1 1 2 3 4 5 6 *************************************************** 7 8 TEXAS LOTTERY COMMISSION 9 MEETING 10 11 July 24, 2001 12 *************************************************** 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 24TH day of 20 JULY, 2001, beginning at 8:33 a.m. and ending at 21 12:57 p.m., before Suzanne T. Lane, RPR, CSR in and 22 for the State of Texas, reported by machine 23 shorthand, at the Offices of the Texas Lottery 24 Commission, 611 East Sixth Street, Austin, Texas, 25 whereupon the following proceedings were had: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 APPEARANCES 2 Chairman: 3 Mr. C. Tom Clowe, Jr. 4 Commissioners: Ms. Elizabeth D. Whitaker 5 Mr. Walter H. Criner, Sr. 6 General Counsel: Ms. Kimberly L. Kiplin 7 Executive Director: 8 Ms. Linda Cloud 9 Charitable Bingo Operations Director: Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: Call the meeting to 2 order of the Texas Lottery Commission, July 24th of 3 2001. It is 8:33. Commissioners Whitaker and 4 Criner are present. My name is Tom Clowe. We have 5 a full commission and an active agenda to cover 6 today. We'll begin promptly by going to 7 Item No. 2, report, possible discussion and/or 8 action on lottery sales and trends. 9 Toni, will you and Linda report to 10 us on that, please. 11 MS. SMITH: Good morning, 12 Commissioners. For the record, I'm Toni Smith, 13 marketing director of the Texas Lottery Commission. 14 To take a look at year-to-date 15 sales, week ending July 21, 2001, total sales to 16 date are 2,542,587,998. This is up 7.13 percent 17 from last year's total sales to date of 18 2,373,273,660. Our weekly average for the -- so 19 far this year to date is 54,097,616, compared to 20 50,495,184 of last year. 21 To look at a year-to-date comparison 22 by product, we'll just look at a couple. The 23 instant product this year to date is at 24 1,535,867,022, and it represents 60.41 percent of 25 our sales, compared to last year's year-to-date WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 TEXAS LOTTERY COMMISSION - 7-24-01 1 total for the instant product of 1,488,972,051. 2 And at that time, it represented -- the instant 3 product represented 62.74 percent of sales. But 4 yet we see a 3.15 percent increase over last year. 5 To look at Lotto Texas for fiscal 6 year '01 year to date, we've got 640,783,471. It 7 currently represents 25.2 percent of total sales, 8 compared to last year, fiscal year 2000, of 9 516,729,884 and represented 21.77 percent of sales. 10 We have seen a 24.01 increase in Lotto Texas year 11 to date from this year compared to last year. 12 And then to just look at where we 13 are weekly, total sales for the week ending 14 July 21st were 47,728,387. And this is up 15 3.67 percent from the previous week of total sales 16 of 46,039,077. 17 Instants are relatively flat. Lotto 18 Texas was up 16.96 percent, and that was a result 19 of the jackpot increase. And the others stayed 20 relatively flat. Texas Two Step was up 21 3.85 percent and continues to be a success for us. 22 And Commissioners, I've also 23 attached the memos about the draw patterns for your 24 review at a later date. And then we have -- now we 25 have reached our year anniversary with the Lotto WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 TEXAS LOTTERY COMMISSION - 7-24-01 1 Texas matrix change. And when we compare the 2 52-week period prior to the matrix change, we were 3 hit 18 times compared to the 52 week -- I'm sorry, 4 18 times since the change has gone into effect. 5 And in the period 52 weeks before the matrix change 6 took place, we were hit 32 times. So we have 7 pretty much stayed at a good half of what we had 8 done before, and that shows to continue to be a 9 success for us also. 10 And also included in your packets 11 are just some samples of some of our recent new 12 scratch-off games just so you can see some of 13 what's coming up: 71121, Texas (inaudible). 14 I'll be happy to answer any 15 questions you may have. 16 CHAIRMAN CLOWE: Toni, I have a 17 question. On a year-to-date basis, Texas Two Step 18 is 82/100th of a percentage, and on a weekly basis 19 it's almost four and a half. Can we assume from 20 that that the popularity of that game is growing? 21 MS. SMITH: Yes, sir. 22 MS. CLOUD: Commissioners, we've not 23 had the kind of positive feedback from any game 24 that we've put on the street as we've had with 25 Texas Two Step. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: And I'd like to 2 hear some of those comments if you can describe 3 what the response to that game is and what it is 4 that people like about it. I'd like to have a 5 little introspective examination there. 6 MS. CLOUD: Well, I was in an 7 introduction with our claim center staff -- who is 8 here on training right now; they're over at the 9 Sheraton -- yesterday, and I asked them the 10 question how they felt about the response to Texas 11 Two Step, what kind of response were they getting 12 in the claim centers. 13 And they told me they had players 14 coming in and were receiving winnings on what they 15 call the Powerball, the bonus ball. So if they 16 get -- if they hit the bonus ball, then they get 17 $5. So players, in their minds, I guess they're 18 associating the game with the Powerball-type game, 19 and they like that game. They like the challenge 20 that that game offers them. 21 Our retailers at the last town hall 22 meeting, I asked them how they -- and 23 Commissioner Criner was there to witness this -- I 24 asked at the very last of the meeting how they 25 liked the Texas Two Step game, and they all started WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 TEXAS LOTTERY COMMISSION - 7-24-01 1 clapping and commenting on what a great game it 2 was. 3 So I think from what we're hearing, 4 it is working really well for us. The players like 5 the game. There's lots of winners. We're 6 making -- believe it or not, it's rolled two or 7 three times to over a million dollars, and it's 8 gotten hit at that million or million point one, 9 which is the intent of the game, was that it would 10 get hit, it would have winners. It's a low -- it's 11 a low matrix for us, and it's -- we intended that 12 to be the way this game operated. 13 CHAIRMAN CLOWE: Looks like you've 14 had five winners over a million dollars. 15 MS. CLOUD: Right. Well, some of 16 those were a group of -- I think one of our Corpus 17 winners -- Robert, maybe you can help me with 18 this -- was a group of seven. 19 MS. SMITH: If you look at the 20 report that says Texas Two Step draw patterns, you 21 can see the number of times we've gotten hit at 22 each of those amounts -- levels. 23 MR. TIRLONI: Good morning, 24 Commissioners. For the record, my name is 25 Robert Tirloni. I'm the online product manager in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 TEXAS LOTTERY COMMISSION - 7-24-01 1 the Lottery's marketing division. 2 We have been hit two times over the 3 $1 million level on the Two Step game. And Linda 4 is correct: One of those $1.1 million jackpots was 5 a group from Corpus. 6 And just to add, on Saturday we did 7 a Texas Two Step mall promotion at Lakeline Mall in 8 Northwest Austin, where we were educating players 9 and the public about the Texas Two Step game. We 10 saw over 600 -- or talked to over 600 people. And 11 that's when I left, which was late in the 12 afternoon. It's probably closer to about 800 or 13 900 people. And the response that we heard from 14 players was very encouraging. 15 A lot of people said they love the 16 game. They like the fact that it's a cash game, 17 where if they win the jackpot, they would get all 18 their winnings in one lump sum. A lot of people 19 like the idea of winning $5 by just matching the 20 bonus ball. 21 A lot of people came up -- and 22 usually at those type of promotions, you're trying 23 to educate people about the game. But what 24 happened was a lot of people came up; they already 25 knew about the game and were players and were WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 TEXAS LOTTERY COMMISSION - 7-24-01 1 coming up to tell us how much they liked it and how 2 much they enjoyed playing it and said that we 3 had -- that they had -- they thought the Lottery 4 did a good thing by introducing that game. 5 CHAIRMAN CLOWE: Nobody was grieving 6 for the Texas Million? 7 MR. TIRLONI: No, sir. 8 MS. CLOUD: We have had a couple of 9 players, believe it or not, write me nasty little 10 notes over the "ask the director a question," and 11 like the Texas Million game, and it's -- they don't 12 like the Texas Two Step game, I guess, because they 13 haven't won. But that's a very small percentage of 14 what we're hearing, of those that like the game. 15 CHAIRMAN CLOWE: Very good. 16 I think that's all the questions we 17 have. Thank you very much. 18 MS. CLOUD: Commissioners, one thing 19 I'd like to add to Toni's report, and remind you 20 that this is the time of the year when our sales 21 across the board will decline because of the summer 22 months and discretionary dollars and vacations. 23 And then next month will be go back to school, 24 which we've always seen a decline in sales across 25 the board during this time of the year. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: Very good. 2 I think the next item is also yours, 3 Toni, regarding advertising, promotions, and print 4 media criteria. 5 MS. SMITH: And that -- I really 6 have nothing new to report, Commissioners. We 7 continue to do our Texas Two Step campaign, and 8 we're working on some campaigns for the beginning 9 of the next fiscal year. So Texas Two Step was our 10 focus for the summer, along with the continuation 11 of our coin campaign for scratch-offs. 12 That's all. 13 CHAIRMAN CLOWE: Very good. Thank 14 you, Toni. 15 MS. SMITH: Thank you, 16 Commissioners. 17 CHAIRMAN CLOWE: Next is Item 4, 18 possible discussion or action on lottery operator 19 procurement and lottery operator consultant. 20 MR. BENNETT: Good morning, 21 Commissioners. For the record, my name is 22 Ridgely Bennett. I'm the deputy general counsel of 23 the Texas Lottery Commission. 24 The Evaluation Committee continues 25 the process of evaluating the proposals submitted WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 TEXAS LOTTERY COMMISSION - 7-24-01 1 by GTECH Corporation and should have a 2 recommendation to the executive director in the 3 very near future. 4 I'd be happy to answer any questions 5 if you have any. 6 CHAIRMAN CLOWE: I believe there are 7 none, Ridgely. Thank you very much. 8 MR. BENNETT: Thank you, 9 Commissioners. 10 CHAIRMAN CLOWE: Next item, No. 5, 11 report, possible action or discussion on the 12 internal and external audit reports. 13 Debra McLeod. Good morning, Debra. 14 MS. MCLEOD: Good morning, 15 Commissioners. 16 The last time, I reported that we 17 had completed our fieldwork on the game plan 18 verification audit. This draft report, Linda and I 19 are still discussing the final comments on that. 20 We anticipate closure on that fairly soon. 21 The other audit that I had reported 22 on was the bingo compliance audit. And we're 23 95 percent complete with the fieldwork on that. 24 We're in the process of assembling our work papers 25 and doing an internal QA review. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 TEXAS LOTTERY COMMISSION - 7-24-01 1 We will schedule an exit conference 2 with bingo management to discuss our findings and 3 our recommendations, hopefully by the end of this 4 month. 5 We've also started several other 6 audits since I have last met with you. One is a 7 DPS tape audit, and we're 95 percent complete with 8 the fieldwork on that. Work papers have been 9 reviewed, and we need to schedule an exit 10 conference with bingo management on that. 11 The other audit is the accounts 12 receivable audit. We're 85 percent complete with 13 that in the fieldwork. The other audit is debit 14 control. We're 75 percent complete with the 15 fieldwork on that, and anticipate closure on all 16 these audits within the next couple of weeks. 17 CHAIRMAN CLOWE: Very good. 18 MS. MCLEOD: The only other outside 19 audit that I'm aware of that's going on right now 20 is GTECH is in the process of having their external 21 CPA firm do a SAS-70 control audit. This takes 22 place every year. It's on their computer 23 environment. 24 We have discussed with them control 25 objectives we want them to look at. We're also WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 TEXAS LOTTERY COMMISSION - 7-24-01 1 doing sort of a partial follow-up based on the 2 security audit that was done so there won't be an 3 overlap of audit steps with that. We anticipate a 4 report in August from them on that. 5 CHAIRMAN CLOWE: Good. 6 Any questions? I believe there are 7 none. 8 Thank you, Debra. 9 MS. MCLEOD: Okay. 10 CHAIRMAN CLOWE: The next item is 11 possible action and discussion on the production 12 studio. 13 Linda, would you report on that? 14 MS. KIPLIN: Commissioners, I'm 15 going to stand in for Linda and let you know -- I 16 think you know that there was a protest that was 17 filed. That protest was being reviewed by counsel 18 to be able to provide legal advice and opinion to 19 the executive director. That part of the process 20 has occurred. 21 The executive director has had an 22 opportunity to review the protest documents and 23 pertinent information and has instructed her 24 counsel to draft a document consistent with the 25 determination she's made. That document is in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 TEXAS LOTTERY COMMISSION - 7-24-01 1 process, and so at this point there has been no 2 determination that's been issued. 3 CHAIRMAN CLOWE: In regard to the 4 actual work taking place, can we have a progress 5 report at this time? 6 MS. KIPLIN: Yes, sir. 7 MS. CLOUD: Commissioners, I would 8 like for Vince to make that report, and he is not 9 here yet. Can we pass that for right now and -- 10 because he's been in charge of that. 11 CHAIRMAN CLOWE: Certainly. 12 MS. CLOUD: The progress, I will 13 tell you, where the studio is concerned, the 14 construction is complete and is ready to turn over 15 to the contractor. 16 CHAIRMAN CLOWE: Very good. 17 MS. CLOUD: The claim center 18 construction is still ongoing. 19 CHAIRMAN CLOWE: Is it on schedule 20 and on budget? 21 MS. CLOUD: Yes, it is. 22 CHAIRMAN CLOWE: Both? 23 MS. CLOUD: Vince -- both. And 24 Vince will be able to give you more detailed 25 information on that. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: Good. Thank you, 2 Linda. 3 The next item is report and possible 4 discussion and action on the 77th Legislature, 5 including the agency's legislative proposals. 6 Linda -- or Nelda Trevino. Good 7 morning, Nelda. How are you? 8 MS. TREVINO: Good morning, 9 Commissioners. For the record, I am Nelda Trevino, 10 the director for the governmental affairs division. 11 Just very briefly, Commissioners, we 12 are making progress in regards to the 13 implementation task force. In your notebooks is 14 the spreadsheet that does identify the bills that 15 we identified that would have some impact in the 16 agency. And the task force is in the process of 17 identifying any implementation actions that the 18 agency might have to take. 19 And I'll be happy to answer any 20 questions. 21 CHAIRMAN CLOWE: Nelda, there was a 22 bill that was passed, as I understand it, which 23 covered some direction of the agencies towards 24 choices relative to contract decisions in regard to 25 Texas-based companies. Can you comment on that at WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 TEXAS LOTTERY COMMISSION - 7-24-01 1 this time and tell us where we are? 2 MS. TREVINO: It is -- there is a 3 provision in Senate Bill 311 that was the General 4 Services Commission sunset bill. And there is a 5 provision that included, I believe, Mr. Chairman, 6 some of the language that you're talking about. I 7 know our task force, again, is just in the process 8 of really taking a look at the bill and seeing what 9 sort of impact there may be. The language did 10 change significantly from what was originally filed 11 in regards to Texas preference and what ended up in 12 the actual sunset GSC bill. 13 And I don't know if Kim has 14 something else that she might want to add to that 15 at this point. 16 MS. KIPLIN: Commissioners, that was 17 the sunset bill, General Services Commission. That 18 language was -- as I recall, was included as 19 another factor to be considered as the economic 20 impact to the state, including taxes in employment. 21 That is another factor to be 22 considered in determining best value when reviewing 23 proposals that have been submitted in response to a 24 formal procurement solicitation. It's in a section 25 of the government code that the lottery has a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 TEXAS LOTTERY COMMISSION - 7-24-01 1 specific exemption from that particular provision. 2 So there is some interplay upon -- in the statutory 3 construction. It's also discretionary language; 4 it's not mandatory. 5 And I think more importantly, or 6 equally important, it's got a statewide 7 governmental application. And I've asked the 8 deputy general counsel to get in contact with the 9 General Services Commission and also the 10 comptroller to get some feel for how they're going 11 to proceed because I think since it's a statewide 12 impact, the General Services Commission would be 13 the appropriate agency to be -- look into on how to 14 proceed. And so we're, at this point, in 15 information-gathering mode. 16 CHAIRMAN CLOWE: Good. That's 17 really the reason that I've asked about it. I'd 18 like the Commission to have a clear understanding 19 of what the direction is of that action so that we 20 could understand, as contracts come up, what our 21 consideration should be in that regard. 22 I, for one, am not clear. I've 23 heard what you've said before, and I'd like some 24 clarification, beyond that explanation, of what 25 should be the guiding action for the Commission in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 TEXAS LOTTERY COMMISSION - 7-24-01 1 future contract awards. And if you would undertake 2 to clarify that for the Commission, we would 3 appreciate it. 4 MS. KIPLIN: I understand the 5 direction, and I'm with you on it. And I'm 6 wondering whether the General Services Commission 7 intends to, for example, promulgate rules to try to 8 further clarify that language. So we'll stay on 9 top of it and give you a report. 10 CHAIRMAN CLOWE: Very good. 11 Any questions or comments for now? 12 Thank you very much. 13 MS. TREVINO: Thank you. 14 CHAIRMAN CLOWE: Mr. Grief, we are 15 ready for Item 8, report, possible discussion and 16 action on the sunset process involving this agency. 17 MR. GRIEF: Good morning, 18 Commissioners. For the record, my name is 19 Gary Grief, and I'm lottery operations director for 20 the Texas Lottery Commission. And I'm also serving 21 as the project manager for the agency's sunset 22 review process. 23 Since the last commission meeting, 24 we have made excellent progress in the development 25 of our self-evaluation report, and a draft of that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 TEXAS LOTTERY COMMISSION - 7-24-01 1 report was sent to the commissioners on July 20th. 2 We have continued to conduct weekly, and sometimes 3 more frequent, task force meetings in order for us 4 to stay on schedule with the development of this 5 report. 6 The task force has been downsized 7 now to include an executive subgroup, and a full 8 meeting of this subgroup is scheduled for this 9 Friday, July 27th. And in this meeting, we're 10 going to go through the document once again and 11 make some final decisions on the specific language 12 and certain parts of the document. 13 As a reminder, I have the 14 attachments on display in my office, and I would be 15 happy to show you those at your convenience if you 16 have an opportunity to come by. 17 We continue to be on schedule with 18 this document, and our new target date is now the 19 August 8th commission meeting, wherein it's my 20 understanding that the commissioners are going to 21 be taking the self-evaluation report up as an 22 action item during that meeting. 23 And that concludes my presentation 24 this morning, and I'd be happy to answer any 25 questions that you might have. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 TEXAS LOTTERY COMMISSION - 7-24-01 1 COMMISSIONER WHITAKER: Gary, what 2 form of the document will we be receiving before 3 August 8th? I've seen the draft, but are we going 4 to get a new draft? 5 MR. GRIEF: Yes, ma'am, you will. 6 COMMISSIONER WHITAKER: By when? 7 MR. GRIEF: You might receive more 8 than one copy. I would like to have our meeting 9 this Friday and make an update to that, and then I 10 anticipate there may be at least one more update to 11 that as well. Would you like to receive both the 12 updates or just the final? 13 COMMISSIONER WHITAKER: No, just the 14 final one that I review. But how close to being 15 finished will that be, from your perspective? 16 MR. GRIEF: I would say we're two 17 weeks away. 18 COMMISSIONER WHITAKER: So you think 19 that the draft we'll actually look at will be -- 20 MR. GRIEF: Should be the finished 21 product. 22 COMMISSIONER WHITAKER: The finished 23 product from your perspective. Okay. 24 MR. GRIEF: Yes, ma'am, with the 25 exception of the attachments. I won't burden the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 TEXAS LOTTERY COMMISSION - 7-24-01 1 commissioners with all the -- I'll send you a copy 2 of all the attachments. 3 CHAIRMAN CLOWE: And then tell us 4 again what action you will be looking for on 5 August 8th, please. 6 MR. GRIEF: I'll turn that to Kim. 7 MS. KIPLIN: I'm looking for an 8 action approving the document and approving the 9 staff and forwarding that and filing it with the 10 Sunset Advisory Commission. 11 COMMISSIONER WHITAKER: Give me an 12 estimate of just how close to being finished it is 13 now, would you say. 14 MR. GRIEF: 90 to 95 percent. 15 COMMISSIONER WHITAKER: Okay. 16 MS. CLOUD: Commissioners, I know 17 how you feel. I read -- the last draft that I read 18 took me seven hours to read it from front to back, 19 so that's a lot of reading. 20 COMMISSIONER CRINER: The document 21 is put together from a list of questions and 22 procedures? 23 MR. GRIEF: (Nodding head.) 24 COMMISSIONER CRINER: Can I have a 25 copy of that? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 TEXAS LOTTERY COMMISSION - 7-24-01 1 MR. GRIEF: The procedures? Yes, 2 sir. 3 COMMISSIONER CRINER: The document 4 that tells you how to prepare this document. 5 MR. GRIEF: The instructions? 6 COMMISSIONER CRINER: Yes. 7 MR. GRIEF: Yes, sir. 8 CHAIRMAN CLOWE: Any other comments 9 or questions? 10 Gary, I wanted to say on the record, 11 I've been hearing from everyone participating in 12 this process what an excellent job you've been 13 doing as leadership function, and we appreciate 14 that very much. 15 This is in addition to your other 16 duties, and everyone is very complimentary about 17 how you have brought together the staff and begun 18 to create this product. And it's a hard process to 19 go through. It has its own inherent difficulties. 20 It makes it easier when someone is leading the way 21 in the way that you are doing, and we appreciate 22 your good work. 23 MR. GRIEF: Thank you very much. I 24 appreciate the comments. 25 COMMISSIONER CRINER: Quite an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 TEXAS LOTTERY COMMISSION - 7-24-01 1 informative document. I did not know about the 2 Chairman's bingo experiences. 3 (Laughter.) 4 COMMISSIONER WHITAKER: I'm not 5 going to say anything. 6 CHAIRMAN CLOWE: Thank you, Gary. 7 Now we're to Item 9, which has to do 8 with various rules. And may I just ask for that 9 agenda and not read the entire item? 10 MS. KIPLIN: Yes, that's fine. 11 And Commissioner, would you consider 12 taking up the other item, the other item in 13 concert -- Item 9 and Item 10, both of those rule 14 making -- 15 CHAIRMAN CLOWE: Certainly. We'll 16 deal with both of those at this time. 17 MS. KIPLIN: Commissioners, with 18 regard to Item 9, you-all, if you will recall, 19 voted to propose that for public comment some time 20 ago. I believe it was in the April meeting. It 21 was published in the May Texas Register. That item 22 is not ready to present for you-all today for 23 consideration of adoption of the amendments and the 24 new rules that were involved. 25 Instead, we'd like to request and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 TEXAS LOTTERY COMMISSION - 7-24-01 1 recommend that you vote to withdraw two of those 2 rules that are out for public comment -- that would 3 be the Lotto Texas rule and the Texas Two Step 4 rule -- and then vote to propose to publish those 5 two rules. 6 And this is Item 10, for public 7 comment, to begin another public comment period. 8 And the reason for that is because in receiving 9 some of the -- in receiving the comments, and also 10 the staff gave me an opportunity to take a look at 11 it -- there have been some changes that have been 12 made to the text that was proposed for public 13 comment in May to the extent that I think an 14 argument could be made that there were substantial 15 changes that would require, under the case law, 16 republication anyway. And so that's what we're 17 asking. 18 Under the Texas Register rules, an 19 agency cannot have two rule makings occurring 20 simultaneously on the same two rules. So that's 21 the action that we're talking. 22 Now, in terms of Item 10 -- and stop 23 me any time if you have any questions -- if you 24 will recall, at the last commission meeting, or 25 perhaps in May -- I think it was in the May WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 TEXAS LOTTERY COMMISSION - 7-24-01 1 commission meeting -- the staff did bring before 2 you the same rule making proposal in terms of 3 proposing amendments to Lotto Texas and the 4 Texas Two Step rule. 5 At the time, the Commission had 6 questions. And after having some deliberation 7 regarding this item, the Commission directed the 8 staff to go back and consider the issues that had 9 been presented at that commission meeting and 10 consider revising some of the language in that 11 proposed rule making. And what is before you and 12 what was sent to you is a product of that process. 13 Along with what you-all had voted to 14 propose as part of Item 9, in Subchapter D, game 15 rules, the Commission staff has added additional 16 language that would clarify the term "net present 17 value." Commissioners, I think all three of you, 18 actually, had questions on what did that mean and 19 how was it determined. 20 The staff also included a definition 21 of "annual payment option." Commissioner Criner, 22 if you will recall, I think you asked what is -- 23 when a player goes to the counter to buy a ticket, 24 what are they asking for; and wanted some flushing 25 out of that term. And there is a definition of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 TEXAS LOTTERY COMMISSION - 7-24-01 1 that now in the rule. 2 And then finally, clarifying the 3 term "advertised jackpot." At the present time, 4 the Texas Two Step rule, as voted, adopted, and 5 effective, does provide for an advertised jackpot, 6 and that meaning what -- the player has a winning 7 ticket and submits it, and that's what the player 8 will receive, is the advertised jackpot; not the 9 case with Lotto Texas. 10 That is the key part of the proposal 11 on Subchapter D, game rules, and it's also the key 12 part on the proposal under Item 10, that we're 13 asking that you carve out these two rules and go 14 forward. 15 However, there is additional 16 language that we've included which, in my view, 17 would require a republication if we were to go into 18 Subchapter D, in the game rules, and add that 19 language, in particular, now with the questions and 20 the direction of the Commission. 21 So that's an overview of what these 22 two items are about today and what the staff's 23 recommendations and request is. 24 I know Robert Tirloni and 25 Bart Sanchez are here to answer any questions -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 TEXAS LOTTERY COMMISSION - 7-24-01 1 along with me, answer any questions that you might 2 have with regard to the rule making package. I 3 will tell you that rule making is a -- unlike a 4 contested case proceeding, is pretty much wide 5 open, and you can receive comment and there can be 6 input. I've had the opportunity to visit 7 individually with Commissioner Whitaker with regard 8 to the definition of advertised -- pardon me, 9 "annual payment option." 10 And based on that, I think that 11 there -- even that language that staff had, can be 12 improved. And I'd like to be able to read into the 13 record the new proposed language that has been just 14 recently drafted and have you consider having that 15 language be part of the rule. And of course, I've 16 made the changes consistent with your vote to file 17 with the Register. 18 And then a little bit of language on 19 "net present cash value," just to tighten up the 20 language that was sent to you previously, if you 21 wouldn't mind doing that. 22 CHAIRMAN CLOWE: Before you do 23 that -- 24 MS. KIPLIN: Yes? 25 CHAIRMAN CLOWE: -- are there any WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 TEXAS LOTTERY COMMISSION - 7-24-01 1 questions on what you're asking for? 2 COMMISSIONER WHITAKER: Well, I'm a 3 little confused because there's two things. One is 4 that you asked us to carve out those two subrules. 5 MS. KIPLIN: Yes. Those two rules 6 from Item 9, from what has currently been published 7 in the Register for public comment. I have a 8 current rule making pending. 9 COMMISSIONER WHITAKER: Okay. Do 10 you want to get a motion on that now? 11 MS. KIPLIN: Yes, I would like to -- 12 CHAIRMAN CLOWE: And for further 13 clarification along the lines of what 14 Commissioner Whitaker is on, that is 401.305 15 and 401.312. 16 MS. KIPLIN: Yes, that is correct. 17 COMMISSIONER WHITAKER: And then on 18 the -- 19 CHAIRMAN CLOWE: Motion. 20 COMMISSIONER WHITAKER: Second. 21 COMMISSIONER CRINER: Second. 22 CHAIRMAN CLOWE: All in favor, aye; 23 opposed, no. 24 The vote is 3-0. 25 MS. KIPLIN: To withdraw from that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 TEXAS LOTTERY COMMISSION - 7-24-01 1 rule making -- 2 CHAIRMAN CLOWE: Right. 3 MS. KIPLIN: -- those two rules. 4 COMMISSIONER WHITAKER: And the 5 second action you want is for us to postpone 6 consideration of 9? 7 MS. KIPLIN: I need no action for 8 that. The staff is not ready. 9 COMMISSIONER WHITAKER: Okay. So do 10 you need a motion on that? 11 MS. KIPLIN: No. I'm giving you 12 information just to let you know why it's before 13 you. But the staff is not ready to consider it for 14 adoption of the amendments. We are anticipating 15 bringing that to you at the August 8th meeting. 16 COMMISSIONER WHITAKER: Okay. Well, 17 then, on the two that have been carved out, I have 18 just a couple of questions unrelated to the 19 language that I was talking with you about this 20 morning; and that is, tell me again why -- what's 21 the meaning of the word "established." What is the 22 intention behind that? 23 MS. KIPLIN: Commissioner Whitaker, 24 I think what you're referring to is the definition 25 of "advertised jackpot" that's in Item 10. The WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 TEXAS LOTTERY COMMISSION - 7-24-01 1 jackpot -- and let me read it into the record: 2 The jackpot amount the Commission 3 establishes for each Lotto Texas drawing and 4 authorizes commission vendors to publicize. 5 The word "establish" is referring to 6 the procedure, the internal procedure the 7 Commission has in place, to determine what that 8 jackpot -- at this point, it's an estimated 9 jackpot -- will be then, and then directs or 10 authorizes their vendors to publicize. 11 There is a procedure that is in 12 place that is a pretty detailed procedure that is 13 initiated by Robert Tirloni, the online products 14 manager in the marketing division; and actually 15 sits down and consults with the executive director. 16 And the executive director does, in fact, approve 17 the estimated jackpot that will then in turn be 18 provided to our commission vendors to publicize on 19 the billboards. 20 And Mr. Tirloni, I'm sure, can come 21 forward and present more information on the 22 procedure -- and I'm not sure whether Mr. Sanchez's 23 division participates in that process in terms of a 24 detailed nature -- if you'd like. 25 The other part I want to say on the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 TEXAS LOTTERY COMMISSION - 7-24-01 1 "authorizes commission vendors to publicize," from 2 time to time, because these billboards are 3 electronic or computerized, every once in a while 4 there is a problem with having the correct 5 estimated jackpot displayed on the billboard. 6 And so we want to make very clear on 7 this rule that it's -- the jackpot that is the 8 advertised jackpot is the jackpot the Commission 9 authorizes the vendor to publicize, not necessarily 10 the incorrect amount that's on a billboard. And as 11 soon as, of course, we know about those, we call 12 our vendor and ask them to address the issue with 13 the incorrect jackpot amount. 14 COMMISSIONER WHITAKER: Is there a 15 process for authorizing vendors? 16 MS. KIPLIN: Yes, there is. There 17 is. There is a written document that's actually 18 signed that Mr. Tirloni has shown me, where there 19 is approval and there is communication to the 20 vendor. 21 COMMISSIONER WHITAKER: So the 22 intention is, in determining a jackpot amount, that 23 there be two separate criteria that have to be 24 satisfied. One is the Commission establishes that 25 amount for each drawing; and two, that they WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 TEXAS LOTTERY COMMISSION - 7-24-01 1 authorize the vendors to publicize it. 2 MS. KIPLIN: Well, the jackpot 3 determines the -- I would look at it a different 4 way. The amount that is determined is the amount 5 that the Commission determines through their 6 process. The second part is the advertising of 7 that. And the advertised amount is what we 8 authorize the commission vendors to publicize. 9 COMMISSIONER WHITAKER: So there are 10 two separate pieces -- 11 MS. KIPLIN: Yes. 12 COMMISSIONER WHITAKER: -- and both 13 have to be satisfied? 14 MS. KIPLIN: Yes. 15 CHAIRMAN CLOWE: I have a follow-up 16 question behind those questions from 17 Commission Whitaker. 18 The process that you referred to -- 19 that Robert and Bart come to the executive director 20 and the determination is made -- that becomes the 21 estimated jackpot? 22 MS. KIPLIN: Yes. 23 CHAIRMAN CLOWE: Then, when it is 24 adopted by the Commission, it transforms into the 25 advertised jackpot? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 TEXAS LOTTERY COMMISSION - 7-24-01 1 MS. KIPLIN: At this point, that 2 jackpot is an estimated jackpot for the purposes of 3 the Lotto Texas rule at this point. If the 4 Commission votes to adopt and convert it to an 5 advertised, that jackpot amount, once approved by 6 the executive director, is the advertised jackpot. 7 CHAIRMAN CLOWE: And that's locked 8 in at that point? 9 MS. KIPLIN: Right. 10 CHAIRMAN CLOWE: It is not locked in 11 now? 12 MS. CLOUD: That's right. 13 CHAIRMAN CLOWE: The estimated 14 jackpot can be changed numerous times -- 15 MS. CLOUD: Right. 16 CHAIRMAN CLOWE: -- prior to the 17 drawing? 18 MS. CLOUD: But the advertised 19 jackpot in the new rule, provided we have a huge 20 jackpot where sales are coming in to the point that 21 we need to bump that jackpot to meet the sales 22 expectation, we still have that opportunity, and 23 that's spelled out in the new rule. 24 CHAIRMAN CLOWE: So it can be 25 reestimated, and it can become, in every instance, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 TEXAS LOTTERY COMMISSION - 7-24-01 1 the advertised jackpot when you sign off on it? 2 MS. CLOUD: Right. And we do try to 3 make sure the public has knowledge of that new 4 jackpot. 5 CHAIRMAN CLOWE: Okay. And I want 6 to make sure I understand correctly, Kim, the 7 advertised jackpot. 8 You referred to the signs that are 9 in major cities and some smaller cities that are 10 electronically controlled. But the scope is much 11 broader than that. It goes to that amount which is 12 covered in reports in newspapers and many other 13 venues. 14 MS. CLOUD: It goes over the 15 terminals directly from GTECH to the retailer -- 16 CHAIRMAN CLOWE: Good. 17 MS. CLOUD: -- that is correct. 18 CHAIRMAN CLOWE: I'm glad you put 19 that in. 20 MS. CLOUD: Right. 21 CHAIRMAN CLOWE: So there is a very 22 broad scope of communication of that number, and 23 that is the estimated jackpot under the current 24 rules -- 25 MS. CLOUD: Right. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: -- and it will 2 become the advertised jackpot if we adopt the new 3 change in rules. Is that correct? 4 MS. KIPLIN: Yes, that's correct. 5 MS. CLOUD: Yes, sir. 6 CHAIRMAN CLOWE: I think it's 7 important that we all understand the terms of this 8 and just how broad this numbers distribution is. 9 MS. CLOUD: Commissioners, this is 10 not going to have any impact on our playing public. 11 They will -- right now, we're paying the average -- 12 we're paying the estimated jackpot. We're doing 13 what we want to put into a rule. 14 We want to make sure we have it in 15 the rule so that it is our law or our rule to go by 16 and we have all of our -- everything in the rule 17 that we need to have in the rule; we're not doing 18 one thing and the rule is saying something 19 different. 20 COMMISSIONER WHITAKER: Another 21 question I have for Bart is the use of the term 22 "net" for "net present cash." Why is the term 23 "net" in there? 24 MR. SANCHEZ: Good morning, 25 Commissioners. My name is Bart Sanchez. I'm the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 TEXAS LOTTERY COMMISSION - 7-24-01 1 financial administration director. 2 The word "net" is just as opposed to 3 just having a final value, as opposed to -- you 4 could compare it to if you would use "gross." If 5 you don't have "net" in there, there could be an 6 interpretation that you would look to the gross 7 present value. So it's really just to have a final 8 number at the bottom line. 9 CHAIRMAN CLOWE: I think, then, 10 we've asked all the questions that we have at this 11 point. 12 Do you want to go ahead and read the 13 definitions? 14 MS. KIPLIN: I'd like to. I'd like 15 to read the new text for the "annual payment 16 option" definition. And after that, I'd like to 17 read the new text that's going to be included in 18 the "net present cash value option" just to tighten 19 that language a bit. 20 The first thing is the annual 21 payment option. And this language will read: 22 The option selected if the player 23 elects at the time the player purchases the ticket, 24 or if the player makes no election at the time the 25 player purchases the ticket, the option is to be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 TEXAS LOTTERY COMMISSION - 7-24-01 1 paid the advertised jackpot amount in 25 annual 2 payments, in the event the player has a valid 3 winning jackpot ticket and consistent with the 4 provisions of this rule. 5 Now, for the record, the part about 6 "and consistent with the provisions of this rule," 7 in part, is to address the issue if you have -- if 8 we have an advertised jackpot and we actually have 9 multiple tickets on that, that the advertised 10 jackpot isn't going to go to each one of those on 11 that particular prize amount; it will be shared, 12 consistent with the provisions of the rule. 13 Do you have any questions over that 14 text? 15 CHAIRMAN CLOWE: (Shaking head.) 16 MS. KIPLIN: The next text I'd like 17 to read is on "net present cash value option." 18 There was a sentence that was included in response 19 to the matters that were discussed at the previous 20 commission meeting, and what you had in front of 21 you -- I'm going to read what you had in front of 22 you, and then I'll read the change. 23 What you had in front of you in the 24 rule that you were previously provided was: 25 The net present cash value is the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 TEXAS LOTTERY COMMISSION - 7-24-01 1 cost to purchase a 25-year annuity the first 2 business day after the drawing. 3 Now, to explain what that means, 4 that means -- and this had to do with how do you 5 actually calculate the net present cash value. And 6 I think -- Commissioner Clowe and Commissioner 7 Criner, I think your view was we were looking at it 8 kind of backwards. 9 The actual process is that the 10 Commission contacts the comptroller the day after 11 the draw when we know that there was a six of six 12 ticket somewhere that that matched. And at that 13 point, the dialog with the Commissioner -- with the 14 comptroller is, okay, how much money are we going 15 to need to buy a 25-year annuity. 16 The comptroller's office researches 17 that and responds with a dollar amount. That 18 dollar amount, whatever the comptroller responds to 19 the Commission in terms of "this is what you're 20 going to need to purchase a 25-year annuity," that 21 is the net present value, the present cash value, 22 of the jackpot amount, less whatever adjustments 23 Bart may make on the administrative side -- which 24 I'm not aware of. 25 MR. SANCHEZ: There's no WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 TEXAS LOTTERY COMMISSION - 7-24-01 1 adjustments. 2 MS. KIPLIN: Okay. 3 Now, that language, in talking with 4 Commissioner Whitaker, is a bit open. And so there 5 was a suggestion to tighten it. And this is what I 6 would like for you to consider instead, is the net 7 present cash value is the cost that the comptroller 8 of public accounts informs the Commission is the 9 cost to purchase a 25-year annuity on the first 10 business day after the drawing. And I think that 11 language is tighter, and I appreciate your remarks. 12 With that, those are the two changes 13 that we are proposing today that are -- those 14 changes that are different than what was contained 15 in the text that you had previously been provided. 16 And if you have no further 17 questions, we do request that the Commission vote 18 to propose this rule making package for public 19 comment and to publish in the Texas Register for 20 that purpose. 21 CHAIRMAN CLOWE: Any questions? 22 COMMISSIONER WHITAKER: So moved. 23 COMMISSIONER CRINER: Second. 24 CHAIRMAN CLOWE: Moved and seconded. 25 All in favor, say aye; opposed, no. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 TEXAS LOTTERY COMMISSION - 7-24-01 1 The vote 3-0 in favor. 2 Thank you all very much. 3 MS. CLOUD: Commissioners, Vince is 4 in the room if you would like to hear his report. 5 CHAIRMAN CLOWE: Yes. 6 Vince, if you will come forward. 7 The question was where we are on the 8 construction of the production studio and the claim 9 center. Could you bring us up to date on that? 10 MR. DEVINE: Yes, sir. Good 11 morning, Commissioners. For the record, my name is 12 Vincent Devine. I'm the support services operation 13 manager for the Texas Lottery Commission. And I 14 understand we're going to be talking about our 15 studio and claim center building schedule. 16 At this time, the claim center and 17 security building construction is at a phase where 18 we'll be handing over the studio the 26th of this 19 week, on July 26, to M&S -- I believe our 20 production company -- the vendor that's going to be 21 using it for the production of the studio 22 broadcast. We're on time. They wanted it 35 days 23 out from September 1, and that's exactly when we'll 24 hand it over. 25 As it pertains to the rest of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 TEXAS LOTTERY COMMISSION - 7-24-01 1 building, our construction schedule is also on 2 time. It's actually a little ahead of time. And 3 we'll have all the staff moved in around the first 4 week in September, and that building will be fully 5 occupied and operating. 6 CHAIRMAN CLOWE: And Vince, we are 7 on budget as far as the costs are concerned? 8 MR. DEVINE: Yes, sir. As it 9 pertains to the budget, we've been meeting weekly, 10 and there have been tough decisions made, but the 11 budget is staying very well within our 12 expectations. 13 COMMISSIONER WHITAKER: Good. 14 CHAIRMAN CLOWE: Thank you very 15 much. 16 MR. DEVINE: Thank you. 17 CHAIRMAN CLOWE: We're now ready for 18 Item 11 on the agenda, which is the possible 19 discussion and/or action on whether or not the 20 negotiation with the lottery operator's contract in 21 an open meeting would have a detrimental effect on 22 the Commission's position in the negotiations. 23 Linda, we've had a report from 24 Ridgely on this, and I'll ask you if there is any 25 need for the Commission to consider this item, in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 TEXAS LOTTERY COMMISSION - 7-24-01 1 your opinion, at this time. 2 MS. CLOUD: I think we need to move 3 forward on the determination, Commissioners, to 4 give you the opportunity to share in the 5 negotiation phase as the commissioners, based on 6 our new law in place that you're allowed to do 7 that. 8 There is a process, and I have not, 9 as I have mentioned to a couple of you in a private 10 meeting -- have not received the recommendation 11 from the Evaluation Committee as yet. I'm not 12 prepared to review this proposal with you at this 13 time because I don't have all my facts in my hands, 14 but I would like it to be an opportunity for you to 15 share in that determination once I have all the 16 information. 17 COMMISSIONER WHITAKER: And you 18 think that will be when? 19 MS. CLOUD: It will be before the 20 August 8th meeting. 21 COMMISSIONER WHITAKER: And you 22 would seek our insights or thoughts at that 23 meeting? 24 MS. CLOUD: Yes. 25 COMMISSIONER WHITAKER: So we could WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 TEXAS LOTTERY COMMISSION - 7-24-01 1 actually do the determination at that time? 2 MS. CLOUD: Yes. 3 CHAIRMAN CLOWE: Any questions? 4 COMMISSIONER CRINER: When does this 5 have to be signed? 6 MS. CLOUD: The proposal time line, 7 I believe it was by 15th of August. 8 Right, Ridgely? 9 MR. BENNETT: I'd be happy to find 10 out. I'm hesitant to say without the document in 11 front of me. 12 MS. KIPLIN: I think the answer was 13 when does it have to be signed, and the answer to 14 that is it does not have to be signed on 15 August 15th. I think we generally put language 16 that says as soon as possible or thereafter. The 17 contract that we're currently under, 18 Commissioner Criner, actually goes until August 31, 19 2002. The issue, though, is to provide for an 20 orderly conversion of goods and services. And in 21 the past, that time frame has been about a year. 22 COMMISSIONER CRINER: I just want to 23 make sure that we didn't have a changeover from 24 September 1 and it wasn't signed by September 1. 25 MS. CLOUD: No. We are on schedule. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: Having said that, I 2 asked that this item be put on the agenda. And 3 this is a new issue that the Commission must deal 4 with in regard to contracts of this nature. 5 And my question to you, Linda, was 6 where we are on this and if there is a need for 7 this. My personal opinion would be that we would 8 not enact this unless there is a need. And you're 9 telling us, if I understand correctly, at this 10 point in time you're not to that stage; and so we 11 would, I think, pass this item. 12 And I've asked that it be put on the 13 agenda for the next meeting -- 14 MS. CLOUD: Right. 15 CHAIRMAN CLOWE: -- so that we might 16 consider it. And if you recommend to us that we 17 are at that stage or if the commissioners perceive 18 that we are at that stage, we can deal with it at 19 that time. 20 MS. CLOUD: And I'm pretty positive 21 we'll be ready for that by that meeting, and I 22 would want the commissioners to be involved at that 23 time. 24 CHAIRMAN CLOWE: I think the 25 commissioners look to you to come to us and tell us WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 TEXAS LOTTERY COMMISSION - 7-24-01 1 as to where you are -- 2 MS. CLOUD: Okay. 3 CHAIRMAN CLOWE: -- and give us the 4 opportunity to take this action if that's the 5 Commission's will at that time. 6 MS. CLOUD: Okay. 7 CHAIRMAN CLOWE: Any comments, Kim? 8 MS. KIPLIN: No. 9 CHAIRMAN CLOWE: Very good. I 10 believe that we are ready to go into Executive 11 Session unless there is anyone here from the public 12 that would want to address the Commission at this 13 time. 14 At this time, I move the Lottery 15 Commission go into Executive Session to deliberate 16 the duties and evaluation of the executive 17 director, the internal auditor, and the charitable 18 bingo operations director pursuant to 19 Section 551.074 of the Texas Government Code; 20 To deliberate the duties of the 21 general counsel and the security director pursuant 22 to Section 551.074 of the Texas Government Code; 23 To receive legal advice regarding 24 pending or contemplated litigation and/or 25 to receive legal advice pursuant to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 TEXAS LOTTERY COMMISSION - 7-24-01 1 Section 551.071 (1) (A) or (B) of the Texas 2 Government Code and/or to receive legal advice 3 pursuant to Section 551.071 (2) of the Texas 4 Government Code, included to but not limited to: 5 State of Texas versus Ysleta Del Sur 6 Pueblo; 7 Matter involving the Department of 8 Justice pursuit of a complaint regarding the 9 Americans with Disabilities Act; 10 Matter involving Request for Open 11 Records Decision in Attorney General Open Records 12 file no. 119718-98 relating to Request for 13 Information in connection with the lottery operator 14 audit; 15 Contract regarding the charitable 16 bingo system; 17 Employment law, personnel law, 18 procurement and contract law, and general 19 government law; 20 To deliberate the negotiation of the 21 lottery operator's contract pursuant to 22 Section 467.030 of the Texas Government Code -- I 23 believe we should strike that sentence, should we 24 not? 25 MS. KIPLIN: Yes, you should. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 TEXAS LOTTERY COMMISSION - 7-24-01 1 CHAIRMAN CLOWE: The record will 2 please reflect that omission. 3 In connection with the deliberation 4 of the negotiation of the lottery -- and this one 5 as well. 6 Is there a second? 7 COMMISSIONER WHITAKER: Second. 8 COMMISSIONER CRINER: Second. 9 CHAIRMAN CLOWE: Seconded. All in 10 favor, aye; opposed, no. 11 The vote is 3-0. 12 The Texas Lottery Commission will go 13 into Executive Session. The time is 9:23 a.m. 14 Today is July 24th, 2001. 15 (EXECUTIVE SESSION.) 16 CHAIRMAN CLOWE: Texas Lottery 17 Commission is out of Executive Session. The time 18 is 12:36 p.m. Is there any action to be taken as a 19 result of the Executive Session? 20 If not, we'll move on to agenda 21 No. 14 -- Item No. 14, consideration of the status 22 and possible entry of records. 23 Kim? 24 MS. KIPLIN: Commissioners, what you 25 have in your notebook are several lottery cases. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 TEXAS LOTTERY COMMISSION - 7-24-01 1 Those are Item A through -- or what you have in 2 your notebook are several cases that went to the 3 State Office of Administrative Hearings. All of 4 those cases are lottery cases, Items A through E. 5 In each one of those cases, after a proceeding 6 before the State Office of Administrative Hearings, 7 the Administrative Law Judge has recommended 8 revocation of the lottery sales agent's license. 9 The staff requests that you adopt 10 the Proposal for a Decision and recommended order 11 of the Administrative Law Judge in those matters. 12 The remaining case, the LULAC 13 Council 4498, is a bingo related case, and that is 14 an agreed order in the fact that it's an agreement 15 that has been reached between the Charitable Bingo 16 Division staff and the licensee. 17 The allegations in that case or the 18 findings in that case are that the LULAC Council 19 did, in fact, conduct bingo when the -- unlicensed 20 sessions of bingo. The staff believes that this is 21 an appropriate disposition of this case and would 22 recommend that you enter this order adopting the 23 agreed findings and conclusions of law and the 24 recommended dispositions. 25 To go through, I guess, the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 TEXAS LOTTERY COMMISSION - 7-24-01 1 recommended disposition of this order, they will 2 agree not to conduct bingo, obviously, under a 3 license other than a license that's issued by the 4 Charitable Bingo Division and as required by the 5 Bingo Enabling Act. They are going to immediately 6 implement procedures to ensure that provisions of 7 the Bingo Enabling Act are complied with. 8 Mr. Atkins, is there anything else 9 that you think I've left out that you'd like to 10 bring to the attention of the Commission? I don't 11 believe so, but -- 12 MR. ATKINS: No. 13 CHAIRMAN CLOWE: Are there any 14 questions on Items A through E and Item F? 15 Is there a motion? 16 COMMISSIONER WHITAKER: So moved. 17 COMMISSIONER CRINER: Second. 18 CHAIRMAN CLOWE: Moved and seconded 19 that we adopt the recommended orders in Items A 20 through F. All in favor, please say aye; opposed, 21 no. 22 The vote is 3-0 in favor. 23 We'll sign those orders now. And 24 Linda, if you'll wait just a minute, we'll get 25 these signed. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 TEXAS LOTTERY COMMISSION - 7-24-01 1 (Brief pause in proceedings.) 2 CHAIRMAN CLOWE: Now we're going to 3 proceed with Item 15, the report of the executive 4 director. 5 MS. CLOUD: Commissioners, on 6 July 13th, we transferred to the Foundation School 7 Fund $56,085,652. We -- for the inception, since 8 September of 2000 through July 13th of 2001, we 9 have transferred, of our unclaimed prize money, the 10 11,889,403 to the multicategorical teaching 11 hospital account. And to the tertiary care 12 facility, we have transferred 17,188,005, and that, 13 too, is part of the unclaimed prize money. 14 I don't see Robert. Okay. We'll 15 skip over the HUB report until he gets here. 16 On the FTE status, we have 17 311 active FTEs. We have 20 vacancies at this 18 time. We have four in the selection/acceptance 19 pending. We have 14 in the recruiting, screening, 20 and interviewing. And we have two vacant positions 21 with no activity at this time. We have four newly 22 filled positions. 23 On retailer town hall meetings, we 24 have a town hall meeting this afternoon at 4:00 at 25 the Doubletree Hotel here in North Austin, and we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 TEXAS LOTTERY COMMISSION - 7-24-01 1 will be moving over there about 3:30 this 2 afternoon. 3 And that concludes my report, except 4 for Robert's minority report. 5 COMMISSIONER CRINER: In those 6 vacancies you have -- 7 MS. CLOUD: Uh-huh. 8 COMMISSIONER CRINER: -- it's a 9 minus ten, and one of them is HR in training? 10 MS. CLOUD: Jim, would you like to 11 come forward? Let me see which one -- 12 COMMISSIONER CRINER: And it's 13 really -- my statement is really kind of a 14 philosophical -- 15 MS. CLOUD: Uh-huh. 16 COMMISSIONER CRINER: -- statement. 17 What kind of a training director are 18 we looking for, our training coordinator? 19 MR. RICHARDSON: For the record, my 20 name is Jim Richardson. I'm human resources 21 director. 22 We have actually filled that 23 position with a training specialist, and so -- it 24 wasn't a director-type position. 25 COMMISSIONER CRINER: Okay. Not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 TEXAS LOTTERY COMMISSION - 7-24-01 1 really a director, but a -- I'm trying to -- what 2 do we expect that person in that position to do? 3 MR. RICHARDSON: Well, if I'm -- I 4 was looking for an individual who had an overall 5 training basis that could take any type of document 6 or subject matter and train in anything; not 7 someone who was specialized in computers or 8 specialized in management or anything of that 9 nature, but a generalized trainer. 10 COMMISSIONER CRINER: What about 11 management training? 12 MR. RICHARDSON: Management training 13 is going to be a key focus for us this year. 14 COMMISSIONER CRINER: You used the 15 right word, "key." 16 MR. RICHARDSON: Right. 17 MS. CLOUD: This man -- this 18 individual will be responsible -- Jim, you're 19 leaving this part out, I think; correct me if I'm 20 wrong -- for setting up training for the entire 21 agency for every employee on every level in this 22 agency. There will be scheduling, training 23 agency-wide. So for all of our staff, for 24 managers, for director levels, they will be 25 responsible for the whole program. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 TEXAS LOTTERY COMMISSION - 7-24-01 1 COMMISSIONER CRINER: Do you have a 2 candidate already? 3 MR. RICHARDSON: Yes. We've already 4 hired that -- or filled that position. 5 COMMISSIONER CRINER: All right. I 6 think I can speak for the three of us. We're 7 pretty concerned about the ability of that training 8 person to be able to deal with management training 9 from the executive level on down in thoughts. 10 MR. RICHARDSON: Yes. And I think 11 the individual that we hired won't have any 12 problems with that. And we'll have her involved in 13 director training that we're planning for later 14 this year, as well as all the management training 15 that we're going to do, as well as the entry level 16 employee training. 17 COMMISSIONER CRINER: Thank you. 18 MR. RICHARDSON: Okay. 19 CHAIRMAN CLOWE: I believe we'll go 20 to your report, Billy, please. Item 16. 21 MR. ATKINS: Thank you, 22 Commissioners. A couple of things I'd like to draw 23 your attention to in my report. We do have an 24 Advisory Committee scheduled for tomorrow. It's a 25 very full agenda. Among the items for WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 TEXAS LOTTERY COMMISSION - 7-24-01 1 consideration by the Advisory Committee tomorrow 2 are at least 11 new rules that we are going to take 3 before them before we bring them to you. 4 There are also another -- a number 5 of other rules that are either under development or 6 being amended, so I've had discussions with 7 Mr. Neinast, the chair of the Advisory Committee, 8 and that will require us to have some additional 9 meetings; at least one additional meeting, and 10 maybe two, in addition to their regularly scheduled 11 quarterly meetings. So we are moving forward with 12 those rules and should be bringing them to you on a 13 regular basis. 14 We're currently towards the very 15 tail end of our peak period. Quarterly reports 16 were due to the agency on July 16th. There are a 17 number of conferences and seminars coming up, 18 including one of our regular seminars to the VFW, 19 which will be held this Friday. 20 There is an update on the operator 21 training program, and we've included an additional 22 chart in your notebook that I wanted to show you 23 very briefly. It's this chart (indicating), which 24 shows a licensing activity for the month by 25 specific license types. And one of the things that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 TEXAS LOTTERY COMMISSION - 7-24-01 1 you'll notice that's very unique to the bingo 2 division is you'll notice a spike around the first 3 part of June. And all of that dates back to when 4 lessor licenses were first grandfathered in in 5 1989. 6 Those applications had to be filed 7 on or before June 10th. So consequently, every 8 June 10th is a spike for us in our licensing 9 activities. And I think that chart shows it pretty 10 well, and it's one that we're going to continue to 11 include in your packets in the future. 12 And that's all I have. 13 CHAIRMAN CLOWE: Any questions for 14 Billy? 15 I see Robert has arrived, Linda, if 16 you would like to have him -- 17 MS. CLOUD: Yes. 18 Robert, would you come up and do 19 your report? 20 MR. HALL: Good evening, 21 Commissioners. For the record, my name is 22 Robert Hall, director of minority development. I 23 apologize for coming back tardy to our meeting this 24 afternoon. 25 CHAIRMAN CLOWE: No problem. We WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 TEXAS LOTTERY COMMISSION - 7-24-01 1 didn't know we were going to be here ourselves. 2 MR. HALL: In reference to our 3 Minority Participation Report this month, our total 4 utilization still continues to exceed 11 percent; 5 11.63 percent in total utilization for minority and 6 also HUB businesses. 7 And I'll be happy to answer any 8 questions that you may have. I know you've had a 9 chance to review the information. 10 COMMISSIONER CRINER: My question is 11 how is your -- how did your HUB day come out? 12 MR. HALL: The HUB forum? 13 COMMISSIONER CRINER: Uh-huh. 14 MR. HALL: I believe, 15 Commissioner Criner, and also Commissioners -- 16 Chairman Clowe, I think it was a success. We had a 17 reported number of over 274 participants, which 18 included all state agencies and also vendors. And 19 I would say our state agency participation was the 20 best among the participants who joined the 21 exhibitors. 22 COMMISSIONER CRINER: Do the HUBs 23 feel that they have an opportunity to know what 24 they could bid on as a result of that forum? 25 MR. HALL: Well, we offer several WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 TEXAS LOTTERY COMMISSION - 7-24-01 1 workshops, and one workshop we tried to offer was 2 to one specifically related to lottery contract 3 opportunities. And there was a presentation given 4 by Operations Director Gary Grief and myself. We 5 were trying to share information about what 6 contract opportunities we actually have here. And 7 that's what our mission has been, is try to make 8 sure they are in tune to subcontracting 9 opportunities that we have here at the Lottery, and 10 making them aware that the Lottery is just not 11 about just the games, but we also have other 12 opportunities, where we have direct contract as 13 well as subcontract opportunities. And I 14 believe -- from the feedback we got on the work 15 seminars workshop, I actually thought that it was 16 beneficial. 17 CHAIRMAN CLOWE: Do you want to 18 comment on the meetings? 19 COMMISSIONER WHITAKER: Well, I 20 enjoyed it. I thought it was a good beginning, and 21 I understand you're going to do it some more. Is 22 that right? 23 MR. HALL: Yes, ma'am. We will 24 continue as often as possible, whenever we have an 25 RFP or an IFP, trying to host a pre-proposal WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 TEXAS LOTTERY COMMISSION - 7-24-01 1 conference, a pre-bid conference here at the 2 Lottery. And we will make that available for HUB 3 vendors to come in and share information about the 4 contract opportunities we have available. 5 An example of that, we have a bucks 6 and trucks game that will be starting sometime in 7 the near future. And we're hoping to host a vendor 8 fair here in the month of September, which will 9 allow HUB vendors, HUB dealerships, an opportunity 10 to come here and learn about the opportunities that 11 we have in regards to that contract and afford them 12 the opportunity to ask us questions about the 13 contract as we know about it and share information 14 with them. 15 It may lend itself to what 16 Commissioner Criner mentioned before about 17 opportunities for HUBs to partner, because most of 18 the HUB vendors that are minority may exceed the 19 graduation size standards presented to the General 20 Services Commission and may not be able to 21 participate. With some of the smaller vendors, 22 they may be able to do that. 23 COMMISSIONER WHITAKER: Now, say 24 that first piece -- that some can't participate 25 because of what? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 TEXAS LOTTERY COMMISSION - 7-24-01 1 MR. HALL: Graduation size 2 standards. A dealership, in terms of total gross 3 receipts as it applies to becoming HUB certified, 4 may exceed a graduation level based on employees 5 and gross receipts. And because this contract will 6 be considered other services, the threshold will be 7 $6 million for four consecutive years. And most 8 minority dealerships, or any dealership, will 9 probably exceed that gross receipt level for four 10 consecutive years. 11 So it may lend the possibility for 12 those vendors that may be small enough to bid -- to 13 partner with those larger firms that may be out 14 there. 15 COMMISSIONER WHITAKER: Did you get 16 feedback from the participants? 17 MR. HALL: Oh, yes. We actually had 18 over 200 people signing on our -- signing the book 19 that we had. We take it to each vendor we go to. 20 And actually, they said to us that the event was 21 beneficial, which lends to the question that you 22 asked me, do we need any help to do these things 23 statewide. We do. We follow the General Services 24 Commissioners statewide in an effort to promote our 25 contract opportunities and share all the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 TEXAS LOTTERY COMMISSION - 7-24-01 1 opportunities we have via subcontracting or direct 2 opportunities. 3 COMMISSIONER CRINER: You know, I 4 think you measured that, Commissioner, on how many 5 vendors are knocking on your door two weeks later. 6 COMMISSIONER WHITAKER: Uh-huh. 7 COMMISSIONER CRINER: A lot of them 8 come to the forums, but they never come back. They 9 say they like them, but they never come back 10 because they get bogged down in how you actually 11 fill out the paperwork. 12 MS. CLOUD: That's it. That's what 13 happens to the minorities and the HUBs. They -- 14 the State makes it complicated to do business with 15 them, and if they don't -- and they feel 16 intimidated by all the paperwork they have to 17 complete. 18 When I went back to the booth to get 19 my purse when I was getting ready to leave, two of 20 the vendors came up to our table. Both told me 21 they liked my story -- I told them a little 22 story -- but they shook my hand and talked to me 23 about possibilities with the Lottery. So it didn't 24 take them long to get to our booth, because I came 25 out of there and went straight to pick up my purse, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 TEXAS LOTTERY COMMISSION - 7-24-01 1 and they were there. 2 COMMISSIONER WHITAKER: So what 3 happens to the complicated paperwork? 4 COMMISSIONER CRINER: What I find, 5 having been one, is you just have to sit down and 6 just read -- if you just sit down and read it, it's 7 real simple to fill it out, but a lot of folks just 8 don't. GSC came out with that form that breaks 9 down the HUB participation, even for a HUB, and 10 it's about -- it's about that thick (indicating). 11 It's the biggest part of everybody's bid nowadays. 12 And basically, the answer to the 13 question is, it ain't. But if you don't sit down 14 and read the whole thing, you think it's all 15 applicable to you and you've got to put in all that 16 information. And it's not really -- it's really 17 not that applicable. 18 MR. HALL: And one of the things -- 19 if I may add, one of the things we're trying to do 20 is we're tracking all of our subcontractors that 21 are HUB vendors -- and also our direct vendors -- 22 to do a business bid. And when we see that their 23 expiration date is coming up, we'll send them a 24 letter from us, our department, and notify them 25 that we'll be happy to assist them and recertify -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 TEXAS LOTTERY COMMISSION - 7-24-01 1 as a matter of fact, I have one packet on my desk 2 right now that, based on our expertise, we'll look 3 at the information, review it, and try to assist 4 them to make sure everything is done the first time 5 before it goes to the General Services Commission. 6 COMMISSIONER CRINER: It's one of 7 the few forms that you can say you're not going to 8 do it on a bid and you don't get disqualified. 9 Normally on a bid, you have to say yes, yes, yes, 10 yes, yes. But on the new form, it really tracks 11 how well HUBs are participating in the statewide 12 programs. 13 And all you -- the HUB vendors have 14 to answer those questions. And a lot of people 15 just think that's difficult, but when you sit down 16 and do it, it's very simple. But I don't know if 17 you have -- of the forms you had, whether you 18 introduced them to that, those forms, and how you 19 do it. I don't know -- I don't know if -- I don't 20 think that would be our responsibility. 21 MS. CLOUD: But Robert does that -- 22 MR. HALL: We do. 23 MS. CLOUD: -- in our pre-bid 24 hearings. He sits down with the vendor or he 25 charts out what pages they need -- what the form WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 TEXAS LOTTERY COMMISSION - 7-24-01 1 looks like, what pages they need to complete, tells 2 them what happens if they don't complete it. I 3 think he's doing a really good job trying to soften 4 the paperwork that the vendors -- the minority 5 vendors and HUB vendors are having to comply with. 6 I think by him having these pre-bid 7 meetings with all the potential bidders for a 8 particular contract, it's been very helpful because 9 he has been as detailed as he could be, and he has 10 been there to talk to them afterwards so that if 11 they have got questions, he is able to answer them 12 for them. 13 COMMISSIONER CRINER: There is one 14 true statement that I was given many years ago by a 15 purchaser in the State of Texas, and he said, "Bid. 16 Just keep bidding, and you'll win." So I got to 17 keep filling out all these forms over and over and 18 over. 19 And it's the truth. The more you 20 bid, the more you have an opportunity to interface 21 with folks like Robert and you understand the 22 process that much better. And most people just 23 show up, look at the paperwork, and walk away; and 24 may fill it out the first time, get no positive 25 response, they don't win. And they never come back WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 TEXAS LOTTERY COMMISSION - 7-24-01 1 and -- 2 COMMISSIONER WHITAKER: You need to 3 go to the next seminar and speak about that. 4 COMMISSIONER CRINER: Yeah, well, 5 big conflict there. 6 MR. HALL: If I may add, that's one 7 of the things that our -- the vendors would love to 8 see, a traditional sense, as in the past, when HUB 9 programs were started, we had a lot of 10 participation from a high level, if I could say it 11 that way, dignitaries that have supported the HUB 12 program in the sense that it makes good sense to do 13 business with small businesses. And we'll continue 14 that effort. 15 But the more people like you, the 16 commissioners, that are there, the business owners 17 feel like there is a real community. But only -- 18 also a sense of to share some of the success 19 stories that you have that they feel like they also 20 can make it in this arena. And that's exactly what 21 we're trying to do, from our perspective, is just 22 continue to share things that we know of that are 23 existing, that exist today. And you can make it if 24 you continue in your effort and do what you need to 25 do, and we'll do what we can do internally. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 TEXAS LOTTERY COMMISSION - 7-24-01 1 COMMISSIONER CRINER: If my son has 2 his way, I'll be able to go very soon if he keeps 3 moving up the date of my retirement. 4 COMMISSIONER WHITAKER: Dad, we need 5 to get out of here. 6 (Laughter.) 7 CHAIRMAN CLOWE: Very good. 8 Anything further for Robert? 9 Thank you, Robert. 10 MR. HALL: I'd also like to thank 11 you very much for your support, Commissioners, our 12 executive director, our deputy executive director, 13 and counsel, as well as all the departments as well 14 as -- especially marketing. I know they're behind 15 the scenes, but they actually worked with us to 16 develop a lot of the things that we used to put on 17 the event. I just wanted to say that for the 18 record. 19 CHAIRMAN CLOWE: Thank you. It is 20 well deserved. Thank you for the good job you're 21 doing. 22 Anything further in your report, 23 then, Linda? 24 MS. CLOUD: No, sir. 25 CHAIRMAN CLOWE: Nothing further, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 TEXAS LOTTERY COMMISSION - 7-24-01 1 Billy? 2 MR. ATKINS: No, sir. 3 CHAIRMAN CLOWE: I think we're then 4 ready to go to Item 17. Is there anyone wishing to 5 make a comment to the Commission, any public 6 person? 7 Seeing none, we are going to pass 8 Item 18, and we will be adjourned at 12:57 p.m. 9 Thank you all very much. 10 (Proceeding concluded.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SUZANNE T. LANE, Certified Court 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 10 set 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 _______ 17 day of ______________, 2001. 18 19 20 SUZANNE T. LANE 21 Texas CSR No. 6992 Expiration Date: 12/31/01 22 1609 Shoal Creek Boulevard Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 010724STL WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363