Click here to MyFlorida Home Page  
Clear Dot Image Cabinet Affairs









                               OFFICE OF INSURANCE REGULATION
                                    DEPARTMENT OF REVENUE
                                DEPARTMENT OF LAW ENFORCEMENT
                                STATE BOARD OF ADMINISTRATION



                         The above agencies came to be heard before
               THE FLORIDA CABINET, Honorable Governor Bush presiding, in the
               Cabinet Meeting Room, LL-03, The Capitol, Tallahassee, Florida,
               on the 26th day of October, 2004, commencing at approximately
               9:30 a.m.


                                        Reported by:

                                     KRISTEN L. BENTLEY
                                  Certified Court Reporter


                             ACCURATE STENOTYPE REPORTERS, INC.
                                  2894 REMINGTON GREEN LANE
                           TALLAHASSEE, FL  32308   (850)878-2221






                         Representing the Florida Cabinet:

                         JEB BUSH

                         CHARLES H. BRONSON
                         Commissioner of Agriculture

                         CHARLIE CRIST
                         Attorney General

                         TOM GALLAGHER
                         Chief Financial Officer

                                           * * *

















                                   ACCURATE STENOTYPE REPORTERS, INC.


                                          I N D E X

               (Presented by KEVIN MCCARTY)

               ITEM                  ACTION                 PAGE
               1                     Approved               5
               2                     Approved               9

               (Presented by JAMES ZINGALE)

               ITEM                  ACTION                 PAGE
               1                     Approved               20
               2                     Deferred               42

               (Presented by GUY TUNNELL)

               ITEM                  ACTION                 PAGE
               1                     Approved               46
               2                     Approved               49

               (Presented by EVA ARMSTRONG)

               ITEM                  ACTION                 PAGE
               1                     Approved               51
               2                     Deferred               51
               3                     Approved               51
               4                     Approved               57
               5                     Approved               58
               6                     Approved               74
               7                     Approved               75
               8                     Approved               75
               9                     Approved               118
               10                    Approved               130

               (Presented by COLEMAN STIPANOVICH)

               ITEM                  ACTION                 PAGE
               1                     Approved               131
               2                     Deferred               131
               3                     Approved               131
               4                     Approved               132


                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1                              PROCEEDINGS

          2              THE GOVERNOR:  The next cabinet meeting is Tuesday,

          3         November 9th, 2004.  Now we have in front of us the

          4         schedule for the 2005 cabinet meeting schedules.  Is there

          5         a motion to accept it?

          6              CFO GALLAGHER:  I'd like to move to accept with a

          7         proposed date change from 9/20/05 to 9/22/05.

          8              THE GOVERNOR:  Now we all got to go back and see --

          9              CFO GALLAGHER:  No, I think everybody has already

         10         looked at it.

         11              THE GOVERNOR:  Have we?

         12              CFO GALLAGHER:  I wouldn't do it as a surprise.

         13              THE GOVERNOR:  Did you look at it?

         14              MR. PEREZ:  Did you see it?

         15              CFO GALLAGHER:  Yes.

         16              THE GOVERNOR:  What's the date that was changed?

         17              MR. PEREZ:  We already incorporated it, didn't we?

         18         It's in the draft, TG.

         19              THE GOVERNOR:  Treasurer TG to you, Kent.

         20              CFO GALLAGHER:  It wasn't in mine.

         21              MR. PEREZ:  It should be in this draft.

         22              THE GOVERNOR:  To the 22nd?  Has it changed to the

         23         22nd?

         24              CFO GALLAGHER:  Yes, so this is correct?  Okay.

         25         That's in there.  Move it as it's done.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1              THE GOVERNOR:  There is a motion and a second?

          2              GENERAL CRIST:  Yes.

          3              THE GOVERNOR:  Moved and seconded.  Without

          4         objection, the calendar is approved as presented.

          5              Thank you.

          6              Financial Services Commission.  Office of Insurance

          7         Regulation.  A topical subject these days.

          8              MR. McCARTY:  Good morning, Governor Bush, members of

          9         the Commission.  I'm here with an agenda item.  No. 1 is

         10         the adoption of the minutes.

         11              CFO GALLAGHER:  Motion on the minutes.

         12              COMMISSIONER BRONSON:  Second.

         13              THE GOVERNOR:  Moved and seconded.  Without

         14         objection, Item 1 passes.

         15              MR. McCARTY:  Agenda Item No. 2 has to do with the

         16         issuance of an emergency rule by the Financial Services

         17         Commission.  As you know, this summer of storm destruction

         18         in Florida has been particularly egregious.  We have 1.3

         19         million claims to date.  Charley claims exceed 419,000.

         20         Frances claims 443,000.  Ivan claims 168,000.  And the

         21         preliminary data with respect to Hurricane Jeanne, are

         22         claims in excess of 267,000.  All told, we have insured

         23         losses in Florida property for commercial and residential

         24         in excess of 17.1 billion.

         25              THE GOVERNOR:  How much is residential?

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1              MR. McCARTY:  I have not parsed that data out.  About

          2         two-thirds of it historically from past data has been

          3         residential but I can't --

          4              THE GOVERNOR:  But the number of claims I thought

          5         were estimated, when it's all said and done to be

          6         2 million --

          7              MR. McCARTY:  Well, there's a dispute with the claims

          8         insurance information office as well as our office.  So

          9         our collective data so far suggests that it's going to be

         10         about 1.3 billion -- excuse me, 1.3 million claims and

         11         17.1 billion in losses.

         12              CFO GALLAGHER:  But the insurance estimates that

         13         there are claims that have not been filed and it could go

         14         up to 2 billion -- 2 million claims.

         15              THE GOVERNOR:  Okay.

         16              MR. McCARTY:  That's true.  Some of the residents'

         17         homes are summer homes or winter homes.  And some of their

         18         claims have not even been put in yet.  So this is actual

         19         claims data that is reported by the insurance industry on

         20         a weekly basis.

         21              THE GOVERNOR:  I just want to make sure, because I

         22         repeat these things and I want to make sure I'm not

         23         misleading anybody.  The 1.3 is residential and

         24         commercial?

         25              MR. McCARTY:  Yes, sir.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1              THE GOVERNOR:  Okay.

          2              CFO GALLAGHER:  And you have -- there are some people

          3         that made up their mind that they weren't going to file

          4         anything until the hurricane season was over.  They figure

          5         that way they are sure of only one deductible.  So, you

          6         know, everybody has their way of doing things.

          7              MR. McCARTY:  Unlike Hurricane Andrew, the four

          8         hurricanes that have struck Florida have covered most of

          9         Florida's 67 counties and have been subject to a federal

         10         disaster relief.  This rule is necessary in order to

         11         promote the expeditious settlement of the claims.

         12         Insureds have, as I said, reported on 1.3 million while

         13         efforts in the industry have been pretty extraordinary in

         14         the complaints but there have been thousands of complaints

         15         filed with the Division of Consumer Services, with the

         16         Department of Financial Services.

         17              In many instances, the consumer may have met with the

         18         company representatives but has not received payment for

         19         the repair of the property.  Failure to resolve claims and

         20         the resulted inability of insureds to be able to repair

         21         their homes poses an immediate threat to the public safety

         22         and welfare of the people of Florida.  As a result,

         23         Treasurer Gallagher asked me to draft an emergency rule,

         24         the subject which is before you.

         25              The basic terms and conditions of the rule are as

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         follows:  It prohibits insurers and insurance adjusters

          2         from failing to act promptly to communicate with respect

          3         to the insurance claims from consumers in Florida.  The

          4         rule applies to all residential property and auto claims

          5         in Florida.  It includes the four hurricanes and Tropical

          6         Storm Bonnie.

          7              It's broken up into three compliance periods but

          8         essentially Bonnie, Frances, and Charley.  And insurance

          9         companies are required to provide additional living

         10         expenses and advance appropriate funds.  All damage will

         11         have to be evaluated and initiated assessments will have

         12         to be made and a good faith reasonable estimate to

         13         negotiate a settlement of all disputed claims.

         14              THE GOVERNOR:  All within a certain --

         15              MR. McCARTY:  Yes, all with -- for claims filed

         16         October 21st, they shall have until November 22nd.  And

         17         for claims filed November 8th, they shall have until

         18         December 8th.

         19              THE GOVERNOR:  So it's 30 days going forward?

         20              MR. McCARTY:  Yes, that's correct.

         21              THE GOVERNOR:  And it's only for these four storms.

         22         It's not for future?

         23              MR. McCARTY:  That's correct.

         24              CFO GALLAGHER:  Governor, just to give you a little

         25         bit of background.  We received, as of last Thursday, 7800

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         complaints, almost 8,000, on basically, Where's my

          2         adjuster?  And so that's really the basis for this.

          3         People have waited for quite a long time for some kind of

          4         an answer.  And I believe it's important that we take

          5         action to let the industry know that they have a contract.

          6         That contract is one that people pay their money and a lot

          7         of money for insurance and they expect somebody to come

          8         handle their claim.  And they may have a difference of

          9         what that claim ought to be, but they ought to at least

         10         find out if there is a difference and they haven't had a

         11         visitation in many cases.

         12              An interesting statistic, for what it's worth, is

         13         that there are 50,000 less insurance adjusters in this

         14         country today than there were when Hurricane Andrew hit in

         15         1992.  And what has happened is the companies basically

         16         have not kept a large number of adjusters as full-time

         17         people.  They've left and become agents or done other

         18         jobs.  And they basically contract out to individual firms

         19         to do the adjusting and have created a shortfall for these

         20         kinds of emergencies.  And we do have adjusters from all

         21         over the country working in Florida, including Canada.

         22         And still nowhere near what, you know, I think anybody

         23         would believe we should have.  We're operating with a

         24         shortage.  I know the companies are doing as much as they

         25         can to get that shortage covered, but we want to make sure

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         they realize that we're real serious about our citizens

          2         being taken care of.

          3              MR. McCARTY:  Yeah.  And we have been working with

          4         your office to identify any surplus of adjusters in

          5         various adjusting companies around the country and trying

          6         to match those up with any of the companies that we've

          7         identified that have a shortage of adjusters.

          8              THE GOVERNOR:  Well, if we have a shortage of

          9         adjusters and we're putting the responsibility on the

         10         insurance companies to get the adjustments done and they

         11         can't do anything about it because there's no adjusters,

         12         what are the consequences of not complying with the 30-day

         13         rule?

         14              MR. McCARTY:  Well, the consequence is it merely

         15         establishes a prima facie case for administrative

         16         proceedings.  The companies will be able to have an

         17         opportunity to demonstrate the efforts that are being

         18         made.  We've already dispatched investigators to nine

         19         companies in Florida where we received some of the top

         20         complaints and are working with them, corrective action

         21         plans including identifying some of the areas.  But this

         22         helps us further to identify the companies where we would

         23         need to marshal our resources to help them do the job for

         24         the people that are their customers.

         25              CFO GALLAGHER:  They do also have the ability to use

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         their agents to assist, at least the first claim reporting

          2         which is to get additional living expense checks out,

          3         things like that.  Many companies have done that.  Some

          4         have not.  This is an encouragement for them to make sure

          5         that these people get their additional living expense cash

          6         so they can live in another place or have a mobile home or

          7         whatever they need so that they will have a place to live.

          8         As we know, Governor, we visit people who are living in

          9         one or two rooms of their home and they can't live there

         10         and their insurance companies tell them it's going to be

         11         eight or nine months before they get a chance to have

         12         their home fixed.

         13              THE GOVERNOR:  General?

         14              GENERAL CRIST:  Thank you.

         15              Kevin, just a couple questions.  Is there any time

         16         limit within which the companies have to render whether

         17         they are going to pay or not currently under your rules?

         18              MR. McCARTY:  No, there is nothing in the emergency

         19         rule other than they are required to meet those three

         20         standards that are established in the emergency rule.

         21         Some of the claims may actually end up in dispute and

         22         there's a provision in the emergency rule for providing

         23         for expedited mediation procedure.

         24              GENERAL CRIST:  And you say there are about nine

         25         companies that are having a difficulty?

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1              MR. McCARTY:  There are nine companies that we are

          2         currently --

          3              GENERAL CRIST:  Received the most complaints about?

          4              MR. McCARTY:  That we have received complaints about

          5         and have identified in conjunction with the Division of

          6         Consumer Services as requiring a heightened level of our

          7         scrutiny.

          8              GENERAL CRIST:  Okay.  Do you know, of those

          9         companies, how many have retained additional adjusters?

         10              MR. McCARTY:  Most of them have.

         11              GENERAL CRIST:  Do you know how many?

         12              MR. McCARTY:  Excuse me?

         13              GENERAL CRIST:  Do you know how many?

         14              MR. McCARTY:  No, I do not.

         15              GENERAL CRIST:  Can you find out?

         16              MR. McCARTY:  Sure.

         17              THE GOVERNOR:  I think one of the challenges we face,

         18         this -- I use my two life experiences in the last couple

         19         of years, medical malpractice reform, where collecting of

         20         data and having a set of data that proponents and

         21         opponents could all agree is the set of facts that, you

         22         know, the policymakers then could use to change the

         23         policies was nonexistent.  Or at least if it was existent,

         24         it was so murky that it was difficult to assess.  And then

         25         fast-forward to the storms, the general's question is a

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         logical question to ask.  One of the questions that I've

          2         been asking and Kevin is probably tired of hearing it is,

          3         Well, if we have a problem, who is doing better?  How do

          4         we -- which companies have made it a higher priority to

          5         get adjusters out and to get the claims process started?

          6         Because remember, Kevin, and for people interested in

          7         this, this is also the first step in getting FEMA support.

          8         So, you know, if the private adjuster doesn't show up,

          9         people that are qualified for FEMA support for damage done

         10         can't -- so you can multiply the frustration.

         11              And when the utility companies had their power down,

         12         I'm sure they weren't too happy about spending the time

         13         counting how many customers had their power out and how

         14         many each, twice a day, how successful were they in

         15         putting power back on.  But the transparency of that

         16         accelerated the number of people getting power back on.

         17         Going forward, one of the lessons learned seems to me is

         18         in the insurance world would behoove the insurance

         19         companies and the insurance regulators and the consumers.

         20         I think everybody has got an interest in this to be able

         21         to have clear measurements of where we are because you're

         22         asking us to approve a rule which I'm supportive of

         23         because I think it's important at this time given these

         24         circumstances to do this but we don't have the data to

         25         really know if one company is doing spectacularly.  I

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         mean, I've got a particular interest in citizens.  How are

          2         they doing?  Is that one of the nine that you're looking

          3         at?

          4              MR. McCARTY:  Well, that's one of the ones we're

          5         always looking at.  I didn't include it in the nine.  But

          6         in reference to that, we've done our first data call with

          7         regard to some of the performance measures that you're

          8         referring to, Governor.  And part of that is going to look

          9         at claims adjusted within a certain amount of days.

         10              Also, starting with the nine companies that were in,

         11         we're doing actual performance measures so that your

         12         consumers in the future not only are going to be able to

         13         look at price, but are going to be able to look at

         14         evaluations of the services provided during the storm.

         15              So we are initiating those, collecting those

         16         universal data elements so that these comparisons can be

         17         made in the future.

         18              THE GOVERNOR:  But if we did it like we did at the

         19         Emergency Operations Center for the utility companies, it

         20         would be, as a consumer of insurance, I'd like to know,

         21         during good times, heck, every insurance company is great.

         22         Every insurance agent is wonderful because we never --

         23              CFO GALLAGHER:  They just collect our money.

         24              THE GOVERNOR:  They just collect our money and they

         25         are pleasant and they're friendly and they are good

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         salesman and they help, you know, with small things.  But

          2         on the tough times, they probably -- I mean, I had a good

          3         experience with my insurance company after Andrew and I've

          4         always had good experience with my insurance company

          5         during difficult times and I appreciate it.  But if you

          6         don't know, you know --

          7              CFO GALLAGHER:  Well, one of the things, for example,

          8         that you run into is in our first collection of data we

          9         want to know how many adjusters are representing each

         10         company.  And when we got finished, we got 35,000 so that

         11         looked pretty good.

         12              THE GOVERNOR:  Double counting?

         13              CFO GALLAGHER:  The only problem was you have one

         14         adjusting companying representing two and three companies.

         15         And each one of those adjusters is handling maybe a couple

         16         hundred claims from each company.

         17              MR. McCARTY:  After Opal and Erin we did embark on a

         18         project to investigate specifically the number of

         19         adjusters relevant to the number of policyholders.  What

         20         you saw, as Treasurer Gallagher has alluded to before,

         21         during the late 1990s in order to reduce expenses,

         22         insurance companies went from an employee basis to a

         23         contract basis particularly for emergency services which

         24         did reduce their overall cost which was important in terms

         25         of competition.  But in those cases, they've all had these

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         emergency contingency contracts expecting that they would

          2         be at the front of the line.  But the truth of the matter

          3         in the pool was then therefore reduced.  So in our attempt

          4         to gather that data, while it showed an adequate number of

          5         adjusters, they were sharing the same pools of adjuster by

          6         contract.

          7              CFO GALLAGHER:  And so if we end up with only 12 or

          8         15,000 adjusters instead of the 35, that's a tremendous

          9         difference in the ability for the industry to respond to

         10         the plans.

         11              THE GOVERNOR:  That's all the more reason to have a

         12         transparent reporting process so that you don't -- I mean,

         13         one of the lessons learned again is that you don't -- we

         14         had the experience with the utility companies again where

         15         at least in the first storm one of our utility companies

         16         was very insular and was very cautious.  So cautious to

         17         the extent people got quite upset and there was so much

         18         uncertainty.  And then the lessons were learned for the

         19         second or third storm and they were much more open and

         20         they communicated, Here is our problem.  Here is our

         21         challenge.  I mean, if everybody knew that the insurance

         22         companies didn't have adjusters, I think they might have a

         23         better -- the number of complaints might drop if they just

         24         knew.  And how can they know if we don't?

         25              MR. McCARTY:  That's correct.  And in terms of the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         claim it's handling, we did our first data call with

          2         respect to those performance parameters that you've been

          3         talking about and we'll be sharing that data with you on a

          4         go-forward basis.

          5              THE GOVERNOR:  When?

          6              MR. McCARTY:  Well, we had the first one and we can

          7         give it to you this week.

          8              CFO GALLAGHER:  One of the things that I think should

          9         happen -- and I think the company should recognize it's

         10         going to happen -- is that there needs to be a grading of

         11         who responded and who didn't and all those data elements

         12         taken into consideration, like how big they are, how many

         13         policies they have, those kinds of things, with how many

         14         claims they have and how they responded.  And I think if

         15         we put those together and basically say, Okay, these are

         16         the companies that did the best and these are the

         17         companies that did the worst, I think that's sort of where

         18         the Governor is coming from.  I happen to agree with that.

         19         That's what the people need to know and that's what we

         20         need to know and those guys that are doing the worst need

         21         some help, either out or some other help.  And so I think

         22         that's where we're heading.

         23              And you know, now that they have deadlines, I think

         24         what we do is respond to those people that don't respond

         25         to the deadlines.  And we'll see the early results from

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         what you're collecting now.  But what really counts to me

          2         is we set up times and deadlines.  Did they meet them or

          3         didn't they and how fast are they getting them done.

          4              THE GOVERNOR:  General?

          5              GENERAL CRIST:  Thank you.  Kevin, if you need any

          6         help getting that data, we stand at the ready to help you.

          7              MR. McCARTY:  We always appreciate your cooperation,

          8         Commissioner.

          9              CFO GALLAGHER:  I'll move the emergency rule.

         10              THE GOVERNOR:  There is a motion and a second to

         11         support the emergency rule.  Is there anybody here that

         12         would like to discuss this or are we --

         13              CFO GALLAGHER:  There are some industry folks that

         14         might want to say something.

         15              THE GOVERNOR:  I know.  There's a lot of people that

         16         I thought might be interested.  If they wanted to speak

         17         about it from the practical perspective.  I mean, this is

         18         not -- I hope this is not being perceived as being

         19         punitive.

         20              MR. McCARTY:  Well, I certainly hope --

         21              THE GOVERNOR:  Silence means acceptance.  So it's

         22         okay to be opposed to --

         23              CFO GALLAGHER:  They did have a chance to look at it

         24         and they recognized that there are people out there

         25         hurting and need an adjuster.  And I think they recognize

                                   ACCURATE STENOTYPE REPORTERS, INC.

                    OFFICE OF INSURANCE REGULATION - 10/26/04
          1         that this is something that has to happen and they need to

          2         respond unless Mr. Safley (phonetic) would have something

          3         to say.  I see him hiding back there.

          4              THE GOVERNOR:  Is there anybody who'd like to speak

          5         to the rule before we move on?

          6              (No response.)

          7              Very good.  There is a motion and a second.  All in

          8         favor say aye.

          9              (Aye.)

         10              All opposed.

         11              (No response.)

         12              Thank you, Kevin.

         13              MR. McCARTY:  Thank you, Governor.

         14              CFO GALLAGHER:  Thank you, Kevin.












                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1              THE GOVERNOR:  Department of Revenue.

          2              CFO GALLAGHER:  Motion on the minutes.

          3              GENERAL CRIST:  Second.

          4              THE GOVERNOR:  There's a motion and a second on the

          5         minutes.  Without objection, the motion passes.

          6              DR. ZINGALE:  Good morning.

          7              THE GOVERNOR:  Good morning.

          8              DR. ZINGALE:  We have, the second item is an

          9         administrative order.  We don't bring too many

         10         administrative orders in front of the cabinet.  So I'd

         11         like to give you just a quick, brief summary of the

         12         process that brought us here.  This was an audit of a HAAS

         13         Publishing.  It deals with a commercial rental issue.

         14         Racks in stores, contracts between the publishing company

         15         and businesses.  The Department's contention for the

         16         rental of commercial property.

         17              The process that happens once the audit is completed

         18         is there is a lot of negotiations that go on at site when

         19         the audit is being conducted.  The taxpayer has the right

         20         to protest internally to the Department's conferees.  This

         21         occurred awhile back that conferees agreed to waive

         22         penalty.  We're dealing only with tax and interest here.

         23         Once the internal appeal process was completed, the

         24         taxpayer chose to appeal that process to an administrative

         25         law judge.  The administrative law judge issues to the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         Department a recommended order.

          2              Because this tax audit situation is in excess of

          3         $250,000, we have to bring all recommended orders in front

          4         of the Governor and cabinet in excess of $250,000.  The

          5         order we brought in front of you adopts all of the

          6         recommendations of the administrative law judge.  The

          7         taxpayer is represented today by Rex Ware.  With your

          8         permission, he was asked to come and speak briefly in

          9         front of the cabinet.

         10              THE GOVERNOR:  Absolutely.  Mr. Ware, welcome.

         11              MR. WARE:  Thank you, Dr. Zingale.  Thank you,

         12         Governor and cabinet members.  Again, my name is Rex Ware.

         13         I'm with the law firm of Steel, Hector and Davis here in

         14         Tallahassee.  And I represented HAAS Publishing Companies

         15         through the litigation process and continue to represent

         16         them today.  I'd like to make just a few issues.  We did

         17         file exceptions to the administrative law judge's

         18         recommended order.  They're fairly lengthy.  We raised

         19         what we think are many critical exceptions which I'll just

         20         mention briefly and then get to the one main issue that

         21         I'd like to bring out, especially today.

         22              We raised the issue as to whether the audit in this

         23         case was commenced timely.  We believe the undisputed

         24         facts were it was not.  We raised whether the ALJ, that is

         25         the judge, improperly ruled that this case dealt with an

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         exemption from tax rather than an exclusion from tax, thus

          2         affecting who the statute would be strictly construed

          3         against.  We think she failed when she basically ruled

          4         that the statute should be strictly construed against the

          5         taxpayer rather than the state.

          6              We raised the issue as to whether or not she ruled

          7         properly whether or not this involved a nontaxable

          8         franchise.  We believe she failed when she ruled that it

          9         did not involve that.  And we also believe that she failed

         10         when she ruled that the Department of Revenue met its

         11         initial burden.  There is a statute, 120.80(14), that says

         12         the Department of Revenue has the burden of proving the

         13         factual and legal basis of its assessment.

         14              In this case, the Department of Revenue did not bring

         15         its auditor to testify.  It merely brought its conferee

         16         who was involved in the protest process.  We believe

         17         that's a basic failure, the Department of Revenue did not

         18         meet its burden.  The Department has said that they

         19         oftentimes do not bring their auditor to testify.  We

         20         think this is the first time this issue has been raised

         21         and that they fail on that issue.

         22              Without waiving any of those exceptions, I do want to

         23         go into a little more detail about one major issue, one we

         24         think that is of fundamental fairness to the taxpayer in

         25         this case and we believe should compel you to reject the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         recommended order and the proposed final order that you

          2         have before you.

          3              Florida is one of the few states that taxes

          4         commercial rentals.  There are a couple of other states

          5         out there that actual tax commercial lease payments.  The

          6         statute that's at issue today is that statute.  It says

          7         commercial rent is taxable but it says that payments for

          8         valuable intangible rights that might be involved are not

          9         taxable.  And it says if you have a contract that involves

         10         both, some taxable rights and some nontaxable intangible

         11         rights, that you're supposed to allocate between them and

         12         tax only the commercial rent.

         13              In this case, my client is a publishing company.  He

         14         goes in and negotiates contracts with retail stores,

         15         Eckerd's, Walgreen's, 7-11s, and says, Look, if you'll

         16         give us the exclusive right to distribute our little

         17         apartment guides in your store, then we'll pay you a lot

         18         of money.  And this is a lot of money they pay.  I'll get

         19         to that real quickly in a second.  If the store says, No,

         20         we're not going to give you exclusive right, we're going

         21         to let everybody put their free publications in our store,

         22         our client does not pay for that right.

         23              The judge in this case found that the contracts in

         24         this case contained both taxable and nontaxable elements.

         25         So we're under the statute that says you apply the tax to

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         the taxable, the nontaxable.  But then she went on to find

          2         that the two experts we hired were not credible.  And so

          3         therefore, there was no evidence of what that allocation

          4         ought to be so you uphold the entire assessment and that's

          5         where we think she made a critical mistake.  One of these

          6         experts was a Florida licensed real estate appraiser who

          7         has done hundreds of analyses of Florida commercial real

          8         estate projects.  He came in and said, Look, I went and

          9         looked at where that rack was in stores.  The rack is

         10         about three by two.  And I came up through a formula, what

         11         we do as experts, and found out what the rent should be

         12         for that.  Then I looked at the payments that HAAS was

         13         paying and he testified essentially that HAAS was paying

         14         more than five times the fair market value of that space.

         15              So he concluded, as we had argued, that, in fact, my

         16         client was paying for much more than just the rental of

         17         that space and he came up with a formula and gave a

         18         percentage.  He said 12 percent of what HAAS pays to the

         19         retailer on average should be for taxable rent.

         20              We also hired an expert who was a business evaluation

         21         expert who's done hundreds of analyses.  He came from the

         22         other direction independently and came up with essentially

         23         the same conclusion, that there were many valuable

         24         intangibles being paid for here but only a certain amount

         25         of it was for taxable rental space.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1              We think simply that the administrative law judge,

          2         for whatever reason, didn't like our experts, didn't want

          3         to accept our experts and said that she disagreed with

          4         them.  So she basically disregarded them and said the

          5         whole thing is taxable.  So in summary that --

          6              THE GOVERNOR:  Hang on a second.

          7              CFO GALLAGHER:  Can I ask a question here?

          8              DR. ZINGALE:  Yes, sir.

          9              CFO GALLAGHER:  My understanding was that I guess

         10         after you add interest and everything it was $900,000?

         11              MR. WARE:  I just calculated the additional interest

         12         since the notice of reconsideration and we're just over a

         13         million dollars in tax and interest.

         14              CFO GALLAGHER:  But the actual amount of tax was

         15         580,000?

         16              MR. WARE:  I think that's right, approximately right.

         17         570 to $580,000, yes, sir.  So on this one issue which we

         18         think is critical, basically the statute says you need to

         19         allocate payments.  We think the judge said you need to

         20         allocate payments.  Our experts working independently from

         21         each other, with no rebuttal experts from the Department

         22         of Revenue, came up and said we were paying more than five

         23         times the fair market value of that space in these

         24         payments we made.  But DOR, in asking you to uphold the

         25         recommended order is asking that my client have to pay

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         taxes on the entire payments.  We simply think this is an

          2         issue of fairness that, yes, you can make us go on and

          3         appeal.  I mean, the next step after this process is for

          4         us to appeal to the First District Court of Appeal.  But

          5         we think you have the basis here today in the record to do

          6         the fair thing and that is to allocate the payments based

          7         upon the testimony of those expert witnesses.  And I'd be

          8         glad to answer any questions.

          9              CFO GALLAGHER:  Another question.

         10              MR. WARE:  Yes, sir.

         11              CFO GALLAGHER:  Is this tax collected by the retail

         12         store from you and then forwarded to the Department of

         13         Revenue?

         14              MR. WARE:  That would be the normal process.  If the

         15         parties involved, the K-Mart and my client, believed it

         16         was taxable at first, K-Mart would have charged my client

         17         tax, omitted it to the Department of Revenue.  That didn't

         18         happen.  No one essentially had any idea about this until

         19         DOR came in and audited my client.  And they have the

         20         right to do that under the statutes.  They can pick either

         21         party.  The problem in the case was we couldn't prove

         22         whether K-Mart had been also audited on the issue or not.

         23         That's just an impossible task to prove because we don't

         24         have a right to see their records.

         25              CFO GALLAGHER:  Well, one of the questions I'm going

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         to ask the Department is if I'm Proctor and Gamble and

          2         they give me so much shelf space and they are actually

          3         selling my product and they're making money on everything

          4         else but that's my shelf space they allocate to me, are

          5         they going to tax that too?  I mean why would one be taxed

          6         and the other not is my question.  I mean, you can try and

          7         answer it first.

          8              MR. WARE:  I don't have an answer for that.  My

          9         understanding is that is often not something that's picked

         10         up in an audit as taxable.  But I'll leave that to the

         11         Department of Revenue.

         12              THE GOVERNOR:  Well, did you -- you said that you do

         13         agree that there should be an allocation and that you

         14         should pay some rent.

         15              MR. WARE:  Yes, sir --

         16              THE GOVERNOR:  I'm sorry, pay some tax on the rent.

         17              MR. WARE:  We argue in the alternative.  We still

         18         argue that this whole thing is essentially like a

         19         franchise.  It's not like a McDonald's franchise but we

         20         said alternatively we're going to give the State what we

         21         think it's asking for.

         22              THE GOVERNOR:  Your experts suggested that they're --

         23         I mean, put aside the 12 percent allocation, your own

         24         experts contradicted that statement.  They said that you

         25         should -- that there was some rent -- you know, that there

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         was some rent out of this and some intangible value of

          2         having your stuff parked there.

          3              MR. WARE:  They said, yes, if there was some portion

          4         taxable.  If you looked there, you would look at fair

          5         market value of what that space was.

          6              THE GOVERNOR:  But you don't contend even that you

          7         should be paying any sales tax on rent because you don't

          8         think there is rent.

          9              MR. WARE:  We think legally, no, that this falls

         10         under the exception of that statute for intrinsically

         11         valuable and tangible personal property rights.  I think

         12         that's the phrase the statute uses.

         13              Thank you.

         14              THE GOVERNOR:  Doctor, you want to answer Treasurer

         15         Gallagher's question?

         16              DR. ZINGALE:  Treasurer Gallagher's first.  This is a

         17         commercial rental situation, not a sale of a product.

         18         Different statute, different application.  If you're

         19         stocking up my product to sell in your store the tax is

         20         borne by the product and the sale price of that product.

         21         This is a commercial rental situation.  I think it was

         22         correctly stated that --

         23              CFO GALLAGHER:  They're paying based on what?  On

         24         what --

         25              DR. ZINGALE:  On rental of space.  And there is a

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         contract between them and each of these retailers that

          2         outline the conditions of that rental agreement.  The

          3         proration and issues that were discussed could not be

          4         found in that contractual relationship.

          5              CFO GALLAGHER:  Isn't it up to the retailer to

          6         collect the tax?  If I rent the commercial property, I

          7         have to collect the tax paid.

          8              DR. ZINGALE:  But if you think about sales tax, and

          9         this is really sales tax of a commercial rental, who pays

         10         the ultimate tax?  The citizen does.

         11              CFO GALLAGHER:  The renter.

         12              DR. ZINGALE:  The citizen has -- the renter or the

         13         purchaser of the product, they have the obligation to pay

         14         the tax.

         15              THE GOVERNOR:  But shouldn't K-Mart or Eckerd's be

         16         the one they should go after?

         17              DR. ZINGALE:  Should have --

         18              CFO GALLAGHER:  They are the ones that collected it.

         19              DR. ZINGALE:  -- collected it.

         20              THE GOVERNOR:  They are your agent, right?

         21              DR. ZINGALE:  They are our agent.

         22              CFO GALLAGHER:  And if they don't collect it, you go

         23         to them and you say, Give me the money, and you go worry

         24         about the guy that you rented it to.

         25              DR. ZINGALE:  Think about that.  The statute

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         correctly allows us to go after either party.  If we would

          2         go after K-Mart, they didn't collect the tax from the

          3         taxpayer that was due.  They didn't collect it.  It was

          4         still owed by the taxpayer.  The statute allows us to go,

          5         as Rex did say, to the source, the taxpayer in this

          6         situation and make the assessment there which is what we

          7         did.

          8              CFO GALLAGHER:  I can understand that but what are

          9         you doing to K-Mart?  Nothing?

         10              DR. ZINGALE:  No.

         11              CFO GALLAGHER:  Why not?

         12              DR. ZINGALE:  K-Mart is being told this is taxable,

         13         K-Mart is being explained how the law works.  But the

         14         situation is that for us -- and we did review all the

         15         audits of K-Mart, okay.  They didn't collect this tax from

         16         what we can tell.

         17              CFO GALLAGHER:  I understand that.  But just because

         18         they didn't collect the tax doesn't mean they don't owe

         19         it.

         20              DR. ZINGALE:  The law in this situation allows the

         21         tax to be paid by one of two people.  They are not in

         22         violation of any law because they did not collect it.

         23         This is not a sales tax situation.  This is a contract

         24         between a taxpayer and a corporate entity and the

         25         conditions that are outlined in that contract govern.  And

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         we have the option of going to the taxpayer in one place

          2         or going out and trying to identify that taxpayer's

          3         businesses in literally thousands of retail establishments

          4         all over the state.

          5              CFO GALLAGHER:  Okay.  I understand that.  Now, what

          6         is happening today in regards to the contracts that exist

          7         by HAAS?

          8              DR. ZINGALE:  It would be governed by each individual

          9         contract that not only this company has but many other

         10         companies that are in the same business.  They can

         11         structure that contract, as a number of them have, to help

         12         stock the activity.  There are many different types of

         13         contracts that govern this type of relationship.  What the

         14         Department does is goes into those contracts.  Okay.

         15         Tries to identify a factual basis and applies the law.

         16         Okay.  That's essentially what we took in front of the

         17         administrative law judge.

         18              CFO GALLAGHER:  Is this the only company that has

         19         this problem?

         20              DR. ZINGALE:  This is a problem because -- and I

         21         think Rex correctly stated it -- a difficult law to

         22         understand and interpret primarily because we are only one

         23         of the few states in the nation that tax these type of

         24         transactions.

         25              THE GOVERNOR:  But, Jim, are there a whole series of

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         other lessees inside of retail outlets that want to have

          2         an exclusive arrangement to sell whatever?  Like the

          3         magazine guys.

          4              DR. ZINGALE:  That's what this is, yes, like the

          5         magazine guys.  Some, depending on the nature of their

          6         contract, pay all across the board --

          7              THE GOVERNOR:  Do they pay tax now though, the

          8         companies that --

          9              DR. ZINGALE:  Yes.

         10              THE GOVERNOR:  They do?

         11              DR. ZINGALE:  Yes.

         12              THE GOVERNOR:  HAAS is the only one you've identified

         13         that doesn't.

         14              DR. ZINGALE:  Vending machines, that was under our

         15         audit.  This is one of many that are out there.

         16              CFO GALLAGHER:  But HAAS now is going to amend their

         17         contract so that they are paying tax?

         18              DR. ZINGALE:  They can restructure their contract in

         19         a way to allow a different situation.  But in this case,

         20         they are limited by what their business is which is

         21         primarily renting rack space in these facilities and

         22         putting free publications out there and we look at that

         23         contractual relationship between the taxpayer and that

         24         individual entity.

         25              CFO GALLAGHER:  Now, if a store let them put it in

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         and didn't charge them for it, what would you do?

          2              DR. ZINGALE:  There would be no tax due.

          3              THE GOVERNOR:  How does these new retail arrangements

          4         where product is put on shelves on consignment, in

          5         essence --

          6              DR. ZINGALE:  If it's a product, it's a product.  And

          7         the sale of the product at that price is taxable.  If it's

          8         a product.  This is a contractual relationship to rent

          9         space, it's not a product.  It's a contractual

         10         relationship to rent space.

         11              CFO GALLAGHER:  And technically, they are giving them

         12         the space free.

         13              THE GOVERNOR:  But that's what I'm saying.

         14              CFO GALLAGHER:  They are not paying rent for the

         15         space.

         16              THE GOVERNOR:  I'm saying that there are new

         17         arrangements in retailing where people do actually rent

         18         space --

         19              DR. ZINGALE:  For free.  Let Lisa talk.

         20              THE GOVERNOR:  Talk, Lisa.  Can't hear you when

         21         you're whispering like that.

         22              MS. ECHEVERRI:  In the situation that you're

         23         describing, it's different from what we have in this

         24         assessment.  In a consignment situation, the retail owner

         25         has control over the space, has control over the products

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         within their space.  There is a relationship there that

          2         when the product is sold there is a commission or a

          3         consignment that's paid back to the person who provided

          4         the tangible personal property.  But that person is not

          5         renting space.  They can't walk in the store and have

          6         control over the placement of that product within the

          7         space or any kind of exclusive right to real property.

          8              In these situations, the owners of the retail

          9         establishments don't have control over the publications in

         10         the racks.  They just have an agreement with the company

         11         that those racks can be placed in a specific location,

         12         usually the entrance to the store and the publishing

         13         company is renting the space.  They are not asking the

         14         retailer to have any control over the product itself, to

         15         sell the product, to make sure that the product is neatly

         16         stacked or anything like that.  They are just asking for

         17         the placement of their racks within the entryway of the

         18         store.  So it's a contract for space.

         19              Now certainly within those contracts they can create

         20         allocations to pay for other services as opposed to the

         21         space.  In these contracts, there was no evidence to

         22         support that and the witnesses that they provided to

         23         provide that testimony were found not to be credible.  So

         24         the Department was left to basically just take the plain

         25         language.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1              THE GOVERNOR:  So how did the administrative law

          2         judge say, Yes, there should be an allocation but, No, I

          3         don't like these allocations so there won't be an

          4         allocation?

          5              MS. ECHEVERRI:  I think what the administrative law

          6         judge said was that, Yes, they had made arguments that

          7         maybe there were other things that were tied up into this

          8         transaction, that there may have been some amount for

          9         something of intrinsic value or intangible value but that

         10         there was nothing in the documents.  There was nothing in

         11         the transactions that you could look to in terms of

         12         evidence.  And their own witnesses were not found to be

         13         credible to support that allocation.  And in the absence

         14         of some evidence to provide an allocation, all you can do

         15         is look at the contract and the amounts that were paid.

         16              CFO GALLAGHER:  All right.  Do you think that they

         17         did this on purpose or do you think they just sort of

         18         happened to fall through the cracks and they got stuck

         19         with this?

         20              MS. ECHEVERRI:  You know, I've been with the

         21         Department about 13 years and I can tell you commercial

         22         rentals are one of the most difficult areas and we

         23         constantly have taxpayers who are unaware of the

         24         obligation, especially where you have a situation where

         25         you have a company like HAAS that's out of state.  This is

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         not a tax that's imposed in other states, it's one that's

          2         imposed in Florida, and I don't think that they

          3         intentionally avoided or tried to, you know, not comply

          4         with the law.  It's a mistake.  But there are also many,

          5         many taxpayers who are aware of the law and are in full

          6         compliance with the law.

          7              THE GOVERNOR:  Let me just ask --

          8              DR. ZINGALE:  The hearing level, internally, because

          9         of what you just stated -- we waived all the penalty.

         10         That was an acknowledgment that this wasn't a deliberate

         11         undertaking by the taxpayer and that was a substantial

         12         amount of penalty that was waived.

         13              CFO GALLAGHER:  So our choice at this point is to

         14         agree with the administrative law judge and then their

         15         choice is to go appeal it and that's what you probably

         16         expect.  Is that what your client is going to do?

         17              MR. WARE:  Yes, sir.  I mean, I can quite honestly

         18         say if you guys uphold the recommended order in your final

         19         order, we intend to appeal it because of obviously the

         20         large sums of money involved.

         21              CFO GALLAGHER:  Have you made an offer to settle this

         22         case?

         23              MR. WARE:  I've explained this before.  Back in the

         24         spring, early spring, before I was involved in the case,

         25         my client, through its consultant made an offer to settle

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         the case for about, I want to say, $340,000.  It received

          2         no response at that time in the protest process from DOR.

          3         When we got close to hearing, a couple days before

          4         hearing, there was some talk about negotiations.  The

          5         Department mentioned something about, Well, if you make us

          6         an offer in or around that area, my client said, Well, we

          7         never got a response to our first one, you know, we think

          8         we need to go forward because now we've hired experts and

          9         we've done all those things to go forward.

         10              CFO GALLAGHER:  Well, to me, I think -- you want to

         11         say something?

         12              DR. ZINGALE:  I'm pretty sure from the staff the

         13         condition of that settlement would have been that the

         14         Department would have to agree that it was not a taxable

         15         situation, okay.

         16              CFO GALLAGHER:  That's not --

         17              DR. ZINGALE:  And therefore prospectively going

         18         forward, they would be treated differently under similar

         19         circumstances than other taxpayers and the Department

         20         wouldn't do that.

         21              CFO GALLAGHER:  What I would like to do -- you want

         22         to say something?

         23              COMMISSIONER BRONSON:  You know, this is a problem

         24         that I had even in the legislative process.  The

         25         difference between common sense and logic and legality

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         seem to have a big, you know, opposite poles here.  If the

          2         company -- if the company -- I think we've been using

          3         Wal-Mart, it can be any store.  But if they pay a tax on

          4         that square footage of that building to the State of

          5         Florida and to the local community and they do a

          6         contractual agreement with anybody that comes in and sells

          7         a product which ends up having the sales tax, you said

          8         sales taxes are differentiated between the rack space.

          9              But if Wal-Mart has already paid for the square

         10         footage of that building and anything that sold out of it,

         11         it seems to me that we're double-taxing the people that

         12         Wal-Mart does business with or any other business on that

         13         same space where there is a contractual agreement with a

         14         seller.  I mean, from a commonsense standpoint, that looks

         15         like double taxation for the same space to me.

         16              DR. ZINGALE:  Wal-Mart isn't paying a tax on its

         17         rental space to itself.  They pay property tax on the

         18         value of the property.  When they choose to go out and

         19         enter into a contractual relationship for the rental of

         20         this space, that's the only time that's being taxed.

         21              THE GOVERNOR:  These things aren't being sold either,

         22         they're being given away.  So it's not necessarily the

         23         same.  Now there is some value.  For the life of me I

         24         haven't figured out what the value of giving away

         25         something free is that you would pay so much for.  But one

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         of these days we'll probably learn about that.

          2              DR. ZINGALE:  It's a very profitable business.

          3              CFO GALLAGHER:  Let me float something here.  I would

          4         like to bring this back to the next cabinet meeting and

          5         give you-all, the Department of Revenue, and HAAS a chance

          6         to negotiate a settlement somewhere around what they

          7         offered here because I think -- and it means that going --

          8         in the future, they recognize there is a tax, they pay the

          9         tax and they'll do their contracts to that in the future.

         10         Because I think we need to treat people fairly here.  And

         11         if somebody in good faith is operating in the state of

         12         Florida, doesn't believe they owe tax and all of a sudden

         13         we're hammering them for a million bucks, that's pretty

         14         anti business and anti everything.

         15              If you can prove they've been doing this on purpose,

         16         trying to beat the tax, that's a whole different story,

         17         I'm ready to hammer them.  But I don't think we ought to

         18         do it that way and I'd just like -- and maybe nothing

         19         changes at the next meeting.  But it would be my

         20         recommendation to my colleagues that we bring it back to

         21         the next meeting, give you-all two weeks to try and work

         22         something out.  You want to give me a comment?

         23              THE GOVERNOR:  Dr. J, is that acceptable to you?

         24              DR. ZINGALE:  If I could, because that's your

         25         pleasure, if that's what you wish to do, remember this is

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         a major taxing source.  This is not the only taxpayer in

          2         the state of Florida that's doing this.  This is every

          3         single place you go into --

          4              THE GOVERNOR:  Right --

          5              CFO GALLAGHER:  The agreement doesn't make this a

          6         precedent at all.

          7              THE GOVERNOR:  What Treasurer Gallagher is suggesting

          8         is to try to reach a settlement that would include an

          9         ongoing obligation on the part of HAAS that this is a

         10         taxable transaction.

         11              CFO GALLAGHER:  And they will pay the tax in the

         12         future and it is not precedential.

         13              DR. ZINGALE:  I think that's where we were earlier

         14         with them in trying to settle.  So I think the burden

         15         falls on the taxpayer.  I think if I could, they are going

         16         to have to ask for an extension.  So let's ask them if

         17         they will ask for that extension.

         18              MR. WARE:  Dr. Zingale, I think we have to give our

         19         permission for an extension so the Department of Revenue

         20         doesn't run against a time deadline but we'd be glad to do

         21         that.

         22              CFO GALLAGHER:  Okay.  And they'll give you the

         23         extension.  You have two weeks now to work it out and come

         24         back to us.  Look, they thought they were going to win and

         25         they found out they are not.  So, you know, at this point

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         they're stuck.

          2              DR. ZINGALE:  That's a reasonable compromise.

          3              CFO GALLAGHER:  And now they have a real good reason

          4         to negotiate and we're going to give them that

          5         opportunity.  And if they come to something that's

          6         reasonable, bring it back to us.  And if they don't, let

          7         them go appeal it.

          8              THE GOVERNOR:  They could still win.  Occasionally,

          9         the DCA does overrule administrative law judges.  So

         10         you'll have to ride that risk.  That's what negotiations

         11         are all about.

         12              DR. ZINGALE:  And from the Department's standpoint,

         13         if does end up in front of an administrative law -- in

         14         front of a district judge, they will be looking at that

         15         law itself, okay, which is something we would like a judge

         16         to rule on someday.

         17              CFO GALLAGHER:  Well, at this point, I move that we,

         18         with permission on both sides, to get extensions, it will

         19         come back to the next cabinet meeting.

         20              THE GOVERNOR:  There is a motion.  Is there a second?

         21              COMMISSIONER BRONSON:  Second.

         22              THE GOVERNOR:  There is a motion to withdraw to the

         23         next cabinet meeting which is in two weeks subject to

         24         making sure there is an ironclad agreement here that there

         25         is going to be an extension.  There is a motion and a

                                   ACCURATE STENOTYPE REPORTERS, INC.

                         DEPARTMENT OF REVENUE - 10/26/04

          1         second.  Without -- yes, Jim.

          2              DR. ZINGALE:  If we could restate that.  I'm trying

          3         to restate that in a manner that would help us.  I think

          4         we are postponing action, final action, on this until the

          5         next cabinet meeting.

          6              CFO GALLAGHER:  That's correct.

          7              DR. ZINGALE:  With an expression on the part of the

          8         cabinet to work with the taxpayer.

          9              THE GOVERNOR:  I thought that's what I said but I'm

         10         not going to quibble.  That's fine.

         11              DR. ZINGALE:  Just want to make sure all the Ts are

         12         crossed.

         13              THE GOVERNOR:  You got the Ts crossed there?  Thank

         14         you, ma'am.

         15              MR. WARE:  And I'll put on the record that we will

         16         give the Department of Revenue the appropriate extension.

         17              THE GOVERNOR:  Thank you.

         18              CFO GALLAGHER:  You should because it's to your

         19         benefit.

         20              THE GOVERNOR:  Thank you.






                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1              THE GOVERNOR:  Department of Law Enforcement.

          2              MR. TUNNELL:  Good morning, again, Governor, General,

          3         Chief, Commissioner.  Did I get the roll call right?

          4              THE GOVERNOR:  You got it right.

          5              GENERAL CRIST:  Present and accounted for.

          6              MR. TUNNELL:  I want to take just a second to thank

          7         you again for recognizing Mark and Rochelle.  They are

          8         indeed outstanding members of this department.  We are

          9         extremely proud to have them -- to call them our own.

         10         They are great examples.  It is indeed a distinct honor to

         11         be named FDLE's agent or scientist of the year.  And

         12         certainly the fact that you recognized them makes that

         13         honor even more prestigious.

         14              Commissioner Bronson, it sounds like our State

         15         campaign is off to a really good start.  I wanted to

         16         mention that FDLE has raised about 80 percent of our goal

         17         this year.  So we're moving along well.  We had some real

         18         exciting fund-raisers.  It's funny, I always thought I was

         19         a much better free throw shooter than I proved out to be.

         20         Our memories fade over the years, I guess.  But we have a

         21         number of things scheduled in the weeks ahead.  Hopefully

         22         I'll have a chance to redeem myself.

         23              Getting down to our formal business.  FDLE has two

         24         items on the agenda.  Item No. 1, we respectfully submit a

         25         series of nine rules for final adoption in Title 11 of

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1         Florida's Administrative Code.  Seven rules in Chapter 11B

          2         deal with officer standards and training.  They're a

          3         result of the 2003 and 2004 legislative changes.

          4         Basically, they are housekeeping revisions.  The bulk of

          5         these rule changes are due to the implementation of CMS,

          6         the curriculum maintenance system.  It's a new law

          7         enforcement basic recruit training curriculum.  As of July

          8         1st, '04, all 41 training schools are using this new

          9         system.  It involves more hours that are scenario-based

         10         for law enforcement training.  As a result, we've had a

         11         number of new classes taught, new instructor certification

         12         requirements, and new state exam.

         13              The rule in Chapter 11C-6 is from the Criminal

         14         Justice Information Program that deals essentially with

         15         criminal justice -- or criminal history record retention.

         16         You may recall that in 2004 the Legislature passed a law

         17         that expanded checks to include contracted persons and

         18         student teachers in charter schools and alternative

         19         schools that directed FDLE to begin retaining school

         20         applicant fingerprints on July 1 of 2004.  Current

         21         employees are required to be rechecked and have their

         22         fingerprints retained as well.

         23              Good news is per the statute, we'll begin searching

         24         against incoming arrests on December 15th, 2004, something

         25         that the new ICHS, the Integrated Criminal History System,

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1         allows us to do.  For instance, if a school employee is

          2         arrested anywhere in Florida, we'll be able to provide

          3         notice to the school district via E-mail within 24 hours.

          4         Again, it's a good news item, public safety item.  But

          5         basically, it's a security alarm.  It allows an ongoing

          6         notification system to the schools upon the arrest of any

          7         employees.

          8              CFO GALLAGHER:  Let me just say that is a very, very

          9         good thing and I know that Attorney General Crist and I,

         10         both having served as education commissioner, there was

         11         quite a few problems when teachers would come up for

         12         probable cause and this had happened a year back and

         13         nobody knew it.  And now all of a sudden, they have been

         14         teaching the classroom, everything else, when they had

         15         some kind of a horrendous thing that nobody would want

         16         them in class for and they did it in some other county and

         17         nobody knew it.

         18              MR. TUNNELL:  Yes, sir.

         19              CFO GALLAGHER:  So this is, I think, a very important

         20         protection for our students.

         21              MR. TUNNELL:  I agree.  It will be a real asset for

         22         the school districts to have this information available

         23         almost immediately to them.

         24              GENERAL CRIST:  It's a good point.  If I might,

         25         Commissioner.  Does that notice go out on a charge or on a

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1         conviction?

          2              MR. TUNNELL:  On an arrest, on a charge.

          3              GENERAL CRIST:  On an arrest?

          4              MR. TUNNELL:  Yes, sir.

          5              GENERAL CRIST:  All right.

          6              MR. TUNNELL:  This rule also fulfills our statutory

          7         requirement to formalize the process and establish a fee

          8         for the retention fee.  I think it's six dollars a year.

          9              THE GOVERNOR:  Motion.

         10              GENERAL CRIST:  Motion.

         11              THE GOVERNOR:  There's a second.  Any discussion?

         12         Without objection, Item 1 passes.

         13              MR. TUNNELL:  Thank you.  Just a note, if approved,

         14         these rules -- they were -- they take effect on or after

         15         November the 30th.

         16              Item No. 2 is FDLE's proposed legislative initiatives

         17         for the 2005 session.  Essentially, there are three bills.

         18         No. 1 is the FDLE general bill.  Basically contains

         19         several provisions that are criminal history related as

         20         well as some housekeeping and technical issues.  Item

         21         No. 2 is a sexual predator offender glitch bill and it

         22         adds a definition of technical and vocational schools to

         23         the statute.  It also replaces the term "predator" with

         24         sexual offender, the references, and clarifies criteria

         25         for sexual predator criteria offenses.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1              Item No. 3 is a methamphetamine bill that establishes

          2         new penalties for improper dispensing and trafficking.  It

          3         also provides for an establishment of a child endangerment

          4         penalty.  It's almost identical to the bill filed last

          5         year that died awaiting a floor vote.  With your approval,

          6         we'd like to move forward with advancing these proposals.

          7              CFO GALLAGHER:  What -- is there a particular name

          8         that I would recognize on what a methamphetamine is?

          9              MR. TUNNELL:  Yes, sir.  Just -- this is modeled

         10         after a bill in Oklahoma that kind of set the stage.  The

         11         problem we have now is a lot of the over-the-counter

         12         bills -- or drugs that are available, nonprescriptions

         13         such as Sudafed, these are items that are processed from

         14         which, through an illegal process, manufacturing of

         15         methamphetamine comes about.  So this is dealing with only

         16         the powder form, tablet forms of these pills.  Folks could

         17         still buy the liquid form of cold allergy tablets that

         18         contain pseudoephedrine.

         19              CFO GALLAGHER:  So what happens is they take the

         20         pills and crush them up and make them into something, mix

         21         some chemicals and --

         22              MR. TUNNELL:  Through a process that I can't begin to

         23         explain all of it, but it's a process that they were able

         24         to derive --

         25              THE GOVERNOR:  It's also a very dangerous process.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1              MR. TUNNELL:  Yes.  Biohazards are tremendous safety

          2         issues.

          3              THE GOVERNOR:  Huge environmental issues.  Very

          4         dangerous.  People get blown up.

          5              CFO GALLAGHER:  You're moving them to a Schedule 5

          6         drug in order for a prescription as opposed to getting

          7         them over the counter?

          8              MR. TUNNELL:  Yes, sir.

          9              CFO GALLAGHER:  But I guess you can still go to

         10         Georgia to get them?

         11              MR. TUNNELL:  More than likely unless they catch on

         12         and model their bill --

         13              THE GOVERNOR:  Unless they've already passed the law.

         14         Who knows.  Have they?

         15              CFO GALLAGHER:  Oklahoma is the only one that's done

         16         it so far.

         17              THE GOVERNOR:  This is a bigger problem than it gets

         18         attention I think, the methamphetamine problem.

         19              MR. TUNNELL:  It really is.  We've had a number of

         20         cases where some local communities will limit access

         21         but -- through some local action, county ordinance or city

         22         ordinance.  But you drive to the next -- we mentioned

         23         Wal-Mart, down the highway and buy all you want.  So it's

         24         a real problem for the law enforcement process.

         25              CFO GALLAGHER:  Motion on 2.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     DEPARTMENT OF LAW ENFORCEMENT - 10/26/04

          1              COMMISSIONER BRONSON:  Second.

          2              THE GOVERNOR:  There's a motion on 2 and a second.

          3         Without objection, the item passes.  Thank you, Guy.

          4              MR. TUNNELL:  Thank you very much.






















                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  Board of Trustees of the Internal

          2         Improvement Trust Fund.  Eva.

          3              MS. ARMSTRONG:  Good morning, how are you?

          4              CFO GALLAGHER:  Motion on the minutes.

          5              COMMISSIONER BRONSON:  Second.

          6              THE GOVERNOR:  You want to please excuse Colleen

          7         Castille?

          8              MS. ARMSTRONG:  Certainly.  She's at a special event

          9         on your behalf, Governor, for Federal Express --

         10              THE GOVERNOR:  It's on my behalf?  Wait a second.

         11         She told me last night she was not coming.  She's using me

         12         as an excuse?

         13              MS. ARMSTRONG:  I understood that she was standing in

         14         for you at a Federal Express hybrid car event, is what I

         15         was told this morning.

         16              THE GOVERNOR:  That's true.  But I'm not sure she was

         17         standing in for me.  I think she's standing in for

         18         herself.

         19              MS. ARMSTRONG:  I stand corrected, sir.

         20              THE GOVERNOR:  And it's a fine event.

         21              MS. ARMSTRONG:  Fine event.

         22              THE GOVERNOR:  Part of our efforts to become a leader

         23         in alternative energy technologies.

         24              MS. ARMSTRONG:  Absolutely.  And we need to do that,

         25         don't we?

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  Yes, we do.

          2              MS. ARMSTRONG:  Yes, sir.

          3              THE GOVERNOR:  Thank you, Eva.

          4              MS. ARMSTRONG:  With that.

          5              CFO GALLAGHER:  Motion on the minutes on Item 1.

          6              THE GOVERNOR:  There's a motion on Item 1.  Is there

          7         a second?

          8              COMMISSIONER BRONSON:  Second.

          9              THE GOVERNOR:  Moved and seconded.  Without

         10         objection, Item 1 passes.

         11              Item 2.

         12              MS. ARMSTRONG:  We're requesting to --

         13              CFO GALLAGHER:  Motion to defer Item 2.

         14              MS. ARMSTRONG:  Yes, sir.

         15              COMMISSIONER BRONSON:  Second.

         16              THE GOVERNOR:  There's a motion to defer and a

         17         second.  Without objection, the item is deferred.

         18              Item 3.

         19              MS. ARMSTRONG:  Item 3 is consideration of the annual

         20         Land Management Review Team findings.

         21              CFO GALLAGHER:  Motion to accept.

         22              GENERAL CRIST:  Second.

         23              THE GOVERNOR:  There is a motion and second to

         24         accept.  Without objection, the item passes.

         25              MS. ARMSTRONG:  Item 4 is the DCF American

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         Habilitation Services' sublease.  In it, there are five

          2         things we're asking for.  Request to approve a 12-year

          3         sublease between DCF and American Habilitation Services.

          4         A determination that the proposed use is not contrary to

          5         the public interest.  A delegation of authority to the

          6         secretary of DEP to approve future subleases for DCF's

          7         cluster facilities.  A standard sublease form for future

          8         use by DCF and a determination that an award of the

          9         sublease without conducting of competitive bid is in the

         10         public interest.

         11              Since we had this item before you, a provision has

         12         been added to make it clearer that termination of the

         13         lease to the provider will discontinue its service -- the

         14         termination of the lease should the provider discontinue

         15         its service for any reason.  Did that make that clear?

         16              GENERAL CRIST:  Motion on 4.

         17              MS. ARMSTRONG:  We did correct it and we will correct

         18         future subleases.  That will be a standard correction in

         19         our subleases for those providers.

         20              THE GOVERNOR:  What about going back to the

         21         existing -- are there any existing leases where --

         22              MS. ARMSTRONG:  There are but they are on an annual

         23         lease.  So as soon as that lease comes up, we'll put

         24         the new language in it.

         25              THE GOVERNOR:  Yes, General.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              GENERAL CRIST:  Thank you.  Just on Item 5.  Can you

          2         explain or elaborate on that a little bit, please?

          3              MS. ARMSTRONG:  On Item 5, sir?

          4              GENERAL CRIST:  A determination --

          5              MS. ARMSTRONG:  Oh, on the provision.  Yes.

          6              GENERAL CRIST:  It's Item 5 of 4.  A determination

          7         that an award of a sublease without conducting a

          8         competitive bid is in the public interest pursuant to

          9         Section 18-2. --

         10              MS. ARMSTRONG:  Right.  As you may recall, this

         11         provider is servicing a clientele that has -- they have

         12         serviced over a period of time.  And to do competitive

         13         bid -- and I do have the DCF staff here who can explain it

         14         in greater detail.  But to go through a competitive bid,

         15         there are few in the field.  And to disrupt the provision

         16         of the services to those clientele can be very disruptive

         17         for those clients.  So they have -- it's DCF that has

         18         determined that it's in the client's best interest as long

         19         as that company is providing the services to continue with

         20         this provider.  But if you'd like greater information,

         21         I'll be glad to get them up here.

         22              GENERAL CRIST:  Just one question.  How few is "few"?

         23              MS. ARMSTRONG:  DCF?  Mr. Schoolfield, I believe, is

         24         this gentleman's name.

         25              MR. SCHOOLFIELD:  Hi.  I'm Kerry Schoolfield.  I'm

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         actually with the Agency for Persons with Disabilities,

          2         serve as the bureau chief there.

          3              MS. ARMSTRONG:  Did you hear the question?

          4              MR. SCHOOLFIELD:  I'm sorry, would you mind --

          5              GENERAL CRIST:  Can you explain the rationale between

          6         the no bid contract?

          7              MR. SCHOOLFIELD:  The no competitive bid.  The

          8         American Habilitation Services has been providing services

          9         to this clientele since about 1991.  Prior to that time in

         10         the '80s when these cluster facilities were built, when

         11         the Sunlands were deinstitutionalized in the early '80s,

         12         it was competitively bid at that time.  American

         13         Habilitation Services took over a contract that I believe

         14         it was ARA Defcon had that won the bid.  So it was sort of

         15         a buyout of that organization.  So it's been a continuous

         16         provision of services with a new contractor coming in

         17         basically buying out another one.

         18              The people that live in these facilities are

         19         medically complex.  The people with developmental

         20         disabilities we serve, they are probably the most

         21         complicated to serve.  Many have lived there all their

         22         lives, you know, they have -- so to competitively bid it

         23         out and to bring in a new contractor could be a disruption

         24         to them.  Many of the caregivers that serve them now, for

         25         example, the American Habilitation Services have been with

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         them much of their lives, at least since 1991 and prior to

          2         that time.  And I would suspect, even though I wasn't here

          3         at the time, that when the change of contractors occurred

          4         in '91 many of those caregivers would have just

          5         transferred to the new company.  So it's not uncommon in

          6         our institutions for people to actually grow up with the

          7         clientele and be caregivers for life.  So from the

          8         client's standpoint, it's a good thing to just not be

          9         disruptive.

         10              GENERAL CRIST:  I was thinking about the taxpayer's

         11         standpoint too.  How many other companies are there like

         12         that?  I think that was --

         13              MR. SCHOOLFIELD:  We have 20 cluster facilities

         14         around the state that are state-operated.  That's out of

         15         about 90 private ICFDDs that are not under our

         16         jurisdiction.  AHCA operates or licenses those.  The

         17         number of actually for-profit, I believe there is two or

         18         three others that are for-profit and the rest of them are

         19         not-for-profit corporations.

         20              THE GOVERNOR:  There's annual reviews of the contract

         21         and there's quality measures.  And if they're not in

         22         compliance, then their contract won't be renewed.  What we

         23         were dealing with the last cabinet meeting, you may

         24         recall, was that the lease we were granting extended way

         25         beyond the term or the contract couldn't be -- the lease

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         couldn't be extinguished if the contract was extinguished

          2         which made no sense at all.  So we've changed this lease

          3         and I'm hoping, Eva, and, sir, that we change all of our

          4         leases to not give a property right to a vendor or a

          5         provider that isn't up to snuff.

          6              MR. SCHOOLFIELD:  Correct.  And that's in there now.

          7              CFO GALLAGHER:  All of these leases are subject to

          8         appropriations and are subject to legislation based on an

          9         annual basis because that has to be in every lease.  So

         10         for those leases that slip through the cracks and we don't

         11         have, we should take a look and find out where they are

         12         and probably have a legislative fix to those so that they

         13         are changed.

         14              MS. ARMSTRONG:  Well, I need to be clear.  Okay.  Our

         15         legal staff felt that the language was clear and we feel

         16         we've made it clearer with this change.  I really need to

         17         be on the table in this public forum so that none of our

         18         leaseholders feel that they've got some loophole here

         19         where they've got a property right that they don't have.

         20              THE GOVERNOR:  Well, you sure as heck didn't explain

         21         it that way last time we were together.  So I'm glad you

         22         cleared that up.

         23              MS. ARMSTRONG:  Understand.  Well, I think the

         24         secretary in deference to really wanted to make it very

         25         clear so that anybody reading this lease is abundantly on

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         top of the table and understands when you read it, if your

          2         lease with -- if your contract with DCF or the disabled

          3         persons agency goes away for whatever reason, you lose

          4         this lease and that's what we did.

          5              THE GOVERNOR:  I don't think we can rely on

          6         appropriations because these are line items in the budget,

          7         not particularly and we don't fund each specific contract.

          8         And so it could just create litigation.  Better to be

          9         clear on the legal lease.

         10              CFO GALLAGHER:  I agree.  They could also put

         11         proviso --

         12              MS. ARMSTRONG:  It is really clear now.

         13              THE GOVERNOR:  Well, they could.  That's true.  You

         14         could proviso it which we don't encourage in the executive

         15         branch unless it's our proviso.

         16              CFO GALLAGHER:  Unless we write it, exactly.

         17         Sometimes it's the good stuff.

         18              THE GOVERNOR:  Any other discussion?

         19              CFO GALLAGHER:  I'll move Item 4.

         20              THE GOVERNOR:  There's a motion.  Is there a second?

         21              COMMISSIONER BRONSON:  Seconded.

         22              THE GOVERNOR:  Moved and seconded.  Without

         23         objection, the item passes.  Thank you.

         24              MS. ARMSTRONG:  Item 5 is consideration of an option

         25         agreement to acquire 24.5 acres within the Perdido Pitcher

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         Plant Prairie from the Nature Conservancy.

          2              COMMISSIONER BRONSON:  I'd like to make a motion on

          3         Item 5.  Governor, first I'd like to make a motion to

          4         approve Item 6 --

          5              THE GOVERNOR:  Five.

          6              COMMISSIONER BRONSON:  On 5, I mean, except with some

          7         guidance that I'd like for the cabinet --

          8              CFO GALLAGHER:  I think this is on 6.

          9              THE GOVERNOR:  Is there a motion on 5?

         10              CFO GALLAGHER:  I'll move approval.

         11              GENERAL CRIST:  Second.

         12              THE GOVERNOR:  Moved and seconded.  Any discussion?

         13         Without objection, the item passes.

         14              Item 6.

         15              MS. ARMSTRONG:  Is consideration of an option

         16         agreement to acquire perpetual conservation easement over

         17         2,124 acres within the Apalachicola River Florida Forever

         18         project.  The reason the item was originally deferred has

         19         now been resolved.  There shall be no directional drilling

         20         from either on or off the property.  Mr. Tucker from the

         21         family is here if you have questions -- representing the

         22         seller -- is here, if you have questions.

         23              THE GOVERNOR:  Commissioner?

         24              COMMISSIONER BRONSON:  I would like to make the

         25         motion to approve Item 6 with some guidance to the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         Department.  The goal of the State in negotiated

          2         conservation easements is to obtain the rights it needs to

          3         protect the sensitive environment resources at the lowest

          4         possible cost while ensuring the landowner will be able to

          5         continue working the land.  There has been much discussion

          6         of changing the balance of rights under these easements

          7         and the relevant statutory provisions dealing with the

          8         issues.

          9              In some cases, landowners will agree to place more

         10         rights with the State while others will not.  The balance

         11         of the rights issue, the test for bringing proposed

         12         easements to the Governor and cabinet is not whether the

         13         landowner signs over the majority of rights to the State

         14         but whether the proposed easement contains the conditions

         15         to ensure protection of the resource the State is seeking

         16         to protect at any reasonable cost.

         17              The Governor and cabinet highlighted several areas of

         18         concern, directional drilling from adjacent lands is one

         19         and negotiated easements, DEP should make certain those

         20         concerns are adequately addressed in the proposed

         21         easement.  Those are some conditions that I would like to

         22         put to protect us as cabinet members and as the trustees

         23         of the internal improvement trust fund for state lands,

         24         but at the same time, making the motion to approve Item 6.

         25              THE GOVERNOR:  Okay.  There is a motion with

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         guidance.

          2              GENERAL CRIST:  Second.

          3              THE GOVERNOR:  And a second.  We have some

          4         discussion.  Can you tell me in English what that meant?

          5              COMMISSIONER BRONSON:  Well -- Governor, as you know,

          6         we had quite a lengthy discussion last time on some of

          7         these easement issues and whether the State is getting a

          8         bang for its buck or whether or not in making the

          9         easements in the interest of the State to protect

         10         environmental issues and environmental, both plant, animal

         11         and other issues involved with the environment, whether

         12         the State is getting the biggest bang for its buck in

         13         doing this.  And at the same time, recognizing something

         14         that the environmental groups have recognized for a long

         15         time, and that is that the people who currently are

         16         working this land under these easement programs have done

         17         a very good job of protecting, in many cases, animal and

         18         plant species or the State would not be wanting to even

         19         make these easement requests available to the Board.

         20              With that in mind, making sure that rules and

         21         regulations and caveats are not put on that would

         22         actually, in the long run, hurt the very lands we're

         23         trying to protect and the environmental issues we're

         24         trying to protect, that there be some continuity of

         25         working with that landowner in these easements so it does

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         not keep them from doing what they've basically been doing

          2         all along on this property which is helping to protect

          3         natural resources.

          4              And that's -- I just wanted to put that in here to

          5         make sure we don't put caveats on where a landowner says,

          6         Wait a minute.  I've got an easement with you.  Now you've

          7         made it where I can't even make a living doing the very

          8         things that I've been doing here.  And at the same time,

          9         still protecting our natural resources myself.  In other

         10         words, that landowner is paying for the protection of the

         11         State's natural resources, not the State of Florida.

         12         That's what happens in these agreements.  And I want to

         13         make sure that -- because that saves us money and it still

         14         gets done what we intended to do all along, which is

         15         protect our natural resources.

         16              THE GOVERNOR:  But, for example, Commissioner, if

         17         the -- go back to this, and I appreciate the person that

         18         agreed to change this lease.  I appreciate their

         19         willingness to do so from our last meeting.  There was a

         20         discussion about whether or not there should be the

         21         allowance of directional drilling for drilling for oil on

         22         this property or below this property.  That is an

         23         appropriate thing to exclude in the Apalachicola Basin,

         24         right?

         25              COMMISSIONER BRONSON:  I'm not in disagreement with

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         that.

          2              THE GOVERNOR:  So you're just -- this is a statement

          3         of principle that the conservation easement should be --

          4         I'm just trying to give guidance because I want to make

          5         sure.  Because I didn't understand it the first time you

          6         said it.  What you're saying is that if we're going to

          7         grant conservation easements, that they should not be done

          8         in a way that inhibits the ability of a person to manage

          9         the property?

         10              COMMISSIONER BRONSON:  Right.  But on the issues such

         11         as drilling or any other substantial issue that's above

         12         and beyond what's being operated right now on the property

         13         at the time of the lease, that would come back to this

         14         Board of Trustees and that no such issue would necessarily

         15         be granted by DEP or anyone else until the Board of

         16         Trustees has a chance to discuss those issues since we are

         17         the ones who are granting the lease in the first place --

         18         or the conservation easement in the first place.

         19              So it would directly come back here.  What I'm saying

         20         is, what the Department knows is going on on the property

         21         right now and has been basically agreed to as an

         22         acceptable practice, that that practice will not be

         23         inhibited by other rules and regulations of the Department

         24         that would cause that landowner to either have to go out

         25         of business or --

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  You mean after the fact?

          2              COMMISSIONER BRONSON:  After the fact.

          3              GENERAL CRIST:  What's already okay is still okay?

          4              COMMISSIONER BRONSON:  Well, I mean, if they are

          5         willing to accept as an easement brought to this board the

          6         practice that's going on right now, and that could include

          7         silviculture or anything else that is within practicable

          8         -- in other words, if you got old trees that need to come

          9         out because they're an endangerment to the rest of the

         10         trees because of pests and disease, that landowner can

         11         still take those out so that they can protect the rest of

         12         the trees on the property.  I mean, that happens in

         13         natural silviculture processes.

         14              But there again, the Department would have to work

         15         with the landowner to make sure they're not going in and

         16         cutting trees that they shouldn't be cutting and those

         17         types of things.  That landowner knows good and well as an

         18         agriculturalist what needs to be done on that property to

         19         protect natural resources that are already there that the

         20         State wants to protect anyway.  So I'm just saying that

         21         the Department should not have the right, without coming

         22         back to this Board, to put caveats on a landowner who may

         23         be in an agriculture business, a natural business,

         24         operating the way the Department has accepted the property

         25         in this conservation easement and then go in and say,

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         Well, we decided we don't like this.  So we're going to

          2         put this caveat in that says you can't do this anymore.

          3         Well, that may put the person out of business.  And at the

          4         same time, that person is not going to be taking care of

          5         those natural resources because he can't afford it.

          6              THE GOVERNOR:  Now, is this -- this is a little bit

          7         different than what we talked about.  Is this happening

          8         right now, that people -- the Department has gone and

          9         said, Sorry, in spite of our legal agreement on a

         10         conservation easement, we're now going to prohibit this

         11         use even though we agreed to it to begin with when we

         12         signed the agreement?

         13              COMMISSIONER BRONSON:  I think some agreements -- and

         14         it may be long gone after the four of us are gone from

         15         this earth and it could be when there's a whole new group

         16         of people in DEP or whatever they are going to call the

         17         Department years to come, that if a family and some of

         18         these families have had these properties for hundreds of

         19         years or a hundred plus years, that this would keep

         20         them --

         21              CFO GALLAGHER:  Just the Bronsons.

         22              THE GOVERNOR:  Yeah, just the Bronsons.

         23              COMMISSIONER BRONSON:  This would keep a State

         24         agency, and maybe it's -- well, it would be DEP under this

         25         instance because they're the ones asking us to agree to

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         this.  That they will not go in and make arbitrary, in

          2         some cases, changes to an agreement that was already in

          3         place by saying under current guidelines, We ought to do

          4         this to this property.

          5              THE GOVERNOR:  So this is more of a statement of

          6         principle regarding pre -- this is a preemptive statement.

          7         You don't have any specific cases where legal contracts

          8         that are binding have been broken because there is a

          9         new --

         10              COMMISSIONER BRONSON:  There have been -- I do know

         11         of cases where caveats on some leases have been added

         12         after a basic agreement understanding has been made.  And

         13         then it comes back and says, Oh, and by the way, we think

         14         you ought to do this.

         15              THE GOVERNOR:  But that's before the contract is

         16         signed.

         17              CFO GALLAGHER:  -- it's negotiated in or out.

         18              COMMISSIONER BRONSON:  And I guess the purpose

         19         for doing -- well, I want to make sure it doesn't happen

         20         after the signing of a contract.

         21              THE GOVERNOR:  Right.

         22              COMMISSIONER BRONSON:  But you also make the

         23         statement, Don't lose contracts that would be good

         24         easements, good protection for the environment, by making

         25         some, what I think could be egregious statements on a

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         potential signing of a contract which could cause people

          2         to back out and therefore that natural resource is not

          3         being protected permanently under a contract with the

          4         State.

          5              THE GOVERNOR:  Treasurer?

          6              CFO GALLAGHER:  Well, these have to come here.

          7              COMMISSIONER BRONSON:  Yes.

          8              CFO GALLAGHER:  And if somebody doesn't like what we

          9         are doing, they can come talk about it.  Or if we don't

         10         like what they are doing, we can talk about it.  And this

         11         is a prime example of a contract that came to us and

         12         because of a lack of a second, and I believe basically

         13         because of the drilling issue, it got fixed.  And then it

         14         can move ahead and get signed if it goes ahead and we pass

         15         your motion.

         16              COMMISSIONER BRONSON:  Well, and I agree.  This -- I

         17         may be overstating a little bit here of what I'm concerned

         18         about.  But the point is that concern, in my opinion, is

         19         real.  And I don't want a State agency, whether DEP or

         20         anybody else to go in and try to put a caveat on an

         21         agreement that could be egregious to the person who's

         22         actually taking care of the property at --

         23              THE GOVERNOR:  Commissioner, can we do this?  Because

         24         we had a really good debate -- discussion, not debate, on

         25         the whole conservation easement issue and we didn't really

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         conclude it.  I mean, we had discussions on it.  If you

          2         would allow us to, your office and the Department and our

          3         offices to try to establish some kind of policy guideline

          4         on this and present it in the next two weeks as a

          5         stand-alone discussion, rather than tying it -- no one --

          6         I don't think anybody has seen your particular proposal.

          7         It may be -- I mean, in principle, I don't have any

          8         problems with it because I don't want the Department to,

          9         after the fact, or any government agency after the fact,

         10         once you have a legal, binding contract to -- I don't

         11         think they have the right to do what you are suggesting

         12         they do and I don't think they've done it in the past.

         13         And if they had, then they are in violation of the law

         14         which would not be something that we would want to be

         15         associated with.

         16              But the second part of what you said is I think where

         17         your concerns are.  Which is, as we negotiate these things

         18         to put so many burdens on ranchers and farmers that we

         19         can't do our deals and therefore protect the natural

         20         resource and protect the quality of life or the way of

         21         life of the beneficiaries of these easements is what

         22         you're -- sounds like that's the bigger concern.  That's

         23         not going to impact this deal, I don't think.

         24              COMMISSIONER BRONSON:  No.

         25              THE GOVERNOR:  They've agreed to it.  So can we --

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         can you extract your guidance so that we -- well, it's

          2         only guidance.  But I'd rather have this be a discussion

          3         that we -- because I agree with you.  I think conservation

          4         easements are the way to go but they also should be done

          5         in a way that creates a win/win which is we protect the

          6         natural resource and people get to be able to keep

          7         their -- they get some equity for the intrinsic value of

          8         the land, allows them to continue their way of life.

          9         That's the whole point.

         10              COMMISSIONER BRONSON:  That's it in a nutshell.  And

         11         quite frankly, I'm very concerned, as well as the

         12         succeeding generations that may keep that very property

         13         much in the manner that their ancestors have kept it.  But

         14         with new and modern times coming up and things happening,

         15         it may cause some people to want to change the perpetual

         16         agreement based on other conditions and I just want to

         17         make sure there were no changes that could happen in that

         18         manner that would cause a problem for those generations.

         19              CFO GALLAGHER:  But you don't want to do that because

         20         any contract should have the ability to be changed with

         21         both parties agreeing.

         22              COMMISSIONER BRONSON:  If both parties agree.

         23              CFO GALLAGHER:  Right.  And so they could come to the

         24         Department and say, We'd like this changed.  The

         25         Department could go to them and say they'd like this

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         changed and there could be an exchange of dollars for a

          2         change or there could be just an exchange because it's

          3         better land management and I don't think we should shut

          4         those out.

          5              COMMISSIONER BRONSON:  Well, I don't think this would

          6         do that.  If there is an agreement between the two

          7         parties, anything could be done under contractual

          8         agreement.  What I don't want is an agency to go in and

          9         say, We're telling you this is the change that's going to

         10         be made whether you like it or not.  And because that

         11         agreement has been signed to as of the time that this

         12         board signed it.

         13              THE GOVERNOR:  Well, what happens -- I guess we'll

         14         have a conversation about this now.  What happens if there

         15         are laws that change or court rulings because the federal

         16         government likes to -- federal judges tell us that -- say

         17         cattle ranching is allowed and some federal judge says

         18         that water quality standards now prohibit, you know --

         19         there is some kind of change that's required that isn't in

         20         the lease but now is a new regulation or a new statute or

         21         a new court ruling that adds to the burden of the rancher?

         22              COMMISSIONER BRONSON:  Quite frankly, not being an

         23         attorney, from a landowner's standpoint and a citizen of

         24         the state of Florida standpoint, then I would say that

         25         that ruling or that law has broken the agreement of the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         contract that was signed originally and would have to be

          2         renegotiated with the landowner and the State.

          3              CFO GALLAGHER:  But what if there were already --

          4         there wasn't any contract and it was just the landowner

          5         that owned the land, what would happen?

          6              COMMISSIONER BRONSON:  Well, you're signing an

          7         agreement which is almost like a lease.  It's a --

          8              THE GOVERNOR:  It's a transfer of title.

          9              MS. ARMSTRONG:  I have an attorney who can help you

         10         with that question.

         11              THE GOVERNOR:  Please help us, Attorney.  We're

         12         always looking for help from attorneys.

         13              MS. ARMSTRONG:  As a landowner, you'll like the

         14         answer.

         15              COMMISSIONER BRONSON:  If I like -- did you say if I

         16         like the answer?  That's why we have attorneys.

         17              MR. VIELHAUER:  Right.  Well, in that particular

         18         case, I mean, if that was a federal requirement that was

         19         passed by a federal law, I mean, we wouldn't have been a

         20         party to that and we couldn't renegotiate it but you do

         21         have a potential argument as a landowner that there would

         22         have been a taking and you could file for a taking.  But

         23         we could not go back and renegotiate the contract.

         24              CFO GALLAGHER:  Federal government would have to pay

         25         them money for what they changed.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  They don't do that.

          2              CFO GALLAGHER:  They're supposed to.

          3              THE GOVERNOR:  Or a state judge decides.  I mean, it

          4         happens all the time where some extraneous -- or the

          5         Legislature.  Some extraneous event impacts the use of

          6         that property indirectly.  And that doesn't mean that that

          7         contract is no longer binding.  Because if not, we'd have

          8         complete chaos.  I mean, we would -- nor there would be

          9         certainty for the property owner that has the easement

         10         that sold his transfer of title to us and got an easement

         11         in return to have the certainty that he could go to a bank

         12         and be able to get credit for the intrinsic, what remains

         13         as the value of the land.

         14              MS. ARMSTRONG:  Right.  The subsequent law, he's

         15         going to verify this for me, cannot affect your contract.

         16              MR. VIELHAUER:  Right.  But every single one of these

         17         contracts that we ever do always has a provision in there

         18         that says that it's bound by governing state and federal

         19         law.  So that is a condition that already exists in the

         20         contracts.

         21              COMMISSIONER BRONSON:  The governing laws that are on

         22         the books at the time the contract is signed, correct?

         23              MR. VIELHAUER:  Well, right.  But any new law would

         24         also be included within that too.

         25              COMMISSIONER BRONSON:  Since we have time to keep

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         this discussion going.

          2              MS. ARMSTRONG:  I was going to move it on for you.

          3         We won't do that now.

          4              COMMISSIONER BRONSON:  Here's my point.  And I'm not

          5         taking shots at the Department or any department of the

          6         State government.  What I'm saying is, I want to make sure

          7         that whatever contractual agreements between a private

          8         citizens of the state or a corporation of the state in

          9         conjunction with making an agreement with the State of

         10         Florida, the Board of Trustees, the Florida cabinet, if

         11         you will, that there is some protection of that private

         12         person or business that does contractual agreements with

         13         the State that does not do away with their -- what they

         14         feel is their rights at the time they sign this agreement

         15         with the State that would put them in such burden that

         16         they either could not operate anymore and therefore claim

         17         a taking of the state, I guess that would be their natural

         18         first move is to say, Okay, under this condition, then the

         19         State has taken my ability to do business on my property

         20         and therefore, it is a taking.  Pay me for the rest of the

         21         rights to this property.  In other words, buy it out fee

         22         simple.

         23              I want to make sure the private citizens who's

         24         dealing in good faith with the State is protected in these

         25         and not that it gives them any advantage over the State or

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         that any agency would have advantage to make caveats to

          2         those agreements without recourse of that private citizen

          3         or business to come back and say, Okay, Judge, if this is

          4         the case, then buy me out fee simple, this is a taking.

          5         And make that claim.  I just want to protect the

          6         individual landowner and/or corporation that makes any

          7         contractual agreement with the State through DEP or any

          8         other agency, that they're protected and they're not

          9         giving up any kind of rights to challenge those decisions

         10         once it's been changed.  That's what I'm trying to do.

         11         Maybe I did it in a very complicated way, but that's what

         12         I'm trying to do.

         13              THE GOVERNOR:  Well, I'm not sure the cabinet is

         14         going to be able to tell every department of State

         15         government that they can't do certain things.  But as it

         16         relates to the Department of Environmental Protection, we

         17         can give them guidance.  And I want to make sure that the

         18         guidance that we give is a consensus view and it's

         19         important enough, I think, if you don't mind, for us to

         20         work on it and have a discussion about it.

         21              COMMISSIONER BRONSON:  Okay.  I'll withdraw the --

         22              THE GOVERNOR:  In two weeks.

         23              COMMISSIONER BRONSON:  -- portion of my statement.

         24         But I'll still --

         25              THE GOVERNOR:  And get -- you know, I think --

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              COMMISSIONER BRONSON:  Move No. 6 but I -- we'll talk

          2         about --

          3              THE GOVERNOR:  And if you could get -- I think it's

          4         important to get -- we make jokes about the lawyers.  I

          5         think it would be important to get your department's

          6         lawyers engaged on this as well from the perspective of

          7         the landowner because they do have some unique

          8         perspectives that would be very helpful.  So, Eva, can

          9         we -- Stephanie, when do you start?

         10              MS. ARMSTRONG:  We have an easement that we're

         11         working with Secretary Castille on.  And if it's finalized

         12         in time for that meeting, it's a little bit different and

         13         it would provide you with a lot of discussion points.  It

         14         will fit right in.

         15              THE GOVERNOR:  Okay.  There's a motion and a second

         16         on Item 6.  Without objection, the item passes.  Thank

         17         you.

         18              MS. ARMSTRONG:  Item 7 is consideration of a proposed

         19         settlement agreement in the claim of Robert Lee and

         20         Tangerene Hancock Smith and First American Title Insurance

         21         Company.  There was an error by the survey company at the

         22         time of the acquisition which placed our boundary line

         23         2.6 acres to the north and east of where the ownership

         24         actually lies and it was over someone else's property.

         25         First American Title Insurance is reimbursing the State

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         for the cost of the 2.6 acres at the acquisition cost to

          2         the State of $740 an acre or $1,924.  The Board of

          3         Trustees will issue a quitclaim deed to the 2.6 acres and

          4         it will clear it up.

          5              CFO GALLAGHER:  And who's paying for all the legal

          6         fees and everything that are involved in this?

          7              MS. ARMSTRONG:  Title insurance company.  Your title

          8         insurance is covering the cost.

          9              CFO GALLAGHER:  Motion on 7.

         10              COMMISSIONER BRONSON:  Second.

         11              THE GOVERNOR:  Moved and seconded.  Without

         12         objection, the item passes.

         13              MS. ARMSTRONG:  Item 8 is consideration of a proposed

         14         settlement agreement in the case of Edna Lee Wilson versus

         15         the Estate of Nathan Lee and the Board of Trustees.

         16              CFO GALLAGHER:  Motion on 8.

         17              GENERAL CRIST:  Second.

         18              THE GOVERNOR:  There's a motion and a second.  Are

         19         you happy?

         20              MS. ARMSTRONG:  I'm happy.

         21              THE GOVERNOR:  Without objection, the item passes.

         22              MS. ARMSTRONG:  Items 9 and 10 are both rulemaking

         23         concerning sovereignty submerged lands of the state.

         24         Item 9 is proposed rulemaking for ownership oriented

         25         facilities.  It is regarding amendments to Chapter 18-21

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         that specify the maximum number of slips and preemption

          2         allowed for private residential multifamily docks

          3         including those docks serving mixed use upland residential

          4         and revenue generating activities.

          5              I want to point out that both of these rules are a

          6         work in progress.  At this point, we have held workshops

          7         on both.  We've been taking them in tandem because both of

          8         them are dealing with sovereignty submerged lands although

          9         they're really separate.  The fee rule is handled by

         10         Division of State Lands.  And the ownership oriented

         11         facilities are handled by Jim Stoutamire's bureau which

         12         has dealt with the regulatory aspect of the Agency.  And

         13         when I say "work in progress", we have come to you -- in

         14         fact, it was at your direction some months back, motion by

         15         Gallagher on WCI item that said, Go address fees --

         16              THE GOVERNOR:  Treasurer Gallagher?

         17              MS. ARMSTRONG:  Treasurer Gallagher, I'm sorry.  What

         18         did I call him?

         19              THE GOVERNOR:  Gallagher.

         20              MS. ARMSTRONG:  Oh, dear.  I've done that twice.  My

         21         apologies, sir.

         22              THE GOVERNOR:  He's like a baseball player.

         23              CFO GALLAGHER:  I get no respect.

         24              (Laughter.)

         25              MS. ARMSTRONG:  Treasurer Gallagher's motion.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              CFO GALLAGHER:  I don't deserve it so it's okay.

          2              (Laughter.)

          3              THE GOVERNOR:  At least call the guy fire marshal

          4         Gallagher.

          5              CFO GALLAGHER:  Marshal Gallagher, I like that.

          6              THE GOVERNOR:  That does have a good ring to it.

          7              MS. ARMSTRONG:  It was on Treasurer Gallagher's

          8         motion that set us off on this exercise and we are now at

          9         the point where we're asking you for permission to go to

         10         public hearings and then we will come back for final

         11         adoption.  So we are not yet at a final product here.

         12              With that, we have speakers.  What I thought I'd do

         13         is, on Item 9, have Jim Stoutamire walk you through

         14         proposals for the changes that we have at this point in

         15         time.  I need to emphasize that we are open to changes to

         16         these proposals.  It is not a finalized product.  And with

         17         that, Jim Stoutamire.

         18              COMMISSIONER BRONSON:  I have a question.

         19              THE GOVERNOR:  Yes, Commissioner.

         20              COMMISSIONER BRONSON:  Before we go through the

         21         step-by-step, one of the things that concerns me right now

         22         considering we've had four hurricanes and we've had

         23         extensive damage to some people, especially those in the

         24         clam business, people who have used floating docks and

         25         other things that they have managed to work through the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         process before these rules are going to be looked at, my

          2         concern is that we do not make it so egregious that they

          3         cannot get back in business.  In other words, that we do

          4         it in a practical way that we're not causing docks to cost

          5         so much, you know, twice as much or whatever to replace as

          6         long as they're doing it within the guidelines that they

          7         originally had their agreements with the State.  It's

          8         going to cost them plenty of money to redo them anyway

          9         simply because of their destruction just like --

         10              THE GOVERNOR:  What about private owners, you know,

         11         docks behind people's homes as well?  Do you care about

         12         them?

         13              COMMISSIONER BRONSON:  I care about them as well.

         14         Because if they had an original agreement with the

         15         State --

         16              THE GOVERNOR:  So what is the policy?  That's a great

         17         question.

         18              MR. VIELHAUER:  Well, currently, with regard to each

         19         one of the four hurricanes that came through, the

         20         Department has enacted emergency orders addressing each

         21         and every one of them.  And in the emergency order, it

         22         provides that as long as the facility was legal before the

         23         hurricane, they can rebuild exactly what they had.  So

         24         without going back through and getting new permits and

         25         everything, they can rebuild what they had.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              CFO GALLAGHER:  All right.  That begs the question:

          2         If they have one that might be considered illegal but

          3         nobody has ever done anything about it and they've let

          4         them have it there, now you're saying they can't build.

          5              MR. VIELHAUER:  No, we're dealing with those on a

          6         case-by-case basis.  Depending on what the nature of the

          7         illegality was and trying to work with them to rebuild

          8         something that would be in compliance with our rules and

          9         with our regulations.  So they can't go back out and

         10         rebuild an illegal facility.  But we will work with them

         11         to build something that is legal.

         12              MS. ARMSTRONG:  Let me assure you the Department is

         13         being very fair and generous.

         14              CFO GALLAGHER:  I don't want to get them saying

         15         they're letting everybody rebuild illegal stuff.  That's

         16         fine.

         17              THE GOVERNOR:  Great.  Thank you, Treasurer.  We were

         18         going to have to extend the conversation a little longer

         19         then.  This is an interesting issue and I guess the answer

         20         that you got was better than I thought you were going to

         21         get.

         22              COMMISSIONER BRONSON:  I'm glad it was as good --

         23              THE GOVERNOR:  Just let the record show the

         24         Department was responding to the needs of your

         25         constituents which I'm happy to hear as well because

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         that's a major commitment I just heard.  Now was there

          2         caveats --

          3              CFO GALLAGHER:  Emergency rule.  So that's great.

          4              GENERAL CRIST:  It's only fair.

          5              THE GOVERNOR:  Just ask the billboard owners of the

          6         state if it's fair because they can't rebuild.

          7              CFO GALLAGHER:  Let me ask you a question here.

          8         Don't you have to get approval from us to do the rules?

          9              MS. ARMSTRONG:  Emergency order of the governor.

         10              CFO GALLAGHER:  Oh, you use that emergency rule to

         11         do --

         12              THE GOVERNOR:  Oh, I knew that.

         13              (Laughter.)

         14              MS. ARMSTRONG:  It was part of the emergency response

         15         effort from the hurricane.

         16              CFO GALLAGHER:  Is there any other emergency rules

         17         you guys have done that you haven't told us about?

         18              MS. ARMSTRONG:  I don't think -- correct me if I'm

         19         wrong.  I don't even think that was an energy rule.  It

         20         was part of the immediate response just as shoring up the

         21         houses on the beaches to make sure the ones that are

         22         clinging right on the cliff could get something under them

         23         to keep the house up.  We didn't do it as a rule.  It was,

         24         Get out there and shore up your structure.  It was part of

         25         that same response to the hurricane effort.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  So do the aquaculture guys know that,

          2         Charlie?

          3              COMMISSIONER BRONSON:  In response to the Department,

          4         and I think they've been working with just about everybody

          5         on this, and I know it's a monumental job.  But like the

          6         clam business has been just devastated by these storms.

          7         The oyster guys have been devastated by these storms and

          8         they're going to have a tough time coming back.  They just

          9         didn't want to have to jump through extra hoops to get

         10         what they already had back in place so that they could

         11         continue their business.  And those are going to be the

         12         first people I hear from, I can guarantee you.

         13              MS. ARMSTRONG:  We'll have contact with Jim Boxell

         14         (phonetic) from our office to get the connection.

         15              CFO GALLAGHER:  And you haven't heard from him yet so

         16         probably things are going all right.

         17              COMMISSIONER BRONSON:  Well, they haven't even begun

         18         to get started, some of them, as to where and how and

         19         borrowing the money and trying to work with the federal

         20         government and other people to get back in --

         21              THE GOVERNOR:  Out of curiosity.  My emergency order,

         22         Eva, is there a time certain when it --

         23              MS. ARMSTRONG:  That that has to be completed?

         24              THE GOVERNOR:  Or started.

         25              MS. ARMSTRONG:  I'll find out.  I don't know that but

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         I'll find out.

          2              THE GOVERNOR:  Because that may be an issue.

          3              MS. ARMSTRONG:  It runs for 60 days.  We're in the

          4         process of working on them now.

          5              CFO GALLAGHER:  Well, most emergency orders are only

          6         good for 90 days.

          7              MS. ARMSTRONG:  I don't think it's done by emergency

          8         rule.  We didn't do a rule.  We just put it into effect.

          9              CFO GALLAGHER:  All right.  Well, look and see if

         10         there needs to be something we need to do because there's

         11         a lot of people that aren't going to be able to fix

         12         anything for a long time.  We're talking six, eight, nine,

         13         if it's a dock and their house is blown away, I can tell

         14         you they're going to be worried about nine months from now

         15         fixing their house before they get around to their dock

         16         and they need to have that intrinsic right left for their

         17         dock to be done two years from now if it's two years from

         18         now because they are going to spend all their money, some

         19         of them, with two or three deductibles which we're also

         20         going to have to take care of.  But they're not going to

         21         spend it on their dock which probably isn't covered by

         22         insurance.

         23              COMMISSIONER BRONSON:  One more question, Governor,

         24         if I can.

         25              THE GOVERNOR:  Sure.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              COMMISSIONER BRONSON:  Eva, does this mean that

          2         within the 60 days they come to you and say, I want to

          3         rebuild my docks the way I had them so that I can do my

          4         business that that in itself is good enough for you to

          5         work with them not to come up with a whole brand-new plan,

          6         money and everything?

          7              MS. ARMSTRONG:  I'll find out when the 60-day clock

          8         starts.  I think that's what the question is.

          9              COMMISSIONER BRONSON:  But my question is as long as

         10         they come to you and say, Here's where my business was, I

         11         was approved by DEP, I want to build it just the way I had

         12         it, keep my business going, that that satisfied the

         13         contact of the 60 days, not the fact they got to have

         14         their money in place, their plans in place, everything in

         15         place within 60 days because that's, as the treasurer

         16         says, that's not going to happen.

         17              CFO GALLAGHER:  And some people are using FEMA loans

         18         and some of those are waiting to see what the insurance is

         19         going to pay.  And, you know, it's a big catch-22 here and

         20         we need to bend over backwards to give the people all the

         21         time they need to rebuild.

         22              MS. ARMSTRONG:  Yes, sir, we'll do it.

         23              THE GOVERNOR:  Okay.

         24              MS. ARMSTRONG:  Are we ready?

         25              THE GOVERNOR:  We're ready.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              MR. STOUTAMIRE:  Good morning.  Jim Stoutamire, DEP.

          2         Pardon me if I ping-pong between glasses.  I've had eye

          3         surgery and I've gone from farsighted to nearsighted.  So

          4         I can either read or see you, not both.

          5              THE GOVERNOR:  Before you could either see or read,

          6         but not both?

          7              MR. STOUTAMIRE:  Something like that.  Hopefully it

          8         will all get straightened out by the first of the year.

          9         At any rate, this rulemaking is designed to balance the

         10         preemption of public trust lands for private benefit of

         11         multifamily dwelling units with the rights of the other

         12         individuals of the State to use those public trust lands.

         13         One of the major changes in the rule is to replace the

         14         current sliding unit to slip ratio associated with

         15         multifamily docks with a not-to-exceed one slip per unit.

         16              The reasoning behind this is that calculating the

         17         ratio is often misunderstood.  It's difficult to

         18         calculate.  And, in fact, part of the ratio comes out with

         19         4.666 into an infinity number of slips.  The graduated

         20         unit to slip scale is only a marginal impact on the amount

         21         of preemption of the public trust lands and is typically

         22         not the major controlling factor in limiting preemption.

         23         The unit to slip ratio by itself does not address the

         24         amount of preempted area.  Many facilities cap out on

         25         40 square feet to each linear foot of shoreline which I'll

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         get to in a moment before they cap out on their unit to

          2         slip ratio.

          3              And, finally, there is ample authority in the

          4         proprietary and the regulatory rules to restrict the

          5         number of vessels that are allowed at a facility, to

          6         protect environmental resources and listed species.  On

          7         balance, staff feels that the proposed change to the unit

          8         to slip will provide more flexibility for the design of

          9         these facilities without significantly increasing private

         10         preemption of public trust lands or increasing adverse

         11         impacts to environmental resources or listed species.

         12              In addition, the rule clarifies that any portion of a

         13         facility, and this would include new facilities, or

         14         existing facilities that's converted to private,

         15         residential multifamily use, would be subject to these

         16         provisions of the rule.  This addresses hybrid facilities

         17         of which you've seen several conversions of existing

         18         public marinas for private residential use.

         19              We do provide somewhat along the lines of the WCI

         20         item that you may remember from I believe it was September

         21         a year ago, a potential exception to the 40 to 1, that's

         22         40 square feet of preempted area for each linear foot of

         23         shoreline in the applicant's ownership in areas where, for

         24         lack of a better term, it's a good location.  There's

         25         adequate depth, no resources, no additional dredging is

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         needed.  There are no threatened and endangered species

          2         concerned and the project provides an overall public

          3         benefit.  We were very careful to use the term "benefit",

          4         not to be confused with the public interest test.

          5              And that public benefit is to offset the increase in

          6         preempted area of the public trust land over what the rule

          7         would otherwise allow.  We've made an amendment to the --

          8         or are proposing an amendment to the delegations from the

          9         trustees to staff that would state quite clearly that any

         10         project that requests an exception, the 40 to 1 exception,

         11         will not be delegated to staff.  In other words, the final

         12         agency action would have to come in front of the Board of

         13         Trustees to discuss and review the proposed public

         14         benefit.  We've added an option for number of riparian

         15         single-family homeowners who could otherwise build

         16         multiple individual docks.  Say ten homeowners who could

         17         build ten individual docks.

         18              We've added an option for them to build a single

         19         multifamily dock which would be less preemptive, less

         20         environmentally impactive.  We've eliminated some of the

         21         disincentives in the rule to doing so.  Disincentives

         22         include the requirement to pay lease fees, some

         23         limitations on the location of these structures in aquatic

         24         preserves.  We're in a catch-22 where a single dock for a

         25         number of riparian homeowners would be prohibited in

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         certain areas but individual docks would be allowed in

          2         those same areas even though they would cause more impact.

          3         We've provided that these -- such facilities would require

          4         that a conservation easement be placed along the shoreline

          5         of all the riparian lots to ensure no future docks were

          6         built off of those lots.  And that, in deference to the

          7         Secret Oaks case --

          8              GENERAL CRIST:  Excuse me?  Could I ask a question?

          9              MR. STOUTAMIRE:  Sure.

         10              GENERAL CRIST:  I'm not sure I know what you're

         11         talking about.  Can you just tell me in English what

         12         you're talking about?

         13              MR. STOUTAMIRE:  We've had several proposals where,

         14         for example, ten single-family homeowners wanted to get

         15         together and build a shared dock in an aquatic preserve in

         16         an area with seagrass beds off all ten lots.  In the

         17         aquatic preserve rule there is a prohibition on multi slip

         18         docking facilities, which is what the facility would be,

         19         terminating in a resource protection area one or two.  At

         20         the same time, the aquatic preserve rule would allow

         21         individual single-family docks to terminate in an RPA 1

         22         or 2.

         23              The Department then finds itself in the awkward

         24         position of you can't have a shared dock for ten

         25         single-family lots, but you can have ten single-family

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         docks.  Staff feels that clustering of a dock and with

          2         inserted language that requires these docks to be located

          3         in lower resource areas if they are available, is better

          4         for both the environment and the public trust lands.

          5              GENERAL CRIST:  Can they still have an individual

          6         dock in front of their house under what you're talking

          7         about?

          8              MR. STOUTAMIRE:  If they sign on to a lot to use

          9         slips at a shared facility, we're proposing that a

         10         conservation easement be placed on the property that would

         11         prohibit --

         12              GENERAL CRIST:  What if they don't do that?  I'm just

         13         talking about a single-family home.  Can they --

         14              MR. STOUTAMIRE:  Right now, they can build a dock,

         15         yes.

         16              GENERAL CRIST:  Okay.  Thanks.

         17              MR. STOUTAMIRE:  This would have no impact unless you

         18         voluntarily signed on to a community dock.  We have had

         19         some suggestions.  The rule, as it's drafted, proposes

         20         that this type of dock be granted a letter of consent in

         21         lieu of a lease.  This was intended to get past the

         22         problem of punishing, if you will, these people for doing

         23         the right thing by making them pay lease fees.  There's

         24         been a suggestion and we're going to look at this as

         25         requiring them to obtain a lease making this a fee waived

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         lease.

          2              CFO GALLAGHER:  Can I ask a question?

          3              MR. STOUTAMIRE:  Certainly.

          4              CFO GALLAGHER:  There is a boating safety study in

          5         process.  Are you familiar with that?

          6              MR. STOUTAMIRE:  Yes, sir, I understand that the

          7         contract will be let sometime next month and we'll be

          8         looking at the results of that project as it goes through.

          9         Although I do understand that they don't anticipate having

         10         it finished for a couple of years.  But we will be looking

         11         at the results as we move forward through this rulemaking.

         12              CFO GALLAGHER:  Well, that's good that -- that makes

         13         it somewhat of a quandary.  Because if you're doing your

         14         rules and the boating safety study comes in and conflicts

         15         with that, that means I guess we have to consider that

         16         when it comes -- and make rule changes, right?

         17              MR. STOUTAMIRE:  That would be correct but we can't

         18         predict what the study will come out with.  I would

         19         anticipate that as a result of the study, presuming it's

         20         finished in a couple of years, we'll be back in front of

         21         you looking at any number of sections of the rules and

         22         perhaps looking at legislation on the regulatory side of

         23         the shop in addition.  But I can't predict the outcome.

         24         Last time we looked at number of slips and we did not look

         25         at private residential slips was back in the mid 1980s

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         with the Blue Urban Marina Commission.  And that hasn't

          2         been updated since then so the information is 20 years out

          3         of date.

          4              CFO GALLAGHER:  Well, you know, I personally think

          5         and I think a lot of people would agree that, if anything,

          6         we probably have a shortage of slips.  And, you know,

          7         we've got dual pressures here.  One group doesn't want to

          8         build anymore.  Another group needs a place to put their

          9         boat.

         10              MR. STOUTAMIRE:  Understood.  And our job is to try

         11         to, at least in this draft rulemaking, try to tread the

         12         line between the two.

         13              CFO GALLAGHER:  Exactly.  Okay.  So you recognize

         14         that.

         15              MR. STOUTAMIRE:  Finally, we are making one

         16         additional modification to the delegations.  As currently

         17         drafted, the delegation speaks to final Agency action

         18         being reserved to the Board of Trustees for certain

         19         facilities that exceed size, size thresholds.  For

         20         example, private easements over 5 acres or facilities that

         21         involve 50 or more boat slips.  This creates the odd

         22         situation that if a project is up for denial, say, for

         23         example, somebody wants to build a facility and refuses to

         24         give us the conservation easement that's required by rule,

         25         we, as staff, cannot deny that project.  We have to bring

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         it to the Board for denial.

          2              We are proposing to change the delegation to speak to

          3         where the proposed Agency action is approval of a project

          4         for these size trigger thresholds, that those would have

          5         to be brought to the Board.  That denials simply based on

          6         size would not have to come to the Board.  Please note

          7         that the heightened public concern provisions remain in

          8         effect.  And if a denial raises heightened public concern

          9         issues with respect to resources or other public policy

         10         reasons, such projects would, in fact, be brought to the

         11         Board.  And I would note the WCI item was brought to the

         12         Board as a denial primarily because of heightened public

         13         concern in addition to the size issue.  So this would not

         14         change substantively much of the items you'd see.  Would

         15         just remove the requirement that we bring more or less

         16         proforma denials to you.

         17              THE GOVERNOR:  All right.  Do we have speakers?

         18              MR. STOUTAMIRE:  I believe we have speakers.

         19              MS. ARMSTRONG:  You have eight speakers.

         20              THE GOVERNOR:  Eight?

         21              MS. ARMSTRONG:  Yes, sir.  The first one is Jim Brown

         22         from Fish and Wildlife Commission.  He's going to talk to

         23         you about that study, Treasurer Gallagher.

         24              THE GOVERNOR:  And we are going to be brief --

         25              MS. ARMSTRONG:  Yes, sir.  We have Pat Rose, Tasha

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         Buford and Peggy Mathews.

          2              THE GOVERNOR:  Good morning.

          3              MR. BROWN:  Good morning, Governor and cabinet, thank

          4         you very much.  I just wanted to give you a brief outline

          5         of the study that was mentioned by Treasurer Gallagher.

          6         We are doing a three-phase study.  We received a grant

          7         for -- did I misspeak there?  We received a grant for $1.2

          8         million from the U.S. Fish and Wildlife Service.  We have

          9         additional Agency funds and funds from Lee County who

         10         would like to be the pilot on this study.  The first phase

         11         of this study is an inventory.  We hope to inventory

         12         marinas, dry storage facilities, mooring fields, boat

         13         ramps, and docks including private docks.

         14              We're not sure if we're going to get that far with

         15         the amount of money that we have.  We will certainly get

         16         to multifamily docks.  But we do hope to get to private

         17         facilities as well.

         18              THE GOVERNOR:  Aren't all docks theoretically

         19         permitted?

         20              MR. BROWN:  Excuse me?

         21              THE GOVERNOR:  Aren't docks permitted?

         22              MR. BROWN:  Yes, sir.

         23              THE GOVERNOR:  Couldn't you just -- rather than -- I

         24         mean, how are you going -- why would it take forever or

         25         take a lot of money to be able to identify the number --

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         at least the number of permitted docks wouldn't be that

          2         hard, would it?

          3              MR. BROWN:  Yes, sir.  We plan to look at all the

          4         contractors that we negotiate with.  We will look at all

          5         avenues of collecting that information.

          6              THE GOVERNOR:  Clerk of the courts?  I mean, that

          7         shouldn't be that hard.

          8              MR. BROWN:  Yes, sir.

          9              THE GOVERNOR:  If you're going to go count them all,

         10         that might be a little more difficult.

         11              MR. BROWN:  And there are some, of course, that

         12         aren't permitted that do add into the equation.  So that's

         13         why it is important to take a look at what's out there as

         14         well.

         15              Phase 2 of the project is mapping, actually taking

         16         all the information we collect from the inventory and

         17         placing that into a GIS format.  We'll be able to identify

         18         where all the marinas, boat ramps, and where all the

         19         facilities are in the state.  And the third phase is

         20         looking at the current and future supply and demand

         21         projections of recreational boating access in Florida.  We

         22         want to look out to 20 years down the road to figure out

         23         what those projections will be in Florida.  And that's

         24         just a brief summary of our project.

         25              THE GOVERNOR:  Thank you.  Any questions?  Thanks.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              MR. BROWN:  Thank you, sir.

          2              MR. ROSE:  Good morning, Governor, members of the

          3         board.  Appreciate this opportunity to address you this

          4         morning.  My name is Pat Rose.  I'm an aquatic biologist

          5         with the Save the Manatee Club and also be speaking on

          6         behalf of 18 other environmental organizations saving you

          7         some time.  So my comments will be a little more lengthy

          8         than it might have been had it been me speaking only for

          9         our organization.  But I'll try to be succinct and go

         10         through it quickly.

         11              In my background and 13 years working with the State

         12         of Florida managing its marine mammal and protected

         13         species programs, in particular working with manatees,

         14         we've had to deal with boating issues over a long period

         15         of time.  I've started in this work in the late '70s and

         16         have designed and conducted many boating studies in that

         17         process.  And I was very encouraged to hear that the

         18         commission is now going to go out and update some studies

         19         that haven't been updated for about 20 years and do the

         20         complete shoreline surveys to get an idea of what is there

         21         and then project out future needs.

         22              I'm going to reference in my discussions this morning

         23         some of those that have been done historically but just

         24         touch on the high points.

         25              THE GOVERNOR:  All right.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              MR. ROSE:  I guess the main point I would like to

          2         leave you with today so if I lose you in any part of the

          3         rest of it is this rule that has come before you and

          4         they're going out for proposed rule, is not an emergency.

          5         There is no overwhelming need to make a change now.  It's

          6         a rule that's been in place for 20 years.  It's working

          7         well.

          8              Do we need to look at adjustments in it, minor

          9         adjustments like you asked for when WCI came before you?

         10         We reviewed their project and their request.  We thought

         11         that was a reasonable request.  We felt that the decisions

         12         you made to make adjustments to the rule and exceptions

         13         were appropriate.  They had very large ships -- large

         14         boats that they wanted to dock.  The 40 to 1 rule was

         15         restrictive on them because the sort of trend in Florida

         16         is towards larger boats for the wet slip.  So we think

         17         that those kinds of adjustments ought to be looked at and

         18         they are appropriate.

         19              But to eliminate entirely the sliding scale which has

         20         worked so well the last 20 years so that you didn't have a

         21         lot of extra docks being built that weren't being

         22         utilized.  In fact, the last study, and the reason for

         23         that rule change 20 years ago is because that was

         24         happening.  We need to -- what we're asking you to do and

         25         I'll just mention quickly, the other organizations that

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         are asking the same question, is that you would take more

          2         time with this rule, defer the action on the proposed rule

          3         at this time and send it back either to the submerged

          4         lands technical advisory committee that used to meet and

          5         work on the issues and try to work out controversies

          6         before they came back here and we'd ask you to look at

          7         that and consider that.

          8              We'd ask you to consider the kinds of data that would

          9         be necessary to understand what changing a rule that's

         10         been in place 20 years will cause.  And we don't think

         11         that those implications of the rule have been well thought

         12         out.  We think information is available for you to look at

         13         that, for staff to look at that.  But real quickly, the

         14         organizations also that are asking that same request are

         15         the Animal Welfare Institute, Conservancy of Southwest

         16         Florida, Defenders of Wildlife, Environmental

         17         Confederation of Southwest Florida, the Florida Consumer

         18         Action Network, the Friends of the Everglades, the Florida

         19         League of Conservation Boaters, the Florida Office of

         20         Southeast Clean Water Network for Florida Public Interest

         21         Research Group.  Floridians for a Sustainable Population,

         22         Florida Wildlife Federation, Gulf Restoration Network, the

         23         Legal Environmental Assistance Foundation, the Pegasus

         24         Foundation for Save the Manatee Club, Sea Turtle Survival

         25         League, sierra Club, Tropical Audubon and Wildlife

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         Advocacy Project.

          2              Just for example, and I know you guys are busy.  But

          3         information, scientific studies are very important in

          4         understanding what the implications are.  Your charge, as

          5         you know, as the trustees of Florida is to try to balance

          6         this very difficult process of providing public access,

          7         providing facilities for those people who are the riparian

          8         interest along our waterways.  At the same time, balancing

          9         that with the resource protection.

         10              Unfortunately, it isn't as simple as just what you

         11         permit by either letter of consent or by lease as to what

         12         is built on that site.  Many other things happen.  And

         13         once those boats leave those facilities, this is a direct

         14         connection to those secondary and cumulatative impacts.

         15         Going back as far as 1983 when this Board directed the

         16         Blue Ribbon Marina Siting Committee to come forward with

         17         recommendations on statewide Marina Siting, there were a

         18         number of recommendations made and some were followed,

         19         some weren't.

         20              Interesting enough, that committee which was made up

         21         of mostly boating interests with one enviromental

         22         organization which was Florida Audubon on it, made

         23         profound recommendations, most of which have not been

         24         followed.  And today, we're finding ourselves in this

         25         predicament where there is a competing interest, if you

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         will, between access and protection of the aquatic

          2         resources.  We're asking you to reaffirm that kind of

          3         direction and direct staff to go out and obtain the kind

          4         of information necessary to give you an intelligent choice

          5         in making changes to these rules that is responsive to

          6         what's happening today and will be responsive to what is

          7         going to happen in the future.

          8              I understand that time is short.  I have a lot of

          9         other things I would like to say but I'll limit it to a

         10         couple of other points.  We feel that the Department

         11         doesn't understand just how radical a change this is.  We

         12         think this will not only open up a lot of new dock

         13         construction based on the proposal that's before you for

         14         new facilities, and that's not necessarily bad.  But where

         15         it is and how it is and the ins and outs of that is what's

         16         important to understand.

         17              THE GOVERNOR:  Do you think it's radical?

         18              MR. ROSE:  Pardon me?

         19              THE GOVERNOR:  You said this radical not specific in

         20         the rule -- (Inaudible.)

         21              MR. ROSE:  Yes, the elimination of the unit to slip

         22         ratio.  If you consider -- this is for condominiums now

         23         primarily.  You can build them 10, 15 stories high

         24         oftentimes.  You can have hundreds of units.  And to this

         25         point, even though you had very large numbers of units,

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         the larger the facility you have today in the rule, the

          2         less percentage of slips they can have over the sovereign

          3         submerged lands.  This would take that sliding scale out

          4         and give you up to one to one.  That in and of itself is

          5         one of the ways it would do that.

          6              Secondly, then if you didn't adjust the 40 to 1

          7         ratio, however, as Jim said in his introduction, a lot of

          8         those facilities would run up against the 40 to 1

          9         limitation.  But this rule also proposes to make

         10         exceptions to the 40 to 1.  So at the same time that

         11         you're increasing number of slips that can be built,

         12         you're also increasing, potentially, the amount of

         13         preempted area that's available for them to do that.  And

         14         if you do that, that's not just prospective.  It's also

         15         going to be looked at in terms of all the facilities that

         16         have been built over the last 30 years in Florida, and

         17         particularly the last 20 years that have been under this

         18         rule.

         19              THE GOVERNOR:  People can come back in and say we

         20         want to apply to the new ruling and expand existing

         21         marina.  (Inaudible.)

         22              MR. ROSE:  Yes.  And let me make it clear.  We are

         23         not opposing development of new slips.  We're not opposing

         24         development of new boat ramps and those kinds of things.

         25         We're saying that we need to use the best science in that

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         process and we've had a lack of marina siting in Florida

          2         for a long time.

          3              And what I'd like to point to, about the only -- in

          4         my estimation, the only substantial information we have on

          5         this kind of information and marina siting has come,

          6         unfortunately, on the backs of the manatees through the

          7         Manatee Protection Plan which I know you strongly endorse

          8         and a lot of good work has been done in particular

          9         counties.  So we're way ahead of the game in a number of

         10         counties where manatees have been a key issue and a

         11         driving force on that because those local governments have

         12         worked with the various agencies and the boating groups

         13         and the environmental groups and have come forward and

         14         done responsible boating -- excuse me, marina siting

         15         plans.

         16              And I need to leave you because when I'm done, I'm

         17         done.  There are going to be a series of boating speakers

         18         coming behind me and they're going to tell you there is a

         19         crisis out there and that there are not enough slips

         20         available and you need to do something right away.  Well,

         21         rebuilding the docks from the hurricanes is a crisis and

         22         we absolutely support the ability for those folks to

         23         rebuild their docks as they were before.  We've always

         24         maintained that position even in prior hurricanes and

         25         issues that have come before you.  We have supported that

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         rebuilding.  I wanted to make sure that's clear.

          2              However, citing just a couple of examples for you.

          3         In Indian River County, in their 2002 Manatee Protection

          4         Plan, on Page 37, it states that the boat facilities

          5         single-family docks was approximately 50 percent in terms

          6         of their capacity, as still being available.  Brevard

          7         County, January 2003, the current overall occupancy rate

          8         for wet and dry slips was estimated at 54 percent and

          9         62 percent respectively.  In Volusia County, March 2004, a

         10         draft report.  In the ICW portions of Volusia County along

         11         the Intercoastal waterways, they're at 88 percent so

         12         they're coming close and they're going to be needing some

         13         capacity pretty soon.

         14              The St. Johns River, they're at 63 percent.  They

         15         don't expect to meet capacity in the St. Johns until the

         16         year 2020.  Those are just some examples for you because

         17         you're going to hear the opposite side of that.  And I

         18         think there are places in Florida where they are at

         19         capacity and they do need new slips.  And those slips, I

         20         think, will come forward whether or not this rule is

         21         changed or not.

         22              The most recent study that's been done by Sea Grant

         23         on boater needs and wants, if you will, was just finished

         24         in Sarasota and Manatee County.  The survey respondents

         25         within that 2004 study by Sea Grant, there was .8 percent

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         of the boaters said there were inadequate docks and ramp

          2         facilities is one of their concerns there.  And that's

          3         just Sarasota and Manatee County.  That just gives an

          4         example of .8 percent of those respondents.  They listed

          5         things like boating safety and boating education and law

          6         enforcement and all those kinds of things, were much

          7         higher needs for them.  Things that have been well

          8         understood that we do need in Florida for a long time.

          9              And so what I'm suggesting to you is that we feel

         10         that there are some adjustments that would be appropriate

         11         to the 18-21 rules.  But that this goes too far, too fast

         12         and is not based in the kinds of information necessary to

         13         make the intelligent lasting decisions like they made 20

         14         years ago and have brought this rule forward to this time

         15         and had it worked well.

         16              And I'll leave you with a recommendation by the Fish

         17         and Wildlife Conservation Commission and then I'm going to

         18         close.  And I appreciate your indulgence and the time.

         19         There's a lot more I would have liked to have said because

         20         this is an issue I've spent my life working on frankly as

         21         a boater, a fisherman, a scuba diver and underwater

         22         photographer trying to balance these things because I

         23         think it's important that we do that but we base it on

         24         science.  I'm just going to find that one quote and bring

         25         it to an end.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              There was a recommendation in a letter that was sent

          2         to the Department of Environmental Protection by the

          3         imperiled species section of the Fish and Wildlife

          4         Conservation Commission.  In that letter, quote, We

          5         strongly recommend that the ratios for slips and amount of

          6         preempted area not be changed unless it provides a clear

          7         benefit to the natural resources and is consistent with

          8         long-term manatee protection planning.

          9              Just to mention that because we're not -- these 19

         10         environmental organizations aren't by themselves in

         11         concerns for this but we do pledge that we want to work

         12         with and have historically worked with this process and

         13         we'll be glad to continue to do that to find a fair and

         14         balanced rule that will protect the resources and provide

         15         for future boating access in Florida.  Thank you for your

         16         time.

         17              THE GOVERNOR:  Thanks.

         18              MS. ARMSTRONG:  Okay.  Tasha and Peggy.

         19              MS. BUFORD:  Governor and Board, I'm Tasha Buford.

         20         I'm with the law firm Youngvan Assenderp and I represent a

         21         variety of commercial marina interests and residential

         22         development.

         23              THE GOVERNOR:  Can you move the mic just a little bit

         24         more?

         25              MS. BUFORD:  Better?

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  Better.

          2              MS. BUFORD:  Tasha Buford with Youngvan Assenderp and

          3         we represent a variety of commercial marina interests and

          4         residential development.  We have followed the rule

          5         development effort for the year and think the staff has

          6         done a superb job at trying to balance environmental

          7         concerns and concerns of the industry to open up more of

          8         the waterfront for public access as well as additional

          9         development.

         10              We are simply urging you to initiate rulemaking.

         11         These concerns on both sides can be worked out in much

         12         detail.  It's now been a year.  The development has gone

         13         well, we think.  We're not entirely happy with it.  I

         14         understand the other group are not.  We're simply asking

         15         for an opportunity to formalize this and move forward so

         16         all issues can be resolved in the rulemaking process.

         17         We're not close to a final rule, but we do think the staff

         18         has done an excellent job so far at balancing everyone's

         19         interests so we're simply asking for an opportunity to

         20         initiate the process.  We do think the staff has looked

         21         very hard at balancing more access to the water and

         22         environmental concerns and in deriving more public benefit

         23         for anyone who seeks to avail themselves of the rule.  So

         24         we just ask for your support and let the staff move

         25         forward and all these issues will be hashed out in all the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         detail that they deserve.  Thanks.

          2              MS. MATHEWS:  Good morning.  I'm Peggy Mathews and

          3         I'm with the Florida Marine Contractors Association which

          4         are the actual dock builders.  I'd like to say I'm going

          5         to waive my time in support of the comments that will

          6         follow me made by John Sprague in the Marine Industries

          7         Association.  I would like to state though your comments

          8         on the emergency repair order and the concern over the

          9         deadline was very accurate.  We appreciate your

         10         recommendation for DEP to extend the deadline because it

         11         was causing panic to commence work with the homeowners

         12         along with the dock builders that were also impacted by

         13         this storm so we appreciate that recommendation.  Thank

         14         you.

         15              MR. SPRAGUE:  Good morning.  John Sprague, Marine

         16         Industry Association of Florida.  And I operate one of

         17         those marinas that was 100 percent destroyed by Hurricane

         18         Jeanne.  I understand the rebuilding issues and whatever.

         19         I will tell you though, we had a very good meeting with

         20         Secretary Castille yesterday laying out all of our

         21         problems and the rebuilding and whatever.  She's coming

         22         out with a document that clarifies so we understand what

         23         commencement is and the 60 days and how all that works.

         24         And, secondly, she's going to hold workshops around the

         25         state that we can bring in all of our engineers ourselves

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         and whatever in each one of the districts.  So they have

          2         an understanding as we redo our designs and whatever that

          3         we can work hand in hand so we know exactly what DEP

          4         requests and DEP knows what we're doing.  So I just wanted

          5         to say that was very positive and we appreciate it.

          6              This is a real simple issue.  1985, DEP did a study

          7         that said most multifamily docks around the state of

          8         Florida weren't being utilized.  And therefore, it would

          9         allow them proliferation of multifamily docks that weren't

         10         being utilized is not good public purpose.  We agree with

         11         that.  And being a boater back then, I understand most the

         12         docks, even our marinas back in those days were pretty

         13         empty.  But this is 2004, this is 18 years later.  And

         14         regardless what Pat says, I will tell you in south Florida

         15         there is a crisis in critical shortage of docks.  Let

         16         permitting drive this issue.  All we're asking you to do

         17         is if you did a public policy issue in 1986 that said we

         18         need to restrict the numbers being built and now we're

         19         over here in 2004 saying wait a minute.  Now it's the

         20         other way around and we need to go back to the policy

         21         decision what's good for the public.  And water access is

         22         good for the public in the state of Florida.

         23              Every time we get a condo person that can't utilize

         24         his boat in his own condo facility, he's going to go to

         25         one of our public marinas and suck up one of those few

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         remaining public slips we have.  And because he's a

          2         waterfront homeowner, he can pay the dollars and cents.

          3         And it's a right that we just rescind the ratios, not the

          4         right that if you want to do fees, whatever, that's part

          5         of your proprietary obligations and we understand that

          6         totally.

          7              THE GOVERNOR:  What about the question of existing

          8         marinas going back into DEP now and saying new rules apply

          9         we're restricted now want to expand--

         10              MR. SPRAGUE:  It's a case by case.  I mean, anybody

         11         that has been --

         12              (Off-the-record discussion.)

         13              MR. SPRAGUE:  Well, they would be allowed to do it.

         14         They would be allowed to apply for an ERC permit.  And as

         15         you well know, the permit process in the State of Florida

         16         has stopped water access for the last four years because

         17         of lawsuits.  Anybody that applies, you don't

         18         automatically get this multifamily dock, you've got to

         19         apple to the Core, to U.S. Fish and Wild Life, to the

         20         State of Florida and everybody for a permit to expand.

         21         The marina siting criteria and the manatee protection

         22         plans, all that is going to dictate to you whether that

         23         existing condo can build an additional slip.  It's not an

         24         automatic because you rescind your rule that says, We're

         25         not giving you an arbitrary ratio.  We're going to allow

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         you to apply.  Doesn't mean you're going to go through the

          2         permit process.  Doesn't mean you're going to get all the

          3         slips you want.  You may not get any.  But at least it

          4         gives them the ability to apply.  Under the ratios we're

          5         even proposing today, we've locked their hands in

          6         handcuffs and said, You can't apply even if you wanted to

          7         or the application that you can do is very minimal.

          8              THE GOVERNOR:  Well, I'll save my comments --

          9              MR. SPRAGUE:  This is jobs.  It is the economy.  It

         10         is real estate values.  It is boat manufacturers in the

         11         state of Florida of not having places to put them.  It has

         12         tax basis having to do with our cities, our counties, and

         13         our state government.  It is major economics through the

         14         state of Florida.  Thank you very much.

         15              THE GOVERNOR:  Thank you.

         16              MS. ARMSTRONG:  Eric Draper, then Bonnie Basham.

         17              MR. DRAPER:  Eric Draper, Audubon of Florida.  I want

         18         to comment first on the beautiful bird photography you

         19         have in the room here today.  Thank you very much.

         20              THE GOVERNOR:  It's much more appropriate than some

         21         of the pictures we have in the cabinet.

         22              MR. DRAPER:  Anyway, take off on that, and just on

         23         what John said, and just say that also represents part of

         24         the economy of Florida.  There's a lot of money spent by

         25         people going out and staking out those birds and taking

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         those pictures, buying computers and all the other stuff.

          2         So that's an important part of our economic base.  I'm

          3         going to make my comments brief here and just say that we

          4         have a couple of comments about the rule.  We just want to

          5         note as was indicated -- with the description one of the

          6         trends going on in the state of Florida that does not

          7         mention the cabinet item is the increased conversion of

          8         our waterfront areas to developed areas resulting in a

          9         loss of habitat in many cases.

         10              We have a couple of issues with the rules that I'm

         11         going to raise here and I'll be very quick with it.  The

         12         rules seemingly good provision, which is allowing the

         13         consolidation of single-family dock structures is

         14         outweighed by a couple of factors.  One is that these

         15         would now be allowed simply by a letter of consent even in

         16         an aquatic preserve area and, in fact, can be located

         17         more -- or will end up being located more in a situation

         18         in an aquatic preserve where you could have the damage

         19         then, would be the case for the single-family dock.

         20              We also think there is some additional incentive with

         21         these multifamily dock structures for people to put in

         22         docks that otherwise, in the multifamily, put in slips

         23         that otherwise wouldn't be there in order to lease them

         24         out.  There's a big business in the state of Florida right

         25         now if you're an individual slip holder or you simply have

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         waterfront land leasing your slip or your waterfront

          2         capacity.  And this, of course, is a public benefit that's

          3         granted to the homeowner that's then leased sometimes with

          4         hundreds and hundreds of dollars.  That ought to be taken

          5         a look at.

          6              The proposed 40 -- the exception to the 40 to 1 ratio

          7         is too open-ended.  And I won't get into the details on

          8         that because I know you're in a hurry.  And the

          9         replacement of multifamily dock structure with a one to

         10         one ratio is too much relaxation of that important rule.

         11         And, again, we'll just get into the rulemaking process

         12         with our comments directly to the Agency.  Thank you very

         13         much.

         14              THE GOVERNOR:  Thank you.  Please.

         15              MS. BASHAM:  I'm Bonnie Basham and I'm here

         16         representing the Florida Council of Yacht Clubs and

         17         Standing Watch.  And before I make my very brief comments,

         18         this is the first chance I've had to see all four of you

         19         guys in the same place.  So let me take a minute to the

         20         cabinet and especially to you, Governor, we can't thank

         21         you strongly enough for the strong confident leadership

         22         that you showed during the hurricanes.  I can tell you, I

         23         was in towns all over this state and it felt so good to

         24         turn on the television set and have you standing there

         25         saying, We're going to come back.  So thank you so much.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         We really do appreciate it.

          2              THE GOVERNOR:  Thank you, Bonnie.

          3              MS. BASHAM:  I was going to tell you that you're

          4         everybody's big brother but I wasn't sure you wanted to

          5         hear that.  I'm usually the one that's asking you guys to

          6         slow down and form a committee and stop the rule and all

          7         that kind of stuff.  But I've work with the Department for

          8         over a year now on this rule.  I think it's come a long

          9         way.  I think it's got a few more glitches that need to be

         10         straightened out.  But I urge you to go forward with it.

         11         At the same time, I'm going to urge you to direct the

         12         staff to continue to work on the ratio issue.

         13              That ratio, as you heard John say, was put in back in

         14         1986 in a totally different world, in a totally different

         15         time.  We believe that the ratio needs to come out and the

         16         environmental permitting process which is so much stronger

         17         now needs to be the thing that drives the number of slips

         18         and the size of the docks as people make those

         19         applications.  We look forward to working with the

         20         Department and we really would ask you to ask the staff to

         21         reconsider that ratio and bring it out and make -- take

         22         all those pieces of it out and let the permitting process

         23         drive the process.  Thanks.

         24              THE GOVERNOR:  Thank you.

         25              MS. ARMSTRONG:  That's all the speakers on this rule.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  What is the timing of the rulemaking

          2         process from here on out if we decide to go forward?

          3              MR. STOUTAMIRE:  Where we are now, we've conducted

          4         six public workshops on this rule, three back in January

          5         and three in June.  We had modest participation as is

          6         typical before you enter the more formal process part of

          7         the rulemaking process.  If we move forward here today, we

          8         would publish a notice of proposed rulemaking.  We'll hold

          9         a minimum of two public hearings, a more formal type of

         10         input, probably more and would anticipate making -- coming

         11         back to you-all sometime after the first of the year with

         12         a proposed rule with whatever amendments come up and are

         13         accepted during that hearing process in the January or

         14         February time frame.  There are some time clocks in the

         15         rulemaking but we can keep it going for a fairly long

         16         period of time.  If you want more details though, I'd have

         17         to ask Bud.

         18              THE GOVERNOR:  That's fine.  It was a general

         19         question.  I have a little bit of a concern that a lot of

         20         this, I mean these rules are focused on the balance that

         21         we all want to achieve, access versus protection of the

         22         waters.  So these rules either -- I mean, the main

         23         objective is to try to calibrate supply, trying to figure

         24         out what the proper supply is that would balance

         25         protection of the natural environment and access.  And as

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         we grow, there will be greater demands on access but also

          2         greater pressures on the natural systems.

          3              It makes the challenge even more difficult to find

          4         that common ground.  And I'm a little concerned that -- I

          5         didn't hear too much specificity about supply and demand.

          6         And what happens if we change a rule -- I could see how

          7         that would change for new -- going forward new permits,

          8         new marinas.  But the impact of the existing marina space,

          9         how many people -- not necessarily entities would come

         10         back to expand marina space.  I'm more than happy to go

         11         forward with this rule.  But before I would be supportive

         12         of a rule, I think there needs to be a lot more

         13         information given to me personally at least.  I can't

         14         speak for anybody else.  About the impact these rules --

         15         what is the existing supply and demand situation and what

         16         the -- what these rules would do to change that

         17         relationship because the best of intentions could yield a

         18         bad result.  We don't want to do that.  Without that data

         19         I don't know how you can make that calibration, you know,

         20         the proper balance.

         21              MR. STOUTAMIRE:  As I said earlier, we'll be looking

         22         at ongoing results of the FWC study.

         23              THE GOVERNOR:  But by February are you going to have

         24         it?

         25              MR. STOUTAMIRE:  No, sir.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  So what's the point?  I mean, in other

          2         words, you do not want to put us in a position whereby

          3         permitting we are individually, with each unique case,

          4         trying to determine how much supply should be in existence

          5         because then it becomes arbitrary and capricious.  You

          6         want the rules to do that and then the permits to be able

          7         to deal with the nuances, you know, the -- not every

          8         marina would be exactly the same.  I mean, isn't that

          9         correct?  That's why the rulemaking process is being --

         10              MR. STOUTAMIRE:  Understood.  And we have proposed to

         11         relax the unit to slip ratio to, quite candidly, provide a

         12         little bit more flexibility in the number of vessels that

         13         were put within a facility --

         14              THE GOVERNOR:  And I think that's fine.

         15              MR. STOUTAMIRE:  -- under the 40 to 1 cap but we did

         16         not want to simply remove, as many have asked us, the 40

         17         to 1 cap because then that would throw the door wide open.

         18         We did allow an exception to the 40 to 1 cap under some

         19         very limited circumstances and where the exception was

         20         fully aired in front of the public, in front of you-all,

         21         and that was as far as we were prepared to go upon

         22         relaxing the rule at this time.  Whether we can go any

         23         further, two years down the road on the basis of the fish

         24         and wildlife study or not is a question I can't answer

         25         right now.  It's a good balance at the moment.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  Treasurer, please.

          2              CFO GALLAGHER:  One of the things that happens when

          3         you establish a ratio is that you also establish the

          4         value.  And you start making slips extremely expensive

          5         because of the lack of availability.  So that's another

          6         thing you have to also consider.  And I don't think we

          7         want to make boating impossible for everybody to afford.

          8              MR. STOUTAMIRE:  I believe that's going on right now.

          9         And, in fact, the ratio we have now would allow fewer

         10         slips than the proposed one to one.  But of course it

         11         depends on what size vessels you want to market to within

         12         the 40 to 1 limitation.  If you're marketing the large

         13         boats, inherently, you're going to get fewer slips than if

         14         you're marketing the smaller boats.

         15              CFO GALLAGHER:  Right.  But for whatever it's worth,

         16         larger boats create a lot of economic plus compared to a

         17         small boat.  I mean, a small boat buys fuel.  A large boat

         18         buys fuel, food, and has employees, and has all kinds of

         19         other things.  And in most cases, extremely

         20         environmentally better than what small boaters can

         21         possibly do.

         22              MR. STOUTAMIRE:  Depending on the location, yes, sir.

         23              CFO GALLAGHER:  In most cases.  Well, that's our job

         24         to see what the location is.  Anyway, I just want to make

         25         sure that we consider -- you know, boating is one of the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         reasons people like living in Florida and that we should

          2         have available that resource to people.  Obviously keeping

          3         the environment in mind and looking at what the ratios are

          4         and I mean, I know we're doing the boating safety study

          5         but we probably ought to use a slip availability study

          6         somehow or another and see what this market really is.

          7         And my gut says that there just isn't enough available

          8         marinas and slips for people to keep their boats.

          9              COMMISSIONER BRONSON:  Can I ask a question also,

         10         Governor, if I can?

         11              THE GOVERNOR:  Sure, Commissioner.

         12              COMMISSIONER BRONSON:  The thing that -- and I've

         13         seen this in every town where there's a little fishing

         14         village anywhere in the state and I don't care which side

         15         of the state you want to go on.  And especially in Brevard

         16         County where you have got people coming up and down the

         17         Intercoastal, to me, it seems more practical to have a

         18         place for those people to put those -- to dock those boats

         19         or ships than to get offshore and throw out an anchor

         20         somewhere and anchor for a day or two while they're

         21         visiting the area.

         22              It seems to me that the more damage is going to be

         23         done by throwing those big anchors out than it is by

         24         putting it in a dock where it can be kept properly.  And

         25         so I think the treasurer has a good point about is there

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         enough slips to make sure that people have a place to dock

          2         and that their boats are taken care of and that their

          3         fuel, refueling is done right and so forth rather than

          4         having people just anchor offshore there or in the

          5         Intercoastal someplace and actually do more damage, in my

          6         opinion, to the bottom than otherwise would be done by

          7         putting a slip in.  That seems to be one of the questions

          8         I'd like to get an answer to.

          9              CFO GALLAGHER:  Well, I know a lot of these questions

         10         aren't answerable at this point.  Let's do this.  I'd like

         11         to move ahead with this rulemaking.  I think you've heard

         12         comments from up here and what we think.  You've heard out

         13         there.  You have a lot of interests to deal with.  We're

         14         going to see it again when it comes back.  And you guys

         15         are the ones that have to sit here and cut the baby before

         16         you deliver it to us.  And we have a recut process if

         17         necessary.

         18              THE GOVERNOR:  Do we have to say that?

         19              (Laughter.)

         20              CFO GALLAGHER:  I don't mean a human baby.  I'm

         21         talking about the rule baby.  It will be a grown-up rule

         22         by the time it gets here.  How's that?  Didn't want to

         23         create that vision for sure.  But you have a lot of

         24         interests to work with.  You got a big project going.  I

         25         think it's a very important project and I think it's an

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         opportunity to look at the marketplace and see to it that

          2         we're taking care of that and all the other issues,

          3         especially what Commissioner Bronson said.  So with that,

          4         I will make the motion to move ahead.

          5              THE GOVERNOR:  There's a motion.

          6              COMMISSIONER BRONSON:  Second.

          7              THE GOVERNOR:  There's a second.  I would just like

          8         to add that when this comes back to us from my

          9         perspective, if you've not had an accurate assessment of

         10         where we are today in terms of supply and what the demands

         11         are and if you don't have an accurate assessment of what

         12         the proposed rule will do to change that, then I will

         13         be -- I'd be very concerned.  And so if it means we have

         14         to wait a little bit to get the information, I'd rather

         15         wait a few months to get accurate information than to pass

         16         a law that then has consequences we've not thought through

         17         that would require us to come back and change whatever we

         18         were doing.  So if that guidance helps, that would be

         19         great.

         20              MS. ARMSTRONG:  Yes, sir.  Got it.  Very helpful.

         21              THE GOVERNOR:  Any other discussion?  There's a

         22         motion and a second.  Without objection, the item passes.

         23              MS. ARMSTRONG:  Great.  And on Item 10, which is a

         24         consideration of a request to publish a notice of proposed

         25         rulemaking regarding amendments to Chapter 18-21 that

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         would adjust some fees associated with the usage of

          2         sovereignty submerged lands and clarify certain rule --

          3         current rule provisions, Bud Vielhauer will walk you

          4         through those proposed rule changes.  This will be briefer

          5         and we only have two speakers on this one.

          6              CFO GALLAGHER:  Let me ask a question on this.  I see

          7         one of the things you're doing is to provide a 10 percent

          8         discount to facilities participating in clean marina or

          9         clean boatyard program.

         10              MS. ARMSTRONG:  Yes, sir.

         11              CFO GALLAGHER:  Does that include pumpout stations

         12         and things like that for the clean?

         13              MS. ARMSTRONG:  Yes.  We can have somebody address

         14         clean marina.  But the discount is to encourage more

         15         people to get into the clean marina program.

         16              CFO GALLAGHER:  Okay.  Because what I've seen at

         17         marinas is that -- I mean, almost every marina I see, the

         18         pumpout station isn't working.

         19              MS. ARMSTRONG:  Well, if you're in the clean marina

         20         program, it's supposed to be working.

         21              CFO GALLAGHER:  Well, I don't know whether they're in

         22         the clean marina program or not.  All I know is if they

         23         have a pump place, there's a big sign on it "out of

         24         order".  There's a lot of marinas with that.  I don't know

         25         why but there are.  Just my two cents.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  Yeah, General.

          2              GENERAL CRIST:  Could you just give me a brief

          3         discussion of the fee?

          4              MR. VIELHAUER:  Sure.  I can actually -- part of what

          5         I was going to do is explain our current fee structure,

          6         the way it's set up in the rule calls for people who lease

          7         sovereignty submerged lands from us for commercial marina

          8         operations to pay us under one of two formulas.  And that

          9         is they either pay the greater of a square footage charge

         10         which runs, I think right now, about 13 cents per square

         11         foot or 6 percent of their revenue, whichever is greater.

         12         So that's the way our current fee structure works.

         13              Now after the WCI item, we decided to go back and

         14         take a look at that fee structure and do some workshops to

         15         see if it needed to be tweaked or if there needed to be

         16         anything changed about it and we heard three interesting

         17         comments that came out of it.  The first comments -- or

         18         basically three different sizes.  We heard a number of

         19         people say that they would like to see us completely

         20         eliminate the 6 percent charge and go to a straight square

         21         footage charge.

         22              Then we heard a number of people say that they would

         23         actually like to see an elimination of the square footage

         24         charge and go to a 6 percent charge.  But then what we

         25         found out is that the overwhelming majority of folks

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         thought that there really isn't anything wrong with our

          2         rules so don't fix them.  And I think after going through

          3         this exercise we came to the conclusion that that latter

          4         is probably the more accurate statement.  Our rules really

          5         aren't broke.

          6              While going through this process, we did find out

          7         that there were some glitches in there that we probably

          8         needed to tweak a little bit and tighten up a little bit.

          9         And so basically, that's what this rule is.  It's more of

         10         a glitch rule -- or a glitch fix than anything else.  And

         11         first of all, what we're going to do is redefine the word

         12         "income".

         13              What we've been finding through this process is that

         14         folks have been getting fairly creative when it comes to

         15         the 6 percent charge and how they were calculating what

         16         6 percent of their revenue was.  And they were starting to

         17         come up with saying things like, Well, we're not -- you

         18         know the lease in and of itself that we're giving to

         19         somebody isn't just for the slip, it's for a pool.  And in

         20         one instance, we found out that somebody was actually

         21         saying, Well, we're not actually charging for the slip so

         22         you're not entitled to 6 percent because what we're doing

         23         is selling a parking space for your car out there.  If you

         24         buy a parking space from us, you get a free slip in the

         25         water so we don't owe you anything.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              So we decided to go back and look at the definition

          2         of "income" and fix that, kind of make sure that that's

          3         tightened up better and it covers revenues associated with

          4         the sovereignty submerged lands and tries to prevent

          5         people from being so creative in trying to avoid paying us

          6         our fair share.

          7              The second thing that we did was to go back and

          8         redefine "first come, first serve".  Currently, the way

          9         it's written, it says first come, first serve means first

         10         come, first serve.  It's circular.  So when we saw that we

         11         thought, you know what, I think it's probably something we

         12         need to fix.  We had a number of people that were actually

         13         selling slips for a long-term basis over 25 years saying,

         14         Hey, we just put in this marina.  We decided to sell a

         15         slip.  We're opening it up to the general public, whoever

         16         is the first person to come in, they can buy their slip

         17         for 25 years.  That's open to the public.  We don't have

         18         to pay it.  We should be entitled to the 30 percent

         19         discount for being open to the general public.

         20              So we've tightened that up to say that if somebody is

         21         open to the public on a first-come, first-serve basis

         22         means it's a short-term lease.  Somebody that's leasing

         23         their facility is out for no more than a year.  So that's

         24         to try to tighten up that glitch.

         25              The second, as Treasurer Gallagher just pointed out,

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         is the Clean Marina Program.  One of the incentives to try

          2         to get people into the Clean Marina Program, and what that

          3         is, that's a program that's administered by DEP and it has

          4         a number of specific criteria, very rigid criteria that

          5         you must meet to be able to be part of this program.

          6              If you are able to get a clean marina status and

          7         become part of this Clean Marina Program or Clean Boatyard

          8         Program, we're going to give you an additional 10 percent

          9         discount.  And we are also going to waive a 25 percent or

         10         a lease fee or, excuse me, a lease application charge for

         11         extended term leases.  A lot of people who come to the

         12         Clean Marina Program want to have a longer term lease up

         13         to 25 years.  If they want to do that, we're going to

         14         waive the application fee if they are in the Clean Marina

         15         Program.

         16              But one of the things we did do is tie the Clean

         17         Marina Program to the actual leases and that is if

         18         somebody violates the term of our leases, not only if they

         19         are kicked out of the Clean Marina Program, but if they

         20         violate the term of a lease which isn't tied to the Clean

         21         Marina Program, they will lose that discount.  So if we

         22         have somebody who isn't paying us rent or somebody who is

         23         parking outside of their lease boundaries, they'll lose

         24         that 10 percent discount for the Clean Marina Program.

         25              And, finally, one of the things that came up in WCI

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         that was an amendment by Treasurer Gallagher in the WCI

          2         item was to require additional 6 percent or additional

          3         charge of fees for every subsequent transfer.  So, in

          4         other words, if we issue a lease to a facility owner, he

          5         subleases it, when that sublessee sells that interest,

          6         another 6 percent comes back to the Board of Trustees.  We

          7         have now included that back into the lease as we did in

          8         the WCI item.  So that's what we are doing -- those are

          9         the changes to this lease, our rule.

         10              THE GOVERNOR:  All right.  Do we have speakers?

         11              MS. ARMSTRONG:  Yes. John Sprague and then Sylvia

         12         Alderman, please.

         13              MR. SPRAGUE:  First of all, I'd like to thank staff

         14         for working on this rule with us.  This is not easy, it's

         15         complicated and it has a lot of implications.  We concur

         16         with trying to tighten up the stuff when people are

         17         supposed to pay their 6 percent, they need to.  We do have

         18         still, some concerns on the language that it's capturing

         19         other things that they admit that they don't intend to

         20         capture either.  But it's difficult to come up with that

         21         language to accomplish both tasks in one view.

         22              Clean Marina Program, very good program.  It was

         23         voluntary.  Real tough to get that certification, but we

         24         are trying to get all of our public marinas, boatyards and

         25         whatever in the state of Florida signed up.  We appreciate

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         those incentives.  Helps us to get them, as a business

          2         decision, to join that process.  There is one thing we

          3         would like you to add to that, however.  We do have a

          4         problem with live-aboards around the state of Florida.

          5              THE GOVERNOR:  Call them what?

          6              MR. SPRAGUE:  Live-aboards around the state of

          7         Florida.  It is a major issue.  It has all kinds of

          8         different components.  You presently have a policy or

          9         whatever that says, Live-aboards cannot be on State-owned

         10         waters for any more than six months.

         11              What we would like you to do is add this and remove

         12         it that we bring them into our marinas in the Clean Marina

         13         Program.  Where we have them anchored all over the state

         14         where we can't control whether they're discharging their

         15         garbage and all other issues.  If we bring them into our

         16         marinas we can ensure that environmental compliance.  But

         17         we've got a present -- we have a rule or policy that

         18         blocks this from the one place that we can stop pollution

         19         at.  So we would ask you if you would include that.

         20              Secondly is the extended term lease fees.  If you're

         21         going to waive the fees, I and everybody else are going to

         22         come and apply for an extended term lease.  Think about a

         23         standard 25-year clean marina standard lease.  If you

         24         violate lease positions or leave the Clean Marina Program,

         25         you will revert back to a standard lease and lose it.  We

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         believe that incentive is enough to make sure that

          2         everybody keeps complying because that extended term for

          3         banking reasons and all kinds of reason.

          4              I remember when AG Butterworth, his concern was, How

          5         do I know that you are a good environmental partner to

          6         give you a long-term extended lease.  The Clean Marina

          7         Program is the answer to that.  We recertify every single

          8         year and we can show you as Governor and cabinet, sitting

          9         as trustees that we are good partners and deserve that

         10         25-year extended lease.  That's it.  I appreciate it.  The

         11         staff has been very good.  We're working on this.

         12         Complicated issues.  Thank you.

         13              CFO GALLAGHER:  Let me just mention after that.  I

         14         happen to agree with what he's saying with live-aboards.

         15         If you set it at six months, then what ends up happening

         16         is people anchor out.  They can anchor out whatever they

         17         want.  You've got no control what they are pumping out or

         18         what they are doing.  And we'd be much better off having

         19         them at a marina where we know they're not doing it

         20         because the marina is going to be in charge of making sure

         21         they're not discharging and pumping.  And if you have a

         22         six-month rule what happens is they keep replacing

         23         different people every six months so you still have the

         24         live-aboards there.

         25              So to me, something doesn't make sense in that and I

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         wish you all would try to get to the bottom of it.

          2              MS. ARMSTRONG:  Well, I think we have two problems

          3         here.  One, technically, we're on the fee rule.

          4         Live-aboards are on a different rule that we haven't even

          5         opened up here.  But the bigger issue, and it's one that

          6         the cabinet is going to -- the staff is wrestling with now

          7         because we're not sure what to do, is it's becoming the

          8         alternative for affordable housing.  Big time in the Keys.

          9         We're seeing it in Apalachicola River, but it is

         10         everywhere.  If you use that, use your picture in your

         11         head, it is not a pretty picture if all of a sudden the

         12         affordable housing alternative for Florida is the water.

         13         Imagine what the state would look like if you took John

         14         Cristo's (phonetic) pink islands and you turned it into

         15         house boats.  The Keys would no longer exist the way we

         16         see them today.

         17              So I don't think live-aboards is the answer.  And

         18         we've got to find one.  But today the fee rule is not the

         19         place to put live-aboards.  So --

         20              CFO GALLAGHER:  Well, I mean, I understand that.  But

         21         you can set some rules on what a live-aboard is too.  It

         22         doesn't have to be some kind of shack sitting on a barge.

         23         And if you step right outside of Coconut Grove in Miami,

         24         you will see some of the most derelict things you could

         25         imagine that people are living on.  And, I guess, you

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1         know, a hurricane comes through once in awhile and cleans

          2         them out.  But somebody else ought to be cleaning them out

          3         before the hurricane does.  And I would expect it's

          4         somebody's responsibility.  I don't know whether it's the

          5         City of Miami, or Dade County, or DERM or you guys or who,

          6         but somebody.

          7              MS. ARMSTRONG:  Board of Trustee staff.  Right.

          8         We're going to bring you Card Sound Road as soon as we get

          9         it --

         10              CFO GALLAGHER:  There's another place.  I mean,

         11         there's things that I don't even know how they're floating

         12         and people are living on them --

         13              MS. ARMSTRONG:  In many cases, they aren't.

         14              CFO GALLAGHER:  -- with their dogs.

         15              MS. ARMSTRONG:  Big problem.

         16              CFO GALLAGHER:  I mean, they are living on them with

         17         their dogs and their cats and they row themselves in.

         18         It's crazy.

         19              THE GOVERNOR:  Firmly the foundation is the crud that

         20         comes off the bottom of it.

         21              CFO GALLAGHER:  They're probably sitting on the

         22         bottom for all I know.

         23              MS. ARMSTRONG:  Gave me an opportunity so I thought

         24         I'd open the door just a crack.

         25              CFO GALLAGHER:  Thank you.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              THE GOVERNOR:  All right.  Thank you.

          2              MS. ALDERMAN:  Good morning.  My name is Sylvia

          3         Alderman.  I'm with Ackerman Senterfitt and I'm here

          4         representing MLG Capital LLC and Sunset Harbor Marina,

          5         Incorporated.  And we believe --

          6              THE GOVERNOR:  Where are they from?  Can you tell me

          7         where they are from just so we can --

          8              MS. ALDERMAN:  Jacksonville.

          9              We believe that the State is entitled to its fair

         10         share for the use of sovereignty lands and we agree that

         11         the rule works as was stated earlier.  However, we also

         12         understand that there are a couple of loopholes that you

         13         should want to cover and address.  Unfortunately though,

         14         the attempt to deal with the loopholes has resulted in or

         15         will result in unanticipated and unfair charges to certain

         16         clients.  And so we would request that you give us the

         17         opportunity through rulemaking to discuss an alternative

         18         approach in talking about membership fees and subleases

         19         because you're capturing some things that you don't need

         20         to capture in there and allow us to discuss at prevailing

         21         market rate approach.  Thank you.

         22              THE GOVERNOR:  The rulemaking process allows that to

         23         happen, right?

         24              MS. ARMSTRONG:  Absolutely.  Yes, sir.

         25              THE GOVERNOR:  Okay.  Thank you.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                           BOARD OF TRUSTEES - 10/26/04

          1              MS. ARMSTRONG:  Those are the speakers.

          2              THE GOVERNOR:  Any other discussion?

          3              CFO GALLAGHER:  Move it.

          4              THE GOVERNOR:  There's a motion.

          5              COMMISSIONER BRONSON:  Second.

          6              THE GOVERNOR:  And a second.  Any other discussion?

          7         Without objection, the item passes.

          8              MS. ARMSTRONG:  Thank you, sir.


















                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1              THE GOVERNOR:  State Board of Administration.

          2              CFO GALLAGHER:  Motion on the minutes.

          3              GENERAL CRIST:  Sec.

          4              THE GOVERNOR:  There's a motion and a second.

          5         Without objection, Item 1 passes.

          6              MR. STIPANOVICH:  Thank you, Governor and members.

          7         Item No. 2 is a request for approval of fiscal

          8         determination of amount not exceeding 100 million Florida

          9         Housing Financing Corporation homeowner and mortgage

         10         revenue bonds.

         11              GENERAL CRIST:  Motion on 2.

         12              CFO GALLAGHER:  Second.

         13              THE GOVERNOR:  Moved and seconded.  Without

         14         objection, the item passes.

         15              MR. STIPANOVICH:  Item No. 3 is request for approval

         16         of fiscal determination of amount not exceeding 19,965 tax

         17         exempt Florida Housing Finance Corporation multifamily

         18         mortgage revenue bonds.

         19              THE GOVERNOR:  Is there a motion?

         20              CFO GALLAGHER:  Motion on 3.

         21              GENERAL CRIST:  Second.

         22              THE GOVERNOR:  Moved and seconded.  Without

         23         objection, the item passes.

         24              MR. STIPANOVICH:  Item No. 4 is an item that is

         25         similar to what you do with the pension plans investment

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         policy statement where Tom Wallace, executive director of

          2         the Florida Prepaid Program has two comprehensive

          3         investment plans, the Florida Prepaid College Program,

          4         which is A under Item 4 and B, the Florida College Savings

          5         Program and they are revising those two comprehensive

          6         investment plans and I'm presenting on behalf of Tom

          7         Wallace.  Mr. Nicholson, Bill Nicholson is here to answer

          8         any questions if you have questions.

          9              The proposed changes were recommended by the prepaid

         10         college staff and Watson Wyatt, the national renowned

         11         consultant and the Florida Prepaid College Board approved

         12         the investment advisor which is part of the process.  And

         13         on October 5th of 2004 the State Board of Administration

         14         investment staff has reviewed the recommendations and

         15         supports the changes.  I'll be happy to answer any

         16         questions.

         17              CFO GALLAGHER:  Motion on 4.

         18              GENERAL CRIST:  Second.

         19              THE GOVERNOR:  Moved and seconded.  Without

         20         objection, the item passes.

         21              MR. STIPANOVICH:  Thank you, Governor.

         22              Item No. 5 is a good cause item the treasurer asked

         23         to be put on the agenda.  It's a conceptual proposal that

         24         addresses the concerns that many of you would have

         25         regarding the deductible for policyholders and the

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         Catastrophe Fund might play a role in that.  And we have

          2         this on the agenda item for discussion only and would be

          3         happy to answer any questions.  I have Dr. Nicholson with

          4         me from the Cat Fund.

          5              THE GOVERNOR:  Maybe -- would it make sense,

          6         Treasurer, that we get a quick review of what the Cat Fund

          7         looks like these days after getting hit by four storms.

          8              CFO GALLAGHER:  I think that would be a very good

          9         thing if Dr. Nicholson could give us that.  He probably

         10         has that right in his head.

         11              THE GOVERNOR:  Good afternoon.

         12              DR. NICHOLSON:  Good afternoon.  Can --

         13              THE GOVERNOR:  Move it just a little bit, if you

         14         could.

         15              DR. NICHOLSON:  This is an update of the four storms

         16         this season.  And I've got several numbers here but I'd

         17         like to clarify what they are.  The first numbers on

         18         Hurricane Charley, the 6 billion was the modeled estimated

         19         loss from all the models that we used.  So the first

         20         number you see there for each of the hurricanes is an

         21         average of the modeled losses.

         22              The second number, the 4.9 billion for Hurricane

         23         Charley, is the number that the companies have reported to

         24         us in their preliminary claim -- their loss reports for

         25         the residential loss in Florida.  So these are all Florida

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         residential losses.  They are not total insured losses.

          2         The slash then after Charley, the 1.4 billion is what we

          3         would expect the Cat Fund to pay for Hurricane Charley

          4         claims.

          5              THE GOVERNOR:  Now, the difference between the 6

          6         billion and the 4.9 is it's still work in progress or are

          7         those models incorrect?

          8              DR. NICHOLSON:  Yeah, I wouldn't want to say the

          9         models are necessarily incorrect because we're not going

         10         to know until the end of the day what the actual ultimate

         11         losses are going to be.  And the 4.9 actually includes

         12         some model losses itself because we got those reports from

         13         companies.  One company may be using the RMS model, one

         14         might be using the EPICAT model.  One may be using --

         15              CFO GALLAGHER:  What the difference is, correct me if

         16         I'm wrong, 6 billion models that the Cat Fund staff came

         17         up with based on the average.  The 4.9 billion is what the

         18         companies have with real losses and with their modeling

         19         think they are going to have and the 1.4 is the amount

         20         after you take the 4.5 out there is 1.4 left that the Cat

         21         Fund is probably going to have to pay.

         22              DR. NICHOLSON:  Right.

         23              THE GOVERNOR:  So there is a big difference --

         24         there's a $1.1 billion difference between the model and

         25         the actual.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1              CFO GALLAGHER:  That's the guesstimate.

          2              DR. NICHOLSON:  Yeah, and this is a work in progress.

          3         We're one-fifth of the way through this hurricane in terms

          4         of paying claims.  And that holds for the industry as well

          5         as the Cat Fund.

          6               THE GOVERNOR:  The other hurricanes look a little

          7         closer except for Jeanne which has still got a long way to

          8         go.

          9              DR. NICHOLSON:  Jeanne, two of the models are really

         10         high on that.  One of the models is a little lower.  So I

         11         think that accounts for that high number.  But I think

         12         in -- when you add up the total hit to the Cat Fund on all

         13         these hurricanes, it's greater than what we'll have to pay

         14         because what happens is that some of the companies will

         15         cap out their losses in an earlier storm.  Their limited

         16         on how much they can get out of the Cat Fund.  So that

         17         number is estimated to be about $2 billion.  That's a

         18         reduction of the 3 billion that we were talking about

         19         earlier, Treasurer Gallagher.  Because this is actually

         20         some reports we received last Friday and have just

         21         compiled.  They're reports from insurance companies.

         22              CFO GALLAGHER:  So I see you reestimated down a

         23         billion.

         24              DR. NICHOLSON:  Right.

         25              So the total losses, and this is total residential,

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         14.5 billion, it's a model number.  The 11.4 billion is

          2         what we're getting from the insurance companies.  That may

          3         or may not be a model number but that's the raw report

          4         from the insurance companies that we're getting.

          5              CFO GALLAGHER:  Now for whatever it's worth, in

          6         Hurricane Andrew, the insurance companies kept lowballing

          7         time after time until it finally got up to the $16

          8         billion.  I think because of the models -- and I'm not

          9         saying they did it on purpose.  But, you know, they just

         10         kept hoping it was better than it was.  With the modeling

         11         now, and if they use a pure model, it looks like they are

         12         overestimating from the small amount of experience we've

         13         had which I think will be a better outcome.  I'd rather

         14         see them over and make sure they have enough money and

         15         then it be less and have them underestimate and find out

         16         we take 12 of them into receivership which is what we had

         17         to do in Hurricane Andrew.  So all in all, I think we're

         18         probably closer to estimates than we were back then.

         19              DR. NICHOLSON:  I have another --

         20              THE GOVERNOR:  But the Cat Fund over the weekend

         21         saved a billion dollars.

         22              CFO GALLAGHER:  They can go up a billion too.  Don't

         23         be spending that, Governor.  We got another season coming.

         24         Actually, we're not finished with this one.

         25              DR. NICHOLSON:  This slide illustrates of the 232

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         companies participating in the Cat Fund that signed

          2         contracts on June 1, 225 that have reported to us.  Seven

          3         have not reported.  That may be because some of those are

          4         petitioning to get out of the Cat Fund.  They don't have

          5         exposure or whatever.  At any rate, of those of 225, 191

          6         have had losses and about 34 have not had losses, 33 or

          7         34.

          8              THE GOVERNOR:  How could you not have a loss this

          9         year just out of curiosity?  Not a single --

         10              DR. NICHOLSON:  You got to understand.  Some of these

         11         companies don't write a lot of business.  They have a very

         12         small Cat Fund premium.  They may write accommodation

         13         business.  They're mainly in the commercial lines area but

         14         they'll write the chief executive's home in Duval County

         15         or something maybe didn't have a loss.

         16              CFO GALLAGHER:  Sitting in Dade County or something.

         17              DR. NICHOLSON:  These are very small companies in

         18         terms of the Cat Fund premium.

         19              CFO GALLAGHER:  And the premium would be very small.

         20              DR. NICHOLSON:  The next column shows that of the

         21         companies that had losses, 191, 123 triggered the Cat Fund

         22         and about 102 did not trigger the Cat Fund.

         23              CFO GALLAGHER:  These are companies.

         24              DR. NICHOLSON:  Companies.

         25              THE GOVERNOR:  Do you have a copy of this for us

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         afterwards so I can --

          2              DR. NICHOLSON:  Yeah, I wasn't sure you were going to

          3         ask me but I'll give you a copy of all this.

          4              And in the last column it shows of those that

          5         triggered the Cat Fund coverage how many exhausted their

          6         limit and there's 44 that exhausted the limit under all

          7         storms and 48 that did not exhaust their limit.

          8              CFO GALLAGHER:  How about explaining an exhausted

          9         limit to us.

         10              DR. NICHOLSON:  Each company has a certain amount of

         11         coverage provided in the Cat Fund.  That coverage is

         12         defined by a retention or a deductible, if you will.  And

         13         it's basically their share of a $4.5 billion industry

         14         deductible.  So whatever premium they pay, it's basically

         15         allocated or prorated based on the premium.

         16              THE GOVERNOR:  Shouldn't the 44 and 48 be equal to

         17         the 123 or not?  I mean, why is that number smaller than

         18         the triggered?  Did I misunderstanding that?

         19              DR. NICHOLSON:  It may be a math error on my part.

         20         I'll check that.

         21              THE GOVERNOR:  Should it be?

         22              DR. NICHOLSON:  It should be.  Exactly.  It should be

         23         123 and I apologize for that.  I messed up really big

         24         there.  I think it's the 44 subtracted from the 123 that

         25         should be the number instead of the 48 and 9 exhausting.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         It should be a bigger number there.

          2              CFO GALLAGHER:  Sixty something.

          3              THE GOVERNOR:  So you think only 44 will access cash

          4         from the Cat Fund?

          5              DR. NICHOLSON:  No.  There's 123 that will access

          6         cash but only --

          7              THE GOVERNOR:  I'm sorry, only 44 will get to

          8         whatever their preestablished total amount --

          9              DR. NICHOLSON:  Their maximum amount, right.

         10              THE GOVERNOR:  The rest of them were creeping up.

         11              DR. NICHOLSON:  Right.  And they could have done that

         12         under Hurricane Charley, for example.  I have numbers for

         13         Charley and so forth.

         14              CFO GALLAGHER:  When you say "nonexhaustive" what you

         15         really mean is they have not applied for the amount that

         16         they are limited to?

         17              DR. NICHOLSON:  Right.

         18              CFO GALLAGHER:  Does that mean because they can't or

         19         they haven't yet?

         20              DR. NICHOLSON:  They haven't yet.

         21              CFO GALLAGHER:  But they will?

         22              DR. NICHOLSON:  They probably won't in terms of the

         23         reports they've given us and what their losses are.  They

         24         probably won't trigger the Cat Fund based on their own

         25         estimates.  Excuse me, they probably won't exhaust the Cat

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         Fund based on their estimate.  They will trigger the Cat

          2         Fund.

          3              CFO GALLAGHER:  They just won't go to the max because

          4         they had smaller losses in the particular areas hit than

          5         the industry had?

          6              DR. NICHOLSON:  Right.  Right.

          7              THE GOVERNOR:  So it's the actual -- the reason

          8         why -- the Cat Fund is not accessed globally so therefore

          9         the amount going out would be less than the cumulative, if

         10         you look at it from a cumulative amount.

         11              DR. NICHOLSON:  Yeah.  What I was explaining earlier.

         12         The retention of the deductible is basically an allocation

         13         of that 4.5 billion.  So there is a deductible every

         14         company has to absorb for each storm.  It's a per event

         15         deductible.  But the overall coverage is their share --

         16         each company's share of the 15 billion capacity.  So it's

         17         that 15 billion capacity that 44 -- their share of that

         18         pie -- I always explain it like we have a pizza here and

         19         we all had a certain share of that pizza -- that's all we

         20         get to eat.  Forty-four of those companies have eaten

         21         their piece basically and they get no more.  And that's

         22         for the entire season, how that's explained.

         23              CFO GALLAGHER:  What do you mean entire season?

         24         That's by per storm.  The 15 billion is by season?

         25              DR. NICHOLSON:  By season, right.  It's a multiple of

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         24 times --

          2              CFO GALLAGHER:  And that's what we need to look at in

          3         order to figure out how we have a by season but also

          4         change what the by storm is for --

          5              DR. NICHOLSON:  Well, you can't change the by season

          6         without increasing the capacity of the Cat Fund because

          7         it's a fixed capacity.  So that is basically allocated to

          8         each company for that season.  And then once it's gone,

          9         it's gone.  But that's what private reinsurance is for, to

         10         fill in the gaps and coordinate.

         11              CFO GALLAGHER:  Right.  Then how would we change the

         12         retention on a per storm basis?  We can do that without

         13         changing the per season gross?

         14              DR. NICHOLSON:  Right.  And this is something that

         15         you and I talked about and it's been mentioned.  The

         16         problem, just like with multiple homeowners deductibles,

         17         insurance companies have multiple Cat Fund deductibles.

         18         And one of the things that we can do, it would take

         19         legislation to do this, is to limit after so many storms

         20         the amount of deductible or retention they pay.  One of

         21         the ideas that was suggested is in order of fairness and

         22         so the order of storms will not complicate things is to

         23         apply two full retentions or two full deductibles to the

         24         highest storm events for each insurer.

         25              And then for the third and fourth and so forth, to

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         drop that to about a quarter or a third or something like

          2         that so that those retentions are easier to meet and

          3         therefore we'd be paying more out for claims.  And the

          4         probability of four events is very small anyway.  So that

          5         would not affect the calendar --

          6              CFO GALLAGHER:  Unless you're Governor Bush and then

          7         you get to have them all.

          8              DR. NICHOLSON:  It does happen.

          9              CFO GALLAGHER:  Okay.  And one of the things I think

         10         we should do at one of these meetings, I don't know when,

         11         when you get a chance to get us all educated, is to make a

         12         recommendation for the Legislature.  And one of the

         13         issues, and correct me if I'm wrong, but I want my

         14         colleagues to at least understand where I'm coming from on

         15         this is that reinsurance for companies is negotiated for

         16         the year in January.  And most of those treaties have a

         17         replenishment, second storm, what do we call that?

         18              DR. NICHOLSON:  Restatement.

         19              CFO GALLAGHER:  Restatement.  So if a company is

         20         buying reinsurance for the first four and a half billion

         21         dollars and they pay $100 million in premium, or let's say

         22         they are buying $100 million worth of coverage and they

         23         are paying $10 million for premium and they have a $50

         24         million loss, they can reinstate by paying $5 million and

         25         get back to $100 million in coverage for the next storm.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         But they don't really get that for a third one.  There is

          2         no third bite.

          3              So if we're going to make sure that the companies

          4         pass on to their policyholders by law that they can't hit

          5         them with a triple deductible in one season, they would

          6         hit them with a percentage deductible for a storm and

          7         maybe a fixed thousand-dollar max from a second and third

          8         storm, we wouldn't have the Cat Fund match the reinsurance

          9         they are buying by saying first storm, like you said X

         10         number of dollars, 3 billion or something like that.

         11              Second storm, 3 billion and then drop to 750 million

         12         after that.  That's something that we should do prior to

         13         the negotiations in January, whatever that would be if we

         14         could get the Legislature to do that so that the companies

         15         aren't paying twice for -- in other words, they wouldn't

         16         negotiate a contract in January and then let's say if

         17         session comes up and they have to renegotiate that.  And

         18         usually when you're forced to renegotiate, you get shorted

         19         on the short end of the stick.  So I think there's two

         20         issues that I would be interested in seeing pushed

         21         forward.  One would be a choice by someone what their

         22         deductible is.  One, two, three, four, 5 percent.  And a

         23         small second third storm deductible, $500,000.  Because I

         24         do think they need skin in the game.  That would be one

         25         side of it.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1              And the other side would be that we would set up our

          2         reinsurance State fund to match what's available out in

          3         the private marketplace.  And those two things, I think,

          4         would be important for us to ask the Legislature to look

          5         at in a special session that would come because I think

          6         they are timely and the planning and the renewal of

          7         policies in order to get -- you know, it takes a year to

          8         get these policies all changed for people for the next

          9         season.  And the sooner you start changing, the better off

         10         everybody is.

         11              THE GOVERNOR:  What you're suggesting maybe I

         12         misunderstood.  There was a -- included in that is also

         13         the elimination of the single-event deductible --

         14              CFO GALLAGHER:  Multiple.

         15              THE GOVERNOR:  That you would go -- it would be per

         16         season.  Individuals would buy insurance per season.

         17              CFO GALLAGHER:  Right.

         18              THE GOVERNOR:  Or per --

         19              CFO GALLAGHER:  Per season.  I think you do it -- you

         20         get one deductible.  You pick 1 to 5 percent.  You get a

         21         5 percent deductible.  And then if there's another storm

         22         coming then you're down to a thousand dollars and then

         23         next one a thousand dollars and you'd have still some skin

         24         in the game.  But you wouldn't be -- and we've seen people

         25         hit with two 15,000-dollar deductibles.  And now they're

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         sitting with $30,000 which they can't get their hands on

          2         and that's the issue here.  Nor did they have a choice of

          3         what they bought.  They were sort of forced by the law and

          4         what the companies interpreted that law to be and that's

          5         the way it was.  And then there's a whole bunch of people

          6         saying, Well, I didn't know I was getting that and, My

          7         agent didn't tell me, et cetera.

          8              If they have to actually sign and say, I am buying a

          9         1 percent deductible, I am buying a 5 percent deductible,

         10         there is no, I didn't know.  They made that decision.  And

         11         I think that's the kind of thing we ought to make

         12         available to the citizens of Florida and let them make

         13         that choice for a season.  And then the smaller annual

         14         deductible.

         15              THE GOVERNOR:  Can you -- based on -- I agree with

         16         the treasurer on the concept.  Can you develop some

         17         suggestions that we could submit?  I mean, we could do it

         18         individually or we could do it as the state board.  First

         19         of all, the one question I had, there's been some

         20         confusion about what does the State Board of

         21         Administration have in its own authority to do and what

         22         is -- what requires statute change?  You may need to

         23         answer that first.

         24              DR. NICHOLSON:  We've got a couple of lawyers here

         25         that can help me out with that.  But let me go ahead and

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         try to address that first.  I think, first of all, as the

          2         State Board of Administration, you have a trustee duty to

          3         the Cat Fund and to a trust fund, that is to manage it in

          4         a way that was contemplated by the law within the statutes

          5         and so forth.  So there's a limitation, I would think, and

          6         certainly on how you use the money because it's specified

          7         in the law how the money can be used, enumerated how it

          8         can be used.  And there's certain requirements, for

          9         example, you must charge an actuarially, an annual

         10         actuarially indicated premium.  So that is a requirement

         11         in the law.

         12              CFO GALLAGHER:  As provided by a consultant.

         13              THE GOVERNOR:  Which we do every year.

         14              DR. NICHOLSON:  Which you do every year.  So those

         15         limitations, I think, and it's basically from a trustee

         16         standpoint, of us giving you advice.  Basically our advice

         17         is always going to be pointed in that direction.  You'd

         18         have other hats that might broaden the scope of what you

         19         want to do.  But I think our advice to you would have to

         20         be limited.  You want more from the attorneys on that

         21         or --

         22              THE GOVERNOR:  Yeah, I would.  Because there's a

         23         little friction here on the --

         24              CFO GALLAGHER:  Well, my friction is slowing down a

         25         lot unfortunately.  I've done some research with some of

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         our lawyers just to see how far we can go and without

          2         having a great big bloody court battle.  I think there are

          3         some things we can ask the Legislature to do but there's

          4         probably a limit to what we could do and maybe should.

          5              THE GOVERNOR:  There may be practical things.  I

          6         think the Legislature should be fully engaged in these

          7         things out of -- it was a big deal.  This event impacts a

          8         lot of their constituents.  I think it's important to have

          9         them there.  But, having said that, I'd kind of like to

         10         know what authority we have to act in case they don't.

         11              CFO GALLAGHER:  Yes, sir.

         12              MS. ALLEN:  My name is Tracy Allen.  I'm the attorney

         13         for the Florida Hurricane Catastrophe Fund.  I don't know

         14         the parameters of the authority.  I do know Paragraphs 3,

         15         4, and 5 of 215.555 --

         16              THE GOVERNOR:  Whoa.  What is that in English?  Is

         17         that the law?

         18              MS. ALLEN:  This is our governing statute.  We have

         19         one statute that governs the Florida Hurricane Catastrophe

         20         Fund.

         21              THE GOVERNOR:  Thank you.

         22              MS. ALLEN:  And it does provide some limitations, as

         23         Jack said.  Paragraph 3 says that money in the fund cannot

         24         be expended, loaned or appropriated except to pay

         25         obligations under our reimbursement contracts.  The

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         mitigation provided for in the statute, the revenues, debt

          2         service on revenue bonds and reinsurance and

          3         administrative costs of the fund.  So if we took money out

          4         of the fund, there is some statutory problems.

          5              In addition, as Jack mentioned, if you take money out

          6         of the fund, we've got this problem with the actuarially

          7         indicated annual premium.  That would also -- I mean,

          8         that's as an aside.  It wouldn't cause us IRS problems but

          9         it does cause the insurers IRS problems.  We worked with

         10         several insurers that were being audited by the IRS and

         11         they were basing the disallowance of their deduction for

         12         the Cat Fund premium.  The IRS felt it might not be

         13         actuarially indicated.  I have a tax degree and I worked

         14         in the -- I was a litigator in the tax division of the

         15         justice department and I worked with our actuary in these

         16         -- the actuary for the IRS in Boston and showed them that

         17         this is an actuarially indicated premium.  That each year,

         18         we figure our premiums based upon the services we're

         19         providing just like any other reinsurer.  So that issue

         20         has gone away for all these participating insurers.  So

         21         that doesn't affect the Cat Fund but that's just something

         22         to keep in mind when you work with actuarially indicated

         23         premiums.

         24              The other issue is if you alter the premiums that

         25         they pay, by statute, you're altering the amount of payout

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         they get because it's based on the premiums paid.  So if

          2         you're reducing the amount of premiums paid, you're

          3         reducing their payout.  So these are just some limitations

          4         to keep in mind.  That without legislative change, it

          5         makes it difficult to accomplish what I understand your

          6         objective is.  But with legislation, we still have to be

          7         really careful so that we do something good for the

          8         insurers and the policyholders and not inadvertently cause

          9         IRS problems or anything else.  It's not going to cause

         10         IRS problems for the Cat Fund but I mean for the insurers.

         11              CFO GALLAGHER:  Well, I was looking to do the exact

         12         opposite of that and that would be reduce a premium

         13         obligation to increase payout which that would do back to

         14         the consumer.  So that we could -- I mean, my goal is to

         15         eliminate the payment out of double deductibles.  Now,

         16         we're doing a pretty good job at the Division of Consumer

         17         Services with strong cooperation from the Office of

         18         Insurance Regulation on an individual basis -- just so

         19         you-all know this.  When, in fact -- there's a few things

         20         working into this dynamics.  When you have two storms and

         21         one neighbor gets hit -- they both get hit with two storms

         22         and one had an adjuster go by and the other one didn't.

         23         And because the adjuster went by one, then he writes down

         24         two storms and gives the person two deductibles and the

         25         other person didn't have an adjuster come by.  Not that he

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         didn't want one, they just didn't come.  Now they had two

          2         storms and he's got one and he's got one deductible.  Now

          3         there's something wrong in the marketplace with that and I

          4         think there's --

          5              THE GOVERNOR:  We met the exact circumstance

          6         yesterday in Stuart.  And --

          7              CFO GALLAGHER:  I think that's a market problem that

          8         companies could be punished for -- I mean, they are not

          9         treating everybody fairly.  They can say they didn't know

         10         but --

         11              THE GOVERNOR:  Well, here's a case this morning when

         12         we started the discussion this morning on insurance, we

         13         were urging the adjusters to get out quickly.  Now, at

         14         noon we're saying if the adjusters didn't come out it's

         15         unfair because --

         16              CFO GALLAGHER:  When they did it was unfair.

         17              THE GOVERNOR:  When they did it was unfair and it's

         18         true.  How do you know -- you-all have a duty to -- you

         19         work for the Fund and the Fund is -- there are statutory

         20         requirements to make sure it's solvent and we're the

         21         fiduciaries and all that.  But we also have an obligation,

         22         I think, to the people that eventually are supposed to be

         23         benefitting from the Cat Fund.

         24              And I went around when the Cat Fund was created.  But

         25         I don't think there was any discussion, you know, in 2004

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         when four storms hit us and there are places where you

          2         have three events, we need to factor that into the

          3         legislation when it was passed.

          4              CFO GALLAGHER:  It was never considered.  And the

          5         truth of the matter is, I wasn't around in '96 when they

          6         allowed 5 percent deductibles either.  And I guarantee you

          7         nobody was thinking three storms and what it was going to

          8         do to the individuals.  Now maybe some insurance companies

          9         figured that and said, Boy, this is wonderful, we'll never

         10         have to worry about it.  But I can tell you, the

         11         legislators weren't told, By the way, this could happen,

         12         guys.  Three storms are going to hit.  A guy is going to

         13         get, 45-, $60,000 deductible and an impossible situation

         14         where he can't even get the mortgage to pay.  He can get a

         15         higher mortgage or a new mortgage.

         16              THE GOVERNOR:  Hindsight is easy.  I mean, I can see

         17         why they wouldn't have thought it.

         18              CFO GALLAGHER:  Well, it's not supposed to happen.

         19              THE GOVERNOR:  I'm still scratching my head wondering

         20         how it happened.

         21              But in any case, we, I guess, my request is that you

         22         develop some recommended strategies to deal with this

         23         multi-event problem that consumers have, that individuals

         24         have that was not anticipated, give us the best possible

         25         solutions, there may be more than one, so as not to create

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         a problem with our fiduciary responsibilities regarding

          2         the Cat Fund.

          3              CFO GALLAGHER:  Which I think you mean would include

          4         what we could or couldn't do but also what statutory

          5         changes we should recommend.

          6              THE GOVERNOR:  Yeah.  I'm assuming that it will

          7         require statutory change.

          8              CFO GALLAGHER:  I am convinced of that now although I

          9         tried to get around that.

         10              THE GOVERNOR:  Well, and even if it didn't, I think

         11         it's the right thing to do because this, again, is such a

         12         big deal it's important to have the Legislature involved.

         13         So going forward any recommendations to deal with

         14         uniqueness of what we've experienced is certainly part --

         15         and your suggestions, I think, at least from my

         16         perspective, are right on target there.  And then dealing

         17         with the aftereffect, after-the-fact problem.

         18              Now, as I understand it, there are probably a couple

         19         of ways to deal with this through the Cat Fund and there's

         20         certainly a way to deal with it directly through the

         21         Legislature which is to just write a check out of the

         22         treasury.  The problems I have with that is that we don't

         23         know how much money that is yet and any help that you can

         24         provide in that regard would be very helpful in the next

         25         few weeks.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1              And, secondly, it may reward -- or may penalize the

          2         good behavior that insurance companies, as I understand

          3         it, many insurance companies have voluntarily not applied

          4         the double deductible or triple deductible, they've

          5         considered this one event.  So you don't want to reward

          6         their good behavior, if you will, or penalize their good

          7         behavior.  So there has to be some recognition of that.

          8              CFO GALLAGHER:  Well, in regard to the discussion we

          9         had earlier about transparency, it would be my goal as we

         10         work through these issues of double and multiple

         11         deductibles on an individual basis with the companies and

         12         we end up with certain companies that choose to treat

         13         different customers different ways based on when an

         14         adjuster got there.  That's a market conduct issue in my

         15         opinion.  And maybe we should discuss who they are and

         16         what they're doing.  And if they'd like, they can come in

         17         here and explain why they're doing what they're doing.

         18              But I think there's some public knowledge that needs

         19         to go on these as we move forward and let people know in

         20         our opinion these companies did not take care of their

         21         customers in a fair manner.  They took care of some like

         22         this and some like this.  And I think that's an issue that

         23         can cause lawsuits and it may be one that we have to bring

         24         instead of letting somebody else do it for whatever that's

         25         worth.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1              THE GOVERNOR:  General, do you have any comments?

          2              GENERAL CRIST:  I think you're on the right track.

          3              THE GOVERNOR:  Any other?

          4              DR. NICHOLSON:  That last chart here shows what we

          5         paid.

          6              THE GOVERNOR:  Can you put the title of that chart

          7         down so I can see what it says?

          8              CFO GALLAGHER:  Cumulative weekly reimbursements.

          9              THE GOVERNOR:  Can you now expand it back so I can

         10         see it again?

         11              CFO GALLAGHER:  So what those are are September 23rd,

         12         30th, October 7th, 14th, and 21st.

         13              THE GOVERNOR:  Oh, those are the dates down there.

         14              CFO GALLAGHER:  And now a little bit so I can read

         15         what the colors mean.  Net advances, reimbursements and a

         16         total.  Okay.  So you've done some advances to companies.

         17         Reimbursement and total amount out on a weekly basis.  So

         18         you're getting money out to the insured, the insurance

         19         company, so they can keep paying their claims.

         20              DR. NICHOLSON:  But within one week of submitting

         21         loss reimbursement or in advance, we've been able to turn

         22         it around and get money to --

         23              THE GOVERNOR:  Jack, before we finish, there's one

         24         other question that I had, which is as it relates to the

         25         underwriting criteria of the Cat Fund, there is a

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         $10 million amount that comes out of the Cat Fund every

          2         year for a bunch of things, tie-downs, research, shelters,

          3         mitigation across the spectrum.  And then there is -- but

          4         you also underwrite an additional 10 million even though

          5         it's not taken out of the fund?  You factor that in when

          6         you create the --

          7              DR. NICHOLSON:  Let me explain.  There is a minimum

          8         that has to come out of 10 million to meet our IRS

          9         responsibilities to be a tax exempt trust fund.  They want

         10         10 million to come out.  That money is allocated already

         11         to DCA who then breaks it down on what they use it for.

         12         But the Legislature can also appropriate 35 percent of our

         13         investment income, our total investment income for any

         14         other mitigation projects.  And the amount of money that

         15         we earned as of June 30th last year was $58 million.

         16         We're earning like 1.7 percent because this is a very --

         17         highly liquid assets that we have.  1.7 percent,

         18         $58 million, 38 percent -- 35 percent of that is about

         19         $20,420,000.  So 10 is already gone so that leaves another

         20         10.  I think that's the 10 you're referring to.

         21              THE GOVERNOR:  Right.

         22              DR. NICHOLSON:  But that can only be mitigation.

         23              THE GOVERNOR:  And we've not -- except in one case

         24         when the Cat Fund generously allowed for the flooding

         25         issues in Sweetwater and west Miami to be taken care of.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         That money has been -- even though it's factored, you

          2         assume that that money will be spent on mitigation of some

          3         kind in terms of how you set the rates.  It hasn't been

          4         spent until --

          5              DR. NICHOLSON:  We assume that the 10 million is

          6         going to come out automatically every year.

          7              THE GOVERNOR:  I understand.

          8              DR. NICHOLSON:  The rest of it, we're actually

          9         discounting our rates.  So that's what happens.

         10              CFO GALLAGHER:  But what does -- what could happen

         11         here is -- I personally have been a strong advocate of not

         12         spending any more than that 10 million and I'm probably an

         13         advocate at this point to spend the 10 million somewhere

         14         else, I'll just let you know that.  I don't think it

         15         matters to you where it goes, you know it's gone.  That is

         16         something I think that should be discussed where that

         17         should go and there's some different ideas people have.

         18              And maybe even add the other ten to it and help with

         19         affordable housing, help with people to fix their homes,

         20         individual homes better, maybe set up something over at

         21         the Florida Housing Agency, something like that, to get

         22         people low cost loans and those kinds of things should be

         23         looked at.

         24              THE GOVERNOR:  Well, I'm going to ask the secretary

         25         of the Department of Community Affairs to give us, if

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         you-all are interested -- give you-all a briefing as well.

          2         But I'm going to get a briefing on the efficacy of the

          3         existing programs, some of which I think have worked

          4         quite -- expanding shelter space was important.  That's

          5         part of this.  Tie-downs for mobile homes, it's incredibly

          6         expensive.  You take the number of mobile homes that have

          7         been tied down compared to how much has been spent.  That

          8         review will be done in the next few weeks.  And then I

          9         guess if you-all could give us some sense if you did

         10         spend -- take out the extra 10 million, what impact would

         11         that have on rates, it would be helpful for me at least.

         12              CFO GALLAGHER:  Now, the other thing is, I think,

         13         Jack, you're going to have to work on, there is quite a

         14         savings available to be passed on to our customers to

         15         counter whatever, you know, annual increases would

         16         normally come in if we lower the retention somewhat.  I

         17         can start at 3 billion and other people might want to say

         18         it's three and a half or whatever.  And use that in order

         19         to really guarantee -- and at the same time, make sure we

         20         don't have the multiple deductibles and that's sort of

         21         where I'm coming from on that.  And that ends up costing

         22         less money for the insureds.  And so it might be good to

         23         know how much, a little comparison, buying in the private

         24         market compared to buying it in the Cat Fund.  If you

         25         could give us those numbers.

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1              THE GOVERNOR:  In fact, it would be very helpful to

          2         have that information because there is some concerns about

          3         the concept and I don't necessarily have a position on it

          4         because I don't quite understand what the consequences

          5         are.  If we do lower the retention, there could be -- puts

          6         us vulnerable for significant exposure.  On the other

          7         hand, I have no clue what the insurance rates are going to

          8         be for property owners coming up.  I assume --

          9              CFO GALLAGHER:  I don't know.  But I can tell you

         10         after disasters, two things happen.  The price goes up for

         11         reinsurance around the world and it does it because they

         12         attract capital and promise 30 percent returns to people

         13         which means they have to charge a lot of money for it.

         14         And until the market levels out and they realize they're

         15         only going to get about a 15 percent return, there's

         16         plenty of money available but it's very expensive.  And we

         17         can counter that for our citizens by having a bit of a

         18         lower retention.

         19              THE GOVERNOR:  But you could --

         20              CFO GALLAGHER:  But we need some numbers to look at.

         21              THE GOVERNOR:  Could you give us different scenarios

         22         to show how that would change?

         23              DR. NICHOLSON:  Yeah.  I mean, and I've done this.

         24         In the legislative session we looked at it and we looked

         25         at some numbers recently.  The Cat Fund premium itself

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         would go up by about 30 percent, if it went from 4.5 to 3

          2         billion.  Now if it's offsetting private reinsurance at

          3         that level, I think that depends on how you look at it.  I

          4         mean, some companies look at it maybe as a benefit, others

          5         don't.  So the school is out mixed on that.  But the cost

          6         of private reinsurance below the Cat Fund is very

          7         expensive.  It's probably about six times the cost of the

          8         Cat Fund on average.

          9              CFO GALLAGHER:  So what he's basically saying is

         10         there is a cost of about $300 million to the industry in

         11         premium.  And there would be a cost of 18 -- 108 -- no 18

         12         million.

         13              THE GOVERNOR:  1.8 billion?

         14              CFO GALLAGHER:  1.8 billion in the private industry.

         15         I think you're right, 300 million six times, 1.8 billion.

         16         So there's a huge amount of savings that would be

         17         available.  Now there are some companies that are very

         18         large that would -- well, they insure -- they're parent

         19         because they made all little pups.  They're parent

         20         reinsurers and they pay the money to their parent for that

         21         reinsurance.  So they'd want to keep the money in the

         22         companies as opposed to having to go into the Cat Fund.

         23         But that's their choice.  They can put it in the Cat Fund

         24         too if they want.

         25              Actually, they have to put it in the Cat Fund instead

                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04

          1         of the parent if we change the retention, wouldn't they?

          2              DR. NICHOLSON:  Right.

          3              CFO GALLAGHER:  Which makes the Cat Fund bigger and

          4         stronger.  Anyway, those are issues that I think we should

          5         learn about because I think it's necessary for us to

          6         understand them and advocate something somewhere along

          7         that line to the Legislature.  And if we're going to

          8         change it, we should advocate it for the special session.

          9              THE GOVERNOR:  And if you could get this information

         10         to us, we would -- within the next few weeks, it would be

         11         great.

         12              DR. NICHOLSON:  We'll do that.

         13              THE GOVERNOR:  All right.  Thank you.  Thanks for the

         14         discussion.

         15              (Thereupon, the proceedings adjourned at 12:40 p.m.)











                                   ACCURATE STENOTYPE REPORTERS, INC.

                     STATE BOARD OF ADMINISTRATION - 10/26/04


          2                        CERTIFICATE OF REPORTER


          4    STATE OF FLORIDA    )

          5    COUNTY OF LEON      )


          7              I, KRISTEN L. BENTLEY, Court Reporter, certify that

          8    the foregoing proceedings were taken before me at the time and

          9    place therein designated; that my shorthand notes were

         10    thereafter translated under my supervision; and the foregoing

         11    pages numbered 1 through 160 are a true and correct record of

         12    the aforesaid proceedings.


         14              I further certify that I am not a relative, employee,

         15    attorney or counsel of any of the parties, nor am I a relative

         16    or employee of any of the parties' attorney or counsel

         17    connected with the action, nor am I financially interested in

         18    the action.

         19              DATED this 11th day of November, 2004.

         20                              ______________________________

         21                             KRISTEN L. BENTLEY, Court Reporter
                                        Notary Public
         22                             850-878-2221




                                   ACCURATE STENOTYPE REPORTERS, INC.