Cabinet Affairs

1

2 T H E C A B I N E T

3 S T A T E O F F L O R I D A

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Representing:

5

STATE BOARD OF ADMINISTRATION

6 DIVISION OF BOND FINANCE

DEPARTMENT OF HIGHWAY SAFETY AND MOTOR VEHICLES

7 DEPARTMENT OF REVENUE

STATE BOARD OF EDUCATION

8 ADMINISTRATION COMMISSION

BOARD OF TRUSTEES, INTERNAL IMPROVEMENT TRUST FUND

9

10 The above agencies came to be heard before

THE FLORIDA CABINET, Honorable Governor Chiles

11 presiding, in the Cabinet Meeting Room, LL-03,

The Capitol, Tallahassee, Florida, on Tuesday,

12 November 4, 1997, commencing at approximately

9:50 a.m.

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16 Reported by:

17 LAURIE L. GILBERT

Registered Professional Reporter

18 Certified Court Reporter

Certified Realtime Reporter

19 Notary Public in and for

the State of Florida at Large

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23 ACCURATE STENOTYPE REPORTERS, INC.

100 SALEM COURT

24 TALLAHASSEE, FLORIDA 32301

850/878-2221

25

2

1 APPEARANCES:

2 Representing the Florida Cabinet:

3 LAWTON CHILES

Governor

4

BOB CRAWFORD

5 Commissioner of Agriculture

6 BOB MILLIGAN

Comptroller

7

SANDRA B. MORTHAM

8 Secretary of State

9 BOB BUTTERWORTH

Attorney General

10

BILL NELSON

11 Treasurer

12 FRANK T. BROGAN

Commissioner of Education

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ACCURATE STENOTYPE REPORTERS, INC.

November 4, 1997

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1 I N D E X

2 ITEM ACTION PAGE

3 STATE BOARD OF ADMINISTRATION:

(Presented by Tom Herndon,

4 Executive Director)

5 1 Approved 6

2 Approved 6

6 3 Approved 7

4 (A) Approved 7

7 4 (B) Approved 8

5 Approved 12

8

DIVISION OF BOND FINANCE:

9 (Presented by J. Ben Watkins, III,

Director)

10

1 Approved 13

11 2 Approved 13

3 Approved 13

12 4 Approved 14

5 Approved 14

13

DEPARTMENT OF HIGHWAY SAFETY AND MOTOR VEHICLES:

14 (Presented by Fred O. Dickinson, III,

Executive Director)

15

1 Approved 15

16 2 Approved 15

17 DEPARTMENT OF REVENUE:

(Presented by L.H. Fuchs,

18 Executive Director)

19 1 Approved 17

2 Approved 62

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ACCURATE STENOTYPE REPORTERS, INC.

November 4, 1997

4

1 I N D E X

(Continued)

2

ITEM ACTION PAGE

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STATE BOARD OF EDUCATION:

4 (Presented by Robert L. Bedford, Ph.D.,

Deputy Commissioner)

5

1 Withdrawn 64

6 2 Approved 64

3 Approved 65

7 4 Deferred 65

5 Approved 66

8 6 Approved 66

7 Approved 66

9 8 Approved 67

9 Approved 68

10

ADMINISTRATION COMMISSION:

11 (Presented by Robert B. Bradley, Ph.D.,

Secretary)

12

1 Approved 69

13 2 Approved 69

3 A., B., C. Approved 69

14 4 Approved 70

5 Approved 70

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ACCURATE STENOTYPE REPORTERS, INC.

November 4, 1997

5

1 I N D E X

(Continued)

2

ITEM ACTION PAGE

3

BOARD OF TRUSTEES OF THE

4 INTERNAL IMPROVEMENT

TRUST FUND:

5 (Presented by Virginia B. Wetherell,

Secretary)

6

1 Approved 71

7 2 Approved 71

3 Approved 71

8 4 Approved 72

5 Approved 72

9 6 Approved 72

Substitute 7 Deferred 72

10 Substitute 8 Approved 73

Substitute 9 Withdrawn 73

11

CERTIFICATE OF REPORTER 75

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ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

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1 P R O C E E D I N G S

2 (The agenda items commenced at 9:57 a.m.)

3 GOVERNOR CHILES: And now we'll go to the

4 State Board of Administration.

5 MR. HERNDON: Good morning, Governor,

6 members.

7 The first item on the agenda this morning

8 is the approval of the minutes of the meeting of

9 October 9th.

10 TREASURER NELSON: I move it.

11 COMPTROLLER MILLIGAN: Second.

12 GOVERNOR CHILES: Moved and seconded.

13 Without objection, the minutes are

14 approved.

15 MR. HERNDON: The second item that's

16 submitted for your approval is the proposed 1997

17 legislative bill for the State Board of

18 Administration, which contains a number of

19 primarily administrative cleanup provisions.

20 I'd be happy to go through those if there

21 are any questions.

22 TREASURER NELSON: I move it.

23 COMPTROLLER MILLIGAN: And I second it.

24 GOVERNOR CHILES: Moved and seconded.

25 Without objection, it's approved.

ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

7

1 MR. HERNDON: Item number 3 is requesting

2 your approval for the -- the filing of an

3 amended Rule 19-8.011, Florida Statutes,

4 regarding payment of loss reimbursements for the

5 Florida Hurricane Catastrophe Fund.

6 TREASURER NELSON: Move it.

7 COMPTROLLER MILLIGAN: Second.

8 GOVERNOR CHILES: Moved and seconded.

9 Without objection, it's approved.

10 MR. HERNDON: Item number 4 (A) is

11 submitting for your review and information the

12 investment performance and fund balance analysis

13 for the month of September.

14 COMPTROLLER MILLIGAN: Move it.

15 TREASURER NELSON: Second.

16 MR. HERNDON: And --

17 GOVERNOR CHILES: Moved, second.

18 Without objection, it's approved.

19 MR. HERNDON: And Item 4 (B) is the annual

20 report on Corporate Governance, which has been

21 provided to you as well.

22 COMPTROLLER MILLIGAN: And I move it.

23 TREASURER NELSON: And I'll move that.

24 COMPTROLLER MILLIGAN: Second.

25 GOVERNOR CHILES: Moved and seconded.

ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

8

1 Without objection, 4 (B) is also approved.

2 MR. HERNDON: And the final item, Governor,

3 is -- requests -- that completes the State Board

4 of Administration agenda, request that you

5 convene the Trustees as the Inland Protection

6 Financing Corporation for the purpose --

7 GOVERNOR CHILES: Trustees are now convened

8 for the Inland Finance --

9 MR. HERNDON: All right.

10 GOVERNOR CHILES: -- Protection Finance

11 Corporation.

12 MR. HERNDON: The purpose of convening the

13 Trustees this morning is to discuss and adopt

14 the 1997 Series A resolution authorizing the

15 competitive sale of an amount not to exceed

16 275 million dollars of Inland Protection

17 Financing Corporation special obligation bond

18 Series 1997A.

19 And, Governor, we do have someone here from

20 DEP, who, I think, would like to make a couple

21 comments and give you --

22 GOVERNOR CHILES: All right.

23 MR. HERNDON: -- a little context on where

24 we are in the bond resolution.

25 Mike Sole from DEP.

ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

9

1 MR. SOLE: Good morning, Governor, and

2 members of the Inland Protection Finance

3 Corporation.

4 Several months ago, I had the opportunity

5 to brief the members of the Inland Protection

6 Finance Corporation on the status of the

7 petroleum cleanup reimbursement program, of

8 which these bonds will help to defease.

9 At that time -- at the conclusion of the

10 program in December 1996, there were over

11 556 million dollars worth of claims in the

12 backlog amount.

13 As times progressed, we've continued to pay

14 down that backlog amount to a point where we

15 are -- currently have 481 million dollars in the

16 backlog amount that have yet to be paid.

17 The benefit of those numbers are that a

18 majority of them have yet to be reviewed, and

19 are still pending review. But just under half

20 of them have already been reviewed and approved

21 with a total claimed amount, or approved

22 amount -- excuse me -- of 188 million dollars

23 worth of claims that are approved but awaiting

24 payment.

25 Several other actions have been taken by

ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

10

1 the Department in response to previous

2 fraudulent reimbursement claims that occurred

3 several -- almost half a year ago.

4 In fact, the DEP has initiated a

5 significant site inspection and owner interview

6 program whereby we actually inspect each of

7 these sites that have claims into the

8 Department, and speak with the owner to validate

9 that the claims that they have submitted are

10 actually valid and authentic.

11 To date, we've inspected over 3,000 of

12 these sites. And the benefit of these

13 inspections have resulted in only five actual

14 claims being referred for further

15 investigation. Helps to establish a good

16 feeling about the program to date.

17 Finally, I'd like to just go over what we

18 estimate the final backlog amount to be, which

19 these bonds will be used to defease. As I've

20 stated, we have approximately 481 million

21 dollars in backlog amount. After we do the

22 review and approval process, we anticipate that

23 approximately 18 percent of that amount will be

24 actually disallowed. And this is really based

25 upon an average rate of disallowance.

ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

11

1 In addition, the Department anticipates to

2 continue to pay down through the Inland

3 Protection Trust Fund another 33 million.

4 And finally, based upon the legislatively

5 mandated discount rate application of

6 3.5 percent, an additional nineteen-and-a-half

7 million dollars will -- will be deducted from

8 that amount. This totals approximately

9 342 million dollars that the IPFC bonds are

10 anticipated to be able to discharge.

11 The benefit of this number is somewhat

12 coincidence in that it's anticipated that the

13 bond -- the actual proceeds from the bond will

14 equate almost 342 million dollars. So as things

15 go, it looks like the bond will be able to

16 defease the backlog amount in the reimbursement

17 program.

18 Are there any questions?

19 GOVERNOR CHILES: Well, we thank you for

20 the explanation.

21 MR. SOLE: Thank you, sir.

22 MR. HERNDON: Governor, just briefly,

23 members of the Financial Corporation Board, it's

24 the intention of the Board, with the very able

25 assistance of Mr. Watkins and the Division of

ACCURATE STENOTYPE REPORTERS, INC.

STATE BOARD OF ADMINISTRATION

November 4, 1997

12

1 Bond Finance, probably to go to market with this

2 275 million dollar Series A sometime over the

3 course of the next 45 days or so, and with any

4 luck, to put money in the hands of DEP through

5 our custodian bank sometime around the

6 1st of January.

7 They would hopefully then be paying off the

8 claims that are cued up, and after the audit

9 process runs its course sometime in the spring

10 of 1998, we would plan to be back in front of

11 you for the Series B resolution which will

12 exhaust the bond capacity that's authorized by

13 law, and hopefully defease all of the debt

14 payment that's contemplated.

15 GOVERNOR CHILES: Thank you, sir.

16 Do we have a motion on that?

17 TREASURER NELSON: I move it.

18 COMPTROLLER MILLIGAN: I'll second it.

19 GOVERNOR CHILES: Moved and seconded.

20 Without objection, it's approved.

21 MR. HERNDON: That completes the agenda.

22 Thank you.

23 GOVERNOR CHILES: Thank you, sir.

24 (The State Board of Administration Agenda

25 was concluded.)

ACCURATE STENOTYPE REPORTERS, INC.

DIVISION OF BOND FINANCE

November 4, 1997

13

1 GOVERNOR CHILES: Division of Bond Finance.

2 ATTORNEY GENERAL BUTTERWORTH: Motion on

3 minutes.

4 GOVERNOR CHILES: Motion on the minutes.

5 COMPTROLLER MILLIGAN: Second.

6 GOVERNOR CHILES: Second.

7 Without objection, they're approved.

8 MR. WATKINS: Item 2 is a resolution

9 authorizing the issuance of bonds for the

10 University of South Florida new college campus

11 housing facility.

12 ATTORNEY GENERAL BUTTERWORTH: Motion.

13 COMMISSIONER BROGAN: Second.

14 GOVERNOR CHILES: Moved and seconded.

15 Without objection, it's approved.

16 MR. WATKINS: Item 3 is authorization to

17 distribute an RFP and to rank respondents in

18 connection with the financing being executed on

19 behalf of the Orange-Orlando County Expressway

20 Authority.

21 ATTORNEY GENERAL BUTTERWORTH: Motion.

22 COMPTROLLER MILLIGAN: Second.

23 GOVERNOR CHILES: Moved and seconded.

24 Without objection, it's approved.

25 MR. WATKINS: Item 4 is a report of award

ACCURATE STENOTYPE REPORTERS, INC.

DIVISION OF BOND FINANCE

November 4, 1997

14

1 of 150 million dollars in Department of

2 Transportation right-of-way bonds.

3 COMMISSIONER BROGAN: Move approval.

4 ATTORNEY GENERAL BUTTERWORTH: Second.

5 GOVERNOR CHILES: Moved and seconded.

6 Without objection, that's approved.

7 MR. WATKINS: Item 5 is a report of award

8 of bonds issued for the University of Central

9 Florida Bookstore.

10 COMMISSIONER BROGAN: Move approval.

11 ATTORNEY GENERAL BUTTERWORTH: Second.

12 GOVERNOR CHILES: Moved and seconded.

13 Without objection, that's approved.

14 (The Division of Bond Finance Agenda was

15 concluded.)

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ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF HIGHWAY SAFETY/MOTOR VEHICLES

November 4, 1997

15

1 GOVERNOR CHILES:

2 Department of Highway Safety and Motor Vehicles.

3 ATTORNEY GENERAL BUTTERWORTH: Motion on

4 minutes, Governor.

5 COMMISSIONER BROGAN: Second.

6 GOVERNOR CHILES: Moved and seconded.

7 Without objection, the minutes are

8 approved.

9 MR. DICKINSON: Item 2 is a request for

10 permission to acquire software development

11 services for our year 2000 compliance.

12 ATTORNEY GENERAL BUTTERWORTH: Motion.

13 SECRETARY MORTHAM: And second.

14 COMPTROLLER MILLIGAN: And second.

15 GOVERNOR CHILES: It's been moved and

16 seconded.

17 Without objection, it's approved.

18 MR. DICKINSON: Thank you, Governor and

19 Cabinet.

20 GOVERNOR CHILES: All right.

21 ATTORNEY GENERAL BUTTERWORTH: Twelve

22 seconds. Not bad, Fred.

23 MR. DICKINSON: Pardon --

24 GOVERNOR CHILES: Department of Revenue.

25 ATTORNEY GENERAL BUTTERWORTH:

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF HIGHWAY SAFETY/MOTOR VEHICLES

November 4, 1997

16

1 Twelve seconds. Not bad.

2 (The Department of Highway Safety and Motor

3 Vehicles Agenda was concluded.)

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ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

17

1 MR. FUCHS: Item 1 is approval of the

2 minutes of the October 21st, 1997, meeting.

3 ATTORNEY GENERAL BUTTERWORTH: Motion.

4 GOVERNOR CHILES: Motion and --

5 COMPTROLLER MILLIGAN: Seconded.

6 GOVERNOR CHILES: -- second.

7 Without objection, the minutes are

8 approved.

9 MR. FUCHS: Item 2 is a request for

10 approval of and authority to file with the

11 Secretary of State under Chapter 120, proposed

12 amendments to Rule Chapter 12B-8, the Florida

13 Administrative Code.

14 And I would like to say that this is only

15 the second time in the five years I've been with

16 the Department of Revenue that I've brought a

17 matter I think before you that we have been

18 unable to -- to effect a compromise with -- with

19 industry or the interested parties.

20 I think it's because there is no clear

21 answer. I cannot stand here before you, as I

22 have many times, in private and public, and tell

23 you that there is a definitive solution that I

24 can recommend with certainty.

25 There are different ways to interpret the

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

18

1 statutes and the Court decisions that have been

2 involved. The staff of the Department of

3 Revenue thinks that they are correct, and that

4 the rule, which has already been through the APA

5 procedures and DOAH is correct, and those that

6 propose alternative readings think that they are

7 equally correct, and that neither side is

8 incorrect. It, therefore, becomes a policy

9 issue.

10 I did stand before you when this first came

11 up as proposed rulemaking and say that there was

12 no revenue impact. I believed that at the

13 time. I still believe that that is correct.

14 We have made just over 20 million dollars

15 in refunds based on the Court decision that led

16 to the promulgation of this rule covering the

17 years '92, '93, '94.

18 And the legislation that this implements

19 carries as part of its economic impact statement

20 that there are no fiscal impacts to that

21 legislation.

22 Be that as it may, the rule has been

23 through all of the prescribed APA procedures,

24 and is before you for adoption.

25 TREASURER NELSON: Governor --

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

19

1 GOVERNOR CHILES: Yes, sir.

2 TREASURER NELSON: -- all of you have

3 concluded, I'm sure, in your study of this issue

4 that the retaliatory tax is one of the most

5 complex in our whole State revenue code. And

6 since this affects part of my bailiwick, I've

7 done quite a bit of research on it.

8 And I have concluded that the

9 Department of Revenue has appropriately, and

10 very professionally, performed its

11 responsibility to define, implement, and enforce

12 the law as it pertains to this tax.

13 MR. FUCHS: Thank you.

14 TREASURER NELSON: I want to commend you.

15 In the course of what we've been going

16 through in this debate over the last two or

17 three weeks, there have been certain perceptions

18 that have been created within the business and

19 insurance communities, mainly that the proposed

20 DOR rule constitutes a tax, and, therefore,

21 would ultimately increase workers' compensation

22 rates.

23 Now, as I have researched this, my review

24 indicates that the perceptions are exaggerated,

25 but that there is some merit to this argument.

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

20

1 My analysis indicates that the rule may

2 result in more revenue being realized by the

3 State than would have been generated using what

4 we refer to as the pre-Zurich, or prior to the

5 Zurich Insurance ruling procedure.

6 But as a result of the recent changes of

7 the Administrative Procedures Act, I'm also

8 concerned that if the rule is not filed with

9 Secretary of State Mortham's office at this

10 particular time, that insurers that have paid

11 taxes in recent years utilizing the new method--

12 methodology, that those insurers may be entitled

13 to refunds that could amount as much as

14 20 million dollars.

15 So I'm going to make a recommendation to

16 you all today, which I think is the procedurally

17 correct way to resolve this issue.

18 And it would be to approve the

19 Department of Revenue's rule, and this will help

20 the State's position regarding the possibility

21 that someone would come in and want 20 million

22 dollars of refunds. And then direct the

23 Department of Revenue to file for publication a

24 new rule in the Florida Administrative Weekly

25 which shall provide that the rule, 12B-8, and

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

21

1 any applicable forms, are being amended to

2 provide.

3 And the specific language that I will offer

4 at the appropriate time is, quote: For years

5 1997 and after, the amount of any deduction

6 against premium taxes granted under Florida

7 Statutes 440.51, as well as comparable

8 deductions in other states, shall be added back

9 to net premium taxes, period, end of quote.

10 And that was what I will offer at the

11 appropriate time.

12 GOVERNOR CHILES: Well, I want to say at

13 the outset, I don't purport to understand this,

14 and I have not spent a lot of time studying it.

15 I knew that the controversy was coming up. This

16 is the first time -- or this morning, that I

17 knew about the second provision in this.

18 Because of that -- and I thought when I

19 first heard about it that you were instructing

20 the Department of Revenue to go look at --

21 you know, whether we should now change this, and

22 that we'd get a chance to sort of see it, or to

23 get their -- somehow that we'd understand a

24 little bit more about it.

25 Now that this is declaratory, and says you

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

22

1 shall go change it, I'm not prepared to vote on

2 that, to tell you the truth. I mean, myself.

3 TREASURER NELSON: And I understand that,

4 Governor. And there's a legitimate difference

5 of opinion.

6 GOVERNOR CHILES: Well, I might have a -- I

7 don't even -- I'm not up-to-date enough to tell

8 you that I've got -- that I can say I disagree

9 with it, or I agree with it, or I have another

10 way. To me, this is just totally new. And --

11 and I can't understand it today is what I'm

12 saying.

13 I -- I concur with what you're saying about

14 the need to approve the rule, and I think that's

15 something that we should do, and I support that.

16 But personally, I would like to see this

17 either -- the second part either carried over so

18 that we get a chance to look at it, or the

19 language just be changed some to let the

20 Department bring us something back, or bring us

21 this proposal, or something, you know, back that

22 isn't totally declaratory and directory, that

23 tells me exactly what to do.

24 TREASURER NELSON: Well --

25 SECRETARY MORTHAM: Governor --

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

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1 GOVERNOR CHILES: Yes, ma'am.

2 SECRETARY MORTHAM: -- I have a question

3 of, I believe, Commissioner Nelson.

4 The 20 million dollars that you spoke of

5 being concerned that might need to go back to

6 the insurers, is that extra money that was

7 collected as a result of the interpretation of

8 this rule?

9 TREASURER NELSON: Yes. That's been

10 collected over the last, what, two or

11 three years?

12 MR. FUCHS: Yes, sir.

13 And, yes, ma'am. But it's not the

14 interpretation of the rule, it is the

15 interpretation that would be codified by the

16 rule. It is the result of the combination of

17 the Zurich decision and the 1994 legislation

18 that caused the equation to be calculated in the

19 way it is currently being calculated.

20 SECRETARY MORTHAM: I understand that. But

21 if I -- if -- if I understand this issue, when

22 this was being done by the Department of

23 Insurance prior to it coming over to you, it

24 would have actually cost, in round figures,

25 20 million dollars less than what it now costs

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

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1 as a result of the Department of Revenue's

2 interpretation of the rule, and the decision.

3 Is that correct?

4 MR. FUCHS: Subject to correction from

5 those that are more knowledgeable, because I

6 find myself in the same position as those of you

7 who are speaking, there are two other things

8 that happened when it came over to the

9 Department of Revenue. One was the Zurich court

10 decision, and the other was the legislation in

11 1994.

12 Those are the changes that resulted in the

13 difference of collection that you're talking

14 about. And you're accurate on the figure.

15 But it was not the Department of Revenue's

16 interpretation of existing law, it was changes

17 by both the Court and the Legislature that

18 caused the difference in collection.

19 SECRETARY MORTHAM: There was specific

20 legislation that said you will collect

21 20 million dollars more than previously?

22 MR. FUCHS: No. The specific legislation,

23 and I have the -- and I'll be glad to share it

24 with you -- the House bill analysis. And it

25 says, in part, that the bill clarifies certain

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

25

1 aspects of the retaliatory provision of

2 Florida's insurance premium tax.

3 And it goes on to say that the bill states

4 that the changes to the statute are remedial,

5 and only intended to clarify the application of

6 the tax.

7 And it -- it is that bill, coupled with

8 Zurich, that changed the way the formula was to

9 be applied, and that caused 20 million more

10 dollars to be -- to be collected. But Zurich

11 also caused just under 21 million dollars to be

12 refunded.

13 SECRETARY MORTHAM: And what year was that

14 done in the Legislature?

15 MR. FUCHS: 1994, ma'am.

16 SECRETARY MORTHAM: Well, I can tell you

17 that the intent of the Legislature was not to

18 increase the tax by 20 million dollars. I can

19 assure you.

20 Governor, I'm not sure there's a motion on

21 the table. Is there or is there not?

22 GOVERNOR CHILES: No, there's no motion,

23 ma'am.

24 SECRETARY MORTHAM: Okay. Well, I'll make

25 one, if that's appropriate. I don't know if

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

26

1 there are other speakers in this issue or not.

2 But I'd move that we direct staff of the

3 Department of Revenue to initiate rulemaking on

4 proposed rule 12B-8.016, including the

5 Department's applicable forms. The rule shall

6 provide in concept that the deduction under

7 Section 440.51 of the Florida Statutes, as well

8 as any comparable deduction in an insurer's

9 state of domicile, and it should be added back

10 to net premium taxes for the purpose of the

11 retaliatory tax such that Florida's deduction is

12 not lost through retaliatory taxes.

13 Further, I'd like to move that the

14 Department be permitted to file the rest of the

15 proposed rules for adoption.

16 What that says basically is that we go back

17 to the calculating of this figure without adding

18 the additional tax of 20 million dollars to the

19 insurers.

20 TREASURER NELSON: Governor, I have a

21 substitute motion if that motion gets a second.

22 COMMISSIONER BROGAN: Could I ask a

23 question, Governor?

24 GOVERNOR CHILES: All right. We have a

25 motion on the floor. Was there a second --

ACCURATE STENOTYPE REPORTERS, INC.

DEPARTMENT OF REVENUE

November 4, 1997

27

1 COMMISSIONER BROGAN: Let me -- how about

2 if I second it for discussion.

3 GOVERNOR CHILES: -- to Secretary Mortham's

4 motion?

5 COMMISSIONER BROGAN: Yes, sir.

6 GOVERNOR CHILES: All right. Now then we

7 have a motion by the Commissioner of Insurance.

8 Is there a second to that?

9 TREASURER NELSON: I move a substitute, and

10 would like to explain it at the appropriate

11 time.

12 GOVERNOR CHILES: Yes, sir.

13 TREASURER NELSON: Do you want to

14 go ahead? I'll yield to the gentlemen if you

15 have a question.

16 COMMISSIONER BROGAN: Thank you. I was

17 just going to ask a question.

18 Secretary, I'm a little confused by the

19 issue of the legislation. It is -- I think I'm

20 getting different interpretation.

21 Your interpretation is that the legislation

22 in 1994 is a different interpretation than that

23 of Mr. Fuchs; is that correct?

24 SECRETARY MORTHAM: That is correct.

25 MR. FUCHS: And may I?

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1 I don't think that I am differing with the

2 Secretary. I think we have an effect that we

3 agree on, but we have a different cause. The

4 legislation -- as I said earlier in my

5 comments -- has -- as part of the analysis that

6 the bill itself has no fiscal impact.

7 It is the combination of the bill and the

8 Zurich decision that -- that caused the equation

9 to be calculated in a way that increased the

10 amount of collection and taxes.

11 And, in fact, when this issue came before

12 the Legislature in the last session, the Revenue

13 Estimating Conference, again, agreed that about

14 10 or 11 million dollars a year would be lost if

15 we were to change the current interpretation.

16 The only thing we potentially disagree on

17 is that this was some unilateral decision by the

18 Department of Revenue, as opposed to a result of

19 the combination of the legislation and the

20 Zurich decision.

21 COMMISSIONER BROGAN: I -- I don't --

22 MR. FUCHS: But the fact that the money's

23 being collected I think is not in dispute.

24 COMMISSIONER BROGAN: Yes, sir. Governor,

25 if I can.

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1 I don't disagree with what you just said.

2 But it just broadens my question.

3 You are probably more appropriate in that

4 it is an equation created by the Zurich ruling

5 and the 1994 legislation that leads you in the

6 Department to your interpretation of what the

7 actual calculation will be.

8 And I -- without trying to speak for you,

9 Secretary, I would suggest it's probably the

10 same, that there's an interpretation over the

11 end result. Whether it's a combination of the

12 Zurich ruling and the 1994 legislation or not,

13 we're down to now the end result. I'm trying to

14 get my arms around just that, and base it

15 largely on a legal interpretation of the

16 Florida Statute.

17 The Secretary feels strongly that it was

18 not the interpretation or the intent of the

19 Florida Legislature to create that ripple that

20 generated 20 million dollars in new taxes

21 through this equation.

22 And what I'm trying to do is determine if,

23 in fact, there is legal sufficiency to move in

24 the direction that the Department has chosen to

25 move in, or not. Because I think ultimately our

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1 decision has got to be based on the legality and

2 not the interpretation.

3 MR. FUCHS: Commissioner, what I said in my

4 opening statement is that there is legal

5 sufficiency for the Department's position, and

6 it has been upheld by a DOAH hearing officer in

7 a rule challenge, which is under the APA Final

8 Agency Action. So that rule comes before the

9 Cabinet for scribner authority, to put it on the

10 books, if you will.

11 However, I am personally not certain that

12 the Department of Revenue's interpretation is

13 the only interpretation, even if it is legally

14 sufficient, that the industry's interpretation

15 that would result in a reduction -- or in the

16 noncollection of that 20 million dollars, may

17 also be legally sufficient. Therefore, it is a

18 policy issue --

19 TREASURER NELSON: And that's the balance

20 I'm trying to strike here. So let me go on with

21 my substitute motion.

22 This is a motion comprised of two integral

23 parts. I move that the Department of Revenue

24 file with the Secretary of State its proposed

25 rules for adoption, and that it file for

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1 publication in the Florida Administrative Weekly

2 a notice of rule development. Both filings are

3 to occur by November the 5th, 1997. The notice

4 of rule development shall provide that

5 Rule 12B-8.016, and any applicable forms, are

6 being amended to provide.

7 And this is the language that would be

8 inserted: For the years 1997 and after, the

9 amount of any deduction against premium taxes

10 granted under Florida Statute 440.51, as well as

11 comparable deductions in other states, shall be

12 added back to net premium taxes.

13 And then renumber the subsequent rule

14 paragraph numbers 12B-8.016(3)(a).

15 The Department is directed to accomplish

16 all the necessary steps to adopt the rule and

17 form amendments in the minimum time limits

18 allowed by law.

19 That's my substitute motion, Governor.

20 ATTORNEY GENERAL BUTTERWORTH: I have a

21 question, if I can, Governor.

22 GOVERNOR CHILES: Yes, sir.

23 ATTORNEY GENERAL BUTTERWORTH: You said you

24 had to do both sections at once. Is there a

25 chance of just approving a rule this -- this

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1 time and taking a second part and deferring that

2 until the next session?

3 TREASURER NELSON: Well, you have a

4 legitimate difference of opinion here. What --

5 what we have is I am trying to strike the

6 balance to etch into authenticity the proposed

7 rule so that we don't have to go back, but on a

8 going forward basis, we articulate the

9 philosophy. And the philosophy is that this was

10 never intended to be something that could be

11 perceived as a tax.

12 Now, the question also is: How much are we

13 really talking about? Nobody really knows

14 here. In the fiscal impact on the legislation

15 in 1994, the committee, the Finance and Tax

16 Committee, said there was no fiscal impact.

17 Some people have estimated this might be as

18 much as six to ten million dollars a year. But

19 then on another interpretation, a third

20 interpretation, it was a negligible estimate of

21 what the revenue is.

22 So, anyway, Governor, there's a motion

23 before the Cabinet -- substitute motion.

24 COMPTROLLER MILLIGAN: Governor, I don't

25 think I heard the answer to the

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1 Attorney General's question.

2 TREASURER NELSON: Well, what was the

3 question then?

4 COMPTROLLER MILLIGAN: Well, basically, as

5 I understood it, that we pass the rule and defer

6 dealing with the second portion of your motion,

7 which is to adopt another rule.

8 GOVERNOR CHILES: Until the -- until the

9 next Cabinet meeting. And the reason for that,

10 from the standpoint of -- my standpoint is that

11 you said there's a legitimate difference of

12 opinion, and you're trying to strike a balance.

13 I know that's exactly what you're trying to do.

14 But I don't have sufficient understanding

15 now to know whether the second part is -- is

16 something that does strike the balance, or from

17 my standpoint.

18 TREASURER NELSON: Well, I'll tell you, the

19 philosophy of the second portion is very clear

20 to me, and that is on a going forward basis,

21 that taxation -- if there is taxation to be

22 here, that it shouldn't be being done by rule,

23 it ought to be done by the constitutional

24 authority, which is the Legislature.

25 ATTORNEY GENERAL BUTTERWORTH: Legislature,

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1 right.

2 TREASURER NELSON: So, I mean, that's

3 pretty clear to me why you want the second part.

4 ATTORNEY GENERAL BUTTERWORTH: So all

5 you're asking for then, Commissioner, is for the

6 Legislature to enact a statute on this?

7 TREASURER NELSON: Well, if they want to

8 change it. What -- what the second rule that

9 I'm proposing -- that goes simultaneously with

10 the first one, is to get him out of the box on

11 what's been the past. But on a going forward

12 basis, to bring it back into neutrality. And

13 then if the Legislature wants to provide the

14 taxing authority, they can.

15 SECRETARY MORTHAM: Governor --

16 ATTORNEY GENERAL BUTTERWORTH: I thought I

17 understood the issue before I got here. I don't

18 understand it now.

19 I really would like to -- Commissioner, I

20 would hope that you could maybe see to break up

21 your motion, two different parts, and allow us

22 to come back with a little more knowledge. I

23 really thought I knew about this issue. I

24 have --

25 TREASURER NELSON: Well, then just vote no

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1 on the substitute.

2 ATTORNEY GENERAL BUTTERWORTH: I will do

3 that.

4 COMMISSIONER BROGAN: Could I ask a

5 question, Governor?

6 Recognizing that I probably know just

7 enough to be dangerous, there's two things that

8 have to take place here, it would appear to me.

9 One is to protect or codify the fact that the

10 20 million dollars raised during -- or post

11 legislation 1994, and post court ruling would be

12 left intact.

13 In other words, you couldn't go back

14 retroactively and require people to give back

15 the 20 million dollars.

16 Is that part correct? Would --

17 SECRETARY MORTHAM: The Department could.

18 COMMISSIONER BROGAN: -- would these --

19 would this motion protect the State from having

20 to go back and return the --

21 TREASURER NELSON: That's correct.

22 COMMISSIONER BROGAN: -- 20 million dollars

23 collected --

24 TREASURER NELSON: Yes, sir.

25 COMMISSIONER BROGAN: Okay. That's the

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1 first portion of that.

2 TREASURER NELSON: Okay.

3 COMMISSIONER BROGAN: That --

4 TREASURER NELSON: That adopts his proposed

5 rule.

6 COMMISSIONER BROGAN: The second portion

7 then, if I under-- and this is where I need to

8 come to terms with this -- the second portion,

9 does it change the authority of the

10 Department of Revenue to continue to collect

11 that tax under the present formula that's being

12 used, or change that formula?

13 TREASURER NELSON: It would completely

14 reverse what the first had done. And it would

15 take us back to the status at which there would

16 not be this proposed tax, whatever it is,

17 additional being collected.

18 SECRETARY MORTHAM: Governor --

19 GOVERNOR CHILES: Yes, ma'am.

20 SECRETARY MORTHAM: -- if I understand this

21 correctly, it seems to me that you're -- that

22 the Cabinet members are either for collecting

23 the extra tax, or they're not for collecting the

24 extra tax.

25 And the substitute motion says -- correct

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1 me if I -- I may be wrong on this -- but it

2 says, we're not going to collect the extra tax

3 in the future, but it was all right that we

4 collected the extra tax in the past.

5 TREASURER NELSON: All right. And may I

6 speak to that. Will the lady yield?

7 SECRETARY MORTHAM: Absolutely.

8 TREASURER NELSON: Yes. Indeed, it does

9 say that. But it's not as if this is just

10 something plucked out of the sky. His proposed

11 rule is pursuant, not only to a DOAH hearing

12 officer, but has been confirmed by the First

13 District Court of Appeal.

14 SECRETARY MORTHAM: Well, and so if we're

15 setting a policy here, Governor, it would seem

16 to me that we either are for collecting the

17 extra tax, or we're opposed to collecting the

18 extra tax, and we direct the member of the -- or

19 the Executive Director of the Agency to make

20 that decision.

21 Mr. Fuchs, I have one quick question.

22 The extra tax that's already been

23 collected, is it in an escrow fund, is it in

24 general revenue, where is that money now?

25 MR. FUCHS: I believe it's in general

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1 revenue, ma'am.

2 Yes. General revenue.

3 SECRETARY MORTHAM: Okay. So that money --

4 GOVERNOR CHILES: Would you say that it's

5 probably been spent. It's out there in the air.

6 TREASURER NELSON: The answer to that is

7 yes.

8 COMPTROLLER MILLIGAN: Yes.

9 TREASURER NELSON: It has been spent.

10 And that's another reason to get us out of

11 the box.

12 ATTORNEY GENERAL BUTTERWORTH: But couldn't

13 a rule get you out of the box?

14 TREASURER NELSON: (Nodding head.)

15 COMMISSIONER CRAWFORD: Governor, just

16 let -- if I can make a comment here. I think --

17 I think I know about as much about this issue as

18 I want to know.

19 But I think there's a reason that we

20 probably should do something this morning,

21 because I think -- and one of the reasons that

22 Secretary Mortham and Treasurer Nelson are

23 trying to do something here is because this

24 is -- this interpretation is having a negative

25 impact on the industry, and -- and which means

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1 it has a negative impact on consumers. And

2 I think that's important not to miss -- miss the

3 importance of that.

4 So I would -- my gut tells me, I'd like to

5 go with what Secretary Mortham is saying,

6 because that's the pure way of doing it.

7 I'm not sure we've got the votes to do

8 that. But if we can't do that, I think it's

9 important that we follow the Insurance

10 Commissioner's advice and go ahead and do what

11 we can do without wrecking the coffers of the

12 State, and go ahead and fix it for the future.

13 And I think that is better than doing nothing,

14 which may be the only alternative here.

15 So I --

16 TREASURER NELSON: Would --

17 COMMISSIONER CRAWFORD: -- I would second

18 the Treasurer's substitute motion.

19 TREASURER NELSON: Would the gentleman

20 yield?

21 COMMISSIONER CRAWFORD: Sure.

22 TREASURER NELSON: Another reason on a

23 going forward basis that you -- I think you

24 would want to adopt the position that

25 Secretary Mortham and I find ourself in

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1 concurrence.

2 Secretary Mortham, you and I are in

3 concurrence on a going forward basis.

4 SECRETARY MORTHAM: (Nodding head.)

5 TREASURER NELSON: And I'll tell you why

6 that's important.

7 As you -- as you go forward, were the tax

8 to be collected, we don't know exactly how much

9 that is. There is a dispute over the amount.

10 But there would be some amount.

11 And that becomes a legitimate part that the

12 rating agency called NCCI would calculate as to

13 what builds up are going to be the ultimate

14 workers' compensation rates.

15 Well, clearly what we have is a reformed

16 working -- workers' comp environment of which in

17 robust competition, rates have been coming

18 down. There would be the upward pressure on

19 those rates in the future. That is another

20 reason of why I think we ought to adopt this

21 approach.

22 GOVERNOR CHILES: We have a substitute.

23 It's been seconded. I suppose we're ready to

24 vote.

25 I still will have to say, if we adopted

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1 Part I today, that seems the thing that we have

2 to have, you know, I -- I think that I would

3 certainly have a better understanding -- or hope

4 that I would have a week from now.

5 And as to Part II, I'm totally in the dark

6 as to -- as to the -- the merits of it, because

7 I simply do not understand it. This is the

8 first time I've seen it today. And normally we

9 get a little more time than this to be able to

10 cogitate something.

11 TREASURER NELSON: Well, now, Governor,

12 your staff -- let's just get the record

13 straight -- has had this proposal over the

14 course of at least -- what's today?

15 Tuesday. -- at least yesterday.

16 GOVERNOR CHILES: I just -- I guess that

17 changes the whole thing then.

18 But I don't know of any occasion -- I don't

19 know of any occasion when any member of the

20 Cabinet has asked for a deferral on something --

21 you know, that didn't have to be done that was

22 sort of new that we didn't get a chance to do.

23 But, hell, let's just vote. You know.

24 SECRETARY MORTHAM: Governor, just a quick

25 comment. I understand that this is --

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1 Confirm, if you would, Mr. Fuchs.

2 -- this is in the District Court of Appeals

3 currently. So that -- that has not -- that

4 decision has not come down, correct?

5 MR. FUCHS: You're correct. I think

6 Treasurer Nelson misspoke. It is on appeal to

7 the District Court of Appeals, it has been

8 upheld at DOAH.

9 SECRETARY MORTHAM: Okay. And they -- and

10 DOAH was not speaking to the policy issue,

11 correct?

12 MR. FUCHS: No. It spoke to the

13 legality -- statutory conformity and --

14 SECRETARY MORTHAM: Correct.

15 MR. FUCHS: -- appropriate rulemaking.

16 SECRETARY MORTHAM: Okay. And if, in fact,

17 we were to not accept the substitute, and,

18 in fact, went to the original motion, how would

19 you handle that?

20 MR. FUCHS: That would make it very

21 difficult, Madam Secretary, because we have run

22 out of time under the APA for adoption of the

23 rule. If we don't adopt all of it today,

24 then -- then we're in limbo on any portion that

25 we don't adopt.

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1 But I would mention to you, and to the

2 Governor, that because we have to start

3 rulemaking under either of your proposals, this

4 matter will come back before the Cabinet on --

5 if -- at the fastest track possible, the

6 January 21st meeting.

7 Even though you are directing --

8 Treasurer Nelson, directing us in your motion to

9 have specific language, that will go through the

10 hearing process, through the workshop process,

11 and will come back before the Cabinet, and

12 cannot be adopted without your final approval,

13 presuming it stays in that same form, or you

14 don't between now and then direct us to do

15 something differently.

16 COMMISSIONER BROGAN: So --

17 MR. FUCHS: If you wish to go down this

18 path.

19 COMMISSIONER BROGAN: Governor, if I can --

20 GOVERNOR CHILES: Yes, sir.

21 COMMISSIONER BROGAN: -- so then did you

22 just say that at least for a period of time,

23 you're going to be in limbo no matter what we do

24 here today, for at least a period of time until

25 rules are promulgated?

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1 MR. FUCHS: No, sir. This rule, if

2 adopted, will put us in the proper posture as

3 far as the APA is concerned, and our legal

4 standing to enforce the law and the Court

5 decisions as they exist.

6 As a matter of policy, if you wish to

7 change it -- that interpretation, as in either

8 of the proposals that are pending, you can do so

9 at the January 21st meeting.

10 It would then be up to the industry, if

11 they wish to do so, to litigate the consequences

12 of that. But we would have a clear position at

13 each moment in time, as opposed to being in

14 limbo.

15 ATTORNEY GENERAL BUTTERWORTH: Governor, I

16 have a question.

17 GOVERNOR CHILES: Yes, sir.

18 ATTORNEY GENERAL BUTTERWORTH: I -- I'd

19 like to use General Milligan's 7-Eleven test

20 here, if I could, Governor.

21 If everybody in the audience here

22 understands what we're talking about, please

23 raise your right hand.

24 How about -- how about up here.

25 Governor, I really believe -- I believe

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1 what he says is absolutely correct. I think we

2 would not be doing right by voting on both

3 halves of this today.

4 I'd vote for substitute -- to the

5 substitute, if that'd be appropriate. I don't

6 know if we can have substitutes --

7 GOVERNOR CHILES: No. But you can amend

8 the substitute if you --

9 ATTORNEY GENERAL BUTTERWORTH: I'd like to

10 amend the substitute, Governor, to delete the

11 second part, and just approve the rule today,

12 and then bring back the second part at our next

13 meeting, whereupon hopefully everybody in the

14 audience, and everybody up here will understand

15 what's going on.

16 GOVERNOR CHILES: Is there a second?

17 I second it.

18 TREASURER NELSON: Governor, on just a

19 technical point. I want to make reference to

20 the Secretary.

21 Did not the First District Court of Appeal

22 affirm the hearing officer's ruling in Zurich on

23 November the 17th, 1995?

24 MR. FUCHS: I'm sorry, Mr. Treasurer.

25 Yes. Zurich has been affirmed, but the

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1 rule has only been affirmed by DOAH. So --

2 TREASURER NELSON: I was referring --

3 MR. FUCHS: -- talking about two things --

4 TREASURER NELSON: I was referring --

5 MR. FUCHS: -- and I apologize.

6 TREASURER NELSON: -- to the DCA ruling.

7 MR. FUCHS: I apologize for

8 inappropriately --

9 TREASURER NELSON: Okay.

10 MR. FUCHS: -- correcting you and

11 misunderstanding.

12 COMPTROLLER MILLIGAN: Governor --

13 GOVERNOR CHILES: Is there further

14 discussion?

15 Yes, sir.

16 COMPTROLLER MILLIGAN: Yes, sir. I'd just

17 like to get a -- an opinion from

18 Commissioner Nelson as to what impact a deferral

19 has on his motion, and on the situation, which,

20 you know, like everybody, I don't really fully

21 understand.

22 TREASURER NELSON: Your question is what

23 impact does the amendment have?

24 COMPTROLLER MILLIGAN: Yes.

25 TREASURER NELSON: Okay. Basically DOR --

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1 let me put it in political terms. DOR,

2 supported by the Governor and the

3 Attorney General, want to adopt just the rule.

4 COMPTROLLER MILLIGAN: I understand that.

5 TREASURER NELSON: That puts then etched

6 into authenticity what DOR has been doing.

7 Secretary Mortham and I, on a going forward

8 basis, want to do the counter of that where

9 there is no collection of the possible tax,

10 whatever that is.

11 COMPTROLLER MILLIGAN: I understand it.

12 TREASURER NELSON: But Secretary Mortham

13 wants to do that for everything, and go back and

14 if there are refunds to be given, to cause those

15 refunds to be given.

16 I think that that would be harmful going

17 forward in the conduct of workers' compensation

18 business and the environment, and the

19 possibility that workers' comp rates would have

20 to go up.

21 And thus I have struck this compromise.

22 COMPTROLLER MILLIGAN: I understand that.

23 TREASURER NELSON: Okay. Now, then the

24 General's amendment would take us back to the

25 very beginning by eliminating my second part of

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1 the motion. And the effect of the General's

2 amendment would adopt DOR's position to begin

3 with.

4 ATTORNEY GENERAL BUTTERWORTH: It would

5 come back to yours --

6 COMPTROLLER MILLIGAN: And defer your

7 second portion --

8 TREASURER NELSON: That's correct.

9 COMPTROLLER MILLIGAN: -- until the next

10 meeting.

11 TREASURER NELSON: That's correct.

12 However, it does not --

13 COMPTROLLER MILLIGAN: It does not defeat

14 your second motion.

15 TREASURER NELSON: No. But as you heard

16 the Secretary -- and I wish he would elucidate

17 us on that again.

18 What we are doing in my motion is directing

19 them to proceed with the adoption of the rule.

20 That rule would still have to come back to this

21 body for formal adoption.

22 COMMISSIONER CRAWFORD: But if I could

23 ask -- but in other words, by supporting the

24 Attorney General's amendment to the substitute,

25 we would be adopting the increased tax. And any

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1 change would have to take place at another

2 forum, which would be, I guess, the next time

3 we're here.

4 So, you know, that -- we're not really

5 accomplishing a lot that --

6 ATTORNEY GENERAL BUTTERWORTH: We --

7 COMMISSIONER CRAWFORD: -- what the

8 Governor wants to do --

9 ATTORNEY GENERAL BUTTERWORTH: -- poison

10 the well. I don't think that's what -- what I'm

11 attempting to do, Commissioner.

12 COMMISSIONER CRAWFORD: You've never done

13 that before.

14 ATTORNEY GENERAL BUTTERWORTH: I don't vote

15 on taxes, and neither do you. You used to, when

16 you were in the Legislature.

17 COMMISSIONER CRAWFORD: Yeah.

18 ATTORNEY GENERAL BUTTERWORTH: As far as I

19 understand separation of powers, we do not levy

20 taxes on the Cabinet.

21 TREASURER NELSON: Okay. Now, Governor,

22 may I -- the staff has just pointed out one

23 additional thing, just so we can make sure.

24 If you vote for the General -- the

25 Attorney General's amendment, I am told --

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1 You tell me, Mr. Secretary, if this is

2 correct.

3 -- that it will delay the rulemaking

4 process sufficiently so that your original rule

5 will be in effect for next tax year, and that

6 tax will be collected.

7 So that's a reason you don't want to

8 support his amendment.

9 Is that correct, Mr. Secretary?

10 MR. FUCHS: Based on my level of expertise

11 on this tax, gentlemen and Madam Secretary, I

12 don't think so. The -- my understanding is that

13 this tax is paid on the estimated basis, and

14 trued up on the last day of the year.

15 Your provision, presuming that it survives

16 either today or the next meeting, would dictate

17 our application to the 1997 tax year regardless.

18 So -- and I in good faith will tell this

19 Cabinet that -- that our -- we have no intention

20 of -- of going against the policy or the wishes

21 of the Cabinet.

22 There is no subterfuge here, there is no

23 trick, there is no timing. We all know that the

24 Department doesn't gain or lose based on the

25 amount of money that we collect. We are simply

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1 trying to follow the prescribed APA procedure on

2 what is under the APA Final Agency Action by the

3 hearing officer, and close the books on that

4 process.

5 And then, if you wish, whether it's today's

6 meeting, in either of your motions, or the next

7 meeting, under the Attorney General's motion,

8 wish to give us direction, we certainly in good

9 faith will accept that and act upon it at the

10 fastest way possible under the APA.

11 Staff is correct, however, in saying that

12 we would not make the January 21st meeting for

13 the final approval. My guess is it would be

14 February 10th, because there's only one meeting

15 in January. But I don't know that with

16 certainty.

17 TREASURER NELSON: Would that be in time to

18 avoid the collection of the tax for the next

19 year?

20 MR. FUCHS: I believe so. If we true it up

21 on December 31st, 1998, I don't think it would

22 make any difference.

23 SECRETARY MORTHAM: Well, just --

24 TREASURER NELSON: Taxes are due March 1?

25 MR. FUCHS: Well, it's an estimated tax.

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1 But the true up -- the true up doesn't occur

2 until December 31st. And every one of these

3 companies either pays more or gets a refund at

4 the end of the year, based on how well they have

5 estimated. So that I think that part of it is

6 moot.

7 GOVERNOR CHILES: You know, I think -- have

8 we had enough discussion, so we just generally

9 can start taking the --

10 COMMISSIONER CRAWFORD: Well, I say we

11 might want to hear some -- from somebody in the

12 audience. A lot of eag-- a lot of eager folks

13 out there wanting to get up here.

14 GOVERNOR CHILES: How --

15 COMMISSIONER BROGAN: Could I ask one

16 question of -- just to follow up on that issue.

17 Do I understand then correctly that if we

18 did pass the General's substitute, that that

19 would codify what we have done, but there would

20 be no -- none of these taxes then would be

21 collected hence forward until we ultimately

22 provided for the rule in January? That's that

23 limbo period that I asked about earlier.

24 MR. FUCHS: That's not exactly correct.

25 The taxes would be paid by the companies based

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53

1 on their estimate of what they think their

2 liability would be on December 31st, 1998.

3 So technically, taxes would be collected in

4 the short-term based on the existing

5 interpretation, or they could take a chance that

6 the new interpretation would survive, and they

7 could estimate at a lower amount.

8 Regardless of how much they paid though,

9 they would either get a refund, or would have to

10 pay more based on where we were at the time of

11 the true up at the end of the year.

12 COMMISSIONER BROGAN: I mean, I -- I think

13 it's reasonably obvious that what -- what --

14 MR. FUCHS: Is that correct or not?

15 COMMISSIONER BROGAN: -- yes, there's some

16 disagreement on what should have happened in the

17 past, and what that status would be.

18 But I don't hear a great deal of

19 disagreement about what ought to happen

20 prospectively. And it appears as though

21 prospectively people are saying, we don't want

22 them to collect the tax any more.

23 So how in the world -- if the majority

24 agree that we ought to at least protect what

25 we've done in the past so that we don't drive up

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DEPARTMENT OF REVENUE

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54

1 workers' comp rates based on that previous

2 20 million dollars, but we want the tax to stop

3 being prospectively collected, what's the best,

4 in your opinion, Mr. Fuchs, do you -- do you

5 have a way that you can see we can get where it

6 is at least some are trying to go?

7 SECRETARY MORTHAM: Governor, before we get

8 to that, this -- this whole issue of driving up

9 workers' comp rates, I would really like

10 somebody to speak to that, because I do not

11 believe that it would have one dollar's worth of

12 driving up workers' comp rates if we did not

13 accept this rule today.

14 Now, it might be a 20 million dollar hole

15 in general revenue. But it -- it does not, in

16 my opinion, unless somebody's got -- and,

17 in fact, I would think it could actually drive

18 rates down.

19 Is there someone here -- I mean,

20 Commissioner, obviously you are the -- the

21 authority. But can you tell us why it's going

22 to drive up workers' comp rates when general

23 revenue -- I mean -- does that really have

24 something to do with --

25 TREASURER NELSON: Well now,

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DEPARTMENT OF REVENUE

November 4, 1997

55

1 philosophically, you're arguing against your own

2 position.

3 SECRETARY MORTHAM: Well, I'm -- I'm for

4 giving back the money.

5 TREASURER NELSON: All right.

6 SECRETARY MORTHAM: If, in fact, it's good

7 to give it back in the future, then we shouldn't

8 have ever taken it in the past. That's my

9 position.

10 TREASURER NELSON: All right. And my

11 position is, what's done is done, they've got

12 the authenticity of the DOAH hearing officer,

13 and so forth, so let's move on from there.

14 And I don't want to collect this tax in the

15 future, because I think there is a possibility

16 that it will drive up workers' comp rates.

17 COMMISSIONER BROGAN: What's the issue --

18 SECRETARY MORTHAM: But do we have -- do we

19 know that?

20 TREASURER NELSON: Well, there are a lot of

21 folks out there that can testify to that if you

22 want to --

23 SECRETARY MORTHAM: I'd like --

24 TREASURER NELSON: -- get into that.

25 SECRETARY MORTHAM: -- I'd like to hear

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56

1 somebody from the industry that can tell us

2 whether or not by giving back this money would

3 increase workers' comp rates effective today.

4 COMMISSIONER BROGAN: I'd also kind of like

5 to know from the industry if, in fact -- if,

6 in fact, the 20 million dollars that's been

7 collected thus far -- heck, anybody can get

8 money back, wants money back.

9 But the bottom line from the industry is,

10 would they be satisfied with a prospective

11 change in this thing, and not a retrospective

12 change in this thing, which I think was the

13 motion.

14 MR. KATZ: If I may.

15 Governor and Cabinet, my name's Allan Katz,

16 and we represent the American Insurance

17 Association.

18 In response to Secretary Mortham's

19 question, the money that's been collected would

20 not to date have been reflected in workers'

21 compensation rates, because workers'

22 compensation rates have a tendency to -- you

23 accumulate data from prior years.

24 And the years in which this change took

25 effect, and these dollars were collected that

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DEPARTMENT OF REVENUE

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57

1 you all are talking about, have not yet been

2 reflected in the data that will be reviewed.

3 Clearly at some point they will show up in

4 the system; and clearly at some point, it will

5 be an upward pressure on rates simply because

6 rates are a reflection of what the costs are in

7 the system.

8 And when dollars and taxes are paid,

9 whether they're this or whatever tax -- it says,

10 or any expenses or any other costs, they're

11 reflected.

12 As you all know, having worked a great

13 deal -- especially the Governor -- on

14 workers' comp rates, there are a number of

15 things that can be done that are going to affect

16 rates in terms of how things are handled. This

17 is just one of them, in terms of how it would

18 work its way through the system.

19 Is that responsive to your question?

20 SECRETARY MORTHAM: Well, it was a

21 little -- wasn't as straightforward as I was

22 kind of looking for. I mean --

23 MR. KATZ: Okay.

24 SECRETARY MORTHAM: -- if we give you back

25 20 million dollars to the industry, are workers'

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58

1 compensation rates going to go up --

2 MR. KATZ: As a result --

3 SECRETARY MORTHAM: -- are they going to

4 stay the same, or are they going down?

5 MR. KATZ: Well, first of all, I feel

6 comfortable in saying, if you give the industry

7 back 20 million dollars, that they will not go

8 up because you gave them back 20 million

9 dollars.

10 If workers' compensation rates go up or --

11 it would be over -- for other reasons.

12 Otherwise, this 20 million dollars will be

13 reflected in the cost of the system, which I'm

14 sure comes as no surprise to anyone sitting up

15 there.

16 COMMISSIONER BROGAN: We give the

17 20 million dollars back, my insurance is going

18 down, is that what you just said?

19 MR. KATZ: No, sir.

20 COMMISSIONER BROGAN: I didn't think so.

21 MR. KATZ: I said that that 20 million

22 dollars will not be reflected in the cost --

23 COMMISSIONER BROGAN: Because that's

24 germane to the question that I asked as you were

25 making your way to the podium.

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1 What I'm trying to figure out, as

2 Commissioner Crawford mentioned, is not just

3 what's good for the industry, but what's good

4 for the consumer.

5 That 20 million dollars that was supported

6 by a court ruling and a DOAH hearing officer,

7 theoretically --

8 MR. KATZ: Yes.

9 COMMISSIONER BROGAN: -- all open to

10 interpretation, I understand.

11 MR. KATZ: I understand.

12 COMMISSIONER BROGAN: We're trying to

13 figure out what to do retrospectively and

14 prospectively on the issue.

15 MR. KATZ: I understand.

16 COMMISSIONER BROGAN: We all seem to agree

17 where we want to go prospectively. It is --

18 since the Zurich ruling and the change in

19 formula that we appear to have a difference of

20 opinion as to what we ought to do in hindsight.

21 MR. KATZ: And I guess I would suggest to

22 you that if you all choose to adopt this rule,

23 that the issue of refunds is an issue that --

24 that the individual companies will make

25 individual decisions upon, whether or not you

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1 adopt the rule.

2 And as far as on a going forward basis, we

3 obviously are very supportive of the fact that

4 you would adopt the interpretation offered by

5 Commissioner Nelson, because we believe it's an

6 appropriate interpretation, and, therefore, this

7 issue will not be before you again, except in

8 your final adoption of the rule.

9 COMMISSIONER BROGAN: So the industry is

10 supportive of Commissioner Nelson's ruling,

11 recognizing that that can never guarantee that

12 at least one member of the industry may not try

13 to recover --

14 MR. KATZ: That is correct.

15 COMMISSIONER BROGAN: -- their share of the

16 20 million that --

17 MR. KATZ: That is correct.

18 COMMISSIONER BROGAN: -- that the Secretary

19 is talking about.

20 SECRETARY MORTHAM: But you're talking

21 about you're for the second part of the rule.

22 You're not for the adoption of the current rule.

23 MR. KATZ: We have agreed to accept it as a

24 compromise, Madam Secretary, with the belief

25 that the issue of refund and the potential

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61

1 refund is not going to turn upon whether or not

2 this rule is adopted.

3 COMMISSIONER BROGAN: And we're -- in other

4 words, I'm sorry, Governor, I keep jumping over

5 you.

6 In other words, the industry is willing to

7 accept that motion which codifies what was done

8 in the past, changes prospectively what we would

9 do in the forward -- fast forward with the

10 intent that each of the insurance carriers would

11 have to make their own decision based on

12 retrospective activity, but --

13 MR. KATZ: That is correct.

14 COMMISSIONER BROGAN: -- but the industry

15 as a whole appears to be willing to accept that

16 motion --

17 MR. KATZ: I can only speak on behalf of

18 the clients that we represent, as you're -- I'm

19 sure you're aware of.

20 COMMISSIONER BROGAN: Understood.

21 MR. KATZ: But as far as the Association

22 that we represent, which is a significant number

23 of the out of state workers' comp writers who

24 are most affected by this particular ruling, we

25 have been given authority to accept this

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1 compromise under the terms that you've just

2 enunciated.

3 ATTORNEY GENERAL BUTTERWORTH: Governor,

4 I think I'm beginning to get very enlightened on

5 this. I know much more about it now than I did

6 45 minutes ago. I think in the interest of

7 where we're going, I would just like to withdraw

8 my -- my motion I made.

9 GOVERNOR CHILES: All right. Withdraw the

10 second motion. And the amendment to the

11 substitute is withdrawn.

12 So the question occurs on the substitute.

13 So many as favor the substitute will say

14 aye.

15 THE CABINET: Aye.

16 GOVERNOR CHILES: Opposed, no.

17 SECRETARY MORTHAM: No.

18 GOVERNOR CHILES: Substitute passes.

19 MR. FUCHS: Thank you all.

20 ATTORNEY GENERAL BUTTERWORTH: Show a vote

21 of confidence on our Executive Director of the

22 Department of Revenue.

23 MR. FUCHS: Sir?

24 ATTORNEY GENERAL BUTTERWORTH: Shall we

25 have a vote of confidence on our

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1 Executive Director of the Department of Revenue

2 at this point in time?

3 MR. FUCHS: After the last two days, it

4 would make me feel better.

5 Thank you.

6 (The Department of Revenue Agenda was

7 concluded.)

8 *

9

10

11

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13

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15

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18

19

20

21

22

23

24

25

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STATE BOARD OF EDUCATION

November 4, 1997

64

1 GOVERNOR CHILES: State Board of

2 Education.

3 DR. BEDFORD: Governor Chiles, members of

4 the State Board of Education, good morning.

5 Item 1, Success Academy versus the

6 School Board of Jackson County we ask to have

7 withdrawn.

8 COMMISSIONER BROGAN: Move withdrawal.

9 COMPTROLLER MILLIGAN: Second.

10 SECRETARY MORTHAM: Second.

11 GOVERNOR CHILES: Moved and seconded.

12 Without objection, it's withdrawn.

13 DR. BEDFORD: Item 2, Rule 6A-14.072,

14 Amendment, Financial Records and Reports. This

15 amendment updates the manual, and it's an annual

16 event. It's a date change.

17 COMMISSIONER BROGAN: Move approval.

18 COMPTROLLER MILLIGAN: Second.

19 GOVERNOR CHILES: Moved and seconded.

20 Without objection, it's approved.

21 DR. BEDFORD: Item 3 is a State University

22 System rule, 6C-7.001, Amendment, Tuition, Fee

23 Schedule, and Percentage of Cost. This is a

24 cleanup change.

25 COMMISSIONER BROGAN: Move approval.

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1 COMPTROLLER MILLIGAN: Second.

2 GOVERNOR CHILES: Moved and seconded.

3 Without objection, it's approved.

4 DR. BEDFORD: Item 4 is a State University

5 System rule amendment. Rule 6C-7.002, Amendment

6 Fee Assessment and Remittance. We ask for a

7 deferral until November 18th meeting.

8 COMMISSIONER BROGAN: Move deferral.

9 COMPTROLLER MILLIGAN: Second.

10 GOVERNOR CHILES: Moved and seconded.

11 Without objection, it's deferred.

12 DR. BEDFORD: Item 5 is a State University

13 System rule amendment, 6C-7.003, Amendment,

14 Special Fees, Fines, and Penalties.

15 I would point out to the State Board of

16 Education that the Joint Administrative

17 Procedures Commission has a concern with this

18 rule.

19 We would recommend its approval and --

20 COMMISSIONER BROGAN: I would move

21 approval.

22 DR. BEDFORD: We believe we've answered

23 those concerns.

24 SECRETARY MORTHAM: Second.

25 GOVERNOR CHILES: Moved and seconded.

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1 Is there discussion?

2 Without objection, then it's passed.

3 DR. BEDFORD: Item 6 is a State University

4 System amendment, Rule 6C-7.004, Amendment,

5 Deferred Payment of Fees. JAPC has some

6 concerns which the State University System

7 believes they have answered.

8 COMMISSIONER BROGAN: Move approval.

9 SECRETARY MORTHAM: Second.

10 GOVERNOR CHILES: Moved and seconded.

11 Without objection, it's approved.

12 (Secretary Mortham exited the room.)

13 DR. BEDFORD: Item 7, State University

14 System rule, 6C-7.008, Amendment, Waiver of

15 Tuition and Material Waiver of Tuition and

16 Materials and Supply Fees.

17 Once again, JAPC has concerns which we

18 believe the State University System has

19 answered.

20 COMMISSIONER BROGAN: Move approval.

21 ATTORNEY GENERAL BUTTERWORTH: Second.

22 GOVERNOR CHILES: Moved and seconded.

23 Without objection, it's approved.

24 DR. BEDFORD: Item 8, the Florida School

25 for the Deaf and Blind, Rule 6D-5.002,

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67

1 Amendment, Principal for the Deaf and Principal

2 for the Blind.

3 COMMISSIONER BROGAN: I would move

4 approval.

5 ATTORNEY GENERAL BUTTERWORTH: Second.

6 GOVERNOR CHILES: Moved and seconded.

7 Without objection, it's approved.

8 COMMISSIONER BROGAN: Governor, with that,

9 I would like to take this opportunity to

10 introduce to the members of the State Board of

11 Education. You will remember Bob Dawson who was

12 the long-standing president of the Florida

13 School of the Deaf and Blind.

14 Replacing Bob -- and I'll ask him to stand

15 and be recognized. He's bashful and didn't want

16 to say anything today -- is Elmer Dillingham,

17 who is the incoming president. And he is there,

18 so he's no longer incoming, he has arrived.

19 President for the Florida School for the Deaf

20 and Blind.

21 And, let me just say, I now how passionate

22 he is about that school and those boys and

23 girls. We're fortunate to have him, and

24 certainly look forward to working with him in

25 the future.

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1 (Secretary Mortham entered the room.)

2 GOVERNOR CHILES: Thank you, sir.

3 DR. BEDFORD: Item 9, appointment to the

4 District Board of Trustees, Valencia Community

5 College.

6 (Commissioner Crawford exited the room.)

7 DR. BEDFORD: Santiago F. Del Hoyo; and

8 Keith W. Houck, to a term expiring May 31st, the

9 year 2001.

10 COMMISSIONER BROGAN: Move approval.

11 SECRETARY MORTHAM: Second.

12 (Treasurer Nelson exited the room.)

13 GOVERNOR CHILES: Moved and seconded.

14 Without objection, it's approved.

15 DR. BEDFORD: That concludes the business.

16 Thank you.

17 GOVERNOR CHILES: Thank you.

18 (The State Board of Education Agenda was

19 concluded.)

20 *

21

22

23

24

25

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ADMINISTRATION COMMISSION

November 4, 1997

69

1 GOVERNOR CHILES:

2 Administration Commission.

3 COMMISSIONER BROGAN: Move the minutes,

4 Governor.

5 ATTORNEY GENERAL BUTTERWORTH: Second.

6 GOVERNOR CHILES: Moved and seconded.

7 Without objection, the minutes are

8 approved.

9 DR. BRADLEY: Item number 2, recommended

10 approval of the transfer of general revenue

11 appropriations for the Department of Education.

12 COMMISSIONER BROGAN: Move approval.

13 SECRETARY MORTHAM: Second.

14 GOVERNOR CHILES: Moved and seconded.

15 Without objection, it's approved.

16 DR. BRADLEY: Item number 3, recommend

17 approval of Items A., B., and C. for the Justice

18 Administration Commissioner.

19 COMMISSIONER BROGAN: Governor, I'll move

20 Items A., B., and C., number 3.

21 SECRETARY MORTHAM: Second.

22 GOVERNOR CHILES: Moved and seconded.

23 Without objection, Items A., B., and C.