The Governor and Cabinet - Florida Department of State

THE CABINET

STATE OF FLORIDA

_____________________________________________________

Representing:

DIVISION OF BOND FINANCE
BOARD OF TRUSTEES
STATE BOARD OF EDUCATION
DEPARTMENT OF REVENUE
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, April 9, 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

KATHERINE HARRIs
Secretary of State

CHARLES H. BRONSON
Commissioner of Agriculture

BOB BUTTERWORTH
Attorney General

CHARLIE CRIST
Commissioner of Education

TOM GALLAGHER
Treasurer
* * *

I N D E X

DIVISION OF BOND FINANCE:
(Presented by J. Ben Watkins )

ITEM ACTION PAGE
1 Approved 5
2 Approved 5
3 Approved 6
4 Approved 6
5 Approved 6
6 Deferred 6

BOARD OF TRUSTEES
(Presented by David B. Struhs )

ITEM ACTION PAGE

1 Approved 8
2 Approved 9
3 Approved 46

STATE BOARD OF EDUCATION
(Presented by Wayne Pierson )

ITEM ACTION PAGE

1 Approved 52
2 Approved 52
3 Approved 52
4 Remanded 94
5 Approved 94

DEPARTMENT OF REVENUE

(Presented by James A. Zingale)

ITEM ACTION PAGE

1 Approved 96
2 Approved 112

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

ITEM ACTION PAGE

1 Approved 113
2 Approved 113
3 Approved 114
4 Approved 116
5 Report 117
6 Approved 125
7 Report 126
8 Approved 141
9 Approved 143
10 Approved 143
11 Approved 145
12 Discussion Item 145

CERTIFICATE OF REPORTER 148

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: Division of Bond Finance.

4 MR. WATKINS: Item 1, approval of the minutes

5 of the February 27 meeting.

6 TREASURER GALLAGHER: Motion on the minutes.

7 COMMISSIONER BRONSON: Seconded.

8 GOVERNOR BUSH: Moved and seconded. Without

9 objection, approved.

10 MR. WATKINS: Item number 2 is a resolution

11 authorizing competitive sales up to $26,070,000 in

12 capital outlay bonds for school construction.

13 TREASURER GALLAGHER: Move item 2.

14 COMMISSIONER BRONSON: Seconded.

15 GOVERNOR BUSH: Moved and seconded. Without

16 objection, it's approved.

17 MR. WATKINS: Item number 3 is a resolution

18 authorizing competitive sale of up to $208,300,000

19 in PECO Bonds which, when combined with the

20 remaining previous leftover authorization of $20

21 million, brings the total sale authorization for

22 the next PECO Bond issue up to $228,300,000.

23 TREASURER GALLAGHER: Move.

24 ATTORNEY GENERAL BUTTERWORTH: Seconded.

25 GOVERNOR BUSH: Moved and seconded. Without

6
1 objection, it's approved.

2 MR. WATKINS: Item number 4 is a report of

3 award on the competitive sale of $88,075,000 in,

4 Tampa-Hillsborough County Expressway Authority

5 Revenue Bonds. The bonds were awarded to the low

6 bidder at a true interest cost rate of

7 5.09 percent.

8 TREASURER GALLAGHER: Move.

9 ATTORNEY GENERAL BUTTERWORTH: Seconded.

10 GOVERNOR BUSH: Moved and seconded. Without

11 objection, it's approved.

12 MR. WATKINS: Item number 5 is a report of

13 award on the competitive sale of $150 million of

14 Florida Forever Bonds. The bonds were awarded to

15 the low bidder at a true interest cost of

16 4.69 percent.

17 TREASURER GALLAGHER: Moved.

18 COMMISSIONER BRONSON: Seconded.

19 GOVERNOR BUSH: Moved and seconded. Without

20 objection, it's approved.

21 MR. WATKINS: I would like to request

22 deferral of item number 6.

23 TREASURER GALLAGHER: Motion to defer.

24 ATTORNEY GENERAL BUTTERWORTH: Seconded.

25 GOVERNOR BUSH: There's a motion to defer and

7
1 a second. Without objection, the item is

2 deferred. Thank you.

8
1 GOVERNOR BUSH: Board of Trustees. Secretary

2 Struhs, how are you?

3 MR. STRUHS: Thank you. Good morning.

4 We have three items this morning. The

5 first is a request to convey a 132-acre parcel

6 of Board of Trustees owned land in Walton

7 County to the Northwest Florida Water

8 Management District.

9 This parcel is almost entirely wetlands,

10 and we don't currently have physical access to

11 it. It's completely surrounded by other land

12 already owned by the water management district.

13 This will allow for far better management of

14 that resource.

15 TREASURER GALLAGHER: Motion on 1.

16 COMMISSIONER CRIST: Seconded.

17 GOVERNOR BUSH: Moved and seconded. Without

18 objection, it's approved.

19 MR. STRUHS: Item number 2, we are

20 recommending approval, subject to receipt of an

21 appraisal that is acceptable to our Bureau of

22 Appraisals, to offer two utility easements to the

23 Florida Gas Transmission Company.

24 This is an on-going part of their pipeline

25 expansion program. These are very, very small

9
1 easements. One would be a 50-year nonexclusive

2 utility easement; it's 1.6 acres. And the

3 other is a temporary or a three-year

4 nonexclusive utility easement used for the

5 construction staging for the pipeline, that's

6 about one and a half acres.

7 These properties are parallel to the

8 existing pipeline right-of-way. Our estimate

9 is that the fee, once it's calculated and

10 assessed, will be somewhere in the neighborhood

11 of $3,500.

12 GOVERNOR BUSH: How much?

13 MR. STRUHS: $3,500.

14 TREASURER GALLAGHER: Motion on two.

15 COMMISSIONER BRONSON: Seconded.

16 GOVERNOR BUSH: There is a motion and a

17 second. Is subject to appraisal part of the --

18 MR. STRUHS: Yes, sir.

19 GOVERNOR BUSH: The motion passes without

20 objection.

21 MR. STRUHS: The third item is really an

22 interesting one because what it represents is a

23 unique opportunity to resolve some long-standing

24 infrastructure problems, stormwater management

25 problems, and resolve a flooding problem in a

10
1 community, and at the same time dramatically

2 improve the quality of one of our existing state

3 parks, Jonathan Dickinson State Park.

4 There is, as you well know, an on-going

5 philosophical debate as to whether or not the

6 Board of Trustees should ever release any of

7 its land to assist a local government to

8 resolve some of its infrastructure problems.

9 And while we are very sympathetic to that

10 in this instance, at a very practical level

11 what it will do is resolve a serious flooding

12 problem and allow us to build and manage a

13 better park.

14 I would like to show you a couple of

15 slides to get you oriented in terms of what

16 this project looks like.

17 GOVERNOR BUSH: Excellent.

18 MR. STRUHS: That's an example of what the

19 neighborhood immediately south of the park looks

20 like after a heavy rain.

21 Now arguably you could say that this local

22 government has the responsibility unto itself

23 to resolve this problem by coming up with a

24 better stormwater management plan. In fact,

25 there is an existing easement area near there,

11
1 but it is entirely inadequate to handle the

2 stormwater runoff from major stormwater events.

3 Just by way in terms of what this property

4 looks like -- are you seeing this in color?

5 GOVERNOR BUSH: Yes.

6 MR. STRUHS: You will notice along the

7 southern boundary a thin yellow strip. That is

8 that existing stormwater easement that I showed

9 you just in the previous photograph.

10 Part of what we would do is we would trade

11 some land with -- the green stripe just above

12 the yellow stripe, would also be transferred to

13 the local government. This is in an area that

14 would then allow them to expand that stormwater

15 holding area.

16 Now the question is: What do we get in

17 return for that?

18 What we get in return for that is the

19 county will abandon all of the red platted but

20 unbuilt right-of-ways that are currently within

21 the park boundary. In addition to that, the

22 yellow --

23 GOVERNOR BUSH: Why don't you point? Can you

24 get someone to point?

25 TREASURER GALLAGHER: Point to what you call

12
1 red.

2 MR. STRUHS: Those are the platted but

3 unbuilt roads that are county owned, and actually

4 are essentially in holdings within the state park.

5 In addition, you will see these yellow

6 parcels which are in private ownership. As

7 part of this transfer, what we would have is

8 the county deeding over to the state all of the

9 red and then acquiring and consolidating all of

10 the yellow and transferring that to the state

11 as well, in exchange for giving them the

12 addition -- the land needed to expand the

13 stormwater treatment area.

14 COMMISSIONER GALLAGHER: What is that black

15 spot, looks like two blocks up there?

16 MR. STRUHS: Those are already owned by the

17 county.

18 I believe they are going to acquire a

19 total of 7.27 acres, which I think is just

20 about every one of those yellow ones. In fact,

21 it is. There is a picture right there. If you

22 approve this, this is what will end up

23 happening; is all of the red grid platted

24 streets will transfer into the park ownership

25 and then all of those yellow and blue ones you

13
1 pointed out, Commissioner, will also be

2 transferred to the parks.

3 What you end up with is, for the first

4 time in the southern boundary of this park, the

5 ability to manage the land far better than we

6 ever had been before. We will actually be able

7 to delineate the boundary to manage it, to burn

8 it, to develop the resources there.

9 TREASURER GALLAGHER: What about the road

10 that goes left to right into the brown section?

11 MR. STRUHS: This right here?

12 TREASURER GALLAGHER: Right, the big brown

13 section is privately owned?

14 MR. STRUHS: This section here? That is

15 privately owned, that's actually the site of a

16 hospital.

17 TREASURER GALLAGHER: The reason for that

18 road coming into the side, is that to get to the

19 emergency room or something?

20 MR. STRUHS: That's to get to the hospital

21 property, yes.

22 GOVERNOR BUSH: There is a hospital on that

23 now?

24 MR. STRUHS: Yes.

25 TREASURER GALLAGHER: So there is a reason to

14
1 leave that road in the middle of the park?

2 MR. STRUHS: This road is already developed.

3 This road is already existing, the red ones are

4 platted, undeveloped.

5 TREASURER GALLAGHER: I am wondering, to me

6 it would be a little easier to manage that if you

7 didn't have that road go right in the middle of

8 the park.

9 MR. STRUHS: I asked the question myself and

10 I believe that that road is necessary for access

11 to the hospital. It gives you two opportunities

12 for ingress and egress.

13 GOVERNOR BUSH: David, are there any other --

14 MR. STRUHS: What I would like to do is

15 suggest maybe add some additional thoughts as to

16 why we would urge you to support that.

17 GOVERNOR BUSH: When you are doing your

18 additional thoughts, could you also answer the

19 question: Are there any other alternatives other

20 than taking state park land to deal with this

21 flooding issue?

22 MR. STRUHS: I can do that. There really --

23 there is always the opportunity to have the county

24 acquire and take private land to expand their

25 ability to manage stormwater. So they could

15
1 acquire some of these residential lots, probably

2 remove some homes and develop a stormwater storage

3 area there.

4 This is an opportunity, though, to take

5 advantage of an existing easement, an existing

6 stormwater treatment area, expand it so it can

7 handle the flow, to do it in a way where we get

8 not only a value-for-value exchange in terms of

9 the property, but actually get some substantial

10 benefits in our ability to better manage the

11 property.

12 We will, as part of this transfer, either

13 get paid for the land or, if we are successful

14 in negotiating it, as our intention is, we will

15 actually have the county expand sewer service

16 into the park, so that the park facilities

17 along the river will for the first time be able

18 to have sanitary sewer service.

19 One of the problems with Jonathan

20 Dickinson State Park is it was at one time a

21 very popular area for swimming and boating; it

22 is becoming less and less acceptable for that

23 because of poor water quality, in large part

24 because the park facilities are on septic

25 systems which are old and not up to standards.

16
1 This would allow us to link those

2 facilities up to the source sewer system, and

3 we'll then see an improvement in the water

4 quality in the park.

5 In addition to that, this, as you may

6 remember, was an old military camp. And as

7 part of that development, at Camp Murphy, there

8 were about a hundred concrete pads and other

9 infrastructure installed in this general

10 vicinity which again is not the kind of

11 infrastructure that we like to see in the state

12 parks.

13 As part of this agreement the county will

14 come in and remove those concrete pads and

15 restore the landscape to its original shape and

16 purpose.

17 The management abilities here are hard to

18 overestimate. It is very difficult for us to

19 manage this park when it is subdivided by these

20 county lines and end holdings. By being able

21 to consolidate that, we can do the burning, and

22 this is scrub habitat; as you know, burning is

23 critical to maintaining the scrub habitat. It

24 allows us to better delineate the park

25 boundaries, to manage access to the park. And,

17
1 in fact, it will be an opportunity to be a good

2 neighbor to this community that is suffering

3 from a very serious flooding situation.

4 Ordinarily we would be reluctant to

5 suggest the Board of Trustees make this kind of

6 transfer to resolve a stormwater management

7 problem. But in this instance the benefits

8 that will accrue to the state are really far in

9 excess of what we will actually transfer to the

10 community.

11 Just in terms of acreage, what we are

12 doing is, what the agenda item actually does is

13 in three parts. The first part is a

14 determination by the board that 3.46 acres is

15 no longer needed for conservation purposes.

16 That's that green strip at the bottom of the

17 map.

18 The second item would be to approve the

19 land exchange for that 3.46 acres in exchange

20 for the 7.27 acres that are the end holdings

21 that would then be consolidated and transferred

22 to the state.

23 Then finally, the transfer of about

24 30 acres of right-of-way to the state. This is

25 clearly not just a win/win for both the local

18
1 community and the state; it's actually I think

2 a far greater win for the state park interests.

3 There are, Governor and Members of the

4 Cabinet, a number of citizens here who would

5 like to speak to this issue; Maryann

6 Higgenbatham from the Nature Conservancy, Lori

7 McDonald from the Florida Defenders of Wildlife

8 and Eric Draper from the Florida Audubon.

9 TREASURER GALLAGHER: Before they get

10 started, let me ask another question, if I could.

11 I see the picture that I can see real

12 clear, I can see where the hospital is and that

13 that road goes down to the hospital. But I can

14 also see if we took that road out and made it

15 part of the park, the county could run the road

16 down that other edge and make a left and pull

17 into that hospital and pull right up to the

18 road and that's not that big a deal.

19 Then we would have all of that contiguous

20 area. Was that ever discussed at all? There

21 are two other roads that are sort of on the

22 edge of the park that you can use to access it.

23 MR. STRUHS: Commissioner, I don't know if

24 that was ever contemplated as part of this

25 transaction or not. I can certainly find out.

19
1 MR. RODERICK: I am Gary Roderick, I am chief

2 of the Office of Water Quality for Martin County

3 representing this particular project.

4 Yes, we have looked at that option of that

5 roadway, but what complicates that is, as

6 Secretary mentioned, that that hospital exists,

7 the roadway exists. To go in there in an

8 alternate manner, the bottom portion of that

9 rectangle that you are looking at is not

10 developed. It's only the upper half that's

11 developed.

12 So you would actually have to be impacting

13 additional scrub habitat which we have been

14 moved out of to reduce the size of our project

15 to be able to access that northern portion of

16 that rectangle. So it would actually cause

17 greater impact to the scrub habitat than what

18 currently exists.

19 TREASURER GALLAGHER: Is that a County-owned

20 hospital or is it a private hospital?

21 MR. RODERICK: It's a private hospital.

22 TREASURER GALLAGHER: And the hospital owns

23 all that land in the crossbars?

24 MR. RODERICK: Yes.

25 TREASURER GALLAGHER: So basically you are

20
1 putting land -- a road down into theirs where they

2 already can expand their hospital down the road

3 most likely?

4 MR. RODERICK: Yes, it is a possibility.

5 TREASURER GALLAGHER: And the other one is

6 already platted to go down to that cross hatch,

7 right? There is no road there now?

8 MR. RODERICK: There is no road there now.

9 And they would have to traverse the flow way

10 that's being proposed as well and impact

11 additional scrub habitat to get there.

12 GOVERNOR BUSH: There is only one access road

13 right now?

14 MR. RODERICK: That's correct.

15 TREASURER GALLAGHER: But to me, you look --

16 for people to access -- looks like there is a

17 large population base -- I don't know what is

18 north and south here -- but to the bottom of that

19 picture, a lot of houses; not many to the left in

20 the picture.

21 And it just seems to me if we are going to

22 do it, we ought to take the road out and just

23 make it a whole park, while we are at it,

24 because down the road there is never another

25 opportunity.

21
1 MR. RODERICK: That would be -- that

2 certainly would be an option, again, but that

3 would require that you would traverse our proposed

4 retention project to be able to get access that

5 way.

6 And again, the road currently exists and

7 it's currently paved and it's currently -- the

8 impacts have already occurred there.

9 TREASURER GALLAGHER: So your plan is to take

10 these green slashed areas, the bottom four areas,

11 and make them retention ponds?

12 MR. RODERICK: Our proposal is to take -- I

13 will point to it here in just a moment -- take an

14 existing easement, which occurs right down here,

15 which is a 50-foot easement -- we are not

16 increasing the size of -- and then taking a

17 portion of this area here, which is expanding upon

18 the easement which we have, just a little bit into

19 an area that's -- it's not currently a pure scrub

20 habitat. It's actually flatwoods, scrubby

21 flatwoods with a little bit of scrub habitat just

22 on the east end.

23 It's adjacent to the proposed project. We

24 have existing easement there anyway, which we

25 are just expanding a little bit. And it will

22
1 actually prevent any future access or future

2 impacts going north of the proposed project.

3 TREASURER GALLAGHER: So the one I am looking

4 at is yellow, and I guess that's what you have on

5 yours; there are two basic easement roads that are

6 platted; is that what I am looking at?

7 MR. RODERICK: No. The only platted road --

8 the only platted road that would be remaining is

9 this one here.

10 TREASURER GALLAGHER: I understand that, but

11 below that, those two lines below that, that was

12 platted for roads, not built, wrong or right?

13 MR. RODERICK: Yes, it was platted for roads.

14 TREASURER GALLAGHER: So the county owns

15 those two sections?

16 MR. RODERICK: Right.

17 TREASURER GALLAGHER: And you are going to

18 expand the bottom one or upper one?

19 MR. RODERICK: What we are going to be

20 dealing with is just simply a drainage easement

21 area. We are abandoning any of the road

22 easements. We are just going to expand in an area

23 which is currently a drainage easement, which is

24 in between these yellow lines, it's just -- where

25 an existing ditch currently exists right now,

23
1 which is probably 30 or 40 feet wide, we are just

2 going to expand it to around 50 feet wide and stay

3 within our easement.

4 TREASURER GALLAGHER: And dig deeper to have

5 a retention pond?

6 MR. RODERICK: Yes, sir.

7 TREASURER GALLAGHER: That's going to take

8 the flow from the homes that are below that?

9 MR. RODERICK: Yes, sir.

10 TREASURER GALLAGHER: And that's what was

11 under water in those pictures?

12 MR. RODERICK: Yes, sir.

13 MR. STRUHS: I am sorry to interrupt, let me

14 just add one other point.

15 A point brought to my attention by Eva

16 Armstrong by the Division of State Lands. You

17 may want to speak to this Eva. The county, in

18 this case Martin County, may not legally be

19 allowed to vacate an existing public

20 right-of-way, particularly if it's already

21 serving --

22 TREASURER GALLAGHER: Say that again. Repeat

23 what you said.

24 MR. STRUHS: We may face a legal issue there

25 where the county, Martin County, may not legally

24
1 be able to vacate a public right-of-way that's

2 already serving residents; in this case, the

3 hospital.

4 TREASURER GALLAGHER: You mean that's the

5 problem with that road?

6 MR. STRUHS: The existing road that services

7 the hospital, I suppose anything can be

8 negotiated, that's correct, but there may be a

9 legal issue that the county would have a problem

10 vacating an existing public right-of-way.

11 TREASURER GALLAGHER: Obviously they can get

12 around, but let's leave that out of it. On the

13 picture that you have up there now, that big blue

14 section, is that going to be the retention pond?

15 GOVERNOR BUSH: Yes.

16 MR. STRUHS: Yes, it is.

17 GOVERNOR BUSH: It's not that big, I don't

18 think, but --

19 MR. STRUHS: I am not familiar with this

20 photograph because it's not ours.

21 TREASURER GALLAGHER: It explains to me where

22 the problem is. I gather those little things down

23 at the end are the low areas of all those streets

24 and that's where all the water ends up.

25 MR. STRUHS: Correct.

25
1 TREASURER GALLAGHER: So the idea is to dig

2 down and flow it into the big retention pond

3 that's going to get dug?

4 MR. STRUHS: Yes.

5 TREASURER GALLAGHER: Are you telling me it

6 really isn't that big?

7 MR. STRUHS: I am not sure I understand the

8 question.

9 GOVERNOR BUSH: This looks bigger than the

10 other map.

11 MR. STRUHS: I am not familiar with this map.

12 My guess is this was an old map; this may have

13 been what the county originally proposed. And

14 when they -- as you know, the Acquisition and

15 Restoration Council, a citizen's panel that all

16 these land transactions have to clear before they

17 get on to your agenda here at the Board of

18 Trustees -- my guess is that this may have been

19 what the county had originally hoped for. They

20 brought it to our Acquisition and Restoration

21 Council, were told no, that this was too intrusive

22 and they needed to reengineer it so that they --

23 GOVERNOR BUSH: But this does show the

24 project, depicts the project pretty well, in terms

25 of how you deal with the flooding; it goes into

26
1 the retention pond. This size may not be the

2 accurate --

3 TREASURER GALLAGHER: I think what it's doing

4 is taking a piece off the top and moving it over

5 to the left, right? Is that what they are doing?

6 MR. STRUHS: I was just told to the extent

7 the concern is the size of that blue --

8 TREASURER GALLAGHER: If you will point to

9 the other one so we can see.

10 MR. STRUHS: I am sorry.

11 GOVERNOR BUSH: I thought I would let you

12 know, we couldn't see your finger.

13 MR. STRUHS: I couldn't figure out why you

14 weren't keeping up. This blue rectangle is only

15 half of what it appears here.

16 TREASURER GALLAGHER: That gets cut in half;

17 and over to the left of the hospital there is

18 another one, right? They are going to put a small

19 one on the left of the hospital and half that size

20 or so on the right?

21 MR. STRUHS: That's correct.

22 TREASURER GALLAGHER: So instead of the big

23 one, they made two smaller ones?

24 MR. STRUHS: That's right, that way you have

25 less intrusion north into the park area.

27
1 TREASURER GALLAGHER: Okay.

2 GOVERNOR BUSH: Can we hear from our invited

3 guests?

4 MS. HIGGENBATHAM: Good morning Governor,

5 members, Maryann Higgenbatham with the Nature

6 Conservancy.

7 As we did during the review of this

8 proposed exchange and easement by the

9 Acquisition and Restoration Council, the Nature

10 Conservancy would like to go on record with its

11 concerns regarding this item.

12 We feel that the review process has worked

13 to a degree because the item before you

14 certainly has a lot less detrimental impact

15 than the original proposal did.

16 However, it's really important to note

17 that the result of this item, if you approve

18 it, will still be the loss of some available

19 scrub habitat and some impact to both an

20 endangered and a threatened species.

21 Scrub habitat is globally in peril, and

22 it's always been one of the most important

23 habitats to water recharge in this state.

24 Additionally, we feel that the

25 construction of a stormwater drainage system on

28
1 the requested easement site is setting a

2 dangerous precedent where local communities may

3 feel that publicly-held natural resource lands

4 are an appropriate choice for mediating

5 planning problems in their communities.

6 While we commend both the ARC and DEP for

7 ensuring that some other areas of this park are

8 going to be more manageable and that they will

9 be rendered more suitable for future scrub

10 restoration, and that the impacts to the

11 species have been mediated somewhat, we need to

12 remember that restoring scrub habitat is a lot

13 tougher than saving existing scrub habitat.

14 And so we would urge you to consider the

15 impacts of the decision that you are making

16 here today with great care.

17 There is no doubt, as development happens

18 in this state and as communities deal with

19 development problems, that you are going to get

20 more challenging decisions like this before

21 you; and we need to consider the long-term

22 impacts to all of the state's conservation

23 lands if these decisions become commonplace.

24 Thank you.

25 GOVERNOR BUSH: Do you have any suggestions

29
1 of an alternative?

2 MS. HIGGENBATHAM: I think there was

3 discussion that came before you previously that

4 would have involved the county buying some land in

5 the flooded development and going through that

6 process. Of course, that would be much more

7 expensive as the county itself was on record as

8 telling us.

9 GOVERNOR BUSH: Thank you.

10 Anybody else like to speak?

11 MS. McDONALD: Good morning, I am Lori

12 McDonald. I am the Florida Director for Defenders

13 Of Wildlife. I am also speaking for the Sierra

14 Club today.

15 We look at this area and we see one of the

16 last remaining coastal scrub stands in

17 southeast Florida in a rapidly developing

18 county; rare and varied species; the Florida

19 Scrub Jay, endemic bird, that is federally and

20 state threatened and still in decline and the

21 Liken which is listed and has about the largest

22 stand in existence.

23 We think that says this is a very valuable

24 conservation area. What more would one have to

25 say to establish the value of this area?

30
1 And yet, it says throughout these

2 documents that there is a net positive benefit.

3 We don't find that to be the case.

4 With regard to net positive benefit, let's

5 go through some of these things. The 100

6 concrete pads, which are to be restored to

7 scrub habitat, to eliminate what we have now

8 that's very valuable and to try and restore

9 where the concrete pads are is not a fair trade

10 off.

11 I also find it interesting that there is a

12 whole three-step process laid down here for the

13 concrete pads. Perhaps we should look at the

14 whole process of scrapping down and taking

15 apart the existing scrub and see what that

16 involves.

17 Another thing: Enhancing water quality.

18 The public trust lands are being burned with

19 cleaning up the stormwater of the surrounding

20 area. This is not the purpose for which these

21 lands were acquired. And it should be the

22 practices in the area in the vicinity of the

23 park and the regulations that should be in

24 place that would be taking care of this

25 problem, not burning the public lands with it.

31
1 Securing the boundaries and facilitating

2 management, and so forth, these are indeed

3 desirable future conditions; but not at the

4 loss of the very areas that are identified as

5 valuable conservation lands and not when there

6 are other means available for addressing those

7 problems or addressing a solutions.

8 Another thing, obtaining end holdings and

9 the platted roadways. Yes, again desirable

10 future conditions. This is a troublesome

11 point, however.

12 The platted roads should be abandoned by

13 the county as part of the conservation lands in

14 the first place. And the access to those areas

15 would not be there for future development of

16 the end holdings. We think this is something

17 that should have gone along with conservation

18 lines, we think it's the appropriate thing to

19 do now.

20 Back to the question the Florida Scrub Jay

21 and the Liken, another troublesome area, that

22 the state is not carrying out the necessary

23 management -- namely burning -- that would keep

24 conditions appropriate for Florida's Scrub

25 Jays, and in a sense simply by kind of loss of

32
1 habitat by negligence, we are seeing a further

2 decline of the Scrub Jay.

3 But habitat loss for the Scrub Jay, where

4 we can't even bring it back, would be an even

5 worse loss. We don't see this as a fair trade

6 off.

7 With regard to the Liken, the idea of

8 relocating the Liken arises. As a wildlife

9 biologist myself and one who works on

10 relocations and not on plants, not on Likens,

11 but on other species, I can tell you,

12 relocations are very, very problematic and

13 often not a successful means of management.

14 Let me lighten up here for a moment.

15 Environmentalists aren't always just all Dooms

16 Day. I want to tell, I just had to tell you

17 when I went to Cal Berkley, my teacher taught

18 me how to remember what a Liken is and maybe

19 for those of you who don't know, the way to

20 remember is when Fred Fungus and Alice Algae

21 took a Liken to each other; there's a fungus

22 and an algae in a symbiotic relationship.

23 Biology 101.

24 GOVERNOR BUSH: That's what you did at Cal

25 Berkley?

33
1 MS. McDONALD: Oh, I know we only talk about

2 Florida schools in this venue.

3 GOVERNOR BUSH: I took a course like that,

4 Plants For Man, 600 people, got your science

5 credit determined, but we didn't hear about the

6 wonders of nature of algae and fungi together.

7 MS. McDONALD: And did you take a Liken to

8 it?

9 Let me talk about another Liken

10 relationship here. One of the net positive

11 benefits that is an element of this proposal is

12 the increased working relationship between the

13 park and the neighbors.

14 This is not something I think to add among

15 the list, but this should -- we shouldn't be

16 extracting concessions from the park that makes

17 them a good neighbor.

18 And we also worry that the neighbors may

19 be asked in the future to go back to their

20 original or at least more of the original state

21 they originally asked for. Does that make the

22 park a better neighbor? We think not.

23 We see this as a bail out. We see it as a

24 bail out of water from the subdivision; we see

25 it as bail out of money and payments that

34
1 should be born by the subdivision and the

2 vicinity and not by the parks. And we ask you

3 to look for alternatives.

4 Thank you very much.

5 GOVERNOR BUSH: Thank you.

6 MR. DRAPER: Eric Draper, I am with Audubon

7 of Florida.

8 And we are also very concerned about this

9 project and oppose it as it's being currently

10 proposed.

11 I want to commend the staff for working so

12 hard on this, and commend the process also,

13 it's a good process, but at this point we can't

14 support this.

15 This is the loss of important scrub

16 habitat and other upland habitat. And scrub is

17 an acquired taste in Florida; if you are a

18 native, you have been on it, you learned to

19 really love the stuff and you hate to see an

20 acre of it disappear. It is becoming

21 increasingly rare.

22 Our main objection with this is there is

23 not a net conservation benefit to this project.

24 And there is not a net benefit to the taxpayers

25 of the State of Florida, which is another thing

35
1 we should be looking at here.

2 We should not be valuing the platted

3 rights-of-way for the roads in this project.

4 You are adding a million dollars to the

5 accounting side on the ledger sheet; it just

6 doesn't make sense to do it that way. If you

7 don't value that, this ends up becoming a

8 subsidy to a stormwater utility.

9 GOVERNOR BUSH: I am sorry, that's an

10 interesting point.

11 Why wouldn't you value the receipt of

12 property that allows you to manage the area

13 that the state park owns right now, the state

14 owns right now, in a better fashion? Doesn't

15 that have value?

16 MR. DRAPER: According to DEP, in almost

17 every other county where there is a park that's

18 formed and welcomed by the county, the county just

19 surrenders those platted rights associated with

20 roadway.

21 Martin is an exception in that situation.

22 And essentially, that's land that's being

23 managed as part of the park. It's undeveloped

24 land right now; it's just part of the park, and

25 to go in and value it just for the sake of

36
1 making this deal work doesn't make sense.

2 GOVERNOR BUSH: It has value, but in terms of

3 the equation of net gain, you are putting, you are

4 saying the price -- there shouldn't be a price

5 given to it because it should be donated? But

6 there is a value for the state owning the easement

7 property, don't you agree?

8 MR. DRAPER: You could construct a value.

9 GOVERNOR BUSH: Value not in terms of dollars

10 and cents, but value of having a property that is

11 complete.

12 MR. DRAPER: Governor, I see that point. I

13 still don't believe it should be part of the

14 transaction itself.

15 I will go on to say that I don't believe

16 that it's the park's or the state's

17 responsibility to solve stormwater problems of

18 this neighborhood. And I am sure that there is

19 some severe flooding.

20 If you took an equivalent example, in

21 Tallahassee a few years ago in the Killearn

22 neighborhood where we had flooding of home

23 areas and other parts of Tallahassee, we didn't

24 turn around and say: Let's go find part of

25 MacClay State Park or some other state park and

37
1 create a stormwater utility to put that flood

2 water in; in fact, what the City of Tallahassee

3 did is bought out homes and private property to

4 provide for flood control in the areas where

5 those problems were taking place.

6 And I would recommend as a solution to

7 this problem that's what the county do.

8 Now the question was asked of Mr. Walker

9 at the Cabinet Aides meeting why they didn't do

10 that. He said it would cost five times as much

11 to handle the stormwater problem within the

12 neighborhood as it would by going to the park.

13 And I would suggest to you that if you got

14 a flooding problem in the neighborhood, there

15 is FEMA funds available and other types of

16 funds for available for some of that. These

17 types of problems should be handled within the

18 community where the problem takes place and not

19 handled on state lands.

20 I think that even at a cost of five times

21 as much, which is not considerable, given the

22 amount of money we are talking about here, this

23 could be handled within the neighborhood itself

24 or by Martin County or by their countywide

25 utility. Thank you.

38
1 COMMISSIONER BRONSON: One of the things

2 Governor, I wanted to ask that is -- of course, I

3 am very familiar with scrub land and how scrub

4 land can come back. Scrub land can come back a

5 lot better than wetlands can come back when they

6 are disturbed.

7 But once those pads are taken up, those

8 concrete pads are taken up, that leaves the

9 base sand material still there for regeneration

10 of native plants, and so forth.

11 But one of the concerns I have is that if

12 this is not a good deal, it seems to me like

13 trading two for one, the acreage to allow that

14 to come back and to be able to better control

15 or prescribe burn that area for the scrub seems

16 to be a much better trade off to me to bring

17 back the rest of that 7.27 acres to its

18 original, which in my trade off view is this is

19 a better deal in the long run because you are

20 gaining two for one; you are able to bring it

21 back to its natural state in the end, once all

22 those pads are taken off and native plants come

23 back; and you have a better chance of doing the

24 control prescribed burns which that scrub needs

25 to regenerate its growth for whether it's Scrub

39
1 Jay, gopher tortoise or whatever is there, for

2 them to be able to feed and continue.

3 So I am not seeing this negative trade off

4 here that I keep hearing about.

5 MR. STRUHS: Allow me to respond to that,

6 Commissioner. You are quite correct in terms of

7 your assessment.

8 GOVERNOR BUSH: How old is this community, by

9 the way?

10 MR. STRUHS: This was built in the 1960s, I

11 believe 30 -- between 30 and 40 years old.

12 TREASURER GALLAGHER: And it's always flooded

13 or did it just start doing it sometime recently?

14 MR. STRUHS: No, it flooded for years.

15 GOVERNOR BUSH: For 40 years?

16 TREASURER GALLAGHER: Since they built it, I

17 guess.

18 MR. STRUHS: Let me try to reframe the

19 question.

20 Here's what the problem looks like the

21 local community has. They could probably fix

22 this without ever touching any of the park

23 land. And as we heard, it would cost them

24 probably five or six times more than it would

25 with the proposal we have just shown you.

40
1 But there is an important philosophical

2 issue as to whether or not state conservation

3 lands should be employed to resolve this kind

4 of problem.

5 One of the things I would suggest is even

6 if this were not a problem that we wanted to

7 help them solve, even if the flooding was not

8 an issue, take that off the table and simply

9 look at the goal of consolidating and acquiring

10 and better managing and increasing scrub

11 habitat.

12 TREASURER GALLAGHER: Use your mike, there

13 are people that aren't in the room that would like

14 to hear what you are saying.

15 MR. STRUHS: Even if we didn't have the

16 flooding problem to resolve, take that off the

17 table completely and our soul interest was

18 increasing the amount of acreage owned by the

19 Board of Trustees in scrub habitat, and allowing

20 us to better manage it, set the flooding part

21 aside, would this be a good deal for the state?

22 And I would argue that it is; because what

23 you end up with on a net basis is 25 more acres

24 of scrub; and not just 25 more acres net but

25 also the ability to make sure that you can

41
1 manage that in a way where it remains in that

2 kind of condition.

3 The current status is, if we decide not to

4 approve this agreement, if you decide not to

5 approve this agreement, you don't resolve the

6 flooding problem, but forget that.

7 You lose the opportunity to increase your

8 scrub holdings by 25 acres and long-term you

9 lose the ability to manage it, to maintain it,

10 in that scrub condition.

11 You also forego the benefits of

12 dramatically improving the water quality in the

13 river by hooking up our facilities to sanitary

14 sewers and the additional benefit of removing

15 some of the existing concrete pads that are

16 scarring that scrub landscape presently.

17 So I really believe in the end, it's an

18 important debate in that it raises this

19 important philosophical issue. And I think

20 it's one that deserves to be debated. But in

21 the end, in a practical level, even if we

22 weren't seeking to help the flooding problem,

23 it would be the right thing to do for the

24 park's benefit.

25 I think Mr. Roderick from the county --

42
1 GOVERNOR BUSH: Mr. Gallagher has a question.

2 TREASURER GALLAGHER: It's just sort of I

3 guess an observation here.

4 GOVERNOR BUSH: Observation.

5 TREASURER GALLAGHER: Sort of looking at the

6 pros and cons of this, this is the way I see it.

7 We are trying to mitigate something that's been

8 going on for 30 years already, 30 or 40 years,

9 it's got 9 to 30 homes that are subject to

10 flooding and flooded.

11 And I am not real comfortable using the

12 conservation land as the overflow for poor

13 planning, because we are answering the poor

14 planning problem that existed about 30 or 40

15 years ago.

16 I am most concerned about the precedent

17 that we are setting here because we can have a

18 lot of future requests from cities and counties

19 to do similar things with state conservation

20 land. And so I just want to say if we do this,

21 I sure don't want it make this any kind of a

22 precedent.

23 On the other side, we will be helping the

24 homeowners, and I think most those people that

25 own those houses didn't buy them in the first

43
1 place; I am sure they have been resold quite a

2 few times and I am sure they didn't get told

3 about the flooding when it happened.

4 It does better compact the park and for

5 better management there. And it probably

6 avoids condemnation of some homes somehow down

7 the road, if this would continue.

8 And so in weighing, it's a tough, for me

9 it's a tough balance. But without it being a

10 precedent, I can vote in favor of it; but it's

11 like a 51/49 deal as far as I am concerned.

12 And I just thought I would give my two

13 senses as to why I am voting for it, even

14 though I really think it's a -- it's not a good

15 precedent to be using land that we acquire

16 continually for preservation to make it into

17 water retention ponds.

18 GOVERNOR BUSH: General Butterworth.

19 GENERAL BUTTERWORTH: I concur with

20 Commissioner Gallagher. This is maybe closer than

21 a 51/49.

22 GOVERNOR BUSH: It's like Bush/Gore.

23 GENERAL BUTTERWORTH: It's like Bush/Gore.

24 TREASURER GALLAGHER: We better find out what

25 side Bush is on.

44
1 GENERAL BUTTERWORTH: Is Secretary Harris

2 going to count the votes?

3 SECRETARY HARRIS: The good news is that on

4 Commissioner Gallagher's scales, you also end up

5 with additionally more scrub land as well. You

6 can put that on the ballot, it's still closer than

7 51/49; that's the way I count it.

8 GENERAL BUTTERWORTH: I would assume that

9 these roads that are not paved, there is already

10 scrubs on that right now?

11 MR. STRUHS: That's correct.

12 GENERAL BUTTERWORTH: So we are really not

13 getting anything new because I doubt very much

14 Martin County was going to put these roads in

15 anyway; so I don't think we are really getting

16 anything. I think the Audubon is probably correct

17 in that, we could have asked Martin County, they

18 probably would have given them to us.

19 I am concerned about the precedential

20 value also, but I think if it was any other

21 county other than Martin, Martin has had a very

22 good record I think in planning and in land

23 management and I think has led the state in

24 that, so for that reason, I would move over to

25 the 50.1 percent because it's Martin County.

45
1 TREASURER GALLAGHER: I am glad we are not

2 disagreeing again.

3 GENERAL BUTTERWORTH: We are not disagreeing.

4 We never disagree.

5 GOVERNOR BUSH: Any other discussion?

6 COMMISSIONER BRONSON: I have one question,

7 Governor, I would like to ask the county; and that

8 is we keep making these assumptions, and we are

9 only going on our best instincts here. But if we

10 did not make this trade, if the county retained

11 its position on this, could those actual areas

12 that are already platted, could they actually have

13 homes or mobile homes or whatever actually put on

14 those lots at some time since they've already been

15 platted and already under the oversight of the

16 county?

17 MR. RODERICK: Yes, sir, that's particularly

18 the point. If we have to give them access for

19 them to build and habitat their property, that's

20 something that would have to occur.

21 GOVERNOR BUSH: Okay. Is there a motion?

22 TREASURER GALLAGHER: I move item 3.

23 COMMISSIONER BRONSON: Second.

24 GOVERNOR BUSH: Moved and seconded. Any

25 other discussion? All in favor say aye.

46
1 THE MEMBERS: Aye.

2 GOVERNOR BUSH: All opposed? Motion passes,

3 in a stunning landslide.

4 MR. STRUHS: That concludes our formal

5 agenda.

6 If I can take one minute quickly, please,

7 I would like to share with the board a decision

8 recently made by the department with delegated

9 authority that you provided us some years ago.

10 One of the things that the board did was

11 you delegated to us as a department the ability

12 to determine whether or not existing sovereign

13 submerged land leases should be renewed. And

14 ordinarily that goes on with little fanfare and

15 little notice.

16 Last week we made a determination to not

17 renew an existing sovereign submerged land

18 lease. It's a pier in the St. Marks River that

19 services an area in Wakulla County known as the

20 St. Marks Refinery.

21 And just very quickly I can show you a

22 couple of pictures and give you the rationale

23 for our determination to not renew that

24 sovereign submerged land lease.

25 If somebody would turn the screen back on,

47
1 please.

2 That's an aerial photo of the old refinery

3 site in Wakulla County near the St. Marks

4 River. As you know, this is a difficult

5 environmental problem that we are now ramping

6 up to get cleaned up.

7 This gives you an example of the fact that

8 some of those tanks still contain product,

9 others contain hazardous materials. In

10 addition to that, this area here, there was a

11 large spill, we have got semi-liquid asphalt

12 about 10 feet deep that spilled out of the berm

13 and --

14 GOVERNOR BUSH: 10 feet deep into the --

15 MR. STRUHS: There was a berm that was

16 holding asphalt product that broke some years ago,

17 and it's now, we estimate, about 10 feet deep.

18 GOVERNOR BUSH: When did it break?

19 SECRETARY HARRIS: 10 feet deep container

20 leaked or it's sunk in 10 feet?

21 MR. STRUHS: It's 10 feet deep there. That's

22 our estimate. It might be 9, it might be 11.

23 Finally, this is the pipeline facility

24 adjacent to that pier facility which is part of

25 that sovereign submerged land lease. There is

48
1 a new company there that desired to utilize

2 this infrastructure for asphalt batching,

3 asphalt storage and distribution.

4 Our assessment of the condition of the

5 pipelines and the equipment and the storage

6 facilities was that it was so decrepit and some

7 cases porous, that utilizing that facility for

8 the transport of asphalt materials would only

9 exacerbate the current environmental problem,

10 ultimately leading to the cost of cleaning it

11 up.

12 So we exercised our delegated authority

13 and exercised the judgment to not renew that

14 sovereign submerged land lease in an effort to

15 keep people focussed, both the current owner

16 and past owners, on correcting the current

17 problem before they add to it by using these

18 dilapidated infrastructure.

19 I just wanted you to be aware of it,

20 because ordinarily these things are renewed

21 almost pro forma. This was a rare example we

22 exercised our discretion and chose not to renew

23 it.

24 TREASURER GALLAGHER: Who cleans up the

25 asphalt?

49
1 MR. STRUHS: We recently discovered dioxin on

2 the site. It's now been confirmed just last week.

3 Given that and given some other problems on the

4 site, the department will, using state resources,

5 begin removing all the product and hazardous

6 materials, all the source materials from the site

7 immediately. And then we will seek cost recovery

8 from the previous owners.

9 GOVERNOR BUSH: Who are the previous owners?

10 MR. STRUHS: There were three; of course, the

11 current owner is under the law potentially

12 responsible. Of course, most of this problem was

13 the result of previous owners, it was the St --

14 Seminole Refining Company -- I might get the names

15 a little wrong -- and St. Marks Refining Company,

16 which is a company that is owned by American

17 Petroleum -- American International Petroleum,

18 AIP.

19 This site has been operating since the

20 1950s, I believe. So there are multiple

21 owners.

22 But again, there is no decision here. I

23 just wanted you to be aware of the fact we did

24 exercise that authority to deny renewing this

25 lease, the fear being that they continued to

50
1 use these pipes and infrastructure -- that you

2 can see here -- we would end up just making the

3 problem worse and increasing the clean up

4 costs.

5 COMMISSIONER CRIST: Secretary, does denying

6 the permit accelerate the anticipated clean up of

7 that nasty picture we saw?

8 MR. STRUHS: I am sorry, does it what?

9 COMMISSIONER CRIST: Does denying the permit

10 accelerate the clean up of the photograph you

11 showed us?

12 MR. STRUHS: No, it won't accelerate the

13 clean up in any way.

14 What it will do, we think, is prevent the

15 site from getting worse.

16 We actually walked the pipelines and got

17 up close and inspected the equipment, and it

18 was so frail and brittle; the concern was that

19 utilizing the equipment would lead to

20 additional contamination. We want to focus on

21 getting the existing residual materials and

22 hazardous wastes off the property.

23 Just as a point of interest, there is a

24 neighbor to this site, Murphy Oil Company,

25 which is not responsible and they are a major

51
1 depot for this region for gasoline products.

2 We are going to work with Murphy Oil in a way

3 to make sure that our clean up on this site

4 does not interfere with their ability to

5 conduct their business and have access to the

6 pipelines that they need which are in good

7 condition to move those products.

8 GOVERNOR BUSH: Commissioner Bronson.

9 COMMISSIONER BRONSON: One of the concerns I

10 have, now that you have mentioned the extent of

11 this, is has there been testing of the Murphy site

12 as to any potential contamination underground of

13 any of the materials used in asphalt that could be

14 a contaminant that may have gone vertical to the

15 site toward the other properties?

16 MR. STRUHS: Yes. In fact, this week, or was

17 it last week, within the last few days, it was

18 either the end of last week or going on right now,

19 we are installing 13 new monitoring wells for the

20 expressed purpose of figuring out the extent of

21 the soil and groundwater contamination.

22 GOVERNOR BUSH: Thank you, Secretary. And if

23 you can keep us apprised of this.

24 MR. STRUHS: Thank you. Yes, sir.

25 GOVERNOR BUSH: Good work.

52
1 GOVERNOR BUSH: Department of Education.

2 TREASURER GALLAGHER: Motion on the minutes.

3 COMMISSIONER CRIST: Seconded.

4 GOVERNOR BUSH: Moved and seconded. Without

5 objection, it's approved.

6 Item 2.

7 MR. PIERSON: Item 2 is adoption of a

8 resolution authorizing competitive sale and

9 delivery of not exceeding $208,300,000 State of

10 Florida Full Faith and Credit State Board of

11 Education PECO bonds.

12 TREASURER GALLAGHER: Motion on 2.

13 ATTORNEY GENERAL BUTTERWORTH: Seconded.

14 GOVERNOR BUSH: Moved and seconded. Without

15 objection, it's approved.

16 Item 3.

17 MR. PIERSON: Item 3 is a resolution

18 authorizing competitive sale of not exceeding

19 $26,070,000, State of Florida Capital Outlay

20 Bonds.

21 TREASURER GALLAGHER: Motion.

22 GENERAL BUTTERWORTH: Seconded.

23 GOVERNOR BUSH: Moved and seconded. Without

24 objection, it's approved.

25 MR. PIERSON: Item 4 is an appeal of a

53
1 charter school, Snapper Creek Elementary School,

2 requested to become a conversion school. It was

3 denied by Miami Dade County School Board.

4 Michael Olenick is the attorney

5 representing Snapper Creek and Attorney Johnny

6 Brown will be representing the school board.

7 After hearing both sides, the board may

8 accept the appeal and remand it back to the

9 school board or deny the appeal and accept the

10 school board's decision.

11 MR. OLENICK: Good morning, Governor, Members

12 of the Board. My name is Michael Olenick with the

13 Carlton Fields law firm, representing the

14 applicant, Mr. Clifford Herrman, who is a

15 principal of Snapper Creek.

16 With me today, and what I thought I would

17 do is, and I will try to keep this as brief as

18 possible so if you have any questions, you will

19 have the time to ask questions.

20 I wanted to go through the process that

21 Mr. Herrman, who is the principal, went through

22 to form the conversion. I want to discuss some

23 of the issues or in many cases nonissues and I

24 wanted to discuss the procedural flaws of the

25 school board.

54
1 Here today is Mr. Herman Clifford, who is

2 the principal. We have with us also Mr. Rudy

3 Rodriquez who is a CPA with Chancellor and was

4 a former -- he was also a CPA, still a CPA,

5 with the school board prior to his employment

6 with chancellor.

7 Nidia Cummings is the director of

8 assessment for Chancellor with a doctorate in

9 education research.

10 Doug Ramuth is the president of the PTSA

11 of Snapper Creek; he came up and Mr. Pat

12 Tornillo, who is the president of the UTD.

13 First of all, 220.056 does permit

14 conversions. It is stated that it permits the

15 principal, in which case we have the principal

16 here, of an existing public school in operation

17 for two years to apply to convert.

18 The application does require a 50 percent

19 support of parents, a 50 percent support of

20 teachers.

21 Very briefly, I just wanted to go over the

22 procedure that Mr. Herrman followed. He took

23 some fellow teachers, by the way, to the McKeel

24 Academy in Polk County as well as another

25 conversion in Lake. As you are well, aware

55
1 there are not whole lot of conversion schools.

2 GOVERNOR BUSH: Two.

3 MR. OLENICK: Exactly, he went to both. And

4 briefly the time line is that on August 23rd, he

5 had a faculty meeting in which the faculty

6 determined they wanted to explore the issue of

7 conversions.

8 On August 24, Mr. Herrman met with the

9 president of the PTSA who is here, a UTD

10 representative, educational aides, to go

11 forward with this idea.

12 August 29th, the PTSA board said go

13 forward.

14 September 6, they had a general meeting of

15 all parents. The notice was done in both

16 English and Spanish. There were more than a

17 hundred parents there.

18 September 13, a second parent meeting;

19 representative Arza and Cantens were also

20 there. There were sign in sheets, well

21 attended.

22 September 12, teachers vote in favor with

23 more than 68 percent of the teachers voting in

24 favor of it.

25 September 17, they had another meeting

56
1 with the parents, notice to parents; they had

2 fliers, they had letters to parents.

3 And September 21 there was a vote of 297;

4 of 413 voted, 77 percent said they wanted to go

5 forward. Now you have more than 50 percent

6 parents, more 50 percent teachers. And on

7 October 1 they submitted the application.

8 They did, when they submit the

9 application, they did consent to a second vote

10 that would go back to the parents and teachers

11 in case there were any questions raised during

12 the contract process.

13 Because you all know, the contract process

14 in any county is rather rigorous and they

15 wanted to make sure there were no

16 misconceptions on the part of parents or

17 teachers, so they agreed to bring that back.

18 On October 30th, the TAT, which is the

19 technical advisory committee, met. They had

20 certain comments and on November 6, they

21 revised their application.

22 November 14th, I will discuss a little bit

23 regarding a board meeting that was unagendaed

24 items.

25 The issues: There were a number of issues

57
1 raised by the school board in their denial. I

2 am going to briefly go through these. I am not

3 an expert in accountability or rather

4 assessment, assessment, and nor am I, by any

5 means, an expert in the financial side. But I

6 have experts here and if there are questions,

7 they can answer them.

8 In terms of the school improvement piece,

9 it was, by the way, sort of interesting

10 October 22, the TAT, technical advisory

11 committee, had no comments on this at all.

12 On November 15, the DRC, which is the

13 second stop, had numerous comments. The bottom

14 line from the school standpoint and from the

15 Chancellor's standpoint, they guarantee there

16 will be no slippage; it is a C school; they

17 promised there would be no slippage. They

18 promised that the level ones would go down; the

19 level threes would go up, and they would aim at

20 level threes which were the higher performing

21 children to try to get them up too.

22 That was their goal. And it was a

23 conservative goal. Part of the problems you

24 will hear probably from Dade County who said

25 they will discussed the slippage in percentage.

58
1 In reality what they were trying to do,

2 Chancellor was trying to do as well as the

3 principal, was wait for the 2002 standards as a

4 benchmark and that created somewhat of a

5 problem. But the bottom line was it was always

6 the intent of the applicant and Chancellor to

7 have the points go higher and not lower

8 obviously.

9 The other thing that was mentioned by Dade

10 County, which I thought was rather interesting,

11 they condemned the principal for mentioning

12 Quality Circles. Quality Circles was a concept

13 started by Jonathan Demming; it's used in some

14 of the larger industries in the country. And,

15 in fact, Mr. Herrman, who has been a principal

16 for over 20 years, was a pioneer of having

17 sponsors.

18 He worked with Southern Bell. In fact,

19 before it became a popular idea to have

20 sponsors, corporate sponsors, he started

21 working with Southern Bell many years ago.

22 FP&L had signed on to be a sponsor

23 identification. this conversion school. FP&L

24 uses the Quality Circle method very

25 successfully; Mr. Herrman thought it was a

59
1 logical progression to have quality circle in

2 the school with this corporate response.

3 So if there is a condemnation on the part

4 of Dade County -- which they do. They condemn

5 it for being archaic -- I would look to FP&L

6 and say one of the most state companies in our

7 state has successfully used it and Mr. Herrman

8 fully intends to use it in the school.

9 The enrollment cap issue was waived by

10 Dade County, and that really should be a

11 nonissue. The statute allows capacity of

12 charter schools to determine annually by the

13 governing board in conjunction with the

14 sponsor; fully that would have been a

15 negotiated item.

16 An enrollment cap becomes an important

17 item in a conversion school, when the school

18 wants to keep its ratios down.

19 What the parents -- and if you ask

20 Mr. Ramuth, he will tell you: One of the

21 things we are looking for was to keep the

22 ratios down. And they could have done it, an

23 enrollment cap is an important component.

24 It is allowed -- and the other aspect is

25 that when the district takes the money, takes

60
1 the state's money on a conversion school, they

2 basically take 86 percent of the cap of that,

3 PECO money, they take it to be used for new

4 construction, leaving the school with

5 14 percent.

6 So the bottom line, very quickly, is that

7 if you take that 86 and 14 percent and don't

8 have enrollment caps and the school starts

9 growing and growing, the schools don't elect

10 but a very small portion to expand because the

11 district is taking most of that money.

12 25 to 1 was the guarantee or what the

13 parents wanted and what the principal

14 determined. Fiscal viability --

15 GOVERNOR BUSH: What is it now, out of

16 curiosity?

17 A VOICE IN AUDIENCE: Average class size is a

18 little over 30.

19 MR. OLENICK: For the record, the average

20 class size is a little over 30.

21 The fiscal viability component was

22 mentioned by Dade County, and I have a CPA, we

23 have the battle of the CPAs. The bottom line

24 was that what Chancellor did when they looked

25 at this, they looked at other aspects, other

61
1 issues within the budget.

2 For instance, they looked at the

3 intermission program, the community schools,

4 the PECO allocations; they added all this up

5 and they determined that there would not be a

6 deficit.

7 Candidly Chancellor operates 40, 45

8 schools around the country. They would not be

9 doing this if there was a deficit. I can

10 present evidence, or if you have questions of

11 Rudy, he can discuss there was no deficit and

12 how he determined there would be no deficit.

13 The school board criticized the process.

14 I already went over the process. It was a

15 detailed process with sufficient notice,

16 well-attended meetings and there should have

17 not been any question.

18 They criticized the personnel issue.

19 Basically Chancellor as well as the applicant

20 both agreed that -- there is presently a

21 Teacher On Loan Program in Dade County for

22 charters. We had asked that we be allowed to

23 use Teacher On Loan. The bottom line was

24 whatever the teachers -- whatever was

25 negotiated between the UTD ultimately and

62
1 school board would have followed, and that

2 issue would have come back before the vote,

3 before the vote of the parents and teachers.

4 And the governing board is a nonissue because

5 that would have been negotiated.

6 Lastly, the procedural flaws -- and this

7 is a significant problem. As I indicated they

8 had a TAT meeting or technical advisory

9 committee. Then there was a November 14

10 meeting.

11 November 14th was a regular agenda school

12 board meeting, but there was nothing on the

13 agenda pertaining to this application.

14 Mr. Herrman, the applicant, was not there.

15 None of the technical people were there.

16 Mr. Tornillo was there who just happened to be

17 there; but the bottom line is there was nothing

18 on the agenda specifically dealing with the

19 school. Three parents got up and raised an

20 issue about this conversion, they asked

21 questions.

22 Flaw number 1 from my perspective is in a

23 public meeting like this, like a school board

24 meeting, they have open to the public and

25 that's a logical thing to have. But when they

63
1 started to discuss the specifics, they started

2 to ask questions, I think they should have

3 taken the testimony of the parents, indicated

4 it would come back for a full public hearing

5 after the DRC, which was the next step, next

6 staff committee, that next staff committee

7 meeting would have been the next day after this

8 November 14th meeting.

9 So the procedure again would have been

10 November 14th, open to the board; some parents

11 came to complain. They could have taken the

12 comments and announced they were coming back

13 formally for December 12th, they did not.

14 Instead, they engaged with the parents.

15 And some of the comments -- and I will

16 just briefly read them -- from school board

17 members. They announced there be -- this is

18 individual members. They announced there will

19 be no conversions. They criticized the

20 chairman of the -- staff -- the chairman of the

21 DRC committee. Remember, that's a staff

22 meeting that was being held the next day. They

23 criticized him because they said it was not a C

24 school; it was an A school. It was a C school.

25 They admonished the applicant principal

64
1 for his business cards. He wasn't even there.

2 They criticized the process.

3 They disputed the C status. They

4 questioned the role of the UTD. They referred

5 to the community charter school as a private

6 school. They asked if the district encouraged

7 the conversion. They wanted to know who

8 encouraged this conversion, and they hammered

9 that issue.

10 They indicated conversion should only be

11 in inner city schools; this is quote, this is

12 not me saying this. They indicated that

13 conversion should be in D and F schools only.

14 They called it a can of worms. And as one

15 school board member said: Don't take over my

16 schools.

17 After this, when you have the entire staff

18 sitting at that meeting, the next day -- to me

19 it was made as instructive.

20 The next day the DRC meet and they were so

21 excited and so exorbitant over carrying out the

22 will of the board that they voted -- there

23 should have been 15 people voting at the DRC

24 meeting; two people who were UTD

25 representatives abstained, leaving 13, but they

65
1 were so excited they ended up with 18 votes.

2 GOVERNOR BUSH: They abstained because of a

3 perceived conflict?

4 MR. OLENICK: Yes, because UTD was involved

5 in the application; so you had 15 total, two

6 abstained, leaving 13. Somehow the vote was 18 to

7 nothing. Now I wasn't there. But --

8 TREASURER GALLAGHER: Maybe they just should

9 have had a three and they made it a eight.

10 GOVERNOR BUSH: That was within the margin of

11 error.

12 MR. OLENICK: There was extra people voting.

13 It turned out -- and Dade County can respond.

14 TREASURER GALLAGHER: If they all voted yes,

15 what difference does it make?

16 MR. OLENICK: It does makes a difference and

17 I will tell you why it makes a difference. It

18 makes a difference in that they should not have

19 had that fully engaged conversation the night

20 before. And if they did not have it, perhaps the

21 staff wouldn't have known where the school board

22 was going.

23 But the school board, without telling the

24 staff, made it real clear: They didn't want

25 conversions; they didn't want conversions of

66
1 the school. And they did it without any

2 question.

3 And if the chairman, if the chairman of

4 that committee is sitting there being

5 cross-examined by the school board, the next

6 day presumably it was very easy for him to get

7 all the votes.

8 That would be my argument, Commissioner.

9 The other aspect is that procedurally,

10 it's flawed. If you have 18 people voting and

11 only 13 are supposed to vote, something is

12 wrong with that picture, also.

13 And no surprise it came back December 12,

14 it came on December 12 at the actual board

15 meeting that was supposed to have heard and the

16 school board voted to deny it.

17 An interesting, aside and Mr. Ramuth was

18 there, the interesting thing, even though there

19 were all sorts of questions and accusations at

20 the November 14th meeting, on the actual

21 meeting of December 12th, when they should have

22 voted, they didn't ask one question to the

23 principal. They doesn't ask one question to

24 the president of the PTSA; they didn't ask one

25 question to anybody there. Because they

67
1 already knew it was a done deal. It was a done

2 deal.

3 I did indicate that I would be brief, I am

4 trying to be brief. I am done.

5 GOVERNOR BUSH: Good.

6 MR. OLENICK: Thank you, Governor. We do

7 have people here to answer questions if you have

8 any.

9 GOVERNOR BUSH: Let's hear from the county,

10 the school district, and then I've got some

11 questions, I am sure others do as well.

12 Good morning.

13 MR. BROWN: Good morning, Governor, members

14 of the Cabinet, my name is Johnny Brown. I am the

15 school board attorney for Miami-Dade County. I am

16 going to be presenting the response here, and I

17 have with me some staff members that will be able

18 to respond in more detail to any specific

19 questions you have, particularly with respect to

20 the financial aspect of this transaction.

21 We have provided written response, and I

22 am not going to go into a lot of detail about

23 the response. You have read that, but I would

24 like to highlight some of the points that I

25 think are critical to the school board's vote

68
1 to deny this application to convert this school

2 to a charter school.

3 What we have here is Snapper Creek

4 Elementary School, which is a high-achieving

5 school. This is a conversion -- incidentally,

6 this is the first application for conversion in

7 Dade County, and this also happens to be, in

8 the five years that we have been in this

9 business since the implementation of the

10 legislation, this happens to be the first

11 appeal also that we've ever had.

12 What I would like to go through first is

13 that counsel has painted a picture that somehow

14 the board meeting of November 14th was a pretty

15 much tainted the process and created some kind

16 of negative impact on the applicant in this

17 regard.

18 What I would like to point out here is

19 that if the -- the school board meetings -- and

20 I don't know if you have this type of a set up

21 here with the Cabinet meeting, but the school

22 board meetings allow for a portion of their

23 meetings to be set aside for citizens to sign

24 up on nonagendaed items to address any issue

25 that they would like to address. And that at

69
1 the November 14th meeting several members of

2 the community and parents signed up to speak to

3 the school board on a nonagendaed item. They

4 could talk about any topic.

5 At that meeting, three parents spoke and

6 individual citizens spoke. There is no -- the

7 particular notice that you get for this meeting

8 is the regular notice you would get for any

9 meeting. This was not a scheduled item by the

10 school board; these are parents who have a

11 right to sign up and this is what they did.

12 Counsel tends to try to paint a picture

13 that the discussion that occurred at that

14 meeting somehow tainted this process, because

15 the board members engaged in a discussion when

16 the parents, these three parents, raised the

17 issue of Snapper Creek Elementary being

18 converted to a charter school.

19 The board members were concerned about

20 various issues. A board, as you know, board

21 members are free to discuss or to say pretty

22 much free will anything they want. But it is

23 the action and vote of the board that is really

24 controlling as far as the board's position is

25 concerned.

70
1 And there was a lot of discussion that was

2 generated by these parents. But if you will

3 take a careful review of this video, you will

4 see that the board members were concerned about

5 receiving a tremendous amount of parental

6 complaints and about reprisals in connection

7 with this application.

8 They explored concerns. Sure, they were

9 concerned about who else was involved in this

10 application. They had an exchange with

11 Mr. Tornillo who is here today and talking

12 about the involvement of the UTD. The board

13 was concerned about what they had represented

14 to them as a lack of complete information that

15 was provided to the parents and to the teachers

16 prior to a vote to --

17 GOVERNOR BUSH: Mr. Brown, I am sorry, why

18 would the board be concerned about the UTD's

19 involvement when -- doesn't UTD manage in concert

20 with either a management company or on their own

21 some of the schools; and they are not a charter

22 status, but they have a management agreement with

23 the school board. Am I right about that?

24 MR. BROWN: UTD has a labor contract with the

25 school board.

71
1 GOVERNOR BUSH: But they also -- don't they

2 have a contract to manage a set number of schools.

3 MR. BROWN: Well, I think that the UTD can

4 speak better with that. I think there is some

5 type of an arrangement that they have, but I don't

6 know if it was --

7 GOVERNOR BUSH: Why would they be concerned

8 about UTD's involvement in a conversion of a

9 charter?

10 MR. BROWN: I take that back; the board was

11 not concerned about it; it was a particular board

12 member that was inquiring about that, but that's

13 not the board's position.

14 GOVERNOR BUSH: Okay. I am sorry.

15 MR. BROWN: I misrepresented that to you as

16 the board's position, but it really wasn't; it was

17 a discussion between a single board member and it

18 was not a board concern.

19 COMMISSIONER CRIST: Governor, if I could. I

20 have one other question.

21 You mentioned that the parents were

22 concerned; yet there was a vote taken by the

23 parents and over 77 percent supported

24 conversion.

25 MR. BROWN: Exactly. Granted, there was

72
1 discussion at this meeting about the fact that

2 these were parents that were on the losing side of

3 the equation.

4 But what board members indicated at the

5 meeting was that they had received calls from

6 other parents who would not come forward

7 because they were concerned about reprisals

8 with their kids in the schools, and so forth.

9 So that was raised also as an issue.

10 They discussed a number of things. They

11 talked about the charter school movement and

12 how the board could best put itself in a

13 position to adjust to that movement so that it

14 would become a win/win situation for the

15 charter applicant and also for the school

16 system.

17 They also talked about the philosophy of,

18 pretty much in different words, of converting

19 public schools to essentially what a board

20 member thought would be private interests,

21 because a lot of these charter schools have

22 management companies.

23 Be that as it may, but that was part of

24 the overall discussion that they talked about.

25 And as I said before, these were

73
1 dissatisfied parents, and they went on the

2 record as such.

3 But the bottom line here of that

4 discussion was this, and it was as enunciated

5 by the UTD representative that was there.

6 After all of this discussion, he indicated

7 that this was the type of discussion, as we

8 move forward in exploring charter schools,

9 these were the types of discussions that we

10 should have or that was required and that was

11 needed as we move forward. And this was what

12 that discussion was.

13 So there was no preset signal sent to

14 staff that the board was to -- was not in favor

15 of charter school conversions.

16 Let me just tell you a little bit about

17 this school district's track record. As you

18 know, Governor, Miami-Dade County School

19 District established the first charter school.

20 GOVERNOR BUSH: You were very helpful for us

21 to get the contract, Mr. Brown, we appreciate

22 that.

23 MR. BROWN: Thank you. As the charter school

24 legislation came out, we quickly, quickly moved

25 forward with establishing the school board's

74
1 policy within one month to implement this

2 legislation. We have been doing this for five

3 years. And as I indicated before, there has not

4 been one appeal. There have been over 77

5 applications.

6 The school board has approved 40 and there

7 has only been three denials. The rest are

8 either pending or they withdrew their

9 applications as a result of our technical

10 assistance provided to them.

11 We currently have 18 charter schools in

12 operation and the school district has approved

13 applications for another, that could

14 potentially represent another 41 charter

15 schools in Miami-Dade County should we --

16 should in some instance the cap that is set be

17 waived; and the school board has not developed

18 a position on the cap yet as it relates to

19 these.

20 But there is a potential for an additional

21 41 charter schools to be in Miami-Dade. So the

22 history and track record of this school system

23 is very clear; that we are in favor of charter

24 schools that are complementary to the school

25 district, charter schools that work, charter

75
1 schools that provide an alternative and a

2 quality education and a chance for improvement

3 to the students.

4 Now in this particular instance I am

5 not -- counsel has laid out the time lines,

6 what they did, who they met with and all that,

7 and we don't have a problem with that because

8 the record speaks for itself.

9 But what we do have a problem with is in

10 the process, because of the short time frame in

11 which teachers and parents have to react to the

12 application, there are a number of concerns.

13 There were a lot unanswered questions, and

14 there was a lot of misleading and/or inaccurate

15 or information that were requested and was not

16 provided; and there was information that was

17 requested and not provided.

18 So in this particular situation, the

19 technical assistance team did review the

20 application; there was a revised application.

21 There was a discussion at the district review

22 committee. Questions were raised. It's

23 inaccurate to say no questions were raised of

24 the principal or other representatives.

25 Questions were raised at that DRC committee and

76
1 they were not adequately addressed to the

2 satisfaction of the DRC.

3 Now as far as the denial is concerned,

4 there were six enunciated reasons for denial.

5 But critical to this was the fact that this

6 application we are proposing, objectives of

7 student performance that were lower than those

8 that were currently operating at the school.

9 You have an application here that basically was

10 tied to minimum performance objectives when, in

11 fact, this was a high-achieving school. So in

12 essence, they were proposing to lower

13 performance standards for the school.

14 The district and staff were concerned

15 about their proposal to have an enrollment cap.

16 This would create a huge problem for the school

17 district. We were concerned about the

18 precedential value that would be detrimental to

19 the school system to allow converting an

20 existing school and also to create a cap.

21 What it does, it puts a burden on the

22 remaining schools in that now students would

23 not be able to go to this school; we would have

24 to find other student stations for them at some

25 other school in the district; so it creates an

77
1 additional burden and problem for this.

2 GOVERNOR BUSH: Does Snapper Creek Elementary

3 have a history of rapid growth in enrollment or

4 has it been relatively stable?

5 MR. BROWN: It's been relatively stable and

6 maybe slightly on the decline, but it doesn't have

7 a history of -- it's been pretty stable.

8 GOVERNOR BUSH: And the cap is higher than

9 their actual enrollment right now, isn't it?

10 MR. BROWN: I believe it is.

11 GOVERNOR BUSH: Or what they proposed?

12 MR. BROWN: I believe. I believe what they

13 were proposing as a cap would be exactly what

14 their enrollment is now and no more.

15 We were, the school district was concerned

16 about the fiscal viability because, we have

17 Mr. Corces, who is our chief budget officer

18 that can address this in much more detail than

19 I can, has reviewed all of this and indicated

20 there was -- the Snapper Creek application made

21 overstatements of available funds and

22 understatements of average salaries to the

23 extent that the school would not be able to

24 provide what they were prosing; that the budget

25 was really -- would not work for this school.

78
1 That would create a big problem operationally

2 for the school.

3 As I indicated before, incomplete and

4 inaccurate information to parents and teachers

5 prior to the vote to approve the application,

6 not withstanding the fact that they did approve

7 it, but we think there should have been more

8 complete information.

9 GOVERNOR BUSH: Commissioner Bronson.

10 COMMISSIONER BRONSON: Mr. Brown, I did want

11 to ask you a question on that.

12 I notice that in one of the issues was the

13 administrative cost. Even if the school

14 disallowed the administration cost, which I

15 believe was listed at approximately $450,000;

16 now is that -- that was a management -- for

17 management fees.

18 Now what does the actual cost today

19 based -- without it being a charter school? Is

20 that the figure that you charge today for

21 management cost of the school?

22 MR. BROWN: No, I don't believe it is, but I

23 would like for, if you would, if you don't mind --

24 COMMISSIONER BRONSON: The other question,

25 and if you can do that, that would be great.

79
1 The other question is: If you convert to

2 a charter school, okay, and the school decides

3 to go to 25 -- I mean anybody in education

4 knows if you can get down to 20 per classroom,

5 that's the optimum of being able to teach 20

6 students.

7 However, for every five you drop down for

8 every four classrooms, you've got to build

9 another classroom to get it to 20 and we know

10 those costs.

11 But if you were to convert to a charter,

12 they decide to go to 25, that means five

13 classrooms, they would have to build another

14 classroom to fit those five students in, do

15 they pay for the building of that new classroom

16 if you convert to charter, or does the school

17 board have to build that extra classroom?

18 MR. BROWN: Well, in your hypothetical, I

19 think they would have to pay for it. But in this

20 particular proposal, they are not -- what they are

21 proposing to address, the 25 to 1 ratio was the

22 cap of the school; so that they would not have to

23 go through any additional expense in construction

24 and anything. So to handle that would be: Do we

25 cap the school, keep it what is, not allow anymore

80
1 students? We can't do that.

2 GOVERNOR BUSH: Maybe the budget person can

3 come, because I think a lot of this stuff is

4 technical and I's not dotted, T's not crossed, but

5 the bottom line is it's money.

6 MR. BROWN: I think you are right, Governor.

7 GOVERNOR BUSH: If I can set the stage for a

8 couple questions.

9 If a charter school gets 95 percent of the

10 FTE amount -- is that correct -- how much money

11 does Snapper Creek get right now as a regular

12 school?

13 MR. CORCES: One thing I did in trying to

14 analyze this recommendation was I took their

15 current FTE as of October, which was at the time

16 all we had. And I ran it through our calculations

17 for a typical charter school to determine exactly

18 what revenue they would generate. And it's in the

19 big book you received, and it would have been

20 before we took off our 5 percent, it would have

21 been about $2.7 million.

22 After the 5 percent, it would have been

23 about two and a half million dollars. I am

24 sorry, 2.7 and down to about 2.5. But in the

25 law for conversion to charters, there is also a

81
1 PECO allocation to them.

2 GOVERNOR BUSH: Just out of curiosity, how

3 much if you -- as I recall, the Dade County school

4 budget, the salary costs are just a lump sum,

5 there is no flexibility. It's negotiated

6 countywide and you just give everybody the

7 allocation as though it was an average; so you may

8 have some schools that have higher salaries and

9 some that have lower.

10 MR. CORCES: Exactly.

11 GOVERNOR BUSH: What would Snapper Creek get

12 if its actual costs -- do they get right now, do

13 they get -- maybe we should ask the principal --

14 do they get $2.5 million?

15 MR. HERRMAN: Good morning, Governor, Members

16 of the board.

17 We receive a fraction of the amount of

18 money actually at the school to run what they

19 call a school-based budget, we will be hiring a

20 certain number of --

21 GOVERNOR BUSH: I know that. So if you add

22 that up with your teachers' salaries, what's it

23 come up to?

24 MR. HERRMAN: We generate close to $3 million

25 a year. Not all directly comes to the school.

82
1 The district maintains a certain amount.

2 GOVERNOR BUSH: That's my point. The reason

3 why we have two conversion charter schools in this

4 state, even though the law allows this to happen,

5 is economics. It's not all the technical stuff,

6 although there may be legitimate technical things

7 that could be worked out in negotiations. Schools

8 don't get 95 percent of the money.

9 MR. HERRMAN: And Mr. Governor, Mr. Rudy

10 Rodriguez from Chancellor and I sat down and

11 actually went through item for item, tit for tat,

12 dollar for dollar. And when we were done, we were

13 operating in the black. So I think you could ask

14 again the two experts in that area to answer those

15 questions.

16 GOVERNOR BUSH: Yes, sir, Commissioner

17 Gallagher.

18 TREASURER GALLAGHER: One of the things that

19 I sort of see happening here is it looks to me

20 like if you really get down to what it really

21 costs to run a school, at least people want to run

22 it for an amount, and how much we are paying

23 school boards, the more this happens, we are

24 finding there is a big discrepancy. And it's

25 probably not in the school board's interest to see

83
1 how much money isn't getting down to the school

2 and isn't getting down to the students.

3 And I think that's what this issue is

4 about, personally. I think the more charter

5 schools that are able to be run -- and I would

6 prefer that the teachers be on the school's

7 payroll, not the county's payroll but that's

8 pretty much a different issue.

9 But I think we are finding out that we are

10 putting a lot of money into these large school

11 districts, and it's just not getting down to

12 the schools where I think it ought to be

13 getting. So I think that's one of the issues

14 that's driving the denial of some of these

15 charter schools.

16 MR. HERRMAN: We are the only conversion

17 charter school in Dade County that has applied.

18 All the other charters are separate entities. I

19 say separate entities, run as start up charters.

20 TREASURER GALLAGHER: That's fine, and that's

21 a whole different entity. What I am looking at is

22 you have a school that exists that's run by the

23 county, et cetera, and we are sending X-number of

24 dollars down there per student. And private

25 people can come in and run it cheaper and make a

84
1 $450,000 payment to a management company, and

2 still run it cheaper.

3 GOVERNOR BUSH: With all due respect to the

4 private entity, it's not they are doing it more

5 efficiently; they are getting a higher percentage

6 of the amount of money that we provide, because

7 our law says 95 percent. My guess is that we are

8 talking about 60 percent; or whatever the number

9 is it should be -- it's not 95 percent.

10 TREASURER GALLAGHER: You mean that normally

11 gets to a school?

12 GOVERNOR BUSH: Right.

13 MR. HERRMAN: I would just like to say that

14 Mr. Rudy Rodriguez, who was controller for Dade

15 County, he will tell you exactly.

16 GOVERNOR BUSH: This is million dollar

17 question. How much makes it to Snapper Creek

18 Elementary as a traditional public school? And

19 how much is that in variance with it being a

20 conversion charter school?

21 MR. RODRIGUEZ: I don't know that, and

22 Governor and Members of the Board, I used to be

23 the former controller for the Dade County school

24 board for 14 years. I can tell you that the

25 people here, I have the utmost respect for. They

85
1 are very truthful, it's just a matter of

2 communication.

3 As you know, the legislature never

4 provides any monies for administration for any

5 school district. So what happens is when the

6 legislature actually appropriates funds for the

7 schools, a portion of that FTE funding based on

8 the base student allocation and DCD, a portion

9 of that goes to the district.

10 That portion pays for the superintendent's

11 salary, the support staff and all of the

12 functions that the central district performs.

13 And it amounts to about 20 percent that is

14 actually taken. And I think Mr. Corces can

15 actually --

16 GOVERNOR BUSH: So it's 20 percent, which

17 means -- you disagree with that?

18 MR. RODRIGUEZ: Approximately.

19 MR. CORCES: Certainly I do.

20 GOVERNOR BUSH: What do you think it is?

21 MR. CORCES: Let him make his statement and

22 then I will --

23 GOVERNOR BUSH: I am asking you: What do you

24 think it is?

25 MR. CORCES: If you've got the book that we

86
1 provided behind tab 22, I have my analysis, I

2 calculated the actual money that would have been

3 generated by Snapper Creek Elementary during the

4 current school year, and I have outlined their

5 current level of allocations direct to the school

6 and it is more than the money they would have

7 generated at 95 percent.

8 And that's based on their actual payroll,

9 not averages, but that school's actual payroll

10 and the actual resources we allocated to them.

11 TREASURER GALLAGHER: Let me ask you a

12 question.

13 So you took one school that you are

14 allocating there, this school could have been

15 one that in the past was an DRF that

16 automatically got higher allocations for lots

17 of reasons. But you want to take that, and if

18 what you are saying is true on that school,

19 what we are saying is that that can't be true

20 on every school. Because if it was, guess

21 what? You wouldn't have any money left for

22 administration.

23 MR. CORCES: The Governor was on to a good

24 point, which I would like to follow up on before

25 the other gentleman came up.

87
1 When you were talking about average

2 salaries, we allocate on a pupil/teacher ratio,

3 and we allocate teacher units to schools

4 irregardless of their salary level.

5 We do that for a number of reasons. I

6 don't want to put a principal in the position

7 of having to explain to the community why they

8 rejected a Ph.D. math applicant for a teacher

9 because that teacher would have made more money

10 than their budget would bear. So we allocate

11 units, irrespective of the salaries of the

12 teachers at that particular school.

13 Then we turn around and we give the

14 schools a lot of discretion as to how they use

15 certain of those resources, not all. In some

16 schools that have newer, lower-paid staff, the

17 numbers may work out for them.

18 In other schools, with higher than average

19 salaries, the numbers are not going to work

20 out. When I ran my analysis I simply asked

21 myself one question: Would the monies that

22 this school would generate through the charter

23 school formulas from the state, would they

24 support the current level of budget that that

25 school enjoys?

88
1 Now to do that I couldn't take average, I

2 had to take the actual salaries of the

3 teachers. And that's what I have done in my

4 analysis.

5 TREASURER GALLAGHER: That's fair.

6 GOVERNOR BUSH: That's a great point, and

7 it's part of the flaw, I think, in how Dade County

8 budgets, to be honest with you, because what

9 happens is the newer teachers are going to the

10 tougher schools, the veteran teachers migrate

11 towards the Snapper Creeks and Palmettos and the

12 schools that -- I am speculating here, I think

13 anecdotally I would suggest if you go to visit

14 teachers and go to schools in Miami-Dade, you will

15 see the veteran teachers migrate towards closer

16 where they live or places where there is a greater

17 desire; it's not as tough to teach. There are all

18 sorts of reasons why people would do that.

19 If that's the case, then how do you

20 respond to that? In other words, if it's the

21 actual teacher's salary number versus the plug

22 number, are you getting a better deal than you

23 should be?

24 MR. HERRMAN: Sure.

25 MR. RODRIGUEZ: If I may, I would like to

89
1 essentially address the issue. On the analysis

2 that the district did, there were some items that

3 were left out.

4 The school presently runs a preK program

5 and they run a community school program. Only

6 a portion of those funds were actually -- they

7 only included the preK program. They did not

8 include the actual before and after.

9 The district allows the school or gives

10 the school the option to actually run these

11 programs, but they take money off the top.

12 Okay.

13 On the preK program, they actually take

14 the money to the district, and they only fund

15 the school for the position for the preK

16 program.

17 So the remaining monies, the excess

18 remains at the district as a money-making

19 effort and the district needs it. The preK

20 program, they take 25 percent off the top.

21 TREASURER GALLAGHER: How much?

22 MR. RODRIGUEZ: 25 percent off the top for

23 the before and after school program. Those were

24 numbers that were not included in the district's

25 analysis.

90
1 Us, as a conversion school and as a

2 charter school, we provide choice; and choice

3 meaning that we, on top of those programs, we

4 actually provide enrichment programs which are

5 violin, piano, different types of classes. We

6 also provide intermission programs.

7 And these programs are to give the schools

8 the choice.

9 As far as the caps, so you can all

10 understand why we wanted a cap, based on

11 present legislation, the school district, even

12 though the school converts to a conversion

13 school, the school district gets the PECO

14 portion for new construction. And that's about

15 $417 that flows to the district, even though

16 the district is no longer responsible for new

17 construction at the school nor for any

18 maintenance at the school. All of that falls

19 to the school to actually take care of. The

20 only thing that flows down to the school is $67

21 per student. The district gets $417.

22 And those are points of fact that, in

23 essence, nobody in this room can say because

24 the law is quite clear on that. And so --

25 GOVERNOR BUSH: Your former colleague is

91
1 disagreeing with you again.

2 MR. RODRIGUEZ: Those are basically the

3 points of why the cap was actually put in. If we

4 were to go over where do we get the funds to

5 construct, if you see on the proposal, in order to

6 bring it down to a 25 to 1 student/teacher ratio,

7 we are putting in three trailers. If we put in

8 continue to put in three trailers, we are going to

9 take the whole field for the school, and it's all

10 going to be paid by the school. How are they

11 going to be able to function? The new

12 construction dollars are continuing to flow to the

13 school district.

14 Okay. Whether it's 417 or a lower amount,

15 it's in the law. It's in the law. The school

16 doesn't get those monies.

17 As far as --

18 TREASURER GALLAGHER: Let me ask another

19 question. Is there any money taken out -- you

20 have an agreement for rent, for occupancy of the

21 school or does that come free?

22 MR. RODRIGUEZ: No, sir.

23 TREASURER GALLAGHER: So that comes free.

24 Every other charter school has to pay for their

25 building?

92
1 MR. RODRIGUEZ: Yes.

2 TREASURER GALLAGHER: You are taking -- the

3 idea is you get all the teachers that are there,

4 that the county just continues to pay.

5 MR. RODRIGUEZ: No. We get funded based on

6 the FTE. We have got to have sufficient money to

7 pay for those teachers. We are going to pay for

8 the teachers.

9 TREASURER GALLAGHER: How come you don't pay

10 rent? Every other charter school has to. Why

11 wouldn't the county have a right to rent from you?

12 MR. RODRIGUEZ: This is a conversion school

13 and it was the way the law was written. So a

14 conversion school does not pay rent.

15 GOVERNOR BUSH: I don't think that's correct.

16 I think you could -- it's to be negotiated. It's

17 not --

18 MR. RODRIGUEZ: That was my understanding

19 then, and basically I stand corrected.

20 MR. CORCES: If I may offer a couple of

21 points.

22 In terms of conversion charters, the law

23 does prohibit the district from charging rent.

24 We may make them responsible for maintaining

25 the building. Okay. So we can make them pay

93
1 for maintaining the building.

2 Now I would like to mention a point on the

3 generation of PECO capital outlay dollars.

4 For conversion charters, we go through a

5 calculation prescribed in law where we take our

6 PECO maintenance and we allocate it to the

7 charter based on its FTE as a percentage of our

8 CO-FTE.

9 Now if you are familiar with what CO-FTE

10 is, the districts' funding from the state for

11 PECO is based on CO-FTE. CO means Capital

12 Outlay FTE. And what's excluded from our

13 normal FTE are children who are in our FTE, but

14 who do not attend our schools.

15 So you exclude children attending charter

16 schools, you exclude children who are in

17 residential placements, who are not attending

18 our own facilities. Therefore, we would not be

19 generating any capital outlay dollars on

20 children attending any charter school.

21 So we are not reaping a benefit, any kind

22 of a windfall there, and they are getting the

23 calculation based on the law.

24 And it's in our numbers again as far as

25 what their revenue would be.

94
1 GOVERNOR BUSH: Any other comments?

2 Ready to make a motion?

3 COMMISSIONER CRIST: Yes, sir.

4 Thank you, Governor. I would move that we

5 remand this to the school board for approval of

6 the charter school conversion.

7 TREASURER GALLAGHER: I will second it.

8 GOVERNOR BUSH: Any other discussion? All in

9 favor, signify by saying aye.

10 THE MEMBERS: Aye.

11 GOVERNOR BUSH: All opposed?

12 The discussions will continue at the local

13 level. If we ever have a school code rewrite,

14 this board might have different

15 responsibilities. But as you know, this will

16 go back to the school district, and we hope

17 both sides will negotiate in good faith.

18 Thank you. Good seeing you.

19 MR. PIERSON: Item 5 are amended rules for

20 the Florida School for the Deaf and Blind, Rule

21 6D-4.002, Rule 6D-4.003, Rule 6D-8.004.

22 TREASURER GALLAGHER: Move.

23 GENERAL BUTTERWORTH: Seconded.

24 GOVERNOR BUSH: Moved and seconded. Without

25 objection, it's approved.

95
1 MR. PIERSON: Thank you.

96
1 GOVERNOR BUSH: Department of Revenue. Jim.

2 MR. ZINGALE: Request approval of the

3 minutes.

4 GOVERNOR BUSH: Is there a motion?

5 COMMISSIONER BRONSON: So moved.

6 TREASURER GALLAGHER: Seconded.

7 GOVERNOR BUSH: Moved and second. Without

8 objection, it's approved.

9 Item 2.

10 MR. ZINGALE: Item 2 is an administrative

11 order that resulted from the sales and use tax

12 audit of the acquisition of a $5.1 million yacht

13 and $1.1 million sport fishing boat.

14 The audit assessment was argued by Cliff

15 Cox from the Attorney General's staff in front

16 of a DOAH hearing officer, they were debating

17 law and facts.

18 The DOAH hearing officer upheld the

19 department's assessment. I am going to provide

20 a quick overview of the law to try to give you

21 a rough overview of the facts involved in the

22 case.

23 We do have staff here that can go into

24 much more detail on the law or the facts. I

25 that understand you do have the taxpayer

97
1 represented here. We would be glad to come up

2 after the presentation and provide anything

3 that you need to understand this issue.

4 With respect to the law, the law gives the

5 taxpayer a number of choices. This is a sales

6 and use tax situation. The way the law works,

7 if you would have acquired the boat or boats

8 outside the state and brought them inside the

9 state, it would be subject to use tax. If you

10 would have acquired the boats inside the state,

11 you normally would have paid sales tax on it.

12 If you elected to use the vessels exclusively,

13 exclusively for lease, then you would be exempt

14 from paying the sales tax.

15 And upon lease, there would be a charge on

16 the consideration of the lease.

17 That's the basic law.

18 If you chose the lease option, the owner

19 of the vessel could also enter into a lease and

20 choose to use the vessel for personal use under

21 the lease agreement and pay tax on that basis.

22 The facts of the situation that were

23 presented to the DOAH judge basically concluded

24 that the original intent of purchasing these

25 vessels was for personal use.

98
1 There was substantial evidence that showed

2 that the boat could be documented as it

3 traversed the intracoastal waterways; that on

4 two occasions that it had been used for

5 personal use. The law is quite clear in that

6 it is exclusive use for lease. It does not

7 allow a moving back and forth except under

8 lease agreement.

9 Because of that relationship and that

10 finding, the DOAH hearing officer upheld the

11 department's assessment. We can go into quite

12 length in terms of the actual finding of fact

13 in terms of the use of the vessel.

14 But that's basically the case. I know you

15 have the taxpayer here that might like to

16 testify. Do you have any questions of the

17 department at this time?

18 SECRETARY HARRIS: Commissioner Bronson.

19 COMMISSIONER BRONSON: Thank you. One of the

20 things I am trying to figure out is, there seems

21 to be a difference whether you have an airplane or

22 a boat. If you have an airplane and you decide to

23 use that chartered airplane for your personal use,

24 you pay a 1 percent charge or 1 percent tax on

25 that for your personal use.

99
1 But it doesn't seem like we allow that for

2 people who charter boats. And the reason why I

3 am bringing that up because it seems to me like

4 that kind of sets us up for people to try to go

5 around the issue here instead of just paying a

6 flat 1 percent fee. Wouldn't we be gaining

7 just as much if we do it the same way that we

8 do for chartering airplanes?

9 MR. ZINGALE: I am going to have to turn

10 around because it's my understanding that we do

11 aircraft identically the same way we do boats.

12 But as an economist, not a lawyer, I think I need

13 to get a correct interpretation of that. Here

14 comes the interpretation.

15 MS. ECHEVERRI: Lisa Echeverri, Department of

16 Revenue.

17 The legislature has provided a provision

18 for the use of aircraft where in any month

19 where they use the aircraft for personal use,

20 they pay sales tax on 1 percent of the value of

21 the aircraft. It is specific to aircraft.

22 COMMISSIONER BRONSON: But we don't do that

23 with ships, even though the same idea could be

24 used in that -- so the legislature would have to

25 approve the 1 percent to make it an across the

100
1 board deal?

2 MS. ECHEVERRI: The legislature could provide

3 that sort of structure for boats. What is in

4 place though is this lease arrangement where they

5 can basically have the corporation lease the boat

6 to the owners of the corporation under a lease

7 agreement and they can pay sales tax on that

8 lease.

9 So there are ways to structure the

10 transaction to avoid paying tax on the entire

11 cost of the boat, but the legislature has not

12 provided that 1 percent structure that they

13 have for aircraft.

14 TREASURER GALLAGHER: Can I ask a question

15 just so I understand? How does this 1 percent

16 work?

17 MS. ECHEVERRI: The way the 1 percent for

18 aircraft works is if you buy an aircraft and bring

19 it into the state for the purpose of leasing that

20 aircraft, the owner is allowed to use the

21 aircraft; but if they do, in any month where they

22 use the aircraft, they have to pay sales tax on

23 1 percent of the value of the aircraft.

24 TREASURER GALLAGHER: Do they do that once or

25 do they do that every time they use it?

101
1 MS. ECHEVERRI: Each month that they make use

2 of that aircraft.

3 TREASURER GALLAGHER: So in a 12-month

4 period, if they used it any time in that 12-month

5 period, other than I guess paying for it, if they

6 paid for it, then they wouldn't pay the 1 percent

7 tax.

8 MS. ECHEVERRI: If they held the aircraft the

9 entire year and only leased it, never used it

10 themselves, they would never pay that sales tax on

11 the 1 percent value.

12 TREASURER GALLAGHER: How about if they lease

13 it themselves?

14 MS. ECHEVERRI: If they leased it themselves,

15 they would pay -- when we say themselves, a lot of

16 times it's a corporation holding the assets and

17 the owners of that corporation leasing -- they pay

18 on that lease.

19 TREASURER GALLAGHER: Right, but everybody

20 pays on a lease.

21 MS. ECHEVERRI: Right.

22 TREASURER GALLAGHER: So if they use it

23 themselves and they own it themselves and it

24 doesn't get leased, they are basically paying, if

25 they used it once a month, that would be

102
1 12 percent?

2 MS. ECHEVERRI: They would be paying

3 6 percent sales tax on 12 percent of the value.

4 Remember, the value of the aircraft declines as it

5 ages and it's used.

6 Every month where they use the aircraft,

7 you would determine what's 1 percent of the

8 value of the aircraft and they would pay sales

9 tax on that value.

10 TREASURER GALLAGHER: 1 percent tax?

11 MS. ECHEVERRI: It's a 6 percent tax on 1

12 percent of the value.

13 TREASURER GALLAGHER: Okay. It is 6 percent

14 of 1 percent of the value. I was thinking paying

15 1 percent of the value. It gets to be a lot more

16 reasonable number than I was thinking it was.

17 Okay. I just didn't understand that. Thank you.

18 MR. ZINGALE: Any other questions?

19 ATTORNEY GENERAL BUTTERWORTH: I move the

20 item, Governor.

21 TREASURER GALLAGHER: I would like to -- I

22 will second that, but I would like to do this so

23 that we can get these legal issues resolved. I

24 still think they are sort of up in the air on

25 this. I guess this is going to get appealed, and

103
1 probably should be.

2 MR. ZINGALE: The taxpayer certainly can

3 appeal this to I think it's the District Court of

4 Appeals.

5 TREASURER GALLAGHER: I think we need a court

6 to clarify this and that's really the only way

7 that's going to happen; so I am going to second

8 and vote for this so that can happen.

9 SECRETARY HARRIS: We haven't heard from the

10 taxpayer yet. Can we hear from the taxpayer? Is

11 the taxpayer here to speak?

12 MR. ZINGALE: There is a representation of

13 the taxpayer.

14 TREASURER GALLAGHER: I think they ought to

15 at least come forward.

16 GOVERNOR BUSH: Absolutely, speak. We didn't

17 know you were here.

18 MR. STANKEE: My name is Glen Stankee. Good

19 morning, Governor, Cabinet Members. I am an

20 attorney with the law firm of Ruden McCloskey

21 Smith Schuster and Russell, and I represent B.W.

22 Marine in this case.

23 I think that there needs to be a little

24 bit more clarification about the proposed order

25 that's before you now and what the

104
1 administrative judge determined. They are

2 similar only in result.

3 The administrative judge made his

4 determination based on an entirely different

5 theory than what is proposed here. And it is a

6 very important one that goes well beyond the

7 dollars that are involved in this particular

8 case.

9 Essentially, the director has included in

10 his proposed order a rule of law which, if

11 adopted, would threaten several very important

12 industries in Florida, including Florida's

13 maritime industry which a recent study placed

14 at $14.1 billion a year and employs 180,000

15 people.

16 And it's because under the director's

17 theory, the imposition of Florida use tax

18 depends upon how the property is used after it

19 has been removed from the state.

20 The only evidence of personal use of this

21 yacht was after it was removed from the state.

22 They are talking about personal use in New

23 England and in the Caribbean.

24 If that's what the rule is in Florida,

25 it's going to mark a radical departure from the

105
1 way this statute has always been interpreted

2 and applied at all times in the past.

3 GOVERNOR BUSH: Can I ask you a question

4 about that, because I have this chart here that

5 contradicts I think what you just said, which is

6 in the audited period, the number of days that the

7 vessel was in Florida waters was 383 days and the

8 numbers of days it was chartered was 12.

9 Now does that mean the rest of the time

10 it's sitting on the dock?

11 MR. STANKEE: It was in repairs basically

12 every one of those other days.

13 But the issue here is whether or not there

14 was a disqualified use in Florida. There is no

15 minimum amount of chartering that needs to take

16 place in Florida in order to retain the

17 exemption.

18 In fact, this is a very typical chartering

19 operation. They do all of their chartering in

20 the Carribean in the wintertime and either in

21 the New England area or in the Mediterranean

22 during the summer.

23 They come through Florida and they stop

24 here for repairs, provisioning, equipping,

25 staffing, marketing, R and R for the crew, but

106
1 they don't charter it in Florida. It's not

2 they don't want to; the market simply isn't

3 here.

4 So for many, many years, all of the way up

5 until 1996, it was very clear in this industry,

6 what had to happen was that the owners would

7 register as a Florida charter dealer. And

8 under section 212.05, as long as it was used

9 exclusively for leasing while it was in

10 Florida, then they could be satisfied that

11 their exemption was protected.

12 Now the department, for the first time,

13 has interpreted section 212.05 as saying that

14 leasing for purposes of the exemption is not

15 limited to Florida, but includes leasing

16 everywhere. It means there can't be even one

17 single disqualified use of the vessel anywhere

18 or it retroactively goes back and it results in

19 US -- or in Florida use tax, even if the vessel

20 has been permanently removed from Florida.

21 Now this creates a real problem not only

22 from the standpoint of personal use outside the

23 state, but it puts the owners at a terrible

24 disadvantage from the standpoint of chartering.

25 Because bear-boat chartering is what they have

107
1 to do in Florida. There is an administrative

2 rule that says if it's leasing of a vessel, it

3 has to be done on a bear-boat basis.

4 Essentially bear boat basis means that the

5 charterer is to provide the captain and crew.

6 But because it's impossible to do that and

7 in recognition of the fact that the owner has

8 to provide his own captain and crew on these

9 vessels for insurance reasons and obvious

10 reasons, there is an administrative rule that

11 says we will treat that as bear-boat chartering

12 as long as the charterer engages the owner's

13 crew under a separate crew employment contract.

14 That's always been complied with here.

15 But the problem is that bear-boat

16 chartering is uniquely American. When these

17 boats go to the Mediterranean or Carribean,

18 they are almost exclusively chartered on a

19 contract that doesn't qualify. It's called a

20 MYBA contract, Mediterranean Yacht Brokers

21 Association form; it's a single contract that

22 provides for the boat and crew at the same

23 time.

24 These owners don't get an opportunity to

25 negotiate them. They come in by charter broker

108
1 through charter broker and it's given to them

2 on a take-it-or-leave-it basis. If they take a

3 single one of those, it means they pay tax in

4 Florida.

5 Now this is a terrible situation because

6 90 percent of the charters come to them that

7 way. If they turn those down, they can't

8 possibly have this chartering operation

9 survive.

10 TREASURER GALLAGHER: If I may. What we are

11 dealing with here is that a hearing officer has

12 found a fact that you disagreed with and I may

13 disagree with but it's -- and maybe the department

14 changes around a little bit. But the way it is,

15 we can't amend or change the finding of fact.

16 The reason I made my motion is because

17 that finding of fact can be looked at, changed

18 and done whatever by the circuit court. And so

19 that's why this issue needs to go on to the

20 circuit court; your client needs to take it, we

21 need to take it, and we need to have the

22 circuit court make a decision on this.

23 I think your arguments that you are making

24 to us need to be made to the judge of the

25 circuit court, because we are in a position

109
1 where we can't amend or change that finding of

2 fact, whereas that cert court judge can. So

3 that's why it needs to go there.

4 MR. STANKEE: Mr. Treasurer, with all due

5 respect, the judge did not make a finding of fact

6 that there was a disqualified use of this vessel

7 in Florida.

8 Under the administrative judge's theory,

9 he said that every use in Florida had to

10 further Florida leasing operations. Under his

11 theory, if the vessel was ever repaired, fueled

12 or provisioned here and was taken out of the

13 state, it triggered a loss of the exemption

14 then because that use in Florida furthered

15 nonFlorida leasing.

16 So all he found was that this use in

17 Florida by the taxpayer shareholder was one of

18 those uses in Florida that furthered nonFlorida

19 use. That whole theory was a theory that the

20 department rejected.

21 That's not on the table anymore. What we

22 need to do is look specifically at use in

23 Florida and determine whether there was a

24 disqualified use.

25 Use outside of Florida really for all

110
1 intents and purposes should not be on the

2 table. It's a legal proposition that simply

3 cannot fly and it's one that you should not

4 want to see even attempted because it will

5 destroy a huge industry in the process.

6 TREASURER GALLAGHER: But the District Court

7 needs to make that decision, not us at this point.

8 That's my opinion.

9 GOVERNOR BUSH: Commissioner Bronson.

10 COMMISSIONER BRONSON: This is a little bit

11 complicated because of some opinions that were

12 made within the agency. And the Department of

13 Revenue has a tough enough time trying to stay

14 ahead of changes in state law and some of the

15 issues that get done every year in the legislative

16 process. But by trying to find out where they

17 need to apply certain things, it gets pretty

18 complicated, and especially for those of us who

19 are not attorneys, to try to determine whether we

20 are doing the right thing or not.

21 The issue that I brought up before, I

22 think you need -- and your client and all of

23 those who are in the same field as your

24 client -- need to come back to the legislative

25 process to equalize what is done in the

111
1 shipping side of this with the air carrier side

2 for leasing, so that you automatically pay the

3 1 percent -- the 6 percent of the 1 percent tax

4 for any personal use inside.

5 The other I think is going to have to go

6 either -- has to go to state court, certainly,

7 and may even have to go outside of state court

8 since you are talking about the use of that

9 ship outside of the borders of the State of

10 Florida.

11 So there are a lot of things here that are

12 going to have to probably be determined in the

13 court process before it's over with. But I

14 certainly, based on everything we have here, we

15 almost are set to have to go with this so that

16 your client is going to end up going to court

17 to get a ruling from a higher level that's

18 going to set this pattern to come back to the

19 legislative process which the governor will end

20 up having to sign as a bill, because I don't

21 think we can solve it here today based on all

22 the facts that we see. And the Department of

23 Revenue has no other alternative based on what

24 they perceive as being their duty.

25 So I think that's the position we are in.

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1 GOVERNOR BUSH: Any other comments? Is there

2 a motion?

3 TREASURER GALLAGHER: I made one.

4 GOVERNOR BUSH: Is there a second?

5 GENERAL BUTTERWORTH: Seconded.

6 GOVERNOR BUSH: Any other discussion? Moved

7 and seconded. Are any objections?

8 SECRETARY HARRIS: I am going to abstain. My

9 husband is in the marine industry and in an

10 abundance of caution, I am going to recuse myself.

11 GOVERNOR BUSH: Moved and seconded. Without

12 objection, but for Secretary Harris' abstention.

13 Motion passes.

113
1 GOVERNOR BUSH: State Board of

2 Administration.

3 TREASURER GALLAGHER: Motion on the minutes.

4 ATTORNEY GENERAL BUTTERWORTH: Seconded.

5 GOVERNOR BUSH: Moved and seconded. Without

6 objection, it's approved.

7 Item 2.

8 MR. HERNDON: Item 2 is approval of fiscal

9 sufficiency of an amount not exceeding

10 $208,300,000, State of Florida Full Faith and

11 Credit State Board of Education Public Education

12 Capital Outlay Bonds, 2000 series.

13 TREASURER GALLAGHER: Motion on 2.

14 GOVERNOR BUSH: Moved and seconded. Without

15 objection, it's approved.

16 MR. HERNDON: Item number 3 is approval of a

17 fiscal sufficiency of an amount not exceeding

18 $26,070,000 State of Florida Full Faith and Credit

19 State Board Capital Outlay Bond, 2002series.

20 TREASURER GALLAGHER: Motion on 2.

21 COMMISSIONER BRONSON: Seconded.

22 GOVERNOR BUSH: Moved and seconded. Without

23 objection, it's approved.

24 MR. HERNDON: Item number 4 is a

25 recommendation that comes to you from the staff

114
1 and from our investment advisory council to

2 authorize a change in the asset class, domestic

3 equities asset class benchmark.

4 As you recall, we have used the Wilshire

5 2500 some time. It was the recommendation of

6 our consultant and ourselves that we look to

7 the Russell 3000 as a more prevalent and more

8 easily replicatable benchmark. We took this to

9 the investment advisory council a couple weeks

10 ago and they concurred and we bring this

11 recommendation.

12 TREASURER GALLAGHER: Would this be

13 considered a higher level benchmark or lower level

14 benchmark?

15 MR. HERNDON: I am not sure how you are using

16 higher and lower?

17 TREASURER GALLAGHER: Let me clarify it.

18 Using the Russell 3000 or the Wilshire 2500, which

19 has produced a higher net yield over the past 10

20 years?

21 MR. HERNDON: On a performance basis, I don't

22 think either one of them are marginally going to

23 outperform the other. What the Russell 3000 does

24 is it is a far more common benchmark and it will

25 allow us to compare our performance against others

115
1 in our peer group who use the same benchmark we

2 do.

3 Furthermore, it's a little bit more

4 expansive and obviously has 500 more stocks it

5 been the Wilshire 2500. And I think those are

6 the two major elements here.

7 It's not going to generate a dramatically

8 different return result either way. They are

9 both in excess of 90 percent of the market that

10 we are trying to replicate, so there is not a

11 dramatic difference between the two.

12 TREASURER GALLAGHER: You don't want to say

13 which one produces the best in the last 10 years?

14 MR. HERNDON: As I recall, the statistics, I

15 think Russell 3000 is a better performing

16 benchmark. I wasn't trying to evade your

17 question. It's not dramatically different and

18 that was really the point.

19 TREASURER GALLAGHER: I want to feel like we

20 are moving upwards and not downward. Even if it's

21 20 basis points, when you are talking about a

22 hundred billion dollars, that's lot of money.

23 GOVERNOR BUSH: Is there a motion?

24 TREASURER GALLAGHER: I move it.

25 COMPTROLLER MILLIGAN: Seconded.

116
1 GOVERNOR BUSH: Moved and seconded. Without

2 objection, it's approved.

3 How did we do this last year compared to

4 the larger pension funds?

5 MR. HERNDON: Throughout the course of the

6 year, the board's pension fund performance was

7 better than a substantial number of our peers. We

8 are now starting to see the results of the

9 inter-pension fund comparisons, now the calendar

10 year is closed.

11 We do know that in the fourth quarter, for

12 example, amongst our large peers, we were the

13 number 1 performing pension fund in the country

14 which is somewhat ironic since that's the

15 period we booked the Enron losses.

16 TREASURER GALLAGHER: Is that including like

17 CalPERS and CalSTERS?

18 MR. HERNDON: That's correct. It's typically

19 a universe of about 20 or 25 pension funds who are

20 in the 40 and 50 billion-dollar category and up.

21 We also know, and we haven't gotten this official

22 word, but we also know that the board, on the

23 basis of some of the analysis that is done by

24 outside parties, ranked very, very well against

25 other pension funds and against some of the more

117
1 common indices like the S&P 500.

2 GOVERNOR BUSH: That's newsworthy, I look

3 forward to reading that in the Florida newspapers.

4 TREASURER GALLAGHER: I am sure you will. I

5 see them writing, their pens are moving so fast.

6 GOVERNOR BUSH: Good news, that's very

7 newsworthy.

8 MR. HERNDON: Item number 5 is investment

9 monitoring. I wanted to give you a little bit of

10 a background just briefly on where we are with

11 respect to some of the issues that arose during

12 our Enron/Arthur Andersen discussion and how we

13 have tried to respond to those.

14 As you will recall, we brought in our

15 consultants to help take a look at our current

16 procedures and policies. We have involved the

17 investment advisory council and our other

18 advisory council. We are currently working on

19 a new policy that we are frankly trying to -- I

20 don't want to give the wrong impression, it's

21 not something we are necessarily experimenting

22 with.

23 We are trying to field test the policy,

24 see how it works in practical consequences,

25 where we are limiting the amount of exposure

118
1 that we might have to any single stock and

2 trying to create some screens that are useful

3 in doing that.

4 The stock obviously has to represent a

5 significant portion of our portfolio; it's not

6 really going to matter, it has to have some

7 newsworthy events, and so forth. So we are

8 looking at that policy.

9 We are also looking at that same kind of

10 policy revision for the entire safety class.

11 As you know, given the fact that we have

12 multiple portfolio managers within the domestic

13 equity asset class, it's quite possible we

14 could have a portfolio manager that's buying a

15 stock and a portfolio manager selling the same

16 stock on the same day for totally different

17 reasons; or we could have money managers who

18 are accommodating positions and the cumulative

19 effect is something we want to watch as well.

20 So we are looking at that. In addition to

21 that, we also are going to bring to you in our

22 budget recommendations a little bit later on in

23 the year significant strengthening of our

24 compliance unit, our internal audit unit which

25 we think will help us to pay attention to these

119
1 kinds of things in a much more vigorous

2 fashion.

3 But all of these things kind of start to

4 comprise the key elements of a watch list; and

5 that's what we are working towards at this

6 point. We want to give you a little bit of

7 feedback on how we were doing this and working

8 with our consultants and our advisory council

9 to come up with some good strategies to try and

10 minimize the probability that we have in the

11 future Enrons.

12 TREASURER GALLAGHER: I like this idea of

13 your draft on single security evaluation and

14 control. I just have one concern.

15 I know we had the Enron deal. But we have

16 had and you had some success with individual

17 managers who have accumulated large amounts of

18 stock and turned a very fine return for us.

19 And so we are starting to micromanage the

20 managers.

21 And when you do that, you are going to --

22 the only potential is a less, better one. As

23 you do -- I don't know if it's processes and

24 when you look at this list, it's certainly a

25 list I would expect all of our managers to

120
1 already be doing.

2 So encouraging you on putting it down and

3 letting them know we are serious about it is a

4 very good thing. It's not we are having

5 managers, if we are going to micro manage what

6 they are doing. We pay them to take the risk

7 and make decisions for us.

8 So far we've been pretty successful at it.

9 And even you include that, we are very

10 successful at it. So I just want to -- this

11 list is fine, but just let's not encourage the

12 staff to be micro managing the managers.

13 MR. HERNDON: I couldn't agree with you more,

14 Commissioner. That has always been one of the

15 more difficult aspects of this proposition, is

16 that we set up these various screening mechanisms,

17 and so forth, to look at individual stocks.

18 The question still remains: What do you

19 do with that information at the end of the day?

20 Do you, in fact, contradict a manager that you

21 have confidence in?

22 What we have concluded at this point is

23 what we are really trying to do is use these

24 kinds of screenings to focus attention on the

25 decision that the manager is making and go back

121
1 to him and say: All right, talk to us in a

2 much more focussed discipline about why you

3 believe what you believe, why you believe that

4 this stock was falling 20 percent in the last

5 month but is still a good buy. And to really

6 redouble that kind of conversation. We may at

7 the end of the day say: You make a very good

8 argument, Manager, and we are not going to do

9 anything.

10 TREASURER GALLAGHER: What you have to do --

11 and I think Enron was an example, they live or die

12 based on these decisions they make. If they make

13 an Enron type decision, a couple things happen.

14 One, they lose the account because it was a bad

15 one.

16 And two, they are sitting on the side of a

17 lawsuit. So I sort of -- I guess I am weird, I

18 sort of like that way of doing it. But I don't

19 disagree with picking up our efforts of

20 pointing out to the managers that you are

21 outside of where we are comfortable with, but

22 if you've got good reasons, tell us what it is

23 and -- but I don't want us telling them sell

24 that because that starts cutting down on our

25 potential increases.

122
1 MR. HERNDON: Absolutely. We understand and

2 agree with the point you are making.

3 TREASURER GALLAGHER: That's what we are

4 paying them to do. I don't want to pay them and

5 then stopping them from doing it.

6 GOVERNOR BUSH: Can we pause to make sure we

7 are all in sync on that notion? I fully am -- I

8 fully agree with what you are describing in going

9 forward, I think it's important not to overreact

10 to this.

11 COMPTROLLER MILLIGAN: That's where they are.

12 I think they are --

13 GOVERNOR BUSH: I don't think anybody is

14 disagreeing.

15 TREASURER GALLAGHER: I move their update

16 number 5, if we are discussing it, and I think you

17 ought to move ahead with your draft as a goal, but

18 just not micro manage.

19 MR. HERNDON: Yes, sir.

20 GOVERNOR BUSH: Need a motion on that?

21 MR. HERNDON: I don't think we do. I think

22 that was for information.

23 GOVERNOR BUSH: 6.

24 MR. HERNDON: Item 6 is a proposed revision

25 to the investment policy statement that was

123
1 adopted by this body some time ago. We did take

2 these proposed revisions to the Investment

3 Advisory Council in March.

4 Primarily these revisions are to reorient

5 the way the investment policy statement reads

6 so that it is more operational in nature as

7 opposed to anticipatory, which is the way it

8 was previously drafted. It was anticipating

9 implementation, and now we are into the

10 implementation; so we tried to make some

11 modifications.

12 Of course, you also looked at this a

13 couple of months ago for some elements of it at

14 least when we were getting ready to restructure

15 the balance funds and authorize the key

16 components of it then. So I am not aware of

17 any controversy here.

18 COMPTROLLER MILLIGAN: I move it. Quick

19 question, though. Tom, we still have hanging out

20 the direct brokerage issue?

21 MR. HERNDON: Yes, we do. That is something

22 we plan to tackle in the not too distant future in

23 terms of crafting that RFP and going ahead and

24 getting that forward. In fact, we are also still

25 struggling with the contracts for a couple of the

124
1 bundled providers on single value funds. We have

2 not come to a resolution on those as well.

3 So we have got a number of things on our

4 plate we've got to work towards. But on the

5 brokerage window concept, that is something we

6 are going to start initiating work on in the

7 next month and a half to two months.

8 TREASURER GALLAGHER: Where do you think we

9 are going to end up on the stable value fund? It

10 seems to me that the quasi-bundled providers

11 certainly knew what the rules were when they

12 provided those funds to us, and obviously didn't

13 check with the fund managers on the ability for

14 them to deliver what they committed to us to do.

15 MR. HERNDON: That's very charitable of you,

16 Commissioner.

17 I am not sure what the outcome is going to

18 be. We are continuing to have a number of

19 conversations with the bundled providers on

20 these stable value funds. In fact, there are

21 some liquidity provision restrictions in here

22 that are fairly dire compared to the kind of

23 mandate that you all directed us to seek.

24 So we are hopeful that we can restructure

25 them. We do have the option of trying to set

125
1 up some temporary accounts that don't have the

2 same kind of trust restrictions on them that

3 the current accounts do. I am just not in a

4 position to tell you at this point it's

5 resolved.

6 TREASURER GALLAGHER: What you are telling me

7 is that we and bundled providers are talking to

8 the managers about a separate account with our

9 trust debenture as opposed to the one they have

10 with everybody else?

11 MR. HERNDON: Yes, that's correct. Hopefully

12 that eliminates the problem, but that remains to

13 be seen.

14 I do need a motion.

15 TREASURER GALLAGHER: Move 6.

16 GOVERNOR BUSH: Is there a second?

17 COMPTROLLER MILLIGAN: I already moved it.

18 GOVERNOR BUSH: You want to second it?

19 TREASURER GALLAGHER: I second.

20 GOVERNOR BUSH: Moved and seconded. Without

21 objection, it's approved.

22 MR. HERNDON: Item number 7, we misstated

23 this a little bit. It's not really our normal

24 broad-based DC status report.

25 But it really was intended to provide you

126
1 a little bit of statistical insight into just

2 exactly where PEORP is at this point; this is

3 as of April 5.

4 You will see as you look at the little

5 spreadsheet that we have handed out to

6 employees about 158,000 kits, 99.6 percent of

7 the total number of employees in the first

8 group of state employees have been mailed kits.

9 We obviously got bad addresses, and so forth,

10 that we have to redo.

11 And thus far, we have almost 5,000 people

12 who have actually made a choice, which is a

13 substantial number, although only a small

14 percentage of the total population.

15 We think that this is by in large the

16 people who know with virtual certainty exactly

17 what they want to do. These are not people who

18 are really wrestling with the question. These

19 are the folks for whom it's a no-brainer

20 decision in a sense.

21 And, of course, these decisions are

22 reversible up to the point that the enrollment

23 period actually starts.

24 The other point I just wanted to make here

25 is we have about 16,000 people who have signed

127
1 up for workshops or about 10 percent, a little

2 over 10 percent of our total. That's very

3 encouraging.

4 Again, I think what we are seeing

5 fortunately is human nature, we tend to put off

6 decisions until the last minute. I think

7 that's exactly what is happening here.

8 The other significant note as it relates

9 to PEORP on the statistical side of things at

10 least is we'll start mailing to the second

11 group these employee kits in about another 10

12 to 12 days; so around the 15th or so of April

13 we'll start mailing to the education community,

14 and, of course, that's 40 percent of our

15 population.

16 So between the first group and this group

17 coming up, we'll have hit about 70 percent of

18 the total population before that, when that

19 mailing is finished.

20 So far so good. Things seem to be moving

21 along pretty well and I wanted to provide you

22 that with that little statistical update.

23 Item number 8 is a recommendation for the

24 board to contract with Grady and Associates and

25 Johnson Blakely Pope Bokor Ruppell and Burns

128
1 for Alliance Capital Management potential legal

2 action.

3 We had provided your offices with a

4 contract, a draft contract earlier. I know

5 there have been some concerns raised, and we

6 circulated last night a revised contract that

7 attempted to address a couple of those issues

8 as it relates to termination, for example, and

9 also lowering the fee in the case of an early

10 settlement.

11 The other point I want to be sure and call

12 your attention to is that within the body of

13 the revised contract is language that

14 authorizes the executive director on behalf of

15 the trustees to move forward and initiate

16 litigation, so to speak.

17 So I want to be sure and call that

18 revision to your attention as well. And we

19 recommend the original and the revised to your

20 pleasure.

21 TREASURER GALLAGHER: Let me ask a question.

22 On the termination change, upon a majority vote of

23 the trustees, the State Board of Administration

24 contract shall be entitled to reimbursement for

25 costs incurred and paid fees pursuant to

129
1 applicable Florida law.

2 I would like to know what we are getting

3 into that is applicable to Florida law?

4 MR. HERNDON: Let me ask general counsel to

5 come up and answer that question.

6 MS. LETTERA: Good morning. There are

7 various provisions regarding what's commercially

8 reasonable both in the bar rules and by statute,

9 so it would be something clearly that we would

10 negotiate with guidance from the bar and the

11 statutes.

12 TREASURER GALLAGHER: Can you give me an idea

13 what it would entail?

14 MS. LETTERA: It would entail how many hours

15 they put in, what their expenses were, et cetera.

16 In other words, what kind of work they put into

17 the case at that point in time when they are

18 terminated.

19 TREASURER GALLAGHER: Doesn't have anything

20 to do with the agreement that we have? In other

21 words, what you are doing is saying whatever this

22 agreement says didn't mean anything, it's whatever

23 the bar says?

24 MS. LETTERA: We would be terminating them

25 before they were able to really -- this provision,

130
1 I believe, would kick in if they were being

2 terminated before the proceeds from the settlement

3 or a trial were there, for them to get their

4 5 percent or 7.5 or their 10 percent. This is

5 just saying if by some chance you terminate them

6 before they actually are able to conclude the

7 litigation, that we want to be able to compensate

8 them for what is commercially reasonable and we'll

9 look to the bar, and we'll even go into mediation

10 if we can't agree as to what is reasonable.

11 TREASURER GALLAGHER: I have done a lot of

12 these, and I've never put mediation in there. I

13 don't think you had them in the other -- when we

14 sued, I have not seen mediation there. Why is

15 that there?

16 MR. HERNDON: It was simply a fail safe in

17 the event that we couldn't come to some sort of

18 agreement among ourselves.

19 TREASURER GALLAGHER: We usually don't back

20 off on these agreements, and we have been involved

21 in quite a few suits, stockholder suits primarily.

22 What's the language in those? Why is this all of

23 a sudden different?

24 MR. HERNDON: In this case we were concerned

25 that the language relating to termination for

131
1 cause was --

2 TREASURER GALLAGHER: That's not in the other

3 suits either.

4 MR. HERNDON: That's correct. We have the

5 latitude to terminate at will in any lawsuit that

6 we typically enter into.

7 TREASURER GALLAGHER: That's why I think

8 we -- where I am coming to, that's where we ought

9 to be here, like we are in all the other ones.

10 And if you terminate at will, they are

11 going to have Florida law. They are going to

12 go -- they have the right to take us to court

13 and get the fees and expenses that they paid,

14 if we let them go in my opinion. Maybe I am

15 wrong. Maybe somebody can tell me otherwise.

16 MR. HERNDON: I don't know that's a major

17 issue. What we were simply trying to do was to

18 provide some latitude to the trustees and to the

19 parties involved, so that if there was a

20 significant expenditure of funds leading up to an

21 untoward termination, for whatever reason, that

22 the parties would at least have an opportunity to

23 recover their costs, even though there had not

24 been a settlement at that point. It just seemed

25 to us to be --

132
1 TREASURER GALLAGHER: Correct me if I am

2 wrong. On contracts that we've had with others,

3 on similar type issues where they are basically

4 getting a fee, basically a percentage of what they

5 bring in -- I am going to get to the percentages

6 next -- but we don't have this kind of language in

7 there.

8 And I am wondering why this contract has

9 it, and why wouldn't we use the normal language

10 we normally have in those other contracts?

11 MR. HERNDON: We certainly can.

12 TREASURER GALLAGHER: I would like to just go

13 to that, because I think that's an easier way to

14 do it. I don't know why anybody should complain,

15 it should just have a normal termination that

16 exists in existing contracts.

17 My understanding is if that they were

18 terminated for some reason, they would have the

19 right to go to court and the court would look

20 at it and give them fees without going to

21 mediation; that's what would happen.

22 It hasn't happened; I don't expect it to

23 happen here, but I would like to have the same

24 language in there that we had in --

25 MR. HERNDON: As I recall, Linda can correct

133
1 me. Our normal contract language does not have

2 anything at all regarding reimbursement for fees,

3 but I think it certainly has always been somewhat

4 understood that if for some reason, unrelated

5 necessarily to the parties at interest, assuming

6 they weren't guilty of malpractice or something

7 like that, that we would make every effort to

8 accommodate and compensate them for their

9 out-of-pocket costs.

10 TREASURER GALLAGHER: Exactly. I fully agree

11 with that. I am just not -- I just would like

12 there to be the regular language we normally use.

13 MR. HERNDON: We can certainly do that.

14 That's not a trouble.

15 TREASURER GALLAGHER: Nobody else disagrees?

16 GOVERNOR BUSH: No, not at all.

17 TREASURER GALLAGHER: The second issue is the

18 issue on fees.

19 Now some people are going to think that I

20 lost my mind here because I am probably the

21 cheapest guy that exists on these things. What

22 is the normal percentage that we are paying

23 firms that go on stockholder suits?

24 MR. HERNDON: It's in the neighborhood of

25 25 percent, 20, 25, sometimes 30 percent,

134
1 depending on the difficulty of proving up the

2 case, and so forth.

3 TREASURER GALLAGHER: Is there some belief

4 that this is that much easer to prove than those

5 normal suits that we have done?

6 MR. HERNDON: I don't know that we believe

7 that it's easier to prove. It's certainly

8 probably not easier to prove, although that

9 ultimately remains to be seen.

10 TREASURER GALLAGHER: My gut says it's a

11 challenging case. I think we can win, but it's

12 challenging.

13 MR. HERNDON: I think the sense was here that

14 the potential for a recovery was higher if you

15 recognize the amount that the board lost that was

16 due to this one particular firm. And so

17 consequently, we needed to ratchet down the

18 percentage of recovery, given the potentially

19 higher dollar amount that was available.

20 TREASURER GALLAGHER: Here's where I come

21 from.

22 When you make too low a percentage benefit

23 to the lawyer that does it, it encourages them

24 to take a lower figure earlier. And this is in

25 my opinion a fee that does just that.

135
1 And if the only difference is between --

2 you got the first 60 days it's seven and a

3 half, and then after that it's 10 percent, and

4 I know we are going to pay 10 percent of that

5 or something -- the Attorney General -- I don't

6 know why we are doing all that either -- but I

7 am, okay, I guess at this point going from 10

8 to 25 is a little bit outlandish, everybody

9 would think we lost our minds, but I really do

10 think 10 --

11 COMPTROLLER MILLIGAN: The tobacco --

12 TREASURER GALLAGHER: I agree, tobacco was a

13 multibillion dollar settlement, it should have

14 been 1 percent.

15 GOVERNOR BUSH: If you don't learn from the

16 lessons of the past; 25 percent on whatever -- we

17 are not going to get that kind of settlement, but

18 that was a huge rip off.

19 TREASURER GALLAGHER: I fully agree with you.

20 We are hearing in millions of dollars, not

21 billions. And we need to make sure that the

22 incentive is there. I personally, I would rather

23 see 15 percent than 10 because I think you end up

24 getting more in the long run than less by having a

25 decent incentive.

136
1 GOVERNOR BUSH: I have two problems with

2 that. One is it assumes that monetary gain is the

3 only motivation for really talented lawyers.

4 Gary --

5 TREASURER GALLAGHER: You are going to have a

6 hard time with that argument.

7 GOVERNOR BUSH: They negotiated, I assumed

8 they negotiated this in good faith and they have

9 agreed this is an acceptable amount. And if they

10 are not incented to settle something, they have --

11 I know this is laughable, I guess, but there is a

12 cannon of ethics that requires lawyers to

13 represent their clients in ways that isn't driven

14 by their fees; it's driven with what the best

15 interest of their client is.

16 And I know the law firms here represented

17 would, despite the snickering of a couple of

18 reporters covering this story, would agree that

19 this is an important case, they would do what

20 is right, they are not going to be driven by

21 the fees. And the good news is the fees are

22 very reasonable compared to whatever the

23 standard was in the past.

24 TREASURER GALLAGHER: It's more than

25 reasonable, and it's one of those things that -- I

137
1 am not questioning by any means the motivations,

2 but I just know that there is a big motivator in

3 dollars. And when you make it high enough so that

4 they think twice about settling because they can

5 go get more, they go get more. And I can see

6 where I am going on this issue, so I will --

7 GOVERNOR BUSH: I don't know.

8 COMPTROLLER MILLIGAN: I mean, obviously, I

9 think we have negotiated in good faith and they

10 have negotiated in good faith, and we reached an

11 agreement on the fees. And I think to question

12 their integrity and --

13 TREASURER GALLAGHER: I think what happened

14 is you had the law firm here; you had two or three

15 others in line, and they didn't want -- they

16 knew -- they wanted to make sure that it didn't go

17 to the next one because of everything, so they are

18 like: I will take anything; beat me up if you

19 want.

20 COMPTROLLER MILLIGAN: I don't think they

21 went into this to lose money. I think they went

22 into it to certainly make money, and they are

23 comfortable with the percentages that they have

24 negotiated.

25 I do have a question on whether or not we

138
1 want to not be involved in the decision to file

2 litigation. That's what we are saying here, if

3 I understand you, Tom, what you said and what I

4 read.

5 MR. HERNDON: The language, the part of the

6 larger revision going to the fee question says

7 that the trustees do authorize the executive

8 director of the agency to direct the filing of

9 litigation without further authorization.

10 Now our current rules say in litigation of

11 this nature, the trustees must approve that.

12 What we have typically done in times past, and

13 what I would fully envision doing in this in

14 this instance, is upon recommendation of

15 outside counsel and our counsel and probably in

16 concert with your general counsels, make a

17 recommendation to you that we proceed and say:

18 If I don't hear back from the trustees within

19 72 hours or something like that, that we would

20 trigger the event.

21 Now we can also bring it to a trustees

22 meeting if that's --

23 TREASURER GALLAGHER: I would like to take

24 section D out of there personally. It's something

25 that was added.

139
1 GOVERNOR BUSH: What page?

2 MR. HERNDON: It's not numbered; it's about

3 page 5 or so back.

4 TREASURER GALLAGHER: That includes that

5 language.

6 MR. HERNDON: Page 5 at the bottom.

7 TREASURER GALLAGHER: I have page 4. I have

8 the wrong contract.

9 MR. HERNDON: I am sorry, it should be

10 underlined.

11 GOVERNOR BUSH: Top of page 5 of mine.

12 MR. HERNDON: Number D or letter D: If the

13 proceeds are paid on or before August 15; here

14 again the question was to try and recognize the

15 investment of time.

16 TREASURER GALLAGHER: It's on page 4, right?

17 MR. HERNDON: Starts on the bottom of page 4.

18 TREASURER GALLAGHER: Okay.

19 MR. HERNDON: And goes on through. That

20 talks about discounting some of the work, if there

21 is an early resolution, on the theory that if it's

22 resolved quickly, there is not a lot of time

23 invested in the case, then there would be a

24 discount of 10 percent.

25 If they resolve it with material benefit

140
1 of the Attorney General's office or from the

2 Attorney General's office, there would be an

3 additional discount of 10 percent on the fee,

4 on the percentage fee.

5 COMPTROLLER MILLIGAN: I don't have any

6 problem with that being in there. I just did

7 question the last sentence. And with the

8 assurance and understanding that time may be a

9 factor, that you would, the executive director,

10 whoever that may be under the circumstances, would

11 come to us individually and seek approval, not

12 requiring a meeting, then I could live with it.

13 If that's the process that we are accepting, then

14 I certainly can live with it.

15 TREASURER GALLAGHER: I agree with that part,

16 but I also like the first part to be gone, too.

17 COMPTROLLER MILLIGAN: We can certainly vote

18 on it. Are you making the motion that we

19 delete --

20 TREASURER GALLAGHER: I did. I move we take

21 all of section D out.

22 GOVERNOR BUSH: I don't think there is a

23 second.

24 COMPTROLLER MILLIGAN: I am not seconding it.

25 TREASURER GALLAGHER: Okay. I guess D stays

141
1 in.

2 MR. HERNDON: We certainly give you -- there

3 is no question about that.

4 I believe those --

5 GOVERNOR BUSH: The last sentence, are we

6 keeping?

7 COMPTROLLER MILLIGAN: We are leaving the

8 last sentence in, but as a matter of record --

9 TREASURER GALLAGHER: I would like to take

10 the last sentence out.

11 COMPTROLLER MILLIGAN: Then that's fine with

12 me, too, because procedurally he certainly could

13 come to us within 72 hours, so the last sentence

14 really doesn't contribute anything. And I would

15 certainly support a motion to delete that in

16 furtherance to the end of that sentence.

17 GOVERNOR BUSH: Is there a motion to delete?

18 TREASURER GALLAGHER: I move.

19 COMPTROLLER MILLIGAN: Seconded.

20 GOVERNOR BUSH: Without objection, it's

21 approved.

22 MR. HERNDON: I believe those are the only

23 changes.

24 We talked earlier about the possibility of

25 termination language, and we'll go back and

142
1 look at our normal termination language and

2 address it there. I don't believe there were

3 any other changes proposed to the contract that

4 you have previously seen.

5 TREASURER GALLAGHER: Move the contract as

6 amended.

7 COMPTROLLER MILLIGAN: Seconded.

8 GOVERNOR BUSH: Moved and seconded. Any

9 other discussion? Without objection, it's

10 approved.

11 MR. HERNDON: Item number 9 is requesting

12 approval for filing rules for notice for two

13 items.

14 The first is Investment Policy Statement

15 which was approved by the trustees at the

16 meeting on January 29th. These are to file

17 these for notice.

18 And item 9B is also to file a rule for

19 notice that implements the initial asset

20 transfers between the defined benefit plan and

21 optional defined contribution plan; and also

22 file for notice and reschedule hearings for

23 May 21st and then bring these items back to

24 you.

25 TREASURER GALLAGHER: Motion.

143
1 COMPTROLLER MILLIGAN: I will second it. I

2 need to acknowledge 9B does have some discussion

3 items still open.

4 MR. HERNDON: Yes. In fact, I believe we are

5 meeting tomorrow to discuss those with your staff.

6 GOVERNOR BUSH: Moved and seconded. Without

7 objection, it's approved.

8 MR. HERNDON: Item number 10 is approval of

9 the 2000-2001 Corporate Governance Annual Report.

10 This is a report that we typically provide you

11 with every year that lists the proxy votes by

12 category and by number, and so forth. There was

13 not anything of great controversy during this

14 period, and the report I think is fairly

15 straightforward.

16 COMPTROLLER MILLIGAN: I move item 10.

17 TREASURER GALLAGHER: Second.

18 GOVERNOR BUSH: Moved and seconded. Without

19 objection, it's approved.

20 MR. HERNDON: Item number 11 is requesting

21 approval of several proposed rules and limits to

22 rules having to with the reimbursement contract

23 for the Hurricane Catastrophe Fund sharing

24 reporting requirements, the data call in other

25 words, the premium formula and the 2002 rates.

144
1 And all of these would then go for rule-making

2 process.

3 Also I need to just simply say, too, that

4 we do look to the legislature when they come

5 back and address the budget because we don't

6 have hurricane mitigation dollars fully covered

7 here yet. That's a contingency that we are

8 waiting on. And we'll have to see how that

9 unfolds, but it has a marginal impact on these

10 rates.

11 COMPTROLLER MILLIGAN: As I understand it,

12 Tom, 11A is for final adoption, right?

13 MR. HERNDON: No, sir, it's approved and

14 filed for rules as amended for adoption, I beg

15 your pardon.

16 COMPTROLLER MILLIGAN: 11A is final adoption?

17 MR. HERNDON: That's correct.

18 COMPTROLLER MILLIGAN: And 11B is for notice.

19 MR. HERNDON: Workshop, correct.

20 COMPTROLLER MILLIGAN: I would move that we

21 approve them on that basis.

22 TREASURER GALLAGHER: I am sorry, did you

23 make a motion?

24 COMPTROLLER MILLIGAN: I did, and clarified

25 that 11A is for final approval and 11B is for

145
1 notice.

2 TREASURER GALLAGHER: Okay. I understand

3 that.

4 Let's also mention that in a piece of

5 legislation which is the Citizens Property

6 Insurance Legislation that merges the Windstorm

7 Residential Property and JUA, there is a

8 section of that that did take our

9 recommendation and add additional living

10 expense. And you will notice that the rates

11 are lower when you have ALE in it than they are

12 without. So for whatever it's worth.

13 GOVERNOR BUSH: However that works.

14 TREASURER GALLAGHER: It works in that there

15 is -- obviously ALE is a premium driver, and the

16 rates are based on the total premium, the premium

17 for that gets added into the rates so you end up

18 with a higher dollar amount, but a smaller

19 percentage.

20 GOVERNOR BUSH: It's moved and seconded.

21 Without objection, the rates are lower, that's

22 what I like to hear.

23 MR. HERNDON: Item number 12 is a discussion

24 item we put on for your consideration today to

25 discuss the manner in which we proceed to select

146
1 my successor. And the cite is for your

2 consideration.

3 TREASURER GALLAGHER: I will make a

4 recommendation.

5 I know that having been involved in new

6 executive directors a couple, I guess at least

7 one time in my past, and having watched a few

8 others, many times we do lot of searching and

9 end up with where we already are.

10 What I would like to do as a part of

11 discussion is to recommend to my colleagues

12 that we spend the time between now and the next

13 meeting to interview the assistant executive

14 director, Coleman Stipanovich, and see whether

15 each of us is comfortable with him as the next

16 executive director or not. And if we are, at

17 the next meeting we can bring him in; and if we

18 are not, we can discuss it and maybe look at

19 another option.

20 But I would like to have each of us spend

21 sometime with him and have a comfort level or

22 not have a comfort level accordingly. That's

23 sort of what I would like.

24 COMPTROLLER MILLIGAN: I have no problem with

25 that.

147
1 TREASURER GALLAGHER: It was a quick

2 discussion, so we are on to the next meeting.

3 MR. HERNDON: That completes the agenda. If

4 that's your will, that's exactly what we'll do.

5 GOVERNOR BUSH: Thank you.

6 (The proceedings concluded at 12:03 p.m..)

148
1

2 CERTIFICATE OF REPORTER

6 STATE OF FLORIDA )

7 COUNTY OF LEON )

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 16th

19 day of April, 2002.

22 ______________________________

23 SANDRA L. NARGIZ, RMR, CRR
100 SALEM COURT
24 TALLAHASSEE, FL 32301
850-878-2221
25