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2 APPEARANCES:
ACCURATE STENOTYPE REPORTERS, INC. 3
ACCURATE STENOTYPE REPORTERS, INC. 4
ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 5 2 (The agenda items commenced at 9:52 a.m.) 3 GOVERNOR BUSH: Division of Bond Finance. 4 MR. WATKINS: Good morning. 5 Item Number 1 is the minutes of the 6 October 30th meeting. 7 TREASURER GALLAGHER: Motion on minutes. 8 ATTORNEY GENERAL BUTTERWORTH: Second. 9 COMMISSIONER BRONSON: Second. 10 COMMISSIONER CRIST: Second. 11 GOVERNOR BUSH: Moved and seconded. 12 Without objection, it's approved. 13 MR. WATKINS: Item Number 2 is a resolution 14 authorizing the competitive sale of up to 15 50 million dollars in Department of 16 Transportation right-of-way acquisition and 17 bridge construction bonds. 18 TREASURER GALLAGHER: Motion on 2. 19 MR. WATKINS: The resolution also ratifies 20 a prior resolution for a sale of up to 21 100 million dollars. 22 So together we are -- the authorization is 23 for a hundred -- up to 150 million dollars in 24 bonds. 25 TREASURER GALLAGHER: Motion on 2. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 6 2 COMMISSIONER BRONSON: Second. 3 GOVERNOR BUSH: Moved and seconded. 4 Without objection, it's approved. 5 MR. WATKINS: Item Number 3 is a resolution 6 authorizing the competitive sale of up to 7 35 million dollars in State University System 8 improvement bonds on behalf of the Florida 9 Board of Education. 10 TREASURER GALLAGHER: Motion on 3. 11 ATTORNEY GENERAL BUTTERWORTH: Second. 12 COMMISSIONER BRONSON: Second. 13 GOVERNOR BUSH: Moved and seconded. 14 Without objection, it's approved. 15 MR. WATKINS: Item Number 4 is a resolution 16 authorizing the competitive sale of up to 17 twenty-five-and-a-half million dollars of 18 housing facility revenue bonds for 19 Florida State University for construction -- 20 TREASURER GALLAGHER: Move Number 4. 21 MR. WATKINS: -- of a dormitory. 22 COMMISSIONER CRIST: Second. 23 GOVERNOR BUSH: Moved and seconded. 24 Without objection, it's approved. 25 MR. WATKINS: Item Number 5 is a report of ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 7 2 twenty-two million five hundred and ninety 3 thousand dollar Florida State University 4 Research Foundation revenue bonds. The bonds 5 were awarded to the low bidder at a true 6 interest cost of 4.84 percent. 7 TREASURER GALLAGHER: Motion on Number 5. 8 COMMISSIONER BRONSON: Second. 9 COMMISSIONER CRIST: Second. 10 GOVERNOR BUSH: Moved and seconded. 11 Without objection, it's approved. 12 MR. WATKINS: Item Number 6 is a report of 13 award on the negotiated sale of two hundred and 14 sixty-nine million three hundred and fifteen 15 thousand dollars of PECO refunding bonds. 16 And before I get into the substance of the 17 report of award on this particular agenda item, 18 I would like to review for you the refinancing 19 activities that we -- that the market has 20 allowed us to undertake over the last calendar 21 year. In -- in effect because of the low 22 interest rate environment that existed in the 23 market, we were able to execute eight 24 transactions totaling a billion-and-a-half 25 dollars during calendar year 2001, generating ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 8 2 State of approximately 163 million dollars, or 3 115 million dollars on a present value basis. 4 So we've been very fortunate from a finance 5 standpoint in availing ourselves of lowering 6 our debt service requirements. 7 And on this particular transaction, the -- 8 the bonds were priced to yield a true interest 9 cost of 4.42 percent, generating gross savings 10 of 48.3 million dollars, or 11 thirty-four-and-a-half million dollars on a 12 present value basis. 13 TREASURER GALLAGHER: Motion on 6. 14 COMMISSIONER CRIST: Second. 15 COMMISSIONER BRONSON: Second. 16 GOVERNOR BUSH: Moved and seconded. 17 Without objection, it's approved. 18 MR. WATKINS: Item Number 6 -- 19 GOVERNOR BUSH: Is there more -- there's 20 more to come on that stuff? 21 MR. WATKINS: Well, Governor, what we do 22 from -- from a methodology standpoint, we're 23 constantly reviewing market conditions and 24 candidates' -- 25 (Commissioner Bronson exited the room.) ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 9 2 meets our benchmark savings level, we move to 3 execute the -- the transaction. 4 So given where we are, and the way that the 5 interest rates have dropped, we've done 6 everything that's economically feasible to 7 refinance. 8 And actually over the last couple of weeks, 9 interest rates have risen pretty dramatically. 10 I'm talking about 40 basis points, which is a 11 significant upward move, as a result of the 12 perception in the market that -- that the 13 hostilities are coming to a close, and more 14 optimism with respect to the economy. 15 GOVERNOR BUSH: Higher rates -- okay. 16 That's always an inverse. 17 TREASURER GALLAGHER: Bonds up -- 18 MR. WATKINS: Right. 19 TREASURER GALLAGHER: -- stocks -- stocks 20 up, bonds down, rates are higher. 21 MR. WATKINS: Right. 22 GOVERNOR BUSH: Can I -- 23 SECRETARY HARRIS: How -- 24 GOVERNOR BUSH: Excuse me. 25 TREASURER GALLAGHER: Go ahead. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 10 2 SECRETARY HARRIS: I was just going to ask 3 how specifically the terrorist attacks affected 4 the bond market, how it im-- impacted our 5 state's refinancing plans. 6 MR. WATKINS: Well, in effect, we had no 7 market for about a month after the events of 8 September 11. There were a number of the major 9 investment banking firms that were both in and 10 around Ground Zero. And until they had an 11 opportunity to relocate to their disaster 12 recovery sites in New Jersey, our market, the 13 municipal market, was not operational. 14 And what has transpired since then, then 15 obviously the Fed intervened to lower rates 16 to -- for economic stimulus purposes. That's 17 what has brought rates down is three rate cuts 18 since -- since that occurred. 19 There's been a huge amount of supply over 20 the last two months because of people being out 21 of the market for so long, and now rates have 22 started backing up. 23 So, in -- in effect, it had beneficial 24 impact for -- from a near term standpoint, less 25 clear what the longer term prospects are ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 11 2 GOVERNOR BUSH: Any other questions? 3 TREASURER GALLAGHER: Motion on 6. 4 COMMISSIONER CRIST: Second. 5 GOVERNOR BUSH: Moved and seconded. 6 Without objection, it's approved. 7 Can -- can I ask -- Scotty -- I'm assuming 8 out in this lobby area there's -- as I recall, 9 upstairs, there's people -- 10 (Commissioner Bronson entered the room.) 11 GOVERNOR BUSH: -- working. 12 And -- could you please tell them to -- 13 that -- I'm sure that the Supreme Court -- we 14 want to keep the Justices happy. Maybe they 15 could keep it down out there. 16 We won't ever be invited back. 17 MR. WATKINS: Item Number 7 is a 18 presentation of the annual update of the debt 19 affordability study. 20 So this is our annual dose of -- of debt 21 affordability, and the state of the State in 22 terms of where we are with respect to debt. 23 TREASURER GALLAGHER: We didn't used to 24 have to play this music. We just sort of 25 ignored it. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 12 2 think that's probably a very good thing, 3 Governor. 4 MR. WATKINS: The -- this is the second 5 annual update of the debt affordability study. 6 And recall that the value of the analysis is 7 the development of a financial model used to 8 evaluate the State's debt position. 9 And the model is dynamic in that it 10 measures two things, two variables that change 11 over time. The first is the amount of debt 12 outstanding; and more importantly, what our 13 annual debt service requirements are to service 14 that debt. 15 And the second thing is the amount of 16 revenues that we have available to -- to make 17 our debt service payments with. 18 So the purpose of the debt affordability 19 analysis is to provide an analytical framework 20 to measure the amount of debt that we have 21 outstanding, to monitor our debt position, and 22 to -- to manage the amount of debt that we have 23 in -- in a meaningful way so that the State 24 doesn't inadvertently exceed prudent debt 25 levels. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 13 2 methodology that we use to give you the 3 framework of what's about to come in the 4 report. 5 The first thing that we do is catalog or 6 quantify all State debt that we have 7 outstanding. 8 And then we evaluate the trend in our debt 9 levels, and our annual debt service 10 requirements over a ten-year period. We 11 calculate our debt ratios; we compare Florida's 12 debt ratios to both national and peer group 13 medians, as well as our ten-state peer group. 14 Then we designated a benchmark debt ratio 15 of debt service to revenues, and suggested a 16 guideline borrowing range -- that the 17 Legislature stay within the borrowing range. 18 Six percent as a target, and eight percent as a 19 cap is what we suggested two years ago. 20 And then we calculate the amount of 21 available debt capacity within the 6 percent 22 target, and the 8 percent cap. 23 Now, up until last year, this process was 24 an informal process, in that it was not 25 mandatory. But the Legislature -- and -- and ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 14 2 information on the long-term financial 3 consequences of borrowing decisions that is 4 made at the legislative level. 5 The information is -- is generated both for 6 purposes of the Governor's preparation of the 7 budget recommendations; and it's generated for 8 the Legislature for their benefit in 9 formulating the appropriations act, or the 10 budget for the State. 11 This past year, the Legislature endorsed 12 the process, and has actually required and 13 formalized it by requiring that the debt 14 affordability analysis be prepared on an annual 15 basis, and delivered to the leadership of the 16 President of the Senate, Speaker of the House, 17 and the Chairs of the respective appropriations 18 committee by December 15th of each year. 19 So it's no longer informal, it's now a 20 formal process. The only substantive change 21 that the Legislature made in enacting that was 22 they narrowed the suggested borrowing range 23 that we were talking about, using 6 percent as 24 a target, and 7 percent as a cap. 25 The -- the updated debt affordability ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 15 2 debt affordability analysis itself. 3 And what it involves is calculating the 4 total State debt outstanding; evaluating the 5 growth in debt and debt service requirements; 6 updating the projections for actual debt issued 7 over the last year; and what our expected 8 issuance is over the next ten years; updating 9 the projections for changes in the revenue 10 estimates that have occurred since last year; 11 recalculating the benchmark debt ratio, our 12 projected benchmark debt ratio; comparing that 13 to the 6 percent target that we've established; 14 and then calculating the amount of available 15 debt capacity, both within the 6 percent 16 target, and the 7 percent cap. 17 With the review completed, we now get into 18 sort of where we are with respect to State debt 19 outstanding. There is 18.3 billion dollars of 20 State debt outstanding. 21 And for purposes of the analysis, it 22 doesn't matter what entity issues the debt. So 23 long as it's secured by a State revenue stream, 24 it's included in -- in -- in the analysis. 25 And what this is intended to do is show ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 16 2 programmatic areas they've been devoted to. 3 And -- and there are no surprises in this. 4 You can see that a -- that a substantial 5 majority of the debt that we issued, over 6 10 billion of the 18 billion, is devoted to 7 school construction, with the re-- the 8 remaining programs -- large programs being for 9 environmental protection and transportation. 10 In evaluating our debt position, it's 11 important to have a much -- a longer term 12 perspective, and not -- 13 GOVERNOR BUSH: Sorry. 14 MR. WATKINS: -- just a snap-- 15 Yes, sir. 16 GOVERNOR BUSH: Ben, the -- I think you 17 answered this last time we had our talk about 18 this, but why is the Orlando Aviation -- the 19 Orlando Turnpike -- Expressway Authority a 20 State indebtedness? 21 MR. WATKINS: They were -- they were 22 created as a State entity, as a State agency. 23 They are technically a State agency. 24 GOVERNOR BUSH: Technically? 25 MR. WATKINS: And -- and so they're -- ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 17 2 says they are a State agency, and so, 3 therefore -- these expressway authorities are 4 sort of a hybrid, Governor, and they're not 5 clearly local debt, and they're not clearly 6 State debt in the sense that the Department of 7 Education, Department of Transportation, and 8 Department of Environmental Protection are. 9 But the Legislature has to approve their 10 projects, and their debt has to be approved by 11 this Board. 12 And that's the way historically these 13 expressway authorities have operated. There 14 are other expressway authorities that the 15 Legislature has created -- Santa Rosa Bay 16 Bridge Authority, for example, that is not a 17 State agency. And there is no State oversight 18 involved. 19 GOVERNOR BUSH: How about the one that I 20 vetoed the money for, the -- what's referred to 21 as -- 22 MR. WATKINS: Bo's Bridge. 23 GOVERNOR BUSH: -- Bo's Bridge. 24 MR. WATKINS: That's the Santa Rosa Bay 25 Bridge Authority. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 18 2 MR. WATKINS: And so they were independent, 3 and their debt did not come to this Board for 4 review and approval, nor was their project 5 approved by the Legislature. 6 GOVERNOR BUSH: Thank you. 7 MR. WATKINS: So that's the difference. It 8 really depends on organically how the 9 Legislature creates them. 10 And that's the difference. 11 TREASURER GALLAGHER: So when those bonds 12 get -- go into default, does that affect our 13 credit rating at all? 14 MR. WATKINS: It will have some impact on 15 the State, and is -- is of some reflection to 16 the State, not in terms of -- it won't 17 adversely affect our credit, simply because 18 it's a different revenue stream. 19 But that being said, there -- there is 20 Department of Transportation subsidy and 21 support of the project. So there is some level 22 of State involvement, but it's not something 23 that investors relied on, hence the Governor's 24 veto message, in -- when the debt was issued. 25 In other words, DOT is picking up the cost ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 19 2 that was the commitment was -- that was made. 3 And -- and that is continuing to be done. 4 And what they were asking for was 5 additional State money over and above the 6 commitment that had been made at the outset. 7 So it's not a State debt, and it's not a 8 State credit, and it won't impact our normal 9 State borrowings. 10 GOVERNOR BUSH: Could you say that the -- 11 by differentiating between obligations, that 12 the State doesn't -- isn't obliged to -- to 13 provide support for, and -- and the majority of 14 the debt that you're showing here, we actually 15 strengthen our credit, because we don't have 16 this contingent liability out there that 17 somehow the full faith and credit of the State 18 is always going to be there to bail out local 19 governments, or poorly underwritten obligations 20 that -- that we may have some involvement in, 21 but we don't have any direct financial support 22 of, or -- or liability of it. 23 MR. WATKINS: Right. 24 Well, this makes it clear, Governor, 25 exactly what debt is secured by State revenues, ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 20 2 State revenues, versus those that are not. 3 And that's why you don't see Santa Rosa Bay 4 Bridge Authority -- 5 GOVERNOR BUSH: Okay. 6 MR. WATKINS: -- in here. 7 And you -- there -- there are other pieces 8 of debt -- the legislatively created creatures 9 that are secured by State revenues, cigarette 10 taxes for Lee Moffitt Cancer Center is a good 11 example, gas taxes out of the State 12 Transportation Trust Fund for the Florida Ports 13 Financing Commission is another. 14 So it was a debt that came to this Board, 15 but it is secured by State revenue, and, 16 therefore -- 17 GOVERNOR BUSH: What's the -- 18 MR. WATKINS: -- is a State -- 19 GOVERNOR BUSH: -- State revenue for -- 20 MR. WATKINS: -- obligation. 21 GOVERNOR BUSH: -- the Orlando Aviation 22 Authority? 23 MR. WATKINS: Sir? 24 GOVERNOR BUSH: What's the State revenue 25 for the Orlando Aviation Authority? ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 21 2 their O&M. So it's not a direct pledge of a 3 State revenue stream, but there is State 4 involvement in the credit structure. So -- 5 GOVERNOR BUSH: It's a hybrid. 6 TREASURER GALLAGHER: And would you tell me 7 what -- I think I might know, but I'm not sure. 8 What is the investment fraud debt for 9 7 million? 10 MR. WATKINS: It was a -- it was an entity 11 created to reimburse senior citizens who lost 12 money in an investment scam. Government 13 Investment Corporation I believe was the name 14 of it. 15 And there's a fee on brokerage 16 registrations that was leveraged in order to 17 reimburse those elderly people who were -- who 18 were fleeced of their life savings, in effect. 19 COMPTROLLER MILLIGAN: That -- that's 20 essentially correct. 21 What happened in that GIC business was that 22 the State was found at fault by the Court in 23 not shutting down the operation when they knew 24 that, in fact, it was operating in violation of 25 law. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 22 2 investments subsequent to the Court ruling, we 3 for -- felt obligated. And the securities 4 industry, frankly, stepped up to the plate, and 5 they are the ones that are paying for the 6 reimbursement to the GIC -- 7 TREASURER GALLAGHER: When did this happen? 8 COMPTROLLER MILLIGAN: It happened in -- 9 between about 19-- well, started it about 1989, 10 ran on up till about 1992 -- or 1992, '93, 11 time frame basically. 12 And -- and -- and this operation was not 13 shut down, should have been shut down. And the 14 Court found that we made a mistake. 15 And to the credit of the securities 16 industry, I think that's important to point out 17 that the securities industry stepped up to the 18 plate and agreed to pay an additional fee, 19 which sunsets here in about three years 20 I think. 21 TREASURER GALLAGHER: How much was it 22 originally? 23 MR. WATKINS: Eight million dollars 24 I think, something along -- 25 TREASURER GALLAGHER: We're -- ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 23 2 TREASURER GALLAGHER: -- going to have the 3 7 million paid off in three years? 4 MR. WATKINS: It's a very short-term loan, 5 yes, sir. 6 COMPTROLLER MILLIGAN: It's actually about 7 seven years, about three years left on that. 8 TREASURER GALLAGHER: Usual deal, the 9 interest is all paid, now the principal? 10 GOVERNOR BUSH: Got it. 11 COMPTROLLER MILLIGAN: You know, I think -- 12 I think it reflects well on the -- on the State 13 being willing to recognize that we made a 14 mistake, and -- and -- and to help these 15 people, most of which were, in fact, elderly, 16 many of which lost their life savings and were 17 living in poverty, literally, and many 18 committed suicide over it. 19 SECRETARY HARRIS: Governor -- 20 GOVERNOR BUSH: Yes. 21 SECRETARY HARRIS: -- this chart right 22 here, the pie chart, is that more of a direct 23 reflection of the State's priorities that's 24 been in when you actually look at that because 25 we've -- we've focused so much on education and ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 24 2 that how you would couch that? 3 MR. WATKINS: It -- it clearly is -- is a 4 reflection of what the State priorities are in 5 terms of capital spending, with the largest 6 program being for education, followed by 7 environmental protection and transportation. 8 So from -- from a -- a legislative 9 prioritization standpoint, that's where we've 10 chosen to make our investments, in 11 infrastructure. 12 The next thing we do is -- the -- the whole 13 exercise is intended to be, take a longer term 14 view of the world than -- than is typically 15 done through the legislative process. 16 So what we do is take a ten-year look-back 17 in terms of what our growth in debt has been, 18 and what our growth in our annual debt service 19 requirements have been. 20 And you can see, there's been a tremendous 21 increase reflecting the substantial investments 22 in infrastructure we've made to provide for 23 infrastructure for a growing population. 24 And the increase for 2001 is only 25 310 million, which is -- which is less than the ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 25 2 the last decades, primarily because we didn't 3 have any significant borrowings for 4 transportation last year, they just simply 5 didn't need the cash; and we converted the 6 Florida Forever Program from a 300 million 7 dollars a year, whether we need it or not -- 8 GOVERNOR BUSH: Right. 9 MR. WATKINS: -- to a more efficient model, 10 and borrowing only the money to provide the 11 cash needed to close the acquisitions. 12 So that's the growth in annual debt 13 service. 14 More importantly, from a budgetary 15 perspective is the growth in the annual debt 16 service requirements. And the growth in our 17 annual debt service requirement mirrors the 18 increase in -- in -- in the growth in debt over 19 the last decade. 20 And what I'd like to point out here is that 21 our annual payment, our annual recurring 22 payment obligation for debt is up to 23 1.3 billion dollars per year. 24 And this is important because it reflects 25 what has to be paid, and provided for, before ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 26 2 multitude of services that the State provides, 3 and really is an indication of budgetary 4 flexibility. 5 The next two pages, pages 8 and 9, the 6 comparison of Florida debt ratios to national 7 averages in our -- in our ten-state peer group. 8 I'm not going to belabor this. 9 But the -- the thing that I did want to 10 point out is when taking a macro view of our 11 relative debt position, evaluating the three 12 traditional debt ratios that the municipal 13 industry uses to evaluate debt position, 14 Florida is higher than the national average in 15 two -- for two of the three debt ratios used in 16 the municipal industry. 17 And taking a more microview in looking at 18 how Florida stacks up, or how Florida ranks in 19 relation to our ten-state peer group, which is 20 the ten largest states, we rank -- we are third 21 highest in -- in evaluating the three debt 22 ratios using the municipal industry. 23 GOVERNOR BUSH: Go ahead, Tom. 24 TREASURER GALLAGHER: Have we -- have we 25 also looked at what our average interest rate ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 27 2 well we do in the market? 3 Or are you just letting the -- the ratings 4 refrect (sic) -- reflect that? 5 MR. WATKINS: The debt service to -- to 6 revenue ratios takes that into account. But -- 7 but demand for our bonds remains extremely 8 strong. And we continue, even during these 9 times, to trade through a -- a AA credit 10 rating, which is what our -- 11 TREASURER GALLAGHER: You -- 12 MR. WATKINS: -- what our general -- 13 TREASURER GALLAGHER: Is the -- 14 MR. WATKINS: -- obligation bond rating is. 15 GOVERNOR BUSH: Lower -- 16 MR. WATKINS: Lower interest rate. 17 GOVERNOR BUSH: Right. 18 MR. WATKINS: Lower interest rate than you 19 would expect on a normal, generic AA credit. 20 GOVERNOR BUSH: What the market does is 21 treats us better than the graders. 22 TREASURER GALLAGHER: Right. 23 MR. WATKINS: Correct. 24 TREASURER GALLAGHER: But what's interes-- 25 that -- that's why I'm -- wondering what -- ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 28 2 our average interest rate with the other 3 ten states, is there? I mean, there's too many 4 issues to be -- 5 MR. WATKINS: There are too many issues. 6 And you get a divergence in maturity structure. 7 You know, our maturity structure is relatively 8 long because it's weighted towards PECO, and 9 PECO is a 30-year debt, which really from a -- 10 from a historical -- from a market perspective 11 is pretty long duration -- is relatively long 12 duration debt. 13 And -- and so you get a long of mismatches, 14 and there gets to be a lot of noise, and the 15 comparison becomes less meaningful. 16 But I can assure you that our -- that our 17 average overall interest rate has been -- on 18 our -- on our entire portfolio of 18.3 billion 19 dollars debt, is extremely attractive. 20 And primarily because we've been -- it's 21 been a good time to be borrowing money over the 22 last decade. 23 That, coupled with the refinancing 24 activity -- it's a perverse view of the world, 25 Governor. But that's what we do. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 29 2 low, based on the debt that we have 3 outstanding. 4 TREASURER GALLAGHER: Which, of course, 5 allows us to borrow more. 6 GOVERNOR BUSH: Absolutely. 7 MR. WATKINS: Right. 8 GOVERNOR BUSH: Ben -- I -- this is like 9 deja vu. I think I asked this question as well 10 last time. 11 I don't see in here a cumulative debt 12 look -- analysis related to municipal and -- 13 TREASURER GALLAGHER: Oh, he's got it. 14 GOVERNOR BUSH: -- hence -- you got it? 15 MR. WATKINS: That's -- not -- it's not in 16 here, Governor, but it's coming in December. 17 That'll be your Christmas present -- 18 GOVERNOR BUSH: All right. 19 MR. WATKINS: -- in December. 20 And, yes, you did ask for it a year ago. 21 And it's taken us that long to assimilate all 22 of the information, and try to provide a 23 meaningful comparison. 24 GOVERNOR BUSH: I think it would be 25 helpful, just as it relates to comparing ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 30 2 don't want you to go spend another year trying 3 to track down the local debt for every -- for 4 our -- of the other nine states. 5 But the -- many states borrow more heavily 6 at the local level than at the State level. 7 And while again I just make the opposite point 8 about how we're not -- we shouldn't be -- feel 9 compelled to be obligated for the indebtedness 10 of -- of -- of other government entities in the 11 state, the cumulative effect of that I think 12 probably impacts the market, doesn't it? 13 I mean -- 14 MR. WATKINS: It does. And it's a -- 15 GOVERNOR BUSH: And if the local 16 governments are borrowing very little, it -- it 17 protects our position; and if they borr-- if 18 they're borrowing extraordinary sums, it 19 probably crowds us out a bit, doesn't it? 20 I -- 21 MR. WATKINS: The -- 22 TREASURER GALLAGHER: My guess is that the 23 local governments borrow a lot in Florida, but 24 I could be wrong. 25 MR. WATKINS: Well -- you know, I was ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 31 2 giving you the preview of the answer to the 3 question, Governor, it's very, very difficult 4 to look at on a state-by-state basis, because 5 you have to drill down in other jurisdictions. 6 So it's very difficult to quantify. We had 7 a enough hard time ourselves -- 8 GOVERNOR BUSH: Right. 9 MR. WATKINS: -- just getting our arms 10 around what our State and local debt combined 11 is. Because what we're talking about is school 12 district debt, county debt, city debt, 13 water management district debt, and special 14 district debt -- 15 TREASURER GALLAGHER: Hospital -- 16 MR. WATKINS: -- just within the confines 17 of the state of Florida. 18 TREASURER GALLAGHER: Hospital debt? 19 MR. WATKINS: Excuse me? 20 TREASURER GALLAGHER: Hospital debt? 21 Special district -- 22 MR. WATKINS: It's included in the special 23 district debt, yes, sir. 24 And what we found is, unfortunately, the 25 only data set that we have to compare against ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 32 2 national average. 3 And when you -- when you evaluate -- when 4 you aggregate all of our state and local debt, 5 and you compare it to the national average of 6 state and local debt, we are actually 7 relatively low in relation to the national 8 average, which then tells me that our local 9 debt maybe isn't as great when we look at it on 10 an aggregate basis as some other jurisdictions. 11 But we haven't done that comparison because 12 of a lack of data to do it with. 13 GOVERNOR BUSH: Don't encourage them. 14 MR. WATKINS: Don't worry. 15 Now that we've completed an evaluation of 16 what our current debt position is, and what 17 our -- from a historical perspective, what the 18 growth is, then we start the analysis with 19 forward looking information. 20 And what we do is a ten-year projection of 21 expected bond issuance for our existing 22 programs. 23 And what we find is that over the next 24 ten years, we have 9.7 billion dollars that we 25 expect to borrow under our programs that are ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 33 2 And it's -- this is down slightly from the 3 last time we did this analysis, but it was our 4 ten-year look forward expected issuance was 5 9.9 billion. And it's now 9.7, primarily 6 because we've -- we've implemented another 7 piece of the lottery program. 8 In other words, the lottery program was a 9 two -- two-and-a-half billion dollar 10 commitment. Well, over the last year, we've -- 11 we've issued several hundred million dollars in 12 debt, and so that -- but we didn't bring on any 13 new programs. 14 And so that number is down slightly, but 15 comp-- very comparable the last year. 16 GOVERNOR BUSH: What about the proposed 17 acceler-- the use of GARVEE, is that in this? 18 MR. WATKINS: Those are included in this, 19 Governor, and is part of the economic stimulus 20 package where we accelerated school 21 construction and transportation projects that 22 were ready to go to contract. 23 It didn't really increase the absolute 24 amount of debt that we were propos-- that is 25 expected to be issued over the next ten years. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 34 2 million. 3 But what it really did was move up 4 borrowings that were expected in later years to 5 finance projects that were going to be brought 6 on later. 7 (Commissioner Crist exited the room.) 8 MR. WATKINS: Those that were ready to go 9 to contract and ready for construction were 10 actually moved up into the current year. 11 So it moves up borrowing, but doesn't 12 increase dramatically the absolute amount of 13 borrowing that's being expected over the next 14 ten years. 15 The second step in preparing the forward 16 looking information, which is especially 17 important in light of the current economic 18 outlook, is to evaluate what our expected 19 revenue collections are. 20 And you can see the dark blue line is last 21 year's short run and long run revenue 22 estimates, and the red line are the current 23 revenue estimates for both the near term and 24 the long-term. And obviously, estimated 25 revenues are down reflecting a weaker economy. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 35 2 both in the current fiscal year, and in next 3 fiscal year. But even the -- even the long run 4 estimates indicate that we will have less money 5 available to budget and appropriate. 6 Then we take the projections for these two 7 variables, the -- the -- to calculate the 8 change in our benchmark debt ratio. 9 So what we're doing is taking the amount of 10 current debt that we have outstanding, the debt 11 service requirements on that, adding to that 12 the debt service requirements on the 13 9.7 billion dollars that we expect to issue 14 over the next ten years, using the updated 15 revenue projections provided by the Revenue 16 Estimating Conference, and calculate what our 17 projected benchmark debt ratio will look like 18 over the next ten years. 19 And you can see the light blue line is the 20 historical change in our benchmark debt ratio, 21 the dark line on the top is our current 22 projected benchmark debt ratio, and the red 23 squiggly line is last year's projection of our 24 benchmark debt ratio. 25 And what it shows is that in the near term, ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 36 2 six twenty-two at the end of this year, 3 6 percent's our target; six fifty-nine at the 4 end of next year. 5 So what we see is that we exceed our target 6 by more, and stay out of compliance by long -- 7 for longer, up until 2008. 8 And this is largely -- this is a reflection 9 of the decrease in revenues that we have 10 available to pay for our debt with, not 11 anything that we've done with respect to State 12 debt over the last year. 13 GOVERNOR BUSH: So it has nothing to do 14 with the economic stimulus package. 15 MR. WATKINS: No. 16 GOVERNOR BUSH: Thank you. 17 MR. WATKINS: Based on the -- the last step 18 in the process with -- we -- is we calculate 19 what our estimated debt capacity -- our 20 available debt capacity is, both within the 21 6 percent target, and the 7 percent cap. 22 And what we see is total bonding capacity 23 over the next ten years within the 6 percent 24 target is approximately 12.65 billion. 25 And then we -- we subtract from that what ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 37 2 9.7 billion dollars expected over the next 3 ten years, and it leaves us with 3 billion 4 dollars in additional debt capacity within our 5 6 percent target benchmark debt ratio. 6 And that's down from an estimated available 7 capacity of 5.3 billion dollars from last year. 8 And the decrease in future available 9 capacity again is due to the lower revenue 10 estimates. 11 And the capacity they -- the important 12 thing to note here is the capacity -- the 13 available capacity is not in the near term. 14 The capacity is not -- the available capacity 15 within the 6 percent doesn't occur until 2008. 16 And so the conclusion from all of that is 17 there is no available capacity for -- 18 (Commissioner Crist entered the room.) 19 MR. WATKINS: -- new financing programs 20 within the 6 percent target that the 21 Legislature has established. 22 Yes, ma'am. 23 SECRETARY HARRIS: On the previous slide 24 now you're discussing it, if -- if our debt 25 position is weakened, is that going to affect ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 38 2 increase our borrowing costs? 3 MR. WATKINS: The change of the 4 deterioration in our -- in our -- increase in 5 our benchmark debt ratio will not in and of 6 itself adversely affect our credit rating. 7 It is merely a factor that it -- one -- one 8 of a multitude of factors that the rating 9 agencies consider in assigning our rating. 10 So demand for our bonds remains strong, it 11 is a factor -- it is a quantitative factor 12 considered in our debt rating, but shouldn't in 13 and of itself adversely -- will not inadvert-- 14 in and of itself adversely affect our credit 15 rating. 16 The more important thing that may well have 17 an impact on our credit rating is the state of 18 our economy, and what happens prospectively 19 with that. 20 And so we're -- we're in constant 21 communication with the rating agencies in terms 22 of what the economic outlook is, what the 23 future revenue projections are. 24 Another important element dealing with our 25 credit rating is going to be how the ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 39 2 1.3 billion dollar revenue shortfall, and how 3 they balance the budget. 4 And that will be another important factor, 5 probably more important than the absolute level 6 of debt that we have outstanding that could 7 potentially affect our credit rating in the 8 near term. 9 SECRETARY HARRIS: Specifically, you said 10 how they deal with it. 11 In what regard? 12 MR. WATKINS: Well, there are a multitude 13 of different ways they can deal with it. Other 14 jurisdictions, for example, have used 15 nonrecurring revenues to balance their budget 16 with. 17 And so when you do that, you create a 18 structural imbalance, and it just makes it more 19 and more difficult in future years. And many 20 jurisdictions live with that for -- year in and 21 year out. 22 And so consequently, their credit rating 23 reflects their inability to balance their 24 budget on a recurring basis. 25 GOVERNOR BUSH: Good answer. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 40 2 has a 10.5 billion dollar shortfall. 3 Underestimated revenues and expenses for this 4 fiscal year by 10.5 billion dollars. 5 That's just probably two times-and-a-half 6 or three times bigger than ours probably, but 7 the shortfall is six, eight -- eight times 8 bigger. 9 It's just a -- 10 TREASURER GALLAGHER: If you count where we 11 are now, and where we'll be next year, you run 12 into the same ratio. 13 GOVERNOR BUSH: One point three? 14 TREASURER GALLAGHER: Those two -- for next 15 year. 16 GOVERNOR BUSH: But we've annualized the 17 cuts. If we ever get any cuts, they'll -- 18 those annualize out to where we don't have 19 that -- 20 COMMISSIONER BRONSON: Governor, I think 21 one of the -- one of the things that strikes me 22 is, you know, our -- our little problems here 23 aren't necessarily in all because we have 24 somehow misplaced where we should be putting 25 our money, or any of that. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 41 2 And perception is killing us on our -- travel 3 of our tourists from overseas around the 4 country, only because of perception. 5 And if we could somehow, through your 6 efforts to get the word out that -- that we 7 don't have people sick all over the 8 state of Florida, we don't have our food 9 contaminated in the state of Florida, so that 10 we can get our agriculture sales back up where 11 they should be, and also tourists traveling, 12 then these numbers are going to fluctuate to 13 the good. 14 And I think that perception level has hurt 15 us right now worse than anything we have done 16 economically in this state, or that the 17 Legislature has done at all. 18 It's -- it's strictly a perception. 19 GOVERNOR BUSH: We are certainly going 20 through tough times. But it is -- this is 21 really useful I think, because there are good 22 ideas right now that are on the table to use 23 additional debt to -- to solve important 24 aspects of State policy. 25 And there is a point where we -- we start ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 42 2 there. 3 You know, part of this drop I think does 4 relate to the -- to revenue estimations out 5 beyond a couple of years, you know, all bets 6 are off. 7 But the fact is, we've had a -- a major 8 adjustment in fiscal year index, there's no 9 question about that. 10 And that has an impact on these debt 11 service numbers. And this is a pretty 12 compelling chart right here. It says zero for 13 five years. But in terms of available 14 capacity, we want to stay near our target. 15 MR. WATKINS: Right. 16 And the whole purpose of the -- the 17 exercise, Governor, and -- and to this -- to 18 this governing body's credit, the amount of 19 debt and what our level of debt had never been 20 a factor in the discussion in the legislative 21 debate about what was appropriate to borrow 22 for, and what wasn't, and how to prioritize 23 capital spending. 24 And now as a policy matter, it is an 25 element, and it is a factor that they -- they ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 43 2 So -- so, in other words, the information 3 is where it needs to be in terms of formulating 4 the policy. 5 The debt capacity -- the last step in the 6 analysis is -- is calculating the debt capacity 7 within the 7 percent cap that the -- that the 8 Legislature has established. 9 And -- and what we find is that the total 10 capacity available over the next ten years, 11 using the current revenue estimates and 12 7 percent as a cap, is 9.15 billion dollars. 13 But only -- only approximately 3 billion 14 dollars of that capacity is available within 15 the near term. 16 And the -- and the -- and the -- the 17 appropriate view of this capacity is not as a 18 resource available to be used, but as a cushion 19 against further deterioration in the economic 20 conditions within the state. 21 Because just as we've experienced over the 22 last year, with 2 billion dollars of debt 23 capacity evaporating because of lower revenue 24 estimates, that same scenario can play itself 25 out again. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 44 2 MR. WATKINS: And so the better view of the 3 capacity within the 7 percent cap that's been 4 established is to use it as a re-- reserve 5 against further deterioration in the expected 6 revenue collections of the state. 7 And speaking of reserves, another important 8 measure from a credit standpoint is the level 9 of general reserves available. 10 Our general fund balances -- this is a 11 graphic depiction obviously of our -- of the 12 combined working capital and budget 13 stabilization fund balances, doesn't take into 14 account trust fund -- balances in trust funds. 15 And if you look at balances in trust funds, 16 Governor, the number far exceeds this number. 17 But what the -- what the rating analysts 18 look at is just simply budgetary flexibility 19 within the general fund. And so we have 20 charted -- 21 GOVERNOR BUSH: If we -- 22 MR. WATKINS: -- progression. 23 GOVERNOR BUSH: -- if we -- if the 24 Legislature authorized the use of other 25 reserves that are nestled away in varying nooks ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 45 2 gave them that authority to borrow on those 3 additional reserves, would that change what the 4 rating agencies' thoughts would be? 5 If there -- if there was the same 6 flexibility with a trust fund as there would be 7 with the working capital fund? 8 MR. WATKINS: That would change their view 9 of the world in terms of how they measure this, 10 if it formalized the financial flexibility of 11 the State to tap other available trust fund 12 resources. 13 GOVERNOR BUSH: Because right now, we can't 14 tap the budget stabilization fund just for the 15 heck of it. 16 MR. WATKINS: Right. 17 GOVERNOR BUSH: So I'm not sure what the 18 specifications are for accessing it. But 19 there -- it's narrowly defined I think. It 20 isn't just an open access fund, is it? 21 MR. WATKINS: No, sir, it's not. And -- 22 but that's a positive from the rating agency 23 standpoint, because what they view that as is a 24 structural reserve. 25 And, you know, you have to meet certain ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 46 2 to invade that reserve. 3 GOVERNOR BUSH: We don't get any credit for 4 the Endowment, the Chiles Endowment? 5 MR. WATKINS: No, sir. 6 COMMISSIONER CRIST: We should. 7 MR. WATKINS: Well, the -- what they're 8 looking at is legal constraints, and the 9 ability -- the Legislature has placed on 10 themselves in creating a trust fund. 11 In other words, by definition, it's -- it's 12 supposed to be off balance sheet in terms of 13 balancing the recurring budget. 14 And so if you utilize it, it -- it is 15 viewed by them as nonrecurring. 16 GOVERNOR BUSH: Right. I agree with that. 17 MR. WATKINS: Because you can't go back, 18 but -- 19 GOVERNOR BUSH: I'm not saying you use it. 20 But it provides a -- an additional source of 21 revenue to meet current obligations that frees 22 up the pressure on the existing reserves. 23 MR. WATKINS: Right. 24 And rest assured, Governor, we -- we -- we 25 quantify it in point of -- ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 47 2 with you. 3 COMPTROLLER MILLIGAN: It's probably the -- 4 something that ought to be looked at. The -- 5 MR. WATKINS: Well -- 6 COMPTROLLER MILLIGAN: Well, it's -- 7 you know, we -- we certainly are dealing very 8 carefully now with where you've got the fund, 9 with the stabilization fund in trying to make 10 sure that we help ourselves at the end of the 11 fiscal year. 12 But the -- we ought to -- ought to take a 13 look at it, the trust fund situation. And I 14 wouldn't do it in a hurry. I -- 15 GOVERNOR BUSH: Next session. 16 COMPTROLLER MILLIGAN: -- I certainly would 17 consider it an -- an item that ought to be 18 looked at. 19 MR. WATKINS: Well, in addressing that, 20 Governor, rest assured that we quantify and 21 point out to the rating agencies that this is 22 not the whole picture, just looking at the 23 general fund; and that there are substantial 24 balances in trust funds that are available 25 should the Legislature choose to utilize those. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 48 2 only carries marginal weight with them, simply 3 because it requires a legislative act, and it's 4 nonrecurring. 5 But it is -- it is a -- it is a positive 6 from a ratings perspective, but they only give 7 it limited weight. 8 GOVERNOR BUSH: I'm surprised there was a 9 decrease -- 10 (Secretary Harris entered the room.) 11 GOVERNOR BUSH: -- in -- this -- this was 12 for June 30th of this year? 13 COMPTROLLER MILLIGAN: Yes. 14 MR. WATKINS: Correct. 15 GOVERNOR BUSH: What was the decrease? 16 Where did the -- 17 MR. WATKINS: Taking down the balance in 18 the working capital fund. 19 COMPTROLLER MILLIGAN: It takes about 20 500 million. 21 GOVERNOR BUSH: Well, you -- on June 30th? 22 MR. WATKINS: June 30th, 2000. 23 GOVERNOR BUSH: Where did we take down 24 500 million? I mean, I -- we vetoed -- I 25 vetoed -- this is probably September, isn't it? ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 49 2 I'm sorry. I misspoke. 3 COMPTROLLER MILLIGAN: Yeah. Last June. 4 It will bring the budget into balance. 5 Among other things, about 500 million coming 6 out of the working capital. 7 GOVERNOR BUSH: It was -- 8 MR. WATKINS: Your -- your veto of about 9 300 million actually, you know, helped. If -- 10 if not, the decrease in the working capital 11 fund would have been -- the decrease would have 12 been more, the balance would have been less -- 13 GOVERNOR BUSH: Okay. 14 MR. WATKINS: -- than is -- than is 15 otherwise shown here. So we're -- we're 16 getting credit for the 325 million in -- in 17 the -- the veto message -- included -- 18 GOVERNOR BUSH: Not all of that -- 19 MR. WATKINS: -- in the veto message. 20 GOVERNOR BUSH: -- was cash -- was going to 21 the working capital. 22 MR. WATKINS: Right. 23 COMPTROLLER MILLIGAN: And some of that -- 24 not to belabor this issue -- is concerning what 25 I have right now is what is -- need to look at, ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 50 2 into the working capital fund because it is so 3 excessive. 4 And you lose then the real protection to -- 5 to try to balance things at the end of the 6 year. 7 TREASURER GALLAGHER: We -- you know, the 8 Legislature also -- we talk about how much is 9 sitting in those trust funds. But there was 10 quite a bit taken out of those trust funds last 11 year to balance the budget also. 12 And moved over to general revenue. 13 Across-the-board, any excess dollars, they 14 pretty much grabbed what they could. 15 GOVERNOR BUSH: They didn't get it all. 16 TREASURER GALLAGHER: No. They didn't get 17 it all, but they took a good chunk from a lot 18 of trust funds. 19 MR. WATKINS: The increase in our reserves, 20 obviously due to the -- the constitutional and 21 mandated budget stabilization fund -- and the 22 Legislature may well use a portion of the 23 budget stabilization fund to balance the 24 budget. 25 But using money in the budget stabilization ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 51 2 pain of the recurring budget cuts that are 3 necessary to balance the budget on a recurring 4 basis. And, in fact, any invasion of the 5 budget stabilization fund has to be repaid. 6 So it merely delays the pain associated 7 with making the recurring cuts necessary to 8 balance the budget. 9 Conclusions. 10 Florida's debt position has deteriorated 11 over last year's projection as measured by our 12 benchmark debt ratio. The increase in our debt 13 ratio is due to the decrease in estimated 14 revenues. 15 Our benchmark debt ratio is expected to 16 exceed our 6 percent target based on our 17 estimated issuance over the next ten years, and 18 our expected revenue collections. 19 There is no capacity available within the 20 6 percent target that has been established for 21 new programs. The additional debt capacity 22 within the 7 percent is best viewed as a 23 cushion against economic downturns, or as a 24 reserve, and not as an asset to be deployed 25 currently. And debt is -- continues to be ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 52 2 GOVERNOR BUSH: Any questions or comments? 3 COMPTROLLER MILLIGAN: One other quick 4 comment. 5 You know this 6 percent and 7 percent are 6 numbers that someone has just pulled out of 7 their hat really. 8 If you look at the other states with, 9 I think only one, maybe two exceptions, they're 10 all under 5 percent. 11 And when we first started this dialogue now 12 three or four years ago, talking about what the 13 debt limit ought to be, 5 percent is what we 14 originally talked about -- at least what I 15 talked about. 16 And -- and so don't -- you know, you really 17 can't take too much from the 6 percent, 18 7 percent relationship. We're there, and so 19 we've kind of got to live with it now. 20 And so it -- maybe it puts a little more 21 urgency on the importance of being concerned 22 about closing that gap to 7 percent. You know, 23 I think we're -- we get good ratings from 24 the -- from the street. But they're looking at 25 it. And so we need to be careful. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 53 2 Any other comments? 3 Thank you, Ben, for the excellent 4 presentation. 5 MR. WATKINS: Thank you. 6 GOVERNOR BUSH: Look forward to seeing the 7 Christmas present. 8 (The Division of Bond Finance Agenda was 9 concluded.) 10 * * * 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 54 2 Enforcement. 3 TREASURER GALLAGHER: Motion on the 4 minutes. 5 COMMISSIONER CRIST: Second. 6 GOVERNOR BUSH: Moved and seconded. 7 Without objection, it's approved. 8 Item 2. 9 MR. MOORE: Governor, Item 2 is our first 10 quarterly performance report for fiscal 11 2001-2002. 12 You will notice in that report, if -- if 13 you don't mind, a couple of things I'll point 14 out. 15 One, we had talked last agenda about our 16 emphasis and our effort on -- on improving our 17 turnaround time in our laboratory system, 18 particularly as it relates to our DNA cases. 19 You recall that we had a discussion, and 20 you approved transmission of a budget item to 21 help boost our capacity in that area. 22 We are getting close to meeting our -- our 23 turnaround time in DNA. We're not there just 24 yet. But I'm real proud of our effort in that 25 regard. ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 55 2 quarter, we added 7,000 samples to that 3 database. We now have in excess of 4 100,000 samples. And that's continuing to -- 5 to produce a lot of positive results for us. 6 In fact, the Department of Justice and the 7 FBI recognized our state DNA database during 8 this quarter as the most effective, most 9 productive in terms of searchable hits in the 10 country. 11 So we're making progress in that regard. 12 I'm optimistic that with continued efforts 13 of our men and women in that -- in that 14 discipline, coupled with the relief that I hope 15 we'll be able to get out of the legislative 16 session, we'll be well on mark in that 17 discipline. 18 And just for information, we've -- our 19 system processed just short of 20,000 exhibits 20 in criminal cases during this past quarter. So 21 we're continuing to make a lot of progress in 22 that area. 23 Our criminal investigations fell off just a 24 little bit in this quarter, and that's 25 understandable because of -- the last ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 56 2 redirected a lot of our effort. 3 But during this quarter, we still worked in 4 excess of 1254 criminal investigations. And 5 the number of new investigations we opened 6 again fell off just a bit. 7 But I think we'll be back to where we need 8 to be in short order in that regard. 9 GOVERNOR BUSH: Can you -- Tim, would it be 10 appropriate to talk -- to brief the Cabinet on 11 the -- the interviews that are going to start? 12 MR. MOORE: Governor, it would. 13 GOVERNOR BUSH: Thank you. 14 MR. MOORE: You recall that back earlier 15 this month, we communicated with Governor Ridge 16 and -- Director of Homeland Security, and 17 General Ashcroft, and Director Mueller of the 18 FBI about our interest in having a stronger 19 relationship, our interest in having more 20 involvement in a meaningful way on the events 21 post September the 11th. 22 In no way, was that any kind of indictment 23 of our good SACs for the FBI here in Florida, 24 nor any of our U.S. Attorneys. We've got an 25 excellent, outstanding relationship. ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 57 2 the administrator -- to the Justice Department 3 administration and the FBI, that we would like 4 to see some things change a bit. 5 As a result, not solely as a result of that 6 letter, but as a result of several events, the 7 Attorney General, General Ashcroft, 8 communicated with all the U.S. Attorneys in the 9 country, in-- including the three that we have 10 here in Florida, shortly afterwards, and asked 11 that they involve State and local 12 law enforcement in the investigation of some 13 6,000-plus leads around the country, a little 14 more than 500 of which are here in Florida, of 15 individuals that are in America; and in this 16 case, in our state, on nonimmigrant visas. 17 They're -- they're visiting here on tourist 18 visas, on education visas, on work visas, 19 they're not seeking permanent status. 20 Let me be clear that these individuals that 21 we'll be talking to are not suspects in any 22 form or fashion. The interviews will be 23 consensual, they have the right to refuse to be 24 interviewed; they are non-custodial, so there's 25 no right -- no -- no waiver of right issue at ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 58 2 It's nothing more, frankly, than what we 3 would do in a neighborhood canvassing as a part 4 of any investigation. If a robbery occurs in 5 a -- in a particular part of a -- of a -- a 6 city, then all police officers routinely 7 canvass that neighborhood, and talk to anyone 8 who may know something about that crime. 9 That's ostensibly what's happening here. 10 These individuals were identified by the 11 Department of Justice, by a protocol that 12 they -- that they applied that was anchored, 13 in part, to individuals that were original 14 suspects, or individuals that were on the 15 expanded watch lists that we shared with -- 16 with law enforcement throughout the country. 17 Anybody that might have known any of these 18 individuals, anyone that might have been 19 associated with them, anybody that might have 20 lived in an apartment complex where one of 21 these individuals lived, who might have been a 22 co-worker in a company with these individuals, 23 that was the protocol that was widely applied 24 to the list. 25 Again, as I said, we have some 500 in ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 59 2 domestic security task forces, State and local 3 law enforcement. 4 And that's very important, because, again, 5 as the Governor said, leverage is what works 6 for us. In our state, it's local 7 law enforcement. 8 But we'll do that in a very organized way, 9 through our domestic security task forces, and 10 consistent with some very specific guidelines 11 that the Attorney General sent down via the 12 U.S. Attorneys for us to follow in the 13 interviews. 14 Those interviews -- the backgrounds on 15 those individuals was -- were completed over 16 the last two to three days, and the weekend, 17 and then yesterday and today, and the 18 interviews will begin today. And we hope to 19 have them completed no later than the second 20 week in December. 21 That information will then be provided back 22 to the U.S. Attorneys for transmission on up to 23 main justice, and the -- the national task 24 force that's working on this issue all the way 25 around. ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 60 2 make sure that anybody with any information out 3 there with bearing or merit on the 4 September 11th attack, we want to know who they 5 are, and get them factored into this -- this 6 overall investigation. 7 Two, we want to -- want to make sure that 8 if there's anybody out there that's aware of 9 any potential threat to domestic security, 10 either nationally or here in our state, that we 11 want to know about that. 12 So, again, that's how we're approaching 13 these interviews, and I -- Governor, I'm proud 14 of that. I -- I see that as progress, I see 15 that as a recognition of the fact in support of 16 the -- of the points that we made. 17 I thank you for your effort in that arena, 18 and I'm encouraged by -- by the level of 19 involvement and the improving of the 20 relationship in that area. 21 COMMISSIONER CRIST: Governor. 22 GOVERNOR BUSH: Yes. 23 COMMISSIONER CRIST: Can I ask a question? 24 GOVERNOR BUSH: Sure. 25 COMMISSIONER CRIST: Thank you. ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 61 2 right, Commissioner? 3 MR. MOORE: The backgrounds of those 4 individuals are being completed as we speak, 5 and the interviews -- the consensual interviews 6 will begin today acrossed the state. 7 COMMISSIONER CRIST: And it could be as 8 many as 500? 9 MR. MOORE: It's in the area of 500 that we 10 have. 11 And to put that in perspective for you, to 12 make sure that we completely debunk this notion 13 that somehow we're -- we're picking out a -- a 14 certain class of individual, we have over 15 300,000 Arab American surnames in the state of 16 Florida that are in our state, over 300,000. 17 Well, that 546 or so, that represents less 18 than 3/10 of 1 percent of individuals that will 19 be asked to voluntarily provide information. 20 So -- 21 COMMISSIONER CRIST: Thank you. 22 COMMISSIONER BRONSON: Governor -- 23 GOVERNOR BUSH: Yes. 24 COMMISSIONER BRONSON: -- I -- I did want 25 to say that our department also has -- has ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 62 2 issues where we have worked some investigations 3 together, and so forth. 4 And -- and to Mr. Gallagher down there, we 5 have stopped I don't know how many vehicles 6 that we have checked -- that we do all 7 vehicles, routinely of -- of rental vehicles, 8 and uncovered stolen tractors, $100,000 worth 9 of stolen boat motors, all types of stolen 10 equipment are being hauled -- Ma and Pa Kettle 11 aren't just hauling their worldly goods down 12 the highway, they're using these vehicles. 13 We were checking them for potential 14 explosives, and other uses that have been used 15 before. 16 And by doing that, we're uncovering a lot 17 of stolen equipment, stolen vehicles, doing 18 that at the interdiction stations, which is -- 19 is kind of a side bar to what -- what our 20 mission really is. 21 But it's -- it's actually an improvement of 22 what we had going. And so I wanted to make 23 sure that you knew that they -- 24 TREASURER GALLAGHER: Maybe we need to 25 assign some fraud investigators to sit there at ACCURATE STENOTYPE REPORTERS, INC. FLORIDA DEPARTMENT OF LAW ENFORCEMENT 63 2 GOVERNOR BUSH: Any other comments? 3 Thank you, Tim. 4 MR. MOORE: Thank you, sir. 5 COMMISSIONER CRIST: He's very proactive, 6 Governor, and compliment the good effort. 7 (The Florida Department of Law Enforcement 8 Agenda was concluded.) 9 * * * 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 64 2 Veterans' Affairs. 3 MS. CARROLL: Good morning, Governor, 4 Cabinet members. 5 I would like to recommend acceptance of the 6 minutes of the September 11, 2001, Cabinet 7 meeting. 8 TREASURER GALLAGHER: Motion on the 9 minutes. 10 COMMISSIONER CRIST: Second. 11 COMMISSIONER BRONSON: Second. 12 GOVERNOR BUSH: Moved and seconded. 13 Without objection, it's approved. 14 MS. CARROLL: Item Number 2, recommend 15 acceptance of the Veterans' Affairs quarterly 16 report for the first quarter of 2001-2002 17 fiscal year. 18 TREASURER GALLAGHER: Motion. 19 COMMISSIONER CRIST: Second. 20 GOVERNOR BUSH: Moved and seconded. 21 Without objection, it's -- 22 COMPTROLLER MILLIGAN: Governor -- 23 GOVERNOR BUSH: Yes. 24 COMPTROLLER MILLIGAN: -- a quick question. 25 Where do we stand on the -- I know we're -- ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 65 2 homes. 3 MS. CARROLL: No, we're not. 4 GOVERNOR BUSH: We're not yet. 5 MS. CARROLL: No. It's -- 6 GOVERNOR BUSH: Not yet. 7 We've not begun to fight. 8 MS. CARROLL: Yesterday -- 9 COMPTROLLER MILLIGAN: Okay. So we're 10 not -- 11 MS. CARROLL: -- the Senate removed it -- 12 COMPTROLLER MILLIGAN: Okay. 13 MS. CARROLL: -- from their recommendation 14 to have it -- 15 COMPTROLLER MILLIGAN: We need -- 16 MS. CARROLL: Absolutely. 17 COMPTROLLER MILLIGAN: Outstanding. 18 GOVERNOR BUSH: That would -- that -- that 19 was a -- given the leverage that we get from 20 Washington, and just -- 21 COMPTROLLER MILLIGAN: Well, it didn't make 22 a lot of sense. 23 GOVERNOR BUSH: And timing-wise, it just -- 24 you know, when we're at war, I just don't think 25 it makes much sense to defer a commitment ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 66 2 Anyway, I think that -- 3 COMPTROLLER MILLIGAN: Well, I -- 4 GOVERNOR BUSH: -- I think they've seen 5 the -- seen the -- 6 MS. CARROLL: They saw the writing on the 7 wall. 8 GOVERNOR BUSH: Now, we still may -- just 9 because the Senate -- you know, they just 10 started. But we're -- we're hopeful that we've 11 made some significant -- 12 COMPTROLLER MILLIGAN: We're making a 13 bloody fight out of it anyway. And -- 14 MS. CARROLL: And to add to that -- 15 GOVERNOR BUSH: Yeah. 16 MS. CARROLL: -- the dollars were -- were 17 approved last week by the VA to -- 18 COMPTROLLER MILLIGAN: Yeah. So the -- 19 MS. CARROLL: -- get the -- 20 COMPTROLLER MILLIGAN: -- Federal money 21 is -- 22 MS. CARROLL: -- the Federal money is 23 there. 24 COMPTROLLER MILLIGAN: That is great news. 25 MS. CARROLL: You're welcome. ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 67 2 the Cabinet with regards to our ceremony for 3 the World War II Memorial on December 7th, 4 which marks the 60th anniversary of the 5 attack -- attack on Pearl Harbor. 6 An exhibit will open at 10:00 o'clock at 7 the Museum of Florida's History, entitled 8 Florida Remembers World War II. 9 The Governor, Lieutenant Governor, Cabinet 10 members, agency heads, legislators, Florida 11 Veterans' Commission members, representatives 12 of veterans organizations, and other invited 13 guests will attend. 14 GOVERNOR BUSH: Secretary of State. 15 MS. CARROLL: Secretary of State will be 16 there. Of course. Her people have been very 17 instrumental in us getting this off the ground. 18 In addition to the exhibit opening, a 19 reception is being held at 11:00 o'clock in -- 20 in the courtyard between the old and the new 21 Capitol buildings. Sonny's Barbecue will be 22 providing the food and the beverage. And we 23 have coordinated this with Capitol Police. 24 We'll have a number of artifacts, we have a 25 live satellite feed to media outlets throughout ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 68 2 Tallahassee will be able to see this great 3 historic event. 4 And the planners -- the -- the people that 5 we plan on -- on attending is anywhere from 6 four to five hundred in attendance, not 7 counting the individuals working at the 8 Capitol. 9 During the war, 16 million Americans served 10 in uniform, of which 248,000 were Floridians. 11 Today, we have over 600,000 World War II 12 veterans who claim Florida as their residence. 13 In addition to the veterans, thousands more 14 contribute to the war efforts at home, building 15 roads, military installations, and businesses 16 have made Florida what it is today. 17 Stating that the time has come for 18 Floridians to remember and honor the sacrifices 19 made by state's veterans, Governor Jeb Bush 20 signed the law providing for the creation of 21 Florida's World War II Memorial. 22 And the veterans around this state 23 thank you, Governor. 24 All contributors will be -- will have their 25 names also placed in a Book of Remembrance, ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 69 2 And a copy of the time line of -- of events 3 for December 7th is provided to you for your 4 review. 5 I will entertain any questions at this 6 time. 7 TREASURER GALLAGHER: I just want to 8 mention that we notified everybody in our 9 department that if they would like to 10 contribute to the memorial, they can. They 11 could use a credit card, they can do it any way 12 they want. 13 And I encourage those to -- other people in 14 the department. 15 MS. CARROLL: I'm glad you brought that up. 16 Because it is tax deductible. And corporate 17 contributions, individual contributions, 18 Cabinet member contributions are welcome. 19 GOVERNOR BUSH: Very well. 20 You may want to -- there are a few people 21 here for the last item on the agenda that might 22 want to help, too, even. 23 MS. CARROLL: Absolutely. 24 SECRETARY HARRIS: I just wanted to say, 25 we're really pleased about your fund-raising ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 70 2 originally -- that you've raised a 135,000. I 3 know that you thought that might be longer in 4 coming. 5 We're excited because the Department's 6 actually fronted the money. We've never done 7 this before. We built it ourselves, so we're 8 looking -- 9 GOVERNOR BUSH: Have they -- 10 SECRETARY HARRIS: -- forward to that. 11 GOVERNOR BUSH: -- paid back? 12 SECRETARY HARRIS: Pardon me? 13 GOVERNOR BUSH: Have they paid you? 14 SECRETARY HARRIS: Not yet. But -- 15 MS. CARROLL: Check's in the mail. 16 SECRETARY HARRIS: -- but the thing is, 17 Governor, the -- what I wanted to point out, 18 we're doing it on a -- on a project-by-project 19 basis. We'll complete the work, and then they 20 pay us. And we don't go to the next project 21 until we have that funding. 22 But the great thing about this is the 23 second project in line is the Florida 24 World War II Heritage Trail Guide. 25 And it's a 40-page color guide of sites and ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF VETERANS' AFFAIRS 71 2 heritage tourism -- and especially the time 3 right now when everybody's looking for what 4 matters most -- and -- and visiting these 5 heritage type themes, they found that tourists 6 spend anywhere from 20 to 38 percent more at a 7 heritage type of a site. 8 So that's the value-added opportunity for 9 the State of Florida, and for tourism. 10 And so as soon as we get the funding 11 finished on the -- on this -- this exhibit, 12 we'll be able to get started right away on that 13 guide. And we hope that that will 14 additionally -- that will give additional help 15 in terms of the economic stimulus package. 16 GOVERNOR BUSH: Excellent. 17 MS. CARROLL: Thank you. 18 GOVERNOR BUSH: Thank you. 19 MS. CARROLL: You're welcome, sir. 20 (The Department of Veterans' Affairs Agenda 21 was concluded.) 22 * * * 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF REVENUE 72 2 Dr. Z. 3 TREASURER GALLAGHER: Motion on the 4 minutes. 5 COMMISSIONER CRIST: Second. 6 GOVERNOR BUSH: Moved and seconded. 7 Without objection, it's approved. 8 Item 2. 9 DR. ZINGALE: Only -- the second item is 10 the only one on the agenda. 11 The Department respectfully requests 12 permission to adopt a final order in the case 13 of Deerbrooke, Inc., Investments. This is one 14 of those cruises to nowhere. 15 We had a 2 million dollar assessment. We 16 had a hearing in front of an Administrative Law 17 Judge that recommended in favor of the 18 Department. 19 This order will allow us to start, subject 20 to further appeal, the enforcement efforts. 21 The overall cruises to nowhere program at 22 one time was 20 million. We've reduced that 23 down to about 17. 24 This is one of the remaining ones that are 25 in the appeal process. ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF REVENUE 73 2 TREASURER GALLAGHER: Motion on 2. 3 DR. ZINGALE: -- to adopt the final order. 4 ATTORNEY GENERAL BUTTERWORTH: Second. 5 GOVERNOR BUSH: Moved and seconded. 6 Without objection, it's approved. 7 DR. ZINGALE: Just would like to recognize 8 two staff from Attorney Butterworth -- 9 Attorney General Butterworth's staff: 10 Nick Bykowsky, John Arnette provided excellent 11 representation in -- in front of the hearings 12 presenting the Department's case. We really 13 appreciate their services. 14 Thank you. 15 GOVERNOR BUSH: Thank you. 16 (The Department of Revenue Agenda was 17 concluded.) 18 * * * 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 74 2 Education. 3 MR. PIERSON: Good morning. 4 Item 1 is identification of five priority 5 location schools for the 2001-2002 school year. 6 GOVERNOR BUSH: Is there a motion? 7 COMMISSIONER CRIST: Motion. 8 COMMISSIONER BRONSON: Second. 9 GOVERNOR BUSH: Moved and seconded. 10 Without objection, it's approved. 11 MR. PIERSON: Item 2 is identification of 12 the critical teacher shortage areas. There 13 were two new areas being added this year: 14 Reading and school psychology. 15 TREASURER GALLAGHER: Motion. 16 COMMISSIONER CRIST: Motion. 17 ATTORNEY GENERAL BUTTERWORTH: Second. 18 GOVERNOR BUSH: There's a motion and a 19 second. 20 Are there any -- do we have speakers? 21 MR. PIERSON: We have staff if you'd like 22 some background. 23 TREASURER GALLAGHER: Speakers on that, 24 too. 25 GOVERNOR BUSH: I -- I'd like to know how ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 75 2 relates to recruitment based on the 3 Legislature -- the Legislature's passage of the 4 law last year, and -- and how we're doing on 5 retention. 6 You know, there's the Department of 7 Education study that shows a hundred and 8 sixty -- a need for 160,000 teachers over a 9 ten-year period. 10 A fairly daunting number. 11 MR. PIERSON: This is Ron Burton from the 12 Department -- 13 MR. BURTON: Ron Burton from the Department 14 of Education Teacher Recruitment. 15 Last year, we did start the -- the 16 recruitment website, TeachInFlorida.com. 17 There's a big major initiative to assist in 18 recruitment of teachers. 19 The site has made a great wealth of 20 movement as far as activity. Right now, they 21 have -- in one year, we have 5,000 resumes 22 on-line. 23 It's taking 600,000 -- almost 600,000 hits 24 last month alone, over 6 million hits. So it's 25 adding to the capability of teachers -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 76 2 can post resumes, and search -- each can search 3 for the other: Teachers can search for 4 positions, districts can search for -- for 5 candidates. 6 So it's -- it's made a national visibility 7 to positions that the State has. 8 GOVERNOR BUSH: Did we find all the 9 teachers we needed for this year? 10 MR. BURTON: No, sir. We're still -- 11 there's still a shortage out there. We did do 12 a preliminary survey trying to find out what 13 positions were still available recently. 14 Just -- and there were still some 15 shortages. Less than last year though. From 16 feedback from the districts, they had less 17 positions left of -- openings at the beginning 18 of the school year. 19 GOVERNOR BUSH: When will you have that 20 information? 21 MR. BURTON: We're -- we've -- we've 22 collected it, and recently submitted it. 23 We've -- have it available. 24 What we've -- what -- 25 (Commissioner Bronson exited the room.) ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 77 2 recently, we've -- crunching the numbers. We 3 haven't got it all added up yet. 4 GOVERNOR BUSH: When you get it, I'd like 5 to see it. 6 MR. BURTON: Yes, sir. 7 COMMISSIONER CRIST: Be a nice Christmas 8 present for the Governor. 9 MR. BURTON: Yes, sir. 10 COMPTROLLER MILLIGAN: A really quick 11 question, Governor. 12 GOVERNOR BUSH: Yes. 13 COMPTROLLER MILLIGAN: I -- I know that at 14 the same time that we are identifying reading 15 appropriately, I think as a critical concern, 16 that -- I know that we deleted the reading 17 specialist positions. 18 What kind of a plan to -- to get at this 19 reading challenge? 20 GOVERNOR BUSH: What -- what reading -- 21 where were the reading specialists deleted? 22 COMPTROLLER MILLIGAN: As I understand it, 23 all of them have been deleted. 24 Patty? 25 MS. ROMIG: Most schools no longer hire ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 78 2 COMPTROLLER MILLIGAN: Yeah. Don't hire 3 them. 4 GOVERNOR BUSH: Do you want to answer that? 5 I can -- I can give it a wing. I can -- 6 MR. PIERSON: I -- actually, it's a -- it's 7 a local issue. I'm sure it's happening -- 8 COMPTROLLER MILLIGAN: Well, I'm not -- 9 MR. PIERSON: -- because of the funding 10 issues -- 11 COMPTROLLER MILLIGAN: -- it's not that I'm 12 not concerned about the -- the local issue or 13 the aspect. 14 But I -- I'd like to know, you know, this 15 is serious -- reading is probably our -- one of 16 our biggest shortfalls. 17 MR. PIERSON: Well, I don't think it's 18 something the Department would recommend -- 19 COMPTROLLER MILLIGAN: Is it -- 20 MR. PIERSON: -- to the school district. 21 COMPTROLLER MILLIGAN: And I'd like to know 22 what -- what the plan is. Is there a plan to 23 get at this reading challenge? 24 GOVERNOR BUSH: I've got one. 25 COMMISSIONER CRIST: The Governor has -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 79 2 COMPTROLLER MILLIGAN: Oh, it's not ready 3 to be unveiled? 4 GOVERNOR BUSH: Well, we're working on it. 5 I signed an -- 6 COMPTROLLER MILLIGAN: Well -- 7 GOVERNOR BUSH: -- executive order -- 8 COMPTROLLER MILLIGAN: -- that's -- that's 9 good enough. 10 GOVERNOR BUSH: -- the Department to 11 work -- they've done incredible work, 12 Commissioner, to develop strategies. 13 One of the things we did find, which is why 14 I believe that the -- the reading, teachers are 15 going to be critical is we stop teaching 16 reading after the fourth grade, in essence. 17 And so we have -- the biggest challenge we 18 face in the FCAT, you can see it very 19 dramatically, is the 8th and 10th grade reading 20 are -- doesn't state -- doesn't continue at a 21 pace where we would expect it. 22 Very few high schools have actually 23 specified reading as a part of their 24 curriculum, and there are very few reading 25 teachers at the high school, and even middle ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 80 2 So that's one of the -- one part of it 3 that -- that will require more teachers. 4 Now, as it relates to reading specialists, 5 I think -- 6 (Commissioner Bronson entered the room.) 7 COMPTROLLER MILLIGAN: You know, I don't 8 want to get hung up on a reading specialist. 9 I'd just like to see -- and apparently you 10 have underway an effort to put something in 11 place that does, in fact, get at the reading 12 challenges. 13 GOVERNOR BUSH: Absolutely. 14 Correct -- to me, I agree with you, it is 15 one of the greatest challenges we face. And -- 16 and it has to be started in early childhood 17 readiness programs, family literacy, and a 18 concentrated effort to -- to have a research 19 based reading plan that is -- that is statewide 20 and focused, but implemented at the local 21 level. 22 So -- I think by -- just the reading 23 specialist issue, I can -- I can tell you 24 what -- I don't know if there's anybody from 25 the school districts here. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 81 2 assessments of where to cut back, they will try 3 to protect, as we've asked them to do, 4 classroom instruction. I hope. 5 That's the reason why they would cut back 6 in other areas. 7 And then hopefully this -- the economy 8 grows again, and the revenues come back on 9 stream, that these types of programs will be 10 refunded. 11 I'm guessing that. Would -- 12 MR. PIERSON: Sounds good to me, sir. 13 MS. ELZIE: Well said. 14 GOVERNOR BUSH: Is that close enough? 15 Okay. 16 School psychologists, is that a big deal? 17 MR. PIERSON: Yes, sir. 18 GOVERNOR BUSH: We just don't have enough 19 of them? 20 MR. PIERSON: Yes, sir. 21 GOVERNOR BUSH: All right. 22 We have a -- a motion. 23 Have we already done the -- already moved 24 and seconded? 25 If we -- could I have the motion, please? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 82 2 GOVERNOR BUSH: Is there a second? 3 COMMISSIONER CRIST: Second. 4 GOVERNOR BUSH: Moved and seconded. 5 Without objection, the item is approved. 6 MR. PIERSON: Pat Tor-- 7 TREASURER GALLAGHER: Move to defer Items 3 8 and 4. 9 MR. PIERSON: Pat -- excuse -- excuse me. 10 Pat Tornillo has asked to speak on critical 11 teachers. 12 GOVERNOR BUSH: You're against the 13 deferral? 14 TREASURER GALLAGHER: No. He wants to 15 speak on -- 16 MR. PIERSON: No. He -- he's asked to 17 speak on the item you just passed. 18 GOVERNOR BUSH: Oh, that's what I asked. 19 Mr. Tornillo, how are you doing? 20 MR. TORNILLO: Governor, members of the 21 Cabinet, with everything that's on your plate 22 since September 11th, and it is considerable, I 23 just wanted to make sure that this very 24 significant report does not fall through the 25 cracks. Ironically that we are meeting in our ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 83 2 issued. And as -- and you're being asked to 3 work on it. 4 As you can see from the report, the only 5 thing that's happened since we were able to get 6 the report enacted by the 1983 Legislature is 7 that the list grows and grows and grows every 8 year. 9 If I remember correctly, that first year, 10 there were two positions that were listed as 11 critically shortage. 12 I think it is kind of ridiculous now to say 13 that -- even listing them. Practically every 14 category, and particularly math and science, 15 and the technical education areas are in 16 dire straits. 17 There were two things in the report that I 18 wanted to make sure that are not lost. First 19 is adding reading. And while it's commendable, 20 and should have happened probably the first 21 year that the report was ever issued in 1983, 22 it's not too late, because there's only one 23 thing that's really important, and that's to 24 teach a child to read. The teaching of it, and 25 the reading of it. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 84 2 probably in birth -- from birth to five years 3 old. That is the most critical time when we 4 get them in kindergarten. That doesn't mean 5 that we still don't need reading teachers, 6 because we do. 7 The second is the National Professional 8 Standards Board. During this time of budget 9 cuts -- first I want to commend you, Governor, 10 for recognizing Florida's National Professional 11 Standards Boards recently, one of the best in 12 the nation in terms of numbers, and growing 13 every year. 14 There is no other incentive that can be 15 provided to make sure that a quality teacher is 16 in the classroom than the National Professional 17 Standards Board. 18 So I would urge Commissioner Crist and you 19 and Secretary of Education Horne, whose 20 legislation established our National 21 Professional Standards Board, to make sure that 22 that is not cut, because the long-term impact 23 over the next six years as the baby boomers -- 24 boomers reach retirement, is going to be 25 incredible when you talk about -- if you read ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 85 2 things that are going to be happening. 3 DROP, the retirement; the baby boomers 4 leaving, all of that in terms of shortages -- 5 and there are two kinds of shortages. 6 One, there are shortages in numbers; the 7 second, as you've -- pick up in the report, are 8 shortages in quality. 9 That is, the number of teachers that 10 increasingly are hired, who are not qualified, 11 not certified to teach the subjects that 12 they're being put in to teach. 13 Because what the people of Florida need to 14 know, and particularly parents, is when you do 15 that, you hire a math teacher who's been 16 trained in social studies, and put them in a 17 math class, you, in effect, are putting a 18 teacher who is not qualified to teach math, to 19 teach math to children. 20 So the more significant feature of this 21 report is the quality feature. That's what the 22 National Professional Standards Boards is all 23 about, increasing the number of quality 24 teachers. 25 So I would simply urge you, because I ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 86 2 its future significance lost during this time 3 when we're all trying to find ways to balance 4 the budget and everything, because there are 5 priorities, and then there are priorities. 6 This is one of the top priorities. So 7 again, I would urge you, and Secretary of 8 Education Horne and Commissioner Crist to urge 9 the legislation, this is not one of the areas 10 to cut. 11 Thank you very much. 12 GOVERNOR BUSH: Thank you, Mr. Tornillo. 13 In fact, I think we're on the right path 14 for next fiscal year to be number one in the 15 country in terms -- 16 MR. TORNILLO: That is correct. 17 GOVERNOR BUSH: -- for more certified 18 teachers, which would be a -- a real 19 achievement. 20 I don't know what's happened in 21 North Carolina. Their budget cuts have been 22 even more severe than -- than ours -- many 23 states have, by the way. And they may have had 24 to cut theirs back. 25 But even without that, I think we're on a ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 87 2 MR. TORNILLO: We are. 3 GOVERNOR BUSH: -- to come first, which 4 is -- it's always nice to be number one in 5 something positive. 6 Thank you. 7 COMMISSIONER CRIST: Governor, I want to 8 thank Mr. Tornillo for coming and speaking 9 today. He is a passionate, tenacious advocate 10 for education, as are you, Governor. 11 And keep up the good fight. We -- we need 12 your help this week. 13 Thank you. 14 MR. PIERSON: We recommend deferral of 15 Items 3 and 4 to the January 29 -- 16 GOVERNOR BUSH: There's a motion -- 17 MR. PIERSON: -- 2002, agenda. 18 GOVERNOR BUSH: -- to defer Items 3 and 4. 19 COMMISSIONER BRONSON: Second. 20 ATTORNEY GENERAL BUTTERWORTH: Second. 21 GOVERNOR BUSH: And second. 22 Without objection, the items are deferred. 23 Thank you. 24 Katherine, did you -- were you going to say 25 something? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 88 2 SECRETARY HARRIS: No. 3 (The State Board of Education Agenda was 4 concluded.) 5 * * * 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 89 2 Yes. We have a -- we have an honored guest 3 with us, from my hometown at least, and 4 Commissioner Gallagher's hometown, newly 5 elected Mayor of the City of Miami, 6 Mayor Diaz. 7 Welcome. It is a joy to have you here. 8 Congratulations on your victory. 9 (Applause.) 10 GOVERNOR BUSH: I think we're going to see 11 you down in Miami at some point next year. 12 We'll have our Cabinet meeting down there. 13 And prior to that, God willing, we'll also 14 have some kind of ceremony where we, at some 15 point, relatively soon I think we're going to 16 have the oversight function -- 17 TREASURER GALLAGHER: Unfunctioning. 18 GOVERNOR BUSH: -- unfunctioning, which 19 will be a great -- great tribute to -- to the 20 City's hard work to get its financial house in 21 order. And the future looks bright for the 22 City under your leadership. 23 So we welcome you here. 24 MR. DIAZ: Thank you, sir. 25 GOVERNOR BUSH: Administration Commission. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 90 2 Cabinet members. 3 The first item is recommend approval of the 4 minutes of the August 14th, 2001, meeting. 5 TREASURER GALLAGHER: Motion on minutes. 6 COMMISSIONER CRIST: Second. 7 GOVERNOR BUSH: Moved and seconded. 8 Without objection, it's approved. 9 MS. TINKER: The second item, staff 10 recommends approval of proposed personnel rules 11 to implement the Service First legislation. 12 Secretary Cynth-- Cynthia Henderson from 13 the Department of Management Services is here 14 this morning to present the rules, and respond 15 to any questions you might have. 16 Secretary? 17 GOVERNOR BUSH: Do we have additional 18 speakers as well? 19 MS. TINKER: I think we have one -- one 20 speaker. 21 MS. HENDERSON: Hi. It's a pleasure to be 22 here. 23 I guess it's still good morning, everyone. 24 We are pleased to bring before you some 25 significant proposed changes to the rules. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 91 2 simplified. We go from a huge book down to 3 probably about a quarter of the rules. 4 And one of our primary focuses was really 5 to delegate to the agencies more control over 6 their management of their personnel within 7 their agencies, and have the State get out of 8 the micromanagement, the Department of 9 Management Services in doing that. 10 As you may recall, last session, 11 Senate Bill 466 was signed into law, and it 12 implemented the Service First Rule. 13 In that bill, it repeated -- it has a 14 provision that repeals all rules dealing with 15 Chapter 110 on January 1st, 2002. 16 So we are here before you in a timely 17 manner in order to get new rules in place prior 18 to the old rules being repealed. 19 This was a very, very critical portion of 20 that bill, for a couple of reasons. One, the 21 current rules are inconsistent, and sometimes 22 it can be difficult to go through rule repeals 23 on an otherwise basis with a lot of objections. 24 But more importantly, when we looked at 25 doing service first, we talked with a number of ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 92 2 people. And they said that changes that have 3 been made in the career service laws before 4 have basically become ineffective because of 5 the rules that were in place, that had been 6 built over the years. 7 So what we hope to do is to come up with a 8 fresh new approach to our personnel process. 9 May I take a moment and thank my staff? 10 I have the greatest staff in the world, as 11 I always tell the Governor. Fred Springer, 12 Fran Brooks, Chris Kimmons, and 13 Cindi Marsiglio, they are the best. 14 They have spent an incredible amount of 15 time, as has your personnel officers and your 16 Cabinet Aides. We have spent over seven months 17 developing this rule. 18 We had the steering committee and work 19 groups established for five different 20 components of the Service First bill that have 21 been working on this. 22 One of the ones was specifically for the 23 rules. We have a Career Service Advisory 24 Group, two members of which were appointed by 25 the Governor, and one by the Senate President, ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 93 2 that have been sent the rules, and provided us 3 some wonderful comments. 4 We have significant private sector 5 involvement. We have over 30 companies listed 6 here, in addition to the Blue Ridge Conference, 7 which are the top personnel directors from the 8 southeast that we have met with, the 9 Council of 100. We have one speaker from there 10 today, Martin Gutfreund, who has been an 11 incredible help to giving us good direction, 12 good guidance, and good focus on the rules. 13 We have had weekly personnel meetings since 14 the summer with all the personnel officers. In 15 addition, we've had over 26 hours of workshops 16 and meetings on the different rules. 17 We have an e-mail site that has been up and 18 running giving us comments. 19 Thanks to Fran Brooks for manning all of 20 those. We have myflorida.com links that have 21 given the information where we have posted each 22 and every rule change that's come up. And we 23 have noticed them continually in the Florida 24 Administrative Weekly as we've gotten good, 25 constructive input from all the different ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 94 2 It's been quite an evolving process, with a 3 lot of input. And we really, really appreciate 4 every -- everybody's help, good direction and 5 guidance. 6 I'm going to quickly go through each of the 7 rules, if that's okay. 8 The first one is definitions. We have one 9 rule with necessary definitions, just a handful 10 of them, versus having definitions throughout 11 all the different rules where you'd have to 12 flip back and forth. 13 We have simplified them, narrowed them. 14 In fact, we have deleted things. The one 15 example I think is funny was where we used to 16 delete add -- we used to define add and delete. 17 And so all of those different kind of 18 definitions are gone. 19 We have -- the next rule is the personnel 20 programs and records, which we believe will 21 provide no disruption to the current agency 22 practices. 23 We have added in there the anticipated 24 transition to electronic records, and to the 25 human resource outsourcing. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 95 2 of a word some may not be familiar with. It's 3 called broadbanding. And broadbanding is 4 basically classification and compensation 5 system. It provides much flexibility for pay 6 for performance. 7 The -- broadbanding allows you, rather than 8 promote people into managerial positions, which 9 otherwise weren't maybe a good manager, just in 10 order to give additional compensation, 11 broadbanding allows them to stay in that 12 position, but go through higher levels for pay. 13 So we have found that very desirous in, 14 for example, the nursing careers that are out 15 there. 16 We are going to go from over 3300 different 17 classes, to less than 300. I'll give you a 18 good example. 19 We have 40 classes of lawyers, judges, and 20 legal assistants that account for 2,000 21 positions. We are going to go down to two 22 family -- one family called legal, with two 23 occupations: Lawyers and judges as one, and 24 legal support as the other. 25 So that gives you an example of going down ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 96 2 areas. 3 So we think that will be helpful for 4 personnel officers. It gets a lot -- rid of a 5 lot of the paperwork that you just have to keep 6 creating for moving people to give them 7 additional responsibilities. 8 GOVERNOR BUSH: -- for employees, too. 9 They -- they can stay in the jobs and be 10 paid -- 11 Salud. 12 -- they can stay in the jobs, and be paid 13 for their -- for their work, rather than feel 14 compelled to be promoted to get higher wages 15 into -- into something they may not want to do, 16 or they may not be particularly well qualified 17 to do. 18 ATTORNEY GENERAL BUTTERWORTH: Is that true 19 with lawyers, because they -- 20 GOVERNOR BUSH: Well, the lawyers and 21 judges. 22 ATTORNEY GENERAL BUTTERWORTH: Well, not 23 a -- a lawyer sometimes becomes a manager 24 you -- you have a defense litigator, the only 25 way to increase the salary is to become a ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 97 2 So you end up with a lousy manager and 3 another lousy litigant -- 4 GOVERNOR BUSH: A judge -- 5 ATTORNEY GENERAL BUTTERWORTH: Or a judge. 6 Where it really -- 7 But that's excellent, Cynthia. I think 8 that's going to help all the -- help to manage 9 lawyers, and help us a lot. 10 MS. HENDERSON: Thank you. We're excited 11 about it. 12 The next one is compensation of benefits. 13 It increases the agency's ability to attract 14 and retain more talented employees. 15 The Department of Management Services gets 16 out of the micromanaging of the different 17 salaries. And it also allows the agencies to 18 work with their employees if they -- if the 19 employees decide they want a reduction in 20 salary in lieu of a work force reduction, it 21 does give the agencies that flexibility. 22 The next ones are appointments and status. 23 And this defers entirely to the statute on 24 recruitment and selection of employees. And 25 the statute does significantly streamline the ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 98 2 It implements legislative changes to 3 eliminate class based probation, and it 4 requires new employees to serve probation. 5 It -- the statute now provides for a 6 one-year probationary period for all employees. 7 It implements changes to the work force 8 reduction proc-- process, which are the 9 transition plans that all of your personnel 10 officers have worked so well with us on. 11 And if I could, for a minute, just plug the 12 Governor on how he has given so much guidance 13 to this process. We have had, since we started 14 the transition plans, with the legislative 15 position cuts, over 4,000 positions cut. 16 In Leon County, we now just have two people 17 that are still needing assistance for 18 placement. And with -- I think that's shown in 19 the example of the work -- unemployment rates 20 in Leon County being one of the top three 21 lowest in the state of Florida. 22 And I think that has been done in -- 23 because of the -- Governorships -- Governor's 24 leadership, and because of all of your agencies 25 working so hard on making sure that people are ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 99 2 job. So we think that has been great. 3 The policy issue in this particular rule 4 dealt with the involuntary transfer where 5 employees are involuntarily moved from one 6 agency to another. 7 And the rule does keep their -- they have 8 probationary status unless the Legislature 9 decides otherwise for involuntary transfer. So 10 it does address that issue, based on the 11 language that we received from the Secretary of 12 State. 13 SECRETARY HARRIS: Thank you. 14 I did have one question on this. But first 15 of all, I want to commend you on what must have 16 been an extraordinary effort. 17 You've done an excellent job, and I know 18 you -- I know that Council of 100 and others 19 have really given as much their support. 20 And -- and the Governor as well. 21 So I really think this is something 22 important, and I really commend you for really 23 digging into the -- the tough issue. 24 I have one -- one question on that. 25 And as we're going to broadbanding and -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 100 2 not defined -- defined yet. 3 So I'm concerned whenever you're saying 4 that upon original appointment, promotion, or 5 demotion -- 6 MS. HENDERSON: Uh-hum. 7 SECRETARY HARRIS: -- that it's a different 8 occupational level whenever you're trying to 9 talk about probationer status, occupational 10 level is -- is not defined yet. It's just a 11 matter of making sure that you do that by rule. 12 And I know you can't change it, because you 13 have to notice it. But I have just three 14 technical kind of concerns about these rules. 15 Will you be able to address that, to 16 actually define occupational level? 17 MS. HENDERSON: Yes. We feel like we can 18 do it just based on interpretations. We've 19 talked with a number of the personnel offices, 20 and really classification level into the new 21 broadbanding is the same as the classification 22 today. 23 So we believe the interpretation could be 24 done today, and have talked with a number of 25 personnel officers to make sure they were ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 101 2 for today. 3 Because everybody understands where we are 4 with the broadbanding. We're hoping not to 5 have to wait till July to do that. 6 But if there's questions in the meantime, 7 we do feel comfortable giving guidance on that 8 particular issue. 9 And, of course, if there is a particular 10 situation that comes up, we can always come 11 back to the Board on that particular issue. 12 But we have gone round and round, and it's 13 the question of, do you just keep amending the 14 rules as you go on to do all situations, or do 15 we do something that is common practice 16 interpretive today, as, you know, there's just 17 a change. It's occupational level versus 18 classifications. 19 SECRETARY HARRIS: I'm just concerned that 20 it was so ambiguous, if someone was moving -- 21 moving from, for example, clerk to 22 administrative assistance, would you be able 23 to -- to justify that -- a challenge to that, 24 because it's kind of ambiguous, since you have 25 not defined occupational level. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 102 2 interpretation, if you're given more additional 3 responsibilities, more duties, all of those 4 sorts of things, that you would be coming to 5 the probationary status. 6 And -- so we feel -- 7 SECRETARY HARRIS: Actually -- 8 MS. HENDERSON: -- comfortable. 9 SECRETARY HARRIS: -- as you look to make 10 amendments, maybe that's just one thing you 11 could look to -- 12 MS. HENDERSON: Absolutely. 13 SECRETARY HARRIS: -- try to define. 14 MS. HENDERSON: Absolutely. 15 GOVERNOR BUSH: Commissioner Bronson. 16 COMMISSIONER BRONSON: Governor, members, 17 one of the things that I had talked to the 18 Secretary about yesterday is, when it comes to 19 the performance standards and -- and especially 20 the disciplinary standards where the term is 21 used there, coming up with something that's -- 22 that's used more in business, which is the 23 minimum standard of compliance for that 24 particular position, as compared to if someone 25 is less than the minimum, we have to be able to ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 103 2 standard, and something less than that that -- 3 that could be substantiated. 4 Because, otherwise there is no 5 substantiation level once you get to that 6 lowest level. 7 And I -- I think in fairness -- in fairness 8 to employees, and in fairness to the different 9 agencies that are going to have to handle these 10 as time goes on, we need to -- we may need a 11 little broader standard there that would be 12 acceptable by everybody concerned as to what is 13 the very minimum, to comply with doing that 14 particular job, and what is less than minimum. 15 Of course, whatever's greater than minimum 16 can be dealt with. 17 But the question is: What is the very 18 minimum, and what is less than minimum to -- to 19 comply with doing that particular job? 20 And that's -- that's -- that was one of the 21 issues I brought up yesterday is how do we term 22 that -- that particular -- the very minimum and 23 what is less than minimum? 24 GOVERNOR BUSH: Should we -- is that -- 25 that's later -- that's another rule, isn't it? ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 104 2 of what we're going to be able to do under our 3 new systems, and the new career pathing that 4 we're talking about coming up with. 5 The steering committee has worked on a 6 format for the way to gear employee 7 expectations. One of the things that we're 8 lacking right now -- and we talked with -- the 9 Legislature told -- gave us much feedback in 10 discussing Service First is the fact that 11 employees aren't really sure of what their 12 expectations -- the expectations are placed 13 upon them. 14 What we have in this new forum is very 15 clear performance measures that must be done by 16 the employees, and they are negotiated, 17 understood, and discussed with your supervisor 18 as you do your evaluations. 19 So today they have very generic, you know, 20 long forms, not very useful from the 21 7,000 e-mails we got during Service First, 22 their biggest concern was the evaluations. 23 Under our new format, which was developed 24 by Pam Pfiefer in the Office of Policy and 25 Budget, it's a great format, which will be ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 105 2 expectations of performance that are negotiated 3 and signed off between the employee and their 4 supervisor. 5 It ties it into bonuses, they know if I -- 6 if I exceed and I go well above, how far do I 7 have to go above in order to get a bonus. 8 It makes it a much better way to kind of 9 have a buy-in from an employee -- employee 10 retention, clear expectations from everyone. 11 SECRETARY HARRIS: Can I ask you a question 12 on that -- 13 MS. HENDERSON: Sure. 14 SECRETARY HARRIS: -- it was -- I was going 15 to hold the question till later. But it 16 directly relates to something you just said. 17 In terms of the career pathing and the -- 18 the bonuses that -- that they can achieve -- 19 MS. HENDERSON: Uh-hum. 20 SECRETARY HARRIS: -- I guess one of my 21 concerns is, when you're looking at career 22 pathing, and you're talking about the -- the 23 lump sum in terms of performance evaluations, 24 when you haven't clearly defined what the 25 guidelines are on career pathing, and you're ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 106 2 performance guidelines, I guess my concern is 3 your -- OPB is going to be in charge of 4 evaluating the career -- the agency's career 5 pathing system; is that correct? 6 MS. HENDERSON: They have a monitoring 7 system to look at the pathing system that's 8 created, which they actually give the guidance. 9 The rule -- the rule specifically -- 10 specifically provides -- I could read it for 11 you, or you can -- I can just show you where it 12 is -- what the system provides. It has to have 13 an evaluation of employees, it has to have the 14 career pathing -- 15 SECRETARY HARRIS: The career assessment 16 and -- 17 MS. HENDERSON: Right. 18 With -- 19 SECRETARY HARRIS: -- and actual career 20 development. 21 MS. HENDERSON: The mission -- it has the 22 mission of the work unit, and the agency. So 23 it has to clearly just show what those 24 connections are. 25 And the legislative staff have asked that ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 107 2 that are adopted in their budgets, which is why 3 they want OPB involved, because they want it 4 all tied in to the performance expectations and 5 all of those sorts of things. 6 And those plans contain the specific 7 expectations and standards based on the duty. 8 And it goes through and gives those examples. 9 It has to show the training opportunities. 10 And then that system is given to OPB, and 11 then OPB basically approves the system, and 12 then they just monitor it after that point. 13 SECRETARY HARRIS: OPB does-- the staff at 14 OPB's principally concerned about budget. And 15 the lump sum, you know, you directly relate it 16 to performance evaluations. 17 I guess my concern is with the -- when it's 18 moving to OPB -- OPB rather than DMS -- 19 MS. HENDERSON: Uh-hum. 20 SECRETARY HARRIS: -- is that they'll have 21 the staff that will be able to properly 22 evaluate the kind of career development and 23 career assessment that they're going to have to 24 judge as well. 25 It seems like that's really mixing ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 108 2 staff and the -- the skill set to be able to do 3 that as well? Because they haven't had to do 4 those career types of things, it's been mainly 5 budgets. 6 MS. HENDERSON: Correct. 7 And we think that the budget and the career 8 pathing are inex-- inextricably tied together. 9 Because when you look at your budgeting for the 10 year, the Legislature's very concerned with how 11 much are you spending on training, what kind of 12 training -- 13 SECRETARY HARRIS: So you -- 14 MS. HENDERSON: -- are we doing -- 15 SECRETARY HARRIS: -- guys won't have 16 that -- 17 MS. HENDERSON: -- apprec-- 18 SECRETARY HARRIS: -- evaluation rule 19 anymore? It'll just be -- 20 MS. HENDERSON: No. 21 SECRETARY HARRIS: -- OPB? 22 MS. HENDERSON: We -- we don't have the 23 approval role. 24 But what we do serve is the staff, so to 25 speak, for OPB for gathering all the training ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 109 2 again that each agency will be receiving upon 3 approval of the rule, which sets forth various 4 parts to the career pathing. One are the 5 expectations of the employee, one are the 6 training needs, one are the different 7 performance objectives. 8 There's a -- different forms that are 9 linked together. They're submitted through a 10 process for DMS for kind of gathering. We put 11 it all together -- 12 SECRETARY HARRIS: Could you answer my -- 13 MS. HENDERSON: -- with the -- 14 SECRETARY HARRIS: -- question? 15 If OPB has the -- the staff -- I mean, in 16 the past, they've had the -- the budget staff. 17 Are they going to have the additional staff to 18 be able to -- to just -- to judge the career 19 assessments and -- and career developments? 20 MS. HENDERSON: They do. What -- actually 21 they use us as their staff. 22 SECRETARY HARRIS: Okay. That's -- 23 MS. HENDERSON: We serve -- 24 SECRETARY HARRIS: -- what -- 25 MS. HENDERSON: -- as their staff. Yes. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 110 2 MS. HENDERSON: I'm sorry. We serve as 3 their staff. 4 GOVERNOR BUSH: Yeah. 5 I think the intent here is just to make 6 sure that -- 7 MS. HENDERSON: There's -- 8 GOVERNOR BUSH: -- that there's -- 9 MS. HENDERSON: -- that there's -- 10 SECRETARY HARRIS: Communication. 11 GOVERNOR BUSH: -- between -- 12 MS. HENDERSON: -- one approval. 13 GOVERNOR BUSH: -- performance, how you 14 assess it, and the budget. 15 Because a lot of this now, we're moving to 16 a performance oriented system where some of the 17 monies will be given out in the form of 18 bonuses. 19 I guess we don't want to spend more money 20 than -- than we have -- 21 SECRETARY HARRIS: That was my concern. 22 If it's just going to be strictly 23 budgetary, but then if the staff, indeed, was 24 there, they would be able to -- 25 GOVERNOR BUSH: Yeah. We're going to -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 111 2 GOVERNOR BUSH: -- agree on the personnel 3 office, and the OPB that I'm aware of. 4 COMPTROLLER MILLIGAN: Let -- 5 MS. HENDERSON: No. 6 COMPTROLLER MILLIGAN: -- let me -- if I 7 may, too, because I -- I share the -- the 8 concern. 9 First I -- I would like to compliment the 10 Secretary and her staff, and all of the 11 personnel staff for working so hard on trying 12 to resolve this -- this challenge. And it has 13 been a challenge, and they've done a very good 14 job. 15 But this one issue of career pathing has 16 kind of blossomed here in the past week or so, 17 and has changed its character quite a bit, as I 18 read the -- that particular Chapter 60L-35. 19 And I -- I think, frankly, it needs some 20 more staff work. I think there are some things 21 in there that are not clear. 22 What is the authority of OPB, for example? 23 Are they going to tell me how I am to counsel 24 my employees on their career path? That's the 25 implication. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 112 2 And I -- I guess my question first is: Can 3 we approve this rule and defer a portion of the 4 rule to the next Cabinet meeting, which I think 5 is the 18th of December, and use that period of 6 time to try to -- to square away what I think 7 is a -- is an area that needs concern and -- 8 and that's in the career path. 9 GOVERNOR BUSH: I don't know what the 10 legal -- do we have to notice -- isn't there a 11 rule notice process? 12 MS. HENDERSON: There -- rule notice 13 process. It's not a -- 14 COMPTROLLER MILLIGAN: We've gone 15 through -- 16 MS. HENDERSON: -- legal problem. 17 COMPTROLLER MILLIGAN: -- the process. 18 MS. HENDERSON: There's not a legal 19 problem. 20 COMPTROLLER MILLIGAN: There is -- there is 21 a challenge I think with the rule noticing to 22 deal with any changes to the career pathing 23 chapter that would have to be noticed, I 24 presume. 25 GOVERNOR BUSH: But you don't have to go ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 113 2 through -- 3 COMPTROLLER MILLIGAN: For that one 4 chapter, yeah. 5 MS. HENDERSON: We'll have to publish it 6 and then give a 21-day notice for opportunity 7 for input and comment, which we've had to do 8 with each of the changes. 9 COMPTROLLER MILLIGAN: Sure. 10 MS. HENDERSON: What we went ahead and did 11 is schedule the workshop in -- 12 COMPTROLLER MILLIGAN: So we could -- 13 MS. HENDERSON: -- anticipation -- 14 COMPTROLLER MILLIGAN: -- in fact -- we 15 could, in fact, do it for that -- 16 MS. HENDERSON: Right. 17 COMPTROLLER MILLIGAN: -- particular 18 chapter, and meet the criteria. 19 MS. HENDERSON: With all due respect, we 20 have spent a ton of time working with staff, 21 and we have gone -- 22 COMPTROLLER MILLIGAN: Well, with all -- 23 MS. HENDERSON: -- a long way -- 24 COMPTROLLER MILLIGAN: -- due respect -- 25 with all due respect, I -- I have read this ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 114 2 I do not believe that I am in a position to say 3 I agree with the integrated processes for 4 career assessment performance appraisal and 5 career development, and identified critical or 6 high priority, and then submit them for 7 approval to OPB. 8 That is not what I think is appropriate, 9 and I think acceptable. 10 And I think it needs to be fixed. 11 And I will not agree with the rule until 12 that is addressed, and taken care of properly. 13 Now, we can do it in toto, or we can take a 14 little piece of that chapter and pull it out 15 and address it. 16 ATTORNEY GENERAL BUTTERWORTH: Governor, if 17 we took out -- out those two words, for 18 approval, would that work? 19 COMPTROLLER MILLIGAN: Well, I -- I'd have 20 less -- I'd have less trouble with it -- 21 submitting it to the Governor for approval. I 22 don't have any problem with that. 23 GOVERNOR BUSH: So what's the difference? 24 TREASURER GALLAGHER: It's the same place. 25 GOVERNOR BUSH: OPB. Isn't that -- isn't ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 115 2 TREASURER GALLAGHER: It's the Governor's 3 office. 4 MS. HENDERSON: I can make that change. 5 COMPTROLLER MILLIGAN: Well, I would prefer 6 to submit it to the Governor. 7 MS. HENDERSON: Okay. 8 GOVERNOR BUSH: That's fine. 9 TREASURER GALLAGHER: Making that change is 10 easy. 11 ATTORNEY GENERAL BUTTERWORTH: Well, but -- 12 TREASURER GALLAGHER: It may not be in the 13 statute, and the -- you have a statutory 14 problem because -- 15 COMPTROLLER MILLIGAN: Yes. 16 TREASURER GALLAGHER: -- in the statute, it 17 says it goes to OPB. So I mean -- 18 COMPTROLLER MILLIGAN: It goes -- 19 TREASURER GALLAGHER: -- I guess to his 20 office. 21 COMPTROLLER MILLIGAN: -- it goes to OPB 22 for the -- for the performance -- 23 MS. HENDERSON: Bonuses. Bonuses. 24 COMPTROLLER MILLIGAN: Bonuses. 25 TREASURER GALLAGHER: Right. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 116 2 have any problem with that. 3 I'm talking about the -- the criteria that 4 I will use for counseling my people for their 5 growth and their professional development. 6 I'm talking about the training programs 7 that I put in place for their development 8 and -- and their future professional 9 experiences. This -- this -- this career 10 pathing started out as a bonus, and it's gone 11 beyond that. 12 GOVERNOR BUSH: How does the -- what does 13 the statute say as it relates to the role of 14 OPB? Is it focused on the bonus exclusively, 15 or -- 16 MS. HENDERSON: It has -- it has part of it 17 going to OPB for approval of the -- approval of 18 the bonuses, and that's for the lump sum 19 bonus -- 20 GOVERNOR BUSH: Right. 21 MS. HENDERSON: -- and it's for the -- 22 making sure more -- no more than 35 percent get 23 bonuses -- 24 GOVERNOR BUSH: Right. 25 MS. HENDERSON: -- making sure you have ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 117 2 GOVERNOR BUSH: What about the -- 3 MS. HENDERSON: The other part -- the 4 training part goes to for DMS for review and 5 approval. 6 And what we were trying to do is to 7 consolidate it into one, since we believe that 8 they are all tied together, and, in fact, the 9 evaluation forms will be all tied together. 10 So we will take your guidance on this 11 issue. It's -- we were just trying to make it 12 simp-- more simple for agencies to only go to 13 one place, versus two. 14 But we'll be glad to -- I think with the 15 Governor, you accomplish the same thing. 16 TREASURER GALLAGHER: My guess is that 17 you'd have the same complaint sending it to 18 DMS, as you would to -- 19 COMPTROLLER MILLIGAN: No. 20 TREASURER GALLAGHER: -- OPB. 21 COMPTROLLER MILLIGAN: There's quite a bit 22 of different relationship if you look at the 23 way we handle training today and professional 24 development and so forth. 25 I'm quite happy to take -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 118 2 COMPTROLLER MILLIGAN: -- whatever 3 guidelines are provided. 4 But I am the leader of an organization, and 5 I expect the leadership in organizations to 6 carry out their directions, and not to be 7 micromanaged. 8 We're building more bureaucracy. We're 9 trying to get away from it. I applaud -- 10 applaud what we're trying to do to get away 11 from it. And then we turn around and start 12 building again. 13 GOVERNOR BUSH: That's not the intent. 14 So -- 15 COMPTROLLER MILLIGAN: Well, I know it's 16 not the intent. 17 GOVERNOR BUSH: You're -- you're -- it's -- 18 it's the adversarial relationship OPB has with 19 all agencies, given the fact that -- 20 COMPTROLLER MILLIGAN: No -- 21 GOVERNOR BUSH: -- they're the keeper of 22 the budget I guess that creates -- 23 COMPTROLLER MILLIGAN: No -- 24 GOVERNOR BUSH: -- this problem. 25 COMPTROLLER MILLIGAN: -- on the contrary. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 119 2 with OPB. I just -- 3 GOVERNOR BUSH: It's a -- certainly. 4 But I mean it's a natural adversarial 5 relationship, and -- and your concern would be 6 that your philosophy requires investment -- 7 COMPTROLLER MILLIGAN: Well, you know -- 8 GOVERNOR BUSH: -- of resources -- 9 COMPTROLLER MILLIGAN: -- in -- in many 10 respects, it goes much deeper than this. 11 MS. HENDERSON: That's what I was -- 12 COMPTROLLER MILLIGAN: You know, we -- we 13 used to have a -- a fairly decent, although 14 small, awards program. And as leaders, you had 15 a chance to recognize somebody who -- who did a 16 good job, and you can give them a couple 17 hundred bucks, and -- and say thank you very 18 much, and -- and they appreciated it. 19 And we had an opportunity to use that half 20 of 1 percent of our salaries to do a little bit 21 of bonus work. And that -- those are all gone. 22 And now we're left with a -- with a -- with 23 a bonus program that at the end of the year, 24 you submit it to somebody else who says, yeah, 25 okay, we'll approve it or not approve it. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 120 2 flexibility to recognize people anymore. And 3 so that's -- 4 MS. HENDERSON: We can do without that -- 5 COMPTROLLER MILLIGAN: -- that's part -- 6 MS. HENDERSON: -- paragraph 4. 7 COMPTROLLER MILLIGAN: -- of my concern 8 here. 9 GOVERNOR BUSH: That -- that I would -- 10 they're -- we're moving exactly towards being 11 able to allow you to reward more people. 12 In fact, the only thing that OPB would be 13 concerned about again is making sure that 14 X percent of the people are -- are being 15 bonused -- or no more than X percent -- I guess 16 35. 17 Is that right? 18 MS. HENDERSON: Thirty-five percent. 19 GOVERNOR BUSH: And -- and -- because we 20 have a budget issue, because we're going to -- 21 at least during my tenure as Governor -- we're 22 going to submit to the Legislature budgets that 23 include significant sums of money to reward 24 employees. Much more than -- 25 COMPTROLLER MILLIGAN: Well -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 121 2 COMPTROLLER MILLIGAN: Well, I certainly 3 have been trying to do it for years, and 4 haven't gotten there yet. 5 GOVERNOR BUSH: We just did it in this 6 budget, and we're going to keep doing it. 7 COMPTROLLER MILLIGAN: I have less 8 flexibility today than I had last year. I have 9 less flexibility to go and recognize employees 10 today than I did last year. 11 GOVERNOR BUSH: You have more money to do 12 it though. 13 COMPTROLLER MILLIGAN: I've got more money 14 to do it, but -- maybe if -- if OPB approves 15 it. 16 I -- I -- again, I don't want to get off 17 the -- 18 GOVERNOR BUSH: I'm confident they'll 19 approve. 20 COMPTROLLER MILLIGAN: -- on a different 21 tangent here. 22 Just let me say that this career pathing 23 was put together in the last hour -- the 24 eleventh hour. I think it has some weaknesses, 25 and I think it -- they need to be addressed. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 122 2 any suggestions on how we can do this to comply 3 with the law? 4 MS. HENDERSON: I do, sir. 5 To del-- just delete paragraph -- 6 subparagraph (4), that he's talking about. 7 60L-35.001(4), we'll just take that approval 8 and seek guidance through the statute. And 9 that will clarify his. 10 And then we can continue to work on maybe 11 putting in some additional language that makes 12 everybody feel a little bit more comfortable, 13 and we'll come back to you on that issue as we 14 have further changes. 15 SECRETARY HARRIS: The statute just says 16 OPB, doesn't it? 17 MS. HENDERSON: For the bonus money. 18 SECRETARY HARRIS: For the bonuses. 19 COMPTROLLER MILLIGAN: For the bonuses. 20 MS. HENDERSON: Yes, ma'am. 21 But it addresses his issue with the 22 career pathing, and we can continue to work on 23 that. 24 COMPTROLLER MILLIGAN: I -- I guess, 25 you know, you can always make a quick fix here, ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 123 2 But that isn't the way we ought to be doing 3 business. There are the concerns about this. 4 I heard the Secretary of State express them, 5 I think others may have concerns. 6 I -- I think we ought to do it not ad hoc 7 as we threw this thing together last week, 8 and -- and try to fix it here on the fly. 9 Let's try to do it right. 10 TREASURER GALLAGHER: Well, one of the 11 problems I see here is that most agencies are 12 going to put together a career pathing system 13 that's going to make some sense, and -- 14 COMPTROLLER MILLIGAN: I -- I hope that 15 most agencies already have one. 16 TREASURER GALLAGHER: But there -- but 17 there's always those few agencies that don't, 18 for some reason or another. Just sort of 19 happens. 20 And I guess the -- there needs to be 21 somebody that's saying, hey, get moving and get 22 a -- get a plan working. 23 And so that's the only reason I think 24 somebody ought to be able to do that. 25 COMPTROLLER MILLIGAN: And -- and again, ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 124 2 But let's have this particular paragraph work, 3 and work properly, staff -- and staff properly 4 can resolve these issues. 5 GOVERNOR BUSH: Cynthia, if we -- if we 6 deferred this item, and given the -- the 7 hearing -- the notice of provisions that are 8 required in rulemaking, what does that do for 9 the whole initiative going -- 10 MS. HENDERSON: Well, it depends -- 11 GOVERNOR BUSH: -- forward? 12 MS. HENDERSON: -- on how we take it. 13 We can take a suggested comment right now, 14 and delete the paragraph (4) -- 15 GOVERNOR BUSH: Right. 16 MS. HENDERSON: -- that he addressed, and 17 move forward with it. We're still going to 18 have to publish these -- the modifications made 19 today. They'll be put in tomorrow -- 20 GOVERNOR BUSH: If we bifurcate this and 21 separate -- 22 MS. HENDERSON: Yes. 23 GOVERNOR BUSH: -- the -- 24 MS. HENDERSON: Yes, you -- yes, you, sir. 25 GOVERNOR BUSH: -- General Milligan's ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 125 2 MS. HENDERSON: Which at the end, we can 3 do -- offer that as a motion to bifurcate these 4 particular issues, and -- 5 GOVERNOR BUSH: It doesn't stop the 6 whole -- 7 MS. HENDERSON: -- do some -- 8 Correct. 9 COMPTROLLER MILLIGAN: Doesn't have any 10 impact at all really. 11 GOVERNOR BUSH: Okay. 12 MS. HENDERSON: Correct. 13 COMPTROLLER MILLIGAN: And it doesn't need 14 to come back on the 18th of -- of -- of 15 December. It can wait till January. 16 MS. HENDERSON: Correct. 17 GOVERNOR BUSH: Okay. 18 COMPTROLLER MILLIGAN: It's not a big deal. 19 MS. HENDERSON: And I was really going to 20 do a plug on career pathing, but I think I'll 21 go to the next -- 22 COMPTROLLER MILLIGAN: Say again? 23 MS. HENDERSON: I was really going to do a 24 plug, and explain what career pathing was, but 25 I think I'll move to number 36. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 126 2 at another meeting -- 3 MS. HENDERSON: Thank you. 4 GOVERNOR BUSH: That's -- 5 MS. HENDERSON: I will -- I will save -- 6 COMPTROLLER MILLIGAN: So I -- 7 MS. HENDERSON: -- all my research -- 8 COMPTROLLER MILLIGAN: -- I'll -- 9 MS. HENDERSON: -- for that. 10 COMPTROLLER MILLIGAN: -- I'll move that we 11 approve the rule, as presented, with the 12 exception of the career pathing -- 13 MS. HENDERSON: Report. 14 COMPTROLLER MILLIGAN: -- which we will 15 defer to -- 16 GOVERNOR BUSH: The most -- the quick-- the 17 soonest -- 18 COMPTROLLER MILLIGAN: -- as soon as 19 possible. 20 GOVERNOR BUSH: -- that we have possible. 21 TREASURER GALLAGHER: Well, I think there's 22 another issue that needs to be discussed, and 23 that's -- that's the issue on how often people 24 are evaluated. 25 COMPTROLLER MILLIGAN: Oh, another for -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 127 2 career pathing. 3 COMPTROLLER MILLIGAN: It's in the career 4 pathing. 5 MS. HENDERSON: We had the current rule -- 6 TREASURER GALLAGHER: That's still part of 7 the rule. 8 COMPTROLLER MILLIGAN: Sure -- 9 MS. HENDERSON: Right. 10 COMPTROLLER MILLIGAN: No, it isn't. 11 GOVERNOR BUSH: Are we deferring that part 12 of the rule? 13 TREASURER GALLAGHER: Well, I just wanted 14 to have some discussion on it. 15 COMPTROLLER MILLIGAN: Oh, okay. 16 MS. HENDERSON: And we would like some 17 guidance on that. Because this really is a 18 policy issue. 19 The statute says at least annually. 20 There -- probably one of the biggest -- another 21 big thing that I talked about during 22 Service First was the fact that employees 23 wanted feedback throughout the year on how they 24 were doing. 25 They didn't feel like once a year at bonus ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 128 2 was fair for them not to know that they were 3 not doing their job at a superior level, and 4 then all of a sudden get denied a bonus and be 5 given an evaluation that said, you know, you 6 were mediocre at best, or maybe you were the 7 middle of the line. 8 What they really wanted was substantial 9 input throughout the year. We balanced that 10 with, how often do you do it; do you do it 11 monthly if they're a bad employee; do you do 12 it, you know, semiannually. 13 There was concerns with the peer input 14 having 40 percent peer input. Do you want all 15 of the evaluations only done at the time of 16 peer input, would there be gamesmanship. 17 There were so many things in that dialogue 18 that we thought a very good compromise to doing 19 very -- very frequent types of evaluations was 20 just to require it at least semiannually. 21 At least employees felt they got at least 22 two bites at the apple. And also with the new 23 HR outsourcing that we will have in place, it 24 will be a very simple system for evaluation. 25 It will come up on the computer, minutes to ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 129 2 personnel officers and supervisors will get 3 prompts that evaluations haven't been 4 performed. 5 You know, I know that doesn't guarantee 6 everybody doing it, but it is a lot better than 7 what we have today -- it was a lot better 8 actually when I got to the Department. They 9 had a computer system, they were planning on 10 spending 5 million dollars that measured all 11 the competencies and all of those things. 12 That would have taken forever. Hit a 13 button, 40 fields drop; hit another button, 14 40 more. It was very cumbersome. 15 We believe this will be a very easy process 16 that -- for supervisors to use. But it'll give 17 continual feedback to the employees. They 18 won't feel like, why didn't I get a bonus, why 19 did they get a bonus; why didn't somebody just 20 tell me that I wasn't performing up to a 21 certain level. 22 So that's why we have at least semiannual. 23 I know there's a lot of debate because 24 managers, you know, maybe don't want it for 25 some -- some want it more. So we're offering ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 130 2 now on, how do you think it should go. 3 GOVERNOR BUSH: Commissioner? 4 TREASURER GALLAGHER: Well, I -- I think 5 feedback to employees is extremely important. 6 The more often it's done, the better. I'll 7 start off with that. 8 There are those that need it, and those 9 that don't. 10 And I would pretty much be comfortable 11 with -- with removing those people that are not 12 career service from a semiannual review, 13 because I mean, if they're not operating at 14 peak level, they -- you ought to be taking care 15 of that in some other way, other than a 16 semiannual review, and be doing an immediate 17 review. 18 I'm trying to -- to have meaningful reviews 19 done, and not perfunctory ones done. And 20 I think in -- in the senior management system, 21 those people that aren't career service, I 22 don't think that that -- to me, personally, 23 should be a -- a necessity. 24 I think that those employees that are 25 having problems should get more than ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 131 2 And so I -- I'm -- I -- you know, I'm just 3 sort of -- I think we ought to sort of 4 bifurcate that somehow, and at least not 5 require, you know, all people that are in the 6 senior management system get a semiannual 7 performance evaluation. 8 But that's my opinion, and I guess it 9 depends on what other people think. 10 MS. HENDERSON: I worry about if there's no 11 guidance, then, like you said, some agencies 12 won't do anything but annual for everybody. 13 And, you know, agencies are more than 14 welcome to do more than that. This is just 15 kind of a -- a bottom line for employees. 16 GOVERNOR BUSH: This was one of the issues 17 when we asked for feedback, and we got a lot of 18 it, this was probably the number one issue, 19 which was, we don't know where we stand. 20 And -- and -- both in terms of upside and 21 downside. 22 In other words, if -- if employees aren't 23 doing the jobs that are expected of them, 24 there's not direct communications in every case 25 that they aren't. It's an uncomfortable thing ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 132 2 expectations, it takes a certain type of person 3 to be able to do it on a regular basis I think. 4 And -- and, likewise, if we're moving to a 5 performance oriented system, to not tell people 6 in advance what the expectations are, and tell 7 people how they're going, then there's always 8 the poss-- the possibility of disappointment. 9 And what we -- what we heard regularly was 10 both those concerns. And I'm surprised -- 11 you know, I've been surprised that -- I wasn't 12 told my -- my -- my performance was at the 13 level of -- of expectation; or that there was 14 really no criteria established for the -- for a 15 bonus, it's the good old boy system all over 16 again. 17 And -- and I needed to know in advance what 18 the -- you know, what -- what was expected of 19 me so that I could earn additional money. 20 And I think part of the problem is that we 21 haven't seen the new system. 22 (Secretary Harris exited the room.) 23 GOVERNOR BUSH: And -- and the new support 24 that's going to be provided through new 25 technology is it might make it easier, less of ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 133 2 I think -- Cynthia, as I understand it, 3 part of your concern is -- right now is an 4 annual assessment going to two -- 5 MS. HENDERSON: It's a piece of paper. 6 GOVERNOR BUSH: -- it's doubling the work 7 load. 8 Well, I think the net result of this will 9 be less actual work, but higher quality for 10 both the employee and the employer because of 11 the new system. 12 MS. HENDERSON: That's clearly our intent. 13 TREASURER GALLAGHER: Well, I -- I wish I 14 could -- I mean, if that was that easy to make 15 happen, that'd be great. 16 But -- I don't know about your agencies, 17 but it's tough keeping on top of managers 18 within agencies to get the annual one done, and 19 have it -- 20 GOVERNOR BUSH: That's a problem. 21 TREASURER GALLAGHER: -- done right. 22 And I've found it in every agency I've been 23 involved in, and I'm a stickler about getting 24 them done -- getting them done. 25 And they always fall behind, and they're ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 134 2 you've got two of them. You've got -- you're 3 going to have twice as much trouble keeping 4 them up, because people have a lot of other 5 things they're in the middle of doing, even 6 though this is a very important part of their 7 job. 8 Maybe they'll be easier to do. I don't 9 know. They're not that hard to do now, if you 10 spend the time with the employee. 11 But I'm looking -- I -- I don't have a 12 problem with the career -- I'm just sort of 13 thinking, well, maybe at least we ease the 14 burden on the -- on the senior managers as to a 15 year. 16 And leave it there for -- for the career 17 service people or something. I'm -- I'm 18 just -- if y'all want to leave it the way it 19 is, fine. I just mention it -- 20 GOVERNOR BUSH: -- evaluation in my office. 21 TREASURER GALLAGHER: Beg your pardon? 22 GOVERNOR BUSH: We don't have any civil 23 service -- we won't have to do it. Wouldn't do 24 it. 25 MS. HENDERSON: No. It's -- one thing to ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 135 2 nothing that happens. So the rule is a guide. 3 ATTORNEY GENERAL BUTTERWORTH: You can do 4 more, right, if we want to? 5 MS. HENDERSON: Yes, sir. 6 TREASURER GALLAGHER: Sure. You can do 7 them every week. 8 MS. HENDERSON: You actually can do less, 9 and there's no penalties for not doing it. 10 It's just giving guidance. 11 TREASURER GALLAGHER: Well, let me 12 understand something. You have a -- a law that 13 says you must do it once a year. 14 MS. HENDERSON: Uh-hum. 15 ATTORNEY GENERAL BUTTERWORTH: At least. 16 TREASURER GALLAGHER: At least. 17 And then you -- you have a rule here that 18 we're supposed to -- I think we should follow 19 it: Agencies shall evaluate performance at 20 least semiannually. 21 MS. HENDERSON: Correct. 22 TREASURER GALLAGHER: So we've by rule 23 enhanced what the State law is. 24 MS. HENDERSON: We don't tie it to OPB 25 doesn't give you your money if you don't do ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 136 2 TREASURER GALLAGHER: You left that part 3 out you're saying? 4 MS. HENDERSON: Yes, sir. 5 TREASURER GALLAGHER: Well, I -- I'm not 6 sure we did -- 7 (Secretary Harris entered the room.) 8 TREASURER GALLAGHER: -- the way 9 General Milligan reads it. I guess we did take 10 that part out at this point. 11 All right. If everybody's happy the way it 12 is, we'll live with it. 13 COMPTROLLER MILLIGAN: Well, I think what I 14 have proposed is that we approve the rule, with 15 the exception of that chapter, the career path 16 chapter will -- 17 GOVERNOR BUSH: So that's -- 18 COMPTROLLER MILLIGAN: -- come back -- 19 GOVERNOR BUSH: -- come back -- 20 COMPTROLLER MILLIGAN: -- and bring it back 21 as soon as practical. 22 TREASURER GALLAGHER: Oh, I'm sorry. 23 What I understood was we were leaving just 24 Section (4) out. We're taking the whole 25 chapter out? ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 137 2 Not -- not taking it out, deferring it. 3 GOVERNOR BUSH: Taking 60L-35. 4 SECRETARY HARRIS: Three five. 5 GOVERNOR BUSH: That's what we agreed to. 6 That's why we're trying to get to you -- 7 TREASURER GALLAGHER: Cool it. 8 GOVERNOR BUSH: -- not have the 9 conversation. 10 TREASURER GALLAGHER: I apologize. I -- I 11 was -- 12 SECRETARY HARRIS: Secretary Henderson -- 13 TREASURER GALLAGHER: -- stuck on 14 Section (4). 15 SECRETARY HARRIS: -- if you're ordered 16 to -- would it make any sense to -- to 17 define -- to go back and define occupational 18 level, because you're -- you're using 19 language -- 20 MS. HENDERSON: Well, we won't have 21 anything until that happens, so we'll keep it 22 the way it is until we do the broadbanding. So 23 we can do it when we do the broadbanding 24 changes. We can make that change. 25 SECRETARY HARRIS: When will that -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 138 2 room.) 3 MS. HENDERSON: Between now and July. 4 SECRETARY HARRIS: Okay. But you will go 5 back -- I mean, just -- 6 MS. HENDERSON: Yes, ma'am. 7 SECRETARY HARRIS: -- not doing the 8 broadbanding yet, so you're talking -- 9 MS. HENDERSON: Correct. 10 SECRETARY HARRIS: -- using a state of 11 art -- a term that doesn't exist yet. 12 MS. HENDERSON: We don't use it yet, 13 correct. 14 GOVERNOR BUSH: Did you make a motion, 15 General Milligan? 16 COMPTROLLER MILLIGAN: I did. Yes, sir, I 17 did. 18 SECRETARY HARRIS: Second. 19 GOVERNOR BUSH: Is there a second? 20 There's a motion and a second to accept the 21 rules as presented, with the exception of 22 deleting Rule 60L-- 23 COMPTROLLER MILLIGAN: Deferring. 24 GOVERNOR BUSH: -- deferring -- well, 25 deleting it from approval. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 139 2 GOVERNOR BUSH: -- 60L-35, which will come 3 back at the as soon as possible time -- 4 SECRETARY HARRIS: Governor, one more 5 question. I -- I didn't know we were going 6 through all the rules. I thought we were just 7 doing -- 8 GOVERNOR BUSH: Okay. 9 SECRETARY HARRIS: I have one last 10 question. 11 Sorry, Secretary Henderson. 12 On 60L-36 -- 13 MS. HENDERSON: Uh-hum. 14 SECRETARY HARRIS: -- on the conduct of -- 15 MS. HENDERSON: Conduct. 16 SECRETARY HARRIS: -- employees? 17 MS. HENDERSON: Yes, ma'am. 18 SECRETARY HARRIS: There's -- this is not a 19 state of art term. 20 It's -- I guess I was just concerned, 21 because again, it's amb-- ambiguous when it's 22 talking about poor performance. 23 And there's a phrase -- 24 MS. HENDERSON: "Do more than just get by." 25 SECRETARY HARRIS: Yeah. Just get by. ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 140 2 get by. 3 In a time when we're saying that the -- our 4 staff works so hard, and they're there all the 5 time, and they do this as an active service, 6 and, you know, it's a pretty noble cause, to 7 say, just get by, that's so demeaning. 8 That's kind of inferring that they're 9 slackers or something. I mean, I just think 10 that's a -- that's not -- that's not sort of 11 professional terminology. 12 I don't know how -- 13 MS. HENDERSON: Which is why it's in 14 quotes. 15 What we believe is there is the impression 16 generally in the state, that State employees 17 don't work as hard as others. 18 We don't believe that's true. We want to 19 make it clear that if somebody were meeting 20 that, that that was not acceptable. It's poor 21 performance. 22 It is a state of art, which is put in 23 quotes. But I've got to tell you, everybody 24 knows what it means. 25 We have had 26 hours of meetings, and ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 141 2 come up with a statement that was so clear. 3 So the question is: Do you want it -- 4 we'll be glad to change it. We'll put whatever 5 it is. 6 No one has been able to come up with a 7 statement that is more clear than they "just 8 get by." 9 SECRETARY HARRIS: It just seems though -- 10 I mean, to me, instead of saying -- I think 11 that reinforces that idea. And it seems 12 superfluous. And it's -- I think it -- to me, 13 I -- the way I read it, it was -- I thought it 14 was demeaning to our State employees. 15 But -- 16 MS. HENDERSON: We apologize. It's clearly 17 not the intent. 18 It is clearly to show that we don't believe 19 State employees are that way. And we don't 20 accept it, and wouldn't accept it. 21 But we are more than welcome to put 22 whatever words in there that y'all believe 23 meets the same intent. Clearly. 24 TREASURER GALLAGHER: Well -- well, let's 25 look at what it's defi-- defined as a poor ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 142 2 (Attorney General Butterworth entered the 3 room.) 4 TREASURER GALLAGHER: -- I -- demeaning 5 that poor performance -- just getting by is 6 poor performance. 7 You know, it's a pretty good descriptive 8 word for what poor performance is, I think. 9 SECRETARY HARRIS: I thought poor 10 performance is descriptive. 11 TREASURER GALLAGHER: Less than that? 12 SECRETARY HARRIS: No. I -- I don't -- be 13 poor performance would lead to submission. 14 I -- just the way I -- I read it, I thought -- 15 I thought that was -- it's reinforcing that 16 impression, rather than eliminating it. 17 COMMISSIONER BRONSON: Governor, this -- as 18 I pointed out, I saw where this was basically 19 in -- in 60L-35 as a -- as a portion of that, 20 and also back over here on 60L-36. 21 And from -- as someone who has worked for a 22 major corporation, and -- and worked for 23 business, you -- I've never heard -- I've never 24 heard that term actually used. 25 Usually, if there's going to be some ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 143 2 less -- it -- it's a -- it's a less standard -- 3 if you're not meeting up to the very lowest 4 standard, then you're -- you're performing less 5 than the minimum standard of performance for 6 that job description. 7 Minimum standards for that job description 8 would be the very less. 9 So I -- it just seems like you're giving -- 10 there's some leeway there to -- to -- I've 11 never heard that term used in a -- in a setting 12 like that. 13 GOVERNOR BUSH: Well, in the private 14 sector, you're told you have at-will 15 employment. You don't have to do this. 16 TREASURER GALLAGHER: But there's no 17 question in mind what it means, is there? 18 COMMISSIONER BRONSON: Well -- 19 MS. HENDERSON: Yes. 20 TREASURER GALLAGHER: But that -- everybody 21 knows what it means. 22 COMMISSIONER BRONSON: But under this 23 category, if you're -- if you're going to, 24 as -- as a supervisor, as the head of an 25 agency, react to that performance standard, ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 144 2 justify as to why it's less -- why you're 3 performing less than the minimum standard, and 4 why you should either be moved to another 5 position, or whatever that -- whatever that 6 remedy to that situation is going to be, you've 7 got to have somewhere to go to justify going 8 there. 9 TREASURER GALLAGHER: Well, that's part of 10 the counseling process. 11 COMMISSIONER BRONSON: Well, I -- okay. 12 TREASURER GALLAGHER: Well, I mean, in my 13 opinion. 14 GOVERNOR BUSH: Any other discussion? 15 We have a motion and a second to -- I won't 16 repeat it again -- but to defer the -- 17 MS. HENDERSON: Thirty-five. 18 GOVERNOR BUSH: -- 35 -- L, whatever it is, 19 and to accept the rest of the rules. 20 All in favor, say aye. 21 THE CABINET: Aye. 22 GOVERNOR BUSH: All opposed? 23 MS. HENDERSON: Thank you very much. 24 GOVERNOR BUSH: We'll see -- 25 SECRETARY HARRIS: I -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 145 2 SECRETARY HARRIS: I have one more 3 question -- I have a question -- just -- 4 I'm sorry. 5 GOVERNOR BUSH: Yes. 6 MS. HENDERSON: Maybe December 18th. 7 SECRETARY HARRIS: What problems or 8 situations do you see that could describe the 9 affected implementation of -- of Service First. 10 I mean, do you feel that everything -- 11 I mean, is there any other things -- 12 (Commissioner Crist exited the room.) 13 SECRETARY HARRIS: -- you see on the 14 horizon that -- that could be problematic? 15 MS. HENDERSON: No, ma'am. 16 This was kind of our last major effort that 17 we've been doing. The broadbanding's come into 18 effect. We've met with the unions, we've had 19 very warm support for the different 20 broadbanding classifications that have been put 21 out there, the family, so to speak. 22 So we think it's going wonderful. It's -- 23 GOVERNOR BUSH: I think the -- 24 MS. HENDERSON: -- a lot of -- 25 GOVERNOR BUSH: -- one issue that's out ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 146 2 indirectly related to Service First, which 3 relates to the possibility of -- of the 4 Legislature in the special session changing the 5 path related to the outsourcing effort that was 6 approved last year, and instead, looking at 7 perhaps just cutting personnel positions, which 8 would put us in a difficult position to be able 9 to carry this out. 10 Because part of the advantage we now have 11 is the tools that the -- the new tools that'll 12 be available for managers to be able to carry 13 this out, there is going to be more flexibility 14 with managers, but more responsibility to treat 15 employees with clarity and transparency. 16 And they're going to need tools to be able 17 to do that, because Commissioner Gallagher's 18 point is correct, if you -- if you look at this 19 from the old way, you know, we don't want to 20 create more burdens, we want to create less. 21 And so while there -- that's only a risk, 22 and so -- of ours, and -- and we hope to get it 23 worked out in the next week. 24 SECRETARY HARRIS: We really commend you, 25 all the efforts you've put -- ACCURATE STENOTYPE REPORTERS, INC. ADMINISTRATION COMMISSION 147 2 Your staff has been wonderful. 3 Colleen got everybody together. So it was 4 great. 5 Thank you. 6 GOVERNOR BUSH: Thank you, Secretary. 7 (The Administration Commission Agenda was 8 concluded.) 9 * * * 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. 148 2 3 4 5 STATE OF FLORIDA: 6 COUNTY OF LEON: 7 I, LAURIE L. GILBERT, do hereby certify that 8 the foregoing proceedings were taken before me at the 9 time and place therein designated; that my shorthand 10 notes were thereafter translated; and the foregoing 11 pages numbered 1 through 147 are a true and correct 12 record of the aforesaid proceedings. 13 I FURTHER CERTIFY that I am not a relative, 14 employee, attorney or counsel of any of the parties, 15 nor relative or employee of such attorney or counsel, 16 or financially interested in the foregoing action. 17 DATED THIS 11TH day of DECEMBER, 2001. 18 19 ACCURATE STENOTYPE REPORTERS, INC.
T H E C A B I N E T
150 APPEARANCES:
ACCURATE STENOTYPE REPORTERS, INC. 151
ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 152 2 GOVERNOR BUSH: Board of Trustees? 3 MR. STRUHS: Hello. 4 GOVERNOR BUSH: Nice tie. 5 MR. STRUHS: Thank you. 6 Item 1, we'd like to defer Item 1 until 7 January 29th. 8 ATTORNEY GENERAL BUTTERWORTH: Motion. 9 GOVERNOR BUSH: There's a motion to defer. 10 Is there a second? 11 COMMISSIONER BRONSON: Motion. 12 ATTORNEY GENERAL BUTTERWORTH: Second. 13 GOVERNOR BUSH: Without objection, the item 14 is deferred till January 29th. 15 MR. STRUHS: Item 2 is an addition to the 16 Apalachicola Bay National Estuarine Research 17 Reserve. And you all know Woody Miley, who's 18 the Director of the Reserve. And he is here 19 with us today. 20 You'll recall we were before you with this 21 item a number of months ago, and you conceded 22 to purchase some land on an area known as 23 Pelican Point. 24 GOVERNOR BUSH: Oh, yeah. 25 MR. STRUHS: And at that point, you gave us ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 153 2 Mahr property in hand. 3 And we have now done that. And we've done 4 it at a -- at a good value, and are 5 recommending that acquisition. 6 Are there any questions? 7 COMPTROLLER MILLIGAN: Move it. 8 ATTORNEY GENERAL BUTTERWORTH: Second. 9 GOVERNOR BUSH: Moved and seconded. 10 Without objection, it's approved. 11 GOVERNOR BUSH: Thank you. 12 MR. STRUHS: Thanks for coming. 13 ATTORNEY GENERAL BUTTERWORTH: Too quick -- 14 GOVERNOR BUSH: Veteran of Cabinet -- 15 MR. STRUHS: Yes. Wise man. 16 Item 3, we're recommending approval. This 17 is an option agreement for 722 acres in the 18 Lake Wales Ridge Ecosystem. 19 GOVERNOR BUSH: Is there a motion? 20 COMMISSIONER BRONSON: Motion. 21 ATTORNEY GENERAL BUTTERWORTH: So move. 22 GOVERNOR BUSH: Moved and seconded. 23 Without objection, it's approved. 24 MR. STRUHS: Item 4 and 5, I'd like to do 25 something just a little bit different, if I ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 154 2 These are both examples of where we're 3 exercising some new management techniques that 4 are improving our efficiency in allowing us to 5 build better partnerships. 6 In this case, we're doing it with the City 7 of Jacksonville. 8 And I've asked Rod Lovern, who's our 9 Deputy Director of the State Lands Division, to 10 just give a -- a very quick overview of how 11 these two items are a little bit different, and 12 a little bit better than what we usually do. 13 MR. LOVERN: Good morning. 14 GOVERNOR BUSH: Good morning. 15 MR. LOVERN: If I could, I would like to 16 present Items 4 and 5 together as one item, 17 because they are companion items. 18 Item 4 is -- is -- we're recommending 19 approval of an option agreement to acquire 20 property in northeast Florida, Blue-- Blueways 21 Florida Forever project which is an "A" 22 project. 23 The second item, on Item 5, we're 24 recommending approval of an option agreement 25 with the City of Jacksonville and the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 155 2 the Florida Forever list. 3 Both of these are -- are -- are unique in 4 that they're a new development for us. The 5 relationship on both items is that -- 6 (Governor Bush exited the room.) 7 MR. LOVERN: -- the State will contribute 8 45 percent of the purchase price, and the City 9 will contribute 55 percent, with 100 percent of 10 the title going to the State. 11 We have -- with these -- we're very excited 12 about them, because it's a new approach for us, 13 a new way of doing business, and a way of 14 creating new efficiencies in our process that 15 we -- previously with the MPAAs used to have 16 sort of a loose relationship defined. 17 And we found that it wasn't working for 18 either one of us, the local government or us 19 over time. 20 And in order to improve that, we -- we 21 wanted to step up the level of detail, and 22 found ourselves entering really to the option 23 agreement level. 24 So we've blended an MPAA and an option 25 agreement together, the option agreement ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 156 2 defining the relationship overall. 3 So we're very excited about it. It's a new 4 commitment for us -- or renewed commitment to 5 developing local government relationships, and 6 approving the level of service that State lands 7 provides to local governments. 8 SECRETARY HARRIS: Questions? 9 Motions? 10 COMPTROLLER MILLIGAN: I'll move it. 11 Move 4 and 5. 12 SECRETARY HARRIS: Second? 13 COMPTROLLER MILLIGAN: I think -- 14 COMMISSIONER BRONSON: Second. 15 COMPTROLLER MILLIGAN: -- that's -- 16 TREASURER GALLAGHER: Second. 17 COMPTROLLER MILLIGAN: -- of course, 18 subject to the City of Jacksonville -- or the 19 City of Jacksonville -- 20 MR. LOVERN: Yes, sir, it is. 21 COMPTROLLER MILLIGAN: -- approval. 22 MR. LOVERN: Yes, sir. 23 SECRETARY HARRIS: It's been moved and 24 seconded without opposition. 25 Secretary, you finished with Item -- ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 157 2 And I -- I would point out, we did leave 3 out one thing. 4 Not only is it a great deal in terms of the 5 partnership, and in terms of the Board of 6 Trustees holding the full title to the 7 property, but the City of Jacksonville has 8 agreed to take on the long-term management 9 expenses associated with the property. 10 So we're quite pleased with that. 11 SECRETARY HARRIS: We commend your 12 innovations. 13 (Governor Bush entered the room.) 14 SECRETARY HARRIS: Item 5. 15 COMMISSIONER BRONSON: We did -- I thought 16 we did 4 and 5. 17 SECRETARY HARRIS: Oh, I'm sorry. 18 I missed -- okay. 19 Governor. 20 GOVERNOR BUSH: What happened? 21 MR. STRUHS: Now on Item 6. 22 We're recommending approval of Item 6. 23 This is our continuing effort to work in the -- 24 escapes my -- my memory -- the Golden Gate 25 Estates area in the Everglades Forever Project. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 158 2 COMMISSIONER BRONSON: Move. 3 SECRETARY HARRIS: Second. 4 GOVERNOR BUSH: Moved and seconded. 5 Without objection, it's approved. 6 MR. STRUHS: Item 7, we'd like to defer 7 this item. And we'd like to defer it, if we 8 could, until the applicants are -- are prepared 9 to bring it back. 10 The -- the applicant in this case, 11 Indian River County, would like some extra time 12 to go back and work on their Manatee Protection 13 Plan. 14 GOVERNOR BUSH: Good. 15 COMPTROLLER MILLIGAN: Move deferral. 16 COMMISSIONER BRONSON: Second. 17 GOVERNOR BUSH: There's a motion to defer, 18 and a second. 19 Without objection, the item is deferred. 20 MR. STRUHS: Item 8, we're recommending 21 approval. This is a five-year sovereignty 22 submerged land lease to increase an existing 23 yacht club. And it includes the severance of 24 167 cubic yards of sovereignty material. 25 This is the Big Lagoon area in ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 159 2 And what I'd like to point out, this is 3 an -- an example of where we're actually seeing 4 the expansion of sea grasses. So we're 5 actually seeing a marina expand; but at the 6 same time, we're actually seeing the expansion 7 of sea grasses. 8 And one of the ways we're accomplishing 9 that is by requiring as part of this permit, 10 the installation of pilings. And -- and by 11 putting the pilings in, it keeps the boat -- 12 (Commissioner Crist entered the room.) 13 MR. STRUHS: -- traffic where you want the 14 boats, and it keeps the sea grass protected 15 from the -- the scarring and the prop dredging. 16 So it's -- 17 GOVERNOR BUSH: The pilings out in the 18 canal -- in a canal? 19 MR. STRUHS: Right. 20 We -- we put the -- we put the pilings 21 where we want to keep the boats away from the 22 sea grass. And what we've actually seen is an 23 expansion of the sea grass in this area. 24 So it's -- it's a good -- it's a good 25 environmental success story. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 160 2 GOVERNOR BUSH: Is there a second? 3 TREASURER GALLAGHER: On that one, I'd like 4 to move it. But it's subject to the payment of 5 the eleven thousand nine hundred and ninety-one 6 eighty-nine? 7 MR. STRUHS: Yes, sir. 8 GOVERNOR BUSH: Moved and seconded. 9 Without objection, the item is approved. 10 MR. STRUHS: Item Number 9, you -- you may 11 best know this by the -- the label 12 Polynesian Islands. 13 We have, I think, come close to coming up 14 with a good resolution of this issue. 15 (Treasurer Gallagher exited the room.) 16 MR. STRUHS: The Cabinet Aides have 17 requested a little bit more time so they can 18 get more fully briefed on the item. 19 And we look forward to getting that done in 20 the next couple of weeks, and bringing it back 21 to you on December 18th. 22 COMPTROLLER MILLIGAN: Move deferral. 23 ATTORNEY GENERAL BUTTERWORTH: Motion to 24 defer. 25 GOVERNOR BUSH: There's a motion to defer ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 161 2 Didn't you second? 3 ATTORNEY GENERAL BUTTERWORTH: I'll second. 4 COMMISSIONER CRIST: Second it. 5 GOVERNOR BUSH: Item is deferred till 6 December 18th. 7 MR. STRUHS: Item 10 is the Brickell Key 8 Marina lease. 9 Just a -- a quick review of the history. 10 A -- a similar application came before the 11 Trustees on March 13 of this year. That 12 application was denied. 13 As you may know, the applicant has then 14 filed a petition in court with the 15 Administrative Law Judge. The hearing on 16 the Board of Trustees denial is scheduled for 17 March 4th and 5th of next year. So the hearing 18 is in March for the denial that you made this 19 March. 20 Now we have had a change in the 21 application, a reduction in the number of 22 slips, and that is the reason that the 23 applicant is now before you again. 24 Our recommendation as staff is that because 25 of the tightly constructed statutory language, ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 162 2 item. 3 Obviously there are speakers to it. 4 Frank Matthews and Nan-- is -- is here 5 representing Swire Properties. 6 We've got Nancy Brown, Friends of the 7 Everglades; Jerry Karnas, Save the Manatee 8 Club; and Charles Lee, Florida Audubon Society, 9 to speak against it. 10 I've suggested that we keep this brief, and 11 try to keep it all within 10 minutes. 12 It's important I think just to set the 13 stage to recognize that there are 41 aquatic 14 preserves in the state of Florida. And 40 of 15 the 41 are governed by rules that are known as 16 18-20. 17 This one is -- is the exception. 18 Biscayne Bay has a separate rule. It's rule 19 number 18-18, and it's based on an actual 20 statutory level of protection that is different 21 than every other aquatic preserve in the state. 22 And the requirement that must demonstrate 23 that it's not only in the public interest, but 24 it must also demonstrate either -- 25 (Treasurer Gallagher entered the room.) ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 163 2 type of public necessity. And -- 3 (Commissioner Bronson exited the room.) 4 MR. STRUHS: -- that's one of the reasons 5 we keep coming back to this, and have not been 6 able to approve it previously. 7 But again, the applicant has -- has 8 adjusted the proposal, has reduced the number 9 of slips, and they would like to make their -- 10 ATTORNEY GENERAL BUTTERWORTH: Governor, 11 could I -- 12 MR. STRUHS: -- presentation. 13 ATTORNEY GENERAL BUTTERWORTH: -- I have a 14 question on this, because I guess we're 15 probably saying we're denying the agenda. 16 Just because they're modifying it, if it 17 did not meet the -- meet the test the last 18 time, and if -- and if that issue was before 19 the March 4th hearing, why are we bringing it 20 up now? 21 I mean, I -- I see no reason -- it's in 22 court, the issue is in court, just because 23 they're changing a few extra slips, and let 24 some more -- I guess fewer boats actually be 25 there, I -- the -- the -- the overall issue is ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 164 2 So I think that we should let the Court go 3 forward first before even coming back here. 4 I'm not -- 5 MR. STRUHS: Well, that -- that's clearly 6 the -- the Board's decision. But, as you know, 7 it's a fairly democratic process, and when 8 applicants come in, and want to get it on the 9 agenda, we -- 10 ATTORNEY GENERAL BUTTERWORTH: Let's make 11 it a Republican process. 12 MR. STRUHS: -- we -- we rarely -- 13 TREASURER GALLAGHER: What's -- what's the 14 Republican process? 15 It's in court, we're not going to hear it? 16 ATTORNEY GENERAL BUTTERWORTH: It's in 17 court, we're not going to hear it. 18 TREASURER GALLAGHER: Are you going to the 19 Republican process -- 20 GOVERNOR BUSH: There's a universal -- 21 MR. STRUHS: It's a small -- small d, sir. 22 A small d. 23 SECRETARY HARRIS: Secretary Struhs, on 24 this test, it -- well, if it says that it 25 must -- if we accept it as a public project ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 165 2 doesn't it have to do both, the extreme 3 hardship, and public necessity? It's not one 4 or the other, right? 5 MR. STRUHS: Well, actually, it's -- it's a 6 very fine point. And -- and we can get a 7 lawyer here to explain it to you, if you'd 8 like. 9 But the re-- the requirement is it has to 10 be -- it has to meet the public interest 11 test -- public interest, and extreme hardship, 12 or public necessity. 13 SECRETARY HARRIS: I -- I just don't 14 understand. 15 I know we really went in-depth, as -- as 16 General Butterworth said, we went into this in 17 depth the last time, and -- and I think the 18 reason -- at least my part that I voted against 19 it was because it didn't meet the test in terms 20 of public hardship and necessity. 21 (Commissioner Bronson entered the room.) 22 MR. STRUHS: That -- that's correct. But 23 the applicant would -- would argue that what 24 they are presenting today is a -- is a 25 different proposal because of the reduced ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 166 2 And that's why it's -- that's why it's on 3 today's agenda. 4 GOVERNOR BUSH: Well, why don't we -- 5 I think we should hear it, as long as we don't 6 re-- relive all of the arguments of the -- the 7 last one, but maybe focus on the things that 8 are new and different about this. 9 And perhaps I -- I would suggest maybe you 10 could really focus on -- on Secretary Harris' 11 question, which I think is the -- the key 12 question, what's the difference now that allows 13 you to meet this test that gave us some 14 concerns -- 15 TREASURER GALLAGHER: Probably a good 16 question to ask. 17 GOVERNOR BUSH: If you can answer that 18 question, then -- you can't answer it, then, 19 you know, we'll probably see you in court in 20 March, I guess. 21 But if you can, maybe there'll be some 22 people interested in -- 23 MR. MATTHEWS: I'll do my best, Governor, 24 members of the Cabinet. 25 Frank Matthews, Hopping, Green & Sams, ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 167 2 and the City of Miami. 3 We believe we have revised the project. If 4 you recall the end of the conversation last 5 time was, would there be a way of going back to 6 the drawing board and -- and making a different 7 proposal. 8 We had 112 slips last time, those 9 46 powerboat slips associated with the 10 proposal. 11 This time we're at 68 total slips. There 12 was only 27 powerboat slips. 13 One of the main issues last time was 14 consistency with the Dade County Manatee 15 Protection Plan. It was considered to be 16 inconsistent with the Dade County Manatee 17 Protection Plan last time, because of the 18 number of powerboat slips that were proposed. 19 We've gone back and revised the project to 20 now become consistent, by virtue of having 21 seven transient slips, which are courtesy 22 boats, water charters, livery services, and 23 20 multifamily powerboat slips, which now fits 24 under the criteria of the Dade County Manatee 25 Protection Plan. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 168 2 because it was one of the basis for 3 consideration last time. 4 I believe the remaining issue is, as 5 Secretary Harris has pointed out, the extreme 6 hardship. What does it mean to -- to meet it? 7 What as a matter of law it means is that if 8 you are a public project, which serves the 9 public necessity by advancing public health and 10 safety, you've met the extreme hardship. Those 11 are the series of definitions that get you 12 there. 13 Public projects are inherently meeting the 14 extreme hardship test. So you have to first 15 threshold decide, are we a public project. We 16 suggest we are. 17 We have the elements of public safety with 18 the six law enforcement slips, as well as the 19 relocation of the headquarters of the 20 Marine Patrol. 21 We have economic development in dire need 22 in Miami for the downtown urban renewal of that 23 city. 24 That's a major component of what we 25 consider to be the hardship here. The hardship ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 169 2 applicants have 5,551 riparian feet of 3 shoreline. 4 The statute specifically says, this 5 management plan, this preserve, should not 6 infringe upon traditional riparian interests. 7 So you have to -- you balance and weigh 8 this notion of hardship to this applicant is if 9 you deny this proposal at 5500, over a mile of 10 linear shoreline, you're suggesting they can 11 have no access, no waterborne access to their 12 property. 13 I don't believe that's what the statute 14 intended. 15 In fact, the statute specifically says: 16 This should not operate to infringe upon 17 riparian rights. 18 That's the bottom line element. You've got 19 to sit back, because as a matter of law, if we 20 were single family residents, and we were 21 55 single family residents on Brickell Key, you 22 have found in case law, that meets the 23 hardship, that a single family resident having 24 a dock to access their waterfront facility 25 meets the hardship test. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 170 2 together, basing our arguments of extreme 3 hardship on the fact that this marina was 4 approved in '75 through a local development 5 order. 6 We meet the public necessity because we 7 advance public health and safety. You have to 8 take a broad view of public health to include 9 economic redevelopment. 10 And -- and I would suggest to you, there is 11 no other applicant in more extreme hardship 12 than the City of Miami looking for urban 13 renewal, economic redevelopment of that city 14 center. 15 We're part of the greenway plan, we're part 16 of the urban in-fill plan. Who else can make 17 the argument that this area, an island, the 18 only island in the aquatic preserve that's 19 developed, which has no waterborne access, 20 isn't suffering extreme hardship to be denied 21 that access. 22 There's a hotel facility that this will 23 support and augment that's at 19 percent 24 occupancy. 25 Nineteen percent occupancy in a state where ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 171 2 tourists. Here's a perfect example of asking 3 for 49,000 square feet, 49,000 square feet of 4 approval from the State to allow us to grow 5 that tourist center, allow us to grow the 6 commercial development that exists. 7 I submit to you -- 8 TREASURER GALLAGHER: If I may. 9 MR. MATTHEWS: Yes, sir. 10 TREASURER GALLAGHER: Your argument is that 11 if we let boat slips there, the occupancy of 12 the hotel's going to go up? 13 MR. MATTHEWS: It -- it's a component of 14 it. We asked for a lot more slips, 15 Commissioner. And maybe if we were up there at 16 100 and 200, it'd be a better argument. 17 But I don't think it can be used against us 18 that we've shoehorned ourselves down to a much 19 smaller facility to argue that we still 20 shouldn't be able to market on this island 21 development, that you can access it by boat, 22 that you can get there if you're on your way 23 from Islamorada to West Palm, you can actually 24 come in and moor your boat at this island, and 25 stay at these facilities, go to the restaurant, ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 172 2 And that's a major missing ingredient in 3 Miami's economic redevelopment. 4 ATTORNEY GENERAL BUTTERWORTH: I just have 5 one question, if I could, Governor. 6 GOVERNOR BUSH: Yeah. Please. 7 ATTORNEY GENERAL BUTTERWORTH: I do not -- 8 what is a multifamily residential powerboat? 9 MR. MATTHEWS: That's a powerboat that is 10 going to be utilized by a multifamily resident, 11 a condo dweller, in one of the 3,000 units on 12 the island. 13 ATTORNEY GENERAL BUTTERWORTH: Okay. So, 14 I mean, how many -- how many families are going 15 to be in each one of these powerboats? 16 MR. MATTHEWS: Well, I don't know -- 17 there'll be no live-aboards, General. I don't 18 mean to say that they're going to be living on 19 the powerboat. 20 These'll be occupants of the 21 3,000 multifamilies -- 22 ATTORNEY GENERAL BUTTERWORTH: Okay. 23 Because the way it looks like here in the 24 notes, it says -- it says 20 multifamily 25 residential powerboats. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 173 2 MR. MATTHEWS: Well, that -- that's 3 inartfully written. That -- 4 GOVERNOR BUSH: That only happens in 5 Broward County. 6 ATTORNEY GENERAL BUTTERWORTH: That -- 7 MR. MATTHEWS: There will be no one living 8 aboard those powerboats, I -- I can assure you 9 of that. 10 SECRETARY HARRIS: Is there any statute 11 that says that 62 boat slips in-- increases the 12 economic impact in a -- I mean -- 13 MR. MATTHEWS: Well, it certainly brings a 14 flavor to a facility which lacks it very badly 15 now. 16 If you're marketing to the South American 17 tourist trade, and you can't establish some 18 distinction at your hotel in -- in the middle 19 of an aquatic preserve, which has been 20 established by every agency who's looked at it, 21 not to have an adverse natural resource 22 consequence, we're sitting here trying to 23 balance this against a standard saying, well, 24 what's the negative? 25 Why -- why wouldn't we want to take a ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 174 2 this limited number, 27 powerboat slips, I'm 3 not going to overstate its economic 4 consequence. 5 SECRETARY HARRIS: Yeah. 6 MR. MATTHEWS: But I think we'd take -- 7 SECRETARY HARRIS: When -- 8 MR. MATTHEWS: -- what we could get. 9 SECRETARY HARRIS: -- you're arg-- arguing 10 hardship, and then you're saying 62 boat slips 11 is going to dramatically help hard-- enhance 12 the hardship, I just didn't really know how -- 13 how much added value that creates. 14 But I -- you said that the main issue was 15 the number of slips last time. 16 And, of course, that was a very important 17 issue because so many opposed it since it was 18 outside of the manatee plan that -- that 19 exists. 20 But that -- that really wasn't the main 21 issue. The main issue is still the law. 22 And -- and that's really what -- what I have to 23 come back to. And I'm just looking at my notes 24 from last time. 25 And it says that this public project, that ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 175 2 necessity. And that public necessity is 3 defined as works or improvements that are 4 required for the protection for the health and 5 safety of the public, for which no other 6 reasonable alternative exists. 7 And -- I mean, there -- there are -- there 8 already exists other facilities for the 9 Marine Patrol, there exists other locations. 10 So I'm trying to understand, you know, you 11 really -- for -- for me -- 12 MR. MATTHEWS: Sure. 13 SECRETARY HARRIS: -- you have to 14 demonstrate -- 15 MR. MATTHEWS: Sure. 16 SECRETARY HARRIS: -- why this -- this -- 17 how this complies with the law. 18 MR. MATTHEWS: And -- and, again, our 19 argument was that there are three components of 20 the public necessity that achieve the health 21 and safety of the residents of the City. 22 One is the law enforcement relocation. You 23 either accept or you don't accept that it's an 24 improvement. 25 And the Chief of Police, the Commander -- ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 176 2 MR. MATTHEWS: -- of the Marine Patrol -- 3 SECRETARY HARRIS: -- there's no other 4 reasonable alternative exists. 5 I mean, there is already a reasonable 6 alternative that exists. 7 MR. MATTHEWS: Well -- well, all I can do 8 is show you the letter of November 7th from the 9 Chief of Police directed to your office saying 10 that in their opinion, from a local 11 law enforcement standpoint, this is the most 12 ideal location for them to carry out their 13 mission. 14 And I believe that achieves the standard 15 of -- he's analyzed the river, he's analyzed 16 other locations, their Watson Island location, 17 and simply concluded, this is preferable, that 18 this is the best location. 19 Now, there are others. 20 SECRETARY HARRIS: A reasonable 21 alternative. 22 MR. MATTHEWS: Surely. 23 There -- I mean, he -- he could be located 24 many miles away, he could be located up the 25 river. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 177 2 the best. 3 SECRETARY HARRIS: It is the best. But the 4 law says reasonable alternative. So that was 5 just my -- 6 MR. MATTHEWS: I understand. 7 SECRETARY HARRIS: -- question. 8 And what's the second issue? You said 9 there were three. 10 MR. MATTHEWS: Well, the -- the park 11 integration. We have a three-and-a-half acre 12 park that we're dedicating to the City of 13 Miami. And we're making a promenade that 14 connects to the mainland through the causeway, 15 to, again, connect the Miami River Greenway. 16 That can't be located anywhere else to 17 achieve its recreational benefit. 18 The economic development. Again, if you're 19 going to have an island destination resort, you 20 should be able to have boating access to that 21 island destination resort. 22 All I can suggest to you, if another 23 applicant walks in this door, and they have 24 over a mile of linear shoreline, if they're 25 giving over $500,000 for manatee recovery, if ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 178 2 their land at no cost to the public applicant, 3 and if they're trying to stimulate economic 4 development in a city which is under financial 5 oversight, then I say it's a heck of a good 6 precedent for you to hang your hat on to 7 establish this 26-year old approved marina. 8 It is uniquely burdened, unlike any other 9 applicant you're going to see in this preserve. 10 That's the standard you should use. Are 11 they uniquely burdened by the circumstance -- 12 the -- the totality of those circumstances so 13 that we've partnered private and public to meet 14 every identifiable need that difficult criteria 15 establishes. 16 That's what we've done. 17 TREASURER GALLAGHER: Have you -- 18 If I may. 19 This law that covers this was passed about 20 25 years ago? 21 MR. MATTHEWS: Yes, sir. 22 TREASURER GALLAGHER: Have y'all looked 23 at -- the Legislature to see if maybe the 24 criteria could be changed that would help 25 affect what you're trying to do, as opposed to ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 179 2 MR. MATTHEWS: Well, certainly I'd like to 3 suggest that, given that that's something I do. 4 But, no. I -- I mean, I think the 5 applicants have assessed it and concluded that 6 you get -- 7 TREASURER GALLAGHER: It's the easy way to 8 go. 9 MR. MATTHEWS: Well, you get to determine 10 what extreme hardship means. 11 I mean, it's a standard established by law, 12 but interpreted by you. You are the Trustees; 13 you hold this land in the public trust; you get 14 to decide, is this a beneficial use of that 15 property, given the circumstances I've 16 described. 17 GOVERNOR BUSH: Commissioner Crist? 18 COMMISSIONER CRIST: Thank you, Governor. 19 You say that it does meet now with the 20 manatee protection -- 21 MR. MATTHEWS: Yes, sir. 22 COMMISSIONER CRIST: -- established by 23 Miami/Dade County? 24 MR. MATTHEWS: Yes, sir. 25 COMMISSIONER CRIST: And you state that the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 180 2 this abuts is at 19 percent? 3 MR. MATTHEWS: Yes, sir. 4 COMMISSIONER CRIST: And there are riparian 5 rights that are involved with this. 6 They are held by whom? 7 MR. MATTHEWS: They are held jointly now at 8 this point by Swire Properties and the City of 9 Miami. Portions of that walkway have already 10 been conveyed. 11 So we have a joint ownership of 5500 linear 12 feet. 13 COMMISSIONER CRIST: Would the riparian 14 rights issue raise a private property rights 15 argument -- 16 MR. MATTHEWS: Surely. 17 COMMISSIONER CRIST: -- for the owner? 18 MR. MATTHEWS: Surely. 19 And, again, that would be really the only 20 issue, I guess, for purposes of litigation is 21 trying to, again, balance this very extreme 22 hardship standard against what are the 23 recognized traditional riparian rights, 24 acknowledged in statute, that this preserve 25 cannot infringe upon. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 181 2 going to -- that -- that would be sorted out 3 through the ALJ process, right? Hardship, 4 definition of hardship, where you -- where you 5 need it. 6 MR. MATTHEWS: If you had to go there. 7 GOVERNOR BUSH: Well, that's where you are 8 now. 9 MR. MATTHEWS: We -- well, we are if you 10 reject the settlement proposal. 11 And in response to the General, that's why 12 we're here. 13 You haven't yet rejected the settlement 14 proposal. It would be crazy for us to go to 15 administrative hearing and have them rule on it 16 before you get a chance. 17 SECRETARY HARRIS: Governor, I think all 18 the points that -- that Commissioner Crist 19 makes are -- are all excellent. It's wonderful 20 that you're in compliance with all of these. 21 I think we're -- well, actually, my hands 22 being tied, as I don't -- I don't see you in 23 compliance with -- with this test and the -- 24 and the law. 25 And if -- if you had it changed in the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 182 2 us. Or if -- if the courts ruled differently 3 on extreme hardship. 4 It's just that the three issues, and I -- 5 we went through them, and I said -- you even 6 said, there -- yes, there are other reasonable 7 alternatives, but this is the best. 8 So my problem is that it's not in 9 compliance with -- with how -- with the law. 10 MR. STRUHS: I'm going to play lawyer here 11 just for a minute, and -- and just -- 12 I think -- well, I'm in the Supreme -- I'm the 13 Supreme Court. 14 I can't -- 15 MR. MATTHEWS: Your chance. 16 MR. STRUHS: It's my only -- my only 17 chance. 18 GOVERNOR BUSH: You may become a judge by 19 the end of the day, so be careful. 20 MR. STRUHS: I'm sure I will be judged 21 either way. 22 But I just wanted to -- just for the 23 record, our -- our view as staff to the Board 24 is that you do not have the discretion to 25 define or determine what extreme hardship ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 183 2 If -- if you did have that option, this 3 would be a very different discussion. 4 But, in fact, the -- the statute actually 5 defines extreme hardship. And it defines it 6 saying extreme hardship means a significant 7 burden unique to the applicant, and not shared 8 by property owners in the area. 9 So it has to be -- it has to be peculiar to 10 this owner, and clearly it's not. 11 So I would argue that is -- it's -- as -- 12 as good as the project might be, that you don't 13 have that latitude under the law. 14 GOVERNOR BUSH: We have a couple other -- 15 MR. STRUHS: We do have Jerry Karnas and 16 Charles Lee. 17 Yes, sir. 18 COMMISSIONER BRONSON: Can I ask a question 19 on that last statement? 20 GOVERNOR BUSH: Go ahead. 21 COMMISSIONER BRONSON: I guess my question 22 on that last statement is, so you're saying 23 there are other -- there are other islands, or 24 other landowners out there under the same 25 condition with a residence on it, or -- or some ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 184 2 MR. STRUHS: Yes, sir. 3 And, in fact, the -- the -- the case in 4 point would be back in 1988 when the Board of 5 Trustees denied a lease application for the 6 expansion of an existing grandfathered marina 7 based on -- on this law. 8 So it -- it -- there's some case decisions 9 by the Board of Trustees that proves this 10 point. 11 MR. KARNAS: Jerry Karnas, Save the Manatee 12 Club. 13 The last time Brickell Key was debated 14 before the Board of Trustees, the Dade County 15 Manatee Protection Plan was an important issue. 16 Whether or not this project was in compliance 17 with the Plan was one of the focal points of 18 the debate. 19 The other point of contention was the 20 Biscayne Bay Aquatic Preserve Rule. 21 Thanks to your leadership, the Dade County 22 plan was upheld, and we are considering today a 23 project that complies with the Dade County 24 Manatee Protection Plan. 25 Under the leadership of Governor Bush, and ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 185 2 Excuse me. I'm sorry. I got -- 3 GOVERNOR BUSH: That sounded good. 4 MR. KARNAS: I'm -- you're going to like 5 it, trust me. You're going to like it. 6 Under the leadership of Governor Bush, this 7 Board has done more to support local manatee 8 protection plans than any other Board since 9 1989 was (sic) the directive was issued. 10 Since I am not here that often, it is my 11 pleasure to update you now on the progress that 12 you all have inspired around the state since 13 Sarasota Yacht Club. 14 Indian River County has completed their 15 plan, Sarasota County's plan is just about 16 complete, Martin County's plan is just about 17 done as well. 18 Volusia and Cou-- Volusia County and 19 Broward County are making significant progress. 20 If all goes as expected, five plans will 21 have been completed since Sarasota Yacht Club, 22 which was just only a year-and-a-half ago. 23 It took five plans in a year-and-a-half, it 24 took ten years to get the other four plans 25 done. That is a tremendous accomplishment, and ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 186 2 Although the Manatee Protection Plan issues 3 have been resolved, the Save the Manatee Club 4 still opposes Brickell Key Marina. I do not 5 want to infer, however, that threats to 6 manatees do not persist in Dade County. Two 7 weeks ago, a manatee was killed by a boat 8 within a few miles of this project. 9 Overall, Dade County's watercraft 10 mortalities are up this year from last. This 11 area is a major travel corridor for manatees. 12 This project is not in compliance with the 13 Biscayne Bay Aquatic Preserve rule, and that 14 rule protects manatee habitat. Thus it is a 15 rule of importance to our organization. 16 Your leadership has been so decisive in 17 protecting manatees, now your leadership is 18 needed to protect an ecosystem of state and 19 national importance. The strict standards set 20 forth in the rule are more relevant than ever. 21 This summer, in a University of Miami 22 report -- which I'm going to give to Colleen -- 23 I wasn't able to procure it quick enough to get 24 it to you today -- after the meeting. 25 In this report, Dr. Jerry Alt (phonetic) ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 187 2 fish are being serial over-- serially (sic) 3 overfished in the bay. 4 The recreational fishing fleet since 1968 5 has increased by 444 percent. And it found 6 that stock biomass of crit-- is critically low 7 for most of the targeted recreational fishes. 8 The report asserts that recreational 9 quality of fishing in the bay has eroded to the 10 point that it'll severely hamper tourism in the 11 park in years to come. 12 What this report underscores is the need to 13 remain vigilant in respect to bay management. 14 And one way to do that is to stick to the 15 aquatic preserve rule. 16 In conclusion, I'd like to thank 17 Secretary Struhs, Secretary Ballard, 18 District Head Meeker for their stewardship of 19 the Biscayne Bay. 20 Thank you very much. 21 GOVERNOR BUSH: Thank you. 22 Mr. Lee. 23 MR. LEE: Governor, members of the Board of 24 Trustees, Charles Lee representing Audubon of 25 Florida. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 188 2 good recommendation of your Secretary, 3 David Struhs, to deny this sovereign lands 4 approval in the Biscayne Bay Aquatic Preserve. 5 We agree eminently with the statements that 6 Secretary of State Harris has made today. This 7 does come down to the law. It comes down to 8 what the Legislature wrote in 1974 with regard 9 to the very narrow criteria, intentionally very 10 limited criteria for additional marinas and 11 structures in the Biscayne Bay Aquatic 12 Preserve. 13 It is intentionally, was, and always, we 14 hope, will be, a very narrow keyhole for which 15 only a few limited things of the highest public 16 purpose can pass. And that was the policy that 17 was written by the Legislature, and we think it 18 is -- is -- is carried out faithfully in the 19 rule that applies to this case. 20 I think it's important to recognize the 21 history of this project before the Board of 22 Trustees. 23 Back when Governor Bob Graham was here in 24 1982, a project at this site involving a 25 53-slip marina was recommended for denial by ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 189 2 the very same aquatic preserve rule issues that 3 face this project today. 4 And that project, the -- the applicant 5 retreated, they withdrew it from the agenda 6 when that denial recommendation was made in -- 7 in Governor Graham's administration. 8 When Governor Martinez was here in 1989, 9 the same 53-slip idea at this site was 10 proposed. 11 And again, on the -- on -- on the grounds 12 of extreme hardship and the narrow criteria of 13 this act, the recommendation was -- was for 14 denial, and it was withdrawn at that particular 15 time. 16 What has happened, Governor, and members of 17 the Board, is that the applicant has attempted 18 to try to put a new dress, a new face on this 19 project. 20 And -- and by aligning itself with the City 21 through -- and if you read the agreement with 22 the City, with regard to this area of -- of a 23 city park, it -- it's obviously an agreement of 24 convenience to try to come in under the flag of 25 being a public project, as is tacking on the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 190 2 of -- of -- of the law enforcement activities. 3 I would simply suggest to you that adding 4 those things to the picture does not get this 5 project through -- in its entirety, through 6 that narrow keyhole. 7 If this were a proposal for five or six 8 law enforcement slips standing alone, and there 9 was no other alternative, you could -- you 10 could argue it under the Act. But not the 11 remainder of -- of the 62 slips that it 12 attempts to -- to -- to bootstrap and drag 13 along. 14 I would submit that if the rationale that 15 Mr. Matthews presented to you of -- of -- of 16 aligning with the increase in occupancy of the 17 hotels, or whatever, as a public purpose was -- 18 was seized upon you as a reason under the law 19 to grant this lease, there's little of the 20 shoreline in Biscayne Bay that could not be 21 similarly turned into marinas. There's -- 22 there's nothing anywhere that this Act would 23 remain to protect. 24 We think that the staff of your department 25 has read the law correctly. I think that ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 191 2 And we think the appropriate thing for you 3 to do is to adopt the good staff recommendation 4 that's been presented to you. 5 We believe the Biscayne Bay Aquatic 6 Preserve Act is very important. We ask you to 7 uphold it by denying this proposal today. 8 GOVERNOR BUSH: Thank you. 9 MR. LEE: Thank you. 10 GOVERNOR BUSH: One more speaker. 11 MS. BROWN: Good afternoon. 12 Nancy Brown, Friends of the Everglades. 13 I think Charles has covered a lot of the 14 technical details about the length and 15 legitimacy of the Biscayne Bay Aquatic Preserve 16 Act, so I won't -- I -- I want you to know, 17 because I think it needs to be remembered, that 18 there's a two-fold test before the Governor and 19 Cabinet, and that is that there must be a 20 demonstration of both extreme hardship and -- 21 not or -- but that the project -- not the 22 spin-offs from the project, but the project 23 itself that is in the Biscayne Bay Aquatic 24 Preserve must be in the public interest. 25 Now -- so I'll sign off with that. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 192 2 bill was introduced. And John Cyril Maloy -- 3 probably goes back a long way for a lot of 4 you -- but John Cyril Maloy not only was one of 5 the sponsors, as was the Dade delegation as a 6 general group, went to some of the hearings -- 7 the proposals such as this. 8 And -- and one of them he didn't like what 9 he heard about how the law was being twisted. 10 And at that hearing, he said -- he scolded 11 the applicant. He says, you cannot twist the 12 language of this law like a nose of wax. 13 And I thought that was pretty theatrical. 14 But it really isn't. Because with this 15 application, which is the first application to 16 come this far in the process, I feel that the 17 law here is being turned into a nose of wax, 18 that language is being plucked out of one part 19 of the statute, and shoved into another, and 20 together he's attempting to make new law. 21 All right? And that's not the way it 22 should be. 23 Let me use the language here of the types 24 of projects which are said to be one of the 25 following. So the one they have chosen is the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 193 2 And if you wonder why they don't have all 3 the freedoms that the applicant would like to 4 see, it is because it is a commercial dock, and 5 it has different regulations than, say, a group 6 of condominiums or -- where people actually are 7 in residence. 8 All right. Number two. That was the 9 commercial dock. 10 Then you drop down to number 8, remembering 11 that they said, it can only be one of the 12 following. 13 Number 8 says: Other projects, which are a 14 public necessity, or which are necessary to 15 enhance the quality and utility of the 16 preserve. 17 So then you go down, and you look under 18 extreme hardship, which has been related to you 19 already, that the last line in extreme hardship 20 says: The term extreme hardship may be 21 inherent in public projects which are shown to 22 be of public necessity. 23 And Secretary Harris has already pointed 24 out that this is a marina, and it is not a 25 public necessity. And we know that it is not a ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 194 2 dancing and nose twisting has gone on here to 3 make this a project of the City of Miami. The 4 City of Miami has no ownership, no riparian 5 rights, no nothing. 6 All right. So the public necessity part we 7 look at now. And we're just reading from the 8 definitions in the law. 9 And it says: Public necessity are works or 10 improvements required -- required, not desired 11 or wanted by an applicant -- but required for 12 the protection and the heal-- of the health and 13 safety of the public consistent with the act 14 and rules, and for which no other reasonable 15 alternative exists. 16 And as I probably mentioned the last time I 17 was here, that that has to do with the 18 sewer pipe laid across Biscayne Bay, which we 19 were able to get enforced without this sort of 20 hearing, because it was a public necessity. 21 And a public necessity is not a dock, it is 22 not a pier, it's not a marina. And I think you 23 have judged that accurately when you denied it 24 before. 25 We ask that you deny this proposal again. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 195 2 GOVERNOR BUSH: Thank you. 3 MR. STRUHS: That concludes the speakers on 4 this item. 5 GOVERNOR BUSH: Any comments? 6 ATTORNEY GENERAL BUTTERWORTH: I'll move 7 staff recommendation. 8 SECRETARY HARRIS: Second. 9 GOVERNOR BUSH: There's a motion and a 10 second to deny the applicant's request. 11 All in favor, say aye. 12 THE CABINET: Aye. 13 GOVERNOR BUSH: All opposed? 14 MR. STRUHS: Item 11, we have quite a few 15 speakers, and I'm going to ask -- 16 GOVERNOR BUSH: The vote was -- 17 TREASURER GALLAGHER: Denied. 18 GOVERNOR BUSH: Yeah. Seven/nothing. 19 MR. STRUHS: I -- I was going to -- to ask 20 for your counsel in terms of time limits on -- 21 on speakers on Item 11. There are quite a few 22 people who have come a great distance. 23 GOVERNOR BUSH: If -- it would be great if 24 we could actually -- if we had a time limit, 25 that people would adhere to it. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 196 2 GOVERNOR BUSH: I'll start doing it now 3 I guess. 4 (Comptroller Milligan exited the room.) 5 MR. STRUHS: Well, what -- what I'm -- what 6 I'm going to recommend then is, given the 7 number of speakers and the issue before us, if 8 we could keep comments to about 2 minutes per 9 person, that -- that would -- 10 GOVERNOR BUSH: How many people are here to 11 speak? 12 MR. STRUHS: Well, we've got -- 13 Six -- 14 GOVERNOR BUSH: A lot. 15 MR. STRUHS: Six or seven. 16 So if we could keep it to 2 -- about 17 2 minutes apiece, that would be helpful. 18 Let -- let me describe the item to you. 19 The -- the Department is recommending approval 20 of this item. 21 This is a five-year sovereignty submerged 22 land lease for a public boat ramp and an 23 accessory dock, as -- as well as severance of 24 1,880 cubic yards of sovereignty material. And 25 also a public easement for a dredged access ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 197 2 This is a public boat ramp, it is being 3 constructed or proposed to be constructed on 4 Goodbys Creek, which is near the St. John's 5 River. 6 It conforms, according to the Fish and 7 Wildlife Conservation Commission, with the 8 Manatee Protection Plan for the 9 St. Johns River. 10 And as a part of the application, the -- 11 the applicant has agreed to make sure this is a 12 ramp only, that they're not installing any 13 slips; that they are limiting the parking at 14 this property to 42 parking spaces at the -- at 15 the ramp -- 16 TREASURER GALLAGHER: You -- 17 MR. STRUHS: -- and that they will further 18 downgrade the -- the speed zone. It's 19 currently a slow speed zone. And they will 20 downgrade this to an idle only zone. 21 (Comptroller Milligan entered the room.) 22 MR. STRUHS: And they will mark it 23 appropriately. 24 TREASURER GALLAGHER: I'd like to move 25 Item 11. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 198 2 GOVERNOR BUSH: There's a motion and a 3 second. 4 And we will have some discussion or -- is 5 everybody here all on one side? 6 MR. STRUHS: No, sir. It's -- it's about 7 evenly divided. 8 GOVERNOR BUSH: Okay. Well, let's -- let's 9 allow people to speak. 10 MR. STRUHS: As -- as custom would have it, 11 we'll go with the supporters first. And we 12 have Kim Allerton, with the Environmental 13 Resources Solutions; Quinton White, 14 Jacksonville University; Brad Thoburn from the 15 Mayor's office; and Mr. Carlucci, who is, as 16 you know, the President of the City Council. 17 GOVERNOR BUSH: If we could be brief, it 18 would be great. 19 Mr. President, how are you doing? 20 MR. CARLUCCI: I'm doing fine, sir. 21 GOVERNOR BUSH: Great. 22 Thank you for being here. 23 MR. CARLUCCI: Well, good afternoon, 24 Governor, and honorable members of the Cabinet. 25 I'm going to speak for several of the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 199 2 to keep my remarks brief. I'm in sales, I 3 don't want to oversell. But I don't want to 4 undersell. 5 My name is Matt Carlucci. I'm President of 6 the City Council in Jacksonville, Florida. I 7 began work on this project searching for a site 8 in September 1999, two years. 9 This was not the first location I came 10 upon, it's the last -- 11 (Treasurer Gallagher exited the room.) 12 MR. CARLUCCI: -- location I came upon. 13 I looked at a lot of different locations, 14 and each location I looked at, there were 15 neighborhood objections, and they said, go find 16 another spot, and I did. 17 This was the last spot. 18 Duval County has an approved Manatee 19 Protection Plan. Goodbys Creek is listed as 20 approved for boat ramp construction, with 21 certain provisions. 22 The United States Fish and Wildlife Service 23 stated that the project will have no adverse 24 effect on the West Indian manatee. 25 We will add signs throughout the creek. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 200 2 designating it as an idle only zone. 3 The City of Jacksonville will encumber 4 39 acres of commercially zoned property that is 5 currently under extreme commercial development 6 pressure right now. We will add 7 law enforcement to the creek and the existing 8 area that we don't have now. 9 For the record, the project is supported by 10 the Department of Environmental Protection, the 11 Mayor's office. I have Brad Thoburn here. He 12 could speak on behalf of the Mayor's office. 13 I'm going to speak for him. 14 I hope that's okay, Brad. 15 Jacksonville Waterways Commission supports 16 the project, Fish and Wildlife Conservation 17 Commission supports the wildlife (sic), the 18 Jacksonville City Council unanimously supports 19 the project. 20 The Jacksonville Planning Department 21 supports the project, Congressman 22 Ander Crenshaw supports the project, 23 Jacksonville Parks and Recreation Department 24 supports the project -- 25 GOVERNOR BUSH: What's Mark Brunell's ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 201 2 Playing the game -- 3 MR. CARLUCCI: You know, I forgot to call 4 him. 5 COMMISSIONER CRIST: How about them Bucs? 6 MR. CARLUCCI: I'm -- I'm almost through, 7 Governor. 8 GOVERNOR BUSH: Okay. 9 MR. CARLUCCI: Florida Department of 10 Transportation; Former Mayor Tommy Hazouri; 11 Dr. Quinton White, marine biologist, 12 Jacksonville University; Jacksonville Sheriff's 13 Office; Marine Patrol. 14 The what it's worth category: I have 15 2,428 signatures on petitions. These are my 16 e-mails unsolicited that are for; these are the 17 e-mails unsolicited that were against. 18 This is a huge project for Jacksonville. I 19 could go on -- I've worked on this thing for 20 two years. It's hard for me to get up here 21 and -- and condense it. 22 But I'm just going to tell you, this is 23 what it boils down to: We are the River City, 24 in Jacksonville, Florida. And in the most 25 populated district of our county, we have the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 202 2 us. 3 And that's what this project's about. Not 4 everybody can afford to live on the 5 St. Johns River. But some folks would like to 6 get to it. They have a boat, or they may just 7 want to go to the end of the dock and fish for 8 brim. 9 This is not just about a boat ramp. This 10 is about free public access to the 11 St. Johns River, the most important natural 12 resource that we have. 13 And it flows right under our nose. And 14 because we have such limited access in the most 15 highly dense populated quadrant of the City -- 16 (Treasurer Gallagher entered the room.) 17 MR. CARLUCCI: -- we don't really fully 18 appreciate it. 19 Boat ramp and access will bring an 20 appreciation of this river, it will bring 21 ownership of our people to this river that 22 don't own riverfront property. 23 So I am here to strongly urge your support 24 for the submerged lands lease. 25 I don't know if I've got any time left, but ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 203 2 Dr. Quinton White. 3 Thank you, Governor. 4 GOVERNOR BUSH: Thank you. 5 DR. WHITE: Thank you. 6 Thank you, Governor and Cabinet, for 7 allowing us to -- to present today. 8 I'm Quinton White. I'm a professor of 9 biology and marine science at 10 Jacksonville University. 11 I'm also Dean of the College of Arts and 12 Sciences. 13 In addition, I also represent -- or sit on 14 the Manatee Technical Advisory Council for the 15 State of Florida. 16 I've been studying manatees in Duval County 17 for 25 years, intensely for about the last ten 18 for the City of Jacksonville. 19 Goodbys Creek is a necessary public access 20 to the St. Johns River. As Council President 21 Carlucci said, there are no other sites in the 22 county. 23 You'll hear otherwise, but -- but we have 24 looked and looked and looked. The site is 25 consistent with the Manatee Protection Plan. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 204 2 in Jacksonville. In 1991, we had nine 3 manatee-related boat deaths. We've had zero 4 thus far this year. We've had less than -- 5 average of less than three in the last 6 ten years. 7 So we've seen a significant decrease in 8 deaths. We've had no deaths in this area since 9 1985. So this is not a highly endangered area 10 of manatees. 11 In Goodbys Creek, there are no submerged 12 aquatic vegetation, there is no warm water 13 discharge. Manatees are only there six months 14 out of the year. 15 They migrate in in the spring, they migrate 16 out in the fall. They're there primarily in 17 the spring months and the fall months, where 18 they do, in fact, mate. But they're not there 19 to feed, they're not there to calve, we have no 20 recorded calving incidence in Goodbys Creek. 21 We are proposing that this become an idle 22 speed zone. There's currently a dry storage 23 marina in the creek, there is a rod and gun 24 club with boat slips in the creek, there's a 25 Hooter's restaurant in the creek. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 205 2 in terms of size of boats by a bridge that sits 3 just west of the ramp between it and the 4 St. Johns River. 5 We'll hear some discussion perhaps about 6 the necessity of dredging. Goodbys Creek needs 7 to be dredged, regardless of whether this ramp 8 is built or not. 9 The actual dredging for the ramp itself is 10 minimal. There has been pressure prior to 1999 11 to dredge Goodbys Creek, and there will 12 continue to be pressure for that. 13 There is adequate signage in the St. Johns 14 River. You'll sometimes hear there's not 15 adequate signage. 16 It's interesting, because the other side of 17 the coin, people are saying, oh, there's too 18 many signs. We're probably going to get taken 19 to court for too many signs. 20 So the things I would emphasize is we need 21 it for public access, it's compliant with 22 Manatee Protection Plan, there's adequate 23 signage, and dredging is not an issue for this 24 ramp. 25 Thank you very much. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 206 2 MR. STRUHS: And -- and -- and having 3 collapsed some of those presentations into just 4 two speakers, we're -- we're on schedule. 5 Mr. Kalvin -- Mr. Jim Kalvin is here 6 though, and -- and he's asked to take another 7 minute if he -- if he might. 8 And Mr. Kalvin will be the last speaker in 9 support of the project. 10 Then we have two who will speak in 11 opposition. Then we'll be done. 12 MR. KALVIN: Good afternoon, Governor, 13 Cabinet. 14 My name is Jim Kalvin. And I'm the 15 President and CEO of Standing Watch, which is a 16 statewide boaters coalition throughout the 17 state. 18 After memberships that we took in last 19 week, we're doing a census. But we will, at 20 the end of this week, represent over 21 15,000 people throughout the state of Florida. 22 And our issues are real simple. We want 23 access, balanced with reasonable regulation, 24 adequate law enforcement in consideration for 25 the economics of the region. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 207 2 Commission report that I saw first at the 3 Boaters Advisory Council last month, this ramp 4 means an average income to the City of 5 Jacksonville of about 1.2 million dollars per 6 year. 7 The ramp's economic impact in Jacksonville 8 that exists today are over eighteen million 9 seven hundred thousand dollars, and provide 10 indirect business taxes of over 2.2 million 11 dollars. 12 We back Dr. White's recommendation, we back 13 staff recommendation, and we ask for your 14 consideration of the access of the people of 15 Duval County, our chapter members there, and 16 our chapter members from the rest of the state 17 of Florida who may want to go up and use the 18 St. Johns River. 19 And if there's any of my time left, I'd 20 respectfully like to say thank you, and yield 21 the balance to -- 22 GOVERNOR BUSH: We're not -- we're not 23 into -- this is not like a parliamentary-run 24 Congress or London. 25 So -- ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 208 2 politician yet, but -- 3 GOVERNOR BUSH: You're getting there. 4 MR. KALVIN: Thank you. 5 GOVERNOR BUSH: Thank you. 6 I've got -- 7 MR. CARLUCCI: Governor -- 8 GOVERNOR BUSH: By the -- by the e-mails I 9 get from you, you're pretty good. So -- 10 Yeah, Matt. 11 MR. CARLUCCI: I have an awful lot of 12 people drove up here this morning. 13 Could they stand real quick, please? 14 GOVERNOR BUSH: Yeah. Please. 15 MR. CARLUCCI: Those who are here that 16 came. They got up mighty early. 17 Thank you. 18 GOVERNOR BUSH: Thank you. 19 MR. KARNAS: Jerry Karnas, Save the Manatee 20 Club. 21 Goodbys Creek boat ramp is a tough call. 22 (Commissioner Bronson exited the room.) 23 MR. KARNAS: Due to poor planning in the 24 past, we are now resorting to locating very 25 large boat ramps in creeks in about 5 feet of ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 209 2 Regardless of manatee issues, it's probably 3 not a good idea to locate a boat ramp of this 4 size in a creek of this size. 5 I was hoping today that we could strike a 6 balance between the need for water access and 7 the need for manatees to have an area in 8 urbanized Jacksonville for berthing, breeding, 9 and cavorting. 10 The Save the Manatee Club has, for many 11 years, thought that Goodbys Creek would be an 12 excellent location for a refuge, a refuge that 13 could serve two purposes, to protect manatees, 14 and to create an ecotourism and environmental 15 education opportunity for the people of 16 urbanized Jacksonville. 17 The Club thinks everyone should enjoy 18 Goodbys Creek, but in the appropriate manner. 19 Canoeing and kayaking near birthing or breeding 20 manatees is appropriate, but hovering over them 21 in a powerboat is not. 22 So how can we protect this special place 23 for manatees, and create a boating access 24 opportunity -- 25 (Commissioner Bronson entered the room.) ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 210 2 I have a couple of ideas. 3 Number one is create a refuge in 4 conjunction -- a local county refuge, the first 5 of its kind in the state, with a boat ramp. 6 You have all 42 parking spots, boats go to 7 the left to the river where they're most likely 8 going to go anyway; and canoeists and kyacks 9 have an opportunity to go right. Residents 10 would get a pass to travel the nonmotorized 11 zone. 12 Decrease the number of parking spaces. If 13 approved, this would be one of the largest boat 14 ramps in the county. One would think that the 15 large ramps in the county would be sited on the 16 river, or in the downtown area. Fifteen or 17 twenty parking spaces would be more appropriate 18 for this locale, not 42. 19 Phase in the slips over time. Give an 20 opportunity for the local residents and the 21 Fish and Wildlife Commission to evaluate how 22 the manatees are affected in this area. 23 Approve 24 now, and 24 later after a study. 24 I offered all of these solutions to the 25 City of Jacksonville. None of them were, in my ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 211 2 This area is critical habitat for manatees, 3 and according to the Federal government, this 4 area has inadequate protection measures for 5 manatees. 6 This designation -- this is very 7 important -- means that both facilities cannot 8 increase vessel traffic until protection 9 measures are beefed up on the St. Johns River. 10 What Mr. White failed to mention is is that 11 the Federal government believes that the 12 signage in this area is inadequate, as is the 13 variable with the speed zone buffer. 14 Furthermore, the applicants' argument at 15 the Cabinet Aides meeting was that they will 16 not increase traffic on the creek because of a 17 marina across the way had burned down in the 18 past. 19 Well, that whole argument is now not 20 relevant, because the DEP has just received an 21 application to rebuild that very marina across 22 the creek. 23 This, as I said before, is a very tough 24 call. This is a time where the Club calls on 25 the Board to exercise its discretion, and to ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 212 2 approach. 3 Thank you very much. 4 GOVERNOR BUSH: Thanks. 5 Thank you. 6 MR. STRUHS: I'm -- excuse me. I'm just 7 going to -- to correct the record. 8 I think Mr. Karnas was at one point talking 9 about 42 slips. 10 MR. KARNAS: Parking spaces. 11 MR. STRUHS: And -- and he -- and he meant 12 spaces. There are no -- there are no slips 13 with this project. 14 GOVERNOR BUSH: He said it right one time. 15 MR. STRUHS: I'm sorry. 16 I wanted to make sure there was no 17 confusion. 18 MR. VONN: Good morning. 19 I -- I hope it's still morning -- 20 GOVERNOR BUSH: No, it isn't. 21 MR. VONN: -- anyway. 22 I'm Brian Vonn. I'm a resident of 23 Jacksonville, and I'm -- 24 GOVERNOR BUSH: Welcome. 25 MR. VONN: -- a volunteer with the ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 213 2 I'm also representing the Goodbys Waterway 3 Association, which is a coalition of neighbors 4 along Goodbys Creek. They did an excellent job 5 of putting together a lot of factual 6 information in the booklet that they're handing 7 out right here. 8 I'm representing the 24,000 members of the 9 Florida Sierra Club. 10 You know, Goodbys Creek is clearly a well 11 documented habitat for manatee. I think it's 12 very important to realize that during the 13 survey in '99, there were 80 manatees, 14 including seven calves in that creek. And it's 15 a very small, narrow creek. And there's many 16 well documented cases of manatees mating and 17 birthing in that creek. 18 So it's very prime habitat for the 19 procreation of that species. 20 The absence of grass beds is frequently 21 made a factor why it's not an issue to have a 22 boat ramp. Obviously for mating and birthing, 23 you don't need grass beds. It's not part of 24 that activity. 25 Also manatees have a very imprinted ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 214 2 repeatedly, because they have done so 3 historically for thousands of years. 4 We're not going to change their behavior, 5 except detrimentally. 6 Also the -- the group did a very wonderful 7 job in your handout here of calculating the 8 density of manatees in this tributary. 9 They took the survey from Duval County, 10 they took the acreage from the St. Johns 11 Water Management District, and they calculated 12 out of the eight tributaries in Duval County. 13 Goodbys Creek has a 43-times density of 14 manatees. So they are very dense in this 15 creek. 16 Consequently, it's pretty obvious, this 17 shows that boating activities in this creek 18 will have a far higher impact than they would 19 anywhere else. Obviously if manatees are 20 dense, boats are a major issue. 21 Goodbys Creek basin is also a habitat for 22 other species, including the endangered 23 wood stork. And it's used for other activities 24 such as the Bolles School Rowing Team uses the 25 creek, because it is quiet, small, and narrow. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 215 2 that is protected under the Endangered Species 3 Act in the Fish and Wildlife Service rules. 4 As you all realize, essentially the Act 5 states that harm includes impairing central 6 behavior, such as breeding and birthing, not 7 just outright wounding and killing of the 8 manatees. 9 That said, the manatees are under great 10 pressure. Virtually all of them have prop 11 scars. I've seen it myself. I've gone 12 snorkeling with them out at Crystal River. 13 And clearly it's the responsibility of the 14 agencies to protect the manatees, including 15 cumulative impacts, which is one of the big 16 flaws of the study that's been done. No 17 cumulative impacts have been evaluated here. 18 And all this was also well established with 19 the recent settlement of the Save the Manatee 20 Club versus Ballard, where there were 21 19 plaintiffs, including the Sierra Club, and 22 it was all about cumulative impacts on the 23 manatee and the will of the agencies to back up 24 the Endangered Species Act. 25 Again, I'm not an attorney, so I really ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 216 2 try to characterize it too much. 3 We're concerned that the due diligence of 4 the boat ramp on the manatees was not done by 5 the agencies. We basically feel the City did a 6 flawed study, handed it to the agencies, and 7 the agencies rubber stamped it with their 8 approval. 9 And I'm about to point out all the flaws 10 that are in this study that was done by the 11 City. And the whole City's premise is that 12 there'll be no net boating increase because of 13 the historical use of the marina. 14 And one of the major flaws the City study 15 did is they compared wet slips in the marina to 16 parking spots in the boat ramp. And this is 17 apples to oranges, because the utilization rate 18 is different. 19 Obviously wet slips, when you drive by 20 them, you see the boats there bobbing up and 21 down. 22 The -- again, the -- the homeowners 23 association did a wonderful job with the 24 calculation. They got the industry 25 standards -- they didn't make this up -- they ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 217 2 industry that shows that only 5 to 10 percent 3 of boats in wet slips are in use at any one 4 time. 5 Clearly, at a boat ramp, the parking 6 spaces, if there's a boat there, that boat's in 7 use. It's like 100 percent utilization. 8 Using that calculation, they came up with a 9 350 percent increase in boating activity from 10 the ramp, as compared to the old marina. 11 Also the agencies didn't establish a clear 12 baseline of boating activity in the creek. 13 They merely compared the marina against the 14 ramp. They didn't show how many boat trips are 15 going to be in that creek, given all the 16 sources of boating activity. 17 And also the study didn't account at all 18 for usage patterns. Obviously a lot of boaters 19 will also go upstream as tourists. 20 They didn't distinguish between the fact 21 that there are three lanes in the new ramp, and 22 one lane at the marina. 23 And they misrepresented a lot of facts 24 about when the marina went out of use. They 25 stated it went out of use in '98. It burned ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 218 2 They misrepresented when slips were used. 3 Some of the slips in their count went out of 4 use in -- in the '80s. 5 Bottom line, we're real disappointed. We 6 think the City showed bad faith on manatee 7 protection. That creek has not been dredged in 8 30 years. It doesn't need dredging. Yet the 9 City did not show that as part of a 10 comprehensive disclosure of their activities 11 for the ramp. 12 They didn't tell us they're planning on 13 dredging it. They've had public hearings. 14 They were aware of the fact that there's a 15 fast trick -- fast track permit to open 13 wet 16 slips at the old marina. These were approved 17 by the City as part of the development of a 18 Walgreen's at the old marina site. The City 19 knew that they were going to reopen wet slips. 20 The City also states that they'll implement 21 idle speed and signs with the ramp. Excuse me. 22 But they could do that now. I -- I personally 23 am offended if someone withholds protection 24 unless I do something for -- that they want. 25 They could be protecting the manatees ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 219 2 Also, there is already a reasonable -- 3 GOVERNOR BUSH: Are you -- 4 MR. VONN: Time? 5 MR. STRUHS: If you could wrap it up. 6 GOVERNOR BUSH: Yeah. 7 MR. VONN: Okay. I will wrap up. 8 My apologies. 9 MR. STRUHS: That's all right. 10 MR. VONN: The conclusion points really are 11 that -- 12 GOVERNOR BUSH: It's a great tradition, by 13 the way, around here. No one seems to listen 14 to the -- 15 MR. VONN: I'm -- I'm sorry. 16 GOVERNOR BUSH: -- so you're not -- 17 you're -- you're in good company. 18 MR. VONN: Anyway, the -- the bottom line 19 is the proposed ramp will have a large increase 20 in boating. It is not an equal amount of 21 boating. And it's a very important manatee 22 habitat. 23 And basically the neighborhood group, with 24 their careful work, show that this is three 25 times more boating in a -- a tributary that has ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 220 2 The study is seriously flawed, it doesn't 3 show a historical baseline, it doesn't show the 4 true impact of the ramp, and it doesn't show 5 the regional cumulative impacts on the manatee. 6 And I thank you. 7 GOVERNOR BUSH: Thank you very much for 8 coming. 9 MR. STRUHS: That concludes the speakers, 10 and this is the last agenda item for the Board 11 of Trustees. 12 GOVERNOR BUSH: Any discussion? 13 Is there a motion? 14 TREASURER GALLAGHER: Motion. 15 GOVERNOR BUSH: Has it been moved and 16 seconded already? 17 TREASURER GALLAGHER: And seconded. 18 GOVERNOR BUSH: We're going to have a vote. 19 All in favor? 20 THE CABINET: Aye. 21 GOVERNOR BUSH: All opposed? 22 The motion passes. 23 MR. STRUHS: Thank you. 24 GOVERNOR BUSH: Thank you all very much. 25 ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 221 2 Improvement Trust Fund Agenda was concluded.) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 222 2 Administration. 3 (Commissioner Bronson, 4 Attorney General Butterworth, 5 Commissioner Crist, and Secretary Harris exited 6 the room.) 7 (Discussion off the record.) 8 GOVERNOR BUSH: Okay. Item 1. 9 MR. HERNDON: Item 1 is approval of the 10 minutes of the meeting held November 14th. 11 GOVERNOR BUSH: Is there a motion? 12 COMPTROLLER MILLIGAN: The minutes we're 13 talking about? 14 GOVERNOR BUSH: Minutes. Yes. 15 COMPTROLLER MILLIGAN: I -- I would be 16 happy to move the minutes from the November 14 17 meeting. 18 TREASURER GALLAGHER: Second. 19 GOVERNOR BUSH: Is there a second? 20 Moved and seconded. 21 Without objection, it's approved. 22 MR. HERNDON: Item Number 2 is approval of 23 a fiscal sufficiency of an issue not exceeding 24 50 million dollars State of Florida, full faith 25 and credit, Department of Transportation right ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 223 2 bonds. 3 TREASURER GALLAGHER: Motion -- 4 COMPTROLLER MILLIGAN: Move Item 2. 5 GOVERNOR BUSH: Moved and -- 6 TREASURER GALLAGHER: Second. 7 GOVERNOR BUSH: -- moved and seconded. 8 Without objection, it's approved. 9 MR. HERNDON: Item Number 3, approval of a 10 fiscal sufficiency not exceeding twenty-five 11 million five hundred thousand dollar State of 12 Florida, Florida Board of Education, 13 Florida State University housing facility 14 revenue bonds. 15 TREASURER GALLAGHER: Motion. 16 COMPTROLLER MILLIGAN: Second. 17 GOVERNOR BUSH: Moved and seconded. 18 Without objection, it's approved. 19 MR. HERNDON: Item Number 4, approval of a 20 fiscal sufficiency not exceeding 35 million 21 dollars State of Florida, Florida Board of 22 Education, university system improvement 23 revenue bonds. 24 TREASURER GALLAGHER: Motion. 25 COMPTROLLER MILLIGAN: Second. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 224 2 Without objection, it's approved. 3 MR. HERNDON: Item Number 5, approval of a 4 fiscal determination of an amount not exceeding 5 five million one hundred and fifty thousand 6 dollar tax exempt, and one million seven 7 hundred and fifteen thousand dollar taxable, 8 Florida Housing Finance Corporation, Housing 9 Revenue Bonds for the Sheridan Place Apartments 10 in Manatee County. 11 COMPTROLLER MILLIGAN: Move it. 12 TREASURER GALLAGHER: Second. 13 GOVERNOR BUSH: Moved and seconded. 14 Without objection, it's approved. 15 MR. HERNDON: Item Number 6 is a request of 16 approval for the following rules. All of these 17 rules regard the investment of our local 18 government investment pool, which is a pool of 19 money that the Board manages on behalf of local 20 governments. 21 All of these rules are -- 22 GOVERNOR BUSH: Can we -- can we have a -- 23 everybody please be quiet so I can -- I'm hard 24 of hearing when there's a lot of noise. 25 I must have listened to too much rock music ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 225 2 MR. HERNDON: All of these rules are -- are 3 primarily procedural in fashion. And there was 4 no hearing requested. There's no controversy 5 associated with the rules. 6 TREASURER GALLAGHER: Can I ask a question 7 on it? 8 MR. HERNDON: Yes, sir. 9 TREASURER GALLAGHER: What -- what is the 10 reason for the changes in the rules? 11 Is this allowing those of us easier access, 12 is it allowing a method of -- of figuring what 13 the interest rate is? Just -- what are we 14 doing here? 15 MR. HERNDON: Well, it does a variety of 16 things, some of which you just described, some 17 of which it also brings the -- the investment 18 pool into compliance with Federal regulations 19 that have recently been updated and so forth. 20 And we can go through these -- I mean, I 21 don't -- 22 TREASURER GALLAGHER: I just want to -- 23 MR. HERNDON: Yeah. 24 TREASURER GALLAGHER: -- in generally 25 what -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 226 2 It -- it clarifies some of the procedures 3 for the members of the pool. As you know, it's 4 all local governments out there so that they 5 understand exactly how transfers of monies in 6 and out are -- are conducted, it addresses the 7 question of how to calculate the net asset 8 value of the funds and so on and so forth. 9 GOVERNOR BUSH: Colleen, could you go 10 outside -- 11 TREASURER GALLAGHER: Easier access -- 12 GOVERNOR BUSH: -- tell them to please -- 13 MR. HERNDON: Beg your pardon? 14 GOVERNOR BUSH: I'm sorry. 15 TREASURER GALLAGHER: Does it give easier 16 access to the local government to the pools? 17 MR. HERNDON: I -- I don't know that you'd 18 characterize it as ease of -- of access 19 necessarily, because they essentially wire 20 money in and out throughout the day now. It's 21 pretty straightforward for the most part. 22 It's primarily procedures in terms of how 23 we calculate the NAV and so forth. 24 TREASURER GALLAGHER: Will this give them 25 an -- a higher interest rate in general, or ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 227 2 MR. HERNDON: I -- I'm doubtful of that. 3 Let me -- 4 TREASURER GALLAGHER: It doesn't really 5 pool long-- longer-term money and shorter-term 6 money -- 7 MR. HERNDON: No. Let me ask Barbara, 8 who's here; and Cindy Gokel, who is here. 9 But -- 10 MS. THOMAS: No. 11 MR. HERNDON: -- my recollection is it -- 12 it really doesn't have any bearing on the 13 duration of the pool's investments, or anything 14 like that. 15 TREASURER GALLAGHER: Move it. 16 COMPTROLLER MILLIGAN: Second. 17 GOVERNOR BUSH: Moved and seconded. 18 Without objection, it's approved. 19 MR. HERNDON: Item Number 7 is hopefully 20 the final recommendations of the staff of the 21 State Board regarding the selection of bundled 22 providers for the PEORP program. 23 As you'll recall -- 24 GOVERNOR BUSH: Can I -- can I -- 25 MR. HERNDON: -- at your last -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 228 2 we proceed, just to -- to maybe simplify this 3 process a bit? 4 MR. HERNDON: Yes, sir. 5 GOVERNOR BUSH: Because it has a tendency 6 to -- has a chance of -- of running off into 7 the sunset. And I think we've -- we've had 8 enough discussion. 9 What I would suggest, Tom, is that we -- 10 you present the item generally, and maybe give 11 us an update on what's happened in the last 12 two weeks; allow individual speakers that are 13 not affiliated with any of the bundled 14 providers to speak. 15 And -- and I don't know if any others have 16 signed up. But Tom Cerra is here, as well as 17 Russell Bjorkman. 18 And then present each company. And you can 19 make a critique of their pros and cons in terms 20 of the -- their investment alternatives and 21 their fees and services they're going to 22 provide, and allow us to vote up or down on 23 each one of them going forward. 24 And then I guess there'd be the -- the five 25 bundled providers, plus the -- we probably need ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 229 2 self-directed brokerage. 3 Is that acceptable for the -- 4 COMPTROLLER MILLIGAN: That's outstanding. 5 TREASURER GALLAGHER: Yeah. 6 I -- I just want to mention one thing, just 7 because I feel like I should. 8 As General Milligan knows, we've had some 9 problems in the deferred comp area. And one of 10 those problems is when a -- when a bundled 11 provider provides a number of investments that 12 people can choose, obviously some are better 13 than others. 14 And one of the options is here that -- 15 probably are going to take would be to 16 eliminate those in a group that don't perform 17 as well as others in a group perform. 18 That way hoping that we wouldn't be 19 limiting what people could choose to go into, 20 and sort of be forced into feeling they were 21 locked into just, you know, one particular 22 provider when they basically should have the 23 ability to choose from other ones. 24 And I -- I throw that out, because I'm 25 concerned that we have -- I know everybody ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 230 2 the deferred comp with 150 separate places for 3 people to choose. 4 I think that's impossible for people to 5 figure out when you end up with that many, with 6 some things people really shouldn't choose. 7 But they're there, and they can choose them. 8 And sometimes they can get talked into them. 9 So I throw that out just as an alternative 10 that I think we should think about. 11 And with that, I'll turn it back over to 12 Mr. Herndon. 13 GOVERNOR BUSH: Okay. I -- I've thought 14 about -- I mean, I don't -- I think that would 15 really change the whole path that we've been on 16 for the last -- seems like a decade, but it's 17 been just a year. 18 And they still -- people still have the -- 19 the opportunity to choose, don't they, 20 Commissioner? 21 I mean, that -- that's part of your efforts 22 here, I think, has created a -- about as 23 unbundled a bundled provider system for people 24 so that they can take advantage of the bundled 25 nature of this, or they can pick and choose ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 231 2 I mean, you're giving -- really it's at 3 your insistence that that happens. 4 So -- 5 TREASURER GALLAGHER: Well, I think that -- 6 one -- I mean, one of the things is that the 7 products that are offered by each, you know, 8 are the -- the best products that bundled 9 providers offer, in most cases. But some are 10 better than others. Let's -- I want to 11 mention. 12 I'm not sure that it's always easy for 13 people to see that. 14 I know in the deferred comp plan, when you 15 get into a bundled provider, you can't get out, 16 and you're sort of there. 17 And this does allow you to do that. I 18 don't know how one would know to do it. But 19 I guess that would be up to our -- the 20 education -- 21 COMPTROLLER MILLIGAN: I believe -- 22 TREASURER GALLAGHER: -- for the 23 employee -- 24 COMPTROLLER MILLIGAN: -- one of the things 25 that we tried to get at in the most recent ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 232 2 that may be agreed to, was our ability to get 3 rid of poor performance. 4 And -- and I think that in large part 5 alleviates the concern that I think we both 6 share about deferred compensation. 7 And so that it gives us the clout 8 besides -- jawboning I think was the term we 9 used last time -- gives us -- and I hope we are 10 able to have far more clout than jawboning. 11 TREASURER GALLAGHER: Well, my -- if I may, 12 just pursue that. 13 I'm not sure what a poor performer is. We 14 have -- I mean, we can pick one where there's 15 five separate choices that I see here. 16 And they range from -- and I'm going to use 17 the five-year annualized -- annualized net, 18 from a 22.2 return to as low as a 15.9. 19 COMPTROLLER MILLIGAN: I -- I -- I think -- 20 TREASURER GALLAGHER: That's a pretty big 21 range. 22 COMPTROLLER MILLIGAN: I think though that 23 part of the negotiation process, and correct me 24 if I'm wrong -- 25 TREASURER GALLAGHER: Could you get closer ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 233 2 COMPTROLLER MILLIGAN: -- the problems -- 3 TREASURER GALLAGHER: Because I don't know 4 about the rest of you, but I'm having a hard 5 time hearing you. 6 COMPTROLLER MILLIGAN: Well, I'm hard to -- 7 maybe I'd better sit down here. 8 I -- I believe that -- 9 GOVERNOR BUSH: That's a bad sign. 10 COMPTROLLER MILLIGAN: -- an important part 11 of the negotiation process is to, in fact, try 12 to define the parameters for identifying poor 13 performance. 14 Obviously you just can't pull out of the 15 sky the idea that this is -- it's a poor 16 performer, and another one is not. 17 Because part of the negotiation process 18 would include defining parameters for 19 establishing when a particular product is a 20 poor performer. 21 Is that fair, Tom? 22 MR. HERNDON: Yes, sir. 23 In fact, we've looked at a number of 24 different strategies. We haven't decided on 25 one at this point. But we've talked about them ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 234 2 And they all are generally amenable to 3 established protocol that they could all 4 follow. 5 TREASURER GALLAGHER: Well, and -- and 6 it'll be basically where -- I mean, somebody 7 has to make a final decision without it going 8 through administrative hearing and everything 9 else, which you're going to have, when you have 10 a poor performer. 11 So I think there should be something in 12 there, whether you bring it to us, and we 13 probably have to make a final judgment of 14 whether we agree with you or them, whether it's 15 a poor performer or not. 16 At least -- 17 COMPTROLLER MILLIGAN: Well, if -- if -- 18 TREASURER GALLAGHER: -- criteria. 19 COMPTROLLER MILLIGAN: -- we accept any 20 bundled providers today, I presume that we in 21 contract negotiations, I would assume, we'll 22 see those contract negotiations and resolve 23 them. 24 MR. HERNDON: Yes, sir. 25 And, in fact, what we would contemplate is ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 235 2 decisions here today, the investment products 3 and the relevant benchmark for those investment 4 products. 5 And then typically what occurs is that the 6 plan sponsor in this case, the FRS; and the 7 vendor agree on a period of time, six quarters 8 of performance, for example, or three years, or 9 some amount of time at which point if a fund 10 has underperformed the benchmark, they're 11 either put on some sort of watch list, or 12 they're automatically triggered a 13 recommendation to you to -- to delete that 14 particular investment product. 15 And those specifics we haven't resolved. 16 But that's the kind of process we would 17 contemplate. 18 TREASURER GALLAGHER: Would they -- 19 COMPTROLLER MILLIGAN: Recommending, 20 Governor, we get on with it though. 21 TREASURER GALLAGHER: Would they be 22 different for different funds? 23 MR. HERNDON: They could be, yes, depending 24 on the nature of the product and index fund, 25 for example, probably going to have a ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 236 2 managed fund that takes on more risks and 3 so forth, you would expect that they would 4 perform a little bit better in the former case 5 and be less volatile. 6 So you may have a little bit -- you 7 certainly have a different benchmark. And you 8 may have a slightly different time period 9 involved in it, and so forth. 10 TREASURER GALLAGHER: Okay. 11 GOVERNOR BUSH: Very good. 12 MR. HERNDON: Well, Governor, members, as 13 you'll recall at the November 14th meeting, you 14 sent us off to negotiate with the five proposed 15 finalists, which we were able to do on the 16 successive two-and-a-half days after the -- the 17 meeting. 18 We had very good discussions with all five 19 of the firms. All five of the firms were very 20 cooperative and very cordial in the 21 discussions, and we made a great deal of 22 progress. 23 In fact, we eliminated the concerns that we 24 had up to that point regarding interaction with 25 the third party administrator. We also ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 237 2 regarding transition issues. 3 As you'll recall, there were a number of 4 organizations where the mutual funds that they 5 were marketing had an inability in some cases 6 to accept in-kind transfers. Those have 7 largely gone away. 8 And we've also largely resolved any 9 lingering concern that we had over compliance 10 issues, the kind of thing that you were just 11 describing, for a poor performing fund. 12 All of the firms have agreed -- and, 13 in fact, were quite willing to step up and say 14 that that would not be a problem for them. 15 They're all accustomed to those kinds of 16 situations when they do occur. And they were 17 more than happy to enter into a contract that 18 stipulated those kinds of -- of procedures. 19 We also were successful in every respect in 20 lowering the fees for the various proposals. 21 And while costs still remains a paramount issue 22 in this equation, all of them were thoughtful 23 enough to bring their costs more closely in 24 line with one another. 25 So basically, in our view, the issue boils ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 238 2 education. 3 We also looked at, because I know it's been 4 discussed at some length, the -- the context in 5 which most large defined contribution plans 6 operate throughout the country, and the context 7 in which large -- or -- or defined contribution 8 plans operate throughout the country and 9 provide your offices with some insight along 10 the lines of what are the average number of -- 11 of investment options and so on and so forth. 12 And ultimately what we did, so that you 13 have some appreciation for how we arrived at 14 the recommendation, was we took all five of the 15 companies and all of their investment choices, 16 and we calculated two different kinds of risk 17 adjusted returns, the kind that we have used 18 throughout this process, the excess return 19 ratios, and then we also calculated the 20 information ratio, which is the ratio that the 21 folks from Fidelity have proposed as an 22 alternative. 23 We also calculated gross adjusted returns, 24 and net adjusted returns, so you've netted out 25 the fees. And we've given you a calculation ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 239 2 the unbundled line-up, and the degree to which 3 they have the best in class products in their 4 line-up. 5 And all of those things we displayed on the 6 various spreadsheets. 7 And we have the ability to look at each 8 individual company's offerings, compared to 9 each other company's offerings, and tried to 10 craft a line-up that we thought was diverse 11 enough -- in other words, it cut across a 12 number of specific asset classes that presented 13 us with the best probability of outperformance, 14 that gave us the best fee structure, and 15 complemented the educational program the best. 16 And after doing that kind of analysis, it 17 was our recommendation that three firms should 18 be considered for further examination. 19 And those are the three firms that are in 20 front of you today: Prudential, Nationwide, 21 and Fidelity. 22 And that's not to suggest in any sense that 23 the other two firms aren't very worthwhile 24 organizations. They certainly are. But we 25 just felt like that gave you 30 different ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 240 2 array of options across a number of investment 3 classes, it eliminated the specific 4 duplications where we didn't think it was 5 beneficial to the membership, and it tried to 6 capture the strongest performance and -- and -- 7 and cost track record that we could. 8 So that's how we got to where we are today. 9 I know you want to go into some of the 10 specifics, which we can do in just a moment. 11 But as you mentioned, Mr. Cerra and 12 Mr. Bjorkman are both here as individuals. And 13 perhaps now would be the appropriate time for 14 them to go ahead and speak. 15 GOVERNOR BUSH: I think so. 16 If they could briefly speak, it would be 17 appreciated. 18 Thank you, Tom. 19 MR. CERRA: Governor, Trustees, my speech 20 originally said good morning, but it's now 21 good afternoon. 22 The fundamental premise of the defined 23 contribution program is that every employee, 24 who so chooses, will be empowered to take 25 control of his or own (sic) retirement program, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 241 2 No State bureaucracy should substitute that 3 for that empowerment. This is not the State's 4 retirement program. It is the employee's 5 retirement program. 6 They are not the State retirement funds any 7 longer, they are the employees' retirement 8 funds. And 300,000 education employees, 9 represented by the Independent Retirement 10 Commission, clearly have said they want the 11 broadest possible choice of products and 12 services. 13 I represent the Independent Retirement 14 Commission. We've been working for four years 15 on this issue. It is the only organization of 16 its kind in America to represent a coalition of 17 school system employees, including teachers and 18 management, and elected school officials, under 19 one umbrella in the pursuit of a single common 20 goal: Modernizing the State Retirement System. 21 Today you have yet another SBA 22 recommendation before you. Now that you -- the 23 SBA has negotiated the last, best, and final 24 offer for the third time, you are receiving 25 three names. And if the Trustees accept them, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 242 2 more time. 3 Neither -- never mind the fact that five 4 companies were recommended by your SBA 5 Advisory Committee, and that has now been 6 reduced to three. 7 Never mind every time you get a list of 8 providers, it changes. Never mind that the 9 negotiations that were supposed to satisfy the 10 employees' desire for a full range of bundled 11 services have produced instead a watered-down 12 version of bundled services that now are really 13 unbundled, not bundled. 14 The very essence of a defined contribution 15 plan is to allow employees to take 16 responsibility for their futures. The IRC 17 represents more than half of those employees in 18 FRS, and we know they're prepared to take that 19 responsibility. 20 We know that because we have surveyed them. 21 And they want the widest possible choice, they 22 want investment provider choice. 23 In that survey, 88 percent of the employees 24 said they wanted brand name companies, 25 nationally recognized companies. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 243 2 to ten companies. The issue today before you 3 is three to five. But they wanted five to ten. 4 But the SBA staff is negotiating plans, and 5 squeezing potential providers so that ultim-- 6 ultimately the people we represent still will 7 not have the full range of choice they want. 8 They still won't have access to providers who 9 will be able to offer them the full breadth and 10 scope of bundled services. 11 The SBA effectively has unbundled the 12 bundled providers to the point where today now 13 there is no true bundled choice. 14 That's the point we find ourselves, a long 15 way from where the employees said they wanted 16 to be. 17 All this is being done in the name of low 18 costs. Keep it down, keep the costs down. 19 Price is the single most important issue, 20 according to the SBA. 21 But -- and announced as the SBA's own 22 in-house program has clearly shown that its 23 program may not be the lowest cost program 24 available. 25 In fact, the only true unknown element in ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 244 2 untried, unbundled, in-house approach being 3 allocated by the SBA staff with a $200 per hour 4 advisement session that doesn't count against 5 their costs. 6 I am, by training and experience, a 7 negotiator. I've always operated and done 8 successfully on the basic premise of good faith 9 bargaining. There has been no good faith 10 bargaining anywhere in this process. 11 From the onset, the SBA has not wanted the 12 DC program. They opposed the DC program 13 initially. 14 GOVERNOR BUSH: Tom, how we doing in -- 15 MR. CERRA: I'm almost finished, Governor. 16 GOVERNOR BUSH: Okay. 17 MR. CERRA: When it failed, they went on to 18 come up with a plan where there would be only 19 one provider. 20 When that failed, they came up with this -- 21 this plan that's before you here today. 22 We respectfully submit to you, we believe 23 that more in this case is better. We are not 24 concerned about too many choices. We want the 25 employees to have the ability that every survey ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 245 2 that choice, we want the options that we 3 believe are absolutely necessary for this to 4 work. 5 Self-determination is the core of a 6 successfully defined contribution program. You 7 are about to make a decision between private 8 enterprise and public bureaucracy. 9 It's ironic, in the area of government 10 downsizing, privatizing, and public school 11 choice, the issue before you here today is to 12 whether or not to let private enterprise in. 13 GOVERNOR BUSH: It is ironic. 14 MR. CERRA: I repeat, the fundamental 15 premise of the defined contribution plan is to 16 empower employees to take control of their own 17 retirement futures. 18 Governors (sic), Trustees, it's before you 19 today. 20 GOVERNOR BUSH: That irony goes both ways, 21 by the way, since the teachers are embracing 22 choice. 23 That's an exciting -- exciting thing. 24 MR. CERRA: We led the way, Governor. And 25 it's not just the teachers, it's the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 246 2 TREASURER GALLAGHER: -- choice. 3 GOVERNOR BUSH: I know. I'm excited about 4 that. 5 Across the board. 6 Mr. Bjorkman. 7 Parents included, right? 8 MR. CERRA: Yes, sir. 9 TREASURER GALLAGHER: But the -- 10 MR. BJORKMAN: Hi. 11 GOVERNOR BUSH: Hi. 12 MR. BJORKMAN: Good morning -- or 13 afternoon. 14 I'll be brief. And going after Tom always 15 makes me a little milder. 16 The -- I think that I appreciate the 17 opportunity to have been involved in this 18 process for the last several years. 19 I am thankful for your time, and I am quite 20 sure that your recent decision is going to be 21 much better than the decision that came out of 22 this very building a year or so ago. 23 If I may -- if I may, I'd like to summarize 24 real quickly the way that I see this event. 25 A DC program has been mandated. On the one ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 247 2 they can do it best, and they should run the 3 company store. 4 The other hand is private enterprise that 5 says that they can do it best, and they want to 6 have a shot at the action. 7 In my opinion, in the middle is the 8 employee participant. And what's best for them 9 is obviously the decision that you're trying to 10 make. 11 And in my view, that decision is a choice 12 between the company store and the individual 13 private enterprise provider. 14 Excuse me. 15 I label this as choice competition in the 16 free market without confusion. 17 And that's what, Commissioner Gallagher, 18 you've talked about and I agree with, the 19 confusion of the existing deferred comp 20 program. But this program is designed very 21 differently. 22 It was my understanding that what the 23 educational content was to be, was to be DB/DC, 24 asset allocation, and all of the tools that 25 were available to the people. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 248 2 line-up of funds and some bundled providers. 3 There should be a level playing field that 4 I'm sure you're going to talk about in a 5 little bit as to how you create that level 6 playing field. But I think that that's one of 7 the choice concepts that should be here. 8 I have faith that the participant employees 9 can make those choices. I really do. I don't 10 think it should be a company store with one of 11 individual -- of each individual product. 12 Is that a little more difficult to operate? 13 Absolutely. 14 But is it doable? 15 Yes, I think it is doable. 16 I'm a -- I'm a little disappointed, quite 17 frankly, in the way that the staff has 18 approached this in that rather than work 19 towards putting a program together as to how to 20 deliver this series of choices without 21 confusion, it appears to me that the effort has 22 been to figure out how to dismantle a bundled 23 line-up of funds. 24 And once again, I'm confident that as the 25 next few minutes goes on, you're going to ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 249 2 The -- excuse me -- the magic number. I 3 don't think there is a magic number. I believe 4 that five is a nice table setting. 5 Would I be totally upset if there was six? 6 No. 7 Do I think ten is too many? 8 Absolutely. 9 Part of the design in the duplication of 10 fund concept question that you had, 11 Commissioner Gallagher, was if you roll back 12 the clock to the way that this was designed, 13 each -- each company was allowed to put three 14 funds for each of the individual categories up. 15 Part of that negotiation process was to 16 have in -- was to reduce the duplication of 17 funds. That was part of that design. 18 Unfortunately, the way this has all either 19 unraveled or come together, that's been lost. 20 But I do believe that that can be accomplished. 21 One thing that I would encourage you to do 22 as you make your final decisions is that this 23 program go forward as a complete program, not 24 on separate tracks with bundled providers and 25 unbundled providers. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 250 2 Now, it appears to me that a danger of that 3 is that it could be delayed because of the 4 Administrative Procedures Act. I don't know 5 that answer. 6 But I do think that it needs to go forward 7 together, not in a separate -- in a separate 8 state. 9 The -- there's been a lot of discussion 10 about the 30.5 basis points, et cetera. 11 What I would share with you about that is 12 that 1 hour of time, and a $10,000 transfer 13 balance would be a 200 basis point charge. So 14 30.5 basis points doesn't seem all that high. 15 Yes, sir. 16 TREASURER GALLAGHER: Just ask a question. 17 You're right, except if you take that 18 30.5 basis points is for every single year as 19 long as a person's there. And when you 20 multiply that out, it -- it becomes $20,000, 21 30,000, depending on, you know, how much 22 money's there. 23 So that's a pretty expensive one visit, 24 compared to $200. 25 MR. BJORKMAN: Yes. And -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 251 2 have a chance to visit that subject more 3 specifically -- 4 MR. BJORKMAN: Okay. 5 TREASURER GALLAGHER: Let me just ask -- 6 just -- 7 MR. BJORKMAN: I -- 8 TREASURER GALLAGHER: -- counter -- 9 MR. BJORKMAN: I -- 10 TREASURER GALLAGHER: -- the way you made 11 it, it's like it's a one-year deal. If it was, 12 great, that's -- 13 MR. BJORKMAN: You're -- 14 TREASURER GALLAGHER: -- fine. 15 MR. BJORKMAN: You're right. Except -- 16 except that financial planning should not be 17 done in a vacuum, which means an annual review, 18 an annual assessment of the investments and the 19 specifics of that individual. 20 And so the -- with a -- with a 30 basis 21 point fee -- and I'm not -- I don't mean to 22 overly be pulling or pushing for VALIC here, 23 but I am trying to discuss this fee for service 24 versus the all encompassing concept. 25 Probably a good analogy that no doubt ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 252 2 service concept. 3 Some people are happy to pay a per minute 4 charge, some people would rather have an 5 all inclusive charge. I think that's a pretty 6 good analogy. 7 And once again, to me, the beauty of that 8 is choice. 9 And I understood that one of the major 10 components of the educational -- of the -- of 11 the independent educational approach here was 12 to explain that bundled cost concept in this 13 whole process. 14 That's what I understood a big part of this 15 educational component was. 16 GOVERNOR BUSH: So can you -- can you wrap 17 it up? 18 MR. BJORKMAN: Yes, sir. 19 COMPTROLLER MILLIGAN: Quick question, 20 Governor. 21 Clarify your forward together -- 22 MR. BJORKMAN: My who what? 23 COMPTROLLER MILLIGAN: -- statement. 24 You made a comment that -- at first, going 25 forward together as a concern. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 253 2 MR. BJORKMAN: Sure. 3 If -- if there are complaints, objections, 4 whatever, that end up in the Administrative 5 Procedures Act, and that stalls all bundled 6 providers moving forward, and that allows -- 7 COMPTROLLER MILLIGAN: Okay. So the 8 reference was not to something that the State 9 Board of Administration is doing that would -- 10 MR. BJORKMAN: Not necessarily. 11 COMPTROLLER MILLIGAN: -- going forward 12 together if there were bundled providers. 13 MR. BJORKMAN: Yes, sir. 14 I -- I think the answer to that's yes. 15 GOVERNOR BUSH: You don't want to -- you 16 don't suggest -- what you want to avoid is 17 having one option available and another not 18 available -- 19 MR. BJORKMAN: Not available. 20 Right. Yes, sir. 21 Okay? 22 COMPTROLLER MILLIGAN: All right. 23 MR. BJORKMAN: That answer it? 24 I obviously will be here. 25 Thank you. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 254 2 Okay. 3 I think we now are going to go -- 4 MR. HERNDON: To recap, Governor, just 5 briefly. 6 What we did was try to construct a -- a 7 line-up that gave you a pretty wide amount of 8 diversification that eliminated unduplicate -- 9 unduly expensive or unnecessary duplication, 10 and tried to discharge your fiduciary 11 obligation to the members of the pension fund 12 to ensure that you did, in fact, exercise 13 judgment in trying to pick the best products 14 that gave you the highest probability of 15 performance success at the lowest cost. And 16 you can't escape that. 17 For those reasons, we recommended three 18 bundled providers. And I want to make one 19 comment because it's -- it's important to -- to 20 keep it in mind, I think. 21 And that is that we recommended three 22 bundled providers, keeping in mind the concept 23 of a bundled provider. 24 I mean, we could have, as 25 Commissioner Gallagher suggested, come to you ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 255 2 approach. That was clearly an option for the 3 staff to recommend, and, frankly very tempting 4 in some respects. 5 But we didn't feel like that was congruent 6 with the concept of a bundled provider. If 7 you're going to pick a bundled provider, then 8 you theoretically ought to have access to a 9 wide array of investment products that span the 10 risk return spectrum. 11 Otherwise, a bundled provider is not doing 12 you the appropriate kind of service that ERISA 13 and all the other statutes require. 14 So we recommended three. 15 The first one that we recommended was 16 Prudential. And the reasons for recommending 17 Prudential, in our view, were fairly 18 straightforward. 19 They consistently have the best performance 20 across virtually all of the investment 21 categories; they have a very solid diversified 22 line-up; and the lowest cost, by far. In fact, 23 they rival the unbundled program. 24 They were also willing to tailor their 25 print materials to complement the educational ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 256 2 TPA or compliance issues. 3 In many respects, they were the best of the 4 bundled providers as you look at performance, 5 cost, and education. 6 I frankly don't have anything contrary to 7 say about them in the -- in the way of -- of 8 cons. 9 Now, obviously, as you've already pointed 10 out, we will sit down with -- with them and go 11 through contracts. But many of the contract 12 terms are already clearly understood by both 13 parties. 14 I'd be very surprised if we run into 15 significant hurdles at that stage in the 16 process. 17 GOVERNOR BUSH: Okay. Would someone from 18 Prudential like to speak? 19 If not, we'll have a vote right now. 20 COMPTROLLER MILLIGAN: Let -- let me ask 21 one question. 22 That does include -- your recommendation 23 includes eliminating the utility sector. 24 MR. HERNDON: Yes, sir, it does. 25 The utility sector product that Prudential ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 257 2 no quarrel with that. 3 We were concerned that it was the only 4 industry sector that was selected out -- 5 I mean, we could have gone to technology; or we 6 could have gone to, you know, cell phones; or 7 we could have gone to insurance; and so on, and 8 so on. 9 And we just really were not comfortable at 10 this particular time with a recommendation to 11 isolate the utility sector on a stand-alone 12 basis. 13 But that recommendation is part of the 14 overall recommendation as it relates to 15 Prudential. 16 TREASURER GALLAGHER: Tom, let me just -- 17 GOVERNOR BUSH: Commissioner -- 18 TREASURER GALLAGHER: -- point out on your 19 first page of that Appendix 3 -- 20 MR. HERNDON: Yes, sir. 21 TREASURER GALLAGHER: -- on your total 22 number of funds on your left -- 23 MR. HERNDON: Yes, sir. 24 TREASURER GALLAGHER: You actually have 25 seven there, I believe, instead of six for ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 258 2 And on the next page, you go down to six; 3 is that correct? 4 MR. HERNDON: That's correct. 5 COMPTROLLER MILLIGAN: Well, with that, 6 I'll -- I'll move that we accept Prudential as 7 a bundled provider in -- in the offering -- 8 TREASURER GALLAGHER: I second it. 9 COMPTROLLER MILLIGAN: -- defined 10 contribution. 11 GOVERNOR BUSH: There's a motion and a 12 second. 13 I think you're also including the 14 elimination of the -- 15 COMPTROLLER MILLIGAN: I'm including 16 that -- the -- as -- 17 TREASURER GALLAGHER: Six -- 18 COMPTROLLER MILLIGAN: -- presented with 19 the elimination of the utility sector. 20 TREASURER GALLAGHER: Appendix 4. 21 COMPTROLLER MILLIGAN: Yes. What is shown 22 in -- in -- 23 Yes. Whatever that's called. Six 24 providers. 25 GOVERNOR BUSH: Okay. Any other ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 259 2 There's a motion and a second. 3 All in favor, say aye. 4 THE CABINET: Aye. 5 GOVERNOR BUSH: All opposed? 6 Okay. 7 MR. HERNDON: The second -- 8 GOVERNOR BUSH: Progress. 9 MR. HERNDON: -- the second company that we 10 recommended was Nationwide. 11 Nationwide also presented us with a strong 12 and diversified investment line-up. They had 13 the second lowest fees of any of the bundled 14 providers, and high scores for complementary 15 and best in class products. 16 Their educational program also gave us an 17 opportunity to complement the -- the 18 educational program that'll be offered at the 19 core PEORP level. 20 They do have some employees in Florida -- I 21 might add, by the way, that all five of the 22 companies had a very strong Florida presence, 23 as they all service a large number of employees 24 in Florida, and they all have facilities and 25 employees and so forth. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 260 2 performance, their costs, and their educational 3 program, in our view, they also provided us 4 with a strong degree of -- of comfort that they 5 were a very good provider in that context. 6 GOVERNOR BUSH: Does someone from the 7 company like to speak? 8 MR. HERNDON: No. 9 GOVERNOR BUSH: Good. 10 That's -- 11 COMPTROLLER MILLIGAN: Well, I -- I would 12 move that we accept Nationwide, with the 13 elimination of -- of those two products, the 14 mortgage backed, and -- 15 MR. HERNDON: The MidCap growth. 16 COMPTROLLER MILLIGAN: -- MidCap growth 17 I think is right, Tom? 18 MR. HERNDON: That's correct. 19 TREASURER GALLAGHER: I second that. 20 COMPTROLLER MILLIGAN: A total of six 21 products. 22 GOVERNOR BUSH: There's a motion and a 23 second. 24 Any other discussion? 25 All in favor, say aye. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 261 2 MR. HERNDON: The third company that we 3 recommended -- 4 GOVERNOR BUSH: Those opposed? 5 Did I hear -- 6 TREASURER GALLAGHER: I -- 7 GOVERNOR BUSH: Oh, I'm sorry. 8 MR. HERNDON: I'm very sorry, Governor. 9 TREASURER GALLAGHER: I seconded. 10 GOVERNOR BUSH: Motion passes unanimously. 11 MR. HERNDON: The third company that we 12 recommended was Fidelity. Here, too, we have a 13 strong line-up for complementary and best in 14 class. 15 In fact, the -- by our little ranking 16 system, they scored the highest in that 17 particular category. 18 They had the third lowest fees of the -- of 19 the group, very strong performance, and a very 20 strong educational program. They do operate 21 eight walk-in centers throughout the 22 state of Florida that will be available to our 23 members, and that, too, was a plus, as we saw 24 it. 25 All three of these organizations are ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 262 2 educational program, but also to providing 3 complementary educational services. 4 And as you know, this has been a -- a point 5 of some dispute. And I think we're going to 6 have an opportunity to talk about that in a 7 moment in a little bit more detail. 8 But Fidelity certainly was an organization 9 that we felt comfortable with recommending. 10 GOVERNOR BUSH: Is someone from Fidelity 11 here that would like to speak? 12 Very good. 13 COMPTROLLER MILLIGAN: They're all keeping 14 a low profile. 15 GOVERNOR BUSH: Maybe that'll change coming 16 up here. We'll see. 17 COMPTROLLER MILLIGAN: I'm -- 18 GOVERNOR BUSH: Is there a motion? 19 COMPTROLLER MILLIGAN: Yes. 20 I'll -- I'll move Fidelity as -- accept 21 Fidelity -- accept Fidelity. 22 A question on number of products, Tom? 23 MR. HERNDON: Yes, sir. 24 COMPTROLLER MILLIGAN: How many? 25 TREASURER GALLAGHER: Six. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 263 2 well. The recommendation contemplated that we 3 not include the core bond aggregate that 4 Fidelity was proposing at 32 basis points for 5 essentially what was an indexed bond product. 6 We felt like that was -- was high in 7 relative terms. And as a consequence, we 8 recommended that that one not be rolled 9 forward. 10 GOVERNOR BUSH: Is there a second? 11 TREASURER GALLAGHER: I'll second. 12 GOVERNOR BUSH: Moved and seconded. 13 Any other discussion? 14 All in favor, say aye. 15 THE CABINET: Aye. 16 GOVERNOR BUSH: Opposed? 17 Motion passes. 18 MR. HERNDON: Now we move to a much more 19 difficult set of recommendations, and ones that 20 we make with a certain amount of reluctance. 21 Aetna was the next company that we looked 22 at. Aetna is a fine organization, and they 23 have an awful lot of good investment products. 24 We did feel like, however, that when you 25 looked at them in terms of what they added to ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 264 2 performance and costs, that there was a 3 fall-off from the first three. 4 It is not dramatic, I'd be the first one to 5 say that. But, nevertheless, we felt like 6 30 investment choices did give us a good set of 7 diversified options. 8 And for that reason, as I indicated, we -- 9 we reluctantly did not include Aetna. But I 10 certainly would say to you again that -- that 11 they're a fine organization, they have good 12 products, and -- and good services, and 13 offer -- also offer an educational program that 14 is a positive contributor to the program. 15 But we felt like under the circumstances we 16 had three bundled providers offering 17 30 products, and that that was a sufficient 18 number. 19 COMPTROLLER MILLIGAN: In -- in your 20 discussions, Tom, did you talk about, 21 for example, eliminating the mortgage backed 22 product that Aetna has, and are -- and are 23 similar to the Nationwide? 24 MR. HERNDON: We did talk with each of the 25 firms about some of the specifics. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 265 2 back to my negotiation notes on Aetna and that 3 specific product. I don't recall for certain. 4 But we did talk with each of the companies 5 and express some concerns about some instances 6 where there was some duplications and so forth. 7 And I -- I just frankly don't recall that 8 one -- 9 COMPTROLLER MILLIGAN: Well, it would seem 10 to me -- 11 MR. HERNDON: -- in particular. But -- 12 COMPTROLLER MILLIGAN: -- that, you know, 13 if, for example, they use that particular 14 product as an example, and eliminating it from 15 Nationwide, because of the -- and the reasons 16 that you gave -- 17 MR. HERNDON: Uh-hum. 18 COMPTROLLER MILLIGAN: -- makes sense that 19 you would want to pull that from Aetna, if we 20 were going to consider it. 21 MR. HERNDON: Correct. 22 COMPTROLLER MILLIGAN: And for that matter, 23 they're a MidCap growth, which is at 72. And 24 I believe you eliminated Nationwide there also 25 at 75. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 266 2 And we also had concerns about the stable 3 value, which in Aetna's case was a little bit 4 higher priced. And, you know, there were a 5 number of instances where we had concerns, and 6 again, trying to kind of keep within the -- the 7 concept of a bundled provider offering, a 8 fairly wide gamut of investment products, it 9 seemed to us that we were beginning to do an 10 injustice to Aetna if we started to recommend 11 that those things be deleted. 12 So in fairness, we thought it probably was 13 best not to recommend them -- 14 GOVERNOR BUSH: If -- if -- if you were 15 going to recommend them, which you didn't do -- 16 but -- 17 MR. HERNDON: Yes, sir. 18 GOVERNOR BUSH: -- had you recommended them 19 and you were to go to six, which seems to be 20 the symmetrical number -- 21 MR. HERNDON: Purely coincidental, 22 Governor. 23 GOVERNOR BUSH: Oh, is it? 24 MR. HERNDON: Yes, sir. Absolutely. 25 GOVERNOR BUSH: If you were to go to six, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 267 2 would the two that he mentioned be the ones 3 that would more likely go -- 4 MR. HERNDON: Yes, sir. Probably so. 5 Looking at the products that we have 6 available, certainly the mortgage backed would 7 be a product of some concern, the MidCap growth 8 products -- I'm just trying to look at these 9 quickly -- would be a concern -- the high yield 10 product may be an area of concern. 11 Again, depending on how the rest of the 12 line-up shakes out. 13 But -- but -- but those three, and perhaps 14 the stable value, you'll notice that you've got 15 Nationwide -- 16 GOVERNOR BUSH: That's six. 17 MR. HERNDON: -- there and Prudential. 18 So -- 19 GOVERNOR BUSH: Kind of down to close to 20 zero. So -- 21 MR. HERNDON: Well, and I don't -- 22 GOVERNOR BUSH: -- the question was -- 23 MR. HERNDON: -- I don't mean to do that. 24 I -- but -- but we had some concern about 25 some -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 268 2 MR. HERNDON: -- duplication there. 3 COMPTROLLER MILLIGAN: -- deal with this 4 thing, it makes sense out of -- out of the 5 recommendations that you made, and -- and the 6 three clear recommendations, and at the same 7 time, we're going to listen to Aetna, and -- I 8 presume, and they'll have something to say -- 9 GOVERNOR BUSH: Well, maybe we -- maybe, 10 Tom, you could talk to -- is there someone from 11 Aetna here to speak? 12 MR. HERNDON: Yes, there is. 13 GOVERNOR BUSH: Good. 14 Maybe they could speak, and then you could 15 come back and -- 16 MR. HERNDON: That'd be fine. 17 COMPTROLLER MILLIGAN: I'd like to hear 18 their thoughts on -- 19 GOVERNOR BUSH: Well, that's good. 20 Welcome. 21 COMPTROLLER MILLIGAN: -- and -- of the 22 firm. 23 MR. HOLGATE: Thank you, thank you. 24 Sorry to break your streak in -- 25 GOVERNOR BUSH: No, no. I -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 269 2 Governor, General, and Treasurer, my name's 3 Gregg Holgate with ING Aetna Financial Services 4 here in Tallahassee, Florida. 5 I brought with me Carolyn Harris Burney 6 from Connecticut. As you might imagine, not 7 too hard to talk her on a -- onto a plane to 8 Florida here in November. 9 GOVERNOR BUSH: Glad you came. 10 MS. HARRIS BURNEY: Thank you. 11 MR. HOLGATE: I'll -- I'll let you set the 12 pace. 13 If you just want me to address that 14 question directly. Otherwise I'll -- I'll come 15 down these remarks, General. 16 COMPTROLLER MILLIGAN: Well, I -- I -- that 17 question needs to be addressed. But I think 18 the bigger question is why you think you ought 19 to be in the mix -- 20 GOVERNOR BUSH: Yeah -- 21 COMPTROLLER MILLIGAN: -- despite the 22 recommendation. 23 MR. HOLGATE: Fair enough. 24 Why don't we start there, and I'll come 25 back to your question. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 270 2 relatively briefly, that'd be great. 3 MR. HOLGATE: Be brief, be bold, and be 4 gone. 5 I -- I sub-- I submit to you that the first 6 thing we would tell you is that we have been 7 very respectful of the process. We hold the 8 SBA and their staff in the highest regard. 9 We think, while this has been a rigorous 10 process, and as you mentioned, a decade-long 11 process this year, it -- it clearly has been a 12 thorough one. 13 We are involved in these processes, as you 14 might imagine, around the country. This one, I 15 can tell you, has been unparalleled. And 16 clearly the intent of staff has been the best 17 thing for the participant. We commend them on 18 that. 19 We are proud that our basic philosophy has 20 been to come up with a way to complement, 21 without complicating. We think that the 22 terrific process that is in place can be 23 augmented by our firm. 24 We are happy to tell you that we've been 25 recommended by Callan, by Mercer, even by the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 271 2 point out here, including going into the 3 negotiations after -- after November 14th, with 4 perhaps the best fund line-up, according to the 5 SBA. 6 We left your meeting on the 14th, and 7 negotiated in good faith. We -- we made a 8 concession on every point that the staff asked 9 us to. 10 I believe while my counterparts from the 11 other firms may disagree, I believe we're the 12 only firm that can stand here and say that to 13 you today. 14 We -- we also believe that this is quite 15 close, and perhaps simply too close to call. 16 If we were half a lap behind the track, we'd 17 have stayed down there and let you keep your 18 streak going here. 19 But we do believe -- we do believe that we 20 are quite close. The SBA recommendation that 21 is in front of you even says we are perhaps the 22 third in terms of price, rather than the 23 fourth. 24 I come back to the investments because, as 25 the Treasurer has made clear with regard to the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 272 2 augment the plan and complement, if we don't 3 provide superior investments at a price that 4 gets the participant where they need to go, it 5 doesn't matter. 6 So to that, allow me to quote from the 7 I-S-I-G report of November 1st of the SBA 8 staff. 9 In their conclusion, they say: Since net 10 investment performance represents approximately 11 two-thirds of the total I-S-I-G evaluation, 12 ING Aetna ranked first in the moderate services 13 proposal due to the quality of their investment 14 products. 15 It is in that context that we went into 16 negotiations to articulate our value-added 17 proposition. 18 I would like to introduce Carolyn 19 momentarily to talk a little bit about how we 20 believe we can work with the SBA under their 21 auspices, and talk to a portion of the populace 22 that perhaps may not receive this message 23 otherwise. 24 Carolyn? 25 MS. HARRIS BURNEY: Thank you so much. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 273 2 delight to be here to talk to you about 3 ING Aetna's domestic emerging market strategy. 4 We started this strategy three years ago. 5 Our senior management group started this 6 strategy to embrace diversity in the financial 7 services industry. 8 And certainly here in Florida at this 9 point, nothing could be more important. 10 Florida obviously has a very diverse 11 population, and many people of diverse 12 backgrounds work for the public sector. 13 And so these elements start to come 14 together. We've learned that 15 African Americans, Latinos, and women think 16 differently about money. Culture affects the 17 decisions that we make, and culture affects the 18 way we invest our dollars. In many instances, 19 we're investing dollars for the first time. 20 And unless someone comes to us from a -- an 21 approach that respects the cultural backgrounds 22 that we bring to the table, we often will miss 23 the point. We won't make the best investment 24 choices that are good for our families, and for 25 the goals that we've set for ourselves. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 274 2 sector about why people in the public sector, 3 particularly African Americans, Latinos, and 4 women are not full participants, not fully 5 taking advantage of these investment options. 6 And they -- the answer often comes back 7 that it's not part of the culture of the public 8 sector to talk about these types of investment 9 options. 10 Well, you're certainly making that part of 11 the culture here in Florida. And as you do 12 that, I suggest strongly to you that you 13 consider the cultural aspects of 14 African Americans, Latinos, and women. Build 15 that into the program. 16 ING Aetna will be very happy to work with 17 the SBA to bring the expertise we've developed 18 over these three years to help you make this 19 plan as effective for all of your employees as 20 possible. 21 Thank you so much for the opportunity to 22 talk with you. 23 Gregg. 24 MR. HOLGATE: Thank you. 25 And I will summarize. I -- I know your ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 275 2 But I think what's important to note here 3 is that we provide -- we -- our intent has 4 always been to provide a complementary fund 5 menu, as well as complementary service. 6 We heard the message to be fee for service. 7 We have accomplished that. We offer -- we 8 stand ready here today to offer up our fund 9 menu, our services, a combination of the 10 holistic approach to this group in an effort to 11 best provide the participants of the state of 12 Florida plan with the optimal retirement plan. 13 GOVERNOR BUSH: Thank you very much. 14 Any questions? 15 COMPTROLLER MILLIGAN: Well, that didn't 16 really address the -- the one specific issue of 17 that mortgage backed. 18 MR. HOLGATE: The short answer is, yes, 19 General. We -- 20 COMPTROLLER MILLIGAN: It would be a 21 stand-alone, and probably would be -- would 22 have been I guess disagreed with by the SBA in 23 negotiation? At least -- 24 MR. HOLGATE: The short answer is yes, 25 General. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 276 2 money market fund from our line-up as our 3 stable value fund has a full liquidity feature, 4 as requested by this group, thereby, negating 5 the need for a money market fund. 6 The short answer is, we -- we would love to 7 be on a level playing field with the three who 8 have already been voted in, and have six funds 9 in there. 10 Having said that, we will work with the 11 staff to determine what those right six are. 12 And if it's not to have the mortgage backed, 13 certainly comfortable with that. 14 GOVERNOR BUSH: Okay. 15 Any other questions? 16 Tom? 17 Do we have to -- if -- I -- do we need to 18 have the six in front of us that -- if there 19 was to be six -- do we need to have that in 20 front of us when we vote on this? 21 We do, don't we? 22 MR. HERNDON: To a degree, I think that's 23 probably -- 24 GOVERNOR BUSH: Probably best -- 25 MR. HERNDON: -- probably the case. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 277 2 MR. HERNDON: I would -- 3 GOVERNOR BUSH: -- renegotiate. 4 MR. HERNDON: -- I would beg you not to 5 send us back to -- to -- to negotiate again. 6 We've had so much fun up to this point. 7 The -- the mortgage backed is a concern, as 8 is the high yield. To a degree, that depends 9 on what happens with the balance of the 10 program. 11 The stable value we're going to have based 12 on essentially what is already authorized, so 13 to speak, a Prudential stable value and a 14 Nationwide stable value, both of which appear 15 to be a little bit superior products certainly 16 on the basis of costs. 17 So that's also a question. 18 But, I mean, I appreciate that it's 19 difficult to try and work through all of these 20 specifics -- 21 GOVERNOR BUSH: Well, I think there's a -- 22 MR. HERNDON: -- on the fly. 23 GOVERNOR BUSH: -- bit of a level of -- and 24 while this is unbundled bundled, it's still 25 bundled in the sense of -- that people are ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 278 2 MR. HERNDON: Yes, sir. 3 GOVERNOR BUSH: -- products and make the 4 case. And there's a -- there's a minimum 5 number I think, and -- and obviously there's a 6 maximum number emerging as well. 7 But there is a minimum number that would 8 make it -- if you don't have six, you put 9 the -- if -- again, I'm -- I'm saying all this 10 in the conditional that -- that there's a 11 positive vote. It may not be the case. 12 But I would suggest that there be six. 13 MR. HERNDON: Well, the other concern that 14 I would -- 15 GOVERNOR BUSH: With -- with the proper 16 range, you know. 17 MR. HERNDON: That -- that was precisely 18 the point I was going to make, Governor. 19 If you -- if you looked at ING Aetna's 20 offerings, and you were to tackle, for example, 21 the mortgage backed and the high yield, those 22 eliminate two of the three essentially fixed 23 income products that are in Aetna's proposed 24 line-up, leaving them with just a stable value 25 as the only kind of quasi-fixed income product. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 279 2 offerings. 3 That's a fairly biased kind of line-up, so 4 to speak. You know, it's not impossible -- and 5 I suspect that the folks from Aetna would 6 prefer to have the stable value than the 7 others, but I don't really know. 8 To a degree, this is a function of how they 9 assume assets would flow in, and their pricing 10 structure for their various products. 11 But certainly as you look at the 12 mortgage backed and the high yield, those two 13 are a little problematic from our perspective. 14 But -- but whatever's your pleasure at 15 this -- at this point. 16 COMPTROLLER MILLIGAN: You make it tough, 17 Tom. 18 GOVERNOR BUSH: Not -- not providing a 19 whole lot of -- 20 COMPTROLLER MILLIGAN: Well, I -- 21 MR. HERNDON: Well -- 22 COMPTROLLER MILLIGAN: -- I -- I'll take a 23 wag at this. 24 I -- I would suggest that -- I -- I would 25 offer that we accept Aetna as a bundled ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 280 2 mortgage backed, and based on the other 3 products that -- that are there, and, granted, 4 there's some pricing advantages or 5 disadvantages with the elimination of the 6 mortgage backed and the -- and the MidCap 7 growth. 8 And don't ask me for the logic on MidCap 9 growth, other than just a balance. 10 GOVERNOR BUSH: It creates the spectrum 11 that's necessary. 12 COMPTROLLER MILLIGAN: Yeah. Not skewing 13 it one way -- 14 TREASURER GALLAGHER: But your high -- your 15 high yield fixed income is not -- 16 COMPTROLLER MILLIGAN: But I -- but 17 I think -- I think Tom made a very good point 18 there that -- 19 TREASURER GALLAGHER: You need something or 20 the -- 21 COMPTROLLER MILLIGAN: -- they need 22 something on that side of the fence. And -- so 23 I'm not going to quibble over it. 24 Let the buyer decide whether they want to 25 pay that price. That's what this is all about. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 281 2 Is there a second? 3 I'll second it. 4 Just -- is there any more discussion? 5 Were you going to second it, if -- if you 6 like. 7 TREASURER GALLAGHER: Yeah. 8 GOVERNOR BUSH: Okay. He was. Okay. 9 Very good. 10 All in favor, say aye. 11 THE CABINET: Aye. 12 GOVERNOR BUSH: All opposed? 13 The motion passes. 14 MR. HERNDON: The final company is VALIC. 15 And they do have a representative here, 16 Mr. Bob Condon, the -- the CEO -- President and 17 CEO of VALIC is here. 18 And here our concern really is I guess 19 threefold. And not in -- in this particular 20 order necessarily, but all three of the 21 concerns are -- are significant ones. 22 In the first instance, their performance 23 was, among the five companies that we're 24 looking at, consistently the poorest. That is 25 a function of the fact that their costs are the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 282 2 a -- to a large degree, those factors are 3 interrelated. 4 And the -- and the reason that their costs 5 are the highest -- and I'm not trying to pass 6 value judgments on this. But it is I think a 7 fact that their pricing model builds in the 8 aforementioned thirty-and-a-half basis points 9 for an educational program. 10 And our concern has been all along that 11 that is a high fee for a limited service, and 12 one that largely is duplicative of what is 13 available in the balance of the program, and 14 that we strongly endorsed a more fee for 15 service approach. 16 So essentially our concerns were -- were, 17 as I said, threefold: Performance record is 18 not the best; the cost record is high; and the 19 educational program, in our view, was 20 duplicative. 21 And I know Mr. Condon would like to speak 22 to those points. And -- 23 GOVERNOR BUSH: Can you say the three 24 again? I'm sorry. 25 MR. HERNDON: Beg your pardon? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 283 2 MR. HERNDON: Their -- their performance 3 is, among the five, the worst -- 4 GOVERNOR BUSH: Right. 5 MR. HERNDON: -- that -- it is a function 6 of the fact that their costs are the highest. 7 And the reason their costs are the highest is 8 it builds in the educational program, which -- 9 GOVERNOR BUSH: So they're all -- really, 10 I mean, the three concerns are all one. 11 MR. HERNDON: Oh, it -- that's correct. 12 I'm saying that they are interrelated, and they 13 all essentially tie back to their -- to their 14 pricing and marketing model, which is to 15 provide education to all parties. 16 And -- and I know Mr. Condon wants to speak 17 to that. 18 GOVERNOR BUSH: Welcome back. 19 MR. CONDON: Thank you. 20 I kind of feel like I should get the 21 Chamber of Commerce award for -- for this town. 22 GOVERNOR BUSH: We appreciate you coming. 23 MR. CONDON: Thank you for having me back. 24 I appreciate it, General, Treasurer, and 25 Governor. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 284 2 what the issue is as far as where VALIC is 3 somewhat different in terms of the evaluation, 4 and certainly in the opinion of the SBA. 5 We've given you a small packet. I'm not 6 going to walk you through this in detail. But 7 I -- I'll leave it with you for reference. But 8 there are a few pages, and we've numbered them 9 so that I can refer you to them specifically. 10 But the very first page, I just think in -- 11 in terms of reassessing the spirit in which the 12 renegotiations were conducted, we just wanted 13 to point out that there were 20 categories 14 of -- of renegotiation. 15 I'd like to call your attention to line 5, 16 which was the additional fee concessions. And 17 in that case, because we had previously 18 discovered and agreed that -- the necessity for 19 doing recordkeeping was no longer there. That 20 combined with the fact that we're able to 21 eliminate a trustee function. 22 And then just basically a -- just a general 23 additional price concession in -- in the spirit 24 of a final final best offer, an additional 25 3 basis points, we reduced our overall fees ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 285 2 reduction from where we were after the previous 3 best and final offer. 4 And so, again, not only did we agree to all 5 the stipulations in terms of the negotiation, 6 but specifically came down in price as well. 7 And then finally, the one area where we did 8 not come to an agreement in the renegotiation 9 on line 20 is this issue of fee for service 10 versus the fully bundled approach. And we -- 11 we could not come to an agreement on that. 12 And I think that what that calls into 13 question is really the whole value proposition 14 of what we're about, and what we believe needs 15 to be done in terms of a true bundled provider 16 that can offer choice. 17 And so on page 2, we've just kind of 18 restipulated what the process was, and what we 19 think went on during the process. 20 I mean, we went through, as you know, 21 numerous reviews: The -- the Callan fund 22 review; the 12 risk measures; the -- the -- the 23 two Mercer reviews; the EIG report, which 24 really did call into question the fact that we 25 were somewhat marked down on that report ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 286 2 was also accompanied by another issue that had 3 to do with the way we compensate our 4 representatives. And in the renegotiation, we 5 removed that issue. 6 And then finally, the TPA IG report and -- 7 and the ISG (sic) recommendation, in which we 8 consistently came out as the company that was 9 number one in significant service, significant 10 service meaning that we did bring a value to 11 the people who wanted to make a choice. 12 As the staff recommendations have come 13 down, first of all, there was one 14 recommendation of no bundled providers, and -- 15 and then finally this recommendation where 16 this -- there was three out of the five. 17 Again, with the idea that -- that we 18 believe there has been just a consistent 19 attempt to unbundle the bundled providers down 20 to the point of where they are strictly a 21 mutual fund provider, and not a true 22 significant service provider. 23 I would like to take you, for example, to 24 page 7. And I'll -- I'll be happy to go back 25 over any of these other pages. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 287 2 down to the current recommendation that's in 3 front of you. The SBA staff has said that we 4 duplicate three other fund offerings, and that 5 we refuse to change. 6 Actually, we would only be duplicating if 7 you didn't remove certain funds from the other 8 providers, which you actually have done today. 9 And in the negotiations, actually the only 10 issue that was raised was on one fund, which 11 was the stable value. And we did offer a 12 substitution, which would have been a 13 Ginnie Mae fund. So we did actually offer to 14 do a substitution there. 15 We also could substitute other funds if 16 there is duplication, because -- 17 GOVERNOR BUSH: I think that was the issue. 18 I think we're -- the fee for service is 19 probably -- 20 MR. CONDON: Okay. 21 GOVERNOR BUSH: -- the issue being focused 22 on. 23 MR. CONDON: All right. And then -- 24 GOVERNOR BUSH: Is that right, Tom? 25 MR. HERNDON: That's -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 288 2 which is that we refuse to offer the -- the fee 3 for service in -- in lieu of -- of the way we 4 charge. 5 We believe, and we think that it has been 6 borne out in every committee meeting, every 7 interview that we've been through, the 8 interviews with our existing clients, 9 et cetera, that many participants want the 10 face-to-face, but they, if faced with it, would 11 probably not elect to pay a flat fee out of 12 their pocket with after tax dollars. And 13 particularly at some of the income levels where 14 $200 before tax-- or after tax is a significant 15 amount of money. 16 For the average participant that did not 17 transfer assets over, our fee would actually be 18 $8 on -- on average pre-tax, versus 200 after 19 tax. 20 For a $10,000 account, the total VALIC 21 education fee would be less than the taxes paid 22 on the 1 hour after tax Ernst & Young fee. 23 And -- and I have included on page 9 an 24 example of what this would do in terms of -- of 25 fees. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 289 2 that's a -- a one-time -- you're comparing an 3 apple to a pear, aren't you? Because you're -- 4 MR. CONDON: Not really. Let's look at 5 this graph on the next page. And -- and I -- 6 and I think it would beg that question. 7 So I -- I'll come back to that. 8 We did a series of calculations. I'm only 9 showing you one here. We have additional ones 10 with us in fairness so that you could bring in 11 any income levels. And we even have it on a PC 12 where we could create any scenario that you'd 13 want to see. 14 But this one here, we used an assumption of 15 a $10,000 transfer -- an individual with a 16 $35,000 salary with a 3 percent annual 17 increase. 18 And this is what would happen in terms of 19 the -- the -- just the price -- and this would 20 assume that this individual, if they sat down 21 and did a 1-hour interview with E&Y in the 22 first year, that they would want to do that at 23 least every year in reviewing their portfolio. 24 That's what our experience with our clients is. 25 On that basis, you can see here that the -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 290 2 five-year and a ten-year basis is substantially 3 below an individual who admittedly, it would be 4 an individual who elected to continue to use 5 the face-to-face service. 6 And I really think that this is what it's 7 all about. Those people -- if -- if this whole 8 disclosure of all the costs up front, and we 9 appear to be the most expensive, because we 10 offer this face-to-face interview. 11 The people who don't see value in the 12 face-to-face interview wouldn't do business 13 with VALIC. 14 GOVERNOR BUSH: But here's the -- this is 15 the challenge I think. 16 You're assuming in that scenario that 17 everybody's going to take the -- the education 18 consulting service. 19 MR. CONDON: Not necessarily. This is only 20 one individual. 21 So we're saying that the individual who 22 does not see value in the face-to-face 23 consulting scenario wouldn't -- they not only 24 wouldn't do business with VALIC, they would not 25 do the $200 an hour interview with -- with SBA. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 291 2 GOVERNOR BUSH: Hence the problem. 3 MR. CONDON: -- it's a -- 4 GOVERNOR BUSH: Hence the problem, because 5 that's -- that's the challenge. The challenge 6 is, everybody else has agreed to this fee for 7 service concept that is priced more related 8 I guess to cost of that 1 hour; you all are 9 spreading that over a larger number of people 10 with the assumption I guess that you were going 11 to take advantage of the service. 12 And it puts -- it -- it kind of creates 13 a -- at least a difficult situation where 14 you're -- you're at a -- you're on a different 15 playing field. 16 MR. CONDON: I don't -- I don't see why 17 you'd be on a different playing field if all of 18 that is disclosed up front. In other words, 19 if -- if the SBA is going to disclose up front 20 that -- 21 GOVERNOR BUSH: That's right. 22 MR. CONDON: -- that it's going to cost 23 $200 if you decide to do a full-blown interview 24 with -- with -- with E&Y. 25 It would also be disclosed that -- that ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 292 2 that it -- it -- it is priced higher because 3 you are going to get the face-to-face service. 4 And if you don't see value in that, don't 5 participate in it. 6 TREASURER GALLAGHER: Well, let -- let me 7 point something out here in this cost. 8 Thirty basis points about right? 9 MR. CONDON: Yes. 10 TREASURER GALLAGHER: Okay. A person who 11 has accumulated $300,000 in a 30-year period 12 would end up spending about $18,000 total for 13 their education, quote, component, which would 14 come out to about $600 a year, which would mean 15 that they could have three $200 meetings a 16 year, and be even with where you all are. 17 I just think that's a -- that's a -- that's 18 a -- that's one of the reasons we wanted that 19 education component out, because that's what 20 the real costs are. And I know we can work out 21 what's five years and what's ten years. 22 But the bottom line is, somebody that's 23 there for a whole 30 years is paying $18,000. 24 And that's out of a $300,000 retirement, which 25 means what they're left with is, you know, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 293 2 MR. CONDON: Well, it -- except that if you 3 look at it only in terms of the expense, 4 Commissioner, that -- that would be one way of 5 looking at it. 6 The bottom line I think really is, even 7 with that expense in there, at the end of the 8 day, what's in the retirement account. 9 And that's the last page that you have in 10 your material, and also one of the graphs that 11 we put out here is, using the current line-up 12 of funds, both for the SBA, and for the ones 13 that we had in as of the last go-around. 14 And also we used one other example. That 15 would be an alternative line-up if you asked us 16 to substitute in or out some of the funds that 17 we've already run through the Call-- Callan 18 process, in either event, at the end of the 19 day, the participant has more assets with the 20 VALIC program at -- at virtually any asset 21 level that you're talking about. 22 GOVERNOR BUSH: Are you assuming a $200 an 23 hour education cost each year? 24 MR. CONDON: No. 25 GOVERNOR BUSH: So it's not included in ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 294 2 MR. CONDON: That's correct. 3 TREASURER GALLAGHER: Well, but -- but what 4 you have to look at is gross dollars in a 5 30-year period, because that's what most 6 people -- many people are going to end up 7 waiting till they retire, or -- 8 GOVERNOR BUSH: Well, if they're spending 9 30 years, they're probably going to be in the 10 defined benefit plan. 11 TREASURER GALLAGHER: Not if they start -- 12 not if they make the choice when they start to 13 go into the -- into the PEORP, because most 14 people that start in it, go in it because they 15 can take their money -- 16 GOVERNOR BUSH: They're probably going to 17 go against the advice of the -- 18 TREASURER GALLAGHER: They're not -- 19 GOVERNOR BUSH: -- the education -- 20 TREASURER GALLAGHER: -- starving people. 21 GOVERNOR BUSH: -- folks that if someone's 22 going to be here for 30 years, they -- 23 they'd -- they'd be better off I think, 24 wouldn't they -- 25 TREASURER GALLAGHER: I don't know many ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 295 2 I'd like to have my choice to be able to leave 3 before six years, and take my money with me. 4 Because that's sort of the choice they're 5 making when they start -- the -- the tough 6 choice is after you've been there for a while. 7 Not just when you start. 8 That's my opinion anyway. 9 MR. CONDON: But -- but even back to your 10 previous point, whether it's 5 years, 25 years, 11 the point is that with all the educational 12 material that is available through the SBA 13 program, on the website, in the printed 14 materials, et cetera, we would be perfectly 15 happy with illustrations like that worked out 16 jointly with us and -- and -- and the SBA that 17 pres-- presents full disclosure. 18 I mean, the -- so the -- the point is, 19 we're not -- we are the only company, frankly, 20 that broke the asset expenses out the way that 21 we did so that you could clearly see what is 22 asset management, and what is the value added 23 service. 24 If -- if that is broken out in the material 25 that's produced by the SBA, we have absolutely ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 296 2 Full disclosure. Let the participant look 3 at a 30-year example, a 25-year example, as 4 long as we are all talking about apples and 5 apples. 6 And there's a -- there are a number of 7 charts flying around here that are being 8 produced from -- from different areas that some 9 of us know what the assumptions were, some of 10 us don't. 11 I have no problem, if we can say, let's sit 12 down, let's compare apples to apples. And even 13 if we come out looking worse in an 14 apples-to-apples comparison, let the 15 participant look at that and determine, is this 16 a -- a service that I want to have, even though 17 I know that over the years, I may pay more for, 18 I may also have more assets at the end as well. 19 But at least they know what they're paying 20 up front. 21 And repeatedly, we have heard people come 22 before you and say, what we want to know is 23 what has your performance been, what does it 24 cost me to do business with you, and then let 25 me make my choice. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 297 2 disclosure. 3 GOVERNOR BUSH: Has this chart been vetted 4 by -- with the SBA? 5 MR. CONDON: No. 6 MR. HERNDON: We've never seen any of it 7 before. 8 GOVERNOR BUSH: Okay. Who -- who's the 9 unbundled -- where are the unbundled funds? 10 MR. CONDON: That is the SBA line-up of 11 existing funds. 12 GOVERNOR BUSH: So it would be to take a 13 mix or equal -- 14 MR. CONDON: We used exactly the same asset 15 allocation that was used by Mercer. I mean, so 16 we only have access to what's out on the 17 website, and that's where this information came 18 from. 19 TREASURER GALLAGHER: I -- let me ask you 20 another question. 21 So you basically -- we asked everybody to 22 move and pull the education component out. 23 You chose not to do that, correct? 24 MR. CONDON: We chose not to unbundle 25 that -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 298 2 MR. CONDON: -- piece. 3 TREASURER GALLAGHER: Everybody else did. 4 And now the problem is that if, in fact, 5 they're to be treated equally with you, we have 6 to let them come back and raise their prices in 7 order to compete. Wouldn't we? 8 MR. CONDON: Why? 9 Well, I mean, the -- 10 TREASURER GALLAGHER: Well, I'm sure -- 11 MR. CONDON: -- the -- but that was a 12 question that was asked of them. 13 I mean, I don't have a problem, by the way, 14 if you do that. That -- that's not my issue. 15 But the point is that, you know, they've 16 had -- they had the same choice that I had. We 17 have a value proposition here that we believe 18 is in the employees' best interest. We believe 19 that the employees are smart enough to know 20 what they're doing here. 21 There are thousands of employees, better 22 than 10 percent of your total employee 23 population, that already do business with my 24 company. And the other companies that you've 25 selected have probably similar ratios. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 299 2 with you for 20 years, they know what your 3 pricing is, they would love to continue to work 4 with you. They ought to have that choice. 5 If you give these other companies an 6 opportunity to come back and -- and change 7 their pricing, I don't have a problem with 8 that. 9 But they did have the chance to make that 10 decision in the first place. And the value 11 proposition was based on them believing that 12 they presented you with the best value that -- 13 that you have. That could be because they -- 14 they -- they view education in a different way. 15 I mean, I don't know what their motives 16 were. And -- and, again, I -- I have no 17 problem if you treat them in -- in -- in an 18 equal fashion. 19 TREASURER GALLAGHER: Their motives might 20 have been that we asked them to do it, and, 21 you know, that's a pretty decent motive. 22 And your motive is, we don't -- 23 MR. CONDON: Well -- 24 TREASURER GALLAGHER: -- care that you want 25 us to do it, we're not going -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 300 2 TREASURER GALLAGHER: -- to do it. 3 MR. CONDON: -- that certainly is -- is 4 a -- is a viewpoint. 5 But, you know, we were asked if we thought 6 this was in -- were -- a), were we willing to 7 do it; and, (b), is it in the best interest 8 of -- of -- of what we were proposing to the 9 program. 10 We believe that -- that our value 11 proposition here is one that the employees will 12 value. Is -- and -- and as I say, if they are 13 fully disclosed as to what the different value 14 propositions are, this is something that they 15 believe, that if they can sit down with 16 professionals throughout the state that can 17 give them the type of advice they want, why 18 wouldn't they avail them-- themselves of that? 19 If -- and I don't -- I can't speak for the 20 other companies. But, for example, if they 21 don't have a similar service available, then it 22 was easy to take it out of their pricing. 23 TREASURER GALLAGHER: Well, to me, that -- 24 I mean, I look at $300,000, costs them $18,000 25 over that period, which is $600 a year. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 301 2 that there's a lot of profit that you all make, 3 compared to the other guys. And that's out of 4 a person's pension fund. 5 So that's been my problem. That's why I 6 wanted -- and -- and we voted to take the 7 education component out. And that -- that's 8 just a problem that I personally have, known 9 from the -- from when I started. 10 So -- 11 MR. CONDON: But I think again, it's a -- 12 it's a relative thing. You know, even using 13 that number, which I think is sort of at the 14 extreme end, $600 a year to somebody that needs 15 a great deal of hand-holding through their 16 investment portfolio selection, et cetera, is 17 really -- assuming that they didn't have to 18 give up overall performance in order to get 19 that -- and that's what we've tried to 20 demonstrate here. 21 So if they can have the best of both 22 worlds, equal or better performance, and at the 23 same time, somebody that will come and sit with 24 them, and give them advice, maybe even the 25 individual that they're currently doing ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 302 2 of the State deferred compensation plan. 3 They may be so happy with the service 4 they're getting there, that they would like to 5 continue that under this program. 6 Why wouldn't you give them that choice? 7 GOVERNOR BUSH: I would -- just based on 8 if -- if people made important decisions based 9 on cost alone, I think people would flock away 10 from VALIC to begin with in the early part of 11 their career, and -- or move towards VALIC in 12 the early part of their career; and the minute 13 they started accumulating any assets, they'd be 14 running for the other guys pretty -- 15 MR. CONDON: Well -- 16 GOVERNOR BUSH: -- quick, and -- 17 MR. CONDON: -- and -- and, you know, 18 Governor -- 19 TREASURER GALLAGHER: And that -- they lock 20 down -- 21 MR. CONDON: -- that's a great point 22 because, for example, there are no restrictions 23 in this program that would keep them from doing 24 that. 25 So, for example, that puts the onus on us ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 303 2 choice. 3 At any point in time in the program, the 4 buyer could say, you know, I don't need that 5 advice anymore, and I'm going to move my assets 6 over. And we're the ones that are at risk if 7 that happens. We -- because we have no lock on 8 the people. 9 GOVERNOR BUSH: General Milligan, do you 10 have any -- 11 COMPTROLLER MILLIGAN: Well, I -- I'm kind 12 of interested in this disclaimer business. 13 You know, just how effective is a 14 disclaimer up front as the -- the cost of doing 15 business. You know, if you've got a customer 16 coming in and you point out the -- the 17 additional costs you're going to incur, how 18 effective is it? 19 MR. CONDON: I think that it -- first of 20 all, I think it's extremely effective, because 21 it can be done in a number of ways. If you 22 rely entirely on an investment company to 23 provide that disclaimer, I would agree that 24 that company could handle it -- 25 COMPTROLLER MILLIGAN: Well, clearly -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 304 2 COMPTROLLER MILLIGAN: -- not to -- 3 MR. CONDON: -- number of ways. 4 COMPTROLLER MILLIGAN: -- deny them -- 5 MR. CONDON: Here we would be com-- and we 6 agreed in the -- in the -- in the process that 7 whatever disclosures you and the SBA feel are 8 necessary, we have absolutely no problem with 9 them being created and distributed up front by 10 the SBA. 11 I mean, this is not something that you 12 would have to rely on my company or my 13 representatives to do. We would be thrilled to 14 do it in conjunction with you. We'll cooperate 15 in any way we possibly can. 16 And we gave examples, General, of where we 17 have done this in the past. But -- but if -- 18 if you wanted to have that entirely under your 19 control so that you could be convinced of the 20 process, you know, again, I think that that 21 could be done. 22 Again, I don't think you want to overlook 23 the years of experience that we already have 24 here with the State government of not creating 25 infractions, not having done things where our ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 305 2 would be known, and it would be part of the 3 public record. 4 So, first of all, I do think that -- 5 that -- that materials can be crafted in such a 6 way that there would be total disclosure, and 7 we as a company would have no problem if 8 that -- if that information was -- was 9 generated and -- and given to the employees by 10 the SBA so that they could be -- be assured 11 that it -- that it was out there. 12 COMPTROLLER MILLIGAN: Tom, would you care 13 to address that issue? 14 TREASURER GALLAGHER: I'm going to 15 refrain -- saying that you haven't had any 16 complaints might be a little bit far. So I'm 17 not going to go there. 18 But I just want to correct you on that. 19 There has been complaints. 20 MR. HERNDON: I have no doubt that 21 disclaimers can be crafted to put people on 22 notice. The question is whether or not they 23 appreciate the consequences of the pricing 24 proposal. 25 I mean, all of us look -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 306 2 you would have to make that part of the full 3 disclosure, and -- 4 MR. HERNDON: There -- there's no question 5 that any comparative documentation that we 6 would disseminate would include a very critical 7 analysis of the costs of all of the bundled 8 providers. And it would try and point out to 9 people that the consequences of compounding 10 one-third of 1 percent of their -- their assets 11 over 30 years is on the order of magnitude that 12 Commissioner Gallagher's -- 13 COMPTROLLER MILLIGAN: When you're 14 overwhelmed with -- with information, and 15 that's -- they're going to be -- I don't want 16 to say overwhelmed, but they're going to have a 17 lot of it, it's kind of hard to -- to kind of 18 put priority on the most important bits of 19 information. 20 That certainly would be one of those that 21 should have higher priority if it were to be 22 included in the -- in the -- in the package. 23 MR. HERNDON: Yes, sir. 24 COMPTROLLER MILLIGAN: Can you do that? 25 Can you put enough emphasis on it to make ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 307 2 MR. HERNDON: You can certainly make a good 3 faith effort to do that. And we will do that. 4 Needless to say, we don't agree with some 5 of the representations that have been made here 6 this afternoon about performance and costs and 7 so forth. 8 But having said that, you know, taking the 9 concern that you and the other Trustees have 10 expressed, you know, we will make every effort 11 to try and disclose that information. 12 Whether you can get people to pay attention 13 to it, and to appreciate the consequences of a 14 third of a percent deduction compounded over 15 30 years is another matter altogether. 16 GOVERNOR BUSH: I think it'd be important 17 to do that. But I think the -- the -- we've 18 had a disagreement -- at least I've had with -- 19 and by the way, I don't think we've thanked the 20 SBA staff enough for their hard work. 21 But I have a -- I have a fundamental 22 disagreement with a lot of these conversations 23 in that they seem to get a little -- while -- 24 while protecting the -- the members of the 25 system that are locked into this, the PEORP ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 308 2 being maternalistic about it as well. 3 There's a tradeoff between being in a 4 defined contribution system and defined 5 benefits. And it -- Tom's point -- Cerra's 6 point is right on target, we have to trust 7 people to make decisions to -- for themselves, 8 give them choices, empower them to do so, give 9 them information, don't make it overwhelming. 10 And they'll -- they'll make the right decision. 11 It's their money. And I'm -- I'm more than 12 confident than ever that the SBA can negotiate 13 a contract to provide the same consumer 14 protections that exist in the open marketplace. 15 They exist in every -- every contract. 16 I mean, maybe people don't read the fine -- the 17 fine print all the time. But this isn't going 18 to be fine print. 19 And it shouldn't be because this is their 20 retirement. But I think we can craft a system 21 that -- that -- that provides protections. 22 I -- I honestly -- you know, I -- I'm not 23 sure how many people are going to pick this 24 plan as assets are accumulated. 25 TREASURER GALLAGHER: Well -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 309 2 TREASURER GALLAGHER: -- I -- let me just 3 tell you that the -- if we were to accept VALIC 4 as is, we have made a totally different playing 5 field out there in comparison to the other 6 companies, and I think unfairly so. 7 I think other companies may be willing to 8 say that. Maybe they won't. But I think we 9 should hear from them. 10 Because what we've done here is we've said, 11 we will allow you guys to have your field staff 12 out there, some 300 of them, call on people, 13 visiting them, educating them, and the other 14 companies basically have given up that at this 15 point. 16 So that -- I don't know that that's, 17 you know, a fair playing -- you know, a level 18 playing field. If we're going to have a level 19 playing field, that's why I -- I believe the 20 education numbers should come out from them 21 before we allow them to compete in order to 22 have a level playing field. 23 If -- because they refuse to do what we 24 ask, we're going to give them an unlevel 25 playing field, I -- I just -- maybe some other ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 310 2 this is probably the time. 3 GOVERNOR BUSH: Anybody like to speak up? 4 Yes. You have a couple of speakers. 5 We'll -- we'll -- very briefly. Okay. 6 Maybe four you said? 7 COMPTROLLER MILLIGAN: No. I said, brave 8 souls. 9 TREASURER GALLAGHER: I know nobody wants 10 to get up and say anything against their 11 competition, and that's a tough thing to do. 12 But -- and I think we ought to be fair to 13 everybody. 14 MR. KEATING: Good afternoon. My name is 15 Steve Keating. I'm with Fidelity Investments. 16 I'd first like -- 17 GOVERNOR BUSH: Welcome. 18 MR. KEATING: -- to say, thank you all 19 very, very much for allowing us to participate 20 in this process, from Tom's staff to the 21 Trustees, to the various Boards that have 22 put -- been -- excuse me -- put together. 23 It's been a great process for us to go 24 through, and we really, really appreciate the 25 opportunity to participate. And we thank you ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 311 2 Just briefly though, I think from 3 Fidelity's perspective, we have always believed 4 that you are the client. And based on what you 5 need, what you ask, we will do. 6 So we agree with you, that when you asked 7 us to break that out -- which is not 8 necessarily the traditional way that we operate 9 in the marketplace -- that we felt that you are 10 the client, we will do, and do what you 11 request. 12 I think the only issue we have -- what has 13 been discussed today is exactly what you all 14 addressed, which is a level playing field. And 15 if that does change, we would like the 16 opportunity to come back and -- and discuss 17 things in greater detail. 18 I think if you look at our experiences in 19 the marketplace -- and one of the things that 20 we bring to the table, which we feel is very 21 unique, which you all have addressed in the 22 past is what's going on with corporate America 23 and what's going on with large, ten plus 24 billion dollar plans. 25 Fidelity manages 11 of the top 20. So I ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 312 2 defined contribution plans. We know what the 3 demand for one-on-one services are, and would 4 be happy to share those with you. 5 But, again, I think we feel very, very 6 strongly that we have no issue with five 7 companies being in the mix at all, but that 8 truly is a level playing field regarding how we 9 service your members. 10 We think that's very important. 11 GOVERNOR BUSH: Thank you. 12 Anybody else like to comment? 13 MR. KNICELEY: Governor, my name is 14 Robert Kniceley with Nationwide Insurance. 15 We agree with basically the comments that 16 Fidelity has mentioned. 17 And to the point that Treasurer Gallagher 18 has mentioned, we have, in our original 19 proposal, indicated we were going to dedicate 20 people to provide counseling to employees. 21 And, you know, based on the process, the 22 evaluation negotiations, we have evolved to a 23 different standard. 24 If you're going to allow I think any of the 25 companies to come in, and -- and we certainly ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 313 2 selected, that you clearly need to have a level 3 playing field in terms of what you're going to 4 ask each of the bundled providers to do in 5 terms of the requirements for education. 6 And we think that should be spelled out in 7 the contract, equal for each of the five 8 companies. 9 Thank you. 10 GOVERNOR BUSH: Thank you. 11 Anybody else like to speak? 12 MR. PESTER: Good afternoon, Governor Bush. 13 I -- I totally agree with 14 Treasurer Gallagher's point. I think the 15 important point is is that the SBA has come up 16 with a creative solution, a fee for service is 17 a creative innovation. And I think one of 18 the -- the critical elements is it ensures 19 education, as opposed to just selling to 20 participants. 21 And I think we need to keep that in mind as 22 we go forward with the process. 23 Thank you. 24 GOVERNOR BUSH: Thank you. 25 Now that you're up and taking nourishment, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 314 2 MR. HOLGATE: There -- you need four to 3 play bridge, so -- 4 Perhaps ING Aetna Financial Services the -- 5 is the firm that has the most in common with 6 AIG VALIC in terms of our infrastructure in the 7 field. 8 And you should know that when we left your 9 Trustee meeting on the 14th, we were not at fee 10 for service. 11 But you know what? You beat us over the 12 heads. We heard it, we got it, we went in and 13 sat down with Mr. Herndon and staff and went to 14 fee for service. 15 We -- we believe that playing field -- you 16 made it clear. We encourage you to stick to 17 the guns, and keep the playing field level. 18 Thank you. 19 GOVERNOR BUSH: Thank you. 20 Any -- 21 MR. CONDON: Can I just make a -- a 22 comment? 23 GOVERNOR BUSH: Yes. 24 MR. CONDON: First of all, in terms of what 25 you just heard I think basically is an ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 315 2 bundled providers, and unbundling them down to 3 the point where these services are not 4 available. 5 It again escapes the issue of choice. This 6 is -- this has nothing to do with -- with a 7 level playing field. I mean, you know, first 8 of all, these companies advertise in the media, 9 you'll see Fidelity advertisements all over the 10 state of Florida. That -- 11 GOVERNOR BUSH: Yes. 12 MR. CONDON: Big ones. 13 GOVERNOR BUSH: We like them. 14 MR. CONDON: They have -- they -- they had 15 originally indicated they have over 16 90 representatives available to be participants 17 in the plan. 18 They have financial services centers that 19 people can walk into. I mean, this has nothing 20 to do with level playing field. This has to do 21 with the fact that people want to have a 22 choice. 23 And you've heard the employee groups talk 24 about that, you've heard committee after 25 committee talk about it. This is a matter of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 316 2 By -- by selecting or bringing VALIC back 3 into the picture, even under the -- the current 4 arrangement, you have not unleveled the playing 5 field. I -- I just don't understand what 6 everybody is afraid of, particularly the SBA. 7 This should have been an asset that they 8 could have used, as opposed to looking at it as 9 competition. 10 GOVERNOR BUSH: Okay. I think we've 11 discussed this enough? 12 COMPTROLLER MILLIGAN: I think we have beat 13 it to death here probably. 14 GOVERNOR BUSH: Is -- is there anybody that 15 would like to make a motion? 16 COMPTROLLER MILLIGAN: I'll make a motion, 17 then we can vote on it. 18 I'll -- I'll move that we accept VALIC as a 19 bundled provider. 20 TREASURER GALLAGHER: I have a substitute: 21 That we accept them if they do fee for service 22 so it would be equal to the others. 23 COMPTROLLER MILLIGAN: Say that again. 24 TREASURER GALLAGHER: Accept them if they 25 agree to do fee for service so that it'd be ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 317 2 COMPTROLLER MILLIGAN: We certainly are 3 throwing you back into the negotiation 4 business, Tom. 5 Is that a bother? 6 Of course not. 7 GOVERNOR BUSH: So there's a substitute 8 motion. 9 Is there a -- 10 COMPTROLLER MILLIGAN: I'll -- I'll second 11 the substitute. 12 GOVERNOR BUSH: Okay. All in favor of the 13 substitute motion, say aye. 14 THE CABINET: Aye. 15 GOVERNOR BUSH: Opposed? 16 No. 17 So the motion passes. 18 There you have it. 19 MR. HERNDON: Governor, we have -- 20 GOVERNOR BUSH: We have one more -- 21 MR. HERNDON: -- one more PEORP item, and 22 one more agenda item. 23 GOVERNOR BUSH: Just -- just from a 24 technical point of view here, now that we're 25 going to go back to negotiate with one ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 318 2 TREASURER GALLAGHER: Well -- 3 GOVERNOR BUSH: -- probably need to give 4 you a little guidance on this, because -- and I 5 apologize. You're -- you're back -- 6 MR. HERNDON: That's all right. 7 GOVERNOR BUSH: -- at it. 8 But since you're going to have to negotiate 9 the final contracts anyway with the other four, 10 this -- this is an additional -- the -- 11 TREASURER GALLAGHER: The -- you know, are 12 we looking -- I guess what we need to know is, 13 do they have six -- 14 MR. HERNDON: Six. 15 TREASURER GALLAGHER: -- offered. Are 16 those six acceptable at this point? 17 MR. HERNDON: Well, I know that 18 Mr. Condon -- 19 COMPTROLLER MILLIGAN: I have looked at 20 them. I -- there's one of them that might be 21 questionable. But I don't think that -- 22 TREASURER GALLAGHER: The stable value 23 one's pretty short? 24 COMPTROLLER MILLIGAN: Yeah. But I don't 25 think -- I don't think there's -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 319 2 MR. HERNDON: If that's the direction of 3 the Board. 4 GOVERNOR BUSH: Very good. 5 So you will make an effort to -- what was 6 the -- how -- how'd you term that? 7 Negotiate -- 8 TREASURER GALLAGHER: Well, we'll -- we 9 know -- we know what -- what they're -- 10 they're -- and, listen, when -- when you take 11 the 30.5 basis points off the top here, they're 12 going to be very competitive in their 13 production and what they do. And -- and 14 I think that's a really good choice for people 15 to have. 16 And -- and they'll be equal to the other 17 ones in regards to the marketing program. 18 MR. HERNDON: We'll do our best, Governor, 19 and try and bring you something back. 20 GOVERNOR BUSH: Thank you. 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 320 2 you is to discuss the resolution of the 3 self-directed brokerage window, which was 4 proposed by SAFECO. 5 We did spend a considerable amount of time 6 with the SAFECO representatives, as I've 7 indicated in our written materials. It is a 8 good product, it has a lot to support in it. 9 The deficiency is more a -- a procedural 10 one than it is a substantive one, and that is 11 that we did not competitively bid this process, 12 nor did we, in this case, conduct any extensive 13 due diligence on the SAFECO product. 14 We recommended that you defer including the 15 self-directed brokerage window offered by 16 SAFECO until a later time. 17 SAFECO has proposed as an alternative that 18 the company, in this case, SAFECO and 19 Share Builder would be willing to put up the -- 20 the -- the monies necessary to do the kind of 21 interface work with our third party 22 administrator and so forth, concurrent with our 23 conducting the appropriate amount of due 24 diligence to try and conclude in a relatively 25 short time period whether or not they, in fact, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 321 2 there for our members. 3 And that is certainly a fair alternative, 4 and one that we could support. But we wanted 5 to make sure that you heard all of the issues, 6 and had an opportunity to be aware of the -- 7 the various pros and cons. 8 Self-directed brokerage windows are not in 9 the majority of defined contribution plans. 10 They're a relatively recent phenomenon, and are 11 gaining popularity. But they also bring with 12 them some risks. 13 And one of the things that we would 14 certainly expect, if you were to pursue this, 15 is that you would build in some -- some 16 safeguards into the system so as to ensure that 17 you don't have unlimited amount invested in one 18 company stock, and those kinds of -- of 19 concerns. 20 Mr. Richmond was here -- still is here -- 21 on behalf of SAFECO, and may wish to make some 22 comments. 23 TREASURER GALLAGHER: Well, let me just say 24 that I'd like to make a motion that you proceed 25 with allowing them to do their -- their thing ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 322 2 us -- 3 MR. HERNDON: That's correct. 4 TREASURER GALLAGHER: -- that you'll do 5 your due diligence, and then you'll get back to 6 us with a recommendation that we could take one 7 way or the other -- 8 MR. HERNDON: That would be fine. 9 And we would try and do that in a fairly 10 quick amount of time for the December -- 11 probably the December committee meeting. 12 But -- 13 TREASURER GALLAGHER: And I don't know if 14 this is something we have to have up right 15 away. But if -- you know, I think one of the 16 things you need to look at is the parameters of 17 how much somebody would have to have in order 18 to do this, and, you know, some way to protect 19 themselves -- 20 MR. HERNDON: Well, the concern is that -- 21 that your -- you know, our printing deadline to 22 start disseminating 600,000 packets of 23 information is in January. I mean, we really 24 don't have much time. 25 And if we're going to be able to give ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 323 2 them, you've got to -- 3 TREASURER GALLAGHER: Okay. 4 MR. HERNDON: -- you've got to do that 5 quickly. So we don't have a lot of time, but 6 I think we can probably -- 7 TREASURER GALLAGHER: Everybody -- 8 MR. HERNDON: -- give you a fair amount of 9 time. 10 TREASURER GALLAGHER: -- you're ready. 11 COMPTROLLER MILLIGAN: The -- the real key 12 is the due diligence on this, and make sure 13 that we have done it in a competitive and fair 14 manner. 15 TREASURER GALLAGHER: Yep. 16 COMPTROLLER MILLIGAN: And -- 17 MR. HERNDON: Yes, sir. 18 COMPTROLLER MILLIGAN: -- and so the 19 time line may be tight, but it should not be a 20 call on the sword of the time line. 21 MR. HERNDON: No. We do have some 22 information already. 23 GOVERNOR BUSH: Commissioner Gallagher, 24 would you like to make a motion -- 25 TREASURER GALLAGHER: I think we did. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 324 2 Did I hear a second? 3 COMPTROLLER MILLIGAN: Second. 4 GOVERNOR BUSH: There is a motion and a 5 second. 6 Any other discussion? 7 All in favor, say aye. 8 THE CABINET: Aye. 9 GOVERNOR BUSH: Opposed? 10 The motion passes. 11 MR. HERNDON: And Item Number 8 on the 12 agenda, Governor, is the fund activity analysis 13 for the month of September. 14 GOVERNOR BUSH: How'd we do? 15 TREASURER GALLAGHER: Move to accept it. 16 MR. HERNDON: Better. 17 COMPTROLLER MILLIGAN: Second. 18 GOVERNOR BUSH: Moved and seconded. 19 Without objection, it's approved. 20 MR. HERNDON: Thank you. 21 GOVERNOR BUSH: Thank you all very much. 22 And, again, I want to thank all the people 23 that were very patient through this process 24 and -- 25 TREASURER GALLAGHER: By the way, is ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 325 2 GOVERNOR BUSH: -- thank you -- thank -- 3 TREASURER GALLAGHER: -- is there -- let me 4 just ask a question before we adjourn. 5 Is there some time line on -- on VALIC 6 making a decision whether to agree or not, are 7 we going to ask them if they want to do that 8 now, or are we going to -- 9 MR. HERNDON: I'm going to -- 10 TREASURER GALLAGHER: -- give them -- 11 MR. HERNDON: -- I'm going to try and find 12 them -- 13 TREASURER GALLAGHER: -- period of time -- 14 MR. HERNDON: -- right now. 15 TREASURER GALLAGHER: Okay. 16 MR. HERNDON: And for -- 17 TREASURER GALLAGHER: They -- they need to 18 tell you right now. 19 MR. HERNDON: For sitting through all of 20 this, we have shirts for you from MyFRS. 21 GOVERNOR BUSH: Do you have an extra one? 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 326 2 was concluded.) 3 * * * 4 (The Cabinet meeting was concluded at 5 2:37 p.m.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. 327 2 3 4 5 STATE OF FLORIDA: 6 COUNTY OF LEON: 7 I, LAURIE L. GILBERT, do hereby certify that 8 the foregoing proceedings were taken before me at the 9 time and place therein designated; that my shorthand 10 notes were thereafter translated; and the foregoing 11 pages numbered 149 through 326 are a true and correct 12 record of the aforesaid proceedings. 13 I FURTHER CERTIFY that I am not a relative, 14 employee, attorney or counsel of any of the parties, 15 nor relative or employee of such attorney or counsel, 16 or financially interested in the foregoing action. 17 DATED THIS 11TH day of DECEMBER, 2001. 18 19 ACCURATE STENOTYPE REPORTERS, INC.
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