1 1 2 3 4 5 6 * * * * * * * * * * * * * * * * * * 7 TEXAS LOTTERY COMMISSION 8 MEETING 9 DECEMBER 4, 2001 10 * * * * * * * * * * * * * * * * * * 11 12 13 14 BE IT REMEMBERED that the TEXAS LOTTERY 15 COMMISSION meeting was held on the 4th day of 16 December, 2001, from 8:30 a.m. to 2:05 p.m., before 17 Mary Angela Freeman, CSR in and for the State of 18 Texas, at the offices of the Texas Lottery 19 Commission, 611 East 6th Street, Austin, Texas, 20 whereupon the following proceedings were had: 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 A P P E A R A N C E S 2 3 Chairman: 4 Mr. C. Tom Clowe, Jr. 5 6 Commissioners: 7 Ms. Elizabeth D. Whitaker 8 Mr. Walter H. Criner, Sr. 9 10 General Counsel: 11 Ms. Kimberly L. Kiplin 12 13 Executive Director: 14 Ms. Linda Cloud 15 16 Charitable Bingo Operations Director: 17 Mr. Billy Atkins 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 1 I N D E X 2 Appearances ................................. 2 3 AGENDA ITEMS 4 Item Number 1 ............................... 4 Item Number 2 ............................... 4 5 Item Number 3 ............................... 27 Item Number 4 ............................... 28 6 Item Number 5 ............................... 35 Item Number 6 ............................... 36 7 Item Number 7 ............................... 38 Item Number 8 ............................... 43 8 Item Number 9 ............................... 48 Item Number 10 ............................... 94 9 Item Number 11 ............................... 94 Item Number 12 ............................... 94 10 Item Number 13 (G) ........................... 53 Item Number 13 (A-F, H-I) ................... 95 11 Item Number 14 ............................... 101 Item Number 15 ............................... 116 12 Item Number 17 ............................... 119 13 14 15 Reporter's Certificate ....................... 120 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 1 CHAIRMAN CLOWE: Good morning. It is 2 8:30 a.m., by my clock, on Tuesday December the 4th, 3 2001. My name is Tom Clowe. Commissioner Whitaker 4 and Criner are present. We have a full Commission. 5 We'll call to order the meeting of the Texas Lottery 6 Commission for this day. 7 I do not see in our audience any 8 public individuals who might wish to make a 9 presentation out of order of the agenda. Am I 10 correct in that? Very well. We'll move right into 11 the agenda, then. 12 Item Number 2, Report, possible 13 discussion and/or action on lottery sales and 14 trends. Linda and Toni, good morning. 15 MS. SMITH: Good morning, 16 Commissioners. For the record, I'm Toni Smith, 17 Marketing Director of the Texas Lottery Commission. 18 To look at year to date total sales for week ending 19 December 1st, total fiscal year '02 sales to date 20 are 682,231,205. This is down 7.59 percent from 21 fiscal year '01 total sales of 738,276,215. 22 The primary reason for the large 23 difference in the year to date sales between the two 24 years is related -- still related to Lotto Texas 25 jackpot that ranged from 29,000,000 to 60,000,000 in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 1 the first two weeks, and then we had another jackpot 2 of 48,000,000 in November of 2000 so we're still 3 battling the jackpot issue as far as comparisons to 4 last year. The weekly sales average currently is 5 48,730,800 compared to last year's average of 6 52,734,015. 7 To just look at a couple of the 8 products and where we are year to date, Instant 9 Tickets were 436,983,027, representing 64.05 percent 10 of sales versus 439,243,549 of last year, when it 11 represented 59.5 percent of sales, and it's down .51 12 percent. 13 Lotto Texas, on the other hand, 14 though, is currently at 138,348,699, representing 15 20.28 percent of sales versus 197,045,680 last year, 16 when it represented 26.69 percent of sales. So 17 there's -- our big difference is a 29.79 percent 18 decrease compared to last year because of those 19 large jackpots that were still experienced in 20 September and November of last year. 21 And then just to look at the past two 22 weeks, the total says for the week ending December 23 1st were 50,787,727, and this is down .88 percent 24 from the previous week ending November the 24th, of 25 total sales of 51,237,634. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 1 The primary factor just from week to 2 week was a slight decrease in Instant Ticket sales 3 and overall for Lotto Texas jackpots for ending both 4 weeks were 4,000,000 and 6,000,000, respectively. 5 So we're still looking for a large jackpot to get us 6 on our way. 7 I'd be happy to answer any questions 8 the Commissioners have. 9 COMMISSIONER WHITAKER: What do you 10 attribute the slight downturn in Instant Ticket 11 sales to? 12 MS. SMITH: I honestly don't know. 13 Typically, this is the time of year we come up. I 14 think Linda has a report, though, of just this week. 15 MS. CLOUD: It was interesting that we 16 had a decrease in sales last week, and we didn't 17 have an answer for that except coming off of 18 Thanksgiving holidays. And that's not a good 19 answer, because it's typically not been the issue in 20 the past. 21 However, I was told just before coming 22 into this meeting that we've had the largest sales 23 day for a Monday this week, which was over 6,000,000 24 in sales, so it's coming back up this week. We're 25 up on our board over there -- I can't see it from WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 1 here, but it's about 1.5 million for this week's 2 sales over last week in Instant Tickets. So 3 whatever the reason, it appears to be coming back. 4 We have a $3.00 ticket we've just put on the street, 5 a new one, and our $10.00 Christmas game seems to be 6 picking up in sales. 7 CHAIRMAN CLOWE: Linda and Toni, you 8 sent two packets of information to us in last week's 9 material. One was an overview of sales, with a 10 considerable amount of graphic information, and the 11 other is a VLT top line assessment prepared by the 12 Texas Lottery Commission. 13 I found this interesting, but I'm not 14 sure that I was able to sit down and look at it and 15 pick out the salient parts of both of these 16 documents. Is this the right time to ask you to 17 comment on this? 18 MS. CLOUD: I was prepared to sit down 19 and discuss this with you individually. I did not 20 bring it with me for the Commission meeting this 21 morning. But on the charts that you see for sales, 22 those charts -- we're tracking our sales because of 23 our new Instant Game plan in every direction that we 24 know how to track it, and that's what those charts 25 represent. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 1 CHAIRMAN CLOWE: Which group is this, 2 the overview of sales or the VLT -- 3 MS. CLOUD: Yes. 4 The VLT is just a -- we had that 5 overview for VLT done for our Sunset Review process 6 to show the potential income VLTs would add going 7 forward in the future. And that's what that is 8 about. 9 CHAIRMAN CLOWE: Okay. Let me ask 10 you, then, to comment on one or another of the two, 11 and I'll give you these if you'd like to have them, 12 but I think, to the Commissioners' benefit, rather 13 than sit down individually, you might just make 14 comments to all three of us right now. 15 MS. SMITH: Well, the purpose of this 16 overview was to take a look at -- primarily with 17 our new strategy, to do customized inventory and to 18 truly look at our retailer base and see where those 19 needs were. And we -- the first time that we've 20 actually produced supplemental inventory to go to a 21 specific group of retailers, and we start out with 22 the criteria of those retailers who were selling 23 over $2,500.00 a week. And so we set a group of 24 specific games -- we started out with $2.00 and 25 $5.00 games to those retailers, in hopes that rather WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 1 than flood the market with new games to all the 2 retailers, that we met the needs of those retailers 3 who were better sellers, and then really focused in 4 on what games were needed by the rest of the 5 retailers out there. So we wanted to just take sort 6 of a snapshot of what was going on with that 7 introduction and that new approach and that new 8 strategy of the supplemental inventory. 9 So basically, the daily sales 10 comparisons of the $2.00 Instant Games, that there 11 was a similar pattern between what was the base 12 games that we had in fiscal year '01 and this year. 13 But then to look at the supplemental games, those 14 graphs show that there's a potential shifting of 15 money from the '02 games to the base games -- I'm 16 sorry -- from the supplemental games to the base 17 games, but there's still an increase in sales. 18 So basically, what this tells us is 19 that even though there might be a very slight 20 cannibalization over, but the bottom line is still 21 higher than where we were last year, so that it is 22 working the supplemental inventory. And we meet on 23 a weekly basis with GTECH and Stephanie Goertz, our 24 Instant Product manager, and track those sales every 25 week, and make sure that that's working in to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 1 make -- to make any adjustments on any other 2 retailers that need to be added into that mix, or if 3 there's some that we should take out for the 4 particular initial distribution of any other gain. 5 Then the other graphs just basically say the same 6 things. For the $5.00 games, pretty much the 7 same -- we saw the same thing, that there was a 8 slight cannibalization compared to last year's $5.00 9 games and the base games that we sent the whole 10 retail base this year, but the overall was an 11 increase because of the supplemental games. 12 We did a comparison of Jingle Bucks 13 and the new Jingle Bucks 2 game for this year, and 14 this year's Jingle Bucks 2, which is the $10.00 15 game, is not performing as well as last year's, but 16 it's following pretty much exactly the same trending 17 patterns. So we're seeing the same trending, it's 18 just down, but we're seeing an increase this week. 19 And I think that's what we saw last year in the 20 trending, is that as we get closer to the holidays, 21 then people are buying that particular ticket. And 22 we have a $1.00 ticket called Merry Money that will 23 also -- should pick up closer to the holidays. 24 And then there were other graphs that 25 were prepared by GTECH that mirrored what we had WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 1 found here at the Lottery, that the supplemental 2 games are providing some incremental sales and a 3 little bit of slight cannibalization to the base 4 games. 5 So that's basically what those charts 6 show. It was a comparison of the new supplemental 7 games versus where we were this time last year 8 without those games. 9 MS. CLOUD: Also in those charts we 10 show -- we're looking at the game style and the 11 game to see which games are performing better in the 12 same price point, and we're looking at that in order 13 that we don't order games that aren't performing at 14 the highest level that we can get. So the play 15 style, the price point, all that is being looked at 16 as well, and that's what some of these charts are 17 showing you. We're just taking a real close look as 18 we go through this new program because it's never 19 been done before, so we're running our numbers in 20 every direction we can to make it be the most 21 optimistic program we can put in place to keep 22 Instant Ticket sales where we need them to be. 23 CHAIRMAN CLOWE: So what I hear you 24 saying, then, is that you're analyzing what games 25 are attractive and are having an appeal to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 1 players, but you're also looking at the retailers, 2 and making a determination of which games fit their 3 clientele best, and are most attractive to those 4 employers. 5 MS. CLOUD: Right. 6 CHAIRMAN CLOWE: And you feel like 7 that's going to focus in on maximum attractiveness 8 of the Instant Ticket games to employers? 9 MS. CLOUD: I think what we're doing 10 is, with this new approach on our inventory 11 distribution, we're meeting the retailers' needs. 12 We're actually putting out there what they want to 13 receive and what they can sell, and we're not 14 ordering inventory to the level we were before. 15 We're ordering 12,000,000 tickets per game compared 16 to 80,000,000 three years ago. So the games are not 17 going to stay on the street as long so the players 18 aren't going to get as bored with them. And we're 19 hoping that that's going to maximize sales, because 20 before that game runs out, we'll have another one in 21 its place. 22 CHAIRMAN CLOWE: And what's the 23 average life of game at that level of order? 24 MS. CLOUD: 12 weeks. 25 MS. SMITH: And Commissioners, the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 1 sales reps are making a very concentrated effort, 2 too, when they visit the retailers on their cycle, 3 that if there are some slower selling games in full 4 packs, they'll take those from the retailers as 5 returns so that they can also make sure that the 6 games that are available to the players are the 7 current games and the good sellers for that 8 particular retailer. So it's really a tailoring of 9 that retailer's needs, not only by the quantity in 10 the inventory, but the types of games that best suit 11 his customer base. And then they communicate very 12 closely with the people who order the tickets at 13 GTECH, to ensure that their orders are the proper 14 amount that they need. 15 COMMISSIONER CRINER: These charts are 16 kind of an assistance for just in time inventory; is 17 that the kind of -- 18 MS. SMITH: You could call it that, 19 yes. 20 COMMISSIONER CRINER: -- enforcement 21 we look at? 22 MS. CLOUD: Prior to starting this 23 program, our Instant Ticket sales was running 24 between 29,000,000 and 32,000,000, and we've been 25 staying around 35,000,000 now for the last -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 1 actually, since we first started this. And that was 2 in October. 3 So we're new into this. And quite 4 frankly, I think it's a lot of fun, because we look 5 at it every day. Rob Kohler keeps my charts updated 6 every morning before I get to work. So the first 7 thing I look at is to see where we went in sales 8 compared to last week. And it's encouraging when 9 you see that arrow go up instead of down. And also, 10 if we had our large jackpot, which we're due for any 11 time, this would put us where we want to be. We 12 could make up this $95,000,000 that we're short in 13 making our goal for the year real quick with a 14 couple of big jackpots. 15 CHAIRMAN CLOWE: Well, I understand 16 that, but I like this research because -- you 17 know -- the odds are that the jackpot is going to 18 either be hit or it's going to roll, and nobody can 19 do anything about that. And I think this is 20 something that we can do something about. We can 21 make sure the games are attractive, they're fresh, 22 they're not stale, that the players are interested 23 in them, and the retailers have the right games. 24 And this is 62 percent of our sales. 25 MS. CLOUD: Yes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 1 CHAIRMAN CLOWE: This is almost 2 two-thirds of the whole package. So I think we do 3 need to be focusing in on this and doing what can be 4 done to see that the players are presented with an 5 attractive array of choices. That's the kind of 6 market. You know, if we stock all red cars and 7 people want white cars, we're not going to sell any 8 cars. And we need to be talking to our customers 9 constantly to see what it is they want. 10 MS. CLOUD: And Larry King may have 11 some information to add to this. GTECH is doing 12 some incentive type sales programs out there. So if 13 he wants to come and add to this, we're hitting it 14 from all sides, trying to make sure that we're 15 satisfying those needs. 16 MS. SMITH: And I would like to add, 17 Commissioners, that when we initiated this program 18 for the fiscal year on September 1, even then we 19 decided we'd take a very hard look in 90 days to see 20 if it was working. So this was just sort of a 21 preview, but we are on Linda's calendar to meet with 22 her -- I believe it's next week -- and we'll have 23 more sales information for a really hard look at 24 that 90 day review, and I'll be glad to include that 25 in your packets at that week, too. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 1 MS. CLOUD: 90 day review is to give 2 us an opportunity to look out for the next 90 days, 3 to see what we're doing now is working, and where we 4 want to go. Because we have to plan out these games 5 way ahead of time in order for the Instant Ticket 6 manufacturer to be able to produce them. So we want 7 to make sure that we're on the right track, it's 8 working, and we stay on that track or we move to 9 something different. 10 CHAIRMAN CLOWE: Well, please keep 11 that effort ongoing and bring us up to date when you 12 get the new information, and keep us current on what 13 you're doing. 14 MS. CLOUD: Yes, sir. 15 CHAIRMAN CLOWE: Larry, did you have a 16 comment you wanted to make? 17 MR. KING: For the record, I'm Larry 18 King, the General Manager of GTECH Texas. They 19 pretty much touched on it. I might add that the 20 plan that we embarked on in October was a result of 21 a lot of the town meetings that the Lottery has 22 attended, and I'm sure the Commissioners as well, 23 but what you find is, when you ask the question, are 24 you getting the right amount of tickets, or do you 25 have enough tickets, or are you getting too many, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 1 typically 75 percent of the hands say, I'm getting 2 too many tickets. 3 Well, we found an interesting 4 phenomena, and that is 25 percent of the retailer 5 base accounts for about 50 percent of the Instant 6 Sales. So what we tried to do, instead of sending a 7 concerted amount of tickets to all 17,000 retailers, 8 we took those retailers doing 2,500 and above and 9 focused on them, while still getting the rest of the 10 retailer base the amount of tickets they required, 11 and I think what we found is that -- you know -- 12 we're feeding the fish that are very hungry out 13 there, they're selling the tickets, and we're 14 keeping the other retailers happy because we're not 15 overstocking them. 16 The other thing Linda mentioned about 17 the Lotto jackpot. We have been focused -- our 18 sales force since 1993, it was the first company 19 incentive plan that we ever put in place for a sales 20 force, and we quickly found that we did not want to 21 incentivize our sales force for Lotto jackpots. 22 Because as you said, we can't control the jackpots. 23 That's why it's a lottery. We don't know if we're 24 going to roll, if we're going to get hit. So we 25 have geared their incentive plan on Instant Tickets, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 1 because almost since the first year, 62, 64 percent 2 of our sales have been Instant sales. So that's one 3 thing that we can control, we can merchandise, we 4 can talk to retailers, we can actually convince them 5 to sell and place them in the right locations to 6 sell more tickets. 7 I think it's been a group effort and I 8 think what you're going to see is that we're going 9 to continue selling at a strong pace through 10 December and actually into the new year. 11 COMMISSIONER WHITAKER: What accounts 12 for the hungriness of those 25 percent? 13 MR. KING: I would probably tell 14 you -- and we have broke that group down. Most of 15 those are independent retailers. So you have the 16 owner that's working behind the cash register who 17 benefits, that 5 percent, that nickel on every 18 dollar is going right to their bottom line, where 19 opposed to maybe corporate stores where you have -- 20 I hate to say -- you know -- a $5.00 or $6.00 an 21 hour store clerk that really doesn't care as much 22 about selling a Slim Jim or a Lottery ticket. So I 23 think that the independent retailers are a lot more 24 proactive in putting point of sale up and in 25 carrying multiple games, more games, talking up the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 1 games as the player comes in and asks about them. 2 MS. CLOUD: And some of these stores 3 have a lot of foot traffic that have a -- some of 4 them are on the state line so they have out of state 5 players as well that come across the line to play. 6 Some of our biggest ones are -- I don't know -- 7 one of them's in the Valley. It's a mixture. It's 8 their attitude and the way they promote our games. 9 MR. KING: Attitude is probably -- 10 and Linda mentioned -- attitude is probably -- if 11 I could pick a retailer, one with a positive 12 attitude towards selling the lottery is even better 13 than a good location, because they're going to 14 generate and drive their own sales. 15 MS. CLOUD: They're coming up with 16 some of their own creative ideas about promoting the 17 games, and we hear that at the town hall meetings, 18 and it's -- some of it is ingenious. They really 19 go out of their way to get people in their stores. 20 We have one retailer in Dallas that has drive-thru 21 windows, he cashes peoples' checks, payroll or 22 otherwise. He's a convenience store and he -- 23 they've been one of our top customers since day 24 one. But it's a family run organization, and they 25 focus on the Lottery. And they get people in their WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 1 stores. 2 CHAIRMAN CLOWE: Well, I think that 3 you're on the right track and I think you should 4 stay focused on the market. And we've agreed, I 5 think, in this discussion that the on-line game 6 jackpots will be what they are, but this large 7 portion of our entire package is something that can 8 be marketed, and we ought to be hearing from our 9 customers and focus on them, and I'm glad to see 10 that. And we would like to be kept up to date and 11 know how the market is progressing and where your 12 focus is so that we can be aware of that. 13 MS. SMITH: We're also conducting 14 player focus groups in January, so I'll be sure that 15 we share the results of those. And the purpose of 16 those is to actually hear from the players about 17 what types of games they may want to play, because 18 the retailers have influence on what they offer in 19 their stores, but we also need to know where the 20 players are. So we show them concepts of games and 21 ask them -- you know -- do they like the game, do 22 they understand how it's played, did they win on 23 this ticket, and then we do a spending exercise so 24 that we get a good feel for where our players are 25 and what levels we can take them to. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 1 We've recently seen a decline in the 2 $1.00 tickets and we think that's a result that we 3 have finally moved some of those players into the 4 $2.00 price point, and so we're going to print fewer 5 of the $1.00 tickets when we go on press so that we 6 don't have too many of the older games in 7 inventory. So we're learning as we go along. 8 CHAIRMAN CLOWE: And you know, we're 9 spending 38,000,000-39,000,000 a year on 10 advertising, and we ought to have that advertising 11 focused on where we have something to sell. 12 MS. SMITH: On the campaign that we're 13 working on right now, our winner's campaign, that 14 actually shows real winners -- and they've been 15 great in working with us, and we're in the middle of 16 the filming right now -- we have mixed both the 17 on-line games and the Instant Games so there are 18 winners from like our Weekly Grand type games, so 19 that when they see that on T.V., they'll see that 20 there's the same kind of excitement, and that you 21 can win a lot of money on the scratch-offs also. 22 So our focus is sort of on all the 23 products, but we wanted to make sure Instants were 24 included this time. 25 CHAIRMAN CLOWE: Larry, in your WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 1 exposure through your corporation, do you see any 2 other states that are doing anything differently or 3 better than what we're doing in Texas in this 4 regard? 5 MR. KING: There are a lot of states 6 that do different things, and I can't say that 7 they're better things. And we've talked about this 8 at length. I think what we're trying here is 9 innovative, and I think that a lot of states are 10 watching Texas right now to see how this works. 11 Georgia has had a pretty successful 12 month, and we drilled down to find out what they 13 did, and it turns out very similar to what we are 14 doing. They launched, I think, four holiday games 15 over the past six or seven weeks, and they launched 16 them at varying price levels. To me, that's the 17 first time that's been done, and has been 18 successful, and I think we're going to prepare some 19 notes on that to talk Tuesday at our Instant meeting 20 with the Texas Lottery, but that may be something we 21 look at next year. I don't think we would recommend 22 that many games in that short a time even though -- 23 but four of the holiday games probably hasn't been 24 done by any Lottery. 25 COMMISSIONER WHITAKER: Toni, let me WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 1 ask you a question. Do we do focus groups of people 2 that used to be players and aren't any more to 3 figure out what we need to do to get them back in, 4 or people who just basically have never bought 5 tickets? 6 MS. SMITH: We don't really go for 7 people who have never bought tickets. We actually 8 have our -- do our sort of descriptions of the 9 different groups of people, and we typically will 10 accrue existing players and/or lapsed players. If 11 they have played before, but have discontinued 12 playing or are spending less money, we want to know 13 why they're spending less. You know, is it because 14 of the economy or something in their personal 15 environment, or is it what we're offering as a 16 game. 17 So we do recruit lapsed players, but 18 then we also recruit the existing players to see -- 19 we want to make sure we can keep them in the game 20 and make sure that we offer games that are fresh and 21 exciting to them. So we look at both. I think 22 typically in research you find that it's not very 23 cost efficient to recruit non-players, because 24 usually if they're not pro Lottery, you're sort of 25 wasting your time with them. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 1 COMMISSIONER WHITAKER: I just run 2 into so many people who seem friendly enough to the 3 Lottery, the concept, but it just somehow never 4 crossed their mind to buy a ticket or -- you 5 know -- it's like they're just too busy or 6 something. And I was wondering what the thinking is 7 as to how to maybe tease them, I don't know. What 8 do you think, Larry? 9 MR. KING: Well, I think that's 10 interesting to -- you know -- possibly question or 11 try to attract those that don't play or haven't 12 played in some time or possibly have never played. 13 Maybe that's worth talking to those folks and try to 14 recruit some, to get their feelings. 15 COMMISSIONER WHITAKER: What is the 16 chief reason why players lapse, based on the 17 research you've done recently? 18 MR. KING: Probably not winning. I 19 think that they may buy a few tickets, and if they 20 don't win, they say, well, nobody wins. It's 21 possible they could walk into a retailer that may 22 have a negative opinion of the Lottery, and -- you 23 know -- I like to say we've got about 140 sales 24 reps, but we've really got 17,000 sales reps, and 25 those are the clerks. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 1 And if a player walks in and they say, 2 what's your best ticket, and that clerk says, well, 3 they're all losers, you're probably not going to buy 4 one. I know we laugh, but it does happen. And 5 that's the difference between an individual that 6 runs the cash register and owns their own store -- 7 you know -- I just paid out $100.00 this morning on 8 this ticket here -- you know -- I just paid out 9 $50.00 yesterday on this ticket. So they actually 10 try to sell the products. 11 MS. SMITH: And Commissioner Whitaker, 12 another venue that we have ahead of us that may 13 satisfy your question is through our Player Connect, 14 our player registration database. As we build that 15 database, and once we start to offer research to any 16 player who wants to participate -- and they don't 17 have to be an existing player, but anybody who wants 18 to participate, we may find some of those people 19 you're talking about who, just out of curiosity, 20 want to participate or voice their opinions, and we 21 can, through their registration, build those 22 profiles and find out what their thoughts are, too. 23 So that's an opportunity we're working on so that we 24 can find that information from different types of 25 players. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 1 MS. CLOUD: Also, a couple of 2 Legislative sessions ago we were approved to do 3 subscriptions, and we have been working on, trying 4 to -- the subscriptions have been a very labor 5 intensive addition to a Lottery. And most 6 Lotteries, they're having to spend a lot of staff 7 time and a lot of -- I mean, it just takes up a lot 8 of staff to do it because it's manual, it's not 9 something that had been automated. 10 With the subscriptions, we have the 11 issue of how do we let them pay for the 12 subscription, whether it be credit card -- we can't 13 do credit cards with Lottery -- but debit cards 14 would probably be the only way we could do it. But 15 that, with the Player Connect Program, and that's 16 figuring out a way to do this, on an automated 17 basis, could answer some of the questions. Because 18 professionals, for the most part, want to play, but 19 they don't want to be seen walking in that Mini 20 Market buying that ticket. So if we could figure 21 out a way for them to buy it and nobody knows, maybe 22 we'll be okay, we can solve that problem. 23 CHAIRMAN CLOWE: Would you define 24 "subscription" so we'll all know what you mean when 25 you use that term? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 1 MS. CLOUD: A lot of players want to 2 buy a year's worth of tickets and play certain 3 numbers for a whole year and not ever have to worry 4 about going back to the store. And they buy an 5 assortment, sometimes, of like all of the on-line 6 games, or just one particular game. And what you're 7 doing is customizing a program so that they can do 8 that, and it's recorded within the main system so 9 that the system knows that ticket's been purchased. 10 And it's just -- a couple or three states are doing 11 it pretty actively, but like I say, they're small 12 states, but it's very labor intensive. 13 CHAIRMAN CLOWE: Thank you. 14 I think we've gotten into Item 3, 15 which is discussion and action on advertising and 16 promotions. Anything you want to add to that? 17 MS. SMITH: I had already mentioned 18 that we're in the process of the filming of the 19 winter campaigns. We just yesterday approved the 20 campaign that the King Group worked on for us 21 about -- it's sort of the fun and excitement of 22 winning, that sort of mirrors our introductions 23 about the Lottery we had in the very beginning. And 24 as soon as we have dubs, I'll make sure that the 25 Commissioners get those tapes so that they can see WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 1 them. That's really all on advertising, other than 2 we are in the -- we have initiated the RFP process 3 for both general market advertising services and 4 minority market advertising services. Both of those 5 contracts will expire the end of August '02. So 6 Linda has appointed a drafting committee, and we are 7 officially in that process. 8 CHAIRMAN CLOWE: And those were 9 originally one year contracts that we extended for a 10 second year. 11 MS. SMITH: With two one year 12 extensions, so we're in the third year now. 13 CHAIRMAN CLOWE: We're in the third 14 year now. 15 MS. SMITH: Yes, sir. 16 CHAIRMAN CLOWE: So it's time to rebid 17 those. 18 MS. SMITH: Yes, sir. 19 CHAIRMAN CLOWE: And those are due in 20 August of '02? 21 MS. SMITH: Yes, sir. 22 CHAIRMAN CLOWE: Very good. Anything 23 further, any questions? 24 Thank you, Toni and Linda. We're now 25 ready to go to Item 4, Consideration of and possible WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 1 discussion and/or action on the State Auditor's 2 Office and internal audit reports relating to the 3 Texas Lottery Commission, or the Internal Audit 4 Department's activities, Debra McLeod. Good 5 morning, Debra. 6 MS. MC LEOD: Good morning, 7 Commissioners. I've forwarded three draft reports 8 to the Commissioners on game plan verification, 9 advertising performance measures, and accounts 10 receivable. I've just received the management's 11 responses to Bingo License criminal history audit 12 and the Bingo Debit Card control audit so I 13 anticipate later this week being able to forward 14 those reports on to you. 15 With regards to the audits in 16 progress, the Bingo compliance audit is 90 percent 17 done. It's on hold due to the investigations that 18 I've been given. If things work well, I'm looking 19 to finish two of the investigations up this month, 20 two more should be finished by January. And with 21 the six follow-up audits on the past internal audit 22 reports, three of them are very near completion and 23 I anticipate having draft reports this month. 24 That's with the Compliance with Public Funds 25 Investment Act, LAN server and the HR. With the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 1 remaining three follow-up audits, the Telecom 2 purchases, the business resumption plan, and the 3 shipping and temporary costs, I anticipate having 4 draft reports available for you in January. 5 Additional activities that internal 6 audit is involved in is also on the Lottery operator 7 conversion team. We've been providing assistance on 8 the software modification team and report and audit 9 requirements team. In addition, Linda and I are 10 responsible for hosting the NASBL auditor's 11 conference which is scheduled for March 10th through 12 13th of 2002, and I've lined up 80 percent of the 13 speakers for that conference, and have forwarded two 14 news articles to NASBL's lottery insights for notice 15 of that conference. 16 And that's pretty much a synopsis of 17 where I am. Do you have any questions? 18 CHAIRMAN CLOWE: Debra, you have an 19 open vacancy in your department, and I wonder if 20 you've posted that yet? 21 MS. MC LEOD: Yes, it was posted, I 22 think, the 29th of this month. It's out on the 23 website already, and closed posting the end of 24 January. I received sort of early communications 25 from HR that, due to the economy, I may be receiving WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 1 quite a few applications, and if that happens, 2 that's great. I didn't have that opportunity last 3 time. So I have maybe about 13 applicants. So I'm 4 kind of encouraged by what I'm hearing. So I think 5 it should be a very good process for us. 6 CHAIRMAN CLOWE: Very good. Any 7 questions? 8 COMMISSIONER CRINER: I tend to hear 9 about audits, and I've always heard about audits, 10 and it seems like once an audit's done it goes to 11 audit heaven, and nobody ever knows how it was 12 sentenced when it went to audit heaven. And when I 13 say that, there are recommendations in your audit 14 report to the department of things that need to be 15 done. 16 Is there a report that you provide us 17 that tells us what has happened to those 18 recommendations? And I feel 100 percent that 19 sometimes management can say the auditor 20 recommendations are acceptable in that environment 21 and there's a reason why management doesn't want to 22 implement those recommendations, and there are also 23 opportunities where management can say, oh, my God, 24 thanks, I needed that recommendation so I can get 25 some things done. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 1 So what I'm looking for is what 2 happens to an audit after it goes to audit heaven, 3 and how is it sentenced by St. Peter? 4 MS. MC LEOD: Well, I'm not on a first 5 name with St. Peter, but I can certainly give you 6 feedback of what happens. To address primarily your 7 concern with what happens with the audit 8 recommendations, let me start back a second, and 9 when we go through these audits with Division 10 Directors and with executive management, we -- my 11 goal is to get 100 percent agreement with the audit 12 recommendation for a variety of reasons. 13 One is that, yes, it truly is finding 14 it's factually presented and it's objectively 15 presented. Second of all, the issue is of a prime 16 risk to management that something needs to be done 17 in this area, and that's what ends up in the final 18 audit report. 19 Once we all agree that some action 20 needs to be taken to help control the risk, that's 21 when the report is finalized, and we put that out, 22 and I receive feedback from management that, yes, we 23 do comply, we do concur with the finding, and we 24 plan to implement it by X, Y, Z date. 25 Over time, maybe management has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 1 changed out, maybe a different plan, a different 2 strategic plan of business operations occurs. What 3 we have done on these six follow-up audits that have 4 occurred many years earlier is, say, an acceptable 5 plan is, have you implemented it, yes or no, has an 6 alternate plan been implemented, will that control 7 the risk. And thirdly, if you want to assume the 8 risk. So far none of these have been an assumption 9 of risk. They have been implemented, the ones that 10 we received information on. 11 So the recommendation in the initial 12 state I felt was still warranted even today because 13 management implemented those recommendations. 14 COMMISSIONER CRINER: That's very 15 good. Thank you. And my concern, Debra, is that 16 when we do these audits, that management and 17 everybody just doesn't sit and say, okay, you did an 18 audit, see you later. And I'm interested in finding 19 out, were they implemented, and do we have to worry 20 about those problems again. 21 MS. MC LEOD: And I would agree with 22 you. And one thing that I think this agency, due to 23 the turnover we've had, especially of Division 24 Director, it's been sitting there with each new 25 Division Director and explaining these old comments, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 1 and working with sometimes two or three different 2 Division Directors to get their buy-in on these 3 comments so credibility is not just their buy-in, 4 which has stayed constant for the last four years, 5 but also for the Division Directors that are new, 6 and their buy-in upon the audit recommendations, 7 because they see it as a risk, and they've pushed it 8 if their predecessor didn't, so it's been a lot of 9 effort by everyone in management to go forward on 10 these. 11 COMMISSIONER CRINER: Just keep me up 12 to date on what you're doing with these follow-ups 13 so we make sure nothing falls through the cracks. 14 MS. MC LEOD: Well, with the 15 follow-ups, like I said, three of the reports, I 16 anticipate giving you a draft report this month that 17 should identify that items have been implemented or 18 if they're not, which ones aren't, and then the last 19 three definitely get you draft reports in January. 20 And the next ones that Linda had 21 wanted us to work on was the state audit control 22 management audit, and we'll get to that later this 23 month. 24 COMMISSIONER CRINER: Thank you. 25 Thank you, Mr. Chairman. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 1 CHAIRMAN CLOWE: Thank you. Thank 2 you, Debra. 3 Next, Item 5, is report and possible 4 discussion and/or action on the Council on 5 Competitive Government activities. And that will be 6 Nelda Trevino. Good morning, Nelda. 7 MS. TREVINO: Good morning, 8 Commissioners. For the record, I'm Nelda Trevino, 9 the Director of Governmental Affairs. In regards to 10 the council's review, the only item that I really 11 wanted to mention today was just a reminder on the 12 council meetings that have been scheduled in order 13 for the council to take up the recommendations in 14 regards to our review. And those council meeting 15 dates are December the 20th and January the 8th. 16 The meetings are scheduled for 2:00 o'clock in the 17 afternoon for both of those meetings, and I think 18 Colin mentioned at the last Commission meeting that 19 if there was a need to have a follow-up meeting, 20 they have reserved January the 11th. 21 So other than that, I don't have 22 anything new to report. I'll be happy to try to 23 answer any questions that you might have. 24 CHAIRMAN CLOWE: I believe there are 25 none. Thank you, Nelda. Next item, Number 6, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 1 Report, possible discussion and/or action on the 2 Sunset Project involving the agency, Gary Grief. 3 Good morning, Gary. 4 MR. GRIEF: Good morning, 5 Commissioners. For the record, my name is Gary 6 Grief, and I'm the Director of Lottery Operations 7 for the Texas Lottery Commission, and I'm also 8 serving as the project manager for our agency's 9 Sunset review project. 10 There have been a couple of new 11 developments since we had our last Commission 12 meeting, and I'd like to brief you on those two. 13 First, the Sunset Commission appointments on the 14 House side have been made, and that completes the 15 full appointment of the Sunset Commission members. 16 Second, the first meeting of the Sunset Commission 17 has been scheduled for 9:30 a.m., on Tuesday, 18 December 11th, next Tuesday. And the highlight of 19 that posted meeting agenda will be the approval of 20 the agency review schedule. We expect to find out 21 at that meeting when our agency review will begin. 22 And I want to assure the Commissioners 23 we are ready for this review process. The Executive 24 Director has reviewed all of the packets of the 25 information that have been prepared by staff WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 1 regarding each of the policy issues that were raised 2 in our self-evaluation report. And our staff are 3 prepared to provide this information to the Sunset 4 Commission staff whenever it's requested. 5 In addition, our Sunset database 6 stands ready to track any request made agency-wide 7 by Sunset Commission staff, through the life of that 8 project. Appropriate agency staff are going to be 9 in attendance at the initial Sunset Commission 10 meeting on December 11th, and will be reporting back 11 to you what decisions are made at that meeting. 12 And that concludes my report this 13 morning. I'd be happy to answer any questions that 14 you might have. 15 COMMISSIONER CRINER: Have you had an 16 opportunity to meet the new appointees to the Sunset 17 Commission? 18 MR. GRIEF: No, I haven't, sir, but I 19 think our Executive Director and I think 20 Commissioner Clowe have had an opportunity to do so. 21 CHAIRMAN CLOWE: I'd like to answer 22 that by way of saying that Linda Cloud and I have, 23 with Nelda's help, begun the process of meeting each 24 individual on the Sunset Committee, and making 25 certain that Linda puts in there, and to a copy of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 1 your report, expressing this agency's desire and 2 intent to work with the Sunset Committee as being 3 positive in producing any information that they 4 would like to have, and are even expressing an 5 eagerness to work with them. 6 And we're finding the response very 7 positive, and, really, I think both Linda and I, as 8 a result of the visits that have been held -- and 9 we have one this afternoon, as a matter of fact, and 10 we'll be scheduling some more between now and the 11 next few months -- are very encouraged by the 12 attitudes expressed by the elected representatives 13 on the Sunset Committee. So I think it's going to 14 be a very positive process for this agency. 15 MR. GRIEF: Any other questions? 16 COMMISSIONER CRINER: No. I'm very 17 thankful, Mr. Chairman. I've found that the 18 Legislature likes to know us -- in talking to us, 19 if they know us, it makes it a little less 20 cumbersome process. 21 CHAIRMAN CLOWE: Very good. Thank 22 you, Gary. The next item, Number 7, is report, 23 possible discussion and action on the agency's 24 fiscal year 2001 Annual Financial Audit Report, Bart 25 Sanchez. Good morning, Bart. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 1 MR. SANCHEZ: Good morning, 2 Commissioners. For the record, my name is Bart 3 Sanchez. I'm Director of Financial Administration. 4 Before you you have the annual financial report that 5 was due to the Comptroller, the oversight agencies, 6 November 20th. What we await now is the audited 7 financial report that is going to be audited by our 8 financial auditors McCowen Jones. And that's due 9 December 20th. 10 The format is something that is 11 prescribed by the comptrollers. And sometimes it's 12 not user friendly, but I can certainly go over and 13 respond to any questions. As we did last year -- 14 and I got a request from the executive directors to 15 present this financial information more user reader 16 friendly and maybe lay out comparisons between last 17 year and this year. I hope to use the audited 18 financial information after I receive that report so 19 I can present the audited financial information next 20 Commissioners meeting. 21 CHAIRMAN CLOWE: Bart, it's an 22 excellent report, and I like the year to year 23 comparison, and I went over it. And I always like 24 to ask my accountant, is there anything you want to 25 tell me. It's the same question my mother used to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 1 ask me when I was a young man, a young boy. There 2 are ways to hide things and not call attention to 3 things. Is there anything you want to tell us? 4 MR. SANCHEZ: Well, sir, there's not 5 going to be any questions or any issues involving 6 sales. The sales number is really pretty firm. 7 There are some discussions with the auditors 8 concerning prize expense, prizes payable. Usually 9 my perspectives are more conservative so I'm 10 allowing the auditors to consider whether maybe we 11 recorded more prizes payable, but I'd rather prefer 12 for them to acknowledge that and report that. All 13 that's going to do is for us to record a little more 14 income. 15 CHAIRMAN CLOWE: Okay. So we don't 16 want any surprises, and we want to lay the facts out 17 in these reports just the way they are, and if there 18 are questions, answer them with footnotes and be 19 very forthcoming. So keep us apprised on this and 20 let's be forthcoming with all the information that 21 we need to come forward with. 22 MR. SANCHEZ: And, of course, the 23 audited financial report is going to include 24 management recommendations by the auditors. 25 There's been some discussions on some WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 1 of the issues, and some recommendations are mainly 2 verbal and have been discussed with the executive 3 director, and I foresee maybe having just one or two 4 written recommendations. Number one, it seems like 5 it's going to be addressing -- you know -- maybe 6 the needs of financial accounting system, which we 7 all know to be important. 8 MS. CLOUD: Just so you're not 9 concerned about what these verbal comments are, it 10 happened -- one of them -- and I will share with 11 you just so you'll know the extent of the 12 concern -- is that our Cash 5 game hasn't been 13 performing like it should, and we need to replace 14 it. So we know that, and we're working on that, and 15 hopefully in the spring we'll have that change in 16 place. 17 CHAIRMAN CLOWE: Very good. 18 COMMISSIONER CRINER: The format and 19 the forms in here are standard? 20 MR. SANCHEZ: Correct, standard, 21 issued by the Comptroller. 22 COMMISSIONER CRINER: By the 23 Comptroller. 24 MR. SANCHEZ: Yes. 25 COMMISSIONER CRINER: I was concerned WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 1 about that. 2 CHAIRMAN CLOWE: Bart, is your staff 3 fully completed at this time? You had some 4 vacancies the last time, I think, we asked you about 5 this. Where do you stand on that? 6 MR. SANCHEZ: Right now, at this 7 present time, I have five vacancies. With two 8 vacancies, I'm going to make recommendations this 9 week, and with two more, probably by the end of 10 January. So I'll be left with maybe one vacancy. 11 I've been using contractors, temporaries. And 12 hopefully, my time now, since this annual financial 13 report, the audit, is completed, I'll have more time 14 now to devote to the staffing. 15 CHAIRMAN CLOWE: I think this is a 16 good time, with current economic conditions, to 17 staff up. 18 MR. SANCHEZ: Yes, it is. And as 19 Debra had said, I'm getting very fortunate of the 20 type of level of experience, expertise of the people 21 that have applied for those positions. 22 CHAIRMAN CLOWE: Thank you, Bart. 23 MR. SANCHEZ: Thank you. 24 CHAIRMAN CLOWE: We're now ready to go 25 to Item Number 8, report, possible discussion, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 1 and/or action on Charitable Bingo financial 2 information for the third quarter of calendar year 3 2001 and trends. 4 Billy, are you going to handle this? 5 MR. ATKINS: Yes, sir. Commissioners, 6 you have a series of graphs and spreadsheets in your 7 notebook, and what we'd like to start doing is 8 something similar to what the Lottery does, where 9 they report sales to you. Now, unlike the Lottery, 10 that has the ability to track sales on almost a real 11 time basis, Charitable Bingo Division monitors a 12 variety of figures that we receive as a result of 13 reports that are filed by licensees detailing their 14 activities during the calendar quarter. This is a 15 part of this report. 16 Now, keeping in mind -- since the 17 Charitable Bingo Division doesn't operate these 18 games, we don't really have the ability to affect 19 the figures. However, we still monitor these 20 figures in order to obtain a sense of the health of 21 the Texas Bingo Industry. And as I mentioned 22 earlier, with your approval, we'd like to begin at 23 this point providing this update to you on a 24 calendar -- or on a quarterly basis. 25 There are some general trends that I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 1 can go ahead and tell you about. If you look at the 2 first three bar graphs, you'll notice that the first 3 quarter of every year tends to be the highest, with 4 a continued decrease throughout the year. And 5 you'll also notice that the changes between the 6 second quarter and the third quarter are usually the 7 smallest, there's the least amount of change between 8 those two quarters. 9 So having said that, I'd like to move 10 on specifically to the third quarter of 2001. The 11 quarter closed on September 30th. What we do is 12 this information is effective as of -- I'm sorry. 13 And the reports were due on October 15th. This 14 information is as of October 25th, 10 days after the 15 due date for the third quarter figures. 16 And there is an anomaly that I'd like 17 to point out to you in the third quarter of 2001, 18 and that is there is an increase from the third 19 quarter to the second quarter. And although it's a 20 slight increase, that's unusual. There is usually a 21 decline. And actually, in talking to a number of 22 our licensees, we've attributed that in part to the 23 events of September 11th. We've had a number of 24 organizations report to us that since that event, 25 they've actually experienced a slight increase in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 1 attendance, and they're attributing it to players 2 not wanting to essentially leave the state, go to 3 Louisiana, Oklahoma, New Mexico to casinos or high 4 stakes bingo. 5 So we've actually had some individuals 6 reporting increases in attendance since that time. 7 And again, that's unusual. The other anomaly is, if 8 you look at the spreadsheet -- and we have two 9 different spreadsheets. We have one that provides 10 you a quarterly comparison, and then we have one 11 that gives you an annual comparison. But the 12 difference that you'll see is that regular bingo 13 sales, which is bingo paper, saw an increase in the 14 third quarter, and that increase is the first 15 increase in regular paper sale that we have seen in 16 at least the last eight quarters. And again, the 17 only thing that we can attribute that to at this 18 time is the increase in attendance that was being 19 reported by some organizations. 20 Now, just so you know, as we continue 21 to work through this process, we are currently 22 planning on working with Debra and internal audit on 23 developing additional methods to take this 24 information and analyze it so that we can provide 25 better information as to trends in the bingo WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 1 industry. 2 So if you have any questions about 3 this or any suggestions for other formats you'd like 4 to see it in, we'd be happy to hear that. 5 COMMISSIONER CRINER: What's the 6 security like for the bingo sales? 7 MR. ATKINS: The security is the 8 responsibility of the organization themselves, and 9 what the majority of the larger commercial hulls 10 will do, is they'll hire off duty law enforcement 11 officials, either police officers or sheriff's 12 deputies. 13 COMMISSIONER CRINER: So since 14 September 11th would you say that your bingo players 15 feel safer going to a bingo facility? 16 MR. ATKINS: I don't know if they're 17 necessarily feeling safer. What's being reported to 18 us is that they just don't want to be away from 19 home. They don't -- you know, again, particularly 20 on the Louisiana border, a number of players were 21 crossing into Louisiana to go to the various 22 casinos. It's being reported to us that they didn't 23 want to go out of state, they wanted to stay in 24 their locale. 25 COMMISSIONER CRINER: Thank you. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 1 CHAIRMAN CLOWE: Billy, are you making 2 this information available in a broad manner to the 3 industry? 4 MR. ATKINS: Actually, what we are 5 working on is there are two reports that are 6 generated by the Charitable Bingo System. One 7 provides detailed figures by city and the other 8 provides figures by county. And we're working on 9 getting that information put out onto the website so 10 that it's -- those are two of the reports that are 11 probably most often requested by the industry so 12 we're looking on moving those out to the website so 13 that they're readily available. 14 CHAIRMAN CLOWE: I think that's 15 important. If I were a bingo operator, I would want 16 access to this information, city, county, and 17 statewide, to see how I was doing, and -- you 18 know -- use that to my advantage by viewing those 19 areas that are experiencing positive sales results. 20 So I'm glad you're putting it on the 21 website, and I hope that you're making certain that 22 everybody knows it's there. 23 MR. ATKINS: In a broader sense, what 24 we've done is we've just put total figures in the 25 bingo bulletin so there -- and the total figures on WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 1 a statewide basis. And I believe we also did a 2 quarterly comparison. 3 CHAIRMAN CLOWE: Okay. I think you 4 have the next item as well. Number 9, report, 5 possible discussion and/or action on the 20th 6 anniversary of Charitable Bingo in Texas, and that 7 involves the presentation that you have prepared. 8 MR. ATKINS: That's correct, Mr. 9 Chairman. And so you know, next year, 2002, will be 10 the 20th year that Charitable Bingo has been 11 authorized, legalized for fund-raising purposes in 12 the State of Texas. And in the early part of this 13 year I appointed, again, Donna Rose, who is seated 14 directly behind Commissioner Whitaker, to head up 15 the team within the division to develop a way for us 16 to celebrate Bingo's 20th anniversary and recognize 17 the contribution that Charitable Bingo has made to 18 the State of Texas. And this first line here will 19 show you, since it was authorized in 1982, 20 Charitable Bingo has raised in excess of 21 $670,000,000 for charities in Texas, and over 22 $7,000,000,000 has been paid out in prizes. We 23 think that that's a significant impact on the 24 charitable organizations conducting Bingo, as well 25 as the Texans who play Bingo. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 1 For example, by comparison, the 2 Meadows Foundation, which is a granting foundation 3 in the Dallas area, has been in existence for over 4 50 years, and in that 50 years they've distributed 5 just over $400,000,000. So you can see the impact 6 that Bingo has had in 20 years. Another interesting 7 statistic that we found, the Nonprofit Resource 8 Center of Texas, which is located in San Antonio, 9 compiled the list of the top 100 foundations in 1999 10 categorized by the amount of grants that they 11 awarded. The top five were, number one, the Moody 12 Foundation, that awarded $101,000,000; the Houston 13 Endowment, which awarded almost $64,000,000; the 14 Brown Foundation, which awarded $55,000,000; SPC 15 Foundation out of San Antonio, which awarded 16 $31,000,000; and the Meadows Foundation out of 17 Dallas, which awarded $28,000,000. Those are 1999 18 figures. 19 Well, in 1999 charitable distributions 20 from the conduct of Bingo were over $40,000,000. So 21 Charitable Bingo in 1999 was larger than 97 of the 22 top 100 foundations in Texas, according to the 23 grants we made. And again, we think that's 24 significant. 25 Our plan for the next year includes a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 1 commemorative license that will be sent to all the 2 licensees upon their renewal or license issuance. 3 We're going to work on developing a series of press 4 releases to go out to statewide media as well as 5 press releases that local organizations can use. We 6 want to produce a 20th anniversary report. We have 7 a variety of merchandise that we used in our 8 training programs and educational seminars, as well 9 as posters that we distribute, or will have 10 available to distribute to our licensees. 11 This is the logo that we developed and 12 will use during 2002 that was developed in 13 cooperation with our marketing division. We think 14 it captures a lot of the spirit of Charitable Bingo 15 in the last 20 years. 16 I mentioned earlier that we have a 17 20th anniversary license, and I was afraid that that 18 wouldn't show up too well so I'll ask Kim to pass 19 those out. This is a license that we'll use just 20 during 2002 as a way to commemorate that 21 organization's Bingo activity during the year. As 22 you can see, it contains the logo for the 20th 23 anniversary in the background. 24 Next, we want to produce a 20th 25 anniversary report for distribution to all of our WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 1 licensees, legislators, and other interested 2 parties. We intend right now for this report to 3 contain a history of Charitable Bingo in Texas, more 4 statistics relating to the 20 years of Charitable 5 Bingo than anyone would ever want to have, as well 6 as the important milestones of Charitable Bingo in 7 20 years. 8 And also, as I mentioned, we conduct a 9 series of training seminars as well as our operator 10 training program. We plan on having a series of 11 merchandise that we will have and can distribute to 12 our licensees. This merchandise generally contains 13 either our 800 number or the website address so that 14 our licensees have that readily accessible, and are 15 able to contact us when the need be. 16 Finally, we have developed a 20th 17 anniversary poster that we think captures a lot of 18 highlights, and again demonstrates the significance 19 of Charitable Bingo and its contribution to the 20 state. And this poster will be made available to 21 organizations through open records so that they can 22 have it and display it in their location, if they're 23 interested. Again, it covers the amount of 24 charitable distributions, the number of people that 25 have attended Bingo games, gross receipts, prizes WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 1 won. 2 That's pretty much the real simple 3 review of the program. Again, I gave essentially 4 the same presentation to the Bingo Advisory 5 Committee and made them aware of our plans for the 6 upcoming year. They were very excited about it, and 7 it's generated a lot of excitement within the 8 divisions. We're looking forward to our 9 anniversary. And also, next year will be the 10 Lottery's 10th year anniversary. So Donna is 11 working with the Lottery staff. We hope to be able 12 to do some things in cooperation with one another. 13 COMMISSIONER CRINER: The charities. 14 Who are the charities? Do we have a list of what 15 charities receive that money? 16 MR. ATKINS: They're our licensees. 17 COMMISSIONER CRINER: So each licensee 18 is what we call a charity? 19 MR. ATKINS: That's correct. Now, 20 those licensees could make a donation to another 21 organization. For example, it's not uncommon for 22 veterans organizations to make donations to veterans 23 hospitals. So we don't have any method -- you 24 know -- to capture all of those except for when we 25 do an audit, but we know the total amount of funds WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 1 that are going to the nonprofit organizations. 2 Okay. 3 CHAIRMAN CLOWE: Any other questions 4 or comments? 5 COMMISSIONER WHITAKER: It looks very 6 professional. 7 CHAIRMAN CLOWE: Good program. Thank 8 you and your staff. 9 May we have the lights back on, 10 please. This brings us to the conclusion of this 11 portion of the agenda, and the next item is to move 12 into executive session; however, prior to that, I'm 13 informed that we have members of the public who have 14 now become in attendance at the meeting, and they 15 are interested in Item Number 13, Letter G, Motion 16 for Rehearing in Heart of Texas Black Chamber of 17 Commerce issue. I have appearance forms from Mr. 18 David Scott and Mr. Gary Bledsoe. Would you 19 gentlemen come forward. Good morning. You're Mr. 20 Bledsoe, I believe? 21 MR. BLEDSOE: That's correct. 22 CHAIRMAN CLOWE: Is Mr. Scott here? 23 Is he going to appear with you? 24 MR. BLEDSOE: He is here. He just 25 stepped outside. He'll be up in just a second. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 1 CHAIRMAN CLOWE: All right. We will 2 take this item up out of order, as a courtesy to 3 you, and not tie you up a lengthy portion of the 4 day. 5 Ms. Kiplin, do you have any comments 6 you want to make as we get into this subject? 7 MS. KIPLIN: I do. Commissioners, 8 right before the Commission meeting convened, I gave 9 you copies of correspondence that I have received in 10 my capacity as general counsel from Mr. Bledsoe and 11 Mr. Scott, and also a letter that I sent back. 12 The purpose of the letter is to 13 request that Commissioner Clowe recuse himself. And 14 if you'll recall, at the November 8 Commission 15 meeting, Commissioner Clowe, you disclosed that you 16 live in Waco and that you read the newspaper and you 17 read newspaper articles regarding this particular 18 organization, and while you didn't believe that that 19 predisposed you or biased you one way or the other 20 in this contested case matter, you did offer the 21 opportunity to the respondent to -- after 22 consultation with the client -- to make a request, 23 if that's what they chose to do, to have you recuse 24 yourself. 25 That request has been made, and that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 1 is before you for your consideration. 2 CHAIRMAN CLOWE: Very good. And Mr. 3 Scott, that's your desire at this point in time? 4 MR. SCOTT: Yes, it is. 5 CHAIRMAN CLOWE: Thank you. And Mr. 6 Atkins, do you have any comment on that issue? 7 MR. ATKINS: No, sir. 8 CHAIRMAN CLOWE: I will therefore 9 recuse myself and step down on this issue. And 10 Commissioner Whitaker, with my apologies, because I 11 haven't been able to discuss this with you, I'll ask 12 you as the next senior Commissioner, to be the 13 presiding officer at this time, and turn the meeting 14 over to you. 15 (Chairman Clowe leaves the meeting.) 16 MS. KIPLIN: I have more preliminary 17 remarks if you'd like to hear them before, or if 18 you'd like to hear from the counsel, and then I can 19 ultimately make some remarks. 20 COMMISSIONER WHITAKER: Go ahead, 21 please. 22 MS. KIPLIN: Commissioners, what you 23 have before you today is a Motion for Rehearing in a 24 contested case proceeding, and there's no -- there 25 was a Hearing that occurred over at the State Office WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 1 of Administrative Hearings before an Administrative 2 Law Judge who heard evidence and received evidence 3 into the record, and then after that issued a 4 Proposal for Decision, which the ALJ entered 5 findings of fact and conclusions of law. 6 That matter came before you for 7 consideration of the proposed Order that accompanied 8 that Proposal for Decision, and you-all did sign 9 that Order. You voted to adopt the Administrative 10 Law Judge's findings and conclusions and recommended 11 Order. 12 COMMISSIONER WHITAKER: I take it we 13 did not have a Hearing at that time. 14 MS. KIPLIN: There was a Hearing that 15 was at the State Office of Administration -- 16 COMMISSIONER WHITAKER: Right, but 17 then we adopted -- 18 MS. KIPLIN: You had a meeting -- 19 COMMISSIONER WHITAKER: That's right. 20 MS. KIPLIN: And I'm using that word 21 in particular because that has become somewhat of an 22 issue, but there was a contested case Hearing that 23 was conducted in accordance with the Administrative 24 Procedure Act before an Administrative Law Judge. 25 A Proposal for Decision was issued, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 1 opportunities for exceptions and replies were 2 provided. If I recall, exceptions and replies were 3 submitted. It came before you at a properly noticed 4 open meeting of the Commission in which you 5 considered that Proposal for Decision and 6 recommended Order, and you signed that Order. That 7 Order was served on the parties, and my 8 understanding is that the -- my green card, return 9 receipt requested, the respondent did get notice of 10 that order on September 24th. 11 If you'll also recall, at the November 12 8th Commission meeting you entertained a request by 13 the respondent to extend the time for the agency to 14 act on that Motion for Rehearing for an additional 15 45 days. Under the Administrative Procedure Act, 16 Commissioners, when a Motion for Rehearing is 17 filed -- and there was a Motion for Rehearing that 18 was filed in this matter, timely filed -- an agency 19 has to act on that Motion for Rehearing within 45 20 days of the date that the party gets notice of the 21 final Order, and that notice -- that clock began on 22 September 24th. 23 So at the November 8th Commission 24 meeting you extended the time -- the Commission 25 extended the time for agency action for an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 1 additional 45 days. I've calculated -- and I think 2 we've all calculated it. I've calculated it many 3 times. And I get December 22nd. I think that -- 4 Mr. Bledsoe, I think you indicated December 23rd, by 5 his calculating on the 90th day. 6 That day is a holiday. There is no 7 computation of time for -- it's actually either a 8 Saturday or Sunday. Depending on what day you put 9 it, it's the 22nd or 23rd. But there is no statute 10 addressing computation of time that would carry that 11 forward to the next State business day, unlike 12 computation of times for filing deadlines. 13 And I've talked to our representative 14 with the agency office just to see if I'm wrong on 15 that, and it's just silent. So a cautionary 16 approach would have you act before the 90th day or 17 the Motion for Rehearing would be overruled by 18 operation of law. 19 Now, that's critical, because that 20 begins a clock for judicial review. Under the 21 Administrative Procedure Act, when a Motion for 22 Rehearing is overruled, either because the agency 23 acted on it or by operation of law, that then begins 24 a 30 day clock in which a party has to file a 25 lawsuit, and if they don't within that 30 days, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 1 they're barred. It's a jurisdictional matter, and 2 they're barred. So it's an important clock to 3 tick. 4 My understanding is that the party or 5 parties -- I'm not sure whether there's been some 6 agreement -- have tried to work out some way to 7 extend the time for you-all to act on the Motion for 8 Rehearing beyond the 90th day. 9 I'm going to hand you documents that I 10 think will be helpful to you, because it's statutory 11 language. And I want that to be in front of you so 12 that you can -- I've highlighted two provisions. 13 One is 2001.146 (e) and one is 2001.147. Those are 14 both statutory provisions in the Administrative 15 Procedure Act. 16 The issue, really, as I understand it, 17 is whether the agency has the authority to go beyond 18 the 90th day if in fact the parties agree. And 19 that's the application of 147. And then the agency 20 approves it. 21 COMMISSIONER WHITAKER: The bottom 22 line is, though, if we decide to rule today, then 23 we're okay. 24 MS. KIPLIN: Well, then there's no 25 issue because you ruled within the 90th day. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 1 COMMISSIONER WHITAKER: So your 2 concern is that we have "X" amount of time within 3 which to rule, which is what, about 20 to 15 days? 4 MS. KIPLIN: Yeah. It's December 5 22nd, by my calculation. By, I think, Mr. Scott, 6 it's December 23rd. I think the issue for the 7 respondent is that they believe -- and I don't want 8 to put words in their mouth, and I'm sure that 9 they're going to correct me if I'm wrong -- but 10 they believe that the Order that you entered, their 11 interpretation is that they have 90 days before you 12 will act. So that under their interpretation -- 13 COMMISSIONER WHITAKER: After which we 14 cannot act. 15 MS. KIPLIN: You would convene on the 16 90th day so you would act on the 90th day. And I 17 think their interpretation is that there is an 18 ability for you to extend beyond the 90th day under 19 147. 147, as you see, does say, the parties who 20 contest a case with state agency approval may agree 21 to modify the times prescribed by 2001.146. But 22 when you go to (e), (e) says -- and that's 2001.146 23 (e) -- (e) says, a state agency may, by written 24 order, extend the time for filing. 25 You can read it. And then it has a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 1 comment that says, except an extension may not 2 extend the period for agency action beyond the 90th 3 day. 4 Now, Commissioners, we are in 5 uncharted water. I have tried to find a case that 6 would give us some line of authority on how to -- 7 how to construe 147 on 146 (e). I have contacted 8 the Division Chief of the Administrative Law 9 Division, and I have contacted our Assistant 10 Attorney General representing the agency. They are 11 not aware of any reported decision, nor am I. And I 12 was hopeful that perhaps they would at least be 13 aware of a District Court Ruling. While it wouldn't 14 be a reported decision in Travis County, I think 15 that would be pretty good guidance. And I thought 16 that since their division handles a plethora of 17 agencies, they might be aware of something that I'm 18 not. They are not. 19 So this is before you. It's in 20 uncharted water. The effect, if you enter into 21 an -- a possible effect, if you enter into an Order 22 that does extend beyond the 90 day -- because the 23 parties, I think -- 24 COMMISSIONER WHITAKER: I understand. 25 MS. KIPLIN: -- theoretically are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 1 prepared to agree -- 2 COMMISSIONER WHITAKER: Why is it 3 important that they agree, if we go ahead and hear 4 it and decide? Wouldn't that solve all the issues? 5 You want to address that, counsel? 6 COMMISSIONER CRINER: Could I say 7 something? 8 COMMISSIONER WHITAKER: Yes. 9 COMMISSIONER CRINER: Did not we vote 10 for a Rehearing? 11 MS. KIPLIN: You voted to extend the 12 time for the agency to act on a Motion for Hearing. 13 You have not considered substantively their Motion 14 for a Hearing. Mr. Scott came before you at the 15 November 8 Commission meeting, and said he had just 16 been retained by respondent, and he needed time 17 to -- I think -- 18 COMMISSIONER CRINER: So this whole 19 action is to determine whether we want to give them 20 a Rehearing or not? 21 COMMISSIONER WHITAKER: No, whether we 22 give them -- well -- 23 COMMISSIONER CRINER: Extend the 24 time -- 25 COMMISSIONER WHITAKER: As I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 1 understand it, it's extend the time within which we 2 can rule on it; is that correct? Who's Mr. Scott? 3 MR. SCOTT: I'm Mr. Scott. 4 COMMISSIONER WHITAKER: Okay, Mr. 5 Scott. 6 MR. SCOTT: Yes. The purpose for me 7 coming up the last time, as she said, I had just 8 been retained. What we were going to do is prepare 9 arguments -- 10 MS. KIPLIN: Mr. Scott, I'm not sure 11 we're catching you on our actual record. Is his 12 voice being picked up? 13 Okay. I'm sorry. Because our tape 14 recording is actually the record. 15 MR. SCOTT: And what we were trying to 16 do -- or want to do was prepare an argument so that 17 you would be better informed as to what actually 18 transpired. What has happened here is we received 19 the Order which stated that the Texas Lottery 20 Commission will extend the times for agency order 21 action on the Motion for Rehearing for an additional 22 45 days. We are relying on that Order so we had 23 time to prepare our responses. 24 And what has happened, I found out 25 Friday of this last week, on the 31st, that this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 1 Hearing was set for today. So yes, we're claiming 2 surprise here, because we haven't had notice, as we 3 contend was required by the APA. 4 COMMISSIONER WHITAKER: So your 5 position is you're not ready today to give the type 6 of argument you'd like to give. 7 MR. SCOTT: Correct. Now, depending 8 on your decision on that issue, we may have to go 9 forward today. 10 COMMISSIONER WHITAKER: What is your 11 legal position on whether we are within our powers 12 to extend the time beyond the 90 days? 13 MR. SCOTT: As Ms. Kiplin has stated, 14 this seems be uncharted waters. However, I found 15 one of the legal treatises that we used, Darcenio's 16 (phonetic), which states that it appears that under 17 that provision, 147 -- 2001.147, that you did have 18 time to modify the 90 day time period. Now, in 19 conjunction with that, I did find a Supreme Court 20 case that -- I'm going to use the term by 21 analogy -- that stated that there's also a 60 day 22 limitation for rendering decisions in APA, and the 23 Court stated that that was just a timeline so that 24 the agencies did not waste time. They were 25 forthright with coming forth with decisions. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 1 So by analogy, I'm stating that 2 the -- your hands aren't tied to that, so that you 3 could modify the time limits. Now, I have to also 4 lean toward being concerned for my client, so that's 5 why we're here trying to find some mutual ground. 6 We don't feel we received the proper notice to go 7 forward in the case. That's our position. But in 8 doing so, we'd like some sort of compromise, or 9 trying to find a compromise of the parties so that 10 we could either present our arguments by writing 11 them in before the end of the 90 day period -- that 12 would be a written response -- or even having a 13 telephone argument -- a special called meeting with 14 the Commissioners. 15 We were trying -- like I said, we 16 were trying to find some mutual grounds so that we 17 were not tied to this date today. 18 COMMISSIONER WHITAKER: When would the 19 90th day run? Is that December -- do you agree on 20 when the 90th day would run, Mr. Scott? 21 MR. SCOTT: We think it's the 23rd. 22 COMMISSIONER WHITAKER: Okay. Is that 23 your view, also? 24 MS. WILKOV: Yes, Your Honor. 25 COMMISSIONER WHITAKER: And you were WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 1 saying you would like for me to have until when to 2 prepare the arguments that you think you are in a 3 position to make? 4 MR. SCOTT: Well, I think the APA said 5 at least 10 days notice so we would like at less 10 6 more days. 7 COMMISSIONER WHITAKER: You got notice 8 when? 9 MR. SCOTT: We got notice Friday, the 10 31st, of this week. 11 COMMISSIONER CRINER: The 30th. 12 MR. SCOTT: And that was by 13 happenstance. We were here on another matter, or we 14 wouldn't have known about it. 15 MS. WILKOV: I do have some responses 16 on that -- 17 COMMISSIONER WHITAKER: Okay. Go 18 ahead. 19 MS. WILKOV: -- if you're finished. 20 MS. KIPLIN: Well, at some point I 21 want to provide input and advice to you regarding 22 the issue to be considered. 23 COMMISSIONER WHITAKER: As I 24 understand, the issue now is that Mr. Scott is 25 stating that they got notice on the 31st, that they WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 1 needed at least 10 days to prepare for arguments, 2 that they're here today, would like to have more 3 time. If you could address, Counsel for the Lottery 4 Commission, just the issue of notice, and when they 5 got notice. 6 MS. WILKOV: Yes. My name is Penny 7 Wilkov. That's W-i-l-k-o-v. I'm the Assistant 8 General Counsel for the agency. And their complaint 9 is that they were told in the Order extending time 10 for agency action, which is what you signed on 11 November 8th, that there were 45 days that the 12 Commission meeting would be set. In other words, 13 they are stating that this Order extending time for 14 agency action on the Motion for Rehearing, that 15 their impression was that it would not be set -- 16 that this meeting would not be set before 45 days. 17 And how we respond to that is that Mr. 18 Scott is an attorney, and he knows that a Motion for 19 Rehearing is similar to a Motion for New Trial, in 20 that it can be overruled just by the Commission 21 failing to act. And that's what the 45 days is 22 about. It's a time period that allows that if 23 there's nothing done, it will be overruled without 24 any action on the part of the Commission. 25 And it was this time period that was WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 68 1 extended in this Order extending time for agency 2 action. This does not state in here that the 3 meeting was going to be set within 45 days. He's a 4 lawyer. He has a copy of the Administrative 5 Procedure Act just as I do, and he is mistaken on 6 what his impression is of this agency action Order. 7 And second, he stated that the 10 days 8 notice is required. The 10 days notice, as 9 contained in the Administrative Procedures Act, is 10 the notice in a contested case proceeding before a 11 State Office of Administrative Hearing Judge. It's 12 not referred to in the Rehearing provision, or it 13 would be included in the Rehearing provision if that 14 was the intent of the Legislature, and it's not. 15 He knew that the last Commission 16 meeting was on November 8, 2001. His client has 17 consistently been aware of the meetings, and he 18 didn't need any notice from the Commission on that 19 date. The Commission notices are available on the 20 internet, and they were available on the transcripts 21 since you set that at the last meeting. And I 22 didn't do any more or less than I would for any 23 other party or any other lawyer about notification. 24 They have the same notification as anyone else, the 25 public or attorneys. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 69 1 MR. SCOTT: If I may respond -- 2 COMMISSIONER WHITAKER: Mr. Scott, 3 when were you hired? 4 MR. SCOTT: We were hired -- it was 5 around the 7th or 8th. It was within days of the 6 Hearing -- the last meeting. 7 COMMISSIONER WHITAKER: Did you have 8 access to our website or to our transcript that 9 stated that today would be our Commission meeting? 10 MR. SCOTT: Did I have access or I -- 11 COMMISSIONER WHITAKER: Did you read 12 it? 13 MR. SCOTT: No, I did not read it. 14 COMMISSIONER WHITAKER: That we had 15 set the meeting for this -- 16 MR. SCOTT: No. 17 MR. BLEDSOE: If I might respond to 18 that, when you say in an Order that you have 45 19 days, there is no indication from the Order that was 20 given that it would be the next meeting of the 21 Commission where the matter would be considered. 22 You can look at the website for 1,001 things. But 23 the issue is, when is your matter going to be 24 considered. And I don't think there was any 25 indication that it's going to be at the next WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 70 1 meeting. It would seem to me to be very minimal to 2 give someone notice that your matter is going to be 3 considered. If you state 45 days in an Order and 4 tell someone that you have 45 days for the 5 Commission to consider this, what you're attempting 6 to do now -- what's being proposed is that you 7 short circuit your own Order, because you're saying 8 that, no, you didn't mean 45 days, that you meant 20 9 days or 22 days or however many days it has been, 10 and that the 45 days was simply a misnomer. I don't 11 think any lawyer would read that to understand that 12 45 days didn't mean 45 days. Whether that meant a 13 special called meeting, whether that meant some 14 other circumstance other than this particular 15 meeting, when you stated 45 days in that Order, that 16 would put anyone upon notice who would be reading it 17 in a reasonable fashion, that they had 45 days 18 before the matter would be addressed and resolved. 19 COMMISSIONER WHITAKER: Ms. Wilkov, 20 when did they first get notice that this would be 21 the specific meeting at which this would be 22 addressed? When was that notice sent out? 23 MS. WILKOV: Actually, there was no 24 notification of this particular meeting, which 25 is -- as I stated earlier -- is no more or less WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 71 1 than we do in any other case. When it was set on 2 November 8th, which was the last setting, it was not 3 notified -- the Heart of Texas was not notified of 4 that meeting, either, but yet, they found out about 5 it, and they came to that meeting. It's the same 6 notice as I would get, as anyone gets, any attorney, 7 any party, including myself, of the meeting. I can 8 find it on the web or I can look in the transcript. 9 COMMISSIONER WHITAKER: But if I am a 10 party like this party and I want to be prepared and 11 make argument, what are all the methods by which I 12 would have found out that today is the magic date? 13 MS. WILKOV: Well, there is something 14 on the website. It's the transcript of your meeting 15 that you had on November 8th. And at that time -- 16 I believe at the end of the meeting -- you go ahead 17 and set the next meeting, and that is contained on 18 that transcript, which is available on the website. 19 COMMISSIONER WHITAKER: Go ahead. 20 COMMISSIONER CRINER: This is about 21 Charity Bingo, am I not right? This is about how we 22 help the underprivileged. I didn't get my book 23 until Friday. And then you and I knew exactly 24 what's on the agenda and how they answered. I'm 25 very reluctant -- and I know we're in strange and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 72 1 different waters, but that's kind of where I live, 2 anyway. If we're going to help somebody, I think we 3 should give them -- you know -- a green slip that 4 says -- whether it has been or hasn't been 5 procedure, if we're going to help somebody, let's 6 give them a green slip that says, on December the 7 4th we're going to hear you, and know exactly what 8 you're going to do in enough time to prepare your 9 case. 10 I'm uncomfortable sitting here, 11 arguing what our policies and procedures are, and 12 knowing that I didn't get a notice that we were 13 going to hear this until Friday. 14 COMMISSIONER WHITAKER: Okay. And I 15 take it, Ms. Wilkov, that there was no specific 16 notice to them that this would be the date on which 17 this would be heard until possibly last Friday. 18 MS. WILKOV: Well, Your Honor, I'll 19 tell you -- 20 COMMISSIONER WHITAKER: It's the 21 specificity that I'm looking for here. 22 MS. WILKOV: There were some attempts 23 on my part to notify Mr. Scott by telephone, which I 24 have been able to ascertain is the agency practice. 25 I called Mr. -- in fact, I wrote him a letter and I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 73 1 recited that I attempted to call him on Tuesday -- 2 and I have the dates specifically. I think it's 3 November 20th. And this following Monday -- 4 COMMISSIONER WHITAKER: Yeah, without 5 regard to when you tried to, the question is, did 6 they get notice. In other words, did it actually 7 get to them that today would be the day we look at 8 that? I'm not seeking to fault you or anything. 9 I'm just trying to say, did they get actual notice. 10 MS. WILKOV: I understand. I'm just 11 trying to tell you my attempts, that I did try to 12 talk to him about the case at that time, so it 13 wouldn't be a surprise. But again, no, there was -- 14 other than what is normally done in the cases, a 15 telephone contact, there is no notice, nor is it 16 required by the Administrative Procedures Act that 17 we notify them of the setting. 18 COMMISSIONER WHITAKER: So Mr. Scott, 19 your statement and your representation to us is that 20 the first time that you knew this would be on the 21 agenda today was what, November 30th? Is that 22 correct? 23 MR. SCOTT: I think it was the 24 31st -- 30th -- was Friday the 30th? I apologize. 25 There's a couple of other points I'd WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 74 1 like to respond to, though, concerning this -- the 2 internet, just so we can get that out of the way -- 3 COMMISSIONER WHITAKER: That's okay. 4 I think we can prove that has got us to the position 5 where I think we -- well, I'll state my position. 6 I do think that, given your desire to make 7 substantial arguments to us, having more lead time 8 than you got would have been helpful, and I would 9 very much like to give you the time you need, as 10 would you, Commissioner; is that correct? 11 COMMISSIONER CRINER: That's correct. 12 COMMISSIONER WHITAKER: Now, we've got 13 a separate issue, though. 14 COMMISSIONER CRINER: I think we need 15 to ask our counsel, what's our options. 16 COMMISSIONER WHITAKER: Well -- and 17 as I understand it -- let me ask you this. Mr. 18 Scott, if you are prepared -- I would be prepared to 19 go ahead and give you time to the next meeting 20 that's in January if you're comfortable with your 21 reading of 147 and 146. I mean, I am not -- you 22 know, the language is what it is. You can read it 23 and interpret it, and I'd be prepared now to go 24 ahead and rule that way, if you're comfortable with 25 that. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 75 1 MR. SCOTT: May I have a moment with 2 my co-counsel. 3 MS. KIPLIN: And while he's doing 4 that, I'd like to be able to give you some advice on 5 that. 6 COMMISSIONER WHITAKER: Okay. 7 MS. KIPLIN: Regardless of whether the 8 Commission is comfortable extending it, regardless 9 of whether Mr. Scott and Mr. Bledsoe are comfortable 10 going to January, and regardless of whether or not 11 Ms. Wilkov and the Bingo Division are comfortable 12 going to January, the bottom line is -- let me just 13 play out a scenario for you. You hear it in January 14 and at that point you decide to overrule their 15 Motion for Rehearing or you grant it. We'll go 16 either way. 17 Ultimately, there -- let's say that 18 there is an adversarial decision to the respondent, 19 and they file a lawsuit. Well, everything that has 20 occurred after December 22nd could be lack of 21 jurisdiction, and as a result of not filing a 22 lawsuit within 30 days of December 22nd, they are 23 forever barred in going and seeking judicial review. 24 COMMISSIONER WHITAKER: So if I were 25 them, what I would want to do is I would count my 30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 76 1 days from the 22nd, in an abundance of caution, 2 which would give them relatively little time after 3 our Commission Hearing, but sufficient time to 4 actually get it within the 30 days, or they could 5 decide that they could read 147 themselves and 6 decide that it overruled or it preempts 146, and 7 they would take the risk that they're right, right? 8 I mean, it would be up to the Judge 9 that you're in front of at that time to decide if 10 you're correct in that interpretation. 11 MS. KIPLIN: Because the AG will file 12 for the failure to timely file a lawsuit. 13 COMMISSIONER WHITAKER: So let me give 14 you a scenario. Let's assume that our next 15 Commission meeting were what, January 6 -- pull a 16 date. Then 30 days after the 22nd would be -- 17 don't hold me to this, but December 22nd. You would 18 then have, Mr. Scott, from the 6th to the 22nd to 19 file, if we overruled it. 20 And you need to make the decision 21 whether that's sufficient time and you can work 22 within that. I haven't called it for a vote yet, 23 but my predisposition would be, if you're open to 24 that, to go ahead and have this heard at that time 25 in the Commission meeting in January. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 77 1 COMMISSIONER CRINER: 147 says that we 2 may agree. 3 MS. KIPLIN: But you have to read (e) 4 with the, except that, the -- except that you can't 5 go beyond 90 days. And this is the uncharted water, 6 Commissioner Criner, is how do you reconcile and how 7 do you construe those two provisions together. 8 Because if you look at other parts of this statute, 9 where it has the 20th day, and I think the 45th, it 10 doesn't have the same comment except that you can't 11 go beyond a particular day. So it's uncharted 12 water. 13 Now, I would like to address, as your 14 counsel, the issue of notice. 15 COMMISSIONER WHITAKER: Okay. 16 MS. KIPLIN: Because you heard this. 17 And there's a difference between, I guess, equity 18 and legal, okay? 19 COMMISSIONER WHITAKER: We're looking 20 at equity -- 21 MS. KIPLIN: We're looking at equity 22 because the legal authority is, they got notice the 23 day the Commission meeting was filed with the 24 registrar, which was the 26th, like anybody else. 25 The 10 days that you hear counsel addressing is a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 78 1 requirement there be at least 10 days notice before 2 a contested case Hearing over at the State Office of 3 Administrative Hearings, which did occur in this 4 case. 5 So I understand what you're saying in 6 terms of the notice, but I want to make sure that 7 when you make a decision, you're thinking -- you 8 know -- precedencial value and for the future, and 9 you're looking at it for more than an equity. 10 I also will let y'all know that I did 11 have a conference call with both counsel yesterday 12 to express my concerns in terms of how to reconcile 13 these two statutes, because I wanted them to have 14 some advance notice of my concerns as y'all's 15 general counsel. 16 Now, in terms of -- and Commissioner 17 Whitaker, I hear what you're saying, that we could 18 set it to the next Commission meeting. That is an 19 option, and then if it was overruled by operation of 20 law, then if it's within that 30 days, then they 21 can -- if they need to seek judicial review, that's 22 the desire of the client, they can review that. 23 Other options, I guess, are -- and 24 one thing that I think the parties have been trying 25 to address, if you'll go to 146 (d), I think one of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 79 1 the things that they've been thinking about is 2 potentially having you-all make your decision by 3 mail, telephone, telegraph, or other means of 4 communication. 5 Let me give out some more handouts. 6 What I'm handing you now are provisions out of the 7 Open Meetings Act. This came from the Attorney 8 General's handbook on open meetings. The 9 concern -- 10 COMMISSIONER CRINER: Could I ask 11 Billy a question. 12 Billy, do we have a problem? Is this 13 a consistent problem we've had with this charity? 14 Do we have a history of just problems and problems 15 and problems? 16 MS. KIPLIN: Okay. What I have to say 17 right now -- 18 COMMISSIONER CRINER: Please, would 19 you just let me ask -- 20 MS. KIPLIN: No, I'm sorry, but I have 21 to say that we have to stay within the record. 22 COMMISSIONER CRINER: I'm asking if 23 this is -- 24 MS. KIPLIN: So if it's not within the 25 record -- you've created a contested case record WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 1 that could potentially go on appeal. And so if 2 Billy's answer in terms of history with regard to 3 this respondent is outside the record, I'm telling 4 you and advising you, do not say whether there's a 5 history or not. If it's within the record, then 6 that's appropriate. But otherwise, you've 7 created -- you're not taking evidence today. 8 COMMISSIONER CRINER: I'm not a lawyer 9 and I'm not going to even try to proceed to be one. 10 I get a traffic ticket and they give me notice of 11 when I'm due in court, and that's not usually within 12 a week or five days. It's a pretty long time ago. 13 And I think we're just kind of -- I don't know -- I 14 don't have the right words to say publicly, but I'm 15 not comfortable with all this legal mumbo-jumbo. 16 We're trying to help the State of Texas, help 17 charities, help things go forward and give everybody 18 a free and honest hand to tell their side of the 19 story, and I'm concerned that -- where are we going 20 with all this. We're just kind of like -- I don't 21 know. I feel like I'm dragging a dummy behind me 22 right now, and I'm beating up on somebody that I 23 don't even know whether I like them. 24 COMMISSIONER WHITAKER: I think 25 there's a practical solution, and that's what I'd WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 81 1 like to explore. 2 COMMISSIONER CRINER: Would you please 3 get me there, because you're a lawyer. 4 COMMISSIONER WHITAKER: Mr. Scott, 5 would you be -- are you comfortable with the 6 suggestion I made? 7 MR. SCOTT: Yes, we are, that being 8 the -- giving us until the next meeting to -- 9 COMMISSIONER WHITAKER: Yeah, let me 10 state kind of what -- where I'm coming from with 11 that. You understand that you would take the risk 12 that you're correct in your interpretation that 147 13 preempts 146, number one, and number two, that if in 14 any event it did not, that you would be comfortable 15 filing your appeal within the 30 days after the 22nd 16 of December. 17 I'm not saying that very clearly. 18 What you need from us is to know when the next 19 Commission meeting is, and then to decide if that's 20 enough time for you, correct? 21 MR. SCOTT: That would be nice. 22 COMMISSIONER WHITAKER: Is Chairman 23 Clowe here? 24 MS. KIPLIN: He's not here. I think 25 we can find him. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 82 1 COMMISSIONER WHITAKER: When would you 2 be next available for the next meeting? Because if 3 we did it like the 7th of January, would that be 4 enough time for you to deal with an appeal, assuming 5 we ruled against you? And I'm, of course, not 6 stating at this time how we'd rule, because we 7 haven't looked at things, okay? 8 MR. SCOTT: That's fine with us. 9 MS. KIPLIN: Another option for you to 10 consider that may be cleaner, and I'll raise this 11 for your consideration, is that you just grant the 12 Motion for Rehearing and remand it back to the State 13 Office of Administrative Hearings to take additional 14 evidence and hear additional argument. 15 MR. SCOTT: We prefer that one. 16 MS. KIPLIN: I have to raise it as 17 your lawyer. Commissioner Criner asked for options, 18 and that's a clean option. 19 COMMISSIONER WHITAKER: So then, you'd 20 be in a position to make your own legal 21 interpretation of this provision, or if you're 22 uncomfortable that you might be wrong, then you can 23 simply file an appeal by the 22nd, assuming we met 24 on the 8th, which we might not. I mean, we'd just 25 have to deal with it at that time. Is that a fair WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 83 1 approach? Would you be comfortable with that? 2 MR. SCOTT: Well, in light of the last 3 possibility, if you were to rule that we were 4 entitled to a Rehearing, of course, like that, it's 5 on the record that the Heart of Texas did not have 6 counsel and they were acting pro se. So in light of 7 that, of course, we would love that. But if you're 8 not prepared today to rule on that matter, the next 9 option would be the latter. 10 COMMISSIONER WHITAKER: Okay. And 11 you'd accept either one. You'd prefer the first and 12 you'd accept the second. 13 MR. SCOTT: Yes. 14 (Chairman Clowe enters the meeting.) 15 COMMISSIONER WHITAKER: Commissioner 16 Clowe, we're trying to set the next Commission 17 meeting, and would the 8th work for you, of 18 January? 19 MS. TREVINO: There's a Council for 20 Competitive Government meeting on January 8th. 21 COMMISSIONER WHITAKER: And that would 22 be from when to when? 23 MS. TREVINO: It would begin at 2:00 24 o'clock. 25 COMMISSIONER WHITAKER: Commissioner WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 84 1 Clowe, the Council for Competitive Government 2 Hearing is at 2:00 so we need to consider 3 whether -- 4 CHAIRMAN CLOWE: I believe the 8th is 5 good for me. 6 COMMISSIONER WHITAKER: So do you want 7 to agree right now to the 8th as the next Commission 8 meeting? 9 CHAIRMAN CLOWE: Are you setting that 10 relative to the issue that you were working on? 11 That's fine with me. 12 MS. KIPLIN: I need to just have the 13 record reflect that it's 10:10 and Chairman Clowe 14 just walked in the room. He has not been listening 15 to the discussion that has occurred on this matter 16 prior to that time. 17 COMMISSIONER WHITAKER: Let me just 18 state, just so we've had a thorough discussion, 19 Commissioner Criner, are you interested in hearing 20 arguments from counsel as to whether we should just 21 grant the Motion for Rehearing today? 22 COMMISSIONER CRINER: If we can't 23 agree to what's a good time to let everybody be 24 prepared and do a defense, then I'll hear it today, 25 but I'd like everybody to have an opportunity to be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 85 1 prepared. 2 COMMISSIONER WHITAKER: Well, are 3 you -- the specific issue is whether we want to 4 explore the option that Ms. Kiplin just mentioned to 5 us, and that is to go ahead and -- state it again. 6 MS. KIPLIN: Commissioner Criner, you 7 asked for options. One option that perhaps would 8 avoid all these issues with regard to no notice and 9 timing on the Motion for new Hearing, would be to 10 simply grant the Motion for a Hearing today and 11 remand it back to the State Office for 12 Administrative Hearings for the taking of additional 13 evidence and argument. 14 COMMISSIONER WHITAKER: And out of 15 deference to Ms. Wilkov, I'd like to ask her to 16 respond to that. What Mr. Scott's argument is, is 17 that these -- the Heart of Texas Black Chamber of 18 Commerce was not represented by counsel, that he 19 believes that with the aid of counsel, that they 20 will be able to bring forth additional evidence for 21 the benefit of the Administrative Judge, and that if 22 we are persuaded by that, then we could, based on 23 that reason alone, go ahead and grant the Motion. 24 I did want to ask Ms. Wilkov to 25 respond to that. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 86 1 MS. KIPLIN: And it doesn't eliminate 2 the record that's already been created, it would 3 just be an additional part of the record that would 4 come back from the Court. 5 COMMISSIONER CRINER: So we could hear 6 it right now. 7 COMMISSIONER WHITAKER: We could. And 8 I want to give her the chance to respond just 9 because I think it's the courteous way to do it. 10 Go ahead. 11 (Chairman Clowe leaves the meeting.) 12 MR. BLEDSOE: If I might ask you a 13 question. Under the recommendation that you're 14 making, what would be the latitude of the 15 Administrative Law Judge at that point, simply to 16 receive additional evidence, or would there be any 17 authority to take any different action from what was 18 taken before? 19 MS. KIPLIN: Well, it would go back 20 to -- of course, my advice goes to the 21 Commission -- but it would -- it depends on how 22 they structure -- if they chose to enter an Order 23 granting the Motion for Rehearing and remanding it 24 back, it would depend on how they would structure 25 it. It doesn't negate the record that's been made. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 87 1 There's been a record -- I understand about eight 2 to nine hours of testimony and documentary evidence 3 entered into it. It would be adding onto that 4 record. And it would be how they would want to 5 construe it. 6 I'm aware of one matter where it was 7 remanded back, and it was for the taking of further 8 evidence, additional evidence, and for argument. 9 And then what would happen is there would be another 10 Proposal for Decision that would be issued, another 11 opportunity for exceptions and replies, another 12 opportunity for a Motion for Rehearing and reply, 13 and so forth, depending, of course, on the matter. 14 The Administrative Law Judge is the 15 trier of fact so the Commission isn't in a 16 position -- and I hated to cut Commissioner Criner 17 off, but I recognize he's not a lawyer, and the 18 Commission is not in a position of hearing evidence 19 today that's not part of the record, because it's 20 not the record. 21 COMMISSIONER WHITAKER: But if we send 22 it back, the Administrative Judge is in a position 23 to take additional evidence, and then based on that, 24 arrive at either the same decision or a different 25 decision. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 88 1 MS. KIPLIN: That is correct. That is 2 correct. And it will eventually come back before 3 the Commission. 4 COMMISSIONER WHITAKER: Okay. Ms. 5 Wilkov, 30 seconds or less, if you could tell me why 6 you'd object to our doing that. 7 MS. WILKOV: Well, Your Honor, I would 8 just point out that I don't believe that there 9 should be a double standard as far as having a 10 lawyer or not having a lawyer. If you don't have a 11 lawyer and don't like the outcome and you come forth 12 with a Motion for Rehearing and ask for a new 13 Hearing for new additional evidence, and you're 14 treated that way, but if you do have a lawyer at the 15 Hearing and you decide that you don't like the 16 outcome, well, you're just stuck with the outcome, 17 because you can't come before the Commission and 18 argue, I didn't have a lawyer, and I would have 19 gotten this out differently, or it would be a 20 different outcome had I had a lawyer. 21 And the logical conclusion of that is 22 if you don't like the outcome and you don't like the 23 lawyer, you come forward and ask for another 24 opportunity to get a different lawyer. And also, 25 that I just raised the position that she had an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 89 1 opportunity to get a lawyer. It's on our notice, 2 and she chose not to. 3 COMMISSIONER WHITAKER: My response 4 would be, in looking at the specifics of the type of 5 claim and the type of rulings of the Administrative 6 Judge, that it appears to me that there very well 7 could be additional benefits to be obtained from 8 having counsel under these particular 9 circumstances. I do so only in a fact by fact and 10 case by case basis. 11 Ms. Kiplin, would you state the Motion 12 for us. 13 MS. KIPLIN: Sure. Another option. 14 Commissioner Criner did ask for options. I don't 15 think -- 16 COMMISSIONER WHITAKER: Let's go with 17 that option. 18 MS. KIPLIN: I think that one of you 19 would make a Motion to grant the Motion for 20 Rehearing by the respondent, and you would remand it 21 back to the State Office of Administrative Hearings 22 for the taking of additional evidence and the 23 hearing of additional argument. Now, you can limit 24 your scope -- you know -- if you're so inclined to 25 do, on particular points that have been raised in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 90 1 the Motion for Rehearing in the exceptions, or you 2 can leave it at that rod. It's really within your 3 complete discretion how you wish to proceed. 4 COMMISSIONER WHITAKER: Is there a 5 Motion? 6 COMMISSIONER CRINER: I want to leave 7 this real broad, because I think that to go before 8 the Administrative Law Judge without counsel was a 9 mistake, but at the same time, I understand how 10 charities operate and how they try to struggle and 11 make ends meet. 12 COMMISSIONER WHITAKER: Is there a 13 Motion? 14 COMMISSIONER CRINER: The Motion is 15 that we remand this back to the Administrative Law 16 Judge for as open an opportunity as the Chamber can 17 -- 18 MS. KIPLIN: So your Motion is to 19 grant the Motion for Rehearing -- 20 COMMISSIONER CRINER: For Rehearing. 21 MS. KIPLIN: -- and remand it back to 22 the State Office of Administrative Hearings -- 23 COMMISSIONER CRINER: Yes. 24 MS. KIPLIN: -- for the taking of 25 additional evidence and the hearing of additional WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 91 1 argument? 2 COMMISSIONER CRINER: Yes. 3 COMMISSIONER WHITAKER: I second. All 4 in favor, say "aye". 5 (The Commissioners answer "aye".) 6 COMMISSIONER WHITAKER: Opposed, say 7 "no". 8 It's two to zero. 9 MS. KIPLIN: Okay. And then I would 10 like for the attorneys to get together and prepare 11 an Order and have that before the close of the 12 business today for the Commission. I'd like, as 13 their counsel, to be able to review it and give them 14 advice on whether it is consistent with their vote 15 today. 16 Now, I will also caution everybody, 17 while we're here, this continues to be a live, 18 contested case matter. So therefore, Commissioners, 19 you cannot engage in what would be considered to be 20 a communication without both parties being present 21 and an opportunity to be heard. 22 COMMISSIONER WHITAKER: I want to 23 thank the parties and counsel for coming for us 24 today. 25 MR. SCOTT: Thank you very much. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 92 1 COMMISSIONER CRINER: Will everybody 2 get a copy of this? 3 MS. KIPLIN: They'll get a copy of 4 this Order, Commissioner, and they'll get it by 5 return receipt. That's the way they got it the last 6 time. And when the Hearing date is set, that will 7 go out by notice of certified mail, return receipt, 8 as well. 9 COMMISSIONER CRINER: Thank you. 10 MS. KIPLIN: And that will be pursuant 11 to the Administrative Procedure Provisions that do 12 provide for 10 days notice. 13 (Chairman Clowe returns to the 14 meeting.) 15 CHAIRMAN CLOWE: Thank you for being 16 the presiding officer. 17 MS. KIPLIN: And Commissioner Clowe, I 18 don't know if you were in the room, but I would also 19 caution you that this continues to be a live 20 proceeding. You have recused yourself, and so I 21 want to make sure that you know that this continues 22 be a live proceeding. 23 CHAIRMAN CLOWE: I thank you for that 24 information, and will conduct myself accordingly. 25 We are now ready to move into WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 1 executive session, if there's no further business on 2 the agenda items that we have covered. 3 At this time I move the Texas Lottery 4 Commission go into executive session to deliberate 5 the duties, evaluation of the Executive Director, 6 Internal Auditor, and Charitable Bingo Operations 7 Director, pursuant to Section 551.074 of the Texas 8 Government Code, to deliberate the duties of the 9 General Counsel and Security Director, pursuant to 10 Section 551.074 of the Texas Government Code, to 11 receive legal advice regarding pending or 12 contemplated litigation and/or to receive legal 13 advice pursuant to Section 551.071 (1) (A) or (B) of 14 the Texas Government Code and/or to receive legal 15 advice pursuant to Section 551.071 (2) of the Texas 16 Government Code, including but not limited to: TBFV 17 Group, Inc. versus Texas Lottery Commission, Retired 18 Sergeant Majors' Association, et al versus Texas 19 Lottery Commission, et al, contract regarding the 20 Charitable Bingo System employment law, personnel 21 law, procurement and contract law and general 22 government law. 23 Is there a second? 24 COMMISSIONER CRINER: There's a 25 second. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 94 1 CHAIRMAN CLOWE: All in favor, say 2 "aye". 3 (The Commissioners answer "aye"). 4 CHAIRMAN CLOWE: The vote is three, 5 zero. Texas Lottery Commission will go into 6 executive session. The time is 10:21 a.m. Today is 7 December 4, 2001. 8 (The Commissioners go into executive 9 session at 10:21 a.m.) 10 (The Commissioners return from 11 executive session at 1:38 p.m.) 12 CHAIRMAN CLOWE: The Texas Lottery 13 Commission is out of executive session. The time is 14 1:38 p.m. 15 Is there any action to be taken as a 16 result of the executive session? 17 I believe, in fact, there is. And 18 that's on the agenda, consideration of and possible 19 discussion and/or action on the Internal Auditor 20 interim evaluation, Item Number 12. Is there a 21 Motion? 22 COMMISSIONER WHITAKER: I move that we 23 approve it, with the attachment that Ms. McLeod 24 added, and with our comments regarding that 25 attachment. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 95 1 CHAIRMAN CLOWE: Second? 2 COMMISSIONER CRINER: Second. 3 CHAIRMAN CLOWE: All in favor, please 4 say "aye". 5 (The Commissioners answer "aye"). 6 CHAIRMAN CLOWE: Oppose, no. 7 The vote is three, zero, in favor, and 8 I am dating that as of today and signing it as of 9 today, and will pass to it the Commissioners for 10 their signatures. 11 And now, Ms. Kiplin, if you're ready, 12 I think we'll go to Item Number 13, which is various 13 cases to be considered by the Commission. 14 MS. KIPLIN: Commissioners, what you 15 have before you are Lottery Commission Orders. You 16 also have an Agreed Order in Bingo. You have the 17 matter you heard today. I've been handed the -- 18 that matter being the Heart of Texas Black Chamber 19 of Commerce. Commissioner Clowe, you recused 20 yourself on that. I have the Order in front of me. 21 I haven't had a chance to review it. We also have 22 another Motion for Rehearing in Maverick Boys & 23 Girls Club. 24 What I'd like to do, if you don't 25 mind, is take up the Lottery Commission Orders WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 96 1 first. Those orders are all Proposals for Decision 2 and recommended Orders to revoke the licenses for 3 insufficient funds, as provided by the Lottery Act. 4 And so what the staff would be looking for and 5 recommending is that you vote to adopt the Proposal 6 for Decision and the recommended Order by the -- 7 proposed by the ALJ, Administrative Law Judge. 8 COMMISSIONER CLOWE: And would you 9 identify those cases for the Commission, please. 10 MS. KIPLIN: Flowermound Beer & Wine, 11 McBrides Supermarket, Do Whop, Cedar Store #2, Cedar 12 Store #1. 13 COMMISSIONER CLOWE: Is there a 14 Motion? 15 COMMISSIONER CRINER: So move. 16 COMMISSIONER CLOWE: Second? 17 COMMISSIONER WHITAKER: Second. 18 COMMISSIONER CLOWE: All in favor, 19 please say "aye". 20 (The Commissioners answer "aye"). 21 COMMISSIONER CLOWE: Opposed, no. 22 The vote is three, zero, in favor. 23 MS. KIPLIN: Commissioner, you also 24 have a Motion for Rehearing in Maverick Boys & Girls 25 Club. If I could just give you a little bit of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 97 1 background, I think in the interest of time. This 2 was a matter in which the organization failed to 3 timely file an application to renew its license. 4 And if you'll recall, consistent with the outcome of 5 the TNT litigation, we gave them an opportunity to 6 request a Hearing, and they did. 7 The Administrative Law Judge found 8 that they did not timely file their renewal 9 application, and you-all entered an Order upholding 10 the denial of that renewal application for failure 11 to have timely filed it. 12 I filed a Motion for Rehearing. I 13 have to say I'm hesitant to actually hold it out as 14 a Motion for Rehearing because it does not comport 15 with the standards and requirements of the 16 Administrative Procedure Act, but it's entitled that 17 so I want to give the respondent as much credit as 18 possible. 19 This is an odd situation because, with 20 organizations that miss the deadline on a renewal 21 application, there is a cure, and that is to file an 22 original application on another license in the end. 23 It's not as significant as it was in the TNT 24 litigation because that was a grandfathered 25 commercial, that sort of license that was at issue, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 98 1 and if they had not been able to renew that, the 2 change in law would have affected their ability to 3 conduct their business as they had before. But this 4 is just a situation where they didn't file an 5 original application and meet the license 6 requirements. 7 The staff is recommending that you go 8 ahead and overrule the Motion for Rehearing and move 9 forward with the case on that matter. And the last 10 one is the Agreed Order between the Bingo Division 11 and -- I think the name of the organization is 12 American Games, Inc. 13 CHAIRMAN CLOWE: Is there anyone 14 present to speak for the Maverick Boys & Girls Club 15 of Amarillo? 16 MS. KIPLIN: Oh, I'm sorry. I missed 17 one. 18 CHAIRMAN CLOWE: We'll get back to 19 that. 20 There is no respondent representing 21 that group. And they filed nothing. Is that -- 22 MS. KIPLIN: They flip-flopped. First 23 they said they wanted to withdraw, and then they 24 wanted to go forward. I guess I'm puzzled, just in 25 having looked at these issues before, about why this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 99 1 went as far as it did in terms of a denial on a 2 renewal application, when there's the ability to 3 file the original application. 4 MR. ATKINS: The letter that Ms. 5 Kiplin is referring to is dated November 8, 2001, 6 and it's that letter that staff, in an overabundance 7 of caution, took to be the request for a Rehearing. 8 You know, it doesn't say that -- you know -- we 9 want a request for a Rehearing. As Ms. Kiplin said, 10 subsequent to this letter they sent in another 11 letter saying, we want to withdraw our request. 12 They sent in another letter saying, no, we didn't 13 want to request that. 14 So as Kim said, it's been kind of back 15 and forth. 16 COMMISSIONER CLOWE: Commissioners, 17 what is your pleasure? 18 COMMISSIONER WHITAKER: Well, we can 19 put it up for a vote -- 20 MS. KIPLIN: Staff recommends that you 21 do a Motion for a Rehearing. 22 COMMISSIONER CRINER: So moved. 23 CHAIRMAN CLOWE: Is there a second? 24 COMMISSIONER WHITAKER: Second. 25 CHAIRMAN CLOWE: All in favor, please WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 100 1 say "aye". 2 (The Commissioners answer "aye"). 3 CHAIRMAN CLOWE: The vote is three, 4 zero, in favor. I believe your Motion included both 5 items; is that correct, Commissioner Criner? 6 COMMISSIONER CRINER: Yes. 7 CHAIRMAN CLOWE: Letter H and Letter 8 I, a Rehearing in the Maverick Boys & Girls Club of 9 Amarillo and In the Matter of American Games, Inc. 10 COMMISSIONER CRINER: Correct. 11 CHAIRMAN CLOWE: Then I believe we 12 have one item that is yet to be acted on, and that's 13 Letter F. Is that not correct? 14 MS. KIPLIN: That's correct. And I'm 15 sorry for the oversight. That's AMVETS Post 45. 16 This is a Proposal for Decision that does recommend 17 revocation of the charity's license. It was for 18 failure to file quarterly reports, delinquencies, 19 and price fees, and the failure to post additional 20 bond. 21 I'm not aware of any exceptions being 22 filed by this organization at all, and staff 23 recommends that you vote to approve the 24 Administrative Law Judge's Proposal for Decision and 25 recommended Order. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 101 1 COMMISSIONER WHITAKER: So moved. 2 COMMISSIONER CRINER: Second. 3 CHAIRMAN CLOWE: All in favor, please 4 say "aye". 5 (The Commissioners answer "aye"). 6 CHAIRMAN CLOWE: Vote is three, zero, 7 in favor. 8 I believe that concludes all of the 9 cases, does it not? 10 MS. KIPLIN: It does, with the 11 exception of the Heart of Texas Black Chamber of 12 Commerce, and I will address my comments to 13 Commissioner Whitaker, Commissioner Clowe, because 14 you recused yourself. 15 And I would appreciate it if you 16 wouldn't mind moving on to another item and give me 17 the opportunity to review this, and make sure it's 18 consistent with the vote -- 19 CHAIRMAN CLOWE: Certainly. We are 20 now going to Item 14, Report by the Executive 21 Director, and/or possible discussion and/or action 22 on the agency's financial and operational status, 23 legislative briefings, HUB and/or minority status, 24 FTE status, and retailer forums. Ms. Cloud. 25 MS. CLOUD: Commissioners, I want to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 102 1 make you aware -- as you know, Mike Hickock's last 2 day was last Friday, November 30th. He's retired. 3 And in his place is Acting Director Joe Franco, and 4 I just wanted to make sure you-all three were aware 5 of that. Joe, for the purpose of the agency as a 6 whole, he is now the Acting Security Director until 7 such time as the position has been posted -- it has 8 been posted, we do have applications in, and the 9 screening process is going on. So until someone is 10 hired in that position, Joe is our Security 11 Director. 12 CHAIRMAN CLOWE: Joe, we're happy to 13 have you in that position. If any of us can help 14 you in any way, please call on us. 15 MR. FRANCO: Thank you. 16 MS. CLOUD: Moving on to the financial 17 report, we transferred $67,115,622.00 in the 18 foundation school fund on November 15th, making a 19 total transfer back to the state since inception of 20 the Lottery, 8,865,399,021. 21 Under our HUB Report, Robert doesn't 22 have anything new. The report you have in here was 23 in your last Commission notebook, but if you have 24 questions of him, he is in the room and will be glad 25 to come up to the desk and answer your questions. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 103 1 CHAIRMAN CLOWE: I don't think the 2 Commissioners have any questions. 3 Thank you, Robert. 4 MS. CLOUD: On the FTE status, we have 5 313 active FTEs. We have one in this selection, 6 acceptance pending. We have nine positions in the 7 recruiting, screening, and interviewing process. We 8 have no positions at this time being posted and we 9 have nine vacant positions with no HR activity. 10 CHAIRMAN CLOWE: I believe we have one 11 in internal audit posted. 12 MS. CLOUD: Yes. Well, that may be 13 one since this report was written up. This report 14 was given to us when your notebooks went out, so it 15 could be that that has been in since that time. 16 CHAIRMAN CLOWE: We had one position 17 posted for -- what is that title, Debra? 18 MS. MC LEOD: Senior Auditor. 19 CHAIRMAN CLOWE: Very good. 20 MS. CLOUD: Under retailer forums, I 21 shared with you last time that our retailer forums 22 will not start back until January. 23 Commissioners, I had discussion 24 yesterday with the Counsel on Competitive 25 Government. They called me to ask questions, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 104 1 clarify the direction the agency intended to go on a 2 recommendation made by the Moss Group. We discussed 3 their report and how they intended to address that 4 issue in their report. We also had a discussion 5 about the studio. We had a disagreement about how, 6 really, it's looked at as to how we pay for the 7 studio. We pay for the studio out of tenant 8 improvement dollars that we negotiated back when we 9 renewed the lease the first time around. 10 To them, that is agency money, and 11 they don't look at that as being tenant dollars, 12 they look at that as being money that would go back 13 to the state if we didn't use it. So we had a 14 little bit of a discussion about that, in the way we 15 look at it and the way they looked at it. They 16 agreed that we had a very low rate on our per square 17 foot rate in the lease of this building, so -- and 18 I argued the point that it would be a perception, if 19 it was presented the way they were planning to 20 present it to the leaders, that would get the 21 message that we -- because they were planning on 22 stating that we misquoted what the savings would be 23 the first year, because they're adding in the cost 24 of the studio. And so I -- if I have the 25 opportunity to give our side of the story, I will. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 105 1 And it certainly -- I understand 2 where they're coming from, but in order for the 3 money to go back to the state, it would be at the 4 end of the lease term if we didn't spend the money. 5 So it is not coming out of our 7 percent 6 appropriation. So this is kind of the side of the 7 discussion that we had yesterday. 8 They plan to call me again in the next 9 two or three days to discuss other issues that are 10 going into their report, which I appreciate them 11 doing, and I told them I'd be available when they 12 make those calls. So that's where we are. 13 CHAIRMAN CLOWE: So if I understand 14 what you told us correctly, what they are intending 15 to report, unless you prevailed in your position, 16 was that the first year costs of the production 17 studio would be that amount which was the allowance 18 from the lessor for the cost of the production 19 studio. 20 MS. CLOUD: Right. 21 CHAIRMAN CLOWE: And that they 22 perceive as a return to the State. 23 MS. CLOUD: They perceive that had we 24 not used the build-out allowance, it would have been 25 returned to the State. So as far as they're WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 106 1 concerned, we spent that money that should be added 2 to the cost of operating the studio. 3 CHAIRMAN CLOWE: So was that provision 4 in the contract, that if you didn't use the tenant 5 build-out allowances, that there would be a return 6 to the State of a certain amount of money? 7 MS. CLOUD: I'm not sure if Gary's in 8 the room. 9 MR. GRIEF: Yes. 10 MS. CLOUD: Gary can answer that 11 better than I can. 12 MR. GRIEF: For the record, my name is 13 Gary Grief, Director of Lottery Operations. In 14 answer to your question, Mr. Chairman, yes, sir, 15 that is present in our lease contract. 16 CHAIRMAN CLOWE: That an amount of 17 tenant build-out not used would be refunded to the 18 State. 19 MR. GRIEF: It would be given back to 20 us in the form of rent credit at the end of the 21 lease term. 22 CHAIRMAN CLOWE: How much was the 23 total tenant build-out allowance, Gary? 24 MR. GRIEF: I don't have my documents 25 with me. I'm thinking somewhere in the neighborhood WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 107 1 of $400,000. 2 CHAIRMAN CLOWE: And which contract 3 term are we talking about here? 4 MR. GRIEF: We had an initial three 5 year term when we moved into this building, and we 6 had an amount of tenant improvement dollars there, 7 and then when we renewed that in -- I think the 8 year 2000, we acquired an additional amount of 9 tenant improvement, and we have just recently signed 10 another extension which puts us through 2010, I 11 believe. We have tenant improvement dollars in that 12 lease as well. 13 In all of those scenarios, if my 14 memory serves me correctly, whatever dollars we 15 don't spend on tenant improvement will be given back 16 to us in the form of credit at the end of the 17 lease. 18 CHAIRMAN CLOWE: And how much money 19 did the production studio cost us? 20 MS. CLOUD: Right around $400,000. 21 CHAIRMAN CLOWE: It went basically to 22 the tenant build-out? 23 MS. CLOUD: Right. Every penny of it 24 went to the tenant build-out for the studio. Now, 25 they did say that after that, every year thereafter, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 108 1 we would be saving what we said we would be saving 2 to the State. But my concern was the perception 3 that having used a tenant build-out, it did not come 4 out of our appropriations, and that that in effect 5 was not an expense to the agency. We did not -- in 6 my mind, I had no intention of deceiving the 7 Legislature by saying that we were going to be using 8 the tenant build-out. 9 MR. GRIEF: When we negotiated in 10 those tenant improvement dollars back in 2000, we 11 had no idea that the studio would be coming inhouse 12 at the time, and no plan at that time to put that 13 money towards our studio. Our intent all along, as 14 it was from the very first lease that was signed to 15 the second -- to the first extension, to the second 16 extension, was to use that money as needed to build 17 out various parts of this building to meet our 18 program needs. 19 And this is the first time that I've 20 ever heard a examination of that money being looked 21 at in the way that Linda has just laid out for you. 22 We have spent money all along towards those needs, 23 just as we did with the studio, and it's never been 24 a question before. 25 MS. CLOUD: I explained that. I also WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 109 1 explained that we have used the tenant build-out 2 dollars for our lab, and how we pulled a contract 3 down and how we saved money by doing that. 4 CHAIRMAN CLOWE: Gary, if you know -- 5 and if you don't, Bart, maybe you can answer this 6 question -- what is the accounting treatment for the 7 refund of the tenant build-out allowance at the 8 conclusion of the term, when that money comes back 9 to the Commission? 10 MR. GRIEF: I would have to defer to 11 Bart on that. 12 CHAIRMAN CLOWE: Bart, can you answer 13 that for us, please. 14 MR. SANCHEZ: Sir, from just what I've 15 heard, if the money is coming back as a reduction of 16 rent, then it's a credit. Your rent expense is not 17 going to be any higher, so it's basically an offset. 18 CHAIRMAN CLOWE: They don't write a 19 check for it, but how do they give us the credit, 20 and how do we book it? 21 MS. CLOUD: We reduce that last 22 month's rent by the amount of the tenant improvement 23 dollars that we did not use. If we're going to move 24 out of this building at the end of the lease and we 25 have not spent those tenant dollars, that last WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 110 1 month's rent would be reduced by that amount. 2 MR. SANCHEZ: Yeah, I would probably 3 have to do more research of the actual entry. 4 CHAIRMAN CLOWE: I think this 5 allowance exceeds one month's rent. 6 MR. SANCHEZ: Yeah, it does, but over 7 the overall, the annual rent, whenever the money is 8 supposed to be credited to us, which is at the end 9 of the lease term, then those moneys would be 10 applied for that fiscal year, the reduction of rent 11 expense. 12 MR. GRIEF: If I could, Commissioners, 13 my thoughts on that are, as we've worked through 14 negotiating and renegotiating these lease extensions 15 over time, our thought has been that sometime around 16 six months prior to the termination of our last 17 extension we would need to sit down with our 18 landlord and see where we were at that time -- 19 CHAIRMAN CLOWE: That's the way we can 20 do it. 21 MR. GRIEF: Right. Our lease costs 22 right now are approaching $200,000 a month for this 23 facility -- they will, by the time we reach the 24 last extension. So we're looking, at most, possibly 25 two months of rent credit there. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 111 1 CHAIRMAN CLOWE: So what you do is you 2 just sit down and you credit it over what period of 3 time you need to take it to wipe it out in the 4 current term? 5 MR. GRIEF: Yes, sir. 6 COMMISSIONER CRINER: What's the 7 termination acknowledgment? If we were going to 8 move out of this building, when would we have to let 9 them know? If we're not going to renew our lease, 10 how soon do we have to let them know? 11 MR. GRIEF: Commissioner Criner, not 12 having the lease document in front of me, I'm not 13 certain, but I'm guessing 60 days notice. Does that 14 sound about right to you? 15 MS. CLOUD: Yes, I think so. And you 16 got a contract through 2010. 17 COMMISSIONER CRINER: What I'm 18 thinking is that what Commissioner Clowe is reaching 19 for, is that if we decide we're going to move out 20 next month and we've got two month's worth of rent 21 coming so there should be a -- I guess what we're 22 trying -- when do we have to let them know so that 23 we can take advantage of using that money? 24 MR. GRIEF: I guess my response to 25 that, Commissioner, we do have a lease through 2010, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 112 1 and if we were to decide to move out next month, I'm 2 sure there would be some -- 3 COMMISSIONER CRINER: I mean, if we're 4 going to move out in 2010, but we're going to move 5 out two months earlier or three months earlier, I 6 guess, when do we have to tell them we're moving? 7 That's the point I'm trying to get at. 8 MS. KIPLIN: If you want, I can have 9 my staff go get the lease and we can take a look at 10 it. Right offhand, I don't remember the timing. 11 CHAIRMAN CLOWE: Well, I think it 12 depends on how much the tenant build-out allowance 13 is, applicable against the monthly rental rate. I 14 guess, really, where I was headed was the philosophy 15 that the CCG has adopted there that you were trying 16 to modify in your conversations with them. And 17 that's an interesting problem to work through. 18 What's the current build-out allowance, Gary? 19 MR. GRIEF: We've got an additional 20 500,000 with our latest renewal option. And 21 Commissioners, our intent all along, based on 22 our history as an agency, it seemed the new programs 23 that have come along over the years, we've never 24 envisioned having any of those tenant improvement 25 dollars left over at the termination of the lease. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 113 1 That was put in there in the lease as a safety net, 2 in the event that that situation occurred. 3 But our experience has shown that 4 changes to Legislature and new programs that are 5 assigned to the Lottery Commission, we seem to 6 always have a need for those type of tenant 7 improvement dollars to make the necessary changes to 8 this facility to accommodate those needs. 9 CHAIRMAN CLOWE: Have we always used 10 the allowance in every case? 11 MR. GRIEF: Yes, sir. 12 CHAIRMAN CLOWE: To my 13 recollection -- I don't have a lease document in 14 front of me, either, but my recollection is it's a 15 very favorable lease rate for what I consider to be 16 excellent quarters for this agency. 17 MS. CLOUD: And they concurred with 18 that, because I brought that up. 19 CHAIRMAN CLOWE: Well, I -- you know, 20 my recollection is that Commissioner Sadberry and I 21 voted for the last renewal. Commissioner Meyers 22 excused herself from that issue due to a possible 23 conflict of interest. I thought then and I think 24 now that the lease rate is very favorable. 25 I understand the issue. I just wanted WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 114 1 to get some clarification in my mind about the 2 interpretation of those moneys and whether they can 3 be viewed as a loss and therefore a cost to the 4 state, or where they were a negotiated benefit that 5 had been and is currently used under practice the 6 Commission follows in maintaining and making these 7 facilities comfortable for the work of the agency. 8 And I think there has been some 9 discussion of some remodeling in this room, for 10 example, which would go to those allowances and be 11 covered by that expense, with no cost to the State, 12 over and beyond the negotiated rate. 13 MS. CLOUD: To include your -- to 14 include the audio system in here, which we have 15 serious problems with. 16 MR. GRIEF: One final comment, 17 Commissioners, in hindsight. There are -- a 18 typical lease is drawn up where you have these 19 tenant improvement dollars, and if they're not 20 utilized, they're forfeited. That's normally the 21 way it goes. So we really thought that we were 22 doing what was best for the State and for the 23 Lottery Commission by twisting the arm of our 24 landlord and putting that clause in the lease to 25 make sure that we got credit back for any of these WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 115 1 tenant improvement dollars that weren't going to be 2 used. So that was at our request. 3 CHAIRMAN CLOWE: I would tend to agree 4 with that, Gary. I think if you did that job in 5 negotiating that contract, that was an excellent 6 piece of work. All of the contracts that I'm 7 familiar with, if you don't use it, you lose it. 8 And then to have that provision is an excellent 9 piece of negotiation and a benefit. I think it's 10 given rise to the interpretation that the CCG has 11 put on this issue, which is an unusual provision in 12 a lease contract. 13 MS. CLOUD: Well, one of the 14 things -- the statement that was made was that 15 other state agencies don't negotiate contracts with 16 leasehold improvements in it, with -- 17 MR. GRIEF: Tenant improvement -- 18 MS. CLOUD: -- tenant improvement 19 dollars in it. And I said, the Lottery's done a 20 really good job of negotiating this contract, and he 21 said, I agree. 22 CHAIRMAN CLOWE: Well, thank you for 23 this discussion. It's been very helpful to me. Any 24 other comments or questions? 25 MS. CLOUD: That concludes my report. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 116 1 CHAIRMAN CLOWE: Very good. We're 2 ready to go to Item 15, Report by the Charitable 3 Bingo Operations Director and possible discussion 4 and/or action on the Charitable Bingo Operations 5 Division's activities. 6 MR. ATKINS: Commissioners, I didn't 7 have anything to add to the report that's contained 8 in your notebook, but I'd be happy to respond to any 9 questions you may have. 10 CHAIRMAN CLOWE: Are there any 11 questions or comments? 12 Billy, I think it's the sense of the 13 Commission -- and I want to express it on the 14 record -- that we're very pleased with the progress 15 that the Charitable Bingo Division is making. We 16 liked your presentation that you made this morning. 17 We think the operator training program is an 18 excellent program that's going to do a good job. 19 You're in the process now of pursuing that, I 20 think. You have some other issues that are 21 open-ended that you're working on, and we're 22 appreciative of the progress that you're making in 23 that area. 24 MR. ATKINS: Thank you. 25 CHAIRMAN CLOWE: Next item is Number WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 117 1 16, public comment. Is there anyone wishing to make 2 comment to the Commission at this time? 3 Seeing no one, we'll go to the next 4 item, which is adjournment. 5 MS. KIPLIN: Before we do that, would 6 you mind if I take up the matter of the signing of 7 the Order in the Heart of Texas? 8 CHAIRMAN CLOWE: Yeah. Would you like 9 for me to physically remove myself while you -- 10 MS. KIPLIN: They've already made 11 their vote. If you'll just make a point of 12 indicating that you are not signing this Order. 13 CHAIRMAN CLOWE: I am not signing the 14 Order, and I am in fact not involved in this issue. 15 MS. KIPLIN: And you're not 16 participating in the discussion we're about to have. 17 CHAIRMAN CLOWE: You can direct your 18 comments to Commissioner Whitaker and Commissioner 19 Criner. 20 MS. KIPLIN: Commissioner Whitaker and 21 Commissioner Criner, I have an Order of the 22 Commission that does grant the Motion for Rehearing, 23 and I talked to the staff attorney because my 24 recollection was different -- and I think others 25 may disagree -- and the language that matters is, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 118 1 furthermore, it is the Order of the Texas Lottery 2 Commission that this case is remanded to the State 3 Office of Administrative Hearings -- this is the 4 important language -- for all purposes related to 5 this matter. 6 What I thought the Motion was, was to 7 receive further evidence and argument. And I think 8 that was the Motion, and I see Commissioner Whitaker 9 is nodding her head affirmatively. So I wanted to 10 make sure we had it on the record. 11 We did try to get ahold of Mr. Scott, 12 who did approve this to form -- not substance, of 13 course, because you've already made your vote. And 14 I just wanted to make sure that we had an Order that 15 was consistent with your Motion and your vote. 16 So the one that will be signed is the 17 one that reads, furthermore, it is the Order of the 18 Texas Lottery Commission that this case is remanded 19 to the State Office of Administrative Hearings, to 20 receive further evidence and argument. 21 That's consistent with your vote 22 today? 23 COMMISSIONER WHITAKER: Yes. 24 MS. KIPLIN: Let me submit to you -- 25 this shows already that Commissioner Clowe has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 119 1 recused himself, and it's entered as recused. 2 CHAIRMAN CLOWE: Is there any further 3 business to come before the Commission? 4 I would like to say one more thing 5 before we adjourn in this December meeting. We are 6 approaching the holidays, and we wish everyone the 7 best of this holiday season, and a healthy and happy 8 next year, 2002. We would like to urge all 9 employees of the Commission to enjoy themselves, but 10 be cautious about holiday driving, and certainly, be 11 very conservative about your personal habits. It's 12 a time when people celebrate, and you need to drive 13 defensively and be very cautious. If you're 14 traveling, be careful on the highways and get to the 15 airport early so that you don't have any congestion 16 problems. 17 We look forward to seeing all of you 18 back here at our January meeting, which is, I 19 believe, January the 8th at 8:30 a.m. 20 With that, this Commission is 21 adjourned. Thank you all very much. 22 (The Commission meeting was adjourned 23 at 2:05 p.m.) 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 120 1 REPORTER'S CERTIFICATE 2 I, MARY ANGELA FREEMAN, Certified Court Reporter 3 for the State of Texas, do hereby certify that the 4 facts stated by me of the caption hereof are true; 5 that I did, in shorthand, report said proceedings, 6 and that the above and foregoing typewritten pages 7 contain a full, true and correct computer-aided 8 transcription of my shorthand notes taken on said 9 occasion. 10 $_____________ is the charge for the preparation 11 of the completed transcript and any copies of 12 exhibits attached thereto, charged to the Texas 13 Lottery Commission; 14 I further certify that I am not in any capacity 15 a regular employee of the party in whose behalf 16 these proceedings were taken, nor in the regular 17 employ of any attorney of record; and I certify that 18 I am not interested in the cause, nor related to 19 counsel or either of the parties. 20 WITNESS MY HAND this the _____ day of 21 __________________________, 2001. 22 ______________________________ 23 MARY ANGELA FREEMAN, CSR No. 1168 Expiration Date: 12-31-01 24 WRIGHT WATSON STEN-TEL 1609 Shoal Creek Blvd., Suite 202 25 Austin, Texas 78701 (512) 474-4363 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363