1 1 ****************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 6 AUSTIN, TEXAS 7 8 NOVEMBER 29, 2000 9 ****************************************************** 10 11 BE IT REMEMBERED that the above-entitled matter 12 came on for hearing on the 29th day of November, 2000, 13 beginning at 8:28 a.m. and ending at 6:08 p.m., at the 14 TEXAS LOTTERY COMMISSION, 611 East Sixth Street, 15 Austin, Texas, and the following proceedings were 16 stenographically reported by Mary Scopas, RPR, CSR for 17 the State of Texas. 18 19 APPEARANCES 20 CHAIR C. TOM CLOWE, JR 21 COMMISSIONER ANTHONY J. SADBERRY 22 COMMISSIONER ELIZABETH D. WHITAKER 23 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 24 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 25 MR. BILLY ATKINS, CHARITABLE BINGO OPERATIONS DIRECTOR WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 2 1 CHAIR CLOWE: Good morning. We would 2 like to call this commission meeting to order. 3 Commissioner Sadberry is here present. I'm 4 Commissioner Clowe. And Commissioner Whitaker is en 5 route from the airport. Her airplane was delayed this 6 morning. So we'll call this meeting to order on 7 November the 29th at 8:32 a.m. of the Texas Lottery 8 Commission. 9 We have a number of individuals who 10 have asked to appear before the Commission this 11 morning. And we want to honor those people by having 12 them appear out of order on the agenda as early as 13 possible. But I am going to defer beginning those 14 appearances until Commissioner Whitaker is here. 15 So we will begin on the agenda with 16 item number two, a report, possible discussion and/or 17 action on lottery sales and trends. 18 Linda Cloud and Toni Smith. 19 MS. SMITH: Good morning, 20 Commissioners. For the record, I'm Toni Smith, 21 marketing director of the Texas Lottery Commission. 22 Let's take a look at sales. Total year-to-date sales 23 for week ending November 25th, 2000 are 675,202,152. 24 This is up 13.03 percent from last year's fiscal year 25 sales of 597,344,687.5. And we're currently for this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 3 1 fiscal year looking at a weekly average of 51,938,627. 2 And again, that reflects a 13 percent increase from 3 last year's weekly average of 45,949,591. 4 To look at year-to-date sales by 5 product, to look at the instant tickets, we're 6 currently at 400,477,180. And the scratch-offs 7 represent 59 percent of sales. Compared to last year, 8 scratch-offs represented 58 percent of sales at 9 349,513,288. So we are up 14.58 percent for the 10 fiscal year for instant tickets. 11 And to look at our other -- one of our 12 other games, Lotto Texas, we're currently at 13 $180,419,006. And Lotto Texas currently represents 14 26.72 percent of sales versus last year's 25 percent 15 of sales at 149,472,650. And Lotto Texas is up 20.49 16 percent. So I think that's good news for both of 17 those products. 18 And then just to look at weekly 19 comparison last week to this week, for week ending 20 11-25, our week sales were 55,300,339. And that was 21 up at 2.93 percent from the previous week ending 22 November 18th, with total sales at 53,726,500. And 23 the primary factor for the increase that was there was 24 the result of the Lotto Texas jackpot. Jackpots for 25 the week ending 11-25 were 14 and 19 million for WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 4 1 Wednesday and Saturday. And then for the previous 2 week, 11-18, were six million and ten million, 3 respectively. 4 Linda, did you have anything you wanted 5 to add? 6 MS. CLOUD: I don't have anything to 7 add to that. Under the sales and trends, we are 8 testing -- doing focus testing on proposal to replace 9 the Texas Million game. But we're not complete with 10 that, so I'm not ready to report on that as yet. 11 CHAIR CLOWE: And you would anticipate 12 that occurring in 2001, I assume? 13 MS. CLOUD: Yes. 14 CHAIR CLOWE: Very good. Commissioner 15 Sadberry, any questions or comments? 16 COMMISSIONER SADBERRY: Well, that was 17 going to be a question, my only question. 18 CHAIR CLOWE: Sorry about that. 19 MS. CLOUD: You were looking at the 20 numbers, I'm sure. 21 COMMISSIONER SADBERRY: I was looking 22 at the numbers. And I was going to ask: Is it time 23 to consider Texas Million? But you've already done 24 that. 25 MS. CLOUD: Yes, sir. We should have a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 5 1 proposal for you on that game by hopefully the 2 December meeting. 3 CHAIR CLOWE: Toni, at this point in 4 time, are we into the new matrix a long enough period 5 with the experience we have to see any predictable 6 trend developing? 7 MS. SMITH: I think so. If I may, I'd 8 like to call Larry King. He just shared -- I've been 9 out of the office. But he shared some information 10 that they had just put together. And Larry could come 11 up and share that with us. 12 CHAIR CLOWE: Good morning, Mr. King. 13 MR. KING: Good morning. For the 14 record, I am Larry King. I am the general manager for 15 GTECH Texas. Although we are not quite six months 16 into the new matrix, I think that we have seen some 17 good trends. Our average weekly sales have increased. 18 And I've got a chart here. I'm sorry I couldn't make 19 copies for you. But I've got a chart that shows 19 20 weeks prior and 19 weeks after the matrix change. Our 21 average sales before the matrix change were about 10.7 22 million per week. After the matrix change, we're at 23 about a 13.9, close to a 14 million clip. Our average 24 jackpot before the matrix change was about ten 25 million. And now we are -- we are approaching 17.5 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 6 1 million for the average jackpot. So I think the 2 numbers are showing about what we presented prior to 3 the matrix change and what we proposed to the Lottery. 4 Things are trending in the right direction. 5 CHAIR CLOWE: Do you know how many 6 times in that 19-week period prior to and after the 7 matrix change the jackpot was hit? 8 MR. KING: I don't have those facts in 9 front of me, no. I apologize. 10 CHAIR CLOWE: You know, it's my job to 11 ask you a question you can't answer. I would like to 12 know that. I think that indicates some predictability 13 about the matrix change. In not a facetious way, I'd 14 like to have that information. 15 MR. KING: Sure, absolutely. I can -- 16 MS. SMITH: And we could have that for 17 you at the end of the meeting. We'll share it with 18 Linda. And then maybe she can give it in her report. 19 MS. CLOUD: And we even -- we did 20 present that information to our last town hall 21 legislative briefing. So we do have it handy. 22 CHAIR CLOWE: Good. Thank you, sir. 23 MR. KING: Thank you. 24 CHAIR CLOWE: Toni, I think if you will 25 remain. The next item for you and Linda is report, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 7 1 possible discussion and/or action on lottery 2 advertising promotion. And that includes print media 3 criteria. Do you have something to report on this for 4 us? 5 MS. SMITH: Just sort of a brief 6 overview. In our general market advertising, we 7 continue our Lotto ball campaign. And it will run -- 8 it's still running September through December with 9 spots running every other week. And radio spots are 10 running concurrently. We will continue our 11 scratch-off coin TV and radio campaign. They'll be 12 back on the air December 11th through the 24th. And 13 our general market ad agency, Fogarty/Kleine Monroe, 14 is working on some new concepts for us for TV and 15 radio that we'll probably see next week. 16 In our minority market, the King Group 17 is -- they've also prepared some new radio spots that 18 will begin November 20th -- will begin November 20th 19 and will run through the end of February. And they're 20 also working on some new online and scratch-off 21 newspaper ads that will also begin in January. And 22 the King Group has proposed a new form of advertising 23 for us that we're excited about. And they're called 24 eight sheet outside advertising billboards. So we're 25 going to look into those, particularly in the Houston WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 8 1 and Dallas markets, and see if they have an impact on 2 sales. That's kind of where we are. 3 CHAIR CLOWE: Very good. 4 MS. CLOUD: The only other thing, 5 Commissioners, I'd like to add to that topic would be 6 the -- we do plan to have a meeting with our print 7 media subcontractors in the month of December, 8 hopefully the week before Christmas. And we will be 9 sharing with them a new print media criteria that we 10 plan to present based on the audit that we had done. 11 CHAIR CLOWE: Very good. I believe 12 then we will move to item five on the agenda, report, 13 possible discussion and/or action on the communication 14 department's practices relating to access to 15 information. Linda, I think Keith is out of the city. 16 Do you have a report for us on this? 17 MS. CLOUD: No, sir. We'd like to pass 18 that on until he is back in town. 19 CHAIR CLOWE: All right. Then we'll go 20 to item six, status report, possible discussion and/or 21 action on the lottery operator audit procurement. I 22 believe that's your item as well, Linda, and Ridgely. 23 MR. BENNETT: Good morning, 24 Commissioners. For the record, my name is Ridgely 25 Bennett. I'm the deputy general counsel of the Texas WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 9 1 Lottery Commission. The lottery operator audit RFP is 2 prepared and ready to be issued. However, the current 3 draft of the RFP has some new minority participation 4 language in it. And we wanted you to have a chance to 5 hear from Robert Hall about those new procedures that 6 we have in place before we actually issue the RFP. 7 MS. CLOUD: It's added quite a bit of 8 language to our RFP process. So we have two actual -- 9 two RFP's ready to go out. But waiting for you to 10 review -- hear what Robert has to add to it today. 11 CHAIR CLOWE: All right. And we'll 12 hear from him under another item on the agenda? 13 MR. BENNETT: That's correct. 14 CHAIR CLOWE: Very good. Thank you, 15 Ridgely. 16 I'm informed by the internal auditor 17 that item number eight, consideration of and possible 18 discussion and/or action on State audit reports 19 relating to the Texas Lottery Commission, she has 20 nothing to report and would like that item to be 21 passed. 22 So we'll move to item nine, report, 23 possible discussion and/or action on the financial 24 audit of the agency. Mark Sanchez. 25 Good morning, Mark. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 10 1 MR. SANCHEZ: Good morning, 2 Commissioners. For the record, my name is Bart 3 Sanchez. I'm the financial administration director. 4 Basically, I just want to give you a status report on 5 the financial audit. It's due to the legislative 6 bodies, the LBB and the governor's office, the 7 comptroller, by December 20th. We're in the final 8 stage right now. We hopefully should have a draft of 9 the audit financials by -- in a week. 10 The annual financial report that was 11 due to the comptroller which is unaudited which you 12 should have received was submitted November 20th. If 13 you wanted to discuss that, I'm prepared to do it 14 somewhat, or else wait until the final audit and do a 15 more detailed presentation. 16 CHAIR CLOWE: I think Commissioner 17 Sadberry may have a question. 18 COMMISSIONER SADBERRY: I have a 19 procedural question, actually, Mr. Chairman. Thank 20 you. For -- on the financial report, page 30, there 21 is a graph talking about the HUB strategic plan 22 progress report. I guess my procedural question is, 23 we anticipate hearing from Robert Hall, as I 24 understand today, on the HUB report. Is it 25 appropriate to defer any discussion on this? I do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 11 1 have some questions. But I can defer those if it's 2 better to do so all at one time. 3 MR. SANCHEZ: Yes. This report was 4 prepared by Robert. So I think he would be more 5 inclined to respond. 6 MS. CLOUD: And it has been submitted. 7 So if you have questions about it, he should be the 8 one to -- 9 COMMISSIONER SADBERRY: I can wait, 10 Mr. Chairman, for those questions. I think that's all 11 I have. We're on time, Bart, is what you're saying? 12 MR. SANCHEZ: Yes, sir. 13 COMMISSIONER SADBERRY: And as far as 14 this report itself, there are no problems indicated 15 that need to be directed to our attention at this 16 time? 17 MR. SANCHEZ: The only change I 18 would -- probably would address was the investments. 19 There was a change in market value from a year ago in 20 our investments that we hold to pay our prize winners. 21 The market value is lower than the book value. And we 22 have to report -- for GASB31, we have to report the 23 market value. But as we said -- 24 MS. CLOUD: That is the risk to our 25 players, though. But it is a financial statement that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 12 1 has to be made. 2 MR. SANCHEZ: It's a financial 3 presentation requirement. And as you have on page -- 4 there is a statement that there is -- like Linda said, 5 there is no risk in making the payments. Note 17, 6 page 22, we highlight that. That was part of the 7 requirement. These investments are held to maturity. 8 So fluctuations in market price may have no effect. 9 COMMISSIONER SADBERRY: I understand 10 that. If I'm recalling directly, I believe we had 11 some discussion on that before on the natural result 12 of the discussions we had when the change in the 13 process occurred. So -- 14 (Commissioner Whitaker enters the room) 15 MR. SANCHEZ: And just to emphasize, 16 the investments are held by the comptroller treasury. 17 COMMISSIONER SADBERRY: All right. 18 MS. CLOUD: Not under our control. 19 CHAIR CLOWE: I'd like the record to 20 reflect that Commissioner Whitaker has joined us now. 21 The time is 9:46 a.m. We're in the process of going 22 through the agenda items other than those where a 23 person is asked to speak to the Commission and -- 24 MR. ATKINS: Commissioner Clowe, the 25 time is 8:46. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 13 1 MS. CLOUD: We need to change the 2 clock. Sorry. 3 COMMISSIONER SADBERRY: Well, what 4 about the opening? Did we open on time? 5 CHAIR CLOWE: It is daylight. 6 COMMISSIONER SADBERRY: Are we here 7 today? 8 CHAIR CLOWE: Would somebody change 9 that clock? That clock is accurate, isn't it? 10 MS. CLOUD: Yes, sir, that clock is 11 accurate. Okay. Sorry. 12 CHAIR CLOWE: Commissioner Whitaker, we 13 are on item nine in the agenda. Bart is asking 14 questions on the audit and financial report for the 15 Commission. 16 Bart, page 25. Would you talk to us 17 about the two enterprise funds and explain that and 18 the positive and the negative aspect of those revenue 19 funds? 20 MR. SANCHEZ: Basically, the -- 21 basically, Enterprise 5025 is really the lottery 22 operations side of the house. Enterprise fund 8095 is 23 a -- 895 is the fund that accounts for the investment 24 that pays the prize winners for the 24 years, 20 25 years. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 14 1 CHAIR CLOWE: So it's going to end up 2 with a negative balance? 3 MR. SANCHEZ: Correct. And just 4 because we discussed the gas pea 31 presentation that 5 you have to record the investments and market value. 6 CHAIR CLOWE: Right. All right. Any 7 questions? 8 MR. SANCHEZ: And we intend to have the 9 financial auditors here to present the audit and 10 financial report. We can go more in detail. 11 CHAIR CLOWE: Very good. Anything 12 while you're here with us this morning, Bart, that 13 you'd like to comment on in regard to the ongoing 14 financial condition of the Commission relative to the 15 budget for the current fiscal year? 16 MR. SANCHEZ: Well, I think in regards 17 to the previous fiscal year, I think we were far in 18 better shape, in my view, than the year before. And 19 we intend to continue that. And I think I see the 20 trend of sales increasing as far as the -- what we 21 experienced back in fiscal year '99. 22 CHAIR CLOWE: We want to be 23 conservative, though, in our fiscal planning and in 24 the use of funds and not rely on something that may or 25 may not develop over the period of the remaining WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 15 1 fiscal year and into the next year. So I urge caution 2 to both Linda and you on managing those resources. 3 MR. SANCHEZ: Yes. We work pretty well 4 together, and Linda and Patsy. 5 CHAIR CLOWE: You've done a good job, 6 in my opinion, over the last couple of years that I've 7 been watching the budget. And I'm urging you to 8 continue that. I'm pleased with the conservative 9 approach you're taking. 10 MR. SANCHEZ: Thank you. 11 CHAIR CLOWE: Since the Commission is 12 now complete, I would like to depart from the printed 13 agenda and begin to call on those people who have 14 asked to make an appearance before the Commission. 15 And first, I'll call on Mr. Ron 16 Williams with Scientific Games International and 17 Mr. Cliff Bickell, who is here with him. Gentlemen, 18 come forward if you will, please. We're happy to have 19 you here this morning and welcome you to Austin and 20 are eager to hear what you have to tell us. 21 MR. BICKELL: Well, thank you. First 22 of all, my name is Cliff Bickell. I am president of 23 Scientific Games Printed Products. Scientific Games 24 supplies the Texas Lottery -- or is the primary 25 supplier of scratch-off instant tickets. Just as WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 16 1 personal background, I have been president of 2 Scientific Games Printed Products since September 6th 3 of this year. But I have -- prior to that, I was the 4 vice president, treasurer, and chief financial officer 5 of Scientific Games as a -- as a position I held since 6 January of 1995 when I joined the company. 7 I want to thank the Commission for 8 accepting our invitation to our request to appear 9 before you today. There are a number of events that 10 have happened at Scientific Games. And we'd like to 11 bring you up to date on that. Before I do that, 12 though, I would just like to give you just a brief -- 13 and I promise just a brief history on Scientific Games 14 so you have some feel of where we come from as a 15 company. 16 Scientific Games is really a pioneer in 17 the lottery industry. It was formed in 1974 when our 18 founder came up with a methodology of printing secure 19 instant scratch-off tickets. From that point on, the 20 lottery -- joined the Massachusetts state lottery and 21 at that time started the first modern-day lottery in 22 the United States. Following that, the company was 23 active in starting the next 12 lotteries in the United 24 States. Not only did we -- were we a leader in that 25 particular area, we are -- have been a leader since WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 17 1 that point in various innovations to the industry. As 2 an example, we have -- we helped to introduce bar 3 codes for instant tickets to the lottery industry. 4 And the number of tickets sold today without bar 5 codes, that would be quite a process to do that by 6 hand. 7 Another one was, we were the first to 8 come up with a environmentally friendly scratch-off 9 ticket, a paper ticket, rather than having foil as 10 part of the ticket itself. We've also pioneered what 11 we have come to know as cooperative services where we 12 have various -- we have a source of outsourcing for 13 lotteries. And we started that in the mid '80s with 14 the New York Lottery. Today we have contracts of six 15 different lotteries, including such with Florida, 16 New York, Georgia, Pennsylvania. So fairly good-sized 17 lottery operations. 18 From -- the company remained 19 independent until 1982, when Bally Manufacturing 20 bought Scientific Games. And just as a little color 21 there, that's when they had Pac-Man and -- came out 22 with Pac-Man and had lots of cash and were out buying 23 lots of different companies. 24 The management of Scientific Games with 25 some investors bought Scientific Games from Bally in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 18 1 1991. The company went public in 1993 and was on -- 2 traded on the Nasdaq until -- Exchange until 1996, 3 when it was on the -- went on the New York -- the big 4 board, the New York Stock Exchange. And this year, on 5 September 6th of this year, Autotote was purchased 6 by -- purchased Scientific Games for $311 million in 7 cash plus the assumption of $24 million of debt. 8 My update this morning is really 9 twofold. One is to tell you about that transaction 10 and what it means to the company and what it means to 11 the Texas Lottery. And the second thing is about an 12 expansion program that's been going on for about 18 13 months. And we are drawing to the conclusion of that 14 program. And I just wanted to bring you up to date on 15 that as well because we understand the importance of 16 being a supplier to the -- to the lottery. 17 First, about the acquisition. Autotote 18 is a company whose primary business has been to 19 provide global computerized systems, hardware, and 20 services primarily for the pari-mutuel or horse racing 21 business around the world. And the second business 22 was also the U.S. online lottery business as well. 23 Autotote purchased Scientific Games really to 24 strengthen their lottery business. They wanted to 25 become a bigger player in that particular market. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 19 1 After the acquisition, Autotote's 2 revenues will approximate $450 million. They will 3 have $430 million in debt. More importantly, they 4 will have cash flows as stated in EBITDA, or earnings 5 before interest, taxes, depreciation and amortization, 6 of over $100 million. And that number is expected to 7 grow over the next couple of years. The company also 8 has about a six -- a $65 million line of credit 9 available to it. 10 It's, I think, important to note here 11 that this transaction is representative of what's 12 going on in the lottery and gaming industry today. 13 There is consolidation and creating higher leverage 14 among participants in this industry today. The parent 15 company is now in the process of filing various 16 reports with the Security Exchange Commission. And 17 for the periods of October 31 and December 31, the 18 company will probably take some mostly noncash 19 write-downs as it consolidates some businesses. And 20 there is some overlap. And some of those assets will 21 be written down. 22 Staying with the transaction for a 23 while here, this merger, we would like to call it, 24 brings two leaders together. Autotote's pari-mutuel 25 business and Scientific Games instant ticket lottery WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 20 1 business both have about 65 percent market shares in 2 their respective businesses in the United States. 3 Besides the leadership position that Scientific Games 4 has had in instant tickets and cooperative services 5 throughout the years, it has had some international 6 online experience as well, but nothing in the United 7 States. And what happens is that -- here is that 8 Autotote brings six U.S. lotteries to Scientific 9 Games' fold here. And we think that will be good for 10 our company as well as for potential customers in the 11 United States. Autotote, as far as an organization, 12 will take its lottery business, Autotote Lottery, and 13 combine it under the Scientific Games name and 14 management. And as far as under the $450 million of 15 revenue I mentioned earlier, 280 million of that will 16 be under what we'll call Scientific Games going 17 forward. 18 Just as a side, there are some 19 technology synergies that are going on here as well as 20 we now have the opportunity to take systems that -- 21 for pari-mutuel and for lottery systems and have joint 22 developments. If you think about the transaction 23 processing that goes on for a lottery draw five 24 minutes before a big jackpot on a Saturday night or 25 five minutes before a big purse race, both of those WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 21 1 systems require the ability to make the process -- 2 many transactions very quickly. And the technology is 3 very similar there. 4 Autotote also brings to Scientific 5 Games satellite communications capabilities and a line 6 of state-of-the-art online lottery terminals that 7 Scientific Games didn't have prior to this 8 acquisition. The organization structure will be -- 9 there will be a holding company. And under that -- 10 which will be a publicly traded company. And under 11 that holding company, there will be basically two 12 business units: Autotote as it had existed, and then 13 Scientific Games, combining it with Autotote Lottery 14 that I just mentioned earlier. To put focus on 15 Scientific Games and to better service its customers, 16 Scientific Games will now be put into two groups, a 17 systems group and a printed products group. 18 Bill Huntley (phonetic), who is the 19 former president of Autotote Lottery, will now be the 20 president of Scientific Games Systems. And I will be 21 the president of Scientific Games Printed Products. 22 One of the keynotes that Scientific Games has strived 23 to accomplish over the years will be a full-product 24 supplier to lotteries in the United States and in the 25 world. And we are, we believe, the only company that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 22 1 can say that we provide instant tickets, online 2 systems and services to its customer base. And we 3 think that this particular acquisition will make us 4 even stronger with the enhancements of the systems 5 capabilities of Autotote than it was prior to this 6 acquisition. 7 Now, number two, which is to update you 8 on the printed -- printing capabilities of Scientific 9 Games. During the past 18 months, the company has 10 spent in excess of $35 million in updating and getting 11 the latest state-of-the-art equipment, printing 12 equipment and packaging equipment, and putting it into 13 its operations in the United States and its operation 14 in the United Kingdom. We have closed our California 15 plant and retired a 15-year-old lottery press. And we 16 have purchased a 21 unit Flexo offset press for our 17 new expanded facility in Alpharetta, Georgia. During 18 this period of expansion and one press down and 19 bringing another press up, we have had to juggle our 20 production schedules. And we appreciate the 21 cooperation and the ability to work with the Texas 22 Lottery in this. We can be flexible for them and meet 23 their schedules while at the same time trying to 24 juggle our operation as well. We are now capable to 25 produce not only more tickets, but we have greater WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 23 1 flexibility and to produce different, better type 2 games than we have been previous to this new 3 equipment. 4 In the year 2000, Scientific Games will 5 print approximately 12 billion two by four equivalent 6 tickets, is the way we measure it, which is usually 7 the one dollar ticket. And during that -- and that 8 would come from about 1,000 different individual 9 games. And gives you a little bit of an idea of what 10 we have done. With this new capability, though, with 11 the new press and its capabilities over the old press, 12 we will be able to produce approximately 17 billion 13 two by four equivalent tickets. So our capacity and 14 ability to service and grow with our customers has 15 increased substantially. 16 To put that into perspective, we 17 started shipping tickets to the Texas Lottery in June 18 of 1999. We shipped approximately 1.6 billion tickets 19 of all sizes, which we estimate somewhere between 2.53 20 billion two by four equivalents. So this puts it into 21 a little bit of perspective. Probably more 22 importantly, though, those tickets had a retail value 23 of about 2.7 billion. So we have been able to supply 24 you with quite a few tickets over the past almost 18 25 months now. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 24 1 In the United Kingdom, we have a 2 printing operation there as well. We print lottery 3 tickets as well as prepaid phone cards. Prepaid phone 4 cards require the same secure printing technology as a 5 lottery ticket, except you cover up a pin number 6 rather than a -- play symbols on a lottery ticket. 7 When our expansion is completed there, we will be able 8 to produce about 1.5 billion instant lottery tickets 9 in two by four equivalents. 10 I think in summary, it is important to 11 note that Scientific Games has been a participant in 12 the lottery business for a long time. We now have six 13 U.S. online contracts and ten international online 14 contracts. We provide lottery services and tickets to 15 26 of the 39 U.S. jurisdictions that are allowed to 16 have lotteries. And the retail sales of those 17 lotteries represent about 65 percent of the instant 18 tickets sold in the United States. 19 We have a strong international presence 20 as well. We provide tickets to the U.K. national 21 lottery, the French national lottery, the Dutch 22 national lottery, the Greek national lottery, and many 23 other lotteries in Europe, Scandinavia, and Africa. 24 The most important thing I would like 25 to bring is some assurance that as a result of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 25 1 acquisition, where we have increased our capabilities 2 with being combined under the Autotote systems 3 capability all under one Scientific Games, plus our 4 new equipment, we are better capable of serving the 5 same -- our customers' needs, including the Texas 6 Lottery, better than we have ever been in our history. 7 With -- one thing I would like to do 8 is -- say is that even though the company has changed, 9 it's been acquired, we've had different changes in 10 operations, Scientific Games is still very similar in 11 one very important thing. We still have a very high 12 regard for honesty, fair dealings. And we have very 13 high value statements. And rather than go through our 14 mission and value statement, what I would like to do 15 is just -- Ron, just leave you with -- we have little 16 three by five cards, business cards which we give to 17 our employees. That gives our mission statement and 18 our value statement that -- our company values that 19 people can carry in their wallet or they can carry in 20 their purse. And we think these are important. Many 21 times in presentations to employees or conversations, 22 we bring this up. We show it on a slide projector. 23 And we briefly go through it. As far as the things go 24 there, that we continue to hold that and let our 25 record speak for ourself as far as those issues. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 26 1 We appreciate very much the business 2 that we're able to do with the Texas Lottery. We 3 enjoy that partnership. We hope we can do additional 4 business and services, either on the online services 5 side going forward. We will certainly make it a 6 competitive bidding process, anyway. And I thank you 7 for the opportunity. If there are any questions, I 8 would be more than happy to try to answer them. 9 CHAIR CLOWE: Mr. Bickell, thank you 10 for being here again this morning. Mr. Williams, do 11 you have anything to add? 12 MR. WILLIAMS: No, sir. 13 CHAIR CLOWE: You have a more familiar 14 face. And we appreciate your attendance at this 15 meeting. Commissioners, do you have any questions? 16 COMMISSIONER WHITAKER: Not at this 17 time. 18 COMMISSIONER SADBERRY: I will just 19 join in your expression of appreciation for your 20 coming to share this information with us. 21 MR. BICKELL: I'm happy to keep you up 22 to date any time that there is an event worthy of your 23 knowing. 24 CHAIR CLOWE: I have a few questions, 25 Mr. Bickell, since you're here. Did you give us the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 27 1 name of the parent organization? 2 MR. BICKELL: Autotote. That will 3 be -- no. The holding company's name is going to -- 4 they're still under discussion. They may even name 5 that Scientific Games Corporation or something. 6 CHAIR CLOWE: I didn't think you gave 7 us the name of the -- 8 MR. BICKELL: No. I said a holding 9 company for the very reason that it hasn't been given 10 its name yet. There will be an Autotote. There will 11 be a Scientific Games. And then the holding company. 12 CHAIR CLOWE: That's the way I 13 understood it. And then is that parent or the holding 14 company going to be publicly traded? 15 MR. BICKELL: No. It's a publicly 16 traded company currently on the American Stock 17 Exchange, soon to be moved to the Nasdaq. 18 CHAIR CLOWE: What's the current 19 trading name? 20 MR. BICKELL: Autotote Corporation. 21 CHAIR CLOWE: Autotote. So that's the 22 transition. Got you. And in your role as the 23 president of Scientific Games, will you be a member of 24 the board of the parent or holding company? 25 MR. BICKELL: No, I will not be. There WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 28 1 is only one company person on the board. And it's a 2 nine-member board plus a chairman. And I am an 3 officer of Scientific Games. But I am not a member of 4 the board. 5 CHAIR CLOWE: Is that board formed at 6 this time? 7 MR. BICKELL: Yes, it is. I do report 8 to the chairman of the company. 9 CHAIR CLOWE: That would be the board 10 of Autotote as it currently exists? 11 MR. BICKELL: That's the board of 12 Autotote and to-be-named holding company. There is -- 13 that's the board. 14 CHAIR CLOWE: But that board is in 15 place? 16 MR. BICKELL: Yes, it is. 17 CHAIR CLOWE: It will move into that 18 position? 19 MR. BICKELL: Yes. 20 CHAIR CLOWE: You mentioned a figure of 21 a hundred million as EBITDA. And I think I got the 22 implication there that that's to be reinvested in 23 production facilities and R&D. And that's going to be 24 a source of financial strength in the future. Is that 25 the inference you wanted us to take? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 29 1 MR. BICKELL: Yes, it is. The company 2 is in a very good position to service its debt load as 3 well as investing their products and equipment going 4 forward. 5 CHAIR CLOWE: And where is your 6 headquarters? 7 MR. BICKELL: Scientific Games will 8 remain headquartered in Alpharetta, Georgia, which is 9 just north of Atlanta. 10 CHAIR CLOWE: Just outside of Atlanta. 11 That's your headquarters. And you will remain there? 12 MR. BICKELL: Yes, we will. 13 CHAIR CLOWE: And where will the 14 pari -- or holding company's headquarters be in the 15 future? 16 MR. BICKELL: In New York. 17 CHAIR CLOWE: In New York. Good. I 18 want to tell you how important the relationship 19 between your company and the Texas Lottery Commission 20 is. We always are happy to have our vendors come and 21 make the kind of presentation that you made to us 22 today. And we value the services that you provide. 23 But we ask you to embrace our philosophy of honesty 24 and integrity and correctness in everything we do in 25 the operation of this Commission. And in that manner, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 30 1 if you see anything on the horizon in the future that 2 would affect this Commission and its operation through 3 your vending activity, we would expect and appreciate 4 an early awareness of that. We want to communicate 5 effectively with you. And we want you to communicate 6 effectively with us. 7 MR. BICKELL: I understand. And I 8 appreciate that. We are very familiar with the 9 visibility that the lotteries have and the importance 10 of integrity that it must show the world as people 11 need to know that they have a fair chance of winning. 12 And our goals always have been never to embarrass 13 ourselves or the customers that we serve. 14 CHAIR CLOWE: I'd like to touch on one 15 other area in the historically under-utilized business 16 area there. It is important to me on this Commission 17 agenda today. And we consider that very important. 18 And we'd like your attention to be drawn to that as 19 far as your company and your part of the statistics 20 and the operation that we have in this Commission. So 21 as president of that company, I want to draw your 22 attention to that area and ask you to be aware of it. 23 MR. BICKELL: Okay. Yes. 24 CHAIR CLOWE: Very good. Thank you 25 again, gentlemen, both of you, for coming. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 31 1 MR. BICKELL: Thank you. 2 CHAIR CLOWE: William -- or Bill, are 3 you ready to make your report this morning? 4 MR. NEINAST: Yes, I am. 5 CHAIR CLOWE: We just -- sorry, Billy. 6 You're here. And I think you're going to report on 7 the Bingo Advisory Committee meeting. And we'd like 8 you to go forward if you will, please. 9 MS. KIPLIN: One housekeeping matter, 10 Mr. Neinast. I noticed that there were a member -- at 11 least one member -- other member of the Bingo Advisory 12 Committee in the room. And I'm just going to want you 13 to put on the record you don't have a quorum here 14 present because I -- 15 MR. NEINAST: No. Just two of us. 16 Good morning, Commissioners. For the record, I am 17 Bill Neinast, chair of the Bingo Advisory Committee. 18 My report or my comments this morning is listed under 19 agenda item number 12. But of necessity, they will 20 overlap. And I will be commenting on items 13, 14, 21 and 15 because all of those are involved in committee 22 action that was taken at the one November meeting. I 23 mentioned at my last meeting with you that the new 24 committee is the best I've seen since I've been on it. 25 And I think that is reflected in the summary report I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 32 1 have given you. To use a term that I do not like, but 2 I can't think of a better term, the committee, at 3 least at this meeting, was very proactive in looking 4 for means of helping the Charity Bingo operators to 5 increase the amount of money that they have for their 6 charities. And I think that is reflected in just 7 about every one of the actions that we are 8 recommending to the Commission for either legislative 9 action or changes to the regulations. I've rearranged 10 my notebook. And I can't find the notes I need right 11 now. 12 The first item that is mentioned in my 13 previous report to you which I think is in your 14 notebook is a recommendation that the legislation be 15 sought to expand the time and location where instant 16 bingo or pull tabs can be sold. What we're talking 17 about there is to allow charity operators who have 18 their own facility or their own building to sell 19 instant bingo or pull-tab tickets outside of the times 20 authorized in their license. 21 To give you an example, the VFW in 22 Brenham, Texas is a bingo operator that has its own 23 hall. Part of that hall is a bar slash game room that 24 is open parts of every day where members can come in 25 and play -- members and nonmembers play cards, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 33 1 dominos, swap war stories, or what have you. If that 2 operator were allowed to have available and for sale 3 during those open periods instant bingo or pull tabs, 4 it would be an additional source of revenue for their 5 bingo operations. 6 You will notice below in item 2D of my 7 report, another action that we were recommending would 8 be amending the administrative rules to enlarge the 9 definition of pull tabs because there have been just a 10 number of innovations in that field in the last few 11 years where there are additional games that could be 12 considered pull tabs or instant bingo that really do 13 not now come under the definition. We were given an 14 example of one of those called seal tabs at our last 15 meeting that doesn't fit the definition. But it is a 16 type of instant bingo or pull tabs. 17 So taking these two together of an 18 expansion of the -- or an increase in the definition 19 of pull tabs in the administrative rules, plus 20 allowing these operators that have their own facility 21 would give, we think, an increase in revenue -- or 22 bingo revenue for those operations. 23 As a little corollary, we also 24 discussed during this part of the meeting possibly 25 seeking an amendment to the law that would allow the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 34 1 operators to have bingo for more than four hours a day 2 and for more days a week than are now permitted. The 3 consensus of the charity members of the committee and 4 from those charity operators and lessors in the 5 audience was that that would be counterproductive, 6 that they think that there is only -- there are only 7 so many hours and so many bingo players. And to try 8 to expand it may -- in that area, at least, would be 9 counterproductive. But there was a general belief 10 that allowing this activity -- and it would be limited 11 just to those operators who have their own facility -- 12 would -- could possibly be a benefit. 13 So the Bingo Committee recommends to 14 the Commission that they take whatever action is 15 appropriate under the circumstances to authorize or 16 encourage the enactment of the legislation to allow 17 the sale of these instant bingo tickets at times 18 outside of the normal license. Any questions on that 19 particular -- 20 COMMISSIONER SADBERRY: Mr. Chairman? 21 A very good report thus far. And I am very happy to 22 hear your comments as I value them, as we all do, as 23 to the compensation and functioning of the current 24 advisory committee. That's good news. That's brought 25 us historically a long way. That's good. And this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 35 1 committee, together to some extent with these 2 Commissioners, have had some role in the legislative 3 process as invited in prior sessions. And I know 4 the -- that the time for the prefiling of bills has 5 occurred. And what I wanted to ask you is if there 6 has been any analysis made by the advisory committee, 7 including Billy and his staff, as to whether any of 8 these concepts are already embodied in any prefiled 9 legislation to your knowledge. 10 Second part of that, to the extent we 11 might concur and adopt or embrace these concepts of 12 your committee, what it is that you anticipate might 13 be available to get this in the proper place for the 14 legislative process to take place as your committee 15 does that, or have you not seen that as part of your 16 mission? 17 MR. ATKINS: Can I respond to that, 18 Commissioner Sadberry? I think that as their role as 19 an advisory committee, we have put this information to 20 them for their input and their general impressions of 21 its effect on the bingo industry. Given that they 22 support that -- and I'll let Mr. Neinast continue with 23 his -- with his presentation. Should we get the 24 approval of this Commission, then the staff would 25 begin to work with our legal division and the -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 36 1 Nelda's group in order to get legislation drafted and 2 then get it into the legislative process. 3 COMMISSIONER SADBERRY: And that's good 4 to know. And as a reason I ask that, because at some 5 point in time in the past where we have legislation 6 that has even generated perhaps from other sources and 7 our input is invited to some extent as an agency, 8 there arises the question of the role of the advisory 9 committee in the legislative process. And this is a 10 procedure I'm addressing. I don't really need a 11 definitive response. I want to plant the seed in your 12 thinking as we go down, because by the time we meet 13 again, we're either going to be very close to the 14 session beginning or we might be ending it, depending 15 on when we will meet again. 16 So questions arise as to what's the 17 proper role. And Kim brought up issues about another 18 member of the advisory committee being present here 19 today, and that often occurs in the legislative 20 process. And the question of what need -- 21 procedurally needs to occur to allow participation as 22 invited or otherwise by the legislature, etcetera. So 23 I really throw it out to generate your awareness and 24 thinking along those lines to -- as we have -- right 25 with the legislature. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 37 1 But I am glad to see, going back to the 2 substance of your report, the function of the agency 3 through the advisory committee addressing what bingo 4 industry needs are and desires and objectives are that 5 best fits the purposes that you -- that we all serve 6 and certainly your committee serves. I think that's 7 where we've tried to get. And it sounds like we are 8 on target. And that's what I want to see. I'm glad 9 that it sounds like that's where we're headed in terms 10 of what is good or not. I know there is another item 11 we have not reached yet. I'll let you reach it first 12 and say the 40 percent limit. I know that's been the 13 subject of a lot of legislative attention. 14 MR. NEINAST: Further comment on that, 15 Commissioner Sadberry. Of course, the meeting was on 16 1 November. That was before the prefiling date. 17 There was some information or some indication that 18 some industry representatives will file some type of 19 legislation affecting this particular item. They are 20 interested in seeing it accomplished. So I feel 21 confident that whether it is proposed through Kim's 22 office and Nelda or through private sources, that some 23 legislation will be filed on this particular matter. 24 COMMISSIONER SADBERRY: Well, you do 25 make a good point that you could not have anticipated WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 38 1 what would be filed before the filing date. So you -- 2 in fairness, I would take it, then, your committee has 3 not had an opportunity to even analyze even those 4 bills that have been filed and as they continue to be 5 filed as to how these concepts might fit in to pending 6 proposed legislation. 7 MR. ATKINS: Well, you're correct. At 8 the time of their last meeting, prefiling had not 9 started. And as of today, I am told that there hasn't 10 been any legislation filed dealing with any bingo 11 issue. 12 COMMISSIONER SADBERRY: From your 13 staff? 14 MR. ATKINS: From our staff or from 15 anyone. 16 CHAIR CLOWE: And Billy, in the report, 17 are you going to give us staff's position on these 18 recommendations, or are you going to wait until Bill 19 concludes the entire report? 20 MR. ATKINS: I can do it whatever way 21 the Commission preference. Except for one, the staff 22 is going to support the advisory committee's 23 recommendations. 24 COMMISSIONER WHITAKER: What I think 25 would be helpful is if they commented as we went along WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 39 1 and explained why they supported it, if they do. 2 CHAIR CLOWE: I agree. 3 MR. ATKINS: Then if you'd like me to 4 start on the one dealing with the pull tabs, the 5 one -- part of the reason, Commissioners, is the pull 6 tabs are one of the most profitable games available to 7 organizations. And our requirements in the Bingo 8 Enabling Act as far as the times that those pull tabs 9 can be sold is very restricted. It restricts it to 10 the bingo occasion. And I'll give you an example. 11 Last year in Texas, pull-tab sales were $96 million. 12 In the state of Minnesota, they were over a billion. 13 So you know, we think that this is a relatively easy 14 way to afford organizations who want to pursue it to 15 increase their sales and thereby increase their 16 charitable distributions. 17 CHAIR CLOWE: Question comes to my mind 18 about the ability of the operator to control and 19 monitor these sales during nonbingo game periods. 20 Staff is on scene and operating the game at that time. 21 And it's a known period where certain things must be 22 done and certain things cannot be done. And Bill, I'm 23 not expressing an opinion. I'm really looking for 24 some help here. If this is done beyond those hours 25 and there is less supervision, there is lower manpower WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 40 1 or woman power requirement, then how is the Commission 2 going to be assured that everything is done properly 3 in regard to an expanded period of pull-tab sales? 4 Can you give me some comfort on that issue? 5 MR. ATKINS: I can give you some 6 without, you know, really going into a lot of 7 specifics because at this point, I don't have a lot of 8 specifics. But we would, of course, in drafting the 9 legislation either put certain controls in the bill or 10 at least authorization for the Commission to develop 11 those rules to put the controls in place. 12 For instance, you know, at the time, 13 we're talking about allowing organizations with their 14 own location to be selling the games. So therefore, 15 they would still have their employees there in charge 16 of it. And also, with the new charitable bingo system 17 that we're putting in place, we're looking at putting 18 a fairly sophisticated tracking mechanism in place 19 that will track the pull tabs from the manufacturers, 20 to the distributors, to the organizations. So we're 21 going to know at any point in time what pull tabs they 22 have, what their sales should be, etcetera. 23 CHAIR CLOWE: That's the comfort that I 24 want. 25 MR. ATKINS: Okay. Yeah. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 41 1 CHAIR CLOWE: I want to know for my own 2 satisfaction that we're going to have the control, the 3 oversight, and the correctness that applies during 4 normal bingo playing times if this is successful in 5 off hours. And we won't see monies lost or 6 incorrectly applied and that sort of thing. 7 MR. ATKINS: And we're looking at -- 8 and you know, we're not -- we're looking at the other 9 jurisdictions that are already doing this and, you 10 know, stealing those best aspects, if you will, to 11 look at, including and/or legislation, because we have 12 seen instances in other states where controls were not 13 in place. And we've seen what has happened. I 14 believe it's in the state of Ohio where the head of an 15 organization was convicted of taking almost a million 16 dollars in pull-tab sales. So we're definitely 17 looking at ways to control that. 18 MS. KIPLIN: I think just to follow up 19 on what Billy said, it's always helpful to look at 20 other statutory language and go beyond that and 21 actually talk to the regulators in other jurisdictions 22 and find out, if they had it to do over again, how 23 would they improve what they have. In terms of the 24 controls and comfort, that's going to have to come 25 from statutory language, clearly, or rule making WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 42 1 authority to adopt the rules to support that statutory 2 language. And then once the -- those controls are in 3 place, then it's going to come down to monitoring. 4 CHAIR CLOWE: Yeah. 5 MS. KIPLIN: Monitoring and 6 enforcement. 7 CHAIR CLOWE: Billy, you have to have 8 the staff to do that, to do the audits and have the 9 control procedures in effect. And I want to guard 10 against any casualness of pull-tab sales, because they 11 are so profitable, in nonplaying hours when you have a 12 full staff there. You know, in the bingo operations 13 that I've observed, it's very businesslike. It's tick 14 tight and batted down. And there is a very good 15 procedure in place. I don't want to see this -- 16 anything other than that if it moves forward. 17 MR. ATKINS: And if it should, 18 Commissioner Clowe, I think this is one item where 19 it's very easy for the agency to demonstrate that even 20 if additional staff is required -- and that is an 21 analysis we'll do. If staff is required to ensure 22 compliance with it, the anticipated additional income, 23 not only to the organizations, but the State from the 24 collection of the five percent prize fee, we're fairly 25 confident it will far outweigh that. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 43 1 COMMISSIONER WHITAKER: Do you have a 2 sense, Billy, of how quickly you'd be in a position to 3 recommend specific legislation, specific controls? 4 MR. ATKINS: I would say probably in no 5 more than a month. We've done already a lot of 6 preliminary work within the division. What we haven't 7 really done at this point is sit down with legal. And 8 I know that they've even been doing some of their own 9 work. So we just need to come together and kind of 10 hammer it out. 11 COMMISSIONER WHITAKER: Do you have a 12 sense that when you say expand to location, how much 13 expansion you're talking about? 14 MR. NEINAST: We discussed that briefly 15 in a committee meeting. And I think the consensus 16 was, whenever the activity -- the hall was open with 17 whatever operation they have there with -- and you'd 18 have to go back to some of these limitations that Kim 19 and Billy were just talking about. A paid employee 20 who is present to handle the cash. But any time that 21 the hall or the facility was open with a paid employee 22 would be the appropriate time for sales. 23 COMMISSIONER WHITAKER: And have you 24 done any projections of how many more sales you think 25 this would lead to? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 44 1 MR. ATKINS: We haven't yet. 2 COMMISSIONER WHITAKER: Okay. 3 MR. ATKINS: But again, we'll look to 4 the other states who have expanded sales and what 5 their sales are. And that's where we'll be going to. 6 COMMISSIONER WHITAKER: And you'll be 7 able to tell us that? 8 MR. ATKINS: Yes, ma'am. 9 MS. KIPLIN: And than analysis will 10 have to be done, you know, at some point, because with 11 every bill, there will need to be a fiscal note. That 12 will be put together. So we'll have to be putting a 13 fiscal note together. 14 COMMISSIONER WHITAKER: One more 15 question. What is the feedback from charities about 16 the need or the desire for this type of expansion? 17 MR. NEINAST: The -- both the charity 18 members of the committee, and we did have some 19 charities represented at the audience that day, was 20 all positive. They thought it would be a very good 21 move and they would like to see it. They think it 22 would help. 23 COMMISSIONER WHITAKER: Have there been 24 any of them that have indicated some concerns or 25 some -- well, some concerns? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 45 1 MR. ATKINS: None have indicated 2 concerns. 3 MR. NEINAST: None that I'm aware of. 4 COMMISSIONER WHITAKER: Thank you. 5 COMMISSIONER SADBERRY: Just a 6 follow-on. I guess combination question/observation. 7 The question is, Billy, how would this change existing 8 practice? I know the time we were considering the 9 sale of pull tabs between sessions. And just to 10 refresh me, where are we on the -- that operation 11 compared to where this would take us if this were in 12 place? 13 MR. ATKINS: Currently, organizations 14 do sell pull tabs between their occasions. What I can 15 try and do is give you, you know, just a scenario. 16 Suppose that you had a VFW organization with their own 17 hall who normally played bingo at noon three days a 18 week. And they sold pull tabs during their regular 19 bingo occasions. Say they played Monday, Wednesday, 20 and Friday. But that VFW hall also had, as Bill 21 referred to, a clubhouse or a game room that was also 22 open, say, from 6:00 to 10:00 in the evening five or 23 seven days a week. What we would be looking at is 24 authorizing the organization to sell pull tabs from 25 the 6:00 to 10:00 in the evening while they were open WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 46 1 and their staff was there. 2 COMMISSIONER SADBERRY: And there is no 3 perceived concern that this would impact the operators 4 who own their facilities and have control of their 5 facilities, as opposed to others who do not? There is 6 no concern raised there? 7 MR. ATKINS: There was some concern. 8 And what we were looking at and what we'll be looking 9 at in the drafting of the legislation is, as Bill 10 referred to, any location, whether or not it's a VFW 11 hall, if they're open for any other type of activity, 12 to -- that they have employees there, that they're 13 able to sell during those occasions. 14 COMMISSIONER SADBERRY: The reason I 15 ask is, I know you haven't gotten the full report. 16 And 40 percent is going to come up. And I want to get 17 ahead of your report. But I know that was a 18 significant fundamental issue as well as the several 19 other issues I've seen around our history here, that 20 we not create an imbalance with anything we do as we 21 look at perceived large versus small regional and 22 other disparity bases that one could analyze these 23 things. But it sounds like you've looked at that. 24 And I just want to make sure I'm reading that right. 25 MR. ATKINS: We have looked at it. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 47 1 I want to -- you know, I want to make sure, 2 Commissioner Sadberry, again, no organization has 3 raised any concern with me. That doesn't mean that 4 they're not out there. And you know, I think it's 5 highly probable, you know, just like any, you know, 6 small organization that doesn't have employees on 7 their location all the time, you know, obviously 8 couldn't take advantage of this. And they would 9 object to it. Or even a hall that doesn't offer pull 10 tabs could object to it. 11 COMMISSIONER SADBERRY: Best we can do, 12 certainly, and I agree with you, is a combination of 13 your staff and the opportunity to speak and present 14 issues to the committees is the best way we can -- 15 certainly we have to attract that. But I want to 16 raise it because I've heard it. And I just want to 17 make sure we keep that on the -- on the scope with all 18 other considerations. 19 And finally, it doesn't trouble me. 20 But I imagine somewhere along the way, were we to 21 embrace this, the question is going to come up to -- 22 as to explaining the, to me, understandable concept 23 that there is a invited and desired limitation on 24 bingo occasions within the industry because of their 25 realization of limitations that you've expressed, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 48 1 Bill. At the same time, a desire to expand pull tabs. 2 I don't think those are incompatible. But I think 3 that certainly is something we should be in a position 4 to address with as much empirical data as we can 5 muster so that that's not an open question we can't 6 respond to. 7 CHAIR CLOWE: Good discussion. Bill, 8 will you continue on, please. 9 MR. NEINAST: The next item is, the 10 committee recommends that the Commission support a 11 repeal of section 2009.409B [sic] Of the Enabling Act 12 to eliminate the 40 percent limit on using electronic 13 card minding devices. That has been an issue or a 14 problem apparently for some time. Back in September 15 of last year in the Bingo Bulletin, it was mentioned 16 that in a number of the audits, a number of operators 17 were not abiding by this limitation. I personally do 18 not know why that limitation was put in. But 19 apparently there are operators who are using these 20 devices and would like to see them -- the limitation 21 removed. And leave it up to the individual operators 22 as to whether they want to use them. And if they do, 23 how much and how often. And it was a unanimous vote 24 of the committee that this item be repealed and leave 25 it up to the individual operators to use the devices WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 49 1 as they see fit. 2 COMMISSIONER SADBERRY: Well, I don't 3 know that I can tell you -- I think I have a sense, 4 and that isn't perfect. But as often is the case, it 5 could well be a compromise that resulted from the 6 perception, again, of the disparities of those 7 operators who do not have the player base and do not 8 have the setup, the volume, or what have you, that 9 could afford the technology. The technology being 10 new, newer. And therefore, bringing in some inherent 11 issues of what it was going to do to the traditional 12 way of playing bingo, those who wanted to maintain 13 that. And this is the way it's always been. This is 14 bingo to us as opposed to a lot of the gadgetry, 15 etcetera. I don't mean anything by that. That's my 16 perception. And that perception is based on just my 17 tenure of having these issues brought on. 18 Together with -- coming back to your 19 early-on observations, Bill, perhaps at a time when we 20 did not have the functioning of an advisory committee 21 that had the ability to really get public sentiment 22 brought together in a way that gave to us, and more 23 importantly, the legislature in this instance, type of 24 data needed to analyze whether it really made a 25 difference. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 50 1 I do recall the tracking issue as far 2 as what the technology is capable of doing and how 3 often you as a staff, Billy, would be able to monitor 4 it. I remember those issues being raised. I'm not 5 sure I followed it to the point that I know what you 6 are doing in that regard. But of importance to me as 7 one person would be whether or not you received those 8 same types of concerns expressed to you as I've laid 9 out here. It sounds like you did not, as you voted 10 unanimously. I'm presuming you did take into account 11 any comments you received? 12 MR. NEINAST: No negative comments from 13 either the Commissioners or the public. And we did 14 have -- I think I mentioned that we did have a lot of 15 input from the public at this meeting. We had a 16 number of operators and lessors in attendance who 17 commented on a number of these proposals. And on this 18 one, there was no opposition. 19 MR. ATKINS: My recollection is there 20 was. I thought it was Scott. I could be wrong. But 21 I do recall that there were some concerns raised. And 22 the concerns were, again, Commissioner Sadberry, 23 exactly what you laid down. But you know, staff is 24 not able to justify that argument. You know, some 25 organizations make the argument that if you, you know, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 51 1 did away with this limitation, it would allow for a 2 completely electric hall. You know, we don't see 3 that. There is just one hall that has recently 4 advertised themselves as being all electric on a 5 reservation up in Oklahoma. And I'm not even sure how 6 they're doing. 7 But you know, first of all, if a hall 8 in this state did decide to go 100 percent electronic, 9 I can't give you any down side to that. It's a -- 10 it's a, you know, decision of the marketplace. We 11 don't see by the elimination of this rule a really big 12 fluctuation anticipated in the amount of card minding 13 devices that are currently in use. We think the 14 market has probably, you know, hit its balance. And 15 this is just an artificial control that's in place. 16 And as you said, it's very difficult to track and 17 enforce, not only for us, but for the organizations. 18 So it's almost like the Act, you know, breeds in an 19 almost sure-fire violation. 20 MR. NEINAST: My apologies. If Scott 21 did -- Scott testified on a number of issues. I do 22 not recall him opposing that. But in any event, the 23 vote of the committee was eight to zero to approve it. 24 And as Billy just commented, they have had problems 25 as -- recognized as early -- more than a year ago as WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 52 1 they had an item in the Bingo Bulletin on it because 2 of the problem that Billy mentioned, that you had to 3 go back and get your average attendance for the last 4 two -- I would imagine -- I haven't done it, but I 5 would imagine it's an administrative headache for the 6 charities and the operators to figure out how many 7 they can sell at each game. 8 COMMISSIONER SADBERRY: And aside from 9 that issue, you've got that gross receipts issue that 10 if you get a chance, if this were in place, you might 11 want to take the opportunity, I would suggest, to deal 12 with that. I think we -- it's okay. It sounds like 13 it's working. If we're going to do something on this, 14 if you can clear that up, that would be helpful, I 15 think, to you as well. 16 CHAIR CLOWE: Okay. Thank you. 17 COMMISSIONER WHITAKER: I actually have 18 a question. Kim and Billy, do you -- what's your 19 understanding of the background of that statute? 20 MR. ATKINS: My understanding is 21 exactly what Commissioner Sadberry said, that it was a 22 compromise that was reached among the interests, one 23 interest being the -- you know, I'll call them smaller 24 locations who didn't anticipate using electronic card 25 minding devices and fearing that they would take away WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 53 1 from their customers, and the larger halls who did 2 want to use them. So that -- 3 MS. KIPLIN: I -- that's my 4 recollection. It was a concern about competition and 5 the fact that the larger halls would have a better 6 opportunity to put in the electronic equipment. And 7 that that would be more attractive to players. And it 8 would take players away from the smaller halls into 9 the larger halls. 10 COMMISSIONER WHITAKER: And when was 11 this put in place, the statutory limits? 12 MS. KIPLIN: I want to say this was in 13 1995. 14 MR. ATKINS: I believe that's correct. 15 COMMISSIONER WHITAKER: And is it your 16 sense that things have changed so that those concerns 17 will not be raised again? 18 MS. KIPLIN: I think that there are 19 still some charities that use paper. But I believe 20 the majority of them do use electronic. And I guess 21 it's really a balancing on let the market take care of 22 this or have this kind of restriction on the 23 competition. 24 MR. ATKINS: Well, I would -- I don't 25 know that a majority of our halls use electronic WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 54 1 devices. But I do think that we have enough 2 experience under our belts to show that there are 3 bingo players that don't want to play electronic. And 4 they're playing paper. As a matter of fact, you saw 5 an all-paper hall. So you know, I don't see the 6 argument holding water that if you allow more card 7 minding devices, people are going to flock to them and 8 play them. People that want to play paper are going 9 to play paper. 10 MS. KIPLIN: The other -- the thing I 11 would, I guess, add is that if this language is 12 drafted and the legislation is, in fact, filed, there 13 is ample opportunity for people to comment on 14 legislation and put their concerns on the record 15 before the legislative body. 16 COMMISSIONER WHITAKER: But you're 17 prepared, Billy, to basically argue that the change is 18 needed? 19 MR. ATKINS: Yes, ma'am. 20 COMMISSIONER WHITAKER: And it is an 21 appropriate change? 22 MR. ATKINS: Yes, ma'am. 23 COMMISSIONER WHITAKER: Okay. 24 CHAIR CLOWE: Okay. I think we're 25 ready to move on now. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 55 1 MR. NEINAST: Okay. The next item is a 2 recommendation that legislation be sought or sponsored 3 that would allow for progressive bingo games with 4 prizes above the current limit. This, I think, has 5 widespread support throughout the community, 6 definitely on the committee and those in attendance. 7 The -- they feel that the limit of $750 per game as 8 the maximum prize really is keeping down attendance. 9 If they could increase that amount, if the prize is 10 not taken at tonight's game with the number of numbers 11 called, that they increase it to 800 or 850 for the 12 next game and publicize it. They think that would 13 bring in a number of additional players and increase 14 the interest. And it was a unanimous recommendation 15 that that be sought to increase the limit through 16 progressive. Not just saying take off the limit 17 entirely. But allow a type of progressive bingo game. 18 Commissioner Sadberry, I believe I see a quizzical 19 look. 20 COMMISSIONER SADBERRY: Well, actually, 21 it's a supportive look. A thought just occurred to me 22 in that regard. I think I can hopefully add to the 23 answers previously given about the other items, too. 24 Billy and Kim, can you tell me -- remind me when the 25 interim study committee -- interim study committee WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 56 1 process occurred? 2 MS. KIPLIN: I believe it was after the 3 '95 session. 4 MR. ATKINS: '96. 1996. 5 COMMISSIONER SADBERRY: I think to add, 6 then, I'm appreciate and supportive of your concepts. 7 I think this also is now the pendulum swinging a 8 little bit from the interim study committee and the 9 legislation that came out of that and had some checks 10 and balances put in it on some of these items that 11 maybe now the industry united is trying to adjust. 12 MR. ATKINS: The -- both interim 13 committees in '96 recommended -- 14 COMMISSIONER SADBERRY: Their 15 recommendations were not fully embraced and did not 16 reach legislation, obviously. So I think that is not 17 only swinging the pendulum, but also catching up with 18 some of those recommendations. 19 MR. ATKINS: They -- that's correct. 20 They made the recommendation in '96. However, there 21 was no legislation filed in the '97 session relating 22 to the progressive game. We brought this up before 23 the previous advisory committee. And subsequently, 24 legislation was filed last session for a progressive 25 game. So basically, we're proposing the same thing. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 57 1 Two items that I would bring to the 2 commissioners' attention -- three items. One, a 3 progressive bingo game is probably one of the most 4 common form of bingo game that there is. 5 Secondly, as Bill mentioned, it allows 6 organizations the opportunity to increase their 7 jackpot prize, therefore generating excitement. There 8 is some concern amongst the industry that that will 9 create a pattern of what is referred to in some 10 jurisdictions as jackpot chasers. Players will move 11 from hall to hall as the jackpot increases. I don't 12 deny that. But one interesting thing that has started 13 to occur in the state of Michigan, who just recently 14 authorized a jackpot game, I want to say as early as 15 last year, is they found in a city as the jackpot grew 16 at one location, attendance also increased at other 17 locations throughout the city. The reason being that 18 a bingo hall can only physically hold so many people. 19 So they would get to a point where the hall would be 20 full. People who had gone to the hall and couldn't 21 get in apparently were then going to another hall. So 22 we found a benefit in that instance. 23 One other issue that's been raised by 24 the public is a recommendation that any proposal we 25 put forward contain a ceiling, a cap that the prize WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 58 1 can generate to. And the one that I've heard, the 2 most common number that I've heard is $10,000. It 3 wouldn't be at this time staff's recommendation to 4 include a cap, but to allow the market to progress as 5 it does. 6 MS. KIPLIN: Also, if I recall 7 correctly, as part of that interim study, there was a 8 recommendation to increase the prize caps then per 9 game and also per occasion. And that was implemented. 10 So that -- there is some foundation for that already. 11 CHAIR CLOWE: Very good. Go ahead, 12 Bill. 13 MR. NEINAST: Now we move into the 14 administrative area. And the next two items, 3A and 15 B, a lot of discussion on those items at the committee 16 meeting. First was the authority be sought to give 17 the director of the bingo division subpoena power, to 18 authorize the director to subpoena records of the 19 various entities involved in a controversy or in a 20 question. That was passed with very little opposition 21 or discussion, unanimously. 22 The next item, though, authority to be 23 sought to give the director of the bingo division 24 summary suspension power, as it's stated there, the 25 final vote was to limit it to delinquent taxes and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 59 1 fees. The proposal originally was to give the 2 director of the bingo division summary suspension 3 power in all actions in which there was a violation of 4 any type. Considerable opposition to that part of the 5 recommendation that the director have summary 6 suspension power in matters other than the collection 7 of delinquent fees and taxes. And the vote of the 8 committee was to separate those out and recommend that 9 the director not be given subpoena power -- I'm sorry, 10 summary suspension power for matters not related to 11 the collection of fees and taxes. But to give him 12 that summary suspension power for -- in those cases of 13 delinquent taxes and fees. 14 And that's the recommendation of the 15 committee, that the director be given subpoena powers 16 in all cases where there is an issue and a need. That 17 he be given summary suspension powers in cases of 18 operators who are delinquent in their fees or taxes. 19 COMMISSIONER SADBERRY: I guess my only 20 question would be -- I don't have any question about 21 it. I mean, I'm for it. Billy, you might be in a 22 better position on this. When the bingo director 23 became a direct report, and do you recall if this type 24 of issue, whether these powers should be granted, were 25 before the legislature, or they just were not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 60 1 considered? I -- my recollection is, they were just 2 not considered. What I would want to know if this is 3 something they considered and for some reason 4 rejected. And I don't think that's the case. 5 MS. KIPLIN: That's not my 6 recollection. But we'll look into that. 7 MR. ATKINS: Again, the subpoena 8 authority would be in order to access those third 9 party records. Under the Act, we think we are -- have 10 enough statutory authority to go to an organization's 11 general fund or bingo account. What we're looking for 12 is subpoena authority over bank records. And because 13 bingo is such a cash-intensive business, we believe 14 that that authority is imperative. 15 I guess I misspoke earlier. I disagree 16 with one and a half things that were put forward by 17 the Commission. And that deals with B, on the summary 18 suspension authority. I'm willing to accept that as, 19 I guess, a compromise position. That is probably one 20 of the most pressing issues that we have. 21 Organizations that become delinquent continue to 22 operate and that delinquency grows. My only concern 23 and my argument before the advisory committee is, this 24 just seems like another instance where the charities 25 are being singled out for enforcement -- you know, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 61 1 enforcement actions or enforcement authority. You 2 know, I think it's easily imaginable where 3 manufacturers, distributors, or SSP where any license 4 time could commit a violation of such a nature that 5 summary suspension will be the best action. 6 COMMISSIONER SADBERRY: You argued for 7 it to be broader. And your argument was not accepted 8 by the advisory committee, is what I'm hearing you to 9 say. 10 MR. ATKINS: That's right. 11 MS. KIPLIN: I think one concern that 12 I've heard, not recently, but in the past, has to do 13 with due process. In any summary suspension statute 14 that I've looked at, there is due process. The action 15 takes place. But there is a mandatory requirement for 16 a show cause or due process hearing within a 17 relatively short period of time. 18 Just to use as an example, on the -- in 19 the Lottery Act, it's within ten days of the date of 20 the notice of the summary suspension. And you can 21 look at different administrative type statutes and 22 find out. There will be an opportunity for a 23 full-blown evidentiary hearing. 24 COMMISSIONER SADBERRY: SOAH? 25 MS. KIPLIN: Yes. It will be at the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 62 1 State Office of Administrative Hearings. 2 MR. NEINAST: And that particular issue 3 was discussed at length, the due process issue. That 4 was part of the proposal that we considered of the 5 following along of giving notice and having a hearing. 6 So it was fully aired. And there was substantial 7 opposition from the public on that issue, including 8 our discussion of the due process guarantees that 9 would be built into it. 10 COMMISSIONER WHITAKER: Billy, give me 11 an example of another area outside of delinquent taxes 12 and fees where you think it's critical that you have 13 summary suspension powers. 14 MR. ATKINS: An organization playing 15 unlicensed bingo occasions. 16 COMMISSIONER WHITAKER: For example, 17 just somebody deciding to set up a bingo hall without 18 any licensing at all? 19 MR. ATKINS: Or a -- no, no. A 20 licensee conducting bingo games other than when they 21 are licensed to. 22 COMMISSIONER WHITAKER: And the concern 23 with that situation in your mind would be what? 24 MR. NEINAST: Well, the concern that 25 was expressed at the committee is that that suspension WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 63 1 of that particular operator would have an effect on 2 anyone else playing in that hall because that -- this 3 is coming from the lessors, that when that operator 4 cannot play on its designated hours and days, there is 5 a blank time in the hall. And it's hard to fill that 6 up with someone else. Or later if the suspension is 7 lifted, it's going to be some time before they get 8 back and build their clientele back up, was the 9 opposition as expressed by those from the public. 10 MS. KIPLIN: But that same argument 11 lends itself to the ultimate revocation or a 12 suspension after -- you know, on the normal process. 13 We hear the same argument, that it impacts the other 14 folks that are in that hall. And you know, I guess my 15 response to that is, that's what the legislature set 16 up. And I'm not sure if that is relevant in terms of 17 the issue of a particular person's noncompliance with 18 the statute. 19 COMMISSIONER SADBERRY: Am I accurate 20 that before bingo director became a direct report, 21 that the executive director of the Lottery Commission, 22 which bingo was -- had summary suspension powers on 23 prior issues and not bingo? 24 MS. KIPLIN: Yes, sir, that's correct. 25 COMMISSIONER SADBERRY: And what we are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 64 1 seeing is the issue of to what extent does now that 2 bingo director's direct report parallel in powers of 3 enforcement in administrative areas to what would be 4 the case in the lottery setting. 5 MS. KIPLIN: Yeah. And I should say, 6 just to be absolutely correct, there is a provision in 7 the current Bingo Enabling Act that references summary 8 suspension. But it's unlike any type of summary 9 suspension I've ever seen, because you've got a notice 10 of the hearing, and have that hearing prior to being 11 able to take any sort of suspension action against the 12 license. So it's still something that occurred prior 13 to the action. It's not a faster track. But it's not 14 like any sort of summary suspension or ex parte type 15 action I'm familiar with. 16 COMMISSIONER SADBERRY: I didn't mean 17 to cut you off. That is kind of the basis for my 18 questioning about what the legislature looked at when 19 it made bingo a direct report. When this interim 20 study process was going on, that was a big issue, 21 including where bingo was going to be and what agency, 22 etcetera. And I think that a lot of those, I believe, 23 have been resolved. And I think that's a result of 24 the industry coming to a point of trust and faith and 25 confidence in the Lottery Commission as being an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 65 1 even-handed process that they would receive as well as 2 the history of enforcement being more reliable, if I 3 could say that. And I think the question now on your 4 proposal, Bill, is whether we think it through further 5 and whether we embrace what you've brought thus far in 6 terms of subpoena and summary suspension and whether 7 it should be enlarged. And I think there is a 8 balancing to be done with your committee and Billy's 9 perception in that regard. I'm not sure where I am on 10 that right now. 11 MR. ATKINS: Well, I think -- I think, 12 as Bill said, the committee was unanimous on the issue 13 as it relates to subpoena authority. 14 COMMISSIONER SADBERRY: Right. I 15 understand. 16 MR. ATKINS: And the committee was 17 unanimous. And I was halfway unanimous with the 18 summary suspension aspect. And I mean halfway 19 unanimous by the fact that this will help. But it's, 20 in my opinion, not the complete picture. So you know, 21 when I say it's something that I would be willing to 22 consider a compromise on, if we want to look at it, if 23 we move forward with this and are able to get the 24 summary suspension authority on financial matters, 25 then maybe we can build the history that you were WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 66 1 talking about of the even enforcement. And then look 2 at expanding that at a future date on other items. 3 COMMISSIONER SADBERRY: That's one way 4 of looking at it. The other way of looking at it is 5 going for what you think is the right thing and 6 letting the legislature decide whether that should 7 be -- 8 CHAIR CLOWE: That's right. We're not 9 making laws here this morning. I think it's important 10 to ask for what you think is right, with the 11 understanding we're not making law here this morning. 12 MR. ATKINS: In that case, the staff 13 will be looking for summary suspension. 14 CHAIR CLOWE: Clarification? I think I 15 just got it. 16 COMMISSIONER SADBERRY: I'm getting 17 ready to vote. 18 CHAIR CLOWE: Bill, I think we're ready 19 to move on. 20 MR. NEINAST: Okay. The next item is 21 the item on which the committee and the staff are in 22 disagreement. That is, the committee recommendation 23 is that -- well, let me back up. There was a proposal 24 that now that we have some experience under our belt 25 on the training program, that now the charities be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 67 1 charged for the program. That was the motion, that we 2 start leveling a fee for taking the training program. 3 There was a lot of discussion on that. The final vote 4 was zero for the motion, two opposed. Now, someone in 5 attendance -- and I don't know their parliamentary 6 experience. Kim, you may know -- said that abstention 7 is a no vote. So if that's the case, it would be a 8 unanimous vote against charging for the training 9 program. I don't know. But anyway, the recorded vote 10 was zero for, two opposed. 11 CHAIR CLOWE: Did you have somebody for 12 it in that meeting? 13 MR. ATKINS: I was for it. 14 MR. NEINAST: And if I may -- 15 COMMISSIONER SADBERRY: Show of hands. 16 MR. NEINAST: With the Commission's 17 experience -- I mean, agreement, I would like to step 18 out of my role now as chair of the committee and give 19 my personal views on this, because I feel strongly 20 about it. And if I may give my personal views on it, 21 rather than the committee views. 22 CHAIR CLOWE: I wonder if that's 23 appropriate in fairness to those who have an opposing 24 viewpoint, Bill. This is a question of correctness. 25 I respect your opinion. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 68 1 MR. NEINAST: And it is. I think that 2 is what would be covered under item 14 on the agenda. 3 Is that -- is that what you planned to cover under 4 agenda item 14? 5 CHAIR CLOWE: We would invite any 6 public person to make a comment on this. Is it 7 appropriate for Bill to step out of his role and 8 become a public person at this juncture? 9 MS. KIPLIN: Actually, if I'm not 10 mistaken, Mr. Neinast, don't you serve in the public? 11 You don't serve as the charity, you serve as the 12 public anyway. 13 MR. NEINAST: Yes. 14 MS. KIPLIN: I think it's what you want 15 it to be. And if you'd like to hear if he has a 16 personal opinion, I think you're capable of asking for 17 that. You're authorized to ask for that. It's 18 consistent with the past Commission practice. While 19 commissions, governing bodies don't -- are not 20 required to have people participate and provide public 21 comment, you-all have done that at every meeting. And 22 I'm sure that you would welcome public comment after 23 Mr. Neinast has made his comments, whether they're in 24 an official or personal capacity. 25 CHAIR CLOWE: And the notice is broad WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 69 1 enough that anyone who wanted to comment would have 2 been properly noticed to be here and give their 3 individual comments. 4 MS. KIPLIN: I'm sure, although any 5 advisory committee chairs -- 6 COMMISSIONER SADBERRY: I'm happy with 7 that, Mr. Chairman, particularly to the extent that 8 the chair of the advisory committee makes it clear 9 when he steps into a different role so there is no 10 confusion about what he -- what view he is presenting. 11 MR. NEINAST: I am not at this point 12 presenting the view of the committee, but my own 13 personal views. 14 I am strongly opposed to this because 15 it is what -- I don't think it's right. I think -- 16 the term I use, it's an unfunded mandate. The 17 legislature has come out and said, you must take this 18 training. We went out -- we, the Commission, the 19 Lottery Commission went out and said, you have to take 20 it. We're not going to charge you for it. Well, 21 that's about a year ago. Now we come back and say, 22 well, now you've got to pay for it. We see this all 23 the time. 24 Commissioner Sadberry, a good example 25 is, if you've applied for a pesticide applicator WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 70 1 license on your ranch down in Burleson County, which I 2 did, the government came out and said, you've got to 3 do it if you're going to use restricted pesticides. 4 It's not going to cost you anything. You just read 5 this book and take the test. You're licensed for 6 life. A little bit later they said, well, no. That's 7 wrong. You've got to take 15 hours every five years 8 of continuing education units. Now they've come out 9 and said, well, you've got to take 15 hours of 10 continuing education. And you've got to pay $50 to 11 get your license. 12 That's exactly what we're doing here. 13 We're saying, you've got to take it. But you've got 14 to pay for it. And when we say that, we're taking 15 money out of the charities' pot of money that they 16 have for their charities. My recommendation is that 17 if it is costing you more or we realize we may not be 18 able to fund it from the budget of the Bingo Advisory 19 Division, to put that in as a line item on the budget 20 to pay for the education that the legislature has 21 directed. 22 Billy and I have discussed this. And I 23 don't want to steal Billy's thunder or put words in 24 his mouth. But his observation on that is that when 25 the -- when they went in to upgrade the computer WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 71 1 system in the Bingo Division, they said, okay, you can 2 have it. But the operator is going to have to pay for 3 it. And as you recall, we went through and got an 4 authorization for a temporary increase in the fee. I 5 think this is a little different. 6 This is something -- that was something 7 that the division wanted because it would improve 8 their operation. But this is, I think, completely 9 different. When we have come down with a mandate from 10 Austin saying, you will take it. It's going to be 11 free. And now we're telling them, well, you've got to 12 take it, but you've got to pay for it. 13 CHAIR CLOWE: Okay. 14 MR. NEINAST: Those are my personal 15 views. 16 MR. ATKINS: And Bill and I have 17 discussed this. And the training program, again, is 18 not a proposal that the division put forward. The 19 training program is a proposal that the industry put 20 forward. The legislature considered that at their 21 request. 22 Secondly, and Bill and I have discussed 23 this, I've gone back and reviewed very carefully 24 minutes of previous bingo advisory committee meetings. 25 I never in my role as either acting director or WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 72 1 director of the bingo division said there would never 2 be any charge. My comments were, we don't know at 3 this time, because we didn't. We didn't have the 4 background. We didn't have the knowledge that we do 5 have now. And it is, as you'll see in my presentation 6 on the operator training program, become an expense 7 not only in terms of -- not only in monetary terms, 8 but in terms of time and staff resources. 9 Now, I did, after the advisory 10 committee and after talking with Bill and his 11 position, have an opportunity to meet with 12 Representative Heflin, the chairman of our 13 appropriations subcommittee, and put the proposal for 14 him as far as coming back to the committee with it as 15 a line item request. And in summary, his response is 16 that we would be better off coming forward and asking 17 for permission to charge a cost recovery fee. He 18 thought it was very inconsistent with other training 19 programs that are mandated for, you know, any type of 20 organizations, whether it's professional license or 21 anything else, to require them to pay for it, but in 22 this instance, have it appropriated by the State. 23 CHAIR CLOWE: Questions? 24 MR. ATKINS: So again, staff would ask 25 that we do be allowed to go forward and request a cost WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 73 1 per fee coverage. 2 CHAIR CLOWE: All right. Bill, I think 3 we're down to your last item, are we not? 4 MR. NEINAST: Yes. If I can combine 5 that last 3B with number four. And this is something 6 I discussed with you when I last met with you. The 7 committee thinks it would be a big advantage to hold 8 committee meetings outside of Austin together with 9 establishing a definite time for those meetings 10 outside of necessarily called meetings. We did set an 11 agenda -- not an agenda, but a meeting schedule as 12 reflected there in number four, to meet the second 13 Wednesday of each February, May, June, July, and 14 October. So the operators and interested people will 15 know in advance that we're going to have a meeting on 16 those dates. 17 The other issue that we need your help 18 on is an amendment to the regulations that would allow 19 us to meet as we see fit at places other than Austin. 20 The regulations now require that the meetings of the 21 committee be in Austin. A limiting factor on that 22 would be, Billy says there is about 3,500 to $5,000 in 23 the budget for the travel of the committee members. 24 So where we meet and when we meet would be limited by 25 that factor. It would also have a limiting factor if WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 74 1 we're not meeting in Austin, we would not have 2 available to us in most cases advice from Kim, if 3 needed, some of the other staff members in Billy's 4 office. But we think that would be outweighed by 5 getting out to the areas where people with interest, 6 the operators, the lessors, would find it easier for 7 north Texas if we had a meeting in Lubbock to attend 8 those meetings. And I think we would get some 9 valuable input from them. So it's the recommendation 10 of the Bingo Advisory Committee that authority be 11 given to begin the necessary paperwork to post a 12 change to the regulations that would allow meetings 13 outside of Austin. To require at least one meeting in 14 Austin. And the other three could be held in Austin 15 or elsewhere as the committee sees fit. 16 CHAIR CLOWE: Bill, so there is no 17 confusion, the information under item four is simply 18 for our information? 19 MR. NEINAST: Yes. 20 CHAIR CLOWE: No action required? 21 MR. NEINAST: That's right. 22 CHAIR CLOWE: So really, item D under 3 23 is the last item in your recommendation. And you just 24 covered that? 25 MR. NEINAST: Yes, sir. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 75 1 CHAIR CLOWE: Okay. Anything further? 2 Questions? 3 MR. ATKINS: The only comment I have on 4 the meetings outside of Austin is, I guess I had my 5 figures reversed. I thought we were looking at one 6 meeting outside of Austin, with the other three in 7 Austin because of the additional cost in staff travel 8 that would be incurred. But I mean, as long as we 9 have the budgetary funds for it, staff has no 10 objection to that. 11 COMMISSIONER SADBERRY: I guess my 12 question is, when -- Bill, when you say regulation, 13 are you talking about a rule of the agency or State -- 14 MR. NEINAST: Yes. 15 COMMISSIONER SADBERRY: So really, this 16 is not a legislative item. This will be 17 administrative. 18 MR. NEINAST: No. But we have to go -- 19 we have to go through the notice procedure. 20 COMMISSIONER SADBERRY: To change the 21 rules. 22 CHAIR CLOWE: We've been commenting on 23 each one individually. So I will give my comment on 24 that one at this time. I'd be opposed to that. My 25 view is that as a citizen appearing before a number of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 76 1 State agencies in my past history, for the most part 2 unless there was a tremendous outpouring of local 3 sentiment and to ease the public's expense and time 4 for travel for special type hearings where they are 5 held out of Austin, it's beneficial to continue to 6 have meetings which are of smaller groups on a regular 7 basis in Austin where all the resources are available. 8 I think it's beneficial to the individual members of 9 such a group to come to Austin and be in this building 10 physically and talk to other members of the staff, 11 Billy. And I see a beneficial result from that. That 12 is nothing more than my personal opinion. I am not 13 sure that that use of funds is a best use of funds for 14 staff. And I have a real question about that in my 15 mind. That's just my off the top of my head reaction 16 to it. And that's it. 17 COMMISSIONER SADBERRY: I tend, Mr. 18 Chairman, to lean in your direction incisively. I can 19 see some reasoning for rotation. And in fact, if I 20 recall correctly, this body considered it. Kim, am I 21 right? At some point, we decided against it, or did 22 we just not ever -- 23 MS. KIPLIN: I don't have a specific 24 recollection on that. 25 COMMISSIONER SADBERRY: I know we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 77 1 thought about it. Linda, do you recall that? 2 MS. CLOUD: Yes, I do. 3 COMMISSIONER SADBERRY: Well, I don't 4 know why we decided against it. We've never done it. 5 I don't know why we decided against it. Well, 6 probably it's because of what the chairman says. 7 MR. ATKINS: I was just going to say, 8 it was considered on behalf of the Commission at one 9 time. And also, there was some consideration of it 10 because there was specific language put in the current 11 rule that required the meetings to be held here in 12 Austin. 13 COMMISSIONER SADBERRY: And I'm 14 thinking that we had a reason for that. And I -- it 15 could well have been the newness of the advisory 16 committee. We have held joint sessions where it was 17 beneficial to do so where the commissioners met with 18 the advisory committee in a joint meeting. I'm going 19 to venture, Bill, that there may come a time when that 20 probably ought to be an appropriate proposal to 21 consider. I really question whether we are there yet. 22 We have a real good committee, advisory committee now. 23 And I would be more inclined to support it because of 24 that. But I'm still wondering if we want to start 25 that. And this is a time -- I'd say more of a timing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 78 1 issue. 2 I would tend to agree with the 3 chairman's general views on it that, you know, the 4 meeting place ought to be at headquarters, and that 5 ought to be it. And there may be special occasions 6 where we would by some rule make a mechanism to decide 7 otherwise. But as a general proposition now, I'm not 8 sure I would think it's time to change the rule. And 9 particularly since we as a Commission have not gone to 10 that process. We have had town hall meetings where we 11 did notice meetings for that reason, but not generally 12 for conducting business. And that may be a wiser 13 course to stay in my mind at this point, would be my 14 reaction. 15 COMMISSIONER WHITAKER: Let me ask you: 16 How strongly did the committee feel about this 17 proposal? 18 MR. NEINAST: We weren't pounding the 19 table. We just thought it would be a good idea to get 20 out where the -- 21 COMMISSIONER WHITAKER: Your facial 22 expression tells me everything. 23 CHAIR CLOWE: Well, and Bill, I'm a big 24 advocate on getting out. I'm on a personal program 25 now of visiting all the offices of the Commission WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 79 1 around the state. And we've had town hall meetings 2 where issues have come to the surface. And Linda has 3 a very fine program of retail town hall meetings where 4 the staff goes out and visits locales where we know 5 the retailers can't come to Austin. 6 But this committee -- I elevate this 7 committee to a high level in my mind. It's an 8 advisory committee. The Commission looks on it and 9 the staff looks on it with great prestige. And I 10 think it would be improper for the Commission to meet 11 anywhere other than Austin. This is where the 12 people's business is conducted. And I feel the same 13 attitude towards the advisory committee. I think the 14 members ought to come to Austin and conduct that 15 business which is the people's business here. And 16 it's just a matter of personal opinion. And I hold 17 that. So I just wanted to be honest with you about 18 it. 19 Is there anyone else here, and I 20 believe there is, that wants to comment on Bill's 21 report at this time? 22 Mr. Fenoglio, would you come forward, 23 please, sir? 24 MR. NEINAST: Would you excuse the -- 25 excuse me a minute, sir? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 80 1 CHAIR CLOWE: Yes, sir. 2 MR. FENOGLIO: Mr. Chairman, for the 3 record, my name is Stephen Fenoglio. I'm an attorney 4 in Austin and represent a number of lessors and 5 conductors throughout the state of Texas. My comments 6 will be very brief. There is a lack of communication 7 on some of these issues to charities. There is not -- 8 you-all have a wonderful Website. And you're 9 continuing to use it. Some of these proposals have 10 never been referenced on these issues. I represent 11 the State VFW organization on a number of matters. 12 There has been a lot of discussion about a VFW post 13 using this perhaps new authority. To my knowledge, no 14 one has ever communicated, excuse me, with the VFW on 15 that matter. We'd just like to know a little bit 16 further in advance. 17 And a suggestion that I have -- excuse 18 me. I've got a frog in my throat. A suggestion I 19 have is, obviously there is going to be some proposals 20 that you're going to authorize staff to go forward 21 with. And we don't want to stand in front of that at 22 all. But there may -- we would suggest, and other 23 agencies have done this, to have a drafting session 24 and publish that in advance through the Website or 25 communication some way so that agents -- so that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 81 1 people who regularly visit your Website - and I have a 2 number of my clients who regularly do visit the 3 Website - can fund out, oh, there is going to be a 4 drafting session middle of December, whenever that 5 might be. And these are some of the issues they are 6 going to discuss, and pretty specific. We need to 7 either get a representative to go there or we need to 8 go there ourselves. 9 And again, the best example is this 10 ticket, this pull-tab issue in expanding the times and 11 locations. I don't know that my clients won't support 12 it. They're just not aware of what the details are. 13 And when they keep talking about a VFW organization, 14 to my knowledge, the State VFW has never been 15 contacted on the issue. Now, the American Legion has 16 clearly weighed in on the issue. And that's one of 17 the sister veterans organizations. 18 One other issue that I -- of note is 19 this training session requirement. You-all have 20 already requested that in your legislative 21 appropriations. And this is the first time you-all 22 have really discussed it in detail. I guess my 23 clients' observation is, we're already spending a lot 24 of money through license fees to the State. It's my 25 recollection, and I'm sure Mr. Atkins has the number WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 82 1 at hand, the bingo industry contributes far in excess 2 of the cost that it takes to regulate bingo. I think 3 it's over a million dollars. And so why do you need 4 an additional 20 to $30,000 for that? 5 Those are all the specific comments I 6 have. And again, we would like to have the 7 opportunity to have some more dialog with staff and 8 other interested parties on the drafting of 9 legislation. 10 COMMISSIONER WHITAKER: Mr. Fenoglio, 11 are you saying that your folks aren't aware of the 12 Bingo Advisory Committee meetings or aren't welcome 13 or -- 14 MR. FENOGLIO: Well, no. They're -- 15 well, they're aware if they either go through the 16 Secretary of State Website on open meetings or they 17 visit the Lottery Commission's Website. You publish 18 those about ten days -- a week to ten days before. My 19 clients are all volunteers. So that type of advance 20 notice is not necessarily a good thing. I like what I 21 heard about what Mr. Neinast -- where you-all are 22 going to take the step to say, okay, the second 23 Wednesday of whatever four months he said, so that 24 everyone knows. And obviously, I would encourage that 25 to be published on the Website and in your Bingo WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 83 1 Bulletin so that people know plenty of time in 2 advance. 3 But as a practicing lawyer, I can tell 4 you the only way I can get a copy of the agenda is to 5 file -- other than what you publish, which one of the 6 headings might be legislative proposals. That's not 7 particularly helpful. For someone who is residing in 8 Wichita Falls, Texas, it's a six-hour drive to try to 9 come get in a car and come down to find out, well, 10 what specific legislative proposals? Are there any 11 proposals that I really care about going to be 12 discussed? The other way is to file an open records 13 request. That takes ten days to get a response. 14 You're going to get your response back after the 15 meeting has occurred. So that's a little bit of a 16 hurdle. I don't have a solution to that. I wish I 17 did. 18 It's hard, Commissioner Whitaker, to 19 figure out what's going on in Austin for charities out 20 there. I happen to live in Austin. And I've got, I 21 think, good communication with staff. So I generally 22 know. But for people who reside in the real world in 23 the hinterlands, so to speak, it may be difficult, 24 even if they're trying to find out what's going on. 25 COMMISSIONER WHITAKER: You have reason WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 84 1 to believe that your clients or charities would have 2 fundamental disagreement with the basic concepts 3 expressed by Mr. Neinast, or is it more in the 4 details? 5 MR. FENOGLIO: I think it's more in the 6 details. Not the concepts, no. But as you well know, 7 the devil is in the details. 8 CHAIR CLOWE: Well, having been one of 9 those people that was in the hinterland for a long 10 time, it would seem to me that that's your role 11 representing those people that you've spoken here for 12 this morning to participate in this and to keep them 13 informed. That's who I relied on in my past 14 experience. Can't you fulfill that role? 15 MR. FENOGLIO: I can. But there are a 16 number of charities who only want to do it on a -- on 17 a single shot issue. I think perhaps you were 18 referring to your -- in the trucking industry, 19 perhaps. And larger companies have better 20 representation arguably than smaller companies did. 21 And you know, some of the charities that I represent 22 are, you know, pretty strapped -- pretty strapped 23 charities. 24 CHAIR CLOWE: Sure. And that's the 25 dilemma, that you have to make a decision about the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 85 1 value of that information. So you either have to get 2 in the car and come to where the meeting is, or you 3 have to have someone inform you. 4 But I want it clearly understood that 5 the meetings are open. The agendas are published. 6 The information is there. And what you've addressed 7 in my mind is how you get it and the cost thereof and 8 time commitment. 9 MR. FENOGLIO: You bet. 10 CHAIR CLOWE: No hidden cards here. 11 MR. FENOGLIO: Oh, no, no. I'm not 12 trying to do that at all. 13 COMMISSIONER SADBERRY: Of course, tied 14 to that, too, is the fact of our balancing of 15 membership representation on the advisory committee 16 itself. We want both. We want the industry 17 constituencies who one person at a time might want to 18 speak or interact. But there is also representation 19 on the advisory committee. Presumably the presumption 20 is that they can bring to the committee a full sense 21 of range of sentiment in a given area of interest as 22 well. 23 MS. KIPLIN: I have a few comments 24 and -- I guess in response to some things Mr. Fenoglio 25 said. He mentioned that we had a legislative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 86 1 proposal. That's a rider. What that does is 2 appropriate the money. In my opinion, the Commission 3 has to have specific statutory authority to collect 4 the fee in connection with the bingo operator training 5 program. And that authority does not lie within the 6 Bingo Enabling Act at this point. So if the 7 legislature actually appropriated the monies, we still 8 wouldn't have the authority to collect the fee. And 9 it's the difference between the appropriation law and 10 general law. 11 And I guess the other issue had to do 12 with people not knowing because the notice is drafted 13 broad without legislative proposals. And oftentimes 14 that's pretty -- at that point, that's what it is. 15 There may be some specific information. But it -- I 16 certainly don't want to draft a notice that's so 17 narrow that would preclude somebody from having 18 another thought that I wasn't aware of. 19 And in terms of trying to get notice 20 beyond the broad and the open meetings issue -- I 21 mean, the open records issue, my suggestion would just 22 be, have those folks call. And to the extent I have 23 that information, I'll be glad to provide it. And I'm 24 sure that Mr. Neinast would be glad to provide it and 25 Mr. Atkins would. So that might be the best to decide WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 87 1 whether they want to come or not. 2 Of course, that covers what may be 3 contemplated at that point, but not discussed for the 4 first time or thought of for the first time until the 5 meeting. 6 COMMISSIONER WHITAKER: Could I ask 7 your opinion, Kim and Billy and Mr. Neinast, about the 8 concept of the drafting sessions? 9 MR. ATKINS: I'll start off. I'm not 10 familiar enough with the concept to really comment. 11 MS. KIPLIN: Well, if I have the same 12 understanding of what Mr. Fenoglio is talking about, 13 he's talking about members of the staff being in the 14 room where there are public people that are -- public 15 can participate and there is discussion over the 16 drafting. And our agency is pretty small. And 17 frankly, what a drafting is -- occurs is, I get 18 requests. And it's assigned to the individual 19 attorney in a draft. My concern would be the delay. 20 You know, we're pretty close to the beginning of the 21 session and noticing that up, and then the 22 participation and so forth. I'm certainly not opposed 23 to comments that come in. I'm working at the behest 24 of the bingo director in my capacity as his lawyer on 25 drafting and drafting those requests, and then WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 88 1 assigning those to attorneys. 2 MR. NEINAST: I'm sorry. I was -- I 3 was out of the room when that was discussed. I don't 4 know what the issue is. 5 COMMISSIONER WHITAKER: Would it be 6 satisfactory if after staff works up the language to 7 have it available for feedback in a -- perhaps a 8 different format from the meeting, but in some form? 9 MR. ATKINS: Yeah. I'm not familiar. 10 Is it similar to a rule making hearing or -- 11 MS. KIPLIN: It's similar to, 12 Commissioner Whitaker, a blue ribbon committee, I 13 think, where you get people together. And I use blue 14 ribbon because that's my background from another 15 agency where you get people together that are actually 16 appointed to a committee. People from the industry 17 perspective or people from the public, and then staff. 18 And they basically make sausage, is the best way I can 19 put it, in terms of drafting language and then 20 presenting it to the Commission. And ours is a bit 21 faster pace and obviously more informal. And it's 22 worked -- there is an attorney who is assigned to a 23 particular request for legislative drafting who works 24 with whoever either the executive director appoints or 25 the bingo director appoints. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 89 1 COMMISSIONER WHITAKER: Assuming we 2 didn't do that, but instead had an opportunity for 3 comments in some form, would that be an issue? 4 MS. KIPLIN: I think that's a decision 5 that's not necessarily a legal decision. You know, my 6 view is that if the language is drafted and it's filed 7 for legislative consideration and it's assigned to a 8 committee, there is ample opportunity for public 9 comment and ample opportunity for amendments to be 10 made. Whether the agency wants to allow public 11 comment on draft language, because that's really what 12 it is, draft language, I don't really see it as a 13 legal issue as much as a policy issue for the agency 14 to make. 15 MR. ATKINS: My response, Commissioner 16 Whitaker, was going to be, what I'm familiar with is 17 the rule making hearing process where we do develop a 18 draft. And then it's provided to the public. And 19 anybody that wants to come in and comment on it is 20 able to in a -- in a noticed meeting. And if we -- I 21 can't imagine having any real objection to doing 22 something like that with legislation. 23 COMMISSIONER SADBERRY: This kind of 24 goes back to some earlier-on comments I made based on 25 my observations, because I think what Steve is talking WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 90 1 about is in -- you-all can correct me, but in 2 practical terms saw what has happened and what had 3 just happened in an unstructured and sometimes last 4 minute way where it's actually in the legislature, but 5 drafting is occurring there. And I've heard issues 6 raised of, is a -- this is kind of like Bill was 7 talking about. He wants to speak personally. He 8 wants to speak in his official capacity. Well, those 9 issues I've heard come out of the legislature, 10 legislative process of these persons who are assisting 11 in the drafting, are they acting in their official 12 capacities, or are they interested citizens, each of 13 whom could have a legitimate role in law making. I 14 think what Steve is talking about is doing that over 15 here, either simultaneously with the legislative 16 process or prior to the legislative process. Have 17 what essentially the legislature may call upon, which 18 is the industry input through the agency, done in a 19 way that is structured, as opposed to as it perhaps 20 has been perceived in the past as being somewhat 21 ad hoc. And Steve, am I close? 22 MR. FENOGLIO: You are exactly on 23 target. And I don't want to -- I don't anticipate 24 holding up the process. At some point, like on, for 25 example, your August 25, 2000 budget appropriations WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 91 1 request, you knew you were going to propose some 2 legislation, I assume. No one ever mentioned that 3 until the Bingo Advisory Committee meeting which came 4 afterwards. And there was certainly no specific 5 notice to anyone that in the legislative request, we 6 are going to include a request for some money for a 7 training session. My suggestion is, sometime within 8 the next six or eight weeks, I assume the staff will 9 have some pretty concrete legislative proposals, black 10 and white, the devil in the details, if you will, 11 Commissioner, to make available to the public in a 12 very unstructured or structured, if that was the 13 purpose of the staff. The Public Utility Commission, 14 the Railroad Commission, the Texas Alcoholic Beverage 15 Commission all do this with either rules or statutes. 16 And I don't believe they feel that it holds up the 17 process. But that way, at least there is something 18 that's on the table in very concrete fashion. This is 19 what we're going to go to the legislature with. Do 20 you think it's a good idea or not? And you know, a 21 very short time frame. I don't want to slow down the 22 process at all. But you know, again, people mentioned 23 specifically repeatedly VFW. To my knowledge, they've 24 never been contacted on it. 25 MR. ATKINS: Well, and I can address WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 92 1 that, Commissioners. You know, exchange VFW with 2 American Legion, and that problem is solved. However, 3 I do want to point out that a full Bingo Advisory 4 Committee has held at least one previous meeting on 5 legislative proposals that was noticed and open to the 6 public. There has been one subcommittee meeting on 7 legislative proposals that was noticed and open to the 8 public. Legislative proposals that it -- as it 9 relates have already come before this Commission once 10 at a meeting that was noticed and open to the public. 11 And so I'm not sure why now all of a sudden it appears 12 that legislation is coming up and nobody is aware of 13 it. 14 COMMISSIONER WHITAKER: Well, I do 15 think, though, there is some merit to the idea that 16 what we have here is general. And it's different from 17 when you have the details. And I certainly would 18 welcome comments. The question is the format. And I 19 understand Mr. Fenoglio is not intending to delay the 20 process, nor is he opposing or seeking to oppose a 21 particular structure. I think it's rather just a 22 request for feedback, which I think would help all of 23 us. 24 MR. ATKINS: And I would go back to 25 what, you know, Kim said. In the legislative process, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 93 1 as these bills go through the committee, you know, I 2 think you could make the argument that it would slow 3 down the process. If we get documents drafted, then 4 we have to notice up the hearing and go through that 5 process and incorporate comments, etcetera, I think 6 conceivably it could slow it down. But you know, I 7 think staff is willing to do it. 8 COMMISSIONER SADBERRY: What has 9 happened, Billy, I believe, is, it has occurred. It 10 just hasn't occurred in a way that we know what really 11 has happened. Was it a meeting? Was it -- what was 12 it? Was it a caucus? Because input is requested. 13 And I think what Mr. Fenoglio is saying, let's have it 14 before it's requested. And let's have it in some 15 format that everybody can live with that's reasonable, 16 I think is what he's saying. 17 CHAIR CLOWE: I think if I could give 18 you the sense of the Commission on this item, it is 19 that we want every effort made within possibilities of 20 the structure that you're currently following. And I 21 think we all understand how you ask for draft 22 legislation. An attorney works on it. And it comes 23 to you. And it's in a formative stage. But that 24 every effort be made through the Website or through 25 other means to communicate a possible legislative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 94 1 proposal as early as possible for the broadest public 2 input. And then having taken that into account, go 3 forward with the process. Is that the sense of the 4 Commission? 5 COMMISSIONER WHITAKER: Yes. 6 CHAIR CLOWE: Thank you, Mr. Fenoglio. 7 MR. FENOGLIO: Thank you, 8 Commissioners. 9 MR. NEINAST: Commissioners, as a 10 matter of clarification, just as I came back into the 11 room, I heard something that indicates that I may have 12 given the wrong impression or misled you that I was 13 talking for the VFW. I want it clear that the example 14 I used of VFW was just my personal experience, 15 personal knowledge of the operation of the VFW in 16 Runge, Texas. And I was not speaking for them. I 17 just used that as an example of the type of activity 18 that might benefit from having pull tabs for sale at 19 times other than their regular bingo sessions. I just 20 wanted to clarify that. 21 CHAIR CLOWE: Thank you very much. As 22 I understand it now, you have given us in items two 23 and three, with the exception of 2D, proposals for 24 consideration for legislative proposals from the 25 Commission. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 95 1 MR. ATKINS: 2D and 3D. 2 COMMISSIONER SADBERRY: Well, actually, 3 3D is in there. It says we -- 4 CHAIR CLOWE: His presentation includes 5 that. 6 COMMISSIONER SADBERRY: His 7 presentation includes 3D. 8 MR. ATKINS: That's correct. But 3D 9 would not require legislative action. 10 CHAIR CLOWE: It's just policy. 11 MS. KIPLIN: Rule making. It would 12 require an amendment to an existing rule. 13 CHAIR CLOWE: Is there a motion? 14 COMMISSIONER WHITAKER: I would move as 15 to items 2A, B, and C that staff move forward to 16 develop legislation, proposed legislation or proposed 17 rule changes that embody these concepts consistent 18 with thinking through the details and the necessary 19 controls and can serve the due process. You want me 20 to separately state it for three? 21 CHAIR CLOWE: I'd like to do it all. 22 COMMISSIONER WHITAKER: Okay. As to 23 subsection three, I would move that the -- that the 24 staff proceed to develop legislation or approved rule 25 changes that are consistent with recommendations A and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 96 1 B. 2 As to 3B, however, I would ask that 3 staff consider additional specific matters that the 4 director of bingo division believes are necessary. 5 However, any such additional areas should be 6 specifically identified and specific consideration be 7 given to the due process concern. I am going to 8 withhold the motion on C and D. 9 MS. KIPLIN: I'm sorry. What about 2D? 10 Was that part of your -- 11 COMMISSIONER WHITAKER: I am not 12 addressing 2D. I am addressing 2A, B, and C in the 13 first part of my motion. In the second part of my 14 motion, I'm addressing 3A and B. I -- let me just add 15 this. As to 3D, I would move that we not adopt that. 16 And I have no recommendations to 3C. 17 CHAIR CLOWE: All right. I understand 18 the motion. Is there a second? 19 COMMISSIONER SADBERRY: Mr. Chairman, I 20 second the motion as stated. 21 CHAIR CLOWE: All in favor, please say 22 aye. Opposed say no. The vote is three to zero in 23 favor of the motion. 24 Now, Commissioner Whitaker, do you want 25 to continue? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 97 1 COMMISSIONER WHITAKER: I am somewhat 2 unclear as to where we are on 3C. So I would ask 3 somebody else to state the motion. And then if I have 4 discussion, I'll follow up with it. 5 CHAIR CLOWE: All right. Commissioner 6 Sadberry, do you have a motion on 3C? 7 COMMISSIONER SADBERRY: Yes, Mr. 8 Chairman. I would move at this time that the staff 9 not be directed to draft legislation, proposed 10 legislation that would provide for charging as a 11 recovery of cost -- the cost of operating a training 12 program. And I would request the staff to provide to 13 the Commission a basis for a need in that regard. 14 CHAIR CLOWE: I'll second that motion. 15 All in favor, please say aye. Opposed, no. The vote 16 is three to zero in favor. 17 The item 3D is outstanding at this 18 time. It is not a legislative recommendation, but a 19 policy or rule making. Does the Commission want to 20 informally or formally express their feeling on this? 21 COMMISSIONER WHITAKER: Actually, that 22 had been included in my motion. The motion was to not 23 proceed with that, to not adopt that. 24 CHAIR CLOWE: Thank you. 25 COMMISSIONER SADBERRY: And that was WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 98 1 the sense that I understood in my second motion and my 2 voting for the motion. 3 CHAIR CLOWE: Very good. 4 MR. ATKINS: Commissioners, could I ask 5 on 2D, the expansion of the type and style of pull 6 tabs, I don't believe that would be -- required 7 legislative action, but could also be addressed 8 through -- 9 CHAIR CLOWE: Well, that was deferred 10 by virtue of the committee not having a position on 11 that, as I read it. 12 MR. NEINAST: That was my report that 13 we had hoped to bring that to the next Commission 14 meeting. 15 CHAIR CLOWE: It's not ripe for 16 consideration, the way I've got it. Bill, that's a 17 good report. Thank you very much. And good work on 18 the part of your committee. And I think we've heard 19 from Steve Fenoglio in a very positive way. Let's do 20 everything we can to get a wide scope of participation 21 and get the word out. Thank you very much. 22 COMMISSIONER WHITAKER: Thank you for 23 coming. 24 CHAIR CLOWE: We were covering, so that 25 everyone is clear on what we've just been doing, item WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 99 1 number 12, which is a report, possible discussion 2 and/or action on the Bingo Advisory Committee's 3 meeting. 4 And now, I'm going to ask that we take 5 a five-minute break. At the return and beginning 6 again with the Commission, we're going to call on 7 Professor Busald and his group from San Antonio. To 8 give you a little advance notice there. 9 (RECESS) 10 CHAIR CLOWE: We continue to depart 11 from the published agenda now with the appearance of 12 Professor Gerald Busald from San Antonio College. And 13 Professor, I think you have a number of students with 14 you this morning. I'm going to call their names out 15 for the record. And you may wish to add some who 16 possibly haven't filled out appearance forms. Nicole 17 Cunningham, Christopher Whitney, Kristin Brotherman, 18 Gene Bowen. Is that everyone that's here who is going 19 to appear? 20 MR. BUSALD: He is not my student. 21 CHAIR CLOWE: Right, right. You're 22 with a different issue. Thank you, sir. Is that 23 everybody? 24 MR. BUSALD: I have several students 25 who are not quite of the temperament to testify in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 100 1 front of this Commission. But they're here so that -- 2 COMMISSIONER WHITAKER: Oh, why not? 3 MR. BUSALD: Would you like my students 4 to stand so that you can -- 5 CHAIR CLOWE: Yes, we would, please. 6 MR. BUSALD: Will my students please 7 stand? 8 CHAIR CLOWE: Great. Thank you very 9 much. Let me -- before I call on Professor Busald to 10 tell us what he has -- I beg your pardon? 11 MS. KIPLIN: I'm sorry. What item? 12 CHAIR CLOWE: Public comment. 13 MS. KIPLIN: This is public comment? 14 Okay. 15 MR. BUSALD: Excuse me. I thought we 16 were addressing number three, which was advertising. 17 MS. KIPLIN: Lottery advertising. 18 CHAIR CLOWE: You may address that. 19 But you're appearing under public comment. So you'll 20 be -- 21 MR. BUSALD: Well, I asked on my form 22 to be on item number three. 23 CHAIR CLOWE: Well, I don't think your 24 name is on item three, is it? 25 MS. KIPLIN: No. The reason I'm asking WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 101 1 that question is to get an idea -- when I listen to 2 his comments, then what I'm going to try to do is 3 figure out whether it fits into one of the items that 4 are on the agenda, with an eye toward the fact that I 5 anticipated from the last discussion, the last 6 Commission meeting that Mr. Busald would be here. And 7 given his comments at that meeting and the fact that 8 his comments were addressing Lottery advertising, I 9 left that item as it generally is. And the reason 10 that it's important to me is because, based on the 11 nature of his comment, it may or may not limit your 12 ability to deliberate the substance of his comments. 13 CHAIR CLOWE: All right. That's fine. 14 Very good. To you students who are here, my 15 assumption is that you've probably never attended a 16 Commission meeting of this type before. And you've 17 been very patient. And you've learned probably more 18 about bingo than you ever want to know. And now 19 you're going to educate us on your math studies. But 20 I would like to put you at ease and, assuming this is 21 your first time to be here, tell you what is going on 22 here, to the best of my ability. 23 This Commission is composed of three 24 commissioners who are citizens who have been appointed 25 by the governor at the time, and then agreed to serve WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 102 1 with that appointment approved by the Senate for a 2 six-year term. 3 Commissioner Whitaker is the newest 4 commissioner. She is from Dallas, Texas. 5 Commissioner Sadberry is the most tenured 6 commissioner. And he is from Houston, Texas. And I 7 am the middle commissioner. And I'm from Waco, Texas. 8 We serve at the governor's pleasure for no 9 compensation. Now, this is a public service activity 10 for the three commissioners. 11 This Commission meets ordinarily once a 12 month. It is mandated by the legislature to meet six 13 times a year, minimum. 14 Now, the staff of the Commission is 15 headed for lottery operations by Linda Cloud, who is 16 the lady here on my left and on your right. She is a 17 paid employee of the State of Texas. 18 On her left is Billy Atkins, who is the 19 director of the Charitable Bingo Operations Division. 20 And he is a paid employee of the State of Texas. They 21 come here and run the lottery operation and the bingo 22 operations every day of the year. 23 The lady to Linda Cloud's right is Kim 24 Kiplin, who is the general counsel of the Commission. 25 And she is a staff paid employee. And she is not a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 103 1 direct report to the Commission. Ms. Cloud and 2 Mr. Atkins are. 3 The internal auditor -- would you 4 please stand up? Debra McLeod is a direct report to 5 the Commissioners. And then the staff -- thank you, 6 Debra -- reports to those individuals. 7 It is our responsibility to oversight 8 the operation of the Commission, although we are not 9 here day to day. We are responsible. And that's why 10 we meet once a month now so that we can review the 11 activities that are ongoing in both lottery and bingo 12 activities. 13 Again, we're happy to have all of you 14 here, Professor Busald. And we look forward to your 15 presentation. Thank you. 16 MR. BUSALD: Thank you, Commissioner 17 Clowe, and thank the other Commissioners. I 18 appreciate your invitation to return to this meeting 19 so that we can continue the discussion we started at 20 the last meeting. For the record, I read my testimony 21 from last time. I would apologize for any time I 22 interrupted. I certainly don't like that. 23 I would also like to correct two math 24 errors in my testimony, both of which were basically 25 off the top of my head in these statements, and not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 104 1 that we couldn't do the math. 2 One was that I said over 12 and a half 3 billion lottery tickets had been printed and sold in 4 the state of Texas. That's inaccurate. It's 12 and a 5 half billion dollars' worth of tickets, which is not 6 necessarily 12 and a half billion tickets. So just to 7 correct the record from last month. 8 And the other is that I said that -- 9 concerning Lotto that if you stacked up 25.8 million 10 Lotto -- or pieces of paper or Lotto play slips, that 11 it would be as tall as 25.8 Towers of the America. 12 And that's obviously not right. It's as tall as 11 13 and a half Towers of the America. So I just wanted 14 the math on the record at some point to be correct, 15 because I think we have a very good reputation of 16 being accurate on our mathematical presentations. So 17 those were misstatements. 18 If I could, I would also like to clear 19 up one other area before we get into the really 20 germane issue today. And that is, one of the things I 21 testified about last time was my class' interaction 22 with the Commission as far as the $40 million jackpot 23 winner in San Antonio, the girl that won. And so in 24 your handout, I have a copy of the press release. And 25 one of the issues I addressed was, it seems like press WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 105 1 releases are not necessarily screened as accurately as 2 they might be. So if you would look at -- and this is 3 about the group in San Antonio. And I would 4 specifically like to turn your attention to page two 5 of that release, which it seems to me an amazing 6 coincidence -- and I highlighted it for you to try to 7 ease your way through this. But I find it amazing 8 this particular error, that in the Cash 5 game where a 9 player must match five of five winning numbers for a 10 top prize averaging $75,000. As I testified at the 11 last meeting, that is the exact issue that first 12 caused us to appear before this Commission. Not to 13 the Commissioners directly, but interact with the 14 Commission over three and a half years ago. And of 15 course, the average prize on that game is 57,575. It 16 seems that the problem that I pointed out at the last 17 meeting really hasn't corrected itself, because 18 immediately after we have a press release that is 19 putting out a three-and-a-half-year-old inaccurate 20 number. And just -- and because it affected us 21 directly is the only reason I point that out. And I 22 don't think -- I don't know if -- well, I'll let the 23 Commission address that later or the staff address 24 that later. 25 As you know, the main point that my WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 106 1 class is really concerned with and the issue that we 2 have gotten involved with is scratch-off tickets. And 3 it's kind of funny because you mentioned Governor Bush 4 earlier. As I got prepared to testify, I kind of had 5 an image come to mind. And that was, on one panel, 6 there is an outline of the state of Florida with 7 Governor Bush in front of it. And the statement would 8 be, if a state says you're a winner, does it 9 necessarily mean you're a winner? On the second 10 panel, there is an outline of the state of Texas and a 11 scratch-off ticket. And if the state says a winner, 12 are you necessarily a winner? And that's the whole 13 crux of the issue. 14 On page three, I have a letter. And 15 I -- to let you know, I squeezed this letter onto two 16 pages, originally a three-page letter, a letter that I 17 received from Linda about this issue. And that she 18 had contacted Dr. Eubanks about it. Basically, the 19 original information is stuff that we certainly 20 already were aware of. 21 So I'd like to just go to page four, if 22 I could, of the handout, the back, and hone in on the 23 scratch-off issue. And I have looked at the 24 particular paragraph in mind. I have circled that. 25 And so she talks about the prize point for instant WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 107 1 games. Our position is that when the prize in a game 2 is another ticket in that particular game, the 3 Commission should not include this in the odds of 4 winning. And of course, as she says, she respectfully 5 disagrees. And she asked Dr. Eubanks' opinion on this 6 issue. And his position is that it is not making an 7 accurate representation to the players. Hopefully 8 we'll have a chance to talk about that. 9 It is also my understanding the 10 Commission has not received complaints from players 11 concerning the matter. To me, that is a totally 12 vacuous argument. How can you say, well, players 13 haven't complained, when players aren't aware of it? 14 It seems to me that that argument -- you know, how -- 15 we have come up and pointed out the issue. Staff said 16 they weren't aware of this before. So you know, the 17 fact that people haven't complained, people haven't 18 realized. So I think that should be something that 19 should be brought into consideration. 20 Finally, we realize that the counting 21 of a ticket, one as a -- what we call a break-even 22 ticket is part of the prize structure. And the final 23 statement, of course, is, at this time, the Commission 24 has no plans to change the way in which the odds are 25 calculated. I hope that doesn't indicate that this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 108 1 was already a closed issue and that the fact we were 2 invited back to testify about this is not already an 3 accomplished fact. And that you would be open to our 4 arguments about this issue. Excuse me. 5 Finally, the other thing I would like 6 to mention in her letter is that we would like to 7 thank Larry King and Toni Smith. They came and 8 addressed the class. I know that Toni wasn't really 9 successful in convincing my students that if you pay 10 two dollars and you get two dollars back that you are 11 a winner, and really didn't particularly address that 12 issue. We worked on some other game issues. And we 13 certainly look forward to having a positive 14 interaction with the Commission. And we want to do 15 that. But that doesn't necessarily mean that you 16 agree with everything that the Commission does. 17 One -- the next item I guess I would 18 like to go on -- go to is page five, the NASPL 19 advertising standards, because I think that's 20 certainly germane to the issue of what we are talking 21 about. And I circled a couple of things that we 22 talked -- I mean, obviously this is a statistics 23 class. But we've talked about ethics. We've talked 24 about media. We've talked before government. We just 25 have other things come up because of the nature of our WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 109 1 interaction with the Commission. 2 One thing I just wanted to point out -- 3 and it's not for something to do here. But 4 responsible play public service or purchase media 5 messages are appropriate, especially during large 6 jackpot periods. I would like for the Commission to 7 consider as we face the probability of some very large 8 jackpots in the future because of the nature of the 9 change of the game that they consider doing public 10 service announcements saying, play responsibly. Not 11 just what's on the ticket. Because there were 12 newspaper stories talking about people going and 13 buying a thousand dollars' worth of tickets or 14 whatever as that jackpot approached the over $60 15 million jackpot. And so that's just part of the 16 industry standards. 17 Two other things that I circled on page 18 six. You should not present winning as the probable 19 outcome. And advertising should not imply that 20 lottery games are games of skill. I cart back to this 21 one that we mentioned last time and say that I think 22 this making a million is easy. Certainly makes it 23 seem like it's probable. And it -- the fact that if 24 you know how to play the game implies that there is 25 some skill. And if you haven't won, somehow it's your WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 110 1 fault. And I realize this is semantics. As a matter 2 of fact, I meant to get into that part. Dr. Eubanks 3 said basically it is a matter of semantics whether you 4 call someone who breaks even a winner or not. I agree 5 it's semantics. But I think it's very important 6 semantics. I know that the Commission can do the 7 math. And there is no problem with doing the math. 8 It's a matter of viewpoint and how you are going to 9 deal with that. 10 Finally, number five, I think, on page 11 six there, advertising should not exhort the public to 12 wager by directly or indirectly misrepresenting a 13 person's chance of winning a prize. I know the word 14 winning a prize covers a lot of territory. And we're 15 going to propose as we get further on that the fact 16 that winning a prize -- the public should be apprised 17 that winning a prize might be a break-even prize and 18 that that winning a prize doesn't necessarily mean 19 you're a winner. It means you broke even. 20 Moving on to page seven. Once again, 21 it has something about odds of winning must be readily 22 available to the public and clearly stated. One of 23 the things we discussed as a class as we looked at 24 this was, we thought that these standards are very 25 commendable. And certainly it seems like the industry WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 111 1 is trying to control some mispractices in the -- in 2 the past. So they're trying to address some of those 3 issues. The one issue they clearly avoided is, when 4 is a person a winner? And that's the real discussion 5 that we want to have today. 6 If I could, if you would permit me, I 7 think I have a student -- if I could interrupt my 8 testimony. I have a student who is actually the 9 reason we're here today, because she asked me at the 10 beginning of the semester, what about scratch-off 11 games? Because we hadn't looked at scratch-off games 12 previously. We've looked at other games. We look at 13 one game every semester, basically. And I think she 14 has some insight as to, do players consider themselves 15 a winner if they break even. Nicole Cunningham is one 16 of my students who is brave enough. And she would -- 17 would you entertain hearing her, and letting me come 18 up and summarize at the end? 19 CHAIR CLOWE: Sure. Just have her come 20 and join you. 21 MR. BUSALD: Okay. Come up, Nicole. 22 CHAIR CLOWE: Would you state your name 23 for the record, please, ma'am? 24 MS. CUNNINGHAM: For the record, my 25 name is Nicole Cunningham. Due to the stand that the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 112 1 Lottery has taken on this issue, I have brought it 2 upon myself to ask people at random when I'm at a 3 convenience store, gas station, wherever it is that 4 Lotto tickets are sold. I see them buy a Lotto 5 ticket, a scratch-off. And then I ask them, you know, 6 if you get your money back, do you consider yourself a 7 winner? Every single person has said no. They 8 consider themselves as breaking even. And it is from 9 executives of Valero, which is a huge oil and gas 10 company in San Antonio, to a bum that I saw. I have 11 no idea how he got a dollar. But he bought the 12 scratch-off. And I even stopped and asked him. 13 People are not aware that you count the break-even 14 tickets into the odds. And I don't think that's fair. 15 And I don't think it's right. And it's unethical, in 16 my opinion. And besides taking statistics, I do take 17 a class titled business ethics. One gentleman even 18 went so far as to say there was a government 19 conspiracy. And he was an executive. He didn't feel 20 it was right and got very angry. People just don't 21 know. And it's not -- I really don't think it's fair. 22 CHAIR CLOWE: Very good. 23 MS. CUNNINGHAM: And I have a question 24 for you. 25 CHAIR CLOWE: Yes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 113 1 MS. CUNNINGHAM: If you think -- do you 2 think -- if this were an instance in a private 3 business in the private sector, do you think they 4 would get in trouble for it, misrepresenting their 5 information? 6 CHAIR CLOWE: I don't know. I have 7 been in the private sector for 45 years. And I have 8 found differences of opinion in the private sector 9 that result in lots of different kinds of actions. 10 And I think what we're talking about here today is a 11 difference of opinion. So I think your question is 12 too broad for me to give you a specific answer. I 13 think were you in the private sector, do something 14 that is illegal, you get in trouble. But my standards 15 are higher. I include morality and ethical 16 correctness as well as legal correctness. And I think 17 what we're talking about this morning is a matter of 18 representation. Is that not true? 19 MS. CUNNINGHAM: Yeah, it's true. But 20 if a company misrepresents in the private sector, 21 whatever it is, they are held liable for it. 22 MS. KIPLIN: I think that's a broad 23 statement. 24 CHAIR CLOWE: I think it's very broad. 25 MS. KIPLIN: I'm not going to be able WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 114 1 to agree with that. 2 CHAIR CLOWE: I think I can answer the 3 question. And I think that it's a matter of 4 interpretation. And that's what you're here today to 5 do, to give us your interpretation. So it isn't 6 correct to try to go to the end in another area and 7 get an answer that proves your point, which is, I 8 think, what your attempt is. 9 MS. CUNNINGHAM: Well, everyone I have 10 asked, you know, in the public, because I -- you know, 11 I hang out at Exxon when I'm buying gas. And I find 12 these people and I ask them. They believe that you 13 are misrepresenting -- 14 CHAIR CLOWE: I understand. 15 MS. CUNNINGHAM: -- the truth of the 16 odds. 17 CHAIR CLOWE: I understand. 18 MS. CUNNINGHAM: And if it were anyone 19 else, they would change that or they would -- some 20 government agency would force them to change that. 21 CHAIR CLOWE: And we're happy to have 22 your statement. And let that go to the presentation 23 that you and your classmates and Professor Busald are 24 making this morning. Thank you very much. 25 MS. CUNNINGHAM: Thank you. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 115 1 MR. BUSALD: I just felt Nicole's 2 comments were really germane to the issue because she 3 is the one who really brought it to the class' 4 attention and why we're here. And also, she has some 5 insight because she has been very passionate about 6 this issue, as you can tell. And I certainly believe 7 that all of my students agree with that particular 8 statement. 9 We also did receive a set of 10 advertising promotion guidelines from the Commission. 11 Toni provided that to us. And once again, on page 12 nine, the statement is -- I circled it on page nine. 13 That is, while it's not required to state the odds in 14 all forms of advertising, no attempt should be made to 15 conceal or misrepresent the odds of winning. And of 16 course, I realize we're down to the definition of 17 winning. Okay. 18 One of the things that I would like to 19 address next is on page 10. And if you can find the 20 page numbers. I did these obviously just freehand. 21 But there is a press release about the new game Jingle 22 Bucks. And the statement that I circled is, Jingle 23 Bucks has the best odds of winning of any instant 24 ticket we've ever produced, 1 in 2.46. That's 25 correct, given the Commission's definition of winning. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 116 1 I don't know that it's correct. 2 What I would like to point out is that 3 on the next page, page 11, that for that particular 4 game, the total what we call break-even tickets, the 5 $10 return, is 28 percent of all tickets printed. 6 Almost one out of every three or one out of four 7 tickets is a break-even ticket. That's contrary to 8 many of the previous games, including the game I 9 presented last time that the class had analyzed, 10 Triple Blackjack, where 14.8 percent of all tickets 11 printed were break-even tickets. This shows the 12 ability, if you are allowed to call someone who breaks 13 even a winner, that you can control the odds. And 14 that's exactly the point. And so then to brag about, 15 well, these are the best odds of winning -- now, it is 16 the largest percentage of payback, to be fair. I 17 think the payback is 70 percent on this game, which is 18 the largest the Commission has had. And Toni pointed 19 that out. But I do want to point out the difference 20 in the percentage of break-even tickets and how that 21 can control what are advertised as the odds. And so I 22 just have circled that on the 14.8 on the Triple 23 Blackjack. 24 Incidentally, I have one other game 25 here that I have circled. This is a 9's in a Line, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 117 1 page 14. And the -- on that particular game, I 2 believe 10 percent of all tickets printed are 3 break-even tickets. So by varying the percentage 4 between 10 percent and 28 percent, the Commission can 5 directly control the odds of what the Commission is 6 calling winning. 7 The only reason this last game happens 8 to be -- I happen to include this 9's in a Line is 9 because -- and the class didn't find this. This was 10 pointed out by another individual. But if you turn to 11 page 15, the actual handout on this game is obviously 12 incorrect, because I know it's not based on 13 approximately 20 million tickets. For the numbers to 14 work out, it has to be based on 15 -- what did we -- 15 15.12 million tickets printed. So that particular 16 flier for game 227 is inaccurate just so that -- 17 that's the only reason I have that game in there. 18 The real question comes down to, I 19 guess, truthfulness. And what kind of truth do we 20 want? Do we want a, well, if you look at it that way 21 truth, or do we want the best kind of truth you can 22 tell the people of Texas? 23 We are not insisting that the 24 break-even prize be eliminated. We just ask that it 25 be advertised fairly. What we considered fair -- we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 118 1 talked about this at great length, what would be fair. 2 We said that if the break-even prize is retained, the 3 following statement would be appropriate and 100 4 percent truthful: Overall odds of winning any prize, 5 including the break-even prize. Because certainly 6 there is a significant percentage of people who if 7 they break even do not consider themselves winners. 8 And I think that's the most truthful thing we can do. 9 I realize -- I perceive a pressure on 10 staff to conform to what's an industry standard. And 11 the industry standard should not be the reason to fly 12 in the face of the logic of what most people consider 13 winning. We all know about industry standards. The 14 industry standard in the tire industry was, if there 15 was a lawsuit, to pay off that person. And then we -- 16 so -- and then we had a bad situation develop because 17 of an industry standard. I don't think that an 18 industry standard is the only reason. 19 Now, I also feel that the -- probably 20 the executive director and the staff's position on 21 this is that if they change the odds, it's going to 22 have a negative impact on sales. And that's obviously 23 what we're talking about and how important it is. I 24 disagree. Most lottery players buy tickets despite 25 what they may or may not know about the odds. And I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 119 1 don't think it would affect it. But what I do feel 2 would have a negative impact on sales is to continue 3 calling break-even players winners and have the media 4 reveal that the Commission is not being as truthful as 5 they might be on this issue. If the Commission truly 6 believes that a player who breaks even is a winner, 7 are they anxious to publicize the fact, or would they 8 prefer that players not be aware of this fact? 9 It's what I call the truth test. The 10 truth test is, do you want people to know? And I 11 certainly -- you know, if the Commission was 12 advertising a break-even -- but I respectfully submit 13 that maybe this is an issue that they just wish people 14 didn't realize. And I would respectfully submit to 15 you that you have an opportunity - and this is what I 16 tried to do three and a half years ago - to turn what 17 staff might perceive as a negative into a positive by 18 emphasizing and even publicizing a change in policy 19 that emphasizes telling the truth as best you can. 20 Players will not rebel if you tell them the truth. 21 But if they perceive that you are trying to hide the 22 truth, that will be a difficult issue. And I 23 certainly do not -- we're not here to destroy the 24 Lottery. We want the Lottery to be as honest as 25 possible. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 120 1 I also would submit that if you make a 2 decision on this issue that places Texas at odds with 3 the industry standard and makes Texas a leader in 4 truth telling, that's a positive. Texas has an 5 opportunity to influence other lotteries to be more 6 truthful and even change their method of stating the 7 odds on scratch-offs. There is nothing wrong with 8 being the leader and telling the truth as best you 9 can. 10 The final point, I guess, is that I 11 hoped that whatever decision the Commission would 12 reach on this issue, that after they are done, they be 13 able to look at these students in the eye and tell 14 them that if they -- if they can tell them that if 15 they spend two dollars for a scratch-off and they get 16 their two dollars back, they are indeed a winner. I 17 hope that's not what you have to tell these students, 18 because, you know, what we tell our students is 19 extremely important to the future of what Texas is. 20 Because we disagree with staff on this 21 issue, I have one final suggestion. And for whatever 22 it's worth, I respectfully submit that the Commission 23 might consider forming an independent ethics advisory 24 committee, because it is an ethical issue. And it's, 25 where do you get the input on these sort of issues? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 121 1 My students have brought up issues in the past. But I 2 know this is a difficult area to deal with. And 3 staff, we feel, has a vested interest in trying to 4 have sales be as great as possible. There is job 5 security. The income of the state of Texas all 6 depends on those. But there are ethical issues to 7 consider. 8 And last meeting, you certainly 9 expressed your concerns about ethical issues. And I 10 certainly appreciated your comments, because I think 11 it applies right to the heart of what we are trying to 12 do. We want the Texas Lottery to be the most 13 truthful. If players decide to play, they should be 14 at least armed with the truth. That's all we're 15 asking. And I realize it's a matter of semantics. 16 But I ask you to consider: What does the common 17 person consider winning? And I don't think that 18 staff's position on this is what the common everyday 19 lottery player believes is winning. 20 CHAIR CLOWE: Would you repeat your 21 suggested sentence for us, please? 22 MR. BUSALD: Yes. Let me go back to 23 this. Overall odds of winning any prize, including 24 the break-even prize. Then you're not calling someone 25 a winner who breaks even. It makes it clear. And I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 122 1 don't really -- I don't believe it will impact sales 2 at all. As a matter of fact, once again, I think you 3 have a chance to make Texas the leader in being 4 truthful. I think that's very important. 5 CHAIR CLOWE: Very good. Questions? 6 COMMISSIONER WHITAKER: What is your 7 definition of the word prize? 8 MR. BUSALD: What is my definition of 9 the word prize? 10 COMMISSIONER WHITAKER: Yes. 11 MR. BUSALD: A prize would be even the 12 two dollars, because if it says overall odds of 13 winning any prize, including the break-even prize. To 14 suggest that you're a winner if you break even means 15 that you have basically said, I am donating my two 16 dollars to the Lottery Commission. And if I give 17 back -- get back my two dollars, I have won a prize. 18 And so I realize it flies to the definition of what's 19 a prize and what is winning. But you know, we're 20 trying to do as best we can to be a positive influence 21 on the Commission and what the Commission does. 22 COMMISSIONER WHITAKER: Is it your view 23 that it would be appropriate to call a break-even 24 amount of money a prize? 25 MR. BUSALD: I would -- it would be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 123 1 appropriate to call it a break-even prize. I don't 2 think it would be -- you know, you have to accept the 3 premise to go with your argument that people are 4 not -- they are buying the game entirely for 5 entertainment and they are not gambling. So I don't 6 know that I have an answer that can avoid the other 7 issue. A break-even prize is exactly what it says. 8 It's like a push in blackjack. You played. You 9 didn't win. You didn't lose. 10 Now, I realize the Commission can't 11 change every game. I would suggest if they were to 12 implement this, it would be something that's phased in 13 over time. You can't replace all existing games. You 14 can't -- you know, none of that is reasonable. The -- 15 but that's our position. And you have to decide, do 16 you want the people of -- I mean, I know what -- we're 17 just addressing what the average person considers a 18 winner. And an average person that we talked to 19 considers someone to be a winner if they end up with 20 more money than they put in. 21 COMMISSIONER WHITAKER: The reason I 22 asked you the question is, you've thought about it a 23 lot. And so I just wanted the benefit of your views 24 on that. 25 Related question on the last page you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 124 1 gave us. Is it your view that the statement there 2 that says, overall odds of winning are 1 in 4.68, that 3 most people would not consider those odds to include 4 the dollar prize? 5 MR. BUSALD: Most people, if they see 6 odds of winning, winning means getting more than they 7 put in. 8 COMMISSIONER WHITAKER: Even though 9 just above it under the list price, it lists a dollar 10 as a prize? 11 MR. BUSALD: Yes. But it doesn't list 12 that on the individual tickets. On the individual 13 tickets it says, overall odds, period. 14 COMMISSIONER WHITAKER: So in this 15 context, you'd say that it is disclosed, but your 16 problem is, it's not on the ticket? 17 MR. BUSALD: It's disclosed, not 18 disclosed as well as it could be because, you know, 19 once again, it's, what does -- I mean, the person who 20 sees this, the average person on the street, would 21 have to do all the mathematics we've done to discern 22 whether that includes the dollar prize or not. So is 23 that full disclosure? I'm not here to tell the 24 Commission what to do. Just to express our concerns. 25 COMMISSIONER WHITAKER: Thank you. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 125 1 COMMISSIONER SADBERRY: Would you -- 2 following that question, would you agree that it's not 3 concealment? 4 MR. BUSALD: It's not what? 5 COMMISSIONER SADBERRY: Concealment. 6 MR. BUSALD: On this particular -- on 7 the flyer itself, it's not concealed. On the tickets 8 themselves, because they don't really express what it 9 is, most people, I believe, are kept in the dark. So 10 to the extent, yes, that's concealment if you keep 11 people in the dark. That's my opinion. And of 12 course, it's just one man's opinion. 13 COMMISSIONER SADBERRY: Well, I guess 14 I'll follow up on that, if I may. I'm interested in 15 the database as well as the process of methodology by 16 which you derive your concepts of what most people 17 perceive certain things to be, such as specifically in 18 your comments, winning. Are you aware of or have you 19 and your class conducted -- 20 And by the way, before I go further, I 21 want to compliment your class in their interest and 22 particularly speaking to us and asking questions. I 23 applaud that greatly. We're glad to see that. And 24 I'll go further and say to you that as far back as 25 this agency goes, I have been there since day one. We WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 126 1 as an agency, unlike some agencies, are advised 2 through the years to make certain that we acknowledge, 3 invite, and encourage public comment, which generally 4 is covered to the extent -- by the media to the extent 5 the media is interested. Certainly never do anything 6 public interest -- outside the public view to make 7 public comment to us. 8 So I guess I'd say to you that one way 9 that we ensure that the public has the ability to know 10 the truth of what we do, I think, in that regard, is 11 to give venue to the public, to bring it to the 12 public's attention to us directly in public view. 13 It's hard to conceal or deprive the opportunity for 14 truth being ventilated in that context. And I hope 15 that's certainly indicative of your taking an 16 invitation on more than one occasion to do so. And we 17 all learn and hopefully improve our processes by 18 public participation. And I applaud you in that 19 regard as well. 20 Now, getting back to my question, do 21 you -- are you aware of any process of discerning what 22 exactly is the public view or perception that has any 23 kind of study attached to it that -- if I were in the 24 legal context, for example, we would look at an expert 25 witness and say, well, what's your process? What's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 127 1 your methodology? What's your data? I'm just asking: 2 Do you have something you can refer us to to say what 3 your basis for understanding or presenting to us what 4 the public view is might be based on? 5 MR. BUSALD: Yes. I would say it's 6 anecdotal. We -- because of the level of the class, 7 we would have to have a subsequent class on surveying 8 to where we could actually go out and survey people 9 and ask them specifically, if you spend a dollar and 10 you get your dollar back, do you consider yourself a 11 winner? So ours is based on anecdotal from asking 12 many, many, many people. And all of -- I mean, 13 with -- I have presented this at national math 14 conferences. I've only had one mathematician disagree 15 that if you get your dollar back for a dollar, are you 16 a winner. One person said, well, it's okay to call it 17 a winner. So there are -- but just in all my 18 interactions with mathematical groups -- because I 19 have talked about this at national mathematical 20 conferences. And so -- but as far as a survey that I 21 can point to, a scientific survey that says, do you 22 consider yourself a winner if you get your dollar 23 back, no, I can't do that. 24 COMMISSIONER SADBERRY: Now, do you 25 have a preference -- and I appreciate your bringing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 128 1 this to our attention. Do you have a preference -- in 2 your concept of what is truth and all these things, do 3 you have a preference in this specific context of 4 better defining winner or excluding the break-even 5 experience from the calculation? 6 MR. BUSALD: Certainly -- well, 7 certainly that's up to staff to address. We don't 8 want to run the Lottery or tell the Lottery how to do 9 its business. We must -- at last meeting, we pointed 10 out an alternative to the one game where, instead of 11 having the break-even prize a two dollar prize, we put 12 it to a three dollar. We did the math on that. And 13 it didn't greatly increase the odds, because -- that's 14 actually on page 13 of the document that I gave you, 15 the Triple Blackjack alternative. The odds of winning 16 went from what the Commission had stated of 1 in 3.51 17 with the break-even prize to 1 in 4.24. We're just 18 presenting that as an alternative. One -- so gosh, we 19 don't want to tell the Commission what to do. 20 COMMISSIONER SADBERRY: Well, I didn't 21 ask -- I just asked what your preference, because to 22 me, I'm not hearing you say that when asked, the 23 Commission does not reveal how it terms winner. It's 24 just that maybe it doesn't jump out to everybody who 25 hasn't taken the time. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 129 1 And one thing I'll tell you is, when 2 the lottery rules were being considered for change in 3 Lotto, I, along with the other Commissioners, attended 4 some town hall meetings for public input. And I have 5 to tell you, I was impressed with the degree to which 6 the players who would show up at these open forums 7 had, in fact, studied a lot of things that I may have 8 thought before those forums had not been the case. So 9 I don't know. I can't respond to the depth to which 10 anyone has taken -- undertaken a study like you and 11 your students have. 12 But I guess what I'm hearing is, you're 13 saying that while winning, a winner is not concealed 14 by the Lottery Commission how it calculates it or how 15 it terms it. It doesn't jump off the page of whatever 16 you're looking at -- 17 MR. BUSALD: Certainly not. 18 COMMISSIONER SADBERRY: -- to your 19 satisfaction. And from the anecdotal empirical data 20 you've accumulated in your vicinity, you believe there 21 are others who feel the same way? 22 MR. BUSALD: Absolutely. 23 COMMISSIONER SADBERRY: And you are 24 asking, then, that this Commission do what? 25 MR. BUSALD: Give some direction to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 130 1 staff as how they should approach -- how they should 2 approach this issue. Should they eliminate the 3 break -- we are certainly not suggesting that that's 4 what you need tell them. If we would include the 5 statement that we suggested on advertising, I don't 6 think it's a very painful statement to add. There 7 certainly are lots of disclaimers on all these things 8 about, must be 18 to play. To add this statement 9 would be truthful and would be without the result of 10 having to change the scheme of any games. That was -- 11 Really, once again, that's a staff 12 decision. But I really think we need to do one or the 13 other. Either eliminate the break-even prize -- 14 incidentally, there is a -- I was told by someone 15 connected with the Commission that the Commission has 16 even considered a scratch-off where there is a prize 17 that's less than the purchase point of the ticket, 18 which makes sense even for a Christmas ticket or 19 something like that. I mean, I don't want to give 20 someone a scratch-off ticket for Christmas, and then 21 find out they really didn't get anything. I'd like to 22 know, hey, you know what? They're going to get at 23 least two dollars or whatever. Do you call that 24 person a winner, is the issue. Yes, they got a prize. 25 Are they a winner? That's a difference, because you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 131 1 could have a game where you have a hundred percent 2 chance of winning a prize that's less than the 3 purchase point. Did I answer your question, sir? I'm 4 sorry. 5 COMMISSIONER SADBERRY: You addressed 6 it. And that's all I really wanted. I'm pleased with 7 the fact that you addressed it. I'm not sure that's 8 an answer because I don't know where you put the 9 break-even prize. It's not a loser. 10 MR. BUSALD: No. And we -- and as we 11 pointed out -- 12 COMMISSIONER SADBERRY: On a 13 mathematically -- 14 MR. BUSALD: Yeah. And I -- and I 15 realize the Commission cannot put on advertising 16 statements, overall odds of not losing. I mean, I 17 realize that's a negative statement that the 18 Commission would not want to put out in front of the 19 public. Here is your odds of not losing. Obviously 20 you can't do that. We suggested an alternative that 21 we feel is a lot less painful and -- just by saying 22 you're including the break-even prize in those odds. 23 COMMISSIONER SADBERRY: Well, I guess 24 my final comment, at least at this point, is, I would 25 personally adopt in my service on this agency, board, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 132 1 Commission, the concepts that our chairman 2 articulated. Although I have not been in business, 3 I've been in private industry from a professional 4 standpoint. Those standards are mine as well. And I 5 would go further to say that I appreciate your 6 pointing out your perception of the pressure aspects 7 of staff operation. I'm not aware of that. And I 8 don't believe that's as a result of having our head in 9 the sand. I would certainly want to know if that's 10 the case, if there is something like that that is 11 operating that we're not aware of. I think we're all 12 operating to do what is best. And that requires a 13 balancing. And I would not endorse or support the 14 scales of that balancing to be tipped in the direction 15 of anybody doing anything that in any way infringes 16 their concept of ethics or any other personal set of 17 principles. I think you certainly are commended and 18 free to speak to your perception of it. But I just 19 have to say I'm not aware of it, factually speaking. 20 MR. BUSALD: Well, I guess the reason 21 we mention that is, obviously it's difficult to break 22 away from an industry standard. But the Lottery 23 Commission has -- not the Lottery Commission. 24 Lotteries in general have been criticized heavily, 25 even in the Congress of the United States, for WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 133 1 advertising practices, because the states are in a 2 sense self-regulatory in this aspect. And some states 3 do a much better job than others. And I believe Texas 4 has done a commendable job in wanting to have truth in 5 advertising. So when we pointed out this truth, it 6 seems to me the logical thing is to point it out to 7 the players that this is the truth. We're after the 8 truth. And we really don't believe the truth ever 9 hurts. It's the best option. 10 CHAIR CLOWE: Well, you're in the right 11 forum. As I explained to your students, the 12 responsibility of these three commissioners is 13 oversight. And it is to guide and direct the policy 14 of this Commission. So you've come to the right 15 place. And I think that your thoughts are very 16 interesting. If my take on your thinking is correct, 17 there is not a mathematical issue here at all. 18 MR. BUSALD: Not really, no, sir. 19 CHAIR CLOWE: It's a matter of 20 disclosure or interpretation, definition. And it 21 stems from whether breaking even on a purchase of an 22 instant scratch-off ticket is breaking even as you 23 view it or being a prize winner as the Commission has 24 adopted that position in the past. 25 MR. BUSALD: The only thing I might WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 134 1 wonder about that is that it doesn't say winning a 2 prize. It says of winning. So even that -- the word 3 prize is not in the advertising. 4 CHAIR CLOWE: Okay. But that's where 5 we are with your position? 6 MR. BUSALD: Yes. It's not really a 7 mathematical issue. It is because we looked at it and 8 discovered it in doing mathematics. But it's not 9 really -- I mean, certainly we know the Commission can 10 do mathematics. So it's not -- you know, even though 11 sometimes we have thought that someone who was a 12 mathematician being on staff might be helpful, just 13 from the errors we've seen come out that I've pointed 14 out on the first page and from our previous dealings 15 with all the other errors we have pointed out over 16 time. But no, it's not a mathematical issue, really. 17 CHAIR CLOWE: Good. I understand where 18 you are, then. 19 Now, is there anyone else among the 20 students who wishes to address the Commission at this 21 point? I have appearance forms from others. Come 22 forward, please. The way this goes is, you state for 23 the record what your name is. And then you're free to 24 make your statement. 25 MR. WHITNEY: My name is Chris Whitney. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 135 1 I think there should be some sort of action on the 2 Lottery advertisement promotions, and especially 3 including the print media criteria. I totally agree 4 with what Professor Busald has stated earlier about, 5 first of all, the integrity of advertisement. 6 Throughout history, as we all know, the English 7 language has changed. Words that people have used in 8 the past cannot be used today simply because their 9 meanings have changed. Math, however, is static. It 10 doesn't change. Two plus two will always equal four. 11 So in advertisement, the wording is very important. 12 And I would strongly suggest that the consensus of the 13 population generally in the areas of the central 14 southern part of the United States, specifically in 15 Texas, would say that a winner is someone who gains 16 something, not someone who breaks even. And I could 17 probably get any sort of English professor to agree 18 with that. Not only that, I think it's important that 19 this issue is to -- actually, that's all I have to say 20 on that point. I do have another point, however, I 21 would like to make. 22 But first of all, do you agree with me 23 on the fact that English is dynamic, Commissioners? 24 CHAIR CLOWE: I do. 25 COMMISSIONER WHITAKER: I would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 136 1 probably also say mathematics tends to shift, 2 depending on the particular system you're using. But 3 anyway, as long as we're going to be specific. 4 COMMISSIONER SADBERRY: I would also 5 say it's cultural. It's regional. There is a lot of 6 things, if you want to include all that in being 7 dynamic. 8 COMMISSIONER WHITAKER: But yes, I 9 would agree with your general statement. 10 MR. WHITNEY: The law of sampling 11 states that if you sample at least a thousand people, 12 then it should come out to a very confident result. I 13 would say that as a whole, our class has sampled at 14 least a thousand people throughout the area. And that 15 sample would say that the majority would say winning 16 is when you gain something. Like, I have an analogy 17 to make here. 18 COMMISSIONER SADBERRY: I'm sorry. 19 Winning is what? I didn't hear you. 20 MR. WHITNEY: The majority of people I 21 would say that we have sampled throughout the 22 population would say that winning is when someone 23 gains something and not when they break even. 24 And I have an analogy to make. 25 Hypothetically if, say, the Dallas Cowboys went to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 137 1 Super Bowl against the Houston Oilers -- and I have to 2 be hypothetical here because the Oilers aren't around 3 anymore. But -- and that they ended up with a 4 score -- okay. The time ran out. The score is 50-50. 5 Would they both be winners? 6 COMMISSIONER SADBERRY: There are 7 instances, as an example, in the college setting where 8 before you had playoffs -- and I'm not sure how that's 9 going to work. But there were co-champions. I 10 suppose the Longhorns, back in my day, I would suppose 11 hopefully they would consider themselves both winners. 12 But I understand the point you're making is gaining a 13 competitive advantage if that's the definition of 14 winning. That's why you have playoffs, because a tie 15 game doesn't produce a winner. So it depends, again, 16 on perception. 17 And I take what you're getting at is 18 the right perception of winning in this context being 19 projected. Did you get more money than you spent, is 20 what I think your group is saying ought to be the 21 context in which we're talking about winning. And 22 that's what you believe is not being conveyed 23 accurately or adequately to the playing public. So I 24 understand what you're saying. 25 CHAIR CLOWE: Let me help you in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 138 1 understanding this process, if I am understanding the 2 point of your question and the point of 3 Ms. Cunningham's question earlier. This Commission 4 has to hear all sides of this issue. And by trying to 5 ask a question that commits the Commission to an 6 answer and a position at this stage will not, I think, 7 be successful to get you what you want. I'm trying to 8 give you a little advice now. 9 What you want to do, in my opinion, is 10 present your position. Best possible case. Most 11 detailed and correct. And then the Commission, having 12 heard your position, has to hear other positions which 13 may be beyond the staff. May be other players. May 14 be from sources that are numerous and varying. So if 15 you're driving in your presentation - I'm coaching 16 you, too, now a little bit - in trying to get the 17 Commission to say, yeah, you're right, we agree with 18 you, I don't think you're going to be successful at 19 this point in time. But that should not dissuade you 20 from trying to make your position well understood and 21 known to the Commission. Is that helpful to you? 22 MR. WHITNEY: Yes. And before I 23 respond on that, I'd like to respond to Mr. Sadberry's 24 comment. I'd like to add on to that. Although if 25 you -- if someone was to buy a lottery ticket and they WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 139 1 broke even, quote-unquote, we also have to consider 2 the fact that they spent time to go down there to buy 3 the ticket, the effort that they made to do it. 4 COMMISSIONER SADBERRY: So you could 5 add in gasoline. You could add in interest on the 6 money invested. You bought a thousand tickets. You 7 want to win enough in prizes that I guess your 8 thousand dollars plus interest plus inconvenience and 9 a number of things. I am like Mr. Clowe. I 10 understand your point. I think we all do. It might 11 be a little more difficult, though, for us to sign off 12 and say that we endorse what you say in that sense. 13 We are hearing your message. We are glad you're 14 bringing your message. We encourage you to bring your 15 message. And I think we're getting the message. But 16 I don't think we at this point sign off to a bottom 17 line conclusion by answering specific questions that 18 are conceptual in nature. 19 MR. WHITNEY: Mr. Clowe, you have a 20 very good point on what you made. It's hard for me to 21 argue to everyone here specifically my point of view. 22 And I understand that everyone here has a different 23 point of view. I can't say that my point of view is 24 the truth because I'm not all knowing. But I do know 25 that we have some very detailed research on this. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 140 1 it's very convincing. And there is a large amount of 2 people who will agree with this consensus. And that's 3 all I'd like to make on that point before I go to my 4 other point. 5 CHAIR CLOWE: I beg your pardon? 6 MR. WHITNEY: That's all I have to say 7 until I seek my other point. 8 CHAIR CLOWE: I thought you said you 9 had another point. Go right ahead. 10 MR. WHITNEY: Okay. I just -- I 11 have -- I want to start my next point with a question, 12 a direct question. I was looking through the 13 financial information here. And I noticed that a 14 large amount of money is what they call earnings for 15 the state. And then I was looking at this 16 advertisement that says that 31 cents of the dollar 17 goes towards the Foundation School Fund. What exactly 18 is this funding and earnings in the state used for? 19 CHAIR CLOWE: We'll give you a detailed 20 answer on that if you'll just stick around for the 21 executive director's report. She reports every month 22 on that money and where it goes. And why don't you 23 just, when you're finished with your presentation, 24 hold on for her report. And you will get that 25 information. As a matter of fact, we'll give you a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 141 1 copy of that if you'd like. 2 MR. WHITNEY: That sounds good. Also, 3 I was looking through the -- looks to me to be the 4 rules of the Texas Lottery, chapter 466.021, 5 demographic studies. It says -- states here: The 6 executive director shall every two years employ an 7 independent firm experienced in demographic analysis 8 to make a demographic study of lottery players. The 9 study must include income, age, sex, education, and 10 frequency of participation of players. When the 11 marketing representative -- her name escapes me right 12 now. 13 CHAIR CLOWE: Toni Smith. 14 MR. WHITNEY: Yeah. She came to the 15 school and she gave us a presentation. And I asked 16 her if she had any demographic information. And she 17 couldn't answer the question at the time. But she 18 did -- and I do thank her for this. She sent us some 19 information about the demographics. And I'm concerned 20 to whether the majority of people who buy the tickets 21 are of a low income and educational level and whether 22 or not the funding to which that the State gets is 23 used towards economical expansion that benefits the -- 24 someone who falls within that bracket or someone who 25 falls in a higher bracket, or should I say a higher WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 142 1 income level bracket. 2 CHAIR CLOWE: I think probably what she 3 gave you is this report. Is this familiar to you? 4 MS. CLOUD: Commissioners, that's -- I 5 believe that's not the demographic study, I don't 6 think. We're in the process right now -- UT conducts 7 that study for us. 8 CHAIR CLOWE: It's not in the retail 9 survey of the players? 10 MS. CLOUD: No, it is not. And -- 11 CHAIR CLOWE: What did Toni give the 12 class? 13 MS. SMITH: It was the most current 14 demographic study, which is just going on two years 15 old. 16 CHAIR CLOWE: And how current was it? 17 MS. CLOUD: It was two years ago. We 18 have to do one -- 19 MS. SMITH: We're in the process now. 20 MS. CLOUD: We have to do a study prior 21 to the legislative session. And it has to be 22 presented to the legislation. 23 COMMISSIONER SADBERRY: Let me say on 24 that -- and that's a good point to raise. I'm glad 25 you are interested in that. Just like we have certain WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 143 1 duties and authority with respect to how this agency 2 runs, our boss is the legislature members. They tell 3 us what to do in that sense. And part of what they 4 did when they created this agency -- the Lottery 5 itself existed before this particular State agency was 6 created. So when this State agency was created, we 7 took over lottery. And we took bingo, as you've heard 8 a lot about this morning. And part of what the 9 legislature did on the lottery side is to require 10 these studies to be conducted. 11 Now, this data which we are required to 12 provide to the legislature, what -- we pass it on. 13 And then it's up to them. If the data they receive 14 means something in the sense of, something needs to be 15 done here, why -- and I can -- I'll tell you this. 16 Going from memory -- and I can understand why Toni 17 Smith may not have it from memory, because she 18 probably wasn't put on notice of your question. But 19 she did follow up with the most current data we have. 20 But my memory is that the numbers that shook out of 21 that report were very encouraging that what you are 22 concerned about is not happening. Now, that's a 23 succinct, bottom line type of conclusion. And I will 24 be corrected, I'm sure, if I'm wrong. But that's my 25 recollection of it. But it may change. So we have to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 144 1 keep doing it. 2 Now, if the legislature sees that there 3 is a problem here, then they have the chance to say 4 things to us like, we don't think you ought to 5 advertise this way. We don't think you should 6 advertise this component. Or, your advertising should 7 change. And I can tell you things like that have 8 happened. That's why you don't see Scratch Man 9 anymore. The legislature thought that there was a 10 problem with scratch man. Not what we thought. It 11 was their perception. And they get to make that call. 12 So if there are issues in this type of 13 arena of demographics, that information gets to the 14 leaders of our state. And they get to tell us if 15 there is a problem that we need to address. That's 16 kind of the checks and balances that go on here. And 17 you're right to raise it. And I'm glad you do, 18 because I -- the more that's known about information 19 we get and where it goes, what's done with it and 20 about it, the better. That's -- again, our job is -- 21 public input, public trust, public perception are 22 paramount. 23 I would like to underscore the Chair's 24 comment that we get to do this work gratuitously. And 25 I don't make any point of that, other than to say WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 145 1 you -- we have to believe in what we're doing. We 2 have to think that or we would not be doing it. We're 3 not perfect and we're not perfect types. And that's 4 why we gain and benefit from public input. It gives 5 us feedback on how we're doing our jobs. 6 CHAIR CLOWE: There was a second part 7 of your question about where the money goes as far as 8 economic groups or demographic groups. 9 MR. WHITNEY: Yes. Before I answer 10 that, I want to say that this question was for myself. 11 I'm not speaking on behalf of everyone else. 12 CHAIR CLOWE: Sure. 13 MR. WHITNEY: That way, they don't feel 14 somewhat responsible just in case if I say something 15 wrong. 16 COMMISSIONER WHITAKER: They were 17 looking at you. 18 CHAIR CLOWE: You didn't understand 19 that the proceeds go into the Foundation School Fund? 20 You didn't cover that when Toni and Larry King were 21 there? 22 MR. WHITNEY: Yes. That was what I was 23 concerned about, because I had asked her about what 24 schools benefit from this. 25 CHAIR CLOWE: Do you understand we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 146 1 don't control that? 2 MR. WHITNEY: I don't know. See, 3 that's what I'm trying to figure out, who controls it 4 or -- 5 MS. CLOUD: The Foundation School Fund 6 has control of the money. It's where they designate 7 the money to go. 8 COMMISSIONER SADBERRY: But I think the 9 question is: Who decides where we get -- where we 10 send it. 11 MS. CLOUD: Right. 12 COMMISSIONER SADBERRY: We don't decide 13 that. The legislature decides that. At first it went 14 into the general treasury, if you will. But I'm sure 15 that's not the right phraseology. The general -- 16 MS. CLOUD: Revenue fund. 17 COMMISSIONER SADBERRY: -- revenue 18 fund. The general -- just like your general bank 19 account. And then the legislature decided to make it 20 specific. But that's their call. And we don't have 21 no say over that. We report as asked where it goes. 22 But we don't decide where it goes. 23 MR. WHITNEY: Okay. 24 CHAIR CLOWE: I think -- go ahead. 25 MR. WHITNEY: I have no more comments WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 147 1 to make. 2 CHAIR CLOWE: Okay. Thank you very 3 much. I think Professor Busald is trying to be 4 respectful of others in their needs to have some time. 5 And I'll ask each of you students who want to address 6 the Commission to be that respectful as well. And 7 keep in mind we have to hear the other side of this 8 issue from the staff and those other interested 9 parties. And we do want to leave here tonight. So I 10 didn't bring my pajamas. 11 COMMISSIONER SADBERRY: I thought I was 12 going to call and ask him to up my ticket because I 13 think I'm going to have to push them back. 14 CHAIR CLOWE: But we do want to give 15 you time. And we're not trying to hurry you. Go 16 right ahead. Who are you, now, please? 17 MS. BROTHERMAN: I am Kristin 18 Brotherman. 19 CHAIR CLOWE: Good. 20 MS. BROTHERMAN: Commissioner, before 21 you made that comment, I was going to tell you that, 22 don't worry. I'll make this short. I know it's near 23 lunchtime. And I won't ask any questions. 24 CHAIR CLOWE: Kristin, you came a long 25 way from San Antonio. So we're glad you're here. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 148 1 MS. BROTHERMAN: Well, thank you. I'm 2 glad to be here. And you're right, Mr. Chairman. 3 I've never done this before, so I'm a little nervous. 4 All right. For the brief time I was 5 able to make the presentation Ms. Smith made -- I had 6 some classes. But I was able to make some of it. And 7 I know this is hearsay. But I remember her saying 8 something to the effect that the Commission knows that 9 if people see a higher ratio of 1 to 5, you know, on 10 the back of the scratch tickets, it doesn't look that 11 great. And personally -- and even though Professor 12 Busald said even if we take out the break-even prize 13 winners, it doesn't really affect the ratio that much. 14 But even if it was to like, let's say, raise it to one 15 out of every 20, the Lotto is fun. It's a game. It's 16 just like if I was to go to a casino -- which I can't 17 do for another three months anyway. But if I was to 18 go to a casino, I pretty much know I'm not going to 19 win because I'm not, you know, much of a gambler. 20 And -- but it's fun, you know. Even though I know I'm 21 going to lose quite a bit of money, it's fun. And I 22 personally would still play the Lotto. I just want to 23 know what I'm playing. I want to know the truth. And 24 I also quizzed my family, my friends. Even as late as 25 yesterday I was asking some of my friends. And I just WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 149 1 got, how can they -- how can they consider this? I 2 didn't know this. And that's what we're saying. They 3 just don't know. 4 And I was thinking that another point I 5 have is about businessmen or women. Businesses must 6 respect their clients. At first I was thinking, 7 what's a good business? Car salesman. Well, that's 8 not a really good -- I didn't think that would be a 9 good example. But for instance, a lawyer. I know we 10 have a lawyer in the house. He must be completely 11 honest and respect his client. And in my opinion, I 12 am and my peers and my family, when they buy a Lotto 13 ticket, they are the Lottery's clients. And all that 14 we ask is for the truth and for the same respect that 15 we give you. And that's just simply what we are 16 asking, is for the truth. And I do agree that it 17 would be a wonderful opportunity for Texas to start a 18 trend in honesty, especially if we're about to have a 19 president from Texas. I just -- I just think that 20 we're about to be in the limelight quite a bit. I 21 think it would be a great opportunity. And thank you 22 for your time. 23 CHAIR CLOWE: Very good. Thank you 24 very much. 25 Who would like to speak next? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 150 1 MR. BUSALD: I think we've run out of 2 brave souls. 3 CHAIR CLOWE: Well, they did a 4 wonderful job. And I really thank all of you for 5 coming and expressing your views. Now you get to hear 6 the other side. 7 COMMISSIONER SADBERRY: May I ask a 8 question? 9 CHAIR CLOWE: Sure. 10 COMMISSIONER SADBERRY: Professor, you 11 have made a point of winning and winning prizes. And 12 you've made a distinction that the advertising didn't 13 include prizes in the representation of winning. Now, 14 a simplification. I just wanted to make sure, though, 15 that as a general concept, that's what I understood 16 you to say. 17 MR. BUSALD: Yes. If you look at one 18 of the game flyers, it just simply says overall odds 19 of winning. It doesn't say overall odd of winning a 20 prize overall. It just says winning. 21 COMMISSIONER SADBERRY: I just wanted 22 to -- 23 MR. BUSALD: Yeah. And it's semantics. 24 We realize that. And we're sympathetic to the 25 position that this puts staff in of how you're going WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 151 1 to do this. But I think, you know, if we do it the 2 positive way, it -- I think it will impress players, 3 frankly. And I could be nuts. Who knows? But -- 4 COMMISSIONER SADBERRY: I didn't mean 5 to step on any of your comments. I apologize. I just 6 wanted to come back to sort of Commissioner Whitaker's 7 observation about the one dollar prize. I'm seeing on 8 the materials you presented quite a number of places 9 where prizes is, in fact, included as part of the 10 winning, on page 15 and in a number of other places. 11 To the extent that makes a difference -- I don't know 12 that it does or not. I don't -- I don't water down 13 your concerns at all. I just wanted to point that 14 out. 15 MR. BUSALD: There is an implication 16 that a dollar -- if you get your dollar back, it's a 17 prize because it's listed under prizes. You're asking 18 a player, including a bum, to realize that, from 19 Nicole's testimony. So I -- you know, it's kind of -- 20 you know, I don't know how to deal with the issue. I 21 really don't. We're just here to make some 22 suggestions and point out concerns. 23 COMMISSIONER SADBERRY: I'm through. 24 CHAIR CLOWE: Thank you, sir. Now, I 25 introduced earlier to you the executive director of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 152 1 the Commission. And the Commission is going to call 2 on her to give the staff and her viewpoints about the 3 issues that you've raised. So you get to hear how 4 someone else feels about the issue that you've been 5 talking to us about. 6 MS. CLOUD: Toni, I'd like for you to 7 come up, if you don't mind. First of all, I'd like 8 for Toni to explain a little bit of -- and I think she 9 probably did to the class, about how the prize pools 10 are actually created. How we sit down and we look at 11 the amount of money we've got to put into a prize pool 12 and how that is divided out. 13 And I would like to -- before Toni does 14 that, I would like to comment on the press release 15 that Mr. Busald brought up on October 21st on the item 16 on Cash 5. And I do agree with him that is totally 17 erroneous. It should not have been in this press 18 release. It -- what happened, apparently someone in 19 communications went back into the archive and didn't 20 catch the number being incorrect. I will take that up 21 with Keith when he gets back. 22 CHAIR CLOWE: So that is an error. And 23 it is needing to be corrected in the way of a 24 retraction or a corrected statement. 25 MS. CLOUD: We can -- we can certainly WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 153 1 do that, yes. 2 CHAIR CLOWE: Okay. Good. 3 MS. CLOUD: And I appreciate that being 4 brought to our attention. 5 CHAIR CLOWE: And although someone in 6 communication, we take responsibility. 7 MS. CLOUD: We take the responsibility. 8 I probably did not view the press release before it 9 went out. It was on the Web, though. And I do read 10 them once they get out there. I didn't catch it, 11 either. 12 So that is a -- and on the -- I just 13 want to emphasize to my Commission, as well as to this 14 class, that it's never been the intent of this Lottery 15 Commission to deceive anybody. That is not what we do 16 when we put the odds of winning in these games. And 17 that's why I want Toni to give a brief overview of how 18 the game structure is actually developed. 19 MS. SMITH: Well, without taking all 20 day, because I don't have my pajamas, either, the 21 prize structure is basically a mathematical formula 22 that helps you determine the prize levels and what 23 percentage of that total prize pool goes out in each 24 of those levels. 25 For example, you would take into WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 154 1 consideration if it was a print run of 20 million 2 tickets at a 60 percent payout, meaning 60 cents on 3 every dollar of sales of tickets goes back to the 4 players will be in that prize pool, then you would 5 have $120 million in prizes in that game. So then 6 it's up to us to make the best decision on how that 7 money be distributed throughout that game at the 8 different prize levels. 9 And I would like to take a moment to 10 thank Mr. Busald for having Larry and I come to his 11 class, because we did talk through and had copies of 12 different prize structures that the students could see 13 and see how that worked. 14 We look at what monies go into each of 15 those levels for various reasons. So yes, we can 16 control. There may be a bigger percentage of the 17 lower tier prizes in one game. For example, a holiday 18 game for gift giving, because you do want people -- if 19 it's a gift, you'd hope that they would win a prize. 20 And so sometimes the theme of the game determines, and 21 that's more of a marketing than a math decision, how 22 much money goes into each of those prize levels by 23 percentages. And that's pretty much how it's put 24 together. 25 I guess one comment I'd like to make WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 155 1 about if you -- as far as being truthful about the 2 odds, there are dollars allocated for that low tier 3 prize. If it's a one dollar ticket for the one dollar 4 prize, you can't discount that. I mean, you -- it may 5 be semantics of what you call it. But when I looked 6 into the math side of it and the odds, those dollars 7 are there. And I think it's just a question of what 8 you call it. And I'm sorry if the students didn't 9 feel satisfied with the explanation that day. They 10 appeared to be and didn't have too many other 11 questions. So hopefully we can address those if there 12 are any others today. 13 With regard to the demographic study, I 14 did pull a copy. And I'll leave this for the 15 Commissioners. We'll get some other copies. This is 16 what I had sent Mr. Busald with regard to the income 17 level of players. It states, what is the income level 18 of Texas lottery players? Similar to education level, 19 it is a myth that the lowest income levels are more 20 likely to play lottery games. Again, this study shows 21 that those with the lowest income level are least 22 likely to play the Texas Lottery. These statistically 23 significant results replicate the 1997 and 1995 24 studies. The most likely to play are those earning 25 20,000 and above, which represents 70 to 75 percent. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 156 1 And the average family income for this sampling was 2 37,000 -- $37,966. And I think we did talk about that 3 day in the class that it skews higher income, which is 4 a good thing. We don't want people to be misled to 5 believe that we target lower income people in the 6 games that we put out. 7 And I guess in response to players 8 rebelling about what they don't know, I do think our 9 players are very savvy with regard to what they're 10 winning. And if we were to, say, take that one dollar 11 prize level on a one dollar ticket and put it into 12 other prize pools, there would be fewer winners of 13 anything in that game. And I think we found out with 14 a reduction in our prize payout the effect that can 15 have on sales. So we have to be very cognizant of 16 that. 17 With regard to industry issues, Texas 18 has always been sort of independent in what we do. 19 But we always follow what other states do. So we did 20 a survey of other lotteries. And we surveyed 21 California, Florida, Georgia, Massachusetts, New York, 22 and Ohio. Four of those six lotteries currently offer 23 free tickets as a part of their prize structure on 24 instant games and actually factor those into their 25 odds, which we don't do and wouldn't want to do here WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 157 1 in Texas. So we feel like that, you know, we're 2 not -- that, to us, maybe would be a different 3 situation. All six of the lotteries have the lowest 4 prize matching the prize of the ticket. None of the 5 six offered a prize that was lower than the price of 6 the ticket. And only one of the six -- it seems like 7 it was one game in California offered two dollars on a 8 one dollar ticket. And some of these lotteries, like 9 Massachusetts, have been in place for 26 years. And 10 so not that we follow industry standards, but we do 11 look to see what others do. And if there were a 12 general complaint by players all over the country 13 about those lower prize levels, I think we here in 14 Texas and those other states would have heard that and 15 would have responded. 16 COMMISSIONER WHITAKER: Toni, do you 17 have reason to believe that the players know that the 18 dollar prize is included in the odds calculation? 19 MS. SMITH: I have no reason to believe 20 that they don't believe that it's there. I do want to 21 say, and I shared this with the class the other day, 22 it's probably more of a marketing decision in how it 23 works and why those are there. One, to keep the odds 24 low. But there are other reasons why we want to have 25 that. Now, we call that the churn. It also gives the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 158 1 retailer a sense of paying out some prizes, whatever 2 the terminology we want to call those dollars that are 3 coming and going back and forth. And that's a 4 positive thing for them. 5 And the other thing is that it gives 6 the players another option to make that choice. So it 7 keeps them in the game. If they feel lucky on one 8 game or want to try a different game, it gives them 9 the opportunity to give that dollar back. So in that 10 sense, they could be a winner or not be a winner, 11 depending on their thoughts about it. But from a 12 mathematical standpoint, it definitely still is a -- 13 money that was in that prize pool that's paid out to 14 someone. 15 MS. CLOUD: Commissioners, the -- what 16 you see there, your selling sheets are posted on our 17 Website. So players who have the ability to go to our 18 Web, all the information is there as well. Also at 19 the time a game -- new game goes to the retailer, the 20 selling sheet goes with the game. So the retailers 21 themselves have the selling sheets. Now, we can't -- 22 we have 17,000 retailers. We can't be guaranteed 23 they're posting it. But we do everything we know how 24 to do to make that information -- everybody aware of 25 what's in that game. It is not on the ticket. There WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 159 1 is no room on the ticket to put all that information. 2 COMMISSIONER SADBERRY: You anticipated 3 one of my questions, which was, why don't you just 4 simply get rid of the break-even ticket? Are you 5 saying you have data from a marketing standpoint that 6 that is not what the players want? 7 MS. SMITH: I don't have data with 8 regard to that. But I would have to -- I would be 9 very concerned -- well, very concerned that as a 10 result of -- when we had the prize payout reduction, 11 there were fewer dollars to pay out. And we know what 12 result that had on sales. That if we shifted the 13 dollars around and there were fewer winners, it would 14 depend on each player's opinion of whether they won 15 something or not, you know. If they weren't winning 16 as often, there is a certain psychological aspect of 17 that for whether it's one dollar or two dollar. I 18 don't know the benefits from a sales standpoint if you 19 took every one dollar prize and put it into a two 20 dollar prize level. There obviously would be fewer 21 prizes overall in that game because you have affected 22 the odds of winning. 23 COMMISSIONER SADBERRY: Fewer payouts. 24 MS. SMITH: Fewer winners. 25 MS. CLOUD: The actual prizes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 160 1 MS. SMITH: Prizes, winners of prizes. 2 MS. CLOUD: Commissioners, I don't 3 have -- I don't see a real problem with us making the 4 prize point prize be -- just say it's a break-even 5 prize and that it is part of the odds. I mean, that's 6 what Professor Busald said that he, you know, would 7 agree that we could do. And I don't see a problem 8 with us doing that. If that will solve anybody's 9 question about whether the Lottery is deceiving the 10 public or not, then I would -- I would absolutely 11 suggest that we do something like that. I have no 12 problems with that. 13 I don't want to take that prize level 14 out. It is part -- we do want our players to win. 15 And they -- I know for a fact a lot of players feel 16 like they won if they got their money back rather than 17 not getting any prize. But I am more than willing to 18 say that the prize point prize is a break-even prize. 19 And it is part of the odds. 20 COMMISSIONER WHITAKER: And that was 21 your point, Professor Busald? 22 MR. BUSALD: Yes. 23 COMMISSIONER WHITAKER: And it was 24 not -- you're not taking the position that a dollar 25 prize is not a good thing or that it should be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 161 1 eliminated? 2 MR. BUSALD: That's an issue -- that's 3 actually the Commission's decision. We don't -- 4 COMMISSIONER WHITAKER: That's not your 5 point? You're not here to complain about that? 6 MR. BUSALD: No. 7 COMMISSIONER WHITAKER: Okay. 8 CHAIR CLOWE: I think we're ready to go 9 to the next subject on the agenda. 10 You won. Did you get that message? 11 Sometimes it happens very quick and it's very slight. 12 But you won. 13 MS. CUNNINGHAM: We like her. 14 MR. BUSALD: Thank you very much, 15 Commissioners. We really appreciate your 16 consideration. And Linda, also. We really want to 17 work with the Lottery to help the -- I'm sorry. Thank 18 you very much, Commissioners. And thank you, Linda. 19 We really do want to work with the Lottery to help the 20 Lottery. We don't want to damage. But we obviously 21 had a difference of opinion on this issue. And we 22 appreciate the chance to present our side and the 23 Commissioners' willingness to listen. 24 CHAIR CLOWE: You made a good case and 25 well done. And we thank you again for coming. But WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 162 1 remember, you won't always win. 2 MR. BUSALD: We realize that. 3 COMMISSIONER CLOWE: Sometimes you will 4 break even. 5 We have, I believe, reached a point 6 where we're going to take a motion to go into 7 executive session. 8 COMMISSIONER WHITAKER: So moved. 9 COMMISSIONER SADBERRY: You've got to 10 read the speech. 11 CHAIR CLOWE: I know. But we don't 12 have any other items. We have -- wait. We have one 13 gentleman here. We're going to handle him. I do not 14 want to do to you what we did the last time. And I 15 apologize again. Come forward, if you will, sir. 16 MR. BOWEN: Good morning, 17 Commissioners. 18 CHAIR CLOWE: Just a minute. Let me 19 welcome you. I've got your appearance here somewhere. 20 MS. KIPLIN: Elks Lodge. 21 MR. BOWEN: I believe it was number 18, 22 section zero. 23 CHAIR CLOWE: Help me with the agenda 24 item. 25 MR. ATKINS: G. Bowen, Elks Lodge 1105 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 163 1 under the contested cases. 2 CHAIR CLOWE: And I have your 3 appearance form here. I just can't put my hand on it. 4 Would you announce your name for the record? 5 MR. BOWEN: For the record, my name is 6 Gene Bowen. I'm the president of the Elks Lodge 1105. 7 CHAIR CLOWE: Thank you. 8 MR. BOWEN: My purpose coming here 9 today was to see about asking for an appeal on the 10 revoking of our bingo license. At your last meeting, 11 I believe it was October the 11th, certain information 12 was to be in your possession for that meeting. I 13 found out that it was received later that afternoon, 14 but not at the beginning of your meeting. So our 15 license was revoked due to you not having it in your 16 hands at the beginning of the session. But later on 17 that afternoon, the reports and the check. 18 At that particular time, we was also 19 asked to set a deposit of $2,300 on that account. 20 Since then, we have received a letter revoking our 21 license. But that afternoon, our deposit check was 22 cashed or deposited in you-all's account. And I was 23 curious. You know, I mean, if you're going to take 24 the deposit check, do we still get to -- we haven't 25 operated bingo this whole fourth quarter since October WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 164 1 when I received notification. And you know, until we 2 hear something from you, we won't play bingo, you 3 know, because we don't want to break the law or 4 anything like that. We just want to stay in 5 compliance. If we could keep our license, we would 6 like to. 7 MS. KIPLIN: We've got an attorney, 8 assistant general counsel Kay Schultz, who is 9 representing the staff on that. And I would ask that 10 if you-all wouldn't mind vacating those seats so she 11 can come up. And Mr. Atkins, if you'll go sit down. 12 And that way I think they can give you a more cohesive 13 response. 14 CHAIR CLOWE: Good. 15 MS. SCHULTZ: For the record, I'm Kay 16 Schultz, assistant general counsel. This case was 17 discussed first at the September meeting when a 18 revocation order was before you. And was continued so 19 that we could work out an agreement with the 20 organization. And Mr. Bowen and I had a conversation 21 about that. And I agreed and did send him an agreed 22 order. I thought I made it clear to him -- I 23 overnighted it to him and requested that he overnight 24 it back as soon as he could. I thought I made it 25 clear that that was going to be taken up. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 165 1 indicated that our next Commission meeting was 2 October 11th. 3 I then, as the meeting was approaching 4 and I hadn't gotten any documents back in the mail, 5 made attempts to contact Mr. Bowen, unsuccessful 6 attempts, and asked them if they were intending to 7 comply with this agreement that we had orally agreed 8 to. 9 On the afternoon before the meeting, 10 October 10th, I received a telephone call from a 11 gentleman named Vincent Lewis, who said that he was a 12 member of the Elks organization and that he was 13 requesting more time. He said they needed more time. 14 They were going to have a meeting that evening and 15 discuss whether they were going to come up with the 16 money or whether they could come up with the money. 17 And after consulting with my client, Mr. Atkins, I 18 indicated to him that that wasn't necessarily 19 something that we approved of. We intended that this 20 be back by the October 11th meeting. He then told me 21 he would -- he would do what he could and indicated he 22 was going to try and get this in the mail. 23 Then I believe the next morning, he 24 called and informed me that the post office had lost 25 the item. So that's where we were when we appeared WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 166 1 before you and the order was signed. 2 Really, though, the proper basis for a 3 motion for rehearing -- and I wouldn't call this a 4 properly styled motion for rehearing. But at the 5 point this is before the Commission, it would be 6 considered, and I took it for a motion for rehearing, 7 should raise some problem with the proposal for 8 decision or the proposed order. It's getting outside 9 of the record of the case hearing. And that's the 10 proceeding on which you can do a motion for rehearing 11 to talk about these procedural things. 12 But that is what happened. We had a 13 agreement to have an order that would have resulted in 14 a suspension of some time period by this organization 15 if they would get us the order and get us the money 16 paid what they owed and pay their additional bond. 17 That just did not happen before the meeting was held. 18 COMMISSIONER WHITAKER: So what do you 19 propose? 20 MS. SCHULTZ: Well, Your -- 21 Commissioners, I would propose -- 22 MS. KIPLIN: I think staff proposes 23 that you enter a vote to enter an order overruling 24 motion for a hearing. 25 MS. SCHULTZ: The technical term is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 167 1 overruling the motion for the hearing. 2 MS. KIPLIN: Denying their motion for a 3 hearing. And I use that phrase in connection with 4 this document loosely because it does not meet the 5 minimum requirements under the Administrative 6 Procedure Act for what must be in a motion for -- a 7 proper motion for a hearing. But I also recognize 8 it's a pro se party. 9 MS. SCHULTZ: Well, and for the record, 10 too, Commissioners, I did have a conversation with 11 this organization after the fact, after they got the 12 order, and told Mr. Lewis -- his question was, well, 13 is there anything we can do? I explained to him that 14 there was a procedure called a motion for rehearing. 15 I cited him to the statute. I told him that he would 16 probably be advised to get legal counsel if he wanted 17 more interpretation of it. But I did give him the 18 section of the statute and tell him the time period 19 that was required for him to file what was called a 20 motion for rehearing. 21 And then subsequently, a document did 22 come. But it doesn't meet the requisites of a motion 23 for rehearing. They're saying it's their appeal of 24 the order. But a motion for rehearing, in order to be 25 properly before you, has to take up defects or claimed WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 168 1 error in the findings of fact and the conclusions of 2 law. And this motion for rehearing does not do that, 3 or the document that we consider that's a motion for 4 rehearing does not do that. So it's law on its face. 5 COMMISSIONER SADBERRY: What about the 6 agency having received and deposited the check, the 7 deposit? And if I understand, the deposit was on a 8 going-forward basis, not to pay past penalties. Am I 9 right on that? 10 MS. SCHULTZ: Perhaps Mr. Atkins can 11 address that better. But my understanding is, you 12 know, those things come in. They're processed. 13 They're cleared through. And if someone's application 14 is withdrawn or for some reason not processed, those 15 things can be refunded. 16 MS. KIPLIN: Well, the fact is that 17 there is a delinquency that is owed to the State. 18 COMMISSIONER SADBERRY: That's what I 19 was saying. 20 MS. KIPLIN: And that money will be 21 used, and I think it has been, to satisfy that 22 delinquency that existed. As a matter of fact, I'm 23 not sure that the full delinquency has been paid. I 24 wouldn't know that. 25 COMMISSIONER SADBERRY: We can do that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 169 1 lawfully in regards to what they call it. If we have 2 a delinquency, if there is a delinquency, we can apply 3 the funds? 4 MS. KIPLIN: Yes. I believe you're on 5 firm legal ground. The bingo taxes that are owed, 6 prize fees are treated as if they were taxed. And all 7 the power that the comptroller has in the tax code, 8 you-all have to collect that tax. And if, in fact, 9 the money had not been paid, you have the full power 10 to impose a lien on their bank account to collect that 11 money or refer them over to the AG's Office and sue 12 them to get the -- to get the tax paid that's owed to 13 the State. 14 COMMISSIONER SADBERRY: Well, let me 15 ask this to our lawyer. Aside from the technical 16 issues of what it's called -- I think rule one 17 basically says you call it what it really is, what it 18 should have been called. What is the staff's position 19 on the merits of what they are asking for? 20 MS. SCHULTZ: Well, our position is 21 that it's not a proper subject of a motion for 22 rehearing. And I did consider it a motion for 23 rehearing, even though it wasn't styled that, because 24 the purpose of a motion for rehearing is to put the 25 Commission on notice of errors in a proposal for a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 170 1 decision and a finding of fact or a conclusion of law. 2 COMMISSIONER SADBERRY: I wasn't clear 3 on the merits of their entitlement to relief, because 4 if I'm recalling correctly, they were here at a point 5 when this Commission could have moved forward on the 6 revocation. But I believe staff, after hearing 7 discussion of the Commission, requested the 8 opportunity to work out an agreement in lieu of moving 9 forward on the proposed action. And then I believe it 10 was scheduled for something: Hearing, status report, 11 or a completion of agreement or whatever, at the last 12 meeting, at which there was no appearance and no -- 13 you didn't have the documents in hand or any 14 explanation or indication at that time for the failure 15 of those documents to be here. 16 And I believe further, if I'm correct, 17 there was some expression of concern from staff as to 18 the timeliness of reacting to the handling of these 19 matters on behalf of the applicant, if you will. Am I 20 right so far? 21 MS. SCHULTZ: Yes. 22 COMMISSIONER SADBERRY: I'm asking, in 23 lieu of that record, what is staff's position on 24 relief being granted as a question of any form to this 25 applicant? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 171 1 MS. SCHULTZ: Our position would be 2 that they should not be granted any relief, that their 3 license should be revoked. 4 MR. ATKINS: If I could, Commissioner 5 Sadberry. On one subject dealing with the State's 6 receipt of funds, we're under an obligation to deposit 7 those funds when we get them in. And the deposit of 8 any funds that we receive doesn't indicate affirmative 9 agreement with what it's attached to whatever. It's 10 our obligation to -- we don't take checks and hold 11 them at our desk. We deposit them. 12 COMMISSIONER SADBERRY: And you don't 13 send them back. No waiver or issue there? 14 MS. KIPLIN: We can. 15 MR. ATKINS: They can -- they can 16 request a refund. And we do it through that process. 17 COMMISSIONER WHITAKER: What amount is 18 still owed? 19 MS. SCHULTZ: What we had at the time 20 we were trying to enter into the agreement was $814.36 21 in prize fees and penalties for the second quarter of 22 2000. $78.66 in penalties and interest in prize fees 23 for the fourth quarter of 1999. And an additional 24 bond in the amount of $2,248. 25 COMMISSIONER WHITAKER: And the cost of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 172 1 that bond would be what? 2 MS. SCHULTZ: I think they are required 3 to post a bond in that amount with us. 4 COMMISSIONER WHITAKER: And so by 5 paying 2500, is it? 6 MS. SCHULTZ: 2,248. 7 COMMISSIONER WHITAKER: They would have 8 satisfied the 814 and the $78. And the issue then 9 would be the amount of the bond. Is that correct? 10 MS. SCHULTZ: No. That's over and 11 above the other two amounts that I mentioned. 12 COMMISSIONER WHITAKER: Yeah. 13 MS. SCHULTZ: There are three total. 14 COMMISSIONER WHITAKER: Which there is 15 three amounts owing? 16 MS. SCHULTZ: Right. 17 COMMISSIONER WHITAKER: They paid 18 2,200. That would then satisfy -- is that correct? 19 Did I get my numbers right? 20 MS. SCHULTZ: I am unclear as to what 21 was contained in the mailing that was eventually 22 received. 23 MS. KIPLIN: Billy, do you have the 24 amount that's still owed? Well, I think the 25 Commissioner's question is: What amount is still WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 173 1 owed? 2 MR. ATKINS: I believe they are 3 current. 4 COMMISSIONER SADBERRY: Well, that's a 5 semantical thing. The bond was not an amount owed. 6 But it was required as part of the agreement. 7 MR. ATKINS: That's correct. 8 COMMISSIONER SADBERRY: That has to be 9 paid for there to be any completion of payment on 10 agreements and arrearages. So what's the open amount 11 that hasn't been fully paid? 12 MR. ATKINS: It's my understanding, 13 Commissioners, that they were -- with the funds they 14 submitted, they were current with everything. 15 COMMISSIONER WHITAKER: 100 percent? 16 MR. ATKINS: The liabilities, the bond. 17 Did you-all send the bond? 18 MR. BOWEN: The bond -- everything and 19 the bond is what was already sent in. 20 MR. ATKINS: That's my understanding. 21 COMMISSIONER WHITAKER: As I recall 22 from last time we dealt with this, there had been a 23 question about whether people at the lodge had gotten 24 adequate notice, or at least the people who were 25 interested in bringing them current and continuing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 174 1 operation. And that was what led us to say, go and 2 continue to talk about it. Since that time, I 3 understand that they have now become completely 4 current. Why, in light of that, are you still 5 recommending revocation? 6 MR. ATKINS: There is -- there is 7 information, Commissioners, that I don't know that I'm 8 at liberty to discuss with you without going outside 9 the record. 10 MS. KIPLIN: Well, we are trying to 11 keep within the record as best we can, although I will 12 say on this particular one, you-all heard a bunch of 13 information that's outside the record. And I'm going 14 to get real firm on keeping you-all as best I can 15 within the record, because we are -- we've created a 16 contested case with the administrative record. And 17 that's a full evidentiary proceeding. And if we were 18 to go into litigation, that is not a de novo review. 19 That's substantial in its review. And it's based on 20 the record. So I will say with this one, you've gone 21 outside the record. I don't know if you want to hear 22 the answer to the question or not. 23 COMMISSIONER WHITAKER: No. I want to 24 stay inside the record. I want to know why you're 25 recommending a denial of the motion for a hearing. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 175 1 MS. SCHULTZ: Well, I'm recommending a 2 denial of the motion for rehearing because it's 3 flawed. It doesn't set forth any contest with the 4 findings of fact or conclusions of law in the proposal 5 for a decision. It doesn't put the Commission on 6 notice of what alleged error there is in the findings 7 of fact or conclusions of law. 8 COMMISSIONER WHITAKER: Do we have the 9 authority as a Commission to grant the motion for a 10 hearing in order to re-review the record? 11 MS. KIPLIN: Are you talking about the 12 Commission reviewing the record as a body? Are you 13 talking about referring -- well, first of all, you do 14 have the authority. Let me answer that question. 15 I guess my next question would be: Are 16 you talking about the Commission reviewing it or 17 sending it over to SOAH for review? 18 COMMISSIONER WHITAKER: I don't know. 19 MS. KIPLIN: And the reason I say that 20 is because it's a time-consuming issue. I think the 21 bottom line in terms of why the staff is where the 22 staff is is because you've got a licensee that has not 23 complied with the law. You know, in terms of the 24 notice, that's their responsibility, as it is in just 25 about every single regulatory body, when you're WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 176 1 dealing with a licensee, to keep the agency informed 2 within ten days of any changes of material information 3 in the application, because that way you're always 4 going to have people say, well, we didn't get notice. 5 We didn't get notice. When in fact, it's their 6 responsibility to do that. 7 But the reason that the staff is 8 recommending overruling the motion for a hearing is 9 that notwithstanding the notice issue that was put 10 before the Commission at the last time that you took 11 this up when you had the three Commissioners, there 12 were certain understandings with regard to that 13 agreement that were not met. And then you have the 14 11th hour filing of the requested information. And I 15 will say that it was at staff's great effort to try to 16 get this licensee to comply with even the proposed 17 settlement agreement. And I think that's my 18 understanding is why Mr. Atkins feels the way he does. 19 MS. SCHULTZ: Well, and Commissioners, 20 I think you should keep in mind that after Mr. Bowen 21 appeared here in September and gave the explanation 22 that these people were not getting it. He was the 23 person we were supposed to be dealing with. And he 24 was the person I was making great effort to get in 25 touch with and say, all right, can we agree on this? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 177 1 I'm sending it to you overnight. I need it back as 2 soon as possible. And then unable to reach him. And 3 then the day before the meeting, I hear from yet 4 another individual who I had never spoken with before 5 who represented himself as a member of the 6 organization, but was not listed as an officer, listed 7 in any of our records, saying, we need more time. 8 COMMISSIONER SADBERRY: Well, what I 9 was waiting to hear, to see if I would hear and see if 10 it was what I thought I had heard from the bingo 11 director was what I think I heard from the general 12 counsel. And I guess I join Commissioner Whitaker in 13 asking -- I want to -- I want to respect the law on 14 what is a proper motion for rehearing. But given the 15 answer to Commissioner Whitaker's question is the 16 Commission has authority to do certain things, I want 17 to hear from the bingo director if there is anything 18 further to say and keeping within the record. But I 19 think that when the record includes the last meeting's 20 discussion -- 21 MS. KIPLIN: Sure. Sure. And I think 22 you first -- the first time you took this up, you 23 heard information from the respondent, the pro se 24 party, that was outside the record of the contested 25 proceeding, frankly, because they didn't appear. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 178 1 COMMISSIONER SADBERRY: Why is it 2 staff's position to revoke this license based on the 3 record, is I guess what I'm waiting to hear. 4 MS. SCHULTZ: Based on the record -- 5 MS. KIPLIN: I think that's for 6 Mr. Atkins. 7 MR. ATKINS: Based on the record, 8 Commissioner Sadberry, this organization demonstrates 9 a history of noncompliance. And they demonstrate a 10 history of failure to timely respond to this agency's 11 request to get them into compliance. And nothing 12 that's been presented to the staff so far demonstrates 13 to us that in the future, that will change. 14 CHAIR CLOWE: Anymore questions? Is 15 there a motion? Are you requesting a motion? 16 MS. SCHULTZ: Yes, we would request. 17 And the form of the motion would be to overrule the 18 motion for rehearing. 19 CHAIR CLOWE: So moved. 20 COMMISSIONER SADBERRY: I would second. 21 CHAIR CLOWE: All in favor, say aye. 22 Opposed, no. The vote is three to zero in favor. 23 At this time, I move the Texas Lottery 24 Commission go into executive session to deliberate the 25 duties and evaluations of the executive director, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 179 1 internal auditor, and charitable bingo operations 2 director pursuant to section 551.074 of the Texas 3 Government Code. 4 To deliberate the duties of general 5 counsel and security director pursuant to section 6 551.074 of the Texas Government Code. 7 To receive legal advice regarding 8 pending or contemplated litigation and/or to receive 9 legal advice pursuant to section 551.071 (1)(A) or (B) 10 of the Texas Government Code and/or to receive legal 11 advice pursuant to section 551.071 (2) of the Texas 12 Government Code, including but not limited to: 13 Matter involving the Department of 14 Justice pursuit of a complaint against the Americans 15 with Disabilities Act. 16 A matter involving requests for open 17 records decision in Attorney General open records file 18 number 119718-98 relating to request for information 19 in connection with the lottery operator audit. 20 A matter involving employee complaint. 21 A matter involving agency purchases. 22 A matter involving Attorney General 23 opinion request regarding brokerage arrangements 24 insofar as HUB/minority business participation is 25 concerned. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 180 1 Employment law, personnel law, 2 procurement law, and general government law. 3 Is there a second? 4 MS. KIPLIN: Before there is a 5 second -- I'm sorry. I am aware that there is another 6 contested case proceeding in which you do have the 7 people who have submitted an appearance. And I didn't 8 know if it was the intention to go into executive 9 session or to -- 10 CHAIR CLOWE: It is. Is there a 11 second? 12 COMMISSIONER WHITAKER: Yes, seconded. 13 CHAIR CLOWE: All in favor, say aye. 14 The vote is three to zero in favor. The time is 11 -- 15 pardon me, 12:35 p.m. The Texas Lottery Commission 16 will go into executive session. Today is November the 17 29th, 2000. 18 (EXECUTIVE SESSION) 19 CHAIR CLOWE: The Texas Lottery 20 Commission is out of executive session. The time is 21 4:10 p.m. Is there any action to be taken as a result 22 of executive session? If not, we're going to move to 23 an item which is not on the agenda. And I'm going to 24 call on Billy Atkins, the recognition of an employee. 25 Is that okay? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 181 1 MS. KIPLIN: I think. 2 MS. CLOUD: We need to do this -- 3 CHAIR CLOWE: Come forward. 4 MR. ATKINS: Mr. Chairman -- 5 Mr. Chairman, Commissioners. Tomorrow, November 30th, 6 2000, a date that will live in infamy in bingodom, the 7 lady to my right will retire from the Texas Lottery 8 Commission. Shari Berggren started with the 9 comptroller's office in October 1990. And she was one 10 of the very first people to work for the Lottery, 11 entering Lottery retailer applications day and night 12 in order to make the timeline that had been imposed. 13 And they did that. And when bingo transferred over to 14 the Lottery Commission in April of 1994, Shari applied 15 for a position in the bingo division as a licensing 16 examiner, where she has been ever since. And I can 17 assure you that her absence will be felt by the bingo 18 division and this entire agency. 19 Shari is currently a senior licensing 20 examiner. She has been instrumental in the drafting 21 of a lot of important procedures that are used by our 22 division. She is also responsible for administering 23 pull tab artwork approval program. And has been a key 24 figure in getting the photo imaging of a lot of our 25 pull tabs computerized. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 182 1 I think I can sum up the feelings for 2 at least everyone in the division about Shari's 3 departure when I quote a comment an employee made on 4 her good-bye card, which was, "Noooo!" I just wanted 5 you to know the great effort that Shari has put forth 6 on behalf of this agency. 7 CHAIR CLOWE: Thank you, Billy. Shari, 8 on behalf of the Commissioners, I want to tell you how 9 much we appreciate your valued service. I have loved 10 coming through the bingo division and seeing your 11 smiling face. I will miss you, as I know the other 12 Commissioners will. And tell us what your plans are 13 in the future. 14 MS. BERGGREN: I guess I'll stay at 15 home, tend to grandkids, travel a little bit, and just 16 enjoy life. 17 CHAIR CLOWE: That's great. 18 MS. CLOUD: And not have to commute 19 from Georgetown anymore. 20 MS. BERGGREN: From Temple. 21 MS. CLOUD: From where? 22 MS. BERGGREN: From Temple. 23 MS. CLOUD: You moved? 24 MS. BERGGREN: Yes. 25 CHAIR CLOWE: That's great. We wish WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 183 1 you good luck. And most importantly, we wish you good 2 health. 3 MS. BERGGREN: Thank you. And I want 4 to say, too, that I really have enjoyed working with 5 everyone here. Everybody has been great. And it's 6 like leaving part of my family. 7 CHAIR CLOWE: It is, isn't it? Well, 8 thank you, again. 9 MS. BERGGREN: Thank you. 10 CHAIR CLOWE: Counselor, do you have 11 some contested cases that you would like the 12 Commission to take up at this time? 13 MS. KIPLIN: Yes, sir. There are 14 several Lottery cases. But you do have people that 15 are waiting in the audience for a bingo case, Victoria 16 Community Theater. It's the pleasure of the 17 Commission how you would like to proceed. 18 CHAIR CLOWE: Let's proceed with those 19 folks who have been here all day. 20 MS. KIPLIN: And these tables are set 21 up in kind of an odd fashion. And I think it was 22 intended for all the parties to be able to take seats. 23 So if Mr. Atkins will sit with his attorney. And 24 Mr. Fenoglio, if you'd kind of rub elbows up here with 25 your folks, that would be great. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 184 1 CHAIR CLOWE: Kim, can we get one more 2 chair up there? Please, sir. 3 MS. KIPLIN: Sure can. Take this one. 4 CHAIR CLOWE: Thank you. We have 5 appearances for Mr. Fenoglio, for Mr. Thomas, and 6 Ms. London, I believe it is. Is that correct? 7 MS. LONDON: That is correct. 8 CHAIR CLOWE: And for 9 Mr. Muleman (phonetic)? 10 MS. KIPLIN: Well, Commissioners, I'll 11 go ahead and kick it off. The -- there was a hearing 12 that was held. And there was an order proposed -- 13 proposal for decision that was circulated to the 14 parties. I don't believe there are any exceptions 15 filed by any of the parties. And there is an order 16 that -- proposed order that was attached. 17 CHAIR CLOWE: Are you referring to the 18 Community -- 19 MS. KIPLIN: Yes, sir. I'm sorry. 20 CHAIR CLOWE: Victoria Community 21 Theater? 22 MS. KIPLIN: Docket number 23 362-00-0924.B, Texas Lottery Commission versus 24 Victoria Community Theater, Inc. 25 CHAIR CLOWE: Thank you. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 185 1 MS. KIPLIN: The administrative law 2 judge has recommended that the license be suspended 3 for one week (three bingo sessions). And I don't 4 know -- I'll leave it at that. I don't know whether 5 the parties are actually in disagreement over that. 6 And I'll leave it to the parties to take it up from 7 there. That just kind of leaves it out. The issue 8 had to do with playing outside of licensed times. And 9 the findings of fact are, I think, essentially 10 established that the organization did play outside the 11 licensed time. And there, the judge's recommended 12 sanction for that violation was what I had said 13 before, the suspension for one week (three bingo 14 sessions). 15 COMMISSIONER SADBERRY: So that's the 16 only material that we should have found in that 17 tablet. I didn't see anything else. 18 MS. KIPLIN: As far as I know, no 19 exceptions were filed by either party. Therefore, no 20 replies. 21 COMMISSIONER SADBERRY: And am I 22 correct that the ALJ's order of proposed decision, at 23 least to some extent, rejected staff recommendations 24 made to the ALJ? 25 MS. KIPLIN: Yes. In terms of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 186 1 recommended outcome, I think the staff was 2 recommending or requesting revocation. And the ALJ 3 did not -- did not go with that. 4 CHAIR CLOWE: Mr. Fenoglio, may we hear 5 from you, please, sir? 6 MR. FENOGLIO: Yes. Mr. Chairman, 7 Commissioners. My name is Stephen Fenoglio 8 representing the Victoria Community Theater, Inc., a 9 nonprofit organization in Victoria, Texas. With me 10 today to my left is Roger Thomas, the executive 11 director of the Victoria Community Theater. To my 12 right is Diane London, who is the bingo hall manager. 13 There are seven charities that conduct 14 bingo at the bingo hall in Victoria, Texas. The 15 Community Theater is one of the anchor charities, if 16 you will. They've been in existence for over 25 17 years. This is all in the record. Have been 18 conducting bingo for several years. 19 In an answer to Mr. Sadberry's 20 question, the staff, for reasons we still do not 21 understand, sought the death penalty in this case. 22 And the ALJ rejected that sanction, out of hand, 23 unquestionably. Specifically in the proposal for 24 decision, in language that I have yet to read, and 25 I've probably read over 300 P.F.D.s, at the top of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 187 1 page five, the first sentence: The ALJ finds rather 2 disturbing the staff's persistent insistence. So we 3 were looking at a one-year death penalty, the maximum 4 penalty. And the ALJ said a one-week suspension is 5 appropriate. 6 Let me clarify the record if there is 7 an uncertainty about it. There were two sessions at 8 issue when we went to hearing in November of 1999. 9 And what happened was, an error was made, a clerical 10 error. Ms. London, who prepared the license time 11 amendments, amended the times for two of the 12 three-per-week sessions for the theater. And she 13 forgot and left off the time that they were not 14 seeking to amend. They were already conducting on 15 Mondays. And they changed the days. 16 And the record is clear in the P.F.D. 17 that this hall is a -- is a charity run hall in the 18 sense that the charitable distributions are levelized 19 among all the charities. So every charity has an 20 opportunity to have the chance to make money, and in 21 fact does. And that's why there were so many 22 amendments that occurred over the last three years 23 between Victoria Community Theater and a number of 24 other charities. 25 So when Ms. London in November of '99 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 188 1 substituted times for the theater, and they were 2 substituting for Saturdays and Sundays, which are the 3 two best times, she left off of the amendment the 4 Monday, because she wasn't going to change that time. 5 Well, the Commission form is clear in hindsight that 6 if you're going to amend in any way and ask for a new 7 date or time, you have to say what you want, including 8 even if you're not changing one session or two 9 sessions. So clerical error. It was caught in a 10 telephone conversation between Ms. London and 11 Ms. Vandalman (phonetic) of the Lottery Commission and 12 immediately corrected. That's what brought us to the 13 hearing. In '97 and '98, there were a series of 14 unlicensed times that were absolved, if you will, by 15 the Charitable Bingo Division. 16 So that's where we are today. The 17 staff's new proposal -- and no exceptions or replies 18 were filed to it. We offered at the hearing two to 19 six sessions suspension. That was rejected. And what 20 we -- what we were seeking is, the Victoria Theater 21 will take its punishment. I mean, it -- and by the 22 way, there was never any suggestion -- in fact, the 23 staff admitted under oath that there was no 24 underreporting or misreporting of any of the revenues 25 associated with the unlicensed times. We did it all WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 189 1 correctly. We accounted for all the money to the T. 2 But the problem is, the staff wants to police the 3 other six charities who conduct by forcing the time 4 that Victoria Community Theater would step aside and 5 not conduct -- could not be filled by any of the other 6 charities. And as I indicated, there are a total of 7 seven charities. And Mr. Thomas can identify those 8 other six charities for you. They were identified at 9 the hearing. I don't believe they are identified in 10 the P.F.D. But it's Kiwanis Club -- 11 MS. KIPLIN: Footnote -- 12 MR. FENOGLIO: Yes, on page one. Thank 13 you, Ms. Kiplin. Those other six charities. The 14 Victoria Youth Home, which provides housing and 15 services to troubled youth. The Optimist Club, a 16 service organization. Regional Museum Association 17 operates two nonprofit museums. The Kiwanis Club and 18 other service organization. Preservation, Inc. is 19 preserving the architectural and archeological 20 treasures of the Victoria area. And the Bach Festival 21 is -- celebrates classical music. So that's where we 22 are. 23 COMMISSIONER SADBERRY: The letter, the 24 notice letter that apparently -- do you want to hear 25 from staff? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 190 1 MS. KIPLIN: I think they would 2 probably appreciate that. 3 COMMISSIONER SADBERRY: I was -- well, 4 I wanted to ask a question about the letter. But I 5 can wait. 6 MS. KIPLIN: Which letter? The 7 proposal for decision? 8 COMMISSIONER SADBERRY: No. The July 9 '97 letter. But I can wait for staff. Maybe they'll 10 cover it. 11 MS. WILCOV: Thank you for an 12 opportunity to speak. My name is Penny Wilcov. I 13 don't know if you can hear me. I'm kind of small, so 14 it's not exactly close to me. And Mr. Fenoglio is 15 completely correct about his characterization of this 16 case as being a hard-fought battle between us. The 17 staff felt very strongly that this organization had 18 violated the Bingo Enabling Act on 61 occasions over 19 the course of two years. And sent a very strongly 20 worded warning letter to the organization concerning 21 the things that had happened. In fact, it said, 22 because you have taken care of these violations, we 23 will not pursue this action at this time. And gave 24 them a stern warning that if they violated the Act, 25 they continued to do that, then action would be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 191 1 brought. And that's, in fact, what happened. 2 Now, Mr. Fenoglio argues that this is a 3 clerical error. This was a question of fact that the 4 judge had to rule on. Also, the -- whether that 5 letter absolved him, and that's Mr. Fenoglio's word, 6 of all action that had occurred, again, that was a 7 question of fact by the judge. And where we are today 8 is that the judge found that this violation, these two 9 levels of violations, the first one with the 61 10 occasions, he found that he felt like the division had 11 basically not decided to pursue at that time. And 12 that was a decision they made. And he was going to go 13 with that decision. But he did, however, find that 14 the last two occasions were worthy of a suspension. 15 And that's our contention right now, 16 that it's -- that he ordered it suspended for seven 17 days, which is noted as three bingo occasions. And 18 what is missing from this order is a commencement 19 date. And Mr. Fenoglio and I have agreed on the 20 commencement date of the 10th day of the month 21 following the date this is entered. However, what we 22 have subsequently found out is that this organization 23 has amended their license so that they are only 24 playing one occasion per week. And that was done 25 recently. Mr. Atkins can let us know how recently. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 192 1 But as a result, during the seven days, they would not 2 be playing more than one occasion. And we believe 3 that that violates the spirit of this order or this 4 proposal for decision, being that it would be 5 suspended for one week, and then in parentheses, three 6 bingo occasions. 7 And we are concerned that this needs to 8 have some teeth to it. That if the judge saw fit to 9 order this kind of sanction, that they not be allowed 10 to amend their license to make it 2:00 in the morning. 11 Or that they not be allowed to amend their license so 12 that it's when -- heard when the hall is closed. I 13 think Mr. Fenoglio told me that it was closed on 14 Mondays and Tuesdays, this hall. So that they 15 wouldn't be allowed to amend their license to make it 16 on that day. 17 The division requests that this have 18 teeth. That if they are only playing one occasion per 19 week, that we would request that they be suspended for 20 the three bingo occasions. So that's the spirit of 21 this decision, that it was three bingo occasions. And 22 at the time of the hearing, they were playing that 23 amount per week. And I think that's why the judge 24 relied on that. So that sums up our position on this. 25 CHAIR CLOWE: I suppose a fair question WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 193 1 is: What was the spirit in your mind of the 2 agreement? 3 MR. FENOGLIO: I don't believe there 4 has been an agreement. We offered to take the judge's 5 recommendation. But you know, we've never gotten 6 anywhere. I mean, it is true that the Theater today 7 is only conducting one day a week. And that has to do 8 with the levelizing of the revenues among all of the 9 charities. As -- you know, and they closed Mondays 10 and Tuesdays, at least for two months, I believe, 11 because the bingo has been so terrible in Victoria. 12 They plan to reopen as quick as they can when they 13 think the market conditions allow, sometime in the 14 holiday season that's upon us now. But Mr. Chairman, 15 there has never been a deal. 16 CHAIR CLOWE: Well -- 17 MR. FENOGLIO: And I'm not trying to 18 argue with you, but -- 19 CHAIR CLOWE: No. I just suppose I 20 misunderstood that you were willing to accept the 21 judge's recommendation, which was for a week 22 suspension. 23 MR. FENOGLIO: Yes. 24 CHAIR CLOWE: And did you think that 25 was three sessions or one? That was my question. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 194 1 MR. FENOGLIO: I thought it -- to be 2 honest, I thought it was a week. It says one week 3 (three sessions). I guess you could look at it either 4 way. I hate to say it, but the ALJ probably wasn't as 5 clear as he could have been. 6 MS. KIPLIN: You know, I'm wondering -- 7 and this is kind of a harebrained idea. But it does 8 in my mind create a conflict in terms of enforcement. 9 You know, if the bingo division thinks it's three 10 bingo sessions, but they think it's one week, it says 11 one week (three bingo sessions). One thought is -- 12 and I'm pretty sure that the SOAH judges are inclined 13 to do this. But we could pass this item until the 14 next Commission meeting and request that the judge who 15 proposed this recommendation as a sanction come on 16 over and tell you what was in his mind if you think 17 that would be helpful. Or we're going to have to 18 somehow or another figure out how to resolve this 19 conflict, because I think it will be a conflict from 20 an enforcement perspective if you sign the order as it 21 is. And you're hearing the fact where -- that they 22 have amended their license subsequent to the issuance 23 of this P.F.D. to go down to one bingo session for one 24 week. The question is going to be: Is the 25 enforcement one week, or is the enforcement three WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 195 1 bingo occasions, which then would be three weeks, I 2 guess? 3 CHAIR CLOWE: Well, I was trying to get 4 to that place. That's why I asked the question. 5 MR. FENOGLIO: And maybe -- I don't 6 know where the Commissioners are. And I'm going to -- 7 I'm going to take a stab at it. We don't mind -- 8 Victoria Community Theater doesn't mind the three 9 session, one week, three weeks. The problem is, if 10 you don't allow one of the other charities who has 11 licensed time available to conduct at that period, 12 then you are not -- you're not only penalizing 13 Victoria Theater. And the record is clear, by the 14 way, that these charities make about 130 to $200 net 15 net profit per session. 16 CHAIR CLOWE: Say that number again. 17 MR. FENOGLIO: $200 net net per 18 session. That -- and Victoria Theater is willing to 19 say, we'll walk away from that. But then you're 20 punishing the Optimist Club if you don't allow one of 21 those charities, if they have a licensed time 22 available, to substitute in. That's what the real 23 fuss is about, Mr. Chairman and Commissioners. And 24 you know, if you bring back another week, all of this 25 costs you-all time. It costs my client time. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 196 1 probably the most valuable thing is their -- is not on 2 their money, the legal fees. I'm happy to show up at 3 any time. But I mean, it's the time -- your staff's 4 time as well as the two people who are with me. 5 COMMISSIONER SADBERRY: As you 6 understand it -- and I don't see that really addressed 7 in the order -- 8 MR. FENOGLIO: It's not. 9 COMMISSIONER SADBERRY: -- that anybody 10 can substitute in. But as you understand it, let's 11 say they -- whether it's one week and one session or 12 three weeks and three sessions, for the time that they 13 are not operating, would they be entitled to receive 14 their pro rata share of the revenue from the other 15 players? Are they giving that up as well? 16 MR. FENOGLIO: The Victoria Theater, 17 yes, would give up, absolutely. 18 COMMISSIONER SADBERRY: Okay. And 19 there really isn't anything in the order that 20 addresses anybody substituting in for their time. So 21 are you saying that's a position staff is taking or 22 you perceive they will take? 23 MR. FENOGLIO: Informally they've told 24 us they will take that -- 25 COMMISSIONER SADBERRY: This has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 197 1 something missing from these materials. I have to 2 tell you, when I read them, I wondered, what are we 3 going to be talking about today? Because it seemed 4 like the SOAH judge had given you almost anything you 5 could ask for. And so -- and staff did not seem to 6 have taken exception to that. So I needed to know. 7 That's why I started to ask you about the letter. I 8 didn't know the staff was taking the position that the 9 letter should be given different effect or not. But 10 it doesn't seem like they are. So where are we in 11 what you are asking us to do? Because it looks like 12 it's a drafting issue to me -- 13 MR. FENOGLIO: Yes. 14 COMMISSIONER SADBERRY: -- whether we 15 have understanding of what we think ought to be done 16 here. What are you asking for? 17 MR. FENOGLIO: What we're asking for 18 is, number one, to adopt what the ALJ recommended. We 19 can solve that by license amendments. We don't want 20 to hide the ball. I have not tried to hide the ball 21 with Ms. Wilcov about that. Quite frankly, we don't 22 want those other six organizations to be punished to 23 not -- I mean, they are conducting now Wednesday, one 24 time a week. On the date of the hearing, and 25 Mr. Atkins' records can reflect that, they were WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 198 1 conducting three times a week. On the date the P.F.D. 2 was issued, they were conducting three times a week. 3 I mean, they -- within the last year, they have been 4 one day to three days and every day of the week. I 5 mean, this is a, as you imagine -- might imagine, a 6 constant shuffle between and among seven charities, 7 with the goal being to levelize those net nets to the 8 charities. 9 COMMISSIONER SADBERRY: Well, let me 10 ask you this. We have a history here where we know 11 each other's language. We know what we're trying to 12 get at in terms of what the justice and fair result 13 here is. Tell me in your mind why the parties haven't 14 been able to walk in with an order on these issues, 15 because that's what I'm trying to figure out where the 16 rub is. 17 MR. FENOGLIO: In my mind, it's because 18 of the unfair intransigence on the part of the staff, 19 that they not only want the Victoria Community Theater 20 to be punished, but the other six organizations. 21 COMMISSIONER SADBERRY: Well, this 22 order wouldn't do that. 23 MR. FENOGLIO: No, it would not. 24 COMMISSIONER WHITAKER: Then what's the 25 basis? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 199 1 MS. WILCOV: May I? 2 COMMISSIONER WHITAKER: Yes. 3 MS. WILCOV: Thank you. Well, first of 4 all, I'd like to state that this is new ground. I've 5 checked with the bingo division and they've never 6 really had an issue like this. When they've had it 7 suspended in the past, it's been one time. And what 8 they did is, they sent a letter. Another time they 9 had another organization. And they also sent a 10 letter. So they -- basically, that's the way they 11 have been handling it. Okay. The second time it was 12 an agreed order. So in the past, they've just merely 13 sent out a letter. 14 The problem that we were trying to 15 address here is making sure that this organization 16 knows exactly what is expected of them so that we are 17 not back in court on this. I don't think we're 18 necessarily trying to be contentious, as Mr. Fenoglio 19 stated. We did -- we did reach out and talk to him. 20 And we agreed on the 10th day as a commencement. What 21 we can't agree on is the subsequent amendment of the 22 license to reflect only one occasion, because again, 23 P.F.D. reflected three occasions. 24 COMMISSIONER WHITAKER: And he's 25 willing to go with that. So the question, I guess, in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 200 1 my mind, and perhaps yours -- I think yours as well, 2 is: Are you saying that you do want to burden the 3 other charities, or do you have any issue with that? 4 MS. WILCOV: Well, my client feels 5 strongly that this needs to have some teeth to it, 6 that we can't just have it just on paper without 7 having some teeth to it. And what we're asking for is 8 that I guess we ask that there be some language in 9 this order that no temporary licenses will be granted 10 during the suspension period or substituted on times. 11 COMMISSIONER SADBERRY: And before you 12 say it -- I'll be happy to hear you. But if I may. 13 Am I understanding staff to say basically, you have 14 reached out before in good faith, as you see it. And 15 you feel sort of burned. And you don't want to be 16 there again. And are they perceiving correctly, then, 17 that if they try to get temporary licenses or 18 substitute players, that they're going to have a 19 problem with you on that basis? 20 MS. WILCOV: Well, apparently before I 21 even was hired at the Commission, there was a long 22 series of attempts to try to settle this case. I 23 think there was another lawyer involved. There were 24 letters going back and forth, agreements. And this 25 was part of the reason why it broke down in the first WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 201 1 place. Of course, I wasn't here at the time, but 2 that's what I've heard, is that they didn't want to 3 have other people not substituting to those times. 4 And I -- that's been a sticking point all along 5 through this whole time period of this case, is that 6 it doesn't really have the sanction effect if other 7 players can just go ahead and take over their times. 8 And at the time we had the hearing, they were -- they 9 were the only ones playing Saturday night. They were 10 playing 6:15 to 10:00 on Saturday night, both 11 sessions. 12 COMMISSIONER SADBERRY: But you would 13 have them turn in money, if you will, back door you. 14 But had you heard before today that they would not 15 claim any revenue, directly or indirectly, from anyone 16 else playing those times? Were you aware of that, or 17 had you explored that? 18 MS. WILCOV: No, sir. That's a step in 19 the right direction. So no, I wasn't aware of that, 20 that they would do that. 21 COMMISSIONER WHITAKER: In other words, 22 you don't have any problem with others substituting in 23 as long as Victoria Community Theater gets no benefit 24 from that. Is that correct? 25 MS. WILCOV: My client really wants to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 202 1 speak. That does indicate that no, they do not agree 2 to that. 3 COMMISSIONER SADBERRY: Is there some 4 concept that maybe all these charities are aligned in 5 some way, that maybe one is the other, and therefore 6 there is no sanction if the others play? 7 MR. ATKINS: Commissioner Sadberry, I 8 think it goes -- you know, we're talking about 9 suspending the time, a time that the organization 10 holds. And you know, the organization still holds it. 11 But what we're saying is, you can't play during that. 12 I mean, they are still licensed for it. Therefore, we 13 can't amend someone into the time because Victoria 14 Community Theater still has that time. They're just 15 suspended from playing during that time. 16 COMMISSIONER SADBERRY: Well, aren't we 17 saying, though, that there is nothing in front of us 18 that even gets close to what either party thinks is 19 the right result? And this order, which I would think 20 had meant the judge felt that the license would not be 21 amended, because the parenthetical is merely an 22 amplification of one week. But that doesn't seem to 23 be an issue anymore. So the issue is, what order? 24 Are we going to craft an order? 25 MS. KIPLIN: And I do have some legal WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 203 1 advice regarding that. 2 COMMISSIONER SADBERRY: I would 3 imagine. 4 MS. KIPLIN: You know, what I'm hearing 5 is that the parties are willing to agree to modify the 6 proposed order. I'm going to suggest this language 7 line out one week, and then have three consecutive 8 bingo sessions, and have both parties initial. And 9 that's something that's acceptable to the two parties. 10 The sticking point is the -- having additional 11 language in the order that says you can't amend the 12 licenses. Am I -- am I hearing that correctly from 13 the parties? 14 If that's the case, I will say this is 15 what the Administrative Procedure Act provides. It 16 says: The State agency may change a finding of fact 17 or conclusion of law made by the administrative law 18 judge or -- and this is the most important part -- or 19 may vacate or modify an order issued by the 20 administrative law judge only if the agency determines 21 the administrative law judge did not properly apply or 22 interpret the law, agency rules, written policies 23 provided under another subsection, or prior 24 administrative decisions; that a prior administrative 25 decision on which the administrative law judge relied WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 204 1 is incorrect or should be changed; or that a technical 2 error and a finding of fact should be changed. And if 3 you do modify based on those statutory grounds, you 4 must state in writing the specific reason and legal 5 basis for a change made under this subsection. 6 So what I would say is that if you are 7 inclined to be receptive to what you're hearing the 8 staff put before you, I'm going to -- I would need 9 some time to hear your thoughts and your reasons, and 10 then craft an order that would be -- would obviously 11 try to be consistent with what your reasons were. And 12 I frankly don't think I can do that today. And if 13 that's the case, unless you-all are willing to, you 14 know, stay longer, it would need to be passed until 15 the next meeting. But I'm willing, obviously, to do 16 whatever the Commission's vote is. You understand 17 what your limitations are in terms of vacating or 18 modifying an order in this regard? 19 COMMISSIONER SADBERRY: Well, let me -- 20 let me say I meant that, by the way, in a kind way, as 21 you know. 22 MS. KIPLIN: I know. I took it that 23 way. 24 COMMISSIONER SADBERRY: But isn't this 25 the order of the Commission? The staff proposed to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 205 1 us. This is not the -- this is the ALJ's -- 2 MS. KIPLIN: What you have in front of 3 you is the -- is the proposal for decision and the 4 proposed order prepared by the State Office of 5 Administrative Hearings administrative law judge. 6 What you now have is, based on a factual application, 7 a conflict in the language that is part of the 8 proposed order because it refers to suspension for one 9 week. And I think you have to give every word 10 meaning. And three bingo sessions. 11 What I've heard the parties say is that 12 they're willing to the craft language - and I 13 suggested language at the preliminary stage of my 14 remarks - to achieve that result. What I'm hearing is 15 that the staff -- the parties are not in agreement 16 with regard to allowing somebody to amend into these 17 licensed times and that the staff wants that to be 18 part of this order. And what I'm saying is, that will 19 be a modification of this order. And you can only 20 make modifications of an order submitted by the 21 administrative law judge -- or pardon me, issued by 22 the administrative law judge for the reasons that I 23 stated earlier. 24 COMMISSIONER SADBERRY: Which basically 25 took out the policy? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 206 1 MS. KIPLIN: Yes, that's correct. 2 COMMISSIONER SADBERRY: But I guess I 3 have a technical procedural point. And you know I 4 don't go on technicalities. This might be a time that 5 it would apply, though. 6 Wouldn't it have been the proper 7 procedure to have an exception filed by staff with a 8 substitute order recommended to us? And would that 9 have allowed us to act without having to go on these? 10 MS. KIPLIN: No. 11 COMMISSIONER SADBERRY: Not necessarily 12 the latter. 13 MS. KIPLIN: The last part is the one 14 I -- is the part I said no. 15 COMMISSIONER SADBERRY: First part 16 could have happened? 17 MS. KIPLIN: The exceptions are not 18 binding. And there is no harm that is caused by 19 either party's failure to file exceptions. There is 20 not a waiver. What's really important is the motion 21 for rehearing. And that is critical. That must be 22 filed or the case is over. What -- you know, from 23 preferred practice, I think if this discussion had 24 occurred earlier, I think both parties probably would 25 have -- would have done that to try to at least clean WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 207 1 up this proposed order. That's my speculation. I may 2 be wrong. But exceptions are not binding. It's not 3 absolutely required that exceptions be filed. It 4 certainly enables the decision maker to understanding 5 the concerns and the objections to the proposed 6 findings and conclusions or language in a proposed 7 order. 8 COMMISSIONER SADBERRY: All right, 9 fine. Nothing can happen in terms of modification of 10 times or refusal, failure to substitute, whatever they 11 may try to do in that area without going through 12 staff. Is that right? 13 MS. KIPLIN: Yes. And then it would be 14 a separate proceeding. And I will say the other 15 concern that I would have is to the effect that 16 language -- if you were to add language in this 17 proposed order that would affect or make it -- 18 imposing inability on a person who is not a party to 19 this case to follow a procedure, which would be to go 20 ahead and file an amendment for the bingo staff to, I 21 guess, deny the amendment, I think that would be 22 problematic. 23 COMMISSIONER SADBERRY: Well, it's 24 prospective. And I think that's an injunction. I 25 don't think that's before us. So actually, when staff WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 208 1 says they want to put teeth in it, staff has the 2 authority to put teeth in it if they -- if they want 3 to do that. Right? 4 MS. KIPLIN: They -- there would have 5 to be an application filed to amend, I guess, the date 6 and time. I am a bit concerned -- and Billy is 7 probably the better person to talk about this. I have 8 a big concern by the Bingo Enabling Act's, I think, 9 approach to date and time amendments, that they are 10 just perfunctorily granted. But an amendment to an 11 application by the legislation -- by the legislation 12 that's been created. But certainly there would have 13 to be an application that would be filed. And then I 14 guess the staff would review it. And if they thought 15 that there was cause, has the opportunity to deny the 16 application. But it would have to be based on, 17 obviously, the requirements of the Bingo Enabling Act. 18 MS. WILCOV: If I could just state one 19 thing is that, again, what they have done in the past 20 is that we had an order as vague as this. What's gone 21 on is that a letter was sent outlining them, you know, 22 to the -- to the charity what particular day they were 23 not allowed to play. In this instance, at the time of 24 the hearing, they were playing three times. At the 25 time a proposal for a decision came out, they were WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 209 1 playing three times a week. Now they come in front of 2 the Commission, and now they're only playing one time 3 per week. And we need -- we felt that a commencement 4 day was important. And we did agree on the 10th day 5 of the month following the date this order is entered 6 so that the charities and the Commission would be 7 completely clear on what days. Then we ran into the 8 problems on the -- on the three occasions. That's why 9 we're here. 10 COMMISSIONER SADBERRY: Am I sensing 11 that there is some concern about this amendment, the 12 timing, and how it happened in certain instances? Is 13 that sending a message to you that it's causing the 14 staff concern? 15 MS. WILCOV: We kind of went around 16 this on another issue. We had an amendment. 17 Basically preliminarily agreed that we would probably 18 need to have a hearing if we were going to deny 19 something. 20 THE REPORTER: Say that again. 21 MS. WILCOV: That we would probably 22 need to have a hearing or need a hearing if it was 23 something we were routinely granting in the past. But 24 we haven't done any research on the law. It was just 25 a preliminary look at the issues. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 210 1 CHAIR CLOWE: Well, it's my sense it's 2 the lawyer's job to work out the correct order if we 3 can decide what we want. 4 MS. KIPLIN: Well, that depends. 5 CHAIR CLOWE: They're not stopped from 6 playing bingo now. 7 COMMISSIONER WHITAKER: That's a good 8 lawyer answer. 9 CHAIR CLOWE: They're playing bingo 10 now. They haven't suffered any detriment. They're 11 continuing to play while this order is being worked 12 on. 13 MS. KIPLIN: I think it depends on what 14 the -- what the direction is of the Commission. If 15 the direction of the Commission is, work out this 16 conflict based on factual applications, I think that 17 can be done in -- right now. I think I can line it 18 out and say three consecutive bingo sessions. And the 19 parties can initial it. Mr. Fenoglio, I think you 20 stated on the record you're in agreement with that. 21 So you would initial that, would you not? 22 MR. FENOGLIO: Well, it depends on what 23 the tail end says. 24 MS. KIPLIN: Well, no. I'm just saying 25 that as it stands. I think if the Commission wants to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 211 1 add additional language with regard to no amendments 2 of any licenses, then that's a different issue. And I 3 would need to go back to you-all and find out what 4 your specific reasons are. And then -- and then 5 determine the legal basis for making that kind of a 6 change. 7 COMMISSIONER WHITAKER: How does the 8 suspension of your license burden the others? Is it a 9 group license so that they have to shut down for three 10 weeks or -- 11 MR. FENOGLIO: No. The way the staff 12 is going to apply that as we understand it, 13 Commissioner Whitaker, is no other charity while the 14 suspension is ongoing will be allowed to amend into 15 that specific time. 16 COMMISSIONER WHITAKER: And so those 17 other charities then would just continue with their 18 normal slots? 19 MR. FENOGLIO: Yes. 20 COMMISSIONER WHITAKER: And so there 21 would, in essence, be some time where they're just 22 sitting there that others could make money off of. 23 MR. FENOGLIO: Right. And bear in mind 24 this is -- there is another competing bingo hall. You 25 will lose market share to that bingo hall today. They WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 212 1 are conducting bingo one time a week, because of this 2 levelizing issue that we talked about, from 6:15 to 3 10:15 on Wednesday evenings. 4 COMMISSIONER WHITAKER: Did you feel 5 that the judge, when he said the license would be 6 suspended without conditions, intended to allow that 7 time period to be used? 8 MR. FENOGLIO: Yes. 9 COMMISSIONER WHITAKER: Where do you 10 draw that from? 11 MR. FENOGLIO: Just from the plain 12 language. There was no prohibition against anyone 13 else. And I don't remember -- and maybe Ms. Wilcov's 14 memory is better. She's younger than I am. I don't 15 remember if we addressed this specific issue at the 16 hearing. I don't believe we did. So I mean, perhaps, 17 Commissioner Whitaker, I might be reading more into it 18 than the ALJ even considered at the time. 19 If I may, there was some discussion 20 earlier about something. I think this is a policy 21 decision for you Commissioners to make. Ms. Wilcov 22 indicated that there were settlement discussions 23 earlier. If I may. And they occurred between 24 Ms. Kiplin and I. And here is the letter that I sent 25 in which we offered two things. We would stop WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 213 1 conducting bingo for six sessions. But again, not 2 penalizing the other six charities. Or alternatively, 3 we would pay -- at that point, the record showed a 4 profit of 130 a session, $260 total. Or 5 alternatively -- 6 MS. WILCOV: I'd like to object to 7 this. 8 MR. FENOGLIO: -- $1,000 in total 9 fines. 10 MS. WILCOV: Mr. Fenoglio. I'd like to 11 object to this. This is outside of the record. We 12 don't have any testimony in the record or any specific 13 exhibit. 14 MR. FENOGLIO: And my comment on that, 15 Commissioners, is, she has opened the door. 16 COMMISSIONER SADBERRY: Well, if 17 settlement would otherwise not be appropriate 18 evidence, even if we opened the record back, what 19 other purpose besides the substance of the settlement 20 proposal would this committee address? Is there 21 something -- 22 MR. FENOGLIO: What I'm trying to lead 23 the Commission is, I think this is -- in a pure 24 evidentiary issue, Judge Sadberry, [sic] I don't have 25 a leg to stand on. I'm not going to argue that. She WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 214 1 opened the door with settlement discussions. So I 2 don't think she can argue against it. 3 But my point is beyond that. I think 4 this is an easy issue. And I still don't understand 5 why we've had a full day of hearing. Two days of 6 these -- the gentleman and lady's time, including 7 staff time. An all-day trip for them over something 8 that I believe and the ALJ found was really not a 9 serious violation. We offered, early on, six 10 sessions. Step back. We'll take it. But we're not 11 going to penalize the other six charities. We don't 12 think that's fair. Alternatively, at the point we 13 offered to pay a monetary penalty. We can't get 14 anywhere. I mean -- 15 MS. WILCOV: Again, this is outside of 16 the record. And I'd object to any settlement 17 specifics. I did not open that door. 18 COMMISSIONER SADBERRY: She may not 19 have opened it. It may have been a question asked and 20 a general response, because I think I asked something 21 like, why was this not presented in a formal agreed 22 order or something. I opened it. And I don't think I 23 can waive that to the staff. In fact, my lawyer won't 24 let me get outside the record. You've seen that. 25 But I come back to, what's the right WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 215 1 result? As the chairman has stated, you can get 2 language that says it. I sense that, Mr. Fenoglio, 3 your clients are sensing a stance that staff intends 4 to take once this order -- if this order was signed. 5 Whether or not the order provides it, that they would 6 oppose the -- it sounds to me like it's usually 7 somewhat of a perfunctory process of approving 8 amendments to slip into that slot. They would have a 9 keener eye and oppose what they sense would be the 10 attempt to get around this order. To practically 11 feather the order. And you're asking us to not read 12 what the ALJ intends to include that type of 13 administrative posture be taken, because it certainly 14 is solid, as I read it, on that issue. And you know, 15 we -- I don't -- I can't predict what they might do or 16 not do. And I don't know that the ALJ was asked to 17 address that issue. My lawyer tells me I've almost 18 got to become the ALJ to change it. Right, counselor? 19 MS. KIPLIN: Just about. You've got to 20 fit within the scope of this particular section of the 21 APA. 22 COMMISSIONER SADBERRY: Presuming there 23 would be good faith on both sides in terms of working 24 together, what's our problem here? 25 CHAIR CLOWE: Well, I think it's the -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 216 1 allowing the other charities to come in to that open 2 slot. And that's a -- Mr. Fenoglio wants us to make 3 it a policy issue and direct the bingo division not to 4 prohibit the Victoria Community Theater from allowing 5 others to go into that slot, if I'm understanding 6 correctly. 7 MR. FENOGLIO: Not really. Not really. 8 I think if you sign the order today, we'll be able to 9 do whatever we're allowed to do under the law. What I 10 wanted to make clear -- and believe it or not, some 11 lawyers value their reputation at the Commission. I 12 didn't want you-all to sometime -- somehow come back 13 and think we slipped something in later on. Well, 14 they pulled the wool under our eyes. I try not to 15 play that way. And that's -- when Ms. Wilcov 16 approached me today, can we agree on this order? I 17 said, well, Ms. Wilcov, are you going to take the 18 position - with the order that she had prepared that 19 we talked about this morning - that another charity 20 can't come in on that? And she said, yes. So you 21 know -- 22 CHAIR CLOWE: Then why did we have the 23 discussion about that issue? 24 MR. FENOGLIO: Why? 25 CHAIR CLOWE: Why was that brought to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 217 1 our attention? 2 MR. FENOGLIO: Because that's a 3 contention of staff, as I see it, Mr. Chairman. 4 MS. WILCOV: My reputation is 5 apparently being impugned at this hearing. 6 MR. FENOGLIO: Oh, I -- no, I'm not 7 trying to impugn anyone. I just want to make it 8 clear, you know, that there is this order. And if -- 9 and if you take the order, you know, there are going 10 to be certain consequences to the order. I didn't 11 want anyone to think later on that Victoria Theater 12 had pulled a fast one. I'm not trying to impugn or 13 challenge her integrity at all. I was just trying to 14 protect what little integrity I might have. 15 COMMISSIONER WHITAKER: If the order 16 were signed, deleting the one week and making it 17 instead for three bingo sessions, period, is it your 18 view that you would then have the legal right to have 19 the other charities step into those times, and is it 20 staff's position that they would not, so that we're 21 simply buying another controversy? 22 MS. WILCOV: Well, just in way of 23 background, Mr. Fenoglio and I really hadn't discussed 24 this outside of today's meeting about any kind of -- 25 he may have given you the impression that we've been WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 218 1 fighting for weeks about this. This is not true. He 2 decided to bring his clients. He certainly didn't 3 need to bring them. Also, we have -- today was the 4 first day we have just discussed this issue. And as I 5 stated, the reason was, we wanted to clarify a 6 commencement date. 7 Now, I'm looking at the records. As 8 far as -- they changed -- they were operating on 9 Saturday nights through -- they changed it on November 10 12th, near 15 days ago. I would say that was in 11 anticipation of this meeting. 12 So we are not doing this to be 13 contentious by any means. What we agreed on today was 14 that we would commence it on the 10th day of the month 15 following the date this order is entered. All this 16 other stuff has flowed from that discussion. Now 17 they're down to one time per week. They don't want 18 anybody else to -- they want to just go ahead and put 19 other people in this -- Wednesday night is the only 20 night. They were playing Saturday night. They've now 21 changed it to Wednesday. They want to put everybody 22 else in that slot. We feel like we are the ones who 23 have a situation here. 24 MR. FENOGLIO: And I'd like for the 25 Victoria Community Theater to speak to that issue, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 219 1 because she is now impugning the integrity of that 2 charity. 3 MR. THOMAS: I believe that if they'll 4 check the records, they'll find that we've changed the 5 date many times, not just since November, because of 6 our policy throughout all of the charities of trying 7 to make our income equal. And we're not the only 8 charity that changes times. They all do. And I feel 9 like that if they opened the record, they would find 10 that we had changed it many times. 11 COMMISSIONER WHITAKER: Kim, I have a 12 legal question. 13 MS. KIPLIN: Yes. 14 COMMISSIONER WHITAKER: I read the 15 ALJ's recommendation where he says for a week 16 specifically, that is, three bingo occasions, to be a 17 fairly clear intention on his part for it to be three 18 sessions. The extent that there is such ambiguity, 19 but such evidence of his intent, is it within our 20 power to simply change it to conform with what we 21 reasonably read his intent to be? 22 MS. KIPLIN: Okay. And the other thing 23 that I would add is that my focus on the comments I 24 made regarding having to state the reason, specific 25 reason on a legal basis for change was because of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 220 1 unchartered waters in the sense that it had to do with 2 throwing in this additional language about the 3 license's time can't be amended. This agency in past 4 orders has taken the position, and I think obviously 5 rightfully so, that this body, the Commission, is the 6 body that holds the authority to impose a sanction 7 based on the findings and conclusions that are made by 8 an administrative law judge. So to the extent -- but 9 we also have, I will say, drafted orders consistent 10 with you-all's vote and direction that make it clear 11 that that's the legal reason. There -- nowhere in the 12 Bingo Enabling Act or the Administrative Procedure 13 Act, for that matter, that I -- as I read it does a 14 governing body such as yourself delegate the authority 15 to a administrative law judge to impose a sanction 16 that's binding on not only the party, but also the 17 Commission. 18 COMMISSIONER WHITAKER: So we could 19 correct that on our own motion? 20 MS. KIPLIN: And we said that -- yes. 21 But if it was on your own motion without the -- 22 without getting the party, the respondent to agree, 23 then I would want to craft the same language that we 24 have had for the other orders where we have deviated 25 from the recommended disposition of the administrative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 221 1 law judge. Because the SOAH practice is to include 2 that as the last conclusion of law, our position has 3 been that that has never been a proper subject matter 4 for a conclusion of law or recommended disposition. 5 And we have put that in the order that has been signed 6 because you still need to comply with the requirement, 7 that you state in writing your specific reasons and 8 legal basis for the change that is made. And in this 9 case, the change would for sure be made to modifying 10 the order. And in other cases, it's also been to 11 reject that last conclusion of law as a conclusion 12 of -- as a proper conclusion of law. 13 COMMISSIONER WHITAKER: Is it your 14 opinion that it's within our power under that 15 reasoning to interpret suspension for one week as 16 simply applying to Victoria Community Theater and not 17 to the other charities, such that the others could use 18 that time? 19 MS. KIPLIN: Well, I don't think the 20 other charities are part of this -- are part of this 21 proceeding anyway. 22 COMMISSIONER WHITAKER: What would be 23 the legal effect of an order that said that their 24 license -- that their license is suspended for one -- 25 for three bingo sessions, period? What's the legal WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 222 1 effect of that on somebody else's right to use that 2 time? 3 MS. KIPLIN: I think it has -- on its 4 own has no legal effect, because that -- the other 5 organization would need to file an application to 6 amend their license. And then that would be -- if the 7 staff took the position to deny that because they 8 believe that to do otherwise would somehow or other be 9 in conflict with this order, or for whatever reason 10 that I may not be thinking of, then that would be a 11 separate proceeding. I don't think that we're in a 12 position where you can boot strap in other -- 13 obviously other persons who are not otherwise a party 14 to this proceeding. 15 COMMISSIONER WHITAKER: Well, my 16 thought would be to go ahead and move that under that 17 scenario, that we amend this proposed order so that it 18 reads, suspended for three bingo sessions, period. 19 MS. KIPLIN: Three consecutive bingo 20 sessions or -- 21 COMMISSIONER WHITAKER: Three 22 consecutive bingo sessions starting on X date. 23 MS. KIPLIN: Okay. 24 COMMISSIONER WHITAKER: Period. As -- 25 I guess this is not part of my motion. But I do take WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 223 1 some note of the fact the proposal for decision does 2 indicate that the ALJ found staff's present insistence 3 on the amount of sanctions to be disturbing, and in 4 fact, came in at a much lower level than had been 5 recommended. I would also hope that this other issue 6 could be resolved without the need for everybody to 7 come back here. That would be my motion. 8 CHAIR CLOWE: And before we move ahead 9 with that, may I ask a question for clarification? 10 What is the sense of the result if that motion is 11 seconded and approved by the Commission in regard to 12 other charities using the time and the Victoria 13 Community Theater not sharing in the revenue? What's 14 the proposed or the obvious outcome of that? Can 15 anyone help me with that? 16 MS. WILCOV: Will you restate your 17 question? I'm sorry. I'm not -- 18 CHAIR CLOWE: Okay. Commissioner 19 Whitaker has moved that the play be suspended for 20 three consecutive playing periods. And the order 21 doesn't speak to anything else. As a part of this 22 discussion, the issue has been raised about the other 23 charities moving into that time slot. I'm asking 24 about the probability that the offer has been made by 25 the operator to not share in the levelized revenue. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 224 1 I'm asking how that's going to take place? 2 MS. WILCOV: Just off the top of my 3 head -- 4 CHAIR CLOWE: I'm asking about the 5 practical aspect of it, I guess you might say. 6 MS. WILCOV: Okay. Well, off the top 7 of my head -- 8 MR. ATKINS: I should probably address 9 that. 10 MS. WILCOV: All right. 11 MR. ATKINS: If I can address the 12 practical aspect of it. The practical aspect of it, 13 Mr. Chairman, would be that we, the agency, would 14 still need to know and have agreed with the licensee 15 what those occasions were going to be. 16 CHAIR CLOWE: The three consecutive? 17 MR. ATKINS: Three consecutive 18 occasions being one occasion a week or three occasions 19 in one week. And the reason I ask that is because in 20 theory, the organization could put their license in 21 administrative hold, which would free up the times. 22 But our question remains: What times? 23 MR. FENOGLIO: And I think the solution 24 to that is to enter a stipulation. And we're prepared 25 to -- I'm prepared to stipulate to that eventuality WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 225 1 right now on the record, if that's the staff's 2 concern. In other words, under the current system -- 3 break it down to the specific example. They're 4 conducting on Wednesday nights, 6:15 to 10:15. We 5 would put that license on administrative hold for 6 three weeks beginning next week and would not conduct 7 for three weeks. 8 COMMISSIONER WHITAKER: So you spell 9 out when exactly? 10 MR. FENOGLIO: Yes. I mean, if that's 11 what -- if that will make the staff's job a lot 12 easier. And I suspect it will. With the 13 understanding that one of the other six charities can 14 substitute in. You will then have your -- you will 15 then have -- I think that was part of Ms. Whitaker's 16 question. You will then have the record. You will 17 then have the Commission's -- the record keeping 18 that -- associated with that so you can see. 19 MR. ATKINS: So you're stipulating, 20 Steve, that Victoria Community College [sic] From 21 the -- from the commencement of the order would not 22 conduct at all for that three-week period? 23 MR. FENOGLIO: Yes. 24 COMMISSIONER SADBERRY: Somebody else 25 might. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 226 1 COMMISSIONER WHITAKER: And would not 2 obtain any financial benefit during those three weeks. 3 And is that acceptable to staff? 4 MS. WILCOV: That would be fine. 5 MS. KIPLIN: Can't -- instead of -- 6 instead of you making the motion -- 7 COMMISSIONER WHITAKER: What's wrong 8 with a motion? 9 MS. KIPLIN: One second. 10 CHAIR CLOWE: Hang on a second. 11 MS. KIPLIN: And instead of there being 12 a vote on that, because then I'm going to have to 13 draft an order that's consistent that shows why you 14 did what you did. 15 COMMISSIONER WHITAKER: I'm withdrawing 16 my motion. 17 MS. KIPLIN: Well, what I'd rather have 18 is, can't we just have -- can I just line this out and 19 you guys initial it and everybody is happy with the 20 fact that it's initialed and so it's been agreed to, 21 and then have it signed by the Commission? And the 22 basis for that is just to try to clarify the potential 23 ambiguity in the face of the order. Can we do that, 24 Mr. Fenoglio? 25 MR. FENOGLIO: Yes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 227 1 CHAIR CLOWE: Sign the order and -- 2 MS. KIPLIN: Ms. Wilcov? 3 MS. WILCOV: Yes. 4 MS. KIPLIN: Okay. So what I'm going 5 to do right now is, I'm going to line out one week. 6 And I'm going to include consecutive. And then we're 7 going to have a commencing and -- well, a commencing 8 date and an ending date. 9 MS. WILCOV: I think we agreed on the 10 10th day of the month following this finding. 11 MR. FENOGLIO: Right. But I mean, if 12 you -- we want to do it quick. I mean, that was the 13 10th day of December. So -- no. December. So we 14 just say effective today. 15 MS. KIPLIN: How about this? How about 16 those two attorneys take this order and they do that 17 while you take up the other contested cases? How 18 about that? 19 CHAIR CLOWE: I think Mr. Fenoglio has 20 the other contested case, don't you? 21 MS. KIPLIN: Well, we're passing that 22 item. But you wanted to get some matters, some issues 23 on the record. Do you want to do that? Can I -- do 24 you want me to lay that out while you're just sitting 25 there? Is that okay, so then you can take this? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 228 1 MR. FENOGLIO: You're in charge. 2 MS. KIPLIN: Okay. If I can bring your 3 attention to, if it's okay with the Commissioners, 4 docket number 362 -- 5 CHAIR CLOWE: Let me just stop you for 6 a minute. 7 MS. KIPLIN: Sure. 8 CHAIR CLOWE: The Commission never did 9 vote on that. 10 MS. KIPLIN: You'll vote when it comes 11 back in -- 12 CHAIR CLOWE: Okay. 13 MS. KIPLIN: -- and you read the 14 language and it's consistent with your understanding. 15 CHAIR CLOWE: Okay. Thank you. 16 MS. KIPLIN: Okay. I think you want to 17 have it ready. Okay. Docket number 362-00-0062.B, 18 American Business Women's Association, Lone Star 19 Chapter. Mr. Fenoglio filed a motion for rehearing on 20 this matter. And the reply was filed yesterday. 21 Unbeknownst to me, Mr. Fenoglio and Ms. Schultz, the 22 assistant general counsel for the bingo division in 23 this case, had agreed that this matter would be -- not 24 be taken up this month, but be taken up in December. 25 I did not know that because they come to me in my WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 229 1 capacity as general counsel. If they're ripe for your 2 consideration, I notice them up. 3 CHAIR CLOWE: Okay. 4 MS. KIPLIN: My understanding is that 5 there is no objection to passing. Mr. Fenoglio does 6 have some dates in December when he is not available 7 and will not be available to come before this 8 Commission and represent his client. Those dates, as 9 I recall, Mr. Fenoglio, are December 12th through the 10 14th and December 20th through the 25th. The drop 11 dead date -- we've already had the bingo division 12 director extend the time for agency action on motion 13 for rehearing. So you have a total of 90 days. I've 14 counted that out. And if I've done it properly, the 15 drop dead date for you to act on this motion will be 16 January 10th. If you do not act before January 10th, 17 the motion for rehearing will be overruled by 18 operation of law. 19 CHAIR CLOWE: Thank you. We'll now 20 move to item 10 on the agenda. 21 MS. KIPLIN: Mr. Fenoglio, that was -- 22 are you understanding? 23 MR. FENOGLIO: Yes. The only other 24 date is January 2nd of 2001 is the date. And thank 25 you, Commissioners, for that attention. And I can now WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 230 1 confirm what I've long suspected, that sometimes in 2 Ms. Kiplin's shop, the right hand doesn't know what 3 the left hand is doing. 4 MS. KIPLIN: I'm proud of that. 5 CHAIR CLOWE: But no one's integrity 6 has been impugned. 7 MR. FENOGLIO: I'm not trying to. No, 8 sir. No, sir. Absolutely not. 9 CHAIR CLOWE: Okay. Item number 10 on 10 the agenda is a report, possible discussion and/or 11 action on the agency's HUB rules and procedures. 12 Linda Cloud and Robert Hall. 13 MS. CLOUD: Robert Hall will make the 14 report, Commissioners. 15 MR. HALL: Good afternoon -- or good 16 evening, Commissioners. 17 COMMISSIONER WHITAKER: It's afternoon. 18 It's afternoon. 19 MR. HALL: For the record, my name is 20 Robert Hall. I am the director of Minority 21 Development Services. As you are aware, the 22 Commission adopted Minority Development Services 23 Commission as historic utilized business rules in 24 September 11th of 2000, which became effective on 25 October the 2nd of this year. Since that time, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 231 1 Minority Development Services has been coordinating 2 the implementation of the HUB rules and related 3 methodologies. 4 Today we are here to discuss two items 5 for your consideration. The first relates to the 6 good-faith effort goals. In accordance with the HUB 7 rules, section 111.13, all State agencies should make 8 a good-faith effort to meet or exceed the six 9 procurement goals that GSC has identified. The goals 10 are: 11.9 percent for heavy construction. 26.1 11 percent for building construction. 57.2 percent for 12 special trade. 20 percent for professional services. 13 33 percent for other services. And 12.6 percent for 14 commodities. Traditionally for all procurements, the 15 Commission has utilized the 35 percent good faith and 16 participation goal for all contracts. In accordance 17 with the GSC HUB rules, State agencies may set higher 18 procurement goals. However, justification factors 19 such as HUB availability, HUB utilization, 20 geographical location, etcetera, must be considered. 21 Staff is recommending that we use as adopted the GSC 22 goals -- GSC goals for all procurements. Please note 23 that these goals were implemented as a result of the 24 Texas Disparity Study conducted sometime ago. 25 Secondly, and to ensure you're updated WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 232 1 on the changes in the GSC's HUB program requirements, 2 we have attached a summary of requirements that are -- 3 that were enacted as a result of Senate Bill 178 of 4 the 76th legislative session. The most significant 5 change as a -- as a result of adopting the GSC's rules 6 in relation to the subcontracting opportunities which 7 changed the traditional process of how the State 8 procures its goods and services. Consistent with the 9 HUB requirements, each State agency prior to the 10 release of its procurement solicitations must 11 determine the probability for subcontracting in all 12 contracts estimated over $100,000 or more. If there 13 is a probability of subcontracting, the agency must so 14 state that probability within the -- within the 15 solicitation and include a business subcontracting 16 plan. All respondents must complete a business 17 subcontracting plan in order for their bid or proposal 18 to be considered responsive. This is in addition to 19 and prior to the selection of the best and responsive 20 proposal/bidder. Respondents that do not complete or 21 include a business subcontracting plan with their bid 22 or proposal will be considered nonresponsive and shall 23 be rejected as a material failure to comply with the 24 advertised specifications. To ensure that our -- 25 ensure that the Commission's customers are informed of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 233 1 the new requirements, we are implementing several 2 initiatives that are identified in your documentation 3 to ensure our customers are in compliance with the new 4 HUB rules and letter requirements. 5 And we would like to just discuss these 6 two items this afternoon if you have any questions 7 regarding any of the information in your packet. 8 Additional information that's included is a copy of 9 the business subcontracting plan. A copy of the HUB 10 rules as relates to sections 111.11 through 111.28. 11 In addition to that, we have included an analysis 12 provided by the General Services Commission of Senate 13 Bill 178. And also an outline of the legislation 14 affected in the historic utilized business program. 15 And I'll be happy to answer -- to clarify or answer 16 any questions that you may have at this time. 17 MR. BENNETT: Commissioners, if I may. 18 Once again, my name is Ridgely Bennett. I'm the 19 deputy general counsel of the Texas Lottery 20 Commission. Just for the record, I want to clarify 21 that the reason that we are subject to the GSC rules 22 relating to the HUB program is because the Commission 23 adopted those rules by reference. It's still an open 24 question of whether or not we had to do that 25 statutorily. The Commission took a conservative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 234 1 approach and went ahead and adopted them. But I did 2 want to make that clear on the record that the reason 3 that we are subject to the rules is because you 4 exercised your discretion and adopted by reference the 5 GSC HUB rules. 6 CHAIR CLOWE: Very good. Any 7 questions? Robert, did you put this package together? 8 MR. HALL: Yes, sir. 9 CHAIR CLOWE: This is extensive and 10 certainly detailed. What plan do you have to make all 11 of the employees of this Commission, particularly 12 those individuals directly responsible for adherence 13 to these goals, aware of this? 14 MR. HALL: Well, one of the steps we've 15 already taken, Commissioner -- Chairman Clowe, is to 16 train all the procurement related staff or staff that 17 are involved with procurement directly or indirectly. 18 That took place during the month of October. It's 19 already been done. 20 CHAIR CLOWE: Good. 21 MR. HALL: The other necessary step 22 that we're talking about is to educate our vendor 23 community, our customers, therefore, to make sure they 24 are apprised and are aware of the new requirements in 25 accordance with the HUB rules. And we're ready to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 235 1 take action as far as that is concerned, too. 2 CHAIR CLOWE: And I notice in your 3 monthly report we are not where we need to be in every 4 case. What's your outlook for the future? 5 MR. HALL: Well, a couple of things we 6 mentioned last meeting is, we hope to develop a 7 database. And we are looking at how we can try to 8 track every expenditure dollar with the assistance of 9 our internal purchasing function to make sure that 10 every time we utilize the HUB, that is reported to the 11 Minority Development Services. And we will track that 12 expenditure and include that vendor into our database. 13 Along with the subcontracting activity, we are 14 receiving reports from our prime contractors on a 15 monthly basis. We will tie those two elements 16 together to appropriately know that at any given point 17 in time during the month or even, of course, during 18 the year exactly how much is actually being spent with 19 our HUB vendors. That's one approach. 20 Additionally, is to try to bring our 21 prime vendors to the table to develop relationships 22 with our HUB vendor community where they can try to 23 assist the Commission in recruiting and identifying 24 HUB vendors that we do not know by this time, and also 25 to assist in becoming HUB certified. And we know we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 236 1 can do that. 2 MR. BENNETT: And Commissioners, if I 3 may. The goals that are out there are just that: 4 Goals. They are not quotas. What we do is, we 5 monitor the good-faith effort that vendors undertake 6 in order to reach the goals. But we cannot take 7 action against a vendor simply because they haven't 8 met a certain level. 9 CHAIR CLOWE: Well, I think we have an 10 unusual situation, Robert, I don't know if you're 11 familiar with it, since you've come to the Commission. 12 And we have two very large vendors. And that, I 13 think, is unique to this agency. That creates an 14 opportunity and a problem as well. 15 MR. HALL: Well, we'll try to -- again, 16 one of the things I think is unique about the Lottery, 17 it's so specialized. Now, the concerns I've heard 18 before coming here is that so many HUB vendors are not 19 just available to provide a good or service that the 20 Commission is actually interested in for their end 21 users. Our goal would hope to be or attempt to be is 22 to try to locate vendors that are currently certified 23 with other entities, such as the City of Houston, such 24 as the City of Austin, that may have interest in doing 25 business with the Lottery Commission and can assist us WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 237 1 with actually meeting our goals or even exceeding our 2 goals. That would be one attempt. 3 I -- at this point, I have no 4 conclusions that we've done that in the past. If 5 someone would like to tell me if we've done that. And 6 if we have, I would -- I would still like to give it a 7 trial initiative to see if there is anything there. 8 CHAIR CLOWE: That's a good plan. 9 Where do the Lottery operator and the producer of the 10 instant tickets fall? In the other services 11 contracts? 12 MR. HALL: Yes, sir. 13 CHAIR CLOWE: Do you have any 14 questions? 15 COMMISSIONER SADBERRY: I do. Thank 16 you, Mr. Chairman. Mr. Hall, I sense in one of your 17 responses to the Chairman's questions is that you 18 might be suggesting that there are dollars that are 19 spent where they could qualify in a HUB category that 20 are not being captured in terms of historical data for 21 the purpose of these reports? 22 MR. HALL: Well, let me give you an 23 example. In our fiscal year covered report to the 24 General Services Commission, we reported about 89,000. 25 I don't have the figure directly in front of me. I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 238 1 think it was approximately $90,000 that was not 2 reportable to the General Services Commission because 3 the vendors were not HUB certified. 4 COMMISSIONER SADBERRY: And I guess 5 that's my next question. We know from our course of 6 discussions that certainly predate your tenure and 7 that have followed on that there can be and is, in 8 fact, a distinction between, if you will, a minority 9 or under-utilized business that is not HUB certified 10 for whatever reason. 11 MR. HALL: Yes. 12 COMMISSIONER SADBERRY: That since we 13 have now elected GSC rules, I would presume we must 14 follow their classification as far as HUB 15 certification and counting our dollars. Our staff 16 gives us some leeway. But we have their rules now 17 which I presume we're going to have to follow. So 18 will an effort be made, then, to actually get HUB 19 certification achieved for a vendor that's otherwise 20 qualified but has not so -- has not obtained that 21 certification? 22 MR. HALL: Yes, sir. 23 COMMISSIONER SADBERRY: Now, is there a 24 reason that you know of why a vendor who could 25 qualify, who might potentially qualify, might choose WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 239 1 not to qualify? Are there restrictions or regulations 2 that come into play that might affect that decision, 3 business decision? 4 MR. HALL: Well, hopefully -- I guess I 5 should say if a vendor is contracting with us and we 6 know that that vendor is possibly eligible for HUB 7 certification, we would do every -- we would make 8 every effort to encourage that vendor to become HUB 9 certified. But of course, there are some new 10 requirements in the General Service Commission's HUB 11 rules that relates to out-of-state vendors. That's 12 one requirement that they cannot -- they no longer 13 certify out-of-state firms as of September 1st, 1999. 14 Any firm that has an out-of-state office or doesn't 15 have an office here in Texas and the owners do not 16 reside in the state of Texas cannot be qualified as a 17 history utilized business. 18 COMMISSIONER SADBERRY: That's one 19 thing you have to do. 20 MR. HALL: Yes, sir. In addition to 21 that, there is one other criteria, and that is called 22 the graduation size standards. Once a firm meets or 23 exceeds the size standards established by the General 24 Services Commission for four consecutive years, that 25 firm can no longer be eligible for HUB certification WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 240 1 and cannot be inclusive to the Commission or the 2 agency's goals. 3 COMMISSIONER SADBERRY: They could 4 still compete and still qualify for specific Lottery 5 business, but just not as a HUB. 6 MR. HALL: Yes, sir. And that's one of 7 the things I think is very instrumental in terms of -- 8 or creative in terms of the Lottery Act itself, is 9 that we have every right to report every minority, 10 even if they're HUB certified or not, under our 11 Minority Participation Act, and be able to have them 12 inclusive to our report as much as we want to. But 13 being HUB certified, that's another area in which we 14 would try to meet or exceed the goals and State 15 certification. 16 COMMISSIONER SADBERRY: So in the 17 vernacular, they have to come in and get the benefit 18 of the program, which are goals, and risk a graduation 19 requirement that removes them from eligibility as a 20 HUB, but not from qualification and eligibility to 21 compete for services and products? 22 MR. HALL: Still continue -- still -- 23 there is no written rule on it that says once they 24 graduate or become ineligible as a HUB, they cannot 25 compete or be involved with the procurement process of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 241 1 the State of Texas. 2 COMMISSIONER SADBERRY: It seems to me 3 that's a message that I would believe your office 4 comes in as far as getting the message out, what the 5 program is all about and why it's there and kind of 6 what the early-on result is and what the end result 7 is, that the -- there has to be a perception of the 8 program as I sense it that this has leveled the 9 playing field. We're there now. Consider it a virtue 10 of their successive qualification over four years. 11 Eligible now to compete without the necessity of being 12 qualified as a HUB. To me, that's a message that 13 needs to be conveyed. And I think the way that it's 14 conveyed will have a large part to play in the success 15 of participation in the program, as I see it. 16 MR. HALL: Our efforts, too, 17 Commissioner Sadberry, for outreach will continue. We 18 will definitely try to keep our vendor community 19 apprised of what goods and services we're looking for. 20 But also the uniqueness because of the different 21 statutes that we actually play a part of in terms of 22 HUB reporting and HUB utilization and also minority 23 participation. So we -- Minority Development Services 24 by all means plans to be very creative in the 25 inclusion of HUB/minority vendors. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 242 1 MS. KIPLIN: The one difference I would 2 point out which I know, Commissioner Sadberry, you're 3 aware of, is that minority business as defined in the 4 State Lottery Act excludes women-owned businesses. 5 They are recognized under HUB, but not in the minority 6 language. 7 MS. CLOUD: One of the things, too, 8 that we heard -- and I haven't discussed this with 9 Robert. But part of the problems that we heard from 10 our print subcontractors as far as them maintaining 11 their HUB certifications, they didn't want to supply 12 the GSC with their financial statements on that 13 separately. And they still have to do that under the 14 new rules? 15 MR. HALL: Yes, ma'am. Let me address 16 that. 17 COMMISSIONER SADBERRY: That's why I 18 wanted to ask this. I wanted to get this on the 19 table. 20 MR. HALL: Currently and for some time, 21 I think it was the 75th legislative session, there was 22 a requirement that -- I can't remember exactly the 23 bill number at this particular point in time. But 24 there was a bill that was passed that any 25 documentation that is received in connection with a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 243 1 HUB vendor's application to the General Services 2 Commission, all documentation is basically considered 3 to be confidential, which includes the financial 4 information. And as I was with the General Services 5 Commission and prior to leaving the General Services 6 Commission, there was none, absolutely no 7 documentation, at least of any applicant that was 8 currently certified with the Commission. Now, what is 9 open records? 10 Application information can be 11 released. Of course, the General Services Commission 12 maintains it on their database. And it also includes 13 some financial information in reference to their gross 14 receipts and gross number of employees. That 15 information has -- the application information has 16 been released. But the financial information in the 17 past has not been released as I am aware of. And I 18 have not received any notifications today that would 19 indicate otherwise. So I think it's a -- it's a 20 methodology to ensure that our customers know by 21 becoming HUB certified and having to work very close 22 with that, to assure them that the process is easy. 23 We can accomplish certification without any burden or 24 concern about releasing that information. 25 COMMISSIONER SADBERRY: How does that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 244 1 play over to the subcontracting? I know this morning, 2 Ridgely, you mentioned that the RFP for the Lottery 3 operator contract had to incorporate the 4 subcontracting audits. 5 MR. BENNETT: But for the audit of the 6 Lottery operators. 7 COMMISSIONER SADBERRY: Now, is there a 8 requirement in that process for providing financial 9 data that would be subject to disclosure? 10 MR. BENNETT: We routinely in major 11 contracts request financial data from vendors to 12 determine whether or not they are capable of 13 performing under the contract. 14 COMMISSIONER SADBERRY: Right. And -- 15 but the subcontractor, the HUB component of that, 16 which you would presume to be the subcontractor, they 17 have to meet the same requirements? 18 MR. BENNETT: Currently not. And the 19 only financial information that they would be 20 reporting currently is to the GSC for their HUB 21 certification. I can't imagine possibly some 22 circumstances under which we would obtain some 23 financial information on subcontractors. Some of what 24 we do includes background checks and criminal history 25 checks on subcontractors since they are providing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 245 1 services to the Lottery. 2 COMMISSIONER SADBERRY: Okay. Now, 3 moving on. In the analysis of the good-faith effort, 4 we might have -- and I know we have the broker issue 5 pending before the Attorney General's Office. But 6 let's -- putting that aside, in the analysis of 7 good-faith effort, what can we anticipate out of the 8 Commission that we will get on a periodic basis that 9 monitors? And what criteria might be there that would 10 judge the ability of the agency to determine its 11 opinion of good-faith effort? 12 MR. HALL: In terms of -- 13 COMMISSIONER SADBERRY: Let's say in 14 this instance, a major vendor with a subcontractor 15 element of its contract with a requirement both for 16 itself and for the subcontract participation to meet 17 these goals or make good-faith effort. What -- do we 18 have established criteria? Is there a sense of 19 monitoring capability? Is there some uniform 20 understanding of what qualifies for a good-faith 21 effort? 22 MR. HALL: Well, a couple of things. 23 First of all, under the new requirements, let me just 24 say starting today, if we had a prime contractor that 25 submitted a contract to us, they indicated their WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 246 1 good-faith effort was going to be to utilize HUBs in 2 the area of professional services. And they put down 3 25 percent. In accordance with the new requirements 4 of the business subcontracting plan, they would 5 identify each potential HUB vendor that would be 6 utilized. And our database -- the database I 7 mentioned earlier, our effort would be to highlight in 8 that database every contract that we know there is 9 potential subcontracting by a prime vendor. And every 10 time that we receive a report of subcontracting 11 activity from a prime vendor on a monthly basis, we 12 would verify and check to see which vendors are being 13 paid. 14 Now, in terms of the good-faith effort 15 of the prime vendor, is that vendor making an effort 16 to include HUBs where possible? Things to -- things 17 to evaluate: Is that part of the contract being 18 utilized at that time? If so, then we would want to 19 know the applying time from the prime vendor. Why 20 haven't those HUBs that have been identified been 21 utilized? That is a major change within the business 22 subcontracting plan in terms of establishing and 23 maintaining good-faith effort, whereby traditionally, 24 some have not done that where the prime vendor makes a 25 statement that they're planning to use HUBs, but WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 247 1 doesn't really take place. And Minority Development 2 Services -- of course, we're only one man. But we 3 hope to be many in the near future. But we hope to be 4 able to track, monitor, and also be able to give you 5 an update on where we are with the subcontracting and 6 how that's working with our prime vendors. 7 COMMISSIONER SADBERRY: That's what I'm 8 asking. 9 MR. HALL: Yes, sir. 10 COMMISSIONER SADBERRY: That it not be 11 a one-time deal. Now, I don't want to suggest 12 micromanaging or intrusion, but that it stays 13 uppermost. As the Chairman points out, and not only 14 in our weekly numbers or monthly numbers, but in this 15 report, in my mind, there are questions to be asked, 16 raised. I won't go into it in depth at this time. I 17 haven't had a chance to speak to you about it. But I 18 would -- I would suppose at some point we are called 19 upon to respond from an agency standpoint, it seems to 20 me, to these numbers. It seems to be the only way we 21 can respond is that we require our vendors and 22 contractors and subcontractors to respond to us so 23 that we're in position to provide data if, and I would 24 say when, called upon, whenever called upon, as I 25 imagine we will be, to address the numbers that go WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 248 1 into this report. 2 MS. CLOUD: Well, Robert has the 3 ability to monitor what their subcontracting numbers 4 are. They are required to send him reports on their 5 minority numbers on a monthly basis. Right? 6 MR. HALL: Yes, ma'am, on the 10th. 7 MS. CLOUD: So we -- and we did this 8 before the new -- we agreed to do the GSC rules. We 9 make the vendors -- we send the letters. We breathe 10 down their necks pretty bad. So we are monitoring 11 them. 12 COMMISSIONER SADBERRY: I understand 13 there is so much you can do, particularly when you 14 have major vendors. And so I say these things only 15 to -- and I know we are. Certainly with Robert a new 16 addition to the staff, we'll go further. And that's 17 all I intend, is just to suggest the need. 18 MS. CLOUD: Well, Commissioners, I 19 think that this year we're going to see better numbers 20 because of our advertising subcontractors, our 21 advertising contractor, minority contractor, as well 22 as our financial auditors and the drawings team, the 23 drawings auditors. So we do have minorities -- more 24 minorities in our contracts today. 25 COMMISSIONER SADBERRY: That's good, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 249 1 and I certainly note that. 2 MR. BENNETT: And Commissioners, one 3 point that I would like to make before I forget to 4 bring it to your attention. During the proposal 5 process, one significant change is that if the 6 Commission determines that a proposer has not made a 7 good-faith effort to include HUBs as part of the 8 contract, then their proposal is rejected. And there 9 is really not a lot of latitude to say that we're 10 going to not reject it. If that determination is 11 made, then by rule, their proposal is rejected. 12 MS. KIPLIN: And once we receive the 13 opinion, the Attorney General's opinion on -- we ask 14 that as an additional question on the exemption, then 15 we'll be in a better position to give you legal 16 advice. And there may be a potential business 17 decision for you-all to make. 18 CHAIR CLOWE: Very good. Thank you, 19 Robert. Excellent report. 20 MR. HALL: Commissioner Sadberry, I 21 wanted to make a note. You asked me the question 22 about the annual financial report. I took the liberty 23 of preparing an analysis for you, a comparison. I'll 24 be happy to share that with you via mail or now if you 25 want. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 250 1 (Commissioner Whitaker exits the room) 2 COMMISSIONER SADBERRY: That will be 3 fine. And I wanted to acknowledge your participation 4 in the program at the Texas A&M University sponsored 5 event at the presidential library. I wasn't able to 6 attend. I didn't even know you were involved. I was 7 glad to know you were in such an effort. I think 8 that's to be recognized. 9 MR. HALL: Thank you. It went well. 10 Thank you very much. 11 CHAIR CLOWE: Good. The record should 12 reflect that Commissioner Whitaker excused herself and 13 is absent from the Commission meeting at this time. 14 However, Commissioner Sadberry and I continue on. 15 MS. KIPLIN: We have a quorum, and 16 that's fine. 17 CHAIR CLOWE: We will call the next 18 item, which is number 11 on the agenda, consideration 19 of and possible discussion and/or action, including 20 delegation of authority for approval, on the agency's 21 personnel policy manual. 22 MS. CLOUD: And that should be Diane 23 Morris and Jim Richardson. 24 CHAIR CLOWE: Very good. There they 25 are. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 251 1 MS. MORRIS: Commissioners, my name is 2 Diane Morris. I'm assistant general counsel. By way 3 of background, somewhere when the Lottery function 4 transferred from the comptroller of public accounts, 5 the agency had what was called a personnel handbook. 6 I'm going to stand a little bit further away. It was 7 a personnel policy manual. And as I understand it -- 8 I was not on staff. As I have been told, at that 9 time, literally the handbook from the comptroller's 10 office was retyped. And the term comptroller was 11 deleted and the term Lottery Commission was added. 12 And it's good to have a personnel policy manual. And 13 I'm sure theirs was great and fine. And that's an 14 acceptable moment for them to have done that. 15 Somewhere around -- and I have some 16 prior open meeting transcripts -- in 1996 and 1997, 17 the personnel policy manual was brought back to the 18 Commission and to your level -- to your -- to your 19 level of the three level Commissioners. You were 20 asked to approve of it, the three Commissioners at the 21 time. Of course, Commissioner Sadberry, you may 22 remember some of these discussions when you would read 23 through chapters of the handbook and you would approve 24 it. 25 But what I want to talk about today, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 252 1 the item on the agenda is not necessarily a specific 2 chapter today. Although I understand there is one 3 specific chapter that if you care to go into that a 4 little bit more, we can. But a more general topic 5 right now is a request for -- a request for you to 6 consider. And if you want the recommendation, the 7 recommendation is that you do allow for the delegation 8 of the authority by this three-person Commission to 9 Billy Atkins, the -- well, to the Charitable Bingo 10 Division director and to the executive director, the 11 authority for them to adopt changes to the personnel 12 policy manual without coming to the board, without 13 coming to the Commission meetings to discuss specific 14 changes and to seek your approval. It's a formality. 15 It's a formality in the sense that we're asking for an 16 order to be entered that allows a more ongoing ability 17 to change the personnel policy manual without coming 18 to the board meetings. It's really you-all's choice. 19 It is up -- there is nothing that necessarily, I don't 20 think, really required you to have it approved every 21 time. I don't think there is anything that requires 22 you to delegate it to the two heads of the -- of the 23 agency. I'm going to quote from Chairman -- or Chair 24 Miers at the time when we were talking about adopting 25 chapters one, six, and eight. And she said: I assume WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 253 1 these are living documents and that they are under 2 scrutiny on an ongoing basis. Certainly instances 3 occur that cause us to recognize the, oh, my, it would 4 be better if this was the way we treated these kinds 5 of things. So we live and learn, as we always do. So 6 we hope these will be considered as living documents 7 and we just don't forget that. That is from 8 October 7th of 1997. But you-all went ahead, the 9 three Commissioners went ahead, though, and adopted. 10 And my purpose here today is to offer 11 an order that is a delegation order. It would allow 12 the executive director and the Charitable Bingo 13 director to approve changes to your personnel policy 14 manual without coming to you. You may want to discuss 15 more. You might want to limit it more. I don't have 16 any order of limitations that they have to inform you 17 ahead of time or that they have to -- I shouldn't say 18 inform you ahead of time. That they have to inform 19 you thereafter, or every meeting thereafter they have 20 to report to you. It's not that specific. So that's 21 my agenda item. 22 COMMISSIONER SADBERRY: Do you have any 23 language in there from Judge Hill? I think I recall 24 him having some comments on that. 25 MS. MORRIS: Some of the language I do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 254 1 remember. No, I didn't -- 2 MS. KIPLIN: Well, the -- what I recall 3 Judge Hill saying is that he read every single word of 4 the personnel policy manual and that he really 5 appreciated the staff's effort and that he 6 wholeheartedly supported it. And I didn't -- you 7 know, in going back and recalling those comments, I 8 don't know if that meant that he considered that to be 9 an item that was significant enough to -- on a policy 10 level to want to retain that kind of authority. I 11 think the practicalities are that this document 12 needs -- it needs to be revised. And the revisions 13 need to -- need to occur periodically. And a lot of 14 it is pretty tedious. And I think it was tedious for 15 you-all to read the personnel policy manual the first 16 time. It's hard to know where it's a -- it's an 17 administrative issue and where it's a policy where 18 you-all would want to retain that kind of policy 19 authority. The chapter that's before you today is 20 basically just a repeat of law. 21 COMMISSIONER SADBERRY: Covered by is 22 all I would say. 23 MS. KIPLIN: Yes. It's repeat of law. 24 COMMISSIONER SADBERRY: I've had some 25 good vacation time today. I can -- I can give you a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 255 1 little of my own history and perception of it, as long 2 as you promise me you'll never quote me after I'm 3 gone. I think that that word levels of issues and 4 concerns such as handgun -- 5 MS. MORRIS: This was specifically -- 6 COMMISSIONER SADBERRY: And we actually 7 were in session in the old building, former building 8 in a Commission meeting when, at the same time, as it 9 turns out, there were matters occurring. And I 10 believe we traced that back to administrative 11 executive decisions or policies. And I think it was 12 then that we felt the need, at least at that time, for 13 policies of that nature to come to this level of 14 proofing where there really were policy issues. And 15 as anything, you can have a swing of the pendulum in 16 one direction or the other in reaction to something. 17 I -- the reason I asked about 18 Commissioner Hill is, I think you're right. At that 19 point in time, I believe that was the perception. It 20 was a three-person Commission document. I don't know 21 that that prevails now. But I think that's where that 22 came from. These policies you're talking about here 23 are not policy driven as I see it. But there may be 24 issues yet left that may arise where they become 25 policy level. And I think that's the administrative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 256 1 judgment, it seems to me, what those are. 2 MS. KIPLIN: I will say that I think 3 you're absolutely correct. I think the chapter that's 4 before you today is driven by a law, by requirements 5 both federal and state. But I think in other 6 chapters, there very well may be matters that in your 7 view are policy and not necessarily administrative. 8 And that's the -- that's the dilemma on where you -- 9 where you draw that line. 10 MS. CLOUD: But I think those can be 11 segregated out. I think -- I think we have enough 12 knowledge about the personnel policy manual to know 13 that there are certain sections in that manual that 14 the Commissioners need to approve. And I don't know 15 that we want to do this carte blanche. 16 COMMISSIONER SADBERRY: Well, we did it 17 then for the protection -- the protection to our staff 18 that we would take any consequences that grew out of 19 policy decisions and could speak to issues of safety, 20 health, and well-being of the employees of the agency. 21 It was clearly a decision that we should take that on, 22 not that we wanted to usurp or control or monitor. 23 But that that issue be the body that says that should 24 be the agency policy. 25 MS. MORRIS: My proposed order WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 257 1 consistent with some of the other proposed orders to 2 the executive director and the Charitable Bingo 3 director to be able to act on motion for rehearings to 4 extend time so that they don't get overruled by 5 operation of law. It contains a final paragraph that 6 preserves to the three chair positions their ability 7 to still approve portions of the personnel policy 8 handbook. 9 From a practical matter, I understand 10 you to be suggesting that if this were to be approved, 11 that you would still expect the executive director and 12 the Charitable Bingo director to be very cognizant of 13 those areas that they should be aware of should still 14 be brought before the three-chair Commission and to 15 have those discussions with you to make sure that they 16 are properly balancing their delegated authority with 17 what you would rather it be retained. 18 CHAIR CLOWE: Well, this is a hot spot 19 with me, because my belief is that any organization, 20 certainly this one included, is only going to be 21 successful if its people are treated properly and 22 fairly. And I understand the comment Commissioner 23 Sadberry made about taking on the protection of -- in 24 behalf of the staff. I think that makes sense. On 25 the other hand, I have always believed in delegating WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 258 1 the responsibility and the authority to the lowest 2 level within any organization. And I would look to 3 the executive director and the director of Charitable 4 Bingo Operations and the internal auditor, who are the 5 Commission's three direct reports, and beyond them, 6 down to all of the managers, the leadership of this 7 agency, to perform in the proper way. Nothing is more 8 disheartening to me to read about someone who has been 9 mistreated at some level in any organization, public 10 sector or private sector, through a nonhearing 11 individual or person who wasn't aware of the right 12 thing to do. That's just ridiculous, because it 13 doesn't create the productivity that you can have when 14 you have people working together on a team. 15 Communications and cooperation is what we're talking 16 about. This is pretty basic, Jim. To me, this is 17 housekeeping. Very important. But there isn't a lot 18 of policy here that requires decisions and some of the 19 details that we're going to get into in other 20 personnel matters. And Diane, I think you stated it 21 correctly. Commissioners want to be informed. But I 22 think we want our leadership to take responsibility 23 for their roles and to see that our people are treated 24 in an exemplary manner. That's very basic. And I 25 think, Linda, you had sessions, and Billy, I would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 259 1 imagine that you have as well on matters relating to 2 communications and cooperation. You've done that. I 3 know of Robert doing that. We've talked about it in 4 regard to our retailers. And I sat in on some 5 sessions where, Diane, you and the lady from the 6 Attorney General conducted expert education. That's 7 the kind of thing I think is important in dealing with 8 employees fairly, equitably, and correctly. So 9 Commissioner Sadberry, I would have no problem with 10 approving this, if you're inclined to deal with it 11 with just the two of us present. 12 COMMISSIONER SADBERRY: I would be so 13 inclined. And believe that you stated well where I 14 think we ought to be. And I do not feel any concern. 15 That it's a matter that divergence of views would be 16 likely. And I think there is a need to move on. 17 CHAIR CLOWE: Great. 18 COMMISSIONER SADBERRY: Take care of 19 business. 20 CHAIR CLOWE: Will you make that 21 motion? 22 COMMISSIONER SADBERRY: I would so 23 move. I would include in my notion that whatever that 24 proviso is, Diane, about appropriate times when the 25 Commissioners might want to, for policy reasons, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 260 1 reserve unto themselves certain policy decisions. And 2 that we would trust the judgment of our director of 3 reports to bring that to our attention on an as-need 4 basis. But otherwise, it would be the function of 5 staff to carry out this duty. 6 MS. MORRIS: And I want to be clear 7 that this is the delegated authority to two of the 8 three of your direct reports. 9 COMMISSIONER SADBERRY: Yes, as you put 10 it. 11 CHAIR CLOWE: And I second that. And 12 what Commissioner Sadberry did, I think, is give us 13 the right to meddle. We would reserve that right. 14 All in favor, say aye. Opposed, no. The vote is 15 recorded as two to zero in favor. 16 The next item on the agenda -- thank 17 you, Jim. Good work. 18 Next item on the agenda is 19 consideration of and possible discussion and/or action 20 on the agency's legislative proposals for the 77th 21 legislature, item number 13. Nelda Trevino, please 22 come forward. You've been very patient. 23 MS. TREVINO: I'll be as brief as 24 possible, Commissioners. Primarily we wanted some 25 direction today that you've already taken in regards WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 261 1 to the proposals that the Bingo Advisory Committee 2 brought before you earlier today. So I think we're 3 good to go on that particular issue. 4 I also just wanted to bring to your 5 attention that we included in your notebook just this 6 morning is a legislative tracking report for bills 7 that have been filed to date since prefiling began. 8 And prefiling did begin on November the 13th. And the 9 filing of legislation will continue until March the 10 9th. There have been 419 bills filed so far. And as 11 of right now, as you note on the tracking report, 12 there are 16 bills that we are currently tracking. 13 The majority of those are related to HR-related 14 issues. And so we will continue to track those as the 15 session progresses. 16 And I just wanted to make you familiar 17 with the tracking report. This will be what we'll be 18 providing to you during the session. And you'll note 19 that there are tracking codes under each bill that's 20 on the tracking report. And it's noted, for example, 21 as an HR-related bill. And as bills get filed either 22 that are Lottery related or bingo related, those will 23 certainly be added. And we will highlight those for 24 you at Commission meetings. 25 There is an item that I know that Kim WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 262 1 wanted to bring to your attention in regards to open 2 records and in regards to a player database that we 3 might be implementing in the future and how that might 4 affect confidentiality information. So I'll let Kim 5 lay that issue out. 6 MS. KIPLIN: Sure. Commissioners, 7 the -- through the executive director, there is a 8 significant interest to develop a player registration 9 database to capture information on players, on 10 individual players. The hope is that that will help 11 in making business decisions for the -- for the 12 Lottery. The concern that I have is that in capturing 13 that information, I believe that information will be 14 subject to the Open Records Act, Public Information 15 Act. I am not aware of any opinion or any sort of 16 statutory provision that would exempt from disclosure 17 wholesale information contained within a player 18 registration database as I understand it to be. And 19 my advice to the executive director is, to protect 20 that information wholesale would require a legislative 21 change. 22 There would be two ways it could be 23 approached. One would be, try to make the legislature 24 change the Open Records Act, or making a change within 25 the State Lottery Act. I think it's my understanding WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 263 1 the preferred method from the legislative council is 2 to make the change in the Open Records Act. It could 3 very well be a controversial issue because of the 4 drive for open government. But I think without some 5 assurances to players that information that's captured 6 on them on their personal background, their personal 7 buying habits, and so forth, that that information 8 would be subject to disclosure would frankly thwart 9 the business purpose of the agency, because I think 10 eventually, people would not want to provide that kind 11 of information. I am aware that there is an interest 12 within at least the legislative subcommittee to look 13 at issues regarding consumer information and trying to 14 protect that information and make it confidential. 15 And I guess my recommendation, if that's the -- if 16 that's where we want to be as an organization and 17 capturing that information to help with the business 18 aspects, is to try to pursue some sort of legislative 19 change to provide assurances, because without that, 20 all we can do is request the opinion once the issue is 21 ripe. And the issue would only be ripe in connection 22 with an open records request. We could, I guess, 23 request an Attorney General opinion. But as you know, 24 they're merely advisory in nature. They're not -- 25 they're not totally controlling. And so that would be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 264 1 my recommendation. 2 CHAIR CLOWE: Very good. Anything 3 further, Nelda? 4 MS. TREVINO: No, sir. I guess the 5 only other thing I would note, that other proposals 6 that the Commission has already given sign off for the 7 staff to begin drafting legislation. We are -- the 8 legal staff is completing that project. And we hope 9 to have a packet for you to review in the very near 10 future. 11 CHAIR CLOWE: Great. You were here 12 this morning when that discussion took place about 13 participation from the public, I assume? 14 MS. TREVINO: Yes, sir. 15 CHAIR CLOWE: Very good. Thank you. 16 MS. TREVINO: Thank you. 17 CHAIR CLOWE: With apologies to you, 18 Mr. Atkins, the Commission will pass on items 14 and 19 15. We eagerly anticipate those presentations at the 20 next meeting. But again, Commissioner Whitaker is 21 absent. 22 MR. ATKINS: My previous threat still 23 stands, Commissioners. It just gets longer and longer 24 the more time we have to work on it. 25 CHAIR CLOWE: We are burning to be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 265 1 educated. We're going to love it. 2 We are now to item 18, which is the 3 consideration of various dockets. The general counsel 4 will take us through those. 5 MS. KIPLIN: Commissioners, I'd like to 6 draw your attention first to the Victoria Community 7 Theater contested case proceeding. I do have in my 8 hands an order that has been agreed to by both 9 parties. And it's initialed to that effect. It is a 10 change in the -- obviously, the proposed order, the 11 language. But I think the basis is to clarify 12 potential ambiguity in the proposed order. 13 I'll read the language in -- the 14 pertinent language into the record: The Victoria 15 Community Theater, Inc.'s license to conduct bingo is 16 hereby suspended for three consecutive bingo 17 occasions, commencing on the 6th day of the month 18 following the date this order is entered. 19 It would be my recommendation, based on 20 the positions of the parties, that you make a motion 21 and a second and a vote to adopt the order now 22 proposed by the parties. 23 CHAIR CLOWE: So moved. 24 COMMISSIONER SADBERRY: Second. 25 CHAIR CLOWE: All in favor, say aye. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 266 1 Opposed, no. 2 MS. KIPLIN: Commissioners, with regard 3 to -- 4 CHAIR CLOWE: The record is two to zero 5 in favor. 6 MS. KIPLIN: Commissioners, with regard 7 to the remaining cases, they are all Lottery cases. 8 I'll be glad to go into each individual one. But in 9 the interest of time, I will tell you that in each one 10 of these matters, the administrative law judge for 11 each of these cases has recommended that the license 12 be revoked for each one. And the basis -- the varying 13 bases are primarily insufficient funds. And we do 14 have one that is a disqualifying criminal conviction 15 on the part of the president. That's in MZM Quick 16 Stop. And I said, the rest are NSFs. With that, 17 staff does recommend that you make a motion, second, 18 and vote to approve the orders as proposed by the ALJ. 19 COMMISSIONER SADBERRY: Was that -- the 20 criminal matter, was that a default? 21 MS. KIPLIN: I will say without 22 looking, most of these generally are. But let me 23 just -- let me -- 24 COMMISSIONER SADBERRY: I thought I 25 read it. But I wanted to make sure. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 267 1 MS. KIPLIN: That's correct. It was 2 not necessarily a default, because evidence was 3 actually put into the record. It was properly noticed 4 for a hearing, but the party did not appear. It was a 5 theft case in April of '92. It was charged with 6 theft. And he entered into a plea agreement. Placed 7 on adult probation for 12 months. So because it's 10 8 years, the disqualification controls from 10 years 9 from the date of the last sentence served. The 10 10 years is in effect and statutorily is disqualified. 11 And it is -- this individual is the president of the 12 organization. And so that's why the license held by 13 the organization is being revoked. 14 COMMISSIONER SADBERRY: I so move. 15 CHAIR CLOWE: Second. All in favor, 16 say aye. Opposed, no. The vote is two to zero in 17 favor. 18 Linda, the next item is your report, 19 No. 19. Will you allow us to sign and listen at the 20 same time? 21 MS. CLOUD: Yes, sir. Go right ahead. 22 CHAIR CLOWE: Thank you. 23 MS. CLOUD: A couple of things I wanted 24 to bring to the Commission's attention. After being 25 in this building for three years and having the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 268 1 landlord provide us with parking space across the 2 street for some of our employees, we are in a dilemma 3 right now where with the new auditorium going in and 4 the parking garages, we're going to lose that parking 5 lot. 6 CHAIR CLOWE: Now, which one is that, 7 the hard or the soft one? 8 MS. CLOUD: The soft one across the -- 9 right across the street. 10 CHAIR CLOWE: Where Colin parks. 11 Right? 12 MS. CLOUD: Yeah, that's where Colin 13 parks, I think. They are threatening to move us three 14 blocks away. We haven't come to any terms or 15 agreements, I haven't, with them yet. But what we're 16 doing and what I wanted to make the Commissioners 17 aware of, we are taking all the visitor spots away 18 from this lot. And we are designating those spots to 19 our employees for parking so that we can get as many 20 employees in this lot as we can. Visitors are going 21 to have to park at meters around the building. We 22 will have signs at the entrance gates. And -- but our 23 handicapped slots are still available as well as two 24 of our winner slots will still be available for 25 winners. So that will be a little bit of a change WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 269 1 that we've got coming up here. 2 CHAIR CLOWE: Now, does that allow all 3 of our employees to park in this area, or will some be 4 three blocks away? 5 MS. CLOUD: No, sir. There will be 6 approximately 60 employees that will have to move down 7 to the three blocks away. 8 CHAIR CLOWE: How are you going to 9 handle that? 10 MS. CLOUD: Well, we haven't really 11 decided. If I listen to my security director, we'll 12 probably be running a shuttle back and forth. But -- 13 CHAIR CLOWE: That's my concern. We're 14 meeting tonight after dark. And I would be concerned 15 about our employees walking three blocks to get in 16 their cars. 17 MS. CLOUD: Well, I'm not sure to what 18 extent we can accommodate. But we're going to -- we 19 will have a discussion on that. And security has 20 created that as a concern as well. 21 CHAIR CLOWE: Well, I think the 22 Commission shares that concern with you. And I think 23 we'd like to hear what your plan is when you develop 24 it. 25 MS. CLOUD: What I want to do and what WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 270 1 I haven't succeeded in doing yet, but what I proposed 2 to the landlords is that this parking lot down three 3 blocks away is a temporary lot. When the City gets 4 the parking garage built across the street, then they 5 have to rent space for our employees in that parking 6 garage. And that's what I'm -- what I'm trying to 7 work toward. 8 CHAIR CLOWE: Good. 9 MS. CLOUD: I don't think Jerry has a 10 lot of confidence that that's going to happen. But 11 we're -- I haven't agreed to anything other than that 12 so far. 13 CHAIR CLOWE: Okay. 14 MS. CLOUD: Diane needs to -- 15 MS. MORRIS: I am Diane Morris, 16 assistant general counsel. Commissioners, I wanted to 17 remind you that insofar as any employees are 18 concerned, this agency cannot obviously take on the 19 responsibility of ensuring total safety at all times 20 at all hours. As employees in this agency, they're 21 not guaranteed a parking space. It's been pretty much 22 a luxury. Some employers have no parking spaces in 23 the building, in the basements, around buildings, both 24 governmental and private industry. Some employees 25 find their own spots and walk to work on their own. I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 271 1 just want to talk about insofar as really expressing a 2 desire about shuttling or protecting, if you will, 3 that I would like some more time to visit with Linda, 4 perhaps to really try to flesh out what we mean by 5 that, because I would not encourage this agency to 6 take on more responsibility than under the law we need 7 to be liable for. There is more discussion. And I 8 just wanted to clarify that notwithstanding any of the 9 statements you said or she said, we need to talk more. 10 COMMISSIONER SADBERRY: Are we back to 11 the handbook? Is that going to be in the handbook? 12 MS. CLOUD: Without your signature. 13 COMMISSIONER SADBERRY: I was wondering 14 about the visitor spots. What's your experience? Do 15 you get a lot of visitor traffic? Other than winners, 16 what are you getting? 17 MS. CLOUD: We do have a lot of 18 visitors. And they do end up sometimes parking in our 19 employee parking spaces. I think the last advisory 20 committee was one of those situations where the 21 advisory committee parked in employee spaces. And 22 employees were very disgruntled and complained to 23 security. And that's a bad situation for us. We also 24 have people that go across the street to this 25 restaurant. And they'll park over here inside of our WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 272 1 lot. And we've told them -- I mean, it's just -- you 2 know, we've got signs out there that says that this is 3 the Texas Lottery Commission parking space and your 4 car will be towed. And we are towing them. The -- 5 MS. MORRIS: I'm going to also remind 6 you, Linda, that you appointed a parking committee 7 about two years ago. 8 MS. CLOUD: Yes. They took it away 9 from me. 10 MS. MORRIS: No. She gave it to -- 11 MS. KIPLIN: After much consideration. 12 MS. MORRIS: And I can't believe I'm 13 the only member of the darn committee here right now, 14 which is a little annoying. A Commander Pitcock, 15 Vince Devine, and myself serve on that committee. And 16 we meet in his office probably every six weeks. We 17 have our own agendas. We go through the minutiae of 18 the tiny details of, this spot here, that spot here. 19 We have lists of employees, depending on what date of 20 hire, when you're due to be moved from this lot to 21 that lot down to the basement. I -- Commander Pitcock 22 has it in control. He and his staff have this parking 23 lot in control. 24 CHAIR CLOWE: That's the question that 25 I was asking. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 273 1 MS. MORRIS: Oh, yeah. 2 CHAIR CLOWE: You've got the answer I 3 was looking for. 4 MS. MORRIS: He is in control of that. 5 So the point is, as I want to say, we need to talk 6 more with Linda. We may have other solutions from the 7 parking committee point of view, that it may come that 8 we need to rethink how we do things anyways. And we 9 all make our recommendations. 10 CHAIR CLOWE: We're not micromanaging. 11 We understand what you said. But you heard 12 expressions which I know you will convey to your 13 committee from Linda and me. And I would assume 14 Commissioner Sadberry shares in some of those 15 concerns. We are in good hands in your hands. 16 MS. MORRIS: I'm right behind Commander 17 Pitcock. So I'm okay. 18 MS. CLOUD: The other item that I -- 19 well, let's go to the transfer to the Foundation 20 School Fund. On November 15th, we transferred 21 $58,940,231. For total transfers to the State prior 22 to FY '01 is $8,446,000,743. Commissioners, your HUB 23 report was -- 24 CHAIR CLOWE: Did you give that young 25 man -- excuse me -- from San Antonio a copy of this? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 274 1 MS. CLOUD: I don't think we did. I 2 guess we -- 3 CHAIR CLOWE: He was asking about this. 4 MS. CLOUD: I know. He was concerned 5 about that. 6 CHAIR CLOWE: Would you send this to 7 him? 8 COMMISSIONER SADBERRY: Certified mail. 9 MS. CLOUD: I'll be glad to. 10 CHAIR CLOWE: Send it to him 11 individually at San Antonio College. 12 MS. SMITH: I have his address. 13 CHAIR CLOWE: He made an appearance 14 form. And I would really like to ask you to do that, 15 if you would. 16 MS. CLOUD: That would be good. 17 CHAIR CLOWE: Okay. Because he 18 didn't -- I don't think he really thought he was going 19 to get this information. 20 COMMISSIONER SADBERRY: I think you're 21 right. 22 MS. CLOUD: Well, and I think that -- I 23 think he was so happy getting up here before the 24 Commissioners. So he couldn't think of what he was up 25 here for. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 275 1 CHAIR CLOWE: He did a good job. 2 MS. CLOUD: He did a good job. 3 The FTE count, we have 309 active 4 FTE's. We have 26 vacant positions. We have eight of 5 those positions in this election, acceptance pending. 6 15 in the recruiting, screening, and interviewing. 7 And only three that are vacant with no HR activity. 8 And with the personnel positions report, I'm very, 9 very sad to report to the Commission that we're losing 10 our information technology director. 11 COMMISSIONER SADBERRY: Bring him up 12 here. 13 MS. CLOUD: Robert, get up here. We 14 told him he could not leave until he replaces himself 15 with someone as good as he is. 16 CHAIR CLOWE: Good. That's going to be 17 hard to do. 18 COMMISSIONER SADBERRY: I hope you 19 don't have any immediate plans. You've got to come 20 back for a while. 21 MS. CLOUD: Robert plans to retire in 22 January. He's going to be lonely. He's not -- he's 23 going to be bored. We're going to miss him a lot. He 24 has done a tremendous job in the short period of time 25 that he has been here. He has done exactly what I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 276 1 wanted him to do, and that was bring that information 2 technology department up to snuff and so that it was 3 doing exactly what we wanted it to do. And he has 4 hired good people. He thinks I don't even need to 5 replace him because he's hired such good people. But 6 we've still told him he couldn't leave until he hired 7 a replacement. 8 CHAIR CLOWE: Robert, we share in 9 Linda's comments. And we are sorry that you're 10 leaving. But you know, we do lock the doors from the 11 inside here and not the outside. And any organization 12 is going to lose good people from time to time. And 13 you have done a great job here. I've followed your 14 progress personally with great enthusiasm. And you've 15 done all the things that Linda said that you've done. 16 And it is a serious request that you leave us in good 17 hands. 18 MR. BELL: Absolutely. 19 CHAIR CLOWE: You're entirely too young 20 to retire. I don't think you're going to be happy. 21 You know, hunting season doesn't last year around. 22 MR. BELL: There is fishing and golf. 23 CHAIR CLOWE: Let me tell you from a 24 guy that's been there: That gets old after a year or 25 so. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 277 1 MR. ATKINS: I have a licensing 2 examiner position open. 3 MS. CLOUD: We are going to miss him, 4 though. 5 COMMISSIONER SADBERRY: I would like to 6 join that and say thank you. And I suppose leaving on 7 a note of job well done is probably the highest place 8 you can be. And you certainly do that. I hope it's 9 been satisfactory to you. 10 MR. BELL: Thank you very much. I 11 appreciate that. 12 CHAIR CLOWE: So we'll see you in 13 December for sure. Thank you, Robert. 14 MS. CLOUD: Commissioners, you asked 15 for jackpot information on how many times we've been 16 hit since the matrix change. And I wanted to give you 17 a copy of this. But I wanted to put it on record. 18 We've been hit six times in the past 19 weeks. 19 19 weeks prior to the matrix change, we were hit nine 20 times. 21 CHAIR CLOWE: That's pretty much what 22 was projected. 23 MS. CLOUD: It's doing what we said it 24 would do. 25 We had a retail town hall meeting in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 278 1 San Antonio November 16th. It was a very good 2 meeting. I made a real slip telling them I was from 3 Florida. And that -- they all had a good laugh. I 4 shouldn't have done that. 5 Also, we're holding meetings with 6 corporate retailers independently. They don't like to 7 meet with each other. So we are meeting with them on 8 an independent basis. And that's going very well as 9 well. And that's the end of my report. 10 CHAIR CLOWE: Very good, Linda. Thank 11 you very much. Any questions, Commissioner? 12 I think, Billy, we are now to your 13 report, please. 14 MR. ATKINS: Commissioners, the only 15 thing I need to point out under the staffing, the two 16 positions under the licensing services section -- 17 excuse me -- that closing date has been extended to 18 December 1st. 19 CHAIR CLOWE: Very good. Nothing 20 further? 21 MR. ATKINS: No, sir. 22 CHAIR CLOWE: Any questions? 23 COMMISSIONER SADBERRY: Just a point of 24 inquiry. I know you have a presentation to give us. 25 Have we dealt with the three strikes rule yet? Is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 279 1 that going to be brought on? Do you know what I'm 2 talking about? 3 MS. KIPLIN: I know -- I know what 4 you're talking about, what you're saying. I don't 5 think the staff is going to agree with that 6 characterization. 7 MR. ATKINS: What she says. 8 COMMISSIONER SADBERRY: Well, whatever 9 you want to call it, have we dealt with it? Are we 10 going to deal with it? 11 MS. KIPLIN: Well, it was noticed for 12 today. I think what was intended was to try to give 13 an overview of the bingo division's enforcement 14 practices. And that item was passed. 15 COMMISSIONER SADBERRY: That was part 16 of what you were going to -- yes, that's what I really 17 was asking. Is that the way you intended to cover 18 that issue? So you're not ignoring that. And it's us 19 who haven't had the meeting format flexibility to hear 20 your presentation on that. 21 CHAIR CLOWE: I think he's going to 22 tell you more than you ever wanted to know. Thank 23 you, Billy. 24 Is there anyone here wishing to make a 25 comment to the Commission, perhaps the final item on WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 TEXAS LOTTERY COMMISSION MEETING, 12-7-00 280 1 the agenda? Seeing no one, this meeting of the Texas 2 Lottery Commission is adjourned. Thank you all for 3 staying with us for a long time. Appreciate it. 4 (Proceedings Concluded) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 281 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, MARY SCOPAS, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 8th day of 17 December, 2000. 18 19 20 21 MARY SCOPAS, RPR, Texas CSR No. 5313 22 Expiration Date: 12-31-00 1609 Shoal Creek Boulevard, Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 001129MSH WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363