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Cabinet Meeting Transcripts





The above agencies came to be heard before THE FLORIDA CABINET, Honorable Governor Bush presiding, in the Administrative Building, 1 Courthouse Square, Kissimmee, Florida, on Wednesday, February 27, 2002, commencing at approximately 9:08 a.m.
Reported by:
Stenomask Reporter

Representing the Florida Cabinet:
Commissioner of Agriculture
Attorney General
Commissioner of Education
Secretary of State

* * *

(Presented by Ben Watkins)

1 Approved ...............................007
2 Approved ...............................008
3 Approved ...............................009
4 Approved ...............................010

(Presented by James T. Moore)
1 Approved ...............................19
2 Approved ...............................19

(Presented by Fred O. Dickinson)
1 Approved ...............................019
2 Approved ...............................026
3 Approved ...............................027
(Presented by Jim Zingale)
1 Approved ...............................031
2 Approved ...............................041

(Presented by Wayne Pierson)
1 Approved ...............................042
2 Approved ...............................046
3 Approved ...............................095
4 Approved ...............................095
5 Approved ...............................096
6 Approved ...............................096

(Presented by Eva Armstrong)
1 Withdrawn ..............................96
2 Withdrawn ..............................97
(Presented by Eva Armstrong)
1 Approved ...............................097
2 Withdrawn...............................097
3 Approved ...............................103
4 Approved ...............................103
(Presented by Tom Herndon)
1 Approved ...............................109
2 Approved ...............................120
3 Approved ...............................124
4 Approved ...............................134

GOVERNOR BUSH: For the folks that don't turn on some obscure public television channel to watch the Cabinet proceedings at home ?- I don't know if they are broadcast outside of Tallahassee, but what we do is, we go through ?- this is a very unique ?- in fact, the most ?- there is not another one of its kind among the 50 states.
Sitting here ?- and it's going to be ?- this is the last year in which this structure will exist.
You see seven statewide elected officials, all of which have responsibilities for their ?- their own departments. In addition, we serve as the Executive Branch in the form of the Cabinet for a variety of different issues.
And so, what we do is, we go through our agenda for the departments that report to the Cabinet, and I would ask the presenters to describe a little bit about what you do so that the people here of Osceola County get a sense of the regular work that we do.
With that, I would like to ask Ben Watkins from the Division of Bond Finance to start us off.

MR. WATKINS: The role of the Division of Bond Finance within state government is to basically to borrow money for the state.
GOVERNOR BUSH: Ben, can you hang on one second. Is this being televised or something? Is there a ?-
MS. GOODSON: You need to be at the mic, Ben. Sorry. Okay. I didn't know.
MR. WATKINS: I can do that. I hope you all know what we do. These folks do. This is for the benefit of the. Never the less.
The role of the Division of Bond Finance is to borrow money for the state and we do that by issuing tax exempt bonds. We administer various financing programs for state agencies.
For example: The state has $18.3 billion outstanding, with more ?- about 60 percent of that, or over $10 billion being money borrowed for school construction on behalf of the Department of Education.
We also have about $5 billion outstanding that we borrowed for the Department of Transportation for construction of roads and for acquiring right-of-way.

And lastly, about two and a half billion dollars outstanding for buying land for environmental purposes to protect Florida's valuable green space from future development.
So, those are examples of financing programs that we administer.
There's one important distinction to understand. The Governor and Cabinet, sitting as the governing board of the Division of Bond Finance is an Executive Branch function, and we serve to implement the financings for the state.
The Legislature, as the body responsible for formulating the state's budget and the spending plan is responsible for deciding how much we spend, how much we borrow, and what that's for.
And then, the Executive Branch function is to implement that by borrowing through issuing tax exempt bonds.
Our primary business mission is to borrow at the lowest possible cost and everything that we do revolves around that function.
With that, by way of overview, Item No. 1 on our agenda is approval of the minutes of the February 12th meeting.

GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
MR. WATKINS: Item No. 2 is adoption of a resolution authorizing the issuance of up to $26,070,000 in State of Florida capital outlay bonds for school construction.
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
These are ?- can you explain where this, the proceeds that are the dedicated source of funding for the debt there, just to remind people.
MR. WATKINS: We have a portion of motor vehicle license tag revenues secure these bonds, and each school district can elect to leverage a portion of their share of this revenue stream.
So, that's the revenue stream that secures the bonds. The local school district decides how much of this they want to utilize, how much of this they want to pledge to repay future debt, and then they receive the monies and are able to build schools with that.

GOVERNOR BUSH: It would be appropriate here to pause and to congratulate and commend Osceola County for its management of its school construction efforts.
This is a fast-growing county and they have ?- this is one of the few places in the state where the school districts ?- school district and county commission work together to site schools, to plan for schools.
The schools here are built at a lower cost per student per seat than most places in the state as well. I use Osceola County as a model of what other districts need to so that we can use this money wisely and efficiently to make sure that we don't have overcrowding.
MR. WATKINS: Item No. 3 is a resolution authorizing the competitive sale of up to $100 million in Florida Forever Bonds for acquiring environmentally sensitive lands.
TREASURER GALLAGHER: Wasn't that $150 million?
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.

MR. WATKINS: And Item No. 4 is a report of award on the competitive sale of $150 million in Department of Transportation right-of-way acquisition bonds.
The bonds were awarded to the low bidder at a true interest cost rate of 4.92 percent.
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
In Item 2, did we ?- did we move it and second it? Make sure. We did. All right. Thank you.
Thank you, Ben.
The Florida Department of Law Enforcement.
COMMISSIONER CRIST: Motion on the minutes.
GOVERNOR BUSH: Motion and second on the minutes. Without objection, it's approved.
Commissioner Moore.
COMMISSIONER MOORE: Good morning, Governor.
GOVERNOR BUSH: Good morning.
In keeping with your request to explain a bit to our participants here the role of the Department of Law Enforcement let me take a moment and do just that.

COMMISSIONER MOORE: FDLE is a statewide law enforcement organization with just over some 2000 members in 23 offices statewide, with an annual appropriation just in excess of $249 million, the bulk of which, I might add ?- and I'm very proud of this ?- goes back directly to support local law enforcement and local criminal justice across our state.
Our mission is very direct and very simple, to prevent, investigate and solve criminal activity in the State of Florida.
You know, better than most, that the vast majority of law enforcement in our state is local, as it should be. Sheriff Aycock will tell you that. Chief Geier of Kissimmee here will tell you that.
The role we play is adding value to the good job that they do and the good job that our 40,000 plus state and local law enforcement officers across Florida do every day.

We do that in a variety of ways. Certainly, we know that criminals do not respect jurisdictions or county lines or city limit signs. In fact, they use that to their advantage to create crime and raise havoc and threaten our public safety in this state.
That's one of the reasons the Department of Law Enforcement was formed, so crimes that are multi jurisdictional in nature, we then investigate with our special agents and our inspectors across the State of Florida.
In fact, on an average year, we'll investigate some 6,000 plus criminal enterprises. We do that in four major categories, major drug trafficking organizations, we do it in fraud and economic crime.
Third, we address public corruption at all levels of government in Florida. And fourth, we support and assist local law enforcement in the investigation of violent crimes, as well.
Another way we add value to the good job that local police and local criminal justice do in Florida is through our system of statewide forensic crime laboratories.
We have seven major crime laboratories in Florida. Last year they handled over 100,000 pieces of evidence in criminal proceedings, 98 percent of which were submitted from local law enforcement.

So, those labs there, Governor, are to support local criminal justice and local law enforcement in our state.
A moment of personal privilege to brag on that lab, if I can, that lab system is the largest accredited forensic laboratory system in America. It's been re-accredited subsequently for the last 15 years with honors.
We have the largest DNA database and the most effective DNA database in terms of the number of hits that go through ?-
GOVERNOR BUSH: Why don't you explain ?-
COMMISSIONER MOORE: ?- on a statewide database.
GOVERNOR BUSH: Explain a hit. How does this work?
COMMISSIONER MOORE: Well, the DNA database is the blood fingerprinting of individuals when they are convicted for a series of enumerated crimes under Florida law.
Upon being convicted, they are required by court order to provide two samples of blood to the Department of Law Enforcement.

We then take that blood and blood fingerprint it, do the DNA classification on it, put it in the database, which now has just sort of 200,000 entries in it, and then in the event ?- and 60 percent of the time these people reoffend in our state, when they do commit another crime, and they leave any kind of body fluid, blood, semen, hair follicles and anything that has DNA capacity in it, we can ten take that from the crime scene, search it against that database and then identify the individuals that have been involved in crimes previously in the State of Florida.
Not only do we have the 100,000 plus, almost 200,000 entries in our database, we also serve as one of the eight states with the Federal Bureau of Investigation for DNA across American.
So, if someone committed a crime in Michigan, for instance, and then came to Florida, we would know about that if, in fact, we collected their DNA at a crime scene.
In fact, Governor, I think Governor Ingle just told you up at the National Governor's Association that we cleared one of his 20-year-old crimes out of the State of Michigan through this database.
GOVERNOR BUSH: Apparently he's coming down to be with us.

COMMISSIONER MOORE: That's exactly right.
GOVERNOR BUSH: He's going to be a visitor in our correction system.
COMMISSIONER MOORE: That's exactly right. And we ?- we he has a long and productive stay there.
So, suffice to say, our of 300 scientists in that laboratory system do a great job, and I ?- there's a lot of first we could talk about, but I won't bore you with that time.
Another way that we add value to the good job local police perform in out state ?- this is a very critical part. It's in the provision ?- the collection of the provision of information to our policing community.
We have a network of some 30,000 plus devices on the Florida Crime Information Center computers that Sheriff Aycock will have soon in his ?- in his patrol car here in the county.
They are in all the dispatch centers across the State of Florida as well. This Florida Crime Information Center literally serves as a lifeline to police officers and criminal justice officers in the State of Florida.

If someone stops your car ?- I know no one in this room would ever have their car stopped, but if a car is stopped on the side of the road and you run an inquiry on the tag, the police officer does, well, in a matter of seconds that inquiry comes up to the Florida Crime Information Center Network.
It's searched against some six and a half million criminal history files that we have on file in the Florida Crime Information Center. It goes over, then, to Director Dickinson's Department of Highway Safety and Motor Vehicles, check to see who owns the car, is the car reported stolen or are there any wants or warrants on the driver, not only in Florida again, but we serve as control terminal to the NCIC, the National Crime Information Center, so we're checking those same records in the other 49 states at the same time.
So, in a matter of seconds that information is back to the police officer, so when he approaches your car he knows who you are, who should be in that car, who owns the car and if, in fact, the car is stolen or you are wanted. The information really helps police do a great job in Florida.

I might add, Governor, and Cabinet Members as well, that we're very proud of this fact, that most of that information is public record, too.
You get, as a citizen ?- if you go to the FDLE website, and you can get to there from our, you can log on and you can find out, is there any sex predators living on your street or in your neighborhood or in your zip code or city or county.
Florida was the first in the country to put digitized images of those predators out on the internet for the public to have access to free of charge.
You can check to see if any property, secondhand property, or items, if you are thinking about buying, has been reported stolen anywhere in Florida or the country.
You've got a television, a car, a weapon, whatever it might be, you can check, again, free of charge on line if you desire for yourself, if that would be wise purchase.
You can look at Florida's most wanted fugitives. You can request criminal history information which, under Florida law, is a public record as well.

So, that information is there not only for the police professionals in Florida, but it's there to help our citizens do what we've always asked them to do, take a more active role in providing for their own public safety.
Governor, our newest role that we've been given at your direction, and with the bill that you signed after it was passed by the Legislature, is to coordinate the state's efforts in strengthening our domestic security here in the State of Florida.
And with your leadership and the leadership of this Cabinet, the leadership of our Legislature and local governments across the Enterprise of Florida, coupled with our public and private partners, we're making great headway there.
Just a few days ago, as you'll recall, we were joined by Governor Ridge down in Orlando. His words were, he likes what he sees in Florida's approach. In fact, he suggested it ought to be the model for the other states in the country to follow.
In a nutshell, Governor, that's a summary of the Department of Law Enforcement and what we do.

With that, we had a motion on the minutes and approval. I believe I'll move to Item 2, which is submission of the Quarterly Performance Report for the second quarter of this fiscal year.
GOVERNOR BUSH: Any discussion?
(No response.)
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
Thank you, Commissioner.
COMMISSIONER MOORE: Thank you, Governor.
GOVERNOR BUSH: Sheriff, we welcome you. Good to see you.
That's the first time Tim Moore's gotten a round of applause for a for his presentation let the record show that.
COMMISSIONER MOORE: (inaudible) Governor. Okay.
GOVERNOR BUSH: That was applause for the Sheriff. I'm sorry, Jim.
COMMISSIONER CRIST: Motion on minutes.
GOVERNOR BUSH: Department of Highway Safety.
GOVERNOR BUSH: Minutes are moved and seconded. Without objection.
MR. DICKINSON: Thank you, Governor.

GOVERNOR BUSH: Fred, how are you doing?
MR. DICKINSON: Fine. Thank you.
Good morning. Good morning, Osceola County.
My name is Fred Dickinson and I serve, as my counterparts do, at the pleasure of the Governor and Cabinet. I'm the agency head for the Department of Highway Safety and Motor Vehicles.
Four basic divisions for four program areas. One is the Florida Highway Patrol, our most visible flagship of our agency. It's the largest statewide law enforcement agency in government. We've got about 1800 Troopers, just under that. And I think you pretty much know what their function is.
We're quite proud of some of the things that we've done in the Florida Highway Patrol. Recently we worked very closely with your local law enforcement and, of course, Tim has done a marvelous job, Commissioner Moore.
Of course, the events of 9/11 have set everybody back. We've really improved our operations. The communication link has certainly been jacked up a notch.

And I'd like to compliment the Governor and Cabinet on their leadership, and Commissioner Moore for bringing the law enforcement community together.
But the men and women of the Florida Highway Patrol are committed to service. In one day they patrol roughly 100,000 miles of highway here in Florida, and we make thousands ?- literally thousands of contacts. Some of them more positive than others, but we're stressing contacts in the Florida Highway Patrol, instead of just the tickets. And I know you're welcome ?- it's welcome when law enforcement is needed.
One of our other divisions is the Division of Driver Licenses. It, too, has come into the forefront a little bit. It seems like the driver license laws are being used now to not only enforce and interpret, but the whole immigration laws are really being enforced through the driver license right now in most of our states.
And the Governor and Cabinet, we've worked with to change some of our policy in the driver license world. As Tim mentioned, we ?- I keep saying Tim. Commissioner Moore. All of us travel a lot in the same circles, so we're on a first-name basis.

But we also utilize the internet and the computer world. You can renew by mail, phone or the internet your driver license, your tag, and so we're trying to be progressive in that regard.
Unfortunately, only about ten percent of those available to that service are using it, but we're trying to encourage more and more.
Driver license, obviously license are 15 million drivers in this state. We have the largest percentage of drivers per population of any state in the nation. And of course, that's probably accountable ?- because we do have a little higher age of any state in the nation.
But certainly our young people are most important to us and we've been the real leader in a number of areas with regard to the licensing of minors, and really led the nation.
We've reduced our fatalities for teen-agers by 60 percent in the last five years, though, with some new laws that ?- I'm sure they're aware of the curfew laws, but I see some smiles, and I'm sure there are times when they don't prefer them, but law enforcement has really worked with the teen community to make sure it's not being overzealously applied.

Our third division is motor vehicles. We do all the registrations for your tagging of your cars, registration for your cars. Your local tax collector, Betsy Heffner, collects money for the department which primarily goes to the Department of Transportation Primary Trust Fund, as well as the Department of Education for the Education Commissioner.
And I think Ben Watkins alluded to that earlier in his presentation.
But the tax collectors do a marvelous job for us. We're right behind the Department of Revenue that Dr. Zingale will be talking about in a little while with regard to revenue collections in our state.
Governor, if I might real quick, I'm going to run through a couple of things that we do on a daily basis.
We've got about just under 5,000 employees in our agency. As I said, about 1800 sworn law enforcement. We have 150 driver license offices, 24 of which are being used also by the ?- the tax collectors are also providing the driver license service for us.

We experience about seven fatalities in our state a day. Let me point out one thing that I'd like to make a comment about, and that's alcohol-related fatalities.
We have made miraculous strides in the last 15 years. We've dropped alcohol-related, from 60 percentile down into the 30's, and that's when our record keeping and our data processing has gotten so much better, so we're much ?- we know more about alcohol-related fatalities and alcohol-related crashes than we ever have.
Still not enough, folks. One is too many for us. But, society, the beer people, the distilleries, the MADD groups, all the collateral groups, your Legislature, the law enforcement community, everybody has really pulled together. It's just not as fashionable to drive drunk as it once was.
But that's a horrible carnage on our highways and I'm happy to say we have cut the alcohol-related fatality rate in half over the last 15 years. But, 30 percent, quite frankly, is still too dad-gum much for me.
So, I hope you will join with us and try to keep ?- keep our roads free of alcohol-related deaths. And that goes for you guys, too.

We have one of the ?- we are one of the first states to adopt a .02 for minors. And I don't know if any of you know much about .02 alcohol. I'm sure they do, but they're not allowed to drink anyway, but we will take their license if the reading registers a .02. It's been a very successful program.
We collect about $5.6 million a year ?- a day, excuse, for our state. As I said, we patrol about 100,000 miles.
Voter registrations. We do motor-voter. We've registered about six million voters in the last seven years. We have tightened up that process substantially since the last election and look forward to a very smooth transition into the next one.
We register about 52,000 vehicles a day, issue about 17,000 license plates, transfer another 16,000 to vehicles, handle about 30,000 driver license customers every day in our offices.
We dispose of about 14,000 court dispositions, have a number of driver contacts, as I mentioned, and hold hearings for those who have had driver points, driver suspensions on our database.

We're very pleased to serve this state and we look forward to a great ?- a great future. They're not going to build a lot more roads, but traffic management is certainly a key. I know you all know about it probably here in Central Florida as well as anyone.
And I would like to say, it's a heck of a lot prettier on this side of 192 than it is riding down that neon highway. This is a beautiful area you have here.
Thank you, Governor. With that, I turn to our agenda.
GOVERNOR BUSH: Were you referring to the beautiful streetscaping that's been done here in Kissimmee?
MR. DICKINSON: They've made tremendous progress.
GOVERNOR BUSH: This is really pretty. I don't know if that came all from ?- was some of that money state money so we can get a little credit for it?
MR. DICKINSON: I'm sure it will be in the future, Governor. The second item is our quarterly report from July to September '01.
COMMISSIONER CRIST: Motion to accept.

GOVERNOR BUSH: Moved and seconded. Without objection, the information is accepted.
MR. DICKINSON: And our third item is the quarterly report for October/December 2001.
GOVERNOR BUSH: Moved and seconded. Without objection, the information is accepted.
Thank you.
MR. DICKINSON: Governor, I would like to point out, through the leadership of our new Colonel on our Highway Patrol, our major categories are up double digits across the board in the last six months that he's been at the helm, and I'd like to thank you all for the support you've given us.
The Troopers have really come to the forefront. And I know we've worked with the Sheriffs over time. We don't have enough law enforcement out there to do all the jobs we do, particularly in this area.

We're running from crash site to crash site and I'd just like to say that we appreciate the support you've given us and look forward to Colonel Knight's leadership, to get more out there for our local law enforcement.
GOVERNOR BUSH: Thank you, Fred.
On one of the ?- Fred mentioned the driver's license issue that we're implementing new policies, and just to simplify it down to its simplest form, when a legal immigrant comes on a tourist visa or an L-1 visa or a business visa, was here for a period of time that's fixed, my personal opinion is, and it is now the policy of the state, that the driver's license should expire on the day that the visa expires.
And that was not the case before, because we had two different systems and now, though, with the new realities of September 11th, I think it's important to recognize that we're an open society, we, particularly here in Central Florida, we love visitors coming to spend money here, and we want to be as friendly and hospitable to people from all over the world, but when their time is up, it's time for them to leave.

And I don't think that that is a bad concept at all. And our driver licenses are used as sources of identification. Sadly, some of the evil-doers may have used their driver's license to prepare for the attack on America, and I think it was appropriate to respond.
And I appreciate Fred's office working on that through some of the more difficult issues, given the fact that Florida is a state with a large number of people that move in and out.
It's not an easy thing to do, and we appreciate the work of the department.
MR. DICKINSON: Thank you, Governor.
AUDIENCE MEMBER: Fred, don't forget the seniors. You mentioned the youth. Remember senior citizens. We represent 26 percent of the population.
GOVERNOR BUSH: A lot more than that.
AUDIENCE MEMBER: That was my last figure.
COMMISSIONER BRONSON: Governor, if I might, also while Fred is departing, I'd like to commend the Department, the Highway Patrol, FDLE and all the law enforcement agencies of the various counties and the law enforcement groups of all the Cabinet agencies that have come together to make us one of the strongest and best well-protected states in this country right now from the terrorism standpoint protect this state.

I think we are probably above most states in our ability to work together as a group, and I think it's commendable that all these organizations be recognized.
GOVERNOR BUSH: Absolutely. I was actually surprised, speaking of homeland security, which was a topic of the National Governor's Association, and I was really surprised at the lack of intensive response in many parts of the country.
I felt a little out of ?- out of place when discussions were taken place, that we had already done and we're advancing and moving forward in other areas, and the other states were just beginning to look at some of these issues.
So, particularly in an area like Central Florida where visitors and air travel is so important and making sure that we have safe, secure places for our visitors and for the citizens of this state, it is really important that we made this a high priority, I think, and law enforcement has really led the way.

And we're doing it in a totally cooperative way, where it doesn't matter where you're from, what department you work for, what level of government, our regional security task force structure accommodates the public health side of this, fire rescue, local law enforcement.
We're using our technology that Commission Moore mentioned for the betterment, I think, of our state. And the good news is, just as Osceola County would love to have a little bit from the ?- a little money from the state, the federal government is going to appropriate a ton of money on this, and we are ?- because we have a state plan, we are going to get a lot of the costs of this, local and state costs reimbursed, which for the taxpayers, is good news as well.
Commissioner ?- excuse me. Secretary Jim Zingale, Department of Revenue.
MR. ZINGALE: Director.
GOVERNOR BUSH: Director. Do you want to be a commissioner?
COMMISSIONER CRIST: First on the minutes.
MR. ZINGALE: Never. Too difficult a jump.
GOVERNOR BUSH: Moved and seconded. Without objection the minutes are.
Item two ?- or, please give us a briefing.
This is your friendly Department of Revenue. They are here to help you.

MR. ZINGALE: I'm the tax man. So, you kind of understand that for us, the Department of Revenue, it's ?- it's fun. I hate to say that, but it's exciting times. We enjoy serving the public.
Unfortunately, with me, you get a little civic lesson about your taxing structure to give you some idea, but we have three primary programs.
We administer 33 state taxes. We don't administer the federal income tax. We don't administer the local property tax, but we deal with sales, corporate, motor fuels, intangible taxes, your basic state taxes that support the vast majority of the budget that the Governor recommends to, and the Legislature will be dealing with over the next few weeks.
That tax structure may not quite be what you think it is because while you pay the tax, citizens of the State of Florida, tourists pay the tax.
Most of you don't have a business relationship with the Florida Department of Revenue. 92 percent of all the business relationships we have in these taxes are with the business community.

You pay sales tax when you go to the mall, when you go to the movie theater, when you go out to eat, but we deal with the retail establishments in insuring those tax dollars get to the State of Florida, get to the right place.
Corporate income tax. You provide the income that goes into those corporations. We deal with the major corporations in terms of that.
So, on the tax side, we bring in 26 ?- or you bring in $26 billion a year. Big business. $26 billion.
Our goal within the department in serving that you and the business community, is to reduce the administrative burden of tax administration. Our job is to cut cost, raise productivity and approve services, and we need to do that on the business community side, too.
And we also strive very hard to insure that they know what the law is and they know how to follow the law correctly. So, our job is to help them. Our job is to cut their administrative contacts with the Department of Revenue.

We have chosen to do that with some fairly creative law changes that the Governor and Cabinet recommended, the Legislature adopts. We've done that with telecommunication services tax this year, consolidating it and making it a statewide administrative program.
We have done it by proactively working on the phasing out of a couple of taxes. The intangible tax has made major tax relief reductions and over time is likely to be revealed.
The federal estate tax is on a path to be repealed. Those are the only two major taxing sources we have in the state where citizens of the State of Florida have a direct relationship with the Department of Revenue, and they are soon to go away.
We choose, though, to modernize the Department of Revenue. You have one of the most automated Department of Revenue's in the country. We have ?- of that $26 billion, $20 billion of it comes in electronically, bank-to-bank. No mail, no checks in the mail. Twenty of $26 billion comes in electronically.
Out of the documents that are filed over the last three years, we now process ten percent of all of the documents electronically. Soon to be as high as 30 percent over the next two years with the modernizations that are going on.

We have embarked upon a major transformation of our computer systems to provide one-stop service for this business community that we deal with.
We have worked with good private sector partners, Deloitte and SAP, to build the most modern computer system of any revenue agency in the world.
It's been up and running for two years. We have had corporate income, intangible tax, motor fuel tax, three of our major taxing sources integrated into the system, and in the next ten months we'll be putting the $16 billion sales taxes into that system, and we'll be able to provide one-stop service to most of the business community in terms of registration, in terms of filing, in terms of accessing an account, from status account, doing the kind of things that will help the citizen insure that these people that are filing their taxes are doing it correctly.

Within the Department of Revenue, it's going to cause a streamlining at the Department of Revenue. We'll have substantial fewer people in the Department of Revenue three years from now than we do today. That's part of our goal to run government in an efficient manner.
That's usually what you hear from a revenue agency. We chose to take the computer route. We chose to deal with taxpayer education and assistance. We chose to deal in an electronic world to provide our service.
But we are one of only a handful of agencies in the country that do child support. And child support isn't something that you normally associate with the tax man, but it's a very significant program.
I served about four and a half years on the fatherhood commission and started to learn how important this child enforcement payment is to these families.
We have 710,000 cases, and that deals with almost 900,000 children that are eligible for child support in the State of Florida.
GOVERNOR BUSH: Jim, how many children are there in the State of Florida? Well, there's two and a half million students in our K through 12 system, so ?-

GOVERNOR BUSH: Pre-K. I mean, just ?- I wanted to pause and just put this in perspective, because this deals with an issue that's not political or anything, but it deals with changing family structures and how government has to then fill voids.
Because, we're talking about may three million citizens under the age of 18 in our state, of which 900,000 have some child support claim.
MR. ZINGALE: And when you add to that the custodianship ?-
GOVERNOR BUSH: That's a chilling statistic.
MR. ZINGALE: A custodial parent, another 700,000. You start dealing with about one and a half million citizens of the State of Florida that need child support services.
For the low-income family, the vast majority of the cases that we deal with are low-income family cases. This child support payment constitutes 25 percent of their income on the average. A very substantial financial contribution of the development of that family.

As such, this program came over to the Department of Revenue from Children and Families about five years ago. We have had a fairly aggressive modernization of the program, but it's been hard work, and unfortunately, we have a long, long way to go.
The child support program deals with two kinds of issues. You know, who is the father, establishing paternity, and then getting a support order, how much money is owed, and then insuring that the noncustodial parent pays that financial support.
We have a lot of tools that the Governor and Cabinet have recommended, and that the Legislature has passed to enable us to do that job. We have driver's license suspension, working with Fred's organization.
We have financial institution data matches where we are linked to over 1700 financial institutions across the country to intercept monies that are in financial institutions, checking accounts, savings accounts.
We can deal with income deduction with employers. Every employer in the State of Florida has to report to us a new hire. Why is that so significant?
Okay. Parents need to deal with their financial obligations, their children, and it's our job to enforce that.

Progress to date has been okay. I can't quite brag about it the way that two previous speakers did. In getting cases to order, we've gone from 40 percent to 58 percent of cases to order in the last ?- in the last three years.
That's progress, but not nearly as well as we should be doing.
On the collection side we're up to 54 percent of the money owed collected, up from about 48 percent just three years ago. But as far as we're concerned in the Department of Revenue, that's not nearly good enough, and we have a very aggressive campaign in front of the Legislature this session to continue to give us the kind of tools we need to do our job.
We have gotten permission to be one of three states in the nation that the Federal Government has authorized a brand new computer system. We're kind of a computer Twinkie in state government.
That system has got an invitation to negotiate bid on the street right now, okay, for phase one of that computer system. That's going to enable us to enhance our collections dramatically over the next two years.

Phase two of that is going to go into the support side and get a case to order faster and quicker and, anticipating that coming, we piloted over in Volusia County, a quite innovative way of getting the cases to order.
We're piloting administrative establishment instead of judicial establishment over in Volusia. The results after eight months are that we can get twice as many cases to order in half the time.
Okay. When you can start dealing with that backlog that we have, that twice as many cases in half the time, you have the kind of innovation that we believe we can raise the child support enforcement program over the next five years to the top five in the country. At least that's our goal.
We've got tremendous support from the Governor and Cabinet. Everything that you hear us talk about here, when you go to the Legislature, has to come up and be recommended by the Governor and Cabinet.

They have been exceedingly supportive of the kind of modernization that we're doing on the tax side, and very supportive of the kind of progress we are making on the child support enforcement side. We have a long way to go on child support, and we are kind of encouraged about that. But that's the progress.
We also kind of oversee your property tax functions, but we're not going to go into that in much detail.
That's the report from the tax side.
We have one other item on the agenda. That is a rule dealing with, on the child support side, garnishment of wages. We would like that adopted.
COMMISSIONER CRIST: Motion on the rule.
GOVERNOR BUSH: Moved and seconded. Any discussion?
(No response.)
GOVERNOR BUSH: Without objection, it's approved.
MR. ZINGALE: Thank you.
GOVERNOR BUSH: Thank you, Jim.
For some of you, I hope that you're encouraged that Dr. Zingale's passion is on efficiency in respect to the taxpayer, not on expropriating your money.
He didn't talk much about that. He talked about making it efficient and making it work well for taxpayers.

MR. ZINGALE: You notice how there is never any applause.
GOVERNOR BUSH: I'm speechless.
ATTORNEY GENERAL BUTTERWORTH: Rodney Dangerfield of the government.
GOVERNOR BUSH: State Board of Education.
TREASURER GALLAGHER: Motion on the minutes.
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
Item two. No. Give us a little quick ?- you don't have to speak with so much detail on ?- most people know what the state's role in education is, but maybe Commissioner Pierson, you can talk a little bit about the transition that's taking place now and what the education structure at the state level will be like on January 1st of next year.
MR. PIERSON: Very briefly.
Commissioner Crist sits as the elected Commissioner of Education at this point as a member of the Cabinet. That will change in January when the Commissioner becomes an appointed position.

Also, right now the Cabinet sits as the State Board of Education. In January that becomes the Florida Board of Education, which becomes an appointed board.
We're in the process right now, but on the large reorganization of the department to meet the new organization, which is a K to 20 organization.
Right now, the Commissioner is responsible for K to 12.
COMMISSIONER CRIST: Historic change , Governor, and dramatic to bring out a seamless educational system from K through 20 to insure that we're doing everything we possibly can for the children of this beautiful state, and you have chosen wisely Secretary Jim Horn who I had the pleasure of serving with in the State Senate. He's my partner in this role.
He primarily is looking into and working with the universities and community colleges. We try to focus on K through 12, but we work in partnership through all of education and look forward to the changes that come about.
I'm the last elected Commissioner of Education, and it is an historic change, and I think it will bode well for the people of Florida and most important for our children.

GOVERNOR BUSH: One thing that will happen more with the new K-20 system is, there will be more examples like Alicia's example of being dually enrolled, in this case, at Valencia Community College.
GOVERNOR BUSH: Last week Commissioner Crist and I were at a reading conference where we were talking to the schools of education around the state about the need to teach future teachers how to teach reading, which is, you would think, would be kind of a number one priority in our schools of education, and in many of them there are, but we've got a long way to go to make sure that we ?- the teachers adhere to the basic research that now is accepted across the country.
And we were at a ?- we were at St. Pete Community College, their Seminole Campus that the state recently built with federal and state monies, where I think eleven universities provide all sorts of education, credits, courses at this community college.

And so going ?- at this community college there were, I think, 1600 students getting degrees from schools like George Washington University, Florida State University, University of Miami, St. Leo College, private schools, public schools, 400 of them were going to be in advanced courses to become certified as teachers, which is our ?- a huge priority for us to expand the number of teachers, and I dislike that number for nursing.
So, it gets a little blurry and confusing, but it's a better way of doing it. It's more student-centered, and then St. Pete Community College also is offering a four-year degree for teaching, which was approved by this Board.
So, we're moving to a system that moves away from systems and focuses on meeting the needs of the state by focusing on the students and I'm pretty excited about it, and a lot more creative ways of dealing with some of the major issues of our state will take place because of it.
MR. PIERSON: For the first time this year we did our budget as a consolidated K to 20 effort also.
GOVERNOR BUSH: That's right.
MR. PIERSON: Was a good effort.
GOVERNOR BUSH: Ok. Item two.
MR. PIERSON: Item two is a resolution for the issuance of $26,070,000 in capital outlay monster school construction, and that's the same issue that was on the ?-

GOVERNOR BUSH: Division of (inaudible).
MR. PIERSON: That's it.
GOVERNOR BUSH: Moved and seconded. Without objection it's approved.
MR. PIERSON: Item 3 is a charter school appeal, SOCK, Outstanding Student School Success academy versus Duval County School Board. The appeal has brought the State Board of Education, Chapter 228.056 Florida Statute which allows the State Board to review appeals of charter schools.
After hearing both sides of the appeal, the Board has the option to either approve the appeal and return ?- remand the appeal back to the school board or to deny the appeal and accept the action of the school board.
Terrance Ivey is the attorney for the charter school and Darrell Chapman is the attorney for Duval County School Board, and we'll start with the chart school.
GOVERNOR BUSH: Just to try to explain this in English, the way this process works is, in the last, I guess it's been how long ago when the charter ?- was the charter school legislation passed? I think it was in '97, '96.

The state allowed for charter schools, which are independent public schools, to contract with school districts and there are now 150 or more charter schools all across the state.
When districts reject applications, the schools themselves have the right to come to the Board of Education for appeal. Our role is to accept ?- to either remand it back to the school district for their consideration, or to support the school district's position.
And that's ?- that's exactly what we're going to hear now. Does that make sense?
No, it doesn't make sense? I'll tell you about it later.
MR. IVEY: Good morning, Board of Education.
My attorney is Attorney Terrance Ivy and I represent SOCK, Outstanding Student School Success Academy from Jacksonville, Florida.
We come to you from Duval County, and we're before you as a result of a denial for an application for a high school charter. That denial took place on November the 20th, 2001.

Just a basic, factual overview, the applicant who submitted this high school charter is presently operating a middle charter school in the Duval County District.
The applicant submitted the high school application for the general purpose of accommodating the student population as well as the(inaudible) population of students who would be coming ?- excuse me. Specifically not only coming from the middle charter school going to the potential of having the charter high school, but also the general population as well.
The information submitted in the application itself was information in large part based not on theory but on factual operation of the middle charter schools.
There were four areas of concern in the application that all applicants had to adhere to. Of those four areas, we're here today because the district, in its denial letter, found fault with two areas, the area of academic design and the area relating to budget ?- budget plan.
The four areas themselves consisted of in there entirety academic design, budget plan, business (inaudible), governance and facility and location.

The basis for the denial speaks to, again, those two areas of academic design and budget planning.
As outlined in the appeal, it is the position of the high school applicant, SOS Academy, SOCK, Outstanding School of Success Academy, Inc., is that the basis for the denial of the application in large part is a product of misstatements and misunderstanding of those factual data provided in the 400-plus application that was submitted to the district.
The application is ?- all the members of the board, I'm sure, has a copy of that application. It is rather lengthy and does provide the necessary information to underscore the basis why the high school ?- feels that the application was wrongfully denied.
Specifically, I will address the summary of the district and the basis for the denial and, again, we've ?- last we went through the informational session to supply various information to members of the board to address these concerns that I'll go over with you. And these are the concerns specifically laid out by the District for denying the application.

The first area dealing with academic design dealt with the fact that the applicant left out information that spoke to some of its innovative intentions as a charter school.
Again, I underscore the fact that this particular middle school was already in operation, has been in operation for 4.5 years and is, by whatever standards that have been set out by the district, a good standing.
So, these four areas that I ?- the essential areas, were operating a charter school, academic design, budget planning, governance, facility and location, that particular ongoing concern is arguably in good standing by virtue of the fact that they are still operating and they have presently a contract with the district to operate.
Now, back to the high school applicant which, again, is the middle school charter. They indicate that they did not identify the career role in exploratory and career related certification program.
Basically that would be a program that would allow those students in that population to take advantage of certain ?- exploring other alternative career goals, other than those that are traditionally set forth for students who don't have unique problems or educational concerns.

The applicant identified that they would be providing a level of attention to that area in their application.
Now, the problem with the district specifically was that they felt that that was not specifically outlined. Well, the applicant did outline that by indicating that they would have in-house career guidance, a concentration on vocational study which would basically lend itself to individuals coming in to the school, providing lecture series and information on certain vocational goals and certain vocational opportunities that would be available to them.
Most of that would have been on a voluntary basis. There would have been a minimal cost associated with that, and as a result it would not have lent itself to much requirement that there be any kind of commitment letter or partnership letter that would be necessary for that particular area to operate.

And again, that was ?- really a part of the whole composite of that particular goal or plan, the career goal exploratory, career related certification, and that was not the catch-all and intent to establish the innovative nature of the charter school.
The next area of concern, again, in academic design was the fact that they indicated that all the courses that were going to be offered at the academy had to be in line with the Sunshine State standards.
Well, during the application process, I must tell you that ?- just to step back briefly, when they start this application process, what they do is, is that they have all the applicants come in and meet with the entire committee, and then they provide them with the preliminary four areas of information, and then those committee members will then have the opportunity to meet back with the applicant and give them suggestions or recommendations as to improve their application so that when they ultimately submit the final one, then it will be a product that will represent what they intend to implement.

Well, again, in addressing the issue relating to the core studies, the applicant had already indicated that they would be adopting the district's pupil progression plan which meant that the district was aware of what that entailed, so there would be no guesswork in terms of what information was going to be provided in that application towards that area.
But nevertheless, the district found that the applicant left out a math course. And the whole entire package, the reason for the denial was because they left out a math course in the whole academic design was ?- they felt the applicant, as well as our office representing them, feels that was really a form over substance argument, not really one substantive for a basis for denial.
The other issue dealt with the fact that there was no identification of an ESE teacher in the application to cater to the ESE population of students or the application, again, 400 and some odd pages does address that, and that's outlined specifically in the budget.

And many of you have gotten a copy of that budget, and that budget does outline specifically where the dollars are ?- are devoted to taking care of and hiring an ESE teacher and, in additional, the projected population of ESE students that they intended to have at that school was not going to necessitate the hiring of an additional ESE teacher because those category of students would be able to attend the classes that are offered in general school and merely be receiving some form of an instruction from the ESE student, but not them in a self-contained environment requiring a full-time ESE teacher to do that.
The last area which deals with specifically the finance or the budget, again, I'm not going to go into great detail in regards to that, because it's rather lengthy and rather thick.
I will rely on the fact that both of you have gotten a copy of this, and I will just identify that ?- the explanations that were given by the principal relating to the explanations of where the ?- by the district's statement, there was a deficit of a hundred ?- for instance, (inaudible) dollars in the first year projection in terms of the budget that ?- that the information that you have been provided clearly explains where those monies are within that proposed budget for not only that first year but the subsequent two years of the proposed budget as well.
With that being said, I will close out and take any specific questions related to the ?-
GOVERNOR BUSH: We might want to hear from ?- is the school district here?

GOVERNOR BUSH: Stand by ?-
MR. CHAPMAN: Governor, Board.
My name is Darrell Chapman and I represent the Duval County School District. I am assistant general counsel to Duval County, Office of the General Counsel, and it's my assignment and pleasure to be before you this morning on behalf of the Board on this matter.
MR. CHAPMAN: First of all there are a number of issues, I guess, we should cover, as addressed by that ?- as Mr. Ivey pointed out very lengthy, notice of appeal and my response.
I guess I would be remiss if I didn't attempt to capture the overall impression of that notice, as well as my response.
There are a number of issues brought up, and specifically I'd like to account for three major ones because, as far as the district was concerned, there are three reasons why this particular application was denied, all of which raised by the notice of appeal, but I think needs to be made clear before you this morning.

First of all, this was not, as alluded to in the notice, a last-minute consideration by the district to SOS Academy. I will just refer to it as the academy.
Back in July of 2001 began a process by which the district took into consideration every aspect of putting forth charter schools in Duval County.
One of the major considerations behind Duval County was that in the past we've had difficulty with applicants because they said they didn't understand the process. They didn't know exactly what DOE mandated of them.
We have taken that into consideration and put forth a response to that. Our district coordinator, Evelyn Tooks is here with me who can address any specific questions, but overall, as ?- and I believe you actually have a crunch version of my response.
But, I submitted attachments to my response to the appeal which outlined a series of events which took place by not only our district, but our personnel and our employees, to make themselves available for any questions and opportunities that any applicant would have in this application process.

That began in July of 2001. Overall, the application was due on November 2nd of 2001. Again, an extensive period of time for which the applicants could take advantage of various programs we have.
And specifically, let me give you a brief outline of those programs. One, a general workshop. Understanding that applicants may not have applied previously, we had in August through ?- August 8th through September 21, and opportunity ?- rather, check that. Excuse me that was August 9th. ?- an informational meeting for the process itself.
Now, this wasn't specific for any one applicant, but it was overall consideration that all the applicants could come forth and understand exactly what the process was, what the application procedure would allow for, and how they should proceed over the next few weeks.
August 9th through August 21st ?- excuse me. Through ?- August 9th through September 21st, the individual applicants could then come to the district in various workshops.

The purpose of those workshops was very specific. One, if you have a problem, if you have a question individually, your problems can be addressed in that. Two, more importantly, submit your applications to us.
As Mr. Ivey brought forth, they were broken up in sections, governance, budget, academic design and facilities. Those four sections made up our application process, and the means by which we were to evaluate these charter schools and either approve or deny these applications.
Now, the specific rationale for that window was so that we could get feedback. We could give a response. We could aid the charter schools in walking through this process.
All that having been said, that's not what happened with this academy. It wasn't until September 24th that any contact was made by this academy with the actual personnel or help sessions.
Let me back up. If you take notice of my response, there's a letter of intent which was submitted by the academy. I believe the date of the letter was September 17th.

Mind you, then, the application is due on October 2nd, and it was only upon that date that this academy had made a determination that it wanted to even participate in the ?- excuse me, in developing a high school.
Now, we're not talking about something that can be done overnight. It wasn't until September 17th, leading up to October 2nd that this high school was ever created.
The board representing this particular academy made a determination ?- I believe it was around September 6th, that they said, okay, finally, let's decide to put this together.
That's the window from which we're dealing with. That's the effort for which we are looking at and had to deal with this application which has been placed before us.
Now, considering the efforts made to us, then we took into consideration the application. The application which came to us was for a high school, by letter of intent, by the application itself for a senior high school, or grades 9th, 10th, 11th and 12th.
What the problem was with the application that came to us, it did not represent 9th, 10th, 11th and 12th.

I'm not going to go into as much detail as I possibly can, the time constraints, and of course I wouldn't want to ?-
GOVERNOR BUSH: The application was 9th and 11th and they were to phase in 11 and 12 later, right?
MR. CHAPMAN: No, sir. The application, as addressed, the letter of intent and with the application was for 9th, 10th, 11th and 12th.
It is our understanding, from our information from the academy last week that their overall impression was that they were only going to start 9th and 10th grade. That's not what the application says. That's not what the letter of intent says.
If we go back and review the letters and the application, they all mandate that the presentation will be for an application for a senior high school, and that's the window, that's the perspective about which this application was viewed from.
Taking that into consideration, we looked at all four corners of what was presented to us. Now, granted, there was a bigger picture ultimately.

But for the consideration of the application itself, we were confined to those four corners. Now, what was present? Well, let's take the academic design first. I'm not going to go into any great detail.
Mr. Ivey brought forth one particular point which I brought up at your informational meeting, the math courses, which really led to graduation.
The ultimate problem with that ?- and, please, go over my response, because I have outlined both in what was submitted to my board, which was ultimately denied.
Multiple instances of the academic design being insufficient. One particularly was this math class that Mr. Ivey was alluding to which prohibits graduation by our standards in the State of Florida.
By that I mean, any student, by their submission, who would take their courses as they have applied, could not graduate their high school. That, needless to say, is the major concern, but that was only one.

Let's consider the Sunshine State standards as we have outlined. If we review that application as it was submitted, their academic courses for physics, for chemistry, for applied math one and two, which they specifically outlined, are necessary in their graduation for math courses and the three credits, they do not align themselves with the Sunshine State standards. As such, they do not provide the standards themselves.
We don't know anything more than the captions. Now, they did allude and state it today that they were going to follow a pupil progression plan, but they still don't say the standards that they are going to follow within those courses.
And this district, being responsible for the feasible plan for an academic design to make sure these students graduated was ?- it led to a position that we could not have that assurance.
Again, examples. There are a number of them that are cited in my noted, and if you -- had any questions specifically over any one, I'll go over them.
The third major consideration was the budget. Now, I believe Mr. Ivey spoke of the $189,000. I'm sure you know what that means, for the viewing public and as well as the record. That is referring to this application submitted by the academy put forth $189,000 out of capital outlay funds.

Those funds that we spoke of all morning, or various individuals spoke of, going to construction, going to business ?- I mean, facilities, to use in their operational budget. By statute, that is illegal.
Mr. Ivey put forth a statement last week, very apt, that in order for them to get those funds they would have to go back through the district and we would have to approve it or not, which we would never approve.
That's true, but that misses the point. The point is, with a budget that allocates $189,000 in your operation function, where are you going to account for that money, in consideration of this.
Once you deal with $189,000 deficit, you're also dealing with having to account for other deficits which this particular budget represented.
The speculative funds that they're using in their application, be it an insufficient amount of funding for their food services, it backs up. Ultimately speaking, we have an academy who presented a budget where we don't know how these funds are going to be accounted for.

Now, the window that we ?- the board, the district of Duval County, had to deal with was to look at a plan submitted by the academy which should be feasible and present enough assurances that this high school ?- not a middle school, but this high school present a plan where our children in Duval County will be able to graduate and work effectively as citizens of the United States and the State of Florida.
We could not make that determination by what was submitted to us. That's the short of it. The bigger picture, I believe that considerations have been made to the ongoing concerns of the middle school. That's also academy middle, which is a currently ongoing entity in Duval County.
True. But the truth of the matter is, this was not an application for a middle school. If that were the case, if they wanted to open up another middle school, we'd know they have the expertise for that. We know they have certain characteristics, traits, experiences, the learning curve has been diminished, that they could function a middle school in Duval County.

That wasn't the issue on November 20th of 2001. The issue was a high school. And the differences are ?- I'm sure you're more than aware of before the records simply ?- children now must graduate. Not only graduate, but be promoted so that if they want to, they can go to a higher education.
The academic design, as presented, prohibited that. These children had no way of graduating with the application that was presented to us on November ?- excuse me. My dates are confused ?- on October 3rd, which is when it was actually presented.
I know we're pressed for time. I have a number of points that I think could actually substantiate these numbers. But, if you take into consideration the ongoing concern of the middle school, as have been alluded to by the academy, you must face facts in dealing with what the middle school is.
It ?- one, of course, it's a middle school, but what kind of middle school. This is a school that, according to our own state evaluations, rating this school in 1999 as an F school, rating this school in 2000 as a D school, rating this school in 2001 as another D school. One more F and their students are eligible for vouchers.

This is the consideration by which we're saying we want to place our children in Duval County in a high school situation where they are left with virtually no possibilities.
And, granted, that's a forecast. That's something that I could not stand here and know for a fact and know what I put it forth to the Governor or his Cabinet.
GOVERNOR BUSH: When does their contract for the middle school expire? Is it annually renewed?
MR. CHAPMAN: No, sir. Their last contract came up ?- I want to say last fall, which has been re-entered into.
GOVERNOR BUSH: Well, if it was such a problem that you're describing now ?- I mean, now you're ?- you're kind of taking it to the hoop here.
MR. CHAPMAN: Yes, sir.

GOVERNOR BUSH: You're putting yourself in a bold position, I think, by ?- it sounded like you were attacking the middle school part of this. And if it was such a problem, don't you have the right to, as you have in other cases that have been appealed to us, I think, which we have supported in some cases your efforts where schools were not ?- were negligent, either financially or just not doing the job as it relates to the academics. But this school is not one of those schools, was it?
MR. CHAPMAN: That has?
GOVERNOR BUSH: That ?- you renewed their contract?
MR. CHAPMAN: Yes, sir. We did renew their contract.
MR. CHAPMAN: There's no question about that. The ?- if I may?
MR. CHAPMAN: The rationale behind that is very simple. We have a number of students in this school. This is an A charter school where ?-
GOVERNOR BUSH: You have not renewed other contracts because they've come to appeal to us, I believe, haven't they? Other charter schools that have ?-
MR. CHAPMAN; Yes, sir. We have had other schools that go to appeal before you.
GOVERNOR BUSH: That's right.
MR. CHAPMAN: And we have not terminated this contract for the school. And I don't want to misrepresent that to anyone. There has not been an effort to do that to the middle school.

We have maintained that as an ongoing concern. But the ultimate rationale for that is, one, we're dealing with a school we are trying to work with.
Now, as a middle school, that is correct, and we are trying to work with them. But in the state for which they're in ?- and I'm not going to try to shuffle beyond that, because that's where we are.
They are a D school, which has just emerged from an F school, whose academics don't show any promise for these students, and their hope does not show anything otherwise from where they've been.
GOVERNOR BUSH: Why did you renew the contract?
MR. CHAPMAN: Well, the rationale is we're trying to work with them.
COMMISSIONER BRONSON: Governor, I did have a question, too.
Didn't your board vote unanimous to re-up the school as a middle school?
MR. CHAPMAN: Commissioner, as a middle school, they did.

COMMISSIONER BRONSON: Okay. So your biggest argument is the fact that they ?- at the last minute they put in an application to be a high school, is your ?-
MR. CHAPMAN: No, sir, not ?- not clearly. Actually ?-
COMMISSIONER BRONSON: I thought you said they just put in to be a high school like days before the contract was to ?- you're confusing me now, because we're talking middle school, and then you were talking high school and ?-
MR. CHAPMAN: And, Commissioner, you're absolutely right. I don't even want to bring up the middle school. I don't think it's appropriate here, because the actual consideration was for an application for a high school.
It had nothing to do with the middle school as such, but to address your point: What actually took place is for the time line was concerned, was our deadline for submission was October 2nd.
The first meetings which were taking place with the academy, with our aides, with our associates, took place that last week before the submission.

Now, what they've been working on the entire time since their board voted on September 6th to go forth and venture into a high school, I couldn't begin to represent. I'll let Ms. Mills cover that.
But, my point is, we availed ourselves of the help to give them the opportunity up to the 21st. They didn't take advantage of it, and then came to us the week before when, in fact ?- and I think my attachments to the response would indicate, our responses were the same as our ultimate criticisms of the high school application.
The problem is we didn't have sufficient time to get them to them because they came to us so late.
GOVERNOR BUSH: Commissioner Gallagher.

TREASURER GALLAGHER: A couple of questions. The evaluation done back in April 2001, it was sort of on an assistance basis for ESE students, and it looks from my reading of that evaluation, that ?- that they're talking about excellent progress and they're having applied IEP's, staff should be complimented on the excellent results achieved with respect to parents attending IEP meetings, diploma option procedures were closely followed. Excellent procedures were developed for organizing student information.
It looks like they're doing real well in the four exceptional -- that was ?- seemed to have been a concern that you mentioned for the high school, but you didn't get a handle on it there. That doesn't seem to me like it should be that big a concern.
MR. CHAPMAN: Well, with all due respect ?- and I don't have the reference that you are referring to, but what I do have ?- and I'm not sure exactly what has been published to the Cabinet at this point.
The FCAT has been performed with all their students, and that's the standard by which we would use as a consideration, aside from the rating of the school overall.
With respect to those grades, and the standardized grades across the state, we have more than, I think, sufficient evidence to indicate that those students are not competing on a state level as we would proscribe by our state standards.

If I were to refer to ?- I believe I'm looking at a submission which was made to the Cabinet. FCAT 2001, school demographic report for eighth grade. As far as their ESE, their specific learning disabled students, of the 13 which took the test, as indicated by this printout which was received on line, I am looking at 92 percent received a one or two. 93 is state average or standard to be acceptable.
That means 92 percent of the students from this particular academy which actually took ?- again, I don't have the reference that you have before you, so my apologies to that, but my response would be, in looking at the grades which we've given them as the Department of Education on their own test-taking abilities, and the results, it does not bear out what is presented in that letter.
TREASURER GALLAGHER: Well, recognizing that three's acceptable, 3's not the grade level acceptable for exceptional ed students. Three is what's acceptable for all students.
MR. CHAPMAN: Yes, sir.
TREASURER GALLAGHER: So, we recognize and don't count ESE students against a grade for school, primarily because they have exceptional problems.
MR. CHAPMAN: Yes, sir.

TREASURER GALLAGHER: So, I don't think that's ?- we don't measure in that way and I don't think you all should, either. Obviously, I want to see improvement. I want to see it going up as best as possible, but we don't hold that against the school.
MR. CHAPMAN: I'm sorry, sir. Forgive me.
Understanding ?- Treasurer, your point is very well-taken. I think that the information I put forth and what I was responding to today came out of the evaluations which were made of the FCAT scores for the specific individuals.
If we are to address ESE students, I think it would be fair to look at how they are evaluated. Again, that might be a point that ?- of contention, but this is how ?- the only standard that we have for them.
And far as whether they're with us or whether they're with the academy, it demonstrates how these students are performing.
TREASURER GALLAGHER: Well, but what I would want to see is the ?- I mean, show me your county ESE students in all your schools and compare those with your ESE students in this one. That would be the only fair comparison you could have.

I mean, here we're looking at this school's ESE students in a vacuum, and I think I want to see ?- I mean, maybe Duval's doing a wonderful job with all their ESE in other schools. I don't know the answer to that, but I don't think I'd want to look at it, just saying, by the way, they're not doing real good here.
ESE students have a problem everywhere, and that's one of the reasons we don't count them as a grade against the school.
GOVERNOR BUSH: General Milligan.
COMPTROLLER MILLIGAN: Yes, sir. I'd like to focus on the budget issue for a second or two. The capital outlay issue I understand, and that constitutes about 20 percent of the budget revenue estimate required to meet their expenditures or estimated expenditures.
But I also noticed that they are counting upon 150 students for a four-year program in their revenue estimate and their expenditure estimate, and at the same time they are really talking about a two-year program.

So, I'm confused now in terms of the revenue estimates and the expenditure estimates based on a four-year program, but really they are talking about a two-year program.
So, I kind of share your concerns about the budget here and kind of the inaccuracies really in the budget requirement.
MR. CHAPMAN: And I appreciate the fact that that has been noticed, Comptroller. As I stand here, I think the first point which I was attempting to make and I hope is the resounding point, is that this was an application for a senior high school.
COMPTROLLER MILLIGAN: And I understood that.
MR. CHAPMAN: And anything inconsistent with that, we would be remiss in saying that it would suffice to be a feasible plan, sort of the presentation of a 12-year program for academics.
GOVERNOR BUSH: But they've submitted to you prior to the application time during ?- for their application, they submitted to you a phased-in high school.
I mean, you could reject it, but because somehow, you know, you would require that grades nine through twelve be the standard, and there's nothing that states that you have to have a nine through twelve charter school.

You can have a ninth grade charter school. You can have a tenth grade charter school. It would be a little inefficient probably, not the right thing to do.
But the statement was made they didn't propose phasing it in, but I have an attachment to their ?- to their letter to the board of directors on the 17th of September.
MR. CHAPMAN: I'm sorry, Governor. I think, what I ?- if I didn't speak clearly, what I meant to say was that it was mentioned in our last informational meeting, that they had intended to phase it in.
But, it was our understanding from the district that it was only a senior high school program.
COMPTROLLER MILLIGAN: It still doesn't resolve the problem of ?-
GOVERNOR BUSH: Maybe we should ask the applicant about that.
COMPTROLLER MILLIGAN: ?- expenditure ?-
GOVERNOR BUSH: Absolutely ?-
COMPTROLLER MILLIGAN: ?- of a four-year versus at ?-

GOVERNOR BUSH: Well, maybe the applicant can answer that. Would you like to have the applicant ?-
COMPTROLLER MILLIGAN: Yes. I'd like to know the answer.
GOVERNOR BUSH: Do you understand the question?
MS. MILLS: Yes. Yes, sir.
MS. MILLS: Thank you so much.
GOVERNOR BUSH: Can you say who you are?
MS. MILLS: Yes. My name is Janelle Mills, and I am the principal of the SOS Academy, Charter Middle School, and if I may, as I've sat there a few minutes and listened to all of the comments being made, I have to say that the saying comes back to me, and the young lady brought it out so clearly, that the work that we do, our gifts are our good work, will bring us before great people.
And I stand here today saying that I do see a manifestation of that, no matter how sad, some of the reasons are that I'm here. I want to say thank you to each and every one of you in the Cabinet, as you do work to help us educate these children. And I just have to say that, and I thank you so much.

But to answer your question, sir: We were planning a phase-in high school. We were going to have ninth and tenth grade the first year. The next year would have phased in eleventh graders and the third year would have phased in twelfth graders.
And in the letter of intent that's clearly broken out. Also to the fact that in the facilities part of our letter of intent we showed exactly where these classes would be held and how they would be divided up among both the middle school and the high school.
GOVERNOR BUSH: Can you answer the question about the ?-
COMPTROLLER MILLIGAN: But your budget doesn't reflect that phasing.
MS. MILLS: Because the ?- right. They only asked for, at that time, as I sat down and talked with the staff person from the district, they were only concerned ?- here's the little case, as Attorney Chapman just said, I'm never sure when they want the middle school information or the high school information.

And at this time it was ?- the middle school is not on trial here. The middle school is not what we're considering, so what we're asking for is the high school information.
COMPTROLLER MILLIGAN: Yes, ma'am. I understand that, and I' ?- I'm trying to look at your budget.
MS. MILLS: Okay.
COMPTROLLER MILLIGAN: ?- for the first, second and third years.
MS. MILLS: Right.
COMPTROLLER MILLIGAN: And in addition to a 20 percent shortfall in the ?- in the revenue, estimated revenue as a result of the capital outlay, there appears to be a considerable shortfall as a result of the number of students that would, in fact, be receiving total for the base funding.
MS. MILLS: Okay.
COMPTROLLER MILLIGAN: And it doesn't match in the budget. It just doesn't ?-
MS. MILLS: Okay. Sir, are you looking at the one that gives you an overview of the three years or are you looking at each individual year?
COMPTROLLER MILLIGAN: I'm looking at each individual year.

MS. MILLS: Okay. With the high school. Okay. Now, as far as the capital outlay, if I may speak to that. Up until this year when we submit our budget to the district, and I guess my downfall is I was going on prior experience as to how we submit information.
What you see there would not give you a line item of each of the capital outlay expenses. Now, I have pulled my notes, and these are ?- this information we do give to our board and to our CPA that shows exactly where these expenditures would come from.
And if I could recall, I think the first year has 150. Does it have 150 students?
MS. MILLS; Okay. And the second year has has.
MS. MILLS: 210 and the third year has 210.
MS. MILLS: Okay, now and your question was, there's a shortfall in the amount of students that we're going to be having?
COMPTROLLER MILLIGAN: Well, if you are phasing in four years of high school.
MS. MILLS: Right.

COMPTROLLER MILLIGAN: I presume you wouldn't have 150 students in the first year.
MS. MILLS: Yes. We're going to ?- we're planning on having 100 ninth graders and 50 tenth graders the first year.
MS. MILLS: Yes. All this was in the letter of intent. It told how many I would have the first year, and then the second ?-
COMPTROLLER MILLIGAN: And the next year, you're going to ?-
MS. MILLS: We'll bring on 50 eleventh graders. And then the next year I would have 50 of the 55 twelfth graders. So, that's how we phased that in.
The maximum amount of enrollment for the high school was proposed to be between 200 and 210 kids over a three-year period.
COMPTROLLER MILLIGAN: And you'll reach that in the second year?
MS. MILLS: Third year.
COMPTROLLER MILLIGAN: Well, not ?- again, not according to your budget. You have 210 students in the second year.
MS. MILLS: Right.

COMPTROLLER MILLIGAN: And then 210 students again in the third year.
MS. MILLS: Right.
MS. MILLS: But, see, the third year we ?- the second year there won't be seniors. They could ?- they would be a combination of ninth, tenth and eleventh graders.
COMPTROLLER MILLIGAN: Well, again, I ?- you have a 20 percent shortfall as a result of the capital outlay.
MS. MILLS; Well, that's because of the way they perceived it. If they had had all of the information I don't have a shortfall in capital outlay at all.
COMPTROLLER MILLIGAN: I need to understand.
MS. MILLS; I'll be happy to the fact of giving you the additional information. But, like I said, at that time, going on prior experience, we didn't submit ?- I didn't submit this with the budget, because the district has never required it thus far.

But this lists ever line of capital outlay dollars that we spent, and there would be no shortfall in capital outlay, neither food service, nor in the services that the middle school, nor the senior high share together.
All this is listed in our notes, but we've never had to submit this before to the district. So, we don't have a shortfall in any areas of our budget.
MS. MILLS: Thank you, sir.
GOVERNOR BUSH: Any other questions?
GOVERNOR BUSH: Commissioner.
TREASURER GALLAGHER: I'm a little concerned when I look and see that Duval County, although they have entertained charter applications, for the last few years they have approved none.
And I'm just wondering if you might want to explain why that is.
MR. CHAPMAN: I would think ?- that would be up to my client that I represent, that the rationale is as simple as the appeal that you have before you right now.
And that is, as Comptroller Milligan was going over, we have an application here as in the past, years before, which present situations, issues that we can't see a feasibility in implementing.

And if our ultimate concern is the education of the children, and having some initial consideration, as issued by the statutes for our sponsorship, then that's a concern that we have to implement early because, as everyone understands, once these schools start up, once the charter begins, once the contracts are entered into, the only repercussion that our district would have is, as the Governor pointed out, to shut down the school.
And that's not something that should be done lightly. That's not something that should be done without great care and consideration for the most important aspect of this entire process, and that's the students.
So, if there is a consideration that there have not been an approval of charter schools over the past couple of years, specifically dealing with this ?- this is the second application for this high school.

And when you consider that, in light of what you have before you, this class is ?- no graduation for students, even with it phased in, and a confusing schedule as to implementing whether it was phasing in or ?- I mean, a full senior high school academic source facility.
Please. I'm sorry.
TREASURER GALLAGHER: Okay. In three years you've had 18 applications and approved three.
MR. CHAPMAN: Yes, sir.
TREASURER GALLAGHER: You did one conditionally approve. What I'm wondering is:
MR. CHAPMAN: Actually there were two. ?- my apologies ?-
MR. CHAPMAN: The board made a recommendation a couple of years back. I believe it was Jacksonville Learning Institute which was a conditional approval as well, upon your recommendation. So there were actually two.
TREASURER GALLAGHER: So, what I'm wondering is, if you looked at this and you approved year one, and so they're going to tenth ?- to ninth grade.
TREASURER GALLAGHER: Ninth and tenth ?- what does that mean, ninth and tenth and then eleventh, and then the third year is the twelfth, right? Is that the way it was?

TREASURER GALLAGHER: So, you said, okay, look, we'll let you have ninth and tenth, conditional. You're going to have to have 150 students to make your budget, and you're going to have to have the courses, and they recognize that, and you all obviously recognize it because you pointed it all out, and see how they do.
And if they manage to do a good job, you can go on to the next ones, and if they don't, then you wouldn't go on to the next one.
Now, I don't know whether ?- see how they do is ?- is ?- maybe your goal now would be they have to be a C school or better, but I mean, in the county, they've got six schools that are D's that they're running.
So, you know, if all the county schools were C's, I guess I'd say, well, you ought to have them be a C, but if you've got six of your own that you're running, maybe ?- you know, maybe it seems a little high right now.
MR. CHAPMAN: I think in addressing, Mr. Treasurer, that last issue, we have ?- of the 26 middle schools ?- Ms. Tooks, Evelyn Tooks, Charter School Coordinator ?-
GOVERNOR BUSH: Welcome back.

MS. TOOKS: Thank you very much. Good morning.
Currently we have 29, I think, charter middle ?- 29 middle schools. Of the 29 middle schools that we have, SOS Academy ranks number 26, and below them are three additional charter schools. So we actually have two schools that are ranked below them, SOS Academy.
GOVERNOR BUSH: Here's a ?- I think the Commissioner's point was a good one in the following sense. This is a ?- this process can be an up or down based on the application, or it can be let's work together to make a contract that protects the district's interest, because you do have an interest in assuring that these children are in a safe learning environment.
And if it can't be worked out, then the district has the upper hand. Listening to your presentation it gave me the impression that they didn't dot their I or cross their T and because of that, and now ?- I mean, you all went from being very open on charter schools just historically, to being now kind of moving away from the concept.

Our job is really not to say whether they should get their contract or not. Our job is to remand it back to you and ask you to, with the best of intentions, figure out if it can be done or not.
We have time, still, to do this, since this school is up and running. I mean, it's not as though they have to start from scratch. Having started a school, once ?- you know, it's a lot of hard work, and I would not suggest a charter school, from a standing start, could be set up starting in March or late February for the next school year.
But this ?- this entity is already in place. You could work with them to ?- you could have worked prior, you still could work with them to determine whether or not they are up to the standards that you want.
TREASURER GALLAGHER: I might want to also mention, if I can ?-

TREASURER GALLAGHER: ?- Governor, that it does ?- I mean, it's something that needs to be moved on because if they're not at 150 students, you know, they can't start that in August. You know, they have to be out recruiting their students, you know, as soon as possible or they're not going to meet their budget requirements and the students and everything else.
And you know, I don't know what they're going to do for space. Is there space where they already are or do they have to add new or go to another location? You know, those are questions I don't have the answers to, but ?-
GOVERNOR BUSH: I think they have existing space.
TREASURER GALLAGHER: They have existing space.
Well, I think ?- let me just, I guess, say in my opinion I think we ought to remand it and ask the district to look at this school and work with this school and give them the opportunity to at least in the first year with their ninth and tenth graders, give them the opportunity to bring them in and help them get in compliance.
And I think that working with the district on the ESE students has proven to be a good thing and I think that the district, if they want to give them the help that they need, can do it.
So, I'll move to remand it.

COMMISSIONER CRIST: Governor, I move to second that. And I don't if Treasurer Gallagher mentioned when he was talking about sort of the record as it is in regards to Duval and charter schools, I know he indicated that there have been three approvals out of, I think, 18 applications for charter schools, but there have been none in 2001. There were none in 2000.
The three approvals ?- it's been a couple years, and ?- and it's a disturbing trend, at least from my perspective, and I think Commissioner Gallagher has a good motion. I want to second it.
And I think that the school ?- this may have been discussed, too, and I had to step out, but they've done well in writing, Governor, and I think that's quite laudable, and that's why I think the Commissioner's motion is well-placed.
MR. CHAPMAN: Mr. Governor, if I may, to the Commissioner of Education, it just ?- as a matter of record, we actually did have two approved in 2000, it's my understanding, as far as ?-
COMMISSIONER CRIST: That's not what I have.
MS. TOOKS: The -- Academy of the Arts was approved in 2000, and Academy of Excellence, that was approved.

COMMISSIONER CRIST: We have different information.
TREASURER GALLAGHER: Well Destiny , I was a conditional approval.
MS. TOOKS: It was a conditional approval simply because of the zoning issues. The content of the application was acceptable, it was just the zoning issue. We conditionally approved it based on the information in the application, but until the city approves the zoning we could not give a total approval at that time.
COMMISSIONER CRIST: Well, I think it's safe to say that it's been on the decline.
GOVERNOR BUSH: Let me ask counsel for the applicant to try to describe ?- the one thing that troubles me is what General Milligan brought up as it relates to the ?- and the school district attorney, about capital outlay dollars in your proposal being used for operating expenses.

That is against the law, and if it's ?- if that gap has not been ?- I didn't quite get the answer ?- to put aside the misunderstandings, maybe, about students, first student funding, you know, that ?- if that is part of your operating expense that you propose, how do you fill that void?
MS. MILLS: I'm sorry. Commissioner Milligan, I thought about it as I came back, so it was bothering me to try and clear this up.
COMPTROLLER MILLIGAN: It bothered me, too. I'm glad it bothered you.
MS. MILLS: Yes, but the capital outlays that we were talking about, the funds are distributed throughout the budget, so since it's throughout the budget and we have discussed it ?- as I discussed it one of the Cabinet aides, as we went through line-by-line and I told her where that these funds were, then it showed after we added it up, our funds only equal ?- our expenditures equal the amount of revenue that we receive.
COMPTROLLER MILLIGAN: And since you and I talked, I have received that information that they have, somehow or another, with aggressive accounting procedures, sorted out that outlay shortfall, capital outlay shortfall.
Is that what you're telling us?
MS TOOKS: Yes. Yes, sir.

MR. IVEY: If I may, in terms of the reference point that ?- the most apt reference point is information provided by the Department of Education annually to each school as to what they can spend the capital outlay funds on.
That is the reference point that was used by the applicant in submission of their application, and that's why we keep talking about the actual overall budget and its line item, and where each and every category of the hundred and ?- we'll say approximately $190,000 for the third year is missing.
That $190,000 is various line items, line four, five, six, seven, eleven, thirteen, fourteen, sixteen, seventeen, eighteen ?-
COMPTROLLER MILLIGAN: That doesn't help. I mean ?-
MR. IVEY: Well, I only say it for the purpose of ?-
COMPTROLLER MILLIGAN: Let me say this, Governor ?-
GOVERNOR BUSH: Are you satisfied?
COMPTROLLER MILLIGAN: I am. We're remanding it back, and I presume that if everybody agrees to that, that there will be an extension of efforts to make sure that the budget is clearer and the project is supportable through revenues. And so, let's march on.

GOVERNOR BUSH: In essence that is ?- the reason I bring it up is that that is more than any other area where charter schools run into problems, is that they are undercapitalized and they get into some problems related to accounting issues.
This is the taxpayers' dollars. And then ultimately, that ends up creating a bad learning environment. So, the financial controls ?- the district is correct in making sure that the money is spent on student achievement, on classroom education.
And I think you're going to have to work with them, if we remand it back, to make sure that you're bulletproof in that area, that you ?- that you have a plan that is feasible financially.
Because then ?- they are liable. I mean, those kids are our responsibility as a state, and they are liable financially if you guys don't do your job. And that's why it's important.
MS. MILLS: And to Mr. Milligan, even though this is a middle school, we have successfully and legally spent over $2 million worth of capital outlay, and this will be the same administration that will be handling it.

MR. IVEY: Exactly. And they are annually audited by the district each and every year, and they passed those audits up to this point, and there's no reason why that wouldn't continue to be the course they would take in the future.
There is a motion to remand this application back to the school district with a recommendation for approval, and a second.
Any other discussion?
(No response.)
GOVERNOR BUSH: All in favor, say aye.
GOVERNOR BUSH: All opposed?
(No response.)
GOVERNOR BUSH: Thank you very much for coming.
MR. PIERSON: Item 4, our amended charter school for the deaf and blind rules, 60-1.002, 003, 004, 008, 008, 012, 013. These are administrative rules.
COMMISSIONER CRIST: Move to approve.
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.

MR. PIERSON: Item five is the appointment of Deborah Orr Castro to the Education Practices Commission, replacing Theresa Smouse for a term ending September 30th, 2004.
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
MR. PIERSON: Item six, the appointment of Barbara Riley to the Education Standards Commission, replacing Patricia Horn, for a term expiring September 30th, 2003.
GOVERNOR BUSH: Is there a second?
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
Thank you.
St. Johns River Water Management District.
SPEAKER X: May I have a word before we go get a hot dog?
GOVERNOR BUSH: No, sir. We've got to finish our meeting and then we can talk.

TREASURER GALLAGHER: Governor, the board wants to withdraw both Item number one and Item number two. I'll make a motion to do that.
GOVERNOR BUSH: The items ?- there's a motion to withdraw both items, No. 1 and 2, and seconded. Without objection, it's approved.
State Board of Trustees.
MS. ARMSTRONG: Good morning.
GOVERNOR BUSH: Can you briefly describe what you do, because it's really important.
MS. ARMSTRONG: I'd be glad to. My name is Eva Armstrong. I'm the director of the Division of State Lands. Secretary Struhs, who is the head of our agency, the Department of Environmental Protection sends his apologies. He came down with a stomach virus last night and I don't think we really want him with us today.
So, I'm his stand in. And I'm glad to be a stand in today. Thank you very much.

Let me tell you briefly, the Department of Environmental protection pretty much does that. We are responsible on the regulatory side for insuring that any time actions are taken in this state to build a power plant or to dredge wetlands or to build an industrial facility that will be releasing contaminants in the air, that it is done to the greatest extent possible to protect our health and our environment.
And they have a tough job, because it's not always easy to balance that with the business desires of the state. They do a tough job and a wonderful job, and I'm glad they have that job.
My job, however, is much more fun, and it's why we're here with the Governor and Cabinet today, because the Governor and Cabinet sit on the Board of Trustees of the Internal Improvement Trust Fund.
Now, that's a long name, to say that they are the real estate arm for all the lands that the State of Florida owns. They buy land, they sell land and they manage land.
And my part of the department, which is the over land and recreation, does all the nuts and bolts for them. And when we have a really big issue that is of major importance, like large acquisitions ?- we have one today ?- or marina leases, because they are using our sovereignty waters, we bring those to the Board of Trustees so it gets aired in the public, and all of you get to see what we're doing with your public dollars.

And I wanted to point out several really important acquisitions we made that are important to you guys here, because they are local.
The one you're probably most familiar with, because it's in Osceola County, are the two islands we bought in Lake Tahopekaliga, right, Paradise Island, and I can't remember the second one.
Right, so we bought those two islands with funds called Florida Forever. We are funded by documentary stamp taxes. Thank you, Public, for giving us the money to go spend and buy land for you.
So, we've got Lake Toho we bought. We got Kissimmee Prairie, which is about an hour and a half drive from here, but it is the state's Sarengeti plain. My boss suggested I say that. I give credit where credit's due.
It's one of the state's largest parks, and we're right now building 50 new cabins there so that when you go to visit you have a wonderful place to stay.
GOVERNOR BUSH: Eva, what the heck is this picture on the screen, there.

MS. ARMSTRONG: Oh, that's the ?- we're not there yet, but ?- well, this is the acquisition you're going to be considering in just a minute.
MS. ARMSTRONG: Okay. My support staff is a little anxious. We'll get there in just a minute.
Anyway, Kissimmee Prairie. Wonderful place to go. We're developing it so that you can get out and spend your time recreating in nature. We're building the cabins so you have a very pleasant experience when you're there.
Another big one, which is near here, Lake Louisa State Park, which is south of here on 27. Already had some cabins. We're building some new ones in an old orange grove that is not producing very well anymore.
We're restoring it to long-leave pine forest, and we're building cabins in there as well, again, so that you have a very pleasant experience when you go. Campgrounds as well, will go there.
The other one that you may be aware of, because it's very close to here, and important to you, is the Green Swamp area. It is mainly north of I-4, but it is the headwaters, the groundwater recharge area for four rivers, the two most known are the St. Johns and Withlacoochee.

And in that area, we're also trying something that's a little unique for the students in the room. Instead of just buying the land, period, so we own it all, we're trying to buy parts of land.
We will go in and pay a rancher for his future development rights so it won't be developed, but he will retain the land and continue to farm it or ranch it. So, it stays on the tax roles, we pay less, but it doesn't get developed and we protect the groundwater.
So that's what we're doing in Green Swamp. It's a program that Commissioner Bronson particularly supports, as a conservation easement concept.
So, these are just some of the examples of how we're spending your money on your behalf so that we have great experiences out there.
I want to ask one question. How many people in here have spent a night, either camping or in a cabin in a state part or the forest?

Great. For all of those who did not raise their hands, do not deny yourselves your opportunity, because I'm telling you, they have created these places. They are wonderfully designed. They are very clean and they are set into the natural environment, so it doesn't affect your experience at all. And so I highly recommend you go.
And I have one more selling point.
GOVERNOR BUSH: You sell. You go, girl!
MS. ARMSTRONG: To make sure that getting you into your park is the easiest it can be, we've developed a 1-800 system. All you have to do is call one number now, and you can make reservations at any state park.
And if you call for reservations in one and they're booked, they'll give you advice about the nearest one that has a similar experience for you. So ?- in fact, I've got the number. Anybody want me to read it? You all ready to write or do you want to get it later?
I'll go ahead and read it. It's 1-800-326-3521. And make sure you enjoy these places, because we spent a lot of money so you can get out there and see them and all the people that come behind us.
So, with that, Governor ?-
GOVERNOR BUSH: Thank you, Eva. That was awe-inspiring.
MS. ARMSTRONG: Thanks for the opportunity.

We have Item one on internal approvement of our minutes.
COMMISSIONER CRIST: Motion on the minutes.
GOVERNOR BUSH: Moved and second. Without objection, it's approved.
MS. ARMSTRONG: Item two, we're asking for a withdrawal.
COMMISSIONER CRIST: Motion to withdraw.
GOVERNOR BUSH: That's too bad. We were going to have a lively discussion about that one. Motion to withdraw and a second. Without objection, it is withdrawn.
MS. ARMSTRONG: I should note that even though we are asking for withdrawal, it's because of the pending lawsuit over Brevard's Manatee Protection Plan. So, we wanted to get that resolved, but ?- I'm sorry ?- the rules, but both U.S. Fish and Wildlife and the Fish and Wildlife Conservation Commission did support this one. Just so you'll know.

GOVERNOR BUSH: Very good. And the county is move to complete its plan. So, at least from my position, we're asking a good faith effort to do that and that county has done it. So, I don't know why it's withdrawn. But it would have been lively, anyway.
MS. ARMSTRONG: Understand. Item number three is what this picture is about, folks. This is the acquisition of an area called ?- a parcel called Twelve Mile Slough ?-
GOVERNOR BUSH: Is that like ?- what is that thing, that water or ?-
MS. ARMSTRONG: Well, it is slough area with the grasses. This is part of why we're buying this property.
GOVERNOR BUSH: That's that stuff up there? Is that just bad photography?
MS. ARMSTRONG: No. I think it's because of the lights flashing on the ?- on the boat ramp.
MS. ARMSTRONG: We have several. And Wayne's just going to flip through a couple of these so that the audience can get an idea what we're buying at this site.

We are getting it for 96 percent of appraised value. It will be used ?- part of it we have a use agreement with the owner to allow him time to move his cattle off. During that period of time there's an area that the public will not be allowed access to because it's where he runs his operation, his home, the cattle facilities. But the rest of the area they'll develop for hunting almost immediately.
TREASURER GALLAGHER: I just have a quick question. Has the state ever owned this land before?
MS. ARMSTRONG: Probably when we were creating it as a state. Do you want me to go though that.
TREASURER GALLAGHER: That's far enough back that I'm not going to complain about it, but as you know, periodically we sort of buy it, sell it back, buy it, and we always seem to buy it high and sell low.
So, I just wondered if these was one of these ones that we sold in the recent past of 50 or a hundred years. So ?-
SECRETARY HARRIS: It was purchased in 94 right?

MS. ARMSTRONG: Yes. And it was a distress sale. The company, the owner had to sell for IRS reasons, so they got ?- the current owner got a very good buy. It was also not in very good shape, and they have since gone in and done some improvements that ?- to the property that have increased that value.
I should also note that this acquisition was not on the Preservation 2000 list. We didn't even know there was a possibility of buying it at the time. It didn't come on until the first list for Florida Forever, which was this past May.
TREASURER GALLAGHER: But in those days you also didn't have permission to go in and pick up land on a distressed sale if we wanted to ?-
TREASURER GALLAGHER: ?- which you can do now, and which is another good thing, I supposed, to ?-
GOVERNOR BUSH: Well, this is ?-
TREASURER GALLAGHER: ?- buy it before somebody else buys it.
GOVERNOR BUSH: Are you defining this as a distress sale?
MS. ARMSTRONG: No, not today.
TREASURER GALLAGHER: It was when they bought it.
MS. ARMSTRONG: The one in '94.

TREASURER GALLAGHER: Of course. They buy distressed, we buy it full price.
GOVERNOR BUSH: This is adjacent to the land we purchased last ?- two weeks ago?
MS. ARMSTRONG: Yes, sir. It creates a great ?- GOVERNOR BUSH: This is all part of ?-
MS. ARMSTRONG: ?- stretch of panther-protected habitat.
GOVERNOR BUSH: This is a panther corridor and also part of our strategy is to protect the water resources. I'm not sure it's directly related to Everglades restoration, but it's close enough. I mean, it is ?- it is related to Everglades restoration.
I don't know ?- we didn't get an answer, I don't think, if we got credit for these purchases as it relates to the state's contribution.
MS. ARMSTRONG: Yes, because they're not ?- this is not part of a comprehensive Everglades restoration project.

COMMISSIONER BRONSON: However, Governor, I might add, that ?- that since this property is close to it, and since the ?- the issue has always come up as to whether EPA is going to go to the end of the pipe figure on restoration of the Everglades, this certainly ?- and I think that this should figure in as part of the restoration project, because anything above ?- above the Everglades is going to affect the Everglades, Lake Okeechobee, all the way the Kissimmee Valley and all the way.
So, I think we should be getting a little credit here, and I think we should push to make sure we get our due on this.
GOVERNOR BUSH: Well, we either get credit or we don't. There's not a little credit. I mean, it's ?- there's a general ledger sheet somewhere, some -- up in the Department of Interior probably keeps tabs, or the Army Corps will make the (inaudible) for any credit, but I think this is not a ?- what do you call it?
MS. ARMSTRONG: The Comprehensive Everglades Restoration Project.
GOVERNOR BUSH: Any other discussion?
(No response.)
GOVERNOR BUSH: We just spent $11,100,000, by the way.
MS. ARMSTRONG: On your behalf, so go enjoy it.

SECRETARY HARRIS: In an abundance of caution I'm going to recuse myself. My family owns part of ?- controls the company that owns property adjacent to this, this site.
GOVERNOR BUSH: All right. There's a motion and a second. All in favor say aye.
GOVERNOR BUSH: Secretary of State Harris has recused herself.
MS. ARMSTRONG: Item four is an unusual item for us today. It's proposed standard lease terms for the hunt camps that currently exist in water conservation areas two and three in South Florida.
We are here today because the Legislature, in 1999, was convinced to put an amendment into the Florida Forever Law that said we will take the existing hunt camps as they exist today and if you, as one of those builders, whenever they built on our property, no permission, they just build, if you will come in, tell us where you are, prove up the footprint, then you will automatically get a 20-year lease effective January of '99.

And it directed us to develop a reasonable fee and reasonable terms and conditions. So, within those parameters we developed the standard lease that you have in front of you.
We are also, because there are 77 of these in South Florida, there are 27 on Trustee's lands, 17 on lands owned by the South Florida Water Management District, and 24 on the Mickosukkee Indian leased lands. Those are the ones that potentially would be ?- come under this lease.
TREASURER GALLAGHER: Give me the description of what Mickosukkee lease land is.
TREASURER GALLAGHER: It's owned by the Mickouskkee and we lease it from them?
MS. ARMSTRONG: No, it's the other way around. There was a ?-
TREASURER GALLAGHER: Us and the Mikosukees lease from us?
MS. ARMSTRONG: Correct. They ?-
TREASURER GALLAGHER: So, the results of the income from those go to the Mickosukkees?
MS. ARMSTRONG: Correct. And there was a lawsuit in 1979. The Mickosukkees sued the Board of Trustees and they settled, and the result was that the Mickosukkees got a perpetual lease over this property and their control of that property.

TREASURER GALLAGHER: Are they paying any money for it? Dollar ?- what do they pay for it?
TREASURER GALLAGHER: Dollar a year? Not even a dollar a year?
MS. ARMSTRONG: In fact, the Trustees also gave them a payment, a one-time payment, I think, of $900,000. I don't know the exact amount, but that was the settlement.
So, they are in control of this property, the property they have. And what we did in putting this lease together, we were trying to make things as simple as possible, and thus, one standard lease.
Also, we approached the Mickosukkees about having the same lease for their area, because our theory is that as people understand that you can't go in and build a new one, because we will take it out, they'll focus on the Mickosukkee lands if they don't have a similar lease instrument in place.
But so far the Indians have declined to participate in that level. They may, they just haven't so far.

TREASURER GALLAGHER: But if the Mickosukees choose to, they can lease more land and more people can put cabins up?
MS. ARMSTRONG: They could, although I understand they really don't want any of them out there at all, which may be why they're not sure they want to enter into a lease agreement.
TREASURER GALLAGHER: So they could, if they want, make everybody tear those down and do that.
MS. ARMSTRONG: They could require them all to.
TREASURER GALLAGHER: Maybe we ought to wait and see what they do before we go jumping out too far.
GOVERNOR BUSH: We're required by law.
MS. ARMSTRONG: Yes, unfortunately.
TREASURER GALLAGHER: But we're not required by law to know exactly how much we ought to be charging, and I would be interested in what the basis of the lease amount of what we have ?-
MS. ARMSTRONG: Of the (inaudible) amount?

MS. ARMSTRONG: Well, we based it on the ?- if you will recall, there ?- you have already approved the submerged leases for the stilt houses on the west coast. That law passed those leases at the same time. And we base them on the value that were applied there.
These are lands where you could not get a permit to go build today. There's not commercial value on it. And we came up with the amount because we needed to have some reasonable income to help us offset our ability to manage it, because we will be out there.
They are going to be required to put in a septic system.
MS. ARMSTRONG: Septic system.
MS. ARMSTRONG: In the houses. Because right now they have none. And so, it's going to take some oversight. And so that's how ?-
GOVERNOR BUSH: These are homes, just for everybody's understanding, so maybe you all have gone to ?- these are homes. These are houses ?-
GOVERNOR BUSH: ?- hunting camps in the Hammocks normally in the middle swamps. They're spectacularly beautiful places to visit. This has been going on, even though people didn't have a legal right to do it, for a long, long while.

And the question I have relates to what is the strategy as it relates to damage. One thing is we're required to sign a 20-year lease, but if the structure is blown away by a hurricane, does the lease allow these folks to be able to build again or would we prohibit that?
MS. ARMSTRONG: The lease, as it's currently written, would prohibit it. If it's damaged more than 50 percent it would prohibit it.
GOVERNOR BUSH: Because, it's kind of hard to get things out to these places. I mean, normally you go by air boats ?-
TREASURER GALLAGHER: Let me ask another question. When a storm comes and tears these things up, it strews debris all over the place. Now, do we require them to have insurance to clean up all this debris that happens, or we ?- it's just our problem?
MS. ARMSTRONG: Yes. It's in the lease.
TREASURER GALLAGHER: That they will have an insurance policy that will clean the place up? Okay.

MS. ARMSTRONG: Yes. What we've done is, we ?- basically we worked with the South Florida Water Management District as a team to do this and used standard lease conditions to the greatest extent we could.
And we would always require that. We hold the Trustees harmless from any damage, even if there is ?- specifically if there's a wildfire that gets out of control, or people burn, they can't come after the Trustees if it destroys the properties. So ?-
GOVERNOR BUSH: That's a bigger one.
MS. ARMSTRONG: Oh, yes. That is one of them.
GOVERNOR BUSH: That's like the Cadillac ?-
MS. ARMSTRONG: There are some that are even nicer than that.
TREASURER GALLAGHER: Pretty nicely furnished, some of these. They are not on welfare, the people that own these.
COMMISSIONER BRONSON: Governor, if I might. There is some confusion by some that have called me on this issue that felt that they needed to talk with the agency a little more about the issue.

I think one of the things that's concerning is, some of these camps have actually been there since before World War II. Now they've been added to, they've been more modernized, and the state never did go out and tell them, you can't do this.
I don't want to evoke squatters rights or anything, but that's the way they feel about this issue, and I think we need to get ?- we need to get everything worked out so that we're not in an adversarial position, but they understand where we're coming from, and they actually get a chance to participate.
They feel ?- or at least the calls I've had, they feel they haven't had a chance to really sit down and participate in this particular issue.
Now, they did go around doing an end run, and they did get some language put on the Florida Forever Act over these issues because they've been out there for 40, 50, 60 years, some of the families.
And this is ?- the indication is this is families that have been hunting for two to three generations out there.

So, I want to make sure we're fair with everyone. And I'm not saying that your agreement is not fair. I'm just saying that I would like to know that they feel that they've had a part in talking about these issues.
And actually, I'd like to see it deferred to the next meeting, so that they have a chance to actually come and sit down and talk with the department before we have a final vote, but that's my opinion on this issue.
TREASURER GALLAGHER: I have another question.
GOVERNOR BUSH: Yes, Commissioner.
TREASURER GALLAGHER: Historically, if one of the members wants to hold it for a meeting, I think we always allow that to happen. I don't think the world's going to come to an end if we don't.
So, I'm agreeing. I'll go along with your motion, but is this 20-year lease a fixed amount for 20 years, or is there some kind of escalation in it?
MS. ARMSTRONG: No. It's ?- no, we do have a ?- we have an escalation clause included forever.
GOVERNOR BUSH: 2.75 percent ?-
MS. ARMSTRONG: It's based on the CPI. It's standard 2.5 percent.

TREASURER GALLAGHER: I didn't want it fixed for 20 years. And, you know, we wait a couple more weeks or something, maybe we can get more money from them. So, I'm all for it.
COMMISSIONER BRONSON: Maybe a push-back on that.
Yes, General.
COMPTROLLER MILLIGAN: When it comes to squatters rights, these people have actually no rights, because this is state-owned land. It's land owned by the people of the State of Florida, and they actually have no right, really, to be there.
If we were to ?- if somebody was to make application to build one of those things, you know, the location that they're in, would the law of the State of Florida allow them to do it?
MS. ARMSTRONG: No, sir. In fact, the amendment specifically stated that anything that was built after May 1 of 1999 would be pulled down.

COMPTROLLER MILLIGAN: Okay. So therefore, it would be ?- I agree with Commissioner Gallagher. I think they are getting a very, very good deal right now, and I would also agree with the deferral and maybe you might want to look at this. I think you are giving them entirely too good of a deal. So I also go along with deferral.
GOVERNOR BUSH: Well, we're going to invite everybody in Osceola back up to Tallahassee to see the second meeting on this agenda. It might be lively.
COMMISSIONER BRONSON: Well, Governor, let me state the reason why I have some concerns. We have other properties in this state, some on state forest land, by the way, who have basically been ?- and it's state land, as the Attorney General has said, and these families ?- I don't know whether you can say squatted on it or what, but after the war ?- after the Civil War, these families settled there, and they have been there ever since the Civil War, and we've got to deal with them, too.
And that's not going to be an easy issue to deal with families that are now five and six generations living on that property and farming it, but under the ?- under the Attorney General's position on this, we're going to have the same problem there, too, and this is not going to be an easy thing for us to work out.

I think we'll get it worked out, and whatever is decided by all parties, we'll go with that, but it does lead us to understand, there's things that have gone on in this state and let go for 150 years now, and now we're going to ?- we're just now getting around to try and take care of it. So, it's not an easy issue.
GOVERNOR BUSH: There's a motion to defer and a second. Any other discussion?
(No response.)
GOVERNOR BUSH: Without objection, it's approved, and we'll hopefully come back in two weeks and ?-
MS. ARMSTRONG: Oh, I forgot one more thing.
MS. ARMSTRONG: Original sale point. One of the things that the department does is we look after Florida's springs, and we have done a concerted effort to try to do a better job at that, including educating the public about the importance of not trashing them, not polluting them, whatever we can do to help people enjoy them better.
And we brought gifts for all of you. There are 200 posters outside both of these doors on the table. Please help yourselves. It is about protecting Florida springs.

COMMISSIONER CRIST: The Governor is going to sign each one of those individually.
MS. ARMSTRONG: So, help yourselves.
GOVERNOR BUSH: I'll be happy to do so.
State Board of Administration. Tom, could you give us a brief overview of what the State Board of Administration is.
MR. HERNDON: Yes, we're ?-
GOVERNOR BUSH: Many people do know more about it now.
MR. HERNDON: Unfortunately, that's probably true, based on our most recent bit of notoriety.
For those of you in the audience, the State Board of Administration is the state agency that is charged with investing Florida's monies. By and large, we invest the assets of the Florida Retirement System, which is about a hundred billion dollars.
We also invest the assets of about 25 other state agencies which all together represents about $25 billion. We are, in effect, the state's investment bank, and in conjunction with the Treasurer's Office, between us, we invest all of the assets that the State of Florida has that are not being used on a daily basis.

My board of trustees are the Governor, the State Treasurer and the State Comptroller, and those three gentlemen function as fiduciaries for the pension plan as the single largest agency responsibility.
The Florida Pension Plan covers about 850,000 people in the State of Florida. That's all state employees, all university employees, all county employees here in the county, all of the employees are members of the Florida Retirement System. All school board employees. So, it's a very large consolidate retirement system and it's largely under our supervision on the investment side.
Now most recently, we've been charged with implementing a new defined contribution program for our members, or in government speak, a 401A, which is a similar style investment program to the traditional private sector 401K. And we're going to talk about that a little bit today.
The board is a very diversified investment organization, just as you would expect. We invest in U.S. stocks, U.S. bonds, international stocks, real estate, private investments and cash, and we have, over the history of the board, had a very strong performance.

Our annual returns outpace the requirements that our actuaries put on us and, in fact, at present, we have a surplus of asset over liabilities of about $14 billion. The Florida Retirement System is funded at 117 percent of what is currently needed.
In addition to the Florida Retirement System, we also work with the trustees on a number of other topics which we're going to discuss this morning, and you'll hear a little bit about, as part of my sum up and overview.
The one thing that I do want to mention, because it's going to come up, and certainly you all have been reading about it, and that's Enron. The state board did have exposure to Enron and we did lose some money in that ?- in that experience, but fortunately the pension fund, even after those losses, is very strong. As I mentioned 117 percent fully funded. A strong surplus condition, and nobody, whether they are county employees, school board, state employee or a taxpayer, should be concerned that the Enron losses are going to cause any problem for the pension fund.
GOVERNOR BUSH: Thank you, Tom.
MR. HERNDON: Thank you.

Governor, Members, the first item of business is approval of the minutes.
COMMISSIONER CRIST: And I'll move the minutes.
GOVERNOR BUSH: Is there a second, Commissioner?
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
MR. HERNDON: Item number two is approval of the fiscal sufficiency of an amount not exceeding $150 million State of Florida Department of Environmental Protection, Florida Forever Revenue Bond Series 2002A.
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved.
MR. HERNDON: Item number three is the report of the staff to the trustees regarding the 2001 Florida Retirement System Actuarial Report.

As you will recall, a couple of years ago when you all were taking up the subject of the rate stabilization mechanism, we recommended and you endorsed and the Legislature ultimately adopted language calling on you to opine as to your sense of the actuary's report, and the recommendations in this report are presented to you for your consideration.
Basically, we found that the actuary's report is stapes and true to the discipline and so forth, but we did make a recommendation with respect to how the contribution rates that employers make to the Florida retirement system be calculated.
And I'm going to ask Dr. Francis, the chief of our economics department, to spend just a moment on this subject. I know it's complicated and there's a lot of information here, but I think it would be worthwhile for you to have a little bit of insight into our thinking.
And I would also add that because of the press of where the Legislative session is, and we are essentially halfway over, a little bit over halfway over, we have taken the liberty of briefing both the Governor's Budget Office and the House and Senate Budget Committees.
I think they are intrigued with this option and are looking at it and are looking forward to hearing what you all have to say.

So, let me ask Dr. Francis to speak to you at this time.
GOVERNOR BUSH: English, Dr. Francis. English.
DR. FRANCIS: I'll do my best. Good morning, Governor, Trustees.
GOVERNOR BUSH: Good morning.
DR. FRANCIS: As Tom mentioned, the actuarial report had the surplus at fourteen and a half billion dollars and, given the mechanisms in law ?-
GOVERNOR BUSH: What is the difference between a nominal surplus and an actuarial surplus?
DR. FRANCIS: The principal difference is in the evaluation of assets. The actuary has a smoothing method to determine the value of assets to keep market jitters from having a ?- a destabilizing effect on the required contribution rates from year to year.

GOVERNOR BUSH: Actually, the surplus is larger than the actuarial surplus right now. In the past it's been the other way, but ?- so, it's ?- the $14 billion is not the actual surplus, but if you take the present value of future expenses and projections of monies coming in, this is how you ?- and the smoothing out portion of this, that's how you get the actuarial surplus, right?
DR. FRANCIS: That's correct. That's correct.
GOVERNOR BUSH: This is ?- that was half English. I can't speak it any ?- it's complicated.
DR. FRANCIS: So, of that fourteen and a half billion actuarial surplus for the upcoming fiscal year 2002, 2003, 1.2 billion will be available for use to offset required contribution rates.
So, what ?- for example, for the regular class which is, or 90 percent of the system's membership, what would normally be a 9.94 percent required contribution against the payroll, will actually be a 4.06 percent required contribution, a reduction of over half, which is, I think we would all agree, a very good thing.
However, this very good thing does give rise to a complication in light of the fact that this year we have, as Tom mentioned, the new defined contribution plan rolling out.

To make a long story short, each of the 800-member governments of the Florida Retirement System is not going to see a fifty percent reduction if we take the actuary's recommendation straight up.
They are going to have substantial uncertainty in what their actual retirement cost are going to be, depending upon how many of their employees select the defined contribution plan versus the defined benefit plan.
And, of course, nobody can know that in advance, and it does create substantial budget uncertainty in a year in which, you know, there are plenty of other budget challenges.
For example, just looking at the retirement cost of the total contribution into the system, if the entirety of a government's employees stay with the defined benefit plan, they'll see about a 33 percent drop in costs compared to this year's costs.
On the other hand, if the entirety go to the new defined contribution plan, they'll see about a 50 percent increase in costs compared to this year's costs, which are already dampened by use of prior available surplus.
That budget uncertainty isn't necessary. The blended rate of proposal that is before you would eliminate that uncertainty.

There are other, I think, advantages of the blended rate proposal as well. For example, the long-term costs of the defined contribution and the defined benefit medical plan are essentially the same. The regular class in both cases is plus or minus a few basis points, about nine and a half percent.
So, it makes sense to have ?- to put into place a system where the short run costs of both plans are roughly the same as well, and the blended proposal will do that.
And finally, what this all comes down to is this ?- this difference wouldn't exist if we didn't have the surplus, because I said the long run costs are the same.
The seed corn of that surplus was the contributions that have been made by member governments in the past, and they have made contributions in proportion to the total payroll.
If we blend the rates, they will get the surplus back in proportion to total payroll. If we don't blend the rates, those governments that are ?- that end up being DC heavy will get less than a proportionate share. Those that are DB heavy will get more than a proportionate share.

And the final advantage, of course, is that it takes off the table what would be a bit of a perverse incentive, and that would be an incentive for employers to push people into choosing the lower employer cost plan. And I don't think that's an incentive that works to anyone's long-term benefit.
So, in simplest terms, the idea of the blended rate, is the actuary does its magic and comes up with the appropriate rates for the defined benefit plan.
By law, we have the appropriate rates for the defined contribution plan. We simply take a weighted average of the two, and that is the rate that is levied against total payroll for the upcoming year.
GOVERNOR BUSH: Any questions, comments?
COMPTROLLER MILLIGAN: I have one question, though. I don't sit on the board, but ?-
GOVERNOR BUSH: No, you don't.
COMPTROLLER MILLIGAN: But I'd like to ask a question.
GOVERNOR BUSH: Sure, you can.

UNIDENTIFIED SPEAKER: If, for some reason, let's say, we have a year where we do not give employees raises, and they may very well understand the fact that they ?- they can't get a raise. They understand it.
But it's not the raise that makes the difference, it's really the retirement that makes a difference because you might get a ?- three percent raise this year, that might mean a hundred bucks a month.
Somebody that retires out of the system with a hundred percent, that could mean a hundred dollars a month for the rest of their life.
Is there a way like if the ?- if the factor you're using is two percent per year, would you like change that one year like 2.1 or 2.07 or whatever just for that particular year that you have a higher factor, but ?- and then the state puts that amount of money into the retirement fund, the four percent or the nine percent, so the employee does not get the raise, but the employee does not lose money in retirement where it's more important.

DR. FRANCIS: I think the simple answer, General, is yes. The State Legislature approves statutes, proscribes the contribution rates by class of employees each year, and those rise and fall, and to the degree this topic is precisely on point.
That is not a cost less change, however, Please understand that if the motivation in part of no raise was because of inadequate money, the increase in the contribution percentage is going to cost something as well.
And so, it's not going to happen on a cost less basis.
UNIDENTIFIED SPEAKER: Right, but let's use the nine percent or ten ?- let's say ten percent and the cost of $350 million for a cost of living raise. This will be $35 million going into the retirement fund, so therefore, the employee will still get the benefit when they retire of having the cost of living.
If the employee retires at ?- retires at the age of, let's say 55, and --. I just wondered if that was possible ?-
DR. FRANCIS: Theoretically that's possible, yes, sir.
UNIDENTIFIED SPEAKER: So the employee would not be hurt over the years?
GOVERNOR BUSH: Well, hopefully ?-

COMMISSIONER CRIST: The question is: When do you catch up? I mean, do you ?-
COMMISSIONER CRIST: When he gets an increase you don't catch up, you just fund it?
GOVERNOR BUSH: Just do a one-time deal.
UNIDENTIFIED SPEAKER: Just a one-time deal where he might go, let's say, from 1.67 to 1.7 only that one year, did he go back to the 1.67 the next year? It will go back down again. Well, you don't penalize the person's retirement, but still everyone understands they have to tighten their belt this particular year.
COMPTROLLER MILLIGAN: Well, the one thing I think that's going to approve this blended approach, I think we need to understand ?- at least I need to understand, these numbers are not the known numbers are they? They're the estimates now.
When will you pin down the number that will be used by the Legislature basically.
DR. FRANCIS: Well, it will take implementing legislation to do ?- to put this blended system into effect, and a decision will have to be made, obviously, before that ?- that law is finally cast setting the rates.

There is a relatively new structure in place that's similar to the revenue estimating conference that estimates ?- revenues end, of course, that's ?- those are educated guesses.
There is an actuarial estimating conference that deals with the assumptions that the actuary makes, and this would be one more assumption. And just like every other assumption, the one thing we can say for sure is that they will be wrong. They won't exactly match experience, and they will be true up the following ?-
COMPTROLLER MILLIGAN: So, in terms of timing, it is doable if we agree to this blended approach?
MR. HERNDON: Yes, sir. It will need to be done by the Legislature if they decide to adopt it in the next four or five weeks. And we won't have had any real knowledge about enrollments to ?- or anything like that until a year from then.
GOVERNOR BUSH: Any other discussion?
(No response.)
GOVERNOR BUSH: Is there a motion?

TREASURER GALLAGHER: I'll move it. And let's see, we're taking this to the Legislature, I gather.
MR. HERNDON: Yes, sir. What essentially I'll do is draft a letter on your behalf to the Legislative presiding officer, the appropriations committee's endorsing this and encouraging them to incorporate it into their plan.
TREASURER GALLAGHER: Well, let me add to that, if the trustees agree, that we also take General Butterworth's suggestion also for them to at least take it into consideration. Everybody have a problem with that?
GOVERNOR BUSH: I have a problem without all the numbers.
COMPTROLLER MILLIGAN: Yes, I'd like to know a little bit more about it, but ?- ?- in principle I would agree, and before we sign any letter to that effect, I think I'd like to know a little bit more about it.
TREASURER GALLAGHER: So, were going to have a meeting at another time, so can they bring it back to us individually and with some numbers and let us sign off and say if they want to?
TREASURER GALLAGHER: At least that will keep it alive.

TREASURER GALLAGHER: I'll move to keep that alive and bring back some numbers for us.
COMPTROLLER MILLIGAN: And I'll second that motion.
GOVERNOR BUSH: Moved and seconded. Without objection, the item is passed.
TREASURER GALLAGHER: And Tom, before you get to Item four which is your status report.
MR. HERNDON: Yes, sir.
TREASURER GALLAGHER: I'd like to inform the other board members of one thing, and also ask for their indulgence in a new one.
At the last meeting we talk about adding additional living expense to the catastrophic fund. The advisory panel, as you recommended, General, you know, had a phone meeting and agreed with it, that went to the Legislature. It is in ?- it has been added to the citizens (inaudible) bill that merges the (inaudible) JUA and that's an amendment that's in both houses and it's been added.

I would like to have us request another thing if you all would, and that also has to do with the CAP fund. That would be to ask the Legislature to allow an increase to $15 billion worth of recovery from eleven, and ?- and/or allow us to set what the coverage should be each year.
I do that because we are ?- we are in a great tough tight market. We are having a lot of policies dropped by companies, not renewed, which is loading up the Residential Property Joint Underwriting Association.
We have increased from 60,000 policies less than a year ago to 110,000 policies today, and most of that increase happened in the last three months.
And, having this increased capacity for reinsurance is an incentive for companies to write in Florida. I have talked to Representative J.D. Alexander, who sort of oversees these issues, and he is supportive of this. In fact, the's the one that actually brought it up.
And it's interesting that back in November/December, after 9/11 when I wanted to have this board get that opportunity because of the reinsurance problem, he was the primary member of the Legislature that was dead-set against it, and now he's told me that he's come around on this.

So, my motion would be that we go to the Legislature and ask them to either give us the authority to set what coverage should be there, we have already do set the rate, and of course we would want to balance those, or ?- and/or move it to ?- ask the Legislature to move it to $15 billion from the eleventh.
COMPTROLLER MILLIGAN: Well, I guess my first question would be, you know,a lower limit 3.5 ?-
TREASURER GALLAGHER: 3.4, and I'm not recommending it touch on that.
COMPTROLLER MILLIGAN: Well, I mean, maybe if were going to raise the upper limit, maybe we ought to raise the lower limit to.
TREASURER GALLAGHER: I don't mind looking at it.
MR. DICKINSON: Raise it?
TREASURER GALLAGHER: I would have a real problem raising it. Lowering it, but I don't know about raising it.
I think that would create a lot of debate and a lot of cost.

COMPTROLLER MILLIGAN: Well, I guess my concern is that I need to ?- we need to shake this out a little bit more. I kind of like the idea of maybe going in and asking the Legislature to give us the authority to play with the bounds ?-
COMPTROLLER MILLIGAN: ?- as a more sensible way, a more responsive way, frankly, of dealing with issues as they arise.
TREASURER GALLAGHER: Well, I was there last November and I'll be right there now.
COMPTROLLER MILLIGAN: Actually, aren't we on record already on that? Didn't we ?-
TREASURER GALLAGHER: Yes, we are on record for that, but I thought we might want to renew our record, because it didn't ?-
COMPTROLLER MILLIGAN: I think that would make sense, Tom, that we pull it in and ?-
TREASURER GALLAGHER: And it should be ?- we should have the authority on the bottom and top, and I don't ?-
COMPTROLLER MILLIGAN: Yes, and I ?- and that's why I mentioned the bottom. I think it needs to be looked at throughout both ends.

TREASURER GALLAGHER: All right. Well, I'll make my motion, that the Legislature give the authority to the Board to set the parameters of the coverage. We already have the rate responsibility and obviously they need to balance each other.
GOVERNOR BUSH: Is there a second?
GOVERNOR BUSH: Moved and seconded. Without objection, it's approved. Policy on the fly.
TREASURER GALLAGHER: I'm sorry. I try to have one of these each meeting.
GOVERNOR BUSH: I'm comfortable with this.
TREASURER GALLAGHER: We've already talked about this one ?- or several times, actually.
GOVERNOR BUSH: And it's the right thing to do, so ?-
TREASURER GALLAGHER: Okay. I'm jumping out the window if he wants ?-
GOVERNOR BUSH: Go ahead, Tom.
MR. HERNDON: Governor, Members, Item number four is the DC implementation status report, and I thought I would take just a minute. And I'm very mindful of everybody's time, but to give you a little bit of a status report about where things are.

As we speak, the employee kits are going out and we hand-delivered down to your offices some of these kits. And I'm not going to go through them, but I did want to just quickly draw to your attention some of the material that's in here.
You do have an individual, personal statement that shows you how you compare your benefits from DB to DC. There's along list of other available resources outlined in here, a choice book, a bill of rights, the top ten keys to savings and so on and so forth.
All of this information is going out ?- in fact, the first wave is being mailed out as we speak. And over the course of the next couple of weeks we'll mail out 150,000 thousand of these in the first mailouts.
The website will be up this Friday. The phone banks are up and running. Workshop scheduling has begun, and we anticipate those workshops will start in a couple of weeks.
So, all of the pieces and parts are fitting together. None of us really still know yet with any great precision how this program will be received by the membership.

At your direction once before, we went back to the actuaries and asked them to give us another sense of forecasts of the number of people that would move and the amount of money that would move, and we have received some additional information from Mercer which we'll send down to your offices.
But generally speaking, they agreed with us, that the initial estimates which are a year and a half old now are probably a little on the high side, but still within the range of reason.
And I'm not going to go into all the assumptions and so forth that they built into it, but we are looking forward to this program.
They are ruling out, I think, in a very successful way. Unfortunately, we're not going to be in a position to really know with any precision about enrollment data until probably sometime later in the fall, because the second group, which is the teachers, the school board employees are the biggest group. That's 45 percent of the population.
And the first 25 percent ?- well, it will give us a good sense, I think. It's not really precise and predictive. So, I do want to just mention that to you.

The only other thing I did want to mention, as it relates to the DC program, and I will certainly be happy to answer any questions that you might have, but we are still working with the?-
GOVERNOR BUSH: Tom, would you just go ahead so the audience knows what DC ?-
MR. HERNDON: I'm sorry.
GOVERNOR BUSH: ?- and DE mean.
MR. HERNDON: That's the 401A program that I mentioned earlier, the government version of a 401K, a self-directed personal portable investment plan for public employees, and it's the optional program that the Legislature authorized a couple of years ago.
The only other thing I wanted to mention in this regard is the contracts and the status of the contracts.
We have run into a little bit of a problem, unfortunately, and it relates to some of the vendors who have stable value products. One of the things that we had been led to believe was the case appears now not to be the case, and we're running into some withdrawal penalties and some liquidity restraints on these stable value products that we did not believe were going to be problems.

We're trying to work through those. I don't want to be an alarmist at this stage of the game, but I do want to at least leave that thought with you, that ?- that there may be some problems and we're going to have to come back and talk to you about them a little bit later on.
The last point on the DC program I wanted to mention is the two bills that we have in the Legislature are moving through. There's no problem that we know of. We're looking forward to successful passage of both of those bills, and appreciate your help.
GOVERNOR BUSH: And it may be the only bill that passes.
MR. HERNDON: It may very well be the only bills that pass and they both certainly need to pass.
Finally, if the Members are interested, by way of just a status report ?- and I know General Butterworth also has an interest in this, we are continuing our activities as it relates to both Enron and Alliance Capital.

The Legislature and both the House and the Senate have had other hearings, and we are still moving forward to meet with those parties. The Congress, of course, is holding hearings and taking testimony.
The Attorney General's Office, I know, is waiting for information from Alliance Capital and from Arthur Anderson on their subpoenas, and we are looking forward to a successful submission from them.
And lastly, as an item on the agenda is the report of the Executive Director for the month of December.
TREASURER GALLAGHER: Motion on receiving the reports.
GOVERNOR BUSH: Moved and seconded. Without objection, the item is well-received.
MR. HERNDON: Thank you.
GOVERNOR BUSH: Thank you. Thank you all very much.
(Thereupon, the matter was concluded.)