0001 1 2 3 4 5 * * * * * * * * * * * * * * * * * * 6 7 TEXAS LOTTERY COMMISSION MEETING 8 9 JUNE 26, 2001 10 11 * * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 19 20 On the 26th day of June, 2001, the following 21 meeting was reported at the Texas Lottery Commission, 22 611 East 6th Street, Austin, Texas: 23 24 Proceedings reported by computerized stenotype machine; 25 0002 1 APPEARANCES 2 3 Mr. C. Tom Clowe, Jr, Chairman Mr. Walter H. Criner, Sr., Commissioner 4 Ms. Elizabeth D. Whitaker, Commissioner Ms. Kimberly L. Kiplin, General Counsel 5 Ms. Linda Cloud, Executive Director Mr. Billy Atkins, Charitable Bingo Operations Director 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 MR. CLOWE: Good morning. It is 2 8:31, June the 26th, 2001. I am Tom Clowe. 3 Commissioners Whitaker and Criner are present. We have 4 a full commission, and we will convene this meeting. 5 We will move immediately to Item II, 6 possible discussion and/or action on lottery sales and 7 trends. 8 Linda and Toni, please. 9 Good morning, Toni. 10 MS. SMITH: Good morning, Commissioners. 11 For the record, I'm Toni Smith, marketing 12 director for the Texas Lottery Commission. 13 To take a look at our year-to-date sales 14 for the week ending June 23rd, total sales today are 15 2,352,260,389. This is up 8.7 percent from fiscal year 16 2000 total sales to date of 2,163,905,321. Our current 17 weekly sales average is 54,703,729 versus last year's 18 weekly average of 50,323,379. 19 To look at year-to-date comparison by 20 product, just to take a look at scratch-offs and Lotto 21 Texas, for fiscal year 01, year to date we are at one 22 billion -- on instants, 1,413,870,429. And that 23 represents 60 percent of our total sales for year to 24 date, for instance. And this is a 4.06 increase from 25 last year's year-to-date sales of 1.3 -- 1,358,735,316. 0004 1 MR. CLOWE: And, Toni, how many active 2 games does that represent? 3 MS. SMITH: Active, probably about 35. I 4 can check for you. 5 MR. CLOWE: Would you give us that 6 information, please? 7 MS. SMITH: Yes, sir. 8 Lotto Texas year to date, we're at 9 606,096,164. It represents 25.77 percent of sales, and 10 we have experienced a 29.7 increase over last year Lotto 11 Texas year-to-date sales of 467,323,395. 12 And to take a look at Texas Two Step, our 13 newest game, we have done 12,213,038 in sales to date, 14 and it represents .52 percent of our sales. 15 And just to glance at last week's sales, 16 total sales for the week ending June 23rd were 17 48,919,373. This is up 5.30 percent from the previous 18 week ending of 6-16-01 where sales were 46,454,962. And 19 that increase was due to the change in the jackpot 20 levels we usually see at this time. 21 And then also in front of you -- and we 22 won't go into any detail -- but are the memos that talk 23 about where we are with Texas Two Step with regard to 24 the (inaudible). And we seem to be in good shape on all 25 of those games. 0005 1 And I would be happy to answer any 2 questions. 3 MR. CLOWE: Do you have any further 4 comments on Texas Two Step and any reports on how it's 5 being received by the public? 6 MS. CLOUD: Commissioners, Texas Two Step 7 is performing beautifully, and it's rolling only one or 8 two times before it gets hit. That's what we planned. 9 This is a winning game for our players. We have had a 10 lot of winners. People seem to be real excited about 11 it. They still like the commercials. So we're hearing 12 some positive feedback for this game. 13 And we go to a town hall meeting 14 tonight -- or this afternoon in Houston, and we'll get 15 firsthand information from our retailers there. And 16 we're anticipating about 250 retailers, so we'll know 17 more after today. 18 MR. CLOWE: Did we suffer any 19 communications problems with the flood in Houston? Did 20 that disrupt our sales? 21 MS. CLOUD: It did. Why don't I have 22 Larry King come up and give you a report on what GTECH 23 has experienced with our retailers in Houston. 24 MR. CLOWE: Good. 25 MS. KIPLIN: For people who are coming to 0006 1 speak, if you wouldn't mind saying who you are and then 2 spelling your last name since the court has asked me to 3 make that request. 4 MR. KING: Sure. 5 MS. KIPLIN: Thank you. 6 MR. KING: For the record, I'm Larry King. 7 I'm with GTECH. I'm the general manager here in Texas. 8 I don't have the exact numbers in front of 9 me, but we did have some communication outages in the 10 Houston area, and I believe it affected around 500 11 retailers. That is about ten percent of our retail base 12 in Houston because the entire Houston district is made 13 up of a little bit over 5,000 retailers. 14 We lost a few terminals in the flood, and 15 I guess the best description of that was -- is that the 16 total -- the store was completely underwater. So we 17 have, I think, done an exceptional job getting new 18 terminals out to those stores. We have got all the 19 communication problems resolved. 20 We did have seven employees that were 21 displaced from their homes, so we have made arrangements 22 for our employees to have temporary living. 23 I can get you an exact report of day to 24 day if that's necessary. 25 MS. CLOUD: Commissioners, Gary also has a 0007 1 report on how it's affected our license, some of our 2 retailers, in their pack settlements and licensing 3 issues. 4 MR. GRIEF: Good morning. For the record, 5 my name is Gary Grief. I'm the director of Lottery 6 Operations. 7 Commissioners, I just got this information 8 yesterday. So far, we have had 15 retailers in the 9 Houston area who have asked us to put them in a 10 temporarily closed status while they're trying to make 11 repairs; get their business up and going again. 12 We have received some reports from some of 13 the GTECH LSRs that there may be more retailers in that 14 situation who are going to contact us in the near 15 future. 16 In our retailer accounting area, we took 17 some steps to put a program in place to try to help some 18 of these retailers with their revenue flow situation. 19 And as of yesterday, we have provided assistance to 20 26 retailers through this program by either waiving some 21 NSF fees and interest or extending the deadline when 22 their funds are due to the Lottery Commission. 23 MR. CLOWE: Very good. Anything further? 24 MS. WHITAKER: Yeah. A quick question. 25 Toni, on Cash 5, what is your sense of 0008 1 that trend and what it means? 2 MS. SMITH: Actually, we just were talking 3 about this yesterday. 4 It seems to be going in sort of a downward 5 spiral, and some of that could be contributed to a 6 little bit of cannibalization from Texas Two Step, a new 7 game. But we are working with GTECH and with some of 8 their staff in Rhode Island and looking at some 9 enhancements that we could make to Cash 5. I'm going to 10 pull that information together to present to Linda. 11 MS. WHITAKER: Is it your conclusion at 12 this time that it's going down because of 13 cannibalization or probably a number of factors? 14 MS. SMITH: I would say a number of 15 factors. I mean, we were starting to see -- we were 16 seeing a decrease before we introduced Texas Two Step. 17 So it's time now to look at that game and see if we can 18 make any enhancements to help it out in sales. 19 MS. WHITAKER: Okay. 20 MS. SMITH: And in response to your 21 question about the number of games available, we 22 probably have about approximately 50 scratch-off games 23 available to our retailers. That doesn't mean they all 24 carry them. Our average is around 18 to 20 games 25 carried in the stores. Some fewer; some more. 0009 1 MR. CLOWE: That's more what I thought it 2 was. Thank you for this information that Robert has 3 just provided us with the draw patterns. 4 MS. SMITH: Yes, sir. 5 MR. CLOWE: That's very helpful. 6 I believe that's all, Toni. Thank you. 7 MS. SMITH: Thank you. 8 MR. CLOWE: We're now ready to go to 9 Item Number III, Report, possible discussion and/or 10 action on lottery advertising and promotions, including 11 the print media criteria. 12 MS. CLOUD: I have nothing new to report. 13 We are still on air with all of our Texas Two Step 14 spots; still trying to give that game some support, as a 15 it's a new game. 16 MR. CLOWE: Very good. Anything further? 17 MS. CLOUD: No. Thank you. 18 MR. CLOWE: Let's go to the next item, 19 then. Report, possible discussion and/or action on the 20 lottery operator procurement and/or lottery operator 21 consultant. 22 Good morning. 23 MR. BENNETT: Good morning, Commissioners. 24 For the record, my name is Ridgely 25 Bennett, B-e-n-n-e-t-t, and I'm the deputy general 0010 1 counsel of the Texas Lottery Commission. 2 The Texas Lottery received one proposal in 3 response to the request for proposals for lottery 4 operations and services. The proposal was submitted by 5 GTECH Corporation and is currently being reviewed by the 6 evaluation committee which will, in turn, make a 7 recommendation to the executive director. 8 And I will be happy to answer any 9 questions that you may have. 10 MR. CLOWE: I believe there are none. 11 MR. CRINER: Well, I have one question. 12 MR. CLOWE: Excuse me. 13 MR. CRINER: We only had one bidder? 14 MR. BENNETT: That's correct. 15 MR. CRINER: What happened to the others? 16 MR. BENNETT: We have not made that 17 determination yet. Our administrative rules require 18 that if we get less than three bidders for a formal 19 procurement that the agency attempt to determine why we 20 didn't get additional bidders. And that generally 21 occurs at the end of the procurement process. 22 MR. CRINER: When you do that, do you sit 23 down and talk to the CEOs of the other companies and 24 find out why they just -- what about our bid turned them 25 off? 0011 1 MR. BENNETT: We generally talk to the 2 other companies, not necessarily the CEO. We make 3 contact with other prospective bidders, and generally 4 they determine who they would like to speak with us. 5 But we can request to speak with the CEOs, if that's 6 your desire. 7 MR. CRINER: Well, it seems -- G-TECH's 8 CEO came to speak to us and said he liked our business. 9 MR. BENNETT: Right. 10 MR. CRINER: And if the others don't come 11 and talk to us, maybe they don't want our business and 12 maybe we don't need their business. 13 MR. BENNETT: But I think our procurement 14 rules currently require that you bid -- 15 MR. CRINER: I understand what the rules 16 are, but I'm just talking about -- you know, just fact 17 of life about business. 18 MR. BENNETT: Certainly. We'll take that 19 into account -- 20 THE REPORTER: I'm sorry. Y'all are both 21 talking at the same time. 22 MR. BENNETT: I'm sorry. 23 MR. CRINER: Okay. I'm sorry. 24 If you don't want to talk to me, then why 25 should I send you a bid? It's just a general -- I don't 0012 1 know how to say it. It's just a -- it's just a plain 2 statement. If you're not willing to come and talk to me 3 about why you do or you don't want to do business, then 4 maybe we need to just figure out how to fix that. 5 MR. BENNETT: I think it's been the case 6 in the past that the companies have been willing to talk 7 to us. We did have a number of people participate and 8 request for information and came -- and companies that 9 came down and gave a technical briefing of what was 10 available in the lottery industry today. 11 So I don't think there has been a lack of 12 communication between the agency and prospective 13 bidders, but to the extent that you would prefer that 14 the companies send CEOs down to talk to us, we will keep 15 that in mind -- 16 MR. CRINER: Well, you know -- 17 MR. BENNETT: -- and make that 18 invitation -- 19 MR. CRINER: The CEO runs its company. 20 MR. BENNETT: Right. 21 MR. CRINER: And, you know, the buck stops 22 there. And if his company is not bidding for one of the 23 largest lotteries in the United States, then what seems 24 to be the problem? Is it our problem? Is it their 25 problem? 0013 1 We need to be able to tell somebody why we 2 only have one bidder. And, you know, the CEO is the 3 best person to tell you that. Whether they come down 4 here or we go up there, it just seems like the right 5 thing to do. 6 MR. BENNETT: And we will address our 7 inquiries to the CEOs of the company. 8 MR. CLOWE: I think Commissioner Criner is 9 making a good point, Ridgely, and I think there is an 10 interest on the part of the Commission as to the results 11 that you come up with. So give us that feedback when 12 you have developed it if you will. 13 MR. BENNETT: I certainly will. 14 MS. CLOUD: Commissioners, you know that 15 potentially for a vendor in the lottery operating 16 contract structure you've only got three vendors that 17 would probably bid on it. Granted, we didn't have two 18 of the three, but I will tell you this: After just 19 coming back from a lottery directors conference, Kansas 20 put out an RFP just before we did. It opened just 21 before ours did. And they only had one bidder, and that 22 was GTECH. 23 So it's not just Texas. Evidently it's an 24 industry problem. 25 MR. CRINER: It's just a small industry. 0014 1 MS. CLOUD: Right. 2 MR. CRINER: I was very impressed that 3 G-TECH's CEO came to speak to us, and I think that's a 4 very good thing. And that's how you keep a customer, 5 especially as big as we are. And if the CEOs don't want 6 to speak to us, I'm very comfortable telling 7 everybody -- if they don't want to talk us, then see 8 them later. But I would like to be comfortable with 9 that. 10 MR. BENNETT: Right. And I don't know 11 legally if we can do that, just turn around and say 12 we're not going to let people propose simply because 13 their CEO doesn't come in to speak with us, but 14 certainly as part of an RFP process -- 15 MR. CRINER: Don't take it -- don't get me 16 wrong. 17 MR. BENNETT: Right. 18 MR. CRINER: The CEO doesn't have to come 19 speak to us, but in my short life on this planet, I 20 found that if I go straight to the CEO, I will get a 21 real honest answer. If I go to everybody under him, I 22 get a nice answer, and everybody thinks it's the right 23 answer. Once you get an answer from the CEO, whether 24 it's yes or no, it's over. Okay? 25 MR. BENNETT: Okay. 0015 1 MR. CRINER: And you can proceed on to 2 somebody else. And I'm just saying that these other 3 companies that are out there, if they're trying to grow 4 and develop their companies, this is a fertile 5 marketplace. 6 Now, whether they are the right guy, who 7 knows. But if they're not coming to a fertile 8 marketplace, to ask to meet us and we have to go to 9 Kansas, then maybe America just needs to understand that 10 GTECH is it and that's where we need to go to get our 11 lottery operations. And I'm comfortable with that, too, 12 but it's just knowing. 13 MR. BENNETT: Understood. 14 MR. CLOWE: I think in the interest of 15 full and complete understanding, Ridgely, I don't think 16 Commissioner Criner's attention is focused on the CEO 17 but more on the issue of why we didn't receive other 18 bids. 19 And you indicated that part of the 20 responsibility of the committee is to make those 21 contacts. And again, he's appreciative of the fact that 22 the GTECH CEO made an appearance here and covered not 23 only their interest in our business but other points as 24 well that we were interested in in regard to GTECH and 25 certain things that were going on in that corporation. 0016 1 But I think his suggestion is a good one, 2 that we'd like to have the feedback from people who 3 indicated interest -- I think we have that as part of 4 the record -- and then chose not to bid, which is a 5 corporate decision that they are entitled to make. 6 But I think it would help this commission 7 to have that kind of feedback, and I agree with 8 Commissioner Criner that we want to be aware of issues 9 that we may not be aware of that people see when they 10 consider dealing with this commission. And I think his 11 mention of the CEO is more directed at the fact that 12 he's pleased that G-TECH's CEO came than trying to go 13 directly to CEOs of other companies. 14 Although, his point is well made. And 15 that's where the buck stops. And that person can give 16 you the answer. We need to make sure we're talking to 17 the right people in these companies. 18 Linda is acquainted with the situation of 19 mergers and acquisitions in this gaming industry. She's 20 talked to us about that in the past. Something that the 21 Commission needs to be aware of, it is a field that is 22 not broadening. I think it is becoming more narrow as 23 time goes on. And this commission needs to be aware of 24 that. I think we are. I think Linda has helped us be 25 very cognizant of what is happening in this industry, 0017 1 and we need to watch it as it develops. 2 MR. BENNETT: We will make every attempt 3 to obtain the information that you've requested. 4 MR. CLOWE: Good. Very good. Thank you, 5 Ridgely. 6 MR. BENNETT: Thank you. 7 MR. CLOWE: I haven't seen Debra. 8 Oh, there she is. 9 Debra, you're Item Number V, Consideration 10 of and possible discussion and/or action on external and 11 internal audit reports. 12 MS. McLEOD: Good morning, Commissioners. 13 I'm director -- I'm Debra McLeod, director of internal 14 audit. 15 We're working through the scheduled audit 16 plan. I'm pleased to say that we have had a temp come 17 on board, and that's increased our productivity 18 tremendously. 19 What we've been able to do so far is we're 20 complete with the game plan verification audit. We've 21 received management's responses yesterday, so we 22 anticipate the report very shortly. In fact, this week. 23 The other audit that we've been working on 24 in the meantime is the bingo compliance audit. We're 25 90 percent complete with field work. Estimate 0018 1 completing the field work the first week in July and 2 make presentations to bingo management on the audit 3 results soon after. 4 We're also starting this week the 5 advertising performance measure audit. This was two 6 measures on the ad dollars that are expended by the 7 agency. 8 In conversations with the executive 9 director based on a rider that was recently added, she 10 indicated that she would like this audit moved up sooner 11 on the -- it was on the scheduled audit plan, but she 12 would like to have it done now. So we're starting that 13 this week. Anticipate the field work report to be 14 completed in July. 15 This week we've got scheduled talking to 16 the bingo director about starting two other audits in 17 the bingo division. 18 And as far as external audits, based on 19 conversations with the bar, we've received no report yet 20 from the post-payment audit. The comptroller's office 21 was working on it, so we have received no feedback as of 22 yet. 23 There is no audit going on by the state 24 auditor's office agency-wide or statewide that impacts 25 us, so we've got nothing outstanding with them. 0019 1 And that's my report. 2 MS. WHITAKER: It's kind of quiet. 3 MR. CLOWE: Very good, Debra. 4 MS. CLOUD: MAS, though -- as you know, we 5 contracted MAS to come in and do a management study for 6 us, and they're in the final stages of the three 7 divisions that we asked them to look at. 8 We are going to have them come back and 9 look at IT before they finish their procurement with us. 10 And that report should be coming to you probably within 11 the next 30 days. 12 MR. CLOWE: Very good. 13 Thank you, Debra. 14 The next item, Number VI. Report, 15 possible discussion and/or the Criner Memorial Window, 16 which is otherwise known as the production studio. 17 That's -- it's not written in the agenda that way, 18 but -- 19 MR. CRINER: I just looked at that. 20 MR. CLOWE: He was actively viewing that 21 last night. 22 MS. KIPLIN: Commissioners, I'll go ahead 23 and handle this item. 24 The agency has received a protest on the 25 award of the contract. The executive director is 0020 1 reviewing that, the protest, at this time and seeking 2 legal advice. 3 The protest procedurally, Commissioners, 4 will be determined by the executive director, and then 5 parties that are aggrieved may appeal that decision to 6 the commission. 7 MR. CLOWE: Are we going to have a 8 progress report on the construction under this item on 9 the agenda? 10 MS. KIPLIN: I'm handling the protest. If 11 the executive director would like to provide a progress 12 report -- 13 MS. CLOUD: Gary, do you want to come do a 14 brief? 15 Vince is not here today. He's in 16 training. We have to train him every once in a while. 17 The overview of this studio production 18 is -- I can tell you briefly, because they're keeping me 19 informed on an every other day basis -- is -- the 20 progress is on schedule. The -- we did end up having 21 our viewing window. 22 MR. CRINER: We got one? 23 MS. CLOUD: One of the reasons for that is 24 the historic -- Austin Historical would not let us close 25 those windows, so it's made it -- so it's made it -- 0021 1 MR. CLOWE: I knew that. 2 MS. CLOUD: -- so we will have windows 3 there. It will be a very nice, wide -- that big front 4 window that's oval that goes from the ceiling to the 5 floor, that's it. So... 6 MR. CLOWE: I think, for the record, 7 Commissioner Whitaker wanted it every bit as much as 8 Commissioner (inaudible due to laughter) -- 9 MS. WHITAKER: But it's got a name now , 10 though. 11 MS. CLOUD: So construction is going on 12 according to plan, and it's scheduled to -- the studio 13 portion is scheduled to be complete and ready to turn 14 over to the contractor by -- or to the apparent 15 successful proposer by the 25th of July. So we're 16 close. We're moving fast. 17 MR. CRINER: You will not believe how I 18 stood out there last night looking at that window saying 19 this will just be perfect -- 20 MS. CLOUD: You didn't know? 21 I put it in your notes. 22 MR. CRINER: I know. I just missed it. 23 MR. CLOWE: And it was the Austin 24 hysteric -- Historical Society that required those 25 windows not to be closed. 0022 1 MS. CLOUD: Well, they required -- the 2 construction of what we were planning to do with the 3 windows was to change the framing around the windows to 4 something that's going to last a little longer besides 5 wood. Well, they didn't want that, and so we're not 6 doing that. 7 And they wanted the windows left open 8 because it -- because of the face of the building on 9 6th Street, they don't want to change it. So it's fine. 10 It worked out fine for everybody. 11 MR. CLOWE: And I believe there is to be 12 some kind of guard. 13 MS. CLOUD: There will be -- security will 14 be active in the operation of the studio. 15 MR. CLOWE: I didn't mean physical guard 16 but some kind of protective device. 17 MS. CLOUD: Yes. The structure -- we will 18 still have the wrought iron gates that close over the 19 windows. We'll just have to open them the nights -- 20 before the drawing starts. 21 Vince has had a couple of challenges with 22 those. They can't swing out into the sidewalk, so they 23 are going to be sliding. So it will be -- and it's 24 bulletproof glass, and there will be shades on the 25 inside that the staff can close during the day when they 0023 1 are -- if they are in the room just testing or whatever, 2 they can close the shades if they needed to. It is 3 going to be secure. 4 MR. CLOWE: And we stay within the budget 5 with these changes? 6 MS. CLOUD: Yes. 7 MR. CLOWE: Very good. 8 MS. CLOUD: It will probably cost us less 9 money to leave the windows than closing them up. 10 MR. CLOWE: Good. 11 MS. CLOUD: Gary. 12 MR. GRIEF: No, I have nothing. 13 MS. CLOUD: You don't have anything to 14 add? 15 MR. GRIEF: No, ma'am. 16 MS. CLOUD: Sorry. I brought you up here 17 for nothing. 18 MR. CLOWE: Thank you, Gary. Thank you, 19 Linda. 20 Next item, VII, report, possible 21 discussion or action on the 77th Legislature, including 22 the agency's legislative proposals. 23 Nelda Trevino, good morning. 24 MS. TREVINO: Good morning, Commissioners. 25 I'm Nelda Trevino. That's T-r-e-v-i-n-o. I'm the 0024 1 director of governmental affairs. 2 A very brief report since our last 3 commission meeting. We provided you a couple of things 4 this morning, a final tracking report that includes the 5 43 bills that did pass the House and the Senate that the 6 agency was tracking. And the last day for the 7 governor's action was June the 17th, and as we reported 8 to you last week, as far as House Bill 2119 went, that 9 was part of the agency's legislative proposal that would 10 have authorized a progressive bingo game. That bill was 11 vetoed by the governor. We have provided you last week 12 with a copy of the veto message. 13 With regards to the remaining bills listed 14 on the tracking report, we've identified 20 bills that 15 the agency will be working on in regards to 16 implementation. 17 Agency directors are in the process of 18 identifying representatives from their divisions that 19 will be participating in the implementation task force. 20 Part of the packet that we provided to you includes just 21 a one-pager that describes the responsibilities of the 22 implementation task force, an outline that the 23 implementation task force will use to identify any sort 24 of issues that need to be addressed in regards to 25 implementation and also just a listing of the 20 bills 0025 1 again that we identified that would require some sort of 2 implementation by the agency. 3 That basically concludes my report, and 4 I'll be happy to answer any questions. 5 MR. CLOWE: I believe there are none. 6 Thank you, Nelda. 7 MS. TREVINO: Okay. Thank you. 8 MR. CLOWE: Next item, Number VIII, the 9 report, possible discussion and/or action on the Sunset 10 progress involving the agency. 11 MR. GRIEF: Good morning, Commissioners. 12 Once again, my name is Gary Grief. I'm the director of 13 lottery operations, and I'm also serving as the agency's 14 project manager for the Sunset review process. 15 Since our last commission meeting, we have 16 met with key staff from three different agencies that 17 have just finished their Sunset review process. They 18 were the Office of Consumer Credit, Texas Natural 19 Resource Conservation Commission and the Parks and 20 Wildlife department. 21 We targeted these three agencies for our 22 meetings because they were specifically mentioned to us 23 by Sunset commission staff during our orientation 24 sessions as having produced excellent self-evaluation 25 reports. 0026 1 We have gained valuable insight into the 2 Sunset process as a result of these meetings, and I 3 personally have established some excellent contacts for 4 my future reference as we worked through the process. 5 Internally we are continuing to be on 6 schedule with the development of the self-evaluation 7 report. Initial information from all divisions is due 8 in my office today. And we have continued to conduct 9 weekly Sunset task force meetings in which we're able to 10 reach consensus on issues and we're able to get valuable 11 input and direction from our executive director. And 12 I'm also continuing to communicate with the Sunset 13 commission staff both on the phone and via e-mail as 14 questions come up as we're working our way through the 15 report. 16 The project plan that I previously 17 distributed to you indicates that we should have 18 available, for internal review and comment, a draft of 19 the self-evaluation report on Monday, July 2nd. And I 20 anticipate reaching that milestone. 21 And that concludes my presentation this 22 morning, and I would be happy to answer any questions 23 that you might have. 24 MS. WHITAKER: I appreciate your e-mails 25 and your updates. 0027 1 MR. CLOWE: Thank you, Gary. Good 2 progress. Please keep us informed. 3 MR. GRIEF: Will do. 4 MR. CLOWE: Next item, IX, Consideration 5 of and possible discussion and/or action, including 6 proposal, on a new rule relating to the agency's fleet 7 management. 8 Kim, do you have that item? 9 MR. BENNETT: Well, Commissioners, I would 10 be happy to speak to that item. 11 MR. CLOWE: Okay. 12 MR. BENNETT: Thank you. 13 Agency staff recommends that the Texas 14 Lottery Commission propose new 16 Texas Administrative 15 Code, Section 403.401 relating to the assignment and use 16 of commission motor vehicles. The new rule doesn't make 17 commission motor vehicles as commission property and 18 provides that a commission motor vehicle may not be 19 assigned to a specific employee or agency head but must 20 be assigned to the commission's motor pool and be 21 available for checkout. 22 The new rule is required by Section 23 2171.1045 of the Government Code. And I would be happy 24 to answer any questions you may have. 25 MS. KIPLIN: Commissioners, we are 0028 1 requesting your approval to propose this rule for public 2 comment and begin the rule making process. 3 MR. CLOWE: Does this rule comply with 4 good practices of other agencies and is this the 5 procedure that other agencies are following in the 6 control of their vehicles? 7 MR. BENNETT: Yes, Commissioner, it does. 8 In drafting the rule, we looked at proposed and adopted 9 rules by many other agencies, and our rule is in -- in 10 align with those. 11 MR. CLOWE: So this is going to conform 12 with proper use of state equipment? 13 MR. BENNETT: It does, Commissioner, and 14 it also adopts the policy that we already have in place 15 on agency fleet vehicles. 16 MR. CLOWE: Any questions? 17 MR. CRINER: How will this affect our 18 security vehicles? 19 MR. BENNETT: It doesn't affect it at all. 20 The security vehicles are not assigned to any one 21 employee or agency head. They're available for security 22 uses, and the vehicle is housed at the -- I believe it's 23 going to be housed at the warehouse parking lot. 24 MR. CLOWE: And how many vehicles does 25 that include? 0029 1 MR. BENNETT: I think Gary may be able to 2 answer that question. 3 Three? 4 MR. GRIEF: The commission has three 5 vehicles. 6 MR. CLOWE: Very good. 7 MS. WHITAKER: What was the impetus for 8 doing this? 9 MR. BENNETT: It's required by the 10 Government Code, Section 2171.1045. And the section of 11 the statute sets forth what has to be contained in the 12 rule. 13 MS. KIPLIN: But we've had a policy and 14 procedure in place. What we're doing, I guess, 15 essentially is formalizing that policy and procedure 16 into a formal rule as required by the statute. 17 MS. WHITAKER: Well, I will move. 18 MR. CLOWE: There is a motion. 19 MR. CRINER: Second. 20 MR. CLOWE: And a second. 21 All in favor say aye. 22 COMMISSIONERS: Aye. 23 MR. CLOWE: Opposed, no. 24 The vote is 3-0 in favor. 25 MR. BENNETT: Thank you. 0030 1 MR. CLOWE: Anything further, Ridgely? 2 MR. BENNETT: Nothing further. 3 MR. CLOWE: I believe we're ready to go 4 into executive session. Unless there is any public 5 comment at this time -- we have no appearance forms 6 signed. Very well. 7 At this time, I move the Texas Lottery 8 Commission go into executive session to deliberate the 9 duties and evaluation of the Executive Director, 10 Internal Auditor and Charitable Bingo Operations 11 Director pursuant to Section 551.074 of the Texas 12 Government Code, to deliberate the duties of the 13 General Counsel and Security Director pursuant to 14 Section 551.074 of the Texas Government Code, to receive 15 legal advice regarding pending or contemplated 16 litigation and/or to receive legal advice pursuant to 17 Section 551.071(1)(A) or (B) of the Texas Government 18 Code and/or to receive legal advice pursuant to 19 Section 551.071(2) of the Texas Government Code, 20 including but not limited to: State of Texas versus 21 Ysleta Del Sur Pueblo, matter involving the Department 22 of Justice pursuit of a complaint regarding the 23 Americans with Disabilities Act, matter involving 24 Request for Open Records Decision in Attorney General 25 Open Records file 119718-98 relating to request for 0031 1 information in connection with the lottery operator 2 audit, contract regarding the charitable bingo system 3 Request for Attorney General opinion in connection with 4 the Commission's authority to approve secondary 5 components of cardminding devices, employment law, 6 personnel law, procurement and contract law, and general 7 government law. 8 Is there a second? 9 MR. CRINER: Second. 10 MS. WHITAKER: Second. 11 MR. CLOWE: All in favor say aye, please. 12 COMMISSIONERS: Aye. 13 MR. CLOWE: Opposed, no. 14 The vote is 3-0. The vote is 3-0. The 15 Texas Lottery Commission will go into executive session. 16 The time is 9:05 a.m. The date is June 26th, 2001. 17 (Executive session) 18 (The time now is 12:25) 19 MR. CLOWE: The Texas Lottery Commission 20 is out of executive section. The time is 12:25 p.m. 21 Is there any action to be taken as a 22 result of the executive session? 23 If not, let's move directly to Item XIII, 24 the report by the Executive Director on -- and/or 25 possible discussion and/or action on the agency's 0032 1 financial and operational status, HUB and/or minority 2 status, FTE status, lottery conferences, and retailer 3 forums. 4 Linda Cloud. 5 MS. CLOUD: Commissioners, on June 15th, 6 we transferred $57,302,523 to the foundation school 7 fund. That gives total transfers prior to 01 was 8 8,446,743,000. 9 Robert, do you want to come up and give 10 the minority report? Do you have anything new to 11 report? 12 MR. HALL: Yes, ma'am. 13 Good evening, Commissioners. 14 For the record, my name is Robert Hall, 15 Director for Minority Development. 16 The monthly report will show that this 17 month we have -- 18 MS. KIPLIN: Commissioners, can I 19 interrupt you for one second? 20 When I said we were on the record, we 21 picked it up on headphones, but the cassette player was 22 not moving. It is now. 23 Commissioner Clowe, can I ask you to come 24 back out of the executive session one more time so we 25 get that part on the record? 0033 1 I apologize for the inconvenience. 2 MR. CLOWE: Certainly. 3 The Texas Lottery Commission is out of 4 executive session. The time the Commission came out of 5 executive session was 12:25 p.m. It is now 12:26. 6 Is there any action to be taken as a 7 result of the executive session? 8 If not, we are then going to move to 9 Item XIII, the report of the Executive Director, Linda 10 Cloud. 11 MS. CLOUD: Do you want me to go -- do the 12 financial again? 13 MS. KIPLIN: Yes. I apologize for the 14 inconvenience. 15 MS. CLOUD: Commissioners, on June 15th, 16 we transferred $57,302,523 to the foundation school 17 fund, giving a total transfers to the state 18 $8,446,743,000. 19 And Robert is going to bring us up to date 20 on the minority report. 21 MR. HALL: Good evening, Commissioners. 22 For the record, my name is Robert Hall, 23 Director of Minority Development. I want to share with 24 you this month's report through -- September 1 through 25 the end of May. 0034 1 Our total minority/HUB utilization 2 was over $12 million for an approximate percentage 3 of 11.43 percent of the total spending of over 4 $105 million. That's the total lottery spending. 5 I'll be happy to answer any questions you 6 may have about our report this month. 7 MR. CLOWE: Robert, I went through your 8 report and see the reporting broken down by the King 9 group, GTECH Scientific Games over Klind (phonetic) 10 Monroe and then the totals. And the 12,061,252 number 11 you've just reported to us is on the last page at the 12 bottom, and that represents 11.43 percent overall. Is 13 that correct? 14 MR. HALL: Yes, that's correct. 15 MR. CLOWE: So we can look at the prior 16 two pages for the break-out by firm. And I think your 17 report is certainly self-explanatory. I don't have any 18 questions. 19 Would the commissioners have any? 20 MR. CRINER: No. 21 MR. HALL: In addition, let me also report 22 to you last month on June 1, we -- well, June 1 -- 23 excuse me -- we had a vendor fair for auditing services. 24 It went very well in reference to our auditing services 25 or our -- excuse me -- financial service RFP. And we 0035 1 were accompanied by Security, Office of General Counsel 2 and also Financial Administration Division. 3 I want to say that that vendor fair was 4 very successful in communicating new information to our 5 HUB vendors and also obtaining their feedback about 6 auditing services processes. 7 In addition to that, on July 19th, we sent 8 all of you a letter inviting you to participate in 9 our -- we are co-hosting an economic opportunity forum 10 with the General Services Commission, and we would love 11 to have all or at least one of our commissioners to 12 attend that particular meeting that we're having. 13 MR. CRINER: When is that? 14 MR. HALL: July 18th -- excuse me. On 15 Thursday, July 19th. And actual opening remarks will 16 start about -- approximately at 10:15 a.m. 17 MS. CLOUD: There was a memo sent to you 18 or a letter sent to you under my signature. 19 MS. KIPLIN: Robert, can I ask you while 20 we're on the record, that's an event that's being put on 21 by the Lottery Commission? 22 MR. HALL: That is an event that is being 23 co-hosted by the Lottery Commission, along with General 24 Services Commission and six other agencies. 25 MS. KIPLIN: Okay. In abundance of 0036 1 caution, if I have more than one commissioner that wants 2 to attend that, I will probably need to go head and 3 notice that up as an open meeting. 4 MR. HALL: Okay. 5 MS. KIPLIN: Okay? 6 So if you -- Commissioners, if you'll 7 individually let me know so that I can get the location 8 and the time and all that. 9 MR. CLOWE: How are you going to make a 10 record? 11 MS. KIPLIN: I've got no idea. I'll worry 12 about that if I think I'm going to get a quorum from the 13 Commission. I would like to think that if it's being 14 sponsored there is going to be somebody there that is 15 going to be recording. 16 But at that point what I would do is reach 17 out to whoever the agency is that's putting that on and 18 see what their general counsel is doing about it. 19 MR. CLOWE: Okay. Well, as I understand 20 from what Robert said, it's co-hosted between General 21 Services and ourselves. Is that right? 22 MR. HALL: The General Services 23 Commission, Texas Rehab Commission, Texas Youth 24 Commission -- Texas Department of Insurance -- Texas 25 Health and Human Services and Texas Departmental Agency. 0037 1 MR. CLOWE: I just wonder if we couldn't 2 be in attendance in line with the convention and other 3 activity. 4 MS. KIPLIN: I'll tell you what. Let me 5 not take up your time at this commission meeting but get 6 with Robert and get -- because -- get more 7 information -- I'm just hearing it for the first time -- 8 get more information about what it's all about and what 9 the purpose is and then see about that. 10 My conservative approach is without 11 further information, it's better just to notice it as an 12 open meeting. 13 MR. CLOWE: Well, I think Linda is going 14 to be making an opening address, and I've already 15 indicated to her that I'd like to be there. So we will 16 see if we have a quorum or not. 17 MR. CRINER: I -- 18 THE REPORTER: You need to speak up. I 19 can't hear you at all. 20 MR. CRINER: Okay. Some of the agencies 21 that you referred to are customers of mine -- 22 MR. HALL: Yes, sir. 23 MR. CRINER: -- so I wouldn't attend, 24 then, as a commissioner. It would be kind of wacky, I 25 think. 0038 1 MR. HALL: Okay. That's all I have. 2 MR. CLOWE: Thank you, Robert. 3 MR. HALL: Thank you. 4 MS. CLOUD: Commissioners, on our FTE 5 totals, we have 310 active FTEs. We have 22 vacant 6 positions at this time, four of which are in the 7 selection/acceptance pending status. 16 are in the 8 recruiting, screening and interviewing. We have no 9 positions presently being posted, and we have two vacant 10 positions with no HR activity at this time. 11 Lottery conferences as -- 12 MR. CLOWE: Let me ask a question of 13 Patsy, if I may, and Linda at this point. 14 MS. CLOUD: Okay. 15 MR. CLOWE: I believe, Patsy, you're 16 directing the information technology hiring effort. 17 MS. HENRY: Yes, sir. 18 For the record, my name is Patsy Henry, 19 Deputy Executive Director of the Texas Lottery 20 Commission. 21 Yes, sir, that's correct. We -- I have 22 been overseeing that process. 23 MR. CLOWE: And with the reductions in 24 force that are occurring in Austin in that industry, I'd 25 just like a comment from you if you would on where we 0039 1 are with the positions that we needed to have filled in 2 this area. 3 MS. CLOUD: We currently have a job 4 posting that is open until filled for a programmer 5 analyst, and then we have another position open for an 6 internet/intranet analyst that is currently open until 7 filled, which is an approach we're taking on most of our 8 positions, open until filled. 9 We have received 31 applications so far 10 for the programmer analyst, and 38 applications have 11 been received to date for the inter/intranet position. 12 But right now, those are the only two positions we have 13 open down there. 14 MR. CLOWE: They're the only two that we 15 have open and the only two we've posted? 16 MS. CLOUD: Yes, sir. We're staying fully 17 staffed down there. In fact, we are taking advantage of 18 the some of the expertise that's out there to contract 19 for certain projects. And so we're taking advantage of 20 it that way as well. 21 MR. CLOWE: And if you know, what is the 22 average time that lapses from when we post a job opening 23 on the average until we make a hiring of an individual 24 at this agency? 25 MS. CLOUD: I was going to say 30 to 60 0040 1 days at the most. Jim tells me 35. 2 MR. CLOWE: Okay. Fine. Thank you. 3 MS. CLOUD: Commissioners, while we are on 4 the subject of FTEs, we would like to introduce our new 5 IT director, Keith Elliott. He just walked back into 6 the meeting. 7 Keith is -- has filled the position of 8 IT director, and he's been on board with us for a couple 9 of weeks. And he got indoctrinated real well with the 10 hacking of our Web site. 11 MR. CLOWE: Keep -- use that microphone 12 there if you will and tell the commissioners a little 13 bit about yourself if you would, please. 14 MR. ELLIOTT: Yes, sir. And I'll go real 15 slow because I've got to remember this is the Texas 16 Lottery Commission, not my last job I've been repeating 17 for ten years. So -- it takes a while. 18 My name is Keith Elliott, E-l-l-i-o-t-t, 19 and I'm the new director of IT for the Texas Lottery 20 Commission. 21 A little history about myself is I was 22 born and raised in Eastland, Texas, so I'm an old Texas 23 boy. I went to Texas Tech, so I have a little Red 24 Raider in me still left as of some years ago. I got a 25 degree in mathematics; got drafted; decided to go to the 0041 1 Air Force instead. I flew fighters in Southeast Asia; 2 came back; stayed in the military; got to see the world 3 a couple of times. And a lot of my experience in the 4 military was surrounding computers in classified 5 environments. I was the first one to bring computers 6 into classified environments in the Air Force, several 7 major projects within the Air Force and kind of rounded 8 up my career here at Bergstrom before it closed and had 9 a major project there in Desert Storm. 10 And then I came out looking for a job at 11 IT; found one over at the Texas Education Agency; worked 12 myself up into the chain over there, because you kind of 13 start at the bottom in state government, and managed to 14 become the director of network development for the 15 Texas Education Agency, which, basically, I was 16 responsible for everything outside of the William B. 17 Travis building to the school, to the desk. So it was a 18 pretty awsome responsibility considering how large our 19 education is in Texas. 20 And then these kind folks gave me an 21 opportunity to show what I can do and bring that 22 knowledge and experience here to the Texas Lottery 23 Commission. 24 MR. CLOWE: Good. We're happy to have 25 you. 0042 1 Any questions? 2 MS. WHITAKER: Glad to have you on board. 3 MR. ELLIOTT: Well, I thank you, and I 4 hope all of these meetings are this friendly because I 5 hear sometimes they may be different. But I look 6 forward to it. I really do. 7 MR. CLOWE: Well, we think they're all 8 very friendly. 9 MR. ELLIOTT: Well, now, it depends on 10 what side of the table you're on. 11 MR. CRINER: When you were in the Air 12 Force, were you -- did they call them ALCs or did they 13 call them officers? 14 MR. ELLIOTT: The ALC? 15 MR. CRINER: ALCs. Did they call them 16 ALCs or AMAs? 17 MR. ELLIOTT: I'm sorry. I can't hear the 18 last one. 19 MR. CRINER: AMA, A-M-A. 20 MR. ELLIOTT: A-M-A? 21 MR. CRINER: The AMA is -- 22 THE REPORTER: What does it stand for? 23 I'm sorry. I can't hear you either. 24 MR. CRINER: AMA, air material areas. 25 THE REPORTER: Thank you. 0043 1 MR. ELLIOTT: Yes. And -- 2 MR. CRINER: I was not part of that, but 3 I'm familiar with that. 4 MR. ELLIOTT: Okay, sir. 5 MR. CRINER: I was just looking for your 6 computer experience in the Air Force. 7 MR. ELLIOT: Well, my computer experience 8 came from -- I was basically one of those anticomputer 9 people. I didn't like them, didn't trust them. And as 10 I got some gray hairs on my head, I realized I'm pushing 11 uphill against something that's coming down whether I 12 want to -- like it or not. 13 So I had to -- I felt it was appropriate 14 for me to become infinitely familiar with what is coming 15 down, so I took it as a personal responsibility to get 16 training and education in that area. 17 I got a master's degree from Chaplain 18 University during that time. I also completed three 19 military training courses, Air -- at the Air University 20 and tried to major in management of information systems. 21 So that's where I kind of got that 22 background. But what really gave me -- what got me 23 where I am today is the military gave me an opportunity 24 to be project manager for a number of IT projects. And 25 the one here at Bergstrom was my last one. It was a 0044 1 $243 million project, 250 people I was supervising, and 2 we completely rebuilt what was called a mobile tactical 3 air command control center, which allowed them to 4 schedule over 2,000 sorties per day, which, before then, 5 the maximum was 200. 6 But by bringing computers in and doing 7 what people used to do by hand and pencil, we have made 8 a significant change, and it's a great improvement. 9 So I'm kind of proud of that. 10 MR. CLOWE: Very good. And -- 11 MR. ELLIOTT: Married, two sons, 25, 29. 12 The 29-year-old is an engineer at Motorola, so he's in 13 technology. Five-year-old grandson. 14 MR. CRINER: They really came down on you. 15 MR. ELLIOTT: He tells me all about 16 Motorola. 17 My youngest one is -- he is now a broker 18 at the Cybertrader, a company here in West Austin, real 19 estate in Austin. And he's told my wife and I that 20 he's -- his goal in life is just to make all the women 21 in Austin happy. So he's doing a good job of that and 22 trying to find the right girl. 23 MR. CLOWE: Great. Great. Well, Keith, 24 welcome aboard. And as Commissioner Whitaker said, glad 25 to have you. 0045 1 MR. ELLIOTT: I'm glad to be here. 2 MR. CLOWE: Welcome aboard. 3 MR. ELLIOTT: Thank you. 4 MR. CLOWE: Go forward. Linda, I know you 5 want to catch a plan. 6 MS. CLOUD: Lottery directors conference 7 in Atlantic City is the conference that I went to week 8 before last. It was very informative, a lot of the 9 things going on in the industry. And I will send you, 10 in your packet, some of the stuff from my booklet so 11 that you are aware of some of the things that are coming 12 up. 13 This afternoon, as you say, we're leaving 14 for Houston for the retailer town hall meeting. The 15 meeting is at Sheraton Suites Hotel at Galleria. We had 16 150 registrations, and it appears that an additional 17 100 people have requested to join us. So hopefully 18 we're prepared for them when we get there. 19 That is my report, Commissioners. 20 MR. CLOWE: Great. Any questions? 21 MS. WHITAKER: Have a good trip. 22 MS. CLOUD: Thank you. 23 MR. CLOWE: Thank you, Linda. And if you 24 need to go ahead -- 25 MS. CLOUD: No. I'm okay. I think I can 0046 1 go through the meeting. 2 MR. CLOWE: Then we'll go back to Item 3 Number XII, Consideration of the status possible entry 4 orders -- entry of orders in items letter A through L. 5 Kim. 6 MS. KIPLIN: Commissioners, I'd like to 7 just talk right now about A through G. Those are all 8 lottery retailers. The recommendations from the various 9 administrative law judges over at the State Office of 10 Administrative Hearings is to revoke their license. 11 Bubba's General Store, the recommendation 12 is to revoke the license because of a disqualifying 13 criminal history. The remaining ones, B through G, have 14 to do with insufficient funds being available at the 15 time that the lottery swept the account. 16 The staff does recommended that you adopt 17 the proposal for decision in those matters and enter an 18 order consistent with those proposals for decision. 19 With regard to H, that is the Tom Thumb 20 Nursery and Kindergarten conductor's license. That 21 matter is moot now because the license has expired. The 22 license has expired, so there is no license for you to 23 revoke. Proposal for decision was for you to revoke 24 that license. But that will not be presented to you. 25 The Tom Thumb Nursery and Kindergarten, 0047 1 that is the lessor's license. That is a license to 2 lease bingo premises. The recommendation by the 3 administrative law judge is to revoke that license 4 because of the licensee's failure to remit rental tax. 5 The staff does recommend that you enter an 6 order consistent with the proposal for decision and 7 recommendations contained therein. 8 J and K are agreed orders that are 9 presented to you for your consideration on St. Joseph's 10 Catholic Church and St. Joseph's Catholic School. 11 The bingo division staff and the licensee 12 have entered into an agreement. The allegations for -- 13 for noncompliance with the Bingo Enabling Act had to do 14 with the playing of an unlicensed occasion. 15 The mitigating factor in both of these 16 cases is, one, I don't believe that either one of the 17 licensees has had an allegation of noncompliance before 18 with regard to the bingo activities, and they 19 self-reported their noncompliance when they discovered 20 in fact that they did not have a license to cover that 21 time. 22 The recommendations are contained therein, 23 and the staff does recommend that you enter an order 24 consistent with the agreement between the two parties. 25 And lastly, we have Sak's Food Mart, Inc. 0048 1 That is a lottery case. The reason that is last is 2 because you entered an order at I believe the last 3 commission meeting. 4 We are here before you today on a motion 5 for an nunc pro tunc order because the order you 6 entered, when it came from the State Office of 7 Administrative Hearings, had an incorrect retailer 8 license number. It did revoke the license, but the 9 retailer license number was incorrect. And the purpose 10 of the nunc pro tunc order is to correct that license 11 number. Everything else in the order was correct, the 12 name of the licensee, the address and so forth. 13 MR. CLOWE: On behalf of those of us who 14 are not attorneys and don't speak Latin, thank you for 15 that clarification. 16 MS. KIPLIN: And the main purpose of a 17 nunc pro tunc is to correct mistakes like this that are 18 really nonsubstantive mistakes. 19 With that, the staff does recommend that 20 you enter an order consistent with the administrative 21 law judge's proposal for decisions and the agreements 22 that were entered into between the bingo division and 23 the licensee, and then, of course, consistent with the 24 motion for the nunc pro tunc order. 25 MR. CLOWE: So then can we have one motion 0049 1 that will approve the recommended orders for A through 2 G, I, J, K and L? 3 MS. KIPLIN: Yes. And that -- the motion 4 would be that you move to adopt the proposal for 5 decision and then the proposed orders that are before 6 you today. 7 MR. CLOWE: Is there a motion? 8 MR. CRINER: So move. 9 MS. WHITAKER: Second. 10 MR. CLOWE: All in favor say aye. 11 COMMISSIONERS: Aye. 12 MR. CLOWE: Proposed, no. 13 The vote is 3-0 in favor. 14 Billy, if you will wait just a minute, we 15 will sign these orders and then be to your item on the 16 agenda. 17 (Off the record) 18 MR. CLOWE: All right. We're now ready 19 for Item Number XIV, Report by the Charitable Bingo 20 Operations Director, possible discussion and/or action 21 on Charitable Bingo Operations Division's activities. 22 MR. ATKINS: Thank you, Commissioners. 23 As you know, we have entered into a 24 contract with Keen, Incorporated to develop and 25 implement a new automated bingo system for the use of 0050 1 the division. 2 On May 31st, Phil Sanderson, the assistant 3 director of the division and the project manager for 4 this new system, and I met with Jim Brewer and Tom Fox. 5 Mr. Brewer is the branch manager of Keen, 6 Incorporated and directly responsible for this project. 7 Mr. Fox is out of the Dallas area and is an area manager 8 for Keen. 9 At that meeting, Mr. Fox conveyed to us 10 that this project is very important for Keen, 11 Incorporated; that they are committed to providing the 12 charitable bingo division with a quality project. But 13 he did state that he did not believe that Keen would be 14 able to meet the deadline that is contained in the 15 contract that we have signed with them. 16 He did not provide -- provide us with a 17 specific date, but he was estimating that on what he has 18 learned from the project so far, that it would be 19 sometime around November until they could finalize the 20 project. 21 They had submitted -- excuse me -- a 22 revised statement of work for the project that had been 23 rejected by the division, and they were instructed to go 24 back and develop another statement of work that 25 contained the provisions of the original contract. And 0051 1 they are working on that. It's my understanding that 2 they are still working on it at this time, that a new 3 statement of work had not been submitted. 4 Mr. Fox did state that -- before I go 5 there, I will tell you that I told him that this was a 6 very serious matter for me and that I had raised it to 7 the level of the Commission and that the Commission was 8 following it closely. 9 Mr. Fox stated that he knew it was an 10 important project for the division and for the agency, 11 and he did say that if the new statement of work isn't 12 acceptable or the final time line that they come back to 13 us with is not acceptable that they would understand and 14 would be willing to work with the division or the agency 15 to in some way make us whole. And that's a quote that 16 they used. 17 So they did mention that, you know, 18 conceivably that could result in a refund of some of the 19 payments that we've made for work that's rendered so 20 far. 21 Subsequent to that, Phil Sanderson and 22 some of the staff from the IT division -- and it's my 23 understanding they are going to meet with 24 representatives of Texas On-Line and KPMG tomorrow to 25 see if they can get a sense from them if they would be 0052 1 able to come in and take over the project where it 2 stands now and bring it to completion. 3 MR. CLOWE: What was the original date of 4 completion, Billy? 5 MR. ATKINS: August 1st. 6 MR. CLOWE: And they're talking November. 7 Without attempting to be precise, can you quantify the 8 impact on us at this point? 9 MR. ATKINS: Well, without being precise, 10 the impact is primarily a nuisance in that we're still 11 operating with the system that we've always had. And 12 the intent of the system was to put us in a position to 13 be able to automate a lot of our processes. 14 Now, we have not made any additional 15 payments to Keen, and there will be some impact to the 16 extent that as we move forward during the summer with 17 the Sunset process as well as our rule revision, we had 18 hoped to have this system in place and finalized so that 19 that would be, you know, another project off the plate 20 so that we could concentrate on, as I say, Sunset and 21 the rules. 22 Now, this will be something that we'll 23 continue to have to apply staff to. So that -- that's 24 an impact on the division. 25 MS. KIPLIN: I think we would like to go 0053 1 ahead and hop in if we could on this as lawyers and say 2 that we need to take a look at the contract and see what 3 our remedies are. 4 I know that, Commissioner Clowe, you asked 5 him a question in terms of what he thinks the harm is, 6 and I would like for him to have an opportunity to 7 evaluate that to see what the damages are that he may 8 not be thinking about right now that we can take a look 9 at in terms of the contract. 10 MS. WHITAKER: I don't understand enough 11 to be talking in terms of details or legal theories, 12 just generalities. 13 MS. KIPLIN: Sure. And I would like for 14 him to have an opportunity to really think a little bit 15 further because I know that his immediate response was 16 that it's just -- it's a hardship, but these things are 17 needed to be reviewed a little bit more closely. 18 MR. CLOWE: Yeah, I think so, in light of 19 the fact that my recollection is we have collected 20 monies from licensees and we had anticipated a 21 completion date when the system would be in and up and 22 not only have information but we would be using that to 23 our own advantage. And this delay certainly is going to 24 cause results which are quantifiable. 25 I really asked that question more to raise 0054 1 this to the conscious level of concern so that there be 2 some work done on it. And I know that Legal will also 3 assist on any thinking about changing vendors, as to the 4 impact that would have on the contract or liability of 5 the building, that sort of thing. 6 MS. KIPLIN: Sure. And Kaye Schultz is 7 the assistant general counsel who is assigned to this 8 matter, and she'll be giving you advice regarding 9 seeking substitute performance and the hardship of that 10 and being able to quantify the damages if in turn -- if 11 in fact that's where the division wants to go and we end 12 up paying more than the -- for the services than we had 13 originally committed to. 14 So we'll be looking at all those issues 15 and giving him the best legal advice for him to make the 16 decision about how he wants to proceed. 17 MR. CLOWE: Do you have a sense of this 18 company's financial liability, Billy? 19 MR. ATKINS: I'm not aware of any 20 information, Commissioner Clowe, that surfaced as a 21 result of the background investigation that was done on 22 the vendor that would indicate that they're facing any 23 sort of financial hardship or anything. 24 MS. SCHULTZ: Commissioners, for the 25 record, I'm Kay Schultz, Assistant General Counsel. 0055 1 Keen is a very large publicly traded 2 company. It's based in Boston. So I don't think their 3 financial status is a problem. 4 I do, for the record, want to say, though, 5 that I believe that deadline -- the contract was 6 originally awarded in January 2000. And I believe that 7 the deadline for completion was July 1st of this year. 8 And then there was to have been a period of time, I 9 believe a month -- 10 MR. ATKINS: Up front. 11 MS. SCHULTZ: -- of help support, but they 12 were supposed to have, under the terms of the contract, 13 the system up and running, completed, installed, 14 available by July 1st. 15 And it was designed to be a complete 16 new -- the request for offers was put out as a 17 completely new system -- operating system for charitable 18 bingo. They were to design it and write the code in 19 order to overcome a number of problems with the current 20 system, which is very antiquated and has been converted 21 more -- on more than one occasion, including when it 22 came over from TABC. 23 So there are a lot of things that the 24 system -- that the staff of the Charitable Bingo 25 Operations Division would like to do but they are unable 0056 1 to do under the current system. 2 MR. CRINER: How far in development are 3 you, in development of the system? Are you at the end 4 of it? Is there some -- because you're talking about 5 part-time people here. 6 MR. ATKINS: No. I think we're probably 7 at 60 percent. The part-time help that we're for is 8 from our side as subject matter experts. Our people 9 referenced here aren't doing any of the coding. 10 MR. CRINER: How many -- how many -- 11 THE REPORTER: I can't hear you again. 12 MR. CRINER: How many FTEs does Keen have? 13 MR. ATKINS: They had I believe three. 14 MS. SCHULTZ: I don't have the exact 15 number. They do have a staff here with a project 16 manager. 17 MR. CRINER: What's the reason that they 18 say they can't make the deadline? 19 MR. ATKINS: Originally we were told by 20 Keen that they had made some bad assumptions in 21 preparing and submitting their bid as it relates to the 22 complexity of the system and the requirements that we 23 had put forward in the RFP. 24 MR. CLOWE: That's exactly right. And if 25 I can help you a little bit, my recollection -- I can't 0057 1 remember whether you were serving on the commission when 2 we got the initial report -- it was substantially 3 greater costs than they had estimated, and they asked to 4 be released, if I remember correctly. They wanted to 5 move away from it. 6 That's a report I remember. It may not be 7 accurate. And that was the reason for my financial 8 question. And I think work stopped for a period of 9 time. 10 MR. ATKINS: I don't remember them 11 requesting to be released. I remember them coming back 12 and saying that it was going to cost approximately 13 double of what the original contract was for. And we 14 explained to them that the contract price is the 15 contract price. 16 MS. KIPLIN: Commissioners, we -- after, I 17 think, one meeting, we did send a letter requesting 18 assurances that they were going to perform the contract. 19 And they did send a letter back indicating that they 20 were going to perform on the contract and perform timely 21 on the contract. 22 MR. CLOWE: Well, they haven't done that. 23 MS. KIPLIN: That's right. 24 MR. CLOWE: And is it a fair question why? 25 If they didn't stop work on it, why is it going to be 0058 1 four months late? 2 MR. ATKINS: And I don't know that I can 3 answer that right now. 4 MR. CLOWE: Do you have a question, Kim? 5 MS. KIPLIN: Do you need to seek legal 6 advice? 7 MR. CRINER: Yes. 8 (Discussion off the record out of the 9 hearing of the court reporter) 10 MR. CRINER: I need to go on the record, 11 Mr. Chairman, that my company -- I mean, my company has 12 involvement with Keen. I'm not aware right now that we 13 have a signed contract with them. We have been involved 14 in extensive work with them, so I need to withdraw 15 myself from this discussion. 16 MR. CLOWE: Sure. 17 MS. KIPLIN: So at this point, 18 Commissioner Criner is now recusing himself from any 19 further participation since it's just come to his 20 attention that this company may very well be the company 21 that his company has business with. 22 MR. CLOWE: Sure. 23 MS. KIPLIN: He is recusing himself until 24 he has an opportunity to have further review to 25 determine whether in fact it is the company and what the 0059 1 involvement is and will not participate in any further 2 discussion, dialogue, deliberation until he's had an 3 opportunity to have that fully vented and seek further 4 legal advice. 5 MR. CLOWE: Very good. 6 Well, Billy, the reason I'm pursuing these 7 questions is that I remember that we had questions from 8 various committees and committee chairpersons in the 9 legislature and we had asked for this fee and were 10 granted that right. And we asked for that money and 11 those funds based on a plan, and so we're now not 12 meeting that plan. And I'm concerned about that, as I 13 know you are. 14 And I think you were correct in stating to 15 the representatives of the companies -- the company that 16 the commissioners have a concern about it, and I would 17 ask, unless Commissioner Whitaker has further questions 18 or corrections, that you keep us advised and know that 19 we are concerned and we would like to see this project 20 completed successfully and as timely as possible. And 21 when you quantify what the impact is on the bingo 22 division, the charitable bingo division, that you advise 23 us of that as well so you can take correct actions. 24 MS. KIPLIN: And I would follow up with 25 Commissioner Clowe's comments and say that until we have 0060 1 further information from Commissioner Criner, do not 2 keep Commissioner Criner informed and do not have 3 discussions with Commissioner Criner on this matter. 4 MR. CLOWE: Very good. 5 MR. ATKINS: Commissioners, if you have no 6 other questions on that matter, there is still -- the 7 Bingo Advisory Committee has still tentatively been 8 rescheduled for July 25th. Originally we asked that the 9 committee meeting be moved from July 11th so that the 10 staff would have time to prepare and draft rules as it 11 relates to progressive bingo. 12 With that bill being vetoed, that point 13 becomes moot, but there are still other rules that we 14 have in the drafting process that we think we can have 15 available for their review on the 25th. I've talked to 16 the chair of the BAC, and he is amenable to keeping that 17 meeting for July 25th. 18 As it relates to the bingo operator 19 training program, I wanted to draw one point to your 20 attention. At the last commission meeting, I reported 21 that approximately 92 percent of our licensees had gone 22 through the training. It turns out that that figure was 23 erroneous. Some organizations had been double-counted. 24 We went back and confirmed the actual numbers that we 25 have, and it's just under 84 percent of the licensees 0061 1 who have undergone the training. 2 We continue to send out and make available 3 notifications of the upcoming training programs so the 4 organizations will be able to complete that training 5 before the September 1st deadline contained in the rule. 6 And, finally, one thing that I wanted to 7 mention that is not on my report, you discussed briefly 8 earlier in the meeting the impact of the flooding in the 9 Houston area on the lottery retailers. 10 We did -- once our auditors were able to 11 get back to the Houston office after the flooding, they 12 have been contacting the organizations in the Houston 13 area. So far, we haven't had anyone report any kind of 14 serious damage or hardship to their organizations. It 15 was kind of lucky for us in that that did not occur 16 around the reporting period. So so far we haven't had 17 any serious impact reported by any of our licensees. 18 MR. CLOWE: Very good. Any questions or 19 comments for Billy? 20 Thank you, sir. 21 MR. ATKINS: Uh-huh. 22 MR. CLOWE: Is there any public comment 23 from any person at this time? 24 I don't believe there is, and so we will 25 be adjourned at 1:04 p.m. 0062 1 MS. KIPLIN: Commissioners, before we 2 adjourn, can I take just a personal moment and say on 3 the record that I apologize to the bingo director for 4 not remembering his birthday? 5 MR. ATKINS: What else? 6 MS. KIPLIN: And I wanted to sing him 7 happy birthday on the record. So, happy birthday to 8 you. Happy birthday to you. Happy birthday, dear Billy 9 Bingo. Happy birthday to you. And many more. 10 And happy birthday to Commissioner Criner. 11 MR. CLOWE: Wow. I think now we're not 12 only adjourned; we're destroyed. 13 (Hearing concluded) 14 15 16 17 18 19 20 21 22 23 24 25 0063 1 REPORTER'S CERTIFICATE 2 STATE OF TEXAS ) COUNTY OF TRAVIS ) 3 4 I, CYNTHIA B. RAMSAY, Certified Court Reporter for the State of Texas, do hereby certify that the facts 5 stated by me in the caption hereof are true; that I did, in shorthand, report said proceedings, and that the 6 above and foregoing typewritten pages contain a full, true and correct computer-aided transcription of my 7 shorthand notes taken on said occasion. 8 $_____________ is the charge for the preparation of the completed transcript. 9 I further certify that I am not in any 10 capacity a regular employee of any party, nor in the regular employ of any attorney of record; and I certify 11 that I am not interested in the cause, nor a kin or counsel to any of the parties. 12 WITNESS MY HAND this the day of 13 , 2001. 14 ________________________________ 15 CYNTHIA B. RAMSAY, CSR Certified Court Reporter 16 For the State of Texas CSR No. 4132 17 Expiration Date: 12-31-01 Wright Watson STEN-TEL 18 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 19 (512) 474-4363 20 JOB NO. 010626CWB 21 22 23 24 25