|
|
Cabinet
Affairs |
|
|
  |
|
|||||||||
|
T H E C A B I N E T
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 9:31 a.m.) 3 (Secretary Harris exited the room.) 4 GOVERNOR BUSH: Division of Bond Finance. 5 TREASURER GALLAGHER: Motion on the 6 minutes. 7 COMPTROLLER MILLIGAN: Second. 8 COMMISSIONER BRONSON: Second. 9 GOVERNOR BUSH: Moved and seconded. 10 Without objection, it's approved. 11 Item 2. 12 MR. WATKINS: Item 2 is a resolution 13 authorizing the issuance of up to 14 91 million dollars in Tampa Hillsborough County 15 Expressway Authority Revenue Bonds. It's a -- 16 TREASURER GALLAGHER: Motion. 17 MR. WATKINS: -- portion of the total 18 project cost of about 280 million dollars, 19 which is being funded for multiple sources, 20 included 50 million dollars in the State 21 Infrastructure Bank Loan, 5 million dollars in 22 the Toll Facilities Revolving Trust Fund Loan, 23 91 million dollars in cash advances from DOT to 24 be repaid from the proceeds of the second 25 tranche of the -- the bond issue, which will be ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 6 2 TREASURER GALLAGHER: Motion on -- 3 COMMISSIONER CRIST: Second. 4 TREASURER GALLAGHER: -- 2. 5 COMMISSIONER BRONSON: Second. 6 GOVERNOR BUSH: Moved and seconded. 7 Without objection, it's approved. 8 MR. WATKINS: Item Number 3 is a resolution 9 amending a resolution adopted authorizing the 10 issuance of State University bonds. It is a 11 technical correction to recognize a superior 12 lien that was outstanding on bonds issued in 13 1964 that was inadvertently omitted from the 14 resolution, which would -- previously adopted. 15 TREASURER GALLAGHER: Motion on 3. 16 COMMISSIONER BRONSON: Second. 17 COMPTROLLER MILLIGAN: Second. 18 GOVERNOR BUSH: Moved and seconded. 19 Without objection, it's approved. 20 MR. WATKINS: The last item, with your 21 permission, is a presentation on a report on 22 State indirect debt and local debt. 23 GOVERNOR BUSH: That was quick. 24 MR. WATKINS: This is a -- what I call the 25 double dose of debt, Governor. This is a -- we ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 7 2 get the second dose. 3 The -- the purpose of this analysis is to 4 answer two fundamental questions that you asked 5 when I was presenting the information on State 6 debt affordability, and that was: Does this 7 include everything? 8 And the answer was: No. 9 And the follow-up question was: Well, what 10 else is there, and how much is it? 11 And so this analysis seeks to answer that 12 question, as well as the question about how 13 much local debt is outstanding in the State of 14 Florida. 15 So for purposes of answering the first of 16 those questions about what else is there, and 17 how much is it, we segregate the State debt 18 into two different components, what we call 19 direct debt, which is what we had evaluated 20 two weeks ago. And now we've got a new 21 category, which is information that has not 22 been presented to you previously, dealing with 23 indirect debt. 24 The State direct debt by program is 25 18 billion dollars. I'm not going to belabor ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 8 2 reviewed two weeks ago. 3 It includes debt that -- that we issue, or 4 that is secured by a traditional State revenue 5 stream. It includes bond issues for education, 6 transportation, and environmental protection 7 that you all are familiar with. 8 State indirect debt, by contrast, is debt 9 that either is not issued by the State, or is 10 not secured by a traditional State revenue 11 stream. 12 And the total amount of State indirect 13 debt, heretofore not evaluated, is 6.4 billion 14 dollars, and includes things like the Florida 15 Housing Finance Agency, entities that were 16 created related to the insurance industry, and 17 university direct support organizations. 18 And so this just -- graphic depicts the 19 programmatic area where the indirect debt has 20 been occurred -- incurred. 21 The -- the next graphic is simply to 22 illustrate what type of programs have been 23 funded with the 6.4 billion dollars of State 24 indirect debt. 25 And what you can see is the largest ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 9 2 Finance Corporation of over 3 billion dollars. 3 And -- by way of example, the single family 4 program is secured by pools of mortgages, and 5 the multifamily program, by loans to 6 developers. 7 So you can see why it's considered indirect 8 debt, and not direct debt. 9 And then there are insurance related 10 entities for over -- for 2.3 billion dollars, 11 and university direct support organization debt 12 of approximately 700 million dollars. 13 So those are the three largest -- 14 GOVERNOR BUSH: What are the -- 15 MR. WATKINS: -- programmatic areas. 16 GOVERNOR BUSH: What are the insurance 17 entities? 18 MR. WATKINS: Windstorm Underwriting 19 Association, about 1.7 billion; and then the -- 20 what -- the acronym is RPCJUA, it's a 21 Residential Property and Casualty Joint 22 Underwriting Association, which is the 23 high-risk pool, making up the balance of that 24 debt for insurance related entities. 25 The next question -- the next area that we ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 10 2 answering the second question of how much debt 3 is there, there is 52.3 billion dollars of 4 local government debt outstanding in the State 5 of Florida. And it's made up of things -- 6 county debt, city debt, school district debt, 7 and special district debt. 8 So each of those types of governments 9 contributes to the 52.3 billion dollars of 10 local government debt outstanding. 11 The next graphic simply illustrates -- I 12 wanted to give you a sense of the kinds of 13 facilities that are financed at the local 14 government level, and -- and -- and what a 15 special district is, and -- and what it looks 16 like, and -- and what kinds of facilities it 17 finance. 18 County debt includes things like roads, 19 water systems, wastewater systems, hospital 20 authorities, city debt, electric utilities, 21 school district debt is obviously debt for 22 school construction, and then special district 23 debt. 24 And what I see from the special district 25 debt -- and these are just examples with -- ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 11 2 bonds outstanding. These are the types of 3 facilities financed with special district debt, 4 or public power, airports, and water supply 5 facilities. 6 Looking at numbers in absolute terms, and 7 absolute dollar amounts, it is -- is only 8 helpful in a limited way. And it's important 9 to look at the trends in debt. So what we did 10 was combine the direct and indirect debt for 11 the State to evaluate the increase. 12 And -- and what you can see is over the 13 last five years, on a combined basis, State 14 debt, both direct and indirect, grew from about 15 15 billion dollars, to 24.4 billion dollars. 16 But the significant point to be made in 17 evaluating this is that the indirect debt 18 increased at a much higher rate than did our 19 direct debt. Direct debt increased 46 percent, 20 whereas indirect debt increased by about 21 two-and-a-half times over the same five-year 22 period. 23 And it's primarily attributable to the -- 24 to the implementation of the insurance 25 programs, growth in debt for the Florida ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 12 2 university DSO debt of about two-and-a-half 3 times. 4 The next thing we looked at was the growth 5 in local debt to evaluate how much debt has 6 increased at the local level. And what we see 7 is an increase from 39.6 billion, to 8 52.3 billion dollars over a five-year period, 9 or an increase of about a third. 10 When combining all of those things, both 11 State debt, direct, and indirect, and local 12 debt, what we see is an increase in debt from 13 approximately 54.6 billion, to 76.6 billion 14 dollars over a five-year period. 15 And more importantly, the increase in State 16 debt on a relative basis has increased about 17 twice as much as local government debt. 18 And so what that tells -- we've got a 19 63 percent increase in State debt over the 20 five-year period, compared to an increase of 21 local debt of about 32 percent. So the rate of 22 increase, while the absolute dollar amount is 23 greater at the local government level, on a 24 relative basis, the increase in State debt has 25 occurred more rapidly than local government ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 13 2 Yes, sir. 3 TREASURER GALLAGHER: You're including 4 direct and indirect when you talk about State. 5 MR. WATKINS: Correct. 6 COMMISSIONER CRIST: What's the distinction 7 between the -- 8 Hi, Ben. 9 -- between the direct and indirect? 10 MR. WATKINS: Direct debt is the things 11 that -- that we issue that come to this Board 12 for approval, or are secured by a State revenue 13 stream: Gross receipts taxes, State gas taxes, 14 things -- revenue sources that we maintain and 15 control at the State level. 16 Indirect debt, on the other hand, is either 17 not issued, does not come through this Board 18 for approval, or is secured by a revenue stream 19 that is not maintained at the State level. 20 A good example of that is the Florida 21 Housing Finance Corporation. The debt that 22 they issue is secured by loans to developers to 23 develop affordable housing, or pools of 24 mortgages that are -- that are -- that are 25 loaned to qualifying applicants. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 14 2 that goes through the normal appropriations 3 process. 4 So that's the difference between direct 5 debt and indirect debt. 6 COMMISSIONER CRIST: Thank you. 7 GOVERNOR BUSH: Commissioner? 8 COMMISSIONER BRONSON: Thank you, Governor. 9 I -- one of the things that I'm trying 10 to -- and I don't see it in here, but -- and I 11 don't know whether you break it down this way. 12 But how much of this direct or indirect 13 debt, whether it's at the State or the local -- 14 especially at the local level, is a result of 15 constitutional amendments, laws passed by the 16 Legislature, and/or rules and regulations of 17 State agencies that have created some 18 situations to put -- put the different levels 19 at -- at indebtedness? 20 Have you got that broken down to find out, 21 you know, was this strictly a local issue of 22 local debt that -- that the County Commission 23 or city or the School Board decided to do? 24 Or was this because of a mandated process, 25 saying you must meet certain criteria that ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 15 2 MR. WATKINS: We have not tried to quantify 3 unfunded mandates, if you will. 4 The amount of local government debt 5 attributable to stricter environmental 6 standards, for example, or changes in school 7 code construction, or things like that. 8 It -- it would be difficult to assess that. 9 At its most fundamental level, all local 10 government debt is either authorized 11 constitutionally, or alternatively, by laws 12 promulgated by the Legislature allowing local 13 governments to encumber a revenue stream. 14 So they -- the -- so the -- the legal 15 authorization is -- all emanates from either 16 the Constitution or State laws allowing them to 17 borrow. 18 It would be very difficult -- it -- it took 19 us almost a year just simply to -- to quantify 20 the amount of local government debt that we 21 have outstanding, and then to further segregate 22 that by how much is attributable actions at the 23 State level, versus merely optional local 24 government initiatives for a new library, or 25 new parks, or something like that. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 16 2 have not attempted to address that question in 3 this information before you today. 4 COMMISSIONER BRONSON: Governor, my -- my 5 point of asking that question is, no matter 6 where we look, whether it's at the State or 7 local level, I think it's important for us to 8 consider the economic impacts of what we do, 9 whether it's legislatively, through the 10 Cabinet, or through agencies that -- 11 GOVERNOR BUSH: Spoken like a former 12 Senator. 13 COMMISSIONER BRONSON: Well, I -- I -- I 14 just feel -- no, I just feel that if we're 15 looking at indebtedness, especially indirect 16 indebtedness to the State because of other 17 causes, if we mandated some provisions that 18 cause that, I think we need to really take that 19 at heart, that we may be -- even though we 20 think it's a great idea in causing indebtedness 21 to the local communities, as well as the State, 22 by our actions. 23 And I think we -- I think economics has to 24 play a part of -- of our thought process here 25 when we go into any issue that's going to cost ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 17 2 And -- and here's the result of all these 3 good issues that have been in place, and now we 4 have this indebtedness that we need to take 5 into consideration. 6 GOVERNOR BUSH: You're absolutely right. 7 No question about it. 8 MR. WATKINS: Moving on, the -- the 9 absolute amount of debt that we have 10 outstanding in ter-- just the dollar amount is 11 of limited usefulness in evaluating what our 12 debt position is. 13 So just like we did for the debt 14 affordability study, we -- we analyze our debt 15 position by evaluating debt ratios. 16 And what we find is, when we aggregate 17 State and local governments, and these very 18 disparate governmental bodies, it -- it is -- 19 it becomes more difficult to make any 20 meaningful comparison, just simply because of 21 the lack of dat-- of data available to compare 22 ourselves. 23 Because the municipal industry evaluates 24 State governments in one way; and they evaluate 25 local governments, and their operations, very ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 18 2 And so we're taking very disparate measures 3 in trying to marry those two, and coming up 4 with some meaningful measure that we can 5 compare ourselves against. 6 So with that caveat, the -- the debt ratio 7 that we identify to be most meaningful for 8 purposes of this analysis is debt per capita. 9 And that is simply the debt per person -- 10 the deb-- the amount of debt attributable to 11 every man, woman, and child in the State of 12 Florida. Just takes total debt, and divides by 13 our population. 14 And what we find is that the debt per 15 person increased over the last five years from 16 $3,789, to $4,826 per person, or about 17 27 percent over -- over the last five years. 18 And -- and this is very much a macro level 19 measure, and does not take into account the 20 vast differences of the debt burden on citizens 21 located in different places within the 22 State of Florida. 23 And what I mean by that is, the debt burden 24 for the citizens in Miami-Dade County, 25 for example, is very, very different from the ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 19 2 Gulf County, or one of the more rural counties. 3 So this is simply very much a -- a high 4 flyover, and a macro level measure of the -- 5 the State of Florida's debt burden, taking into 6 account both State debt and local debt, and 7 evaluating it on a per person basis. 8 COMMISSIONER CRIST: Governor -- 9 GOVERNOR BUSH: Yes. 10 COMMISSIONER CRIST: -- can I ask a 11 question? 12 GOVERNOR BUSH: Sure. 13 COMMISSIONER CRIST: Do you have any idea 14 how that would compare with other states, Ben? 15 MR. WATKINS: The -- the -- the industry 16 does not calculate it. So that data set is not 17 available to us. 18 I wish it were, and we could get a much 19 better sense of how we stack up against other 20 states. 21 What we do have is -- and we'll get to it 22 on the -- on the next page, is a comparison to 23 a national average. And while that is -- 24 that -- that is again a -- very much a macro 25 level analysis, it does give us some basis of ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 20 2 COMMISSIONER CRIST: Okay. 3 MR. WATKINS: But we don't have that 4 information available on a state-by-state 5 basis. 6 The next thing we evaluated looks like a 7 lollipop. But we just simply broke down the 8 different flavors, based on different 9 governmental entities. We took the debt 10 per capita, and evaluated how much is 11 attributable to State government, how much is 12 attributable to county government, city 13 government, and et cetera. 14 And what we find is that the -- the 15 greatest proportion of the debt burden is 16 attributable to the -- to State debt. State -- 17 debt incurred at the State level, followed by 18 county government and city government. 19 And that's -- 20 GOVERNOR BUSH: Ben -- 21 MR. WATKINS: -- merely a graphic depiction 22 of that. 23 GOVERNOR BUSH: Isn't it true that one of 24 the reasons why that's the case, and why our 25 State debt proportionally is higher than other ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 21 2 spends more on school construction than any 3 state in the country. 4 Typically that is a local government 5 function. Here the State spends more 6 percentage-wise, and dollar-wise than any -- 7 any state in the country. 8 MR. WATKINS: Right. 9 The -- and -- and that's reflected in that 10 chart, Governor, because school district debt 11 in Florida is a very small proportion of the 12 overall debt burden for the citizens. 13 And the -- and the -- what you've 14 identified is exactly the reason for that, is 15 because we incur that debt at the State level, 16 rather than at the local level. 17 And, in fact, as you know, over 50 -- like, 18 58 percent of all of our State debt outstanding 19 has -- has been for PECO, for school 20 construction. 21 So a vast majority of the debt that we 22 incur at the State level is exactly for that 23 purpose. 24 COMMISSIONER CRIST: For children. 25 MR. WATKINS: The -- the next -- this goes ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 22 2 what -- what is the other State debt 3 per capita? 4 And while we don't have it on a 5 state-by-state basis, and admittedly, the 6 information is stale, the last time we have 7 information for debt per capita is in 1996, and 8 we merely have a national average. 9 And what it indicates is that in 1996, the 10 average debt -- combined State and local debt 11 per person is $5,415 per person; compared with 12 Florida in 1996, which is $3874. 13 And then rolling that forward to -- to 14 2000, the $4827. 15 So what -- what this tells me -- and I'm 16 reluctant to reach any conclusions from this 17 very limited analysis -- is when compared to a 18 national average, combined State and local 19 debt, Florida looks pretty good. 20 But we really can't go -- we don't have the 21 data to go behind that to explain the reason 22 why. 23 In conclusion -- what conclusion can I 24 reach from this? 25 And that is: Answering the question of how ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 23 2 we've got 6.4 billion dollars, or 26 percent of 3 State direct and indirect debt combined issued 4 by entities other than -- and for purposes 5 other than the normal programs which come 6 before this governing Board. 7 Indirect debt has grown faster than direct 8 debt over the last five years. 9 Local debt totals 52.3 billion dollars. 10 Local debt has increased less rapidly than debt 11 at the State level. And based on the very 12 limited information we have available, it 13 appears that our combined State and local debt 14 level is manageable. 15 GOVERNOR BUSH: Ben, when do we have the 16 asset requirement to -- to -- to have a -- a 17 balance sheet for government entities? I'm not 18 sure how -- what it's called. But the -- 19 MR. WATKINS: GASB 34. 20 GOVERNOR BUSH: Yeah. That's what I meant. 21 COMPTROLLER MILLIGAN: That -- our -- 22 our -- our next State fiscal accounting has to 23 account for assets. The rest of the state 24 is -- county and municipalities are phased in 25 over several years. ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 24 2 challenge, but it's well in hand. And I'm 3 comfortable -- we went through our last cap, or 4 our -- our fiscal accounting report, and 5 converted it using GASB 34. And we're in the 6 process of doing that. 7 GOVERNOR BUSH: Great. 8 COMPTROLLER MILLIGAN: Just to see how 9 it -- how it pans out. And it looks like we're 10 going to be able to deal with it fairly 11 satisfactorily. 12 GOVERNOR BUSH: That's -- you know, that's 13 not a very sexy thing, of course, but it's 14 critically important that we move to a -- and 15 this debt study's part of this, and that's why 16 I appreciate what you've done. 17 We -- we -- if people look at that number, 18 they go, oh, my goodness, billions and billions 19 and billions of dollars of debt, but those are 20 tied to billions and billions of doll-- of 21 dollars of assets as well. 22 And -- and to be able to match your assets 23 with your liabilities, and focus on operation 24 budgets and capital budgets I think is a -- 25 will be a good thing for policymakers going ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 25 2 COMPTROLLER MILLIGAN: It -- it certainly 3 will give us a better understanding of where we 4 really are in terms of our debt versus our 5 assets, which we haven't tracked in the past. 6 GOVERNOR BUSH: Particularly if 7 you're bud-- if your asset -- if your report 8 shows that we have less assets than debt. 9 COMPTROLLER MILLIGAN: We can -- we can 10 have some serious problems. 11 MR. WATKINS: Gen-- General Milligan's 12 staff has been responsible for that, and really 13 has done yeoman's work in implementing the -- 14 the requirements of Governmental Accounting 15 Standards Board Number 34, which talk about 16 unfunded mandates. That was a big one for 17 State and local governments. 18 And we will have the benefit of that as 19 soon as we know what the numbers are. 20 GOVERNOR BUSH: Any other questions? 21 Thank you, Ben. 22 MR. WATKINS: Thank you. 23 TREASURER GALLAGHER: I do have something 24 that doesn't refer to that. 25 Each of you got this cookbook from the ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 26 2 Fire Marshal. 3 This is -- I thought we were going to have 4 a report this morning, but we didn't -- on -- 5 this is something that the Department personnel 6 put together in order to help with the 7 Florida State Employees Charitable Campaign. 8 And they're selling these for $5 in the 9 Department. And they got pre-sales of about 10 200 of them, so they're doing well, and wanted 11 you all to have a copy of it. 12 And whoever, of course, loses, it would 13 give them an opportunity to have some nice 14 resumes (sic) for the lunch they're doing. 15 You don't have to pay, General. 16 GOVERNOR BUSH: Can you order up an 17 Aunt Babe's Chocolate Lush? 18 TREASURER GALLAGHER: Well, you can order 19 it up from the -- from the loser -- and -- you 20 know -- 21 Oh. I'm collecting $5 up here, by the way. 22 Helping -- I love these other departments 23 helping us reach our goals. This is a good 24 thing. 25 ATTORNEY GENERAL BUTTERWORTH: Maybe ACCURATE STENOTYPE REPORTERS, INC. DIVISION OF BOND FINANCE 27 2 TREASURER GALLAGHER: They're certainly 3 available. 4 Isn't that right, Robert? 5 Stand up so they know who it is. 6 I want them to know where to go. 7 There you go. 8 COMMISSIONER CRIST: The purveyor of -- 9 GOVERNOR BUSH: The Department of Revenue. 10 We don't want to get Gallagher too much of 11 an advantage on this United Way thing. 12 COMPTROLLER MILLIGAN: He's in serious 13 trouble, as a matter of fact. 14 GOVERNOR BUSH: Is he? 15 COMPTROLLER MILLIGAN: Yeah. 16 GOVERNOR BUSH: Okay. He needs a little 17 help then. 18 (The Division of Bond Finance Agenda was 19 concluded.) 20 * * * 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF REVENUE 28 2 ATTORNEY GENERAL BUTTERWORTH: Motion. 3 COMMISSIONER CRIST: Second. 4 GOVERNOR BUSH: Moved and seconded. 5 Without objection, it's approved. 6 DR. ZINGALE: The second item deals with 7 permanent rules dealing with the recent shift 8 of the communication services taxes at the 9 Florida Department of Revenue. 10 This tax is now our third largest tax in 11 the State of Florida. It was moved over to the 12 Department October 1st. We had been operating 13 on emergency rules, and this is to adopt 14 permanent rules. 15 Request approval. 16 TREASURER GALLAGHER: Motion on 2. 17 ATTORNEY GENERAL BUTTERWORTH: Second. 18 COMMISSIONER BRONSON: Second. 19 GOVERNOR BUSH: Moved and seconded. 20 Without objection, it's approved. 21 DR. ZINGALE: The third item is for 22 information purposes. This deals with the 23 Department of Revenue's three-year action plan 24 dealing with the improvements in our ad valorem 25 system. ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF REVENUE 29 2 year for property tax oversight, as well as the 3 functioning of the -- of the ad valorem 4 offices. We had a 10.5 increase in the overall 5 level of assessment, which is outstanding. 6 We are going to continue to submit the 7 three-year plan on a quarterly basis to the 8 Aides like we have in the past. 9 This is a -- the first major revision since 10 we set this plan in front of the Governor and 11 Cabinet almost a year-and-a-half ago. 12 A few changes to note. Most of them are -- 13 are sliding a few deadlines. The guidelines 14 have been slid out a year, primarily to include 15 the work coming from national consultants, and 16 to give more time for the public to react to 17 them. 18 We expect to have real property guidelines 19 back to you in -- next December, about a year 20 from now. 21 But most of the changes are -- are -- are 22 fairly minor. We have sat down with the 23 Auditor General's staff and reviewed them. 24 We -- we meet frequently with both the 25 Auditor General staff and their consultants to ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF REVENUE 30 2 No action required on this item. 3 Action Number 4 -- Item Number 4 is a 4 Settlement Agreement with a Georgia-based 5 insurance company, a very complex nature of the 6 insurance tax between states is the retaliatory 7 provision. 8 The company had been tracking the law one 9 way, a Court did a reversal. They ended up 10 with a liability of -- excuse me -- of about 11 1.3 million dollars. 12 We had been negotiating with them, but the 13 nature of an insurance company is, they are 14 regulated, like our Insurance Commissioner does 15 here in Florida, and they had to protect their 16 reserves. And they couldn't make a payment of 17 the tax due, because the regulators in Georgia 18 wouldn't allow them to. 19 We worked on this settlement. This money 20 is coming from outside the company, primarily. 21 Some of the owners of the company are putting 22 this money in to try to get this settled. 23 The Department believes $700,000 is a fair 24 settlement. All settlements that the 25 Department does unilaterally with the taxpayer ACCURATE STENOTYPE REPORTERS, INC. DEPARTMENT OF REVENUE 31 2 over $250,000. 3 Request approval of this settlement 4 agreement. 5 TREASURER GALLAGHER: Motion on 4. 6 COMMISSIONER CRIST: Second. 7 ATTORNEY GENERAL BUTTERWORTH: Second. 8 GOVERNOR BUSH: Moved and seconded. 9 Without objection, it's approved. 10 DR. ZINGALE: Thank you very much. 11 GOVERNOR BUSH: Thank you, Jim. 12 (The Department of Revenue Agenda was 13 concluded.) 14 * * * 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 32 2 MR. PIERSON: Item -- Item 1 is minutes 3 from August 28th, September 25th, and 4 October 30th Cabinet meetings. 5 COMMISSIONER CRIST: Approve. 6 GOVERNOR BUSH: Moved and seconded. 7 Without objection, it's approved. 8 MR. PIERSON: Item 2 is an amendment to 9 Rule 6A-1.09981, Implementation of Florida's 10 System of School Improvement and 11 Accountability. 12 Commissioner Crist has some comments. 13 COMMISSIONER CRIST: Governor. 14 Governor and Cabinet members, we have a 15 rule before us today that implements key 16 components of the Bush/Brogan A+ Plan. 17 Six rule workshops were held throughout the 18 state to provide an opportunity for feedback 19 from the education community. This rule is the 20 result of the input from superintendents, 21 principals, teachers, and parents over the last 22 four months. 23 The ability to grade schools based on 24 yearly growth of students has always been part 25 of the vision. Educators and parents have ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 33 2 method for tracking individual achievement. 3 We're proud to present to you today a rule 4 which completes the vision for Grades 3 through 5 10. This rule implements three requirements of 6 the law: Performance standards, annual 7 learning gains, and adequate progress of the 8 lowest performing students. 9 To support the all-important mission of 10 leaving no child behind, this rule places extra 11 emphasis on children performing in the lowest 12 25th -- 13 (Secretary Harris entered the room.) 14 COMMISSIONER CRIST: -- percentile in 15 reading. 16 We're very proud of the rule and the hard 17 work that has gone into its development. I 18 want to cite a few people that have worked 19 particularly hard, Governor: Betty Coxe, 20 Deputy Commissioner for Educational Programs; 21 Dr. Gerry Richardson, Director of Evaluation 22 and Reporting; Mary Laura Openshaw, Director of 23 Public Schools; and Robin Safley, our 24 Chief of Staff; among others, have worked very 25 hard with educational associations, school ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 34 2 parents, listening and incorporating their 3 ideas, and sharing our vision for the future. 4 Betty Coxe will provide the State Board, 5 the Cabinet, with a brief overview of the 6 process the Department used in developing this 7 rule. And she'll also provide introductions to 8 today's speakers. 9 Betty. 10 MS. COXE: Thank you, Commissioner, for 11 that kind introduction. 12 And good morning, Governor, and members of 13 the Cabinet. 14 We are so excited to be before you today. 15 It's always a privilege to present to you, as 16 you -- as you would expect, and additionally, 17 it's truly rewarding for us to come before you 18 with a rule that will mean so much to Florida's 19 students and its educators, and especially to 20 its families. 21 As the Commissioner indicated, we are here 22 today to bring to you the next iteration, a new 23 version, of our school grading rule. It is 24 a -- a fabulous step forward. It has as its 25 centerpiece, the annual learning gains, for ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 35 2 In mentioning the names of people who have 3 worked on this, we always hate to do that, 4 because there are so many people involved. 5 And I'm before you today, along with a 6 group behind me, representing hundreds to 7 thousands of people who have worked on this 8 rule, and given input to this rule. 9 Behind me, and we're not able in -- in the 10 interest of time, to hear specifically from 11 everyone today. But we wanted to have with us 12 people from all different sectors. 13 So you're going to be hearing very brief 14 comments this morning from all different 15 stakeholders. We'll go through this as the 16 morning progresses. 17 But please note that the people here are 18 principals, superintendents, School Board 19 members, parents, teachers, all folks who will 20 need to work this rule. And that is so 21 important because it takes people here in the 22 Department working with the people in the 23 districts to make this rule come -- come to its 24 fruition. 25 Now, what we've done is -- by means of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 36 2 2001 Florida Legislature clarified this law 3 that deals with school accountability. And 4 that happened last session. 5 And, thereafter, we convened various work 6 groups to help us address the refinements to 7 the new school grading rule. 8 We have two major groups, one we call the 9 technical group, and they are the people who 10 are these mathematicians, scientists, 11 statistical experts, and school districts that 12 work with accountability systems. 13 And the other we call the focus group. And 14 those were people from stakeholder 15 constituencies. And they worked with us to 16 offer their good ideas. 17 After working with those, and working with 18 agencies and organizations and individuals, we 19 came forward with a rule that was published 20 about five weeks ago. 21 And I am really thrilled that we've been 22 able to do this next piece. 23 We put the rule out, and we heard again 24 from both of those two major assistance groups, 25 and everyone in the field, we had a website, we ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 37 2 could in making sure everyone understood what 3 was coming forward. And we got a lot of great 4 input from that. 5 So what we're actually proposing to you 6 today is an amendment to the amendment to the 7 rule. Because we have taken all the -- the 8 great ideas that came forward from the second 9 round of hearings, and have incorporated them 10 into a rule that we think will make it the 11 strongest, most fair, accurate depiction of 12 school accountability as it's referenced in the 13 law. 14 So that is just great. 15 We thank so much everyone who has given of 16 their time and energy to bring us to this 17 point. 18 We know we'll be back here again, so we 19 need to say this up front. No system is 20 perfect. We will continue to refine it. 21 But, wow, are we excited about the level 22 that we've come to thus far, and this is a 23 great new day. 24 GOVERNOR BUSH: What do you mean you're 25 going to come back? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 38 2 continuous improvement, Governor. You know 3 that. 4 And it's our -- Florida's children who are 5 going to have the biggest benefit, and that's 6 of importance to all of us. 7 Now, to speak to you about the first group 8 of people that are working with us -- and, boy, 9 has he been awesome in working with our 10 assistance team -- superintendents bear the 11 responsibility of school accountability and 12 school growth in their -- in their districts. 13 And with us today to speak about that role 14 is Jim Warford, superintendent extraordinaire 15 from Marion County. 16 GOVERNOR BUSH: Good morning, 17 Superintendent. 18 MR. WARFORD: Good morning, Governor, 19 members of the Cabinet. 20 The main thing is just that, the main 21 thing. As Superintendent of Marion County 22 schools, and a member of the stakeholders 23 group, I'm focused like a laser on this 24 question: How well are our children learning 25 to read, write, and calculate? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 39 2 there's one group of kids that come through my 3 school doors every day that are ready, willing, 4 and able to learn. They come from homes where 5 the importance of learning is modeled and 6 valued. The evidence is clear that they will 7 learn, and they are learning. 8 The good news is, the best of our students 9 today are better than they have ever been in 10 the history of our state. And we need to 11 remember that. 12 But then there's this other group of 13 students. They most often are poor, minority, 14 they speak many other languages, many come from 15 homes where school is not a priority. 16 If these children are to learn, it will 17 take a very determined effort on our part. But 18 after three years under the A+ plan, the 19 evidence is clear that they can. 20 One of my schools, Fessenden Elementary, 21 has gone from an F to an A during this time; 22 another, Howard Middle School from a D to an A. 23 And I could go on and on. 24 The best kept secret in education is this: 25 Children learn what we teach them. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 40 2 them, including the low performing and those 3 most at risk. 4 We must, because it is exactly this group 5 of students that will determine the future of 6 our society. 7 We must finally come to understand that our 8 community, our state, and our nation will never 9 be better than this group of students. 10 Thanks to the A+ plan, we now know that in 11 Marion County, depending upon the subject and 12 grade level, there is still a 20 to 40 percent 13 gap in the achievement between the two groups 14 I've spoken about. 15 But in the Marion County public schools, we 16 believe all children can learn, and we are 17 committed to closing that achievement gap to 18 see that no child is left behind. 19 The proposed changes to our school grading 20 rule are a dramatic step forward in 21 accomplishing this vision. 22 What gets measured, gets done. But what 23 gets measured and rewarded gets done first. 24 Under these changes, we will measure our 25 low performing students more clearly. We will ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 41 2 schools will be rewarded for the improvement of 3 the very children who need it the most. 4 For their sake, it is time to carefully 5 raise the bar. If we've learned anything in 6 the past three years, it is that expectations 7 do matter. 8 Speaking as a stakeholder, not only in our 9 schools, but in the future of Florida, I 10 believe these changes will continue to move our 11 State in the right direction. 12 I applaud the effort, and I urge you to 13 adopt them. 14 Thank you very much. 15 GOVERNOR BUSH: Thank you, Superintendent. 16 MS. COXE: As Superintendent Warford said, 17 that which gets measured, counts. We need 18 experts to help us do that measurement today. 19 Here to speak with you is one measurement 20 expert from Miami-Dade County, Gisela Feild. 21 MS. FEILD: Governor Bush, and the Cabinet, 22 as a member of the technical group, and as a 23 representative of Miami-Dade County public 24 schools, the largest district in the State of 25 Florida, my first comment is: We love the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 42 2 We love the process that was used in the 3 development of the rule. We believe that 4 within the technical group, the process allowed 5 us to bring the input of parents and teachers 6 and superintendents and -- and administration 7 in allowing us to craft the rule and to make it 8 a better rule. Not only in writing, but in the 9 implementation process. 10 So we -- we hope that you will approve this 11 rule. 12 And again as part of the technical group, 13 we are -- we are grateful that you allowed us 14 to convene for many months, and to try to make 15 this rule and implement it totally. 16 Thank you. 17 GOVERNOR BUSH: Thank you for your hard 18 work. 19 MS. COXE: The person who has chaired both 20 our focus group and our technical assistance 21 team is also the architect of the State school 22 grading system. 23 Members of the Cabinet and Governor, may I 24 present Dr. Gerry Richardson. 25 DR. RICHARDSON: Good morning, Governor, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 43 2 for the opportunity this morning to briefly go 3 over the school grading rule to make sure that 4 you know of its salient features. 5 First of all, there are three required 6 components. These are in the enabling 7 legislation. It requires current performance 8 measures. These are similar to the measures 9 that we have now, but as you'll see, against 10 higher standards. 11 The centerpiece, which we bring to you 12 today, is the introduction of annual learning 13 gains. This will mark the very first time that 14 we've been able to track individual children 15 from one year to the next, and report on their 16 progress. 17 The third component is one that leaves no 18 child behind. This requires improvement of the 19 lowest performing students in reading, in each 20 school. 21 That's an important distinction, in each 22 school. 23 This system is based on an expanded FCAT 24 Sunshine State Standards data system running 25 from grades 3 through 10. We first implemented ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 44 2 we're ready to track those children in the same 3 school, in the same district, anywhere in the 4 state. 5 This new system is going to be based on 6 many more measures, many more indicators of 7 student progress. 8 That makes it a challenge to also make it 9 easy to understand and communicate. With the 10 help of our input groups, I hope we've been 11 able to do that. 12 The last feature is that we want to make a 13 smooth transition from our previous system to 14 our new system. And this is very important 15 because we've seen such progress over the last 16 three years. 17 The number of schools graded out as A and B 18 have almost doubled, and the number of D and Fs 19 have been cut in half. 20 We want to keep that trend going. We want 21 to keep that strength there. 22 We also want to introduce more diagnostic 23 information into our reporting. We want to 24 provide more detail so that schools will know 25 which areas are their strengths, and which ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 45 2 So in this vein, we are introducing a re-- 3 an expanded report card look. 4 We use an example from a middle school. 5 And our first set of components, three of the 6 six, are the percent of students meeting high 7 standards. 8 And by "high standards" in reading and 9 math, I mean this: In the previous system, we 10 had two sets of indicators, one for C, D, and 11 F schools. And that was the percent of 12 students scoring FCAT Level 2 and above. 13 Now we're moving to a set of indicators 14 that were used for A and B schools that are 15 FCAT 3 and above. And that will be used for 16 all schools and all levels. 17 We have a graphic over here that I think 18 helps illustrate that point, that we are, 19 in fact, now planting the banner, planting the 20 flag at Level 3 and above for all students. 21 GOVERNOR BUSH: Gerry, just as a -- for the 22 folks that have come for other items on the 23 agenda that may not know 2, 3, 4, 5, 3 is 24 generally what we would consider to be at grade 25 level, correct? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 46 2 GOVERNOR BUSH: Thank you. 3 DR. RICHARDSON: High being the -- 5 being 4 the very highest, and 1 being below 5 satisfactory. 6 It's important for me to point out, in 7 writing, we're also raising the standards 8 there, but in a transition fashion. 9 Right now, the current standard for school 10 grading is the percent of students scoring 3 11 and above. And that's the midpoint of the 12 scale. 13 And I'm proud to announce that over the 14 last years, that students have really, really 15 improved in terms of meeting that goal. 16 But it's time to move to a higher standard. 17 We're going to require students to be writing 18 at -- above a 3. But for this first year, 19 we're offering a transition, we're going to 20 count the percent of students scoring 3 and 21 above, and average that with the percent 22 scoring 3.5 and above. 23 We want to acknowledge all the hard work 24 that's gone into this, but also signal higher 25 standards to come. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 47 2 eligible for school performance calculations. 3 With all the changes, this is one part that 4 hasn't changed. We listen to public input from 5 teachers and administrators, not to include 6 mobile students. So we only include students 7 who are enrolled in the same school in October 8 and February. 9 We also include standard curriculum 10 students, and they'll be included in grades 3 11 through 10. 12 As I mentioned, we're moving to higher 13 standards for reading and math, and making a 14 transition for writing. 15 Our next set of indicators are the percent 16 of students making gains. This is the brand 17 new piece of the system. 18 We're going to offer for students, the same 19 students who were eligible for -- to be 20 included in the high standards piece, but who 21 also have a score from the previous year. They 22 can have that score, same school, same 23 district, same state, whatever, in reading and 24 math, but, of course, not in writing, because 25 we don't have adjacent grade levels there. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 48 2 we credit students with learning gains. 3 One piece would be when students improve 4 their FCAT level from a Level 1 to a 2 to a 3, 5 4, or a 5. 6 Another piece would be to -- when students 7 maintain a satisfactory achievement level, they 8 move from one grade level to the next, 9 mastering tougher content, but remaining within 10 those higher standards of 3, 4, or 5. 11 And the last one is when students in the 12 lower performance levels demonstrate more than 13 one year's growth for one year in school, that 14 we're going to credit these students with gains 15 as well. 16 GOVERNOR BUSH: How would you measure that? 17 DR. RICHARDSON: We're going to use the 18 FCAT Developmental Scale, which was adopt-- 19 which was developed specifically to allow us to 20 go to measure learning gains, to move from one 21 grade level to another. 22 COMMISSIONER BRONSON: I have -- I have one 23 more question, to make sure that -- that -- 24 that we all understand this. 25 When you were talking about the level, and ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 49 2 sure this is the way I got it. 3 If a child goes into a higher category, 4 such as Algebra II, compared to Algebra I, 5 which is higher level, or some other form of 6 higher English, composition or whatever, that 7 if that child still maintains a 3.0, and was a 8 3.0 last year, because of the new content and 9 the higher level, that counts as a positive 10 toward that child, not a negative because they 11 didn't move up to a 4 or 5? 12 DR. RICHARDSON: Absolutely. That's a good 13 analogy. 14 If, for example, a student made a B in 15 Algebra I in one grade level, then a B in 16 Algebra II the next grade level, of course, 17 they're moving up in their content and the 18 difficulty, but they're certainly making a 19 learning gain that should be credited. 20 The last component of 6 has to do with the 21 requirement to meet adequate progress for the 22 lowest 25 percent of students in each school. 23 No child left behind. 24 Literally, what we're going to do here is 25 rank order students on their reading score from ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 50 2 Now, the law does exclude students who 3 score above satisfactory. That's an FCAT 4 Level 4 or 5, which you might find in some of 5 these very high performing schools. 6 But all students, Levels 1, 2, 3, the 7 lowest of those would be in our lowest 8 25 percent in the school. 9 We've set a criterion -- minimum criterion 10 of 50 percent of those students required to 11 make learning gain in order for adequate 12 progress to be achieved. 13 These are, of course, the lowest 25 percent 14 in the -- in the school. It's interesting, 15 make sure to note that these students have no 16 different gain requirement. They have the 17 exact same gain requirement, or alternatives, 18 as any other students. 19 We've set that adequate progress level at 20 50 percent. A school that does not -- that 21 aspires to be an A, must meet that adequate 22 progress criterion immediately, and must 23 furthermore show that there is no more than a 24 10 percent percentage point gap between the -- 25 the learning, which occurs in the lowest ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 51 2 all schools. 3 And in -- certainly in our briefings and 4 our speaking with Cabinet members, this is one 5 that Commis-- Commissioner Gallagher has helped 6 us with. And we think this helps strengthen 7 what an A really means. It'll make sure that 8 A schools really stand out. 9 In terms of other higher performing 10 schools, schools that aspire to be a B or a C, 11 if they do not make adequate progress of the 12 lowest 25 percent in their first year, then 13 they are required to amend their school 14 improvement plan and add a component for 15 getting to that goal. 16 If they do not meet that in the second 17 year, then they will be -- their grade will be 18 reduced one. 19 So A schools have a -- a much higher 20 requirement, I think which is appropriate. And 21 B and C schools do have the ability to -- the 22 opportunity to develop an improvement plan and 23 work toward that plan. 24 The -- the actual school grading system 25 works like a teacher's grade book, in a sense, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 52 2 allocate one grade point for each percent of 3 students in each of these grade components. 4 So 1 percentage point for students meeting 5 high standards, making learning gains; and one 6 for each of the students in the lowest 7 25 percent making gain. 8 As you can see, if you look down the 9 columns, that reading accounts for half of the 10 school grade. That's required in law, and is 11 certainly consistent with our current 12 initiatives in reading. 13 We want to focus on reading. 14 Three out of the six components, or half, 15 are focused on reading. 16 If you look at the math columns, you can 17 see that two out of six of the components, or 18 one-third of the total grade, is based on math. 19 And finally, in writing, one-sixth of the 20 total points come from writing. 21 So all of these, if you look across on the 22 rows, 1 point allocated for each percent making 23 high standards. And you can see that that 24 accounts for half of the grade looking that 25 way. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 53 2 one-third of all grade points are attributable 3 to student gains. And then you add the lowest 4 25 percent, and that makes half of the whole 5 grade attributable to learning gains. 6 Then the school grade points are summed. 7 And from that, we have a scale in the rule 8 which allocates grade letters to particular 9 school grades. And in this case, a 380 sums to 10 a B. 11 Yes, sir. 12 TREASURER GALLAGHER: The third grade point 13 down -- 14 Well, that didn't help much -- 15 GOVERNOR BUSH: Can you go back -- you want 16 to go back to the -- 17 TREASURER GALLAGHER: Yeah. Back one. 18 DR. RICHARDSON: Back one? 19 GOVERNOR BUSH: There you go. 20 TREASURER GALLAGHER: There you go. 21 DR. RICHARDSON: Which one, sir? 22 TREASURER GALLAGHER: The -- yes. 23 On your grade points, the third one down at 24 50, is 50 the max points you can get there? 25 You either get to 50, or you don't? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 54 2 max. 3 TREASURER GALLAGHER: Okay. But if you 4 don't have 50, you get none. 5 DR. RICHARDSON: No, sir. You get -- 6 TREASURER GALLAGHER: Whatever the number 7 is. 8 DR. RICHARDSON: -- whatever points you do 9 earn. 10 TREASURER GALLAGHER: Okay. 11 DR. RICHARDSON: That's a -- that's a 12 really great question. 13 I think it will represent an improvement 14 over the previous system where we had 15 cut-offs -- 16 TREASURER GALLAGHER: You got it or you 17 didn't get it -- 18 DR. RICHARDSON: You -- right. 19 TREASURER GALLAGHER: -- before. 20 That's why I asked the question. 21 DR. RICHARDSON: Now each school gets to 22 earn and accumulate whatever achievement 23 they're able to produce. 24 TREASURER GALLAGHER: Okay. 25 COMMISSIONER CRIST: Good point. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 55 2 DR. RICHARDSON: These are the particular 3 scales once again. It takes 410 points or more 4 must meet this requirement for the lowest 5 25 percent making adequate progress, and be 6 within 10 percentage points of the total 7 students making gains. 8 And 320 required for a C, a minimum of 9 280 points required for an F. 10 And, Governor and Cabinet, that concludes 11 my presentation at this time. 12 GOVERNOR BUSH: Is there any questions of 13 Dr. Richardson? 14 Well done. 15 DR. RICHARDSON: Thank you, sir. 16 MS. COXE: Florida's vision is that every 17 child in our state will perform at grade level 18 and stay there throughout their high school 19 career. 20 Principals and teachers help to make that 21 happen. So next we would like for you to hear 22 from a wonderful principal from right here in 23 Leon County, Iris Wilson. 24 Iris was an unwitting movie star with us. 25 When we did the videotape to explain the rule ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 56 2 come be on it and participate. And she did a 3 great job. 4 Thank you, Iris. 5 MS. WILSON: Thank you. 6 Governor and Cabinet, I'd like to thank you 7 for the opportunity to speak with you about the 8 new rule. 9 First of all, as an educator and a 10 principal representative for Leon County, we 11 embrace the emphasis on reading, because we 12 know that that is critical for all of our 13 students to be able to achieve and find success 14 in our nation. 15 We also look at the fact that we're looking 16 at 2001 scores. That gives us an opportunity 17 to work with the students, to focus on the 18 areas of their needs, and to help them to be 19 successful. 20 By including the 3.5 with the writing 21 scores, we're more inclusive so that we are 22 including more students who are performing 23 well, instead of leaving out those children. 24 I understand the waiting for the bonus 25 points. And we would like to see that as a ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 57 2 questions, and there needs to be more input 3 from educators and everyone who's going to have 4 to be accountable for this piece. 5 In conclusion, I'd like to say that our 6 schools are not afraid to be accountable. We 7 want to be accountable. We also appreciate and 8 enjoy being involved, and your taking the time 9 to get input from educators so that we can do 10 the best job for our children. 11 And we know that we will continue to be 12 successful, and to have the best public schools 13 in the nation. 14 Thank you. 15 GOVERNOR BUSH: Thank you very much. 16 The -- one of the things Gerry didn't 17 mention, that you did mention, was -- came from 18 I believe principals and superintendents who 19 suggested that we use last year's -- 2001 20 results to identify -- 21 (Commissioner Bronson exited the room.) 22 GOVERNOR BUSH: -- the -- the bottom 23 25 percent so that you could immediately begin 24 to work. 25 If you're going to do it after the fact, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 58 2 folks. In fact, it would be impossible. So 3 it's a -- it was a great suggestion that was 4 embraced, and now part of the rule. 5 We appreciate your input. 6 COMMISSIONER CRIST: And you're a principal 7 at Kate Sullivan, aren't you, Iris? 8 MS. WILSON: Yes. 9 COMMISSIONER CRIST: Yeah. 10 Thank you. 11 MS. COXE: Other educators that help 12 students in Florida master these standards work 13 in the district offices. Often these people 14 come as outstanding teachers, and principals. 15 This is certainly true in the case of our 16 next speaker, Roy Brooks from Orange County, 17 Assistant Superintendent. 18 MR. BROOKS: Thank you. 19 Governor and Cabinet members, this is a 20 logical, very well thought-out system. 21 It is a system that is fair to all 22 students. It will be fair to all of Florida's 23 students. 24 There are three points that I'd like to 25 make: First the annual learning gains. A ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 59 2 year's worth of growth. This system will point 3 that out. 4 Secondly, the emphasis on -- emphasis on 5 reading. Reading is now the gatekeeper of this 6 system. 7 And this reading, Governor, is consistent 8 with your initiative, that children must know 9 how to read in order to be successful. 10 The third part is the adequate progress of 11 the bottom 25 percent. I think this is a good 12 thing. And I will draw the analogy in terms of 13 having a football field, and wanting all the 14 youngsters to score a touchdown in reading. 15 Well, some youngsters will start at the 10, 16 some at the 20, some at the 30, some at the 40. 17 The point is, to make sure that they all 18 score a touchdown. What we don't want to see 19 is to see youngsters on the 10, make it to the 20 11, or go back to the 6 or the 4. 21 I think this is a well thought-out system, 22 it emphasizes reading, it is a system that will 23 be fair to all of Florida's students. 24 And I commend you and everyone that was 25 involved in -- in the -- the development of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 60 2 GOVERNOR BUSH: Thank you for being here. 3 MS. COXE: We love our work, but we 4 recognize that the magic happens in the 5 classroom and in the homes. 6 And next we would like you to hear from 7 Sharon Burnette, 5th grade teacher from 8 Duval County. 9 MS. BURNETTE: Thank you. 10 It's truly an honor and a privilege to 11 speak to you today about a subject that's very 12 close to my heart; and hence, something very 13 near and dear to me, and that's children. 14 And I'm here today because I firmly believe 15 that this A+ plan and the learning gains are 16 another step toward providing the best 17 education for every child in my care. 18 Teachers as caring individuals want the 19 best for their children. We want a program 20 that's devised for each individual child to 21 take them where they are when we receive them 22 at the beginning of the year, and move them 23 forward as far as we can. 24 Children come to us with so many levels of 25 mastery. And oftentimes, the test data isn't ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 61 2 diagnostic prescriptive programs for them to 3 take them as far as we can. And that's often a 4 frustration. 5 With this program, and with learning gains, 6 the minute a child walks into my room next 7 year, I'm going to know where that child needs 8 to go, I'm going to know what kind of a program 9 to devise to best help that child. 10 I appreciate the new emphasis on reading, 11 and I have seen a new enthusiasm among my 12 students for reading. 13 And I want us to remember that we can't 14 lose sight of the fact that behind every test 15 score is a child with hopes and dreams and 16 aspirations for a promising future. 17 And because this A+ plan and the learning 18 gains is based on each individual child, not 19 compared to any other child in the classroom, 20 that's going to be possible. They have 21 manageable, realistic goals. And we, as a 22 teacher, have a tool to guide them toward -- 23 toward achieving those goals. 24 When I started my packet as -- for Duval 25 Teacher of the Year, and then as a -- a ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 62 2 was, this is one of the most exciting periods 3 of history to be teaching in the state of 4 Florida. And I had no idea just how exciting 5 it was going to get. 6 And this learning gains component has made 7 it even more exciting. And I want to thank you 8 for that. 9 I feel truly blessed to be a teacher, 10 because I not -- just look into the face of the 11 future every day, I mold it. I feel truly 12 blessed to be in the state of Florida where a 13 whole administration is so concerned about the 14 progress of every child in the state of 15 Florida, that they say no child should be left 16 behind. 17 So I fully support the learning gains 18 program, and I thank you. 19 GOVERNOR BUSH: Thank you very much for 20 being here. 21 MS. COXE: Many of us in this room are 22 parents, and we know that these issues are of a 23 tremendous importance to families. 24 Here to speak in their regard is 25 Patty Hightower, President of the PTA from ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 63 2 MS. HIGHTOWER: Thank you, Betty. 3 Good morning, Governor, and members of the 4 Cabinet. 5 It's my privilege to be here to speak to 6 you about how parents feel about this. I know 7 in 1999 when the A+ plan was put forward, we 8 had some reservations, but this is the day that 9 we have looked forward to, the day when 10 individual student gains are going to be put 11 into the equation. 12 Because really what -- realistically, what 13 parents are most concerned with is how is their 14 child doing day-to-day, year-to-year, how 15 important is that to them. 16 And now we will be able to see where my 17 child starts, and where my child finishes, and 18 be able to determine whether they are actually 19 learning in that year. 20 The things that I have learned from being 21 asked to -- to give input here, it's been very 22 informative, as I've listened to the process 23 that it has gone through to put this plan 24 together. A lot of my fears and our fears of 25 parents have been allied. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 64 2 is an excellent piece, it will give parents 3 information that they can use. Because it's 4 very critical that parents understand the needs 5 and the -- of their children so that they can 6 help at home, to help foster that student 7 achievement. 8 They will also -- the reading is very 9 important. I have had the privilege of sitting 10 on some of the review of the FCAT items in 11 math. And -- from the State level. 12 And I always look at that math test, and 13 think, if a child can't read, how can they do 14 the math on this test? 15 So it's very important if -- that we 16 continue to emphasize reading, because we know 17 that everybody that learns to read will 18 succeed. 19 The other thing I wanted to say is that the 20 grading system now incorporates a lot of the 21 data that we had concerns about in the 22 beginning. The fact that you -- you have to be 23 at the school at certain points and -- and all 24 of those things are things that we know that 25 you're listening, and the Department of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 65 2 And we think that this is an excellent tool 3 to be able to determine the students that are 4 going to need additional help, and will receive 5 those resources. 6 So I thank you very much. 7 GOVERNOR BUSH: Thank you very much for 8 your participation. And -- and you mentioned 9 something that I think is a key element of 10 this, which is that each year parents will -- 11 will be given a report card, if you will, that 12 will be far more extensive for both knowing how 13 their school is doing; but more importantly how 14 their student is doing, how their -- how their 15 child is doing. 16 And that -- that I think will -- will 17 create an army of interest in the -- in -- in 18 their child's education. 19 If parents are involved, it makes a huge 20 difference in student achievement. So we hope 21 to make this easy to understand and easy to get 22 out, and easy to use to -- to advance rising 23 student achievement. 24 MS. HIGHTOWER: Can I add one thing? 25 I know that we have been -- Betty Coxe has ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 66 2 the Florida PTA, she has written articles for 3 our -- our new publication, and she -- they are 4 putting people at our disposal to come and talk 5 to parents so that they will understand this. 6 GOVERNOR BUSH: Commissioner? 7 TREASURER GALLAGHER: Also there's a -- 8 (Commissioner Bronson entered the room.) 9 TREASURER GALLAGHER: -- a norm part of 10 this test that parents are going to get a 11 report on, too, so that they can be compared 12 with not only other students in Florida, but 13 students throughout the country. 14 And I think that's an important thing that 15 ought to be mentioned here. It's not part of 16 the grading system, but it is part of the 17 reporting system to -- to parents on how their 18 child's doing. 19 MS. HIGHTOWER: Thank you. 20 MS. COXE: Thank you. 21 And thank you for that personal compliment. 22 Although I need to say again, this is just the 23 work of so many people, from the Department of 24 Education, from the Governor and 25 Lieutenant Governor's office, from ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 67 2 assistants have worked with us. 3 We have -- have truly tried to be totally 4 embrasive here, and believe that we come to you 5 in a strong position now because of all of that 6 effort, and opportunity for insight. And we 7 appreciate your vision as -- 8 GOVERNOR BUSH: Betty, did you just say 9 that you were going to try-- you were trying to 10 be totally abrasive? 11 TREASURER GALLAGHER: Embrasive. 12 MS. COXE: Oh, some people say I don't need 13 any help with that. I -- just as a natural 14 attribute. 15 GOVERNOR BUSH: I'm hard of hearing, 16 I guess. I misunderstood. 17 There's nothing -- 18 MS. COXE: We are -- 19 GOVERNOR BUSH: -- abrasive about your -- 20 MS. COXE: We are just so happy to be 21 before you with a vision we hope satisfies your 22 image of where education should go. 23 We are tickled with it, and -- and so 24 grateful to the people that have made this 25 happen. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 68 2 Commissioner will say, we're becoming a K-20 3 agency. And all of this has implications for 4 the future, for Florida's children, and for the 5 system of education in our state. 6 So to complete our formal presentation 7 today, I return to the Commissioner for 8 introduction appropriate in nature. 9 COMMISSIONER CRIST: Betty -- 10 Thank you, Governor. 11 -- thank you for your hard work. And 12 thanks to each of the people who were kind 13 enough to travel here and speak about the rule, 14 and for your input throughout the process. 15 It's an awful lot of work. And we're 16 grateful to you. 17 I have a wonderful partner in this mission, 18 and you're right, our -- our Department is 19 transitioning, and it's transitioning rapidly. 20 And the wonderful partner that I share the 21 responsibility, along with a lot of people in 22 education, is a former Senate colleague of 23 mine. And his name is Jim Horne. And he is 24 now Secretary of Education. 25 Jim Horne, I think he'd like to make some ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 69 2 Mr. Secretary. 3 While he's coming up, I want to also 4 express our gratitude to Lieutenant Governor 5 Brogan, who is one of my predecessors, as 6 Commissioner Gallagher, have had a lot to do 7 with helping us. 8 Secretary. 9 MR. HORNE: Thank you, Commissioner. 10 Certainly we are transitioning from I think 11 a very good system, to a great one. Recently I 12 was in Washington meeting with some of the most 13 world renowned academic education researchers. 14 And they're quite excited about Florida's new 15 system. 16 And they think that we are now taking the 17 lead. And some of their talk about value-added 18 assessments, the opportunities that it will 19 bring us is incredible. 20 One of the things that's become really 21 clear, that this is more than just simply K-12. 22 When you look to the future, and you look at 23 the jobs today, the 80 to 85 percent of all the 24 jobs today in Florida require something 25 significantly more than a high school diploma. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 70 2 too few students are accessing postsecondary. 3 And we need to change that. 4 Education is -- is definitely more than 5 K-12. In Florida, we believe it's K-20. And 6 with the Governor's help, we are reorganizing 7 education to a K-20 system, the first in the 8 nation; and, quite honestly, having talked to 9 some people from Australia and all around the 10 world, we're the only one in the world doing 11 this, Governor. And it's exciting to see what 12 we're doing. 13 But it's about ed-- better education, and 14 it's about more access to more education. 15 Students, all students, have to be better 16 prepared. 17 It's really clear that over the last 30 or 18 40 years, we're doing basically what we've 19 always done, we're educating 25 percent of the 20 students very well. And I think that we must 21 change that. 22 Under the Governor's leadership to not 23 leave any child behind, we're taking I think 24 some of those first early steps. And it's 25 paying off. Clearly our education system is ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 71 2 The tests clearly indicate that we are 3 performing at a -- at a higher level. 4 Now we must concentrate on the rest of 5 those students. The other 75 students -- 6 75 percent of the students, to make sure that 7 they are better trained, that they're prepared 8 for the rigors of postsecondary, that they're 9 prepared for this technologically driven global 10 economy that we're in today. 11 And so it's important that we have an 12 assessment system that will be able to diagnose 13 students, that we can look at teacher 14 effectiveness, we can look at program 15 effectiveness, we can look at the effectiveness 16 of curriculum as we better prepare students for 17 what I believe is more education, and for the 18 rigors of the workplace. 19 So this I think is an incredible evolution. 20 This was contemplated in 1999. Some think this 21 was somehow thought up subsequently. This has 22 been a part of the original plan. 23 This is what we believe is the final 24 evolution of the FCAT system that will make us, 25 I think, take a preeminent place in our ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 72 2 best assessment system in the country. 3 This is an exciting time to move forward. 4 I think this is great progress. I think it's 5 advancing the ball significantly. 6 Education is improving in Florida. It's 7 clear. We still have a long way to go. Too 8 few students, I think, are accessing the keys 9 to open those doors of opportunity. 10 But I think with the kind of leadership, 11 the convergence of leadership, and the will of 12 the people, I believe that we can make this 13 truly a world class education system in our 14 country. 15 And it is more than K-12. It is a K-20 16 system. We're excited to bring all of these 17 pieces together. I think that we really have 18 the magic. 19 Florida is considered the most progressive 20 education state. We have the right leadership, 21 and we're -- we're very proud of this day, 22 Governor. 23 GOVERNOR BUSH: Thank you, Secretary. 24 Commissioner Bronson? 25 COMMISSIONER BRONSON: Thank you, Governor. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 73 2 also as one of my colleagues, along with 3 Commissioner Crist, in the Senate. 4 It's one thing to go through the 5 legislative process and make changes in 6 education, as we've seen over and over, and 7 before the first changes is completed, there's 8 new changes year after year after year, which 9 puts up a -- a barrier I think between 10 legislation and educators as to reachable 11 goals. 12 And having talked with all the members here 13 today about the -- the issue at hand on -- on 14 the FCAT, and how we do Florida education, 15 having spent a little time in the classroom 16 myself, having those reachable goals by every 17 segment of that student population before 18 making changes to a better system, making sure 19 that they got their hands around a reachable 20 goal, the teachers in the system around a 21 reachable goal, and the schools in the system 22 around a reachable goal, I think is a -- is the 23 proper way to go. 24 And I think it's going to improve our 25 education system tremendously. And I'm -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 74 2 and everyone worked so hard on it. I think 3 it'll be a great improvement for Florida 4 education. 5 GOVERNOR BUSH: Thank you, Commissioner. 6 Is there a -- 7 COMMISSIONER CRIST: I think it seems like 8 it's the appropriate time. 9 I'd like to make the motion to adopt the 10 rule as amended, Governor. 11 TREASURER GALLAGHER: Wait -- wait a 12 second. Before you go too far. 13 On page 18, line 11, there's a technical -- 14 that line needs to be lined out. 15 So I move to amend his motion to line that 16 out. 17 GOVERNOR BUSH: A motion and second as 18 amended. 19 Do you want to repeat one more time where 20 it is? 21 TREASURER GALLAGHER: Page 18, line 11. 22 GOVERNOR BUSH: Any other discussion? 23 All those in favor, say aye. 24 THE CABINET: Aye. 25 GOVERNOR BUSH: All opposed? ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 75 2 I want to thank everybody for their 3 incredibly hard work over the last six months 4 on this. It's -- it's been very rewarding. 5 I also want to say, just for the record, 6 that -- because we have a lot of educators 7 here. 8 Yesterday I signed into law a bill that 9 allows the school districts to have flexibility 10 on how they -- how they deal with the budget 11 shortfall, which I thought was one of the more 12 significant, hopefully, first steps in this 13 process. 14 We have an accountability system that is 15 really second to none now. And my hope is, and 16 we're going to work with the Legislature -- and 17 I'm pledging this to everybody that's 18 interested in this -- we're going to work with 19 the Legislature to move away from command and 20 control categoricals towards allowing 21 principals and superintendents and teachers, 22 and community leaders to determine how best to 23 develop the strategies to assure that children 24 get a year's worth of knowledge in a year's 25 time. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 76 2 this shouldn't just be done during bad times, 3 but during good times as well. 4 I think we should free up the school 5 districts that have -- and the schools that are 6 given this -- this challenge to do. 7 And to me, the combination of this grading 8 system, and a -- a good assessment of how -- 9 how students are doing, combined with the 10 freedom to -- to carry it out, will put us in a 11 place that no other state is. 12 Thank you, Betty. 13 MS. COXE: Thank you, sir. 14 MR. PIERSON: Item 3 is an amendment to 15 Rule 6A-1.09422, Florida Comprehensive 16 Assessment Test Requirements. 17 The rule was -- 18 TREASURER GALLAGHER: Motion. 19 MR. PIERSON: -- amended to establish 20 achievement levels for Grades 3 through 10, 21 Florida Comprehensive Achievement Test. 22 And Dr. Fisher is here if you have 23 questions. 24 COMMISSIONER CRIST: Motion to approve. 25 GOVERNOR BUSH: Is there -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 77 2 GOVERNOR BUSH: -- a motion? 3 COMMISSIONER BRONSON: So move. 4 GOVERNOR BUSH: Is there a second? 5 TREASURER GALLAGHER: Second. 6 GOVERNOR BUSH: Any discussion? 7 Anybody want an explanation? 8 The motion -- without objection, the motion 9 passes. 10 MR. PIERSON: Item 4 is a repeal of a rule, 11 Rule 6A-1.083, Military Leave Extent. The rule 12 was repealed because there is no statutory 13 authority for the rule. 14 TREASURER GALLAGHER: Motion to -- 15 COMMISSIONER BRONSON: Move the item. 16 TREASURER GALLAGHER: Second. 17 GOVERNOR BUSH: Do we have to -- tell me 18 what the rule was that we didn't have the 19 authority to do? 20 MR. PIERSON: It -- 21 TREASURER GALLAGHER: Military leave. 22 MR. PIERSON: It was the rule on military 23 leave authorizing payment to -- to people on 24 active duty. And it came to the attention 25 because of the resolution that the Board passed ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF EDUCATION 78 2 GOVERNOR BUSH: So there is a -- there is a 3 bill in the Legislature, isn't there, for -- to 4 deal with this? 5 MR. PIERSON: Yes, sir. 6 Actually the -- the statute as it exists 7 gives school districts the -- the ability to 8 establish the rule, not the State. 9 GOVERNOR BUSH: Okay. All right. 10 There's a motion and a second. 11 Without objection, it's approved. 12 (The State Board of Education Agenda was 13 concluded.) 14 * * * 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 79 2 Adjudicatory Commission. 3 MS. TINKER: Good morning, Governor, 4 Cabinet members. 5 (Commissioner Crist exited the room.) 6 MS. TINKER: Item 1 is a recommendation to 7 transmit a -- an appeal -- a Development of 8 Regional Impact appeal to the Division of 9 Administrative Hearings, and allow a 10 hearing officer to examine two petitions to 11 intervene in the proceeding, make a 12 recommendation on those petitions, and then 13 proceed with hearing the merits of the case. 14 There are several speakers here today, two 15 people representing the motion -- or the -- the 16 intervenors, and then the representative of the 17 developer. 18 Bob Apgar is the first speaker. 19 GOVERNOR BUSH: Good morning. 20 MR. APGAR: Good morning, Governor, members 21 of the Cabinet, I'm Bob Apgar. I represent 22 seven individuals who own homes, and reside in 23 the Bay Point Community in Bay County. 24 We're here today to ask that you grant our 25 petition to intervene, to participate in this ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 80 2 recommend -- or send over to the 3 Administrative Law Judge. 4 Our petition's been filed, as well as a 5 memorandum of law. 6 My clients purchased their homes from the 7 '70s through the '90s, and they bought into a 8 low-rise resort community. 9 And I want to read you an example of the 10 representations that were made to them, and 11 others who purchased in this community at that 12 time. 13 It says, this -- material says: 14 Bay Point's overall development is not an 15 accident. Years of planning and study have 16 resulted in approval of Bay Point as a 17 Development of Regional Impact. 18 The Development Order issued as part of the 19 DRI process details Bay Point's future growth 20 plans. 21 When fully developed, Bay Point will appear 22 to those who live here, or visit to be more of 23 a quiet village than a sprawling resort. 24 Building heights are limited, and overall 25 land density has been held low to a -- 3 units ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 81 2 dedicated to resort amenities, such as golf 3 courses, landscaped areas, tennis courts, 4 marina, and other recreational and open areas. 5 And we are here today, Governor, and 6 members of the Cabinet, because a subsequent 7 developer, a landowner who's purchased some 8 parcels in this process, seeks to change this 9 basic compact that these assurances that were 10 made to my clients and others when they 11 purchased their property here. 12 This new developer wishes to place a 13 12-story high-rise building in the middle of 14 this community, and eliminate many of the 15 amenities that were promised to my clients. 16 And it is for this reason that we are here 17 to intervene. My clients have opposed this 18 project at the local level in Bay County for 19 years, it recently failed finally at the 20 Bay County Commission. And we are here on that 21 appeal to continue our opposition to this 22 project. 23 We ask that you grant our petition to 24 intervene, and allow us to carry on with that. 25 The DRI process the -- and -- have -- ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 82 2 limited proceedings. The persons who can 3 initiate those appeals are limited. 4 However, participation in that appeal, once 5 it has been initiated, has historically been 6 broad. And this body has liberally granted 7 intervention to persons, like my clients, whose 8 substantial interests are affected. 9 And that is their basic due process right 10 under the -- 11 (Commissioner Crist entered the room.) 12 MR. APGAR: -- Florida Administrative 13 Procedure Act, is to be admitted to proceedings 14 like this, to protect their interests through 15 intervention. 16 We recognize that this body also has the 17 authority to send both the appeal petition, and 18 our petitions, to intervene to the 19 Administrative Law Judge for decision. 20 We ask that you consider the petitions on 21 the merits today. We think the merits are 22 clear, my client's substantial interests are 23 clear, their right to participate is clear. 24 We ask that you grant this motion, and send 25 us as intervenors with -- to the Administrative ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 83 2 I'd be happy to answer any questions. 3 GOVERNOR BUSH: If -- if you stand by, 4 there may be a few. 5 MR. APGAR: Thank you. 6 MS. TINKER: The second speaker is 7 Richard Moore, representing the second party 8 who's trying to intervene, Bay Point Community 9 Association. 10 MR. MOORE: Governor, Cabinet members, 11 good morning. I'm Richard Moore, and I 12 represent the Bay Point Community Association, 13 which is seeking to intervene in this DRI 14 appeal. 15 With me today is also Mr. Richard DeVed, 16 who's the President of the Bay Point Community 17 Association, and is here to answer questions. 18 Richard? 19 GOVERNOR BUSH: Welcome. 20 MR. MOORE: Bay Point Community Association 21 represents over 1200 property owners who have 22 invested over 300 million dollars in the 23 Bay Point resort, which is a low-rise resort 24 community. 25 Under the DRI Development Order, the ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 84 2 recreational amenities, including golf courses, 3 a tennis facility, and swimming pools, and 4 other recreational areas. 5 The developer also agreed to limit height 6 to five stories. Now a successor developer, 7 who is bound by the DRI Development Order, 8 wants to radically change the nature of the 9 Bay Point resort. 10 He wants to eliminate the nationally ranked 11 tennis facility, clubhouse, and swimming pool 12 without replacing these amenities as required 13 under the current DRI Development Order, and to 14 build a high-rise 12-story condominium, which 15 is nearly twice the height of the -- any other 16 building out in the resort. 17 The County -- Bay County, in a 2 to 2 18 nonvote, denied this request, and the developer 19 has appealed. 20 GOVERNOR BUSH: What's -- what's a nonvote? 21 What's 2 to 2? 22 MR. MOORE: Well, 2 to 2, they -- they -- 23 it's essentially -- it -- it resulted in a 24 denial of the application, because they 25 couldn't move it forward, they couldn't deny it ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 85 2 GOVERNOR BUSH: Shouldn't have voted. 3 MR. MOORE: Bay Point Community Association 4 and its 1200 members' substantial interests are 5 directly affected by this amendment. 6 Bay Point Community Association owns, 7 operates, and maintains all the internal 8 roadways within the resort community, roadways 9 which will be directly impacted by this DRI 10 amendment through increased density, and 11 construction activities. 12 Bay Point Community Association members 13 will see a drop in the quality of life as a 14 result of this amendment, and a -- a decrease 15 in property values as a result of the 16 developer's destruction of the recreational 17 amenities that were provided for under the DRI. 18 I'll -- I'll preface that some of these 19 recreational amenities have already been 20 destroyed without first getting approval 21 through the DRI process. 22 We believe that either the Governor and 23 Cabinet, or the Administrative Law Judge can 24 consider the petition to intervene. 25 A decision to grant interve-- inter-- ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 86 2 merits of the case. 3 Because we are here today before the 4 Governor and Cabinet, I am requesting that 5 y'all consider the petition -- Bay Point 6 Community Association's petition to intervene. 7 However, if the -- it is your decision to 8 send it to the Administrative Law Judge, that 9 is also appropriate. 10 And I'll be here to answer any questions 11 that y'all may have. 12 Thank you. 13 GOVERNOR BUSH: Thank you very much. 14 COMMISSIONER CRIST: What is your name, 15 sir? I'm sorry. 16 MR. MOORE: Richard Moore. 17 COMMISSIONER CRIST: Thank you. 18 MS. TINKER: The last speaker is 19 Ken Goldberg, representing Bay Point Club. 20 MR. GOLDBERG: Good morning, Governor, 21 members of the Cabinet. 22 My name is Ken Goldberg. I represent the 23 property owner that has submitted an 24 application to the County to amend the 25 Bay Point DRI. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 87 2 position in this case. A -- a good deal of 3 what you've heard already today is not an 4 accurate portrayal of what has happened within 5 Bay Point. The amenities that the 6 representatives of the intervenors are speaking 7 of were private facilities. It was a private 8 tennis club, it was a private clubhouse 9 facility. 10 The clubhouse facility has been closed for 11 five years due to lack of community support. 12 There were seven different owners of that 13 clubhouse facility. It failed three different 14 times. In 1996, it was closed permanently. 15 The tennis facilities have been closed 16 because of -- of the lack of community support 17 there also. 18 Again, these were private facilities opened 19 both to the residents of Bay Point, as well as 20 to the general public who would pay the 21 membership dues. 22 The -- the -- after the facilities were 23 closed, because of their state of disrepair, 24 they were destroyed, but it was pursuant to 25 a -- a permit that were issued by the County. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 88 2 went in there and just tore this stuff out out 3 of spite, because that's not what the situation 4 was, although that I think is how it's being 5 portrayed. 6 On the issue of their right to the 7 amenities, this case has been litigated in 8 Circuit Court. The same owner -- property 9 owners who are here before you today initiated 10 a -- a claim in Circuit Court where they -- 11 they asserted their interests in this 12 tennis court, and these clubhouse facilities. 13 And the Circuit -- Circuit Court judge 14 denied their injunctive relief that they were 15 seeking on the basis that the property owner 16 had a right to develop his own property so long 17 as he went through the amendment process, and 18 the DRI, which is precisely what we're here 19 today to try to do. 20 We are seeking -- we're not seeking to -- 21 to ignore the requirements of the DRI, we're 22 seeking to amend that in accordance with the 23 requirements of the law. 24 Now, in terms of what the law says, the 25 universe of participants in a DRI at the local ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 89 2 deny the application is the -- the general 3 public and any affected or interested persons. 4 When you move up to FLAWAC, when we move up 5 before you all, and you decide the issue, the 6 statute limits the universe of participants to 7 the landowner; the developer, if different from 8 the landowner; the State Land Planning Agency; 9 and until 1993, the Regional Planning Councils, 10 which have since been deleted from the -- from 11 having standing to -- to participate. 12 The issues that are to be addressed -- that 13 you are to address as FLAWAC in the appeal are 14 issues of regional significance, or statewide 15 significance. The courts have uniformly held 16 that the purpose of a DRI is not to provide a 17 forum for residents of the area, adjacent 18 property owners, property owners within the DRI 19 to raise their own concerns. 20 Those concerns can be raised in 21 Circuit Court through a number of proceedings, 22 one of which this group has already initiated. 23 GOVERNOR BUSH: I'm -- can -- I thought you 24 were going to -- there was a comma, and you 25 were going to add one other -- aren't -- don't ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 90 2 level, to seek to intervene? 3 You -- 4 MR. GOLDBERG: Under the statute is -- 5 under the appeal of the DRI, there is no 6 reference to substantially affected parties. 7 Although in other parts of Chapter 380, 8 there -- there are rights of substantially 9 affected parties to challenge or participate. 10 In this section, the DRI appeal, it is not 11 in that section. 12 So we think because what the intent of the 13 DRI statute is to address regional statewide 14 issues, it is there -- the -- the role of 15 FLAWAC is to -- is to look at those issues and 16 balance them against the rights of the private 17 property owner. 18 We don't think the intervention is 19 appropriate in this proceeding. 20 Now -- 21 GOVERNOR BUSH: I just -- 22 MR. GOLDBERG: In order -- 23 GOVERNOR BUSH: The -- at some -- 24 MR. GOLDBERG: I'm sorry. 25 GOVERNOR BUSH: -- Teresa, at some point ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 91 2 because the -- one of the people speaking 3 before you said that this body has been -- has 4 had a liberal policy of -- of adding people. 5 And so I just want to make -- I try to just 6 follow what the precedent is on this. It makes 7 it a lot simpler, since I'm -- one of these 8 days that these things ultimately will be 9 decided locally, instead of at the Cabinet. 10 But -- so if -- if you can help us, give us 11 some guidance on that -- 12 MR. GOLDBERG: I -- I can. 13 GOVERNOR BUSH: -- because I think you did. 14 MR. GOLDBERG: And that -- that's a correct 15 statement. 16 In the past -- I don't know how liberal 17 it's been. But in the past, there have been 18 cases reporting out of FLAWAC where they 19 have -- intervention has been granted. 20 There is no reported appellate case where 21 an intervenor has ever been granted standing to 22 intervene. Now, I don't know that it's never 23 been brought -- if it's ever even been brought 24 up as an issue, like we are bringing it up. 25 But there are no appellate reported cases ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 92 2 courts have -- an unbroken line of cases has -- 3 have limited standing to the four participants: 4 The landowner, the developer, the State Land 5 Planning Agency, and previously the regional 6 planning commissions. 7 It is our hope you don't grant the 8 intervention. We think that based on what 9 you're being told here today, there are an 10 awful lot of facts that an Administrative Law 11 Judge could get through and limit to the -- to 12 the -- to the germane facts of the DRI appeal 13 that we would prefer that you send this over 14 to -- to the ALJ. 15 You will get it back ultimately. 16 Ultimately you will make the decision as to 17 whether they have the right to intervene. 18 We just think it's fairer to us, and to the 19 parties, and to the process if you allow first 20 an Administrative Law Judge to sort through 21 these facts before you make your decision, 22 not -- not -- not put us in the posture where 23 we're defending a case that we don't have -- we 24 don't believe under the statute we have to 25 defend in the way it's being proposed. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 93 2 MR. GOLDBERG: Thank you. 3 TREASURER GALLAGHER: Let me ask a question 4 here. 5 What you're saying is, don't let somebody 6 intervene now, but send it to the 7 hearing officer, let him make a decision, then 8 it comes back to us, then we make a decision 9 whether somebody intervenes -- 10 MR. GOLDBERG: It's also -- 11 TREASURER GALLAGHER: -- and then you go 12 back to the hearing officer. 13 MR. GOLDBERG: No, sir. 14 I -- I think it would be like in any 15 standing case before an Administrative Law 16 Judge. The issue to intervene would be taken 17 up in the proceeding. If it's granted, they 18 would participate; if it's not granted, they 19 will go through the appeal through you, and 20 it -- and -- and through the appeal, if it's 21 improperly denied, it would come back through 22 the appeal process and go through again. 23 We don't think it needs to -- 24 TREASURER GALLAGHER: So it -- 25 MR. GOLDBERG: -- go twice. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 94 2 here. 3 MR. GOLDBERG: Yes, it would come back. 4 Either way it comes back here. 5 TREASURER GALLAGHER: But two -- but it -- 6 one, it comes back -- has a potential of coming 7 back twice, the other one only comes back once. 8 GOVERNOR BUSH: No. 9 MR. GOLDBERG: It's really -- 10 GOVERNOR BUSH: I don't think so. 11 MR. GOLDBERG: I -- I -- I don't think 12 that's correct. I think it'll come back to you 13 once either way. 14 It'll come back to you in the form of a 15 recommended order, or it will be appealed from 16 the order that you issued, and it'll go back to 17 DOAH, I would think, if -- if the intervention 18 is -- is -- 19 TREASURER GALLAGHER: Well, let me just -- 20 MR. GOLDBERG: -- properly decided. 21 TREASURER GALLAGHER: -- let me just try it 22 this way. 23 MR. GOLDBERG: Okay. 24 TREASURER GALLAGHER: If we send it to DOAH 25 to make the decision on intervention, and DOAH ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 95 2 does it go? Back here? 3 MR. GOLDBERG: The intervenors would appeal 4 at the conclusion of you issuing an order 5 before it comes to you. 6 They would get to -- a recommended order 7 would come to you saying they don't have it -- 8 the right to intervene. 9 TREASURER GALLAGHER: Right. 10 MR. GOLDBERG: If you -- 11 TREASURER GALLAGHER: And then we'd have to 12 make a decision. 13 MR. GOLDBERG: And you have the right then 14 to send it back to say -- 15 TREASURER GALLAGHER: Okay. 16 MR. GOLDBERG: -- that that was incorrectly 17 decided. 18 TREASURER GALLAGHER: That's step one. 19 That's step one. 20 MR. GOLDBERG: Yes, sir. 21 TREASURER GALLAGHER: Then we've got step 22 two, the issue that's at hand. 23 The hearing officer makes a decision on the 24 issue at hand, and then it could end up back. 25 MR. GOLDBERG: But the -- it wouldn't come ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 96 2 hearing officer. 3 MS. TINKER: Let me -- let me try to help 4 here. 5 MR. GOLDBERG: Okay. The second time. 6 GOVERNOR BUSH: Give it a -- give it a try 7 there. 8 MS. TINKER: But -- let me -- let me try 9 that one. 10 TREASURER GALLAGHER: Good. Because I'm 11 getting a little confused. 12 MS. TINKER: If -- if you do not take 13 action today to grant or deny the motions to 14 intervene, but to send the whole thing to the 15 Administrative Law Judge, then the 16 Administrative Law Judge would take up the 17 proceeding. 18 And as part of the proceeding, the evidence 19 would be given, and testimony would be taken on 20 whether or not the potential intervenors are 21 actually affected by the development action. 22 And the inter-- the ALJ would also hear 23 evidence and take testimony on the notice of 24 proposed change that was denied by Bay County. 25 One recommended order would come back to ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 97 2 things: It would make a recommendation as to 3 what you should do on the motions to intervene; 4 and then second, it would make a recommendation 5 on what you should do on the merits of the 6 case. 7 And then -- 8 TREASURER GALLAGHER: Now -- 9 MS. TINKER: -- you would enter one final 10 order, which could then be appealed to the 11 District Court. 12 TREASURER GALLAGHER: Okay. If the 13 decision was they could not intervene, and the 14 decision was against those who tried to 15 intervene, and it came back to us, and we said, 16 well, we think they should have been able to 17 intervene, now what happens? 18 MS. TINKER: Then -- then your final order 19 would override the hearing officer's 20 recommendation, grant the motions to intervene, 21 and then also resolve the -- the underlying 22 dispute, which is whether or not this change is 23 of -- is -- is a substantial deviation from the 24 existing Development Order. 25 TREASURER GALLAGHER: Right. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 98 2 able to intervene, but the order goes against 3 them. Okay? 4 So then that comes back, and we have to 5 make a decision on whether the intervention was 6 correct or not, that ruling -- 7 MS. TINKER: You would have findings of 8 fact in that recommended order that would -- 9 that would help you determine whether or not 10 you should grant or deny the motion to 11 intervene based on what the hearing officer 12 recommended. 13 TREASURER GALLAGHER: Right. 14 But the hearing officer's also at the same 15 time made a decision on the issue. 16 And let's say we thought the intervention 17 should have taken place by the finding of fact, 18 then would the -- would that or would that not 19 change the outcome, who knows, so it goes back 20 again, I would think. 21 MS. TINKER: I don't really think it would 22 go back. In fact, we've had cases like this 23 before, where it just comes back really with 24 one proceeding. The hearing officer takes all 25 the information, sorts through it, and provides ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 99 2 ruled on that recommendation. 3 I -- I don't think this is a -- an issue of 4 where we would have to go back and forth with 5 the hearing officer. 6 He would sort through the intervention 7 issues, and the issues on the notice of 8 proposed change, he would package that in a 9 recommendation such that you would be able to 10 take it, and then decide how you want to deal 11 with the motions, and how you want to deal with 12 the merits. 13 TREASURER GALLAGHER: So -- but what we're 14 going to end up with when they come back is all 15 the people that wanted to intervene that 16 weren't allowed to, wanting us to send it back 17 again to have them intervene again. 18 MS. TINKER: You wouldn't -- 19 TREASURER GALLAGHER: -- is what I see 20 happening. 21 MS. TINKER: I -- I don't -- I don't think 22 so, sir. I don't think they would ask you to 23 send it back to DOAH at that point. Because at 24 that point, you're taking final agency action. 25 Their recourse would be to appeal that ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 100 2 COMMISSIONER CRIST: I have a question, 3 Governor. 4 GOVERNOR BUSH: Yep. 5 Yes. Yes, Commissioner. 6 COMMISSIONER CRIST: Thank you, sir. 7 The intervention question is an interesting 8 one, and one that concerns me. 9 If it goes to the Administrative Law Judge, 10 and the intervenors are not allowed, or 11 permitted to intervene, are they allowed to be 12 heard by the Administrative Law Judge? 13 MS. TINKER: They -- my understanding of 14 how this would work is that the Administrative 15 Law Judge would take all of the information 16 necessary to determine the findings, you know, 17 of this case. 18 So I believe that they would be allowed to 19 present information as to why they feel they're 20 substantially affected, and why this 21 Development Order should be granted or denied. 22 COMMISSIONER CRIST: Then why wouldn't we 23 just allow them to intervene now? 24 MS. TINKER: You -- you could -- 25 COMMISSIONER CRIST: What harm would be ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 101 2 MS. TINKER: You -- you could do that. But 3 our -- staff's belief is that the statute is -- 4 is gray with respect to intervenors in a -- in 5 a FLAWAC proceeding dealing with a Development 6 of Regional Impact, and here's why. 7 It's true that historically, motions to 8 intervene have generally been granted, either 9 by this body, or by sending it to a 10 hearing officer, and allowing the 11 hearing officer to take the information and 12 present a recommendation back to you. 13 However, those actions have been taken 14 under a rule that FLAWAC repealed in the late 15 '90s. That rule provided what staff believes 16 was a broader standing than what you're limited 17 to now under the Uniform Rules of Procedure. 18 Chapter 380 is very clear who can bring a 19 challenge of a DRI Development Order. 20 It's the developer; the owner; or the State 21 Land Planning Agency, which is DCA. 22 So a property owner -- a -- a homeowner 23 within a DRI clearly cannot bring a challenge. 24 But the statute is not clear as to -- 25 COMMISSIONER CRIST: You mean -- ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 102 2 COMMISSIONER CRIST: -- you mean a -- 3 MS. TINKER: -- or not they could intervene 4 in a challenge that has been brought. 5 COMMISSIONER CRIST: I -- I think this is 6 important. I -- I think what you're saying is 7 a -- a mere -- and I say that sarcastically -- 8 homeowner doesn't have the right to challenge? 9 MS. TINKER: That's correct. 10 The Legislature did not give a -- a 11 homeowner in a Development of Regional Impact 12 the right to bring an appeal of a 13 Development Order relating to that DRI. 14 That right is restricted by law to the 15 owner of the -- of the DRI, the developer of 16 the DRI, or DCA. 17 GOVERNOR BUSH: To make it clear, this -- 18 they did have the right to challenge at the 19 local level. 20 COMMISSIONER CRIST: Okay. 21 GOVERNOR BUSH: I mean -- and there was a 22 2 -- 23 MS. TINKER: Right. 24 And there's another procedure in statute, 25 under Chapter 163, that allows affected persons ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 103 2 consistency which the comprehensive -- 3 GOVERNOR BUSH: So -- 4 MS. TINKER: -- plan. 5 So there's a question as to whether this is 6 the appropriate forum for the inter-- 7 intervenors to bring their issues. 8 GOVERNOR BUSH: Teresa, does this -- does 9 it -- the gentleman that spoke first, and the 10 lawyer representing the developer, could they 11 both be right, in other words? Because this 12 rule was -- was eliminated in 1999, that we did 13 have a policy that was -- I think the term was 14 more liberal as it relates to allowing people 15 to intervene? 16 Was that prior to 1999? 17 MS. TINKER: Yes, sir. 18 COMMISSIONER CRIST: Governor, if I -- 19 COMMISSIONER BRONSON: Governor, I -- 20 I mean, hearing all this, and -- and from both 21 sides, and -- and hearing the staff's 22 recommendation, I'd like to move the staff 23 recommendation. 24 I'd like to hear what a -- what a -- a DOAH 25 judge has to say about the legal aspects of ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 104 2 But I mean, the process -- the process is 3 that -- that once it's gotten to this level, 4 that you go to the DOAH judge, and let them 5 make a -- some type of recommendation if it 6 comes back to us, we at least know what the 7 legal ramifications, according to the judge, is 8 for our determination. 9 I'd -- I'd just as soon go ahead and -- and 10 make the motion that we accept the staff's 11 recommendation. 12 SECRETARY HARRIS: Second. 13 GOVERNOR BUSH: There's a motion and a 14 second. 15 General Butterworth. 16 TREASURER GALLAGHER: I -- okay. 17 I -- well, I'd like to make -- 18 ATTORNEY GENERAL BUTTERWORTH: -- first -- 19 TREASURER GALLAGHER: -- a substitute 20 motion -- 21 ATTORNEY GENERAL BUTTERWORTH: -- and 22 then -- 23 TREASURER GALLAGHER: I'd like to make a 24 substitute motion. 25 It appears to me that the way the staff ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 105 2 intervention -- intervention -- intervention 3 first, comes back, and then goes back again. 4 And rather than go through all that, a 5 hearing officer's smart enough to figure out 6 what the intervenor has to say that has a legal 7 ramification, and what they don't, and can do 8 that. 9 And I like the liberal way we've always 10 done it. I've been comfortable with that. I'm 11 still comfortable. 12 And so I move that we move this to DOAH, 13 and allow the intervenors to -- to participate. 14 ATTORNEY GENERAL BUTTERWORTH: I'll second 15 that. 16 I'm -- 17 GOVERNOR BUSH: For the record, I want to 18 make sure that the -- that it's not publicly 19 stated that Tom Gallagher is a liberal. 20 ATTORNEY GENERAL BUTTERWORTH: Well, I was 21 going to mention that. 22 I was going to mention that insofar of 23 my -- my liberal brother I -- 24 TREASURER GALLAGHER: A liberal 25 interpretation -- ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 106 2 the motion -- 3 TREASURER GALLAGHER: -- is what I'd like 4 to say. 5 ATTORNEY GENERAL BUTTERWORTH: I second the 6 motion by -- of my liberal brother over here. 7 GOVERNOR BUSH: Moving into an election 8 year, we've got to be careful what we say. 9 ATTORNEY GENERAL BUTTERWORTH: Governor, 10 I -- I -- I believe the substitute motion is 11 really the place that we should be at. 12 I agree with Teresa, that the -- it's a 13 little bit gray. I don't think it's a whole 14 lot gray, I just think it's a little gray. 15 And from the standpoint of -- of what we 16 have done in the past, I believe the best 17 action for us to take -- and my -- and my best 18 legal analysis is, most probably we do have the 19 right to allow for intervention at this point 20 in time. I think on behalf of the parties, we 21 really should. 22 GOVERNOR BUSH: So there's a substitute 23 amendment and a second. 24 Any other discussion? 25 TREASURER GALLAGHER: It's a motion. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 107 2 Substitute -- 3 TREASURER GALLAGHER: Motion. 4 GOVERNOR BUSH: -- motion, not amendment. 5 -- which is to allow the -- the affected 6 parties to intervene. 7 I guess there are two separate parties? 8 MS. TINKER: That's correct. 9 GOVERNOR BUSH: A group -- the homeowners 10 association, as well as a group of other -- 11 MS. TINKER: Homeowners. 12 GOVERNOR BUSH: -- owners in the -- in the 13 area. 14 COMMISSIONER CRIST: I have a question. 15 GOVERNOR BUSH: There's a motion -- there's 16 a -- a motion and a second. 17 Any other discussion? 18 COMMISSIONER CRIST: Question. 19 GOVERNOR BUSH: Yes. 20 COMMISSIONER CRIST: Yes. Thank you. 21 The concern I have is all parties' right to 22 be heard. And I don't know if it's Mr. Moore 23 that represents the intervenor. 24 MS. TINKER: Yes, sir. 25 MR. MOORE: Bay Point Community ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 108 2 COMMISSIONER CRIST: Are you the potential 3 intervenor? 4 MR. MOORE: We are one of the potential 5 intervenors. 6 COMMISSIONER CRIST: Okay. I heard one 7 interpretation of whether or not the 8 intervenors could participate if it went back 9 to DOAH without us approving the substitute 10 motion. 11 I was curious to hear yours. 12 MR. MOORE: The -- under the Administrative 13 Procedure Act, if this is sent to DOAH, and the 14 Administrative Law Judge denies intervention, 15 it is my reading, we don't have a right to 16 participate in the hearing. 17 It goes all the way through the hearing 18 process, comes back to the Governor and 19 Cabinet, and if the Governor and Cabinet says, 20 well, they should have had a right to 21 intervene, I don't see any other remedy but to 22 send it back down to the Administrative Law 23 Judge and do the hearing over again. 24 And I think that's the -- my best analysis 25 of what would happen in that situation. ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 109 2 other -- one other thing. 3 The FLAWAC rules that were repealed were 4 repealed because the model rules of 5 administrative procedure came around. And 6 those rules do allow intervention to 7 substantially -- people with substantial 8 interest are affected. 9 So the -- that it -- intervention rule just 10 moved from the FLAWAC rules to the model rules. 11 GOVERNOR BUSH: They've managed to make 12 this pretty complicated. 13 Greg, do you have any comments, what -- 14 MR. MUNSON: Yes, sir. 15 I just wanted to make two points, kind of 16 on those same issues. 17 First of all, I think there are some 18 factual disputes, the resolution of which will 19 help determine whether or not standing exists 20 in this case. And the ALJ is in the best 21 position I think to resolve those factual 22 disputes. 23 You've already heard a couple of them here 24 this morning. One I think you talk-- you heard 25 the homeowners talk about the fact that their ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 110 2 development. 3 Under case law out there, it's not 4 sufficient that they be within the DRI. They 5 have to be directly impacted by the development 6 itself. 7 Now, granted that's a -- a standing type 8 doctrine, and that gets to the -- the issue of 9 the broadness of the rule that was abolished, 10 and the new rules under the -- the new model 11 rules, as to whether the right to intervene is 12 the same as the right to initiate and appeal. 13 And I will agree that there is some gray 14 area at this time on that, which is -- would be 15 a good reason to hear what the ALJ has to say. 16 But I would add this one thing that I think 17 makes it particularly unclear that they have 18 the right to intervene, although, again, the 19 ALJ I think should make the final 20 determination. 21 And that is, under the substantially 22 affected test, one of the things they're going 23 to have to show is that they're within the zone 24 of interest protected by 380.07. Given the 25 very narrow right to appeal under 380.07, it's ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 111 2 although subject to proof, they probably -- 3 they might be able to -- it'd be difficult for 4 them to show that they're within the zone 5 interest. 6 GOVERNOR BUSH: Yes, General. 7 COMPTROLLER MILLIGAN: While I would love 8 to participate in this vote, and -- and this 9 issue, I'm a little too close to it, so I'm 10 going to have to pass. 11 ATTORNEY GENERAL BUTTERWORTH: Governor, 12 I guess where we're at -- where we could be at 13 is the -- our vote here would determine whether 14 or not the -- the people who want to intervene 15 will -- will be heard by the judge or not. 16 If -- if the judge decides that they -- 17 they really have no merit, the judge is going 18 to rule, you know, on behalf of the -- of the 19 new developer. 20 But -- but what could happen is if we do 21 not go along with my -- my friend -- I don't 22 want to use the word liberal friend -- my -- my 23 friend -- the friend to my left, I believe it's 24 a much greater chance this thing will be 25 resolved much more quickly, than having to go ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 112 2 and save a lot of expense really on both -- on 3 both sides. 4 GOVERNOR BUSH: All right. There's a 5 motion and a second. 6 All in favor for -- of 7 Commissioner Gallagher's -- 8 TREASURER GALLAGHER: Substitute. 9 GOVERNOR BUSH: -- motion. 10 TREASURER GALLAGHER: Substitute motion. 11 GOVERNOR BUSH: -- substitute motion, say 12 aye. 13 THE CABINET: Aye. 14 GOVERNOR BUSH: How many ayes are those? 15 Did I hear you say aye? 16 SECRETARY HARRIS: Aye. 17 GOVERNOR BUSH: What -- 18 TREASURER GALLAGHER: Three over here. 19 GOVERNOR BUSH: The ayes have it. 20 MS. TINKER: Okay. So let me -- 21 GOVERNOR BUSH: There you go. 22 MS. TINKER: -- let me just clarify what 23 you did. 24 You -- you granted the two motions to 25 intervene, and we're going to send the whole ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 113 2 GOVERNOR BUSH: Yes. 3 TREASURER GALLAGHER: Correct. 4 COMMISSIONER BRONSON: Now, can I ask a 5 question now that the vote has been taken, 6 Governor? 7 Now that we have voted on this, and it's 8 sent -- the -- we have indicated that there is 9 an intervention by the two parties, what if the 10 DOAH judge says, under the laws, I don't see 11 that there is a -- 12 TREASURER GALLAGHER: Well, he can't. 13 He -- 14 MS. TINKER: That would not -- 15 TREASURER GALLAGHER: -- has to listen -- 16 MS. TINKER: -- be an issue. 17 TREASURER GALLAGHER: -- to them. 18 MS. TINKER: That would not be an issue 19 before the hearing officer. The 20 hearing officer accepts the case as he -- as he 21 receives it from this body. 22 You -- you have just said that the two 23 parties moving to intervene meet the standard 24 of law for intervention -- 25 COMMISSIONER BRONSON: So if the -- ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 114 2 COMMISSIONER BRONSON: -- DOAH judge 3 decides after hearing the int-- the -- the two 4 intervenors, that they do not -- I mean, I'm 5 just -- 6 TREASURER GALLAGHER: He can't. 7 COMMISSIONER BRONSON: -- assuming if he -- 8 MS. TINKER: He can't. 9 TREASURER GALLAGHER: He can't. 10 MS. TINKER: He can't. 11 TREASURER GALLAGHER: But what he can do is 12 not pay attention to what they say. 13 MS. TINKER: Right. 14 TREASURER GALLAGHER: Disregard them. 15 COMMISSIONER BRONSON: And he can ignore 16 them, and it comes back here anyway. 17 TREASURER GALLAGHER: It comes back here, 18 no -- 19 MS. TINKER: No. 20 (Secretary Harris exited the room.) 21 TREASURER GALLAGHER: -- matter what 22 happens. 23 MS. TINKER: Right. 24 TREASURER GALLAGHER: But they have a right 25 to give their side of the story. And that's ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 115 2 ATTORNEY GENERAL BUTTERWORTH: At least 3 they were heard. 4 TREASURER GALLAGHER: So you can change 5 your vote if you want. 6 ATTORNEY GENERAL BUTTERWORTH: -- won't 7 come back anymore, but -- 8 GOVERNOR BUSH: I'd hate to be a 9 county commissioner dealing with zoning issues. 10 COMMISSIONER CRIST: Oh, no kidding. 11 TREASURER GALLAGHER: Well, that's sort of 12 what we are when it comes up here like this. 13 ATTORNEY GENERAL BUTTERWORTH: When you're 14 involved in the City -- 15 GOVERNOR BUSH: I'm trying to avoid it. 16 ATTORNEY GENERAL BUTTERWORTH: When you're 17 involved in the City chambers, Governor, I 18 mean, we should act like City -- 19 COMMISSIONER CRIST: It's close, right? 20 TREASURER GALLAGHER: That's where we are. 21 GOVERNOR BUSH: My -- my respect for local 22 officials grows every time we have one of these 23 meetings. 24 ATTORNEY GENERAL BUTTERWORTH: It's much 25 more difficult on the -- on the local level, ACCURATE STENOTYPE REPORTERS, INC. FL LAND/WATER ADJUDICATORY COMMISSION 116 2 GOVERNOR BUSH: I know. 3 ATTORNEY GENERAL BUTTERWORTH: -- right 4 now. 5 GOVERNOR BUSH: I know. 6 TREASURER GALLAGHER: Yeah, because they 7 all live in your community and vote for you. 8 ATTORNEY GENERAL BUTTERWORTH: Or against 9 you. 10 (The Florida Land and Water Adjudicatory 11 Commission Agenda was concluded.) 12 * * * 13 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. ST. JOHNS RIVER WATER MANAGEMENT DISTRICT 117 2 Thank you all for coming, by the way. 3 MS. ARMSTRONG: Good morning. 4 Eva Armstrong representing the -- the -- 5 Secretary Struhs this morning. He asked that I 6 extend his apologies. He was on the last 7 flight in last night from Atlanta, and it got 8 canceled. So you guys have me. 9 With that -- 10 ATTORNEY GENERAL BUTTERWORTH: It's only a 11 5-hour drive, Governor. I can't understand why 12 he -- 13 GOVERNOR BUSH: I'm shocked he didn't do 14 that. 15 MS. ARMSTRONG: Well, it was very late. We 16 got the call at midnight. So -- 17 GOVERNOR BUSH: Was he there negotiating 18 the water -- 19 MS. ARMSTRONG: He had been in 20 Washington, D.C. 21 GOVERNOR BUSH: Okay. 22 MS. ARMSTRONG: I -- I'm sorry, I don't 23 know what he was doing up there. 24 TREASURER GALLAGHER: Can I sort of set us 25 into where we are, and take the St. Johns River ACCURATE STENOTYPE REPORTERS, INC. ST. JOHNS RIVER WATER MANAGEMENT DISTRICT 118 2 the minutes, Item 1; and -- and the parks and 3 recreation consolidated intent, Item 2, and 4 defer them both? 5 MS. ARMSTRONG: Yes, sir. 6 We are asking that they be deferred -- 7 TREASURER GALLAGHER: I'd -- 8 MS. ARMSTRONG: -- until the next meeting. 9 TREASURER GALLAGHER: -- like to move that. 10 COMMISSIONER BRONSON: Second. 11 GOVERNOR BUSH: Moved and seconded. 12 Without objection, it's approved. 13 (The St. Johns River Water Management 14 District Agenda was concluded.) 15 * * * 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 119 2 the minutes for August 28th and September 11th 3 and October 16th. 4 ATTORNEY GENERAL BUTTERWORTH: Second. 5 GOVERNOR BUSH: Moved and seconded. 6 Without objection, it's approved. 7 MS. ARMSTRONG: Item -- Item Number 2 is 8 assignment of an option agreement that you 9 would be acquiring from the Nature 10 Conservancy -- 11 (Attorney General Butterworth exited the 12 room.) 13 MS. ARMSTRONG: -- for a portion of the 14 St. Joe Timberland projects. This is a really 15 particularly fine acquisition that's called 16 Sweetwater Creek. It is over in the 17 Apalachicola Ravine area, which is the eastern 18 side of Apalachicola River. 19 It will provide a connection between the 20 Torreya State Park and the Nature Conservancy's 21 preserve to the south. 22 It is a really unique area because of the 23 ravines and steepheads that are found there, 24 and nowhere else in Florida, or anywhere else 25 in the continental United States, as I ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 120 2 There's a wonderful article in today's 3 Tallahassee Democrat if you want more 4 information on it. 5 I'm not aware of any issues relating to 6 this acquisition. 7 TREASURER GALLAGHER: Motion. 8 COMMISSIONER BRONSON: Second. 9 GOVERNOR BUSH: Moved and seconded. 10 Without objection, it's approved. 11 MS. ARMSTRONG: Item 3 is an option 12 agreement with the City of Apopka for an 13 acquisition to benefit the 14 University of Florida's Institute of -- of Food 15 and Agricultural Sciences within the City of 16 Apopka. 17 Recommend approval. 18 COMMISSIONER BRONSON: I'd like to move 19 that. 20 TREASURER GALLAGHER: Second. 21 GOVERNOR BUSH: What's this for, 22 Commissioner? 23 COMMISSIONER BRONSON: The -- IFAS, 24 of course, is trying to -- to improve their 25 position on our second largest industry of ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 121 2 this is -- 3 GOVERNOR BUSH: I thought they were 4 shrinking the number of facilities they had 5 around the state. 6 COMMISSIONER BRONSON: Well, sometimes you 7 need to move where you need to move to. And 8 they're -- they're -- they are bringing some 9 down, and putting some emphasis in other 10 places. 11 COMPTROLLER MILLIGAN: They were -- they 12 were directed to consolidate by the 13 Legislature, and I think this is part of that 14 consolidation -- 15 GOVERNOR BUSH: Right. 16 COMPTROLLER MILLIGAN: -- reflects that 17 consolidation. 18 GOVERNOR BUSH: So we're shrinking by 19 buying this -- by adding another -- 20 COMPTROLLER MILLIGAN: We're shrinking in 21 some areas, and expanding in others, 22 consolidating. 23 COMMISSIONER BRONSON: Consolidation. 24 TREASURER GALLAGHER: Putting them together 25 bigger. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 122 2 GOVERNOR BUSH: All righty. 3 There's a motion and a second. 4 Without objection, it's approved. 5 MS. ARMSTRONG: Item 4 is a conveyance 6 from -- of 301.07 acre parcel of State-owned 7 land -- 8 (Attorney General Butterworth entered the 9 room.) 10 MS. ARMSTRONG: -- in Union County. It's 11 currently leased to the Department of 12 Corrections as part of the Union Correctional 13 facility. 14 It is going to be conveyed, if you approve 15 it this morning, to the New River Solid Waste 16 Association, which is a consortium of three of 17 the rural counties: Baker, Union, and 18 Bradford. 19 We have negotiated a -- we -- we negotiated 20 a purchase contemplating allowing the 21 Department of Corrections to receive the funds 22 through credit for tipping fees. They are 23 giving up the land and -- from their 24 management, and had preferred to get some 25 financial benefit. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 123 2 with the Controller's Office. It's one we 3 really can't get around. And we are 4 recommending this morning to fac-- to 5 facilitate completion of this conveyance, that 6 you approve it contingent to an amendment to 7 the contract that will address the Board of 8 Trustees getting payment in full from New River 9 Solid Waste Association at the time that the 10 deed is transferred. 11 TREASURER GALLAGHER: Governor, I'll move 12 that the item pass, with one amendment, and 13 that would be that the contract as to provide 14 New River will pay the full appraised value of 15 the property at closing, with those funds 16 placed into the Internal Improvement Trust 17 Fund, as provided by statute. 18 COMPTROLLER MILLIGAN: I'll second it. 19 GOVERNOR BUSH: Moved and seconded. 20 Without objection, it's approved -- 21 MS. ARMSTRONG: Should -- 22 GOVERNOR BUSH: -- as amended. 23 MS. ARMSTRONG: -- I should point out 24 quickly that we did have some speakers, only if 25 needed, but it included three county ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 124 2 Mr. Joe Riddick from Bradford County, and 3 Mr. Wayne Smith from Union County. They were 4 here today. 5 TREASURER GALLAGHER: I gather -- 6 (Commissioner Bronson exited the room.) 7 GOVERNOR BUSH: Are you happy? 8 TREASURER GALLAGHER: I gather we did what 9 they wanted, right? 10 GOVERNOR BUSH: There you are. 11 MS. ARMSTRONG: They did want it. I think 12 you just did what they wanted. 13 (Secretary Harris entered the room.) 14 MS. ARMSTRONG: Thank you very much. 15 GOVERNOR BUSH: Thanks for coming. 16 MS. ARMSTRONG: Item Number 5 is -- 17 GOVERNOR BUSH: This is what we talked 18 about when we -- when I was over there, right? 19 Okay. 20 MS. ARMSTRONG: I will -- 21 COMPTROLLER MILLIGAN: It just -- 22 MS. ARMSTRONG: -- add that -- 23 COMPTROLLER MILLIGAN: -- it just had to be 24 done legally. That was the hangup -- 25 MS. ARMSTRONG: And we sure want to do ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 125 2 GOVERNOR BUSH: I'm for that. 3 MS. ARMSTRONG: Item Number 5 is a 4 release -- City of Bradenton release of 5 restricted covenants and a reverter. 6 This is over a piece of property that back 7 in the early '60s, the Board of Trustees, the 8 City of Bradenton, and the Legislature decided 9 that it was in the public's best interest to 10 fill an area of sovereignty submerged lands to 11 benefit the economic development of that area. 12 They even passed a law in 1963, a special 13 act, providing for that filling to occur and 14 transfer of title. When the Trustees 15 subsequently transferred it, they kept a 16 reverter in place if it were ever to be sold. 17 TREASURER GALLAGHER: Motion on 5. 18 MS. ARMSTRONG: Thanks. 19 GOVERNOR BUSH: Is there a second? 20 COMPTROLLER MILLIGAN: Second. 21 GOVERNOR BUSH: Moved and seconded. 22 Without objection, it's approved. 23 MS. ARMSTRONG: Item 6 is the management 24 plan -- five-year management plan for the 25 FSU Ringling Center for the Cultural Arts. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 126 2 We have representatives from FSU, 3 Mr. Knowles -- Vice President Knowles, and 4 several of the planners here to answer 5 questions, if needed. 6 TREASURER GALLAGHER: Motion on 6. 7 ATTORNEY GENERAL BUTTERWORTH: Second. 8 SECRETARY HARRIS: Second. 9 I have a comment. 10 GOVERNOR BUSH: Yes. 11 SECRETARY HARRIS: I -- I just -- I just -- 12 I also want to recommend the Cultural Arts 13 five-year management plan for FSU Ringling 14 Center. 15 The Department of State and the Division of 16 Historic Resources, and FSU State University 17 Facilities Planning Department have had very 18 positive conversations concerning a 19 programmatic memorandum of agreement that would 20 govern the preservation of these historic 21 prop-- properties. 22 And so I'm very pleased to state that the 23 staff from FSU, and Historic Resources, have 24 met and are initiating development of this 25 programmatic -- programmatic memorandum of ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 127 2 the preservation of the historic aspects of the 3 museum in the future. 4 GOVERNOR BUSH: Does this cost us anything? 5 MS. ARMSTRONG: No, sir. Not yet. 6 GOVERNOR BUSH: Okay. Where's 7 Mr. McFarland? I want to make sure he -- 8 MS. ARMSTRONG: He was here earlier. 9 GOVERNOR BUSH: Okay. 10 MEMBER OF THE AUDIENCE: He had to leave. 11 MS. ARMSTRONG: Had to leave? 12 Yes, sir, he -- 13 GOVERNOR BUSH: Okay. 14 MS. ARMSTRONG: -- had to leave. 15 GOVERNOR BUSH: All right. Just wanted -- 16 I wanted him to hear that. 17 Thank you. 18 There's a motion and a second. 19 Without objection, it's approved. 20 MS. ARMSTRONG: Item 7 is a recommended 21 consolidated intent for a 20-year public 22 easement, authoz-- authorization for an access 23 channel, authorization for severance of 24 sovereignty material, and authorization for 25 removal of an existing weir. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 128 2 We have several speakers should you desire to 3 hear from them. 4 Mr. Buck Lee, who is a County Commissioner 5 from Santa Rosa County; Mr. John Adams, who is 6 a private citizen and represents the Polynesian 7 Isles subdivision. 8 And the Polynesian Isles people wanted to 9 be recognized in lieu of speaking. If anybody 10 who's in support of this item would please 11 stand so they'll know it's the Polynesian Isles 12 subdivision. 13 TREASURER GALLAGHER: The men and women in 14 red. 15 GOVERNOR BUSH: Thank you all for coming. 16 TREASURER GALLAGHER: Motion on -- 17 MS. ARMSTRONG: Hard to miss them. 18 TREASURER GALLAGHER: -- 7. 19 GOVERNOR BUSH: There's a motion. 20 TREASURER GALLAGHER: Is there a second? 21 GOVERNOR BUSH: Is there a second? 22 ATTORNEY GENERAL BUTTERWORTH: Second. 23 COMPTROLLER MILLIGAN: I'll second it. 24 GOVERNOR BUSH: Any discussion? 25 Do you want to hear from the -- ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 129 2 against it, is there? 3 GOVERNOR BUSH: Moved and seconded. 4 Without objection, it's approved. 5 (Applause.) 6 GOVERNOR BUSH: Thank you all very much. 7 I appreciate y'all coming. 8 This is -- I met -- I met the leader of the 9 homeowners association, one of the citizen 10 hours -- citizen day meetings -- 11 (Commissioner Bronson entered the room.) 12 GOVERNOR BUSH: -- where people come and 13 let me have it in 5-minute increments. 14 TREASURER GALLAGHER: Got them all? 15 GOVERNOR BUSH: Then I went back over to 16 northwest Florida for a second one of these 17 things six months later, and we still -- let me 18 have it again. 19 But I appreciate the staff's work to make 20 sure that the environment is protected and 21 y'all can enjoy the access to the bay. 22 So this was -- this was a win-win. 23 TREASURER GALLAGHER: Governor, I suggest 24 you go back over, and maybe find out if there's 25 any other issues over there next time. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 130 2 enough issues around this state to last 3 five-day Cabinet meetings. 4 TREASURER GALLAGHER: I move to withdraw 8. 5 ATTORNEY GENERAL BUTTERWORTH: Second. 6 GOVERNOR BUSH: There's a motion to 7 withdraw -- 8 COMPTROLLER MILLIGAN: Second. 9 GOVERNOR BUSH: -- 8. 10 Is there a second? 11 ATTORNEY GENERAL BUTTERWORTH: Second. 12 GOVERNOR BUSH: Moved and seconded. 13 Without objection, the item is -- is 14 withdrawn. 15 MS. ARMSTRONG: Item 9, Governor, we have a 16 series of speakers. It is one of the issues 17 that's not quite resolved. 18 The issue is whether or not -- we are 19 asking you to deny some proposed amendments to 20 a sublease that the Secretary of State's Office 21 entered into -- 22 (Treasurer Gallagher exited the room.) 23 MS. ARMSTRONG: -- an agreement to bring to 24 you several years ago as a result of settlement 25 negotiations from litigation. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 131 2 walk you through the history and the issues. 3 He is the counsel for the Secretary of State's 4 Office. 5 And then we have several other speakers 6 following him. 7 SECRETARY HARRIS: Actually -- 8 MS. ARMSTRONG: Yes, ma'am. 9 SECRETARY HARRIS: -- Governor -- 10 GOVERNOR BUSH: Yes. 11 SECRETARY HARRIS: -- I believe -- we've 12 been in negotiations for a while trying to come 13 up with a solution. The Department of State is 14 committed to the viability and future of the 15 Coconut Grove Playhouse. 16 And so I believe that we -- we have 17 actually come to -- to -- some unique ideas, 18 and we -- although they may be back, I think 19 we're at a position -- although we've been 20 working on this for about two decades when it 21 first went into financial crisis, it's -- 22 it's -- it's imperative that we come to a 23 solution. 24 And I think that the Coconut Grove and -- 25 and our Special Counsel, Senator Dudley, have ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 132 2 Senator Dudley. 3 MR. DUDLEY: May it please the Governor and 4 Cabinet, Fred Dudley, Akerman, Senterfitt, on 5 behalf of the Department of State. 6 We are here today because of an agreement 7 we made in 1999 with the Playhouse whereby they 8 would come forward to you for approval of 9 certain amendments to the current sublease that 10 exists between them and the Department of 11 State. 12 That recommendation is coming to you today 13 with a recommendation from both the Department 14 and from State Lands for denial. 15 As a result of conversations that we've had 16 this morning with representatives that you will 17 hear from in just a moment briefly, we're going 18 to ask you to withdraw this item. 19 There'll be an announcement that the 20 Department is being released from the '99 21 agreement. Any portions that are -- have not 22 yet been performed. 23 We're also going to be entering into some 24 mutual releases with the Playhouse on the issue 25 of who has the obligation to repair and ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 133 2 each other from that obligation up to this 3 point, and that for the future, the Playhouse 4 will assume any obligation to repair and 5 maintain. 6 But we're going to save that for another 7 day, because we've set up a four-person group 8 to come up with some criteria for the 9 Secretary's recomm-- approval, and her 10 recommendation back to you probably at your 11 February or March meeting. 12 But with that, in asking you for a motion 13 from someone, I guess from the Secretary of 14 State to withdraw, we'd like to -- 15 (Treasurer Gallagher entered the room.) 16 MR. DUDLEY: -- ask you to recognize brief 17 comments from attorney Bill Bloom on behalf of 18 the Playhouse with Holland & Knight, and from 19 Representative Manny Prieguez as well. 20 GOVERNOR BUSH: Very good. 21 MR. BLOOM: Yes. 22 William R. Bloom of Holland & Knight, 23 representing the Coconut Grove Playhouse. 24 I want to thank the Secretary of State and 25 her staff and Mr. Dudley for their assistance ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 134 2 successful resolution of this matter. 3 The Coconut Grove Playhouse has agreed to 4 release the Secretary of State's Office from 5 its liabilities under the 19-- the -- the 6 May 10th, 1999, agreement to proceed with the 7 proposed amendment to the lease, which is in 8 front of you, and all other portions of the 9 1999 agreement that have not fully been 10 performed. 11 In addition, I will recommend to the 12 Coconut Grove Playhouse Board of Directors that 13 they approve a release of the maintenance 14 obligations that the Secretary of State's 15 Office currently has, and that the criteria be 16 established through a four-person committee and 17 approved by the Secretary of State, and then 18 submitted to the Board of Trustees for 19 approval. 20 We -- we hope that this is a resolution 21 which will enable the -- the State to move 22 forward with a development on the adjoining 23 property, which is in the best interest of the 24 Playhouse, and the Coconut Grove community and 25 the State of Florida. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 135 2 TREASURER GALLAGHER: I have a question. 3 I'm a little uncomfortable with the -- with 4 the process you just described. To me, the -- 5 the Coconut Grove Playhouse Board would approve 6 this first, and send it here; as opposed to 7 they get the choice on the other end. 8 So I'm a little uncomfortable with we're 9 supposed to do it, and then they get to vote on 10 it type of thing. 11 MR. DUDLEY: No. The -- the -- the -- it 12 would with mutual -- 13 MR. BLOOM: The -- the -- the Board has 14 approved the withdrawal of the -- the 15 obligation of the Secretary of State with 16 respect to the amendment. 17 What the -- the Board has not approved is 18 the release of the Department of State of its 19 maintenance obligation under the existing 20 sublease. 21 If that answers your question. 22 TREASURER GALLAGHER: Well, but why would 23 we want to do one-half without the other? 24 MR. BLOOM: I -- on the same token from the 25 Playhouse perspective, we'd -- we'd prefer ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 136 2 and agree to the criteria -- criteria 3 simultaneously, and -- and really present the 4 criteria and the release to you simultaneously. 5 The Secretary of State's Office has 6 indicated that their preference is not to 7 proceed with establishing the criteria, or 8 establishing the committee unless first the 9 Coconut Grove Playhouse releases its 10 maintenance obligation -- it from the 11 maintenance obligation under the sublease. 12 TREASURER GALLAGHER: Right. 13 Which is the way I'd like to see it. 14 Although it seems to me, we're -- we're doing 15 it here, and then letting them come back and 16 approve it. 17 So -- and then it comes -- then -- then 18 it -- okay. Then we go through with the other 19 side. Okay. 20 MR. BLOOM: Then -- and then you go -- 21 exactly. 22 TREASURER GALLAGHER: All right. 23 GOVERNOR BUSH: Representative Prieguez? 24 MR. PRIEGUEZ: Thank you very much -- 25 GOVERNOR BUSH: Good morning. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 137 2 We saw each other earlier, didn't we, 3 Governor? 4 GOVERNOR BUSH: Yes, we did. Been around. 5 MR. PRIEGUEZ: Thank you very much, 6 members, and thank you especially to the 7 Secretary of State. 8 You know, for whatever reasons -- for 9 whatever reasons, and -- and we certainly do 10 not need to get into them right now, there has 11 been a lot of distrust between the tenants, the 12 Coconut Grove Playhouse; and the landlord, the 13 State of Florida, via the Secretary of State's 14 Office. 15 However, over the last 2 hours, we've been 16 able to close our eyes, and take a deep breath 17 and -- and say to ourselves, we're going to 18 start trusting each other, and we're -- we're 19 going to start trying to work together. 20 And that -- that begins with me as well. I 21 plan to be one of the members of -- of -- of 22 that four-person panel that will be hopefully 23 establishing criteria in order so that when 24 the -- when the landlord, or a replacement 25 landlord comes in for the Secretary of State's ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 138 2 with the arrangement that -- that's being made. 3 The -- the -- the Coconut Grove Playhouse 4 is there now, has been there for 20 years, 5 and -- and it will continue to be there. 6 And -- and they are a jewel. And -- and -- and 7 I have never for 1 second, you know, lobbied 8 for their demise or -- or -- or been in favor 9 of them not -- not proceeding forward. 10 But I think that we're going to be able to 11 establish once their Board approves of what 12 you've just heard, I think that we'll be able 13 to move together and get the best public 14 policy -- put the State in the best public 15 policy posture. 16 I plan to personally go to the Playhouse, 17 and -- and advocate for that position, and 18 advocate to them that -- that I will be working 19 with them. And -- and hopefully they'll see it 20 in me, and they'll be able to trust me and 21 my -- and my position. 22 So I thank the -- the Cabinet for -- for 23 all of this. 24 SECRETARY HARRIS: I just wanted to address 25 one thing. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 139 2 mistrust between the Department of State and 3 the Board. I think that we've always had a -- 4 a very pointed relationship, that we want to 5 make certain that Coconut Grove moves forward 6 and survives. 7 The last week has been difficult in terms 8 of negotiations. And I think that's the only 9 issue that you were speaking to in -- in terms 10 of those when certain promises were made, 11 and -- and maybe not adhered to. 12 MR. DUDLEY: If -- Governor, if I may, just 13 say to you that this essentially is what you 14 would have done today. 15 Had you voted down these amendments, you 16 would have allowed us to satisfy the '99 17 agreement. By withdrawing it at the request of 18 the Playhouse, we're doing exactly the same 19 thing. 20 GOVERNOR BUSH: That's good. 21 MR. DUDLEY: And if I may to Mr. Gallagher, 22 these future concerns are what we're going to 23 come back to you with. 24 You have the final absolute say. After 25 both the Playhouse and the Secretary of State ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 140 2 differences, you're the ultimate arbiter. 3 SECRETARY HARRIS: Can -- can -- 4 GOVERNOR BUSH: Go ahead. 5 SECRETARY HARRIS: I'm sorry. 6 GOVERNOR BUSH: Please. 7 SECRETARY HARRIS: No. Please. 8 GOVERNOR BUSH: Please. 9 SECRETARY HARRIS: After you. 10 I would hope that you could do that by our 11 February meeting, and not postpone it to March. 12 I think that there's so -- so much that's 13 been accomplished already, and so many efforts, 14 I'd -- I'd like to keep the momentum going, and 15 have it brought back by February. 16 MR. DUDLEY: Yes, Boss. 17 GOVERNOR BUSH: I -- I just had a question. 18 I was wondering if there was anybody in 19 this room that was around when the 20 Coconut Grove Playhouse became a State asset. 21 ATTORNEY GENERAL BUTTERWORTH: 22 Secretary Firestone was out there, but he left. 23 TREASURER GALLAGHER: Un-- unfortunately I 24 was the person in the Legislature that had 25 it -- ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 141 2 TREASURER GALLAGHER: -- got it purchased. 3 ATTORNEY GENERAL BUTTERWORTH: That's 4 right, Governor. 5 GOVERNOR BUSH: You didn't. 6 TREASURER GALLAGHER: Just a little history 7 perspective. 8 That was in 18-- no. 9 GOVERNOR BUSH: For those that don't come 10 to our Cabinet meetings often, 11 Commissioner Gallagher does have the -- he has 12 the versatility award certainly, because he -- 13 he has a lot of history of a lot of these 14 things, and a lot of different jobs. 15 I found out about that this morning, so I 16 thought I would bring it up just for the heck 17 of it. 18 TREASURER GALLAGHER: Thank you. 19 GOVERNOR BUSH: Well, that's what -- back 20 then -- back then, you weren't -- 21 TREASURER GALLAGHER: In another life, that 22 was in my district. 23 Now it still is, I guess. 24 MR. DUDLEY: Governor, may I just thank my 25 worthy opponent here for what I consider to be ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 142 2 GOVERNOR BUSH: Sure, you can do that. 3 MR. DUDLEY: I just did. 4 GOVERNOR BUSH: Okay. So there is a -- a 5 recommendation to defer or deny? 6 MR. DUDLEY: No. 7 MS. ARMSTRONG: Well, to withdraw. 8 GOVERNOR BUSH: Withdraw. 9 TREASURER GALLAGHER: Second. 10 GOVERNOR BUSH: All in favor, say aye. 11 THE CABINET: Aye. 12 GOVERNOR BUSH: All opposed? 13 Very good. 14 MS. ARMSTRONG: And we -- 15 ATTORNEY GENERAL BUTTERWORTH: -- the 16 problems you cause there -- 17 MS. ARMSTRONG: -- have one -- one more 18 item, Item 10. 19 We have a request for a deferral until 20 resolution of legal issues. Would recommend 21 that. 22 GOVERNOR BUSH: Is there a motion to defer? 23 TREASURER GALLAGHER: Motion. 24 GOVERNOR BUSH: Second? 25 Without objection, the item is deferred. ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 143 2 (The Board of Trustees of the Internal 3 Improvement Trust Fund Agenda was concluded.) 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 144 2 TREASURER GALLAGHER: And to you. 3 GOVERNOR BUSH: To everybody that wants to 4 stay, you can. We have a State Board of 5 Administration meeting. 6 TREASURER GALLAGHER: Motion on the 7 minutes. 8 ATTORNEY GENERAL BUTTERWORTH: We have a -- 9 GOVERNOR BUSH: We have another one? 10 ATTORNEY GENERAL BUTTERWORTH: We have the 11 Board of Trustees of the South-- 12 TREASURER GALLAGHER: Oh, we did that. 13 ATTORNEY GENERAL BUTTERWORTH: We -- 14 TREASURER GALLAGHER: We did that. 15 ATTORNEY GENERAL BUTTERWORTH: Oh. 16 TREASURER GALLAGHER: That's the first 17 thing we did. 18 GOVERNOR BUSH: We deferred it. 19 ATTORNEY GENERAL BUTTERWORTH: Oh. Sorry. 20 TREASURER GALLAGHER: We deferred it all. 21 ATTORNEY GENERAL BUTTERWORTH: I wasn't 22 listening to you. I'm sorry. 23 TREASURER GALLAGHER: We deferred it all. 24 GOVERNOR BUSH: Excuse me. 25 Well, is someone from the State Board of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 145 2 COMPTROLLER MILLIGAN: Well, in that event, 3 I'll go to the head. 4 TREASURER GALLAGHER: Well, it doesn't mean 5 we -- it doesn't mean we can't have a meeting. 6 (Commissioner Bronson and 7 Commissioner Crist exited the room.) 8 GOVERNOR BUSH: Well, we've never had this 9 happen before. 10 TREASURER GALLAGHER: Well, we -- we can 11 run it. This is -- 12 ATTORNEY GENERAL BUTTERWORTH: -- town hall 13 meeting, Governor. Everybody gets 5 minutes. 14 TREASURER GALLAGHER: As soon as the -- 15 GOVERNOR BUSH: What happened to the 16 General? 17 TREASURER GALLAGHER: He -- he went to the 18 men's room. It's a good chance -- 19 GOVERNOR BUSH: Well, I'll -- then we'll 20 start. 21 (Secretary Harris exited the room.) 22 (Discussion off the record.) 23 (Recess.) 24 COMPTROLLER MILLIGAN: Well, we cert-- we 25 certainly can undertake this, if you'd like -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 146 2 there -- 3 TREASURER GALLAGHER: A motion on the 4 minutes. 5 COMPTROLLER MILLIGAN: And -- and I'll 6 second the minutes. 7 GOVERNOR BUSH: Moved and seconded. 8 Without objection, it's approved. 9 Item 2. 10 COMPTROLLER MILLIGAN: Well, the second 11 item is really a follow-on to the previous 12 discussion we had on the -- 13 GOVERNOR BUSH: Division of Bond Finance? 14 COMPTROLLER MILLIGAN: -- Bond Finance. 15 And -- 16 GOVERNOR BUSH: Is there a motion? 17 COMPTROLLER MILLIGAN: -- I would move it. 18 TREASURER GALLAGHER: Second. 19 GOVERNOR BUSH: Moved and seconded. 20 Without objection, it's approved. 21 TREASURER GALLAGHER: The third item is a 22 fiscal determination for a fourteen million 23 six hundred and sixty-five thousand dollar tax 24 exemption, and a four million seven hundred 25 eighty thousand dollar taxable -- tax exempt, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 147 2 Corporation Housing Revenue Bonds, 2002 series, 3 Westlake Apartments. 4 I'll move it. 5 COMPTROLLER MILLIGAN: And -- and I'll 6 second it. Happens to be a competitive one, 7 which is -- continues to be good progress in 8 Florida housing. 9 GOVERNOR BUSH: Moved and seconded. 10 Without objection, it's approved. 11 TREASURER GALLAGHER: I'll do 4 is -- 12 COMPTROLLER MILLIGAN: You did such a good 13 job -- 14 TREASURER GALLAGHER: -- fiscal 15 determination -- 16 COMPTROLLER MILLIGAN: -- on 3, do 4. 17 TREASURER GALLAGHER: Item -- Item 4 is a 18 fiscal determination of ten million five 19 hundred and forty-five thousand tax exempt, and 20 a three million five hundred thousand taxable 21 Florida Housing Finance Corporation Housing 22 Revenue Bonds, 2002 series, Brentwood Club on 23 Millenia Boulevard Apartments. 24 I'll move it. 25 COMPTROLLER MILLIGAN: Second. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 148 2 second. 3 Without objection, it's approved. 4 TREASURER GALLAGHER: Item 5, fiscal 5 determination on twelve million five hundred 6 and fifty thousand tax exempt, and a 7 four million one hundred and eighty thousand 8 taxable Florida Housing Corporation Housing 9 Revenue Bonds, 2002 series. It's Mallard's 10 Landing Apartments. 11 I'll move it. 12 COMPTROLLER MILLIGAN: And I'll second it. 13 Another competitive. 14 TREASURER GALLAGHER: And -- 15 GOVERNOR BUSH: Moved and seconded. 16 Without objection, it's approved. 17 TREASURER GALLAGHER: -- that pretty much 18 finishes the agenda, other than some things for 19 information and -- and a status report. 20 So I move we rise. 21 GOVERNOR BUSH: We can't -- 22 COMPTROLLER MILLIGAN: Item 7 is not 23 necessarily just information I don't think, is 24 it? 25 GOVERNOR BUSH: I would have thought -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 149 2 He's still trying to resolve -- 3 TREASURER GALLAGHER: Well, it's basically 4 a report on the negotiations. And so that's 5 really information. 6 COMPTROLLER MILLIGAN: Except that -- 7 TREASURER GALLAGHER: It's been settled. 8 GOVERNOR BUSH: One item left. 9 COMPTROLLER MILLIGAN: -- we -- we did not 10 approve VALIC. We -- we said, go negotiate and 11 bring it back. And so there's really a 12 question of whether or not we've approved this 13 particular agent as a -- as a bundled provider. 14 TREASURER GALLAGHER: Well, I think if we 15 have to wait for them to come back, they don't 16 anticipate any outstanding issues, but I think 17 we need to have them go back and give us 18 what -- and they're working on successful 19 negotiations. 20 So I think we need to have them do that, 21 and then come back, or at least come back 22 with -- 23 COMPTROLLER MILLIGAN: Well, now -- now 24 you're -- you're putting a -- a crunch on the 25 timing, because we're talking about coming back ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 150 2 education -- 3 GOVERNOR BUSH: Mr. Herndon here will 4 answer the question. 5 MS. CASTILLE: General and Governor, and -- 6 and members of the Board, Mr. Fred Loopman is 7 here from VALIC, and he can give you a little 8 bit of a wrap-up as to where they are in their 9 contract negotiations, if you'd like. 10 GOVERNOR BUSH: I think -- 11 COMPTROLLER MILLIGAN: Well, I know where 12 they are. The question is whether we are going 13 to approve them or not. I believe we reached 14 an agreement. 15 I believe the motion that was put forth 16 last meeting was that it was not subject to 17 satis-- satisfying the disagreements that we 18 had, that we would consider them at this 19 meeting if they, in fact, satisfied the fee for 20 service, and a couple of other things. 21 TREASURER GALLAGHER: Actually what it was 22 was that they would remove their educational 23 fee of 30.5 -- 24 COMPTROLLER MILLIGAN: Yeah. 25 TREASURER GALLAGHER: -- basis points. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 151 2 COMPTROLLER MILLIGAN: Yeah. 3 TREASURER GALLAGHER: And -- 4 COMPTROLLER MILLIGAN: But we didn't 5 approve them, subject to that, I don't believe. 6 I -- I don't recall. 7 I thought we -- 8 TREASURER GALLAGHER: I believe the 9 substitute was to -- 10 GOVERNOR BUSH: I thought we did approve 11 them -- 12 TREASURER GALLAGHER: -- approve them -- 13 GOVERNOR BUSH: -- subject to -- 14 TREASURER GALLAGHER: -- subject to 15 removing the 30.5 basis points. 16 Now I guess the issue is, did they -- did 17 or did they didn't remove the educational to, 18 you know, 30.5 basis points. 19 I think that's what the negotiations are 20 about, moving into -- into certain other items, 21 and changing certain educational things, and 22 change it all around. And -- 23 GOVERNOR BUSH: As I understood it -- 24 TREASURER GALLAGHER: -- there's giving 25 us -- they didn't -- not give us a vote here, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 152 2 they're in the process -- 3 COMPTROLLER MILLIGAN: Well, I've got -- 4 TREASURER GALLAGHER: -- negotiation. 5 COMPTROLLER MILLIGAN: -- for information 6 and approval. 7 TREASURER GALLAGHER: Well -- 8 GOVERNOR BUSH: It's possible that we could 9 get it approved though if there's one item 10 outstanding, as I understood it as of 11 yesterday. 12 COMPTROLLER MILLIGAN: Yes. 13 GOVERNOR BUSH: And if there is just one 14 item outstanding, this Board can -- 15 COMPTROLLER MILLIGAN: -- approve -- 16 GOVERNOR BUSH: -- look at this staff 17 recommendation and accept it or not. 18 TREASURER GALLAGHER: Well, the -- 19 GOVERNOR BUSH: I think it related to a 20 restriction on the number of salesmen. 21 That's -- 22 TREASURER GALLAGHER: What we -- what we 23 have here -- 24 GOVERNOR BUSH: Folks, why don't we wait 25 for Mr. Herndon since obviously -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 153 2 report on negotiation with VALIC as a bundled 3 provider. That's the official -- what's on 4 here. 5 So -- and a status report on SAFECO's 6 sharebuilder brokerage. 7 COMPTROLLER MILLIGAN: Remind me of the 8 motion last go around on VALIC. 9 TREASURER GALLAGHER: The motion last time 10 was that we approve them subject to the removal 11 of the 30.5 basis point educational -- 12 COMPTROLLER MILLIGAN: I don't think -- 13 TREASURER GALLAGHER: -- and fee. 14 COMPTROLLER MILLIGAN: -- it was put -- 15 GOVERNOR BUSH: All right. It was -- 16 COMPTROLLER MILLIGAN: -- that way. 17 TREASURER GALLAGHER: That's what I believe 18 it was. Now, somebody would have to -- can 19 look up in the -- in -- 20 GOVERNOR BUSH: You want to -- 21 Please. 22 MR. GRAHAM: Good morning, Governor. 23 My name's Bill Graham here this morning on 24 behalf of VALIC. 25 I just stepped in the -- in the room, and I ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 154 2 discussion. 3 And I'm here to give you a status report on 4 where we are -- 5 GOVERNOR BUSH: Why don't you first, if you 6 could rec-- recollect -- give -- refresh our 7 memories on what action we took at the last SBA 8 meeting -- 9 COMPTROLLER MILLIGAN: What -- 10 GOVERNOR BUSH: -- first. 11 COMPTROLLER MILLIGAN: -- what the motion 12 was about. 13 GOVERNOR BUSH: What was the motion? 14 MR. GRAHAM: Yes, sir. 15 I -- anticipating that question, I brought 16 a copy of the transcript. I won't read the 17 whole thing, of course -- 18 GOVERNOR BUSH: Take out the ahs and aahs. 19 MR. GRAHAM: Yeah. 20 The -- the motion was whether to accept 21 VALIC if VALIC would agree to perform their 22 services on a fee for service basis. 23 And that was -- 24 TREASURER GALLAGHER: How about -- how 25 about reading the motion that I made, please. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 155 2 All right. This is reading from page 39 of 3 the transcript. 4 Well, I'll go back to 38. 5 Mr. Milligan said: I'll make a motion, 6 then we can vote on it. 7 I'll move that we accept VALIC as a bundled 8 provider. 9 And then Treasurer Gallagher says: I have 10 a substitute: That we accept them if they do 11 fee for service so it would be equal to the 12 others. 13 Comptroller Milligan: Say that again. 14 Treasurer Gallagher: Accept them if they 15 agree to do fee for service so that it'd be 16 equal with the others that agreed to do that. 17 And -- 18 GOVERNOR BUSH: That's right. 19 MR. GRAHAM: -- Milligan says to 20 Mr. Herndon: We certainly are throwing you 21 back into the negotiation business. 22 Tom, is that a bother? 23 Of course not. 24 And the vote was two in favor, and I 25 believe the Governor voted against the motion, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 156 2 And that was -- 3 TREASURER GALLAGHER: Okay. 4 MR. GRAHAM: -- that was it. 5 GOVERNOR BUSH: Basically we -- we were 6 seeking VALIC to unbundle -- become an 7 unbundled bundled provider. 8 COMPTROLLER MILLIGAN: That's correct. 9 MR. GRAHAM: And if I could elaborate, if 10 needed, since that time, we've been in, 11 you know, a lot of discussion with Mr. Herndon 12 and his staff. 13 Those discussions have gone well, and 14 smoothly. Certainly we agreed to do it on a 15 fee for service basis initially. 16 And at this point, we -- we view it as 17 having, you know, achieved that precondition 18 established by the vote that we're on equal 19 footing with the others. 20 We're in the same posture as the others in 21 terms of looking at the master contract. We 22 got a copy of that yesterday morning. And our 23 comments are due back to them in the next 24 couple of days. 25 TREASURER GALLAGHER: So they're in the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 157 2 it's in the negotiation for contract. So 3 really it's nothing more than information. 4 That's the way I see it. 5 GOVERNOR BUSH: Of course, the others 6 haven't been negotiated either. 7 TREASURER GALLAGHER: No. They're all 8 negotiating, too, at the same time. 9 MR. GRAHAM: Yeah. We're -- we're all 10 working -- 11 TREASURER GALLAGHER: If something -- 12 MR. GRAHAM: -- off the same document. 13 TREASURER GALLAGHER: -- would come up 14 where the negotiation on a contract, you know, 15 hits a wall, then somebody -- or all of them 16 will be back here. 17 Because it's a master contract for 18 everybody. 19 So, like I said before, I move we rise. 20 GOVERNOR BUSH: How's Mr. Herndon? 21 MS. CASTILLE: On his way still. 22 TREASURER GALLAGHER: Unless you want to 23 wait and hear, I guess, about -- 24 COMPTROLLER MILLIGAN: Well, I -- 25 TREASURER GALLAGHER: -- situation. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 158 2 no problem with that. 3 On the SAFECO issue, on Item 8 -- 4 GOVERNOR BUSH: Yes. 5 COMPTROLLER MILLIGAN: -- we are to make a 6 decision on Item 8, or not. 7 TREASURER GALLAGHER: Well, it was again 8 for information, because they've been doing 9 due diligence, working with the thing. 10 There's some people on that staff over 11 there that believe that it's a -- it's a good 12 idea, but there's some policy and technical 13 interface, and other questions. 14 And I don't think staff is ready to 15 recommend that we go forward. It is something 16 that it can be added in the future -- 17 COMPTROLLER MILLIGAN: If we take no action 18 today, that presumes that we're not going 19 forward with SAFECO. 20 GOVERNOR BUSH: The same -- 21 TREASURER GALLAGHER: Well, again, the -- 22 the agenda item, I believe was for information. 23 It was a status report on SAFECO's brokerage 24 window. 25 So it's -- you know, I -- would tell me ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 159 2 think there -- other than saying where the 3 negotiations, and how it's going, I don't think 4 that the -- the staff is ready to recommend 5 that we do -- 6 COMPTROLLER MILLIGAN: Well, I -- I guess 7 my problem is that, you know, if we -- if we 8 don't do anything, and we don't have another 9 meeting until, I think it's the 28th or 10 whatever -- 11 TREASURER GALLAGHER: Well, we can -- 12 COMPTROLLER MILLIGAN: -- it is of 13 January -- 14 TREASURER GALLAGHER: -- certainly schedule 15 a meeting sooner if we need. 16 COMPTROLLER MILLIGAN: Well, of course we 17 can. 18 TREASURER GALLAGHER: And I don't mind 19 that. 20 GOVERNOR BUSH: Why don't we hear 21 Mr. Richmond talk about SAFECO. 22 MR. RICHMOND: I'm Ron Richmond. I 23 represent -- 24 GOVERNOR BUSH: As long as -- 25 MR. RICHMOND: -- SAFECO. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 160 2 (Mr. Herndon entered the room.) 3 GOVERNOR BUSH: Here comes Mr. Herndon. 4 We'll give you a shot after we get back on 5 the -- thank you for -- 6 MR. RICHMOND: Trying to fill in. 7 GOVERNOR BUSH: -- it -- we -- we 8 appreciate the fact that you've accepted our 9 offer to be the Executive Director of the 10 State Board of Administration. 11 Hey, Tom. 12 MR. HERNDON: Governor, members, I'm sorry 13 to be late. 14 I should learn from my own advice, we don't 15 try and time the markets or the Trustees. 16 GOVERNOR BUSH: We're on Item 5 -- 17 Item 7 -- 18 MR. HERNDON: Six. 19 GOVERNOR BUSH: -- Item 6. 20 COMPTROLLER MILLIGAN: Well, we -- we 21 accept 6 as an -- as an information. We've 22 kind of gone to 7 -- 23 GOVERNOR BUSH: All right. 24 COMPTROLLER MILLIGAN: -- whether or not we 25 need to have -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 161 2 MR. HERNDON: All right. 3 COMPTROLLER MILLIGAN: -- any level of 4 discussion. 5 TREASURER GALLAGHER: Actually 6 covers 6 where you are in negotiations with all of the 7 providers, isn't it -- 8 MR. HERNDON: That's -- 9 TREASURER GALLAGHER: -- doesn't it? 10 MR. HERNDON: Yes, sir. That's correct. 11 And -- 12 TREASURER GALLAGHER: So if you don't mind, 13 I'd like to at least hear that, if we're going 14 to hear something. 15 MR. HERNDON: Basically where we are is 16 that with respect to all of the -- the four 17 bundled providers that had been previously 18 approved by the Board at your last meeting, we 19 have sent out to each one of them a letter 20 asking them to, in effect, validate their 21 understanding of what the circumstances are. 22 We received responses from all of the 23 parties that indicated that essentially the 24 gest of our letter was correct. We have now 25 sent out to those four bundled providers a ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 162 2 evening -- late Friday afternoon. 3 And with respect to VALIC, we had a handful 4 of issues that were also contained in a letter 5 that we sent to them. They responded to that 6 letter, and agreed with some of the issues, and 7 also suggested that we postpone the discussion 8 about some of the issues until the actual 9 contract negotiations themselves. 10 So there were three issues that they were 11 especially concerned about, and that -- that we 12 had made suggestions about. 13 The first was the evergreen nature of the 14 fee for service, which they agreed to change. 15 So that took that issue off the table. 16 We were also concerned about the fact that 17 the stable value product was identical to 18 another one. They've agreed to change that. 19 We were also concerned about the MidCap 20 growth product. And here we have run into a 21 little bit of a -- of a snafu. And it's not 22 anybody's fault particularly. But we were all 23 working off of some data that was a little bit 24 out of date. 25 And what happened was we had recommended ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 163 2 fee was quite a bit higher than had previously 3 been quoted to us by other vendors. They 4 proposed an alternative, a Putnam product. It 5 looked pretty good, the fee structure was 6 better than what we had originally seen. And 7 so we commended that to you in the first 8 memorandum that we sent. 9 Subsequently, it came to light that some of 10 the performance statistics for that Putnam 11 product were not what we originally thought 12 they were. And, in fact, the deterioration and 13 performance for that particular product meant 14 that its overall performance was also not up to 15 snuff. 16 So we went back to VALIC yesterday and the 17 day before, Friday evening and yesterday, and 18 said, let's reconsider this product, because it 19 really doesn't have the kind of performance 20 that you thought it did, and that we thought it 21 did. What -- what do you suggest as an 22 alternative? 23 So basically the alternative that they 24 proposed is to go back to the original INVESCO 25 product, but to come back to a fee schedule ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 164 2 You may recall that we had encouraged two 3 other vendors to drop that product when it was 4 a duplicate. They were dropping it at a lower 5 fee than what was being proposed by VALIC. And 6 that's what we encouraged them to -- to do, was 7 to get down to that lower fee. 8 They've come fairly close to that fee. And 9 if I could figure out a way to get to you, I'll 10 hand you these spreadsheets. 11 COMPTROLLER MILLIGAN: Just throw them up 12 here. 13 MR. HERNDON: And the -- the -- the 14 critical discussion point, if you look at the 15 first chart, which is the smaller of the two 16 charts, and you'll see down there, for the line 17 labeled VALIC, about three-quarters of the way 18 over, you see the -- the portion that is bolded 19 in the -- in the -- in the green. 20 What you see there now is the original 21 INVESCO product repriced. 22 So you'll notice that they had 23 93.5 basis points to -- through various 24 submissions, and a change in the product, we 25 got all the way down to 64. But that was ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 165 2 satisfied was doing as good a job as we had 3 originally thought. 4 So we went back to the INVESCO product at 5 77, which is much more in line with where we 6 had originally been quoted. And that's still a 7 couple of basis points high in our estimation. 8 But we're in the right ballpark. 9 So what we would say to you today is, with 10 the evergreen provision out, with the stable 11 value product replaced, with this replacement 12 going back to the original INVESCO product, we 13 think it's very appropriate for you to 14 go ahead, give your blessing to VALIC. 15 We did provide them with a draft of the 16 contract on Friday, as we did the other 17 parties. We do have two or three other items 18 that we want to talk to them about, but we will 19 do that in the course of negotiating the 20 contract. 21 So that's -- that's the sum and substance 22 of it. 23 GOVERNOR BUSH: You don't -- you don't need 24 an approval from us. 25 MR. HERNDON: Not -- not specifically. But ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 166 2 one product change is different than the 3 written material that we sent down. 4 But it went back to the original product 5 that we had in here, but they've lowered the 6 fee to get it more in line with what was being 7 bid on by the others. 8 Everything else on these spreadsheets, with 9 the exception of the final calculation when you 10 look at the total, is unchanged. 11 GOVERNOR BUSH: Any questions? 12 TREASURER GALLAGHER: So what you have here 13 is we've increased about a -- about a basis 14 point on -- on the fees with this new product? 15 MR. HERNDON: Well, the product that they 16 had proposed -- the Putnam product was quoted 17 at 64 basis points, and you'll see that one 18 with -- 19 TREASURER GALLAGHER: Right. 20 MR. HERNDON: -- the three asterisks there. 21 They went back to their original INVESCO 22 product at 77 basis points. That is the quote 23 in INVESCO's prospectus for the I shares of 24 this product. 25 But you'll notice that that product was ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 167 2 ninety-three-and-a-half. So we've made a good 3 bit of progress. 4 As I said, I think there's still probably a 5 couple of basis points in there. But we've 6 made a good bit of progress. 7 So we've deadlined the -- the vendors to 8 come back to us by Thursday night of this week 9 with the contract -- with any comments on the 10 contract. We're going to add some of the 11 schedules that we hadn't had completed, and -- 12 and go forward. 13 GOVERNOR BUSH: So we've -- I think we've 14 covered Items 6 and 7 now. Maybe you could 15 talk a little bit about Item 8. 16 MR. HERNDON: Yes, sir. 17 GOVERNOR BUSH: Any other questions or 18 comments? 19 We were struggling without you. 20 We were -- 21 MR. HERNDON: I -- 22 GOVERNOR BUSH: -- all around here. 23 MR. HERNDON: -- I apologize. I -- 24 TREASURER GALLAGHER: We got through the 25 first part real well. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 168 2 first part ran magnificently. 3 It's just when we got to -- get to a place 4 where someone had to know something. 5 TREASURER GALLAGHER: The for-informations. 6 MR. HERNDON: As we have indicated before, 7 we -- we've had an interest in this 8 self-directed brokerage window for some time, 9 and not just the SAFECO product, although 10 that's the one that we focused our attention 11 on. 12 But we thought the self-directed brokerage 13 window did offer an awful lot of very unique 14 features for the members. 15 We did spend the -- the ensuing two plus 16 weeks since your last meeting trying to do some 17 due diligence. And we've attached that to the 18 memorandum, plus the -- the additional 19 materials that -- that SAFECO provided to us in 20 an effort to try and resolve some of these 21 questions. 22 And there -- unfortunately when we finished 23 up the discussion, which was last Thursday 24 evening, SAFECO was kind enough to bring their 25 folks in from Seattle. They had also engaged ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 169 2 And part in response to our questions to 3 them, we just frankly were left with too many 4 unresolved questions. 5 Most of them are on the legal side. But 6 there are a number of policy questions that 7 none of us have really had an opportunity to 8 confront. You have not, we have not. 9 We looked at some of the other 10 self-directed brokerage window products that 11 are available from organizations like Fidelity 12 and Schwab and so forth. And they all have 13 good features, and their pricing is a little 14 bit different. 15 But we like the SAFECO product. It's just 16 more fundamentally, there are policy and legal 17 questions that we can't resolve. 18 It's very clear from reading the memo that 19 they obtained from Sutherland Asbill, that 20 there are a number of fiduciary concerns. 21 For example, they say that at a minimum, we 22 should develop standards about which kind of 23 mutual fund stock and bond products go into a 24 self-directed brokerage window. And the more 25 conservative position is that we should review ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 170 2 they have. 3 Well, we -- we just simply don't have the 4 time to do that. I don't know the right answer 5 of conservative or more conservative in terms 6 of responding to their questions. But even if 7 I did, I don't have the time. 8 I mean, we are at the point where an awful 9 lot of literature for brochures and handouts 10 and information packets are -- is going to the 11 printers in just a matter of a few more days. 12 And we just don't have the time. 13 And what we had talked with the SAFECO 14 representatives about was the possibility of 15 supplementing some of these things by adding a 16 couple of -- of pages to our literature and 17 so forth. But that doesn't really help us in 18 the final analysis, because we haven't resolved 19 some of these basic questions. 20 And without that kind of resolution, we 21 just really did not feel like we could 22 recommend the brokerage window to you. 23 We still like SAFECO's product. But it's 24 just the fundamental product itself that -- 25 that raises the concerns. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 171 2 question, Tom. 3 In the educational product, I would feel 4 comfortable if we sort of touted the 5 possibility of that being added to -- to 6 people, let them know that there -- that 7 there's going to be an additional ability to 8 pick their own stocks down the road, and -- and 9 have the opportunity to -- to have more choices 10 than what they do with -- with their 11 retirement. 12 Even though we may not open the program 13 with that, because we're apparently not ready 14 to. 15 So I don't know if the other members agree. 16 But I think maybe you should say that this is a 17 product that we hope to have in the -- in the 18 mix, you know, sometime in the next -- 19 you know, after the first of the year or 20 something. 21 MR. HERNDON: Well, that -- that would 22 certainly be fine. I mean, I think that -- 23 that we can do that. 24 We don't have to then prejudge the nature 25 of the products that are going to be available ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 172 2 would be available. 3 You know, we also indicated in our 4 recommendation -- I mean, SAFECO's done an 5 awful lot to try and prove up their product. 6 I think they deserve credit for that. 7 As near as we could tell, based on the 8 due diligence that we were able to do in that 9 two-and-a-half week period or so, their product 10 stands up very, very well against the other 11 vendors. 12 And so we would frankly suggest that you 13 give them a few points, so to speak, in advance 14 of the solicitation process, because they were 15 the only firm who stood up and said, we want to 16 propose this. And I think they deserve 17 recognition for that. 18 But we're just not prepared to make the -- 19 the final leap, if that's a -- 20 TREASURER GALLAGHER: Well, I think it's 21 a -- a great opportunity for our retirees. And 22 also it -- it looked like they were willing to 23 let it go out for existing members also. 24 And I think that's a -- another really good 25 thing, because it could save people a lot of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 173 2 some people may have existing 401(k)s they 3 could move over there, and things like that. 4 So I think that would be a -- a good thing. 5 GOVERNOR BUSH: Very good. 6 MR. HERNDON: Okay. 7 GOVERNOR BUSH: I think -- so are you -- 8 the -- the one I think new item here is the 9 direction to maybe consider adding some 10 component of our education that we're working 11 on this, that it's -- 12 MR. HERNDON: Yes, sir. 13 GOVERNOR BUSH: -- not ready. But -- 14 MR. HERNDON: And -- and we can certainly 15 do that. 16 GOVERNOR BUSH: Okay. 17 MR. HERNDON: The last official item is to 18 discuss the Enron. 19 But before I do that, I wonder if you might 20 indulge me. I just wanted to hand these out to 21 you. 22 This is the -- the text. It is not the 23 actual printed version. But this is the text 24 of the mail-out that's going out to all of the 25 employees in the FRS bulletin at the end of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 174 2 And I wanted you to just see it and have 3 it, because this is the first broad-brush 4 document that all of the members of the FRS 5 will get. And it's really designed to just 6 heighten their interest. 7 Now, also going out at the same time with 8 this mailing is a document that you saw 9 previously in the last handout, which is a -- 10 it's called a Road Map to FRS Resources. And 11 it lists all of the resources that are going to 12 be available. 13 And this product is obviously a 14 collaborative product between ourselves and the 15 Division of Retirement, because it talks about 16 different things. But we wanted you to just 17 see this kind of introductory material, which 18 gets followed up on much more intensively over 19 the course of the next 60 days. 20 And right now we're targeting to have the 21 individual packets, the personalized packets, 22 in the hands of the State employees, which is 23 the first group that goes out, around the 24 25th of February. And we're still on track to 25 do that. And everybody's optimistic that we'll ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 175 2 So I just wanted you to see this. And, as 3 I said, this is going out probably right after 4 Christmas. 5 The -- the last item on today's agenda is 6 to discuss Enron, and the -- the implications 7 and impact that the collapse of Enron had on 8 the pension fund. 9 I've provided you with a couple of earlier 10 memorandum on this topic. There hasn't been a 11 whole lot that has changed since the last 12 memorandum dated December 13th. And it's 13 accompanying the agenda. 14 As I think we indicated, we are projecting 15 that the losses to the pension fund will be 16 about 305 million dollars, 306 million dollars. 17 Virtually all of that is by one manager, 18 Alliance Capital. And there's a fairly lengthy 19 explanation associated with that, but they've 20 condensed it down to a two-page or so letter to 21 one of our employees from Mr. Al Harrison, the 22 portfolio manager for Alliance that's attached 23 as well. 24 The -- the problem occurred for Alliance in 25 that they saw Enron as a tremendous buying ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 176 2 continued to buy all the way down, including 3 the point at which it became apparent that 4 Enron was collapsing, not -- not just failing 5 or -- or falling in market price, but actually 6 collapsing. 7 And it was at that point, of course, that 8 the potential buy-out by Dynergy came to light, 9 and the -- the across-the-street rival in 10 Houston appeared ready to buy them for a 11 9 billion dollar purchase price. 12 Our folks at -- at Alliance bought through 13 that period as well, and ultimately wound up 14 accumulating a position with slightly over 15 7 million shares in -- in Enron. And that's 16 about 280 million dollars of the loss that the 17 pension fund experienced. 18 Now, it's important to note that 19 Alliance Capital has been a manag-- money 20 manager for us for almost 15 years. They have 21 done a very, very good job. We had a lot of 22 faith in Alliance. 23 In fact, they were our largest single 24 account outside the index fund style accounts. 25 In terms of active managers, they were our ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 177 2 And Al Harrison is a -- a nationally known, 3 internationally known portfolio manager, and 4 has done very, very well by us. 5 Nevertheless, we had grown concerned about 6 Alliance's performance over the course of the 7 last 18 months to two years, and had moved them 8 from the normal kind of quarterly monitoring 9 that we do for all of our managers, to monthly 10 monitoring, watching them, watching their -- 11 their decisions, watching the -- the active 12 bets that they were making, and -- and were 13 talking to the Alliance folks throughout the 14 course of this -- of this time period. 15 We clearly didn't direct them to stop 16 buying. I wish we had, in retrospect. But we 17 had faith in -- in the Alliance folks, and even 18 though it had been somewhat mistreated here in 19 the last 18 to -- months to 24 months, 20 nevertheless, we gave them their -- their 21 reign. 22 Now, all of the decisions that they made 23 were perfectly appropriate within the context 24 of their mandate from us. In other words, they 25 didn't do anything outside of their directions ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 178 2 So there was nothing that caused us to be 3 uniquely alarmed in that -- in that regard. 4 And these kind of bets unfortunately don't 5 always pay off. We saw another classic example 6 of it not too long ago in the GE Honeywell 7 merger, where everybody I think thought that 8 this was a merger, in many respects, made in 9 heaven, and it ultimately didn't occur, and 10 both companies suffered as a consequence. 11 But in this case, the -- the suffering is 12 borne by the -- the members of the retirement 13 system. 14 Now, what we have done in response to this 15 is, as I indicated in the earlier 16 correspondence, hired litigation counsel, two 17 firms that we have worked with for some period 18 of time. 19 We spent a good bit of time at the 20 Attorney General's Office trying to ensure that 21 they, and we are -- are holding hands in this 22 endeavor. And we're very appreciative of their 23 help. And they've been out to some of the 24 meetings that we had with the Alliance Capital 25 folks, and -- and others. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 179 2 indicated, we had concerns about their 3 performance, and have had for a period of about 4 two years. Ultimately we -- we thought long 5 and hard about whether or not Alliance was 6 still appropriate, given the -- the drop in 7 confidence, and decided that -- that it was not 8 an appropriate decision to retain them. 9 That's been communicated to them. They -- 10 they are no longer an active manager for us, 11 the accounts have been closed, and the assets 12 are back within the -- the Board's process. 13 We will continue to pursue litigation 14 against the directors and officers of Enron, 15 and probably against their accountants. We are 16 estopped from moving against Enron. The 17 corporate body by virtue of the bankruptcy 18 pleading, which puts essentially a stop on 19 anybody seeking direct action against the Enron 20 corporation. 21 Frankly, I don't think anybody thinks 22 there's a great deal of assets there anyway. 23 When you pay off all of the other creditors -- 24 and bear in mind that shareholders, such as 25 ourselves, are virtually at the end of the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 180 2 I mean, we had an equity position, but 3 no -- we were not a creditor in that respect. 4 And so every other creditor is ahead of us in 5 this process. 6 We will be watching the bankruptcy 7 proceeding as well as moving forward with our 8 own petition to be the plaintiff or co-lead 9 plaintiff on the securities litigation side of 10 things. 11 We are talking with a number of other 12 states. It looks like that it's a very good 13 chance that there'll be a coalition of 14 interested public pension funds. At this 15 point, nobody has signed on the bottom line 16 yet. But it certainly appears that that will 17 be the case. 18 So that's -- that's the sum of it in a 19 fairly shorthand version. I'm happy to answer 20 any questions. 21 The Attorney General's been involved in I 22 know talking with Attorney Generals in other 23 states. And he may have some comments in 24 addition. 25 So -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 181 2 comments? 3 General Butterworth. 4 ATTORNEY GENERAL BUTTERWORTH: Thank you, 5 Governor. 6 Obviously a lot of other states would -- 7 have been hurt, a number of them, 8 percentage-wise equal to Florida, but dollars, 9 of course, are less. 10 A number of the -- of the Attorney Generals 11 throughout the country, we're working together 12 on this. On -- no -- no Attorney General in 13 the country has the in-house security 14 experience so -- so all -- all states are going 15 to outside lawyers on this on contingency fee 16 contracts. 17 I think Tom's negotiated a good one, and -- 18 and was able to get a paragraph in there which 19 I think in accordance with Florida law will be 20 upheld by the Supreme Court which says that 21 they cannot request any funds from the 22 State of Florida unless Tom agrees to that 23 number, which means the Board. 24 And also our case will be led by Mary Leon, 25 who's right here. And she's in charge of the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 182 2 And we're looking at this case literally 3 from a racketeering and -- and RICO standpoint 4 also. 5 GOVERNOR BUSH: Okay. 6 I guess this doesn't make sense, but I'm 7 going to ask anyway. If there are 50 states, 8 and a bunch of other people, they're all 9 hiring -- each -- they're hiring lawyers. 10 Is that the way it's done all the time? 11 I mean, this -- 12 ATTORNEY GENERAL BUTTERWORTH: Governor, 13 I think it probably is in a way -- 14 GOVERNOR BUSH: Interests are basically the 15 same, aren't they? 16 ATTORNEY GENERAL BUTTERWORTH: This type of 17 case is such to where it is so unique -- 18 I think at a point in time, and -- and next 19 go around, January a year from now, the 20 Attorney General will be sitting on this Board. 21 And I would suggest that we may want to get 22 expertise in -- in-house, that is able to 23 handle a number of these cases. 24 This one -- this one is literally so big 25 that I do not believe -- I know full well -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 183 2 has the capability -- even -- even the states 3 together. 4 We've taken on a number of cases where the 5 various Attorneys General Offices has added 6 together, we have enough. But in this case, we 7 don't. 8 And we're also working together with the 9 lawyers from -- from General Milligan's Office 10 also and the investigators. 11 GOVERNOR BUSH: Tom, can you give us a 12 little run-down on the process that you went 13 through to select the lawyers, and -- and the 14 qualifications of those lawyers? 15 MR. HERNDON: Yes, sir. 16 And -- and let me just add that -- that our 17 interests at this point, and the interests 18 of -- of a smaller subset of the members of the 19 class who have losses is to try and determine 20 who's going to be the lead plaintiff or the 21 co-lead plaintiff, and then the class will be 22 formed which will, in fact, represent all those 23 other states and private pension plans and 24 endowments and corporate plans, and everybody 25 else who lost. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 184 2 particular case was to try and look at the 3 existing stable of plaintiffs' attorney firms 4 that currently do work for the Board. 5 While we know that there are a number of 6 other fine organizations out there, we 7 basically took the policy position at the 8 outset that if we had never worked with them up 9 to this point, we really didn't want to cut our 10 teeth on what may be the largest, if not 11 necessarily, the most complicated, but -- but 12 certainly the largest potential securities 13 litigation event that -- that's come along in 14 some time. 15 So we wanted to work with firms that we had 16 an established track record with. 17 And in that regard, we looked at trying to 18 not only put together a -- a couple of firms 19 that we had good experience with, and -- and 20 understood us, and we understood them, and they 21 practiced in accordance with our overall sense 22 of -- of philosophy. 23 And one point, and I -- and I do want to 24 make -- make this point. I don't think anybody 25 thinks that we're going to recoup all of our ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 185 2 I mean, if we could get 50 cents or 3 40 cents or 30 cents on the dollar, I think 4 some -- everybody would be ecstatic. 5 But at the same time that we're trying to 6 recoup dollars, there are some very 7 important -- what -- what is interesting are 8 called corporate governments reforms that -- 9 that the kind of case points out. 10 This entire situation, with respect to 11 the -- the lockout of employees, for example, 12 from being unable to sell their 401(k) holdings 13 while the bankruptcy proceedings are being 14 filed is a -- is a situation that bears 15 examining. 16 The fact that 90 percent in some cases of 17 employees' stock were in these 401(k)s is also 18 an issue that bears examining. 19 The relationship -- and -- and I'm not 20 trying to -- to make value judgments here 21 necessarily. But it's an issue that's been 22 addressed by the SEC now for several years. 23 The -- the whole question of accounting 24 firms providing both accounting and consulting 25 services to these organizations that they then ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 186 2 conflict that exists there are -- is another 3 example of the kind of situation that these 4 lawsuits give you an opportunity to address. 5 We recently settled a case, and 6 Commissioner Gallagher's aware of this, where 7 it was a -- a national insurance company. And 8 one of the things that we were able to obtain 9 in the process, in addition to the monetary 10 damages, was a commitment by the firm that -- 11 that all of the members of the audit committee 12 be outside directors, be insid-- be independent 13 directors. 14 That's a very basic kind of change, but 15 it's an important change in -- in these kinds 16 of situations. 17 So that -- that is, in part, the motivation 18 here, because both of the firms that -- that we 19 ultimately selected and interviewed have done 20 good work for us on the corporate governance 21 side, as well as on the dollar recovery side, 22 and I -- and I -- I thought that was 23 appropriate to mention. 24 But ultimately, Governor, in response to 25 your question, we said, you know, we want to ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 187 2 us to the dance and that we're comfortable 3 with. 4 We certainly don't have any problem, and 5 we've told that to -- to the lead counsel firm 6 working with other organizations, and we've 7 spent time with a number of other organizations 8 who may have some specialty expertise that is 9 beneficial. 10 In fact, we met with a group this morning 11 that has some unique bankruptcy expertise that 12 may be very worthwhile for us to -- to augment 13 our stable of lawyers. 14 But we looked at the capacity of the 15 organizations, the cases they currently had 16 underway, our degree of comfort with them, the 17 kind of credentials that they had established 18 with us, and ultimately that was what prompted 19 the decision. 20 And -- and, of course, on the other end of 21 the discussion, as General Butterworth points 22 out, is the question of the fee. We were able 23 to, I think, get a very fair fee under the 24 circumstances. 25 Typically these cases go for 20 to ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 188 2 we just didn't think that was appropriate. 3 And I think, frankly, the fee that is 4 negotiated here is also going to start to set a 5 new standard for some of this litigation, and I 6 certainly hope it does. 7 So all in all, that -- that was how we got 8 to -- to the firms that we recommended, the 9 Berman firm and -- and Entwistle and Cappuccio. 10 GOVERNOR BUSH: This is just a contingency 11 fee arrangement -- 12 MR. HERNDON: Yes, sir. 13 GOVERNOR BUSH: -- completely? 14 MR. HERNDON: Straight up contingency fee. 15 They -- they carry their own expenses 16 associated with the prosecution of the case. 17 And we have outlined it in the letter that 18 is attached to the material. It is a -- 19 in effect, a sliding fee scale based on when 20 the case may actually be settled or resolved. 21 The longer it drags on, the higher the 22 contingency fee. I think an awful lot of 23 experts -- I certainly don't put myself in that 24 category -- think this is one that may settle 25 earlier than -- than others for some of the -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 189 2 The -- the pleadings are due in the 3 Federal Court in Houston on the 21st. And 4 those are the pleadings to determine who will 5 be lead plaintiff in the case. 6 And that's the position that we're 7 requesting be granted to Florida. 8 GOVERNOR BUSH: Any comments, Board 9 members? 10 Silence. 11 TREASURER GALLAGHER: Well, I notice the -- 12 the fees go from seven-and-a-half percent to 13 15 -- 14 COMPTROLLER MILLIGAN: No. 15 MR. HERNDON: Five to fifteen. 16 TREASURER GALLAGHER: Five to fifteen. 17 MR. HERNDON: Five to fifteen. 18 GOVERNOR BUSH: That's pretty good. 19 TREASURER GALLAGHER: Five to fifteen. 20 MR. HERNDON: Thank you. 21 That completes the agenda. 22 GOVERNOR BUSH: Thank you all. 23 Happy holidays. 24 MR. HERNDON: I apologize again for being 25 late. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 190 2 was concluded.) 3 * * * 4 (The Cabinet meeting was concluded at 5 12:26 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. 191 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 190 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 2ND day of JANUARY, 2002. 18 19 ACCURATE STENOTYPE REPORTERS, INC.
|
|||||||||||
