1 1 ****************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 6 AUSTIN, TEXAS 7 8 APRIL 13, 2000 9 ****************************************************** 10 11 BE IT REMEMBERED that the above-entitled matter 12 came on for hearing on the 13th day of April, 2000, 13 beginning at 8:37 a.m. and ending at 12:52 p.m., at 14 the TEXAS LOTTERY COMMISSION, 611 East Sixth Street, 15 Austin, Texas, and the following proceedings were 16 stenographically reported by MARY SCOPAS, RPR, CSR for 17 the State of Texas. 18 APPEARANCES 19 CHAIR C. TOM CLOWE, JR 20 COMMISSIONER ANTHONY J. SADBERRY 21 COMMISSIONER ELIZABETH D. WHITAKER 22 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 23 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 24 MR. BILLY ATKINS, CHARITABLE BINGO OPERATIONS 25 DIRECTOR. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 2 1 CHAIR CLOWE: Good morning to everyone. 2 We're going to give everyone just a few more minutes 3 to have opportunities to make appearance slips, 4 completed and then be seated. We're at our starting 5 time and we'll wait just a few minutes and then we'll 6 begin. 7 Good morning again, everyone. I would 8 like to call to order the April 13th, 2000 meeting of 9 the Texas Lottery Commission. The clock reflects that 10 it is 8:34 a.m. We have a lengthy agenda today and we 11 are going to get right into it and hopefully move 12 along. 13 The first item on the agenda is the 14 expression of appreciation to the former Chair of the 15 Texas Lottery Commission, Harriet Miers. This is the 16 first meeting since 1995 that Chair Miers has not 17 presided at and she will be sorely missed. She served 18 with distinction and set a benchmark for ethics, legal 19 and correct performance that I hope as Chair to 20 continue in the time to come. We are not able to 21 express to her personally in this meeting our 22 appreciation because she resigned after the last 23 meeting and of course is not present at this meeting. 24 But I wanted to go on the record as expressing 25 appreciation to her for maintaining, in all of her WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 3 1 efforts, the integrity, the honesty and fairness of 2 the games of Texas and say that she performed 3 beautifully during the years of her tenure and she 4 will certainly be sorely missed. 5 Commissioner Sadberry, you served with 6 Chair Miers longer than I did. I wonder if you have 7 any remarks. 8 MR. SADBERRY: Thank you Mr. Chairman. 9 And I do. And I would echo everything you have said 10 and appreciate the style and manner in which you have 11 said it and I can not improve on that in any respect. 12 I recall being asked by the previous 13 commissioner when service was being contemplated on 14 this commission, why I had served, I basically said I 15 was asked to serve. And I would say that my service 16 has been improved and embellished and made more 17 significant because of the addition that Harriet Miers 18 made to this commission. 19 This agency has come a long way. And 20 we who were here at start-up know the challenges we 21 face and know how fortunate we were that in the midst 22 of those challenges we were given the service of 23 Harriet Miers to join us as a colleague and take the 24 helm of leadership and to guide us through what in 25 hindsight I believe will be not only challenging WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 4 1 experiences and events, but also the opportunity to 2 place us where we are now, poised to take the agency 3 from this point and go forward. 4 Without the leadership and the personal 5 dedication and commitment of Harriet Miers, we would 6 be loathed to even make an attempt to do that, 7 certainly, with the excellence with which I think we 8 have done it and of which we will continue to do it. 9 And so that's why I serve is because I have the 10 opportunity, in so doing, to serve the people and to 11 serve with colleagues of such distinction as our 12 former chair. Mr. Chairman, thank you. 13 MS. CLOUD: Thank you, Commissioner 14 Sadberry. And then speaking about colleagues of 15 distinction, I would like to express my appreciation 16 to Commissioner Sadberry for his long service here at 17 the Commission. He is the greatest tenured 18 commissioner serving for the longest time and his 19 contributions to this commission have been exemplary. 20 He is a basis of knowledge and a high-level performer 21 and it has been most educational and helpful to me in 22 my short tenure as a commissioner to serve with him on 23 this commission. So at the same time that we're 24 commenting and lauding Chair Miers, I want to say how 25 much I appreciate Commissioner Sadberry. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 5 1 And then it is my pleasure to welcome a 2 new commissioner to this commission, recently 3 appointed by the governor, Commissioner Betsy 4 Whitaker. And I believe that you prefer to be known 5 as Betsy. Is that correct? Elizabeth Whitaker. 6 I might say by way of introduction that 7 Commissioner Whitaker is a graduate of Wheaton 8 College, Wheaton, Illinois, the SMU law school in 9 Dallas. She has served as an assistant district 10 attorney in the Dallas county district attorney's 11 office. She has been associated with a firm in 12 Dallas, law firm. She is now in private practice with 13 her own firm in Dallas. She has numerous community 14 and public activities. She has been with the state 15 bar of Texas in a number of positions, Chair of the 16 continuing legal education committee, Chair of the 17 board of directors, she is ad hoc committee on legal 18 services to the poor, cochair there. A number of 19 other committees. She is a trustee of the 20 Southwestern Legal Foundation and an executive 21 committee member of Southern Methodist University of 22 law school. She is widely published. Of special 23 interest, is her activity in working through target 24 kids in court, which is a broad effort to assist 25 children to move out of the courthouse and to return WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 6 1 to society as soon as possible. All noteworthy and 2 certainly deserving activities in addition to her 3 professional endeavors. 4 Commissioner Whitaker, we're very proud 5 to have you join this commission and attend your first 6 meeting here this morning. And I would like to call 7 on you to make any remarks that you would like to do. 8 MS. WHITAKER: Well, I am absolutely 9 delighted to be here. I am looking forward to this 10 service very much and appreciate very much working 11 with two distinguished commissioners. 12 MS. CLOUD: Thank you. Now, moving 13 along to Item Number 4 on the agenda. As the incoming 14 Chair, I would like to take this opportunity to thank 15 all of the employees of the Texas Lottery Commission, 16 those here in the Austin office that I have almost 17 weekly contact with and those who are stationed 18 throughout the state who handle the day-to-day 19 administrative activities of this agency, and most 20 importantly, deal with the players of the games of 21 Texas, the people of Texas. I have spent almost a 22 year and a half visiting our offices throughout the 23 state. I intend to continue that practice. And I 24 want to tell you that everywhere I go I am meeting a 25 high caliber of employee that is dedicated to their WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 7 1 work and doing an excellent job. 2 I would urge you to continue in those 3 efforts. I think in this agency, we are called upon 4 by the government of Texas to serve the players of 5 these games of Texas in an exemplary manner and we 6 must keep that foremost in our minds. And I would 7 like for you to think about that as employees of this 8 agency in your personal conduct. Come to work on 9 time. Be thorough. Do a good job. And be dedicated 10 to your employment by this agency. It is important to 11 have some fun and we would like for this to be a job 12 where you enjoy yourself and your work reflects that 13 you are enjoying yourself. I think the employees of 14 this agency have a high standard and level to aspire 15 to and I think you do a good job. Be meticulous in 16 your activities insofar as requirements for ethical 17 and legal standards. Make certain that in everything 18 you do you are thinking about the best that you can do 19 and the right thing to do. 20 This is in no way apropos to any one 21 subject or any one person. It is a general 22 reaffirmation on my part of the practices and policies 23 which I think are and have been in effect in this 24 agency for many years. And I would like to remind us 25 all that this is the goal that we should have in our WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 8 1 mind and that which I believe all commissioners expect 2 of all employees. 3 Having said that I think it is 4 appropriate now to move on to Item Number five and Kim 5 will talk about that and call on some experts to help 6 us in some cases refresh our memories and in others 7 cover some new ground. 8 MS. KIPLIN: Good morning, 9 Commissioners. My name for the record is Kimberly 10 Kiplin. I am the general counsel for the Lottery 11 Commission. Whenever we have an incoming 12 commissioner, we try to provide information to the 13 incoming commissioner as well as refresher for the 14 current commissioners on ethics, Texas ethics law and 15 then of the meetings and public information acts in 16 Texas. 17 And with that, I have asked Sarah Woelk 18 who is an attorney with the ethics commission to come 19 forward as she has in the past and provide information 20 on the general ethics law and to some extent on the 21 laws that pertain to the Lottery Commission, as well 22 as Diane Morris who is an assist general counsel with 23 the agency, former assistant attorney general, former 24 deputy division chief of the administrative law 25 division of the Texas Attorney General's office. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 9 1 Diane will also provide information on the Texas Open 2 Meetings Act and the Public Information Act. Thank 3 you for coming. 4 MS. WOELK: I think Kim likes me to 5 come so that someone else is the messenger of all this 6 bad news, but that is my role over here. 7 You have already heard from the ethics 8 commissioner, or you should have. You should have 9 gotten a form that you have to fill out. Personal 10 financial statement. That is an annual requirement. 11 So you need to be aware that every year that -- that 12 is going to come up. And everyone -- your fellow 13 board members and several of your high-level staff are 14 also filling that out. And it is important to 15 remember to do it on time or you will be fined a 16 hundred dollars by the ethics commission. So -- 17 MS. CLOUD: And they will fine you. 18 MS. WOELK: The -- most of what the 19 Ethics Commission does has to do with ethics laws that 20 apply to members of all state boards or employees of 21 all state boards. The difficulty for you is that you 22 are actually subject to some much stricter rules that 23 are in the lobby act itself. So whenever I talk, it 24 is some sort of general -- some general audience. Kim 25 is always catching me at the break telling me I need WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 10 1 to make clear to Commissioner Clowe or whoever in the 2 audience that he has to ignore most of what I say 3 because a lot of the exceptions don't apply to you. 4 There are -- the gift rules for state 5 board members generally are a little bit complex 6 because they come from several sources, but they are 7 to some extent trumped by rules and your own laws. So 8 it is a very strict gift law. And in the folder I 9 gave you I actually -- this is from your law and not 10 the general laws that we deal with, but I copied the 11 laws and the gift rule is on page 264. This is 12 directly out of the statutes and it -- in summary it 13 basically says you can't take a gift from anybody who 14 has anything to do with the Lottery Commission, is a 15 fair summary of that. 16 The definition of gift excludes things 17 that you get from people with whom you have 18 independent relationships. This means you keep on 19 getting gifts from your mother or your spouse or your 20 children or your relatives, your long time friends. 21 Even if they have some connection to the Lottery 22 Commission. The general gift -- most state board 23 members are subject to a rule that says you can't take 24 a gift from someone that is regulated by your agency 25 or someone who is interested in the agency business, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 11 1 but there is an exception to that general rule for 2 something worth less than $50. 3 So you are going to hear from other 4 state board members, oh, that is fine to take these, 5 it is worth less than $50. That rule doesn't apply to 6 you. There is no dollar threshold for you. So you 7 are -- you have got to develop a habit of avoiding 8 picking up trinkets and things that might be offered 9 at some sort of lottery-related event. A good rule of 10 thumb is you shouldn't be taking anything from someone 11 who wasn't giving you stuff before you got this job. 12 That should be a good, at least, warning. And if it 13 has just come up, call Kim. 14 The Ethics Commission is available for 15 advice, but because we don't really have any 16 particular expertise in the laws that apply just to 17 you or opinion -- we can't issue opinions regarding to 18 your law. So you are a little bit out there hanging 19 without a lot of clear interpretation of this pretty 20 strict law. But it is -- I think it is the most 21 important rule to bear in mind because little things 22 come up that you probably wouldn't even have thought 23 of before that are hospitality or favors in some way 24 that you shouldn't be accepting. 25 There is another rule that -- that is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 12 1 probably the first thing you have heard is that you 2 can't play the lottery. That is also a lottery -- 3 other state board members can play the lottery. So 4 that is a rule that applies just to you and a law 5 which is also in this stapled bunch of laws that says 6 you can't accept or share in winnings. So you can't 7 send your friend out to buy the ticket, then split the 8 pot. And that rule applies to everybody in this 9 agency, all your -- nobody here can play the lottery. 10 A little more complicated area of the 11 law is the general area of conflicts of interest. Not 12 so much the rules are complicated, but it is sometimes 13 hard to find out who can tell you the answer. There 14 is certain eligibility requirements to be on this 15 board which have -- which limit the kind of working 16 that you can be involved in and you have to maintain 17 those. You can't -- if you should become interested 18 in some sort of lottery business, you would no longer 19 be eligible to serve on this board. So it is 20 important to look over those and be aware of what 21 those are. 22 In the ethics laws that apply, 23 generally, to the state agency, there is a recusal 24 provision that says if you have a private interest 25 in -- personal or private interest in a matter before WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 13 1 the board, you must recuse yourself and that might 2 lead you to believe that the refusal cures anything, 3 but it doesn't cure an eligibility problem under your 4 law, nor does if cure some common law conflicts of 5 interest which say there are contracts you can't enter 6 into. And that is interpreted by the attorney 7 general. 8 Did you get this book Kim? Okay. This 9 is a -- this is a book that the attorney general puts 10 out with a kind of frightening title, "Traps for the 11 Unwary." They are talking about some of the 12 constitutional and common law rules that all state 13 board members are subject to. I think that sort of a 14 good rule of thumb, if you think there is something 15 about your private financial life that has any 16 relationship with the Lottery Commission, you ought to 17 ask Kim about it, see if there is an issue there, but 18 if it comes up under one of these various rules. 19 The other sort of standard rule that 20 does apply for the state board members is you can't 21 misuse Lottery Commission resources for non-Lottery 22 Commission purposes. That is more of an issue with 23 staff since the commissioners aren't here day-to-day 24 with the chance to take furniture home or ask for the 25 boys to mow their lawn, things like that. But you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 14 1 can't do that. There is a specific rule that says, in 2 case you are worried, that you may keep frequent flyer 3 travel bonus-type credits for your own personal use 4 largely because I think the state found it was 5 impossible for recapture them for state purposes. So 6 that is the one -- one of the benefits. That might be 7 your only compensation for -- for this job. 8 One last rule. There is a general 9 revolving-door law that applies to state board 10 members, but you are subject to a specific one that is 11 broader than the general one. And that is in here 12 too. It is probably not time yet to start thinking 13 about what happens when you leave here, but you need 14 to be aware there is a -- there are some limits on 15 your financial activities that have anything to do 16 with the Lottery Commission after you leave here. And 17 also in a somewhat unusual provision, the gift rules 18 stay with you for two years after you leave. So that 19 the strict gift rules apply to you for two years after 20 your service ends on this Commission. Which is 21 something I have never seen in any other -- any other 22 gift statute, that it stays with you after you leave 23 this Commission. 24 So Diane is, I think, the real expert 25 on these issues in the context of Lottery Commission. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 15 1 I think she just likes me to be the bad guy and tell 2 you about them. But she is around here to talk to -- 3 the three of us talk quite a bit when issues come up. 4 And so I think the best thing, though, is ask. We'll 5 try to figure out if there is a concern. 6 MS. MORRIS: From an overview -- my 7 name is Dianne Morris. Also for an overview, we visit 8 with Sarah a lot. As we have adapted our own statute 9 to our own in-house behavior, you will see statements 10 made in the employees' handbook. We also have 11 memoranda that Linda has circulated and delivered to 12 every employee, trying to give, if you will, more 13 practical suggestion, more practical guideline to what 14 is and what is not acceptable behavior. To that end, 15 we have agency-wide training. Sarah and I sit in this 16 room with usually about 40 to 50 people at a time. It 17 takes two hours. We like to think that it is a good 18 exchange of give-and-take. Not all of this is crystal 19 clear. Some employees will argue, it seems, until the 20 cows come home that this can't possibly be the law. 21 Our hope and our endeavor is to take the time to not 22 only just say it is the law, but to try to explain why 23 it is the law. And to try to give meaning to what 24 we're saying does make sense. And please use the 25 analysis outside of any example we could possibly WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 16 1 predict in a two-hour session. 2 We most recently have had agency-wide 3 training completed earlier this year, February -- 4 January and February. We on-go with that. Within the 5 next couple of months, we are due to start up again 6 over the summer. We have met with different 7 employees. Give us some examples of difficulties you 8 have faced that we have not begun to answer for you. 9 Tell us where your problems are. We tell employees 10 that they are free to bring up ethical problems to Kim 11 Kiplin, the general counsel, to Jim Richardson, the 12 head of the HR division, our Debra McLeod, our 13 internal auditor, to their own supervisor. 14 Sometimes -- most of the times people just call me. 15 "What would you do?" We try to get them a quick 16 response, but the ethics is sometimes very hard. And 17 this agency has been somewhat open to, just tell us 18 what your problem is, you might be surprised at the 19 solution. 20 There was an episode in October and 21 November where one of the memos that Linda had put 22 out -- there was some still confusion and so by 23 December 1 she had written a more defining memo trying 24 to explain to everybody to relieve any of the 25 confusion. This is how we want the ethics laws WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 17 1 understood, and trying to get a general application of 2 it. 3 MS. WOELK: You have any questions we 4 can handle or we're always around -- 5 MS. MORRIS: We're here. 6 MR. SADBERRY: May I ask a question, 7 Mr. Chairman? 8 CHAIR CLOWE: Certainly. 9 MR. SADBERRY: Thank you. I want to 10 say that this is clearly something we have emphasized 11 for a long time. I think our first day, you have been 12 there for us and we certainly been pleased to call on 13 you. Glad that you are doing the in-house training. 14 I have a specific point of -- maybe a 15 comment and then I think at least a question, and that 16 has to do with the Attorney General's opinion that we 17 have had to deal with from time to time, the Moraeles 18 opinion. We have sort of had to do it ad hoc to try 19 to figure out what it means and what we can do. And, 20 fortunately, I think we have always heeded the advice 21 and contacted Kim and asking her to contact the Ethics 22 Commission on specific situations that may arise and 23 may be anticipated. 24 And in that regard, I was wondering at 25 some point maybe with enough history and experience, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 18 1 we can anticipate maybe some refinement in what it 2 means and what we can and can't do given its 3 implications. That's not for today, but if you 4 wouldn't mind thinking about it and maybe as time goes 5 on, seeing if there is something that we can have as a 6 general guideline or else we could just keep calling 7 each time we have a situation. But that does lead to 8 a specific that I have. 9 And that is: When we do make these 10 inquiries about specific situations and perhaps even 11 in generalities, are records maintained of those 12 contacts that -- those inquiries that are made? Are 13 they subject to disclosure? What happens when we make 14 those inquiries? 15 MS. KIPLIN: The inquiries that are 16 made with me, I am usually recording the information 17 pursuant to telephone conversation. I consider those 18 to be privileged records under attorney-client 19 communication. To the extent that I need to consult, 20 I do consult with people that I believe to be 21 appropriate for that consultation. 22 MS. WOELK: And a request for an 23 opinion from the Ethics Commission is by law, 24 confidential. Although the problem with most requests 25 to us is we say we can't give you an opinion because WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 19 1 this isn't the general rule. This is your specific 2 law. And it would have to come from the attorney 3 general. But anything -- any time anybody thinks they 4 are asking for an opinion even if we can't give them 5 one, we treat the request as confidential. 6 CHAIR CLOWE: Any questions? 7 MS. WHITAKER: Not at this time, 8 thanks. 9 CHAIR CLOWE: Sarah and Dianne, thank 10 you both very much. I have sat in on the training 11 sessions that you-all have had for the Commission 12 employees and found them to be very beneficial. And I 13 would like to urge you to continue that effort. I 14 think that is the best way for all of us to be 15 educated about the somewhat complex and detailed 16 subject. Thank you both very much. 17 Next item on the agenda is the report, 18 possible discussion on lottery sales and trends. 19 MS. KIPLIN: Mr. Chair, there is -- I 20 don't think Diane offered the information on the open 21 meetings. I am sorry to interrupt you. 22 CHAIR CLOWE: Sorry about that. I 23 thought you were finished, Diane. And I'll probably 24 make that mistake over and over again. Go forward, if 25 you would. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 20 1 MS. MORRIS: One of the items was the 2 Texas Open Meetings Act and the Texas Open Records 3 Act. It is now called the Texas Public Information 4 Act. I am thinking that you have received -- and I 5 know, then, you have had a chance to review those and 6 really become familiar with them. They are well 7 written. The Attorney General's office has really 8 tried to make it customer friendly. They are also on 9 the web page of the Attorney General's office. You 10 could go in there and do a search for any kind of 11 document or information that you just decided you 12 wanted to know more about, whether it was open or 13 closed or things like that. 14 So very quickly, with the Open Records 15 Act, frankly, I would just pretty much remind anybody 16 who is listening agency wide - and we do open records 17 training agency wide - Lucy Cantu is our open records 18 coordinator. She is a member of the legal division. 19 Any open records request that comes into this agency 20 is routed to this human called Lucy Cantu. And Lucy 21 Cantu's job is a never-ending ten-day clock. Within 22 ten working days, Lucy has to do something. She has 23 to at least -- sooner than ten days if we can, but at 24 least by the 10th day she has got to get the 25 information to the public or we request an Attorney WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 21 1 General's opinion if we think information is excepted 2 from disclosure. 3 For the commissioners'-level purposes, 4 I would tell you two things that you should know. 5 Number one, there are many times that information is 6 requested that regards third parties. For instance, 7 in bidding situations, in contractual issues, third 8 parties, such as the vendor, would claim that their 9 trade secret or commercial information is at risk. 10 And even if we don't really care whether it goes out 11 or not, we, by law, due to the penalties that would be 12 imposed upon us for releasing confidential 13 information, we would be requesting an Attorney 14 General's opinion. Sometimes people like to say, you 15 know, we're trying to help out the vendor. Frankly, 16 we're trying to protect the governmental interest. As 17 a state agency, we walk a fine line. 18 The other thing is, frankly, is people 19 will say to me, is this piece of paper open or not and 20 the answer to that is, what does the request say? At 21 any given time, my advice to anyone in a state agency 22 would be assume that any piece of paper, any 23 information is public. Because whether it is public 24 or not, first off, will depend upon the scope of the 25 open records request and then we look to exceptions. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 22 1 We have common exceptions that are available like Kim 2 mentioned, the attorney-client information, 3 litigation, we have a law enforcement exception, we 4 have trade secrets ourselves if we were ever to have 5 something like that, our own internal bidding 6 information during a process of a bid negotiation or 7 something like that. And we have confidential by law, 8 the integrity and security of the lottery. We very 9 rarely have requests that would go to the integrity 10 and security of the lottery, but when we do, we need 11 to protect our own interest. 12 As to the Open Meetings Act, you know 13 that you are now a member of a public body. When you 14 sit and when you are conducting business in this 15 public body, you are a member of it. So you and, 16 unfortunately, with just three of you, two is a 17 quorum. So you-all can't decide to take a break and 18 go out to the foyer out there, outside and talk over 19 something. You can't. You can't call up another 20 commissioner and say I just need to understand where 21 you are going to on this. I know that none of our 22 commissioners -- we have always talked about this, and 23 three is a little number. 24 And our commissioners have always been 25 careful. And I wouldn't be suggesting anything like WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 23 1 that, but I feel compelled to always remind people 2 because you -- it just -- with three, it is very 3 difficult. Your chance to truly visit and exchange 4 information with your other commissioners is during 5 the moments of a public meeting. There are times that 6 you are authorized to go into an executive session. 7 Those are the times that your general counsel has 8 already studied. You can rest assure that her opinion 9 has been rendered in the sense that this is an 10 appropriate subject for executive session and that it 11 is acceptable to go into an executive session. We 12 have exceptions under the Open Meetings Act that we do 13 utilize. And so we commonly go into an executive 14 session. If you have any questions on either the open 15 meetings or open records, you can call us. It has 16 never really been a problem for us. Thank you. 17 CHAIR CLOWE: Thank you, Diane. Didn't 18 mean to cut you off there. 19 MS. MORRIS: That's all right. 20 CHAIR CLOWE: Any questions of Diane? 21 All right. Now, I think we are ready 22 to go to Item Number 7 on the agenda. And will this 23 be Toni? 24 MS. KIPLIN: Yeah. 25 MS. SMITH: Good morning, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 24 1 Commissioners. For the record, I am Toni Smith, 2 marketing director of the Texas Lottery Commission. 3 To take a look at sales, year-to-date total sales for 4 FY 2000 are 1,601,885,755. This is down 1.63 percent 5 from the FY '99 total sales-to-date of 6 1,628,396,543.05. And the differences between the two 7 jackpot levels across the fiscal years can be 8 attributed to what the jackpot levels were between the 9 two years. I would like to take a moment to look at 10 the year-to-date sales by product. Instant ticket 11 sales year-to-date for fiscal year 2000 were 12 990,765,133. The instant product makes up 61 -- 13 almost 62 percent of our products mix in our total 14 sales. Those sales are down -- are up 14 percent from 15 last year. Lotto Texas year-to-date sales are 16 359,129,368. This is down 24 percent from last year. 17 And Lotto Texas makes up 22 percent of our sales, just 18 to look at those two products. 19 So I think in sort of an analysis of 20 the year-to-date sales by product, those being the 21 larger percentage of our sales, instant product is up 22 and is going in the right direction. I think with the 23 restoration of the price payout, we are headed in the 24 right direction. 25 On the other hand, Lotto Texas is down WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 25 1 and we continue to see a decline. Although this past 2 week, to look at the week's sales, Lotto Texas was up 3 32 percent. The week ended with 13,498,338. The 4 instant product was up also 2 percent at 35,052,131. 5 MS. CLOUD: Commissioners, I think that 6 the telling part of our sales figures now is that we 7 are catching up. We will, hopefully, by the next 8 commission meeting will be able to say that our sales 9 for this year exceeded last year, which we are very 10 close to that right now. And I think our instant game 11 sales turn around. And the fortunate part of our 12 rollover is -- in the last few weeks has created more 13 sales for us and helped us close this gap a little 14 better. 15 CHAIR CLOWE: Could you be more 16 detailed in your comment about that situation, Linda? 17 MS. CLOUD: The -- on the first page of 18 your analysis here where Toni is talking about where 19 sales are down 1.63 percent to FY '99 sales, as we go 20 along here with our instant game product coming back 21 as well as it is along with, like I say, our rollover 22 jackpots that has been generating greater sales 23 because of the higher jackpots, we are kind of closing 24 the gap between where we were last year. We were 25 behind last year. So we are closing that gap. We are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 26 1 finally catching up with where we should be and 2 hopefully we will be getting ourselves higher than -- 3 before the end of the year, we will be better off than 4 we were last year. 5 CHAIR CLOWE: And the two jackpots you 6 are referring to, I believe, are one that was 28 -- 7 approximately 28 million and one that was 8 approximately 23 million? 9 MS. CLOUD: The 28 -- we had a 10 $28 million dollar jackpot. We had a $38 million 11 jackpot back in October. And we just had a 12 $23 million jackpot, which we got hit last night on, 13 Texarkana winner hit the jackpot last night. 14 CHAIR CLOWE: I'm asking you, I think, 15 about the two in this calendar year. 16 MS. CLOUD: Well, that -- in the 17 calendar year. Okay. Yes. That is all we have had. 18 We have had the -- we have only had -- 19 MS. SMITH: The 28 million is the 20 highest we have had so far this calendar year. 21 MS. CLOUD: This calendar year. 22 CHAIR CLOWE: And then last night, the 23 23 million was won. 24 MS. CLOUD: Right. 25 MS. KIPLIN: Just to follow-up a bit on WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 27 1 a comment that Linda made. We know that there was a 2 six of six that was sold in Texarkana, but until 3 somebody actually comes forward with the ticket and 4 claims the prize and that ticket is validated, there 5 is no winner. 6 MS. CLOUD: I said we got hit. Did I 7 say we have a winner? My general counsel likes to 8 correct me on that. 9 MR. SADBERRY: Linda, this obviously is 10 a good trend and I am glad to hear you project it to 11 continue. Are we making comparisons in the budget -- 12 in the revenue estimate numbers as well, to compare 13 how we are standing there? 14 MS. CLOUD: Yes. Bart is monitoring 15 the budget as we go along and we are no where near the 16 situation we were in last year with our budget. We 17 were -- this time last year, we were -- we were 18 cutting the budget almost on a monthly basis and -- 19 because our sales were down, but we are in good shape. 20 We are -- we have been conservative with our budget 21 this year because of the situation we were in and we 22 were monitoring what we have on the budget. So all 23 the directors have been made well aware of monitoring 24 that. And Patsy is working with Bart on those budget 25 numbers. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 28 1 CHAIR CLOWE: So we are pursuing a 2 program of fiscal conservatism? 3 MS. CLOUD: Yes, sir. 4 CHAIR CLOWE: Good. Any other 5 questions for Toni and Linda? Thank you, Toni. 6 MS. SMITH: Thank you. 7 CHAIR CLOWE: We're now moving to Item 8 Number eight on the agenda, which is the possible 9 discussion and including public comment on proposed 10 amendments that are relative to Lotto Texas. There is 11 a public hearing scheduled on April the 19th. What 12 time is that, Kim? 13 MS. KIPLIN: It is 10:00 a.m. located 14 here in Austin, Texas in this very room. 15 CHAIR CLOWE: And the scheduled meeting 16 on the 19th is for the purpose of having public 17 comment come in and be received and be part of the 18 record. We have asked that that issue be placed on 19 this agenda today. We have come to that point because 20 we thought that there might be individuals who would 21 like to appear before the Commission and make 22 commentary. We are going now to call on those folks 23 who have filled out appearance forms. Kim, did you 24 want to make a comment before we begin that process? 25 MS. KIPLIN: Yes, I would. I am WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 29 1 looking at the audience and I see quite a few people 2 and I guess in the interest of time if you hear a 3 comment that you agree with and to try to avoid 4 repetition to the extent that we would like to, if you 5 wanted to just adopt those previous comments into the 6 record, that would be acceptable. If you want to 7 just, on your witness affirmation form, mark that you 8 are either in favor or you are opposed to the proposed 9 rule we are making, that is also acceptable and will 10 be part of the rule-making record. If you come 11 forward and you want to address the Commission, if you 12 would identify yourself. And if you are representing 13 an entity, if you would also identity the entity that 14 you are representing. We have a court reporter who is 15 reporting the commission meeting today. The court 16 reporter can only take one voice at a time. So if you 17 would bear that in mind for those of you that are in 18 the audience, if you want to come forward -- if you 19 want to address the Commission, you must come forward 20 and speak into the microphone so we get a clear 21 record. 22 MR. SADBERRY: Kim, may I ask you a 23 question? There are times when we as commissioners 24 are not permitted to interact because of the ripeness 25 of the matter. I do know that this is down as a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 30 1 possible action item. And I also know that it would 2 not be right for any official action. So in that 3 respect, are we restrained in any way in interacting 4 with comments and questions that might be put to us or 5 may we do so? 6 MS. KIPLIN: On rule making, it is 7 pretty much wide open. You are correct, Commissioner 8 Sadberry, this is not ripe -- this proposed rule 9 making is not ripe for adoption because the minimum 10 30-day public comment period has not expired. I think 11 this is an opportunity, largely, to receive comment 12 directly to the Commission. So to the extent you wish 13 to ask clarifying questions of the commentors, you are 14 free to do so to the extent you wish to deliberate 15 with your fellow commissioners or ask questions of the 16 staff, you are free to do so. You may not take action 17 in the form of adopting the proposed amendments today. 18 MR. SADBERRY: Thank you. 19 CHAIR CLOWE: Thank you, Kim. At this 20 point in time we have 22 witness affirmation forms. 21 Ten individuals have indicated a desire to make an 22 appearance, ten have indicated a desire not to make an 23 appearance and two did not indicate any desire along 24 those lines. We will begin in the order in which they 25 were handed to me, calling on each individual who has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 31 1 indicated they like to appear. If during the process 2 anyone would like to appear, fill out a form, well, 3 you are invited to do that. As Kim said, if you will 4 come forward, please, when I call your name and 5 announce yourself to the microphone so you can be 6 identified, we'd be happy to have your comments. 7 First is Rick Johnson. 8 MR. JOHNSON: For the record, my name 9 is Rick Johnson. I am the president of Texas Food 10 Industry Association and the Texas Association of 11 Lottery Retailers. When we first heard about the 12 proposed changes, we sent a survey out to our members 13 and to our nonmembers also, retailers that sell 14 lottery products, explaining the thinking behind the 15 changing of the matrix and trying to get their opinion 16 on what they thought. We got back 3,973 surveys. Of 17 those surveys, 3,505 said yes, they were in favor of 18 the change, 468 said they were against the change. 19 Which works out to 88 percent were in favor and 12 20 percent were against the change. 21 Just as kind of a personal note, I 22 think this is probably an opportunity to try to 23 breathe a little new life back into the lottery. 24 Since the sales started dropping a couple of years 25 ago, I have noticed that a lot of retailers have lost WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 32 1 their enthusiasm to sell lottery products and they 2 just kind of leave it out there as something if 3 somebody wants it, they can come and get it, but they 4 really -- they are really not real enthused about 5 selling it. And I think maybe this will generate some 6 interest to get the sales back up to where they were 7 and also will give us an opportunity to work on some 8 other issues that we had began talking with Linda and 9 the other staff here about. That kind of just been 10 put on hold since the sales started dropping. That's 11 pretty much all I have got to say. Anybody have any 12 questions? 13 CHAIR CLOWE: Any questions? Thank 14 you, sir. 15 MR. JOHNSON: Thank you. 16 CHAIR CLOWE: Carlos Rocha. 17 MR. ROCHA: Good morning, my name is 18 Carlos Rocha. I am the representative of Fiesta Mart, 19 Incorporated out of Houston, Texas. We have 47 20 operations in the state of Texas. We sell lottery in 21 all of our operations. We are in full support of the 22 changes to the Lotto Texas. We have seen a decrease 23 in sales in Lottery sales and hopefully this will turn 24 that around for us. 25 CHAIR CLOWE: Questions? Thank you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 33 1 very much. 2 MR. ROCHA: Thank you. 3 CHAIR CLOWE: Mike Thomas. 4 MR. THOMAS: Good morning. 5 CHAIR CLOWE: Good morning. 6 MR. THOMAS: I'm Mike Thomas. And I am 7 hear representing Ultramar Diamond Shamrock. We're a 8 convenient store chain in several states. And in the 9 state of Texas, we probably got about a thousand 10 stores. And we participate in the lottery. And, 11 basically, I am here to concur with what has already 12 been said. We have suffered a decline in sales over 13 the last couple of years in lottery, as well as Lotto. 14 And we know that our sales are driven by the lottery 15 jackpots. And we feel like when the excitement is 16 created over that, it ties in with our lottery sales. 17 That is just the way it works out. So I am here to 18 voice my opinion for the changes. 19 CHAIR CLOWE: Mr. Thomas, did I 20 understand that you have a thousand outlets in the 21 state of Texas -- 22 MR. THOMAS: Yes, sir. 23 CHAIR CLOWE: -- that sell lottery 24 products? 25 MR. THOMAS: Yes, sir. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 34 1 CHAIR CLOWE: Thank you, sir. Mr. Doug 2 Waldbaum. Help me on the pronunciation of your name, 3 please, sir. 4 MR. WALDBAUM: I will. My name is Doug 5 Waldbaum. 6 CHAIR CLOWE: Thank you. 7 MR. WALDBAUM: I am the division loss 8 prevention manager for Albertson's from the 9 San Antonio division. And my comments also reflects 10 my peers in Dallas, Fort Worth, Houston and a few 11 stores that we have in the El Paso area. I am not a 12 lobbyist. And I am not used to addressing 13 commissioners, but I want to make a few comments that 14 reflect the business of Albertson's and some of my 15 personal beliefs. 16 When I got up this morning, I was 17 trying to decide what kind of tie I was going to wear. 18 And I said, now, I have two ties. My first tie is 19 this serious tie and my second tie is a monopoly tie 20 with play money. Now, I thought now I would come in 21 with this monopoly tie and everybody would laugh about 22 it and we would create a little bit of excitement, a 23 little bit of fun, but this is a serious matter. So 24 we'll talk a little bit about excitement with a 25 serious tie. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 35 1 At Albertson's our belief is serving 2 our customer. We believe in achieving our sales 3 goals. And in order to do that we believe that we 4 have to have a little bit of fun and excitement in 5 order to do that. The Lottery is one of those avenues 6 that we offer to our customers that provides a little 7 bit of fun and excitement. But recently that gloss 8 has been off of there because we haven't had the large 9 jackpots that we were used to when the lottery first 10 became a reality in our stores. And we know that when 11 those jackpots got higher, that people got excited and 12 things happened in the stores and we would see a 13 little bit more people coming into our stores in this 14 great competitive environment because they could play 15 Lotto and play the games of lottery with Albertson's 16 in our stores. And we haven't seen that. 17 So we solidly stand behind the 18 recommendation to add four numbers. We believe that 19 higher jackpots will bring in more customers. We 20 believe that will help us with our sales, that we'll 21 have more foot traffic, that people will get enthused 22 and excited and that is the name of the game. We 23 would like to see $55 million jackpots, we would like 24 to see some 60 and $65 million jackpots and I think 25 all of you would like to see that too. And the state WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 36 1 of Texas benefits. We would like to see that happen 2 as well. So from the standpoint of Albertson's, we 3 certainly are in concurrence to the recommendation of 4 the staff and the Lottery Commission to add more 5 numbers. We believe that is a great thing. 6 Now, sitting here, I do have one more 7 opportunity and I think it was reflected in the minor 8 way from one of the previous commentators. When we 9 get higher jackpots, we would also like to see a 10 higher commission or some other incentive come the way 11 of the retailers so that we pay for the amount of 12 labor that we use, that 5 percent really doesn't meet. 13 Certainly, we loved to have one of those one percent 14 winners. I personally know about two of them. One 15 here in Austin and one in Victoria. And we would 16 certainly like to have the luck of the draw and have 17 that happen again. But the day-to-day basis, we would 18 like to see a little more income come our way in terms 19 of a commission or an incentive or maybe a cashing 20 bonus in Albertson's. We tend to cash a lot of 21 winners -- tickets even though they may not have 22 purchased them at Albertson's. 23 And again, I would like to thank you 24 for your time. I know it took a little bit more, but 25 remember the word, excitement. We need excitement WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 37 1 back in Texas Lotto. Thank you. 2 CHAIR CLOWE: I want to compliment you 3 on your tie. And I want to tell you that although it 4 may not be in your division, you have a store in Waco. 5 MR. WALDBAUM: Yes, sir. 6 CHAIR CLOWE: And I would like to ask 7 you if you know how many stores do you have in Texas 8 that sell lottery products? 9 MR. WALDBAUM: We have -- and I was 10 just going through my head how many stores we have. 11 We have approximately 320 stores that are in the state 12 of Texas. 13 CHAIR CLOWE: Very good. Thank you for 14 coming. 15 MR. WALDBAUM: Thank you. 16 CHAIR CLOWE: We appreciate it. Denise 17 Lawhon. 18 MS. LAWHON: Yes. My name is Denise 19 Lawhon. And, actually, I am the manager of an 20 independent store out in the middle of the country. 21 And I have spoken with my customers who actually keep 22 us in business and they are very excited about adding 23 the four numbers. And like everyone has said, I 24 agreed with everyone. I don't want to sit here and 25 repeat myself, but we do need excitement back in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 38 1 lottery and I think it would be great if we could do 2 this. Thank you. 3 CHAIR CLOWE: Thank you, ma'am. And do 4 you mind if I say the city that your store is located 5 in? 6 MS. LAWHON: It is Robstown, Texas. 7 CHAIR CLOWE: Robstown. 8 MS. LAWHON: Yeah. 9 CHAIR CLOWE: Good. That is not way 10 out in the country. I know where Robstown is. Thank 11 you for being here. Lance Peterson. 12 MR. PETERSON: Lance Peterson. 13 Shop & Go Grocery in Dallas. We own one store in 14 Dallas on the edge of downtown. We get the blue 15 collar -- the utility workers all day long. They take 16 their 15-minute break, they come through. They really 17 want the excitement back. Breathing new life with a 18 change would be great, everyone gets excited. You 19 come into our store, we know you after a week. I 20 mean, we only have about 30 employees. We can tell 21 the people we see all the time. The regular players. 22 But I remember in the past we have been with the 23 lottery, you know, selling tickets since the beginning 24 and I remember what it seems like when the lines would 25 start, when the jackpots really got up there. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 39 1 people do, they look at four million, they look at the 2 small pools and they really don't get excited anymore. 3 And the big jackpots would be great. They would bring 4 people in. And I am sure that it would also increase 5 the other games also. And also my business, the rest 6 of my businesses would be great too. So I firmly 7 support it as an independent retailer. 8 CHAIR CLOWE: Thank you, sir. Thank 9 you for coming. Juan Flores. 10 MR. FLORES: Yes. I am Juan Flores 11 from Mission, Texas. We got United Drive In. We got 12 two stores. One of them is the top three in the 13 state. And I am for it. We need to wake up the 14 people again. Thank you. 15 CHAIR CLOWE: Thank you, sir. Thank 16 you for coming. Robin Crawford. 17 MS. CRAWFORD: Good morning, my name is 18 Robin Crawford. And I am from the country, for sure. 19 I am from Timpson, Texas. 20 CHAIR CLOWE: I have to agree with you 21 then. 22 MS. CRAWFORD: I am from the country. 23 CHAIR CLOWE: You got me there. Is 24 that Timpson at Jenny Hall? 25 MS. CRAWFORD: That's it. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 40 1 CHAIR CLOWE: Okay. I have been there 2 too. 3 MS. CRAWFORD: We're the larger of the 4 two. 5 CHAIR CLOWE: Okay. 6 MS. CRAWFORD: I am here in favor of 7 amending our game. I have been a retailer since the 8 start-up. We have gotten a little stale, I will have 9 to say. I want somebody to go over there and hold 10 Larry King while I say this, GTECH does a great job. 11 And it is him that I always call and fuss to whenever 12 I have a problem. I have talked with him before about 13 this subject and in other states, this has helped. 14 So, historically, in other states it has helped. I 15 don't think Texas would be any different. I guess I 16 have turned in my little form that -- that Mr. Johnson 17 had the numbers from. 18 I have one store. I am in it every 19 day. I can reiterate what these people are saying. A 20 guy comes up and he has a Dr. Pepper and a bag of 21 jerky and you ask him if he wants to buy a ticket and 22 what is the first thing he says? What is the jackpot? 23 And if you say $4 million he says, no, I don't play 24 unless it is -- whatever it says. And, you know, that 25 is the general feeling. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 41 1 If this will breathe new life into our 2 games, this is what we need. I think you are in 3 business and you know that is the name of the game. 4 Business is changing to meet the wants of your 5 customer. If you ask any customer, hey, do you want 6 to make the odds harder, what are they going to say? 7 No. But if they vote with their money. When the 8 jackpot is high, they buy the tickets. When the 9 jackpot is low, that's when they don't buy tickets. 10 So no matter what they might verbally tell you, I 11 think that, you know, in the past that you can see if 12 they are not buying tickets, that is not the product 13 that they want. So that is my opinion. Thanks. 14 CHAIR CLOWE: Thank you. Thank you for 15 coming. David Parkey. 16 MR. PARKEY: Good morning, my name is 17 David Parkey. And I am from Denison, Texas. I am an 18 independent retailer. And they more or less covered 19 everything there. But I am definitely for the change. 20 I think it would enhance the games. I know it would 21 make the jackpots bigger and when the jackpots are 22 bigger, there is more people, more traffic coming in. 23 That is from all the Oklahoma people too. I get them 24 all. They all come to the store. Thank you. 25 CHAIR CLOWE: Thank you, sir. Doug WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 42 1 Sturdevant. 2 MR. STURDEVANT: Good morning, my name 3 is Doug Sturdevant. I have a store in Baytown called 4 Vice Stop, one store. It is kind of unique. It is a 5 drive-through, drive-through only. Nobody comes 6 inside. I spoke in November to the Commission in 7 Houston. And what I did -- I spoke against this 8 change. Well, I have done some research and I polled 9 my customers and I am now in favor of it. I checked 10 with something somebody mentioned earlier that some 11 other states had done so. The Florida lottery changed 12 back in November. I called the Florida lottery and 13 they e-mailed their figures, their sales figures. And 14 I put together a graph that shows how much they have 15 increased. Since November, their sales have increased 16 over $80 million. That's an increase of 24 percent. 17 And I have it by drawing except for a couple of times 18 they didn't give me the jackpots amounts. But it is 19 quite obvious a couple times when their jackpots were 20 high, that the change did not exceed that previous 21 year. But you are welcome to these if you like them. 22 It would be a good thing for us in 23 Texas. I sold a winning jackpot ticket back in '98. 24 It was a $4 million jackpot. And one of the first 25 things that -- when they called me, they said I wished WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 43 1 it was a bigger jackpot. Well, so do I. But I am 2 very thankful for what I got. It is no doubt, as 3 everybody said, when the jackpot is higher, sales are 4 higher. There is an ATM right by my store and the 5 bank president told me that he can tell by the traffic 6 at the ATM when the jackpot is over 20 million because 7 of the traffic at the ATM. And I am in favor of it. 8 My players are in favor of it. And just want to make 9 sure that everybody knows that because I spoke against 10 it in Houston. Thank you. 11 MS. KIPLIN: Mr. Sturdevant, would you 12 mind giving those documents to the court reporter and 13 we'll add them to the record. Thank you, sir. 14 MR. STURDEVANT: Thank you. 15 CHAIR CLOWE: Thank you, sir. Thank 16 you for coming. I am going to need some help on this 17 name. Jacques Rieulrt. 18 MR. RIEULRT: Rieulrt. 19 CHAIR CLOWE: Yes, sir. 20 MR. RIEULRT: Good morning, my name is 21 Jacques Rieulrt. I am represent Melek Corporation. 22 We don't have a thousand stores in Texas, but we have 23 seven in El Paso. We're number one seller there. And 24 we strongly support the change of the matrix. Thank 25 you. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 44 1 CHAIR CLOWE: Thank you, sir. Tim, is 2 it Potter? 3 MR. POTTER: Yes. 4 CHAIR CLOWE: Yes, sir. This is the 5 11th appearance that -- the last one that has been 6 handed to me. Yes, sir. Thank you for coming. 7 MR. POTTER: The name is Tim Potter. 8 The Town & Country. We've been, I believe, the top 9 retailer since, I believe, almost day one. We 10 strongly support this change. I guess we can take it 11 by Florida and some of the other states that has done 12 it. I think everybody here has full belief that 13 everybody here wants to make more money, including you 14 guys for the state and for us. And that is about it. 15 CHAIR CLOWE: Thank very much. Thank 16 you for being here. 17 That concludes the appearance list I 18 have of individuals who wanted to come. Oh, I see 19 there is another one. Thank you. Mr. Bill Parr, I 20 believe it is. 21 MR. PARR: My name is Bill Parr. I am 22 representing TMT, Incorporated. We're doing business 23 as Whip In. Commissioners, Chairman, I appreciate the 24 opportunity. We have 18 stores in the Metroplex. 25 Incidentally, we started in Austin off of Riverside. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 45 1 I am in favor of the matrix change. I think that -- I 2 think we have a good model. I just think that it 3 needs to be tweaked a bit. I don't know who came up 4 with the idea with adding the extra balls, but I think 5 it was a brilliant idea. Thank you. 6 CHAIR CLOWE: Thank you. Thank you for 7 coming. For the record -- and I mentioned there were 8 ten individuals who filled out forms, but did not wish 9 to appear. Kim, if I may, I would like to read out 10 their names and their position on this issue. Jodi 11 Moon-Hensley for the proposed changes. Jeanetta 12 Johnson for the proposed changes. Robyn Lehman, and 13 there is no indication on this form how this 14 individual feels. Rudolph Blaschke for the proposed 15 changes. Pablo Lucio for the proposed changes. Faye 16 Cooper for the proposed changes. Blanca Victorino, no 17 indication on this form of how this individual feels. 18 Nancy Nunez, again, no indication. Becky Anderson for 19 the proposed changes. David Hudson for the proposed 20 changes. And two individuals who did not indicate 21 whether they wanted to appear or not, but I would like 22 to report their feelings. Faithi Yousef for the 23 proposed changes. And Arnando Selinas for the 24 proposed changes. 25 Is there anyone else in the audience WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 46 1 who would like to make an appearance that has not 2 filled out a form at this time? I would like to thank 3 all of you who have come to this meeting and made your 4 appearances and attended the meeting. Many of you 5 have come from a great distance, as far away as 6 El Paso. I think that is further away than northeast 7 Texas, if I remember right. But you have taken a lot 8 of time and effort to give us your feelings and we 9 appreciate it very much. 10 We'll now move on to the next item on 11 our agenda which is, Kim, the possible discussion and 12 action on adoption or republication of amendments. 13 MS. KIPLIN: Commissioners, Ridgely 14 Bennett, deputy general counsel will make the 15 presentation. I will just make some preliminary 16 remarks. If you will recall you-all voted to propose 17 amendments to the existing rule, 16 Texas 18 Administrative Code, Section 401.102 and also propose 19 two new rules, 401.102 and 103. 20 We are requesting today to not adopt. 21 The rules are -- the proposed rule making is ripe for 22 adoption, but we are requesting that you not adopt and 23 that you vote to republish the amendments. And with 24 that, I'll turn that to Mr. Bennett to lay out the 25 reasons why. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 47 1 MR. BENNETT: Thank you. Good morning, 2 Commissioners. Again, for the record, my name is 3 Ridgely Bennett. I am the deputy general counsel of 4 the Texas Lottery Commission. As Kim said, we are 5 suggesting that the rules be republished for further 6 comment. And I will run through the changes to 7 401.101 that staff is recommending. 8 The proposed amendments will now 9 provide for a definition of the term "cost". And that 10 was not included in the original version of the 11 proposed rule. The proposed amendments now require 12 when conducting an informal competitive solicitation 13 or an invitation for bids, the executive director or 14 the executive director's designee to award a contract 15 to the qualified bidder submitting the lowest and best 16 price quotation except that the executive director may 17 reject all price quotations if it is determined to be 18 in the best interest of the state. The proposed 19 amendments now require an amount to be added to a 20 nonresident's bid equal to the amount a Texas resident 21 bidder would be required to underbid a nonresident 22 bidder or to obtain a comparable contract in the state 23 in which the nonresident bidder had its principle 24 place of business in determining the lowest bid 25 submitted in response to an invitation for bids. This WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 48 1 amount would not be added to the contract price. It 2 is simply added in reviewing the lowest bid. 3 The proposed amendments now permit the 4 executive director or the executive director's 5 designee to engage in simultaneous negotiations with 6 proposers rather than having to start at the proposer 7 who is suggested by the evaluation committee to be the 8 apparent successful proposer and moving down in a line 9 that the executive director would have the authority 10 to engage in simultaneous negotiations. And the 11 proposed amendments correct several typographical 12 errors that were contained in the rule as originally 13 proposed. 14 And with that, staff will recommend 15 that the Commission vote to republish the amendments 16 to Section 401.101 of the Texas Administrative Code. 17 There have been no changes made to 402 or 403. 18 However, because the rules interrelate regarding 19 procurement, staff would recommend that they also be 20 republished so that when it is time to adopt the rule, 21 if there are any comments that need to be incorporated 22 in 402 and 403, they can be done at the time of the 23 adoption. 24 MS. KIPLIN: 102. 25 MR. BENNETT: Oh, I am sorry. 102 and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 49 1 103. 2 MR. SADBERRY: Ridgely, do I understand 3 correctly that these proposed changes result, in whole 4 or in part, from comment that -- comments that have 5 been received during the public comment period? 6 MR. BENNETT: Partially from comments 7 and partially from further review of staff. 8 MR. SADBERRY: And I believe when we 9 have had, more or less recently, the issue of 10 procurement in protest and appeals come before us, we 11 have had members of our legislature offer to work with 12 us to come up with a good way of putting this in the 13 form of a rule as well as in procedures of handling 14 these situations. Have we worked with our legislators 15 in that respect to your satisfaction, get their input 16 and assistance? 17 MR. BENNETT: I believe we have kept 18 them informed. I don't believe, besides the comments 19 that we receive from Representative Rena, that we have 20 received any other comment on the rule. 21 MR. SADBERRY: But you are satisfied 22 that they are aware of the direction we're headed with 23 this rule-making process? 24 MR. BENNETT: Yes. 25 MR. SADBERRY: And finally, of course, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 50 1 we have a statutory guide as to what we can do. Such 2 as, what does it mean, the cost to the state of Texas, 3 etc. We -- I guess the public is being made aware 4 that we are constrained as far as how far we can go in 5 that respect to define by rule or abide by rule what 6 it means to engage in this competitive bidding 7 process. 8 MR. BENNETT: I think that was 9 thoroughly flushed out during the Oberthur protest. 10 CHAIR CLOWE: Are you asking for a 11 motion, then, relative to 101 or 101, 102 and 103? 12 MR. BENNETT: We're asking for a motion 13 relative to all three rules. 14 CHAIR CLOWE: Is there a motion? 15 MS. WHITAKER: I so move. 16 MR. SADBERRY: I would second. 17 CHAIR CLOWE: Moved and seconded. All 18 in favor say aye. 19 MR. SADBERRY: Aye. 20 MS. WHITAKER: Aye. 21 CHAIR CLOWE: Aye. Opposed, say no. 22 The vote will be recorded as three, zero in favor. 23 MS. KIPLIN: And just for your 24 information, the mechanics of this -- with the Texas 25 Register, we will withdraw the current rule making and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 51 1 we will propose the rule making decision with your 2 vote today. 3 CHAIR CLOWE: Very good. 4 MR. BENNETT: Thank you. 5 CHAIR CLOWE: Thank you Ridgely. We 6 are now ready to move to Item 11. Report, possible 7 discussion and action on lottery advertising and 8 promotions, including print media criteria. Toni? 9 MS. SMITH: To quickly review our 10 general market advertising through Fogarty/Kleine and 11 Monroe, we're continuing our "Don't Forget" campaign 12 for Lotto Texas and those flights will run 13 continuously through May the 22nd. The TV campaign 14 for Lotto Texas continues in tier one markets with an 15 intermediate run -- intermittent run through the end 16 of May and then week-long flights start in April 17 followed by two more week-long flights through May. 18 So that will continue to be on the air. 19 The scratch off coins campaign 20 re-launches with a three-week flight beginning April 21 the 17th. The radio for the coin campaign also begins 22 a three-week media flight on April 17. Our minority 23 market advertising through the King Group, 24 Incorporated, we just completed six -- the production 25 of six new television spots and we are really excited WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 52 1 to finally get some things on the air that reach our 2 minority markets. The Hispanic TV spots begin -- will 3 be aired on all Univision Network affiliates in Texas. 4 In addition to the Univision Network 5 affiliates, we will begin broadcasting -- those will 6 begin broadcasting live Texas Lottery drawings on 7 April the 10th and will do so through the end of 8 August. So we're excited about they are picking up 9 the drawings for us also. 10 Our African-American TV spots are 11 airing in BET, which is Black Entertainment Television 12 cable network affiliate in Dallas and Houston. 13 Hispanic radio spots promoting Cash 5 and scratch off 14 will begin airing April 5th and are broadcasting on 15 Hispanic stations across Texas. The African-American 16 radio spots promoting Pick 3 and scratch offs begin 17 airing on April 5th in stations in Dallas, Houston and 18 East Texas. 19 And then, in addition, to monthly 20 newspaper ads promoting scratch off and on-line games, 21 each specifically designed ads for the 22 African-American, Hispanic and Asian markets will be 23 published in newspapers across Texas, respective to 24 their markets. So we're finally getting our 25 advertising out there with our minority markets too WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 53 1 and we're excited about that. Any questions? 2 CHAIR CLOWE: Anything to add, Linda? 3 MS. CLOUD: I just wanted to inform the 4 commissioners that last Friday afternoon at 3:30 we 5 had a meeting here in this auditorium with our 6 minority print media, which are the ones that have 7 come before you and have complained about some of the 8 print criteria that we had put into place. This 9 turned out, I think, in the long run to be a very good 10 meeting for us. I think we got a lot of things aired 11 out. We got -- we gave the publishers an opportunity 12 to voice their concerns and their opinions. And we 13 expressed the reason why we were doing this and the 14 seriousness of us having to have some type of audit 15 trail as to what publications that we were paying for. 16 And I think we came to a good understanding by the 17 time the meeting was over. We are going to put out a 18 letter confirming the results of that meeting. And 19 we're going to go forward and see how things are 20 going. And there is only a very few, maybe 15, that 21 has not complied with what we have asked them. So 22 that meeting was very positive. 23 MR. SADBERRY: Do you have a list of 24 attendees? 25 MS. CLOUD: Yes, I think we do. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 54 1 MS. SMITH: They are part of the 2 transcripts. We can -- 3 MS. CLOUD: Right, we do. And we also 4 have a transcript of the meeting that we will 5 transcribe and send copies to everybody that was here 6 and those people that could not come to the meeting. 7 CHAIR CLOWE: I think that meeting was 8 excellent. I would like to urge you to continue that 9 type of communication, that interface, and work 10 through the -- perhaps the problems of understanding 11 more than actual substance. I think those kinds of 12 face-to-face meetings are very beneficial. And I am 13 very pleased you did that. 14 MS. CLOUD: And I agree with you. 15 CHAIR CLOWE: Thank you. 16 MS. SMITH: Thank you. 17 CHAIR CLOWE: Now, Item 12. Report, 18 possible discussion and action on the lottery operator 19 audit procurement. Is this you, Linda? 20 MS. CLOUD: I think so. At this 21 time -- 22 MS. KIPLIN: Mr. Bennett is also 23 available and myself to provide any information that 24 would be helpful. 25 MS. CLOUD: Commissioners, we had the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 55 1 state auditors to take a look at our RFP process for 2 the lottery operator audit procurement based on the 3 fact that we put this procurement out several times. 4 A couple of times with no responses. So we wanted to 5 make sure that we didn't have language within the body 6 of the RFP that was prohibiting our markets to bid on 7 this contract. They have come back with some 8 recommendations. We still have some items that they 9 are yet to reply to that we are waiting on. We are 10 still not ready to put this back out, but we are 11 getting closer. We are also looking at this now, and 12 this is one of the things that the state auditors are 13 going to help us with, as to whether or not the timing 14 of where we are today is going to allow us to put this 15 audit out before the RFP process begins for the 16 lottery operator. So we're not quite sure if by the 17 time the procurement was put out, we got bids on the 18 audit and the audit was to take place that it would 19 not interfere with the process that we would be in at 20 the time. 21 MR. SADBERRY: Does this mean, Linda, 22 that no -- for all practical purposes, no significant 23 audit activities can take place or are taking place or 24 are we doing something in the meantime? 25 MS. CLOUD: GTECH is completing right WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 56 1 now their annual financial audit. And they have been 2 requested to provide that information as quickly as 3 possible. They have also agreed to provide us on a 4 quarterly basis with financial information. So I 5 think we are working -- 6 MR. SADBERRY: There is activity going 7 on? 8 MS. CLOUD: Yes. 9 MR. SADBERRY: It is just if we wanted 10 a heightened level of auditing, this is what this 11 particular procurement activity would address? 12 MS. CLOUD: Well, this procurement went 13 back to the bad times and the fact that it was -- 14 appeared to be necessary for us to -- it was requested 15 by one of the commissioners that we know what profit 16 was being made on the Texas Lottery. 17 MR. SADBERRY: And this stems -- any 18 activity in this regard that has gone on, is going on, 19 including the RFP that we are contemplating, is 20 something that is part of the provision of our 21 contract that gives us the right to do it. 22 MS. CLOUD: Absolutely. 23 MR. SADBERRY: But it is not made 24 mandatory that we do it. 25 MS. KIPLIN: We have both the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 57 1 contractual right and the statutory right to audit our 2 lottery operator. 3 MR. SADBERRY: And we'll take that into 4 consideration in the next major RFP and operating 5 contract. 6 MS. CLOUD: Yes, sir. We did get an 7 audit from Deloitte, but it was an agreed upon 8 procedure and it did not give an opinion. 9 MR. SADBERRY: What may be helpful, for 10 historical purposes in the contemplation of the next 11 RFP, is some indication of the period in which we did 12 not audit, particularly in connection with the 13 contract modifications, so that we have a clear 14 picture of what we knew and have known as we have gone 15 along in making contractual negotiations and entering 16 into contracts. Because I know when this took up, it 17 was in midstream, if I recall correctly, and we have 18 the right to audit and had not addressed it. I am not 19 sure that it didn't picked up in one of the state 20 auditor's report, if I recall correctly. And we have 21 this provision, both statutory, as Kim points out, as 22 well as contractual, and had not acted upon it. Just 23 for history, we want to close that and have a 24 historical account of what we -- what data base we 25 have, it would seem to me. And I think we have that, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 58 1 is what I believe. 2 MS. CLOUD: Yes, we do. The real 3 benefit, I think, to having this information, this 4 financial information is in the event the Texas 5 Lottery -- this is part of what the state auditors 6 brought up in their performance audit. In the event 7 we had to take over running the lottery ourselves, 8 that we would know what it cost, how many employees, 9 how much expense is centered around what the lottery 10 operator is paying that we have no knowledge of. And 11 it keeps us informed as to the day-to-day operational 12 cost for the state -- for the Texas Lottery. 13 MR. SADBERRY: And, as well as we may 14 be called upon to address questions of unbundling -- 15 MS. CLOUD: Right. 16 MR. SADBERRY: -- and other things 17 the -- 18 MS. CLOUD: Right. 19 MR. SADBERRY: -- legislature might be 20 interested in and what data we have, what we have 21 collected in regards to responding to putting us in a 22 position to respond to those inquiries should they 23 arise and should the legislature contemplate anything 24 along those lines. 25 MS. CLOUD: Exactly. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 59 1 CHAIR CLOWE: Very good. Thank you for 2 the questions, Commissioner. 3 We'll now move on to Item Number 13, if 4 there are no further questions. Thank you Ridgely. 5 The consideration of possible action 6 and discussion of the state auditors report relating 7 to the Texas Lottery Commission. Debra McLeod. 8 MS. MCLEOD: Good morning, 9 Commissioners. For historical purposes, I would like 10 to just present what -- this monthly synopsis that I 11 give for the commissioners. Every six months, the 12 state auditors ask us to report on where we are with 13 our findings -- excuse me. Where we are on the 14 implementation of their recommendations. To date, we 15 have done or they have done three audits. One was on 16 the bingo management controls, one was on lottery 17 management controls. All of those recommendations 18 have been implemented. They have done another audit 19 on purchasing procurement practices here of which they 20 had two findings. 21 To date, we have a procurement rule 22 that has been before the Commission and I believe 23 needs additional work. And what I understand, it will 24 take to August to make those additions with time for 25 open record comment, and that type of thing. Then we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 60 1 have another comment which Linda has already addressed 2 with the print media. And we are going through and 3 trying to help marketing in that effort as well. And 4 envision that hopefully next month I can give you a 5 better target date. 6 There is a lot of work going on in 7 trying to address concerns related both from the print 8 media standpoint and what we, as a commission, need to 9 do to be stewards of this money. And the fact that 10 we're working through a primary vendor to perform 11 these services. 12 So at this point, I don't have a new 13 target date for that one, but I can guaranty you next 14 month I will. And as I said, the state auditors 15 require us to report bi-annually. They have changed 16 the reporting dates. Now it is November and May. And 17 so there will be a report for May. That's all I have 18 to report at this time. 19 CHAIR CLOWE: Questions? Thank you 20 Debra. We're now ready to go to Item 14. 21 Consideration and possible discussion or action on 22 adoption -- consideration, including adoption, on the 23 agency's rule review of 16 TAC Chapter 402 and 16 TAC 24 402.572 relating to license fee increases. Kim, I 25 believe this is your subject. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 61 1 MS. KIPLIN: Yes, sir. Commissioners, 2 if you will recall the staff came to you at an earlier 3 commission meeting and requested that you authorize 4 the beginning of the rule review of the bingo rules 5 with the exception of one rule, which was 16 Texas 6 Administrative Code, Section 402.572 relating to 7 license fee increase. The reason that that rule, just 8 for history, was excluded from the rule review is 9 because that is the rule that you have adopted, 10 effective September 1, 1999, and is an increase in fee 11 to offset the cost of the new computer system in 12 bingo. That rule will expire by operation of law 13 prior to the time that it would have been required to 14 have undergone a rule review. So, therefore, it is 15 off the table. 16 With regard to the remaining rules, 17 statutorily, there is, like I said, a requirement for 18 all agencies to undertake a rule review. There is a 19 30-day public comment period with regard to this 20 particular rule review. No comments were received. I 21 had the opportunity to sit down with Mr. Atkins, the 22 bingo director and his staff and review the rules. 23 And it is the position of the staff that the initial 24 or the original reason for the adoption of those rules 25 continues to exist and, therefore, staff does request WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 62 1 that you vote to adopt the rule review and continue 2 those rules in existence. 3 Now, having said that, staff also 4 acknowledges that there is a need to revise those 5 rules and it is staff's intention to come back at a 6 future commission meeting with proposed amendments 7 before you for your consideration to begin a 8 rule-making process. With that, I will be glad to 9 answer any questions you have at this time. I am 10 looking for a motion to adopt the rule review of the 11 bingo rules. 12 MR. ATKINS: Commissioners, this also 13 was taken before the Advisory Committee and they 14 concurred that there would be a need for those rules 15 to be continued. 16 MR. SADBERRY: That was one of the 17 questions that I was going to ask is we have gotten 18 their input. Was there any issue or division of the 19 House on that? 20 MR. ATKINS: No, sir. 21 MR. SADBERRY: How frequently do we do 22 this, Kim, by statue? 23 MS. KIPLIN: Well, all rules are 24 supposed to have undergone a rule review. All rules 25 that were in existence, I believe, as of 1997, by WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 63 1 2001. It will be a continuing obligations for each 2 agency to undertake a rule review of rules that were 3 adopted within four years of the date of the adoption. 4 So this will be a periodic rule review. 5 MR. SADBERRY: The reason I ask, in 6 part, is because I believe we adopted somewhat -- a 7 number of TABC rules for bingo. I take it, this, now, 8 has given us a chance, if we didn't get it right then, 9 to look at it and study it. Those are rules we didn't 10 initially adopt. That we adopted in blanket form. 11 You have looked at each one of those and so we have a 12 reason for having those rules. 13 MS. KIPLIN: Yes. The -- just for, 14 once again, historical purposes, at the time that 15 bingo transitioned to the Lottery Commission from the 16 alcoholic beverage commission which was -- the 17 transition was April 1, 1994, part of the transition 18 language required the Lottery Commission to adopt 19 rules that came over or those rules would expire by 20 operational law. Some rules did expire by operation 21 law and others were readopted -- were adopted by rule 22 making here within this agency. Those rules are now 23 part of the Lottery Commission, Bingo rules and then, 24 in part, those rules are before you in part of this 25 rule review. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 64 1 MR. SADBERRY: I would -- 2 CHAIR CLOWE: Yes. 3 MR. SADBERRY: If it is so appropriate, 4 I would so move the adoption of those rules. 5 MS. KIPLIN: Rule review. 6 MS. WHITAKER: Second. 7 CHAIR CLOWE: The motion is made and 8 seconded. All in favor, please say aye. 9 MR. SADBERRY: Aye. 10 MS. WHITAKER: Aye. 11 CHAIR CLOWE: Aye. Opposed say nay. 12 Okay. The vote reflects approval three to zero. 13 MS. KIPLIN: Commissioners, I have an 14 order for your signature. 15 CHAIR CLOWE: While we're dealing with 16 that, I would like to refer back to Item eight on our 17 agenda. If you will recall at this close of that 18 item, I called for any other appearances and since 19 that time I have received five witness affirmation 20 forms indicating a position in regard to the possible 21 adoption of the rule. They did not wish to appear, 22 but I would like to read those into the record. 23 Lucky's Food Mart in favor of the 24 proposed change. Barbara Buntin, B-u-n-t-i-n, in 25 favor of the proposed change. Sharon Y-e-z-a-k, Yezak WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 65 1 proposed -- for the proposed change. Marvin [sic] 2 Zecak, Z-e-c-a-k [sic] for the proposed change. And 3 Roger Groce, G-r-o-c-e for the proposed change. 4 Those are all I have at this time. Are 5 there any others? At this time I would like to move 6 that the Texas Lottery Commission go into executive 7 session to deliberate the duties and evaluation of the 8 executive director, the internal auditor, the 9 charitable bingo operations director pursuant to 10 section 551.074 of the Texas Government Code to 11 deliberate the duties of the general counsel and 12 security director pursuant to 551.074 of the Texas 13 Government Code to receive legal advice regarding 14 pending or contemplated litigation and/or to receive 15 legal advice pursuant to Section 551.071 (A)(B) or -- 16 I'm sorry. (A)(1) or (B) of the Texas Government Code 17 and/or to receive legal advice pursuant to Section 18 551.071(2) of the Texas Government Code, including but 19 not limited to: 20 T&T Interest, Incorporated v. Texas 21 Lottery Commission, et. al. 22 Douglas Press et. al. v. Billy Atkins, 23 Charitable Bingo Director et. al. 24 The matter involving the Department of 25 Justice pursuit of a complaint regarding the Americans WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 66 1 Disabilities Act. 2 The matter involving the request for 3 open records decision in Attorney General's open 4 records file Number 119718-98 relating to request for 5 information in connection with the lottery operator. 6 Matter involving employee complaint. 7 Matter involving agency purchases. 8 Employment law, personnel law, 9 procurement law and general government law. 10 Is there a second? 11 MR. SADBERRY: Second. 12 CHAIR CLOWE: All in favor say aye. 13 MR. SADBERRY: Aye. 14 MS. WHITAKER: Aye. 15 CHAIR CLOWE: Aye. All opposed, no. 16 The vote reflects three, zero in favor. The Texas 17 Lottery Commission will go into executive session. 18 The time is 10:00 a.m. Today is April the 13th, the 19 year 2000. I will make no estimate of how long this 20 executive session is going to take. I have neither 21 the expertise nor the experience of the former Chair. 22 Stand by. 23 (Off the Record) 24 MS. KIPLIN: Back on the record in the 25 interest of clarification. The citation to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 67 1 Government Code was 551.071(1)(A) or (1)(B) of the 2 Texas Government Code. 3 CHAIR CLOWE: And for the record, my 4 name is C. Tom Clowe, Jr. as chairman of the 5 Commission. 6 (Executive Session) 7 CHAIR CLOWE: The Texas Lottery 8 Commission is out of executive session. The time is 9 12:32 p.m. Is there any action to be taken as a 10 result of executive session? If not, let's move to 11 Item 17. And Kim, will you present the cases for 12 consideration? 13 MS. KIPLIN: Commissioners, what you 14 have in your notebook are proposals for decision and 15 accompanying proposed orders. These have been 16 tendered to you by the state office of administrative 17 hearings after a contested case proceeding. There is 18 nothing unusual in any of the cases. I will hold out 19 on the one that is labeled Q. The others are all 20 lottery cases. They are in the main for greater than 21 three insufficient funds in a calendar year. One is 22 an out-of-business. The first one, Shell Foot Mart, 23 we had an unlicensed individual selling tickets and 24 our licensee was no longer there. We do have four, 25 beginning with - let's see - Valley View Shell and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 68 1 then Plano Parkway Shell Center, Motor Street Shell 2 and Westheimer Shell, those are all affiliated 3 businesses. It is one corporation, common ownership, 4 same bank account. It was four NSF's and so as a 5 result, we pursued revocation on their licenses. With 6 that, I would recommend that you-all do adopt the 7 proposal for decision and a proposed order that has 8 been submitted by the administrative law judges that 9 presided over these cases. 10 Now, if I could turn to Q, which is a 11 bingo case. Commissioners, this is American Legion 12 Post 424. It should be the last order in your 13 notebook. The last matter in your notebook. This is 14 a denial of a renewal application. The allegations 15 were failure to pay prize fee. And see, it is for 16 several quarters, failure to post the bond. The 17 proposed order is to affirm the denial. This is a 18 situation where the bingo division via the bingo 19 director denies the renewal application. The bingo 20 licensee or applicant must request a hearing to 21 contest the denial of the license application. In 22 this case, there -- the hearing occurred and the judge 23 entered an order. And if I am not mistaken in looking 24 at this, I do not believe that there was an appearance 25 and it went forward on a default basis. So along with WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 69 1 the other ones, the staff recommends adoption. The 2 staff also recommends that you all adopt the 3 administrative law judge's proposal for decision and 4 proposed order in the bingo case. And with that, I 5 will be glad to answer any questions that you have. 6 CHAIR CLOWE: Questions? Do you want 7 two motions or one encompassing A through Q? 8 MS. KIPLIN: One is fine. A motion to 9 adopt the administrative law judge's proposed rules 10 for decision and accompanying proposed orders would be 11 sufficient. 12 MR. SADBERRY: I would so move. 13 MS. WHITAKER: Seconding. 14 CHAIR CLOWE: Motion and second. All 15 in favor say aye. 16 MS. WHITAKER: Aye. 17 MR. SADBERRY: Aye. 18 CHAIR CLOWE: Aye. Opposed, nay. The 19 record will reflect that the Commission adopted the 20 motion, three to zero. Linda, we're to item -- that 21 was 17, we're at Item 18. The report by the executive 22 director. What do you have for us? 23 MS. CLOUD: Commissioners, we 24 transferred to the foundation school fund in March, 25 two thousand eighty-eight million seven hundred and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 70 1 ninety-four thousand nine hundred and ninety-five 2 dollars [sic]. Making a total transfer since 3 inception of $7,082,337,668. In your notebooks, you 4 have a copy of a minority report on our vendors. And 5 if you have questions about this, I will have Patsy 6 come up. This is just keeping you informed as to 7 where we are with our minority spending. This was a 8 September 1st through February 29th accounting of 9 those numbers. 10 CHAIR CLOWE: Any questions? 11 MS. CLOUD: Any questions on that? 12 CHAIR CLOWE: I believe not. 13 MS. CLOUD: Our FTE totals. We have 14 305 active FTE's. We have 25 vacancies. Out of those 15 vacancies we have four that are in the selection, 16 acceptance pending portion. We have recruiting, 17 screening and interviewing for fourteen applicants or 18 positions. We have two that are being posted at this 19 time. And we have five vacancies with no activity at 20 this time. So that would bring us up to our 335 21 capped FTE's. I also want to mention at this time 22 that Paul Wilson is retiring. He is leaving us. He 23 has been a state employee for 30 years. He was in the 24 lottery task force from the very beginning of time 25 when they were looking at structuring the lottery WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 71 1 through the comptroller's division. And Paul has been 2 with us since start-up. And we are going to really 3 miss him, but we are happy that he can retire while he 4 is still young enough to enjoy it. 5 CHAIR CLOWE: Is he going to become a 6 professional domino player? 7 MR. WILSON: No, but I'll probably play 8 a little more often. 9 CHAIR CLOWE: I reckon you will. We 10 wish you the best of luck, Paul. 11 MR. WILSON: Thank you, sir. 12 CHAIR CLOWE: And I have tried to 13 retire four times and have never been successful. So 14 my view is you are going to have some other things to 15 do. 16 MR. WILSON: I have got a few things in 17 mind. 18 CHAIR CLOWE: I'm glad to hear it. I'm 19 glad. We thank you for your service here and want, on 20 behalf of the entire commission, to thank you. And 21 you have been a real asset to this organization. 22 MR. WILSON: Thank you, sir. 23 MS. CLOUD: I agree. And 24 commissioners, our next town hall meeting is going to 25 be held in Victoria, Texas on April the 27th. We had WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 72 1 our last meeting in Longview. We had quite an 2 experience with our travel, those several of us that 3 normally get to the meeting just before the meeting 4 starts, well, our airlines decided to delay us. So we 5 only had about an hour once we got to the meeting to 6 visit with our retailers, but it was a good meeting 7 and I think, you know, they all understood the 8 problems we had. But that is one of the -- well, that 9 is the second one, actually, that got messed up 10 because of travel. But one time we didn't make it out 11 of Dallas for McAllen once. So we have our backup 12 step and have to conduct it with that. 13 CHAIR CLOWE: I still don't understand 14 flying from Austin to Dallas to Longview. 15 MS. CLOUD: I guess we could drive it, 16 but, you know, I'm not sure it is as close as you 17 think it is from Austin. I think somebody said it was 18 a five-hour drive. 19 CHAIR CLOWE: Well, that's not bad. 20 MS. CLOUD: We would have made it about 21 the same time. 22 CHAIR CLOWE: Today I have driven from 23 Waco, I am going to San Antonio and end up in Houston 24 tonight. So -- 25 MR. ATKINS: That is an average day for WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 73 1 you. 2 CHAIR CLOWE: Yeah, 500 miles. 3 MS. CLOUD: That's my report, 4 Commissioners. 5 CHAIR CLOWE: Thank you, Linda. Any 6 questions for Linda? 7 MR. SADBERRY: I just wanted to thank 8 you, Linda and Kim, for joining me. They -- I made a 9 presentation at the request and invitation of a very 10 important group of people and Linda and Kim had 11 business that they could arranged to join me. And I 12 thought it was a very good presentation. I have 13 already thanked Keith for his help and his staff and 14 putting together some comments for me. And those 15 kinds of things help because it is not in the context 16 of the forum like your retailer meetings, but those 17 are people that are involved in the business of their 18 communities. And they talk to people and they 19 bring -- they ask some very interesting questions, 20 like why don't you tell us where the money is going 21 and things like that that Linda was very effective, 22 she -- she and Kim, in addressing those questions. So 23 I appreciate your support and everyone -- the 24 consensus is everyone was very pleased and happy that 25 you could be there. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 74 1 MS. CLOUD: Well, we enjoyed it. 2 CHAIR CLOWE: Where was the 3 presentation? I didn't get that. 4 MS. CLOUD: It was the Houston Business 5 Woman's Association and it was held at -- 6 MR. SADBERRY: The Doubletree. 7 MS. CLOUD: Doubletree. 8 MR. SADBERRY: I think it was. The old 9 river way. Very, very -- they were pleased and I 10 thought the presentations were very, very effective. 11 MS. CLOUD: We had a meeting with 12 Senator -- 13 MR. SADBERRY: Ellis. 14 MS. CLOUD: -- Ellis that day after 15 that report -- Keith also had two speaking engagements 16 in the last week. So we're -- our speaker's bureau is 17 picking back up without speakers. We used to have a 18 body that was assigned to that role, but now we all 19 have to do a little bit of that. 20 CHAIR CLOWE: That's great. That is 21 great. Thank you, Linda. 22 MS. CLOUD: Billy, we're here to your 23 report, Item 19 on the agenda. 24 MR. ATKINS: Commissioners, one thing 25 to add to my report I didn't have time to get in under WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 75 1 the topic of seminars. We held our seminar for the 2 Texas State Elks Association. We have since received 3 requests from the Shriners to attend their upcoming 4 conference, which will be here in Austin. And also we 5 have received a request from a regional American 6 Legion group in Houston. We're still awaiting a 7 formal written request for that, but those will be 8 upcoming. I have included in your notebook as well as 9 sending to each of you an agenda for the upcoming 10 NEGRA conference. NEGRA is the North American Gaming 11 Regulators Association. I will be attending that 12 along with Phil Sanderson and Roy Gabrillo, our senior 13 audit manager. I am going to be moderating the 14 session entitled "Herding Cats", how auditors and 15 investigators work together to get the best results. 16 But it does look like an interesting program that they 17 put together and we are also going to try and spend 18 some time, Phil and I, one-on-one with the regulators 19 in Washington state at the Washington State Gaming 20 Commission. They seem to have a fairly good handle on 21 their regulatory structure. So we want to spend some 22 time with them one-on-one, kind of apart from the 23 sessions. 24 CHAIR CLOWE: And that is where the 25 meeting is? In -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 76 1 MR. ATKINS: In Seattle. 2 CHAIR CLOWE: -- in Seattle? 3 MR. ATKINS: Yes, sir. 4 CHAIR CLOWE: How many of you are going 5 to that meeting? 6 MR. ATKINS: There is three from bingo. 7 I believe the general counsel and Judge Wilkov are 8 going from legal and then Mr. Pitcock has one of his 9 investigators going. 10 Also under the bingo operator training 11 program, you have the dates listed for the programs 12 that are occurring in our San Antonio region. We are 13 in the process of scheduling the dates for the Houston 14 region. And we will send out notification to all of 15 the licensees to begin holding the training programs 16 in that region. 17 And finally, I just wanted to let all 18 of you know that we have finally located the bingo 19 testing facility from the warehouse in north Austin 20 here in this facility. So it will make it a lot 21 easier when we need to have additional staff help with 22 that testing process, get them in there and also make 23 it easier for us to, you know, demonstrate to either 24 the public or just people in this building how those 25 card minding devices and pull-tab dispensers work. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 77 1 And I invite any of you as your time permits to come 2 look at that facility. 3 MR. SADBERRY: And Billy, on the 4 advisory committee selection process, where are we on 5 that? 6 MR. ATKINS: The deadline was the 31st 7 of March. We are collating all of the information 8 that we got together. And general counsel and I will 9 be making plans in the near future to get together 10 with you to discuss that. 11 MR. SADBERRY: And you will address 12 with Commissioner Whitaker the process? 13 MR. ATKINS: Yes. 14 MR. SADBERRY: And I just want to say, 15 sometimes what is important is what you don't see. 16 And what you don't see, and I would be happy to say, 17 is the lack of a functioning advisory committee 18 because you see a very active and efficient advisor 19 committee. They do their work. They have done it for 20 the last two years, at least. The Chair Neinast. And 21 they present good reports for us. They present what 22 we would like and need for them to do and that is the 23 industry components of the bingo industry, their 24 views, which are not always harmonious, but at least 25 now we have a united effort in bringing to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 78 1 commissioners' attention what the industry's needs are 2 and their interest in new rules, new games and 3 regulations and other things. So the fact that we're 4 not having to have a lot of interaction is because 5 they are off doing the work that they are assigned to 6 do. And I guess next meeting or meeting after, we 7 should have something like that on the agenda. 8 MR. ATKINS: Yes, sir. 9 CHAIR CLOWE: Very good. And speaking 10 of the next meeting. Have you set that? 11 MR. ATKINS: I need to get together 12 with the Chair. He originally had wanted to meet in 13 June. It may be that I request of him that we hold 14 the meeting in May, depending on where we are with the 15 operator-training program rule. As you know, we like 16 to have them review those rules before the staff comes 17 to the Commission with it. We have been working on a 18 draft here among staff and it may be ready to go to 19 them within the next month. So if that is the case in 20 working with the chair, we'll try and get something 21 scheduled for sometime in May, maybe latter May. 22 CHAIR CLOWE: Good. Thank you, Billy. 23 The next item is Number 20, public comment. Is there 24 any member of the public here that would like to 25 appear before the Commission with any comments? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 4-13-00 79 1 Hearing none, we are ready to move to 2 adjournment. I want to thank all of you who have 3 presented material to the Commission today for the 4 completeness and succinctness of your presentations. 5 We're ready to adjourn prior to 1:00 p.m. I believe 6 that is a record since I have been on the Commission. 7 I defer to you, Commissioner. 8 MR. SADBERRY: And certainly since you 9 have been Chair. 10 CHAIR CLOWE: Moving right along. I 11 don't think we need a motion, do we, Kim? 12 MS. KIPLIN: No, you don't need a 13 motion. 14 CHAIR CLOWE: We are adjourned. 15 16 17 18 (Proceedings Concluded) 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, MARY SCOPAS, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 17th day of 17 April, 2000. 18 19 20 21 MARY SCOPAS, RPR, Texas CSR NO. 5313 22 Expiration Date: 12-31-00 1609 Shoal Creek Boulevard, Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 000413MSH WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363