0001 1 TRANSCRIPT OF PROCEEDINGS BEFORE THE 2 TEXAS LOTTERY COMMISSION AUSTIN, TEXAS 3 4 REGULAR MEETING OF THE ? TEXAS LOTTERY COMMISSION ? 5 TUESDAY, MARCH 9, 2010 ? 6 COMMISSION MEETING 7 TUESDAY, MARCH 9, 2010 8 9 BE IT REMEMBERED THAT on Tuesday, the 9th day 10 of March 2010, the Texas Lottery Commission meeting 11 was held from 9:01 a.m. to 12:45 p.m., at the Offices 12 of the Texas Lottery Commission, 611 East 6th Street, 13 Austin, Texas 78701, before CHAIRMAN MARY ANN 14 WILLIAMSON, and COMMISSIONERS DAVID J. SCHENCK and J. 15 WINSTON KRAUSE; and the following proceedings were 16 reported via machine shorthand by Lorrie A. Schnoor, a 17 Certified Shorthand Reporter of the State of Texas, 18 RMR, CRR, BCRP, and the following proceedings were 19 had: 20 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONERS: Mr. David J. Schenck 5 Mr. J. Winston Krause 6 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 7 DEPUTY EXECUTIVE DIRECTOR: 8 Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Philip D. Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS, THURSDAY, MAY 14, 2009............. 8 4 AGENDA ITEM NO. I - The Texas Lottery Commission will call the meeting to order.................. 8 5 AGENDA ITEM NO. II - Report, possible discussion 6 and/or action on the lottery operations and services procurement, including but not limited 7 to the Gartner contract(s)...................... 8 8 AGENDA ITEM NO. III - Consideration of and possible discussion and/or action, including 9 adoption or withdrawal, on new rule, 16 TAC ?402.104 relating to ?Gambling Promoter? 10 and ?Professional Gambler? and/or on amendments to 16 TAC ?401.153 relating to Qualifications for 11 License......................................... 26 12 AGENDA ITEM NO. IV - Report by the Bingo Advisory Committee Chairman, possible discussion and/or 13 action on the Bingo Advisory Committee?s activities, including the February 10, 2010 14 Bingo Advisory Committee meeting................ 37 15 AGENDA ITEM NO. V - Report, possible discussion and/or action on calendar year 2009 bingo 16 conductor information........................... 47 17 AGENDA ITEM NO. VI - Consideration of and possible discussion and/or action, including 18 proposal, on new 16 TAC ?402.514 relating to Electronic Funds Transfer Recordkeeping......... 53 19 AGENDA ITEM NO. VII - Consideration of and 20 possible discussion and/or action, including proposal, on amendments to 16 TAC ?402.506 21 relating to Disbursement Records Requirement.... 57 22 AGENDA ITEM NO. VIII - Consideration of and possible discussion and/or action, including 23 proposal, on amendments to 16 TAC ?402.600 relating to Bingo Reports....................... 57 24 25 0004 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action, including 4 proposal, on new 16 TAC ?402.450 relating to Requests for Waiver............................. 58 5 AGENDA ITEM NO. X - Consideration of and possible 6 discussion and/or action, including proposal, on new 16 TAC ?402.451 relating to Operating 7 Capital......................................... 58 8 AGENDA ITEM NO. XI - Consideration of and possible discussion and/or action, including 9 proposal, on new 16 TAC ?402.452 relating to Net Proceeds........................................ 58 10 AGENDA ITEM NO. XII - Consideration of and 11 possible discussion and/or action, including proposal, on new 16 TAC ?402.453 relating to 12 Request for Operating Capital Increase.......... 59 13 AGENDA ITEM NO. XIII - Consideration of and possible discussion and/or action, including 14 proposal, on amendments to 16 TAC ?402.101 relating to Advisory Opinions................... 59 15 AGENDA ITEM NO. XIV - Report by the Charitable 16 Bingo Operations Director and possible discussion and/or action on the Charitable Bingo Operations 17 Division?s activities, including updates on HB 1474 implementation, Bingo Advisory Committee 18 nominations, status of licensees, rulemaking and form revisions, audits, pull-tab review, special 19 projects, allocations, and upcoming operator training........................................ 71 20 AGENDA ITEM NO. XV - Report, possible discussion 21 and/or action on lottery sales and revenue, game performance, new game opportunities, advertising, 22 market research, trends, and game contracts, agreements, and procedures...................... 73 23 AGENDA ITEM NO. XVI - Report, possible discussion 24 and/or action on transfers to the State......... 83 25 0005 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XVII - Report, possible discussion and/or action on the 5% biennial 4 budget reduction for the 2010-2011 biennium..... 84 5 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action on the 81st 6 Legislature..................................... 92 7 AGENDA ITEM NO. XIX - Report, possible discussion and/or action on HUB and/or minority business 8 participation including the agency?s Mentor Prot?g? Program and the agency?s FY 2009 9 Minority Business Participation Report.......... 94 10 AGENDA ITEM NO. XX - Consideration of and/or report, possible discussion and/or action on 11 external and internal audits and/or reviews relating to the Texas Lottery Commission, 12 and/or on the Internal Audit Department?s activities...................................... 104 13 AGENDA ITEM NO. XXI - Consideration of and 14 possible discussion and/or action, including adoption, on amendments to 16 TAC ??401.201, 15 401.203, 401.205, 401.211, 401.216, and 401.220; and, on repeal of 16 TAC ??401.204, 16 401.206, 401.207, 401.208, 401.209, 401.210, 401.212, 401.213, 401.214, 401.215, 401.217, 17 401.218, 401.219, 401.221, 401.222, 401.223, 401.224, 401.225, 401.226, 401.228, and 18 401.229, all rules in 16 TAC Chapter 401, Subchapter C, Practice and Procedures rules..... 105 19 AGENDA ITEM NO. XXII - Report, possible 20 discussion and/or action on GTECH Corporation... 113 21 AGENDA ITEM NO. XXIII - Report by the Executive Director and/or possible discussion and/or 22 action on the agency?s operational status, agency procedures, and FTE status............... 113 23 AGENDA ITEM NO. XXIV - Consideration of the 24 status and possible entry of orders in: A. Docket No. 362-10-1829 ? 25 Indio Food Mart 0006 1 TABLE OF CONTENTS 2 PAGE 3 B. Docket No. 362-10-1828 ? Zips Mart C. Docket No. 362-10-1827 ? Times Market 4 #114 D. Docket No. 362-10-1826 ? Buy Low 5 Discount Plus E. Docket No. 362-10-1250 ? Ramon?s Beer 6 and Market Store F. Docket No. 362-10-1253 ? Quik Mart 7 G. Docket No. 362-10-1252 ? Exxon Super Stop #30 8 H. Docket No. 362-10-1251 ? 34 Express, Inc. 9 I. Case No. 2009-1127 ? Tetco #260 J. Docket No. 362-10-0723 ? Harvest Food 10 Store................................... 113 11 AGENDA ITEM NO. XXV - Public comment............ 123 12 AGENDA ITEM NO. XXVI - Commission may meet in Executive Session: 13 A. To deliberate the appointment, employment, and duties of the Executive 14 Director pursuant to Section 551.074 of the Texas Government Code 15 B. To deliberate the duties and evaluation of the Deputy Executive Director 16 pursuant to Section 551.074 of the Texas Government Code 17 C. To deliberate the duties and evaluation of the Internal Audit Director pursuant 18 to Section 551.074 of the Texas Government Code 19 D. To deliberate the duties and evaluation of the Charitable Bingo Operations 20 Director pursuant to Section 551.074 of the Texas Government Code 21 E. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 22 the Texas Government Code F. To deliberate the duties of the Human 23 Resources Director pursuant to Section 551.074 of the Texas Government 24 Code 25 0007 1 TABLE OF CONTENTS 2 PAGE 3 G. To receive legal advice regarding pending or contemplated litigation 4 pursuant to Section 551.071 (1)(A) and/or to receive legal advice regarding 5 settlement offers pursuant to Section 551.071 (1)(B) of the Texas 6 Government Code and/or to receive legal advice pursuant to Section 551.071 7 (2) of the Texas Government Code, including but not limited to: 8 First State Bank of DeQueen et al. v. Texas Lottery Commission 9 Texas Lottery Commission v. Leslie Warren, Texas Attorney General Child Support 10 Division, Singer Asset Finance Company, L.L.C., and Great-West Life & Annuity 11 Insurance Company Gametech International et al. v. Greg 12 Abbott Employment law, personnel law, procurement and contract law, 13 evidentiary and procedural law, and general government law 14 Lottery Operations and Services procurement and/or contract 15 Mega Millions game and/or contract...... 123 16 AGENDA ITEM NO. XXVII - Return to open session for further deliberation and possible action on 17 any matter discussed in Executive Session....... 124 18 AGENDA ITEM NO. XXVIII - Adjournment............ 126 19 REPORTER'S CERTIFICATE.......................... 128 20 21 22 23 24 25 0008 1 P R O C E E D I N G S 2 TUESDAY, MARCH 9, 2010 3 (9:04 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I'd 6 like to call the meeting of the Texas Lottery to 7 order. Today is March the 9th, 2010. The time is 8 9:04. Commissioners Schenck and Krause are present, 9 so we do have a quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: The first item is, 12 "Report, possible discussion and/or action on lottery 13 operations and services procurement, including but not 14 limited to the Gartner contract(s)." 15 Commissioners, today we have with us 16 Representative Quintanilla again. 17 REP. QUINTANILLA: Thank you. 18 CHAIRMAN WILLIAMSON: Good to have you 19 with us as well as staff members, I believe, from our 20 oversight committee, our licensing committee, and we 21 welcome you here as well. 22 And at this time, we have -- this is in 23 connection with our meeting in February. We all 24 received a copy of the agency's Legal Services 25 Division report to the executive deputy director. We 0009 1 also have a supplemental report that updates this 2 matter since that February meeting; and Bob Biard, our 3 assistant general counsel, will lay out the update for 4 us, and after that, then we'll have opportunities for 5 questions and comments or whatever else you gentlemen 6 like. 7 So, Bob, if you'd go ahead, please. 8 MR. BIARD: Thank you. 9 Good morning, Commissioners. My name is 10 Bob Biard, assistant general counsel with the Legal 11 Services Division. With me today is Andy Marker, the 12 section chief of the general counsel's office. 13 At the February 11th open meeting, the 14 Legal Services Division presented a report on its fact 15 finding and review regarding certain contracts between 16 Gartner, Inc., and GTECH Corp. following the 17 disclosure by Gartner in December of a consulting 18 contract between those two TLC vendors. At the 19 meeting, representatives of Gartner and GTECH provided 20 sworn testimony on the subject of internal and 21 external communications between or among Gartner and 22 GTECH employees concerning the request for proposals 23 for lottery operations and services issued by the TLC 24 on January 4th. Gartner and GTECH each committed to 25 provide additional information in response to requests 0010 1 made by the commissioners and State Representative 2 Quintanilla of the House Licensing and Administrative 3 Procedures Committee. 4 Since the February meeting, Gartner and 5 GTECH have provided additional information, copies of 6 which have been provided to you. The information 7 provided by Gartner includes statements regarding past 8 consulting contracts with potential proposers to the 9 Lottery Operator RFP. Counsel for Gartner represented 10 that Camelot is the only potential proposer with whom 11 Gartner has had any consulting contracts in the past. 12 In addition, in response to a request 13 from Commissioner Schenck, counsel for Gartner 14 submitted 11 affidavits from Gartner employees who 15 worked on either the Gartner TLC Supplemental 16 Agreement or the Gartner/GTECH Project Management 17 Office Consulting Contract regarding each employees' 18 communications regarding the respective contracts. 19 In addition, since the last meeting, 20 GTECH's account development manager notified the -- 21 for Texas notified the TLC of additional policies and 22 procedures that GTECH is implementing to help detect 23 and eliminate potential conflicts of interest in the 24 company's business dealings. 25 The general counsel, the commission's 0011 1 general counsel, requested GTECH to follow up on a 2 prior commitment to provide certifications from GTECH 3 employees involved in either the GTECH TLC contract or 4 the Gartner/GTECH contracts regarding each employees' 5 knowledge of the respective agreements, and GTECH has 6 provided a set of GTECH employee email statements in 7 response to this request. Also, after materials were 8 provided to you for this meeting, GTECH has 9 supplemented those email statements with affidavits 10 from those same employees. 11 In summary, we believe that the sworn 12 testimony provided at the last Commission meeting and 13 the affidavits, certifications, and other information 14 that Gartner and GTECH have provided to the TLC since 15 that meeting strengthen the record of our own fact 16 finding and review to support a conclusion that there 17 was no sharing of information between Gartner and 18 GTECH regarding the procurement and no improper 19 influence on the RFP. 20 I'll be happy to answer any questions. 21 CHAIRMAN WILLIAMSON: Thank you, Bob. 22 Also, Commissioners, just so you know, 23 there are representatives with Gartner and GTECH here 24 that can answer any questions that you may have. 25 Kim, do we have affidavits from all 0012 1 parties that might be subject to questioning so we 2 know that they'll be subject to -- this would be -- 3 that they would be giving sworn testimony in case they 4 are asked questions? 5 MS. KIPLIN: Yes. The representative 6 with Gartner has provided that, and I believe you have 7 it. 8 CHAIRMAN WILLIAMSON: Right. 9 MS. KIPLIN: And I'm not sure about 10 GTECH, but should anybody come forward that you wanted 11 to ask questions, we'd make sure that they would 12 complete that Witness Affirmation Form. 13 CHAIRMAN WILLIAMSON: All right. Thank 14 you. 15 And, Representative Quintanilla, as 16 well, if you have any questions or comments or 17 anything. 18 So, gentlemen, do you have any questions 19 that you'd like to ask Bob or ask any of the 20 representatives of the companies? 21 COMMISSIONER KRAUSE: I don't think I 22 do. I thought we had a pretty good hearing last time, 23 and I feel satisfied that we, you know, pretty well 24 not only got to the bottom of it but that we enjoyed 25 having the cooperation of the parties. 0013 1 COMMISSIONER SCHENCK: I have just a 2 couple of questions for Gartner, if we can talk to 3 them. 4 CHAIRMAN WILLIAMSON: If they could come 5 up and -- 6 MR. RUGRODEN: Good morning, 7 Commissioner. 8 COMMISSIONER SCHENCK: Good morning. 9 Could you state your name for the record, please? 10 MR. RUGRODEN: Brett Allen Rugroden. 11 COMMISSIONER SCHENCK: Thank you. And 12 you are CEO at Gartner, if I'm remembering, or what is 13 your title at Gartner? 14 MR. RUGRODEN: I am a vice president, 15 and I lead our state and local government industry in 16 North America. 17 COMMISSIONER SCHENCK: Well, I 18 appreciate your coming last time, and I appreciate 19 your coming again; and I also appreciate the work that 20 Scott Douglas did in putting together the affidavits I 21 requested and answering some of the questions that I 22 and Representative Quintanilla had. I haven't had a 23 chance to go through all of the affidavits that have 24 been prepared, but I appreciate very much that you did 25 go to your employees in your workforce and prepared 0014 1 the affidavits. And it's in my nature to look for 2 exhausting details to the words that people use in 3 documents like this, so I'm just going to ask a couple 4 more general questions. 5 Are you confident that we have now 6 gotten an affidavit from everyone who had access to 7 information relating to the contract that you 8 performed for us at the Texas Lottery Commission? 9 MR. RUGRODEN: I'm confident that we 10 have affidavits for everyone who worked on the TLC 11 project and who had any documentation related to the 12 RFP of this. 13 COMMISSIONER SCHENCK: Again, that's the 14 words that are used in the affidavit, that are worked 15 on or billed time to. 16 My question is whether you are confident 17 that everyone who had access to the information has 18 provided us an affidavit so that we can be sure that 19 the information didn't trade hands to anyone at 20 Gartner who was also working on a GTECH matter. 21 MR. RUGRODEN: Yes, sir, and I just want 22 to be clear about what you mean by "information" 23 because, for example, information could have been our 24 proposal or our contract with TLC in which case that 25 contract that we had, that contractual document, you 0015 1 know, could be in places within accounting or within 2 our legal group. So if that is what you mean by 3 "information," we do not have affidavits from those 4 people. We have affidavits from all those people who 5 were working on the TLC -- 6 COMMISSIONER SCHENCK: Okay. 7 MR. RUGRODEN: -- project. 8 COMMISSIONER SCHENCK: You mentioned 9 accounting, your legal department. What about 10 secretaries? Would those people have access to 11 information that could be possibly migrating to the 12 Gartner employees who were working on a GTECH matter? 13 MR. RUGRODEN: Not any relevant 14 information, by my understanding, Commissioner. 15 COMMISSIONER SCHENCK: What do you 16 understand relevant information to be? 17 MR. RUGRODEN: Relevant information 18 would be information, for example, that would provide 19 any third party -- you know, GTECH or other, some 20 information or competitive advantage for, you know, 21 bidding on the work that the TLC let in an RFP. 22 COMMISSIONER SCHENCK: Okay. I'm not so 23 worried about the accounting department; I'm not 24 worried about secretaries. 25 MR. RUGRODEN: Right. 0016 1 COMMISSIONER SCHENCK: Because my 2 understanding is that there was a physical separation 3 of different offices working on these two contracts. 4 But the legal department, I think you've 5 suggested it was excluded from your search of people 6 who might be having access to information on both of 7 these contracts. Do we not have any affidavits or 8 anything to close down the loop on people inside your 9 legal department who would have had access to both 10 sets of contracts at the same time? 11 MR. RUGRODEN: Commissioner, I was not 12 involved in defining the full set of those, you know, 13 who we would have affidavits from, but we certainly do 14 not have affidavits from anyone in our legal 15 department that we've submitted at this time. 16 COMMISSIONER SCHENCK: Okay. Very good. 17 Thank you very much. 18 MR. RUGRODEN: Yeah. 19 CHAIRMAN WILLIAMSON: Any other 20 questions, comments? 21 (No response) 22 All right. Let's see. At this time, I 23 think Deputy Director Grief had some comments he would 24 like to share. 25 MR. GRIEF: Good morning, Commissioners. 0017 1 I appreciate the opportunity to share with you my 2 thoughts on this matter, and I'd also like to share my 3 intentions with you going forward. 4 At the last commission meeting, I 5 provided you with an action plan. First, I told you 6 that I would be asking agency staff to amend the RFP 7 schedule of events to provide ample time for vendors 8 to prepare and submit their responses to the RFP in 9 light of the delay that's been caused by this matter. 10 That has been done, and the due date for responses has 11 now been extended from April the 27th to May the 27th. 12 Secondly, I committed to carefully 13 review the original report that was prepared by the 14 Legal Services Division, the transcript from the last 15 commission meeting, and the affidavits and the 16 documents that were requested by staff, by the 17 commissioners, by Representative Quintanilla, and 18 provided by both Gartner and GTECH. And I have 19 completed my review of those items. 20 Third, I committed to explore all 21 avenues to recoup the monies that have been paid to 22 Gartner based on the impact that the lack of proper 23 controls within their organization has had upon our 24 lottery operator procurement process. As you know, 25 Gartner's failure to avoid a simultaneous contract 0018 1 situation with both GTECH and the Texas Lottery 2 Commission has resulted in a great expense of time and 3 resources, both for this agency and for the State of 4 Texas, and I believe that Gartner needs to take 5 responsibility for that. It was with that in mind 6 that my key staff and I initiated a series of meetings 7 with Gartner's outside counsel last week with the goal 8 being to reach an agreement as to an adequate remedy 9 for the damage and inconvenience that Gartner has 10 caused. 11 Unfortunately, those meetings did not 12 result in such an agreement. Therefore, last Friday, 13 I sent a letter to Gartner, of which each of you were 14 copied, and I asked Gartner to take appropriate action 15 to alleviate the damage and the inconvenience that 16 they've caused and to do the right thing for the State 17 of Texas by returning all the money that has been paid 18 under our supplemental agreement with Gartner. I 19 asked Gartner to provide me with a response by five 20 o'clock p.m. yesterday, and as of now, I still await 21 their response. 22 And finally, I committed to consider any 23 additional information that might come from any 24 legislative hearing that might be called on this 25 matter. 0019 1 As Chairman Williamson alluded to in her 2 opening remarks today, Representative Jones has been 3 asked by Chairman Kuempel to conduct a subcommittee 4 examination of Texas Lottery Commission requests for 5 proposals. I received a request from Chairman 6 Kuempel's office yesterday to respond to a list of 7 questions from Representative Jones. I spoke to 8 Representative Jones yesterday regarding his 9 questions, and I provided my responses to Chairman 10 Kuempel's office. And you also have received a copy 11 of my response letter. 12 We will, of course, be attentive and 13 responsive to any further requests for information or 14 guidance that may come from the legislature on this 15 matter. 16 In conclusion -- I've said it at a 17 previous meeting, and I'll say it again today -- I 18 believe the agency has issued an RFP that we can be 19 proud of. I've determined that the review of this 20 matter, which was conducted by our Legal Services 21 Division at my request, as well as the sworn testimony 22 from representatives of both Gartner and GTECH at the 23 last commission meeting and today, along with all the 24 additional information that has been provided to us 25 since that time, all shows no evidence of any actual 0020 1 conflict of interest in the Gartner/GTECH contractual 2 relationship that might have influenced or biased in 3 any way the RFP that this agency issued January 4th, 4 2010. 5 In addition, as I was actively involved 6 in all of the meetings with the outside consultants, 7 including Gartner, I know that every major decision 8 included in our RFP was made by members of the senior 9 management team; and I personally observed no evidence 10 whatsoever of any bias or influence on the part of 11 Gartner. Therefore, I intend to allow the lottery 12 operator procurement to proceed under the current RFP, 13 incorporating the revised schedule of events that has 14 been put in place since our last commission meeting. 15 Commissioners, that concludes my remarks 16 this morning. I would be happy to answer any 17 questions or receive any guidance from you. 18 CHAIRMAN WILLIAMSON: Gentlemen, do you 19 have any questions? 20 COMMISSIONER KRAUSE: No, ma'am. 21 COMMISSIONER SCHENCK: Well, Gary, I 22 spoke on this subject last meeting, and as you know, 23 there's some things I disagree with in the RFP. 24 There's going to be things lots of people disagree 25 with. But this is -- no one has a right to a perfect 0021 1 process. It doesn't work that way, and this is your 2 call. And I think you've made sound decisions in 3 accordance with what you view as the best interest of 4 the lottery, and I think that's all we can ask for. 5 My one question about this process is 6 whether you've heard from all of the prospective 7 bidders and whether they agree that this process of 8 giving them additional time to object is enough or 9 whether you've had any feedback of any kind that would 10 portend what kind of issues, if any, we're going to 11 have three or six months from now. Have you heard 12 anything from them? 13 MR. GRIEF: Well, Commissioner, what's 14 been stated on the record before is this matter came 15 to light while the protest period was still in play at 16 the beginning of the RFP process, and we received no 17 protests during that time. 18 Now, as to what might be out there and 19 being discussed, I can't really speak to that. But I 20 can tell you, I've received no direct communication 21 from any of the potential vendors on this matter. 22 COMMISSIONER SCHENCK: Okay. And then 23 with respect to your efforts to negotiate with 24 Gartner, I suppose it's not an entire surprise that 25 they're not eager to write checks at this point, but 0022 1 perhaps it's better at this point that you haven't 2 come to a conclusive agreement because I suspect the 3 meter is still running on some of these things. We 4 may face protests; we may spend time, money, and other 5 things. 6 I don't know if that was part of your 7 negotiation with Gartner, but it seems to me -- I 8 don't know if you're talk -- and I don't want to get 9 too far out in the public record on this. I don't 10 think there was malfeasance on Gartner's side. I 11 think it was misfeasance, nonfeasance. They made a 12 mistake. It's going to cost us a lot of money. As 13 between the two of us, somebody ought to bear that 14 loss, and I don't think it's us. But that, maybe, is 15 for someone else to decide, like a judge, and maybe 16 this is not the right place to be debating that. 17 But I appreciate your efforts to pursue 18 that issue. And I would encourage you to consider, 19 along with general counsel, Kim, just where we go with 20 that. But right now, I think your first priority is 21 getting this RFP moving forward. And to the extent 22 you can look to general counsel to help you with these 23 things, I'm sure she'll take the lead on it. 24 MR. GRIEF: Thank you, Commissioner. 25 CHAIRMAN WILLIAMSON: Thank you. 0023 1 Representative, do you have any comments 2 or thoughts you'd like to share? 3 REP. QUINTANILLA: Chente Quintanilla, 4 State Representative. 5 I just have one question for you, Gary. 6 You said that you extended the -- is it the submittal 7 period -- from April to May -- 8 MR. GRIEF: The due date -- 9 REP. QUINTANILLA: -- give everybody an 10 opportunity to submit? 11 MR. GRIEF: Representative, since this 12 whole matter kind of put a cloud over our process, if 13 you will, I think some of our -- in the interest of 14 giving our potential vendors the benefit of the doubt, 15 that they may have set aside their work in preparing 16 to submit their bid. They may have put things on 17 hold, if you will. 18 REP. QUINTANILLA: Okay. 19 MR. GRIEF: Thought it would be in the 20 best interest to extend the due date for proposals by 21 an additional 30 days so we could make sure the 22 Commission had an opportunity to wrap up this matter. 23 REP. QUINTANILLA: And once you receive 24 all the proposals from two, three, or four companies 25 that are listed here, how will the process work now? 0024 1 You will then go into reviewing the bids, and what is 2 their time line? 3 MR. GRIEF: The process, Representative, 4 is that I appoint an Evaluation Committee made up of 5 staff here at the agency, and we also have acquired a 6 staff member, the director of the procurement division 7 over at the State Controller's Office to serve on that 8 committee as well. They will have assistance from our 9 inside counsel, our external counsel, and any other 10 consultants that we may use during that process. 11 Ultimately, they will review and score all of the 12 proposals that come in, the technical proposals. Then 13 they'll look at the cost proposals, and there will be 14 some math that's done to calculate who the winning bid 15 is at the time. 16 REP. QUINTANILLA: Okay. And I also 17 agree that, you know, the process to recover from 18 Gartner is -- you know, should be reasonable and, you 19 know, they should come to the table and take some of 20 the blame or, you know, the responsibility for what 21 has occurred to this Commission. So if it does, you 22 know, I don't know how long it will go into the 23 process. But like David said, I mean, we just have to 24 wait and see and let the process -- the system take 25 care of itself. 0025 1 Thank you. 2 CHAIRMAN WILLIAMSON: Thank you, and 3 we're happy that you're here with us again. 4 COMMISSIONER SCHENCK: If I might add 5 one thing. I think Representative Quintanilla asked a 6 question of Gartner at the last meeting about whether 7 they had consulting contracts with other of our 8 potential bidders. I think we did get a letter back 9 from Scott Douglas on that, and I believe -- Gary, 10 help me out here -- that the only contract they 11 identified was one with Camelot, which, as I recall, 12 is a UK company. Camelot is not one of our -- has not 13 raised their hand as a potential responder to the RFP, 14 are they? 15 MR. GRIEF: Yes, they have, 16 Commissioner. 17 COMMISSIONER SCHENCK: Okay. 18 MR. GRIEF: They have been an active 19 participant throughout the process thus far. 20 COMMISSIONER SCHENCK: Okay. Are you 21 comfortable we've gotten all the information we need 22 out of Gartner with respect to this relationship that 23 they have with Camelot? 24 MR. GRIEF: Yes, sir, I am. 25 COMMISSIONER SCHENCK: Okay. 0026 1 CHAIRMAN WILLIAMSON: All right. Kim, 2 is there any action we need to take on this item? 3 MS. KIPLIN: No, there's no action 4 necessary. 5 AGENDA ITEM NO. III 6 CHAIRMAN WILLIAMSON: All right. If 7 there are no further comments, we will go on to Item 8 No. III. This is consideration of and possible 9 discussion and/or action, including adoption or 10 withdrawal, of new rule, 16 TAC 402.104, relating to 11 "Gambling Promoter" and "Professional Gambler" and/or 12 on amendments to 16 TAC 401.153 relating to 13 qualifications for licensing. 14 Commissioners, this item was on the 15 agenda on the January 6th, 2010 meeting and the 16 February the 11th, 2010 meeting. 17 At the February meeting, I informed you 18 that I had met with Chairman Kuempel of our oversight 19 committee, and at that time he had submitted a comment 20 and request on this item. He asked that -- he 21 wants -- and the -- to address this definition in the 22 next legislative session. And as I shared with all of 23 you, at that point, I feel like it is in our best 24 interest, and it should be our policy, if our 25 oversight committee chair requests that they handle it 0027 1 that way, then I strongly recommend that that's what 2 we do. 3 I also told him that this agency would 4 serve as a valuable resource when he -- when this 5 legislation was to be drawn up. I specifically 6 referred that you would probably be very interested in 7 participating in that process because I know you have 8 a very deep concern and interest in that. 9 COMMISSIONER SCHENCK: Well, thank you. 10 I do. 11 CHAIRMAN WILLIAMSON: And as do I and I 12 assume Commissioner Schenck -- 13 COMMISSIONER KRAUSE: Krause. 14 CHAIRMAN WILLIAMSON: -- Krause. Sorry 15 about that. 16 So I think it is of great concern, but 17 when our legislative process -- or when that process 18 is requested, I think we need to honor that because 19 those people are elected to represent the people of 20 the state of Texas, and we're just appointed. 21 COMMISSIONER KRAUSE: Madam Chairman? 22 CHAIRMAN WILLIAMSON: Yes. 23 COMMISSIONER KRAUSE: I agree with what 24 you're saying, and -- however, I am going to ask 25 Representative Quintanilla if he would carry back to 0028 1 our oversight committee a request from me that given 2 our concern about, you know, our mandate of giving 3 lottery licenses to licensees and our regulation of 4 charitable bingo and the competition that those 5 legitimate -- those legal forms of entertainment, the 6 competition that they have with illegal gambling, you 7 know, eight-liner casinos in the neighborhood run by 8 people connected to the lottery licensee, run by 9 people who are, you know, running bingo halls and 10 things like that. 11 I know that that's not directly 12 connected to the issue of the definition of these 13 items, these terms. However, what we would ask the 14 committee to do is to consider helping us out with 15 what we want because our charge is to make sure that, 16 you know, these legitimate forms of entertainment that 17 raise money for the state of Texas and the school 18 children of the state of Texas don't have to compete 19 against illegal activities. And what we're looking 20 for is a way to be able to enforce that because I feel 21 bad about, you know, giving licenses that we had the 22 discretion to withhold to do to bad people. 23 You know, and I feel bad about 24 regulating an industry that it's our charge to 25 regulate where there are folks that are participating 0029 1 in it that are also participating in illegal 2 activities. So I ask, you know, if y'all would 3 consider that in exchange for, you know, our 4 forbearing to make definitions. 5 That said, I understand we don't need a 6 definition to go forward on enforcement on some of 7 these things. And I'll submit that if we were to go 8 forward on some of these enforcement items on an ad 9 hoc basis that there may be some results out of the -- 10 you know, the SOAH courts that might be even helpful, 11 you know, to the oversight committee's deliberations. 12 There is historical definitions, you 13 know, in old law, you know, old case law, and so 14 fleshing some of that out might be helpful to the 15 committee. 16 And so just to wrap up, I'm ready to 17 yield and not proceed with the definition provided 18 that, you know, we go forward with our -- any 19 enforcement action that we want. 20 CHAIRMAN WILLIAMSON: All right. Thank 21 you, Commissioner Krause. 22 Back to our gambling rule. At the 23 February meeting, Commissioner Schenck, I know you 24 requested that the staff bring this rule back to this 25 meeting for Commission's consideration to adopt. And 0030 1 I believe the staff has prepared a rule for that. 2 However, I will go back to my previous 3 comments. I think at this time we should basically 4 defer this to the legislature. And I'm going to ask 5 Pete to lay out our -- well, first, we'll have 6 discussion and comments; then Pete, I'll have you lay 7 out what our options might be. 8 COMMISSIONER SCHENCK: Well, I think we 9 might decide whether or not we need Pete to lay out 10 the option. 11 CHAIRMAN WILLIAMSON: Okay. 12 COMMISSIONER SCHENCK: It sounds like, 13 at best, that would be 2-1 pushing forward with this. 14 I've heard from staff on this. We've 15 heard from the licensing committee. As I said at the 16 last meeting, I welcome the input from the House 17 Licensing Committee. 18 My concern is that we have a statute 19 which has been on the books for quite some time that 20 denies a bingo license to anyone who is a professional 21 gambler or gambling promoter. In my view, if this 22 rule, which I put a lot of work into, if anything, 23 softened the standard potentially for who is or is not 24 a professional gambler or gambling promoter and might 25 have a bingo license. 0031 1 My concern and the concern, I think, 2 that's universally held at the Commission is that we 3 have, by the reports I've seen, somewhere between one 4 and $5 billion a year coming out of this state going 5 into illegal gambling which is probably being run out 6 of other states. 7 Much of that activity is taking place 8 under the roofs of bingo halls by people who are 9 charging rent to charities to run bingo establishments 10 and in a common area or a separate room running what 11 are effectively slot machines. These are professional 12 gamblers or gambling promoters under almost any 13 definition. 14 So initially, the staff had told us -- 15 and I would welcome Phil's input on this before we get 16 to Pete's presentation -- that we needed a rule to 17 clarify what the words "gambling promoter" or 18 "professional gambler" were, and with that in mind, 19 we've pushed forward for some months now on a 20 potential rule. 21 And so my concern is not about the 22 legislative involvement. In fact, I welcome it. And 23 we need to have some additional input from the 24 legislature in the next legislative session; but my 25 concern is we have a law out there already that may 0032 1 not need additional rule to clarify that, in which 2 case I think -- and Phil, you've helped me with this. 3 Your initial request to have a rule was 4 in connection with a particular matter which has now 5 resolved. Is that correct? 6 MR. SANDERSON: That is correct, yes, 7 sir. 8 COMMISSIONER SCHENCK: And I don't think 9 that your understanding is that you're unable to 10 discern the meaning of the word "professional gambler" 11 or "gambling promoter"? 12 MR. SANDERSON: That is correct. 13 COMMISSIONER SCHENCK: Okay. And that's 14 already in the statute? 15 MR. SANDERSON: Yes, sir. 16 COMMISSIONER SCHENCK: So we -- there's 17 nothing at the moment that requires us to push forward 18 with this rule or create any unnecessary tension with 19 the legislative branch or anybody else? 20 MR. SANDERSON: Not at this time, no, 21 sir. 22 COMMISSIONER SCHENCK: Okay. So it 23 seems to me -- maybe the better thing to do here is to 24 put on the agenda for the next meeting a report from 25 Phil and perhaps Kim, or anyone else in the Commission 0033 1 who would like to do this, that would lay out -- 2 perhaps, Representative Quintanilla, if you could join 3 us again -- the scope of this eight-liner and illegal 4 gambling problem that we have in the state, the 5 relationship to licensed activities that are occurring 6 under the auspices of this Commission, our efforts to 7 date to enforce the existing laws on hand, and our 8 objectives going forward. Would that make sense? 9 CHAIRMAN WILLIAMSON: I -- yes, I think 10 that would be -- is that something that you're -- you 11 have that sort of information that you can gather? 12 MR. SANDERSON: We have resources. We 13 should be able to get that information. 14 CHAIRMAN WILLIAMSON: Okay. No, I think 15 that would be very appropriate. 16 COMMISSIONER SCHENCK: And I think 17 rather than pushing forward with the rule today, if we 18 could just move forward with that information process, 19 I think we can start working hand in hand and move in 20 the same direction. 21 REP. QUINTANILLA: I'm not a -- you 22 know, I should have looked at this before because I 23 was unaware of it, but as I saw this on here, I 24 decided I'd stay here and listen a little bit. And 25 I'm really pleased that y'all are going about it the 0034 1 right way -- or maybe not the right way, but the way 2 that Counsel is encouraging you to go. 3 It is a rule. And if he finds that it's 4 already a statute, well, you know, you just go ahead 5 and enforce the rule that's in place. I have no idea 6 whether -- and I'm sure we will research this rule 7 because you can place a rule -- I mean, you can take a 8 statute or whatever the legislature rules and you make 9 the rules. 10 Now, if you want further enforcement, I 11 understand that the way we would go, we'd have to go 12 through legislation, as you're saying. And if that's 13 what the Commission desires, I think we could work 14 real close with Chairman Kuempel to try to draft 15 whatever you need to make sure that we do take care of 16 the problem because as I go across the state, you 17 know -- and I'm a good contributor to education in 18 that form also -- I find, you know, a lot of things 19 that are happening out there that I wonder how or why 20 they are doing those things, you know. 21 I mean, I don't like to play bingo a 22 lot, but my wife does, you know, and so I'll go sit 23 there and watch, you know. And sometimes I just 24 wonder, Gary, what -- how you are, you know, 25 benefiting from some of the things they're doing out 0035 1 there. 2 So I think it's very worthwhile what 3 you're doing right here to make sure that we stop that 4 illegal stuff that's going on out there. And if -- I 5 am very surprised that you're talking about the amount 6 of money that you think is going out into this illegal 7 gambling. I mean, it would do great things for the 8 state of Texas if we kept it here. 9 So I'll be more than happy to work with 10 Chairman Kuempel and see what is it, and I will be 11 here at the next meeting to see -- hear the report 12 because it's important that we follow up on this one. 13 Thank you. 14 COMMISSIONER SCHENCK: Thank you. Thank 15 you, sir. 16 CHAIRMAN WILLIAMSON: Thank you. I know 17 Commissioner Schenck has spent a lot of time and 18 energy on this, and I think it's an important issue, 19 and we'll keep pressing it forward. 20 COMMISSIONER SCHENCK: And I 21 appreciate -- I think, Phil, the fact that we really 22 don't need this rule to enforce the existing statute 23 is critical, but what we do need is a plan to work 24 under the existing statute. So I think it would be 25 really good to have that presentation at the next 0036 1 meeting. 2 MR. SANDERSON: We'll have it ready for 3 you. 4 CHAIRMAN WILLIAMSON: All right. So I 5 guess at this time, then there'll be no action of any 6 kind. 7 And, Kim, I know I have a witness 8 affirmation form for this item, but at this point, I 9 don't see any point in continuing or having that occur 10 because it's basically a nonissue right now. 11 MS. KIPLIN: I think that's at your 12 pleasure, if you'd like. 13 CHAIRMAN WILLIAMSON: Okay. 14 MS. KIPLIN: If -- that had been comment 15 on this rule, I would have advised the Commission not 16 to take up comment because -- 17 COMMISSIONER SCHENCK: Comments -- 18 comments closed. 19 MS. KIPLIN: Exactly. 20 CHAIRMAN WILLIAMSON: Right. So -- 21 MS. KIPLIN: Thank you, Commissioner. 22 CHAIRMAN WILLIAMSON: Right now -- so I 23 think we'll pass on that comment right now. 24 Thank you, Pete. 25 0037 1 AGENDA ITEM NO. IV 2 CHAIRMAN WILLIAMSON: Let's go on to 3 Item No. IV. It's the report from the Bingo Advisory 4 Committee Chairman, Kim Rogers, and possible 5 discussion and/or action on their activities, 6 including the February 10th, 2010 meeting. 7 Phil, I guess -- Kim, you'll be 8 presenting the report? 9 MS. ROGERS: Yes, ma'am. 10 CHAIRMAN WILLIAMSON: Nice to have you 11 here. 12 MS. ROGERS: Thank you. 13 Good morning, Commissioners. My name is 14 Kimberly Rogers. I am the Bingo Advisory Committee 15 chair. I'm just here to briefly go over the summary 16 that is included in your notebooks. 17 The BAC met on February 10th, 2010. All 18 members were present. Some of the items that we spoke 19 about: Our minutes were approved that are posted 20 online. Next, we gave recognition to our members that 21 are no longer with us, which would be Suzanne Taylor, 22 Larry Whittington, Knowles Cornwell; and we welcomed 23 our three new members, Melissa Young, Joe Williams, 24 and Emile Bourgoyne. That's a tough one. 25 Next, we -- I was nominated as the 0038 1 chair, and it was unanimously passed. And as chair, I 2 appointed Mr. Earl Silver as vice chair. 3 Next, Ms. Joseph gave the committee 4 information pertaining to the Open Meetings Act, which 5 I think helps the new members know what we can discuss 6 and how we need to stick to our agenda. 7 The next item, Mr. Miner gave us a 8 presentation on the 2009 third quarter conductor 9 information. The nice thing to see was that 10 distributions did increase over 2008. 11 Next, a Nomination Committee work group 12 was formed for -- we do have three seats that will be 13 coming open very soon. I believe in August is when 14 the term is up. That group was -- it was discussed 15 quite a bit to realize and to make sure that the new 16 work group realizes how much the information is a good 17 resource to yourselves and to staff, and so to, 18 please, keep up with the interviews and things of that 19 nature. 20 Next, we went over all of our work 21 groups that we've had the past year or so and figured 22 out which ones we didn't -- we no longer needed, which 23 ones we're not doing anything with, the items had been 24 taken care of and already passed, and we formed a 25 couple new ones. And a work group was formed for the 0039 1 2009 Annual Report, and that should be presented at 2 our next meeting. 3 Next, we went over 11 draft amendments. 4 Phil went over all these with the group. They were 5 discussed. A work group was formed to discuss the 6 ones that took priority, which are affected by House 7 Bill 1474. And we had public comment, which there was 8 none at the time. 9 Our next three meetings were tentatively 10 set for April 7th, June 23rd, and September 8th. And 11 our meeting was adjourned at 12:32. 12 I'd be happy to answer any questions you 13 might have. 14 CHAIRMAN WILLIAMSON: Thank you, Kim. 15 Commissioners, do you have any 16 questions? 17 COMMISSIONER SCHENCK: Kim, I was at the 18 meeting, and I want to -- 19 MS. ROGERS: Yes, sir. 20 COMMISSIONER SCHENCK: -- thank you very 21 much for the professional way that you handled the 22 meeting. I think that -- we're very grateful for your 23 service. You and the nine other members of the Bingo 24 Advisory Committee from statutorily segregated 25 components of the interest community that are affected 0040 1 by the regulation of bingo, you provide a valuable 2 service to Phil and to us with the advice that you 3 give us on bingo matters. And if -- and I know that 4 you're not compensated for your time, you're not 5 reimbursed for your mileage, but we do appreciate the 6 service that you render. 7 Can you help me? Did I interview you by 8 phone before? 9 MS. ROGERS: Myself? 10 COMMISSIONER SCHENCK: Yeah. 11 MS. ROGERS: No, sir. 12 COMMISSIONER SCHENCK: Okay. 13 MS. ROGERS: I -- this is my second 14 term. 15 COMMISSIONER SCHENCK: Okay. 16 MS. ROGERS: So I was on prior to you -- 17 COMMISSIONER SCHENCK: So I will get -- 18 MS. ROGERS: -- coming on as 19 commissioner. 20 COMMISSIONER SCHENCK: Let me get to the 21 point directly, then. 22 MS. ROGERS: Okay. 23 COMMISSIONER SCHENCK: The people I 24 interview before they come on to the Bingo Advisory 25 Committee, I ask them questions about what interests 0041 1 they have in things other than bingo -- 2 MS. ROGERS: Uh-huh. 3 COMMISSIONER SCHENCK: -- including 4 gaming activities; in particular, 8-liners. That, 5 maybe, is too subtle a message. So I want to make the 6 message really quite directly. 7 MS. ROGERS: Okay. 8 COMMISSIONER SCHENCK: I don't like it. 9 MS. ROGERS: Yes, sir. 10 COMMISSIONER SCHENCK: We have problems 11 with illegal gambling in the state, and I really don't 12 like it when we have people sitting on statutorily 13 defined boards that are engaged in unlawful activity 14 trying to advise us about how to regulate unlawful 15 activity. 16 MS. ROGERS: Uh-huh. 17 COMMISSIONER SCHENCK: And that's been a 18 problem in the past and it's not going to be a problem 19 in the future, and I know that you appreciate that. 20 And I know that you're taking steps to make sure that 21 everyone else connected with bingo appreciates that 22 there needs to be a bright line drawn between bingo, 23 which serves the interest of charities -- Catholic 24 charities, the Kiwanis Clubs, the Boys & Girls 25 Clubs -- and slot machines, which serve the interest 0042 1 of people in Las Vegas and Atlantic City, and are not 2 part of our mandate here. So I really appreciate that 3 you're keeping that in mind. I want to make that 4 point very clearly. 5 I think Commissioner Krause has attended 6 a couple of the meetings where it was -- 7 COMMISSIONER KRAUSE: The reason why we 8 had some turnover on the Bingo Advisory Committee is 9 that we felt like it was important to clean house 10 because there were some people sitting on it at the 11 time that we didn't like because we -- it came to 12 light -- it had come to light what some of their 13 activities were. 14 So anyway, what we ask you to do is just 15 be aware of that, and put us in a position where we 16 feel like we're getting the best advice available and 17 not something other than that. 18 MS. ROGERS: Okay. May I ask you a 19 question at this time? 20 COMMISSIONER SCHENCK: Of course you 21 may. 22 MS. ROGERS: Okay. When I came onto the 23 committee six years ago, I took over the Nomination 24 Committee, and I was -- it was passed down, an 25 interview form. Is it something that you would 0043 1 like -- I don't know if it's our place or if it's more 2 your place. Is it something in our preinterview, 3 would you like for us to say if they have dealings 4 with -- 5 COMMISSIONER SCHENCK: Interests in 6 gaming activities other than bingo? Yes, that would 7 be a great idea to ask. 8 MS. ROGERS: Okay. 9 (Laughter) 10 COMMISSIONER SCHENCK: Not that it 11 matters because I have been asking everyone who comes 12 up on this board whether that's an issue, and I can 13 assure you that I have been told "no." But -- 14 MS. ROGERS: Right. 15 COMMISSIONER SCHENCK: -- you may recall 16 that before we had some turnover, one of the questions 17 I asked the Bingo Advisory Committee to advise us on 18 was whether or not we should be told if one of your 19 members is under indictment, for instance, for a 20 gaming offense. And the answer we got back from the 21 Bingo Advisory Committee was, no, it's none of our 22 business to know whether or not the people who are 23 advising us on bingo issues are under indictment for 24 gaming. We didn't like that answer. 25 MS. ROGERS: Right. And I can 0044 1 understand why you wouldn't like that answer. But if 2 I recall, when I heard it, it was not indictment. It 3 was hearsay allegations, or it was more of someone 4 accused them of something. And I think there's a lot 5 out there, and there are bad apples, you know, in 6 every aspect of every business. And in bingo -- and I 7 agree with you, those people don't need to be in 8 bingo. 9 COMMISSIONER SCHENCK: Well, you are 10 doing a fine job, and I'm very comfortable with the 11 membership -- 12 MS. ROGERS: Thank you. 13 COMMISSIONER SCHENCK: -- of the BAC. 14 And it's really important what you do and it's 15 important what we do as well, and it's -- we all need 16 to be working together. But I -- 17 MS. ROGERS: Oh, yes, sir. 18 COMMISSIONER SCHENCK: -- will assure 19 you that you have in these commissioners three people 20 who are adults who know how to deal with hearsay 21 allegations and other problems. It doesn't have to be 22 made public, but if you hear of something, we know how 23 to deal with problems in a way that's discrete; that 24 if it's short of an indictment, I don't want to read 25 about it in the newspaper as the -- 0045 1 MS. ROGERS: I agree with you. 2 COMMISSIONER SCHENCK: -- first time I'm 3 hearing about a problem. 4 MS. ROGERS: I agree with you. 5 COMMISSIONER SCHENCK: That would be 6 true of the Lottery employees as well. We have 7 400-something full-time equivalents at this agency, so 8 we know how to deal with issues. And we're here to 9 help, and you're here to help us. So it's -- and it's 10 a two-way street, and we appreciate that. 11 MS. ROGERS: From all the BAC members, 12 we say "thank you" because y'all are here, you know, 13 and we look to y'all for help. So we appreciate it. 14 Thank you. 15 COMMISSIONER SCHENCK: We're all on the 16 same page. I mean, our job -- 17 MS. ROGERS: That's right. 18 COMMISSIONER SCHENCK: -- here is 19 there's a thermometer in that room behind us that 20 shows charitable distributions. 21 MS. ROGERS: Uh-huh. 22 COMMISSIONER SCHENCK: The legislature 23 created bingo for one purpose, which was to generate 24 revenue for charities. 25 MS. ROGERS: Yes, sir. 0046 1 COMMISSIONER SCHENCK: And so long as 2 we're all moving in that direction, we're going to be 3 doing very well. When we get confused in our focus, I 4 think, is where we need to direct ourselves. And so 5 your job as chairman of the BAC is to make sure that 6 we're communicating and getting that -- 7 MS. ROGERS: Yes, sir. 8 COMMISSIONER SCHENCK: -- message 9 across. 10 MS. ROGERS: I will, and I appreciate 11 that. Thank you. 12 And I will get with Phil about maybe 13 changing up our interview form, and we will ask that 14 prior to submitting their names to you. 15 COMMISSIONER SCHENCK: That's fine. 16 CHAIRMAN WILLIAMSON: That would be 17 wonderful. 18 Commissioner, do you have any other? 19 Kim, thank you for your job and thank 20 you -- 21 MS. ROGERS: Thank you. 22 CHAIRMAN WILLIAMSON: -- for taking on 23 that role. 24 MS. ROGERS: Thank you. 25 0047 1 AGENDA ITEM NO. V 2 CHAIRMAN WILLIAMSON: We will go on to 3 Item No. 5. It's report, discussion and/or action on 4 calendar year 2009 bingo conductor information. 5 Bruce, please. 6 MR. MINER: Good morning, Commissioners. 7 For the record, my name is Bruce Miner, and I'm the 8 manager of the Taxpayer Services Department. And I'm 9 here to present to you an overview of the 2009 10 information as reported by our licensed authorized 11 organizations. 12 Let me begin by pointing out that for 13 the second year in a row, charitable bingo in Texas 14 was the highest grossing since the game was legalized 15 in 1981. For calendar year 2009, total receipts 16 surpass $692 million, an $8 million increase over last 17 year, and players won a record $518 million in prizes. 18 Charitable distributions also increased 19 for the sixth consecutive year. As organizations 20 reported, they distributed $35.7 million for their 21 charitable purposes. Total distributions since 1981 22 are now more than $937 million. 23 This chart shows a comparison of gross 24 receipts for each year from 2006 through 2009. And as 25 you can see, gross receipts for instant bingo sales 0048 1 have increased each year since 2006 from 2 $253.6 million to $318 million for a 25.7 percent 3 increase while at the same time, gross receipts from 4 regular bingo card sales dropped from 251.3 million in 5 2006 to $213.7 million in 2009 for a decrease of 6 15 percent. 7 Gross receipts from electronic sales 8 showed a slight increase of 4.6 percent for the same 9 four-year period. 10 The overall gross receipts for 2009 are 11 approximately 5.3 percent greater than they were in 12 2006. 13 COMMISSIONER SCHENCK: Bruce, can you 14 explain for those of us -- visitors who aren't as 15 familiar with the operations of bingo, what you mean 16 when you say "traditional," "electronic," etcetera? 17 Traditional, it would be the bingo where 18 the little, old lady sits with a dauber and they call 19 out I-7 and she hits the number and she fills out her 20 card. What's the instant? What's the electronic? 21 MR. MINER: Paper is regular bingo. 22 Electronic is a kind of state-of-the-art systems that 23 they can play up to 66 faces per occasion. 24 COMMISSIONER SCHENCK: But they have to 25 be -- they have to mind their own? 0049 1 MR. MINER: They have to daub their own. 2 COMMISSIONER KRAUSE: Those are 3 cardminders? 4 MR. MINER: Cardminders, yes, sir. 5 COMMISSIONER SCHENCK: But it's still 6 bingo, but they're just playing multiple versions of 7 it at the same time, and they have to keep track and 8 fill in their numbers. 9 And what are the instants? 10 MR. MINER: Instants are event tickets, 11 pull-tabs, all the same names. It's basically the -- 12 COMMISSIONER SCHENCK: So they're a 13 piece of cardboard? 14 MR. MINER: Yes, sir. 15 COMM. SCHENCK: Yeah. 16 MR. MINER: So it's -- 17 COMMISSIONER SCHENCK: Great. And so 18 basically, the traditional bingo where you sit there 19 and you put a piece of -- you put ink on a piece of 20 paper is going down, and people who play bingo tend to 21 prefer the electronic and the instant cards? 22 MR. MINER: Exactly. The move towards 23 electronics, I suppose, younger group of people are 24 more interested, and they're going out for -- 25 COMMISSIONER SCHENCK: Is that it? You 0050 1 just can't keep those young kids out of the bingo 2 halls these days? 3 MR. MINER: Well, not when they can 4 invest $10 and win 250 or whatever, so... 5 (Laughter) 6 COMMISSIONER SCHENCK: Yeah. Okay. 7 Thanks, Bruce. 8 MR. MINER: This chart shows a 9 comparison of net receipts for each year from 2006 10 through 2009; and this slide captures the trend of the 11 net receipts, which are gross receipts minus prizes. 12 The total net receipts shown here in green increased 13 1.4 percent over last year and 5.2 percent over 2006. 14 These next slides will overlay the 15 comparison between the required distribution based on 16 the 35 percent calculation, the net proceeds, and the 17 actual reported distributions. 18 First, we have here a 35 percent 19 required distributions using the calculation prior to 20 October 1, 2009, and it shows that the required 21 distributions ran just over $10 million for each of 22 the last four years. 23 We now compare that to the net proceeds 24 as defined in the Revised Bingo Enabling Act from 25 House Bill 1474, and this is gross receipts minus 0051 1 prizes and expenses. This is our bottom line, and 2 it's running right around $35 million. 3 And we overlay the actual reported 4 charitable distributions, and it shows that the 5 organizations continue to show an increase in the 6 amount that they distribute for their charitable 7 purposes. Distributions have risen from $32 million 8 in 2006 to $35.8 million in 2009, an increase of 9 almost 12 percent over the four-year period. 10 In your notebook is additional 11 information for analysis performed by Arlette Taylor, 12 our operational planning and performance coordinator. 13 And that concludes my report at this 14 time. Are there any questions? 15 CHAIRMAN WILLIAMSON: Thank you. 16 Commissioners, do you have any 17 questions? 18 COMMISSIONER SCHENCK: Bruce, what do 19 you think is accounting for this increase in receipts 20 recently? 21 MR. MINER: Since about 2002, 2003, 22 there's a continued interest in event tickets, a form 23 of pull-tabs, and that has generated more involvement 24 in the halls. 25 COMMISSIONER SCHENCK: But still, the 0052 1 number of players that are playing is down. Is that 2 not right? 3 MR. SANDERSON: The number of players 4 continues to decrease. Although, last year, we saw 5 kind of a flat-line comparison to 2008. Right now, 6 we're down to about 482 bingo locations, where last 7 year we were above 500. So we're seeing fewer 8 locations, fewer organizations; but the actual sales 9 continue to increase, especially in the event tickets. 10 MR. MINER: Which equates to the average 11 spin rate increasing. 12 COMMISSIONER SCHENCK: Okay. And the 13 spin rate is increasing. They're buying more -- I 14 guess, is it the case that the instants they can buy 15 more quickly than they can traditional forms of bingo? 16 MR. SANDERSON: They can play those 17 games very quickly, and they're -- the event tickets 18 are small ticket counts. And they normally have 300 19 to 600 tickets in each one, and they sell them real 20 quick, play the event, and then move on and keep 21 continuing that. 22 COMMISSIONER SCHENCK: I think, Phil -- 23 correct me if I'm wrong, but are you continually 24 hearing from the conductors, the charities, that 25 they're just not getting the people, the traffic, to 0053 1 come into the halls? I believe they would like to see 2 some sort of advertising to promote charitable bingo. 3 And I think we have that authority, do we not? 4 MR. SANDERSON: We do have the 5 authority, but not the appropriation. 6 COMMISSIONER SCHENCK: Okay. And have 7 we ever had the appropriation to help these charities? 8 MR. SANDERSON: We have never had the 9 appropriation. 10 COMMISSIONER SCHENCK: Okay. Very good. 11 Thanks, Bruce. 12 CHAIRMAN WILLIAMSON: All right. Any 13 other comments? Commissioner? 14 COMMISSIONER KRAUSE: No, ma'am. 15 CHAIRMAN WILLIAMSON: Thank you, Bruce. 16 AGENDA ITEM NO. VI 17 CHAIRMAN WILLIAMSON: We will go on to 18 Item VI. It's "Consideration of and possible 19 discussion and/or action, including proposal, on new 20 16 TAC 402.514 relating to Electronic Funds Transfer 21 Recordkeeping." 22 Sandy, this is your item, please. 23 MS. JOSEPH: Good morning, 24 Commissioners. For the record, my name is Sandra 25 Joseph, special counsel for the Legal Division. 0054 1 Item VI as well as the following items, 2 through XIII, are rulemaking items. Items VI through 3 XII -- if I can just summarize some of this rather 4 than repeat it each time for your convenience. Items 5 VI through XII are all being offered in response to 6 amendment -- excuse me -- HB 1474, which amended the 7 Bingo Enabling Act and was effective October 1st. So 8 these first items, VI through XII, are all related to 9 that. 10 Item VI is proposed new rule 402.514 11 related to Electronic Funds Transfer Recordkeeping. 12 This new rule sets forth provisions on electronic fund 13 transfers related to controls over electronic fund 14 transfers, recordkeeping requirements, and any 15 discrepancies or misapplications. 16 For this rule and all the rules I'll 17 present this morning, the staff has planned to hold a 18 rulemaking hearing to receive comments on Wednesday, 19 April 14th, 2010. Staff recommends that you vote to 20 approve this draft for publication in the Texas 21 Register in order to receive public comments for a 22 period of 30 days. 23 Are there any questions about this one? 24 CHAIRMAN WILLIAMSON: No. I do have 25 a -- Commissioners, do you have any questions? 0055 1 COMMISSIONER KRAUSE: No, ma'am. 2 CHAIRMAN WILLIAMSON: I do have a 3 Witness Affirmation Form. Is this appropriate now for 4 them to comment, since this is just being posted for 5 comment? Right? 6 MS. JOSEPH: That's correct. 7 MS. KIPLIN: I think it is. 8 Sorry. I think it is. I think the one 9 that I saw, the gentleman wanted to comment on 10 multiple bingo rulemakings. 11 CHAIRMAN WILLIAMSON: This just refers 12 to Item -- oh, actually, there's two of them. 13 MS. KIPLIN: Okay. And so I didn't know 14 whether you wanted to have the staff lay it all out 15 and then have the comment for the one that covered all 16 of it so that when the comment came, you would know 17 for the prospective items what that comment was all 18 about. 19 CHAIRMAN WILLIAMSON: Okay. So I guess 20 the question is to -- do you want to come and comment 21 on all of these rules or just -- 22 UNIDENTIFIED PERSON: Whatever's the 23 most convenient for you and the staff. I can 24 certainly wait... 25 CHAIRMAN WILLIAMSON: Okay. So why 0056 1 don't -- are we just laying all these out right now? 2 I'm basically -- 3 MS. JOSEPH: Well, I was going to ask 4 you to vote on each one individually, so -- 5 CHAIRMAN WILLIAMSON: Okay. 6 MS. KIPLIN: Maybe, if I could, just for 7 managing this, if Sandy could just lay them all out -- 8 CHAIRMAN WILLIAMSON: Okay. 9 MS. KIPLIN: -- and then we could get 10 the comment -- 11 CHAIRMAN WILLIAMSON: Okay. 12 MS. KIPLIN: -- from -- 13 CHAIRMAN WILLIAMSON: For all of them. 14 MS. KIPLIN: -- from all of them. 15 CHAIRMAN WILLIAMSON: Okay. Let's do 16 that. 17 MS. KIPLIN: And then we can go back and 18 take them up individually for action. 19 CHAIRMAN WILLIAMSON: All right. 20 MS. KIPLIN: If that's amenable to the 21 Commission. 22 CHAIRMAN WILLIAMSON: Commissioners, 23 does that sound -- 24 COMMISSIONER SCHENCK: That sounds 25 wonderful. 0057 1 CHAIRMAN WILLIAMSON: All right. Let's 2 do that. 3 AGENDA ITEM NO. VII 4 MS. JOSEPH: All right. The next item 5 is Item VII, and it concerns proposed amendments to 6 16 TAC Section 402.506 related to disbursement record 7 requirements. The amendments to this rule would 8 update and add requirements for recordkeeping related 9 to disbursements. 10 Are there any questions about that rule? 11 (No response) 12 AGENDA ITEM NO. VIII 13 MS. JOSEPH: All right. If not, Item 14 VIII concerns proposed amendments to 16 TAC Section 15 402.600 related to Bingo Reports. This rule will 16 update the rule; for example, replacing the 15th of 17 the month with the 25th of the month as a due date. 18 This is a result of a legislative change, just as an 19 example. And it also deletes existing subsections 20 which related to a system service provider license, 21 and provisions were deleted from the statute regarding 22 system service providers. 23 Be happy to answer any questions about 24 Item VIII. 25 0058 1 AGENDA ITEM NO. IX 2 MS. JOSEPH: Item IX is proposed new 3 16 TAC Section 402.450 relating to Requests for 4 Waivers. The purpose of the proposed new rule is to 5 provide the requirements for an organization to 6 request a waiver to the maximum amount of operating 7 capital that can be maintained in the bingo account in 8 accordance with new language in the Bingo Enabling 9 Act. 10 I'd be happy to answer any questions 11 about that item. 12 AGENDA ITEM NO. X 13 MS. JOSEPH: If there are none, Item X 14 concerns proposed new 16 TAC Section 402.451 relating 15 to operating capital. The purpose of this proposed 16 new rule is to again facilitate implementation of 17 revisions in particular to Section 2001.451 of the 18 Bingo Enabling Act, which was amended last session. 19 Be happy to answer any questions about 20 that rule. 21 AGENDA ITEM NO. XI 22 MS. JOSEPH: Item XI is proposed new 23 16 TAC Section 402.452 relating to net proceeds. This 24 new rule sets forth provisions on the calculation of 25 net proceeds for a license period and also calculation 0059 1 of net proceeds for units. 2 AGENDA ITEM NO. XII 3 MS. JOSEPH: If there are no questions 4 on that rule, I'll proceed to Item XII, which is 5 proposed new 16 TAC Section 402.453 relating to 6 request for operating capital increase. 7 This new rule sets forth provisions on 8 applying for a request to exceed the operating capital 9 limits, which are now set by the statute, and the 10 criteria for approval of such request. 11 AGENDA ITEM NO. XIII 12 MS. JOSEPH: The next item is Item XIII. 13 This is proposed amendments to 16 TAC Section 402.101 14 related to advisory opinions. 15 This rule is being proposed at the 16 direction of the Commission. We recently proposed and 17 adopted amendments to advisory opinions, and at that 18 time, the Commissioners noted a concern about an 19 existing provision which allowed persons other than 20 the requestor of an opinion to rely on that opinion. 21 And staff has prepared for you a draft which would 22 delete the language stating that persons other than 23 the requestor could rely on the opinion. 24 I'd be happy to answer any questions 25 about that draft. 0060 1 COMMISSIONER SCHENCK: Thank you for 2 addressing my concern. If it's not breaching the 3 quorum here, if we can reach backward and just ask a 4 question about the rules we've gotten up to this 5 point. 6 These are all necessary rules. We're 7 not just restating what the statute says in these 8 rules. This is not just fattening up the Texas 9 Administrative Code. Right? 10 MR. SANDERSON: That is correct. The 11 first three rules are 514 relating to Electronic Funds 12 Transfer. HB 1474 authorized EFTs from the checking 13 account, and this is just putting in place what our 14 processes and procedures for monitoring those -- 15 COMMISSIONER SCHENCK: And these are all 16 rules the legislature told us to pass as part of this 17 bill? 18 MR. SANDERSON: The second two are 19 amendments to current rules -- 20 COMMISSIONER SCHENCK: Oh, yeah. 21 MR. SANDERSON: -- based on that, and 22 then the other four rules are all driven by the 23 HB 1474. 24 COMMISSIONER SCHENCK: Okay. And as I 25 recall, we went through all of this with the Bingo 0061 1 Advisory Committee. We've heard informal comment. 2 MR. SANDERSON: These rules, the first 3 three -- all the rules were sent out to the industry 4 as well as the Bingo Advisory Committee. At the last 5 meeting, the first three rules were discussed, and 6 there was no additional comments. And then the other 7 four rules, the ones relating to the operating capital 8 and the net proceeds, subcommittee was formed. We met 9 and has incorporated some of the recommendations from 10 that subcommittee. 11 COMMISSIONER SCHENCK: Okay. Thank you. 12 CHAIRMAN WILLIAMSON: Thank you. I 13 think what we'll do at this time, let's take up VI 14 through XII since those are first, since those are 15 driven by the House Bill. 16 And Mr. Britt and Mr. Minch, did you 17 have any comments you wanted to make on those, VI 18 through XII of the House Bill? 19 MR. MINCH: My name is Jeff Minch. I'm 20 representing the Texas Association for the Advancement 21 of Charitable Bingo. 22 First of all, I want to say I think the 23 staff has done a fabulous job in disseminating these 24 rules. All of these rules together, not just the ones 25 that are in front of you, represent a body of rules 0062 1 this big (Indicating). I would also say that you 2 might get a bit of an argument as to whether or not 3 all of the rules are necessary, but those arguments we 4 advanced to you during the comment period. 5 I did want to make one comment about one 6 thing that I think, if headed off right now, could 7 save a lot of difficulty in the course with the 8 rulemaking, and that has to do with accounting and the 9 progression of the accounting profession and how that 10 accounting and reporting pertains to these rules. 11 Many of these rules call for very specialized reports, 12 and they call for reports that are not consistent with 13 the way financial statements and transaction journals 14 are developed. And they do not conform to Generally 15 Accepted Accounting Principles, which means that a 16 very, very simple business, simple revenue expenses 17 and generating net operating income becomes infinitely 18 more difficult to account for because there are very 19 specialized reports; that if they simply relied upon 20 Generally Accepted Accounting Principles and reports 21 that are generated by simple pieces of software like 22 QuickBooks, that it would take out a lot of the 23 reporting requirements and infinitely simplify the 24 impact of these rules. 25 In the Bingo Enabling Act itself, there 0063 1 is a constant refrain of accounting for items that are 2 expenses incurred or paid. That's the code word for 3 Generally Accepted Accounting Principles for the 4 accrual method, and these rules continually call for 5 reports to be generated on a cash basis. The mischief 6 that this creates is that at the end of a year, on a 7 cash basis, if there was a large expense, the person 8 accounting for the bingo hall could take that expense, 9 put it in their top desk drawer, and not pay for it. 10 Therefore, the net proceeds rule, as an example, could 11 be circumvented because on a cash basis, the bingo 12 hall would appear to have had net positive proceeds 13 when, in fact, if it had been accounted for on the 14 accrual method as the act calls for, in fact, they 15 would not have net proceeds but a dramatically 16 different outcome. 17 And this has been a matter of much 18 discussion for a long period of time. And frankly, 19 the accounting industry and the software that's 20 available has evolved with such certainty that it's 21 almost an archaic view of the accounting for a 22 business this simple to have cash accounting. 23 COMMISSIONER SCHENCK: Jeff, if I might 24 interrupt here for a second. 25 Two things: I think we now have a one- 0064 1 or two-minute rule on comment, which I'm -- 2 CHAIRMAN WILLIAMSON: It's five. 3 COMMISSIONER SCHENCK: Five. Okay. So 4 my time -- my question won't be taken out of your 5 time. 6 Most of the people making these reports 7 are not filing tax returns, are they? These are 8 501(c)(3) charities for most of them? 9 MR. MINCH: Well, yes, they also file a 10 tax return. 11 COMMISSIONER SCHENCK: Okay. But aren't 12 the vast majority of these taxpayers going to be cash 13 basis reporters? I mean, they can't be accrual basis 14 for purpose of reporting to us and cash basis for 15 purposes of reporting to the IRS. 16 MR. MINCH: Well, that's the limit with 17 every business. Under Generally Accepted Accounting 18 Principles, there are many charges that accurately and 19 fairly state the accounts of a business that are not, 20 in fact, tax charges. So as an example, depreciation 21 might be treated differently for tax purposes than it 22 is for GAAP purposes. 23 So every business today that's filing 24 any kind of a tax return has to reconcile their tax 25 accounts with their GAAP accounts. And in our case, 0065 1 as a public company, we in effect have three sets of 2 books; one of which is tax; one of which is GAAP. 3 So to kind of conclude -- 4 COMMISSIONER SCHENCK: What's the third 5 set? Is that under your desk or something? 6 MR. MINCH: Well, it would be something 7 that would be unique to -- as an example, we have 8 multiple states in which we operate, and so we would 9 have, as an example, books that would be related to 10 our overhead accounting for, say, South Carolina. So 11 it would be different than our corporate accounting in 12 which everything comes to one single number for SEC 13 reporting purposes. 14 The kind of software I'm talking about 15 is something that's available to bingo halls for 16 between 4 and $10 a month and can be purchased for as 17 little as 199 to $299. It's a very, very, very simple 18 piece of software. 19 I conclude by saying that I believe the 20 proposed solution to this is to provide a blanket 21 exception for financial information which is, quote, 22 derived from and reconciled using an automated 23 accounting system, as an example, QuickBooks, based 24 upon a general ledger, financial statements (income 25 statement, balance sheets, statement of cash flows), 0066 1 transaction journals, (approximating accounts 2 receivable journal, accounts payable journal, cash 3 disbursements journal, cash receipts journal), and 4 which fairly presents the financial condition of the 5 enterprise. 6 If an auditor were to come to a firm and 7 want to audit that particular bingo hall, information 8 presented in that manner would be both industry 9 standard that they would like to have. It would also 10 dramatically reduce the amount of time that would be 11 necessary in order to be able to audit. It would also 12 enable the Commission to hire folks who had outside 13 auditing experience, who were professional auditors, 14 who could then conduct an audit with the discipline -- 15 with the audit discipline that would be consistent 16 with the way the industry would conduct these audits 17 for other companies. Thank you. 18 CHAIRMAN WILLIAMSON: Thank you. Just a 19 comment. I'm familiar with QuickBooks, and I know it 20 does allow you to provide financial information, both 21 cash basis and accrual basis. So having said that, 22 let's go on. 23 And the Item VI through XII, let's go 24 ahead and prepare the motion and vote on those, and 25 then we'll go on to Item XIII. 0067 1 COMMISSIONER SCHENCK: Do we have a 2 witness -- 3 CHAIRMAN WILLIAMSON: Oh, I'm sorry. 4 Sorry about that. 5 MR. BRITT: Good morning, Commissioners. 6 My name is Everett Britt. I'm an attorney with the 7 law firm of Clark, Thomas & Winters, and I'm here 8 today representing -- making comments for Littlefield 9 Corporation. My colleague, Jamie McNally, couldn't be 10 here this morning, so he asked me to attend in his 11 place. 12 Littlefield is the parent corporation of 13 a large number of licensed commercial lessors in Texas 14 and has a vital interest in the rules being considered 15 today to give effect to House Bill 1474. 16 First, we would urge you to vote to 17 publish the proposed rules today. We understand that 18 time is of the essence, and we've appreciated the 19 ability and opportunity to participate in the Bingo 20 Advisory Commission work group that considered the 21 drafts. 22 We also look forward to making comments 23 on the rules during the public comment period. The 24 rules are very technical, and from an accounting 25 perspective, very complex. There's also a large 0068 1 number of rules under consideration to digest at one 2 time, and that makes the process of analyzing the 3 rules that much more difficult and time consuming. 4 We did want to let you know in advance 5 that while we support publication of the draft rules, 6 the comments we plan to submit will be geared toward 7 making sure that the moderate accounting practices 8 such as GAAP, Generally Accepted Accounting 9 Principles, are reflected in the rules and are 10 available to practice throughout the industry. That 11 should help staff in its oversight role as well as 12 streamline the process by which entities file reports, 13 calculate net proceeds, and determine their capital 14 requirements. 15 That's all the comments I have today. 16 Thank you. 17 CHAIRMAN WILLIAMSON: Thank you. 18 All right. So, gentlemen, do you want 19 to take these one at a time? 20 COMMISSIONER SCHENCK: I think they're 21 all fine rules ready for publication in the Texas 22 Register, so taking them one at a time is not -- 23 CHAIRMAN WILLIAMSON: But, Kim, do we 24 need to do these motions one at a time or -- 25 MS. KIPLIN: I think as long as you 0069 1 itemize each rule, you can include it in one motion; 2 and as long the motion is to vote to publish all of 3 them, then I think that you're fine. And so with 4 that, could I just lay it out what I think your motion 5 would be? 6 CHAIRMAN WILLIAMSON: I think that would 7 be excellent. 8 COMMISSIONER KRAUSE: Well, I think that 9 the bingo commissioner needs to lay these out for us. 10 MS. KIPLIN: I will defer to the bingo 11 commissioner. 12 (Laughter) 13 COMMISSIONER SCHENCK: All right. Well, 14 I'm going to move -- which item did we start with 15 here? What it VI? 16 CHAIRMAN WILLIAMSON: VI through XII. 17 COMMISSIONER SCHENCK: Okay. I'm going 18 to move that we propose -- I'm sorry -- that we adopt 19 staff recommendation and publish for public comment in 20 Texas Register's proposed new 16 TAC -- and from here 21 on, I'm going to just refer to the section numbers -- 22 Section 402.514, 402.506, 402.600, 402.450, 402.451, 23 402.452, 402.453, and amendments to -- or am I 24 stopping at that point? 25 CHAIRMAN WILLIAMSON: We're stopping at 0070 1 that point. 2 COMMISSIONER SCHENCK: Okay. That's my 3 motion. 4 CHAIRMAN WILLIAMSON: Is there a second? 5 COMMISSIONER KRAUSE: I heartily second 6 that motion. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER SCHENCK: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 COMMISSIONER SCHENCK: Aye. 11 CHAIRMAN WILLIAMSON: Motion passes for 12 all of these 12 items. 13 COMMISSIONER SCHENCK: That motion 14 passes. 15 CHAIRMAN WILLIAMSON: All right. Item 16 XIII, the advisory opinions. 17 COMMISSIONER SCHENCK: Yeah, I make a 18 motion that we propose amendments to 16 TAC 402.101 19 relating to advisory opinions. 20 CHAIRMAN WILLIAMSON: Now, this is also 21 a rule posting, as well, for public comments? 22 MS. KIPLIN: That's correct. It would 23 be for public comment. 24 CHAIRMAN WILLIAMSON: Okay. And we do 25 have a Witness Affirmation Form for that. Does -- did 0071 1 you -- no further comments? 2 All right. Did you make that motion? 3 COMMISSIONER SCHENCK: I made the 4 motion. 5 CHAIRMAN WILLIAMSON: Second? 6 COMMISSIONER KRAUSE: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER SCHENCK: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Motion passes. 12 At this time, it is 10:14. We will take 13 a 15-minute break. 14 (Recess: 10:11 a.m. to 10:34 a.m.) 15 CHAIRMAN WILLIAMSON: We are back in 16 session. It's 10:34. 17 AGENDA ITEM NO. XIV 18 CHAIRMAN WILLIAMSON: Next item is 19 "Report by the Charitable Bingo Operations Director 20 and possible discussion and/or action on the 21 Charitable Bingo Operations Division's activity, 22 including updates on House Bill 1474 implementation, 23 Bingo Advisory Committee nominations, status of 24 licensees, rulemaking and form revisions, audits, 25 pull-tab review, special projects, allocations, and 0072 1 upcoming operator training." 2 Phil, this is your item, please. 3 MR. SANDERSON: Good morning, 4 Commissioners. In your notebook is a report of the 5 bingo activities for the month of February. I'd like 6 to point out that the BAC nominations, as Kimberly 7 Rogers mentioned earlier, we're now accepting 8 nominations for the three positions whose terms expire 9 August 31st. Those went up on our website, 10 notifications on our website. We have also sent out 11 emails to the individuals that were nominated for the 12 last go-around to see if they were still interested, 13 as well as we have included a stuffer in the required 14 distribution notice that we send out to all the 15 conductors. That went out either last week or early 16 this week. 17 And the other thing, as she mentioned, 18 the next BAC meeting will be April the 7th, 19 tentatively scheduled for that date. 20 And that's all I have to report at this 21 time. Be glad to answer any questions. 22 CHAIRMAN WILLIAMSON: And I appreciate 23 your diligence on the new interest in participating in 24 the Bingo Advisory Committee and the new people that 25 have expressed an interest in that, and I credit a lot 0073 1 to you and your staff for kind of generating that and 2 getting that -- making that a more robust process. 3 MR. SANDERSON: Thank you. 4 CHAIRMAN WILLIAMSON: Commissioners, do 5 you have any questions or comments? 6 All right. Thank you. 7 AGENDA ITEM NO. XV 8 CHAIRMAN WILLIAMSON: Item XV. The next 9 item is "Report, possible discussion and/or action on 10 lottery sales and revenue, game performance, new game 11 opportunities, advertising, market research, trends, 12 game contracts, agreements, and procedures." 13 Kathy and Robert, this is your item, 14 please. 15 MS. PYKA: Good morning, Commissioners. 16 For the record, my name is Kathy Pyka, Controller for 17 the Commission. With me to my right is Robert 18 Tirloni, our products manager. 19 Our first chart for you this morning 20 reflects comparative sales to the week ending March 21 the 6th, 2010. Total Fiscal Year 2010 sales are at 22 $1.93 billion, an increase of 31.9 million over the 23 same period last fiscal year. 24 Fiscal year 2010 instant ticket sales 25 reflected on the second blue bar are at 1.437 billion, 0074 1 just slightly under the figure for Fiscal Year 2009. 2 Our Fiscal Year 2010 online sales, 3 again, reflected on the second red bar are at 4 495.4 million, a $35.4 million gain over the same 5 period last fiscal year. 6 Our next slide provides you cumulative 7 average daily sales for Fiscal Years 2008, Fiscal Year 8 2009, and Fiscal Year 2010. While we recognize that 9 Fiscal Year 2009 sales are lower than normal as a 10 result of Hurricane Ike, this slide further highlights 11 that sales for each fiscal year -- or for this fiscal 12 year are trending slightly ahead of our prior two 13 fiscal years based on the daily average of sales by 14 fiscal year. Through the 27th week of the fiscal 15 year, our daily average sales for Fiscal Year 2010 are 16 at $10.6 million which reflects an increase of 17 3.6 percent over Fiscal Year 2008 and a 4.7 percent 18 increase over Fiscal Year 2009. 19 The jackpot games highlighted in the 20 white font reflect a daily average of $1.8 million. 21 This is a 38 percent increase over Fiscal Year 2009 22 and a 40 percent increase over Fiscal Year 2008. 23 Focusing first on the daily average for Lotto Texas, 24 you'll note that it's generated an average daily 25 increase in Fiscal Year 2009 between 150,000 and 0075 1 209,000 over our previous fiscal years. 2 The new Powerball/Power Play product, 3 you can see there, of course, has generated 250,000 4 and $59,000, respectively, as our new product. 5 And I wanted to note that our daily 6 average for the Mega Millions game has fallen below 7 Fiscal Year 2009 this week, and that's as a result of 8 we had two jackpots last fiscal year over 200 in 9 million dollars; and this fiscal year, we've only had 10 the one jackpot over 200 in million, so that's just 11 occurred. 12 And then daily games highlighted in the 13 green font you'll note are just at 1.1 million as a 14 daily average, which is slightly below our previous 15 fiscal years. And then our instant ticket product is 16 at 7-point-almost-7 million, and it's just between our 17 two previous fiscal years. 18 So with that, Robert is now going to 19 provide you an overview of year-to-date Fiscal Year 20 2010 sales by product. 21 MR. TIRLONI: Good morning, 22 Commissioners. For the record, my name is Robert 23 Tirloni, products manager for the Commission. 24 This slide is very similar to the one 25 Kathy just covered. The jackpot games are reflected 0076 1 in white at the top, and this is comparing our current 2 fiscal year to Fiscal Year 2009. You'll note a 3 healthy gain on the Lotto Texas game of just under 4 $39 million. As Kathy just mentioned, Mega Millions 5 did roll up to $212 million in early March of 2009, so 6 we are experiencing a slight decline year over year. 7 And Powerball, our new game, started on January 31st, 8 has brought in thus far just under $11 million. 9 I will note that in March, there are 10 some new states coming in in terms of the 11 cross-selling agreement. On March 1st, Montana began 12 selling; on March 20th, Nebraska will begin selling; 13 and on March 28th, Oregon will begin selling. Those 14 are all muscle states, so they were selling Powerball, 15 and they will now all be selling Mega Millions as 16 well. 17 And in April, there's two more 18 additions. Ohio will begin cross-selling. Ohio is 19 one of the 12 Mega Million states, so they'll begin 20 selling Powerball. And then middle of April, Arizona 21 comes in, and they're a Powerball state. So they will 22 begin cross-selling, and they will introduce Mega 23 Millions. 24 The jackpot games as a whole are up 25 $44 million. The daily games in green are down 0077 1 slightly over $8 million, but the online category as a 2 whole is up $35 million. 3 Our instant games are down slightly, 4 $3-and-a-half million. I will note that the week that 5 just ended on Saturday the 6th was our second best 6 instant ticket sales week of this fiscal year, and 7 we're off to a very good start this week. So we're 8 hoping and we're confident that we may be able to, if 9 not totally, erase that deficit, put a pretty big dent 10 in it this week based on the way sales are trending 11 for the past two days. 12 So overall for fiscal '10 compared to 13 fiscal '9, we are up just under $32 million. 14 And that concludes our presentation for 15 this morning, but we'd be happy to answer any 16 questions you might have related to sales. 17 CHAIRMAN WILLIAMSON: Commissioners, do 18 you have any questions? 19 COMMISSIONER KRAUSE: Looks like 20 bringing in Powerball was good for us. 21 MS. PYKA: Most definitely. 22 MR. TIRLONI: Yes, sir. 23 COMMISSIONER KRAUSE: Which is the first 24 state to be offering both Powerball and Mega Millions? 25 MR. TIRLONI: Well, on January 31st, 0078 1 that was the big conversion date, so 33 states began 2 the cross-selling initiative on the 31st. 3 COMMISSIONER KRAUSE: That was the first 4 day we started cross-selling? 5 MR. TIRLONI: Yes, sir, that's correct. 6 COMMISSIONER SCHENCK: Can you back up 7 one slide, Robert? 8 MR. TIRLONI: Sure. 9 COMMISSIONER SCHENCK: Commissioner 10 Krause, do you have another question? I'm sorry. 11 COMMISSIONER KRAUSE: No. 12 COMMISSIONER SCHENCK: Credit to Gary, I 13 think you were a driving force behind this 14 cross-selling agreement. And I know it's very early 15 to try to draw conclusions from this, but one question 16 I have is we're seeing a downtick of about 8.7 million 17 in the instants, the scratch-offs, and we've seen 18 8.8 million in sales for the Powerball game. Is there 19 any correlation that other states are seeing in the 20 cross-selling with other games going down? 21 MR. TIRLONI: The $8.7 million decline 22 is actually in the daily games, not on the instants. 23 COMMISSIONER SCHENCK: I'm sorry. On 24 the daily game. 25 MR. TIRLONI: That's okay. We -- the -- 0079 1 COMMISSIONER SCHENCK: And 3.5 million 2 in the instants. 3 MR. TIRLONI: Right. 4 COMMISSIONER SCHENCK: So 8.8 up; 2.1 up 5 on Powerball. That's 10.9. 6 MR. TIRLONI: Uh-huh. 7 COMMISSIONER SCHENCK: 8.7, 3.5, that's 8 11 -- 12.2 the other direction. It's really too early 9 to draw any conclusions about whether these things are 10 correlated. Right? 11 MR. TIRLONI: I believe it's too early. 12 I will say we have been seeing on the daily games for 13 some months now a downward trend. Daily 4 is up, and 14 that's been doing well. But we have been seeing 15 Pick 3, the add-on features, Sum It Up, which is on 16 both Pick 3 and Daily 4, and Cash Five trending 17 downward prior to the introduction of Powerball. So I 18 agree that it's kind of early right now to draw 19 conclusions, but I don't believe that those are -- 20 that that $8.7 million decrease that you're seeing is 21 related to the introduction of Powerball. 22 COMMISSIONER SCHENCK: And I know I've 23 asked this question with respect to the printing of 24 instant tickets before, but what does it cost us to 25 run, for instance, the Pick 3 Sum It Up or the Daily 4 0080 1 Sum It Up? Do we know on an incremental basis, under 2 our GTECH contract? Because if we've got sales 3 through this point in the fiscal year of $2.5 million 4 for Daily 4 Sum It Up, I mean, we pay out under that 5 game as well. I assume that our net is something like 6 1.7, 1.8 million. Is it costing us $2 million to run 7 that game to collect 1.7? 8 Ramon Rivera is shaking his head "no." 9 We make money? You make sure we make money? Okay. 10 MR. GRIEF: I can address that, 11 Commissioner. We pay GTECH a flat rate of 12 2.6999 percent of sales whether they run one online 13 game for us or whether they run two dozen. 14 COMMISSIONER SCHENCK: Okay. So under 15 the contract, it wouldn't matter. We could add ten 16 more and you wouldn't charge us any more for running 17 it. 18 Okay. Well, let's keep an eye on that 19 under the new contract. 20 MR. GRIEF: One other comment I'd add to 21 your question, which is an excellent question: I wish 22 it were such an exact science, as you pointed out, but 23 it's not. 24 And this week is a great example of the 25 reason you want to do cross-selling. We were hit on 0081 1 Mega Millions last Friday, and that dropped our 2 jackpot, I believe, down from 133 million to its base 3 level of 12 million. But because we are involved in 4 cross-selling and also participate in Powerball, 5 Powerball is at 170 million right now, so we're 6 able -- all of these days since we were hit on Mega 7 Millions, we've been able to reap the benefits of 8 players having a high jackpot to play for since last 9 Friday, even though we were hit on Mega Millions. And 10 tonight -- we didn't participate in the jackpot call 11 today because of this meeting, but there's the 12 likelihood that if Powerball is not hit, it will roll 13 after tomorrow's draw to over 200 million. 14 So those types of situations are exactly 15 why we're in both games, is to take advantage of if 16 one's up, perhaps the other's not, vice versa. We can 17 yield some good revenue from that. 18 COMMISSIONER SCHENCK: I would be 19 curious to see what other states' experiences are with 20 their like add-on -- well, I shouldn't call them 21 add-on games -- their more traditional lines. 22 MR. GRIEF: I can tell you, I have been 23 keeping track of jackpot games. What you see in the 24 white up at the top, and that's really the focus. 25 There's a general agreement in the industry that 0082 1 jackpot games don't cannibalize daily games and daily 2 games don't cannibalize instant. Those are somewhat 3 compartmentalized. 4 But I can say without a doubt, every 5 state that's involved in cross-selling has seen an 6 increase somewhere in the range of between 5 and 7 45 percent in their total sales at the jackpot 8 levels -- in the jackpot games since cross-selling. 9 COMMISSIONER SCHENCK: Yeah, I'm not 10 sure if that conventional theory, though, holds when 11 you have a sea change in the way that you're marketing 12 your online games. Because I can see the person who 13 plays a daily game saying, you know, "I'm going to 14 play the Powerball and the Mega Millions, but I'm 15 not -- you know, as a result, I'm not going to spend 16 the Pick 3," or whatever else it is. I don't know. I 17 mean, it'll be obviously months, years, figuring out 18 where this goes, but -- 19 MR. GRIEF: Right. 20 CHAIRMAN WILLIAMSON: Robert, how many 21 states are left to participate in the cross-selling 22 that haven't joined in already? 23 MR. TIRLONI: In May, there are about 24 two more that are scheduled to come on onto the 25 cross-selling; and after that point, according to the 0083 1 list I received yesterday, it looks like maybe four, 2 four or five, that have not either decided or gotten 3 the necessary approvals from their commissions or from 4 their boards. California is still undecided and I 5 think is still evaluating their overall product 6 portfolio to decide what they want to do. But about 7 four or five. 8 CHAIRMAN WILLIAMSON: Good. Thank you. 9 Any other questions? 10 Thank you. 11 MR. TIRLONI: Thank you. 12 CHAIRMAN WILLIAMSON: Kathy, if you'll 13 continue on and tell us about the transfers to the 14 state, please. 15 MS. PYKA: Certainly. Again, for the 16 record, Kathy Pyka, Controller for the Commission. 17 AGENDA ITEM NO. XVI 18 MS. PYKA: Commissioners, Tab 16 19 includes information on the agency's transfers to the 20 state. The first report in your notebook reflects the 21 transfers and allocations to the Foundation School 22 Fund, the Texas Veteran's Commission, and the 23 allocation of unclaimed prizes through the period 24 January 31st, 2010. 25 Our total cash transfers to the state 0084 1 amounted to $437.5 million for the first five months 2 of the fiscal year, and of that $437.5 million 3 transfer to the state, 393.8 million was the amount 4 transferred to the Foundation School Fund. We had 5 2.7 million transferred to the Texas Veteran's 6 Commission along with a $41 million transfer to the 7 State General Revenue Fund for unclaimed lottery 8 prizes. 9 Commissioners, this represents a 10 1.84 percent increase or $7.1 million of the amount 11 transferred to the Foundation School Fund through 12 January 31st of 2009. And with that, our year-to-date 13 cumulative transfers to the Foundation School Fund 14 through January 2010 have now exceeded the 12 billion 15 figure. 16 That concludes my presentation. I'd be 17 happy to answer any questions. 18 CHAIRMAN WILLIAMSON: Commissioners? 19 (No response) 20 Thank you. 21 AGENDA ITEM NO. XVII 22 CHAIRMAN WILLIAMSON: And then on to 23 Item XVII, "Report, discussion and/or action on the 24 5 percent biennial budget reduction for the 2010-2011 25 biennium." 0085 1 MS. PYKA: Again, for the record, Kathy 2 Pyka, Controller for the Commission. 3 Commissioners, at our last meeting, I 4 updated you on the 5 percent budget reduction. And in 5 that meeting, we know that the Lottery dedicated 6 account was exempt from the deduction; however, we did 7 have to make a reduction for our General Revenue 8 Program funded by -- our bingo program funded by 9 General Revenue. 10 The bingo reduction included a reduction 11 of $1.5 million, which was 5 percent of their 12 31.1 million biennial appropriation. Of that 13 reduction amount, the Commission requested an 14 exemption of $1,263,550 attributed to the Bingo Prize 15 Fee Allocation program. And then that left us with an 16 admin reduction of $289,798. 17 We've moved forward with the admin 18 reduction. However, since our submission of the 19 5 percent reduction, we've received a request from the 20 Legislative Budget Board asking us to develop, one, a 21 contingency plan for the Bingo Prize Fee Allocation 22 program should the exemption not be approved. They 23 then asked that we also follow up with the leadership 24 offices and ask for support and ultimately approval 25 from the leadership offices for the exemption on the 0086 1 $1,263,550 figure. 2 So we have done that. Nelda Trevino has 3 reached out to the governor's office, the lieutenant 4 governor's office, and the speaker's office about the 5 exemption request. At this point in time, we've not 6 received a response regarding the approval of that, 7 and so we're awaiting that approval. And we've 8 proceeded with the contingency plan for those funds. 9 If we were to have to make that 10 reduction out of our administrative area, that would 11 require us to leave the six positions that were going 12 to be held open for the hiring delay on the admin part 13 of the reduction, those positions would have to be 14 held open the remainder of the biennium. In addition 15 to those six positions that are currently vacant, we 16 would need to make a reduction of current positions -- 17 of 11 current positions -- for a total overall 18 reduction of 17 FTEs or the equivalent of 36 percent 19 of the actual FTEs budgeted for the bingo program. 20 So, again, we've not heard any 21 information about the exemption request. We've 22 developed the contingency plan should that exemption 23 request not be approved. 24 I'd be happy to answer any questions 25 that you might have. 0087 1 CHAIRMAN WILLIAMSON: Okay. The Prize 2 Allocation Fund, that is the -- explain to us what 3 that is. 4 MS. PYKA: Certainly. 5 Each quarter, the state collects the 6 bingo prize fees that are remitted from our 7 counterparts in the bingo industry. Those 5 percent 8 prize fees are then allocated back to the cities and 9 counties that actually adopted an ordinance back in 10 1993, and so we make a quarterly allocation to those 11 cities and counties for the prize fees that they've 12 collected or remitted to the state. 13 It's strictly a pass-through function. 14 There are no administrative fees retained as part of 15 that pass-through function. The state retains their 16 portion, and then the balance goes back out to the 17 cities and counties. So, you know, again, there's no 18 administrative funds with it. It's strictly 19 pass-through. It would be much like a grant program; 20 however, we're the entity collecting the funds and 21 then passing them back through to those cities and 22 counties. 23 CHAIRMAN WILLIAMSON: So if that were to 24 be reduced, I assume that we would certainly hear a 25 lot of feedback from cities and counties about that. 0088 1 COMMISSIONER SCHENCK: Yeah, if we just 2 kept the money, for instance. 3 MS. PYKA: If we kept the money, we'd be 4 in violation of the state statute that requires us, 5 then, to pass those funds back through as an 6 allocation to the cities and counties who adopted 7 those local ordinances. So, you know, that was the 8 call we made, that we would ask for the exemption 9 because it would be a violation of state law not to 10 pay those amounts. 11 COMMISSIONER SCHENCK: What we could do, 12 Kim, couldn't we file an interpleader action? Just 13 dump all that money in a court somewhere and let them 14 all come prove who gets what? 15 MS. KIPLIN: I think once we have strong 16 indication of competing claims, then we would 17 certainly look to the Office of the Attorney General 18 to assist us if, in fact, that was -- 19 COMMISSIONER SCHENCK: Short of that, we 20 need some employees to take care of this. 21 CHAIRMAN WILLIAMSON: So this is a 22 serious situation, and hopefully we'll get it resolved 23 and know where we're headed. And I know that would be 24 a huge, drastic burden for Phil to try and reshuffle 25 if he -- if worse case you had to have a reduction in 0089 1 staff of that size. 2 MR. SANDERSON: One other thing I'd like 3 to add as well is that the amount in our appropriation 4 is an estimate from the BRE that they publish, and we 5 have a rider that authorizes that to be increased 6 should we increase the collection. So it's a -- in my 7 mind, it's also kind of conflicting that they'd ask us 8 to cut it, but then we have a rider that allows us to 9 increase it once it's collected. 10 COMMISSIONER SCHENCK: I'm confused. 11 The budget request is coming from the governor's 12 office or from legislature? 13 MS. PYKA: The requirement for the 5 14 percent budget reduction was a joint letter from the 15 governor, the speaker, and the lieutenant governor. 16 COMMISSIONER SCHENCK: Okay. And, Phil, 17 you have a rider? 18 MR. SANDERSON: We have a rider on our 19 appropriation bill. Is that correct? 20 COMMISSIONER SCHENCK: Which is a law 21 that was passed by the full legislature and by the 22 governor? 23 MS. PYKA: Correct. There is -- this is 24 considered an estimated appropriation, and I don't 25 want to get too far into the budgetary issues of how 0090 1 the state does that. But because the state can't 2 realistically estimate to the penny how much he's 3 going to collect in prize fees, they say, "Here is 4 what the biennial revenue estimate believes the prize 5 fee collections will be, and if it comes in above 6 that, you have a rider that allows you to increase 7 your budget authority by the amount of the excess. On 8 the other hand, if it comes in below that, you don't 9 get to have that appropriation." 10 And so Phil's point is that, you know, 11 if we do a 5 percent reduction here, it's an estimated 12 appropriation. We're authorized to spend the share of 13 what we collect, much like our prize payment 14 allocation that's on the lottery side. It's a rider 15 as well. 16 COMMISSIONER SCHENCK: And who is it 17 that we're directing our request for an exemption to? 18 MS. PYKA: To the same individuals, the 19 governor, the speaker, and the lieutenant governor. 20 COMMISSIONER SCHENCK: Okay. And is 21 Nelda or someone else helping you in that? 22 MS. PYKA: Actually, Nelda is handling 23 that. She's handling the communication. 24 COMMISSIONER SCHENCK: Very good. 25 That's got to be delicate. 0091 1 But can someone remind me, Phil, is 2 their statute clear about when you have to make these 3 payments out to the cities and counties? 4 MR. SANDERSON: I'll have to go back and 5 look and see. I don't -- I think it says on a 6 quarterly basis, when it's -- 7 MS. PYKA: It is. 8 COMMISSIONER SCHENCK: The statute says 9 it's quarterly? If it doesn't -- because here's my 10 thought -- is if you just don't have the employees, 11 you could just park this money someplace until there's 12 an appropriation to figure out who gets it. I don't 13 know. 14 MR. SANDERSON: I could look real quick. 15 MS. PYKA: It's a statute. 16 MR. SANDERSON: And while I'm doing 17 that, I'll -- 18 MS. PYKA: It is. 19 MR. SANDERSON: It is in the statute? 20 MS. PYKA: It's Section 2001.503 of the 21 Texas Occupations Code, and it provides for a 22 quarterly allocation to counties and cities of bingo 23 prize fees collected by the Commission. 24 COMMISSIONER SCHENCK: An allocation. 25 Is that a payment, though? 0092 1 MS. PYKA: Quarterly, yes. 2 MR. SANDERSON: In your notebook under 3 my Agenda Item XIV, on the memo, the bottom of Page 1 4 shows the allocation report for this most recent 5 allocation that went out in February. If you want to 6 look and see what the -- you know, what the dollar is 7 that we take in and send out. 8 COMMISSIONER SCHENCK: Okay. Oh, well. 9 MS. PYKA: Commissioners, I will keep 10 you apprised of any further developments in this area 11 but certainly wanted to update you on the actions of 12 late last week. 13 CHAIRMAN WILLIAMSON: Thank you. 14 Commissioner Krause, do you have any 15 other? 16 COMMISSIONER KRAUSE: No, ma'am. 17 CHAIRMAN WILLIAMSON: All right. 18 MS. PYKA: Thank you. 19 AGENDA ITEM NO. XVIII 20 CHAIRMAN WILLIAMSON: Nelda, discussion, 21 comments, action, 81st Legislature, and any other 22 items that come under your venue. 23 MS. TREVINO: Good morning, 24 Commissioners. For the record, I'm Nelda Trevino. 25 I'm the director of governmental affairs, and I have a 0093 1 very brief report to provide you today. 2 As it has been discussed today, 3 Representative Delwin Jones was appointed by the House 4 Licensing and Administrative Committee Chairman to 5 conduct a special subcommittee tasked with reviewing 6 and making recommendations on the RFP for lottery 7 operations and services. And as Gary reported, we 8 will continue to keep you advised on any actions 9 related to this subcommittee. 10 Additionally, during the legislative 11 interim, the speaker of the house and lieutenant 12 governor assigned charges to each committee to study 13 particular issues or a group of issues and possibly to 14 conduct hearings for the purpose of making 15 recommendations to the next legislature. Interim 16 committee hearings are occurring, and the agency's 17 governmental affairs staff is monitoring those 18 hearings. And we will keep you advised on any request 19 or actions from these committee hearings that may 20 impact the agency. 21 And that concludes my report, and I'll 22 be glad to answer any questions. 23 CHAIRMAN WILLIAMSON: Commissioners, do 24 you have any questions? 25 COMMISSIONER KRAUSE: No, ma'am. 0094 1 CHAIRMAN WILLIAMSON: Thank you. 2 AGENDA ITEM NO. XIX 3 CHAIRMAN WILLIAMSON: We'll continue on 4 to Item 19, "Report, possible discussion and/or action 5 on HUB and/or minority business participation 6 including the agency's Mentor Protege Program and the 7 agency's Fiscal Year 2009 Minority Business 8 Participation Report." 9 Joyce, this is your item, please. 10 MS. BERTOLACINI: Good morning. For the 11 record, my name is Joyce Bertolacini, and I'm the 12 coordinator of the TLC's Historically Underutilized 13 Business program. 14 A copy of the agency's finalized Fiscal 15 Year 2009 Minority Business Participation Report has 16 been included in your notebooks today. This report, 17 which is required by Section 466.107 of the State 18 Lottery Act, must be made available to the governor, 19 lieutenant governor, speaker of the house, and members 20 of the legislature on an annual basis. The report 21 requires your formal approval prior to being printed 22 and published on our website. 23 The current Minority Business 24 Participation Report documents the level of minority 25 and HUB participation in the agency's contracting 0095 1 activity during Fiscal Year 2009. It also includes 2 information on the numbers of licensed minority 3 lottery retailers. 4 During Fiscal Year 2009, the agency 5 achieved an overall participation rate of 6 23.22 percent in its minority HUB contracting 7 activity. In addition, of the 15 largest spending 8 state agencies, the TLC ranked No. 4 by overall HUB 9 percentage. 10 And finally, during Fiscal Year 2009, 11 the agency had 6,953 minority retailers which 12 represented 41.77 percent of the total lottery 13 retailer base. 14 I'd be happy to answer any questions 15 regarding the report at this time. And if there are 16 none, the staff recommends your approval of the FY '09 17 Minority Business Participation Report, which is a 18 mouthful. 19 And, Chairman Williamson, you should 20 have a cover letter ready for signature in front of 21 you. 22 But I'd be happy to take any questions. 23 CHAIRMAN WILLIAMSON: Commissioners, do 24 you have any questions, comments? 25 COMMISSIONER SCHENCK: How does Texas 0096 1 A&M get away with getting counted twice, so we end up 2 fourth? I see Texas A&M System is No. 3 and Texas A&M 3 University is No. 1. Put them together, we're really 4 No. 3. 5 MS. BERTOLACINI: Yeah, the report, the 6 way it works is the university systems are put in 7 there as a separate entity from the individual 8 universities. So UT is the same way, UT Austin. 9 COMMISSIONER SCHENCK: But for that 10 pernicious division of those reports, we're really 11 No. 3. 12 (Laughter) 13 MS. BERTOLACINI: Okay. Well, if you 14 would like to interpret it that way, I would 15 definitely agree with you. 16 COMMISSIONER SCHENCK: Thanks. That's a 17 good report. 18 COMMISSIONER KRAUSE: I've got a 19 question. Do we take into account Historically 20 Underutilized Businesses that are subcontractors to 21 prime contractors who are not? 22 MS. BERTOLACINI: Yes. That information 23 is included in this report. That information is 24 reported over directly from the agency twice a year 25 for inclusion in the report. So those figures do 0097 1 include subcontracting. 2 COMMISSIONER KRAUSE: Okay. 3 COMMISSIONER SCHENCK: But it doesn't -- 4 well, there are more independent contracting 5 opportunities for some of our -- for our vendors than 6 others. GTECH's got our biggest contract, but they're 7 No. 3 -- 8 COMMISSIONER KRAUSE: Uh-huh. 9 COMMISSIONER SCHENCK: -- in terms of 10 their subcontracting. TracyLocke, I guess, is No. 1. 11 That's our advertising contract. 12 MS. BERTOLACINI: Those figures were for 13 Fiscal Year 2009 and just looking at the raw numbers 14 in terms of what was paid. 15 COMMISSIONER SCHENCK: If I'm 16 understanding correctly, GTECH is not doing a whole 17 lot of independent contracting that provides those 18 opportunities, but they do employ quite a few 19 minorities. 20 MS. BERTOLACINI: There are a lot of 21 opportunities associated with that contract. That is 22 true. Subcontracting with HUB vendors or without 23 HUB -- you know, with non-HUB vendors is allowable, 24 and so basically, what I have in this report is just a 25 raw number representing what was paid to HUBs. 0098 1 COMMISSIONER KRAUSE: Now, TracyLocke is 2 not a HUB? 3 MS. BERTOLACINI: No. 4 COMMISSIONER KRAUSE: Okay. 5 MS. BERTOLACINI: None of the vendors 6 listed there. There might be one. Davila Buschhorn 7 is a HUB. I believe they may be the only one that was 8 one of our large prime vendors that is a HUB vendor. 9 Oh, Mir Fox & Rodriguez was also a HUB vendor that 10 provided services during 2009. So the remainder of 11 those vendors are not HUB vendors. 12 We're not allowed to double count 13 either, so this is just for your information. Mir 14 Fox's numbers and Davila's numbers were not reported 15 into that HUB report because those HUB vendors we 16 capture on the prime level, if that makes -- 17 COMMISSIONER SCHENCK: Do you think 18 these universities understand they're not allowed to 19 double count? 20 (Laughter) 21 MS. BERTOLACINI: I think the 22 comptroller is the one that does the final analysis on 23 that. 24 COMMISSIONER SCHENCK: I know in years 25 past, we've been No. 1. I know, Mike, you -- 0099 1 everybody on your staff has done a very good job with 2 this and appreciate your good work. 3 MS. BERTOLACINI: Thank you. 4 I have just a couple other items to 5 mention to you, if you have no further question on 6 that item. 7 The next semiannual statewide HUB report 8 will be released by the Comptroller of Public Accounts 9 on April 15th, so that will be our next official 10 report from the state agency that regulates HUB. And 11 that report will measure our HUB participation for the 12 first six months of Fiscal Year 2010, and I'll plan to 13 present some detailed summary reports to you following 14 the release of that statewide report. 15 And then finally, I'd like to mention 16 the Mentor Protege Program. We currently still have 17 one mentor protege relationship in place, but we'll be 18 working to establish additional relationships during 19 the coming months. 20 And I'd be happy to answer any further 21 questions about anything that you might have relating 22 to HUB. 23 COMMISSIONER KRAUSE: When a major 24 contract does come up, you know, for reconsideration 25 renewal, then what is -- how much input do you have 0100 1 from the HUB perspective? 2 MS. BERTOLACINI: The HUB subcontracting 3 plan basically applies to any contract that we do over 4 $100,000, that's estimated to be over $100,000. And 5 at that time, we have to analyze whether we think HUB 6 subcontracting, just subcontracting, would be 7 probable. And so that determination is made on any 8 contract that we expect will be over $100,000, and I'm 9 involved in making that determination and also in 10 doing presentations and giving information to the 11 vendors regarding how they need to complete their HUB 12 subcontracting plan in order to be compliant with the 13 rule. 14 COMMISSIONER KRAUSE: What about for our 15 prime contracts? 16 MS. BERTOLACINI: Yes, those apply. The 17 HUB subcontracting plan, virtually every prime 18 contract that we have, there may be very small -- a 19 small number of exceptions, but I believe all of our 20 prime contracts, it would apply. 21 COMMISSIONER KRAUSE: So when we have a 22 prime contract coming up and there's opportunity to 23 pick a HUB organization as a prime contractor versus a 24 non-HUB as a prime contractor, then do you have any 25 role in that kind of determination? 0101 1 MS. BERTOLACINI: The state's program is 2 not a set-aside or quarter-type program, and the only 3 instance where a HUB contractor could be selected 4 based on that status over another contractor is if 5 there were an exact tie. So the HUB prime contractor 6 would not get an advantage unless there were a 7 situation where there was an exact tie, and that 8 generally does not happen. 9 COMMISSIONER KRAUSE: So all things 10 being equal, then the HUB would get a little bit of 11 extra consideration? 12 MS. BERTOLACINI: Not really. The HUB 13 program in our state is really more of an opportunity 14 program. It's not something where they get extra 15 credit, so to speak, for being a HUB, so they still 16 have to be competitive. But we are required to do a 17 particular level of outreach to HUB vendors whenever 18 we bid a contract out, so that's kind of where it 19 comes in. 20 COMMISSIONER KRAUSE: Thanks for asking 21 my tedious questions. 22 CHAIRMAN WILLIAMSON: And I'm also, 23 Commissioner -- and you may be aware of this -- that 24 they had several meetings on our RFP for our lottery 25 operator, our new contract, regarding HUB. I think -- 0102 1 what did y'all have? Two or three, I think? 2 MS. BERTOLACINI: We had several -- 3 CHAIRMAN WILLIAMSON: Several. 4 MS. BERTOLACINI: -- one-on-one 5 meetings. 6 CHAIRMAN WILLIAMSON: So we spent a lot 7 of time educating. 8 COMMISSIONER KRAUSE: Well, I'm not 9 focused on lottery operator. You know, I've, you 10 know, seen some of, you know, our media that we've 11 gotten, you know, from TracyLocke. And I also know 12 that one of their subcontractors has been collecting 13 rather consistently media accolades, and so I'm 14 wondering if we ought to switch that relationship 15 around. So that's that. 16 CHAIRMAN WILLIAMSON: Okay. Let's see. 17 I do believe this is an action item. 18 MS. KIPLIN: Yes, that's correct. It 19 would be a motion to approve the HUB and Minority 20 Participation Report for Fiscal Year 2009. 21 COMMISSIONER SCHENCK: Do we have 22 pictures for the first time in this report? Of 23 people, I mean. 24 MS. BERTOLACINI: We've always had 25 pictures, but the pictures are stock photography. 0103 1 They're not pictures of actual people that work here 2 or anything like that. 3 COMMISSIONER SCHENCK: Okay. So we're 4 not misleading the public when they see these handsome 5 young people and think that -- 6 MS. BERTOLACINI: No. 7 COMMISSIONER SCHENCK: -- they're making 8 money off the lottery? 9 (Laughter) 10 MS. BERTOLACINI: No, these people are 11 obtained from some computer graphics file somewhere 12 that relates not in any way. 13 COMMISSIONER SCHENCK: We have the right 14 to use the image, though. Right? 15 MS. BERTOLACINI: Yes, we do. 16 COMMISSIONER SCHENCK: We're not going 17 to get sued? 18 MS. BERTOLACINI: No, we are not 19 violating any copyright law. 20 COMMISSIONER SCHENCK: Or privacy? 21 All right. Well, with that, I move that 22 we approve the publication of the report. 23 COMMISSIONER KRAUSE: Second. 24 CHAIRMAN WILLIAMSON: Is there a second? 25 All in favor? 0104 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN WILLIAMSON: Aye. 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Motion is adopted 5 3-0. 6 MS. KIPLIN: And Commissioners, I have a 7 letter. Chairman Williamson, it's for your signature, 8 but you'll be signing in representative capacity on 9 behalf of the Commission. 10 Thank you, Joyce. 11 MS. BERTOLACINI: Thank you. 12 AGENDA ITEM NO. XX 13 CHAIRMAN WILLIAMSON: Next item is 14 "Consideration of and/or report, possible discussion 15 and/or action on external and internal audits and/or 16 reviews relating to the Texas Lottery Commission, or 17 the Internal Audit Department's activities." 18 Catherine, this is your item, please. 19 MS. MELVIN: Thank you, Chairman, 20 Commissioners. For the record, Catherine Melvin, 21 Internal Audit Division Director. 22 In February's commission meeting, I 23 reported to you that the state auditor's office was 24 conducting an audit of the Charitable Bingo Operations 25 Division. That audit remains ongoing. Other than 0105 1 that, I have no items of update at this time. 2 CHAIRMAN WILLIAMSON: Thank you. 3 Commissioners, do you have any 4 questions? 5 COMMISSIONER SCHENCK: No. Thank you. 6 CHAIRMAN WILLIAMSON: Commissioner? 7 COMMISSIONER KRAUSE: No, ma'am. 8 CHAIRMAN WILLIAMSON: Thank you. 9 AGENDA ITEM NO. XXI 10 CHAIRMAN WILLIAMSON: Item 21, 11 "Consideration of and possible discussion and/or 12 action, including adoption of," and there's a whole 13 list of amendments which I will not read at this time, 14 "for Practice and Procedures rules." 15 Kristen, this is your item, please. 16 MS. GUTHERIE: Yes, good morning, 17 Commissioners. For the record, my name is Kristen 18 Gutherie. I'm an assistant general counsel in the 19 Legal Services Division. 20 This item concerns recommended adoption 21 of rule amendments and repeals in 16 Texas 22 Administrative Code Chapter 401, Subchapter C, 23 Practice and Procedure rules. These rule amendments 24 and repeals were previously published in the Texas 25 Register. The public has had the opportunity to 0106 1 comment for a period of 30 days. No comments were 2 received. 3 The purpose of the amendments and 4 repeals in this item is to streamline the language to 5 make the Commission's practice and procedure rules 6 more accessible and easier to use by removing language 7 that conflicts with the Commission's current practice 8 and by removing language that conflicts with SOAH's 9 new practice and procedure rules. This also 10 eliminates provisions that are redundant with SOAH's 11 rules. 12 Staff recommends adoption of these rule 13 amendments and repeals with a nonsubstantive change to 14 Rule 401.211, changing the title from "Administrative 15 Law Judge to Hear the Case" to "Law Governing 16 Contested Cases." This title change more accurately 17 describes the information actually contained in Rule 18 401.211. Adoption with this change would not violate 19 the standard set forth in the case State Board of 20 Insurance versus Dieffenbach because it's a mere title 21 change which does not limit or expand the meaning of 22 the rule. 23 The rules under Tab 21 are the staff 24 recommended repeals and amendments for your 25 consideration and adoption. 0107 1 I would be happy to answer any questions 2 you may have. 3 CHAIRMAN WILLIAMSON: Commissioners? 4 COMMISSIONER SCHENCK: I have one quick 5 question for anyone who cares to answer. I see that 6 we've stricken the rule governing court reporters and 7 transcripts and the applicant or licensee should be 8 required to pay in advance for the cost of that. Is 9 that covered somewhere else in the general SOAH 10 practice, or are we now going to be paying for court 11 reporters when people ask for them? 12 MS. GUTHERIE: We've had this for a 13 while in our rules, but it has not been enforced. 14 It's not something that we've charged the person who 15 requests, and we do provide it, if necessary. 16 COMMISSIONER SCHENCK: Are we paying 17 outside -- the court reporters to come do this work, 18 or do we have people already on the payroll that are 19 doing the court reporting? 20 MS. GUTHERIE: I believe we have a 21 contract. 22 MS. KIPLIN: Yeah, if I could, 23 Commissioner, let me address that question. 24 We do have an outside counsel -- pardon 25 me -- outside court reporting services contract that 0108 1 reports more than just on the State Office of 2 Administrative Hearings; for example, commission 3 meetings, Bingo Advisory Committee meetings, if 4 there's a need to transcribe a legislative committee 5 hearing, and so forth. 6 I think on the -- in particular, on the 7 summary suspension, we don't actually even have a 8 court reporter go. That's just a recording. So if we 9 need to, then we'll have the reporter transcribe it. 10 The reason that we recommended just eliminating that 11 is because we really have never actually had -- I 12 think probably maybe a handful of requests, and it's 13 usually when we're getting a copy of a transcript 14 anyway. 15 COMMISSIONER SCHENCK: Well, what do 16 other state agencies do? I mean, we're not talking a 17 great deal of money I would hope, but I don't like the 18 idea of giving away services where we have the right 19 to have them paid for. Are other state agencies 20 giving free court reporter services where people are 21 requesting them for administrative hearings? 22 MS. KIPLIN: You know, I really can't 23 answer that question. My sense is that most of the 24 agencies, if it's an uncontested matter -- most of 25 ours are uncontested -- they don't even have a court 0109 1 reporter there. They rely on the recording, but we 2 can certainly look into that. 3 COMMISSIONER SCHENCK: Yeah, I know this 4 is nickels and dime stuff, but it's just, you know, 5 we're getting requests to cut back wherever we can. 6 If we can -- on this particular rule, if -- I don't 7 know. Am I being too cheap? 8 (Laughter) 9 CHAIRMAN WILLIAMSON: In this particular 10 case, if we've only had, what -- 11 COMMISSIONER SCHENCK: All right. All 12 right. 13 CHAIRMAN WILLIAMSON: I mean, I 14 understand where you're coming from, and I appreciate 15 that. But -- 16 MS. KIPLIN: I think in the last, I 17 would say -- 18 COMMISSIONER SCHENCK: I'm thinking 19 depositions, which you get the bills for these things, 20 and it's expensive. 21 MS. KIPLIN: We're not paying for the 22 people's depositions. That's completely outside the 23 scope of this. This has to do with actual proceedings 24 at the State Office of Administrative Hearings. If 25 they want to get a deposition, then they're going to 0110 1 schedule it, and that's covered by another rule. 2 COMMISSIONER SCHENCK: And they pay 3 that? 4 MS. KIPLIN: And they're -- they pay 5 that. We're not -- because in some cases, that's in 6 another city where our court reporter doesn't travel. 7 I mean, it's a completely different court reporting 8 service. We're not paying for the people's 9 depositions. 10 COMMISSIONER SCHENCK: Well, I know we 11 get good transcription service, and I'm very happy 12 with it. Okay. 13 MS. GUTHERIE: And if I could just add 14 one thing, I mean, we're not saying that we will pay 15 for their request for any type of transcript. 16 COMMISSIONER SCHENCK: We're just saying 17 nothing about it. 18 MS. GUTHERIE: In the past -- right. 19 We're just saying nothing about it. I don't know of 20 any time that the respondent has requested a 21 transcript. I know that we have for our own purposes. 22 But if they have, they have not asked us to pay for 23 it. 24 COMMISSIONER SCHENCK: Well, apparently, 25 our practice has been from time to time to just 0111 1 basically stick a tape recorder up and say "speak." 2 MS. KIPLIN: Well, it's not our 3 practice. It's the State Office of Administrative 4 Hearings. They have a recorder in every one of their 5 hearing rooms, and so they routinely record those; and 6 that's their purpose of recordation. There's some -- 7 I think it's -- in some cases it's better for a 8 reporter to be there and not rely on a recording to 9 then transcribe. 10 But I can say that, you know, over the 11 last 14 or 16 years, I would say it's less than a 12 handful of times that there's been a contested case 13 matter that has called for a transcript, and we have 14 no knowledge. Whether they're actually contacting our 15 reporter directly and then requesting it, if that's 16 the case, they're -- that's the arrangement that 17 they're making with our court reporter. 18 COMMISSIONER SCHENCK: Okay. Well, 19 that's very good. I think I've spent enough time on 20 this. Appreciate it. 21 MS. KIPLIN: Sure. 22 CHAIRMAN WILLIAMSON: All right. Now, I 23 know this is an action item, and how do we want to 24 style the motion? 25 Commissioner Schenck, would you like to? 0112 1 COMMISSIONER SCHENCK: I propose that we 2 adopt staff recommendation with respect to each of the 3 rules identified and published for notice for this 4 hearing today at Item No. XXI. 5 MS. KIPLIN: And in particular, those 6 are in 16 Texas Administrative Code Chapter 401, 7 Subchapter C, on the practice and procedure rules. 8 CHAIRMAN WILLIAMSON: Okay. 9 COMMISSIONER SCHENCK: So moved. 10 CHAIRMAN WILLIAMSON: So moved. Is a 11 there a second? 12 COMMISSIONER KRAUSE: Second. 13 CHAIRMAN WILLIAMSON: All in favor? 14 COMMISSIONER SCHENCK: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Motion passes. 18 MS. GUTHERIE: Thank you. 19 MS. KIPLIN: Commissioners, I have 20 orders on the rule adoptions and then one blanket 21 order on the repeals. 22 CHAIRMAN WILLIAMSON: Okay. 23 COMMISSIONER SCHENCK: Did we get the 24 T-bars before from those other... 25 0113 1 AGENDA ITEM NOS. XXII AND XXIII 2 CHAIRMAN WILLIAMSON: On to the next 3 item, No. XXII, report, discussion and/or action on 4 GTECH Corporation. 5 Gary, this is your item, please. 6 MR. GRIEF: Madam Chair, if I could take 7 up that item and the one following that. 8 CHAIRMAN WILLIAMSON: Certainly. 9 MR. GRIEF: Other than the items I've 10 placed in your notebooks, I have nothing further to 11 report this morning. 12 CHAIRMAN WILLIAMSON: All right. Does 13 anybody have any questions for Gary since he has 14 nothing to report? 15 COMMISSIONER KRAUSE: My question is why 16 are you so succinct today? 17 (Laughter) 18 COMMISSIONER KRAUSE: We like that about 19 you. 20 AGENDA ITEM NO. XXIV 21 CHAIRMAN WILLIAMSON: Okay. The next 22 item is consideration of the status and possible entry 23 of orders in cases posted on the meeting agenda. 24 Kim, this is your item. 25 MS. KIPLIN: Commissioners, if I could 0114 1 direct your attention to Letters A through H, those 2 are all lottery revocation matters that went before 3 the State Office of Administrative Hearings. In each 4 of those cases, the licensee did not have funds 5 available, sufficient funds available, at the time 6 that we swept their account. In each of those cases, 7 the administrative law judge has recommended 8 revocation of the license, and the staff recommends 9 that you adopt the administrative law judge's 10 recommendations in Items A through H. 11 CHAIRMAN WILLIAMSON: Commissioners, do 12 you have any questions or comments on Items A through 13 H? 14 COMMISSIONER KRAUSE: No, ma'am. 15 COMMISSIONER SCHENCK: Nope. I move 16 that we adopt staff recommendation with respect to 17 Items A through H and move to revoke the licensees of 18 those affected. 19 CHAIRMAN WILLIAMSON: Is there -- 20 COMMISSIONER KRAUSE: Second. 21 CHAIRMAN WILLIAMSON: -- a second? 22 COMMISSIONER KRAUSE: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 COMMISSIONER SCHENCK: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 0115 1 COMMISSIONER KRAUSE: Aye. 2 CHAIRMAN WILLIAMSON: Motion passes. 3 MS. KIPLIN: Commissioners, I have 4 orders in each one of those matters. 5 And then if I can direct your attention 6 to Letter I, that is the matter of TETCO No. 260. 7 That is an agreed order between the lottery operations 8 staff. Actually, I guess it would be just the 9 Commission's staff. And the respondent in that 10 matter, there was a retailer employee who took a Cash 11 Five ticket from the complainant and told her that it 12 was not a winning ticket, and then ultimately that 13 ticket was scanned and validated at another location. 14 The retailer -- it was a complaint that was 15 investigated by this agency. The retailer's fired 16 that employee. With the retailer's cooperation, this 17 is the routine, ten-day suspension against the 18 retailer. 19 It's my understanding that this matter 20 was referred -- this is out of Bexar County -- was 21 referred to the DA's office, prosecutor's office, and 22 at that point, they declined to prosecute. They had 23 issues with evidence. But they are now -- there's 24 more evidence that's been gathered, and I think 25 they're more conversations that are occurring with our 0116 1 agency and the Bexar County DA's office in the efforts 2 of prosecuting this former employee. 3 Staff recommends that you approve the 4 settlement agreement and impose a ten-day suspension 5 on the retailer. 6 CHAIRMAN WILLIAMSON: Commissioners, do 7 you have any questions? 8 COMMISSIONER SCHENCK: Well, I'm glad 9 that we're doing everything we can to assist in the 10 promotion of the prosecution of this case. Michael 11 has put together for me a summary of the -- our 12 efforts in the past, which I appreciate. These are 13 important matters, and when they happen, it's 14 important that we act against the individual 15 malfeasant. I'm assuming this TETCO was likewise a 16 victim in this process, and I endorse the short 17 suspension order pending out here. 18 COMMISSIONER KRAUSE: I agree with that. 19 However, we do have to do something to the employers; 20 otherwise, they'll just turn a blind eye. But I'm 21 happy to have a nice, short revo period/suspension. 22 CHAIRMAN WILLIAMSON: Is there a motion? 23 COMMISSIONER SCHENCK: I move we adopt 24 staff recommendation. 25 CHAIRMAN WILLIAMSON: Second? 0117 1 COMMISSIONER KRAUSE: Second. 2 CHAIRMAN WILLIAMSON: All in favor? 3 COMMISSIONER SCHENCK: Aye. 4 CHAIRMAN WILLIAMSON: Aye. 5 COMMISSIONER KRAUSE: Aye. 6 CHAIRMAN WILLIAMSON: Motion passes. 7 Next item. 8 MS. KIPLIN: Commissioner, I have an 9 order on that. The remaining matter is Harvest Food 10 Store. This is also a recommended ten-day suspension 11 against the retailer. This had to do with a -- we 12 have a rule where retailers and their employees should 13 not be discourteous or abusive to others, and we 14 received a complaint that there was a person in the 15 retail location acting on behalf of the retailer that 16 was rude, verbally abusive to a lottery sales 17 representative. Our lottery operator informed us of 18 that. 19 We actually had an investigator who made 20 contact with the same person and got the same 21 treatment, so we've recommended a ten-day suspension 22 against the retailer. It's my understanding that this 23 particular individual doesn't have any more contact 24 with the retail store, and we've impressed upon -- 25 COMMISSIONER SCHENCK: So this was not 0118 1 the owner? 2 MS. KIPLIN: No, this was not the owner. 3 Last name -- 4 COMMISSIONER SCHENCK: So he's hiring 5 somebody to harass everyone who walks in the door, it 6 sounds like. 7 MS. KIPLIN: Well, I don't think the 8 owner endorsed or supported that behavior. My 9 understanding is, the last name is the same name. One 10 would lead that it's a family member. Family member 11 really was not even an employee, so I would put it in 12 the category of family dynamics. But we've asked that 13 the -- honestly, the retailer's -- you know, were 14 imposing a ten-day suspension. 15 COMMISSIONER SCHENCK: Well, this is 16 funny. But, I mean, what kind of insults or obnoxious 17 behavior was it? It wasn't -- 18 MS. KIPLIN: Well, Mr. Anger can come 19 forward. My understanding is it was verbal abuse and 20 profanity, and it was the same treatment that was 21 provided -- that was our LSR, Lottery Sales 22 Representative, had incurred along with our 23 investigator. 24 MR. ANGER: This went well beyond just 25 not being friendly with sales staff who were calling 0119 1 on the store in an effort to support the licensee. 2 This was over-the-top behavior on the part of the 3 individual involved. 4 The report came to us that the LSR had 5 experienced this type of treatment. As a follow-up, 6 GTECH sent their district sales manager to the 7 location to try to ease the relationship and try to 8 improve whatever had led to this individual feeling 9 this way about their sales representative, and that 10 individual received the same treatment; and then, as 11 Kim alluded to, our investigator who engaged with this 12 individual also received similar treatment. You know, 13 we try to work through these situations when there's 14 discourteous treatment, but this was -- 15 COMMISSIONER SCHENCK: When you say 16 "discourteous treatment," you don't mean there were 17 sexual or racial or other insults of that nature? 18 MR. ANGER: No. Expletives, though, 19 were heavily used in the communications with all 20 individuals involved and, you know -- 21 COMMISSIONER SCHENCK: You know, that's 22 criminal mischief. You might -- if we have another 23 incident with this individual, you might -- again, the 24 DA's office is our friend in these matters, if it gets 25 to that point. 0120 1 MR. ANGER: I believe our enforcement 2 folks, you know, in the context of the information 3 that was collected involving the investigator, are 4 looking into that aspect of the matter. 5 COMMISSIONER SCHENCK: Well, I'm glad 6 that you've brought this up. And, you know, if 7 they're doing it to our people, they're doing it to 8 the lottery customers when they're trying to buy 9 lottery tickets, and our customers see that as our 10 face. 11 MR. ANGER: And we receive those types 12 of complaints, as well, and we explore those just as 13 fully, if we have that type of experience. 14 But you're absolutely correct. I mean, 15 at some point, you know, sometimes there's a 16 miscommunication that occurs. This clearly was not a 17 miscommunication situation. This was an individual 18 who seems to act in that fashion on a pretty 19 consistent basis with individuals they encounter, and 20 in the context of being our licensee, we just can't 21 tolerate that. I mean, GTECH's out there -- 22 conscientiously, you know, out there trying to support 23 the licensee and make them successful in selling 24 lottery products, and, you know, we have to get 25 something similar in return from the licensee. 0121 1 This store, the owner was made aware of 2 the situation. We've communicated with the owner. 3 They understand the seriousness of the matter, and 4 we've also followed up with GTECH personnel who have 5 been calling on the store since February when these 6 incidents first occurred. And the issue since that 7 time hasn't been a problem. The individual hasn't 8 been present at the store, and, you know, we haven't 9 had any further issues. But, you know, the matter is 10 serious to us, and, you know, we feel like that this 11 is the appropriate action. 12 COMMISSIONER SCHENCK: How long is the 13 suspension again? Is it ten days? 14 MS. KIPLIN: Yes, it's a ten-day 15 suspension. 16 CHAIRMAN WILLIAMSON: Any other 17 comments, questions? 18 COMMISSIONER KRAUSE: Well, you know, I 19 mean, on the one hand, I hate for employers that are 20 not aware of, you know, their employees' behavior. 21 But at the same time, if we don't hold the employers 22 accountable, then they won't care. And so, you know, 23 I'm happy about what we're doing on that. 24 MR. ANGER: And just to follow up on 25 that comment, Commissioner Krause, we do take into 0122 1 account when we're evaluating these cases, you know, 2 whether the licensee was involved and then ultimately 3 how helpful they were in aiding the Commission with 4 regard to either investigating the matter or trying to 5 bring the matter to resolution. And, you know, these 6 two cases both demonstrate that. Both the TETCO 7 matter and the Harvest Food matter, the licensee was 8 receptive and cooperative when they became aware of 9 the matter and seemed to have actively addressed the 10 situation. 11 COMMISSIONER SCHENCK: And I'm hoping 12 that you will continue in communications with GTECH. 13 If in the future this comes up, I think this is a 14 license we probably could do without, if we continue 15 to have a problem. Maybe we won't have a problem. 16 But if we can't have our vendors and our customers not 17 treated horribly when they come to the point of 18 purchase, I think we're better off without this 19 person. And if it's a family member, then I think the 20 poor store owner probably gets it at Thanksgiving and 21 Christmas and everything else, so he's got his own 22 issues to deal with. 23 CHAIRMAN WILLIAMSON: Thank you, 24 Michael. 25 Is there a motion? 0123 1 COMMISSIONER SCHENCK: I move we adopt 2 staff's recommendation for a ten-day suspension. 3 CHAIRMAN WILLIAMSON: Second? 4 COMMISSIONER KRAUSE: Second. 5 CHAIRMAN WILLIAMSON: All in favor? 6 COMMISSIONER SCHENCK: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 COMMISSIONER KRAUSE: Aye. 9 CHAIRMAN WILLIAMSON: Motion passes. 10 MS. KIPLIN: Commissioners, I have an 11 order. 12 AGENDA ITEM NO. XXV 13 CHAIRMAN WILLIAMSON: Next item is 14 public comment, and I have no one that's interested in 15 that. 16 AGENDA ITEM NO. XXVI 17 CHAIRMAN WILLIAMSON: So at this time, I 18 move the Lottery Commission goes into executive 19 session to deliberate the appointment, employment, and 20 duties of the Executive Director, Deputy Executive 21 Director, Internal Audit Director, and Charitable 22 Bingo Operations Director; and to deliberate the 23 duties of the General Counsel and Human Resources 24 Director pursuant to Section 551.074 of the Texas 25 Government Code; and to receive any legal advice 0124 1 regarding pending or contemplated litigation pursuant 2 to Section 551.071(1)(A) and to receive legal advice 3 regarding any settlement offers pursuant to 4 Section 551.071(1)(B) of the Texas Government Code; 5 and to receive legal advice pursuant to 6 Section 551.071(2) of the Texas Government Code, 7 including but not limited to those items posted on the 8 open meetings notice for purposes of receiving legal 9 advice. 10 Is there a second? 11 COMMISSIONER SCHENCK: I second the 12 motion. 13 CHAIRMAN WILLIAMSON: All in favor? 14 COMMISSIONER SCHENCK: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Motion is passed. 18 We will go into executive session at 11:30, and today 19 is March the 9th, 2010. 20 (Off the record for executive session: 21 11:30 a.m. to 12:45 p.m.) 22 AGENDA ITEM NO. XXVII 23 CHAIRMAN WILLIAMSON: The Texas Lottery 24 Commission will -- is out of executive session. The 25 time is 12:45. 0125 1 Is there any action to be taken as a 2 result of the executive session? And yes, there is. 3 I would like to make a motion that Gary 4 Grief is moved over into the position of executive 5 director. 6 COMMISSIONER KRAUSE: I second that 7 motion. 8 COMMISSIONER SCHENCK: I second the 9 motion. 10 COMMISSIONER KRAUSE: I'll third it. 11 CHAIRMAN WILLIAMSON: All in favor? 12 COMMISSIONER SCHENCK: Aye. 13 CHAIRMAN WILLIAMSON: Aye. 14 COMMISSIONER KRAUSE: Aye. 15 (Clapping) 16 CHAIRMAN WILLIAMSON: And our second 17 motion is the salary will -- his salary will be -- 18 continue to be the same as it is today. 19 Is there a second to that motion? 20 COMMISSIONER KRAUSE: Second. 21 COMMISSIONER SCHENCK: Second. 22 CHAIRMAN WILLIAMSON: All in favor? 23 COMMISSIONER SCHENCK: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 COMMISSIONER KRAUSE: Aye. 0126 1 CHAIRMAN WILLIAMSON: Motion passes as 2 well, 3-0. 3 Counselor, did I cover the bases on 4 that? 5 MS. KIPLIN: When you say "moved over," 6 I'm thinking that means appoint and employ. 7 CHAIRMAN WILLIAMSON: I'm going to 8 appoint -- yes, that's correct. I would like to 9 clarify that. It is appoint and employ -- 10 MS. KIPLIN: And just for -- 11 CHAIRMAN WILLIAMSON: -- as our new 12 executive director. 13 MS. KIPLIN: For purposes of the open 14 meetings, I think it's pretty clear that we've carried 15 the item for y'all to deliberate in executive session. 16 It's very clear that you can return to open session 17 and take any action you want as a result of the 18 executive session, which is what you've done. 19 AGENDA ITEM NO. XXVIII 20 CHAIRMAN WILLIAMSON: Thank you. And 21 there are no other action items to be taken at this 22 time. So at this point, is there a motion to end our 23 meeting today? 24 COMMISSIONER SCHENCK: I move we go 25 home. 0127 1 COMMISSIONER KRAUSE: Second. 2 CHAIRMAN WILLIAMSON: Second. All in 3 favor? 4 COMMISSIONER SCHENCK: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Motion passes. 8 (Meeting adjourned: 12:45 p.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0128 1 CERTIFICATE 2 STATE OF TEXAS 3 COUNTY OF TRAVIS 4 5 I, Lorrie A. Schnoor, Certified Shorthand 6 Reporter in and for the State of Texas, Registered 7 Merit Reporter, Certified Realtime Reporter and Board 8 Certified Realtime Professional, do hereby certify 9 that the above-mentioned matter occurred as 10 hereinbefore set out. 11 I FURTHER CERTIFY THAT the proceedings of 12 such were reported by me, later reduced to typewritten 13 form under my supervision and control, and that the 14 foregoing pages are a full, true, and correct 15 transcription of the original notes. 16 IN WITNESS WHEREOF, I have hereunto set my 17 hand this 18th day of March, 2010. 18 19 20 __________________________________ LORRIE A. SCHNOOR, RMR, CRR, BCRP 21 Texas CSR #4642-Expires 12/31/2011 22 Firm Registration No. 276 Kennedy Reporting Service, Inc. 23 1801 Lavaca, Suite 115 Austin, TX 78701 24 512.474.2233 25