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The above agencies came to be heard before
THE FLORIDA CABINET, Honorable Governor Bush presiding,
in the Cabinet Meeting Room, LL-03, The Capitol,
Tallahassee, Florida, on Tuesday, March 26, 2002
commencing at approximately 9:10 a.m.

Reported by:


Registered Professional Reporter
Registered Merit Reporter
Certified Realtime Reporter

TALLAHASSEE, FL 32301 (850)878-2221


Representing the Florida Cabinet:



Commissioner of Agriculture

Attorney General

Commissioner of Education

* * *



(Presented by Wayne V. Pierson)

1 Approved 14
2 Deferred 14
3 Approved 12
4 Approved 13
5 Approved 13

(Presented by Mark Berrigan)


1 Approved 14
2 Approved 15

(Presented by David B. Struhs)

1 Approved 17
2 Deferred 17
3 Approved 17
4 Approved 10
5 Approved 26

(Presented by Coleman Stipanovich)


1 Approved 28
2 Approved 28
3 Report 28
4 Report 44
5 Report 40
6 Approved 52


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

2 (The agenda items commenced at 9:20 a.m.)

3 GOVERNOR BUSH: Department of Education.



6 GOVERNOR BUSH: Moved and seconded.

7 Without objection, it's approved.

8 Item 2.

9 MR. PIERSON: Item 2 is a charter school

10 appeal which is requesting deferral through

11 request of the school board and the applicant.

12 TREASURER GALLAGHER: Motion to defer to

13 April 23rd.


15 GOVERNOR BUSH: There is a motion to defer to

16 April 23rd, 2000 and a second. Without objection,

17 the item is deferred.

18 MR. PIERSON: Item 3 is a statewide emergency

19 shelter plan for 2002. Secretary Seibert of the

20 Department of Community Affairs is here to speak

21 on it.

22 SECRETARY SEIBERT: Good morning, Governor,

23 Members of the Cabinet. This will be a short

24 report. It is loaded with good news, but with a

25 warning.

1 The good news is that every couple of

2 years I need to report to you about how we are

3 doing on reducing the deficit of appropriate

4 hurricane shelter spaces.

5 The good news is that we have made

6 significant strides in reducing that deficit.

7 We have reduced it by approximately 30 percent

8 since the last time I made this presentation.

9 We have done that in large part because

10 this Governor and this legislature have made it

11 a priority. We have put in dollars for the

12 first time each year starting in 1999, state

13 dollars, to create more spaces, and have been

14 more effective at utilizing federal dollars as

15 well.

16 You do it two ways. One, you retrofit

17 existing schools.

18 And secondly, when you build new

19 facilities, if it's appropriate, you make sure

20 that they are weather resistant.

21 There are some communities where they have

22 actually been able to declare victory, where

23 there are surpluses of shelter spaces. And

24 some of those counties are particularly

25 important because they are in the middle of the

1 state, and it's where people go to when they

2 leave the coastal areas. Osceola, Lake,

3 Seminole Counties are actually in surpluses.

4 About a third of the spaces that we have

5 created have been through new public schools

6 being designed and constructed to meet the

7 higher criteria.

8 Let me give you the warning, Members of

9 the Cabinet. The warning is that, as you know,

10 we have high growth in coastal areas, so you

11 are getting more people being placed in the

12 line of danger.

13 Secondly, that the retrofitting will

14 become harder as time goes on. You retrofit

15 the easiest places first; so that option will

16 become less available.

17 And lastly, we need to be more vigilante

18 on the construction of new facilities.

19 The construction of new educational

20 facilities is in large part a local function.

21 And an Auditor General's report recently has

22 shown that even when they should have been

23 built to the higher standards, a significant

24 number were not.

25 That requires more coordination than what

1 we have seen in the past and perhaps even some

2 of the legislation that's recently passed

3 that's going to highlight that coordination

4 between local governments and school boards

5 will help us add back to the list of things we

6 discuss.

7 So in general, good news, but we need to

8 continue to be aggressive.

9 TREASURER GALLAGHER: Steve, I would like to

10 point out that in 1993, in fact, that was right

11 after Hurricane Andrew, the legislature passed a

12 statute that mandated that the state not have a

13 shelter deficit by 1998.


15 TREASURER GALLAGHER: And the shelter deficit

16 increased every single year from '93 to 2001.

17 This is the first year that we have had a

18 decrease.

19 And since 1997, when the criteria actually

20 became effective, only 71 schools have been

21 built with the design criteria, another 29 are

22 planned, and only 34 counties have completed or

23 are beginning to implement the design criteria

24 in their construction.

25 So we only have 34 counties that basically

1 have even started the process to build the

2 schools in a design that meets the shelter

3 requirement.

4 So I don't know what needs to be done, but

5 I think it's a major concern.

6 When you look at the counties that have

7 adequate shelter space to accommodate a

8 category four or five, you've got Brevard,

9 Flagler, Gilchrist, Lake, Osceola, Seminole and

10 Union.

11 Now you can imagine the problem most of

12 those are going to have with a hurricane.

13 Other than Franklin, you don't have -- and

14 Gulf -- you don't really have anybody sitting

15 on -- and Charlotte -- sitting really right on

16 the water where you have a big problem.

17 So there are some counties that have no

18 shelter space whatsoever. And I think that's a

19 big concern.

20 So I just think that we need to put the

21 pressure on. I think one of the problems is

22 you have the Department of Community Affairs

23 over here responsible for this area and a very

24 important area, and you have the Department of

25 Education over here sort of -- they work

1 together when the report gets given, but

2 otherwise, it seems to me nobody is talking.

3 GOVERNOR BUSH: I was going to say the Growth

4 Management Bill that passed I think gives us a

5 golden opportunity to put some teeth into this

6 process of school construction being tied to

7 shelter space, which is the state policy. But if

8 it's not being done, then it's useless.

9 TREASURER GALLAGHER: In the school board

10 side, I will just tell you, that it does cost

11 between 2 to 4 percent more to build the school to

12 meet the criteria. And the districts look at it

13 as an unfunded mandate, and it probably is; and in

14 that case, maybe there should be some kind of an

15 incentive.

16 GOVERNOR BUSH: It's not an unfunded mandate

17 when the state provides more money for school

18 construction than any state in the country, is my

19 position.

20 TREASURER GALLAGHER: I am with you. I am

21 just telling you how they look at it. Somehow or

22 another, maybe the criteria should be that they

23 must build the schools that are compliant or get a

24 waiver not to because they already have enough

25 shelters.

1 In other words, we are doing it the wrong

2 way. Instead of telling them: Please do this,

3 we ought to be saying: You do build them all

4 this way.

5 Way back in the '50s and '60s, all the

6 schools were built as shelters. And all of a

7 sudden it became cheaper not to, and they just

8 got away from it.

9 I think we need to go back to: You must

10 build this as a shelter unless you have the

11 ability to show that you have the required

12 shelters in your county.

13 SECRETARY SEIBERT: As the Governor said, may

14 I, Governor?

15 We have a great opportunity right now to

16 up it a level. We have got coordination that

17 is starting to happen, and let me say our

18 relationship as an agency with the Department

19 of Education has been wonderful.

20 We have worked together on a number of

21 issues in the last couple of years. So the

22 communication I think is substantially

23 improved, and this is obviously a focus of our

24 agency; public safety is our most --

25 TREASURER GALLAGHER: Steve, the issue isn't

1 with you and the Department of Education

2 unfortunately, because schools get built by

3 districts. And they are their own constitutional

4 body, and they make their own decisions on how to

5 do it, unless there is a tie in with the money.

6 And that would be a -- then we turn into a

7 funding manager, saying: Here's the funds,

8 build it to this criteria until you get what

9 you need.

10 And that's really not something you have

11 to do, but I think it is something that needs

12 to be done through the department and the

13 legislature.

14 SECRETARY SEIBERT: You also may see, though,

15 that starting in 1999, the state got serious about

16 the funding. And that's the most exciting thing.

17 And that, I have heard the Governor speak on this.

18 TREASURER GALLAGHER: We have seen it move

19 the other way. So good things are happening, so I

20 don't want to take away from the thing, it's just

21 it's so frustrating to take so long.

22 GOVERNOR BUSH: Another exciting bit of news,

23 Commission Bronson will appreciate this, is that

24 we had a groundbreaking for widening 192 in

25 Brevard County, so we can get all of those people

1 out of Brevard over to Osceola where there is a

2 surplus.

3 There is a lot to do as it relates to

4 evacuation routes, making sure people's homes

5 are secure, because you can't -- we have

6 learned with our last major experience, when we

7 had the largest evacuation in the history of

8 mankind occur, it's difficult; I will be polite

9 about it.

10 So more people can prepare their own homes

11 and then have shelter space in their own

12 communities and then have good evacuation

13 routes to the hinderlands where there may be

14 surpluses, is the right strategy. And we are

15 getting there. We had a huge problem we never

16 addressed, and now we are working on it.


18 GOVERNOR BUSH: Is there a second?


20 GOVERNOR BUSH: Moved and seconded. Without

21 objection, it's approved. Thank you.

22 SECRETARY SEIBERT: Thank you Governor and

23 Members.

24 MR. PIERSON: Item 4 is a new rule

25 6A-1.09432, Assessment of Limited English

1 Proficient Students. Bernardo Garcia is here if

2 you have questions.

3 GOVERNOR BUSH: Who is here?

4 MR. PIERSON: Bernardo Garcia.



7 GOVERNOR BUSH: Moved and seconded. Without

8 objection, it's approved.

9 MR. PIERSON: Item 5 is an amended rule,

10 6A-1.099, Cooperative Projects and Activities.

11 This rule was amended after it was published, so

12 it needs to be approved as amended.

13 TREASURER GALLAGHER: Move item 5 as amended.


15 GOVERNOR BUSH: There is a motion and a

16 second. The item is approved as amended.










1 GOVERNOR BUSH: Department of Agriculture.

2 TREASURER GALLAGHER: Governor, before they

3 start, I noticed at the last meeting when I came

4 in with my Fire Marshal badge on, Jeff Jones was

5 really jealous about that badge I had.

6 And so I don't want him to feel

7 uncomfortable; if he would step over here a

8 minute.

9 Not only am I giving you a badge, not only

10 are you going to have a badge, but you get a

11 hat, too.

12 MR. JONES: Do I get a gun now, too?

13 TREASURER GALLAGHER: We are not going that

14 far.

15 MR. JONES: Thank you.

16 GOVERNOR BUSH: Clearly you made his day.


18 Florida is a full employment, as you can tell.


20 photographer when we need him?


22 TREASURER GALLAGHER: Motion on the minutes.

23 GOVERNOR BUSH: Is there a second?


25 GOVERNOR BUSH: Moved and seconded. Without

1 objection, it's approved.

2 MR. BERRIGAN: Item 2, consideration of

3 authorization to issue a 10-year sovereignty

4 submerged land aquaculture lease of 100 feet by

5 100 feet in the overlying water column. The

6 applicant is Mr. Monty Dale. The lease is located

7 in the Florida Keys, Monroe County.

8 TREASURER GALLAGHER: For the huge sum of

9 $41.90 a year. God Bless America, we spent $4,000

10 just processing this. I move it.

11 MR. BERRIGAN: I understand.

12 GOVERNOR BUSH: Pretty expensive on a per

13 acre basis.

14 TREASURER GALLAGHER: At a hundred feet, I am

15 sure it is. I move item 2.

16 GOVERNOR BUSH: There is a motion. Is there

17 a second?


19 GOVERNOR BUSH: Moved and seconded. Without

20 objection, it's approved.

21 This hopefully is going to turn out to be

22 a good business for a lot of people who have

23 been displaced in other areas and create a new

24 vibrant industry for our state.

25 So if we can lease it for free, I would be

1 happy to do it if these guys and gals make a

2 living and live independently and be

3 successful.

4 MR. BERRIGAN: Thank you.






















1 GOVERNOR BUSH: Thank you. Board of

2 Trustees.

3 TREASURER GALLAGHER: Motion on the minutes

4 for February 12.


6 GOVERNOR BUSH: Moved and seconded. Without

7 objection, it's approved.

8 Item 2.

9 TREASURER GALLAGHER: Deferring to April 9

10 2002. Moved.


12 GOVERNOR BUSH: There is a motion to defer

13 and seconded. Without objection, it's approved.

14 MR. STRUHS: Item 3, we are recommending

15 approval, it's an option agreement to acquire

16 almost 12 acres in the Bald Point Florida Forever

17 Project.



20 GOVERNOR BUSH: Moved and seconded. Without

21 objection, it's approved.

22 MR. STRUHS: Item 4, recommending approval of

23 an acquisition of the Wekiva-Ocala Greenway

24 Florida Forever project.

25 This is a very important Florida back bear

1 habitat, and we are making some really great

2 progress in building that connector between the

3 Ocala National Forest in the north and Rock

4 Springs in the south.

5 This is 95 percent of the priced value.


7 GOVERNOR BUSH: Move on number 4.


9 GOVERNOR BUSH: Moved and seconded. Without

10 objection, it's approved.

11 MR. STRUHS: Item 5, recommending approval of

12 a conservation easement. Like the black bear item

13 just approved, this is dealing with panther

14 habitat.

15 You made some great progress these last

16 several months in building the panther habitat

17 in southwest Florida. That continues down that

18 tract, using the conservation easement.



21 GOVERNOR BUSH: Moved and seconded. Without

22 objection --

23 GENERAL MILLIGAN: I have a question,

24 Governor.

25 When property or land is put under a

1 conservation easement, can that land be sold as

2 mitigation land?

3 MR. STRUHS: Well, if we put the conservation

4 easement on it as a state, then obviously those

5 rights belong to the state. What you may be

6 referring to is when a private interest purchases

7 a conservation easement.

8 GENERAL MILLIGAN: Yes, of course.

9 MR. STRUHS: In that case, it's usually done

10 as part of the permit condition. It has a permit

11 condition --

12 GENERAL MILLIGAN: If this land is under a

13 conservation easement and the owner chooses to

14 sell a portion of it as mitigation to some private

15 contractor, can that be done?

16 MR. STRUHS: Yes.


18 MR. STRUHS: Yes, but not the conservation

19 easement that would be held by the state. In this

20 specific instance --

21 GENERAL MILLIGAN: They could sell the land,

22 right? They could sell the land to somebody and

23 the conservation easement continues?

24 MR. STRUHS: Yes.

25 GENERAL MILLIGAN: Can they sell the land to

1 someone for mitigation reasons?

2 MR. STRUHS: Yes.

3 COMMISSIONER BRONSON: Governor, if I can --

4 the thing that I want to -- and I think I see

5 where the General is going here. If you have a

6 conservation easement that the state has paid for,

7 you cannot take that same piece of land and do --

8 I hope not -- and sell as an independent right to

9 mitigate.

10 It has to be another piece of land on the

11 same piece of property. In other words, if I

12 have got 3,000 acres and I put 2,000 in a

13 conservation easement, that gives me a thousand

14 left that I could put into mitigation but not

15 the 2,000 acres the state has a conservation

16 easement on.

17 MR. STRUHS: That's correct.

18 GENERAL MILLIGAN: While you can sell it, you

19 cannot sell it for mitigation purposes?

20 MR. STRUHS: Right. I think maybe where I

21 was confused is who "they" was. If "they" is the

22 state, if it's a state conservation easement, it

23 wouldn't be sold for mitigation.

24 If it's a private land holding, another

25 private interest could purchase it or purchase

1 a conservation easement on it for purposes of

2 mitigation; but not something that is sold by

3 the state.

4 GENERAL MILLIGAN: Maybe we can sit down and

5 talk about that sometime. That mitigation

6 business continues to be an interesting evolution

7 here.

8 In this case, we are getting a

9 conservation easement maybe for all of it,

10 maybe not, because of 340 acres, that may, in

11 fact, be used for mitigation purposes. It's --

12 it's kind of a -- mitigation can be a two-edge

13 sword here if you are not careful.

14 TREASURER GALLAGHER: I have a question.

15 What we are saying here is that we are paying for

16 a conservation easement?

17 MR. STRUHS: Correct.

18 TREASURER GALLAGHER: The owner still owns

19 the land, but down the land, if he chooses to, he

20 can use the land he owns that we have a

21 conservation easement on as mitigation for some

22 other property we would be working with?

23 MR. STRUHS: No.

24 GENERAL MILLIGAN: They are saying, no. They

25 are finally say no.

1 TREASURER GALLAGHER: I thought we were

2 saying yes.

3 GENERAL MILLIGAN: Yes, initially, but now

4 they are saying no.

5 TREASURER GALLAGHER: How do we know that he

6 can't?

7 MR. STRUHS: How do we know, what?

8 TREASURER GALLAGHER: How do we know that he

9 can't use this land that we have a conservation

10 easement on as a mitigation trade?

11 MR. STRUHS: Because the state, the Board of

12 Trustees, would own the conservation easement.

13 Only the Board of Trustees could determine if that

14 conservation easement could be utilized for some

15 other purpose.

16 TREASURER GALLAGHER: You see, the idea is

17 that he's got a conservation easement, he still

18 owns the land, and we want to trade him for

19 something -- he wants to trade us for something

20 and uses that as the trade, is what I think

21 General Milligan is talking about. I sort of

22 would like the answer myself.

23 How do we know that won't be traded, or is

24 it something we might want to trade? If we do,

25 wouldn't we want to deduct the amount we paid

1 already for the conservation easement?

2 He is trying to do something back there.

3 MR. STRUHS: If the state owns the

4 conservation easement, it's a right that belongs

5 to the state. So how that right might be utilized

6 in the future would obviously rest with the owner

7 of the easement, which would be the state, not

8 with the owner of the underlying title.

9 TREASURER GALLAGHER: But when we mitigate,

10 we usually get title of land for title of land or

11 title of land for availability use, some other

12 land that may be under water. Right?

13 MR. STRUHS: When we mitigate?

14 TREASURER GALLAGHER: Yeah, when we mitigate

15 for -- somebody wants to develop an area, and we

16 say no, it's got swamp, we are not going to let

17 you do it unless you give us a trade for it,

18 right?

19 MR. STRUHS: Right, but we are not doing the

20 mitigation. The private interest is doing the

21 mitigation.

22 TREASURER GALLAGHER: Exactly. So he takes

23 the land we have a conservation easement on and

24 says: I will give you that land in trade for

25 being able to develop this. What stops that?

1 MR. STRUHS: I think, if I understand the

2 question correctly, if the state owns a

3 conservation easement on a parcel, and then in the

4 future some other private interest wants to do

5 some type of development on that same parcel --

6 TREASURER GALLAGHER: Not development.

7 MR. STRUHS: A different parcel?

8 TREASURER GALLAGHER: Right. And they are

9 willing, in order to let us to develop the other

10 parcel, the guy that owns this land that has a

11 conservation easement on it donates the land to

12 us.

13 MR. STRUHS: He has the underlying title?


15 MR. STRUHS: I think at that point, the state

16 would want to exercise its judgment as to whether

17 or not accepting the underlying simple fee title

18 to land to which they already have a conservation

19 easement would have any benefit to the state or

20 whether it should count towards mitigation. That

21 would be a future land use decision for a future

22 government, future administration.

23 TREASURER GALLAGHER: One of the problems

24 that we have is we could easily be making that

25 trade and not even realize it has a conservation

1 easement on it.

2 MR. STRUHS: I think that's highly unlikely

3 because all the conservation easements are

4 recorded as part of the title.


6 GENERAL MILLIGAN: I don't know. It's a

7 little squirrly, I think. I would just like to

8 find out more about it. We don't need to beat a

9 dead horse here.

10 We already moved this and seconded it, and

11 I don't have any problem with that.

12 But I sure would like to have a better --

13 I would like to be more comfortable with the

14 idea that when we put -- when we purchase an

15 easement, that the land that is involved, which

16 is still owned by the property owner, cannot be

17 used to provide some sort of mitigation service

18 to another private party by selling him that

19 land as mitigation land.

20 MR. STRUHS: I understand.

21 GENERAL MILLIGAN: I would just like to be

22 comfortable with that. And if necessary, maybe we

23 need to put that in the contract that we --

24 MR. STRUHS: In the easement itself.

25 TREASURER GALLAGHER: In the easement, we can

1 put that this may not -- the property may not be

2 used for mitigation with a state or local

3 government. That will work. And then I think I

4 would be comfortable.

5 GENERAL MILLIGAN: I would be comfortable,

6 too.

7 Again, let's not hold this up. I am not

8 trying to do anything with this. I don't think

9 we need to --

10 TREASURER GALLAGHER: Does the easement

11 seller have a problem with adding that to it?

12 MR. STRUHS: The easement seller is here, and

13 we can put that question to the seller.

14 GOVERNOR BUSH: Where is the easement seller?

15 MR. STRUHS: Represented by Dean Sonders --

16 Mr. Broderick.

17 TREASURER GALLAGHER: He has no problem with

18 that. There you have it.

19 Thank you very much.

20 I will move the item with the additional

21 easement language.


23 GOVERNOR BUSH: Moved and seconded. Without

24 objection, the item as modified, soon to be

25 modified, passes.

1 MR. STRUHS: On the subject of conservation

2 easements generally, I will use this opportunity

3 as a quick advertisement.

4 In -- is it June or July -- June 17th, 18

5 and 19 we are having a fairly major national

6 symposium on all these particulars in terms of

7 how to do good conservation easements,

8 sponsoring it right here in Florida.

9 (Commissioner Crist arrives.)

10 MR. STRUHS: We will hope to see, if not

11 yourselves, at least your cabinet aides being able

12 to attend that conference. Thank you.

13 GOVERNOR BUSH: Thank you, David.













1 GOVERNOR BUSH: State Board of

2 Administration. Commissioner Crist, welcome.

3 Cabinet is over. Perfect timing.

4 TREASURER GALLAGHER: I move the minutes for

5 February 27 and March 12.

6 GOVERNOR BUSH: There is a motion on the

7 minutes. General?


9 GOVERNOR BUSH: Thank you. Moved and

10 seconded. Without objection, it's approved.

11 Item 2.

12 MR. STIPANOVICH: Good morning, members. Tom

13 Herndon asked me to pinch hit for him today.

14 As you may recall, at one of the previous

15 meetings he mentioned that he would be meeting

16 with the chairman of the SEC, Harvey Pitt, and

17 the Council for Institutional Investors. That

18 got postponed until this week, so he is in

19 Washington, D.C., working on some corporate

20 Governor's issues post Enron.

21 To digress a moment, Governor, the minutes

22 for April 1, there were a couple of items on

23 there that Commissioner Gallagher, for example,

24 had brought up, increasing the capacity limit

25 in the area of Florida Hurricane Capacity Fund

1 Coverage.

2 And Mr. Herndon did write a letter to both

3 the Senate president and the House and got a

4 luke warm reception.

5 However, in their bill, they did -- in the

6 Citizens' Property Insurance Corporation bill,

7 they did add some language that would give the

8 consultant the ability to factor in at some

9 point in time the ability to raise more cash

10 that would have to be subject to the approval

11 of the board.

12 And the final thing for follow up was

13 General Butterworth had made a comment about

14 the possibility of increasing FRS service

15 actuarial percentages for employees who do not

16 receive a raise in a given year.

17 And Mr. Herndon got in touch with Erin

18 Sjostrom, the director of DOR, and she has her

19 people looking into it.

20 But we heard recently from your office

21 that with what came out -- and of course, the

22 budget is not approved yet -- but with what

23 came out of the House and Senate in terms of

24 possible codes, that may not be as much an

25 issue anymore.

1 So, that's the follow up on the 27th

2 agenda.

3 Item 2, as you know, we met with Alliance

4 on February -- on March 7th, and then on the

5 12th we had our good cause item where we met

6 about Alliance to get an update. And we left

7 that meeting with the trustees' decision not to

8 take legal action until the Attorney General's

9 office had concluded.

10 But we wanted to continue to pursue the

11 law firms in terms of who would represent us

12 should we decide to sue.

13 Governor, the Governor had in particular

14 two requests. And in response to those

15 requests, pursuant to your direction, we had

16 requested and imposed a time line on Alliance

17 to respond to us as a result of that meeting to

18 give us some information.

19 They have failed to do that with a

20 deadline we gave them of March 20th. And we

21 are not real optimistic that we'll be getting

22 anymore information from them, Governor.

23 The final item was to move forward with a

24 recommendation on the selection of a law firm

25 to assist us in securing recoupment of our

1 losses from Alliance.

2 On March 13th, Mr. Herndon forwarded to

3 you our recommendation along with an

4 explanation of the process that was utilized to

5 formulate that recommendation.

6 GOVERNOR BUSH: Coleman, can you explain the

7 process?

8 MR. STIPANOVICH: Yes. To briefly summarize

9 it, the general counsel had discussion with

10 numerous firms about their qualifications and

11 experience and strategy, the legal strategy and

12 theories they would use in pursuing litigation

13 against Alliance.

14 As a result of those conversations, the

15 decision was to invite four teams of law firms

16 to give presentations and that consisted of

17 eight different law firms.

18 The law firms that came and gave

19 presentations, Governor, were the Tom Grady and

20 Grady and Associates; and Johnson, Blakely,

21 Pope law firm; the Tew Cardnas law firm, Gray

22 Harris law firm and Beggs Lane law firm. So

23 those were the ones that came and conducted

24 interviews.

25 GOVERNOR BUSH: What was the fourth one?

1 MR. STIPANOVICH: The fourth one was Beggs

2 and Lane, I believe it's Colton, Mingstein,

3 Hasfield and Toll and Levin, et al.

4 GOVERNOR BUSH: Levin law firm.

5 MR. STIPANOVICH: The key personnel

6 participated in these interviews, the executive

7 director, myself, the chief of domestic equities

8 and a number of other people, including the

9 general counsel.

10 Also, there were representatives from

11 General Butterworth's office that participated

12 in all the interviews.

13 All the firms were exceptionally

14 qualified; in particular the first three firms

15 that I just mentioned were very qualified.

16 There was some discussion in terms of strengths

17 and weaknesses of each law firm, in terms of

18 the legal theories that they laid out, and so

19 on, and so forth.

20 So it was a tough decision, but we did

21 come up with a recommendation that's in your

22 packet for the Gray and Harris -- Grady and

23 Associates, Johnson, Blakely, Pope law firm,

24 but again --

25 GOVERNOR BUSH: The Gray and -- say that

1 again.

2 MR. STIPANOVICH: It's the Grady and

3 Associates, Johnson, Blakely, Pope law firm.

4 GOVERNOR BUSH: I thought he said Gray

5 Harris.

6 MR. STIPANOVICH: And again, this is -- there

7 are also the Tew Cardinas law firm and Gray Harris

8 law firm gave very good presentations, and were a

9 very close second and third, but if we had to come

10 forth with a recommendation, that's where we are

11 now, Governor. But again, all three law firms

12 really did a good job and outstanding and there is

13 pros and cons for each.

14 For example, the Gray Harris law firm has

15 a local presence in the Panhandle, and that's

16 being factored in. So that's where we are on

17 the recommendation.

18 GOVERNOR BUSH: General?

19 GENERAL MILLIGAN: I just might comment that

20 we do, in the securities business, do a lot of

21 work with the Grady law firm particularly and have

22 found them to be really top drawer in terms of

23 securities business. And that's, of course, what

24 this is all about.

25 We do a little bit with the Burns people

1 in Tampa, but not as much. And they certainly

2 have a very strong reputation in the securities

3 field.

4 GOVERNOR BUSH: One of the -- first of all, I

5 am pleased that we are going to hire a firm

6 because that -- while that doesn't mean we are

7 necessarily going to be engaged in litigation,

8 given the report that Alliance has not been

9 forthcoming with information as promised, it kind

10 of sets the stage for it, I would assume.

11 That decision I guess will be made once

12 the law firm is hired, the strategy I guess is

13 to get a recommendation on how to proceed.

14 There is always talk about the north --

15 this district, this court needing to have some

16 kind of local experience. I am not -- I don't

17 know if that's true or not. How did you factor

18 that in?

19 MR. STIPANOVICH: Well, there was no doubt

20 that one of the things that should work to our

21 advantage -- and I am certainly not a lawyer, but

22 is -- in our contract it's required that they try

23 this in the Panhandle. I forget the circuit,

24 Governor, pardon me, but it would be one of three

25 courts here in the Panhandle.

1 So we think, of course -- and that's one

2 reason we have that in our contract -- that

3 should work to our advantage versus say trying

4 it in New York City.

5 So that, again, in terms of some

6 familiarity with -- I will say this; that the

7 Grady and Associates and Johnson, Blakely, Pope

8 law firm has engaged someone locally that has a

9 good presence and practice here locally that

10 has those kind of relationships and knows a lot

11 of those folks that work in the courts and that

12 kind of thing. So that aids them a little bit

13 in that one consideration.

14 But, you know, where we are now is we are

15 going to propose and start working with them on

16 a compensation structure. We have been working

17 very closely with the Attorney General's office

18 and he has his views on that and Commissioner

19 Gallagher has made his remarks at the last

20 cabinet meeting about not paying these law

21 firms for really doing nothing, should we be

22 able to work something out on a fairly short

23 time line and without a whole lot of effort.

24 So we have a long way to go in terms of

25 working out a compensation structure. And our

1 compensation structure is going to be very

2 aggressive. It's not going to be what these

3 law firms are used to seeing.

4 So if we were to go with the number 1

5 choice, if that didn't work out, we are

6 prepared to move to number 2 and number 3 in

7 compensation discussions and how we would

8 structure this; because we are not interested

9 in paying legal fees.

10 But at same time, Governor, we don't want

11 to be a penny wise and pound foolish. This is

12 not a commodity. Basically, possibly -- there

13 were some suggestions we bid it out and that's

14 an alternative.

15 But again, dealing with law firms and

16 looking at their experience and qualifications,

17 there is more to it than just the bottom line

18 in terms of what we would ask them to.

19 GOVERNOR BUSH: General Butterworth, you want

20 to make any comments?

21 GENERAL BUTTERWORTH: Thank you, Governor.

22 As Mr. Stipanovich has stated, we are

23 working hopefully with the agency insofar as

24 coming to a contract that would be appropriate.

25 I think the last thing anybody here wants to do

1 is pay somebody 25 percent of what the Attorney

2 General's office might be able to come up with.

3 So I think the law firms understand that.

4 So we have to basically blend the contracts.

5 So, as long as we can work with you on

6 coming up with a contract, we feel we will come

7 up with something that's very reasonable.

8 All the law firms, you are absolutely

9 correct, they are all very, very well qualified

10 and have an excellent working relationship with

11 the state.

12 GOVERNOR BUSH: Commissioner?

13 TREASURER GALLAGHER: Well, I fully agree.

14 When I look at the first three -- and really, I

15 look at it as four because I look at Grady as top

16 notch, Guy Burns, who obviously is going to be the

17 lead lawyer for Johnson Blakely, top notch; I look

18 at Tom Tew, top notch; I look at your past deputy,

19 top notch and having a good knowledge of this

20 district.

21 And because -- you get a whole firm, but I

22 think naming those four people, you got a team

23 that I would like to have known that that's the

24 team we had, because they all are strong.

25 And those -- especially, my knowledge of

1 those individuals.

2 And so, I would like to see us take the

3 advantage of what each one of those individuals

4 brings to the table. They are not all in the

5 same law firm, unfortunately, but that's okay,

6 too; you know they are all pretty strong egos.

7 GENERAL MILLIGAN: Wouldn't that be a useful

8 thing to allow to evolve and allow the SBA to move

9 forward with their negotiations and see how that

10 evolves?

11 And then I think Coleman has been very

12 clear that this is a major negotiation here,

13 and if we don't get what we need and the right

14 combination of the right people, then we'll

15 move someplace else, which maybe will expand

16 the combination.

17 I think what they are recommending right

18 now I think is the place to start and let them

19 begin the work, with the Attorney General's

20 people participating. I think we can get the

21 right mix of people and the right contract.

22 TREASURER GALLAGHER: I said what I think,

23 and this was for discussion. I know you are just

24 beginning to work with them. The one thing all of

25 us don't want to do is pay a percentage on what

1 the Attorney General's office gets as an offer.

2 GENERAL MILLIGAN: We don't want to preclude

3 any options for the SBA to pursue if they think

4 they need to go down a different track. I think

5 at this stage, I would approve -- I move approval

6 of them negotiating towards a contract with Grady

7 and Burns as recommended.

8 TREASURER GALLAGHER: I would like to leave

9 it even more open than that; that they can talk to

10 all of them and see if there is --

11 GENERAL MILLIGAN: I think he said they are

12 going to talk to all of them. Didn't I understand

13 you to say that?

14 MR. STIPANOVICH: We certainly have talked to

15 all of them, and we can continue to do that to

16 follow up both on, General Milligan, your question

17 and Commissioner Gallagher.

18 One thing we did look at, is kind of

19 intangibles, that is who are the principals

20 that would be involved in trying this case. As

21 we know, that would be very important, and what

22 is their caseload. ?

23 Is this something -- this is a big case,

24 but is there something -- do they have other

25 things on their plate? What would be the depth

1 of their resources?

2 So these are things we have explored to

3 some extent. But we could continue to look

4 into those type of variables, but we have done

5 a considerable amount of that already.

6 GOVERNOR BUSH: I don't think you are guys

7 are saying the same thing.

8 GENERAL MILLIGAN: Not exactly, but we are

9 not terribly far off. I certainly would not

10 preclude the flexibility of the SBA to talk to

11 other --


13 discussion. If we don't have a motion, they sort

14 of an idea of where we are all coming from and let

15 them move on.

16 MR. STIPANOVICH: We would be happy to,

17 Governor, to continue discussions and see --

18 GENERAL MILLIGAN: Let it roll right now.

19 MR. STIPANOVICH: But this is where we are.

20 GENERAL MILLIGAN: That would probably help

21 General Butterworth in his negotiations.

22 GOVERNOR BUSH: I just urge a little bit

23 of -- there is a time sensitivity here in the

24 sense that I thought for a while that Alliance is

25 not going to be particularly cooperative, and they

1 haven't been. And that gives me concern.

2 I just think that if we can move with a

3 recommendation on a law firm or -- I think you

4 all did your due diligence, you could have come

5 out with a different result of firms. They all

6 are excellent firms. There is a real interest

7 in this, which is a good sign, I think.

8 You need to negotiate the price for the

9 service; and whether we need to look at a

10 combination or not, I would keep that open.

11 But I would pursue this quickly. I don't think

12 there needs to be -- the next meeting I hope we

13 have actually an recommendation with something

14 more than just saying: Can we now pursue it?

15 TREASURER GALLAGHER: This was on here for

16 discussion, so that's what we are doing. We are

17 talking contingency only, right?

18 MR. STIPANOVICH: Yes, we are. There has

19 been discussion, I think the folks in the

20 General's office we have been talking to has

21 articulated very eloquently the idea of an hourly

22 fee, some phase, at least in terms of leading up

23 to making some determination, if there would be

24 some early settlement. And in that way you might

25 save a lot of money on an hourly fee.

1 I will tell you in the compensation

2 structure that we have, it has various

3 thresholds and it's really base on a time line

4 as to when this thing might settle and the

5 dollars.

6 So it's kind of an equation that has a

7 couple parts to it that we are very aggressive

8 on the front end in terms of what the law firms

9 would get. And it's miniscule compared to what

10 they are used to getting. That's going to be

11 our proposal, and we will be making that.

12 GOVERNOR BUSH: When do you start in earnest

13 trying to negotiate the fee schedule?

14 MR. STIPANOVICH: When we leave this room

15 today.

16 GOVERNOR BUSH: That's good. That's the best

17 answer I could think of.

18 MR. STIPANOVICH: We have our marching

19 orders. We want to get the finger on the trigger

20 so whenever you all are ready to give us the order

21 to fire, we'll be on the firing line.

22 GOVERNOR BUSH: I am sure if I was

23 negotiating with you, I am sure that would be --

24 TREASURER GALLAGHER: I think you gave us

25 item 3 report or not?


2 Very brief, we had four bills this year

3 and we actually turned out doing very well. We

4 ended up with no amendments and our bills

5 passed. We had three bills that passed in the

6 House and one bill that passed in the Senate.

7 The House Bill 807, defined contribution

8 plan, sponsored by Representative Fasano

9 passed, and there are a number of elements of

10 that which are in your package, but the

11 highlights is that it established a disability

12 benefits program under the DC plan and updates

13 contribution rates for the FLS/DC plan

14 disability program.

15 Senate Bill 2134, the clearing trust fund,

16 sponsored by Senator Sanderson was, of course,

17 something that we needed to have done. And it

18 creates the FRS contributions clearing trust

19 fund to be administered by DMS.

20 The House Bill 1973, retirement

21 contribution rates, was sponsored by the Fiscal

22 Responsibility Council and Senator Lacasa, and

23 this, in essence, revises the contribution

24 rates and introduces a blended rate for DB and

25 DC contributions.

1 Finally, as you know, the important bill,

2 Bill 935 in the House, the public records

3 exemption bill, passed which creates a public

4 records exemption to maintain the

5 confidentiality of all participates and their

6 account activities.

7 GOVERNOR BUSH: Thank you. And item 4.

8 TREASURER GALLAGHER: I think he just did 4.

9 GOVERNOR BUSH: I thought that was 3.

10 MR. STIPANOVICH: That would be item 4, the

11 implementation status update, Governor, I believe.

12 We have, since we met last, we have mailed

13 the 158,000 packets to the state employees.

14 That's completed.

15 We actually started on March 18th the

16 workshops that would follow up and which they

17 actually make their investment decisions as an

18 outcome of the first three months, having to do

19 with the outreach and making the choice

20 decision which is what the packets address.

21 And that has gone fairly well; some

22 glitches, but we are working on that. So each

23 phase thereafter should only get better.

24 We have completed the asset transition

25 broker contract, and it has been sent to the

1 vendor. And that's really the only outstanding

2 contract we have in terms of the noninvestment

3 vendors.

4 We still are working on finalization of

5 the unbundled/bundled contracts. We don't see

6 any problems on the unbundled side. We

7 actually have already signed a couple

8 contracts, we have several more that are in

9 that we'll be signing.

10 And on the bundled providers side, we just

11 have some hang ups on the stable value funds,

12 very specifically. And what we have found out,

13 to our surprise, is that the concern

14 Commissioner Gallagher's expressed about

15 illiquidity, we were told that there was not

16 going to be an issue and we found out there is

17 some illiquidity issues in these products.

18 So at the same time, I understand the

19 legislature allows us to have those illiquidity

20 issues, if there is some derived benefit that

21 can offset that illiquidity.

22 So we are being open minded, Governor, in

23 trying to work with these folks and see if we

24 can't work this out. But that's where we are.

25 And at some point in time we may be coming back

1 to you with a recommendation.

2 TREASURER GALLAGHER: We have a stable value

3 fund that we are doing at the -- that's sort of a

4 generic one, right?


6 TREASURER GALLAGHER: Is it one or two?

7 MR. STIPANOVICH: Actually, I think --

8 TREASURER GALLAGHER: Combine it to be

9 whatever you want.

10 MR. STIPANOVICH: Yes, each of the providers

11 I believe all have a stable value fund, so there

12 is some redundancy there.

13 And again, a stable value fund -- and I

14 don't want to characterize it literally as

15 such, but you know, it's much like a money

16 market fund. So this is not rocket science.

17 If liquidity is a primary objective, there

18 is other ways that we can get around that. But

19 we did approve a number of stable value funds

20 with the providers and that seems to be the

21 hang up right now.

22 TREASURER GALLAGHER: We only have two that

23 have the access problem, right?

24 MR. STIPANOVICH: Commissioner, I am not

25 exact surely. I haven't been involved in that

1 kind that of detail of those discussions, but I

2 think there is actually several. I mean three.

3 TREASURER GALLAGHER: Three out of five?

4 MR. STIPANOVICH: Yes. I could be off one,

5 but I think it's at least three, could be four.

6 They are all very similar. Some of the

7 liquidities literally are measured in days, if not

8 weeks, and others may like months. I don't know

9 if we are into the years, but that would certainly

10 be problematic.

11 TREASURER GALLAGHER: Keep working, see how

12 you do.

13 GOVERNOR BUSH: Any other questions?

14 GENERAL MILLIGAN: Just a quick question.

15 Financial engines, are they on schedule to be up

16 and fully functional?

17 MR. STIPANOVICH: General, they are. As you

18 know, you experienced a situation where there is a

19 glitch dealing with folks a certain age and over.

20 I won't mention ages.

21 GENERAL MILLIGAN: That's all right. That is

22 quite all right, doesn't bother me.

23 MR. STIPANOVICH: But 65 and over, so we are

24 fixing that glitch. But there are a couple

25 glitches, but they are not something we think are

1 insurmountable.

2 GOVERNOR BUSH: How did you find out that,

3 General?

4 GENERAL MILLIGAN: I know somebody 65 and

5 they tried it out and fell on its rear end.

6 MR. STIPANOVICH: Finally, just to give

7 you --

8 GENERAL MILLIGAN: It's a good test for the

9 senior citizens.

10 GOVERNOR BUSH: We better get it fixed. I

11 don't know anybody in this room over 65.

12 TREASURER GALLAGHER: I don't know anybody

13 over 65, so I don't know who talk to.

14 GOVERNOR BUSH: Don't say that in Florida.

15 MR. STIPANOVICH: We already sent out notices

16 and notified these people of the glitch, that it

17 will be fixed. We posted something on the

18 website; so they are informed we're on top of that

19 and we'll be trying to correct the problem.

20 Finally, let me make a comment -- and

21 please keep in mind this is a very, very small

22 sample, but we have had some folks that have

23 made some elections. And actually I think the

24 total is about 2300 roughly. And just to kind

25 of give you a broad break down, it looks like

1 now we are running at about 10 percent that are

2 choosing an investment plan.

3 When we started out this process, we

4 didn't know how many that was going to be,

5 whether it was going to be 10 percent or

6 40 percent.

7 But again, this is a very small sample.

8 It's state employees. It may not be the same

9 kind of profile of the next two groups.

10 And we also think that, as has been

11 pointed out to us, when you get that choice

12 paper that basically says -- some of this is so

13 clear, back and white, it's DB for you.

14 So we think a lot of that is where it's

15 abundantly clear, there is no second guessing,

16 it's DB, and those folks have gone ahead and

17 are moving into that system. And the other

18 ones are going to have to think about the more

19 difficult choices.

20 So that may -- 10 percent may be the low

21 end; I just kind of wanted to update you on

22 that.

23 TREASURER GALLAGHER: If you would, as you

24 get people that start moving in, I think it's very

25 important that you collect demographics on them:

1 Age, time in the system, all those kinds of

2 things, so we see who is attracted to it and who

3 is not. And I think those kinds of things would

4 be very worthwhile to collect, or you may be doing

5 that.

6 MR. STIPANOVICH: We are doing that.

7 Actually, the IC mentioned that at the meeting we

8 had a few days ago. So we are going to try to get

9 as much of that information as we can begin to

10 make some early projections about better

11 identifying what the demographics are and profile

12 of the folks choosing the investment plan.

13 GOVERNOR BUSH: Any other comments?

14 Coleman, for the next SBA meeting, if you

15 all could give us a report on the work that you

16 are doing on early warning detection

17 activities, if there is anything that we can do

18 looking at best practices across the state,

19 across the country to, given the volatility of

20 some of these stocks now, that create serious

21 ups, mostly downs, in some of these companies;

22 there must be a way that we can at least have a

23 system where we red flag volatility in the

24 market so that we can address these issues with

25 our investment managers without actually making

1 the investment decisions.

2 It seems like this is something that's

3 going to be with us for a while, as it relates

4 to some of these accounting issues or just the

5 general volatility of the marketplace

6 irrespective of accounting.

7 I know you all are looking at that and it

8 would be great to get a report on that.

9 MR. STIPANOVICH: Yes, we are. Governor and

10 members, you can be assured that we have been

11 working on that nonstop.

12 And we had an IC meeting, actually it was

13 the longest IC meeting I think we had and I

14 have been around the IC for a lot of years, and

15 I think it was the longest meeting that we had

16 in the history of the IC. It ended close to

17 5 o'clock in the afternoon, and that was the

18 main topic.

19 So we are working with our consultants and

20 our staff, and we are trying to be very

21 thoughtful in looking at this on a strategic

22 basis and a tactical basis. And we'll

23 certainly have something for you.

24 GOVERNOR BUSH: All right. Item 6.

25 MR. STIPANOVICH: Yes, sir. Item 6, well, I

1 think we have the report by the executive

2 director, Governor; that's simply the normal

3 report you get and fund activity analysis.

4 Commissioner Gallagher's appointment of

5 Michael Savaldy to the Florida Hurricane

6 Catastrophe Advisory Council that you had the

7 back up material in your packet and his resume,

8 which you would need to take action on that.



11 GOVERNOR BUSH: Moved and seconded. Without

12 objection, it's approved.

13 If the cabinet members could stay, we are

14 going to take a picture again with Secretary

15 Harris here for the South Com resolution.

16 (The proceedings concluded at 10:15 a.m.)


















9 I, SANDRA L. NARGIZ, RMR, CRR, certify that I

10 was authorized to and did stenographically report the

11 proceedings herein, and that the transcript is a true

12 and complete record of my stenographic notes.

13 I further certify that I am not a relative,

14 employee, attorney or counsel of any of the parties,

15 nor am I a relative or employee of any of the parties'

16 attorney or counsel connected with the action, nor am I

17 financially interested in the action.

18 WITNESS my hand and official seal this 2nd

19 day of April, 2002.



22 ______________________________