1 1 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 2 TEXAS LOTTERY COMMISSION 3 MEETING 4 NOVEMBER 24, 2003 5 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 6 7 8 9 10 11 12 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 24th of November, 2003, 21 from 8:30 a.m. to 1:24 p.m., before Michelle M. 22 Robertson, CSR, RPR, in and for the State of Texas, 23 reported by machine shorthand, at the offices of the 24 Texas Lottery Commission, West 6th Street, Austin, Texas, 25 whereupon the following proceedings were had: 2 1 APPEARANCES 2 3 Chairman: C. Tom Clowe, Jr. 4 5 Commissioner: James Cox, Jr. 6 7 General Counsel: Kimberly L. Kiplin 8 9 Executive Director: Reagan E. Greer 10 11 Charitable Bingo Operations Director: Billy Atkins 12 13 Deputy Executive Director: Gary Grief 14 15 16 17 18 19 20 21 22 23 24 25 3 1 INDEX 2 Page 3 Appearances ...................................... 2 4 AGENDA ITEMS 5 Item Number 2 .................................... 4 6 Item Number 3 .................................... 5 7 Item Number 4 .................................... 8 8 Item Number 5 .................................... 12 9 Item Number 6 .................................... 31 10 Item Number 7 .................................... -- 11 Item Number 8 .................................... 41 12 Item Number 9 .................................... 43 13 Item Number 10 ................................... -- 14 Item Number 11 ................................... 50 15 Item Number 12 ................................... 50 16 Item Number 13 ................................... 52 17 Item Number 14 ................................... 109 18 Item Number 15 ................................... 71 19 Item Number 16 ................................... 71 20 Item Number 17 ................................... 77 21 22 Reporter's Certificate ........................... 141 23 24 25 4 1 NOVEMBER 24, 2003 2 MR. CLOWE: Good morning. It is November 3 the 24th, 2003. Commissioner Cox. Commissioner Olevera 4 is absent and will not be present for this meeting. My 5 name is Tom Clowe. We have a quorum of the lottery 6 commission so I will call the meeting to order. The 7 first item on our agenda is number 2, consideration of 8 and possible discussion and/or action on appointment to 9 the bingo advisory committee. Mr. Atkins. 10 MR. ATKINS: Thank you, Mr. Chairman, 11 Commissioner Cox. Good morning. I have provided you 12 with a copy in your notebook of the resignation letter 13 that was received from Marilyn Matthews on October 9th 14 of this year. As you will recall, Ms. Matthews served 15 as the conductor lessor representative to the advisory 16 committee. The staff is prepared to advertise this 17 opening on the division's website, as well as in the 18 upcoming issue of the bingo bulletin, and we would hope 19 to have nominations in for you to consider sometime 20 after the first of the year. 21 I did want to just seek confirmation from 22 the commission that you would like to continue with the 23 same process that has occurred in the past where at 24 least some representatives of the advisory committee 25 have been involved in part of the nomination process. 5 1 When the vacancy in the public member position occurred, 2 the commission directed myself, the chair of the lottery 3 commission, and the chair of the advisory committee to 4 meet with those individuals and discuss the position and 5 the commission's expectations. 6 MR. CLOWE: Commissioner Cox, do you have 7 any comments on that? 8 MR. COX: I do not. 9 MR. CLOWE: Would you like to be the 10 commissioner to meet with Mr. Atkins in regard to that 11 activity instead of me? 12 MR. COX: I think you do a wonderful job 13 of that. 14 MR. CLOWE: Thank you, sir. 15 MR. COX: But I will be glad to fill in, 16 if you need me to help. 17 MR. CLOWE: All right. Great. Billy, if 18 you will move forward then on the basis that you 19 proposed, and you can call on Commissioner Cox, as well 20 as myself. 21 MR. ATKINS: Thank you. 22 MR. CLOWE: Next is item number 3, report 23 possible discussion and/or action on calendar year of 24 2003, third quarter bingo financial information and 25 statistics. 6 1 MR. ATKINS: Commissioners, the third 2 quarter of 2003 ended on September 30th, and you have 3 several different spreadsheets in your notebook that 4 summaries much of the information that was contained in 5 those reports. As you will recall, House Bill 2519 6 moved the filing date for these reports back by ten 7 days. So that's why this information is coming to you a 8 little later than it has in the past. And I would like 9 to just highlight some of the information from those 10 spreadsheets for you. 11 First of all, total gross receipts have 12 increased from the second quarter of 2003 by 13 four-and-a-half million dollars or 3.25 percent. This 14 increase is primarily driven by the continued growth in 15 pull tab sales. 16 From the second quarter of 2003, pull tab 17 gross receipts increased $3.7 million or 18 twelve-and-a-half percent. Figures for 2003 to date 19 show that for a similar period in 2002, pull tab sales 20 have increased $28.1 million or 43.6 percent. For 2003 21 to date compared to the similar period of 2002, pull tab 22 prizes have increased $21.6 million or 47.8 percent. 23 Finally, for 2003 to date, compared to the similar 24 period of 2002, the following information has been 25 gathered. Charitable distributions have shown an 7 1 overall decrease of $1.6 million or six-and-a-half 2 percent. Attendance has shown an overall decrease of 3 one million dollars or four-and-a-half percent. 4 Expenses have increased slightly some $400,000 or .9 5 percent. And I would be happy to answer any questions 6 you may have. 7 MR. COX: Would you say again the 8 attendance statistic, Billy. 9 MR. ATKINS: The attendance for 2003 to 10 date, compared to 2002 to date has decreased by one 11 million. Now, there are several spreadsheets that you 12 have and one shows a quarter-to-quarter comparison. I 13 believe it is the last spread sheet that shows the 14 year-to-date figures. 15 MR. COX: Well, Billy, I have been with 16 you on the statistics until we got to attendance. What 17 my sheet shows is 5.5 million -- I assume it is million, 18 versus 5.6 million, a hundred thousand dollar change. 19 MR. ATKINS: That is comparing the second 20 quarter of 2003 to the third quarter of 2003. 21 MR. COX: I see what you are saying. 22 Okay. 23 MR. ATKINS: If you go to the last sheet, 24 I am comparing the first, second, and third quarters of 25 2002 to the first, second, and third quarters of 2003. 8 1 MR. COX: Thank you, Billy. 2 MR. CLOWE: Sorry, I didn't realize you 3 were doing that. Just on the wrong page. 4 MR. COX: It was on the second page. 5 6 MR. CLOWE: I have been there. Thank you, 7 Billy. No further questions. Next item number 4, 8 consideration of and possible discussion and/or action 9 on American Games, Inc.'s petition for rule making. Mr. 10 Oldham, good morning. 11 MR. OLDHAM: Good morning, commissioners. 12 For the record, my name is Kevin Oldham, and I am an 13 assistant general counsel. I am coming to you this 14 morning, commissioners, item 4 in your notebook relates 15 to a petition for rule making, submitted by Mr. Dale D. 16 Robertson on behalf of American Games, Inc. And the 17 letter was received by the director of charitable bingo 18 operations, Billy Atkins, on October 28th, 2003. The 19 matter regards break open bingo paper. And 20 Mr. Robertson has suggested a change in the current rule 21 related to bingo paper, especially with related to the 22 break open bingo paper in that the current form, the 23 manufacturer assigned serial number is required to be on 24 the face of the break open bingo paper; and therefore, 25 is concealed until opened and played. 9 1 This is different from other bingo paper 2 where the face is exposed and it can be easily tracked 3 and so forth. So before you today, under the statute, 4 it is a Texas Government Code 2001-021(C), the 5 commission has the opportunity to either deny the 6 request for rule making in writing, stating the reasons 7 for denial, or to initiate the rule making process, and 8 that is to take place not later than 60 days from 9 October 28th, 2003. The staff has gotten together and 10 discussed the issue, and we recommend to the 11 commissioners this morning that we -- that you do sign 12 an order which would initiate the rule making process. 13 I have drafted an order for such a decision. If you 14 have any questions, I will be happy to answer them. 15 MR. COX: Kevin, I have no questions. I 16 think we should do what you are recommending. I think 17 as we look at this, we should look carefully at whether 18 this change would provide any one company with a 19 particular advantage because of the technology that they 20 may possess that others may not possess. And if that is 21 the case, weigh it against the benefit of having the 22 numbers on the outside. 23 MR. OLDHAM: Yes. Yes, commissioner. And 24 every company will have the opportunity to make 25 comments. We are going to, you know, go before the BAC. 10 1 If you move forward today and sign the order, then we 2 will present it to the BAC for comment, and also we will 3 go through the regular rule making process. The new 4 language would be proposed in the Texas Register for 5 public comment for a period of 30 days. And so everyone 6 will be able to have comment regarding that issue. 7 MR. CLOWE: Kim, before I address this 8 issue, I would like to hear from you about this practice 9 of petitioning the commission for rule making. I think 10 it might be a good time to clarify this practice and 11 what precedents have been established and refresh 12 everyone's memory. 13 MS. KIPLIN: Sure. I will be glad to. As 14 I recall, this is either the first or the second. I 15 think we had a petition for rule making many years ago. 16 So we don't receive very many of these petitions. But 17 it is actually grounded in statute in the Administrative 18 Procedures Act, Section 2001.021. And it does give an 19 interested person an opportunity to petition the agency 20 to initiate a rule making. Now, the agency does not 21 have to initiate a rule making, but if you deny it, you 22 do need to state your reasons for the denial at the time 23 that you do deny it. Initiating a rule making is not 24 the same as actually adopting a rule. It is just 25 proceeding, in my view, what you would be doing if you 11 1 did decide to vote for this, is to at a subsequent 2 commission meeting, and we are envisioning the one in 3 December, you would vote to propose amendments to this 4 particular rule for public comment. And then you would, 5 obviously, invite comment, and it may be at the end of 6 the day, based on the comment, you decide not to move 7 forward in terms of adopting the amendments. You just 8 don't know because you don't know what the comment is. 9 MR. CLOWE: So this is simply the 10 commission agreeing to allow the staff to put up a rule. 11 Normally, the staff is the source of rule making your 12 division I think as much as any other. Is there any 13 other source of request for rule making, other than the 14 staff and the public? 15 MS. KIPLIN: Well, I think that you would 16 look to the bingo advisory committee in the event that 17 they would have an interest in moving forward in terms 18 of rule making. This is the formal way of triggering it 19 for an interested person. But clearly agencies, and I 20 don't think we are any different, through an informal 21 process receive input from, for example, industry 22 representatives or licensees, that would suggest that 23 there is an area for rule making, and then the staff 24 would begin to work with those folks in terms of maybe 25 moving forward on a proposed rule making at that point. 12 1 But this is certainly the formal way of triggering it. 2 MR. CLOWE: Well, that's helpful. And I 3 think it is good to go over this so that everybody 4 understands what the practice is and what the avenues 5 are of arriving at consideration of a proposed rule. 6 Mr. Atkins, do you have any comment on 7 this request? 8 MR. ATKINS: Just that we have, 9 Mr. Chairman, gone over this petition with legal counsel 10 and the staff has reviewed it. We do believe there are 11 some merits to authorizing the rule making process to 12 consider this issue. And we have also begun, 13 Commissioner Cox, an analysis along the lines of you 14 mentioned regarding the potential effect on currently 15 licensed manufacturers. 16 MR. CLOWE: I move the adoption of the 17 request for a proposed rule making. 18 MR. COX: Second. 19 MR. CLOWE: All in favor, please say aye, 20 oppose, no. 21 (All in favor.) 22 MR. CLOWE: The vote is 2-0 in favor. The 23 next item is number 5, report possible discussion and/or 24 action on the bingo player survey. Good morning. 25 MR. ATKINS: Good morning. Commissioners, 13 1 I would like to lay this out. As you will recall, you 2 approved a work plan for the advisory committee at your 3 February 28th meeting, and one of the items on that 4 workplan was a survey of bingo players and licensees. A 5 subcommittee of the advisory committee worked with Norma 6 Quezada, who is the audit manager in the charitable 7 bingo division, and Dr. Liz Jambor from the lottery 8 marketing division, to complete this project. Survey 9 instrument was designed and a survey methodology 10 developed. The responses to those surveys have been 11 returned, and Dr. Jambor has conducted her analysis, and 12 we are prepared to present that information to you 13 today. And at that, I turn it over to Dr. Liz Jambor. 14 MS. JAMBOR: Good morning, commissioners. 15 For the record, my name is Liz Jambor. I am the 16 marketing research manager for the Texas Lottery 17 Commission. And I am very pleased to present to you the 18 very first ever Texas charitable bingo player survey. 19 This is the first time a survey like this in charitable 20 bingo has ever been conducted. As Billy said, this 21 survey was developed in cooperation with charitable 22 bingo lottery marketing research and the bingo advisory 23 committee. The questions on this survey focused on the 24 demographics of players and the reasons for playing 25 bingo. It was hoped that information gathered from this 14 1 survey would help those involved with charitable bingo 2 better understand who is actually playing bingo and why 3 they play bingo. Over 13,000 surveys were distributed 4 throughout Texas between May and June of 2003, with over 5 3,000 returned as usable data. And this number was a 6 significant representation of the sample size. The 7 return surveys represented the classes -- oh, thank you, 8 Norma. The return surveys represented the -- okay. 9 There we go. Now we can keep up. The return surveys 10 represented the classes and regions on a weighted basis 11 for equitable comparisons across the state. 12 Prior to sending out the surveys, we 13 looked at the state in terms of its region. Bingo is 14 separated into five regions. We also looked at the 15 license classes. Bingo has ten license classes that are 16 based on their annual gross receipts. For ease of 17 distribution, we reduced these classes down to three, 18 and still maintaining groups by annual gross receipts. 19 The surveys were -- as they were returned, we watched 20 for the weightings between the regions, between the 21 classes, and those regions and classes were still 22 represented in the return data. 23 The data that is going to be presented 24 today is based on self-report data provided by bingo 25 players willing to complete the survey. So this 15 1 information is directional in nature. This data 2 provides a benchmark as the first study ever completed 3 on Texas charitable bingo players. 4 MR. COX: Liz. 5 MS. JAMBOR: Yes, sir. 6 MR. COX: What does it mean, information 7 is directional in nature only? 8 MS. JAMBOR: Well, because we did 9 not run -- we do not run statistics such as multiple 10 regressions or analysis of variants to show what was the 11 favored and what was not. We looked at basic weights 12 and averages, medians, means, things like that, so that 13 we could get a general sense of the player base. Future 14 studies will allow us to be more statistically in-depth. 15 MR. COX: Thank you. 16 MS. JAMBOR: All right. So who is playing 17 charitable bingo? The average player is female, 18 Caucasian, married, over the age of 65. Has a minimum 19 of a high school education. Is currently employed and 20 has an annual income of 10,000 to 25,000 per year. All 21 of the classes and regions were similar in their 22 description of the average player, with the exception of 23 region 4, which is San Antonio. This region had a 24 greater Hispanic representation than the other regions. 25 But however, as I said, all the other demographics were 16 1 similar within this region. When comparing the 2 completed surveys on charitable bingo players to the 3 state demographics, we see that the group of charitable 4 bingo players is slightly older than the general state 5 population. It skewed more female than the general 6 population. It has similar marital status percentages. 7 In categories of married, single, and other -- 8 MR. CLOWE: Liz, did you miss a page? 9 MS. JAMBOR: Did I? 10 MR. CLOWE: Go back one. 11 MS. JAMBOR: Oh, I am sorry. 12 MR. CLOWE: There you go. 13 MS. JAMBOR: Thank you. I am not 14 technically sound this morning, for whatever reason. 15 Sorry about that. We also had a -- the bingo players 16 had a greater percentage of nonemployed individuals. 17 And nonemployed is categorized as retired, students, and 18 homemakers. But I had a similar percentage of not 19 currently employed or unemployed. 20 MR. CLOWE: My wife would take issue with 21 a homemaker being unemployed. I want you to know that, 22 and I want that on the record. 23 MS. JAMBOR: No. No. I did not say they 24 were unemployed. Nonemployed, outside of the home. 25 Let's put it that way. Yes, I know. I have gotten -- 17 1 MR. CLOWE: She says that is the hardest 2 work there is. 3 MS. JAMBOR: Oh, I believe it. 4 MR. COX: Now, Liz, I have got a question 5 on that previous slide. 6 MS. JAMBOR: Okay. 7 MR. COX: You say that there -- the 8 average player is over 65 and then slightly older than 9 the general state population. The state population must 10 be a whole lot older than I thought it was. 11 MS. JAMBOR: Well, and that's -- that's a 12 good point of going back to the directional in nature. 13 It depends on how you are looking at this. 14 MR. COX: Okay. 15 MS. JAMBOR: When we look at an average 16 versus a median, it is going to look differently. And 17 so when I look at the median age of bingo players, it is 18 slightly older than the median age of Texas. When I 19 look at the average, it is over 65. The greatest 20 representation of bingo players is over 65. Okay. 21 MR. COX: Is there anything -- you looked 22 I guess at both medians and means? 23 MS. JAMBOR: Uh-huh. 24 MR. COX: And they indicated about the 25 same thing? 18 1 MS. JAMBOR: In some instances, they did, 2 and in some, they didn't. 3 MR. COX: And in cases when they indicated 4 different thingS, you analyzed to determine which was 5 more appropriate, and used the one that you considered 6 more appropriate? 7 MS. JAMBOR: Well, when I had -- for the 8 state demographics, when they were using medians, I 9 needed to use medians from the bingo so that I was -- 10 MR. COX: Because that's all you had? 11 MS. JAMBOR: Yes. So I was comparing as 12 close to apples to apples as I could. 13 MR. COX: I see. Okay. 14 MS. JAMBOR: Okay. All right. Our bingo 15 players had a slightly lower average -- or actually, 16 median, sorry, income compared to the statewide median. 17 The ethnic makeup was fairly similar to the statewide 18 composition. And for bingo players, there were slightly 19 fewer percentages of college graduates and beyond than 20 the statewide representation. We also looked at 21 participation in charitable bingo as far as the 22 activities that occur at bingo halls. The average 23 player favors paper, followed by pull tabs as the 24 preferred bingo product. And here you can see all of 25 the activities that are going on in bingo halls with 19 1 paper and pull tabs as the preferred medians or products 2 that people are participating in when they are at bingo 3 halls. 4 The average player also plays typically on 5 Fridays and Sundays. Those are the most popular days 6 for playing bingo. And here you can see the days of the 7 week broken down, most players playing between one and 8 three days. But we do have some players playing seven 9 days a week. And then lastly, the average player spends 10 an average of $101 per week. And here you can see the 11 spending broken down. We had seven categories of 12 spending. So they are spending anywhere from less than 13 $10 a week to 500 and more dollars a week. 14 As I said, along with the demographics, we 15 asked players why they play charitable bingo. And as 16 the top reasons that the average player plays bingo, 17 they play for entertainment, for the enjoyment of 18 playing bingo, for the chance to win something, to 19 socialize with friends, and to support worthy causes. 20 Now, these are in no particular order, especially when 21 you start looking at the different demographics, but 22 these are consistently the top reasons why people play 23 bingo in Texas. Now, as I had mentioned, there were 24 some differences between the demographics. Support 25 worthy causes was not noted as a top reason by those 20 1 groups that were under 30 years of age, those groups 2 that reported themselves to be single or other as far as 3 the marital status, those reporting annual incomes of 4 less than 10,000, 25,000 to 40,000 or over 60,000 a 5 year, those with less than a high school education, 6 those playing bingo five to six days per week, or those 7 spending an average of $100 to $199 per week. 8 Like what I can win did make it into the 9 top reasons for those groups that were under 50 years of 10 age, single or other in marital status, self-employed, 11 students, or not currently employed, annual incomes of 12 less than $10,000, 25,000 to 40,000, and over 60,000, 13 those with less than high school education or 14 postgraduate school experience, those playing five to 15 six days per week, or those spending more than an 16 average of a hundred dollars per week. 17 Other differences that we saw in the top 18 reasons to play bingo. Players 18 to 21 years of age 19 were the only group to note, socialize with family as a 20 top reason for playing bingo. And players participating 21 in bingo seven days per week were the only group to note 22 distraction as a top reason for playing bingo. And as I 23 said, among and between the groups differences existed. 24 For example, males were more likely to be single, and 25 the average age varied among employment groups. 21 1 However, there were some notable distinctions that 2 existed in participation and spending. Those players 3 with higher participation rates, those that played more 4 days per week reported higher levels of education. 5 Those players with higher average weekly spending 6 amounts reported higher levels of education. And those 7 players with higher average weekly spending amounts 8 reported higher levels of annual income. So what we see 9 here is a positive relationship between participation in 10 education and between spending and education and income. 11 So our conclusions on this first ever 12 benchmark study of charitable bingo players, we see that 13 players come with two mindsets, though they are not 14 necessarily mutually exclusive. Players report that 15 they want to win something as well as support Texas 16 charities while playing bingo. Which group to attract 17 and how best to do that is going to be the challenge of 18 bingo halls and can be questioned in future studies. As 19 with many research projects, the current study offers as 20 many questions as it does answers as we found in the 21 process of going through this data analysis. 22 The present study provides a benchmark for 23 who the typical bingo player is and why they play. 24 Future studies may answer the questions about the 25 atypical player, the one that did not come up as the 22 1 average bingo player. Future studies may answer the 2 questions about other attractions of bingo, such as what 3 is considered a win in bingo or how significant a 4 specific charity might be when choosing to play where to 5 play bingo. And future studies will allow us to learn 6 more about the players of charitable bingo in Texas. 7 And if you have any other questions, I will be happy to 8 answer. 9 MR. COX: Liz, on one of your slides back 10 in the middle, there was a bar graph with activities at 11 bingo halls as the captions. And one of those was 12 8-liners. Is the fact that about 12 percent of the 13 halls have 8-liners the only thing we could gather from 14 the information that you compiled? 15 MS. JAMBOR: This doesn't actually say 16 that 12 percent of the halls have 8-liners. It is 17 saying that of all of the activities that are available, 18 12 percent of the people play 8-liners. 19 MR. COX: Okay. And we don't have any way 20 of knowing whether those are legal or illegally operated 21 8-liners? 22 MS. JAMBOR: From this date, I don't. 23 I -- 24 MS. QUEZADA: No, sir. 25 MR. COX: Okay. And are there any other 23 1 activities listed across the bottom there that might or 2 might not be legal, depending upon how they are 3 conducted? 4 MS. JAMBOR: I am going to let Kimberly 5 answer that. 6 MR. COX: Yes. Okay. Could you kind of 7 help me with that. 8 MS. KIPLIN: You want me -- it depends on 9 the -- for 8-liners, of course, it depends on the method 10 of operation of payoff. 11 MR. COX: Yes. 12 MS. KIPLIN: For some of the other 13 activities, I think it depends on whether it is 14 occurring while bingo is being conducted, so it would 15 drill -- the same with -- your question was legal or 16 illegal? 17 MR. COX: My question was, are there any 18 of these categories that are patently illegal, might or 19 might not be illegal, or are clearly legal no matter 20 what? Which -- 21 MS. KIPLIN: There are no categories of 22 which I am aware that the activities would be patently 23 illegal. 24 MR. COX: Okay. 25 MS. KIPLIN: There are categories that it 24 1 would depend on the facts of the particular activity at 2 the time on whether the activity would be legal or 3 illegal. And I guess that would be the case for all of 4 them. For example, if you are playing bingo outside of 5 your licensed times, that would be an unlawful -- those 6 kind of issues. So it would be -- it drives to the 7 specific facts of the particular matter. 8 MR. COX: Okay. Thank you. 9 MR. CLOWE: On that same page, are 10 hand-held electronically card-minded devices, is that 11 what you are talking about there? 12 MS. QUEZADA: Yes, sir. 13 MR. CLOWE: And Billy, with the current 14 limitation, it looks like fewer players prefer to use 15 that by far. How do you reconcile that issue? 16 MR. ATKINS: Well, several -- several 17 ways. As you mentioned, there used to be in statute a 18 limitation on how many electronic devices could be used. 19 Also, electronic devices, whether hand-held or 20 stationary, aren't necessarily available in all halls, 21 particularly in your smaller halls, whereas they will 22 have -- generally have paper and pull tabs. So it is 23 usually only in your larger halls that you will have 24 hand-held or stationary electronic card mounting 25 devices. And I still think to a degree it is just a 25 1 case of player preference. There are just some players 2 who do not want to play the electronic devices. 3 MR. CLOWE: My recollection is that the 4 industry has wanted to increase the limitation, feeling 5 that that would enhance the attractiveness of bingo. Am 6 I incorrect in that? 7 MR. ATKINS: They wanted to eliminate the 8 limitation. 9 MR. CLOWE: The same thing. 10 MR. ATKINS: And for -- I think that's for 11 one reason. I think another reason is that it was just 12 very difficult for them to comply with and difficult for 13 us to enforce, the limitation that was in the act. 14 MR. CLOWE: Okay. I seem to remember 15 commentary at the BAC or -- I am just not sure where we 16 are -- having that 40 percent was a problem and people 17 lined up and wanted the hand-helds, and it made me feel 18 like there were a lot more than the percentage that we 19 are seeing here. 20 And is this actually the numbers, Liz, or 21 is this a preferred scale? 22 MS. JAMBOR: No, it is the actual numbers. 23 They were asked to indicate what they played, mark all 24 that applied. 25 MR. CLOWE: It is not what they wanted to 26 1 play? 2 MS. JAMBOR: Correct. This is what they 3 are actually playing. 4 MR. CLOWE: I am just having a little 5 trouble getting an understanding of what I think I have 6 been told by industry members who have said they want to 7 do with away with that limitation, and what I see here. 8 MR. ATKINS: Well, and we were surprised 9 by these figures and what the players were reporting. 10 MR. CLOWE: It just shows such a high 11 preference for paper and dobbing. It just -- that is by 12 far and away with pull tab second, you know, where we 13 see the player response. 14 MR. ATKINS: Well, keep in mind I believe 15 players could mark more than one. So again, even though 16 you may have players playing the hand-held and the 17 stationary, they could also be playing the paper. 18 MR. CLOWE: I have seen that. It is an 19 awesome sight. Okay. So Liz, what is next? 20 MS. JAMBOR: Well, we need to get back 21 together with the BAC and decide from this study what 22 was the biggest question that was either left unanswered 23 or arose from this data and then go down that path. 24 MR. COX: Billy, do you have any 25 preliminary thoughts about how helpful this is going to 27 1 be? Were you and your staff surprised by a lot of this? 2 Does any of this -- a revelation to you as to how the 3 industry might change to improve? 4 MR. ATKINS: We were surprised again and 5 this is one of the slides that we were surprised at. 6 There was also, if I recall, some information that was 7 reported as it related to the electronic devices and who 8 plays those. And I believe that no one within the 9 category of 18 to 20 -- 10 MS. JAMBOR: 25. 11 MR. ATKINS: 25? 12 MS. JAMBOR: Uh-huh. 13 MR. ATKINS: No one in that age group 14 reported playing electronic devices. And of course, it 15 had always been, you know, argued from the industry 16 that -- or we thought that that was the age group that 17 those devices would appeal to. But again, they reported 18 I think a higher usage of paper. I think it will 19 ultimately be up to each individual hall to take this 20 information and look at it and see if there is anything 21 specific to their hall that they can utilize. For 22 example, one of the things again that we noticed is -- 23 and we used the chair of the advisory committee, 24 Virginia Brackett, as an example. She is located in 25 Lubbock. There is, obviously, a high concentration of 28 1 that age group, 18 to 25 there. They can look at those 2 items that they found that they enjoyed the most about 3 bingo and use that to market bingo to that age group. I 4 think where this information will become more valuable 5 is with subsequent surveys in the future. You know, for 6 example, this gives us a snapshot today of the average 7 bingo player, but we don't know if there has been any 8 change in that. So we can begin to, through subsequent 9 surveys, look at that kind of information and see if 10 there is a change in the player and trying to determine 11 why that is changing. 12 As Liz mentioned, it is our intent to give 13 this same presentation to the advisory committee at 14 their meeting next week, work with the subcommittee on 15 any future surveys. But in the meantime, again, we have 16 plans to publish this information in the bingo bulletin 17 and make the actual report itself available on the 18 division's website for any of those organizations that 19 want to get that information and use it as they see fit. 20 Of course, we will also be using that for items such as 21 agency strategic plan, etcetera, and reporting on what 22 we know about the bingo playing population in this 23 state. 24 MR. COX: Liz, were there enough 25 respondents in that young age bracket, 18 to 25, to 29 1 really conclude anything from it? 2 MS. JAMBOR: Yes, there was enough in 3 every age group to be able to run some statistical 4 samples. 5 MR. CLOWE: Billy, along the lines of your 6 answers to Commissioner Cox, it would seem to me this 7 could be a marketing tool for the bingo industry. And 8 hopefully, Liz, we will keep this updated from 9 time-to-time and keep supplying it to the industry. 10 Billy, if I remember correctly, in your attendance at 11 the Niagara meeting in southern California, the report 12 was of all the states conducting bingo, everyone was 13 experiencing a reduction in player involvement with the 14 exception of one. Is that -- am I remembering that 15 correctly? 16 MR. ATKINS: The specific information that 17 was reported was I think just a decrease in gross 18 receipts. I don't know if the other jurisdictions got 19 as specific as to attendance, number of licensees, 20 etcetera. But I do think what was reported was in 21 general just charitable bingo gross receipts. And yes, 22 sir, you are correct, there was either -- they reported 23 either stagnant gross receipts or decreasing gross 24 receipts, with the exception of Indiana, that had 25 reported some pretty remarkable increases in their gross 30 1 receipts, but they weren't able to give us a reason why 2 that had occurred. 3 MR. CLOWE: They didn't know why. 4 MR. ATKINS: They didn't know why. 5 MR. CLOWE: They didn't know what was 6 happening in their gaming. Wish they would run a 7 survey. Well, hopefully, this will be of value. You 8 know, when you are offering a product to customers to 9 know who they are, what they like, and what motivates 10 them, should help you direct your efforts to selling 11 more of that product. And that's what I think has been 12 the concern in the industry since I have been on this 13 board. And I am very happy to see this and hope you 14 will continue this activity. And I am interested in the 15 feedback that you get from the BAC. When you make this 16 presentation, I would like to have you report that back 17 to the commission following the presentation and 18 whatever discussion occurs there so we can learn from 19 what their comments are. 20 I see their representatives in the 21 audience here today, and I hope that they will receive 22 copies of this report so that they can come on December 23 the 4th, I think it is, to the BAC meeting, prepared to 24 enter into a lively discussion about this. 25 MR. ATKINS: And I would just like, 31 1 Mr. Chairman, to thank Liz and Norma for their work on 2 this project, not just the development of the survey 3 instrument, but also the collection and analysis of all 4 the data. 5 MR. CLOWE: Great. 6 MS. JAMBOR: Thank you. 7 MR. CLOWE: Thank you. And Liz, if you 8 will stay there for the next item on the agenda, please, 9 item number 6, report possible discussion and/or action 10 on lottery advertising -- I am sorry, on lottery sales 11 and trends. 12 Good morning. 13 MR. NAVARRO: Good morning, commissioners. 14 For the record, my name is Benito Navarro. I am senior 15 accountant in financial administration. Under tab 6, 16 title, lottery sales and trends, please find three memos 17 regarding lottery sales. Updated memos were provided to 18 you this morning, and we will be reporting on those 19 today. The first memo indicates that unaudited fiscal 20 year 2004 sales for the week ending November 22nd, 2003, 21 amount to $658.4 million. This represents a 2.9 percent 22 increase over fiscal year 2003 sales of $640.1 million 23 for the same time period. Sales by product grew for 24 fiscal year 2004 to date are also detailed below on the 25 first memo. The second memo describes fiscal year 2004 32 1 sales by product compared to fiscal year 2003 sales for 2 the same time period. Finally, the third memo compares 3 sales for the last two full weeks ending November 22nd, 4 2003, and November 15th, 2003. Total lottery sales 5 increased by 40.8 percent over that period. 6 Liz, Toni, and I will be available to 7 answer your questions at this moment. I would like to 8 make one additional comment in regards to the increase 9 of 40.8 percent sales from one week to the next. As you 10 can see in the memos that are in your notebook right 11 now, last week there was a decrease of 39.7 percent over 12 the prior week. Management, during the week of November 13 the 10th, changed the settlement procedures for instant 14 ticket sales from 50 percent of packs sold to be settled 15 to 70 percent of packs sold to be settled. That 16 accounted for the decrease in sales from the prior week, 17 thus recuperating sales in the current week and 18 representing a 40.8 increase from the prior week. 19 MR. COX: So when I saw the report that 20 showed that it was down 40 percent because of this 21 change, I expected we would have several weeks that 22 looked sub par, but it looked like we got most of it 23 back -- 24 MR. NAVARRO: That was the expectation. 25 When management made this decision, there was a -- there 33 1 was, you know, an understanding that there would be a 2 decrease in sales, and it was our expectation that those 3 sales would be generated pretty quickly, and you know, 4 they did, in fact, and the current week increased by 5 40.8 percent. 6 MR. COX: So I guess what it says more or 7 less is that a game has a -- kind of a five-week life 8 cycle for the most part? 9 MR. NAVARRO: Yes, sir. 10 MR. COX: Okay. That's all I have. 11 MR. CLOWE: Liz, under this topic on 12 the agenda, you sent us a report on per capital revenue 13 comparison of the ten top lottery states for fiscal year 14 '03 dated October the 31st. Do you have a copy of that? 15 MS. JAMBOR: I don't. 16 MR. CLOWE: Could I give you this copy -- 17 MS. JAMBOR: That would be great. 18 MR. CLOWE: -- and ask you to comment on 19 it to us, please. I found that very interesting, and I 20 would like to have you comment on it, if you would. 21 MS. JAMBOR: Okay. I was asked to look 22 at -- we have a ranking of third as far as instant 23 games, and that was overall sales. And so I was asked 24 to look at that same data based on per cap sales. And 25 what it -- what this indicates for the fiscal year is 34 1 that we are still third as far as per cap sales in 2 instant tickets. 3 MR. CLOWE: Anything further? 4 MS. JAMBOR: Well, we are fifth in per cap 5 instant game revenue, and we are eighth in overall game 6 revenue. We are fourth in retailers per cap. And I -- 7 and I added this, it wasn't asked of me, but in looking 8 at the data, I added this because some of the states 9 that rank higher than Texas in their revenue per cap 10 also rank higher in Texas in retailers per cap. So some 11 of the impact on sales are a function of availability of 12 retailers. Now, it is not a direct correlation, but 13 having access to where the tickets are can increase 14 sales. So if we were able to increase retailers, we may 15 be able -- we may see an increase in sales in that same 16 arena. 17 MR. CLOWE: And we continue to have 18 increases and successes in the instant ticket market -- 19 MS. JAMBOR: That's correct. 20 MR. CLOWE: -- which is currently 66.8 21 percent -- I beg your pardon, 70.1. It is even higher 22 in the current fiscal year than the prior year. Can you 23 point out what is bringing that about, in your opinion? 24 MS. JAMBOR: I think we have got -- we 25 have got higher price point tickets. We definitely have 35 1 a player base that are very, very interested in higher 2 price point tickets. And as the availability of those 3 increase, sales can increase. You are going to make -- 4 we are going to generate more sales off of a $10 ticket 5 than we would a $1 ticket. I think we have worked very 6 hard to make sure that we have the type of tickets 7 people want to play. Whether it's the theme or the play 8 style, we are constantly looking at what players like 9 and what they don't like. We are constantly looking at 10 the game plan to make sure that the tickets are 11 available when players want them and when they are going 12 to play them, and that a new ticket comes out when the 13 momentum of an old ticket is wanning. 14 MR. CLOWE: Commissioner Cox, this is 15 somewhat related in my mind to the question of, you 16 know, what is the value of advertising, and what are we 17 getting for our advertising dollar. In the last couple 18 of years, it seems to me the instant tickets popularity 19 has increased, and it has increased in a percentage of 20 our overall sales. And I continue to be curious as to 21 why this is happening. And I like it. It is, you know, 22 what we want to see. But I would like to know what the 23 reasons are. And I think generally, I am in agreement 24 that the tickets are more attractive, the games are 25 innovative, there is a variety there. Certainly, we 36 1 have, what, a $20 ticket now this Christmas season. And 2 I believe that is a first. 3 MS. JAMBOR: No, that it is not our -- 4 MR. CLOWE: It is not the first $20? 5 MS. JAMBOR: No. 6 MR. CLOWE: We have done the motorcycle 7 Harley promotion, and you know, I think we are talking 8 about marketing here, and I relate it back in my mind to 9 the other games, the Cash Five and the Pick 3 and Lotto 10 Texas. And currently, I think you have a marketing 11 director position posted, Reagan? 12 MR. GREER: Yes, sir. 13 MR. CLOWE: And these are questions that 14 seem to me that have to do with selling the product. 15 And I think we need to put more emphasis on that, to 16 understand what it is the players of these games want, 17 and to understand that in order to be able to supply it 18 to them. 19 MR. GREER: Can I make a point? 20 MR. CLOWE: Please. 21 MR. GREER: Two things. A couple of other 22 things I think that are worth mentioning in that whole 23 venue. One is the payout. I mean, obviously, we have 24 got $20 games that are out there now that are paying one 25 game a million dollars, one, Two Million Spectacular, 37 1 which just came out over this holiday season. 2 MR. CLOWE: And what percentage is that? 3 MR. GREER: $20 tickets, you are going to 4 have to help me with that, somebody. 5 MS. JAMBOR: The payout? It is a 70 -- 70 6 percent payout game. 7 MR. GREER: 70-percent payout game. 8 MR. CLOWE: That's an important factor. I 9 think the players know that. 10 MS. JAMBOR: Yes. Yes. They definitely 11 feel a payout. 12 MR. GREER: They figured that out. And 13 the fact that we are offering that I think there is 14 still that instant gratification, you know, opportunity. 15 The games have, like on the Spectacular game, I know, a 16 one in 276 overall, you know, opportunity to have a 17 winning ticket. So there is lot of enthusiasm for that. 18 And another thing I think is worth mentioning, which 19 reverts back to a comment that Ben made a moment ago, in 20 reference to the change that we decided to make from 50 21 to 70 percent, is the retailers play a key role in that. 22 I have been visiting a lot of retailers over the last 23 couple of weeks, and you can sense an enthusiasm, you 24 know, when people come in there, they are talking about 25 the games. They are talking about these different price 38 1 points. And the fact that we are listening to the 2 retailers and addressing some of their issues, which is 3 specifically what that was, I think that's all working 4 to our favor in that whole instant venue as well. 5 MR. CLOWE: Very good. Anything further? 6 MR. COX: No. Thank you. 7 MR. CLOWE: Thank you. The next item is, 8 also report possible discussion or action on lottery 9 advertising and promotions. 10 Toni, will you handle that. Thank you. 11 MS. ERICKSON: Absolutely. Good morning, 12 commissioners. For the record, Toni Erickson, acting 13 marketing director. You have in your notebooks an 14 update on the current advertising initiatives. At this 15 time, I have nothing unusual to report. I do want to 16 give a brief update on the billboard. At the time your 17 notebooks were prepared we had 50 percent of the outdoor 18 billboards posted. As of Friday, we had 78 percent 19 posted. We have 59 total Mega Million billboards that 20 are going to be converted. I also wanted to -- 21 MR. COX: Stop there just a minute, Toni. 22 You said converted. So did we take Lotto Texas sports 23 and convert them to Mega Millions so that we have the 24 same number of boards but some are now devoted to Lotto 25 Texas and some are now devoted to Mega Millions? 39 1 MS. ERICKSON: Yes. We are going to have 2 slightly more Mega Millions at this point in time, but 3 almost equal. 4 MR. GREER: 59 and 53, to be exact. 5 MR. COX: Are we going to have -- do we 6 have on our agenda discussion of Lotto Texas? 7 MR. GREER: It is item 17. 8 MS. ERICKSON: I also wanted to take a 9 minute and respond to a commissioner request that I had 10 regarding advertising cost for the Mega Million 11 campaign. As you will recall, fiscal net was prepared 12 that estimated first year advertising cost for 13 Mega Millions at $11 million. To date, we have 14 estimated costs of 8.7 million, and that will take us 15 through fiscal year '04. And that includes all 16 initiatives at this time from TV and radio campaigns to 17 outdoor billboards. It is both the placement of that 18 media and the production costs. Do you have any 19 questions? 20 MR. GREER: I wanted to make another 21 comment, if I may. In reference to the whole 22 Mega Millions campaign as a whole, the marketing staff 23 has done a great job in getting everything up and 24 running. Starting last week, I believe, the pre-ads I 25 guess you would call them, that sort of build-up adds 40 1 for the Mega Millions games are out there, we have had a 2 lot of really positive response as I am doing these same 3 retailer visits, I mean, there are some enthusiasm 4 level. Based on the signage, you know, that is out 5 there, there is a -- from my perspective, a tremendous 6 anticipation for the higher jackpots, and I think that, 7 you know, what we have got in place is not only just the 8 media costs but also the production costs, and there was 9 a lot that went into, you know, making that happen in a 10 short period of time. So I wanted to thank Toni for 11 stepping in. And I want to thank all the marketing 12 division as a whole for the work that they did in a 13 short period of time to get this game up before the end 14 of the year. 15 MR. CLOWE: And everything is on schedule? 16 MS. ERICKSON: Everything is on schedule, 17 I am happy to report. 18 MR. CLOWE: When do Charlie Pride and 19 Flaco Jimenez start? 20 MS. ERICKSON: You know, I believe they 21 start on December 1st. 22 MR. GREER: They are up then. 23 MS. ERICKSON: Oh, are they? I'm sorry. 24 MR. GREER: The pre-ads are up. 25 MS. ERICKSON: Yes, the pre-ads. 41 1 MR. CLOWE: Okay. December 3rd is when 2 you sell the first ticket? 3 MR. GREER: Yes, sir. And I am going 4 to address that in my report. 5 MR. CLOWE: Very good. Thank you, Toni. 6 MS. ERICKSON: Thank you. 7 MR. CLOWE: Next item is number 8, 8 consideration of and possible discussion and action on 9 advertising services contracts. Mr. Bennett, you are 10 going to help this through? 11 MR. BENNETT: I am here to assist Toni, if 12 she needs assistance. I am going to have Toni lay out 13 the staff recommendation for you. 14 MS. ERICKSON: For the record again, Toni 15 Erickson, I'm the marketing director. Commissioners, 16 you have in your notebook an update on the advertising 17 services contract. As you are aware, the commission 18 currently contracts with the King Group for advertising 19 services in the minority market and DBD Dallas for 20 advertising services in the general market. The primary 21 term for the King Group contract expires on October 22 24th, 2004, and the primary term of DBD Dallas contract 23 expires on October 7th, 2004. Each contract has two 24 additional one-year renewal option. Staff is bringing 25 these contracts to the attention of the commission today 42 1 in order to provide adequate time to conduct competitive 2 bidding process, should the commission direct the staff 3 to do so. Staff is currently satisfied with the 4 requirements of both King Group and DBD Dallas. At this 5 time, staff is recommending that the commission not 6 begin the competitive bidding process for either 7 contract. Staff will continue to keep the commission 8 informed on the performance of both agencies, and if at 9 a later date determines that competitive bidding is 10 required, will so notify the commission. 11 MR. COX: What is the drop dead date? 12 MS. ERICKSON: You know, I want to say at 13 least six months out at a minimum in order to adequately 14 prepare an RFP. So the contract expires in October, and 15 so six months from that, so March. 16 MR. COX: So the last shot at action might 17 be February or March? 18 MS. ERICKSON: February or March, exactly. 19 MR. BENNETT: Commissioner, if I may 20 speak. Statutorily, the only statutory requirement is 21 that a RFP has to sit on the electronic marketplace for 22 a minimum of 14 days. With that said, staff would need 23 additional time to prepare an RFP order to be issued. 24 But that is the only statutory timeframe. Then, of 25 course, you have to have the time to receive proposals 43 1 and evaluate proposals. And if I may state one other 2 thing, the lawyer in me is kind of making me say, both 3 contracts have termination for convenience provisions, 4 so when we talk about the -- another termination 5 provisions, so when we talk about the term of those 6 contracts, they are subject to the termination 7 provisions in the contract. 8 MR. GREER: And I would like to mention 9 that I have gotten personally involved in the marketing 10 aspect of what was on the agency from an image 11 perspective, and just overall within my first year, I 12 wanted have to a good handle on that. And I think both 13 groups have been responsive. I am getting involved on 14 the conceptual side upfront to be able to have a better 15 handle on that, and I will be able to come to you as we, 16 you know, move forward looking at that March date with 17 my feelings. But certainly, as of this date, the 18 responsiveness of -- responsiveness of each of these 19 groups has been favorable. 20 MR. CLOWE: Thank you, Toni. 21 MS. ERICKSON: Thank you. 22 MR. CLOWE: Next item is number 9, report 23 possible discussion and/or action on the 78th 24 legislature and/or pending legislation affecting the 25 lottery commission. 44 1 Ms. Trevino, good morning. 2 MS. TREVINO: Good morning, commissioners. 3 For the record, I am Nelda Trevino. I am the 4 governmental affairs director. And I have a very recent 5 report today with regard to the 78th legislature. 6 Speaker Craddock issued the House committee interim 7 study charges on November the 4th, and the House 8 Licensing and Administrative Procedures Committee, which 9 has oversight of our agency, does have a specific charge 10 related to our agency. The charge specifically states, 11 quote, actively monitor the implementation of House Bill 12 2519 to streamline bingo processes at the lottery 13 commission, review the commission's processes for 14 leasing of facilities and the commission's audit 15 authority. Also compare the distribution to charities 16 as a percentage of revenues in Texas with charitable 17 bingo in other states. Additionally, the committee is 18 charged to monitor agencies and program under the 19 committee's jurisdiction. 20 The House committee on appropriations and 21 the House committee on government reform have several 22 charges that are applicable to state agencies across the 23 board. We will monitor the activities of those 24 committees and respond to any requests that may be asked 25 of the agency. As you recall, House Bill 2455 includes 45 1 a provision that extends the agency Sunset date to 2005. 2 We have provided the Sunset Advisory Commission staff 3 with updates on all exhibits contained in the agency 4 Sunset self-evaluation report that was originally 5 submitted in August of 2001. And I believe we have 6 provided each of you a copy of those updated exhibits. 7 Additionally, Speaker Craddock has 8 appointed members to the Sunset Advisory Commission. 9 His appointees include representatives Vickie Truitt, 10 Peggy Hamrick, and Glen Lewis. The speaker also 11 appointed former representative John Shields as the 12 public member to the commission. Representative Burt 13 Solomons will chair the commission, and representative 14 Jim Dunham will continue to serve his term. The 15 lieutenant government has yet to make his appointment to 16 the Sunset Advisory Commission. And also the Senate 17 interim committee charges have not been issued. And we 18 will continue to monitor any announcement that may be 19 made in regards to those two matters and provide you any 20 updated information. 21 With regard to an update on the agency's 22 legislative implementation project, we continue to 23 monitor the progress of this project and will bring 24 any appropriate matters to your attention. This 25 concludes my report, and I will be happy to answer any 46 1 questions. 2 MR. CLOWE: Nelda, I have a copy of the 3 report you mentioned to the Sunset Advisory Commission 4 here. I have gone through it at length. Do you foresee 5 in the Sunset process that we will revisit with the 6 legislature any additional subjects being added or any 7 new matter coming into play as a result of the 8 legislative session that ended, the regular session? 9 MS. TREVINO: Mr. Chairman, you know, 10 really until the Sunset Commission meets and approves 11 their schedule, we have not had any official 12 communication from the Sunset Commission. It is my 13 understanding from visiting with Karen Latta, who was 14 our project manager the last go-round, and who I believe 15 will continue to be the project manager, that the scope 16 of their review will basically be what they have looked 17 at last time. But I think that's very subject to change 18 based on any direction that they might get from the 19 actual commission. 20 MR. CLOWE: And I know the legislature 21 just finished their last special session, and it 22 wouldn't have been appropriate, I think, to have tried 23 to make contact with those offices for those individuals 24 who are on the Sunset Committee. What is the timing to 25 make those contacts and see what information they want 47 1 from this agency? 2 MS. TREVINO: In fact, in my division, 3 Colin Haas and Melissa Viasignore, we have started to 4 make preliminary contacts with the House members for 5 those offices that were just recently appointed to, you 6 know, just begin that line of communication with them. 7 So I think the appropriate time is now -- 8 MR. CLOWE: Okay. 9 MS. TREVINO: -- to again start making 10 those points of contact. 11 MR. CLOWE: That's good, because I think 12 that is very important. This process is familiar to us. 13 I won't say it is old, but it's familiar. And there are 14 some members that are new now and different roles have 15 been assigned, and we should take advantage of our 16 familiarity with all of this and take that to them. And 17 I am sure you covered this in your legislative briefing, 18 this month. 19 MS. TREVINO: That's correct. We had a 20 legislative briefing, I believe it was October the 28th, 21 if I am not mistaken. 22 MR. CLOWE: Last month? 23 MS. TREVINO: Last month. And in fact we 24 invited all those members that do have some jurisdiction 25 over the agency, and are following -- following up again 48 1 with some of those offices to be sure that information 2 we provided, if there is anything else we can provide to 3 them, that we can take care of those matters. 4 MR. CLOWE: Good. And I think 5 particularly chair Solomons needs to be contacted. 6 Maybe you and I could make an appointment and go over 7 there and see what his indication is to us that he might 8 need. 9 MS. TREVINO: That would be great. 10 MR. CLOWE: He did that with the former 11 chair, if I remember, and I think it would be a good 12 practice in this case. 13 MS. TREVINO: That would be good. 14 MR. CLOWE: Thank you, Nelda. Next is 15 report possible discussion and/or action on HUB and/or 16 minority business participation. I believe Mr. Deviney 17 is absent today. 18 MR. NAVARRO: Yes, sir. Good morning, 19 commissioners. Again for the record, my name is Benito 20 Navarro, senior accountant, financial administration, 21 reporting on behalf of Joyce Berlicini, who is the 22 agency's HUB coordinator. Commissioners, included in 23 your notebook today is the agency's monthly HUB minority 24 contracting activity report, which includes all fiscal 25 year 2004 expenditures, paid from September 1st, 2003 to 49 1 October 31st, 2003. The agency's total expenditures for 2 this period is 14.3 million, and our estimated HUB 3 utilization is 8.6 million, which represents 60.54 4 percent. Due to our subcontracting payments made by our 5 prime vendors in September, our HUB percentages 6 continues to somewhat escalated. However, the 7 percentage of payments made to HUB vendors is beginning 8 to level out as payments to our prime vendors continue 9 to be made. 10 Also I would like to report that the Texas 11 Billing procurement commission released its fiscal year 12 2003 annual statewide HUB report last month. The Texas 13 Lottery Commission's total HUB utilization for fiscal 14 year 2003 was 18.4 percent. This represents an increase 15 of nearly six percent from the previous year. 16 Additional analysis of this report will be presented to 17 you at the December commission meeting. 18 Finally, please note that we have no 19 updates to report on the mentor protege program at this 20 time. Commissioners, I would be happy to answer any 21 questions that you have regarding any of these reports. 22 MR. CLOWE: Thank you. And I believe you 23 have the next item on the agenda as well. Are you going 24 to -- 25 MR. NAVARRO: No, that will be Daniel 50 1 Benjamin. 2 MR. CLOWE: Okay. Good. Thank you very 3 much. 4 MR. NAVARRO: Thank you. 5 MR. CLOWE: The next item is consideration 6 of and possible discussion and/or action on the agency's 7 business -- I am sorry, agency's contracts, number 11. 8 Daniel, you are going to make this report? 9 MR. BENJAMIN: Yes, sir. 10 MR. CLOWE: Thank you. 11 MR. BENJAMIN: Good morning, 12 commissioners. For the record, my name is Daniel 13 Benjamin. I am the budget supervisor. And attached in 14 your commission notebook is the weekly updated report as 15 of 11-17 of the Texas Lottery Commission's contracts, 16 with an estimated value of $25,000 or more. And 17 attached with that is the status of each procurement. I 18 am available for any questions that you have. 19 MR. CLOWE: Thank you, sir. 20 MR. BENJAMIN: Thank you. 21 MR. CLOWE: Next is item number 12, 22 consideration and possible discussion action on the 23 agency's business plan. Good morning, Mr. Anger. 24 MR. ANGER: Good morning, chairman. Good 25 morning, commissioner. For the record, my name is 51 1 Michael Anger, and I am a lottery operations director. 2 I am here this morning to give a brief report on the 3 agency's business plan. Since my last report, I have 4 worked with the legal division and other agency staff on 5 the development of a request for proposals for long 6 range and business consulting services. The RP has been 7 approved by executive director Greer and will be 8 released today. Interested vendors must submit their 9 proposals by January 2nd. The evaluation committee will 10 review the proposals and submit a recommendation to 11 executive director Greer. 12 The evaluation committee will be made up 13 of three members; marketing senior editor, Karen 14 Blizzard, financial administration budget analyst, Jason 15 Roatan, and myself, and I will be serving as the 16 committee chair. I have met with Karen Blizzard 17 regarding the development of the agency's strategic 18 plan, and we will be coordinating efforts over the 19 coming months related to the development of both the 20 business and strategic plans. This concludes my report, 21 I would be glad to answer any questions that you have. 22 MR. CLOWE: Thank you, sir. 23 MR. ANGER: Thank you. 24 MR. CLOWE: Next is item 13 for possible 25 discussion or action on the agency's strategic plan. 52 1 MR. GRIEF: Good morning, commissioners. 2 State agencies are required to submit a strategic plan 3 every two years, and our next plan is due in May of 4 2004. And this particular strategic plan will focus on 5 fiscal years 2005 through 2009. The basic format of the 6 strategic plan is determined by the legislative budget 7 board and governor's office of budget and planning. But 8 state agencies have a great deal of leeway in the 9 content and the presentation of the document. 10 I would like to introduce to you this 11 morning Ms. Karen Blizzard, our senior editor in the 12 marketing division, who I have asked to step up and 13 serve as the project manager for the development of the 14 agency's strategic plan. Karen will be working closely 15 with Nelda Trevino, Reagan Greer, Billy Atkins, and me 16 as our plan comes together over the next several months. 17 Karen has already put together a very comprehensive 18 project plan and schedule, and that is in the commission 19 notebooks this morning under tab number 13. 20 As you know, the development of an agency 21 business plan is also underway. And my intent is to 22 have these two documents compliment each other and make 23 them both useful tools for the agency as we move 24 forward. 25 We want this new strategic plan to be a 53 1 reflection of where this agency is going over the next 2 five years. In looking back at the last strategic plan 3 and examining certain performance measures known as 4 outcome measures, which are reported on an annual basis, 5 there are a total of 17 measures agency wide. And of 6 that 17, we exceeded our targets in 13 areas. We met 7 our goal in one area. And we have room for improvement 8 in three others. However, a greater importance to us is 9 the question of are these the measures that really 10 define whether or not we are doing an excellent job. 11 And we are going to be taking a hard look at this as we 12 work our way through this project. 13 Although our previous submissions of 14 strategic plans have been acceptable to both the LBB and 15 the governor's office, and in some cases have been 16 commended for the content of the plan, we want to do 17 better. We think we have an idea how to do so, and it 18 starts with a clear focus on our new mission statement 19 and our commitment to goal setting. We also plan on 20 using what we learned during the recent Sunset process, 21 as the strategic plan is yet another opportunity for the 22 agency to talk about our successes but also to 23 self-examine and see if there are areas in our 24 organization where we have room for improvement. We 25 don't want this to be a document that is created and put 54 1 on a shelf. We want it to be a document that we will 2 use as a guide over the next five fiscal years. As we 3 move through the development of the agency's strategic 4 plan, I will be asking Karen to come forward on 5 commission rules, and she will be making progress 6 reports on those. And both Karen and I are available to 7 answer any questions. 8 MS. BLIZZARD: Good morning, 9 commissioners. For the record, I am Karen Blizzard, 10 senior editor in the marketing division. If you have 11 any questions this morning regarding the timeline that 12 is included in your binders, we will be happy to address 13 those. 14 MR. CLOWE: Thank you for your excellent 15 explanation. It answered all my questions. I just have 16 one. This is a great agency. We have anger and grief. 17 We have blizzard. Can we have a storm? 18 MR. GREER: We will work on that. 19 MR. CLOWE: Would you work on that. Thank 20 you very much. 21 MS. BLIZZARD: Thank you. 22 MR. CLOWE: Next, item 14, report possible 23 discussion and/or action on the fiscal year 2004 agency 24 operating budget. Mr. Grief. 25 MR. GRIEF: I think that will actually be 55 1 Mr. Daniel Benjamin. 2 MR. CLOWE: Oh, okay. Sorry about that, 3 Daniel. I thought Gary was going to substitute for Lee. 4 You are going to handle it, huh? 5 MR. BENJAMIN: Yes, sir. Good morning, 6 commissioners. For the record, I'm Daniel Benjamin, the 7 budget supervisor, and I am here to walk you through or 8 actually provide a status on the operating budget. 9 Currently the operating budget is in draft format. We 10 are almost completed with that project. Although 11 numbers have been compiled, it is just out there for 12 final review right now to make sure there are no errors 13 or omissions. If you would like, I can walk you through 14 a high level overview of the budget. It is based on 15 your preference. 16 MR. CLOWE: Commissioner Cox, what is your 17 preference? 18 MR. COX: I think the walk through at a 19 high level will be a worthwhile thing. 20 MR. BENJAMIN: All right. What I would 21 like to do is walk you through the first several 22 schedules. That is more of a high overview of 23 accomplishing both the two divisions bingo and lottery, 24 and that will provide the method of finance and 25 expenditure detail and proposed expenditures for 2004. 56 1 The first page is the table of contents. We will skip 2 to -- 3 MR. COX: Daniel, let me ask a preliminary 4 question here. Are there any guidelines or guidance or 5 instructions from any of the leadership offices as to 6 things that we need to do this year that we haven't had 7 to do in the past? 8 MR. BENJAMIN: We have had to provide a 9 new schedule as a supporting schedule which is on the 10 retirements, the early retirements, of taking advantage 11 of the early retirement, and that was provided by the 12 legislature. So they provided -- they have asked for a 13 supplemental schedule on that. That is one of the 14 primary items. 15 MR. COX: Are there any freezes or any 16 mandated cuts or anything of that nature? 17 MR. BENJAMIN: Yes, sir. There is -- we 18 were subject to the reduction for the management staff 19 budget which is the physical management statement 04-11, 20 and we were asked to reduce our budget for those 21 management staff ratio reductions. 22 MR. COX: Is that in addition to the FTE 23 reduction? 24 MR. BENJAMIN: No, sir -- I'm sorry, yes, 25 sir, that is. 57 1 MR. COX: Okay. So you will explain that 2 when you get to it? 3 MR. BENJAMIN: Yes, sir. 4 MR. COX: Okay. Thank you. 5 MR. BENJAMIN: And as far as the oversight 6 agency, the WEB has provided a -- has provided an 7 operating instructions on what to compile and provided 8 the schedules that need to be completed. And that's 9 what we are using. On page 1, under the summary of 10 budgets by strategy tab, it details the two goals that 11 we have, which are the lottery and bingo goals. Under 12 each one of those, you will see a breakdown of the 13 different strategies within each of those goals. And 14 you will see the expenditures for 2002, the expenditures 15 for 2003, and what is the proposed budget for 2004. And 16 just to add to that, this is the approved budget that 17 was approved by Gary at DED, and that is what we are 18 reporting here. 19 What you will see, you will see the total 20 budget for the lottery division being 166 million -- 21 $166.5 million for '04 and for the lottery, $12.4 22 million. And for bingo, $12.4 million. What is 23 different about that from this year is what has happened 24 with bingo prize allocations. That is now being 25 required to be reported above the line. It is being 58 1 reported as an expenditure for one of the strategies, as 2 in the past it was not. So basically, it is just a 3 pass-through expenditure. And these are the 4 expenditures that are distributed out and this would be 5 prize fees. That's, like I said, a high review of the 6 expenditures by strategy. 7 The next schedule you go to the next -- 8 MR. COX: Now, are you going to get into 9 more detail on how it is that we are going to cut the 10 expense of lottery operations by $16 million? 11 MR. BENJAMIN: I'm sorry, sir? 12 MR. COX: If I am seeing this correctly, 13 lottery operations expense in '03 was about 126 million, 14 and the budget for '04 is about 109 million. 15 MR. BENJAMIN: That's correct. 16 MR. COX: It is about a $17 million 17 reduction. Are you going to get into how we are going 18 to do that? 19 MR. BENJAMIN: What we have -- we won't 20 have in this document, we won't have any explanations as 21 to why. What we will have is showing you the 22 categories, the different categories that make up that 23 strategy, the operating expenditures, and you can -- it 24 will identify how much and where they have reduced, but 25 it will not identify what the reduction was. 59 1 MR. COX: Okay. How do we get at that? 2 MR. BENJAMIN: I can provide that detail 3 for you on whatever you need. I can go ahead and at a 4 later date give you that information as to how that was 5 reduced. 6 MR. COX: Okay. Well, at some point, and 7 I guess are we going to be asked to vote on this today? 8 MR. BENJAMIN: We will need -- 9 MS. KIPLIN: Can I answer that? 10 MR. BENJAMIN: Yes. 11 MS. KIPLIN: I got into this process 12 Friday, sometime Friday, and I am taking a look at the 13 one provision that has been referred to in a form 14 certificate that I am -- what I have been told by Mr. 15 Roatan within Mr. Benjamin's offices what is being asked 16 by the legislative budget board to have various key 17 people sign. So if you take a look at that particular 18 provision, and I have done it again this morning, I 19 don't actually see an action requiring the commission to 20 approve. And so my senses, and I have vacillated on 21 this, I must say, going back and forth, but my sense is 22 that what is not being asked of the commission, the 23 governing body, is approval of budget. What is being 24 asked of the commission is that the chairman of the 25 agency sign a certificate. And in my view, the chairman 60 1 acts in a representative capacity, so that what I am 2 thinking would be asked in terms of an action item would 3 be approval that the chairman be authorized to sign an 4 appropriate certificate on behalf of the governing body. 5 As Mr. Benjamin indicated this is a 6 budget, fiscal year '04 budget. And here it is today, 7 November the 24th, and we have been running on this 8 budget since September 1. The budget in the 9 instructions, and also the provision that I have read, 10 sets it no later than date of December 1st that the 11 budget needs to be filed with the LBB in the format 12 required by that particular office, as well as the 13 governor's office on budget and policy and planning. 14 So I am having a hard time in my own mind 15 reconciling a deadline of December 1 in a fiscal year on 16 the budget when September 1 is the beginning of the 17 fiscal year. And I will need to have some further 18 communications with folks within the LBB's office as 19 well as the governor's office, and I am thinking 20 lawyers, to try to get an idea of how those connect. 21 And that's why it makes me think that you have got a 22 manage -- management action that has to occur from a 23 practical point of view in terms of running on a budget, 24 but then there is a filing process to be filed with the 25 different reporting offices. Is that responsive to your 61 1 question? 2 MR. COX: I think it leads me to another 3 question, Mr. Chairman, which is there is a certificate 4 that apparently you are going to be required to sign. 5 What did you want before you sign that certificate? 6 MR. CLOWE: You are right on target, 7 Commissioner Cox. The general counsel and I have had a 8 number of conversations about this certificate over the 9 past few days, and it presents some difficulty in coming 10 up with the certificate in my mind. The general counsel 11 has produced a certificate, which in her opinion is 12 correct and proper for the commission to consider. And 13 it is a commission action, and we are discussing now 14 authorizing me as the chair to sign. 15 The certification is required by December 16 the 1st of this year or we are prohibited from expending 17 the funds in the budget year. We are asking, I think if 18 the commissioners are satisfied with this budget, that a 19 motion be considered that is broad enough to allow me, 20 as the chair, with the authorization of the committee 21 to -- commission to sign this certificate, or a 22 modification of it that would be acceptable at a point 23 in time where these ongoing discussions might produce a 24 certificate that is satisfactory and required, and at 25 the same allows us a leeway we feel is required in 62 1 certifying this budget that reaches out into the 2 remainder of fiscal '04. It is a thing that we are 3 having a little problem with. So we are trying to get 4 in the middle of it to where we are doing what is 5 required, but at the same time, it is impossible for an 6 individual to certify a budget into the future if we are 7 going to follow a period. 8 MR. COX: Sure. 9 MR. CLOWE: And you certainly are 10 perceptive about that issue. General counsel is working 11 with the agency that we are dealing with to come under 12 their approval, and we are hopeful to work this out. So 13 that's the best answer I can give you at this time. 14 MR. COX: Okay. So you would like to have 15 action by this commission on this budget? 16 MR. CLOWE: And the general counsel will 17 offer up a motion that she and I had talked about that 18 we feel allows the proper position the commission will 19 take. 20 MR. COX: Okay. 21 MR. CLOWE: At the proper time. 22 MS. KIPLIN: And if I might just clarify a 23 few comments, Mr. Chairman. What is actually required 24 under the provision that is cited in this form 25 certificate, has to do with filing on or before December 63 1 1 of each year the itemized budget, covering operation 2 of that fiscal year with various offices in a format 3 that is prescribed jointly by the legislative budget 4 board and the governor. And my understanding from 5 talking with Mr. Roatan and Mr. Benjamin's office is 6 that part of the instructions that were forwarded for 7 this year is this form certificate which for the first 8 time requires -- as I have been told, requires the chair 9 of a governing agency to sign off on certification. 10 My concern has to do with the specific 11 language of that certificate, and I have placed calls, 12 voice mails, left messages for attorneys within both the 13 legislative budget board and the governor's office so 14 that I can discuss this with them. 15 MR. COX: All right, Daniel. Well, let me 16 tell you what I need to know. 17 MR. BENJAMIN: Okay. 18 MR. COX: Looking -- I am on page 1. 19 MS. TREVINO: Yes, sir. 20 MR. COX: I see that lottery operations in 21 '03 was 126 million, and that it is budgeted for '04 for 22 109 million. That is about a $17 million decrease or 23 about a 15-percent decrease. 24 MR. BENJAMIN: Yes, sir. 25 MR. COX: I am going to need to know how 64 1 we can do that without impairing our effectiveness in 2 operating the lottery. Marketing research and promotion 3 I see is up from '03 by 2.4 million or nearly half. 4 MR. BENJAMIN: Uh-huh. 5 MR. COX: I would like to know what we are 6 going to be doing there and how -- what kind of cost 7 benefit studies we have done that additional money that 8 we are going to be spending. And the same thing for 9 advertising. I see there that we are budgeting about a 10 six million, five-and-a-half million dollar increase, 11 which is 20 percent or so, and I would like to know what 12 cost benefit studies we have that support that increase. 13 MR. BENJAMIN: Yes, sir. 14 MR. COX: A general question about bingo 15 is how are we going to do about the same job that we did 16 last year with about ten percent less money? 17 MR. BENJAMIN: Okay. All right. I will 18 get those answers for you. As far as the first answer 19 on the lottery operations, that, if you notice, it 20 spikes in '03. It comes up from '02 to '03. And that 21 was part of the leaping forward that was brought 22 forward, the right before appropriations that was 23 brought -- 24 MR. COX: What was that, Daniel? 25 MR. BENJAMIN: It was the unused balance 65 1 that was brought forward for the right '04 of $13 2 million. That was brought forward from '02 to '03, 3 intstead of the '03. So you back that back out, 4 that levels -- that levels it back out, so it is only 5 about a four million increase -- or decrease. 6 MR. COX: Well, one thing that we know is 7 that our sales are increasing. 8 MR. BENJAMIN: Yes, sir. 9 MR. COX: And one thing that we know about 10 that is that we are going to pay G-Tech more money. 11 MR. BENJAMIN: That's correct. 12 MR. COX: So if the absolute amount 13 doesn't increase, that means that what we are spending 14 in-house must be going down. Are we cutting people? 15 Are we cutting salaries? Are we cutting paperclips? 16 How are we doing that? 17 MR. BENJAMIN: Yes, sir. Part of that 18 will be that. The other part will be that if our sales 19 do increase, we do have the right of forward 20 appropriations that comes into play. Which has happened 21 in '03 and in '02. So those be given additional 22 percentage of budget based on the sales that exceed that 23 target. That is not reflected here. 24 MR. COX: So the number that you have 25 budgeted here is based on flat sales? 66 1 MR. BENJAMIN: That's correct. It's 2 actually based on what were appropriated, and it is 3 based on the BRE, the biannual revenue as has been 4 provided by the comptroller which is what our budget is 5 based on. 6 MR. COX: And so we are budgeting flat 7 sales? 8 MR. BENJAMIN: Yes, sir. 9 MR. COX: But we don't believe we are 10 going to have flat sales? 11 MR. BENJAMIN: We are not going to have 12 flat sales. 13 MR. COX: Tell me what rule it is that 14 says we budget flat sales when we don't believe we are 15 going to have flat sales? 16 MR. BENJAMIN: What it has been, it has 17 been the past since I have been here, sir, we have 18 always budgeted based on a conservative estimate, and we 19 will come back in the LAR, and what we will do in the 20 LAR is report the actual sales that did occur, and what 21 our estimated expenditures will be in '04 based on the 22 sales that have progressed. 23 MR. COX: So the people that we report 24 this to are okay with us recording flat sales which are 25 conservative as opposed to what we are really targeting 67 1 sales to be? 2 MR. BENJAMIN: My understanding is that 3 has been the common practice that we have had in several 4 years that I have been here. And there nas not been an 5 issue with that before. But it is not out of the 6 question that's been asked of them, if they want that 7 provided any differently that I am aware of. 8 MR. COX: Okay. So what I think I am 9 hearing is that this document doesn't include sales that 10 we believe we are going to have, so it doesn't include 11 the expenses we believe that we are going to have? 12 MR. BENJAMIN: That's correct. 13 MR. COX: And so we are able to plan on 14 more expenses that are not on this document because we 15 think we are going to have more sales that are in this 16 document? 17 MR. BENJAMIN: In a roundabout way, yes, 18 sir. More so what it will be is it is really the 19 expenditures are tied to the sales that we have run 20 before. 21 MR. GRIEF: Let me try to offer some 22 clarification, if I can. 23 MR. COX: Thank you, Gary. 24 MR. GRIEF: My experience, Daniel, has 25 been that the money that has been appropriated to the 68 1 lottery has always been based on biannual revenue 2 estimates provided by the controller's office. So it is 3 not a function of what we project sales to be. It has 4 been a function of what the BRE has projected. 5 MR. COX: Okay. That is a different 6 story. 7 MR. GRIEF: I hope that gives you a better 8 understanding. 9 MR. COX: It does, yes. So what we are 10 not -- what we think revenue is going to be is not 11 important to this process, it is what the controller 12 thinks revenue is going to be? We budget based on what 13 the controller thinks revenue is going to be because 14 that is what we are told to do? 15 MR. GRIEF: That's correct. 16 MR. COX: Thank you. That helps me. So 17 then I guess, Daniel, that leaves me with my questions 18 about marketing and advertising, and then the general 19 question about bingo. 20 MR. BENJAMIN: Yes, sir. And I will get 21 you those answers. 22 MR. CLOWE: Shall we pass over the 23 discussion and any action on this item and return to it 24 later in the meeting, give you some time? 25 MR. BENJAMIN: Yes, sir. 69 1 MR. ATKINS: Can I address Commissioner 2 Cox' question as it relates to bingo? 3 MR. CLOWE: Yes. 4 MR. ATKINS: I think the biggest change in 5 the bingo is through negotiations with Gary and Reagan, 6 bingo division has other than direct payments that we 7 have made to the lottery. So that's where our biggest 8 productions are. 9 MR. COX: Okay. So you are going to be -- 10 you are going to have about the same money to operate on 11 and be able to call on the same corporates, if you will, 12 or staff services, but you are not going to have a 13 charge for those? 14 MR. ATKINS: Right. We have -- we have 15 had to make some reductions, for example, in our 16 travels, specifically as it relates to the operator 17 training program. So we are holding more of those 18 within the immediate area of the regional offices. But 19 there is otherwise no real significant reduction on the 20 services, no, sir. 21 MR. CLOWE: Well, I thought I saw, Billy, 22 here where your travel is projected to increase in '04 23 over '03? 24 MR. ATKINS: I think those are for the -- 25 the audits and the security? 70 1 MR. BENJAMIN: The security audits and 2 then the operator training programs. 3 MR. ATKINS: I didn't think we were 4 increasing it for the operator training program. 5 MR. CLOWE: Let's find it and verify what 6 it is, if we can, please. 7 MR. COX: I am not familiar with this 8 document. What page would that be on or what title 9 would that be under? 10 MR. CLOWE: Hold on a minute. We are 11 looking for it. 12 MR. BENJAMIN: Are you looking for the 13 individual travel detail for the strategy level -- 14 MR. CLOWE: Yeah, bingo. 15 MR. BENJAMIN: Bingo. So that would be 16 under the strategy level detail tab. 17 MR. CLOWE: What page? 18 MR. BENJAMIN: That would be starting on 19 page 15 forward. That would detail the different bingo 20 strategies. 21 MR. CLOWE: Page 15? 22 MR. BENJAMIN: Yes, sir. 23 MR. ATKINS: It is an increase, 24 Mr. Chairman, if I am reading this correctly, over '03, 25 but it was also in '03 where we began to reduce those 71 1 from the operating training program. It is on, I think, 2 page 15. 3 MR. CLOWE: Okay. That is not the number 4 that I had, and I am having trouble locating it. I will 5 look for that while Benjamin is looking for his answers, 6 and then maybe my question will have more sense to it 7 when we come back. 8 Commissioner Cox, you are satisfied with 9 Billy's answer to your question regarding bingo to this 10 point? 11 MR. COX: Yes, sir. 12 MR. CLOWE: Okay. Benjamin, we will come 13 back to this item later in the meeting. 14 MR. BENJAMIN: Yes, sir. 15 MR. CLOWE: Thank you. Now, we are ready 16 to take up item 15, consideration and possible 17 discussion and/or action on the agency's internal audit 18 charter. 19 MS. KIPLIN: Mr. Chairman, it is my 20 understanding that there is a request to pass on this 21 item until the next commission meeting. 22 MR. CLOWE: Very well. We will go to 16 23 then, consideration and possible discussion and/or 24 action, including proposal of amendments on TAC, number 25 403.401, use of commission motor vehicles. 72 1 MS. KIPLIN: Commissioners, the staff is 2 recommending that you propose amendments to this 3 particular rule for public comment in the Texas 4 Register. This is one of the rules that was a byproduct 5 of the rule review of Chapter 403, and the staff has 6 indicated that there is a need to initiate rule making 7 to amend the rule and be consistent with agency 8 practice. So at this time, the staff would recommend 9 you vote to propose the amendments to this particular 10 rule for public comment. 11 MR. CLOWE: Would you give us some 12 explanation on those amendments, please. 13 MS. KIPLIN: Sure. The proposed 14 amendments would require that an employee operating a 15 commission motor vehicle would also submit all fuel and 16 maintenance receipts to the commission fleet manager, as 17 well as the information that was already required by the 18 rule. The amendments would also clarify that an agency 19 that is operating a commission motor vehicle 20 should enter the beginning and ending dates of use in 21 the commission's vehicle log book, and also require the 22 number of passengers to be entered in the log book. And 23 that's to make it consistent. 24 MR. COX: How many vehicles does the 25 lottery commission have? 73 1 MS. KIPLIN: You have a very small fleet, 2 if you want to use the word fleet. I believe it is 3 three, but I may be wrong on that. And I see Mr. Anger 4 in the audience indicating that he agrees with the 5 number three. 6 MR. COX: And are these -- what kind of 7 vehicles are these? 8 MS. KIPLIN: These are -- we call them 9 vans. 10 MR. COX: There are no limousines? 11 MS. KIPLIN: No, sir, there are no 12 limousines. 13 MR. COX: There are no sports cars? 14 MS. KIPLIN: No, sir, there are no sports 15 cars. No, sir, there are no four-door passenger 16 vehicles. One is used for mainly I think -- oh, I hate 17 to use the word cargo because I am off on that. But 18 it's -- and another one would be where there were large 19 numbers of people that needed to be transported. So it 20 is a van, a passenger van. The other one is a vehicle 21 that is used by the security division. 22 MR. ANGER: That's correct. One of the 23 three is a truck that we use for transportation of 24 equipment. And so what we are talking about is a van, a 25 vehicle used by the security division, and then the 74 1 truck for transportation of equipment and supplies, and 2 things of that nature. 3 MS. KIPLIN: So I stand corrected, one 4 truck, two vans. 5 MR. COX: There is still no sports cars 6 and there is still no limousines? 7 MS. KIPLIN: That's correct. 8 MR. ANGER: I confirm that. 9 MS. KIPLIN: For the record, that was 10 Michael Anger, director of lottery operations. 11 MR. CLOWE: Who is authorized to drive 12 these vehicles? 13 MR. ANGER: Commissioner, it is agency 14 staff. And we have certain assigned personnel in the 15 support services division or section in the lottery 16 operations division that are assigned that 17 responsibility, and that is designated by the support 18 services manager who are to operate the equipment. 19 MR. CLOWE: So there is an official 20 designation of those individuals? 21 MR. ANGER: That's correct. They are 22 assigned out, sir. 23 MR. CLOWE: I beg your pardon? 24 MR. ANGER: They are assigned out, sir. 25 MR. CLOWE: How do we know those 75 1 individuals have valid driver's licenses? 2 MR. ANGER: That is conducted by the 3 security division upon employment with the agency. 4 There are certain positions that require the operation 5 of these vehicles, and the security division verifies 6 that information. And with regard to the security 7 division vehicle, they handle that internally. 8 MR. CLOWE: So nobody can just run down to 9 the basement and jump in a van and take off? 10 MR. ANGER: That's correct. 11 MR. CLOWE: And how do we compensate 12 individuals who use their personal vehicles for 13 commission business? 14 MR. ANGER: They are compensated through 15 travel reimbursement through the state's travel program. 16 They are compensated, if it is their vehicle, based on a 17 mileage requirement that is set out in the travel 18 guidelines. I believe it is 34 or 35 cents a mile 19 currently. 20 MR. CLOWE: And how is that authorized and 21 by whom? 22 MR. ANGER: For instance, in our division, 23 an employee makes a request for travel in advance that 24 is signed off by their manager and also by myself as the 25 division director. And I know that that is standard 76 1 practice within the agency. So the travel is approved 2 in advance. The employee goes out and conducts that 3 travel and then submits travel vouchers for 4 reimbursement through the financial administration 5 division. 6 MS. KIPLIN: Mr. Chairman, if I could 7 follow up on the questions that you are asking, and go 8 back and be a little more comprehensive than I was 9 before. Part of what we are also proposing is that 10 there be -- provisions of this rule be deleted. One has 11 to do with the background investigation, an employee 12 being eligible to use it if they have passed the 13 background, possess the valid, and have a, quote, 14 satisfactory driving record, along with complying with 15 all federal and state laws. 16 The reason we are taking out of the rule 17 is because the rule by definition in the APA is 18 something that is generally put to third persons outside 19 of the agency. This is more appropriate for an internal 20 procedure. We have not had great debate within the 21 division of those that have an interest in this 22 particular activity on what quote is a satisfactory 23 driving record. And we will be working that out through 24 a procedure. 25 MR. CLOWE: I think these things are 77 1 important. This is the kind of thing that state 2 agencies can take for granted and not pay attention to, 3 and then something happens that is unfortunate, and you 4 find that you are not controlling this, you are not 5 oversighting it as you properly should. So I think we 6 are in an area that we need to make certain we are doing 7 the right thing and we have good controls on it. When 8 you operate a vehicle on the roads and the highways in 9 this state, there is a lot of responsibility there. And 10 the agency, when it owns vehicles, is responsible. So I 11 am glad to see you are paying attention to this and 12 controlling it properly. 13 MR. COX: Do we need a motion? 14 MS. KIPLIN: Yes, sir, I would like for 15 there to be a motion that you would vote to propose the 16 proposed amendments for public comment for publication 17 in the Texas Register. 18 MR. COX: So moved. 19 MR. CLOWE: Second. All in favor, please 20 say aye. 21 (All in favor.) 22 MR. CLOWE: Opposed, no. The vote is 2/0 23 in favor. Thank you, Michael. Next is item number 17, 24 consideration of possible discussion and/or action on 25 Lotto Texas online game. Mr. Greer. 78 1 MR. GREER: Commissioners, I asked 2 specifically that this item be placed on the agenda for 3 just a couple of reasons. Obviously, the first one and 4 the one that is on everybody's mind right now in the 5 agency and outside probably, too, is the fact that 6 Mega Millions is coming up. I wanted to reaffirm the 7 commitment that I have personally, as well as the staff, 8 to keeping Lotto Texas healthy. 9 As a part of that, I wanted to reflect 10 back on some remarks that came forward at the capitol, 11 number one, when we met with both groups, and then as a 12 follow-up from our financial division that I made when 13 we did the kickoff on Mega Millions as far the 14 cannibalization rate is concerned. The number that I 15 had thrown out and the overall perspective that was 16 given was 21-percent figure in reference to how 17 Mega Millions would affect Lotto Texas. The 21 percent 18 is the benchmark -- 19 MR. COX: Reagan, just to give this a 20 number, Lotto Texas is about 550 million, so your 21 original computations reveal maybe $100 million item 22 cannibalization. 23 MR. GREER: Yes, sir. And that was kind 24 of where I wanted to have your mind-set. So you are 25 right on target. That is what I am going to be looking 79 1 at, is that 21 percent level overall. And you know, we 2 went into the process of looking at the information that 3 was given at the capitol, specifically out of New York, 4 they were looking at around a 30 percent, keeping it 5 under 30 percent. There are other states that had less. 6 There are some that had more. So we came in in our 7 initial aspect of looking at both games, and 21 percent 8 was the figure that was thrown out. So over the next 9 couple of weeks, I am really going to monitor that. The 10 kickoff, obviously, is not until December 3rd, but once 11 that starts up, I want that to be an issue for each of 12 you, as well as staff, to continue to focus on as we 13 look at how Mega Millions overall is affecting Lotto 14 Texas, and basically to be able to respond quickly. 15 And as a part of that, I really don't have 16 anything specific that I am bringing to today. It is 17 just that I want to react sooner rather than later. As 18 I look at the sales over the last two years and what has 19 gone on with the matrix, obviously, Lotto Texas is a 20 jackpot driven game. Specifically, today is a good 21 example. We are at 10 million on Lotto Texas. 22 Mega millions is at 21 million. So you, as the player, 23 are going to walk in, and you are going to have to, you 24 know, do the balancing act about where you are going to 25 spend your buck and what you are going to do with it. 80 1 And I just want that to be out there. We are really 2 looking at this current matrix, which is pre me, before 3 I came on board, delivers a jackpot between 60 and a 4 hundred million. Since I have been around over this 5 six-month period, after implementing the new matrix, we 6 have hit 47 million. There are a lot of things that are 7 going on with that that I am looking at. 8 However, moreover, I just wanted it to be 9 on record and stated and discuss it with you briefly 10 that if that 21-percent benchmark is out there, and if 11 over the first few weeks and into the first few months 12 of the game, we see, you know, more cannibalization than 13 we anticipated, for whatever reason, being jackpot 14 driven, otherwise, I want to be able to react and ask 15 the staff to look into bringing me some options on what 16 we might want to do. An example of that would be a 17 matrix change, you know, go back to the drawing board 18 and relook at that. 19 If I come into this scenario with fresh 20 eyes, that's where I am, and part of that might be the 21 Bonus Ball. Part of it might be a whole different game. 22 So I am going to keep this on the agenda, this month, 23 next month, next month. I really want to watch what is 24 going on with Lotto Texas because I am committed to the 25 game. I think that there is a player base out there 81 1 that is committed to the game. They are very vocal 2 about it. Part of it we saw in our comments that came 3 out in the e-mails, you know, initially when we were 4 over there. I read those comments. I want people to 5 know that I didn't take that for granted. I know what 6 your thoughts are. They have some strong opinions about 7 Lotto Texas. 8 As I am out and about within the state, 9 which I will talk to you about in a minute, I ask 10 questions. And I get a lot of varying answers on them. 11 I am given the opportunity to weigh not only what is on 12 the retailer's mind but on the player's mind. So that 13 is really my reason for putting it on the agenda, is 14 that I am going to be monitoring this. I wanted to 15 throw out those figures to you that we will be looking 16 at. Gary and I have talked about it a lot, and will 17 continue to monitor with the help of financial and the 18 marketing division where we are going to go as a next 19 step. And wanted to give you an opportunity to ask any 20 questions on that topic. 21 MR. COX: Reagan, the 21 percent, as we 22 said, would result in cannibalization of about a hundred 23 million. If the number were 30 or even say very 24 pessimistically 40 percent, we would be talking about 25 150 to 200 million in cannibalization. It would still 82 1 by a long margin have been a good decision to go to the 2 Mega Millions. 3 MR. GREER: No question, because you are 4 still -- you know, it is kind of a -- it sounds negative 5 when you say cannibalization, it sounds like you are 6 doing something bad. You are taking away, but there are 7 still individuals that are out there playing the game. 8 It is just where they are going to spend their money. 9 And they may spend it on Mega Millions versus on Lotto 10 Texas. So I think we are going to progressively 11 continue to see numbers that are positive. There is 12 going to be a whole new player base, in my opinion, as 13 those Lotto jackpots, you know, are up there delivering 14 in the 80 and hundred, hundred plus million. It is a 15 random game, obviously. 16 We don't know for sure about that, but 17 that is certainly the idea that I have. But Lotto Texas 18 has been around for a long time. Just celebrated the 19 11th year anniversary the other day. And we knew going 20 into this game that when we're looking at a Wednesday, 21 Saturday draw, and now, you have got a new game with the 22 Tuesday, Friday draw, that there is going to be a 23 specific amount of money in people's mind that they may 24 want to spend on the lottery from an entertainment 25 perspective during the week. And they are going to have 83 1 to make some decisions, so we are going to see how their 2 decisions are affecting the game as a whole. 3 MR. COX: One of the things that I know 4 you and your staff looked into very carefully was what 5 to do with billboards. Billboards are very expensive. 6 There are only so many good ones in the world. They are 7 not immediately available when you want them. 8 MR. GREER: Right. 9 MR. COX: You, I know, considered putting 10 both Mega Millions and Lotto Texas on the existing Lotto 11 Texas billboards, and you found that they weren't big 12 enough, that this would be two messages that no one 13 could read as opposed to one message that people could 14 read. 15 MR. GREER: And the cost effectiveness of 16 that was not there as well. 17 MR. COX: What I see here that we have got 18 is a real opportunity between -- at least between now 19 and December 3rd to see what advertising does. My 20 perception has been that people drive by the Lotto Texas 21 sign out on I-35, going north, and they see a number 22 they like, and they stop at the nearest convenience 23 store and buy a ticket. Maybe that is not the way it 24 works. But if that is the way it works, we may see some 25 dropoff even before Mega Millions comes in because the 84 1 advertising has been cut in half and can affect that 2 billboard part. If it goes up, well, we will -- maybe 3 we will know something from that. I don't know. 4 MR. GREER: Right. 5 MR. COX: But I know you-all will be 6 carefully watching the Lotto Texas sales with that in 7 mind, perhaps particularly those locations that are 8 right past those billboards. 9 MR. GREER: Well, specifically, Liz and I 10 have talked about this, because through her research, it 11 has proven that both of these games are oriented around 12 being jackpot driven. And so the effectiveness of the 13 advertising will be right in line with what you are 14 thinking. If it's a high jackpot, they are going to go 15 and say, I want that game that is, you know, 102 16 million, or whatever it is that day. And they don't 17 really focus as much on the name of the game. It is the 18 size of the jackpot that they are looking at. So it 19 will give us an opportunity to do that. 20 You know, we looked and spent quite a bit 21 of time determining what we were going to -- how we are 22 going to split that out. And because it is a new game 23 and the enthusiasm for a multijurisdictional game is out 24 there for a while, we opted for 59 and 53, you know, not 25 again doing away with Lotto, but, you know, balancing it 85 1 out. And specifically where those billboards are 2 located in the metropolitan areas, that's a big part in 3 that. I have been pleased with the information that has 4 come back that has helped us be sure that we are 5 balancing that in each of the communities. And we will 6 continue to monitor that and keep you abreast of what 7 happens. 8 MR. CLOWE: I am glad you put this on the 9 agenda, and I think this discussion was very worthwhile. 10 I am concerned about the 21-percent rate. I think I 11 have seen a report here recently that raised that 12 estimate considerably to -- if I remember correctly, the 13 possibility of between 30 and 50 percent, which is not 14 the information that I think the commission had at the 15 time they made the decision. That is a retrospective 16 view, and I am not sure it would have changed anything. 17 But Commissioner Cox made an excellent point about the 18 games balancing each other, if that's the correct way to 19 phrase it. 20 But I am continuing to be concerned about 21 Lotto Texas. And it seems to me we haven't reached the 22 potential or the projected jackpots that were presented 23 to the commission at the time we adopted the current 24 matrix. That isn't on your watch. But it is a thing 25 that I took part in, and I am watching that very 86 1 carefully. I understand that this game is jackpot 2 driven. Mega Millions I think was presented to us the 3 same way. I am also learning about player fatigue, and 4 Mega Millions comes in as a new game, a new opportunity. 5 That is part of the cannibalization, I guess, with Lotto 6 Texas. I am open to change as one commissioner. 7 I think we can look to the instant tickets 8 and see how innovativeness and change and attractiveness 9 of the product has endured to our benefit in that area. 10 And I am glad that you are pointing at this game, and 11 you are telling us you are aware of where it is, and it 12 has a loyal following. And I think we want to make it 13 attractive in the future as it has been in the past as 14 we develop the multijurisdictional game involvement in 15 our own activities as well. Let's not let mediocrity be 16 accepted in regards to this game. 17 MR. GREER: I agree. I think that the 18 numbers that came out, it is hard to believe that that 19 was back in June, you know, that we were at the capitol, 20 and utilizing those types of figures, probably were true 21 at the time. And they may hold true, you know, today. 22 But one of the things that I mentioned to you and I will 23 get into further in any report here in a few minutes, is 24 the value of having the relationships with those other 25 states. And specifically, I am taking advantage of 87 1 that, and asking questions about how it affected their 2 in-house game, having more time, you know, passed. They 3 have got better information that are out there. So that 4 is part of why I am bringing it up to because recently I 5 was with them, and in getting answers to those 6 questions, thought that I needed to at least put it on 7 everyone's radar screen. And that is why it is on the 8 agenda today. 9 MR. CLOWE: That's good. Thank you, 10 Reagan. I am going to suggest that at this time we take 11 a short recess, and when we return in about ten minutes, 12 we will go to consideration and status of possible entry 13 of orders in the items in item 20, and then we will 14 cover, 21, 22, and 23 prior to consideration of moving 15 into executive session. So we will take a ten-minute 16 recess at this time. 17 (Recess taken.) 18 MR. CLOWE: The commission will now 19 consider, under item 20, the status and possible entry 20 of orders in cases letter A through EE. Counselor, 21 would you help us with these. 22 MS. KIPLIN: Yes, commissioners, if I 23 might, I would like to take these up in different 24 groupings. 25 MR. CLOWE: Certainly. 88 1 MS. KIPLIN: The first grouping would be 2 the lottery orders, and that would be A through H. 3 These are routine orders originating from a retailer's 4 inability to have funds available at the time that the 5 commission swept. Each of these is a -- was the subject 6 for a contested case proceeding at the state office of 7 administrative hearings. In each of these, the 8 administrative law judge for the particular case has 9 recommended revocational license of the staff. His 10 recommendation to you today is that you do vote to adopt 11 the proposal for decision and the recommendation of the 12 licenses for these respective licensees be revoked. 13 MR. CLOWE: So moved. 14 MR. COX: Second. 15 MR. CLOWE: All in favor say aye. 16 (All in favor.) 17 MR. CLOWE: Opposed, no. The motion is 18 2/0 in favor. That covers dockets letters A through H. 19 MS. KIPLIN: Yes. As to letter H, that is 20 the matter of Petro Express Management, L.L.C. and James 21 T. Youngblood, Tax Refund Claim. Commissioners, is this 22 a motion for rehearing? I have asked Mr. Bennett, and 23 he has been carved out of this process. He has not -- 24 he has had no discussions regarding the facts or the law 25 in this particular matter. And I have asked him because 89 1 I supervised Ms. Wilkov to take this case, and he is 2 available for legal advice either in the executive 3 session, which is properly noticed, or in the public. 4 Ms. Wilkov has represented the staff throughout this 5 process. If you will recall, this is the docketed item 6 that was before you at the time for consideration of the 7 proposal for decision. 8 You did have an attorney represent the 9 petitioner, James T. Youngblood, at that time. At that 10 time, if you will recall, you voted to adopt the 11 administrative law judge's proposal for decision in an 12 order denying Mr. Youngblood's claim for a tax refund. 13 He has since procedurally has filed a motion for 14 rehearing. Because of the time restrictions within the 15 Administrative Procedure Act, executive director Greer 16 did enter an order extending the time for you-all to act 17 so that this motion would not be overruled -- his motion 18 would not be overruled by operation of law. And that 19 leads you to today. 20 I will say that Mr. Youngblood did attend 21 the meeting -- the commission meeting earlier this 22 morning. He has an active interest in this matter. He 23 did not make a request for oral argument, and in my 24 view, that does not preclude him from his ability to 25 have exhausted his administrative remedies, which would 90 1 be an action on the motion for rehearing. It is also my 2 understanding that if you-all do overrule this motion 3 for rehearing, he does -- he does tend to seek judicial 4 review of your order here in Travis County District 5 Court. With that, I will turn it over to Mr. Bennett. 6 I think I have done a fair job in terms of the 7 procedural aspect, so I will turn it over to Mr. Bennett 8 and also Ms. Wilkov who is here -- Ms. Wilkov is here in 9 an advocate position representing the staff. 10 Mr. Bennett is here as your lawyer. 11 MR. BENNETT: Commissioners, for the 12 record, my name is Ridgely Bennett. I am the deputy 13 general counsel of the Texas Lottery Commission. And I 14 think Ms. Kiplin did an excellent job setting forth 15 where we are procedurally in this case. I would be 16 happy to answer any questions regarding procedure at 17 this time, if you have any. 18 MR. CLOWE: I think she did, too. Are 19 there any questions? 20 MR. COX: No. 21 MR. CLOWE: I would move the adoption of 22 the recommended order in letter I. 23 MS. KIPLIN: Mr. Chairman, may I -- may I 24 help maybe rephrase that motion just a bit. 25 MR. CLOWE: Certainly. I will withdraw 91 1 that motion, and you give me the motion. 2 MS. KIPLIN: What is before you today is 3 either overrule -- the commission overruling Mr. 4 Youngblood's motion for rehearing or granting the motion 5 for rehearing. 6 MR. CLOWE: There is no -- there is no 7 request for a rehearing? 8 MS. KIPLIN: It is a request for 9 rehearing. His motion for rehearing requests that -- 10 well, I will turn it over to Mr. Bennett. Now, we are 11 getting the substantive part. 12 MR. BENNETT: Commissioners, petitioner 13 has requested a rehearing in this matter. 14 MR. CLOWE: My motion is to deny the 15 request. 16 MR. BENNETT: Overrule would be the 17 technical. 18 MR. CLOWE: Overrule? 19 MR. BENNETT: Correct. 20 MR. CLOWE: All right. Is that the 21 verbiage you want? 22 MR. BENNETT: Yes, commissioner. 23 MR. COX: Second. 24 MR. CLOWE: All in favor say aye, oppose, 25 no. 92 1 (All in favor.) 2 MR. CLOWE: The vote is 2/0 in favor. 3 MR. BENNETT: I have an order for you-all 4 to sign. 5 MR. CLOWE: Okay. Now, we are ready to go 6 to subsequent items, counselor. 7 MS. KIPLIN: Yes. If I could take up now, 8 the third grouping would be letters J through DD, J 9 through DD. Commissioners, all of these are a matter of 10 an agreement between the parties and a consent order. 11 They all -- while they are different dockets, they all 12 arise from the -- the same set of factual basis, same 13 allegation of violations in Bingo Enabling Act. Ms. 14 Wilkov was the attorney on behalf of the bingo division. 15 Mr. Atkins has recused himself from this matter in terms 16 of being the -- the one within the bingo division to 17 work with Ms. Wilkov, and Mr. Sanderson has been her 18 client representative. 19 And I will turn it over to Ms. Wilkov and 20 Mr. Sanderson to lay out the issues before you in these 21 consent orders. I will tell you that it is my 22 understanding that staff does recommend that you vote 23 to -- vote to approve the consent order as proposed by 24 the staff, and as agreed to by the parties. 25 MS. WILKOV: Good morning, commissioners. 93 1 We are here today concerning these 21 cases that are 2 scheduled here for consideration of a consent -- consent 3 order entry. And basically, these cases involve the 4 violation of advertising provisions of the 5 administrative rules of bingo. And just briefly, 6 they -- the organization has created a website that did 7 not include the names of the organizations, which is a 8 violation of 16 Texas Administrative Code, Section 9 402.548. The terms of these consent agreements are that 10 they -- these organizations agree that if they do 11 advertise or participate in advertisement, that they 12 will clearly identify the conductor. They also agree to 13 implement procedures. And that means that they need to 14 keep and review bingo rules and statutes, and they need 15 to make sure that the advertisement is in compliance 16 with the statutes and rules. 17 And they did have legal representation on 18 these cases. As you will see, Steve Fenogino was 19 involved in these cases. So we do feel that it is a 20 fair and equitable and reasonable agreement, and we 21 would recommend that you approve the consent order. 22 MR. CLOWE: Phil, do you have anything to 23 add? 24 MR. SANDERSON: Phil Sanderson, assistant 25 director of the charitable bingo operations division. 94 1 No, sir, I do not. They -- Penny laid it out just like 2 it happened. They created a website without the proper 3 documentation on it. They have agreed to -- they fixed 4 the website after it was noted, and then they have 5 agreed to the procedures that they set out in the 6 approved order. 7 MR. CLOWE: Approve the adoption of the 8 recommended order. 9 MR. COX: Second. 10 MR. CLOWE: All in favor say aye, oppose, 11 no. 12 (All in favor.) 13 MR. CLOWE: The vote is 2/0 in favor. 14 Thank you. 15 MS. KIPLIN: And commissioners, the final 16 docket EE, AMVETS Post 81, Mr. Oldham, I believe you 17 were the attorney on this matter, if I am not in error 18 of that. And Mr. Atkins is capable of being a part of 19 that particular docket. I don't see him. He might have 20 stepped out. But I will turn it over to Mr. Oldham to 21 handle this matter. Staff is recommending once again 22 that you do vote to approve the agreement and the 23 consent order, and the parties have agreed to it. 24 MR. OLDHAM: Good morning, again, 25 commissioners. For the record, my name is Kevin Oldham, 95 1 assistant general counsel. And I was the attorney of 2 record for this particular case. What this involves, 3 commissioners, is a particular taxpayer -- 4 MR. CLOWE: Kevin, let me interrupt you. 5 MR. OLDHAM: Sure. 6 MR. CLOWE: You are talking about case EE, 7 AMVETS Post 81 only; is that correct? 8 MR. OLDHAM: That is correct. I 9 apologize. 10 MR. CLOWE: Go right ahead, please. 11 MR. COX: What this involves is the 12 taxpayer or licensee. They sent in an amendment 13 application to change their times of conducting bingo, 14 and they subsequently went ahead and conducted bingo at 15 that time without getting written approval from the 16 commission. The agreed order and the consent is before 17 you today provides for training for two of the officers 18 of the -- of AMVETS 81. It also provides for a 19 procedure to ensure that this type of violation never 20 occurs again. That procedure in particular states that 21 at least two of the officers will have -- will verify 22 that they received written communication from the 23 commission authorizing a change in time to conduct 24 bingo. 25 MR. CLOWE: Mr. Atkins, do you have 96 1 anything further to add on this? 2 MR. ATKINS: No, sir. 3 MR. CLOWE: Any questions? 4 MR. COX: Was this a good faith error? 5 MR. OLDHAM: The opposing counsel did 6 state that it was not the intent of the licensee to make 7 this change. They assumed that the change had been 8 approved when they conducted. So I -- from the facts 9 that we have, it would appear it was a good faith 10 mistake. 11 MS. KIPLIN: And commissioners, this goes 12 into the category of what I would call mitigation 13 circumstances on a violation that would lead to a 14 consideration just to even begin with in terms of 15 entering an agreed order on taking a lesser disciplinary 16 action than revoking someone's license. 17 MR. CLOWE: Is there a motion? 18 MR. COX: So moved. 19 MR. CLOWE: Second. All in favor, please 20 say aye. 21 (All in favor.) 22 MR. CLOWE: Oppose, no. The vote is 2/0 23 in favor. Do you have an order? 24 MS. KIPLIN: Yes, sir, I do. That 25 concludes all the orders -- proposed orders under this 97 1 item. 2 MR. COX: Thank you, commissioners. 3 MR. CLOWE: A question for clarification, 4 counselor. Did we cover CC and DD in the group 5 beginning with J? 6 MS. KIPLIN: Yes, sir. 7 MR. CLOWE: Okay. I had mismarked my 8 agenda. I wanted to make sure that I had that 9 understanding. Thank you very much. 10 Now, we are ready for item 21 reported by 11 the executive director. Mr. Greer. 12 MR. GREER: Good morning. I want to start 13 my report today by deferring to the deputy executive 14 director to give you an overview on some recent office 15 closures. 16 MR. GRIEF: Commissioners, as with almost 17 every other state agency in Texas, during the recent 18 legislative session, our agency was impacted by budget 19 cuts. And for our agency, those budget cuts meant not 20 only a reduction in the amount of funds available to 21 operate the agency, but also a reduction in the number 22 of FTEs or full-time equivalent positions that our 23 agency is able to utilize. And recently some very 24 difficult decisions were made by agency management. 25 Five claim centers, including Waco, Wichita Falls, 98 1 Sherman, San Angelo, and Bryan will be closed at the end 2 of January 2004. In addition to that, one position in 3 the San Antonio claim center and one position in the 4 Tyler claim center will also be reduced as of the end of 5 January, for a total of 13 FTEs involved in this 6 process. 7 Employees that were involved in this 8 reduction were notified last month of this scenario and 9 were given a 90-days' notice. And those staff will be 10 given preferential treatment for posted positions 11 elsewhere in the agency in which they are qualified. In 12 addition, we also made contact with members of the 13 legislature whose districts were affected by these 14 office closures so that those members involved were 15 properly notified of our intent. I would be happy to 16 answer any questions. 17 MR. COX: Gary and Reagan, I want to 18 commend you on what you did here. The previous policy 19 of the -- or practice of the commission had been to 20 review leases at the time of expiration and decide 21 whether to reopen them or not. And as I understand it, 22 you looked at the entire structure and rationalized it, 23 and that's the way I think those ought to be done. 24 MR. GRIEF: And a great deal of credit, 25 commissioners, I want to make sure you know goes to 99 1 Michael Anger, the lottery operations division director. 2 Michael played a key role in helping us analyze the 3 situation. 4 MR. CLOWE: Thank you, commissioner Cox 5 for those comments. I totally agree. 6 MR. GREER: Also wanted to thank Nelda for 7 helping coordinate with the executive leadership of the 8 state as well as legislators specifically. I felt real 9 good about the way that we rolled this whole thing out. 10 And Gary did a great job as well in the process. You 11 don't have any more questions on that? I would like to 12 go -- thank you. I would like to go into a couple of 13 other things just to brief you on what I have been doing 14 the last month since we met last. I touched on earlier 15 the Mega Millions game, which has obviously been the big 16 focus of where we have been lately. And it has been my 17 first official meeting of the Mega Millions organization 18 on December the 10th in New York City. We met at DDB 19 Worldwide Headquarters with the New York lottery 20 coordinating the meeting. Went well. Discussed a 21 number of the issues that we brought up at our last 22 commission meeting as far as things that we wanted to 23 address by the group as a whole. Made major progress on 24 building relationships and getting the, you know, 25 substantive points of what we talked about in front of 100 1 that group as a point of discussion in the future. We 2 are on target. 3 Our advertising is underway. The TV, 4 radio, and billboards have been discussed. You will see 5 them rolling out. Our kickoff is scheduled for December 6 the 3rd, 5:45 a.m. at the Fiesta Food Mart at 3909 North 7 IH-35. The first tickets will go on sale then at six 8 o'clock, the idea being that we will kick off those 9 sales at six o'clock. The intent of the press 10 conference will be to let people know it is out there. 11 We will be turning on the billboards. We will be giving 12 the word for the, you know, software to go up across the 13 state, with the first drawing to be on December the 5th. 14 I wanted to thank again the staff for all 15 the work that they have done in coordinating with G-Tech 16 and the other entities that were involved in this 17 process to get the game up prior to the end of the year. 18 Couldn't do without it. 19 I attended a retailer forum in Tyler on 20 October the 23rd. Had a great turnout. A lot of 21 enthusiasm in that group was oriented around the new 22 holiday scratch-off games. We have talked a lot about 23 that with them, as well as the Mega Millions. And we 24 also discussed Lotto Texas. 25 I was able to travel to Hebbronville. It 101 1 is a place about an hour from Laredo, south, and present 2 a check to Fandango's Food Store for $150,000 on October 3 the 27th. As you know, I have continued to make myself 4 available. And I am on the speaking circuit and spoke 5 to the Humble Rotary Club, Wednesday, November 19th. I 6 was in San Antonio speaking to a group last week on 7 Thursday. I enjoy getting out and visiting with people. 8 A lot of questions were asked. And I will continue to 9 play an active role in getting the word out as far as 10 what is going on with the lottery and accepting speaking 11 invitations as possible. 12 Good news in working with our security 13 group, the Latin lotto scam had a victory in the 14 Sugarland Police Department region of our state. 15 Recently there were two arrests made on the Latin lotto 16 scam. Gave a number of radio interviews on that. We 17 are making some progress down there. And I think 18 continuing to get the word out has been a real favorable 19 thing overall in helping to nab these two. 20 The state employee charity campaign came 21 to a close. This was something that I was personally 22 committed to, brought to the staff of the agency as a 23 whole to see if they would embrace it. They did embrace 24 it. 2002, we had a 3.8 percent employee participation 25 rate, nine donors giving $718. In 2003, we have got a 102 1 47-percent employee participation rate, of 110 donors, 2 $8710. And you have heard that thousand percent 3 increase, well, that is one of them. 1100 percent 4 increase. I am very committed to the fact that as an 5 agency in Austin, Texas, I feel that we need to be 6 community minded and be a part of making the quality of 7 life here better, and that's one way to do it, is 8 through the state employee program. 9 I wanted to thank Jaime Dudley, 10 specifically in HR for her work in coordinating that 11 campaign. 12 Our theme for the month is passing the 13 baton. The chairman was here for the presentation, and 14 the idea there being that, you know, as time goes by, we 15 are always in a position where the baton is being passed 16 around the agency, and specifically highlighted seven 17 different areas to work on in that vein. 18 Commissioner Cox, we had a Veterans Day 19 recognition as a part of that service, that day. And on 20 behalf of the Texas Lottery Commission, I wanted to 21 thank you for your service as a veteran to our country, 22 and wanted to present you with a certificate of 23 appreciation, and thank you very much for your work 24 there. 25 (Clapping.) 103 1 MR. GREER: I also presented one that day 2 to the chairman. I am glad you were here for that. I 3 feel that Veterans Day -- 4 MR. CLOWE: You didn't play the music for 5 him. 6 MR. GREER: I didn't. We can hum 7 or something. 8 MR. CLOWE: We don't even know what branch 9 of the service he was in. 10 MR. COX: United States Army. 11 MR. CLOWE: Okay. Caissoin. 12 MR. GREER: Caissons are rolling along, 13 sir. 14 MR. CLOWE: It was a very impressive 15 ceremony. I think, if I may comment, Reagan, at this 16 point in time, because I was there, the members of the 17 staff were appreciative of it. And the veterans, I 18 being one, was very appreciative of it. I told Reagan 19 it was the first time in my life I had ever been 20 recognized as a veteran. And that it is an emotional 21 moment, as you now have shared. And that is the kind of 22 thing that I think builds pride, builds esprit de corps. 23 I want to tell you that this last week I 24 was in Houston at a Grandparents Day, for my grandson. 25 It was a very large auditorium. And without any 104 1 knowledge on anybody's part, a winner of the 2 Congressional Medal of Honor was there and spoke to the 3 group, one of the 14 living members that held that, I 4 believe in the Air Force. And when he was introduced, 5 he received a spontaneous, standing appreciation, round 6 of applause. And that, I think, is significant of how 7 the public feels about our heroes. So this is very much 8 in line with that. And Commissioner Cox and I are very 9 appreciative of your noticing all the veterans in the 10 commission. 11 MR. GREER: Thank you for those words. 12 Again, it was a very busy month. A lot of great things 13 going on as far as getting information to be able to 14 make good decisions as we move forward into the 15 Mega Millions game, how it is going to affect the other 16 games. We are also watching what it will do 17 specifically, Texas Two Step, because it's drawing night 18 with Mega Millions coincides. But as a whole, the staff 19 has embraced this whole project in a very positive and 20 affirmative way, but in very methodical and deliberate 21 as far as the details are concerned. And I look out 22 there and -- well, she is not here anymore. But 23 security, and Conchita and Mike and that whole group 24 have worked really hard on being sure that we are 25 coordinating things well with the other states. I plan 105 1 to be here for the drawing on December the 5th 2 personally to be sure that everything does, you know, go 3 on cue. 4 The Mega Flyer feature, it is going to be 5 interesting to watch that. And we have got the 6 animation I think pretty much put in place, and that 7 whole new aspect of what technology can do for the 8 agency is certainly on our plate as well. So again, 9 thank you for the opportunity to be leading this 10 organization. And I am going to go on record wishing 11 you both a very happy Thanksgiving to your families. 12 MR. COX: Reagan, when you have this 13 Mega Millions drawing, there will be the Mega Flyer 14 drawing here. The big drawing or the jackpot drawing is 15 in Georgia; is that correct? 16 MR. GREER: Yes, sir, Atlanta. 17 MR. COX: And so that is a simulcast from 18 there, and you will make a local production, which will 19 then switch over to the simulcast? 20 MR. GREER: That will be tape delayed, and 21 we will coordinate it out that way. We have put in a 22 new satellite, which is part of the expenditures we have 23 talked about over here. 24 MR. CLOWE: The big dish. 25 MR. GREER: Yeah, it is a TV quality dish, 106 1 like a TV station would have, to be sure that we do get 2 a good signal. And I think it is going to work real 3 well. 4 MR. CLOWE: So the fact that the two 5 drawings take place in different locations is 6 transparent to the viewer? 7 MR. GREER: Yes, sir. 8 MR. CLOWE: It just happens instantaneous? 9 MR. GREER: Right. And then we will roll 10 it out with our other games just like we would in any 11 other drawing sequence. 12 MR. CLOWE: Reagan, what is the holiday 13 schedule for the commission this week? 14 MR. GREER: We are here. You know, the 15 setting here as far as state holidays is that we will be 16 off on Thanksgiving and Friday. But you know, we are 17 24/7, keeping things up and running. 18 MR. CLOWE: But as far as the state 19 holidays, it is Thursday and Friday? 20 MR. GREER: Yes, sir. 21 MR. CLOWE: So the commission will not be 22 open -- 23 MR. GREER: Yes, sir. 24 MR. CLOWE: -- officially on those two 25 days? 107 1 MR. GREER: Yes, sir. 2 MR. CLOWE: Great. Any other questions? 3 MR. COX: No. 4 MR. CLOWE: Mr. Atkins, please, sir. 5 MR. ATKINS: Commissioners, the only thing 6 that I wanted to add to my report is that we have been 7 informed by the security division that they anticipate 8 having the background investigations for the senior 9 audit manager completed by Wednesday. So we look 10 forward to filling that position shortly. 11 MR. CLOWE: Any questions? 12 MR. COX: No questions. 13 MR. CLOWE: Thank you, Mr. Atkins. Is 14 there anyone wishing to make comment to the commission 15 at this time? I see no one. Therefore, commissioner, 16 if it meets your pleasure, I am going to move that we go 17 into executive session. At this time, I move the Texas 18 Lottery Commission go into executive session to 19 deliberate the duties and evaluation of the executive 20 director and/or the deputy executive director, internal 21 audit director, and charitable bingo operations director 22 pursuant to Section 551.074 of the Texas Government 23 Code, to deliberate the duties of the general counsel 24 and security director pursuant to Section 551.074 of the 25 Texas Government Code, to receive legal advice regarding 108 1 pending or contemplating litigation and/or to receive 2 legal advice pursuant to Section 551.071(1(A) or (B) of 3 the Texas Government Code, and or/to receive legal 4 advice pursuant to Section 551.071(2) of the Texas 5 Government Code, including, but not limited to, TPFE 6 Group, Inc. vs. Texas Lottery Commission, Retired 7 Sergeant Majors Association, Et Al vs. Texas Lottery 8 Commission, Et Al, Patsy Henry vs. Texas Lottery 9 Commission, Sandy Shurber, Et Al vs. D-Tech Corporation, 10 Linda Cloud vs. Mike McKinney, Et Al, In the Matter of 11 Petro Express -- I don't believe we need to have this on 12 there, do we? 13 MS. KIPLIN: Well, you might want to 14 receive legal advice. I know you have already taken 15 action. But at this point, it has been a clear 16 expression to me, as well as to assistant general 17 counsel Wilkov, that he does intend to seek judicial 18 review, which means there would be litigation. You may 19 want to seek legal advice. It's an abundance of 20 caution -- 21 MR. CLOWE: I will add it in that -- in 22 that sense and for that reason. Thank you. In the 23 matter of Petro Express Management, L.L.C. and James T. 24 Youngblood, Tax Refund and Claim, Docket Number 25 362-02-3769, Bruce Alsup vs. Texas Lottery Commission, 109 1 Et Al. Employment law, personnel law, procurement and 2 contract law, evidentiary and procedural law and general 3 government law. Is there a second? 4 MR. COX: Second. 5 MR. CLOWE: All in favor, please say aye. 6 (All in favor.) 7 MR. CLOWE: The vote is 2/0. The Texas 8 Lottery Commission will go into executive session. The 9 time is 11:01 a.m. Today is November the 24th, 2003. 10 (Executive Session.) 11 MR. CLOWE: Texas Lottery Commission is 12 out of the executive session. The time is 12:42 p.m. 13 Is there any action to be taken as a result of the 14 executive session? If not, let's move back to the item 15 on the agenda that we passed over. That would be I 16 believe number 14, report possible discussion and/or 17 action on the fiscal year 2004 agency operating budget. 18 MR. NAVARRO: He is on his way down. 19 MR. GREER: He is on his way down, sir. 20 MR. CLOWE: Sorry? 21 MR. GREER: He is on his way down. 22 MR. CLOWE: Good. Reagan, since 23 Commissioner Olevera is not here, short of sending him a 24 copy of the transcript, I think the commission would 25 like to make sure that you visit with him and -- 110 1 MR. GREER: Absolutely. 2 MR. CLOWE: -- report to him on actions 3 taken and discussions so we can show him the courtesy of 4 keeping him up to speed and informing him of things that 5 have happened here. 6 MR. GREER: Absolutely, be happy to do 7 that. 8 MR. CLOWE: Great. So we will just wait 9 for Mr. Benjamin, and cover that item, and then I think 10 we will have concluded everything that is on the agenda. 11 MR. BENJAMIN: Sorry about being late. 12 MR. CLOWE: No problem. Go ahead, Daniel. 13 MR. BENJAMIN: For the record, I am Daniel 14 Benjamin, budget supervisor. In response to the 15 questions Commissioner Cox had on the operating budget, 16 variances that he asked about, regarding to item 1, 17 lottery operations, we discussed that earlier. I don't 18 know if you want further explanation on that. That 19 would be -- 20 MR. COX: No, I was satisfied with 21 director Grief's explanation. 22 MR. BENJAMIN: Okay. On item 2, the 23 decrease -- or actually, I am sorry, the increase in 24 marketing from FY 'O3 to FY 'O4, the marketing budget 25 for FY '03 is about 1.3 million more than the 111 1 expenditures that are shown there. Given this 2 increase -- 3 MR. COX: Excuse me. Excuse me, Daniel. 4 I was waiting for a call relating to lottery business 5 and that wasn't it. 6 MR. BENJAMIN: Sure. May I begin? 7 MR. COX: Go ahead. 8 MR. BENJAMIN: As I was saying, the FY '03 9 marketing budget was budgeted for marketing 1.3 million 10 more than the expenditures that are shown for '03. 11 Given this, the difference between the FY '03 budgets 12 and the FY '04 budgets is only $1.1 million. Marketing 13 has about $785,000 in the '04 budget that is related to 14 direct mailouts. That was not part of the FY '03 15 budget, and that makes it the majority of that increase. 16 MR. COX: So this is a new program. 17 MR. BENJAMIN: It's a new item. 18 MR. COX: That senior management has 19 approved? 20 MR. BENJAMIN: Yes, sir. Item 3, the 21 advertising increased from 28.5 to -- excuse me, in '03 22 to 34 million in '04. The 34 million is what the 23 lottery is authorized to expend. That is given to us by 24 the legislature. And that is -- that is the amount that 25 we are authorized to expend. So that is what is put 112 1 into that test strategy amount. The expenditures, you 2 know, based on as far as why the expenditures go down or 3 up, it depends on, you know, the amount of -- the 4 savings they realize when they do their advertising. 5 And so it can fluctuate up and down. We are not allowed 6 to exceed the $34 million. 7 MR. COX: Okay. 8 MR. BENJAMIN: And I think Billy addressed 9 the fourth item on the ten percent reduction and how 10 that was going to be handled. 11 MR. COX: Yes, he did. 12 MR. BENJAMIN: And chairman Clowe, you had 13 a question about the I think bingo -- 14 MR. CLOWE: Travel. 15 MR. BENJAMIN: Travel. And I was trying 16 to look for the number that -- 17 MR. CLOWE: I didn't find it. I see the 18 individual items are increased, but I didn't find the 19 summary number so. 20 MR. BENJAMIN: Okay. I was going to say 21 there is no summary number. There is a summary number 22 for the entire agency. I think that might be the 23 increase that you saw. 24 MR. CLOWE: Uh-huh. 25 MR. BENJAMIN: If you would like, I can go 113 1 back, take back up where we left off or -- 2 MR. CLOWE: I think we would like you to 3 do that. 4 MR. BENJAMIN: Okay. So under the summary 5 of budget by strategy tab, that is the page -- page 6 number 1 that we just addressed the variance on, the 7 difference variances. I would like to bring your 8 attention then to the next section, the summary budget 9 by method of finance. And basically, what that does is 10 it lists out the appropriations and the increases and 11 decreases to the appropriation for first the general 12 revenue which is bingo, and then the next page will 13 start with the lottery fund, which is 5025. 14 And you will see for FY '04, there is 15 $12.412 million that is appropriated to bingo division. 16 There is projected to be about 50 million -- I mean 17 $50,000 of reimbursements for pull tab testing, card 18 binding, and things like that. So it comes with a total 19 of $12.462 million for general revenue. 20 For lottery fund 5025, you will see 21 regular, which is on the next page, page 4, you will see 22 the column what we appropriate is 167 -- $167.1 million. 23 We have a cost savings -- I am sorry, the 35 million -- 24 $35,485 that you see is the retiree reduction that we 25 received for the early retirements that the staff that 114 1 retired earlier at the beginning of the year, at the end 2 of the fiscal year '03, we were reduced by that amount. 3 The next item you see is the 547,000. That is the -- 4 like I said, the FM '04-11, and that is the management 5 staff reduction that the lottery received. It was 6 delegated by the -- allocated by the comptroller. And 7 the net of that is 166,566 -- sorry, 166,566. Sorry. I 8 will try that again. Sorry. 166,000 -- 166,000,566, 9 which is what the lottery has to expend for FY '04. And 10 that is just an overview of what we are allocated. 11 The next tab, you will see, this is a 12 summary of both lottery and bingo together that 13 identifies the expenditures by object expense. That is 14 just a normal view that is consolidated. 15 MR. COX: So when we look at things like 16 line 2009, other operating expense -- 17 MR. BENJAMIN: Yes, sir. 18 MR. COX: -- and see the budget as 11 19 million less than the actual in '03, that again is the 20 function of this supplemental appropriation and revenue? 21 MR. BENJAMIN: That's correct. That is 22 the majority of it. It will fluctuate up and down based 23 on the different strategies. But then you can take that 24 and go down to the strategy level detail tab and go to 25 page 7 of that, and you should see, just try to go 115 1 there, if you go down to the -- toward the bottom of 2 that page, you will see the difference between '03 and 3 '04. I said that is going to fluctuate based on other 4 changes and the other strategies. You will see it is 5 116 million compared to 99 million. And then in this 6 section here it just details each strategies -- 7 expenditures by object expense. It also provides the 8 output and efficiency measures by strategy, and the FTEs 9 for that strategy, which is on the next page. And that 10 provides you the detail. Like I said, it goes from a 11 higher level detail down to more -- the further you go 12 back, the more detail it provides. 13 Then we have the next section which is 14 capital projects section. That details the different 15 capital projects. For FY '04, we had three capital 16 projects. You can see in that column the -- as you flip 17 through those pages, you will see there are three 18 capital projects for the lottery for fiscal year '04. 19 And this is what is referred to as the writer one in our 20 bill path, which is capital projects. 21 MR. COX: I see some numbers, but I don't 22 see a description of the project. 23 MR. BENJAMIN: It is -- let me walk you 24 through that. If you look down the left-hand column, 25 sir, you have different categories. It starts with 116 1 category 5003, repairs and rehabilitation building 2 facilities. And you will see the next indication says, 3 1/1 remodeling headquarters and field offices. And that 4 is the title of a project. 5 MR. COX: Okay. So what I see is it says, 6 capital, $135,000. Professional fees, 7500. Capital 7 expenditures, hundred twenty-seven five. But it does 8 not tell what it is for. 9 MR. BENJAMIN: It's -- I'm sorry, the 10 caption above that, which is object expense, that is the 11 project -- that's the project repair -- remodeling of 12 headquarters and field offices. That is the project, 13 sir. 14 MR. COX: Okay. Now, where would I find 15 that information? I can see printers. I can see 16 computer room upgrades, conversant upgrade. 17 MR. BENJAMIN: Those are each of the 18 projects. 19 MR. COX: All those say zero. 20 MR. BENJAMIN: Okay. I am sorry. This 21 is -- the way this works, it shows all three years, such 22 as you have projects that were '02, '03, and '04 23 projects. So the repairs for remodeling -- I'm going to 24 start with remodeling of headquarters and field offices 25 was not a project in 2004. 117 1 MR. COX: What I am trying to find out, 2 Daniel, is at the bottom of page 26, there are three 3 numbers in the '04 column. The two numbers before it 4 total 135. I am trying to figure out what we are going 5 to spend that on. 6 MR. BENJAMIN: If you look above right 7 where you are looking, it says, object expense, right 8 above that you will see ten of ten, it will say 9 conversant upgrade. 10 MR. COX: Good. What is that? 11 MR. BENJAMIN: The conversant is an IT 12 item. What it is is the voice mail system, when people 13 call in on the 800 number, and it picks up in response 14 to their call and directs them to the right person to 15 respond to their question. That's what it is. 16 MR. COX: Okay. So this is an upgrade 17 that we need to be able to provide better service to 18 operate more efficiently within our agency, both? 19 MR. BENJAMIN: Both. In fact, that system 20 is so old that it needs to be replaced. Needs to be 21 upgraded. It is no longer, I think, supportable, if I 22 remember right. The next item you see is on page 29. 23 And that is the replacement of -- it is towards the 24 bottom of the page, replacement of machines and ball 25 sets for all games. And that is approximately 300,000. 118 1 We will have that each year out of the four 2 contingencies, so as machines break down or need to be 3 replaced, or ball sets that need to be replaced, we have 4 those funds available. It is more of a contingent 5 appropriation. 6 And on the next page, you have another 7 item towards the top of the page, below the $300,000 8 line, it is 12-12 warehouse power system. That is the 9 UPS system out at the warehouse which is past its useful 10 life, and it needs to be replaced. That is the cost of 11 the project, $91,000. And so what we have is on page 31 12 and 32, you see the total '04 projects being $526,000. 13 MR. COX: Okay. Really, those don't look 14 very controversial. Would you agree that those are 15 pretty routine looking? 16 MR. GREER: Based on the information that 17 was given to me, the fact that I have had a chance to 18 look at this before, yes, sir. We have had an 19 opportunity in some staff meetings to look at those. 20 MR. GRIEF: And these items, 21 commissioners, were items that we had to go in front of 22 the budget committees for both the House and the Senate 23 and lay these out for them as well. 24 MR. GREER: Started working off of this in 25 September. 119 1 MR. BENJAMIN: Okay. And the new schedule 2 I was telling you about is on the next tab, which is the 3 supported schedule. It is a required schedule that they 4 provided in there. It's page 33. It's the retirement 5 incentive schedule. And it is not the easiest thing to 6 follow, to be honest with you. It took some time to 7 figure this one out. But what it is asking for is, in 8 the first column, the actual retirements that you have 9 had in this year. The second column is what you 10 estimate any -- any employees that will take the early 11 retirement option for '04, and then what you estimate 12 for '05. 13 And we provided -- we were provided a list 14 of all the employees that had the -- have the 15 opportunity or will have the opportunity to become 16 eligible to early retire. We received that from human 17 resources and were able to extrapolate this. 18 And the next schedule, which is page 34 19 and 35, is the estimated revenue collection reporting 20 schedule. And that just lists out the estimated 21 revenues for the year and the related reductions out of 22 that, out of the -- that fund. So on page 34, you will 23 see the bingo, the different revenue items from bingo, 24 the operators, the lessors, the incremental tax, the 25 prize fees, and then the expansion that comes out of 120 1 that fund. And what you hope for is that you hope 2 that -- you want to have is that the bottom line is a 3 positive, that you have more revenue coming in than 4 expenditures going out. 5 MR. COX: So on page 35 where we are 6 showing a decline of $55 million in our revenue, that is 7 not anything that relates to forecasts or plans or 8 targets that we have, that again is what the controller 9 put in, and that's the number that we work off of? 10 MR. BENJAMIN: Actually, sir, I am glad 11 you brought that up. What I did, I reviewed this this 12 morning. It was the first chance I have had to review 13 it. I've been on vacation for a week. So it was 14 completed while I was gone. I spoke with Lee Deviney 15 this morning about it, and there are some changes I want 16 to make to this schedule in relation to that. That line 17 you are referring to, I would like to put in the BRE 18 amount which it should be -- 19 MR. COX: Which amount is that? 20 MR. BENJAMIN: The buying revenue estimate 21 amount. 22 MR. COX: Oh, okay. That is the number 23 from the controller's office that you were talking 24 about? 25 MR. BENJAMIN: Yes, sir. Because when I 121 1 look at this schedule right now, it causes some 2 contradiction right now, and I don't like that. And 3 that -- I caught that this morning. So like I said, I 4 have been on the phone with Lee Deviney this morning. 5 He has approved the changes that I am recommending. And 6 I will be making some changes in the schedule. 7 Just to make note, that is the one -- one 8 item. Because if we have a $3.075 billion there, if you 9 look at the deductions, the Article 4 -- Article 7, 10 writer 4 amount, if that is the amount of revenue we 11 have, we should have then some budgeted in there as 12 well. And that is not the case. You don't want to see 13 if it will happen. You want it based on the BRE. And 14 then if sales do come in, we get that 15 appropriation authority. So I will be making that 16 change, as well as a couple of other minor tweaks to 17 some of the other numbers. 18 MR. GREER: So that zero right there -- 19 MR. BENJAMIN: Should remain a zero. And 20 what should happen is that 3.075 billion above the line 21 should come down to the BRE estimated. It's about 2.755 22 billion. And it will be put down where it should be. 23 And as the expended measure requested, the 166 566 ties 24 back to the beginning where we said our fund 502 budget 25 amount is, 1525, so those tie out. Chairman Clowe, for 122 1 your benefit, it does foot at this time from a year ago; 2 it was a dollar off. It is not a dollar off this time. 3 MR. CLOWE: That gives me comfort, Dan. 4 MR. GRIEF: Who put this document 5 together, Dan? 6 MR. BENJAMIN: This document is 7 actually -- I had my staff put it together. What it is, 8 these documents are schedules that come out of the ABEST 9 system, the Automated Budget Evaluation System of Texas, 10 which is the LBB's system. We are required to put this 11 information. It is submitted electronically. It is 12 right now in the status of not submitted. It's not 13 refined status until it has been approved. So what this 14 is, is this is just the schedules that come out of that 15 system that we will bind and send to a list of -- hard 16 copy goes to the LBB, the governor's office, the library 17 archives, and several of the oversight agencies and 18 bodies. 19 MS. KIPLIN: When you use the word, 20 approved, you just used the word approved, tell me what 21 you mean by that, because I am going on information that 22 this budget was compiled as of September 1 of this 23 fiscal year, and we are operating off this budget. 24 MR. BENJAMIN: What I mean by that is 25 it's -- I wouldn't say approved. It is more of -- it 123 1 has been -- it's to be submitted to the LBB, the 2 document is ready, and it has been signed. Usually, the 3 signing we are talking about is a certification saying 4 that this document, that the hard copy matches what was 5 reported in the budget -- the LBB system. That's what 6 the normal signing off indicates, that the two are in 7 agreement. 8 MS. KIPLIN: And within this agency, who 9 has personal knowledge of that fact? 10 MR. BENJAMIN: Myself and my staff, and 11 then I notify my director, Lee Deviney, and make him 12 aware. And from there, I would notify the DED and the 13 DEL on that. But I can verify that this is, you know, 14 one final check we made, once it is submitted, make sure 15 all the numbers tie out. It is the approval in the 16 system. 17 MS. KIPLIN: And are you -- and I am doing 18 this intentionally because I have got people who are 19 never going to have this kind of personal knowledge that 20 are being asked to sign some sort of certificate. Are 21 you making a representation today that what is in hard 22 copy is identical to that which is filed electronically? 23 Because that is what is being asked by the form 24 certificate, and that is what I retain in a certificate 25 for consideration. 124 1 MR. BENJAMIN: What I can say is this, I 2 can say that I will certify that it will be done once 3 this is submitted that the two will agree. I have not 4 had a chance since I have been back from vacation, come 5 straight to here, I have not gone out there to make 6 that -- to make that verification. But I will do that 7 before this is submitted. 8 MS. KIPLIN: Okay. Commissioners, with 9 that statement, and I would put Mr. Greer in this 10 category, I cannot advise you to sign a certificate 11 until you have had that representation made to you by 12 staff. And Mr. Benjamin is indicating he is not -- as 13 of today, you are not in a position to make that 14 representation? 15 MR. BENJAMIN: No. And I will not make 16 that representation until I have had a chance to do 17 that. 18 MR. GREER: From a historical perspective, 19 since I am seeing this in a different light, what did it 20 used to look like, what did the report used to look 21 like? I mean, I have seen other documents that weren't 22 in this format so. 23 MR. BENJAMIN: This is fairly the same 24 format that the last operating budget was submitted. 25 That was the 2002 budget was submitted that way. What 125 1 this basically is, it is the same as an LAR, without the 2 request for additional funding. The three sessions, the 3 2002, 2003, and the budgeted 2004, usually when it says 4 budget, it would say, as submitted. It's the same 5 information as the LBB requests each year. So that 6 either request it as an operating budget or it is a 7 component of the legislative appropriation request at 8 this time. But the last -- the previous one was very 9 similar to this. 10 MR. CLOWE: Is this the budget that 11 historically I have sat down with you, and I think the 12 last time it was Mark Sanchez, and reviewed prior to it 13 being presented for approval to the commission? 14 MR. BENJAMIN: Yes, sir. 15 MR. CLOWE: And I missed that meeting this 16 time, didn't I? 17 MR. BENJAMIN: Well, you missed it because 18 it wasn't done. Like I said, I have spoken with Gary 19 after the previous meeting, and asked that we make this 20 a regular component, that we walk you through this 21 document before the special meeting, like we have done 22 with the LAR. 23 MR. CLOWE: So this is the first time I am 24 seeing this document today? 25 MR. GRIEF: That document, yes, 126 1 Commissioner, yes, Mr. Chairman. I would offer up -- I 2 don't want to say that we are getting bogged down, but 3 the LAR, this is a mirror document of the LAR. 4 MR. CLOWE: And I have worked with the 5 LAR. 6 MR. GRIEF: That's correct. And the 7 legislature is who sets our budget for us. We make a 8 submission. They take it. They tweak it. They work it 9 through their process, and they kick it back to us and 10 say, these are the dollars that you have. Period. And 11 they have some writers, like writer four, that gives us 12 additional spending authority, and once we exceed a 13 certain sales level, etcetera. So that number is set. 14 That is communicated to us as an agency to 15 commissioners, etcetera. So we know that number. It 16 doesn't change. Then there is taking those dollars that 17 they have given us in these very broad categories and 18 delineating those numbers out into the various levels of 19 detail that we need to manage the agency day-by-day. 20 And that's -- although we call this the budget, we have 21 another internal document that we refer to as our budget 22 that we rely on day-to-day to make sure we are in line 23 with our spending for the year, etcetera. 24 This is -- this is a requirement of state 25 government, to turn around and take the information that 127 1 was approved and take the detail that we developed and 2 put it into their format, not ours, and turn it back 3 into them. And this doesn't include any of the other 4 additional authority that we have to expend funds if 5 sales go up. So I guess what I am trying to say is this 6 shouldn't come as a surprise to commissioners as far as 7 the amounts. Yes, I think certainly for clarification, 8 in hindsight, the next time we need to sit down with 9 commissioners and walk you through this document and 10 explain to you what each number is so you have a comfort 11 level. And quite frankly, this is the first time that 12 we have ever had to have this certification document 13 signed. 14 MR. CLOWE: Yeah, I don't remember this 15 ever having been done before. And I remember the review 16 meeting, and that's what I think is a little offputting 17 to me, to have gone through the process before and then 18 having this new requirement, seeing this document for 19 the first time in a commission meeting and being asked 20 to certify to it. And then to hear Daniel say, well, it 21 is not really right, and it is not ready yet. He can't 22 represent to the commission -- my understanding is there 23 is a December 1st deadline. This is November the 24th. 24 We don't have another meeting scheduled before December 25 the 1st. Makes me wonder where we are. 128 1 MR. GRIEF: We have had an opportunity to 2 talk to a representative from the LBB who was in our 3 meeting earlier today. And we have some assurances that 4 this won't be a problem, if we cannot get this certified 5 today. I think they will work with us. We can get this 6 done at a later date. 7 MR. CLOWE: Okay. Well, that sheds an 8 entirely different light on it. I was under the 9 impression we were under a December 1st deadline. So we 10 now can go back and get this straightened up, do it 11 right, and get a document that we're getting 12 certification on that it is correct, and then we can 13 deal with that in a December meeting; is that what I am 14 hearing? 15 MR. GRIEF: I would ask the commission to 16 do just that, and let us deal with the discussions 17 between us and the LBB as to what the ramifications are 18 in missing this December 1st deadline. 19 MR. COX: Do we need -- let's I guess talk 20 about what we are going to ultimately need and see if we 21 need some kind of backup plan in this event. Kim, this 22 certificate which you have done some excellent work on 23 in modifying it to what I believe I would be comfortable 24 with having Chairman Clowe sign on behalf of the 25 commission, but yet, we don't know whether it is 129 1 acceptable to the people who are going to be receiving 2 it, so that is an ongoing issue. But let's assume for a 3 moment that this thing were where it needed to be, that 4 it is something that you are really willing to recommend 5 that Tom sign on behalf of the commission, you are 6 willing to recommend that Reagan sign, you are willing 7 to let Lee sign, representing -- and his representation 8 is a little different, what kind of a motion would you 9 need? Does -- do we need to just authorize Tom to sign 10 this as chair? Do we need to authorize Reagan to sign 11 it as executive director, Reagan and Lee in their 12 respective capacities? What should happen here? 13 MS. KIPLIN: Well, here are my thoughts on 14 the subject. What I wanted to do was read this into the 15 record, make it clear that Mr. Deviney's -- in my views, 16 Mr. Deviney's obligations are a little bit different, 17 because he is head of the financial division, and that 18 of Mr. Greer and Chairman Clowe. Simply because 19 Mr. Greer and Chairman Clowe, they are never going to 20 have a body of personal knowledge on this level, and 21 they are relying on representations made by commission 22 staff. And then once I do that, where there is a frame 23 of reference upon which you-all are thinking, entertain 24 a motion to authorize Chairman Clowe to sign an 25 appropriate certificate to accompany the file of the 130 1 agency's operating budget. And the reason I am using 2 the word appropriate, and I will be the first to admit 3 it, it is somewhat vague, at least it has the 4 underthinking of what our thoughts are today is because 5 there will need to be, as Mr. Grief indicated, follow-up 6 discussions with the legislative budget board, and 7 frankly, I believe the governor's office, since this is 8 required to go to both of those departments. So that's 9 what was in my mind. But also what I was aware was a 10 December 1 deadline as -- as required or as articulated 11 by Article 9, Section 7.01 of the Government Code. 12 MR. COX: Well, would it be appropriate -- 13 and I suggest this only because it seems that based on 14 what Gary said and my own perception of this thing, that 15 we are pretty close, and I don't know, obviously, how 16 Chairman Clowe regards that, but would it be a good 17 thing to do for this commission to authorize Chairman 18 Clowe and Director Greer to sign this, should they 19 become -- at such time as they are satisfied that these 20 few things that we're concerned about now have been 21 cleared up? 22 MS. KIPLIN: And I think so based on the 23 underpinnings and the elements of this particular 24 certificate that go back to -- and I appreciate you 25 telling me I did an excellent job -- but frankly, 131 1 Commissioner Cox, it was not without consultation of 2 you. So I need to tell you how much I appreciate your 3 time over the weekend. But what I would like to do is 4 read this in, make sure that there is a comfort level, 5 and then in terms of an appropriate certificate, it 6 would be with these -- these concepts as an underpinning 7 of what is an appropriate certificate. It is whatever 8 the will of the commission is. 9 MR. CLOWE: Well, I think that's a good 10 alternative to consider. We don't know if this is going 11 to be acceptable. 12 MS. KIPLIN: Correct. That is why I said 13 appropriate. I think there are key elements that are a 14 part of this certificate that go right to the heart of 15 the -- of the process to begin with. 16 MR. CLOWE: And what this certificate does 17 is speak directly to what we want. It is not the 18 certificate that is requested by the offices. 19 MS. KIPLIN: Yes, sir, that is correct. 20 MR. CLOWE: So if this certificate is 21 authorized by the commission at this time, and the 22 signatures were obtained on it, and it was submitted, 23 and it was rejected, then we would be without 24 certification; is that not correct? 25 MS. KIPLIN: Well, that's why the motion 132 1 would be a little bit broader. I wanted to read this 2 submission language so that conceptually we know what we 3 are talking about, but that it would be to sign the -- 4 you would be authorized to sign an appropriate 5 certificate. And the level of appropriateness is 6 whatever we would be -- need to be -- to work out so 7 long as the issues that we have identified are captured. 8 MR. CLOWE: And the general counsel would 9 make that determination; is that correct? 10 MS. KIPLIN: Yes, I would. 11 MR. COX: My thought would be the general 12 counsel would make a recommendation, and you would 13 decide, wouldn't you, feel comfortable signing it? 14 MR. CLOWE: Right. And I would rely on 15 her legal advice, quite frankly, for the appropriateness 16 of the certification to protect the commission and me as 17 the chair, as I am sure would Reagan and Lee. Well, 18 Lee, I mean, the sequence of signature is Lee to Reagan 19 to me. And I think Kim has touched on a point. This is 20 a broad certification that has to do with the future. 21 It is not a budget that reports past activity that we 22 know has occurred. It is cast into the future. And 23 Reagan has more control -- Lee has the most control. 24 Reagan has more control. I, as the chair of the 25 commission, have the least control. And I am not really 133 1 sure how much thought went into having an individual 2 such as me, in my position, not me individually, 3 personally, certified into the future. I am just 4 puzzled by it. And this is a new requirement. I mean, 5 we are walking down a new path for the first time. And 6 casting it in this form, when we have dealt with the 7 LAR, it brings up something that is altogether different 8 with the certification. 9 MR. GREER: And you know, Gary and I have 10 meetings on a daily basis, and in reference to our prior 11 thing, and I have been drilling down on this. There is 12 a software program that allows me to go into the budget, 13 and to drill down, and we have been working off of this 14 every since September. If I go in and if I see 15 something just like what you asked, I get that answer, 16 you know, readily, and can take me through the entire 17 budget, and I get that on a monthly basis. 18 MR. CLOWE: I think it is a good thing to 19 do this. I am not being critical of the intent here. I 20 want to make that clear. I have heard of agencies that 21 have gotten off budget and lost money and gotten in a 22 bad way. I don't know how much of that is factual and 23 how much of it is not factual. And I don't think that 24 would ever happen to us here at the lottery commission 25 based on my knowledge of how we run our business. But I 134 1 do think a discussion like this is important so we all 2 understand what it is we are being asked for and what we 3 are capable of. And then it comes back to you, 4 Benjamin, and to your director to realize just how 5 important this is to us. 6 MR. BENJAMIN: Yes, sir. 7 MR. CLOWE: This -- the law of big numbers 8 cures a lot of problems, but when you start certifying 9 something, you put the handcuffs on them, so to speak. 10 MR. GREER: So to speak. 11 MR. CLOWE: Okay. Figuratively, but not 12 literally. 13 MR. GRIEF: Can I ask a question of Kim 14 and Daniel? 15 MR. BENJAMIN: Certainly. 16 MR. GRIEF: If I understand this process 17 correctly, given the chairman's comments, isn't it true 18 that everyone can sign this document and certify it is 19 what it is, but in reality, next week, we could have a 20 need to make changes and shift money from something to 21 another and what they have certified is different? 22 MR. COX: Well, you -- there may be -- you 23 and I, as businessmen, have that understanding implicit 24 that surely it must be implicit in the system for that 25 to be the case. The drafter of this certificate wasn't 135 1 on that same page. Now, Kim has put the certificate in 2 the context that you just described, and if it is okay 3 with folks, then we are going to be back on that page. 4 But what the chairman and Reagan and Lee were originally 5 being asked to sign was far, far stronger than that. 6 Used words like accurate, which is, of course, accuracy 7 with prospective documents is impossible. 8 MR. GRIEF: So given the new -- if the new 9 certificate that the general counsel has drafted for 10 signature flies with the people who it needs to fly 11 with, then I want to be sure that Daniel understands the 12 message that the commissioners are giving to him today, 13 that if indeed there are business reasons why things 14 need to change, then we certainly have the good sense to 15 make those changes, and can make those changes as we 16 work through the fiscal year. 17 MS. KIPLIN: But let me -- let me just say 18 that part of the original certificate was that should it 19 become likely anytime that unexpended balances would 20 accrue for any account, the commission would -- would 21 notify the LBB and the governor's office of budget 22 policy and planning, and in writing accordance with a 23 particular provision in Article 9. When I actually went 24 back to Article 9, I didn't see that requirement. But 25 what I did see was a provision that said, all subsequent 136 1 amendments to the original budget shall be filed with 2 the governor and the legislative budget board within 30 3 days of approval of such amendments, unless such 4 reporting requirement is waived. And so to that, in 5 terms of the fact that this budget is a snapshot in 6 time, it's a prospective document, but clearly it must 7 be a document that's dynamic, it has some flexibility to 8 the extent that it needs to be amended. We will either 9 need to get a reporting requirement waived or we will 10 have to comply with that particular provision, if I am 11 reading it correctly. 12 And I will say that I have not had an 13 opportunity to have dialogue. I have left messages for 14 people to return my call. And it may be that people are 15 interpreting it differently. 16 MR. CLOWE: We are acting on the knowledge 17 that we have as of this time. Were you less than 18 satisfied, Gary, with Kim's answer -- 19 MR. GRIEF: I think -- taken literally, I 20 think that would be very cumbersome, very cumbersome for 21 this agency to try to work under that guideline, that 22 any time we made any change within the category of the 23 budget throughout the fiscal year that we had to seek 24 approval, I don't -- I don't think that was the intent. 25 MR. BENJAMIN: May I interject. On the 137 1 bill pattern, it does speak to capital projects or 2 transferrability between appropriations. It does give 3 you the ability to transfer up to 25 percent without 4 having to go for -- request for these revisions. 5 Anything above that, you do have to contact the LBB, the 6 governor's office, to seek approval to do these funds. 7 So I'm wondering if that works within the scope of what 8 Kim is talking about. If it is outside that, then you 9 need to seek approval. If it's within -- you have 10 latitude to transfer and to change, but I am also 11 thinking that if you are going to exceed your base 12 request or the base amount, without any type of 13 authorization, that you have to seek that authorization 14 as well. So I think we have some latitudes here that we 15 are -- toward what Kim is saying. 16 MS. KIPLIN: I think the language in this 17 particular session is pretty stout, and I am hopeful 18 that there are other documents that help interpret this 19 language, for example, the instructions that came along 20 with the agency operating budget or other advisory 21 bulletins that might be at issue or might have an issue. 22 But I think that on its face, this language is very 23 sound. 24 MR. GRIEF: Well, that just tells me we 25 need to have some more conversation with the LBB and the 138 1 governor's office. 2 MR. CLOWE: And then I think we want to 3 defer action on this for the time being, don't we? 4 MR. COX: Would you like to have a motion 5 that authorizes you to go ahead and do this should push 6 come to shove and you feel comfortable? 7 MR. CLOWE: Where do you think we are, 8 Gary, on that? 9 MR. GRIEF: I would like to have that -- 10 see that happen. 11 MR. CLOWE: Do you want to go ahead and 12 take that action? 13 MR. GRIEF: Yes, sir, if we could. 14 MS. KIPLIN: And what I wanted to do is 15 read into the record so that there is at least a 16 framework upon which the commission is taking an action 17 to authorize the chairman. Are you all -- 18 MR. GRIEF: Kim, if I understood you 19 right, though, I thought -- I thought the motion -- I 20 thought I heard Commissioner Cox say the motion would be 21 not to just limit the chair to signing that document 22 that you prepared; right? 23 MS. KIPLIN: That's right. That is 24 correct. 25 MR. COX: I was going to really give Tom 139 1 Reagan and Kim the commission's authority to sign this, 2 if they all become satisfied that the little 3 inconsistencies within the document itself have been 4 taken care of and that the form of the certificate is 5 satisfactory to them after discussion with the other 6 side. 7 MR. CLOWE: And that's good. That is even 8 broader than reading this certificate into the record. 9 MS. KIPLIN: Okay. I just wanted to make 10 sure that you-all had some assurances on what -- what, 11 in your own mind, you thought was appropriate. But I 12 think the discussion has abated that. 13 MR. COX: Okay. So I move that the 14 chairman and the executive director be authorized to 15 sign a certificate of this nature, satisfactory to them, 16 based on advice of counsel, provided they are satisfied 17 that the minor inconsistencies in the operating budget 18 that we have identified at this meeting have been 19 cleared up. 20 MR. CLOWE: I second that motion. And 21 counselor, are you satisfied with that motion? 22 MS. KIPLIN: Yes, I am. 23 MR. CLOWE: All in favor say aye. Oppose, 24 no. 25 (All in favor.) 140 1 MR. CLOWE: The vote is 2-0, in favor. 2 Thank you, Daniel. Any other business to come before 3 the commission at this time? If not, thank you-all very 4 much. We are adjourned at 1:24 p.m. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 141 1 REPORTER'S CERTIFICATION 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, MICHELLE M. ROBERTSON, Certified Shorthand 5 Reporter for the State of Texas, do hereby certify that 6 that the above-captioned matter came on for hearing 7 before the TEXAS LOTTERY COMMISSION as hereinafter set 8 out, that I did, in shorthand, report said proceedings, 9 and that the above and foregoing typewritten pages 10 contain a full, true, and correct computer-aided 11 transcription of my shorthand notes taken on said 12 occasion. 13 Witness my hand on this the 5th day of 14 December, 2003. 15 16 17 _______________________________ Michelle M. Robertson, CSR, RPR 18 Texas CSR 4268 Expiration: 12/31/2005 19 Wright Watson STEN-TEL, No. 225 1609 Shoal Cr. Blvd., Ste. 202 20 Austin, Texas 78701 Telephone: (512)474-4363 21 Facsimile: (512)474-8802 22 Job No. 31124MMR 23 24 25