0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE ) TEXAS LOTTERY COMMISSION ) 7 WEDNESDAY, AUGUST 22, 2007 ) 8 9 COMMISSION MEETING 10 WEDNESDAY, AUGUST 22, 2007 11 12 13 BE IT REMEMBERED THAT on Wednesday, the 14 22nd day of August 2007, the Texas Lottery Commission 15 meeting was held from 9:00 a.m. to 2:16 p.m. at the 16 Offices of the Texas Lottery Commission, 611 East 6th 17 Street, Austin, Texas 78701, before CHAIRMAN JAMES A. 18 COX, JR., and COMMISSIONER C. TOM CLOWE, JR. The 19 following proceedings were reported via machine 20 shorthand by David Bateman, a Certified Shorthand 21 Reporter of the State of Texas, and the following 22 proceedings were had: 23 24 25 0002 1 APPEARANCES 2 3 CHAIRMAN: 4 Mr. James A. Cox, Jr. 5 6 COMMISSIONER: 7 Mr. C. Tom Clowe, Jr. 8 9 GENERAL COUNSEL: 10 Ms. Kim Kiplin 11 12 EXECUTIVE DIRECTOR: 13 Mr. Anthony J. Sadberry 14 15 CHARITABLE BINGO OPERATIONS: 16 Mr. Phillip D. Sanderson 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. I - Meeting called to order....... 10 4 AGENDA ITEM NO. II - Report by the Bingo Advisory 5 Committee Chair, possible discussion and/or 6 action regarding the BAC's activities, including 7 the July 17, 2007 committee meeting........... 10 8 AGENDA ITEM NO. III - Consideration of and possible 9 discussion and/or action on the Bingo 10 Advisory Committee work plan.................. 20 11 AGENDA ITEM NO. IV - Report, possible discussion 12 and/or action on the implementation of 13 recommendations contained in the Internal 14 Audit Report on bingo audit services, 15 including development of rules................ 24 16 AGENDA ITEM NO. V - Consideration of and possible 17 discussion and/or action, including adoption 18 of repeal, on 16 TAC 402.102 relating to 19 Bingo Advisory Committee...................... 27 20 AGENDA ITEM NO. VI - Consideration of and possible 21 discussion and/or action, including adoption, 22 on new 16 TAC 402.102 relating to Bingo 23 Advisory Committee............................ 27 24 25 0004 1 TABLE OF CONTENTS (CONT.) 2 PAGE 3 AGENDA ITEM NO. VII - Consideration of and possible 4 discussion and/or action, including proposal, 5 on amendments to 16 TAC 402.100 relating to 6 definitions................................... 31 7 AGENDA ITEM NO. VIII - Consideration of and possible 8 discussion and/or action on nominations and 9 appointment procedure on the Bingo Advisory 10 Committee..................................... 33 11 AGENDA ITEM NUMBER IX - Report by the Charitable 12 Bingo Operations Director and possible 13 discussion and/or action on the Charitable 14 Bingo Operations Division's activities........ 39 15 AGENDA ITEM NO. X - Report, possible discussion 16 and/or action on lottery sales and revenue, game 17 performance, new game opportunities, market 18 research and trends........................... 41 19 AGENDA ITEM NO. XI - Report, possible discussion 20 and/or action on transfers to the State....... 48 21 AGENDA ITEM NO. XII - Report, possible discussion 22 and/or action on Bingo indirect and 23 administrative expenses....................... 49 24 25 0005 1 TABLE OF CONTENTS (CONT.) 2 PAGE 3 AGENDA ITEM NO. XIII - Consideration of and 4 possible discussion and/or action on the 5 agency's FY 2008 operating budget............. 57 6 AGENDA ITEM NO. XIV - Report, possible discussion 7 and/or action on the 80th Legislature......... 59 8 AGENDA ITEM NO. XV - Report, possible discussion 9 and/or action on the agency's contracts....... 60 10 AGENDA ITEM NO. XVI - Report and possible discussion 11 and/or action on the agency's HUB program 12 and/or minority business participation, 13 including agency's Mentor Protege Program..... 61 14 AGENDA ITEM NO. XVII - Consideration of and possible 15 discussion and/or action, including adoption of 16 amendments, on Rule 16 TAC 401.310 relating to 17 payment of prize payments upon death of 18 prize winner.................................. 63 19 AGENDA ITEM NO. XVIII - Consideration of and possible 20 discussion and/or action, including adoption, 21 on the rule review of 16 TAC Chapter 403 22 concerning General Administration............. 65 23 24 25 0006 1 TABLE OF CONTENTS (CONT.) 2 PAGE 3 AGENDA ITEM NO. XIX - Consideration of and possible 4 discussion and/or action on external and internal 5 audits and/or reviews relating to the Lottery 6 Commission and/or Internal Audit activities... 67 7 AGENDA ITEM NO. XX - Report, possible discussion 8 and/or action on incomplete lottery ticket 9 transactions.................................. 68 10 AGENDA ITEM NO. XXI - Report, possible discussion 11 and/or action on the Mega Millions game and/or 12 contract...................................... 72 13 AGENDA ITEM NO. XXII - Report, possible discussion 14 and/or action on GTECH Corporation............ 72 15 AGENDA ITEM NO. XXIII - Consideration of the status 16 and possible entry of orders in: 17 A. Docket No. 362-06-1241 Quick Food Mart #1 18 B. Docket No. 362-07-3211 Super Fine 19 Business, Inc. 20 C. Docket No. 362-07-2656.B FOE Aerie 3098 21 D. Docket No. 362-06-3239.B Ysleta Del Sur 22 Pueblo Heritage Corporation 23 E. Case No. 2007-639 VFW Post 8905 24 F. Case No. 2007-617 Voiture Locale 25 No. 1031........................... 74 0007 1 TABLE OF CONTENTS (CONT.) 2 PAGE 3 AGENDA ITEM NO. XXIV - Report by the Executive 4 Director and/or possible discussion and/or 5 action on the agency's operational status, 6 activities relating to the Charitable Bingo 7 Operations Division, agency procedures, Ombuds 8 position, stolen ticket cases and FTE status.. 83 9 AGENDA ITEM NO. XXV - Public comment.............. 91 10 AGENDA ITEM NO. XXVI - Commission may meet in 11 Executive Session: 12 A. To deliberate the duties and evaluation 13 of the Executive Director pursuant to 14 Section 551.74 of the Texas 15 Government Code 16 B. To deliberate the duties and evaluation 17 of the Deputy Executive Director 18 pursuant to Section 551.074 of the 19 Texas Government Code 20 C. To deliberate the duties and evaluation 21 of the Internal Audit Director pursuant 22 to Section 551.074 of the Texas 23 Government Code 24 25 0008 1 TABLE OF CONTENTS (CONT.) 2 PAGE 3 D. To deliberate the duties and evaluation 4 of the Charitable Bingo Operations 5 Director pursuant to Section 551.074 6 of the Texas Government Code 7 E. To deliberate the duties of the General 8 Counsel pursuant to Section 551.074 9 of the Texas Government Code 10 F. To receive legal advice regarding pending 11 or contemplated litigation pursuant 12 to Section 551.071 (1)(A) and/or to 13 receive legal advice regarding 14 settlement offers pursuant to Section 15 551.071 (1)(B) of the Texas Government 16 Code and/or to receive legal advice 17 pursuant to Section 551.071 (2) of the 18 Texas Government Code, including but 19 not limited to: 20 Cynthia Suarez v. Texas Lottery 21 Commission 22 Shelton Charles v. Texas Lottery 23 Commission 24 First State Bank of DeQueen et al. 25 v. Texas Lottery Commission 0009 1 TABLE OF CONTENTS (CONT.) 2 PAGE 3 Employment law, personnel law, 4 procurement and contract law, 5 evidentiary and procedural law, 6 and general government law 7 Lottery Operations and Services 8 Contract 9 Mega Millions game and/or 10 Contract................. 89 11 AGENDA ITEM NO. XXVII - Return to open session for 12 further deliberation and possible action on any 13 matter discussed in Executive Session......... 91 14 AGENDA ITEM NO. XXVIII - Adjournment.............. 91 15 16 REPORTER'S CERTIFICATE............................ 92 17 18 19 20 21 22 23 24 25 0010 1 P R O C E E D I N G S 2 WEDNESDAY, AUGUST 22, 2007 3 (8:59 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN COX: Good morning. It's nine 6 o'clock. Today is Wednesday, August 22nd, 2007. 7 Chairman Clowe is here. I'm Jim Cox. Let's call this 8 meeting of the Texas Lottery Commission to order. 9 AGENDA ITEM NO. II 10 CHAIRMAN COX: Agenda item number two, 11 report by the Bingo Advisory Committee chair, possible 12 action -- discussion and/or action regarding the Bingo 13 Advisory Committee's activities, including the July 17, 14 2007 committee meeting. 15 Ms. Taylor? 16 MS. TAYLOR: Good morning, commissioners. 17 My name is Suzanne Taylor. I'm chair of the BAC. How 18 brief do you want me to be on the report on the 19 meeting? 20 CHAIRMAN COX: Well, certainly we want 21 you to cover it to the extent that you believe we 22 should be informed about it. We do have it in our 23 book. So I'll let you be the judge of that, Suzanne. 24 MS. TAYLOR: Okay. I'll get right along 25 with all the members of the BAC were in attendance at 0011 1 the meeting. We reviewed the new PSA. Phil Sanderson 2 did the one that's in English and Spanish. The 3 Committee members were very impressed with that. 4 I think we're also impressed with the 5 fact that anybody can get that from the Lottery 6 Commission at no cost. And that's a great tool that we 7 have to try and promote bingo. 8 CHAIRMAN COX: Let me stop you for a 9 second. What is a PSA? 10 MS. TAYLOR: Public service announcement. 11 It's a -- on bingo. 12 CHAIRMAN COX: Okay. 13 MS. TAYLOR: In English and in Spanish 14 and it's been updated and looks really great. 15 CHAIRMAN COX: This is the one our 16 in-house people put together? 17 MS. TAYLOR: Yes, sir. It is. 18 CHAIRMAN COX: Good. 19 MS. TAYLOR: It's available at no cost to 20 anybody requesting it so that it can be run on local TV 21 stations that will run PSAs. 22 CHAIRMAN COX: Have y'all gotten into 23 trying to get it into distribution and get folks to run 24 it? 25 MS. TAYLOR: Rosie has, and she's had 0012 1 great success up in her neck of the woods with it and 2 has brought us information from the station showing how 3 many times they've been running the PSA. 4 CHAIRMAN COX: Good. 5 MS. TAYLOR: Terry Shankle reviewed the 6 first quarter 2007 bingo conductor information with the 7 BAC members. She noted the gross receipts, net 8 receipts and attendance were lower for the first 9 quarter 2007 than for the first quarter 2006. 10 Attendance decreased nine percent in the 11 first quarter 2007 from the first quarter 2006 and has 12 decreased 20.1 percent since the first quarter 2003. 13 Prizes have still continued to increase due to the 14 increasing prize payout percentages. 15 She also observed there has been a 16 46-percent increase in the amount spent per player 17 between the first quarter 2003 and the first quarter 18 2007. 19 Committee members reviewed the proposed 20 amendments to 16 TAC 402.100 relating to definitions, 21 specifically the new definition for bingo chairperson. 22 Members expressed concern that the chairperson is 23 required to be an officer of a licensed organization 24 and agreed to submit comments to Knowles in writing by 25 August 12th for presentation at the August commission 0013 1 meeting. 2 Committee members also reviewed the 3 proposal for the new 16 TAC 402.102 relating to the 4 Bingo Advisory Committee. Public comment was received 5 that that language does not anticipate anyone leaving 6 the BAC other than when their term is expired and 7 questioned why E2, Charitable Bingo Operations Division 8 staff ranked the nominations with advice and 9 consultation of the executive director as appropriate. 10 BAC members were encouraged to submit 11 comments to Knowles in writing by August 12 for 12 presentation at the August commission meeting. 13 Committee members reviewed the draft copy 14 of guidelines for internal controls. Public comment 15 was received requesting the chance to give the bingo 16 industry a chance to comment on this draft that these 17 internal controls should be called best practices 18 instead of minimum internal control standards and these 19 practices would be very hard on small organizations 20 such as VFWs. 21 It was moved, seconded and passed with 22 one abstention to oppose the draft as written and 23 request to reopen a work group to come up with a better 24 internal control risk assessment document. 25 The work group consisting of Knowles, 0014 1 Rosie, David, Kimberly and Sharon Ives was created to 2 work on the guidelines for internal control. And these 3 work groups have already met once for sure that I'm 4 aware of. 5 Committee members reviewed the draft 6 control for the compliance audits. It was moved, 7 seconded and passed with one abstention to approve the 8 draft incorporating Steve Fenoglio's comments. They -- 9 same motion to -- for the draft rule for dispute 10 resolution to approve it with Steve Fenoglio's 11 comments. 12 Committee members reviewed the draft rule 13 for the books and recordkeeping requirements for 14 conductors. A work group consisting of Stephen 15 Fenoglio, David Heinlein, Kimberly Rogers, Rosie, 16 Markey Weaver and Suzanne was formed to work on the 17 draft rule. 18 It was moved, seconded and passed to 19 present the recommendation of the work groups to the 20 commission at their August meeting. 21 Committee members also reviewed the draft 22 rule for the conduct of bingo. After much negative 23 comment, it was agreed that the work group for books 24 and records requirements would also work on this rule 25 for presentation at the August commission meeting. 0015 1 Committee members reviewed the draft rule 2 for house rules. These rules were worked on by the 3 work group already in place for the other rules with 4 Kimberly Rogers as chair for presentation at the August 5 committee meeting. 6 It was moved, seconded and passed to 7 present the recommendations of the nomination work 8 groups to the commission at their August meeting. A 9 work group consisting of Rosie, Knowles, Larry and 10 Markey Weaver was formed to describe what progress had 11 been made on the 2006 BAC work plan to present at the 12 August commission meeting. 13 And that was the major things that 14 happened during our meeting. If you have any 15 questions, I would be glad to answer those. 16 COMM. CLOWE: No questions. 17 CHAIRMAN COX: Suzanne, the -- I remember 18 some discussion about this minimum internal control 19 standards versus whatever the other term that you used 20 was, best practice. 21 Phil, where are we on that? 22 MR. SANDERSON: The staff has met with 23 the work group, I believe, twice on those standards. 24 And we're looking to have something by the end of this 25 month that will be ready to either bring to y'all at 0016 1 the September meeting or we'll put on the Web site for 2 the guidelines, the minimum internal control 3 guidelines. 4 They are not going to be requirements. 5 They're just going to be guidance. And it could be 6 best practices for organizations to follow in trying to 7 maintain internal controls. 8 CHAIRMAN COX: Well, correct me if I'm 9 wrong. But what we were trying to do was give people a 10 safe harbor to say that, if you have these minimum 11 records, then we're going to say that your records are 12 sufficient. 13 Although there might be instances where 14 less than that would be considered sufficient, it would 15 have to be on a case-by-case basis. Is that what we 16 were trying to do? 17 MR. SANDERSON: Well, not with the 18 internal controls. We're doing that or trying to do 19 that with the books and records requirements. 20 CHAIRMAN COX: Okay. Thank you. 21 MR. SANDERSON: Which is a little bit 22 different. The internal controls is just a standard 23 that we offer organizations to -- the ability to see 24 what minimum standards to maintain control over their 25 bingo operations would entail. 0017 1 And we assess those controls during our 2 audit of the organization to address what the scope of 3 the audit may be, depending on the internal controls 4 they have in place. 5 CHAIRMAN COX: Now it's going to be the 6 case, of course, for small organizations that they're 7 going to have weaker controls than the large 8 organizations do. 9 MR. SANDERSON: That is correct. 10 CHAIRMAN COX: Fewer resources, including 11 people. Is it possible to or advisable to develop 12 minimum internal control standards that would be a safe 13 harbor for those small organizations then perhaps 14 another set that we call best practices that we would 15 hope the larger organizations would try to achieve? 16 MR. SANDERSON: We can certainly look at 17 sort of two different standards or, you know, a little 18 bit more restricted standards for larger groups and 19 then less restricted for the smaller groups. 20 We realize that there are some 21 organizations, based on their size and the size of 22 their bingo operation, that they're not going to have 23 enough individuals to completely have separation of 24 duties. 25 CHAIRMAN COX: Right. 0018 1 MR. SANDERSON: And while these internal 2 controls are not requirements, they're just a guideline 3 and no one will be cited for not -- there will not be 4 any administrative sanctions for not having internal 5 controls. 6 Primarily, the internal controls will be 7 used, like I said earlier, for developing the scope of 8 the audit. And if you go in and you have one 9 individual that does all the inventory and the sales 10 and the counting the cash and the deposits, then the 11 auditor would be more apt to go deeper into more detail 12 in the audit. 13 CHAIRMAN COX: Inevitably. 14 MR. SANDERSON: And if you had someplace 15 where you had four individuals that handled those 16 functions separate and then it may not have to be as 17 detailed in the audit. 18 CHAIRMAN COX: Okay. Are you working 19 with Catherine and her group on that? 20 MR. SANDERSON: Yes, we are. 21 CHAIRMAN COX: Okay. Good. Thank you. 22 COMM. CLOWE: Mr. Chairman? 23 CHAIRMAN COX: Yes, sir. 24 COMM. CLOWE: If I may, I want to make 25 this subject more complicated than it is right now. 0019 1 And I think I need to repeat some of the things I said 2 in the meeting as you work on this, Phil. 3 The concern was expressed by a number of 4 members of the BAC that, if these internal guidelines 5 were adopted, they would become the rule and they would 6 be applied informally and then formally and then they'd 7 be in place. 8 And that's a valid concern. And you 9 spoke to that and you need to keep that in mind. And 10 as you go forward on this, we need to try to get some 11 comfort, if it's possible, about what it is you're 12 doing. 13 And this -- this other issue about large 14 organizations that are well-run and small organizations 15 that are not well-run, when it comes to enforcement, 16 the law is the law and the rule is the rule. 17 And I want to express some concern about 18 two different sets of standards. If I were a large 19 organization and easier standards were adopted for 20 small organizations, I'd want to be treated like a 21 small organization because it's easier and I'd want the 22 easy path. 23 And if I didn't get what I wanted, I 24 might go to the court and say the law is the law and 25 the rule is the rule and I should be treated equally. 0020 1 So as I said, I want to make this more complicated for 2 you and harder than it might seem to be on the surface 3 by expressing that view. 4 Enforcement is difficult. And you're 5 talking about trying to make it easier on the people 6 that we must enforce the law in regard to the license 7 they hold. But you've got to be treating everybody the 8 same. If you don't, you're not doing it right. 9 So be careful as you get into this and 10 you try to come up with a solution. Keep those 11 concerns in mind, if you would. 12 MR. SANDERSON: We most definitely will, 13 sir. 14 CHAIRMAN COX: Thank you for that. 15 COMM. CLOWE: Thank you. 16 CHAIRMAN COX: Okay. Suzanne, that 17 concluded your report then? 18 AGENDA ITEM NO. III 19 CHAIRMAN COX: Agenda item number three, 20 consideration of and possible discussion and/or action 21 on the Bingo Advisory Committee work plan. 22 Ms. Taylor? 23 MS. TAYLOR: This work plan is one that 24 we presented to you several months ago. And I know 25 that the commissioners had asked what progress had been 0021 1 made on the 2006 work plan prior to approving the 2007 2 work plan. And I'm not sure I -- if you have the 3 action on the 2006 work plan in your booklet. 4 CHAIRMAN COX: We do. And I have read 5 that and -- 6 COMM. CLOWE: Uh-huh. 7 CHAIRMAN COX: -- I believe that that is 8 a -- that's a very satisfactory report on what you've 9 done this year. 10 Now your work plan is also in our book 11 and I believe that the first seven items are the same 12 as they were last year and the eighth item is a new 13 item. So maybe you would just talk a little bit about 14 this eighth item. 15 MS. TAYLOR: Okay. The item -- we took 16 off one item, and that was the color of the year 17 because we didn't have the interest in the program that 18 we were hoping for. 19 CHAIRMAN COX: Okay. 20 MS. TAYLOR: We did add an eighth item, 21 which was advise the commission on the needs of the 22 industry for operator training. 23 And what actually that we had started 24 talking about was, even though we have an operator 25 training program, there are items that come up from 0022 1 time to time that would be beneficial to the charities 2 to know. 3 So we'd like to be able to continue to 4 add to the operator training program anything that 5 comes up during the course of doing business that might 6 be beneficial to tell new charities getting into bingo 7 or charities that are at an operator training to renew 8 their two-year certification. 9 CHAIRMAN COX: Okay. And then I believe 10 that maybe item six is new as well. 11 MS. TAYLOR: I -- honestly, I don't 12 remember it was but -- 13 CHAIRMAN COX: Because last year you had 14 seven, you took one off, you added one. 15 MS. TAYLOR: Okay. 16 CHAIRMAN COX: That would make seven but 17 we've got eight and I think that six is the other one 18 that is new. 19 MS. TAYLOR: Okay. Six was review 20 specific recommendations for positive public awareness 21 of charitable bingo. The BAC will review and comment 22 on specific recommendations that would improve 23 charitable bingo through positive public awareness 24 initiatives. 25 One of these items that the staff has 0023 1 been working on are those PSAs, any other positive 2 things that we can get out about bingo. One of the 3 items we discussed was, on the BAC Web -- or the Bingo 4 Web site is to have positive items as the newsworthy 5 events, you know, great charities that are doing good 6 things instead of negative things on there that say 7 somebody in Canada stole 200 thousand dollars. 8 You know, we'd like to bring bingo 9 forward in a positive light so people can see all the 10 good that their -- that bingo does and the good that -- 11 the income that charities produce from bingo do in 12 their communities. 13 CHAIRMAN COX: Good. Okay. So you are 14 asking then for our approval of this work plan at this 15 meeting? 16 MS. TAYLOR: Yes, sir. 17 CHAIRMAN COX: Okay. 18 COMM. CLOWE: So move. 19 CHAIRMAN COX: Second. 20 All in favor, say aye. 21 COMM. CLOWE: Aye. 22 CHAIRMAN COX: Aye. 23 Motion carries two zero. 24 Thank you, Suzanne. 25 MS. TAYLOR: Thank you very much. 0024 1 AGENDA ITEM NO. IV 2 CHAIRMAN COX: Item four, report, 3 possible discussion and/or action on the implementation 4 of recommendations contained in the internal audit 5 report on bingo audit services, including development 6 of rules. 7 Mr. Sanderson? 8 MR. SANDERSON: Good morning, 9 commissioners. For the record, Phil Sanderson, 10 director of the Charitable Bingo Operations Division. 11 In your notebook is the status report on 12 the implementation of the internal audit 13 recommendations. To briefly update where we are, the 14 risk analysis has been completed and a final audit plan 15 is currently being developed that will outline the 16 organizations that are scheduled for audits during the 17 next year. 18 The -- our intention is to have before 19 you the remaining rules and guidelines that are 20 developed as a result of the internal audit 21 recommendations. And as these rules and guidelines are 22 significant, the BAC and industry members have 23 expressed concerns that they would like to offer input 24 on the initial drafts before they go through the formal 25 rulemaking process. 0025 1 These work groups have been formed. 2 There have been several meetings of the four work 3 groups, I believe. And it is our intent to have these 4 products ready for your consideration at the next 5 commission meeting. 6 They consider the guidelines for books 7 and records, fair conduct, the house rules, the 8 guidelines for internal controls. The books and 9 records requirements, we initially thought about 10 changing that to a guideline at the present time to 11 allow for easier implementation. 12 It will set out about a 12- to 18-month 13 period for organizations to learn the new recordkeeping 14 requirements and to start try -- you know, keeping the 15 records with those requirements in mind, as well as 16 giving auditors the opportunity to audit the records 17 and come up with recommendations of what records are 18 more critical than others and to try to give everyone 19 the opportunity to have the least amount of 20 recordkeeping requirement that provides the most 21 information for us to do our audits for regulatory 22 compliance. 23 The re-examination of the audits, the 24 look-back, were mailed out to 242 organizations. So 25 far we've received a request from 25 of those 0026 1 requesting to have their audits re-examined. And I'm 2 in the process of reviewing those at this time. 3 CHAIRMAN COX: You're reviewing them 4 yourself? 5 MR. SANDERSON: Yes, sir. 6 CHAIRMAN COX: Okay. 7 MR. SANDERSON: And then the changes to 8 the organizational structure have been submitted to HR. 9 And I'm working with the HR manager, Janine Mays, and 10 John Shaw in implementing those changes at the present 11 time. 12 And that concludes my report and I'll be 13 glad to answer any questions you may have. 14 COMM. CLOWE: Thank you. 15 CHAIRMAN COX: Phil, how are you on your 16 schedule? 17 MR. SANDERSON: Initially, the rules were 18 scheduled to be presented to you at this meeting for 19 adoption or for publication. So it's slipped about a 20 month now to where they'll be presented to y'all at the 21 September meeting. 22 CHAIRMAN COX: Okay. And it looks like 23 from the schedule I'm seeing here that you're 24 scheduling everything to be through by the end of this 25 year and most of the things to be through by the end of 0027 1 this quarter. 2 MR. SANDERSON: Yes, sir. 3 CHAIRMAN COX: Excellent. Thank you, 4 Phil. 5 MR. SANDERSON: Thank you. 6 AGENDA ITEM NO. V AND VI 7 CHAIRMAN COX: Let's combine item number 8 five and six. Item number five, consideration and/or 9 possible discussion and/or action, including 10 adoption of -- including repeal on 16 TAC paragraph 11 402.102 related to the Bingo Advisory Committee and 12 then item seven is proposing the new rule, 13 consideration and -- of and possible discussion and/or 14 action, including adoption, on new 16 TAC paragraph 15 402.102 relating to the Bingo Advisory Committee. 16 Ms. Joseph? 17 MS. JOSEPH: Good morning, commissioners. 18 For the record, my name is Sandra Joseph, assistant 19 general counsel. 20 Before you are draft rules prepared for 21 submission to the Texas Register in order to repeal 16 22 TAC Section 402.102 and to adopt new 16 TAC section 23 402.102 regarding the Bingo Advisory Committee with 24 changes to the proposed text as published in the July 25 13th, 2007 issue of the Texas Register. 0028 1 The proposed new rule provides 2 information on the composition, appointment and duties 3 of the Bingo Advisory Committee. Several comments were 4 received. One person offered comments at the public 5 hearing held on July 16th and two persons submitted 6 written comments. 7 In response, the staff recommends changes 8 to the proposed rule. First, in subparagraph A(1)(A), 9 the word "concern" is changed to "problem" in order to 10 be clearly consistent with language in the statute. 11 Second, language is added to paragraph 12 D(1) to clarify that nominations for the BAC may be 13 submitted when unexpected vacancies occur. 14 Third, the draft rule corrects a 15 typographical error in proposed subsection J. "Texas 16 Public Information Act" has been changed to "Open 17 Meetings Act." 18 One commenter questioned the language in 19 subsection E(2) concerning staff ranking of nomination 20 that refers to the advice and consultation of the 21 executive director as appropriate. The staff disagrees 22 with the commenter. There may be times that the 23 commission desires input from the executive director 24 during the nomination process. 25 An additional comment concerned proposed 0029 1 subsection K that prohibits substitute or proxy voting 2 at BAC meetings. The comment suggested that proxy 3 voting should be permitted under some circumstances. 4 At the time the materials were submitted 5 for your notebooks, the staff included a draft adopted 6 rule that did not include proposed subsection K in 7 order to permit further consideration of the merits of 8 the comment. 9 Since that time, staff has further 10 considered the comment and now recommends that you 11 adopt subsection K as published for proposal. The 12 purpose of a Bingo Advisory Committee meeting is to 13 provide each member an opportunity to share experience, 14 knowledge and judgment on matters considered by the 15 committee as a whole. 16 The vote of a member who does not attend 17 and has not heard the committee's discussion about an 18 issue cannot meaningfully contribute to a decision that 19 must be reached by the committee as a whole. For that 20 reason, staff recommends adoption of subsection K as 21 proposed. 22 In conclusion, staff recommends that the 23 commission order repeal of existing 16 TAC Section 24 402.102 and adoption of the new Section 402.102 as 25 shown on the draft of your notebook with the 0030 1 re-insertion of proposed subsection K, which states: 2 May a member send a substitute person or 3 a proxy vote to a BAC meeting? A member may not send a 4 substitution or proxy vote to a meeting. 5 I'd be happy to answer any questions. 6 COMM. CLOWE: No questions. 7 CHAIRMAN COX: Sandy, you addressed in 8 your comments the reason why staff does not believe 9 that proxies should be permitted. Would you also 10 address the reason why you believe that substitutes 11 should not be permitted? 12 MS. JOSEPH: Yes. We do not believe 13 substitutes be -- should be permitted because members 14 who are appointed to the BAC have been subject to a 15 background investigation and review to see if they meet 16 the eligibility standards set forth in the rule. 17 A substitute person would not have been 18 subject to those eligibility standard review. And, 19 therefore, we don't believe it would be appropriate for 20 them to participate as a member. 21 CHAIRMAN COX: Okay. So what you would 22 see is, if a member can't be there and someone wants to 23 substitute for them, they can come and be in the 24 audience and make public comment but not sit in the 25 chair and not vote? 0031 1 MS. JOSEPH: Yes, sir. 2 CHAIRMAN COX: Okay. I'm good with that. 3 MS. JOSEPH: Okay. 4 CHAIRMAN COX: Okay. I move the adoption 5 of the staff recommendation. 6 COMM. CLOWE: Second. 7 CHAIRMAN COX: All in favor, say aye. 8 Aye. 9 COMM. CLOWE: Aye. 10 CHAIRMAN COX: Motion carries two zero. 11 MS. KIPLIN: Commissioners, I have two 12 orders, one adopting the repeal and one adopting the 13 new rule. 14 AGENDA ITEM NO. VII 15 CHAIRMAN COX: Item seven, consideration 16 of and possible discussion and/or action, including 17 adoption, on amendments to 16 TAC paragraph 402.100 18 relating to definitions. 19 Ms. Joseph? 20 MS. JOSEPH: Again for the record, I'm 21 Sandra Joseph. 22 This item concerns draft rule prepared 23 for submission to the Texas Register in order to adopt 24 amendments to Section 16 TAC Section 402.100 regarding 25 definitions with changes to the proposed text as 0032 1 published in the July 13th, 2000 (sic) issue of the 2 Texas Register. 3 The purpose of the amendments is to add a 4 definition for bingo chairperson in order to clarify 5 the term as used in other proposed rules that are being 6 drafted. The definition provides clarification and 7 guidance relating to identifying an individual who will 8 be the contact person for any bingo related activities 9 between the organization and the commission. 10 Several persons provided public comments. 11 One was present at the public hearing held on July 16th 12 and supported the proposed amendments. Two persons 13 submitted written comments. 14 The staff agrees with the comments that 15 the proposed definition might be too narrow for some 16 smaller organizations and has -- and, therefore, 17 recommends expanding the definition by adding language 18 that allows a member of the board of directors as well 19 as an officer to be designated as the bingo 20 chairperson. 21 Staff recommends that the commission 22 adopt 16 TAC Section 402.100 as shown in the draft in 23 your notebook. 24 CHAIRMAN COX: Move approval of the staff 25 recommendation. 0033 1 COMM. CLOWE: Second. 2 CHAIRMAN COX: All in favor, say aye. 3 COMM. CLOWE: Aye. 4 CHAIRMAN COX: Aye. 5 Motion carries two zero. 6 MS. KIPLIN: Commissioners, I have an 7 order adopting the amendments to this rule. 8 AGENDA ITEM NO. VIII 9 CHAIRMAN COX: Item eight, consideration 10 of and possible discussion and/or action on nominations 11 and appointment and/or a nomination and appointment 12 procedure on the Bingo Advisory Committee. 13 Mr. Sanderson? 14 MR. SANDERSON: Good morning, 15 commissioners. In your notebook are 12 nominations 16 that we received for the vacant positions on the Bingo 17 Advisory Committee. 18 The positions that are being filled at 19 this -- at this time or shortly will be the general 20 public, the charity -- a charity spot, conductor lessor 21 and a commercial lessor and the SSP position. And all 22 of these expired in 2006 or February of 2007. 23 Three of the nominees, Carol North, 24 Walter Choate and Charles Pierce, have withdrawn their 25 names for consideration after submitting their 0034 1 nominations. 2 There is one nominee, Danny Henry, who is 3 being nominated for the commercial lessor position. 4 And because he is also listed as an officer and an 5 operator for a conductor, he is not eligible. 6 A nominee, Cochise Cash, has not 7 responded to numerous phone calls and messages that we 8 have left to confirm his interest in a position on the 9 committee. 10 With that, the remaining seven nominees 11 who qualify that are still interested are: Kimberly 12 Rogers, Peter Garcia, Earl Silver, Jeffery Mench, 13 Suzanne Taylor, Larry Whittington and Pat Gifford. 14 After careful consideration, the staff's 15 recommendations are for the commercial lessor position 16 to be Earl Silver from Houston. The SSP position we're 17 going to replace with a charity lessor and that would 18 be Larry Whittington in -- from Dallas. The charity 19 lessor position that is held by Kimberly Rogers we're 20 recommending that she consider -- continue in that 21 position, the charity position to be Suzanne Taylor out 22 of Corpus Christi and the general public representative 23 is Pat Gifford from Bertram. 24 Also in your notebook is the memo from 25 Kimberly Rogers, who is the chair of the subcommittee 0035 1 from the BAC nomination work group. She was planning 2 on being in attendance this morning but she is unable 3 to attend. And I believe she's passed information 4 along to Suzanne Taylor, if you'd like to ask her any 5 questions on their nominations. 6 I will read those nominations that the 7 BAC is recommending. It is Larry Whittington, Suzanne 8 Taylor, Kimberly Rogers, Earl Silver and Pat Gifford. 9 While you are welcome to make the 10 appointments at this time, if you'd like to interview 11 one or more of these individuals before appointing them 12 to the BAC, we can schedule that between this -- 13 between today and the September commission meeting and 14 you can make your appointments at the September 15 commission meeting if you so desire. 16 COMM. CLOWE: Mr. Chairman, on the three 17 nominees that are currently serving, I know them and 18 have worked with them and I would feel confident, if it 19 suited you and was at your pleasure, making a 20 nomination for those three individuals. 21 Simply because I don't know the other two 22 individuals, I'd like to follow what I think has been 23 past practice of having an opportunity to meet those 24 individuals and interview them before we move forward 25 on that. 0036 1 So maybe what I'm recommending at your 2 pleasure is a split ticket or whatever combination of 3 that you'd like. 4 CHAIRMAN COX: Phil, is there any 5 particular advantage to doing that one way or the other 6 from the standpoint of getting meetings together or the 7 like? 8 MR. SANDERSON: The next BAC meeting is 9 not scheduled until November 7th. So you can split 10 the -- go ahead and appoint the three individuals today 11 and interview the remaining individuals that you'd like 12 to interview and appoint them at the September meeting. 13 That will give us time to do the 14 backgrounds on any individuals that have not had a 15 background check performed before the November meeting. 16 CHAIRMAN COX: Okay. Let's do it the way 17 you suggested. 18 COMM. CLOWE: It's not an all-or-nothing 19 kind of thing. There are five individuals. 20 CHAIRMAN COX: So -- 21 COMM. CLOWE: And I think it sends a 22 message, at least in my mind and hopefully in yours as 23 well that, you know, we'd like to move ahead with this 24 and get those people aware that they're going to serve. 25 And then we can have at your convenience 0037 1 an interview with the other nominees and move timely 2 prior to the next week. 3 CHAIRMAN COX: I totally agree. 4 COMM. CLOWE: Great. 5 CHAIRMAN COX: You want to put that -- 6 COMM. CLOWE: I move the nomination -- 7 the appointment, I think is the language -- of Mr. 8 Whittington, Ms. Taylor and Ms. Rogers to the positions 9 and terms as you've outlined, Phil. 10 CHAIRMAN COX: Second. 11 All in favor, say aye. 12 COMM. CLOWE: Aye. 13 CHAIRMAN COX: Aye. 14 Motion carries two zero. 15 Phil, I believe that the BAC nominations 16 and yours are the same. 17 MR. SANDERSON: Yes, sir. They are. 18 CHAIRMAN COX: Did you do yours after 19 receiving theirs or were they done independently? 20 MR. SANDERSON: They were done 21 independent of each other. 22 CHAIRMAN COX: Okay. So independently 23 you came to the same list? 24 MR. SANDERSON: Yes, sir. 25 CHAIRMAN COX: Okay. Good. Well, I, 0038 1 too, would like to interview Mr. Silver and Mr. 2 Gifford. I would like to do it face-to-face, if that's 3 possible. If that doesn't make sense, then a telephone 4 interview would probably work. 5 Have you met with them? 6 MR. SANDERSON: I have not met with Pat 7 Gifford. I have met with Earl Silver. And we can 8 contact them and schedule an interview here at 9 headquarters, if you so desire, if they're able to 10 attend. 11 CHAIRMAN COX: Okay. 12 MR. SANDERSON: And -- 13 CHAIRMAN COX: I think face-to-face would 14 be good. You know, as I said, we can do it by 15 telephone if we have to. 16 COMM. CLOWE: And Mr. Silver's from 17 Houston? 18 MR. SANDERSON: He's from Houston, yes, 19 sir. 20 COMM. CLOWE: And the other nominee? 21 MR. SANDERSON: Pat Gifford is from 22 Bertram. 23 COMM. CLOWE: Refresh my memory where 24 Bertram is. 25 CHAIRMAN COX: Up north/northwest of here 0039 1 a little bit. 2 MR. SANDERSON: Yeah. It's kind of 3 northwest between Fort Worth and Abilene somewhere in 4 there, maybe. 5 CHAIRMAN COX: No. It's much closer to 6 Austin than that. 7 MR. SANDERSON: It's closer to Austin? 8 CHAIRMAN COX: Uh-huh. It's almost a 9 suburb now. 10 COMM. CLOWE: Well, you know, any day 11 that the chairman's available if you could get them to 12 come in to the headquarters here and he could lead off 13 the interviews and I'd be glad to follow them, but I -- 14 I agree with him that I'd like to meet them 15 face-to-face. 16 MR. SANDERSON: We'll start working on 17 that. 18 CHAIRMAN COX: Good. 19 AGENDA ITEM NO. IX 20 CHAIRMAN COX: Item number nine, report 21 by the Charitable -- oh, just -- just a moment. 22 Mr. Bresnen, did you want to speak on 23 this item? 24 MR. BRESNEN: Very briefly, Mr. Chairman. 25 My name is Steve Bresnen. I'm here on behalf of the 0040 1 Bingo Interest Group. I just want to say we support 2 the staff and BAC recommendations but we'd obviously 3 support y'all interviewing those folks face-to-face so 4 you're comfortable with them. Thanks. 5 CHAIRMAN COX: Thank you. Item nine, 6 report by the Charitable Bingo Operations director and 7 possible discussion and/or action on the Charitable 8 Bingo Operation Division's activities. 9 Mr. Sanderson? 10 MR. SANDERSON: Commissioners, in your 11 notebook is my report on the activities of the Bingo 12 Division. In addition to what is included in the 13 report, I'd like to add that, on August the 15th, 14 manufacturers were provided an opportunity to display a 15 pull-tab deal that also includes a video confirmation 16 feature, which was something that was amended in the 17 pull-tab rule at the July meeting. 18 Along with agency staff, there were 19 representatives of legislative offices and other 20 interested individuals that were in attendance. And we 21 were working with staff from the Media Relations and 22 Information Resources to post a video of this 23 presentation on our Web site. 24 And with that, I'll be glad to answer any 25 questions you may have. 0041 1 COMM. CLOWE: No questions. 2 CHAIRMAN COX: Thank you, Phil. 3 AGENDA ITEM NO. X 4 CHAIRMAN COX: Item ten, report, possible 5 discussion and/or action on lottery sales and revenue, 6 game performance, new game opportunities, market 7 research and trends. 8 Ms. Pyka and Mr. Tirloni? 9 MS. PYKA: Good morning, commissioners. 10 My name is Kathy Pyka, controller for the Lottery 11 Commission. With me to my right is Robert Tirloni, our 12 products manager. 13 Our first chart for you this morning 14 reflects revenue from sales and net revenue to the 15 State through the week ending August 11th of 2007. 16 Total sales for this 50-week period amounted to 3.6 17 billion dollars while our estimated net revenue to the 18 State for this period was 954.3 million dollars. 19 Net revenue to the State does reflect a 20 slight decline from fiscal year 2006 at this point. 21 And our prize expenses or percentage of sales is 22 reflected at 63 percent, a slight increase over our 23 prize expenses and percentage of sales for this same 24 period in fiscal year 2006. 25 Our next slide includes the change in 0042 1 sales by game from fiscal year 2006 to 2007. The 2 overall $38 million decline represents a 1.1 percent 3 decline and includes 14.4 million on our instant ticket 4 product or .5 percent and a decline of 2.7 percent or a 5 total of 23.5 million for all of our online games. 6 You'll note that our Pick 3 and our Two 7 Step game continue to reflect an overall growth rate 8 over our fiscal year 2006 sales. 9 Our next slide includes year-to-date 10 sales by game. As noted on this slide, 76.2 percent of 11 sales or 2.7 billion dollars was from instant tickets 12 with 8.3 percent of sales or 296.4 million from Pick 3 13 followed by 6.2 percent of sales and 221 million 14 dollars from Lotto Texas and 164.6 million dollars or 15 4.6 percent for Mega Millions. 16 With that, Robert will now provide -- 17 well, no. This provides a graphical presentation of 18 3.6 per -- or 3.6 billion dollars in sales by game. 19 And now with that, Robert will provide an 20 overview by price point. 21 MR. TIRLONI: Good morning, 22 commissioners. For the record, my name is Robert 23 Tirloni. I am the products manager for the commission. 24 As Kathy said, this next -- this next 25 slide shows year-to-date instant sales. Year-to-date 0043 1 instant sales through the week ending 8/11 are 2.7 2 billion. And when you break that -- break that down by 3 price point, we haven't seen much change. The five is 4 our leading price point followed by the two and then 5 the ten and then the one. 6 Chairman, last month you asked Kathy and 7 I if -- we looked at the $50 slice of the pie and you 8 asked us, if we'd looked at this same pie but took it 9 from the point when the $50 game started and came 10 forward, if the slice of the pie would be bigger. 11 And we all agreed that it would and so we 12 have that slide for you. The $50 game started on May 13 7. So the week ending May 12th is the first week that 14 includes $50 game sales. 15 So this pie chart takes us from the week 16 ending May 12th through the week ending August 11th. 17 And the instant sales for that time period are slightly 18 over 786 million. And you can see that the 50 19 represent 11 -- 11 percent of that. So it is, indeed, 20 a bigger slice of the pie when we go from the 21 introduction of the 50 forward. 22 CHAIRMAN COX: Robert, did you try to 23 estimate where it was gaining share, which price points 24 were losing share? 25 MR. TIRLONI: We believe that it's the 0044 1 higher price points, most likely the 20 and above. 2 CHAIRMAN COX: Okay. 3 MR. TIRLONI: What we've heard from -- 4 what I've heard just recently at some retailer meetings 5 is that the retailers believe the $30 players are 6 bumping up to the $50 price point. 7 CHAIRMAN COX: Thank you. 8 MR. TIRLONI: And commissioners, I have 9 two other bits of information for you this morning. We 10 do have a very successful selling five-dollar game 11 right now. That's our John Wayne The Duke game. It's 12 our most recent licensed property game. 13 It was actually the number one selling 14 game in the state for the week ending August 11. That 15 actually outsold the 50. And we are doing promotional 16 events at theaters around the state. We've been to 17 Dallas, Austin and just last night San Antonio and 18 we're going to Houston, McAllen and El Paso. 19 And it's a special showing of True Grit 20 and it's actually been -- it's actually been very, very 21 popular. The radio station here in Austin that was 22 giving away the tickets had to add staff to be able to 23 take the phone calls from the public that were trying 24 to win tickets to that event. 25 CHAIRMAN COX: Now how does that -- how 0045 1 does one of those work? 2 MR. TIRLONI: The event? 3 CHAIRMAN COX: Yeah. How does -- who 4 shows True Grit and what kind of promotions do we have? 5 MR. TIRLONI: It's all part of the whole 6 package that we get as part of the licensed property 7 games. So Scientific Games executed all of those for 8 us. And we've gone to, like I said, different theaters 9 and they provide the movie. 10 And they've also set up all of the 11 promotional tie-ins with the radio stations for us. 12 And the radio stations have promotions where people 13 call in and then they win a ticket, which gives them 14 admission to actually see the showing of the movie. 15 CHAIRMAN COX: So this is big theaters 16 like the Gateway? 17 MR. TIRLONI: Here in Austin it was the 18 Alamo Draft House. 19 CHAIRMAN COX: Oh, okay. 20 MR. TIRLONI: In El Paso we're going to a 21 Cinemark. I believe Dallas was also an Alamo Draft 22 House. But yeah, big theaters. 23 CHAIRMAN COX: Excellent. 24 MR. TIRLONI: Big theaters. The other 25 thing I was asked to update you on was -- 0046 1 COMM. CLOWE: I've never been to an Alamo 2 Draft House. Is that a theater where they serve 3 alcohol? 4 MR. TIRLONI: It's a theater -- yes. 5 CHAIRMAN COX: It's a dinner theater. 6 They serve food -- 7 MR. TIRLONI: It's a dinner theater. 8 CHAIRMAN COX: -- and alcohol and you 9 watch a movie. 10 COMM. CLOWE: And are we in compliance? 11 MR. TIRLONI: Because we're not selling 12 tickets in that location -- 13 COMM. CLOWE: Not physically selling 14 tickets at that location? 15 MR. TIRLONI: We're in compliance for 16 being there, yes. 17 COMM. CLOWE: So how does the event 18 unfold? You show the movie and -- 19 MR. TIRLONI: Well -- 20 COMM. CLOWE: -- everybody comes in with 21 their tickets? 22 MR. TIRLONI: Pretty much the people come 23 in with their tickets. That's how they gain access to 24 the theater. John Wayne -- 25 COMM. CLOWE: That's the admission? 0047 1 MR. TIRLONI: Uh-huh. John Wayne 2 promotional items were -- were given away to the 3 attendees. And actually in Dallas and in Austin, Ethan 4 Wayne, John Wayne's son, was in attendance at both of 5 those to greet and meet the people that attended. 6 And that went over very well. There were 7 prize packages given away and different things. And 8 actually, at all of the events the people that are 9 attending are -- are served food. It's part of the -- 10 it's part of the package. So they also got dinner. 11 COMM. CLOWE: But no guns allowed. 12 MR. TIRLONI: No guns and no alcohol. 13 And the other thing I needed to update 14 you-all on is the LaFleur's Lottery Conference have 15 invited us to speak at their November conference in 16 Miami. They've invited us to talk about the $50 game 17 launch and the success we've been seeing with that. 18 And Director Sadberry has asked that I go 19 and give that presentation. And he wanted me to make 20 sure you-all were aware of that. 21 CHAIRMAN COX: Okay. 22 MR. TIRLONI: And that's it for today. 23 We can answer any other questions that you might have. 24 COMM. CLOWE: I have a question. 25 CHAIRMAN COX: Yes? 0048 1 COMM. CLOWE: Mr. Chairman? Kathy, we're 2 up to the last two weeks of the fiscal year and we're 3 down 1.1 percent or 36 -- 3.6 billion. What is your 4 forecast for the entire year at this point? 5 MS. PYKA: We're looking at 3.74 billion 6 and it will be about .78 percent below in total sales. 7 On our instant ticket product, we're looking at about 8 .36 percent below fiscal year 2006 and online sales 9 about 2.1 percent below. 10 COMM. CLOWE: And for the total what does 11 that end up as a percentage alone? 12 MS. PYKA: .78 percent, just -- 13 COMM. CLOWE: .78 percent? 14 MS. PYKA: -- below one percent. Uh-huh. 15 COMM. CLOWE: Thank you. 16 MS. PYKA: You're welcome. That 17 concludes our presentation. 18 CHAIRMAN COX: Thank you. 19 AGENDA ITEM NO. XI 20 CHAIRMAN COX: Item 11, report, possible 21 discussion and/or action on transfers to the State. 22 Ms. Pyka? 23 MS. PYKA: Again for the record, my name 24 is Kathy Pyka, controller for the Lottery Commission. 25 This -- your notebooks include 0049 1 information on the agency's financial status. The 2 first report in your notebook includes the transfers 3 and allocations to the Foundation School Fund and the 4 transfer of unclaimed prizes as of July 31st, 2007. 5 Our total transfers to the State amounted 6 to 981.3 million dollars through the first 11 months of 7 fiscal year '07 and this does represent, again, a 8 minimal decline of where we were in fiscal year 2006. 9 The second page of your notebook includes 10 detailed information on the monthly transfers. Of the 11 981.3 million dollars transferred to the State, 935.6 12 million was transferred to the Foundation School Fund 13 with a balance of 45.7 million transferred for 14 unclaimed prizes. 15 In the last document in your notebook 16 includes the cumulative transfers from fiscal year 1992 17 to date, and our total cumulative transfers to the 18 Foundation School Fund through July of this year total 19 9.6 billion dollars. 20 I'd be happy to answer any questions. 21 COMM. CLOWE: No questions. 22 CHAIRMAN COX: Thank you, Ms. Pyka. 23 MS. PYKA: You're welcome. 24 AGENDA ITEM NO. XII 25 CHAIRMAN COX: Item 12, report, possible 0050 1 discussion and/or action on bingo indirect and 2 administrative expenses. 3 Ms. Pyka? 4 MS. PYKA: Again for the record, Kathy 5 Pyka, controller for the Lottery Commission. 6 Commissioners, at last month's commission 7 meeting, I provided you an overview of the funding 8 issues related to bingo indirect and administrative 9 expenses. I don't have a change to report to you on 10 the status of the letter of intent that we discussed at 11 last month's meeting. 12 We do expect the letter to be issued by 13 September 1st, 2007. And I wanted to provide for you 14 the language that is included in the -- the draft 15 letter that is being worked on. 16 The letter notes: For clarification, our 17 intent absent the specific statutory authorization in 18 the State Lottery Act is to use the state lottery 19 dedicated account for payment of bingo indirect and 20 administrative expenses as currently practiced and 21 reflected in the General Appropriations Act as adopted 22 by the 80th Legislature. 23 Commissioners, I'd be happy to answer any 24 questions related to this item. 25 COMM. CLOWE: So we're moving ahead with 0051 1 a letter of intent and we are continuing to fund the 2 indirect bingo expenses as we have historically? 3 MS. PYKA: Yes. 4 COMM. CLOWE: And what would be the 5 anticipation of a result from the letter of intent 6 timewise? 7 MS. PYKA: We have been told that the 8 letter of intent will be issued by September 1 of this 9 year, which is before the beginning of fiscal year 2008 10 is the anticipated date that has been shared with us. 11 COMM. CLOWE: And is that the conclusion 12 then? Is that our answer? 13 MS. PYKA: Maybe I didn't follow the 14 original question. 15 COMM. CLOWE: All right. Our letter of 16 intent is going out. 17 MS. PYKA: The letter of intent is a 18 letter that has been drafted from the Lieutenant 19 Governor and the Speaker of the House to the 20 Comptroller of Public Accounts. 21 And so we shared with the Lieutenant 22 Governor's office this language that has been included 23 in that draft letter of intent. 24 COMM. CLOWE: Right. 25 MS. PYKA: And we've been told that they 0052 1 expect the letter of intent to be completed by no later 2 than September 1st. 3 COMM. CLOWE: And so we help them with 4 the draft and that comes out. But then what is the 5 next step, I guess, is my question. 6 MS. PYKA: The next step is we would 7 utilize the letter of intent as official clarification 8 with regard to the continued use of the lottery 9 dedicated account to fund bingo indirect expenses. And 10 that letter is for the next biennium, fiscal year 2008 11 and 2009. 12 As we work toward our next legislative 13 appropriation request for 2010 and 2011, we will need 14 to continue to work on this issue through the 15 legislative appropriation request process. 16 COMM. CLOWE: I just want to make sure 17 that I understand where we are on this. The letter of 18 intent then is issued. And its issuance is, in fact, 19 authorization to us to continue present practice? 20 MS. PYKA: Yes, sir. 21 COMM. CLOWE: But it only exists through 22 the current period and is not a permanent 23 authorization, if you could call it that. And we have 24 to deal with this again in the next legislative 25 session? 0053 1 MS. PYKA: Yes. 2 COMM. CLOWE: And does that satisfy you, 3 Mr. Chairman, as far as current practice is concerned? 4 CHAIRMAN COX: There's one -- I think -- 5 I think that the practice is appropriate. We have, as 6 Kathy indicated, an appropriation of the money from the 7 general lottery account for this purpose. 8 We have, on the other hand, a lack of 9 specific statutory authority to spend it for that 10 purpose. So what I see this as doing is clarifying 11 that dilemma, if you will, that we have. 12 And the one item that Kathy hasn't 13 mentioned that I would like to put on the record is 14 that the governor's office, the missing link in this, 15 supports the letter of intent. 16 COMM. CLOWE: Thank you for bringing that 17 to the record. I think that's important and apparently 18 you've had that expression of support individually. 19 And if that's the case, I would like to say that I as 20 well have had that assurance. 21 The effort here in my mind is on behalf 22 of the commissioners to follow the letter of the law 23 and to be in compliance and to at the same time explore 24 every opportunity to continue a practice which we have 25 maintained for a number of years which we feel is 0054 1 ethical, legal and correct in every way. 2 And we're doing everything that I know 3 how to do. We're exhausting every possibility and I 4 think you have come upon the solution so that we can 5 make this practice that is correct with the 6 understanding that it needs to be addressed again in 7 the next session. 8 CHAIRMAN COX: Yes. 9 COMM. CLOWE: And as you pointed out, Mr. 10 Chairman, we have the funds available and we are not 11 reaching outside of the agency or in any way taking 12 funds that were appropriated for some other use. 13 CHAIRMAN COX: In fact, they were 14 appropriated for this purpose. 15 COMM. CLOWE: Right. And then I guess my 16 final question would be: As the controller's office 17 who would be auditing this practice at some point in 18 time, most likely been involved in this plan, do we 19 have any feedback from them on that regard? 20 MS. PYKA: With regard to this specific 21 letter of intent, we have not reached out to the 22 controller's office. But it would be the role of the 23 author of the letters that have. 24 Again as you noted before, this practice 25 has been in place for a number of years. And to date 0055 1 they have not questioned the funding of the bingo 2 indirect expenditures with general revenue proceeds and 3 they have audited a number of these vouchers. 4 COMM. CLOWE: It seems to me, Mr. 5 Chairman, we've touched every base and we have done 6 everything that we can to make certain that this is a 7 proper practice. 8 CHAIRMAN COX: Yes. I think that we have 9 reason to believe that the letter of intent will be 10 signed. And we know that the governor's office 11 supports it. If, for some reason, that -- that doesn't 12 happen, then we have to look at things again. 13 COMM. CLOWE: Could we hear from Mr. 14 Sadberry to see if he has any comment on this? 15 MR. SADBERRY: Good morning. For the 16 record, my name is Anthony Sadberry, executive 17 director. Chairman, Commissioner, I appreciate the 18 record that has been made. And I concur in that. 19 From the agency staff standpoint of which 20 I have the responsibility, one thing I think that's 21 important in the language of the letter of intent, to 22 the extent that that language that's been drafted with 23 the assistance as you correctly stated with -- by the 24 agency staff and to the extent that that language is, 25 in fact, included in the letter of intent, if it is 0056 1 signed and issued, it begins with the recognition of 2 the absence of specific statutory authority, which we 3 did seek in this past legislative session which 4 proceeded to some -- some degree but did not ultimately 5 conclude. 6 I think that's an important recognition 7 from the agency standpoint that, in addition to 8 conferring with these other important support sources 9 and particularly the governor's office, that we as well 10 have engaged in the legislative process to clean up, if 11 you will, the missing parts that go with the practice. 12 And we also acknowledge that it is an 13 important legislative mandate, if you will, that the 14 agency carry out the functions of the bingo -- the 15 regulatory and administrative licensing functions, 16 which is also a statutory mandate of the agency which 17 bingo is an integral part. 18 So we -- that adds to the dilemma that we 19 must acknowledge that mandate as well. I think the 20 clarity of stating the position and the fact that it is 21 an ethical and appropriate use of the funds which I do 22 not believe can be questioned together with the 23 attention that staff has brought to this matter, 24 without being able to presume any review the agency 25 might have in the future but the fact that it's 0057 1 possible, that upon any review we can demonstrate 2 appropriate conduct of the agency and the commission 3 which is, of course, our concern, I think that is, in 4 fact, the case. 5 And as of this time, it appears that 6 staff is recommending to you that, with the conditions 7 you have observed, that this practice continue at least 8 with the contingencies of the issuance of the letter of 9 intent or any other developments that might occur in 10 the future. 11 COMM. CLOWE: I'm satisfied. 12 CHAIRMAN COX: Thank you, Director 13 Sadberry. 14 Kathy, this doesn't require action, does 15 it. 16 MS. PYKA: No, it does not. 17 CHAIRMAN COX: Okay. 18 AGENDA ITEM NO. XIII 19 CHAIRMAN COX: Item 13, consideration of 20 and possible discussion and/or action on the agency's 21 fiscal year 2008 operating budget. 22 Ms. Pyka? 23 MS. PYKA: For the record again, Kathy 24 Pyka, controller for the Lottery Commission. 25 Commissioners, this morning I'm seeking 0058 1 your approval of the fiscal year 2008 operating budget 2 with a right to reconsider the budget if the letter of 3 intent is not issued. 4 The budget is in the amount of 5 208,644,804 dollars. It includes 330.75 full-time 6 equivalent positions. The budget was developed in 7 accordance with appropriation amounts outlined in House 8 Bill 1 adjusted for the Article 9 employee salary 9 increases and the Government Code Section 466.015(D), 10 advertising limitation reduction. 11 The initial draft of the budget was 12 developed by the Office of the Controller and delivered 13 to division management for their direct input and the 14 final draft was developed after receiving feedback from 15 divisions and reviewed by executive management. 16 Commissioners, this concludes my 17 presentation. I'd be happy to answer any questions. 18 COMM. CLOWE: Move the adoption. 19 CHAIRMAN COX: Second. 20 All in favor, say aye. 21 COMM. CLOWE: Aye. 22 CHAIRMAN COX: Aye. 23 Motion carries two zero. 24 MS. PYKA: Thank you, commissioners. 25 CHAIRMAN COX: Thank you, Ms. Pyka. 0059 1 AGENDA ITEM NO. XIV 2 CHAIRMAN COX: Item 14, report, possible 3 discussion and/or action on the 80th Legislature. 4 Ms. Trevino? 5 MS. TREVINO: Good morning, Mr. Chairman 6 and Commissioner. For the record, I'm Nelda Trevino, 7 director of Governmental Affairs. I want to provide a 8 very brief update related to the agency's legislative 9 implementation project. 10 As I have previously reported, we 11 originally identified 28 bills for the agency's 12 legislative implementation project. These bills were 13 assigned to division directors based on subject matter 14 for review and determination of any action the agency 15 may need to take to implement provisions of the bills. 16 This review determined that some of the 17 bills required no -- no action by the agency. With 18 regard to those bills identified as requiring some 19 action by the agency, the required action has either 20 been implemented or final steps are in progress to 21 implement any required action. 22 The agency may also be waiting for 23 information or notification from another state agency 24 on any steps that state agencies may need to take to be 25 in compliance with the bill. Based on the continued 0060 1 progress of this project, I believe the agency is on 2 track with any required implementation. 3 Of the 28 bills identified for the 4 implementation project, six bills remain pending at 5 this time. Division directors will continue -- 6 continue providing progress reports on these pending 7 bills and an updated project report will be provided 8 and reviewed with executive management. Additionally, 9 we'll continue to provide updates here at commission 10 meetings. 11 And this concludes my report and I'll be 12 happy to answer any questions. 13 CHAIRMAN COX: Excellent report, Nelda. 14 Thank you. 15 MS. TREVINO: Thank you. 16 AGENDA ITEM NO. XV 17 CHAIRMAN COX: Item 15, report, possible 18 discussion and/or action on the agency's contracts. 19 Mr. Jackson? 20 MR. JACKSON: Good morning, 21 commissioners. For the record, my name is Tom Jackson, 22 purchasing and contracts manager. 23 Commissioners, in your notebooks under 24 tab number 15 is a report on prime contracts that has 25 been updated for your review. There is one item on the 0061 1 spreadsheet I would like to update that doesn't show up 2 here on yours. 3 The drawing studio and production 4 services contract has been extended through August 5 31st, 2008. I'd be happy to answer any questions. 6 COMM. CLOWE: No questions. 7 CHAIRMAN COX: Thank you, Tom. 8 AGENDA ITEM NO. XVI 9 CHAIRMAN COX: Item 16, report and 10 possible discussion and/or action on the agency's HUB 11 program and our minority business participation, 12 including the agency's Mentor Protege Program. 13 Ms. Bertolacini? 14 MS. BERTOLACINI: Good morning, Chairman 15 Cox and Commissioner Clowe. For the record, my name is 16 Joyce Bertolacini, coordinator of the TLC's 17 Historically Underutilized Business program. 18 A copy of the agency's June HUB minority 19 contracting activity report has been provided to you in 20 your notebooks today. The report includes all fiscal 21 year 2007 expenditures paid from September 1st of 2006 22 through June 30th of 2007. 23 Our total qualifying expenditures as of 24 June 30th were approximately 129.6 million and our 25 estimated HUB minority participation was 34.1 million, 0062 1 which equates to 26.34 percent. 2 In addition, our annual HUB forum which 3 took place on July 31st was very productive again this 4 year. Over 50 attendees, including eight TLC prime 5 contract representatives, seven state agency 6 representatives and 41 HUB vendor representatives, were 7 present at the forum. Our networking sessions were 8 extremely popular and we're continuing to receive 9 positive feedback from the attendees. 10 Regarding the agency's Mentor Protege 11 Program, all four mentors gave short presentations at 12 our annual HUB forum last month. The presentations 13 highlighted the types of assistance that their 14 companies can provide to proteges. 15 The mentors are still in the process of 16 initiating contacts and interviewing potential 17 proteges. I have provided each mentor with a copy of 18 the agency's Mentor Protege agreement form in the event 19 that they make a selection. 20 I anticipate and greatly hope that the 21 mentors will be notifying me of their selections within 22 the next month and hope to have one or more agreements 23 to be signed at the September commission meeting. 24 I'd be happy to answer any questions or 25 provide any additional information. 0063 1 COMM. CLOWE: And Joyce, I think you 2 probably mentioned the total attendance at the meeting 3 but I didn't catch it. 4 MS. BERTOLACINI: It was about 53 5 attendees total. 6 COMM. CLOWE: Great. 7 MS. BERTOLACINI: Including, you know, 8 all of the representatives from our prime vendors and 9 other agency staff from other state agencies. 10 COMM. CLOWE: So you had a good turnout? 11 MS. BERTOLACINI: Yeah. It was a little 12 bit less than last year. But I think attendance 13 overall for these types of events has been down just a 14 little bit. Sometimes the summertime gets very busy. 15 And we're hoping that we may be able to 16 do our forum a little earlier next year for that 17 reason. But overall, everyone really got a lot out of 18 it. 19 COMM. CLOWE: Very important. Thank you 20 very much. 21 MS. BERTOLACINI: You're welcome. 22 CHAIRMAN COX: Good report. Thank you. 23 MS. BERTOLACINI: Thank you. 24 AGENDA ITEM NO. XVII 25 CHAIRMAN COX: Item 17, consideration of 0064 1 and possible discussion and/or action, including 2 adoption of amendments, on Rule 16 TAC paragraph 3 401.310 related to payment of prize payments upon death 4 of prize winner. 5 Ms. Rienstra? 6 MS. RIENSTRA: Good morning, 7 commissioners. Deanne Rienstra, assistant general 8 counsel. 9 Before you are proposed amendments to 16 10 Texas Administrative Code 401.310, payment of prize 11 payments upon death of prize winner. The proposed 12 amendments were published in the Texas Register on July 13 13th, 2007. No comments were received. 14 Staff recommends adopting the proposed 15 amendments without changes in order to clarify for the 16 public the current agency practices and procedures to 17 be followed if an individual prize winner who is 18 receiving installment payments dies before all 19 unassigned installment payments have been made and a 20 payment of the remaining installment payment is needed 21 to pay estate taxes. 22 This is all I have and I'd be happy to 23 answer any questions. 24 COMM. CLOWE: Move the adoption. 25 CHAIRMAN COX: Second. 0065 1 All in favor, say aye. 2 COMM. CLOWE: Aye. 3 CHAIRMAN COX: Aye. 4 Motion carries two zero. 5 MS. KIPLIN: Commissioners, I have an 6 order adopting amendments to this rule. 7 AGENDA ITEM NO. XVIII 8 CHAIRMAN COX: Item 18, consideration of 9 and possible discussion and/or action, including 10 adoption, on the rule review of 16 TAC chapter 403 11 concerning general administration. 12 MS. WOELK: Thank you, Chairman Cox. 13 I'm -- 14 CHAIRMAN COX: Ms. Woelk? 15 MS. KIPLIN: Are you on? 16 MS. WOELK: Am I on? I'm Sarah Woelk. 17 I'm special counsel. 18 You may remember that in the June meeting 19 you proposed to review the rules in Chapter 403 of the 20 Texas Administrative Code. That's the -- those are the 21 general rules. They're -- they're having to do with 22 public information requests, claims processes and a few 23 miscellaneous items. They're not our key rules about 24 regulating the lottery or bingo. 25 In the review process, the task is to 0066 1 determine whether the reasons for the rules continue to 2 exist. We have reviewed the rules in Chapter 403 and 3 we've determined that there is no reason to carry 4 forward one of the rules which has to do with 5 surveillance vans. And our Enforcement Division has 6 stated that they don't foresee any need for 7 surveillance vans. 8 There are a few other changes that need 9 to be made for cleanup reasons. For example, the names 10 of some agencies that refer to has -- have changed. 11 Now the Attorney General administers the charges for 12 Open Records Act instead of General Services. 13 So what we're asking you to do today is 14 merely re-adopt all of the rules in Chapter 403 except 15 for the one about surveillance vans. We will come back 16 to you in September and propose several specific rules, 17 one repealing that provision of the surveillance vans 18 and a couple of others just doing cleanup work to make 19 sure our -- our rules are up to date. 20 We will also then be proposing the review 21 of the other two large chapters of rules. Those are 22 the chapters that have a lot of meat in them about the 23 lottery and about bingo and you'll be seeing more -- 24 more changes out of those chapters. 25 But what we ask you to do today is to go 0067 1 ahead and re-adopt Chapter 403 except for the rule 2 about surveillance vans, which is -- I can't read this, 3 Kim. Which is it? 4 CHAIRMAN COX: 403.402. 5 MS. WOELK: Thank you. 6 COMM. CLOWE: Move the adoption. 7 CHAIRMAN COX: Second. 8 All in favor, say aye. 9 COMM. CLOWE: Aye. 10 CHAIRMAN COX: Aye. 11 Motion carries two zero. 12 MS. KIPLIN: Commissioners, I have an 13 order on these -- on this matter. 14 AGENDA ITEM NO. XIX 15 CHAIRMAN COX: Item 19, consideration of 16 and possible discussion and/or action on external and 17 internal audits and/or reviews relating to the Texas 18 Lottery Commission and/or on the Internal Audit 19 Department's activities. 20 Ms. Melvin? 21 MS. MELVIN: Good morning, commissioners. 22 For the record, Catherine Melvin, director of the 23 Internal Audit Division. 24 This morning I have no items of update 25 but I'm happy to answer any questions you might have. 0068 1 COMM. CLOWE: No question. 2 CHAIRMAN COX: Catherine, how are you 3 coming on your risk assessment and your audit plan for 4 the next year? 5 MS. MELVIN: We're doing very well. This 6 last month has been very busy. We've completed 7 interviews of all the division directors, including 8 some interviews at the executive level. 9 We have spent some time with managers and 10 some of the responsible staff in trying to catalog all 11 the key processes in the agency. So we anticipate a 12 work plan coming before you at the September meeting 13 for your approval. 14 CHAIRMAN COX: And do you intend to 15 interview Chairman Clowe and me? 16 MS. MELVIN: I do. 17 CHAIRMAN COX: Thank you. 18 MS. MELVIN: Okay. Thank you. 19 CHAIRMAN COX: Chairman Clowe, if it's 20 okay, why don't we take about a ten-minute break. 21 COMM. CLOWE: Yes, sir. 22 (Recess from 10:06 a.m. to 10:17 a.m.) 23 AGENDA ITEM NO. XX 24 CHAIRMAN COX: Let's come back to order, 25 please. Item 20, report, possible discussion and/or 0069 1 action on incomplete lottery ticket transactions. 2 Mr. Rogers? 3 MR. ROGERS: Good morning, commissioners. 4 For the record, my name is Ed Rogers. I'm the Retailer 5 Services manager for the Lottery Commission. I'm also 6 a member of a committee that was assigned to evaluate 7 and recommend actions with regard to incomplete or 8 retry transactions. 9 Other members of the committee are Gary 10 Grief, Catherine Melvin, Kathy Pyka, Michael Anger and 11 Robert Tirloni. And we've been working with assistance 12 from Sarah Woelk and Deanne Rienstra from the Legal 13 Services Division. 14 Retry transactions were an item addressed 15 in the July 2006 State Auditor's Office audit report on 16 Lotto Texas activities at the Texas Lottery Commission. 17 Retry transactions are caused by telecommunications 18 problems resulting in central system -- in the central 19 system receiving and logging a transaction while the 20 related ticket is potentially not printed. 21 While the terminals continue in a retry 22 mode to complete confirmation of a transaction, a 23 ticket cannot be printed. This may continue for an 24 expended period, depending on the cause and how quickly 25 the telecommunications problem is resolved. 0070 1 Retry transactions may span draw breaks 2 or even calendar days and the terminal attempts to 3 print a ticket only upon re-establishment of the 4 connection between the terminal and the central system. 5 Once a terminal comes out of retry mode, a ticket may 6 or may not be printed. 7 As previously reported to you in past 8 commission meetings, a staff committee has been 9 diligently studying the issue. This has been going on 10 for several months. And with assistance from GTECH, 11 the group has been attempting to be responsive to 12 recommendations from the State Auditor's Office in this 13 matter. 14 During the review of this issue, the 15 staff has also challenged GTECH to pursue all potential 16 solutions or efforts to mitigate this situation. GTECH 17 -- GTECH recently brought forward some supplemental 18 information as a result of their ongoing review of this 19 issue indicating that no assurance can be provided 20 using available technology that tickets are printed or 21 not during a retry transaction. 22 This information represents a fundamental 23 change in both the agency's and the State Auditor's 24 Office's understanding of this issue. At the time of 25 the SAO review, the understanding of both the SAO and 0071 1 the agency was that transactions of this nature never 2 resulted in a printed ticket. 3 This new information has caused staff to 4 rethink the approach to retry transactions and 5 additional work is required in this regard. In a 6 future commission meeting, staff will be bringing 7 forward to you for your consideration some rule changes 8 related to a technological enhancement that we'll be 9 asking GTECH to initiate which will substantially 10 reduce the number of retry transactions. 11 In addition, we'll be asking you to 12 consider to allow agency staff to propose any necessary 13 amendments to the lottery operator contract regarding 14 retry transactions. 15 I wanted to let you know that the State 16 Auditor's Office has been informed of the new 17 information recently provided by GTECH related to 18 retries and the agency will take whatever steps are 19 necessary to modify our management response to the 20 State Auditor's Office audit in that regard through the 21 proper reporting mechanisms. 22 Ultimately, staff will make available on 23 the agency Web site an appropriate record of our 24 communication with the State Auditor's Office regarding 25 retry transactions along with any revision to our 0072 1 management response to the SAO Lotto Texas audit. 2 Commissioners, this concludes the 3 presentation. I or members of GTECH staff would be 4 happy to answer any questions you have or to receive 5 any comments. 6 CHAIRMAN COX: Ed, thank you very much. 7 Thanks to the committee that you served on and to GTECH 8 for the work they did on this. This is a very complex 9 issue and that was a very concise and an excellent 10 report. Thank you very much. 11 MR. ROGERS: Thank you. 12 AGENDA ITEM NO. XXI 13 CHAIRMAN COX: Item 21, report, possible 14 discussion and/or action on Mega Millions game and/or 15 contract. 16 Director Sadberry? 17 MR. SADBERRY: Again for the record, I'm 18 Anthony Sadberry, executive director. 19 Chairman and commissioners, I do not have 20 any updates for you on this item today. I would be 21 happy to answer any questions. 22 COMM. CLOWE: No questions. 23 CHAIRMAN COX: No questions. 24 AGENDA ITEM NO. XXII 25 CHAIRMAN COX: Report, possible 0073 1 discussion and/or action on GTECH Corporation. 2 Director Sadberry? 3 MR. SADBERRY: Chairman and Commissioner, 4 on August 7, Lottomatica announced that the United 5 Kingdom has selected the Camelot Consortium as the 6 preferred bidder to operate the UK national lottery 7 license. 8 Lottomatica's subsidiary, GTECH 9 Corporation, is a major lottery technology and 10 solutions provider to the Camelot Consortium. The 11 10-year license is expected to commence in February 12 2009. Camelot has been the UK's national lottery 13 operator since its inception in 1994. 14 On domestic consultant activity, in their 15 monthly report GTECH reported that they had terminated 16 its contract with one of their Indiana consulting firms 17 due to the Indiana legislative session ending and their 18 services no longer being needed. 19 GTECH contracted with the consultant firm 20 to provide government relations in Maryland. GTECH 21 removed one of the listed principals for a California 22 consulting firm due to his separation from that 23 company. 24 On internal consultant activity, GTECH 25 contracted with a consultant firm to provide government 0074 1 relations and public relations services in Germany. 2 On GTECH offices background 3 investigations, on August 7th the names of 14 GTECH 4 officers were delivered to the Department of Public 5 Safety for the purpose of background investigations. 6 The names submitted are of newly hired and newly 7 promoted GTECH officers. 8 Commissioners, that concludes my report. 9 I would be happy to answer any questions. 10 CHAIRMAN COX: Thank you. 11 AGENDA ITEM NO. XXIII 12 CHAIRMAN COX: Item 23, consideration of 13 the status and possible entry of orders in items A 14 through F. 15 Ms. Kiplin? 16 MS. KIPLIN: Commissioners, item A, 17 letter A is an order that is a staff -- it's an ALJ 18 recommendation but staff also supports it on a 19 suspension of a license for lottery retailer for 30 20 days. 21 And it has to do with failure to disclose 22 information that at the time would have been -- would 23 have made this particular retailer ineligible and had 24 to do with a criminal conviction. It's -- the person 25 is no longer ineligible because the time passed -- has 0075 1 passed for the sit-out. 2 And so the staff does recommend that you 3 sign that order suspending this retailer's license for 4 30 days. 5 COMM. CLOWE: Move the adoption. 6 CHAIRMAN COX: I have a question. 7 COMM. CLOWE: Certainly. 8 CHAIRMAN COX: Ms. Kiplin? 9 MS. KIPLIN: Yes? 10 CHAIRMAN COX: As I understand this, this 11 gentleman failed to disclose and we failed to detect 12 that he had a conviction? 13 MS. KIPLIN: Yes. I think -- I think, 14 when it's all said and done, I think that's probably a 15 good way of summarizing it. I think this has to do 16 with at a time where there -- there was information 17 that was coming out of one division and another 18 division was acting on what it knew at the time. 19 And then, when it came around, it still 20 was a disqualification and we moved forward. But by 21 the time it got remanded back to SOAH, that ten-year 22 sit-out passed so that the person would no longer be 23 ineligible. 24 CHAIRMAN COX: So I guess this is shame 25 on him because he didn't report it. It's also shame on 0076 1 us because we didn't catch it and that's why he gets 2 kind of a free pass here. 3 MS. KIPLIN: I wouldn't call it a free -- 4 I would not call it a free pass. I think there's a 5 recognition that we're putting a burden, as we should, 6 on our licensees to disclose. But I think there's also 7 recognition that in this case I think overall we could 8 have done a better job. 9 CHAIRMAN COX: Okay. And do you think 10 that the factors that caused us to not get the rubber 11 to the road on this one have been fixed? 12 MS. KIPLIN: Yes, I do. 13 CHAIRMAN COX: Second the motion. 14 All in favor, say aye. 15 COMM. CLOWE: Aye. 16 CHAIRMAN COX: Aye. 17 Motion carries two zero. 18 MS. KIPLIN: Commissioners, letter B is a 19 recommendation of a revocation of a retailer's license 20 for insufficient funds. Staff recommends that you 21 adopt that -- that ALJ's proposed findings and 22 conclusions. 23 CHAIRMAN COX: So move. 24 COMM. CLOWE: Second. 25 CHAIRMAN COX: All in favor, say aye. 0077 1 COMM. CLOWE: Aye. 2 CHAIRMAN COX: Aye. 3 Motion carries two zero. 4 MS. KIPLIN: Commissioners, letter C is 5 an action against a bingo conductor and the ALJ has 6 recommended revocation of the conductor's license. And 7 the basis for that is a failure to file, timely file, 8 the quarterly report and pay the prize fee. 9 Staff recommends that you adopt that 10 order. 11 CHAIRMAN COX: So move. 12 COMM. CLOWE: Second. 13 CHAIRMAN COX: All in favor, say aye. 14 COMM. CLOWE: Aye. 15 CHAIRMAN COX: Aye. 16 Motion carries two zero. 17 MS. KIPLIN: Commissioners, letter D is 18 an interesting case so I wanted to just talk a little 19 bit about this. This is an application from the Ysleta 20 Del Sur Pueblo Heritage Corporation to conduct bingo. 21 This is an outcrop and -- or I guess 22 maybe I should say part of an over -- a bigger picture 23 and I think the PFD, proposal for decision, really set 24 this out. But this is an Indian's tribe's corporation. 25 And under federal litigation, there -- 0078 1 which is still an open case, the tribe was required by 2 federal order to -- to seek a license from the Texas 3 Lottery Commission to conduct bingo. 4 The -- the tribe through this corporation 5 did file an application but when asked to provide -- to 6 provide supplemental information upon request of the -- 7 of the Bingo Division consistent with the processing of 8 this particular applicant's license just like it would 9 in any other case, did not comply and the case 10 proceeded to the State Office of Administrative 11 Hearings on the -- on the -- for the failure to provide 12 the information necessary to be able to vet the license 13 application. 14 And so, therefore, it was denied. The 15 case did proceed to hearing. Both -- both parties, 16 that being, obviously, the staff and then, of course, 17 the Heritage Corporation were -- were represented by 18 counsel. 19 The administrative law judge in that 20 matter did issue proposed findings and conclusions. 21 The parties did file exceptions and replies. And then 22 the administrative law judge amended some of the 23 findings and some of the conclusions. 24 And at this point, the staff is 25 recommending that the commission adopt the findings and 0079 1 the conclusions that are set out in their entirety in 2 the order. 3 I'd be happy to answer any further 4 questions that I can. 5 COMM. CLOWE: And so there was a denial 6 because of incomplete information or an incomplete 7 application initially. Then did the Heritage 8 Corporation petition for granting or how did it get to 9 the -- 10 MS. KIPLIN: Consistent with the bingo 11 rules and statutes, the staff issued a determination of 12 denial. The applicant for the license has an 13 opportunity to request a hearing and it did so. 14 COMM. CLOWE: So that's how they got to 15 the hearings office? 16 MS. KIPLIN: Yes, sir. That's right. 17 COMM. CLOWE: Did they ever say why they 18 wouldn't? 19 MS. KIPLIN: Yes, they did. They believe 20 that it -- it was a burden and not -- not consistent 21 with the sovereignty of a Indian tribe and, therefore, 22 refused to provide that information. And the record I 23 think is very complete on that. 24 COMM. CLOWE: So they were directed by 25 the federal government to make the application 0080 1 initially. They didn't do that of their own volition? 2 MS. KIPLIN: That's correct. They did 3 not. And that -- there are reported decisions on that. 4 And as I recall, the tribe appealed that to the 5th 5 Circuit and the 5th Circuit upheld the lower court 6 decision on the fact that at the time -- this is a 7 tribe that operates under the Restoration Act, not the 8 Indian Gaming Regulatory Act. 9 And at the time that they sought 10 restoration of their rights, they agreed to -- to not 11 engage in any kind of gambling within the state of 12 Texas that a citizen of the state of Texas could not 13 do. 14 And the litigation is federal litigation. 15 And at that time, the federal judge said you must -- 16 you must apply to -- in order to be determined whether 17 you are, in fact, eligible for a license to conduct 18 bingo in the state of Texas. 19 COMM. CLOWE: And so in the record it is 20 stated or do you have implicit knowledge of whether or 21 not they were asked for anything other than any other 22 applicant would be asked for? 23 MS. KIPLIN: I believe that they were 24 treated the same as any other applicant when there are 25 questions or information that needs to be obtained by 0081 1 the Bingo Division in order to vet that license 2 application to determine whether that applicant is, in 3 fact, eligible for a license under the provisions of 4 the Bingo Enabling Act to conduct bingo. 5 COMM. CLOWE: So to your knowledge and as 6 the record would reflect, they were treated no 7 differently from any other applicant? 8 MS. KIPLIN: That is correct. 9 COMM. CLOWE: No further questions, Mr. 10 Chairman. 11 CHAIRMAN COX: Does the opinion address 12 whether an Indian tribe is qualified under the 13 licensing provisions of the Bingo Enabling Act? 14 MS. KIPLIN: The federal opinion or this 15 one? 16 CHAIRMAN COX: Any opinion, Kim. 17 MS. KIPLIN: I think -- I think the -- 18 under -- under -- well, let me address the federal 19 opinion. I think federal opinion said you operate 20 under the Restoration Act provisions. Those are what 21 apply to you. You must be eligible for a license to 22 conduct bingo in the state of Texas. 23 This opinion I think acknowledges the 24 challenges. And this is in the dicta, in the 25 discussion part of the administrative law judge's 0082 1 proposal for decision. I think there's an 2 acknowledgment of the challenges that an Indian 3 tribe -- in this case, it's a corporation, not the 4 tribe itself but a corporation of that tribe would 5 face, in terms of having that license application 6 vetted under the Bingo Enabling Act. 7 CHAIRMAN COX: Anything else? 8 COMM. CLOWE: No, sir. Move the 9 adoption. 10 CHAIRMAN COX: Second. 11 All in favor, say aye. 12 COMM. CLOWE: Aye. 13 CHAIRMAN COX: Aye. 14 Motion carries two zero. 15 MS. KIPLIN: Commissioner, the next 16 case -- actually, the next two cases are agreed orders. 17 And there -- it's an agreement between the staff and 18 the -- and the parties in this case in each of these 19 cases to assessment of a $200 penalty for conducting 20 bingo when they did not have a license. 21 In the first case, they had -- their 22 license had expired and they had, in fact, applied but 23 it had not yet been issued. And I think, you know, the 24 factors in this is I think there was confusion on their 25 part whether, in fact, it had been issued or not. 0083 1 That's the VFW. 2 On the other one -- and I don't know -- I 3 think it's Voiture but I may be mispronouncing the 4 name. I think it was a similar issue, in terms of 5 confusion over a temporary bingo license and whether, 6 in fact, it had been -- whether, in fact, they had the 7 authority. 8 Each of these cases are an application of 9 the penalty chart guidelines that the commission voted 10 as a rule. And the chart is set out in the order so 11 that it's clear how that was applied. 12 Staff recommends that you enter the 13 orders in both these cases. 14 CHAIRMAN COX: So move. 15 COMM. CLOWE: Second. 16 CHAIRMAN COX: All in favor, say aye. 17 COMM. CLOWE: Aye. 18 CHAIRMAN COX: Aye. 19 Motion carries two zero. 20 AGENDA ITEM NO. XXIV 21 CHAIRMAN COX: Item number 24, report by 22 the executive director and/or possible discussion 23 and/or action on the agency's operational status 24 activities relating to the Charitable Bingo Operations 25 Division, agency procedures, ombuds position, stolen 0084 1 ticket cases and FTE status. 2 Director Sadberry? 3 MR. SADBERRY: Commissioners, I'm Anthony 4 Sadberry, executive director. There are materials in 5 your notebooks for your review regarding the status of 6 positions as of August 7th, 2007. 7 I would like to inform you of the 8 appointment of an FTE quarterly report committee 9 regarding the issue of management-to-staff ratio 10 requirements. The chair of the committee is Kathy 11 Pyka. Committee members are Gary Grief, Janine Mays 12 and Sarah Woelk. 13 The purpose of the committee is to study 14 the requirements of the statute and formulate a plan of 15 action for the agency's compliance with the statutory 16 requirements. I've asked the committee to also 17 coordinate their work with the Legal Services Division, 18 as well as the Internal Audit Division. 19 The Internal Audit Division director has 20 agreed to work with the committee and render assistance 21 with regard to their work. I'll keep you updated on 22 the status of that work. 23 I would now like to introduce to you the 24 new ombuds for the Texas Lottery Commission. I'd like 25 to ask with your pleasure that Ms. Lauren Bloom come 0085 1 forth and sit at the table, please. 2 Ms. Bloom is our new agency ombuds. 3 That's the word we're using now instead of ombudsman or 4 ombuds person. She started her position August 6th, 5 2007. Included in your packages is background 6 information with regard to her experience and education 7 qualifications. 8 We've had several meetings outlining the 9 scope of the expected work that she will be doing here. 10 And in connection with this introduction, I'd like to 11 take the opportunity to again thank Dale Hernandez, who 12 graciously stepped up and served as the agency 13 ombudsman during the past year. 14 And you've heard on several occasions the 15 circumstances under which that occurred. And I believe 16 Dale has had a positive impact in establishing this 17 function. And with the hiring of Lauren as our new 18 ombuds, Dale will now return to full-time to our 19 internal audit responsibilities. 20 But Dale will assist Lauren in 21 transitioning the ombuds' duties. In fact, meetings 22 between the two of them have already occurred and are 23 ongoing. I'm very appreciative of that occurring. 24 So I'd like to now present Ms. Bloom and 25 see if you have any questions or comments with regard 0086 1 to her services here. 2 CHAIRMAN COX: Welcome. Chairman Clowe? 3 COMM. CLOWE: We had an opportunity to 4 meet and chat earlier. And I'd like to reaffirm the 5 thing that I said to you, that the work you're doing is 6 extremely important to us and we are glad you're here 7 and want to be supportive in the efforts that you're 8 going to be involved in on behalf of the agency. 9 It's my understanding that you -- since 10 you've come on board, you already have one case and 11 that you are, in fact, going to be working on the 12 survey and lending your expertise and knowledge in that 13 effort. 14 I might say to you that one of the 15 concerns that I think this commission has in the past 16 was the deviation from surveys that we had conducted 17 from that which the State Auditor conducted. And I've 18 never really in my mind gotten comfortable with why we 19 were so far apart on that. 20 I understand the difference. I recognize 21 it and we're working to reconcile towards a more 22 positive result of any survey that's taken in the 23 future. And I would like for you to know that in the 24 past we got a surprise there and we'd like to eliminate 25 surprises. And I don't mean manage the result of the 0087 1 survey at all but get a true set of feedbacks from our 2 employees about their feelings. 3 One thing that I've said in the past 4 which I think is important is that we want to be 5 thought of in a positive light in this agency. We want 6 it to be a collegial place to have employment, for the 7 employees to be respected and treated with dignity, not 8 necessarily in every case getting the answer that they 9 want -- that's impossible -- but one of openness and of 10 good communication, fairness and treatment that's equal 11 in every instance. 12 And our sense is that you do that through 13 leadership, you do that through setting example and, as 14 I say, through open communication. And the function 15 that you're providing is very important. But as I see 16 it, it's supplementary to the roles and 17 responsibilities of those in charge, the leaders of 18 this agency. 19 And so on behalf of the commission -- I 20 think I can speak for the chairman. If there's 21 anything we can do individually or as a board to 22 support the work that you're doing, we want you to know 23 that we're ready, willing and able. 24 Now you're going to be part-time. Is 25 that correct? Twenty hours a month, is that about 0088 1 right? 2 MS. BLOOM: This is Lauren Bloom for the 3 record. Yes, that is correct, 20 hours per week. 4 COMM. CLOWE: And how does that work? 5 Are you sort of like the physician that's called or do 6 you maintain an office hour at a certain time? What 7 are the mechanics of that? 8 MS. BLOOM: I will be maintaining office 9 hours at certain times. I'll have a presence here most 10 days of the week. 11 COMM. CLOWE: You do? Okay. Fine. 12 Well, if we can help you in any way, let us hear from 13 you. 14 CHAIRMAN COX: And certainly I concur in 15 everything you said, Chairman Clowe. 16 Lauren, how do you understand your 17 reporting relationship to this commission? 18 MS. BLOOM: I understand it that I report 19 directly to Anthony Sadberry, the executive director, 20 and that I have access to other managers, as well as 21 you as the commissioners. 22 CHAIRMAN COX: Okay. So you do 23 understand that you have access to the us? 24 MS. BLOOM: Absolutely. 25 CHAIRMAN COX: And everything Chairman 0089 1 Clowe said about wanting this to be a good place to 2 work where everyone feels they have an opportunity to 3 perform to the maximum of their ability and to enjoy 4 work is one of the things that he mentioned that I 5 consider incredibly important. 6 And if you need to talk to us about 7 issues of that nature, we're here. 8 COMM. CLOWE: Thank you. 9 CHAIRMAN COX: Thank you very much, 10 Lauren. 11 MR. SADBERRY: Commissioners, the 12 requested information that's been compiled by Ed Rogers 13 regarding the Hazel Belyeu prize claim and the one 14 Caberelli I believe is pronunciation prize claim was 15 sent to each commissioners in the August 2nd Thursday 16 packet and I trust you've had an opportunity to review 17 that. 18 And I would be happy to answer any 19 question at this time. 20 COMM. CLOWE: No questions. 21 CHAIRMAN COX: No questions. Thank you. 22 MR. SADBERRY: That concludes my report. 23 CHAIRMAN COX: Ready for executive 24 session? 25 COMM. CLOWE: Yes, sir. 0090 1 AGENDA ITEM NO. XXVI 2 CHAIRMAN COX: At this time, I move the 3 Texas Lottery Commission go into executive session: 4 A, to deliberate the duties and 5 evaluation of the executive director, the deputy 6 executive director, Internal Audit director and 7 Charitable Bingo Operations director and to deliberate 8 the duties of the general counsel pursuant to Section 9 551.074 of the Texas Government Code; 10 B, to receive legal advice regarding 11 pending or contemplated litigation pursuant to Section 12 551.071(1)(A) and/or to receive legal advice regarding 13 settlement offers pursuant to Section 551.071(1)(B) of 14 the Texas Government Code and/or to receive legal 15 advice pursuant to Section 551.071(2) of the Texas 16 Government Code, including but not limited to, Cynthia 17 Suarez versus Texas Lottery Commission, Shelton Charles 18 versus Texas Lottery Commission and Gary Grief, First 19 State Bank of DeQueen et al. versus Texas Lottery 20 Commission, employment law, personnel law, procurement 21 law and contract law, evidentiary and procedural law 22 and general government law, lottery operations and 23 service contract, Mega Millions game and/or contract. 24 Is there a second? 25 COMM. CLOWE: Second. 0091 1 CHAIRMAN COX: All in favor, say aye. 2 COMM. CLOWE: Aye. 3 CHAIRMAN COX: Aye. 4 The vote is two zero. The Texas Lottery 5 will go into executive session. The time is 10:45 a.m. 6 Today is August 22, 2007. 7 (Recess from 10:45 a.m. to 2:16 p.m.) 8 AGENDA ITEM NO. XXVII 9 CHAIRMAN COX: Texas Lottery Commission 10 is out of executive session. The time is 2:16 p.m. Is 11 there any action to be taken as a result of executive 12 session? If not, let's move on to item 25 on the 13 agenda. 14 AGENDA ITEM NO. XXV 15 CHAIRMAN COX: Is there any public 16 comment? 17 AGENDA ITEM NO. XXVIII 18 CHAIRMAN COX: Meeting is adjourned. 19 (Meeting adjourned at 2:16 p.m.) 20 21 22 23 24 25 0092 1 C E R T I F I C A T E 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, David Bateman, a Certified Shorthand 7 Reporter in and for the State of Texas, do hereby 8 certify that the above-mentioned matter occurred as 9 hereinbefore set out. 10 I FURTHER CERTIFY THAT the proceedings of 11 such were reported by me or under my supervision, later 12 reduced to typewritten form under my supervision and 13 control, and that the foregoing pages are a full, true 14 and correct transcription of the original notes. 15 IN WITNESS WHEREOF, I have hereunto set 16 my hand and seal this 6th day of September 2007 17 18 19 20 __________________________________ 21 David Bateman Certified Shorthand Reporter 22 CSR No. 7578 - Expires 12/31/07 Firm Certification No. 276 23 Kennedy Reporting Service, Inc. Cambridge Tower 24 1801 Lavaca Street, Suite 115 Austin, Texas 78701 25 (512) 474-2233