Hammond city officials say they are reeling from a state agency's decision to terminate an air quality contract earlier this month.

The Indiana Department of Environmental Management told six municipalities, including Hammond and Gary, Dec. 1 that it would either not renew or soon terminate service contracts with local environmental agencies for "air permitting, air monitoring and compliance functions," said Rob Elstro, spokesman for IDEM's Office of Air Quality.

Both Hammond and Gary had two-year contracts set to expire Dec. 31, 2009, but they will be terminated March 31.

Mayor Thomas McDermott Jr. said the move was unexpected and puts the city in a bind because the budgets for the 2009 fiscal year already have been approved locally and sent to the state. Also, McDermott said the city already took the environmental department off the tax rolls next year, so the department could rely on fine and fee collection to balance its budget. He was disappointed the department made the decision without giving advance notice.

"At least five employees' salaries are covered by the state," McDermott said.

"I just feel it's unprofessional and going backwards. We know better in Hammond what's going on than in Indianapolis. It's a step backwards for environmental compliance."

McDermott said downsizing the department could be possible in this situation.

He also said when residents have noise, smell or vibration complaints, the local environmental department could be less able to respond to those issues.

Ronald Novak, director of Hammond's Department of Environmental Management, said the decision was like "pulling the rug from underneath us."

Novak said the contract was worth between $300,000 and $400,000 annually and provides a large sum of the department's funding. The department has nine employees.

Novak said the department currently is looking for alternatives for how funds can be raised, such as an increase in permit fees.

He questioned why the state would want to terminate a contract that has been in place since the mid-1960s. He also said the move wasn't based on performance because it has often received good evaluations and in the past has flagged environmental issues that the state and federal authorities would have missed.

Elstro said in the 2008 budget, the six contracts represented a total of $2 million. The contract required each municipality to match IDEM funds.

The goal of the move is to consolidate IDEM functions and bring them back in-house, Elstro said. He said IDEM is capable of handling the air quality permitting work the municipalities did.

"Over the past four years, we've been able to get rid of an enforcement and permitting backlog and streamline services," Elstro said.

"This is all a part of a larger process in IDEM to increase efficiency, ensure consistency and provide clarity with the agency's functions," he added.

According to the contract termination briefing sent to the city, IDEM said it would continue to partner with the Hammond agency to "ensure that residents continue to see air quality improvements and enjoy the best air quality possible." Elstro couldn't say whether other contracts cities may have with IDEM for water quality, land quality or pollution control would remain intact.