1 1 2 3 4 * * * * * * * * * * * * * * * * * 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 OCTOBER 16, 2002 10 11 * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 16TH of OCTOBER, 20 2002, from 8:30 a.m. to 1:40 p.m., before Brenda J. 21 Wright, RPR, CSR in and for the State of Texas, 22 reported by machine shorthand, at the Offices of the 23 Texas Lottery Commission, 611 East Sixth Street, 24 Austin, Texas, whereupon the following proceedings 25 were had: 2 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker Mr. James A. Cox, Jr. 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Acting Executive Director: Mr. Gary Grief 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 INDEX 2 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................... 4 6 Item Number 2.................................... 4 Item Number 3.................................... 5 7 Item Number 4.................................... 5 Item Number 5.................................... 10 8 Item Number 6.................................... 45 Item Number 7.................................... 57 9 Item Number 8.................................... 59 Item Number 9.................................... 77 10 Item Number 10................................... 78 Item Number 11................................... 79 11 Item Number 12................................... 90 Item Number 13................................... 96 12 Item Number 14................................... 104 Item Number 15................................... 106 13 Item Number 16................................... 111 Item Number 17................................... 113 14 Item Number 18................................... 116 Item Number 19................................... 116 15 Item Number 20................................... 117 Item Number 21................................... 120 16 Item Number 22................................... 134 Item Number 23................................... 139 17 Item Number 24................................... 139 18 Reporter's Certificate........................... 140 19 20 21 22 23 24 25 4 1 OCTOBER 16, 2002 2 CHAIRMAN CLOWE: Good morning. It is 08:31 3 8:35 a.m., October the 16th, 2002. My name is Tom 08:31 4 Clowe. Commissioner Whitaker and Commissioner Cox are 08:31 5 here. We have a complete board present. We're ready 08:31 6 to go forward with today's agenda. 08:31 7 We'll move to item number two, report, 08:31 8 possible discussion and/or action on lottery sales and 08:31 9 trends. Toni Smith. Good morning, Toni. Are you and 08:31 10 Bart going to cover this item? 08:31 11 MS. SMITH: Yes, sir. For the record, 08:31 12 I'm Toni Smith, marketing director of the Texas 08:31 13 Lottery Commission. 08:31 14 MR. SANCHEZ: For the record, my name 08:32 15 is Bart Sanchez, financial administration director. 08:32 16 MS. SMITH: Commissioners, total fiscal 08:32 17 year '03 sales to date are 308.9 million. You have in 08:32 18 your packets the usual information that we submit, and 08:32 19 Bart and I are both here and would be happy to answer 08:32 20 any questions that you have regarding sales. 08:32 21 CHAIRMAN CLOWE: Thank you, Toni. Are 08:32 22 there any questions? I believe not. Thank you very 08:32 23 much. 08:32 24 Do you have any following comments, 08:32 25 Toni, on the next agenda item, which is the lottery 08:32 5 1 advertising, promotions, and advertising procurements? 08:32 2 MS. SMITH: No, sir, I have nothing new 08:32 3 to report today. 08:32 4 CHAIRMAN CLOWE: Are there any 08:32 5 questions in regard to that? Hearing none, thank you, 08:32 6 Toni. 08:32 7 The next item is number four, report, 08:32 8 possible discussion and/or action on the Legislative 08:32 9 Appropriations Request for fiscal year '03 and '04, 08:32 10 including report on the September 30th, 2002 hearing 08:32 11 on the Commission's LAR. I believe our Acting 08:33 12 Executive Director, Gary Grief, Billy Atkins, as well 08:33 13 as Bart, are going to handle this. Good morning, 08:33 14 gentlemen. 08:33 15 MR. GRIEF: Good morning. I would like 08:33 16 to start out, Commissioners, I want you to let you 08:33 17 know that an LAR hearing was held on September 30th, 08:33 18 in which Billy Atkins and I laid out the agency 08:33 19 appropriation request for both the Lottery and Bingo 08:33 20 business sides of our agency. This hearing was 08:33 21 conducted in front of the staff from the Legislative 08:33 22 Budget Board and staff from the Governor's Office of 08:33 23 Budget and Planning. The hearing was largely routine 08:33 24 in nature. They did ask us some questions that we 08:33 25 responded back to them by letter. In addition, we 08:33 6 1 have received some additional guidance from the LBB 08:33 2 regarding that section of our LAR dealing with rider 08:33 3 four. After Billy has a chance to make any comments 08:33 4 he would like to make, I would like to call on Bart 08:34 5 Sanchez, our financial administration director, to 08:34 6 explain about the guidance we received from the LBB, 08:34 7 along with a change that we need to make to our LAR 08:34 8 submission. 08:34 9 MR. ATKINS: One change that I would 08:34 10 point out that came up about as a result of our LAR 08:34 11 hearing, and I'll also ask Bart to highlight this 08:34 12 further, is the budget staff did ask that we account 08:34 13 for the prize fees that we receive from the conduct of 08:34 14 bingo as income and, also, report them as an expense 08:34 15 when it's allocated back to the appropriate 08:34 16 jurisdiction, under the appropriate strategy. And 08:34 17 that's the only change that I'm aware of involving 08:34 18 bingo. 08:34 19 CHAIRMAN CLOWE: And I believe the 08:34 20 Commissioners have all received a copy of the letter 08:34 21 where you answered the questions that were put to you 08:34 22 in the meeting and, to the best of your knowledge, 08:34 23 that satisfied all of the inquiries that came up at 08:35 24 that meeting? 08:35 25 MR. GRIEF: Yes, sir, it did. 08:35 7 1 CHAIRMAN CLOWE: Great. Then you have 08:35 2 one change that Bart is going to explain. Is that 08:35 3 correct? 08:35 4 MR. GRIEF: Yes, sir, we do. 08:35 5 Bart, if you would. 08:35 6 MR. SANCHEZ: Yes, sir. If I may, can 08:35 7 I pass out a package. 08:35 8 CHAIRMAN CLOWE: Sure. 08:35 9 MR. SANCHEZ: Again, my name is Bart 08:35 10 Sanchez. I'm the financial administration director. 08:35 11 Before you, sir, you have a change log, and these are 08:35 12 basically all the changes that have been discussed 08:35 13 with Rick Travis of the LBB, our financial analyst, 08:35 14 regarding his review of the LAR. The cover sheet 08:36 15 basically gives you a summary of all the changes, even 08:36 16 small. We decided to go and disclose them. But the 08:36 17 major change is -- the material change is the one 08:36 18 involving rider four. It has been the recommendation 08:36 19 of the LBB, along the Governor's Budget Office, to 08:36 20 present that request for funding through an 08:36 21 exceptional item request. 08:36 22 Again, if I need to briefly go over 08:36 23 rider four, that's the request from the agency that we 08:36 24 ask for funding beyond our baseline appropriated 08:36 25 amount if sales exceed a certain level amount. Like, 08:36 8 1 for example, 2.6 billion. And the way we compiled and 08:36 2 prepared the LAR, we did it under the same methodology 08:36 3 that has been done for the last two bienniums. Under 08:36 4 rider four, we thought that that was sufficient to 08:36 5 request the funding. And we had discussed this rider 08:37 6 four very closely with Rick Travis. But it seems like 08:37 7 after the hearing, there were a lot of questions 08:37 8 regarding rider four in the hearing, and afterwards, 08:37 9 we received a call from his office, and I guess 08:37 10 discussions with maybe his -- his supervisors, that 08:37 11 the best presentation and the best request format for 08:37 12 that additional funding beyond the baseline request 08:37 13 would be via an exceptional item request. 08:37 14 CHAIRMAN CLOWE: Any questions? 08:37 15 Does this require action on behalf of 08:37 16 the Commission? 08:37 17 MS. KIPLIN: Commissioners, you all 08:37 18 voted to approve the LAR, and I have discussed this 08:37 19 with Bart and I do believe that it is a material 08:37 20 change to the LAR and the change is an exceptional 08:38 21 item, and I do think -- it is a request by the LBB, 08:38 22 and if we want to comply with it, then I do think it 08:38 23 takes action on the part of the Commission. 08:38 24 CHAIRMAN CLOWE: And Bart, my 08:38 25 understanding is, as you have stated, I think, more 08:38 9 1 than once, it's at the request of Rick Travis and the 08:38 2 Governor's Budget Office, and there is a clear 08:38 3 understanding that we are considering this and if the 08:38 4 Commission were to approve it, it is for the purpose 08:38 5 of, if not highlighting this item, at least 08:38 6 identifying it clearly so that there is no 08:38 7 misunderstanding of what the item is. Although it's 08:38 8 listed as an exceptional item, there is good reason 08:38 9 for it. 08:38 10 MR. SANCHEZ: Yes. I believe the good 08:38 11 reason would be, it's better accounting for the LBB 08:38 12 and the Governor's Budget Office. When you're 08:38 13 requesting any amounts beyond the baseline, they would 08:38 14 like to have an amount that they can really identify. 08:38 15 Through rider four, I could see their point of view 08:39 16 that that wasn't identified as clear. 08:39 17 CHAIRMAN CLOWE: So this makes it very 08:39 18 definitive and -- 08:39 19 MR. SANCHEZ: Very definitive. But if 08:39 20 I may add, we're not asking for anything more than 08:39 21 what was already requested through rider four. 08:39 22 CHAIRMAN CLOWE: All right. We're 08:39 23 giving great clarification to this. And as we have 08:39 24 questions, possibly, from members of various 08:39 25 committees and legislators, we'll be able to explain 08:39 10 1 this hopefully to their satisfaction. 08:39 2 MR. SANCHEZ: Yes. And I invited Rick 08:39 3 Travis to come before us today, but unfortunately, he 08:39 4 was not here. But he certainly is going to be with us 08:39 5 through the legislative process to explain his 08:39 6 reasoning as to why he requested the agency to change 08:39 7 the reporting format to an exceptional item request. 08:39 8 CHAIRMAN CLOWE: Any questions? 08:39 9 I move the adoption of this change in 08:39 10 the Commission's LAR. 08:39 11 COMMISSIONER WHITAKER: Second. 08:39 12 CHAIRMAN CLOWE: All in favor, please 08:39 13 say aye. Opposed, no. The vote is three-zero. 08:39 14 Thank you, Bart. Thank you, Gary. 08:40 15 Anything further? 08:40 16 MR. GRIEF: No, sir. 08:40 17 CHAIRMAN CLOWE: Billy, anything 08:40 18 further on this item? 08:40 19 MR. ATKINS: No, sir. 08:40 20 CHAIRMAN CLOWE: Thank you. We're 08:40 21 ready to take up item number five, report, possible 08:40 22 discussion and/or action on the Sunset process 08:40 23 involving the agency, include the agency's 08:40 24 recommendations regarding the Charitable Bingo 08:40 25 distribution, grandfathered lessor license, and/or 08:40 11 1 transferability of lessor licenses issues in the 08:40 2 Sunset Commission staff report. 08:40 3 Nelda, we have you and Billy and, I 08:40 4 believe, Gary, to help us with this item. 08:40 5 MS. TREVINO: Good morning. 08:40 6 Commissioners. For the record, I'm Nelda Trevino, 08:40 7 director for governmental affairs. I have a very 08:40 8 brief report before Billy specifically discusses the 08:40 9 issues related to the recommendations in the Sunset 08:40 10 staff report. 08:40 11 As you know, the Sunset Commission's 08:40 12 public hearing on the Lottery Commission occurred on 08:40 13 September the 24th. We have provided the Sunset 08:40 14 Commission members and the staff with all of the 08:41 15 information requested at the hearing. Each of you 08:41 16 have also been provided a copy of this information. I 08:41 17 believe we have been thorough and complete in our 08:41 18 responses. 08:41 19 The Sunset Commission is scheduled to 08:41 20 meet on November the 12th and 13th, at which time they 08:41 21 will make their decisions on the recommendations 08:41 22 related to our agency. The agenda for the Sunset 08:41 23 Commission hearing has not been posted, so I'm unable 08:41 24 at this time to tell you which date the Commission 08:41 25 will be considering our agency. As soon as we receive 08:41 12 1 more information on the agenda, we will certainly 08:41 2 forward that information to you. 08:41 3 It is my understanding that the Sunset 08:41 4 staff prepares and provides a hearing decisions 08:41 5 document on the agency that will be used for their 08:41 6 deliberations and discussions. We anticipate 08:41 7 receiving a copy of this document about one week 08:41 8 before the Sunset hearing. No public testimony will 08:41 9 be taken as it relates to our agency, but the agency 08:42 10 may be called upon to answer questions that the Sunset 08:42 11 Commission members may have. 08:42 12 I'll be happy to answer any questions 08:42 13 at this time, or I can turn it over to Billy for his 08:42 14 presentation. 08:42 15 CHAIRMAN CLOWE: I think we probably 08:42 16 would like to hear from Billy next, if we may. 08:42 17 MR. ATKINS: And Commissioners, with 08:42 18 your indulgence, if I can move over here, because 08:42 19 there is a lot of information that I want to convey to 08:42 20 you. I just thought it would be easier in a 08:42 21 face-to-face type setting. 08:42 22 The staff of the Bingo Division has 08:42 23 been meeting with representatives from the bingo 08:42 24 industry, actually prior to the Sunset hearing taking 08:42 25 place, discussing the issues that seem to have 08:42 13 1 generated the most interest among the industry, 08:42 2 specifically, issue 4.1, relating to changes to the 08:42 3 charitable distribution formula; and issue five, which 08:42 4 calls for the elimination of grandfathered commercial 08:42 5 lessors and the repeal of the transferability of those 08:42 6 licenses. 08:42 7 You heard, I believe, a considerable 08:42 8 amount of testimony at your commission meeting and 08:43 9 there was testimony before the Sunset hearing that 08:43 10 there was a concern that those recommendations made by 08:43 11 the Sunset staff could have an adverse effect on the 08:43 12 conduct of bingo in the State of Texas, as well as the 08:43 13 charitable organizations that rely on those funds to 08:43 14 benefit their activities. As I mentioned, we've been 08:43 15 meeting continuously with representatives of the 08:43 16 industry. We've had the benefit of having 08:43 17 Commissioner Cox at one of our meetings and getting 08:43 18 his insight. At his suggestion, we have reached out 08:43 19 to the Comptroller's Office and provided them with the 08:43 20 raw data to look at and run the calculations. We 08:43 21 think it would be beneficial to, if you will, have a 08:43 22 fresh set of eyes on these figures and get their 08:43 23 input. 08:43 24 I think after these meetings that the 08:43 25 staff has come up with recommendations that we're 08:43 14 1 going to be prepared to make to you on both of these 08:43 2 issues. I'm not able to tell you that these 08:44 3 recommendations are going to receive universal acclaim 08:44 4 and support. There is still going to be opposition to 08:44 5 them. But in doing our own analysis, we have tried to 08:44 6 look to what is ultimately best for the industry. In 08:44 7 each of the recommendations, there is still the 08:44 8 possibility that individuals or organizations may not 08:44 9 be able to be involved in bingo. But we have looked 08:44 10 to the Sunset findings to maximize revenue and to, 08:44 11 where possible, simplify processes and procedures. 08:44 12 So having said that, if you don't have 08:44 13 any other questions, then I would like to start 08:44 14 discussing specifically issue 4.1, relating to the 08:44 15 charitable distribution. 08:44 16 What we've -- what we began to do is, 08:44 17 we developed roughly about five different scenarios 08:44 18 that we looked at, the first one being no changes to 08:44 19 the act, everything staying as is. And our, you know, 08:45 20 on-face analysis came up with, if you keep doing what 08:45 21 you've always done, you're going to get what you've 08:45 22 always got. 08:45 23 Then we looked at making -- keeping, 08:45 24 essentially, the same current formula, but requiring 08:45 25 the organizations, when the formula resulted in a 08:45 15 1 required zero proceeds being made, look at adding 08:45 2 language that would require them -- that organization 08:45 3 to still make some distribution. And, you know, we 08:45 4 included a percentage of one percent of that 08:45 5 organization's total gross receipts. 08:45 6 We've looked at the formula that the 08:45 7 Sunset staff came up with, using a variety of 08:45 8 different percentages, from 25 percent all the way 08:45 9 down to one percent. And we found, even at one 08:45 10 percent, approximately eight percent of the 08:45 11 organizations conducting bingo wouldn't be able to 08:46 12 make the distribution, and that distribution amount 08:46 13 would, of course, be very small. 08:46 14 And then we began to look at some 08:46 15 formulas that are relatively common in some form or 08:46 16 another in other jurisdictions, and that is, taking 08:46 17 total gross receipts from the sale of bingo products, 08:46 18 as well as rental income, and deducting prizes and 08:46 19 deducting expenses, with the net proceeds, 100 percent 08:46 20 of the net proceeds then being the required 08:46 21 distribution. We looked at two different versions of 08:46 22 that, one where the expense credit was limited in the 08:46 23 formula at like 90 percent, and one where the 08:46 24 organizations were allowed to take all of their 08:46 25 expenses. 08:46 16 1 In our final analysis, we believe that 08:46 2 the best recommendation would be a formula where total 08:46 3 prizes and all allowable expenses would be allowed to 08:46 4 be deducted from total gross receipts with those net 08:47 5 proceeds being the charitable distribution. This 08:47 6 formula, we anticipate, would require the adoption of 08:47 7 some rules, we think, in order to prevent the 08:47 8 possibility that some organizations could experience, 08:47 9 say, expenses to such a degree that they are -- that 08:47 10 their net proceeds would still be zero, that we need 08:47 11 to go in and, through rule, look at the allowable 08:47 12 expenses as they're laid out in the Act and allow for 08:47 13 some type cap or limit. We do recognize the need for 08:47 14 organizations to be able to have an operating account, 08:47 15 or -- so we would recognize a certain percentage of 08:47 16 those net proceeds to be allowed to be transferred to 08:47 17 that. And we would look at capping what that 08:47 18 operating amount could be also, through rule. 08:48 19 And then, finally, in accordance with 08:48 20 recommendation 4.2 of the Sunset staff report, we 08:48 21 would look at, through rule, further clarifying those 08:48 22 allowable charitable distributions. We think that 08:48 23 this will result in those organizations, again, that 08:48 24 aren't able to maintain a positive cash flow, we would 08:48 25 anticipate that action would be taken against their 08:48 17 1 license and that they would no longer be allowed to 08:48 2 conduct bingo. But we think that this formula will 08:48 3 help emphasize in the Act the importance of charitable 08:48 4 bingo and the use of those proceeds for charitable 08:48 5 purpose. We believe that the formula is -- is simple 08:48 6 enough for organizations to understand and comply 08:48 7 with, and that it will go towards the Sunset 08:48 8 recommendation of maximizing distributions. 08:49 9 CHAIRMAN CLOWE: Questions? 08:49 10 MR. ATKINS: Just -- 08:49 11 COMMISSIONER COX: I've got a couple. 08:49 12 CHAIRMAN CLOWE: Yes, sir. 13 COMMISSIONER COX: Billy, the formula 08:49 14 that you're talking about going to, as I understand, 08:49 15 would take the bingo revenue, less prizes, less 08:49 16 expenses, and that will be the distribution? 08:49 17 MR. ATKINS: Yes, sir. 08:49 18 COMMISSIONER COX: Now, you said a 08:49 19 little earlier that, I think, a one percent 08:49 20 distribution will require that eight percent of the 08:49 21 charities would be unable to make it. 08:49 22 MR. ATKINS: Yes, sir. 08:49 23 COMMISSIONER COX: So that would say 24 that -- or at least eight percent of the charities, 08:49 25 there would be little or nothing to distribute under 08:49 18 1 that formula? 08:49 2 MR. ATKINS: Least me try and clarify 08:49 3 that. Based on historical information, those 08:49 4 organizations would not be able to make it. In a 08:49 5 go-forward basis, any changes that they may make to 08:49 6 their operations, they could not be affected. 08:49 7 COMMISSIONER COX: Okay. You're 08:49 8 talking about an operating account, which is the 08:49 9 working capital of the organization. What are you 08:50 10 thinking about as to adequacy of that amount? You 08:50 11 talked about excessiveness of it, but I didn't hear 08:50 12 anything about adequacy. 08:50 13 MR. ATKINS: And that is something that 08:50 14 we would need to, I think, address through rule. I 08:50 15 think it would require a lot of input from the 08:50 16 industry. I don't know if we're right now -- as a 08:50 17 matter of fact, I know right now we don't know exactly 08:50 18 what that dollar amount or percentage amount is. But, 08:50 19 you know, we fully anticipate that, of course, a 08:50 20 larger organization will need a larger amount than a 08:50 21 smaller organization. 08:50 22 COMMISSIONER COX: Sure. So if an 08:50 23 organization is unable to make a distribution, but is 08:50 24 yet through -- through the money that it raises from 08:50 25 its game or from external sources is able to maintain 08:50 19 1 the adequate working capital, would there be any 08:50 2 reason that they couldn't remain in business? 08:51 3 MR. ATKINS: It's -- as I understand 08:51 4 it, it's our anticipation that we would look for the 08:51 5 bingo operation to have a positive cash flow. We 08:51 6 would look for there to be net proceeds after the 08:51 7 formula. 08:51 8 COMMISSIONER COX: So you're going 08:51 9 to -- when you say a positive cash flow, you're saying 08:51 10 from operations. 08:51 11 MR. ATKINS: Yes, sir. 08:51 12 COMMISSIONER COX: That they couldn't 08:51 13 continually bring money in from the outside to build 08:51 14 their operation from its infancy, let's say. 08:51 15 MR. ATKINS: We do recognize that there 08:51 16 are going to be situations, a bad quarter or bad 08:51 17 night, whatever it is, where -- 08:51 18 COMMISSIONER COX: Start-up. 08:51 19 MR. ATKINS: Exactly. Where they may 08:51 20 need to use funds from that -- from that operating 08:51 21 account, to, if you will, supplement their bingo 08:51 22 operations. But we would expect, in a long term, 08:51 23 that -- that the game overall, the operation overall, 08:51 24 would be -- would be positive. 08:51 25 COMMISSIONER COX: Thank you, Billy. 08:51 20 1 It sounds like y'all have been really thorough. 08:51 2 MR. ATKINS: I do want you to know, 08:52 3 Commissioners -- and, again, you know, Commissioner 08:52 4 Cox, I can't thank you enough for your help. I know 08:52 5 that we even butted heads a couple of times, but you 08:52 6 finally got information through to me. Again, I 08:52 7 anticipate, at a minimum, there being concern and 08:52 8 objections from the industry in terms of the 08:52 9 rulemaking recommendations relating to expenses. As 08:52 10 well as there is -- there is still, I think, for some 08:52 11 members of the industry, an issue on a table regarding 08:52 12 that transferability, and what I will call the ease of 08:52 13 the transferability. We're going to want certain 08:52 14 controls in place over those funds being transferred 08:52 15 from account to account, so that we're making sure 08:52 16 that these proceeds or whatever aren't just paper 08:52 17 proceeds, but that they're actual real dollars. So 08:52 18 that's another issue that I anticipate being brought 08:53 19 forward to the Commission. 08:53 20 CHAIRMAN CLOWE: Billy, I think both 08:53 21 Commissioner Whitaker and I want to emphasize our 08:53 22 appreciation, as you expressed it to Commissioner Cox, 08:53 23 for meeting with you and members of the public. We 08:53 24 really appreciate his attention to detail and being 08:53 25 able to have his background and his knowledge brought 08:53 21 1 to bear here. 08:53 2 I think I understand what you have told 08:53 3 us about your preliminary thinking at this point on 08:53 4 item 4.1. My experience is that the devil is in the 08:53 5 details. And when you get down to identifying what 08:53 6 are reasonable operating expenses and what is a 08:53 7 reasonable operating fund, the working capital of an 08:53 8 organization, that's where the real disagreement is 08:53 9 going to occur in the rulemaking and in auditing and 08:53 10 bingo operations being put under that scrutiny. It 08:54 11 sounds good initially, but it's going to be very 08:54 12 difficult in the enforcement of it and the compliance 08:54 13 with it. And how well those items are defined and how 08:54 14 clearly they're set forth and people are able to 08:54 15 understand what is the definition of acceptable 08:54 16 operating expenses and acceptable operating accounts, 08:54 17 will probably save a lot of heartache when you get 08:54 18 into the working of that, if that's what the 08:54 19 Commission recommends ultimately and that's what is 08:54 20 adopted by the legislature. 08:54 21 MR. ATKINS: And I would just say, 08:54 22 Mr. Chairman, that I agree wholeheartedly that the 08:54 23 rulemaking process will be interesting. But I think 08:54 24 if we can get good participation and can get a good 08:55 25 rule, then I think going back past that, it will 08:55 22 1 actually make the auditing by our staff and the 08:55 2 compliance by the industry easier, because they will 08:55 3 have that information up front. 08:55 4 CHAIRMAN CLOWE: I couldn't agree with 08:55 5 you more. And that's where some really hard work and, 08:55 6 hopefully, some good answers can be offered up in 08:55 7 regard to those definitions. 08:55 8 MR. ATKINS: Well, we're ready to -- 08:55 9 we're ready to move forward. 08:55 10 CHAIRMAN CLOWE: Now, you're not 08:55 11 commenting on items 5.1 and 5.2, and I assume you're 08:55 12 not ready to do that at this time. 08:55 13 MR. ATKINS: Actually, I would like to 08:55 14 make a preliminary comment on that. 08:55 15 CHAIRMAN CLOWE: Okay. Any further 08:55 16 questions on this item at this time? Thank you. 08:55 17 MR. ATKINS: Again, Commissioners, 08:55 18 going back to the testimony that I believe you heard 08:55 19 at a previous Commission meeting, as well as what was 08:55 20 presented to the Sunset staff, we looked at -- we 08:56 21 looked at two things. We looked at the considerable 08:56 22 amount of capital that grandfathered lessors bring to 08:56 23 the bingo industry, and we also looked to, again, the 08:56 24 complexity of the current lessor licensing structure 08:56 25 and bingo. That is, we have grandfathered lessors, we 08:56 23 1 have nongrandfathered lessors, we have associations, 08:56 2 we have grandfathered conductor lessors. The list 08:56 3 goes on and on and on. And the situation that we find 08:56 4 ourselves in when we're dealing with the public, when 08:56 5 we're dealing with organizations that want to start 08:56 6 playing the bingo game, and we get into these 08:56 7 explanations of the law and what is required of them, 08:56 8 they throw up their hands and they're done. They 08:56 9 don't -- no wonder nobody plays bingo. I don't want 08:56 10 to have anything to do with it. 08:57 11 The issue that was raised several times 08:57 12 at the Sunset Commission we can't comment on and we 08:57 13 don't know how to comment on, that the -- the comment 08:57 14 that several legislators made that when they 08:57 15 grandfather a lessor's license -- or when they 08:57 16 grandfather a license, they have an expectation that 08:57 17 eventually grandpa is going to die. I think that is a 08:57 18 decision for the legislature. Since 1989, when those 08:57 19 licenses were grandfathered, grandpa has died to some 08:57 20 degree. There has been a reduction in the number of 08:57 21 grandfathered lessor licenses. It's just that his 08:57 22 life support is very good and he has a -- he hasn't 08:57 23 died completely. 08:57 24 So we began to look at the complexity 08:57 25 issue that we have and the public has. And our 08:57 24 1 recommendation to you would be the elimination of what 08:57 2 we call the tiered lessor system. And that is a 08:58 3 situation where if I am a charity that wants to play 08:58 4 bingo at a -- you know, an abandoned Wal-Mart, the -- 08:58 5 the landlord or the owner of that abandoned Wal-Mart 08:58 6 has to get a lessor's license in order to lease to me. 08:58 7 Well, if -- for me to be the only conductor there, I 08:58 8 then have to turn around and get a lessor's license 08:58 9 and demonstrate to the Commission through an affidavit 08:58 10 that I have tried to lease to other charities to 08:58 11 conduct, but they don't want to. So I as a charity am 08:58 12 paying for two licenses. I'm paying for my 08:58 13 conductor's license, and I'm paying for my lessor's 08:58 14 license, even though I as the charity am not leasing 08:58 15 to anyone. 08:58 16 What we would like to recommend and 08:59 17 what we're working on in its final format is the 08:59 18 elimination of the tier structure. Now, if there were 08:59 19 a situation where there was -- well, let me use this 08:59 20 situation. Let's say, there is a church and the 08:59 21 Knights of Columbus wants to play bingo at the church. 08:59 22 The church would still have to get a lessor's license 08:59 23 in order to lease to the Knights of Columbus, but we 08:59 24 would not require the Knights of Columbus to get their 08:59 25 lessor's license and verify to us that they tried to 08:59 25 1 lease even though no one else wanted to. We would 08:59 2 like to move to a situation where there could be just 08:59 3 that relationship between the landlord and the single 08:59 4 organization. And we want to move closer towards the 08:59 5 situation where if there is, say, a Knights of 08:59 6 Columbus and a VFW that both want to play bingo, then 08:59 7 they can go in as an association. And they can obtain 08:59 8 the location, they can conduct bingo at the location, 09:00 9 and they can subsequently lease to other organizations 09:00 10 without having this top of the tier lessor. 09:00 11 Again, it is going to impact, we think, 09:00 12 up to 89, you know, current lessor licensees. We 09:00 13 think that the trade-off, though, in terms of the 09:00 14 additional rental income and rental tax that these 09:00 15 organizations that are now serving these nonprofit 09:00 16 charitable organizations that are now serving as the 09:00 17 lessor, what they receive will offset what is being 09:00 18 lost by this top tier lessor who is only able to lease 09:00 19 to one licensee. 09:00 20 This issue is a little more complex. 09:00 21 We're trying to, you know, finalize our comments and 09:00 22 how we anticipate laying it out to you. But, again, 09:00 23 we haven't found any additional information in our 09:01 24 research that would support the concept of eliminating 09:01 25 grandfathered lessor licenses or the transferability 09:01 26 1 of them. So we've looked to this tier lessor system 09:01 2 that we find to be very confusing and burdensome for 09:01 3 licensees, particularly, smaller organizations in 09:01 4 rural areas. 09:01 5 Now, I don't know if I have -- 09:01 6 CHAIRMAN CLOWE: You either answered 09:01 7 all our questions or you dazzled us to the point 09:01 8 that -- 09:01 9 COMMISSIONER COX: I do have one 09:01 10 question. 09:01 11 CHAIRMAN CLOWE: Yes, sir. 12 COMMISSIONER COX: Billy, could you 09:01 13 tell us how those 89 licensees would be adversely 09:01 14 affected? 09:01 15 MR. ATKINS: They would not be leasing 09:01 16 to the -- to the organizations. The -- if there was 09:01 17 an association forum. They wouldn't be affected, 09:02 18 Commissioner Cox, if it was just a one-on-one 09:02 19 relationship. They would still have their lessor 09:02 20 license, they would still be -- in the case of the 09:02 21 church, the church would still have their lessor 09:02 22 license, they would still be leasing to just the 09:02 23 Knights of Columbus. It only becomes if the Knights 09:02 24 of Columbus wants to form with another organization, 09:02 25 then that top tier license held by the church wouldn't 09:02 27 1 be required. Those two organizations would, in 09:02 2 essence, become the lessor. 09:02 3 COMMISSIONER COX: Thank you. 09:02 4 MR. ATKINS: And, again, we would 09:02 5 anticipate through this recommendation including some 09:02 6 sort of phase-in period so that these people aren't 09:02 7 cut off all at once. There is currently -- we're 09:02 8 recommending kind of the continued promotion of a 09:02 9 concept that's already in the Bingo Enabling Act, and 09:02 10 that is, charitable organizations forming an 09:02 11 association and serving as their own lessor. 09:02 12 CHAIR CLOWE: Billy, your 09:03 13 recommendations to this point are what we might 09:03 14 consider in draft form? You're not asking any action 09:03 15 of the Commission? 09:03 16 MR. ATKINS: I am not -- 09:03 17 CHAIRMAN CLOWE: At this time? 09:03 18 MR. ATKINS: No, sir. And, again, I 09:03 19 anticipate that there are members of the industry that 09:03 20 will want to address you on these. 09:03 21 CHAIRMAN CLOWE: Well, it's good to 09:03 22 give an up-front position statement, which is what I 09:03 23 consider what you are doing this morning on the 09:03 24 direction that you're headed in. And we do have 09:03 25 members of the public here who have said they want to 09:03 28 1 speak to this. 09:03 2 Now, my understanding is, we have a 09:03 3 meeting noticed up for the 23rd of this month where we 09:03 4 would anticipate you come forward with some final 09:03 5 recommendations, and that would be timely for the 09:03 6 Commissioners to deliberate prior to the Sunset 09:03 7 committee meeting. 09:03 8 MR. ATKINS: Yes, sir. 09:03 9 CHAIRMAN CLOWE: Okay. Anything 09:04 10 further before we call on members of the public? 09:04 11 MR. ATKINS: No, sir. 09:04 12 CHAIRMAN CLOWE: Then I'll just ask the 09:04 13 people who I have had affirmation forms handed to me, 09:04 14 in the order that they've come to me, to come forward. 09:04 15 Mr. Bill Pewitt, representing the Texas Charitable 09:04 16 Bingo Association. 09:04 17 Good morning, sir. 09:04 18 MR. PEWITT: Good morning. My name is 19 Bill Pewitt. I'm the administrator of the Texas 09:04 20 Charitable Bingo Association. There will be others 09:04 21 who will testify similar to my testimony. 09:04 22 I wanted to thank Billy Atkins for, you 09:04 23 know, bringing in the public on our deliberations and 09:04 24 discussions. As you said, Mr. Clowe, the devil is in 09:04 25 the details. Questions as to, you know, expense caps 09:04 29 1 and things, but I think we're headed in the right 09:04 2 direction. And our group, which comprises about ten 09:05 3 lessors that lease to about 120 charities, will 09:05 4 anticipate looking at any drafts that we can and run 09:05 5 those numbers to see what the effect will be on our 09:05 6 charities. So that's our testimony for now. We just 09:05 7 anticipate taking a look at any documents we can to 09:05 8 analyze those. But I think we're, you know, headed in 09:05 9 the right direction. So -- all right. 09:05 10 CHAIRMAN CLOWE: Any questions? 09:05 11 We're -- let me just say this. We're appreciative of 09:05 12 you being here this morning. And I think the 09:05 13 Commission encourages and very much wants you to take 09:05 14 part in this activity. 09:05 15 MR. PEWITT: We have. I've been to two 09:05 16 meetings. I did not make the meeting where 09:05 17 Commissioner Cox was present, but the last two 09:05 18 meetings we've had, we've tried to flesh out a lot of 09:05 19 these questions. But, again, the devil is in the 09:05 20 details, and we need to take a look at, you know, what 09:06 21 is proposed and see what the effect of that will be. 09:06 22 CHAIRMAN CLOWE: My personal hope is 09:06 23 that, on the 23rd, if that's the meeting where a 09:06 24 recommendation is ripe for consideration, the 09:06 25 Commissioners will deliberate and will be in a 09:06 30 1 position to go back to Sunset with a recommendation. 09:06 2 That's a promise I made as an individual Commissioner 09:06 3 to the Sunset committee, and I hope that happens. So 09:06 4 stay with us and be involved. 09:06 5 MR. PEWITT: I will. And I might ask. 09:06 6 I may have missed it when Mr. Atkins had said it, as 09:06 7 to when we might be able to obtain any documents or 09:06 8 any drafts of any proposals. I -- is that forthcoming 09:06 9 or... 09:06 10 CHAIRMAN CLOWE: Okay. 09:06 11 MR. PEWITT: No? 09:06 12 CHAIRMAN CLOWE: Great. Thank you. 09:06 13 And then we have Mr. Stephen Fenoglio 09:06 14 next, representing 950 charitable and business 09:06 15 organizations. 09:06 16 MR. FENOGLIO: Good morning, 09:06 17 Mr. Chairman and Commissioners. Thank you again, 09:06 18 Mr. Cox, for attending the session where we, I think, 09:07 19 covered a lot of ground. 09:07 20 It has been difficult to get, I think, 09:07 21 collectively our arms around some of the Sunset 09:07 22 recommendations for the simple reason and it's -- some 09:07 23 of the comments I made here as well as in the Sunset 09:07 24 Commission, that the recommendations are flawed and 09:07 25 based on -- however good faith they were attempting to 09:07 31 1 reach some recommendations, they were based on flawed 09:07 2 data. And I think we've established that. In 09:07 3 meetings with the Commission staff, they've 09:07 4 acknowledged that. That, for example, the attempt to 09:07 5 compare different states to Texas is flawed. I think 09:07 6 a comment from the staff was that if you have 27 or 50 09:07 7 of 46 states that are regulating bingo, there are 27 09:07 8 of 46 different ways to approach it. 09:07 9 Yesterday, I was produced -- or 09:07 10 provided a document from the Commission staff where 09:07 11 they've tried to compare different states on, for 09:08 12 example, on how they calculate net proceeds. It is 09:08 13 all over the board. And so any type of a comparison 09:08 14 will be extremely difficult to do, if it's -- if it's 09:08 15 possible to do it, because you've got different ways 09:08 16 that they calculate expenses, different ways of 09:08 17 conducting bingo. With that in mind -- and the same 09:08 18 is true on the commercial lessor issue that y'all have 09:08 19 already recognized. With that in mind, we agree with 09:08 20 what Billy, in principle, has laid out. Although as, 09:08 21 Chairman Clowe, you observed, the devil is in the 09:08 22 details. And so we're -- I've attended -- I think 09:08 23 we've had four working group meetings or five, and 09:08 24 I've attended all five. I'm leaving today to go out 09:08 25 of state and probably will not be back until the 23rd 09:08 32 1 or 24th, so I'll miss those, but I'll be able to stay 09:08 2 in touch with Mr. Bresnen and others, and Mr. Pewitt. 09:09 3 The one thing that we haven't heard, 09:09 4 and it's a comment that we made with Commissioner Cox 09:09 5 and we've made with the Chairman and Commissioner 09:09 6 Whitaker, is the positive agenda. And we understand 09:09 7 the Commission's position, that y'all cannot actively 09:09 8 advocate for reasonable and necessary legislative 09:09 9 changes, but if bingo isn't given new tools -- and, 09:09 10 again, it's only anecdotal at this point in time. But 09:09 11 the pull tab rule that y'all approved, I have certain 09:09 12 halls that have been aggressively selling and 09:09 13 marketing those new innovative pull tabs. They've 09:09 14 seen a three-times increase in pull tab sales. 09:09 15 Whether that trend will hold up, who knows. You know, 09:09 16 sometimes it's a new product and it'll fade. We don't 09:09 17 know yet. But we do know that it's been a shot in the 09:09 18 arm to some halls who have aggressively -- and who 09:09 19 have spent some more money, by the way, in hiring 09:10 20 different sales staff. But have aggressively 09:10 21 increased their sales. 09:10 22 You see the same thing on the Lottery 09:10 23 side all the time with new product. Anyhow, that's 09:10 24 the thing that's missing in this issue, and that's 09:10 25 something that we're going to continue to talk with 09:10 33 1 y'all about. We understand that most of those changes 09:10 2 will be legislative in nature, and that will take us 09:10 3 to the 2003 session. But we need -- the bingo 09:10 4 industry needs new and innovative products, similar to 09:10 5 the type of new and innovative product that is 09:10 6 regularly rolled out in other industries, Lottery, any 09:10 7 other type of entertainment venue. 09:10 8 I'll be happy to answer any questions. 09:10 9 CHAIRMAN CLOWE: Steve, I'm glad you 09:10 10 have touched on that last point because I have 09:10 11 discussed that with staff. I don't know what the 09:10 12 other Commissioners' position is, but I think you've 09:10 13 got that in focus, that I see our role to focus on the 09:10 14 Sunset staff report, which didn't include the agenda 09:11 15 that you have added for consideration in your scope of 09:11 16 view. And I don't think the Commission is going to be 09:11 17 able to get into that in a proactive way. I don't see 09:11 18 it happening. And I'm glad that you have said now 09:11 19 that you think most of those items you brought up are 09:11 20 legislative. I share in that view. I think the 09:11 21 Commission is aware of the declining market in bingo. 09:11 22 I feel like where the staff comes forward with issues 09:11 23 and makes recommendations and where we have the 09:11 24 recommendation of the Sunset staff, we can deal with 09:11 25 those as a commission. But I think it's up to you to 09:11 34 1 work on your agenda in the venue that you've 09:11 2 identified, and I think you're on the right track 09:11 3 there. I just wanted to respond to your comment 09:11 4 because that's sort of where I am in the process. 09:11 5 MR. FENOGLIO: Understood. Thank you. 09:12 6 CHAIRMAN CLOWE: Thank you. Mr. Steve 09:12 7 Bresnen, representing the bingo interest -- a Bingo 09:12 8 Interest Group. Good morning, sir. 09:12 9 MR. BRESNEN: Good morning, Mr. 09:12 10 Chairman and Commissioners. I'm Steve Bresnen, on 09:12 11 behalf of the Bingo Interest Group and several 09:12 12 charities out in the Midland area. 09:12 13 The kind of meeting that we've been 09:12 14 having with the staff on these issues is the sort of 09:12 15 thing that I have been pressing for for a couple of 09:12 16 years on the rulemaking end. It's a stakeholder type 09:12 17 of process. Lots of things getting out there. And I 09:12 18 think some of it's been taken, from our perspective, 09:12 19 so I feel good about that part. I'm not going to say 09:12 20 that the devil is in the details because it's already 09:12 21 been said twice. 09:12 22 COMMISSIONER WHITAKER: Three times. 09:12 23 MR. BRESNEN: But -- 09:12 24 CHAIR CLOWE: Easy to say, hard to deal 09:12 25 with. 09:12 35 1 MR. BRESNEN: I do think there are some 09:12 2 really serious issues that need to be thought about 09:13 3 going forward before you select one of the options 09:13 4 that's been laid out. 09:13 5 The Sunset staff recommendation was to 09:13 6 say, you subtract prizes and take 25 percent of the 09:13 7 difference and you can have the 75 percent of the 09:13 8 difference remaining for your expenses. I could 09:13 9 achieve the same result by saying, subtract your 09:13 10 prizes, take 75 percent of the difference for 09:13 11 expenses, and the rest it's your distribution. So as 09:13 12 a matter of pure math, when we get around to the 09:13 13 expense side of this, if the objective is to drive 09:13 14 distributions by setting expenses in a way that bears 09:13 15 no resemblance to the market or what is reasonable and 09:13 16 necessary, we will have had a bunch of meetings to 09:13 17 come back and meet ourselves coming the other 09:13 18 direction. So I've got a lot of concern about that 09:13 19 approach. 09:13 20 The additional material that the staff 09:13 21 handed out to the Sunset Commissioners, within the 09:13 22 last few days, shows violation, by violation type, the 09:14 23 number of violations that have occurred in each of the 09:14 24 last three years. And there is about 800 categories 09:14 25 of violation types. And in the category of spending 09:14 36 1 money in a way that wasn't reasonable and necessary, 09:14 2 which you have the power to regulate under current 09:14 3 law, there were about 40 to 50 violations per year in 09:14 4 each of the last three years. That represented a 09:14 5 declining percentage of the audits starting out in the 09:14 6 first year in about a third of the audits, and in the 09:14 7 last year, about 20 percent of the audits. So a 09:14 8 reasonable person, it would seem to me, would ask, 09:14 9 what is the problem. 09:14 10 Commissioner, when you visited with us, 09:14 11 and I really appreciate you taking your time, we felt 09:14 12 like -- we felt like we really got to do Bingo 101 09:15 13 that day, and I really appreciate the time you spent 09:15 14 doing that. But we focused a lot on this expense 09:15 15 issue, and what we were each able to come up with was 09:15 16 some anecdotal examples of where people had busted the 09:15 17 curve on expenses. What we couldn't come up with was 09:15 18 an assessment that industry-wide, expenses were too 09:15 19 high. So, you know, how you do that, how you go 09:15 20 about -- I think you have the power under current law, 09:15 21 and there have been some rules in the past that dealt 09:15 22 with one element of expenses or another, but if you 09:15 23 just decide arbitrarily that 50 bucks a session is 09:15 24 about enough to pay somebody who walks around on the 09:15 25 floor and sells pull tabs, or that there is an 09:15 37 1 aggregate limit, then in the hall Mr. Fenoglio 09:15 2 referred to, they wouldn't have been able to increase 09:15 3 the sales staff to push these new products to drive 09:15 4 their revenues up. So you can set that collar in a 09:16 5 way that will, A, achieve the same across the board, 09:16 6 one-size-fits-all approach, and you can do it in a way 09:16 7 that really has no -- makes no business sense. So we 09:16 8 have some trepidation about that. 09:16 9 On the other hand, I have been one to 09:16 10 recognize that there is money built up in bingo 09:16 11 accounts that the industry does not get credit for. 09:16 12 And unless we're going change to a net proceeds 09:16 13 concept, or we're going to stay with this artificial 09:16 14 distribution concept, money is going to cross that 09:16 15 line out of those accounts and into the general fund 09:16 16 account. 09:16 17 Now, there has also been the suggestion 09:16 18 that y'all would define by rule what a charitable 09:16 19 purpose is, or further illuminate the statute. The 09:16 20 statute -- that part of the statute needs to be 09:16 21 scrapped. And if y'all just take a little time 09:16 22 between now and the 23rd and read that, if you can 09:16 23 figure out -- it actually says that the benefit has to 09:16 24 be to an indeterminate number of people. I have no 09:16 25 idea what that means, and I'll challenge y'all to 09:17 38 1 figure it out. Unless it means that you can't give 09:17 2 out a scholarship to a given high school student, 09:17 3 that's a determinant number of people. If I decide 09:17 4 I'm giving five scholarships out, that's a determinate 09:17 5 number of people. It's ridiculous. These charities 09:17 6 ought to be free to give their money out, consistent 09:17 7 with their tax exempt status. There are certain 09:17 8 things they can do with their money and maintain their 09:17 9 tax exempt status under federal law. They know what 09:17 10 those rules are. It's a common body of law and y'all 09:17 11 can implement them. So I would add to the list of 09:17 12 things relative to issue 4.2 that you consider 09:17 13 broadening that to where we're all on the same page. 09:17 14 And I'm not going to say finally, 09:17 15 because I've made that mistake before. We also 09:17 16 brought forward the concept of a revenue share. I 09:17 17 would like to get that on the table for you. And all 09:17 18 that means is that everybody in the hall operates out 09:18 19 of the same pot. Right now, if you have seven 09:18 20 charities in a hall, you have to spend -- you have to 09:18 21 write seven checks to the person who sells the product 09:18 22 on the floor. You have to write seven checks to the 09:18 23 lessor. Seven utility checks, if you're paying your 09:18 24 utilities separately. They file seven reports with 09:18 25 y'all. Y'all audit seven sets of books. You may go 09:18 39 1 out there seven times a year. So there are other -- 09:18 2 and the point -- how that ties to issue number four 09:18 3 is, issue four is predicated on the idea that a whole 09:18 4 bunch of people are not required to make a 09:18 5 distribution. But if they revenue shared, all of 09:18 6 those people would be required to make a distribution, 09:18 7 because the strong ones pull the weak ones up. So I 09:18 8 would like to tie that in. I would like for y'all to 09:18 9 consider tying that in. 09:18 10 On the commercial lessor issue, we 09:18 11 think the charities ought to able to be commercial 09:18 12 lessors, they ought to be able to charge as much as 09:18 13 grandfathered lessors. We think that we agree with 09:18 14 the staff that the tiered structure is goofy at best. 09:18 15 There just needs to be one entity at the end of the 09:19 16 chain that's had the criminal background check, that's 09:19 17 paying the same license fees, so everybody is on a 09:19 18 competitive basis. After that, turn them loose. 09:19 19 Transferability? We don't think you ought to be 09:19 20 creating additional for-profit lessors. I think the 09:19 21 legislature has been very clear on that. And, 09:19 22 frankly, we don't need a whole lot more bingo halls to 09:19 23 begin with in a declining environment. But we do 09:19 24 think that the grandfathered lessor has an interest in 09:19 25 a business that's been built up over the years. 09:19 40 1 They've played by the rules and they ought to be able 09:19 2 to maintain that interest and they ought to be able to 09:19 3 transfer those licenses as long as they're in 09:19 4 compliance with the law and whoever they would 09:19 5 transfer them to would be as well. 09:19 6 I look forward -- and I appreciate the 09:19 7 opportunity, next week, to go into greater detail and 09:19 8 have some more folks down here to talk about these 09:19 9 various aspects. And thanks for giving us that 09:19 10 opportunity to do that. I want to thank the staff. 09:19 11 Again, we've had a -- a very forthcoming and candid 09:20 12 set of transfers of information, and I think it's been 09:20 13 good. Thank you. 09:20 14 CHAIRMAN CLOWE: Steve, I think 09:20 15 Commissioner Cox has a question. 09:20 16 COMMISSIONER COX: Steve, the points 09:20 17 you raised about the charitable purpose. 09:20 18 MR. BRESNEN: Yes, sir. 19 COMMISSIONER COX: And what was the one 09:20 20 you raised right after that? 09:20 21 MR. BRESNEN: Well, it's hard to 09:20 22 remember -- in a way, I think it's hard to remember 09:20 23 sequence. Well, the point is that my -- the point I 09:20 24 was trying to make is, if you're driving expenses on 09:20 25 the one side and in some detail, and you're driving 09:20 41 1 this charitable purpose on the other side in some 09:20 2 detail, pretty soon you're running the joint. And I 09:20 3 don't think we need to be doing that. I was talking 09:20 4 about the revenue share, I think, what may have come 09:20 5 next. 09:20 6 COMMISSIONER COX: Well, the -- on 09:21 7 the -- I'm drawing a blank. Excuse me. 09:21 8 CHAIRMAN CLOWE: You're not old enough 09:21 9 for this, you know. You've got to be my age before 09:21 10 you can start doing this. 09:21 11 COMMISSIONER COX: What were we talking 09:21 12 about Steve? Help me. 09:21 13 MR. BRESNEN: Well, the several points 09:21 14 were, you know, how do you address this expense issue. 09:21 15 I'm understanding -- 09:21 16 COMMISSIONER COX: Okay. Charitable 09:21 17 purpose. Let's talk about the charitable purpose. 09:21 18 MR. BRESNEN: Yes, sir. 19 COMMISSIONER COX: I understand what 09:21 20 you're talking about, and we talked at some length 09:21 21 when we met with you and Billy and Stephen about that. 09:21 22 Is that on the table from the Sunset point of view? 09:21 23 MR. BRESNEN: Yes, sir. It's item 4.2, 09:21 24 says that y'all should define by rule what is an 09:21 25 acceptable charitable purpose. And my point is this: 09:22 42 1 Under the existing statute, in responding to that, 09:22 2 what I would suggest your recommendation be is that 09:22 3 the statute be rewritten to provide that -- that the 09:22 4 charitable purpose is whatever is consistent with 09:22 5 your -- whatever -- C whatever you're exempt for, 09:22 6 under the Internal Revenue Code. Because the 09:22 7 current -- you get into defining -- trying to define 09:22 8 what the current statute means? Good luck. 09:22 9 CHAIRMAN CLOWE: And I think our 09:22 10 practice is, we don't give opinions, so that's -- put 09:22 11 this issue in sort of an undefined category. Isn't 09:22 12 that part of the problem that's come up? 09:22 13 MR. BRESNEN: Yes, sir. It's -- 09:22 14 CHAIRMAN CLOWE: You don't know if you 09:22 15 can, and you don't know if you can't until you get 09:22 16 audited. 09:22 17 MR. BRESNEN: That's right. And 09:22 18 everybody is -- these people in these charities, for 09:22 19 many years, for some of them a couple of hundred 09:22 20 years, have been compliant with the Tax Code and its 09:22 21 variations. And if you say, for example -- I mean, 09:23 22 one of the big contentious issues is convention 09:23 23 expenses. Can you go to the national -- can you spend 09:23 24 your charitable proceeds for a veterans group to go to 09:23 25 its national convention or to go to lay a tomb at 09:23 43 1 the -- a wreath at the Tomb of the Unknown Soldier. 09:23 2 Those are just examples. I believe you can do that. 09:23 3 Now, I may be wrong about that. But one thing is, it 09:23 4 would be decided. It is known. And those things are 09:23 5 policed under a common body of law, and the current 09:23 6 statute is a morass and you're never going to be able 09:23 7 to straighten that out. It gives you no guidance. 09:23 8 You can decide by rule whether you can pay convention 09:23 9 expenses or, you know, have dinner at Shoney's for 09:23 10 your board meeting, but you're just going to get 09:23 11 sucked further and further into the day-to-day 09:23 12 operation of the charities. And it's not -- I don't 09:23 13 believe -- it's an inappropriate role for government 09:23 14 to begin with. And it's a -- it's a -- it's a 09:24 15 function you are never going to get to the bottom of. 09:24 16 COMMISSIONER COX: Thank you. 09:24 17 MR. ATKINS: Let me, Commissioner Cox, 09:24 18 clarify one thing. 4.2, there is a definition in the 09:24 19 Act for those charitable purposes. And the 09:24 20 recommendation of 4.2 isn't that we define charitable 09:24 21 purposes, but clarify that definition. 09:24 22 MR. BRESNEN: I understand. You 09:24 23 have -- you don't have to do it based on the statute. 09:24 24 Any rule you adopt has to be consistent with or 09:24 25 illuminating an existing statute. So where it's 09:24 44 1 things are more -- are undefined or vague, the current 09:24 2 statute is -- doesn't help you. 09:24 3 COMMISSIONER COX: And that goes to my 09:24 4 point. Are you asking that we work to change the 09:24 5 statute or that we do everything we can within 09:24 6 rulemaking? 09:24 7 MR. BRESNEN: I'm asking you to respond 09:24 8 to item 4.2 by saying, rather than the agency 09:24 9 attempting to work with the existing statute and 09:24 10 clarify it, it's an appropriate role for the 09:25 11 legislature to clarify that, and the best way from an 09:25 12 administrative point of view, is to -- and from a 09:25 13 policy point of view, is to do it by allowing people 09:25 14 to operate at the broadest parameters of their tax 09:25 15 exempt status. If it's good enough for the feds, it 09:25 16 ought to be good enough for us. 09:25 17 CHAIRMAN CLOWE: Thank you. And Billy, 09:25 18 I don't have the Sunset staff report in front of me. 09:25 19 What was the recommendation on 4.2? 09:25 20 MR. ATKINS: 4.2 is that the Commission 09:25 21 should clarity the definition of a charitable purpose 09:25 22 and authorized expense. 09:25 23 CHAIRMAN CLOWE: That's -- that's what 09:25 24 we started with as a staff recommendation. 09:25 25 MR. BRESNEN: Yes, sir. And, frankly, 09:25 45 1 on the authorized expense, it's pretty clear. You 09:25 2 know, here is the editorial, advertising, et cetera. 09:25 3 It's highly enumerated. On the charitable purpose 09:25 4 side, it's a much more amorphous concept to begin 09:25 5 with. And just read it. I'll bring you a copy. It's 09:25 6 amazing. So it doesn't seem to me an appropriate role 09:26 7 for a State agency to have to go clarify a statute 09:26 8 that's a -- sorry. I almost got ahead of myself. 09:26 9 That's not workable. So I would recommend that you 09:26 10 ask them to clarify it. Thank you. 09:26 11 CHAIRMAN CLOWE: And we thank you for 09:26 12 your participation in these meetings and your 09:26 13 continued involvement as we come to, hopefully, the 09:26 14 Commission deliberating a recommendation. 09:26 15 MR. BRESNEN: Yes, sir. Thank you. 09:26 16 CHAIRMAN CLOWE: Billy, anything 09:26 17 further on this? 09:26 18 MR. ATKINS: No, sir. 09:26 19 CHAIRMAN CLOWE: I believe there are no 09:26 20 other questions. We will go to item number six, 09:26 21 consideration of and possible discussion on 09:26 22 continuation of the Bingo Advisory Committee. 09:26 23 MR. ATKINS: Again, Mr. Chairman, just 09:26 24 for convenience, do you mind if I move? 09:26 25 CHAIRMAN CLOWE: Go right ahead. 09:26 46 1 MR. ATKINS: Mr. Grief has very 09:27 2 graciously brought us into the 21st century and now I 09:27 3 need to coordinate laying things out a little better. 09:27 4 CHAIRMAN CLOWE: Before you begin. 09:27 5 Phil, it's cold enough in here, wherever you are. You 09:27 6 can turn the air conditioning off. Thank you. 09:27 7 Billy, go ahead. 09:27 8 MR. ATKINS: Yes, sir. You have some 09:27 9 background information in your notebooks, 09:27 10 Commissioners. The reason that this is coming up 09:27 11 before you, and staff is not seeking a recommendation 09:27 12 today. If anything, we would be seeking guidance on 09:27 13 how you would like us to proceed. 09:27 14 Very briefly, Chapter 2110 of the 09:27 15 Government Code requires that agencies with advisory 09:27 16 committees establish a date that those committees will 09:27 17 be abolished, unless the agency specifically, through 09:27 18 rule, continues them. There -- I believe your last 09:28 19 meeting, you voted to publish for publication in the 09:28 20 Texas Register, Charitable Bingo Administrative Rule 09:28 21 402.567, relating to the Bingo Advisory Committee, 09:28 22 containing a number of amendments. So staff believes 09:28 23 that the time is ripe to consider the issue of whether 09:28 24 or not the advisory committee should be continued. 09:28 25 Currently, the abolition date in the advisory 09:28 47 1 committee is, I believe, March 6, 2003. So what we 09:28 2 are preparing to do is gather information that will 09:28 3 allow us, at a future meeting, to make a 09:28 4 recommendation to you regarding the continuation of 09:28 5 the Advisory Committee. And what I wanted to do very 09:28 6 briefly is just lay out to you some of the areas that 09:28 7 we are considering in making our evaluation and see if 09:29 8 there are specific areas that you would also like us 09:29 9 to look to. 09:29 10 First of all, I want you to know that 09:29 11 we are going to look to other jurisdictions that may 09:29 12 have advisory committees and how they operate in those 09:29 13 jurisdictions. We're also going to look to some other 09:29 14 jurisdictions -- not other jurisdictions, but other 09:29 15 state agencies in Texas with advisory committees. 09:29 16 Specifically, the staff of the Sunset Commission, 09:29 17 since they just finished our study, had made their 09:29 18 recommendation to us, they suggested that we look to 09:29 19 the Department of Licensing and Regulation, which has 09:29 20 approximately 11 advisory committees. They felt that 09:29 21 those operated pretty efficiently. 09:29 22 In talking to the Sunset staff as to 09:29 23 why it is that they felt the advisory committees at 09:30 24 the Department of Licensing operated efficiently, they 09:30 25 couldn't really pinpoint one thing, but they thought 09:30 48 1 that there were probably three elements relating to an 09:30 2 effective advisory committee. And that is, one, that 09:30 3 they report directly to the board, which our advisory 09:30 4 committee does. That they have staff support, which 09:30 5 we do. As you know, we coordinate with the chair to 09:30 6 get the meetings scheduled, posted, the facilities 09:30 7 available, notebooks and background information put 09:30 8 together, and staff is available at their meetings to 09:30 9 assist with answering questions, et cetera. But most 09:30 10 importantly, the Sunset staff stated that the really 09:30 11 effective advisory committee has a very specific 09:30 12 purpose in what they do. So what we are doing is 09:30 13 we're going back to the Bingo Enabling Act itself and 09:30 14 the provisions in it that lay out the advisory 09:30 15 committee and the advisory committee's 09:31 16 responsibilities. And there are four kind of broad 09:31 17 areas, and the number one being to advise the 09:31 18 Commission on the needs and problems of the bingo 09:31 19 industry. And so we would suggest as staff that the 09:31 20 advisory committee could be of better service to you 09:31 21 by focusing specifically on the bingo industry and 09:31 22 what could be done to benefit the bingo industry in 09:31 23 real terms before they started looking at maybe other 09:31 24 forms of gaming, et cetera. There have been a number 09:31 25 of proposals that have been floated around, such as 09:31 49 1 progressive bingo games, linked bingo games, different 09:31 2 types of pull tabs. There is emerging technologies. 09:31 3 We think it would be very beneficial for the advisory 09:31 4 committee to study those in detail, for the members of 09:31 5 the committee to have the opportunity to get input 09:31 6 from halls that they either deal with or are in their 09:32 7 local communities that they would bring back to the 09:32 8 table with specific recommendations. We think a 09:32 9 progressive game would be great because, A, B, C, D. 09:32 10 We also think that the advisory 09:32 11 committee should focus on changes that have occurred 09:32 12 in the past and report back to you on those effects. 09:32 13 You know, for example, several years ago, legislation 09:32 14 was changed to increase the prize amount at an 09:32 15 occasion, from 500 dollars to 750 dollars. We think 09:32 16 it would be beneficial if they reported back to you 09:32 17 the effect that that increase had. You know, 09:32 18 Mr. Fenoglio reported that he is aware of some halls 09:32 19 whose pull tabs have increased three-fold. I think 09:32 20 specific information back to the Commission on those 09:32 21 changes would be very beneficial to you as you move 09:32 22 forward and consider other changes to -- to either the 09:32 23 Enabling Act or the rules. 09:32 24 Speaking of rules, that brings me to 09:33 25 their second requirement, which is to advise the 09:33 50 1 Commission on rules during their development and prior 09:33 2 to their adoption. Quite frankly, this has been a 09:33 3 sore point between the advisory committee and the 09:33 4 staff. It seems like most of the times, not all of 09:33 5 the times, but most of the time when the staff comes 09:33 6 forward with a rule, the primary comments that we get 09:33 7 are that it's too long, there are too many pages 09:33 8 associated with this rule, et cetera. Again, I think 09:33 9 it's been demonstrated time and time again that when 09:33 10 we have open discussions on specific elements of the 09:33 11 rules, we get a final product that is both workable 09:33 12 and acceptable to both parties. So we would hope that 09:33 13 as we move forward, we're able to get that type of 09:33 14 meaningful comment on any rules that we could bring 09:33 15 forward. And if there are objections to rules or 09:33 16 language that we have in the rules, you know, 09:34 17 hopefully the advisory committee will submit alternate 09:34 18 language for us to consider. But from a staff 09:34 19 position, we feel that that is where they could really 09:34 20 be beneficial. 09:34 21 The other requirements are that they 09:34 22 report annually to the Commission. They do that in a 09:34 23 forum. We're also, again, going to look to these 09:34 24 other advisory committees and how they report. 09:34 25 And then, finally, is to perform other 09:34 51 1 duties as determined by the Commission. And, again, I 09:34 2 would remind you that our proposed rule does have in 09:34 3 there a requirement that, at least annually, the 09:34 4 advisory committee will report on you -- or will 09:34 5 report to you with specific recommendations on ways to 09:34 6 address areas for improvement. Issues such as gross 09:34 7 receipts, charitable distributions, expenses, and 09:34 8 attendance. 09:34 9 So that is kind of what we've been 09:35 10 looking at so far and the direction that we've been 09:35 11 going. And I guess right now, we would just ask if 09:35 12 that sounds okay to you or if there are other areas 09:35 13 that you would like us to research, also. 09:35 14 COMMISSIONER WHITAKER: It sounds good. 09:35 15 COMMISSIONER COX: It sounds very 09:35 16 thorough. 09:35 17 CHAIRMAN CLOWE: Billy, I would like to 09:35 18 add a comment in addition to what you heard from the 09:35 19 other Commissioners. At this point in time, I am in 09:35 20 favor of continuing the Bingo Advisory Committee. I 09:35 21 am responsive to the Sunset staff's comments and I 09:35 22 think, frankly, some of those can be characterized as 09:35 23 criticisms that have come out of their review. I 09:35 24 think that it's fair to say there is a high level of 09:35 25 participation on behalf of the Bingo Advisory 09:36 52 1 Committee members now, compared to what maybe it had 09:36 2 been in the past. Although I have the longest history 09:36 3 with the BAC, it's not all that long. And I think 09:36 4 that the input from members of the industry to the 09:36 5 Commission is vital to the Commission understanding 09:36 6 the problems of the industry, and to the extent that 09:36 7 they can and wish to deal in a positive way with those 09:36 8 problems. In my personal opinion, the industry is 09:36 9 very fragmented. It does not speak at the BAC 09:36 10 meetings or to the Commission with some unity about 09:36 11 the problems the industry faces. And I would hope the 09:36 12 BAC can continue to be a voice and be more focused in 09:36 13 its representation of not only problems, but proposed 09:37 14 solutions to the industry that would be helpful to the 09:37 15 Commission. I think a program of work and more 09:37 16 direction from the Commission to the BAC is a step in 09:37 17 the right direction. I think that the meetings of the 09:37 18 BAC need to be more orderly and need to be those 09:37 19 agenda items that are published, and I think the 09:37 20 practice needs to be to stay with the agenda. And I 09:37 21 would hope that giving the members a longer term and 09:37 22 staggered terms, which I think is the recommendation 09:37 23 of Sunset staff, would create perhaps a different 09:37 24 view, a more industry-wide view, and one of longevity 09:38 25 in dealing with problems, rather than maybe bringing 09:38 53 1 some problems which have to do with members' business 09:38 2 experience to the table that oft-times may not be 09:38 3 properly considered at a BAC meeting. 09:38 4 Those are some of my reactions based on 09:38 5 my attendance of meetings, and I hope that is helpful 09:38 6 to you in setting a culture change, maybe is a good 09:38 7 way to deal with it, and I think that's incumbent on 09:38 8 us as Commissioners to help you and help the BAC focus 09:38 9 more on the long term and on positive changes. 09:38 10 And another recommendation of the staff 09:38 11 is that this Commission be enlarged from three to five 09:38 12 members. If that were done, possibly you could have 09:38 13 more attendance at Commission -- or of Commissioners 09:38 14 at BAC meetings and you could have a higher level of 09:39 15 participation, although that would be up to whomever 09:39 16 the Governor appointed and that person's background 09:39 17 and their experience with the bingo industry. But I 09:39 18 see some opportunities here, and I would like to keep 09:39 19 that conduit open as much as possible between the 09:39 20 industry and the commission that regulates it. I 09:39 21 would say that not only is it important that 09:39 22 individuals appear and be involved, but for the 09:39 23 representatives of segments of the industry to 09:39 24 continue to be involved and work with the staff where 09:39 25 problems are identified. It's a difficult thing to 09:39 54 1 deal with, but I think it has value as I see it at 09:39 2 this point in time. 09:39 3 MR. ATKINS: And if I could touch 09:39 4 briefly on your comments. I think that several of the 09:39 5 issues that you have raised were issues, as you 09:40 6 pointed out, that the Sunset staff noted in their 09:40 7 report, and that, also, I think are addressed in 09:40 8 the -- in the proposed rule that's out there. The 09:40 9 lengthening of the terms, plus the staggered terms. 09:40 10 In just the review I've done of other advisory 09:40 11 committees so far, that's a common theme, so that they 09:40 12 don't have a sudden turnover of the majority of 09:40 13 members, but they have a sense of continuity and 09:40 14 history that comes with that -- that comes with the 09:40 15 committee. We have, as you know, based on the Sunset 09:40 16 recommendation, an attorney now that attends those 09:40 17 meetings in order to assist the chair, much as you 09:40 18 look to the General Counsel to make sure items that 09:40 19 are discussed are appropriately noticed, et cetera. 09:40 20 And, you know, just so you know, the advisory 09:40 21 committee themselves have addressed some of this. 09:40 22 They've had discussions about the possibility of 09:41 23 formulating their own subcommittees to start looking 09:41 24 in more detail at some of these issues. We haven't 09:41 25 gotten there yet. This culture change that you're 09:41 55 1 talking about, Commissioner Clowe, I think, is -- I 09:41 2 think is on the horizon. I think we're moving there. 09:41 3 And I think that working with those subcommittees and 09:41 4 trying to help them focus their agenda more on issues 09:41 5 beneficial to you as a commission will help them 09:41 6 increase their effectiveness. And we'll work with 09:41 7 them any way we can. 09:41 8 CHAIRMAN CLOWE: And that's not to take 09:41 9 anything away from many of the members who have served 09:41 10 on the committee and have attended many meetings and 09:41 11 done a lot of really productive work. But I think we 09:41 12 need to help that focus sharpen up and, clearly, the 09:41 13 agenda of work could be better defined and the goals 09:42 14 and objectives of the group. And then it's -- it is a 09:42 15 culture change, I think. It's not something that's 09:42 16 going to happen very quickly, but through good 09:42 17 leadership, can develop and grow. And that input from 09:42 18 citizens and members of that industry, I think, is 09:42 19 important to this regulatory body. 09:42 20 MS. KIPLIN: Commissioners, if I could 09:42 21 provide just a little bit of information. The statute 09:42 22 that Mr. Atkins referenced, the section 2110.00(a), 09:42 23 there is a provision that does indicate that the 09:42 24 committee may continue in existence after the date 09:42 25 that's identified in the rule, only if the agency 09:42 56 1 amends the rule to provide for a different abolishment 09:42 2 date. We do have a current proposed rulemaking out on 09:42 3 the Bingo Advisory Committee, so I wanted to have 09:42 4 y'all start thinking about the interplay between your 09:43 5 action, should you decide to continue the Bingo 09:43 6 Advisory Committee, and the rulemaking that's out. 09:43 7 That rulemaking will -- and I counted on my fingers, 09:43 8 so it's kind of roughly -- a rough count, but we've 09:43 9 got six months from the dates proposed before that 09:43 10 rulemaking will expire, and I'm thinking that's going 09:43 11 to be in March. So if y'all decide that you do want 09:43 12 to continue the Bingo Advisory Committee, I would 09:43 13 suggest that we go ahead and make that change in the 09:43 14 rule to whatever date certain in the future. I don't 09:43 15 think that would require republication because I think 09:43 16 it's out there and in -- and would not affect other 09:43 17 people who would not other have been -- have had 09:43 18 notice of the rulemaking. 09:43 19 CHAIRMAN CLOWE: So you're saying you 09:43 20 think that issue is ripe for the deliberation and 09:43 21 action of the Commissioners today at this meeting? 09:43 22 MS. KIPLIN: No. I'm saying, in the 09:43 23 future, I want people to be mindful that we've got a 09:43 24 rulemaking that's out there, and we need to go in 09:43 25 there and make this change, should you decide you want 09:43 57 1 to continue the Bingo Advisory Committee, and there 09:44 2 are two clocks that are ticking right now. One, on 09:44 3 the abolishment of the Bingo Advisory Committee, which 09:44 4 is March 6th, 2003, and one on the rulemaking that 09:44 5 unless it's -- unless y'all take action on it, it will 09:44 6 expire six months from when it was published. So the 09:44 7 timing is pretty good to coincide together, but it 09:44 8 would require an amendment to the proposed rulemaking. 09:44 9 CHAIRMAN CLOWE: Okay. Good. 09:44 10 Billy, timely. Thank you. 09:44 11 Any other comments or questions? 09:44 12 Billy, I think the next agenda item is yours as well. 09:44 13 MR. ATKINS: And also, Commissioners, 09:44 14 just for informational purposes. Ricky Turman, who is 09:44 15 the general public member on the Advisory Committee, 09:44 16 due to professional reasons, has had to submit his 09:44 17 resignation. We have sent out nomination forms. As 09:44 18 your background information in your notebook 09:44 19 indicates, historically, we've had some trouble 09:44 20 getting qualified nominees for this position. What we 09:44 21 have done is, we have mailed a notice to all bingo 09:45 22 locations about the vacancy along with signage that 09:45 23 they can post on their bulletin board, as well as 09:45 24 nomination forms that they can supply to any members 09:45 25 of the general public who may be interested in 09:45 58 1 attending. Additionally, the publishers of the Bingo 09:45 2 Bugle, which is an industry publication that's 09:45 3 distributed largely in bingo halls, has run a notice 09:45 4 in their October issue about the vacancy and provided 09:45 5 information on how organizations can -- or individuals 09:45 6 can obtain a nomination form if they're interested in 09:45 7 serving. 09:45 8 We have received, to date, a total of 09:45 9 two nominations. We've set a cut-off date of October 09:45 10 31st so, hopefully, we will receive more in that time 09:45 11 period. Again, we're not seeking action today, just 09:46 12 letting you know. And we are going to make the 09:46 13 assumption that once we receive the nominations, the 09:46 14 Commission would prefer to follow the process with the 09:46 15 last nomination and share those with the advisory 09:46 16 committee, get their input, and come to you with a 09:46 17 consensus on an individual for a replacement? 09:46 18 CHAIRMAN CLOWE: That's good, Billy. 09:46 19 And are you talking to the members of the BAC about 09:46 20 being proactive in soliciting nominations? 09:46 21 MR. ATKINS: We haven't to date, but we 09:46 22 will. 09:46 23 CHAIRMAN CLOWE: I think that's a good 09:46 24 source to touch. 09:46 25 MR. ATKINS: Okay. Great. 09:46 59 1 CHAIRMAN CLOWE: Thank you. 09:46 2 The next item is number eight, 09:46 3 consideration of and possible action on the 09:46 4 appointment and employment of an Executive Director 09:46 5 and/or the Deputy Executive Director. Jim Richardson. 09:46 6 Good morning, Jim. 09:46 7 MR. RICHARDSON: How are you? 8 For the record, my name is Jim 09:47 9 Richardson. I'm the human resources director. 09:47 10 Commissioners, in your notebook, I have 09:47 11 provided you a list of advertisement options for this 09:47 12 position. I would also like to add to that list three 09:47 13 papers: La Prenza, The Villager, and I'm hoping I'm 09:47 14 pronouncing this right. The Nakoa Observer. Those 09:47 15 are minority publications that I would like to add to 09:47 16 my recommendations. They're in -- to advertise in 09:47 17 those three papers would be about 400 dollars. The 09:47 18 only other recommendations besides the advertisement 09:47 19 that I have is that we should consider posting this 09:47 20 position for a minimum of 30 days. We'll probably 09:47 21 want to go through the end of November to be able to 09:47 22 get in some of the publications like (inaudible), who 09:47 23 runs a monthly publication. And then any applicant 09:48 24 who is allowed to -- or who is going to apply for this 09:48 25 position, we should not let them be involved in any 09:48 60 1 part of the process. So if we have anyone internally 09:48 2 who is going to apply for this position, we should not 09:48 3 include them in any part of the process that we're 09:48 4 having. Okay? Other than that, I just am here for 09:48 5 questions. 09:48 6 CHAIRMAN CLOWE: Okay. Thank you, sir. 09:48 7 Is that all right with you, Commissioner Whitaker? 09:48 8 COMMISSIONER WHITAKER: Absolutely. 9 CHAIRMAN CLOWE: Jim, I have a few 09:48 10 thoughts that I want to mention to you, and if there 09:48 11 is any agreement or disagreement from the 09:48 12 Commissioners, I think this would be a good time to 09:48 13 hear. 09:48 14 My hope is that the Commission will go 09:48 15 forward posting this position, certainly, for 30 days 09:48 16 of the Executive Director's position. Now, my 09:48 17 understanding is the -- the Deputy Executive Director 09:48 18 position is posted now. 09:48 19 MR. RICHARDSON: It is posted and 09:49 20 expires, I believe -- or closes on 10-25. 09:49 21 CHAIRMAN CLOWE: 10-25. How long has 09:49 22 it been posted? 09:49 23 MR. RICHARDSON: I think we posted that 09:49 24 somewhere around the middle of September. 09:49 25 CHAIRMAN CLOWE: So it's been open 60 09:49 61 1 days. 09:49 2 MR. RICHARDSON: 30 days or more -- 09:49 3 CHAIRMAN CLOWE: 30 days. And what is 09:49 4 the rule that if a person applies for both positions, 09:49 5 now that -- if the Commission acts to bring up the 09:49 6 Executive Director position? 09:49 7 MR. RICHARDSON: There wouldn't be any 09:49 8 particular rule that would apply. If the person did 09:49 9 get the Executive Director's position, they would just 09:49 10 bow out of the Deputy Executive position. They could 09:49 11 certainly be considered for either position. 09:49 12 CHAIRMAN CLOWE: If I were a member of 09:49 13 the public or a member of the current employed group 09:49 14 of the Commission, I could apply for both positions 09:49 15 and be considered equally and there wouldn't be any 09:49 16 conflict there? 09:49 17 MR. RICHARDSON: No, sir. 09:50 18 CHAIRMAN CLOWE: Well, I would hope the 09:50 19 Commission would post the Executive Director position 09:50 20 and keep the Deputy Executive Director position open 09:50 21 and consider those equally. 09:50 22 Additionally, I want to thank you for 09:50 23 what you've given us in the way of communication to 09:50 24 the public through media outlets and the cost. How do 09:50 25 we pay for that? 09:50 62 1 MR. RICHARDSON: In the human resources 09:50 2 budget, I have advertisements, included with that, 09:50 3 35,000 dollars a year for advertisement and newspaper 09:50 4 advertisements. 09:50 5 CHAIRMAN CLOWE: And you can cover 09:50 6 that? 09:50 7 MR. RICHARDSON: Yes, sir. 09:50 8 CHAIRMAN CLOWE: My hope is that the 09:50 9 Commission can notify the public and those who might 09:50 10 be interested in this, effectively, and thereby cast a 09:50 11 wide net and draw in the best group of applicants 09:51 12 possible at a reasonable cost. And I think we have to 09:51 13 be realistic about the desire that's probably in place 09:51 14 for as rapid resolution of this search as possible on 09:51 15 the one hand, and on the other, spending reasonable 09:51 16 money to achieve notification to the industry and 09:51 17 others who might be interested, and giving 09:51 18 opportunities to all who might be qualified to make 09:51 19 application for the position. There is a balance 09:51 20 there, and I would hope that the Commission would act 09:51 21 as the search committee, as I see it, and make the 09:51 22 decision -- I believe that's our responsibility, but 09:52 23 that you and the General Counsel would coordinate and 09:52 24 support in the areas that the Commissioners would need 09:52 25 your help, in that we cannot communicate with each 09:52 63 1 other and cannot work together except in a 09:52 2 publicly-noticed meeting to deliberate these choices, 09:52 3 except in executive session, as it is proper. 09:52 4 MS. KIPLIN: Correct. 09:52 5 CHAIRMAN CLOWE: I just throw that out 09:52 6 and give some thoughts that I have, and I think the 09:52 7 public venue is the correct place for us to be 09:52 8 discussing this. And Commissioners, that gives you 09:52 9 something to knock down if you don't like it. 09:52 10 MR. RICHARDSON: If I could clarify one 09:52 11 point real quick. You mentioned, keep open the Deputy 09:52 12 Executive. Now, that position is scheduled to close 09:52 13 on the 25th. We can extend that to say, keep it open 09:52 14 until filled if you want to. Otherwise, what will 09:52 15 happen is, we'll close it on the 25th and only those 09:52 16 applicants who have applied before that date will be 09:53 17 considered. If we don't fill the Executive Director's 09:53 18 position until December or so, that pool could get a 09:53 19 little bit stale. So we may want to, if we're going 09:53 20 to keep it open, change our posting to say, open until 09:53 21 filled. 09:53 22 CHAIRMAN CLOWE: So that's an option? 09:53 23 MR. RICHARDSON: Yes, sir. 09:53 24 CHAIRMAN CLOWE: Okay. That's good to 25 know. 64 1 MS. KIPLIN: Or another option is to 09:53 2 pull it, and then -- at another point in time, once 09:53 3 you have an Executive Director on board, who may want 09:53 4 to revisit the structure of that, re-post it. Those 09:53 5 people who are part of the pool for the Deputy 09:53 6 Executive Director could be transferred into that 09:53 7 other pool and be considered. Of course, as time goes 09:53 8 by, those applicants may have decided to seek 09:53 9 employment elsewhere. 09:53 10 CHAIRMAN CLOWE: How many applicants do 09:53 11 you have now? 09:53 12 MR. RICHARDSON: I believe we've 09:53 13 received 40 or so applications for the Deputy's 09:53 14 position so far. My preference would be the option 09:53 15 that Kim laid out for you, is to pull that posting 09:53 16 down, re-post it once we have the Executive decided, 09:54 17 and then send letters to those persons that have 09:54 18 previously applied for it and say, if you would like 09:54 19 to still be considered, we'll put you in the 09:54 20 application pool. Otherwise, what happens is, we just 09:54 21 collect a lot of applications and it's -- it becomes 09:54 22 kind of stale if the process takes a long time. 09:54 23 CHAIRMAN CLOWE: Well, you know, I 09:54 24 understand your recommendation, but if you do it that 09:54 25 way, you close an option to the Commissioners. 09:54 65 1 MR. RICHARDSON: Certainly. 09:54 2 CHAIRMAN CLOWE: And the Commissioners 09:54 3 might want that option to be open. They may not 09:54 4 exercise it, but they might like for it to be open. 09:54 5 MR. RICHARDSON: Oh, certainly. Well, 09:54 6 then, those are always your options. 09:54 7 CHAIRMAN CLOWE: Did you have a 09:54 8 comment? 09:54 9 COMMISSIONER COX: I'm about a half 09:54 10 step behind you on your last statement. 09:54 11 CHAIRMAN CLOWE: Well, I think that Jim 09:54 12 wants us to focus on the Executive Director's 09:54 13 position, and probably that's our focus for the time 09:55 14 being. But if we take down the Deputy Executive 09:55 15 position, we preclude ourselves from looking at those 09:55 16 people who have made application for that position. 09:55 17 And we cannot deliberate those people or that position 09:55 18 if we take that posting down. And I am the guy that 09:55 19 just likes to keep all my options open, and even 09:55 20 though we might not make a decision through our 09:55 21 deliberations about the Deputy Executive Director, I 09:55 22 like the idea of being able to look at it, see who has 09:55 23 applied, talk about it, and consider whatever we might 09:55 24 want to do. 09:55 25 COMMISSIONER WHITAKER: Then my thought 09:55 66 1 would be to just keep it open until filled. To change 09:55 2 it to that position, and then you keep all your 09:55 3 options open. 09:55 4 CHAIRMAN CLOWE: I think you do. 09:56 5 COMMISSIONER COX: I hear what you say, 09:56 6 and yet, I see our role as hiring the Executive 09:56 7 Director and the Executive Director's role as hiring 09:56 8 the Deputy. And if we don't do what Kim suggests, 09:56 9 then we're putting Gary in the position of hiring 09:56 10 someone to be an assistant for a position that Gary is 09:56 11 in an interim -- is an interim holder of. 09:56 12 CHAIRMAN CLOWE: That's an excellent 09:56 13 point. And I think my response to that is that Gary 09:56 14 is in the position of Acting Executive Director, and 09:56 15 if we close the posting for Deputy Executive Director, 09:56 16 it does not force him to act. He is not under a 09:56 17 mandate to act on that at all, and although that is a 09:56 18 direct report to him, I would hope that he would 09:56 19 discuss that with the Commissioners, in the proper 09:57 20 way, and as we are discussing other items that Gary is 09:57 21 involved in, in the position of Acting Executive 09:57 22 Director, it's a little different than being the 09:57 23 Executive Director. 09:57 24 COMMISSIONER COX: You bet. 09:57 25 CHAIRMAN CLOWE: And I don't have a 09:57 67 1 concern about that communication. 09:57 2 MS. KIPLIN: May I interject? I'm 09:57 3 going to assume, hypothetically, this is a 09:57 4 hypothetical, assume for the sake of discussion that 09:57 5 Mr. Grief decides to apply for the Deputy Executive 09:57 6 Director. Then that would put him in the position, as 09:57 7 the Acting Executive Director, if we went down this 09:57 8 hypothetical, of looking at that pool of candidates. 09:57 9 And it goes back to what Mr. Richardson said, that 09:57 10 people who are going to apply should not be involved 09:57 11 in the process. So I'll lay that out there for you 09:57 12 for your consideration. 09:57 13 The other point that I would like to 09:57 14 make is that there is -- and I agree with what 09:57 15 Commissioner Cox said. If you look at Chapter 467, it 09:57 16 does -- it does indicate that the Commission employs 09:58 17 the Executive Director and then the Executive Director 09:58 18 employs others. However, there is -- there is a 09:58 19 precedent where there was a change in the leadership, 09:58 20 in both of those positions, in 1997. And the 09:58 21 Commission did employ an Executive Director, and also 09:58 22 a Deputy Executive Director. Now, as I recall, the 09:58 23 Executive Director had no objection to that, that 09:58 24 approach, and in fact concurred. But I will say, at 09:58 25 that time there was a change in leadership in both of 09:58 68 1 those positions, and it's my -- my sense that the 09:58 2 Commission wanted to be very cautious and be able to 09:58 3 look at both of those positions. 09:58 4 CHAIRMAN CLOWE: That's helpful. Thank 09:58 5 you. 09:58 6 COMMISSIONER COX: I had a very 09:58 7 practical thought in mind on that. And that is, if I 09:58 8 look -- as I look at this position description for the 09:58 9 Executive Director, I am surprised to find that under 09:58 10 education and experience, it says that executive 09:59 11 management experience in lottery operations is 09:59 12 preferred, not required. So I would hate to see us 09:59 13 find a bright star for the Deputy Executive Director's 09:59 14 position who hasn't lottery experience, which would 09:59 15 then, I think, force us into the position of taking an 09:59 16 Executive Director who does, or vice versa. So I 09:59 17 would like to see the cart, if you will, the ED 09:59 18 position filled before the Deputy position is filled. 09:59 19 MS. KIPLIN: And Commissioners, that's 09:59 20 a point. Ms. Morris is up here as the attorney and 09:59 21 she will be assisting in this process. That's the 09:59 22 point Ms. Morris did want to make, and that's why 09:59 23 she's come forward. And that is, you're looking at a 09:59 24 relatively old job description, and I'm going to turn 09:59 25 it over to her to provide her comments at the 09:59 69 1 appropriate time, if this is the appropriate time. 09:59 2 CHAIRMAN CLOWE: Thank you. 09:59 3 MS. MORRIS: At least in my mind, when 10:00 4 I have looked at this job description in the past, 10:00 5 there have been bullets, if you will, that are not 10:00 6 here. And the practical job duties may need to be 10:00 7 highlighted more than what is in this job description 10:00 8 from 1999. The job has evolved. And I am, 10:00 9 unfortunately, unprepared at this moment to tell you 10:00 10 the sentences or bullets I would add. I can return in 10:00 11 two hours and do that. But I have to say, right now, 10:00 12 I am not. I am concerned, though, to not speak to you 10:00 13 and say, please give me two hours, because I would 10:00 14 come back with some different bullets for you to look 10:00 15 at as far as bringing this job description more in 10:00 16 line with what it may be that you want the job to be 10:00 17 in the future. 10:00 18 CHAIRMAN CLOWE: And, Jim, I think you 10:00 19 had a remark about particularly the education section 10:00 20 of this job description, didn't you? 10:01 21 MR. RICHARDSON: Yes, sir. I would 10:01 22 want to look at that and make sure that we're 10:01 23 consistent with other positions that we've posted in 10:01 24 the agency. 10:01 25 CHAIRMAN CLOWE: So I think you're 10:01 70 1 taking Commissioner Cox's comment very positively, and 10:01 2 you're prepared to deal with that. 10:01 3 MR. RICHARDSON: Yes, sir. 10:01 4 CHAIRMAN CLOWE: Well, any further 10:01 5 discussion? 10:01 6 COMMISSIONER COX: The thought I came 10:01 7 to the meeting with, after looking over your 10:01 8 presentation, your memo, Jim, but not having seen the 10:01 9 position description of the Executive Director, is 10:01 10 that probably -- and I was at the mind set that we 10:01 11 would be looking for someone with heavy lottery 10:01 12 management experience. And I don't know why that 10:01 13 assumption. I just did. And I follow that with the 10:01 14 idea that everybody who is in that position already 10:02 15 knows this position is open. And why would we be 10:02 16 spending thousands of dollars to get the word out to 10:02 17 people who were at NASPL last week who will read the 10:02 18 free publications that you're talking about. But if 10:02 19 it is the case that we want to look broader than that 10:02 20 and look for a qualified executive who may or may not 10:02 21 have lottery experience, then I would understand the 10:02 22 publication budget that you have suggested. 10:02 23 MR. RICHARDSON: And that's primarily 10:02 24 the purpose for the broad search, is that we may find 10:02 25 someone out there who is a CEO or an executive 10:02 71 1 somewhere else, not necessarily in the lottery 10:02 2 industry, that would fit well in our organization. I 10:02 3 think probably our strongest candidates, however, are 10:02 4 going to be come from the lottery industry. And 10:02 5 you're right, they're probably well aware that the 10:02 6 Executive Director's position is vacant. 10:02 7 COMMISSIONER COX: And just to look at 10:03 8 one more detail. The advertising in La Fluer, for 10:03 9 instance, would seem to -- at eleven-fifty a page, 10:03 10 would seem to reach the same people that we -- that 10:03 11 either already know about this or would probably be 10:03 12 reached through the free publications that go to 10:03 13 lottery executives. Just a thought. 10:03 14 MR. RICHARDSON: That's certainly 10:03 15 reasonable, yes, sir. 10:03 16 CHAIRMAN CLOWE: And I think those are 10:03 17 excellent observations. I think it's important that 10:03 18 we not assume that the word is going to get out. And 10:03 19 that would be less than diligent on our part. And by 10:03 20 making these expenditures and having these 10:03 21 publications carry this vacancy information, we are 10:03 22 demonstrating and creating a record, in fact, that we 10:03 23 are reaching out. And if the question is asked, well, 10:03 24 how broad was the search, here is the answer. Now, I 10:04 25 would not be favor of employing a search firm. I 10:04 72 1 think those costs are 30 to 40 percent of the first 10:04 2 year's salary, and in the past I have done that in 10:04 3 searches, and I don't think this Commission would want 10:04 4 to do that at this point in time. 10:04 5 Excuse me, Commissioner Whitaker. 10:04 6 Thinking about, the word is going to 10:04 7 get out through these publications, and I don't think 10:04 8 we're in a position to pay those monies, and I think 10:04 9 we have some -- some built-in situations that we've 10:04 10 got to acknowledge. This position of Executive 10:04 11 Director is capped at 110,000 dollars, and there may 10:04 12 be some cross purposes, if we employed a search firm 10:05 13 and paid these large dollars to go out and found 10:05 14 applicants who might be interested, but for the 10:05 15 limitation we have on a salary, you know, would remove 10:05 16 themselves from the market. I'm trying to think about 10:05 17 prudent use of the dollars that we have. And I hope 10:05 18 I'm making myself clear on striking the balance there 10:05 19 and doing the right thing with the money we spend to 10:05 20 be prudent, diligent, and creating the knowledge to 10:05 21 those who might be qualified, but not unwisely 10:05 22 spending money and time, as a matter of fact, to get 10:05 23 probably not a larger pool of applicants than we're 10:05 24 going to get if we take this way. That's what I have 10:05 25 in my mind. 10:05 73 1 COMMISSIONER WHITAKER: Well, my 10:06 2 attitude is, I'm very comfortable with what Jim has 10:06 3 recommended, partly because of the current job market 10:06 4 environment that we're in, and partly because of the 10:06 5 fact that the Internet, Monster.com and sources like 10:06 6 that, actually have become very credible sources for 10:06 7 job postings. My view is that I think experience in 10:06 8 lottery operations should be preferred but not 10:06 9 required, so that we actually keep our options open. 10:06 10 And as far as the Executive Deputy position, I agree 10:06 11 with your sentiments, Commissioner Cox. That is, I 10:06 12 would think that the preferred order would be, first, 10:06 13 Executive Director, because it would be someone that 10:06 14 that person would need to work with and would have a 10:06 15 lot of -- should have a lot of input, in fact, almost 10:06 16 exclusive input into who that is. But I'm not opposed 10:06 17 to your view, which is, let's go ahead and keep the 10:06 18 posting open if you think that gives you an option you 10:06 19 would rather not let go of. So that's... 10:06 20 CHAIRMAN CLOWE: Well, you know, I 10:07 21 could go either way on it. I just like to have -- I 10:07 22 would like to know who the applicants are in that pool 10:07 23 and be able to deliberate it. And we cannot -- if the 10:07 24 posting is not there, we've got nothing to deliberate. 10:07 25 And I appreciated what Ms. Kiplin said about, there is 10:07 74 1 a precedence that the Commission has looked at both of 10:07 2 those positions in the past. I would like to keep 10:07 3 that option open, but I'm -- I'm not a rock in a hard 10:07 4 place on that. 10:07 5 COMMISSIONER COX: I would never oppose 10:07 6 keeping options open. 10:07 7 CHAIRMAN CLOWE: It's hard to go 10:07 8 against that, isn't it? 10:07 9 MR. RICHARDSON: The other option on 10:07 10 the search firm is that we can look at the pool 10:07 11 towards the end of the posting. If we don't feel like 10:07 12 we have a strong enough pool, then we could go to a 10:07 13 search firm then. 10:07 14 CHAIRMAN CLOWE: That's good. 15 Then, Diane, on your offer. I would 10:07 16 prefer you take a little more time. You know, this is 10:07 17 a serious business and I wouldn't want to put you on a 10:08 18 two-hour time limit. Take your time, do your 10:08 19 homework, work with Jim. You can come back to the 10:08 20 Commissioners individually, we can tell you how we 10:08 21 feel about it, and you can get to the point where you 10:08 22 have got a job description that the Commissioners are 10:08 23 comfortable with. But let's do a good job with this 10:08 24 and not have a time limit, if the Commissioners are 10:08 25 comfortable with that. 10:08 75 1 MR. RICHARDSON: If y'all agree to the 10:08 2 advertisement in La Fluer, we would have to get that 10:08 3 to them by today, so it's reasonable that we could put 10:08 4 together an advertisement that talks mostly about the 10:08 5 education and the experience, minimum qualifications 10:08 6 for the position, and Diane and I could still work on 10:08 7 the job description beyond today. 10:08 8 CHAIRMAN CLOWE: Does that require 10:08 9 action or can the Commissioners just not be bothered 10:08 10 by it? 10:08 11 MS. KIPLIN: I think the direction that 10:08 12 you're giving is sufficient. 10:08 13 CHAIRMAN CLOWE: And when I say "not be 10:08 14 bothered," I mean they don't have any opposition to 10:08 15 it. 10:08 16 MS. KIPLIN: That's exactly how I took 10:09 17 that. 10:09 18 CHAIRMAN CLOWE: Okay. 10:09 19 So, Jim, I think you've got some 10:09 20 indication of the direction the Commissioners wanted 10:09 21 you to go in. And I think that you heard that we'd 10:09 22 just as soon leave that deputy position until the 25th 10:09 23 of this month and let it close and the Commissioners 10:09 24 can look at who the applicant are there. Not saying 10:09 25 that we're going to do anything about it or not 10:09 76 1 putting any direction on Gary's shoulders to do 10:09 2 anything about it. 10:09 3 MR. RICHARDSON: And he's not required 10:09 4 by any rules or statutory to act on it now. We fill 10:09 5 positions when it's in our best interests. 10:09 6 CHAIRMAN CLOWE: And while we're 10:09 7 talking about that, I might make this comment. And I 10:09 8 think I can say this as reflective of the other 10:09 9 commissioners. Gary has stepped up and performed in 10:09 10 an exemplary manner in the short time that he has held 10:09 11 the position of Acting Executive Director. I have 10:09 12 attended a number of meetings with him as well as I 10:10 13 think the other Commissioners, and we're very pleased 10:10 14 with the role that you have assumed, Gary, and the 10:10 15 things that you are doing in your role as Acting 10:10 16 Executive Director. 10:10 17 MR. GRIEF: I really appreciate those 10:10 18 comments. Thank you, Mr. Chairman. 10:10 19 CHAIRMAN CLOWE: Anything further? 10:10 20 MR. RICHARDSON: No, sir. 10:10 21 CHAIRMAN CLOWE: Thank you both very 10:10 22 much. 10:10 23 May we just take a short break at this 10:10 24 time and give the reporter an opportunity to catch her 10:10 25 breadth. We'll come back to session as quickly as 10:10 77 1 possible. Five minutes. 10:10 2 (RECESS.) 10:21 3 CHAIRMAN CLOWE: We're now ready to 10:21 4 consider item number nine, report, possible discussion 10:21 5 and/or action on the Lotto Texas on line game. Gary. 10:21 6 MR. GRIEF: Thank you, Mr. Chairman. I 10:21 7 just had a couple of brief comments to make regarding 10:21 8 the Lotto Texas game. As you know, on October 4th, I 10:21 9 decided that the beginning level jackpot for the Lotto 10:21 10 Texas game should continue to remain at four million 10:21 11 dollars until I had an opportunity to further study 10:21 12 that issue. And based on the information that has 10:21 13 been presented to me thus far, it appears that was the 10:21 14 appropriate decision. I want to assure the 10:21 15 Commissioners that our agency will continue to be able 10:21 16 to meet our prize payment obligations. And taking a 10:21 17 longer-term approach, I'm continuing to seek out more 10:21 18 information on this issue. I'm trying to use all of 10:21 19 the resources available to me, both in the public 10:21 20 sector and in the private sector, concerning other 10:21 21 aspects of the Lotto Texas game, including, but not 10:21 22 limited to, the matrix and the prize reserve fund. 10:21 23 At the Commission meeting in November, 10:21 24 I plan on asking agency staff to provide the 10:21 25 Commissioners with a comprehensive overview of all of 10:21 78 1 this information and analysis that we have done. And 10:21 2 I look forward to that opportunity for the 10:21 3 Commissioners to see that. That's all I have to 10:21 4 report on that issue. 10:21 5 CHAIRMAN CLOWE: Thank you, Gary. Any 10:22 6 questions? Comment? 10:22 7 COMMISSIONER WHITAKER: I have no 10:22 8 questions. I do appreciate you jumping on this as 10:22 9 quickly as you have. So I look forward to your full 10:22 10 report. 10:22 11 CHAIRMAN CLOWE: Thank you. And next, 10:22 12 item ten, report, possible discussion and/or action on 10:22 13 the agency's demographic study of lottery players. 10:22 14 Toni Smith. 10:22 15 MS. SMITH: Commissioners. In 10:22 16 accordance with Section 466.021 of the Texas 10:22 17 Government Code, the Texas Lottery employs an 10:22 18 independent term experienced in demographic analysis 10:22 19 to conduct a demographic study of the Lottery players. 10:22 20 This bi-annual demographic study is currently in 10:22 21 field. The University of Texas School of 10:22 22 Communication is using the phone survey method to 10:22 23 collect the required 1700 responses. The data 10:22 24 collection will be completed by the end of October, 10:22 25 and the final report will be prepared mid-December, 10:22 79 1 which is within our required time lines. So we're on 10:22 2 track. 10:23 3 MS. KIPLIN: Commission, the time line, 10:23 4 just to make sure you know, is that the report -- it's 10:23 5 actually the Executive Director who files it and 10:23 6 submits it. It's due to the Commission, the Governor, 10:23 7 and the legislature before the convening of the 10:23 8 regular legislative session. 10:23 9 CHAIRMAN CLOWE: Any questions or 10:23 10 comments? Thank you, Toni. 10:23 11 Next, item 11, report, possible 10:23 12 discussion and/or action on the HUB Mentor Protege 10:23 13 Program. Robert Hall. Good morning, Robert. 10:23 14 MR. HALL: Good morning, Chairman 10:23 15 Clowe, Commissioners. 10:23 16 Pursuant to the Commissioners' request 10:23 17 at the previous meeting of the Texas -- regarding the 10:23 18 Texas Lottery Commission's Mentor Protege Program, you 10:23 19 requested an update regarding the status, and also the 10:23 20 relationships that we have developed with several 10:23 21 mentors, and also proteges. We have invited today for 10:23 22 your comment, questions and answers, et cetera, Gtech 10:23 23 Corporation as a mentor, Just Off the Square Printing 10:23 24 as their protege, Scientific Games International, and 10:24 25 4D Productions as their protege. And we've asked them 10:24 80 1 to come and give you a presentation on how the 10:24 2 mentor/protege relationships are going. Each of these 10:24 3 mentor/protege pairs have been in a relationship for 10:24 4 at least six months, and we've also had our quarterly 10:24 5 meeting with them prior to this meeting, which was 10:24 6 scheduled the second week upcoming. I've also invited 10:24 7 Joyce Bertolacini, who also works with me in minority 10:24 8 development services, who is the minority development 10:24 9 services coordinator. And Joyce has been assisting 10:24 10 with the monitoring of the mentor/protege 10:24 11 relationships and has coordinated all the meetings and 10:24 12 also correspondence back and forth, making sure 10:24 13 everyone is successful. 10:24 14 So at this time -- we'll come back and 10:24 15 answer any questions that you may have after the 10:24 16 testimony of two mentor/protege pairs. And we'll ask, 10:24 17 in order, Gtech to go first with Just Off the Square 10:24 18 Printing, and Scientific Games to come forward with 10:24 19 4D Productions. 10:25 20 CHAIRMAN CLOWE: Very good. Good 10:25 21 morning. 10:25 22 MR. RIVERA: Good morning, 23 Commissioners. I am Ramon Rivera, the assistant 10:25 24 general manager for Gtech Corporation. 10:25 25 MS. CHAPMAN: And I'm Kelly Chapman. 10:25 81 1 I'm co-owner of Just Off the Square Printing. 10:25 2 MR. RIVERA: And? 10:25 3 MS. CHAPMAN: Oh, and S&K Cleaning 10:25 4 Services. 10:25 5 MR. RIVERA: Commissioners, we 10:25 6 appreciate this opportunity to give you a progress 10:25 7 report on our mentor/protege program. Gtech has two. 10:25 8 DS-3 Computing Solutions in Dallas, and Just Off the 10:25 9 Square Printing here in Lockhart. It was more 10:25 10 convenient for Kelly to appear before you this morning 10:25 11 to answer any of your questions. Before you -- before 10:25 12 I get into the progress report, I think it's important 10:25 13 for the Commission to recognize that the -- the type 10:26 14 of person and business that this program is helping. 10:26 15 And I would like to take a little freedom to give you 10:26 16 a brief resume on Kelly and her accomplishments and 10:26 17 how she got to where she got as a small business 10:26 18 person. About ten years ago -- 12 years ago, 10:26 19 actually, Kelly found herself working as a -- an 10:26 20 officer for the Travis County Sheriff's Department. 10:26 21 She found that she had some spare time on her hands, 10:26 22 and decided to go into business with another person, 10:26 23 basically, doing commercial cleaning. In about 1993, 10:26 24 she decided that she wanted to take a -- take an 10:26 25 opportunity and go into the world of free enterprise. 10:26 82 1 She turned in her badge and her gun, bought out her 10:27 2 partner, and opened something called S&K Cleaning 10:27 3 Services, which was commercial cleaning. 10:27 4 She set about increasing that business, 10:27 5 and in about 1995, found that she still had some spare 10:27 6 time on her hands, and went out and, with her own 10:27 7 money, bought a -- a used copier, found a fax machine 10:27 8 somewhere, found some mailboxes, rented a small space 10:27 9 in Lockhart, Texas, and opened a business called More 10:27 10 Than Mail. And basically, this was a -- a business 10:27 11 where she rented mailboxes, did copying, did faxes, a 10:27 12 business services organization. Tough first year. 10:27 13 Not many customers. But she persevered. And about 10:27 14 1998, she found that her business had grown 10:27 15 sufficiently that she had to -- she had to move. So 10:28 16 she moved to a -- to a larger facility, found that she 10:28 17 liked the larger facility and decided to buy the 10:28 18 building. So you can see the rapid growth that Kelly 10:28 19 had encountered. 10:28 20 About a year ago, she found she still 10:28 21 had more time on her hands, and decided to go into the 10:28 22 printing business. Full scale printing, full color. 10:28 23 And this was the first time, by the way, that it 10:28 24 required a large capital investment. So that's where 10:28 25 she is today. Now, along the way, with all of this, 10:28 83 1 she found time to become a real estate agent, she 10:28 2 found time to register for and complete courses at 10:28 3 Southwest Texas University, and more importantly, she 10:28 4 found time to get married and start a family. The 10:28 5 last time you saw Kelly, she was a little bit larger 10:28 6 than she is today. And in May, she gave birth to 10:29 7 Weston, six pounds, ten ounces, who today is five 10:29 8 months old. So this is the kind of person that the 10:29 9 mentor/protege program helps. 10:29 10 One of the things that we -- as we 10:29 11 looked at Kelly's resume and as we sat with her to 10:29 12 determine what her needs were, and dare I say it, one 10:29 13 of the things that she needed help with was finding 10:29 14 the devil in the detail, for the fourth time. 10:29 15 COMMISSIONER WHITAKER: Fifth time. 10:29 16 MR. RIVERA: She was growing her 10:29 17 business quite rapidly. She had lots of things going 10:29 18 on. She handled multiple product lines. She had a 10:29 19 cleaning business on the side. And her bookkeeping 10:29 20 was not quite to where it should be. Now, this was 10:29 21 very important, because she was now -- she had now 10:29 22 gone into a business that required very, very strong 10:30 23 cost reporting. And concurrently with the time that 10:30 24 she went into the printing business, the software that 10:30 25 she was using for her bookkeeping basically 10:30 84 1 disappeared from the face of the map. So now she was 10:30 2 going to be required to go into a brand new software 10:30 3 system, so she had to make that transition and try to 10:30 4 learn all of the nuances of a new software package. 10:30 5 So early on, we determined that one of the first 10:30 6 things that we needed to do with Kelly was to look at 10:30 7 her business practices, look at her accounting 10:30 8 practices, determine what her cost structure was, so 10:30 9 that going -- on a go-forward basis, and we're certain 10:30 10 that she's going to grow this business to a fairly 10:30 11 substantial size, that as she was bringing in new 10:30 12 business, she knew exactly how much revenue she was 10:30 13 going to generate, what her costs were. 10:30 14 So the first thing that we did, and we 10:31 15 employed our finance manager, Joe Lipinski, to sit 10:31 16 with -- visit Ms. Chapman's store on several 10:31 17 occasions, basically, to understand her accounting 10:31 18 systems, to help her set up her accounts on the new 10:31 19 system, and actually describe to her the nuances now 10:31 20 of having depreciating assets and how to handle those. 10:31 21 We've pretty much got our arms around that today. And 10:31 22 our next step for Ms. Chapman is to look at her cost 10:31 23 structure, start looking at fixed and variable costs, 10:31 24 and start looking at, going forward, what her costing 10:31 25 model should be as she goes out and continues to grow 10:31 85 1 her business. 10:31 2 We accomplished this through weekly 10:31 3 meetings, either face to face or by telephone. Or 10:31 4 whenever there is a circumstance, and there have been 10:31 5 a couple of circumstances where Ms. Chapman has 10:32 6 decided to look at the valuation of her business or 10:32 7 where she was considering a joint venture with another 10:32 8 business, where we were able to help her. So in that 10:32 9 regard, we are very pleased to be associated with 10:32 10 Ms. Chapman and a person of her caliber and energy. 10:32 11 And we believe that the mentor/protege program is a 10:32 12 very welcome addition to the Texas Lottery Commission. 10:32 13 And I believe you should be very proud of the progress 10:32 14 that has been made in that regard. 10:32 15 COMMISSIONER WHITAKER: Kelly, how is 10:32 16 it going? Do you have extra time? 10:32 17 MS. CHAPMAN: Right. I don't know if 10:32 18 any of you have ever started your own business, but 10:32 19 when I first started, I thought all it took was work 10:32 20 ethics. I didn't realize all the paperwork that was 10:32 21 involved and all of the reports you have to file. I 10:32 22 would not be in business today had it not been for 10:32 23 Gtech. They have helped me tremendously. We've 10:32 24 butted heads a couple of times. But they've helped me 10:33 25 to understand the book side, the sales and marketing 10:33 86 1 side, and when you're a small business, you have to 10:33 2 know every aspect. So they have really helped me 10:33 3 bringing in all their team. 10:33 4 COMMISSIONER WHITAKER: Those are 10:33 5 awfully nice words, and we wish you the very best. 10:33 6 Thank you, Ramon. Larry. 10:33 7 CHAIRMAN CLOWE: Thank you both. 10:33 8 MR. WILLIAMS: Commissioner, my name is 10:33 9 Ron Williams. I'm the accounts manager Texas for 10:33 10 Scientific Games. We are terribly pleased and excited 10:33 11 to be part of the mentor/protege program established 10:33 12 by the Texas Lottery Commission. I've been working 10:33 13 with Dan and Mary Lou Lugo from 4D Productions as part 10:33 14 of the mentor/protege program. Dan and Mary Lou have 10:33 15 a printing operation, as well. And one of the things 10:33 16 that we wanted to do through our initial discussions 10:33 17 was to help Dan and Mary Lou grow their business from 10:34 18 some of the small work that they've been involved with 10:34 19 over the past several years, to what is very close to 10:34 20 now being an independent and full-functioning 10:34 21 operation that Daniel and Mary Lou are going to be 10:34 22 able to do very shortly. We've been meeting with Dan 10:34 23 and Mary Lou weekly, either via telephone or in 10:34 24 person. We talked to them at length about how to get 10:34 25 the word out about their expansion and their growing 10:34 87 1 business. Provided some feedback with regard to some 10:34 2 brochures that they've put together, and have talked 10:34 3 to them about pulling in more business, both off the 10:34 4 CNBL and in other ways, and are -- right now, we're in 10:34 5 discussions about the opening of their new shop and, 10:35 6 in fact, in a meeting yesterday, we were talking about 10:35 7 an open house and how to get the right sort of folks 10:35 8 in for that when the time comes for that operation. 10:35 9 As of yet, Dan and I have not butted 10:35 10 heads. I would hate for that to happen. I think I 10:35 11 would come out on the short end of that stick. But 10:35 12 our relationship has flourished. I think I have 10:35 13 benefited personally from this relationship. I've 10:35 14 learned a lot about small business, and I have a lot 10:35 15 of respect for anyone in -- that's gone out to start 10:35 16 their own business, entrepreneurs of all types. And 10:35 17 Dan and Mary Lou are wonderful Austinites who have 10:35 18 introduced me to great restaurants, in addition to 10:35 19 everything else. We are very pleased with the 10:35 20 relationship. 10:36 21 And I really must commend Robert Hall 10:36 22 and Joyce Bertolacini, as well. Their oversight, 10:36 23 follow through, and just monitoring of the program has 10:36 24 been exemplary. 10:36 25 CHAIRMAN CLOWE: Great. That's good 10:36 88 1 news. 10:36 2 COMMISSIONER WHITAKER: Dan, I would 10:36 3 love to hear from you. 10:36 4 MR. CONTRERAS: Well, Ron has said all 10:36 5 the right things. You know, I've showed him around 10:36 6 Austin. We eat good. We have a good time. But first 10:36 7 of all, I would like to thank the Lottery Commission 10:36 8 for allowing 4D Productions to participate in the 10:36 9 mentor/protege program. And special thanks to Robert 10:36 10 Hall and Joyce Bertolacini for their unselfish help 10:36 11 and guidance in starting this new program. We're very 10:36 12 excited to be participants in this program. This 10:36 13 program, combined with many hours of help and ideas 10:36 14 from our mentor, Ron Williams, has been very helpful 10:36 15 to us. It's nice to have a sounding board and to be 10:37 16 able to throw up some ideas and be able to debate them 10:37 17 a little bit. You know, normally I would win, but it 10:37 18 was okay. That's why we debate. 10:37 19 One of the things that -- this has 10:37 20 allowed 4D Productions, we are a printing company, 10:37 21 it's allowed us to be able to look into the future 10:37 22 and, most importantly, to plan for the future. And 10:37 23 Ron has been very instrumental in helping us get to 10:37 24 that aspect. You are right, it is a lot of hard work. 10:37 25 I've been in the printing business for 25 years. 10:37 89 1 Fortunately, I've done well with it, and we're 10:37 2 continuing to grow forth and to move forward. Being a 10:37 3 small business owner and trying to develop new growth 10:37 4 in these tough economic times is a pretty big 10:37 5 challenge. And we just want to be very appreciative 10:38 6 of the help that the mentor/protege program has 10:38 7 offered to us. And I would like to say thanks to Ron. 10:38 8 And our future -- our goals for the 10:38 9 future is that we continue to participate in this 10:38 10 program, and what we would like to do is, only the 10:38 11 next time we do participate, if we could be a mentor. 10:38 12 CHAIRMAN CLOWE: You bet. 10:38 13 MR. LUGO: We would like to give back 10:38 14 for what we have been very fortunate to receive, so 10:38 15 we're very excited and very grateful. Thank you. 10:38 16 CHAIRMAN CLOWE: That's great. 10:38 17 COMMISSIONER WHITAKER: What a nice 10:38 18 report. 10:38 19 MR. LUGO: Thank you very much. 10:38 20 CHAIRMAN CLOWE: This is the essence of 10:38 21 this program. And as you can see, the Commission is 10:38 22 greatly committed to it. And this is the key to 10:38 23 success in business in any place, but especially in 10:38 24 Texas. And we're very happy that you all are here to 10:38 25 give us, as Commissioner Whitaker says, a great 10:39 90 1 report. Thank you all very much. 10:39 2 Were those the two companies as 10:39 3 mentors, Robert, that you had? No others? 10:39 4 MR. HALL: That's all that we have 10:39 5 today for you. 10:39 6 CHAIRMAN CLOWE: So then, we've 10:39 7 concluded that item. And would you like to go on now 10:39 8 to item 12? 10:39 9 MR. HALL: Yes, I would. 10:39 10 Commissioners, for the record, my name is Robert Hall, 10:39 11 director of minority development services. And 10:39 12 minority development services is forwarding you an 10:39 13 update regarding the Texas Building and Procurement 10:39 14 Commission's HUB rules, formerly the General Services 10:39 15 Commission, as it relates to subcontracts. The 10:39 16 purpose of this update is to keep you apprised of the 10:39 17 proposed changes and how it would impact our 10:39 18 procurements here with the Lottery Commission. This 10:39 19 update does not require any official action, but is 10:39 20 only for potential discussion, and also consideration. 10:39 21 In order to keep everyone apprised, we 10:40 22 have -- minority development services has kept all of 10:40 23 our division directors apprised of the changes 10:40 24 regarding the HUB rule. And as a result of that, we 10:40 25 as directors, through our Acting Executive Director, 10:40 91 1 agreed to invite the Texas Building Procurement 10:40 2 Commission to one of our division directors meetings, 10:40 3 and to give an opportunity for us to have dialogue and 10:40 4 also feedback regarding the rules. 10:40 5 In your packet I have three things. 10:40 6 One is a cover letter from myself, a copy of the 10:40 7 letter that was sent to Mr. Wade Morales, the 10:40 8 executive director of the Texas Building Procurement 10:40 9 Commission, from Mr. Grief, regarding their 10:40 10 participation in one of our division directors' 10:40 11 meetings. And also, our concern about the training 10:40 12 aspect consistently for all agencies to adhere to this 10:40 13 requirement -- the new requirement to ensure it is 10:40 14 consistently done according to all agencies. And then 10:40 15 the next thing would be the proposed change to the 10:40 16 rule. And then, lastly, an analysis that was put 10:41 17 together by minority development services for your 10:41 18 review. We believe this change will impact most of 10:41 19 the agencies. And I want to highlight some of the 10:41 20 changes for you, if I may, prior to you asking any 10:41 21 questions about those changes. 10:41 22 One of changes it requires under the 10:41 23 current provision of the rule is, in order for a 10:41 24 vendor who is planning -- let me back up and say, 10:41 25 first of all, an entity, any vendor or respondent, if 10:41 92 1 you will, that is planning to bid on any contract with 10:41 2 any State agency with an estimated value of 100,000 10:41 3 dollars is required to -- the agency is required to 10:41 4 determine the probability for subcontracting first. 10:41 5 And when we do that, we must state that probability in 10:41 6 the contract. A vendor or respondent has two options 10:41 7 at that point. Either to -- currently has two 10:41 8 options, either to subcontract a portion of the work 10:41 9 if they want to, or to perform all of the work 10:41 10 in-house, with their own resources and own employees. 10:42 11 At a hearing of the Joint Select 10:42 12 Committee Hearing that was held by several key 10:42 13 legislators, it was pointed out that the original 10:42 14 intent of one section of the rule was not the intent 10:42 15 of the actual legislation. And that dealt with the 10:42 16 factor of -- of respondent having the ability to 10:42 17 perform all the opportunities in-house with its own 10:42 18 resources and employees. That change has been made, 10:42 19 according to the new proposed rules, and I want to now 10:42 20 highlight some of the changes which I think are 10:42 21 significant to discuss. 10:42 22 First of all, one of the changes is -- 10:42 23 the requirement is, when a vendor is going to 10:42 24 subcontract, they must divide the work or identify the 10:42 25 areas where they plan to subcontract. The second 10:42 93 1 thing they must do is send notices to historically 10:42 2 underutilized businesses, or HUBs, regarding the work 10:42 3 they plan to subcontract, at least three HUBs or 10:42 4 vendors. They also must advertise in a general 10:43 5 circulation, advertise in media for the opportunities 10:43 6 to be made aware to those HUB -- the HUB vendor 10:43 7 community. The next thing they must do, currently, is 10:43 8 to assist HUB vendors or non-HUB vendors to becoming 10:43 9 certified, and then the last thing is, is to provide 10:43 10 any assistance in determining -- excuse me. 10:43 11 Negotiating -- how they've actually negotiated with 10:43 12 HUB vendors and non-HUB vendors on selecting the best 10:43 13 value for the subcontracting. 10:43 14 The changes now require the agency -- 10:43 15 first, there is not a requirement. It is permissive 10:43 16 on the agencies' action or, depending on the 10:43 17 procurement, the agency may not require advertising as 10:43 18 a requirement. It is no longer required, it is only 10:43 19 permissive by the agency. In addition to that, the 10:43 20 agency may not require the encouragement of vendors to 10:43 21 certify. If you want to, you can, but it's not a 10:43 22 requirement that a vendor has to -- a respondent has 10:44 23 to adhere to. What is a requirement is that they 10:44 24 identify the areas where they plan to subcontract, and 10:44 25 they must still send notices to three or more HUBs and 10:44 94 1 also identify the negotiation and explanations, if you 10:44 2 will, of how they selected the best value 10:44 3 subcontractor. 10:44 4 One of the other changes that we -- 10:44 5 that relates to the agency itself or all State 10:44 6 agencies is that we have to review history of other 10:44 7 agencies that have similar procurements that we have. 10:44 8 Another change in regard to that matter is that we 10:44 9 must also identify those areas of subcontracting and 10:44 10 then contact other entities, private as well as 10:44 11 public, regarding the subcontracting opportunities 10:44 12 where we believe there could be or could not be 10:44 13 potential opportunities. The next requirement is that 10:44 14 for leases, lease contracts. The requirement is 10:44 15 deleted. That instead of having a situation or a 10:45 16 contract when -- after the lease has been fulfilled, 10:45 17 the lease agreement has been fulfilled and the agency 10:45 18 occupies the space, it now requires that all contracts 10:45 19 for leases have to undergo the new requirement for 10:45 20 subcontracting, which we believe, right now, could be 10:45 21 detrimental because right now it is not an included 10:45 22 object code of those, that we're required to report 10:45 23 for subcontracting. 10:45 24 In addition to that, it is -- the last 10:45 25 requirement is, again, stricken now. The language 10:45 95 1 says, no vendor can perform all of the work themselves 10:45 2 with their own resources and employees. It is 10:45 3 required that all vendors, regardless if they can 10:45 4 perform all the work in-house or not, must follow a 10:45 5 good faith effort, which includes now, under the 10:45 6 proposed rules, that you must divide the work, you 10:45 7 must send the notices to three or more HUBs, and you 10:45 8 must provide explanation of how you selected the best 10:45 9 value vendor. And if an agency requires it, if they 10:46 10 require it, advertising also, information in addition 10:46 11 to that, of how you have assisted noncertified 10:46 12 vendors. Those are the major changes. We, at this 10:46 13 point, have not recommended any comment. We have, at 10:46 14 this point, asked the TBPC to come over and listen to 10:46 15 our proposed feedback that we may have regarding the 10:46 16 rule. And we have since gotten a response to that 10:46 17 letter, and I haven't had a chance to discuss that 10:46 18 with Gary just yet, so I want to give an opportunity 10:46 19 for him to have discussion with that first. But at 10:46 20 this time, I'll be happy to answer any questions that 10:46 21 you may have regarding the proposed changes. 10:46 22 CHAIRMAN CLOWE: Robert, my 10:46 23 understanding is, this is a rule change in progress, 10:46 24 and that there can possibly be further changes that 10:46 25 may develop over the future? 10:46 96 1 MR. HALL: Yes. But I want to kind of 10:47 2 defer to Kim on that rulemaking process. 10:47 3 MS. KIPLIN: I think that's correct, 10:47 4 Commissioner Clowe. There is a rulemaking process. 10:47 5 There is a comment period. At the end of that comment 10:47 6 period, their staff, consistent with other agencies, 10:47 7 should be considering that comment and deciding what 10:47 8 they want to do with it. And then we take action on 10:47 9 that proposed rulemaking. 10:47 10 CHAIRMAN CLOWE: So this is for our 10:47 11 information at this point in time to keep us up on the 10:47 12 curve, and there is no action required other than to 10:47 13 be aware of this rulemaking in progress. 10:47 14 MR. HALL: Yes, sir. Our effort is to 10:47 15 continue to keep everyone apprised of the changes, and 10:47 16 once the rules have been adopted, with all of the 10:47 17 changes to it, we'll come back and update you again. 10:47 18 CHAIRMAN CLOWE: That's helpful, 10:47 19 Robert. Thank you very much. 10:47 20 MR. HALL: You're welcome. Thank you. 10:47 21 CHAIRMAN CLOWE: Next we're ready to go 10:47 22 to item 13, consideration of and possible discussion 10:47 23 and/or action on the State Auditor's Office and/or 10:47 24 internal audit report relating to the Texas Lottery 10:47 25 Commission and/or the Internal Audit Department's 10:48 97 1 activities, including FY 02 Internal Audit annual 10:48 2 report. Debra McLeod. Good morning. 10:48 3 MS. McLEOD: Good morning, Mr. Chairman 10:48 4 and Commissioners. 10:48 5 In the Commission meeting notebook, I 10:48 6 outlined the status of current audits and 10:48 7 investigations. We have several reports in the draft 10:48 8 stage. We have investigations that are in process. 10:48 9 We've also started our fiscal 2003 audit plan, and as 10:48 10 noted by the two the audits that are mentioned there. 10:48 11 By the agenda, I noticed that other members of 10:48 12 management will be speaking to these other outside 10:48 13 audits, so I will not. The only one I will speak to 10:48 14 is the State Auditor's Office. They have completed 10:48 15 their audit of financial profiles and we are still, as 10:48 16 I know of today, awaiting a final report. 10:48 17 Because I feel that we have done a 10:48 18 piecemeal basis of reporting what we've accomplished 10:49 19 and what we've finished, I felt that at the end of the 10:49 20 fiscal year, it was only beneficial to sort of do a 10:49 21 recap of what internal audit has accomplished this 10:49 22 year and sort of lay the groundwork for where we need 10:49 23 to go for next year. 10:49 24 First of all, this year, we encountered 10:49 25 a variety of issues. We had several reports that 10:49 98 1 field work was completed in fiscal year 2001, but yet 10:49 2 the reports were issued in fiscal year 2002. The 10:49 3 first audit that we finished was the Game Plan 10:49 4 Verification audit. And the purpose of this audit was 10:49 5 to improve the processes for instant ticket prize 10:49 6 verification and relay the business and financial 10:49 7 reports. Part of the field work for this audit 10:49 8 included reviewing 65 instant ticket games in effect 10:49 9 as of February 2001. 10:49 10 The next audit we completed was the 10:50 11 Bingo License Criminal History audit. And the purpose 10:50 12 of this audit was to evaluate the licensing process 10:50 13 and determine if the efficiency can be gained in 10:50 14 obtaining background reports from DPS. We found some 10:50 15 additional efficiencies that could be gained just by 10:50 16 our internal process. 10:50 17 Accounts Receivable. This was to 10:50 18 evaluate the accounts receivable process, including 10:50 19 cash receipts, collections, and the reconciliation 10:50 20 processes. The period of our field work covered 10:50 21 September 1, '99 through July 31st, 2001. 10:50 22 The next audit was Advertising 10:50 23 Performance Measure audit. This reviewed the accuracy 10:50 24 of calculating and documenting the advertising 10:50 25 performance measures, specifically the State revenue 10:50 99 1 received per ad dollar expended, and the ratio of 10:50 2 advertising expense on gross lottery sales. 10:50 3 The last audit there was the Bingo 10:50 4 Debit Card Control audit. This was to analyze and 10:51 5 identify potential changes in the accounting and 10:51 6 auditing processes as a result of allowing debit cards 10:51 7 to be used by bingo organizations and players at bingo 10:51 8 halls. The audit covered the Bingo Enabling Act, the 10:51 9 administrative rules, the management procedures that 10:51 10 were in effect as of July 2001. 10:51 11 These reports were all issued in 10:51 12 January of 2002. 10:51 13 Additional audits that we had that 10:51 14 carried over, were some projects that included a cost 10:51 15 report. And what this was is, every month we receive 10:51 16 cost information from the Lottery operator vendor. 10:51 17 And the agency sales reports, with the implementation 10:51 18 of the new Prosys system, internal audit made several 10:51 19 requests for new sales reports and data from the new 10:52 20 lottery system that went into effect September 1st. 10:52 21 Another major project we worked with 10:52 22 this year was the hosting of the NASPL audit 10:52 23 conference. And what this resulted in was, 22 state 10:52 24 lotteries sent 32 representatives for a two and a 10:52 25 half-day conference, that this internal audit division 10:52 100 1 coordinated the speakers, several we received from the 10:52 2 State Auditor's Office, gratis, and then coordinating 10:52 3 with NASPL on certain topics to cover during the 10:52 4 auditors conference. 10:52 5 The audit field work carried over to 10:52 6 FY 2002. These are audits that were bingo compliance, 10:52 7 the field work is in progress. And bingo tracking. 10:52 8 And as a result, we are still in progress on these 10:53 9 audits and anticipate completion within this first 10:53 10 quarter of fiscal year 2003. 10:53 11 We were unable to get to the RFP 10:53 12 process controls audit, and this one has been 10:53 13 postponed until next year. The actual audit plan that 10:53 14 we developed for fiscal 2002, included follow-ups to 10:53 15 the internal audit reports. And the primary purpose 10:53 16 of that is, in accordance with audit standards, you 10:53 17 are supposed to follow up on audits to determine what 10:53 18 implementation has been taken by management. The 10:53 19 first audit we looked at was the business resumption 10:53 20 plan. 10:53 21 And on the business resumption plan, we 10:53 22 had an issue that arose under the first audit back in 10:53 23 '96, that was looking at the risk of recovering 10:54 24 operations after a natural or man-made disaster. And 10:54 25 management at that time and subsequent to then have 10:54 101 1 made significant strides in their disaster recovery 10:54 2 plan and I think, quite honestly, this is one that is 10:54 3 used as a model by several other state agencies, so 10:54 4 it's something I think this agency should be extremely 10:54 5 proud of. 10:54 6 The follow up on the internal audit 10:54 7 reports, public funds investment. In accordance with 10:54 8 the Public Funds Investment Act, we are in full 10:54 9 compliance with the recommendations. Management has 10:54 10 implemented everything that was asked at that time. 10:54 11 It increases our coordination with the -- with the 10:54 12 Comptroller's Office. 10:54 13 The third one was the local area 10:54 14 network. Back in June of '96, there was a net disk 10:54 15 array failure, and as a result, several issues arose 10:54 16 with procurement and notification of management have 10:55 17 now been resolved. There are still some issues that 10:55 18 need to be resolved by management, such as finalizing 10:55 19 procedures. 10:55 20 Shipping costs and temporary labor 10:55 21 costs. They're in full compliance with the 10:55 22 recommendations of that original audit. This was 10:55 23 analyzing overnight shipping patterns and the use of 10:55 24 temporary labor in the agency. 10:55 25 Human resources. This was an audit to 10:55 102 1 determine compliance with efficiency and effectiveness 10:55 2 in the human resources area. This was a quite a broad 10:55 3 scope. It covered numerous issues that are handled by 10:55 4 the HR division. And today, I report that they have a 10:55 5 hundred percent compliance with all recommendations. 10:55 6 Telecommunication purchases. This is 10:55 7 in a draft report stage. As a result, we were unable 10:55 8 to get to the balanced scorecard, and it was canceled 10:56 9 by the former Executive Director. 10:56 10 The prompt payment has been postponed 10:56 11 till next year and we will roll it into an audit. 10:56 12 These were audits that we had accepted 10:56 13 as additions to the fiscal 2000 year plan. We have 10:56 14 six investigations and these are the various stages. 10:56 15 Two have been closed, two are in draft, and two are 10:56 16 still in progress. 10:56 17 Four advertising performance measures, 10:56 18 these are also in progress. I anticipate closure here 10:56 19 within the next month. 10:56 20 Tracking value added items. This was 10:56 21 an item that was added by the former Executive 10:56 22 Director, likewise, to be completed here within the 10:56 23 next month. 10:56 24 Then we also were looking at follow-up 10:56 25 to the SAO reports. We completed the charitable bingo 10:56 103 1 operations management control. And we are in process 10:57 2 on the performance measures of two bingo measures, and 10:57 3 five lottery measures on the performance measures. 10:57 4 And there was a procurement practice audit done on the 10:57 5 Lottery side, and that is also in progress. 10:57 6 For the status of the fiscal year 2003 10:57 7 audit plan, we have completed our field work on the 10:57 8 performance measures of the 15 key measures. And we 10:57 9 will be scheduling an exit conference for that next 10:57 10 week. The performance measures is slated for 49 10:57 11 non-key measures. We will schedule that 10:57 12 intermittently throughout the year. And in global 10:57 13 terms, we have one bingo audit scheduled and four 10:57 14 lottery. And the bingo will cover a financial area, 10:57 15 whereas the lottery will cover all aspects that we -- 10:57 16 financial, efficiency, effectiveness, safeguarding of 10:57 17 assets and compliance with laws and regulations. 10:57 18 That's the presentation I have today. 10:58 19 I wish I could sit here like the HUB mentoring/protege 10:58 20 program and say we have dozens of satisfied audit 10:58 21 clients, but I guess that's judged by the great 10:58 22 cooperation. And I must emphasize that without 10:58 23 completing as many audits as we did last year, we 10:58 24 couldn't have done it without the great cooperation we 10:58 25 received from management. So we applaud them in their 10:58 104 1 efforts, because this is always something where we 10:58 2 come in and interrupt operations, and it's not always 10:58 3 looked upon agreeably. But this year, we've had great 10:58 4 success and we really appreciate management's efforts. 10:58 5 Another part that we have done is 10:58 6 re-engineer our audit risk assessment process, and we 10:58 7 held an internal workshop with management to educate 10:58 8 them on risk in the industry and within this agency, 10:58 9 and I think that reflects on a better focus for the 10:58 10 audits and a better understanding by management about 10:58 11 why we're looking at what we're looking at. 10:58 12 So that's my presentation. Any 10:58 13 questions? 10:59 14 CHAIRMAN CLOWE: Any questions? Thank 10:59 15 you, Debra. 10:59 16 I believe we're ready now for item 14, 10:59 17 report, possible discussion and/or action on the 10:59 18 agency's financial -- annual financial audit. Bart. 10:59 19 MR. SANCHEZ: Good morning, 10:59 20 Commissioners. Again, my name is Bart Sanchez. I'm 10:59 21 the financial administration director. And very 10:59 22 briefly, I just want to give you the status of the 10:59 23 annual financial audit. The accounting firm of 10:59 24 McConnell-Jones completed their two week field work in 10:59 25 October -- October 4th, and we're expecting a draft of 10:59 105 1 the audited financial statements on approximately 10:59 2 November 15th. And I must say that in comparison to 10:59 3 years before, we're way ahead of our schedule. 10:59 4 Keeping in mind that we are going to submit financial 10:59 5 statements to the Comptroller on November 20th, and 11:00 6 the audited financial statements are not due to the 11:00 7 oversight agencies until December 20th. So I think 11:00 8 we're doing pretty good. 11:00 9 CHAIRMAN CLOWE: We have an auditor on 11:00 10 the board. 11:00 11 COMMISSIONER COX: Bart, what is the 11:00 12 audit fee? 11:00 13 MR. SANCHEZ: It's approximately 58,000 11:00 14 dollars. 11:00 15 COMMISSIONER COX: 58,000. And how 11:00 16 many people were involved in the two weeks of work? 11:00 17 MR. SANCHEZ: There were four, which 11:00 18 includes their director. 11:00 19 COMMISSIONER COX: So we have eight man 11:00 20 weeks. 11:00 21 MR. SANCHEZ: Correct. That's also 11:00 22 inclusive of some interim audit work that was done, I 11:00 23 think, in July. 11:00 24 COMMISSIONER COX: Okay. Do you 11:00 25 recall, was there quite a bit of that? A week -- 11:00 106 1 MR. SANCHEZ: It was just about a week 11:00 2 worth. 11:01 3 COMMISSIONER COX: Okay. 11:01 4 MR. SANCHEZ: With two -- staffed by 11:01 5 two persons. 11:01 6 COMMISSIONER COX: Thank you. 11:01 7 CHAIRMAN CLOWE: Satisfied? 11:01 8 COMMISSIONER COX: Okay. I don't have 11:01 9 any more questions. 11:01 10 CHAIRMAN CLOWE: All right. Thank you, 11:01 11 Bart. 11:01 12 The next item, 15, report, possible 11:01 13 discussion and/or action on the security audit 11:01 14 procurement. Commander Pitcock. 11:01 15 MR. PITCOCK: My name is Michael G. 11:01 16 Pitcock, commander of security, Texas Lottery 11:01 17 Commission. And with me is Tom Tharp from 11:01 18 JeffersonWells, the audit firm that's doing the 11:01 19 security audit. 11:02 20 As set out in Section 466.020 of the 11:02 21 Lottery Act, at least every two years, the executive 11:02 22 director shall employ an independent firm that is 11:02 23 experienced in security, including computer security, 11:02 24 system security, to conduct a comprehensive study of 11:02 25 all aspects of lottery security, including -- the 11:02 107 1 listed issues includes 13 issues. We have gone out 11:02 2 and sought, through our RFP process, a vendor to do 11:02 3 this, and the JeffersonWells company has been awarded 11:02 4 this contract. They met with us starting on 11:02 5 October 7th and gave us a preliminary idea of what 11:02 6 they're going to do. They presented to us an outline 11:02 7 of their audit, to include approximately 1240 hours of 11:02 8 audit work, to conclude on December 6th of this year. 11:02 9 That will be the first preliminary workup of the draft 11:02 10 of their audit findings. I feel like after that, we 11:02 11 will probably have responses and work through those 11:03 12 findings and work through those situations as they 11:03 13 dictate them to us. 11:03 14 At this time, I have no other 11:03 15 information, other than they have met with Gtech this 11:03 16 last Thursday, on October 10th, to start the same 11:03 17 preliminary meet with that company. They have made 11:03 18 phone calls to some of the other vendors to start that 11:03 19 process. And we have supplied them with volume after 11:03 20 volume of information that they've requested, and I 11:03 21 feel like we've supplied every piece of document at 11:03 22 this time that they've requested. I've watched them. 11:03 23 They've been buried in books and reading and studying, 11:03 24 so they've been real busy. They're on a very tight 11:03 25 time line, we feel like. It's a large project. We 11:03 108 1 feel it's a very important project for the Texas 11:03 2 Lottery Commission. And we're going to work through 11:03 3 this and I will be the project coordinator and report 11:03 4 to you periodically, when it's appropriate, as to our 11:03 5 movement in this project. And I'll be glad to answer 11:03 6 any questions, and Mr. Tharp is here with me if you 11:03 7 have any questions for him. 11:03 8 CHAIRMAN CLOWE: Questions? 11:04 9 Would you supply with us a copy of that 11:04 10 data that they gave you? 11:04 11 MR. PITCOCK: Yes, I have. I sent that 11:04 12 to you in last Thursday's mail. 11:04 13 CHAIRMAN CLOWE: I guess I overlooked 11:04 14 it, Mike. Could I have another copy? 11:04 15 MR. PITCOCK: Yes, sir. 16 CHAIRMAN CLOWE: Because I wanted to 11:04 17 look at it in detail and I missed it. 11:04 18 MR. PITCOCK: Okay. 11:04 19 CHAIRMAN CLOWE: Thank you. 11:04 20 MR. PITCOCK: Yes, sir. 21 CHAIRMAN CLOWE: Thank you both. 11:04 22 MR. GRIEF: Mr. Chairman, could I say a 11:04 23 couple of things, if you don't mind? 11:04 24 CHAIRMAN CLOWE: Sure. 11:04 25 MR. GRIEF: I had the pleasure of 11:04 109 1 sitting in on the entrance conference with Tom and his 11:04 2 firm, and I wanted to say that was a very beneficial 11:04 3 meeting. 11:04 4 I understand we're going to have 11:04 5 meetings every two weeks, Tom. Is that correct? 11:04 6 MR. THARP: Yes, sir. 11:04 7 MR. GRIEF: Whereby I will receive a 11:04 8 status report. And I heard Mike say this, but I just 11:04 9 wanted to ask you for the record, Tom, are you getting 11:04 10 everything that you need from the agency? 11:04 11 MR. THARP: Absolutely. We've had a 11:04 12 really good response, in setting interviews with both 11:04 13 vendors, Gtech at this point is the main one we've 11:04 14 talked to, and also internal personnel and people have 11:04 15 provided us information and everything is going real 11:05 16 well. Again, started the field work last week, but 11:05 17 getting up and running really quick. 11:05 18 MR. GRIEF: And Commissioners, just to 11:05 19 clarify Mike's role. The security audit does not just 11:05 20 take into consideration the security division. That 11:05 21 looks at various aspects in the agency, including 11:05 22 information technology, human resources, Gtech's 11:05 23 system, et cetera. So Mike is the point person for 11:05 24 that, but that will reach out and impact several 11:05 25 different divisions and vendors as well. 11:05 110 1 CHAIRMAN CLOWE: Does it include bingo? 11:05 2 MR. PITCOCK: It will include bingo on 11:05 3 physical security and employee HR-type related issues. 11:05 4 It will not include unless it's, you know, 11:05 5 incorporated into our computer system checks where 11:05 6 they check the complete Lottery technical systems, 11:05 7 which includes bingo. And in that aspect, they will 11:05 8 be inclusive into that part of it. But specific 11:05 9 issues with bingo, no. It's just like security. 11:05 10 They're got coming into my division to audit my, per 11:05 11 se, investigations, they're going to look at the broad 11:06 12 picture of the computer, our technological security, 11:06 13 and physical security of this operation. 11:06 14 CHAIRMAN CLOWE: And what is the 11:06 15 completion date? 11:06 16 MR. PITCOCK: December 6th is the first 11:06 17 draft that they're going to present to us, and I would 11:06 18 assume after the draft is presented, if there is 11:06 19 issues that we have to respond to or have to address, 11:06 20 shortly thereafter, we're going to do that as fast as 11:06 21 we can because we're on a tight time line. But we 11:06 22 should, hopefully soon after December 6th, have that 11:06 23 final version finished. 11:06 24 MR. THARP: And with the biweekly 11:06 25 status meetings that Mr. Grief spoke of, we're going 11:06 111 1 to bring up issues as we find them, so it's not at the 11:06 2 end where we're going to present a pile of issues. 11:06 3 The -- you know, any issues will be known throughout 11:06 4 and we should have plenty of time to come to an 11:06 5 agreement on those. 11:06 6 CHAIRMAN CLOWE: Where is your firm 11:06 7 headquartered? 11:06 8 MR. THARP: We're headquartered in 11:06 9 Milwaukee. We opened the Austin office about a year 11:06 10 and a half ago. It was the 31st office of 11:06 11 JeffersonWells. 11:06 12 CHAIRMAN CLOWE: And you're here in 11:06 13 Austin? 11:06 14 MR. THARP: Yes, sir, we're here local. 11:06 15 I'm local and most of the core team is local. We're 11:06 16 also going to be bringing in specialists as we need 11:07 17 them from other offices to -- but the core team is a 11:07 18 local team. 11:07 19 CHAIRMAN CLOWE: Very good. Thank you 11:07 20 all very much. 11:07 21 Next we're ready to go to item 16, 11:07 22 report, possible discussion and/or action on the 11:07 23 advertising procurements. Ridgely Bennett. Good 11:07 24 morning, Ridgely. 25 MR. BENNETT: Good morning. For the 11:07 112 1 record, my name is Ridgely Bennett. I'm the deputy 11:07 2 general counsel. Commissioners, the -- regarding the 11:07 3 general marketing advertising services RFP, the agency 11:07 4 has entered into a contract with DVB Dallas to provide 11:07 5 general marketing and advertising services to the 11:07 6 Commission. Fogarty Klein Monroe has filed a protest 11:07 7 to the award of the contract to DVB Dallas. Under the 11:07 8 Commission's rules, a protest first goes to the 11:07 9 Executive Director, or in this case, the Acting 11:07 10 Executive Director for determination. The protest and 11:07 11 the response to the protest filed by DVB are currently 11:07 12 under consideration by the Acting Executive Director. 11:08 13 Once the Acting Executive Director makes his 11:08 14 determination, any party aggrieved by that 11:08 15 determination may appeal the determination to the 11:08 16 Commission. 11:08 17 I'll be happy to answer any questions 11:08 18 that you have right now. 11:08 19 CHAIRMAN CLOWE: So I take it it would 11:08 20 be improper for us to ask questions at this point in 11:08 21 time. This is for our information only. 11:08 22 MR. BENNETT: Correct. 11:08 23 CHAIRMAN CLOWE: Thank you, 11:08 24 Mr. Bennett. 11:08 25 MR. BENNETT: But if you have questions 11:08 113 1 about the process, is my statement. 11:08 2 CHAIRMAN CLOWE: I believe there are 11:08 3 none. 11:08 4 MR. BENNETT: Regarding the minority 11:08 5 marketing advertising services contract, The King 11:08 6 Group has been announced as the apparent successful 11:08 7 proposer for that RFP, and the contract is awaiting 11:08 8 execution by the agency. 11:08 9 I will be happy to answer any questions 11:08 10 on that one. 11:08 11 CHAIRMAN CLOWE: Very good. Any 11:08 12 questions? 13 I believe there are none. 11:08 14 MR. BENNETT: Thank you, Commissioners. 11:08 15 CHAIRMAN CLOWE: Thank you. The next 11:08 16 item, 17, report, possible discussion and/or action on 11:08 17 the web site hosting and related services procurement. 11:08 18 MS. KIPLIN: Commissioners, that's 11:09 19 actually Ms. Schultz. 11:09 20 CHAIRMAN CLOWE: Very good. 11:09 21 MS. KIPLIN: Good morning. For the 11:09 22 record, I'm Kaye Schultz, assistant general counsel. 11:09 23 The status of this procurement is that we have named 11:09 24 an apparent successful proposer, and there are 11:09 25 contract negotiations underway. The current contract 11:09 114 1 is in place through February of 2003. 11:09 2 CHAIRMAN CLOWE: Very good. Any 11:09 3 questions? 11:09 4 Thank you, Ms. Schultz. And we note 11:09 5 with a great sense of loss that you're leaving the 11:09 6 Commission at some point in time in the future. Our 11:09 7 loss is another agency's gain. 11:09 8 MS. SCHULTZ: Thank you. And it's with 11:09 9 regrets. Also, I'm looking forward to the new 11:09 10 opportunities, but I appreciate your good wishes and I 11:09 11 very much enjoyed the challenge and opportunity of 11:09 12 working here. 11:10 13 CHAIRMAN CLOWE: You've done a great 11:10 14 job and we thank you for your efforts. 11:10 15 MS. SCHULTZ: Thank you. I appreciate 11:10 16 that. 11:10 17 MS. KIPLIN: Commissioners, I have to 18 say that I'm sorry to see Ms. Schultz go. And I tried 11:10 19 to talk her out of it, and she won't hear anything 11:10 20 about it. She's done a good job for us and we 11:10 21 appreciate all of her services. 11:10 22 CHAIRMAN CLOWE: Here here. 11:10 23 Is there anyone wishing to make comment 11:10 24 to the Commission before I move that we go into 11:10 25 executive session? I believe not. 11:10 115 1 At this point, I move the Texas Lottery 11:10 2 Commission go into executive session to deliberate the 11:10 3 appointment, employment, and duties of the Executive 11:10 4 Director, including Acting Executive Director, 11:10 5 pursuant to Section 551.074 of the Texas Government 11:10 6 Code. 11:10 7 To deliberate the duties and evaluation 11:10 8 of the Internal Auditor and Charitable Bingo 11:10 9 Operations Director, pursuant to Section 551.074 of 11:10 10 the Texas Government Code. 11:10 11 To deliberated the duties of the 11:10 12 General Counsel and Security Director pursuant to 11:11 13 Section 551.074 of the Texas Government Code. 11:11 14 To receive legal advice regarding 11:11 15 pending or contemplated litigation and/or to receive 11:11 16 legal advice pursuant to Section 551.071 (1) (A) or 11:11 17 (B) of the Texas Government Code and/or to receive 11:11 18 legal advice pursuant to Section 551.071 (2) of the 11:11 19 Texas Government Code, including but not limited to: 11:11 20 TPFV Group, Inc. versus Texas Lottery Commission 11:11 21 Retired Sergeant Majors' Association, et al versus 11:11 22 Texas Lottery Commission, et al 11:11 23 Loretta Hawkins versus Texas Lottery Commission 11:11 24 States of Minnesota, et al versus NIGC, et al 11:11 25 Scientific Games and Pollard Banknote versus Texas 11:11 116 1 Lottery Commission and Linda Cloud, Executive Director 11:12 2 Ideas, Inc. and Associates in Implants versus Texas 11:12 3 Lottery Commission and Linda Cloud 11:12 4 TXTV versus Texas Lottery Commission 11:12 5 Ieric and Chris Rogers versus Texas Lottery Commission 11:12 6 and Executive Director 11:12 7 Keane versus Texas Lottery Commission 11:12 8 Contract regarding the charitable bingo system 11:12 9 Employment law and general government law relating to 11:12 10 the appointment, employment and duties of the 11:12 11 Executive Director 11:12 12 Employment law, personnel law, procurement and 11:12 13 contract law, and general government law. 11:12 14 Is there a second? 11:12 15 COMMISSIONER WHITAKER: Second. 11:12 16 CHAIRMAN CLOWE: All in favor, please 11:12 17 say aye. The vote is three-zero in favor. 11:12 18 The Texas Lottery Commission will go 11:12 19 into executive session. The time is 11:17 a.m., the 11:12 20 date is October the 16th, 2002. 11:12 21 (RECESS.) 11:13 22 CHAIRMAN CLOWE: The Texas Lottery 13:01 23 Commission is out of executive session. The time is 13:01 24 1:05 p.m. Is there any action to be taken as a result 13:01 25 of the executive session? I don't believe there is. 13:01 117 1 I would like to note that Commissioner 13:01 2 Whitaker is now absent, and we will continue to 13:01 3 conduct the business of the Commission with 13:01 4 Commissioner Cox and myself substituting a quorum. 13:01 5 We are ready to go to item number 20, 13:01 6 which is, consideration of the status and possible 13:01 7 entry of orders in cases, letter A through I. Kim, 13:01 8 would you help us with those, please. 13:01 9 MS. KIPLIN: Yes, I'll be happy to. I 13:01 10 would like to talk all about -- about all of them with 13:01 11 the exception of item D, the Ham Mobil case. All of 13:02 12 the other ones are lottery cases where the 13:02 13 administrative law judge has recommended revocation of 13:02 14 the license for failure to pay the lottery the funds 13:02 15 that are owed the lottery by the retailer. In all but 13:02 16 the East Express and Knight Nurse case, it's because 13:02 17 they hit the three strikes and you're out rule that we 13:02 18 have. If you have three nonsufficient funds sweeps in 13:02 19 a calendar year, then we're going to revoke your 13:02 20 license or move forward to do so. 13:02 21 And letters H and I, which are East 13:02 22 Express and Knight Nurse, respectively, that's a 13:02 23 situation where it was an insufficient fund on one 13:02 24 occasion for each one of them, but in that case, we 13:02 25 move forward to revoke if they do not pay the funds 13:02 118 1 that are owed. So with those, I recommend that you 13:02 2 vote to adopt the administrative law judge's 13:02 3 recommendation. 13:02 4 Having said that, I would like to move 13:02 5 to Ham Mobil unless you would like to go ahead and 13:02 6 take care of those. 13:03 7 CHAIRMAN CLOWE: Let's go ahead. 13:03 8 I'll move the adoption of the 13:03 9 recommended order in cases A, B, C, E, F, G, H, I, 13:03 10 under item number 20. Is there a second? 13:03 11 COMMISSIONER COX: Second. 13:03 12 CHAIRMAN CLOWE: All in favor, please 13:03 13 say aye. The vote is two-zero in favor. 13:03 14 MS. KIPLIN: Commissioners, the one 13:03 15 remaining is the docket number 362-02-3274, Ham Mobil. 13:03 16 This is the matter that we passed from the last 13:03 17 commission meeting. If you'll recall, it's a matter 13:03 18 that involves a retailer who requested a 13:03 19 redetermination when the Commission froze the -- it -- 13:03 20 an individual's bank account and levied against it for 13:03 21 monies that we believed were owed to the lottery. In 13:03 22 that situation, that particular individual is no 13:03 23 longer an officer in the retail entity. There was a 13:03 24 notice issued. There was a -- a conclusion of law 13:03 25 that provided that particular statute only applied to 13:04 119 1 the Commission being able to go against current 13:04 2 officers, owners, or directors, and did not allow for 13:04 3 us to go against former. I -- we passed that because 13:04 4 of the issue in terms of the interpretation of the 13:04 5 statute, and I've asked the assistant general counsel 13:04 6 who was involved with that, Kaye Schultz, to provide 13:04 7 me a memorandum just to let me know where we stand on 13:04 8 that. There is an ability, under the Administrative 13:04 9 Procedure Act, to modify a State Office of 13:04 10 Administrative Hearings administrative law judge's 13:04 11 conclusions of law or findings of fact, but it's very 13:04 12 limited in the ability of the agency to do so. And in 13:04 13 this situation, it would be that the administrative 13:04 14 law judge did not properly apply or interpret 13:04 15 applicable law, agency rules, written policies, or 13:04 16 prior administrative decisions. In this case, it's 13:04 17 the, did not properly interpret the statute. 13:05 18 We really cannot tell you that the 13:05 19 interpretation that the SOAH administrative law judge 13:05 20 applied to the statute was improper. We think a more 13:05 21 appropriate approach would be to recommend that you do 13:05 22 go ahead and adopt the administrative law judge's 13:05 23 proposal for decision and proposed order, but then see 13:05 24 about -- we've been invited to provide, I think, 13:05 25 cleanup language with regard to the State Lottery Act 13:05 120 1 and see if we couldn't make that language in the State 13:05 2 Lottery Act much clearer and much tighter. And so 13:05 3 that's where we are and what we're recommending. At 13:05 4 this point, we've passed it one time and I believe we 13:05 5 have received some communication from the attorney for 13:05 6 the -- for the petitioner, who is wanting to know 13:05 7 where their money is. And so I would at this point 13:05 8 recommend that you do adopt the State Office of 13:05 9 Administrative Hearings administrative law judge's 13:05 10 proposal for decision, including that conclusion of 13:06 11 law. 13:06 12 CHAIRMAN CLOWE: Any questions? So 13:06 13 moved. 13:06 14 COMMISSIONER COX: Second. 13:06 15 CHAIRMAN CLOWE: All in favor, please 13:06 16 say aye. The vote is two-zero in favor. 13:06 17 We'll take a minute to sign these 13:06 18 orders now. 13:06 19 Gary, we'll be calling on you next if 13:06 20 you want to get your folks into position. 13:06 21 MR. GRIEF: Very good. 13:06 22 CHAIRMAN CLOWE: Kim, will you check 13:07 23 carefully and make certain we've signed all these 13:07 24 orders, please. 25 MS. KIPLIN: Yes, sir. 121 1 CHAIRMAN CLOWE: We're now ready to go 2 to item number 21, report by the Acting Executive 13:07 3 Director on various subjects. Mr. Grief. 13:07 4 MR. GRIEF: Commissioners, under my 13:08 5 report, I would like to call up several different 13:08 6 division directors who will very briefly touch on each 13:08 7 of the items listed under this agenda item. That 13:08 8 would be Bart Sanchez, Nelda Trevino, Robert Hall, Jim 13:08 9 Richardson, and Toni Smith. We'll start off with Bart 13:08 10 Sanchez, and Bart will be addressing the financial and 13:08 11 operational status of the agency. 13:08 12 MR. SANCHEZ: Good afternoon, 13:08 13 Commissioners. For the month of September, the agency 13:08 14 transferred to the State the amount of 485,298 13:08 15 dollars. Keeping it in mind that the September 15th 13:08 16 transfer was actually transferred on August 15th. 13:08 17 That's why you see a smaller amount than your usual 13:08 18 months. 13:08 19 Let me also briefly go over the 13:08 20 operating budget that -- for fiscal year '03. And 13:08 21 just keep in mind that we're under the appropriated 13:08 22 amount, in the amount of 178.8 million. And we're 13:09 23 still in the process of finalizing some details with 13:09 24 Gary, as he's assumed the leadership, so there are 13:09 25 still some small issues that the agency is -- we're 13:09 122 1 under the new fiscal year '03 budget and, you know, 13:09 2 conservatively, the agency budget is about two million 13:09 3 under the appropriated amount for that fiscal year. 13:09 4 MR. GRIEF: Commissioners, I've asked 13:09 5 Bart to make the subject of budget a standing item 13:09 6 under this particular part of my report. So he'll be 13:09 7 prepared give us an update on that and also answer any 13:09 8 questions that you might have for him regarding the 13:09 9 agency budget. 13:09 10 CHAIRMAN CLOWE: Good. 13:09 11 Bart, this may not be under your 13:09 12 control, but -- maybe it's Toni or Keith, but the 13:09 13 comment has been made that we're not getting the story 13:10 14 out that our sales are up in the aggregate and have 13:10 15 been increasing since 2000. And, in fact, we have 13:10 16 transferred year to date almost ten billion in monies 13:10 17 to the Foundation School Fund. And prior to that, 13:10 18 almost five billion to the general revenue fund. What 13:10 19 can this agency do to more effectively get that 13:10 20 message to those that are interested in it? 13:10 21 MR. GRIEF: Commissioner, if I could, 13:10 22 Mr. Chairman, I would like to call on Keith Elkins to 13:10 23 come up. And I know we're catching Keith a little bit 13:10 24 cold on this issue, but we have had some discussions 13:10 25 about getting that information out. We had those same 13:10 123 1 discussions when we were developing the 13:10 2 self-evaluation report for the Sunset document as well 13:10 3 as the strategic plan. Keith, what can you -- 13:10 4 CHAIRMAN CLOWE: Let me give you an 13:11 5 example, Keith, of why this question comes up. At the 13:11 6 Sunset hearing on -- was that September the 24th? 13:11 7 MR. GRIEF: I believe you're correct. 13:11 8 CHAIRMAN CLOWE: Representative 13:11 9 Gallego, said, well, your sales are down. And I think 13:11 10 what he was referring to was the Lotto Texas game. 13:11 11 And I am not sure we got our message delivered that 13:11 12 our sales are up. And there is a concern about that 13:11 13 and how do we deal with that? 13:11 14 MR. ELKINS: We are looking at that 13:11 15 situation. For the record, my name is Keith Elkins, 13:11 16 the communications director for the Texas Lottery. 13:11 17 You're absolutely right. We continue 13:11 18 to have that issue and we are looking at several 13:11 19 different options. And I think that your analysis is 13:11 20 right on target. A lot of times, even in the media, 13:11 21 they confuse Lotto Texas sales with lottery total 13:11 22 sales, which is why one week's news coverage may be 13:12 23 that lottery sales are up, and the next week's news 13:12 24 coverage that lottery sales are down, when, in fact, 13:12 25 it's involving the Lotto Texas game. We continue 13:12 124 1 trying to emphasize that in our news releases that we 13:12 2 put out, and we're still looking at that situation. 13:12 3 Two issues that we are looking at to try to hopefully 13:12 4 better address that as we move forward in highlighting 13:12 5 the benefits of the lottery to the state of Texas, my 13:12 6 staff is tracking, along with Bart Sanchez, exactly 13:12 7 where we are falling and when the ten -- or when the 13:12 8 one billionth dollar, I guess, transfer goes over. Or 13:12 9 the ten billionth transfer goes to the State. So that 13:12 10 we -- 13:12 11 CHAIRMAN CLOWE: It's lots of hundreds 13:12 12 of millions. 13 MR. ELKINS: It's a lot of billions. 13:12 14 We're looking at that, and we need to get with Gary 13:12 15 and plan some extra type coverage about that event. I 13:12 16 think that is significant. And I might add that we 13:12 17 noticed at NASPL, for example, I think it was 13:12 18 Washington state has been in the lottery business for 13:13 19 19 years and they just hit the one billionth mark. 13:13 20 One of the reasons I guess I'm getting a little 13:13 21 tripped up on the figures. We do that -- come close 13:13 22 almost every year, but it doesn't get the attention 13:13 23 that they get after 19. So we're going to look at 13:13 24 that on the ten billionth dollar transfer, see what we 13:13 25 might do to highlight that. 13:13 125 1 Another thing that we have considered, 13:13 2 and I'm catching Gary a little bit cold because we 13:13 3 haven't had a chance to brief him on some of these 13:13 4 ideas, is we're in communications, we're looking past 13:13 5 the ten-year mark. We have been in the business. 13:13 6 We're not a start-up lottery any more, we are a mature 13:13 7 lottery, but we know we're doing good things. And one 13:13 8 of the reasons, I think, that we are not able to get 13:13 9 our message with the media, especially, to the public 13:13 10 that we would like is there has been a high degree of 13:13 11 turnover with reporters. That the new reporters that 13:13 12 are there at the newspapers, the TV stations, the 13:13 13 radio stations today, for the most part are not the 13:14 14 same reporters that were there when I was reporting on 13:14 15 this -- the creation of the lottery, and they don't 13:14 16 have the benefit of the history either. They may have 13:14 17 come from other states where they had baggage with 13:14 18 their lotteries that they're bringing in or 13:14 19 expectations. So we're looking at the possibility of 13:14 20 even holding teleconferences with reporters or media 13:14 21 outlets that want to join in, scheduled a certain time 13:14 22 of the month, that they can call in, ask any questions 13:14 23 that they want, we can provide general answers of why 13:14 24 it is that we say lottery sales are up if a particular 13:14 25 game sales are down, and why it's important to make 13:14 126 1 that distinction. A lot of reporters make a lot of 13:14 2 mistakes unintentionally. They refer to the Lotto, 13:14 3 meaning lottery. They don't understand that the 13:14 4 Charitable Bingo Operations Division is part of the 13:14 5 Lottery Commission and not the lottery. Those types 13:14 6 of things. So we're going to work a little bit harder 13:14 7 to try to reeducate some of the media outlets. 13:15 8 Hopefully, that will correct some of that issue, and 13:15 9 we're constantly looking at it. We're open to any 13:15 10 suggestions anybody might have. 13:15 11 CHAIRMAN CLOWE: Well, the Commission 13:15 12 has made it clear to Gary that we feel under his 13:15 13 duties he is charged with the task of telling our good 13:15 14 story. And Nelda, I think, as well as the media that 13:15 15 Keith has referred to, with the elected leadership in 13:15 16 the state, we need to, at maybe our legislative 13:15 17 briefings, lead off with the good news. The point has 13:15 18 been made, in a downturn economy, which we've 13:15 19 experienced in this state, our sales are up and we 13:15 20 have done better in 2001 and 2002 than we did in a 13:15 21 prior period. And, you know, it's a really good story 13:15 22 to tell. You're right, Keith. I think that we all 13:15 23 focused on the couple of games that we've had some 13:16 24 decline in, and that's being addressed. But overall, 13:16 25 the lottery has a really up story to tell. And we 13:16 127 1 think that that ought to be Gary's task, through 13:16 2 working with you all, to tell that story with more 13:16 3 clarity. You know, we want to address those areas 13:16 4 where we are having softness and problems, but we want 13:16 5 the overall view to be correctly told, so that people 13:16 6 are talking about the facts and not perceptions. And 13:16 7 I think that's some of our problem. 13:16 8 MR. ELKINS: Absolutely. 13:16 9 CHAIRMAN CLOWE: Thank you, Gary. 13:16 10 That's what you said, wasn't it? 13:16 11 MR. GRIEF: Yes, sir. 13:16 12 I would like to -- if we're through 13:16 13 with that issue, I would like to move to have Nelda 13:16 14 give us a quick overview of legislative briefings. 13:16 15 MS. TREVINO: Commissioners, just very 13:16 16 briefly, as stated in your notebook, we have had 13:16 17 several legislative briefings during this interim and 13:16 18 our intent is to hold two more before the legislative 13:17 19 session begins in January. We are tentatively looking 13:17 20 at November the 20th to hold our next legislative 13:17 21 briefing where we invite the group of legislative 13:17 22 offices that we have been inviting in the past, and 13:17 23 that's basically our leadership offices and our 13:17 24 oversight committees. And then we are planning a 13:17 25 second briefing for December the 5th, primarily to 13:17 128 1 invite the freshmen legislative members that are going 13:17 2 to be coming in this next session. I think it's 13:17 3 somewhere between 30 and 40 new members that are going 13:17 4 to be coming in. And so we thought this would be a 13:17 5 good opportunity to bring them in and kind of give 13:17 6 them an orientation of the agency and give them some 13:17 7 background in regards to, again, our agency. So those 13:17 8 are the two dates that we're looking for, and we're 13:17 9 looking at finalizing some agendas, and we'll get 13:17 10 those submitted to each of you and provide you more 13:17 11 information as we finalize our plans for those two 13:18 12 briefings. 13:18 13 And just, Chairman Clowe, to follow up 13:18 14 on what you were saying in regards to telling the 13:18 15 story about the good news in regards to lottery sales 13:18 16 and the revenue that we transfer. That is a standing 13:18 17 item that we have in our legislative briefings, and I 13:18 18 think we'll just work with Gary and the rest of the 13:18 19 group on making that message a lot clearer. And we'll 13:18 20 go forward with those. 13:18 21 CHAIRMAN CLOWE: Great. I think the 13:18 22 legislative briefings are a great value. I think it's 13:18 23 done a lot to help the legislators understand what 13:18 24 we're working with here. And I urge you to continue 13:18 25 those. And I give Commissioner Cox the first crack at 13:18 129 1 the November 20th meeting. If he's unable to attend, 13:18 2 I'll be there. If he's able, I'll go to the December 13:18 3 meeting. I would always like to have at least one 13:18 4 commissioner at the legislative briefings. I think it 13:18 5 shows support and is a message that we want to deliver 13:18 6 to the folks that come to those meetings. 13:19 7 MS. TREVINO: I couldn't agree with you 13:19 8 more. 13:19 9 CHAIRMAN CLOWE: Great. 13:19 10 MR. GRIEF: Very good. Moving along, 13:19 11 Robert Hall, if you could give us a brief overview of 13:19 12 activity. 13:19 13 MR. HALL: Commissioners, the only 13:19 14 update I have for you regarding the monthly 13:19 15 HUB/Minority Participation report is, the one you have 13:19 16 in your notebook is for the end period for FY '02, 13:19 17 from September 1st of '99 -- excuse me. 2001, to 13:19 18 August 31st of 2002. At this point, we are currently 13:19 19 working with our IT department to make sure we have 13:19 20 our reports accurate. Currently, we -- before 13:19 21 September 1st, we were extracting our financial data 13:19 22 from all of the expenditures paid to all vendors from 13:19 23 the Ross database, Ross financial system. We are in a 13:19 24 conversion period right now with getting information 13:19 25 from Great Plains Financial System, and so as a result 13:19 130 1 of that, our database only extracts that information 13:19 2 from Ross. It is being updated by IT. So at this 13:20 3 point, we don't have a report for the first month of 13:20 4 FY '03, but we will be forwarding you the information 13:20 5 as we develop that, and we'll keep you apprised of 13:20 6 that. 7 In addition to that, next month -- or 13:20 8 next Commission meeting, we hope to provide you with a 13:20 9 report on our HUB expenditures for FY '02 as well. 13:20 10 And that's all I have to report. I'll be happy to 13:20 11 answer any questions you may have. 13:20 12 CHAIRMAN CLOWE: Robert, we understand 13:20 13 that you have contract compliance now in your 13:20 14 division. Are you comfortable with those additional 13:20 15 duties and responsibilities? 13:20 16 MR. HALL: Yes, sir. I am very much 13:20 17 comfortable with those responsibilities and additional 13:20 18 duties. We have had our first staff meeting 13:20 19 yesterday, by way of report to you, and we are trying 13:20 20 to determine what exactly everyone does in terms of 13:20 21 what minority development services does, and also 13:20 22 contracting management. And once we better assess 13:20 23 that, we'll have, I guess, for Gary as well as 13:20 24 everyone else, what exactly every staff person will be 13:21 25 doing to make sure we work together collectively to 13:21 131 1 make sure everything we do is being enhanced. So we 13:21 2 look forward to the challenge and we look forward to 13:21 3 giving you some good news about that. 13:21 4 CHAIRMAN CLOWE: Great. I think that's 13:21 5 a good move and we wish you success in that endeavor. 13:21 6 MR. HALL: Thank you. 13:21 7 MR. GRIEF: Jim, if you could give us a 13:21 8 report on FTE status, please. 13:21 9 MR. RICHARDSON: Commissioners, I have 13:21 10 provided the FTE report in your notebook. So if it's 13:21 11 your preference, I will not reread the summary for you 13:21 12 and just be here available for any questions that you 13:21 13 might have on that. 13:21 14 CHAIRMAN CLOWE: How is the job market, 13:21 15 Jim? What is your reaction to responses to postings 13:21 16 and how we're doing on finding highly-qualified people 13:21 17 for our positions? 13:21 18 MR. RICHARDSON: I think we're still 13:21 19 getting qualified applicants. We are getting more 13:21 20 volume now because there seems to be more folks laid 13:21 21 off and out looking for jobs. And so you have a lot 13:21 22 of people now who are applying for jobs that may be 13:22 23 less than what they had before even, just so they can 13:22 24 try to find some position. So we are getting more 13:22 25 volume, and we're still getting quality as well. 13:22 132 1 CHAIRMAN CLOWE: Good. Thank you. 13:22 2 MR. GRIEF: And Toni Smith. Toni will 13:22 3 give us a brief report on retailer forums. 13:22 4 MS. SMITH: The Texas Lottery will 13:22 5 conduct its final retailer town hall meeting for the 13:22 6 calendar year, next Tuesday, October 22nd, at the 13:22 7 Radisson Suite Inn at the El Paso airport. We have 13:22 8 made a small change in the formatting in that what 13:22 9 used to be the "Ask the Director" session at the end 13:22 10 will now be panel style with several of the marketing 13:22 11 representatives and lottery representatives, with 13:22 12 Gary Grief heading up that panel. And then we also, 13:22 13 since this gives us a break, we have done ten town 13:22 14 meetings each year, and we don't -- we don't do the 13:22 15 town meetings during November and December because 13:22 16 it's such a busy time for our retailers, so this break 13:22 17 gives us an opportunity, we have a meeting scheduled 13:22 18 next week to take a step back and review the whole 13:22 19 formatting of the town meetings, the frequency and the 13:23 20 format, and Gary is going to be involved in that 13:23 21 meeting with us, and see if there is any ways we can 13:23 22 improve that process and improve the meetings before 13:23 23 we start back up again next year. 13:23 24 CHAIRMAN CLOWE: So what is your 13:23 25 thinking there, Toni? 13:23 133 1 MS. SMITH: With regard to any changes? 13:23 2 CHAIRMAN CLOWE: Yes. 13:23 3 MS. SMITH: I think that the town 13:23 4 meetings are valuable to us, and they give us an 13:23 5 opportunity, not only to hear feedback from our 13:23 6 retainers, but also monitor our vendors. Most of the 13:23 7 retailers are very candid during those meetings and we 13:23 8 get to hear some feedback, and the vendors are there 13:23 9 on hand and it kind of keeps all of us on our toes. 13:23 10 So I think they're valuable. I think we just kind of 13:23 11 maybe need to look at what else we can do to improve 13:23 12 other -- or to increase our attendance or the 13:23 13 frequency. But I do think it's important that we 13:23 14 continue to do them. 13:23 15 CHAIRMAN CLOWE: You know, I think it's 13:23 16 a great time to look at not only maybe the frequency 13:23 17 of them, but the format. You've already talked about 13:23 18 one change in format. But, you know, take a creative 13:23 19 look at how you can make those more interesting and 13:24 20 maybe have a more active exchange of ideas and 13:24 21 thoughts. 13:24 22 MS. SMITH: And I would welcome any 13:24 23 ideas that the Commissioners have, too, with regard to 13:24 24 that, that we could look into. We have the last 13:24 25 couple of meetings, Robert Tirloni, our on-line 13:24 134 1 product manager, has traveled with us and actually 13:24 2 shared with the retailers some different game 13:24 3 enhancements on the on-line side, features called 13:24 4 extra or a bonus ball, to get some feedback. And they 13:24 5 seem to have enjoyed those, too, so we'll definitely 13:24 6 consider all of our options. 13:24 7 CHAIRMAN CLOWE: Good. You've got some 13:24 8 very creative people here who will work to come up 13:24 9 with some good ideas. 13:24 10 MS. SMITH: We will. 13:24 11 MR. GRIEF: Thank you all. 13:24 12 Commissioners, that concludes my report. I'll be 13:24 13 happy to answer any questions you might have for me. 13:24 14 CHAIRMAN CLOWE: I believe we are done, 13:24 15 Gary. 13:24 16 We're ready to go to item 22, 13:25 17 Charitable Bingo Division Director's report. Billy 13:25 18 Atkins. 13:25 19 MR. ATKINS: Thank you, Commissioners. 13:25 20 One item that I did not have the opportunity to put in 13:25 21 my report. We did have a public hearing last 13:25 22 Thursday, October 10th, on proposed new rule 402.558 13:25 23 relating to bingo paper. We did not receive public 13:25 24 testimony at that hearing, but that rule is still ripe 13:25 25 for comment and we have received some written comment 13:25 135 1 regarding that matter. 13:25 2 On staffing, we had two vacancies due 13:25 3 to retirements in our audit section. One in Odessa 13:25 4 and one in Houston. We filled the Odessa position. 13:25 5 And as a matter of fact, that new employee, Annette 13:25 6 Sellers, is here in the very back of the room. 13:25 7 Everybody can turn around and look at her. She is 13:25 8 here this week for her orientation. 13:25 9 We are currently evaluating the Houston 13:26 10 position. We're looking at the number of licensees 13:26 11 and the work load we have in that region and whether 13:26 12 or not it needs to reassigned or filled in Houston. 13:26 13 Under the charitable bingo system 13:26 14 redesign, I'll just let you know that the Keane staff 13:26 15 is here. We meet daily with them on developing the 13:26 16 specifications for that -- for the system. Mike 13:26 17 Fernandez and his staff have been very helpful and 13:26 18 supportive in providing additional oversight and 13:26 19 management of this process. They have recommended, 13:26 20 and I agree with them, that we take our time up front 13:26 21 in order to get those specifications down clearly. In 13:26 22 addition to meeting with the development team daily, 13:26 23 we also meet weekly with the management team, both 13:26 24 Keane and Orstide (phonetic), and we look at the 13:26 25 development of the project so far. Because we've 13:26 136 1 placed an emphasis on the -- a lot of the work being 13:27 2 done up front on the development of the specifications 13:27 3 for the outstanding modules, it has -- they have not 13:27 4 been able to complete their project plan yet. But 13:27 5 once we get those specifications down, it is their 13:27 6 intent to develop and provide to us their project plan 13:27 7 for the completion of the application. 13:27 8 CHAIRMAN CLOWE: Good. Have you got an 13:27 9 estimate of that date? 13:27 10 MR. ATKINS: No, sir, not yet. We need 13:27 11 to finish the specifications so that they can work 13:27 12 those into their project plan and then we'll have 13:27 13 them. I would not expect anything completed by the 13:27 14 end of this year. Because, again, we're not looking 13:27 15 to rush it. We're looking to see to it that it's done 13:27 16 right. I did want to show you, real quickly, there is 13:27 17 a Bingo Advisory Committee meeting scheduled for the 13:27 18 21st, but one of the things that I neglected to 13:27 19 mention in my earlier discussion regarding the vacancy 13:28 20 that we have, what we are doing is, we have included 13:28 21 on our website, the nomination form. So we will just 13:28 22 keep that out there permanently, and in the future, as 13:28 23 people come to that site, as they see it, they can 13:28 24 print out that form and send it in and we will keep it 13:28 25 on record instead of waiting until we have a vacancy 13:28 137 1 or nominations come up, and fill them then. 13:28 2 I do want to remind the Commission that 13:28 3 the North American Gaming Regulators Association's 13:28 4 conference is coming up. It starts this weekend in 13:28 5 Milwaukee. I'll be in attendance, along with Bill 13:28 6 Sanderson, the assistant director, and Veronica Drew, 13:28 7 one of our special projects assistants. She will be 13:28 8 attending, and she is also actually on a panel 13:28 9 discussing pull tabs, and she's going to discuss our 13:28 10 recent experience with the adoption of our new rule 13:29 11 and authorization of different style of pull tab play. 13:29 12 And then finally, Commissioners, I 13:29 13 think I just wanted to get from you if you have any 13:29 14 direction regarding staff's recommendations on the 13:29 15 Sunset recommendations and distribution of those prior 13:29 16 to the presentation to you. 13:29 17 CHAIRMAN CLOWE: Have you got any 13:29 18 comments, Commissioner? 13:29 19 COMMISSIONER COX: Billy, I always feel 13:29 20 like I can be most helpful if I have information that 13:29 21 I can read in advance and have some time to think 13:29 22 about and perhaps ask some questions for 13:29 23 clarification, and kind of come with a pretty informed 13:29 24 idea of what you're going after. 13:29 25 MR. ATKINS: Okay. 13:29 138 1 CHAIRMAN CLOWE: I agree with that, 13:29 2 Billy. And in addition, I would say that I didn't 13:29 3 have any great difficulty with the remarks that you 13:30 4 made earlier today. I think you're headed in a 13:30 5 positive direction. 13:30 6 Did you have any more requests for 13:30 7 direction from the Commissioners in that regard at 13:30 8 this time? Is there any other way we can be helpful 13:30 9 to you? 13:30 10 MR. ATKINS: I don't think so, 13:30 11 Mr. Chairman. I just wanted to make sure that there 13:30 12 wasn't a desire that -- that you have the information 13:30 13 and the ability to consider it before it was 13:30 14 disseminated to the public. If you're comfortable 13:30 15 with that, I'm comfortable with that. 13:30 16 CHAIRMAN CLOWE: I think we are 13:30 17 comfortable with it. 13:30 18 MR. ATKINS: Okay. 13:30 19 CHAIRMAN CLOWE: I think, you know, 13:30 20 it's going to be a work product of you and your staff, 13:30 21 with contributions from the public members that are 13:30 22 working with you, and I think the Commissioners would 13:30 23 be happy to have that product and share it openly. 13:30 24 We're going to deliberate that in the open. It's not 13:31 25 a matter for consideration in executive session, so if 13:31 139 1 Commissioner Cox -- he is indicating he's comfortable, 13:31 2 I am too, and I would assume Commissioner Whitaker 13:31 3 would be as well. 13:31 4 MR. ATKINS: Then we'll do that. 13:31 5 That's all I have under my report. 13:31 6 CHAIRMAN CLOWE: We have completed the 13:31 7 agenda as it is published. I have asked for public 13:31 8 comment prior to the executive session. There was 13:31 9 none. I assume there is none now. And if that is 13:31 10 correct, we have covered the agenda and the business 13:31 11 before the Commission today. The time is 1:36 p.m. 13:31 12 The Commission is now adjourned. Thank you all very 13:31 13 much. 13:31 14 15 16 17 18 19 20 21 22 23 24 25 140 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, 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 24TH day of 17 OCTOBER, 2002. 18 19 20 21 BRENDA J. WRIGHT, RPR, 22 Texas CSR No. 1780 Expiration Date: 12-31-02 23 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 021016BJW