $1,158,520. The following graphs were reviewed with the Council:

  • Licensed versus insured drycleaners since the program's inception
  • Claim payment dollars pad to date
  • Claim balances compared to approved budgets
  • Listing of licenses by license category for hydrocarbon and chlorine-based sovents
  • Solvent usage for the period of 2009 through 2017

ii. Enforcement Efforts:

Eighty-four (84) drycleaning facilities that were licensed in 2017 did not renew their license for 2018; 31 of these facilities closed; 22 facilities converted to a "drop store" and staff is working on getting the remaining 31 facilities licensed or determine they are no longer operating as a licensed drycleaning plant. The status of these 31 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..

B. Review of Fund Financial Projections for the Perido of July 1, 2018 Through January 1, 2020

Mr. Eriksen reviewed financial projections for the period of July 1, 2018 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 August 24, 2017 Council meeting.

The net impact of the assumption changes resulted in a net decrease in the projected Fund deficit of approximately $50,000. Assuming all of the relevant assumptions remain valid through the sunset date of the program, the Fund is facing a $16,283,310 deficit as of January 1, 2020.

Mr. Eriksen commented the council will have between $2.1 and $2.5 million dollars to spend on remedial claim reimbursements between July 1, 2018 and January 1, 2020.

Mr. Bredenkamp stated the council needs to communicate to the industry there is no money remaining to fund new claims and a majority of the existing claims will not be fully funded by the sunset date and that the council will be winding down the fund.

Mr. Eriksen noted this projected deficit would not be eliminated by extending the sunset date to June 30, 2030 unless the revenue stream increased.

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.

On a motion by Mr. Bredenkamp and a second by Mr. Dunham, the council voted 6-0 to table an actuarial review.

  II. Program Goals - Fiscal 2019
 

A. Fund Sovency:

Mr. Eriksen stated since the sunset date of the program is only 1 years away, the council has only two options:
  • 1. Finalize a plan of action to address the fund solvency issue such as extending the revenue sunset date or obtaining a new revenue stream, or
  • 2. Developing a plan to wind down the program in an orderly manner.

Each one (1) year extension generates $937,500 of net revenue at current license fees and solvent tax rates.

Mr. Eriksen reviewed the two existing bills (SB1648 and SB2443) and their impact on the fund. Neither bill as currently written will eliminate the projected deficit and provide for the cleanup of the remaining claims by January 1, 2030. His preference would be the legislature provides an additional source of funding and the program sunsets no later than December 31, 2025.

A lengthy discussion ensued. Concern was expressed the drycleaning industry could not absorb increased license fees or solvent taxes at this time or in the near future as evidenced by the declining number of active drycleaning facilities during the past decade.

Mr. Eriksen reviewed the revenue trend for fiscal years 2010 through 2018. During that time period, the number of licensed drycleaners decreased from 1,104 to 731. Correspondingly the total annual revenue went from $3,852,467 to $2,095,043, which is a decrease of almost $400 in average revenue per drycleaner.

Mr. Eriksen noted the council needed to back up on the agenda and address 2017 compliance program site inspection issues before continuing discussion of 2019 program goals.

2017 Compliance Program Site Inspeciton Issues

Mr. Eriksen reviewed the council memo summarizing calendar year 2017 compliance site inspections. Approximately 28 drycleaning facilities have not had a compliance program inspection in the past 4 years as required by the council's policies and procedures.

After general discussion, on a motion by Mr. Bredenkamp and a second by Mr. Dunham, the Council voted 6-0 for the administrator to notify all fund insured drycleaners who had not completed a compliance program site inspection in the past 4 years that they must complete one by December 31, 2018 or have their insurance coverage cancelled.

Fund Solvency - Continued

i. June 30, Cash Flow Analysis:

Mr. Eriksen reviewed the worksheet labeled "Cash Flow Analysis Fiscal Year 2019" 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 2019. Using the projected maximum funding number for released claims, there are no additional funds available that the Council could earmark for additional cleanup.

B. Legeslative Issues:

Mr. Eriksen reviewed SB1648 and SB2443 and touched on previous legislative issues the council agreed to purse which included transferring the 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.

Regarding administrative rules, Mr. Eriksen updated the council on the status of the council's draft compliance program rules.

C. Pollution Prevention:

Mr. Eriksen reviewed updated site inspection information with the Council, noting the Administrator conducted 9 site inspections in FY18 and the compliance programs completed 150.

Mr. Eriksen provided an update on Perc Operator Training noting only 7 drycleaners insured with the Fund have not completed the training as of June 30, 2018.

D. Communication:

Mr. Eriksen noted the key issue for FY19 is communicating fund solvency and the program's sunset date. A secondary issue is communication on compliance program site inspections.

E. Other Issues:

The next Council meeting is tentatively scheduled for Wednesday, October 3, 2018.

F. Summary:

After additional discussion on fund solvency, on a motion by Mr. Polak and a second by Mr. Bredenkamp, the council directed the administrator to communicate to the remedial claimants with open claims and the legislature the financial position of the fund and the impact on them if the sunset date is either not extended or a new revenue source found. The motion passed by a vote of 5-1 with Mr. Kang voting against the motion.

  CLOSED SESSION
 

Mr. Eriksen noted there was one issue for discussion in Closed Session.

On a motion by Mr. Bredenkamp and a second by Mr. Kang, the Council voted 6-0 to go into closed session at 12:13 p.m. to discuss matters of potential litigation.

The Council adjourned from closed session at 12:21 p.m. On a motion by Mr. Dunham and a second by Mr. Young Kim, the Council voted to reduce the 2018 license late payment penalty for Dryclean 365 from $610 to $132. The motion passed 4-2, with Mr. Bredenkamp and Mr. Polak voting against the motion.

There being no further business, on a motion by Mr. Bredenkamp and a second by Mr. Dunham, the Council meeting adjourned at 12:23 p.m.

Respectively submitted,


H. Patrick Eriksen
Administrator
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