January 24, 2008 minutes

January 24, 2008 Meeting Minutes

MINUTES

DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

HOLIDAY INN SELECT - NAPERVILLE
NAPERVILLE, ILLINOIS

JANUARY 24, 2008

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 10:08 a.m. A quorum was present. Roll call was taken with the following members present:

John Bredenkamp
Young B. Kim
Paul Kwak
Jerry Lewicki
John Polak

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

PRELIMINARY BUSINESS

The minutes from the December19, 2007 Council meeting were reviewed. On a motion by Mr. Lewicki and a second by Mr. Kim, the minutes were approved by a vote of 5-0.

APPEAL OF CANCELLATION OF INSURANCE COVERAGE

1. New Sparkleen Cleaners (Facility #0002140) - 2857 N Clybourn Ave, Chicago, IL

Mr. Eriksen reviewed background information with the Council noting Mr. Kyung Sook Lim is the drycleaner owner/operator of New Sparkleen Cleaners located at 2857 N Clybourn Avenue in Chicago, IL. The facility had pollution liability insurance coverage with the Fund from June 16, 2000 through August 18, 2007, when the insurance cancelled for failure of the insured to get the necessary compliance program continuing education hours for calendar year 2006. Mr. Eriksen reviewed with the Council in detail the contacts the Administrator’s office had made with Mr. Lim regarding continuing education requirements.

Ms. Heidi Kang assisted Mr. Lim by translating his presentation to the Council.

Mr. Lim addressed the Council stating he had bought the drycleaning facility on December 2, 2006. The previous owner did not obtain the necessary four (4) compliance program CEUs for 2006 and he was not aware of the requirement. He had received a letter in March 2007 from the Fund requesting information on the CEUs but thought it was applicable to calendar year 2007 and had received a telephone call from the Administrator’s office stating he must complete the CEUs by August 18, 2007. He contacted all of the compliance programs. The NDI Compliance Program agreed to provide him a CEU course on August 14, 2007. Unfortunately, his drycleaning machine broke down, he needed to fix the machine, and was unable to attend the course. Since then, he has attended five (5) courses of 2 CEUs each, plus completed a site inspection, for a total of 12 CEUs. He noted that without reinstatement of his insurance coverage, his landlord will evict him from the building. He is asking for understanding from the Council regarding this issue and will make certain he is in compliance with the underwriting requirements in the future.
After additional discussion between the Council and Mr. Lim, on a motion by Mr. Kim and a second by Mr. Lewicki, the Council voted 5-0 to reinstate Mr. Lim’s insurance coverage back to August 18, 2007 with the understanding this was a one (1) time exception for him to make up the necessary CEUs for 2006.

2. Cleaners Plus (Facility #0002096) - 839 Dodge Ave, Evanston, IL

Mr. Eriksen reviewed background information with the Council noting Mr. Je Kyu Ku is the drycleaner owner/operator of Cleaners Plus located at 839 Dodge Avenue in Evanston, IL. The facility had pollution liability insurance coverage with the Fund from June 20, 2000 through September 2, 2007, when the insurance cancelled for failure to provide a copy of the past 12 months of the inspection and repair logs for the drycleaning machine located at the facility. Mr. Eriksen reviewed with the Council in detail the contacts the Administrator’s office had made with Mr. Ku regarding the renewal of the insurance coverage.

Ms. Heidi Kang assisted Mr. Ku in translating his presentation to the Council.

Mr. Ku addressed the Council stating that on August 27, 2007, an inspector from the NDI Compliance Program came and completed a third party inspection of his drycleaning facility. All necessary paperwork was in place. He has owned the drycleaning facility for the past 6 ½ years and Mr. Kang has helped translate the letters he has received from the Administrator so he understands what information is being requested. He does mostly wholesale drycleaning at his facility and due to medical reasons he is not in the plant most days during the time period of 8 a.m. to 4 p.m. He received a letter in October 2007 from the Fund notifying him of the cancellation of his insurance coverage but he thought he had prepared and submitted all of the paperwork necessary regarding the underwriting requirements.

Mr. Polak asked Mr. Ku why the inspection and repair logs were not timely sent to the Administrator when requested. He responded that he had collected all of the necessary paperwork and gave it to Mr. Kang to review and submit. Since he does not understand English, he relies on Mr. Kang in making certain he submits the correct information. Mr. Sung Do Kang, administrator of the NDI Compliance Program, addressed the Council, stating he did the inspection of the facility on August 27, 2007 but did not see the Fund letter requesting the inspection and repair logs. He had reviewed the inspection and repair log at the facility on August 27, 2007 and all of the paperwork was in order.

After additional discussion by the Council, on a motion by Mr. Kim and a second by Mr. Kwak, the Council voted 5-0 to reinstate Mr. Ku’s insurance coverage back to September 2, 2007.

APPEAL OF LICENSE LATE PAYMENT FEES

1. Orchard Cleaners (Facility #0002342) - 422-424 Orchard, Antioch, IL

Mr. Eriksen reviewed background information with the Council noting Ok Joo Shin is the drycleaner owner/operator of Orchard Cleaners located at 422-424 Orchard in Antioch, IL. The facility has been active since October 1, 1999, but has never been licensed. Late fees had been assessed for the years 1999 through 2004. The late fees for 1999, 2000, 2001, 2003 and 2004 have been paid by the drycleaner owner/operator as have the appropriate license fees. Additional late fees in 2004 were waived by the Administrator in accordance with the Council’s policies and procedures. The drycleaner is appealing late fees of $10,575 for 2002.

Mr. Eriksen reviewed in detail the payment dates. He noted Mr. Shin had made timely payments of the license fees for most years except for calendar year 2004 in which an overpayment from 1999 was applied to the annual license fee. A balance due of $125 was not paid until October 17, 2007, resulting in the $10,575 late payment fee.

Since Mr. Shin did not speak English, he had provided written authorization for his daughter to speak on his behalf. Ms. Shin stated she had been living out of state for a number of years and was not aware her father was not following up with all the necessary paperwork to have a license issued for his facility. She reviewed with the Council that he had health issues in 2003 and 2006 which resulted in large medical bills. She reviewed in further detail the financial hardships her family has suffered since purchasing the facility in 1999.

Mr. Polak addressed Ms. Shin and stated the penalty as established by the legislature was to help maintain compliance but was not intended to be egregious. It was his opinion the $10,575 penalty for a $125 payment was egregious.

Mr. Eriksen reminded the Council they had three (3) options. They could enforce the current penalty, they could reduce the penalty, or waive the penalty altogether.

After discussion by the Council, on a motion by Mr. Kim and a second by Mr. Lewicki, the Council voted 5-0 to waive the $10,575 late payment fees for calendar 2002.

APPEAL OF REQUIREMENT OF PHASE II TESTING

1. All Cleaners Plus (Facility #0003150) - 16555 West 159th Street, Lockport, IL

Mr. Eriksen reviewed background information with the Council noting Mr. Joong Choi is the drycleaner owner/operator of All Cleaners located at 16555 West 159th Street in Lockport, IL. Mr. Choi made an initial application for Fund pollution liability insurance coverage for the drycleaning facility on October 29, 2007, which was received on October 31, 2007. The insurance application indicated the drycleaning machine was installed at the facility on September 21, 2006. Solvent was purchased for the drycleaning machine on October 3, 2006 and October 10, 2006. The facility was licensed for 2006 and 2007.

Mr. Eriksen noted as part of the underwriting requirements established by the Council, if a facility has been operating for more than 12 months at the time of application for insurance coverage, in addition to a Phase I environmental assessment, the drycleaner owner/operator must also do Phase II testing to determine if soil and/or groundwater contamination exists. Mr. Choi was appealing the Council’s Phase II requirement as he had only operated the drycleaning machine for approximately one (1) year when he made his initial application for insurance coverage.

Mr. Choi addressed the Council stating he did not officially begin operations of the drycleaning machine until the last week of October 2006 and thought he would be covered by the Council’s policy allowing operation for 12 months and not being required to do intrusive testing. He noted Hydrodynamics had done the Phase I site assessment and had not found any significant environmental issues at the facility.
After general discussion by the Council, on a motion by Mr. Kwak and a second by Mr. Lewicki, the Council voted 5-0 to waive the Phase II testing requirement for this facility.

OPERATIONAL ISSUES

A. Updated Financial Projections for the Period of July 1, 2007 Through January 1, 2020:

Mr. Eriksen reviewed the updated financial projections with the Council noting the only change in the financial projection assumptions from those presented at the August 2007 Strategic Planning meeting is the reduction in the solvent tax revenue. The solvent tax revenue numbers used for these projections are based on actual gallonage taxed for the first three quarters of calendar year 2007 and estimated taxable gallons for the fourth quarter of 2007 based upon the trend for prior years’ fourth quarter sales. The reduced solvent tax revenue totals approximately $117,000 per year which when extrapolated over the remaining life of the program results in an increase in the projected Fund deficit of $1,437,000.
Mr. Polak stated this has been an issue the Council has been monitoring for quite some time. Taxable gallons of solvent continue to decline each year, which has an impact on the solvency of the Fund. Mr. Kwak responded the $117,000 per year decrease is not significant and it is something the Council can continue to monitor for the next year or two without making any adjustment in the Fund’s revenue stream.

B. Fund Solvency:

Mr. Eriksen reviewed with the Council that at their December 19, 2007 Council meeting, they had directed him to develop some additional “Fund Solvency” scenarios for Council consideration and discussion. Enclosed in the Council packet were three (3) additional sets of projections from the period of July 1, 2007 to January 1, 2020. Mr. Eriksen reviewed the three (3) scenarios in detail.

(1) Scenario A assumes there are:

1,300 licensed drycleaners through the sunset date of the Program;

the solvent tax revenue for fiscal year 2009 through 2011 is reduced annually by the average percentage of decrease in solvent tax for the period of 2005 through 2007, which is 9% for perc and 7% for petroleum;

the projections assume everyone would move to a flat rate license fee of $2,400 in fiscal year 2010.

Mr. Eriksen noted it will probably be very difficult to make any sort of adjustment to the license fee or solvent tax in 2008 and have it approved by the Joint Committee on Administrative Rules (JCAR). It would probably be more prudent for the Council and the drycleaning industry to focus on revenue adjustments to be acted upon during calendar year 2009, with them going into effect no earlier than January 1, 2010.

(2) Scenario B assumptions:

1,300 licensed drycleaners through the sunset date of the Program.

The solvent tax revenue for fiscal year 2009 through 2011 is reduced by the average percentage of decrease in solvent tax for the period of 2005 through 2007, which is 9% for perc and 7% for petroleum.

The annual license fees beginning in fiscal year 2010 are as follows:

0-150 gallons $2,300
151-350 gallons        $2,800
Over 350 gallons       $3,300

Mr. Eriksen noted that in arriving at the Scenario B projections, he looked back at the initial legislative language in which the solvent categories were 0-140 gallons, 141-360 gallons, and over 360 gallons. The dollar difference in license fees between each of the three (3) categories was $500. Using those two (2) premises, he made adjustments to come up with the license fees ranging from $2,300 to $3,300.

(3) Scenario C assumptions:

1,300 licensed drycleaners through the sunset date of the Program.

The solvent tax revenue for fiscal year 2009 through 2011 is reduced by the average percentage of decrease in solvent tax for the period of 2005 through 2007, which is 9% for perc and 7% for petroleum.

The annual license fees are as follows:

FY09:      $1,500 - $ 5,000 (No Change from Today)
FY10:      $2,000 - $ 4,000
FY11:      $2,250 - $ 3,250
FY12:     Flat rate of $2,400

Mr. Eriksen stated that in all three (3) of the scenarios, 64% of the licensed drycleaners in the state use 50 gallons of chlorine-based solvent annually; 21% use 51-100 gallons; 6% use 101-150 gallons. Therefore, just over 91% of all licensed drycleaners use less than 150 gallons per year.

Mr. Polak inquired if data was available to show how many brand new drycleaning facilities were licensed each year since the inception of the program versus existing facilities that renewed their license. Mr. Eriksen was not certain if the data was available but would check and report back to the Council at a future meeting.

Mr. Polak stated the Council is dealing with difficult issues. The Council’s mandate is to maintain Fund solvency using the current mechanisms available which are adjustment of the license fees, adjustment of the solvent taxes and adjustment for the remedial program deductibles. Other changes could possibly be done but would require legislative approval which may not be easy to obtain and would also require JCAR approval. It is his wish the drycleaning industry works together during calendar year 2008 and develops a compromise that would be acceptable to everyone; although he recognizes that may not be possible. He noted it may take the better part of the calendar year to deal with this issue and was looking for a good framework to begin the discussions.

Mr. Kwak noted the NDI Compliance Program had conducted a survey in December in which the majority of the individuals responding to the survey requested the current license fee remain the same; only four (4) indicated the license fee should be increased; and 22 members surveyed were in support of increasing the solvent tax fee. He stated the Council needs to consider these drycleaners’ opinions and he would adopt a “wait and see” approach and not look at adjusting any of the revenue items for another couple of years as it has been less than two (2) years since the last change took place. Mr. Polak reiterated he wants the industry to meet and discuss the Fund solvency issue and try to come back with a recommendation(s) for the Council’s review and action. Mr. Kim asked if there was any indication of how many increases may be needed between now and the sunset date of January 1, 2020. Mr. Eriksen said it is not possible to answer that question as it depends on when the next adjustment in the revenue stream takes place. Mr. Polak agreed, stating the Council cannot guarantee there will be no further adjustments in the Fund’s revenue streams.

Mr. Chang Lee interrupted Chairman Polak and began a tirade, berating the Council for an inconvenient meeting time and also philosophizing on why the Fund exists. He stated the Council, rather than focusing on increasing revenue, should focus on decreasing expenses. He cited site investigation and remediation expenses incurred by Fund participants versus what he incurred on his facility. Mr. Polak interrupted Mr. Lee and informed him he would have the opportunity during the Public Comments period to further air his views regarding Council action on Fund solvency.
Mr. Polak stated the Council would continue to look at Fund solvency issues and reiterated his belief that it was necessary for the industry to come together and discuss options and come back with some recommendations to the Council for review and action.

C. Delivery of Hydrocarbon-Based Solvents:

Mr. Eriksen reviewed background information with the Council stating the issue had been discussed at the December 19, 2007 Council meeting but was tabled in order for the Administrator to do further research regarding the various state and local regulations for storage of hydrocarbon solvents at drycleaning facilities.

Mr. Eriksen contacted the Illinois Environmental Protection Agency (IEPA), the State Fire Marshal’s Office, the Cook County Fire Marshal, the City of Chicago Fire Prevention Bureau, one (1) local suburban fire department, and referenced the National Fire Protection Association (NFPA) Act 32, “Standard for Drycleaner Plants – 2007 Edition.” NFPA 32 is the standard most states use in developing their fire prevention regulations for drycleaning facilities. He reviewed in detail the findings for each entity noting there was a broad range of requirements, depending upon the local jurisdiction. In most cases he found the local fire department was more restrictive than the state fire marshal’s regulations.

The issue for Council review is since hydrocarbon-based drycleaners are not filling their hydrocarbon-based drycleaning machines via a direct connection, does the Council want to continue with this requirement or modify it?

The Council conducted a lengthy discussion on the topic. It was noted the Council’s regulations focus on the delivery requirement as a pollution prevention issue primarily and a safety issue secondarily. It is noted the fire marshal’s office was primarily safety driven in determining the storage requirements at drycleaning facilities.

On a motion by Mr. Kim and a second by Mr. Lewicki, the Council voted 4-1 to modify the regulations deleting the requirement that “All petroleum based drycleaning solvents shall be delivered to the drycleaning facility by means of a direct-coupled delivery system with proper vent lines for receiving the product.” Mr. Kwak voted in opposition to the motion.

D. Legislation:

Mr. Eriksen reviewed with the Council the proposed legislation that has been previously approved by the Council. It strengthens the Illinois Department of Revenue’s enforcement action authority against unlicensed drycleaners and solvent distributors that sell to unlicensed drycleaners. He has reviewed the legislation with Rep. Mike Smith, who indicated he is optimistic the legislation can be introduced and passed during this legislative session.

APPROVAL OF PROGRAM BILLINGS

Mr. Eriksen noted there were two (2) bills were before the Council for their review and approval.

1. Williams & Company Consulting, Inc $62,872.00
Standard flat fee billing for December 2007, licensing, underwriting, claims processing and site inspections.

2. John J. McCarthy $1,857.50
Professional legal services to the Council for the period of December 12, 2007 through January 14, 2008.

On a motion by Mr. Lewicki and a second by Mr. Bredenkamp, the bills were approved by a vote of 5-0.

REVIEW OF ACTIVITY REPORT AND FINANCIAL STATEMENTS

Mr. Eriksen noted that as of December 31, 2007, there were 1,288 licenses in force; 696 drycleaners had Fund issued pollution liability insurance; and there were 504 open remedial claims. The estimated future reserves on the open claims totaled $40.1 million and outstanding approved budgets totaled $2.8 million.

The December 31, 2007 financial statements reflect an unreserved Fund balance of $5,187,669; year-to-date remedial claim payments for fiscal year 2008 total $1,243,227.

Mr. Eriksen noted the license fees collected through December 31, 2007 totaled $1,031,261 versus a budget of $2,512,320. Due to timing differences for cutoff at year end, it is most likely there are substantial license fees that will be reflected in the January financial statements.

OTHER ISSUES AS PRESENTED

The Council affirmed the next Council meeting date would be February 27, 2008.

PUBLIC COMMENT PERIOD

Mr. Chang Lee addressed the Council stating he wants the Council to decrease their expenditures so that the Fund does not increase license fees or solvent taxes. He reiterated the difference in what he spent on site investigation and remediation expenses at his facility versus the Fund’s average. It is his belief the insurance coverage premium should increase for those who have contaminated sites. He stated the Council needs to be more proactive and meet with the drycleaners to collect as many opinions as possible and focus on ways to decrease expenses versus increasing revenues.

Mr. Peter Marberry addressed the Council stating that cost containment is important. He believes those receiving benefits from the Fund should pay a proportionally higher amount into the Fund than those drycleaners not receiving Fund benefits. They should be more accountable and more indebted to the Council for money they receive. The Council needs to apply common sense in equalizing the amount paid into the Fund by those receiving benefits and by those not receiving benefits.

Mr. Kwak told Mr. Lee that if he was able to get his facility cleanup done for $25,000 he would like him to provide the detailed information to the Council so they can review it and compare it to the current average of approximately $100,000 for a Fund eligible cleanup.

Additional discussion focused on possibly looking at a sliding scale deductible for those receiving remedial program benefits. Mr. Eriksen stated he would put together financial projections reflecting a deductible as a percentage of cleanup costs incurred but noted this would require a legislative change.

A drycleaner owner/operator addressed the Council and asked “Why consider decreasing the license fee for larger drycleaners?” He felt that if anything, the larger drycleaners should pay more. Mr. Polak addressed his question stating the larger drycleaners have been paying considerably more for the past several years and that one of the issues for Council debate and consideration is equity on the amount paid in by the larger drycleaners versus the smaller ones. He noted all drycleaners who are receiving remedial benefits can get the same maximum dollar amount of benefits regardless of their size.

There being no further business, on a motion by Mr. Lewicki and a second by Mr. Bredenkamp, by a vote of 5-0, the Council meeting adjourned at 1:18 p.m.

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