0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 7 WEDNESDAY, DECEMBER 5, 2007 § 8 9 COMMISSION MEETING 10 WEDNESDAY, DECEMBER 5, 2007 11 12 BE IT REMEMBERED THAT on Wednesday, 13 the 5th day of December 2007, the Texas Lottery 14 Commission meeting was held from 9:05 a.m. to 15 4:45 p.m., at the Offices of the Texas Lottery 16 Commission, 611 East 6th Street, Austin, Texas 78701, 17 before CHAIRMAN JAMES A. COX, JR., and COMMISSIONERS 18 C. TOM CLOWE, JR., and DAVID SCHENCK. The following 19 proceedings were reported via machine shorthand by Kim 20 Pence, a Certified Shorthand Reporter of the State of 21 Texas, and the following proceedings were had: 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: 3 Mr. James A. Cox, Jr. 4 COMMISSIONERS Mr. C. Tom Clowe, Jr. 5 Mr. David Schenck 6 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: 8 Mr. Anthony J. Sadberry 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Phil Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. I - Meeting Called to Order...... 11 4 AGENDA ITEM NO. II - Report by the Bingo Advisory Committee Chair, possible discussion 5 and/or action regarding the Bingo Advisory Committee’s activities, including the 6 November 7, 2007 Committee meeting.............. 125 7 AGENDA ITEM NO. III - Report, possible discussion and/or action on the agency’s 8 bingo enforcement matters........................ 127 9 AGENDA ITEM NO. IV - Report by the Charitable Bingo Operations Director and possible 10 discussion and/or action on the Charitable Bingo Operations Division’s activities........... 161 11 AGENDA ITEM NO. V - Consideration of and 12 possible discussion and/or action, including adoption, on the agency’s rule review of 13 16 TAC Chapter 402, charitable bingo administrative rules............................. 163 14 AGENDA ITEM NO. VI - Consideration of and 15 possible discussion and/or action regarding a petition for rulemaking relating to the 16 definition of card-minding device in 16 TAC §402.100, Definitions.................. 165/171 17 AGENDA ITEM NO. VII - Consideration of and 18 possible discussion and/or action regarding a petition for rulemaking relating to setting 19 a minimum price at which bingo card-minding devices may be sold.............................. 167 20 AGENDA ITEM NO. VIII - Report, possible 21 discussion and/or action on the Attorney General Opinion GA-0579 relating to Americans 22 with Disabilities Act and the Texas Lottery Commission....................................... 11 23 24 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. IX - Report, possible discussion and/or action on lottery sales 4 and revenue, game performance, new game opportunities, advertising, market research, 5 and trends....................................... 173 6 AGENDA ITEM NO. X - Report, possible discussion and/or action on transfers to 7 the State........................................ 183 8 AGENDA ITEM NO. XI - Consideration of and possible discussion and/or action on the 9 agency’s FY 2008 Itemized Operating Budget....... 185 10 AGENDA ITEM NO. XII - Report, possible discussion and/or action on Lottery 11 Operations and Services Contract Amendment No. 8 credit calculation......................... 189 12 AGENDA ITEM NO. XIII - Report, possible 13 discussion and/or action on Bingo indirect and administrative expenses...................... 191 14 AGENDA ITEM NO. XIV - Report, possible 15 discussion and/or action on the 80th Legislature................................. 191 16 AGENDA ITEM NO XV - Report, possible 17 discussion and/or action on the agency’s contracts........................................ 216 18 AGENDA ITEM NO. XVI - Report, possible 19 discussion and/or action on the procurement of consulting services to analyze and explore 20 options available for the delivery of core lottery operations and services.................. 218 21 AGENDA ITEM NO. XVII - Report and possible 22 discussion and/or action on the agency's HUB program and/or minority business participation, 23 including the agency's Mentor Protégé Program.... 114 24 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XVIII - Consideration of and possible discussion and/or action on 4 the agency’s business plan....................... 219 5 AGENDA ITEM NO. XIX - Consideration of and possible discussion and/or action on external 6 and internal audits and/or reviews relating to the Texas Lottery Commission and/or on the 7 Internal Audit Department’s activities........... 225 8 AGENDA ITEM NO. XX - Consideration of and possible discussion and/or action, including 9 adoption, on the agency’s rule review of 16 TAC Chapter 401 relating to the 10 administration of the State Lottery Act.......... 234 11 AGENDA ITEM NO. XXI - Consideration of and possible discussion and/or action, including 12 adoption of repeal, on 16 TAC §403.402 relating to Exemption of Vehicle Inscription 13 Requirements..................................... 236 14 AGENDA ITEM NO. XXII - Consideration of and possible discussion and/or action, including 15 adoption, on amendments to 16 TAC §403.101 relating to Open Records......................... 237 16 AGENDA ITEM NO. XXIII - Consideration of and 17 possible discussion and/or action, including adoption, on amendments to 16 TAC §403.301 18 relating to Historically Underutilized Businesses....................................... 238 19 20 21 22 23 24 25 0006 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXIV - Consideration of and possible discussion and/or action, including 4 adoption, on amendments to 16 TAC §401.301 relating to General Definition, 16 TAC 5 §401.304 relating to On-Line Game Rules (General), 16 TAC §401.305 relating to 6 “Lotto Texas” On-Line Game Rule, 16 TAC §401.307 relating to “Pick 3” On-Line Game 7 Rule, 16 TAC §401.308 relating to “Cash Five” On-line Game, 16 TAC §401.312 relating to 8 “Texas Two Step” On-line Game, 16 TAC §401.315 relating to “Mega Millions” On-Line Game Rule, 9 and/or 16 TAC §401.316 relating to “Daily 4” On-Line Game Rule................................ 240 10 AGENDA ITEM NO. XXV - Report, possible 11 discussion and/or action on the Mega Millions game and/or contract.................... 241 12 AGENDA ITEM NO. XXVI - Report, possible 13 discussion and/or action on GTECH Corporation.... 241 14 AGENDA ITEM NO. XXVII - Consideration of the status and possible entry of orders in: 15 A. Docket No. 362-07-3736 – Silver Bell Grocery 16 B. Docket No. 362-07-3738 – Stockman’s Minimart 17 C. Docket No. 362-07-3740 – Bob’s Beer & Wine #2 18 D. Docket No. 362-07-3641 – Lazy L Shell Convenience Store 19 E. Docket No. 362-07-3642 – Pioneer Mini Mart 20 F. Docket No. 362-07-3643 – Mesquite Mini Mart 21 G. Docket No. 362-07-3896 – 45 Kwik Stop H. Docket No. 362-07-3966 – Normandy 22 Food Store I. Docket No.362-07-4077 – Southwest 23 Parkway Market J. Docket No. 362-07-4076 – Stockdale 24 Chevron 25 0007 1 TABLE OF CONTENTS (continued) 2 PAGE K. Docket No. 362-07-3377 – Vegas Food 3 Store L. Docket No. 362-07-3808 – Shamrock 4 Mini Mart M. Docket No. 362-07-3337– Crandall 5 Exxon N. Docket No. 362-07-990906PM.B – In the 6 Matter of the Refusal to Add Names of Certain Persons to the Texas Lottery 7 Commission’s Registry of Approved Bingo Workers: Robert Arthur, James 8 Bellinger, Wendy Bowie, Stefani Castillo, Maria Deville, Cassandra 9 Hernandez, David Honish, Mike Kaiser, Sonny Kirkland, Evangelina Romo, 10 Rudolph Vasquez, and James Wood O. Docket No. 362-07-990906AM.B – In the 11 Matter of the Removal of Certain Respondents from the Texas Lottery 12 Commission’s Registry of Approved Bingo Workers: Terry Allison, Brandi Barrett, 13 Dawn Flewellen, Michael Gamez, Tiffany Gonzales, Albert Guerra, Glenda Harris, 14 Autumn Henrichs, Emma Lopez, Angelica Lozano, Sandra Ramirez, Laura Rosas, and 15 Frank Sanchez P. Docket No. 362-07-0990807AM.B – In the 16 Matter of the Removal of Certain Individuals from the Registry of Approved 17 Workers: Colby Armstrong, Robert Ascencio, Trina Brown, Rochelle Cazey, Ferdinand 18 Febles, Tanya Frisby, Christopher Grimes, Alvino Mauricio, Christina Nanez, Brandy 19 Poole, Juan Rocha, Erica Rodriguez, William Storey, Patrick Turner, Curtis 20 Walker, Norma Williams, David Derrick, and Blake Edward Gibson 21 22 23 24 25 0008 1 TABLE OF CONTENTS (continued) 2 PAGE 3 Q. Docket No. 362-07-990807PM.B -- In the Matter of the Removal of Certain 4 Respondents from the Texas Lottery Commission’s Registry of Approved 5 Bingo Workers: Forrest Blaylock, Carlos Borjas, Jennifer Brown, 6 Brandon Carroll, Venson Cursey, Ruby Fields, Dolya Gaubatz, Lois Jackson, 7 Richard McCloud, Frank Montgomery, Marcia Neal, Jules Ordinario, Leisa 8 Powell, David Rodriguez, Tracey Scott, Gerardo Valencia, Gerald Van Brakle, 9 and Quanisha Windom R. Case No. 2007-927 – Speedexx Food 10 Store S. Case No. 2007-720 – Childrens Advocacy 11 Center of Hidalgo Co-Estrellas House T. Case No. 2007-718 – Lower Rio Grande 12 Valley Nature Center U. Case No. 2007-721 – Lulac Information 13 Referral Resources Assistance, Inc. V. Case No. 2007-717 – American Legion 14 Post 37 W. Case No. 2007-716 – Hidalgo Lions Club 15 X. Case No. 2007-719 – Make A Wish Foundation of the Rio Grande Valley 16 Y. Case No. 2007-210 – SPJST Lodge 183...... 251 17 AGENDA ITEM NO. XXVIII - Report by the Executive Director and/or possible discussion 18 and/or action on the agency’s operational status, activities relating to the Charitable 19 Bingo Operations Division, agency procedures, and FTE status................................... 275 20 AGENDA ITEM NO. XXIX - Public comment............ 276 21 22 23 24 25 0009 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXX - Commission may meet in Executive Session: 4 A. To deliberate the duties and evaluation of the Executive Director pursuant to 5 Section 551.074 of the Texas Government Code. 6 B. To deliberate the duties and evaluation of the Deputy Executive Director 7 pursuant to Section 551.074 of the Texas Government Code. 8 C. To deliberate the duties and evaluation of the Internal Audit Director pursuant 9 to Section 551.074 of the Texas Government Code. 10 D. To deliberate the duties and evaluation of the Charitable Bingo Operations 11 Director pursuant to Section 551.074 of the Texas Government Code. 12 E. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 13 the Texas Government Code. F. To receive legal advice regarding 14 pending or contemplated litigation pursuant to Section 551.071(1)(A) 15 and/or to receive legal advice regarding settlement offers pursuant to Section 16 551.071(1)(B) of the Texas Government Code and/or to receive legal advice 17 pursuant to Section 551.071(2) of the Texas Government Code, including but not 18 limited to: Shelton Charles v. Texas Lottery 19 and Gary Grief First State Bank of DeQueen 20 et al. v. Texas Lottery Commission James T. Jongebloed v. Texas 21 Lottery Commission The Lotter Ltd 22 Employment law, personnel law, procurement and contract law, 23 evidentiary and procedural law, and general government 24 law 25 0010 1 TABLE OF CONTENTS (continued) 2 PAGE 3 Attorney General Opinion GA-0579 relating to Americans with 4 Disabilities Act and the Texas Lottery Commission 5 Lottery Operations and Services contract 6 Mega Millions game and/or contract .......................... 169 7 AGENDA ITEM NO. XXXI - Return to open session 8 for further deliberation and possible action on any matter discussed in Executive Session..... 171 9 AGENDA ITEM NO. XXXII - Adjournment.............. 276 10 REPORTER'S CERTIFICATE.......................... 277 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0011 1 P R O C E E D I N G S 2 WEDNESDAY, DECEMBER 5, 2007 3 (9:05 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN COX: Good morning. It's 9:05 6 a.m. Today is December 5, 2007. Chairman Clowe is 7 here. Commissioner Schenck is here. I'm Jim Cox. 8 Let's call this meeting of the Texas Lottery 9 Commission to order. 10 AGENDA ITEM NO. VIII 11 CHAIRMAN COX: I would like to call at 12 this point Agenda Item No. VIII, report, possible 13 discussion and/or action on the Attorney General 14 Opinion GA-0579 relating to Americans With 15 Disabilities Act and the Texas Lottery Commission. 16 Director Sadberry. 17 MR. SADBERRY: Good morning, Chairman 18 and Commissioners. For the record, my name is Anthony 19 Sadberry, Executive Director. On this item, 20 Commissioners, I would like to ask Special Counsel 21 Sarah Woelk to come to the podium to lay out this 22 matter, if she would, please. 23 MS. WOELK: Thank you, Commissioners. 24 My name is Sarah Woelk. I'm the Special Counsel. And 25 what I'm going to do, with a brief slide show, is go 0012 1 through, outline the issue that's come up and the 2 Americans With Disabilities Act, to try to help make 3 clear what's an American With Disabilities Act issue 4 and what issues may be larger public policy issues 5 that aren't directly -- 6 COMMISSIONER CLOWE: Before you begin, 7 Sarah. 8 Mr. Chairman, for my information and 9 perhaps the other Commissioner, would you tell us what 10 your plan is in regard to this item? It's my 11 understanding there are a number of people in our 12 audience who are going to give testimony, and I'd like 13 to know what the agenda is, if I may, regarding this 14 item and those other folks. 15 CHAIRMAN COX: Okay. As I have planned 16 it, Chairman Clowe, Director Sadberry will, of course, 17 lead this item, and he will start with Sarah giving us 18 a briefing on the Americans With Disabilities Act and 19 this particular situation. Then we have several 20 witnesses that will testify, and then we will have our 21 deliberation on the matter. Certainly you are free, 22 as always, to ask question as we go along. 23 COMMISSIONER CLOWE: As I always do. 24 (Laughter) 25 CHAIRMAN COX: As you always do. 0013 1 COMMISSIONER CLOWE: And, Mr. Chairman, 2 is this posted as an action item or is this item at 3 this point for deliberation? 4 CHAIRMAN COX: This is for report, 5 possible discussion and/or action. 6 COMMISSIONER CLOWE: So this can be an 7 action item -- 8 CHAIRMAN COX: Yes, sir. 9 COMMISSIONER CLOWE: -- as posted? I'm 10 clear now. Thank you, sir. 11 CHAIRMAN COX: Yes, sir. 12 MS. WOELK: Thank you. 13 COMMISSIONER CLOWE: Pardon me Sarah. 14 MS. WOELK: That's fine. 15 The Americans With Disabilities Act, 16 which is the ADA, is a pretty -- okay, Gary. How I do 17 make this move forward? -- is a pretty big act, and 18 we're only talking about one piece of it today. 19 There's a part of the ADA that deals with the 20 employer/employee relations and may require employers 21 to make reasonable accommodations for a disabled 22 employee. Their Title III, which prohibits 23 discrimination when it refers to public 24 accommodations, that that really means private places 25 where the public goes. It doesn't mean government. 0014 1 The piece we're talking about today is 2 Title II, which prohibits discrimination against 3 disabled individuals in connection with services 4 programs or activities of state and local government. 5 And I think it's important to bear in mind as people 6 talk today that the ADA protects individuals with 7 disabilities. It's not a law that addresses public 8 health hazards generally. So the fact that smoking 9 may be generally bad isn't really part of an ADA 10 claim. ADA claims would have to be about needs of 11 disabled individuals. 12 CHAIRMAN COX: Sarah, let me stop you 13 there for a minute. I've been reading in the paper 14 that this is about smoking, but it's not about 15 smoking? Or the ADA and smoking aren't the same thing 16 or -- 17 MS. WOELK: Well, I'll try to cover 18 that. ADA -- smoking comes up in ADA cases most 19 frequently, I would say, in employer/employee cases 20 where an individual employee is seeking an 21 accommodation. But it's -- 22 CHAIRMAN COX: That will be under Title 23 I. 24 MS. WOELK: Yes. It can be brought up 25 under Title II, but Title II goes to access for people 0015 1 with disabilities in general. It's not specifically 2 about smoking, and it's not about general health 3 hazards to the general public. I think that there's 4 people who may be talking about smoking is bad 5 generally. For ADA purposes, the focus is on whether 6 it affects the access of individuals. And the 7 standards in ADA will talk about what apply, whether 8 someone is complaining about perfume, about cats in 9 stores. They would apply -- they're not unique to 10 smoking. 11 CHAIRMAN COX: Thank you. 12 MS. WOELK: But the issue that we're 13 talking about today did arise in the context of 14 smoking. And Mr. Williams sent a letter in the summer 15 of '06 to the Lottery Commission saying that he had a 16 breathing-related disability and that he was asking 17 that we only license lottery retailers that didn't 18 allow smoke in their locations. 19 We had a fair amount of work. We worked 20 through our complaint process, and we concluded from 21 our research that although an individual might be able 22 to make a specific claim in a specific context about 23 smoking in a retail location, that we felt it was 24 pretty clear the ADA Title II does not mandate that 25 government activities could only take place in smoke- 0016 1 free buildings. And, therefore, we sent a letter to 2 Mr. Williams saying that -- we offered to talk to him, 3 help him find places that were no smoking places but 4 that we were not, on the basis of his letter, going to 5 suggest action to the Commission that they stop 6 licensing locations that allow cigarette smoke. 7 COMMISSIONER SCHENCK: Sarah, if you 8 don't mind -- I'm sorry to cut you off -- but, 9 Mr. Chairman, I need to make a disclosure for the 10 record. Sometime probably 15 years ago, I represented 11 in private practice a tobacco firm, R. J. Reynolds. 12 And it's my understanding my firm continues to have 13 ongoing representations with that company that I am 14 not involved with. I don't see that that has any 15 effect on the issues that are here before us today, 16 but I did want to make that disclosure. 17 CHAIRMAN COX: Thank you very much, 18 Commissioner. 19 Counsel, do you have any thoughts on 20 that statement? 21 MS. KIPLIN: No, I really don't. Just 22 for the record, I will say that Commissioner Schenck 23 and I did visit about this issue. He did seek my 24 counsel. We did discuss the matter. I don't see that 25 there is any need for him to disqualify himself or 0017 1 recuse himself either under common law or under 2 statutory law, based on the relationship as I 3 understand it. That client of his firm has no -- 4 frankly, no direct or indirect relationship with this 5 agency. Should that change, Commissioner Schenck will 6 so notify me. 7 CHAIRMAN COX: Are you good with that, 8 Chairman Clowe? 9 COMMISSIONER CLOWE: I understand it. I 10 think that's a good statement to have made on the 11 record, and I'm very comfortable with it. 12 CHAIRMAN COX: As am I. 13 Thank you, Commissioner. 14 COMMISSIONER SCHENCK: Sorry to 15 interrupt you. 16 MS. WOELK: Thank you. 17 Somewhat later we got a copy of a 18 request from Sen. Rodney Ellis to the AG about the ADA 19 and smoking at lottery retailers. And it was clear, 20 from the materials provided with that request, that he 21 was in contact with Mr. Williams, and his AG request 22 was connected to Mr. Williams' request to the Lottery 23 Commission. And last month the Attorney General 24 issued an opinion and that has brought the issue up 25 again. 0018 1 And again, I think it's important to 2 note that the AG opinion didn't address smoking at 3 all. It didn't mention smoking. What it did, the 4 legal issue it addressed was how do you measure 5 discrimination against an individual with a 6 disability? And it noted that various federal courts 7 have used the phrase "meaningful access." 8 CHAIRMAN COX: Sarah, let me stop you 9 again if I could. Why do you think that, given that 10 Mr. Williams' complaint was about an environment that 11 had smoking as a concern, that the Attorney General 12 didn't address smoking? 13 MS. WOELK: Because I would guess -- and 14 I don't know this -- it's fairly clear from various 15 Department of Justice documents that Title II does not 16 mandate that public activity -- or government 17 activities take place in no-smoking facilities. And 18 the Attorney General opinions can only address matters 19 of law. As we'll discuss later, an ADA claim of this 20 nature would always depend on facts about whether a 21 person had a disability, whether meaningful access was 22 denied; if it were denied, whether there could be 23 legal modifications of agency policies and practices. 24 And the AG can't address issues like 25 that in an Attorney General opinion. They only 0019 1 address issues of law; in other words, questions that 2 can be answered categorically: Yes, this is 3 permitted; or, no, it's not. When the question is 4 could the ADA require a modification in light of this 5 related to a disability, the answer would be yes, and 6 hear all the different fact issues that would have to 7 be addressed to determine if the modification were 8 necessary and, if so, what modification would be 9 reasonable. 10 So it's the ultimate -- the underlying 11 issue isn't really something that the AG can address. 12 So the AG did what the AG does, and staff agrees with 13 their legal response, which is that courts would 14 probably apply this meaningful access standard. 15 The AG opinion didn't talk about what 16 meaningful access meant in any particular context. 17 And I looked at a lot of cases to try to get a feel 18 for what the difference between meaningful access and 19 full access was. And one pretty helpful case is a 20 prison case and a death prisoner raised the issue that 21 there were no sign language interpreters present for 22 certain activities that went on within the prison. He 23 raised a Title II ADA claim because prisons are a 24 government program. 25 And the Court said yes, he's been denied 0020 1 meaningful access to these activities. Although he 2 could be physically present, because he can't hear, he 3 couldn't meaningfully participate. So that gives you 4 an example of where a Court might say, "Well, access 5 doesn't just mean physically being there. It means 6 being there and being able to meaningfully 7 participate." 8 So I think that's what -- that can be 9 kind of helpful. But meaningful access don't mean 10 plaintiff wins/plaintiff loses. It just frames the 11 question you look at when you address an ADA issue. 12 And I think that's important to keep in mind, that the 13 fact that the standard is meaningful access doesn't 14 really tell you anything about the outcome in a 15 particular case. 16 COMMISSIONER CLOWE: Sarah, who 17 requested the opinion? 18 MS. WOELK: Sen. Rodney Ellis. 19 COMMISSIONER CLOWE: And what the thrust 20 of the request? 21 MS. WOELK: There's a column -- I gave 22 you a stack of papers, and some are available for the 23 public -- 24 COMMISSIONER CLOWE: Just summarize it 25 for us. 0021 1 MS. WOELK: -- that include the request. 2 And his request is basically -- it's a very short 3 request. It says, the Texas Lottery Commission does 4 not allocate or provide for nonsmoking facilities 5 whereby citizens are not accommodated. So the legal 6 question is whether the state is in violation of the 7 ADA if it denies meaningful access of services to its 8 citizens. And the answer is, I would say, if it is in 9 violation, it is in violation. Given that's the 10 standard, given that meaningful access is the 11 standard, if the Texas Lottery Commission isn't 12 meeting that standard, then we would be in violation. 13 I think implicit in that is a holding 14 that lottery games are an activity of the state. That 15 had never been firmly established, although the 16 coverage is pretty broad. So I do think it probably 17 is implicitly addressing that issue, that, yes, 18 lottery activities are activities of the state. And, 19 yes, if a fact case were preventing meaningful access, 20 there would be a standard applied. 21 COMMISSIONER SCHENCK: Sarah, can I ask 22 you to back up one slide, because I had a question on 23 that same point. This is right out of the statute, I 24 assume? 25 MS. WOELK: Yes, this is the statutory 0022 1 language. 2 COMMISSIONER SCHENCK: Okay. So this 3 coverage seems to include beginning from the clause 4 "after disability." But it says "be excluded from 5 participation or be denied the benefits of its 6 services" -- I don't know that we're a service -- but 7 programs or activities. So it does seem to be -- 8 MS. WOELK: It's very broad, yes. 9 COMMISSIONER SCHENCK: Yes. We would be 10 either probably a program or an activity. 11 MS. WOELK: Yes, I think so. And in the 12 brief we submitted to the Attorney General, we've 13 stated although no Court has decided this, the courts, 14 other courts that have, have included this as an 15 activity. And, you know, the Justice Department rule 16 that details this adds the word "all" to that, I 17 guess, to give a little emphasis maybe and everything. 18 So I haven't found -- I couldn't find any cases to 19 support the argument that we wouldn't be covered, so I 20 think that the operating premise is that we are 21 covered. 22 COMMISSIONER SCHENCK: But you would 23 preserve the ability to make that argument? 24 MS. WOELK: I would preserve that 25 argument, yes. 0023 1 So if there's a fact determination that 2 someone is denied meaningful access, then there's the 3 question of reasonable -- making reasonable 4 modifications in the policies and practice. And 5 courts have really focused on the word "reasonable," 6 and that's another fact determination. But in trying 7 to -- in researching this issue of assuming that 8 someone was really denied meaningful access, what 9 would be reasonable? 10 The Department of Justice includes this 11 example in a Q&A posted on the website that says if 12 someone has an environmental illness, it wouldn't be 13 reasonable for them to request an across-the-board ban 14 on the use of perfume or scented products in all of 15 the public buildings. 16 They don't really elaborate on exactly 17 what they mean by "no access" or "not reasonable," but 18 I think it's interesting that that's somewhat 19 analogous to the situation here, is there may be 20 people who have a disability that's triggered by, say, 21 perfume and that the Justice Department's view is, it 22 wouldn't be reasonable, therefore, to ask the public 23 employees to not wear perfume or any other scented 24 products. 25 I think something that can help you 0024 1 think about why this kind of ADA claim is hard and why 2 there are others that aren't so hard, the ADA has 3 promulgated -- not the ADA -- the rules require 4 certain minimum design standards for compliance with 5 the ADA, and those are pretty much measurable; the 6 door is wide enough or the door is not enough. The 7 steps -- there's alternate steps or there's not. 8 Those are the pretty simple, straightforward ADA 9 cases. 10 What you're looking at -- and the 11 Justice Department has said this a number of times -- 12 with something like smoking under Title II as an 13 individualized claim, and there's a letter in your 14 packet that -- and this is from 1995 or '94. It's an 15 old letter -- but in which the Justice Department lays 16 out how you would -- it's the back of that handout I 17 just gave you. 18 The Justice Department lays out how you 19 go about analyzing a claim about smoking under Title 20 II. And first it says, "Asthma isn't categorically a 21 disability. It might be a disability." So you would 22 have to analyze whether the person at issue is a 23 disabled person. Then you would have to see if 24 meaningful access was being denied. And then you 25 would talk about the reasonableness of possible 0025 1 modifications. 2 So I think that's a helpful letter to 3 kind of understand why there are -- this isn't an easy 4 kind of ADA claim; whereas, there are others. And -- 5 COMMISSIONER SCHENCK: Sarah, can I -- 6 sorry to interrupt you again. I understand that 7 analysis, that under the ADA a person has to have a 8 substantial life-altering condition before they're 9 considered to be disabled, and I think this letter is 10 helpful. In the letter of June 2nd that begins our 11 packet, there's a reference to several cases in the 12 third paragraph, including the Garrett case from the 13 Supreme Court, Staron from the Second Circuit and then 14 Emery case that was apparently affirmed -- I don't 15 know if there was an opinion or not -- in the Fifth 16 Circuit. Have you had a chance to look at those cases 17 to see if they state anything that approaches a 18 categorical position with respect to asthma as it 19 would relate to exposure to smoke? 20 MS. WOELK: They actually set out the 21 office -- they set out -- particularly the Staron case 22 talks about -- what had happened -- this is only of 23 interest to probably a lawyer -- but what had happened 24 in Staron is that the lower Court had said, "As a 25 matter of law, it's not reasonable to mandate the 0026 1 facility be no smoking under Title III." And the 2 appellate court reversed it and said, "No. This has 3 to be subjected to the same individualized analysis as 4 anything else, and you have to walk through these 5 steps." 6 So you can't get summary judgment. A 7 person gets a chance to show whether they're disabled 8 and whether -- and, if so, and if they're impeding 9 access, whether making a facility completely no 10 smoking would be a reasonable modification in that 11 case. So they very much support the view that it's 12 not a -- there's not a categorically yes or no. A 13 person comes in and says, "I have a breathing 14 disability; therefore, you must be no smoking." 15 COMMISSIONER SCHENCK: So presumably 16 then the same standard would apply to someone who has, 17 as people do, allergies to soap, chemicals of that 18 nature, peanut allergies, any of those things? We 19 would have to go through an individual determination 20 with respect to each one of those claimants? 21 MS. WOELK: Yes. I think that the 22 smoking cases can be somewhat confusing, because 23 there's a lot of information generated saying smoking 24 is bad. And that's a bit of a red herring when you're 25 analyzing an ADA claim, because the issue in the ADA 0027 1 claim is, is the smoke leading to a discrimination 2 against a disabled person? 3 And so the last point I just wanted to 4 make is, we actually have in our statute a provision 5 that says we can't issue a license to an applicant who 6 fails to certify that they're complying with the ADA. 7 And as I understand, we could certainly stand to clear 8 up our rules to make this crystal clear. But I've 9 talked to Teresa Hamilton, our ADA coordinator, and we 10 have always interpreted that to apply to the design 11 standards, the things that you can measure to know if 12 you're in compliance or not. 13 Obviously, you can't certify -- no one 14 could possibly ever have a successful ADA claim 15 against me on some kind of individualized claim. And 16 so how we read this is, when people need to certify 17 that they're in compliance, we refer them to these 18 issued minimum guidelines that you have to meet to be 19 in design compliance with the ADA. 20 COMMISSIONER SCHENCK: Would it be 21 understanding that the individual locations would be 22 responsible for complying or that we would be a proper 23 defendant in view of the requirements that we impose 24 that they themselves certify? 25 MS. WOELK: Well, whether we would be a 0028 1 proper defendant or not would be a harder question. 2 But each of our licensees presumably is subject 3 directly to Title III, and so the design standards 4 would apply to them directly. And I think, obviously, 5 if you have a larger potential defendant who has some 6 relationship to a number of retail stores, that as a 7 plaintiff you might see that as a more interesting 8 avenue to try to reach more people in an ADA claim. 9 And I don't think that's foreclosed as a 10 possibility. I mean, I think you would just have to 11 analyze it if it came up. I mean, I think that -- I 12 think, as we said in our memo, there's certainly the 13 theoretical possibility that you could have an 14 individualized ADA claim that required us to make some 15 kind of modification in our program. 16 Do you have any questions? That's all I 17 have. 18 CHAIRMAN COX: Sarah, thank you very 19 much. 20 Anything more, Chairman Clowe? 21 COMMISSIONER CLOWE: I'm really not 22 clear, Sarah, on the bottom line of what you've told 23 us, and I would like you to summarize your advice to 24 the Commissioners. Are you telling us that the AG 25 didn't address the question that Sen. Ellis asked in 0029 1 the way he asked it? 2 MS. WOELK: I think the AG did address 3 the question that was specifically framed as a legal 4 question, which is: Does the Lottery Commission 5 violate the law if they deny meaningful access to 6 people with disabilities? So the actual question was 7 framed as a legal question, and the AG answered it and 8 I think answered it correctly. There was a discussion 9 in Sen. Ellis' letter making clear that he was 10 particularly interested in smoking in retail locations 11 as the issue. And the AG opinion didn't discuss that, 12 but I do think the AG opinion addressed the specific 13 legal issue raised. 14 What I'm telling you as the bottom line 15 is certainly there are people who take the position 16 that the ADA would require you as a Commission to say, 17 "We will only license people who do not allow smoking 18 in their retail location." What I'm saying is, I 19 can't find any support in the law for that broad of a 20 requirement in the ADA. 21 COMMISSIONER CLOWE: That's what I was 22 searching for. 23 MS. WOELK: Yes. It took me a while to 24 get there. 25 COMMISSIONER CLOWE: This conversation 0030 1 here this morning is about smoking where lottery 2 tickets are sold. 3 MS. WOELK: Yes. 4 COMMISSIONER CLOWE: And what you're 5 telling this Commission is that based on the AG's 6 opinion and your research, you're not seeing anything 7 that says to us we should create a policy that lottery 8 tickets cannot be sold where smoking occurs? 9 MS. WOELK: I'm not seeing anything that 10 says we must do that. 11 COMMISSIONER SCHENCK: As a matter of 12 law. 13 MS. WOELK: As a matter of -- that the 14 law requires us to do that. Whether it -- 15 COMMISSIONER CLOWE: What are you 16 telling us, then, if you're not telling us that? 17 MS. WOELK: Well, I was changing "must" 18 to "should" because I think "should" is a different 19 question; I think "should" is a policy question. And 20 what I'm saying is, to the extent that this issue is 21 raised to you in the context of, say, the law, the ADA 22 requires you to do this, I'm saying I don't -- that's 23 not my conclusion. If other people -- I think there 24 are people here who may want to talk to you about they 25 just think it's a good idea to license only retail 0031 1 locations that -- 2 COMMISSIONER CLOWE: Okay. Maybe we 3 think it's a good idea, too. 4 MS. WOELK: Right. And I'm not 5 addressing that, is what I'm trying to make clear. 6 I'm strictly addressing the ADA. 7 COMMISSIONER SCHENCK: Well, Sarah -- 8 I'm sorry to interrupt. 9 COMMISSIONER CLOWE: Go ahead. 10 COMMISSIONER SCHENCK: We have some 11 obligations to our licensees. I mean, we have people 12 who want to participate in this program as a licensee, 13 and we have some obligation to consider their rights 14 as well, don't we? 15 MS. WOELK: You know, I think there's a 16 threshold issue of: Would it be within our authority 17 our current authority? 18 COMMISSIONER SCHENCK: Well, we have 19 people who are certified who are themselves subject -- 20 MS. WOELK: Right. 21 COMMISSIONER SCHENCK: -- directly to 22 the Americans With Disabilities Act who have certified 23 to us that they're complying with it. And for us to 24 enter a blanket prohibition that would prevent them 25 from participating in the lottery or from using their 0032 1 own property that they own in a way that's not been 2 established to violate any law would seem to me to 3 create another legal problem that we might want to 4 consider before we go down that path. 5 MS. WOELK: And I think that raises a 6 point that is fair to make, is that these are not 7 facilities that we own. We don't even contract with 8 them. We merely license them to sell tickets. And if 9 the Commission should adopt a policy saying we can 10 only license locations that don't allow smoking, the 11 result of that doesn't necessarily mean more access to 12 smoke-free retail locations. It could just as well 13 mean fewer retail locations overall, because our 14 product is fairly small. They get five cents on the 15 dollar. 16 And our law says we can't license 17 someone whose primary -- whose principal function is 18 to sell lottery tickets. So we're not selling our 19 product through facilities that we control generally. 20 And so I think that's important to remember that -- 21 and I think Mike Anger can address this -- is, there 22 is a possibility, if you should choose the matter of 23 policy, to prohibit smoking -- to only license 24 locations that prohibit smoking, is that that would 25 give no disabled or other person greater access to 0033 1 lottery tickets. The result would be -- the economic 2 calculus might just be, "I don't want to sell lottery 3 tickets." 4 COMMISSIONER SCHENCK: Well, another 5 thing is, you also told us there, the threshold 6 question viewed through the lense of an ADA problem is 7 whether the individual, in fact, has a disability. 8 And this analysis wouldn't in any way be limited to 9 smoking, would it? I mean, there are people who have 10 open bins of peanuts and their peanut allergies are a 11 serious matter for those who have encountered them. 12 And there are all manners of other potential 13 disabilities. 14 My question would be, how would we set a 15 limit on where we're going to draw the line in terms 16 of what things people can sell and what they can do 17 with their property, if they're also going to be 18 selling lottery tickets? And I don't understand you 19 to be telling us that the rule that you would be 20 having us consider would be ending with smoking. 21 MS. WOELK: Yes. And we haven't -- I 22 don't think we've talked about how you might approach 23 that if you directed staff to come up with a rule on 24 that. But for the ADA purposes, many different things 25 could be relevant to many different types of 0034 1 disabilities. And there may be sort of critical mass 2 issue like with the doors. You know that there are -- 3 you know, Congress knew there were X number of people 4 in wheelchairs and wheelchairs don't fit through 5 certain doors. So they mandated in their design 6 standards that: You will make doors broad enough. 7 They haven't mandated no smoking. But I just -- I 8 want to make clear I'm talking about the ADA here. 9 And I think other people may have broader issues about 10 smoking that they'll want to talk to you about. And 11 I'm happy to be available if you have more questions. 12 COMMISSIONER CLOWE: I'm not picking on 13 you, but I have some more questions. And I think this 14 discussion needs to be full and complete. If you 15 know, what does the law say about the individual 16 licensees having the right to prohibit smoking on 17 their premises? 18 MS. WOELK: What does our law or what 19 does the ADA law say? 20 COMMISSIONER CLOWE: What does the law 21 say? 22 MS. WOELK: Okay. Well, the ADA 23 actually has provisions that says the ADA -- under the 24 ADA, it's okay to have a no-smoking policy, meaning 25 the ADA, while not recognizing smokers as having a 0035 1 disability that has to be accommodated, the ADA -- 2 that's clear that the ADA doesn't give smokers' rights 3 to demand to smoke in public accommodations or in 4 government buildings. Our law has a general statement 5 about we can in our rules set out licensing reg -- 6 nothing about smoking. 7 COMMISSIONER CLOWE: Well, back to -- if 8 you know -- what does the law say about an individual 9 licensee being able to prohibit smoking on their own 10 premises? That's my question. 11 MS. WOELK: I don't know. I'm under the 12 impression that it would be their own premises, so 13 they would be free to prohibit smoking. And the ADA 14 would not impede them from prohibiting smoking. 15 CHAIRMAN COX: Sarah, let me pile on, on 16 that. Isn't smoking within public premises generally 17 a function of local law? 18 MS. WOELK: It is often a function of 19 local law. The City of Austin has a no-smoking 20 ordinance. I think a number of large cities in Texas 21 do. 22 CHAIRMAN COX: So if Austin says that 23 you can't smoke in restaurants, you can't smoke in 24 restaurants? 25 MS. WOELK: That's right. 0036 1 CHAIRMAN COX: If Austin doesn't say 2 anything, does an individual restaurant owner have the 3 right to prohibit smoking in his place? 4 MS. WOELK: I believe so. 5 COMMISSIONER CLOWE: Thank you, 6 Mr. Chairman. 7 CHAIRMAN COX: Yes, sir. 8 COMMISSIONER CLOWE: That's my question. 9 And my sense is that this is a timely 10 subject for us to be dealing with, because I believe 11 the sensitivity to smoking has risen beyond the 12 allergies that you mentioned, Commissioner, and I'm 13 sensitive to those issues. But I think this issue is 14 timely to address in relation to smoking. 15 I hope somebody is going to give us some 16 background on the practice and the law relative to the 17 prohibition of smoking in buildings, both public and 18 private, and this limitation of -- as I go in some 19 buildings now, I see "No smoking within 15 feet of 20 this door." It used to be you could smoke right 21 outside the door, and now smokers are pushed out 22 15 feet. I need some education on this. And I think 23 all that fits in to the issue that we're talking about 24 here. So bottom line, what I think you've told us is, 25 you don't see a clear legal way for us to act on this, 0037 1 based on smoking alone. Is that correct? 2 MS. WOELK: Yes. 3 COMMISSIONER CLOWE: What other action 4 is available to us? 5 MS. WOELK: You know, this might be 6 appropriate for other people who have ideas. 7 Certainly, you know, we can exhort people to do 8 everything they can, our retailers do everything they 9 can to make buying lottery tickets a pleasant 10 experience. But I guess I'm not sure of all the 11 very -- of all the possibilities, because the 12 possibilities necessarily turn on what the desire of 13 the Commission is. And I think your first task is to 14 weigh concerns that people have about smoking in 15 stores, against our relationship with the people we 16 license, and what level of involvement we may have or 17 should have in what goes on in their stores other than 18 the sale of lottery tickets. 19 COMMISSIONER CLOWE: Well, I'm 20 interested and I'm curious about as we go to buy a 21 hunting license or a fishing license, as we go to 22 renew our driver's license and we do other activities 23 related to state, and in some cases federal 24 activities, you know, what the extent of regulation 25 is. And I hope we can get educated on that, if not at 0038 1 this meeting at some point in time in the future, so 2 that we can understand where we are. 3 And I think, Commissioner, you brought 4 up an excellent point about the law as it relates to 5 those people who are licensed and what we can and 6 can't do to them. The TABC, for example, allows the 7 sale of alcoholic beverages, and there are rules and 8 regulations that they enforce relative to a license 9 granted there. I believe the same is true of tobacco 10 products, because I think there's an age limitation on 11 the ability of young people to purchase tobacco 12 products now. So I for one need more education on 13 this, and I hope somebody is going to give that to us. 14 CHAIRMAN COX: Anything further, 15 Commissioner? 16 COMMISSIONER SCHENCK: No. Let me just 17 say I totally agree. And I would really like to see 18 some more analysis of this. My instinct, just because 19 of my training as a lawyer, is to jump into the 20 Americans With Disabilities Act and start looking at 21 the particular claimants and this variety of claims 22 that we'll be dealing with. 23 So it occurs to me that one thing we 24 could think about is signage. If we have a high 25 volume of people that are affected sufficiently by 0039 1 cigarette smoke that, unlike other allergies, that 2 would be productive to ask our licensees to post a 3 sign "Smoking Prohibited" -- I'm sorry -- "Smoking is 4 permitted in here," we might want to consider 5 something like that, or anything that we can do to 6 make the purchase experience safe and pleasant. 7 COMMISSIONER CLOWE: This is a very 8 topical subject, and you mentioned the City of Austin. 9 And I've seen now in many cities the prohibition of 10 smoking relative to, for example, restaurants where 11 they sell a certain percentage of their gross revenue 12 in alcoholic products, enabling them to do some things 13 that if they don't meet a requirement, they can't. 14 We have, from our bingo licensees, had a 15 considerable amount of comment relative to I think 16 it's more city rulemaking restricting smoking and 17 having a negative impact on the players in the bingo 18 halls. So I think this Commission should take this 19 seriously and learn about it so that we can make a 20 good judgment within the scope of our authority and 21 within the scope of the law. It is a very timely 22 subject. 23 CHAIRMAN COX: Sarah, one question that 24 I will take the lead from Chairman Clowe on, he 25 mentioned hunting licenses, fishing licenses. I think 0040 1 of food stamps. How many other government programs 2 are in some way administered through the kinds of 3 retail outlets that we use? 4 MS. WOELK: We brainstormed a little bit 5 about that and we came up with hunting and fishing 6 licenses in particular. And we talked to Parks & 7 Wildlife, and they tend to use the same kind of 8 outlets we do for hunting and fishing licenses. 9 Are food stamps made available in 10 private businesses? Is that how that works? You 11 know, I'm not -- we did talk to Parks & Wildlife, 12 because they had the same concerns we had. And, you 13 know, Commissioner Clowe mentioned driver's license. 14 I think driver's license are generally made available 15 in actual government facilities as opposed to private 16 retail locations. 17 COMMISSIONER CLOWE: In DPS regional 18 offices. 19 MS. WOELK: Okay. 20 COMMISSIONER CLOWE: And that's exactly 21 right. 22 MS. WOELK: Yeah. 23 COMMISSIONER CLOWE: And I assume 24 there's a no-smoking policy there. 25 MS. WOELK: And I'm not sure if the 0041 1 state -- is there a state law that prohibits smoking 2 in buildings that state agencies use? 3 MS. KIPLIN: I think there is. 4 MS. WOELK: So that's probably not an 5 issue. I think it's fairly unusual for a government 6 program to use private retail outlets to make its 7 activity available. So I think that would also be 8 relevant to when you talk -- if you got to the issue 9 of reasonable modification, I think it goes to 10 reasonableness, whether you can ask 16,000 private 11 businesses to change their practices. 12 COMMISSIONER SCHENCK: I'm sorry to 13 interrupt. If I might? 14 CHAIRMAN COX: Please go ahead. 15 COMMISSIONER SCHENCK: Do we have a 16 sense for what percentage of our retail outlets 17 currently permit smoking? 18 MS. WOELK: I think we're trying to 19 gather that information. 20 CHAIRMAN COX: We are. 21 MS. WOELK: I think Gary is working on 22 that. 23 COMMISSIONER SCHENCK: Have we looked at 24 what accommodations we might consider, short of 25 mandates to the retail outlets? Could we allow people 0042 1 to purchase through mail or by Internet if they have a 2 demonstrated disability? 3 MS. WOELK: Well, there's federal law 4 problems with selling by mail or over the Internet 5 that are unrelated to smoking. 6 COMMISSIONER CLOWE: I don't think the 7 Legislature wants us to do that. 8 MS. WOELK: Yes. I have -- 9 COMMISSIONER CLOWE: Good question. 10 MS. WOELK: I think that's a larger 11 maybe task force issue: What are the possibilities? 12 The specific issue I was focusing on was, how would 13 this be analyzed in the context of the ADA? And I 14 think maybe Gary or Mike Anger is probably the right 15 person to talk about what we could do operationally. 16 COMMISSIONER CLOWE: Commissioner -- 17 CHAIRMAN COX: Please. 18 COMMISSIONER CLOWE: -- if I might, I 19 would like to try to help, in a general sense, answer 20 your question. Texas is one of the states that has a 21 large preponderance of its tickets sold through 22 convenience and fuel outlets, and I was amazed by that 23 when I reviewed those statistics. We have over 16,000 24 retail outlets. And over two-thirds of them, if my 25 memory serves correct, are these convenience sort of 0043 1 individual stores. We have a number of very fine 2 outlets: HEB stores, Albertson and chain type 3 operations which I consider large, more centrally 4 controlled entities. I was just thinking about it as 5 you brought that question up. I think the majority of 6 those have no-smoking policies. And I would -- 7 COMMISSIONER SCHENCK: I would hope most 8 gas stations aren't having people smoke at the pump. 9 COMMISSIONER CLOWE: Well, at the pump. 10 At the pump, that's right. But I don't think that's 11 the case. And I think the crux of this goes to those 12 individual inside-the-store places where our terminal 13 is. But that's where the majority of our tickets are 14 sold. 15 COMMISSIONER SCHENCK: Yes. I would 16 just like to think about whatever alternatives we can, 17 be it as part of the judicial decree or something 18 else, that allows us to accommodate whatever 19 population segment it is what has a legitimate 20 disability that needs to be accommodated. 21 COMMISSIONER CLOWE: Thank you, 22 Mr. Chairman. 23 CHAIRMAN COX: Sarah, what I see here is 24 the framing of a number of questions for further work. 25 While you're at that, one of the things that -- and I 0044 1 have an allergy to smoke as well. It's not as severe 2 as some, but sometimes it makes me pretty sick. And 3 one of the things that I would question is whether, 4 given the fact that people can surround the place 5 smoking, that any ban inside is going to make a 6 difference anyway, because what gets me in Austin is 7 the people standing outside the restaurant, sitting 8 outside the restaurant waiting for a table and 9 smoking, and I have to walk through them to put my 10 name on the list. So, really, I can't have meaningful 11 access without triggering a possible allergy reaction, 12 because of the fact that smoking is prohibited within 13 15 feet of the entrance. So put that on the list as 14 well. 15 MS. WOELK: Yes. I think there's 16 actually some people from the health field here that 17 can talk about what it takes actually to make -- to 18 have a second-hand smoke-free -- environment free of 19 second-hand smoke, so that might be a question for 20 them. 21 CHAIRMAN COX: Okay. Anything further, 22 Commissioner? 23 COMMISSIONER SCHENCK: No. 24 CHAIRMAN COX: Okay. Anthony, how would 25 you like to go from here? 0045 1 COMMISSIONER CLOWE: Chairman, first, if 2 I may, I think each of you is aware of this e-mail 3 that I received this morning. May I make the public 4 aware of Sen. Ellis' expression of appreciation? 5 CHAIRMAN COX: Well, I have it here 6 somewhere. I did read it earlier. 7 COMMISSIONER CLOWE: Here it is. 8 CHAIRMAN COX: Okay. Yes. 9 MR. SADBERRY: Okay. Sen. Ellis 10 expresses his appreciation, Commissioners, for your 11 scheduling and posting this item on the agenda and 12 apologizes for his absence. As you're aware, he and I 13 met with a member of our Governmental Affairs staff 14 yesterday, in preparation for this meeting today. He 15 is in Houston. He has a father who has certain health 16 issues that he's attending to. He's aware of these 17 proceedings and interested in them but cannot be here 18 today. 19 He has a number of his staff who is 20 present and also certain people who are interested in 21 this matter. I believe they've asked -- several of 22 them have filled out witness affirmation forms asking 23 to present to the Commission. What I would like to 24 suggest -- and I believe you have those, Chairman. 25 And I don't know if they've indicated any order of 0046 1 preference they would like to go in. It may be that 2 they've discussed this. I'm not aware either. But if 3 it be your desire or wishes, I would suggest at this 4 time they be called upon to present the Commission as 5 appropriate to discuss this topic. 6 CHAIRMAN COX: Okay. Well, I have 7 these, and I believe they're in the order that they 8 would prefer to speak. The first one I have is 9 Rep. Donna Howard who is neutral on this item. 10 Rep. Howard, welcome. 11 COMMENTS BY REP. DONNA HOWARD 12 REP. HOWARD: Good morning, 13 Commissioners. Thank you for the opportunity to 14 address you. And I put down neutral because I 15 understood this was going to be a discussion item. 16 And the fact is, you don't have a proposed action at 17 this point. So rather than indicate support or not, I 18 just put down neutral. 19 And I have very much appreciated the 20 discussion, the very thoughtful discussion this 21 morning. I think you've raised some extremely valid 22 and interesting questions. I look forward to seeing 23 how they're answered. And you do have I think an 24 interesting and timely topic before you. 25 I do have some brief written comments. 0047 1 I'm supposed to be on the dais of a committee hearing 2 at the Capitol at 10:00 a.m., so I'm going to try to 3 be just quick here and give you my basic comments. 4 My name is Donna Howard. I represent 5 Direct 48 in the Texas House of Representatives. And 6 I appreciate the opportunity to comment on Attorney 7 General Opinion No. 0579 regarding the status of the 8 Texas Lottery Commission's ADA compliance should it 9 fail to provide persons with disabilities meaningful 10 access to services. 11 I'm before you today not just as a 12 legislator but also as a former registered nurse and 13 health educator, because the circumstances that 14 prompted the request for this AG's opinion involved 15 public health concerns as well as equal rights issues. 16 Therefore, I would ask the Commission to look at the 17 big picture as you consider next steps and include in 18 your discussion the question of whether the Texas 19 Lottery Commission should continue to contract with 20 retailers to allow indoor smoking. And I will insert 21 now, I would say based on what we just heard, I'm 22 looking at the "should" rather than the "must." 23 We are all aware of the adverse health 24 effects of smoking as well as second-hand smoke. More 25 than 564,000 Americans will die from cancer this year, 0048 1 and 30 percent of those deaths will be caused by 2 tobacco. Second-hand smoke is a known cause of lung 3 cancer, heart disease, asthma and other health 4 problems. It's estimated that second-hand smoke 5 causes 35,000 to 45,000 deaths each year from heart 6 disease and 3,000 more deaths from lung cancer among 7 nonsmokers. In 2006, the U.S. Surgeon General calls 8 for protections from second-hand smoke, concluding 9 that there was no safe level of exposure. 10 I believe it's important to offer all 11 Texas citizens, including those with asthma, 12 protection from the harmful effects of second-hand 13 smoke. Texans shouldn't have to gamble with their 14 health in order to purchase lottery tickets. The 15 Texas Lottery Commission has the opportunity to do its 16 part by changing its rules to, at the very least, 17 require that a retailer with a license to sell lottery 18 tickets provide access to this service in a smoke-free 19 environment. And I appreciate the questions toward 20 the end of your comments about looking at what some 21 alternatives might be to allow the licensees to 22 conduct their private business as they choose but find 23 some way to provide this meaningful access. 24 So I thank you for your time and 25 consideration of this. I hope you'll focus on the 0049 1 "should" in addition to whether or not there's a 2 "must." And I'll answer any questions if you have 3 them. 4 COMMISSIONER SCHENCK: No. Will you 5 come back if we have this item up again -- 6 REP. HOWARD: I certainly will. 7 COMMISSIONER SCHENCK: -- sometime? 8 REP. HOWARD: I certainly will. 9 COMMISSIONER SCHENCK: We'll enjoy the 10 discussion, I'm sure. 11 REP. HOWARD: Yes. Thank you. 12 CHAIRMAN COX: Rep. Howard, thank you so 13 much for being here. 14 REP. HOWARD: Thank y'all for what you 15 do. 16 CHAIRMAN COX: Tina Tran, Sen. Ellis' 17 office. 18 COMMENTS ON BEHALF OF SEN. RODNEY ELLIS 19 MS. TRAN: Good morning, Chairman 20 Cox, Commissioner Clowe and Commissioner Schenck. My 21 name is Tina Tran, and I'm on staff as a policy 22 advisor and legal counsel for Sen. Rodney Ellis. I'm 23 going to be reading a joint written statement from 24 Sen. Rodney Ellis, Mark Gottlieb and Cliff Douglas, 25 and just a real quick introduction to the writers. 0050 1 Sen. Ellis represents State District -- 2 Senate District 13, which includes parts of Harris 3 County and Fort Bend County. He's been in the Texas 4 Senate since 1990. And during the 80th Legislative 5 Session, Sen. Ellis authored Senate Bill 368 and 6 sponsored House Bill 9. Both bills dealt with smoking 7 policy in public places. 8 Mark Gottlieb is the Executive Director 9 of the Public Health Advocacy Institute in Boston, 10 Massachusetts. And for 15 years, he has studied the 11 legal and regulatory issues around second-hand tobacco 12 smoke. 13 Cliff Douglas is the Executive Director 14 of the University of Michigan Tobacco Research Network 15 and a consulting attorney for smoke-free environment 16 law project. 17 Real quickly I'm going to be reading a 18 brief statement. On November 8, 2007, the Texas 19 Attorney General's office issued an Advisory Opinion 20 No. 0579 which states that a court would probably find 21 that the Texas Lottery Commission violates the 22 Americans With Disabilities Act if it fails to provide 23 Texas residents with meaningful access to state 24 services. 25 Title II of the ADA provides that, "No 0051 1 qualified individual with a disability shall by reason 2 of such disability be excluded from participation 3 and/or be denied benefits of the services, programs or 4 activity of a public entity or be subjected to 5 discrimination by such entity. In order to comply 6 with Title II of the ADA, the public entity must 7 reasonably modify its policies, practices or 8 procedures to provide meaningful access to avoid 9 discrimination." 10 Case law supports an individual's right 11 to sue under the ADA, based on a respiratory 12 condition. We realize that not every person with a 13 respiratory condition will rise to the level of 14 disability required under the ADA, but there are 15 thousands of individuals whose impairments will. 16 We contend that under the Texas Lottery 17 Commission's existing policy, those individuals are 18 being denied meaningful access to the Texas Lottery, 19 because smoking is allowed where lottery tickets are 20 sold. Twenty-two states have now passed legislation 21 requiring virtually all work places to be 100 percent 22 smoke-free. Among these states are California, New 23 York and Florida, all of which have reported higher 24 lottery profits than Texas. Furthermore, it is just 25 good business sense to have a policy in place that 0052 1 helps prolong the life of your customers. 2 We urge the Commission to re-evaluate 3 its policy and take action to require licensees to 4 provide 100 percent smoke-free locations for lottery 5 sales, to ensure that as a public entity the lottery 6 Commission is in compliance with the Americans With 7 Disabilities Act. 8 Thank you for your time and 9 consideration. I have provided you with these black 10 folders which include the AG's opinion as well as a 11 written statement from Mark Gottlieb, a written 12 statement from Mr. Douglas and also a letter of 13 support from Rep. Naishtat. 14 And now, just to let you know who else 15 we have lined up for you today is, next we have 16 Dr. Mark Clanton who is the chief medical staff 17 officer with the American Cancer Society, as well as 18 Mr. Krause, Wayne Krause, who is the Legal Director at 19 the Texas Civil Rights Project. And ending our 20 witnesses today is Mr. Billy Williams, who you know is 21 responsible for asking Sen. Rodney Ellis for the AG's 22 opinion. 23 Thank you very much. 24 CHAIRMAN COX: Thank you very much, 25 Ms. Tran. 0053 1 MS. TRAN: Oh, I'm sorry. You have a 2 question? 3 COMMISSIONER CLOWE: I have a question, 4 Mr. Chairman. 5 CHAIRMAN COX: Yes, sir. 6 COMMISSIONER CLOWE: Commissioner, as 7 our lawyer, did you want to ask a question first? 8 COMMISSIONER SCHENCK: No, I'm fine. I 9 thought the statement was quite well-taken. I 10 appreciate it. 11 COMMISSIONER CLOWE: Then I do have a 12 question. You are counsel to Sen. Ellis? 13 MS. TRAN: Yes, sir. 14 COMMISSIONER CLOWE: Is it your legal 15 opinion that this agency has the authority to pass a 16 rule requiring retail outlets that are licensed to 17 sell lottery tickets, mandate a no-smoking policy? 18 MS. TRAN: Under my -- in my opinion, I 19 believe that the Texas Lottery Commission does have 20 the authority to do so, yes. 21 COMMISSIONER CLOWE: Would you give our 22 Special Counsel the benefit of your research and -- 23 MS. TRAN: Absolutely. 24 COMMISSIONER CLOWE: Because we got 25 different advice from her this morning. 0054 1 MS. TRAN: Well, I'm not sure if she had 2 different advice. I think -- 3 COMMISSIONER CLOWE: Okay. That's my 4 point right there. 5 MS. TRAN: Okay. Okay. Yes. 6 COMMISSIONER CLOWE: Would you help us 7 clarify what your advice is in regard to our legal 8 position? 9 MS. TRAN: Yes, sir. 10 COMMISSIONER CLOWE: I need some 11 clarification there. 12 MS. TRAN: I would be happy to provide 13 that. 14 CHAIRMAN COX: I think it would help us 15 if we can share. 16 COMMISSIONER CLOWE: Thank you very 17 much. 18 MS. TRAN: Thank you. 19 CHAIRMAN COX: Thank you. Ms. Tran. 20 COMMISSIONER SCHENCK: Thank you, 21 Mr. Chairman. 22 CHAIRMAN COX: Yes, sir. 23 Dr. Mark Clinton, representing the 24 Smoke-Free Texas Coalition. 25 0055 1 REMARKS ON BEHALF OF THE SMOKE-FREE TEXAS COALITION 2 DR. CLANTON: Good morning, 3 Commissioners. My name is Dr. Mark Clanton. I am 4 currently Chief Medical Officer of the American Cancer 5 Society. I'm also the past Deputy Director of the 6 National Cancer Institute at the NIH in Bethesda 7 Maryland. I am here today on behalf of the Smoke-Free 8 Texas Coalition, and I'm here to speak as a public 9 health expert on the effects of second-hand cigarette 10 smoke. 11 Second-hand smoke is the third leading 12 cause of preventable death. Second-hand smoke kills 13 53,000 nonsmoking Americans each year. Second-hand 14 smoke is also a known cause of lung cancer, heart 15 disease, low birth weight babies, chronic lung 16 ailments such as bronchitis and asthma as well as 17 other health problems. Working one eight-hour shift 18 in a smoke-filled environment is equivalent to 19 actively smoking merely one pack of cigarettes. 20 Now, for patrons and employees who are 21 exposed to second-hand smoke, two hours in a smoke- 22 filled environment is the same as smoking nearly four 23 cigarettes. Second-hand cigarette smoke, as you've 24 heard before, contains about 4,000 chemicals. At 25 least 50 of those chemicals are known carcinogens. 0056 1 And as a matter of medical and public health fact, the 2 U.S. Environmental Protection Agency, as well as the 3 International Agency for Cancer Research, has 4 designated second-hand and primary cigarette smoke as 5 a human carcinogen that is a substance that causes 6 cancer. 7 Moreover, the evidence is now undisputed 8 that second-hand smoke is a serious health hazard. 9 According to a report released in June of 2006 by the 10 U.S. Surgeon General, there is no risk-free level of 11 exposure to second-hand smoke. And the only way to 12 stay out of the danger from the harmful effects of 13 tobacco smoke is to completely eliminate it. 14 There are thousands of Texans with 15 severe asthma, cardiovascular disease, cancer and 16 other medical conditions that meet the requirements of 17 disability under the ADA that could be adversely 18 affected by second-hand smoke. For example, breathing 19 second-hand smoke for just 30 minutes affects blood 20 and blood vessels, including the vital coronary 21 arteries that are required to supply blood to the 22 heart. 23 Second-hand smoke also damages the 24 lining of your blood vessels. In your heart, these 25 changes can cause a deadly heart attack. And this is 0057 1 from the U.S. Surgeon General's report from 2006. 2 Studies have been conducted that show that certain 3 medical conditions can be affected when smoke-free 4 policies are implemented, affect it positively. 5 For example, when Helena, Montana, 6 implemented a smoke-free policy in restaurants and 7 bars and work places, heart attacks dropped by 8 25 percent. Reductions in heart attacks, averaging 9 25 percent in hospital admissions, or heart attacks 10 after smoke-free laws went into effect, have also been 11 observed in Pueblo, Colorado; Bowling Green, Ohio; New 12 York State; Piedmont, Italy; Ireland and Scotland, 13 when smoke-free laws went into effect. The Texas 14 Lottery Commission's decision could provide a 15 smoke-free environment for all members of the public 16 as well as those with and without severe medical 17 conditions. 18 And I'm happy to take any questions at 19 this point. 20 COMMISSIONER CLOWE: No questions. 21 COMMISSIONER SCHENCK: I have a 22 question. Do we understand the medical science of why 23 it is that some people that are exposed to second-hand 24 smoke for decades don't develop cancer, asthma, heart 25 disease, and others do? 0058 1 DR. CLANTON: Well, in terms of the 2 10 percent of people who don't get lung cancer who 3 smoke -- for example, certainly 90 percent of long 4 lung cancer is caused by smoking -- it isn't clear as 5 to what's going on in their bodies and in their genes 6 that provides protection to them. 7 What we do know is, there are a list of 8 chemicals that cause cancer, both in humans as well as 9 in lab rats. Many of those chemicals are contained in 10 smoking, both second-hand smoking as well as direct 11 smoking. And we also know there's an increased 12 incidence of the disease in those who are inhaling 13 those chemicals. 14 So the connection is between those 15 chemicals that we know cause cancer, the presence of 16 those chemicals in second-hand and primary smoke and 17 the fact that people who are exposed to those 18 chemicals through smoking do, in fact, experience 19 illness, both acute and chronic, at a higher level. 20 COMMISSIONER SCHENCK: And it's 21 statistically significant higher levels? 22 DR. CLANTON: Absolutely, absolutely. 23 COMMISSIONER SCHENCK: Have we done 24 studies to determine the density of the smoke and the 25 extent of the exposure, before we see a statistically 0059 1 significant change in the likelihood of developing a 2 disease or -- 3 DR. CLANTON: Actually, we don't. And I 4 heard the previous question about whether you're 5 outside versus being inside. Again, there is no 6 minimal level or low level or safe level of exposure 7 by an individual to cigarette smoke, so there's no way 8 to know that at this point. 9 There are people who are actually 10 exposed to very low levels and also will experience 11 health effects. What we do know is that if you're 12 inside an enclosure or a structure, we know that 13 there's actually no way to even properly ventilate 14 that, even with high efficiency ventilation, to reduce 15 the health effect or eliminate the health effect 16 inside. 17 What may be going on with people who are 18 outside again is, there may be enough diffusion for 19 fewer people to become sick or be exposed. But there 20 are no studies saying that this concentration is going 21 to be detrimental to all people who have been exposed 22 to the substances. 23 COMMISSIONER SCHENCK: Well, I really 24 appreciate your testimony. It's very informative, and 25 you give very impressive credentials, and I'm glad 0060 1 you're doing the work that you do. 2 DR. CLANTON: Thank you. 3 COMMISSIONER SCHENCK: I have one more 4 question for you. I believe that toluene and 5 benzene -- 6 DR. CLANTON: Toluene. 7 COMMISSIONER SCHENCK: -- are also 8 carcinogens, are they not? 9 DR. CLANTON: Toluene and benzene are, 10 in fact, carcinogens and both happen to be -- along 11 with polyvinyl chloride, are known carcinogens. And 12 all three of those, including several others, 13 including nitrosamines, are all present in both 14 second-hand cigarette smoke as well as direct 15 cigarette smoke. 16 COMMISSIONER SCHENCK: Are any of those 17 things also in gas vapors from gasoline? 18 DR. CLANTON: Absolutely. In fact, 19 that's why people -- public health experts don't 20 approve people inhaling, in a purposeful way, gasoline 21 or the fumes from gasoline. There are also 22 practices -- I'm a pediatrician. There are also 23 practices of adolescence in children involving glue or 24 gasoline where they purposefully and directly, in high 25 concentrations, inhale those things. And they can 0061 1 have both acute cardiac events as well as respiratory 2 events and in a long-term can also expose themselves 3 to increased risks of cancer. 4 So, in fact, we know that those where 5 toluene and benzene are present in gasoline, for 6 example, we know they're detrimental. But those are 7 also present in both second-hand cigarette smoke as 8 well as the smoke you take by inhaling a cigarette 9 directly. 10 COMMISSIONER SCHENCK: I don't know if 11 you know the answer to this, but I'll ask anyway. 12 I've noticed that just in the years that I've been 13 driving a car, which get longer and longer, the 14 technique for self-filling has involved this device 15 that seems to prevent fewer of the vapors from 16 escaping to the -- is that part of why that device was 17 installed? 18 DR. CLANTON: It may very well be. I'm 19 not sure directly. But the point here, both from a 20 medical and a public health point of view is, you want 21 to minimize your exposure. And anything you can do to 22 minimize your exposure or eliminate it altogether is a 23 good thing. 24 COMMISSIONER SCHENCK: Thank you. 25 CHAIRMAN COX: Dr. Clanton, thank you 0062 1 very much. This has been very informative. I sure 2 didn't know some of the things you have told us. 3 DR. CLANTON: I'm happy to come back any 4 time. 5 CHAIRMAN COX: Thank you. 6 DR. CLANTON: Thank you. 7 COMMISSIONER CLOWE: Mr. Chairman, upon 8 reflection of the testimony that the counselor gave 9 from Sen. Ellis, if I was hearing her correctly, I 10 believe she told us there's a no-smoking policy 11 implemented in the sale of lottery tickets in 12 California, New York and Florida, if I heard that 13 correctly. May we direct the Executive Director to 14 contact those state lotteries and achieve whatever 15 information they could give that might be helpful to 16 us in regard to their experience? 17 COMMISSIONER SCHENCK: I'm not sure that 18 that was the testimony. If I'm recalling correctly, I 19 think what she was saying was that they have 20 implemented bans on smoking in the workplace in all of 21 those states. 22 COMMISSIONER CLOWE: Oh, it was not 23 where lottery tickets are sold but in the workplace? 24 MS. TRAN: Yes, sir. They have 25 comprehensive, 100 percent free workplace -- 100 0063 1 percent smoke-free work places. 2 COMMISSIONER CLOWE: Well, does that 3 include where lottery tickets are sold, then, because 4 there are workers doing that? 5 MS. TRAN: It includes convenience 6 stores where lottery tickets are sold. 7 COMMISSIONER SCHENCK: Would that 8 prevent the patrons in those stores from smoking 9 because there are people there working, or it would 10 just prevent the employees who are on the clock from 11 smoking? 12 MS. TRAN: It prevents both the 13 employees and the customers. 14 COMMISSIONER CLOWE: Well, then, I think 15 I would still like to ask my question -- 16 MS. TRAN: Yes. 17 COMMISSIONER CLOWE: -- because that 18 does preclude the patrons from smoking. And it's in 19 my mind somewhat similar to the bans that have been 20 created on our bingo halls by whatever legal entity 21 there is. I'd like to hear what they had to say about 22 it. 23 MS. TRAN: Now, I can't say for sure 24 that their lottery commissions have a policy in place. 25 It could be that the other organizations have 0064 1 implemented it. 2 COMMISSIONER CLOWE: And that's been 3 clarified. Thank you. But I think the impact is 4 worth looking into, and I'd like to hear what they 5 have to say about that. Thank you. 6 CHAIRMAN COX: That will be done. 7 COMMISSIONER CLOWE: Thank you for your 8 clarification. 9 CHAIRMAN COX: Okay. Mr. Wayne Krause 10 representing the TCRP. 11 REMARKS ON BEHALF OF THE 12 TEXAS CIVIL RIGHTS PROJECT 13 MR. KRAUSE: Good morning. And thank 14 you very much for taking the time not just, you know, 15 to have us speak here but sincerely look into the 16 issue. It really looks like you're talking a very 17 serious look at it, and I think your comments are 18 well-taken about how timely and important this is. 19 I had a few prepared comments, but I 20 think I might skip over those. I found a lot of the 21 conversation interesting, and I think I might be able 22 to address some of the questions and some of the legal 23 issues that have come up. 24 Just so you know, I work with the Texas 25 Civil Rights Project. I'm the Legal Director there. 0065 1 Of course, we do all kinds of suits, you know, take in 2 all kinds of civil rights issues, but one of those 3 issues is disability issues. And we have represented 4 hundreds of individuals and groups of folks with 5 disabilities. You might say it's near to our heart 6 and something we think is very important. I myself 7 have been involved in representing dozens of people 8 with disabilities myself in litigation, so I do have a 9 fair amount of familiarity with the issue. 10 I found the comment about -- or I guess 11 the thought about cases involving scented, employees 12 who wore scents very interesting, because I've 13 actually done a case myself, representing somebody who 14 had I guess what's called environmental sensitivity 15 syndrome, and I'm familiar with the case law. And we 16 were actually successful in bringing that suit, but I 17 think the case law is fairly questionable as to how 18 that works out. 19 What I wanted to do was point out why 20 that would be, in comparison to a situation that 21 involves smoking. As folks have pointed out, when you 22 deal with an ADA case, it's the individuals who are 23 the engines behind this particular statute. 24 Essentially what the ADA does is it, in terms of 25 enforcement, creates hundreds of private attorney 0066 1 generals out there -- attorneys general. 2 Of course, the federal government can 3 and occasionally does step in and bring suits itself, 4 but you can imagine how difficult that would be. It's 5 not a large enforcement mechanism. So essentially the 6 law relies on private individuals to go out and 7 enforce their own rights to representation. 8 So in the context of this, as folks have 9 brought up, it's the significant impairment of a life 10 activity. That's the definition of somebody who has a 11 disability under the ADA. And in the context of 12 environmental sensitivity syndrome, the courts haven't 13 really found -- you know, it's an open question. Some 14 have ruled that there is not a significant impairment- 15 of-life activity. In other words, environmental 16 sensitivity syndrome is not a recognized, by the 17 courts anyway, disability. 18 In the context of smoking, I think you 19 would find that to be different. Once again, as folks 20 have pointed out, this turns on the individual. So 21 there are a number of folks out there who may have 22 minor asthma who would not qualify as individuals with 23 disabilities. However, I think that everybody would 24 agree that there are some folks out there with severe 25 asthma or lung damage who have a significant 0067 1 impairment of life activity, including breathing, 2 which is one of the statutory qualities that's 3 affected there. 4 So if somebody with such a disability 5 were to come into a convenience store that sold 6 lottery tickets, I don't think that they would 7 encounter the same problems, because the barrier there 8 to a lawsuit for scented folks, folks who have issues 9 with scented employees, would not be the same as 10 somebody who has a problem with smoking. 11 COMMISSIONER SCHENCK: Can I ask a 12 question here? 13 MR. KRAUSE: Sure. 14 COMMISSIONER SCHENCK: This is all very 15 helpful. And I agree with you, that we're looking at 16 an individualized claim. And smoking, because more 17 people are smoking and more people are sensitive to it 18 potentially, is a very timely issue. But you would 19 agree with me that from a legal perspective, the 20 analysis would be the same with respect to someone who 21 had a severe allergy to some other pathogen that might 22 be present at a retail outlet? 23 MR. KRAUSE: It would be -- I'm sorry. 24 COMMISSIONER SCHENCK: But through the 25 lens of the ADA, not as a social consciousness issue 0068 1 or anything like that. I mean, as a claim to bring in 2 court, the analysis would be the same if someone had, 3 for example, an extreme peanut allergy or was affected 4 negatively in some way by -- and seriously, by 5 something that was present in a location? 6 MR. KRAUSE: Yeah, I would agree with 7 you, although it's worth noting that, you know, when a 8 court goes into that kind of analysis, how things can 9 be done on the premises would have an effect on that, 10 too. The nature of smoking makes the fact that the 11 smoke hangs in the air for -- you know, for a long 12 time and can't be gotten rid of for a long time is 13 different than a jar of peanuts. A jar of peanuts can 14 be moved. 15 COMMISSIONER SCHENCK: But I'm talking 16 about an open bin of peanuts or peanuts with shells on 17 the floor, things of that nature. I keep going to 18 peanuts, because I know -- 19 MR. KRAUSE: Sure. 20 COMMISSIONER SCHENCK: -- someone very 21 close to me that has a serious peanut allergy. But 22 there's also risk of environmental issues that a 23 person could be confronted with that could give rise 24 to a claim under the ADA. 25 MR. KRAUSE: Right. That is true. 0069 1 Those thing -- 2 COMMISSIONER SCHENCK: It's not the same 3 motive analysis -- 4 MR. KRAUSE: Yes. 5 COMMISSIONER SCHENCK: -- in terms of 6 whether it's a disability. 7 MR. KRAUSE: Yes, I would agree with 8 you. It wouldn't -- I would be more surprised that 9 peanut allergy had been recognized under the law as a 10 disability. I think that has -- the analysis for 11 people with asthma or severe lung damage has already 12 been done. So you would have people who would already 13 be found to have a significant impairment of life 14 activity under court precedent who have severe asthma. 15 You wouldn't have that with folks who have peanut 16 allergies. That's the only difference. But you're 17 right, the analysis would be the same if the court 18 were faced with the issue of peanut allergy. Does 19 that make sense? 20 COMMISSIONER SCHENCK: Yes. Thank you. 21 MR. KRAUSE: Okay. 22 COMMISSIONER CLOWE: Commissioner, I 23 want to keep this in focus in my mind. There are 24 those people also that have an allergy to seafood. 25 And in many cases those people can't eat seafood; in 0070 1 some cases they can't touch seafood. But I think 2 outside the legal aspect to this, there is a much 3 broader, wider social concern that we're dealing with 4 in this issue, which is the concern about people who 5 smoke and how it affects others who don't smoke. 6 COMMISSIONER SCHENCK: And I think 7 that's the difference between the "must" and the 8 "should." 9 COMMISSIONER CLOWE: Exactly. 10 COMMISSIONER SCHENCK: The "must" is 11 what I'm looking at and focusing on -- 12 COMMISSIONER CLOWE: Sure. 13 COMMISSIONER SCHENCK: -- through the 14 lens of the ADA. And as you look through that, 15 anything that's in the air that could affect someone 16 is going to be subjected to the same individualized 17 analysis. And if we get past the point of saying that 18 this person individually is sufficiently impaired that 19 we're doing to say that they are disabled under the 20 Act, then we get to the questions of remedy, of 21 reasonable accommodation, undue hardship. And so the 22 question becomes, what do you have to do in order to 23 maybe the environment palatable for the individual 24 person, which will be different than what their 25 exposure concern is. 0071 1 COMMISSIONER CLOWE: And you're right on 2 point in those comments. And I would like to make the 3 point that this Commission is empowered to do the 4 things that it can within the statute and make rules 5 that conform to the statute. And so that was the hope 6 I had expressed of getting the help from counsel to 7 Sen. Ellis and our attorney, that we could understand 8 just where that line is. And we may see some 9 legislation that might change that in the future. 10 And I'm certain that you-all are 11 thinking about that. You haven't filed a lawsuit at 12 this point. Nobody has filed a lawsuit against the 13 Texas Lottery Commission, have they? 14 MR. KRAUSE: No, they have not. 15 COMMISSIONER CLOWE: And so, you know, 16 that's one approach. The other approach is, let's 17 propose a law and see if we can get it passed. But I 18 think everyone here understands we can only do what 19 we're empowered to do by the statute. 20 MR. KRAUSE: Let me actually give you a 21 little historical perspective. And I think your 22 comments are really good on this point and I think 23 perhaps -- and shed some light on that. Years ago a 24 number of wheelchair users approached our director, 25 Jim Harrington, about a similar problem with the Texas 0072 1 Lottery Commission. The issue was that a number of 2 the -- as it is in this case as well, a number of 3 convenience stores and licensees that sold lottery 4 tickets were not accessible to people with 5 wheelchairs, just as today the issue of whether those 6 stores would be accessible to people who have severe 7 lung damage is presented. We went to the Texas 8 Lottery Commission and said, "We've got a number of 9 folks who are coming to us. We're considering filing 10 a lawsuit, because there needs to be access for folks 11 with disabilities to these places." 12 The Texas Lottery Commission took this 13 under consideration at the time. And I think it's 14 interesting. Nothing -- the ADA says -- sometimes 15 doesn't say things -- you know, your ability to do 16 things within the statute aren't said until somebody 17 brings a lawsuit. In this case, we came to the 18 Lottery Commission and said, "Hey, the line, that 19 limit you're talking about is coming. We're 20 considering filing a lawsuit on this issue." 21 The Lottery Commission considered this. 22 And at the time, it was considered very novel, you 23 know, the idea that folks in wheelchairs who want to 24 go to what are called public accommodations, the 25 private convenient store, could force a public entity 0073 1 that licenses lottery tickets to those places to make 2 sure that those places are accessible. 3 COMMISSIONER SCHENCK: But that was 4 under the Americans With Disabilities Act, wasn't it? 5 MR. KRAUSE: Yeah. 6 COMMISSIONER SCHENCK: Okay. But 7 there's no question that a person in a wheelchair has 8 a disability and is entitled to access to public 9 facilities and the individual retail outlets who have 10 been violating the ADA, and we were helping to compel 11 that. But the important initial part of this analysis 12 is whether there is a disability and whether the 13 reasonable accommodation here is -- or what the 14 reasonable accommodation would be. 15 I mean, the same analysis could be 16 argued with respect to the gas fumes coming out of the 17 gas pump, that we should insist that the retail 18 outlets bring back full service to the customers or 19 that they don't sell gas, because some people will 20 have a disability. 21 MR. KRAUSE: I think -- and you actually 22 bring up a number of issues there. What we are 23 talking about or what was brought up here had to do 24 with what the Commission can do within the confines of 25 the statute. I think that the confines of the 0074 1 statute -- 2 COMMISSIONER SCHENCK: I think the 3 statute was asking about was our statute. 4 MR. KRAUSE: Oh, I'm sorry. I'm sorry. 5 Did I -- oh, I -- 6 COMMISSIONER CLOWE: You're correct, 7 Commissioner. 8 MR. KRAUSE: Okay. 9 COMMISSIONER SCHENCK: When you're 10 talking about the ADA -- I don't disagree. But you 11 have to prove until -- 12 COMMISSIONER CLOWE: We don't grant 13 divorces. 14 (Laughter) 15 COMMISSIONER CLOWE: That's not within 16 our statute. 17 MR. KRAUSE: I got you. Thank you. 18 Sorry I misunderstood that point. 19 COMMISSIONER CLOWE: Thank you, 20 Commissioner. 21 MR. KRAUSE: I misunderstood that point. 22 COMMISSIONER SCHENCK: We're on the same 23 page now. 24 MR. KRAUSE: Yes. You know, I think 25 what must be done to accommodate disabilities is a 0075 1 pretty clear point. It is a clear question. I don't 2 think that there's much question -- there's already 3 precedent on folks who have severe asthma or lung 4 damage being individuals with disabilities, so just as 5 people who use wheelchairs. That's not an open 6 question right now. That's already been solved. 7 Now, you're right. It is possible, 8 theoretically possible, that somebody could come -- 9 somebody with severe asthma could come and bring up 10 the issue of gas fumes, in a lawsuit. The fact is 11 that nobody is going to do that. And even if they 12 did, the issues associated with it would be, you know, 13 with outdoor air and not necessarily the study that's 14 around that. 15 With smoking it's pretty clear the 16 damage and dangers of smoking, and we're talking about 17 being in an indoor place. So I think there's a fair 18 amount of difference between -- it's a good point you 19 bring up. 20 With regard to what I was talking about 21 before, the Texas Lottery Commission did come in and 22 it brought in this requirement that places -- give 23 meaningful access to wheelchair users within those 24 stores, which meant making sure that folks could park, 25 get in the door, get lottery tickets, have counters 0076 1 that are accessible and use the bathrooms in there. 2 So it's certainly something that -- you know, it's 3 something that's been done before. 4 COMMISSIONER SCHENCK: But when we were 5 doing that -- I mean, we're basically holding up a 6 copy of the federal statute to them. That was clearly 7 mandated. I mean, the Americans With Disabilities Act 8 was pushed by Bob Dole. And I don't think it would 9 come as a surprise to him that we or anyone else would 10 go to convenience stores where people can't get in 11 with a wheelchair or use the bathroom and say, "You've 12 got to make this facility available to people." 13 Bob Dole might be more surprised to 14 learn that you can't smoke in a facility anywhere in 15 Texas, because of an allergy. The initial question 16 still has to be answered. And I'm sorry I keep 17 looking at this through a legal lens of: Is this a 18 disability? And then what is the reasonable 19 accommodation for it? Because what I'm hearing -- and 20 maybe you can just answer that question for me. What 21 is the accommodation that you contend would be 22 reasonable for us to take to accommodate those patrons 23 that would have a disability in terms of asthma or 24 other smoke-related disability? 25 MR. KRAUSE: Sure. I think the 0077 1 reasonable accommodation would be that smoking would 2 be prohibited in the places where somebody would need 3 to go to buy a lottery ticket indoors. 4 COMMISSIONER SCHENCK: Every place? 5 MR. KRAUSE: That's correct. 6 COMMISSIONER SCHENCK: So unless we sell 7 lottery tickets outside, every place in Texas where a 8 lottery ticket is sold, there would be no smoking 9 permitted? 10 MR. KRAUSE: That's correct. 11 COMMISSIONER SCHENCK: Prophylactically 12 on the fear that someone -- do you know what 13 percentage of the population you contend would have a 14 disability that would rise to the level of -- a smoke- 15 related exposure problem that would rise to the level 16 of a disability? 17 MR. KRAUSE: I have no idea. That's 18 not my -- I don't know how I could possibly know. 19 COMMISSIONER SCHENCK: Instead of having 20 facilities that are available that are smoke-free, as 21 an accommodation, you would have us make all of the 22 facilities smoke-free across the state? 23 MR. KRAUSE: That's correct, at least in 24 the areas that would affect somebody who is going to 25 buy a lottery ticket. 0078 1 And I did want to address just one or 2 two other things. And I apologize if I'm taking too 3 much time. Hopefully this is helpful for folks. 4 I know that there has been some 5 suggestion of a website in which, you know, people 6 with disabilities -- you know, severe asthma or 7 something like that -- would go on and find the 8 nearest store that sells lottery tickets but 9 doesn't -- that wouldn't be able to go into stores 10 that have smoking; in other words, find the smoke-free 11 one in your area if said location exists. That 12 argument has been tried before in the context of other 13 accommodations, and specifically physical barriers, 14 and that's not a viable option. 15 COMMISSIONER SCHENCK: Would you concede 16 that at this point we don't know what percentage of 17 the lottery purchasing public is affected to this 18 extent, we don't know what percentage of our outlets 19 are actually having any indoor smoke? And we need to 20 know those things, I think, before we take any steps, 21 particularly as broad as you're proposing. Should we 22 find that out first? Would you agree with me? 23 MR. KRAUSE: From a policy perspective, 24 I have no problem with looking into those issues. My 25 role here I see as being more of a legal role. 0079 1 COMMISSIONER SCHENCK: Let me ask your 2 legal position. 3 MR. KRAUSE: Sure. 4 COMMISSIONER SCHENCK: If we were to ask 5 these questions and get the answer that, let's say, 6 we'll figure out whatever percentage of the public is 7 affected to the point of a disability, and then let's 8 assume with me 95 percent of our retail outlets are, 9 in fact, smoke-free indoors. Would the accommodation 10 it be reasonable under that circumstance be somewhat 11 different than if the numbers were reversed? In other 12 words, could we require smoke -- permitting the 13 facility to post the fact on the door and treat that 14 as a reasonable accommodation if we understood that 15 95 percent of the neighboring facilities were likely 16 to be available and smoke-free to the patron? 17 MR. KRAUSE: I don't think it -- now, 18 from a policy perspective, I think that's a very 19 rational and logical way of looking at things. That's 20 not the way the law would look at the matter. The 21 individual who went to the store, if it were not 22 accessible to him, would bring a complaint or file a 23 lawsuit and the Court would look at -- 24 COMMISSIONER SCHENCK: Yes, but that's 25 the claim against the store. I'm talking about a 0080 1 claim against -- I'm asking about a claim against us. 2 MR. KRAUSE: As well as the TLC. And 3 the Court would look at whether or not having that 4 place smoke-free would fundamentally alter the nature 5 of that store, and in the case of the claim against 6 the Texas Lottery Commission, whether or not it would 7 fundamentally alter the nature of the lottery program. 8 COMMISSIONER SCHENCK: My question was 9 directed at -- I'm sorry I wasn't clear -- was 10 directed at us and our program, our benefits that 11 we're talking about, not the individual store. But in 12 terms of us, if 95 percent of our outlets prove to be, 13 in fact, smoke-free facilities, so that's the rare 14 aberration where a customer is going to find smoking 15 inside the environment, isn't it reasonable -- the 16 reasonable accommodation there somewhat different and 17 wouldn't it potentially constitute undue hardship to 18 require the entire panoply of licensees to change 19 their policy? 20 MR. KRAUSE: The test wouldn't be undue 21 hardship. It would be whether or not it fundamentally 22 alters the lottery program, and I don't see that to be 23 contentious. 24 COMMISSIONER SCHENCK: I understand. 25 MR. KRAUSE: That's the analysis that it 0081 1 would be, that it would go through. 2 CHAIRMAN COX: Mr. Krause, that line of 3 thinking triggers a question that I want to raise 4 related to what Ms. Woelk said earlier about the 5 prison case and the hearing-impaired inmate. Now, as 6 I understand that case, it was decided not that all 7 prisons would have signing at all activities, but that 8 prison would have signing at the activities that he 9 wanted to attend. So wouldn't that say that this is 10 very much an individual basis and not an across-the- 11 board kind of thing? 12 MR. KRAUSE: Interesting question. I 13 would say it would be an open question. Having done a 14 number of cases like this before, the particular case 15 I haven't -- offhand I don't know the -- I haven't 16 read the case. You know, if it had been presented to 17 me before -- I would love to take a look, and I could 18 give you an opinion specifically on that. It may be 19 that it was just a county jail or something like that 20 in which it would be an individual situation. 21 We have brought suits in all nature 22 against, you know, state entities as well, and that 23 really depends on to what extent a judge looking at 24 the issue would consider that issue. But you're 25 right. It could be -- the injunction could issue only 0082 1 as to the store and the TLC's actions at that store. 2 But I would think it more likely that a 3 judge looking at that and there being the possibility 4 of that person going -- the plaintiff in that case 5 going to other stores is saying that the injunctive 6 effect should apply to all stores. 7 CHAIRMAN COX: Thank you. 8 MR. KRAUSE: That's my guess. But, you 9 know, that's something unfortunately -- and, you know, 10 I say "unfortunately" because, you know, these things 11 take time out of my schedule as well. But that's 12 something that might not be determined until the end 13 of the lawsuit is over. 14 The one -- 15 COMMISSIONER CLOWE: But that's what you 16 go for if you file the suit. 17 MR. KRAUSE: Sure, sure. I would think 18 so. And, you know, I think it's useful to point out 19 that having looked at the law here, if we were 20 approached by somebody who had a significant 21 impairment of life activity, we would bring that suit 22 both against the individual owner and the Texas 23 Lottery Commission, assuming -- and this is -- you 24 know, I come here today in the hopes that -- you know, 25 that something can be done here, that the Texas 0083 1 Lottery Commission will pass a rule that prohibits 2 smoking or at least allows the meaningful access for 3 the folks who have disabilities that make it 4 inaccessible at these stores. 5 COMMISSIONER SCHENCK: Would you turn 6 away the client who came to you and said that was 7 being exposed to outside air that was harmful to him, 8 from the gas pumps? 9 MR. KRAUSE: No doubt. 10 COMMISSIONER SCHENCK: Okay. 11 COMMISSIONER CLOWE: Then I'd ask you to 12 do the same thing I asked earlier, to share your legal 13 expertise and counsel with our counsel and help us 14 understand your position, where you're asking us to do 15 this and you feel it's within our statute. 16 MR. KRAUSE: Most definitely, and I 17 would -- 18 COMMISSIONER CLOWE: Brief our folks on 19 that. 20 MR. KRAUSE: I would be flattered by the 21 offer. 22 COMMISSIONER CLOWE: Thank you. 23 MR. KRAUSE: Thank you for your time. 24 COMMISSIONER SCHENCK: Appreciate it. 25 CHAIRMAN COX: Thank you very much, 0084 1 Mr. Krause. 2 MS. KIPLIN: Mr. Chairman and 3 Commissioners, before Mr. Krause leaves, I just -- 4 it's a bit nit-picky, but I do feel compelled to try 5 to correct the record. With regard to the historical 6 information you provided, the analysis did not extend 7 to bathrooms. 8 MR. KRAUSE: Thank you. That was my 9 error. 10 CHAIRMAN COX: Thank you, Counsel. 11 Thank you, Mr. Krause. 12 MR. KRAUSE: Thank you very much. 13 CHAIRMAN COX: Mr. Billy Williams, 14 representing GASP of Texas. 15 MR. WILLIAMS: Yes. 16 CHAIRMAN COX: Mr. Williams, welcome. 17 And thank you for your thoughtful correspondence that 18 we have here before us that -- 19 REMARKS ON BEHALF OF GASP 20 MR. WILLIAMS: Okay. Well, good 21 morning. I'm glad to be here. I think I can answer 22 some of the questions that I don't think were answered 23 very well. 24 For one thing, as to whether or not the 25 lottery is covered by the ADA, there's a settlement 0085 1 agreement on the Department of Justice website. It's 2 between the United States of America and the State of 3 Oregon. And the State of Oregon modified their state 4 statute in order to comply with the ADA. 5 Also you'll find settlement agreements 6 with the State of California -- pardon me -- the State 7 of Hawaii. They have modified their state statute to 8 comply with the ADA. Also a couple of state statutes 9 in Tennessee were modified. And that was a voluntary 10 thing, you know, for compliance. And as far as 11 whether or not smoking can be banned in any of these 12 outlets or anything else, the answer is yes. The ADA 13 provides by federal statute that smoking can be banned 14 in any place, so you don't have to worry about that 15 part of it. 16 Something else, too, on this -- to clear 17 up just exactly on this disability type issue. In 18 Sutton vs. United Airlines, the Supreme Court held 19 that disability is to be determined on a case-by-case 20 basis. And when you determine it, you determine it in 21 consideration with mitigating measures. That means 22 both positive and negative mitigating measures. 23 Let's say somebody, as a person with a 24 disability because of walking or standing, which is 25 interesting with Patty Young with American Airlines. 0086 1 She was a flight attendant; she was not wearing the 2 standard shoe. So I wrote a letter to the ADA person 3 there and took the position that she was a person with 4 a disability and she needed to wear this nonstandard 5 shoe. American's policy was, send them home if they 6 didn't have the standard shoe on and asked, as a 7 reasonable accommodation, that she get to wear this 8 particular shoe. 9 Now, with the shoe on, that was a 10 mitigating measure and she was not a person with a 11 disability. Take her shoe off and she was a person 12 with a disability. That stumped American Airlines for 13 18 months. Then they come out with a directive that 14 you would be sent home if a flight attendant showed up 15 with a non-standard shoe, unless you had a doctor's 16 excuse, because that's what it is. 17 But you have to consider the mitigating 18 measures. Like I use inhalers and such, they can be 19 mitigated to a certain extent. But they can also 20 cause a disability, you know, the effects of the 21 things. That is a problem, too. But that takes care 22 of the issue. 23 And the Supreme Court said it's not the 24 name of the impairment, it's the effect of the 25 impairment on the person. You don't come out here and 0087 1 say asthma is a disability; asthma isn't. For your 2 information, blindness is not a disability either. 3 There's no perceived disabilities under the ADA. 4 People that cannot see, seeing is a 5 major life activity. You have to be substantially 6 limited in a major life activity. A blind person 7 obviously is substantially limited in a major life 8 activity. That's what makes them a person with a 9 disability, not the fact that they're blind. You have 10 to have an individual case-by-case analysis, and 11 that's the way it works. 12 Now, when you get down to it, your 13 special counsel, you know, in the stuff I got, was 14 that the ADA did not mandate smoking bans. And I want 15 to read to you a decision in the United States Second 16 Court of Appeals in Staron vs. McDonald's Corporation, 17 51 F.3d 353. And here we go. 18 "I. The Permissibility of Smoking Bans 19 Under the ADA. 20 "{4} The magistrate judge correctly 21 noted that the ADA on its face did not ban smoking in 22 all public accommodations or all fast-food 23 restaurants. Defendants carry this point a 24 significant step further, however, and argue that the 25 ADA precludes a total smoking ban as a reasonable 0088 1 modification. They assert that Congress did not 2 intend to restrict the range of legislative policy 3 options open to state and local governments to deal 4 with the issue of smoking. Their argument rests on 5 §501(b) of the ADA: 6 "Nothing in this chapter shall be 7 construed to invalidate or limit the remedies, rights, 8 and procedures of any Federal law or law of any State 9 or political subdivision ... that provides greater or 10 equal protection for the rights of individuals with 11 disabilities than are afforded by this chapter. 12 Nothing in this chapter shall be construed to preclude 13 the prohibition of, or the imposition of restrictions 14 on, smoking ... in places of public accommodation 15 covered by subchapter III of this chapter. 16 "42 USC, §12201(b), the magistrate judge 17 echoed a sentiment similar to defendants', stating 18 that "[t]he significant public policy issues regarding 19 smoking in 'fast food' restaurants are better 20 addressed by Congress or by the Connecticut General 21 Assembly... 22 "It is plain to us that Congress did 23 not intend to isolate the effects of smoking from 24 the protection of the ADA. The first sentence of 25 §501(b) simply indicates that Congress, states, and 0089 1 municipalities remain free to offer greater protection 2 for disabled individuals than the ADA provides. The 3 passage does not state, and it does not follow, that 4 violations of the ADA should go unredressed merely 5 because a state has chosen to provide some degree of 6 protection to those with disabilities. 7 "[5] As to the second sentence of 8 §501(b), the Department of Justice regulations state 9 that it 'merely clarifies that the Act does not 10 require public accommodations to accommodate smokers 11 by permitting them to smoke.' . . . Nothing in the 12 second sentence precludes public accommodations from 13 accommodating those with smoke-sensitive disabilities. 14 In fact, this language expressly permits a total ban 15 on smoking if a court finds it appropriate under the 16 ADA. We therefore reject any argument by defendants 17 to the contrary." 18 So smoking bans can be put under the 19 ADA, but that's not what I'm asking you to do. My 20 request is -- and I'm going to make it again today -- 21 I'm here today to once again request that the Lottery 22 Commission modify its contracting procedures as 23 necessary in order to allow equal and meaningful 24 access to a state service for individuals with 25 breathing and other disabilities caused or exacerbated 0090 1 by second-hand tobacco smoke. I'm asking you to 2 change your contracting policies. 3 I want to point something out to you 4 about the Attorney General's opinion while we're here, 5 because I think it will be beneficial to you. In 6 Footnote 3, the Attorney General states, "Although the 7 Court of Appeals from the Fifth Circuit and other 8 federal courts in Texas have not addressed the 9 question specifically" -- I'll just stop right 10 there -- "have not addressed it specifically," the 11 reasonable modifications in Texas. 12 It seems like the Attorney General 13 missed a case in the United States District court for 14 the Western District of Texas, and that case is Dees 15 vs. Austin Travis County Mental Health and Mental 16 Retardation at 860 F.Supp. 1186. 17 And believe you, that case will tell you 18 exactly what you have to do in Austin, Texas, to 19 comply with the ADA. It will tell you how to comply 20 with the reasonable modifications, and that is what 21 I'm going with. And I'm going to read something here 22 for you out of that. I kind of messed my notes up, 23 because after you guys -- I thought you did an 24 excellent job. And, by the way, I haven't been across 25 from a tobacco company lawyer in a long time. And I 0091 1 have been back across one before, but it's fun. 2 Okay. And here is what the Court said, 3 the District Court. "Accordingly, the standard 4 Congress has determined that should be applied in 5 assessing the reasonableness of modifications under 6 the ADA is not a balancing test of competing 7 interests, as ATCMHMR seems to argue, but whether the 8 modification can be made without fundamental 9 alteration or undue burden such that disabled 10 individuals will not be denied the equal opportunities 11 enjoyed by others." 12 When you take a look at that case, also 13 take a look at the Supreme Court decision, Olmstead 14 vs. L.Z by Zimring. That is -- see if I've got a cite 15 here for you. 16 528 U.S. at 581, it states, "The 17 reasonable-modification regulation speaks of 18 'reasonable-modifications' to avoid discrimination, 19 and allows States to resist modifications that entail 20 a Fundamental alteration' of the States' services and 21 programs." 22 And I'm going to tell you, when you take 23 a look at Olmstead, if you read it through on this, 24 you'll find that he interpreted that reasonable 25 modifications regulation exactly the way the Supreme 0092 1 Court did. So that's where it comes from, right down 2 there. 3 And I've got -- oh, now I want to get to 4 my regulations. This is something that you people 5 seem to have never heard anything about up here this 6 morning. In other words, the regulations of what do 7 you have to do, what can you do, what can't you do? 8 This is where the rubber meets the road. Can you 9 comply with these regulations, which is Subpart (b), 10 general requirements, general prohibitions against 11 discrimination. This is what you have to comply with. 12 You can get out here and say what would 13 be a reasonable accommodation, what would be a 14 reasonable modification? But when push comes to 15 shove, you will and had to comply with the 16 regulations. You can't come up with a reasonable 17 accommodation that does not comply with federal 18 regulations, which is what they want me to do. I 19 don't know if they told you. 20 But they told me if I won the lottery 21 ticket, I could call Austin and they would tell me 22 where it's at to get one. Now, is that equal access 23 to a state service? Is that meaningful access to a 24 state service? I suppose if you had somebody in 25 Brownsville and there was nobody around there, you 0093 1 know, where there's no smoking place, you could say, 2 "Well, gee, we'll give you one in Fort Worth or 3 Austin." I mean, it's getting kind of ridiculous. 4 But anyway, here we go. "General 5 prohibitions. No qualified individual with a 6 disability shall, on the basis of disability, be 7 excluded from participation in or be denied the 8 benefits and the services, programs or activities of a 9 public entity or be subjected to discrimination by any 10 public entity. 11 "(b)(1), A public entity, in providing 12 any aid, benefit, or service, may not, directly or 13 through contractual, licensing or other arrangements, 14 on the basis of disability -- (i) Deny a qualified 15 individual with a disability the opportunity to 16 participate in or benefit from the aid, benefit, or 17 service." 18 "(2) Afford a qualified individual with 19 a disability an opportunity to participate in or 20 benefit from the aid, benefit, or service that is not 21 equal to that afforded others; (iii) provide a 22 qualified individual with a disability an aid, 23 benefit, or service that is not as effective in 24 affording equal opportunity to obtain the same result, 25 to gain the same benefit, or to reach the same level 0094 1 of achievement as that provided by others; (vii) 2 Otherwise limit a qualified individual with a 3 disability in the enjoyment of any right, privilege, 4 advantage, or opportunity enjoyed by others receiving 5 the aid, benefit, or service." 6 "(3) A public entity may not directly or 7 through contractual or other arrangements, utilize 8 criteria or methods of administration: (i) That have 9 the effect of subjecting qualified individuals with 10 disabilities to discrimination on the basis of 11 disability." 12 This one I really like here. This is my 13 favorite one. "(4) A public entity may not, in 14 determining the site or location of a facility, make 15 selections -- (i) That have the effect of excluding 16 individuals with disabilities from denying the 17 benefits of, or otherwise subjecting them to 18 discrimination." 19 "(5) A public entity, in the selection 20 of procurement contractors, may not use criteria to 21 subject qualified individuals with disabilities to 22 discrimination on the basis of disability." 23 And here is the one that really hooks 24 you: "(7) A public entity shall make reasonable 25 modifications in policies, practices, or procedures 0095 1 when the modifications are necessary to avoid 2 discrimination on the basis of disability, unless the 3 public entity can demonstrate that making the 4 modifications would fundamentally alter the nature of 5 the service, program, or activity." 6 That's where the rubber meets the road. 7 These are the regulations. If you can figure out a 8 way to sell lottery tickets in those facilities, I'm 9 not challenging the smoking. I'm challenging the fact 10 that these things are inaccessible to me and they 11 violate the regulation, if you can figure out how to 12 do the regulation. 13 Like I say, this is my position. You 14 have to comply with these regulations. And I think 15 that you gentleman actually want to do that, so I'm 16 giving you the opportunity to do it. If somebody 17 says, "Hey, you don't have to do it," like your 18 counsel already said, that as a matter of law, smoking 19 bans didn't have to be done under the ADA. She was 20 wrong. Staron is sitting out there. The Attorney 21 General missed the Dees right in his own circuit 22 there. And when you read it, your attorney is going 23 to see it goes with Olmstead. And what's going to 24 happen, you have to figure that out for yourselves, 25 because I guess you know that Patty Young and I had a 0096 1 complaint against the Lottery Commission with the 2 Department of Justice. 3 CHAIRMAN COX: Yes, we do. 4 MR. WILLIAMS: Okay. 5 CHAIRMAN COX: Mr. Williams, is the 6 information you read here -- of course, it will be on 7 the record -- but is it in the letters that you've 8 already sent to us as well? 9 MR. WILLIAMS: Well, I did something a 10 little extra today, but I can give you a copy of it -- 11 CHAIRMAN COX: Okay. 12 MR. WILLIAMS: -- if it's not marked up. 13 CHAIRMAN COX: I think where we're going 14 to end up here today with the overwhelming amount of 15 information that we have to absorb, and so we're going 16 to study this matter further. And if you'd be willing 17 to provide that to our counsel, we would appreciate 18 it. 19 MR. WILLIAMS: I certainly will, 20 anything I can possibly do. I've got 25 years' worth 21 of research on disabilities and discrimination law. 22 CHAIRMAN COX: Thank you very much, 23 Mr. Williams. 24 MR. WILLIAMS: Plus there's a lot of 25 people with it already. I'd be glad to, appreciate 0097 1 it. 2 COMMISSIONER SCHENCK: Mr. Williams, I 3 just wanted to thank you for coming. Your complaint 4 to us is in the best tradition of American citizenship 5 and -- 6 MR. WILLIAMS: Yes, it is. That's what 7 I tried to do. 8 COMMISSIONER SCHENCK: Well, I 9 appreciate it. Now, the one thing I wanted to make 10 clear, I didn't quite hear what you said, but I think 11 I want to amplify my disclosure a bit that I made 12 earlier. To be clear, I haven't handled a tobacco 13 matter in 15 years. 14 MR. WILLIAMS: Oh, it was a joke. 15 COMMISSIONER SCHENCK: I billed about 16 2,000 hours a year for the last decade and not a 17 second of it was on a tobacco matter. I just wanted 18 to make sure that people knew that that was in my 19 background. 20 MR. WILLIAMS: Okay. Well, I just 21 wanted to make sure mine was a joke, too. 22 I appreciate your attention. You know, 23 I can pretty well tell by the questions people ask how 24 sincere they are in actually getting involved with the 25 issues. And I think all three of you have asked the 0098 1 questions that I think were pertinent and in an effort 2 to get the best information possible upon which to 3 make a decision. And I'll be glad to help you on 4 anything. Like I say, I've got good research. 5 CHAIRMAN COX: Thank you very much, 6 Mr. Williams. 7 MR. WILLIAMS: Thank you. 8 COMMISSIONER CLOWE: Mr. Chairman -- 9 CHAIRMAN COX: Yes, sir. 10 COMMISSIONER CLOWE: -- I have another 11 request of the Executive Director at this time. I 12 would like for him to query our Retail Dealers 13 Association. They have an involvement in this issue, 14 and their president has been involved in lottery 15 activities in the past. And I know him and he's 16 resourceful. And I'd like to have his input and 17 perhaps their counsel's input. I'm sure they're up on 18 the curve on this subject. 19 CHAIRMAN COX: Excellent. 20 Director Sadberry, are we ready to talk 21 about where we go from here or do you have further 22 testimony that you'd like to hear or evidence you'd 23 like to give? 24 MR. SADBERRY: Just A little of both, I 25 believe, Chairman. Actually, in connection with the 0099 1 question that Commissioner Clowe just asked, I was 2 going to ask Michael Anger to come forward and kind of 3 give the Commission an idea of what we already -- 4 CHAIRMAN COX: If we've got some more, I 5 think we might want to ask the court reporter if she 6 needs a break. 7 (Laughter) 8 Okay. We'll take about a 10-minute 9 break. 10 (Recess: 10:50 a.m. to 11:10 a.m.) 11 CHAIRMAN COX: Okay. Let's come back to 12 order. 13 Director Sadberry, I think you were 14 going to call a member of your staff? 15 COMMISSIONER CLOWE: Yes, Commissioners. 16 Michael Anger -- and this does not address the 17 question, but it tells you, Commissioner, where we are 18 headed. And it might be helpful if you can hear that 19 and give us any additional direction of where you 20 would like us to head -- 21 CHAIRMAN COX: Excellent. 22 MR. SADBERRY: -- in this matter. 23 MR. ANGER: Good morning, Commissioners. 24 For the record, my name is Michael Anger, and I'm the 25 Lottery Operations Director. 0100 1 One of the questions that you asked this 2 morning and inquired about was how many of our 3 retailers currently are nonsmoking facilities versus 4 smoking facilities, and that's something that we're 5 looking into now. It's not data that the agency has 6 tracked in the past. We're currently working with 7 GTECH Corporation to determine the most appropriate 8 way to get out there and collect that information. 9 It's very likely that in some instances, 10 and probably many if not all instances, we may 11 actually have to go to the 16,000 locations and make 12 those inquiries. Now, we do have a mechanism to do 13 that through the sales staff that GTECH has in place 14 that calls on those locations. We're looking at some 15 other opportunities to do that. We have a mix, of 16 course, of corporate locations and independent 17 locations. And so to the extent that possibly some 18 chain corporate locations have a global policy for all 19 their stores, we may be able to capture that 20 information that way. But we're evaluating the best 21 way to quickly capture and survey and get some 22 information about the mix of retailers that have 23 smoking and nonsmoking facilities. 24 COMMISSIONER CLOWE: Michael, how are 25 you going to ask these people? How are you going to 0101 1 phrase the question? 2 MR. ANGER: Well, we will probably reach 3 out to the Legal Services team here in the agency to 4 make sure that we phrase the question in an 5 appropriate manner to try to get the information about 6 smoking in the facility and accessibility to the 7 lottery tickets as it relates to smoking. But I'm 8 certainly open to any direction or comments or 9 thoughts you might have in that record. I believe 10 that that is a tricky issue. 11 We have various different types of 12 retail environments. You know, one that comes to mind 13 is large truck stop facilities where lottery tickets 14 may be available in one portion of the facility and 15 there may be areas elsewhere in the facility that do 16 allow smoking, but it doesn't occur in the general 17 proximity that sell lottery tickets. So, you know, I 18 will state that type of example and say that it is a 19 challenge on its face. It seems like a simple 20 question, smoking or non. 21 COMMISSIONER CLOWE: It's not. 22 MR. ANGER: But it's not a simple 23 question. And the fact is, is for us to go out and 24 quickly do a survey I think gives us a snapshot and 25 gives us a general idea of an overall mix. But, you 0102 1 know, I would state for the record that it's not 2 perfect, you know. And I certainly wouldn't -- you 3 know, I think in doing an immediate survey and going 4 out and assessing this, you know, I'm not sure it's 5 something that we would be able to stand behind as a 6 concrete answer in the case of each and every 7 individual location that we survey. 8 COMMISSIONER CLOWE: Okay. Well, I 9 think you're beginning to recognize the difficulty of 10 coming up with this answer. And let me caution you 11 about how you approach this. It's not just the legal 12 aspect of it, but it's the marketing aspect as well. 13 And, you know, because I'm one of these guys who likes 14 to try to buy gas at the lowest price, all manner 15 of retail outlets, putting 20 to 30,000 miles a year 16 on an automobile, ranging from small little 17 semi-grocery/gasoline output places to truck stops and 18 everything in between. 19 And my sense, because I'm always looking 20 at what kind of lottery products they have and if 21 customers before and after me in line are buying 22 lottery products and, if they are, what products 23 they're buying, my sense is that I don't see many 24 no-smoking signs posted when I walk in, but I very 25 frequently see receptacles for cigarette butts that 0103 1 are generally pretty filled. And I get a sense, in 2 thinking about this subject, that people will put out 3 a cigarette and walk into a store and make a purchase 4 and then maybe walk out and light a cigarette. 5 Certainly they don't smoke at the gas pump. 6 But I think you need to keep in mind 7 what practice is as well as what stated policy is. 8 You may get a general response from the owners of 9 these stores and our licensees, "We don't prohibit 10 smoking." But, in fact, the practice may be, when you 11 get inside that door, there's nobody in there smoking. 12 That would be my sort of off-the-cuff reaction if you 13 ask me how much smoking is going on, because -- for 14 example, yesterday I drove from Waco to Fredericksburg 15 and stopped for gas twice and went in thinking about 16 this subject that was going to be on our agenda today. 17 There was nobody smoking when I went in where lottery 18 tickets were sold. And I would like to raise this 19 note of caution as you try to give us this answer. So 20 don't just give us policy; give us your best idea what 21 practice is. 22 MR. ANGER: And I think that takes us 23 down to communicating at the individual retail level. 24 I will qualify that by saying that there's challenges 25 associated with that as well. It's not always that 0104 1 the sales representative that calls on the location 2 for GTECH is able to interact with the actual business 3 owner or even the management of the organization 4 during their visits. 5 And so the answers that we were getting 6 are from the store representative that's in place at 7 the time at that location, at the time of the visit. 8 But I think to your point, I think that takes us down 9 to the store level. While the company may have some 10 global policy and practice, there may be some 11 variation as far as that's concerned. 12 COMMISSIONER CLOWE: And I would urge 13 you to work with the retail dealers and their 14 association and see -- you know, they've got some kind 15 of a position on this, surely, and they've done some 16 work on this. And let's see where they are and get 17 their input. 18 MR. ANGER: I'll reach out to those 19 groups and obtain their feedback. 20 CHAIRMAN COX: Commissioner? 21 COMMISSIONER SCHENCK: I'm not clear, 22 Michael. You're talking about now doing a sample, 23 some percentage, or are you trying to get this data 24 from every one of the outlets? 25 MR. ANGER: We would try to reach out to 0105 1 all 16,000-plus locations that we have, and that's -- 2 it is a significant effort. 3 CHAIRMAN COX: Michael, you might -- for 4 the Commissioner's benefit, you might tell him about 5 our standard practices, how often GTECH goes, as a 6 matter of routine, to each of those places. 7 MR. ANGER: The GTECH salesperson, 8 they'll call on retail locations every two weeks on a 9 cycle. And so we do have personnel representing the 10 lottery and lottery-related activities going into the 11 physical locations -- 12 COMMISSIONER SCHENCK: My concern with 13 that approach is, I'm sure GTECH will follow our 14 instructions in terms of how this question is asked, I 15 would hope -- maybe not in every circumstance. And 16 the person they're going to find there behind the 17 register -- I used to work at a convenience store. If 18 you came in and tell me, "I'm here from the Lottery" 19 or "I'm here to put in more bread" or "I'm here to 20 change the milk" or whatever it was, you know, I 21 wanted to get you out of my way and get on to selling 22 more of whatever it was I was there to sell -- beer, 23 whoever. 24 So in some ways I would think it might 25 benefit us if we can communicate. The policy 0106 1 question, I agree, is different from the practice 2 question in both directions. There's going to be lots 3 of places that won't permit smoking as a policy, but 4 someone's friend will walk in the store and he'll let 5 him spoke. In the other direction, they will have no 6 policy at all. 7 So you might ask the question, "How 8 often is somebody in here smoking?" And the person 9 behind the counter is probably going to say, "Never, 10 because I don't like it and I ask them not to." I 11 mean, the social etiquette these days is to ask 12 whenever I think you're inside. I don't smoke, and I 13 wouldn't know. 14 But I would prefer in some ways if we 15 can communicate with these people through e-mail or by 16 phone to do a smaller sampling just generally on the 17 policy question and then get the practice answers out 18 of the GTECH site visits, if that's feasible. I think 19 you could ask anybody, like the UT Math Department 20 will tell you that a statistically significant sample 21 can be something less than 10 percent, and we're 22 talking about 160 stores. If we could just have a 23 question of how you design the people you ask. You 24 don't want them to be just, you know, Chevron. It 25 would have to be Chevron plus a certain number of bait 0107 1 and tackle shops and whatever else we would do. 2 MR. ANGER: We would also probably -- 3 and we can look into doing that certainly. We would 4 also face some geographic challenges, because we would 5 also have to cross-reference I would think not only 6 the trade style mix but also the geographic mix of 7 locations that are scattered across the state. 8 And it would be -- and one of the 9 reasons that we considered taking this approach to 10 conducting the survey is that in trying to do a phone 11 survey or even an e-mail survey, it often proves very 12 challenging to reach out and actually get in contact 13 with the business owner or the management of a 14 location, either via a written communication or 15 telephone. I mean, that's just our general experience 16 on matters that take place in our retailer services 17 area. And so there was a concern on our part in being 18 able to generate actual responses and then also how we 19 might record those. 20 COMMISSIONER CLOWE: Well, in a 21 municipality such as the City of Austin, where I 22 understand there's a law prohibiting smoking, none of 23 the retail outlets -- 24 COMMISSIONER SCHENCK: It's pointless to 25 ask, you know. 0108 1 MR. ANGER: And that is one of the 2 things that -- 3 COMMISSIONER CLOWE: You need to be 4 aware of that. 5 MR. ANGER: One of the things that we've 6 already begun to look into -- and we did this in 7 coordination with the Legal Services area -- is in 8 Sen. Ellis' press release that he issued recently on 9 this matter, he noted that there were 21 cities in the 10 State of Texas that have a smoking ban. And that was 11 exactly our thought, that maybe the first slice at 12 limiting the amount of surveying we had to do was to 13 possibly identify these cities where there's a full 14 and complete smoking ban in place, because we can know 15 for a fact that those locations are smoke-free 16 facilities. 17 And so we might be able to slice down 18 the general population, you know, fairly significantly 19 in that regard and then work from there out. We have 20 looked at some of that information. They've pulled 21 some of that from a municipal organization, about the 22 various different smoking bans, and we haven't reached 23 out to the Senator's office at this time. But the 24 types of smoking bans that are in place and the way 25 the laws are written vary pretty widely. And so it's 0109 1 sometimes hard to tell, from what we've been able to 2 pull thus far, as to whether those smoking bans reach 3 to locations where lottery products are sold. 4 So I think we could take a first slice 5 of it that way. But ultimately we may be surveying or 6 doing some sort of sampling process to obtain the 7 other information and get a full picture. 8 COMMISSIONER SCHENCK: Well, there are 9 any number of random ways you can pick. And if it's 10 random, it's random. But if you suspect you're going 11 to get less than a 50 percent answer rate, then I 12 think we've got a problem. But you might just pick -- 13 you know, Texas is divided up into 14 appellate 14 districts. You know, ten in each one of them would 15 give you 140 people. That's roughly 10 percent of all 16 of our retailers. And those districts were already 17 cut up along the lines that you would want, rural 18 verse urban verse north, south, east and west. And 19 there's any number of ways to look at it. 20 MR. ANGER: And GTECH has service 21 districts as well and probably fairly close to what 22 you're describing. We have 10 districts that the 23 state is divided up into. And we might be able to use 24 a model like that, you know, if we can go forward with 25 an on-site surveying process. 0110 1 COMMISSIONER SCHENCK: I'm making a 2 suggestion. I don't mean to be trying to dictate it. 3 That's just a -- it was a thought of mine. 4 MR. ANGER: Sure. Yes, absolutely. And 5 we're looking for, you know, the best way to come back 6 with a reasonably quick answer on a picture of the 7 retail base. And I think that comes with some 8 limitations associated with it. And, you know, I 9 wanted to share those, and like the truck stop 10 example. But, you know, we're interested in trying to 11 give you a picture of what we believe that the 12 retailer base looks like on this issue. 13 COMMISSIONER CLOWE: And the asking of 14 this question in my mind doesn't in any way infer that 15 the results are going to dictate how the Commissioners 16 might feel about this. It is asked -- in my mind, the 17 purpose of gathering information and having knowledge 18 from our retailers, there's an input opportunity for 19 opinions and establish policy. But at this point in 20 my mind, the Commission is gathering information and 21 is trying to get all the input it can achieve so as to 22 address this question in the most intelligent and 23 correct way. 24 CHAIRMAN COX: A solution that I've 25 heard suggested here today might be to provide -- that 0111 1 if someone wanted to know where there was a nonsmoking 2 location, they could call in here and we could tell 3 them what would be closest to their house. What I 4 hear you saying is, we couldn't presently answer that 5 question? 6 MR. ANGER: We do not currently have 7 that information in hand. 8 CHAIRMAN COX: So I think we should 9 carefully gather this in the event that, one, a part 10 of the solution might be that, so that we know that, 11 "Hey, if a part of the solution is that you can call 12 in and we will tell you the nearest location," that we 13 will actually know. 14 MR. ANGER: We certainly can collect 15 that information. The one thing that I do want to be 16 sure I'm clear about, Mr. Chairman -- and it's a 17 concern for me -- is that in doing the initial survey 18 or study -- and I think we're going to be able to get 19 a good broad picture of the retail base as a whole, 20 because we're going to move quickly in an effort to 21 try to gather that information. We may be reaching 22 out to individuals -- in the example that Commissioner 23 Schenck provided -- that work in the location, there 24 may be a clerk in that location, the answer that we 25 may get may not be a perfect answer. 0112 1 CHAIRMAN COX: Michael again -- 2 MR. ANGER: We might look to a broader 3 approach. 4 CHAIRMAN COX: As commissioner Schenck 5 said, I'm not telling you how to do this. 6 MR. ANGER: Certainly. 7 CHAIRMAN COX: This is just a thought. 8 Another thought is that you might do the smell test, 9 ask them to ask and smell (laughter) and see if they 10 get the same kind of -- 11 COMMISSIONER CLOWE: You have to have a 12 long accounting background to understand that 13 question. 14 (Laughter) 15 CHAIRMAN COX: Anything further for 16 Michael? 17 COMMISSIONER SCHENCK: No. 18 CHAIRMAN COX: Did you have anything 19 further, Michael? 20 MR. ANGER: No, sir. 21 CHAIRMAN COX: Okay. Thank you. 22 Director Sadberry? 23 COMM. CLOWE8: Chairman, I think that's 24 where we are now, yes. The second part of it, the 25 question you raised is where we go from here, I 0113 1 believe. And I don't know if you want to ask Sarah to 2 come back. I know we've gotten several assignments. 3 We certainly will pursue those. I mean, we've had a 4 good record created. 5 CHAIRMAN COX: Well, I have a thought 6 where we might go on this. And let me throw it out, 7 and we'll just bounce it around. 8 This is a very complex issue. It was 9 complex when we studied it initially. There are 10 additional attorneys who have provided input that I 11 know Sarah and legal staff will want to take a look 12 at. I don't think that we're -- we don't have any 13 data as to how pervasive this problem is. 14 I was originally going to suggest that 15 we might ask you and your staff to study this matter 16 and report back to us at the January meeting and that 17 we might receive appropriate, and if appropriately 18 noticed, further legal advice in executive session. 19 Having seen the complexity of it, I'm 20 going to say the same thing, except that January might 21 not be reasonable, given that we've got the holiday 22 season coming up and given that there are complex 23 issues here. And a number of people that we worked 24 with have additional information to be gained. 25 So my thought would be, let's say it 0114 1 would be nice if it were done by the January meeting, 2 if the staff could develop a recommendation for us by 3 then. But if not, certainly we would hope to have it 4 by the February meeting. 5 COMMISSIONER SCHENCK: I agree. 6 COMMISSIONER CLOWE: That's fine. 7 CHAIRMAN COX: Does that work for you? 8 MR. SADBERRY: It does. 9 CHAIRMAN COX: Excellent. And thanks to 10 all of you for helping us with this matter. 11 Given the time that we devoted to that 12 item -- and I think it's very worthwhile and very 13 appropriate to spend that time -- I'm kind of working 14 the agenda on a triage basis right now, to try to keep 15 people here who are going to be gone if I don't take 16 them out of order. 17 AGENDA ITEM NO. XVII 18 CHAIRMAN COX: And I would like to call 19 at this time Agenda Item No. XVII, report and possible 20 discussion and/or action on the agency's HUB program 21 and/or minority business participation, including the 22 agency's Mentor Protege Program. 23 Ms. Bertolacini. 24 MS. BERTOLACINI: Good morning, Chairman 25 Cox and Commissioners. I'm sorry. I'm adjusting 0115 1 here. 2 For the record, my name is Joyce 3 Bertolacini, and I'm the coordinator of the Texas 4 Lottery Commission's Historically Underutilized 5 Business Program. 6 The Fiscal Year 2007 statewide HUB 7 report was released on October the 15th by the 8 Comptroller of Public Accounts. And included in your 9 notebooks today are summary reports that compare and 10 analyze the TLC's Fiscal Year 2007 performance to that 11 of the previous fiscal year. The agency's overall HUB 12 participation for Fiscal Year 2007 was 27.02 percent. 13 This represents an increase from Fiscal Year 2006 and 14 exceeds the 10-year high that the agency achieved in 15 Fiscal Year 2004. 16 The agency increased its HUB 17 participation in all four of the six procurement 18 categories in which expenditures are made. In 19 addition, the TLC has included on the list of the top 20 25 agencies spending more than $5 million with the 21 largest percentage spent with HUBS. For this report 22 period, the TLC was ranked 12th by total expenditures 23 captured by the annual statewide HUB report. As you 24 may recall last year, we were at No. 11. 25 However, of the 12 largest spending 0116 1 agencies, the TLC ranked No. 1 by overall HUB 2 percentage. And, in fact, the TLC's overall HUB 3 percentage ranked the highest of the 25 largest 4 spending agencies of the state. 5 COMMISSIONER CLOWE: Yea! 6 (Laughter) 7 MS. BERTOLACINI: Not of all 50 but of 8 25, which is really very good. 9 And now regarding the agency's Mentor 10 Protege Program, I am very pleased to report today 11 that we have five mentor protege relationships to 12 announce. And representatives from both the mentor 13 and the protege companies for all of these five teams 14 are here today to witness our Executive Director 15 signing of their agreements. 16 I will announce the names of the 17 companies and introduce by name each of the 18 representatives who are here. And if each of you 19 would stand, please, when I announce your name, I 20 would appreciate. 21 Marlon Watson, who is here to represent 22 Scientific Games International, as the mentor, and 23 Alysia Friday with Business Assets Enterprises, L.P., 24 as the protege. 25 COMMISSIONER CLOWE: And where is your 0117 1 company located, please, ma'am? 2 MR. WATSON: Alpharetta, Georgia. 3 COMMISSIONER CLOWE: All right. 4 MS. FRIDAY: We're here in Pflugerville. 5 COMMISSIONER CLOWE: Pflugerville. I 6 knew where Scientific Games was. 7 (Laughter) 8 MS. FRIDAY: We'll be glad to have you 9 guys come back down. 10 COMMISSIONER CLOWE: Thank you. 11 MS. BERTOLACINI: Ashley Fick and Sarah 12 Emerson, representing Tracy Locke as the mentor and 13 Carol Crigger and Jill Wright representing Creative 14 Printing Limited as the protege. 15 COMMISSIONER CLOWE: And where are you 16 all located? 17 UNIDENTIFIED SPEAKER: We're from 18 Dallas. 19 COMMISSIONER CLOWE: Okay. 20 MS. BERTOLACINI: Then GTECH actually 21 has three relationships that they have established, 22 and Ramon Rivera is here to represent them today. 23 Their three proteges are Richard Flores from Flores & 24 Associates -- and he's located here in Austin -- 25 Chance Reed from CSERV Commercial Moving Services. 0118 1 And I want to say he's located in -- Round Rock? 2 MR. REED: Austin. 3 MS. BERTOLACINI: Austin. Okay. I'm 4 sorry. I thought you were a little further north. 5 And then the third protege: Alysia Friday from 6 Business Assets Enterprises, L.P. 7 COMMISSIONER CLOWE: She's got two 8 mentors. Okay. 9 (Laughter) 10 MS. BERTOLACINI: I'm very happy to have 11 these companies here today. 12 CHAIRMAN COX: Joyce, let me ask a 13 couple of questions. 14 MS. BERTOLACINI: Sure. 15 CHAIRMAN COX: Mr. Flores, what is your 16 business? 17 MR. FLORES: Printer repair, copier 18 repair, fax -- 19 THE REPORTER: Can you slow down. 20 (Laughter) 21 CHAIRMAN COX: And you're going to have 22 to come up to the microphone, please, sir. 23 MS. KIPLIN: Mr. Chairman, I need to 24 have them come up and -- 25 CHAIRMAN COX: Sorry about that. 0119 1 MS. KIPLIN: -- submit witness 2 affirmation forms. 3 CHAIRMAN COX: Okay. 4 MR. FLORES: My name is Richard Flores. 5 And we do printer repair, copier repair, fax. We also 6 supply the consumables, and we also have a contract 7 with the Texas Lottery Commission to do the printer 8 repair for the Texas Lottery. 9 CHAIRMAN COX: Excellent. Thank you 10 very much. 11 MR. FLORES: Thank you. 12 CHAIRMAN COX: And, Mr. Reed, would you 13 share with us, too? 14 MR. REED: Sure. Why not? 15 CSERV offers commercial moving services, 16 furniture installation, reconfiguration and cleaning, 17 along with local logistics services. 18 CHAIRMAN COX: Thank you very much. 19 And the counsel would like for y'all to 20 fill out witness affirmation forms as you leave. 21 Appreciate that. 22 Okay. Sorry, Joyce. 23 MS. BERTOLACINI: No. I apologize. 24 CHAIRMAN COX: Well, I sort of 25 understood what business she was in, but would you 0120 1 like to come and tell us? 2 COMMISSIONER CLOWE: Let's get her on 3 the record. 4 CHAIRMAN COX: Okay. The others had 5 names that were nondescriptive. 6 MS. FRIDAY: Thank you. Alysia Friday 7 with Business Assets Enterprises. We are a 8 packaging -- coordinated packaging and protective 9 packaging solutions provider. We provide boxes, 10 corrugated boxes to Scientific Games as well as the 11 ink that you scratch off of the tickets. And to GTECH 12 Corporation we provide all kinds of packaging, from 13 boxes to stretch wrap and protective packaging 14 solutions as well. 15 CHAIRMAN COX: Excellent. 16 COMMISSIONER SCHENCK: And how many 17 people do you employ? 18 MS. FRIDAY: We've got about 104. 19 COMMISSIONER SCHENCK: And they're all 20 in Pflugerville? 21 MS. FRIDAY: My business office is in 22 Pflugerville. Our warehouse is on Ferguson in Austin. 23 COMMISSIONER SCHENCK: Okay. 24 CHAIRMAN COX: Thank you very much. 25 MS. FRIDAY: Thank you. 0121 1 MS. BERTOLACINI: Any other questions? 2 I'll take care of the witness 3 affirmation forms. I apologize for that. I just 4 wanted to -- 5 CHAIRMAN COX: You didn't know I was 6 going to call them. 7 MS. BERTOLACINI: No, I didn't. I told 8 Kim no, so it's my fault. 9 We're very happy to have these companies 10 here today, and we really welcome their participation 11 in our Mentor Protege Program. And, as you know, it's 12 taking some time to get these relationships together. 13 And I just wanted to let you know that I will be 14 scheduling some initial meetings with each of these 15 pairs, and I'll continue to monitor their progress and 16 report back to you during the terms of their 17 agreement. 18 And at this time, I would ask Executive 19 Director Sadberry to please sign those agreements. 20 I'll get copies to everybody involved. 21 And I would be happy to answer any 22 questions either about this item or the reports item 23 for you at this time. 24 COMMISSIONER CLOWE: Mr. Chairman, I 25 would like to say, Joyce, you know, I'm really pleased 0122 1 to have this report at the year end. And, you know, 2 this has always been an area that I've been deeply 3 interested in and concerned about, and I'm very, very 4 pleased to see this progress. My ghost is going to 5 come back and haunt you if this record is not 6 maintained over the future and these efforts don't 7 continue. 8 So I charge you, Executive Director 9 Sadberry, with the task of continuing this effort. 10 MS. BERTOLACINI: Thank you, sir. I 11 assume it will be a benevolent ghost and not an evil 12 one. 13 (Laughter) 14 COMMISSIONER CLOWE: It depends on how 15 it's treated. 16 MS. BERTOLACINI: I'm thinking about the 17 Ghost of Christmas past or something. 18 Any other questions that I can answer 19 for you? 20 COMMISSIONER SCHENCK: I also want to 21 commend you for these results. I think they're really 22 outstanding. I raised the question at the last 23 meeting that the statistics suggested that we still 24 had some room to make up with respect to African- 25 American contracting in particular, so I'm hoping 0123 1 that -- it's hard to improve on the numbers that 2 you've got. But if there's an opportunity to improve, 3 it seems to me it's with respect to the African- 4 American contract. 5 MS. BERTOLACINI: I appreciate that 6 comment. And I do want to point out just briefly, 7 there are some big challenges that we have in this 8 agency in terms of most of our money is tied up in a 9 small number of large dollar contracts, and that 10 limits our ability to do as much as we possibly -- you 11 know, it limits some of our ability, let me say, to 12 get direct spending to the HUB vendors. 13 However, I wanted to point out, if you 14 look in the commodities area specifically from last 15 year to this year and look at the breakdown across the 16 minority groups, you will see that there was a 17 concerted effort there to make some progress, and some 18 progress was made in that area as far as direct 19 spending on the commodities area. So we will 20 definitely, you know, look at that and see what it is 21 that we can do. The services area for us is so large, 22 and that is where we have our biggest challenge. 23 COMMISSIONER SCHENCK: And again, you're 24 doing a great job, and I encourage you to keep doing 25 it. 0124 1 MS. BERTOLACINI: Thank you very much. 2 CHAIRMAN COX: And I would thank -- as 3 well as thanking you, Joyce, I would thank our 4 vendors, some of whom are represented here today, who 5 play a very important role in this activity. 6 MS. BERTOLACINI: Well, and I would like 7 to add, the Purchasing Department and Contracts people 8 are the ones that are really the front line on this 9 and really the ones that have to extend the 10 opportunities. And I interact with them, but they're 11 really the front line and make a big difference. 12 Again, in that commodities area, that was a large part 13 due to their activities that those numbers came up. 14 CHAIRMAN COX: Absolutely. 15 MS. BERTOLACINI: So I would like to 16 thank them. 17 CHAIRMAN COX: Thank you very much. 18 COMMISSIONER SCHENCK: Thank you. 19 MS. BERTOLACINI: You're welcome. 20 CHAIRMAN COX: I'm really pleased about 21 it. You know, it's been since -- I've good on this 22 board five years, and it seems like it was almost five 23 years ago that we had a new mentor protege 24 relationship. I may be wrong on that, but I'm really 25 glad to see these coming. 0125 1 MS. BERTOLACINI: Thank you, sir. 2 CHAIRMAN COX: Okay. Counsel, do you 3 have any thoughts of items that we should take out of 4 order or should we just start at the beginning and go 5 from there? 6 MS. KIPLIN: I'm not aware of any items 7 that we need to take out of order. I would like to 8 ask, just for time issues, we have an assistant 9 attorney general who would like to come over and give 10 us legal advice in executive session. 11 CHAIRMAN COX: Okay. I'm looking to get 12 through the bingo agenda and then have lunch. So if 13 that gives you any guidance, you can guess probably 14 better than I what time it's going to be. But 15 Chairman Clowe was thinking he would like to eat 16 around 12:00 or 12:30, so we will just kind of go that 17 way. 18 COMMISSIONER CLOWE: I'm going to have 19 that turkey and dressing and cranberry. 20 CHAIRMAN COX: There you go. 21 (Laughter) 22 MS. KIPLIN: Thank you, Mr. Chairman. 23 CHAIRMAN COX: Okay. And Suzanne may 24 have had to leave. 25 AGENDA ITEM NO. II 0126 1 CHAIRMAN COX: Okay. Item No. II, 2 report by the Bingo Advisory Chair, possible 3 discussion and/or action regarding the Bingo Advisory 4 Committee's activities, including the November 7, 2007 5 committee meeting. 6 And our apologies to Ms. Taylor. She 7 made a trip up here from Corpus Christi and had to 8 turn it over to Mr. Fenoglio. Steve, thank you for 9 being here. 10 MR. FENOGLIO: You bet. And for the 11 record, I am not Suzanne Taylor. My name is Stephen 12 Fenoglio, and I'll file an appearance slip 13 momentarily. Ms. Taylor did have to go back to 14 Corpus. She gave me the report she was prepared to 15 submit. It is my understanding she did submit that to 16 the Commissioners. I believe it's in your notebook. 17 CHAIRMAN COX: It is in our notebook. 18 MR. FENOGLIO: In order to accommodate 19 Chairman Cox's schedule, I would ask that this be just 20 put into the record. And I'll be happy to answer any 21 questions. I was present at the BAC meeting. 22 CHAIRMAN COX: Okay. And I was present 23 at the meeting as well. 24 And do y'all have any questions? 25 COMMISSIONER CLOWE: No, sir. 0127 1 CHAIRMAN COX: Any questions? 2 COMMISSIONER SCHENCK: No, sir. 3 MR. FENOGLIO: I'll give a copy to the 4 court reporter. Thank you. 5 CHAIRMAN COX: Great. 6 MS. KIPLIN: But for the record, you're 7 not here as counsel? 8 MR. FENOGLIO: Oh, no, no, no. I just 9 happened to be standing by when Ms. Taylor said, 10 "Would you make my report?" 11 Thank you. 12 AGENDA ITEM NO. III 13 CHAIRMAN COX: Agenda Item No. III, 14 report, possible discussion and/or action on the 15 agency's bingo enforcement matters. 16 Mr. Sanderson and Ms. Kiplin. 17 MR. SANDERSON: Good morning, 18 Commissioners. For the record, I'm Phil Sanderson, 19 Director of the Charitable Bingo Operations Division. 20 At the July Commission meeting, while 21 deliberating the memorandum and consent order between 22 the Commission and Game Tech International, a member 23 of the public expressed concerns that he felt the 24 Commissioners were not receiving enough information 25 from staff in order to make an informed decision. 0128 1 Additionally, he expressed concerns that there was a 2 disparate treatment of licensees and improper 3 enforcement of Commission agreements and orders. 4 I'm here today, along with the General 5 Counsel, Kimberly Kiplin, to address those concerns. 6 The Bingo Division and Legal Division work very 7 closely with each other to ensure that all cases are 8 handled with the same fairness and consistency. The 9 Commission has adopted rules, the standard penalty 10 guideline as well an expedited penalty guideline and a 11 dispute resolution rule, to assist with this process. 12 Additionally, the Commission currently 13 has a proposed rule, 402.709, which is a corrective 14 action for audit rule. The Division recently approved 15 a procedure processing agreed orders which includes a 16 section on tracking compliance with the terms of the 17 agreed orders. 18 Several years ago the Division would 19 basically take any and all administrative actions to a 20 hearing at SOAH. After it was determined that there 21 was an alternative to pursuing either a revocation of 22 a license or a denial of an application in the form of 23 an administrative penalty, the Division, with Legal's 24 assistance, began utilizing the memorandum of 25 agreement and consent order as a way to resolve 0129 1 compliance issues. 2 I would like to now defer to the General 3 Counsel, Ms. Kiplin, to offer any comments they she 4 may have related to the enforcement process. 5 MS. KIPLIN: Thank you, Commissioners. 6 And I do have some comments and I've thought about 7 really what to say regarding the enforcement process. 8 I've got two Commissioners who have been with the 9 Commission for a long time, and I've got a new 10 Commissioner who is at his second Commission meeting. 11 But at my request, Mr. Chairman, you passed all the 12 enforcement matters so that, Commissioner Schenck, you 13 weren't able to actually see how that process as a 14 matter of practice has occurred. And so I want to 15 kind of balance those issues and I guess maybe hit 16 some highlights. 17 And the question that was raised in a 18 series of meetings that we had with the gentleman who 19 is here, who I do think wants to address you, and you 20 may have already provided a witness affirmation. 21 CHAIRMAN COX: He has, in fact. 22 MS. KIPLIN: Okay. Really led to the -- 23 in my mind the more global question which is how are 24 Commissioners informed? How do you get enough 25 information to make your decisions on these 0130 1 enforcement proceedings? And so that led to a 2 discussion that occurred at those meetings in terms of 3 our practice. And for Chairman Cox and Commissioner 4 Clowe, you know that. 5 But Commissioner Schenck, I guess more 6 for your benefit, we have two sets of enforcement 7 proceedings that actually bubble up and finally come 8 to the attention of the Commission and for Commission 9 action on entry of enforcement orders. And they 10 bubble up in the form of contested case proceedings 11 that go to the State Office of Administrative 12 Hearings, and then they bubble up in the form of 13 settlement agreements and proposed agreed orders 14 between your staff, the Commission staff, and the 15 licensee, the respondent, the one against whom the 16 enforcement action is being contemplated by the staff. 17 With regard to the contested case 18 proceedings, there's a full evidentiary proceeding 19 that occurs at the State Office of Administrative 20 Hearings where you've got an Administrative Law Judge 21 who actually is the trier of facts and then ultimately 22 applies the findings of facts to applicable law and 23 generates conclusions of law. And then procedurally a 24 proposal for decision is submitted to the parties -- 25 and those parties, of course, are the staff and the 0131 1 licensee -- for them to take exception and reply. 2 Then ultimately when that whole process 3 occurs and you have this administrative record, those 4 cases come before you for your consideration. And 5 there really are limitations now within the law on 6 what changes you can actually make to the findings and 7 the conclusions that are presented to you by SOAH, but 8 you have a record. 9 And should somebody who feels aggrieved 10 by that decision that you ultimately enter in that 11 contested case, well, then, they can procedurally file 12 a motion for rehearing and then ultimately file a 13 petition for review, judicial review here in Travis 14 County in district court. And the standard is 15 substantial evidence; it's substantial evidence of the 16 record review. And so what that means is, at least 17 for this agency, there's not a redo. You don't get to 18 re-try the case. And it goes before a district court 19 judge. 20 So you have the benefit of this record 21 before you. And insofar as the information is 22 presented to you, in your notebooks, as a matter of 23 practice, what has been provided historically has been 24 the proposal for decision and the exceptions and the 25 replies, and then they're filed with the Commission 0132 1 and the State Office of Administrative Hearings. 2 Now, on an agreed order, the process is 3 different. That's a process where the staff is 4 following what it's required to do under the 5 Administrative Procedures Act and engaging in a 6 disciplinary action and enforcement action against a 7 licensee that ultimately will come before you for your 8 action, your consideration on that agreement. 9 And it doesn't -- like the question, 10 what information comes before the Commission? Then 11 that's the broader question that's on the table: How 12 do you all decide -- you know, how do you know that 13 it's the order that should be entered? You have the 14 opportunity to ask the questions of the folks that 15 present that. 16 Generally the Commission has requested 17 it be the General Counsel that presents these items. 18 But when it becomes pretty evident that there's more 19 advocacy or it's a matter of interest or controversy, 20 then the enforcement attorney for the agency that's 21 handled that matter, along with whoever the respective 22 staff would be, whether it's the Bingo staff or the 23 Lottery staff, will also be here to be a part of that. 24 The concern that the General Counsel has 25 in terms of parties, even including the enforcement 0133 1 attorney, coming before you in particular with a 2 contested case proceedings, is there's an 3 administrative record that's been developed that 4 ultimately could go to district court. And so we have 5 and I have provided the caution that any comments that 6 you get should stay within the record. 7 On the agreement side, that also is a 8 concern, not necessarily from an administrative record 9 that's been developed but for purposes of: Well, if 10 you hear something that is such that you want to 11 remand it back to SOAH, then you've begun to develop 12 some record where you have, at least at some point as 13 a decisionmaker, said, "I'm going to send that back to 14 SOAH." 15 I can tell you that the models and how 16 matters come to commissions. What they are among 17 state agencies does differ. One comparator in terms 18 of full-time commissions is the full-time 19 commissioners, they sit; they're there every day, 20 Monday through Friday. They're either appointed or 21 elected. But they have their staff, they have a 22 general counsel. And so there is that ability for 23 you-all to get a briefing, an individual briefing 24 where there's no ex partes. 25 Commissioners, I think that concludes, 0134 1 if you want to ask me something. 2 COMMISSIONER SCHENCK: Yes, I have a 3 couple of questions. I want to make sure I'm 4 understanding this process correctly. With respect to 5 agreed orders -- 6 MS. KIPLIN: Yes. 7 COMMISSIONER SCHENCK: -- the party will 8 have the opportunity to disagree with the 9 recommendation of the staff. And if he does, then the 10 matter will go to SOAH and it will come here for us to 11 effectively act as an appellate body without 12 substituting the fact-findings or -- 13 MS. KIPLIN: Well, it is your decision. 14 But in terms of the fact-finding, yes, I think that's 15 correct. You're not the fact-finder. 16 COMMISSIONER SCHENCK: Right. 17 MS. KIPLIN: Should you decide -- and 18 the Commission has in the past said, "You know, we 19 need more facts -- then your order would be to remand 20 it back to SOAH for taking of additional facts. 21 COMMISSIONER SCHENCK: And with respect 22 to an agreed order -- 23 MS. KIPLIN: Yes. 24 COMMISSIONER SCHENCK: -- if we don't 25 like it, we remand it back to SOAH. 0135 1 MS. KIPLIN: Okay. 2 COMMISSIONER SCHENCK: I'm thinking now 3 just in terms of the issue before us here today. The 4 aggrieved licensee has the opportunity to insist on a 5 hearing in SOAH in the first place by not entering 6 into a proposed agreed order? 7 MS. KIPLIN: Yes, that's correct. 8 COMMISSIONER SCHENCK: Okay. Then with 9 respect to the proposed agreed order, he has the 10 opportunity to appear at the hearing in which we will 11 be deciding whether or not to accept the agreed order? 12 MS. KIPLIN: That's correct, at the 13 Commission meeting. 14 COMMISSIONER SCHENCK: And he has the 15 opportunity to have counsel at both of those stages if 16 he so desires? 17 MS. KIPLIN: Yes, yes. 18 COMMISSIONER SCHENCK: Okay. So the 19 question, then, of what information the staff has to 20 do in terms of advocating the position or giving 21 information that would allow them more effectively to 22 advocate a position for some different treatment than 23 he might get in terms of how others in similar 24 situations have been treated. But he has the 25 opportunity in terms of through his own counsel or by 0136 1 not agreeing or by pursuing information any way he 2 wants, he can pursue that? 3 MS. KIPLIN: I think that's correct. I 4 think under the Open Meeting -- let me back up just a 5 little bit. Under the Open Meetings Act, the public 6 has a right to be here and has a right to see what 7 occurs. And it doesn't necessarily have a right to 8 participate. This Commission, since Day One of the 9 creation of this Commission, has allowed people to 10 come before you and present information, whether 11 they're the licensee or, in the case that bubbled this 12 higher issue up, the complainant that led to that 13 particular enforcement action against somebody else, 14 against a licensee, so that information, it comes 15 before you in that regard. But certainly the 16 respondent, licensee or applicant for a license has 17 the ability to obtain their own counsel. 18 COMMISSIONER SCHENCK: And to advocate 19 their position -- 20 MS. KIPLIN: And to advocate. 21 COMMISSIONER SCHENCK: -- if it's 22 relevant. The question here today, the issue is what 23 types of information will be beneficial for the 24 Commission members to have in order to make an 25 informed and valid decision? 0137 1 MS. KIPLIN: Right. 2 COMMISSIONER SCHENCK: So this is not an 3 attempt to pursue any sort of collateral review of a 4 particular proceeding or criticism of a particular 5 outcome in a case. Their cases are closed at this 6 point? 7 MS. KIPLIN: The case that led to the 8 meetings, the Commission entered the order, entered 9 the agreed order. The concern that was expressed by 10 the complainant in that case was -- and I'm putting 11 words into the complainant's mouth. And, of course, 12 he's here and certainly capable of speaking for 13 himself -- is that I don't think the Commission got 14 all information that the Commission should have on 15 that individual case. But the higher issue, the 16 higher concern was whether -- 17 COMMISSIONER SCHENCK: That case is 18 closed, and we're not here to redecide that case. My 19 concern is, I want to make sure that we understand 20 what we're doing. We're talking prospectively, not 21 retrospectively, about this particular case. So I'm 22 hoping that when we get onto the merits of this issue, 23 we're not going to be relitigating, to the extent we 24 might in some other context, the particulars of that 25 case, but helping us to help future litigants and 0138 1 licensees in terms of making a useful and valid 2 determination in future controversies. 3 MS. KIPLIN: Well, that's where I think 4 Mr. Sanderson and I are in terms of the staff and 5 trying to determine what model would the Commission 6 like to use, if the Commission wants to change a 7 model, and making sure that you-all have the 8 information that you need to make informed decisions. 9 I think on the contested side, that record has been 10 made. On the agreed order side, it really does, I 11 think, come down to the presentation that occurs to 12 you-all at the Commission meeting. 13 So with that, really what I've tried to 14 do is tee this issue up among general counsels of 15 other state agencies to try to get an idea: Are there 16 any different models? Is there a better model, one 17 better than another model? You look at the structure 18 within the agency and see what can be of help, what 19 can benefit you-all in terms of making these decisions 20 on these cases. 21 And I'm hopeful that I'll be able to 22 gather more information on that and cut away from the 23 models that just -- they're not good comparisons, 24 because it's not the same type of Commission 25 structure. And that's where we've left it in terms of 0139 1 teeing this issue up for you-all to let me know where 2 we are on that. 3 And I will say that Sarah Woelk is the 4 special counsel. One of the things that we've tried 5 to do is carve her out so that she's not involved with 6 any of the enforcement proceedings, as best we can, so 7 that she's available should you-all on an individual 8 basis want legal advice about a matter that you've got 9 in here where you want it beforehand. And we're doing 10 that because of ex parte communication prohibitions on 11 particularly contested case proceedings. 12 CHAIRMAN COX: Ms. Kiplin, a question. 13 MS. KIPLIN: Yes, sir. 14 CHAIRMAN COX: Are we talking here 15 fairness at the staff level or fairness at the board 16 level? 17 MS. KIPLIN: I think probably with both. 18 Fairness on is the staff really giving you the 19 information? I mean, to put it in maybe the harshest 20 light, that maybe you would hear from somebody: Are 21 you getting what you need? Is the staff working with 22 the respondent but not necessarily taking into 23 consideration consistency on similarly situated folks 24 or fairness? And then making sure that the Commission 25 is able to make an informed decision. 0140 1 CHAIRMAN COX: Okay. Are you pulling 2 that out as the question for us to answer or are you 3 still presenting? 4 MS. KIPLIN: Well, I'm done presenting. 5 CHAIRMAN COX: Okay. 6 MS. KIPLIN: I think I've given the 7 information. I've tried to, you know, set the tone 8 and let you know that what we're looking at is whether 9 we ought to recommend a different model, if the 10 Commission has any direction the Commission would like 11 to give the staff -- 12 CHAIRMAN COX: Okay. 13 MS. KIPLIN: -- that they're satisfied 14 with the process. 15 CHAIRMAN COX: Okay. 16 MS. KIPLIN: Would you like us to tweak 17 the process? Would you like a different process? 18 What can we do to help you? 19 CHAIRMAN COX: Okay. Chairman Clowe? 20 COMMISSIONER CLOWE: I would like to 21 hear from Mr. Hieronymus. 22 CHAIRMAN COX: Mr. Steven Hieronymus, 23 representing Trend Gaming Systems, L.L.C. 24 MR. HIERONYMUS: Thank you, Chairman Cox 25 and Commissioner Clowe and Commissioner Schenck. It's 0141 1 nice to see that you have the third hot seat filled. 2 And I really appreciate, Kim, how you 3 laid that out. I think that was good. 4 First I want to sort of address the 5 procedural thing. And do let me assure you that I am 6 not trying to go back and rehash an old event, but I 7 do think it's important that we learn from what we've 8 done, both good and -- you know, good or bad, we can 9 learn from it to make things better. 10 The procedure that I have been concerned 11 about is in a case that comes before you where the 12 staff has made a recommendation, there is no process 13 for you to evaluate the information that you're being 14 provided by staff. And, you know, there's no question 15 here but I have not necessarily agreed with some of 16 the recommendations by staff. I don't necessarily 17 love sending everything to the ALJ, but that's the 18 only process or mechanism where things can be more 19 fully fleshed out for you to evaluate. 20 And so my concerns -- and I've shared 21 these with both Phil and Kim for actually the last 22 couple of years -- is that when I come up here to make 23 comment on a staff recommendation, my hands are very 24 tightly constrained. And I understand that. I'm not 25 complaining to Kim about that. But I can't be 0142 1 effective in communicating to you why you need to look 2 at this deeper. And so I've been encouraging -- and 3 again, I thank Kim for spending some time to think 4 about it, because there's some dynamics the way the 5 current system is set up that does not allow you to 6 properly evaluate the situation. 7 Now, there was some reference to the 8 matter that took place in July, and that was a 9 situation where I was actually able to raise the 10 question of fairness between the treatment of 11 licensees. And, actually, Commissioner Cox, you 12 specifically asked a question that I had brought up 13 and you had mentioned -- you asked the attorney that 14 was sitting here specifically the question, you know, 15 about the fairness issue. 16 And the answer was, I didn't feel 17 completely accurate, you know. But coming from an 18 accounting background -- I have that smell test 19 background, too -- and I didn't think it was -- there 20 was a technical answer that she gave, but I don't 21 think it was the question you were asking, which had 22 to do with the fairness issue, and it had to do with 23 whether licensees with an improper interest, how they 24 were treated. 25 And I have shared that it was a small 0143 1 licensee who had an alleged improper interest that had 2 been fully disclosed, had been licensed, nothing 3 changed. And then upon renewal, the Commission came 4 and said, "No, you lose your license. And the only 5 option is to voluntarily surrender your license in an 6 agreed order or take it -- or we'll take you to the 7 ALJ to take your license. Those are the only options 8 available." 9 And then in the case of the large 10 licensee that I was actually in front of you, though 11 it was a complaint and an investigation, so that was a 12 distinction between the two, an informal agreement was 13 entered into and other options were available to them 14 besides removal of license. 15 That's what I was trying to get to. And 16 I don't believe, Chairman Cox, that you were properly 17 provided the answer. And I felt -- rightly or 18 wrongly, I felt limited in what I could then say at 19 that point, because of the process and I did not want 20 to step over the bounds that I had been educated over 21 the years on. So I do think that that's a concern. 22 And then also within the enforcement 23 area -- and it kind of goes into this equal treatment 24 concept, is one of my concerns that I had raised -- it 25 came to my attention that the same licensee that I had 0144 1 been in front of you before, the matter that took 2 place in 2005 -- it was the largest single enforcement 3 action that this Commission has ever taken in a bingo 4 case -- and I was concerned and I made an open records 5 request to find, you know, how the compliance of that 6 agreed order that you entered into was actually 7 handled. 8 And I was very shocked to see that, in 9 fact, the case had been closed when, by definition 10 with the order, it was a three-year agreement. It was 11 entered into in August of '05. It went to August of 12 '08. And the Commission actually closed the file, 13 with the notation it had met all terms and conditions 14 in April of '06. 15 And so I then quickly got hold of staff 16 and -- well, it did not go. It may have kind of 17 slipped through the cracks, I believe was the thing. 18 You know, this was the largest matter you've ever done 19 much. So I think that there are some issues, and that 20 feeds this perception that particularly, you know, a 21 large licensee was handled one way and a small one 22 another way. 23 And again, I don't want to rehash the 24 past, but I think that there are some improvements. 25 And it would help if there's a method where, when 0145 1 someone such as myself or other licensees, may 2 disagree with information that staff is presenting, 3 there needs to be some mechanism for you to be able to 4 evaluate the information you're being presented. I 5 mean, I appreciate the staff and I appreciate all 6 their hard work. But sometimes I really disagree with 7 their positions, and I think you need the benefit of 8 an alternative viewpoint so that we can have an 9 effective method and it conveys that all licensees are 10 handled the same, whether they can afford, you know, 11 million-dollar attorneys or no attorney at all. 12 And so that's my concerns. And again, I 13 think Kim did a good job of laying out the issues. 14 And the one I'm concerned with is, you know, an agreed 15 order being presented by staff; thus, you have 16 virtually nothing to evaluate. So that's where my 17 concerns lie. 18 CHAIRMAN COX: Thank you, 19 Mr. Hieronymus. 20 Chairman Clowe, do you have any 21 questions? 22 COMMISSIONER CLOWE: No, I do not. 23 CHAIRMAN COX: Commissioner Schenck? 24 COMMISSIONER SCHENCK: Yes. I'm a 25 little unclear of specifically what you're proposing 0146 1 we should do, because it seems to me when you're 2 talking about enforcement actions like this, there's a 3 somewhat naturally adverse posture as between the 4 staff and the person who is about to be punished. 5 And is it that you want us to propose an 6 ombudsman person who would review the matter from the 7 licensees' perspective? Or what is it exactly you 8 think we should do? 9 MR. HIERONYMUS: Well, unfortunately, I 10 don't have the right answer. That's why I have met -- 11 Kim and I have met a couple of times on the subject. 12 And I think that's where she has been interested in 13 exploring to see what other options might be 14 available. And I think that's why we -- the whole 15 point of this agenda item, was to bring it to your 16 attention as something that might need to be -- that 17 should be looked at to evaluate. I wanted to -- and I 18 support your at least considering if there is an 19 alternative mechanism, whether it's similar to an 20 ombudsman or something of that nature. I don't know 21 the right answer. 22 COMMISSIONER SCHENCK: And let me just 23 say, naturally I would expect that, notwithstanding 24 your concerns about speaking out of turn, that if you 25 were being -- if there was some adverse decision being 0147 1 made with respect to a licensee, that the licensee 2 would feel free to communicate that there is something 3 wrong about it, and I would want to hear that. 4 MR. HIERONYMUS: Most definitely. In 5 this particular instance, I wasn't the party doing the 6 enforcement. I happened to actually be the 7 complainant. But any licensee that would be concerned 8 about the proposed -- the proposal that's being there. 9 In this particular case, I had access to a tremendous 10 amount of information and did not feel that it was 11 adequately presented so that you could understand the 12 gravity of the situations involved. 13 So there was no mechanism for the 14 decisionmakers in this case to evaluate. And that's 15 why I just came up and said, you know, my 16 recommendation was reject the agreed order, send it to 17 the ALJ, so that when it then comes back to you, you 18 have a more -- a record and established facts where 19 you can then make a decision more properly educated. 20 COMMISSIONER SCHENCK: Well, I will tell 21 you, I mean, this is what I do for a living. And the 22 problem with individualized justice is, you get 23 individualized outcomes. And sometimes you can look 24 at them and say, "This one is different from that 25 one." And the only difference was, this person's 0148 1 lawyer was better than that person's. 2 MR. HIERONYMUS: That's what you're 3 getting right now, in my opinion. 4 COMMISSIONER SCHENCK: And the problem 5 is, what do we put in its place? I mean, we have the 6 opportunity for -- I mean, when I see something that's 7 an agreed order, it says to me that the adverse party 8 has agreed to this, and he must agree with it. So 9 what else should I be doing? I mean, the staff 10 presumptively isn't entering into agreements they 11 don't like either. So who is it that we have drilled 12 down -- maybe that is a question really for Kim -- but 13 who is it that we could put in place to challenge the 14 agreement between staff that they think is appropriate 15 and the licensee that they think is appropriate, to 16 make sure they're both not wrong? Because they're the 17 only parties to the dispute. 18 MS. KIPLIN: I know, and that is the -- 19 that in and of itself is the -- I guess the crux of 20 the problem, because you naturally believe that there 21 would be the push-pull, you know, the inherent tension 22 between the two where staff, in carrying out their 23 responsibilities, is administering the Act, 24 administering the rules consistent with, you know, the 25 policy, the guidelines, the ranges, prior decisions 0149 1 that the Commission has entered or has adopted. And 2 the licensee is saying, "You know, this just isn't 3 so." I mean, part of the APA -- part of the 4 Administrative Procedure Act is notice of opportunity 5 to show compliance where the staff -- whether the 6 thinking is the law is wrong or on the conduct. 7 I will say I do think that there are 8 other evaluations that go into that from the 9 licensees' point of view and the staff's point of view 10 that really look to the individual cases. Is there a 11 rule of law that, you know, we really are focused in 12 trying to get as a conclusion of law to have for the 13 larger body? 14 Is there evidence that, you know, we 15 believe and we're committed on but you don't know, 16 because you've got, you know, witnesses and all those 17 kind of things that go into an evaluation. 18 COMMISSIONER SCHENCK: How many people 19 on our staff would typically be involved in one of 20 these enforcement actions if it were leading to the 21 surrendering of a license, let's say? 22 MS. KIPLIN: Well, on like a 23 revocation -- 24 COMMISSIONER SCHENCK: Yes. 25 MS. KIPLIN: -- and compared to where he 0150 1 was using it was a renewal application license. So 2 it's somewhat of an on/off versus a disciplinary 3 action where there's the imposition of a fine, you 4 know, different disciplinary. But on complaints, 5 they'll run through the -- for the most part, if 6 there's a complaint that causes there to be an 7 investigation, you've got an investigative report that 8 comes from the Enforcement Division that then goes to 9 the Bingo Division where the Bingo Division then seeks 10 legal services on an enforcement action. 11 COMMISSIONER SCHENCK: But my question 12 is, would there be more than one staff member involved 13 with the decision of what we would be willing to agree 14 to? 15 MS. KIPLIN: Sure. 16 COMMISSIONER SCHENCK: And let me ask 17 the next question. Is there an opportunity for 18 dissent among the staff to be communicated to the 19 board? 20 MS. KIPLIN: Yes, I think there is, but 21 there is that opportunity. But ultimately the staff 22 works together and deals -- you know, has that debate 23 on a staff level before we would proceeded either one 24 way or another on a contested case or an agreement. 25 MR. HIERONYMUS: I've never seen that. 0151 1 MS. KIPLIN: Yes. I mean, I agree, 2 because you're coming forward as the staff, the staff 3 recommending, through the Bingo Division Director, 4 recommending an outcome on an agreed order. 5 COMMISSIONER SCHENCK: Well, I 6 understand. I mean, it's human nature, it seems to 7 me, if you're working as part of a group -- 8 MS. KIPLIN: Right. 9 COMMISSIONER SCHENCK: -- to want to 10 come to a consensus and not to share your 11 disagreements. But if there's somebody on the staff 12 that feels that what we're recommending is something 13 that's not just, I think it would be best it they 14 communicated that to us. 15 MS. KIPLIN: No. I'm sorry. I 16 misunderstood you. That's a different -- that's a 17 different question, then. And the lawyer fills that 18 role, I believe, and I think would give advice to the 19 Bingo Division Director on that. And, obviously, I 20 fill that role. 21 COMMISSIONER SCHENCK: Okay. 22 COMMISSIONER CLOWE: Let me give you a 23 non-lawyer's take on this. In the beginning, we used 24 to have a lot of contentious cases, and coming mostly 25 out of the Bingo Division. And the Commission had 0152 1 some really difficult decisions to make affecting our 2 licensees -- almost constantly. At the time 3 Commissioner Sadberry served, that was constant, in my 4 recollection. I think our division has done a better 5 job of educating now the bingo licensees. And the 6 audit, I hope we just -- have we completed it? 7 MR. SANDERSON: Yes, sir, we have. 8 COMMISSIONER CLOWE: There were many 9 faults on the side of the staff. There were errors 10 that our Internal Auditor developed and brought to 11 light. It was an imperfect enforcement world. And in 12 my opinion, having been on the side being enforced 13 more than I have being on the enforcement side -- and 14 Chairman Cox pointed out, you know, we are not 15 correctly carrying the burden of uniformity, fairness 16 and consistency in our enforcement activity. 17 And my hope is Director Sanderson has 18 gotten that problem solved. The education of the 19 licensee is much better, so we don't have nearly the 20 volume or the consistency of these kinds of decisions 21 coming up, either the noncontested or those coming 22 from the Administrative Law Judge. 23 Mr. Hieronymus has been active in 24 bringing his position to the Commission. And for 25 that, we're grateful. We appreciate it. And he's an 0153 1 intelligent and a good participant in the industry. 2 But it is not something that's presented to this 3 Commission month- after-month-after-month. I want to 4 put that in what I see as the proper perspective for 5 this. 6 In the instances that he's called to our 7 attention, he was the complainant, he didn't agree 8 with the proposed settlement. The Commission allowed 9 him to appear and make his comments. Then the 10 Commission made its determination. 11 In my view, he got his day. And my 12 sense is, there is no better solution that is 13 proposed. And the General Counsel has polled other 14 agencies, and she hasn't come up with anything that's 15 better. This system is in place generally throughout 16 state government. And the staff and the person who 17 has the issue, in my mind ought to try to work 18 together for a solution, for an agreed settlement. 19 That's what you want to do. You want to keep it out 20 of court if you can. 21 And on my part for my sense of it, we 22 need to keep looking at our staff and making sure 23 they're doing the job. We need to review the agreed 24 orders. And if there's someone like Mr. Hieronymus 25 who has a contrarian view, we ought to listen to that 0154 1 person within the bounds of good practice, and then we 2 ought to decide on the contested cases, and the 3 noncontested cases, how we feel about that. 4 I think the system is working. And I'm 5 respectful of his position, but I don't see a better 6 place, Commissioner, to go in this process. And that 7 would be my response to your question, "Is there a 8 better way to do it?" I don't think so. 9 CHAIRMAN COX: And I'm going to add to 10 that in a moment. But we have two more witness 11 affirmation forms that have appeared. So Stephen 12 Fenoglio representing himself. 13 Thank you, Mr. Hieronymus. If anybody 14 has anymore questions for you, we'll ask you. Thank 15 you very much. 16 MR. FENOGLIO: Mr. Chairman and 17 Commissioners, my name is Stephen Fenoglio. I'll be 18 brief. 19 I agree with almost everything 20 Commissioner Clowe said. The only observation I would 21 make is that -- and I'm the lawyer that's represented 22 I think the largest number of licensees that are 23 engaged in conduct with the staff, under either 24 Mr. Sanderson or predecessors, has brought in a 25 contested case hearing, and we've either settled or 0155 1 we've tried. 2 It occurs to me that there may be some 3 cases that are of such import that someone like a 4 Sarah Woelk or Anthony Sadberry -- not that he doesn't 5 have enough to do -- but that there's a way to attract 6 comment from the industry. And the case that's being 7 discussed had to do with alleged price-fixing. 8 Under the staff's analysis -- I was not 9 involved in that case, although I had a number of 10 charities who allegedly had been overcharged visit 11 with me about it. And I reviewed 60 percent, 12 80 percent of the entire record -- that's boxes of 13 documents and the staff's analysis -- after the 14 fact -- that there are some cases that may be so 15 important that the agency should, as a policy 16 perspective, consider outreach to the industry. And 17 that is likely one case, and I think there's only been 18 one case that I'm aware of where the agency may have 19 wanted to go out and inquire from the industry: We've 20 got these allegations. What's your perspective, 21 charities that consume this product, in the case of 22 alleged price-fixing? But that's the rare exception. 23 It is a new day at the Commission staff, 24 and a lot of it had to do with the Internal Audit 25 investigation determinations that came forward. The 0156 1 staff works at a different level, a much higher level 2 than they had, from my perspective sitting on my side 3 of the table, than they did in the past occurrence. 4 And that's the only observation I would make. 5 I don't have a dog in the hunt directly 6 on this issue. But it seems to me that from a public 7 policy -- and there are some federal agencies that, 8 when it triggers a threshold issue, they will actively 9 go out and seek comment from possibly adversely 10 affected parties. 11 That does take someone on the staff 12 decision to recognize this is a major import case and 13 then someone tasked to go, perhaps inquire or find 14 facts, which is a lot of staff -- it could be a lot of 15 staff resources. And I think in hindsight, perhaps 16 that should have been done, although again I've not 17 read the entire record, so I wouldn't -- if you asked 18 me to put it in writing, I wouldn't make that 19 affirmative determination that that case mandated that 20 type of conduct. 21 I'll be happy to answer any questions. 22 CHAIRMAN COX: Anything, Commissioners? 23 Thank you, Mr. Fenoglio. 24 Rob Kohler representing the Christian 25 Life Commission of the Baptist General Convention. 0157 1 MR. KOHLER: Good morning, 2 Commissioners. Thank you. 3 We also don't have a dog in this 4 particular hunt that we're talking about but on bingo 5 enforcement would like to add some thoughts into it. 6 We're in receipt of a letter that was sent out from 7 the Commission to bingo manufacturers, dated October 8 9th. And on the second page, there's language that 9 says -- and I'll read it verbatim if you don't have a 10 copy of it. 11 It says, "The video confirmation 12 products. If you currently have a video confirmation 13 product in use in Texas, the Charitable Bingo Division 14 asks that you cease operation and submit it for 15 approval." 16 And we are working under the 17 understanding that bingo enforcement is enforcing 18 those directions and there would be no -- the public 19 would be made aware if bingo enforcement wasn't 20 working on it. 21 CHAIRMAN COX: Well, what kind of 22 response would you like, Rob? 23 MR. KOHLER: None. As long as you were 24 talking about bingo enforcement, we wanted to bring 25 this issue forward. 0158 1 CHAIRMAN COX: Okay. Great. 2 MR. KOHLER: Thank you. 3 CHAIRMAN COX: Thank you, Rob. 4 Okay. I would add to it just an 5 anecdote to what Chairman Clowe said, Commissioner. 6 We had one contested case that I remember quite well 7 that was a very extensive case involving a number of 8 licensees that were working out of a particular hall, 9 and there were a number of matters asserted by both 10 the licensees and our staff that both Chairman Clowe 11 and I disagreed with. And in that case I was assigned 12 a special counsel to help me -- that is, one who had 13 not been involved in the proceeding at all -- so she 14 could advise me, being a nonlawyer, on the legal 15 issues of the thing. 16 I think Chairman Clowe rooted his issues 17 out on his own, but he may have had help from counsel 18 as well. And we ultimately said, "This case is not 19 acceptable to us. It needs to be settled or it's 20 going to be sent back," for all of these reasons that 21 we've talked about. So having seen the process work 22 in that one particular case, I feel very good about 23 the way we look at contested cases at the level of our 24 board. 25 As to the staff, I feel very good 0159 1 about -- as Mr. Fenoglio pointed out, we have improved 2 our bingo staff significantly, and we have improved 3 significantly the interaction between the Legal 4 Department and the Bingo Division. So I think that we 5 are probably at that level getting the kind of 6 consistency that we would want if we were able to do 7 it on a specific basis. 8 So, like Chairman Clowe, I believe that 9 what's going on right now -- and it may be different 10 from the situation of what Mr. Hieronymus describes, 11 because we've learned a lot and we've implemented it. 12 So I feel very good about the process that's in place 13 right now. 14 COMMISSIONER CLOWE: And going forward, 15 I think we ought to not have any complacency; I mean, 16 always be alert to any methodology that we can adopt 17 which would improve the system. We're appreciative of 18 Mr. Hieronymus' comments and for the work that staff 19 does and the legal staff. But again, I think Chairman 20 Cox and I are in agreement on this. From our past 21 experience, we don't see a better way. 22 And we feel like we have really, with 23 staff of those involved, improved the process, to give 24 the industry -- and that's what we're really talking 25 about here -- the best enforcement and regulation that 0160 1 we can achieve, both in the bingo operation and in the 2 lottery. That's our goal. And we're open to change 3 and improvement in the future. But I think in answer 4 to the General Counsel and the Charitable Bingo 5 Operations Division Director, we're satisfied with the 6 process as it now stands. 7 COMMISSIONER SCHENCK: I don't see how 8 you could really improve it much. I mean, if you have 9 the parties who are in an adverse posture to each 10 other agreeing to an outcome, it's only when the thing 11 looks strange that you would be on notice to inquire 12 further into the matter. And if that notice comes 13 up -- and it seems to me it will on rare occasions -- 14 then that's what we're here for. 15 COMMISSIONER CLOWE: As Chairman Cox 16 pointed out, we did that when that came up, and it 17 didn't pass the smell test. I don't think at this 18 point we want to start appointing a special counsel or 19 an ombudsman you mentioned, you know, to look at every 20 one of these uncontested cases. I think we want to 21 rely on the staff to represent, on behalf of the 22 agency, what is the correct level of enforcement of 23 the rules and the law. And if we have that comfort as 24 we're examining these things and not rubber stamping 25 them, then I think we're giving the public what we 0161 1 must give them. 2 COMMISSIONER SCHENCK: And so long as 3 the staff is understanding if they're uncomfortable 4 with a particular suggesting that they're making, if 5 there's an open question or if there's some apparent 6 inconsistency in outcomes but they're advocating this 7 particular outcome and give us the reasons why, as 8 long as we've got the information and we're 9 encouraging them to provide it to us, there's nothing 10 else we can possibly do. 11 CHAIRMAN COX: Counsel, does that give 12 you the advice? Phil, does that give you our thoughts 13 as you wanted them? 14 MS. KIPLIN: Yes, sir. And if I come 15 across a model that I think I would want to bring to 16 your attention, because I think it would help improve 17 this process, I sure will. 18 CHAIRMAN COX: Excellent. 19 AGENDA ITEM NO. IV 20 CHAIRMAN COX: Agenda Item No. IV, 21 report by the Charitable Bingo Operations Director and 22 possible discussion on the Charitable Bingo Operations 23 Division's activities. 24 Mr. Sanderson. 25 MR. SANDERSON: Good afternoon, 0162 1 Commissioners. The report in your notebook outlines 2 the activities of the Bingo Operations Division. As 3 you can see, we've received numerous applications for 4 the vacant positions, and we've currently reviewing 5 those to begin scheduling interviews. Also I just 6 want to let you know that the next BAC meeting is 7 February 6, 2008. And that's tentative, of course, 8 but that's what they voted on. 9 Then included in your notebook is a copy 10 of an annual report that is published by NAFTM, the 11 North American Fundraising Ticket Manufacturers 12 Association. It is comprised of some manufacturers 13 that manufacturer the pull-tab and event tickets, and 14 I gave that to you just as a reference. It outlines 15 other jurisdictions gaming revenue and other types of 16 charitable gaming that they regulate, as well as it 17 includes an article of one of our licensees, the 18 Clements Boys and Girls Club out at Killeen. 19 And I'm glad to answer any questions you 20 may have. 21 CHAIRMAN COX: Phil, thank you. I read 22 that report, and I found it very helpful. There was a 23 lot of information in there that I had no idea -- I've 24 been discussing it with you -- helped me understand 25 why some of these numbers are different. And I would 0163 1 suggest that if y'all have questions about it -- why 2 is Minnesota and why are Minnesota and Michigan so big 3 or what's going on in Washington -- that Phil is very 4 good at answering those questions. 5 The other thing I would ask is, Phil, 6 remind me next time to ask Commissioner Schenck again, 7 but the February 6th BAC meeting will be a great 8 opportunity for him to come and observe and learn more 9 about bingo, if he's possibly able to do it. And I 10 would be willing to share the time with him -- and, of 11 course, Chairman Clowe -- if he's able to do that. 12 COMMISSIONER SCHENCK: If I can make it, 13 I will. 14 CHAIRMAN COX: Good. 15 AGENDA ITEM NO. V 16 CHAIRMAN COX: Okay. Item No. V, 17 consideration of and possible discussion and/or 18 action, including adoption, on the agency's rule 19 review of 16 TAC Chapter 402, charitable bingo 20 administrative rules. 21 Ms. Joseph. 22 MS. JOSEPH: Good afternoon, 23 Commissioners. For the record, my name is Sandra 24 Joseph, Assistant General Counsel. 25 The Texas Government Code, §2001.039, 0164 1 requires that each state agency must review and 2 consider for readoption each of its rules every four 3 years. At the Commission meeting on September 19th, 4 you voted to propose review of the rules. They were 5 published in the Texas Register on October 5th as an 6 indication that we would be reviewing the rules. That 7 comment period has ended, and we received no comments 8 from the public. 9 In the review process, the Commission 10 must assess whether the reasons for adopting each rule 11 continue to exist. The staff has concluded that with 12 two exceptions, the reasons for adopting the rules in 13 Chapter 402 continue to exist. Section 402.406 14 concerning issuance of exemptions is no longer 15 necessary, as the Bingo Enabling Act does not require 16 organizations to obtain Commission approval for exempt 17 status. 18 Section 402.705 is no longer necessary, 19 as that subject matter is now covered by new rule, 20 §402.715. 21 The staff intends to propose repeal of 22 both of these rules in the near future. The staff 23 recommends the Commission vote to readopt all of the 24 rules in Chapter 402, except for §402.406 and 25 §402.705. 0165 1 COMMISSIONER CLOWE: Move adoption of 2 the staff recommendation. 3 COMMISSIONER SCHENCK: Second. 4 CHAIRMAN COX: All in favor, say "Aye." 5 COMMISSIONER SCHENCK: Aye. 6 COMMISSIONER CLOWE: Aye. 7 CHAIRMAN COX: Aye. 8 Any opposed? 9 (No response) 10 Motion carries 3-0. 11 MS. JOSEPH: Ms. Kiplin has an order. 12 AGENDA ITEM NO. VI 13 CHAIRMAN COX: Item No. VI, 14 consideration of and possible discussion and/or action 15 regarding a petition for rulemaking relating to the 16 definition of a card-minding device in 16 TAC 17 §402.100, Definitions. 18 Ms. Joseph. 19 MS. JOSEPH: On November 5, 2007, the 20 Commission received a petition from Darin Peters with 21 Goodtime Action Games requesting that Bingo 22 Administrative Rule 402.100 relating to definitions be 23 amended to make the language pertaining to a bingo 24 card face in Subsection (6) consistent with the 25 definition of "face" in rule 402.301 which relates to 0166 1 bingo card and paper. 2 The 402.301 rule pertaining to card and 3 paper definition states that the bingo card or paper 4 normally -- normally consists of five rows of five 5 columns. On the other hand, the 402.100 definition of 6 a card-minding device refers to a bingo card five 7 spaces wide by five spaces long but omits the word 8 "normally," making it appear that the bingo card is 9 limited to that configuration. This difference in the 10 definitions causes some confusion. 11 Rule 402.302 relating to card-minding 12 systems defines a card-mining device as a device used 13 to mark representations of bingo card faces. The dual 14 definitions, the difference in the definitions raises 15 questions as to what is meant in rule 402.302. In 16 fact, bingo cards do exist in a variety of 17 configurations. Mr. Peters states in his petition 18 that the change of this definition would allow 19 electronic bingo to more accurately mirror the 20 opportunities for players and charities of current 21 paper products available as well as new paper products 22 existing and in development. 23 The administrative Procedures Act 24 requires that the agency shall act within 60 days of 25 the submission of a petition for rulemaking, by either 0167 1 denying the petition in writing, stating its reasons, 2 or initiate a rulemaking proceeding. Staff recommends 3 the petition be granted and that the Commission 4 approve initiation of rulemaking by directing the 5 staff to prepare and present a draft proposed rule to 6 the Commission for approval of publication in the 7 Texas Register in order to receive public comments. 8 COMMISSIONER CLOWE: Move the adoption 9 of the staff recommendation. 10 COMMISSIONER SCHENCK: Second. 11 CHAIRMAN COX: Notion made and seconded. 12 All in favor, say "Aye." 13 Aye. 14 COMMISSIONER SCHENCK: Aye. 15 COMMISSIONER CLOWE: Aye. 16 CHAIRMAN COX: Any opposed? 17 (No response) 18 CHAIRMAN COX: Notion carries 3-0. 19 MS. JOSEPH: I have a T-bar. With your 20 permission, I'll hold that until after the 21 presentation of the next item. 22 CHAIRMAN COX: Good. 23 AGENDA ITEM NO. VII 24 CHAIRMAN COX: Item VII, consideration 25 of and possible discussion and/or action regarding a 0168 1 petition for rulemaking relating to setting a minimum 2 price at which bingo card-minding devices may be sold. 3 Ms. Joseph. 4 MS. JOSEPH: On November 16, 2007, the 5 Commission received a petition from Kris Keller 6 requesting adoption of a rule providing that a 7 licensed authorized organization cannot sell or offer 8 for sale any electronic card-minding device for less 9 than $12 per occasion. Again, the Administrative 10 Procedures Act requires that this petition be acted on 11 within 60 days of its receipt. 12 The Commission has indicated in the past 13 that it does not want to set prices for the sale of 14 bingo cards. In 1996, there was a similar proposal. 15 At that time -- which I would note none of you were 16 present at that time -- the Commission did receive 17 public comments from people both opposed and in favor 18 of the idea of setting prices for cards. At that time 19 the Commission decided that it did not wish to set 20 prices. 21 Since that time, the staff has 22 remembrance perhaps of this Commission indicating and 23 related to other matters not as directly presented, 24 that it was not particularly interested in setting 25 prices; therefore, the staff at this time recommends 0169 1 that the petition be denied. 2 COMMISSIONER CLOWE: No questions. 3 CHAIRMAN COX: Questions? 4 COMMISSIONER SCHENCK: I have no 5 questions, and I agree with the staff. 6 CHAIRMAN COX: Okay. Do you want to 7 make a motion, then? 8 COMMISSIONER SCHENCK: I move that we 9 decline. 10 COMMISSIONER CLOWE: Second. 11 CHAIRMAN COX: All in favor, say "Aye." 12 Aye. 13 COMMISSIONER CLOWE: Aye. 14 COMMISSIONER SCHENCK: Aye. 15 CHAIRMAN COX: Any opposed? 16 (No response) 17 Motion carries 3-0. 18 COMMISSIONER CLOWE: Let's eat. 19 (Laughter) 20 CHAIRMAN COX: Okay. Thank you, Sandy. 21 AGENDA ITEM NO. XXX 22 CHAIRMAN COX: At this time I move the 23 Texas Lottery Commission go into executive session: 24 (A) to deliberate the duties and 25 evaluation of the Executive Director, the Deputy 0170 1 Executive Director, Internal Audit Director and 2 Charitable Bingo Operations Director and to deliberate 3 the duties of the General Counsel pursuant to Section 4 551.074 of the Texas Government Code; 5 (B) to receive legal advice regarding 6 pending or contemplated litigation pursuant to Section 7 551.071(1)(5) and/or to receive legal advice regarding 8 settlement offers pursuant to Section 551.071(1)(B) of 9 the Texas Government Code and/or to receive legal 10 advice pursuant to Section 551.071(2) of the Texas 11 Government Code, including but not limited to: 12 Shelton Charles vs. Texas Lottery 13 Commission and Gary Grief; 14 First State Bank of DeQueen, et al., vs. 15 Texas Lottery Commission; 16 James T. Jongebloed vs. Texas Lottery 17 Commission; 18 The Lotter Ltd; 19 Employment law, personnel law, 20 procurement and contract law, evidentiary and 21 procedural law and general government law; 22 Attorney General Opinion GA-0579 23 relating to Americans With Disabilities Act and the 24 Texas Lottery Commission; 25 Lottery Operations and Services 0171 1 contract; 2 Mega Millions game and/or contract. 3 Is there a second? 4 COMMISSIONER CLOWE: Second. 5 CHAIRMAN COX: All in favor, say "Aye." 6 Aye. 7 COMMISSIONER SCHENCK: Aye. 8 COMMISSIONER CLOWE: Aye. 9 CHAIRMAN COX: Any opposed. 10 (No response) 11 Motion carries. The vote is 3-0. 12 The Texas Lottery Commission will go 13 into executive session. The time is 12:36 p.m. Today 14 is December 5, 2007. 15 (Recess: 12:36 p.m. to 2:54 p.m.) 16 AGENDA ITEM NO. XXXI 17 CHAIRMAN COX: The Texas Lottery 18 Commission is out of executive session. The time is 19 2:54 p.m. 20 Is there any action to be taken as a 21 result of executive session? 22 (No response) 23 AGENDA ITEM NO. VI (continued) 24 CHAIRMAN COX: If not, let's move on to 25 Agenda Item No. -- let's see. Before we would move to 0172 1 Agenda Item No. XIX, Mr. Kohler, you had wanted to 2 talk about Item No. VI, and you had put down No. XII, 3 so I hadn't called you. We are past Item VI at this 4 point. Did you want to comment? I think you have 5 that witness affirmation form. 6 MR. KOHLER: Thank you, Commissioner. I 7 realize you've already taken action on it. I would 8 just say that my name is Rob Kohler. I'm here 9 representing the Christmas Life Commission of the 10 Baptist General Convention of Texas. 11 We are tremendously concerned about the 12 use of card-minding devices for games that they're not 13 intended for. Right now you can use these devices to 14 play traditional really electronic bingo cards, daub 15 them. And one of the things that we've kept our eye 16 on was the use of these machines as contemplated in 17 legislation during the session, which it's no secret 18 we've expressed concern about games -- bingo games 19 turning into something other than what we think they 20 are. 21 So that's what we're concerned about is. 22 The definition doesn't allow the play of, let's say, 23 pull-tab games on those devices. So that's what I 24 wanted to put forward in front of the Commission and 25 let you know where we stood on that issue. 0173 1 CHAIRMAN COX: Okay. 2 MR. KOHLER: Okay? 3 COMMISSIONER CLOWE: Thank you. 4 COMMISSIONER SCHENCK: I'm fine. 5 MR. KOHLER: Thank you for giving me the 6 opportunity. 7 CHAIRMAN COX: And I would ask the staff 8 to, as you're drafting that rule, Sandy, to please 9 take Mr. Kohler's comments into account. 10 MR. KOHLER: Thank you -- 11 CHAIRMAN COX: Thank you, Rob. 12 MR. KOHLER: -- very much. 13 AGENDA ITEM NO. IX 14 CHAIRMAN COX: Okay. Item No. IX, 15 report, possible discussion on lottery sales and 16 revenue, game performance, new game opportunities, 17 advertising, market research and trends. 18 Mr. Pyka and Mr. Tirloni. 19 MS. PYKA: Good afternoon, 20 Commissioners. My name is Kathy Pyka, Controller for 21 the Lottery Commission. With me to my right is Robert 22 Tirloni, our Products Manager. 23 Our first slide that we have for you 24 this afternoon reflects revenue from sales and net 25 revenue to the state through the week ending 0174 1 November 24, 2007. Total sales through the 13-week 2 period amounted to $824.4 million, while estimated net 3 revenue to the state for this period was 4 $201.9 million. 5 Net revenue to the state does reflect a 6 two and a half percent decrease as compared to the 7 $207.1 million figure for the same period in Fiscal 8 Year 2007. Net prize expense as a percentage of sales 9 is reflected at 63 and a half percent for the current 10 period as compared to 63 percent for the same period 11 in Fiscal Year 2007. 12 Our next slide for you compares the 13 change in sales from game -- change in sales by game 14 for Fiscal Year 2007 to 2008. The decline from Fiscal 15 Year '07 sales is just under one percent, or five and 16 a half million dollars. And the overall five and a 17 half million dollar decline includes a $5.6 million 18 decline on the instant ticket product and a point 19 one million dollar gain, or .1 percent increase in the 20 on-line game product. 21 In the on-line game product, you'll 22 notice that we do have the Pick 3 Sum It Up feature 23 this month which reflects two weeks of sales as a new 24 game and the Daily 4 feature which reflects eight 25 weeks of sales which are new games this fiscal year. 0175 1 Then our next slide includes Fiscal Year 2 2008 year-to-date sales by game. As noted on this 3 slide, 76.4 percent of sales, or $629.8 million, is 4 from instant tickets, with 8 percent of sales, or 5 $65.9 million, for Pick 3, followed by 6.1 percent of 6 sales and $50.2 million from Lotto Texas, and 7 3.7 percent of sales, $30.4 million for Mega Millions. 8 As noted, we've got our eight weeks of 9 sales of the Daily 4 game and Sum It Up feature that 10 were introduced in late September. Sales to date for 11 this game were $9.1 million and $2.6 million for the 12 Daily 4 Sum It Up feature. And then the Pick 3 game 13 with two weeks of sales is just at $400,000. 14 In the next slide is a graphical 15 presentation of that $824.4 million year-to-date sales 16 for you. 17 Robert will now discuss for you sales by 18 price point. 19 MR. TIRLONI: Good afternoon, 20 Commissioners. For the record, my name is Robert 21 Tirloni. I am the Products Manager for the 22 Commission. 23 This next slide shows the fiscal year 24 instant game sales totaling $629.8 million, and that's 25 broken out by price point. The five continues to be 0176 1 our leading price point, followed by the two. 2 Followed behind that is the $10 price point. 3 And Kathy talked about the decrease in 4 instants. We have seen a decrease at the five and the 5 $2 price point. Those are the price points in which 6 we've been experiencing a decline this fiscal year as 7 compared to last. 8 This pie chart does include the $50 9 price point. I did want to let you know that we have 10 introduced our second $50 game. That game started on 11 November 19th. The first 50 is slightly over 12 70 percent sold, and so we felt that the timing was 13 right to introduce the second 50. And all of our 14 holiday instant games are out. Most of those started 15 in late October, and so those have been out for a 16 little over -- a little over five weeks now. 17 COMMISSIONER SCHENCK: Robert, I have a 18 question about the one dollar price point. 19 MR. TIRLONI: Yes, sir. 20 COMMISSIONER SCHENCK: Over time, have 21 we seen that number -- 8.9 percent -- go up, down, 22 stay the same? What's happening with that? 23 MR. TIRLONI: I think for a while, the 24 one has been -- when we rank them in terms of sales, 25 the one has been about fourth. That hasn't changed. 0177 1 But over time we have lost ground on the one and the 2 $2 price points. 3 COMMISSIONER SCHENCK: Do we keep track 4 of the cost of administration relative to each one of 5 these price points in terms of printing, paying out? 6 MS. PYKA: Each individual game has 7 unique printing costs associated with it, and each 8 individual game has a unique prize payout associated 9 with it. But general administration of the agency is 10 considered to be just part of a percentage of the 11 total sales. 12 COMMISSIONER SCHENCK: Okay. My concern 13 is at some point, a dollar is not going to be what a 14 dollar used to be. And if we keep -- if we spend 15 $1.20 to sell a dollar ticket, we're not coming out 16 very far. Are we keeping track of that to the point 17 that we'll know if we're approaching -- 18 MS. PYKA: We did a lot of work this 19 month on the price points, to look at sales by price 20 point as we looked at the overall $5 million decline 21 in instant ticket product. And, as Robert mentioned, 22 we saw the decline on the $2 and the $5. 23 And as we looked at those price points 24 and we looked at the $1 through the $7, we noticed a 25 $17 million decline from Fiscal Year '07 sales. But 0178 1 as we looked at the $10 to $50 price points, we're 2 looking at an overall gain there of $11.7 million. So 3 we're seeing greater sales generated on those higher 4 price points as compared to the lower price points. 5 COMMISSIONER SCHENCK: But you 6 understand my concern is that -- 7 MS. PYKA: Certainly. 8 COMMISSIONER SCHENCK: -- there is a 9 cost, the cost of printing a one dollar ticket, and I 10 don't know if it's that much less than a $50 ticket. 11 MS. PYKA: Correct. 12 COMMISSIONER SCHENCK: We still pay 13 commissions and do other things with those. 14 MS. PYKA: Right. 15 COMMISSIONER SCHENCK: So at some point, 16 they may become less profitable and not in the 17 interest of the -- well, I wouldn't say I -- suggest 18 at this point we could get rid of the one dollar game, 19 but I think we should keep track of the net. 20 CHAIRMAN COX: Well, we had a discussion 21 on Monday relative to just that kind of point, and we 22 talked about the idea that the smaller tickets -- one, 23 two, five -- not necessarily the three for some 24 reason. Right? 25 MR. TIRLONI: The three is up, actually. 0179 1 CHAIRMAN COX: The one, two and five are 2 down, while the larger denominations are up. And my 3 theory was that a dollar just doesn't buy what it used 4 to, and I think that that's some part of it. I think 5 Robert told us the view that GTECH had expressed was 6 that some of the people at the lower -- that 7 participated at the lower price points were so hard 8 hit by increased fuel prices that they didn't have the 9 gambling budget anymore. 10 Robert, were there other things that you 11 might add to that? 12 MR. TIRLONI: That was one of the main 13 pieces of anecdotal information we received from the 14 sales force, as the Chairman said. Especially in our 15 Irving district, they felt that the typical player 16 that's playing at the one, two, three and five has 17 most -- those are the players that have been most 18 severely damaged, so to speak, by the increase in cost 19 of gas, so that's why we're seeing declines at some of 20 those price points; whereas, the players who are 21 playing $10, $20, $30 are not as impacted, so to 22 speak, by the increase in price in gas. 23 CHAIRMAN COX: And I would add, too, 24 that the price of printing the ticket is pretty tiny, 25 I think. What's -- just in general? 0180 1 MR. TIRLONI: I mean, the cost of a one 2 dollar game is usually about $80,000 to $90,000 to 3 print the entire game. 4 CHAIRMAN COX: Help us relate that to 5 the one dollar as a percentage of one dollar. We 6 don't have your -- 7 COMMISSIONER SCHENCK: How many one 8 dollar tickets are we selling for that $80,000? 9 MR. TIRLONI: That's usually a print run 10 of about 12 million tickets. 11 CHAIRMAN COX: Do the math for us. 12 MR. TIRLONI: Okay. 13 COMMISSIONER SCHENCK: That's less than 14 a penny. 15 CHAIRMAN COX: Less than a penny I think 16 is the answer. Probably the most precious resource 17 that we look at -- and correct me if I'm wrong. I'm 18 just guessing -- is shelf space? 19 MR. TIRLONI: That's correct; that's 20 correct. 21 COMMISSIONER SCHENCK: We're a long way 22 away from my concern, I guess was the -- 23 MR. TIRLONI: And, you know, I think -- 24 I think the one and two dollar price points serve a 25 niche, in that for new players, those are probably the 0181 1 introductory price points. You know, I don't think 2 that new players would come in and buy a $20 or a $30 3 or a $50. I think those lower denomination price 4 points are instrumental in serving as that new 5 purchase for a new player or first purchase for a new 6 player. 7 COMMISSIONER CLOWE: It's like the 8 nickel slots, you've got to have them. 9 COMMISSIONER SCHENCK: Yes. There was a 10 time when I would buy a comic book for 10 cents or 11 whatever it was. I saw one on a store shelf. It was 12 like $1.50. I mean, the one dollar price point is now 13 below -- I mean, jaw breakers are probably a dollar. 14 COMMISSIONER CLOWE: Sure. 15 CHAIRMAN COX: And my concern is that, 16 particularly in those places where they have very 17 limited shelf space, are we keeping an eye on whether 18 we should even be selling one dollar tickets there? 19 MR. TIRLONI: I think we are. I think 20 the sales rep does that, and I think GTECH's sales 21 staff that monitors instant ticket inventory at 22 retailers does that. You know, we can tailor the 23 inventory at any retail location, based on what 24 they're selling. So we definitely have retailers that 25 are very successful at selling $10 and above or, you 0182 1 know, $20 and above. And their inventory is tailored, 2 based on what they're selling. Then we have other 3 locations that could never in a million years sell a 4 ticket above $20, and so they typically don't stock 5 those. And they're inventoried with, you know, the 6 lower range of the price points. 7 COMMISSIONER SCHENCK: Thank you. 8 CHAIRMAN COX: Yes, sir. 9 MR. TIRLONI: And that's really all we 10 had for you today. We're happy to answer any 11 additional questions that you might have. 12 CHAIRMAN COX: Anything that is 13 remarkable about this year's sales as compared to 14 previous years? I know we've got $50 tickets in 15 there. We've got the new Pick 4. But are there any 16 remarkable trends, the fact that we have new games and 17 new denominations might be disguising that we ought to 18 know about? 19 MR. TIRLONI: I don't believe so right 20 now, sir. 21 MS. PYKA: We'll come back at a later 22 date. And once we have a bit more of a trend of the 23 Daily 4 game as well as the new Pick 3 Sum It Up, 24 we'll give y'all a report on that when we have it. 25 MR. TIRLONI: I think now what we might 0183 1 be seeing -- you know, Kathy talked about Daily 4 2 started in late September with the Sum It Up feature. 3 And it was out there for about six weeks before we 4 added Sum It Up to Pick 3, and there have been 5 different promotions that have been running. So I 6 think we've got a lot of movement right now between 7 the games. I think you've got people who have been 8 loyal to Pick 3 who may be experimenting a little bit 9 with Daily 4, maybe because they like concern features 10 of that game or they like the fact that Sum It Up was 11 on the Daily 4 game. 12 Now we've come back and we've added it 13 to Pick 3. So I think we still have a lot of movement 14 between those two daily games. The promotions that 15 were all -- that were started at the launch of all 16 those products are kind of winding down. So, as Kathy 17 says, I think we'll start to get into a period where 18 you start to see some leveling off and see where 19 people are going to land in terms of which games 20 they're going to play and how much they're growing to 21 be spending on those. 22 CHAIRMAN COX: Excellent. 23 MS. PYKA: Thank you, Commissioners. 24 MR. TIRLONI: Thank you. 25 AGENDA ITEM NO. X 0184 1 CHAIRMAN COX: Item X, report, possible 2 discussion on transfers to the state. 3 Ms. Pyka. 4 MS. PYKA: Do you want to do Item XI, 5 Mr. Chairman, first? 6 CHAIRMAN COX: Did I do something wrong? 7 MS. PYKA: Do I have them out of order? 8 It's me. Sorry about that. 9 CHAIRMAN COX: The book was messed up at 10 one point. They were switched. 11 MS. PYKA: I'm with you. 12 Again for the record, my name is Kathy 13 Pyka, Controller of the Lottery Commission. The 14 notebook item includes information on the agency's 15 financial status. The first report under the notebook 16 includes the transfers and allocation of the 17 Foundation School Fund and the allocation of unclaimed 18 prizes for the period ending October 31st. Total cash 19 transfers to this date amounted to $158.5 million for 20 the first two months of Fiscal Year 2008. And this 21 does represent a minimal decline from the amount that 22 we had transferred in Fiscal Year 2007 at this point 23 in time. 24 The second page of your notebook 25 reflects the detailed information for the monthly 0185 1 transfers of $158.5 million transfers to the state. 2 $158.4 million was the amount transferred to the 3 Foundation School Fund, with the balance of 4 $.5 million transferred from unclaimed prizes. 5 And the next document in your notebook 6 includes the calculation of the monthly transfer 7 amount. And then the final document in your notebook 8 includes our cumulative transfers to the Foundation 9 School Fund from Fiscal Year 1992 to date, which 10 amount to $9.8 billion. 11 Commissioners, this concludes my 12 presentation. I would be happy to answer any 13 questions. 14 COMMISSIONER CLOWE: No questions. 15 COMMISSIONER SCHENCK: None. Thank you. 16 CHAIRMAN COX: Thank you, Kathy. 17 AGENDA ITEM NO. XI 18 CHAIRMAN COX: Item XI, consideration of 19 and possible discussion and/or action on the agency's 20 FY 2008 itemized operating budget. 21 MS. PYKA: Again, for the record, Kathy 22 Pyka, Controller for the Lottery Commission. 23 Commissioners, the Fiscal Year 2008-2009 24 General Appropriation Act provides that an itemized 25 operating budget be filed with the Governor's Office 0186 1 of Budget Planning and Policy and the Legislative 2 Budget Board each fiscal year. In accordance with the 3 guidelines published by the Governor's Office and the 4 LBB, the budget document in your notebook reflects the 5 Commission's previously adopted Fiscal Year 2008 6 operating budget, as well as actual expenditures for 7 Fiscal Years 2006 and 2007. 8 And as we are required to file a hard 9 copy of the itemized operating budget -- and we filed 10 that by December 3rd, the due date -- agencies are 11 also required to file their operating budgets 12 electronically through the ABEST system or the 13 automated budget, an evaluation system of Texas, and 14 this is with the Legislative Budget Board. We're 15 required to file this within seven days of the 16 submission of the hard copy budget document. We're 17 required to give certification to the Governor's 18 Office and the LBB of the statement that each of those 19 documents. The hard copy and electronic copy are one 20 and the same, to certify the dual submission of those. 21 The certification which is included in 22 your notebook is required to be signed by the board or 23 Commission chair, the Chief Executive Officer and 24 Chief Financial Officer and be submitted by 25 December 10th of 2007. We want you to know that the 0187 1 operating budget included in your notebook was 2 finished and completed by the Office of the Controller 3 on November the 16th. And I will certify to you that 4 the hard copy and electronic copy are one and the 5 same. 6 I would be happy to answer any questions 7 that you might have. 8 COMMISSIONER CLOWE: That doesn't 9 require a motion, does it? 10 CHAIRMAN COX: I believe it does require 11 approval. 12 MS. PYKA: It requires the approval of 13 the Chairman with regard to the certification of the 14 dual submission -- 15 CHAIRMAN COX: So does the board need to 16 authorize me to sign it on behalf of the board? 17 MS. PYKA: General counsel is saying -- 18 MS. KIPLIN: Mr. Chairman, I believe you 19 would be signing in a representative capacity on 20 behalf of the gambling body; and, therefore, I think 21 it is an action item. 22 COMMISSIONER CLOWE: Move we approve. 23 CHAIRMAN COX: Okay. May I make one 24 comment? 25 COMMISSIONER CLOWE: Certainly. 0188 1 CHAIRMAN COX: Since you've been signing 2 this, one of the products has been taken away. There 3 was a time when we produced a document that wasn't 4 quite exactly the same and we had to take some 5 exceptions. Kathy is now submitting the same document 6 so they are identical at this point. 7 COMMISSIONER CLOWE: Right, right. 8 MS. PYKA: The document is complete. 9 And that would be my plan each year, to give you the 10 completed document -- 11 COMMISSIONER CLOWE: Yes. 12 MS. PYKA: -- and certify to you that 13 they are one and the same. 14 CHAIRMAN COX: Okay. 15 COMMISSIONER CLOWE: See how much easier 16 it is with you as the Chairman. 17 (Laughter) 18 CHAIRMAN COX: What can I say? They put 19 you through all that and then make it easy for me. 20 COMMISSIONER CLOWE: Oh, well. 21 COMMISSIONER SCHENCK: And I'll second 22 the motion. 23 CHAIRMAN COX: All if favor, say "Aye." 24 COMMISSIONER CLOWE: Aye. 25 COMMISSIONER SCHENCK: Aye. 0189 1 CHAIRMAN COX: Aye. 2 Any opposed? 3 (No response) 4 Motion carries. So I'm authorized to 5 sign that for you. That's the same document that we 6 looked at a week ago Monday? 7 MS. PYKA: It is the same document. And 8 Ms. Kiplin has the document -- 9 CHAIRMAN COX: Okay. 10 MS. PYKA: -- in a folder for you to 11 sign. 12 AGENDA ITEM NO. XII 13 CHAIRMAN COX: Okay. Item No. XII, 14 report, possible discussion and/or action on Lottery 15 Operations and Services Contract Amendment No. 8 16 Credit calculation. 17 Ms. Pyka. 18 MS. PYKA: Commissioners, this afternoon 19 I wanted to provide you an update on Amendment No. 8 20 of the Lottery Operations and Services Contract and 21 the amount due to the Commission for the fourth year 22 of Fiscal Year 2007. This will make my fourth 23 presentation on this item, and I wanted to give you an 24 update on each section of the contract and refresh 25 your memory. 0190 1 Section 10.3.3 of Amendment 8 provides 2 an annual credit to the Commission equal to 12 percent 3 of GTECH's annual incremental revenue from sales over 4 the previous fiscal year for every .1 percent in 5 overall prize payout increase for both the on-line and 6 instant ticket games. And I wanted to note that for 7 the fourth quarter, we did not have a credit due under 8 this section of the contract as our prize payout 9 remained flat in Fiscal Year 2006 to 2007. 10 And the second provision of the contract 11 was Section 10.3.4, and this amendment requires GTECH 12 to provide an annual credit to the Commission equal to 13 4 and a half percent of the year-over-year decline in 14 dollar returns to the state if sales remain flat and 15 the weighted prize payout ratio increases by 16 .1 percent. 17 The fourth quarter did not result in a 18 credit under this provision, but we did have 19 cumulative credits of $983,388 for the first two 20 quarters. 21 And as we've discussed in a previous 22 Commission meeting, the contract did have a specific 23 revision to Fiscal Year 2007, stating that the credit 24 under Section 10.3.4 could not exceed $1.2 million in 25 each fiscal year. And specific to Fiscal Year 2007, 0191 1 the credit could not cause GTECH's net revenue to fall 2 below Fiscal Year 2006 net revenue. So we have 3 returned the credit of $983,388 back to GTECH under 4 that provision of the contract. But that was that 5 one-time provision that from this point forward will 6 simply be the credit shown on -- exceed $1.2 million. 7 I would be happy to answer any 8 questions. 9 CHAIRMAN COX: Did we enjoy it while we 10 had it? 11 MS. PYKA: We did. 12 COMMISSIONER SCHENCK: No questions. 13 COMMISSIONER CLOWE: I have no 14 questions. 15 CHAIRMAN COX: Okay. 16 AGENDA ITEM NO. XIII 17 COMMISSIONER CLOWE: Mr. Chairman, I 18 recommend we pass the next item. 19 CHAIRMAN COX: Any objection, 20 Commissioner? 21 COMMISSIONER SCHENCK: No objection. 22 AGENDA ITEM NO. XIV 23 CHAIRMAN COX: Item No. 14, report, 24 possible discussion and/or action on the 80th 25 Legislature. 0192 1 Ms. Trevino. 2 MS. TREVINO: Good afternoon 3 Commissioners. For the record, I'm Nelda Trevino, the 4 Director of Governmental Affairs. 5 I mentioned at the last Commission 6 meeting, during the legislative interim the Speaker of 7 the House and the Lt. Governor assigned charges to 8 each committee to study particular issues and possibly 9 conduct committee hearings for the purpose of making 10 recommendations to the next legislature. Last week 11 the Speaker issued interim charges for each House 12 committee. And this morning we provided you a copy of 13 the interim charges for several committees: The House 14 Licensing and Administrative Procedures Committee, the 15 House Appropriations Committee, the House State 16 Affairs Committee and House Government Reform 17 Committee. 18 There are some interim charges for the 19 committees that I just mentioned that directly impact 20 the agency or may impact the agency that I would like 21 to briefly highlight. 22 The House Licensing and Administrative 23 Procedures Committee, I would draw your attention to 24 Interim Charge Nos. 4 and 7, and I'll be happy to read 25 those to you if you'd like, or I can just make 0193 1 reference to them by their number. For the House 2 State Affairs Committee, please note Interim Charge 3 No. 7. For the House Appropriations Committee, I draw 4 your attention to Interim Charge Nos. 1, 3 and 4. And 5 for the House Government Reform Committee, please note 6 Interim Charge No. 1. 7 We will keep you advised on developments 8 related to these house committee interim charges 9 specifically as it relates to any committee requests 10 that might be made of the agency. Additionally, we 11 will inform you when the Lt. Governor issues interim 12 charges for the Senate committees. 13 This concludes my report, and I'll be 14 happy to answer any questions that you might have. 15 COMMISSIONER CLOWE: Give us a minute, 16 if you would, please. 17 MS. TREVINO: Sure. 18 (Brief pause in proceedings) 19 COMMISSIONER CLOWE: Mr. Chairman, I am 20 pleased to see Item No. 4 under the House Licensing 21 and Administrative Procedures list. I think that may 22 be beneficial to us. And I hope that Director 23 Sadberry and Director -- 24 CHAIRMAN COX: Sanderson? 25 COMMISSIONER CLOWE: Yes. Phil 0194 1 Sanderson will pursue that actively. 2 CHAIRMAN COX: Okay. Let me ask a 3 question on that particular one. There was some 4 activity going on in that same kind of direction 5 during the last legislative session, Phil. Is this a 6 continuation of that or is this a whole new deal? 7 MR. SANDERSON: I'll have Ms. Trevino 8 correct me if I'm incorrect. 9 CHAIRMAN COX: I'm sorry. I probably 10 should have directed that question to you, Nelda. 11 MS. TREVINO: That's okay. 12 MR. SANDERSON: We had the workgroup and 13 we had several meetings. And there was a rule -- I 14 mean, a statute -- sorry -- bill that was filed and 15 never made it -- it made it out of committee but never 16 made it to calendars. And I believe this is a 17 continuation and also a redo, so to speak. And we've 18 already -- or I've already been in contact with some 19 of the industry as to what is expected out of this 20 interim charge. 21 CHAIRMAN COX: Okay. So do you have any 22 feel or do you know at this point what we may be 23 called upon to do? 24 MR. SANDERSON: We will probably be 25 called upon to assist in what areas of the statute 0195 1 need to be revised, deleted or modified, to assist in 2 the licensing process. 3 CHAIRMAN COX: As you said, we haven't 4 been contacted yet, so we really don't know? 5 MS. TREVINO: We haven't, Chairman Cox. 6 But in my discussions with the committee clerk, 7 Chairman Flores' staff, I think just what 8 Mr. Sanderson said, I think they just want to try to 9 continue the progress that had been made in 10 identifying some clarifications in the Bingo Enabling 11 Act in hopes that maybe the next legislature will 12 actually pass a bill. 13 COMMISSIONER CLOWE: And then under 14 State Affairs, Item No. 7, Nelda, I would assume 15 that's a broad view that's probably brought on by the 16 issue of TxDOT advertising, and it's now going to be 17 applicable to all agencies? 18 MS. TREVINO: I believe you're right, 19 Commissioner Clowe. There has been some specific 20 attention to the advertising initiatives from the 21 Department of Transportation. But the way the interim 22 charge is worded, it is much broader. And, as we 23 know, the Lottery does have an advertising budget. So 24 I think certainly the agency could potentially be 25 called by this committee, maybe not necessarily to go 0196 1 before them but certainly to provide some information. 2 COMMISSIONER CLOWE: And it wouldn't 3 surprise me if we weren't asked to defend those 4 dollars. 5 MS. TREVINO: That's very possible. 6 COMMISSIONER CLOWE: We should be 7 prepared to do that. 8 MS. TREVINO: Absolutely. 9 COMMISSIONER SCHENCK: Well, even if we 10 are not called, we'll keep an eye on this proposed 11 legislation to make sure it doesn't prohibit us 12 from -- 13 MS. TREVINO: That's correct. 14 COMMISSIONER SCHENCK: -- our historic 15 advertising. 16 MS. TREVINO: Right. And, Commissioner, 17 again, the purposes of these interim charges is really 18 for the committees to study these items, and then they 19 will make recommendations for the next legislature. 20 And so there's certainly always the potential that 21 legislation comes from -- 22 COMMISSIONER SCHENCK: We'll keep an eye 23 on it if it comes to that point. 24 MS. TREVINO: Absolutely. 25 CHAIRMAN COX: No further. 0197 1 COMMISSIONER CLOWE: Thank you. 2 CHAIRMAN COX: The one thing that I 3 would point out as to advertising is, a number of 4 years ago I think we were quite vulnerable to a 5 criticism that we weren't cost-justifying our 6 advertising dollars, that we were spending a bunch of 7 money and not really measuring the benefit. We have 8 done significant studies, principally some by the 9 Graduate Business group, University of Texas, on the 10 cost/benefit of our advertising. And I think we stand 11 yourselves in much better stead right now than we did 12 in the past. In fact, I think we're stand pretty tall 13 on that issue. 14 MS. TREVINO: And we've shared a lot of 15 that information with certain members already. 16 CHAIRMAN COX: Good. 17 MS. TREVINO: So we will continue to do 18 so. 19 COMMISSIONER CLOWE: I do have one more 20 question, Mr. Chairman. 21 CHAIRMAN COX: Yes, sir. 22 COMMISSIONER CLOWE: What is our policy, 23 Mr. Sadberry, on the retention of electronic documents 24 such as e-mails? 25 MR. SADBERRY: The policy, Commissioner? 0198 1 COMMISSIONER CLOWE: Yes, sir. 2 MR. SADBERRY: Electronic documents and 3 e-mails, I'll defer to Legal on that. Do we have a 4 legal stand? I want to come back to it. I want to 5 speak to it. But first -- 6 MS. KIPLIN: Well, let me take a stab at 7 it. And Deanne Rienstra is in the auditorium. She's 8 actually our records attorney. But the policy on 9 e-mail is -- I think it's up to each individual on 10 their e-mail -- but they must comply with the records 11 retention schedule of the agency. E-mail is just a 12 medium. It doesn't go to the subject matter of the 13 document, of the communication, or if it's an original 14 document -- for example, it's a legal opinion -- and 15 that's the only form of that document, then it will 16 need to be retained pursuant to the records retention 17 schedule. 18 And we're required as a member -- as a 19 state agency to submit our records retention schedule 20 for approval to the State Library and Archives, along 21 with every other agency. And there are some that are 22 mandated across the board on how you retain it. So if 23 somebody were to -- 24 COMMISSIONER CLOWE: You're not really 25 getting to my question. 0199 1 MS. KIPLIN: Okay. 2 COMMISSIONER CLOWE: There is a 3 controversy now. 4 MS. KIPLIN: Yes. 5 COMMISSIONER CLOWE: -- on retention of 6 e-mails and what period is correct. And what is this 7 agency's policy where you e-mail someone in this 8 agency about setting up a meeting, for example? 9 MS. KIPLIN: Okay. 10 COMMISSIONER CLOWE: And what's the 11 retention on that? Do we have that? 12 MS. KIPLIN: That can be an automatic, 13 because that would be a transitory document. So if I 14 wanted to delete that document after I sent it, I 15 would assume that somebody received it and deleted it, 16 it could be -- it's not the nature of the form. I 17 understand your question is directed to e-mail. But 18 the records retention schedule which is required for 19 all state agencies to have one and then follow it, 20 that looks to the content of the document, the nature 21 of the information. 22 COMMISSIONER SCHENCK: So that sounds 23 like we don't have a policy on that. 24 MS. KIPLIN: It seems like that -- 25 COMMISSIONER CLOWE: So that's what I'm 0200 1 getting to. 2 MS. KIPLIN: What did you say, 3 Commissioner? 4 COMMISSIONER SCHENCK: I don't think we 5 have a policy on that. 6 MS. KIPLIN: I'm going to defer to 7 Mr. Fernandez, our records manager. 8 (Laughter) 9 MR. SADBERRY: Before we do that, 10 because I tend to agree with the Commission on that, 11 that's why I was called on it, I don't know that we 12 have a policy. I do get -- Mr. Fernandez is at the 13 table here -- I do get from time to time document 14 destruction forms that say the requisite period of 15 time has passed for documents that have been put in 16 boxes, I suppose in some form of retention, sent off 17 premises, I understand usually, and kept. 18 COMMISSIONER SCHENCK: Are we using 19 Microsoft Outlook or what are we using for software? 20 MR. FERNANDEZ: We're using Microsoft 21 Outlook. And it's -- 22 COMMISSIONER SCHENCK: What does it say 23 for how long a document will stay? 24 MR. FERNANDEZ: My name is Mike 25 Fernandez. I'm the Administrative Director, for the 0201 1 record. 2 What our general counsel is speaking to 3 is the records retention schedule, and she's 4 absolutely correct. And what that schedule is, is it 5 defines the various documents that the agency produces 6 and what the retention period for those documents are. 7 Electronic medium or hard copy storage 8 is just the transitory piece. So what staff refer 9 back to is a document that the agency has for each of 10 the divisions. This is the records retention 11 schedule, which is certified by State Archives. In 12 fact, the agency just went through that process with 13 all our documents that went to archives and we were 14 just certified in November. So we currently have a 15 current up-to-date retention schedule for our 16 documents. 17 Now, going to e-mail, not unlike a phone 18 call or a phone message, that can be transitory. And 19 it depends on what that e-mail says. A calendar -- I 20 believe if I went and pulled the records retention 21 schedule, I believe calendars have to be stored for a 22 year. I would have to go look at the schedule. But 23 we have all of those documents outlined. 24 And I know you gentleman have had a 25 chance to look at our business plan. One of the 0202 1 things that you see on the front of our business plan 2 is to ensure that all divisions are aligning the 3 destruction of electronic documents with the paper 4 documents. The concern that we have is that we have 5 electronic documents and we have hard copies. And in 6 many instances, those are the same documents. 7 But by the retention schedule, those 8 documents are required to be destroyed at a certain 9 point in time if there isn't any pending litigation or 10 there's not some use, some official use for that 11 document that's pending. And usually what that is, is 12 litigation or open records request. 13 COMMISSIONER SCHENCK: Well, I think I 14 understand. But if Kim sends you an e-mail tomorrow 15 morning that says, "Let's have lunch," is there -- 16 COMMISSIONER CLOWE: "And discuss a 17 Commission matter." 18 COMMISSIONER SCHENCK: To discuss a 19 specific Commission matter, what policy is implicated 20 by that? 21 MR. FERNANDEZ: Well, the only policy 22 that would be implicated by that would be the records 23 retention schedule. 24 COMMISSIONER SCHENCK: Okay. And so how 25 long would that e-mail have to stay in your in-box 0203 1 without you hitting either "print" or "delete"? 2 MR. FERNANDEZ: Well, that e-mail can 3 stay in my -- unopened in my e-mail box indefinitely. 4 It would not be erased. Now, if I hit "delete" and it 5 goes to my trash bin, that e-mail will be destroyed in 6 seven days. 7 COMMISSIONER SCHENCK: Okay. But your 8 in-box, you don't have a recurring clearing function 9 of 60 days? 10 MR. FERNANDEZ: No -- 11 COMMISSIONER SCHENCK: Okay. 12 MR. FERNANDEZ: -- not if it's sitting 13 in your in-box. 14 COMMISSIONER SCHENCK: Okay. Then we 15 don't have a policy that would encourage people to 16 open an e-mail and get rid of it at some point? 17 MR. FERNANDEZ: We do not have a policy 18 that encourages you to delete, delete or to destroy 19 that. 20 COMMISSIONER SCHENCK: So it's forever? 21 The e-mails are forever? 22 MR. FERNANDEZ: So it is forever. But 23 again -- 24 CHAIRMAN COX: Wait, let me stop you. I 25 thought I heard you say that if it you pressed 0204 1 "delete," it was gone? 2 MR. FERNANDEZ: It goes to your trash 3 bin. 4 CHAIRMAN COX: Okay. 5 MR. FERNANDEZ: And that trash bin will 6 be automatically deleted in seven days. 7 CHAIRMAN COX: Okay. So it sounds to me 8 like it's gone in seven days. But you say it's never 9 gone? 10 MR. FERNANDEZ: If it sits in your 11 in-box -- 12 CHAIRMAN COX: Okay. 13 MR. FERNANDEZ: When you first open your 14 e-mail, it can be opened or it can be unread. Or you 15 could make it unread even after you've opened it. But 16 if it sits in your in-box, it can sit there 17 indefinitely. We will not automatically come in and 18 remove that e-mail. If you delete it, if you delete 19 it, then we will. 20 COMMISSIONER SCHENCK: And also people 21 create folders and put documents into the folders, and 22 the folders will sit for forever? 23 MS. TREVINO: Yes, sir, they will sit 24 there forever. 25 COMMISSIONER SCHENCK: So if we -- how 0205 1 long have we -- we've had e-mail in the agency 2 probably from the beginning? Right? 3 MR. FERNANDEZ: Well, it was here before 4 I got here, and I've been here five years. 5 COMMISSIONER SCHENCK: It's probably 6 been there a long time. 7 MR. FERNANDEZ: That's correct. 8 COMMISSIONER SCHENCK: Those are 9 documents. As far as litigation is concerned, those 10 would be discoverable documents. 11 MR. FERNANDEZ: That's correct. And 12 that goes back again, Commissioner, to the issue in 13 the business plan. One of the things I think that the 14 agency has been very good at doing is storing hard 15 copy documents and then going through the records 16 retention manual, if you will, or schedule and getting 17 rid of those documents. 18 As that occurs, the owner of that or the 19 custodian of that document looks at their respective 20 records retention schedule and then move to destroy 21 those documents. They run through a certain -- as our 22 director spoke to, they go through certain individuals 23 to clear, and they have to clear Legal, because of 24 litigation or open records request. 25 I think that we have been, here in the 0206 1 last two years, very diligent about doing that. Our 2 concern, which again I take you back to this business 3 plan, and one of the first citations in it is that we 4 want to go back and ensure that our staff is well- 5 educated, and clearly understands the significance of 6 having an electronic record that's being held out 7 there by a retention schedule, and a duplicate hard 8 copy that we're destroying it as we move through that 9 process. And we need to ensure that those are all 10 being destroyed, both the records, in a timely manner. 11 MS. KIPLIN: If I could follow up just a 12 little bit. We are very mindful that there has been a 13 change on the federal rules regarding e-records and 14 discovery requirements. And there's an initiative 15 that the Office of the Attorney General has really 16 undertaken, and it's been coming out in some 17 conferences. 18 We put together a group, a workgroup 19 that is comprised of the records attorney, Deanne 20 Rienstra. That's why I asked her to come forward, 21 because she's the records attorney and has been going 22 through this training and is involved in it. But it's 23 also involving somebody from Information Technology, 24 because of the nature of the storage of these 25 documents -- I know this goes beyond the question of 0207 1 e-mail, but it's not the medium; it's the content 2 that's critical -- and, of course, the Records 3 Management staff. 4 And so we would like to think that we're 5 in -- I'll stop talking because I can see -- 6 COMMISSIONER CLOWE: I don't agree with 7 that down and dirty definition. I think the e-mail 8 Commissioner Schenck characterized exactly what I was 9 thinking about, where you e-mail Mike and you say, "I 10 want to have lunch with you tomorrow, and I want to 11 talk about this subject." You know, at some point in 12 time, somebody says, "They a meeting and this is what 13 they talked about," and I want an open records request 14 to prove it. It was just a request for lunch when you 15 sent it, but it becomes very germane to perhaps a 16 legal issue, and it's seven days. If you delete it, 17 it goes to the trash basket. In seven days it's gone, 18 isn't it? 19 MR. FERNANDEZ: Yes, sir. 20 CHAIRMAN COX: In fact, you can dump 21 your trash and get it done sooner than that, can't 22 you? 23 MR. FERNANDEZ: Well, you can dump it 24 and get it out there. 25 COMMISSIONER CLOWE: You can do it 0208 1 daily. 2 MR. FERNANDEZ: And you're absolutely 3 correct, Commissioner. But I guess what I would say 4 to you -- 5 COMMISSIONER SCHENCK: I'm not saying 6 it's wrong, Mike. I just want to -- 7 MR. FERNANDEZ: No, because what you 8 said is true. 9 COMMISSIONER CLOWE: Because there's 10 currently an issue in the state government about how 11 long you ought to hold those things. 12 MR. FERNANDEZ: Absolutely. 13 COMMISSIONER CLOWE: And all I wanted to 14 know is: What's our policy? 15 MR. FERNANDEZ: Sure. Let me -- 16 COMMISSIONER CLOWE: I'm satisfied. 17 CHAIRMAN COX: And I think that I'm 18 going to vote with Commissioner Schenck. I don't 19 think we have one. I'm going to read here from the 20 business plan -- 21 COMMISSIONER CLOWE: Nice try. 22 CHAIRMAN COX: I'm going to read here 23 from the business plan which Mr. Fernandez referred us 24 to. "Internal initiatives, electronic records 25 management background." I'm not going to read the 0209 1 whole thing. 2 "Technological advances in recent years 3 have changed the way agencies do business. From 4 business transactions to administrative functions, 5 more and more business is being done electronically. 6 Recent e-government legislation encourages agencies to 7 use information technology to streamline processes, 8 reduce paperwork, improve response time and provide 9 better access to government services. For 10 e-government services to be sustained over time, 11 electronic records must be managed consistently, 12 preserved appropriately and easily accessible." 13 So I think they know they don't have a 14 policy and they're getting to work on one. Would that 15 be fair, Mr. Fernandez? 16 MR. FERNANDEZ: Yes, sir. 17 COMMISSIONER SCHENCK: It's interesting. 18 It seems to me we have opposing concerns about this. 19 I hear the concern that we want to comply with the 20 legislation to keep the stuff long enough. I have 21 another concern, that I think it's a mistake -- and 22 I'll say it plainly -- to keep documents beyond your 23 retention policy and beyond the recollection of the 24 human memory -- 25 MR. FERNANDEZ: Absolutely. 0210 1 COMMISSIONER SCHENCK: -- because you'll 2 get into problems later on. And you've got this 3 document; no one can remember what it was really 4 about. And it just becomes a point of advocacy, 5 particularly if it had some attachment to it which has 6 since been destroyed as a written hard copy by virtue 7 of a written retentions of document policy and someone 8 is arguing spoliation, that you deliberately destroyed 9 evidence that they only found through virtue of this 10 e-mail. So I think it's going to be important to keep 11 these things working consistently with each other as 12 you develop this policy. 13 MR. FERNANDEZ: Absolutely. 14 CHAIRMAN COX: Director Sadberry? 15 MR. SADBERRY: If I may, I would agree 16 with both points. One, the first point and then both 17 secondary points is, I'm not sure we have a policy, 18 Chairman. I don't think we do, based on what you have 19 said, and I think we need one. So thanks for catching 20 me on that, because I think I need to devote attention 21 to that. 22 I get destruction records. And first I 23 look for Legal -- look for all the signatures, and 24 then I look for Legal to see there are any pending. 25 And I've held up some, because Legal have said there 0211 1 are things that may be pending. And I think I 2 understand where there has been litigation where it's 3 just as bad if not worse to keep records beyond your 4 records retention schedule as it is to not do so. But 5 you need a records retention schedule and you need a 6 policy and you need to strictly adhere to it. 7 I think we need to give attention to 8 that. I've been very concerned. I attended this 9 conference Kim was talking about where the new federal 10 regulations on e-retention and e-discovery, where 11 there's a potential for a claim, it doesn't require 12 litigation. And you have to have an attuned focus on 13 what is a claim, what is a possible claim. It could 14 be a general complaint and it may be a claim, and you 15 have to retain certain documents of that nature. 16 I will tell you also, just to complete 17 the record here, I'm sure within the last month -- I 18 don't see the ombuds present right now. I don't want 19 to speak out of turn -- but the ombuds and I have had 20 conversations about the fact that by some law, the 21 ombuds' record retention requirements are different 22 and get certain exemptions from an agency records 23 retention policy. 24 Mike, I don't know if you recall. I 25 don't know if you were engaged in those discussions or 0212 1 not, but I know that because of the nature of what an 2 ombuds is, there's a greater inducement to eliminate 3 those documents, even short of the records retention 4 policy. I'm not up to date on that. I would like the 5 ombuds to speak to that with more authority. But I 6 know she and I engaged in those discussions about the 7 fact that she was pursuing that issue. 8 So I think the point is, Commissioner, 9 it is salient, and I think it's very important. And I 10 think we do need a policy on it and we do need to 11 weigh in on it. You can see now there's a variety of 12 interests that cut in a lot of different directions, 13 and we need to incorporate all those so we have 14 something that's workable, is reasonable, but also 15 that meets the legal requirements on both sides, not 16 eliminating documents too soon but not keeping them 17 too long beyond a legitimate records retention period. 18 So I will take that as an assignment and 19 work with Mr. Fernandez and others who -- and I think 20 Gary may be involved in that -- who are already 21 undertaking it to make sure that we get there. 22 CHAIRMAN COX: Tom and David have their 23 concerns, and I have mine, which is: I happen to 24 remember a firm that used to exist called Authur 25 Andersen. They had an excellent policy, but they 0213 1 didn't follow it. 2 MR. FERNANDEZ: Yes. 3 CHAIRMAN COX: So when we get one in 4 place, let's get the right one in place and let's make 5 doggone sure we follow it to the T. 6 MR. FERNANDEZ: Well, Commissioners, I 7 want to say one thing to you, and I don't want you to 8 leave with the impression that we don't have a 9 procedure or a policy. That's dictated in state 10 statute. What that is, is a retention schedule. 11 Every one of your divisions has a retention 12 coordinator, document coordinator. And what that 13 individual does is, they follow the retention schedule 14 for their division, and that is the procedure. That 15 is not set down in a formal policy, but that is set 16 down in state statute and rules by state archives. 17 And every state agency has to have one, 18 and every state agency has to go back through them 19 annually and get certified annually, and we just went 20 through that certification. And so what I want you to 21 understand is that we have that document, and now it's 22 to ensure that that document and those records are 23 being destroyed in a timely manner and not prior to 24 that time but now to ensure that that is in sync in 25 the various ways we store information, both 0214 1 electronically and in hard copy. 2 Now, we will go back and we can work on 3 a formal policy to bring before the Commission that 4 says, "You need to follow this, because this is in 5 state statute," but I don't want you to -- I don't 6 want you to leave thinking that we don't have that in 7 place. 8 COMMISSIONER SCHENCK: I don't think 9 that you don't have a policy on documents. But I 10 heard you to say, as you sit here today -- well, let 11 me ask you this question: What is the policy in your 12 division for hard documents? How long are they 13 supposed to be kept? 14 MR. FERNANDEZ: They are kept based on 15 the retention schedule. 16 COMMISSIONER SCHENCK: Okay. How long 17 might that be? What is the longest one? 18 MR. FERNANDEZ: It could be three years; 19 it could be one year; it could be five years. 20 COMMISSIONER SCHENCK: As you sit here 21 today, can you assure me that you don't have any 22 e-mails in your in-box or it wouldn't be possible to 23 have them beyond three years or one year? 24 MR. FERNANDEZ: I cannot ensure you 25 today. 0215 1 COMMISSIONER SCHENCK: That's what we're 2 talking about. 3 COMMISSIONER CLOWE: That's what we're 4 talking about. 5 MR. FERNANDEZ: I'm not sure I could 6 ensure you ever that's exactly what we're talking 7 about. 8 COMMISSIONER SCHENCK: We're talking 9 about e-mail. 10 MR. FERNANDEZ: So are we; so are we. 11 COMMISSIONER SCHENCK: Okay. 12 COMMISSIONER CLOWE: And you understand 13 that's -- you know, the first thing it seems like to 14 me in controversy that I'm aware of is the subject of 15 an open records request, is your telephone logs and 16 your e-mail, and then they go on beyond to memos and 17 letters. 18 MR. FERNANDEZ: Calendars. 19 COMMISSIONER CLOWE: You get into the 20 hard copy stuff. But the juicy stuff is the telephone 21 calls and the e-mail. And it's not that we have 22 anything to hide here. We don't. You know, our 23 policy is, don't do it if you don't want it on the 24 front page of the Austin Statesman. 25 CHAIRMAN COX: Amen. 0216 1 COMMISSIONER CLOWE: But we need to 2 know -- and thank you, Nelda, for bringing this up -- 3 MS. TREVINO: You're welcome. 4 COMMISSIONER CLOWE: -- what our policy 5 is on the e-mails. And I'm sure you would say we have 6 a retention policy on telephone logs. Those are hard 7 copies when they come in. 8 MR. FERNANDEZ: Will do. 9 COMMISSIONER SCHENCK: Okay. 10 CHAIRMAN COX: Deanne, did you have 11 anything you wanted to add? 12 MS. RIENSTRA: I don't have anything to 13 add. 14 CHAIRMAN COX: Okay. 15 (Laughter) 16 COMMISSIONER CLOWE: And it's always a 17 pleasure to hear from Nelda, isn't it? 18 CHAIRMAN COX: It is. 19 MS. KIPLIN: And this is all under the 20 80th legislative report, because of the interim 21 charges. 22 CHAIRMAN COX: Yes. 23 AGENDA ITEM NO. XV 24 CHAIRMAN COX: Okay. Item No. XV -- 25 we're all the way to 15? Do you want to go ahead and 0217 1 go on, to beat the traffic? 2 COMMISSIONER CLOWE: I'm dead. 3 CHAIRMAN COX: You'll be staying at the 4 Four Seasons tonight. 5 COMMISSIONER CLOWE: There you go. 6 CHAIRMAN COX: Report, possible 7 discussion and/or action on the agency's contracts. 8 Mr. Jackson. 9 MR. JACKSON: Good afternoon, 10 Commissioners. For the record, my name is Tom 11 Jackson. I'm the Purchasing and Contracts Manager for 12 the Lottery Commission. 13 Commissioners, in your notebooks under 14 Tab No. XV is a report on prime contracts that have 15 been updated for your review. I would be happy to 16 answer any questions. 17 COMMISSIONER CLOWE: No questions. 18 CHAIRMAN COX: Thank you, Tom. 19 Did you have any questions? 20 COMMISSIONER SCHENCK: No. 21 CHAIRMAN COX: Okay. Thank you, Tom. 22 All right. Item No. XVII we've already 23 covered. Item XVIII, consideration of and possible 24 discussion and/or action on the agency's business 25 plan. 0218 1 MS. KIPLIN: Mr. Chairman, you missed an 2 item. 3 COMMISSIONER CLOWE: XVI. 4 CHAIRMAN COX: Oh, I'm sorry. I'm 5 sorry. 6 (Laughter) 7 I'm nothing if not confused. Okay. 8 COMMISSIONER CLOWE: She's quick. 9 CHAIRMAN COX: She is. She'll catch you 10 every time. 11 AGENDA ITEM NO. XVI 12 CHAIRMAN COX: Item No. XVI. Is that 13 it, Kim? 14 MS. KIPLIN: Yes, sir. 15 CHAIRMAN COX: Okay. Thank you. And 16 I'm actually checking these off as I go. 17 Report, possible discussion and/or 18 action on the procurement of consulting services to 19 analyze and explore options available for the delivery 20 of core lottery operations and services. 21 Mr. Fernandez. 22 MR. FERNANDEZ: I will gladly relinquish 23 my spot to my boss. 24 Well, good afternoon, Mr. Chairman and 25 Commissioners. My name is Mike Fernandez. I'm the 0219 1 Director of Administration. 2 This agenda item is to advise the 3 Commission that the RFP for consulting services to 4 identify options for the delivery of core lottery 5 services which, as you may recall, was issued August 6 the 9th, has been cancelled. The staff intends to 7 release the RFP hopefully prior to the Christmas 8 holidays. 9 If you have any questions, I would be 10 happy to try and answer them. 11 COMMISSIONER CLOWE: No questions. 12 COMMISSIONER SCHENCK: Nothing. Thanks. 13 CHAIRMAN COX: You're off the hook. 14 MR. FERNANDEZ: Thank you, sir. 15 CHAIRMAN COX: Okay. Now, Kim, next 16 would be XVII -- excuse me -- XVIII. We've done XVII. 17 COMMISSIONER CLOWE: Yes, sir, agency's 18 business plan. 19 AGENDA ITEM NO. XVIII 20 CHAIRMAN COX: Item No. XVIII, 21 consideration of and possible discussion and/or action 22 on the agency's business plan. 23 Mr. Grief. 24 MR. GRIEF: Good afternoon, 25 Commissioners. For the record, my name is Gary Grief, 0220 1 and I'm the Deputy Executive Director for the agency. 2 And I'm here this afternoon to talk to you about the 3 agency business plan for Fiscal Years 2008 through 4 2011. And I've placed a copy, in case you didn't have 5 one, on the tables in front of you today. 6 I would like to begin by just giving you 7 some background on the history of the agency business 8 plan. In August 2002, the Texas Sunset Advisory 9 Commission issued a staff report regarding the Texas 10 Lottery Commission. Among several other 11 recommendations, the Sunset Commission staff 12 recommended that the Lottery Commission develop a 13 comprehensive business plan which would help guide the 14 Commission's major initiatives to ensure their 15 cost-effectiveness. 16 This business plan is not statutorily 17 required, and it's used by the agency to complement 18 those other documents that are statutorily required, 19 such as the agency's strategic plan, the Legislative 20 Appropriations request and the annual operating 21 budget. 22 The original business plan which covered 23 Fiscal Years 2005 to 2007 was developed by the 24 management team, with assistance from the UT School of 25 Business, and was initially presented to the Lottery 0221 1 Commission in the July 2004 Commission meeting. And 2 it was ultimately approved by the Commission in the 3 November 2004 Commission meeting. 4 Our original business plan contained 23 5 individual action plans which crossed all the 6 divisions of the agency, and these action plans have 7 been effectively used as tools to keep the agency 8 focused on our business goals. This has been 9 accomplished by conducting a comprehensive review of 10 each of these action plans every six months. 11 These six-month reviews involved my 12 receiving a detailed memo from each division 13 responsible for that particular action plan and 14 culminates in a half day approximate meeting in which 15 we review each and every action plan, we give a 16 progress report on its status and make adjustments to 17 our plan, if necessary. At the present time, 17 of 18 the original action plans from the original business 19 plan have been completed, five are still ongoing, and 20 one was closed out due to legal restrictions. 21 The new business plan, which is in draft 22 form and covering Fiscal Years '08 to '11, was sent to 23 you last month for your review. We have increased the 24 time period covered for this business plan from three 25 years to four, to coincide with the next two 0222 1 bienniums. The entire management team was involved in 2 the development of the new plan, but I do want to 3 express special appreciation to Robert Elrod, our 4 agency's publications and graphics coordinator, for 5 his many hours of help in editing the plan and putting 6 it in the professional format that you see here today. 7 In the current plan, there are a total 8 of 20 key initiatives outlined, including five focused 9 specifically on the marketing of lottery products, 10 nine focused on external and internal charitable bingo 11 initiatives and three focused on general agency 12 operations, such as records retention item that 13 Mr. Fernandez just spoke to you about. 14 Today staff is seeking your guidance, 15 input, and hopefully your approval of the plan. And 16 staff is prepared to answer any questions that you 17 might have. 18 COMMISSIONER CLOWE: It's a nice job, 19 Gary. Are you going to review it every six months. 20 MR. GRIEF: Yes, sir. We have 21 established that practice, and we'll continue that 22 practice. And the five that are ongoing from our 23 previous plan, we will continue to review those, along 24 with the new initiatives in the new plan. 25 COMMISSIONER CLOWE: You mentioned 0223 1 Sunset review in connection with this. Maybe a 2 question for Ms. Trevino is, when is our Sunset review 3 scheduled for now? 4 MS. TREVINO: Commissioner Clowe, I'm 5 going off recollection, but I believe that the agency 6 will be up for Sunset review during the 2011 7 legislative session, but the process for the agency 8 will begin much sooner than that. And, again, if 9 recollection serves me correctly, the agency would be 10 submitting its self-evaluation report to the Sunset 11 Commission in August of 2009. 12 COMMISSIONER CLOWE: Nine, yes. It's 13 coming soon. 14 MS. TREVINO: Very soon. 15 COMMISSIONER CLOWE: And this will be 16 part of the evaluation? 17 MR. GRIEF: Yes, sir, I'm sure it will 18 be. 19 COMMISSIONER CLOWE: Nice job. Thank 20 you. 21 Thank you, Chairman. 22 CHAIRMAN COX: Commissioner? 23 COMMISSIONER SCHENCK: I appreciate it. 24 Thank you. 25 CHAIRMAN COX: Gary, this is your usual 0224 1 good work. One of the things we've all seen over the 2 years is that people produce a business plan because 3 someone told them to or because they thought they 4 ought to, and they produce a nice document like this, 5 and they immediately go put it on a shelf, and they 6 look at it again when they're supposed to review it 7 again. 8 Do you feel that this is a useful 9 process within our agency? You know I've been very 10 supportive of this process all along, but I think we 11 should look from time to time and see, is this 12 something that we're really getting the benefit out of 13 that the obvious effort that went into it would merit? 14 MR. GRIEF: I would say I know that you, 15 Chairman Cox, and you, Commissioner Clowe, and you, 16 Commissioner Schenck, in the future, I'm sure, too, 17 will come to have conversations about how this agency 18 is not your typical state agency. And while we must 19 be respectful and mindful and produce documents such 20 as the agency's strategic plan and the annual 21 operating budget, this truly is more of a business 22 operation, at least on the lottery side of the house, 23 notwithstanding the Bingo Division. 24 And I believe that this document is, 25 with the new business plan and the one we're just 0225 1 coming out of, are right on point with the operation 2 of the business. These are points that are put 3 together by the folks who are on the ground conducting 4 the business. We make those initiatives known to 5 everyone. We follow up on them, and we make sure that 6 we're taking the right paths as we reach our goals. 7 So, yes, sir, in response to your question, yes, it is 8 very useful and very helpful to the agency. 9 COMMISSIONER SCHENCK: Nothing. Thanks. 10 CHAIRMAN COX: Thank you very much Gary. 11 Excellent work. 12 MR. GRIEF: Thank you. 13 AGENDA ITEM NO. XIX 14 CHAIRMAN COX: Item No. XIX, 15 consideration of and possible discussion and/or action 16 on the external and internal audits and/or reviews 17 relating to the Texas Lottery Commission and/or on the 18 Internal Audit Department's activities. 19 Ms. Melvin. 20 MS. MELVIN: Good afternoon. 21 Commissioners, for the record, my name is Catherine 22 Melvin, Director of the Internal Audit Division. 23 At our last Commission meeting, I 24 reported on two external audits of the agency. I 25 would like to provide an update at this time on both 0226 1 of those audits. 2 First was the annual financial audit. 3 This also includes an agreed upon procedures 4 engagement of our Mega Millions procedures. That is 5 scheduled to be completed this month. And we 6 anticipate the auditors coming before this Commission 7 likely in January at a later Commission meeting to 8 present their results. 9 Second, the State Auditor's office 10 audit, those audit efforts are ongoing. If you'll 11 recall, the State auditor is conducting a follow-up or 12 conducting follow-up work on three separate audits 13 that they completed back in 2006. As part of their 14 follow-up efforts related to the Workforce Management 15 audit, the State Auditor is currently conducting an 16 on-line survey of all staff regarding their opinions 17 about the working environment here at the Texas 18 Lottery Commission. The survey allows each respondent 19 to submit their responses anonymously. 20 I would like to note here that the 21 auditors did experience some trouble with this survey 22 here recently. About midway through the survey 23 period, it came to the auditor's attention that a 24 technical glitch had occurred which prevented some 25 people from accessing the survey and being able to 0227 1 complete it. This was quickly remedied, and agency 2 staff have been given an extension to complete the 3 survey. The survey does close at the end of this 4 week. 5 And one last comment regarding the State 6 Auditor's office. I believe I reported to you last 7 time they intended to complete their work early 8 January. They have pushed that date out and are 9 anticipating a report likely in April. 10 Those are all my comments, if you had 11 any questions. 12 COMMISSIONER CLOWE: If I may, 13 Mr. Chairman? 14 CHAIRMAN COX: Yes, sir. 15 COMMISSIONER CLOWE: Catherine, I think 16 you've briefed the Commissioners individually on that 17 glitch that occurred on that workforce audit? 18 MS. MELVIN: Yes, sir. 19 COMMISSIONER CLOWE: And although I 20 don't know how the other two Commissioners feel, 21 because we haven't discussed it, I can assume, I 22 think, that they feel strongly about hoping for a high 23 level of participation. And I would like to have that 24 on the record, that as I understand it, it was a 25 technical thing and didn't have anything to do with 0228 1 the anonymous nature of it or the mechanics of it, 2 other than it was just not able to be accessed. And 3 you have had a public meeting, if I am correct. 4 MS. MELVIN: Yes, sir. 5 COMMISSIONER CLOWE: Executive Director 6 Sadberry made a presentation and asked for 7 participation. And if it's not presumptuous, 8 Mr. Chairman and Commissioner, I would like to say 9 that we want a high level of participation and hope 10 every employee of this agency will avail themselves of 11 the opportunity to answer those questions and 12 participate in that. 13 MS. MELVIN: Yes, sir. 14 COMMISSIONER SCHENCK: I would just 15 amplify on that point. I think one of the difficulties 16 of being a commissioner down here, as infrequently as 17 I am, is I don't -- we don't probably get as much 18 interaction with the staff as we would like. And I 19 would consider it a favor. I mean, it's not just in 20 their interest; it's in our interest if they'll 21 comprehensively, honestly and completely respond to 22 these surveys. And I know that -- I think others feel 23 the same way. 24 CHAIRMAN COX: Well, I haven't heard 25 such strong statements. Director Sadberry, I'm just 0229 1 thinking of one possibility. Would it be appropriate, 2 do you think, to put something on the intranet, that 3 the Commissioners unanimously at this meeting 4 encouraged the employees to complete this survey and 5 return it to the State Auditor's office? 6 MR. SADBERRY: Just offhand I cannot see 7 any problem with that or anything wrong with that. As 8 Commissioner Clowe pointed out, the auditor's office 9 sent three representatives -- was it Tuesday of last 10 week? 11 MS. MELVIN: Yes, sir. 12 MR. SADBERRY: -- to explain the glitch 13 and to encourage participation. 14 One thing that struck me in that meeting 15 is the high turnout that occurred. I think we 16 asked -- they had met with us individually before 17 that. We asked that they indicate in their 18 communication to staff that we would have the 19 all-staff meeting. And we were trying to do it as 20 early as possible after the holiday break, I believe. 21 And I was going to gauge my optimism by 22 the turnout. And the high turnout to me indicated 23 there was an interest. I think there was an openness 24 and open-mindedness to it. And, quite frankly, the 25 interaction questions that were asked and the 0230 1 attention that I observed being given to it suggested 2 to me that I think we got past that, which is what I 3 requested. I did speak to that issue as well. So 4 that's the point I made. 5 And it's in the interest of the 6 Commission, the Commissioners, the Legislature, about 7 this issue, particularly given the fact that it's been 8 basically a two-year period of time -- not quite, but 9 basically a two-year period in time in which we have 10 addressed a lot of things and tried to deal with a lot 11 of things and to know how well staff's perception of 12 that is. And how well we've done or not and where we 13 need to improve in areas that there's still concerns 14 is to have the feedback from staff on that directly. 15 And I'm not sensing -- I haven't been here a lot since 16 then, but I'm not sensing any negative reaction to 17 that. In fact, I saw an e-mail earlier from the State 18 Auditor's office that indicated that participation was 19 again beginning to meet their expectation. 20 Is that a reasonable characterization? 21 MS. MELVIN: You know, Mr. Sadberry, I 22 actually haven't heard exactly what the participation 23 rate is at yet. You know, I know they're monitoring 24 that very closely. They actually did indicate that 25 they might hold the survey open longer -- 0231 1 MR. SADBERRY: Oh, did they? 2 MS. MELVIN: -- depending on the 3 responses. 4 CHAIRMAN COX: Okay. 5 MS. MELVIN: They're, you know, of 6 course, working against a timeline also and want to 7 close it by the end of this week. 8 MR. SADBERRY: But I cannot -- back to 9 the question. I cannot see anything wrong or negative 10 or untoward about indicating the Commissioners' 11 concern and interest and reemphasizing that and 12 putting it on the intranet. I'm open to any comments 13 on that. But this hearing -- 14 COMMISSIONER CLOWE: Well, let me help 15 you on that. I don't think it's a concern. I think 16 it's an enthusiasm for the opportunity. As 17 Commissioner Schenck indicated, it's to our benefit. 18 And this is not an action item. We are not voting. 19 We're individually expressing our desire to have a 20 high level of response from the employees, and that's 21 what I think is the message that the Chairman and the 22 Commissioners want communicated. 23 MR. SADBERRY: And I don't -- if I used 24 an improper word, then I retract that. But I don't 25 see anything that would indicate that that should not 0232 1 occur. I guess my question would be: Do you suggest 2 that should come from the ED's pen to staff or a 3 general posting or how would that be? 4 CHAIRMAN COX: I think that would be 5 totally appropriate. 6 COMMISSIONER CLOWE: Okay. 7 CHAIRMAN COX: You know, if you have any 8 other observations from this meeting, you might share 9 them. You know, one of the things I've seen happen in 10 an organization is the chairman of the board or the 11 CEO communicates with employees important things to 12 have in the board meetings. And that might be 13 something that, since every one doesn't get to come, 14 you might want to do on a regular basis. 15 MR. SADBERRY: That's another good 16 point. 17 COMMISSIONER CLOWE: Good. 18 CHAIRMAN COX: Okay. And, Anthony, the 19 intranet, any way you consider it appropriate. But I 20 think coming from you is the right way. And I 21 certainly agree with Chairman Clowe, that this is 22 encouraging folks that, "You know, here is an 23 opportunity to provide the Commissioners with input 24 that they really value." 25 Is the business plan on the intranet? 0233 1 MR. GRIEF: The new one will be after 2 this meeting. 3 CHAIRMAN COX: Excellent. Okay. Thank 4 you. 5 Did you have more, Catherine? 6 MS. MELVIN: I did not. 7 CHAIRMAN COX: Okay. 8 MS. MELVIN: But thanks. 9 MS. KIPLIN: Mr. Chairman, do you mind 10 if I go back to the agency's business plan? 11 CHAIRMAN COX: Please. 12 MS. KIPLIN: You're not required 13 statutorily to approve or adopt the plan, because 14 there's nothing in statute that actually requires the 15 agency to have a business plan. And Mr. Grief 16 mentioned this in his comments, that the Commission 17 did approve the first plan. 18 CHAIRMAN COX: Yes. 19 MS. KIPLIN: So I didn't know -- 20 CHAIRMAN COX: Pardon me. You had 21 already told me that and I forgot. So -- 22 MS. KIPLIN: I'll stop talking. 23 CHAIRMAN COX: I would like to have a 24 motion. 25 COMMISSIONER CLOWE: Move the adoption. 0234 1 COMMISSIONER SCHENCK: I'll second the 2 motion. 3 CHAIRMAN COX: Okay. All in favor, say 4 "Aye." 5 COMMISSIONER CLOWE: Aye. 6 COMMISSIONER SCHENCK: Aye. 7 CHAIRMAN COX: Aye. 8 All opposed? 9 No response) 10 Motion carries 3-0. 11 Thank you, Ms. Kiplin. 12 Now, unfortunately, we're drawing near 13 the one and a half hours of meeting time. Are you 14 okay? 15 THE REPORTER: Yes. 16 CHAIRMAN COX: Okay. We'll probably 17 have to take a break before we're through here, 18 because unless Ms. Kiplin is willing to put off the 19 cases for another month, we've got a long way to go. 20 AGENDA ITEM NO. XX 21 CHAIRMAN COX: Okay. Item XX, 22 consideration of and possible discussion and/or 23 action, including adoption, on the agency's rule 24 review of 16 TAC Chapter 401 relating to the 25 administration of the State Lottery Act. 0235 1 Ms. Woelk again. 2 COMMISSIONER CLOWE: I bet if everyone 3 is very brief, we'll get through this agenda. 4 MS. WOELK: I'll be very brief, and I'll 5 even promise Commissioner Schenck a subsequent 6 education on the rule review process, outside of the 7 meeting. But this is part of the rule review process 8 that happens every four years. We have reviewed 9 Chapter 401, which is the most new of our rules, and 10 we found none of the rules that simply need to be 11 eliminated. So we're proposing today that you readopt 12 the rules in Chapter 401. We've identified any number 13 of them that need to be amended, and we're going to 14 come back, starting in January, with some amendments 15 to a couple of the game rules. And we have a plan to 16 amend a number of different rules, but we think all 17 the rules need to stay, although in an improved form 18 down the road. So we would recommend that you vote to 19 adopt the readoption of the rules. 20 COMMISSIONER CLOWE: Move the adoption 21 of the staff recommendation. 22 CHAIRMAN COX: All in favor, say "Aye." 23 COMMISSIONER SCHENCK: Aye. 24 COMMISSIONER CLOWE: Aye. 25 CHAIRMAN COX: Aye. 0236 1 Opposed? 2 (No response) 3 Motion carries 3-0. 4 MS. KIPLIN: I have an order. 5 MS. WOELK: Do you want me to talk over 6 you while you sign? 7 COMMISSIONER CLOWE: You bet. 8 MS. WOELK: Okay. The next item, 9 Commissioner Cox -- 10 AGENDA ITEM NO. XXI 11 CHAIRMAN COX: Okay. This is Item XXI 12 as described in the agenda. 13 MS. WOELK: This is a matter that grew 14 out of the rule review of Chapter 403. We had a rule 15 that had to do with surveillance vehicles. We no 16 longer have surveillance vehicles, don't anticipate 17 having them. We recommended you repeal the rule, and 18 this would be to adopt the repeal of that rule, and we 19 recommend that you do so. 20 COMMISSIONER CLOWE: Move the adoption 21 of the staff recommendation. 22 COMMISSIONER SCHENCK: I second. 23 CHAIRMAN COX: All in favor, say "Aye. 24 COMMISSIONER CLOWE: Aye. 25 COMMISSIONER SCHENCK: Aye. 0237 1 CHAIRMAN COX: Aye. 2 Any opposed? 3 (No response) 4 Motion carries 3-0. 5 Item XXIII, consideration of and 6 possible adoption and/or action, including adoption -- 7 COMMISSIONER SCHENCK: XXII. 8 CHAIRMAN COX: XXII. Golly! Do you 9 want for move over here? 10 COMMISSIONER CLOWE: No, no. 11 CHAIRMAN COX: Somebody needs to. Wow! 12 That's one way to get through it, just skip them. 13 AGENDA ITEM NO. XXII 14 CHAIRMAN COX: Item XXII, consideration 15 of and possible discussion and/or action, including 16 adoption, on amendments to 16 TAC 403.101 relating to 17 open records. 18 Ms. Rienstra, Who has her hair up today 19 for the first day in a long time. 20 MS. RIENSTRA: Commissioners, this is 21 another rule review. And, of course, Deanne Rienstra 22 Assistant General Counsel -- sorry. And, of course, 23 it says open records, so here I am. 24 Again, this was proposed in the 25 October 5th issue of the Texas Register. We are 0238 1 giving you a draft today with changes to the proposed 2 text. Specifically what it changes is the Open 3 Records Act to the Public Information Act. The name 4 was changed a few years ago. Again, this rule just 5 changes some -- clarifies some other information, 6 statutory changes so that the rule complies with these 7 statutory changes. 8 Staff recommends -- I'm sorry? 9 COMMISSIONER CLOWE: Go ahead. 10 MS. RIENSTRA: Okay. Staff recommends 11 that the Commission adopt the amendments to 16 TAC 12 403.101 of the records as shown in the attached draft. 13 COMMISSIONER CLOWE: Move adoption of 14 the staff recommendation. 15 COMMISSIONER SCHENCK: I'm going to 16 second the motion, with the request that when we do 17 these, if we could do a red line to show the changes, 18 it would be helpful. But I second the motion. 19 MS. RIENSTRA: Okay. Yes, sir. 20 CHAIRMAN COX: All in favor, say "Aye." 21 COMMISSIONER CLOWE: Aye. 22 COMMISSIONER SCHENCK: Aye. 23 CHAIRMAN COX: Aye. 24 Any opposed? 25 (No response) 0239 1 Motion carries 3-0. 2 CHAIRMAN COX: XXIII? 3 COMMISSIONER CLOWE: Yes. 4 AGENDA ITEM NO. XXIII 5 CHAIRMAN COX: XXIII, consideration of 6 and possible discussion and/or action, including 7 adoption, on amendments to 16 TAC 403.301 relating to 8 Historically Underutilized Businesses. 9 Ms. Woelk. 10 MS. WOELK: This is another product of a 11 rule review, Chapter 403. Our rule adopts by 12 reference some rules about strictly underutilized 13 businesses. The program used to be administered by 14 the General Services Commission. Now the Office of 15 the Comptroller has taken those over. So this is just 16 a cleanup amendment to make clear that we're adopting 17 by reference rules that are now administered by the 18 Comptroller. And we recommend you adopt the 19 amendment. 20 COMMISSIONER CLOWE: Move the adoption 21 of the staff recommendation. 22 COMMISSIONER SCHENCK: Second the 23 motion. 24 CHAIRMAN COX: All in favor, say "Aye." 25 COMMISSIONER CLOWE: Aye. 0240 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN COX: Aye. 3 Any opposed? 4 (No response) 5 Motion carries 3-0. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0241 1 AGENDA ITEM NO. XXIV 2 CHAIRMAN COX: Okay. Item XXIV, 3 consideration and possible discussion and/or action, 4 including adoption, on amendments to a number of 5 different things, as noted in the agenda. 6 Sarah? 7 MS. WOELK: A few months ago we proposed 8 amendments to the general game rule and the specific 9 individual game rules, to clarify the concept of draw 10 break, because the rule as written previously would 11 have not allowed for the implementation of a buffer. 12 GTECH plans to implement a buffer that allows the 13 cutoff -- there would be a cutoff for when orders go 14 in but a longer time period when transactions can be 15 completed. 16 We received no comments on this, and we 17 recommend that the Commission adopt the amendments to 18 these rules. 19 COMMISSIONER CLOWE: Move the adoption 20 of the staff recommendation. 21 COMMISSIONER SCHENCK: Second the 22 motion. 23 CHAIRMAN COX: All in favor, say "Aye." 24 COMMISSIONER SCHENCK: Aye. 25 COMMISSIONER CLOWE: Aye. 0242 1 CHAIRMAN COX: Aye. 2 Any opposed? 3 (No response) 4 Motion carries 3-0. 5 MS. WOELK: Thank you. 6 CHAIRMAN COX: Thank you Sarah. 7 AGENDA ITEM NO. XXV 8 CHAIRMAN COX: Item XXV, report, 9 possible discussion and/or action on the Mega Millions 10 game and/or contract. 11 Director Sadberry. 12 MR. SADBERRY: Commissioners, I have 13 nothing to update you on this at this time. I would 14 be happy to answer any questions. 15 COMMISSIONER CLOWE: No questions. 16 COMMISSIONER SCHENCK: None for me. 17 Thank you. 18 CHAIRMAN COX: Thank you, Director 19 Sadberry. 20 AGENDA ITEM NO. XXVI 21 CHAIRMAN COX: Item XXVI, report, 22 possible discussion and/or action on GTECH 23 Corporation. 24 Director Sadberry. 25 MR. SADBERRY: There is a written 0243 1 report, Commissioners, in your binders that I won't go 2 through. It basically is an update on the consulting 3 agreements and other activities of GTECH, including 4 some corporate organizational changes. It's there for 5 your reading. 6 I will tell you that I was contacted 7 last week by Jaymin Patel, who will be the new CEO of 8 GTECH at no later than effective January 1, 2008, and 9 will be a member of the Board of Directors at 10 Lottomatica. Mr. Bruce Turner has resigned and will 11 be moving on. Mr. Patel had offered to come before 12 the Commission at its January meeting, the general 13 business protocol, and also to address any questions 14 or concerns the Commission might have, and 15 communicated that to the Chairman. And we're making 16 arrangements now for him to confirm that he will be 17 here for the January meeting. 18 COMMISSIONER CLOWE: No questions. 19 COMMISSIONER SCHENCK: I have a quick 20 question for you, Anthony. In reviewing the 21 materials, I saw that New Mexico had just gotten a new 22 contract with Intralot. 23 MR. SADBERRY: Yes, sir. 24 COMMISSIONER SCHENCK: What do we know 25 about the contract or Intralot and whether that 0244 1 company would be interested in bidding on our next 2 contract? 3 MR. SADBERRY: I don't know the 4 specifics of that contract. I don't know definitely 5 about Intralot. And if you're talking specifically 6 about the potential of being a bidder for the Texas 7 contract, I think that's something to explore. 8 Obviously, we're interested in the competitive aspect 9 of bidding of our contracts of this nature. They have 10 not been identified previously as a candidate similar 11 in composition to GTECH. And you might remember, 12 Scientific Games was here previously at a meeting -- I 13 think the October meeting -- and spoke to that issue. 14 COMMISSIONER SCHENCK: As I recall, we 15 couldn't get a really firm commitment. That's exactly 16 right. 17 CHAIRMAN COX: And Michael Anger is 18 coming up. Would you like to speak to that, Michael? 19 MR. ANGER: I was just going to add to 20 what Anthony is providing me in the way of 21 information, Commissioner. There's essentially three 22 on-line services provider companies for the lottery 23 industry in the United States, and Intralot is the 24 third. Scientific Games provides those services -- 25 they're currently one of our instant ticket 0245 1 printers -- and GTECH Corporation, who is our current 2 vendor. Intralot is the third. 3 I was just speaking with Mr. Tirloni. 4 They provide on-line services for some jurisdictions 5 overseas and Europe. And then I believe, from our 6 discussion, that the three lotteries that they provide 7 services for in the United States are Montana, New 8 Mexico, and we also believe Nebraska. 9 COMMISSIONER SCHENCK: Do we know what 10 the terms of those contracts look like when they 11 compare to ours in terms of cost? 12 MR. ANGER: I don't offhand know. 13 COMMISSIONER SCHENCK: That might be 14 helpful. 15 MR. ANGER: And the one thing I would 16 say is, is the scope of services can vary pretty 17 widely from jurisdiction to jurisdiction. 18 COMMISSIONER SCHENCK: I understand. 19 The three states you mentioned don't sound like 20 particularly heavy burdens to carry. 21 (Laughter) 22 But it's possible that additional 23 competition in the bidding might prove of value to us. 24 COMMISSIONER CLOWE: We've got more 25 lawyers in Waco than they've got in the whole state. 0246 1 MR. ANGER: They do have smaller sales 2 volumes in those jurisdictions than we do. But they 3 are a competitor in the industry. As to their 4 interest in bidding a contract the size of ours, I 5 would not know. 6 CHAIRMAN COX: All right. I would think 7 that if we get two viable bidders, we'll be very 8 lucky. I'm certain that Intralot knows about Texas 9 and would love to bid on it. But it sounds like if 10 they're doing these three states, they might have a 11 ways to go yet. 12 COMMISSIONER SCHENCK: That very well 13 could be. I just recall from our last meeting that 14 Scientific Games was not exactly committing. 15 CHAIRMAN COX: No, they weren't. They 16 were saying they might and they might not, depending, 17 and that might not have even been a lawyer. 18 (Laughter) 19 COMMISSIONER CLOWE: That's when they 20 were promising that they were leaving, wasn't it? 21 COMMISSIONER SCHENCK: Well, I mean, 22 having to let go of a few hundred jobs in Bexar 23 County, so maybe we'll see some competitive benefits 24 accruing to us. And I don't know that we're going to, 25 and I would like to see if Intralot or somebody else 0247 1 who has got the ability to carry out the contract 2 would be interested in bidding. 3 CHAIRMAN COX: Well, one of the things 4 that was on our agenda earlier that you may not have a 5 background on is, Mr. Fernandez is responsible for 6 putting together the RFP for the lottery operator 7 services, and he is advertising again for a consultant 8 to help us do that. And we're looking at all kinds of 9 options, from bidding it just like we did this time, 10 which is the Texas model with the single winner, to 11 breaking it up into various kinds of contracts and 12 letting people bid on smaller parts of the contract. 13 So any input that you could have for 14 Michael on that, I know he would appreciate it. 15 COMMISSIONER CLOWE: I think from a 16 practical business standpoint, the Texas model 17 because, it's all bundled -- this goes to the 18 Chairman's point -- is more than somewhat difficult. 19 In addition to our size, having over 16,000 retail 20 outlets that are called on every two weeks to have an 21 outside company come in and incent us through a cost 22 reduction and be competitive in bidding has been a 23 concern of the Chairman's and mine for the years we've 24 been on this board. 25 You know, we have the best rate from 0248 1 GTECH we've ever had, but we are in a position of, in 2 my opinion, only having one other alternative at this 3 point in time, based on practical experience, and that 4 is to do it ourselves. And that is a major 5 undertaking. 6 CHAIRMAN COX: Yes. 7 COMMISSIONER CLOWE: And I wouldn't ever 8 hesitate to tell the world of vendors that we'll do it 9 ourselves if we need to, but that is a substantial 10 undertaking. 11 CHAIRMAN COX: Yes. 12 COMMISSIONER CLOWE: We are highly 13 bundled. And, you know, this state has some adverse 14 feeling about FTEs and -- Ramon, how many FTEs have 15 you got handling Texas business today? 16 MR. RIVERA: Just shy of 500, sir. 17 COMMISSIONER CLOWE: The representative 18 from GTECH, Ramon Rivera, answered "Just shy of 500," 19 and that's what you're looking at, plus a substantial 20 capital investment that is real. 21 CHAIRMAN COX: Big time capital 22 investment. 23 And, Mike, I guess I should add -- and 24 correct me if I'm wrong on this -- that at one time we 25 were calling doing it ourselves Plan B. I would guess 0249 1 that right now somebody -- we've got a Plan A, Mike, 2 which might be either breaking it up into pieces or 3 keeping it as one piece. B might be the other one, 4 and C might be do it ourselves. 5 MR. ANGER: Absolutely. That's correct, 6 Commissioner. As you know, this came from discussions 7 with both you and Commissioner Clowe asking what would 8 happen if something were to happen, where would we go 9 ultimately morphed into looking at the contract -- 10 renewal of this contract expires in 2011 and now 11 setting the stage in preparation for that RFP. 12 And so what we did -- as the Chairman 13 mentioned, that was an earlier agenda item -- that 14 we've put out a bid that we pulled back and now we're 15 getting ready to re-release that bid. And that's to 16 obtain consulting services to help us identify the 17 various types or options that we might look at in 18 terms of that bid and going forward. And that could 19 be B, A, depending on how those business cases 20 materialize. 21 COMMISSIONER CLOWE: And Commissioner, 22 you know, we've been concerned about the dominance of 23 GTECH in this industry worldwide. Then they were 24 acquired by Lottomatica, and we examined that 25 transaction in depth. And part of the assurance we 0250 1 got was, the control was going to stay in Rhode Island 2 and there would be no change in principal managers. 3 Well, it didn't take long for that to 4 change, as it was predicted. And now the original 5 cast that engineered the acquisition, for the most 6 part, resigned and are leaving the company. And the 7 control in my mind is clearly going overseas. The 8 acquiring parent, which is domiciled in Italy, is 9 bringing management to bear. They own it; they're 10 going to run it. 11 And, you know, from a business 12 consideration, that's not unexpected at all. But we 13 need to be on top of that. We need to be watching 14 that very carefully and exploring these alternatives 15 and encouraging competition in this world. And it is 16 a capital intensive, people intensive, demanding 17 industry, and it's a challenge to us as managers in 18 this agency. 19 COMMISSIONER SCHENCK: The only reason I 20 bring it up is, I saw this new Lottomatica contract in 21 a neighboring state and thought that might have some 22 potential for us. 23 CHAIRMAN COX: Yes. Well, Mike, I don't 24 think there's any way of over-emphasizing the 25 importance or the difficulty of the job you're doing. 0251 1 You know, if we were to say, "Okay. Just put the 2 Texas model in, and we'll put out an RFP," that's one 3 thing. But what you're doing is looking at it from a 4 business standpoint and trying to determine: Do we 5 get optimal results by that, by multiple vendors, by 6 bringing it in-house, or even some combination of 7 multiple vendors and bring it in-house? 8 MR. FERNANDEZ: That's correct. 9 CHAIRMAN COX: So it's a four- 10 dimensional matrix, and you've got a tough job, but 11 we're very pleased that you're doing it. 12 MR. FERNANDEZ: We have an excellent 13 team on this. And one of my colleagues on that team 14 is sitting here with me, but I'm sure you can imagine 15 the others. But we have the very best team that we 16 can put on this. 17 CHAIRMAN COX: Excellent. 18 COMMISSIONER SCHENCK: Thank you. 19 CHAIRMAN COX: Well, okay, Ms. Kiplin. 20 Now comes the time. Are we going to fish or cut bait 21 on these items? 22 MS. KIPLIN: If the Commission would 23 allow, I would like to present these cases so that we 24 don't carry and have an even heavier docket. 25 CHAIRMAN COX: Is that fish? 0252 1 MS. KIPLIN: Yes, sir. If that's all 2 right with the Commission. 3 AGENDA ITEM NO. XXVII 4 CHAIRMAN COX: Item 27, is that okay? 5 COMMISSIONER CLOWE: Sure. 6 COMMISSIONER SCHENCK: (Nods head) -- 7 CHAIRMAN COX: Consideration of the 8 status and possible entry of orders in -- a whole long 9 list of them. 10 Ms. Kiplin, how would you like to break 11 these up? 12 MS. KIPLIN: Sir, if I could, I would 13 like to go ahead and take Items A through K -- they're 14 all very similar -- and then go through some 15 individual and maybe collectively -- 16 CHAIRMAN COX: Okay. 17 MS. KIPLIN: -- if that's fine with the 18 Commission. Items A through K are all lottery retail 19 sales agents -- 20 CHAIRMAN COX: A through J, I believe? 21 MS. KIPLIN: I'm sorry. Let me just 22 check again. 23 COMMISSIONER CLOWE: K or J? 24 MS. KIPLIN: Yes. Thank you for the 25 correction. A through J; A through J. They are all 0253 1 lottery retail sales agents. They're all cases that 2 were presented to the State Office of Administrative 3 Hearings. Staff was requested revocation for 4 insufficient funds being available at the time that 5 the lottery swept the accounts. Most of these, if not 6 all of these, fall in the three-strikes-and-you're-out 7 rule. 8 Commissioner Schenck, I'm saying that 9 for your benefit. You'll see -- 10 CHAIRMAN COX: And that would say that 11 they draw on the account twice, they get an NSF. If 12 they hit oil on the third one, they don't lose their 13 license. 14 MS. KIPLIN: Yes. NSF, you make right 15 with us; NSF, you make right with us. At some point 16 it's just not worth us having to deal with that 17 particular retailer. And there is an agency policy, 18 Commission rule, that's in effect on the number of 19 retailers. 20 COMMISSIONER SCHENCK: That's with 21 respect to a single payment that's owed or is that 22 over a lifetime of -- 23 MS. KIPLIN: It's within a year. 24 COMMISSIONER SCHENCK: Okay. 25 MS. KIPLIN: So NSF, and then there's 0254 1 three -- there's two ways that we'll take a case for 2 revocation on an NSF. One time you didn't pay us at 3 all, you're still owed, we'll proceed. Then the three 4 strikes and you're out. If you're NSF, you get right; 5 NSF, you get right. But you do it three times within 6 a calendar year, you -- 7 COMMISSIONER SCHENCK: To make sure I 8 understand. I'm sorry for butting in. 9 MS. KIPLIN: No, no. 10 COMMISSIONER SCHENCK: These are people 11 who have taken in proceeds from the sale of tickets 12 who have not remitted as they should and we go and 13 sweep the account for the amounts that were owed? 14 MS. KIPLIN: That's correct. 15 COMMISSIONER SCHENCK: Whatever is 16 outstanding on several on these are multiple 17 outstanding amounts, we obtain a -- 18 MS. KIPLIN: That's correct. 19 COMMISSIONER SCHENCK: -- sufficiency 20 judgment, and we will go after them and collect the 21 amounts? 22 MS. KIPLIN: That's correct. We will do 23 that. We also have a fund for those that we can't 24 collect against, they're just uncollectible. We also, 25 depending on a threshold limit, will refer them to the 0255 1 AG's office for collection. But we have a very 2 aggressive -- within the bounds of the law, a very 3 aggressive collection and enforcement section of the 4 Lottery Operations Division and I think do an 5 excellent job. It used to be less than, I think, 6 one-tenth of one percent of the amounts taken in, but 7 I haven't kept up with that number at this point. 8 COMMISSIONER SCHENCK: I don't want to 9 slow us down again, but it occurred to me last time I 10 was reviewing these, I wonder -- most of these places 11 seem to be convenience stores and the like, and I 12 suspect they have licenses from the TABC to sell beer 13 or whatever else. And I wonder if legislative statute 14 might suggest these people default on their lottery 15 obligations, if perhaps they shouldn't be enjoying the 16 benefit of selling alcohol at their establishment? 17 MS. KIPLIN: I don't know that that's 18 addressed in law at this point. It is something we 19 can certainly consider. I may be wrong on that. I 20 will tell you that if there's money -- if there's 21 money that's owed us, they will be going on a warrant 22 hold. So if there's any money the state owes them 23 from some other agency, and, of course, that's not the 24 scenario you've made -- 25 COMMISSIONER SCHENCK: No. 0256 1 MS. KIPLIN: -- but they'll be blocked 2 that way. 3 COMMISSIONER CLOWE: You know, a 4 difference here is, they're selling our product, 5 lottery tickets. If they're selling beer, it's their 6 product. They just buy a license. 7 COMMISSIONER SCHENCK: Yes. What I'm 8 saying is, they're stealing from the school children. 9 And if they want a license to sell alcohol -- you and 10 I can't go on the street corner here and sell alcohol. 11 That's a state license. And if I'm behind on my child 12 support, I don't get a hunting license. 13 COMMISSIONER CLOWE: That's right. 14 COMMISSIONER SCHENCK: And if I'm 15 stealing from school children, I don't think I should 16 be allowed to sell beer, is my personal viewpoint. 17 CHAIRMAN COX: Absolutely. 18 MR. ANGER: And I was just going to add 19 to what Kim was talking about. We do follow -- you 20 know, we work closely with licensees who go NSF on the 21 monies that they owe, that we sweep -- attempt to 22 sweep from their accounts. If we're unsuccessful in 23 collecting those and result in a situation where we 24 move to take their license, we do put them on pay hold 25 with the Comptroller's office, who tracks all of the 0257 1 state hold -- 2 COMMISSIONER SCHENCK: It sounds like 3 you're pretty successful. 4 MR. ANGER: We're very successful. You 5 know, I would put our debt collection record up 6 against any company that does any type of business, 7 where they extend credit to a downstream vendor, if 8 you will. We have outstanding collection rates, well 9 below, you know, two-tenths of a percent. So it's 10 fantastic. 11 MS. KIPLIN: This may be a little bit 12 off, but there is a case that's pending that I've 13 given legal advice on. It's the Jongebloed case. Our 14 statute is a bit unique also in the sense that it 15 authorizes or it sets out personal liability for 16 officers, directors and owners of businesses. 17 So if a licensee doesn't pay us what's 18 owed, we can immediately proceed on a personal 19 liability, and that is something that's right now 20 pending for judicial review in district court, and 21 it's a very important case to the agency, because we 22 do do that. We do go against officers, owners and -- 23 COMMISSIONER SCHENCK: That's good. 24 You're doing the Lord's work when you do that. That's 25 good. 0258 1 COMMISSIONER CLOWE: Move the adoption 2 of the cases represented by the Letters A through J. 3 COMMISSIONER SCHENCK: Second the 4 motion. 5 CHAIRMAN COX: All in favor, say "Aye." 6 COMMISSIONER CLOWE: Aye. 7 COMMISSIONER SCHENCK: Aye. 8 CHAIRMAN COX: Aye. 9 Any opposed? 10 (No response) 11 Motion carries 3-0. 12 MS. KIPLIN: Would you like me to wait 13 until you sign or keep going? 14 CHAIRMAN COX: Why don't you just 15 keep -- why don't you do K and then run it and then do 16 L, then M, then your N through Q, just kind of like we 17 ran through it. 18 MS. KIPLIN: Okay, great. Item K is the 19 Vegas Food Store matter. This is a settlement 20 agreement and proposed consent order between the 21 Lottery and the retailer. And it had to do with the 22 retailer, an employee of the retailer exchanging 23 coupons for lottery tickets, and that's in violation 24 of the statute. The agreed disciplinary action is the 25 suspension of this retailer's license for 30 days. 0259 1 COMMISSIONER CLOWE: Move the adoption 2 of the staff recommendation. 3 COMMISSIONER SCHENCK: Second the 4 motion. 5 CHAIRMAN COX: All in favor, say "Aye." 6 COMMISSIONER CLOWE: Aye. 7 COMMISSIONER SCHENCK: Aye. 8 CHAIRMAN COX: Any opposed? 9 (No response) 10 Motion carries 3-0. 11 Item L, Ms. Kiplin. 12 MS. KIPLIN: Yes, sir. Item L is a 13 contested case proceeding against Shamrock Mini Mart. 14 This is an interesting case. It is a case of first 15 impression. I want to make sure you-all are aware of 16 this. This had to do with a criminal conviction, an 17 offense, of course, of a public servant. That is not 18 presently a reported misdemeanor involving moral 19 turpitude. 20 We took the position that it may not 21 be based on the agency's policy when we are looking at 22 reported decisions on misdemeanors of mortal 23 turpitude. But we took the position that it was an 24 integrity of fitness issue, if you will, for somebody 25 like that to be licensed as a lottery retailer. 0260 1 And so we presented this case to the 2 State Office of Administrative Hearings. The 3 Administrative Law Judge went to great length to write 4 a very detailed narrative discussion and very detailed 5 findings of fact and conclusions of law and has 6 concluded that the Respondent's license should be 7 revoked. 8 COMMISSIONER CLOWE: Move the adoption 9 of the staff recommendation. 10 COMMISSIONER SCHENCK: I second the 11 motion. 12 CHAIRMAN COX: All in favor, say "Aye." 13 COMMISSIONER CLOWE: Aye. 14 COMMISSIONER SCHENCK: Aye. 15 CHAIRMAN COX: Any opposed? 16 (No response) 17 Motion carries 3-0. 18 And I think he did write an excellent 19 opinion and one that I found very helpful. 20 MS. KIPLIN: Thank you. And I would 21 just like to acknowledge the enforcement attorney on 22 that matter, I believe was Stephen white. And he did 23 a very good job on getting this case presented and 24 making sure that we had detailed findings and 25 conclusions of law that will help us hopefully in 0261 1 future cases. 2 The next item is Item N -- Item M. 3 Pardon me -- as in "Mary." The d/b/a is Crandall 4 Exxon, proposal for decision. This is another 5 different kind of case. And this, Commissioner 6 Schenck, does have to do with the end, the fallout, if 7 you will, in terms of monies that are owed to the 8 Lottery. 9 This is a retailer who we took the 10 position that owed us $11,700 and some odd cents. We 11 notified them of the amount that was owed to us. They 12 did request a redetermination of what we determined 13 was their tax liability, presented the information. 14 It's purely a function of math, counting up the games 15 and so forth and so on of the prizes redeemed. The 16 Administrative Law Judge did agree with the staff 17 regarding the amount that was owed to the Lottery. 18 And so this is an order that concludes the amount owed 19 to the Lottery. 20 COMMISSIONER CLOWE: Move the adoption 21 of the staff recommendation. 22 COMMISSIONER SCHENCK: Second the 23 motion. 24 CHAIRMAN COX: All in favor, say "Aye." 25 COMMISSIONER CLOWE: Aye. 0262 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN COX: Aye. 3 Any opposed? 4 (No response) 5 Motion carries 3-0. 6 Okay. Ms. Kiplin, I think you wanted to 7 do N through Q as a group? 8 MS. KIPLIN: Yes, if I could. Now we're 9 going to the bingo docket for those items. These are 10 all registry-of-approved-worker matters. There are 11 four of these cases, two of which are refusal to add 12 names to the registry and two of which are removal of 13 names on the registry. These were presented at the 14 State Office of Administrative Hearings as mass 15 dockets. They're all for the same reason; and that 16 is, disqualifying criminal offense that precludes the 17 worker from either name being added or the worker 18 needs to be removed. 19 CHAIRMAN COX: Well, for Commissioner 20 Schenck's benefit, do you understand the registry 21 concept? 22 COMMISSIONER SCHENCK: Yes, I do. And 23 all these people have been notified of their alleged 24 criminal histories? 25 MS. KIPLIN: Yes, they have. 0263 1 COMMISSIONER SCHENCK: And have all 2 defaulted? 3 MS. KIPLIN: Yes, they have. If there 4 were any that requested a hearing or appeared, we 5 would remove them from the mass docket and treat them 6 in a separate matter. 7 COMMISSIONER CLOWE: Move adoption of 8 the staff recommendation. 9 COMMISSIONER SCHENCK: I second the 10 motion. 11 CHAIRMAN COX: All in favor, say "Aye." 12 COMMISSIONER CLOWE: Aye. 13 COMMISSIONER SCHENCK: Aye. 14 CHAIRMAN COX: Aye. 15 Any opposed? 16 (No response) 17 Motion carries 3-0. 18 MS. KIPLIN: Commissioner Schenck, what 19 will happen now, just as a matter of processes, those 20 orders will be reproduced and each person on the 21 exhibit will receive a copy, and they will be notified 22 they have an opportunity to file a motion for 23 rehearing if we're wrong. 24 COMMISSIONER SCHENCK: How will this be 25 publicized? This is not going to be put in a public 0264 1 document, other than this? 2 MS. KIPLIN: No. 3 COMMISSIONER SCHENCK: Okay. 4 MS. KIPLIN: And we could. We've talked 5 about maybe putting something on -- you know, to try 6 to educate others. 7 COMMISSIONER SCHENCK: Like the scarlet 8 letter. 9 MS. KIPLIN: But not at this point, no. 10 We're just trying to keep up with the number of cases 11 that are coming through. 12 CHAIRMAN COX: Okay. Ms. Kiplin Item R. 13 MS. KIPLIN: Commissioners, Item R is 14 a -- it's on the lottery side of the house. It's a 15 settlement agreement and a proposed consent order. It 16 was a complaint that we received regarding the 17 retailer accepting credit cards as a form of payment 18 for lottery tickets. That's in violation of the State 19 Lottery Act. 20 We've reached an agreement with this 21 entity -- and let we just make sure of the number of 22 dates that's usual -- yes. This is a recommended 23 30-day suspension for violation of this particular 24 provision of the Act. 25 COMMISSIONER SCHENCK: What did this 0265 1 person do? They repeatedly sold lottery tickets with 2 credit cards or some clerk made a mistake? 3 MS. KIPLIN: If I'm not mistaken, I 4 believe it's the clerk that made a mistake. But, yes, 5 it was an employee that made -- that accepted payment 6 by use of -- sold lottery tickets by use of a credit 7 card. And it was complaint-driven, and that employee 8 is no longer with the retailer. 9 COMMISSIONER CLOWE: Move adoption of 10 the staff recommendation. 11 COMMISSIONER SCHENCK: I second the 12 motion. 13 CHAIRMAN COX: All in favor, say "Aye." 14 COMMISSIONER SCHENCK: Aye. 15 COMMISSIONER CLOWE: Aye. 16 CHAIRMAN COX: Aye. 17 Any opposed? 18 (No response) 19 Motion carries 3-0. 20 Items S through X, I believe, are the 21 same kind of case, Kim? 22 MS. KIPLIN: Yes, sir. This is on the 23 bingo side of the house. These are all conductors who 24 are part of a unit. And each one of these, they had a 25 failure to notify us in the change of the membership 0266 1 of the unit. These are all, if I recall correctly -- 2 let me just confirm that -- just warnings, but they're 3 in the form of a consent order so that if we have 4 these issues again, these cases would be used as 5 possibly an aggregating factor for recidivism. 6 COMMISSIONER CLOWE: Move adoption of 7 the staff recommendation. 8 COMMISSIONER SCHENCK: I second the 9 motion. 10 CHAIRMAN COX: All in favor, say "Aye." 11 COMMISSIONER SCHENCK: Aye. 12 COMMISSIONER CLOWE: Aye. 13 CHAIRMAN COX: Aye. 14 Any opposed? 15 (No response) 16 Motion carries 3-0. 17 Moving, Ms. Kiplin, to Case Y. 18 MS. KIPLIN: Case Y. Case Y is a bingo 19 case. It is a settlement agreement between the staff 20 and the conductor in a proposed consent order. This 21 is an interesting case, in that it was a complaint 22 that we received about eight-liners being played at a 23 bingo hall. It was their own lodge at the time that 24 bingo is being conducted, so it's -- the use of a 25 complaint was an eight-liner that was determined to be 0267 1 a gambling device while bingo was being conducted. 2 And the licensee has entered into an 3 agreed order. The eight-liners have now been -- as I 4 understand it, have been removed from the lodge. This 5 is just in the form of a warning. And it was for the 6 same reasons as we discussed in the previous dockets, 7 have a warning in the form of an order. 8 COMMISSIONER SCHENCK: I have a question 9 for Commissioner Clowe. These eight-liners are a 10 serious vice, are they not? 11 COMMISSIONER CLOWE: Absolutely. 12 COMMISSIONER SCHENCK: And how are these 13 things -- they're money-making machines for the 14 operator? For this instance, was it? 15 MS. KIPLIN: The reason that the staff 16 took this case up first is because this is a fairly 17 clean factual case in the sense that these were eight- 18 liners that were being operated in this own lodge. 19 It's a fraternal organization. And so we didn't have 20 to try to figure out: Who is in charge of the 21 machines? Are they really being conducted while bingo 22 is being conducted on bingo premises? So in this 23 case, the investigation and so forth did conclude that 24 they were being operated by the conductor. 25 And are they money-makers? I would have 0268 1 to rely anecdotally on the information that I've read. 2 My impression is that they are money-makers. 3 CHAIRMAN COX: Let me throw in a couple 4 of things about that, Commissioner Schenck. During 5 the legislative session in which legalizing video 6 lottery terminals was a subject of discussion. Two 7 professors from The University of Texas, Professor 8 Huff and Dr. Jarrett, made a study of how big this 9 might be. And I forget the number of machines they 10 estimated that there might be. But they estimated 11 that the illegal revenue from these machines in the 12 State of Texas in 2004, I believe, was between 13 $600 million and $6 billion. So they are pervasive 14 and they're extremely profitable. And I would 15 recommend that the staff provide you with a copy of 16 Dr. Huff and Jarrett's report. 17 And, Kim, if you would do that. 18 MS. KIPLIN: Yes, sir. 19 CHAIRMAN COX: And that you get a 20 thorough briefing from them, because this is a very 21 important topic. 22 COMMISSIONER SCHENCK: Well, this is 23 illegal for the operator, is it not? I mean, isn't it 24 a misdemeanor? 25 COMMISSIONER CLOWE: It is. And the 0269 1 problem, Commissioner, is that it's a local 2 jurisdictional enforcement matter. The county judge 3 or the district attorney makes a determination on a 4 local basis whether they're going to go after these 5 operators. And they're legal if they stay below a 6 prize less than $5. It's called the fuzzy animal law. 7 You give somebody a fuzzy animal, and it's less than 8 $5 in value, they can play these machines. 9 The problem is -- and we've had them in 10 McLennan County, and now the local district attorney 11 is eliminating them. They're very profitable and they 12 have an appeal. They're like a slot machine. They're 13 the same thing as a slot machine. 14 I was on a quail hunt in South Texas 15 having breakfast one morning in a cafe, and a fellow 16 came in and just started talking to my group of 17 hunters. And he was putting eight-liners in a store 18 across the street, and he started telling us how 19 profitable it was. 20 And I said, "Well, don't you think 21 you'll get busted?" And he said, "Oh, yeah. And I'll 22 lose them, but I'll put some more in." 23 You know, it's a problem. I went to the 24 Sheriff's Association meeting in Dallas, and the 25 Sheriff questioned our enforcement people, saying, 0270 1 "Why can't you help us get rid of these things?" And 2 our people had to respond, "It's a local enforcement 3 issue." 4 And I think the answer that you get from 5 county judges and from district attorneys is, "We are 6 enforcing laws against criminals at this level. And 7 to some extent, you know, we don't have the resources 8 to pursue this level." 9 Now, there have been some cities in 10 Texas that have put local city fees on eight-liners 11 and started letting them operate. It didn't last 12 long. There came some pressure about that. 13 I think Chairman Cox hit the nail right 14 on the head. It's a big business, and it is a fuzzy 15 area of enforcement. But they're not legal in bingo 16 halls. And when you go to the Bingo Advisory 17 Committee meetings, you'll hear conversations about, 18 "Those things are killing us. You know, they're 19 taking our players away from us," and I'm sure they 20 are. 21 So it is a real problem within this 22 state, as is Internet gaming, which is illegal but 23 it's carried -- it's being carried on. And as you get 24 more into this gaming world in your tenure as a board 25 member here, you'll just see how much money goes into 0271 1 gaming and how many discretionary dollars there are 2 coming into this. And what we do here in Texas is 3 really small by comparison. And in my opinion, our 4 games -- and you saw the percentages up on the screen 5 this afternoon -- our games are old, they're tired -- 6 CHAIRMAN COX: And slow. 7 COMMISSIONER CLOWE: Sir? 8 CHAIRMAN COX: And they're slow. 9 COMMISSIONER CLOWE: -- and they're 10 slow. And the instant tickets now are 76 percent of 11 our sales. That's the only area that's new and 12 changing. And this $50 ticket that Robert spoke of is 13 an innovation. The four choice game is new. It's an 14 innovation. And you've got to remember, that's not 15 liked by a large percentage of the population in this 16 state. 17 We have representatives here today who 18 oppose gaming and have expressed their concern about, 19 for example, the card-minders in bingo halls, and 20 we're very respectful of their position and their 21 desires. And we stay very precisely within the 22 statute in regard to what we do and we don't. But 23 you're going to find very controversial as you 24 continue your tenure. And it would be a great thing, 25 I think, for you to get the legal staff to brief you 0272 1 on eight- liners and the history of this. 2 At one time in my recollection, we got 3 involved in enforcement. And the local people said, 4 "Here. You take these machines," when we confiscated 5 them. And we ended up with a warehouse full of 6 machines. We didn't know what to do with them. You 7 know, they're evidence. 8 COMMISSIONER SCHENCK: Sell them in 9 Oklahoma. 10 COMMISSIONER CLOWE: Yes. And you can't 11 destroy them. And then the next thing they wanted to 12 give us were guns that was confiscated. And we could 13 see cars and boats coming next. 14 CHAIRMAN COX: Cash money. 15 COMMISSIONER CLOWE: And it's evidence. 16 And let me tell you, when you're in law enforcement 17 and you start carting evidence, you've got a problem. 18 And these law enforcement people -- you know, you get 19 down into this -- and I have -- this is a problem. 20 COMMISSIONER SCHENCK: Yes. I would 21 like to think that with this -- that any time we see 22 one of these things, I would like to know that we've 23 made a referral, at least, wherever the local law 24 enforcement is. 25 MS. KIPLIN: There is a decline to 0273 1 prosecute. 2 COMMISSIONER SCHENCK: Okay. And we 3 just signed an order for a fellow Mr. Bijani, for his 4 inducing a police officer in the legal gambling 5 business. And I'm wondering if we're finding an 6 illegal eight-liner running in one of our licensee's 7 locations, whether we're doing enough by whatever it 8 is we're proposing with this particular gentleman? 9 CHAIRMAN COX: Let me say something 10 regarding that, David. When I came on this board, I 11 asked, "Okay. When I go to Tyler, I stop in Buffalo 12 on the way up to fill up with gas, and the place has 13 eight-liners. And on the way back, I stop at Hearne 14 and fill up with gas, and the place has eight-liners, 15 and they sell lotto tickets. How many places are 16 there in Texas that have eight-liners and sell lotto 17 tickets?" And GTECH counted for us, and it was over 18 6,000. 19 COMMISSIONER SCHENCK: All right. I 20 see, yes. 21 CHAIRMAN COX: But the problem is, just 22 because it looks like a duck doesn't mean it's a duck, 23 because of the fuzzy animal law -- 24 COMMISSIONER SCHENCK: Sure. 25 CHAIRMAN COX: -- provision that Tom was 0274 1 talking about. It could be a fuzzy animal. It 2 probably is a duck. 3 COMMISSIONER CLOWE: And, Commissioner, 4 when you talk to the Legislature, there are varied 5 levels of interest in this subject. And, you know, we 6 are focused on it. We're concerned about it. We're 7 involved in it. But you need to spend some time with 8 legislators to discuss this, to get some background on 9 this. It is not a simplistic subject at all. 10 COMMISSIONER SCHENCK: Yes. Well, I see 11 that there is a well-grounded moral opposition to even 12 what we do, and it's sincere and, as I say, 13 well-grounded. I would think we could have some help 14 with the Legislature in going after completely 15 unregulated, purely pecuniary activity, but perhaps 16 I'm wrong. 17 COMMISSIONER CLOWE: That's an 18 interesting point. 19 CHAIRMAN COX: And I think that's a 20 point that really Kim can bring you up to date from 21 ground zero. Governor Bush appointed a committee, a 22 task force headed by Sen. Sibley to look into illegal 23 gambling in Texas, and they did a lot of work. And 24 Kim was on that Commission and she is kept current, so 25 she'll be able to take you all the way on that. 0275 1 What I will tell you is that probably if 2 there were no eight-liners in this state, our revenue 3 would be much, much larger, because when they're going 4 into -- just take the fact that one might be across 5 the street. But when they're going into the same 6 establishment with a gambling budget and you've got 7 something that whirrs and spins and has all that neat 8 stuff -- 9 COMMISSIONER CLOWE: Instant 10 gratification. 11 CHAIRMAN COX: -- and then you've got 12 this stuff over here that you've got to go to the 13 counter and buy from the clerk and scratch and stuff, 14 you know, it's just -- we know they're taking a lot of 15 money out of the pockets of the school children in 16 Texas. 17 MR. SANDERSON: Might I add just one -- 18 as recent as Monday a week ago, there was a raid in 19 Abilene of 10 game rooms. And they seized 634 20 machines and over almost a half a million dollars in 21 cash out of those 10 game rooms. So that's -- 22 COMMISSIONER CLOWE: It's big business. 23 MR. SANDERSON: -- kind of what the 24 business is. 25 COMMISSIONER CLOWE: Move the adoption 0276 1 of the staff recommendation in regard to the case 2 represented by the letter Y. 3 COMMISSIONER SCHENCK: I second the 4 motion. 5 CHAIRMAN COX: All in favor, say "Aye." 6 COMMISSIONER CLOWE: Aye. 7 COMMISSIONER SCHENCK: Aye. 8 CHAIRMAN COX: Aye. 9 Any opposed? 10 (No response) 11 Motion carries 3-0. 12 AGENDA ITEM NO. XXVIII 13 CHAIRMAN COX: Item XXVIII, report of 14 the executive Director. 15 Director Sadberry. 16 MR. SADBERRY: Commissioners, one item I 17 would mention in my report -- you have a summary of 18 it -- concerning the meeting that occurred in Dallas 19 with the Texas Publishers Association, which is a 20 minority print media association or organization, and 21 Tracey Locke, who is our advertising vendor. Tracey 22 Locke was one of the mentors who was introduced today. 23 I also previously provided to each of 24 you separately a copy of a letter that was sent to 25 Sen. West on this matter. Bottom line, we're making 0277 1 progress. And I think this is a matter of 2 significance with respect to increasing HUB, 3 participation in African-American expenditures. 4 I know, Commissioner Schenck, you've 5 mentioned this. This is one of the areas where we 6 have African-American participation that's not being 7 reflected in the reports. And we're trying to work on 8 that so we get more of an accurate showing of money 9 that is going in that area. 10 In addition to this, this is the FTE 11 report. And that's all I have for you. I'll be happy 12 to answer any questions. 13 COMMISSIONER CLOWE: No questions. 14 COMMISSIONER SCHENCK: I have no 15 questions. Thanks. 16 AGENDA ITEM NO. XXIX 17 CHAIRMAN COX: Okay. Item No. XXIX. Is 18 there any public comment? 19 (No response) 20 CHAIRMAN COX: Not much public left, is 21 there? 22 (Laughter) 23 AGENDA ITEM NO. XXXII 24 CHAIRMAN COX: Okay. Thank you all for 25 your patience. Meeting is adjourned. 0278 1 (Meeting adjourned: 4:45 p.m.) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0279 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Kim Pence, a Certified Shorthand 5 Reporter in and for the State of Texas, do hereby 6 certify that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings 9 of such were reported by me or under my supervision, 10 later reduced to typewritten form under my supervision 11 and control and that the foregoing pages are a full, 12 true and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set 14 my hand and seal this 19th day of December 2007. 15 16 ________________________________ 17 Kim Pence Certified Shorthand Reporter 18 CSR No. 4595 - Expires 12/31/09 19 Firm Certification No. 276 Kennedy Reporting Service, Inc. 20 Cambridge Tower 1801 Lavaca Street, Suite 115 21 Austin, Texas 78701 512.474.2233 22 23 24 25