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 6                              
 7                  TEXAS LOTTERY COMMISSION
 8                           MEETING
 9                              
10                     SEPTEMBER 11, 2003
11                              
12                              
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14   
15   
16   
17            BE IT REMEMBERED that the Texas Lottery 
18   Commission meeting was held on the 11th day of 
19   September, 2003 from 8:30 a.m. to 2:56 p.m., before 
20   David Bateman, RPR, CSR in and for the State of Texas, 
21   reported by machine shorthand, at the Offices of the 
22   Texas Lottery Commission, 611 East 6th Street, Austin, 
23   Texas 78701, whereupon the following proceedings 
24   were had:
25   
0002
 1                    A P P E A R A N C E S
 2   
 3   Chairman:
 4            Mr. C. Tom Clowe, Jr.
 5   
 6   Commissioners:  
 7            Mr. James A. Cox, Jr.
 8            Mr. Rolando Olvera
 9   
10   General Counsel:
11            Ms. Kimberly L. Kiplin
12   
13   Executive Director:
14            Mr. Reagan E. Greer
15   
16   Charitable Bingo Operations Assistant Director:
17            Mr. Phil Sanderson
18   
19   Deputy Executive Director:
20            Mr. Gary Grief
21   
22   
23   
24   
25   
0003
 1                          I N D E X
 2                                                    PAGE
 3   Appearances......................................   2
 4   
 5   AGENDA ITEMS
     Item Number 1....................................   4
 6   Item Number 2....................................   6
     Item Number 3....................................   7
 7   Item Number 4....................................   9
     Item Number 5....................................  18
 8   Item Number 6....................................  25
     Item Number 7....................................  40
 9   Item Number 8....................................  43
     Item Number 9....................................  43
10   Item Number 10...................................  43
     Item Number 11...................................  43
11   Item Number 12...................................  49
     Item Number 13...................................  52
12   Item Number 14...................................  71
     Item Number 15...................................  74
13   Item Number 16...................................  86
     Item Number 17...................................  87
14   Item Number 18...................................  90
     Item Number 19...................................  91
15   Item Number 20...................................  93
     Item Number 21................................... 103
16   Item Number 22................................... 205
     Item Number 23................................... 207
17   Item Number 24................................... 121
     Item Number 25................................... 188
18   Item Number 26................................... 202
19   
     Reporter's Certificate........................... 209
20   
21   
22   
23   
24   
25   
0004
 1                      AGENDA ITEM NO. 1
 2                 CHAIRMAN CLOWE:  Good morning.  The time 
 3   is 8:30 a.m.  Today is September the 11th, 2003.  
 4   Commissioner Cox is here.  Commissioner Olvera is 
 5   here.  My name is Tom Clowe. 
 6                 I'd like to open our meeting this 
 7   morning by reading a proclamation from the President 
 8   of the United States, George W. Bush. 
 9                 Two years ago, more than 3000 innocent 
10   people lost their lives when a calm September morning 
11   was shattered by terrorism driven by hatred and 
12   destruction.  On that day and in its aftermath, we saw 
13   the greatness of America and the bravery of victims 
14   and the heroism of first responders who laid down 
15   their lives to save others and the compassion of 
16   people who step forward to help those who they have 
17   never met and in the generosity of millions of 
18   Americans who enrich our country with acts of service 
19   and kindness. 
20                 Since that day, we have seen the 
21   greatness of America further demonstrated in the 
22   courage of our brave men and women in uniform who have 
23   served and sacrificed in Afghanistan and Iraq and 
24   around the world to advance freedom and prevent 
25   terrorist attacks on America. 
0005
 1                 As we remember September the 11th, 2001, 
 2   we reaffirm the vows made in the earliest hours of our 
 3   grief and anger as liberty's home and defender.  
 4   America will not tire, will not falter, and will not 
 5   fail in fighting for the safety and security the 
 6   American people and a world free of terrorism. 
 7                 We will continue to bring our enemies to 
 8   justice or bring justice to them.  This Patriot Day we 
 9   hold steady to this task.  By a joint resolution 
10   approved September 18th, 2001, Public Law 107-89, the 
11   Congress has designated September the 11th of each 
12   year as Patriot Day. 
13                 Now therefore, I, George W. Bush, 
14   President of the United States of America, do hereby 
15   proclaim September the 11th, 2003 as Patriot Day.  I 
16   call upon the people of the United States to observe 
17   this day with appropriate ceremonies and activities, 
18   including remembrance services and candlelight vigils. 
19                 I also call upon the governors of the 
20   United States and the commonwealth of Puerto Rico, as 
21   well as appropriate officials of all units of 
22   government, to direct that the flag be flown at 
23   half-mast on Patriot Day. 
24                 In addition, I call upon all Americans 
25   to display the flag at half-mast or half-staff from 
0006
 1   their homes on that day and to observe a moment of 
 2   silence beginning at 8:46 a.m. eastern daylight 
 3   savings -- eastern daylight time to honor the innocent 
 4   victims who lost their lives as a result of the 
 5   terrorist attacks of September the 11th, 2001. 
 6                 In witness thereof, I have hereto set my 
 7   hand this 4th day September in the year of our lord, 
 8   2003 and of the independence of the United States of 
 9   America 228, signed George W. Bush. 
10                 Since that hour has passed, 8:46 a.m., I 
11   would point out to you there are other significant 
12   times.  7:46 is -- eastern time is the time the first 
13   airplane struck the World Trade Center tower.  There 
14   was another strike at 8:03 a.m.  And then at 8:59 and 
15   9:29 a.m., those towers went down.  Those are 
16   significant moments in this day in the past. 
17                 I do think, Commissioners, with your 
18   approval, it would be appropriate for us to observe a 
19   moment of silence in regard to the tragedy of this day 
20   two years ago and the proclamation which has been 
21   issued by the President. 
22                 So we will do that at this time 
23   remaining seated.  Thank you very much.
24                      AGENDA ITEM NO. 2
25                 CHAIRMAN CLOWE:  Now I'd like to move 
0007
 1   into the agenda and take Item 2 in regard to the 
 2   resignation and departure from this commission by 
 3   Betsy Whitaker. 
 4                 Betsy Whitaker was appointed as a 
 5   commissioner to the Texas Lottery Commission in March 
 6   of 2000 and was reappointed in March of 2001 for a 
 7   term of six years.  We regret seeing Betsy resign and 
 8   leave the commission. 
 9                 She was sworn in as president of the 
10   Texas Bar Association on June the 13th, 2003.  She is 
11   one of the founding partners in the law firm of 
12   Hankinson & Whitaker.  And she has done an outstanding 
13   job during her term here. 
14                 We understand she has duties which are 
15   demanding her time and we're happy to have had her as 
16   a commissioner during her time of service.  She has 
17   made a great contribution to the integrity and 
18   honesty, which is first and foremost in our minds, of 
19   this commission and this agency.  And we wish her well 
20   and Godspeed in her new duties. 
21                 Commissioner Cox, do you have anything 
22   to add?
23                 COMMISSIONER COX:  I certainly second 
24   that, Mr. Chairman.
25                      AGENDA ITEM NO. 3
0008
 1                 CHAIRMAN CLOWE:  And then if you have 
 2   seen the Michelin man on television inspecting tires, 
 3   he says good-bye to a tire he's inspected with a tear 
 4   in his eye.  But then they bring him a new tire and 
 5   he's got a happy smile on his face.  And we are happy 
 6   to, as the Michelin man does, welcome our new 
 7   commissioner. 
 8                 And his name is Roland Olvera, Jr. of 
 9   Brownsville.  Rollie, as he, I think, prefers to be 
10   addressed, has a distinguished record of community 
11   service.  And he is an outstanding lawyer practicing 
12   now in the Valley in South Texas, Brownsville.  He's a 
13   graduate of Harvard University and the University of 
14   Texas Law School, which are two of the finest colleges 
15   and universities in this country. 
16                 And certainly with a background like 
17   that -- he's entered into community service.  He's 
18   very active in South Texas.  And we are delighted to 
19   have you as a commissioner and look forward on behalf 
20   of myself and I think Commissioner Cox of serving with 
21   you. 
22                 We will have some items on the agenda 
23   this morning that will be beneficial to the new 
24   commissioner.  I'll ask you to bear through that as we 
25   proceed through the agenda. 
0009
 1                 Commissioner Cox, do you have a word of 
 2   welcome?
 3                 COMMISSIONER COX:  Welcome, Rollie.  
 4   We're glad to have you.
 5                 COMMISSIONER OLVERA:  Thank you, 
 6   Commissioner.  Happy to be here.
 7                 CHAIRMAN CLOWE:  Would you care to have 
 8   a remark to us, please, sir?
 9                 COMMISSIONER OLVERA:  Well, 
10   Commissioner, first of all, thank you for having me 
11   here.  I look forward to working with all of you.  I 
12   see that, perhaps, the stars are in alignment.  There 
13   was a matching ticket sold in Brownsville last night, 
14   which is my home town. 
15                 So with that positive note, I hope we 
16   can keep up a positive trend throughout my term here.  
17   And as I said before, I look forward to working with 
18   all of you.
19                 CHAIRMAN CLOWE:  Great.  We're happy to 
20   have you.  And the staff and members of public and 
21   others will get to know you better as time goes on and 
22   I'm certain that we're all looking forward to working 
23   with you.  
24                      AGENDA ITEM NO. 4
25                 CHAIRMAN CLOWE:  We're now ready to go 
0010
 1   to Item No. 4, report, possible discussion and/or 
 2   action on the Texas ethics laws pertaining to the 
 3   Texas Lottery Commission. 
 4                 Diane Morris, good morning. 
 5                 MS. MORRIS:  Good morning. 
 6                 CHAIRMAN CLOWE:  Good morning, Cue. 
 7                 MR. BOYKIN:  How are you?  
 8                 CHAIRMAN CLOWE:  If I had known you were 
 9   going to be here, I would have brought you a note from 
10   Hoss. 
11                 MR. BOYKIN:  I was going to ask about 
12   his health.
13                 MS. KIPLIN:  Commissioners, before we 
14   begin, I'd like to say that we generally have the 
15   lawyer for the Ethics Commission, Sarah Woelk, as you 
16   may recall, who comes and makes this presentation on 
17   ethics whenever we have a new commissioner. 
18                 She regrettably was unavailable today.  
19   She's actually got her own commission meeting and is 
20   the general counsel for the commission and so thought 
21   it would be best for her to go ahead and stay at that 
22   agency.  Diane Morris, the assistant general counsel 
23   here with the Lottery Commission also makes these 
24   presentations along with Sarah Woelk, so she's going 
25   to be the presenter today. 
0011
 1                 And Mr. Boykin is here in case he has 
 2   any more words on this issue.  He -- I've asked him to 
 3   come over.  He's an assistant attorney general with 
 4   the Texas Attorney General's Office in the 
 5   Administrative Law Division.  And I've asked him to 
 6   come over specifically with regard to the 
 7   Administrative Procedure Act and contested case 
 8   proceedings and process to the extent that it's 
 9   generally applicable on consent orders. 
10                 I'm sure he would have no problem 
11   chiming in on open meetings and open records, as well.  
12   Thanks for coming.
13                 MS. MORRIS:  Well, good morning.  I'll 
14   start first.  On the ethics agenda item, it is my 
15   pleasure to appear again in front of the commission 
16   and for two of you to provide basically a refresher.  
17   And for the new commissioner, welcome. 
18                 The Texas Ethics Commission should be 
19   proud and we are proud of our ethics policies.  It is 
20   a commitment to our integrity, to the honesty and the 
21   security of the lottery game.  For the regulation of 
22   bingo, it is our commitment as government employees to 
23   correctly, fairly and justly discharge our public 
24   duties. 
25                 In your materials that I brought you 
0012
 1   today, the first item for the Texas ethics policy is a 
 2   memoranda signed by the executive director, Reagan 
 3   Greer and by Billy Atkins, the director of the 
 4   Charitable Bingo Operations Division.  It is a memo 
 5   that has been distributed to all Texas Lottery 
 6   Commission employees.  The commitment is that we do 
 7   annual training to our Texas Lottery Commission 
 8   employees. 
 9                 First item on the Texas ethics policy is 
10   our relationship with our vendors.  We hold our 
11   vendors very important to us.  Their function is 
12   necessary for us, but we hold them apart from us.  
13   You'll see on the first page the fundamental 
14   difference between us and our vendors. 
15                 And our rules under our laws and under 
16   our policies that extend the requirements of our law, 
17   we do not take anything of value from our vendors. 
18   This is different than other state agencies.  Our 
19   State Lottery Act is very specific. 
20                 Our vendors are aware of this policy.  
21   It is in their contracts with us.  We do not socialize 
22   with our primary vendors.  We document meetings with 
23   our primary vendors.  Those kind of standards are 
24   extended also to our bingo licensees and our lottery 
25   licensees. 
0013
 1                 In addition, this agency has established 
 2   an Ethics Committee.  The members of the Ethics 
 3   Committee are the executive director, the Charitable 
 4   Bingo Division director, the Human Resources director, 
 5   and the general counsel.  It has been embraced as a 
 6   primary function of this agency to have an ethics 
 7   commission or committee and to answer questions. 
 8   Employees are encouraged to send questions to the 
 9   Ethics Committee and they will be provided answers. 
10                 In addition, if there's any question 
11   that our employees have regarding our ethics policies, 
12   they are invited to -- in addition to asking any 
13   questions they have, if issues come up, we encourage 
14   voluntary disclosure.  We operate in the open.  We are 
15   proud of our activities here at the Lottery. 
16                 Moving forward into other areas of 
17   ethics laws, if Sarah were here, she would remind you 
18   again that we are different than other state agencies.  
19   If you're used to something called 50-dollar limit, 
20   that is not here.  We have no authority to accept 
21   anything of value.  There is a small exception from a 
22   person that may have a prior relationship with you 
23   such as family or long-term friends. 
24                 In particular, as far as the 
25   commissioners are concerned, please be aware that 
0014
 1   there are significant limitations on gifts or any kind 
 2   of political contributions. 
 3                 Other than that, our state agency and 
 4   all employees are governed by generally other laws.  
 5   We do not lobby.  We do not expend State funds to 
 6   lobby whatsoever.  Our employees may not play the 
 7   lottery and they may not play bingo. 
 8                 In addition to that, we are very mindful 
 9   of Commission property is state property.  It is not 
10   ours personally.  We are very mindful of the resources 
11   that are entrusted to us.  We do not use any State 
12   property for personal use. 
13                 Are there any questions?
14                 CHAIRMAN CLOWE:  I have a question.
15                 MS. MORRIS:  Yes, sir.
16                 CHAIRMAN CLOWE:  You made a comment that 
17   there are limitations on political contributions.  
18   Would you be more specific on that?
19                 MS. MORRIS:  Yes.  If you look on -- and 
20   in your packet, do you want me --
21                 CHAIRMAN CLOWE:  Just tell us. 
22                 MS. MORRIS:  Yes, sir.  The commission 
23   members, executive director, and employee may not 
24   knowingly or intentionally accept a gift or political 
25   contribution from a person who has a significant 
0015
 1   financial interest in the lottery.
 2                 CHAIRMAN CLOWE:  And I wasn't inquiring 
 3   about receipt of political contributions.  I was 
 4   referring to making political contributions on behalf 
 5   of the commissioners or executive director.
 6                 MS. MORRIS:  I am not aware that this 
 7   agency is making any political contributions.  You, as 
 8   a private citizen, those are your private businesses.  
 9   But Chairman Clowe, I am aware of absolutely no 
10   authority or any past practice of making any political 
11   contributions from the commissioner in that position 
12   or any employee of this agency.
13                 CHAIRMAN CLOWE:  But a commissioner can 
14   make a political contribution as an individual?
15                 MS. MORRIS:  Yes, sir.
16                 CHAIRMAN CLOWE:  I want a 
17   clarification --
18                 MS. MORRIS:  Yes, sir. 
19                 CHAIRMAN CLOWE:  -- on that.
20                 MS. MORRIS:  And I just was stumbling 
21   over the word -- well, then you're not really a 
22   commissioner.  You're a human, a citizen who is 
23   allowed to participate in the process.
24                 CHAIRMAN CLOWE:  And you're not allowed, 
25   as a commissioner, to be listed as a sponsor or host 
0016
 1   or issue a letter of endorsement of a candidate or 
 2   appear in any way in behalf of a candidate, but you 
 3   can as an individual write out a check and make a 
 4   personal contribution?
 5                 MS. MORRIS:  Yes, sir.  The word, if you 
 6   will, Tom Clowe comma Commissioner should not appear 
 7   in any form of political endorsement or advertising.
 8                 MS. KIPLIN:  Can I -- can I chime in?  
 9   Do you mind if I do?
10                 MS. MORRIS:  Yes.
11                 MS. KIPLIN:  There -- there's a 
12   particular statute and I want to make sure that we're 
13   really clear.  It's out of the Government Code and 
14   it's Section 467.025.  We actually have a formal 
15   opinion from the Attorney General's office on this 
16   particular issue. 
17                 And what it says is along with other 
18   things, but in particular with the question I think 
19   you're asking, Mr. Chairman:  A commissioner member 
20   may not directly or indirectedly coerce, attempt to 
21   coerce, command or advise a person to pay, lend or 
22   contribute anything of value to another person for 
23   political purpose. 
24                 We asked the question:  Does that extend 
25   to the commissioner in their individual capacity?  And 
0017
 1   if so, is that constitutional with regard to freedom 
 2   of association, freedom of speech issues? 
 3                 And Dan Morales Opinion No. 408, which 
 4   was rendered in 1996, makes it quite clear that it is 
 5   a prohibition on that stated conduct both in your 
 6   official capacity and in your individual capacity.  
 7   And, in fact, when further -- and indicated that 
 8   implicitly includes -- the prohibition implicitly 
 9   includes the solicitation of a contribution. 
10                 So it's -- even though the word 
11   "solicitation" is not part of this statute, this 
12   Attorney General opinion says that it's implied in 
13   that statute.
14                 CHAIRMAN CLOWE:  Thank you for that 
15   amplification.  And I wanted to make this point 
16   particularly clear because I think this is the thing 
17   that sets Lottery commissioners aside and makes them 
18   very different from serving on other boards of 
19   agencies in the state. 
20                 Our prohibition allows us, as I see it, 
21   to do just one thing -- well, two things.  We can make 
22   a personal contribution to a political candidate and 
23   we can vote for that candidate, but that's about it. 
24                 MS. MORRIS:  And I'm -- I'm inclined to 
25   say yes, but I want to make sure my general counsel 
0018
 1   agree with me, as well, if I said yes to that 
 2   question. 
 3                 MS. KIPLIN:  I have found nothing that 
 4   would prohibit that kind of activity, and that is you, 
 5   in an individual capacity, not as an official of the 
 6   state, making a political contribution of your choice.
 7                 CHAIRMAN CLOWE:  Thank you. 
 8                 MS. MORRIS:  Well, if Cue would like me 
 9   to keep going, I will.  All right. 
10                 I'll move to the next agenda item.
11                 CHAIRMAN CLOWE:  Very good.  
12                      AGENDA ITEM NO. 5
13                 MS. MORRIS:  The next agenda item is 
14   Item No. 5, the discussion on the Open Meetings Act 
15   and the Public Information Act. 
16                 Again, the Texas Lottery Commission is a 
17   state agency.  We operate in the open.  The Open 
18   Meetings Act is the law that requires the meetings to 
19   be in the open.  Any meeting of the governmental body 
20   of the Texas Lottery Commission, it is a public 
21   meeting.  It must be posted and must be in the open. 
22                 There are certain exceptions to the Open 
23   Meetings Act that allow you to meet in executive 
24   session.  But those items, as you will see, are posted 
25   in your agenda.  It allows you to meet, if you will, 
0019
 1   in a private setting.  But it is still part of today's 
 2   agenda and it is still posted for the public to know 
 3   the items that you are meeting on in executive 
 4   session. 
 5                 The term is often used.  What is a 
 6   meeting?  And a meeting is a deliberation between a 
 7   quorum of a governmental body or between a quorum of a 
 8   governmental body and another person during which 
 9   public business or public policy over which the 
10   governmental body has supervision or control is 
11   discussed or during which the governmental body takes 
12   formal action. 
13                 Sometimes it's misunderstood by other 
14   governmental agencies or bodies that as long as we 
15   didn't vote, there's no problem.  It is very clear in 
16   the Open Meetings Act prohibition, discussion alone is 
17   a deliberation.  And any deliberation means a verbal 
18   exchange between a quorum of a governmental body or a 
19   quorum of a governmental body and another person. 
20                 This is a three-member committee or 
21   commission.  Two of you are a quorum.  That is why 
22   many times you may feel the frustration of not being 
23   able to discuss issues ahead of time with each other  
24   when you attend this open meeting. 
25                 I have sat many, many times and I have 
0020
 1   heard commissioners say:  "Well, I haven't had a 
 2   chance to talk to you yet because I can't, so I want 
 3   to know what you think.  I've been waiting to come to 
 4   this meeting to exchange ideas and to deliberate." 
 5                 Along with the Open Meetings Act is the 
 6   prohibition that, if you will, nobody can help you 
 7   exchange or deliberate.  In other words, one 
 8   commissioner cannot tell somebody to go tell the other 
 9   commissioner something.  That would be a conduit and 
10   that's a violation of the Open Meetings Act. 
11                 You will see a pattern as you -- the new 
12   commissioner, you will see a pattern that we are very 
13   careful.  We don't -- I can't say we like to keep our 
14   commissioners in the dark, but the Open Meetings Act 
15   is a restraint on how much communication you may feel 
16   is really occurring.  And please understand that. 
17                 Along with that, sometimes you may hear 
18   the general counsel speak up and say:  "Where is this 
19   item on the agenda?"  
20                 You may feel like you have something 
21   that you want to say, that it's very important.  That 
22   is the function of the duty of the general counsel to 
23   ensure that the agency is staying on the posted 
24   agenda. 
25                 The public has a right to come and hear 
0021
 1   everything that you say in the open.  They are relying 
 2   upon your agenda to be your page you're staying on.  
 3   You are not to go off the page.  If there is an item 
 4   that is not on the agenda that you want to discuss, it 
 5   needs to be put on next meeting's agenda.  It's not in 
 6   an effort to stop discussion.  It's in an effort to 
 7   comply. 
 8                 The Open Records Act:  Likewise, the 
 9   Open Records Act is a component of open government.  
10   Open Records Act is the law that embodies a 
11   presumption every document, if you will, piece of 
12   paper is a governmental record.  And absent exceptions 
13   under the Open Records Act, it's available to the 
14   public. 
15                 Anyone can make an open records request.  
16   The governmental body has 10 days to respond.  We have 
17   an open records coordinator here at the agency.  And 
18   her job function is to receive and respond timely to 
19   those open records requests. 
20                 The law has been changed to reaffirm 
21   that agencies are to respond to open records requests 
22   as soon as possible, which we do.  This agency 
23   receives a lot of open records requests.  Recently, 
24   initiatives have been taken to put more and more 
25   information on our Web site.  We're hoping that will 
0022
 1   help get the information out even faster. 
 2                 There are times, however, regardless of 
 3   how much we want information out and out fast, we 
 4   can't.  Those times generally involve a vendor.  A 
 5   vendor is a third party.  A vendor is a person or an 
 6   entity that has rights to information that they may 
 7   have provided to us.  Typically, those are proprietary 
 8   rights or trade secret rights, commercial interests. 
 9                 By law, we cannot provide those 
10   information -- that information to the public without 
11   an Attorney General's opinion.  Therefore, you may 
12   hear sometimes that the attorney -- that we here at 
13   the Lottery Commission have filed for an Attorney 
14   General's opinion.  That is not a delay tactic.  That 
15   is the position that we are placed in when we are, if 
16   you will, caught in the middle. 
17                 Are there any questions? 
18                 CHAIRMAN CLOWE:  I'd like to ask for 
19   clarification, if there are not certain times when 
20   commissioners can be in the same room and it can be an 
21   authorized presence on their part without declaring an 
22   open meeting situation such as, I think, the upcoming 
23   Attorney General's conference on October the 29th and 
24   30th. 
25                 It's my understanding three 
0023
 1   commissioners signed up for that.  And that is 
 2   permitted under the law, as long as the commissioners 
 3   do not discuss, deliberate or even -- I think in the 
 4   case of our conduct -- have casual conversations with 
 5   each other, they stay separated. 
 6                 Is that not correct?
 7                 MR. BOYKIN:  So long as -- so long as 
 8   any discussion of the public's business is merely 
 9   incidental to the main purpose of the seminar, then 
10   it's not considered a meeting.  One thing you may -- 
11   I've had -- there's another exception, as well. 
12                 I believe this last session or maybe it 
13   was the 77th Legislature put an exception to allow a 
14   full board to appear before committees of the 
15   legislature and testify before the legislature. 
16   That's -- that's no -- that does not fall within the 
17   definition of a meeting. 
18                 One thing you might want to be careful 
19   of -- Diane may have mentioned it, telephone calls.  
20   There is a case out of San Antonio that says that a 
21   letter written by a school board in response to a 
22   series of telephone calls that they made was a 
23   violation of the act. 
24                 And the problem with that is when you 
25   get sued about that type of violation, the cost to the 
0024
 1   agency is generally -- if you -- if you made a 
 2   decision in violation of the act, the court will void 
 3   that decision.  But usually economically to the 
 4   agency, you'll get -- you'll end up having to pay the 
 5   prevailing party's attorney fees. 
 6                 So in addition to the telephone calls, 
 7   e-mails.  I don't think we have actually written 
 8   formal opinion on that subject, but I have no doubt 
 9   that it's -- if we haven't, we will.  And they're 
10   going to say that that -- that electronic 
11   communications are meetings, as well. 
12                 So anyway, that's...
13                 MS. KIPLIN:  And if I could follow up on 
14   what Mr. Boykin said, our preference on e-mails is 
15   that we send individual e-mails to individual 
16   commissioners.  So if you receive one where all three 
17   of you are addressed on an e-mail, please let me know 
18   immediately because that's something that we really 
19   want to avoid. 
20                 I don't know whether there's been an 
21   opinion that's been rendered on that or not in terms 
22   of a collective e-mail, but my preference is not to 
23   have that occur.  It gives rise to a fact situation 
24   that I'd like to avoid if we could.
25                 MS. MORRIS:  If there aren't any more 
0025
 1   questions, I'm done. 
 2                 CHAIRMAN CLOWE:  Any questions? 
 3                 MS. MORRIS:  I'd like to introduce Mr. 
 4   Boykin again.  And he is here to discuss the 
 5   Administrative Procedures Act, particularly contested 
 6   case procedures.  
 7                      AGENDA ITEM NO. 6
 8                 MR. BOYKIN:  Thank you, Diane.  It's a 
 9   pleasure for me to be here today.  Diane and I worked 
10   together several years at the Office of the Attorney 
11   General in the Administrative Law Division and I've 
12   known Kim for probably 10 years now.  And I'll say one 
13   thing:  I don't know all your lawyers, but I can -- I 
14   hold these two in extreme high regard. 
15                 The Administrative Procedure Act is 
16   found in Chapter 2001 of the Government Code.  There 
17   are two relevant parts of it as it relates to you.  
18   The first -- the first subchapter of the act deals 
19   with the rulemaking process.  I don't know if y'all 
20   are going into it today.  I was not given that task 
21   myself. 
22                 The second part is the contested case 
23   part.  And that's -- that's what I'll cover with you 
24   today.  Essentially, a contested case is a proceeding 
25   involving the possible revocation or suspension of a 
0026
 1   license. 
 2                 As I understand your role in that 
 3   process, Kim informed me yesterday that you are 
 4   authorized to make decisions in lottery revocations 
 5   and suspensions and in bingo denials, revocations and 
 6   suspensions. 
 7                 So obviously, you are decision-makers in 
 8   contested case hearings.  I don't understand -- 
 9   because I haven't dealt previously with this agency.  
10   I don't really know your informal disposition process, 
11   but I do understand this agency has a consent order 
12   procedure.  I would assume -- I don't -- I would 
13   assume -- a lot of agencies have consent orders that 
14   they enter before a case is actually filed at the 
15   State Office of Administrative Hearings. 
16                 A case doesn't become a contested case 
17   within the meaning of the Administrative Procedure Act 
18   until it is actually filed at the State Office of 
19   Administrative Hearings.  So those procedures do 
20   not -- do not apply until there's a -- by the way, we 
21   use acronyms.  I'll try to say "State Office of 
22   Administrative Hearings," but we'll -- I'll -- 
23   invariably, the word "SOAH" will come out.  If I say 
24   it, that's what I mean. 
25                 But a contested case proceeding is 
0027
 1   actually begun with the filing of a petition at the 
 2   State Office of Administrative Hearings.  That agency 
 3   or the office is a separate state agency that employs 
 4   independent administrative law judges.  We call them 
 5   ALJs.  And their tasks are to hear all the contested 
 6   case hearings -- ordinarily, all of the -- all of the 
 7   state agencies.  I understand there may be a few that 
 8   still have their own hearing staff, but by far that 
 9   office conducts most of them in the state. 
10                 The -- at the hearing, you will be 
11   represented by your staff in somewhat of a 
12   prosecutorial role.  The other side I generally refer 
13   to as the respondent.  And the respondent may or may 
14   not be represented by counsel.  Certainly anyone is 
15   entitled to representation before that office. 
16                 Procedurally there, the evidentiary 
17   standard is the same as in district courts in non-jury 
18   civil trials.  The -- the office has its own 
19   procedural rules much like the Rules of Civil 
20   Procedure. 
21                 There are certain evidentiary niceties 
22   that I could get into that the judges are not bound by 
23   strict evidentiary rules.  I believe there's an 
24   exception if -- if the evidence offered wouldn't 
25   otherwise be admissible but it's the type of evidence 
0028
 1   that reasonable people rely on in the conduct of their 
 2   daily lives, then that's -- that's admissible 
 3   evidence, whatever that is. 
 4                 Procedurally, depositions are -- you 
 5   know, parties have the opportunity to take 
 6   depositions.  You could have requests for productions 
 7   of documents, interrogatories, requests for 
 8   admissions, just pretty much like we have in our civil 
 9   trials. 
10                 There will be a court reporter at the 
11   hearing.  There will be a -- the hearing will be -- 
12   will be transcribed or -- what am I trying to say -- 
13   recorded and transcribed probably.  And very often -- 
14   I don't know how your hearings work, but very often 
15   the judge at the -- at the close of the hearing will 
16   allow the record to stay open for a week or 10 days, 
17   perhaps two weeks for the filing of, perhaps, 
18   additional documentary evidence and so forth, at which 
19   time the judge will declare the record to be closed. 
20                 Following that, the judge, when he or 
21   she can get to the case -- because they have a large 
22   volume -- the judge will review that record and 
23   prepare a written document called a Proposal for 
24   Decision.  That -- that document will contain a 
25   summary of the evidence presented, define the issues 
0029
 1   of the hearing and then will contain two important 
 2   sections called Findings of Fact and Conclusions of 
 3   Law. 
 4                 And based upon that, those findings and 
 5   conclusions, the judge will issue, I assume for y'all, 
 6   a recommended decision to be made in the case.  That 
 7   document then is served on the parties.  At following 
 8   which, whoever's dissatisfied with it has an 
 9   opportunity to file what are known as exceptions to 
10   the Proposal for Decision. 
11                 Ultimately, the exceptions and that 
12   Proposal for Decision will appear, I assume, in one of 
13   your notebooks.  You may have some on your agenda 
14   today, I don't know.  But it will be in there.  I 
15   assume all of those documents are in there.  And you 
16   will make your decision in an open meeting like you're 
17   attending today. 
18                 The procedure for these -- for making 
19   these decisions varies from agency to agency.  No 
20   party under the APA has a right to make an argument 
21   before the commission.  It is certainly within your 
22   authority to allow parties to make argument to you. 
23                 There is a caveat.  There's several 
24   caveats that I wanted to make.  One is, if you're 
25   going to have argument before the commission, very 
0030
 1   often lawyers and those who aren't lawyers, as well, 
 2   lay people may have a tendency to want to say things 
 3   that didn't actually come out at the hearing or they 
 4   may want to discuss facts with you. 
 5                 Your decision must be made on the record 
 6   that was developed at the State Office of 
 7   Administrative Hearings.  So in any argument, you've 
 8   got to make sure that the parties are speaking to 
 9   matters that are established in that record. 
10                 And speaking of matters in the record, 
11   there are two things, two other things that I want to 
12   admonish you about.  One is you're represented by 
13   staff at that hearing, but yet you are a 
14   decision-maker.  And so there is a -- there's a fine 
15   line.  You can't think of staff as representing you at 
16   the hearing.  The staff doesn't because you are not 
17   represented as the decision-maker. 
18                 And I say that because there is a 
19   prohibition against what are known as ex parte 
20   communications.  An ex parte communication is simply 
21   any communication made by one party or the other to a 
22   contested case outside the presence of the other party 
23   and without giving the other party an opportunity to 
24   be present. 
25                 And so the risks occasionally as a board 
0031
 1   member with staff is when you get to know the staff, 
 2   there's -- you know, by accident a staff member could 
 3   make some statement about a case to you.  And you just 
 4   want to avoid that because that would be an ex parte 
 5   communication. 
 6                 The other thing that you -- again, you 
 7   need to be aware of, you may get instances where you 
 8   are a decision-maker involving a case -- you may know 
 9   somebody.  You may know a party to the case.  Well, 
10   first of all, you're going to have to say:  Well, is 
11   my relationship to that party such that I just 
12   shouldn't participate, period? 
13                 And if so, you should recuse yourself 
14   from participating.  On the other hand, that may not 
15   be a real problem.  But you may know some things about 
16   this person that -- that you would -- that aren't in 
17   the record.  My point is:  You may have some 
18   information about a case that may relate to a case but 
19   it's not in the record. 
20                 You've got to make sure that that does 
21   not influence your decision because, again, your 
22   thought processes have to involve whatever was the 
23   evidence in that case. 
24                 When it gets time to make your decision, 
25   I will say that you're not bound in your 
0032
 1   decision-making by what the SOAH judge recommends.  
 2   But if you're not going to adopt the findings and 
 3   conclusions that the SOAH judge recommends to you, 
 4   there's a very narrow standard where you can deviate. 
 5                 And I don't know if I have it memorized, 
 6   but if you find that at the -- that the judge did not 
 7   properly apply existing law or agency rules or agency 
 8   policy, then you do not have to follow that decision 
 9   for that reason.  But for doing -- and when you do 
10   that, you must state that the judge didn't follow your 
11   rules and what rule wasn't followed and why the judge 
12   misapplied the rule.  That's one of them. 
13                 The other one is if a judge makes a 
14   decision or a ruling that is contrary to agency 
15   precedent.  Now I'm not sure exactly what that means 
16   because the judge doesn't really make the decision, 
17   typically.  Now there are some instances when an A -- 
18   when the judge can make a decision, but I don't think 
19   that happens with this commission. 
20                 But anyway, the third reason is -- oh, 
21   there was a technical error in a finding of fact.  And 
22   I guess, you know, maybe -- I don't know what that 
23   means, but maybe -- maybe obviously the judge intended 
24   to say something is true and happened to put "is not 
25   true."  I mean, it -- that would be substantive.  But 
0033
 1   if it was so obvious, I mean, I guess theoretically 
 2   that could be a technical change. 
 3                 But essentially those are the standards 
 4   or those -- those are the rules you have to apply when 
 5   you are not going to follow -- to follow a judge's 
 6   recommendation. 
 7                 One of the lawyers in our office had a 
 8   small case the other day where the judge, one of his 
 9   conclusions of law was that the -- the commission 
10   should impose a -- should reprimand the licensee.  And 
11   none of us at our office felt that that was a 
12   conclusion of law.  So the ultimate order that was 
13   entered in that case did not adopt that conclusion and 
14   adopted something else. 
15                 But anyway, so now you make your 
16   decision probably following the recommendation of 
17   the -- of the ALJ.  You then -- you then send out your 
18   decision in the case.  The APA requires you to send it 
19   by first-class mail.  The agency is also -- should 
20   make an appropriate record of its mailing so that you 
21   have proof of when it was mailed and the address to 
22   which it was mailed.  The parties are deemed to have 
23   received that document three days after you delivered 
24   it or after you mailed it. 
25                 A party who's dissatisfied with that 
0034
 1   decision must file a motion for rehearing with you 
 2   within 20 days.  If not, your decision is final and is 
 3   not appealable at that point.  If -- if a motion for 
 4   rehearing is timely filed, replies to that motion for 
 5   rehearing can be filed 30 days from the date the 
 6   person is deemed to have received the notice. 
 7                 Then the agency has 45 days in which to 
 8   either grant the motion for rehearing, deny the 
 9   motion, or take no -- or extend the time for acting or 
10   take no action.  If the agency takes no action, as I 
11   recall, the decision -- the decision or the -- the 
12   motion for rehearing is deemed overruled 90 days from 
13   the date of the -- of the commission decision. 
14                 Within 30 days of the date that the 
15   decision is final, if the losing party wishes to 
16   continue, the party must file a petition for review in 
17   a district court.  I'm not sure where venue is in your 
18   case.  Here? 
19                 MS. KIPLIN:  (Nodding)
20                 MR. BOYKIN:  Okay.  This case is good 
21   for y'all.  You do have venue in Travis County.  A lot 
22   of licensing agencies don't have a venue provision in 
23   Travis County and judges around the state are hearing 
24   these administrative law contested cases. 
25                 And the standard of review is generally 
0035
 1   substantial evidence.  And a lot of the judges that 
 2   don't hear substantial evidence cases, they're 
 3   uncomfortable with them.  There are some agencies who 
 4   have -- the standard for review is actually -- it's a 
 5   de novum trial in District Court.  I'd assume that's 
 6   not the case.  I think that is not the case with the 
 7   Lottery Commission. 
 8                 I'm giving you all these dates for one 
 9   reason only.  They're all traps.  Because if you're 
10   going to get to the courthouse, you've got to follow 
11   every one of these steps because the case law is very 
12   clear that the District Court does not acquire 
13   jurisdiction over claim unless each of those steps -- 
14   motion for rehearing, time of file, etcetera.  And 
15   it's even got to be filed in that 30-day period after 
16   the -- after the decision is filed. 
17                 Essentially, I think I've covered the 
18   highlights of the APA or chapter -- Subchapter B.  
19   I'll be glad to answer any questions. 
20                 COMMISSIONER OLVERA:  Counsel, the only 
21   question I had was:  How many days does the commission 
22   have to issue a decision subsequent to the -- to the 
23   hearing?  
24                 MR. BOYKIN:  Well, that's an -- that's a 
25   very good question because the APA actually says 
0036
 1   pretty plainly that an agency decision must be made 
 2   within 60 days of the date that the -- that the 
 3   proceeding begins. 
 4                 But fortunately, the statute uses the 
 5   word "shall" and it just -- it never happens.  
 6   Procedurally, it can't happen.  And fortunately, 
 7   the -- I think -- I don't know if it was the Supreme 
 8   Court --
 9                 MS. KIPLIN:  Yeah. 
10                 MR. BOYKIN:  -- or the Court of Appeals, 
11   one or the other, wrote that this is a case where 
12   "shall" didn't really mean "shall."  It means "may."  
13   So -- so that's the answer.  You're not -- you're not 
14   really constrained by a time limit of making your 
15   decision, so far as I know, unless there's some 
16   specific language in your statute outside of the APA.
17                 MS. KIPLIN:  No.  Commissioner, the -- 
18   that is -- there is a case on that where "shall" means 
19   "may" in this particular situation.  The only real 
20   clock on a -- on a decision-maker, commission, is with 
21   regard to acting on motions for rehearing. 
22                 And there are -- commission does need to 
23   act within 45 days of the -- the notice, you know, if 
24   there's a motion for rehearing that comes in or it's 
25   considered to be overruled by operational law.  It can 
0037
 1   be extended for an additional 45 days.  But after 
 2   that, there is no -- there is no opportunity for 
 3   extension.  And as a result, the motion for rehearing 
 4   would be overruled by operational law. 
 5                 The commission has entered into an order 
 6   that delegates the authority to your bingo director 
 7   for bingo cases and your executive director for 
 8   lottery cases to be able to extend that time simply 
 9   because of the practicalities of the fact that the 
10   commission meets generally once a month.  So you eat 
11   up chunks of time on the clock. 
12                 To be able to extend that for the 
13   additional 45 days so as not to allow a motion for 
14   rehearing to be overruled by operational law and take 
15   away your opportunity to decide that matter. 
16                 The only other thing, if I could step on 
17   one other -- one other point -- Mr. Boykin, did you 
18   have a comment on that?
19                 MR. BOYKIN:  Not on that, but I do -- I 
20   do want to add something or change something that I 
21   said.
22                 MS. KIPLIN:  The only -- the only thing 
23   that I would add, getting back to the topic on ex 
24   parte communications, which I think, Cue, you laid out 
25   really well, the one -- one thing that I would raise 
0038
 1   that's not embodied in the APA statute but goes into 
 2   the general rules of procedure with regard to bias is 
 3   the fact that, notwithstanding a case having not been 
 4   triggered, in other words, no notice of hearing has 
 5   been initiated, there may be something that's going on 
 6   within the agency with regard to a particular licensee 
 7   where we are beginning to proceed to move forward on a 
 8   contested case proceeding or, for that matter, trying 
 9   to negotiate a consent order. 
10                 And my concern, in terms of dialogue 
11   that you would have with one, the staff and two, the 
12   respondent, is that at some point if that does result 
13   in a contested case proceeding, somebody would raise 
14   the argument that because of a prior conversation, 
15   there is a bias on your part or a predisposition to an 
16   outcome. 
17                 And so therefore, you should recuse 
18   yourself.  And we would like to have the full 
19   complement of the commission each time, obviously, on 
20   decisions like that.  And so my recommendation would 
21   be to avoid those kinds of contacts.
22                 Cue, if you want to follow that.
23                 MR. BOYKIN:  I said something, and Diane 
24   correctly pointed it out, that I believe I indicated 
25   that you may know something about a case and it may 
0039
 1   not be in the record and you need to not consider that 
 2   when you make your decision. 
 3                 The -- the advice I should have said is 
 4   you should not -- you should not participate in that 
 5   case.  The safest way to do is to simply recuse 
 6   yourself and let the other two board members.  I 
 7   wouldn't -- I wouldn't say that that case or the 
 8   decision, if adverse, would -- I wouldn't guarantee it 
 9   that it would be reversed, but it's just the safer, 
10   more cautious course of action to take. 
11                 The whole idea of the -- of the subject 
12   that I was discussing with you, the whole -- the whole 
13   reason we have the Administrative Procedure Act is to 
14   guarantee licensees due process.  And that's what it's 
15   about.  So any time when you're making your decisions, 
16   remember that that's what they are about, affording 
17   people due process of law.  And so always err on the 
18   side of caution.
19                 CHAIRMAN CLOWE:  Any further questions? 
20                 COMMISSIONER OLVERA:  No.  No questions, 
21   thank you. 
22                 CHAIRMAN CLOWE:  Thank you, Cue.  Thank 
23   you, Diane.  We appreciate the briefing.  It was well 
24   done.
25                 MR. BOYKIN:  Thank you very much.
0040
 1                 CHAIRMAN CLOWE:  We're happy to have you 
 2   here, Cue.  Come back. 
 3                 MR. BOYKIN:  Good to be here.
 4                 CHAIRMAN CLOWE:  Diane, I believe you 
 5   covered Items 4, 5 and 6 in this presentation.  
 6                      AGENDA ITEM NO. 7
 7                 CHAIRMAN CLOWE:  So we're ready to go to 
 8   Item No. 7, consideration of and possible discussion 
 9   and/or action, including adoption, on the rule review 
10   of 16 TAC Chapter 403 concerning general 
11   administration.
12                 MS. KIPLIN:  Commissioners, pursuant to 
13   Texas Government Code 2001.039, each state agency is 
14   required to review and consider for readoption each of 
15   their rules every four years from the date it was 
16   either adopted or from the last review. 
17                 This particular chapter, 403, is the 
18   subject of a rule review.  At an earlier meeting -- 
19   and I believe it was the July 23rd -- you authorized 
20   the agency to proceed to notice up intent to review 
21   this particular chapter for the purposes of receiving 
22   comment. 
23                 I will say that no comment was received 
24   regarding the review of this chapter.  The specific 
25   threshold question or issue under a rule review, 
0041
 1   statutory rule review, is whether the reasons for 
 2   initially adopting that rule or rules continue to 
 3   exist.  The staff did conduct that assessment with 
 4   regard to each of these rules that is contained within 
 5   Chapter 403 and has determined that the reason for 
 6   initially adopting that rule or rules -- pardon me -- 
 7   do continue to exist. 
 8                 And in particular with regard to the 
 9   rules that make up the subject of Chapter 403, they're 
10   statutorily required by another statute.  And I'd be 
11   happy to go through that with each one to the specific 
12   detail you'd like me to take you.  But having said 
13   that, we did publish it up in the August 8th, 2003 
14   issue of the Register for public comment.  Like I 
15   said, no comment was received. 
16                 The staff does recommend at this time 
17   that you do adopt -- readopt the rules so that they 
18   can continue in existence.  I will acknowledge that 
19   during the course of the rule review, there is three 
20   generally -- generally, there are three different 
21   outcomes that will continue. 
22                 One is a determination that the initial 
23   reason for why the rule existed doesn't continue to 
24   exist.  And then we would proceed to move forward in a 
25   rulemaking to repeal that rule. 
0042
 1                 A second reason -- a second outcome 
 2   would be that the reasons why we initially adopted 
 3   this rule do continue to exist.  Based on the review 
 4   of that rule and practice, agency practice, we don't 
 5   believe there's any revision to that rule that needs 
 6   to be -- needs to be conducted. 
 7                 And the third outcome, which frankly is 
 8   probably the more predominant, is yep, the reasons why 
 9   we initially adopted this rule do continue to exist, 
10   but it -- we do see that there are a need for revising 
11   those rules. 
12                 In this particular matter that's before 
13   you today, the initial reasons do continue to exist.  
14   There are some rules that we will be presenting to you 
15   for your consideration to propose revising, in 
16   particular the rules that have to do with fleet 
17   management.  I'm focused on at this point 403.401. 
18                 And so I'm letting you know that you'll 
19   be seeing that in a future commission meeting for your 
20   consideration to propose a rulemaking on that.  But 
21   the scope of the rule review is just to determine 
22   whether the initial reasons for why a rule was adopted 
23   continue to exist. 
24                 The staff has conducted the required 
25   assessment and they are recommending that you do adopt 
0043
 1   the rule review -- readopt the rules contained in 
 2   Chapter 403. 
 3                 CHAIRMAN CLOWE:  Any questions? 
 4                 COMMISSIONER COX:  No.
 5                 COMMISSIONER OLVERA:  No.
 6                 CHAIRMAN CLOWE:  Would you state the 
 7   motion you want this morning, Counselor? 
 8                 MS. KIPLIN:  Yes.  The staff recommends 
 9   that you make a motion to readopt the rules that are 
10   set out in your order that I'm going to give you in 
11   Exhibit A and that are specifically contained within 
12   Title 16 of the Texas Administrative Code, Chapter 
13   403.  And that would be the staff's recommendation.
14                 COMMISSIONER COX:  So move.
15                 CHAIRMAN CLOWE:  Second. 
16                 All in favor, please say aye. 
17                 COMMISSIONER COX:  Aye. 
18                 COMMISSIONER OLVERA:  Aye. 
19                 CHAIRMAN CLOWE:  Aye.
20                 Opposed, no. 
21                 The vote is 3-0 in favor. 
22                AGENDA ITEM NOS. 8, 9, 10, 11
23                 CHAIRMAN CLOWE:  Next we have Items 8 
24   through 12, which involve rules for the Bingo 
25   Division.  These were assigned to Billy Atkins.  He is 
0044
 1   absent today and Phil Sanderson is here in his place. 
 2                 Phil, are you going to cover these with 
 3   us or is Kim going to do it?
 4                 MS. KIPLIN:  Commissioners, I am.  Mr. 
 5   Sanderson and I have conferred and I'm happy to do 
 6   that.  And then, obviously, Mr. Sanderson can 
 7   supplement whatever my remarks are. 
 8                 The first item under Item 8 -- 
 9   Commissioner, can I just proceed?
10                 CHAIRMAN CLOWE:  Certainly.
11                 MS. KIPLIN:  Okay.  The first item under 
12   Item 8 is the beginning of a rule review under -- for 
13   Chapter 402.  Chapter 402 of Title 16 of the 
14   Administrative Code or the bingo rules, they are 
15   related to bingo regulation and tax. 
16                 The last time a rule review was 
17   conducted on this chapter was in April of 2000.  
18   Pursuant to the Statute 2001.039, the agency is 
19   required to conduct a rule review every four years.  
20   And so these are -- this chapter is ripe to begin a 
21   rule review. 
22                 The staff at this point is requesting a 
23   motion that you would notice up our intent to conduct 
24   a rule review on this chapter, which would then 
25   publish in the Texas Register for a comment period. 
0045
 1                 I've talked to Mr. Sanderson also about 
 2   the opportunity to notice up a comment hearing on the 
 3   rule review.  And I think we believe that there is 
 4   good value to doing that.  And so we would like to 
 5   proceed along those lines.  We also recognize that 
 6   there is potentially a Bingo Advisory Committee 
 7   meeting in November. 
 8                 MR. SANDERSON:  November 6th. 
 9                 MS. KIPLIN:  November 6th, and we would 
10   like to have the ability to present this rule review 
11   and ask the chair of that committee, advisory 
12   committee, to put it on her agenda so that comment can 
13   also be received there. 
14                 We can set a comment period.  Of course, 
15   the general one for rulemaking, the limitation is that 
16   you cannot adopt a rule within 30 days of when it was 
17   actually published for proposal in the Register.  So 
18   that's one limitation.  We would want to go beyond 30 
19   days, but we would want to set a deadline for a 
20   comment period so that we can proceed in an orderly 
21   fashion to bring back to the commission a 
22   recommendation on a -- the final outcome of a rule 
23   review of these particular rules. 
24                 Once again, I'll note the date that we 
25   would need to act would be April of 2004.  Sounds like 
0046
 1   a lot of time, but it -- the clock can kind of get 
 2   eaten up.  So what I would propose is that we set a 
 3   deadline for comment to be received after the Bingo 
 4   Advisory Committee and back to the staff and I'm 
 5   thinking the end of November.  That, I think, would 
 6   give us an opportunity to proceed in an orderly 
 7   fashion. 
 8                 Mr. Sanderson, this is the first time 
 9   he's heard me say that deadline.  So I'd like to see 
10   if there's a reasonable standard on what you think 
11   about that.
12                 MR. SANDERSON:  I think that would be a 
13   very good deadline.
14                 MS. KIPLIN:  So at this point, the staff 
15   recommends that you make the motion and vote to 
16   authorize the staff to notice up its intention, the 
17   agency's intention to conduct a rule review on Chapter 
18   402 of the Title 16 of the Texas Administrative Code, 
19   proceed to notice up the comment hearing and also 
20   proceed to request that this be put on the item of the 
21   Bingo Advisory Committee's November meeting and have a 
22   comment deadline of the end of November.
23                 CHAIRMAN CLOWE:  Is there a motion?
24                 COMMISSIONER OLVERA:  So move. 
25                 COMMISSIONER COX:  Second.
0047
 1                 CHAIRMAN CLOWE:  All in favor, please 
 2   say aye. 
 3                 COMMISSIONER OLVERA:  Aye. 
 4                 COMMISSIONER COX:  Aye. 
 5                 CHAIRMAN CLOWE:  Aye.
 6                 Opposed, no. 
 7                 The vote is 3-0 in favor. 
 8                 Let's go on through these and we'll sign 
 9   these orders at the conclusion.
10                 MS. KIPLIN:  That's fine.  
11   Commissioners, you have -- you have three rules.  And 
12   I'd like to take them up in my comments all together.  
13   And then I'd like for you to vote on each one of 
14   those, obviously, consistent with what the staff's 
15   recommendation is.
16                 CHAIRMAN CLOWE:  Identify those. 
17                 MS. KIPLIN:  I will.  The first one is 
18   new -- proposed new rule 402.584 -- that's in Title 16 
19   -- relating to transfer of funds. 
20                 The second rule -- or I may be taking 
21   these out of order, but another rule would be 402.591 
22   relating to location verification inspections. 
23                 And the third rule is 402.595 relating 
24   to tax review inspections. 
25                 Commission, at your July -- 
0048
 1   Commissioners, at your July 23rd meeting, if I recall, 
 2   you-all voted to propose these new rules for public 
 3   comment.  Commission did not receive any public 
 4   comment.  They were published in the August 8th, 2003 
 5   issue of the Texas Register.  And like I said, no 
 6   comment was received. 
 7                 At this point, the staff does recommend 
 8   adopting the rule without changes as published in the 
 9   August 8th, 2003 issue of the Texas Register.
10                 CHAIRMAN CLOWE:  Are there any 
11   questions?  Is there a motion?
12                 COMMISSIONER COX:  Do you want to motion 
13   separately, Mr. Chairman, or all three?
14                 CHAIRMAN CLOWE:  Well, I believe she 
15   wants it for all three.
16                 MS. KIPLIN:  That's fine, as long -- so 
17   your -- your motion would be that you are making a 
18   motion to adopt new rules for 16 Texas Administrative 
19   Code 402.584, 402.591 and 402.595 without changes to 
20   the proposed text as published in the August 8th, 
21   2003rd issue of the Texas Register. 
22                 CHAIRMAN CLOWE:  Is there --
23                 COMMISSIONER COX:  So move.
24                 CHAIRMAN CLOWE:  I second. 
25                 All in favor, please say aye. 
0049
 1                 COMMISSIONER OLVERA:  Aye.
 2                 COMMISSIONER COX:  Aye.
 3                 CHAIRMAN CLOWE:  Aye.
 4                 Opposed, no. 
 5                 The vote is 3-0 in favor.  
 6                     AGENDA ITEM NO. 12
 7                 CHAIRMAN CLOWE:  Next item, No. 12, has 
 8   to do with calendar year 2003 second quarter bingo 
 9   financial information and statistics. 
10                 Phil, I think you're going to get to 
11   talk.
12                 MR. SANDERSON:  Thank you, Chairman.  
13   Good morning, Commissioners.  And on behalf of Billy, 
14   I'd like to welcome Commissioner Olvera to the 
15   commission board.
16                 COMMISSIONER OLVERA:  Thank you. 
17                 MR. SANDERSON:  In your notebook is the 
18   quarterly statistics and comparisons for the first and 
19   second quarter of 2003 and also comparison statistics 
20   between the second quarter of 2003 and the second 
21   quarter of 2002. 
22                 First, in comparing the second quarter 
23   of 2003 with the previous quarter, bingo gross 
24   receipts declined about six and a half percent.  
25   Regular bingo receipts, which is cards and 
0050
 1   electronics, declined about 8.7 percent.  Instant 
 2   bingo declined .7 percent. 
 3                 And then comparing the second quarter of 
 4   2003 with the second quarter of 2002, total gross 
 5   receipts are down .6 percent where electronic and 
 6   regular -- or regular bingo sales, which is card only, 
 7   is down 10.6.  Electronic bingo gross receipts are 
 8   down 1.5.  And instant bingo gross receipts increased 
 9   38.1 percent. 
10                 Prizes awarded have been -- have 
11   declined in total prizes and regular prizes as 
12   compared from the second quarter of 2003 to the first 
13   quarter of 2003.  Instant prizes awarded declined .8 
14   percent.  And in comparison from the second quarter of 
15   '03 to the second quarter of 2002, prizes awarded have 
16   increased .7 percent.  The regular and electronic 
17   prizes have declined 7 percent and the instant prizes 
18   awarded have increased 41 percent.
19                 Distributions increased from the second 
20   quarter of 2003 to the first quarter .7 percent, and 
21   they've declined for the same quarter of 2003 compared 
22   to 2002 8.6 percent.
23                 COMMISSIONER COX:  Phil, couple of 
24   questions.  When we approved the instant pull-tabs for 
25   use, we expected that bingo revenues would increase, I 
0051
 1   believe.  And what it looks like is that instant 
 2   revenues have increased perhaps at the expense of 
 3   other revenues. 
 4                 Is that just what it looks like or do 
 5   you think that's really what's going on? 
 6                 MR. SANDERSON:  It's probably a 
 7   combination of both.  I do think it did take some 
 8   sales away from the paper and electronics.  The prizes 
 9   awarded have increased on the instant bingo and, of 
10   course, the sales of instant bingo have increased over 
11   the same period last year. 
12                 There's also some decline in attendance 
13   along with some decline in the organizations and 
14   occasions that are conducting bingo.  So it's probably 
15   a combination of both.
16                 COMMISSIONER COX:  And with the prizes 
17   awarded increasing and revenues going down, does that 
18   tell us that the margin on the instant tickets is 
19   lower?
20                 MR. SANDERSON:  For the charity? 
21                 COMMISSIONER COX:  Uh-huh. 
22                 MR. SANDERSON:  It's probably just a 
23   little bit lower, not much.  Of course, there is a 
24   mandatory minimum of 65 percent pay-out on instant 
25   tickets.
0052
 1                 COMMISSIONER COX:  Okay. 
 2                 MR. SANDERSON:  Most of the new games 
 3   that were authorized have a pay-out of around 75 to 80 
 4   percent.
 5                 COMMISSIONER COX:  Okay. 
 6                 MR. SANDERSON:  So yes, that is going 
 7   down just, I mean, as far as the net receipts of the 
 8   organization.
 9                 COMMISSIONER COX:  Okay.  Thank you. 
10                 MR. SANDERSON:  Thank you.
11                 CHAIRMAN CLOWE:  Any other questions?
12                 COMMISSIONER OLVERA:  No, Commissioner.  
13                     AGENDA ITEM NO. 13
14                 CHAIRMAN CLOWE:  Thank you, Phil.  Next 
15   we have on the agenda Item 13, report by the Bingo 
16   Advisory Committee chair.  And I believe Ms. Brackett 
17   is unable to attend today due to a prior commitment 
18   that she was unable to change. 
19                 Is there anyone here, Phil, to make that 
20   report in her absence? 
21                 MR. SANDERSON:  Not that I'm aware of.  
22   There is in your notebook a memo from Virginia that 
23   basically went over some of the brief necessities of 
24   the meeting on the 21st. 
25                 To put in the record, there was a new 
0053
 1   member to the committee, Patricia Greenfield, who is a 
 2   SSP representative, system service provider.  There 
 3   was comment and recommendations made on the 
 4   subcommittees and she was waiting on a copy of the 
 5   transcript before she actually prepared a report for 
 6   the commission. 
 7                 CHAIRMAN CLOWE:  And you have no further 
 8   comments?  Were you in attendance at that meeting?
 9                 MR. SANDERSON:  Yes, sir.  I was.
10                 CHAIRMAN CLOWE:  Do you have any further 
11   comments then, in addition to what she's provided us?
12                 MR. SANDERSON:  There were a lot of 
13   rules and discussions on some of the proposed rules 
14   most with -- dealing with House Bill 2519 and some 
15   other general bingo rules.  The majority of the 
16   rules -- there were a couple of rules that got voted 
17   to -- passed and moved on for the commission vote, 
18   which we're trying to get together with the fiscal 
19   notes and preambles hopefully for your next meeting. 
20                 There were some other rules that were 
21   sent back or their recommendation was to send them 
22   back to the subcommittees.  And the subcommittees have 
23   been meeting since the August 21st BAC meeting to 
24   negotiate the final text of some of those rules.
25                 CHAIRMAN CLOWE:  And Commissioner Cox, I 
0054
 1   believe you attended that meeting.  Do you have any 
 2   comments? 
 3                 COMMISSIONER COX:  The -- one thing that 
 4   was very clear at the meeting, Mr. Chairman, was that 
 5   there has been an awful lot of work on a lot of rules 
 6   that are necessary because of legislation in the last 
 7   session.  And it was also clear that the deadline or 
 8   at least it was my clear impression that the deadline 
 9   the statute imposes for having those rules in place is 
10   unrealistic. 
11                 And I think that to the extent we can 
12   receive formal relief from those deadlines to give us 
13   enough time to get those rules in place, we should 
14   seek that relief.  We may also need to seek help from 
15   experienced people in other places in government, 
16   Comptroller's office, perhaps, or the Attorney 
17   General's Office to help us write the rules because 
18   there's a real log jam there that has a time fuse on 
19   it and it's just a lot of work to do.
20                 CHAIRMAN CLOWE:  And I -- I would assume 
21   a great deal of the trust of your comment is directed 
22   toward the implementation of 2519? 
23                 COMMISSIONER COX:  Exactly.
24                 CHAIRMAN CLOWE:  Counselor, can you give 
25   us any help on Commissioner Cox's comment?
0055
 1                 MS. KIPLIN:  Sure.  I'll be glad to.  I 
 2   think it's been my experience when there are major 
 3   pieces of legislation to implement that the staff of 
 4   that agency does the best they can to proceed to 
 5   implement in as expeditious a fashion as they can. 
 6                 However, I think Commissioner Cox hit 
 7   the nail right on the head.  There -- there are the 
 8   practical considerations of the fact that you can only 
 9   get so much done in a day.  I think the staff and 
10   industry representatives and the Bingo Advisory 
11   Committee have proceeded as best they could to move 
12   forward to try to implement by the September 1 
13   deadline. 
14                 I think a person's remedy if they're -- 
15   if they're dissatisfied with an agency's 
16   implementation of a statute is to proceed, for 
17   example, with an application for mandamus to try to 
18   compel the agency to proceed.  I think in this 
19   situation the evidence would be overwhelming in 
20   support of the fact that the agency is not moving 
21   forward in bad faith, but is moving forward in good 
22   faith as expeditiously, as methodically and 
23   deliberately as it could. 
24                 And I don't believe that that kind of 
25   proceeding would be successful.  I do think that we 
0056
 1   need to continue to move forward in a very deliberate 
 2   and analytical fashion, very methodical fashion.  With 
 3   regard to the comments with the Comptroller and 
 4   Attorney General that Commissioner Cox made, I'm not 
 5   quite certain what kind of involvement the Comptroller 
 6   would play or have at all. 
 7                 I will say that it's been my practice, 
 8   although not required, that when I know that there are 
 9   rules that are somewhat controversial in nature, I do 
10   like to get another pair of eyes on those.  In the 
11   past, of course, you know, Dewey Helmcamp, the 
12   Assistant Attorney General with the AG's, has been the 
13   assigned attorney to us out of the Administrative Law 
14   Division. 
15                 And, of course, I've relied on him for 
16   his expertise in terms of what he thinks about a rule, 
17   in particular the reason justification, that would 
18   uphold a rule adoption.  Mr. Helmcamp is moving on to 
19   another agency, and so I'm in contact with the 
20   division chief of that particular division. 
21                 And that's how Mr. Boykin came over 
22   today to be able to make that presentation.  And I 
23   expect that when the time comes and the need surfaces, 
24   we'll be asking for another set of eyes to take a look 
25   at those rules. 
0057
 1                 I believe that it's a lot to chew on, so 
 2   to speak, in a very short period of time.  And what 
 3   I -- the conversations I've had with Mr. Sanderson and 
 4   I know Mr. Fenoglio, who's in the auditorium, is 
 5   listening very intently, who represents a good bit of 
 6   the licensees, is that we develop a approach to where 
 7   we look at the things that are mandatory that we need 
 8   to get done, we need to accomplish to implement the 
 9   statute. 
10                 And I'm talking specifically about the 
11   aspects of implementation and we move forward as best 
12   we can in expeditious fashion.  I'm thinking and I -- 
13   I follow up on my remarks by saying I have not had an 
14   opportunity to talk with Mr. Atkins about this, 
15   because of his circumstances, at this point. 
16                 But I'm thinking that at the October 
17   meeting we will be in a position of being able to 
18   present a couple of rules to you for your 
19   consideration for proposal for public comment.  I do 
20   think that there are steps that we would -- we need to 
21   take prior to that. 
22                 Rulemaking is -- in my view is unlike 
23   contested cases.  It's a completely different animal.  
24   It is an -- it is the agency's ability through you-all 
25   to set policy through through your rules.  As a matter 
0058
 1   of fact, that's how you're supposed to set policy.  Of 
 2   course, another way that you do it is through your 
 3   decisions on contested case proceedings. 
 4                 It is an opportunity and it invites and 
 5   contemplates public comments, especially that's one of 
 6   the reasons that you notice up a rule in the Register 
 7   is to invite public comment.  I think that we are soon 
 8   going to land on drafts of rules that I'd like to 
 9   think that most of the text is agreed upon between the 
10   subcommittees and the industry representatives and the 
11   agency staff. 
12                 And for those that there is a different, 
13   differing view, my hope is that those will be 
14   identified for you and the positions articulately 
15   stated with regard to the differing views so that 
16   you-all, as the decision-making body, can move 
17   forward. 
18                 I think that the notion of trying to get 
19   to a September 1 deadline on rulemaking, while I think 
20   everybody really wanted to do that and has worked 
21   very, very hard over the summer to try to do that, 
22   with the Bingo Advisory Committee's involvement in the 
23   process, the more people you involve, obviously, the 
24   longer it takes. 
25                 And even if we had come to you, if the 
0059
 1   Bingo Advisory Committee had said move forward to the 
 2   commission and proceed to propose this for public 
 3   comment, it would have been after September 1, anyway.  
 4   And we would have had a 30-day, at minimum, of a -- 
 5   well, a reasonable comment period.  And you certainly 
 6   cannot adopt until 30 days has passed from it being 
 7   published in the Register. 
 8                 So there were time -- there are time 
 9   constraints that were involved simply because of the 
10   process, which I think we all believe is a beneficial 
11   process in terms of eliciting public comment before we 
12   even begin to go to rulemaking.  It's -- I believe 
13   that the -- some of these rules are somewhat 
14   controversial in nature. 
15                 And it's been my position to try to do 
16   the best we can to work out those controversies before 
17   we even begin to propose a rule for rulemaking so that 
18   we can move forward as expeditiously as we can.  And I 
19   think that that's what we all want to do and I think 
20   that we're moving forward in that fashion. 
21                 I know that there are meetings that have 
22   been set up and communications have occurred with an 
23   exchange of text to try to work out issues and if -- 
24   if there's an opposition, to understand the basis for 
25   the opposition to the created text so that we can -- 
0060
 1   we can obviously understand what the concerns are and 
 2   see if there's a way to address those in a different 
 3   light or if not, just to understand we don't agree and 
 4   we'll present that to you as to why we don't agree. 
 5                 With that, I think you should look 
 6   forward to seeing, you know, rulemakings coming to the 
 7   commission in subsequent commission meetings.  I'd be 
 8   happy to answer any questions that you-all have 
 9   outstanding or that my remarks might have triggered. 
10                 Mr. Sanderson, I don't mean to cut you 
11   off and would like for you to be able to comment to 
12   anything that you think I've said that may be 
13   incorrect or you want to supplement.
14                 MR. SANDERSON:  I have nothing else to 
15   add to that.
16                 CHAIRMAN CLOWE:  What I think I've heard 
17   you say then is that you're convinced at this point 
18   that commission staff has, continues to and will 
19   continue to make a best effort to implement the 
20   legislation that was passed properly and that where 
21   it's possible, outside help pursuant to Commissioner 
22   Cox's comments will be called on and utilized.
23                 MS. KIPLIN:  Yes, that's correct.  I 
24   think -- I think there's a realization not only on at 
25   least my part -- I'll speak for myself and nobody 
0061
 1   else, but that there's only so much that can get done 
 2   in a day.  And I think we're at a point where we need 
 3   to strategically decide which we need to proceed on, 
 4   not to the exclusion of the others, but just simply in 
 5   an orderly fashion. 
 6                 And my role as the general counsel with 
 7   regard to you-all as your -- as the decision-maker on 
 8   a rule is to be able to represent to you that one, we 
 9   have the statutory to adopt and that the adopted rule 
10   does substantially comply with the requisite 
11   provisions of the Administrative Procedure Act. 
12                 And we will proceed to do that with the 
13   attorneys that have been assigned and working with 
14   staff and members of the industry and these 
15   subcommittees.
16                 COMMISSIONER OLVERA:  Now that the 
17   September 1 deadline has passed, has a new date been 
18   re-established or is there a new goal?
19                 MS. KIPLIN:  Commissioner, the September 
20   1 date is part of the legislation.  The bill become -- 
21   became effective September 1.  There are some things 
22   that the staff -- in particular, I'm mindful of one -- 
23   has proceeded to do without a rule.  And that is the 
24   requirement to make a registry of bingo workers 
25   available over the agency's Web site.  And that has 
0062
 1   occurred. 
 2                 There are -- there are issues that need 
 3   to be developed through rulemaking because of the 
 4   policy considerations and the fact that under -- under 
 5   administrative law, your policy really needs to be 
 6   embodied in the form of a rule or be the outcome of a 
 7   -- of a contested case.  When it's generally 
 8   applicable to our populations, I'm going to recommend 
 9   that you do it in the form of a rule, you put your 
10   policy out. 
11                 But to answer your question, is there a 
12   new date, no.  There's no new date.  The effective 
13   date has occurred.  We are moving forward as best we 
14   can to implement that entire bill, including those 
15   rulemaking aspects.
16                 CHAIRMAN CLOWE:  So I think the answer 
17   is:  The division is not in compliance at this point 
18   in time, but it's making a best effort but is not 
19   there yet. 
20                 And I am concerned about a point that 
21   you mentioned and I was going to bring it up.  I was 
22   in the division, the Bingo Division earlier this week 
23   or last week and I came across the application for 
24   registration of people involved in bingo pursuant to 
25   2519.  And I saw the 5-dollar registration fee. 
0063
 1                 It's my understanding that that had no 
 2   basis and authorization by way of a rule and that the 
 3   Legal Division was not involved in that before it went 
 4   up -- and I think it went up on the Web site.  That's 
 5   a concern, obviously.  I understand that has been 
 6   changed now. 
 7                 I'd like to know how that happened and 
 8   what's being done to preclude that type of error from 
 9   occurring in the future.  And I also want to ask if 
10   any money was collected as a result of that and how 
11   that's being handled.
12                 MS. KIPLIN:  Commissioner, I'll take a 
13   stab at addressing that first.  I think it was the 
14   staff's efforts to do the best they could to try to 
15   implement that aspect of the law, the registry of 
16   workers.  I think that that's -- it was combined with 
17   putting up the registry of workers.  That portion of 
18   the Web site has come -- has come down.  We are moving 
19   forward with regard to proposing a rule we're hoping 
20   to bring to you on the registry of workers. 
21                 I think it was just a miss in terms of 
22   trying, best efforts to try to get something up.  I 
23   don't think that there was an intentional exclusion of 
24   the attorneys that have been assigned to these 
25   particular subcommittees. 
0064
 1                 With regard to the five dollars 
 2   specifically, no money has been received by this 
 3   agency.  If any money is received by this agency in 
 4   connection with one of the applications that somebody 
 5   would have printed off the Web site prior to that part 
 6   coming down, that money will be returned.  The 
 7   application we will keep and we will move forward to 
 8   try to process and see if that person's eligible. 
 9                 The rule, when the final text is 
10   developed, it will go to the Financial Division within 
11   the agency for the Financial Division working with the 
12   bingo director to develop a -- what I would call a 
13   fiscal note.  It's a implications on state and local 
14   government, as well as those persons required to 
15   comply with the rule for the development of that 
16   fiscal information, in terms of what the -- what the 
17   impact would be. 
18                 The cost of the five dollars, I think 
19   the language was a little bit broader than perhaps the 
20   statute would allow in the information that was on the 
21   Web site.  And as we read the statute -- and I will -- 
22   I'm going to qualify my remarks by saying, you know, 
23   we're very early in implementing the bill and things 
24   do develop as a result of implementing legislaiton 
25   through judicial decisions, for one, in the rules. 
0065
 1                 But I think it really is focusing on the 
 2   cost of the card or a badge that someone would 
 3   receive.  I think that the 5-dollar amount probably 
 4   was generated because of a fiscal note that was on 
 5   legislation.  And so that's probably where it was.  I 
 6   don't think that it was just an arbitrary and 
 7   capricious decision on the part of the staff to come 
 8   up with a 5-dollar cost. 
 9                 But that part has been pulled down and 
10   we will be working in a very methodical, orderly 
11   process to ensure proper implementation of this bill.
12                 CHAIRMAN CLOWE:  Well, I appreciate that 
13   explanation.  As a former member of a regulated 
14   industry, I have a reaction to rules and actions that 
15   are taken that really aren't proper and it concerns 
16   me.  And, you know, the Legal Division is a resource 
17   that's available and should be used and will hopefully 
18   keep a division from finding itself in this unhappy 
19   predicament.  It's an embarrassment, I think, and it's 
20   certainly not correct. 
21                 I'm glad it's been corrected.  I'm 
22   hopeful no money has been collected or will be and if 
23   it is, it will be returned.  But we want to avoid 
24   these kinds of things now and in the future.  I 
25   understand the press to implement this legislation.  
0066
 1   It's very important, but it must be done correctly. 
 2                 And again, I point out to all divisions 
 3   that the Legal Division is there to be helpful and to 
 4   avoid situations like this.  And I think I, as one 
 5   commissioner, want to see our rules properly 
 6   implemented and I think that's true of the other 
 7   commissioners.  And we want to do this, when we do it, 
 8   correctly. 
 9                 And Mr. Sanderson, if you'll pass that 
10   on to Mr. Atkins in his absence, I'll appreciate it. 
11                 MR. SANDERSON:  I will, Chairman.
12                 MS. KIPLIN:  Mr. Chairman, there's one 
13   other comment I'd like to make.  And you made a 
14   statement that the staff or the agency is not in 
15   compliance with 2519.  And I would like to say that I 
16   don't -- at least from my perspective, I'm not willing 
17   to concede that we're not in compliance. 
18                 We are moving forward.  We did get the 
19   registry of workers up.  And so there are certain 
20   things that are mandatory and there are certain things 
21   that are discretionary and need to be developed by 
22   rule.  But I'm not willing to concede that we're not 
23   in compliance.
24                 CHAIRMAN CLOWE:  I'm glad to hear that.  
25   So if a member of the legislature were to make a 
0067
 1   statement to anyone that we have not properly 
 2   implemented 2519, what would be the proper response to 
 3   that? 
 4                 MS. KIPLIN:  Ms. Wilkov is the lead 
 5   counsel on 2519.  And obviously, I've been relying on 
 6   her input.  And so I would ask her to come up if she 
 7   has any remarks that she would make.  I think that the 
 8   response that I would give if I were asked that 
 9   question is that we have -- we are moving forward and 
10   have complied, I believe, with the mandatory 
11   requirements of that bill and we are trying to 
12   implement the other parts that are discretionary. 
13                 And somebody may correct me if I'm 
14   wrong, but that would be what my response would be 
15   unless corrected. 
16                 MS. WILKOV:  Yes, Commissioner.  My name 
17   is Penny Wilkov.  I'm the assistant general counsel 
18   and I have been assigned the task of assisting with 
19   implementing House Bill 2519. 
20                 There are certain rules that are out 
21   there, for instance, the advisory opinion rule.  
22   Actually, we're in the process right now of working 
23   out the language and that will be coming forward.  We 
24   have -- I know there's one attorney who's very 
25   interested in having opinions under that particular 
0068
 1   rule. 
 2                 We have asked that if possible, he delay 
 3   sending those, which he has voluntarily complied.  
 4   However, if we did receive an advisory opinion, for 
 5   instance, we would handle it within the bounds of the 
 6   rule -- of the law that's there.  And the same with 
 7   the other rules that are pending. 
 8                 Charitable distribution would be handled 
 9   the way the statutory guidelines are made.  They're 
10   not very clear, but we can work within the statute to 
11   determine whether it's a charitable distribution or 
12   not.  We'd just like clarity in a lot of these things.  
13   And that's what we're trying to do with this -- with 
14   these rules.
15                 MS. KIPLIN:  Through the rulemaking.
16                 MR. SANDERSON:  May I comment? 
17                 CHAIRMAN CLOWE:  Certainly.
18                 MR. SANDERSON:  Also, to my 
19   understanding, in some legislation when it gets 
20   passed, there are -- and I don't want to get into 
21   Melissa's report later on too much.  But in 2519, 
22   there was somewhere around 36 sections in that -- in 
23   that one bill. 
24                 And for the most part, over half of it, 
25   I believe, is implemented.  There are things that we 
0069
 1   can do without the necessary task of drafting a rule 
 2   or going through the rule process.  There are other 
 3   things that are in that bill that -- short of 
 4   requiring a rule before they can be implemented.  And 
 5   it's just the time constraints and the process of 
 6   going through the rulemaking process that does drag 
 7   some of those off.
 8                 One of the things that I -- I can go 
 9   back to the 1995 session when they authorized 
10   card-minding devices.  We actually didn't have the 
11   first card-minding device sold in the market or used 
12   in the market until August of '96 simply because of 
13   the rulemaking process to go through the approval of 
14   getting those devices approved for use. 
15                 So it's not that we're not trying to 
16   implement 2519.  It's just that certain things do have 
17   to have a rule in order to adequately implement that 
18   section.
19                 CHAIRMAN CLOWE:  Yeah.  I certainly 
20   understand that example, Phil.  I think it's a good 
21   one.  But I think, on the other hand, there's a public 
22   expectation and a legislative expectation that an 
23   agency will move forward timely. 
24                 And I think this discussion has been 
25   very healthy in regard to what the efforts are the 
0070
 1   agency is putting forth towards the implementation, 
 2   specifically of 2519 and others, as well, that may be 
 3   included in this discussion in a timely and accurate 
 4   manner. 
 5                 Any other comments or questions?  This 
 6   all occurred under the BAC report item on the agenda. 
 7   I think it's proper, but...
 8                 MS. KIPLIN:  If I could comment also on 
 9   that.  Under the Open Meetings Act, it's not required 
10   that we identify an agenda item under which a topic is 
11   being taken up.  It's helpful in terms of procedure, 
12   making sure we know where we are. 
13                 And while we were talking about this, I 
14   in my own mind thought another item that went on the 
15   78th Legislature and/or implementation of legislation 
16   affecting the Lottery Commission, it would be Item 15 
17   is also an appropriate item for this discussion to 
18   occur. 
19                 CHAIRMAN CLOWE:  Okay.  Well, I thought 
20   I heard Ms. Morris say you were going to say "What 
21   item is this on the agenda?"  And I wanted to answer 
22   your question before it was asked.
23                 MS. KIPLIN:  Well, you get two 
24   attorneys, you're going to get two opinions.  And 
25   that's fine.
0071
 1                 CHAIRMAN CLOWE:  And we've got it 
 2   covered under two items.  
 3                     AGENDA ITEM NO. 14
 4                 CHAIRMAN CLOWE:  Next item is No. 14, 
 5   report, possible discussion and/or action on lottery 
 6   sales and trends.  Lee Deviney and Tony Smith, good 
 7   morning.  
 8                 MS. SMITH:  Good morning, Commissioners.  
 9   For the record, I am Tony Smith, marketing director of 
10   the Texas Lottery. 
11                 MR. NAVARRO:  Good morning, 
12   Commissioners.  For the record, my name is Benny 
13   Navarro, representing Lee Deviney, director of 
14   Financial Administration. 
15                 MS. SMITH:  Commissioners, we've placed 
16   on the table in front of you this morning an updated 
17   set of memos for fiscal year-to-date sales. 
18                 As we enter the new fiscal year week 
19   ending September 6, 2003, our total sales to date are 
20   51.8 million.  This is up 2.4 percent from the fiscal 
21   year 2003 total sales to date of 50.6 million. 
22                 Our current weekly sales average is 51.8 
23   million.  And I would also like to make note, 
24   Commissioners, that we -- our total unaudited sales 
25   for fiscal 2003 were over three billion.  And 
0072
 1   Executive Director Greer, I think, is going to make 
 2   some comments about that in his report. 
 3                 There's additional detail in those 
 4   memos, but Ben and I are here and we'll be happy to 
 5   answer any questions that you may have regarding 
 6   sales. 
 7                 CHAIRMAN CLOWE:  Any questions? 
 8                 COMMISSIONER COX:  No. 
 9                 CHAIRMAN CLOWE:  Were you going to make 
10   a comment? 
11                 MR. GREER:  I'll do it under my report 
12   and give the breakdown on sales.
13                 CHAIRMAN CLOWE:  Tony, have you briefed 
14   the new commissioner on the aspect of the overall 
15   improvement of the sales of total games relative to 
16   the individual games and how they fluctuate from 
17   reporting period to reporting period in many cases 
18   depending on what the jackpot amount is and how that 
19   can vary?
20                 MS. SMITH:  No, sir.  We've not done 
21   that yet.  Would you like me to briefly go over that 
22   now? 
23                 CHAIRMAN CLOWE:  If the commissioner 
24   would like it, I think it would be beneficial.  And 
25   then I'd like for you to spend more time with him --
0073
 1                 MS. SMITH:  Of course.
 2                 CHAIRMAN CLOWE:  -- when he's available 
 3   and discuss that.  I think that's an important aspect 
 4   of understanding so much of the attention that's drawn 
 5   to where the revenue for the lottery is relative to a 
 6   time period, fiscal year to fiscal year, and then 
 7   individual games within the total mix.
 8                 COMMISSIONER OLVERA:  Much like 2519, 
 9   Commissioners, there were only so many briefings I 
10   could attend yesterday, but I'll look forward to it.
11                 CHAIRMAN CLOWE:  I understand.  They did 
12   it to me, too. 
13                 COMMISSIONER OLVERA:  Right.  A general 
14   summary would be fine. 
15                 MS. SMITH:  And to Chair Clowe's point, 
16   when we report sales and we'll look at things by 
17   product and then we'll look at total sales, what 
18   happens with one product may have an impact on another 
19   product and an impact on the overall sales for that 
20   week. 
21                 And a very good example is the levels of 
22   our Lotto Texas jackpot.  If we had, for example, a 
23   50-million-dollar jackpot, that's going to be -- 
24   represent the largest increase in sales for that week.  
25   And then if that jackpot hits and we have a winner, 
0074
 1   then the following week instant tickets may be the 
 2   larger contributor to the sales. 
 3                 So we try to make note of that.  And 
 4   when you and I sit down at a later date, I'll review 
 5   some of the sales report with you.  But there are many 
 6   factors that -- everything from the weather to 
 7   anything that's going on in the environment and to the 
 8   economy that can impact our sales.  And I'll share 
 9   that with you later.
10                 COMMISSIONER OLVERA:  Thank you, Tony.
11                 MS. SMITH:  You're welcome.
12                 CHAIRMAN CLOWE:  Thank you both very 
13   much.
14                 MS. SMITH:  Thank you, Commissioners.
15                 MR. NAVARRO:  Thank you.
16                     AGENDA ITEM NO. 15
17                 CHAIRMAN CLOWE:  Next item is No. 15, 
18   report, possible discussion and/or action on the 78th 
19   Legislature and/or implementation of legislation 
20   affecting the Texas Lottery Commission. 
21                 Good morning, ladies. 
22                 MS. VILLASENOR:  Good morning. 
23                 MS. TREVINO:  Good morning, 
24   Commissioners.  For the record, I'm Nelda Trevino.  
25   I'm the director of Governmental Affairs.  And I have 
0075
 1   a very brief report today in regards to the 78th 
 2   Legislature. 
 3                 As I think all of y'all are aware, 
 4   Governor Perry did call a third special session that 
 5   is scheduled to begin on Monday, September the 15th.  
 6   We will monitor the special session and track any 
 7   bills that may impact the agency and certainly keep 
 8   you apprised of any developments. 
 9                 Additionally, we anticipate the 
10   lieutenant governor and the speaker to be issuing 
11   interim committee charges in the very near future and 
12   we will keep you informed of any updates as it relates 
13   to this matter. 
14                 At this time, I would like to recognize 
15   Melissa Villasenor, who serves as the coordinator for 
16   the agency's legislative implementation project to 
17   give you a status report on that project. 
18                 MS. VILLASENOR:  Good morning, Mr. 
19   Chairman, Commissioners.  Welcome, Commissioner 
20   Olvera. 
21                 COMMISSIONER OLVERA:  Thank you. 
22                 MS. VILLASENOR:  For the record, my name 
23   is Melissa Villasenor, Governmental Affairs 
24   representative for the Texas Lottery Commission.  This 
25   morning I'm going to provide you an update as it 
0076
 1   relates to agency's legislative implementation project 
 2   from the 78th Legislative Regular Session. 
 3                 As it's been reported in the past, of 
 4   the bills the agency tracked, over 40 bills were 
 5   enacted and identified for this project.  Committees 
 6   were formed for each of these bills to identify and 
 7   initiate any appropriate action required to implement 
 8   the bill. 
 9                 In one of the handouts I provided today, 
10   it identifies committees for each of the bills and 
11   describes the status for each.  There were 13 NAR, no 
12   action required, a total of 15 identified as complete, 
13   and 17 pending items.  Pending items in effect qualify 
14   as requiring some final appropriate action. 
15                 At this time, I'd like to highlight four 
16   bills that had significant impact as it directly 
17   relates to the Texas Lottery Commission: 
18                 The execution of HB 2455 by 
19   Representative Chisum, relating to the governmental 
20   entities subject to the Sunset Review process, a bill 
21   that extends our agency Sunset date to 2005.  No 
22   action is required of our agency at this time; 
23                 HB 3459, by Representative Jim Pitts, 
24   relating to statutory authority to reduce 
25   appropriations.  This bill includes a provision 
0077
 1   authorizing the TLC to join a multijurisdictional 
 2   lottery game.  Executive Director Greer will be 
 3   providing the status on this matter on a subsequent 
 4   agenda item;
 5                 HB 2292, by Representative Wohlgemuth, 
 6   relating to financing of certain Health and Human 
 7   Services programs.  As you may recall, there is a 
 8   provision of this bill related to the allocation of 
 9   unclaimed prizes.  There are also provisions in the 
10   appropriations bill related to the allocation of 
11   unclaimed prizes. 
12                 At this time, I'd like to recognize Mr. 
13   Benito Navarro, senior accountant with the Financial 
14   Administration Division, to further explain these 
15   provisions. 
16                 MR. NAVARRO:  Good morning, 
17   Commissioners.  For the record, my name is Benito 
18   Navarro, representing the director of Financial 
19   Administration, Lee Deviney.  I've got a long 
20   dissertation.  I don't know if I want to go, you know, 
21   and read it word for word. 
22                 But overview of House Bill 2292 
23   addresses two major sections that affect this agency.  
24   One is the allocation of unclaimed prizes.  The other 
25   is the gambling hotline.  I will give you a brief 
0078
 1   point by point section for the unclaimed prize changes 
 2   first. 
 3                 House Bill 2292 amends Section 
 4   466.408(b) of the Texas Government Code to revise the 
 5   allocation of unclaimed lottery prize money.  Prior to 
 6   House Bill 2292, the first 40 million of unclaimed 
 7   prize money each biennium was deposited into and 
 8   appropriated from the Texas Department of Health 
 9   Multicategorical Teaching Hospital Account. 
10                 All unclaimed prize money in excess of 
11   that 40 million each biennium was then deposited into 
12   and appropriated from the Texas Department of Health 
13   Tertiary Care Facility Account. 
14                 Under House Bill 2292, no more than 20 
15   million per year may be appropriated from account 
16   number 5049 to the Texas Department of Health 
17   Multicategorical Teaching Hospital.  House Bill 1, 
18   however, under the General Appropriations Act, limits 
19   this appropriation to the Texas Department of Health 
20   to no more than 10 million for each year in the 
21   biennium fiscal year 2004 and 05. 
22                 Subject to legislative appropriation, 
23   House Bill 2292 allocates no more than five million 
24   per year that may be appropriated to the Health and 
25   Human Services Commission to support the provision of 
0079
 1   inpatient hospital services in Texaco-Mexico border 
 2   counties. 
 3                 However, in the House Bill 1 there is no 
 4   such appropriation for inpatient hospital services in 
 5   Texas-Mexico border counties for the -- for the 
 6   biennium of fiscal year 2004 and 2005.  So that 
 7   section is pretty much null and void. 
 8                 Also, House Bill 2292 authorizes other 
 9   appropriations of unclaimed prize money for other 
10   purposes, including indigent health care and services. 
11   Finally, all prize money not appropriated to the 
12   Multicategorical Teaching Hospital or for inpatient 
13   border hospital services shall be deposited directly 
14   to the General Revenue Fund. 
15                 Under TDH bill pattern Rider 48 under 
16   House Bill 1, there's an appropriation of unclaimed 
17   prize money not to exceed 40 million during fiscal 
18   year 2004-2005 biennium to the health and -- Health 
19   and Human Services for Graduate Medical Education 
20   allocations in the Medicaid program. 
21                 The Comptroller of Public Accounts shall 
22   verify that unclaimed prize money in excess of the 
23   amounts projected in the Biennial Revenue Estimate is 
24   available for appropriation for Graduate Medical 
25   Education allocations in the Medicaid program. 
0080
 1                 This action does not affect this agency.  
 2   Under the last provision of House Bill 2292, any 
 3   excess monies not transferred to the Multicategorical 
 4   Teaching Hospital are to be transferred to the General 
 5   Revenue Fund.  That is where our authority ends.  From 
 6   there, the Comptroller is required to verify the 
 7   unclaimed prizes do exceed the BRE estimates and then 
 8   they are responsible for making any additional 
 9   allocations to the Graduate Medical Education program 
10   under Medicaid. 
11                 So that is pretty much the overview of 
12   House Bill 2292 as it relates to unclaimed prizes. 
13                 There's also some changes to the 
14   compulsive gambling help line.  House Bill 2292 
15   repeals Government Code 466.251(b), which requires the 
16   Texas Lottery Commission to print on each lottery 
17   ticket the toll-free 1-800 telephone number 
18   established by the Texas Commission on Alcohol and 
19   Drug Abuse. 
20                 Also repealed is Occupations Code 
21   2001.417(b), which requires the TLC Bingo Division to 
22   require license holders to prominently post the 
23   toll-free telephone number established by the Texas 
24   Commission on Alcohol and Drug Abuse on signs provided 
25   by the Texas Council on Problem and Compulsive 
0081
 1   Gambling near the exits and other appropriate places 
 2   on the premises during each bingo occasion. 
 3                 However, Occupation Code 2001.417(a) was 
 4   not repealed in House Bill 2292.  And this section 
 5   requires that the toll-free telephone number operated 
 6   by the Problem Gambers' Help Line of the Texas Council 
 7   on Problem and Compulsive Gambling must be prominently 
 8   displayed on each bingo card-minding device and 
 9   pull-tab dispensers. 
10                 So basically we don't have -- we won't 
11   have the 1-800 number printed on our tickets anymore 
12   and we won't be funding that hotline.  Under bingo's 
13   division, the requirement to place the 1-800 number 
14   prominently at all locations has been withdrawn.  
15   However, they still are required to place that 1-800 
16   number on all bingo card-minding devices and pull-tab 
17   dispensers. 
18                 In compliance with House Bill 2292, the 
19   Texas Lottery Commission has discontinued the 
20   publication and printing of the 1-800 compulsive 
21   gambling number currently printed on the back of all 
22   on-line and instant ticket stock.  In a good-faith 
23   effort to educate the public and their awareness, the 
24   Texas Lottery Commission will publish notification and 
25   has updated its Web site announcing the disconnection 
0082
 1   of the 1-800 number. 
 2                 In addition, the Commission will also 
 3   publish contact information in the retail and player 
 4   newsletters to redirect questions or inquiries 
 5   pertaining to compulsive gambling if a new contract is 
 6   established by the Texas Commission on Alcohol and 
 7   Drug Abuse. 
 8                 The TLC has initiated a new "Play 
 9   Responsibly" initiative to direct persons with 
10   problems with gambling to appropriate resources. 
11                 In light of the discontinuation of the 
12   General Appropriation Act requirement that the TLC 
13   fund the Texas Commission on Alcohol and Drug Abuse 
14   program and the fact that the Texas Council on Problem 
15   Gambling will no longer operate a 1-800 number, the 
16   Texas Lottery Commission will also discontinue 
17   requiring publication of the compulsive gambling 
18   hotline information on bingo card-minding devices and 
19   pull-tab dispensers until such time as such a hotline 
20   is re-established. 
21                 And that is all I have for House Bill 
22   2292.  If you have any questions, I will gladly answer 
23   any.
24                 CHAIRMAN CLOWE:  I believe there are 
25   none.  Thank you. 
0083
 1                 MR. NAVARRO:  Thank you, Commissioners. 
 2                 MS. VILLASENOR:  Thank you, Mr. Navarro. 
 3                 The last bill I'd like to highlight is 
 4   HB 2519 by Representative Kino Flores relating to the 
 5   bingo regulations. 
 6                 Included in the packet we provided to 
 7   you is an implementation schedule for HB 2519 
 8   identifying the tracking for each provision of the 
 9   bill.  There has been division-wide staff training for 
10   headquarters and regional offices related to HB 2519. 
11                 Next I would like to report on several 
12   significant provisions of this bill that include unit 
13   accounting, advisory opinions, use of gift 
14   certificates, distribution of proceeds for charitable 
15   purposes, registry of workers, and licensing issues. 
16                 As it has been previously reported, 
17   subcommittees were formed to provide comment and input 
18   on these provisions of the bill.  The subcommittees 
19   are comprised of members of the Bingo Advisory 
20   Committee, agency Bingo staff, division staff, and 
21   members of the public. 
22                 The subcommittees have been working on 
23   proposed rules as they relate to these provisions.  
24   The work of the subcommittees was recently considered 
25   at the August 21st, 2003 Bingo Advisory Committee 
0084
 1   meeting and comments were received.  The subcommittees 
 2   will continue to meet as a result of comments 
 3   received. 
 4                 It is my understanding the subcommittees 
 5   will provide updates on their work at the tentatively 
 6   scheduled November 6th, 2003 BAC meeting when 
 7   appropriate recommendations on proposed rules 
 8   pertaining to these provisions will be brought before 
 9   commission for your consideration. 
10                 Another notable item that I'd like to 
11   cover is the operator training program, which is 
12   currently being updated to include provisions of HB 
13   2519.  The revised operator training program should be 
14   available October 1st with all the required provisions 
15   of the bill. 
16                 At this time if I may, I would like to 
17   thank all the division directors and their staff's 
18   participation and collaborative efforts on this agency 
19   program, as it was -- as it was a challenging 
20   endeavor. 
21                 Mr. Chairman, Commissioners, this 
22   concludes my report.  And I will continue to provide 
23   appropriate updates as it relates to this project.  
24   Are there any questions that you may have?  I'll be 
25   more than happy to answer or divert to someone who has 
0085
 1   the expertise on 2519.
 2                 CHAIRMAN CLOWE:  Thank you.  I believe 
 3   there are no questions. 
 4                 MS. VILLASENOR:  Thank you, sir.
 5                 MR. GREER:  Mr. Chairman, I'd like to 
 6   make a brief comment before y'all step away.  I want 
 7   to refer you to this document that they put in front 
 8   of you so you can see the work that went into this. 
 9                 Melissa and her team and Nelda, as well 
10   as all the directors, have been very responsive on 
11   this from the beginning.  As a newcomer, I've been 
12   very impressed with the teamwork that's been displayed 
13   on this project and I wanted to publicly thank y'all 
14   for your work. 
15                 MS. VILLASENOR:  Thank you, Mr. Greer.
16                 CHAIRMAN CLOWE:  Very good.
17                 MR. SANDERSON:  May I add an additional 
18   comment?
19                 CHAIRMAN CLOWE:  Certainly.
20                 MR. SANDERSON:  I just want to make you 
21   aware and also members of the public that are here 
22   that we have put a link to House Bill 2519 on the 
23   Bingo Web site so that they can actually click on that 
24   link and it will bring up the bill and they can read 
25   through it to see what changes were made. 
0086
 1                 And we're in the process of updating the 
 2   Bingo Enabling Act to include the changes.  Hopefully 
 3   we'll have that ready to be mailed out in the -- 
 4   towards the end of this month.
 5                 CHAIRMAN CLOWE:  Very good.  Thank you 
 6   all. 
 7                 Would you like a short break?  Let's 
 8   take a 10-minute break and we'll return to Item 16.
 9                 (Recess from 10:10 a.m. to 10:25 a.m.)
10                     AGENDA ITEM NO. 16
11                 CHAIRMAN CLOWE:  We've come back to 
12   order.  We are now ready to take up Item 16, report, 
13   possible discussion and/or action on the instant 
14   ticket manufacturing and services emergency 
15   procurement. 
16                 Ridgely, I see you're there.  I don't 
17   see Andy. 
18                 MR. BENNETT:  That's correct.  Mr. 
19   Marker is currently in a meeting and will be 
20   unavailable to make presentation.  So I'm here in his 
21   place.
22                 CHAIRMAN CLOWE:  We'll gladly accept 
23   your presentation.
24                 MR. BENNETT:   Thank you.  Good morning, 
25   Commissioners.  For the record, my name is Ridgely 
0087
 1   Bennett.  I'm the deputy general counsel. 
 2                 And today I would like to report that as 
 3   a result of the emergency solicitation for price 
 4   rotations for instant ticket and manufacturing 
 5   services issued by the agency on July 11th, 2003, the 
 6   agency has entered into contracts with Scientific 
 7   Games as the primary instant ticket vendor and 
 8   Creative Games International, Oberthur Gaming 
 9   Technologies, and Pollard Banknote all as secondary 
10   instant ticket vendors. 
11                 I'd be happy to answer any questions 
12   that you have.
13                 CHAIRMAN CLOWE:  I believe there are 
14   none.
15                 MR. BENNETT:  Thank you, commissioners.
16                 CHAIRMAN CLOWE:  Thank you, Ridgely. 
17                     AGENDA ITEM NO. 17
18                 CHAIRMAN CLOWE:  Second item, 17, 
19   report, possible discussion or action on HUB and/or 
20   minority business participation, Ed Rogers. 
21                 Good morning, Ed. 
22                 MR. ROGERS:  Good morning, 
23   Commissioners.  For the record, my name is Ed Rogers 
24   and I'm the acting director of Business Compliance and 
25   Development Division here at the Texas Lottery 
0088
 1   Commission. 
 2                 This morning I have two items for you 
 3   related to our HUB and/or minority participation 
 4   program.  I apologize.  When we sent you -- sent you 
 5   your notebooks, we did not have the report available 
 6   because some vendor reports were not due to us for the 
 7   month of August until the 8th.  Once we got those 
 8   compiled, we were able to get some figures together 
 9   for today's meeting. 
10                 So the first item in your notebook that 
11   -- and we should have provided that to you this 
12   morning -- is the Lottery Commission's monthly 
13   HUB/Minority Contracting Activity Report, which 
14   includes all fiscal year expenditures from September 
15   1st, 2002 through August 31st, 2003. 
16                 Our total expenditures for this period 
17   were 133.6 million and our estimated HUB utilization 
18   was 25.9 million, which equates to 19.39 percent of 
19   our expenditures. 
20                 We did have to estimate the HUB 
21   expenditures for this meeting because one of the prime 
22   contractors was not able to submit their report that 
23   was required for August.  We do have that, I think, 
24   this afternoon.  We don't expect that any change in 
25   the figures to be significant once we receive their 
0089
 1   report. 
 2                 The second item relates to the Texas --
 3                 CHAIRMAN CLOWE:  And Ed, in that 
 4   regard -- pardon me.
 5                 MR. ROGERS:  Yes, sir. 
 6                 CHAIRMAN CLOWE:  Will you furnish us 
 7   with those numbers when they're available, please?
 8                 MR. ROGERS:  Yes, sir.  I will.  And, in 
 9   fact, I'm glad you mentioned that.  One of the things 
10   that we'll have here after -- well, the Texas Building 
11   and Procurement Commission will have their annual HUB 
12   report out and it's due on August -- October 15th. 
13                 And once we have that report, we'll have 
14   fully reconciled data for you on our HUB minority 
15   participation and subcontracting after -- and that 
16   will give us an opportunity to reconcile our records 
17   with theirs, but there will be a report coming out in 
18   October that we'll provide you information on. 
19                 The second item relates to the Lottery 
20   Commission's Mentor Protege Program.  The Business 
21   Development and Compliance Division manages a Mentor 
22   Protege Program at the Lottery Commission that works 
23   to enhance relationships between prime contractors and 
24   HUB vendors.  And the commission currently has five 
25   mentor/protege relationships in place. 
0090
 1                 I would be happy to answer any questions 
 2   that you may have regarding either of these reports.
 3                 CHAIRMAN CLOWE:  We continue to be very 
 4   interested in this, Ed.  And under your stewardship, 
 5   we want to see our activities maintain the high level 
 6   that we've experienced in recent times.  If you need 
 7   any help from any of the commissioners, don't hesitate 
 8   to call on us. 
 9                 MR. ROGERS:  Yes, sir.  I'll continue to 
10   pursue this aggressively and I appreciate your offer. 
11                 CHAIRMAN CLOWE:  I think the next item 
12   on the agenda is yours, as well.
13                     AGENDA ITEM NO. 18
14                 MR. ROGERS:  Yes, sir.  Commissioner, on 
15   Agenda Item 18 we have a report on the agency's 
16   contracts.  Over 25 thousand dollars -- this is a 
17   monthly report that we produce.  The report basically 
18   provides information on the status of each contract 
19   and where it is in the general procurement process, 
20   for example, whether or not a contract is undergoing a 
21   cost/benefit analysis, whether it's being renewed, or 
22   whether signature is pending on a contract. 
23                 And I'd be happy to answer any questions 
24   that you have regarding this item.
25                 CHAIRMAN CLOWE:  I believe there are 
0091
 1   none.  Thank you, Ed. 
 2                 MR. ROGERS:  Thank you, Commissioners.
 3                     AGENDA ITEM NO. 19
 4                 CHAIRMAN CLOWE:  Next item, No. 19, 
 5   consideration of and possible discussion and/or action 
 6   on the agency's business plan. 
 7                 Mr. Anger, good morning. 
 8                 MR. ANGER:  Good morning, Mr. Chairman 
 9   and Commissioners.  Welcome, Commissioner Olvera. 
10                 COMMISSIONER OLVERA:  Thank you. 
11                 MR. ANGER:  For the record, my name is 
12   Michael Anger and I'm the lottery operations director 
13   and I'm here this morning to give you a brief report 
14   on the Commission's business plan.  For Commissioner 
15   Olvera's benefit, I would like to give you a brief 
16   project overview. 
17                 The Texas Lottery Commission underwent a 
18   review by the Sunset Commission during the summer and 
19   fall of 2002.  The Sunset staff, in their August 2002 
20   report, recommended that the Texas Lottery Commission 
21   develop a comprehensive business plan.  Following this 
22   recommendation, Acting Executive Director Gary Grief 
23   assigned me to begin work on this project. 
24                 In December of 2002, I began researching 
25   this project.  Primarily, I focused on reviewing the 
0092
 1   Commission's internal planning documents and business 
 2   planning development documents from other state 
 3   agencies and other lotteries.  I also reviewed 
 4   information available from the Small Business 
 5   Administration as referenced in the Sunset Staff 
 6   Report and consulted representatives of the Management 
 7   Advisory Services Group of the State Auditor's office. 
 8                 Subsequent to that research, we launched 
 9   the first phase of this project.  A task force was 
10   formed to evaluate the Commission's mission 
11   statements.  With significant input from Executive 
12   Director Reagan Greer and Charitable Bingo Operations 
13   Director Billy Atkins, the task forced developed 
14   vision, mission and value statements for the Texas 
15   Lottery Commission. 
16                 During the 78th Legislative Session in 
17   the spring, language similar to the original Sunset 
18   staff recommendation was later included in the 
19   Commission Sunset legislation.  Though the legislation 
20   did not pass, Executive Director Greer agreed with the 
21   initial recommendation by the Sunset Commission and 
22   determined to continue development of the agency's 
23   business plan. 
24                 The agency history section and the 
25   management and organizational structure sections of 
0093
 1   the business plan were prepared in coordination with 
 2   Karen Blizzard of the Marketing Division and Jim 
 3   Richardson of Human Resources Division. 
 4                 The next phase of the business plan 
 5   development focuses on the agency's long-range 
 6   planning activities.  I'm currently in discussions 
 7   with Dr. James Jarrett, Dr. David Huff and Dr. Gary 
 8   Cadenhead, director of the MOOT Business Plan 
 9   Competition at the University of Texas, regarding 
10   their ability to assist with further development of 
11   the agency's business plan and our long-range plan. 
12                 This concludes my report and I'd be 
13   happy to answer any questions you may have.
14                 COMMISSIONER COX:  Michael, are 
15   discussions with Dr. Jarrett, Huff and Cadenhead going 
16   well? 
17                 MR. ANGER:  Yes, sir.  They are.
18                 COMMISSIONER COX:  Good. 
19                 MR. ANGER:  I'm expecting to hear back 
20   from them and have further communication over the next 
21   couple of weeks.  
22                 CHAIRMAN CLOWE:  Thank you, Michael. 
23                 MR. ANGER:  Thank you.  
24                     AGENDA ITEM NO. 20
25                 CHAIRMAN CLOWE:  The next item is No. 
0094
 1   20, report, possible discussion or action on amendment 
 2   to the lottery operations and services contract, Mr. 
 3   Greer. 
 4                 MR. GREER:  Commissioners, the lottery 
 5   operations and services contract between the Texas 
 6   Lottery Commission and the Gtech Corporation contains 
 7   options for additional products and services that may 
 8   be exercised by the agency.  One option requires Gtech 
 9   to provide self-service terminals.  And as someone 
10   that has certainly been focused on technology and 
11   doing things better, that caught my attention. 
12                 Rider 4 of the agency's bill pattern for 
13   fiscal years '02 and '03 provided that the agencies 
14   subject to exceeding sales estimates projected by the 
15   Comptroller of Public Accounts will be appropriated 
16   additional funds for the purpose of fulfilling 
17   contractual obligations. 
18                 HB 3459, which we discussed a little 
19   earlier enacted by the 78 Legislature, provided the 
20   Commission with the authority to join the 
21   multijurisdictional lottery game, which I'll be 
22   reporting on in a moment.  Though the revenue impact 
23   to the state resulting from the implementation of the 
24   multijurisdictional game is expected to be 
25   significant, the agency did not receive any 
0095
 1   accompanying appropriation to implement the new game. 
 2                 In an effort to support the 
 3   implementation of the multijurisdictional game and to 
 4   increase sales and revenues, I asked staff to examine 
 5   exercising certain options available under the 
 6   contract with Gtech.  The staff conducted a 
 7   cost/benefit analysis on the installation of 1000 
 8   self-service terminals and 8000 scrolling programmable 
 9   LED signs to retailer locations throughout the state. 
10                 Once the cost/benefit analysis came 
11   back, it concluded that there was a one-time 
12   expenditure of 12.4 million dollars to Gtech for 
13   installation.  And after that, the agency would not 
14   incur any further direct costs in conjunction with 
15   this action. 
16                 As a result of the installation of the 
17   thousand self-service terminals and 8000 LED signs, 
18   the agency projects incremental sales in excess of 25 
19   million dollars annually.  And after deducting 
20   indirect costs of approximately 14 million dollars 
21   annually attributable to payment of prizes, retailer 
22   commissions, and lottery operator fees, that there 
23   would be an additional net revenue to the State of 
24   approximately 10.6 million dollars annually in a 
25   projection. 
0096
 1                 This would amount to over 70 million 
 2   dollars through the remaining projected life of the 
 3   contract.  I remind you that the contract with Gtech 
 4   is up on 8/31/2011, but it does contain a termination 
 5   at will provision.  And I provided a detailed cost 
 6   analysis in your notebook to go into more detail on 
 7   this matter. 
 8                 As each of you know, I contacted you to 
 9   discuss my intentions entering into this contract 
10   amendment.  Of course, I did not share with you any 
11   other information from any other commissioner that I 
12   discussed this with. 
13                 My staff and I also contacted key 
14   members of the legislature.  We contacted the 
15   governor's office, as well as the staff and the 
16   lieutenant governor's office, the Legislative Budget 
17   Board and the state controller's office regarding this 
18   matter. 
19                 Based on these contacts and discussions, 
20   as well as the staff's cost/benefit analysis and 
21   recommendation, I felt comfortable entering into this 
22   contract amendment because I believe in the resulting 
23   over-70 million dollars additional revenue to the 
24   state will be a good thing over the projected life of 
25   this contract. 
0097
 1                 Pursuant to the authority that allows 
 2   the executive director to contract with a person to 
 3   perform a function, activity or service in connection 
 4   with the operation of the lottery, I signed a contract 
 5   amendment on August 29th, 2003 with Gtech to provide 
 6   self-service terminal -- terminals and programinal -- 
 7   programmable -- those are hard words -- programmable 
 8   LED signs across the state. 
 9                 And it is anticipated the installation 
10   of these items will take place during the fiscal year 
11   of '04.  And I wanted to break at this point and 
12   answer any questions or concerns you may have on this 
13   and discuss it further. 
14                 COMMISSIONER COX:  Mr. Chairman, I have 
15   one observation.  In my discussions of this matter 
16   with Director Greer, I pointed out to him that Gtech 
17   would benefit from this in that they share in our 
18   sales and asked him whether the pricing from Gtech 
19   took that into account.  And he assured me that it 
20   did.
21                 MR. GREER:  Yes, sir.  It did.
22                 CHAIRMAN CLOWE:  You stated this is 
23   clearly within your authority and I assume there's 
24   legal advice to back that up.  You also stated that 
25   you discussed this individually with the 
0098
 1   commissioners, as well as others and in no way told 
 2   any commissioner what any other commissioner had said 
 3   or asked for them to make comments that would affect 
 4   your communications with other commissioners.
 5                 MR. GREER:  Yes, sir.
 6                 CHAIRMAN CLOWE:  So you included the 
 7   commissioners in your decision-making process, but as 
 8   individuals?
 9                 MR. GREER:  Yes, sir.
10                 CHAIRMAN CLOWE:  Properly so.  Who 
11   selects where these thousand SSTs go?
12                 MR. GREER:  We'll have a key role in 
13   that.  We'll be working with Gtech looking at our 
14   current providers that we have where we can implement 
15   this, as well as a possibility of some new people that 
16   may want to step up in reference to the fact that 
17   self-service terminals obviously create another 
18   opportunity for them, as far as income and services 
19   that they might want to provide their constituents. 
20                 An idea would be an airport and possibly 
21   some other chains that we've talked to.  So it will be 
22   up to us to make that decision.
23                 CHAIRMAN CLOWE:  And that's exactly the 
24   location that I had in mind and begs the question:  
25   The machine then does not have to be on the premises 
0099
 1   of a licensed ticket seller?
 2                 MR. GREER:  No, sir.
 3                 MS. KIPLIN:  No.  The machine --
 4                 CHAIRMAN CLOWE:  General counsel is 
 5   about to come out of her chair. 
 6                 MS. KIPLIN:  Unless it's the Lottery 
 7   selling a ticket, it would necessarily need to be a 
 8   licensed retailer at a -- at a location, licensed 
 9   location.  And so we'll work through those issues with 
10   regard to --
11                 I'm sorry.  I'm off the record.  Would 
12   you like me to repeat that, Mr. Bates (sic)? 
13                 THE REPORTER:  No. 
14                 MS. KIPLIN:  And so we'll work through 
15   those issues in terms of applications for retailers.  
16   Whether it's an airport or otherwise, we'll work 
17   through issues that present itself with each 
18   individual application.
19                 CHAIRMAN CLOWE:  Well, there are places 
20   like airports.  There are places like barbershops that 
21   heretofore have not been locations for ticket sales.  
22   And this opens an opportunity, I guess you could call 
23   it, for convenience to individuals. 
24                 In that same light, we have a 
25   prohibition against anyone younger than 18 years of 
0100
 1   age buying a lottery product.  How do you deal with 
 2   that? 
 3                 MR. GREER:  It will be similar to what 
 4   has taken place in the past with the scratch-off 
 5   machine where people can go up to the machine -- and 
 6   Albertson's was one of the retailers on that in the 
 7   past.  And it will have an automatic shut-off valve so 
 8   that there will be some type of supervisory activity 
 9   that will be within the area, 50 feet, and can 
10   automatically shut down the device if it appears that 
11   an individual under 18 is trying to purchase a ticket. 
12                 That was brought up by some of the 
13   legislators that we visited with on this and it's 
14   certainly something we're conscious of.  We're working 
15   with Security and other groups to be sure that we 
16   implement, you know, the proper contractual obligation 
17   to be within reach of the automatic shut-off valve.
18                 CHAIRMAN CLOWE:  And you mentioned the 
19   retailers would benefit.  So I assume they get their 
20   five percent as --
21                 MR. GREER:  Yes, sir.
22                 CHAIRMAN CLOWE:  -- per the contract.  
23   And that would be true of any other location where 
24   these machines might be located?
25                 MR. GREER:  Yes, sir.
0101
 1                 CHAIRMAN CLOWE:  The operator, the owner 
 2   of the premises, whatever their position is, would get 
 3   that five percent?
 4                 MR. GREER:  Right. 
 5                 CHAIRMAN CLOWE:  And then there are 8000 
 6   LEDs that are more than the one thousand SSTs, but we 
 7   don't have LEDs on all of the almost 16,000 retailer 
 8   locations. 
 9                 MR. GREER:  Right. 
10                 CHAIRMAN CLOWE:  Where do those go?  How 
11   is that determination made?
12                 MR. GREER:  This will be the same type 
13   of process that we'll evaluate as a whole across the 
14   state where we really want to try to get the word out.  
15   The thing that's really exciting about the whole LED 
16   process with technology moving forward is they are 
17   programmable by a satellite. 
18                 And we'll have them in 10 different 
19   regions of the state.  And we can program different 
20   messages in that might pertain to that particular 
21   area.  So we're obviously going to look at those that 
22   don't have the particular screen we're talking about 
23   first. 
24                 Then we'll look at ways we can enhance 
25   what we already have in place at some of our 
0102
 1   top-selling retailers and then look at it as a part of 
 2   the SSTs, as well, because I can envision an LED 
 3   across the top underneath the -- it's basically a PC 
 4   type, you know, scenario that I look forward to 
 5   bringing forth a demonstration for it as we get closer 
 6   to these concepts. 
 7                 But it's utilizing technology in a 
 8   positive way for the Commission, which is one of our 
 9   goals.  And I'm very excited about the chance that we 
10   can step into the 21st Century in this way.  But with 
11   that said, I'd have to say that your concerns in 
12   reference to underage, you know, ticket sales and 
13   things like that will continue to be a concern to me.
14                 CHAIRMAN CLOWE:  And in regard to the 
15   LEDs, the governor was here a few months ago in regard 
16   to the Operation Amber program.  And so that same 
17   programmability --
18                 MR. GREER:  Right.
19                 CHAIRMAN CLOWE:  -- would apply to these 
20   new LEDs.  So if we had an Amber Alert, that could go 
21   over these LEDs, as well as those that already exist.
22                 MR. GREER:  Yes, sir.  One of the nice 
23   things about the programmability of it through the 
24   satellite is that we can put whatever message on 
25   basically that we approve.  And certainly, that would 
0103
 1   be one of them, the Amber Alert, maybe public service 
 2   announcements. 
 3                 A particular example might be a natural 
 4   disaster, in an area like that.  And we can work with, 
 5   you know, government agencies to get the word out 
 6   about an evacuation route.  I mean, there's all kinds 
 7   of things that we, as a lottery, can do to enhance the 
 8   quality of life for people across Texas.
 9                 CHAIRMAN CLOWE:  Very good.  I think 
10   that's all the questions. 
11                 Then I think the next item is yours, as 
12   well, Reagan.  Do you want to advise us on the 
13   progress of the participation in the 
14   multijurisdictional lottery games?
15                     AGENDA ITEM NO. 21
16                 MR. GREER:  Yes, sir.  This has been an 
17   interesting process, I mean, since we came here the 
18   last time and you gave me the go-ahead to try to 
19   negotiate with MegaMillions.  I want you to be aware 
20   that we are moving forward. 
21                 In fact, that was part of why Mr. Grief 
22   was out this morning.  We continue to monitor 
23   different elements of the contract that we're trying 
24   to put together with them, the agreement that we're 
25   hopefully going to be coming to a conclusion on soon. 
0104
 1                 Gary Grief, our deputy executive 
 2   director, and Andy Marker, assistant general counsel, 
 3   have been the point negotiators.  We're working 
 4   primarily with Penny Kyle, who is out of the Virginia 
 5   Lottery, the executive director there. 
 6                 I've had a number of different 
 7   conference calls in reference to things that were 
 8   brought forward that we wanted to see as part of the 
 9   agreement, not the least of which what I mentioned in 
10   the last commission meeting, the multiplier/megaplier 
11   type idea that we could put that as a part of the 
12   game.  And that's a part of our negotiation process. 
13                 I will be attending my first 
14   MegaMillions meeting to review some of these issues on 
15   Sunday at the national convention in New Orleans.  I'm 
16   looking forward to meeting some of these directors and 
17   answering a few questions.  The primary negotiating, 
18   however, will continue to be here out of our 
19   headquarters with our negotiation team. 
20                 There's a part of this whole process 
21   that I want to bring to your attention today.  It's 
22   another technological thing that we have an 
23   opportunity to look at.  And I wanted to review this 
24   with you briefly.  This is an idea that we are tossing 
25   around, but I did want to get it on the record.  I 
0105
 1   want your feedback prior to moving forward on this 
 2   idea. 
 3                 What we're looking at as a part of this 
 4   multiplier feature is a random number generator.  It's 
 5   been used throughout the country and we have been kind 
 6   of looking at it from the sidelines but want to look 
 7   at it a little bit closer as a part of the 
 8   MegaMillions participation in the state of Texas. 
 9                 The staff analysis has shown that a 
10   multiplier feature for the MegaMillions game will 
11   generate a maximum amount of revenue for the State.  
12   And we did a draft cost/benefit analysis to evaluate 
13   the options available to procure an automated drawing 
14   process for the MegaMillions multiplier, specifically, 
15   and found that it will eliminate the need for draw 
16   machines and ball sets to be purchased and can 
17   significantly cut studio and personnel costs in the 
18   long term. 
19                 Using this technology, the multiplier 
20   number would be chosen through use of a computer 
21   program that randomly picks the number.  The 
22   technology has undergone stringent testing in other 
23   states and is currently in use in Delaware, Minnesota, 
24   Washington DC, Pennsylvania and British Columbia. 
25                 There are over -- really only three 
0106
 1   systems that we looked at that were available that we 
 2   wanted to give consideration to.  These three systems 
 3   were the Random Animated Digital Drawing System called 
 4   RADDS produced by the Telecom Game Factory.  The 
 5   second was the Lottery Animated Drawing System 
 6   produced by M&S Works.  And the other one was the 
 7   Origin Random Number Generation System produced by 
 8   Smart Play International.  So those were the three 
 9   that we generally looked at. 
10                 It's my intent to continue to look at 
11   using this technology for the implementation of the 
12   multimillion dollar MegaMillion multiplier feature and 
13   I'll bring this to your attention because of timing.  
14   If we do come forward and reach an agreement with the 
15   MegaMillions group and the appropriate documents have 
16   been signed from the perspective that we're looking at 
17   and legal counsel will be involved in that, obviously, 
18   I want you to be aware that I am looking at this and 
19   it would be another contractual arrangement that we 
20   would consider entering into. 
21                 One of the aspects of this that I like 
22   is that we could also look at other new games or ways 
23   that we can enhance the current games that we have.  
24   So the technology that would be in place for the 
25   random generator on the multiplier feature, if we 
0107
 1   decide to do that, would also give us other 
 2   opportunities to look at ways that we can, you know, 
 3   look at games across the board in a brighter, more 
 4   technological way. 
 5                 Time is going to be of the essence in 
 6   executing such an agreement in order to implement the 
 7   multijurisdictional games plan, which I'm still 
 8   shooting for that late fall time line.  And with that 
 9   in mind and preliminary information that's been 
10   provided to me by staff, the value of such a contract 
11   in the first year could be approximately 450 thousand 
12   dollars.  And then there will be annual maintenance 
13   fees thereafter. 
14                 I wanted to kind of get your thoughts on 
15   this random number generator and, you know, kind of 
16   get an idea of how you would allow me to proceed on 
17   this.  We have had some presentations and I'm sure I 
18   can get more information on this.
19                 COMMISSIONER COX:  Reagan, I like the 
20   idea of the random number generator.  I think it's a 
21   real good one.  I'm trying to recall the discussion 
22   that I had with Dr. Randy Eubank, our statistician at 
23   Texas A&M. 
24                 Gary, you may have been in on that 
25   discussion.  I -- one of us raised a question about a 
0108
 1   random number generator.  And I recall Dr. Eubank 
 2   saying there is no such thing as a random generator.  
 3   Do recall that discussion? 
 4                 MR. GRIEF:  I do recall that discussion, 
 5   Commissioner.  And I think coming from Dr. Eubank, who 
 6   is very sophisticated in his field, I think -- and I 
 7   can't explain this.  But as he put it, there is no 
 8   such thing because randomness does not exist in that 
 9   scenario.  And I don't even understand that comment. 
10                 But from what I understand, the random 
11   number generator the executive director is looking at 
12   would generate numbers just as ramdomly as do the ball 
13   machines that we have currently in place.  And I think 
14   that's what's important.
15                 COMMISSIONER COX:  And I'd like just 
16   perhaps with too much caution, let's include 
17   Dr. Eubank in our discussions and be sure counsel is 
18   satisfied that somebody couldn't sustain a challenge 
19   to this operation based on the argument that 
20   Dr. Eubank might have described to us.
21                 MR. GRIEF:  Part of the process that we 
22   will certainly go through is called the certification 
23   process.  And we would have outside, independent 
24   people such as Dr. Eubank and quite possibly others 
25   look at the random number generator to ensure the 
0109
 1   integrity of the operation.
 2                 COMMISSIONER COX:  Great.  Thank you. 
 3                 MR. GREER:  And Commissioner, obviously 
 4   that will be a key element of the discussions that we 
 5   have with any group.  And I just want to re-ensure you 
 6   that I will come back to you individually and review 
 7   any issues that I see -- that will be one of them -- 
 8   with you prior to moving forward on something like 
 9   that. 
10                 It is a technology that has proven 
11   itself to work in other states.  It's not something 
12   new that we're just stepping out on.  And so we will 
13   have an opportunity to rely on what has happened in 
14   the past.  And the statistician will be a great 
15   suggestion to be a part of that.
16                 CHAIRMAN CLOWE:  For those of us that 
17   have never seen it, what is a random number generator?
18                 MR. GREER:  Actually, I'll let Gary 
19   describe it.  We had an overview yesterday and he 
20   spent more time with it than I did.
21                 MR. GRIEF:  What the hardware looks like 
22   is basically just your standard PC, just a personal 
23   computer.  And imbedded in the hardware is a program 
24   that generates the random number.  And from what we've 
25   seen in demonstrations thus far, it's amazing what 
0110
 1   they can do. 
 2                 With the numbers that are generated by 
 3   the PC, those can flow directly into animation.  And 
 4   for example, you could have a herd of longhorn cattle 
 5   in an animated situation and they rope three different 
 6   numbers.  The numbers are on the back of the cattle 
 7   and those are your numbers for Pick 3 that day.  And 
 8   you're only limited by your imagination is the way 
 9   it's been explained to us.
10                 CHAIRMAN CLOWE:  Is the sense of the 
11   experience with this that people will trust a random 
12   number generator on the one hand as opposed to seeing 
13   the balls fall out of a matrix of balls visually?  
14   What's the element of trust? 
15                 MR. GRIEF:  Well, we think it's 
16   something that we're going to have to move slowly 
17   into.  And we feel that as people grow more and more 
18   comfortable with technology and more and more 
19   sophisticated with an understanding, this is a logical 
20   progression that all lotteries are starting to make. 
21                 And Reagan and I have talked at length 
22   about this.  We feel that the multiplier feature for 
23   proposed MegaMillions game is the perfect vehicle to 
24   implement that type of strategy where we're just 
25   selecting one number for a multiplier for that 
0111
 1   particular game.  We'll have a chance to see how that 
 2   works to gauge the perceptions of our audience through 
 3   that process and then, perhaps, we could utilize that 
 4   more down the road.
 5                 MR. GREER:  That's a consideration 
 6   certainly that we're going to visit with the other 
 7   lotteries about, as well.  Because of the fact that it 
 8   has been utilized in other states, we can get some 
 9   experience level that I think can be utilized here in 
10   Texas. 
11                 From a personal perspective, I basically 
12   can go with the example of how credit cards, you know, 
13   started out, people very apprehensive about utilizing 
14   credit cards on a purchase over the Internet.  And now 
15   that continues to be a growing segment of the economy.  
16   It's an education process. 
17                 I think as long as the assurances are in 
18   place that the randomness can be substantiated and 
19   that we've done everything on our part just like we do 
20   on the drawing -- it has 357 steps before we ever get 
21   to the point of making the drawing -- and keep it open 
22   to the public and an open system, that -- as Gary 
23   stated, I think that the opportunity through the 
24   multiplier might be an opportunity for us to get our 
25   feet wet on this particular technology.
0112
 1                 CHAIRMAN CLOWE:  When a customer --
 2                 COMMISSIONER COX:  Another example of 
 3   when the -- when the casino industry went from the 
 4   electromechanical slot machines to the 
 5   computer-generated graphics on the slot machines, 
 6   there was a concern similar to that you expressed.  
 7   And there was some caution in the implementation, but 
 8   the result has been that those electronically 
 9   generated graphics are just as trusted as the old 
10   mechanical machines.
11                 CHAIRMAN CLOWE:  That was an example I 
12   was going to use is casinos that I've observed, these 
13   machines being played seemed like to me they were 
14   random number generators. 
15                 And I was going to ask this question:  
16   When a customer and a retailer asks the clerk for a 
17   Quick Pick, isn't that a random number generator?
18                 MR. GRIEF:  Very good example.
19                 CHAIRMAN CLOWE:  You know, that to me is 
20   something we've been doing since the inception of the 
21   lottery and it's a random number generator when you 
22   ask for a Quick Pick.
23                 COMMISSIONER COX:  We sure hope it is.
24                 CHAIRMAN CLOWE:  And my recollection of 
25   the numbers is that's over half of the purchases 
0113
 1   currently.  And so we're actually using random number 
 2   generators in the lottery at this time.  
 3                 MR. GREER:  That's a good example.
 4                 CHAIRMAN CLOWE:  This would be a 
 5   departure from something that's accepted and people 
 6   are familiar with and comfortable, but it's really the 
 7   same thing, isn't it?
 8                 MR. GREER:  It is.  It would be very 
 9   similar.  And I would like to reinforce to our new 
10   commissioner the fact that I'm very conscious of the 
11   open meetings aspect of working through a contractual 
12   type scenario and that I will be calling you for your 
13   opinion, but it will only be your opinion and I will 
14   not be able to share with you what the other 
15   commissioners have stated. 
16                 I am not comfortable on a contractual 
17   scenario where there's a lot of money on the table 
18   doing it without having a good feel from the 
19   commissioners.  But in a scenario like this, I may 
20   need to act prior to the next meeting taking place.  
21   And so with the things that went on this morning in 
22   our ethics training, I want you to be aware that I am  
23   extremely conscious of that and that our general 
24   counsel and other members of our staff keep me on the 
25   straight and narrow, which I fully appreciate and will 
0114
 1   not, you know, step out of line on how that operates. 
 2                 But because this is a short time line, 
 3   there may be an opportunity that I would need to take 
 4   advantage of my statutory authority to sign an 
 5   agreement so that I can continue this ball, so to 
 6   speak, moving and stay to our late fall time line.
 7                 COMMISSIONER OLVERA:  Thank you, Reagan.
 8                 CHAIRMAN CLOWE:  In that regard, I was 
 9   surveying one of our retailers this last weekend in 
10   Goldthwaite, Texas and he informed me that the 
11   multijurisdictional game would be implemented November 
12   the 1st. 
13                 Now I was disguised.  I was disguised as 
14   a dove hunter.  So she -- she didn't know she was 
15   talking to a state official, but I think there's some 
16   anticipation on behalf of a number of people in the 
17   state that that game is going to be implemented in the 
18   fall.  And this is the first firm date I've heard. 
19                 But I think, you know, there's still an 
20   element of the playing public that doesn't like the 
21   fact that we moved from 50 balls in the matrix to -- 
22   there they are -- to a multi -- 54 and then to the 
23   extra ball.  And I think the more time that you can 
24   spend letting people know this is coming and educating 
25   people and pointing out the aspects of the game -- 
0115
 1   they're going to make up their minds whether they want 
 2   to play or not.  There's no question about that. 
 3                 But Texans don't like to be rushed and 
 4   they don't like change, as most people don't.  And 
 5   they need to be given time through education to 
 6   understand what's going to happen.  So keep that in 
 7   mind and don't put us in a position where we have to 
 8   react to something.  Give us notice as you are doing, 
 9   and I'm very pleased with that, so that when these 
10   things come about and decisions are made, it's plenty 
11   of time for the public to get the word and get 
12   comfortable with it.
13                 MR. GREER:  And I fully appreciate that.  
14   It would be an appropriate time to mention that as we 
15   move forward with these negotiations -- and Texas is a 
16   unique state, I have to say.  And after our crash 
17   course in multijurisdictional agreements and the 
18   differences between the two groups, there are some 
19   issues that we are looking out for the best interest 
20   of the state on that we're going to try to move as 
21   quickly as possible. 
22                 But when you're working with 10 
23   different states -- and there's a committee structure 
24   within MegaMillions which you're familiar with and 
25   we're primarily focused with the financial committee 
0116
 1   and the legal committee right now on a number of 
 2   issues.  So I don't want to rush the process.  I want 
 3   to do it right.  I want to bring back to you an 
 4   agreement that we're all in accord on and feel 
 5   comfortable with. 
 6                 And when the time is right and if we 
 7   have an agreement, with that in mind what you just 
 8   said, I would ask that we consider calling a meeting 
 9   with the proper notice, obviously, going through the 
10   process so that we continue to educate individuals on 
11   what the game is all about, tell you about the 
12   agreement process and then get forward -- move forward 
13   on the idea of passing a rule. 
14                 CHAIRMAN CLOWE:  And with that in mind, 
15   you're saying you're working on it but you're not 
16   ready yet, I'm going to ask for the commissioners' 
17   approval that we not set a date for the October 
18   meeting but leave that in your hands so that at the 
19   earliest opportunity when you're ready to move 
20   forward, you can see if the commissioners are 
21   available and set that date in October so that we can 
22   deal with this very important issue, as well as other 
23   issues.
24                 MR. GREER:  I agree.  And, you know, I 
25   mentioned earlier in the SST scenario with the 
0117
 1   self-service terminals the opportunity that it's going 
 2   to bring to allow people to buy a MegaMillions ticket, 
 3   which is part of our process.  But I didn't mention, 
 4   which I think it's appropriate to put on record, that 
 5   it will also be a convenience for those that are 
 6   currently playing our on-line games. 
 7                 All the on-line games will be available 
 8   on the self-service terminal:  Cash 5, Pick 3, Lotto 
 9   Texas, etc.
10                 CHAIRMAN CLOWE:  Have you seen one? 
11                 MR. GREER:  Yes, sir.  The deputy 
12   executive director and I went over to Gtech 
13   headquarters, had a full demonstration.  It was very 
14   impressive.
15                 CHAIRMAN CLOWE:  What size are they?
16                 MR. GREER:  It's about the size of a -- 
17   well, it's free-standing, but it's like a PC.  And 
18   it's similar when you go into the airport and look for 
19   a rent-a-car and you punch a screen and then, you 
20   know, that pops up and then you get further 
21   information. 
22                 You do have the ability, obviously, to 
23   pick your own numbers or you can go Quick Pick random 
24   number generation, which we touched on a minute ago.  
25   It has ability to answer your questions if there's any 
0118
 1   question about a play style on a game.  Pick 3, 
 2   specifically, is a somewhat complicated process. 
 3                 The marketing is still working with me 
 4   on understanding how that all shakes out.  And it will 
 5   walk the individual through a step by step process.  
 6   So it's informational-oriented, as well as giving them 
 7   the capability of buying a ticket.
 8                 CHAIRMAN CLOWE:  What denomination bills 
 9   does it take?
10                 MR. GREER:  We will not be using credit 
11   cards at this point.  I mean, that's another 
12   technological thing down the road, but we're not there 
13   yet.  And it will take only the bill for that 
14   particular game.  If they want to buy five dollars, 
15   they put in five, that's what they get.  It will be 
16   one-dollar incremental type thing. 
17                 CHAIRMAN CLOWE:  Or two dollars if 
18   you're buying a two-dollar?
19                 MR. GREER:  Right.  It doesn't -- 
20   doesn't give change.
21                 CHAIRMAN CLOWE:  Doesn't make change?
22                 MR. GREER:  No.  You have to put in the 
23   correct amount.  And the technology is also out there 
24   and I'm wanting to pursue that and I've discussed it 
25   with others in reference to how we would do a bar code 
0119
 1   or some type of identification in the future where you 
 2   can like swipe your driver's license across -- they're 
 3   doing that in California right now -- before you could 
 4   purchase the ticket. 
 5                 We're going to work with DPS and, you 
 6   know, other state agencies including Texas On-Line 
 7   Authority, which I used to be a part of, to create 
 8   opportunity where we can continue to look at that 
 9   identity issue and be sure that we're not allowing 
10   minors to purchase tickets. 
11                 CHAIRMAN CLOWE:  That's a -- that's a 
12   good idea on that side.  I think on the other side of 
13   the issue, some people may object to being identified 
14   at a point of purchase of a lottery product.
15                 MR. GREER:  That will be a decision that 
16   we'll all have to come to the table with before we 
17   ever step forward on that.
18                 CHAIRMAN CLOWE:  This discussion is in 
19   the open, so --
20                 MR. GREER:  It is.
21                 CHAIRMAN CLOWE:  -- it comes to mind 
22   that you better be realistic about that. 
23                 MR. GREER:  Well, and you know, we have 
24   the ITVM experience to base our getting into this part 
25   of it with.  And we're going to use that and certainly 
0120
 1   Commander Pitcock and his group and express some ideas 
 2   and things that we can do.  You know, I'm comfortable 
 3   that as technology moves along, there are things that 
 4   are available that we can take advantage of. 
 5                 The whole aspect of getting into 
 6   MegaMillions has kind of taken that up a notch with a 
 7   number -- random number generator and also looking at 
 8   other ways that we can sell tickets.
 9                 CHAIRMAN CLOWE:  When and if you can, I 
10   think it would be good for the commissioners to see an 
11   SST and a random number generator as you're able to 
12   have those at a commission meeting. 
13                 MR. GREER:  I'd like to, you know, set 
14   that up and give you a demonstration and also the 
15   public can take advantage of to let you get more 
16   acquainted with it and have a higher level of comfort.  
17   I think you're going to be very pleased. 
18                 And I personally had questions and 
19   concerns that I had answered in our demonstration 
20   meeting and felt comfortable with all these 
21   individuals that I touched on in my comments a moment 
22   ago being a part of the process to sign the contract 
23   and take the Texas Lottery a notch up in the 
24   technological area.
25                 COMMISSIONER OLVERA:  An issue that 
0121
 1   comes up is:  Would the Amber Alert provisions that 
 2   we're contemplating with the other, would they also 
 3   be -- could that also be implemented with this device?
 4                 MR. GREER:  They work in conjunction, 
 5   yes.
 6                 COMMISSIONER OLVERA:  Okay. 
 7                 MR. GREER:  And again, one of the nice 
 8   features of the 8000 LEDs is that they are satellite 
 9   programmable so that we can change the message at 
10   random, and not necessarily across the state.  There 
11   may be -- like in your area, we may want to focus on 
12   an issue that doesn't pertain to North Texas. 
13                 We can have different messages all 
14   around, so I think it's a great thing.
15                 CHAIRMAN CLOWE:  Anything further? 
16                 MR. GREER:  No, sir.   
17                     AGENDA ITEM NO. 24
18                 CHAIRMAN CLOWE:  Thank you.  I'd like 
19   now to move to Item 24 on the agenda, which is the 
20   consideration and status of possible orders in various 
21   docket numbers. 
22                 And counselor, we have two appearances 
23   from individuals who wish to speak in regard to one, 
24   the Petro Express matter and the other the Southwest 
25   Volunteer Fire Department.  Would you call those cases 
0122
 1   up first and allow those individuals to have the 
 2   courtesy of having their issues dealt with initially 
 3   prior to the other ones?
 4                 MS. KIPLIN:  Yes.  We've got a Docket 
 5   No. 362-03-1763.  This is the Petro Express 
 6   Management, Limited Liability Corporation matter.  
 7   That is a claim for a tax refund.  The respondent is 
 8   represented by counsel, Mr. Grissom. 
 9                 MR. GRISSOM:  Correct.
10                 MS. KIPLIN:  Is that correct? 
11                 MR. GRISSOM:  Correct.
12                 MS. KIPLIN:  I beg your pardon? 
13                 MR. GRISSOM:  That's correct. 
14                 MS. KIPLIN:  Okay.  And as I understand 
15   it, you represented them throughout the contested case 
16   proceeding. 
17                 MR. GRISSOM:  I represented Mr. 
18   Jongebloed throughout the contested case proceeding.
19                 MS. KIPLIN:  That's fine.  I understand.  
20   Okay.  In any event, I'll turn this over to the 
21   parties.  I would caution both of you-all to stay 
22   within the record that you created at the State Office 
23   of Administrative Hearings. 
24                 Should you believe that somebody is 
25   going outside the record, I would expect that you 
0123
 1   would raise that immediately.  I'm not -- obviously, I 
 2   wasn't there.  I didn't develop the record.  I'm 
 3   relying on counsel to be mindful of that. 
 4                 CHAIRMAN CLOWE:  I would ask 
 5   additionally for you-all to be as succinct as 
 6   possible.  We don't put a time limit on these 
 7   initially, but in the effort to respect the full 
 8   agenda, we ask you to make your statements brief, as 
 9   well as concise as possible.  Thank you. 
10                 MR. GRISSOM:  Thank you.  Commissioners, 
11   my name is Don Grissom.  And it's my first opportunity 
12   to appear before this body and I thank you for that 
13   opportunity. 
14                 I represent Mr. J.T. Jongebloed, an 
15   individual.  If you note on your -- the caption, this 
16   was in the matter of Petro Express Management.  Petro 
17   Express Management was a limited liability company 
18   that was -- that owned numerous convenient stores, 10 
19   to 20 -- I supplied those -- in the Southeast Texas 
20   and was a lottery retailer, that was a lottery 
21   retailer. 
22                 Mr. Jongebloed, the individual that I 
23   represent, when the company was formed in 1999 was an 
24   original member of that limited liability company and 
25   a designated vice-president.  And that's important for 
0124
 1   several reasons as that was in 1999 that it was 
 2   formed.  That's the first time that the company 
 3   applied for a retailer's license and obtained the 
 4   retailer's license for its various locations. 
 5                 In September of 2000, Mr. Jongebloed 
 6   resigned from the company.  He tendered his 
 7   resignation to the company and then went on his -- he 
 8   was a retired gentleman, went on his way.  He 
 9   retired -- he resigned as a managing member, as well 
10   as officer of the company. 
11                 In 2002, mid-2002, Petro Express was 
12   having some financial problems and ultimately went out 
13   of business in 2002.  And in that process, Petro 
14   Express owed the Lottery Commission approximately 42 
15   thousand dollars.  His retailer's license was 
16   suspended and the Lottery Commission sent notices to 
17   the company to recover the 42 thousand dollars. 
18                 In November of 2002, Mr. Jongebloed was 
19   advised by his bank that his personal bank account had 
20   been swept for that amount, 42 thousand dollars.  We 
21   then filed -- when I was retained by Mr. Jongebloed, 
22   we filed an application for a refund to recover that 
23   42 thousand dollars that had been taken from his 
24   personal bank account, not that of the company. 
25                 And that's what the issue is that we're 
0125
 1   dealing with here today.  And that is in the -- we had 
 2   two complaints at the hearing stage, one that he was 
 3   not given any personal notice of a jeopardy 
 4   determination that anyone was looking to him 
 5   personally to recover this 42 thousand dollars in 
 6   lottery funds.  And we do not contest nor did we ever 
 7   contest that 42 thousand dollars was owed to the 
 8   commission by Petro Express.  There is no dispute 
 9   about that. 
10                 Our dispute was that no notice was given 
11   to Mr. Jongebloed personally, that he was entitled to 
12   it.  And second, and more importantly, I think this 
13   really comes to the central issue that is here before 
14   you, and that is how the Lottery Code and the Tax Code 
15   interplay with each other. 
16                 And that is under the Lottery Code, it 
17   has the powers -- it was originally given the powers 
18   to enforce and collect lottery monies.  That authority 
19   was given to the Comptroller.  And the Comptroller 
20   only has those powers and authorities that are found 
21   in the Tax Code.  And the Tax Code has a very 
22   elaborate trust fund provision, as many of you 
23   probably know, for collection of sales taxes. 
24                 Any monies that are owed to the State, 
25   the Comptroller has the power, ultimate power and 
0126
 1   authority to enforce and collect.  But it must do so 
 2   under the authority that it's granted in the Tax Code.  
 3   So when -- when the Lottery Commission was 
 4   established, the Comptroller had that power and 
 5   authority, part of that power and authority. 
 6                 The Lottery Code also says that the 
 7   monies -- monies that are collected by the retailer 
 8   are treated as taxes and cites to the Tax Code.  And 
 9   that's where we have our dispute.  Under the Tax Code, 
10   when you get to -- when you get to the Tax Code and 
11   you look to the power to look to individuals, 
12   officers, directors and owner of the company, when you 
13   get to that provision of the Tax Code, there's a 
14   specific provision that deals with trust fund taxes, 
15   that if an individual who's a responsible 
16   individual -- is a responsible individual is liable to 
17   the State for the amount of monies that he has 
18   collected and failed to turn over to the State, and 
19   rightfully so. 
20                 But in that analysis, the courts have 
21   ruled that before that person who -- officer or 
22   director can be held liable, there must be a showing 
23   that that person was a responsible person, that they 
24   exercised some amount of control, appropriate amount 
25   of control over the corporation or had some kind of 
0127
 1   check writing authority or did, in fact, collect these 
 2   monies that they did not turn over. 
 3                 And there's some very specific standards 
 4   that not only the Comptroller through administrative, 
 5   but the courts have held have to be a showing under 
 6   that provision of the Tax Code before that individual, 
 7   not the company, but that individual could be held 
 8   partially liable for that tax or that amount of money 
 9   so that the State could exact that money through 
10   collection enforcement procedures from him. 
11                 And this is where in the -- in your 
12   Lottery Code, we have -- we have basically three 
13   provisions that we're dealing with here.  And I'll 
14   cite those to you.  One is the 466.019 of the Lottery 
15   Act and 466.353.  And then in the Tax Code, we have 
16   111.016.  And those follow this way and they're very 
17   similar in the nature in the fact that the Lottery 
18   Code and the Tax Code says that these monies are trust 
19   monies.  And no one disputes that. 
20                 And then in your -- in your Lottery Code 
21   466.353(b), it says that a sales -- if a sales agent 
22   is not an individual, then each officer, director or 
23   owner of the sales agent is partially liable to the 
24   division for the full amount of money for unsold 
25   tickets held in trust for the benefit of the State.  
0128
 1   That's very similar to the 111.016 in the Tax Code, 
 2   which talks about any monies collected by an 
 3   individual is held in trust for the State. 
 4                 Now under the Lottery Code, while it 
 5   does not set down the limitations applicable to those 
 6   collections or at least in 466.353(b), which I just 
 7   cited about the sales agent, while that does not put 
 8   any limitations on who to collect and how to collect, 
 9   when you go to 416 -- I mean 466.019, it does in the 
10   fact that it only grants those powers to the 
11   commission that the Comptroller had. 
12                 It's not given any greater power.  It's 
13   only given those powers that the Comptroller had or 
14   has.  And those -- those powers are found only and it 
15   refers to Title 2 of the Tax Code, which we then come 
16   down to, again, 111.016. 
17                 Why that's important is because in this 
18   specific case, the only evidence that was introduced 
19   at the hearing was that -- his testimony was he 
20   resigned.  We had a corporate resolution showing he 
21   resigned.  We had Articles of Corporation and the 
22   Amended Articles of Corporation showing that he had 
23   resigned and there was now only one other managing 
24   member left.  At one time, there were multiple -- 
25   there were many managing members.  After that time, 
0129
 1   there was only one. 
 2                 The -- it was in the public information, 
 3   the franchise tax reports, the public information 
 4   filings that someone in the company had listed Mr. 
 5   Jongebloed as a vice-president.  And even on the -- to 
 6   amend and extend the retailer applications, lottery 
 7   applications, in their officers they had listed him, 
 8   as well. 
 9                 He did not know that.  He testified he 
10   did not know it was there.  He did not sign and did 
11   not authorize it, but it was there.  So he was listed 
12   as --
13                 COMMISSIONER OLVERA:  And Mr. Grissom, I 
14   need a point of clarification. 
15                 MR. GRISSOM:  Sure. 
16                 COMMISSIONER OLVERA:  When you say that 
17   Mr. Jongebloed resigned, obviously he can resign as a 
18   manager or as an officer, but was he -- did he sell 
19   his shares as a member? 
20                 MR. GRISSOM:  No.  There was --
21                 COMMISSIONER OLVERA:  So he was still a 
22   member? 
23                 MR. GRISSOM:  He was still a member.  He 
24   resigned as managing member.  That point was never 
25   brought out at the hearing, what how he disposed -- 
0130
 1   how he disposed of his shares was not brought out at 
 2   the hearing.  He resigned as a managing member and he 
 3   resigned as officer and director.  There's no 
 4   evidence --
 5                 COMMISSIONER OLVERA:  That's my point.  
 6   I mean, when he resigned, did he also sell his shares 
 7   or was he still an owner of the corporation? 
 8                 MR. GRISSOM:  He did not -- no, he did 
 9   not sell them.  He did relinquish them.  He did not 
10   sell them. 
11                 COMMISSIONER OLVERA:  Were the shares 
12   reverted to the corporate entity?
13                 MR. GRISSOM:  That was not brought out 
14   in the hearing, so I could not speak to that.  None of 
15   those issues were -- those particular issues were not 
16   addressed at that -- at the hearing. 
17                 But when you come back to the Tax Code 
18   and the Lottery Code, you come back to the fact that 
19   the State's share of any proceeds are to be treated as 
20   a tax.  That's what it says.  And then that, again, 
21   comes back to 111.016. 
22                 So here the only evidence that he even 
23   was an officer was these entries on public information 
24   and on the application to extend the lottery license, 
25   which his testimony was he did not know about and was 
0131
 1   not aware of and did not approve. 
 2                 That aside, we have -- if you grant -- 
 3   if the commission has the kind of authority to -- 
 4   because a person may own any -- but it does not 
 5   distinguish what amount of shares you have to own or 
 6   what role or capacity you have to be as an officer or 
 7   director. 
 8                 So even if you were a nominal director, 
 9   someone had said "Would you serve as a director on my 
10   company?" and you said "Sure, put me down." or "Would 
11   you serve as a nominal officer of my company?" "Sure, 
12   put me down." and they then apply for a retailer's 
13   license, lottery retailer's license, unbeknownst to 
14   them, they could be liable for the full amount even 
15   though they may not be active in the corporation in 
16   any regard. 
17                 The fact they may be listed makes them, 
18   under the argument advanced at this hearing, under 
19   that argument espoused by the commission, that that 
20   person is one hundred percent liable regardless of 
21   what their involvement was.  We think that's a vast 
22   departure from the law in this state as applied by the 
23   Comptroller for other tax matters. 
24                 It's also a departure from the most -- 
25   the agency that has the most authority, the Internal 
0132
 1   Revenue Service, cannot do that.  And then it goes --
 2                 MS. WILKOV:  I'm going to object to 
 3   that.  That was not brought out in the hearing and 
 4   neither was the Comptroller or any of that.
 5                 MR. GRISSOM:  No, it was.  And that's 
 6   our argument that the power to collect is what we're 
 7   dealing with here and the power to collect and what 
 8   individuals you can collect from. 
 9                 And that -- and we contend that the law 
10   says you can only -- if you go beyond the corporate, 
11   you're going to -- and go beyond the corporation to 
12   individuals, then we believe the law is, as found in 
13   the Tax Code and cases under that Tax Code, that that 
14   person has to be responsible.  He has to have been 
15   active in the company to exerted some control over 
16   that company.
17                 CHAIRMAN CLOWE:  I think you've made 
18   that point.  And you'll have an opportunity to speak 
19   to whether or not that's on the record shortly.
20                 MR. GRISSOM:  And all of that is in the 
21   transcript, the -- whether or not that person has 
22   active control, of whether or not they have -- they 
23   were participating in the collection and the failure 
24   to turn over proceeds. 
25                 Because we all recognize that's a very 
0133
 1   serious issue with any -- with any monies held in 
 2   trust.  And that's why it's serious enough to -- that 
 3   the courts have said that those provisions of the Tax 
 4   Code dealing with the trust funds allow you to go to 
 5   the individuals only on certain instances is to 
 6   protect the individuals, not to protect the 
 7   corporation because it's liable, but it's to protect 
 8   the individuals that may be involved in the company 
 9   before you can hold them liable. 
10                 And that's why we disagree with this 
11   opinion.  We believe it goes too far and it departs 
12   from the law of the state and the law as set out in 
13   the Lottery Code and the Tax Code.  It departs from 
14   that.  Those guidelines were not followed because 
15   there was no showing, there was no evidence that he 
16   participated in the company in 2002, that he had any 
17   control over the company in 2002, only that he was 
18   listed as a vice -- as a vice-president. 
19                 There was no testimony that showing that 
20   he collected any of these monies that were at issue in 
21   the collection proceeding.  And for that reason, we 
22   applied for a refund and that's why we're here for you 
23   today.  Thank you.
24                 CHAIRMAN CLOWE:  Thank you.  Any 
25   questions?
0134
 1                 COMMISSIONER OLVERA:  Not at this time.
 2                 CHAIRMAN CLOWE:  May we hear from you, 
 3   please, ma'am?
 4                 MS. WILKOV:  Yes.  Good afternoon, 
 5   Commissioners.  My name is Penny Wilkov.  I'm the 
 6   assistant general counsel here at the agency.  And we 
 7   are here regarding the entry of an order upholding the 
 8   decision of an administrative law judge contained in 
 9   the Proposal for Decision in a tax refund claim 
10   hearing. 
11                 The administrative law judge recommends 
12   that the petitioner, Petro Express Management and J.T. 
13   Jongebloed's claim for a refund of 42 thousand dollars 
14   in lottery proceeds should be denied.  And this 
15   recommendation was based upon the factual 
16   determinations and rulings of law that were unique to 
17   this case. 
18                 And I have a brief outline of the facts 
19   in this case, which Mr. Grissom has touched on.  
20   Briefly, in 1999 Petro Express Management, LLC was 
21   granted a license with numerous locations and Mr. 
22   Jongebloed was listed as a manager. 
23                 In 2001, a renewal application was 
24   submitted by Mr. Jongebloed's son-in-law, William 
25   Bobbora, listing Mr. Jongebloed as the vice-president.  
0135
 1   And in May, a franchise tax record was filed with the 
 2   Comptroller which listed Mr. Jongebloed as a manager. 
 3                 In 2002, things went south for this 
 4   business.  In June, there were four insufficient fund 
 5   sweeps which ultimately resulted in a $42,862 debt.  
 6   Revocation of their license was initiated and 
 7   finalized and notice was sent to Petro Express 
 8   Management that a final balance was due in the form of 
 9   a jeopardy determination. 
10                 In November, the commission initiated a 
11   freeze of Mr. Jongebloed's bank account, which was 
12   levied and seized, which is the basis of this tax 
13   refund hearing that is the basis of the Proposal for 
14   Decision. 
15                 Now in 2003, which for the record is 
16   this year, the funds were seized and an undated 
17   resolution was received which stated that effective 
18   September 1st, 2000 that Mr. Jongebloed had resigned 
19   as a director and manager.  And this was accompanied 
20   by a document dated September 1st, 2000, and this was 
21   received this year, which was entitled Articles of 
22   Amendment.  The hearing occurred in April of 2003 with 
23   the resulting Proposal for Decision received June 
24   16th, 2003. 
25                 Let me review briefly the legal issues 
0136
 1   that were critical to the judge's decision.  The most 
 2   important of which is that the State Lottery Act 
 3   provides that each officer, director or owner of the 
 4   sales agent is personally liable to the division for 
 5   the full amount of the money for unsold tickets held 
 6   in trust for the benefit of the State. 
 7                 Second, that the collection authority 
 8   that the commission utilizes to collect these funds 
 9   owed to the commission is pursuant to the authority 
10   allowed by the Tax Code, which grants to the 
11   commission the powers given to the Comptroller, which 
12   may be exercised. 
13                 All right.  Now Mr. Grissom argues that 
14   the Texas Tax Code provides that an officer of a 
15   corporation is liable for the tax debt of the 
16   corporation only if it can be shown that the officer 
17   was sufficiently responsible for the collection or 
18   control of the funds.  He argues that the Tax Code and 
19   the Lottery Act should be read wholistically to impose 
20   this requirement. 
21                 However, the administrative law judge 
22   asked for briefs on this point.  And she concluded 
23   after reading and thoroughly looking at these briefs, 
24   as I have enumerated on this slide, that the State 
25   Lottery Act does not impose this additional 
0137
 1   requirement and that the Texas Tax Code does not 
 2   supersede the State Lottery Act. 
 3                 Mr. Grissom also argues that the 
 4   legislative history review that the judge cited in her 
 5   discussion is incorrect and that since the Lottery 
 6   Commission was once part of the Comptroller's office, 
 7   that the intent was for the lottery to retain 
 8   sufficiently responsible language. 
 9                 However, the judge correctly analyzed 
10   the legislative history, which does not contain this 
11   sufficiently responsible language, and correctly 
12   concluded that Mr. Jongebloed is personally liable as 
13   a member, director and manager of Petro Express 
14   Management for the lottery proceeds.  Again, these 
15   points were briefed for the judge by both Mr. Grissom 
16   and myself, which brings us to the next matter. 
17                 Once a hearing has taken place at State 
18   Office of Administrative Hearings and the 
19   administrative law judge has made a recommendation to 
20   the agency in the form of Findings of Fact and 
21   Conclusions of Law, what is the role of the agency in 
22   reviewing these Findings of Fact and Conclusions of 
23   Law? 
24                 And there are standards that are set up 
25   by the Administrative Procedures Act which you were 
0138
 1   briefed on this morning and I heard presentation.  It 
 2   was very thorough.  Basically just briefly, the 
 3   criteria that the administrative law judge did not 
 4   properly apply law or the rules or that there's a 
 5   prior administrative decision which the administrative 
 6   law judge relied on that is in error or incorrect or 
 7   that there is a technical error. 
 8                 And my position is that none of these 
 9   reasons exist to change the administrative law judge's 
10   recommendation.  On the issue of whether the 
11   administrative law judge properly applied or 
12   interpreted the law and rules, my reply would be that 
13   the administrative law judge fully supported her 
14   Findings of Fact with the testimony that occurred in 
15   this hearing. 
16                 The main factual dispute was the effect 
17   that should be given to an undated resolution given to 
18   the commission this year that stated that Mr. 
19   Jongebloed, the vice-president of Petro Express 
20   Management, had verbally resigned from his 
21   son-in-law's company effective three years ago, which 
22   was contradicted by other government documents and 
23   only provided to the commission after 42 thousand in 
24   insufficient funds had been incurred in June of 2002. 
25                 And one fact that is not in dispute is 
0139
 1   that the Lottery Commission was not notified of the 
 2   resignation of Mr. Jongebloed until after the 42 
 3   thousand was removed from Mr. Jongebloed's account, 
 4   even though this resignation has allegedly occurred 
 5   more than two years prior, again, from his 
 6   son-in-law's company. 
 7                 Second, did the ALJ or administrative 
 8   law judge rely on incorrect or administrative 
 9   decisions or one that should be changed?  No.  As you 
10   can see from this slide, the administrative law judge 
11   used a broad spectrum of law to write up the 
12   Conclusions of Law that you made -- that she made in 
13   this Proposal for Decision. 
14                 The last prong of the agency review 
15   concerning whether technical error was made in the 
16   Finding of Fact, and I would argue that Mr. Jongebloed 
17   disagrees with how the administrative law judge 
18   weighed the evidence and applied the law, but this 
19   does not rise to any level of technical error. 
20                 Lastly, Mr. Grissom has continuously 
21   argued that the Texas Tax Code overrides and trumps 
22   the State Lottery Act.  He has tried to argue that the 
23   burden of proof lies with the agency to establish how 
24   much money was actually collected by Mr. Jongebloed 
25   once he denied that he was the responsible party. 
0140
 1                 Our argument and one that the judge 
 2   agreed with was that the credibility of the testimony 
 3   and the evidence established that Mr. Jongebloed was 
 4   an officer or director or manager at the time the 
 5   money was received by Petro Express and therefore, 
 6   under the State Lottery Act, he is personally 
 7   responsible for the full amount of the money held in 
 8   trust for the state. 
 9                 In conclusion, the Proposal for Decision 
10   should be adopted in its entirety and the order 
11   entered based on the facts and law as outlined by the 
12   administrative law judge and recommended in her 
13   Proposal for Decision.
14                 CHAIRMAN CLOWE:  Thank you.  We're going 
15   to give you each a chance to respond briefly.  And 
16   before I do that, I want to ask the commissioners if 
17   they have questions at this time. 
18                 COMMISSIONER OLVERA:  Are the briefs 
19   that were submitted to the administrative judge 
20   incorporated herein, as well? 
21                 MS. WILKOV:  Mine is contained in my 
22   Reply to Petitioner's Objection to Proposal for 
23   Decision.  I pretty much outlined what was in my 
24   original brief. 
25                 COMMISSIONER OLVERA:  Go ahead. 
0141
 1                 CHAIRMAN CLOWE:  Any other questions?  
 2   Mr. Grissom, do you have a comment? 
 3                 MR. GRISSOM:  Yes.  I mean, the -- the 
 4   issue is not necessarily what we need to argue, but 
 5   what is the law in the state.  And when you look at 
 6   the two statutes in the Lottery Code and the Tax Code 
 7   and when the Lottery Code says, stipulates and 
 8   mandates that the monies are to be treated as a tax 
 9   and when the legislature grants the commission the 
10   authority and the power of the Comptroller to enforce 
11   and collect, that does not give them any other power 
12   and authority. 
13                 And that is, in fact, a limitation that 
14   the -- it is a limitation that the commission to -- 
15   power to collect, to enforce only is those granted or 
16   -- originally to the Comptroller and, of course, the 
17   Comptroller in this state has. 
18                 That's all that was transferred to this 
19   commission.  It is our contention -- and she has 
20   stated it well.  Our contention is there has been a 
21   misapplication of the law.  Regardless of how you read 
22   the facts, when you read the record, the facts set out 
23   that it was found by the administrative law judge, you 
24   will find nothing in there that meets the test of -- 
25   even if -- even if you accept all of them as true, 
0142
 1   that even if you -- even if you believed that he knew 
 2   that he was listed as a vice-president, there is 
 3   nothing in that record to reflect that he was active 
 4   in the corporation, that he had any control over it. 
 5                 In fact, the record reflects he did not 
 6   even have signatory power on any -- on check writing 
 7   authority, under check writing authority.  There is no 
 8   evidence that he collected any of these monies or had 
 9   the power to collect.  All of those are essential 
10   under the case law in this state to hold an individual 
11   personally responsible for the actions of -- of the 
12   corporation. 
13                 And I think that's what's important 
14   here.  And that -- and that is the sole issue that 
15   we're dealing with. 
16                 CHAIRMAN CLOWE:  Ms. Wilkov, do you have 
17   a comment? 
18                 MS. WILKOV:  Just briefly.  What he was 
19   talking about is the Texas Tax Code, 111.016, which 
20   does require that the responsible -- that you are 
21   shown to be sufficiently responsible for the 
22   collection and control of such funds. 
23                 That is under the Comptroller's guise.  
24   That's the types of thing that they look to when you 
25   collect sales tax.  That does not apply to the Lottery 
0143
 1   Commission.  Our statute is different.  It does not 
 2   have a provision that we have the burden of proof to 
 3   show that they were sufficiently responsible for the 
 4   collection or control of such funds. 
 5                 That's an additional requirement that 
 6   we're not required to prove. 
 7                 CHAIRMAN CLOWE:  Very good.  Any other 
 8   questions? 
 9                 COMMISSIONER OLVERA:  And Ms. Wilkov, 
10   similar question.  I mean, did you have any further 
11   investigation of his status as a member?  And as a 
12   refresher for the commissioners, a standard 
13   corporation has shareholders, directors and officers. 
14                 An LLC -- correct me if I'm mistaken -- 
15   they substitute the terms of members, managers and 
16   officers.  A member is a shareholder and a manager is 
17   a director.  I mean, it's -- it sounds incredulous 
18   that we don't know what his status is as a shareholder 
19   or as a member. 
20                 I mean, if he's a managing shareholder, 
21   you can't resign.  You either own shares in the 
22   corporation or you don't.  So I'd be interested to 
23   know, I mean, does he still own shares in this 
24   corporation.  I think that's a --
25                 CHAIRMAN CLOWE:  The problem, I think, 
0144
 1   with that question, Commissioner, is it's not in the 
 2   record.  And we're not allowed --
 3                 COMMISSIONER OLVERA:  And I understand 
 4   that.  And I just wanted to confirm that that was not 
 5   addressed in the underlying hearing.  Is that correct?
 6                 MS. WILKOV:  Commissioner, the only 
 7   thing I can comment on that is that Mr. Jongebloed -- 
 8   we did have a long hearing.  It was eight hours or so.  
 9   It was a very long hearing.  He was represented by a 
10   lawyer. 
11                 The only thing is Mr. Jongebloed claimed 
12   not to know much about the business and his son-in-law 
13   basically ran the business.
14                 COMMISSIONER OLVERA:  So that issue 
15   is --
16                 MS. WILKOV:  Financial details were 
17   beyond his --
18                 COMMISSIONER OLVERA:  The only issue was 
19   that he was, quote, a managing member and resigned.  
20   Is that correct?
21                 MR. GRISSOM:  No.  The issue they raised 
22   and the issue in which they -- the basis for which 
23   they took his money was the fact that he was listed as 
24   a vice-president.  The evidence in that record shows 
25   that when they took his money, when he found out about 
0145
 1   it and went back to the commission and that when he 
 2   addressed the commission, that the reason they took 
 3   his money because as the -- and this is from the 
 4   testimony of the collection agent for the commission 
 5   said that he looked on some past reports and saw that 
 6   Mr. Jongebloed was listed as an officer. 
 7                 And on that basis, he did a sweep of 
 8   bank accounts with his name and his social security 
 9   number and found 42 thousand dollars in a bank account 
10   and seized it.  That is the only testimony and the 
11   only basis on which they made and decided to take the 
12   42 thousand was on --
13                 COMMISSIONER OLVERA:  Well, Mr. Grissom, 
14   and I'm just using your term.  I don't know what 
15   managing member means, if that's a 51 percent 
16   shareholder, I don't know.  I'm just guessing.  Was 
17   any issue with respect to, quote, that term used in 
18   the hearing?
19                 MR. GRISSOM:  There was no issue raised 
20   as to whether or not he was an owner at that time.  No 
21   issue was raised at all and there was no questions on 
22   that regard.
23                 COMMISSIONER OLVERA:  All right.  Thank 
24   you.
25                 CHAIRMAN CLOWE:  And you've been with 
0146
 1   this individual from the beginning in these 
 2   proceedings?
 3                 MR. GRISSOM:  I began with this since -- 
 4   since he learned that his money had been taken, I was 
 5   -- I have represented him since that point in time, 
 6   yes, sir. 
 7                 CHAIRMAN CLOWE:  And you -- as we've 
 8   understood, you were present at the lengthy hearing 
 9   and involved --
10                 MR. GRISSOM:  Oh, yes. 
11                 CHAIRMAN CLOWE:  -- from the beginning?
12                 MR. GRISSOM:  Yes, sir.  And we just 
13   believe that the administrative law judge misapplied 
14   the law in this matter.
15                 CHAIRMAN CLOWE:  And I just want to -- I 
16   think Commissioner Cox has a comment or question.  But 
17   I want to make sure we're talking about the same 
18   individual.  There are two different spellings of the 
19   name.  In all of the data presented to us in our 
20   notebooks, it's J-O-N-G-E-B-L-O-E-D. 
21                 Mr. Grissom, in your appearance form, 
22   you spelled J-O-N-G-E-B-L-double-O-D if I read your 
23   writing correctly. 
24                 MR. GRISSOM:  I guess you can't read my 
25   handwriting.  That's my fault that you can't read it, 
0147
 1   but it's B-L-O-E-D. 
 2                 CHAIRMAN CLOWE:  Okay.  Okay.  So it 
 3   is --
 4                 MR. GRISSOM:  It is pronounced "young 
 5   blood."  And I apologize for my handwriting.
 6                 CHAIRMAN CLOWE:  That's all right.  I 
 7   write worse than you do.  I just wanted to make sure 
 8   we were together on that. 
 9                 Commissioner Cox? 
10                 COMMISSIONER COX:  Ms. Wilkov, could you 
11   show us again on the slide as to what our job is on 
12   this hearing?
13                 MS. WILKOV:  Certainly.  It's Texas 
14   Government Code Section 2001.058. 
15                 MR. GRISSOM:  To my knowledge, this is 
16   the first time this issue has ever been presented to 
17   this commission.  We could find no precedent that any 
18   administrative hearings or case law that dealt with 
19   this issue and the Lottery Commission. 
20                 Thank you very much.
21                 COMMISSIONER OLVERA:  Thank you.
22                 CHAIRMAN CLOWE:  Commissioners, did you 
23   have anything further? 
24                 COMMISSIONER OLVERA:  No, I don't have 
25   anything.
0148
 1                 CHAIRMAN CLOWE:  Commissioners, I see 
 2   three possible actions on the part of the commission 
 3   at this point.  General counsel, if you'll assist me 
 4   in this.  One would be to affirm the recommendation of 
 5   the administrative law judge.  The second would be not 
 6   to confirm that.  The third would be to send this back 
 7   for a further hearing. 
 8                 Are there any other options open to this 
 9   board at this time?
10                 MS. KIPLIN:  Well, I think you -- I 
11   think you stated them.  The issue on rejecting the 
12   administrative law judge's decision, you would have to 
13   state in writing your specific reason and legal basis 
14   for the change that you're making in either to the 
15   Finding of Fact or Conclusion of Law. 
16                 And I listened to what both parties have 
17   said and I guess, in my mind, it really comes down 
18   to -- Mr. Grissom's making the argument that the Tax 
19   Code trumps the State Lottery Act in this issue.  And 
20   the administrative law judge, as far as I -- as far as 
21   I can read, says the State Lottery Act is what 
22   prevails. 
23                 And so that's just in my view.  But in 
24   terms of the three approaches, you affirm, you reject, 
25   you state out your reasons.  If you think that there's 
0149
 1   additional evidence that you would like to have 
 2   gathered, then you remand it back for a specific 
 3   purpose that we would tell the State Office of 
 4   Administrative Hearings about why we remanded it back.  
 5                 COMMISSIONER OLVERA:  And that does 
 6   bring up -- that does bring up the key question, Mr. 
 7   Grissom.  Do you have any language in the Tax Code 
 8   that specifically pre-empts?
 9                 MR. GRISSOM:  And I don't believe that 
10   you have to read them inconsistently.  I believe 
11   you're reading 111.016 when it talks about trust 
12   funds, and it says any monies, any monies collected 
13   and not turned over to the State, an individual can be 
14   held personally liable. 
15                 So one -- and then when you look at your 
16   provision, 466.353, it says that, you know, a -- the 
17   individual members or the individuals, participants of 
18   the corporation of the retailer is liable, I don't 
19   believe you have to read those inconsistently.  I 
20   believe you have to take that which says personally 
21   liable to the division -- to the division for the full 
22   amount. 
23                 I think if you take that and then you go 
24   to the Tax Code, okay, then you still have to have a 
25   responsible -- you still have a responsible person and 
0150
 1   that's just not automatic that you then go to some 
 2   kind of analysis, okay?  If this person is a hundred 
 3   percent liable for the full amount, is this a person 
 4   that is active in the company, controls the company, 
 5   writes the checks, or has collected that money? 
 6                 And if he is, he is liable for the full 
 7   amount.  I believe those provisions are consistent.  I 
 8   don't see them as being inconsistent in that regard.
 9                 MS. KIPLIN:  But I would say that's the 
10   same argument Mr. Grissom -- just to make sure the 
11   commission's clear -- that you presented to the 
12   administrative law judge and each party had an 
13   opportunity to brief and she rejected that argument. 
14                 CHAIRMAN CLOWE:  I think we understand 
15   that.  Any further questions or comments from the 
16   commission? 
17                 Is there a motion?  I move the 
18   commission adopt the recommendation of the 
19   administrative law judge.
20                 MS. KIPLIN:  And adopt the Findings of 
21   Fact and Conclusions of Law contained in the Proposal 
22   for Decision.
23                 CHAIRMAN CLOWE:  That's correct.  Is 
24   there a second? 
25                 COMMISSIONER COX:  Second.
0151
 1                 CHAIRMAN CLOWE:  All in favor, say aye. 
 2                 Aye. 
 3                 COMMISSIONER COX:  Aye. 
 4                 COMMISSIONER OLVERA:  Aye. 
 5                 CHAIRMAN CLOWE:  The vote is 3-0 in 
 6   favor. 
 7                 The next item on the agenda where we 
 8   have an appearance is that of Southwest Volunteer Fire 
 9   Department.  And Mr. Jeffrey or Jeffy J. Jones wishes 
10   to make an appearance in regard to that case.  And 
11   that is Docket No. 362-03-1335.B.  This is a motion 
12   for rehearing, I believe. 
13                 MS. KIPLIN:  Yes.  Commissioners, 
14   Ms. Jeffy --
15                 MS. JONES:  Yes.
16                 MS. KIPLIN:  Is that correct?
17                 MS. JONES:  Yes.
18                 MS. KIPLIN:  You are not an attorney.
19                 MS. JONES:  No, I'm not. 
20                 MS. KIPLIN:  Is that right?  And you're 
21   not represented here by an attorney? 
22                 MS. JONES:  No, ma'am.
23                 MS. KIPLIN:  So you're here in a -- in 
24   your own capacity in behalf of the organization?
25                 MS. JONES:  That's correct.
0152
 1                 MS. KIPLIN:  Then I don't know if you've 
 2   been in the room since the beginning of the commission 
 3   meeting or if you heard the remarks that I made 
 4   earlier with regard to the fact that there was a 
 5   record that was made at the State Office of 
 6   Administrative Proceedings, and that's the record that 
 7   I would caution both parties that you must stay 
 8   within, in terms of the information that you want to 
 9   present to the commission. 
10                 And so if you hear something that Ms. 
11   Wilkov is saying that you think is outside that 
12   record, you really do need to say you think it's 
13   outside the record.  And likewise, Ms. Wilkov will say 
14   the same thing regarding the information that you may 
15   bring up. 
16                 And it's because there's a record that's 
17   been created.  That needs to be protected in terms of 
18   what's in that record for purposes of appeal and 
19   review by a District Court judge. 
20                 Do you have any questions that I can 
21   answer for you on that? 
22                 MS. JONES:  No.  I was here and I did 
23   hear it. 
24                 MS. KIPLIN:  Okay. 
25                 MS. JONES:  It -- it's a lot of 
0153
 1   information --
 2                 MS. KIPLIN:  Sure. 
 3                 MS. JONES:  -- for me --
 4                 MS. KIPLIN:  I understand. 
 5                 MS. JONES:  -- to absorb.  So I may step 
 6   over that bounds.  And please, please tell me.
 7                 COMMISSIONER OLVERA:  Just for 
 8   clarification, I notice that Ms. Wilkov made an 
 9   objection.  It's not in our power to either overrule 
10   or sustain that.  It's just a note that we take.  Is 
11   that correct?
12                 MS. KIPLIN:  No.  I think you can 
13   actually say:  "Counsel, she's made an objection and 
14   you need to stop going where you're going."
15                 And I probably should have stepped in to 
16   say:  "Are you going to rule -- are you going to 
17   respond to that objection?"
18                 COMMISSIONER OLVERA:  Well, obviously --
19                 MS. KIPLIN:  Since you didn't --
20                 COMMISSIONER OLVERA:  Obviously, there's 
21   differing points of view.  We can't -- I mean, we 
22   don't have the entire transcript.  And Mr. Grissom's 
23   position at the time was that it was part of the 
24   transcript. 
25                 MS. KIPLIN:  That's right.  And so -- 
0154
 1   and so by your silence, my view is that you went on 
 2   and his arguments were before you and you listened to 
 3   them and you heard them.
 4                 CHAIRMAN CLOWE:  Well, Commissioner, my 
 5   hope is that we can stay within the bounds of the 
 6   transcript, but allow as much latitude as reasonably 
 7   possible.  These hearings, in my opinion, are very 
 8   close to court of law but, in fact, they're a little 
 9   short of that. 
10                 And I have a tendency and I'm eager to 
11   be corrected by you or Commissioner Cox at any time 
12   when you think I'm giving an individual too much 
13   latitude.  I like to make a full record.
14                 COMMISSIONER OLVERA:  My inquiry was 
15   whether procedurally we had to make a ruling on that 
16   objection or not.
17                 CHAIRMAN CLOWE:  And the answer is I 
18   think we probably should? 
19                 MS. KIPLIN:  Probably -- you probably 
20   should.  I don't think it offends the record.  I think 
21   the issues will be -- assuming they're going to 
22   continue to pursue that objection.  And in that case, 
23   I think you got the information and we move forward.
24                 COMMISSIONER OLVERA:  There have been 
25   instances where judges don't make a ruling --
0155
 1                 MS. KIPLIN:  That's --
 2                 COMMISSIONER OLVERA:  -- and the 
 3   subsequent attorneys push them on that, so... 
 4                 MS. KIPLIN:  And as for purposes of 
 5   error on appeal --
 6                 COMMISSIONER OLVERA:  Sure. 
 7                 MS. KIPLIN:  That wouldn't necessarily 
 8   be the case in this situation.  We're just trying to 
 9   protect the record when it goes up for appeal that 
10   it's the record for evidence purposes, not the record 
11   created here because we didn't swear in anybody. 
12                 Ms. Jeffy is here as the respondent.  We 
13   haven't sworn her in to testify and, you know, the 
14   cross-examination, all that direct evidence and direct 
15   exam and cross exam doesn't occur here.
16                 CHAIRMAN CLOWE:  And my sense is, just 
17   to reiterate that, when somebody comes here and 
18   appears before us and wants to have their say, I'd 
19   like for them to leave here feeling that within 
20   correct procedures of the law, we've been responsive 
21   to them and have let them say their peace. 
22                 I think we owe every citizen that.  This 
23   has nothing to do with your case.  We're talking about 
24   the prior case.  I do want to say to you that I saw 
25   you getting out of your car very early this morning 
0156
 1   when I arrived about seven o'clock and you've been 
 2   here a long time before you've had an opportunity to 
 3   make your appearance. 
 4                 We appreciate you coming and being here 
 5   and being patient.  We ask you to state your position 
 6   first and briefly and succinctly if you would, please, 
 7   and we're happy to have you here before us.  
 8                 MS. JONES:  Thanks very much.  My name 
 9   is Jeffy Jones and I am an operator for Country Gold 
10   Bingo and a member of Southwest Volunteer Fire 
11   Department. 
12                 The reason I'm here is to try to get a 
13   rehearing.  It's a motion for rehearing on which we 
14   did miss.  We apologized to everyone for missing that.  
15   It was -- to me, was a failure of communication.  We 
16   were under the understanding that if the violations 
17   were taken care of prior to the hearing, we would not 
18   have to go. 
19                 Unfortunately, you know, we 
20   misunderstood that and we should have went.  At the 
21   hearing, I really can't deny that a lot of the issues 
22   were wrong.  The book work was one of the main issues 
23   and it was wrong.  That was prior to my taking over 
24   and going to the operator training session. 
25                 Afterwards, I -- I have brought our 
0157
 1   books up to compliance.  There was also another issue 
 2   of monies that needed to be redeposited.  Partial of 
 3   the money was redeposited.  The other was redeposited, 
 4   but not until April the 2nd of 2003, which was the day 
 5   before the hearing. 
 6                 So to our understanding, if all of the 
 7   items had been met before the hearing, then we would 
 8   not have the hearing.  But as I said before, that was 
 9   wrong.  You know, we were misinformed.
10                 CHAIRMAN CLOWE:  How long have you been 
11   involved? 
12                 MS. JONES:  I have worked with the 
13   volunteer fire department and the bingo for, I would 
14   say, around 10 years but not in the capacity of the 
15   book work.  I was an usher and a cashier and at one 
16   time a caller.  But I never was involved with the 
17   actual book work until 2001.  January the 1st, 2001 is 
18   when I took over. 
19                 The audit period covered -- I believe it 
20   was April of 2000 through the first quarter of 2001.  
21   And at that time, I was working hard to, you know, 
22   bring everything up into compliance.  And it was prior 
23   to me going to the operator training class.  Which 
24   after attending that, I did --
25                 MS. WILKOV:  I would object to this.
0158
 1                 MS. JONES:  -- learn quite a bit.  I'm 
 2   sorry.
 3                 MS. WILKOV:  A lot of this is outside 
 4   the record.  Obviously, she didn't appear at the 
 5   hearing.  I don't know.  You know, I --
 6                 CHAIRMAN CLOWE:  Oh, she didn't appear 
 7   at the hearing?
 8                 MS. WILKOV:  No.  This --
 9                 CHAIRMAN CLOWE:  That's right.  Nobody 
10   appeared. 
11                 MS. WILKOV:  Yeah.  So --
12                 CHAIRMAN CLOWE:  Okay.  Thank you, 
13   Ms. Wilkov.  I think it's beneficial to the 
14   commissioners to hear as much as we can.  And I 
15   appreciate your patience on this. 
16                 Well, have you read the record? 
17                 MS. JONES:  Yes, sir. 
18                 CHAIRMAN CLOWE:  Do you have anything 
19   further to say that falls within the record? 
20                 MS. JONES:  About the only thing that I 
21   could -- and I'm not really certain, so I'll try to 
22   touch on it and I could be wrong.  There was a certain 
23   amount of monies that was needed to be redeposited and 
24   it -- it was redeposited before the hearing.  And I -- 
25   I guess that's -- I'm not real certain of what all I 
0159
 1   can say and can't say.
 2                 CHAIRMAN CLOWE:  Okay. 
 3                 MS. JONES:  But to my -- to my 
 4   knowledge, we were up to compliance prior to the 
 5   hearing.
 6                 CHAIRMAN CLOWE:  Thank you, ma'am.  
 7   Ms. Wilkov? 
 8                 MS. WILKOV:  Thank you, Commissioners.  
 9   Again, for the record, my name is Penny Wilkov.  I'm 
10   the assistant general counsel for the Texas Lottery 
11   Commission. 
12                 And we're here regarding the motion for 
13   rehearing filed by Southwest Volunteer Fire Department 
14   in this case.  The motion for rehearing is predicated 
15   upon the Proposal for Decision issued by Judge 
16   Borkland on April 30th, 2003, which has recommended 
17   denial of the application of Southwest Volunteer Fire 
18   Department, Inc.'s application for renewal of their 
19   bingo license. 
20                 And this -- the order signed by all 
21   three commissioners approving and adopting the Finding 
22   of Fact and Conclusions of Law was signed on June 
23   30th, 2003.  A motion for rehearing was filed by 
24   Southwest Volunteer Fire Department on July 10th, 2003 
25   requesting you grant the rehearing so that we might 
0160
 1   have the opportunity to present our case, answer any 
 2   questions you might have, and prove that the 
 3   violations that we incurred have been corrected. 
 4                 The first matter to be addressed is 
 5   Southwest Volunteer Fire Department's failure to 
 6   appear at the hearing.  There was a first motion for 
 7   continuance filed on January 23rd which stated that 
 8   per my conversation with Roy Gabrillo on 1/23/03, the 
 9   board is in agreement with this motion due to pending 
10   information.  This motion was not opposed by the 
11   commission. 
12                 Southwest Volunteer Fire Department 
13   filed their second motion for a continuance with the 
14   State Office of Administrative Hearing at 3:35 the day 
15   before the hearing stating that per my conversation on 
16   April 2nd, 2003 with Sandra -- Sandra Garcia of Texas 
17   Lottery Commission in San Antonio, the board is in 
18   agreement with this motion due to pending information. 
19                 Now Ms. Sandra Garcia, an auditor from 
20   the San Antonio region, and the one who was in contact 
21   with the organization and then who is present today at 
22   my right, testified that there was no agreement and 
23   that she had confirmed with the organization that the 
24   hearing would be held on April 3rd, 2003. 
25                 Ms. Garcia also testified that when she 
0161
 1   reminded Mr. Sullivan, the primary operator of 
 2   Southwest Volunteer Fire Department, of the upcoming 
 3   hearing, that he told her that he had a real job and 
 4   he wouldn't show up at the hearing.  Meanwhile, two 
 5   witnesses have traveled from San Antonio, Ms. Garcia 
 6   and a security investigator, Marcos Martinez, with the 
 7   Security Department. 
 8                 Since the commission employees did not 
 9   agree to the second continuance and the second 
10   continuance did not state what the judge considered 
11   good cause, second continuance was denied. 
12                 After the Proposal for Decision was sent 
13   by the administrative law judge, Southwest Volunteer 
14   Fire Department filed exceptions with the commission.  
15   A letter was sent notifying the organization that the 
16   exceptions would be considered at the June 30th 
17   meeting of the commission.  And again, Southwest 
18   Volunteer Fire Department failed to appear. 
19                 Which leads us to today's motion to 
20   request a rehearing.  The violations that were alleged 
21   and proved are very serious.  It involves maintaining 
22   numerous bank accounts into which bingo funds were 
23   deposited, even though the Bingo Enabling Act clearly 
24   states that a licensed organization shall establish 
25   and maintain one regular checking account designated 
0162
 1   as the bingo account. 
 2                 The violation involved underreporting 
 3   prizes, not properly maintaining records, failing to 
 4   make deposits, comingling funds, failing to list 
 5   workers, purchasing from an unlicensed distributor and 
 6   many more violations, as you can see. 
 7                 These are very serious because it shows 
 8   a conscious disregard of the law.  Now in the 
 9   exceptions that they filed, they had numerous excuses 
10   given for these violations such as we made a mistake, 
11   we were using three separate accounts, the violations 
12   occurred prior to my taking over the books, etcetera. 
13                 Back in my prior life as a municipal 
14   court judge, we used to call this guilty with an 
15   explanation.  But they've already had their 
16   opportunity to offer their explanations.  The motion 
17   for rehearing process shouldn't be the means and 
18   method to offer the explanation.  The hearing should 
19   be the opportunity when the commission has the 
20   documents and the witnesses available to go over these 
21   kinds of issues. 
22                 What are the responsibilities of the 
23   commission?  The responsibility of the commission is 
24   to ensure that due process is afforded to each 
25   organization licensed by the commission, which 
0163
 1   includes giving notice and opportunity for a hearing 
 2   and having at the hearing the witnesses and evidence 
 3   available. 
 4                 My argument on this matter, 
 5   Commissioners, is that it shouldn't be the precedent 
 6   that these bingo organizations do not have to show up 
 7   at a hearing and give their side of the case and then 
 8   later come in front of the commission and plead for 
 9   another chance.  The commission employees shouldn't 
10   have to try every case twice, once when the 
11   organizations decide to show up and once when they 
12   realize that they should have. 
13                 Should I send my witnesses back to San 
14   Antonio, Dallas, Houston, every time the other side 
15   doesn't appear? 
16                 CHAIRMAN CLOWE:  I think you've made the 
17   point. 
18                 MS. WILKOV:  Okay.  Thank you.  And in 
19   conclusion, Southwest Volunteer Fire Department has 
20   failed to appear on several occasions.  The 
21   allegations against this organization were serious and 
22   warrant the denial of their application for a license.   
23   Thank you. 
24                 CHAIRMAN CLOWE:  Thank you.  Questions? 
25                 COMMISSIONER COX:  Is there anything 
0164
 1   that would keep the Southwest Volunteer Fire 
 2   Department from applying for another bingo license?
 3                 MS. WILKOV:  They may -- if this motion 
 4   for rehearing was not granted and it became a final 
 5   order, then they would have to wait a year before they 
 6   could reapply.
 7                 COMMISSIONER COX:  But after one year 
 8   they could apply?
 9                 MS. WILKOV:  That's correct.  
10                 COMMISSIONER COX:  And then they could 
11   grant them another license?
12                 MS. WILKOV:  That's correct. 
13                 CHAIRMAN CLOWE:  Ms. Jones, have you 
14   read the Proposal for Decision that was issued by the 
15   administrative law judge?
16                 MS. JONES:  Yes, sir. 
17                 CHAIRMAN CLOWE:  So you have seen on 
18   pages two and three under the proposed Findings of 
19   Fact items one through 20 which goes on to page four, 
20   which lists the violations of the organization?
21                 MS. JONES:  Yes, sir.
22                 CHAIRMAN CLOWE:  So you're aware of 
23   those?
24                 MS. JONES:  Yes, sir.  I'm not in 
25   complete agreeance with some of them.  But since I was 
0165
 1   not at the hearing, I didn't know if I should address 
 2   those now because that's not in the hearing papers 
 3   because we did fail to go.
 4                 CHAIRMAN CLOWE:  Well, actually it is in 
 5   the -- in the transcript or it wouldn't be in the 
 6   Proposal for Decision. 
 7                 MS. JONES:  Okay.  Then if I could 
 8   address a couple of them.  One of them is the fact of 
 9   the -- when I applied for a continuance, I did speak 
10   with Ms. Garcia on the 2nd.  And at 3:35, I did call 
11   her and tell her that I had applied for the 
12   continuance.
13                 CHAIRMAN CLOWE:  That's not what I'm 
14   talking about.
15                 MS. JONES:  Okay.  I'm sorry.
16                 CHAIRMAN CLOWE:  The violations of the 
17   organization.
18                 MS. JONES:  Okay.  So -- okay.  On -- as 
19   far as the monies is concerned, after further 
20   investigation, I do believe that there was an error 
21   made in the audit and I -- I once again, I don't 
22   really know if I can bring this in, but if I can't 
23   then just please stop me.
24                 But I've always balanced my checking 
25   account to my bank statement and I found that to be 
0166
 1   correct.  Because all this going on, I did balance the 
 2   quarterly report.  This past quarter, I balanced it.
 3                 CHAIRMAN CLOWE:  You have since you've 
 4   come in? 
 5                 MS. JONES:  Yes.  Well, since -- it was 
 6   our -- the past quarter.  So it would be the second 
 7   quarter.  I balanced it and I did find that according 
 8   to the figures on the quarterly report, we should be 
 9   at a negative six thousand in our bank account when, 
10   in fact, we did have 12 -- over 12 thousand in the 
11   bank account, which indicates there's an 
12   18-thousand-dollar mistake, which could be my fault, 
13   you know, my figuring or it could have been in the 
14   figuring of the audit.
15                 CHAIRMAN CLOWE:  I appreciate the fact 
16   that you're here today and that you have stated what 
17   your hope is regarding the job that you've been doing 
18   since you've taken over that responsibility. 
19                 On the other hand, this list of 
20   violations, which may have occurred prior to your 
21   being involved, is extensive.  And I see it as the 
22   responsibility of the commission -- certainly don't 
23   want to put people out of the business of conducting 
24   bingo.  That's not one of the goals that we have. 
25                 But on the other hand, this is licensed 
0167
 1   by the State of Texas and there are rules that apply.  
 2   And it's like so many other things.  It's like driving 
 3   an automobile.  When you get a driver's license, you 
 4   must comply with the rules concerning operation of a 
 5   motor vehicle.  And if you don't comply with those 
 6   rules, then there are penalties which are applied. 
 7                 And it's a grave concern to me to see 
 8   this list of 20 violations.  It's not the kind of 
 9   performance that, as a commissioner, I feel is 
10   acceptable for an operation, a unit conducting bingo.  
11   I just want to say that in anticipation of my 
12   feelings, I want you to know the concern I have about 
13   it. 
14                 Are there any questions or comments, 
15   Commissioners? 
16                 COMMISSIONER OLVERA:  No, Mr. Chairman. 
17                 CHAIRMAN CLOWE:  Commissioners, I 
18   believe this motion would be either to affirm the 
19   recommendation of the administrative law judge or just 
20   for --
21                 MS. KIPLIN:  Commissioners, can I -- can 
22   I --
23                 CHAIRMAN CLOWE:  -- reconsideration.  Is 
24   that it?
25                 MS. KIPLIN:  Sure.  What's -- 
0168
 1   procedurally, they file a motion for rehearing.  And 
 2   so what's before you is either to grant the motion for 
 3   rehearing or overrule the motion.
 4                 CHAIRMAN CLOWE:  Or overrule it?  It's 
 5   up or down?  And then do we have another vote 
 6   depending on the outcome of that vote on the 
 7   recommendation?
 8                 MS. KIPLIN:  No.  It's either to --
 9                 CHAIRMAN CLOWE:  It's been signed and -- 
10                 MS. KIPLIN:  That's right.  This is 
11   beyond the State Office of Administrative Procedures 
12   area.  It's here on a motion for rehearing and it's 
13   either to grant or to overrule the motion for 
14   rehearing. 
15                 CHAIRMAN CLOWE:  All right.  And then 
16   let me ask:  If the commission votes not to grant the 
17   motion for a rehearing, what occurs?
18                 MS. KIPLIN:  At this point if you 
19   overrule the motion for rehearing, you would sign an 
20   order to that effect.  That order would be served on 
21   the parties.  The respondent, the one who filed the 
22   motion for rehearing, would have an opportunity to 
23   seek judicial review, would need to file a lawsuit 
24   here in Travis County District Court within 30 days of 
25   notice of the order overruling the motion for 
0169
 1   rehearing. 
 2                 At that point, there would be a signed 
 3   -- it's on the central docket.  Commissioner Olvera, 
 4   it's on the central docket.  So it would eventually 
 5   get to a judge who would hear on what's called the 
 6   substantial evidence review.  And what that --
 7                 CHAIRMAN CLOWE:  Okay.  But that's 
 8   really --
 9                 MS. KIPLIN:  I'll stop. 
10                 CHAIRMAN CLOWE:  Is the organization 
11   conducting bingo now?
12                 MS. KIPLIN:  I imagine that they are 
13   conducting bingo because the order is not final until 
14   you overrule the motion for rehearing.
15                 CHAIRMAN CLOWE:  So they are conducting, 
16   we'll assume.  And if the commission -- it's either 
17   grant or deny the motion.
18                 MS. KIPLIN:  To grant or overrule.  And 
19   once the motion for rehearing -- the order is provided 
20   to the parties, then they can't -- they can't --
21                 CHAIRMAN CLOWE:  I don't think it's 
22   overrule.  I think it's grant or deny.
23                 MS. KIPLIN:  No, sir.  It's overrule. 
24                 CHAIRMAN CLOWE:  She won't -- she won't 
25   say it, but --
0170
 1                 MS. KIPLIN:  No, sir.  I'm sorry.  It 
 2   is -- that's actually the word that's used in the 
 3   Administrative Procedure Act. 
 4                 CHAIRMAN CLOWE:  Okay.  I'll defer it to 
 5   you, Counselor. 
 6                 MS. KIPLIN:  It's overrule. 
 7                 CHAIRMAN CLOWE:  Can I call on Mr. 
 8   Sanderson -- is that within the scope of the 
 9   transcript -- for any comment he may have?
10                 MS. KIPLIN:  Stay within the record.   
11                 CHAIRMAN CLOWE:  Or you will be 
12   punished.
13                 MR. SANDERSON:  Well, I was not at the 
14   hearing.  So I don't know what all was in -- what all 
15   was in the record.  I guess the question that you're 
16   asking me is on the notice of what they've received, 
17   as far as the ability to attend the hearing and the 
18   chances that they've had and whether or not to 
19   overrule or accept the motion for rehearing.  
20                 Is that the -- did I understand your 
21   question? 
22                 CHAIRMAN CLOWE:  They received full and 
23   proper benefit of the procedures that we are to follow 
24   in regard to the audit, the notification.  There was 
25   no shortcoming on the part of division insofar as your 
0171
 1   knowledge in this procedure? 
 2                 MR. SANDERSON:  Yes, sir.  That is 
 3   correct.  They received the written notice that they 
 4   were going to conduct the hear -- the audit.  We got 
 5   the records, performed the audit.  They had an exit 
 6   conference.  They had ample time to come into 
 7   compliance before we finally did the notice of denial. 
 8                 And, of course, that ran its course.
 9                 CHAIRMAN CLOWE:  Any other question or 
10   comments? 
11                 COMMISSIONER COX:  No.
12                 CHAIRMAN CLOWE:  Commissioners, it's 
13   either, I think, grant or withhold, overrule. 
14                 Is there a motion?
15                 COMMISSIONER COX:  Mr. Chairman, I move 
16   we overrule. 
17                 COMMISSIONER OLVERA:  Second.
18                 CHAIRMAN CLOWE:  All in favor, please 
19   say aye. 
20                 COMMISSIONER COX:  Aye. 
21                 COMMISSIONER OLVERA:  Aye. 
22                 CHAIRMAN CLOWE:  Aye.
23                 Opposed, no. 
24                 The vote is 3-0 in favor. 
25                 Thank you.  Thank you for coming. 
0172
 1                 MS. JONES:  Thank you. 
 2                 CHAIRMAN CLOWE:  Counselor, let's go on 
 3   to the uncontested dockets or cases that we have 
 4   before us and finish those.  It's my intention to hear 
 5   from two public witnesses who have filed a witness 
 6   affirmation form under the public comment section of 
 7   our agenda prior to suggesting by motion that the 
 8   commission go into executive session. 
 9                 And that will leave the report of the 
10   executive director and the assistant director of 
11   bingo, Charitable Bingo Operations until after we 
12   return.  Are you-all okay with that?
13                 MR. GREER:  Yes, sir. 
14                 MR. SANDERSON:  Sure.
15                 CHAIRMAN CLOWE:  Okay.  Thank you.  Kim, 
16   would you take us through these, please?
17                 MS. KIPLIN:  Yes, sir.  I'll be happy 
18   to.  Specifically, we're looking at Item 24, Letters B 
19   through I.  Commissioners, these are all lottery 
20   cases.  In each one of these cases that was presented 
21   at the State Office of Administrative Hearings, the 
22   administrative law judge entered an order in each one 
23   of these dockets recommending revocation for the 
24   license. 
25                 In all but H, it was based on 
0173
 1   insufficient funds at the time that we swept the 
 2   account.  On Item H, the Step N Go matter, the records 
 3   revealed that the licensee was out of business.  And 
 4   so we revoked the license. 
 5                 With that, the staff does recommend that 
 6   you vote to adopt the administrative law judge's 
 7   Proposal for Decision and Orders in each of these 
 8   cases revoking the licenses.
 9                 CHAIRMAN CLOWE:  So under Item No. 14 on 
10   the agenda, that would apply to cases listed by letter 
11   B through I?
12                 MS. KIPLIN:  Yes, Item 24?  On 
13   consideration of the status and possible entry of 
14   orders.
15                 CHAIRMAN CLOWE:  Any questions or 
16   comments on this?  Is there a motion?
17                 COMMISSIONER OLVERA:  So moved.
18                 COMMISSIONER COX:  Second.
19                 CHAIRMAN CLOWE:  All in favor, please 
20   say aye. 
21                 COMMISSIONER COX:  Aye. 
22                 COMMISSIONER OLVERA:  Aye. 
23                 CHAIRMAN CLOWE:  Aye. 
24                 Opposed, say no. 
25                 The vote is 3-0 in favor. 
0174
 1                 We'll take a minute to sign these 
 2   orders.  And then under the public comment section of 
 3   our agenda, I'm going to call on the individuals who 
 4   have asked to appear in the order it was handed to me. 
 5                 First is Mr. Joe Garcia.  Joe, will you 
 6   come up? 
 7                 MR. GARCIA:  Good afternoon.  Thank you 
 8   for the opportunity.  And I'll be very brief.  I just 
 9   want to bring up two issues in regards to -- and 
10   Judge, welcome to the Lottery Commission. 
11                 COMMISSIONER OLVERA:  Thank you. 
12                 MR. GARCIA:  We're looking forward to 
13   working with you. 
14                 My name is Joe Garcia and I represent 
15   Trend Gaming, which is a licensed bingo distributor 
16   and we mostly distribute the electronic card-minding 
17   devices here in Texas. 
18                 Last month, y'all adopted the 
19   card-minding rules, 402.555.  And there are two issues 
20   of concern that we addressed in our public comments to 
21   the -- to the commission, but were not taken into 
22   consideration.  However, what I -- and one -- one of 
23   the issues was not particularly addressed in the 
24   rules. 
25                 However, I want to -- I want to say that 
0175
 1   Billy and Mr. Sanderson and Homer have all been very 
 2   willing to work with us on the interpretation of the 
 3   rules.  There is some question, but let me go -- let 
 4   me outline the first issue. 
 5                 The first issue in 402.555 that we have 
 6   a concern with is the listing of the -- of the serial 
 7   numbers of the cards in sequential order on the 
 8   receipts.  As you know, a player can come in and buy 
 9   bingo to play on the electronic card-minding devices 
10   up to 66 cards per game. 
11                 And we think that, given the way the 
12   rule is being interpreted, that that would make our -- 
13   some of the manufacturers that we do business with 
14   have to print a receipt that's probably going to be a 
15   foot long in order to list all the sequential order of 
16   the serial numbers. 
17                 One of the things that we look at is in 
18   the paper.  If you look at a six-on pack here, even 
19   the paper is not in sequential order.  They're done in 
20   groupings.  And we think -- we've kind of expressed 
21   this to Homer and Phil Sanderson and we are working 
22   through it, but I -- it's important enough for my 
23   client that he would like for us to just bring it to 
24   your attention. 
25                 The second issue is in regards to the 
0176
 1   entire new card-minding rule that was adopted by the 
 2   commission.  There are some manufacturers, current 
 3   manufacturers that are approved in Texas that operate 
 4   under the old existing card-minding device rules and 
 5   there are new manufacturers that are interested in 
 6   applying in Texas, and one is in the licensing 
 7   process, that are concerned that there's going to be 
 8   two levels of regulatory structures here where you 
 9   have pre, I guess, August 26th rules of card-minding 
10   systems that are approved and post August 26th 
11   card-minding rules. 
12                 We believe and the manufacturers that 
13   are interested in coming to Texas believe that 
14   everyone should be on the same rules that were passed 
15   and adopted by the commission.  And we believe that it 
16   would give an unfair advantage.  And part of the 
17   reason for the new rule is technology is ever-changing 
18   and secondly, the integrity of the game. 
19                 There was a manufacturer in another 
20   state that a system was sort of, I guess, broken into 
21   or manipulated in a way that -- by players.  And part 
22   of those new rules are to try to prevent that.  And we 
23   think that if that is the premise and some of the 
24   elements of the new rules, then we think every 
25   manufacturer should apply to that same standard, and 
0177
 1   that's post -- adopting the rules of August 26th, 
 2   2003.
 3                 MS. KIPLIN:  And Commissioners, this is 
 4   where I have to jump in and say that I've looked at 
 5   the agenda.  I don't see any item on the agenda that 
 6   would -- will allow for a deliberation by the 
 7   commission.  So this falls under a particular section 
 8   of the Open Meetings Act, 551.042, which is he's come 
 9   forward and he's stated specific comment, but you are 
10   precluded from deliberating other than to decide 
11   whether you want to put this on a future meeting 
12   agenda item in a future meeting or to respond -- 
13   assuming there's specific factual information, give 
14   him a response to his inquiry or a recitation of 
15   existing policy in response, which I don't think at 
16   this point those -- those would apply.
17                 So you're -- you're actually precluded 
18   from moving forward in terms of deliberating.
19                 CHAIRMAN CLOWE:  Joe, you know the APA 
20   as well as we do.
21                 MR. GARCIA:  And I'm not here to ask for 
22   any action.  I'm just -- we think it's important 
23   enough an issue that we just wanted to make a general 
24   comment about the issue to you, the commissioners, and 
25   also say that we are working with the Charitable Bingo 
0178
 1   Division on these issues.  But we just wanted to make 
 2   you aware of it.
 3                 CHAIRMAN CLOWE:  And that's the purpose 
 4   of this general comment period. 
 5                 MR. GARCIA:  Exactly. 
 6                 CHAIRMAN CLOWE:  And we're delighted 
 7   that you've done this and you understand --
 8                 MR. GARCIA:  Right.
 9                 CHAIRMAN CLOWE:  -- where we are.  And 
10   if at any time an item comes up that you want 
11   deliberation on, if you'll contact the general 
12   counsel, we'll be glad to review it --
13                 MR. GARCIA:  Right. 
14                 CHAIRMAN CLOWE:  -- and see if we can 
15   put it on the agenda. 
16                 MR. GARCIA:  Well, we thank you.
17                 CHAIRMAN CLOWE:  We thank you.
18                 COMMISSIONER OLVERA:  Thank you, Mr. 
19   Garcia.
20                 CHAIRMAN CLOWE:  Next, Ms. Dawn Nettles 
21   has asked to appear before the commission.  Good 
22   morning. 
23                 MS. NETTLES:  Good morning, 
24   Commissioners and new commissioner. 
25                 COMMISSIONER OLVERA:  Good morning.  
0179
 1   Thank you. 
 2                 MS. NETTLES:  For the record, my name is 
 3   Dawn Nettles and I'm with the Lotto Report out of 
 4   Dallas.  And I just came today to -- I have a few 
 5   comments and a few questions that I would like to ask.  
 6   And in the event that I come up with a question that 
 7   you can't answer because of the open meetings rules or 
 8   whatever, then I am going to ask that it be put on the 
 9   agenda for a future date, if you don't mind. 
10                 Basically, I just have some comments and 
11   then just a few questions.  But since Mr. Greer 
12   covered the LEDs a little bit ago, I had a quickie 
13   question on that one that was not on the original 
14   list.  If I understood correctly, you're buying 8000 
15   LEDs to -- for the retailers. 
16                 And my question is:  Last year when the 
17   Gtech redid their contract or whatever it was, there 
18   was a big press release and to-do about how all the 
19   terminals would have these readings on them.  And then 
20   as I started searching, I could not find those LEDs -- 
21   and the retailers stated at that time that they had to 
22   purchase those LEDs. 
23                 Is that correct?  And if so --
24                 CHAIRMAN CLOWE:  Ms. Nettles, let me -- 
25   let me try to clarify for you the purpose of this 
0180
 1   section of our agenda.  It is for members of the 
 2   public who want to make a statement to a specific 
 3   subject to have that opportunity. 
 4                 It is not a discussion period and it's 
 5   not a question-and-answer period. 
 6                 MS. NETTLES:  Okay. 
 7                 CHAIRMAN CLOWE:  So we're not going to 
 8   enter into questions and answers during this time.
 9                 MS. NETTLES:  Okay. 
10                 CHAIRMAN CLOWE:  We're going to invite 
11   you to make comments to us.  Be brief, but state 
12   things that are of interest to you and the commission.  
13   And then as we've said, if there's something that's 
14   substantive in nature, we'll consider it for a future 
15   agenda item.
16                 MS. NETTLES:  I was just curious on 
17   that, Commissioner.
18                 CHAIRMAN CLOWE:  Okay.  And you 
19   understand that we just -- we'd never end our meetings 
20   if we had discussion periods.
21                 MS. NETTLES:  Well, I wasn't going to 
22   discuss.  I was just trying to find out about the --
23                 CHAIRMAN CLOWE:  And then same thing --
24                 MS. NETTLES:  That's okay. 
25                 CHAIRMAN CLOWE:  -- about questions and 
0181
 1   answers. 
 2                 MS. NETTLES:  Okay.  Okay.  What another 
 3   -- something happened to me up here last week that I 
 4   did want to bring to your attention.  And I've decided 
 5   to wait until today to bring it to your attention 
 6   before I move forward on it. 
 7                 Last week, y'all had a winner come in 
 8   and collect the 47-million-dollar jackpot.  And while 
 9   I had obtained the documents from the Comptroller's 
10   office and I knew the numbers and all, I wasn't going 
11   to ask any questions about the new policy and 
12   procedures that the commission has enacted with regard 
13   to paying these until it was official. 
14                 So the day that the gentleman was here 
15   or the couple was here to get their money, I noticed 
16   that they received 2.9 million dollars down with 
17   yearly payments of 1.9 million.  I called the 
18   commission to simply ask how did the commission -- 
19   what was the new policies and procedures to determine 
20   how much is the initial payment, how much to invest. 
21                 I called Tia Pair two or three times and 
22   several -- and I forgot the new guy's name in the -- 
23   the financial manager or whatever.  And I made several 
24   inquiries.  And finally, I was told that I would have 
25   to make an open records request.  I don't have a 
0182
 1   problem making an open records request, but I was 
 2   simply asking a question about your policies and 
 3   procedures. 
 4                 There are no documents that I know to 
 5   request.  And I felt like that was a general public 
 6   question to say:  Hey, how do you determine what the 
 7   initial payment is and how much to invest on behalf of 
 8   the winner?  We know he's getting a percentage of the 
 9   sales.  How did y'all decide how much to invest? 
10                 And I couldn't get an answer.  And is 
11   there any way I can get an answer to that one little 
12   question?
13                 CHAIRMAN CLOWE:  Reagan, can you work 
14   with Ms. Nettles?
15                 MR. GREER:  Yes. 
16                 MS. NETTLES:  So what, call Reagan?
17                 CHAIRMAN CLOWE:  Yes.  He'll work with 
18   you on that. 
19                 MR. GREER:  I'll defer to counsel.
20                 MS. NETTLES:  Well, they wouldn't answer 
21   me.
22                 CHAIRMAN CLOWE:  We'll get an answer. 
23                 MS. NETTLES:  Okay.  Okay.  Thank you.  
24   That's fine. 
25                 Then yesterday -- I didn't intend to 
0183
 1   bring this up, but yesterday on the way down here I 
 2   stopped in Red Oak to purchase gas at a Racetrac.  And 
 3   while I'm -- usually anywhere I'm traveling outside of 
 4   the area, I always go check out the stores. 
 5                 And it turns out that I got there right 
 6   behind the Gtech rep.  And the Gtech rep had just left 
 7   the Winning Tickets Remaining Sheet.  And what my 
 8   comment on it is is that it's dated August the 16th.  
 9   And that was September the 10th.  And I was just 
10   hoping in some way this commission would find a way to 
11   keep the people more current than this information 
12   that's this old on the remaining tickets. 
13                 Also, I have been told by someone, I 
14   forget who, that there was a new policy or that Gtech 
15   reps or somebody puts a yellow dot on the play 
16   stations indicating that all those winning tickets are 
17   sold.  And I've been watching for that several months 
18   and I've not ever seen them.  And I was wondering when 
19   that was going to be implemented and if there wasn't 
20   something we could do to try to get this information 
21   more current for the people.  Okay?
22                 Back to the terminal.  This is an issue 
23   that I brought up several months ago with regard to 
24   the terminals erring as they're checking tickets.  
25   Several weeks ago, I went into a store and the store 
0184
 1   owner caught me just immediately as I walked in the 
 2   door.  And he said, "Dawn, did you know that the 
 3   terminals err?"  And I had never discused it with him. 
 4                 And I said "Well, yeah."  And he said, 
 5   "Well, you mean they really do?"  He said, "This is 
 6   what just happened to me."  He said "You just missed 
 7   this lady.  She brought in her tickets last night and 
 8   she had us check them.  And she had me check them.  It 
 9   was yesterday.  And she just came back and told me, 
10   brought the tickets back and said 'I have a 
11   four-of-five winning Cash 5 ticket' and it read that 
12   it was not a winning ticket." 
13                 And he said "I was shocked because I 
14   checked the ticket."  And he said "Sure enough, I took 
15   it back to my terminal and I ran it through again.  
16   And this time it came back as a winning ticket." 
17                 And he said "She is a really good 
18   customer.  You know how that makes me look."  And I 
19   said "Yes, I do."  I said "That's a major problem that 
20   I have." 
21                 Well, when I brought this up several 
22   months ago in the commission meeting and I had such a 
23   ticket, the commission -- I believe Mike determined 
24   that that ticket had been run through twice.  Well, 
25   this is such a simple problem for the commission. 
0185
 1                 And it would behoove the commission to 
 2   address this problem because there's so many people 
 3   out there that allow retailers to check their tickets 
 4   and then the terminals do err.  On your own Web site, 
 5   you have -- you address this issue and tell people 
 6   that these things happen for a reason. 
 7                 And I really seriously sincerely believe 
 8   that the unclaimed prize fund is as high as it is 
 9   because the terminals err.  Granted, the clerks also 
10   run the tickets through and cause this problem.  I 
11   would really like for the commission to address this, 
12   if you would, in one way or another to protect the 
13   people. 
14                 I want to bring you up to date on the 
15   MegaMillions deal.  This is not a comment, just a 
16   simple -- because y'all know that I follow the sales.  
17   And since you haven't entered into an agreement, this 
18   is something that you promised me that you were going 
19   to take care of, so I wanted to --
20                 CHAIRMAN CLOWE:  I'm not sure this is a 
21   proper subject for you to address the commission on.  
22   We had a period of public input and that period has 
23   now closed.  And we've authorized the executive 
24   director to negotiate that.  I think your remarks are 
25   more properly addressed to him than to the 
0186
 1   commissioners. 
 2                 MS. NETTLES:  Well, no, sir.  It's not 
 3   what this is about.  All I was going to do was let the 
 4   commission know what certain state haves done.  This 
 5   is just news.
 6                 CHAIRMAN CLOWE:  And I -- and I would 
 7   reiterate.  I don't think that's a proper subject with 
 8   the commissioners.  I think you should address that to 
 9   Reagan Greer. 
10                 MS. NETTLES:  Oh, okay.  Okay.  Well, I 
11   think that's kind of sad since the states won't give 
12   public information to the people.
13                 CHAIRMAN CLOWE:  I think you need to 
14   address that to him.
15                 MS. NETTLES:  Okay.  I want to ask 
16   another question.  And this is something that I'm sure 
17   y'all might get angry at or whatever.  You shouldn't.  
18   I'm curious about Kim Kiplin.  Kim, are you the 
19   attorney for the State of Texas, are you the attorney 
20   for the commission, or are you an attorney --
21                 CHAIRMAN CLOWE:  Ms. Nettles, let me 
22   interrupt you.  I'm sorry I have to do that, but this 
23   is not a question-and-answer period.
24                 MS. NETTLES:  Okay. 
25                 CHAIRMAN CLOWE:  It's just not proper.
0187
 1                 MS. NETTLES:  I was just trying to 
 2   figure out who her client was.
 3                 CHAIRMAN CLOWE:  Well, I think you're 
 4   going to have to deal with her on that issue.  And 
 5   it's not a proper subject under this agenda item for 
 6   the commissioners.
 7                 MS. NETTLES:  Okay.  Okay.  Well, then 
 8   that's the end of my conversations.  That's all I 
 9   wanted to know is who her client was.
10                 CHAIRMAN CLOWE:  Okay. 
11                 MS. NETTLES:  I respect that.
12                 CHAIRMAN CLOWE:  All right.  Thank you 
13   very much. 
14                 MS. NETTLES:  You have a nice day. 
15                 CHAIRMAN CLOWE:  Thank you, ma'am.  And 
16   you, too. 
17                 COMMISSIONER OLVERA:  Thank you.
18                 CHAIRMAN CLOWE:  I've been notified that 
19   other individuals who are going to deliberate with the 
20   commissioners and give them information during 
21   executive session are not here.  Am I correct in that? 
22                 Therefore, we will go back to the agenda 
23   as it was originally intended and hear from the 
24   executive director and the assistant Charitable Bingo 
25   Division director at this time.  
0188
 1                     AGENDA ITEM NO. 25
 2                 MR. GREER:  Great.  Thank you, Mr. 
 3   Chairman.  I do have a number of issues that I want to 
 4   touch on today.  First under the agenda item FTE 
 5   status as part of what I am allowed to speak to in 
 6   this particular scenario, and I wanted to reinforce 
 7   the fact that we are now managing 325 employees. 
 8                 During the 78th Legislative Session, the 
 9   agency's FTE, full-time equivalent employee staff, was 
10   reduced from 335 to 325.  And this change took effect 
11   on September the 1st.  So we are now working within 
12   that 325 structure. 
13                 Executive management from Lottery and 
14   Bingo met to determine where the positions would be 
15   reduced.  It was agreed that of the 10 reduced FTE 
16   positions, nine would come from Lottery and one from 
17   Bingo.  In order to maximize flexibility for the 
18   agency under this reduced FTE cap, the agency will be 
19   managing FTEs differently than we did in the past. 
20                 Rather than identifying exactly 325 
21   positions filled or to be filled, the Human Resources 
22   Division -- and Jim is here somewhere.  There he is 
23   back there to help answer questions as they come up.  
24   The Human Resources Division will assist the agency in 
25   ensuring that no more than 325 full-time equivalent 
0189
 1   employees are on staff at any given time. 
 2                 The Human Resources Division has 
 3   verified that the current reporting requirements for 
 4   compliance with the FTE cap is met by head count of 
 5   filled positions during the quarterly reporting time 
 6   frame.  Although the charts in your notebook today may 
 7   indicate a total number of active or available 
 8   positions greater than 325, we will be diligent in 
 9   ensuring that no more than 325 full-time employees are 
10   on the payroll at any point.  So I just wanted you to 
11   be aware of that particular issue. 
12                 I sent out a press release on Monday, 
13   had good response across the state identifying the 
14   fact that we had a good year in FY '03 with a more 
15   than five percent increase in our sales overall.  Tony 
16   mentioned in her report that we did 3.13 billion, 
17   which is a 5.53 percent jump over the previous year of 
18   2.966. 
19                 I wanted to go on the record.  I wanted 
20   to reinforce to you that 955.2 million dollars was 
21   transferred to the State.  888.1 million went into the 
22   Foundation School Fund.  And 67 million went into the 
23   Multicategory Categorical Teaching Hospital and 
24   Tertiary Care Facility Accounts. 
25                 I think it's also worth noting, 
0190
 1   especially for Commissioner Olvera, the way the 
 2   breakdown was.  2.1 billion in instant tickets, which 
 3   is a 10.3 percent increase over '02. 
 4                 Cash 5 accounted for 141 million in 
 5   sales, 15.9 percent more than a year ago. 
 6                 Pick 3 with two daily drawings posted 
 7   sales of 261.3 million, which is a 10.5 percent 
 8   increase over the prior year. 
 9                 Lotto Texas sales came in at 526.3 
10   million, which was an 11.4 percent drop over the year 
11   before. 
12                 Texas Two-Step, which launched a new way 
13   of doing things in May of 2001, brought in 72.4 
14   million in its second full year of operation, which 
15   was also a drop of 12.8 percent. 
16                 The key elements to that -- and I 
17   reinforced it with the handout that I just gave you -- 
18   is that our sales are strong.  We continue to look at 
19   Lotto Texas, specifically, and monitor the changes 
20   that we've made and how that is shaking out. 
21                 We're looking at the number of winners.  
22   We did have 66 -- over 66 thousand winners last night 
23   in Lotto Texas.  And as the commissioner alluded to 
24   earlier, we did have one winner in Cash 5.  That game 
25   continues to gain momentum. 
0191
 1                 But we are now ranked third in the 
 2   United States, as far as the size of our lottery.  And 
 3   I wanted you to have this handout, which is an 
 4   overview of what the other lotteries did. 
 5                 And specifically, I would draw your 
 6   attention to the last column in reference to percent 
 7   of change.  And it was very interesting to me to see 
 8   that the way that some of the states grew and some of 
 9   the states shrank and how VLTs and other games like 
10   keno have affected that as we continue to look at 
11   things down the road. 
12                 But overall, we did have a great year.  
13   And I'm looking forward to another good year in FY '04 
14   with some positive changes that we are making.  I will 
15   continue to monitor Lotto Texas as a part of that.
16                 CHAIRMAN CLOWE:  Your estimate for 
17   fiscal '04 was 3.3 billion?  Was that the goal?
18                 MR. GREER:  What was the goal for '04?   
19   I don't think we're there yet.  My personal goal is 
20   3.5.
21                 CHAIRMAN CLOWE:  3.5?  I was at the 
22   staff meeting when you gave that personal goal.  And I 
23   just wanted to remind you that I was listening, 
24   apparently not too accurately.  But it's even better 
25   than I thought, so -- you know, you said you were 
0192
 1   going to remind everybody of your personal goal.  And 
 2   I want to remind you of your personal goal. 
 3                 MR. GREER:  Remind me to take note.  And 
 4   I feel confident -- I'm going to touch on our goal 
 5   structure here in a moment -- that through our hopeful 
 6   agreement that we're going to reach with MegaMillion 
 7   and some changes, some positive things that we're 
 8   doing in the instant ticket area, as well as higher 
 9   jackpots in Lotto Texas that we're hoping to achieve, 
10   the matrix changes and other things, that I am not 
11   selling the agency short that we can come up with that 
12   goal.
13                 CHAIRMAN CLOWE:  Very good.
14                 MR. GREER:  That's a personal goal. 
15                 I did want to share with you -- I'm 
16   going to pass it down -- the new Play Responsibly 
17   campaign.  As was mentioned in our legislative 
18   briefing, the program was kicked off.  I'll remind you 
19   that this was not something that we were mandated to 
20   do.  This is something that I personally feel strongly 
21   about and wanted to see through and had great 
22   cooperation from the staff as a whole in putting this 
23   campaign together. 
24                 The Play Responsibly campaign is coming 
25   to you in a number of different venues.  First off is 
0193
 1   the Web site.  And I wanted to acknowledge the help of 
 2   one of our attorneys, Kevin Oldham.  You did a great 
 3   job of helping me identify agencies that we, as a 
 4   whole, felt comfortable with linking to. 
 5                 There's a couple 800-numbers on there to 
 6   take the place of the 800-number that went away, for 
 7   instance.  There's great information on those sites 
 8   and I'm comfortable that we are providing information 
 9   to those that are seeking help or assistance in this 
10   whole area of compulsive gambling.  And our Web site 
11   is a part of that. 
12                 We're also getting together an 
13   impressive brochure, which I'll be giving you next 
14   commission meeting.  I think it will be ready by then, 
15   Tony.  They've done a great job working with me on 
16   putting together a brochure that if an individual does 
17   call in and has a family member or has personal 
18   concerns about that, we can mail them this brochure to 
19   assist them in getting proper assistance.  And I feel 
20   real good about that. 
21                 We're also going to do some mini posters 
22   and some like wallet-size cards that will be a part of 
23   the play stations just to remind people of this whole 
24   campaign that we're utilizing to say that these games 
25   are meant to be a fun form of entertainment and if 
0194
 1   they get beyond that capacity within their, you know, 
 2   realm, that we need to help them step up and get 
 3   assistance where needed. 
 4                 Lastly, we are giving the call center 
 5   people information to tell those individuals that may 
 6   be calling into our number, our 800-number for, you 
 7   know, proper guidance on how to handle these things. 
 8                 What you're seeing in front of you, that 
 9   design, is going to be something that will be utilized 
10   on the play stations.  It will be on all our tickets.  
11   It will take the place of where the 800-number used to 
12   be.  It will be something that will be a prominent 
13   part of the daily activity here at the Lottery 
14   Commission.  So I'm pleased with that and happy to 
15   tell you what we're doing about that. 
16                 On a negative note, the Latin Lotto Scam 
17   continues to be an issue.  And Commissioner Rath got 
18   together with you, as a commission.  We were hit twice 
19   in the city of Houston, once in Bastrop, once in San 
20   Angelo.  We've also been hit in the San Antonio and in 
21   the Lubbock area. 
22                 We are being proactive in getting the 
23   word out once we are aware that the scam is moving 
24   around the state in those particular media markets.  
25   Bobby Heith has done a great job working with those 
0195
 1   individuals in those local media markets to get the 
 2   word out that the Latin Lotto Scam is certainly back 
 3   up and running around the state. 
 4                 Personally, I'm focused on this issue.  
 5   I've worked with our Security Division and we continue 
 6   to work with local law enforcement as best we can to 
 7   try and get the word out and make sure that people 
 8   aren't taken in these arenas.  Each of these scenarios 
 9   has been thousands of dollars -- five, six, three, 
10   two.  You know, one almost got away with 18 thousand 
11   dollars, but there was a confrontation in the parking 
12   lot, that they did not get the money. 
13                 But it is something that I want you each 
14   to be aware of.  I have members of the legislature 
15   aware of it, the executive branch of the government 
16   aware of it.  So when anyone is out talking and has an 
17   opportunity that they can just reinforce the fact that 
18   the integrity of the lottery is something we take very 
19   seriously and it's being attacked through this Latin 
20   Lotto Scam and we are doing everything within our 
21   power to create an environment where it doesn't happen 
22   again. 
23                 It's my six-month anniversary.  I wanted 
24   to touch on the fact it's been a great six months for 
25   me.  And I wanted to let you know that I focused on 
0196
 1   increased accessibility.  I was amazed by staff -- I 
 2   knew I had been busy, but I didn't know how busy yet.  
 3   In reference to that issue of accessibility, I've 
 4   conducted 70 media interviews.  Six of them were live.  
 5   That's a little unsettling when you're going out over 
 6   the airwaves live. 
 7                 We've held six all-staff meetings.  And 
 8   each month I've had a new theme.  This month it's 
 9   goals.  Last month it was creating a positive 
10   impression.  And I shared that with you individually.  
11   I'm focused on bringing the staff together to revise 
12   the mission statement, which you're aware of, and 
13   articulating our goals.  And I'm focused in a better 
14   direction and have a clearer path. 
15                 I have started traveling around the 
16   state and have made six major speeches, giving an 
17   overview of the Lottery and what we're all about and 
18   talking about our mission statement and other things.  
19   I've taken a lot of questions from the public in 
20   general, number one being:  Where does the money go? 
21                 I continue to reinforce the fact that 
22   the money does go into the Foundation School Fund.  
23   And then I have touched on some of these other issues, 
24   the Play Responsibly campaign, as well as the Latin 
25   Lotto Scam as I'm moving around the state on that 
0197
 1   issue. 
 2                 A fun part of my job and I've -- kind of 
 3   one of my bylines, I've got one of the best jobs in 
 4   Texas giving away money.  I mean, you've got to love 
 5   that.  I've met 22 winners personally, both 
 6   scratch-off and on-line winners, participated in 10 
 7   winners press conferences. 
 8                 It's been a unique opportunity, you 
 9   know, for me to be a part of that experience, I would 
10   call it.  And I certainly enjoy doing that.  And so 
11   far, so good.  But we're not where I anticipate us 
12   being a year from now, as far as sales and our 
13   togetherness as a team. 
14                 So my goals are not reached, but they 
15   are out there.  So just know that I've made it six 
16   months and I'm still coming back and enjoying every 
17   day. 
18                 Gtech recently was in a scenario that I 
19   thought would be worth putting on the record in 
20   reference to blackouts.  As you know, there was a 
21   blackout on the Northeast coast.  And three states, 
22   specifically, that work with Gtech are Ohio, Michigan 
23   and New York. 
24                 They pride themselves on and we have 
25   seen personally their backup power generators and 
0198
 1   their ability to work through catastrophes.  And they 
 2   did provide that backup capability.  As of that same 
 3   afternoon, 50 percent of the lottery retailers in the 
 4   affected areas of Ohio were still without power. 
 5                 But the interesting aspect of that was 
 6   that the Gtech backup generators did step forward.  
 7   And we hope that never happens in Texas, but I wanted 
 8   to assure each of you, Commissioners, that that is in 
 9   the whole plan, that if there ever is a catastrophe 
10   and a blackout, we're prepared to address that in the 
11   state of Texas. 
12                 CHAIRMAN CLOWE:  You mean people were  
13   buying Lotto tickets in the dark?
14                 MR. GREER:  Well, sales weren't too 
15   good.  But they had the opportunity to purchase a 
16   lottery ticket.
17                 CHAIRMAN CLOWE:  That's amazing.  Milk 
18   was getting hot and lottery tickets were being sold.  
19   That is amazing.
20                 MR. GREER:  My last point today -- and 
21   I'm sorry to belabor this, but I had a number of 
22   things to cover.  But as we are focused this month on 
23   goals for the employees of the agency, I have laid out 
24   personal goals.  The staff has laid out goals.  Now 
25   we're working with the employees to set out their 
0199
 1   goals. 
 2                 And to reinforce our mission statement 
 3   for our new commissioner, the Texas Lottery is 
 4   committed to generating revenue for the State of Texas 
 5   through the responsible management and sale of 
 6   entertaining lottery products. 
 7                 The Texas Lottery will:  Number one, 
 8   incorporate the highest standards of security and 
 9   integrity; number two, set and achieve challenging 
10   goals; number three, provide quality customer service; 
11   and number four, utilize the team approach. 
12                 I am pleased to tell you that we are 
13   doing those things and much more and would be happy to 
14   answer any questions at this point.
15                 COMMISSIONER COX:  Reagan, I looked at 
16   the reports you gave us on fiscal 2003 lottery sales 
17   for the United States.  And contrary to what you read 
18   on the editorial pages that lotteries are not an 
19   appropriate source of revenue to fund government 
20   programs because they decline over time, this would 
21   show if you look just at the raw numbers a 6.4 percent 
22   increase in lottery proceeds over the -- this year.
23                 MR. GREER:  Yes, sir. 
24                 COMMISSIONER COX:  One of the things the 
25   retail chains do is report a thing called same store 
0200
 1   sales where they report their sales and they're up 25 
 2   percent but then they say, okay, the stores that were 
 3   open a year ago, we're going to compare them with the 
 4   -- with stores that are open now. 
 5                 And to the extent there's correspondence 
 6   those two, we're going to take out those because 
 7   that's another indication of how we're doing.  I 
 8   wonder if there's an analysis like this that attempts 
 9   to do that by taking out states that are new to the 
10   lottery business or haven't achieved the learning 
11   curve.  Like South Carolina looks like it was in the 
12   red.
13                 MR. GREER:  Right.
14                 COMMISSIONER COX:  Some have added keno, 
15   VLTs, etc.  Is there a way that you could see if we 
16   could get an analysis of something like same store 
17   sales to see what that looks like, as far as the 
18   increase?
19                 MR. GREER:  Yes, sir.  I think that 
20   would be beneficial as a whole.  This was something 
21   that I -- I get them out of the trade publications.  I 
22   just got it yesterday and thought it was worth 
23   sharing.  I know that as a part of our research team, 
24   Liz Jambora is doing a great job and I can coordinate 
25   that with her and we can bring this information in 
0201
 1   that regard. 
 2                 CHAIRMAN CLOWE:  Any questions? 
 3                 COMMISSIONER OLVERA:  Reagan, I just 
 4   want to reiterate that I commended the Lottery with 
 5   respect to the page on its Web site that has the 
 6   dollar figure in terms of where does the money go.  
 7   Because in my short tenure as a commissioner, that's 
 8   been the most popular question, as well. 
 9                 And I think that's an excellent page and 
10   I think we should also incorporate that in advertising 
11   so that people do know where the money is going. 
12                 CHAIRMAN CLOWE:  One of the reasons he 
13   gave you such a warm welcome is he's no longer the new 
14   guy.  You know, he's made it six months.  I told him 
15   he's not old enough to be here six months. 
16                 But I will honestly say I think, Reagan, 
17   you've made a difference in the six months that you've 
18   been here.  I attended your staff meeting earlier this 
19   month.  And I think you are practicing what you preach 
20   and you're walking the walk.  And I think that's 
21   really important here for our group of 325 employees.  
22   We're short of that, actually, I think but that's our 
23   authorization. 
24                 MR. GREER:  That's right.
25                 CHAIRMAN CLOWE:  I think the leadership 
0202
 1   of this agency is of tremendous importance, most 
 2   especially because of the work we do and the integrity 
 3   and the honesty being our primary goal of these games 
 4   will be further strengthened by strong, positive 
 5   leadership, open door, good communications and 
 6   teamwork. 
 7                 And to my way of thinking, you're making 
 8   a great contribution to that and the team is forming.  
 9   And I think we're going to see not only good results 
10   in the monetary aspect of the performance of the 
11   agency, but a higher level of performance where we 
12   have happy employees that are a part of the team.  And 
13   that's a goal I know that you have and I'm very 
14   enthusiastic about it.
15                 MR. GREER:  Thank you, sir.  
16                     AGENDA ITEM NO. 26
17                 CHAIRMAN CLOWE:  Next, Phil, will you 
18   give the report for the Charitable Bingo Division in 
19   Billy's absence, please?
20                 MR. SANDERSON:  Yes, sir.  Mr. Chairman 
21   and Commissioners, in your notebook is the -- Billy's 
22   report for the meeting today, along with the charts 
23   and graphs and allocation information. 
24                 Just a few things that I do want to add 
25   is that in staffing, we have reduced our FTE count 
0203
 1   from 48.5 to 47.5 to assist with the overall 10 FTE 
 2   reduction.  We current have one position in Houston 
 3   that we will be posting for for an auditor and we have 
 4   a vacant position here in Austin for senior audit 
 5   manager, which has been posted and it is open until 
 6   filled at this time. 
 7                 We have received, I believe, 11 
 8   applications as of last week.  And we're reviewing 
 9   those now.
10                 CHAIRMAN CLOWE:  Now that position was 
11   filled by Roy, wasn't it?
12                 MR. SANDERSON:  It was, yes, sir.  And 
13   he transferred to the San Antonio office.
14                 CHAIRMAN CLOWE:  He's gone back to San 
15   Antonio?
16                 MR. SANDERSON:  Yes, sir. 
17                 CHAIRMAN CLOWE:  So that position is 
18   open? 
19                 MR. SANDERSON:  Yes, sir. 
20                 CHAIRMAN CLOWE:  And are these 11 
21   applicants all from internal or are there external?
22                 MR. SANDERSON:  Most of the ones that 
23   I've seen have been external right now.
24                 CHAIRMAN CLOWE:  Have been external? 
25                 MR. SANDERSON:  Yes, sir. 
0204
 1                 CHAIRMAN CLOWE:  Okay. 
 2                 MR. SANDERSON:  The Automated Charitable 
 3   Bingo System:  On September the 2nd, we switched over 
 4   and made that system our primary business system.  We 
 5   continue to do parallel entry in both systems.  There 
 6   are still a few little bugs we're working out.  We 
 7   just want to make sure we have time to catch 
 8   everything that we can. 
 9                 We are comparing the reports from both 
10   systems for the end of the fiscal year performance 
11   measure reports that we're working on right now.  And 
12   hopefully once we -- the decision is made to stop the 
13   parallel entry, that we'll freeze the data on the old 
14   system for a period of time just as a backup in case 
15   we need to go back and find intricate pieces of data 
16   that may not have gotten -- or that we haven't had a 
17   chance to find at this point in time. 
18                 The system is functioning.  It's 
19   probably at about 90 percent.  It's doing very well.  
20   The staff is starting to get used to it.  It is a big 
21   change in the operationing and processing.  For the 
22   most part, the comments are beginning to get a little 
23   bit better, as far as the usability and functionality.  
24   It's becoming an easier system to use.  It's got more 
25   benefits and being able to be updated and changed. 
0205
 1                 The Bingo Advisory Committee has their 
 2   next meeting scheduled November the 6th.  The 
 3   allocations were made on August the 22nd to the local 
 4   jurisdictions.  And the -- the conference and seminars 
 5   upcoming is the NAGRA.  It's the North American Gaming 
 6   Regulators Association conference, which is scheduled 
 7   October 18th to the 22nd in Long Beach, California. 
 8                 We will have a couple of staff people 
 9   attending that.  Of course, Billy will be -- he's 
10   currently the vice-president of NAGRA effective in 
11   July.  And just to let you know, if you hadn't 
12   mentioned it earlier, is that Texas will host the 
13   spring 2004 conference in San Antonio.  And I believe 
14   it's been tentatively set for May or June of next 
15   year. 
16                 And then other than that, you've got the 
17   articles and the other information in your notebook.  
18   I'll be glad to answer any questions.
19                 CHAIRMAN CLOWE:  Thank you, Phil. 
20                     AGENDA ITEM NO. 22
21                 CHAIRMAN CLOWE:  Commissioners, with 
22   your permission, I'm going to move that we go into 
23   executive session. 
24                 Is there anything else you wanted to 
25   cover? 
0206
 1                 At this time, I move the Texas Lottery 
 2   Commission go into executive session to deliberate the 
 3   duties and evaluation of the executive director and/or 
 4   deputy executive director, internal audit director, 
 5   Charitable Bingo Operations director, to deliberate 
 6   the duties of the general counsel and the security 
 7   director pursuant to Section 551.074 of the Texas 
 8   Government Code, to receive legal advice regarding 
 9   pending or contemplated litigation and/or to receive 
10   legal advice pursuant to Section 551.071(1)(A) or (B)  
11   of the Texas Government Code and/or to receive legal 
12   advice pursuant to Section 551.071(2) of the Texas 
13   Government Code including, but not limited to TPFV 
14   Group, Inc. versus Texas Lottery Commission, Retired 
15   Sergeant Majors' Association et al. versus Texas 
16   Lottery Commission et al., Scientific Games and 
17   Pollard Banknote versus Texas Lottery Commission and 
18   Linda Cloud, Executive Director, Patsy Henry versus 
19   Texas Lottery Commission, Ieric Rogers versus Doyle 
20   Mitchell et all, Sandy Surber et all versus Gtech 
21   Corporation, Linda Cloud versus Mike McKinney et al., 
22   Robert Kohler versus Texas Lottery Commission, 
23   employment law, personnel law, procurement and 
24   contract law, evidentiary and procedural law and 
25   general government law. 
0207
 1                 Is there a second?
 2                 COMMISSIONER OLVERA:  Second.
 3                 CHAIRMAN CLOWE:  All in favor, please 
 4   say aye. 
 5                 COMMISSIONER COX:  Aye.
 6                 CHAIRMAN CLOWE:  Aye. 
 7                 COMMISSIONER OLVERA:  Aye.
 8                 CHAIRMAN CLOWE:  The vote is 3-0 in 
 9   favor. 
10                 The Texas Lottery Commission will go 
11   into executive session.  The time is 12:50 p.m.  Today 
12   is September the 11th, 2003.
13                 (Executive Session from
14                 12:50 p.m. to 2:52 p.m.)
15                     AGENDA ITEM NO. 23
16                 CHAIRMAN CLOWE:  The Texas Lottery 
17   Commission is out of executive session.  The time is 
18   2:52 p.m. 
19                 Is there any action to be taken as a 
20   result of the executive session? 
21                 I wish to make a motion.  With regard to 
22   the Rob Kohler versus Texas Lottery Commission item, I 
23   wish to move that we authorize the executive director 
24   to enter into the Release and Settlement Agreement in 
25   accordance with mediation agreement.
0208
 1                 Is there a second?
 2                 COMMISSIONER COX:  Second.
 3                 CHAIRMAN CLOWE:  All in favor, please 
 4   say aye. 
 5                 COMMISSIONER OLVERA:  Aye. 
 6                 COMMISSIONER COX:  Aye. 
 7                 CHAIRMAN CLOWE:  Aye. 
 8                 Opposed, no. 
 9                 The vote is 3-0 in favor.
10                 Is there any other business to come 
11   before the commission at this time?
12                 MR. GREER:  Mr. Chairman? 
13                 CHAIRMAN CLOWE:  Yes, sir? 
14                 MR. GREER:  I did want to point out to 
15   you that I have provided each of you with a copy of 
16   the SST that we discussed today so that you can look 
17   through it and we can refer to it as we move down the 
18   road with this project.
19                 CHAIRMAN CLOWE:  Very good.  Anything 
20   further to come before the commission? 
21                 Thank you all very much.  The time is 
22   2:56 p.m.  We are adjourned.
23                 (Meeting adjourned at 2:56 p.m.)
24   
25   
0209
 1                  REPORTER'S CERTIFICATION
 2   
 3   STATE OF TEXAS     )
 4   COUNTY OF TRAVIS   )
 5   
 6            I, David Bateman, RPR, Certified Shorthand 
 7   Reporter in and for the State of Texas, do hereby 
 8   certify that the above-captioned matter came on for 
 9   hearing before the TEXAS LOTTERY COMMISSION as 
10   hereinafter set out, that I did, in shorthand, report 
11   said proceedings, and that the above and foregoing 
12   typewritten pages contain a full, true, and correct 
13   computer-aided transcription of my shorthand notes 
14   taken on said occasion.
15   
16            Witness my hand this the 18th day of 
17   September, 2003.
18   
19                      ___________________________________
20                      David Bateman, RPR, Texas CSR #7578
21                      Expiration Date:  12/31/03
22                      1609 Shoal Creek Blvd, Suite 202
23                      Austin, Texas 78701 
24                      (512) 474-4363
25   JOB NO. 030911DPB