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FLORIDA CHIEF FINANCIAL OFFICER ALEX SINK'S WEEKLY NEWSLETTER

Volume 4, Number 50, December 14, 2007

Fellow Floridian:

During this holiday season, Florida Chief Financial Officer and State Fire Marshal Alex Sink is urging consumers to be cautious when using holiday lights and candles. Did you know the number of candle fires doubles during the holiday season?  In fact, candles alone have caused more than 900 fires, at least four fatalities, and more than $12 million in damages over the past few years.

Fires can be deadly, but they can also be prevented. Below are a few tips for you to remember as you enjoy the holiday festivities.

  • Make sure artificial trees are fire resistant.

  • Keep candles away from trees, wreaths and other decorations. 

  • Water live trees daily to slow the drying process.

  • Don’t let tree lights touch needles or curtains. 

  • Make sure lights are Underwriters Laboratories (UL) approved and that the wires are in good condition.

  • Be sure to turn lights out before you go to bed or leave the house

Remember - before you go out, blow out!


IRS GRANTS CFO SINK’S REQUEST THAT MSFH GRANTS NOT BE SUBJECT TO FEDERAL INCOME TAX

Florida Chief Financial Officer Alex Sink announced grants awarded to homeowners through the My Safe Florida Home (MSFH) program will not be reported as taxable income to the federal government.

CFO Sink made the announcement after receiving a Letter Ruling from the Internal Revenue Service (IRS) stating that MSFH grants will be excluded from “gross incomes for federal income tax purposes.”

“Floridians taking personal responsibility to harden their homes and receive a grant from the My Safe Florida Home program shouldn’t be hit with an additional tax bill in January 2008,” said CFO Sink, who runs the Department of Financial Services and the MSFH program. “I commend the IRS for granting our request that mitigation grants should not be considered part of a homeowner’s income.” CONTINUED

Following a June 2007 request from CFO Sink, the IRS issued a Letter Ruling in late November that all grants given through the MSFH program will not be considered income and will not be reported as income to the federal government. Without this recent ruling, matching grant recipients could have been facing a tax liability of $1,250 on a $5,000 MSFH grant, based on the IRS Flat Tax calculation rate of 25 percent. With $8.6 million in grants issued to date, CFO Sink’s request has potentially saved Floridians from being subject to approximately $2.15 million in additional federal income taxes.

The MSFH program resumed offering wind inspections and expanded statewide in April 2007 after conducting a pilot program during the previous year. During the last 7 months, the MSFH program has performed approximately 114,000 free wind inspections, and a total of 127,816 inspections since the program began. Approximately 15,985 homeowners have been approved to receive matching grants and are working with the MSFH program to harden their homes. Statewide, the program has issued a grand total of more than 2,637 grants to homeowners for more than $8.6 million.

CFO Sink has reported that the vast majority of homeowners who have received free wind inspections from the MSFH program are eligible for discounts on their wind insurance premiums without making a single improvement to their homes. To date, 95,807 (76 percent) of participating homeowners are eligible for an average discount of $210 on their wind insurance premiums, based on the current structure of the home during the free MSFH wind inspection. Over the last seven months, the program has alerted Floridians to a potential savings in windstorm insurance premiums totaling more than $20 million.

Any Floridian who lives in a single-family, site-built home is eligible for a free wind inspection through the program. Floridians can apply on-line at www.MySafeFloridaHome.com or by calling the program toll-free at 1-866-513-6734. Homeowners who receive free wind inspections through the MSFH program will get a detailed inspection report, complete with additional eligibility information on matching grants and estimated insurance premium discounts, if the homeowner is eligible.

In order to be eligible for the program’s matching grant reimbursements of up to $5,000, the Legislature requires that homeowners meet the following requirements: have received a completed wind inspection after May 1, 2007; live in a single-family, site-built home built before March 1, 2002; have a valid homestead exemption; have an insured value of $300,000 or less; and be located in the wind-borne debris region.

Additionally, while the free wind inspections will still cover seven potential wind-resistance improvements, matching grants may only be applied to opening protections, including windows, exterior doors and garage doors, as well as the bracing of gable ends.


CFO TALKS TO TAX WATCH

CFO Sink on Wednesday joined Lt. Governor Jeff Kottkamp and House Speaker Marco Rubio as a speaker before nearly 200 members of Florida TaxWatch, a private, non-profit, non-partisan research institute that in the past 25 years has developed a reputation as a watchdog of citizens′ tax dollars. The meeting was held in Palm Beach.

The CFO said Florida’s anticipated revenue shortfall of $2.5 billion this fiscal year and next presents an opportunity to create more efficiencies in state government by taking advantage of purchasing power and economies of scale. “I think millions can be saved by managing dollars more efficiently,” she said.

She said that the Department of Financial Services, Division of Treasury and Bureau of Accounting and Auditing, are putting together a Partners in Accountability program to work with state agencies in the way they manage vendors and helping them negotiate better deals and hold vendors more accountable. She said she also is pushing for state agencies to do a better job of managing employee safety and workers compensation programs.

She also encouraged the business members of TaxWatch both to prepare for the financial risks of climate change but also take advantage of the opportunities. She said “the rest of the world is way past debating whether or not climate change is happening and what caused it, and are totally focused on adaptation.”

She finished her speech by saying urging members to learn all that can about the impact of the property tax amendment that will appear on the January 29 ballot, saying once something is in the state’s constitution, “it is really, really hard to roll back.”


CFO SINK ADDRESSES COUNCIL OF CEOs IN TAMPA

About 100 CEOs from throughout Tampa Bay attended a breakfast Thursday morning where CFO Sink spoke about Florida’s economy. Her optimistic outlook garnered several laughs and a hearty round of applause from the audience, all members of the Council of CEOs of Tampa Bay.

She said the real estate downturn and mortgage fallout has left Florida in a “real estate recession,” but that Florida has a history of surviving and thriving. She said the current downturn is “like the python eating the chicken, it just going to take a while.”
 


LETTER FROM CFO SINK TO THE MEMBERS OF THE STATE BOARD OF ADMINISTRATION AUDIT COMMITTEE

December 10, 2007

Ms. Melinda Miguel
Chief Inspector General, Office of the Chief Inspector General
Executive Office of the Governor, PL 05, The Capitol
400 South Monroe Street, Tallahassee, FL 32399

Mr. Douglas Darling
Division of Accounting and Auditing, Director, Department of Financial Services
200 East Gaines Street Fletcher Building, Suite 516, Tallahassee, FL 32399

Ms. Kimberly Ferrell
Chief Auditor, Medicaid Fraud Control Unit, Office of the Attorney General
PL 01, The Capitol, 400 South Monroe Street, Tallahassee, FL 32399-1050


<<SENT VIA HAND DELIVERY>>

Dear Ms. Miguel, Mr. Darling and Ms. Ferrell:

The growing national subprime mortgage crisis, a lack of investor confidence and inadequate transparency led to the recent instability of a state-managed investment pool. Managed by the State Board of Administration (SBA), the Local Government Investment Pool (LGIP) is a short-term investment fund used by a number of counties, school boards, and other government entities in Florida, which have relied on the pool’s stability and liquidity for nearly twenty-five years.

This instability led to investors withdrawing more than $14 billion from the once $27 billion pool. In an effort to protect remaining investors, the Trustees of the SBA (Governor Charlie Crist, Attorney General Bill McCollum and I) met November 29, 2007, to take appropriate action to temporarily suspend withdrawals and hire an experienced, independent financial firm to develop a plan of action with the input of the pool’s investors. Last Tuesday, December 4, 2007, the SBA Trustees enacted a plan to isolate the pool’s distressed assets into a separate fund, allowing the investments to mature with the goal of returning investor premium. The majority of the LGIP’s assets (86 percent) remain in a high-quality money-market type fund, which will be rated and conservatively invested. An independent financial management firm will manage both funds; some liquidity has been made available for all participants and the Trustees have stressed the need for increased transparency and communication between the SBA and its investors.

While this new plan provides the best opportunity to reach the goal of returning investors’ principal, many questions remain. When investors display such an extreme lack of confidence and a “run on the bank” scenario follows, it is essential that the state does all it can in an attempt to restore confidence if the LGIP is to continue.

As members of the Audit Committee of the SBA, you have a role in restoring this confidence. As an independent and objective party, the Audit Committee is most appropriate to review the circumstances regarding the LGIP that resulted in our current situation. I understand that you will be meeting Wednesday, December 12, 2007, and I ask you to delve into the many unanswered questions that remain for both the Trustees and investors alike. Please include the following in your review:

• What are the LGIP’s investment guidelines and were assets acquired below those guidelines?
• Who sold the SBA the “distressed assets” in Fund B, when were they purchased, and what were their ratings at the time of purchase?
• When were the “distressed assets” downgraded, and what were the SBA’s actions following these downgrades?
• What are the SBA’s disclosure requirements and policies regarding downgraded assets, and what actions were taken to inform investors?
• How frequently was the SBA communicating with investors, and how much detail was provided to the public about the pool’s investments?
• Was the LGIP investing in riskier assets than communicated to investors or than the pool’s stated objective?
• What other funds managed by the SBA include these type of investments?
• If other funds do include these “distressed assets”, what actions, if any, are recommended/planned by the SBA?

I applaud you for your service in assisting the Trustees of the SBA in fulfilling their oversight responsibilities. I am sure you will be exploring other actions and decisions in addition to those suggested above. Please let the Board know when you will be prepared to submit your report, along with any recommendations of potential changes in policies and procedures.

Sincerely,


Alex Sink
Chief Financial Officer
State of Florida

cc: The Honorable Charlie Crist, Governor
The Honorable Bill McCollum, Attorney General
The Honorable Ken Pruitt, Senate President
The Honorable Marco Rubio, Speaker of the House


CFO MEETS WITH STATE ATTORNEY MARK OBER

While in the Tampa area on Thursday, CFO Sink met with Mark Ober, State Attorney for the Thirteenth Judicial Circuit in Hillsborough County. As CFO, Sink oversees two law enforcement agencies, the Division of Insurance Fraud and the Bureau of Fire and Arson Investigations in the Division of State Fire Marshal. Ober’s office will be adding a dedicated prosecutor and paralegal in the coming year, which will allow for more prosecutions of financial and insurance fraud crimes investigated by the department, and the two talked about some of the latest trends in fraud cases.

Sink and Ober also discussed the department’s plans to create an investigator academy to help train new insurance fraud and arson investigators, and discussed how Ober’s office might be able to assist with the training program.

Ober’s office is one of the busiest in the state, prosecuting 94,000 cases last year.


CFO SINK CONVENES FINANCIAL LITERACY COUNCIL MEETING

CFO Sink convened the seventh meeting of the Financial Literacy Council on Wednesday.  During the conference call, the council announced they will partner with other groups to create Florida Saves – a statewide campaign that will promote saving, reducing debt, and building wealth.  Florida Saves Week is set to take place February 24 – March 2.  The council also set a meeting schedule for 2008 and decided to hold town hall meetings and other events around the state during Financial Literacy Month in April.
 
CFO Sink has created a Web site dedicated to the Financial Literacy Council, its duties, appointments, and upcoming meetings. Floridians who would like to learn more about the council are encouraged to visit the Web site at http://www.MyFloridaMoney.com.


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