June 9, 2006 minutes

June 9, 2006 Meeting Minutes

MINUTES

DRYCLEANER ENVIRONMENTAL RESPONSE TRUST FUND
COUNCIL of ILLINOIS

HOLIDAY INN SELECT - NAPERVILLE
NAPERVILLE, ILLINOIS

JUNE 9 , 2006

John Polak, Chairperson, called the Drycleaner Environmental Response Trust Fund Council of Illinois meeting to order at 8:57 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
John J. McCarthy, Program Counsel
C. Michael Perkins, Program Administrator's Office
Juho So, Program Administrator's Office

PRELIMINARY BUSINESS

The minutes from the April 7, 2006 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. Review of Public Comments – Proposed License Fee Increases and Increase in Remedial Program Deductible:

Mr. Polak noted Mr. Eriksen had summarized the comments from the public hearings in a memorandum and that memorandum was included in the Council packet along with copies of all written comments that were submitted by the drycleaning industry. He noted one-half of the people who either spoke at the public hearings or submitted written comments wished the Council would reduce the proposed increase in license fees with the other half wishing the Council would reduce the proposed $20,000 increase in the remedial program deductible. Several had suggested alternatives, many which were outside the purview of the Council's authority such as issuing tax exempt bonds to finance the program, assessing an environmental surcharge on all drycleaning, requiring other parties to assist in paying for the cleanups, change the Illinois Environmental Protection Agency (IEPA) requirements for cleanups, and assessing the solvent manufacturing and distributors a fee to assist in the cleanups.

Mr. Eriksen distributed to the Council members the schedule of proposed fee increases they had approved for public comment at their April 7, 2006 Council meeting.

Mr. Polak reiterated some of the alternatives suggested are beyond the Council's purview and would be better taken up by trade associations. He noted the Council can do three (3) things to keep the Fund solvent. They can adjust the license fees, the solvent taxes and the remedial program deductibles. Anything beyond this scope would require legislation. The focus of today's meeting is to talk about the proposals. He noted at this time, it appeared to be the consensus of the Council members and the drycleaning industry not to adjust the solvent taxes and have them remain at the current rates of $10 per gallon on perc and $2 per gallon on petroleum.

The National Drycleaner Institute (NDI) recently conducted a survey, the results of which were received today, that provided the drycleaners three (3) options. The first was a proposal to reduce all license fees by $300 per drycleaner; the second would be to decrease the proposed $30,000 deductible for remedial action costs by $10,000 to $20,000; the third was free form suggestions. Approximately 85 respondents supported a reduction in the license fee by $300, 17 supported reducing the deductible from $30,000 to $20,000 and 24 other drycleaners had independent suggestions for making the Fund solvent. Mr. Polak asked members of the public in attendance if they had other opinions.

Mr. Lou Ryseff, a downstate drycleaner, stated he understood the Council is working with various time constraints but by the end of July, the Council would have additional numbers as far as the number of claims and hoped the Council would consider that if the number of claims were lower than currently anticipated, that some further adjustment could be done before the first of the year. He would be supportive of an increase in the deductible from $10,000 to $15,000 if the cash flow stream as projected by the Administrator would support such a move but if it could be kept closer to the current $10,000 deductible, it would be more beneficial for the Fund. Mr. Polak thanked him for his comments and stated the Council is not trying to generate a profit but only cover the costs necessary to clean up eligible sites and pay for the administration of the program. Mr. Ryseff stated he was hopeful that when the final Phase II results are in, a higher number of facilities could get a No Further Remediation (NFR) letter without going through extensive remediation.

Mr. Polak referenced one (1) question that had not been addressed at the April 7, 2006 Council meeting but had been raised in the public hearings. The question was if the deductible is increased, would the increase be applicable to all eligible facilities or would some be grandfathered in? Mr. Polak felt it was appropriate at this time to have that discussion. Mr. Bredenkamp stated his main concern based on his attendance at the meetings down state is that an increase in the higher deductible would kill the Fund. He feels very strongly that the deductible should not be increased from $10,000 to $30,000. If the deductible is increased, who is grandfathered in or will all facilities be subject to the higher deductible? In his mind everyone who filed a claim by June 30, 2006 would be grandfathered in if the proposed effective date is January 1, 2007. Mr. Polak responded that if this is the case, then every facility would be grandfathered in and there would be no benefit to the Fund in increasing the deductible by $20,000. A key issue for consideration is the timing of the benefit of reducing the license fees versus increasing the deductible. A reduction in the license fees has an immediate impact on the Fund via reduced revenues where an increased deductible may not immediately benefit the Fund. From a cash flow and solvency perspective, he felt it was more beneficial to have an increased revenue stream coming in now versus a reduced expenditure at some future date.

Mr. Lewicki stated he agreed with Mr. Bredenkamp that the deductible is a tough item to adjust. A three-fold increase is tough for small drycleaners to absorb. It is his belief that many cannot come up with the additional cash and cleanups would not be completed. Mr. Kwak stated there are two (2) opinions regarding whether to decrease the license fees or decrease the deductible. The Council, in the future, can adjust the license fees or solvent taxes without a lot of controversy. However, to adjust the deductible again in the future would be very difficult. He feels that a one (1) time deductible adjustment is the only realistic option and recommends staying with the $20,000 increase in the deductible at this time with the adjustment of the revenue components in the future. He stated 70% of the drycleaners get no benefit from the remedial program, therefore the Council needs to increase the deductible so everyone can share in a reduced license fee increase.

Mr. Gibson commented based on the public hearing he attended, most of the people spoke in opposition to an increase in the deductible to $30,000. He still supports a $3,000 flat rate license fee with the deductible remaining the same and no change in the solvent tax. Mr. Kwak responded that a flat rate license fee is unfair for all drycleaners, especially those small ones who are grossing $100,000 per year versus the larger ones who are grossing $1 million. Mr. Gibson argued that a $30,000 deductible is 30% of the annual revenue of a small drycleaner doing $100,000 of gross revenue. The proposed increase in license fees results in no more than 5 ¢ or 10 ¢ per garment increase. Mr. Kwak stated that size of an increase is extremely difficult when drycleaning facilities such as Cleaners Depot are charging $1.99 per garment while their competition is charging as much as $5 per garment. Drycleaners are facing numerous higher operating costs and the addition of several thousand dollars at one time in license fees has a significant impact on the operation of the small drycleaner.

Mr. Kim stated those drycleaners who receive cleanup benefits should pay more than those that have no contamination and get no benefit. Mr. Kwak noted with the current prioritization time table, some drycleaners may wait until 2020 to receive money for reimbursement. He doubted that anyone would wait until then for their benefits. Instead they will move ahead with their cleanup and the higher deductible will not significantly impact them. He believes that if a cleanup is needed right now, assuming a $30,000 deductible and a projected cleanup cost of $30,000, they will do the cleanup now. If the deductible is $10,000, they will wait 5 to 10 years for the Fund money rather than spend their own money now to clean up the facility. Mr. Bredenkamp responded “Where will the drycleaner get the $20,000 to pay for the increased deductible?” He does not believe the small drycleaner can easily come up with that amount of money. Mr. Lewicki noted all property owners pay taxes for public schools, police and fire support but may never take advantage of those services. The Fund is quite similar. People will pay in but will not necessarily take advantage of the Fund program. He reiterated again the example of an individual who owns a house that pays real estate taxes that funds the public schools but the individual has no children in the school system. Mr. Kim rebutted that type of tax is forever, but the Trust Fund sunsets in 2020, which is a very limited timeframe and cannot be viewed in the same manner. Mr. Polak disagreed stating the argument could be made that if you are an older drycleaner and you receive benefits from the Fund and you die before the Fund's sunset date that in essence, the tax goes on forever also. Mr. Kwak referenced the property tax example He questioned why the Fund was established. A new drycleaning facility receives no benefits but pays into the Fund.

Mr. Polak stated that in listening to the dialog, two (2) components continue to stand out:
1) Raise the license fees; or
2) Raise the deductible

He does not believe that many of the Fund participants can pay for the cleanup if they are subject to a large deductible. In essence, nothing gets done and the purpose of the Fund is not achieved. Secondly, increasing the revenue side is much more important in achieving Fund solvency. In respect to the potential $5.2 million surplus, if you weigh the deductible versus revenue stream, it would make more sense in his opinion, to leave the license fees as proposed and see if the deductible could be reduced, possibly to a nominal increase of $5,000 instead of $20,000.

The Council focused discussion on which claims should be grandfathered in from an increase in the deductible. Mr. Polak stated he is respectful of the arguments being made today for decreasing the licensing fees and for decreasing the remedial deductible and is sympathetic to both sides and understands that it will be impossible at this time to make changes which result in everyone ending up on a level playing field but hopefully some progress can continue to be made in that direction. In his mind, a reasonable compromise would be to increase the remedial program deductible by $5,000 to $15,000 and give all remedial claimants until January 1, 2008 an opportunity to grandfather themselves in at the $10,000 deductible. He noted prioritization will have some impact on people deciding to move ahead but if the $5,000 increase in deductible is important to the drycleaner, they will move ahead and get their RAP completed by that date. Part of the problem the Council faces today and will face in the future and has in the past, is they do not know exactly all the costs that will be involved in the program and the number of drycleaners who may drop out at some point in time. It is his hope the drop out rate would not be materially different then where it is today but forecasting out 14 years can be difficult. Mr. Kwak asked the Administrator the percentage of sites projected to require cleanup. Mr. Eriksen replied that at this point in time, it is estimated 40% of the facilities can get a NFR letter without active remediation; 20% would require some remediation and thereby incur the current $10,000 deductible in remedial action costs; and the remaining 40% would require extensive remedial action. Mr. Kim stated prior to the legislative changes made three (3) years ago, the maximum benefit was $160,000 with a $10,000 deductible. The legislature increased the benefit to $300,000 but the deductible is still $10,000. He believes the increased benefits should reflect an increased payment by the drycleaner. Mr. Polak acknowledged he had a good point. Mr. Kwak commented everyone wants to clean up at once. Mr. Eriksen reviewed a timeframe with the Council that if they gave all remedial claimants until January 1, 2008 to complete their RAP and submit to IEPA for review, the 18 month window would be a reasonable timeframe for them to accomplish that. Mr. Kim reiterated he felt the NDI survey represented a majority of the drycleaners and he would prefer a decrease in the license fees rather than a decrease in the proposed remedial deductible.

Mr. Polak asked if any Council member was prepared to make a motion at this time. Mr. Bredenkamp made the motion that the license fee increases remain as proposed at the April 7, 2006 Council meeting and the increase in the remedial program deductible be scaled back to $5,000 and all drycleaners who complete and submit their RAP to IEPA by January 1, 2008, would be grandfathered in and subject to the current $10,000 deductible. In addition, the solvent taxes would not change but remain the same at $10 per gallon on perc and $2 per gallon on petroleum. Mr. Lewicki seconded the motion. After additional discussion, on a roll call vote, the motion passed by a vote of 4-3 with Mr. Bredenkamp, Mr. Gibson, Mr. Lewicki and Mr. Polak voting aye and Mr. Kwon, Mr. Kwak and Mr. Kim voting nay.

Mr. Polak noted Operational Issue B, Application of the Deductible, had been discussed and acted on as part of Operational Issue A.

Mr. Kwak, Mr. Kwon and Mr. Kim left the meeting.

C. Legal Counsel Contract:

Mr. Eriksen reviewed with the Council that Mr. McCarthy's contract expires June 30, 2006. To date, the Council has paid Mr. McCarthy $14,149.58. Mr. Eriksen noted Mr. McCarthy's knowledge of the Fund and legal expertise has been beneficial to the Program. It is the Administrator's recommendation the Council enter into a contract with Mr. McCarthy to provide legal services to the Council for fiscal year 2007 for a cost not to exceed $19,999. Mr. McCarthy currently charges the Fund $145 per hour for professional services and $85 per hour for travel time and is not requesting an increase in the hourly rates.

On a motion by Mr. Bredenkamp and a second by Mr. Lewicki, by a vote of 4-0, the Council voted to enter into a new contract with Mr. McCarthy for fiscal year 2007 for a cost not to exceed $19,999.

D. Administrative Hearing Officer Contract:

Mr. Eriksen noted Mr. Iain Johnston's fiscal year 2006 contract to provide Administrative Hearing Officer service to the Council expires on June 30, 2006. To date the Council has paid Mr. Johnston $3,336.27. It is his recommendation the Council enter into a new contract with Mr. Johnston at the same hourly rate for fiscal year 2007, which is $265 per hour. The total amount of the contract shall not exceed $19,999. Mr. Gibson inquired as to the purpose of the Administrator Hearing Officer and if it is a cost that could be borne by the appellate. Mr. McCarthy stated no, the Fund is required by state statute to provide the Administrative Hearing Officer at the Council's expense.

On a motion by Mr. Lewicki and a second by Mr. Gibson, the Council voted 4-0 to enter into a new contract with Mr. Johnston for fiscal year 2007 for a cost not to exceed $19,999.

APPROVAL OF PROGRAM BILLINGS

Mr. Eriksen noted that the following bills were before the Council for their review and approval:

1. Williams & Company Consulting, Inc $56,574.00
Standard flat fee billing for April 2006, licensing, underwriting and claims processing.

2. John J. McCarthy $1,015.00
Professional legal services to the Council for the period of March 29, 2006 through May 25, 2006.

2. Williams & Company Consulting, Inc $73,067.00
Standard flat fee billing for May 2006, licensing, underwriting and claims processing.

Mr. Eriksen reported that year to date, including the May bill, Williams & Company will have been paid $785,071 by the Council. Estimating the June bill to be comparable to last year, Mr. Eriksen stated the total fees paid to Williams & Company for the fiscal year should be approximately $885,000 to $890,000, which would be $20,000 to $25,000 less than what they were paid in fiscal year 2005. This is specifically attributable to less claim activities due to the beginning of the prioritization process and reduced site inspections. The Administrator reduced the number of site inspections for fiscal year 2006 in as much as a majority of the insured sites had compliance program inspections in 2005 and there was deemed little benefit to “doubling up” on the inspections during the calendar year.

Mr. Kwak, Mr. Kwan and Mr. Kim rejoined the meeting.

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

Mr. Polak recessed the meeting at 10:27 a.m. The meeting reconvened at 11:05 a.m.

REVIEW OF ACTIVITY REPORT AND FINANCIAL STATEMENTS

Mr. Eriksen reviewed with the Council that at the end of May, there were 1,263 licensed drycleaning facilities, 799 insured by the Fund and 557 open remedial claims. Outstanding budgets totaled $4.2 million. Potential remedial claims that need to complete their intrusive testing and file their results with the Fund by June 30, 2006, totaled 143, and estimated claim reserves were $36 million. To date, 105 NFR or draft NFR letters have been issued.

The Fund balance as of May 31, 2006 is $3,809,273.30.

CLAIM PAYMENTS IN EXCESS OF $75,000

Mr. Eriksen noted there were three (3) claims that were approaching or were currently in excess of the $75,000 limit which requires Council approval of additional budgets.

A. Pride Cleaners – Site #0001697

Mr. Perkins reviewed background information with the Council on the claim, noting it is currently subject to the prioritization process and funding will be deferred at this time. The facility has had extensive site investigations conducted at the facility. High levels of PCE (tetrachlorethene) were encountered up to 6,600 mg/kg, which exceeds the default soil saturation concentration (Csat) of 240 mg/kg. A remedial action plan has been prepared and submitted to IEPA. In the RAP the following technologies were evaluated:
1) Chemical Oxidation (RegenOx ) Compound Injection;
2) Soil Vapor Extraction (SVE); and
3) Excavation

Mr. Perkins reported based on the evaluation of the technologies, RegenOx injection appeared to have the best cost-to-effectiveness potential for use in the three silty clay soil source areas. Mr. Perkins noted the proposed budget is $72,325, which includes a contingency of $15,085 to pay for an additional RegenOx injection if necessary. In addition, the Administrator is requesting the Council approve an exception to the three (3) vendor bid rule. Bid requests were submitted to four (4) environmental firms; however, only two (2) bids were received.

Mr. Kwak stated in the future he would like to have the vendors estimates attached to the claim reports.

On a motion by Mr. Polak and a second by Mr. Lewicki, the additional costs of $72,325 were approved by a vote of 7-0.

B. Garber's Modern Cleaners - Site #0001209

Mr. Perkins reviewed background information on the facility with the Council noting this claim is also subject to the prioritization process and funding will be deferred. He noted IEPA is requesting additional site groundwater characterization to identify the extent of groundwater contamination migration and potentially eliminate a potential surface water receptor. The budget request to perform these activities is $11,260, including a contingency of $2,500.

On a motion by Mr. Lewicki and a second by Mr. Bredenkamp, the additional budget of $11,260 was approved by a vote of 7-0.

C. One-Hour Cleaners - Site #0001925

The Administrator is requesting an amended budget request of $1,972.50, which represents additional site investigation costs that were incurred in the field while the consultant was completing the focused site investigation costs. He noted the additional minor cost incurred was necessary to complete the previously approved scope of work and the Administrator had given verbal approval of this amount subject to confirmation and approval by the Council.

On a motion by Mr. Bredenkamp and a second by Mr. Kim, the additional budget amendment of $1,972.50 was approved by a vote of 7-0. Mr. Perkins noted this request is not subject to the prioritization process.

OTHER ISSUES AS PRESENTED

Mr. Eriksen briefly reviewed with the Council an article from a California newspaper noting that the State of California is ready to begin the phase out of perc drycleaning solvent. No specific timetable was noted in the article but it was clear the California Air Resources Board does not wish drycleaners to be buying expensive new perc equipment in the next year or two.

Mr. Eriksen stated the next Council meeting is tentatively scheduled for July 20, 2006, which is a Thursday. This will be the Council's day long Strategic Planning session. After discussion by the Council members and review of their schedules, it was determined that July 19, 2006 would be better for the majority of the Council members. Mr. Polak agreed to host the meeting in Peoria , IL .

Mr. Kwak stated he would like to make a motion whereby the Council, in the future, will no longer pay for Illinois EPA review fees to obtain a No Further Remediation letter at a Fund eligible site. Mr. McCarthy interjected this topic cannot be discussed at this meeting as it is a substantial topic and was not listed as a discussion topic on the agenda. If the Council wishes to discuss it, it should be included on the agenda at a future Council meeting. Mr. Polak asked the Administrator to include it as an agenda topic for the July 19, 2006 meeting.

PUBLIC COMMENT PERIOD

Mr. Louis Ryseff addressed the Council stating that he has public board experience from having served as a school board trustee. He expressed concern about a potential increase in the remedial program deductible as drycleaners cannot easily get a loan for this additional cost as there is no collateral value to secure this type of loan. He did indicate that DCCA has a program in which they work to get guarantees from the state SBA program for small businesses. This may be an item that the drycleaner associations need to promote but that they should look at DCCA and SBA assistance to assist small drycleaners in continuing to upgrade their equipment and pay for their cleanup costs. In addition, the associations or the Fund should provide some assistance to the drycleaners on how they can approach their local property tax boards to ask for a reduction in the assessed value of their property based upon the soil and groundwater contamination. The reduced property taxes would result in increased cash which could be paid for increased license fees or an increased program deductible. He has personally done this in the past and feels that it could be beneficial for many drycleaners. He also raised the issue that many facilities have contamination outside their back door which is not necessarily a result of dumping their solvent waste water but a direct result of delivery problems that have occurred in the past. Has the Council ever considered looking at subrogation aspects against the solvent distributor? Mr. McCarthy replied he did not believe the Council had the statutory authority to seek subrogation against the distributors in these instances.

Mr. Young Kang addressed the Council as a representative of KADA saying the current Fund insurance is the same policy, pays the same benefits and charges the same premiums regardless of the location, size or contamination level of the various drycleaners. He believes that contaminated sites should see an increase in insurance premiums and those sites that are not contaminated or have received an NFR letter should be charged lower premiums.

ETHICS TRAINING

Mr. Eriksen reviewed at length the 12-page document that was provided to the Council regarding the annual ethics training. Ethics training has been required since 2004. He highlighted various points of interest in the document, specifically those dealing with conflict of interest, noting that all state business decisions, regulatory findings, rule making, etc., made by state boards must be made in the best interest of the state and must be made in a manner that is consistent with applicable laws, rules, regulations and policies. The personal interest of state board employees and appointees or their family, friends or business associates must not be a consideration in such decisions. He reviewed at length prohibitive political activities as this has been a topic that has been in the news frequently.

There being no further business, on a motion by Mr. Lewicki and a second by Mr. Kim, the Council adjourned their meeting at 12:27 p.m. by a vote of 7-0.

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