February 27, 2008 minutes

February 27, 2008 Meeting Minutes

MINUTES

DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

HOLIDAY INN SELECT - NAPERVILLE
NAPERVILLE, ILLINOIS

FEBRUARY 27, 2008

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 10:01 a.m. A quorum was present. Roll call was taken with the following members present:

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

Also present were:
H. Patrick Eriksen, Program Administrator's Office
Dr. Juho So, Program Administrator's Office
Randall Jackson, Program Administrator's Office
John J. McCarthy, Program Counsel

PRELIMINARY BUSINESS

The minutes from the January 24, 2008 Council meeting were reviewed. On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the minutes were approved by a vote of 7-0.

OPERATIONAL ISSUES

A. Fund Solvency:

Mr. Polak addressed the Council noting the topic of Fund solvency has been discussed over the past four (4) months by the Council. The Administrator, at the request of the chairman, has developed various financial scenarios and included in this Council packet was a new scenario (labeled “Scenario D”) which reflects the impact of increasing the remedial action deductible from a flat rate of $10,000 (or $15,000 after January 1, 2008) to a 25% deductible of all eligible remedial action costs. Results of this scenario shows the Fund would be at a break even point as of the sunset date of the program, which is January 1, 2020, provided the license fees remain constant and the solvent tax does not decrease more than what is reflected in the projections.

Mr. Eriksen noted for the past eight (8) years, an average of 32 new drycleaners entered the drycleaning business in Illinois and were licensed by the Fund. This represents approximately 2.43% of all licensed drycleaners.

Mr. Polak reported he had asked Mr. Eriksen to develop a Fund solvency cost analysis based on a couple of the financial projection scenarios that were provided to the Council and the current revenue structure. The summary was included in the Council packet and consists of six (6) categories applied to three (3) financial projection scenarios. The six (6) categories are defined as follows:

1) Small drycleaner receiving remedial benefits that will need to conduct active remediation to receive a No Further Remediation (NFR) letter.

2) Small drycleaner receiving remedial program benefits but can obtain an NFR letter via institutional controls.

3) Small drycleaner not receiving remedial cleanup benefits from the Fund.

4) Large drycleaner receiving remedial benefits that will need to conduct active remediation to receive a No Further Remediation (NFR) letter.

5) Large drycleaner receiving remedial program benefits but can obtain an NFR letter via institutional controls.

6) Large drycleaner not receiving remedial cleanup benefits from the Fund.

These categories were applied to the following financial projection scenarios:
Current Scenario -
The license fees, solvent taxes and remedial program deductibles remain the same as they are today through the sunset date of the program.

Scenario B -
The license fees would increase on January 10, 2010 as follows:

› purchase of 0-150 gallons of perc $2,300

› 151-350 gallons of perc $2,800

› over 350 gallons of perc $3,300

The solvent tax and remedial program deductibles remain the same as they currently are today. (This represents Scenario B included in the January 24, 2008 Council packet).

Scenario D -
The license fees and solvent tax remain the same as they are today but the remedial action deductible increases to 25% of remedial costs as of January 1, 2010 (This represents Scenario D, included in the February 27, 2008 Council packet).

The Council discussed the average annual cost paid by each category of drycleaner based on the three (3) scenarios listed in Mr. Eriksen’s summary. The summary reflected not only the annual dollar cost per drycleaner but included the annual cost as a percentage of gross revenue. For small drycleaners, the annual gross revenue was assumed to be $100,000 per facility. For large drycleaners, the annual gross revenue was assumed to be $500,000 per facility. As a percentage of gross revenues, the annual cost ranged from a low of 1.23% to a high of 3.92%. Mr. Polak said based on the summary cost analysis, the annual fees paid into the Fund combined with the remedial program deductibles should not bankrupt anyone in as much as the total annual cost is less than 4%. He reminded the Council there are only three (3) things they can modify in terms of the revenue stream or reducing expenditures without legislation and they are as follows:

› Adjustment of the annual license fee

› Adjustment of the solvent tax rate

› Adjustment of the remedial claim deductibles

Mr. Polak stated the industry is of two (2) opposing views. One is more socialistic in nature and is where the largest drycleaning operators should pay more into the Fund than the smallest. The second is the license fee should be the same for all drycleaners and viewed as an entry cost into the drycleaning industry in as much as they are receiving equal benefits. Mr. Polak referenced an example Mr. Gibson had put forth previously in which the larger drycleaners would maintain a higher license fee for several years and then it would gradually be reduced. Mr. Kwak stated he believes if the Fund is projecting say for example, a shortfall of $1 million, the total number of drycleaners should share equally in that additional cost based on the remaining years of the program. He felt that would be easier to deal with than to adjust the remedial action deductibles. In the future, if it is necessary to make any adjustments for the Fund to remain solvent, the only changes should be to the license fees or the solvent taxes.

Mr. Polak reiterated he believes a flat fee has merit in as much as everyone is receiving the same level of benefits.

Mr. Kwak asked how much the IEPA voluntary SRP remediation fees are costing the Fund. Mr. Eriksen stated that Dr. So and he had just recently reviewed the fees and they range from a low of approximately $1,200 per facility to over $10,000. The cost is dependent upon the level of contamination and the amount of review time IEPA committed to the project before an NFR letter was issued. Mr. Kwak inquired why it was necessary for the drycleaner to receive an NFR letter. He does not believe it is necessary for the Fund to pay IEPA fees to receive an NFR letter as it is of limited benefit. Mr. Bredenkamp interjected that the Council was appointed by the Governor with the primary focus of cleaning up solvent contaminated sites and making certain the Fund maintained its solvency. He believes it would be ludicrous to get rid of paying for IEPA fees to obtain an NFR letter. He believes the Council members should resign if they do not agree with the legislative goal as established by the legislature back in 1997. If they want the focus of the program to change, they should go to the legislature and get them to legislate a change.

The Council conducted additional discussion regarding the various scenarios and the financial impact of any revenue stream adjustments on the drycleaning industry. Mr. Gibson asked the Council members if they could live with Scenario B as outlined by Mr. Eriksen in the January 2008 Council packet, whereby the license fees would move to the following as of January 1, 2010:

0-150 gallons of perc usage $2,300

151-350 gallons of perc usage $2,800

Over 350 gallons of perc usage $3,300

Mr. Kwak replied yes, he felt that was something he could live with.

Mr. Gibson made a motion the Council move towards adjusting the license fees as outlined in Scenario B, effective January 1, 2010. The motion was seconded by Mr. Bredenkamp. Mr. Polak led the discussion and stated everyone needs to understand it is only a proposal, that the proposed license fee adjustments would be subject to public hearings and written comments. The Council would then have to review the public hearing comments and determine if any modifications should be made. Subsequent to that review, it would go before the Joint Committee on Administrative Rules (JCAR) for their comments and action and that the license fee changes would not go into effect before January 1, 2010, which would be three (3) years after the most recent change in the license fees.

After additional discussion, Mr. Bredenkamp called for the motion. On a roll call vote, the motion passed by a vote of 5-2, with Mr. Kwak and Mr. Kwon voting against the proposed adjustment to the license fees.

Mr. Polak noted the license fee is the only thing the Council has currently implemented that is not a flat fee. The solvent tax rates, the insurance premium, and the remedial action deductibles are the same for all drycleaners, regardless of their size.

The next step will be to schedule public hearings to begin discussion on the Council’s proposed adjustments to the license fees.

Mr. Polak commented hopefully once a drycleaning facility has received an NFR letter, it would be easier for them to obtain private pollution liability insurance coverage on the facility. Mr. Kwak responded that an NFR letter does not guarantee your property is marketable or that it will not require further testing down the road. The Council conducted a lengthy discussion on the merits and benefits of an NFR letter.

B. 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.
The Council directed him to discuss with Rep. Smith whether it was feasible to consider legislation requiring the licensing of drop stores, specifically information on the various parameters necessary to pass such a bill. He stated he would review the issue with Rep. Smith before the next Council meeting. Mr. Kwak stated drop stores need to pay into the Fund as they are reaping benefits from the cleanup.

C. Determination of Annual Solvent Usage and Application of Solvent Taxes for Replacement of Unusable Solvents:

Mr. Eriksen reviewed with the Council that they currently have a policy whereby drycleaner solvent that becomes contaminated and cannot be used in the drycleaning process and must be disposed of will be exempt from paying solvent tax for the gallons which replaced the contaminated solvent provided that:
(a) the Fund receives documentation defining the problem; and
(b) documentation the solvent was removed and disposed of

In addition, the gallons contaminated would not count in the drycleaner’s annual usage/purchases for determining the drycleaning license fee for the next calendar year license renewal.

The Administrator has recently been contacted by a drycleaner owner/operator who uses hydrocarbon-based solvents and was required to remove and dispose of 250 gallons of DF2000 when the drycleaner conducted their 10 year internal underground storage tank inspection as mandated by state and federal law. Since the local fire marshal does not allow storage of the hydrocarbon-based solvents at the facility, the drycleaner was forced to dispose of it. He is asking the Council exempt the replacement solvent from the solvent tax and in addition, not count the 250 gallons of replacement solvent against the annual purchases for determining the facility’s drycleaning license fee.

The issue before the Council is do they wish to exempt the replacement solvent from the solvent tax and not have the drycleaner include that purchase in the computation of their annual licensure fees?

Mr. Eriksen stated it is his recommendation the Council grant the drycleaner’s request in as much as the State of Illinois required the drycleaner to remove the solvent, would not allow him to store it on his property, and forced him to dispose of it in order to be in compliance with the State’s regulations. He believes this situation parallels the situation where solvent becomes contaminated due to mechanical breakdowns of the drycleaning machine and must be replaced. The drycleaner must provide the Fund documentation defining the problem and documenting that the solvent was removed and properly disposed of.
After discussion by the Council, on a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the Council voted 7-0 to exempt the replacement solvent from the solvent tax and not count the replacement solvent against the annual usage/purchases for determining a facility’s annual license fee provided that adequate documentation defining the problem and documenting the solvent was removed and properly disposed of is presented to the Administrator for his review and approval.

D. STAR Compliance Program Update:

Ms. Barbara Boden, Executive Director of the Illinois State Fabricare Association (ISFA) and administrator of the STAR Compliance Program, distributed to the Council members updated information on the STAR Program, noting additional requirements will be mandated for a drycleaner to be a participant in the STAR Compliance Program. The Illinois State Fabricare Association proposes to modify the STAR Compliance Program by incorporating the Award of Excellence Program that is available through its affiliation with the Drycleaning and Laundry Institute (DLI) International, formerly known as the International Fabricare Institute.

Ms. Boden highlighted the key requirements of the Award of Excellence Program, noting it is a way for drycleaners to further distinguish themselves from other drycleaners. One major point of the new requirement is that it will provide national and international marketing assistance to the participating drycleaners. Mr. Bill Fisher, Executive Director of the Drycleaning and Laundry Institute International and she had conversations with Mr. Eriksen regarding the addition of this requirement to the compliance program. It was noted the Council’s compliance program requirements would remain in effect and the Award of Excellence Program would be an additional requirement of STAR Program participants.

Mr. Gibson questioned the need for requiring the Award of Excellence Program as he believes it could possibly come with a large price tag. He feels it would be unfair for the STAR Program members to pay the Drycleaning and Laundry Institute International membership fees. Ms. Boden replied that drycleaners not wishing to be a member of that organization can apply with another compliance program. Mr. Polak noted Mr. Gibson’s issue of concern was not relevant to the Council as their focus is for the STAR Program to continue following the Council’s current compliance program requirements. Additional requirements or costs are not relevant to the Council and the individual drycleaner can determine if they want to partake and meet those requirements. Mr. Tom Bartnett, ISFA board member, stated ISFA wants to move the STAR Program back to its original intent, which had a primary focus on marketing and distinguishing various benefits between STAR drycleaners and non STAR drycleaners. He stated when S&ECC took over the administration of the STAR Program, the marketing aspect went away. Rather than ISFA creating a marketing program from scratch, it made more sense for them to team up with DLI to offer this to their members.

After additional discussion by the Council, it was noted the ISFA requirement to modify the STAR Program to incorporate the Award of Excellence Program did not require Council action and they thanked Ms. Boden and the Board of Directors for their presentation.

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 $101,283.00
Standard flat fee billing for January 2008, licensing, underwriting, claims processing and site inspections.

2. John J. McCarthy $1,780.00
Professional legal services to the Council for the period of January 15, 2008 through February 19, 2008.

Mr. Eriksen noted that Williams & Company’s bill was considerably higher than normal but it is due to the licensing renewals, with 668 drycleaning facilities licensed during January 2008.

On a motion by Mr. Bredenkamp and a second by Mr. Kwak, the bills were approved by a vote of 7-0.

REVIEW OF ACTIVITY REPORT AND FINANCIAL STATEMENTS

Mr. Eriksen reviewed with the Council the monthly activity report as of January 31, 2008, noting as of that date 767 drycleaners had been licensed. As of February 24, 2008, 944 licenses had been issued, with approximately 67 more pending additional information or needing initial review, for just over 1,000 licenses that have been renewed or are in the review process. Currently 687 drycleaning facilities have pollution liability insurance coverage through the Fund; 487 remedial claims remain open, with reserves totaling $39.8 million and outstanding approved budgets totaled $2.7 million.
The January 31, 2008 financial statements reflect a Fund balance of $6,276,518; license fees for fiscal year 2008 total $2,164,055. He noted approximately 300 drycleaners were yet to be licensed. Remedial claim payments for the fiscal year total $1,458,440.

CLAIM PAYMENTS IN EXCESS OF $75,000

Mr. Eriksen stated there are three (3) remedial claims for review and action by the Council, two (2) are included in the Council packet, a third was distributed to the Council members prior to the beginning of the meeting in as much as the necessary data was just provided to the Administrator approximately two (2) days prior to the Council meeting.

Dr. Juho So reviewed with the Council the claim payment requests.

Garber Modern Cleaners, Decatur, IL
Dr. So reviewed background history with the Council on this drycleaning facility, noting the drycleaner is located adjacent to the University of Illinois. The Administrator is asking for $17,800 for additional site investigation costs to further delineate the groundwater contamination at the facility. At this time, the consultant feels confident that groundwater remediation will not be necessary, and that further delineation can be used to substantiate a limited groundwater ordinance encompassing the drycleaning facility and adjacent properties. In addition, $1,450 is requested for consulting services to obtain three (3) bids from remedial contractors. The Administrator is asking waiver of the three (3) bid requirement for environmental consultants. Dr. So noted the current consultant, Northern Environmental, has significant background information in performing the assessment of this site and it would be counterproductive to switch to a new environmental consultant.

After discussion by the Council, on a motion by Mr. Lewicki and a second by Mr. Kwak, the Council approved $17,800 in additional site investigation costs, $1,450 to solicit bids from three (3) remedial contractors, and a waiver of the three (3) bid requirement for environmental consultants for the remedial action at the facility by vote of 7-0.

Fox Valley Cleaners, St. Charles, IL
Dr. So reviewed background information with the Council, noting the Administrator is requiring approval of remedial action costs of $194,053 and waiver of the three (3) consultant bid requirement for remedial action. The selected remedial option at the facility is excavation and disposal of 150 cubic yards of soil from inside the building. Based upon the bids of the three (3) different subcontractors and the information provided to the Fund, the Administrator is requesting the Council approve estimated remedial costs in the amount of $194,053. This includes a contingency cost of $20,000 for unexpected costs incurred in the remediation. As of to today’s date, $138,166.66 has been approved for site investigation and the remedial action plan development, including the negotiation of a groundwater ordinance for the facility. This leaves a remaining balance of available benefits of $161,833.34, which means the Administrator believes the remedial benefit limit will be exceeded by approximately $32,220.

After additional discussion by the Council, on a motion by Mr. Lewicki and a second by Mr. Kwak, the Council approved the remedial action costs of $194,053 and a waiver of the three (3) bid requirement for environmental consultants, subject to the drycleaner providing proof of financial ability to pay the estimated $32,220 of excess remedial costs at the drycleaning facility. The motion passed by a vote of 7-0.

Hutchins Professional Cleaners, New Lennox, IL
Dr. So reviewed with the Council that he is asking for approval of $1,745 in additional site investigation costs that were necessary when the environmental consultant was conducting the most recent site investigation at the facility. Previously approved budgets totaled $67,765. The Administrator recently received a reimbursement request associated with the last budget in the amount of $24,550 which includes $4,070 of additional costs that were not preapproved. These additional costs were to conduct additional site investigation work such as well survey at 24 monitoring wells, disposal costs, and additional lab costs. Based on the information provided to the Fund, the Administrator recommends the approval of these additional costs. With these additional costs, the total amount of the approved budget becomes $76,745, which exceeds the Administrator’s authority of $75,000. The Administrator is requesting the Council approved $1,745 of incurred additional costs in order to process the current reimbursement request.
On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, the additional $1,745 in additional site investigation costs were approved by a vote of 7-0.

OTHER ISSUES AS PRESENTED

The Council discussed the next meeting date. Due to a scheduling conflict, it was determined the next Council meeting date would be Tuesday, April 15, 2008.

Mr. Eriksen reported he is tentatively scheduled to present the Council’s fiscal year 2009 budget to the Senate Appropriation Committee on February 28, 2008 and to the House Appropriation Committee on March 12, 2008.

PUBLIC COMMENT PERIOD

Ms. Sue Kratz asked what enforcement action was being taken against unlicensed drycleaners. Mr. Eriksen responded the Council continues to work with the Attorney General’s office in bringing unlicensed drycleaners into compliance with the Trust Fund Act and is hopeful the proposed legislation will force solvent distributors not to sell to unlicensed drycleaners.

There being no further business, on a motion by Mr. Bredenkamp and a second by Mr. Lewicki, by a vote of 7-0, the Council meeting adjourned at 12:23 p.m.

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