THE CABINET

STATE OF FLORIDA
_____________________________________________________

Representing:

STATE BOARD OF EDUCATION
DEPARTMENT OF REVENUE
ST. JOHNS RIVER WATER MANAGEMENT DISTRICT
DEPARTMENT OF AGRICULTURE AND CONSUMER AFFAIRS
TRUSTEES
STATE BOARD OF ADMINISTRATION

The above agencies came to be heard before
THE FLORIDA CABINET, Honorable Governor Bush presiding,
in the Cabinet Meeting Room, LL-03, The Capitol,
Tallahassee, Florida, on Tuesday, January 29, 2002
commencing at approximately 9:10 a.m.

Reported by:
SANDRA L. NARGIZ
Registered Professional Reporter
Registered Merit Reporter
Certified Realtime Reporter

ACCURATE STENOTYPE REPORTERS, INC.
100 SALEM COURT
TALLAHASSEE, FL 32301 (850)878-2221

2
APPEARANCES:
Representing the Florida Cabinet:

JEB BUSH
Governor

ROBERT F. MILLIGAN
Comptroller

CHARLES H. BRONSON
Commissioner of Agriculture

BOB BUTTERWORTH
Attorney General

CHARLIE CRIST
Commissioner of Education

TOM GALLAGHER
Treasurer
* * *

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I N D E X
STATE BOARD OF EDUCATION:
(Presented by Wayne Pierson)

ITEM ACTION PAGE

1 Approved 5
2 Approved 5
3 Approved 5
4 Approved 6
5 Approved 6
6 Approved 6

DEPARTMENT OF REVENUE
(Presented by Jim Zingale)

ITEM ACTION PAGE

1 Approved 7
2 Approved 7
3 Approved 7

ST. JOHNS RIVER WATER MANAGEMENT DISTRICT
(Presented by David Struhs)

ITEM ACTION PAGE

1 Approved 9
2 Withdrawn 9

DEPARTMENT OF AGRICULTURE AND CONSUMER AFFAIRS
(Presented by Sherman Wilhelm)

ITEM ACTION PAGE

1 Approved 10
2 Approved 10

4

TRUSTEES
(Presented by David Struhs)

ITEM ACTION PAGE

1 Approved 12
2 Deferred 12
3 Approved 13
4 Deferred 13
5 Approved 14
6 Approved 15
7 Approved 15
8 Deferred 16
9 Approved 17
10 Withdrawn 17

STATE BOARD OF ADMINISTRATION
(Presented by Tom Herndon, Executive Director)

ITEM ACTION PAGE

1 Approved 18
2 Approved 18
3 Approved 19
4 Status Report 19
5 Approved 35
6 Approved 36
7 Approved 36
8 Approved 40
9 Approved 40

CERTIFICATE OF REPORTER 41

5
1 P R O C E E D I N G S
2 (The agenda items commenced at 10:20 a.m.)
3 GOVERNOR BUSH: State Board of Education. Is
4 there a motion on the minutes.
5 TREASURER GALLAGHER: Move.
6 ATTORNEY GENERAL BUTTERWORTH: Second.
7 GOVERNOR BUSH: Moved and seconded. Without
8 objection, it's approved.
9 Item 2.
10 MR. PIERSON: Item 2 is a resolution
11 authorizing the issuance and sale of $300 million
12 in State Board of Education Lottery Revenue Bonds.
13 COMMISSIONER CRIST: Move item 2.
14 COMMISSIONER BRONSON: Second.
15 GOVERNOR BUSH: It's been moved and seconded.
16 Without objection, it's approved.
17 MR. PIERSON: Item 3 is a recommended fee
18 schedule for 2002-2003 Workforce Development
19 Education Programs.
20 TREASURER GALLAGHER: Move item 3.
21 ATTORNEY GENERAL BUTTERWORTH: Seconded.
22 GOVERNOR BUSH: Moved and seconded. Without
23 objection, it's approved.
24 MR. PIERSON: Item 4 is Rule 6A-4.0021,
25 Florida Teacher Certification Examination for
6
1 approval as amended.
2 TREASURER GALLAGHER: Motion on the floor.
3 COMMISSIONER BRONSON: Seconded.
4 GOVERNOR BUSH: Moved and seconded. Without
5 objection, it's approved.
6 MR. PIERSON: Item 5 is Rule 6A-4.00821,
7 Florida Educational Leadership Examination, for
8 approval as amended.
9 TREASURER GALLAGHER: 5 as amended.
10 COMMISSIONER BRONSON: Second.
11 GOVERNOR BUSH: Moved and seconded. As
12 amended, without objection, it's approved.
13 MR. PIERSON: Item 6 is the appointment of
14 Dennis J. Griffin and the reappointment of Grace
15 A. Williams and Clarence Wayne Ainsley to the
16 Education Practices Commission.
17 COMMISSIONER CRIST: Motion on 6.
18 TREASURER GALLAGHER: Seconded.
19 GOVERNOR BUSH: Moved and seconded. Without
20 objection, it's approved.
21 (Department of Education agenda was
22 concluded.)
23
24
25
7
1 GOVERNOR BUSH: Department of Revenue.
2 TREASURER GALLAGHER: Motion on the minutes
3 of December 18.
4 COMMISSIONER BRONSON: Move.
5 ATTORNEY GENERAL BUTTERWORTH: Seconded.
6 GOVERNOR BUSH: Moved and seconded. Without
7 objection, it's approved. Item 2.
8 MR. ZINGALE: Item 2 are three rules. These
9 are primarily procedures that have been in place
10 for some time. We are conforming them to current
11 statutes.
12 The first item deals with three child
13 support ones, the procedures dealing with
14 custodial parents' cooperation in lieu of
15 getting welfare.
16 The second one deals with our procedures
17 for driver's license suspension.
18 The third one deals with noncustodial
19 parents' agreements to pay and the procedures
20 dealing with that.
21 Request approval.
22 TREASURER GALLAGHER: Move on 2.
23 ATTORNEY GENERAL BUTTERWORTH: Second.
24 GOVERNOR BUSH: Moved and seconded. Without
25 objection, it's approved.
8
1 MR. ZINGALE: The last rule is sales tax
2 exemption conforming to the laws that passed in
3 the year 2000 dealing with railroad and railway
4 materials exemption for new machinery and
5 equipment.
6 COMMISSIONER BRONSON: Motion on 3.
7 TREASURER GALLAGHER: Second.
8 GOVERNOR BUSH: It's been moved and seconded.
9 Without objection, it's approved.
10 MR. ZINGALE: Thank you.
11 (Department of Revenue agenda was
12 concluded.)
13
14
15
16
17
18
19
20
21
22
23
24
25
9
1 GOVERNOR BUSH: St. Johns River Water
2 Management District.
3 TREASURER GALLAGHER: Motion on the minutes
4 for March 24 and December 1.
5 GOVERNOR BUSH: March 24, 1988?
6 TREASURER GALLAGHER: 1998, yes, and
7 December 18, 2001.
8 GOVERNOR BUSH: There you have it. Is there
9 a motion?
10 TREASURER GALLAGHER: Move.
11 COMMISSIONER BRONSON: Seconded.
12 GOVERNOR BUSH: Moved and seconded. Without
13 objection.
14 TREASURER GALLAGHER: Move to withdraw item
15 2.
16 COMMISSIONER BRONSON: Seconded.
17 GOVERNOR BUSH: There's a motion to withdraw.
18 Without objection, the item is withdrawn.
19 That's it.
20 (St. Johns River Water Management District
21 agenda was concluded.)
22
23
24
25
10
1 GOVERNOR BUSH: Department of Agriculture and
2 Consumer Services.
3 TREASURER GALLAGHER: Motion on the minutes
4 of June 12, 2001.
5 COMMISSIONER BRONSON: Second.
6 GOVERNOR BUSH: Moved and seconded. Without
7 objection, it's approved.
8 MR. WILHELM: Item number 2 is staff is
9 requesting approval to issue 46 Alligator Harbor
10 aquaculture leases to the applicants that have
11 been listed in the agenda.
12 TREASURER GALLAGHER: Move number 2.
13 COMMISSIONER BRONSON: Second.
14 GOVERNOR BUSH: Moved and seconded. Without
15 objection, it's approved.
16 MR. WILHELM: And I would like to also
17 recognize Commissioner Cheryl Sanders from
18 Franklin County who has been the driving force on
19 this application. She is over there.
20 MS. SANDERS: Governor, I would like to thank
21 you and the rest of the Cabinet Members for
22 letting this happen in Franklin County. As you
23 know, it wasn't that many months ago we had a
24 serious problem with the red tide.
25 I want to thank you for your support on
11
1 that, with appealing the FEMA decision.
2 And you know, I think that's good. I am
3 looking forward to this; it's been a long road
4 but we are right there on the edge of it.
5 GOVERNOR BUSH: How does the red tide look
6 now?
7 MS. SANDERS: It's looking good. The only
8 thing is, what's affected was the sale of the
9 oysters, people are kind of scared to eat them
10 now, so the sales have lowered down. And --
11 GOVERNOR BUSH: Why don't you get
12 Commissioner Bronson to come on down and let him
13 eat a half dozen of them.
14 MS. SANDERS: I invite every one of you-all
15 to eat them. If you all could plug in for -- they
16 are Apalachicola bay oysters now.
17 GOVERNOR BUSH: The best in the world.
18 MS. SANDERS: They are the best in the world.
19 I want to thank you and the Cabinet Members for
20 your time and your patience and your hard work.
21 Thank you.
22 GOVERNOR BUSH: Great seeing you again.
23 Okay. Where are we?
24 (Department of Agriculture and Consumer
25 Affairs agenda items were concluded.)
12
1 GOVERNOR BUSH: Board of Trustees.
2 MR. STRUHS: If we can do it just like the
3 first one, that would be great.
4 GOVERNOR BUSH: Is there a second?
5 TREASURER GALLAGHER: Moved.
6 COMMISSIONER BRONSON: Second.
7 GOVERNOR BUSH: Moved and seconded. Without
8 objection, the minutes are approved.
9 Item 2.
10 MR. STRUHS: Recommending we defer that item,
11 until March 12.
12 TREASURER GALLAGHER: Move 2.
13 COMMISSIONER BRONSON: Second.
14 GOVERNOR BUSH: Motion to defer. Moved and
15 seconded. That item is approved.
16 MR. STRUHS: Item 3, recommend approval of
17 108,780 square foot sovereignty submerged lands
18 lease subject to special lease conditions and the
19 payment of $18,316.20.
20 Recommending the approving because this is
21 the first step towards resolving a settlement
22 under a Butler Act Claim that is going to allow
23 the owner to keep the pier in place, to not
24 make a claim of the other sovereignty submerged
25 lands, and to allow the establishment of a
13
1 boardwalk for public safety purposes.
2 TREASURER GALLAGHER: Moved.
3 ATTORNEY GENERAL BUTTERWORTH: Second.
4 GOVERNOR BUSH: Moved and seconded. Without
5 objection, it's approved.
6 TREASURER GALLAGHER: Move to defer Number 4
7 to March 12.
8 ATTORNEY GENERAL BUTTERWORTH: Seconded.
9 GOVERNOR BUSH: There is a motion to defer
10 and second. Without objection, it's approved.
11 MR. STRUHS: Item 5 is recommending that you
12 accept the 2002 Florida Forever Interim Report and
13 Interim Priority List.
14 You will recall that the Florida Forever
15 Act puts this on a six-month cycle to come back
16 and review that acquisition list.
17 What this does is it amends 11 project
18 boundaries and combines eight different
19 projects for better efficiency and managements
20 and removes two projects and adds five new
21 ones.
22 The one thing I would point out that I
23 think is a special accomplishment, one that I
24 know you will be pleased with, is under the
25 Florida Forever Program, we established both an
14
1 A List and a B List.
2 One of the advantages of that is over the
3 last six months on that B List, we have been
4 able to make six acquisitions, six acquisitions
5 in six months. And on average, those have been
6 acquired at 46 percent of their approved value,
7 so I think it proves the benefit of having that
8 B List, saved the state approximately
9 $15 million the last half a year.
10 TREASURER GALLAGHER: Motion on item 5.
11 COMMISSIONER BRONSON: Second.
12 GOVERNOR BUSH: Moved and seconded. Without
13 objection, it's approved.
14 MR. STRUHS: Item 6, we are recommending
15 approval of conservation easements in the Green
16 Swamp Area of Critical State Concern.
17 This is a particularly good arrangement in
18 that the price for these conservation easements
19 is 89 percent of the appraised value. And
20 that's not 89 percent of the fee simple value;
21 that is 89 percent of the actual conservation
22 easement value.
23 If you looked at the cost of the actual
24 fee simple value of the land, these three
25 parcels are being acquired, or with the
15
1 interest the state is interested in being
2 acquired is for 39 and 47 percent respectively.
3 So it just again speaks to the value of
4 using conservation easements to buy those into
5 those interests.
6 TREASURER GALLAGHER: Motion on 6.
7 COMMISSIONER BRONSON: Second.
8 GOVERNOR BUSH: Moved and seconded. Without
9 objection, it's approved.
10 MR. STRUHS: Item 7, recommending approval
11 for the acceptance of an assignment of an option
12 agreement to acquire 3,442 acres within the St.
13 Joseph's Bay Buffer Florida Forever project from
14 the Nature Conservancy.
15 TREASURER GALLAGHER: Motion on 7.
16 COMMISSIONER BRONSON: Second.
17 GOVERNOR BUSH: Moved and seconded. Without
18 objection, it's approved.
19 David, I think it appropriate here to
20 pause and to recognize Anna Marie Hartman who
21 is retiring after 30 years of service in state
22 government as the division director for Coastal
23 Aquatic Management Areas.
24 I commend you, congratulate on your
25 cardinal service, and I know you all know a lot
16
1 more about this than I do, but I know our state
2 leads the nation in the activities that you
3 have been involved in. So it's a legacy you
4 can be read proud of.
5 MS. HARTMAN: I appreciate that, Governor and
6 Members of the Cabinet. It's been really an honor
7 to serve the State of Florida and the people of
8 the state and to serve you and your predecessors.
9 I really enjoyed it. I feel there are a lot of
10 great things happening in Florida, and I will be
11 watching. Thank you very much.
12 GOVERNOR BUSH: Thank you.
13 (Applause.)
14 TREASURER GALLAGHER: Motion to defer 8 to
15 February 22.
16 COMMISSIONER BRONSON: Second.
17 GOVERNOR BUSH: There is a motion to defer
18 item number 8 and a second. The item is deferred.
19 MR. STRUHS: Item 9, recommending approval of
20 the consideration of a request to issue quitclaim
21 deeds to three parcels of filled, formerly
22 submerged, sovereignty land to the City of Crystal
23 River for public purposes.
24 These three parcels total about .42 acres
25 and they would be transferred at a price of
17
1 $820.
2 TREASURER GALLAGHER: So moved.
3 COMMISSIONER BRONSON: Second.
4 GOVERNOR BUSH: There is a motion and a.
5 COMMISSIONER CRIST: Second.
6 GOVERNOR BUSH: Are there any speakers here?
7 MR. STRUHS: No, sir.
8 GOVERNOR BUSH: Moved and seconded. Without
9 objection, the item is approved.
10 TREASURER GALLAGHER: Move to withdrawn
11 item 10.
12 COMMISSIONER BRONSON: Second.
13 GOVERNOR BUSH: Moved and seconded to
14 withdraw. Without objection, it's approved.
15 (Board of Trustees agenda item was
16 concluded.)
17
18
19
20
21
22
23
24
25
18
1 GOVERNOR BUSH: State Board of
2 Administration.
3 MR. HERNDON: Item 1 is approval of the
4 minutes of the meeting held December 18.
5 GENERAL MILLIGAN: Move the minutes.
6 TREASURER GALLAGHER: Second.
7 GOVERNOR BUSH: Moved and seconded. Without
8 objection, it's approved.
9 MR. HERNDON: Item number 2 is a resolution
10 of the State Board of Administration rescinding
11 the original approval of a fiscal determination of
12 an amount not exceeding $12,780,000 tax exempt and
13 2.67 million taxable Florida Housing Finance
14 Corporation Housing Revenue Bonds, and approving
15 the fiscal determination of amount not exceeding
16 $12,780,000 tax exempt and 3,065,000 taxable
17 Florida Housing Finance Corporation Housing
18 Revenue Bonds for Westminster Apartments in
19 Pinellas County.
20 TREASURER GALLAGHER: Motion on 2.
21 GENERAL MILLIGAN: Second.
22 GOVERNOR BUSH: Moved and seconded. Without
23 objection, it's approved.
24 MR. HERNDON: Item number 3 is request
25 approval to file the following rules for adoption.
19
1 These rules implement Part IV of Chapter 218
2 relating to investments in the local government
3 investment pool that the board runs on behalf of
4 local governments. There are a variety of rules
5 contemplated in this recommended item, Governor,
6 and I am not going to read each one.
7 TREASURER GALLAGHER: Item 3 move it.
8 GENERAL MILLIGAN: Second.
9 GOVERNOR BUSH: Moved and seconded. Without
10 objection, it's approved.
11 MR. HERNDON: Item number 4 are an on-going
12 series of implementation status reports for the
13 Defined Contribution Program. This happens to be
14 item 14. And if I might, Governor, bear with me
15 for just one second.
16 There have been a couple of things that
17 have occurred since this was submitted that I
18 thought you would find of interest.
19 The first and perhaps the most notable is
20 we received this morning a fax copy -- and I
21 have one for each of your offices -- from the
22 Internal Revenue Service approving formally and
23 officially our defined contribution plans. So
24 after a year and a half of anguish and just a
25 month before the program actually gets up and
20
1 running, we have the approval.
2 Now, I might add parenthetically that the
3 DB plan through the Division of Retirement is
4 still awaiting for their approval, and I know
5 we are all anxious that that take place.
6 There are a couple of other things that I
7 might mention, if I may.
8 Number 1, we do have legislative proposals
9 filed in both houses and they have been
10 numbered in the Senate and we are awaiting
11 numbers and referrals in the House to
12 implement, number 1, some of the recent
13 Congressional enactments; and secondly, as you
14 all recall, one of the things that we thought
15 was probably critically important is to extend
16 the confidentiality of exempting the employees'
17 financial records from the public records law.
18 So we are anxious that both of those bills
19 pass this session, and we have constructed the
20 program as if they have passed.
21 We also had proposed a modest revision,
22 hopefully modest revision to the investment
23 policy statement that I know each of your
24 offices has discussed and considered. We had
25 some feedback from our advisory councils and
21
1 from many of your offices.
2 It appears that that is acceptable to most
3 parties, and we are going to go ahead with that
4 change to bring the bundled providers into the
5 VALIC funds. And I think that will be a good
6 change for the program overall.
7 On another point that is also of note, we
8 are still working on the contracts with the
9 bundled providers. We have a couple of issues;
10 I am meeting this afternoon with
11 representatives of one of the companies. But
12 by and large, that is coming to a close.
13 I think this one company has some
14 questions that may be simply matters of
15 interpretation, although I have not had a
16 chance to talk with him up until now, but I am
17 looking forward to that. And hopefully we can
18 put all of that contract negotiations behind
19 us.
20 Finally, although this is not a DC status
21 report, if it's an appropriate time, I was just
22 going to mention that we are continuing with
23 our pursuit of lawsuits regarding Enron and
24 directors and officers and Arthur Andersen.
25 In fact, we have been joined as we
22
1 indicated by the New York City Pension Funds
2 and are awaiting a decision by the federal
3 judge in Texas with regard to the appointment
4 of the plaintiff.
5 We expect that that decision will be made
6 within the next two weeks based on some
7 indication that the judge has given regarding
8 Arthur Andersen and their production of
9 documents. But the judge does have the
10 discretion to rule in that regard on her own
11 volition.
12 I also, just parenthetically, have been
13 invited on Monday to come to Washington to meet
14 with SEC Commissioner Chairman Harvey Pitt to
15 discuss on behalf of public pension funds
16 throughout the country some of the concerns
17 that we have been expressing through our
18 National Organization of Constitutional
19 Investors, things like the appropriate
20 regulation of accountants and separation of
21 consulting firms and accountants, and so forth.
22 There are a number of us meeting that are
23 going to be meeting with the chairman on Monday
24 and we are looking forward to that meeting
25 being a particularly productive discussion.
23
1 And I know there may be other questions
2 regarding this subject, and if this is an
3 appropriate time.
4 GOVERNOR BUSH: I have a few questions.
5 Before we get to the Enron matter, can we go back
6 to the bundle provider issue?
7 How quickly will it take to get the
8 contracts?
9 MR. HERNDON: I think as a practical matter,
10 we are virtually finished with them.
11 I think three of the five companies are
12 ready to sign.
13 The other two, as I indicated, one I will
14 meet with this afternoon and I think they are
15 probably the one with the most significant
16 issues, at least on paper.
17 So we would anticipate frankly having
18 signed contracts in hand in the next several
19 days.
20 And, in fact, I have instructed our legal
21 staff to not issue any more drafts, prepare the
22 final version, send it out; if the companies
23 have a change they feel absolutely necessary,
24 have them strike through it and initial it and
25 send it back to us signed because we don't want
24
1 to go through any more drafts at this stage of
2 the game. We have done several, and that's
3 probably sufficient.
4 I would hope frankly within another week
5 or so we should have signed contracts by all
6 the parties.
7 We have constructed the program and all of
8 the literature and all of the mailings, and so
9 forth, have been built with the assumption that
10 the program will move forward as you had
11 approved it. So the contracts are critical,
12 but they implement what you already directed us
13 to do.
14 TREASURER GALLAGHER: I gather that all of
15 the contracts are basically identical?
16 MR. HERNDON: Pretty much so, yes. The names
17 are a little bit different, but other than that,
18 they are a little different.
19 What we have done is we have attached to
20 the baseline contract a series of schedules,
21 and the schedules differ for each company based
22 on the products they are offering and the fees
23 they are quoting, and so forth.
24 TREASURER GALLAGHER: But the basic premise,
25 what they expect to do and when and how, how the
25
1 discipline will take place, in fact, all that has
2 been taken care of.
3 MR. HERNDON: That's correct.
4 GOVERNOR BUSH: On Enron, you didn't mention
5 Alliance Capital. And given the fact that they
6 seemed to be buying stock as the stock was
7 cascading downward, which was a significant
8 portion, I think that may be a significant portion
9 of the loss that the state pension fund took, and
10 given on the surface, at least, the connection
11 between Enron and the investment company, and the
12 fact that they are involved in other -- it's a big
13 company, I assume they have many different
14 investments options -- wouldn't it be worth
15 exploring on an expedited basis, again through
16 legal means or through whatever means that
17 consultants have come to you to talk about this,
18 doing a fairly quick-fashion, as you are looking
19 at the strategy regarding trying to be the chief,
20 the lead plaintiff in a larger lawsuit?
21 MR. HERNDON: Yes, sir. In fact, we have
22 interviewed three law firms; we have another law
23 firm scheduled for interview tomorrow, with the
24 thrust of those interviews being trying to
25 understand what possible cause of action we might
26
1 have regarding Alliance and whether or not the
2 merits of the case, the facts of the case, in
3 fact, support filing any kind of action against
4 Alliance.
5 I think we have always held out the very
6 distinct possibility that a step of that nature
7 against Alliance would be not only appropriate,
8 but the correct thing to do.
9 General Butterworth and his staff have
10 been involved with us, sitting in on those
11 interviews, and I know they have acted in their
12 own regard in that sense, too, with the issues
13 of some subpoenas, and so forth.
14 He may want to comment on that. But it is
15 our expectation that we'll be in a position
16 after we complete these interviews tomorrow and
17 get back around to your offices and talk about
18 this a little bit to notify the various parties
19 of our intention.
20 ATTORNEY GENERAL BUTTERWORTH: Thank you. As
21 Tom stated, the office already has taken action.
22 Last week we issued racketeering subpoenas to
23 Alliance as well as Enron and Arthur Andersen, and
24 working with the Comptroller's office and the
25 expertise there, we believe that probably Alliance
27
1 is one we should be going after first.
2 But no one else is; everybody is going
3 after Arthur Andersen and Enron. Alliance
4 actually caused us our biggest damage. And you
5 are right, Governor, we are not letting them
6 off.
7 GOVERNOR BUSH: I think it's fair to say this
8 item is complicated securities law, and I
9 certainly am not an expert. But we do have a
10 fiduciary responsibility to pursue, at least to
11 analyze all the options, first and foremost, and
12 get working with the Attorney General's office,
13 get the experts to do it.
14 And if based on their assessment there is
15 reason to move forward, then, of course, I am
16 sure you are going to make that recommendation.
17 ATTORNEY GENERAL BUTTERWORTH: Yes.
18 GOVERNOR BUSH: But I would just urge it to
19 be done, not hastily, but quicker rather than
20 slower; just because of the nature of these really
21 complicated cases, I assume it's correct to say
22 that the quicker you get in something like this,
23 the greater the amount of information you might
24 receive.
25 ATTORNEY GENERAL BUTTERWORTH: That's
28
1 correct.
2 MR. HERNDON: One of the interesting
3 benefits, if you can use that term, and I really
4 apply it somewhat loosely, but one of the
5 interesting benefits of all the activities --
6 Congressional hearings, the SEC investigations --
7 is there is an awful a lot of information that is
8 coming out now that we wouldn't typically have.
9 And while that doesn't necessarily argue for being
10 slow, it certainly does give us an opportunity to
11 look at sources of information and facts that we
12 wouldn't otherwise have.
13 And we completely agree with you,
14 Governor, and will pursue that course.
15 GOVERNOR BUSH: The other issue that is not
16 related to Enron so much as it relates to the
17 legal, potential legal actions, but it does relate
18 to the 401(k) situation.
19 Since we are now embarking on a 401(k)
20 like retirement option for employees, we are
21 going to structure, we've structured our
22 education system and asset allocation in a way
23 that would avoid -- I mean, we don't have a
24 stock -- we've got that going for us, but if
25 the State of Florida is -- I am not sure it
29
1 necessary will be the greatest investment of
2 the world to invest in state government --
3 many people do it through their taxes and we
4 are greatful for that -- but can you talk a
5 little bit about suggestions you might offer
6 when you go to Washington, because we are one
7 of the four or five the biggest investors in
8 the country, and we have that influence based
9 on the size and scope of our activities.
10 Secondly, how are we going to make sure
11 the state employees don't get overexuberant in
12 investing in a way where we -- you know, the
13 diversification of assets, which is so critical
14 for long-term investments is in the forefront
15 of their decision making.
16 TREASURER GALLAGHER: Let me mention one
17 thing.
18 What we are approving and getting this
19 status report on, that state employees can
20 choose from that we pretty much approved, is
21 mutual funds, not individual stocks.
22 GOVERNOR BUSH: That's right.
23 TREASURER GALLAGHER: Any mutual fund manager
24 could make a mistake of investing in a company
25 that could do the same thing Enron did. It's one
30
1 of those things that can happen. I don't think
2 there is a way to guarantee or protect against
3 that, other than hopefully everybody learns a
4 lesson from this.
5 GOVERNOR BUSH: I wish there was.
6 MR. HERNDON: There is certainly no authority
7 that we have at this point to prevent, to
8 literally prevent somebody from putting a hundred
9 percent of their assets in the XYZ Mutual Fund.
10 However, the system is designed and
11 structured so that, number 1, the advice they
12 are given is an optimum asset allocation across
13 multiple asset classes. So we will never give
14 someone a recommendation that they put a
15 hundred percent of their money in XYZ fund.
16 Obviously, the VALIC funds being a
17 distinction, I just kind of set those aside for
18 this conversation because they are already a
19 premixed asset allocation.
20 Secondly, though, the system is also
21 designed that if someone were to indicate on
22 their choice documents: We want to put a
23 hundred percent in the XYZ Mutual Fund, that
24 there is a trigger, it triggers a response back
25 from the FRS, from the financial engine,
31
1 saying: Did you mean to do this; or are you
2 certain that this is, in fact, what you wish to
3 do, that you wish to a hundred percent in this
4 fund?
5 We stop short of saying: We would
6 strongly recommend that you don't do that, but
7 we say: Did you intend to do this? Please
8 think about that a little bit, so you have that
9 feedback loop that's built in.
10 Now if the board were to ultimately go
11 back, for example, as we had discussed to the
12 self-directed brokers window where you do have
13 the capability of putting a hundred percent in,
14 one of the things we were going to bring to you
15 at that point was some limitations; no more
16 than X percent, for example, in any single
17 company stock.
18 There's going to be, I am sure, some
19 instances of a hundred percent in a particular
20 fund. And while we certainly intend to get
21 into that back-and-forth dialogue with them, I
22 am not sure that ultimately we can stop that.
23 GOVERNOR BUSH: I was asking a question I
24 thought I knew the answer to, just so that people
25 that might -- this is at the top of my mind now; I
32
1 want to people to know that, A, we need a lot more
2 education. B, mutual funds still has the basic
3 investment principles of diversity that's
4 different than investing in your own company
5 stock.
6 And then we are going to have these
7 safeguards kicking in. So while we wouldn't
8 require anybody to follow what the computer
9 program says, our education system is geared
10 towards investor diversity or diversity of
11 their portfolio which is critical for success.
12 The part of this is just -- I don't know
13 all the legal stuff, we are going to be reading
14 about this for years probably.
15 But the part that's heartbreaking are
16 those employees at Florida Gas in Orlando or
17 the folks all around the world that had a
18 expectation and it just got shattered over
19 literally a two-week period, their whole
20 outlook about their long-term retirement was
21 just destroyed. And I think we have good
22 safeguards in that regard. That's why I
23 brought it up. General?
24 GENERAL MILLIGAN: I was fortunate enough to
25 listen to the presentation last Friday that is
33
1 being given around the state employees, to the
2 managers, and you come away from that feeling
3 pretty good about financial engines and the
4 ability to get good investment advice that we, the
5 state, are not giving.
6 In fact, it is -- and we shouldn't be --
7 but being available to every employee, whether
8 they are in a defined benefit or in a defined
9 contribution, in fact, to get significant
10 investment advice throughout the financial
11 engine product.
12 So I think if people take advantage of it,
13 they will not get suckered and should do
14 relatively well in terms of diversity in their
15 portfolio.
16 GOVERNOR BUSH: I do think, though, when you
17 do go up to Washington, I don't know what your
18 views are on this, but I would think there needs
19 to be some legislation regarding companies' or
20 employees' ability to have -- there is a threshold
21 over which they shouldn't continue to invest their
22 savings in their own company.
23 I don't know what that number is, but
24 perhaps that's one of the reforms that might
25 safeguard a lot of investors.
34
1 I don't know, if you got to go to the five
2 or six pension funds in this country and said:
3 This is a reform that we think is appropriate,
4 I would imagine that would have a pretty big
5 impact on everybody. It is probably worth
6 pursuing because it's --
7 TREASURER GALLAGHER: You are right. You
8 know it's interesting that Enron's employees had a
9 smaller percentage in Enron than many other
10 companies do. And it was a fast-growing,
11 high-rising stock, and for a lot of people that
12 happened to have moved out of it at the right time
13 made a lot of money. And unfortunately a lot of
14 people loss a lot money.
15 GOVERNOR BUSH: I saw an article on very
16 reputable companies that have a lot higher
17 percentages, and those companies are doing all
18 right now. But if you are talking about peoples'
19 retirement, I think there needs to be a safe guard
20 which is what the Safeco offering, which is still
21 viable going forward -- Commissioner Gallagher
22 brought up a very good point -- is that we would
23 restrict the amount in order to make that happen.
24 Just good common sense.
25 TREASURER GALLAGHER: I think one of the
35
1 problems with adding this in when we first moved
2 this up was none of us really knew what that
3 restriction ought to be. And I think now with
4 Enron, we know there ought to be one, we just
5 don't know what that will be. Hopefully, we'll
6 have something down the road for our retirees to
7 have that option and build their own portfolio.
8 MR. HERNDON: Absolutely. Yes, sir. Item 5
9 Governor's and Members' Fund Activity Analysis
10 report for the months of October and November.
11 TREASURER GALLAGHER: Motion to approve 5.
12 GOVERNOR BUSH: My notes say here, just to
13 put it into perspective, overall gain of
14 88 billion, 94 billion in the month, I mean --
15 TREASURER GALLAGHER: Good month.
16 GOVERNOR BUSH: It's not all doom and gloom
17 at this administration. A little 6 billion-dollar
18 increase in value.
19 MR. HERNDON: Item number 6 is request
20 approval of the following comprehensive investment
21 plans for the college -- the comprehensive
22 investment plan for the Florida Prepaid College
23 Program and the Florida College Savings Plan. I
24 might note a correction on the statutory citation,
25 too.
36
1 GENERAL MILLIGAN: Move approval and note the
2 successful year.
3 TREASURER GALLAGHER: Second.
4 GOVERNOR BUSH: Moved and seconded. Without
5 objection, approved.
6 MR. HERNDON: Item number 7 is request
7 approval of the board of the proposed trust
8 agreement between the Florida State Board of
9 Administration and The Old Plantation Water
10 Control District for Investment Management
11 Services.
12 TREASURER GALLAGHER: Move.
13 GENERAL MILLIGAN: Second.
14 GOVERNOR BUSH: Moved and seconded. Without
15 objection.
16 MR. HERNDON: Item number 8 is requesting
17 approval of the following rules for notice to --
18 to file the notice of proposed rule making to
19 rules relating to the Hurricane Catastrophe Fund,
20 for the Reimbursement Contract, Ineligibility for
21 Participation and Insurer Reporting Requirements.
22 I do know Commissioner Gallagher and his staff was
23 looking at these the other day.
24 TREASURER GALLAGHER: I do have a question.
25 The ability to have the LEA included, can we do
37
1 that by rule, or does that have to be statutory?
2 MR. NICHOLSON: It would have to be
3 statutorily because it is excluded in the statute.
4 TREASURER GALLAGHER: Is it excluded?
5 MR. NICHOLSON: Right.
6 TREASURER GALLAGHER: I would like us to take
7 a stand here, if my colleagues would agree, that
8 we go to the legislature and ask that to be
9 included; it probably should have been, I believe
10 most insurers believe that. I think it's good for
11 the insured public.
12 And what we are talking about is
13 additional living expense, which is one of the
14 issues. In almost all of the insurance
15 contracts, it is included. And for some reason
16 or other, when the CAT Fund rules got changed,
17 additional living expenses were taken out of
18 the CAT Fund reimbursement reinsurance contract
19 and left for the insurers themselves.
20 And I think it would be a real plus to our
21 residents and to the insurers as well as to the
22 policyholders to have the legislature remove
23 that prohibition.
24 And I just would like to recommend that to
25 my colleagues. And maybe Jack would like to
38
1 explain where he stands on that.
2 MR. NICHOLSON: Just one little comment on
3 that. Originally I believe that additional living
4 expense was excluded because commercial insurance
5 in its entirety was included in the CAT Fund, and
6 in 1995 commercial insurance was excluded, so then
7 you come back and say: Does it make sense to
8 leave out ALE? It probably does not. It still
9 does not make sense to cover business interruption
10 for residential commercial.
11 TREASURER GALLAGHER: Right. This would be
12 for personal lines only.
13 MR. NICHOLSON: Right.
14 TREASURER GALLAGHER: I would just like to
15 make that recommendation so that we can authorize
16 the SBA and the CAT Fund to go to the legislature
17 and have that prohibition eliminated.
18 GENERAL MILLIGAN: I would assume send it
19 back, ask the advisory council to take it up, and
20 take whatever action is appropriate, is what you
21 are asking? I don't have any problem letting the
22 advisory council consider that.
23 TREASURER GALLAGHER: Okay.
24 GOVERNOR BUSH: Is there a cost that we would
25 need to know about?
39
1 TREASURER GALLAGHER: It would balance out.
2 There would be an increase in premiums that would
3 cover the cost.
4 GOVERNOR BUSH: That's what I mean.
5 TREASURER GALLAGHER: It's not going to be
6 much.
7 MR. NICHOLSON: We looked at that over the
8 year.
9 GENERAL MILLIGAN: The role of the advisory
10 council is to, in fact, look at this issue and
11 look at all sides, including costs. And that's
12 the place to do it, and bring it back.
13 GOVERNOR BUSH: Makes a lot of sense to do
14 it.
15 TREASURER GALLAGHER: It's a lot lesser cost
16 having to come through this way than having the
17 companies cover themselves or providing
18 reinsurance just for that outside which is very
19 hard to get.
20 GOVERNOR BUSH: Yes.
21 GENERAL MILLIGAN: So move approval and ask
22 at the same time the advisory council to look at
23 the -- what did you call it -- AIC?
24 TREASURER GALLAGHER: ALE, additional living
25 expenses.
40
1 GOVERNOR BUSH: Do we have a second?
2 TREASURER GALLAGHER: Second.
3 GOVERNOR BUSH: Moved and seconded. Without
4 objection, it's approved.
5 MR. HERNDON: Item number 9 is the Good Cause
6 Agenda Item for interest rate exception for the
7 Housing Authority of Collier County.
8 GENERAL MILLIGAN: Move 9.
9 TREASURER GALLAGHER: Second.
10 GOVERNOR BUSH: Moved and seconded. Without
11 objection, it's approved.
12 (State Board of Administration agenda
13 items were concluded.)
14 (The proceedings concluded at 11:00 a.m..)
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1
2 CERTIFICATE OF REPORTER
3
4
5
6 STATE OF FLORIDA )
7 COUNTY OF LEON )
8
9 I, SANDRA L. NARGIZ, RMR, CRR, certify that I
10 was authorized to and did stenographically report the
11 proceedings herein, and that the transcript is a true
12 and complete record of my stenographic notes.
13 I further certify that I am not a relative,
14 employee, attorney or counsel of any of the parties,
15 nor am I a relative or employee of any of the parties'
16 attorney or counsel connected with the action, nor am I
17 financially interested in the action.
18 WITNESS my hand and official seal this 4th
19 day of February, 2002.
20
21
22 ______________________________
23 SANDRA L. NARGIZ, RMR, CRR
23 100 SALEM COURT
24 TALLAHASSEE, FL 32301
24 850-878-2221
25