July 20, 2005 minutes

July 20, 2005 Meeting Minutes

MINUTES

DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

WEAVER RIDGE GOLF CLUB
PEORIA, ILLINOIS

JULY 20, 2005

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 12:20 p.m. A quorum was present. Roll call was taken with the following members present:

John Bredenkamp
David Gibson
Young B. Kim
Charles Kwon
Jerry Lewicki
John Polak

Also present were:
H. Patrick Eriksen, Program Administrator's Office
John McCarthy, Program Counsel
C. Michael Perkins, Program Administrator's Office
Juho So, Program Administrator's Office

PRELIMINARY BUSINESS

The minutes from the June 9, 2005 Council meeting were reviewed. On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the minutes were approved by a vote of 6-0.

The minutes from the June 16, 2005 Council meeting were reviewed. On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the minutes were approved by a vote of 6-0.

STRATEGIC PLANNING SESSION

Mr. Polak noted the meeting would last the balance of the day, with the majority of the focus of the meeting on the Council's annual strategic planning session.

I. Review of Program Status and Evaluation of Past Goals :

A. Review of Policies and Procedures

Mr. Eriksen reviewed with the Council each of the policy changes the Council adopted since the July 24, 2004 Strategic Planning meeting as to the remedial and insurance claims, licensing and underwriting policies and procedures.

B. Review of Fiscal 2005 Goals and Statistics:

Mr. Eriksen reviewed with the Council the status of their goals for fiscal 2005. He noted the goals involved Fund solvency, pollution prevention and communication.

Regarding Fund solvency, the Council has monitored the Fund's cash flow throughout the year. Mr. Eriksen noted he would review the updated financial projections based on historical claim and financial data, later in the Strategic Planning meeting. As of June 30, 2005, 15 insured drycleaners failed to file a budget request or send a letter stating they intended to conduct intrusive testing by June 30, 2006. These 15 insured drycleaners missed this legislatively established deadline and are not eligible for remedial program benefits.

Regarding pollution prevention, he reviewed with the Council the site inspections conducted during the past fiscal year. He reported representatives of the six (6) Council approved compliance programs have been asked to be in attendance at today's meeting or submit a brief summary of their progress in implementing the Council's revised compliance program requirements. He indicated there are as many as 47 drycleaners who did not obtain or document obtaining their four (4) CEUs for 2004. He will be looking for guidance from the Council on how to address these 47 drycleaner facilities in terms of keeping their insurance policy in effect.

Regarding communication, Mr. Eriksen noted several mailings were done in English and Korean notifying licensed drycleaners, solvent suppliers and environmental consultants about the legislatively mandated June 30, 2005 and June 30, 2006 eligibility deadline for remedial benefits. Ads were placed in various trade association newsletters several times during FY05 informing the drycleaners of these deadlines. In addition, during the past fiscal year the Fund made informational presentations to the Chicagoland Cleaners Association, Illinois State Fabricare Association, Korean American Drycleaners Association, Land of Lincoln Drycleaners Association and the Asian-American Small Business Association.

Mr. Eriksen reviewed program statistics with the Council. He distributed the June 30, 2005 monthly activity report, noting the number of license and insurance applications in effect and the status of the remedial claims and their respective reserves. Currently remedial claim reserves total just over $31 million, with approved budgets outstanding of $4.6 million.

He reviewed with the Council various graphs, including licensed versus insured drycleaners, total licenses issued since inception of the Fund, claim dollars paid to date, cash balance compared to approved budgets for the facilities with contamination, and age distribution of when the facility began drycleaning operations. Several graphs reflected the dollar incurred value of eligible remedial claims as of June 30, 2005. The majority of remedial claims are currently in the category with an estimated incurred value between $50,000 and $99,999. This is because total site assessments have not been completed on many of these sites and therefore a general reserve has been established for these claims based on limited site assessment information. He reviewed with the Council a graph that reflected the gallons purchased for perc drycleaners based on the number of drycleaners in each licensing category for calendar year 2004 and calendar year 2005. There has been a substantial shift between the two (2) years from the number of drycleaners who had purchased 51-100 gallons in 2004 to the category of 0-50 gallons in 2005. The shift in usage is probably due to several factors which include drycleaners purchasing more solvent at the end of calendar year 2003 (prior to solvent tax increase), which increased their 2004 license fee and drycleaners buying from solvent distributors who are not charging the solvent tax.

C. Summary of State Programs That Have Drycleaner Clean Up Programs:

Mr. Eriksen reviewed with the Council a comparison of the Illinois program to other state programs. He noted Illinois charges a $10 per gallon perc tax and a $2 per gallon tax on petroleum which is comparable to several other states. Texas remains the highest at $15 per gallon tax on perc and Florida and Wisconsin the lowest at $5 per gallon. Regarding the number of entities that pay fees, at this time only Florida , at 1,600 active drycleaners, has more entities paying fees than Illinois . Texas is estimating that they will have somewhere in the range of 2,220 to 4,677 active drycleaners but are still trying to quantify the number. Regarding the average fees paid per drycleaner, Illinois is currently at $3,100, which is $1,000 less than a year ago; when compared to other states, Kansas is the highest at $6,000. He noted North Carolina has not recently reported a number but had previously estimated that their total would be $18,650 annually based upon their fund receiving 4% of the state sales tax on all drycleaning services. Illinois continues to lead the nation in site assessments initiated with 395 site assessments; Florida is second with 274, with Wisconsin being a distant third with 72 initiated site investigations.

D. Review of Fund Financial Projections for the Period of July 1, 2005 Through January 1, 2020:

Mr. Eriksen reviewed with the Council the Fund financial projections for the period of July 1, 2005 through the Fund's sunset date of January 1, 2020. He noted several changes have been made in the projection assumptions as compared to the projections reviewed at the February 28, 2005 Council meeting. They are as follows:
1) Annual licensing revenue decreased $145,000 based upon historical information.
2) Annual tax on drycleaning solvents increased $53,000.
3)The total number of active remedial claims decreased by 45 to reflect estimated claims based upon the budget submittal requests received as of June 30, 2005.

These assumptions take into account the most accurate historical data the Fund has to date. Only a small percentage of the contaminated sites have started moving towards cleanup so the estimate of future cleanup costs will change. Based on the estimated current revenue stream in effect and 825 remedial claims, the Fund could anticipate a potential deficit of $37,328,772 at the January 1, 2020 sunset date. Within the next year, the Council will know exactly how many remedial claims are eligible for benefits and that information will allow the projections to be further fine tuned.

E. Segregation of Insurance Program Funds:

Mr. Eriksen reviewed with the Council the pro forma financial statements and related assumptions for segregating the insurance program monies from the total Fund monies. He noted if the insurance fund was segregated, it would have a balance as of June 30, 2005 of approximately $2,724,075. The budget for fiscal year 2006 reflects potential excess revenues over expenditures of $851,000.

II. Program Goals – Fiscal 2006

Mr. Eriksen reviewed with the Council that the Program goals for fiscal year 2006 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:

The Council discussed three (3) options for adjusting the Fund's revenue stream. One (1) option would be to charge a flat fee license for all drycleaners which would be considered a cost of entry into the drycleaning business with no solvent tax or a reduced solvent tax as a supplemental revenue stream. The second was an incremental license fee based upon some grouping of current licensing categories to provide some financial relief for the drycleaners that use the smallest volume of drycleaning solvent. The third option was a hybrid of options (1) and (2).

Mr. Polak recessed the Council meeting at 2:00 p.m. The meeting reconvened at 2:34 p.m.

A drycleaner from the general public inquired as to the status of trying to add an environmental surcharge to the drycleaning invoices in order to generate additional revenues for the drycleaners to offset the solvent taxes, license fees and other environmental costs associated with operating a drycleaning facility. Mr. Eriksen informed the Council he is continuing to pursue the environmental surcharge feasibility issue with the Attorney General's Office. Unfortunately, response from the Attorney General's Office on this issue has been minimal. His focus is to obtain enough information on the acceptable methodology to calculate an environmental surcharge and share the information with the drycleaning associations. This could provide an option to the drycleaners to recoup some of those environmental costs that they are currently incurring.

Mr. Eriksen reviewed three (3) financial projection scenarios with the Council which would result in the Fund being at a breakeven point as of the program's sunset date. The bottom line is that the Fund needs approximately $6 million per year in revenue beginning in FY07 to break even in remediating 825 remedial claims. Currently, the projected revenue is approximately $3.9 million per year and therefore a deficit of $2.1 million needs to be eliminated.

After additional discussion, the Council indicated they would revisit this topic during the fiscal year and would welcome input from drycleaners on possible solutions for increasing the revenue stream.

Mr. Polak updated the Council that the June 16, 2005 meeting with members of the Governor's Office, Office of Management and Budget, Rep. Mike Smith and members of the House Democratic staff were successful in arriving at a verbal agreement in which the projected 20% Fund transfer per SB661 would be transferred out to the General Revenue Fund and then be transferred right back to the Fund. The Council will seek to permanently remove the Drycleaner Trust Fund from SB661 during the fall veto session. Mr. Eriksen noted in reviewing cash flow scenarios (one with fund transfers and one without) that in either scenario, the Council was left with limited funds to begin additional cleanups and should give consideration to focusing on completing additional site investigations to gather sufficient data to prioritize a majority of the remedial claims at one time. Drycleaners wishing to move ahead with their cleanup could go ahead with their remedial action plan design as the average cost for that plan should be less than the $10,000 deductible. Those drycleaners needing to move ahead with remedial action for whatever reason could petition the Council for review and action on their claim.

After discussion by the Council, on a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the Council agreed to maintain the deferral of new remediation activities until June 30, 2006. Exceptions would be made by the Council on a case-by-case basis. The motion passed by a vote of 6-0.

Mr. Eriksen shared data with the Council noting there are approximately three quarters of a million dollars in budgets that were approved over two (2) years ago and invoices and/or reports have not been received which indicates the work has not been performed. In the future, the Council may wish to designate that budget approvals are only good for one (1) year from the date of issuance. The Council discussed the issue at length and asked the Administrator to contact all the claimants that have outstanding budgets in excess of two (2) years and get an indication from them when they plan to move ahead with their site assessment work. The Council stated they would re-assess this issue at their July 2006 Strategic Planning session.

B. Legislative Issues:

The Council worked in conjunction with the Attorney General's Office and the Department of Revenue during the spring to draft legislation to strengthen enforcement mechanisms of licensing provisions and solvent tax collections for the Fund. Hopefully, this legislation can be addressed during the fall veto session.

In addition, the Council may need to introduce legislation during the fall veto session to address the transfer of funds from the Drycleaner Environmental Response Trust Fund to the General Revenue Fund as outlined in SB661.

C.
Pollution Prevention:

Members of the six (6) compliance programs were invited to update the Council as to the status of their compliance programs with particular emphasis on the number of site inspections they have completed year-to-date.

Mr. Richard Kim of ESM addressed the Council reporting that 18 site inspections need to be completed by December 31, 2005 and he estimated there will be no problem in accomplishing that. Approximately 100 drycleaners are members of his program and he will provide the Administrator with a current list of his members. Regarding CEU seminars to be offered yet this year, he stated it is his plan to offer one or two seminars in the time period from September to December to give his members an opportunity to pick up the necessary CEUs for calendar year 2005. Regarding problems noted in his site inspections, probably the main issue has been drycleaners having properly sized secondary containment pans for their hazardous waste drums or filter containers. In addition, he is concerned drycleaners that use a filtering system to remove the solvent from their separator water are not properly changing the filters every six months as recommended by the manufacturer of the filtration system.

Mr. Sung Kang, representing the National Drycleaners Institute, indicated he did not have information prepared to share with the Council but would compile and forward the information to the Administrator in the very near future.

Mr. John Lee, administrator of the Asian-American Small Business Association (AASBA) Compliance Program, stated there are currently 199 drycleaners participating in the AASBA Compliance Program. Regarding completed site inspections, he knows at least 15 inspections have been completed to date and it may be as high as 65, as his site inspector is compiling a listing of recent site inspections. He estimates his program has at least 150 inspections to complete in 2005. He will be submitting two more names to the Administrator to be approved as inspectors in the near future and it is his intent to have 3 to 4 inspectors doing compliance program inspections for AASBA. Regarding AASBA's plans for continuing education seminars, they are in the planning phase but he assured the Council AASBA would be conducting CEU seminars in the fall of 2005. He agreed with a comment previously made by Richard Kim, stating that obtaining 2 CEUs annually in addition to a site inspection is a problem for many drycleaners. It is his recommendation that drycleaners only attend the CEU courses offered by their specific compliance program.

Ms. Sue Kratz, representing the Illinois Drycleaner STAR program, gave the Council an update as to the status of the STAR program. She noted that they have approximately 100-125 members. To date, they have completed 26 site inspections and will have completed all that are required by year end which is estimated to be another 25-30 inspections. Regarding continuing education seminars, she noted the Illinois State Fabricare Association will be in charge of providing seminars for continuing education and it is her understanding that several future CEU sessions are substantially complete.

Ms. Kratz addressed the status of the S&ECC Compliance Program, noting they have 66 members, with the majority of them having been inspected within the past year. All will be inspected by year end and S&ECC is working in conjunction with the Illinois State Fabricare Association in developing CEU seminars.

Ms. Barbara Boden, Executive Director of the Illinois State Fabricare Association, addressed the Council stating there will be plenty of opportunities for drycleaners to obtain CEUs by year end based on the courses that ISFA will be offering.

Ms. Kratz noted the most frequent violation that they have recently encountered in their inspections is drycleaners not having their hazardous waste containers properly marked.

Mr. Harry Cho, administrator of the Enviro-clean compliance program addressed the Council and expressed his concern that he does not believe the compliance programs have the right to enforce the CEU requirements or to do drycleaning facility inspections. He reported these activities take a considerable amount of time and it is necessary to charge the drycleaner fees in order to properly perform those activities. Many drycleaners are reluctant to pay fees for those activities and his organization is struggling with how to deal with those drycleaners who need the services but refuse to pay for them. Mr. Cho reported the Enviro-clean program has approximately 450 members with approximately 70 inspections completed to date, leaving approximately 380 that need to be inspected by December 31, 2005. At least two (2) CEU seminars are planned for each month, beginning in September and continuing through December. They will be held at different locations to allow drycleaners opportunities to get their necessary CEUs. Regarding inspection issues noted, he reported issues regarding secondary containers for misters continue to be a problem for some drycleaners and/or proper sizing of secondary containers for hazardous waste drums.

Mr. Cho indicated there is probably the need for a sit-down meeting between all of the compliance program administrators, the Chairman of the Council and the Administrator to work out the exact dates of when Fund mandated requirements need to be completed. He stated many drycleaners are confused with the Fund's different dates and deadlines.

Mr. Kim and Mr. Lee indicated that they may combine resources and provide some joint CEU seminars to their members. They expressed concern that having to do two (2) or three (3) follow-up visits on a site inspection is expensive and they feel they are limited on what they can charge for those services. It is making it difficult for them to earn a profit from compliance program activities. They expressed concern that recordkeeping of CEUs for their members was a time consuming process.

The compliance program members and the Council conducted a general discussion regarding what to do with the approximately 47 drycleaners that failed to get their 4 CEUs during 2004. Mr. Lee gave an example of a drycleaning facility in which the owners of the facility went on vacation for a period of 7 months. The son, who stepped in to run the operation for his parents, did not know what was needed, did not read Korean, and therefore failed to get the 4 CEUs needed in 2004. Another drycleaner was involved with divorce issues, ignored all of his mail and failed to get the required 4 CEUs.

Mr. Young B. Kim addressed the specific examples and stated the compliance program requirements have been in existence for a long time and participating drycleaners should have been aware of the need for continuing education CEUs. After lengthy discussion by the Council, on a motion by Mr. Gibson and a second by Mr. Bredenkamp, the Council approved, by a vote of 6-0, for the Administrator to send to these 47 drycleaners a letter informing them that within 30 days they will be receiving a 60-day Insurance Cancellation Notice for failure to obtain the required CEUs for calendar year 2004. They will have 60 days (until approximately November 1, 2005) to attend Council-approved CEU courses to make up their shortfall. This would be a one-time exception and in addition they would be subject to annual inspections at their facility beginning in calendar year 2006. These make-up CEUs would be in addition to the four CEUs that they must have for calendar year 2005. Failure to meet their CEUs in the future would result in cancellation of their insurance coverage and loss of remedial program benefits.

Mr. Polak requested the compliance program administrators provide monthly to the Administrator a report of the site inspections they have completed. Each month the Administrator is to provide those reports to the Council.

Mr. Eriksen reviewed with the Council that to date the Administrator's office has conducted 469 site inspections and he reviewed the summary findings of those site inspections with the Council.

D. Communication:

For the past several years, the Council has emphasized the need to continue and expand communication with the drycleaning community. As noted under the “Review of Status of Current Goals and Objectives” progress continues to be made in this area. Mr. Eriksen reviewed the specific mailings that were done during the past year and stated he is requesting an ad budget not to exceed $2,000, to place ads in the Korean-American Drycleaners Association and the Illinois State Fabricare Association newsletters throughout the fiscal year. On a motion by Mr. Lewicki and a second by Mr. Kwon, the motion was approved by a vote of 6-0.

Mr. Eriksen recommended public hearings be held in the fall of 2005 at two locations down state and two locations in the Chicagoland area. The focus of these meetings would be to provide informational updates on Fund activities, discuss the process being implemented in moving toward claims prioritization and also seek input as to increasing the revenue stream. He indicated that these public meetings would be beneficial as they would qualify for compliance program CEU credits.

APPROVAL OF PROGRAM BILLINGS

Mr. Eriksen noted that there were four (4) bills before the Council for their review and approval:

1. Williams & Company Consulting, Inc $ 120,380.00
Standard flat fee billing for June 2005, licensing, underwriting, claims processing and site inspections.

2. John J. McCarthy $ 2,150.00
Professional legal services to the Council for the period of June 1, 2005 through June 30, 2005.

3. Iain D. Johnston, Holland & Knight, LLP $ 2,518.10
Professional services acting as Administrative Hearing Officer for the period of June 1, 2005 through June 30, 2005 involving the Han appeal.

4. John J. McCarthy $ 1,450.00
Professional legal services to the Council for the period of July 1, 2005 through July 10, 2005.

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

CLAIM PAYMENTS IN EXCESS OF $75,000

Mr. Eriksen noted that there were two (2) claims requiring Council approval as the budget amounts are in excess of $75,000.

A. De Michels Cleaners

Dr. So reviewed with the Council background information on De Michels Cleaners in Arlington Heights , Illinois . He summarized the activities that have taken place to date and stated the Administrator is requesting Council approval on the following issues:
1) Proceeding with the Remedial Action Plan (RAP) and Remedial Action (RA) process without meeting the 3-bid requirement, and
2) Approving the Remedial Action Plan (RAP) and moving ahead with remediation without IEPA's Approval.

The request to move ahead without the 3-bid process is because the most effective remediation at this point in time is to do an over-excavation of the highly contaminated soils on the property. This method is being utilized because there will be new construction at the adjacent property and once that building is constructed, excavation will be very difficult to do due to limited space. As previously reported, the cost variance among contractors to do an over-excavation is minimal. Because of this reason and the time sensitive nature of the project, the Administrator is recommending approval without the 3-bid process. This logic is also the reason to proceed with remedial action without IEPA's approval. Dr. So summarized the budget to date noting that the prior budget approvals were $46,040. The estimated cost of remediation is $130,000 as outlined in the memo.

On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the Council approved the additional budget request of $130,000 for remedial action and waived the 3-bid requirement for the RAP and RA and approved moving forward with the cleanup without IEPA's approval.

B. Family Pride Cleaners

Mr. Perkins reviewed with the Council a summary of the claim status for Family Pride Cleaners in West Dundee, Illinois stating an additional budget is being requested in the amount of $76,170 to implement a Remedial Action Plan for injection up to 34,000 gallons of potassium permanganate into 21 injection wells within the contaminated area. Previous injections have resulted in a reduction of the contamination but there has been a bounce back (or rebound) of the contaminant concentration. This injection will be the second round of injections at the facility and hopefully will substantially reduce the contamination level. Mr. Perkins reviewed the current approved budget to date total which is $91,036.15.

On a motion by Mr. Kim and a second by Mr. Lewicki, the additional budget request of $76,170 was approved by a vote of 6-0.

OTHER ISSUES AS PRESENTED

Mr. Eriksen reported the next Council meeting is tentatively scheduled for Wednesday, September 14, 2005. In addition, he has received materials from the state's Ethics Officer noting the Council has to complete hands-on ethics training that will take approximately 30 minutes. He recommended that the Council complete this training at the next meeting.

PUBLIC COMMENT PERIOD

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

ADMINISTRATIVE HEARING OFFICER DECISION

Mr. McCarthy stated the Fund had just recently received the Administrative Hearing Officer's decision on the Han appeal. He reviewed the substance of the opinion, noting that the Administrative Hearing Officer held for the Council on most points but did conclude the Fund had a duty to defend as they had not cancelled the policy during the policy period and therefore Mr. Han is entitled to approximately $53,000 in defense costs. Mr. McCarthy reviewed with the Council appeal options, noting it would be highly unlikely that the Council would be successful on a future appeal.

Mr. Eriksen noted that based upon the Han appeal, there are several revisions that need to be made to the insurance policy, applicable forms and the administrative rules. He will have new documents drafted for review at the next Council meeting and will be postponing filing previously approved administrative rule amendments until the Council can review and act on the new ones to avoid multiple filings with the Joint Committee on Administrative Rules.

There being no further business, the Council adjourned their meeting at 5:45 p.m.

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