August 22, 2007 minutes

August 22 , 2007 Meeting Minutes

MINUTES

DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

WEAVER RIDGE GOLF CLUB
PEORIA, ILLINOIS

AUGUST 22, 2007

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 11:34 a.m. A quorum was present. Roll call was taken with the following members present:

David Gibson (arrived at 11:36 a.m.)
Young B. Kim
Paul Kwak
Charles Kwon
Jerry Lewicki
John Polak

Also present were:
H. Patrick Eriksen, Program Administrator's Office
John McCarthy, Program Counsel

PRELIMINARY BUSINESS

The minutes from the June 13, 2007 Council meeting were reviewed. On a motion by Mr. Lewicki and a second by Mr. Kwon, the minutes were approved by a vote of 5-0.

APPEAL OF CANCELLATION OF INSURANCE COVERAGE AND LICENSE LATE PAYMENT FEES

Mr. Eriksen stated that there was one (1) appeal to be heard and involves the cancellation of insurance coverage and the requested waiver of the license late payment fees for Metro Cleaners located at 824 Central Avenue in Highland Park , IL .

Ms. Mee Sun Kim is the drycleaner owner/operator of the facility which was licensed through December 31, 2006 and had pollution liability insurance coverage from the Fund from June 28, 2000 until January 8, 2007, when the insurance expired for failure to pay the second semi-annual insurance premium installment. Ms. Kim participated in the appeal via telephonic conference and was assisted in the translation of information by Yu Song Choi.

Mr. Eriksen reviewed for the Council his memorandum included in the Council packet providing background information on this appeal. The facility did not obtain its calendar year 2007 license until May 26, 2007. In addition, the insurance coverage at the facility expired on January 8, 2007 for failure to pay the second semi-annual insurance premium installment. Late fees owed total $725, which Ms. Kim is requesting waiver of.

Ms. Kim addressed the Council, noting the insurance cancellation and the tardy licensure of the facility for 2007 were the result of her contract sale of the facility to Mr. Jong Dae Bang on September 1, 2006. She outlined that Mr. Bang was to maintain the insurance coverage and also license the drycleaning facility. He failed to do so and she was not made aware of this failure until May 1, 2007, at which time Mr. Bang filed for bankruptcy and she was notified of his filing. Ms. Kim resumed operation of the facility on May 14, 2007 and paid the 2007 license fee on May 26, 2007.

This facility has a remedial program claim which was closed upon cancellation of the insurance coverage in January 2007.

Mr. Eriksen stated the issue for the Council is:
1) Do they wish to reinstate Ms. Kim 's insurance coverage back to January 8, 2007 without a lapse in coverage?
2) Does the Council wish to waive the license late payment fees in the amount of $725 for calendar year 2007?

After general discussion by the Council, on a motion by Mr. Kim and a second by Mr. Kwon , the Council waived the $725 license late payment penalty for 2007 and stated they would reinstate the insurance coverage provided the total $1,400 in insurance premium due is paid by September 22, 2007. The motion passed by a vote of 6-0.

Mr. Polak stated since the primary purpose of today's meeting was Strategic Planning, he wished to move off the printed agenda to address some of the normal perfunctory matters beginning with Approval of Program Billings.

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 $ 82,878.00
Standard flat fee billing for June 2007, licensing, underwriting, claims processing and site inspections.

2. John J. McCarthy $ 1,815.00
Professional legal services to the Council for the period of June 1, 2007 through June 30, 2007.

3. John J. McCarthy $ 620.00
Professional legal services to the Council for the period of July 1, 2007 through August 13, 2007.

4. Williams & Company Consulting, Inc $ 57,181.00
Standard flat fee billing for July 2007, licensing, underwriting, claims processing and site inspections.

Mr. Eriksen noted Williams & Company's and Mr. McCarthy 's June bills had been distributed to the Council members for their review and the Administrator had individually polled each member regarding approval of the bills. This was done to accommodate the State's cutoff of fiscal 2007 expenses. The bills were verbally approved by each Council member.

On a motion by Mr. Lewicki and a second by Mr. Kwon, the bills were approved as submitted by a vote of 6-0.

CLAIM PAYMENTS IN EXCESS OF $75,000

Mr. Eriksen reviewed with the Council that before them was a request for project costs in excess of $75,000 for United Cleaners, located in Lemont, IL . Specifically, the Administrator requested Council approval of additional site investigation costs totaling $17,280 that was necessary during the remedial phase of the project and approval of contingency costs in the amount of $30,000. Mr. Eriksen reviewed background information with the Council on the facility. After additional discussion, on a motion by Mr. Lewicki and a second by Mr. Gibson, the Administrator's requests were approved by a vote of 6-0.

OTHER ISSUES AS PRESENTED

Mr. Eriksen stated the only other issue for Council discussion was setting the next Council meeting date. He indicated based upon an earlier poll of the Council members that Friday, September 21, 2007 is the preferred date. The meeting will be held at the Holiday Inn in Naperville , IL and would focus on as many as nine (9) appeals that would be before the Council for cancellation of insurance coverage. After discussion by the Council, it was tentatively agreed the September 21, 2007 meeting begin at 9:00 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 September 6, 2006 Strategic Planning meeting as to remedial and insurance claims, licensing, underwriting and compliance program policies and procedures.

Mr. Eriksen noted there was one (1) policy issue requiring Council review and action. It involves the review on an extended reporting period endorsement for the Fund's insurance policy. The Administrator recently received the first request for an extended reporting period endorsement. The Administrator's office has drafted language listed as Endorsement A, reflecting purchase of an extended reporting period that would be used to replace Paragraph 3 of Section 1 of the policy. Mr. Eriksen reviewed the wording and noted it provides the insured an additional six (6) months to report any release of drycleaning solvent that may have occurred during the period of time the facility was insured by the Fund. The cost of the extended reporting period endorsement is the same as the annual insurance premium, or $1,400.

After general discussion by the Council, on a motion by Mr. Lewicki and a second by Mr. Kwon, the Council approved the extended reporting period endorsement by a vote of 6-0.

B. Review of Fiscal 2007 Goals and Statistics:

Mr. Eriksen reviewed with the Council the status of their goals for fiscal 2007. The goals involve Fund solvency, legislation, pollution prevention and communication.

Regarding Fund solvency, Mr. Eriksen noted the Council continues to monitor the Fund's cash flow and enacted an increase in the licensing fees effective January 1, 2007. Currently there are 543 open active and four (4) open inactive remedial claims eligible for remedial program benefits. The estimated remaining cost to clean up these facilities is $40.7 million.

Regarding legislation, the Council had developed in conjunction with the Attorney General's Office and the Department of Revenue, legislation to strengthen enforcement action against unlicensed drycleaning facilities and solvent distributors who sell to unlicensed drycleaning facilities. The Council was unsuccessful in getting their proposed legislation introduced during the past legislative session.

Regarding pollution prevention, the Administrator conducted 23 site inspections at insured drycleaning facilities during the past fiscal year. Compliance programs conducted an additional 359 inspections. The results of the inspections indicated a majority of the drycleaners are in substantial compliance with the Fund's and State's environmental rules and regulations.

Regarding communication, all claimants were notified via personalized letter their prioritized ranking of their remedial claim during fiscal 2007. The Fund's newsletter summarized current financial information and other key information regarding the Fund.

C. Update on Program Statistics:

i. General Program Statistics:

Mr. Eriksen reviewed program statistics with the Council. He reviewed in detail the July 31, 2007 Monthly Activity Report, noting the number of licenses and insurance policies in effect. The Fund's July 31, 2007 financial statements reflect a fund balance of $4,895,519. He reviewed with the Council a graph of licensed versus insured drycleaners since the Program's inception, graph of licenses issued since the Program's inception, graph of claim payment dollars paid to date, graph of open remedial claims since inception and a graph of cash balances compared to approved budgets.

ii. Enforcement Efforts - Attorney General's Office:

Mr. Eriksen referenced a listing of drycleaners who did not renew their 2006 license.

He reviewed the licensing enforcement activities that have taken place since September 2006, noting there are approximately 81 facilities that were licensed in 2006 that have not renewed their license or appropriately documented they are no longer an operating plant; 27 of the facilities are currently working with the Administrator's staff to become licensed; 18 facilities appear to be operating; 10 facilities we cannot confirm their status; the balance had either closed or had switched to a dry/drop store.

During fiscal year 2007, 36 facilities were referred to the Attorney General's Office for enforcement action; 16 of the facilities became licensed and another 9 were working with the Fund to become licensed; 8 facilities ceased drycleaning operations and the Attorney General's Office has begun legal action against the remaining 3 drycleaning operators.

iii. Assignment of Commercial General Liability Policy:

At the January 17, 2007 Council meeting, the Council approved contracting with Mr. Iain Johnston of Holland & Knight to review the question if a drycleaner who is receiving benefits from the Fund has the ability and the obligation to assign their rights and benefits in their commercial general liability (CGL) insurance policy to the Fund in return for receiving cleanup benefits from the Fund. In addition, the analysis was to research the likelihood of the Fund receiving any benefits from the commercial general liability insurance policy.

Mr. Eriksen reviewed with the Council Mr. Johnston's memorandum, dated May 8, 2007, dealing with the assignment of commercial general liability policies. Mr. Johnston stated under Section 3 of his memorandum, “Assignability of Rights under CGL policies” that it his professional opinion if the insured has coverage under a CGL policy, it must transfer those rights to the Fund. Second, the assignment is limited to the rights provided by the CGL policy. Put simply, the assignee obtains no additional rights; its rights are limited to those provided to the insured by the CGL policy. Mr. Johnston stated this raises a more important issue which is assuming an insured can assign his right under a CGL policy, what other rights is it assigned? Under Section 4 of his memorandum, he outlined in detail the insured's rights under CGL policies. Mr. Eriksen reviewed with the Council Mr. Johnston's analysis. Mr. Johnston concluded his memorandum by stating “Based on my analysis of all the relevant case law, statutory law and policies, there is no strong possibility that the Fund will be able to recover any money from an insurance carrier under an assignment of a CGL policy by an insured. A hypothetical situation may exist but it is highly unlikely.”

The Council then discussed Mr. Johnston 's memorandum in further detail. On a motion by Mr. Gibson and a second by Mr. Lewicki, the Council voted 5-0, with Mr. Polak abstaining, to accept Mr. Johnston 's memorandum and not refer the matter to the Attorney General's Office for an informal legal opinion.

iv. Summary of State Programs That Have Drycleaner Cleanup Programs:

Mr. Eriksen reviewed key components of the various state programs and where Illinois ranked in those statistics.

D. Review of Fund Financial Projections for the Period of July 1, 2007 Through January 1, 2020:

Mr. Eriksen reviewed with the Council the Fund's financial projections for the period of July 1, 2007 through the Fund's sunset date of January 1, 2020. He outlined for the Council changes that have been made in the projection assumptions as compared to the projections reviewed at the February 21, 2007 Council meeting. The net impact of the assumption changes resulted in a net decrease in the projected Fund deficit of $1,445,000. Assuming all of the relevant assumptions remain valid through the sunset date of the program, the Fund would be looking at a $501,000 deficit as of January 1, 2020.

i. 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 was segregated, it would have a balance as of June 30, 2007 of approximately $4,717,439. The budget for fiscal year 2008 reflects potential excess revenues over expenditures of $695,270.

ii. Actuarial Review:

The Council voted at their September 6, 2006 Strategic Planning meeting to conduct an actuarial review of the insurance premium in calendar year 2007. The one and only actuarial review was conducted in December 2002, which established the initial actuarial determined premium of $1,400. The actuary had to rely heavily on data from private insurance companies in as much as the Fund history had only one (1) insurance claim at that time. Claim history is still limited. The Fund has had only five (5) insurance claims with only one (1) payment made which was for legal defense costs.

Does the Council wish Mr. Polak to enter into a contract with Milliman, Inc. to conduct an actuarial review of the insurance premium for a cost not to exceed $19,999?

The Council discussed at length the actuarial review process. Mr. Lewicki made a motion that was seconded by Mr. Gibson for the Council to enter into a contract with Milliman, Inc. for an actuarial review of the Fund's insurance premium for a cost not to exceed $19,999.

During discussion of the motion, the question was raised whether there is a likelihood of a significant change in the insurance premium. Mr. Polak stated he would anticipate the premium would either remain the same or possibly decrease slightly based upon his knowledge of trends in environmental premiums. Mr. Kwak expressed concerns of spending additional Fund monies on a review that would result in little or no change to the current premium. Discussion followed that at some point, an actuarial review should be done to validate the current premium but at this time it may not be prudent to spend approximately $19,000 to have a review conducted which would most likely result in minimal premium change. Mr. Lewicki withdrew his motion with the concurrence of Mr. Gibson . Mr. Kwak made a motion to defer until next year conducting the actuarial review of the Fund's insurance premium. The motion was seconded by Mr. Kwon and passed by a vote of 6-0.

Mr. Polak recessed the meeting for a break at 2:30 p.m. The meeting reconvened at 3:05 p.m.

II. Program Goals – Fiscal 2008

Mr. Eriksen reviewed with the Council the Program goals for fiscal year 2008 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 Administrator will continue to provide semi-annual financial projections in order for the Council to closely monitor the financial solvency of the Fund. It is anticipated the total claim payments as currently projected, will change over the remaining life of the Fund due to the following:
• Percentage of facilities requiring active remediation versus closure via institutional controls may increase or decrease as additional data is received on the facilities, and
• Average cost of cleanup may increase or decrease due to technology changes, inflation, etc., and
• Facilities may lose their eligibility if they fail to maintain continuous financial responsibility coverage.

Mr. Eriksen noted during fiscal year 2007, 26 facilities lost their eligibility to continue receiving remedial program benefits due to a lapse in their pollution liability insurance coverage.

During the past year there has been continued discussion by the drycleaning industry and the Council in moving to a flat rate license fee and reducing the revenue dependency on the solvent taxes. Solvent usage continues to decline each year, thereby reducing the Fund's revenue stream. Since 2000, perc usage has decreased 49% and hydrocarbon usage has decreased 64%.

Mr. Eriksen stated Chairman Polak had requested preparation of financial projections assuming movement toward a flat rate license fee and a reduction in the solvent taxes on perc and hydrocarbon solvents over a three (3) year period. He reviewed those projections in detail, noting his proposed scenario reflects that by fiscal year 2011, everyone would pay a flat rate license fee of $2,750 per facility with the solvent tax on perc being $5 per gallon and $1 per gallon on hydrocarbon-based solvents.

The Council had also instructed him to research the political feasibility in seeking a legislative change to offer claimants a tiered cleanup benefit structure. Per his research, such a change would require legislation and would unlikely be supported by the General Assembly. In addition, Illinois EPA would not likely be supportive of such change, as reduced benefits could result in a number of the drycleaning facilities not being remediated.

The Council conducted a lengthy discussion regarding the Administrator's draft financial projections moving the Fund towards a flat rate license fee by fiscal year 2011. Several members of the Council still oppose a flat rate concept in as much as those drycleaners that use the most solvent in all likelihood, are the larger operators that are generating substantially more revenue that allows them to pay the higher license fees whereby the smaller operators are facing severe economic conditions in their business and the flat rate license fee would only increase their costs and they would bear the brunt of the program funding. Other Council members argued that a flat rate license fee is equitable and should be viewed as the cost of entering into the drycleaning business. A flat license fee would allow the Council to reduce the solvent tax rate which generates less revenue each year due to reduced consumption by the industry.

Mr. Polak tabled debate on this issue and requested the Council members think through very carefully the pros and cons of a flat rate license fee and it would be put on the agenda for discussion later this fall.

i. Claims Prioritization – Summary and Associated Issues

Mr. Eriksen reviewed the prioritization ranking of the 543 open eligible active remedial claims and the four (4) inactive open remedial claims. He then reviewed with the Council the “Cash Flow Analysis – Fiscal Year 2008” noting approximately 14 claims could probably be released for funding. Ten (10) facilities have a prioritization score of 111 through 120 and 16 facilities have a ranking score of 110. The Fund's estimated cost to remediate the ten (10) facilities with a ranking score in excess of 110 is $2.5 million. This leaves approximately $500,000 available for facilities ranked with a score of 110. The Council needs to devise a way to further prioritize facilities that have the same numerical prioritization ranking but yet monies are not available to release all of them for funding at the same time. The Administrator recommended the Council consider releasing claims with the same ranking scores based on the following criteria:
1) Date Remedial Action Plan (RAP) was completed,
2) Date initial RAP budget was approved,
3) Date Remedial Objectives Report (ROR) was completed,
4) Date initial ROR budget was approved,
5) Date Claim form was filed with Fund.

The claim(s) with the earliest completed RAP would be released first, followed by claims with earliest date of initial RAP budget approval, etc., until all available dollars for the fiscal year have been prioritized.

After discussion by the Council, on a motion by Mr. Lewicki and a second by Mr. Gibson , the Council voted to release $3,018,000 for prioritized claims for fiscal year 2008 and use the Administrator's recommended criteria for releasing claims with the same ranking scores. The motion passed by a vote of 6-0.

Mr. Eriksen noted drycleaners whose claims are released for prioritization funding must move forward in 120 days or have their claim moved to the bottom of the list and receive funding after all other claims have been funded.

B. Legislative Issues:

The legislation the Council developed in conjunction with the Attorney General's Office and the Department of Revenue was not able to be introduced during the 2007 legislative session. Hopefully, it can be addressed during the 2008 legislative session.

Rule Amendments

Mr. Eriksen stated there is only one (1) topic that would require amending the existing drycleaning regulations. As discussed at the June 13, 2007 Council meeting, the Administrator is proposing the Council adopt rules describing requirements for the retention of records by an owner/operator of a drycleaning facility and the period of time for which he or she must retain those records for the drycleaning business. The Administrator will bring back a draft set of proposed amendments for review at a future Council meeting.

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 the Council approved compliance programs. Each compliance program was asked to have a representative in attendance at this meeting to discuss the finding of the audits. Mr. Eriksen reviewed the revised audit draft in detail with the Council noting that wording changes from the previous draft had been highlighted for ease of review.

Mr. Polak inquired if all six (6) compliance programs were needed. He was disappointed the Korean/American Drycleaners Association, Enviro-clean Program was not represented at the Council meeting.

A member of the Asian-American Small Business Association (AASBA) compliance program addressed the Council, taking exception to some of the audit findings specifically relating to individual facility documents. Mr. Eriksen replied the audit specifically focused on documents that were provided by the compliance programs and if additional documents exist, they were not provided during the initial audit and subsequent follow-up. It was the compliance programs' responsibility to contact the Council and provide them with the requested information.

Mr. Richard Kim of ESM Drycleaner compliance program addressed the Council and explained why he was not always readily available to provide information to his members and the Council during the past calendar year.

Mr. Polak stated it would be his recommendation the Council consider notifying three (3) of the compliance programs of the Council's intent to decertify them and allow them 30 days to come back and either provide additional information on the facilities that were audited or make a case of why they should not be decertified.

This recommendation generated substantial discussion by the Council. On a motion by Mr. Kim and a second by Mr. Lewicki , Mr. Kim proposed the Asian/American Small Business Association, the Enviro-clean Compliance Program and the ESM Compliance Program be notified of an intent to decertify their programs and they have 30 days to explain why they should not be decertified. On a roll call vote, the motion failed by a tie vote of 3-3. Mr. Gibson made a motion to immediately decertify the three (3) programs previously mentioned with the requirement the Council notify their membership of the decertification. The motion died for lack of a second.

The Council further discussed the ramifications of decertification of compliance programs. Mr. Kwon made a motion that the three (3) compliance programs, Asian/American Small Business Association, Enviro-clean Compliance Program and ESM Compliance Program be provided 30-day notice that they must fix the deficiencies as outlined in the Council's compliance program audit report or provide the Council information as to why they should not be decertified. This would be placed as an agenda item on the September 21, 2007 Council meeting. The motion was seconded by Mr. Kim . On a roll call vote, the motion passed by a vote of 4-2.

Mr. Eriksen stated he would immediately notify those three (3) programs of the Council's decision. Two (2) of the programs had representatives in attendance at today's meeting.

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 and inquired if the Council wished to hold statewide meetings to discuss the Fund's status. Mr. Polak tabled discussion on the issue until later this fall in as much as it may be necessary to have statewide meetings to communicate information about the compliance programs and other program issues.

PUBLIC COMMENT PERIOD

Mr. Polak asked if there were any comments from the public. Mr. John Lee of the Asian-American Small Business Association stated most of the information regarding their compliance program site inspections and associated issues are maintained electronically and that several facilities were missing only one (1) or two (2) items and they did not know they needed to keep copies of all correspondence with their compliance program members.

Mr. Richard Kim stated he did not make a separate CEU certificate for all individuals attending his CEU seminars. He stated he has provided a sign-in sheet to the Administrator's office for their review. He did acknowledge he had lost five (5) files while relocating his office. Mr. Eriksen replied he would follow up with Mr. Kim to determine if the Administrator had received the sign-in sheets for CEUs as Mr. Kim represented.

There being no further business, on a motion by Mr. Lewicki and a second by Mr. Kwon, the Council adjourned their meeting at 6:33 p.m.

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