0001 1 ****************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 6 AUSTIN, TEXAS 7 8 AUGUST 11, 1999 9 ****************************************************** 10 11 BE IT REMEMBERED that the above-entitled matter 12 came on for hearing on the 11TH day of AUGUST, 1999, 13 beginning at 10:31 a.m., and ending at 1:52 p.m., at 14 the TEXAS LOTTERY COMMISSION, 611 East Sixth Street, 15 Austin, Texas, and the following proceedings were 16 stenographically reported by Leslie P. Boerger. 17 18 APPEARANCES 19 CHAIR HARRIET E. MIERS 20 COMMISSIONER C. TOM CLOWE, JR. 21 COMMISSIONER ANTHONY J. SADBERRY 22 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 23 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 24 MR. BILLY ATKINS, CHARITABLE BINGO 25 OPERATIONS DIRECTOR 0002 1 CHAIR MIERS: It's my pleasure to call 2 the Texas Lottery Commission meeting for August the 3 11th, 1999, to order. All the members of the 4 Commission are here, so I would like to do that at 5 this time and welcome everyone who is here. 6 I know we have special guests here to 7 speak to some of our items, and we have a couple of 8 items that are on our agenda each time. I believe so 9 that we can facilitate the presentation by some of our 10 guests we'll move immediately to item number four, the 11 status report, possible discussion, and/or action on 12 the instant tickets and services procurement. 13 Mr. Bennett? 14 MR. BENNETT: Good morning, 15 Commissioners. My name is Ridgely Bennett. I'm the 16 Deputy General Counsel for the Texas Lottery 17 Commission. 18 On August 11th, 1999, the Executive 19 Director issued her decision on the remand of the 20 protest by Oberthur Gaming Technologies to name 21 Scientific Games as the primary instant ticket vendor 22 and the -- 23 CHAIR MIERS: Mr. Bennett, I'm a little 24 confused by your date. 25 MR. BENNETT: I'm sorry. Did I say on 0003 1 August 11th? 2 MS. CLOUD: It's the 10th. 3 MR. BENNETT: It's the 10th. I'm 4 sorry. I'm one day off. I apologize for that. 5 On August 10th, 1999, the Executive 6 Director issued her decision on the remand of the 7 protest by Oberthur Gaming Technologies to name 8 Scientific Games as the primary vendor for instant 9 ticket manufacturing and services and Pollard Banknote 10 as the backup vendor. The agency will now enter into 11 contract negotiations with those two vendors to 12 provide instant ticket manufacturing and related 13 services. And I'd be happy to respond to any 14 questions you may have. 15 CHAIR MIERS: Do understand there's a 16 written order on that particular matter. This 17 Commissioner, at least, has not seen it, but we, I'm 18 sure, will be provided here, momentarily, a copy of 19 it. It was issued yesterday. We were notified by 20 phone of its issuance. I know it's multi-pages long. 21 Is there anything, Ms. Cloud, that you wish to add in 22 connection with this matter past your August 10, 1999, 23 decision? 24 MS. CLOUD: No, Commissioners. That 25 document speaks for itself. 0004 1 CHAIR MIERS: Okay. Let me -- at this 2 time I have one speaker's form from State 3 Representative Arthur Reyna and would call on 4 Representative Reyna at this time. 5 REPRESENTATIVE REYNA: Thank you, Madam 6 Chair. I'm Arthur Reyna. I represent District 125 7 which is part of San Antonio, Texas, the west to 8 northwest portion of the city. 9 BABN Technologies lies immediately 10 outside my district, but people who work there live in 11 my district. And I have, today, delivered a letter to 12 Ms. Cloud, and so you have the contents, what I'm 13 going to say, in writing. This is regarding to RFP 14 number 362-9-163 and 362-9-146. 15 It's my understanding that the Texas 16 Lottery Commission is reevaluating the proposals of 17 three vendors including BABN Technologies Corporation 18 in San Antonio. I am, of course, supporting the BABN 19 proposal that will keep jobs in Texas and assist 20 San Antonio's growing economy. 21 BABN should be used as a role model for 22 businesses we want in our state. The company has 23 demonstrated its commitment with capital investments 24 of over $35 million, dedication to minority employment 25 and employee development, which is of particular 0005 1 interest to me, and a proven track record of 2 contracting with Texas suppliers that are primarily 3 HUBs. 4 As of this writing I am particularly 5 concerned about the following conclusion reached in 6 the Executive Director's decision dated yesterday, to 7 which reference has already been made by the previous 8 speaker, and read part of that to you. It is also my 9 opinion that economic impact has no bearing on an RFP 10 unless the guidelines are spelled out in the RFP at 11 the time the RFP is issued so that all prospective 12 bidders know the ground rules and bid accordingly. 13 To show preference to an in-state 14 proposer, based on economic impact, will set a 15 precedent for all future procurements to include our 16 major procurement, the Lottery operator contract. 17 Keeping our costs in line allows us to return more 18 revenue to the state. 19 I challenge this Commission to identify 20 any issue the Legislature handles that has no relation 21 to economic impact in Texas. If the Legislature and 22 Texas residents were not interested in the economic 23 impact of the Lottery, we would not have the Texas 24 Lottery Commission today. 25 To show preference to any proposer 0006 1 based upon economic impact will set the kind of 2 precedent the Government should follow for years to 3 come. A narrow and arbitrary measure of, quote, 4 return to the State, close quote, that excludes the 5 economic impact of hundreds of Texas jobs that provide 6 workers with dollars to reinject into the Texas and 7 San Antonio economies is a great injustice of the 8 San Antonio community and to all Texans. Perhaps a 9 different argument could be made if the other 10 proposers were Texas companies. They are not. 11 The Commission is well aware that these 12 issues, that I've discussed in this letter, were 13 raised during the 76th Legislature, and now the 14 Legislature has concluded, at least for two years, I'm 15 interested in determining if the Texas Lottery 16 Commission will award the three-year contract based 17 upon the best interest of the state. And I will be 18 happen to answer any questions the Commission may 19 have. 20 MR. SADBERRY: We thank you for being 21 here. I've been asked to proceed with chairing the 22 meeting with respect to this item. We appreciate your 23 being here and expressing your concerns both in 24 writing and in person, certainly on the notice that 25 you were given, and I understand there are others who 0007 1 are in the audience who are interested in this 2 particular topic. I do not know of any other 3 speaker's form, however, so I presume in the absence 4 of a speaker's form those who are here are interested 5 in hearing the deliberation -- or, the discussion; 6 excuse me -- the discussion of the Commissioners to 7 the extent that it takes place this morning on this 8 item. 9 First, to clear up one issue -- and let 10 me ask the General Counsel, am I correct that this is 11 on the agenda appropriately for discussion this 12 morning at today's meeting? Kim, is that correct? 13 MS. KIPLIN: Yes. It's been filed with 14 the Texas Register in accordance with their filing and 15 time rules. 16 MR. SADBERRY: Now, I would like, 17 Representative, to discuss the procedure where we, as 18 Commissioners, become involved in this entire process. 19 It is our understanding, based upon the interpretation 20 of our Government statute which the Legislature gave 21 us and the advice that we have received, thank you, 22 that the initial determination of awarding a contract 23 of this nature rests with the Executive Director by 24 the State statute subject to the right of protest or 25 appeal, or however it's correctly stated, to the 0008 1 three-member Commission on points that may be raised 2 by anyone interested in that matter. That has, in 3 fact, occurred previously, as I'm sure you are aware, 4 wherein the matter was presented to us and as 5 Commissioners we remanded it with the Chair abstaining 6 for reasons previously stated. 7 I agree -- I am with the Chair in the 8 sense of this written opinion not having been studied 9 by this Commissioner either. I was advised of it by 10 phone late yesterday and did discuss it, to some 11 extent, with the General Counsel. 12 Now, I understand -- incidentally, I 13 read very quickly a brief statement in the Houston 14 Chronicle this morning saying a three-year contract 15 had been issued, which I understand to be incorrect. 16 I understand it to be correct that negotiations are in 17 process. 18 Now, a question that has been raised 19 that needs to be addressed, I believe, is when the 20 appeals process begins and the process that follows 21 that -- and I understand, Kim, that the appeals time 22 begins to run at the awarding of a contract. Is that 23 correct? 24 MS. KIPLIN: Well, it begins to run 25 upon notice to the parties of the award of a contract. 0009 1 It's a two-tier appellate process. The first tier 2 will be a protest that will be filed with the General 3 Counsel's office but for the Executive Director's 4 determination. If a person -- or, if a party feels 5 aggrieved with regard to the determination by the 6 Executive Director, there is a recourse in the sense 7 that there is an appeal to the Commission based on the 8 Executive Director's determination. 9 MR. SADBERRY: All right. Now -- which 10 means nothing can be done by us today in the form of 11 action. Nothing is ripe for us, as Commissioners, 12 today. Is that correct? 13 MS. KIPLIN: Nothing is ripe in terms 14 of an appellate review, and it appears as though the 15 Commission has acted as an appellate body with regard 16 to this matter and other protests on other procurement 17 matters. It has -- as you know, you-all did hear this 18 on an appeal. You did reverse the order and remand it 19 back to the Executive Director for the evaluation to 20 consider certain issues, and this is the result of 21 that remand order. 22 MR. SADBERRY: All right. Except to 23 the comments and participation of Commissioner Clowe 24 in this item, I am going to presume, as one 25 Commissioner, that the decision will be reviewed and 0010 1 addressed, if at all, in any appellate process, if 2 that should occur, first to determine from the 3 interested party's standpoint whether it has addressed 4 the issues that the Commissioners directed the 5 Executive Director to address. I am going to presume, 6 also, that any party interested in the matter who 7 believes that it either has not comprehensively and 8 completely addressed those issues or alternatively who 9 may disagree with the way those issues have been 10 addressed will so point those matters out for purposes 11 of the Executive Director's evaluation of those 12 issues, should they be raised. That's what I'm 13 presuming. Am I correct so far, Kim? 14 MS. KIPLIN: Yes. 15 MR. SADBERRY: All right. Then I'm 16 going to presume that the appropriate procedures will 17 be followed, if desired or necessary, to bring this 18 matter to the Commissioners' attention at an 19 appropriate time for any action that might be 20 entailed. Am I correct in that? 21 MS. KIPLIN: Yes, you are. 22 MR. SADBERRY: Now, Representative, I 23 appreciate your being here because what I'm, 24 therefore, going to anticipate is your comments 25 concerning matters that were addressed in the 0011 1 Legislature somewhere along this process, will be 2 raised, and presented so that we can have the benefit 3 of responding in that fashion. I know I don't have to 4 explain to you, who is a member of the Legislature, 5 that we have to follow the process and the law as 6 given to us, and as we either interpret it ourselves 7 or as we do so with the benefit of counsel. 8 And let me ask another question that 9 might be important in this process: Pending all this, 10 Linda, are we operating under this emergency 11 procurement that you have executed? 12 MS. CLOUD: Yes, sir. 13 MR. SADBERRY: Are we under any time 14 constraints in that regard? 15 MS. CLOUD: It was set up for a 16 six-month contract with a six-month extension. 17 MR. SADBERRY: All right. Commissioner 18 Clowe, do you have input, at this time, on this item? 19 MR. CLOWE: Nothing more than to add my 20 thanks to you, Representative Reyna, for being here 21 today, and to say that my understanding of the 22 situation is as you have outlined it. 23 MR. SADBERRY: Can we do more than that 24 today, Kim? 25 MS. KIPLIN: No. I think you act as an 0012 1 appellate body. I think consistent with your -- with 2 the Commission's practice at open meetings you have 3 afforded persons the opportunity to come forward and 4 make whatever presentation they wish to the 5 Commission, and I think that's what you're doing. 6 MR. SADBERRY: All right. Madam, am I 7 correct, therefore, that there are no other persons 8 who have expressed an interest to speak today? 9 CHAIR MIERS: (Moving head side to 10 side) 11 MR. SADBERRY: I think that being the 12 case, Madam Chair? 13 CHAIR MIERS: Thank you very much. And 14 I will explain for those who were not present at the 15 consideration of this matter the first time, that in 16 abundance of caution, because it became clear in a 17 presentation that was made to us that a major 18 contractor, or subcontractor, of the vendor here 19 complaining was a client of my firm, and I stepped 20 aside and did not participate in the earlier hearing 21 of the issue, nor do I participate this morning. 22 Thank you much. 23 REPRESENTATIVE REYNA: Madam Chair, 24 thank you very much. And it's good to see some faces 25 I haven't seen since session again. Thank you for 0013 1 hearing me. 2 CHAIR MIERS: Okay. We'll move to item 3 number two, review, possible discussion, and/or action 4 on Lottery sales and trends including new games 5 concepts. 6 MS. SMITH: Good morning, 7 Commissioners. For the record I'm Toni Smith, 8 Marketing Director of the Texas Lottery. 9 I put in front of you, this morning, my 10 updated executive summary of sales for FY '99. As of 11 week ending August 7th, total sales to date are 12 2,420,725,298.5. This is down 17.09 percent from the 13 '98 total sales, the same week to date, of 14 2,919,612,257. The FY '99 weekly sales average is 15 49,402,557.11, which again is a 17 percent decline 16 from last year's weekly average of 59,583,923.61. 17 CHAIR MIERS: Am I correct, Toni, we're 18 seeing that percentage down reduced? 19 MS. SMITH: Slowly but surely. Yes, 20 ma'am. 21 CHAIR MIERS: Which is what we had 22 hoped we would see, and we certainly are now below 23 what was originally forecasted -- 24 MS. SMITH: Yes. 25 CHAIR MIERS: -- in terms of the 0014 1 reduction, which is very good news for us, although I 2 know we hope that we will continue to do better. 3 MS. SMITH: Yes. We did see a five 4 percent increase this past week, and in light of the 5 great sales tax not being charged on clothing and 6 everything, that would typically be a slow week for us 7 right before school starts. So we're pleased with 8 that five percent increase. 9 CHAIR MIERS: Okay. Questions about 10 sales? 11 MR. CLOWE: My recollection is, over 12 the projections that we relied upon, a period of about 13 six months, or maybe even longer, was projected for 14 the impact of the benefit of the prize payout to 15 return. 16 MS. SMITH: Yes, sir. 17 MR. CLOWE: So this is not something 18 that we would expect to be instantaneous -- 19 MS. SMITH: No, sir. 20 MR. CLOWE: -- following the passage 21 and effective date of the bill; that we're going to 22 need to advertise and we're going to need to inform 23 the players of the change, and it does take some time 24 for this to come about. 25 MS. SMITH: Yes, sir. And to replenish 0015 1 the inventory with the higher prize payout games so 2 that there's a good mix of games for the players to -- 3 MR. CLOWE: So there are mechanics 4 there that have to be steadied. 5 MS. SMITH: Yes, sir. 6 MR. CLOWE: All right. 7 MS. CLOUD: And one of the things that 8 was part of our report to the legislative group was 9 that the states that have experienced a decrease in 10 their prize payout and then brought it back, it was -- 11 the history shows that it took them about as long to 12 get their sales back as they stayed into that time 13 frame. Well, we were out there for two years, so 14 we're hoping that it don't take us that long and we'll 15 get it back long before that. But it will take us a 16 little while to -- because of everything we've got to 17 deal with. 18 MR. CLOWE: Well, I think in the 19 projections, that we relied upon, it was somewhat less 20 than two years. It was more like six months, wasn't 21 it? 22 MS. CLOUD: Well, that was what we 23 thought in Texas that it would take, and I still have 24 strong feelings that come October, November, December 25 we're going to see things when we get all the games 0016 1 out there replaced with the higher payout games. 2 You'll see the sales come back up again. We're seeing 3 it gradually, but not enough to get real excited about 4 it yet. So... 5 CHAIR MIERS: Right. But this 6 improvement is, I'm sure, helping on our budget and 7 helping generally encourage the staff to keep going 8 and do what they can, so we appreciate that. Anything 9 else, Toni, on item number two, Lottery sales and 10 trends? 11 MS. SMITH: I also handed out some 12 samples of some of those games that we have recently 13 introduced since our last Commission meeting. You 14 have samples of six different games and then a copy of 15 the scheduling for those introductions, which will be 16 through the end of this month. So we are trying to 17 replenish that inventory. 18 CHAIR MIERS: Very good. 19 MR. CLOWE: Toni, would you comment on 20 the town hall meeting in New Braunfels and the spirit 21 of the retailers and their comments? 22 MS. SMITH: We thought that we had a 23 very good turnout from the people there in New 24 Braunfels, and the retailers were very positive. It's 25 a good opportunity for us to get feedback, and they 0017 1 usually always have some good ideas in the ways we can 2 improve different things. 3 We do one little breakout session where 4 they're given different topics, and then they can come 5 back and give us their input both on things like the 6 publications that we produce, how could we improve 7 those, our hot line and the kind of service they get 8 from the field staff through GTECH, and their ticket 9 orders and those kinds of things. So it was a very 10 positive meeting, and we did speak to them, too, 11 about, you know, our efforts in increasing sales and 12 getting that message out to our players. Linda may 13 want to comment, too. 14 MS. CLOUD: I did ask the question of 15 the retailers: What changes were they seeing in their 16 locations based on the higher payout games that we're 17 putting out? And their comments were that they had 18 players that -- one retailer commented that he had 19 players that had two winning tickets out of his 20 purchase, and one was $80 and one was 20. And that 21 others commented that they were paying higher -- 22 redeeming higher -- the redemptions were higher for 23 their daily sales now versus the past where they would 24 have $300 as their redeemed tickets and now it's more 25 like 800. 0018 1 So these were the kind of comments we 2 were getting from them. So those are the kind of 3 things that show us that what we feel like from this 4 side of the fence, looking at the numbers, is really 5 what's happening out in the field, and I think the 6 retailer town hall meetings are very valuable to us to 7 stay on top of what is happening on -- in our retailer 8 base. 9 MR. CLOWE: I agree with that. And I 10 thought your explanation, Toni, was very good about 11 the tickets and how the odds are and the explanations 12 to a lot of the myth that is associated with what -- 13 MS. SMITH: Thank you. 14 MR. CLOWE: -- they hear. And, of 15 course, Linda, your answering of the questions was 16 very beneficial. The retailers are a key group to the 17 Commission, and we must communicate with them and 18 answer their questions and assist them. 19 I was pleased that there was good 20 representation there from GTECH, and I think the 21 comments they had to make about GTECH and the contact 22 that they have is very important for us to listen to 23 as valuable feedback. So I would encourage you to 24 continue those meetings. 25 I think, Linda, you instituted that 0019 1 program. I think it's excellent, and I believe that 2 it ought to be continued and, if any, intensified. 3 Not to the point where we, you know, ask them once a 4 month to come to meetings, but that is excellent 5 contact for the Commission to have with our retailers. 6 MS. SMITH: Thank you, sir. 7 CHAIR MIERS: Well, we received a copy, 8 of course, of the retailers' research survey project, 9 which was issued in June and July, and we might go 10 ahead and comment on that at this time, too, because 11 that was instructive also in a number of ways. 12 MS. CLOUD: This is a -- this 13 retailers' survey is done by our Claim Center staff, 14 and Marketing provides them with the questions to ask 15 our retailers. And they actually go out and do the 16 survey now. 17 This is the contract we brought back 18 in-house last year -- 19 CHAIR MIERS: From First Team? 20 MS. CLOUD: -- from First Team, and 21 this has worked very well for us because it is Lottery 22 staff asking these questions and they have a more 23 personal interest in making sure that the retailers 24 are -- have a comfortable level. 25 And I think this research is showing us 0020 1 that the retailers have -- that -- well, this research 2 is done based on a follow-up on our Lottery operator 3 and their service to the retailer for the biggest 4 extent, and some of those responses are very 5 complimentary and some of them -- when they're not, 6 then we sit down with GTECH and let them -- they get a 7 copy of that report, as well, so that they can address 8 those issues. So this has provided a real good tool 9 for us -- and in going back through our retailer base 10 and having that personal, on-hand contact with them 11 with our staff -- and much more valuable than what we 12 were realizing in the past. 13 CHAIR MIERS: Well, and have you looked 14 at the financial impact? Were we able to save money 15 by doing this in this fashion? 16 MS. CLOUD: Yes. This is probably 17 costing us 100,000 a year, and that's mostly travel 18 dollars because the staff is, you know, on salary 19 and -- versus $660,000 a year. And our reports are 20 more frequent than that. And Liz -- it's about a 21 quarterly report? 22 MS. SMITH: On -- 23 MS. CLOUD: On the research that Liz 24 compiles? 25 MS. SMITH: Well, she actually does it 0021 1 monthly on those. 2 MS. CLOUD: Monthly. Yeah. 3 CHAIR MIERS: Okay. That's great. 4 MS. SMITH: I will ask the 5 Commissioners, we are in the process of updating the 6 questions that are asked, so if there are any concerns 7 or comments, questions that you would like to have 8 included in the survey, we would be more than happy to 9 add any questions that you might have, too. 10 CHAIR MIERS: Okay. Do you want to go 11 ahead and tell us about Lottery advertising and 12 promotions? 13 MS. SMITH: I really have no new 14 information to report on advertising. We are working 15 with our new advertising agency, Fogarty, Klein & 16 Partners, and -- about many meetings with them and are 17 getting geared up for the new year. 18 MS. CLOUD: GSD&M's contract extended 19 through August 31st, so we're getting ready to start 20 with the new vendor. 21 MS. SMITH: Thank you. 22 CHAIR MIERS: Okay. We can go to item 23 number five which is again Mr. Bennett. I think, 24 Mr. Bennett, you have the next four items. The 25 staff's report, possible discussion, and/or action on 0022 1 the Lottery operator audit procurement. 2 MR. BENNETT: Thank you, Commissioners. 3 A revised request for proposals for an 4 audit of the Lottery operator was issued on July 26th, 5 1999, and was mailed to a broad spectrum of CPA firms. 6 Additionally the RFP was advertised in the Texas 7 Register and on the Department of Economic 8 Development's Internet web site, The Electronic Daily 9 Business Journal. Prospective proposers are required 10 to file a nonbinding letter of intent to propose by 11 August 12th, 1999. I'd be happy to answer any 12 questions if you have any. 13 CHAIR MIERS: How about the advertising 14 services procurements? 15 MR. BENNETT: Certainly. On item 16 number six for the general market advertising services 17 RFP, the advertising agency of Fogarty and Klein was 18 named the successful proposer, and a contract was 19 executed by the agency with Fogarty and Klein on July 20 the 14th, 1999. 21 The agency reissued the minority market 22 advertising services RFP on July 29th, 1999. That 23 RFP was mailed out to over 300 advertising agencies 24 and was also advertised in the Texas Register on 25 the -- and in the Electronic Daily Business Journal. 0023 1 Prospective proposers were required to file a 2 nonbinding letter of intent to propose by August the 3 20th, 1999, for the minority market advertising 4 services RFP. 5 CHAIR MIERS: Okay. Item number eight, 6 Lottery operator procurement. 7 MR. BENNETT: Certainly. As always we 8 are forward-thinking, and the Lottery operator 9 contract expires August 31st, 2002, and -- pardon me? 10 MS. KIPLIN: Unless terminated earlier. 11 MR. BENNETT: Unless terminated earlier 12 for the instant Lottery. Therefore, we're -- the 13 agency's beginning the process of thinking about the 14 form of the procurement to take to bring in a Lottery 15 operator, and we are just beginning the process of 16 coming up with -- coming up, internally, with 17 schedules and time lines to that event. So as this 18 process is just in the beginning phases, I don't think 19 we have a lot to mention in today's meeting, just to 20 bring to your attention that I imagine this will be an 21 ongoing agenda item for Commission meetings. 22 CHAIR MIERS: We had been earlier 23 advised that if we were going to deal with this item 24 appropriately that we would start in August of 1999. 25 That had been the advice we had received as a 0024 1 Commission, so I am pleased that this is beginning in 2 its consideration. 3 And I know there's some interest in 4 whether a consultant would be beneficial for us to 5 have in connection with the development of that 6 process, so what would the timing be on the 7 procurement of that sort of assistance? 8 MR. BENNETT: We are looking at -- if 9 it's determined that a consultant is indeed -- would 10 be beneficial to the agency, and we're still having 11 internal discussions about whether or not that's the 12 case, probably sometime during this fiscal year, later 13 in the fiscal year. February or March would be the 14 time to issue that procurement. 15 CHAIR MIERS: I think what would be 16 beneficial at our next meeting, Ridgely, is for you, 17 and along with Linda and Kim, to provide us a 18 timetable with the various steps that are necessary 19 here so that we can have some comfort as to what this 20 process needs to be if, in fact, it is going to be 21 orderly and we're going to allow ourselves plenty of 22 time to do the various steps. 23 MR. BENNETT: We certainly will do that 24 for you. 25 CHAIR MIERS: Okay. Thank you. Any 0025 1 other questions of Mr. Bennett on any of the items 2 five through eight? 3 Hearing none, Debra McLeod, item number 4 nine. 5 MS. MCLEOD: Good morning, 6 Commissioners. My name is Debra McLeod, for the 7 record, Internal Auditor. 8 I have provided for your viewing, this 9 morning, a status report on the State Auditor's two 10 reports. Both of them are on management controls. 11 One was on the Lottery side, the other's on the Bingo 12 side. Let me start first with the Lottery side. 13 To date we have four findings left to 14 implement, three of which will be due by the end of 15 this month. One of them -- two of them deal with 16 long-range planning with the security case tracking 17 system, and I'm pleased to say that that process has 18 been underway for several months now with IT and the 19 Security Division. 20 With regards to the Bingo Division, 21 they reported all actions have been -- 22 CHAIR MIERS: So, Debra, I'm not clear. 23 Will we complete those items by the end of this month? 24 MS. MCLEOD: I believe management is 25 working very hard to get it done by the end of this 0026 1 month. Yes. 2 CHAIR MIERS: Okay. 3 MS. CLOUD: We are still dependent on 4 one of those items being an outside source that we're 5 trying to get information from. 6 CHAIR MIERS: Okay. Bingo? 7 MS. MCLEOD: With regards to the Bingo 8 audit, management's reported all of the action items 9 have been implemented. They provided us documentation 10 to review. We're going through to verify that what 11 they provided us will support what the State Auditor's 12 recommended, and so far we're very pleased with the 13 information that's been provided. We had just a 14 couple of remarks to make back. 15 CHAIR MIERS: Debra, I know our effort 16 has been to communicate in continuous fashion with the 17 Auditor's office and to report back to them on our 18 progresses. To now, as I understand it, our progress 19 is based on our own assessment of our progress, and at 20 some point the Auditor's office will come back in and 21 make their own judgment as to whether we have, in 22 fact, complied with their findings. Is there any 23 assurance we have that along the way that we are 24 communicating with them about our status? 25 MS. MCLEOD: Yes, Commissioner. In 0027 1 fact on finding six, with regards to the contingency 2 plan, both Executive Director and myself have had 3 several discussions with the State Auditor's office in 4 order to make sure that we've complied with the 5 recommendation directly. And, in fact, on each one of 6 these recommendations we've gone back to double check 7 with the lead auditor that was in charge at the time 8 to ensure that what we've done and what we've been 9 doing is what the intent was behind the 10 recommendation. 11 So far we're pleased with the draft 12 status that we've received of the current audit 13 they're doing, and they've gone back on a preliminary 14 basis to verify some of the items under the management 15 control. And I believe they found that we had 16 implemented some of the contractual items, so we're 17 very pleased with that. 18 CHAIR MIERS: Great. Any questions of 19 Ms. McLeod? 20 MR. CLOWE: None. 21 CHAIR MIERS: If not, Mr. Grief, status 22 report, possible discussion, and/or action on the 23 agency's Y2K, and Mr. Robert Bell our Information 24 Technology Director. Good morning. 25 MR. GRIEF: Good morning, 0028 1 Commissioners. And for the record my name is 2 Gary Grief, and I'm the Director of Lottery Operations 3 and also the agency Y2K project director. And seated 4 next to me is Robert Bell, Director of Information 5 Technology. 6 I'm very pleased to report to the 7 Commissioners this morning that as of last Thursday, 8 August the 5th, the Y2K user acceptance testing for 9 the Charitable Bingo Division was completed to the 10 Bingo Division users' satisfaction. The new Y2K 11 remediated Charitable Bingo computer code has been 12 placed into our production environment and is 13 currently in use by the Bingo staff. 14 This completes the last critical piece, 15 internal piece, of our Y2K remediation project. At 16 this point all of the remediated custom software, not 17 only on the Bingo side but also on the Lottery side, 18 has been placed into our production environment and is 19 currently in use by the various divisions within the 20 agency, and this remediated code is now running on our 21 Y2K compliant hardware platform, the new Alpha 22 computer system. 23 As reported previously, the Lottery 24 Commission has already obtained Y2K compliance for all 25 of our critical equipment and embedded systems. For 0029 1 those equipment and systems that were identified as 2 noncritical at the beginning of the project, only a 3 handful of personal computers, none of which are in 4 use, still require action, and that action will simply 5 involve surplussing those personal computers via our 6 State surplus guidelines. 7 Our wrap-up of the Y2K project was 8 documented last week to the Department of Information 9 Resources in our final agency progress report 10 submitted to the DIR via their on-line reporting 11 mechanism. With the exception of a final cost report 12 that will contain all of our expenditures during 13 FY '99, and which will be submitted in September, our 14 reporting to the DIR is now complete. 15 And as detailed in the last meeting by 16 Robert Bell, our Y2K testing on the new GTECH 17 operating system, PRO:SYS, is ongoing, and that 18 testing is being done under the direction of Robert's 19 staff. And that concludes my report this morning. 20 I'd be happy to answer any questions. 21 CHAIR MIERS: We appreciate that, and 22 that sounds awfully good. 23 Robert, you have the next item, the 24 PRO:SYS conversion. You might go ahead and report on 25 that to us, and we can see if there are any questions 0030 1 after that report. 2 MR. BELL: Okay. For the record I'm 3 Robert Bell, Information Technology Director. 4 And as of yesterday we had 13 critical 5 items in test that are on our bug list from the 6 PRO:SYS system implementation, and we have five 7 critical items on the open list. We've got so many 8 items on the test list because we have been unable to 9 do some quality assurance testing, and I understand 10 that that's being worked on now at GTECH and we should 11 be able to go ahead and test those items hopefully by 12 this weekend. We had anticipated having most of these 13 13 critical items completed or corrected this last 14 weekend, so we're delayed a week. So we're working 15 very hard to get that corrected so that the users will 16 be more comfortable and, in turn, our retailers will 17 be more comfortable also. 18 So we are still working off of our 19 critical list, and as time goes on some of the very 20 important items become critical items as we extend 21 this list. So we're trying to get our critical items 22 all worked off so that we can get on to the very 23 important items. That's where we are at this point. 24 CHAIR MIERS: Okey-doke. Any questions 25 of Robert or Gary? 0031 1 MR. CLOWE: I have a question for 2 Robert. In a general nature, Robert, looking back 3 we've had some disruption for our retailers in phone 4 line problems, and I'm hearing a lot of conversation 5 about conversion to cable from phone lines. Are you 6 looking in that relative to our system, and is it 7 something that we should be examining insofar as 8 improvement in reliability and in speed transmission 9 of data? 10 MR. BELL: I've seen some information 11 on this. I do not know what GTECH'S posture is on 12 moving to the cable. At this time they're still 13 relying on phone lines, as far as I know. And I don't 14 know if -- Larry, do you want to come up here? 15 MR. KING: I'll be glad to provide, at 16 the next meeting, an update. 17 MR. BELL: Okay. We can look into 18 that, though, and see what -- 19 MR. CLOWE: I'm not wanting to get 20 something started here, but I would like to have the 21 Commission made aware of whatever the current status 22 of those vendors are as far as possibilities that 23 might improve, as I say, reliability and speed of 24 transmission of data. There are cable companies now 25 that are coming in with direct Internet connections, 0032 1 for example, and speeding up connect time and very 2 reliable transmission mode. So without, as I say, 3 starting something that you're not ready to deal with 4 at this time, if you could give the Commission an 5 update on how you view the accessibility of that type 6 service and what the pros and cons of it are, I'd like 7 to hear that from you. 8 MR. BELL: Okay. All right. 9 CHAIR MIERS: Thank you both very much. 10 Item number 12, Nelda, our report, 11 possible discussion, and/or action on the 12 implementation of legislation relating to the Texas 13 Lottery Commission. 14 MS. TREVIŅO: Good morning, 15 Commissioners. In your notebooks we provided to you a 16 listing of the implementation task force assignments 17 that have been made here in the agency. And as noted 18 in my memo, there are 49 legislative implementation 19 task forces and they are comprised of about 63 staff 20 people throughout the agency. 21 The task forces have begun meeting -- 22 and also included in your notebook is a copy of an 23 outline that was provided to each of the task forces 24 to use as a guide in identifying implementation 25 issues. Again, these task forces are meeting, and 0033 1 we'll just keep you posted on the progress of this 2 project and also any sort of action that might need to 3 be taken by the Commissioners in order to get a 4 legislation implemented. 5 CHAIR MIERS: Okay. And a timetable 6 related to those actions if necessary? 7 MS. TREVIŅO: Most of the legislation, 8 Chair Miers, goes into effect on September 1st, so 9 we're on a very short time line here. And the task 10 forces are aware of that, so we're anticipating final 11 reports from them after the 1st of September in order 12 to, again, get all the issues identified and get 13 things implemented. 14 So as far as issues that might need to 15 come before the Commissioners -- for example, one of 16 the rules that's on the agenda today, relating to the 17 assignment of prizes, that's as a result of House Bill 18 1799, so we've tried to move as quickly as possible, 19 in particularly with those issues that we need to move 20 forward on. 21 CHAIR MIERS: Okay. And as you move 22 through -- these task forces, it would seem to me, 23 also useful to us, Nelda, with you and Colin having an 24 eye to surfacing the issues that need to be addressed 25 in the next legislative session as a result of what 0034 1 the task force observes. It seems like they would be 2 a good resource for servicing possible issues that we 3 may need to see if they can be addressed at the next 4 legislative session. It is not too early to be 5 thinking about that. 6 MS. TREVIŅO: Absolutely. 7 MR. SADBERRY: As we have found out. 8 MS. TREVIŅO: Yes. 9 MR. SADBERRY: And we get better each 10 time, I have to say. 11 Nelda, very good here. You know that 12 this has come -- this has brought us a long way it 13 terms of the approach we've taken to our 14 interrelationship with the Legislature. In that 15 regard, and following the Chair's comments, is there 16 any reporting requirement that you've identify in 17 connection with any of this legislation that we have 18 to give on an interim basis before the next 19 Legislature, something we might look at? 20 MS. TREVIŅO: Not any that I can think 21 of offhand, although, you know, I think as a courtesy 22 it's always beneficial for an agency to keep 23 particularly authors of the bill informed as to the 24 progress that the agency might be making. The 25 licensing -- the House Licensing Committee, obviously, 0035 1 is always interested in our agency as our oversight 2 committee. 3 So as far as there being a requirement, 4 I can't think of one. But, again, I think it's 5 beneficial for the agency to try to keep the members 6 informed on our progress. 7 MR. SADBERRY: Well, that's kind of 8 what I was thinking about, if it's not inappropriate, 9 some courtesy information be provided. And in that 10 regard I know it's early, but we've learned, also, 11 it's never too early, are we anticipating any interim 12 committees that might entail our active participation 13 that we need to be gearing up for? 14 MS. TREVIŅO: House committees and 15 Senate committees have a deadline of providing either 16 to the Speaker or to the -- excuse me -- or to the 17 Lieutenant Governor their recommendations on interim 18 committee charges. That deadline for the committees 19 to provide the recommendations has passed. Now 20 sometime, I believe in September, the Speaker and the 21 Lieutenant Governor will announce those interim 22 committee charges. So those have not been -- those 23 have not been made public at this point. 24 MR. SADBERRY: And you'll let us know 25 when we're needed? 0036 1 MS. TREVIŅO: Absolutely. 2 MR. SADBERRY: And I'm sure -- I do 3 want to commend you, both of you, for handling these 4 issues we've had in the last session. And, again, 5 this is as good as we could get through that process 6 keeping the Commissioners advised as lawful and 7 necessary. 8 I think we're making a lot of progress. 9 I've seen this come from a very embryonic stage, and 10 perhaps have learned from that communication, 11 interaction, interrelationships and the partnership 12 that we have with our governing body here. It's 13 critical to us, it's helpful to us when you do it as 14 well as you've done it, and just keep going -- 15 MS. TREVIŅO: Absolutely. Thank you. 16 MR. SADBERRY: -- from my standpoint. 17 MS. TREVIŅO: Thanks. 18 CHAIR MIERS: Any other questions? 19 MR. CLOWE: Can you take another 20 compliment? 21 MS. TREVIŅO: Oh, sure. Please. 22 MR. CLOWE: I'm particularly taken by 23 this one document you've given us that you duplex 24 printed. I spent this last weekend with a Ph.D. who 25 did his doctorate on people's adversions to duplex 0037 1 printing, and I want to compliment you on saving 2 paper. And looking at this notebook, I would like to 3 direct the other directors' attentions to the idea 4 that if their machines are capable, duplex printing 5 saves a lot of paper. 6 MS. TREVIŅO: Yes, it does. And, 7 Commissioner, I will say I think it's something that 8 Gary Grief, as the director of our Operations 9 Division, and support services that falls under his 10 division are really trying to emphasize to each of us 11 in the agency how beneficial it is to duplex any 12 copies that we have to make. So I think it's starting 13 to be an agency- wide effort. 14 MR. CLOWE: Well, if the Commissioners 15 have no objection, I would like to say that we would 16 urge the directors to adopt that policy whenever 17 possible. Let's save the trees. 18 MS. TREVIŅO: Hear, hear. 19 CHAIR MIERS: Hear, hear. Well, we 20 appreciate all the obvious effort in the task forces, 21 Nelda, and all your efforts and Colin's. But I do 22 think we have substantial challenges ahead to, as 23 Commissioner Sadberry said, communicate with respect 24 to implementation. 25 I know there's a lot of emphasis on our 0038 1 actually realizing on what we hoped would be the 2 benefit of the prize payout restoration. I think 3 there are other issues that are obviously going to be 4 focused upon by the Legislature and our elected 5 officials, so I appreciate all the support that you 6 and your staff give us. 7 MS. TREVIŅO: I will just add, 8 Commissioners, that one of the -- and I think we maybe 9 have talked about this briefly -- some of things that 10 we're going to be doing during the interim to help -- 11 hopefully help us with that communication effort in 12 keeping members of the Legislature and their staff 13 informed as to implementation status and just other 14 issues that the agency has throughout the interim to 15 hopefully address any sort of issues that they might 16 have prior to the session; next session. 17 CHAIR MIERS: Great. Thank you very 18 much. 19 Colin, you have the next item: Report, 20 possible discussion, and/or action on the National 21 Gambling Impact Study Commission report. I assume, 22 Linda, you probably have some comments about this also 23 since it was a topic at your directors' meeting it 24 looks like. 25 MS. CLOUD: All right. 0039 1 CHAIR MIERS: Colin. 2 MR. HAZA: Good morning, Commissioners. 3 I'm Colin Haza, Governmental Affairs Liaison, and I 4 will begin by apologizing to Commissioner Clowe for 5 the 200 pages that were not duplex printed. 6 CHAIR MIERS: Everybody that didn't do 7 it's going to feel guilty today; I know. 8 MR. CLOWE: A little guilt's not bad. 9 MR. HAZA: In 1996 the United States 10 Congress created the National Gambling Impact Study 11 Commission and funded it with $5 million. It was 12 charged with examining the social and economic impacts 13 of gambling in its various forms throughout the 14 states. The result of their two-year project is this 15 200-page document that I've given to each of you, and 16 I have excerpted from it certain recommendations that 17 apply only to state lotteries, and I'll not address 18 the many other chapters that dealt with Indian gaming 19 and casino gambling and cruises to nowhere and various 20 other forms of entertainment and games of chance. 21 But some of the recommendations 22 specific to state lotteries are such items -- well, a 23 general comment, first, that the Commission did take, 24 for the most part, a state's rights approach to its 25 recommendations in that -- with two exceptions. It 0040 1 did conclude that the states are best equipped to 2 regulate gambling within their borders. Those two 3 exceptions were tribal gaming and Internet gambling. 4 Other recommendations, many of which 5 are already followed by this agency either as a matter 6 of statute or practice, are, for example, restricting 7 activities to those who are at least 21 years of age; 8 posting odds of winning wherever possible and 9 feasible; putting all individuals and organizations 10 that are involved in the Lottery through a rigorous 11 background check and a licensing process; develop a 12 best practices for model regulations; ban aggressive 13 advertising strategies, especially those that target 14 impoverished neighborhoods or youth; and it goes on 15 and on. 16 In the back or your folder, and I will 17 not go further, but there are 22 specific 18 lottery-related recommendations that I take no pride 19 of authorship; it came from the La Fleur's Lottery 20 World. But that's the back document in your folder. 21 You might want to take a look at that for a very quick 22 synopsis of the recommendations. 23 CHAIR MIERS: Well, have you-all looked 24 at these items in the report for possible action items 25 within this agency? 0041 1 MS. CLOUD: I think, for the most part, 2 most of the advertising -- NASBO has set up a 3 national-type agenda for what lotteries should be 4 doing as far as their advertising approaches, and 5 we've always been doing that because of Texas -- our 6 restraints on making sure our advertising is very 7 sensitive to various ethnic groups plus, you know, 8 other types of -- trying to put the -- I think one 9 particular incident they used, they had in one state 10 where they were advertising in a poor neighborhood 11 that this lottery can get you out of this 12 neighborhood. Well, those types of things are very 13 inappropriate type advertising. We don't do those 14 kind of things. So NASBO has gone through and set up 15 real strict guidelines for lotteries to use in order 16 to avoid being criticized for this type of thing. 17 And so far, based on -- we'll hear more 18 about this at the national conference in Nova Scotia, 19 but so far there will be -- the lotteries feel like 20 the report -- correct me if I'm wrong, Colin. I have 21 not read these whole 200 pages. But based on the 22 information in here, they're really kind of targeting 23 lotteries because the casino industry and the Indian 24 gaming industry hired lobbyists and people to fight 25 their fight, and the lotteries are going to catch the 0042 1 blunt of this for the most part, and that's very 2 concerning. 3 MR. SADBERRY: Do they have 4 jurisdiction or enforcement authority? Or what's 5 the -- is this suggestive or is this -- 6 MS. CLOUD: There is another committee, 7 national gaming states -- legislative gaming states, 8 and from that committee there is a team that is set to 9 introduce states' rights, to try to fight the states' 10 rights issues so that it's up to the legislature 11 within the state to have the ability to enforce this 12 study. 13 MR. SADBERRY: Linda -- 14 MS. KIPLIN: To answer your question in 15 a little bit, maybe, different way, the National 16 Gambling Impact Study Commission -- the purpose of the 17 report was to make recommendations to Congress for 18 Congress to consider in future legislation. 19 MR. SADBERRY: Right. 20 MS. KIPLIN: So in terms of enforcement 21 it is a report comprised of recommendations that 22 Congress may wish to act on, or may wish not to act 23 on, and then there are issues that will -- you know, 24 depending on the legislation's past that may trigger 25 other thoughts. Like, for example, just one in 0043 1 particular I know that there's been a good bit of 2 legal dialogue regarding restrictions imposed by 3 Federal Government on lottery states in couching in 4 terms of the state's rights at issue. 5 So you just don't know because we don't 6 know what's going to happen in terms of federal 7 legislation. We'll just have is to keep an eye on it. 8 MR. SADBERRY: Do I recall correctly, 9 Linda, in the report that this Commission submits to 10 the Governor, Lieutenant Governor, members of the 11 Legislature -- 12 THE REPORTER: Commissioner Sadberry, I 13 can barely hear you. Thank you. 14 MR. SADBERRY: -- the Governor, 15 Lieutenant Governor, and the members of the 16 Legislature on participation of lottery constituencies 17 in Texas, that -- I believe it was some two or three 18 or four months ago we submitted it -- that we do not 19 show a high incidence, or what's the right word, an 20 inordinate incidence of lottery playing in the 21 impoverished communities that can be identified among 22 those who are less educated, less financially 23 positioned, et cetera? Am I correct in that -- 24 MS. CLOUD: That's correct. That's 25 come from two different sources, one of which has been 0044 1 the research team that has been doing our ongoing 2 research, but also the UT demographic study that had 3 to be done for the legislature. That was in that 4 report as well, and it mirrored practically the same 5 thing that Angus Reid had said in their reports. 6 MR. SADBERRY: And I don't know if 7 there is a cause and effect there or if it just 8 happens to shake out that way, but it seems that that 9 is relevant data as to whether we are, in fact, in 10 need of changing what we're doing. I know that the 11 focus on the advertising on the early end of our 12 existence had kind of switched in the other direction 13 somewhere midstream but may have a balance now. I 14 hope that's what is showing, that we can promote our 15 games and promote our activities properly, that still 16 leave us with these balanced numbers, that don't show 17 that we are -- our presence is actually being 18 detrimental to various aspects of our constituencies. 19 It doesn't look like our data shows that -- 20 MS. CLOUD: It doesn't. And we will 21 continue to do the researches to keep us appraised of 22 any changes in that. But we have also, with our new 23 vendors, have made this a very strong emphasis to them 24 on the sensitivity of the advertising. So we will 25 continue to monitor that. 0045 1 MR. SADBERRY: If you don't play you 2 can't win? 3 MS. CLOUD: That's right. 4 CHAIR MIERS: Okay. Anything else, 5 Colin? 6 MR. HAZA: I was just going to wrap up, 7 and Linda touched on this briefly. But the National 8 Council of Legislators from Gaming States took 9 considerable exception to many of the recommendations 10 issued by the NGISC, and in particular we're concerned 11 about the composition of the commission itself. 12 Of the nine members, none of them came 13 from the public sector. None of them represented 14 State Government in any way, shape, or form, and the 15 chief target of criticism from the report was 37 16 state-operated lotteries. 17 As a result of that, the National 18 Council of Legislators from Gaming States formed a 19 public sector gaming study commission to take 20 testimony and to involve State Government, which after 21 all does operate the 37 lotteries. The commission is 22 composed of 11 members, including three members of 23 various state legislatures, three state regulators, 24 one lottery, one horse racing, one gaming, Mayor 25 Willie Brown of San Francisco represented local 0046 1 government, Attorney General Frankie Sue Del Papa from 2 Nevada, law enforcement is represented by Texan 3 Sheriff Ralph Lopez of Bexar County, and this 4 organization has begun. 5 It's had an organizational meeting. 6 It's had its first public hearing, and I believe the 7 next public hearing is coming up in a week or so in 8 Boston. They plan to have four meetings around the 9 country and to issue a report at the end of this year, 10 and we expect to be reporting on that to you shortly 11 after the first of the year. Beyond that, I think the 12 200 pages should answer any further questions, 13 although I'll be happy to try. 14 CHAIR MIERS: Further questions? 15 MR. CLOWE: No. Thank you. 16 CHAIR MIERS: Thank you very much. 17 MR. HAZA: Thanks. 18 CHAIR MIERS: We now move to the 19 staff's report, position action, discussion, and/or -- 20 pardon me -- discussion, and/or action regarding the 21 agency's minority business priority. Okay. 22 Loretta Hawkins and Ms. Cloud. 23 MS. CLOUD: Yes, ma'am. 24 MS. HAWKINS: Good morning, Chair 25 Miers, Commissioners Sadberry and Clowe. I'm Loretta 0047 1 Hawkins, the Minority Development Coordinator. 2 As of -- well, first of all I just want 3 to highlight some of the action that has been taken on 4 the minority participation program by the staff. As 5 of July 21st, a task -- minority participation task 6 force was formed. 7 The task force has met three times with 8 Linda Cloud, Bart Sanchez, Joanne Severn, and myself. 9 The task force members are Nelda Treviņo, Internal 10 Governmental Affairs Manager; Patricia Olguin, 11 Assistant Marketing Director; Brenda Flores, 12 Advertising Graphics Manager; and David Ramos, 13 Retailer Licensing Manager. The task force has worked 14 together with Linda, Bart, Joanne and myself to 15 address concerns regarding the minority development 16 program, and one thing that wasn't included in your 17 notebooks was the minority participation policy that 18 has been developed to help guide the program. And if 19 you don't mind, I'll give you copies of that now 20 and... 21 To date the task force has drafted this 22 policy, and we seek the Commissioners' approval. All 23 of the task force members have signed off on it, as 24 well as Kim and Linda, and we're bringing it forth to 25 the Commissioners today. 0048 1 The policy will include -- well, the 2 policy will define the two different ways the Lottery 3 reports its minority HUB expenditure; one, in 4 accordance with the State Lottery Act which will 5 report all minority contracting and subcontracting; 6 and, two, in accordance with GSC with only HUB 7 contracting and subcontracting. The minority 8 participation policy will also include the Lottery's 9 35 percent minority participation goal, the GSC 10 required six different category goals, and the 20 11 percent minority retailer base goal. 12 CHAIR MIERS: Okay. 13 MS. HAWKINS: Okay. I didn't know if 14 you needed to do anything. Okay. 15 And then also the task force has sent a 16 letter to the General Services Commission. It was 17 mailed on August 5th requesting their consideration to 18 exclude the Lottery operator commissions, object code 19 7206, for the GSC HUB reports. The original request 20 for this was done back in February of 1995. This 21 request was being made in effort to more accurately 22 reflect the Lottery's expenditure percentages with HUB 23 vendors on the General Services Commission HUB 24 reports. 25 We also sent a letter out to our prime 0049 1 contractors on July the 9th requesting them to provide 2 the Lottery with all their subcontracting information, 3 which includes HUB subcontractors who are vendors 4 certified by the General Services Commission, minority 5 subcontractors who are vendors who are not certified 6 by the General Services Commission but meet the 7 qualifications for minority business ownership as 8 defined in the State Lottery Act, and, then, also non- 9 minority subcontractors who are vendors that do not 10 meet the criteria of a minority or HUB status. In 11 addition we have asked the prime contractors for the 12 number of minority employees from their company by 13 ethnic group and women categories. The primes were 14 all asked to submit their subcontracting report, that 15 we just requested on the 9th, by August 13th for 16 including in the FY '99 minority participation report. 17 In addressing Chair Miers' concerns of 18 the Lottery participates with other State agencies to 19 obtain ideas and other information to enhance our 20 minority development program, the Texas Lottery 21 Commission has been a member of the GSC HUB Co-op 22 committee since 1994. The committee was created to 23 assist State agencies and institutions of higher 24 learning with the ability to obtain and share 25 information regarding HUB legislations, GSC rules, and 0050 1 how to implement and maintain an effective HUB 2 program. 3 The HUB Co-op committee members work 4 together to share ideas on how to educate and increase 5 participation and awareness with HUBs as it relates to 6 the state's contract awards process. At each meeting 7 an agency volunteers to conduct a presentation on 8 their agency's HUB program. This allows each agency 9 to share and highlight various components of their 10 program. They can provide ideas for other agencies to 11 consider for enhancing their program. On March the 12 9th, the Texas Lottery Commission hosted a Co-op 13 meeting and conducted a presentation on doing business 14 with the Texas Lottery Commission. 15 GSC often seeks feedback from other 16 State agencies regarding HUB issues, ideas, and 17 suggestions about the effectiveness of the State HUB 18 program and how to improved various components of the 19 program. For instance, the GSC conducted its survey 20 soliciting feedback from its many different customers 21 for input in several areas including, but not limited 22 to, the HUB application and recertification 23 application process. 24 I assisted the GSC with developing 25 questions for the survey and served as a member of the 0051 1 HUB application committee. The Texas Lottery 2 Commission remains an active participant of the HUB 3 Co-op Committee and continues to work with the GSC and 4 other State agencies' minority and small business 5 development centers, and so on, to improve our 6 minority development program. 7 And finally, for fiscal year 1999 8 year-to-date, September 1 through June 30th, 1999, the 9 Texas Lottery has spent approximately $9 million with 10 HUB vendors. The figure does not include minority 11 vendors that the Lottery has contracted and sub- 12 contracted with for this fiscal year. That 13 information is in the process of being gathered and 14 compiled for reporting in the Minority Participation 15 Report. 16 Also, as noted in the Commission 17 notebooks, GSD&M's HUB subcontracting has remained low 18 by a difference of approximately 1.5 million compared 19 to last fiscal year, the same period, and Brenda 20 Flores has provided an attached memo for explanation. 21 And that concludes my report on where we're at with 22 the program. 23 MS. CLOUD: Commissioners, I think 24 we -- the policy that we've given you, this is not 25 something you have to sign off on, and it probably 0052 1 needs, according to Kim, and I'm -- well, I don't know 2 how we got off track here. 3 MS. KIPLIN: Yeah. We're going to do 4 it here. 5 MS. CLOUD: Yeah. 6 MS. KIPLIN: I think -- actually, I 7 thought it was an Executive Director policy/procedure, 8 and my understanding is the Executive Director did 9 approve it. You-all approve the Minority 10 Participation Report, and a good bit of this is 11 embodied in that report, and I think that's what 12 you've established as a matter of practice and a 13 matter of goal setting for the agency. 14 I don't think it requires your action. 15 If you wish to have an action and show that you 16 support this or you have issues with it, you know, I 17 guess it runs the gambit, then you can -- and I guess 18 if you want to do that, then I'd probably prefer you'd 19 do it by way of Commission order, and I'll be glad to 20 draft something along those lines so that we can keep 21 track of the orders. 22 CHAIR MIERS: Commissioner Sadberry? 23 MR. SADBERRY: I yield. 24 MR. CLOWE: I'm with you in spirit on 25 this, but I think I'm seeing this for the first time, 0053 1 and before I would vote on this in the form of an 2 order I would want a little time to thoughtfully 3 consider it and perhaps have questions that would be 4 answered. I'm with you 100 percent on where you're 5 headed on this, but I like to look at these things 6 very closely. So I might suggest we defer this until 7 the next meeting if the Commission intends to have an 8 order. 9 CHAIR MIERS: Well, yeah. I think 10 there's two questions: Whether we need to do more 11 than approve the minority report, which I think is 12 what I'm hearing our counsel indicate would be the 13 appropriate form for us to confirm our agreement with 14 the procedures as set forth. 15 The question -- so, I mean, I'm with 16 you, Commissioner. I would certainly want time to 17 review it before I'd want to sign off on it, but this 18 is a critical mission for us and we certainly 19 appreciate the effort that has gone into efforts on 20 the procurement side as well as hiring and staffing 21 that encourage the objectives and goals of State 22 Government. 23 But a question I had is: Is the policy 24 something that would be appropriate for circulation to 25 various groups for comment on the type of goals and 0054 1 processes that have been determined to be effective 2 with respect to other agencies or other organizations? 3 I don't know if there is a group of organizations or 4 part of State Government that would be helpful to 5 consult with in terms of looking outside our agency 6 and getting whatever input we could get about what we 7 are proposing. 8 I assume we probably do some of that 9 informal networking. But is there a formal process or 10 a formal way to solicit comment from -- I don't know 11 if the minority caucus of the Legislature or -- I 12 don't know if Nelda's still around -- or the major 13 minority groups or whether part of the governmental 14 organizations that would have a segment on minority 15 procurement? 16 MS. HAWKINS: Chair Miers, we could 17 always ask the General Services Commission who 18 administers the statewide HUB program. Other -- as 19 far as in accordance with our Lottery Act, that's what 20 we were trying to design the policy to be -- 21 MS. CLOUD: That's why ours is unique. 22 CHAIR MIERS: Yeah. I understand it is 23 unique. So I certainly would get whatever input I 24 could from the GSC, and even seek out from them 25 whether there would be additional resources where we 0055 1 might go to get further advice and consultation. 2 But from a go-forward standpoint, why 3 don't we put this back on the agenda the next time and 4 let everyone look at it, Loretta and Linda and Billy, 5 and sort of do whatever would be helpful the next time 6 if there is any specific action that would be 7 recommended for the Commission to take, which I am 8 assuming there will not be. Okay? 9 MS. CLOUD: Okay. 10 CHAIR MIERS: Thank you very much. 11 On item number 15 I'm going to suggest 12 we pass that. I understand staff is not in readiness 13 on that one. 14 Item number 16, consideration of and 15 possible action including adoption of amendments on 16 Lottery rule 16 TAC 401.309, relating to the 17 assignability of prizes. Ms. Morris. Well, this is 18 the assignability issue. 19 MS. MORRIS: Yes, it is. This -- my 20 name is Diane Morris. 21 CHAIR MIERS: To be distinguished from 22 the acceleration issue. 23 MS. MORRIS: Yes, ma'am. From the 24 proposed rule 312 which you have just passed that item 25 until further time today or later. You are now on 0056 1 rule 401.309. That is the -- the rule was proposed, 2 about this summer, regarding the implementation of 3 House Bill 1799. That is what we refer to as the 4 assignability legislation. 5 We received very few comments on this 6 rule. One of the comments was that we should allow 7 the assignment of the last two years. Well, 8 unfortunately the law says you cannot assign the last 9 two years, so it would not be that the Commission 10 could write a rule that would directly contradict what 11 the law says. We can't accept that comment. 12 The other comment was concern about the 13 rights of third parties and the spouse's consent 14 when -- if an individual prize winner claimed a prize 15 and that individual prize winner wanted to assign his 16 future installment payments, whether the spouse had to 17 consent to the acts of that individual prize winner 18 during the pendency of the court proceeding to get an 19 order allowing for the assignment. The Commission's 20 response is that those rights, if you will, should not 21 be asserted against us. This rule should not be 22 amended to require that even in situations where 23 spouses do not consent that, therefore, assignments 24 cannot occur. Those issues were addressed in the 25 legislation, and they're best left there. 0057 1 And so as far as the comments to this 2 rule are concerned, substantively insofar as we are 3 requesting that any orders obtained under this 4 provision of the new law, HB 1799, requires certain 5 recitations in the final judgments, nobody made a 6 comment on that. We are proposing that the final 7 judgments have a release provision, an indemnification 8 provision, and an affirmative statement that the rule 9 comports -- that the judgment comports with the 10 provisions of the State Lottery Act. No one 11 challenged those provisions, so in that sense I'm 12 feeling comfortable from the staff's point of view 13 recommending that this rule be adopted. 14 CHAIR MIERS: Okay. Is there questions 15 for Diane, or do I hear a motion? 16 MR. CLOWE: So moved. 17 MR. SADBERRY: I second. 18 CHAIR MIERS: Okay. All in favor say, 19 aye. 20 MR. SADBERRY: Aye. 21 MR. CLOWE: Aye. 22 CHAIR MIERS: Aye. All opposed? Our 23 vote will be three to zero, and the rule will be 24 adopted. I know we have a proposed order adopting 25 rule. 0058 1 MS. KIPLIN: And, Commissioners, if I 2 might add: This rule has been proposed, and is now 3 being adopted by you-all, to implement legislation 4 that takes effect September 1, so I would request that 5 your vote include the fact that the date, the 6 effective date of this rule, will be September 1. 7 CHAIR MIERS: Okay. Mr. Clowe, do you 8 so move? 9 MR. CLOWE: So moved. 10 MR. SADBERRY: And I so second. 11 CHAIR MIERS: Okay. Thank you very 12 much, Diane. 13 We will move now to an item which you 14 also have which is 16 401.302, relating to instant 15 game rule. 16 MS. MORRIS: Commissioners, we received 17 no public comment on this rule. We would -- I would 18 recommend that you adopt this rule without the 19 changes. 20 CHAIR MIERS: Okay. Is there a motion? 21 MR. SADBERRY: So moved. 22 MR. CLOWE: Second. 23 CHAIR MIERS: All those in favor, aye. 24 MR. SADBERRY: Aye. 25 MR. CLOWE: Aye. 0059 1 CHAIR MIERS: Aye. The vote will be 2 three to zero also entering that order. 3 MR. SADBERRY: What about the effective 4 date? Is there an issue on that? 5 MS. CLOUD: No. 6 MR. SADBERRY: No effective date 7 issues? 8 MS. KIPLIN: No. There is no issue 9 regarding this -- the effective date of this. It will 10 be effective upon 20 days after it is filed with the 11 Register. It is not being proposed, nor was it 12 adopted to implement legislation. 13 CHAIR MIERS: Okay. 401.304, relating 14 to on-line game rules. 15 MS. MORRIS: On this rule again the 16 Commission received no public comments. I would 17 recommend that you proceed to adopt this rule. 18 CHAIR MIERS: Is there a motion? 19 MR. SADBERRY: So moved. 20 MR. CLOWE: Second. 21 CHAIR MIERS: All those in favor say, 22 aye. Aye. 23 MR. SADBERRY: Aye. 24 MR. CLOWE: Aye. 25 CHAIR MIERS: The vote will be three to 0060 1 zero on 401.304. Move to 402.572. 2 MS. KIPLIN: Commissioners, what you 3 have before you is a rule that is ripe for adoption. 4 If you'll recall, this rule was proposed at an earlier 5 Commission meeting. It was published in the Texas 6 Register. It was published in the Texas Register's 7 July 9th, 1999, issue. The minimum 30-day public 8 comment period has lapsed, therefore it is ripe. 9 It -- comments were received regarding 10 the proposed section. Those comments are embodied in 11 the preamble of the rule that is before you, and the 12 staff's responses to those comments are also embodied 13 in the rule before you. The staff is recommending 14 that you do adopt this rule without changes to the 15 proposed text. 16 This rule is the rule that will, for a 17 one-year period of time, increase, by 25 percent, 18 license applications fees for conductor and lessors' 19 licenses class E through J. The increased fee may be 20 paid, at the licensee's option, either over a 21 two-year -- two years at the rate of 12.5 percent per 22 year, or for one year at the rate of 25 percent. 23 The purpose for this rule is to acquire 24 a new computer system for the Charitable Bingo 25 Division. The Charitable Bingo Division did conduct a 0061 1 needs assessment study that had them provide the 2 report. The Legislature did, through a rider in the 3 Lottery Commission's bill pattern through the last 4 legislative session, did appropriate additional funds 5 from the license fees for the purpose of funding this. 6 I will say that if you -- that I have 7 no idea whether anybody wishes to comment on this rule 8 today. If you receive comments on this rule today, 9 the staff will not be in a position asking for you to 10 adopt this rule today because I will need to 11 incorporate those comments, and we will need to 12 respond, and that is part of the required preamble to 13 the adopted form of the rule. 14 This rule, in my view, if we want it to 15 implement legislation that takes effect September 1, 16 needs to be adopted today because of the filing -- or, 17 pardon me -- the time line requirements with the Texas 18 Register which is that a rule, an adopted rule, once 19 filed with the Register, 20 days must lapse, a minimum 20 of 20 days must lapse, before the rule is actually 21 effective. With that, I believe the staff is 22 recommending and requests your vote to adopt this 23 rule. 24 CHAIR MIERS: Okay. Questions or 25 comments? 0062 1 MR. CLOWE: If I ask the Director of 2 Charitable Bingo for comments, does that fall within 3 the scope of your comments? 4 MS. KIPLIN: No. It's just public 5 comments, and no offense to Mr. Atkins, but he's not a 6 member of the public today. 7 MR. CLOWE: In that view, I'd like to 8 hear from you, Billy. What are your comments? 9 MR. ATKINS: Commissioners, in general 10 the comments that we received regarding the rule were 11 as follows. There were three, I think, broad 12 categories: One, commenters requested that if the 13 rule were to be adopted that all license classes, 14 including A through D, be included as well as 15 manufacturers, distributors, and system service 16 providers. 17 The staff didn't agree with those 18 comments because first of all manufacturers, 19 distributors, and system service providers are set by 20 statute and we have no regulatory authority to effect 21 those license fees. And also it's staff's position 22 that by including the lower license classes, A through 23 D, one, that could have a negative impact on those 24 smaller organizations, and, two, since there is so few 25 of them, they wouldn't significantly reduce the 0063 1 amount -- or, the percentage amount. 2 The second general comment was that 3 commenters believed that the State should have just 4 appropriated the money. They did not do that. They 5 set up a means for this to be carried out. We believe 6 this rule to be in compliance with that. 7 And finally, I think there was a 8 misunderstanding among some of the commenters. I 9 think they were under the impression that all the 10 money that is collected from Bingo, either through 11 license fees or prize fees or gross rental tax, came 12 into us and we did with it whatever we wanted to, and 13 so we should have paid for it out of that. Staff 14 disagrees. 15 All funds that we collect are deposited 16 to the general revenue fund. Any funds we receive are 17 from a straight appropriation, and that appropriation 18 did not include that. It has -- as Kim mentioned, the 19 contingency rider for the appropriation is based on 20 the adoption of this rule. 21 So having said that, unless you have 22 any other specific questions about the rules, or the 23 comments, I would also request the Commission adopt 24 the rule. 25 MR. SADBERRY: If I recall correctly, 0064 1 Billy, this did go before the advisory committee? 2 MR. ATKINS: Yes, sir. 3 MR. SADBERRY: They did have some 4 comments but did support it, as I recall. 5 MR. ATKINS: Yes, sir. 6 CHAIR MIERS: Further questions? 7 MS. KIPLIN: I will say -- I'm sorry. 8 I will say that public comment was received both in an 9 oral fashion and a written fashion. The staff did 10 notice up, on its own initiative, a rule making 11 comment period to allow people to come forward and, 12 you know, provide comment in an oral fashion just to 13 give people an opportunity who chose to do it that 14 way. 15 MR. ATKINS: And also -- I'm sorry, 16 Commissioners. There were also comments in support of 17 the rule and in support of the rule exempting license 18 classes A through D. 19 MR. CLOWE: I move the adoption. 20 MR. SADBERRY: Second. 21 CHAIR MIERS: All those in favor, aye. 22 Aye. 23 MR. SADBERRY: Aye. 24 MR. CLOWE: Aye. 25 CHAIR MIERS: The vote again is three 0065 1 to zero on 405.572 (sic). 2 MR. ATKINS: And that will have -- Kim? 3 MS. KIPLIN: And the adoption will be 4 effective September 1. 5 CHAIR MIERS: Is that the sense of the 6 motion? 7 MR. SADBERRY: So understood. 8 CHAIR MIERS: And the second? 9 MR. CLOWE: Sorry. I lost track. I 10 was thinking about that last rule. Was there another 11 motion? 12 CHAIR MIERS: Effective date September 13 1st. 14 MR. CLOWE: Second. 15 CHAIR MIERS: All those in favor with 16 that understanding? 17 MR. SADBERRY: Aye. 18 MR. CLOWE: Aye. 19 CHAIR MIERS: Okay. Three to zero. 20 Okay. We do have an Executive Session 21 planned. Before we go into Executive Session I would 22 suggest we go ahead and consider the contested cases. 23 A number of these are routine, but we do hit a number 24 that don't appear to be. And I believe the first 25 one -- let me go through, and if I'm understanding 0066 1 what is proposed in the T-Mart, Oasis, Al's Corner, 2 Kokelbug, 99 Cent -- there's two of those actually -- 3 the Cole's Liquor Store, those are all routine 4 sweeping issues in failure to maintain funds as 5 appropriate? 6 MS. SCHULTZ: Yes. I'm Kaye Schultz, 7 Assistant General Counsel, and those are revocations 8 based on three or more insufficient funds by these 9 retailers. 10 CHAIR MIERS: Okay. I would move the 11 approval of those proposals for decision. 12 MR. CLOWE: Second. 13 CHAIR MIERS: All those in favor, aye? 14 MR. SADBERRY: Aye. 15 MR. CLOWE: Aye. 16 CHAIR MIERS: Then that gets us through 17 starting with Barnaby's. Just so we're clear on what 18 these additional -- I guess, there are three others 19 that you might want to deal with us individually on. 20 MS. SCHULTZ: Yes, ma'am. The 21 Barnaby's is what's called a redetermination. That's 22 requested by the retailers in cases when there's been 23 a determination that an amount was owed the Lottery 24 Commission. 25 In this case the brothers O'Brien, 0067 1 David and Raymond O'Brien, requested the 2 redetermination on two of their retailer licenses. 3 The brothers O'Brien ran into an unfortunate situation 4 where they had another group of individuals operating 5 these stores on some type of arrangement where after 6 they operated for a number of months they would be 7 taking over. Unfortunately they did not transfer or 8 otherwise change ownership of the Lottery licenses and 9 this arrangement fell through. The people operating 10 the stores for them declared bankruptcy preventing 11 them from going in and getting the tickets and 12 terminal out, and by the time the bankruptcy was 13 dismissed, tickets were missing. 14 Between the time of the determination 15 and the actual hearing, you'll notice there was a drop 16 in the amount. The final amount owed under one 17 license was $7,478.34, and under the other $5,869.29. 18 The brothers O'Brien did appear at that hearing, which 19 they had requested to contest the amounts, but after 20 sitting down with us prior to the hearing, they did 21 not contest and, in fact, stipulated as to those 22 amounts and we went on the record to do that. So this 23 order is to enter those amounts for those respective 24 licenses. 25 CHAIR MIERS: Now move approval of the 0068 1 proposed order of the Commission. 2 MR. SADBERRY: Second. 3 CHAIR MIERS: All those in favor say, 4 aye. 5 MR. SADBERRY: Aye. 6 MR. CLOWE: Aye. 7 CHAIR MIERS: Then we have two -- the 8 Lulac Council but different numbers, and these are 9 Bingo matters not Lottery matters. 10 MS. KIPLIN: And, Commissioner Miers, 11 these are the two remaining contested cases. All the 12 other ones you have voted on to adopt the ALJ's 13 recommendations. 14 CHAIR MIERS: Correct. 15 MR. BENNETT: Good afternoon, 16 Commissioners. Once again, for the record, my name is 17 Ridgely Bennett. I'm the Deputy General Counsel. 18 Regarding Lulac Council 4516, that case 19 was brought to hearing because the licensee failed to 20 distribute the required 35 percent charitable 21 distribution for the fourth quarter of 1998 in the 22 amount of $3,417.48. Lulac Council 4516 was 23 represented by -- at the hearing by Henry Rodriquez, 24 District 15 Lulac Director, and Velma Ortega, the 25 Lulac 15 District Deputy Director. 0069 1 At the hearing the Lulac Council 4516 2 stipulated on the record to the fact that they had 3 failed to make the required charitable distribution. 4 You have before you a PFD which recommends the 5 revocation of a license. The organization is 6 currently in compliance with the 35 percent charitable 7 distribution, but they were not at the time of the 8 hearing. 9 CHAIR MIERS: Okay. We've had requests 10 when people become current for reconsideration. Have 11 we received any such requests with respect to this 12 particular situation? 13 MR. BENNETT: No, we have not. 14 MR. SADBERRY: They are currently in 15 compliance by performance but did not come into 16 compliance at the -- before the hearing. 17 MR. BENNETT: Correct. 18 MR. SADBERRY: Nor neither at the 19 hearing. 20 MR. BENNETT: Correct. 21 MS. KIPLIN: I will -- let me just say 22 one thing on the record: July 13th, 1999, is the date 23 of the letter that Mr. Rodriquez, in his 24 representative capacity as the Director of Lulac 25 District 15, wrote to Ms. Cloud, and -- oh, beg your 0070 1 pardon? Okay. And the three Commissioners were 2 circulated copies, it appears by the letter as well as 3 State Senator Frank Madla. And the gist of the letter 4 is to indicate that the problems with regard to 5 failure to meet the requirements under the Bingo 6 Enabling Act appear to center around Bingo workers who 7 walked out on the job. And he does indicate that the 8 council is in good standing. 9 CHAIR MIERS: That's as to number -- 10 the 4516? Is that correct? 11 MS. KIPLIN: That's docket number 12 362-99-0614, which would be -- 13 CHAIR MIERS: Kim, we don't have any 14 communication on 4383. 15 MS. KIPLIN: Not that I'm aware of. 16 CHAIR MIERS: Now I'll move approval of 17 the recommended decision in connection with Lulac 18 Council 4383 -- 19 MR. BENNETT: Commissioner, ma'am, I'd 20 like to bring to your attention that on July 2nd, 21 1999, the license for Lulac Council 4318 -- 4383 22 expired, and, therefore, that issue is now moot and no 23 action is required by the Commission for Lulac Council 24 4382. 25 MS. KIPLIN: Once a license -- 0071 1 MR. BENNETT: 4383. Excuse me. 2 MS. KIPLIN: Once a license expires you 3 have no jurisdiction to take any action against a 4 license that no longer exists, so that matter is moot 5 and is not properly before you today for your 6 consideration based on the comments Mr. Bennett just 7 made. 8 CHAIR MIERS: Well, why is it in our 9 book, just out of curiosity? 10 MS. KIPLIN: In terms of the licensing 11 expiring -- when did the license expire? 12 MR. BENNETT: July 2nd. 13 MS. KIPLIN: Okay. The only thing I 14 can say is that we notice them up out of the Legal 15 Department based on the orders that we get, and if it 16 was brought to my attention -- and, you know, I'll 17 take the responsibility for it. I don't recall it 18 being brought to my attention. We just, as a matter 19 of course, put these on the list. 20 CHAIR MIERS: Okay. So 4383 is moot. 21 We shouldn't take any action. 22 And this 4516 -- it always troubles us, 23 I think, as a Commission, when we have people who have 24 brought their situation back into compliance and we 25 take action against them. So is there an argument why 0072 1 we shouldn't ask counsel to review that again and see 2 if you are for us going ahead, Ridgely? 3 MR. BENNETT: I believe that in the 4 notice of hearing, for the latter, we put the licensee 5 on notice that we will not settle the case after 6 the -- at the time of the hearing or after the 7 hearing. They were fully aware of that. They came to 8 the hearing and did not come into compliance at the 9 time of the hearing, so I believe staff's 10 recommendation would be that the license be revoked. 11 MS. KIPLIN: I guess, if I could just 12 echo, you know, what's probably been a consistent 13 position on my part, and that is that it is a 14 considerable amount of effort not only for this 15 agency, but also for the State Office of 16 Administrative Hearings to go through the hearings 17 process. Because of the last legislative session, 18 there is now going to be a new way in which agencies 19 are going to be billed for the work that goes to the 20 State Office of Administrative Hearings, and it's 21 based on whatever the benchmark that was made in terms 22 of workload thresholds in the preceding fiscal year. 23 Anything above and beyond that, we're going to be 24 charged on an hourly wage. 25 Now, I say that recognizing that 0073 1 it's -- you know, it's part of an administrative 2 dilemma, but I also think that it's important what 3 message -- and, of course, you-all are the decision 4 makers so you send the message -- what message we're 5 sending our licensees. It goes in my view, and I'm 6 being an advocate at this point, that there is no risk 7 for a licensee to lay behind the law, take this agency 8 into a contested case where the agency is having to 9 spend considerable time preparing witnesses and 10 exhibits, sending out the necessary notice letters, 11 and then after the hearing and after they get the 12 proposal for decision then saying, "We are now in 13 compliance," -- 14 CHAIR MIERS: Kim -- 15 MS. KIPLIN: -- when we don't know the 16 history of noncompliance. So with that, I'll take off 17 my advocate hat and let the decision makers make their 18 decision. 19 CHAIR MIERS: And I think you know that 20 your Commissioners fully support that position, that 21 you can't force the agency through that process and 22 then come into compliance. But we've had a number of 23 hardship issues before, and I guess my question ought 24 to be better stated: Is there any sort of 25 circumstance in this situation that should cause us to 0074 1 look at it? That's really the question; and is there? 2 MR. BENNETT: Unfortunately I have not 3 had the chance to review the letter that was sent by 4 the organization to -- 5 MS. KIPLIN: I will say that just in 6 reviewing that letter, it's consistent with what their 7 testimony was at the time of the hearing, and that is 8 there were Bingo workers that worked there that had 9 that kind of control. They're no longer there and 10 they're getting to the bottom of the business and 11 moving forward. 12 We've had this, as you know, come 13 before the Commission with regard to this particular 14 type of -- and the one that comes to mind are the 15 wheelchair bowlings that indicated they had been 16 locked out of their operations and didn't have access 17 to the documents. I think if, as an agency, we bite 18 on this argument, then we should be prepared for other 19 organizations to make the same argument and lay it off 20 on Bingo workers who, frankly, they're supposed to 21 have control over. It is their license and their 22 organization. And just to be a strong advocate for 23 the staff, it just seems to me that that's part of 24 being licensed and operating in a regulated 25 environment. 0075 1 CHAIR MIERS: Is there a motion on that 2 case? 3 MR. CLOWE: Well, could I ask a 4 question before a motion is made? Has full 5 restitution been made? They're in compliance, I 6 understand, and have past moneys due and not-paids 7 been paid? 8 MR. ATKINS: Yes, sir. 9 MR. CLOWE: I have full appreciation 10 for the points that have been made, and I think that 11 the staff, and particularly Legal, is on the right 12 track and I think you're doing the right thing. 13 However, my view is as an oversight. I would want to 14 move to not accept the recommendation of staff in this 15 case, and since the licensee now is in full 16 compliance, not adopt this order. I so move. 17 MR. SADBERRY: If I may, in seconding 18 that motion, make a statement? Is that permitted? 19 May I? 20 I think what's important, and I echo 21 the Chair -- the sense of what I believe the Chair is 22 stating and what Commissioner Clowe specifically 23 states, I've been there and I know why this was 24 needed -- and I like the concept of the hardship 25 exception introduced here. I don't know if it's been 0076 1 articulated that way before. But I think -- and, 2 Billy, you might respond to this -- I think the 3 objective of what we had to do in adopting this ad hoc 4 informal rule of procedure has worked. And you would 5 know, wouldn't you, Billy? 6 MR. ATKINS: It -- Commissioner 7 Sadberry, I'll answer it this way. 8 MR. SADBERRY: All right. 9 MR. ATKINS: It has proved successful 10 in a number of cases in getting organizations in 11 compliance, receiving moneys owed, or distributions 12 owed. What it has not done is stopped organizations 13 from following this pattern. 14 MR. SADBERRY: The reason I made these 15 comments in seconding the motion -- and I am going to 16 second the motion -- is, would we do balance to your 17 ability to do what you have to do and if we did not 18 adopt the recommendation in your views; in your view? 19 I don't -- now, I'll say it, but I won't put the heat 20 on you; I'll take it back. I don't think we would -- 21 CHAIR MIERS: We have a motion and a 22 second, and what I might suggest is that I'd like to 23 move to defer this matter, at this time, until we have 24 a report, the next time, on what exactly are the 25 distinctions in this situation other than compliance 0077 1 after the full process has run. I'm having real 2 difficulties understanding why this situation should 3 be distinguished from any of the licensees who just 4 fully fails to comply until they don't have any other 5 recourse and come into compliance after the hearing. 6 So what I'd like to do is move to defer consideration 7 of the proposed order, at this time, and have it come 8 back to us the next time with a report on what 9 extenuating circumstances, if any, exist in this 10 situation. 11 MR. CLOWE: I withdraw my motion based 12 on that, but I would like to give this additional 13 comment so that you'll understand what my thinking is. 14 I think it might be helpful to you from one 15 Commissioner. 16 Again I think the enforcement and the 17 adoption of rules and practice is very necessary on 18 behalf of the staff and particularly in the legal work 19 that's been done here and I applaud that. I don't 20 think that that precludes me, as a Commissioner, from 21 having an oversight on these issues as they come up 22 individually, and making a judgment call on how I see 23 it as a business matter. And the advice of the Bingo 24 Director as to whether this is a thing that's occurred 25 before, whether it's occurring frequently, and if it's 0078 1 a problem in the industry is sought after, but I 2 reserve the right to make my vote based on how I feel 3 about an individual situation, and I'm inclined, where 4 people are making an honest effort to come into 5 compliance and not abusing the law or the rules, in 6 many cases to give benefit of doubt. 7 And that's why I made the motion, and 8 I'll be happy to withdraw it based on the Chair's 9 suggestion, and maybe we can go forward at the next 10 meeting if Commissioner Sadberry will withdraw his 11 second. 12 MR. SADBERRY: I withdraw the second. 13 CHAIR MIERS: Well -- and I might 14 broaden the request, then, also. Billy, it's very 15 troubling for me to hear that what we have put in 16 place is not having our intended result which is that 17 we still have people coming to the hearing not in 18 compliance and then trying to get up to speed later. 19 So what I'd like to ask, in addition to 20 bringing back this specific case, I would like to hear 21 from you and counsel what it is we can do further to 22 address that issue. What is it that would be 23 effective in causing people to understand that they 24 have to come into compliance prior to the expense of 25 the agency in preparing for going through the hearing? 0079 1 So if we could come back next meeting on both those 2 issues I would appreciate it. I have a speaker signed 3 up, Stephen Fenoglio, on 22 J -- 4 MR. FENOGLIO: I'll withdraw my 5 request, Madam Chair, in light of the current actions. 6 Thank you. 7 MR. CLOWE: We thank you. 8 CHAIR MIERS: Okay. That concludes our 9 items on the agenda for the time being except 10 Executive Session items where we may need to take 11 action, one additional item, and the reports. So why 12 don't we go ahead and take the report of the Executive 13 Director and the Bingo Operating Director at this 14 time. 15 MS. CLOUD: Okay. Let me dig through 16 this paperwork. I wasn't expecting to do this before 17 Executive Session here. 18 CHAIR MIERS: Billy, do you want to go 19 ahead? 20 MS. CLOUD: Yeah, Billy. Could you do 21 yours? 22 MR. ATKINS: Commissioners, two things 23 that aren't included in my report that I wanted to 24 bring to your attention: We have all of our regional 25 auditors scheduled to come into Austin next week. 0080 1 They'll be here from noon on Tuesday through noon on 2 Friday. We are going to be going over with them the 3 new operator training program, the recodified Bingo 4 Enabling Act. We have a new audit forms manual that 5 we're -- we want to go over with them before we sent 6 it out to our licensees, and we're also going to be 7 going over some changes that have been made to 8 different license applications. So if any of you are 9 in the area and would like to drop by, please feel 10 free to. 11 I also wanted to update the Bingo hall 12 locator number. As of today we've received a total of 13 6,384 calls to that number. That's the number that 14 was done in conjunction with the instant Bingo Lottery 15 ticket. Although the number of calls it's receiving 16 has dropped off we are still getting calls to it, and 17 Linda and I have also had some very preliminary 18 discussions about other ways that we could promote 19 that number. Other than that, that's all I have 20 unless you have any specific questions. 21 CHAIR MIERS: I don't. I appreciate 22 that report and your keeping us advised of your 23 progress, and we move to Linda. 24 MS. CLOUD: Okay. On July 15th we 25 transferred to the Foundation School Fund $67,997,749 0081 1 for a total cumulative transfers to date of 2 $7,500,674,774. You received your HUB participation 3 report. 4 On the FTE status we have -- presently 5 we're posting -- we have posted and have applications 6 coming in for the Assistant General Counsel position, 7 which was Missy Cary's position. There are 52 8 applications timely received. That position -- that 9 job posting closed on August the 6th. 10 The Deputy Executive Director's job 11 posting closes August 13th. So far we have 70 12 applications received as of this date. We have a 13 Communications Specialist position that was posted on 14 the 20th, and applications are just now being 15 received. We have three newly filled positions. 16 We have -- in the selection application 17 pending we have ten. We have -- recruiting, 18 screening, and interviewing we have 13 positions, and 19 in the process of being posted we have one. We have 20 five vacant positions with no activity at this present 21 time with a total number of vacant F&MTEs of 27. 22 Right now HR is working on 982 applications for 23 screening, so we're back to those numbers again. 24 Additionally, our next town hall 25 meeting -- I don't have the date exactly on that, but 0082 1 it is coming up in September in El Paso, so we will be 2 traveling to El Paso. It'll be a day trip for staff 3 to go to that town hall meeting. And that's my 4 report. 5 MR. CLOWE: As part of your report you 6 mentioned the FTE status. I'd like to hear from Jim 7 on his progress since he's joined the agency as 8 Director of Human Resources and how he feels this area 9 is developing since he's come aboard. 10 MS. CLOUD: Okay. 11 MR. RICHARDSON: For the record my name 12 is Jim Richardson, Human Resources Manager for TLC. 13 I'm sorry. Would you state your question again? 14 MR. CLOWE: I'd like to hear your 15 reflections, in the time that you've been here, on 16 what progress you've made and, I guess, particularly 17 what weaknesses you see in our system that you're 18 addressing and improving as far as our HR function. 19 MR. RICHARDSON: Well, we've looked at 20 various issues such as personnel management and 21 restructured some issues there. We're looking at 22 policies and procedures. 23 We're looking at the Position 24 Classification Act group and trying to come into 25 compliance with that. For September 1 the new 0083 1 Position Classification Act changed, so we'll bring 2 that on board, looking at selections issues, seeing if 3 we can modify some programs there, and if there's any 4 modifications necessary. But for the most part I 5 think we're doing a pretty good job of moving forward 6 with any issues that human resources has. 7 MR. CLOWE: I think your role is very 8 important, Jim, and I've had a couple of visits with 9 you about your activities. I'm encouraged by the 10 progress that I see you making, and I urge you to 11 continue to work within those areas for progress with 12 Linda and with the other directors. I think the 13 enhancement of our human resources activities is very 14 important to the employees of the Commission, so plow 15 on. 16 MR. RICHARDSON: Okay. Well, I 17 appreciate it. 18 MR. SADBERRY: I concur. 19 CHAIR MIERS: Yes. I think all three 20 Commissioners are going to concur. Thank you very 21 much. 22 The only item -- well, we have a couple 23 of items left, and I would now move we go into 24 Executive Session to deliberate the duties and 25 evaluation of the Executive Director and Internal 0084 1 Auditor and Charitable Bingo Operations Director 2 pursuant to Section 551.074 of the Texas Government 3 Code; to deliberate the duties of the General Counsel, 4 Security Director pursuant to 551.074 of the Texas 5 Government Code; to receive legal advice regarding 6 pending or contemplated litigation and/or to receive 7 legal advice pursuant to Section 551.071(1) A or B of 8 the Texas Government Code; and receive legal advice 9 pursuant to Section 551.071(2) of the Texas Government 10 Code including but not limited to the items listed 11 under 20F in our agenda as provided to us. We also -- 12 I think that's it. And the time is 12:22. 13 MS. KIPLIN: I need a second and a 14 vote. 15 MR. SADBERRY: Second. 16 CHAIR MIERS: All those in favor, aye. 17 MR. SADBERRY: Aye. 18 MR. CLOWE: Aye. 19 CHAIR MIERS: Any opposed? We'll go 20 into Executive Session and come back into full 21 section -- 22 MS. KIPLIN: The time is still 12:22. 23 CHAIR MIERS: -- shortly. 24 MS. KIPLIN: The date is August 11th, 25 1999. 0085 1 CHAIR MIERS: We'll stand in recess. 2 (Executive Session) 3 CHAIR MIERS: Okay. We are back in 4 Open Session at 1:53, and is there any action 5 necessary as a result of the discussion in Executive 6 Session? I hear no suggested action at this time. Do 7 I hear a motion to adjourn? 8 MR. CLOWE: So moved. 9 MR. SADBERRY: Second. 10 CHAIR MIERS: Okay. We'll stand in 11 recess until our September meeting. 12 MS. KIPLIN: Okay. 13 (Proceedings concluded) 14 15 16 17 18 19 20 21 22 23 24 25 0086 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, LESLIE P. BOERGER, 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 set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the day of 17 August, 1999. 18 19 20 ______________________________ LESLIE P. BOERGER, Texas CSR 5839 21 Expiration Date: 12/31/00 1609 Shoal Creek Boulevard 22 Suite 201 Austin, Texas 78701 23 (512) 474-4363 24 25 JOB NO. 990811LPB