1 1 ****************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 AUSTIN, TEXAS 6 7 MARCH 6, 2002 8 ****************************************************** 9 10 BE IT REMEMBERED that the above-entitled matter 11 came on for hearing on the 6TH day of MARCH, 2002, 12 beginning at 8:31 a.m., and ending at 12:47 p.m., at 13 the TEXAS LOTTERY COMMISSION, 611 East Sixth Street, 14 Austin, Texas, and the following proceedings were 15 stenographically reported by Mary Scopas, RPR, CSR for 16 the State of Texas. 17 18 19 APPEARANCES 20 CHAIR C. TOM CLOWE, JR. 21 COMMISSIONER ELIZABETH D. WHITAKER 22 COMMISSIONER WALTER H. CRIMER, SR. (Not Present) 23 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 24 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 25 MR. BILLY ATKINS, CHARITABLE BINGO OPERATIONS DIRECTOR WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 2 1 CHAIRMAN CLOWE: Good morning. I call 2 this meeting in the Texas Lottery Commission to order. 3 It is 8:30 a.m. on March the 6th, 2002. My name is 4 Tom Clowe. Commissioner Whitaker is here. 5 Commissioner Crimer is absent. We have a quorum, 6 therefore we will go through this agenda and conduct 7 the Commission's business. We have some outside 8 individuals who would like to make a presentation this 9 morning. And in order to hear what they have to say, 10 we'll go immediately to Item Number 11 on the agenda 11 which has to do with proposed amendments to the rules 12 relating to Cash 5 online games. 13 May we ask you folks to come up, 14 please? 15 MR. KING: Thank you, Commissioners. 16 For the record, my name is Larry King, the account 17 general manager for GTECH, Texas. With me is John 18 Catigan, vice president of marketing for GTECH. 19 Ramone Rivera on the keyboard over there. 20 We're here today to talk about Cash 5 21 and some of the ideas that we have concerning the game 22 and really give you an overall pictures of where sales 23 are, and some of the recommendations we may have. I 24 will turn it over to John Catigan. 25 MR. CATIGAN: Who will turn it over to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 3 1 Mr. Tirloni. 2 MR. TIRLONI: Good morning, 3 Commissioners. For the record, my name is Robert 4 Tirloni. I am the online product manager for the 5 Lottery. I just have a brief introduction. 6 Commissioners, the introduction of the 7 Texas million game back in May of 1998 and the 8 replacement game for Texas Million Texas Two Step 9 which was introduced in May of 2001 both took a toll 10 on the five-digit game, Cash 5, which were introduced 11 back in 1995. Even before those two games were 12 introduced Cash 5 sales had already started to see a 13 sales decline. 14 Well, different options have been 15 reviewed to enhance the game by keeping its five of 39 16 matrix in place. At this time staff has come to the 17 conclusion that the time is now right to change the 18 matrix to a five of 37 matrix. This matrix change 19 incorporates a new prize tier. Players will receive a 20 guaranteed two-dollar prize for matching two out of 21 five numbers. Our proposal is that the game will 22 become a daily game with drawings taking place every 23 evening, Monday through Saturday. And the overall 24 odds of winning will go from one in 100 to one in 25 eight. Right now the Cash 5 game in Texas is, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 4 1 unfortunately, one of the hardest cash games to win in 2 the entire nation. So we're happy about that change. 3 COMMISSIONER WHITAKER: And with the 4 change, it will become, what, in the nation? 5 MR. TIRLONI: There is a slide in the 6 presentation that shows all the overall odds. It puts 7 us in much better standing, though, instead of being 8 way at the top. 9 Well, the current Cash 5 game generates 10 approximately five to 6,000 winners per draw. This 11 new proposed matrix is projected to generate 12 approximately 50,000 winners per draw. Doctor Randy 13 Eubank has reviewed this matrix for accuracy. And we 14 did conduct focus group tests on this matrix. 15 Research was conducted in the cities of Houston and 16 Corpus Christi in late January and the matrix with the 17 features I've just described were very well received 18 by players. 19 And I will turn it over to John 20 Catigan. 21 MR. CATIGAN: Thanks, Bob. Good 22 morning. 23 CHAIRMAN CLOWE: Good morning. 24 MR. CATIGAN: Pleasure to be back here. 25 I was here almost two months ago to the day. We WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 5 1 worked on the Pick 3 game at that point. And as 2 Robert just alluded, we're going to take a look at 3 Cash 5 here. 4 The agenda will consist of a brief 5 history of this particular product line in the 6 United States. We'll take a look at the performance 7 certainly of the product. And then for the Texas Cash 8 5 performance. Look at the proposed change and talk 9 about the all important revenue projections. 10 The Cash 5 type of game or product line 11 came into the industry in 1987. Here you have a map 12 of the United States showing those states in light 13 blue, light blue here, that had a Lottery back at that 14 point. The state of Illinois in a series of research 15 talking to Lotto players as well as other states 16 discerned that Lotto players were a little disgruntled 17 with Lotto-type games. And the research coming back 18 at that particular point. Players were saying, look, 19 I am never going to hit a six of 50 game. That's -- 20 the odds are too high. And plus, I'd like a game that 21 gives me a cash prize. And hence, in '87 Illinois 22 launched the first industry Cash 5 game. Today in 23 light green here you see just about every Lottery in 24 the United States offers a Cash 5 game. 25 Let's take a look at the performance WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 6 1 across the nation of these games. Now, we're going to 2 talk here in terms of per capita performance. That's 3 weekly sales divided by the state's population. And I 4 have got about, oh, I'd say two-thirds of the 5 jurisdictions in the United States that offer Cash 5 6 games here. There's a whole host. This is ranked on 7 2001 performance, weekly per capita performance. 8 There is a whole host of other jurisdictions that fall 9 below the eight cent range that don't make it to this 10 chart. 11 Texas is certainly in the top half, 12 probably the top third of performance. And here you 13 have a whole -- I know the commissioners can see this. 14 You have weekly per capita performance from '96 going 15 forward. The general slope of these games once they 16 come in is a slightly downward slopes. Now, states, 17 individual states, have done things to their own Cash 18 5 games to keep those sales up a little bit. We came 19 out with a very good per cap here in Texas of 32 20 cents. And over the last few years it has slipped 21 down to its current 12-13 cents as alluded to by 22 Robert in his opening comments. Any questions on 23 this? 24 Okay. Let's move on. I've talked 25 before when I've been down here about the states you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 7 1 cluster with. Texas clusters with New York, Florida 2 California demographically speaking, size speaking, 3 product offering speaking. When you look at the 4 comparison of Texas to those three other states, you 5 see that Florida and New York have a weekly per cap 6 that is significantly above both Texas. And certainly 7 significantly above California. 45 cents. 37 cents, 8 excuse me. 12 cents here in Texas. In California, 9 eight cents. 10 Let me just say this about Cash 5 11 products. They are very sensitive to advertising 12 expenditure in support in the marketplace. States 13 that tend to have a higher per caps, such as New York 14 and Florida tend to put the advertising dollars behind 15 these games, or those two particular games, and they 16 periodically adjust the game with draw increases, 17 prize payout increases, etcetera. Things we're 18 talking about doing with Cash 5 here. 19 Here is the life cycle or life sales 20 trend of Cash 5 here in Texas. It came out in '96, as 21 you can see. And had a very good start with 35 cents, 22 30 cents averaging. And you see what happened when we 23 went from two to four draws. An immediate uplift in 24 sales. And again, states that have kept their Cash 5 25 games moving horizontally as opposed to precipitously WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 8 1 downward have tended to do that type of activity, 2 adding draws, changing matrix, etcetera. 3 The introduction of Texas million 4 definitely hurt this game. This was probably the time 5 where we should have come down here and recommended 6 going to six draws to be honest with you. The game 7 continues down. Texas two step comes in. Doesn't 8 impact it too much. What we're talking about here 9 today with the additional draws, the re-sizing of the 10 matrix creating more winners is going to take this 11 particular line here at this point and bring it up 12 probably in this area here. Any questions? This is 13 my big action slide. 14 Okay. Just a little schemata here. 15 Sales, sequence of events, what lotteries, especially 16 lotteries that nurture and care for this product line, 17 what they've done is historically added draws first to 18 get a pretty good size bump. Next they will consider 19 reducing the matrix or re-sizing the matrix downward 20 giving players easier odds. And of course, in doing 21 that generally they create more winners. So these are 22 the three steps to success with this particular 23 product. All of which the Texas Lottery has 24 incorporated in this recommended change. 25 Okay. Here you have -- and Robert WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 9 1 alluded to this earlier. Here you have all of the 2 states, I believe we have all on this particular slide 3 here, that offer Cash 5 type games. You can see the 4 different names they fall under. Fantasy 5 in 5 Georgia, Jersey Cash, Montana Cash. The theme of 6 cash, again, coming in. And unfortunately, you can't 7 see this, but it is ten all the way down to about 8 Indiana, I think actually runs a game with one in four 9 or five overall odds. And as you can see, Texas is up 10 here with one in 100 odds. That is, if you bought 11 this game every draw for one-year period, you would 12 have a -- theoretically, you would have two winning 13 experiences every year. Okay. Not a great deal for 14 the consumer. 15 MR. TIRLONI: In Florida -- where you 16 have Florida in Fantasy 5, that's the first state that 17 has overall odds of one in eight. So Florida, Ohio 18 and West Virginia are the states that have overall 19 odds of one in eight. That's what is off to the side 20 over there. 21 MR. CATIGAN: Okay. 22 MR. TIRLONI: So we'd be right -- if 23 these rules were eventually adopted by the Commission 24 and Texas had overall odds of one in eight, we'd be 25 clustered right over there with Florida, Ohio and West WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 10 1 Virginia in terms of where -- I am just addressing 2 what Commissioner Whitaker asked about earlier. If we 3 made changes, we'd go from being at one in a hundred 4 overall odds to where -- to one in eight. 5 MR. CATIGAN: Okay. 6 MR. TIRLONI: And the overall odds are 7 off the slide. 8 MR. CATIGAN: Okay. Here is the 9 problem. It's my fault here. This is another cash 10 type game that Florida runs. It is not Fantasy 5. 11 That's my mistake. Thank you, Bob. 12 This is actually called Mega Mega Cash. 13 It is a Fantasy 5 type game. It's -- they have two 14 games in Florida. That's one in 30. The game over 15 here that Robert is referring to is the Florida 16 Fantasy 5 game and that's one in five or six, whatever 17 he said right there. Okay. 18 I took and plotted that -- this just to 19 show the relationship between overall odds and per 20 capita performance. Here is New York and Florida and 21 Pennsylvania up here at a weekly per cap of 35 cents, 22 plus. And here are the overall odds. This is Texas 23 out here with overall odds of one in a hundred and the 24 per cap being right at about 12 cents. 25 COMMISSIONER WHITAKER: Why would you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 11 1 have so many folks clustered at this end even with the 2 low odds? 3 MR. CATIGAN: Right. And -- this is 4 what this slide shows. That overall odds is not 5 singularly the most important thing when it comes to 6 this game. Okay. It is creation of more winners. It 7 is the advertising that goes behind it. There are 8 other things. This is a one variable model showing 9 the relationship between per cap and overall odds. 10 Yes, you know, if this was the most important 11 ingredient to success for this game, you would see a 12 relationship like that. This is still somewhat of a 13 significant relationship. Okay. 14 The proposed change. Let's talk about 15 the recommended change, specifically what we're 16 looking to do with the game. Here you have the 17 current five of 39 game. And for the purpose of 18 discussion, say that sales, draw sales now, draw sales 19 of 400,000 where we have a top-tier winner. This is 20 how the game would play out over a year's period. You 21 would create currently per draw around 4,000 winners. 22 Okay. That's the five of 39 matrix where you have a 23 top-tier winner. And these are the prize payouts 24 that each of the winners would receive. On average 25 $41,000 for the top and $26 for the Match 3. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 12 1 The proposed matrix change is going to 2 result in this type of configuration here. Excuse the 3 double printing of the words there. We're going to 4 have -- the big change with the new game, is the Match 5 Two prize. This will be the only game in the 6 United States that for a Match Two of five of 37, you 7 are going to receive a cash prize of two dollars. New 8 York does their prize and California -- Florida does 9 their prize -- no. California on the Match Two, but 10 it is a free ticket. And trust me when I tell you 11 that players don't perceive a free ticket as a prize. 12 So here what we're proposing to do is 13 for Match Two, which is odds of one in nine, you 14 receive a two-dollar cash prize. That is going to 15 drive on average 50,000 winners per draw. That should 16 infuse excitement back into this game and help get to 17 the projections, which you will see in a minute. 18 Again, this is the case of when we have 19 a top-tier winner. One of the beauties of the current 20 game here is that when we don't have a winner, we do 21 what? We will roll that money down to the floor 22 level. Okay. And let's take a look and see what 23 happens in that case. New -- current games to new 24 game. 25 So at 400,000 a draw -- no. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 13 1 MR. KING: Next line. 2 MR. CATIGAN: Next line. With no 3 top-tier winner, here's what happens currently, with 4 your current five of 39 game, you don't have a 5 top-tier winner, that money rolls down into -- on 6 average $847 for the Match 4. And again, 26 for the 7 Match 3. For the new game what we're proposing when 8 there is no winner, what will happen, that top-tier 9 money will roll down to a prize of $430 for the Match 10 4. $10 for the Match 3. And again, two dollars for 11 the Match 2. Again, 50,000 winners versus 4,000 12 winners. 13 That's the big attraction for the 14 current set of the changes in my opinion. Two things 15 here. You are adding two draws. That in itself, if 16 you did nothing else with the matrix, would drive 17 sales. We know that. Adding the two draws plus 18 making the game more winnable, far more winnable, is 19 what is going to take this game and bring it up 20 significantly on a per capita basis. Okay. 21 And lastly, let's talk about the 22 revenue projections. For some recent 52-week period 23 the current game generated, again, some 52-week 24 period, a $124 million for that time frame. Which 25 generated to the Texas good cause $47 million. At WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 14 1 some recent 52-week period, very recent. With the 2 proposed changes as stated by Bob, and you have seen 3 the changes here, we estimate that you are going to 4 come out and over a 52-week period from March to about 5 a 15 percent lift in the sales. Okay. That's on 6 average. And that's what our statisticians back in 7 corporate are telling us will be the effect. 8 What will happen in reality: This game 9 with those changes will come out and right out of the 10 box we'll do about 20 to 25 percent above where it is 11 today. Okay. It will slope down somewhat, as they 12 all do, all these games when they go through these 13 changes. And you will see it probably slowing to 12 14 percent. So we project about a 15 percent. 15 MS. CLOUD: Commissioners, I would like 16 to point out that this particular spot in our fiscal 17 note for this game in the rule, our projection was an 18 increase of 10 percent, not 15. And we're hoping that 19 there is 15, but we were being conservative with our 20 fiscal note projections. 21 MR. CATIGAN: I am sure I will be back 22 at some point in the future, and I think you will 23 do -- 24 MS. CLOUD: We track your projections. 25 We keep up with what we're doing compared to what you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 15 1 said we are going to do. 2 MR. CATIGAN: Okay. That's basically 3 the gist of the presentation. I will certainly 4 entertain any questions. 5 CHAIRMAN CLOWE: May we have the 6 lights, please? Any questions? 7 COMMISSIONER WHITAKER: No. That was a 8 pretty clear presentation. 9 I mean, what would be the likely 10 criticisms of these changes, if there were to be any? 11 MR. CATIGAN: Okay. I will put on my 12 Doc hat. What would be the -- oh, we can all be 13 honest. 14 I suppose some might not like to see an 15 increase draw to a particular Lottery product 16 offering. 17 COMMISSIONER WHITAKER: From what to 18 what? How many a week? 19 MR. TIRLONI: It has gone from four in 20 a week to six. 21 COMMISSIONER WHITAKER: Four to six? 22 Okay. 23 MR. CATIGAN: Every Lottery -- if I can 24 piggy-back on that comment I just made? Just about 25 every Lottery in the United States is offering this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 16 1 product either six or seven days a week. I think 2 we've, together with GTECH, maybe the Lottery has been 3 a little remiss in pushing this game with some of 4 these changes. Again, just about every Lottery has 5 done the things we have recommended and done them 6 sooner into -- after the introduction of the product 7 than we have. 8 COMMISSIONER WHITAKER: And why did we 9 wait, Linda? 10 MS. CLOUD: I don't have a good reason 11 for having waited this long. I know we have had other 12 games that changes -- it is very difficult to make 13 more than one game change at a time. With our 14 rule-making process is slight in that when you have 15 more than one game, it just makes it real difficult. 16 COMMISSIONER WHITAKER: Thanks. 17 MS. CLOUD: And it adds confusion to 18 players when you change more than one game at a time, 19 they get confused. And the only objection I think, 20 and I don't know but one person that would probably 21 have this objection, is going to six days a week when 22 they think it should be a two-day-a-week draw. We 23 cannot recover sales for this game at two days a week. 24 CHAIRMAN CLOWE: Does this require a 25 motion? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 17 1 MS. KIPLIN: Yes, it does 2 Commissioners. In the rule-making itself we are 3 also -- staff is also wanting to notice up a 4 rule-making comment hearing, which would be April 4th 5 at 9:00 a.m. That will be at different location 6 because this room will be under construction. It will 7 be over at the Texas Department of Housing and 8 Community Affairs. The motion that staff would like 9 for you to consider making today is a motion to 10 propose these rule amendments for public comment and 11 publication in the Texas Register. 12 COMMISSIONER WHITAKER: So moved. 13 CHAIRMAN CLOWE: Second. All in favor 14 please say aye. Opposed, no. The vote is approved 15 two-zero. Thank you, gentlemen. 16 We're now ready to go to Item Two on 17 the agenda. Report, possible discussion and/or action 18 on Lottery sales and trends. Linda and Toni Smith, 19 good morning. 20 MS. SMITH: Good morning, 21 Commissioners. For the record, I am Toni Smith, 22 marketing director of the Texas Lottery Commission. 23 To take a brief look at year-to-date total sales for 24 week ending March 2nd were $1,435,998,831. This is 25 down 3.98 percent from fiscal year '02 total sales to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 18 1 date, 1,495,546,339. We are still kind of combatting 2 those big jackpots that we had in Lotto Texas the 3 beginning of last fiscal year. So we're still 4 dragging a little bit because of Lotto Texas. 5 Our current weekly sales average for 6 fiscal 2002 is 53,185,149 -- 41, excuse me, versus 7 fiscal year 2001 weekly sales average of 55,390,605. 8 Then to look at year-to-date sales by 9 product for the same time period, week ending March 10 2nd. Instant tickets for fiscal year 2002 are at 11 941,634,517. That currently represents 65.57 percent 12 of sales compared to fiscal year 2001 of 903,940,214. 13 And at that time the instant product represented 60.44 14 of sales. So this is a 4.17 increase over last year. 15 Lotto Texas for fiscal year 2002 is at 16 276,916,233 representing 19.28 percent of sales 17 compared to last year of 387,480,043 representing 18 25.91 percent of sales. This is a decrease of 28.53 19 percent from last year. And again, due to -- we still 20 haven't had those larger jackpots yet in this fiscal 21 year. 22 And just to look at Cash 5 since we 23 just talked about that game. We're currently at 24 60,823,016 representing 4.24 percent of sales versus 25 76,718,470 at 5.13 percent of sales last year. So WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 19 1 that's a 20.72 percent decrease. And I think we saw 2 on the chart, that is sort of the trending that we 3 have seen for this game. 4 To look at something a little more 5 current. This week's weekly sales for the past week, 6 week ending March the 2nd, sales were 58,035,360. 7 This is up 1.18 percent from the previous week ending 8 February 23rd. The total sales of 57,358,959. The 9 primary increase for the sales for the week was 10 because of Lotto Texas and the jackpots. The jackpots 11 for week ending March 2nd were nine, and 13 million 12 for Wednesday and Saturday versus four and six million 13 for the previous week. 14 Instant tickets for last week were at 15 39,266,928. And represented 67.66 percent of sales 16 versus the prior week of 40,504,711. And representing 17 70 percent -- 70.62 percent of sales with a slight 18 three percent decrease. And then Lotto Texas was 19 9,797,577, representing 16.88 percent of sales versus 20 8,183,279, representing 14.27 percent of sales. And 21 this was a 19.73 increase. 22 MS. CLOUD: Commissioners, I have some 23 bragging to do, please. The last four weeks of 24 instant tickets sales have been the highest four weeks 25 of sales in a row dating back to 1997. Our instant WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 20 1 ticket game plan is working. The instant sales for 2 this week, Sunday through Tuesday, also is the highest 3 sales that we have had in that four-day period on a 4 week. So we're going to exceed, hopefully, if we stay 5 on this track this week, we'll have a higher -- we'll 6 be back to over 40 million this week. 7 To remind you, starting this week last 8 year until the end of FY '01, we averaged 31.2 million 9 a week in instant ticket sales. So that's the 10 difference, the 31 million to the $40 million week. 11 Total sales also this week last year was the $85 12 million jackpot. So after this week year-to-date 13 compared to last year, we took a downturn in sales 14 because we didn't have any big jackpots after the 15 $85 million week, in our sales. So from this point on 16 our sales will probably be greater than last year's 17 sales. 18 We do need our Lotto jackpot rollover. 19 We're still praying for that. And it is going to come 20 according our statisticians. So we're -- 21 COMMISSIONER WHITAKER: We have three 22 anticipated, right, of the larger jackpots between now 23 and July? 24 MS. CLOUD: Between now and August 25 31st. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 21 1 As far as our conversion for our new 2 Lottery operator contract, we -- GTECH has installed 3 as of this morning 668 of the new terminals. We 4 started with El Paso and the Dallas area. So they are 5 starting to roll out the new terminals right now under 6 the new contract. 7 CHAIRMAN CLOWE: Very good. Thank you 8 Toni. 9 MS. CLOUD: I am sorry, Commissioners. 10 My general counsel is telling me that last report was 11 under my executive report. 12 CHAIRMAN CLOWE: I thought it was under 13 something else. I didn't know how it got in there. 14 MS. CLOUD: Sorry. 15 CHAIRMAN CLOWE: And now we'll consider 16 Item Number Three on the agenda regarding advertising 17 and promotion and advertising procurements. 18 Toni, do you have any comments or 19 Linda? 20 Ms. SMITH: I have nothing new to 21 report, Commissioners. 22 MS. CLOUD: We're running our winners 23 ads. 24 CHAIRMAN CLOWE: I would just like to 25 again say how well pleased I am with the current WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 22 1 advertising. I think the programs are excellent. I 2 heard a radio spot driving down this morning from 3 Waco. And it is the Texas winners, which is the sound 4 track, I think, from the videotape. And I think that 5 is very, very effective. And it is very pleasing to 6 the population of state. It is not offensive in any 7 way and it gets the message across. You are in the 8 right vein. 9 MS. SMITH: Thank you, sir. 10 CHAIRMAN CLOWE: And stay there if you 11 can. 12 COMMISSIONER WHITAKER: How many people 13 will hear it at 5:00 in the morning? 14 CHAIRMAN CLOWE: I wondered about that. 15 MS. CLOUD: I have to tell you we had 16 our town hall meeting in Corpus Christi last week. 17 And we had one man -- we showed the commercials, and 18 we had one individual, retailer, stand up and tell me 19 that the announcer, not the winners, but the announcer 20 sounded like a redneck and that he thought that we 21 should change -- and you should -- I mean, it was 22 almost hilarious because of the way -- and he kept on 23 that we need to change it. We needed somebody like -- 24 CHAIRMAN CLOWE: Cactus Pryor? 25 MS. CLOUD: No. He said Rex Allen. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 23 1 And -- who was the other one? Weylan Jennings. To 2 make it really sound like -- but he said, I know that 3 those people are dead, but we need to find somebody 4 like that. 5 CHAIRMAN CLOWE: It is the people's 6 business. 7 We're now ready to go to Item Number 8 Four: Consideration of and possible discussion and/or 9 action on the process to be used to create bingo 10 regulatory policy and or to respond to licensees' 11 requirements. Billy Atkins. 12 MR. ATKINS: Commissioners, this item 13 was put on the agenda at the request of Steve Bresnen. 14 And I think he had a presentation to make to the 15 Commission. 16 CHAIRMAN CLOWE: Yes. Good morning, 17 Steve. Will you come forward, please. 18 I might say for the record that within 19 the last week or so following a letter that 20 Mr. Bresnen wrote to the Commission, a meeting was 21 established wherein he came in and visited with Billy 22 Atkins, Kim Kiplin and myself and I asked Mr. Bresnen 23 to appear here at this meeting if it was convenient 24 and make his remarks to the Commission so that the 25 commissioners could hear what we had to say. And I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 24 1 thought his comments were worthwhile and meaningful 2 and we wanted to broaden the forum that he was in. 3 And it may be that Mr. Fenoglio would like to speak to 4 this issue as well, and we'll give him that 5 opportunity. 6 MR. BRESNEN: Thank you, Mr. Chairman 7 and Commissioners. I appreciate the opportunity to 8 speak to you today. I thought what I'd do, if it is 9 acceptable to you, Mr. Chairman, is just kind of talk 10 about a little bit about what we talked about the 11 other day without going into detail or spending nearly 12 as much time. Kim is passing out to you the -- two of 13 the pieces of paper that I brought with me the other 14 day. And I think to call this a presentation would be 15 giving me far more credit for organization than my 16 wife would be willing to accept being advertised on my 17 behalf, but I appreciate it. What I did -- the last 18 letter you got from me was written out of a high 19 degree of frustration and impatience. And I have 20 sometimes been known to be -- add a lot of volume to 21 what I say, but I'd like to say that I've got a fair 22 amount of patience. And so I apologize for breaking 23 my general rule of just hanging in there. And I 24 really appreciated, Mr. Chairman, you and Billy and 25 Kim taking the time to meet with me, especially for as WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 25 1 long as you did the other day. 2 I have been concerned for some time 3 about the way that policy gets made here at the 4 Commission. Probably the most frequent complaint that 5 I get from my clients has to do with issues where the 6 rules or the statutes are clear. 7 CHAIRMAN CLOWE: Mr. Bresnen? 8 MR. BRESNEN: Yes, sir. 9 CHAIRMAN CLOWE: Can I ask for 10 clarification? 11 MR. BRESNEN: Yes, sir. 12 CHAIRMAN CLOWE: When you say policy 13 being made at the Commission, aren't you really 14 focusing on the bingo division. 15 MR. BRESNEN: Yes, sir. I am sorry. 16 Yeah, I'm not talking about lottery. Everything I got 17 to do has got to do with bingo. 18 CHAIRMAN CLOWE: Okay. I wanted a 19 clarification. 20 MR. BRESNEN: No, sir. The -- and it 21 occurred to me that I probably needed to clarify that. 22 And I hope I did at our meeting. 23 On a day-to-day basis in working with 24 members of the staff here at the Commission, there is 25 a light years' worth of difference between the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 26 1 previous administration of charitable bingo and the 2 current administration. The agency is far more 3 responsive when people are filing applications. I 4 think things get turned around quicker, in general. 5 And I get fewer and fewer complaints about those sorts 6 of things. And if there is a concern, if I call Billy 7 or Phil, I almost immediately am able to determine 8 what the problem is. Sometimes it is on our end, 9 sometimes it is not. But it works good from a very 10 practical day-to-day basis. 11 What I have tried to do, because I 12 don't generally handle -- I don't handle cases down 13 here, is to try to focus in on making -- trying to get 14 some policies made in areas that seem to routinely 15 create problems or get complaints from my clients to 16 me. And what I started out to do last August was to 17 focus in on the definition of charitable purpose. The 18 reason I did that, just very briefly, is because when 19 a bingo, a charitable bingo conductor, takes money 20 from their bingo account, puts it in their general 21 account and then uses that for what they think is a 22 charitable purpose, if the Commission later says, no, 23 that wasn't a charitable purpose, then they have to 24 return money to their account. And I don't know about 25 you, but if I had -- my wife made me pay back money to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 27 1 my account on things that I didn't -- she thought were 2 inappropriate expenditures, I'd be in the ditch. And 3 I would not have the extra reserve funds to be able to 4 do that. 5 COMMISSIONER WHITAKER: Do you want to 6 be specific? 7 MR. BRESNEN: I tell you what, meet 8 with me one-on-one and I will be specific. 9 So it is a real concern. It is a 10 practical concern for them. In addition, there are 11 some expenditures that people feel like are acceptable 12 and are consistent with their charitable mission, and 13 the reasons for which they are founded. And some of 14 these organizations are founded a couple of hundred 15 years ago that have -- that the Commission has 16 objected to. And so it seemed to me what we ought to 17 do is have some rule-making and fill in some of the 18 gaps. 19 The other day Billy asked me a question 20 that I thought a whole lot about since the time he 21 asked me. And you know, sometimes you can talk to 22 people for years and finally you're able to be gotten 23 through to. And I was. He asked me: Why should I 24 consult you about what's a charitable purpose when 25 that's a concern of a charity, and you represent WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 28 1 lessors? So as I thought about that -- I think that 2 is a very good question. And as I got to thinking 3 about it. I got to thinking about how things work in 4 the world practically, and I think you guys ought to 5 know this, if you don't. If you hadn't been hanging 6 around the bingo hall, I think you ought to know it 7 and we ought to all be real open about it. Like most 8 things, when I was working on trucking deregulation, 9 Central Freight was a very -- was way at the forefront 10 of that. And the Texas Motor Transport Association 11 was way at the forefront of that. But there were 12 hundreds of licensees involved in trucking in Texas. 13 And I venture to guess, Tom, that there was a whole 14 lot of people that we never heard a single word from. 15 They didn't come to any meetings at the Railroad 16 Commission. They didn't come see the lieutenant 17 governor. All those types of things. I think as a 18 practical matter, the people who are getting paid to 19 do this are in a leadership role. And that's not 20 surprising. 21 Secondly, the people that -- the vast, 22 vast majority of people around these charities are 23 volunteers. So they're not down here all the time. 24 It's all they can do to meet the requirements to be at 25 the hall and to pay attention to the business of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 29 1 charitable bingo entity. 2 And then finally, there is a lot of 3 overlap. The -- a lessor who's got six or seven 4 charities in their hall is going to be paying close 5 attention to what's going on with his charities. And 6 the charities are going to be talking to the lessor. 7 And so a lot of these things get fed up through -- 8 kind of through the pipeline through the lessor and 9 then to me. 10 Also as a practical matter, I've been 11 representing these charities. A lot of them I've had 12 meetings with. A lot of them attend our meetings of 13 our organization. So I told Billy that I thought it 14 might be helpful and more consistent with what my 15 mission has been over the years to identify those 16 charities and to quit talking about myself just as a 17 representative of lessors so it's easier to know who 18 I -- where I'm coming from. As a practical matter, if 19 the charity doesn't make money, the lessor doesn't 20 make any money. As a practical matter, lessors are 21 citizens. And every citizen has got the right to come 22 down here and talk to you about any of the things that 23 you-all are doing. But I think you guys need to know 24 better about where the rubber meets the road and how 25 these folks work together on a practical basis in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 30 1 order to understand probably where I'm coming from 2 when I come down here. 3 Also, if you're new to charitable 4 bingo, historically the lessor has worn the black hat. 5 That black hat was fairly well earned in the early 6 years of bingo. My own organization split off from a 7 whole bunch of other people because they didn't think 8 they were reform minded enough. And in the six years 9 that I've been involved with this, I've advocated 10 things like cutting the maximum rent that a lessor can 11 charge in '97. That was part of our provision because 12 nobody was getting it, frankly, in the real estate 13 market then. I might meet some resistance on that now 14 since things are a little different out there. But a 15 number of other things that are -- that were intended 16 to try to clean up the industry. I don't like it if 17 people have that attitude because I have great 18 confidence in the people I represent. And I've 19 learned a lot about this business. And I don't think 20 the fact that a lessor is intimately concerned about 21 the charities within their hall makes them bad people 22 or means they're over the line. That's a lot of 23 background. 24 We need -- some things need to be 25 filled in. I've been aware that there has been an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 31 1 agenda of the agency to write a lot of rules. Billy 2 made that clear last year. There was a review process 3 coming. I think that's probably required by law. And 4 that there was a lot of rules going to be written. 5 Well, that was fine by me because I wanted to have 6 some rules written. And what I'm trying to do is to 7 get my list of items merged with the agency's list of 8 items so things that are percolating up from the 9 industry are given consideration and merged in here. 10 Now, I just had a little side-bar 11 conversation with Billy a few minutes ago. And I'm 12 given to understand that within this framework, there 13 is an opportunity to work on a number of these issues 14 that I've raised here and try to get those worked out. 15 So I'm feeling good about that. And I'm feeling good 16 that there is a process that may be underway now 17 that's along the lines of what I've been talking about 18 on a negotiated rule-making or some involvement before 19 the rules get on paper. 20 I would like to say something real 21 quick about the Bingo Advisory Committee. In my 22 opinion, the Bingo Advisory Committee has not been 23 functioning well and for a long time. And I would 24 suggest that either that be made to function right or 25 that it be eliminated. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 32 1 I -- just a couple of quick horror 2 stories. I attended one meeting at which the chairman 3 called for a vote. And had I not said, Mr. Chairman, 4 do you realize that people -- it was on a -- it was on 5 a rule that they were considering. I said, 6 Mr. Chairman, do you realize that people do what 7 you're fixing to regulate? And he had no idea. I'm 8 not saying that to be critical of him. I'm trying to 9 say that there is not a quality of discussion and 10 information that a deliberative body needs to have. 11 We should have gotten that information to him in 12 advance of that so people would know. But there is 13 a -- there is a mismatch out there somewhere. 14 Frankly, I think some kind of either negotiated 15 rule-making or some kinds of informal processes have 16 to occur to get those folks better informed about 17 industry-wide types of considerations. And frankly, 18 the industry has got to get off their duffs and get 19 down here more often. 20 Mr. Chairman, you asked me to stay more 21 consistently involved. I made a commitment to do that 22 last August. I think, barring family or professional 23 commitments elsewhere, I've been at every meeting. 24 I've made a personal commitment to Billy not to come 25 shooting missiles in from the sidelines and to be a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 33 1 little more proactive and consistent in that. And I 2 will do that. But I think some of these processes at 3 the Commission also require some mechanical change. 4 My second horror story is, at the last 5 BAC meeting, I made an effort to get a bunch of people 6 here because there were some rules and some issues 7 there that were going to be discussed that I thought 8 people from bingo ought to have some comment on. A 9 couple of those things were basically passed over 10 because the staff indicated that they were -- they 11 were looking at those. One of the Bingo Advisory 12 Committee members had transcripts from a meeting that 13 I think was a year and a half or two years ago and 14 said, you know, hey, we were -- you were looking at 15 that then. So some -- there's got to be some way of, 16 when things are getting looked at, that they be -- 17 that they've got to be -- you've got to reach the end 18 of it or dispose of it because I think it's -- people 19 come down. They get involved. It goes into a hole. 20 Then they come to another meeting and it's the same 21 hole. 22 On the other -- a couple of meetings 23 I've been to where proposed rules were going to be 24 placed out or talked about, the first time anybody 25 sees them is right before that meeting. And so there WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 34 1 is no way to digest them and do a workmanlike job of 2 understanding what the impact of that is on a given 3 operation. So we need to be able to get those out I 4 think further in advance so we can have meaningful 5 dialogue at a BAC meeting. 6 I'm not going to go through this whole 7 list. The second page that you got -- but these are 8 things, Commissioner Whitaker, that we talked about or 9 hit around. We didn't necessarily go into this kind 10 of detail on every one of these things. But I would 11 venture to guess for people in bingo, every one of 12 these ten items here is something that's substantive 13 and requires people to roll up their shirt sleeves and 14 go to work on it around a table somewhere with a big 15 yellow tablet. And then come back and work through it 16 and work through it. And Billy, I'm looking forward 17 to the opportunity to do that. And I know you're 18 moving that direction. And I'm -- I feel good that 19 we're headed that way. And I'm committing my time. I 20 don't get paid an extra nickel for being here today or 21 if I'm down here for the next five days. I will make 22 that commitment because, A, I'm hired to do it. B, I 23 think it's the only responsible thing to do if you're 24 going to be critical of people. 25 The second thing, just to show you what WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 35 1 I had in mind on charitable purposes and what spending 2 Texas means, the second page is just some 3 brainstorming that I did. I think some of this comes 4 out of discussions with Steve Fenoglio and my clients. 5 And I committed to Billy to get a group of people 6 together just outside the agency on an informal basis 7 to make -- to flesh this out. I think we've got to 8 give people a better idea on the front end of what 9 their responsibilities are. At the same time that 10 pulling the other direction, there has got to be as 11 much simplicity as we can inject in this. I think 12 regulatory costs are too high right now. And anything 13 that we can do to knock those regulatory costs down is 14 just money to the bottom line of the charity. And 15 that's the most frequent criticism of charitable 16 bingo, is not enough money netting out to a charitable 17 purpose. I'm trying to improve that by helping them 18 make more money. By lowering regulatory costs. And, 19 you know, trying to make them a little bit more 20 efficient. 21 So anyway, I've sort of done a mind 22 dunk here. And I appreciate you listening to me. I 23 appreciate the conversation. I thought we hit a lot 24 of substantive areas the other day. And I'm ready to 25 go to work unless you-all have got any questions. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 36 1 COMMISSIONER WHITAKER: What is the 2 status? What's the next step, Billy? 3 MR. ATKINS: The next step is what we 4 were going to discuss under the next -- 5 COMMISSIONER WHITAKER: Okay. 6 MR. ATKINS: -- agenda item if you want 7 to go into that now. 8 CHAIRMAN CLOWE: Let's hear from 9 Mr. Fenoglio at this point if he's ready. And I might 10 say at this point that I asked Mr. Bresnen to come to 11 the meeting today because I wanted the commissioners 12 to hear him. And I couldn't convey on his behalf 13 anything. So it's better for him to appear. And I 14 would say that, as I told him, I am generally in favor 15 of the things that he's asking for. I think, from my 16 experience on his side of the table dealing with 17 regulation, that he is approaching this in a proper 18 way. And I've asked Billy as one commissioner to be 19 as responsive as possible to his advocacy on behalf of 20 the industry beyond his clients. And perhaps we'll 21 hear more along those lines from Mr. Fenoglio. 22 This is a tough relationship. It is 23 not something that is going to work smoothly all the 24 time. When I was a regulated entity, I was always 25 asking for more than the regulators would give me. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 37 1 And I settled for less. But I felt like I'd made 2 progress. And that may be where you find yourself in 3 many instances. On the regulator's part, my 4 experience is that, you know, they -- we know how this 5 should be done. And you just want what you want. And 6 we can't give the industry that situation. But we 7 maybe can improve all this by meeting and talking 8 together and reaching compromises that are intelligent 9 as opposed to handing out these rules under the door, 10 so to speak. And then the industry gets this. What 11 is this? And maybe that's where we're headed in this 12 process. I think the agency owes that to the 13 industry. And as I said to you, Mr. Bresnen, I think 14 you owe it to the agency to stay consistent in your 15 involvement. And I appreciated you mentioning that 16 again because you can't just come over here I think 17 twice a year and say, well, I want this and this, and 18 then leave and come back and say, well, I didn't get 19 it. And I appreciate you mentioning it. 20 MR. BRESNEN: When you work for 21 Bullock, you learn to listen. 22 CHAIRMAN CLOWE: And I lot of other 23 things, too. 24 MR. BRESNEN: I know, but I cleaned 25 that part up. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 38 1 I just wanted to say one other thing 2 that I needed to mention. There are some rules that 3 have been published in the Register right now for 4 consideration. There is going to be a public hearing 5 on that tomorrow. I was part of getting that 6 requested. A lot of people are not going to be here 7 tomorrow because of the late notice and because Bingo 8 World is happening out in Las Vegas right now. I know 9 at least four people who are frequent -- frequently 10 involved that are not going to be here because of 11 that. So I'd like to say that that's one other thing 12 I need to -- I want to get out there in the future as 13 we're having these kind of hearings. We've got to 14 give more and more and more advance notice to people 15 in order for them to participate. But a number of 16 people will be here to participate. 17 CHAIRMAN CLOWE: And I would hope that 18 perhaps in light of that, there might be another 19 opportunity beyond the one tomorrow for them. 20 MR. BRESNEN: I'd like that, and I'll 21 help make it effective and worth the time. 22 CHAIRMAN CLOWE: That's not necessarily 23 a one-shot deal. 24 MR. BRESNEN: Yes, sir. 25 COMMISSIONER WHITAKER: Are you a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 39 1 lawyer? 2 MR. BRESNEN: Yes, ma'am. 3 COMMISSIONER WHITAKER: It strikes me, 4 Kim, that some of this has got to be some history on 5 some case law perhaps on charitable -- I'll tell you 6 right off the bat that your view of charitable 7 purposes just strikes me as a little bit broad and 8 vague as currently stated by you. But surely there is 9 some stuff out there that we can educate ourselves on. 10 MR. BRESNEN: Well, if you read the 11 statute, you'll get a real dose of vagueness, number 12 one. 13 COMMISSIONER WHITAKER: Outside of the 14 statute -- 15 MR. BRESNEN: But there are no rules 16 now. So what I'm doing would -- 17 COMMISSIONER WHITAKER: Starting to 18 flush it out. 19 MR. BRESNEN: Yes, ma'am. 20 COMMISSIONER WHITAKER: Yes. 21 MR. BRESNEN: And not only that, if a 22 charitable -- if charitable purpose is synonymous with 23 the reasons that these organizations are tax exempt 24 for federal tax-exempt purposes, it would be even 25 broader. So if we were to just treat them as, if you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 40 1 make an expenditure that's acceptable to the IRS, 2 that's good enough for us, it would be even broader. 3 So -- 4 COMMISSIONER WHITAKER: I'm just 5 thinking, Kim, maybe -- are you in the process of a 6 legal analysis? 7 MS. KIPLIN: Yes. Well, let me make 8 some kind of broad statements and we'll drill down. 9 In terms of policy, in terms of trying to interpret 10 the statute, there is a couple of ways that that's 11 appropriate. One is through rule-making. And that's 12 what I hear Mr. Bresnen suggesting. That's what I 13 hear Mr. Atkins suggesting, is that there are areas 14 that need to be flushed out that are in the statute 15 that the statute is not clear on and there's no 16 guidance. I'm not aware of any case law on the 17 particular point that Mr. Bresnen has raised with 18 regard to what is the definition of charitable 19 purpose. 20 COMMISSIONER WHITAKER: Probably not 21 under the statute, but perhaps other state statutes or 22 federal statutes. 23 MS. KIPLIN: Well, and we can look at 24 that and I'll be glad to do that. But in terms of 25 on-point express clarification, the better course is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 41 1 to do rule-making. The other opportunity for policy 2 making, and you-all engage in this every commission 3 meeting, is through the orders that you enter. The 4 contested case orders and any agreed orders on -- 5 that's called ad hoc -- it's been characterized as ad 6 hoc rule-making. 7 COMMISSIONER WHITAKER: I'd much rather 8 do the rule-making. 9 MR. BRESNEN: Me, too. 10 MS. KIPLIN: It's preferred -- I think 11 it would be a preferred approach from my perspective 12 as a lawyer for the agency. I think it gives people 13 the opportunity to participate in the process and to 14 flush out issues. And so -- because with regard to 15 contested cases, you're doing it on an on-point case 16 by case based on that factual situation. 17 MR. BRESNEN: Well, and your regulatory 18 costs are so high when you're doing it through a 19 contested case type proceeding. Let me just -- 20 MS. KIPLIN: Even when you're doing it 21 through an agreed order, it's, you know, resource 22 allocation out of both of our -- 23 MR. BRESNEN: A quick -- just a quick 24 point of clarification. For example, it is clear that 25 if you're giving educational scholarships and that's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 42 1 your charitable activity that you're doing, that's 2 clearly within the statute. Now, if I'm -- if I'm 3 doing a mail to all the high school counselors in the 4 area and I'm receiving mail and processing 5 applications for the scholarship and I'm running some 6 lights to do that and maybe I've got an office 7 somewhere or some space to do it, those are the kind 8 of functions associated with that activity that it 9 seems to me you ought to clearly be able to pay for 10 out of your pocket. I'm not saying the Commission has 11 said that you can't do that. But it makes sense to me 12 that you can't conduct human activity without having 13 lights. Some space that you're in. You're usually 14 going to be doing mail. So I'm trying to get those 15 kinds of -- and I think a lot of people out there were 16 real -- to me, this seems so basic. And I don't -- 17 I'm not sure that anybody over here would contest that 18 those are legitimate. But it will be so basic to the 19 people out there that they'll say, okay. I'm not 20 going to be second-guessed. I'm not going to -- and 21 we will drive their conduct into those acceptable 22 categories and -- 23 COMMISSIONER WHITAKER: What does rent 24 or mortgage non-bingo mean, just off the top? 25 MR. BRESNEN: If I'm -- if I'm, say, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 43 1 the Jewish Women's Federation in Dallas and I have a 2 building out there that I'm renting, but I'm running 3 maybe educational activities or some other activity 4 that's consistent with the statute out of it. I'm not 5 doing my bingo operation there. I'm doing non-bingo 6 things in there that are part of my charitable 7 purpose. 8 COMMISSIONER WHITAKER: So you mean 9 non-bingo instead of none bingo? 10 MR. BRESNEN: Yes. I'm sorry. 11 COMMISSIONER WHITAKER: No problem. 12 MR. BRESNEN: I should have looked down 13 at what I wrote. Sorry about that. 14 COMMISSIONER WHITAKER: Spell checker 15 won't catch it. 16 MR. BRESNEN: No, it won't. 17 COMMISSIONER WHITAKER: Happens to me 18 all the time. 19 MR. BRESNEN: You must edit your own 20 stuff. So I understand. 21 CHAIRMAN CLOWE: Okay. 22 MR. BRESNEN: Thank you. I appreciate 23 it. 24 CHAIRMAN CLOWE: Mr. Fenoglio, good 25 morning. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 44 1 MR. FENOGLIO: Good morning. Thank 2 you, Commissioners. For the record, my name is 3 Stephen Fenoglio. I'm an attorney in Austin, Texas. 4 My comments are more to the rule-making provision, 5 which is the second issue, although I would share the 6 same observations that Mr. Bresnen had about the 7 process and getting to some clearly defined bright 8 line rules. And in order to disclose any potential 9 conflict, of course, I have a conflict in trying to 10 eliminate regulatory costs. But -- as an aside. 11 In all sincerity, my clients would like 12 to know what the bright line rules are. And the 13 reality is, today it's unclear in many instances. And 14 you see an example where you ask for, well, is this 15 okay or not? And the staff comes back with, we can't 16 give an informal opinion. In the regulatory 17 environment in an audit process, informal opinions are 18 given all the time in the form of either an auditor's 19 comment either verbally or in writing. And of course, 20 technically that's not the Commission's position. 21 That is an auditor's position presumably that follows 22 the auditing procedures book, which is this little 23 bible, that is undergoing review as we speak today. 24 And it would help a lot for charities to know where 25 some of the bright line rules are from the agency WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 45 1 perspective. And I'm unaware of a heavily contested 2 case where the agency has handed down some case law on 3 the charitable purpose issue. And even if the agency 4 did, that's not particularly helpful to a charity that 5 wasn't a part of that process. Where does that 6 charity go to find what that particular contested case 7 provision was? 8 I guess those are the only comments I 9 would make, other than I share the chairman's concern 10 from the viewpoint of the regulator, having worked at 11 the same agency, although in a different capacity than 12 Chairman Clowe did, and then as an advocate on behalf 13 of licensees at the same agency. We recognize the 14 push-pull, the friction. And I -- it would surprise 15 me if I could always get the way of the regulated 16 industry at the agency. You might say that there is 17 probably not a purpose it had at the agency anymore. 18 Certainly the movement is for self-regulation within 19 the federal regulatory standards. But we understand 20 the regulatory scheme and framework we have today. 21 And we want to work with that. And there will be 22 times when Kim and I will come together and -- or her 23 staff and say, we have a settled case. And then there 24 will be other times when we'll have to go our separate 25 ways. And we understand that. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 46 1 I do have some specific additional 2 comments on the next issue. And I'll be happy to come 3 back at the appropriate time. 4 CHAIRMAN CLOWE: If you will, just 5 remain there. If there's nothing further on Item 6 Four, then we will move to Item Five, consideration, 7 possible discussion and/or action on pending proposed 8 charitable bingo rules and/or contemplated charitable 9 bingo rule-making. Billy. 10 MR. ATKINS: Thank you, Mr. Chairman, 11 members. As you know, the charitable bingo division 12 has made a considerable effort over the past several 13 years to strengthen our internal processes. And this 14 has included, among other things, the development and 15 implementation of a comprehensive set of internal 16 procedures, as well as the training of division 17 personnel. And the division, in my opinion, now has a 18 staff that consists of very skilled and dedicated 19 individuals that are knowledgeable about their 20 specific job functions. 21 We think now the time is appropriate 22 for us to start to focus our energy on the development 23 of a comprehensive set of administrative rules. And 24 to our knowledge, no other agency that has ever 25 regulated charitable bingo has ever approached the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 47 1 rule-making process from that position. It's always 2 kind of been on a case-by-case basis. If an issue 3 came up, it was determined that there may need to be a 4 rule. So they would address that specific rule -- or 5 that specific issue. I'm sorry. 6 We think the benefit of us doing this 7 type of process is at least twofold. The first is 8 that it will allow us as we go through the development 9 to format the rules as they're developed by subject 10 matter. And just as the recodification of the Bingo 11 Enabling Act several years ago greatly improved at 12 least the readability of the act, we hope to create a 13 logical flow to the order that the rules are placed to 14 better facilitate location of a rule by a licensee or 15 a member of the public. For example, I think it would 16 be our intent to create subchapters under chapter 402. 17 So if you had a question -- if you were looking for a 18 ruling relating to licensing, you would go to the 19 subchapter in 402 dealing with licensing. And 20 hopefully that would greatly -- you'd have a fairly 21 high degree of confidence in finding the rule you 22 need. Just like if you had a question about audit, 23 there would be a subchapter on audit. So it would 24 just make it easier for licensees and the general 25 public to find the applicable rules that they may be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 48 1 searching for. Since bingo was first at the 2 comptroller's office, we don't think there was any 3 real logic to the way the rules were formatted and 4 organized. 5 Secondly, as both Steve Fenoglio and 6 Bresnen have talked, there are a lot of questions that 7 we get from licensees. Questions like, how do I do 8 this? What should I submit for this? Etcetera. 9 These are questions that have routinely been posed to 10 us since bingo came over to the Lottery Commission. 11 And we would assume that those same questions would 12 have been asked of agencies before us. What we would 13 hope through the development of these rules is that 14 these rules would benefit not only the licensees who 15 are sincerely seeking to operate their games in 16 compliance with the act and the rules, but also 17 potential applicants who may have questions or need to 18 seek further clarification before they decide to 19 actually go into bingo. 20 So what we've been discussing, in order 21 to get the broadest amount of comments on these 22 proposed rules and at the suggestion of some 23 representatives of the bingo industry, the division 24 intends to engage in a type of rule-making that's new 25 for us. And we have started having discussions with WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 49 1 representatives from the State Office of 2 Administrative Hearings on undergoing the negotiated 3 rule-making process. Ms. Kiplin has already had 4 conversations with an individual. And I am currently 5 in the process of trying to hook up with that 6 individual to sit down with them also. 7 One of the things, and Steve Bresnen 8 mentioned it some, that weighs very heavily on my mind 9 is ensuring that as we go through this process, and 10 one of the things that I'm going to be very mindful of 11 as we go through this process, is that we're able to 12 get the broadest possible representation so that we 13 get the most meaningful comment from the industry. 14 Now, I am not in any way, shape, or 15 form questioning the knowledge that the two Steves 16 have. I mean, they're obviously very knowledgeable on 17 the bingo industry. But they may not necessarily 18 represent everyone in the bingo industry. So the 19 staff is going to be working very hard to make sure 20 that those individuals do have a place at the table 21 where they can come and be a part of this process. 22 So the way that we have intended to 23 start this off today is, the staff has developed this 24 spreadsheet, which I think you have in front of you. 25 And these are just the rules that the staff would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 50 1 anticipate at this time needing to be developed. 2 Again, this list is just our starting point, you know, 3 out of the gate. And I really can't stress that 4 enough. Everything in here is just for at this time 5 discussion purposes. In the event at some point in 6 time as we go through this process someone comes back 7 and says, wait a minute, that wasn't on your list, or 8 that was on your list or -- you know, but you're not 9 doing it, whatever, we're going to point back to this 10 meeting where we said, you know, this is the first 11 flush. 12 And we anticipate at this time that 13 kind of how the process would start off is, we would 14 again notify, identify all of those individuals that 15 may have an interest in this and maybe our first 16 couple of meetings come together. We would put our 17 list forward. Representatives from the industry would 18 put their list forward. They may have some things on 19 their list that we haven't thought of and vice versa. 20 But what we'll try and do is identify those rules that 21 we think would thus be handled through the negotiated 22 rule-making process. And then set up a series of 23 meetings over several months where these groups can 24 come together and start to talk about these issues as 25 we talk about in very meaningful ways. You know, not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 51 1 necessarily agreeing on every issue, but giving 2 everybody the opportunity to put their positions 3 forward. 4 Again, we're working or -- you know, 5 I'm trying to get together with representatives from 6 SOAH on how to work this out. I do think it's 7 important to note that there could be a cost to this 8 process if we go with SOAH. We don't know right now 9 what that cost would be. We don't anticipate, you 10 know, repeating the process or preventing the process 11 from taking place. But I do want you to know that 12 that could be out there. And again, we hope that at 13 the end of this process when we're getting to the 14 point where we're actually drafting these rules, 15 bringing them before the Advisory Committee, bringing 16 them to you, that we have a set of administrative 17 rules that are useful and beneficial, not only to the 18 licensees, not only to the general public, but to us, 19 also. 20 MR. FENOGLIO: If I may. Again, my 21 name is Stephen Fenoglio. I'm an attorney in Austin. 22 And I've prepared some written remarks on this issue. 23 I'm handing Mr. Chairman and Commissioner Whitaker 24 originals and Mr. Atkins on the rule-making issue on 25 specific proposed rules. And I'll be happy to comment WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 52 1 or wait until you finish the two-page letter. 2 CHAIRMAN CLOWE: Mr. Fenoglio, give 3 this copy here to the reporter so -- 4 MR. FENOGLIO: I've already given her 5 one. 6 CHAIRMAN CLOWE: Oh, you did? Okay. 7 Good. I want this in the record. Billy, have you had 8 an opportunity to read this? 9 MR. ATKINS: I am -- I'm looking at it 10 now, Commissioners. 11 CHAIRMAN CLOWE: Okay. Great. I was 12 going to ask Billy to respond to the comments made in 13 your letter when he has had an opportunity to review 14 it. 15 MR. FENOGLIO: All right. 16 MR. ATKINS: Commissioners, 17 Mr. Fenoglio and I discussed this issue -- last week, 18 Steve? 19 MR. FENOGLIO: On the 28th, yes. 20 MR. ATKINS: On the 28th. He had 21 originally left me a message that I think he was -- he 22 had -- I think he categorized it as heard through the 23 grapevine that there was a public hearing scheduled 24 and that it wasn't on our website, that it wasn't 25 going to be posted or whatever. It was on our WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 53 1 website. The notice went up I believe on the 22nd of 2 February after it had been filed with Open Registers 3 Act. I'm not really sure how to respond. It's one of 4 those situations where you're going to be criticized 5 whatever direction you take. Mr. Fenoglio had written 6 requesting that a public hearing be held on the 7 proposed audit rules. I believe that letter went to 8 each of the commissioners with a copy to Ms. Kiplin. 9 And I don't believe I was copied on that letter. So I 10 received his request that way. He suggested that it 11 be held around the time of the tentatively scheduled 12 Bingo Advisory Committee meeting, which tentatively 13 has a meeting scheduled for the 20th. 14 You know, I appreciate his suggestion. 15 It gets back to the point there are other members of 16 bingo industry. And I think that we had heard from 17 some of the members of that industry that they felt 18 that this process needed to go forward and that the 19 meeting needed to be held. So it is for that purpose 20 that we went ahead and scheduled it when we did, 21 keeping in the consideration the fact that this 22 facility here, the auditorium, is getting ready to 23 become unavailable due to the remodeling and 24 everything. And it's going to require us for all of 25 our future meetings to hold them at a different WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 54 1 location that individuals may not necessarily be 2 familiar with. I think it was Steve who mentioned to 3 me when we talked about the Bingo World conference. 4 We were aware the Bingo World 5 conference was going on. We haven't sent anyone to 6 it, for two reasons. We -- I think we sent someone 7 last year and didn't really get a lot of benefit from 8 it. Also, I think in part from the governor's request 9 that organizations save money where they can, we 10 didn't send anybody. But you know, Steve's comment in 11 the letter that the commission staff is aware that 12 bingo industry representatives from Texas appear and 13 attended Bingo World, we have no way of knowing how 14 many people do that, how many people go, what their 15 participation is. And I guess our response would be 16 is, you know, which is more important, the Bingo World 17 conference in Las Vegas or addressing these rules? We 18 felt addressing the rules was more important. And 19 that, again, just getting this today, that's my 20 initial comments. 21 COMMISSIONER WHITAKER: What's the 22 urgency of any time line? 23 MR. ATKINS: I'm sorry? 24 COMMISSIONER WHITAKER: What is the 25 urgency of any particular time line? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 55 1 MR. ATKINS: The urgency that I got was 2 kind of as a result of our meeting with -- the meeting 3 that Commissioner Clowe, Ms. Kiplin and I had with 4 Mr. Bresnen that, you know, these suggestions would be 5 made and nothing would ever happen. So I mean, that's 6 something we're trying to bring forward. 7 COMMISSIONER WHITAKER: Can I ask 8 Mr. Bresnen if he has a sense of urgency that would 9 make him want to go forward on this date as opposed to 10 later? 11 MR. BRESNEN: Commissioner, at our 12 meeting, I suggested that the -- a good time to do 13 this would be when everybody would -- hopefully, 14 people will be here anyway for the March 20th meeting. 15 We did have a discussion about this room being torn 16 up. And we also -- my recollection is, we talked 17 about some alternative places to do it. There's rooms 18 at the Capitol building that are available and else 19 wise. 20 You know, the regulated community I 21 don't think is in a hurry for any rules to be applied 22 to them. To be honest about it, most people aren't. 23 But I think what I've been trying to do consistently 24 is to try to get opportunity to get more people 25 involved. Billy and I talked I think last week, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 56 1 maybe. And I think at the time, you were under the 2 impression that the letter -- the notice had gone out 3 the week before we talked. 4 MR. ATKINS: Yeah. 5 MR. BRESNEN: But, you know, my 6 clients, and I've got a couple of examples here, 7 didn't get this notice about this public hearing, at 8 least the one from the agency, until March the 4th. 9 That was two days ago. Now, I've told them, to be 10 honest about it. I've told them, let's get ready. 11 Now, some of them said, I'm going to be at Bingo 12 World. 13 COMMISSIONER WHITAKER: Let me ask you 14 both this question. The suggestion you made, Steve, 15 was either have another hearing date or hold over the 16 comment period for at least an additional 45-day 17 period. Are you still of the viewpoint, both of you, 18 that that would be an acceptable alternative, which is 19 to go ahead with the hearing date and hold it over for 20 45 more days? 21 MR. BRESNEN: I think we need to go 22 ahead and do the hearing. 23 COMMISSIONER WHITAKER: Was I clear on 24 that? 25 MR. BRESNEN: Yes, ma'am, you were. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 57 1 COMMISSIONER WHITAKER: What if we kept 2 the hearing date where it is because there are people 3 planning on it, and then went with your alternative 4 suggestion, Steve, and that is to then also hold the 5 comment period open for at least 45 more days? Would 6 that work? 7 MR. FENOGLIO: I will be in an oral 8 argument tomorrow, so I cannot attend. That case has 9 been set for three months. I would like to have the 10 opportunity with clients to present comments and 11 perhaps have a dialogue with staff, which occasionally 12 happens in a rule hearing. So my preference is for an 13 additional hearing. I had suggested bracketing it 14 either on the front end or the back end of what has 15 tentatively been scheduled as the March 20th Bingo 16 Advisory Committee meeting because I believe, because 17 of the issue that's on the Bingo Advisory Committee, 18 that you'll have maximum participation from charitable 19 representatives. As an aside, no one is -- the agency 20 hasn't given any notice of that potential date hearing 21 on March 20th. In answer to your question, 22 Ms. Whitaker, I'll take what I can get. But I think 23 the issues, especially the audit draft rule, are major 24 challenges for a licensee. 25 COMMISSIONER WHITAKER: So if we had it WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 58 1 around the 20th of March, that would work for you and 2 it would work for you? 3 MR. BRESNEN: Yes, ma'am. 4 COMMISSIONER WHITAKER: And it would 5 work for you, Billy, or not? 6 MR. ATKINS: It would, sure. And you 7 know, Commissioner Whitaker, just so you know, when 8 Steve and I talked last week, I told him that, you 9 know, I didn't give him any guarantees that there 10 would be another rule-making hearing. But I said, 11 it's entirely feasible. 12 MR. BRESNEN: That's true. 13 MR. FENOGLIO: And that is true. 14 MR. BRESNEN: But let me -- I just want 15 to underline something here. If the point of setting 16 the BAC meeting for March 20th was to give people a 17 whole lot of notice to get them down here so they 18 could participate in a very important subject. 19 COMMISSIONER WHITAKER: Okay. Well, I 20 guess my sense is that putting it off until the 20th 21 seems like a win-win solution. 22 MS. KIPLIN: Commissioner, if I 23 could -- if I could just say this. The rule-making 24 comment hearing is set for tomorrow. There may be 25 people that are traveling. It's difficult to cancel WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 59 1 something -- 2 MR. BRESNEN: Oh, there definitely are. 3 Don't cancel tomorrow. 4 MS. KIPLIN: What I would recommend is, 5 go forward. There are people that may -- that are -- 6 may not be affiliated with either Mr. Fenoglio or 7 Mr. Bresnen who are coming on their own who want to 8 provide comment. Go forward with that and have an 9 additional rule-making comment period. The -- in 10 terms of the -- extending the comment period for an 11 additional 45 days, I think the Commission's position 12 has been that until your -- you actually adopt the 13 rules, comments are coming in and comments will be 14 received and comments will be considered. I know 15 there are other agencies that take a different 16 position and take a pretty harsh position on a 30-day 17 comment period. 18 But when you look at the Administrative 19 Procedure Act -- and I've talked with administrative 20 law practitioners about this. When you actually look 21 at the Administrative Procedure Act, it doesn't say 22 that it's a 30-day comment period. It says you cannot 23 adopt a rule until a minimum of 30 -- or 30 days has 24 elapsed. So the conservative position that the 25 Commission is taking is to continue to receive comment WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 60 1 until such time as the Commission is ready to adopt. 2 It does create that practical dilemma 3 when it's noticed for your consideration to adopt on a 4 day and people still want to comment because that -- 5 as we've discussed in the past, there has to be a 6 summarization of the comment and an agency response. 7 And it makes it difficult from a human practical 8 aspect. But I don't believe that the Commission has 9 ever taken a view, it's 30 days and that's it. 10 COMMISSIONER WHITAKER: Okay. So it 11 looks like we've got a consensus on that. And I guess 12 the only question I have is: Stephen, is there any 13 reason you couldn't have given this to Billy earlier 14 so that he could have reviewed it before? 15 MR. FENOGLIO: I was in the process of 16 revising that until about 7:00 p.m. last night. And 17 you saw the one change I didn't catch. I intended to, 18 yes, fax it yesterday to you-all. And there were a 19 number of people who were assisting in the 20 finalization of the letter, including clients. And 21 so -- 22 COMMISSIONER WHITAKER: All right. 23 MS. KIPLIN: One other comment I'd make 24 is that these rules, as I recall -- I don't recall the 25 date in January they actually were published in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 61 1 Register. But they were published in the January lot, 2 too. So the Commission has 180 days from the day of 3 publication to take up adopting rule or rule 4 amendments. Past that 180th day, of course, they 5 expire. The rule-making expires. So there is time. 6 MR. FENOGLIO: They were published 7 January 25th in the Texas Register. 8 COMMISSIONER WHITAKER: Thank you. 9 CHAIRMAN CLOWE: I think we've come to 10 an agreement then on this. And I would say it's 11 incumbent, Billy, on you to cast the widest net and 12 bring in as many and as much comment from people as 13 possible. And both of you gentlemen share in that 14 responsibility to not only bring your clients in, but 15 to see to it in the bingo industry that the word gets 16 out that we're going to do this. And help us by 17 seeing that the comment comes in so that staff can 18 receive it. 19 MR. BRESNEN: I'll be glad to do it. 20 Should I tell people that there's a March 20th Bingo 21 Advisory Committee meeting and give them -- so they 22 get at least two weeks' notice or -- 23 CHAIRMAN CLOWE: Let's let Billy handle 24 that. I don't think the Commission wants to run his 25 business. But I think you have a sense of what we've WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 62 1 been asking for. And I think it is an excellent idea 2 that it be in conjunction with a BAC meeting. But I'd 3 like for Billy to be the decision maker on that. 4 MR. BRESNEN: Yes, sir. 5 COMMISSIONER WHITAKER: But Billy, if 6 you could make a decision as soon as possible, because 7 I know -- 8 MR. ATKINS: Yes, we will. 9 COMMISSIONER WHITAKER: -- that I want 10 to be sensitive to giving lots of notice. 11 MR. ATKINS: We'll hopefully have one 12 by Friday. We're still waiting to hear back from all 13 of them. 14 COMMISSIONER WHITAKER: Does that work 15 for you-all, too? 16 MR. FENOGLIO: It does. And next week 17 is spring break for most public universities. So a 18 lot of my clients will be with children out of their 19 office. And in some cases as far as the charity -- 20 obviously the bingo will continue to be conducted. 21 But -- so yes, we'd like for that to happen as quickly 22 as possible on those. 23 And I did not mean to suggest -- and if 24 I caused or ruffled any feathers that I represent the 25 industry. I'm very aware that I don't, that there are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 63 1 other people out there. I speak for a segment of the 2 industry, but not for the entire industry. Thank you, 3 Mr. Chairman, Commissioners, Mr. Atkins. 4 MR. ATKINS: And it was not my 5 intention to give that impression. He does represent 6 I believe a significant part of the industry, but not 7 as a whole. 8 CHAIRMAN CLOWE: Very good. Thank you 9 all. Excellent discussion. 10 We'll then go to Item Number Six, 11 report by the Bingo Advisory Committee chairman on 12 that committee's activities, including the February 13 13th meeting. I do not see the chairman in the room. 14 MR. ATKINS: Chairman Clowe, Chairman 15 Neinast could not make it today. He still has family 16 issues he's dealing with. He asked me to give the 17 report. You have in your notebook a summary of the 18 agenda and the actions that occurred. Probably the 19 most telling recommendation was that a meeting be held 20 on March the 20th specifically to discuss Item Nine of 21 the agenda that was covered on February 13th, that 22 being whether the charitable bingo operations division 23 should be a separate state agency. As I mentioned, 24 we're still waiting to confirm back from the other 25 members their availability on the 20th. We think WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 64 1 we'll be able to go ahead and go forward with that 2 meeting. We may want to include one or two other 3 items on that agenda. I would like to give 4 essentially the same presentation I just gave to you 5 on our anticipated rule-making process to the Advisory 6 Committee and also discuss with them at that meeting 7 nominations to the Advisory Committee. So I think at 8 least those three things we would also like to see 9 included on the agenda. 10 CHAIRMAN CLOWE: Did you have a quorum 11 at the meeting? 12 MR. ATKINS: We did, yes, sir. There 13 were I believe six members present. 14 CHAIRMAN CLOWE: I'm sensitive -- I'm 15 aware of the comments Mr. Bresnen made about the 16 effectiveness of the Bingo Advisory Committee. Billy, 17 you and I have discussed that. It's been a concern I 18 know that you share in. And I'd really like to see a 19 good discussion about how we can make that committee 20 more effective and help those people in their 21 representation and responsibilities. We have 22 discussed having those meetings elsewhere than Austin, 23 perhaps in Dallas or Houston, El Paso, and 24 San Antonio. And I think that is such an excellent 25 group in the formation to give you input and have the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 65 1 Commission receive input. 2 I know, having served on those types of 3 boards, it's difficult to attend every meeting. It's 4 difficult to be aware of the issues and to do your 5 homework, so to speak. But it's vital, and it's in 6 great part the answer to the kinds of things that 7 we've been discussing here these last few minutes. It 8 gives industry members who do not have counsel and 9 representation the opportunity to serve as citizens 10 and express their viewpoints as well as their peer 11 group's viewpoints. 12 And I just want to express on the 13 record my concern about how we could do a better job. 14 And maybe you could put that on the agenda for the 15 March 20th meeting. I'll attend that meeting and 16 would like to hear what is said on that subject. And 17 maybe by making these comments, if you'll put it on 18 the agenda, we can stir up some thought. And rather 19 than just having negative comments, some positive 20 proposals could be forthcoming about how to energize 21 that group. I would be very appreciate of that. 22 MR. ATKINS: We'll do that, 23 Mr. Chairman. And to kind of dovetail on that, we -- 24 as you mentioned, we share a lot of that frustration. 25 And part of our frustration is the fact again that we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 66 1 mailed out over 14,000 nomination forms. And we have 2 received about 50 back. We're -- at this point, we're 3 not really sure what else to do. So we would 4 certainly welcome any comment that we can get. 5 CHAIRMAN CLOWE: You have to keep in 6 mind that these are citizens who have jobs and they 7 have other obligations. 8 MR. ATKINS: Sure. 9 CHAIRMAN CLOWE: And they're not 10 compensated for coming in to these meetings. They're 11 strictly voluntary. So, you know, unless you've got a 12 burning issue and you've got something that you really 13 want to say, it's not -- it's not an enthusiastic 14 thing to show up here about once a month. We're going 15 to have to deal with that, if we can, in the best way 16 possible. Very good. Thank you, Billy. 17 We're now ready to move to Item Number 18 7, considerations and possible discussion of action on 19 the state auditor's office internal audit reports 20 relating to the TLC on the internal audit department's 21 activities. Debra McLeod. Good morning. 22 MS. McLEOD: Good morning, 23 Commissioners. For the record, my name is Debra 24 McLeod, director of internal audit. In your 25 commission notebooks, I just want to give you an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 67 1 update since this report was prepared. The three 2 reports, Public Funds Investment Act, local area 3 network, and the test phase one of the business 4 reduction plan have been submitted to the four state 5 agencies as required. I have received all of 6 management's responses back to the human resources and 7 shipping and temporary employment cost reports. They 8 will be forwarded to the commissioners this week. 9 Next week we'll be at a national auditors conference. 10 I anticipate the following week to sit down with 11 management and discuss findings that remain on the 12 telecommunication purchases audit. 13 Jumping down to the audits with -- the 14 six follow-up audits in the past state auditor 15 reports. We have completed our field work on the SAO 16 bingo management control audit report. We've already 17 discussed our findings with the bingo management. And 18 we will be in the process of drafting a report. 19 With regards to the bingo tracking 20 audit, I had a meeting with Phil Sanderson. He has 21 advised me that they have received all the reports 22 from information technology. We identified numerous 23 reports, and the purpose of these reports was to give 24 Billy and that division more tools to analyze sales, 25 what's going on in the industry. Five of the reports WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 68 1 have been prepared by IT. And the remainder of the 2 reports should be coming out of the new charitable 3 bingo system. So we are prepared to go forward on 4 that audit. 5 With regards to the investigations, it 6 is my proposal that the -- currently we're also in the 7 stage -- we finished interviewing the top candidates 8 for the open senior auditor position. And the 9 evaluation committee unanimously decided on one 10 candidate. Security division is performing their 11 background investigations. And I hope to hear this 12 week from that candidate. Once that's decided, then 13 it's my further hope that we cease with the audits and 14 return to completing all these internal 15 investigations. That would be our priority and 16 preference. 17 Also during this time, other projects 18 we've worked on. I just want to bring note that we 19 had the two high school students from Cedar Park High 20 School come here, Kyle Hall and Peter Carini. And 21 they gave a very excellent presentation of internal 22 controls. We've loaded it up on our Intranet. And 23 I've had several responses back from management about 24 what a great presentation it is. So I think it was a 25 very worthwhile endeavor. It gave them a good sense WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 69 1 of what it's like to work in business. And I think we 2 got an excellent product out of it. So I thought it 3 was a worthwhile venture. 4 CHAIRMAN CLOWE: And where do we find 5 that, Debra, on the Internet? 6 MS. McLEOD: It's not on the Internet. 7 Intranet within our LAN. I'd be more than happy to 8 download the presentation and send it to the 9 commissioners. 10 CHAIRMAN CLOWE: Could you do that? 11 MS. McLEOD: I certainly will. 12 With regards to the national 13 conference, we've got quite an extensive conference 14 lined up for just a two-and-a-half-day conference. We 15 have speakers from the state auditors coming over. 16 They're going to talk on forensic security in 17 auditing. Fraud waste and abuse. Auditing system 18 computer development. Improving client relations. 19 How to write better audit reports that get value added 20 back to management. Improving the risk assessment 21 process. There's a lot of key areas that I think is 22 going to be very beneficial. We drew, I think it was 23 about 22 states to this conference. So we've got 24 quite a large representation, far more than we've had 25 in past conferences that I've ever attended. One WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 70 1 thing I've noticed, several of the lotteries, some of 2 them smaller, do not have their own internal audit 3 function. So as a result, we drew a lot of chief 4 financial officers as well to this. There, some of 5 those duties tend to fall on those people as well. So 6 I think it's going to be a very good conference. And 7 we're looking forward to it. 8 CHAIRMAN CLOWE: Tell us when and where 9 that's going to be, again, if you would, please. 10 MS. McLEOD: It starts March 10th and 11 will run through the 13th. It will be down in 12 San Antonio, Texas. 13 CHAIRMAN CLOWE: And what location? 14 MS. McLEOD: We're stationed out of the 15 Menger Hotel and have held the conference there. 16 CHAIRMAN CLOWE: Great. 17 MS. McLEOD: The only other item that 18 I'm aware of, that the state auditors did a report on 19 the -- they called it the review of state-owned 20 multicategorical teaching hospital account. It was 21 primarily conducted at UTMB in Galveston to see how 22 they handle the money that we give them. And they had 23 no issues with the Lottery Commission at all. They 24 sampled the invoices that UTMB had and had no issues 25 with them as well. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 71 1 As far as one remaining outstanding 2 report. We're still waiting for the comptroller's 3 office for their report. And we've been waiting for 4 several months now. So that's the only other issues 5 that I have. 6 CHAIRMAN CLOWE: And assuming that your 7 candidate is cleared by the investigation, when would 8 that person be on board? 9 MS. McLEOD: Immediately. 10 CHAIRMAN CLOWE: Great. Any questions? 11 Thank you, Debra. 12 MS. McLEOD: Thank you very much. 13 CHAIRMAN CLOWE: We're now ready to go 14 to Item Eight, report and possible discussion or 15 action on the sunset process. Mr. Grief. Good 16 morning, Gary. 17 MR. GRIEF: Good morning, 18 Commissioners. And for the record, my name is Gary 19 Grief, G-r-i-e-f. I'm the director of Lottery 20 operations and also the project manager for our sunset 21 process. And I have really nothing new to report to 22 you this morning, other than I did want to let you 23 know that sunset staff reports have been issued on 24 three different state agencies: The State Board of 25 Dental Examiners, the State Board for Educator WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 72 1 Certification, and the Texas Department of Licensing 2 and Regulation. These reports are available on the 3 sunset commission website. And we are currently 4 reviewing these reports to see if they might give us 5 any insight into the process. 6 I do understand that some members of 7 the sunset commission staff attended a recent 8 legislative briefing session. I would defer to the 9 executive director to brief you on that if you wish. 10 And that concludes my report this morning. Be happy 11 to answer any questions that you might have. 12 CHAIRMAN CLOWE: Any comments? I'll 13 tell you that Linda and Billy and I continue to visit 14 with the members on the sunset committee. And it's 15 very beneficial I think to have their input and their 16 direction and advice. And in light of what I have 17 heard to this point in time, the work that you and 18 your group has done is correct and on target and 19 should stand us in excellent stead when we go into the 20 meetings. 21 MR. GRIEF: Great. 22 CHAIRMAN CLOWE: Thank you, Gary. 23 We're now ready for Item Nine, 24 consideration of, possible discussion and/or action, 25 including adoption of amendments on 16 TAC 401.307 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 73 1 relating to the Pick 3 online game rule. 2 MS. KIPLIN: Commissioners, as you will 3 recall, you-all voted to propose amendments to the 4 Pick 3 online game rule and publish those proposed 5 amendments to the Texas Register for public comment. 6 That publication appeared January 25th, 2002. There 7 was also a rule-making comment hearing that was 8 noticed up and was held February 8th, 2002 here at the 9 commission auditorium. There were no persons that 10 attended that hearing. And therefore, there was no 11 comment received at that hearing. 12 The Commission did receive written 13 comment. The summary of the comment is in the 14 document that was provided to you-all. The -- I guess 15 the primary comment was that players did not want a 16 mid-day draw added. My sense for that concern was 17 that they did not want to spend additional money on a 18 mid-day draw. 19 The staff's response, and if you vote 20 to adopt the commission -- the order today or the rule 21 today, is that we want players to play responsibly. 22 We certainly don't want them to pay to play any more 23 than they can afford. It's a game. It's designed to 24 be entertainment. It's not designed to have people 25 commit additional dollars if they don't feel that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 74 1 that's something that they want to spend their money 2 on. 3 The staff is here today recommending 4 that you-all vote to adopt the rule. We are 5 recommending that you vote to adopt the changes. 6 These changes were not in response to comment, but are 7 not substantive. And it's to clarify references in 8 the rule that are -- that were to director and in 9 reality should have been executive director. This 10 rule was adopted at the time that the Lottery was a 11 division of the comptroller's office, as I recall. 12 And so at that time, the Lottery as the division -- it 13 was the division director that -- who is now the 14 executive director of the agency. So it's just to 15 clean up language that probably should have gotten 16 caught during the rule review. Be happy to answer any 17 questions. Mr. Tirloni is also here today, Ms. Cloud 18 if you have any questions. But the staff is desirous 19 of a motion from the Commission to adopt the 20 amendments to the Pick 3 online game rule with the 21 changes as discussed. 22 COMMISSIONER WHITAKER: Are there any 23 members of the public here today? Okay. How many 24 comments did you receive total? 25 MS. KIPLIN: Oh, Commissioner, I don't WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 75 1 keep count of them. I would say probably less than -- 2 I'm going to say maybe 50 comments. There -- the 3 comments were in opposition. There wasn't one comment 4 that was in favor. But the -- generally, comments 5 were in opposition. I would say probably a good many 6 of them were in the form of a petition that had been 7 created by a person. And it was just a tally or -- 8 not a -- I guess not a petition, but a form -- a form 9 comment in opposition. There were some comments that 10 were individual in nature, so to speak. 11 COMMISSIONER WHITAKER: I'll move to 12 adopt staff recommendation. 13 CHAIRMAN CLOWE: Second. All in favor, 14 say aye. Opposed, no. The vote is three-zero -- 15 two-zero in favor. 16 MS. KIPLIN: Commissioners, there is 17 one issue that I would like to address. And it has to 18 do with the effective date on this rule. If you do 19 not establish a different effective date, then it will 20 be effective 20 days from the date of filing. 21 Mr. Tirloni I think is wanting you to make the 22 effective date a different date. And I'm going to 23 turn it over to him for that. 24 MR. TIRLONI: I have a quick 25 implementation plan that I'd like to share with you, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 76 1 Commissioners, if that's okay. Commissioners, I've 2 worked closely with Lottery staff and GTECH marketing 3 and sales staff. We have a very aggressive plan in 4 place to introduce the day draw on the Pick 3 game. I 5 can quickly walk you through it. Beginning on Monday, 6 March 18 -- 7 CHAIRMAN CLOWE: I don't think you need 8 to. 9 MR. TIRLONI: You don't want to? Okay. 10 CHAIRMAN CLOWE: I think we got it. 11 Does this require a motion? 12 MR. TIRLONI: No. Just the effective 13 date would need to be Sunday, April 28th. 14 CHAIRMAN CLOWE: So moved. 15 COMMISSIONER WHITAKER: Second. 16 CHAIRMAN CLOWE: All in favor, aye. 17 Opposed, no. Proposal is approved two-zero. 18 MS. KIPLIN: Commissioners, I have an 19 order for your signature. 20 CHAIRMAN CLOWE: The next item is 21 Number 10, consideration of, possible discussion or 22 action, including adoption or withdrawal of amendments 23 on 16 TAC 401.353 relating to retailer sales 24 commissions. I had said at an earlier meeting that I 25 was in favor of this. And I have reconsidered based WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 77 1 on the state's needs for funding. And I am not 2 prepared, I'd like to say in advance, of calling for a 3 motion to vote for this. And I think that's for a 4 good reason. So I would like to make my position 5 known as being contrary to what I publicly stated it 6 to be at a prior meeting. Is there any presentation 7 on this that staff would like to make? 8 MS. CLOUD: No presentation. 9 CHAIRMAN CLOWE: Therefore -- any 10 questions, commissioner? 11 COMMISSIONER WHITAKER: No. I'm 12 familiar with the same materials. 13 CHAIRMAN CLOWE: I would then move that 14 these amendments not be made at this time. 15 COMMISSIONER WHITAKER: Second. 16 MS. KIPLIN: So we'll go ahead and -- 17 your motion, I think, is to withdraw the amendments? 18 CHAIRMAN CLOWE: That's correct, yes. 19 All in favor, say aye. Opposed, no. The vote is 20 two-zero in favor. 21 We're now ready to go into Item Number 22 12, consideration and possible discussion or action on 23 the agency's strategic plan. Keith, good morning. 24 MR. ELKINS: Good morning, 25 Commissioners. My name is Keith Elkins. I'm WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 78 1 communications director for the Lottery and project 2 manager for strategic plan 2003-2007. I sent to you 3 some information last week following our orientation 4 meeting getting started on the strategic plan. I hope 5 that that was self-explanatory. I'm here to answer 6 any questions if you have it. We are still awaiting 7 instructions from the LBB on this year's strategic 8 plan. So we're operating under the assumption that 9 the previous instructions have not changed 10 significantly. If that is the case, we're on a rather 11 aggressive timetable. We are anticipating that we 12 will need to have an approved final plan ready to 13 provide to the LBB in early June. We are trying to 14 have the final draft ready for your full review by 15 early April, which would allow you at least two public 16 opportunities to deliberate and discuss that if we are 17 able to stay on that timetable. 18 The information that you have been 19 provided previously involves any amendments or changes 20 to the mission statements, goals, objectives, 21 strategies, measures, and measure definitions. The 22 LBB has requested that we provide that information to 23 them on March 15th. You have everything that we are 24 planning to submit to the LBB. 25 I would like to give you one WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 79 1 replacement document. You were given a measure for 2 per capita Lottery sales, which is marked D 2 in your 3 information. There is one word change that was left 4 out of that document. So I would like to give this to 5 you. 6 COMMISSIONER WHITAKER: Okay. 7 MR. ELKINS: This would replace your 8 original measure for per capita Lottery sales, which 9 is marked D 2. The only change is the requested 10 change. It would be per capita net Lottery sales. 11 CHAIRMAN CLOWE: Keith, I have a couple 12 of questions. One is: Why not number these pages so 13 that we can find where we are? 14 MR. ELKINS: We can certainly -- we can 15 certainly do that. 16 CHAIRMAN CLOWE: You know, just in the 17 working document, the draft, I think that would be 18 helpful. 19 MR. ELKINS: That's an excellent idea. 20 CHAIRMAN CLOWE: Then the second thing 21 is, I appreciate the work you and your group have 22 done, are doing, and will do. And I just want to 23 understand what you're asking of the commissioners. 24 You're going to be updating this weekly. And if we're 25 to go through and stay up with you weekly, help me -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 80 1 and it's looking like a struggle right now. 2 MR. ELKINS: Commissioners, what we are 3 hoping to do is, we're hoping to avoid giving you that 4 entire document with little -- in the final hours with 5 little time to consider it, digest it, send back any 6 meaningful feedback that might shift us in a different 7 direction if you -- if you feel we need to move that 8 way. 9 What I -- the way I envision the 10 process working is, every week we will be meeting as a 11 group, taking a different part of the strategic plan 12 and deliberating any necessary changes to that, 13 looking toward the future. Provide that to you for 14 your review. If you have meaningful changes or if it 15 is not the direction that you think the agency should 16 be taking, if you could indicate that to us within 17 that seven-day turnaround time, that will -- that will 18 tell us that we need to get back together and re-visit 19 this. Otherwise, we will be thinking that we have put 20 one section to bed and moved on to another. 21 Of course, if we stay on this schedule, 22 again, finishing up in early April, I'm anticipating 23 that you would have an April meeting. A May meeting 24 to consider and publicly discuss any changes to the 25 plan or any additions that you might have. Send WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 81 1 direction back to staff in a public setting. And then 2 allow us enough time to make those changes and get it 3 to you before formal review. Just trying to avoid a 4 roadblock, if you will, toward the -- toward the end 5 where we're really pushed up against a time clock to 6 get a final document signed and approved and you don't 7 have enough time to fully digest it. 8 COMMISSIONER WHITAKER: He thinks we're 9 going to be a problem. 10 CHAIRMAN CLOWE: Well, I'm sure 11 Commissioner Whitaker will not be. She is -- she is a 12 marvelous attorney who is accustomed to doing this 13 kind of thing. I, on the other hand, have a very 14 little reading comprehension skill level. And what 15 I'm going to ask you to do is set up a meeting with me 16 so at a juncture when you feel that you've covered 17 enough ground and it's meaningful, I want to sit down 18 with you and have you walk me through this. Because I 19 can -- I can, but I find it's more difficult to sit 20 off by myself and review this and comprehend this. 21 MR. ELKINS: I'll be more than glad to. 22 CHAIRMAN CLOWE: At the appropriate 23 time, if you'll let me know, I'll come in and we'll 24 sit down with you and anyone else. I'll need a 25 briefing on it so that I can do my work properly. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 82 1 MR. ELKINS: Yes, sir, be glad to. 2 COMMISSIONER WHITAKER: And this here 3 represents what percentage of the changes that you 4 anticipate? 5 MR. ELKINS: Well, that is the first 6 step. That is -- that is what the LBB has requested 7 that we get to them. And they have given us that 8 deadline of March 15th. That is strictly any changes 9 to what our existing strategies, goals, and measures 10 are. I would say that's a small percentage of change. 11 COMMISSIONER WHITAKER: Okay. The 12 other changes are going to be what type? 13 MR. ELKINS: It could be substantive if 14 something has changed in our plan from the previous 15 plan. For example, in our previous plan, I think that 16 we discussed Lottery operator contract. We don't need 17 to necessarily do that at this point because we've 18 already addressed that for some period of time. And I 19 know in the charitable bingo division, they are 20 looking to make some significant changes from their 21 mission statement all the way through goals and 22 objectives. 23 MS. CLOUD: And this is moving forward, 24 Commissioners, from 2003 to 2007. So this is picking 25 up where we left off with our last strategic plan and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 83 1 moving out. 2 MS. KIPLIN: Commissioners, these 3 changes -- you-all approved the strategic plan. So 4 any change to the strategic plan you would have to 5 approve. Staff is looking for a motion and action 6 from you. 7 CHAIRMAN CLOWE: At the conclusion of 8 the plan? 9 MS. KIPLIN: No, now. On the changes 10 that are before you right now, the ones that 11 Commissioner Whitaker was referring to on post changes 12 in the mission statement, goals, objectives, strategy, 13 measures, and measure definitions. 14 CHAIRMAN CLOWE: Okay. I'll have to 15 tell you right off that I'm not prepared to be a party 16 to that motion. I need some more time. I received 17 this document. I withdrew it. I marveled at it. And 18 I thought I'd better sit down and have a little heart 19 to heart with Keith. I'm sure Commissioner Whitaker 20 is ready to go and has studied it. But I will tell 21 you up front I need a little help on this. You know, 22 I think I can say on behalf of all commissioners we 23 think this is a very important project. And we want 24 it to be a living thing. The agency follows. We take 25 it very seriously. And in that light -- and I've got WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 84 1 to have some help. 2 MS. KIPLIN: Commissioners, the 3 deadline for the changes to what I understand are the 4 performance measure type changes, that is due March 5 15th. And I'm thinking through, because I just heard 6 your comments, how best to -- how best to approach 7 that. I think we've run across this issue once 8 before. And possibly the way to go is to send that 9 over as -- if we can as a draft. Make it clear it's 10 the staff. And then maybe at the next commission 11 meeting, if you-all have had enough time to absorb 12 this and vote and approve it, recognizing that we'll 13 have to identify any changes and that this draft 14 document will -- 15 CHAIRMAN CLOWE: If they'll accept it 16 that way, that would certainly be preferable, in my 17 mind. 18 MS. CLOUD: Commissioners, what you 19 have in front of you that is due by the 15th is our 20 performance measures that we report on on a quarterly 21 basis continually during the year. And the LBB is 22 giving us an opportunity to look at these -- at this 23 particular time to look at our performance measures 24 and look at our definitions that we have already 25 posted with them. And if we need to make changes to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 85 1 those definitions, to make those changes at this time. 2 That's what you've got in front of you. This is not 3 the strategic plan. This is an opportunity. It's a 4 part of it. But it's what we have to report against 5 on a quarterly basis. 6 CHAIRMAN CLOWE: Okay. And let me say 7 this to you. This is, again, an important document. 8 And I don't want to scold you about this. But your 9 letter is dated February the 28th. I was out of town 10 all during the week, during the weekend. You know, 11 I'm just back in town. And I haven't had the time to 12 do justice on this. So it isn't really I think fair 13 to your commissioners to hit them with something like 14 this and say at this meeting, you know, you've got to 15 approve this because it's due before the next meeting. 16 That puts me in a position I don't like to be in. So 17 I just want to express that you need to keep us into 18 consideration when you get your work product to the 19 point you want us to deal with it and give us ample 20 opportunity to do that. 21 MR. ELKINS: Commissioner, I certainly 22 understand. I was appointed chair on February 20th. 23 And we had our first organizational meeting on the 24 21st. 25 CHAIRMAN CLOWE: You're moving fast. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 86 1 MR. ELKINS: We are on an aggressive 2 timetable. I will tell you while we have this 3 opportunity that the changes being requested are not 4 as extensive as it may seem. But this is the format 5 that the LBB has requested. What you really have is 6 three columns. The first column is what we have in 7 the existing plan. The second column is any requested 8 changes to that. The third is the justification. But 9 you have to mirror the language. So there's a lot of 10 language there. For example, on strategy 811, it 11 looks like a -- 12 CHAIRMAN CLOWE: That's all right. You 13 see, you're going down this road you've been down and 14 you're familiar with it. I am not. So that's what I 15 want to do with you. I want to go down this road with 16 you. 17 MR. ELKINS: Be more than glad to. 18 CHAIRMAN CLOWE: And it's just not fair 19 to ask your commissioners, I think, to vote on this 20 right now when, you know, we're seeing this almost for 21 the first time. I can't speak for Commissioner 22 Whitaker or Commissioner Crimer, but that's the way I 23 feel about it. 24 MR. ELKINS: So we'll certainly 25 inquire -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 87 1 CHAIRMAN CLOWE: If the agency will 2 accept it as a draft, let's do it that way. And then 3 whatever each commissioner needs, if you'll give that 4 to them, because this is an important document. 5 MR. ELKINS: Yes, sir. 6 MS. CLOUD: We'll contact the agency 7 and see if they'll -- 8 CHAIRMAN CLOWE: Okay. And that's -- 9 it's good work. Don't misunderstand me. It's a big 10 job. Great. 11 MR. ELKINS: Any other questions? 12 CHAIRMAN CLOWE: Thank you very much. 13 MR. ELKINS: Thank you. 14 CHAIRMAN CLOWE: Are you ready to go 15 into executive session? 16 Is there anyone else wishing to address 17 the Commission as a member of the public before we 18 move into executive session? 19 At this time, I move the Texas Lottery 20 Commission go into executive session and deliberate 21 the duties and evaluation of the executive director, 22 internal auditor, and the charitable bingo operations 23 director pursuant to Section 551.074 of the Texas 24 Government Code. 25 To deliberate the duties of the general WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 88 1 counsel and security director pursuant to Section 2 551.074 of the Texas Government Code. 3 To receive legal advice regarding 4 pending or contemplated litigation and/or to receive 5 legal advice pursuant to Section 551.071(1)(A) or (B) 6 of the Texas Government Code and/or to receive legal 7 advice pursuant to Section 551.071(2) of the Texas 8 Government Code, including but not limited to: 9 TPFV Group, Inc. v. Texas Lottery 10 Commission. Retired Sergeant Majors' Association et. 11 al. v. Texas Lottery Commission et. al. Loretta 12 Hawkins v. Texas Lottery Commission. Contract 13 regarding the charitable bingo system, employment law, 14 personnel law, procurement and contract law and 15 general government law. 16 Is there a second? 17 COMMISSIONER WHITAKER: Second. 18 CHAIRMAN CLOWE: All in favor, say aye. 19 Opposed, no. The vote is two-zero in favor. The 20 Texas Lottery Commission will go into executive 21 session. The time is 10:25 a.m. Today is March 6th, 22 2002. 23 (EXECUTIVE SESSION) 24 CHAIRMAN CLOWE: Texas Lottery 25 Commission is out of executive session. The time is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 89 1 12:42 p.m. Is there any action to be taken as a 2 result of executive session? 3 If not, let's move on to agenda Item 4 15, consideration of the status and possible entry 5 orders. 6 MS. KIPLIN: Commissioners, these are 7 contested case proceedings, with the exception of the 8 last one from the State Office of Administrative 9 Hearings. All with the exception of the last one are 10 lottery license revocations. They are either for 11 insufficient funds. In one particular case, there is 12 a criminal conviction. The staff is recommending that 13 you sign those orders. 14 The last one is an agreed order, 15 Mexican-American Research Center, Inc. It's agreed to 16 between the staff and the party. The party was 17 represented by counsel, but the counsel withdrew. He 18 and the parties signed the agreement. Recommend 19 signing that order as well. 20 CHAIRMAN CLOWE: I move the adoption of 21 the recommended orders listed in the agenda under 22 letters A through K. 23 COMMISSIONER WHITAKER: Second. 24 CHAIRMAN CLOWE: All in favor, say aye. 25 Opposed, no. The vote is two-zero in favor. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 90 1 We'll now go to Item 16, report by the 2 Executive Director. 3 MS. CLOUD: Commissioners, we 4 transferred to the State of Texas in February 5 $66,047,354, making the total transfers from inception 6 to date $8,865,399,021. 7 We had on February 13 our legislative 8 briefing. And we had -- it was well attended. And I 9 think it was a very good briefing with -- our subject 10 was bingo update, the lottery revenue update, and the 11 game modifications, the upcoming procurement, the 12 minority report, and the council review, and the 13 self-evaluation report for sunset. So we briefed our 14 legislative members on those items. 15 The HUB and minority report is -- it 16 has not changed, I don't think, since January 31st. 17 So we will pass that for now. 18 The FTE totals. We had 307 active 19 FTE's. We have 27 vacant positions. We have three in 20 the selection acceptance. Seven in the recruiting 21 screening. Zero positions -- that's not quite right. 22 We do have a position posted as the IT director 23 position has been posted. And we have 17 vacant 24 positions with no HR activity at this time. 25 We had a retailer forum in Corpus WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 91 1 Christi on February 26th. We had 76 retailers. 2 That's the biggest turnout we've ever had in Corpus. 3 And that too turned out to be a very successful town 4 hall meeting. And that's my report. 5 CHAIRMAN CLOWE: Thank you, Linda. 6 Now Item 17, report from the charitable 7 bingo operations director. Billy. 8 MR. ATKINS: Commissioners, in addition 9 to the information contained in your notebook, I gave 10 you several handouts this morning, including the 11 licensing activity for the month of February. 12 Information on our bingo hall locator service 13 telephone calls. And also a memo regarding fourth 14 quarter allocations. We did allocate to 93 local 15 jurisdictions by check and 73 by direct deposit on 16 March 1st. We allocated the total amount of just over 17 4.9 million dollars. 18 CHAIRMAN CLOWE: Thank you, Billy. 19 Is there any public comment from 20 anyone? 21 The Commission now would like to set a 22 proposed meeting date in April. 23 COMMISSIONER WHITAKER: It needs to be 24 after April 15th. 25 CHAIRMAN CLOWE: Any date looks good to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 March 6, 2002 92 1 me. 2 COMMISSIONER WHITAKER: Pick a date. 3 My calendar is not cooperating. But how about the 4 23rd? 5 CHAIRMAN CLOWE: Sounds good. The 6 Commission will tentatively set for its next 7 meeting -- 8 MS. KIPLIN: That's a conflict for 9 people in the bingo division. 10 COMMISSIONER WHITAKER: When will that 11 be over, Billy? 12 MR. ATKINS: It is over the 25th. 13 COMMISSIONER WHITAKER: You want to do 14 the 26th? 15 CHAIRMAN CLOWE: Friday the 26th. The 16 tentative setting for the next Lottery Commission 17 meeting is Friday, the 26th of April, at 8:30 a.m. 18 This Commission meeting is adjourned. 19 Thank you all very much. 20 COMMISSIONER WHITAKER: Thank you. 21 CHAIRMAN CLOWE: Thank you. 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, MARY SCOPAS, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 14th day of 17 March, 2002. 18 19 20 21 MARY SCOPAS, RPR, Texas CSR No. 5313 22 Expiration Date: 12-31-02 1609 Shoal Creek Boulevard, Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 020306MS WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363