| Mr. Polak addressed the Council stating at their last meeting it was determined it was going to be necessary to adjust the Fund's revenue stream to keep the Fund solvent. The Council asked the Administrator to compile revenue scenarios for their review and discussion. The Administrator put together two (2) sets of projections, one assuming that there would be 805 remedial claims filed and eligible as of June 30, 2006 which would be the maximum number of claims anticipated. The second set of projections assumes a total of 705 remedial claims will be filed and eligible, which based upon information the Administrator's staff currently has, is probably the more reasonable number. He directed Mr. Eriksen to review each scenario with the Council but first wanted to share with Mr. Bredenkamp a one (1) page letter received today from Peter Marberry, outlining Mr. Marberry's comments on any proposed revenue adjustments. These comments are summarized as follows:
1) The IDOR fee needs to be adjusted. Currently it is 4% but this results in significantly higher revenue to the Department of Revenue with no additional work.
2) Licensing drop stores may result in a “double taxation” scenario in addition to requiring legislation.
3) It should be a requirement of any site applying for cleanup benefits to produce their old insurance policies. The Fund should recoup as much as possible from the historical policies to defray costs.
4) Solvent taxes should not be used due to several years of cheating by both operators and distributors.
5) The Fund's financial statements and projections are improperly charging all administrative costs, actuarial costs, etc., to the remedial cleanup side of the ledger.
Mr. Polak briefly addressed Mr. Marberry's comments stating he concurred that item #1 would need legislative amendment but should be considered in next year's legislative package as well as item #2. He is not certain the Fund has standing to require old insurance policies be submitted but asked legal counsel to review this issue. Item #4 would be discussed at greater length during today's meeting. Regarding item #5, he did not agree with Mr. Marberry as the actuaries had already taken into account administrative costs in calculating the insurance premiums.
Mr. Polak noted for the Council that there is a very narrow time window to determine what sort of adjustment should be made to the revenue stream if any changes are to be effective January 1, 2007. Currently the Fund has the following alternatives available to deal with Fund solvency without legislative changes:
1) Adjust the solvent tax rate
2) Adjust the license fee
3) Adjust the remedial program deductibles
Mr. Eriksen noted Scenario #1 reflects a flat rate license fee for all drycleaners regardless of size with no solvent tax on perc or petroleum.
Scenario #2 had three (3) classifications of license fees, one for those using 0 – 150 gallons of perc; the second for those using 151 – 350 gallons of perc; the third for those using 351 or more gallons of perc. These categories were chosen in as much as they were similar to the initial licensing categories established by the legislature in 1997. He noted 90% of all licensed drycleaners used less than 150 gallons of perc. Lumping the first three (3) licensing categories together would minimize any further downward pressure of drycleaners moving to the lower categories to get the cheapest license fee. Scenario #2 reflected no solvent tax on perc or petroleum.
Scenario #3 had the same three (3) step license fee categories as Scenario #2 but left the solvent tax at $10 per gallon on perc and $2 on petroleum.
Scenario #4 had the three (3) step license fee categories but a solvent tax of $6 per gallon on perc and $1.20 on petroleum.
Scenario #5 had the same three (3) step license fee categories, no solvent tax on perc or petroleum and assumed a $500 annual license fee for all drop stores beginning January 1, 2008, assuming there are 2,000 drop stores in the state. He reiterated that this would require legislation and he is uncertain how easy it would be to add such a provision to the Trust Fund Act.
Scenarios 6, 7, 8, 9 and 10 mimicked the previous five (5) although the license fees were reduced in as much as the scenarios were only funding cleanup for 705 claims versus 805 claims.
The Council conducted general discussions of the various scenarios. Mr. Kwak noted he had discussed some of the scenarios with approximately ten (10) drycleaners to get their opinions and they were shocked at the potential increases. He would like to wait until July 1 st to see exactly how many remedial claims are filed in order to make certain that the Council charges the appropriate fees to fund the program. Mr. Polak noted waiting until July 1 st would in essence defer any type of increase until January 1, 2008. Mr. Eriksen reviewed again the time table stating that the Council, if they choose to, must adopt their adjustment to the license fees and solvent taxes by the end of April. Public hearings would be scheduled for the latter part of May and early June, with a Council meeting in June to make a final decision based upon the public hearings. The final decision made in June would then be filed with JCAR in July and go through the administrative rules process with the goal of having the rates in place by January 1, 2007. In addition, the Council would have to instruct the Department of Revenue no later than September 1 st , what the new license fees would be in order for them to print the DS-3 forms for the 2007 license renewals. Mr. Kwon noted that it would be preferable to have a gradual increase in the license fees each year to minimize the financial impact on the drycleaning industry. Mr. Polak asked the Council members which two (2) scenarios they preferred to do further review and analysis of. Mr. Bredenkamp stated either scenario #2 or #3. Mr. Kim stated if there is too large an increase, plants will close and move to drop store status. He believes it is necessary to seek legislation to assess the license fee on drop stores. Mr. Kwak commented the Council must change their administrative rules or seek legislation and those drycleaners who receive remedial benefits must pay a surcharge into the Fund through the sunset date of the Fund. In addition, he would like to see a license fee of up to $2,500 per drop store. Mr. Kwak noted the projections did not reflect any inflation for the cleanup costs. Mr. Eriksen stated this is correct but experience has shown as these programs mature, changes in regulations and new remedial technologies tend to even out the costs over time and that at this point in time, an automatic annual increase in the projected remediation costs is not warranted.
Mr. Polak adjourned the meeting at 1:50 p.m. for a brief break. The meeting reconvened at 2:18 p.m.
Mr. Gibson commented he likes the idea of getting rid of the solvent tax as it seems to encourage cheating among drycleaners and solvent distributors. Mr. Kwon noted that if the burden is placed entirely on the license fee, it becomes all due at one time which becomes a large financial burden. The solvent tax can be spread throughout the year as solvent purchases take place and not all at once.
Discussion centered around whether it was important to have a different license fee for each 50 gallon category. Mr. Kwak felt it was important that there be a different license fee for each category to equitably represent the size of each drycleaner. For future discussion, Mr. Polak directed the Administrator to develop two (2) proposals, one leaving the solvent tax and the other eliminating the solvent tax based upon the discussions held today and present the proposals to the Council in the very near future.
Mr. Young Kang addressed the Council and stated they should look at three (3) alternative proposals. He presented those proposals to the Council for their review. The first focused on requiring an environmental surcharge that would be collected by the Fund; secondly, that the solvent manufacturers share a portion of their profits with the Fund; and third that the Fund seek monies from the State of Illinois and the federal government to help fund the cleanup costs.
Mr. Polak thanked him for his comments. The Council tentatively set the next meeting for Wednesday, April 12, 2006, to continue discussion on this issue.
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