0001 1 * * * * * * * * * * * * * * * * * * 2 3 4 TEXAS LOTTERY COMMISSION 5 PUBLIC COMMENT HEARING 6 7 February 8, 2006 8 9 * * * * * * * * * * * * * * * * * * 10 11 12 13 14 BE IT REMEMBERED that the TEXAS LOTTERY 15 COMMISSION public comment hearing was held on the 8th 16 of February 2006, from 11:10 a.m. to 11:25 a.m., 17 before Kelly E. Fisher, CSR in and for the State of 18 Texas, reported by machine shorthand, at the Offices 19 of the Texas Lottery Commission, 611 East Sixth 20 Street, Austin, Texas, whereupon the following 21 proceedings were had: 22 23 24 25 0002 1 APPEARANCES 2 3 General Counsel: Ms. Kimberly L. Kiplin 4 Charitable Bingo Commission Accounting Services 5 Manager: Ms. Terry Shankle 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 February 8, 2006 2 MS. KIPLIN: Good morning. Let me call 3 this public comment hearing to order. Today is 4 February 8th. The time is 11:10. My name is Kimberly 5 Kiplin. I'm the general counsel for the Texas Lottery 6 Commission. With me today is Terry Shankle, 7 accounting services manager for the Charitable Bingo 8 Operations Division of the Texas Lottery Commission. 9 The purpose of the public comment 10 hearing today is to receive comment on proposed 11 amendments to 16 Texas Administrative Code Section 12 402.600 relating to bingo reports. The proposed 13 amendments were published in the February 3, 2006, 14 copy of the "Texas Register" and are being published 15 for a comment period of 30 days. The earliest 16 possible date of adoption for these proposed 17 amendments is March 5, 2006. 18 I will call people in the order of 19 receipt of witness affirmation forms. At this point, 20 just for the record, I will note that there is only 21 one person in the auditorium who appears to be wanting 22 to testify and provide comment regarding the proposed 23 amendments, and that is Mr. Stephen Fenoglio. 24 I've received -- before the hearing 25 began, just for the record, I received two documents 0004 1 from Mr. Fenoglio. I'm hoping that both documents 2 were submitted to the court reporter so they can be 3 attached as part of the transcript. If not, we'll 4 tidy that up after the comment hearing. One is a 5 document that is dated February 6, 2006. It's on 6 American Legion Halo-Sellars Post No. 312 letterhead. 7 Another one is a copy of a proposal for decision that 8 appears to be a hearing that was before the State 9 Office of Administrative Hearings between the Texas 10 Lottery Commission and the Corpus Christi Police 11 Officers Association. 12 Like I said, the purpose of the hearing 13 today is to receive comment into the record to help 14 the staff and the commission consider the comment, 15 understand the comment, and respond to the comment, if 16 needed to respondent to it. 17 I've also just been handed a copy of 18 the commission order in that same proceeding before 19 the State Office of Administrative Hearings, and 20 that's the matter of Texas Lottery Commission versus 21 Corpus Christi Police Officers Association. 22 With that, I'll go ahead and ask 23 Mr. Fenoglio if he will identify himself for the 24 record and who he represents and provide comment. 25 MR. FENOGLIO: Thank you, Ms. Kiplin. 0005 1 For the record, my name is Stephen Fenoglio. I'm an 2 attorney in Austin, Texas. I represent over 750 3 businesses in charitable organizations, including the 4 State Veterans of Foreign Wars and its membered posts 5 throughout the state. 6 This particular proceeding I initiated 7 by filing a petition for rule-making in late November 8 or early December of '05, after seeing the existing 9 rule being implemented for what my clients considered 10 relatively, in the overall scheme of things, minor 11 offenses. By that I mean that charitable 12 organizations, primarily licensed authorized 13 organizations, in the language of the Bingo Enabling 14 Act, had had their license terminated when they had 15 filed, in some cases, one day late. They filed their 16 quarterly report and had always paid all of the prize 17 fees due the State of Texas, and if they were late and 18 interest or penalties were assessed, had paid those as 19 well. 20 It occurred to me and the clients that 21 the rule, as it was drafted and implemented, gave the 22 commission no discretion where the commission staff 23 felt, and the commissioners themselves felt, that they 24 would like to take an enforcement action short of the 25 termination of license. And a requirement under other 0006 1 provisions of the Bingo Enabling Act, once the license 2 had been terminated by the lottery commission, the 3 charity cannot reapply for a license for one year. In 4 effect, the rule was too harsh in many circumstances. 5 My clients were not concerned and did 6 not have a problem with the commission's rule as it 7 was implemented against licensed authorized 8 organizations or a commercial lessor that had not paid 9 what the State was owed on a timely basis, or even an 10 untimely basis. And the commission records are clear 11 that there have been a few, not many, but a few 12 charitable organizations primarily that have never 13 paid all of the prize fees that they're due. And, of 14 course, the interest and penalty losses kick in. 15 If the rule had not been changed back 16 about six or seven years ago, it would have created an 17 unlevel playing field by which the charities that 18 timely pay their prize fees, and if they're late, any 19 applicable interest or penalty are at a disadvantage 20 for doing the right thing. These would be charities 21 that don't. And I was a part of that original draft 22 rule that is the rule today, encouraging the 23 commission to crack down, if you will, on the people 24 who cannot pay or will not pay. 25 But the way the rule has been 0007 1 implemented, and in the last several years we've seen, 2 I believe in the last three years, 13 charities have 3 lost their license under this clause. And with the 4 new language that we have proposed -- and I'm glad to 5 say that Ms. Shankle and Billy Atkins had some 6 additional changes that we supported in the nuances of 7 the language. But with the new language, if it were 8 in effect over the last three years, only two 9 charities would have lost their license, and not 13. 10 What those facts represent -- and the 11 case that I handed out is probably the best example, 12 Corpus Christi Police Officers Association, SOAH 13 Docket 362-05-4834.B. I'm going to call it PFD for 14 summary purposes. At page 2 in subparagraph B, 15 "Evidence," the ALJ is identifying the lateness of 16 the reports. And a report was due April 26, '04, was 17 postmarked April 27, '04. And a report due July 26, 18 '04, was postmarked July 27th. 19 For purposes of the commission rule, 20 you are timely if you have -- it doesn't have to be 21 received by the commission by that date, but it has to 22 be postmarked. So they were late twice one day, just 23 by the postmark. They were not late on those two 24 instances in their payment of the penalties or 25 interest or taxes. 0008 1 The PFD on page 2 goes on to note that 2 there was a payment due October 25, '04, but that was 3 not received by the staff until November 6th of '04. 4 So one of those three occurrences, they were late, and 5 they did incur penalties and interest. And then 6 finally the PFD makes it clear that by the time of the 7 hearing, they were in full compliance. And I believe 8 that report will reflect that even before the hearing 9 itself, they were in full compliance. By that I mean 10 they had paid their penalties, interest, and the fees. 11 On page 3 the ALJ has, in effect, an 12 argument with themselves and notes the ALJ is unable 13 to find any basis to avoid the result advocated by 14 staff, i.e., revocation of respond's license. I don't 15 think the staff took any pleasure at all in 16 recommending the revocation and taking an enforcement 17 action, but the rule was the rule, and the staff has 18 to enforce the rule. 19 During the discussion of this case in 20 front of the commission, I believe it was Commissioner 21 Cox actually asked a question, having read -- 22 apparently having read the PFD, wanting a different 23 result than what they were left with, and the staff 24 pointed out that "The rule is the rule, and we're only 25 implementing and enforcing our own rule." 0009 1 And that was really -- and then the 2 commission order is dated August 15 of '05. And that 3 was one of the cases that I looked at that -- there 4 ought to be a better way, that if a charity is late 5 and, in my mind, if the staff has to undertake 6 significant effort to get them to pay, then that's one 7 set of facts that perhaps would -- should lead to a 8 revocation. But if the charity has just missed it by 9 a day or a week and the staff has not had to do much 10 of anything, on many occasions, and these two 11 occasions for the Corpus Christi Association, they -- 12 before staff was even aware they were late, they had 13 actually received their return with the fees. So it 14 seemed to me that the rule needed to be changed. 15 The second attachment I provided is a 16 client of mine, American Legion Halo-Sellars Post 312, 17 that outlined what it's been able to do -- and there 18 are three attachments -- with Bingo money. It is one 19 of the charities that has been caught with this rule 20 in trying to point out that there are good charities 21 that do pay. They don't always pay on time. Many 22 charitable organizations have volunteers, and the 23 volunteers change, and things get dropped in the 24 cracks. But when you look at what they've been able 25 to do with their charitable bingo money, it's 0010 1 significant over in Livingston, Texas. 2 All that to say that my clients support 3 the rule as drafted. We believe it will get at the 4 crux of the matter of charitable organizations, 5 commercial lessors, that have a -- that owe a 6 liability to the State and are either, A, unable or, 7 B, unwilling to pay on a timely basis. And then the 8 jeopardy determination attaches, is when they would be 9 in harm's way and have their license subject to 10 revocation. And we think that's how it ought to be. 11 The staff asked, during this process, 12 if I would consider amending my proposed request for a 13 petition to add in additional language that would 14 subject manufacturers, distributors, and systems 15 service providers to a similar -- what I call this 16 rule is a three-strikes policy. I didn't have any 17 opposition to that; although, unlike those three 18 classes of licensees, do not have a liability owed to 19 the State, unlike a charitable organization that owes 20 five percent for prize fee or a commercial lessor 21 which owes three percent tax on rental to the State of 22 Texas. 23 Nonetheless, in order to make it 24 parallel, if you will, I went ahead and added that 25 language. We don't take a particularly firm position 0011 1 on that particular language. It's probably a good 2 policy that if a manufacturer or distributor either, 3 A, is unwilling or, B, unable to file their quarterly 4 report on time, that there should be a licensing 5 sanction. 6 I would point out under other 7 provisions of the Bingo Enabling Act they would be 8 subject to licensing sanctions for failing to provide 9 the commission with requested information, or 10 information that's required by the rule, and the 11 quarterly reports are required to be filed under the 12 commission rule. 13 Nonetheless, we are here to support the 14 rule as drafted, and we hope that the commission -- 15 that this rule will come back to the commission with 16 full recommendation to be adopted as proposed. 17 MS. KIPLIN: Mr. Fenoglio, I do have 18 one question. I'm looking, of course, with fresh 19 eyes. But I'm looking at the rule that was proposed. 20 It's subparagraph L. You see it? It's the underlined 21 language. It's the last underlined language. And 22 it's the cite reference. It says, "In accordance with 23 the Texas Government Code." 24 MR. FENOGLIO: That should be 25 Occupations Code. 0012 1 MS. KIPLIN: Okay, thank you. I wanted 2 to make sure. 3 MR. FENOGLIO: You are correct. That 4 should be -- the Texas Government Code, I don't even 5 know if there's a 505.511 in the Administrative 6 Procedures Act. But that is a typo. 7 MS. KIPLIN: I looked at your petition, 8 and what threw me off is there was a reference to the 9 government code in there. But it's not even the 10 right -- it's not even the same provision. 11 MR. FENOGLIO: Right. 12 MS. KIPLIN: You cited Government Code 13 Section 2001-353 on suspension or revocation. And 14 that may very well be the APA -- I mean, the 15 Administrative Procedures Act. I wanted to clarify 16 that. It should say Texas Occupations Code. 17 MR. FENOGLIO: It should. Without 18 question. 19 MS. KIPLIN: I just wanted to make 20 sure. I'm thinking the staff is going to recommend 21 adopting, with a change, at least on that one, if the 22 staff does recommend. 23 MR. FENOGLIO: We would certainly hope 24 so. 25 MS. KIPLIN: I'll turn it over to 0013 1 Ms. Shankle to see if Ms. Shankle has any questions. 2 MS. SHANKLE: No, I do not, at this 3 time. 4 MS. KIPLIN: The time is 11:25. I see 5 nobody else in the audience who wants to make comment, 6 and so we will go ahead and adjourn the hearing for 7 today. But I would like to make a point of putting on 8 the record that we will continue to receive comment 9 through the 30-day comment period. And the earliest 10 possible date of adoption for this particular 11 rule-making is March 5, 2006. 12 And Mr. Fenoglio, thank you for 13 appearing. 14 At this point, we will adjourn the 15 hearing. 16 17 18 19 20 21 22 23 24 25 0014 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 ) 5 COUNTY OF TRAVIS ) 6 7 I, KELLY E. FISHER, Certified Shorthand 8 Reporter for the State of Texas, do hereby certify 9 that the above-captioned matter came on for hearing 10 before the TEXAS LOTTERY COMMISSION as hereinafter set 11 out, that I did, in shorthand, report said 12 proceedings, and that the above and foregoing 13 typewritten pages contain a full, true, and correct 14 computer-aided transcription of my shorthand notes 15 taken on said occasion. 16 Witness my hand on this the 16th day of 17 February 2006. 18 19 Kelly E. Fisher, Texas CSR No. 2834 20 Expiration Date: 12-31-07 WRIGHT WATSON STEN-TEL 21 Firm Registration No. 225 1801 N. Lamar, Mezzanine Level 22 Austin, Texas 78701 (512) 474-4363 23 JOB NO. 060208KEF 24 25