1 1 2 3 * * * * * * * * * * * * * * * * * 4 5 TEXAS LOTTERY COMMISSION 6 MEETING 7 8 FEBRUARY 12, 2002 9 10 * * * * * * * * * * * * * * * * * 11 12 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 12TH of FEBRUARY, 20 2002, from 8:31 a.m. to 2:39 p.m., before DAVID 21 BATEMAN, RPR, CSR in and for the State of Texas, 22 reported by machine shorthand, at the Offices of the 23 Texas Lottery Commission, 611 East Sixth Street, 24 Austin, Texas, whereupon the following proceedings 25 were had: Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 2 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker Mr. Walter H. Criner, Sr. 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Executive Director: Ms. Linda Cloud 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 3 1 INDEX 2 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................... 4 6 Item Number 2.................................... 42 Item Number 3.................................... 49 7 Item Number 4.................................... 52 Item Number 5.................................... 72 8 Item Number 6.................................... 109 Item Number 7.................................... 115 9 Item Number 8.................................... 90 Item Number 9.................................... 124 10 Item Number 10................................... 131 Item Number 11................................... 133 11 Item Number 12................................... 134 Item Number 13................................... 5 12 Executive Session................................ 154 Item Number 15................................... 154 13 Item Number 16................................... 154 Item Number 17................................... 145 14 Item Number 18................................... 166 Item Number 19................................... 173 15 Item Number 20................................... 155 Item Number 21................................... 194 16 Reporter's Certificate........................... 195 17 18 19 20 21 22 23 24 25 Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 4 1 FEBRUARY 12, 2002 2 3 CHAIRMAN CLOWE: It is 8:31 a.m. and 4 this is February the 12th. I'm going to call the 5 meeting to order for the Texas Lottery Commission. 6 My name is Tom Clowe. Commissioner 7 Betsy Whitaker is here. Commissioner Walter Criner is 8 here. We will go forward with this meeting. 9 We have a new recorder today and in 10 order to help him, I would like to ask that as you 11 come forward to address the Commission, you identify 12 yourself and we'll try to not talk over each other and 13 support him in his efforts to get a good, clear record 14 of this meeting today. 15 We have some individuals from out of 16 town and in order to assist them in their activities 17 today, we want to take those subjects which are of 18 interest to them out of order on the agenda. 19 I have appearances from three 20 individuals in regard to item number 13. Are there 21 any other individuals here regarding other items on 22 the agenda other than item 13? 23 Nelda, will you let us know if anyone 24 else comes in? We'll take that item then out of order 25 to report possible discussion and/or action on the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 5 1 implementation of Government Code 2155.074(b)(8), 2 relating to a vendor's economic impact to Texas in 3 connection with a procurement. 4 I have appearances from Mr. William M. 5 Parrish with Scientific Games, Mr. Cliff Bickell with 6 Scientific Games, and Jonathan Snare, I believe it is, 7 with Oberthur Gaming Technology. Will those gentlemen 8 be ready to come forward and make presentations at 9 this time? Will the gentlemen from Scientific Games 10 come forward then and we'll hear from you first? 11 Good morning. 12 MR. BICKELL: Good morning. 13 MR. PARRISH: Good morning. 14 CHAIRMAN CLOWE: We're happy to have you 15 here and would like for you to go forward. 16 MR. PARRISH: We appreciate the 17 opportunity to be here. Commissioners, we appreciate 18 the opportunity to be here today to speak to the 19 question of the implementation of Section 2155. 20 It is the position of Scientific 21 Games -- and we've set it forth in a letter to the 22 Commission. I brought extra copies in case the 23 Commissioners don't have them, but it is the position 24 of Scientific Games that section 2155 does not apply 25 to this Commission. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 6 1 This section is within subtitle D, 2 Section 10 of the Government Code and the State 3 Lottery Act explicitly states in Section 466.105(a) 4 that a contract for the acquisition or provision of 5 facilities, supplies, equipment, materials or services 6 related to the operation of the Lottery is not subject 7 to subtitle D, Section 10. 8 So clearly there is a specific 9 provision, a direction from the legislature that this 10 provision does not apply to the Lottery Commission. 11 And as further evidence of the fact that it should not 12 apply, we would respectfully direct the Commission's 13 attention to the legislative history involved with 14 this matter. 15 Senate Bill 1366 was originally proposed 16 to apply an in-state preference. That as originally 17 proposed also had a provision that would specifically 18 state that this exception would not apply and that 19 2155.4439 would apply to this contract, but the 20 legislature rejected that, specifically did not pass 21 that in the provision as amended. So we think the 22 legislative intent is clear that this provision was 23 not intended to apply and, in fact, that it would be 24 inappropriate to apply this. 25 We think this is further confirmed by Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 7 1 the specific direction of the legislature in Section 2 466 of the Act, which states that procedures used in 3 procuring items for the Lottery must, as determined 4 feasible and appropriate by the executive director, 5 promote competition to the maximum extent possible. 6 So it's a clear direction from the 7 legislature to this Commission that it must be as 8 competitive a procedure as possible and clearly, the 9 imposition of the in-state preference would be an 10 anticompetitive provision. It would limit 11 competition. It would, in fact, discourage 12 competition and we think be contrary to the direction 13 of the legislature. 14 We would also appreciate the opportunity 15 for Mr. Bickell of Scientific Games to explain that 16 further. Thank you. 17 MR. BICKELL: Good morning. Just as 18 introduction, I'm Cliff Bickell, president of 19 Scientific Games Printed Products. We are probably 20 the largest supplier of instant tickets in the world. 21 We have -- we have customers of 29 of the 38 -- 39 22 lotteries in the United States, most recently the 23 South Carolina Lottery, which just started up January 24 7th and has had a very successful launch with instant 25 tickets. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 8 1 We also produce tickets internationally 2 to the largest lottery of France, the U.K., and other 3 places in the world. More importantly, we provide 4 tickets to the state of Texas. Since June 18th, 1999, 5 we've shipped approximately 2.4 billion instant 6 tickets. This has generated $4.2 billion in revenue 7 for the Lottery. 8 The point of being here this morning is 9 to urge the Lottery to continue its current practice 10 of not putting in or asking for in-state preference in 11 their procurement practice. We think this has served 12 the Lottery well, and I will give you three points and 13 be brief. 14 First of all, by trying to put in-state 15 preference printing into the procurement practice, it 16 complicates it, probably makes it less objective. 17 Number two, that the current practice 18 has served the Lottery well. The state of Texas 19 probably has the most competitive, lowest prices in 20 the industry. It has done this by creating 21 competition by encouraging suppliers to bid. Case in 22 point: That the current contract between the primary 23 supplier of -- if in-state preference had been 24 attached, you may not have received the $2.4 million 25 or probably higher in savings that you're going to Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 9 1 receive in this contract. And that $2.4 million would 2 have gone -- now goes to schooling, which is where the 3 Lottery funds go, as opposed to paying the supplier in 4 that amount of money. 5 The third point is that in-state 6 preference in your procurement practice may deter 7 competition and some of the suppliers may not elect to 8 bid, assuming that they might not have a level playing 9 field in that procurement. 10 Those are my three points and I thank 11 you for the opportunity to be here this morning. If 12 you had any questions of either Bill or myself, we 13 would be happy to answer them. 14 CHAIRMAN CLOWE: Questions? 15 COMMISSIONER WHITAKER: I just have one 16 question. You make a statement in your letter that in 17 actuality, the laws often achieve the opposite effect 18 intended, which is promoting economic growth. And you 19 cite that one magazine article. Do you have any other 20 studies on that? 21 MR. BICKELL: Well, I think -- I think 22 the -- that's the only study available because at this 23 point, there are no other lottery procurements that -- 24 in the United States at least that we're aware of, and 25 we probably bid on every one that comes up -- that Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 10 1 provide in their procurement practice for in-state 2 printing. 3 So no, we don't, to answer your 4 question. 5 CHAIRMAN CLOWE: I want to thank you for 6 coming here and making the trip. I checked with the 7 executive director yesterday and asked her what her 8 opinion was with the performance of your company in 9 regard to the supplying of our tickets, and the report 10 she gave me was that everything is very satisfactory. 11 And I'd like to pass that on to you and 12 express our appreciation for the performance of your 13 company. I think every president likes to get some 14 feedback from their customers. 15 MR. BICKELL: Usually when they give it 16 to me, it isn't always positive. 17 CHAIRMAN CLOWE: I understand. So I 18 thought I might give you some good feedback for a 19 change. 20 MR. BICKELL: Well, thank you. 21 CHAIRMAN CLOWE: You brought it up, so I 22 feel like I can ask about it: I've been reading about 23 some problems in South Carolina on the on-line games. 24 MR. BICKELL: Okay. 25 CHAIRMAN CLOWE: You mentioned the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 11 1 instant tickets started up on time, but if you would 2 care to share with us any information about the 3 problems you've run into there, I think this 4 Commission would like to hear about it. 5 MR. BICKELL: Okay. The -- about a year 6 ago, the South Carolina had passed the legislation to 7 permit lotteries in the state. Governor Hodges had 8 been as a -- one of his platforms is to increase 9 spending to education, and he was going to get the 10 funds from the lottery proceeds. 11 The procurement went out and Scientific 12 Games was awarded instant tickets and some of the 13 supportive services to South Carolina and later was 14 awarded the on-line. Most of the time, an on-line 15 lottery launch, I think, allows six to -- six months 16 to a year. I think they wanted to get it done very 17 quickly because they were behind because of various 18 legal actions. 19 So there was a very tight window. 20 Scientific Games had as a subcontractor AT&T to 21 provide the communications support from the terminals 22 to the mainframe. When -- after the award and they 23 were beginning to work on the launch, AT&T said they 24 could not make that commitment. 25 I believe the on-line launch is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 12 1 scheduled for early- to mid-March. I think it's the 2 8th, but I'm not certain. And because of AT&T's, I 3 guess, not following up on their contract commitment, 4 Scientific Games came forward to the Lottery and said 5 that this is an issue. 6 And in the meantime, they are looking 7 for and I think have found an alternative and are 8 still reasonably optimistic that they can meet that 9 commitment of the initial launch date. The important 10 point is: We're in kind of an interesting industry, 11 which we have mentioned earlier. 12 A lottery supplier, whether it's 13 ourself, Gtech or Oberthur, Pollard, whoever, have to 14 in, the case of an instant ticket, supply a ticket for 15 less than a penny. The Lottery sells it for like a 16 dollar. And if we don't provide the service, we get 17 penalized 25 cents, because that's the part that goes 18 to the Lottery. 19 And that's an interesting issue because 20 that money does go to education. We're very 21 responsive to that and we are trying to make that 22 launch date because of the lack of funds that would go 23 to the Lottery, the company has to support. 24 We're optimistic that -- cautiously 25 optimistic that we can still make the launch. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 13 1 CHAIRMAN CLOWE: Thank you for that 2 explanation. Is that all LAN line communications? 3 MR. BICKELL: It's going to be -- the 4 new alternative will probably not be all LAN line. 5 And I'd be happy to provide you a written explanation 6 from our technical people just exactly how they're 7 going to do that, if you would like. 8 CHAIRMAN CLOWE: I'm just very 9 interested in that. How many retailers are involved 10 there? 11 MR. BICKELL: I think it's 32 hundred, 12 33 hundred. 13 CHAIRMAN CLOWE: Well, we're always 14 watching to see other states and how they're doing. 15 And this delay was of some interest to me and that's a 16 full and complete explanation. Thank you. 17 MR. BICKELL: You're welcome. 18 MR. PARRISH: You're welcome. 19 CHAIRMAN CLOWE: Thank you both, 20 gentlemen. 21 MR. BICKELL: Thank you. We appreciate 22 it. 23 CHAIRMAN CLOWE: I have another 24 appearance form here from, I believe, it's Ms. Kathy 25 Matson. I'm going to ask you for help on that to see Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 14 1 if I'm correct or not. 2 In addition to Mr. Snare with Oberthur 3 Gaming Technology, would you come forward? 4 MS. KIPLIN: Commissioners, while 5 they're approaching you-all, the discussion that you 6 had at the end regarding the issues in South Carolina, 7 I wanted to just put on the record that I think that 8 was an appropriate discussion. Otherwise, I would 9 have stopped the discussion from occurring. But it 10 would have been appropriate under 2, report, possible 11 discussion and/or action on lottery sales and trends. 12 CHAIRMAN CLOWE: Thank you, counsel. 13 Good morning. 14 MR. SNARE: Good morning. 15 MS. MATSON: Good morning. 16 CHAIRMAN CLOWE: Would you help us on 17 your names, please? 18 MR. SNARE: For the record, my name is 19 Jonathan Snare. I'm with the law firm of Loeffler, 20 Jonas & Tuggey. We are legal counsel for Oberthur 21 Gaming Technologies. 22 MS. MATSON: And I am Kathy Matson, and 23 I am senior vice-president of sales and marketing for 24 Oberthur Gaming Technologies, based in San Antonio. 25 CHAIRMAN CLOWE: Thank you. Please go Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 15 1 forward. 2 MR. SNARE: Thank you. Thank you, 3 Commissioner. Again, as you mentioned, we're here to 4 testify in connection with agenda item 13 and 5 specifically to request that the Texas Lottery 6 Commission utilize the provision of the Government 7 Code which allows you to take into consideration the 8 vendor's economic impact in Texas in the procurement 9 process. 10 And I think a reading of the Texas 11 Lottery statute and recent history will support the 12 Texas Lottery Commission being able -- and should 13 utilize this provision in the upcoming procurement 14 process. And if you look at the Lottery statute, the 15 executive director currently has the power to 16 establish the range and the procurement process. 17 The statute also gives the executive 18 director the authority to take into account the object 19 of producing revenues for the State Treasury in the 20 procurement process. The current Lottery statute also 21 allows the executive director to seek the assistance 22 of the General Services Commission in implementing any 23 procurement process. 24 And the current Lottery statute, also, 25 as it's written, allows preferences for Texas Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 16 1 businesses. In fact, in the provision 466.106, the 2 Commission shall give preferences to services offered 3 by bidders in this state. The Government Code section 4 at issue, 2105.074(b)(8), applies to the general 5 procurement statute and obviously does not mention the 6 Lottery Code specifically, but I think this permissive 7 provision is applicable to the Lottery and to the 8 Lottery Act. 9 The legislative intent of this statute 10 and I believe you've been -- letters have been 11 submitted to this Commission that will demonstrate 12 this. And you may hear testimony later this morning, 13 but the legislative intent of this provision that was 14 adopted in the last legislative session to take into 15 account economic impact of a vendor in the Texas 16 economy applies to all agencies and is not limited in 17 any particular fashion. 18 As I mentioned above, the executive 19 director has the authority to establish procurement 20 procedures in the Lottery Commission. And I don't 21 believe there's anything in the Code that would 22 restrict the executive director or the staff of this 23 Commission no take into account the vendor's economic 24 impact in awarding a contract. 25 In fact, we can look at recent history Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 17 1 to demonstrate this is the case. In 1997, there was 2 an RFP relating to the instant ticket contract, which 3 included a section in that RFP on the -- on Texas 4 economic impact. Specifically, the section was 4.16 5 and it states that the proposer must discuss the 6 potential financial impact that the proposer's project 7 plan would have on the state of Texas over the term of 8 the contract. 9 So I think that we are all aware of the 10 importance of Texas economic impact in the procurement 11 process. The Texas Lottery Commission has already 12 recognized and took into account this consideration in 13 1997. And I think there's no reason in the statute to 14 prevent the Lottery Commission from doing so in the 15 future. 16 I'd like to respond briefly to a point 17 made by the representatives of Scientific Games, where 18 the argument was made that if you-all adopt this 19 provision and utilize it in the procurement process, 20 you will somehow restrict competition. Our position 21 here, I think, is consistent with what the Lottery 22 statute already states, that you can consider 23 preferences to Texas businesses when the quality and 24 the costs are already equalized and the level of 25 quality of the service with an in-state and Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 18 1 out-of-state vendor is equal. 2 And I think that's all we're asking for 3 here. I don't think that if the Commission takes into 4 account this provision of the Government Code, that's 5 going to somehow be anticompetitive. It merely is 6 recognizing this factor during the procurement process 7 and not to an inclusion on the quality or level of 8 service provided. 9 That's all the introductory comments I 10 have. I'll be happy to answer any questions, and I 11 thank you again for the opportunity to appear before 12 you today. 13 CHAIRMAN CLOWE: Anything from you, 14 Ms. Matson? 15 MS. MATSON: I just have some general 16 comments. I just wanted to thank all of you very much 17 for considering this law. And as a representative of 18 our company that is based in San Antonio, we've 19 invested over $50 million in the economy. 20 We're encouraged to base our facility 21 here in Texas and I represent 350 employees who would 22 love to be producing tickets for the Texas Lottery. I 23 think that goes without saying. So I just want to say 24 we think it's good for Texas and I want to thank you 25 very much for considering it. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 19 1 CHAIRMAN CLOWE: Thank you, ma'am. Any 2 questions? 3 COMMISSIONER CRINER: Oberthur is 4 producing what for whom now? 5 MS. MATSON: We produce lottery tickets 6 in San Antonio for about 20 lotteries in the United 7 States, for some countries in Latin America, Mexico, 8 Central America, South Africa, and then we have 9 facilities around the world. So we're based in 10 Australia, Montreal, and France. 11 COMMISSIONER CRINER: And you're banking 12 in San Antonio? 13 MS. MATSON: Pardon me? 14 COMMISSIONER CRINER: And you're banking 15 in San Antonio? 16 MS. MATSON: Absolutely. 17 MR. SNARE: Thank you very much. 18 COMMISSIONER WHITAKER: Just real quick, 19 one question, John, about the reciprocal statutes. 20 What's your view on that, you know, other states 21 saying that if Texas does this, then they do something 22 in response? 23 MR. SNARE: I'm not familiar 24 specifically with whatever other state statutes. I 25 see what you're saying. Are we going to go into a war Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 20 1 over promoting our interests in-state versus -- and 2 restrict the ability for companies coming in from 3 other states to do business? 4 COMMISSIONER WHITAKER: Yeah, just what 5 your view on that is. 6 MR. SNARE: I mean, I guess I would say 7 that it's important to take into account the impact in 8 Texas. At the same time, I believe there's a way to 9 do that without being anticompetitive and driving 10 out-of-state businesses who are competitive from 11 coming in and doing business here, and vice versa with 12 our corporations doing business out of state. 13 I don't think this provision, if you as 14 the Commission utilize that, would do that. I just 15 think that you-all would take into account during the 16 process this as one of many factors and I would 17 submit -- and I don't know for sure and we can provide 18 this information as a follow-up, but I would guess 19 that other states would have a similar provision to 20 allow them to at least consider economic impact in 21 their respective state to -- in the procurement 22 process. I don't know for sure, but I'm just -- and 23 we could submit that if necessary. 24 COMMISSIONER WHITAKER: Okay. No more 25 questions. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 21 1 CHAIRMAN CLOWE: Okay. Thank you, 2 Mr. Snare. And we have another public witness and 3 we're going to hear from staff and I want to say that 4 I'm going to give each of you an opportunity, if you 5 want to come back and make a second comment, to do 6 that. 7 MR. SNARE: Great. Thank you. 8 CHAIRMAN CLOWE: Thank you. We have 9 also Ms. Velma Cruz Silva here representing Senator 10 Van de Putte from San Antonio. And I believe you 11 wanted to testify, as well. Would you come forward, 12 please? 13 MS. SILVA: Yes, thank you. 14 CHAIRMAN CLOWE: Would you help us with 15 the correct pronunciation of your name, please? 16 MS. SILVA: Sir, you have it exactly 17 right. It's Velma Cruz Silva. 18 CHAIRMAN CLOWE: Thank you. 19 MS. SILVA: I have copies if -- I 20 believe you received a copy of this letter yesterday, 21 but my boss, Senator Van de Putte, apologizes for not 22 being here personally. If she had had a little more 23 notice of this hearing, she might have been able to 24 rearrange her schedule. She just asked that I come 25 and read into the record the letter that she had Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 22 1 provided. 2 Dear Commissioners, your decision today 3 on agenda item 13, relating to a vendor's economic 4 impact in connection with the procurement will have 5 profound and long-term implications for the Texas 6 economy. I want to thank each of you, Commission 7 staff and especially Executive Director Cloud for the 8 time and attention devoted to this issue and the 9 willingness to meet and discuss on this topic. 10 I urge you to take immediate advantage 11 of the economic impact provision contained in the 12 Government Code as a result of Senate Bill 311 by 13 including it in the upcoming request for proposal that 14 will be issued regarding the instant ticket contract. 15 As a way of recognizing a vendor's 16 economic impact, the agency should design its proposal 17 evaluation methodology to include a vendor's economic 18 impact as a major scoring criteria. In evaluating the 19 potential economic impact of a bidder, the two most 20 important factors are: The number of jobs to be 21 created in the state and the added amount of the wages 22 resulting from the fulfillment of a winning bid. 23 As part of a proposal, a bidder could 24 supply the number of jobs and amount of wages to be 25 increased in the state by the bidder as a result of Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 23 1 receiving the contract. Bidders could be asked to 2 certify that these jobs and wages will be supplied as 3 a condition of receiving and continuing the contract. 4 An agency should consider also reviewing 5 impacts of a subcontractor's job creation and wage 6 payments, if germane to the proposal. This 7 provision's implementation will benefit Texas, and the 8 numbers speak for themselves. 9 Awarding the contract to a qualified 10 Texas vendor will produce an estimated $410 million in 11 economic activity, will create 120 jobs and support 12 3100 jobs and will be responsible for almost $140 13 million in wages. 14 Additionally, the provision offers the 15 Commission an opportunity to fulfill an objective that 16 guides Lottery procurement decisions, and that is: 17 Producing revenue for the State Treasury. 18 Moreover, we are fortunate that no 19 policy or legal question stands in the way of 20 implementing this economic milestone regarding the 21 awarding of state contracts. As Senate author of the 22 provision's language, I believe it's important to note 23 that the Legislative Council addressed and cleared 24 legality issues during drafting, and it passed muster 25 with legal experts who were intimately knowledgeable Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 24 1 regarding these state statutes and their 2 ramifications. 3 If you feel, however, that there are 4 unanswered questions regarding implementation of the 5 economic impact provision, I urge you to immediately 6 contact the Attorney General's office. As general 7 counsel to state agencies, the Attorney General's 8 office is available to provide quick legal guidance on 9 a wide range of issues, as you know, and any requests 10 made to that office should be in a form and a manner 11 that facilitates a timely response. 12 In closing, I also want to thank the 13 Commission and its staff for recognizing the need to 14 increase minority participation in the agency's 15 procurement process and to ensure that vendors uphold 16 their HUB participation goal commitments. Again, this 17 economic provision can be useful in that regard. 18 If you have any questions or need 19 additional information, I would be happy to assist 20 you. With your implementation of the economic impact 21 provision, I look forward to an improved procurement 22 process that will serve as a valuable example 23 throughout state government and benefit Texas. Thank 24 you. Sincerely, Senator Van de Putte. 25 CHAIRMAN CLOWE: Would you comment on Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 25 1 the second item that you have given us in this 2 package, please, ma'am? 3 MS. SILVA: Second item, the economic 4 impact provision benefits for Texas economy? 5 CHAIRMAN CLOWE: That's the first page, 6 yes. 7 MS. SILVA: Yes. It's just kind of a 8 bullet-point, sort of look at what that provision did. 9 CHAIRMAN CLOWE: And then the second 10 page, and then the clippings? 11 MS. SILVA: Right. 12 CHAIRMAN CLOWE: And it looks like a 13 copy of the transcript. 14 MS. SILVA: Uh-huh. 15 CHAIRMAN CLOWE: No, it's from the 16 senate bill. 17 MS. SILVA: Right. Yeah, these are just 18 San Antonio news articles regarding the same. 19 CHAIRMAN CLOWE: Okay. I just want 20 these identified on the record as part of what you 21 gave us. 22 MS. SILVA: Yes. 23 CHAIRMAN CLOWE: Okay. Any questions? 24 Thank you, ma'am, for being here. 25 MS. SILVA: Thank you, sir. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 26 1 CHAIRMAN CLOWE: I believe Mr. Bennett 2 is prepared to give us comments on this on behalf of 3 the staff and it looks like that Ms. Morris is going 4 to come forward with him. 5 MR. BENNETT: Thank you, Commissioners. 6 Good morning. 7 For the record, my name is Ridgely 8 Bennett, and I'm the deputy general counsel of the 9 Texas Lottery Commission. 10 Staff is here today to provide 11 information to the Commission on evaluation criteria 12 that may be taken into account by agency staff in 13 evaluating bids or proposals. That factor would be 14 the vendor's anticipated economic impact to the state 15 or a subdivision to the state, including potential tax 16 revenue and employment. 17 First of all, I'd like to say that that 18 provision is a part of Section 2255.075 of the 19 Government Code. And as Mr. Parrish said earlier, the 20 Commission is exempt from this provision of the 21 Government Code. In fact, the provision is permissive 22 and not mandatory. So we're not bound to implement 23 this section. 24 The issue that really arises is: Does 25 the Commission have the authority to look at this Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 27 1 factor in evaluating bids and proposals? And we 2 believe that under the Commission's general 3 procurement authority that we do have the authority to 4 look at this. When looking at our procurements, we 5 also have to look at what's available for the Lottery 6 and what's available for the Bingo Operations 7 Division. The Bingo Operations Division is subject to 8 this section. It is not exempt from this section of 9 the statute. 10 Mr. Parrish and others have seemed to 11 categorize this as an in-state preference for Texas 12 vendors, and our reading of the statute doesn't 13 necessarily agree with that. What we are to look at 14 is the vendor's anticipated economic impact to the 15 state. And certainly, an out-of-state vendor could 16 have a significant impact to the Texas economy through 17 the use of subcontractors, buying raw materials from 18 the state of Texas, buying other goods and services 19 from in-state vendors. 20 So we don't believe that this is 21 necessarily an in-state preference. What we think it 22 does is it creates an incentive for everybody to use 23 Texas goods and services where available and where 24 appropriate. We don't believe that this would 25 necessarily create a -- create less competition in our Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 28 1 procurements. 2 Certainly this is only one factor that 3 may be taken into consideration by the evaluation 4 committee, among many other factors. I'd be happy to 5 answer any questions if you have any right now. 6 COMMISSIONER WHITAKER: Does the GSC 7 have outlines or guidelines on how they propose to 8 define this? 9 MR. BENNETT: They do not. We've 10 inquired to the Texas -- they've changed names now to 11 the Texas Building and Procurement Division -- and 12 they have done no rulemaking on this section and we 13 have not received any response to our inquiries. 14 COMMISSIONER WHITAKER: Have they 15 indicated the intent to? 16 MR. BENNETT: They have indicated an 17 intent to respond to our inquiries, but we have not 18 heard anything yet. 19 COMMISSIONER CRINER: I heard you 20 say -- Ridgely? 21 MR. BENNETT: Yes? 22 COMMISSIONER CRINER: You made the 23 comment that there's nothing wrong with using those -- 24 using Texas preference as an evaluation criteria. 25 MR. BENNETT: Well, I don't think it's Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 29 1 necessarily a Texas preference. It's looking at the 2 vendor's economic impact to a -- to the Texas economy. 3 So, for instance, a Texas preference 4 would say in order to be able to receive that 5 preference, you would have to be an in-state bidder. 6 That's not the case under this section. An 7 out-of-state bidder could have more of an effect on 8 the Texas economy than an in-state bidder if they use 9 subcontracting in the state of Texas, if they buy 10 their good -- raw materials from the state of Texas. 11 There are other ways that you can have 12 an influence on the Texas economy if we look at 13 subcontracting. 14 COMMISSIONER CRINER: So this isn't as 15 big of a negative as everybody would like us to think 16 it is. In other words, there are more ways to look at 17 the economic impact than just residence? 18 MR. BENNETT: That's correct. This is 19 not a section that says you have to be a Texas 20 resident bidder or proposer in order to take advantage 21 of this section. 22 And Commissioner Whitaker, in response 23 to your question, we did have a letter from the 24 Comptroller. We inquired to them as to the best way 25 to apply this section. And they stated that looking Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 30 1 at wages and jobs was the two most important factors 2 in looking at this, and we could take into 3 consideration possible subcontracting. 4 COMMISSIONER WHITAKER: Including a 5 company that has no prior business in Texas but would 6 use the contract proceeds to provide services through 7 Texas people; is that correct? 8 MR. BENNETT: That's correct, through 9 subcontracting. 10 COMMISSIONER WHITAKER: Or hiring 11 employees in Texas, for example. 12 MR. BENNETT: That's another 13 possibility, if we're looking at wages -- jobs and 14 wages in Texas. 15 COMMISSIONER WHITAKER: So you're bottom 16 line is that it is your opinion that the Texas Lottery 17 Commission does have the legal authority to enact or 18 to take this into account? 19 MR. BENNETT: We can take this into 20 account, among many other criteria that we look at 21 when evaluating proposals. 22 COMMISSIONER WHITAKER: And you know of 23 know legal impediment, in other words? 24 MR. BENNETT: I know of no legal 25 impediment. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 31 1 COMMISSIONER CRINER: Do we have any 2 information of how we stand in terms of do we buy more 3 of these tickets than any other state, or are we the 4 biggest buyer? Are we number one customer, number two 5 customer? 6 MS. CLOUD: Well, we're the number two 7 top-selling instant ticket state. Massachusetts sells 8 quite a bit more than we do. 9 COMMISSIONER CRINER: Okay. 10 CHAIRMAN CLOWE: And so we'll have a 11 complete record, this Commission has also received a 12 letter from Senator Judith Zaffirini and we have 13 received a visit in person from Senator Jeff Wentworth 14 to discuss this issue, and I believe that's everything 15 that we've heard on this issue from interested 16 parties. 17 Mr. Parrish, do you want to come forward 18 and have another crack at it? 19 MR. PARRISH: Just briefly. 20 CHAIRMAN CLOWE: Certainly. 21 MR. PARRISH: Again, Bill Parrish on 22 behalf of Scientific Games, Inc. We appreciate the 23 opportunity to respond. We would note that we 24 respectfully disagree with the initial portion of the 25 staff's evaluation as to whether or not the Commission Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 32 1 can apply this. 2 As we pointed out earlier, we believe 3 that the legislature has specifically directed the 4 Commission to focus on the issue of the most 5 competitive price. And we do believe that this is 6 anticompetitive and we think that the history of how 7 these types of statutes have played out over time has 8 demonstrated that. 9 The legislative history shows that the 10 bill was initially introduced to be a preference to 11 Texas bidders and, in fact, the section was titled 12 that. We do appreciate the staff's recognition that 13 the law, as written, does not require in-state 14 presence to be the determinative factor. 15 And if this provision is adopted, we 16 would hope that the Commission would adopt that view 17 by the staff because we think that the legislative -- 18 excuse me -- that the intent of the senator proposing 19 the bill was to have clear preference to Texas 20 bidders. That was the language in the initial bill as 21 proposed. 22 We think again, though, that history 23 shows this will be anticompetitive and we think that 24 the best example of that is what happened in the prior 25 award that was very competitively bid between Oberthur Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 33 1 and SGI. And Oberthur, at that time, argued that the 2 economic impact on the state should be considered. I 3 think they were relying heavily on that. 4 And the Commission saved or earned an 5 additional approximately two and a half million 6 dollars for the people of Texas by not letting that 7 focus dominate the decision, and instead looking at 8 the best competitive bid. 9 The experience of Michigan and other 10 states is something that we would urge you to look 11 to -- and I think Commissioner Whitaker inquired 12 about. The issue of reciprocal statutes or provisions 13 in other states is something that you should be 14 greatly concerned about. 15 I'm not sure how it would be possible 16 for the director or others to determine the economic 17 impact on this state without figuring out what's going 18 to happen in terms of other Texas bidders being turned 19 down in other states for having an equal provision 20 applied and losing bids there as a result of applying 21 a preference here. That is something that should be 22 of great concern to the Commission and we appreciate 23 the opportunity to respond. 24 CHAIRMAN CLOWE: Any questions? Thank 25 you, sir. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 34 1 MR. SNARE: Thank you. Mr. Snare, any 2 second comment from you, sir? 3 MR. SNARE: No additional comments, 4 unless you have any additional questions. 5 CHAIRMAN CLOWE: I believe not. 6 Ms. Silva, anything further from you? 7 MS. SILVA: No. 8 CHAIRMAN CLOWE: Ridgely, any following 9 comments on your part? 10 MR. BENNETT: I have none. I'll be 11 happy to answer any questions if you have any. 12 CHAIRMAN CLOWE: Counselor, would you 13 point out to the Commission where we are now and what 14 the course of action is, please? 15 MS. KIPLIN: Commissioners, I think 16 you've heard a presentation on the differing positions 17 of the -- I guess the interested persons on this 18 matter for today. 19 I think the staff wanted to make sure 20 that you were aware of what the staff's position was. 21 The executive director does have the authority to 22 establish determinative procedures and I think the 23 executive director wanted to make sure that you-all 24 knew what her position was and what her intentions are 25 so that you're aware of that. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 35 1 I think there has been an interest on 2 the part of persons to make sure that the 3 Commissioners are involved and at least know issues 4 that are of interest with regard to procurements. 5 And I'll defer to Linda if she has any 6 additional comments. This is -- we're not looking for 7 an action from you-all today. We're looking to make 8 sure that you-all are aware of this issue and you know 9 of her position. And if there's a difference of 10 positions, this is probably a good opportunity to 11 discuss that and get that on the record. 12 CHAIRMAN CLOWE: So what I think I heard 13 you say is the executive director is the 14 decision-maker in this and what we have heard is for 15 our information so that we will not be in the dark in 16 regard to what her plans are for this contract; is 17 that correct? 18 MS. KIPLIN: That is correct. 19 CHAIRMAN CLOWE: Do you want to 20 enlighten us then, Madame Executive Director? 21 MS. CLOUD: Well, Commissioners, I think 22 you are in the same position that I'm in. Basically, 23 we feel like we do have clear direction from our 24 legislature as what the intent was of this language. 25 And I absolutely intend to move forward Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 36 1 in a direction that we will include an economic impact 2 portion in our RFP process. We are writing the RFP 3 now as we speak. But on the other hand, I intend to 4 also try in the fairest way possible to find someone 5 qualified to assist us with how we can evaluate an 6 economic impact so that we do it right and it's a fair 7 process for everybody across the board. 8 I don't feel like that this is going 9 to -- based on the information that we've received 10 from the Comptroller, if we're looking at jobs and 11 wages and other services provided within the state of 12 Texas within the subcontracting portion of the RFP, it 13 should make the playing field equal. 14 I would hope that it doesn't affect 15 competition. This agency has always tried to work 16 very hard to make our bids as competitive as possible, 17 and I would hate to know that we would alter that in 18 any way. And I'm going to do the best I can moving 19 forward with this and trying to make the right 20 decision for this agency. 21 COMMISSIONER CRINER: Is it unfair to 22 say -- and this is more of a question than anything. 23 When we set out an RFP and prior to that, we like to 24 let the vendors know what we think. Therefore, when 25 they receive an RFP, they are able to respond with the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 37 1 right answers in terms of what we're looking for. 2 So if we're looking -- if we're saying 3 that we're looking for an economic impact in Texas, 4 that message to the vendors is saying "Include how you 5 see yourself making that impact." Is that kind of 6 how -- 7 MS. CLOUD: Well, that will probably be 8 part of the language in the RFP. We would not 9 intentionally go out and talk to our vendors about 10 information in an RFP. I mean, we expect that they're 11 going to read that RFP with a fine-toothed comb and 12 they're going to figure out for themselves what 13 provisions have been added. 14 These vendors -- we don't have but four 15 instant ticket manufacturers that have shown an intent 16 to move forward on this RFP. That's one thing that we 17 have real concerns about when we're looking at our 18 procurements because we don't have a lot of players in 19 the pool. So we don't want to cut those players out. 20 We want those players to have a competitive advantage 21 to -- or not a competitive advantage, but a 22 competitive equal ball field in order to bid on our 23 contracts. We don't want them not to bid. 24 CHAIRMAN CLOWE: Pardon me for 25 interrupting you, but when you say "players," you're Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 38 1 referring to the vendors? 2 MS. CLOUD: Vendors. 3 CHAIRMAN CLOWE: Okay. 4 COMMISSIONER CRINER: I think we're on 5 the same page, but I'm just -- I'm not reading the 6 same language. I'm concerned that we have vendors 7 that are concerned that we might make a decision and 8 I'm -- we're getting ready to build a house. Let's 9 take that example. 10 We're getting ready to build a house, 11 and we're going to use red brick. If you don't 12 provide red brick, then go make some red brick. And 13 we're telling you before we even have the plans for 14 the house what kind of house we want. So why does 15 this seem to be such a point of interest? 16 I mean, if you're going to write a bid 17 and you know what you're writing the bid for, there's 18 always a second bid response where the vendor can say 19 "I'm so much better than my competition because I wear 20 red shoes and you want red bricks." 21 I'm just a little concerned about why 22 everybody's concerned that we want to know what kind 23 of economic impact you have in Texas. 24 MS. CLOUD: Well, I think that depends 25 on what you base the economic impact on. And I think Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 39 1 that's where our dilemma is, in making sure that we 2 have someone who's a lot smarter than I am in the 3 economic development of a product. 4 COMMISSIONER CRINER: But as you prepare 5 your RFP, you will find that person and put that 6 language in there. 7 MS. CLOUD: Right. 8 COMMISSIONER CRINER: So everybody out 9 here that doesn't want to see that, they at least know 10 it's coming. 11 MS. CLOUD: Right. They all know it's 12 coming. They've been told that. 13 COMMISSIONER CRINER: They can start 14 practicing. 15 MS. CLOUD: Yes. 16 COMMISSIONER WHITAKER: And I guess I 17 share your concern and that is to the extent that we 18 could articulate it at the front end. 19 COMMISSIONER CRINER: Yes. 20 COMMISSIONER WHITAKER: If we think it 21 means A, B and C, it would be really nice to do that, 22 thinking before the RFP goes out. And to some extent, 23 I guess we're developing this as one of the first 24 agencies; is that correct? 25 MS. CLOUD: That's correct. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 40 1 COMMISSIONER WHITAKER: Okay. So that's 2 a special opportunity, isn't it? 3 MS. CLOUD: Well, Texas likes to be 4 first. 5 COMMISSIONER CRINER: The Lottery does. 6 COMMISSIONER WHITAKER: Well, I would 7 think that we would get better responses the more 8 guidance we can give up front. 9 MS. CLOUD: And I agree. And that is my 10 intent. 11 COMMISSIONER CRINER: I agree. The 12 legislature kind of sits over both of our shoulders 13 and we've got to pay attention. At the same time, 14 we've got to be fair, competitive and we've go to make 15 sure everybody has an opportunity to get to the goal 16 line. 17 I mean, I think everybody in here has 18 something to say about the last Super Bowl. The team 19 that won showed everybody they knew how to win in the 20 last few minutes. They just marched down the field 21 and won it. They weren't the pick. 22 So we're telling everybody here we're 23 going to have a Super Bowl and we're telling them how 24 big the field is going to be. And so we're basically 25 saying "Okay. How good are you at what you say you Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 41 1 would like to do for us?" 2 And we have requirements and those 3 requirements are not always what we'd like them to be, 4 but we have requirements as a state agency in Texas 5 and as Texas to make sure that we're doing the best 6 thing for the state. And that's not always -- that's 7 not always a nice, pretty bold line. And sometimes 8 it's the gray lines in the middle. 9 I would expect our vendors to help us 10 with those gray lines -- and we got a lot of them -- 11 be able to help us satisfy those gray lines and 12 achieve those objectives, especially when we're first 13 out of the box, so that we can set the pace for other 14 agencies to know how to do that and do it in a good 15 way that doesn't hamper competition and really 16 encourages it and encourages the growth and 17 development of this great state. 18 MS. CLOUD: Well, I want the 19 Commissioners to also know my intent. If we go down 20 this path with the instant ticket manufacturing 21 contract, we'll be going down this path with all of 22 our contracts. 23 I'm not going to make an exception -- 24 over a hundred thousand, our contracts over a hundred 25 thousand. It's not fair, I don't think, to take this Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 42 1 -- put this language into specific contracts and not 2 include it in all. 3 CHAIRMAN CLOWE: What I heard you say 4 then, if I can make certain I have clear in my mind, 5 is that in regard to the instant ticket RFP that is 6 being worked on now, it is your intention to consider 7 an economic impact, in that particularly as it relates 8 to jobs and wages in the state of Texas. 9 MS. CLOUD: That's correct. 10 CHAIRMAN CLOWE: Very good. Thank 11 you-all very much. 12 We'll now go on to item two, report, 13 possible discussion and/or action on lottery sales and 14 trends. Toni and Linda? 15 Thank you, Toni. Go ahead. 16 MS. SMITH: Good morning, Commissioners. 17 For the record, I'm Toni Smith, marketing director of 18 the Texas Lottery. 19 To take a look at sales, total 20 year-to-date sales for week ending February 9th, 2002, 21 are $1,261,735,796. This is down 2.74 percent from 22 fiscal year '01 total sales to date of $1,297,255,224. 23 And we are still kind of competing with ourselves on 24 several larger jackpots that we had at the beginning 25 of last year, ranging from $29 to $60 million. And Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 43 1 then we had another $48 million jackpot in November of 2 2000. So we kind of contribute that being behind 3 still to not having had those higher jackpots yet in 4 this fiscal year. 5 Our fiscal year '02 weekly sales average 6 is $52,572,324 which also reflects a 2.74 percent 7 decrease from fiscal year '01 weekly sales average of 8 $54,052,301. 9 A look at year to date sales comparison 10 by product for the week ending February the 9th, the 11 instant product is at $821,693,535. It represents 12 65.12 percent of sales versus last year's total of 13 $797,271,319. And at that time, it represented 61.46 14 percent sales. So this is a 3.06 percent increase 15 from last year. 16 Lotto Texas for fiscal year '02 is at 17 $248,891,901 representing 19.73 percent of sales 18 compared to $320,613,469 for fiscal year '01, when it 19 represented 24.71 percent of sales. Again, we are 20 seeing a decrease of 22.37 percent on Lotto Texas, but 21 it's still relative to those higher jackpots that we 22 had at the beginning of last fiscal year. 23 And to take a quick look at weekly sales 24 for last week: Week ending February 2nd, total sales 25 for the week were $58,112,876. This was up 1.9 Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 44 1 percent from the previous week ending February 2nd, 2 with total sales of $57,000,646. The primary factor 3 for the increase last week was due to instant ticket 4 sales -- and actually, this was the -- for that week 5 were the second highest for the fiscal year to date. 6 Instants were at $40,517,856 7 representing 69.72 percent of sales versus the 8 previous week of $38,589,938 which represented 67.7 9 percent of sales. So it was a five-percent increase. 10 Lotto Texas was down from the previous 11 week at $8,288,859 representing 14.26 percent of sales 12 versus the prior week of $9,601,275 representing 13 16.84. This decrease is relative to those jackpots 14 being hit. 15 And that's all I have on sales. I'd be 16 happy to answer any questions the Commissioners may 17 have. 18 CHAIRMAN CLOWE: I believe there are 19 none, except I had asked for a report on the number of 20 times the Lotto Texas jackpot had been hit since we 21 changed the matrix. Linda, were you able to get that 22 for us? 23 MS. CLOUD: Yes, sir. I sure have. 24 Through weeks ending July the 22nd, 2000 25 through July 14th, '01, that's the first full year of Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 45 1 the new matrix change. We had four jackpots in the $4 2 to $11 million range. We had projected 10 jackpots in 3 that range. We had two jackpots in the $13 million 4 range and we had -- we have not really set up a 5 projection for the $13 million range, so we could add 6 that to the $4 to $11. 7 $16 to $29 million, we had projected we 8 would have eight hits. We actually had six hits in 9 that range. And $37 to $67 million, we had five 10 jackpots -- and that's the first year that matrix was 11 changed -- in that range, and we projected we'd have 12 four, and one $85 million jackpot, which we projected 13 one jackpot between $95 and $136. 14 So it's running real close to what our 15 projections initially were in that first year. Now 16 carrying it on from the 20 -- 17 CHAIRMAN CLOWE: And it is still a 18 two-to-one ratio overall? 19 MS. CLOUD: Robert, do you have -- you 20 didn't bring the printout of before the matrix change 21 and after the matrix change, but we can get that for 22 you. 23 MR. TIRLONI: I have handouts, also -- 24 MS. CLOUD: Okay. 25 MR. TIRLONI: -- of what you're Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 46 1 discussing right now. 2 CHAIRMAN CLOWE: Could we have those? 3 MS. CLOUD: Yes. 4 Introduce yourself for the record. 5 MR. TIRLONI: For the record, 6 Commissioners, my name is Robert Tirloni. I am the 7 on-line product manager in the marketing division. 8 I have a handout of what Linda was just 9 describing for you. 10 MS. CLOUD: What he's asking is the 11 matrix, how we're running before and after the matrix 12 change. 13 MR. TIRLONI: I don't have that printout 14 in that attachment, Chair Clowe, but I can have that 15 for you before the end of the day. It is still 16 running very close, though, to the two-to-one. 17 CHAIRMAN CLOWE: Yeah. I think we'd 18 like to see that, Robert. 19 MR. TIRLONI: I can get that for you. 20 MS. CLOUD: The other chart shows you 21 July the 21st of '01 through February the 9th of '02. 22 This is going into the second year. We had five -- 23 we've had five hits in the $4 to $11 million range. 24 We've had one $15 million, which we would place in the 25 $16 to $29. $16 to $29, we had additional four Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 47 1 jackpots this year. We've had one $36 million jackpot 2 and one $40 million jackpot. 3 So we have not had the big jackpots that 4 we had initially, but I have been assured by our 5 statistician that it's the luck of the draw and it's 6 coming. 7 CHAIRMAN CLOWE: It really is random, 8 isn't it? 9 MS. CLOUD: It's random. 10 COMMISSIONER CRINER: Does that mean the 11 people are wishing for a big draw and we're wishing 12 for a big draw, as well? 13 MS. CLOUD: Well, the people are happy 14 with the way it's hitting now. And I'm sure that 15 we've proved that it is a winnable game. So we're the 16 ones wishing for a big draw. 17 COMMISSIONER WHITAKER: So the next five 18 months we're projected to have three jackpots of $37 19 million or more? 20 MS. CLOUD: That's correct. And he 21 assures me that's going to happen. 22 COMMISSIONER WHITAKER: Did he guarantee 23 it? 24 MR. TIRLONI: I don't think Dr. Eubanks 25 makes any guarantees. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 48 1 Actually, if the last year -- if you 2 look at the projected draw pattern for the first full 3 year of the matrix, we -- statistically, we should 4 have had 23 hits and actually we only had 18. So when 5 you're doing a comparison, a lot of people have -- 6 including on our sales staff and our sales reps and 7 our district sales managers, they're wanting to know 8 what happened with Lotto. 9 Actually, last year on the first full 10 year of the new matrix, we were actually hit less than 11 we should have been statistically. So I think some 12 people may have been a little spoiled by that. But 13 actually, Dr. Eubanks assures me that, based on where 14 the hits are, and in what categories we've been hit at 15 based on the jackpot amount, that everything is 16 performing as it should. 17 CHAIRMAN CLOWE: I think you made an 18 important point right there, Robert. The first year, 19 we had such on interesting experience. I'm not going 20 to say it's good or bad because it depends on where 21 you are on that issue. But it was such that we were 22 not hit as frequently as was projected. 23 And now looking back, that's the 24 comparison that really was in my mind when I was 25 asking for these figures. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 49 1 MR. TIRLONI: That's correct. 2 CHAIRMAN CLOWE: Anything further? 3 MS. CLOUD: We keep telling the budget 4 offices we're going to have a big jackpot. 5 COMMISSIONER CRINER: Tell them it's a 6 game of chance for everybody. 7 CHAIRMAN CLOWE: Very good. I think 8 that's all the questions. Thank you, Toni and Robert. 9 MR. TIRLONI: Thank you. 10 CHAIRMAN CLOWE: And while you're there, 11 item three is report, possible discussion and/or 12 action on lottery advertising and promotions, 13 including advertising procurements. Do you have 14 anything for us on that? 15 MS. SMITH: Yes, I'd like to report that 16 our new winner awareness campaign in the general 17 market began January 28th. Fogarty, Klein, Monroe 18 produced five TV spots and a companion radio spot that 19 will air four weeks on and one week off. And these 20 are the spots that include actual Lottery winners, not 21 only for the Lotto Texas game, but other games, 22 scratch-off games and other on-line games. 23 And so far, it seems like we've gotten a 24 positive reception for those spots. I believe the 25 Commissioners received the tapes for those already. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 50 1 And then in our minority market, the King Group had 2 produced five TV spots and radio for a similar concept 3 of the winning feeling. And they also began airing on 4 January 28th. 5 CHAIRMAN CLOWE: I have not received 6 those from the King Group. 7 MS. CLOUD: I don't have those, either, 8 so -- 9 CHAIRMAN CLOWE: I have them from 10 Fogarty, Klein. 11 MS. SMITH: We'll get those to you. 12 CHAIRMAN CLOWE: I want to tell you how 13 good I think they are. Those are real Texans. 14 MS. SMITH: They certainly are. 15 CHAIRMAN CLOWE: And they're talking 16 Texan, and Texans understand that and those are very 17 impactable TV ads, and I think they're going to have 18 excellent results. And there's no better group than 19 our winners to make the subject of this kind of 20 advertising. 21 I'll look forward to the Klein - or the 22 King TV cuts when those come in. 23 MS. SMITH: Okay. I'll make sure you -- 24 CHAIRMAN CLOWE: And I would assume 25 those would be minority winners. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 51 1 MS. SMITH: Actually, I think they were 2 a little bit different concept and design, but it was 3 to express the winning feeling to the relative 4 markets. 5 CHAIRMAN CLOWE: Okay. I really think 6 you're on the right track with that line of 7 advertising. 8 MS. SMITH: We've heard that in our 9 focus groups in the past with some of the others we 10 had done early on and I think that it was fun for 11 everybody to do that filming because the players were 12 great about being on the set and participating and had 13 a good time with it, too. So we hope that they did. 14 MS. CLOUD: Fogarty was very 15 complimentary about our winners' performance of 16 conducting these commercials. They said they were so 17 natural and they were better than actors -- if they 18 were to use actors in the slot. And they were -- and 19 I'm very pleased with them. 20 Our one retailer who was a good part of 21 that commercial was our Roby winner retailer who won 22 part of the jackpot as well as the bonus for selling 23 the ticket. And he's just always said whatever he can 24 do for the Lottery, he's willing to do. And he proved 25 that with these commercials -- Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 52 1 CHAIRMAN CLOWE: Great. Thank you. 2 MS. CLOUD: -- along with our other 3 winners. 4 MS. SMITH: Thank you, Commissioners. 5 CHAIRMAN CLOWE: Next item four, 6 presentation and possible discussion on Administrative 7 Procedures Act an the agency's administrative rules 8 relating to contested cases or agreed order 9 proceedings before the Texas Lottery Commission. 10 We have Mr. Dewey Helmcamp from the 11 Attorney General's office here to make a presentation. 12 Good morning to you. 13 MR. HELMCAMP: Good morning, 14 Mr. Chairman, and Members of the Commission. It's a 15 pleasure to be here before you. My name is Dewey 16 Helmcamp. 17 Some of you I've met before, but I know 18 there's at least one member that I have not had the 19 opportunity to meet, so I'd like to take just a few 20 quick seconds in my short presentation to let you know 21 that I am the Assistant Attorney General assigned to 22 the administrative law division that will represent 23 this Commission on two important legal aspects of the 24 duties or -- excuse me -- jobs that the Commission 25 has. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 53 1 The first of these is that any time you 2 adopt rules and those rules are challenged under the 3 Administrative Procedures Act for a declaratory 4 judgment, 99 times out of a hundred, I will be the 5 person to defend this agency in its rule adoption 6 process that can be challenged under the 7 Administrative Procedures Act. 8 The second area and the one that I want 9 to talk about most in my few minutes with you today is 10 the contested case proceeding, what happens after the 11 Commission has entered a final order that affects 12 someone's license in any way, shape or form before 13 this Commission, whether it's involving bingo or a 14 lottery retailer, whatever it might be. 15 That's, again, the very important part 16 of what I do because briefly at the beginning, once a 17 contested case is over, has been conducted and this 18 Commission issues a final agency order and a motion 19 for rehearing has been filed and presumably overruled, 20 the next step for the licensee, the adverse party, is 21 to file a lawsuit in the District Court in Travis 22 County seeking judicial review of the agency order. 23 Briefly -- and I'll come on to this at 24 the end of my presentation -- the order is reviewed in 25 the District Court under what is called the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 54 1 substantial evidence test. The substantial evidence 2 test is a very simple test. It means is there some 3 evidence -- even if the majority of the evidence 4 preponderates against the agency decision, is there 5 nonetheless some evidence which would allow a 6 reasonable decision-maker -- that's you folks -- to 7 have reached the decision you reached. 8 If there is that small amount of 9 evidence called substantial evidence, it is the duty 10 of the District Court to affirm that order which you 11 have entered. In other words, the District Court does 12 not try the case anew or de novo. It reviews what has 13 been done below and simply makes a determination, as 14 I've said, is there some evidence which would allow a 15 reasonable decision-maker to have reached the decision 16 that was reached. 17 The flip side of that is what is known 18 as arbitrary and capricious, which means simply in the 19 law that basically no rational person could have ever 20 reached that decision. And if that -- if the judge 21 sees that, then the judge will typically overturn the 22 case. 23 Let's back up now and talk about the 24 contested case hearing itself very briefly. You are 25 represented at the contested case hearing by legal Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 55 1 staff assigned to the office of the general counsel. 2 I have never had the occasion to my recollection to 3 represent the Commission at a SOAH hearing. As you 4 know, these are done by the State Office of 5 Administrative Hearings, which we call SOAH. 6 SOAH is comprised of a cadre of 7 independent administrative law judges. They are 8 beholden to no state agency. SOAH is, in fact, a 9 state agency, but it's independent, and the judges are 10 randomly assigned to cases and they cannot be 11 influenced by any state agency. 12 They hear the cases just like an 13 independent judiciary, except happily, they don't have 14 to run for office. So there's never any issue of 15 campaign contributions. The cases are referred to 16 SOAH. They set an administrative hearing or what we 17 call a contested case hearing. This is a mini-trial. 18 The rules of evidence generally apply, 19 although there are a couple of little exceptions that 20 are allowed -- you know, some looseness on what we 21 call hearsay, a little bit of things like that. But 22 generally speaking, the rules of evidence applicable 23 to civil trials occur. 24 The agency typically has the burden of 25 going forward or you might say the burden of proof. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 56 1 The hearing itself is preceded by notice of not less 2 than ten days' time to your licensee. Typically, it's 3 longer than that. And also, like in a civil trial, 4 discovery can occur. So depositions can be taken. 5 Documents can be produced. Things of that nature can 6 occur. 7 So if you think of it as a mini civil 8 trial -- slightly less formal, but nonetheless that 9 gives you a picture of what happens. The 10 administrative law judge presides. The agency 11 presents its case. The respondent or the licensee 12 then has the opportunity to present its case. 13 Each side may call witnesses, who are 14 placed under oath and subjected to both direct and 15 cross-examination. Unlike a civil trial, however, the 16 administrative law judge typically does not rule 17 immediately upon the conclusion of the presentation of 18 evidence. 19 The ALJ, administrative law judge, will 20 take the evidence -- and these are, of course, 21 tape-recorded -- will listen to the tape-recording, 22 will review the written or documentary evidence that 23 has been produced, typically also, the agency's 24 enabling statute to determine whether or not the 25 alleged violation or infraction did, in fact, occur. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 57 1 And if the ALJ finds that it has 2 occurred, the ALJ will recommend a sanction or 3 discipline or a course of action in what's called a 4 Proposal for Decision. A Proposal for Decision is 5 what you have seen and will continue to see in these 6 contested cases. It is a written memorandum of the 7 ALJ's, in essence, thought process summing up the 8 evidence that the ALJ saw, heard and considered 9 discussing the parties' respective contentions, and 10 then generally issuing what's called findings of fact 11 and conclusions of law. 12 Once this is done, both parties -- both 13 the agency and the respondent have the opportunity to 14 write written exceptions to the Proposal for Decision. 15 These are then presented to the administrative law 16 judge, who reviews them and may or may not change the 17 Proposal for Decision based upon those exceptions. 18 Once this is done, you will receive a 19 final Proposal for Decision, which will contain, as 20 I've said, a recitation of the evidence, generally a 21 discussion portion, findings of fact and conclusions 22 of law. 23 Now it is in front of you for you to do 24 your important role in the process, which is to 25 determine if you are going to, in essence, accept the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 58 1 Proposal for Decision and enter a final Commission 2 order. Sometimes the parties wish to appear before 3 you. Sometimes the parties don't. Different agencies 4 handle this differently, depending on their enabling 5 statute and/or the desires of the Commissioners or the 6 board members. 7 What I want to emphasize now or the 8 second thing after generally talking about the 9 contested case itself is what happens with the 10 findings of fact and conclusions of law. A question 11 that board or Commission members frequently ask is: 12 Do we have the power to change a finding of fact or a 13 conclusion of law that we disagree with? 14 Well, the short answer is yes, comma, 15 but. And what I mean by that is you can change 16 findings of fact and conclusions of law, but the rules 17 are very, very strict about when you can do it and for 18 what reason you may do it. The simplest way to say it 19 is: The finding of fact -- in an example -- by a 20 Travis County judge would be "Was the light red or 21 green?" If the ALJ has listened to the testimony, 22 observed the demeanor of the witnesses, and determined 23 that the light was red, it would be very, very 24 difficult, if not almost impossible, for you to say, 25 "No, we believe the light was green." Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 59 1 That's not your role. The manner in 2 which you may change findings of fact or conclusions 3 of law is contained in the Administrative Procedure 4 Act, which is the statute that governs it. And very 5 briefly, the reasons are: 6 If the administrative law judge did not 7 properly apply or interpret applicable law, agency 8 rules or written policies provided to the 9 administrative law judge, you may change it. 10 Two, that a prior administrative 11 decision on which the administrative law judge relied 12 is incorrect or should be changed. 13 Or three, there was a technical error in 14 a finding of fact that should be changed. Technical 15 error is not "The light was really green instead of 16 red." That's not a technical error. A technical 17 error might be that the judge has cited the wrong 18 provision of the Bingo Enabling Statute or something 19 like that, what I would call kind of a typographical 20 error. 21 Conclusions of law, however, fall into a 22 slightly different status. A conclusion of law in one 23 case that we had from the Lottery Commission several 24 years ago dealt with the recommendation for punishment 25 or sanction. In that particular case, administrative Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 60 1 law judged, based on the proven allegations, had 2 recommended a $20,000 fine. 3 This agency determined that that fine 4 was not an adequate amount to punish the conduct that 5 had occurred and, in fact, changed -- because the ALJ 6 had listed that as a conclusion of law, the agency 7 said "No, that is not the proper subject matter for a 8 conclusion of law. The decision as to the sanction or 9 the punishment rests with this agency." 10 And it does. It rests with every agency 11 ultimately. And so you disregarded -- you disapproved 12 that as a finding of -- excuse me -- as a conclusion 13 of law and you substituted the punishment. As I 14 recall it, I think it was a $50,000 fine. That would 15 be an example where you could properly, legitimately 16 change a conclusion of law. But even then, 17 Ms. Kiplin, as your general counsel -- and I think 18 she's been the only general counsel you've had, as I 19 recall -- indicated to you that you should state the 20 reasons. 21 And you did, in fact, in your final 22 agency order state the reasons for your decision. Now 23 you've been very patient with me and I've tried to 24 keep this short and to the point. I've covered 25 generally who I am and what I do for you. I've Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 61 1 generally talked you through very quickly the 2 contested case proceeding and changing findings of 3 fact and conclusions of law and I have also discussed 4 briefly with you the test that the court will look at. 5 What I'd like to conclude with -- and 6 then answer any questions you may have -- is what I 7 call, I hope, some wisdom from one who has earned 8 these few gray hairs I have remaining. 9 And that is: You are really an 10 impartial body. You are the governing body of this 11 agency and you wield enormous power over folks who 12 have licenses to do business for or with the 13 Commission. You should exercise that power in that 14 impartial role, keeping yourself what I call "above 15 the affray." 16 Let your staff, who is an excellent 17 staff, do the legal work at the contested case hearing 18 and then bring the case to you for your decision. 19 Should you feel that there is a problem in a case or 20 that some aspect of the case has not been developed 21 properly, you certainly have the power to send the 22 case back to the administrative law judge with 23 instructions to take additional evidence or look at 24 this particular point. 25 Much like an appellate court might Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 62 1 remand a case to the trial court for a -- for the 2 taking of additional evidence or clearing up some 3 error that occurred, that is always something you can 4 do. 5 And what I would say to you is: If you 6 find yourself faced with a situation on one of these 7 contested cases where you do have some concerns, talk 8 to your general counsel. Bring it up. And I'm not 9 saying this just because she's my friend and I've 10 known her now, I guess, almost the whole ten years 11 I've been with the state. But I would say that your 12 general counsel is probably one of the finest, most 13 effective general counsels of any state agency I've 14 ever dealt with. 15 I think you can rely on her advice. And 16 between her advice and the advice that I will help 17 give you, we'll keep you, you know, on the right path. 18 And that's, I guess, my final point of why I'm here. 19 COMMISSIONER CRINER: I don't know. It 20 seems like you were paid to be here by somebody. 21 MR. HELMCAMP: And Kim, you can take 22 care of me later. This is all done in my own 23 enlightened self-interest because as I said at the 24 beginning, I do defend you. I'm the one that walks 25 into the District Court and has to explain to that Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 63 1 hard-eyed judge "Yes, Your Honor, the agency did it 2 exactly right and here's why." 3 And I want to win those cases for you. 4 If you follow -- and keep in mind, I think -- these 5 few simple rules, you will not go wrong. We're here 6 to help you. And I mean that sincerely. That's a 7 phrase you hear all too often. But that's one of the 8 reasons I'm down here because I really do want to help 9 you. 10 Again, thank you for your attention. 11 May I answer any questions for you? 12 COMMISSIONER WHITAKER: What would be 13 the one thing that you say you would most impress on 14 us to do differently or to do better than we do? 15 MR. HELMCAMP: I think let the process 16 work. Let the staff develop the case. Let the staff 17 bring the case to you and then see the presentation 18 and let it go. Try to restrain what I think would be 19 your normal human tendency to want to get hands-on 20 involved. 21 If you keep yourself in that role, I 22 think you will avoid any issue that there was some 23 bias or I like this -- you like this person better 24 than that one or that you became so personally 25 involved in the case that you may have lost your Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 64 1 impartiality. 2 It's very difficult because you do want 3 to get involved, and you may see things that you think 4 could have or should have been done better. If that's 5 the case, work with Ms. Kiplin to maybe do a remand 6 and get that matter cleared up to your satisfaction. 7 MS. KIPLIN: Commissioners, if I could 8 just add a few things. I asked Mr. Helmcamp to come 9 over because it occurred to me that we really hadn't 10 had, since this complement of Commissioners, an 11 opportunity for you to hear about contested case 12 proceedings and why things work the way they do. 13 And you, frankly, don't see the sausage 14 get made. You see the outcome after the contested 15 case. You have, on occasion, had people that have 16 come before you and appeared before you in connection 17 with contested case proceedings and there have been 18 issues that have come up regarding, you know, why 19 didn't they get actual notice or why can't we listen 20 to what they have to say in terms of evidence. 21 And we actually do have a rule on coming 22 before the Commission and it requires people to 23 actually request oral argument before the Commission. 24 Now I will say that I don't think the Commission has 25 ever cut anybody off, even if they haven't followed Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 65 1 that rule. And that's Commission's -- that's the 2 Commission's discretion to follow. 3 But oral argument is just that. It's 4 argument on evidence that has already been developed 5 on the record. There are times where I know -- from 6 where I'm sitting, it is frustrating for each one of 7 you individually, in terms of one of these cases that 8 comes before you when you want -- you ask questions 9 and you want to know the answer in terms of evidence. 10 And it's frustrating when you have 11 somebody -- well, for example, me -- that says "Wait a 12 second. Don't answer that question. That's some 13 evidence that has not been developed because we 14 haven't had the opportunities for being sworn under 15 oath and having the direct and having the cross, and 16 having it as part of the record." 17 The record, from my point of view as a 18 general counsel, is something that I have to -- it's 19 my obligation to protect and preserve because when 20 it's all said and done, should there be a petition for 21 judicial review, what goes up to the District Court 22 for review is the record. 23 And so that's why I have recommended on 24 occasion where I see that you're struggling with "I 25 need this answer. I want to know what the evidence Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 66 1 is." That if it's not part of the record, just send 2 it back. Have the person who's supposed to be taking 3 the evidence and deciding what's admissible and what's 4 not admissible actually make that part -- issue 5 another Proposal for Decision and bring it back for 6 you so that your questions are answered. 7 And that goes back to Mr. Helmcamp's 8 recommendation to let the process work. And then 9 lastly, the question has been on the notice, which 10 goes to, I think, more the -- what I would call the 11 "'Taint fair argument. We didn't get notice." 12 We are following what we are required to 13 follow under the Administrative Procedures Act and our 14 rules. There is the practical awkwardness on noticing 15 up each one of the contested case proceedings that 16 comes before the agency because of the timing on 17 filing of the notice and to whom. 18 We've had people that have come before 19 you -- and these cases are dead cases in the sense 20 that they're not live proceedings before the judicial 21 officer -- where they said "Well, I know the 22 organization got notice, but I didn't." And that 23 person's not following their business. 24 And so the issue is: How far do you go 25 to try to provide people with notices? And I think to Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 67 1 the extent that you want to, that's within your 2 discretion and we'll need to -- we should change the 3 rules if that's what the desire of the Commission is. 4 But before the Commission proceeding, 5 folks are getting notice. Those that actually request 6 oral argument -- and I see a practitioner here in the 7 audience who does regularly represent people before 8 the agency and when he wants to make oral argument on 9 behalf of the Commission, he knows how to go about 10 doing it. 11 And that's what triggers the Commission 12 staff, me, to send out notice saying "Hey, we are 13 having a Commission meeting this day and you've asked 14 for oral argument." Otherwise, we don't know who will 15 be here and who will not be here. And we are 16 following, what I believe to be, the practice that is 17 followed by administrative agencies. And Mr. Helmcamp 18 from that -- he represents countless agencies. 19 MR. HELMCAMP: Just about everybody. 20 Besides y'all, I do the Workers' Comp Commission, the 21 Board of Veterinary Medical Examiners, the Alcoholic 22 Beverage Commission, the Cosmetology Commission, the 23 Tax Board Professional Examiners and the Optometry 24 Board. 25 And if that's not eight, I've left Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 68 1 somebody out. But I know right now I have eight 2 agencies that I do this for as a full-time basis. 3 MS. KIPLIN: So lastly, I would say I 4 appreciate your indulgence on allowing the lawyers to 5 take up time at your Commission meeting. 6 COMMISSIONER WHITAKER: Did you ask him 7 to say those things about you? 8 MS. KIPLIN: No, but I will pay him for 9 that. And I do appreciate the compliment. 10 MR. HELMCAMP: Well, it's heartfelt and 11 genuinely given, because I don't say things I don't 12 mean. And I do mean what I say. And as Kim pointed 13 out, I have represented just about every state agency 14 in ten years as an Assistant Attorney General. 15 And I've seen many, many Commissioners, 16 many board members, and many general counsels come and 17 go. And I would simply say about all your staff, by 18 the way, you are well-served. 19 Thank you so much and I appreciate the 20 opportunity to be with you. I look forward to being 21 back again on some of our other cases. 22 CHAIRMAN CLOWE: Just a minute. I 23 haven't had my say. 24 MR. HELMCAMP: Thank you, sir. Thanks, 25 Kim. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 69 1 CHAIRMAN CLOWE: I'm serious. Sit down. 2 MR. HELMCAMP: Oh, you're not through? 3 I'm sorry. I didn't hear. I thought I could get up. 4 CHAIRMAN CLOWE: I sat here and listened 5 with your recitation with interest and it brought to 6 mind the BCN hearings before the Railroad Commission 7 of Texas. And they had their own hearings examiners, 8 and there were some great attorneys there, mostly on 9 the trucking side of it. The staff had great lawyers, 10 but Senator Kelly and Johnny B. Rogers, Sr., and Judge 11 Charles Matthews, those were real BCN hearings. 12 And I enjoyed thinking about those over 13 the years as you talked about the administrative 14 procedures and I want to look through this hint of 15 collusion that I see between you and the general 16 counsel and say that I think the staff here should be 17 given a great amount of credit. 18 And I'm sitting here looking at the 19 staff and they are hard-working and they are 20 results-producing attorneys that make a great 21 contribution to the work product of the Office of 22 General Counsel here. 23 Since I've been on the Commission, I 24 have relied heavily on the general counsel staff and 25 the general counsel. And I think their work is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 70 1 thorough and is certainly excellent. I think the 2 points that you made go beyond the Administrative 3 Procedures Act and contested hearings. 4 I think it goes to the conduct of this 5 Commission's business, the Open Records Act, the 6 ethics aspect of the work that we do, the care and 7 attention that we give to executive sessions and all 8 the business of this Commission because it is, in my 9 mind, unique beyond those agencies which you 10 represent, and the one other than this one that I'm 11 most familiar with, the Railroad Commission, because 12 we run a very large business in this state. 13 And as you've been in the audience this 14 morning and seen, we have vendors who are interested 15 in the contracts, which is significant and 16 substantial. And this Commission is in the spotlight 17 constantly to do the right thing, to maintain the 18 honesty and the integrity in the games of Texas. And 19 that is a very heavy responsibility that the three 20 Commissioners and the Lottery Commission have. 21 Not to say that other commissioners 22 don't, but this is a very special commission and we 23 must be mindful of the things that you talked about 24 and those other items that I mentioned. I want to 25 spread this with a very broad brush. You don't ever Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 71 1 walk away from the responsibility of being a Texas 2 Lottery Commissioner. 3 MR. HELMCAMP: I couldn't agree with you 4 more and I think it's a tribute to the Lottery 5 Commission that you have the standards for integrity 6 around the state. I mean, we're all human. We're all 7 doing the best we can. And I'm not saying that a 8 mistake can't be made somewhere along the line by 9 somebody, but if everyone keeps their eye on the 10 ball -- and it is a public trust and a public 11 integrity. 12 If we do that, then we'll all be fine 13 and the citizens of this great state will be 14 well-served by all of us: You on your side of the 15 table, me here, the staff and everyone that does 16 business with you and every other state agency. And 17 that's what we're trying to do. 18 CHAIRMAN CLOWE: And I've been on that 19 side of the table more than I've been on this side. 20 I've gone before state agencies for 40 years, and I 21 can tell you that the search for justice and the 22 desire for an answer is one that an agency ought to 23 try to satisfy, in my opinion. And that's an 24 important responsibility, too. 25 MR. HELMCAMP: Yes, sir. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 72 1 CHAIRMAN CLOWE: Now you may leave. 2 Thank you. 3 MR. HELMCAMP: I appreciate it. Thank 4 you so much for the time, and I look forward to seeing 5 y'all again. 6 CHAIRMAN CLOWE: Thank you, Dewey. 7 Anything further from counsel? 8 MS. KIPLIN: No. 9 CHAIRMAN CLOWE: Then we'll go on to 10 item number five, presentation and possible discussion 11 on Charitable Bingo Operations Division's charitable 12 bingo training process. 13 Billy Atkins? 14 MR. ATKINS: Thank you, Commissioners. 15 Some of you will recall that at the October 11th, 2000 16 meeting of the Texas Lottery Commission, staff first 17 provided this presentation regarding the training 18 efforts of the Charitable Bingo Division to our 19 licensees. There have been a number of advancements 20 in our educational processes since we first provided 21 this presentation, so we thought now would be a good 22 time to update you on our activities. 23 As this slide will show, our training 24 efforts are ongoing in nature. Before any license is 25 issued to an organization, the group goes through a Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 73 1 pre-licensing interview. Once the organization's been 2 licensed for anywhere from three to six months, we 3 conduct a books and records inspection as a follow-up 4 to the start of their games. 5 Next we have our operator training 6 program, which we conduct throughout the year at 7 various locations around the state. And finally, we 8 have a variety of ongoing educational efforts that we 9 undertake in order to provide our licensees with the 10 information they need to conduct their games. 11 Now to go into each of these items in a 12 little more detail, I'd like to introduce Roy 13 Gabrillo. Roy's the senior audit manager for the 14 Charitable Bingo Operations Division. And since Roy's 15 section is primarily responsible for the majority of 16 these activities, I've asked him to conduct this 17 presentation for you. 18 MR. GABRILLO: Thank you, Bill. For the 19 record, my name is Roy Gabrillo. I'm the senior audit 20 manager for Charitable Bingo Operations Division. 21 As Billy just mentioned, before any 22 license is issued and before any bingo game is 23 conducted and before the first bingo ball is dropped, 24 we meet with the applicant face-to-face to discuss in 25 detail the licensing and recordkeeping requirements. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 74 1 The contact is made by an auditor to arrange a date 2 and time for the pre-licensing interview. 3 At the pre-licensing interview, copies 4 of the Bingo Enabling Act and Charitable Bingo 5 Administrative Rules, the audit forms manual and 6 licensing forms manual are also provided. Also, the 7 auditor provides the applicant a business card if any 8 questions arise after the interview. 9 The licensing requirements are then 10 explained to the applicant, which includes the 11 displaying of the license, amending a license, 12 changing playing days and/or times, increased license 13 fees or bonds, adding or deleting of officers, 14 directors, workers and operators, renewal of the 15 license, the operator's responsibilities, authorized 16 representative, changes in lease agreements. 17 A licensed distributors list is also 18 provided, temporary suspension or administrative holds 19 of license, surrender of the license, and temporary 20 license. Also, the requirements for the operator 21 training program are also discussed in this section. 22 After the licensing requirements are 23 explained, the recordkeeping -- the recordkeeping 24 requirements are explained to the applicant. And this 25 includes the bingo funds information, which covers the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 75 1 checking and savings account information, prior 2 approval of loans to the bingo account, and prize fees 3 withheld. 4 The bookkeeping requirements covers an 5 explanation of the forms that are recommended for 6 accurate accounting of all bingo activity, such 7 reports such as the daily cash report, disposable card 8 sales summary, daily schedule of prizes, daily floor 9 sales by usher, cash register tapes, sales journal, 10 instant bingo purchase log, lessor receipts journal 11 and also maintaining a complete invoice file and 12 retaining all records related to bingo for a period of 13 four years. 14 And other information and requirements 15 covers the 35 percent charitable distribution 16 requirement, bingo operator and lessor quarterly 17 reports, the due dates, the prize fees and the rental 18 receipts tax, advertising restrictions, prize limits 19 on bingo games, prohibition of games of chance, 20 cardminding devices, instant bingo dispensers, the 21 books and records inspections, audits, and general 22 restrictions on the bingo games. 23 After an organization gets their license 24 and begins conducting games, we follow up with a -- 25 within shortly thereafter to see how they are doing. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 76 1 This is done through a books and records inspection. 2 And it's -- the BRI is usually conducted within 90 to 3 180 days from the issue of the license. 4 But during that period, the licensee can 5 contact the regional office or headquarters with any 6 questions or problems that arise. The primary 7 operator is notified by mail. And seven to ten days 8 after the letter is mailed, the auditor will contact 9 the primary operator and arrange a date and time to 10 conduct the inspection. Also at that time, the 11 auditor will inform the operator as to what records 12 are needed and what time period is to be covered. 13 The inspection is conducted with the 14 primary operator or an alternate operator. We want 15 the person most knowledgeable about the records to be 16 present at the inspection. If that person is not the 17 operator or the primary operator, then arrangements 18 are made to have the bookkeeper or accountant present 19 at the inspection. 20 The required books and records are then 21 reviewed by the auditor and any discrepancies with the 22 records are discussed with the licensee by the auditor 23 and recommendations for corrective measures are also 24 made. 25 The auditor leaves a business card with Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 77 1 the licensee if any questions arise in the future. 2 The auditor then becomes a point of contact in the 3 future. 4 The bingo operator training program, the 5 contents: Introduction and general information 6 covering a brief history of bingo in Texas, an 7 overview of the Charitable Bingo Operations Division, 8 the scope of bingo in Texas, information that is 9 available from the Charitable Bingo Operations 10 Division, and the Bingo Advisory Committee is also 11 included in this section. 12 Conducting a bingo game covers who, when 13 and where bingo can be conducted, the bingo bank 14 account, bingo personnel, operators' responsibilities, 15 frequency and times of games, restrictions and 16 restrictions in conducting bingo games. 17 Recordkeeping requirements covers a 18 preparation of all recommended forms or accounting of 19 all funds from the conduct of bingo and the 20 preparation of the quarterly report. 21 Administration and operation of a bingo 22 game covers rent and rent relationships, affiliated 23 organizations, common mistakes on license 24 applications, charitable distribution requirements and 25 how to maximize those charitable distributions, Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 78 1 inventory controls, bingo expenses and records 2 retention. 3 Promoting a bingo game covers ideas for 4 increasing attendance and attracting new players, 5 which includes ideas of where and how to advertise 6 bingo games, door prizes, hall themes, and marketing 7 their bingo hall. 8 The program is concluded with a question 9 and answer section. We've also redesigned the 10 program, due to returning -- the class of -- to 11 fulfill the 24-month requirement covered in rule 12 402.550 and also to keep it fresh. The program is 13 more interactive and we have incorporated a practice 14 exercise in the recordkeeping section. 15 Bingo operator training notification: 16 We do that through the Bingo Bulletin, by posting 17 dates and locations of upcoming classes. Information 18 concerning who must attend the training program and 19 how often an organization must attend are included in 20 the bulletin. 21 Mail-outs to licensees: We include a 22 schedule of upcoming classes when the license renewal 23 packages are mailed out. Also, when requested, copies 24 of licensing forms, copies of the Act or the rules are 25 also mailed out. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 79 1 We post on the Web site all the dates 2 and locations of upcoming classes. And the locations 3 includes, of course, the address and the phone number 4 of the location, if the person needs directions to 5 that location. Also, registration can be done on-line 6 from our Web site. 7 And then we just -- in fact, last month 8 we did a mass mail-out of all the upcoming classes. 9 Since we have just scheduled classes well into June, 10 we did a mass mail-out to all licensees to include 11 that schedule. 12 The bingo operator training program is 13 intended to be ongoing in nature. The total classes 14 held since March of 2000 is 88. And the first class 15 was held here in Austin on March 1st, 2000. And 16 pursuant to Bingo Administrative Rule 402.550, the 17 program consists of eight hours of training, three 18 hours of which is self-study portion, where the 19 student reads in its entirety the Bingo Enabling Act 20 and the administrative rules. The remaining five 21 hours of credit is classroom-styled instruction. 22 This is just a brief history of the 23 program. We've held 25 classes in 19 cities from 24 March 1st, 2000 to August 31st of 2000. We've had 48 25 classes in 25 cities from September 1st of 2000 to Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 80 1 August 31st of 2001, and 15 classes in eight cities 2 from September 1st, 2001 to January 31st, 2002. And 3 all the classes are held in our regions which is 4 Odessa, Dallas, Houston, San Antonio and Austin. 5 The operator training costs are as 6 follows: For the period of March 1st, 2000 to August 7 31, 2000, the total cost was $31,016 with a total of 8 1315.5 man hours expended. 9 From September 1st to August 31st, 2001, 10 $34,609 and 1220 hours expended on the training 11 program. 12 September 1st of 2001 to January 31st of 13 2002, total costs incurred so far are $9,401 and 360 14 hours have been expended. 15 The total cost, as of January 31st, are 16 $75,026 and total man hours expended are 2895.5 hours. 17 The total appropriation that we've 18 received is zero to conduct these classes and the 19 total additional is also zero. 20 MR. ATKINS: Commissioners, as you can 21 see, that's a pretty significant amount, especially in 22 terms of the total man hours that have been spent on 23 this program. And I'd like to compliment Roy and his 24 staff in the audit section for their efforts on this 25 not just in giving the case, but developing the class. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 81 1 Norma Quezada, the manager of our Austin 2 and Odessa offices, is primarily responsible for the 3 redesign that the program's gone through that Roy 4 mentioned earlier, and it's been very well-received. 5 I'd like to talk now about some items 6 that we had planned, again, back in October of 2000 7 regarding changes that we had hoped to include in the 8 operator training program. Back then, we discussed 9 our desire to offer the operator training program in 10 conjunction with annual conferences that our licensees 11 hold across the state. 12 And we were able to -- starting in 13 January of this year -- do that for two of our 14 veterans groups. So since they were already in town 15 conducting their annual conference, they worked with 16 us in order to incorporate the operator training 17 program into their conferences. So since their 18 members were already here, they were able to take 19 benefit of having that training available to them and 20 it also helped us by saving on travel costs, not 21 having to go out to those locations in January. 22 We're still going out to locations, but 23 we were still able to, in January, hit -- I want to 24 say -- over a hundred -- 25 MR. GABRILLO: Yes. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 82 1 MR. ATKINS: -- individuals by 2 incorporating the training program into those annual 3 conferences. 4 Another thing that we talked about was 5 the creation of a practice exercise. And as Roy 6 mentioned, we've done that with this program. A part 7 of the program includes a time for the participants to 8 stop. They're given a series of forms to utilize in 9 completing the report. So they have an actual 10 hands-on opportunity to put into practice some of the 11 information that's covered in the operator training 12 program. 13 Some items that we're still working on 14 include the creation of specialized training courses. 15 These would be shorter, more specific training courses 16 that may cover, for example, just books and records or 17 just items relating to licensing issue. 18 We've also talked about and will be 19 developing a training course targeted specifically for 20 nonprofit organizations that don't currently conduct 21 bingo. We can send out notifications to nonprofits, 22 have them come in, and -- we think -- within an hour 23 or two, discuss the full range of charitable bingo for 24 them to go back and consider as a fund-raising 25 activity. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 83 1 And then finally, we're still working on 2 the ability to make this training available through 3 our Web site or through teleconferencing. 4 Real quickly, as you know, we do a 5 survey at the end of each training program that we ask 6 the individuals to return to us. We ask them if they 7 think the operator training program was worthwhile. 8 96 percent of them respond in the affirmative. And 9 when we ask them to rate the quality of service 10 they're receiving from the Charitable Bingo Division, 11 95 percent rated as good or excellent. And again, I 12 think that goes back as a big compliment to the staff 13 and their efforts and their professionalism. 14 Finally, the continuous bingo training 15 or educational efforts that we offer include our Bingo 16 Bulletin, which is our regular newsletter that we send 17 out to licensees. We're always available for seminars 18 or presentations to any group that's interested. We 19 continually make updates to our Web sites in the news 20 alert on our frequently asked questions. 21 We're currently working on getting a 22 number of our reports that are generated off our 23 system that are routinely requested through Open 24 Records, getting them formatted and put out on the Web 25 site so organizations can access that on their own Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 84 1 without having to go through Open Records. And 2 finally, the Communication staff has suggested that we 3 develop what they refer to as kind of a fast facts 4 segment on the Web site where interested individuals 5 can go and just click on information about charitable 6 bingo trends and gross receipts, etcetera. 7 We have toll-free numbers for our 8 offices here, as well as all of our regional offices. 9 And finally, we routinely send out compliance 10 notifications for licensees, such as what they're 11 35-percent distribution is, if they have any 12 delinquent balances, or notification to file their 13 quarterly reports. 14 So that is our update on the efforts 15 that staff's been doing and we'd be happy to address 16 any questions you may have. 17 COMMISSIONER WHITAKER: How often do you 18 want to train each of the licensees? What's your 19 goal? 20 MR. ATKINS: They're required through 21 administrative rule to attend the training every 24 22 months. 23 COMMISSIONER WHITAKER: Okay. And 24 you're at that level, right? 25 MR. ATKINS: Yes, ma'am. We've just Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 85 1 finished our first 24-month cycle and moving into our 2 second 24-month cycle. 3 COMMISSIONER WHITAKER: Do you have any 4 statistics or data that indicates this is actually 5 making a difference? And what would that be? 6 MR. ATKINS: We do. One of the 7 performance measures that we track is number of audit 8 reports with violations? 9 MR. GABRILLO: Right. 10 MR. ATKINS: And since the introduction 11 of the operator training program, we've noticed about 12 a 20-percent reduction in that performance measure. 13 COMMISSIONER WHITAKER: That's great. 14 From those audit reports, do you see any particular 15 areas to then add to the training, you know, ongoing 16 issues with the licensees? 17 MR. GABRILLO: We don't track the -- 18 each violation. We don't know exactly which 19 violations are occurring the most or which ones have 20 dropped off. We're hoping with the implementation of 21 the new system, the CBS system -- 22 COMMISSIONER WHITAKER: That we can do 23 that. 24 MR. GABRILLO: -- that we can do that, 25 yes. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 86 1 COMMISSIONER WHITAKER: Because then you 2 can target, you know, additional training or -- 3 MR. GABRILLO: Right. Exactly. 4 COMMISSIONER: Okay. 5 MR. ATKINS: And one of the things that 6 we have done -- the survey that I've referenced 7 earlier also has the ability for the organizations to 8 make suggestions to the programs. And so a lot of 9 those suggestions were incorporated in the redesign of 10 this phase two. 11 COMMISSIONER WHITAKER: A lot of hard 12 work went into this. 13 MR. GABRILLO: Yes, it did. 14 COMMISSIONER WHITAKER: It sounds real 15 good. So thank you. 16 MR. GABRILLO: Thank you. 17 MR. ATKINS: I did want to mention -- 18 and I don't recall if I did or not, but we think it's 19 only fair, since our licensees are required to do 20 that, the charitable bingo staff is required to 21 undergo the training, too. 22 And we currently have training scheduled 23 here in Austin for February 20th and February 22nd of 24 this month and we've made that open, really, to any 25 agency staff that would like to attend it. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 87 1 CHAIRMAN CLOWE: Including 2 Commissioners? 3 MR. ATKINS: You're more than welcome 4 to. 5 CHAIRMAN CLOWE: Questions? 6 COMMISSIONER CRINER: I've been to a 7 bingo hall. 8 MR. ATKINS: You've been to three bingo 9 halls. 10 COMMISSIONER CRINER: Three bingo halls, 11 yes. I think it's kind of redundant, but I want to 12 ask it, anyway. Of the licensees that have been to 13 the training versus those who haven't, where is your 14 performance best? 15 MR. ATKINS: First I need to ask if we 16 have licensees that haven't gone through the training. 17 The number of the licensees that haven't gone through 18 the training is going to be very, very small. It's 19 going to be new licensees. 20 MR. GABRILLO: Right. New licensees and 21 maybe some that were on administrative hold that we 22 just overlooked because of the system. 23 MR. ATKINS: But I think the best way 24 I'd have to answer your question is to go back -- to 25 refer you back to the performance measure that I Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 88 1 mentioned for Commissioner Whitaker and that dropped 2 in violations. Yes, sir. 3 COMMISSIONER CRINER: I figured that was 4 about the only way you could answer that question, but 5 I wanted to make sure. Thank you. 6 CHAIRMAN CLOWE: And Roy, I assume that 7 if I asked you the question of the greatest weakness 8 or problem that the training program addressed, it 9 would be also the reduction in the number of 10 violations as the problem identified and the 11 correction applied; is that right? 12 MR. GABRILLO: Right. Correct, because 13 I think, you know, just by the statistics that tell us 14 where the drop is -- you know, obviously we're making 15 some headway with this training program. People 16 are -- you know, you're going to have some that are 17 resistant. They're there because, you know, they're 18 mandated to be there and they're just going to sit 19 there and not say anything. 20 But for the most part, most of the 21 comments that we receive -- because there's a -- on 22 the survey, there's a comment section where people can 23 write comments on anything they wish. And for the 24 most part, when there are comments, they are on a 25 positive note that, you know, it's a good program, you Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 89 1 know, continue doing good work, just kind of -- on the 2 humorous side, one of the -- another comment that we 3 get a lot is for us to provide coffee and doughnuts 4 during the training program, which, you know, we don't 5 have the funds to do that. 6 MR. ATKINS: I may, Commissioner Criner, 7 go back and offer this also as kind of an insight to 8 the impact of the operator training program: We had 9 an individual with the Boys and Girls Club down in, I 10 believe, Del Rio attend the operator training program, 11 I think, in San Antonio. 12 MR. GABRILLO: Yes. 13 MR. ATKINS: As a result of attending 14 the operator training program and the information she 15 learned, she went back to her organization and looked 16 into their books and records and they discovered that 17 an operator had stolen about $14,000 from the 18 organization. 19 And they brought that to us. They 20 brought that to Commission security, and that 21 individual was convicted. 22 CHAIRMAN CLOWE: That's a great program. 23 And your comment is a segue into a recommendation I 24 want to make to Roy. Let's do away with the term "man 25 hours" and say "work hours." Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 90 1 MR. GABRILLO: Okay. We'll do that. 2 CHAIRMAN CLOWE: Since you made the 3 comment about the lady who went back and -- okay? 4 MR. GABRILLO: All right. I'll do that. 5 CHAIRMAN CLOWE: Thank you. 6 MR. GABRILLO: Thank you. 7 CHAIRMAN CLOWE: Thank you, Billy. 8 We're going to take a ten-minute break 9 at this point in time. And when we return, we're 10 going to item number eight, a report on the Survey of 11 Organizational Excellence. That will be the next 12 item. 13 So the Commission will recess shortly. 14 (Recess) 15 CHAIRMAN CLOWE: We're ready to come 16 back to order and we're going to take up item number 17 8, report, possible discussion and/or action on the 18 Survey of Organizational Excellence. Linda Cloud and 19 Dr. Noel Landuyt, is it? 20 DR. LANDUYT: Yes, that's correct. 21 CHAIRMAN CLOWE: Very good. Our 22 executive director is not here. So for want of an 23 introduction, are you ready to go forward? 24 DR. LANDUYT: I sure am. Good morning. 25 I'm Noel Landuyt. I'm from the University of Texas. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 91 1 I'm with the group called the Survey of Organizational 2 Excellence Group, and what we do is conduct for the 3 State and for state agencies human resource 4 assessments as called for by the Strategic Planning 5 Instructions by the LBB. 6 And every two years, we are fortunate to 7 have the governor invite agencies to participate. So 8 the governor sends out a call for participation. I am 9 glad to report that the Lottery has answered that call 10 every time, starting with Governor Richard's call and 11 through Governor Bush's call and now Governor Perry's 12 call. 13 So we have great, longitudinal data from 14 the Lottery Commission from the perspective of 15 employees. What I'd like to speak off if is -- you 16 have two things. The first thing is the blue and tan 17 survey. That's the hard copy survey form. That gives 18 you an idea and a look into the questions that we ask 19 state employees. 20 We had 115 -- 112 state agencies take 21 the survey last fall. About 170,000 state 22 employees -- 168,000 I think is more correct -- state 23 employees took the survey last fall. And what it does 24 is it goes out to all employees and asks them to give 25 their perceptions and their attitudes, if you will, Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 92 1 towards how the organization is performing. And we 2 get back some great data from that. 3 This survey has a long history in this 4 state. Clements began the process back in '79, and 5 it's continued to build. We're also the group that 6 conducts, along with the Governor's office, the 7 Governor's Conference in Organizational Excellence, 8 which the chairman and the executive director were 9 invited to every fall. 10 And we also now are assuming a lot of 11 roles when it comes to Senate Bill 1563, the Customer 12 Service Standards Act, not only looking at internal 13 employees' perceptions of quality, but now looking at 14 customer perception of quality. So we have an 15 expanding role. 16 I'd like to spend just a few minutes 17 giving you an overview of what the agency -- how they 18 performed and what the employees say about how the 19 agency operates. This is -- I like coming -- this is, 20 I think, my lucky seven, lucky number seven 21 presentation this week on this topic. This one is a 22 good one because I get to say that the agency scores 23 look pretty good overall. 24 The first thing we always look at is 25 response rate. And response rate over time is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 93 1 reported in the general report that is sent back. And 2 it is up this year to 53 percent. That is up from 39 3 percent in 2000. What that tells us is that we have a 4 greater willingness of employees to respond to this 5 type of assessment. 6 Generally, when we have a greater level 7 of responsiveness from employees, what you typically 8 have is employees that feel as though their opinions 9 count and matter and they're more a part of an 10 organization. There's less fear of retaliation, if 11 you will, or fear that what they say would be used 12 against them. So that's a very positive thing for the 13 agency. It's up to 53 percent. 14 This survey was offered -- for this 15 agency, it was offered on an on-line/hard copy option, 16 to which the employee could either take it on-line or 17 they could take the hard copy. About 64 percent of 18 all surveys that were taken were taken on-line 19 overall. For this agency, about a third took the 20 on-line version. Half of the state agencies offered 21 only an on-line. Lottery offered a combination of 22 both, both of which were used by about the other half. 23 If you would, refer to the second page 24 and that's -- it's page three and it says dimension 25 analysis. What the survey attempts to do is look at Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 94 1 the totality of the organization. It encompasses the 2 entire work environment. And we divide that into -- 3 we tried to put it in some really reasonable ways to 4 analyze that data. We put it into five dimensions. 5 The first dimension's being work group. 6 That's how I interact with my supervisor, the team, 7 working with my organization. Accommodations, which 8 is pay and benefits and physical structure. 9 Organizational features, we look at change, 10 orientation, quality, strategic orientation of an 11 organization, information, internal/external, 12 availability of information and personal -- and the 13 personal one looks at things like job satisfaction, 14 burn-out, empowerment. 15 What I've written -- what I've scribbled 16 off to the side here or over to the side is the brand 17 new benchmarking scores. They just released them this 18 week, and so I wrote them in on the report. The 19 benchmarking scores are a comparison with the rest of 20 the state. 21 The one thing that you might notice is 22 that if you look at these bars, for example, work 23 group, you see that the bar for Lottery goes up to 24 325. In that bar, there's an S, an M and an A, and 25 those are benchmark data for size, mission and all Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 95 1 respondents. 2 Over to the side, I've written in what 3 the new scores are for 2002, because we -- again, we 4 just ran those numbers because everybody's now 5 completed the assessment for this biennium. And there 6 are large jumps in the state along each one of those 7 dimensional areas. 8 Something has changed in Austin in the 9 perceptions of -- basically, Austin -- the perceptions 10 of employees that work in this city as compared to how 11 they relate to the organizations over the last two 12 years dramatically. When you look at Lottery scores, 13 325, and the bench -- they were above the benchmarks 14 in the 2000 cycle. And the 2002, which we're into 15 now, they fall slightly below along this dimensional 16 line. And these, again, are just our brand new 17 numbers. 18 In accommodations, Lottery is above 19 and/or holds its own in that one. When we look at the 20 comparison for organizational features, again, it's 21 right along with the benchmarks. Typically, a 22 10-point difference -- it's on a score from 100 to 23 500. A 10-point difference is usually where the 24 significance level begins. So they're right along 25 where all the benchmarks are. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 96 1 In the information dimension, they're 2 right at -- one of their benchmarks for agencies of 3 similar mission, which in your case is, let's see -- 4 you're economic development, aren't you, economic 5 development. 6 And for personal, again, they're pretty 7 much right at the benchmark levels. When you look at 8 the next page, it kind of lays out the different -- 9 and it says page four and construct analysis. It 10 really starts to look at the data. And we look at the 11 relative highs and lows. 12 The highs scoring constructs are 13 quality. And what quality speaks to is the employee's 14 perception of delivering a quality service to their 15 customer, which is an excellent thing. 16 Physical environment: That means that 17 employees feel fairly strongly or positively about the 18 physical environment, their work environment. They 19 feel safe in their work environment. They feel it's a 20 pleasant place to work. They have adequate technology 21 to do their job. That's excellent. 22 They feel that the organization along 23 strategic means, as far as focus toward mission, goal 24 and vision is very high. Again, you want to see that. 25 The state typically has people Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 97 1 perceiving benefits to be positive. Again, that's a 2 high perception within this organization and for job 3 satisfaction. You have a general sense of employees 4 satisfied with their job. That's excellent. 5 When you look comparatively at the 6 lowering scoring ones, pay is the lowest scoring 7 construct. That is, I think, without -- with very few 8 exceptions, the lowest scoring construct for all state 9 agencies. It has taken a dramatic dive over the last 10 two years, as well. 11 Internal information: That's a 12 low-scoring one for this organization. That speaks to 13 the right information getting to the right people at 14 the right time. That's a little bit lower scoring. 15 And when I say lower scoring, these are 16 lower scoring relative to a fairly high-scoring 17 organization. So it's couched in a positive sense, 18 but it's relative to the organization. 19 Another lower scoring is supervisory 20 effectiveness. Typically, supervision effectiveness 21 is one of the five lowest for most organizations, as 22 well. 23 What we do see is that we see that on 24 the next page, when it looks at over time performance, 25 and that is on page 11. It's the third page of your Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 98 1 handout. It says organizational change performance 2 over time. This is what you want to see. You want to 3 see the bars going off to the right. That means a 4 positive change. 5 That means from the last iteration to 6 this iteration, the organization's improved along 7 these constructural areas that amount. That's very 8 good. For example, supervisory effectiveness is 9 improved 59 points over last iteration. That's very 10 good. 11 And you can see how it goes down. Pay 12 has declined to 19. The greatest fair pay that I've 13 seen dropped is about 68 points by one agency. So 14 that's -- puts that in perspective. There is a 15 decline in strategic orientation. However, I wouldn't 16 put that significant. I would say that's a break-even 17 because a five-point is not a significant change. 18 COMMISSIONER WHITAKER: What is that? 19 DR. LANDUYT: Strategic orientation, 20 that's a focus towards employees' perceptions that the 21 organization is moving toward a single vision, goal 22 and mission. So there's a strategic orientation with 23 how we perform our jobs, not necessarily strategic 24 planning focus, but strategic around goals and vision. 25 So that's a break-even. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 99 1 The rest of them are pretty much in 2 positive territory. You could argue that availability 3 of information is a break-even, as well. But most of 4 them are in positive territory. So that's good news. 5 So we've had an increase in response rate. Excellent. 6 We've had an increase along all 7 constructural areas, with the exception of pay, which 8 doesn't really typically surprise anybody. What we 9 also have seen from the data, which is somewhat 10 interesting, is that intent to leave -- and that could 11 be for any reason: Retirement or moving jobs -- is 12 12 percent. I believe the Auditor's office reported 13 turnover at about 17 percent for the state for this 14 year. It's good to have that number lower. That 15 means you have a good, stable workforce. We'd expect 16 to see that with the high job satisfaction scores. 17 I threw some additional items in there. 18 Mostly when we looked at the one low scoring 19 construct, supervisory effectiveness, saw that -- that 20 was one of the lower scoring constructs. We also 21 asked a question there: "Are you satisfied with your 22 ability to provide feedback to your supervisor?" And 23 about half of the folks say that they are satisfied 24 and the other half are neutral or not. So that might 25 be one of the areas to look at. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 100 1 And whether or not they feel the 2 organization is going to use the data, that's split 3 down the middle, too, as to whether or not the 4 organization is going to use -- they feel as though 5 the organization is going to act from the data. 6 I know that -- I believe it's Thursday, 7 I'm back here again, speaking to the employees and 8 providing a more detailed presentation along this 9 line. I think that's an excellent way to begin this 10 process of saying, you know, you -- employees, you 11 provided us this information. We're not 86ing it. 12 We're giving it back to you, looking at our strengths, 13 looking at our weaknesses and moving forward. 14 So overall, the agency has a good 15 performance record. It has improved. That's very 16 good. Are there relative areas to work on? Sure. 17 Are there relative areas to celebrate? Absolutely. 18 What can I answer for you? 19 COMMISSIONER WHITAKER: In other words, 20 like one of the areas you said was a lower-scoring 21 construct was work group, okay? 22 DR. LANDUYT: Yes. 23 COMMISSIONER WHITAKER: But then on page 24 11, it shows there's been an increase of 79 points. 25 So last year, it would have been 326 minus 79; is that Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 101 1 correct? 2 DR. LANDUYT: Uh-huh. 3 COMMISSIONER WHITAKER: Would that have 4 been last year putting us in the weak category or 5 close to the benchmarks? I mean, you're saying 6 there's an overall trend upward with all agencies, 7 right? 8 DR. LANDUYT: There's an overall trend 9 upward. 10 COMMISSIONER WHITAKER: Uh-huh. 11 DR. LANDUYT: Whether it would put 12 you -- I'd have to look at the data. Now fortunately, 13 the reporting function that we've returned to the 14 agency gives them over-time comparisons so they can do 15 a longitudinal look. 16 That would be interesting to see whether 17 or not to see still in the weakness, you had such a 18 dramatic improvement. 19 COMMISSIONER WHITAKER: Uh-huh. Okay. 20 CHAIRMAN CLOWE: Doctor, on behalf of 21 the Commission, I want to thank you for being involved 22 in this study and coming here today to talk to us 23 about it. I think it's very important and I know the 24 Commissioners have studied it and I appreciate your 25 explanation. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 102 1 I've had a lengthy discussion with this 2 about how, you know, our agency is operating with the 3 executive director and I think it's her job to 4 demonstrate the leadership skills that create a team 5 that make this agency a desirable place to work at. 6 DR. LANDUYT: Uh-huh. 7 CHAIRMAN CLOWE: We appeared before the 8 various appropriations committees and asked for more 9 money for all of our employees and we were successful 10 to some extent, but not to the extent we would have 11 liked to have been. But my view is that a strong 12 organization is an organization that has strong 13 leadership and tells the employees where they are and 14 expects them to perform and acknowledges that 15 performance, is not necessarily hand-holding and 16 asking employees every day "Are you happy" or "What 17 can I do to make you happy?" 18 And that's the charge, I think, the 19 Commission wants to give the executive director in her 20 team-building with the directors of this agency to 21 continue this improvement. And we acknowledge the 22 improvement and are very pleased with that. 23 I wish when you meet with the employees 24 on Thursday you would tell them that you have reported 25 to the Commissioners and the Commissioners are very Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 103 1 interested in this and intend to go back on a regular 2 basis to check on how we're progressing. 3 DR. LANDUYT: Certainly. 4 CHAIRMAN CLOWE: I want the employees to 5 have that feedback from you. And I would hope that 6 the next time we would see a similar increase in 7 responses beyond the 53 percent to a higher 8 percentage. You know, when we get up to 80 percent 9 responding, that's where you want to be. 10 DR. LANDUYT: Yes. 11 CHAIRMAN CLOWE: And then we'll have 12 people coming in and talking to their bosses and 13 telling them how they feel about how things are going. 14 And I think that's very positive. You can't always 15 say I'm going to do exactly what you want to do, but 16 you can give an answer. It may be a "yes" or a "no" 17 or "maybe I'll look into that." 18 But employees, I think, want an answer 19 on their issues. And I hope this will be a continuing 20 tool for our leadership in this agency to improve the 21 quality of product which comes from happy employees. 22 DR. LANDUYT: Absolutely. 23 CHAIRMAN CLOWE: And that doesn't mean 24 giving everybody a raise. 25 DR. LANDUYT: We were fortunate during Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 104 1 last legislative session to be invited by the Senate 2 Finance Committee the present data regarding 3 employees' attitudes when it came to pay, with 4 particular emphasis made to correctional officers 5 because we work with TDCJ, as well. 6 And we -- I'm happy to report that we 7 were asked some very good questions by Senator Ellis 8 and Zaffirini regarding issues of pay. They were very 9 interested in this type of employee-type data reported 10 back to them. Did it account for the pay increase to 11 the correctional officers? I don't know, but it was 12 certainly part of the testimony. 13 COMMISSIONER WHITAKER: Quick question. 14 DR. LANDUYT: Yes. 15 COMMISSIONER WHITAKER: Do you then go 16 ahead and actually work with agencies in training in 17 specific areas? 18 DR. LANDUYT: We do a couple different 19 things. The one thing that we do is we provide, first 20 of all what we call liaison training. That is how you 21 participate, market, sell, read, and interpret the 22 data back to the agency. And the agency sends a 23 representative. I think in this case it was Jim 24 Richardson came and attended the sessions on that. 25 What we also provide -- and it comes Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 105 1 back to the agency right now and is gone back to the 2 agency -- is best practice examples. We have five 3 presentations that were made last year at what we call 4 the Governor's Excellence Forum, and we'll do it again 5 this summer. And we record best practice type 6 scenarios about how you use and utilize survey data. 7 And so we have video -- how you best use this type of 8 data with the -- you know, how you best implement this 9 type of processes. 10 And we've returned those videos back to 11 the agency, back to their liaison. So every summer, 12 we gather and build best practice examples. Do we go 13 back and do individual consulting? Sometimes on a 14 limited fashion. Most of our work, though, is in data 15 collection. 16 COMMISSIONER WHITAKER: Okay. So then 17 you pretty much hand that off to the agency and then 18 the agency comes up with whatever consultants they 19 might need in a given area. 20 DR. LANDUYT: That's correct. And we 21 try to provide lots of tools in order to direct that 22 effort. 23 CHAIRMAN CLOWE: I want to mention one 24 person who I think is really team-building and is 25 doing an excellent job along these lines, and that's Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 106 1 Robert Hall in our HUB development program. 2 Commissioner Criner and I were here last week and 3 watched that director team build and have people 4 outside this agency actually making presentations to 5 build this program of mentor and protege. 6 DR. LANDUYT: Excellent. 7 CHAIRMAN CLOWE: That's the kind of 8 thing, innovative thinking, creative work that builds 9 within a state agency. I think, you know, maybe 10 having a state job during the technology boom wasn't 11 as much fun as having a state job today. 12 DR. LANDUYT: The data appears to show 13 that, yes. 14 CHAIRMAN CLOWE: And that's what came to 15 my mind. My son happens to be employed by an agency 16 in another state and, you know, he wants the goodies 17 that come from private enterprise employment, but he 18 loves the benefits that come from an agency 19 employment. And I think, frankly, a state job is a 20 darn good job to have. 21 And I think there's as much job 22 satisfaction and reward and enjoyment from working 23 particularly for the State of Texas. I've seen people 24 retire in great shape in this state and have a very 25 satisfying career. But there is the incumbent Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 107 1 responsibility on the leadership to reward and gratify 2 employees, that psychologically income that all of us 3 need. And I think that's what you're dealing with on 4 this activity to a certain extent. 5 DR. LANDUYT: Absolutely. 6 CHAIRMAN CLOWE: How often are you going 7 to do this for us? 8 DR. LANDUYT: The survey is done every 9 two years, in accordance with the Strategic Plan. We 10 do a lot of agencies, though, especially ones that are 11 undergoing a lot of change, reorganization. Sometimes 12 they ask us to do it annually to get a mid-run 13 benchmark for their own progress. We do that too, 14 sometimes. 15 CHAIRMAN CLOWE: Great. Linda, do you 16 have any comments? 17 MS. CLOUD: Commissioners, we have made 18 a very strong effort this year to try to get to the 19 bottom of our last report and the scores that we got 20 on that report and get our employees over the fear 21 that they -- that we would have knowledge of who made 22 comments and who didn't. I mean, that seemed to be a 23 big issue as to why people were not responding. 24 So we set up a task force, employees, 25 along with human resource and we worked all year in Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 108 1 trying to get the employees involved and letting them 2 know the importance of this particular survey for this 3 agency. And I think as a result of some of that is 4 why our scores came up and I -- because we did have 5 employee involvement in that. 6 And I also believe -- and I have already 7 instructed Jim Richardson to continue that in this 8 biennium, having the task force looking at the areas 9 that we need to bring up our scores, get a feel from 10 the employees as to what we need to do to bring those 11 scores up and to, again, involve the employees. 12 Part of the comments we heard in prior 13 surveys, as well, was well, you -- "We fill these 14 surveys out and we never hear the results of the 15 surveys." Well, that's the purpose for having him 16 appear at our staff meeting on Thursday with our 17 employees and them being able to actually get a 18 professional review of how this survey turned out. 19 And have also shared -- Dewey, maybe you 20 can correct me if I'm wrong. It's my understanding 21 we've shared this survey with all the employees. 22 DR. LANDUYT: Oh, good. 23 CHAIRMAN CLOWE: And I think the 24 employees ought to hear from you on behalf of yourself 25 and the Commissioners how we have taken this very Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 109 1 seriously and are interested in it and want this 2 agency to be a very desirable place to work. 3 MS. CLOUD: And we -- I will be most 4 happy to do that also at the staff meeting on 5 Thursday. 6 CHAIRMAN CLOWE: Great. 7 MS. CLOUD: This is a Valentine's Day 8 celebration, so I don't know what's planned yet. They 9 haven't informed me about that, but we -- 10 DR. LANDUYT: I'll wear a red tie. 11 COMMISSIONER CRINER: Haven't you heard 12 about Saint Valentine's Day? 13 MS. CLOUD: I don't get Valentines 14 anymore. 15 CHAIRMAN CLOWE: I thought the 16 Commissioners planned this meeting on Shrove Tuesday, 17 we were going to have pancakes. And I don't see any 18 pancakes here. 19 Doctor, thank you very much. 20 DR. LANDUYT: Thank you very much. 21 CHAIRMAN CLOWE: We're now ready to go 22 to item number six, consideration of and possible 23 discussion and/or action, including adoption on new 24 bingo tax rules. 25 Billy, I believe this is your issue. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 110 1 MS. KIPLIN: Commissioners, I've been 2 asked by the bingo director to go ahead and lay these 3 rules out for you. You've got -- I think you noticed 4 up 580 -- was it all those? 5 MS. CLOUD: Yeah, all of those. 6 MS. KIPLIN: 402.580, 402.581 and/or 7 402.582. Commissioners, all three of these were 8 proposed new rules that you authorized publication in 9 the Texas Register to receive public comment on the 10 proposed new rules. Those proposals were published in 11 the November 23rd, 2001 issue of the Texas Register. 12 We did receive public comment on two of 13 the three rules, and I believe those were 580 and 581. 14 The staff recommends, in connection with 402.580 -- 15 that's the one relating to the filing of bingo 16 rules -- recommends that you adopt it -- I'm sorry, 17 reports. I can't read right today. Relating to the 18 filing of bingo reports. 19 The staff does recommend that you adopt 20 that rule today with changes to the proposed text. 21 And the changes are in response to comment received. 22 And specifically, Commissioners, the comment had to do 23 with two provisions in the rule that required the 24 reports -- these quarterly reports that are being 25 filed -- to be provided to each officer and director. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 111 1 And the interpretation imposed by the 2 commentors on that provision is that we are -- were 3 requiring that each officer and director be provided 4 their own individual copy of the report. And the fact 5 is that the commentors believe that that was an 6 unreasonable burden on the organization. 7 Commissioner Clowe, the change, it's not 8 noticed, but it's on page four of 580 under (C)(2). 9 We have changed that language to eliminate any sort of 10 ambiguity because it was really the intent of the 11 staff that each officer and director know what the 12 contents of the report were. And so we've changed 13 that to read "The report must be filed under oath 14 attesting to the information being true and correct." 15 New change: "Each officer and director 16 is responsible for knowing the contents of the report. 17 The person signing the report must promptly provide a 18 copy of the report to such officer and director upon 19 his or her request." 20 We received other comment to the rule, 21 580 and then 581, but are only recommending making 22 this particular change and having you-all adopt it 23 with this change. There is a summary. Y'all were 24 provided copies of the draft adoptions and the summary 25 of the comments are included in 580 and 581 and then Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 112 1 the reasons why the Commission would disagree if you 2 decide to vote to adopt these rules today. 3 Like I said, on 582, the staff received 4 no comment. And the staff, in conjunction with 581 5 and 582, are recommending that you adopt without 6 changes to the proposed text as the text was published 7 in the November 23rd, 2001 issue. 8 With that, I will be happy to answer any 9 questions you have. We are looking for action on this 10 item today. We are looking for a motion that you 11 adopt as I've laid out. 12 COMMISSIONER WHITAKER: Is anyone here 13 today to speak on behalf of the rule or against it? 14 MS. KIPLIN: No. And I would -- I would 15 say that if there were somebody here who wanted to 16 speak and you received additional comment today then 17 under the rulemaking requirements of the 18 Administrative Procedure Act, I would have to -- or 19 the staff would have to summarize comment and then 20 give reasons why the agency would disagree. 21 And so we would not be in a position of 22 moving forward on these rules. However, I would say 23 they were published in November and so there's a 24 180-day clock that ticks on an agency to take action 25 or the rulemaking would expire by operational law. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 113 1 I don't see anybody here, but I make 2 those comments because they're obligatory on my part. 3 COMMISSIONER CRINER: Is the Bingo 4 Advisory Committee involved? 5 MR. ATKINS: Yes, sir. They reviewed 6 these rules prior to coming to the Commission. 7 COMMISSIONER WHITAKER: And you're still 8 under the viewpoint that they should be adopted, 9 Billy; is that correct? 10 MR. ATKINS: Yes, ma'am. 11 CHAIRMAN CLOWE: And Billy, give us your 12 summary of these three rules and what they do, if you 13 would. 14 MR. ATKINS: I think primarily, 15 Commissioners, they put our public -- our licensees on 16 notice of the process in the Charitable Bingo Division 17 and will help educate those organizations and help 18 them to stay in compliance with the Act and the 19 requirements of this provision. 20 One of the key elements that I think 21 they address, it's been an issue that you raised 22 before, Commissioner Whitaker, and something that's 23 been talked about in the Division. And even during 24 Mr. Helmcamp's presentation, I think Kim alluded to 25 it. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 114 1 Organizations -- an individual, an 2 officer or director will come before the Commission 3 and say "We didn't know this" or "We didn't know this 4 was going on." And even the comment that we received 5 that prompted the clearing up of the ambiguity stated 6 that those individuals had the fiduciary 7 responsibility to know what's going on in their 8 organization. I think this clarifies it for those 9 organizations. 10 CHAIRMAN CLOWE: Any questions or 11 comments? Is there a motion? 12 COMMISSIONER WHITAKER: I'll move for 13 the adoption. 14 COMMISSIONER CRINER: Second. 15 CHAIRMAN CLOWE: The motion is made and 16 seconded. All in favor, please say aye. 17 COMMISSIONER WHITAKER: Aye. 18 COMMISSIONER CRINER: Aye. 19 CHAIRMAN CLOWE: Aye. 20 Opposed, no? 21 The vote is three zero in favor. 22 MS. KIPLIN: Commissioners, I have three 23 orders that would adopt each of these individuals. 24 And with regard to your motion for adoption, just to 25 seek clarity, it was on 402.580, it was an adoption, Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 115 1 move to adopt with changes as set out in these orders. 2 CHAIRMAN CLOWE: That's correct. Then 3 Billy, as soon as we sign these, we'll go to item 4 number seven, report, possible discussion and/or 5 action on the 4th quarter of year 2001 charitable 6 bingo financial data and comparison to calendar year 7 2001 to 2000. 8 Give us a minute, if you will. Okay. 9 MR. ATKINS: Thank you, Commissioners. 10 As you know, we have started on a quarterly basis to 11 provide you information as it relates to financial 12 information dealing with charitable bingo. And you 13 have in your notebook a series of graphs that contain 14 information about the fourth quarter of 2001 15 charitable bingo statistics. 16 That quarter ended on December 31st. 17 The reports were due in to us on January 15th and the 18 information in your notebook is as of January 30th. 19 Since we are at the end of our calendar quarter, we 20 have also included for your information a comparison 21 of calendar year 2000 to calendar year 2001. 22 As the information shows, and as you've 23 been told in the past, we continue to see declines 24 almost across the board in the information you have in 25 charitable bingo gross receipts, which is the gross Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 116 1 receipts from regular bingo, electronic cardminding 2 devices and pull tabs. That corresponds to decreases 3 in prizes and also charitable distributions. 4 If you flip to the last page, the 5 comparison of 2000 to 2001, I guess searching for any 6 silver lining in this is that the decrease from 2000 7 to 2001 is smaller than the decrease from 1999 to 8 2000. So while we're still seeing a reduction, that 9 reduction is not as great as it's been in the past. 10 CHAIRMAN CLOWE: You know, Billy, we are 11 constantly making the games more attractive in the 12 on-line games and the instant scratch games, the 13 tickets. And I know that you have talked to us about 14 changes in bingo, but it seems to me that there's 15 going to have to be some innovation and some change to 16 make these games more attractive to the players to 17 seriously reduce this trend. 18 MR. ATKINS: I agree, Mr. Chairman. And 19 we think that those changes are going to require 20 legislative action. We've put measures forward in the 21 past for the legislature to consider. We'll continue 22 to do so. We'll also continue to monitor other 23 jurisdictions to build that body of knowledge that we 24 can supply to the legislature that demonstrates that. 25 And I just, you know, offer as a by the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 117 1 way: The New Hampshire Legislature, I believe it was 2 last year, created a study committee to look at 3 charitable bingo in that state. And they discovered 4 pretty much what jurisdictions all across the nation 5 have discovered. Attendance is going down. Revenues 6 are going down. 7 But they can be -- you know, revenues 8 vary wildly from hall to hall. But things like 9 progressive games where jackpots are allowed to build 10 help increase revenue. They help increase attendance 11 possibilities. 12 One of the things New Hampshire was 13 looking at specifically was the introduction of the 14 linked bingo game. So I think that there are 15 alternatives out there. But again, I think those 16 really big changes will require a legislative change. 17 CHAIRMAN CLOWE: I think you're right 18 and I think that it's outside the authority of this 19 Commission. And you know, we're concerned about it 20 and we want this industry to be healthy in this state. 21 But it seems to me the innovation and change and 22 making it attractive is what's been successful in the 23 on-line games and the instant tickets. 24 And the bingo industry needs some of 25 that if this trend is going to be reversed. And Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 118 1 that's just a personal opinion, not a mandate. I 2 think your role is that of being a resource. But 3 that's my quick take on what our problem is here. 4 MR. ATKINS: And again, when we -- we 5 provide this information primarily for information for 6 y'all so that you know what those trends are, 7 etcetera. 8 You're right. We don't really have the 9 opportunity to go out and make a lot of changes that 10 would necessarily affect this. What we have done, 11 what we've pledged to the licensees since I took over 12 is to conduct our business as best we can so that they 13 can actually spend less time dealing with us and more 14 time dealing with their bingo operations. 15 CHAIRMAN CLOWE: I thought that that 16 article that you sent us in the book about the eagle 17 was very correct. You know, it spoke about the age 18 and the culture of people who are in -- various 19 players. 20 And at one time, they wouldn't serve 21 people who had hats on and they changed that rule 22 because it's youthful now to walk in a place and keep 23 your hat on. And that's the kind of thing that I'm 24 talking about that you've got to change and you've got 25 to make what you're doing attractive to young people Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 119 1 if you want to build your business. 2 MR. ATKINS: And Commissioner Criner 3 noted this when we visited halls in Houston: A lot of 4 it continues to boil down to each individual 5 organization's management of their games. For 6 instance, we went to a VFW organization that on the 7 surface, you might not necessarily think would be that 8 successful. 9 I mean, when we were there, the crowd 10 wasn't that big, etcetera, but they had a couple of 11 factors working for them. They played in their own 12 hall, so they weren't paying rent. And every one of 13 their workers was a volunteer of their organization. 14 So their expenses were very low and this 15 one organization playing at their own hall was 16 making -- I think the guy said about $15,000 a year 17 in -- or for a quarter, I'm sorry -- in charitable 18 distributions. So again, you know, organizations that 19 manage their games in a very business-like structure, 20 I think, have a lot better chance of succeeding. 21 And again, that's something that we try 22 and emphasize in our operator training program. One 23 of the new innovations that we included is a section 24 that we just refer to as good business practices. 25 CHAIRMAN CLOWE: Yes, but that refers to Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 120 1 the cost side of the equation and the efficiency of 2 the operator. 3 MR. ATKINS: Uh-huh. 4 CHAIRMAN CLOWE: It doesn't deal with 5 the reduction in attendance and commensurate 6 reductions in revenue, which is the marketing aspect 7 of it, and how you attract new players and different 8 players. If they had had twice the crowd that you saw 9 when you saw them, I guess Thursday of last week, then 10 the income would have been twice as much on a 11 quarterly basis. 12 COMMISSIONER WHITAKER: Having said 13 that, though, are you seeing innovations among 14 charities on marketing within the bounds of the rules 15 as they exist in Texas? 16 MR. ATKINS: There are some. There are 17 some that are really aggressive, as far as generating 18 as much excitement in their halls as they can. I 19 think it's become a lot more common, for example, in 20 just the past several years for organizations to start 21 to develop a mailing list of customers and do 22 something as simple as mail out on a monthly basis, 23 you know, a flyer to them saying "Hey, these are our 24 games and special promotions this month." 25 Again, there are organizations that are Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 121 1 becoming a lot more creative, as far as running themed 2 activities to coincide with the specific event or 3 holiday. You know, of course, this week's the week of 4 love, and I think every bingo hall in Texas is 5 offering some sort of Valentine's Day special. 6 CHAIRMAN CLOWE: I'm glad you reminded 7 me. 8 MR. ATKINS: So there are groups that do 9 that. And again, when we come across those, we try 10 and publicize those to other organization as best we 11 can. Again, there are just some groups that are 12 really, really active. There's an American Legion 13 hall up in Temple, and that guy advertises everywhere 14 he can, on sacks at grocery stores. I mean, he 15 advertises their game. 16 CHAIRMAN CLOWE: Are you seeing any pick 17 up on your 20th anniversary work -- and I think that's 18 been excellent of what I've seen of your promotion of 19 that -- among the operators? 20 MR. ATKINS: We have just really started 21 that in full force. And we've been working really 22 closely with the Communications Division. They've 23 come up with, I think, some really exciting ideas, one 24 of them being they're implementing what they call a 25 news line, which is an opportunity to create Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 122 1 essentially short audio clips for radio to where you 2 know, a radio station can call in and download that 3 and incorporate that into a news program or whatever. 4 And we started to develop for their 5 benefit a list of charitable organizations for them to 6 contact and really stress with those organizations 7 what it is they're doing with their charitable 8 distributions that they raise through bingo. 9 We've also -- they've also started 10 working on some additional video news releases. And 11 we have gotten -- I don't recall exactly how many, but 12 we have gotten some requests for what we call the 20th 13 anniversary poster. It's something that -- we 14 included a section on the Web site to discuss the 20th 15 anniversary. 16 And one of the things that we've 17 prepared is a poster that kind of highlights the 18 impact charitable bingo has had over the 20 years, the 19 almost $10 billion in gross receipts, the $7 billion 20 in prizes, the $680 million in charitable 21 distributions. And that's a -- that's a poster that's 22 the size of these back here. 23 And we've made those available through 24 Open Records to organizations for them to post in 25 their halls. And I know we're waiting to get these Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 123 1 finalized figures to incorporate that in the poster 2 and we'll start sending those out. 3 CHAIRMAN CLOWE: Very good. 4 MR. ATKINS: Another thing: I know 5 Communications is working on kind of a template of a 6 news release that we can provide to organizations 7 through the operator training program or other ways 8 for them to provide to local media outlets in their 9 areas to either talk about their 20th anniversary or 10 just their bingo operations in general. 11 CHAIRMAN CLOWE: Bingo Advisory 12 Committee meets on the 13th; isn't that right? 13 MR. ATKINS: Tomorrow, yes, sir. 14 CHAIRMAN CLOWE: I wish you would 15 discuss with them the essence of this discussion and 16 express the Commission's concern about the reduction 17 in attendance and revenue, which I know they'll be 18 concerned about, and ask them what their thoughts are 19 about this and ask further for any help that they see 20 that the Commission could give them within the bounds 21 of our authority. 22 And maybe a good discussion might be 23 what would come out of opening that subject with them. 24 I'd like to hear next month from you on whatever 25 discussion occurred in the BAC meeting, if you would. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 124 1 MR. ATKINS: I'll do that, and I think 2 that would fall, Commissioner Clowe -- the Advisory 3 Committee has to address the bingo game -- be back on 4 the agenda tomorrow. So I think we could pick it up 5 under that item. 6 CHAIRMAN CLOWE: Very good. Next, item 7 number 9, consideration and possible discussion and/or 8 action on State Auditor's office and/or the internal 9 auditor report relating to the Texas Lottery 10 Commission and the Internal Audit Department's 11 activities. 12 Debra McLeod? Good morning, Debra. 13 MS. McLEOD: Good morning, 14 Commissioners. For the record, I'm Debra McLeod, 15 director of internal audit. 16 We've had a -- or I've had a very busy 17 month. We have completed field work on six of the 18 internal follow-up audits. Three reports have been 19 provided to the Commissioners, two are in legal and 20 one I'm still working on the draft for that. We've 21 finalized internal investigations, drafting three 22 reports, working on two additional investigations, 23 still on the field work for those two. 24 As of the report that I put in the 25 Commission meeting notebook, we have completed 50 Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 125 1 percent of the SEO bingo audit. We're closer to 75 2 percent done with that and expect that to be done here 3 within this month. 4 We've accomplished other special 5 projects through this month, as well. One of them 6 that I failed to leave on the report was the NASPL 7 Auditors Conference will take place next month and 8 this should be probably one of the better audit 9 conferences that we've been able to put together. 10 We asked for surveys up front and found 11 that that was most beneficial in finding out what the 12 other auditors wants to hear about at the conference. 13 The interesting thing is that we've got several 14 lotteries that do not have auditors and they have sent 15 their chief financial officer and the accounting 16 managers to attend. 17 We've reached out to other lotteries 18 that have not been able to attend in the past and they 19 will be attending this time. So it will certainly 20 broaden our network. One of the things is that the 21 Texas Lottery is not the only agency with a small 22 audit shop. This is indicative of the industry. 23 So the benefit of this NASPL conference 24 is it gives us sort of a sharing of ideas, how best to 25 approach the risk. We all have the same number of Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 126 1 suppliers, as Commissioner -- he heard earlier today 2 that competition in procurement, risk assessment. 3 We've got several good speakers scheduled from the 4 State Auditor's office and through other audit 5 directors here and other state agencies that are going 6 to speak. 7 We also have Rob Kohler from this agency 8 that's going to be a presenter on the contract 9 procurement, which is of interest from other 10 lotteries. They're very interested in how we do our 11 Texas model, how we've been able to centralize that 12 function and keep track of all that high-level 13 procurement that an industry like this has. 14 I've also formed an evaluation 15 committee. We have Billy Atkins, the Charitable 16 Operations director, Robert Hall, Minority Development 17 Services, Joe Franco with Security, and Gary Grief 18 with Lottery operations that will be helping in doing 19 review of the applicants that we've received for the 20 senior auditor position. I anticipate closure of that 21 hopefully within the next couple of weeks. 22 So it's been a very busy period, but 23 we've certainly accomplished a lot. One of the other 24 things that this agency had received was a request to 25 incorporate sort of student programs within state Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 127 1 agencies. And that's one thing I've taken upon 2 myself. I'll have a couple of students come in next 3 week. I've asked them to put together an internal 4 control presentation. 5 One of the things as auditors that we're 6 always faced with is trying to describe to management 7 and the staff what is internal controls. And I've 8 gone through countless literature and research and 9 it's very boring and dry and a dull subject. But I 10 think a couple of high school kids could certainly put 11 together a PowerPoint presentation that I think I 12 could use for employee orientation that would help be 13 a little bit more interesting and a little bit more 14 relevant to what an employee here at the Lottery deals 15 with and what they need to know about internal 16 controls. 17 CHAIRMAN CLOWE: I think a lot more 18 people in the United States know today what internal 19 control is not than they ever did before. 20 MS. McLEOD: Yes, sir. I'm sure they 21 do. That's a terrible situation and that has 22 long-reaching effects, even to our compatriots over in 23 the Lottery in California, because unfortunately, part 24 of their retirement was tied up in that particular 25 industry. So it has very serious effects for Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 128 1 everyone. 2 The other thing is that next week I've 3 been invited by the State Auditor's office to be a 4 panel speaker on small audit shop. So it's been a 5 very busy last month and it's going to continue to be, 6 but we've got some good things on the horizon to 7 finish right before Sunset starts, so I think we're 8 going to meet our targets. 9 CHAIRMAN CLOWE: Did you get some good 10 applicants, Debra? 11 MS. McLEOD: Yes, sir. I've got 25 12 applicants, and I believe there was only a couple that 13 didn't meet the pass/fail requirement. So that's much 14 greater than what I had interviewed the last time 15 around. I think I had only something like eight 16 applicants about four years ago. So I think it's a 17 sign of the times. 18 CHAIRMAN CLOWE: Was a CPA qualification 19 required? 20 MS. McLEOD: No. It was preferred, but 21 all the applicants that we'll be interviewing have 22 their CPA. 23 CHAIRMAN CLOWE: That's great. 24 MS. McLEOD: One of the criteria we're 25 looking for is: As this is a two-person shop, it is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 129 1 going to be roll your sleeve up and do the work. And 2 sometimes the level of experience I'm looking for, I 3 don't always find that. So that was part of the 4 reason for making it preferred. 5 CHAIRMAN CLOWE: Great. Do you ask us 6 for any action this morning, Debra? 7 MS. McLEOD: Looking at three reports 8 that I had submitted: Compliance with public funds, 9 the local area network and the business resumption 10 plan. We had provided electronically to everyone 11 management's response with the final report, and just 12 looking for your -- how would I word this, Kim -- 13 concurrence that I pass this to the other inquiring 14 state agencies that I need to. 15 MS. KIPLIN: Commissioners, as you know, 16 I think her internal audit reports are hers and she 17 gets management's response and we've discussed the 18 process and they're not designed for you to approve or 19 to disapprove. 20 I think her concern is to ensure that 21 you know there has been a process that's been followed 22 and that management is in agreement with the report. 23 And so I think when Ms. McLeod comes forward and lays 24 this out, it would be appropriate to ask the 25 management that's involved whether they are, in fact, Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 130 1 in agreement. 2 I think the other direction that you 3 provided is that you would like me and my general 4 counsel to review the drafts. And the three that she 5 has mentioned, I have reviewed and I have provided her 6 my advice and my comment. 7 CHAIRMAN CLOWE: And I think that's 8 right. That's the position that the Commission takes 9 on that. I assumed when I received it, Debra -- and I 10 thank you for sending it to us substantially ahead of 11 this meeting so we had time to study them -- that 12 Linda, you had concurred in the audits being right for 13 transmittal and that, in fact, your responses were 14 those which were laid out. 15 MS. CLOUD: That's correct. 16 CHAIRMAN CLOWE: So are there any 17 questions or comments from the Commission? I believe 18 that's everything then. Thank you, Debra. 19 MS. KIPLIN: So just to make it clear, 20 it's not -- I don't think she is looking for your 21 concurrence. It's not an action item. It's not 22 seeking your approval. 23 CHAIRMAN CLOWE: We understand. 24 MS. McLEOD: Thank you very much. 25 CHAIRMAN CLOWE: Thank you. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 131 1 We'll then go to item number 10, report, 2 possible discussion and/or action on the Council on 3 Competitive Government's activities relating to the 4 Texas Lottery Commission. 5 Nelda Trevino? 6 MS. TREVINO: Good morning, 7 Commissioners. For the record, I'm Nelda Trevino, the 8 director of Governmental Affairs. 9 In regards to the Council on Competitive 10 Government, they did meet on January the 8th and they 11 approved the staff report that included basically 10 12 functional recommendations. In addition to approving 13 the report, the Council also adopted a motion that 14 would require the Lottery Commission to obtain 15 approval from the Council and/or specific legislative 16 authority in regards to purchasing the broadcast 17 studio equipment. 18 As required by the rider in the 19 Appropriations Act, the Council did submit their 20 report to the Legislative Budget Board and to the 21 Governor's office. And one of the letters that's in 22 your notebook, in your Commission meeting notebook, 23 references that the agency sent our agency responses 24 to the recommendations to the Legislative Budget Board 25 since they were not included in the Council's report. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 132 1 And that basically concludes my report 2 and I'll be happy to answer any questions. 3 COMMISSIONER WHITAKER: Do you sense 4 there will be a next step on anything or it sounds 5 like they made their reports and adopted it and 6 there's that one piece of it. But do you anticipate 7 anything else? 8 MS. TREVINO: Commissioner Whitaker, I 9 really don't. The Council staff has not indicated 10 that they would come back in and quote "audit" whether 11 we implemented any of these recommendations. But 12 because it is provided to the Legislative Budget 13 Board, I think it will be used as a resource document 14 for the legislature. 15 And so, you know, we could be asked 16 somewhere down the road if we implemented any of those 17 recommendations. But I do not anticipate the Council 18 staff actually coming back into the agency. 19 CHAIRMAN CLOWE: I would certainly be 20 prepared for that in the Sunset. 21 MS. TREVINO: Absolutely. 22 CHAIRMAN CLOWE: I think that those are 23 going to come up. And I know that Gary is going to 24 report to us on that, but I would anticipate those 25 recommendations being highlighted at the Sunset. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 133 1 MS. CLOUD: Commissioner, Gary Grief had 2 a death in the family, and he is not here today. 3 Nelda is going to present the Sunset report for Gary. 4 CHAIRMAN CLOWE: Any further questions 5 on the item? All right. Then let's go to the next 6 item, Nelda, which is the Sunset review. 7 MS. TREVINO: Commissioners, Gary Grief 8 did ask me to report to you that the Sunset tracking 9 database that has been put together here at our agency 10 has been tested and we're ready to use that database 11 once the Sunset staff comes in and begins the review. 12 And we anticipate that happening sometime next month. 13 Other than that, he really didn't have 14 anything else to report and I'll be happy to answer 15 any questions you might have. 16 CHAIRMAN CLOWE: I might say that Linda 17 and I have continued our meetings along with Billy 18 calling on various members of the Sunset Committee and 19 gaining information and insight from them and other 20 members of the legislature, as well. 21 And those visits have been very helpful, 22 and I think it helps us understand the process better 23 and approach it well-informed and more able to answer 24 the questions and respond to the inquiries that we're 25 going to have as part of that. And I think this Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 134 1 agency is going to benefit from the Sunset process and 2 emerge from it as a better agency at the conclusion. 3 MS. TREVINO: Absolutely. 4 CHAIRMAN CLOWE: Thank you, Nelda. 5 MS. TREVINO: Thank you. 6 CHAIRMAN CLOWE: We're now to item 7 number 12, consideration of and possible discussion 8 and/or action, including adoption of amendments on 16 9 TAC 401.305 relating to Texas Lotto on-line game rule 10 and/or 16 TAC 401.312 relating to Texas Two Step 11 on-line game rule. 12 Kim, I knew you would want me to say 13 those rule numbers, so I did. 14 MS. KIPLIN: Commissioners, what you 15 have in your notebook is a draft document that is 16 staff's document on recommending adoption of 17 amendments to the Lotto Texas rule and the Texas Two 18 Step rule, but with changes to proposed text as 19 published in the December 21st, 2001 issue of the 20 Texas Register. 21 Commissioners, we did receive public 22 comment on this rulemaking. We also noticed up a 23 rulemaking comment hearing. That was noticed for -- I 24 believe it was January 9th, 2002 at the Commission 25 auditorium here. That notice went in in two different Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 135 1 places: As part of the proposed rulemaking and also a 2 separate document filed with the Register. So there 3 were two different places in the Texas Register and we 4 also put it up on our Web site as I'm told. 5 We did not receive any appearances at 6 the rulemaking comment hearing, but did convene and 7 left it open, recessed and came back, just in case 8 people were coming and were arriving late. Like I 9 said, we did receive public comment. The comment that 10 we received is summarized in the document that is in 11 your notebook. 12 And staff has drafted the reasons why 13 the agency disagrees with the comment where that is 14 appropriate. And that, of course, is also in your 15 document and was forwarded to you for your review. I 16 want to focus on the change that the staff is 17 recommending that the Commission consider in adopting, 18 and that has to do with the comment that the direct 19 prize category contribution for the top prize in the 20 Lotto Texas still was discretionary. 21 And as you know, the proposed amendments 22 that you published -- you authorized for 23 publication -- provided that the top prize would 24 either be the greater of the advertised jackpot as 25 defined in the rule or the jackpot based on sales Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 136 1 determined, in part, by the applicable interest rate 2 factor. The comment went to the fact that since it 3 was still discretionary, it meant that perhaps the 4 Commission would not follow the rulemaking. 5 And that was not the intent of the staff 6 nor of the Commission clearly when the Commission 7 voted to propose these amendments for public comment. 8 So the change is to make clear that there is, if you 9 will, a floor to the percent contribution and the 10 direct prize category. 11 And so the change is to go from "may be 12 68.24 percent" to "shall be no less than 68.24 13 percent." That's the only change that staff has 14 recommended at this time and the reasons for the 15 staff -- and if you vote to adopt it, of course, they 16 will be your reasons why. 17 The other comments were not agreed on 18 and changes made is in this document. We'll be happy 19 to answer any questions. We are looking for action 20 from the Commission today, and the action that we are 21 looking for is that you adopt these amendments with 22 changes as consistent with what was proposed in the 23 Register except for that one change. 24 I'd be happy to answer any questions. I 25 don't know if anybody wants to make a comment, but I Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 137 1 will just make my obligatory remarks and say if the 2 Commission entertains comment on this rulemaking, then 3 we will not be in a position of going forward to adopt 4 today because the APA requires -- that's the 5 Administrative Procedure Act -- requires that we 6 summarize that comment and then give reasons why the 7 agency disagrees. 8 And it's not something that we would 9 want to rush because if we were to rush that and we 10 did not get it right, so to speak, in terms of 11 summarizing the comment and putting down the reasons, 12 it does give rise to an opportunity to challenge the 13 rule for failure to follow the rulemaking procedures 14 in the APA. 15 With that, I know Mr. Tirloni, the 16 on-line products manager, is here. He also was 17 helping in terms of receiving comment at the 18 rulemaking comment hearing, albeit we received no 19 comment. And he has, in fact, reviewed all the 20 comment and system, in terms of the summary of the 21 comment. 22 So he is here and I am here and Linda 23 Cloud, the executive director, is here to answer any 24 questions you might have. 25 CHAIRMAN CLOWE: Robert, do you have any Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 138 1 comments for us? 2 MR. TIRLONI: I don't have any comments 3 to make. I'd be glad to answer any questions from the 4 Commission. 5 CHAIRMAN CLOWE: Same to you, Linda. 6 MS. CLOUD: My only comment would be 7 that Commissioners, this item has been on the agenda 8 for a long, long time. And we need to make a 9 decision, if possible, one way or the other hopefully 10 as soon as possible. Not only are the rules for the 11 Texas Two Step and Lotto Texas prize information being 12 in this rule, but the increase in being able to pay 13 prizes in our claim centers, the change in our draw 14 break so that we can get more TV stations to air the 15 drawings are all part of these, as well. So we just 16 need to move forward if we can. 17 CHAIRMAN CLOWE: Questions or comments? 18 Commissioners, I have an appearance form from an 19 individual who wishes to comment on this item. And in 20 light of the general counsel's comments to us, I need 21 to ask you your pleasure, in that if this individual 22 makes comments that are outside the record, we will 23 not be able the act on this item, either of these 24 rules today. 25 It's my understanding from what you Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 139 1 said, Counselor, if comments are made within the 2 record, that doesn't preclude us from taking action on 3 these rules; is that correct? 4 MS. KIPLIN: If comments are made within 5 the record, it doesn't preclude you from taking 6 action? I'm sorry, I'm not -- 7 CHAIRMAN CLOWE: My understanding is 8 that the applicant to appear before the Commission is 9 Ms. Dawn Nettles, and my understanding is that she has 10 filed written comments. 11 MS. KIPLIN: Yes, that is -- 12 CHAIRMAN CLOWE: So if her verbal 13 comments fall within the scope of her written 14 comments, that would not preclude us from acting. 15 MS. KIPLIN: That is true, but it 16 requires careful listening. And I'll just tell you 17 that I am not prepared to move forward today, in terms 18 of -- 19 CHAIRMAN CLOWE: You wouldn't be in a 20 position to interpret that? 21 MS. KIPLIN: No, because I would want to 22 take a look at the record. 23 CHAIRMAN CLOWE: Okay. That's fine. 24 MS. KIPLIN: And I'd want to go back 25 and -- Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 140 1 CHAIRMAN CLOWE: That's fine. So in 2 other words, if the Commission hears comments, then we 3 will not be able to act on these two rules today. 4 MS. KIPLIN: My recommendation is 5 against it. It will give staff the time to go back 6 and read the transcript. But I will say one thing 7 that I forgot to say, and that is that this particular 8 rulemaking was published in the December 21st, 2001. 9 So it's within the Commission's discretion on how 10 you'd like to proceed. 11 You have 180 days from when the proposed 12 amendments are filed before the rulemaking is 13 actually -- expires by operational law. You've heard 14 the staff's desire to go forward today. While this 15 one is new rulemaking December 21st, I think it's fair 16 to say that there's informal discussion with regard to 17 the several different rulemakings that have been 18 proposed and then withdrawn on, I would say, for the 19 most part is the same subject matter. 20 COMMISSIONER WHITAKER: Ms. Kiplin, when 21 did the first version of the rule, first iteration get 22 published? 23 MR. TIRLONI: I believe that was back in 24 May or June of last year. 25 MS. KIPLIN: Thank you. I didn't bring Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 141 1 those rulemaking files because it's a different one. 2 I know that's it's been some time ago. 3 COMMISSIONER WHITAKER: And how many 4 times have we received comments from Ms. Nettles about 5 these rules? 6 MS. KIPLIN: Every time that we've had a 7 proposed rulemaking on changes to the Lotto Texas and 8 Texas Two Step, Ms. Nettles has provided comment. 9 CHAIRMAN CLOWE: Any questions or 10 comments? Is there a motion? Or what's your 11 pleasure, I guess, I should say before I ask for a 12 motion. Or do you want to signify your pleasure by 13 making a motion? 14 COMMISSIONER CRINER: We're going to 15 motion on something? 16 COMMISSIONER WHITAKER: I move to adopt 17 the rules. 18 CHAIRMAN CLOWE: I would second that. 19 All in favor, please say aye. 20 COMMISSIONER CRINER: Aye. 21 COMMISSIONER WHITAKER: Aye. 22 CHAIRMAN CLOWE: Aye. 23 Opposed, no. 24 The vote is three zero in favor. 25 MS. KIPLIN: And so your adoption is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 142 1 with the change that the staff has laid out? 2 CHAIRMAN CLOWE: That is correct on both 3 rules. 4 The next item is number 14, report and 5 possible discussion and/or action regarding recent 6 correspondence from the Legislative Budget 7 Board/Governor concerning a review of the agencies' 8 budgets for opportunities for budget reduction. 9 That's Linda Cloud's item. 10 MS. CLOUD: Commissioners, as you know, 11 we've received letters from the governor's office, as 12 well as Legislative Budget Board requesting of all 13 agencies to look at their budget items and to cut 14 budgets where was feasible, as well as looking at 15 positions that were open in the FTEs and not filling 16 those positions unless it was absolutely necessary and 17 also looking at travel and other expenses within the 18 agencies. 19 We have -- what I have done with this is 20 I've challenged each one of our directors to go back 21 and look at their budgets, work with Bart and Daniel 22 to reduce the budgets, defer items that we could 23 defer, and come up with a -- we're required to come up 24 with a plan as to what this agency can contribute to 25 that request. And we are in the process of doing that Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 143 1 now. Some of the directors have already responded to 2 Daniel. We have until March 15th to respond to this 3 in a plan, and we are moving toward that goal. 4 Looking forward, we have already 5 contributed quite a bit of savings when you look at 6 the Gtech contract and how much money we saved, the 7 studio contract and other procurements that we have 8 been involved in. 9 So I think this agency is very apt to 10 not spend money if it's not necessary. We've been 11 through this before when we've had to make a decision 12 because of our own administrative budget funds being 13 less than what we anticipated. So I think you'll be 14 pleased and hopefully the budget offices will be 15 pleased to know that we have concurred with their 16 request. 17 CHAIRMAN CLOWE: Any questions or 18 comments? 19 Commissioners, I'm ready to move we go 20 into executive session. 21 COMMISSIONER CRINER: Before you do 22 that, before you go into executive session, 23 Mr. Chairman, I'd just like to just say something 24 about the HUB protege program. I'd like to say it now 25 because when we talk about HUBs in the afternoon, Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 144 1 everybody's gone. 2 CHAIRMAN CLOWE: And that comes under 3 the executive director's duties. 4 COMMISSIONER CRINER: And I'd just like 5 to say that that mentor protege program that we had 6 here the other day was quite impressive. And it was 7 impressive for the fact that our vendors were here. 8 And as I said earlier today, in the letter of the law 9 there is always a gray area. And we need help in that 10 gray area, as well as the letter of the law. 11 And I would like to say publicly "thank 12 you" to those vendors that saw it their duty and their 13 honor to help us in that gray area called the HUB 14 programs. 15 MS. CLOUD: I wasn't here, but I have 16 heard nothing but good things about the mentor protege 17 presentations and I'm pleased that it went so well. 18 COMMISSIONER CRINER: When companies 19 become partners with small companies, you have nothing 20 but success, nothing but success and that's -- when we 21 talk about all those impacts, that's a great impact 22 because your partner is a small company that sometimes 23 can get around and through things that you can't as a 24 big company. 25 When everybody comes together, you just Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 145 1 have a good relationship. That's all I wanted to say, 2 Mr. Chairman. 3 CHAIRMAN CLOWE: Yeah. I second that, 4 Commissioner Criner. And I might say that this 5 morning, I had one of the participants in that meeting 6 where you and I attended tell me that they are going 7 to take on two proteges, and that's really performing 8 along the lines that you've identified. 9 We have -- I'm going to defer the 10 executive session at this point in time. We have an 11 individual here who is wanting to appear in regard to 12 items that are listed on the contested dockets. And 13 so we'll defer going into executive session and go 14 to -- is it in item number 17, Kim? 15 MS. KIPLIN: Yes. I was wondering if we 16 could just take them all up right now. 17 CHAIRMAN CLOWE: Yes. Let's do. 18 MS. KIPLIN: Okay. Commissioners, what 19 you have on A, B and C under item 17, the 20 consideration as -- consideration of the status and 21 possible entries of the orders under item 17 and the 22 dockets are enumerated in the open meetings notice in 23 A, B, C, D and E. 24 Those are all Lottery cases and those 25 are all recommended decisions by the administrative Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 146 1 law judge over at the State Office of Administrative 2 Hearings to revoke the licenses for insufficient 3 funds. In other words, when we inspect the bank 4 account of our retailers, the money that is required 5 to be in those accounts was not there and it's in 6 violation of our rules and our statutes. 7 Item F was a docket number that should 8 not have appeared on your agenda. It was one that you 9 took up last Commission meeting. So there is no 10 action to be taken on that. 11 Item G is an agreed order. That is a 12 bingo case, and that's an agreement that is between 13 the staff and the licensee and the -- it had to do 14 with a conductor who had outstanding balances on 15 accounts receivable that's greater than 30 days. And 16 there's actually statute that says that they have 17 to -- 18 MR. ATKINS: Distributor. 19 MS. KIPLIN: Pardon me. Distributor. 20 There's actually a statute that says that that can't 21 be the case. They have to keep their balances more 22 current than that. 23 The item H is another bingo matter, and 24 it's a conductor who was allowing more than 40 percent 25 of sales, is that correct, on cardminding devices in Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 147 1 violation of statute. 2 On both of those, the recommended 3 disposition by the staff is for these folks to create 4 procedures to ensure that these kind of violations 5 don't occur in the future. 6 Items I and J are really companion 7 cases. They're somewhat complicated and I'd like to 8 have the assistant counsel, Penny Wilcov, lay those 9 out for you. Those are the two items that Mr. 10 Fenoglio is the attorney for counsel. He has 11 indicated to me that he really doesn't have any 12 intention to speak. 13 I find that hard to believe for a 14 lawyer, especially Mr. Fenoglio, but he may -- 15 CHAIRMAN CLOWE: Well, he bought a 16 ticket. 17 MS. KIPLIN: And it didn't cost a lot 18 today. 19 COMMISSIONER WHITAKER: Put him to the 20 test. 21 MS. KIPLIN: But I think -- he's here. 22 And I will say this about your agreed orders: Today 23 has been, I guess, an APA training on enforcement 24 matters. But these are your orders. When you sign 25 them, these are your decisions that you're making. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 148 1 These are policy decisions that you're making through 2 ad hoc rulemaking. 3 And how you dispose of these cases and 4 what the outcome is, that has what we would call 5 reaching effect in other cases where people are 6 similarly situated. It creates what's called stare 7 decisis. It's the opportunity to go back and rely on 8 this. 9 And so -- I know you're doing this, but 10 I'm just going to reiterate my urging y'all to really 11 take a close look at these agreed orders and make 12 sure. Just because staff is recommending it or you a 13 licensee that's signing it, it may not be the policy 14 that you want to create through that particular agreed 15 order proceeding. And I say this generally, not 16 because of any case that's on here today. 17 CHAIRMAN CLOWE: So you're asking for a 18 motion under agenda item 17 to approve the recommended 19 orders on the letters A through E, letter G and letter 20 H at this time? 21 MS. KIPLIN: I am, and ultimately 22 letters I and J. 23 CHAIRMAN CLOWE: But not at this time to 24 be covered by this motion? Let's do them separately. 25 MS. KIPLIN: That's fine. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 149 1 CHAIRMAN CLOWE: All right. 2 Is there a motion? 3 COMMISSIONER CRINER: So move. 4 CHAIRMAN CLOWE: Second? 5 COMMISSIONER WHITAKER: Second. 6 CHAIRMAN CLOWE: All in favor, please 7 say aye. 8 COMMISSIONER CRINER: Aye. 9 COMMISSIONER WHITAKER: Aye. 10 CHAIRMAN CLOWE: Aye. 11 Opposed, no. 12 The vote is three zero in favor. 13 Now we're going to be ready to deal with 14 item -- with letters I and J. And if you'll hold on, 15 just a minute, Judge, we'll sign these orders and then 16 we'll be ready to devote our attention to your 17 comments. 18 Make sure we got them all signed, 19 please. All right. Now I think the Commission is 20 ready to consider letters I and J. 21 MS. WILCOV: Thank you, Commissioners. 22 My name is Penny Wilcov, and I'll spell that for the 23 benefit of the court reporter. It's W-I-L-K-O-V, as 24 in Victor. And I'm the assistant general counsel for 25 the agency. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 150 1 And we're here about senior citizens of 2 Lubbock, Texas. And there's two organizations: One 3 is the conductor and the other one is the commercial 4 lessor. And these cases involved a denial of the 5 application renewal that was filed. 6 And these organization were represented 7 by Mr. Steve Fenoglio, and they were the result of an 8 audit conducted by the Charitable Bingo Operations 9 Division for issues of compliance. And after a 10 significant amount of back and forth and including 11 several continuances of this case, we were able to 12 reach an agreement, which as you will notice on these 13 consent orders that are in front of you, have been 14 signed off on by myself, Mr. Atkins, Steve Fenoglio 15 and his compliant, Ms. Kim Biggs, who is involved with 16 the organization and the operator. 17 And just a brief summary of what was 18 involved were that the audit found several issues of 19 noncompliance concerning recordkeeping and financial 20 matters and reporting. And those were -- as far as 21 the conductor, there's quite a number of violations as 22 you see and those are addressed one by one on those 23 consent agreements. 24 And then also with the lessor, there was 25 a failure to notify the Commission of the transfer of Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 151 1 the commercial lessor license. Now the consent is an 2 agreement to remedy these issues of noncompliance and 3 that includes, among other matters, the removal of 4 money from certain accounts and redepositing the money 5 into other parts -- into other accounts. 6 And as far as the lessor, it would be 7 the payment of taxes, interest and license fees on the 8 part of the lessor who is involved in this case. And 9 again, these are all signed and agreed to by all 10 involved, the parties and their representative. And 11 we recommend that you approve the consent and sign the 12 order as supplied. 13 CHAIRMAN CLOWE: Are there any questions 14 or comments? Is there anyone wishing to make comment 15 on these two items? 16 COMMISSIONER CRINER: They got you up 17 here, didn't they? They got you up here. 18 MR. FENOGLIO: For the record, 19 Mr. Chairman and Commissioners, my name is Stephen 20 Fenoglio. I'm an attorney in Austin and was referred 21 to by Ms. Kiplin. And a lawyer can never do anything 22 but honor a request to make a comment. 23 We support the recommendation. I'd be 24 happy to answer any questions. 25 CHAIRMAN CLOWE: Any questions or Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 152 1 comments? Is there a motion? 2 COMMISSIONER CRINER: So move. 3 CHAIRMAN CLOWE: Second? 4 COMMISSIONER WHITAKER: Second. 5 CHAIRMAN CLOWE: All in favor, please 6 say aye. 7 COMMISSIONER CRINER: Aye. 8 COMMISSIONER WHITAKER: Aye. 9 CHAIRMAN CLOWE: Aye. Opposed, no. The 10 vote is three zero in favor. 11 MR. FENOGLIO: Now that the vote is 12 official, Mr. Chairman, could I point out that this is 13 the shortest presentation I've ever made? 14 CHAIRMAN CLOWE: So noted. 15 MR. FENOGLIO: Thank you. 16 COMMISSIONER WHITAKER: You get a 17 partial credit. 18 MR. FENOGLIO: Thank you. 19 CHAIRMAN CLOWE: So noted, Mr. Fenoglio. 20 Prior to the Commission going into 21 executive session, is there anyone wishing to make 22 public comment here? 23 MS. TREVINO: She went to go put money 24 in her meter. 25 CHAIRMAN CLOWE: It's my understanding Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 153 1 there's an individual who wishes to make public 2 comment who has left the room. I'm going to delay the 3 motion to go into executive session for just a few 4 moments in the hopes that that individual will have an 5 opportunity to appear and make comments before the 6 Commission. 7 MR. ATKINS: Mr. Chairman, do you want 8 to do our report? 9 CHAIRMAN CLOWE: No. I want to get in 10 to the executive session. But thank you for offering, 11 Billy. I didn't mean to give you a hard no. That was 12 a soft no. 13 MR. ATKINS: That's fine. 14 CHAIRMAN CLOWE: At this time, I move 15 the Texas Lottery Commission go into executive session 16 to deliberate the duties and evaluation of the 17 executive director, internal auditor and charitable 18 bingo operations director pursuant to Section 551.074 19 of the Texas Government Code, to deliberate the duties 20 of the general counsel and security director pursuant 21 to Section 551.074 of the Texas Government Code, to 22 receive legal advice regarding pending or 23 contemplative litigation and/or receive legal advice 24 pursuant to Section 551.074(1)(A) or (B) of the Texas 25 Government Code and/or to receive legal advice Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 154 1 pursuant to Section 551.071(2) of the Texas Government 2 Code, including but not limited to: TPFV Group, Inc. 3 Versus Texas Lottery Commission, Retired Sergeant 4 Majors' Association et al Versus Texas lottery et al, 5 Loretta Hawkins Versus Texas Lottery Commission, 6 contract regarding the charitable bingo system 7 Employment law, personnel law, procurement and 8 contract law and general government law. 9 Is there a second? 10 COMMISSIONER CRINER: Second. 11 CHAIRMAN CLOWE: All in favor, please 12 say aye. 13 COMMISSIONER WHITAKER: Aye. 14 COMMISSIONER CRINER: Aye. 15 CHAIRMAN CLOWE: Aye. 16 The vote is three zero in favor. 17 The Texas Lottery Commission will go 18 into executive session. The time is 11:52 a.m. Today 19 is February 12th, 2002. Thank you. 20 MS. KIPLIN: We'll go off the record at 21 this time. 22 (Executive session from 11:52 p.m. to 1:49 p.m.) 23 CHAIRMAN CLOWE: The Lottery Commission 24 is out of executive session. The time is 1:49 p.m. 25 Is there any action to be taken as a result of the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 155 1 executive session? 2 COMMISSIONER CRINER: No. 3 CHAIRMAN CLOWE: I believe not. Let's 4 move on to agenda item 18. Well, let's see. We have 5 two reports, but I believe we have Ms. Nettles here 6 who would like to make public comment. Let's go 7 directly to item 20. 8 And Ms. Nettles, we'll be happy to hear 9 from you at this time. 10 MS. NETTLES: Thank you, Commissioners. 11 For the record, my name is Dawn Nettles. I almost 12 fell out of the chair. I'm with the Lotto Report from 13 Dallas. 14 I have a couple of items that I wanted 15 to cover with you, and I guess I made the mistake when 16 I handed you my form when you were doing the voting on 17 the proposed rule, because at that time, all I really 18 wanted to know is could I see the draft because I had 19 previously already made my comments. 20 So unless I could see a draft, there was 21 no way I could comment to see what was there to 22 comment on. But you've already adopted it and all 23 that good stuff and basically, you have gave the 24 players what they wanted, which was a guaranteed 25 percentage of sales. And that's all that we ever Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 156 1 wanted since the very beginning, last May the 11th. 2 What I have for you today is: I want to 3 make a quick comment on the proposed rule to play 4 Pick 3 twice daily. Since I'm here, I want to get 5 this on the record. I think that would be a very bad 6 mistake. 7 CHAIRMAN CLOWE: And let me interrupt 8 you for just a minute. 9 MS. NETTLES: Okay. 10 MS. KIPLIN: I can -- 11 CHAIRMAN CLOWE: Is that rule published 12 for comment at this time? 13 MS. KIPLIN: It is published for public 14 comment, but that item is not on this record. And I 15 understand that the idea of public comment is for you 16 to give people an opportunity to talk. We had a 17 rulemaking comment hearing last week, and my view is, 18 you know, you can allow public comment to some extent, 19 but if Ms. Nettles talks about things that are a 20 matter of public business, it really isn't giving the 21 rest of the public notice. 22 CHAIRMAN CLOWE: I understand. I want 23 you to understand we want to be nice to you, but you 24 have to abide by the same rules that we do. 25 MS. NETTLES: Sure. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 157 1 CHAIRMAN CLOWE: And a Commissioner just 2 can't say "Well, now I want to talk about this." 3 MS. NETTLES: Okay. 4 CHAIRMAN CLOWE: Because nobody knew 5 that that was going to be a subject and nobody's here. 6 MS. NETTLES: Okay. 7 CHAIRMAN CLOWE: And so the purpose of 8 public comment is to allow a generic comment to be 9 made by a person who is not focusing in on some 10 specific item, which in this case is published for 11 comment. 12 MS. NETTLES: Okay. 13 CHAIRMAN CLOWE: So could I invite you 14 to make a comment that is generic in nature? 15 MS. NETTLES: Yes. Okay. 16 CHAIRMAN CLOWE: Do you have something 17 in mind? 18 MS. NETTLES: I really was not going to 19 elaborate on it, other than to voice my opinion on the 20 Pick 3 and I thought now was the time, since it was a 21 propose rule. 22 CHAIRMAN CLOWE: We'll encourage you to 23 make your comment to the Commission. 24 MS. NETTLES: Okay. The other thing I 25 wanted to comment on -- and this is not a proposed Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 158 1 rule. But in reading the transcripts from December 2 and January, there was -- I think Linda made a 3 statement on the Cash 5. On one month, she said that 4 she was considering or y'all may see a proposal to do 5 away with Cash 5. And then the next month, she came 6 back and she says well, you may be doing Cash 5, you 7 know, as a daily game. 8 And I only wanted to voice my opinion on 9 that, too, and that is that Cash 5 is a very 10 successful game. To me, it's one of your best games. 11 And it was extremely successful when it was played 12 twice a week. And when you went to four times a week 13 on the game, people had to divide their money up 14 because they could not afford to play their same 15 numbers four times a week. 16 That's why sales were cut in half. What 17 also drove the sales back in those days when it was 18 twice a week was the fact that it was a popular game 19 and so the bigger the pot or the more that played, the 20 bigger -- and the more money they won, which enticed 21 more people to play the next time. 22 So I'm only -- I've come to this 23 Commission for the past two years and I've made 24 suggestions. And so far, none that I can think of 25 have really been taken. And I'm just asking you-all Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 159 1 to please consider, don't do away with Cash 5 or 2 please don't -- you know, Linda, please take it to 3 twice a week and give it a chance. You have nothing 4 to lose. You have nothing to lose, I don't think. I 5 just wish y'all would consider it. That's all. 6 CHAIRMAN CLOWE: Well, I'd just like to 7 say the Commission has adopted the rule that embodied 8 the suggestion that you made. 9 MS. NETTLES: Oh, yes, you did on the -- 10 but that's on the Lotto Texas. But Commissioner -- 11 CHAIRMAN CLOWE: But that counts. 12 MS. NETTLES: Commissioner Clowe, I have 13 fought since last May for that one point. 14 CHAIRMAN CLOWE: Well, we've got a star 15 coming to us. Give it to us. 16 MS. NETTLES: Okay. I mean, but that 17 was important. 18 CHAIRMAN CLOWE: And you got it. 19 MS. NETTLES: That was an -- 20 CHAIRMAN CLOWE: Just like those school 21 children from San Antonio. 22 MS. NETTLES: But I sweated for it nine 23 months. I sweated for nine months for it. 24 CHAIRMAN CLOWE: Okay. 25 MS. KIPLIN: I'm sorry to interrupt you Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 160 1 guys, and I know y'all are engaged in a really 2 meaningful dialog, but our court reporter is -- I bet 3 he's really good, but he cannot take two -- 4 CHAIRMAN CLOWE: We're finished. 5 Anything else, Ms. Nettles? 6 MS. NETTLES: Uh-huh. Okay. No, wait. 7 I got something here. Now I got good news, okay? I 8 got good news. 9 And I did not bring the actual copy, but 10 I am producing another piece. It is going to hit the 11 streets weekly and it will be in the stores overnight, 12 immediate distribution and it's going to come out 13 every week. 14 For ten years, the Commission has 15 produced a piece called The Winning Tickets Remaining. 16 If you'll see, it shows there's a total of 48 tickets 17 on this piece. And this is the piece that's always 18 been in the stores. And Linda explained in the 19 emergency meeting last January, January 2001 at the 20 Capitol, how difficult it was for the Commission to 21 get current information out to the stores. 22 And that was the reason we went through 23 a long ordeal on that. You have two pieces in the 24 stores. You have another piece called The Winning 25 Report. Okay. Now this has changed somewhat. You've Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 161 1 changed its format down from eight and a half to 11 2 down to this small size, but it -- this is dated 3 January 2002, okay, and it has just recently made the 4 stores. 5 What's in most of the stores right now 6 is still the December edition. It's very difficult to 7 get these out for the Commission. In fact, the 8 Commission went so far a number of years ago to say 9 "Hey, we're in the lottery business. We're not 10 publishers." Okay? 11 At any rate, The Winning Report -- if 12 you'll take them, this one is dated December 2001. 13 And if you look at it, you'll find that it shows 14 drawing results for Lotto Texas, Texas Two Step, 15 Cash 5 and Pick 3, but the drawing results are as of 16 -- the last date is September 29th. 17 Now this is placed in the stores at the 18 end of December, and it only covers the drawing 19 results through September. So as a publisher, that 20 being my business, that is really no good to players 21 that want to know the drawing results. They're not 22 that far behind, as a general rule. 23 There is a -- currently, there is a 24 lawsuit taking place in California that I'm sure y'all 25 are aware of where a player is trying to sue the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 162 1 California Lottery for false advertising. My mouth is 2 firm so I -- and just recently or last month sometime, 3 the attorney representing the girl came forth and said 4 that if the judge ruled that the state was really 5 exempt from advertising laws, then the retailers would 6 not be, and he would therefore go after all the 7 retailers. 8 I think y'all are probably aware of the 9 story of what I'm talking about. So I have 10 designed -- brilliantly designed -- you can smile now, 11 Mr. Clowe -- a piece that is current information for 12 the players, something that the players and the 13 retailers want. It will always be current. It will 14 reduce transactions put forth on the retailers for 15 when customers are standing there saying, "Can I have 16 the payouts for January the 15th?" 17 And the clerk has to go over there and 18 hit the machine and print out and use that paper and 19 access -- wear and tear on the Lotto machines that 20 that causes multiple times for players having to 21 request that data because it's not posted in the 22 stores. 23 And this piece is going to come out 24 every week. And I wanted to show y'all what it is. 25 And unfortunately, I have only one copy and this is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 163 1 not the actual piece. I am in the midst of finalizing 2 the dates for when I can get this information from the 3 Commission and how it's going to work before I do up 4 my contracts that are already waiting to be signed. 5 But I have to get final details on it. 6 So I wanted to share with you that the 7 players will no longer be faced with information that 8 is totally out of date and no good to them. But I 9 need the Commission's help to acquire this 10 information. I have -- when y'all changed me over in 11 July of 2000, and quit sending me faxes and took away 12 my status as a media, I then got turned over to Open 13 Records. 14 And I think y'all know that Open Records 15 has a law that they have 10 days to get the 16 information out. Plus you can't ask for anything in 17 advance, whereas with the Commission, I used to be 18 asking for stuff in advance and just send them a 19 reminder and they'd send it to me. 20 What came out on Friday, they'd send it 21 to me on Friday, but they had advance notice to do it. 22 So if it's okay, I'd like to show you these three 23 pages. Can I just pass it around up there? 24 CHAIRMAN CLOWE: Is that all right? 25 Sure. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 164 1 MS. NETTLES: I just think y'all need to 2 see it. 3 CHAIRMAN CLOWE: When are you going to 4 be on Oprah? 5 MS. NETTLES: Mr. Clowe, you're -- 6 MS. KIPLIN: Hang on. Are you picking 7 her voice up? 8 MS. NETTLES: This is the scratch-off 9 tickets. Every one of the scratch-off tickets is the 10 spread -- it's a four-page folder like this. And you 11 open it up and then that's the back cover. And y'all 12 can just look at the pages. 13 This covers every scratch-off ticket 14 that can be sold in the state. If it has a redeemed 15 date -- like I've noticed some of your scratch-off 16 tickets are showing a redeemed date as much as all the 17 way to September and October of later this year -- how 18 many tickets remain, and how many were printed. And 19 I'm going to be including how many were sold for each 20 and every ticket. 21 Players want this information. This 22 will assist you. If they see all these in the stores 23 and they see some winners up there, this will assist 24 and help sell some of your older tickets. 25 The drawing results page shows all Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 165 1 games, the drawing results, the jackpot amount, how 2 many winners, how many four of five and how many five 3 of six winners there were, and the payouts. 4 And y'all can look at that. The front 5 cover will be news briefs. The cover -- and it has a 6 name. I just can't release that yet because I'm still 7 working on the trademark of the logo and such. 8 So anyway, I just wanted y'all to know 9 that that was forthcoming and that that should really 10 help the Commission and it will help the players 11 because this is the information that the players want 12 and they want it on a current basis. 13 So see, I told you it would be good. 14 CHAIRMAN CLOWE: Thank you. Appreciate 15 that, and I want to say that we appreciate you showing 16 us that and state on the record that Ms. Nettles has 17 shown the Commissioners what she intends to publish 18 and has given them some general information. 19 And by way of examining that, which the 20 Commissioners have done, in no way means approval or 21 acceptance of it. She is doing that as a private 22 individual and is just making public comments for the 23 benefit of the Commission. 24 MS. NETTLES: I just wanted you-all to 25 know about it. You're correct. I'm a sole proprietor Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 166 1 and it's -- and it's my business and -- 2 CHAIRMAN CLOWE: Are you going to tell 3 us when you're going to be on Oprah? 4 MS. NETTLES: No, sir. 5 CHAIRMAN CLOWE: All right. I just 6 don't want to miss it. 7 MS. NETTLES: You won't. 8 CHAIRMAN CLOWE: Anything else? 9 MS. NETTLES: No, not that I can think 10 of. 11 CHAIRMAN CLOWE: Okay. Thank you, 12 Ms. Nettles. 13 MS. NETTLES: Uh-huh. 14 CHAIRMAN CLOWE: We're ready to go to 15 item number 18 on the agenda, the report by the 16 executive director. 17 Linda, what do you have for us this 18 afternoon? 19 MS. CLOUD: Commissioner, our transfer 20 to a financial report -- our transfer to the state for 21 January was $94,196,553. That consisted of 22 $68,771,532 of our normal transfer for the 15th of the 23 month. We also transferred the balance of the 24 $19,000,918, which was $17,570,317 of unspent 25 administrative dollars, as well as $7,854,704 that Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 167 1 went to the tertiary care facility account. 2 That is what totaled the $94,196,000. 3 The transfers, since inception to the state, has been 4 $8,865,399,021. 5 Tomorrow at ten a.m., we have a 6 legislative briefing. It will be conducted at the 7 Capitol, and the agenda for that briefing is in your 8 notebooks. I would ask Robert Hall if he would like 9 to come up and report on the minority participation 10 report. They need a report, Robert. 11 MR. HALL: Good afternoon, 12 Commissioners. For the record, my name is Robert 13 Hall. I'm director of minority development services. 14 The minority report that is included in your packet -- 15 also for you, Linda, it was submitted to you via mail 16 on the 16th, which indicates our expenditures. 17 Total utilization is right about 8.5 18 percent. Excuse me. I'm sorry. 8.35 percent, and 19 we've spent almost a little bit over four million 20 dollars with HUB vendors, and our total expenditures 21 to date, according to this report, is roughly around 22 $51 million. 23 In addition to that, we've included in 24 the report for you is a summary of the vendors in 25 accordance with the recommendation that we made to you Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 168 1 back in October, vendors that have been awarded 2 contracts with the Lottery Commission since that time, 3 which exceeds -- these are vendors that we actually 4 met during vendor forums that have received or awarded 5 contracts. 6 In addition to that, I'm also happy to 7 report to you we've been successful in certifying 8 several vendors that we're currently utilizing that 9 were not previously certified. And one of those is 10 Wright Watson, who is our court reporter we're using 11 today. So I wanted to make you aware of that, as 12 well. 13 And I'll be happy to answer any 14 questions you may have. 15 CHAIRMAN CLOWE: I think Commissioner 16 and I have glorified you enough, Robert. You won't be 17 able the get out that door if we say anything more. 18 Thank you, sir. 19 MR. HALL: Thank you. 20 COMMISSIONER CRINER: One question: How 21 much input -- since we were talking about evaluation 22 of proposals, RFPs today, this morning, how much input 23 do you have in the HUB program with compliance of 24 existing vendors in helping us meet our objectives? 25 How much -- I guess I need to ask Linda. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 169 1 How much of that is included in the RFP that we now 2 have coming up because we've got a compliance officer. 3 We've got a HUB administrator and then we've got some 4 history of what's happening with our vendors. So will 5 that be used in the evaluation process? 6 MS. CLOUD: Part of our RFP process with 7 all of our RFPs, all of our major contracts and I 8 think all of them, Robert. Correct me if I'm wrong. 9 There is a 35 percent good-faith effort on the part of 10 the vendors. 11 MR. HALL: Let me correct -- 12 MS. CLOUD: Okay. 13 MR. HALL: We adopted as a Commission 14 the GSC's HUB rules. Previously, the Lottery 15 Commission had adopted -- I assume the Commission had 16 adopted a 35-percent goal. But in accordance with the 17 HUB rules, any state agency that has a separate goal 18 than the goals that were identified by the disparity 19 study should have justification for why you plan to 20 use a separate goal. 21 And at this point in time, we haven't 22 provided the necessary justification to you for 23 adoption as to why we would use a separate goal. So 24 we are currently using the GSC's six procurement goals 25 as it relates to those contracts. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 170 1 There is a goal for construction. There 2 is a goal for building construction. There's a goal 3 for specific trade, other services, legal services and 4 also commodities. And we're effectively using each 5 one of those goals for all of our contracts. 6 MS. CLOUD: Then the minority 7 participation portion of the RFP process is very 8 extensive, and Robert is involved with each and every 9 one of those RFPs. He is on the evaluation committee. 10 CHAIRMAN CLOWE: Thank you, Robert. 11 MR. HALL: Thank you. 12 CHAIRMAN CLOWE: Commissioners, our FTE 13 totals, we have 309 active FTEs. We have 25 vacant 14 positions. Two are in the selection acceptance 15 pending. Eight is in the recruiting, screening 16 interviewing. Two positions are presently being 17 posted and 13 vacant positions have no HR activity at 18 this time. We have one newly-filled position. 19 Lottery conferences, four of us on the 20 Lottery staff attended the Smart Tech Conference in 21 Atlanta last week. Three of the four had 22 presentations. I was on two panels for lottery 23 directors and I made a presentation on our instant 24 game plan and the success of that plan. Robert 25 Tirloni made a presentation on on-line game changes Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 171 1 and the success of that, and Keith Elkins made a 2 presentation for the Smart Idea Award on our studio. 3 And we received first place for having the smartest 4 idea of 2002, being our broadcast studio. 5 COMMISSIONER WHITAKER: And they said it 6 was the smartest idea because? 7 COMMISSIONER CRINER: It has the window. 8 MS. CLOUD: It has the window. It has 9 the opportunity for drawing a crowd. That was the 10 caption on our presentation. And the other lottery 11 directors were very -- and it was the actual voting 12 came from the people in the audience. It wasn't 13 something that was predetermined before we got there. 14 So we had to scramble a little bit. 15 Some of our information didn't reach Atlanta before we 16 did. And so Mr. Elkins had to get real smart real 17 fast and he -- but he did a good job. He put on a 18 good presentation. 19 COMMISSIONER WHITAKER: Did he have a 20 state learning curve? Is that what you're saying? 21 MS. CLOUD: I think he knew enough, but 22 he -- we didn't have the pictures and things we 23 thought we had. So rather than having a video, he 24 actually -- we had photographs sent to us and we made 25 a PowerPoint presentation with those photographs. So Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 172 1 he scrambled there pretty quick for about 20 minutes, 2 but we pulled it off and won the award. 3 So I think that was a compliment in his 4 favor. We have the award here and I plan to give it 5 to the security team to put in the studio. And we've 6 also received another award through the communications 7 of the video that -- the VNR that we did on the 8 studio. Communications Division won an award at a 9 communications conference with that, so I'm going to 10 make him turn that over to the studio, too, so we can 11 display both of them. 12 COMMISSIONER WHITAKER: That's great. 13 CHAIRMAN CLOWE: Congratulations, Keith. 14 MR. ELKINS: Thank you. 15 MS. CLOUD: On January 29th, we held a 16 retailer town hall meeting in San Antonio, and we had 17 one of the largest turnouts that we've ever had of our 18 retailers. In fact, the room almost turned out not to 19 be big enough. We had over 150 retailers at this town 20 hall meeting and it was very, very good. 21 I mean, it was -- the San Antonio 22 retailers are pretty positive retailers and they are 23 very -- any time we've had a town hall meeting, we've 24 had a good turnout over there and so we were very 25 pleased with the fact that we had 150 retailers. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 173 1 Normally, we have the vendors -- you know, Gtech has 2 to bring their sales reps that handle that district to 3 be a part of the -- all the things that we do. And 4 they had to stand in the back of the room. They 5 couldn't sit at the tables with the retailers. We 6 didn't have enough chairs. So we were pleased. 7 Also, on February the 26th, we have the 8 next town hall meeting in Corpus Christi. This will 9 be for the Victoria District, and it will be from 10 three to six at the Omni. So that's the next one and 11 that's my report. 12 CHAIRMAN CLOWE: Any questions, 13 comments? Thank you, Linda. Mr. Atkins, we are at 14 your orders. 15 MR. ATKINS: Commissioners, under 16 staffing, we have an audit position in Odessa that's 17 vacant. Those interviews have been conducted and 18 recommendations submitted to HR and background checks 19 are being started on those individuals. 20 I'll jump down to the bottom and work my 21 way up. Quarterly reports, as I mentioned earlier, 22 were due out on January 15th, and you have a memo 23 outlining those. You have some more specific 24 information regarding the annual conferences and 25 operator training program that we provided in January. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 174 1 The graphs for our licensing activity 2 don't report anything unusual. I'd like to talk 3 briefly about the Bingo Advisory Committee and advise 4 the Commission of one thing we've just learned. We've 5 been informed that neither the chair nor the 6 vice-chair, nor one other member of the committee will 7 be able to attend tomorrow's scheduled meeting. 8 We only -- at this time -- have four 9 members confirmed. We need at least five for a 10 quorum. So without hearing from the other two, it's 11 iffy. And I know, Mr. Chairman, you had commented 12 earlier that there are a number of important items on 13 the agenda tomorrow. So I discussed it with 14 Ms. Kiplin briefly and she said that two alternatives 15 would be to ask the chair, Bill Neinast, to appoint a 16 chair to serve in his absence, his and Virginia's 17 absence, or just plan on rescheduling the meeting for 18 a later date when we can be assured of more 19 attendance. 20 And I don't know if the Commission has 21 any feelings on that one way or the other. 22 MS. KIPLIN: Well, if I could just add a 23 few more. That's assuming that you can get a quorum 24 together. If there's no quorum, then they can 25 certainly convene. They can't take any action at all Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 175 1 because there is not a quorum available. 2 CHAIRMAN CLOWE: If you're looking for 3 some direction on this subject, I would think that 4 you'd be better served by postponing the meeting and 5 having a more full attendance, and certainly the chair 6 and the vice-chair would need to be there. 7 And I think those who said they could 8 come, if you can catch them -- it's fairly early in 9 the day or the afternoon -- and stop them from 10 traveling, they'd save a trip where they probably 11 wouldn't be able to function as a quorum. 12 MR. ATKINS: Well, we'll contact the 13 chair and -- 14 CHAIRMAN CLOWE: Commissioners? 15 MR. ATKINS: As Ms. Kiplin points out, 16 we could have -- we could have people in transit 17 already, particular we have a member from out of 18 state. But we'll do the best we can and move on with 19 them. 20 On other matters relating to the 21 Advisory Committee, we did send out notification 22 nomination forms on December 14th. We sent out a 23 total of just over 14,000 of those nomination forms. 24 As of yesterday, we had received 41 back, nomination 25 forms and I -- I did want to see if I could get some Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 176 1 direction from the Commission now regarding the 2 nomination process. 3 By way of a brief history, when the 4 Advisory Committee was first formed, they received all 5 of the nomination forms, compiled them all into a 6 notebook, provided them to each of the Commissioners, 7 and the Commissioners essentially, if I recall 8 correctly, spent the day trying to appoint the 9 committee members. 10 So at another time what we suggested is 11 we, again, gave the Commissioners the notebook and 12 suggested that they -- prior to the Commission 13 meeting -- select three individuals for each position, 14 thinking that that would cut down, you know, the 15 number of differences. That didn't work much better. 16 It evolved to a situation where as the 17 nomination forms came in, they were still collected by 18 staff. They were still provided to each of the 19 Commission members. What the Commission directed the 20 director to do is to meet with the designated bingo 21 represent, go through all of the nominations, taking 22 into consideration the different attributes that the 23 Commission wanted represented on the committee, as far 24 as geographical representation, organizational 25 representation, etcetera, and come up with Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 177 1 recommendations to the Commission for those positions. 2 And that's what we've done the last 3 three or four times. At the August 29th BAC meeting, 4 the chair brought an issue forward to the Advisory 5 Committee that they be -- that they review the 6 nomination forms and make suggestion to the 7 Commission. And at the time, the Advisory Committee 8 had no desire to do that. They did not move forward 9 on that recommendation. 10 And it's my understanding that based on 11 his report to the Commission at the September 18th, 12 2001 meeting that it's Mr. Neinast's understanding 13 that the Commission does want recommendations from the 14 Advisory Committee on -- as far as nominations to the 15 BAC would go. 16 I bring that up because he had 17 originally scheduled that as an agenda item for 18 tomorrow's meeting. However, nominations aren't 19 closed yet. We're accepting them through the end of 20 month. But he had wanted to take those up in 21 executive session, and it's my understanding that 22 there's no provision where the Advisory Committee can 23 meet in executive session. 24 So I just wanted to make sure that it 25 was -- well, I guess my question is: What is the Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 178 1 Commission's desire after the Advisory Committee looks 2 at those nominations? Do you want to continue kind of 3 with the process that we've done in the past with the 4 director and the designated bingo representative going 5 through them and offering recommendations or -- 6 COMMISSIONER WHITAKER: Yes. 7 CHAIRMAN CLOWE: Commissioner Criner, is 8 that all right with you? 9 COMMISSIONER CRINER: Yes. 10 CHAIRMAN CLOWE: We'll do that. 11 MR. ATKINS: Okay. One other matter 12 that -- 13 CHAIRMAN CLOWE: What is the time frame 14 where that needs to be done, Billy? When will you 15 close nominations? 16 MR. ATKINS: They're due the 28th of 17 this month. And, you know, of course, we usually give 18 five or 10 days for mail time, etcetera. You know, I 19 don't -- there's not a real rush on our behalf. So I 20 mean, we're happy to work with the Advisory Committee 21 and then I'll get together with you. 22 CHAIRMAN CLOWE: Those members are 23 appointed by the Commission? 24 MR. ATKINS: I'm sorry? 25 CHAIRMAN CLOWE: Those members are Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 179 1 appointed by the Commission? 2 MR. ATKINS: Yes, sir. 3 CHAIRMAN CLOWE: Okay. 4 MR. ATKINS: Okay. The last item I 5 wanted to bring up, Commissioners, is you received 6 correspondence, which I was copied on, dated February 7 11th from Steve Bresnen regarding his presentation at 8 the January 8th meeting of the Advisory Committee, as 9 well as correspondence that he submitted to the 10 Commission back in 2001. 11 In his letter, he makes a statement that 12 there's been -- that he's not received any word from 13 staff regarding issues he raised in his letter or the 14 additional issues raised at the January 8th meeting 15 nor is he aware of any effort to involve people in the 16 bingo community with any kind of stakeholder process 17 or real dialogue. 18 I take exception with that comment. As 19 I pointed out in the January 8th meeting, 20 Mr. Bresnen first raised that issue in August of 2001, 21 which the transcript of that Bingo Advisory Committee 22 will verify. And I ask that he provide me with a 23 contact name, someone who I could talk with about the 24 stakeholder process. 25 Didn't get anything in September, Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 180 1 nothing in October, nothing in November. I saw him in 2 December at the Sunset meeting. I asked him for it 3 again. I didn't get anything until the January 8th 4 Commission meeting. And I contacted that individual 5 that same day. Now because of her schedule, we 6 weren't able to get together, I want to say, until 7 about a week later. 8 But we did get together. We did meet. 9 We had a good conversation for about an hour. And 10 what I find especially troubling is the fact that I 11 subsequently talked to Mr. Bresnen on January 22nd and 12 I told him that I had talked about it and was working 13 through some issues myself. He then added further 14 information. 15 For instance, he suggested that I'd 16 discuss it or look into the UT Center for Dispute 17 Resolutions. So his statement in that regard is not 18 accurate, that there's been no action on behalf of the 19 staff. Once he finally got us the information, we 20 took action on it. 21 So I think with your approval, I wanted 22 to respond to him in writing to that effect and lay 23 out kind of those time lines. 24 CHAIRMAN CLOWE: For myself, I would 25 prefer that you call and schedule a meeting with him. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 181 1 He asked for meetings one on one with the 2 Commissioners, and I, for one, would like to meet with 3 him here at the Commission with you and general 4 counsel present. And I would like to have that 5 discussion face-to-face and opposed to putting it in a 6 letter in that regard. 7 And I'll be down here one day next week 8 and offer to meet at his convenience on that day, if 9 that will suit you. And that's how I would choose 10 from my point. I don't know how the other 11 Commissioners feel about it, but I'd rather sit down 12 and talk with him. I think we could work it out and 13 get better information than trading letters back and 14 forth. 15 MR. ATKINS: Okay. 16 CHAIRMAN CLOWE: And he asked for a 17 meeting with the Commissioners. 18 COMMISSIONER WHITAKER: I guess what I 19 would like would be some comments about the response 20 that we can't give advisory opinions. He seems to be 21 saying "I want you-all to tell me your interpretation 22 of certain laws" and that we state that we can't. 23 What is your view of that, Kim? 24 CHAIRMAN CLOWE: Let me ask something 25 for clarification. We're talking about two different Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 182 1 letters now, aren't we? 2 MR. ATKINS: He actually references the 3 November letter in his February the 11th letter. 4 CHAIRMAN CLOWE: Okay. Now I should 5 have said -- I'm sorry. Two different subjects? 6 MR. ATKINS: Two different subjects, 7 yes, sir. 8 COMMISSIONER WHITAKER: One subject is 9 the stakeholder process and hearing back from the 10 staff about it. The second is seeking direction on 11 the meaning of the law. 12 MS. KIPLIN: And for purposes of my talk 13 to you, I'm actually relying on y'all getting legal 14 advice on general government law. And also, of 15 course, he's under activities of the Charitable Bingo 16 Division. 17 This agency does not have authority to 18 issue advisory opinions. The AG does, and I talked to 19 Dewey Helmcamp actually this morning before the 20 Commission meeting began when he was at his office, 21 and talked to him about this particular issue. I'm 22 empathetic to Mr. Bresnen's position where he is 23 seeking direction from the agency. 24 The concern from a legal point of 25 view -- and Billy and I have talked about it -- is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 183 1 that we don't have the authority to issue advisory 2 opinions. Dewey does tell me that there are state 3 agencies that actually do have the specific authority 4 to issue advisory opinions. 5 Setting aside the issue of whether we 6 are authorized to render advisory opinions is the 7 other aspect under the Administrative Procedure Acts 8 regarding rulemaking, and the fact that if we respond 9 to something that becomes a matter of policy, then it 10 gives rise to the fact that you've been out there 11 talking about policy and that's generally applicable 12 to your license holders and that really ought to be in 13 the form of a promulgated rule. 14 COMMISSIONER WHITAKER: Why can't we 15 promulgate a rule then? 16 MS. KIPLIN: I think we probably could 17 if we wanted to go forward, and then get -- and it 18 probably -- it's within the discretion of the agency 19 and it's probably a better form in terms of getting 20 comment. Now the one thing that Dewey and I did talk 21 about -- and I see the distinction -- is if the law is 22 crystal clear, if there is no room for differences of 23 interpretation, then there's probably no harm, in 24 terms of responding to a question posed by somebody. 25 But Mr. Bresnen in his own letter Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 184 1 acknowledges, he says note that the statute is quite 2 vague in this regard. The Texas Constitution gives no 3 guidance, so the Commission has no rules, which means 4 whatever letter Billy would be putting together could 5 be construed in another form as an unpromulgated rule 6 because it didn't come through the Commission as a 7 matter of policy. 8 And so, perhaps, when we get these 9 letters, another approach to it, unless it's something 10 where somebody just wants to know "Can I do X" and the 11 statute says you can do that, is looking at -- in the 12 form of a rulemaking. Now I think others may disagree 13 with regard to what I just told you, in terms of -- 14 not in legal advice, I don't think and the legal 15 information, but possibly the way the agency ought to 16 be responding to these. 17 And we do get -- we do get these from 18 time to time. I said to Dewey this morning that we 19 probably get maybe 10 to 15 of these a year. I may be 20 wrong on that count, but it seems like that's about 21 what we get. 22 COMMISSIONER WHITAKER: Well, I guess 23 the bottom-line question for me is: If, in fact, 24 there's vagueness in it and there is a way we can 25 clarify it by rulemaking, then why don't we? Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 185 1 MR. ATKINS: And the staff is open to 2 that. The staff has always been open to that. What I 3 think is happening from Mr. Bresnen's point of view is 4 he wants it done now. 5 COMMISSIONER WHITAKER: And have we 6 started that process? Can we give him a time table? 7 Does that make sense? 8 MR. ATKINS: I think we can. We have -- 9 as you know, we have a number of rules that we've 10 already been working on. 11 COMMISSIONER WHITAKER: Right. 12 MR. ATKINS: You know, I guess we can, 13 you know, kind of put the other work that the staff's 14 done on hold, you know, for now to kind of accommodate 15 this. Again, my personal frustration is I don't think 16 we'd have to be doing this if we'd started in August 17 when we first started talking about it. 18 CHAIRMAN CLOWE: Now you're back on 19 stakeholder issue. You're not talking about the 20 advisory rule. 21 MR. ATKINS: Well, she's talking about 22 going into a rulemaking process, and I think this is 23 specifically the rule he wanted the stakeholder 24 process used for. 25 COMMISSIONER WHITAKER: And the reason Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 186 1 we didn't go into it back then is because he -- 2 MR. ATKINS: He had the name of a 3 contact person at MHMR who does that. This 4 individual, that's all they do for MHMR is rulemaking 5 and stakeholder meetings. And we had never done one 6 here and he was going to get us that information to 7 talk with her about the process they go through, how 8 they do it, how they work it into their rulemaking 9 process. 10 CHAIRMAN CLOWE: I guess I'm guilty of 11 taking what you were asking about and applying it to 12 what I had in my mind. 13 COMMISSIONER WHITAKER: They're related 14 because in the end, it looks like we have -- it's a 15 matter of what do we, as Commissioners, think about 16 how to order the priorities, whether we should respond 17 to him right now with this or put that in the queue, 18 if you will, of other rules that are coming down. And 19 I guess he's got a sense of urgency to him. 20 He's got -- he certainly has shown up 21 here at this meeting and followed up with a letter, or 22 it seems to mean a lot to him. I mean, it would be 23 nice if we could figure out a way to accommodate him. 24 I'd like the views of the other Commissioners. 25 CHAIRMAN CLOWE: Well, I kind of had a Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 187 1 little comment this morning about responding to our 2 clients' cries for information, and it struck a nerve 3 with me when he said you know, you won't tell me what 4 I need to know and I'm sensitive to that. I would 5 like to be able to respond to that. 6 I understand the problems that it faces 7 Billy with, and Kim and I have had a long conversation 8 about how agencies can get themselves into trouble 9 trying to issue advisory opinions, but, you know, the 10 problem I have is: If you're a businessman and you're 11 asking a legitimate question of this regulatory agency 12 and the agency says "I can't tell you whether you can 13 do that or not," it puts you in a position that's very 14 uncomfortable and I've been there as a businessman. 15 So I was delighted to hear you ask why 16 we couldn't promulgate that rule and maybe issue 17 advisory opinions. And if that doesn't cause somebody 18 to have a heart attack, maybe that's the right route 19 for us to go. 20 COMMISSIONER WHITAKER: Well, I'm 21 sensing that is a matter of we can do it through our 22 rulemaking power. Then it's the question of whether 23 that can be folded in, in a timely and efficient 24 manner with what you-all are doing, Billy. 25 And gee, it would be nice if we can Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 188 1 figure out a way to make that happen. I don't want to 2 disrupt everything else you're doing, so help me here. 3 MR. ATKINS: Well, let me clarify one 4 thing that you said, Commissioner Clowe. I don't 5 think that we can through rulemaking give ourselves 6 the authority to issue advisory opinions. 7 COMMISSIONER WHITAKER: Right. But we 8 can, through rules -- 9 MR. ATKINS: So we can, through rules -- 10 COMMISSIONER WHITAKER: Yes. 11 MR. ATKINS: -- address charitable 12 distributions. 13 COMMISSIONER WHITAKER: Yes. 14 CHAIRMAN CLOWE: Okay. Thank you for 15 that clarification. 16 COMMISSIONER CRINER: Is there any 17 reason why this couldn't all be worked out in the 18 Bingo Advisory Committee? 19 MR. ATKINS: We would -- no, there's 20 not. We would -- I mean, that's what we would 21 normally do is take it through the Advisory Committee. 22 His desire is to have this stakeholder's group, which 23 is a group separate from the Advisory Committee. 24 COMMISSIONER CRINER: So we're going to 25 have another legal on the sideline? Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 189 1 MR. ATKINS: That's right. So it would 2 now go through the stakeholder's group and then the 3 Advisory Committee and then to the Commission. 4 COMMISSIONER WHITAKER: Well, it seems 5 to me that the -- I'm sorry. 6 COMMISSIONER CRINER: My feeling is that 7 we don't need a whole bunch of folks advising us. We 8 just need to make it one group. And based on the fact 9 that the president, the vice-president and other 10 officers of the Bingo Advisory Committee are not going 11 to come to their own meeting tomorrow, maybe we need 12 to figure out, you know, where is the hole in this 13 bucket and plug the hole and at least have a working 14 bucket that everybody can work through. Maybe that's 15 more of what the man's saying to us than anything 16 else. 17 MR. ATKINS: Well, I do want to put on 18 the record, Commissioner Criner, in the case of Bill 19 and Virginia, the chair and the vice-chair, they're 20 both facing very serious illnesses of family members. 21 So that's what's stopping them. I don't know what 22 Mr. George's situation is. But in their case, that's 23 what came up. Commissioner Whitaker, we can do it. 24 COMMISSIONER WHITAKER: But can you do 25 so in a way that's accommodating all the other work Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 190 1 that you have to have done? 2 MR. ATKINS: We can definitely move it 3 up. You know, again, I don't know what 4 Mr. Bresnen's time line is. I mean, I can't promise 5 you that we're going to have it done next month. But 6 we can move it up and we can start working on it. 7 COMMISSIONER WHITAKER: What strikes me 8 is that if Chairman Clowe is willing to meet with him, 9 he could address that stakeholder process, which off 10 the cuff strikes me as an extra step in a process, 11 that perhaps is not necessarily. It will slow things 12 down. And depending on how clear your view is of what 13 you think good policy would be on expenditures, then 14 perhaps you could draft what you think is a good rule, 15 present it to the Bingo Advisory Committee, try to get 16 their comments pretty quickly, then get the 17 publication process going, which invites comments. 18 And it's during that comment period that 19 you could continue to discuss with him other people 20 that need to comment on it and then we just run it on 21 through. That's what I thought. 22 MR. ATKINS: Okay. 23 COMMISSIONER WHITAKER: Does that work 24 for you, Billy? 25 CHAIRMAN CLOWE: Sir? Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 191 1 MR. ATKINS: I guess, you know, in 2 closing, I just wanted you to know that, in fact, we 3 have been working on it. 4 COMMISSIONER WHITAKER: I believe you. 5 CHAIRMAN CLOWE: I believe you, too. 6 MR. ATKINS: That, Commissioners is all 7 I have on my report. 8 COMMISSIONER CRINER: That's the longest 9 report you've given us. 10 CHAIRMAN CLOWE: Linda, you have passed 11 out to us during the time of these reports the matrix 12 change and the information during an 82-week period 13 prior to and after the change how many times the 14 jackpot was hit. Do you have any comments for us on 15 that? 16 MS. CLOUD: Except that prior to, we had 17 46 hits and since the matrix change, we've had 30 18 hits. It's not quite double, but it's still quite a 19 bit of difference. And you'll notice that we don't 20 have nearly as many of the $4 million hits after the 21 matrix change as we did prior to. 22 COMMISSIONER CRINER: And you'll notice 23 that 17 of the 30 were over $20,000 and seven of those 24 were over 40. 25 COMMISSIONER WHITAKER: $20,000? Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 192 1 COMMISSIONER CRINER: Over 20. 2 COMMISSIONER WHITAKER: Do you mean 3 million or thousand? 4 COMMISSIONER CRINER: What did I say? 5 CHAIRMAN CLOWE: More zeroes. 6 COMMISSIONER CRINER: Million. Million. 7 I meant million. 8 MS. CLOUD: I think this continues to 9 track that we made the right decision in changing the 10 matrix of the Lottery. 11 COMMISSIONER WHITAKER: It's very 12 interesting. 13 CHAIRMAN CLOWE: You know, I'm beginning 14 to believe that you can't control this. 15 COMMISSIONER WHITAKER: That you can? 16 CHAIRMAN CLOWE: Cannot. 17 COMMISSIONER WHITAKER: Well, we have 18 Dr. Eubanks' guarantee, don't we? 19 MS. CLOUD: Guarantee that we're going 20 to have a big jackpot. 21 CHAIRMAN CLOWE: Commissioners, we 22 continue to try to set the Commission meeting a month 23 in advance. Would you care to enter into that lottery 24 now and pick a date? 25 COMMISSIONER WHITAKER: Sure. Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 193 1 COMMISSIONER CRINER: How about the 6th? 2 No, I'm sorry. 3 COMMISSIONER WHITAKER: The 6th. 4 CHAIRMAN CLOWE: What did you suggest, 5 Commissioner Criner? 6 COMMISSIONER CRINER: Well, I said the 7 6th, but I really meant the 5th. Wait a minute. 8 Yeah, the 5th would be good. The 6th is -- what am I 9 saying? That Wednesday, that Wednesday. 10 COMMISSIONER WHITAKER: The 5th is 11 Wednesday. 12 COMMISSIONER CRINER: The 5th is a 13 Tuesday. 14 COMMISSIONER WHITAKER: Well, let's see. 15 I'm in the wrong year. That's my problem. Yeah, this 16 is slowing down on me. 17 MR. ATKINS: You notice the Chair is the 18 only one who's clear. 19 CHAIRMAN CLOWE: Thank you, Billy. I 20 was thinking that. 21 COMMISSIONER WHITAKER: He's just paying 22 me back. The 6th, yeah, would be fine. 23 MS. CLOUD: You had a conflict on the 24 6th? 25 COMMISSIONER CRINER: No, the 6th is Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 194 1 fine. 2 CHAIRMAN CLOWE: The 6th of March at 3 8:30 a.m. in this place. All right. The Commission 4 intends then to meet in the month of March on 5 Wednesday, March the 6th at 8:30 in this building. 6 Now in that regard, will your remodeling 7 in this room be underway at that time? 8 MS. CLOUD: No, sir. I don't think so, 9 not that we have to move the Commission meeting. 10 CHAIRMAN CLOWE: All right. So we'll 11 meet in this room. 12 MS. CLOUD: But the next -- the April 13 and May meetings will have to be in another building. 14 CHAIRMAN CLOWE: Okay. And you'll make 15 those arrangements? 16 MS. CLOUD: Yes. 17 CHAIRMAN CLOWE: Is there anyone else 18 wishing to make public comment to the Commission? 19 Commissioners, do you have anything 20 further? 21 Then we are adjourned at 2:39 p.m. 22 Thank y'all very much. 23 (Meeting adjourned at 2:39 p.m.) 24 25 Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363 195 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, DAVID BATEMAN, RPR, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 Witness my hand on this the 20TH day of 16 FEBRUARY, 2002. 17 18 19 20 DAVID BATEMAN, RPR, 21 Texas CSR No. 7578 Expiration Date: 12-31-03 22 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 23 (512) 474-4363 24 25 JOB NO. 020212DPB Wright Watson STEN-TEL (512) 474-4363 (800) 375-4363