1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 16 TEXAS ADMINISTRATIVE CODE § 6 §402.604 § 7 8 9 PUBLIC HEARING ON RULEMAKINGS 10 Thursday, October 14, 2010 11 12 BE IT REMEMBERED THAT on Thursday, 13 the 14th day of October 2010, the above-entitled public 14 comment hearing was held from 10:00 a.m. to 10:14 a.m., 15 at the Offices of the Texas Lottery Commission, 611 East 16 6th Street, Austin, Texas 78701, before SANDRA JOSEPH, 17 SPECIAL COUNSEL. The following proceedings were 18 reported via machine shorthand by Suzanne Zimmer, a 19 Certified Shorthand Reporter of the State of Texas, and 20 the following proceedings were had: 21 22 23 24 25 2 1 APPEARANCES 2 SPECIAL COUNSEL: 3 Mr. Sandra Joseph 4 MANAGER: Mr. Bruce Miner 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, OCTOBER 14, 2010.......... 4 4 COMMENTS ON BEHALF OF STATE VFW VETERANS OF FOREIGN WARS AND K AND B SALES, INC., d/b/a GOOD TIME ACTION 5 GAMES (Fenoglio).................................. 4 6 REPORTER'S CERTIFICATE............................ 12 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 P R O C E E D I N G S 2 Thursday, October 14, 2010 3 (10:00 a.m.) 4 MS. JOSEPH: Good morning. For the record 5 my name is Sandra Joseph, Special Counsel with the Legal 6 Division. Sitting up with we is Bruce Miner, Manager of 7 Tax Payer Services Division -- excuse me -- section of 8 the Charitable Bingo Operations Division. We're here 9 this morning to receive public comments on Charitable 10 Bingo Administrative Rule 16 TAC §402.604. Amendments 11 were published in the Texas Register on September 24th, 12 2010. 13 At this time, I have received one witness 14 affirmation form Mr. Stephen Fenoglio, and be happy to 15 receive comments from him at this time. 16 COMMENTS ON BEHALF OF STATE VFW VETERANS OF FOREIGN WARS 17 AND K AND B SALES, INC., d/b/a GOOD TIME ACTION GAMES 18 MR. FENOGLIO: For the record, my name is 19 Stephen Fenoglio. I'm an attorney in Austin, Texas. I 20 represent the State VFW Veterans of Foreign Wars, its 21 member posts and membership, as well as K and B Sales, 22 Inc., d/b/a Good Time Action Games and would like to 23 comment. I've provided additional language that's 24 related to my comment on the proposed rules 25 §402.604(f)(1). After the first sentence of the 5 1 proposal, add the following language: 2 "In the case of a lease of cardminders, 3 the distributor must bill the licensing weekly and 4 collect from the licensee all sums billed for the 5 cardminders within five (5) business days of issuance of 6 the weekly bill. If the distributor does not timely 7 receive payment, the distributor must deactivate the 8 cardminders for such licensee for which payment has not 9 be received under this subsection." 10 A little background. There are three ways 11 by which -- and this concerns only cardminders. There 12 are three ways by which licensed authorized 13 organizations can acquire cardminders. The first way is 14 the traditional lease, and the second way is where a 15 charity will buy the hardware, and then lease software 16 through a license agreement. The third way is where the 17 charity, or the licensed organization buys both hardware 18 and software and enters a lease agreement -- or a 19 license agreement by which a distributor provides 20 maintenance and needed updates. 21 The language that's in the current 22 proposal deals with the traditional sale of hard 23 product, meaning pull tabs and paper. In the case of 24 cardminders, those aren't delivered on a periodic basis. 25 They're in the hall; they've already been installed. It 6 1 is tremendous cost and time. 2 And so the question is: If a licensed 3 authorization is not -- is on what I call the "prompt 4 pay requirement" that's mentioned other than in the 5 rule, then how do they timely pay for cardminders? And 6 the language which I'm suggesting is -- which I 7 understand to be the industry standard -- they're issued 8 invoices weekly. And in the case of a licensed 9 authorized organization or a unit that's on the bad 10 list, the prompt pay list, then they would be required 11 to make that payment within five business days of 12 receipt of the invoice. 13 And if the distributor does not receive 14 that payment for, or perhaps receive partial payment, 15 then they would have to deactivate the cardminders for a 16 licensee for which payment has not been received. And 17 so, for example, if there were a 100 cardminders in the 18 bingo hall, and the charity that's on the prompt pay 19 list only paid for 50, they wouldn't deactivate the 20 entire 100. They would deactivate the 50 machines for 21 which prompt payment had not been made. 22 The language in the proposal, and what 23 I've seen through the years, and I'm sure Staff has the 24 same -- the language in proposed Subsection 1 and Line 25 16 of the proposal as it is written says, within three 7 1 business days. We don't really have a problem with 2 that, but if you have a five business day rule on the 3 other -- on the new language, assuming Staff agrees, 4 it's an invitation for someone to get confused. So 5 perhaps it should be the same five business days. We 6 don't have a hard position on -- again, the proposed -- 7 the language that's published says five business days, 8 but I can see some people getting confused. Well, I 9 thought I had five on both. You're right. I didn't do 10 it. And so it may be -- for consistency purposes, it 11 may be better to have a five business day. 12 We talked among ourselves about should we 13 keep the three business day rule, and mail service being 14 what it is, in some areas, if you put the check in the 15 mail today, it's there tomorrow. In other areas, 16 distance areas, it can take two and three business days 17 at minimum, and we didn't want to have someone get 18 tagged by, well, we missed it by, in the words of 19 Maxwell Smart, that much, Chief. And so that's why we 20 went with a five business day rule. 21 I'm told that my clients will also give me 22 additional language soon, and we'll run that by the 23 Commission Staff before the comment period is open. I 24 believe my comments are broad enough now to allow that 25 to happen, but if not, then we'll make sure we address 8 1 this. And I'll be happy to answer any questions. 2 This is how we look at it from our 3 viewpoint. I know Staff sees it from a different way. 4 I can tell you that also in the situation where 5 charities have bought the hardware and then leased the 6 software through a license agreement, there have been 7 some instances where the charities didn't make a timely 8 payment, or before they got to the timely payment, they 9 renegotiated the commercial transaction. 10 Purchasing the hardware, if you're talking 11 about 2- to 500 units, is pretty expensive. And what 12 they typically do is they -- and I know I talked with 13 Phil about this a couple of years ago. They'll do a 14 one-year, two-year note so that they're not paying the 15 entire amount in one fell swoop to -- like people do on 16 installment terms for an automobile. And in the 17 commercially reasonable sense, they're not paying 18 everything within 30 days, obviously, but they're making 19 their timely payments, and therefore they're not under 20 default. 21 It's been my understanding from the 22 Staff's situation that you-all have never taken the 23 position of someone financing that purchase, that all 24 the money has to be paid in the 30 days, that is -- 25 whatever the commercially reasonable negotiated arm's 9 1 length of the transaction gives. 2 Be happy to answer any questions or 3 respond. 4 MS. JOSEPH: All right. I have a couple 5 questions about your -- 6 MR. FENOGLIO: Sure. 7 MS. JOSEPH: -- proposed additional 8 language. 9 First of all, it says, The distributor 10 must bill the licensee weekly and collect from the 11 licensee all sums billed within five business days. I 12 notice the portion that says, the distributor must 13 collect. That seems, to me, placing the burden on the 14 distributor to collect as opposed to the -- 15 MR. FENOGLIO: Licensee paid. 16 MS. JOSEPH: -- licensee paying. I'm just 17 wondering if it would be -- what you think about 18 changing that language to putting the burden on the 19 licensee paying? 20 MR. FENOGLIO: We may not have a problem 21 with that. 22 MS. JOSEPH: Okay. 23 MR. FENOGLIO: Because I think the other 24 language -- that's similar to the other language where 25 the licensee must pay. 10 1 MS. JOSEPH: All right. And then the 2 other question -- the last sentence, it says, "If the 3 distributor does not timely receive payment the 4 distributor must deactivate. . ." What about putting 5 some kind of time period, or suggestion of time period 6 within which the distributor must deactivate? I mean, I 7 don't know if it would be, must immediately deactivate, 8 or -- I mean, the way it is, it leaves open the question 9 of when do they have to deactivate. 10 MR. FENOGLIO: And maybe must deactivate 11 within two business days of the nonpayment. And again, 12 we don't want to lose track of the cardminders for which 13 payment hasn't been made, because they're -- I'm sure 14 they're have been situations, I don't know of any 15 personally, where they didn't pay for everything, but 16 they paid as much as they could. 17 MS. JOSEPH: All right. 18 MR. FENOGLIO: You're right. It is 19 unclear -- 20 MS. JOSEPH: Where? 21 MR. FENOGLIO: -- what we're going -- 22 deactivate next year. 23 MS. JOSEPH: All right. 24 MR. FENOGLIO: And that's not what is 25 intended. 11 1 MS. JOSEPH: Okay. Do you have any 2 questions, Mr. Miner? 3 MR. MINER: No questions. 4 MS. JOSEPH: Okay. All right. I don't -- 5 I see no one else has appeared. I have no other witness 6 affirmation forms. 7 If there's nothing further, Mr. Fenoglio? 8 MR. FENOGLIO: There's not. Thank you. 9 MS. JOSEPH: Thank you. 10 Then this hearing is adjourned at 10:14. 11 Thank you very much. 12 (Proceedings concluded at 10:14 a.m.) 13 14 15 16 17 18 19 20 21 22 23 24 25 12 1 C E R T I F I C A T E 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SUZANNE ZIMMER, a Certified Shorthand 7 Reporter in and for the State of Texas, do hereby 8 certify that the above-mentioned matter occurred as 9 hereinbefore set out. 10 I FURTHER CERTIFY THAT the proceedings of such 11 were reported by or under my supervision, later reduced 12 to typewritten form under my supervision and control and 13 that the foregoing pages are a full, true and correct 14 transcription of the original notes. 15 IN WITNESS WHEREOF, I have hereunto set my 16 hand and seal this 21st day of October 2010. 17 18 _________________________________ 19 SUZANNE ZIMMER Certified Shorthand Reporter 20 CSR No. 8323-Expires 12/31/10 21 Firm Registration No. 276 Kennedy Reporting Service, Inc. 22 Cambridge Tower 1801 Lavaca Street, Suite 115 23 Austin, Texas 78701 512.474.2233 24 25