1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE § 7 TEXAS LOTTERY COMMISSION § TUESDAY, AUGUST 10, 2010 § 8 9 10 COMMISSION MEETING 11 TUESDAY, AUGUST 10, 2010 12 13 BE IT REMEMBERED THAT on Tuesday, the 10th day 14 of August 2010, the Texas Lottery Commission meeting was 15 held from 9:03 a.m. to 12:56 p.m., at the offices of the 16 Texas Lottery Commission, 611 East 6th Street, Austin, 17 Texas 78701, before MARY ANN WILLIAMSON, CHAIRMAN, J. 18 WINSTON KRAUSE, and DAVID J. SCHENCK. The following 19 proceedings were reported via machine shorthand by 20 Lorrie A. Schnoor, a Certified Shorthand Reporter of the 21 State of Texas, RMR, TCRR, and the following proceedings 22 were had: 23 24 25 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONERS: Mr. J. Winston Krause 5 Mr. David J. Schenck 6 GENERAL COUNSEL: Ms. Kimberly Kiplin 7 EXECUTIVE DIRECTOR: 8 Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS DIVISION: Mr. Philip Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - TUESDAY, AUGUST 10, 2010............ 7 4 AGENDA ITEM NO. I - Meeting Called to Order....... 7 5 AGENDA ITEM NO. II - Report by the Bingo Advisory Committee Chairman, possible discussion 6 and/or action on the Bingo Advisory Committee’s activities, including the July 28, 2010 Bingo 7 Advisory Committee meeting........................ 9 8 AGENDA ITEM NO. III - Report, possible discussion and/or action on the Bingo Advisory Committee study, 9 including the Bingo Advisory Committee report on the impact of legal and illegal amusement machines 10 on bingo.......................................... 14 11 AGENDA ITEM NO. IV - Report, possible discussion and/or action on the Bingo Advisory Committee, 12 including continuation of the Bingo Advisory Committee, FY10 and/or FY11 work plan............. 39 13 AGENDA ITEM NO. V - Consideration of and possible 14 discussion and/or action on nominations and/or appointments to the Bingo Advisory Committee...... 50 15 AGENDA ITEM NO. VI - 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 status of licensees, rulemaking and form revisions, audits, 18 pull-tab review, special projects, and upcoming operator training................................. 52 19 AGENDA ITEM NO. VII - Report, possible discussion 20 and/or action on lottery sales and revenue, game performance, new game opportunities, advertising, 21 market research, trends, and game contracts, agreements, and procedures........................ 53 22 AGENDA ITEM NO. VIII - Report, possible discussion 23 and/or action on transfers to the State and the agency’s budget status........................ 60 24 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. IX - Report, possible discussion, 4 and/or action on Lottery Operations and Services Contract Amendment No. 8 credit calculation...... 62 5 AGENDA ITEM NO. X - Report, possible discussion 6 and/or action on the agency’s Legislative Appropriations Request for the 2012-2013 7 biennium......................................... 64 8 AGENDA ITEM NO. XI - Consideration of and possible discussion and/or action, including adoption, on 9 amendments to 16 TAC §401.315 relating to Mega Millions On-Line Game Rule.................. 72 10 AGENDA ITEM NO. XII - Consideration of and 11 possible discussion and/or action, including adoption, on new rule 16 TAC §401.318 relating to 12 Withholding of Delinquent Child Support Payments from Lump-sum and Periodic Payments of Lottery 13 Winning in Excess of Six Hundred Dollars......... 75 14 AGENDA ITEM NO. XIII - Consideration of and possible discussion and/or action, including adoption, on new 15 rule 16 TAC §401.319 relating to Withholding of Child Support Payments from Periodic Installment 16 Payments of Lottery Winnings..................... 75 17 AGENDA ITEM NO. XIV - Consideration of and possible discussion and/or action, including adoption, on 18 new rule 16 TAC §401.371 relating to collection of delinquent obligations for lottery related 19 accounts......................................... 80 20 AGENDA ITEM NO. XV - Report, possible discussion and/or action on the lottery operations and 21 services procurement............................. 82 22 AGENDA ITEM NO. XVI - Report, possible discussion and/or action on the 81st Legislature, 82nd 23 Legislature, and/or federal gaming legislation... 84 24 25 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XVII - Consideration of and/or report, possible discussion and/or action on 4 external and internal audits and/or reviews relating to the Texas Lottery Commission, and/or 5 on the Internal Audit Department’s activities, including the lottery security study............. 87 6 AGENDA ITEM NO. XVIII - Report, possible 7 discussion and/or action on GTECH Corporation.... 89 8 AGENDA ITEM NO. XIX - Report by the Executive Director and/or possible discussion and/or action 9 on the agency’s operational status, agency procedures, and FTE status........................ 90 10 AGENDA ITEM NO. XX - Consideration of the status 11 and possible entry of orders in: A. Docket No. 362-10-3719 – Kwik Stop Cut Rate 12 B. Docket No. 362-10-3863 – Nick Food Store #2 C. Docket No. 362-10-3860 – Shop N Go 13 D. Docket No. 362-10-4191 – Sunmart Food Store E. Docket No. 362-10-4192 – Hong Duc Supermarket 14 F. Docket No. 362-10-4393 – Flowers Drive-Inn G. Docket No. 362-10-3739 – Stateline Citgo 15 H. Docket No. 362-10-2668.B – Ysleta Del Sur Pueblo Volunteer Fire Department, Inc. 16 I. Docket No. 362-10-0699.B – Ingram Hall d/b/a 10 Cent Bingo; Scott Ingerman, Bingo Registry 17 Worker; and, Lydia Garcia, Bingo Registry Worker...................................... 94 18 AGENDA ITEM NO. XXI - Public comment............. 151 19 AGENDA ITEM NO. XXII - Commission may meet in 20 Executive Session: A. To deliberate the duties and evaluation 21 of the Executive Director pursuant to Section 551.074 of the Texas Government Code 22 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant to 23 Section 551.074 of the Texas Government Code C. To deliberate the duties and evaluation of the 24 Charitable Bingo Operations Director pursuant to Section 551.074 of the Texas Government 25 Code 6 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 D. To deliberate the duties of the General Counsel pursuant to Section 4 551.074 of the Texas Government Code E. To deliberate the duties of the Human 5 Resources Director pursuant to Section 551.074 of the Texas Government Code 6 F. To receive legal advice regarding pending or contemplated litigation pursuant to 7 Section 551.071 (1) (A) and/or to receive legal advice regarding settlement offers 8 pursuant to Section 551.071 (1)(B) of the Texas Government Code and/or to receive 9 legal advice pursuant to Section 551.071 (2) of the Texas Government Code, 10 including but not limited to: First State Bank of DeQueen et al. v. 11 Texas Lottery Commission. Texas Lottery Commission v. Leslie Warren, 12 Texas Attorney General Child Support Division, Singer Asset Finance Company 13 L.L.C., and Great-West Life & Annuity Insurance Company. 14 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery Commission et al 15 Employment law, personnel law, procurement and contract law, evidentiary and procedural law, 16 and general government law. Lottery Operations and Services procurement 17 and/or contract.......................... 151 18 AGENDA ITEM NO. XXIII - Return to open session for further deliberation and possible action on any matter 19 discussed in Executive Session................... 152 20 AGENDA ITEM NO. XXIV - Adjournment............... 152 21 REPORTER'S CERTIFICATE........................... 154 22 23 24 25 7 1 P R O C E E D I N G S 2 TUESDAY, AUGUST 10, 2010 3 (9:03 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I'd 6 like to call the meeting of the Texas Lottery Commission 7 to order. Today is August the 10th, 2010. The time is 8 9:03. Commissioner Schenck and Krause are present. We 9 have a quorum. 10 So before we get started, I just wanted to 11 share some information with you. This is Commissioner 12 Schenck's last meeting. He has accepted a position at 13 the attorney general's office. 14 And I'm going to let you tell them what 15 that position is. 16 COMM. SCHENCK: If I could explain it, I 17 would. 18 (Laughter) 19 COMM. SCHENCK: It's Deputy Attorney 20 General in charge of the office of legal counsel 21 divisions. Five or six divisions at the attorney 22 general's office I will be working with. Looking 23 forward to the chance to work with Attorney General Greg 24 Abbott and his staff. Fine people. I've known General 25 Abbott a long time, and I think it's a very exciting 8 1 opportunity. 2 CHAIRMAN WILLIAMSON: Well, great. You 3 will be missed, certainly by me. I have enjoyed working 4 with you and have learned a lot from you, and I know 5 your presence and your intellect and your thoughtful 6 comments will be missed. 7 COMM. KRAUSE: Commissioner Schenck, I 8 know some of the people you're going to be working with, 9 and you're going to have a great time. It's a great 10 team up there. 11 COMM. SCHENCK: Thank you, Winston. If 12 this is the time for me to say anything, I will. 13 CHAIRMAN WILLIAMSON: It's entirely up to 14 you. 15 COMM. SCHENCK: Well, first, let me thank 16 Governor Perry for this opportunity to serve. I'm 17 impressed with Governor Perry and his staff's dedication 18 to this agency and every agency in the state that will 19 be accountable to the people of the state. And I'm 20 confident after my three years here, that that's exactly 21 the mission that Gary, Anthony Sadberry, and all the 22 senior staff and, in fact, the junior staff here at this 23 agency are dedicated to. And I've been very impressed. 24 I've very much enjoyed working with my 25 fellow commissioners who couldn't be a nicer group of 9 1 people or a better people to sit in the seats that have 2 been in, including Jim Cox, yourself, Winston, and Tom 3 Clowe. I'm going to miss you-all, but I will now be in 4 the city. I will look forward to working with you on 5 many broad challenges in the next few years. And I'm 6 very confident the lottery is going to move forward in a 7 very positive direction. 8 And, also, to the critics and the people 9 who are thoughtful in giving us their thoughts in how we 10 might do things better, I want to encourage you to 11 continue doing that. I believe that's a resource as 12 well, and I encourage people to continue to attend these 13 meetings and sharing your viewpoints, positive, 14 negative, about the lottery. We all want the same 15 thing. We want this institution to improve and to be 16 the best lottery it possibly can be, and I'm confident 17 that it's well in that direction under your leadership 18 and Gary's. And I know that the people of the state 19 ought to be proud of this agency. Thanks. 20 CHAIRMAN WILLIAMSON: Thank you, 21 Commissioner. 22 AGENDA ITEM NO. II 23 CHAIRMAN WILLIAMSON: All right. Let's go 24 on to Item No. II. It's report by the Bingo Advisory 25 Committee Chairman, and possible discussion and/or 10 1 action on their activities, including their July 28th, 2 meeting. Kimberly Rogers is here to give the report. 3 MR. SILVER: I'm on No. 3. I'm supposed 4 to be on No. 2 also. 5 CHAIRMAN WILLIAMSON: Okay. So if y'all 6 just introduce yourselves and -- 7 MS. ROGERS: Good morning, Commissioners. 8 For the record, my name is Kimberly Rogers. I am the 9 chair of the Bingo Advisory Committee. 10 MR. SILVER: And my name is Earl Silver. 11 I'm the vice chair of the Bingo Advisory Committee. 12 MS. ROGERS: You have a copy of my summary 13 of our April 28th meeting -- I'm sorry -- July 28th 14 meeting, which was held here in Austin. It was 15 unanimously passed and approved our April 28th, 2010, 16 meeting minutes as they are posted online. 17 And the next item on the summary will also 18 address Item No. III on our agenda today, and that was 19 in reference to an informal study that the Bingo 20 Advisory Committee was asked to look at and put 21 together. And I will kind of go through and read some 22 of that. 23 We were asked to look at the impact that 24 legal and illegal gaming has on bingo across the state. 25 And this work group was formed, and it was chaired by 11 1 Mr. Francis Ciancarelli. He presented his report with 2 some great information. It was gathered and comprised 3 mostly -- 4 MS. KIPLIN: Can I -- I'm sorry. Can I 5 interrupt for just one minute. We're on Item II. 6 MS. ROGERS: Yes. 7 MS. KIPLIN: And I want to make sure, 8 you're moving into Item III now -- 9 MS. ROGERS: No, ma'am. 10 MS. KIPLIN: -- in terms of the report? 11 MS. ROGERS: I'm reading the summary. 12 MS. KIPLIN: Okay. I'm sorry. 13 MS. ROGERS: I just -- what I had said for 14 the record was Item III of my summary report sort of 15 also addresses Item No. III of today's agenda. 16 MS. KIPLIN: Got it. Thank you. 17 MS. ROGERS: Yes, ma'am. No problem. 18 He put together a great informative 19 report. Mostly, though, this was gathered, and it was 20 opinions of individuals across the state of Texas that 21 BAC members were able to talk to. And this was on the 22 effect of 8-liners in one way or another and the 23 difference of your legal gaming machines, which tickets 24 are dispensed and you have a charitable component with 25 them which means that the tickets are redeemed for bingo 12 1 products, merchandise, and things of that nature. And 2 then you have your illegal games, which the ticket -- 3 cash is given for the tickets. 4 CHAIRMAN WILLIAMSON: Suzanne (sic), let's 5 do this: Since this is a separate item, why don't we go 6 ahead and finish your agenda, and then we can focus back 7 in on that particular item when we get to our Agenda 8 Item No. III, if you don't mind. 9 MS. ROGERS: Okay. 10 CHAIRMAN WILLIAMSON: Would that work for 11 you guys? 12 MS. ROGERS: Sure. 13 CHAIRMAN WILLIAMSON: Okay. 14 MS. ROGERS: Sure. 15 CHAIRMAN WILLIAMSON: Let's do that. 16 MS. ROGERS: I will skip down, then, to 17 Item No. IV on my summary. 18 CHAIRMAN WILLIAMSON: Okay. 19 MS. ROGERS: And that was we were to 20 present the Fiscal Year 2010 Work Plan accomplishments. 21 This was not ready. At the time, we had quite a few 22 rules due to House Bill 1474, so it kind of -- it was 23 put off until the next meeting. It will be presented. 24 Next, we had a work group that was formed 25 by Melissa Young. She put together our Fiscal Year 2011 13 1 Work Plan, which was presented, and I believe y'all do 2 have a copy of that. 3 Next, we had the Nomination Committee 4 which was chaired by Ms. Markey Weaver Beilue, and she 5 presented her report that 14 nominations were received 6 by the lottery for the three positions that we do have 7 coming available in August. They presented names of 8 individuals who they are recommending for the positions 9 that are well diversed in the bingo industry, 10 enthusiastic, and have strong desires to serve on the 11 BAC. Their recommendations were in no particular order, 12 Kimberly Rogers, Earl Silver, Ronnie Baker, and W.L. 13 Davis. At our meeting, we were informed that Mr. Davis 14 had removed himself from the list. 15 Next, the Prize Board Management work 16 group chaired by Mr. Emile Bourgoyne presented a report, 17 and he kind of was bringing in the idea of a prize board 18 being based on attendance, percentage of buy-ins, and 19 also managed by utilizing full-pay and half-pay, 20 quarter-pay methods. 21 Next, the BAC discussed different ways on 22 how an operator's badge could be distinguished from 23 floor workers' badges, and this was to assist customers 24 in a more prompt way to have an operator answer 25 questions rather than just seeing it on the wall. And 14 1 we had that discussion. 2 The only public comment we had was by 3 Commissioner Schenck. And our next meetings were 4 tentatively set for October 20th, February 16th of -- 5 that should be 2011, May 18th of 2011, and August 17th 6 of 2011. Our meeting was adjourned at 12:47. 7 I will be happy to answer any questions on 8 that portion of the summary, if you have any. 9 CHAIRMAN WILLIAMSON: Commissioners, do 10 you have any questions? 11 COMM. KRAUSE: No. 12 AGENDA ITEM NO. III 13 CHAIRMAN WILLIAMSON: All right. Let's go 14 on, then, to Item No. III, report, discussion on the 15 Bingo Advisory Committee study, including the BAC Report 16 on the legal and illegal amusement machines on bingo. 17 All right. Ms. Rogers, if you'll 18 continue, please. 19 MS. ROGERS: As I had said before, we were 20 asked to do a study on the different types of 8-liner 21 gaming -- gambling machines. We had a couple different 22 reports that were given by Mr. Francis Ciancarelli. 23 Also, Stephen Fenoglio, a public member of 24 this work group, gave a report; and I asked that that 25 was included in y'all's book so you could see. I think 15 1 it was very informative. He did a study on bingo halls 2 here in Austin. It -- there is an increase in a 3 charity's bottom line with additional charitable 4 distributions for the charities is evident in 5 Mr. Fenoglio's report. It is a consensus of the Bingo 6 Advisory Committee work group that the study, if it was 7 to go on any further, we would ask that maybe it be done 8 by a professional group; that this is what they do 9 because our study was based on opinions and just asking 10 questions of individuals out, you know, in the public 11 eye. And they may have more information that is more 12 down -- you know, factual. 13 So it was a consensus that illegal gaming 14 not only hurts bingo but also Texas Lottery, movies, 15 bowling, and local restaurants. The bingo halls that 16 did have the legal redemption machines that are being 17 operated in a hall correctly with a charitable 18 component, those charities did see and can show that 19 they do have a larger distribution and do profit from 20 that. 21 So if you have any questions, I'd be happy 22 or Mr. Silver would be happy to answer. 23 CHAIRMAN WILLIAMSON: Commissioners? I 24 know you were there, Commissioner Schenck. 25 COMM. KRAUSE: I guess it was last week I 16 1 had the opportunity to go meet with Donna Howard, who is 2 one of the representatives in our legislature, and she's 3 from Travis County. And, you know, I told her I -- that 4 we have the Bingo Advisory Committee, and that they are 5 going to give us information to be able to bring back to 6 the legislature to highlight why illegal gambling and 7 why the 8-liners is harmful to the legal gambling that 8 we have in Texas. Legal gambling being lottery, 9 charitable bingo, pari-mutuel, and that kind of thing. 10 So that's what we're looking for. 11 I want to be able to go to her and her 12 colleagues and say why it is that the illegal 8-liners 13 is a scourge, why these 8-liner casinos are gutting your 14 business. And so I don't think that you need to have a 15 professional do this report. I think that you need to 16 go to your members and say, "How is it affecting you in 17 your business?" And I'll bet you that there is a gold 18 mine of information out there. Everybody just needs to 19 say what it is that's affecting their business; how 20 negatively it affects it. 21 And another thing I'm looking for is 22 ideas. Give us some ideas on what to take to the 23 legislature. Doesn't really do a lot of good to go 24 complain to them about it if we don't have some kind of 25 a proposal. So that's what we're looking for. And if 17 1 you could help us out with that, give us some 2 ammunition, then we will help you. And that's what our 3 goal is. 4 MS. ROGERS: And did Mr. Ciancarelli's 5 report help you with any of that at all or no? 6 COMM. KRAUSE: You know, I want more than 7 that, and I want to hear from the operators, you know, 8 about what it is in their -- we had one operator that 9 sent us -- I'm sure the other commissioners all got it 10 in the mail -- it was an aerial photograph. This isn't 11 what I'm looking for from everybody, but it's an aerial 12 photograph from one of his bingo halls, and identified 13 on it were five other illegal 8-liner casinos all 14 huddled right around it. So what it looks like to me, 15 looking at that photograph, is that whenever we have a 16 bingo hall, charitable bingo, legal in the state of 17 Texas, that creates a little gambling district that 18 others come in and operate illegal casinos right around 19 it. Well, that's what I want to know about. 20 You know, I want to know about the 21 hesitancy that -- local law enforcement. Why is local 22 law enforcement not willing to help you out? It's 23 plainly against the law. But is it budget? Is it a 24 perception that it, you know, is a consensual crime, 25 that nobody's getting hurt? I want to know about that 18 1 so that we can take that to the legislature. If you 2 don't give us any ammo, we don't have anything to take 3 to them. So that's what we're looking for from you. 4 MR. SILVER: Commissioner Krause, were you 5 looking for just the effects of illegal 8-liner machines 6 on bingo or legal -- 7 COMM. KRAUSE: Well -- 8 MR. SILVER: -- versions of 8-liner 9 machines? I understand your position that there are -- 10 (Simultaneous speaking) 11 COMM. SCHENCK: Here's my concern. I 12 had -- I attended the meeting, Winston -- or 13 Commissioner Krause. I shared your concern. I think 14 that there was a perception, perhaps. First of all, 15 Mr. Ciancarelli's effort, I think, was sincere -- 16 MR. SILVER: Yes, sir. 17 COMM. SCHENCK: -- and well intended. But 18 we have, other than the public members on the BAC, 19 experts in this field whose opinion we look to. 20 MR. SILVER: Uh-huh. 21 COMM. SCHENCK: Passing through to the 22 general public was essentially what we were looking for. 23 What we're looking for was an opinion from the BAC about 24 whether or not 8-liner gaming is harmful to the 25 charitable bingo operations in this state. 19 1 And I think that the -- that question 2 wasn't immediately answered. And so at the end of that 3 meeting, I posed the question to the members of the BAC. 4 I gave them a world that had three options in it, where 5 we get rid of 8-liners entirely in this state and we get 6 back to bingo, lottery, and pari-mutuel dog and horse 7 tracks as the only forms of gaming in this state, and 8 nobody was for it. The second option was we have 9 8-liners, but they exist only within charitable bingo 10 locations and the money being shared between charities 11 and the state. All of them were for that. 12 I think -- and maybe I'm overstating this. 13 And to be clear -- it's already clear -- I think we all 14 on this commission have the same sense that 8-liners are 15 becoming a scourge of creating red-light districts 16 across the state. There's all kinds of collateral 17 criminal activity that are happening at some of these 18 places and that a lot of the bingo industry has had to 19 face a decision of whether they fight this or they 20 participate in it. And so when we ask the question of 21 "What is happening" -- "What's the impact of illegal 22 8-liner activities?" the Bingo Advisory -- well, I 23 shouldn't say just Bingo Advisory Committee -- much of 24 the bingo industry is telling us "Well, they're for 25 legal bingo activity," which by definition is what we 20 1 do. 2 COMM. KRAUSE: Uh-huh. 3 COMM. SCHENCK: Because they've decided 4 that they can't participate in bingo without competing 5 with the 8-liners, so they're siding on. 6 COMM. KRAUSE: Well, I get that; that, you 7 know, one of the things that we've done is we've opened 8 up the menu of items that a legitimate bingo hall can 9 offer. So you can offer 8-liner, you know, in amusement 10 games as long as there's a charitable component and that 11 kind of thing. That's a response to the competition 12 from the casinos. And so -- 13 COMM. SCHENCK: I'm not sure, to be fair 14 with Staff, if we've come to a firm conclusion about the 15 legality of trading in 8-liner revenues coupons for 16 bingo products. 17 MR. SANDERSON: We have not come to that 18 conclusion at this point. We do have a request into the 19 Attorney General for it. 20 COMM. SCHENCK: But it's clear that what 21 the BAC's view is, those are what they're calling legal 22 8-liners. 23 MR. SANDERSON: I believe that's what 24 they're calling legal. 25 COMM. KRAUSE: We're not objecting to them 21 1 at the moment. Right? 2 COMM. SCHENCK: And so everybody -- it's 3 like gun control. Everyone's version of gun control is 4 "Someone else's gun should be controlled; however, I 5 should be able to own whatever I want." And I 6 understand that the people want as much revenue as they 7 can get. 8 COMM. KRAUSE: Uh-huh. 9 COMM. SCHENCK: So I think that we face a 10 challenge when we now are asking the bingo industry -- 11 qua industry -- that's q-u-a -- sorry -- industry where 12 they are with respect to 8-liners because they're now 13 part of the problem. They can't compete without 14 participating. And it's -- they're not the worst part 15 of the problem. The worst part of the problem is, 16 obviously, these freestanding casinos that are out 17 there. But it's -- they're part of the problem 18 nonetheless. 19 And it's like a cancer, as far as I'm 20 concerned, that's come into the state, and it's 21 spreading into the operations of our charitable bingo. 22 And we need the tools -- something needs to be done to 23 fix this. Either it needs to be legalized and regulated 24 so we know where this money is going so we know that the 25 little, old lady who comes into a bingo hall to play 22 1 bingo and ends up playing an 8-liner machine can be 2 confident that she's not being cheated when these 3 machines are being played, or we need to get the 4 machines thrown out of the state and dumped into the 5 Gulf of Mexico. There is no middle ground, as far as 6 I'm concerned, and I think the BAC is caught in the 7 position where they feel the need to be competitive in 8 the marketplace. 9 CHAIRMAN WILLIAMSON: Well, of course, as 10 we -- 11 COMM. SCHENCK: Mr. Silver, the 12 question -- the answer comes to you. 13 MR. SILVER: Yeah. And in my personal -- 14 I don't know if I can speak in my personal opinion, 15 but -- 16 COMM. SCHENCK: Yes, you can. 17 MR. SILVER: Okay. 18 COMM. SCHENCK: Please do. 19 MR. SILVER: Okay. I didn't know exactly 20 who I was going to represent, whether the BAC or myself. 21 But as far as what I've seen in locations 22 in Victoria County, we have a -- I'm a commercial 23 lessor, and we have a hall down there; and it is 24 absolutely a fact that any illegal gaming will affect 25 the bottom line of a bingo hall. It will not only 23 1 affect the bottom line of a bingo hall, it will affect 2 the sales of lottery tickets. It will have a ripple 3 effect throughout the community, throughout bowling 4 alleys, restaurants, because we're all competing for 5 that same discretionary dollar. The lottery as well as 6 bingo is competing for the same dollar. And then if we 7 have an illegal component come in there, that's really 8 going to affect that because there's no way the lottery 9 being legal, bingo being legal, and then an illegal 10 activity comes in, neither the lottery or bingo can 11 compete with that activity. 12 And personally, I believe that illegal 13 8-liners should be removed. Some type of regulation or 14 something to that effect, but it goes back to the 15 Pandora box theory, gun control. You can have gun 16 control. You can take my gun. You can take whoever's 17 gun's in here, but I guarantee you the criminals will 18 have the guns. 19 Same thing with the 8-liner issue. We got 20 to find some way to remove the illegal 8-liners in this 21 state because no matter what, if the state legalizes 22 them and they regulate them, there's still going to be 23 illegal activity doing that because there's more money 24 in that. And it's more competition. So I would be 25 firmly with you in removing illegal 8-liners. 24 1 As far as the legalities of 8-liners and 2 what a legal and illegal 8-liner is, that's up to the 3 experts. I am not an expert on that. 4 COMM. SCHENCK: That's the problem. 5 MR. SILVER: Yeah, I'm not -- 6 COMM. SCHENCK: You're telling us you're 7 for the legal ones, but you can't tell us where the 8 legal one is. And so in the meanwhile -- 9 MR. SILVER: Well -- 10 COMM. SCHENCK: -- everyone's just -- it's 11 a race to the bottom. 12 MR. SILVER: Well, I'm sure there's some 13 experts probably in this room or some information that 14 can be given to you. 15 COMM. SCHENCK: But it can't be an expert. 16 There's -- you've got -- we aren't hiring nuclear 17 physicists to run as bingo workers. 18 MR. SILVER: No, sir. 19 COMM. SCHENCK: We have Bingo Registry. 20 It's not their job to figure out -- these guys aren't -- 21 they're not lawyers. They're not trained to be lawyers. 22 And the machines are out there. 23 MR. SILVER: Yes, sir. 24 COMM. SCHENCK: And they're taking money 25 from people, and they're paying back things that look 25 1 like money. To me, that's illegal. And I know that -- 2 MR. SILVER: On the redemption side, yes, 3 sir. 4 COMM. SCHENCK: Well, I -- we haven't -- 5 this commission hasn't made the final determination. I 6 don't -- I wouldn't say that they're necessarily legal 7 because they're taking money and getting money back in a 8 different form. To me, that's a slot machine. 9 MR. SILVER: Uh-huh. 10 COMM. SCHENCK: And you're taking money 11 from people that -- it's potentially addictive behavior. 12 It's different, I think, than lottery or bingo, and it's 13 a real problem. And from the studies I've seen, you're 14 talking about a billion to $5 billion being taken from 15 people in ways that nobody's watching, going into the 16 hands of people who we probably don't want. We heard a 17 testimony from somebody last time that the money is 18 going -- some of this money is going to Pakistan -- God 19 knows -- Afghanistan, Al-Qaeda. This is a serious 20 problem. 21 MR. SILVER: I completely agree. 22 COMM. SCHENCK: And I don't know -- and we 23 don't have a firm line. And that's the one thing that 24 we can get the help from the legislature on, is getting 25 a test that we can say, "This machine is legal. 26 1 Somebody's watching what's going on with it, and these 2 machines are not." And the people who are operating 3 anything that looks like an illegal machine, as far as 4 I'm concerned, if we need 5,000 Buford T. Pussers with 5 baseball bats to crack them up, we've got to do 6 something to get these machines out of the state. 7 (Laughter) 8 COMM. KRAUSE: That's why we need your 9 help. 10 MR. SILVER: Yes, sir. 11 CHAIRMAN WILLIAMSON: Now, Mr. Bresnen, I 12 know you have -- are you interested in coming up and 13 joining this discussion? 14 MR. BRESNEN: Briefly. 15 CHAIRMAN WILLIAMSON: Okay, please. 16 MR. BRESNEN: Thank you, madam chairman 17 and commissioners. I'm here on behalf of the Bingo 18 Interest Group today. 19 Some of our members have 8-liners 20 operating in conjunction with their bingo halls and 21 others don't. The general reason, the ones that don't 22 is because local law enforcement in their areas have 23 said they don't care if it's legal or not. They ain't 24 putting up with them, and they will come in and arrest 25 them. And, you know, it's one of those deals, you might 27 1 beat the rap, but you won't beat the ride. Otherwise, 2 most of them would have machines in their halls for two 3 reasons. 4 One is the competitive reason that you're 5 referring to. If there are other machines in the 6 community and they're paying cash, you can't compete 7 with that. Be honest about it, when the lottery started 8 in the early '90s, we couldn't compete with the lottery. 9 Go look at the numbers. If you're paying cash in large 10 sums, it's not surprising that people who will gamble 11 will go elsewhere to do that. So that's not surprising. 12 On the other hand, we also know from 13 studies that the Bingo Division has done in the past, 14 that bingo players typically are older, typically 15 female, more disproportionately female, older 16 population. So some people have found if they operate 17 8-liners in conjunction with their bingo operation, then 18 it brings in a customer who might not otherwise be there 19 who will then play bingo. 20 As to the legality, we've got two AG 21 opinion requests over there right now. And let me just 22 say as an aside, I'd really rather not get into the gun 23 control debate today, but I'd urge you not to dump 24 anything else in the Gulf of Mexico. 25 (Laughter) 28 1 MR. BRESNEN: Those two -- there are two 2 opinions on -- being considered by the Attorney General 3 right now for one reason. We were not satisfied with 4 the opinion that y'all submitted because we think it 5 failed to give the context within which people are 6 operating machines in conjunction with their bingo halls 7 and how that works. 8 And frankly, the statute is pretty simple. 9 It basically has two criteria. One is you have to 10 comply with the ten times or $5 rule. I think that's 11 enforceable. I think people have been indicted, 12 convicted. Their machines and cash have been 13 confiscated. That's been going on since I started 14 working in this area since '95. So that's nothing new. 15 The other is that you must give out a 16 noncash merchandise prize or a representation of value 17 that can be traded in for one of those -- for a noncash 18 merchandise prize. You treat bingo products all day, 19 every day just like merchandise. It's inventoried. 20 It's shipped. The -- all of it's regulated as to what 21 it can be. The money coming in for that -- those -- 22 that merchandise has to be credited. It's sold. It's 23 not sold to the customer; it's sold to a third party and 24 given to the customer. All of the proceeds from that 25 are accounted for. So we asked Representative Thompson, 29 1 the chair of the local and uncontested calendar 2 committee in the House to file a different request. I 3 think it overlaps y'all's request in that it gives a 4 context of the business practices that are being done in 5 the halls that have some redemption for 8-liners coupled 6 with them. 7 Now, I'd be remiss if I didn't call 8 attention to your -- to the -- in your folder, I 9 understand you have Mr. Fenoglio's letter, and I won't 10 read it to you. He couldn't be here today. He has an 11 illness in the family and had to be away. But it's the 12 kind of hard data that you're asking for, and it clearly 13 differentiates between locations that do and don't; and 14 you can see a benefit to the bingo operations 15 demonstrated there. 16 On the flip side, Mr. Sanderson or the 17 previous director performed a study that was probably, 18 what, about maybe five years old by now when a bunch of 19 game rooms paying cash down in the South Texas area -- I 20 want to say it was around Alice or -- 21 MR. SANDERSON: Kingsville. 22 MR. BRESNEN: Kingsville? 23 And the -- before and after, when they -- 24 when they came in and started operating and paying cash 25 and the effect it had on bingo. So these -- 30 1 MS. KIPLIN: Wait a minute. 2 MR. BRESNEN: -- these folks -- 3 MS. KIPLIN: Commissioners, that letter is 4 under Item 2. I see you looking for it. 5 And I'm sorry to interrupt you. 6 MR. BRESNEN: No, that's okay. 7 MS. KIPLIN: Just so they have that in 8 front of them as a reference. 9 COMM. SCHENCK: This is the letter he 10 handed out at the BAC meeting. 11 MS. KIPLIN: Sorry. 12 MR. BRESNEN: No problem. 13 And the other study -- I'm sure 14 Mr. Sanderson can get with you -- it's dated. So, I 15 mean, it's out of date some. 16 But those facts are known. I suppose you 17 could go through all 65, or however many it is, 18 locations where people are operating machines in 19 conjunction with their bingo and do the same kind of 20 analysis that Mr. Fenoglio did, and the numbers would 21 shake out and you'd see what they are. 22 In reality, if there's an 8-liner or two 23 in a convenient store, even if it's parked near the deer 24 corn, probably not having that big an impact on a bingo 25 hall in that location because there's not an aggregation 31 1 of machines there and a drawing of a large number of 2 people. Same for a bar, for example, that has a machine 3 back in the corner. It's these game rooms where there's 4 an aggregation of machines and they're paying cash that 5 present a problem for charitable bingo; and, I suppose, 6 by extension, the lottery. I don't -- because you're 7 distribution system is so diversified and spread out, it 8 may be hard to draw any sort of scientific conclusion 9 about that or any mathematical conclusion about it. 10 But bottom line is, you have some data 11 that's been made available to you or that can be, at 12 least from this earlier report and from Mr. Fenoglio's 13 documentation and from the statements of people who are 14 in this business day in and day out about what the 15 impact is, what they think is legal conduct and how it 16 works in favor of charitable bingo. And so I guess I'm 17 feeling like I need to stand up a little bit for the 18 work that's been done in the past on this. 19 We're happy to keep working with you 20 and -- on this issue at any time, and I'll shut up and 21 take questions if you have any. 22 COMM. SCHENCK: Steve, I have two quick 23 questions -- 24 MR. BRESNEN: Yes. 25 COMM. SCHENCK: -- slash, observations. 32 1 MR. BRESNEN: Yes, sir. 2 COMM. SCHENCK: First, with respect to the 3 odd two or six machines that might appear at the truck 4 stop or the deer corn sales place, there's -- the 5 ubiquitous nature of these machines has sort of a moral 6 problem, it seems to me. It's out there in the public. 7 There's nobody watching it. There's six year olds or 8 eight year olds, maybe the clerk behind the counter is 9 watching what's going on with the machines, maybe 10 they're not. That's sort of a separate problem and a 11 broader problem. 12 The immediate problem for the BAC and for 13 your industry and the industry -- more specifically, the 14 industry you represent is the proximity of these 15 machines, legal or otherwise, to charitable bingo. And 16 then of greater concern to me is the machines inside 17 operating in conjunction with charitable bingo. 18 Now, you a few minutes ago told us that in 19 your view, which I agree with, the typical player of 20 charitable bingo is older and female. We're talking 21 retired school teachers, people on pensions, things of 22 that nature. Now, the presence of the -- I'll call them 23 slot machines; you can call them 8-liners -- at the 24 charities, it may bring in a younger, hipper gambler, 25 let's say, to -- and who may then also play bingo, but 33 1 it may work the other way around. Now you've got the 2 retired school teacher coming in to play bingo and she's 3 now seeing these slot machines, which she may also see 4 out at the 7-Eleven or wherever else she is, and she 5 might start playing those things. And my understanding, 6 from the testimony I've heard in the past, is there's 7 nobody policing these machines. 8 MR. BRESNEN: Just to be clear, are you 9 saying that the -- 10 COMM. SCHENCK: The odds can be changed 11 remotely. 12 MR. BRESNEN: -- stereotypical customer 13 that we're describing may be enticed to go to the 14 7-Eleven and play an 8-liner because they're -- 15 COMM. SCHENCK: Well, or -- 16 MR. BRESNEN: -- located in the bingo 17 hall? 18 COMM. SCHENCK: A; and B, even if they're 19 in the bingo hall, not all of your -- your industry is 20 not a monolith. Not everyone is operating in the same 21 way. You say some are not paying -- most are not paying 22 cash or all are not paying cash and they're not -- 23 they're just playing bingo products. I don't know 24 whether ultimately this commission will agree that 25 that's a legal or illegal machine. There's already a 34 1 problem with that, unanswered, mind you. 2 But not all the bingo industry or the 3 lessors who are leasing space to the charitable bingo 4 operations are necessarily maintaining those 5 restrictions that you're suggesting. Some of them may 6 be paying cash. 7 MR. BRESNEN: Well, if they are, it's 8 clearly illegal, and you -- not only that, but you -- 9 COMM. SCHENCK: But who's there to -- 10 MR. BRESNEN: -- have the ability to put 11 them out of business, if it's located at the bingo 12 premises. 13 COMM. SCHENCK: Yes. And it will be a 14 simpler task -- well, we have a limited staff here. 15 Phil has got -- I don't -- what -- well, I don't know -- 16 I don't want to say how many auditors. 17 But the reality here is that I'm concerned 18 about not just the hipper, younger guy that wants to 19 play slot machines and may want to play bingo. I'm also 20 concerned about the bingo player who's going to be now 21 playing some form of slots in conjunction with the bingo 22 they came to play. 23 MR. BRESNEN: Well, let me just finish my 24 part of this by saying something that really needs to be 25 said here. 35 1 The Texas Legislature in 1995 passed a 2 statute. That statute to me is pretty clear, and we 3 know that law enforcement in this state, when they 4 choose to, can go out and enforce that statute. They 5 really haven't had any problem doing it with the 6 exception that some of them don't want to allocate the 7 cost to it because they think they want to put their 8 cost to violent crime or whatever else they may want to 9 put them to, those kinds of things. But the fact is, 10 this law has been in force, and it's been in force for a 11 long time. And the executive branch -- 12 COMM. SCHENCK: Sir, I disagree with you. 13 MR. BRESNEN: -- ought to respect the 14 legislature's action in that regard. I said that to 15 General Cornyn. I said it to Governor Bush when he came 16 into my office in the Capitol Building about that and 17 thinking something had been put over on him, and it's -- 18 it's really, this is about a 15-year argument that's 19 been had here to -- 20 (Simultaneous discussion) 21 MR. BRESNEN: -- no apparent avail. 22 COMM. SCHENCK: -- being told is all over 23 this state, you can go to virtually any city and it's -- 24 the machines are ubiquitous. They're everywhere. The 25 thing I -- 36 1 MR. BRESNEN: Well, that's -- 2 COMM. SCHENCK: -- disagree with you about 3 in -- cash paying machines and cash equivalent paying 4 machines. 5 MR. BRESNEN: -- clearly illegal. 6 COMM. SCHENCK: Yeah, but they're 7 everywhere. And you're telling me that law 8 enforcement's not having any problem enforcing this law, 9 and it's just not true. 10 MR. BRESNEN: In the places, Commissioner, 11 where law enforcement has taken a tough stand on these 12 things, you won't find them. If you do, they'll pop up 13 and they'll go away in the same way hookers used to on 14 South Congress. I'm not advocating prostitution or gun 15 control, but the fact is, is law enforcement does have 16 the tools to deal with this where they choose to 17 allocate their resources in that manner. 18 Anyway you look at it, if somebody's 19 paying cash, they're violating the law. 20 CHAIRMAN WILLIAMSON: All right. 21 Interesting and ongoing conversation. 22 MR. BRESNEN: Yes, ma'am. 23 CHAIRMAN WILLIAMSON: You're right. I 24 mean, I think the frustration for us is sometime -- we 25 are required to, you know, look over the charitable 37 1 bingo operations, and so there's activities, legal in 2 most cases, that we have no venue over at all. And I'm 3 not necessarily advocating that we do, but it does 4 frequently present a problem. 5 MR. BRESNEN: Sure. I understand. 6 CHAIRMAN WILLIAMSON: And that's kind of 7 where we are, as you know. 8 MR. BRESNEN: I do. 9 CHAIRMAN WILLIAMSON: So we look to 10 continue ongoing conversations, and maybe there is a 11 place we can get with the legislature to kind of help 12 smooth this out a little bit, maybe. 13 MR. BRESNEN: Thank you for letting me 14 have my say. 15 CHAIRMAN WILLIAMSON: Sure. 16 MR. BRESNEN: Appreciate it. 17 CHAIRMAN WILLIAMSON: Any other comments? 18 COMM. SCHENCK: Well, Steve, thank you for 19 your input. I mean, I understand your industry. I 20 understand that you have a legitimate point of view, and 21 sometimes we're going to disagree. And I appreciate 22 your and Mr. Fenoglio's presentation of a better, 23 factual presentation; but I think we just have to get on 24 top of this problem and get some clarity on it more than 25 anything else. 38 1 MR. BRESNEN: I will have some open 2 records issues to come talk to you about. 3 COMM. SCHENCK: I look forward to it. 4 MS. ROGERS: I would just like to take 5 this time to tell Commissioner Schenck thank you so much 6 for the time that you have served and being passionate 7 about bingo. We appreciate it. We always need someone 8 on our side to help make bingo better, and you'll be 9 missed. 10 COMM. SCHENCK: Well, thank you. 11 MS. ROGERS: Thank you. 12 COMM. SCHENCK: I appreciate it. 13 CHAIRMAN WILLIAMSON: And please take back 14 my personal gratitude to Mr. Carelli -- did I say that 15 right? Ciancarelli? 16 MS. ROGERS: Ciancarelli, yes, ma'am. 17 CHAIRMAN WILLIAMSON: -- on his hard work, 18 particularly after -- I watch the meetings they send me, 19 a DVD of the meetings after the fact, and so I 20 appreciate -- I can appreciate how much work he put into 21 that after particularly seeing his PowerPoint because I 22 know just putting that together takes some time. So 23 please share with him my personal appreciation for his 24 interest and hard work in doing that. 25 MS. ROGERS: Thank you so much. I will 39 1 let him know. Thank you. 2 CHAIRMAN WILLIAMSON: All right, Kim. 3 AGENDA ITEM NO. IV 4 CHAIRMAN WILLIAMSON: All right. Let's 5 continue on to Item No. IV, report, discussion, or 6 action on the BAC, including continuation of the Bingo 7 Advisory Committee for the year 2010, 2011. 8 Phil, this is your item, please. 9 MR. SANDERSON: Good morning, 10 Commissioners. 11 For the record, in your notebook is the 12 information provided to discuss the continuation of the 13 Bingo Advisory Committee, along with their FY10 Work 14 Plan that they just completed and the proposed work plan 15 for FY11. 16 Each year, the Commission shall evaluate 17 the Advisory Committees to establish whether the 18 committee's work and their usefulness and the cost 19 related to their existence, and they make a 20 determination of whether or not to continue the Advisory 21 Committee for another year. The agenda item here will 22 be laid out. Ms. Rogers will discuss the Fiscal Year 23 '10 Work Plan, provide you any information on their 24 activities and their accomplishments. At that point, 25 then the Commission will need to make a determination or 40 1 discussion or deliberation as to whether or not to 2 continue the Bingo Advisory Committee. And should the 3 Bingo Advisory Committee be continued, then discussion 4 will surround the adoption or the recommendation of the 5 Bingo Advisory Committee's proposed FY11 Work Plan. 6 So with that, I'll ask Ms. Rogers if she 7 has anything to discuss on the accomplishments for FY10? 8 MS. ROGERS: No, sir, nothing at this 9 time. 10 MR. SANDERSON: Okay. The report for the 11 Fiscal Year '10 Work Plan, which is in your workbook, 12 the items of the work plan are in your notebook. 13 There's not any update or discussion as to what their 14 accomplishments were during that year. 15 I will indicate that there was a lot of 16 work done on the rules related to House Bill 1474. 17 There were three or four work groups that were 18 established of BAC members in the industry, and we met 19 and went through just about 20 administrative rules. 20 And that was the majority of their work for this past 21 year. 22 CHAIRMAN WILLIAMSON: All right. Phil, 23 enlighten us, just generally -- I'm not sure everyone's 24 aware -- how do you go about communicating with the 25 people in your industry? I know you and I have had 41 1 informal conversations before about how you reach out 2 and contact people and how you put together a work group 3 for either a specific item or like implementing the 4 House Bill, the new House Bill. So can you kind of give 5 us a little information on how that's done? 6 MR. SANDERSON: Surely. And the Bingo 7 Advisory Committee is the starting point of any work 8 group that we have, as well as the -- I've got a list of 9 email addresses of individuals that have expressed 10 interest to be, you know, in contact or receive 11 communications as it relates to any policies or 12 rulemaking actions that are taking place. There's about 13 60 to 80 names on that list, and I send a draft rule out 14 whenever we start working on rules to incorporate or 15 receive any informal comments that they may have. 16 Additionally, the rules go to the Bingo 17 Advisory Committee where they will form work groups 18 comprised of no more than four BAC members due to Open 19 Meetings Act regulations, and then from that point, they 20 will also appoint anywhere from two to six public 21 members. And they'll hold committee meetings, 22 subcommittee meetings, and hash out their 23 recommendations; and then we'll get together one last 24 time at a Bingo Advisory Committee and go over the draft 25 rule before it comes to the Commission for proposal for 42 1 public comments. 2 We do receive a lot of input from the 3 informal comment period. There were a lot of rules this 4 last session as it relates to the House Bill 1474. And, 5 you know, when we sent those rules out starting around 6 the middle of November, there were at least 10 to 12 7 rules that we received significant comment back that did 8 have some -- made some relative significant changes to 9 our initial draft, which is what the whole purpose of 10 seeking stakeholder input is during the rulemaking 11 process is to come to a mediation, so to speak, of what 12 we need as a regulator and what they need as an industry 13 to insure compliance with the act and the rules. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 COMM. SCHENCK: Well, Phil, is that an 17 effective means for you, communicating by email or 18 reaching out yourself to the BAC members or the industry 19 leaders to sort of get a sense of the information you 20 need from them? 21 MR. SANDERSON: It has been in the past. 22 And there again, even when we get the email comments 23 back, at some point, we will schedule some face-to-face 24 meeting or conference call with those interested. 25 COMM. SCHENCK: Well, I'll just share my 43 1 thoughts on this, on the continuation of the BAC, is 2 that I think BAC is a very helpful device or can be a 3 very helpful device to this agency. But I have a bigger 4 concern that we have been asked to make some very 5 significant budget reductions. And, Phil, you have 6 extremely limited staff; and more so than the expense of 7 money, the expense of time to prepare for these physical 8 meetings, I think, is potentially considerable and 9 potentially, and I fear, distracting from the very 10 important task you have in front of you in the next 11 couple of years and its biennium of auditing the 12 activities and making sure that we actually are 13 conducting bingo in a way that we intend for it to be 14 conducted. 15 What would you think about possibly 16 continuing the BAC but just not having meetings until 17 such time as you feel the need to have one? 18 MR. SANDERSON: I think that would be a 19 very efficient way to operate over the next year. I 20 think that at this point in time, we have a few rules 21 that we're working on, and they can work on those 22 independently and -- as their own little work groups 23 to -- themselves can get together and discuss, and then 24 we can schedule a meeting as necessary. 25 The statute basically says that they may 44 1 meet quarterly or they may meet at the Commission's 2 request, and we can also include that they could meet at 3 my request and/or the request of the BAC chair. If 4 enough members contact her that they need a meeting of 5 some sort, then she can request that they have a 6 meeting. And we can look at that over this next time 7 period, especially with the legislative session. 8 There may be a -- it's always nice to have 9 a pre-arranged schedule of when the meetings take place; 10 but a meeting, for example, in February of 2010 may not 11 be beneficial. It may be more beneficial to have it in 12 March when more legislation has been filed and the 13 end-of-filing deadlines have occurred, and there can be 14 more discussion on bills or things of those matters. 15 COMM. SCHENCK: And, Kim, as I understand, 16 the BAC is subject to open meetings restrictions which 17 means that Phil could communicate with them, but 18 legally, they could not be communicating amongst 19 themselves on -- 20 MR. SANDERSON: No more than four members. 21 Four members can get together and talk. 22 COMM. SCHENCK: Okay. 23 MS. KIPLIN: And that's by your policy. 24 When you-all adopted -- not you three -- but the 25 Commission adopted the Bingo Advisory Committee Rule to 45 1 give effect to the Bingo Advisory Committee, one of the 2 requirements is that it would comply with the provisions 3 of the Open Meetings Act. 4 COMM. SCHENCK: So to the extent the Bingo 5 Advisory Committee has in its capacity concerns or 6 thoughts, they need to be coming through to Phil for the 7 most part. 8 MS. KIPLIN: Right. And -- 9 COMM. SCHENCK: Not sort of off to one 10 side or someplace else. 11 MS. KIPLIN: They can certainly have 12 discussions and meetings and numbers less than a quorum. 13 If the intent in meeting in numbers less than a quorum 14 is to circumvent the act and then what's called "Walking 15 the quorum," then that's specifically prohibited by the 16 Open Meetings Act. So it would be better if it was 17 filtered through Phil. 18 COMM. SCHENCK: I might -- I think -- not 19 to be the heavy here, but my thought would be to -- 20 little late for that -- my thought would be not to have 21 the Bingo Advisory Committee necessarily coming to 22 Austin to put together these agendas and have your staff 23 and you prepare for these meetings but to work with you 24 as you see fit and then to have a meeting when and if 25 you think it makes sense, if that makes sense. 46 1 COMM. KRAUSE: Fine with me. 2 CHAIRMAN WILLIAMSON: Is Kimberly still 3 here? 4 MS. ROGERS: Yes, ma'am. 5 CHAIRMAN WILLIAMSON: Well, why don't you 6 and Earl come back up for a minute. You know, since you 7 participated on this, would that work for you in -- in 8 other words, we would come -- if you had an issue that 9 you felt like you needed to convene formally, then, of 10 course, you would have that ability to do that as well 11 as if we had a specific item or if Phil felt like there 12 was something that needed to convene in a formal manner 13 because I recognize you don't get reimbursed for 14 anything at all for coming up here and doing that. And, 15 you know, so I know it's all out of pocket for you guys. 16 MS. ROGERS: It is. It's a total 17 voluntary position, but I think the members that we do 18 have and the people that have put into be on this BAC -- 19 the BAC is very important, and I'd just like to take a 20 moment to say that. I believe -- and I do think that 21 y'all agree with that as well as staff does. 22 Staff and yourselves are not in the bingo 23 industry every day. You don't eat it, live it, breathe 24 it; we do. And for you to have knowledge on things that 25 we can give you knowledge on, it's necessary to have the 47 1 BAC to tell staff, you know, what we need and how 2 things -- what areas we're needing assistance in. 3 So I do agree with Phil that if we have 4 items, as long as the chair, whoever that may be at the 5 time, can work alongside with Phil and once there is 6 enough items to call a meeting, as long as that was 7 still left there, I think that would be sufficient. And 8 I do know that a lot of times, the BAC members like 9 Francis, when he needed to work on this item and we 10 included all nine members, he would individually email 11 so that way we did not break any rules, I believe. 12 Is that correct, Kim? That was -- that is 13 sufficient. Correct? 14 MS. KIPLIN: I haven't seen the 15 communications. I know there were quite a few of them, 16 but he was communicating, as I understand it, 17 individually -- 18 MS. ROGERS: Exactly. So we -- 19 MS. KIPLIN: -- in trying to obtain 20 information to compile a report, and I think that's 21 sufficient. 22 MS. ROGERS: Yes, ma'am. So that way he 23 could get information and which we can do in a future 24 time also. If there's five members that have 25 information, we can get it back to one person. I do 48 1 believe with emails and everything of that nature now, 2 conference calls, that that would be sufficient. 3 CHAIRMAN WILLIAMSON: That works. 4 Earl, are you okay with that? 5 MR. SILVER: Oh, yes, ma'am. As far as 6 the meetings, once a quarter is fine. But it's like 7 what Kim said, if there's not much happening or if we 8 need more time to prepare something, to give information 9 to Phil to pass to y'all, that time is greatly 10 appreciated. 11 And as far as out of pocket, I mean, 12 that's not a concern. I think I can speak for some of 13 the other members that it's an honor to serve on the BAC 14 and it's an honor to be able to represent our industry 15 and actually get together with different people from all 16 our industry to voice our opinions and concerns. 17 CHAIRMAN WILLIAMSON: Okay. Well, thank 18 you. I appreciate y'all's input. 19 MS. ROGERS: Thank you. 20 CHAIRMAN WILLIAMSON: So from what I 21 understand and I'll try to -- this is a motion item. 22 Right? 23 MS. KIPLIN: Yes. To continue the Bingo 24 Advisory Committee, you-all must vote affirmatively to 25 do so. 49 1 CHAIRMAN WILLIAMSON: Okay. Do we need to 2 put in there specifically the quarterly meetings are not 3 required, and do you want to go ahead and put that in 4 there? And it can be called at the behest or at the 5 Commission or the Executive Director or the chairman of 6 the BAC. Do we need to be that much detail in this? 7 MS. KIPLIN: I don't think you need to 8 have that much detail as part of the motion. I think 9 it's good to have on the record for clarity. People 10 want to go back and get an idea of logistically how 11 that's going to proceed. 12 And I think the motion would be to 13 continue the Bingo Advisory Committee for one year until 14 the end of this coming fiscal year and then evaluate it 15 again at the end. 16 CHAIRMAN WILLIAMSON: Okay. 17 COMM. SCHENCK: I'll try to make a motion, 18 if I can, so that -- 19 CHAIRMAN WILLIAMSON: Okay. 20 COMM. SCHENCK: For the record, I will 21 move that the BAC be continued for an additional year; 22 that any physical meetings of the BAC be suspended 23 subject to the discretion of Phil Sanderson acting with 24 the Commission to call such a meeting when and if he 25 sees fit in conjunction with communication with the 50 1 chairman of the Bingo Advisory Committee. 2 CHAIRMAN WILLIAMSON: Is there a second? 3 COMM. KRAUSE: I'll second that. 4 CHAIRMAN WILLIAMSON: All in favor? 5 COMM. SCHENCK: Aye. 6 CHAIRMAN WILLIAMSON: Aye. 7 COMM. KRAUSE: Aye. 8 CHAIRMAN WILLIAMSON: Those three, zero. 9 The motion passes. Thank you. 10 MS. KIPLIN: And I'll just direct your 11 attention, there is a chapter in the Government Code on 12 advisory committees, generic advisory committees; and 13 there's a provision, Section 2110.006, that does require 14 the state agency to evaluate annually the committee's 15 work, its usefulness, and the cost related to the 16 committee's existence, including the cost of agency 17 staff time spent in support of the committee's 18 activities. In my view, the discussion that has just 19 occurred is sufficient to cover that requirement. 20 CHAIRMAN WILLIAMSON: Thank you very much. 21 AGENDA ITEM NO. V 22 CHAIRMAN WILLIAMSON: All right. Let's go 23 on to No. V, consideration, discussion on nominations 24 and/or appointments to the Bingo Advisory Committee. 25 Phil, this is yours again. 51 1 MR. SANDERSON: Commissioners, in your 2 notebook are the nominees and applications as well as 3 questions that they responded to that staff mailed out 4 to the nominees. We had 16 nominees initially. We had 5 two withdraw. We sent out the 14 other nominees the 6 questionnaire. There were three that did not respond 7 with any questions. The current positions that are open 8 are Kimberly Rogers, Earl Silver, and Pat Gifford. 9 Kimberly is a -- in the charity lessor category, Earl is 10 in the commercial lessor category, and Pat Gifford is in 11 the general public category. 12 We've reviewed the nominees, the 13 responses. I did telephone -- call three or four of the 14 nominees, had discussions with them; and based on 15 discussions that we had and the staff discussions on the 16 individuals that have been nominated, our recommendation 17 is that you reappoint Earl Silver and Kimberly Rogers, 18 and then you appoint Kenneth Messer, who is an officer 19 and an operator for the La Societe Nationale des 40 20 Hommes 1123 out of Longview, which is a subgroup of the 21 American Legion in that area. 22 Bingo Advisory Committee nominees, their 23 recommendation was Earl Silver, Kimberly Rogers, and 24 Ronnie Baker. 25 So staff recommends that you reappoint 52 1 Kimberly Rogers, Earl Silver, and then appoint Ken 2 Messer. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Any questions or discussions, 5 Commissioners? 6 COMM. SCHENCK: I move that we follow 7 staff's recommendation and make the appointments 8 recommended by staff. 9 COMM. KRAUSE: Second. 10 CHAIRMAN WILLIAMSON: All in favor? 11 COMM. SCHENCK: Aye. 12 CHAIRMAN WILLIAMSON: Aye. 13 COMM. KRAUSE: Aye. 14 CHAIRMAN WILLIAMSON: Vote 3-0. The 15 motion passes. Thank you. 16 MR. SANDERSON: And I will contact 17 Mr. Messer along with the other individuals that had 18 submitted nominees to provide them the results. 19 AGENDA ITEM NO. VI 20 CHAIRMAN WILLIAMSON: All right. Let's go 21 on to No. VI, report of the Bingo Operations Director 22 and their activities and updates on licenses and 23 rulemaking and revisions and other items. 24 MR. SANDERSON: Commissioners, in your 25 notebook are the reports for the June activity and July 53 1 activity of the Bingo Operations Division. I have 2 nothing further to add other than what's in your 3 notebook. So if you've got any questions, I'll be glad 4 to answer any questions. 5 CHAIRMAN WILLIAMSON: Commissioners, do 6 you have any questions? 7 (No response) 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 AGENDA ITEM NO. VII 11 CHAIRMAN WILLIAMSON: Let's go on to Item 12 VII, report on lottery sales and revenue. 13 Ms. Pyka and Mr. Tirloni? 14 One second before we start with Item VII. 15 Mr. Bresnen, I'm sorry. I overlooked you. You wanted 16 to make a comment on Item VI? 17 MR. BRESNEN: Yes, ma'am, because we're at 18 the end of the bingo portion of your agenda, I wanted to 19 thank Commissioner Schenck for his service to Texas. 20 Some of us get paid to be here and sit through these 21 meetings, and we know that you don't, and we greatly 22 appreciate your service to Texas. This state's hugely 23 important to me. I've served it in one capacity or 24 another myself for a long time, and so I know what you 25 forego to do that. And I know you're going on to 54 1 additional public service and commend you and thank you 2 for that. 3 COMM. SCHENCK: That's very kind of you, 4 Steve. 5 MR. BRESNEN: You bet. 6 COMM. SCHENCK: I really appreciated 7 working with you. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you, Mr. Bresnen. 10 All right. Now, let's go back to Item 11 VII, please, if we could. 12 MS. PYKA: Good morning, Commissioners. 13 My name is Kathy Pyka, controller for the Commission. 14 And with me to my right is Robert Tirloni, our products 15 manager. 16 Commissioners, the first chart that we 17 have for you this morning is comparative sales through 18 the week ending July 31st, 2010. Our Fiscal Year 2010 19 sales through this 48-week period are $3.45 billion, an 20 increase of $54.6 million as compared to our 21 $3.39 billion figure in sales for the same period last 22 fiscal year. 23 As you can see, instant ticket sales 24 reflected on the second blue bar are at $2.54 billion, 25 which is a $23.8 million decline as compared to our 55 1 figure for Fiscal Year 2009 presented. 2 And our online sales reflected on the 3 second red bar are 903.3 million for Fiscal Year 2010, 4 which is a $78.5 million gain over last fiscal year 5 online sales. 6 Our next slide includes a cumulative 7 average daily sales for Fiscal Years 2008, 2009, and 8 2010. As reflected on the cumulative sales, our daily 9 sales average for Fiscal Year 2010 continues to exceed 10 the prior two fiscal year daily average. Through the 11 48th week of the fiscal year, our daily average for '10 12 is $10.477 million, which is a 4 percent increase over 13 Fiscal Year 2008 sales and a 3.4 percent increase over 14 Fiscal Year 2009 sales. 15 Jackpot games are highlighted in the white 16 font, and they reflect a daily average of $1.8 million, 17 which is over $400,000 greater than our prior two fiscal 18 years. And you can see the bulk of that increase 19 relates to Lotto Texas which is at 725,000 and Powerball 20 and Power Play which were introduced at the end of 21 January. 22 The daily games included in the green font 23 are just under $1.1 million which is just slightly below 24 the prior two fiscal years, and then we have our instant 25 games at $7.6 million which is, again, just below the 56 1 prior two fiscal years. 2 Robert will now provide an overview of 3 actual sales by game. 4 MR. TIRLONI: Good morning, Commissioners. 5 For the record, my name is Robert Tirloni. I'm the 6 products manager for the Commission. 7 This chart is similar to the one Kathy 8 just showed you. It's comparing our current fiscal 9 year, 2010, to the previous fiscal year; and this is 10 through the end of July, the week ending July 31st. 11 Our jackpot games are at the top in white 12 realizing a $94 million gain over the previous fiscal 13 year. Again, most of that gain is from the Lotto Texas 14 gain -- I'm sorry -- from the Lotto Texas game. 15 There is a decline in Mega Millions. I 16 should note, this time last year, Mega Millions was over 17 a $100 million, and that game continued to roll to a 18 pretty high jackpot. It rolled all the way up to 19 $333 million right at the end of August of last year, so 20 we are competing with pretty large jackpots year over 21 year. So we'll most likely see that deficit in the Mega 22 Millions category continue to get bigger through the end 23 of this fiscal year. But, again, the category as a 24 whole is up $94 million which is very good news. 25 Our daily games are in green. Not much 57 1 change from what we've seen over the past few months. 2 Daily 4 continues to show a surplus. The other daily 3 games are in decline. 4 And then when we get to our instant games, 5 we also have a decline of just under $24 million. It's 6 important for me to note that we are still competing 7 year over year with the very high instant game sales 8 weeks from the $20 Mega game or the $20 Spotlight game. 9 And even at this time, that game, which is now well over 10 a year old, continues to be our best selling instant 11 game week after week. So -- 12 CHAIRMAN WILLIAMSON: Is that the one I 13 call the elephant game? 14 MR. TIRLONI: That is correct. Yes, 15 ma'am. 16 So that game is still a very successful 17 game for us. And so, as I said, we've got some pretty 18 tough competition from last year. 19 I did want to note that last week, on 20 Monday, August 2nd, we had our Dallas Cowboys and 21 Houston Texans games start. We're very happy. This is 22 the second year in a row that we've introduced games for 23 both teams. And we -- as part of our package, we 24 receive a great deal of in-stadium signage, a lot of TV 25 and radio support from the teams to support those games, 58 1 so we're very excited and happy that we're continuing 2 that partnership with those -- with both of those teams 3 this year. 4 COMM. SCHENCK: Could you replace the star 5 on the helmet with a little Texas Lottery logo next 6 year? 7 (Laughter) 8 MR. TIRLONI: I think we have to pay a 9 pretty high licensing fee to be able to get to do that. 10 COMM. SCHENCK: Everything's got a price. 11 MR. TIRLONI: And just in closing, the 12 total sales for Fiscal '10 compared to Fiscal 2009 are 13 up $54 million. 14 And we're happy to take any questions that 15 you may have. 16 CHAIRMAN WILLIAMSON: Commissioners, do 17 you have any questions? 18 COMM. SCHENCK: Yeah, I did, if we could 19 back up one slide. 20 MR. TIRLONI: Sure. 21 COMM. SCHENCK: Interesting to me that the 22 trends are sort of back and forth with respect to most 23 of these games, but except the Daily 4, which I -- maybe 24 it's a few slides back. The Daily 4 somehow seems to be 25 going up, up, up. Yeah. And whereas the other online 59 1 games seem to be all over the place. Is that just 2 because the game is finally finding an audience and 3 developing a following? 4 MR. TIRLONI: I believe that that's true, 5 and I also believe from some surveys and some 6 discussions we've been having with other states, that 7 Pick 3 sales in quite a few states are down and Daily 4 8 sales tend to be up. 9 COMM. SCHENCK: With higher jackpots or -- 10 MR. TIRLONI: It's not a jackpot driven 11 game. The prizes are higher in Daily 4 than they are in 12 Pick 3. It's just a trend that we've seen industry 13 wide. Not exactly sure why. I mean, both games play in 14 very similar fashion. 15 For us, Daily 4 is -- other than Powerball 16 and Power Play in the jackpot game category, Daily 4 is 17 one of our newest games. So it may just be that, you 18 know, over the past two years, people have tried it, 19 experienced it, and seem to like it. I'm sure the 20 higher prizes have something -- 21 COMM. SCHENCK: It's interesting to me -- 22 MR. TIRLONI: -- to do with that. 23 COMM. SCHENCK: -- that we had some 24 concerns -- and I want to put my -- Gary's leadership in 25 moving to these -- to Powerball as well. And if you 60 1 look at these numbers in terms of the -- in the white, 2 the online numbers are way up. And we had concerns 3 originally that we're going to see some cannibalization 4 of some of these other games, including the Daily 4, and 5 the trend continues to go up for that. 6 MR. GRIEF: I'll just point out, sometimes 7 people forget, Commissioner, that when you look at 8 Pick 3, it's our number one selling online game. It 9 beats our jackpot games. It beats all the other daily 10 games. It is the granddaddy of the online games. So 11 while, yes, Daily 4 has increased, Pick 3 still out 12 sells Daily 4 about six to one. 13 COMM. SCHENCK: Yeah. 14 MR. GRIEF: It's important to note that. 15 COMM. SCHENCK: Thanks. Interesting. 16 CHAIRMAN WILLIAMSON: All right. Any 17 other? 18 All right. Thank you. 19 MS. PYKA: Thank you, Commissioners. 20 AGENDA ITEM NO. VIII 21 CHAIRMAN WILLIAMSON: Let's go on to Item 22 VIII, transfer to the State and budget status. 23 MS. PYKA: Thank you, madam chair. 24 The first report in your notebook, 25 Commissioners, reflects the transfers and allocations to 61 1 the Foundation School Fund, the Texas Veteran's 2 Commission, and the allocation of unclaimed prizes for 3 the period ended June 30th of 2010. 4 Commissioners, total cash transfers to the 5 State amounted to $890.8 million for the first ten 6 months of this fiscal year. 7 The second page in your notebook includes 8 a detailed breakout for the $890.8 million figure that 9 was transferred to the State. $809 million was 10 transferred to the Foundation School Fund, 5.7 million 11 was transferred to the Texas Veterans Commission, with a 12 balance of $76.1 million transferred from unclaimed 13 lottery prizes. This represents a 1.74 percent increase 14 or $13.8 million over the total amount transferred to 15 the Foundation School Fund through June of 2009. 16 Commissioners, I wanted to note that 17 including our transfers to the Foundation School Fund, 18 our transfers to the Texas Veteran's commission as well 19 as unclaimed prize transfers, we're on track to transfer 20 slightly over $1.1 billion this fiscal year. This will 21 be our largest transfer to the State in over ten years 22 as compared to Fiscal Year 1998 when we transferred just 23 over $1.15 billion. 24 The last document in the transfer section 25 of your notebook does include our cumulative transfers 62 1 from 1992 to date which notes that through the month of 2 June, we have now transferred $12.4 billion to the 3 Foundation School Fund. 4 And, Commissioners, the final item under 5 this tab includes our agency's Fiscal Year 2010 Method 6 of Finance Summary for the third quarter ending May 31. 7 The Commission's lottery account budget for Fiscal Year 8 2010 is $205.4 million of which we've expended and 9 encumbered 85.6 percent. The bingo operations budget 10 funded by general revenues is $15-and-a-half million 11 with 74.5 percent expended and encumbered through the 12 third quarter. 13 Commissioners, this concludes my 14 presentation. I'd be happy to answer any questions. 15 CHAIRMAN WILLIAMSON: Commissioners, do 16 you have any questions? 17 COMM. SCHENCK: No, just commendation. 18 That's a great number. I hope that we do make that 19 1.1 billion. Gosh, we know the State needs it. 20 MS. PYKA: We're definitely on track with 21 one more month to go. 22 CHAIRMAN WILLIAMSON: Great. That's good. 23 AGENDA ITEM NO. IX 24 CHAIRMAN WILLIAMSON: All right. Let's 25 continue on to Item No. IX, report, discussion, or 63 1 action on Lottery Operations and Services Contract 2 Amendment No. 8 credit calculation. 3 MS. PYKA: Commissioners, this morning I 4 wanted to provide you an update on Amendment No. 8 of 5 the Lottery Operations and Service Contract in the 6 amount that was due for the third quarter Fiscal Year 7 2010. 8 Commissioners, as noted in your notebook, 9 there was not a credit due to the Commission for either 10 Section 10.3.3 or 10.3.4 of the contract, and that was 11 due to either sells being up -- or revenue being up and 12 prize payout being down. 13 I'd be happy to answer any questions. 14 CHAIRMAN WILLIAMSON: Commissioners, do 15 you have any questions? 16 (No response) 17 CHAIRMAN WILLIAMSON: All right. At this 18 time -- Kathy, are you -- 19 MS. PYKA: I'm ready. 20 CHAIRMAN WILLIAMSON: You're done? Okay. 21 We're going to take a 15-minute break. It 22 is 10:08, and then we'll continue on to the LAR. 23 (Recess: 10:08 a.m. to 10:23 a.m.) 24 CHAIRMAN WILLIAMSON: We will be back in 25 session. It is now 10:23. 64 1 AGENDA ITEM NO. X 2 CHAIRMAN WILLIAMSON: Ms. Pyka, please, 3 we'll continue with Item X, report, discussion, and/or 4 action on the agency's Legislative Appropriations 5 Request for the 2012-2013 biennium. 6 Ms. Pyka, this is yours. 7 MS. PYKA: Thank you, madam chair. 8 Commissioners, this morning I'm seeking 9 your approval of the Commission's Legislative 10 Appropriation Request for Fiscal Years 2012 and 2013. 11 The Commission's Fiscal Year 2012-13 12 Legislative Appropriation Request was developed in 13 accordance with guidelines from the leadership offices 14 which stated that each agency's baseline request for 15 general revenue-related funding may not exceed the sum 16 of the amounts expended in Fiscal Year 2010 as well as 17 budget in Fiscal Year 2011 adjusted to reflect the full 18 5 percent reductions required in the current biennium. 19 Agencies are also required to submit a supplemental 20 schedule in the LAR detailing how they would reduce the 21 baseline request by an additional 10 percent in general 22 revenue-related funding. In accordance with these 23 submission guidelines, the Commission's baseline request 24 for Fiscal Year 2012-13 is $449,572,670, a reduction of 25 $1,263,551 and two FTEs from our current baseline 65 1 levels. 2 In addition to the baseline request, the 3 Commission is seeking an exceptional item request in the 4 amount of $4,188,348 for an overall request of 5 $453,761,018. 6 As noted, the LAR includes five 7 exceptional items totaling 4.2 million. We prioritized 8 each item in accordance with the agency's goal structure 9 to allow us to continue our regulatory and 10 revenue-generating functions, provide essential 11 services, and allow for potential growth in lottery 12 revenue. I will now outline each of the five items. 13 Our first item in the amount of $55,000 14 will replace air conditioning units for the agency's 15 lottery drawing studio. These units are needed to 16 replace three units that have reached their useful life. 17 The current units that we have are operating at the 18 maximum level of their designated operating range. And 19 if this project is postponed, we definitely believe we 20 would be at risk if the existing A/C units were to fail. 21 The second item that we've included 22 provides for the restoration of funding for the 23 5 percent reduction in the bingo area in the amount of 24 $289,789 and two FTEs. The increase in general revenue 25 appropriation would need to be supported by fee 66 1 increases to our bingo operators and lessors. 2 The third exceptional item in the amount 3 of $80,000 will allow the agency to replace our oral 4 application server that supports the core of our 5 agency's technology applications. The south door 6 platform that we currently are using is being phased out 7 by the manufacturer and is being replaced by oracles web 8 WebLogic Suite. 9 Exceptional Item 4 is the Automated 10 Charitable Bingo System redesign. The project in the 11 amount of 2.5 million would require us also to support 12 that item by one-time fee increases to the bingo 13 operators and lessors. 14 And our fifth exceptional item is for the 15 restoration of the Bingo Prize Fee Allocation Funding. 16 While we did receive an exemption to this 5 percent 17 baseline request in this current biennium, the exemption 18 did not carry forward to the fiscal year request for 19 2012 and '13. 20 Commissioners, the rider revisions are 21 included on Page 3B of the LAR and also Page 3 of your 22 cover memo. I'm not going to go through those in 23 detail, but I'm happy to discuss any of those that you 24 may have interest in. 25 And then last, I wanted to note that on 67 1 the 10 percent reduction plan, we were asked to review 2 our budget by the leadership offices and required to 3 submit a supplemental schedule detailing how our GR 4 budget would be reduced by an additional 10 percent. 5 Our requirement for the reduction included a GR 6 reduction of 2.9 million and a GR dedicated lottery 7 account reduction of 42 million. 8 I wanted to note that we're not able to 9 comply with the 10 percent reduction for the GR 10 dedicated lottery account as this account has been 11 exempted from use by the leadership offices. We're not 12 able to use our general revenue funds for the reduction 13 as a GR dedicated requirement of $42 million is greater 14 than our overall GR preparation of 29.5 million. So 15 even if we use the full 29.5 million of the GR budget 16 for bingo, we still would not be in compliance with the 17 $42 million required reduction for GR dedicated lottery. 18 Our proposed plan for the GR reduction for 19 bingo is 2.95 million, and it includes six FTEs that 20 equates to $550,000 and a prize fee allocation funding 21 reduction of 2.4 million. 22 Commissioners, I'm happy to answer any 23 questions that you might have on the LAR, and I wanted 24 to note that in addition to following the hard copy that 25 we have provided for each of you, we are required to 68 1 file an automated copy of it in the LBB's budget system. 2 That has been done. And we are also required to certify 3 that those two documents are one in the same. I will 4 certify to you this morning that those documents are one 5 in the same, and it does require the Executive 6 Director's signature as well as the chair's signature, 7 and I've already signed off on that. 8 So I'd be happy to answer any questions 9 that you might have. 10 CHAIRMAN WILLIAMSON: Commissioners? 11 COMM. SCHENCK: Just a quick thought. 12 Gary and Kathy, from time to time, we've 13 gone over this question of possibly seeking legislative 14 authority for increasing fees or fines in order to fund 15 internal operations. And particular, I'm thinking about 16 the NSFs we're going to come to in a little while. The 17 bingo worker registry applicants who are criminals who 18 require us to go and -- go down to SOAH, spend time. 19 There are a lot of things that we are spending staff 20 time and energy on that are precipitated by people not 21 following the rules. 22 Likewise, I was going to say the 23 violations that we end up now only having to suspend 24 licenses for, if we could have a fine instead, that 25 would be a pool of money that could go toward some of 69 1 the bingo activities or something else. So as we go 2 forward in the legislative session, if there's an 3 opportunity to sort of seek that authority, I would 4 suggest that you pursue it. 5 MS. PYKA: And, Commissioner Schenck, we 6 did submit one of the new riders in the document as New 7 Rider 701, and it does cover a lot of what you've just 8 discussed. What we've done is we've asked for 9 reimbursement appropriation for any of the fees that the 10 bingo area recovers through the cost of audits or 11 investigations and seeking reappropriation of those 12 funds back to the bingo program. 13 COMM. SCHENCK: In addition to those, I 14 would suggest that there are some other areas where 15 we've talked about in the past -- 16 MR. GRIEF: Right. 17 COMM. SCHENCK: -- where we incur time and 18 expense. 19 MR. GRIEF: We definitely have those on 20 our list. 21 COMM. SCHENCK: And we don't have an 22 appropriate number of tools in our toolbox to deal with 23 people other than taking away, for instance, their 24 license to sell lottery tickets for a short period of 25 time. It might be more effectively dealt with by a fine 70 1 of -- 2 MR. GRIEF: Right. 3 COMM. SCHENCK: -- some amount that could 4 be put to a useful purpose. Thanks. 5 UNIDENTIFIED PERSON: Great. 6 COMM. SCHENCK: For the budget. 7 MS. PYKA: Thank you. 8 CHAIRMAN WILLIAMSON: Commissioner? 9 COMM. KRAUSE: No questions. 10 CHAIRMAN WILLIAMSON: All right. I 11 believe this is an action item? 12 MS. KIPLIN: Yes, it is. 13 CHAIRMAN WILLIAMSON: Is there a motion to 14 adopt or approve the LAR to be presented? 15 COMM. SCHENCK: I will so move that we 16 adopt the Legislative Appropriation Request put forward. 17 CHAIRMAN WILLIAMSON: Second? 18 COMM. KRAUSE: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMM. SCHENCK: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 COMM. KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Vote's 3-0. It 24 passes. 25 MS. PYKA: Thank you, Commissioners. 71 1 MS. KIPLIN: Chairman Williamson, I've got 2 two documents that you need to sign; and you'll be 3 signing, obviously, in your representative capacity on 4 behalf of the Commission. 5 CHAIRMAN WILLIAMSON: All right. 6 MR. GRIEF: Commissioners, while you're 7 signing that, if I could, I'd like to recognize Kathy 8 and her team. Preparing the Legislative Appropriations 9 Request for an agency like the Texas Lottery which has 10 two different funding mechanisms -- it's incredibly 11 complex and detailed -- while at the same time trying to 12 serve as a functioning member of our Lottery Operator 13 Procurement Team, Kathy and her staff have done yeoman's 14 work in getting this work done. It's very gratifying to 15 have the Commission hear what Kathy laid out and trust 16 that she and her team with our review have done this 17 correctly and in accordance with your wishes. 18 So, Kathy, thank you for your work. And, 19 Commissioners, thank you for your trust in our 20 controller's office. 21 MS. PYKA: Thank you, Gary. 22 CHAIRMAN WILLIAMSON: Same from all of us, 23 certainly from me. Accountant to accountant, so thank 24 you. 25 MS. PYKA: Thank you. 72 1 (Laughter) 2 AGENDA ITEM NO. XI 3 CHAIRMAN WILLIAMSON: All right. Let's go 4 on to Item No. XI, consideration and possible discussion 5 or action including adoption on Amendment 16 TAC 401.315 6 relating to Mega Millions online game rule. 7 Pete, this is your item, please, sir. 8 MR. WASSDORF: Good morning, 9 Commissioners. For the record, my name is Pete Wassdorf 10 in the Legal Services Division. I have four proposed 11 rules that are ripe for adoption this morning. No. 11 12 is the first of those. 13 This is a proposed amendment to the Mega 14 Millions online game rule found at 16 Texas 15 Administrative Code Section 401.315. A public hearing 16 was held here at this auditorium on Tuesday, July 29th 17 at 10 a.m., and no member of the public appeared at that 18 hearing and no public comment was received during the 19 public comment period. 20 In addition to that, Mr. Bresnen -- oh, 21 no, this isn't the one that he had offered to 22 participate in. Excuse me. 23 This proposed amendment does contain a 24 change from the originally proposed amendment as 25 published in the Texas Register, however, and I want to 73 1 bring that to your attention specifically. The staff 2 has recommended the withdrawal of the proposed change to 3 authorize a nonmultiplied, guaranteed second tier prize 4 when a Megaplier option is purchased. This change is -- 5 has been made because we wanted to further consider some 6 legal issues with respect to that. 7 The purposes of the remaining portions of 8 that amendment are to have the rule comply with the 9 understanding of the multijurisdictional participants of 10 the operation of the game and to authorize the Executive 11 Director to execute changes to the agreement of the 12 multijurisdictional parties and to implement such 13 changes, including making the initial grand prize 14 jackpot to be a guaranteed $12 million and thereafter 15 having the grand prize jackpot be an estimated amount 16 with the subsequent prize payments based on actual 17 sales. 18 Additionally, this amendment would 19 authorize a special Megaplier promotion to be 20 implemented periodically at the discretion of the 21 Executive Director when the multijurisdictional parties 22 agreed to do so. The amendment will also make the 23 language of the rule consistent with moving the 24 Megaplier drawing to Georgia should that happen in the 25 future, and then to clarify some existing provisions and 74 1 to delete the obsolete or redundant provisions that were 2 found in review of this rule. 3 The staff recommends that the Commission 4 adopt these amounts to 16 TAC 401.315, and that's all 5 with respect to that proposal. 6 CHAIRMAN WILLIAMSON: All right. Any 7 discussion, Commissioners? 8 COMM. SCHENCK: I believe we discussed 9 this at length when we proposed the rule. 10 CHAIRMAN WILLIAMSON: So is there a 11 motion? 12 COMM. SCHENCK: I'll move that we adopt 13 staff recommendation and adopt 16 TAC 401.315. 14 CHAIRMAN WILLIAMSON: Second? 15 COMM. KRAUSE: Second. 16 CHAIRMAN WILLIAMSON: All in favor? 17 COMM. SCHENCK: Aye. 18 CHAIRMAN WILLIAMSON: Aye. 19 COMM. KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Vote 3-0. It 21 passes. 22 MS. KIPLIN: Commissioners, I have an 23 order, and I have orders for the other three. Do you 24 want me just to hold them all? 25 CHAIRMAN WILLIAMSON: Please. 75 1 AGENDA ITEM NOS. XII AND XIII 2 CHAIRMAN WILLIAMSON: Okay. Pete, what 3 we'll do is we'll take Item XII and XIII. You can just 4 go from one to the other. Item XII is regarding 5 consideration and discussion, including adoption of a 6 new rule to withholding delinquent child support 7 payments from lump sum and periodic payments of lottery 8 winnings in excess of $600. And then the next item is 9 sort of in the same category. I'll let you get more 10 specific for the record on those two, please. 11 MR. WASSDORF: Thank you. 12 That Item XII was a new proposed amendment 13 at TAC, 16 TAC 401.318; and the other one is a proposed 14 rule at 16 TAC 401.319. Both of these deal with the 15 withholding of child support payments. 16 The Texas Lottery Commission has always 17 withheld child support payments from payments that were 18 collected through the state, and about 60 percent of all 19 child support payments are collected through the state. 20 But the legislature provided a number of years ago for 21 the ability of noncustodial parents that have a child 22 support order to file something with the Commission to 23 collect child support payments that are either 24 delinquent or to collect nondelinquent payments 25 through -- that were being made to prize winners of 76 1 installment prizes. The internal auditor brought to our 2 attention that we had never really implemented that, and 3 so these rules implement those two things. 4 The first one at Section 401.318 -- these 5 two rules, we've kind of harmonized them because they 6 were both done at the same session and they both dealt 7 with the same material and they were not contradictory. 8 They didn't conflict fatally. But there were some 9 incongruencies between the two, and we have resolved 10 those by making 401.318 apply to delinquent child 11 support payments; and this will allow noncustodial 12 parents -- or custodial parents -- I'm sorry -- to file 13 evidence of that delinquency with the Commission. And 14 if that is on file for ten days prior to a prize payment 15 being made, then we will withhold that and forward it to 16 the custodial parent. And if that parent can't be 17 located, then we'll forward it to the court that ordered 18 the child support payments. 19 With respect to 401.319, that will deal 20 not with delinquent payments but with withholding from 21 periodic installment payments made to prize winners. 22 And in that case, the legislature has provided that if a 23 custodial parent -- the child support does not have to 24 be delinquent, but if they provide a -- an order to the 25 Commission that is made payable in the same increments 77 1 of time as the prize, then we will withhold those 2 payments. 3 The statute provides that we're not 4 required to accept those until a determination has been 5 made that a prize winner has won a prize, and so under 6 that situation, you will not have people filing 7 beforehand with respect to that. And the same 8 provisions apply that the child support payments will 9 be -- if there are any withheld, they will be paid to 10 the custodial parent as installment payments are made on 11 the prize, and if there's anything left over, that would 12 go to the prize winner. If the custodial parent cannot 13 be located for some reason, the payments will be made 14 into the court. 15 And the staff recommends that you adopt 16 both 16 TAC Section 401.318 and 401.319 with respect to 17 these child support -- collection of child support 18 payments. 19 CHAIRMAN WILLIAMSON: Any discussion, 20 Commissioners? 21 COMM. SCHENCK: We discussed this a bit, 22 as I recall, when we proposed the rule. 23 But, Pete, help me remember, there's -- if 24 I'm understanding right, there's two situations where 25 people should be filing with us. One is where there's 78 1 an existing child support obligation that's in arrears, 2 where they're delinquent, and the other is when there's 3 been already a prize won that's going to be paid out in 4 installments. 5 MR. WASSDORF: That's correct. 6 COMM. SCHENCK: So generally, there 7 shouldn't just be a prophylactic filing, "In case my 8 ex-husband wins the lottery, please send the check to 9 me"? 10 MR. WASSDORF: That's correct. If there 11 is a delinquency, then they may file that 12 prophylactically in case a spouse wins a payment. But 13 with respect to the installment payments, it would not 14 be filed. 15 COMM. SCHENCK: So if a -- let's assume 16 mother does not have a delinquency and the 17 ex-husband/father wins a lump sum award, we have no 18 connection with -- 19 MR. WASSDORF: That's correct. 20 COMM. SCHENCK: Okay. I think we 21 suggested before and I think you might have started 22 suggesting in your earlier item, I think it was 23 Mr. Bresnen was offered to help communicate this. 24 MR. WASSDORF: He did offer to communicate 25 that. He was familiar with the members of the family 79 1 law section of the state bar, and he offered to and we 2 accepted his offer. And he forwarded that to them, and 3 they had no comments with respect to this. 4 COMM. SCHENCK: Okay. I'm going to make 5 the suggestion. I'm assuming that we're going to pass 6 this rule. 7 Kim, perhaps you might write a brief cover 8 letter to the chair of the state family law section of 9 the bar, perhaps Former Justice O'Neill and Justice 10 Lehrmann to alert them to this and to disseminate this 11 among the family law section to the extent that we have 12 the opportunity to help these people collect their 13 delinquent child support. If they don't know, they 14 won't come and try. 15 MS. KIPLIN: Sure. Be happy to do that. 16 COMM. SCHENCK: I'm going to -- 17 CHAIRMAN WILLIAMSON: Is there a motion? 18 I'm sorry. Do you have a comment, 19 Commissioner? 20 COMM. KRAUSE: No, ma'am. 21 CHAIRMAN WILLIAMSON: Okay. 22 COMM. SCHENCK: Sorry. 23 CHAIRMAN WILLIAMSON: Okay. Now is there 24 a motion? 25 COMM. SCHENCK: I will move that we adopt 80 1 staff recommendation and adopt 16 TAC 401.318. 2 COMM. KRAUSE: Second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMM. SCHENCK: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMM. KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Motion passes. 8 And then we need another motion for the 9 next one, please. 10 COMM. SCHENCK: I also move that we adopt 11 16 TAC 401.319. 12 CHAIRMAN WILLIAMSON: Is there a second? 13 COMM. KRAUSE: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMM. SCHENCK: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 COMM. KRAUSE: Aye. 18 CHAIRMAN WILLIAMSON: Motion passes. 19 AGENDA ITEM NO. XIV 20 CHAIRMAN WILLIAMSON: All right, Pete, 21 onto Item XIV. 22 MR. WASSDORF: Okay. There's one last 23 item, and this is consideration of a new rule at 16 TAC 24 401.371 entitled "Collection of delinquent obligations 25 for lottery retailer related accounts." 81 1 And the situation is that a statute 2 required all agencies to adopt a process for the 3 collection of delinquent accounts. However, the statute 4 provided that in the event that they did not, that they 5 would use the Attorney General's rules on collecting 6 delinquent accounts. We had not done so in the past and 7 had used the Attorney General's rules for collecting 8 those accounts, but now we are adopting or proposing a 9 rule to you for your adoption that will be the agency's 10 rule on the collection of delinquent accounts. It is 11 required to comply with Section 2107.002 of the 12 Government Code and it's required to comply with the 13 Attorney General's rules on this matter, and it does so. 14 No public comments were received during 15 the comment period on this. And essentially, this is to 16 make it easier for the Attorney General to collect 17 delinquent accounts. Now, the agency has statutory 18 authority for collecting delinquent accounts, and we 19 utilize all of those statutory remedies. But if they do 20 not provide an outcome of collecting the accounts, then 21 we will follow these rules and supply the information to 22 the Attorney General in accordance with this rule for 23 his collection. 24 And the staff recommends adoption of this 25 rule. 82 1 CHAIRMAN WILLIAMSON: Any discussions, 2 Commissioners? 3 (No response) 4 CHAIRMAN WILLIAMSON: Is there a motion? 5 COMM. SCHENCK: Yeah, I move that we adopt 6 staff recommendation and adopt 16 TAC 401.371. 7 CHAIRMAN WILLIAMSON: Second? 8 COMM. KRAUSE: Second. 9 CHAIRMAN WILLIAMSON: All in favor? 10 COMM. SCHENCK: Aye. 11 CHAIRMAN WILLIAMSON: Aye. 12 COMM. KRAUSE: Aye. 13 CHAIRMAN WILLIAMSON: Vote is 3-0. 14 Thank you, Pete. 15 MR. WASSDORF: Thank you. 16 MS. KIPLIN: Commissioners, I have those 17 four orders adopting each of those rules. 18 AGENDA ITEM NO. XV 19 CHAIRMAN WILLIAMSON: Okay. Let's go on 20 to Item XV, report, discussion, action on the lottery 21 operations and the services procurement. 22 Mr. Fernandez, please. 23 MR. FERNANDEZ: Good morning, madam chair, 24 commissioners. My name is Mike Fernandez. I'm the 25 Director of Administration. 83 1 This is our standard posting item for our 2 status updates on the procurement of the lottery 3 operator, and I have no update, really, this morning 4 other than the team is busy doing their work reviewing 5 proposals. 6 I'll answer any questions that our general 7 counsel allow me to. So if you have any, I'd be happy 8 to -- 9 CHAIRMAN WILLIAMSON: Commissioners, do 10 you have any questions for Mr. Fernandez or comments 11 or -- 12 COMM. SCHENCK: Mike, is there anything 13 aggressive I can say to get a few more dollars out of 14 these people? 15 (Laughter) 16 MR. FERNANDEZ: Well, we will do our very 17 best. I can assure you that. 18 COMM. SCHENCK: I know that you will. It 19 helps sometimes to have this crazy commissioner who 20 won't let you approve this unless you cut 5 percent. 21 MR. FERNANDEZ: I have that same 22 motivation from our Executive Director. 23 (Laughter) 24 COMM. SCHENCK: All right. Thank you. 25 CHAIRMAN WILLIAMSON: Thank you. 84 1 AGENDA ITEM NO. XVI 2 CHAIRMAN WILLIAMSON: All right. Let's go 3 on to Item XVI, report, discussion, action on the 81st 4 Legislature, 82nd Legislature, and our federal gaming 5 legislation. 6 Ms. Trevino? 7 MS. TREVINO: Good morning, Commissioners. 8 For the record, I'm Nelda Trevino, Director of 9 Governmental Affairs; and with me today is Colin Haza, 10 our governmental liaison. We have a few updates to 11 provide you today. 12 As you are aware, the agency was requested 13 to appear before the House Committee on licensing and 14 administrative procedures at its July 8th, 2010, 15 hearing. Gary Grief presented testimony at the hearing 16 and provided the committee several updates, including 17 fiscal year lottery sales results and revenue 18 transferred to the state. The committee requested some 19 additional information which has been provided to each 20 committee member. 21 As House and Senate committees began to 22 conclude their interim work, we will continue to keep 23 you advised of any requests that may impact the agency. 24 We also have a brief report to provide you 25 on federal gaming bills, and I've asked Colin Haza again 85 1 to join me to provide you this update. 2 MR. HAZA: Good afternoon, madam chairman 3 and commissioners. I'm Colin Haza of the Governmental 4 Affairs Staff. I'm here to provide you with some 5 information concerning some bills of interest in 6 Congress. It's not often that we have a reason to 7 address federal legislation because so few federal bills 8 have any potential impact on us. 9 In your notebook, behind Tab 16, you'll 10 find a brief summary of some background information as 11 well as a discussion of a current bill that is of 12 interest to the lottery industry. HR 2267 by Chairman 13 Barney Frank seems to have gained some momentum in 14 recent weeks. This bill would overturn the unlawful 15 Internet Gambling Enforcement Act of 2006 and would 16 provide for the licensing of Internet gambling 17 activities by the Secretary of the Treasury. It would 18 also provide some consumer protections and would 19 establish, in conjunction with a companion bill, a 20 scheme for the taxation of Internet gambling revenues. 21 The bill was filed in May 2009 and was 22 referred to Chairman Frank's committee as the Committee 23 of Primary and Original Jurisdiction. The House 24 Financial Services Committee conducted hearings in 25 December 2009 and in July 2010. On July 28th, 2010, a 86 1 final markup hearing was held, and several amendment 2 amounts were accepted by the committee. 3 One amount by Representative Gary Peters 4 of Michigan exempted state operated lotteries from the 5 bill and clarified that the Federal Wire Act of 1961 6 does not apply to intrastate Internet sales by state 7 operated lotteries. Interestingly, Mr. Peters served 8 for four years as commissioner of the Michigan Bureau of 9 State Lotteries prior to his election to Congress. 10 There has been no further action on the 11 bill as of this date. We'll keep you updated if there 12 are, and I'll be happy to answer any questions you may 13 have. 14 CHAIRMAN WILLIAMSON: Commissioners, do 15 you have any questions? 16 COMM. SCHENCK: I'll say, for the record, 17 I did have a very pleasant meeting with Senator Jane 18 Nelson recently. I think she will be a great asset as 19 the Commission goes forward, particularly with respect 20 to some of these bingo issues. 21 Nelda, I think I had mentioned that to 22 you. 23 MS. TREVINO: Yes. 24 COMM. SCHENCK: Colin, I wonder if 25 anyone's really given serious study to the question of 87 1 whether the transaction that does nothing more than 2 proposed a gamble is commerce for purposes of the 3 limitations on the federal commerce clause of the 4 Congress? I'm not asking for an answer. 5 MR. HAZA: Yeah. 6 COMM. SCHENCK: I'm just saying that out 7 loud. 8 MR. HAZA: And I don't know. 9 COMM. SCHENCK: It seems to me that we 10 have some powers reserved to the states in this country, 11 and this may be one of them. Thanks. 12 CHAIRMAN WILLIAMSON: All right. Thank 13 you for that report. 14 AGENDA ITEM NO. XVII 15 CHAIRMAN WILLIAMSON: See on to Item XVII, 16 report, discussion on external and internal audits and 17 reviews relating to the Texas Lottery. 18 Ms. Melvin? 19 MS. MELVIN: Thank you, Commissioners. 20 For the record, Catherine Melvin, Director of the 21 Internal Audit Division. 22 Commissioners, this morning I have a brief 23 update. First, I'd like to just remind you we have 24 three ongoing external audits and reviews currently. 25 First is the state auditor's office audit of the 88 1 Charitable Bingo Operations Division. We also have the 2 annual financial audit ongoing and then the biennial 3 security study that's underway. 4 In addition, Commissioners, I believe you 5 received a letter from the state auditor's office, 6 perhaps a month or so ago. We were informed in late 7 June of the state auditor's intent to audit agency 8 compliance with the historically underutilized business 9 requirements or HUB requirements. The state auditor's 10 office is actually auditing a number of state agencies 11 and institutions of higher education related to that. 12 What they'll be examining include compliance with the 13 HUB rules established by the Controller of Public 14 Accounts. They'll look to see whether agencies make a 15 good faith effort to comply with HUB rules and also 16 whether or not they're reporting complete and accurate 17 data to the Controller of Public Accounts. 18 In addition, as part of that review, 19 they'll be looking at compliance with the purchasing 20 from People with Disabilities Program. Agency staff 21 have already submitted a large volume of information to 22 the state auditor's office under their request, and we 23 are told that they should be onsite, perhaps, in late 24 September to October to come visit us. 25 And then in the internal audit arena, 89 1 internal audit is completing our audit of cash prize 2 payments to -- or made by our claims centers. We're in 3 the process of drafting that report, and hopefully we'll 4 bring that to you at the next commission meeting. 5 And then as we do every summer, we are in 6 the process of undergoing our annual risk assessment. 7 We'll be building the proposed audit plan from that, and 8 we'll bring that forward to you hopefully at the next 9 commission meeting, also, for your approval. 10 And that's all I had today. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Commissioners, any question for 13 Ms. Melvin? 14 COMM. KRAUSE: No, ma'am. 15 CHAIRMAN WILLIAMSON: Thank you. 16 AGENDA ITEM NO. XVIII 17 CHAIRMAN WILLIAMSON: Item XVIII, report 18 on GTECH. 19 Gary, this is yours. 20 MR. GRIEF: Commissioners, other than 21 what's in your notebook, I have nothing further to 22 report under that item. 23 CHAIRMAN WILLIAMSON: All right. Then 24 let's keep on. 25 90 1 AGENDA ITEM NO. XIX 2 CHAIRMAN WILLIAMSON: XIX, Executive 3 Director report. 4 MR. GRIEF: Commissioners, under my report 5 today, I would like to inform you of several meetings 6 and events that I've participated in since the last 7 commission meeting was held in June. 8 From June 21st through the 24th, I 9 attended the NASPL director's meeting held in Coeur 10 d'Alene, Idaho. This meeting brought together the 11 directors of 52 jurisdictions in North America. And 12 next year, I'll be hosting that meeting which is 13 scheduled to occur in Dallas. 14 On June 30th and again on July 15th, I 15 participated in meetings held in Chicago along with 16 certain other lottery directors and an outside creative 17 firm, and those meetings were focused on the development 18 of a new premium game, a new premium national game. And 19 we are going to continue to meet periodically on that 20 initiative. 21 And as Nelda reported, on July 8th, I did 22 testify on behalf of the agency in front of the House 23 Licensing and Administrative Procedures Committee and 24 gave a general state of the lottery report at that 25 committee hearing, and I'm pleased to report to you that 91 1 the agency received a generally positive response from 2 the committee. 3 On July 19th through the 22nd, I 4 participated in the NASPL subcommittee meetings held in 5 Madison, Wisconsin. I currently serve as the chair of 6 the NASPL Finance and Accounting Subcommittee, and one 7 of my responsibility responsibilities is to put together 8 an agenda and a series of meetings for the three-day 9 time period that those meetings occur. I want to 10 recognize one of our own staff, Iris Medina who works in 11 Kathy Pyka's shop, for her outstanding work in obtaining 12 speakers, scheduling breakout sessions, and generally 13 working very closely with the NASPL staff to ensure that 14 our meetings were a success. Iris, Kathy, Jim Carney, 15 and Ben Navarro all attended those meetings with me. 16 On July 29th, I participated in a meeting 17 in North Carolina of the National Cross-Sell Committee. 18 At that meeting, we reviewed in detail the success that 19 we've had thus far in the cross-sell initiative for both 20 Powerball and Mega Millions, and we discussed possible 21 next steps for both of those games. 22 And then just recently, on August 2nd, I 23 participated in a news conference in Houston, at the 24 Houston Texans training camp, introducing this year's 25 version of the Houston Texans Scratch-Off game. And I 92 1 also gave a radio remote interview at the training camp 2 location in trying to promote that game as well. 3 And then on August 5th, I participated in 4 a news conference at the San Antonio Alamo Dome, at the 5 Dallas Cowboy's training camp, in which we introduced 6 this year's version of the Dallas Cowboy's Scratch-Off 7 game. 8 Also, as Kathy mentioned in her report, we 9 are getting ready to wrap up one of the most successful 10 years in the history of the lottery, and we look forward 11 to providing you -- I'm sorry you won't be in 12 attendance, Commissioner Schenck, but we look forward to 13 providing you at a future meeting our end-of-year 14 results. 15 And finally, as Mike Fernandez mentioned 16 in his report, the designated agency team is diligently 17 and painstakingly reviewing the three proposals that we 18 received in response to our lottery operator RFP. We're 19 now in the process of scheduling the necessary site 20 visits and oral presentations that go along with that 21 process, and we are well on our way to concluding that 22 procurement by the end of this calendar year. 23 And other than the information that is in 24 your notebooks, that concludes my report for this 25 morning. 93 1 CHAIRMAN WILLIAMSON: Commissioners, do 2 you have any comments or questions of Gary? 3 COMM. SCHENCK: Thank you. Fine report. 4 Thanks, Gary. 5 COMM. KRAUSE: No questions. 6 CHAIRMAN WILLIAMSON: Just for everyone's 7 edification, Gary tell them how big the RFP 8 presentations are. I just wanted to -- because I know 9 the people are looking at it. Can you tell me like four 10 binders apiece or some -- 11 MR. GRIEF: If I were to stack one up in 12 front of me, one of three. 13 CHAIRMAN WILLIAMSON: So I just -- 14 everyone needs to appreciate what staff is -- what 15 they're dealing with right now, and I just -- all of 16 those of you that are participating in that process, 17 thank you very much. I know you're very serious, and 18 you're spending a lot of time with that. And that's 19 what we need, so thank you. 20 COMM. SCHENCK: Yeah, and I would add a 21 thank you to the bidders who have put that material 22 together. 23 CHAIRMAN WILLIAMSON: Exactly. 24 MR. GRIEF: Very much so. 25 COMM. SCHENCK: And their poor lawyers and 94 1 everyone else who's gone into that process. 2 CHAIRMAN WILLIAMSON: Because I'm sure 3 they've put as much, if not more, time probably trying 4 to put together a really good proposal. So we 5 appreciate that as well. 6 MR. GRIEF: Yes, we do. 7 AGENDA ITEM NO. XX 8 CHAIRMAN WILLIAMSON: All right. Let's go 9 on to Item XX, consideration of the status and possible 10 entry of orders in cases posted. 11 Kim, this is your item, please. 12 MS. KIPLIN: Commissioners, you have 13 before you Letters A through I in terms of orders. We 14 do have appearance on one matter, and that's Letter H. 15 And with your permission, I'd like to have y'all take 16 that up last and get these other matters -- 17 CHAIRMAN WILLIAMSON: Okay. 18 MS. KIPLIN: -- out of the way. 19 CHAIRMAN WILLIAMSON: Okay. 20 MS. KIPLIN: And so with that, Letters A 21 through F are all lottery revocation cases for the same 22 reason, and that is for having insufficient funds 23 available at the time the lottery swept each of those 24 retailers' accounts. In each of those cases, the 25 administrative law judge has recommended revocation and 95 1 staff will recommend that you adopt the administrative 2 law judge's recommendation in those cases. Once again, 3 that's Letters A through F. 4 CHAIRMAN WILLIAMSON: All right. 5 Commissioners, do you have any questions for Kim? 6 (No response) 7 CHAIRMAN WILLIAMSON: Okay. So we need -- 8 this is an action item. Right? 9 MS. KIPLIN: Right. And I -- 10 COMM. SCHENCK: I will move that we adopt 11 staff recommendation and impose the discipline as 12 provided in Tabs A through F. 13 CHAIRMAN WILLIAMSON: Second? 14 COMM. KRAUSE: Second. 15 CHAIRMAN WILLIAMSON: All in favor? 16 COMM. SCHENCK: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 COMM. KRAUSE: Aye. 19 CHAIRMAN WILLIAMSON: Motion passes. 20 MS. KIPLIN: So we turn to Letter G, which 21 is the Stateline Citgo case, and this is a case that 22 went to the State Office of Administrative Hearings 23 administrative law judge. It had to do with a 24 confusion, I would say, over a Pick 3 ticket that was a 25 multidraw ticket, and there was a win on one of those 96 1 draws. 2 The -- Mr. Anger is looking at me, so he 3 can come forward if he feels like he needs to. 4 This had to do with a Claimant who 5 presented that ticket to a clerk. The clerk was 6 supposed to give back an exchange ticket and the 7 winnings. The exchange ticket, there was confusion over 8 that. That did not occur. Later -- and the winner 9 left. And later, the exchange ticket was cashed. The 10 staff pursued its normal disciplinary action against the 11 retail location, and my understanding is that they 12 reached an impasse and this case proceeded to hearing. 13 The administrative law judge has accepted 14 the staff's recommendation of a ten-day suspension on 15 this case, and the staff recommends that you adopt the 16 administrative law judge's recommended disciplinary 17 action of a ten-day suspension. 18 CHAIRMAN WILLIAMSON: Go ahead, Mr. Anger. 19 Why don't you -- 20 MR. ANGER: For the record, my name is 21 Michael Anger. I'm the lottery operations director. 22 And to supplement what Ms. Kiplin said, we 23 first had this matter reported to us, and an 24 investigation was conducted. Obviously, it was an area 25 of concern for us because a player came to us and 97 1 indicated that they had validated their ticket and been 2 paid at this retail location. The original ticket was 3 returned to them in lieu of the exchange ticket. And 4 then subsequently, through the investigation, we 5 determined that that ticket was validated a couple of 6 days later at the original cashing store. 7 Obviously, that's an area of concern for 8 us because in many cases, that's an indication of a 9 clerk theft-type of situation. The investigation didn't 10 bear out those facts. It appears that there was a 11 mix-up at the time of the transaction, which is not 12 entirely uncommon that the tickets get mixed up on the 13 counter, the original ticket and the exchange ticket, 14 and the player ends up walking away with the original 15 ticket. 16 The player in this case reported that they 17 didn't verify the ticket before they left the location 18 and also supported, you know, the facts that were borne 19 out in the investigation that they didn't think it was 20 an intentional act on the part of the store or the clerk 21 involved in the transaction. What ultimately happened 22 was a second clerk at the location found the ticket on 23 the floor and later validated the ticket at the 24 location. The investigator didn't -- I'm sorry? 25 COMM. SCHENCK: And we concluded that 98 1 that's the most plausible explanation for what happened 2 here, and that there wasn't fraud on the player? How do 3 we come to that conclusion? 4 MR. ANGER: Well, the facts that were in 5 the investigative report basically -- clearly indicated 6 that the individual who found the ticket and later 7 cashed it in and gave their statement to our 8 investigator was not in the store or a party in any way 9 to the validation and the transaction that took place a 10 couple of days prior. 11 COMM. SCHENCK: Was this -- what kind of 12 store was this? 13 MR. ANGER: This is a -- the store is in 14 Texarkana. It's a fuel service store. It's actually a 15 very high-volume lottery location. 16 COMM. SCHENCK: Okay. But the person 17 who -- 18 MR. ANGER: The -- 19 COMM. SCHENCK: Let me get to the next 20 question I was going to ask. 21 MR. ANGER: Yeah. 22 COMM. SCHENCK: The person who cashed the 23 ticket the next day, is he related? Is this like a 24 small family operation? 25 MR. ANGER: No, this is -- it's an 99 1 employee of the store. It's not a family member. 2 And the fact is that supplemental to the 3 findings of the investigator in this matter is, is that 4 when the investigator went to the store, they found a 5 general environment of ticket management that wasn't 6 conducive to properly managing the inventory and the 7 validations. 8 COMM. SCHENCK: So this -- 9 MR. ANGER: And what I mean by that is, is 10 that it is a high-volume store, and the store was not 11 carrying out good practices with regard to -- 12 COMM. SCHENCK: Well, it doesn't sound 13 like -- 14 MR. ANGER: -- being a retailer. 15 COMM. SCHENCK: -- good hygiene practices 16 either. If the next morning the floor is unswept to the 17 point where you're going to find a lottery ticket that's 18 a winner sitting on it along with I don't know what 19 else, discarded hot dog buns and who knows what -- 20 MR. ANGER: Right. 21 (Laughter) 22 COMM. SCHENCK: -- I mean, but that's the 23 story anyway. The ticket is found on the floor the next 24 morning? 25 MS. KIPLIN: Commissioner Schenck, can I 100 1 get to the facts? I will tell you that this -- the -- 2 this matter, as you know, went to the State Office of 3 Administrative Hearings, and the facts were found. 4 There are findings of facts by the administrative law 5 judge. And to the point of, you know, intent or 6 criminal intent, Finding of Fact 10 is the return of the 7 original ticket rather than the exchange ticket 8 generated was the result of an inadvertent error without 9 intent to deceive, represent, or defraud. 10 COMM. SCHENCK: Okay. 11 MS. KIPLIN: So those are the -- you had 12 somebody who was there who was the weigher of 13 credibility and evidence, and that person has found that 14 fact. 15 COMM. SCHENCK: Okay. 16 MS. KIPLIN: And they're -- I will tell 17 you that under the Administrative Procedure Act, there 18 are pretty extreme limitations on -- 19 COMM. SCHENCK: Substantial evidence 20 review? What am I doing here? 21 MR. ANGER: It's a substantial evidence 22 review, but -- 23 COMM. SCHENCK: Okay. That doesn't mean I 24 have to defer entirely. Right? 25 MS. KIPLIN: If you want, you can send it 101 1 back. 2 COMM. SCHENCK: No, I just -- strikes me 3 more than passing strange. 4 MS. KIPLIN: But I will say -- 5 COMM. SCHENCK: Lottery ticket to be 6 picked up the next morning and somebody finds it and 7 cashes it in instead of throws it out. 8 COMM. KRAUSE: Is that like the floor safe 9 being open all night? 10 COMM. SCHENCK: It's $80. I mean, I hear 11 you, but the principal here is that -- and I guess 12 the -- and ultimately, Kim, I yield because the fact 13 finder is there. The fact finder made this conclusion, 14 but -- and the fact finder is independent from anyone at 15 this agency. 16 MS. KIPLIN: Correct. 17 COMM. SCHENCK: So, okay, I hear the 18 story. I don't have any witnesses to hear it. I don't 19 have anyone contesting this, so -- 20 MS. KIPLIN: What you could do, if you 21 wanted -- and this isn't the staff's recommendation -- 22 is you can remand it back for further -- 23 COMM. SCHENCK: For more. 24 MS. KIPLIN: -- findings, for further 25 evidence. 102 1 COMM. SCHENCK: I'll tell you, once I 2 worked in a convenience store. We swept the place every 3 night, and we mopped it or somebody got in big trouble. 4 And if there were winning lottery tickets left on the 5 floor, it would be odd. Anyway, it's odd, but I'm not 6 going to send it back for more discussion and debate 7 about this. 8 But taking care of the players is an 9 important part of what you do. And you've heard me say 10 it before, when there's suspicions about things like 11 that, I want it referred to the police and I want an 12 investigation. So the findings have been made here. 13 They don't seem out of line to me, but just seems a 14 little strange. 15 MS. KIPLIN: And so -- I'm sorry. 16 Commissioner Krause, did you have -- 17 COMM. KRAUSE: Well, it looks like we paid 18 the prize. Did we pay it twice? 19 MR. ANGER: No, we never pay a prize 20 twice. And so in a situation like this -- 21 COMM. SCHENCK: As many people know. 22 MR. ANGER: -- we charge the money back to 23 the retail location. 24 COMM. KRAUSE: Got you. Okay. 25 MR. ANGER: So we -- 103 1 COMM. KRAUSE: So then they deal with the 2 clerk? 3 MR. ANGER: We were made whole; the player 4 was made whole; the store took responsibility; and, you 5 know, we found, you know, conditions with regard to 6 ticket validation and management at the store that we 7 were not happy with as a result of the investigation. 8 That said, the retailer does seem to be taking this 9 matter seriously. They were actually here today. 10 English is not their first language, the store owner who 11 was present with her sister today. She was here this 12 morning. 13 COMM. SCHENCK: Where was this store? 14 What was it? 15 MR. ANGER: Texarkana. 16 COMM. SCHENCK: Okay. So she -- 17 MR. ANGER: They drove in -- 18 COMM. SCHENCK: -- came from Texarkana? 19 MR. ANGER: -- from Texarkana this 20 morning. 21 COMM. SCHENCK: That satisfies -- 22 MR. ANGER: But they didn't understand the 23 forum here today, and they thought that they were going 24 to be having another individual meeting with the agency. 25 COMM. SCHENCK: Well, it sounds to me like 104 1 everyone at this agency did their utmost to get this 2 thing straightened out, and you've tried to correct 3 their negligent to the -- or less-than-ideal ticket 4 management procedures. 5 MR. ANGER: Yes. We're -- we've conducted 6 training at the store, and, you know, we believe that 7 the penalty that's being proposed is appropriate at this 8 point. 9 COMM. SCHENCK: Did you -- I hope we 10 thanked them for coming from Texarkana. 11 MR. ANGER: I did. 12 COMM. SCHENCK: For an $80 lottery ticket, 13 that answers my concerns. 14 CHAIRMAN WILLIAMSON: All right. So is 15 there a motion to -- 16 MS. KIPLIN: Adopt the administrative law 17 judge's proposal for decision, findings of fact, 18 conclusions of law, and recommended sanction which is a 19 ten-day suspension. 20 COMM. SCHENCK: I so move. 21 CHAIRMAN WILLIAMSON: Is there a second? 22 COMM. KRAUSE: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 COMM. SCHENCK: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 105 1 COMM. KRAUSE: Aye. 2 CHAIRMAN WILLIAMSON: Motion passes. 3 MS. KIPLIN: So Commissioners, that leaves 4 us with two remaining matters. That's Letter H and 5 Letter I. Steve White is the agency's enforcement 6 attorney that handled both of these cases, and I would 7 like for him to come forward and, I think, take care of 8 Letter I first because we do have appearances on 9 Letter H; and I'm thinking that those folks do want to 10 address the Commission. 11 MR. WHITE: Good morning, Commissioners. 12 For the record, my name is Stephen White. I'm an 13 assistant general counsel. 14 Under Tab I, there are actually three 15 agreed orders. They all involve the same facts, one 16 involving Scott Ingerman; another involving Ingram Hall, 17 Inc.; and another involving Lydia Garcia. 18 Ingram Hall, Inc., is a licensed 19 commercial bingo lessor. Ingram Hall, Inc., does 20 business as 10 Cent Bingo and is located in San Antonio, 21 Texas. Scott Ingerman is the sole owner and officer of 22 10 Cent Bingo. He is also on the registry of approved 23 bingo workers. Lydia Garcia is also on the register -- 24 is also a registered bingo worker and, during the 25 pertinent times, was the designated agent for the NSAH 106 1 Southside Accounting Unit, which conducts bingo at the 2 10 Cent Bingo Hall. 3 On multiple occasions, during the period 4 of -- on or about October 2007 to on or about 2008, 5 "Lightning Bingo," in quotations, was conducted at the 6 10 Cent Bingo hall on Wednesday nights from 7 approximately 10 p.m. to 2 a.m. No organization was 8 licensed to conduct bingo during that time period. The 9 Wednesday night bingo sessions were referred to as 10 "Lightning Bingo" because the numbers were called very 11 quickly, and each game only lasted about a minute or 12 two. 13 At 10 Cent Bingo, Scott Ingerman and Lydia 14 Garcia assert that the Wednesday night bingo occasions 15 were exempt from the licensing requirements of the bingo 16 act pursuant to the exemptions set out in the act, 17 2001.554B34, which allows bingo to be conducted without 18 a license if it is on behalf of a senior citizen's 19 association solely for the purpose of amusement and 20 recreation of its members, residents, or patients when, 21 A, no player other than a person furnishes anything more 22 than nominal value to participate; and B, the prizes 23 awarded are nominal. 24 Currently, there is no rule defining what 25 constitutes a senior citizen's organization or what 107 1 constitutes a nominal prize or what constitutes a 2 nominal fee to participate. The cost to participate in 3 these Wednesday night "Lightning Bingo" sessions was 4 approximately $2.50 a game. 5 It is the staff's position that this cost 6 to participate is not nominal, particularly in view of 7 the nature of these "Lightning Bingo" locations -- games 8 where each game only lasted a minute or two. 9 The prizes awarded at the Wednesday night 10 bingo sessions ranged from $10 to $40. It is also the 11 staff's position that the prizes awarded were not 12 nominal. It is the staff's position that a nominal 13 prize is a noncash merchandise item of a value of $5 or 14 less. The Commission concedes that these policies of 15 what constitutes a nominal prize and a nominal fee to 16 participate have not previously been published. 17 Additionally, during the period of 18 December 2006 to May 2008, 10 Cent Bingo, Scott 19 Ingerman, and Lydia Garcia allowed the operation of 20 illegal gambling devices to be operated inside or 21 adjacent to the 10 Cent Bingo hall in violation and the 22 provision of the bingo act that prohibits other games of 23 chance to be conducted or allowed during a bingo 24 occasion other than charitable bingo, charitable 25 raffles, or amusement devices that do not meet the 108 1 definition of a gambling device. 2 The gambling devices that were operated 3 included 8-liner machines that allowed players to 4 accumulate points on stored value cards which then could 5 be used at retail stores to purchase merchandise or used 6 for future plays on the 8-liner machines. There were 7 also three quarter drop machines that allowed players to 8 win cash prizes, although quarters only. 9 The three agreed orders were negotiated at 10 a mediated settlement conference mediated by an 11 administrative law judge. In regard to the allegations 12 involved in the alleged illegal bingo, the three 13 respondents acknowledge the interpretation of the bingo 14 operations director that a nominal prize is a noncash 15 prize of a value of less than $5, that $2.50 a game to 16 participate is not nominal, and they also admit that the 17 game devices located in the bingo hall were, in fact, 18 illegal gambling devices. 19 In terms of the sanctions, the agreed 20 sanctions against Ingram Hall, Inc., is that Ingram 21 Hall, Inc., agrees that it's commercial lessor license 22 will be placed on administrative hold for up to two 23 years during which time it will not engage in the 24 leasing of the bingo premises. During the period of 25 administrative hold, Scott Ingerman must sell or 109 1 transfer his entire ownership interest of Ingerman Hall, 2 Inc., and resign as an officer, director, and sever all 3 other relationships with the Ingerman Hall, Inc. If 4 this does not occur, the commercial lessor license of 5 Ingerman Hall, Inc., will be automatically revoked by 6 the Commission without further notice. 7 Additionally, Ingerman Hall, Inc., agrees 8 to a suspended administrative penalty in the amount of 9 $150,000 for the violations cited. In the event 10 Ingerman Hall does not comply with this agreed order, in 11 addition to its license being automatically revoked, the 12 full $150,000 administrative penalty will become due and 13 payable. 14 In regards to the agreed sanctions against 15 Scott Ingerman, Mr. Ingerman agrees to be removed from 16 the registry of approved bingo workers immediately upon 17 entry of the agreed order. He will sever all 18 relationships with Ingerman Hall, Inc., and agree that 19 he will not be involved in any shape or form in 20 charitable bingo for ten years. What constitutes 21 involvement in charitable bingo is spelled out in detail 22 in the agreed order. 23 Scott Ingerman also agrees to a suspended 24 $150 -- $150,000 administrative penalty. Know this is 25 in addition to the $150,000 suspended penalty against 110 1 Ingerman Hall, Inc. Should Mr. Ingerman fail to comply 2 with the agreed order, the full amount of penalty would 3 become due and payable. 4 In regards to the agreed sanctions against 5 Lydia Garcia, it was noted that Ms. Garcia appears to 6 have been the person in charge of doing Wednesday night 7 "Lightning Bingo" sessions and is currently the agent 8 for the accounting unit that conducts bingo at the 10 9 Cent Bingo hall. Ms. Garcia agrees to administrative 10 penalty of a thousand dollars. Ms. Garcia agrees that 11 she will not act as a bingo chairperson for any 12 conductor or organization for a period of ten years; 13 that she will not sign any daily cash reports or 14 quarterly reports on behalf of any licensed conductor 15 organization, and that all bingo related activities of 16 Ms. Garcia shall be supervised by the bingo chairperson 17 of the organization on which she is acting on behalf of. 18 And with that, I'll be happy to answer any 19 questions. 20 CHAIRMAN WILLIAMSON: I just have one. 21 How many lightning rounds can you get in that period of 22 time $2.50 a piece? 23 MR. WHITE: It was four hours. They may 24 have taken a break or two for a few minutes. But 25 calculate, say, two minutes a game, that comes to -- 111 1 COMM. SCHENCK: 30 an hour times four. 2 CHAIRMAN WILLIAMSON: Yeah, okay. 3 MS. KIPLIN: We ought to have meetings 4 like that. 5 (Laughter) 6 CHAIRMAN WILLIAMSON: Lightning round 7 meetings. All right. 8 COMM. KRAUSE: Each agenda item two 9 minutes long. 10 COMM. SCHENCK: Everything deny and 11 approve. 12 I have a question. What's going on now at 13 this location? Is there still charitable bingo going on 14 without Mr. Ingerman and Ms. Garcia, or are the 8-liners 15 in there still? If they're running bingo? Do we know? 16 MR. WHITE: The 8-liners and the quarter 17 machines are no longer in there. They've been removed. 18 Bingo is still being conducted in the hall. 19 COMM. SCHENCK: But those responsible for 20 these -- for the lightning round and the placement of 21 8-liners are no longer being involved with the operation 22 of the bingo? 23 MR. WHITE: I'm sorry? 24 COMM. SCHENCK: But Mr. Ingerman and 25 Ms. Garcia will no longer be involved? 112 1 MR. WHITE: Yes, sir, that's terms of the 2 agreed order. So Ingerman will be completely out of 3 bingo. Ms. Garcia will have -- will be allowed to 4 remain basically as a bingo worker, but her supervisory 5 abilities will be not allowed. 6 CHAIRMAN WILLIAMSON: Any other questions? 7 COMM. KRAUSE: Fascinating. 8 CHAIRMAN WILLIAMSON: Okay. 9 (Laughter) 10 COMM. SCHENCK: It's illuminating of our 11 earlier conversation today, isn't it? 12 CHAIRMAN WILLIAMSON: All right. Is there 13 a motion to approve? 14 COMM. SCHENCK: I move to adopt staff's 15 recommendation. 16 COMM. KRAUSE: Second. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMM. SCHENCK: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 COMM. KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Motion passes 3-0. 22 MS. KIPLIN: Those are three orders that 23 will cover that entire matter. 24 And now, the remaining matter is Letter H, 25 and that is the matter involving the Ysleta del Sur 113 1 Pueblo Volunteer Fire Department's application for a 2 license to conduct bingo. Mr. Rigano is the attorney 3 for the volunteer fire department, and he is -- just for 4 the record, he's now coming up. 5 I would ask that Mr. White lay out the 6 matter. I will say by way of background, this was a 7 matter that did -- was handled by the State Office of 8 Administrative Hearings. We had an administrative law 9 judge who did take evidence, did listen to the legal 10 arguments, and has issued a proposal for decision that 11 contains the findings of fact and conclusions of law in 12 the recommendation which is the denial of the license 13 application. 14 CHAIRMAN WILLIAMSON: Okay. And the 15 gentlemen that are up there with Steve, go ahead and 16 introduce yourself into the record, if you would, 17 please. 18 MR. RIGANO: My name is Hayward Rigano, 19 and this is Trini Gonzalez. 20 CHAIRMAN WILLIAMSON: And you are with? 21 MR. RIGANO: I'm the attorney representing 22 the volunteer fire department, and Mr. Gonzales is 23 actually the head of their volunteer fire department. 24 CHAIRMAN WILLIAMSON: Okay. Thank you. 25 MR. RIGANO: Sure. 114 1 MR. WHITE: Again, for the record, my name 2 is Stephen White, assistant general counsel with the 3 Texas Lottery Commission. 4 Behind Tab H is a proposal for decision 5 involving the Ysleta del Sur Pueblo Volunteer Fire 6 Department. This is an application case involving the 7 Ysleta Volunteer Fire Department to be licensed as a 8 charitable bingo conductor. The Ysleta del Sur Pueblo 9 is a readily recognized Indian tribe having its 10 reservation in El Paso County. The Ysleta del Sur 11 Pueblo Volunteer Fire Department is located on the 12 reservation. It should be noted that the Ysleta del Sur 13 Pueblo tribe was recognized by the federal government as 14 a sovereign Indian tribe by the Restoration Act, not the 15 Indian Gaming Regulatory Act, commonly know as IGRA, 16 which is the federal act that establishes the 17 jurisdictional framework that governs most Indian 18 tribes. 19 The sole issue in this case is whether the 20 Ysleta del Sur Pueblo Volunteer Fire Department met the 21 definition of a volunteer fire department in the bingo 22 act. The Charitable Bingo Act defines a volunteer fire 23 department as a firefighting organization that operates 24 firefighting equipment, is organized primarily to 25 provide firefighting service, is actively providing 115 1 firefighting service, and does not pay its members 2 compensation other than nominal compensation. 3 In regard to the third requirement, that 4 the organization actively providing firefighting 5 services, it has been the interpretation of the Bingo 6 Operations Division that this provision requires the 7 applicant to provide evidence in the form of a call list 8 of fires or other incidents responded to in the 9 preceding 12 months. This requirement was recently 10 incorporated into a published rule. 11 The Ysleta del Sur Pueblo Volunteer Fire 12 Department did not submit a call list and acknowledged 13 that it never responded to a fire. The representatives 14 of the Ysleta Volunteer Fire Department testified this 15 was only -- that it was only qualified to fight fires 16 that occurred outside of structures, such as brush 17 fires; and because of the dessert-like conditions, where 18 it is located, such fires almost never occur and that 19 although it has never responded to a fire, it is ready 20 and capable of doing so. 21 The ALJ agreed with the staff that being 22 ready and capable of fighting fires is not enough to 23 meet the definition of a volunteer fire department, as 24 the definition includes a requirement that the 25 organization is currently and actively providing 116 1 firefighting services, and recommended denial of the 2 license. 3 Although not mentioned in the proposal for 4 decision nor was it an issue in this case, I would feel 5 remiss if I did not bring to the Commissioner's 6 attention that this is a small piece of a big issue. 7 The Ysleta del Sur Pueblo Indian tribe operated a casino 8 on the reservation contrary to the provision of the 9 Restoration Act. Congress in passing the Restoration 10 Act provided that all gaming activities which are 11 prohibited by the laws of the state of Texas are 12 prohibited on the reservation and on the lands of the 13 Ysleta del Sur Pueblo. 14 In accordance with that provision, the 15 State of Texas sued the Ysleta del Sur Pueblo and filed 16 a report and obtained an injunction shutting down the 17 casino. The federal judge stated in his injunction 18 order that the tribe could conduct charitable bingo as 19 well as other legal forms of gambling allowed by Texas 20 law, but the tribe must first submit an application and 21 obtain a license from the Texas Lottery Commission. 22 Previously, the Ysleta del Sur Heritage Corporation 23 submitted an application to be licensed as a bingo 24 conductor, and after a contested case and recommendation 25 of administrative law judge, that application was also 117 1 denied by the Commission. 2 And I have nothing further. Be happy to 3 answer questions. 4 CHAIRMAN WILLIAMSON: Commissioners, do 5 you have any questions, or do you want to hear the other 6 two gentlemen first? 7 COMM. SCHENCK: I have one question. You 8 say they're not covered by the Indian Gaming Act? 9 MR. WHITE: Yes, sir. 10 COMM. SCHENCK: Why does that matter? Is 11 that -- that would preempt our -- otherwise preempt our 12 restrictions? Is that the point? 13 MR. WHITE: That's correct. They would be 14 more than likely authorized to conduct all sorts of 15 gambling on their reservation. 16 COMM. SCHENCK: Somehow I'm having a 17 recollection that they opted out at the time. Is that 18 right? Or maybe that's a question better put -- 19 MR. WHITE: Well, it's my understanding 20 that they were not recognized at that time as a 21 federally recognized Indian tribe. It was subsequent to 22 IGRA passing. They then applied -- you know, petitioned 23 Congress to be recognized as an Indian tribe, a 24 sovereign nation, and that was granted by Congress but 25 by a separate statute, this Restoration Act, which, you 118 1 know, had that provision, "You're a sovereign nation 2 except you must comply with the gambling laws of the 3 state of Texas." 4 COMM. SCHENCK: If I'm remembering right, 5 I may not -- this is just a personal memory of mine. 6 About ten years ago, is this an issue that went to the 7 Fifth Circuit -- 8 MR. WHITE: Yes, sir. 9 COMM. SCHENCK: -- that Judge Higginbotham 10 write an opinion on this -- the casino? 11 MR. WHITE: Yes, sir, that's correct. 12 COMM. SCHENCK: Okay. So that's the 13 injunction you're referring to, I assume, is the final 14 injunction put in place at the end of that litigation. 15 MR. WHITE: Yes, sir. I don't think 16 there's a final injunction. It's been pending all this 17 time, and it's still ongoing litigation. 18 COMM. SCHENCK: Oh, I see. Okay. 19 MS. KIPLIN: If I could just jump in. The 20 matter, I guess, between the State of Texas and the 21 tribe -- and Mr. Rigano I'm sure will comment on this -- 22 has been a matter since -- I think it goes back to 1993. 23 And in the first instance, it was the tribe trying to 24 get a gaming compact with the State of Texas under the 25 Indian Gaming Regulatory Act. That was a proceeding 119 1 that was heard by Judge Lucius Bunton out in Pecos 2 who -- at that point, his opinion was that they were 3 under IGRA and that the gaming compact should be 4 negotiated. That matter went to the Fifth Circuit. It 5 was on 11th Amendment immunity issues and also the 6 Restoration Act provision. I think it was 11th 7 Amendment. I know for sure the Restoration Act. The 8 Fifth Circuit, and then it was upheld by the U.S. 9 Supreme Court said, "No, you're not" -- "you don't 10 operate gaming under the Indian Gaming Regulatory Act. 11 You operate it under the Restoration Act and, therefore, 12 you" -- and I'm obviously just characterizing it -- "you 13 can do the gaming that the citizens of the state of 14 Texas can do, but no more than that." 15 Matters continued in a separate 16 proceeding. That was the tribe pursuing the state. And 17 then there was a matter where the state sued the tribe, 18 and that's the matter that I think is still pending in 19 court in terms of injunctions and motions for contempt 20 and things of that nature. But out of the matter that 21 is pending still in court was the matter that the tribe 22 must apply for a license to conduct bingo, and that must 23 be reviewed by the Lottery Commission to determine 24 eligibility standards. 25 COMM. SCHENCK: Okay. That's helpful. 120 1 Thank you. 2 MS. KIPLIN: That's kind of a quick 3 summary. 4 MR. RIGANO: Madam chairman, 5 Commissioners, actually, I was not prepared to come and 6 speak about the injunction, the various litigation that 7 is ensued between the State of Texas and the Pueblo. 8 Actually, I thought our purpose today was to come and 9 talk about the application. There's other attorneys 10 that would be far more educated on that particular issue 11 than myself. 12 COMM. SCHENCK: Well, I'll agree with you. 13 It's not relevant other than it's background. 14 MR. RIGANO: Yes. And other than 15 background, I don't think it is pertinent to the issue 16 which is before this Commission. 17 And I just want to try to tailor my 18 comments -- excuse me. I'm suffering from a cold as 19 well -- to the application which this particular 20 volunteer fire department filed and how we, in our 21 opinion, feel that we have demonstrated that they are 22 actively capable of fighting a fire. And I think that 23 the testimony that the hearings officer heard was that 24 they are actively able to fight a fire. The only 25 problem is that their firefighting, I guess, territory 121 1 is the reservation. It's relatively small. And it's in 2 El Paso County. And I think as it was developed and I 3 think Mr. White also mentioned, it's basically desert-y 4 landscape. 5 And this volunteer fire department, their 6 capacity to fight a fire is limited to a basic Level 1 7 fire which is, in essence, a brushfire of that nature. 8 They're not -- they don't have the level of training, in 9 other words, to fight a structure fire. In other words, 10 if there was a house that was on fire, they would have 11 to call either the County of El Paso or City of El Paso 12 to come and help fight that fire. They would not be 13 with their training actually allowed to fight that fire. 14 So they are limited in that respect. 15 And as I reviewed the various codes, the 16 administrative code, I found nothing in there that said 17 that just because you're limited, that you didn't 18 qualify, in other words, to be a volunteer fire 19 department. 20 So I think the real central issue here is 21 they haven't fought a fire in the past year; and so, 22 therefore, they have no call list to provide. And is 23 that, in other words, the limiting factor? In other 24 words, if by the grace of God we don't have a fire, you 25 can't conduct bingo? Is that what this Commission wants 122 1 to, in other words, tell the folks out here who want to 2 participate in bingo; that especially if you're a 3 volunteer fire department, if there's no fire, you can't 4 do bingo. And I just don't think that is the parameter 5 with which we need to be looking at. 6 And I think that what we presented was 7 sufficient to show that these folks, the gentlemen that 8 are part of the volunteer fire department, they can 9 clearly fight a fire. They're trained to fight a fire. 10 They just have had no fires to fight. And I was 11 speaking to Mr. Gonzales this morning, and he said -- he 12 was telling me that they were actually were conducting 13 a -- 14 What did you refer to it? 15 MR. GONZALEZ: Control. 16 MR. RIGANO: Control. 17 -- a controlled burn today on an area on 18 the reservation that they needed to have cleared up, and 19 so this is probably the first fire they've had in 20 anybody's recent recollection. 21 And so what I'm trying to say is that I 22 just don't think that it's appropriate to deny them a 23 license based upon the fact that they haven't fought a 24 fire when they're fully capable of fighting a fire. 25 CHAIRMAN WILLIAMSON: All right. At this 123 1 moment, I'd like to recognize State Representative Norma 2 Chavez from El Paso. And I -- if you would like, I'd 3 like to invite you to sit up here so you can 4 certainly -- 5 REP. CHAVEZ: Thank you. 6 CHAIRMAN WILLIAMSON: -- participate, 7 comment -- 8 REP. CHAVEZ: Thank you so much. 9 CHAIRMAN WILLIAMSON: -- ask a question. 10 I assume these are in your district? 11 REP. CHAVEZ: Yes, they're constituents in 12 my district. 13 CHAIRMAN WILLIAMSON: Good. It's nice to 14 have you there, and we're pleased to have you here at 15 the Lottery Commission. 16 REP. CHAVEZ: Thank you, madam chair, 17 members of the Commission. 18 CHAIRMAN WILLIAMSON: All right. Good. 19 All right. I'm sorry about that. 20 MR. RIGANO: Oh, no problem. 21 And that's the extent of our comments at 22 this time, and we're open for questions. 23 CHAIRMAN WILLIAMSON: All right. 24 Commissioners? 25 COMM. KRAUSE: Well, I guess the first 124 1 question I have is, is that the judge, based on his 2 findings of fact, you know, came to the legal conclusion 3 that it's not a volunteer fire department. And so 4 beyond that you disagree with that, what else that 5 you -- would you say about that finding? 6 MR. RIGANO: I'd find -- I would inform 7 y'all that that particular finding is incorrect based 8 upon the fact that the only issue that was before the 9 judge as it was tailored by myself and Mr. White was the 10 issue of whether or not this particular volunteer fire 11 department was actively fighting fires. 12 COMM. SCHENCK: Can I ask you when was -- 13 MR. RIGANO: Sure. 14 COMM. SCHENCK: -- the volunteer fire 15 department created? 16 MR. RIGANO: I believe it was in 2003. 17 COMM. SCHENCK: Had there been any fires 18 at that point? 19 MR. RIGANO: Up to that point? 20 COMM. SCHENCK: Yeah. 21 MR. RIGANO: Or after that? 22 COMM. SCHENCK: Well, you're telling me, 23 as I understand it, that they're capable of fighting 24 brush fires, but they don't -- it's a sandy location. 25 They're not capable of fighting -- what was the theory? 125 1 MR. RIGANO: They're not capable of 2 fighting anything above a Level 1. A structural fire 3 would be Level 2 and on up. 4 COMM. SCHENCK: They're concerned about 5 what? I mean, what was it that -- what fires were they 6 concerned about at the time they created this in 2001, I 7 believe you told me? 8 MR. RIGANO: The purpose of creating the 9 volunteer fire department was to do two things. One was 10 to have a firefighting entity on the reservation. 11 COMM. SCHENCK: My question is to fight 12 what? I mean, you're not worried that the sand is going 13 to spontaneously combust and mesas and buttes don't 14 combust. What was it that -- what fires was it that 15 they were anticipating to respond to? 16 MR. RIGANO: Well, just because there 17 hasn't been a fire doesn't mean there's not actually 18 something that can burn. There just hasn't been any 19 fires on their reservation. 20 COMM. SCHENCK: Okay. But in 2001, they 21 decided they just wanted to plan for that possibility? 22 MR. RIGANO: Well, the second thing that 23 they wanted to accomplish -- the first one was to be 24 able to fight fires on the reservation. 25 The second thing that they wanted to 126 1 accomplish was to be able to integrate themselves into 2 the El Paso County firefighting community, so to speak. 3 In other words, if they could get the training that was 4 necessary, then they could step up to Level 2 fires and 5 also participate in fighting fires outside of the 6 reservation. But as of yet, due to budget restraints 7 and the fact that they've been denied the right to do 8 bingo and actually make money to actually receive that 9 training, they're stuck at Level 1. 10 CHAIRMAN WILLIAMSON: This was formed in 11 2001 -- '3. 12 MR. RIGANO: '3. 13 CHAIRMAN WILLIAMSON: Had any fires been 14 fought in that period of time? 15 MR. RIGANO: No, ma'am. 16 CHAIRMAN WILLIAMSON: So really, it's more 17 than just a one-year period of time that there have been 18 no -- there's been no need for their services? 19 MR. RIGANO: That is correct. 20 COMM. SCHENCK: But you're telling us 21 there was some intention to have a purpose other than 22 conducting bingo and whatever ancillary activities might 23 typically come along with bingo? 24 MR. RIGANO: Absolutely. The purpose of 25 this was not to create bingo -- not to create an entity 127 1 to conduct bingo. This entity was created in 2003. 2 They first filed an application for a bingo license, I 3 believe, in 2007 and were denied at that time, but there 4 was a whole host of problems with the actual 5 application. And when I discussed the possibility of 6 them doing bingo as the method to raise funds, we 7 mentioned to them that they must comply because of the 8 judge's orders with everything that is contained in the 9 application. And they went to great extent to do a 10 complete application, get the bond. Actually, 11 Mr. Gonzales and another gentleman actually went and did 12 the bingo school. 13 And as you can see from the application 14 and the issue that was before the hearings officer, this 15 is the only issue that remains. They've done everything 16 else that was required to them or asked them to do. The 17 only thing is, is that they cannot, in other words, 18 present to you something that they don't have, which is 19 a fire. I guess they could have gone out and started 20 one and put it out, but that, to me, is just not the 21 whole purpose of why we're here. 22 COMM. SCHENCK: Okay. Let me speak 23 plainly to you. 24 MR. RIGANO: Sure. 25 COMM. SCHENCK: Let's assume that a 128 1 federal judge in the Fifth Circuit tells me I can't 2 operate a casino in North Dallas where I live -- and I 3 bet they would tell me that if I tried -- and I create 4 something called the Great Northern Dallas Astroid 5 Catching Committee to make sure that we don't get hit by 6 an astroid. Now, we haven't had an astroid, but there's 7 a standard for creating an astroid-catching charitable 8 organization and the administrative law judge says you 9 didn't meet it. So where do we change his conclusion? 10 What is it in the record that's showing 11 that he's wrong other than your challenge of the legal 12 standard that you actually have to actively have fought 13 a fire in order to be considered a fire department or in 14 my example, that I have to have caught a meteor or an 15 astroid in order to become an organization that's going 16 to be recognized for purposes of being able to carry out 17 bingo? Where is the factual error in the administrative 18 law judge's conclusions? 19 MR. RIGANO: The factual error is in the 20 example that you gave, if you are capable of catching an 21 astroid or whatever purpose you've created your 22 organization for, then you are, in essence, capable of 23 doing it as soon as one shows up. 24 COMM. SCHENCK: But the legal standard 25 says you have to have actually done it, and you're 129 1 challenging the legal -- the law and not the facts. 2 Right? 3 MR. RIGANO: Well, I would agree with 4 that. 5 COMM. SCHENCK: Okay. 6 REP. CHAVEZ: Madam chair? 7 CHAIRMAN WILLIAMSON: Yes, ma'am? 8 REP. CHAVEZ: Is the fire department -- 9 the volunteer fire department, is it -- how is it 10 funded, Mr. Gonzalez? 11 MR. GONZALEZ: It's currently not funded. 12 REP. CHAVEZ: Not funded? 13 MR. GONZALEZ: Yeah. 14 REP. CHAVEZ: The reservation, you used 15 your own expenditures to send people to training, to 16 establish the -- you know, anything, the equipment, 17 everything that you need? Do you have a building? Do 18 you have -- I mean, where are y'all located on the 19 reservation? 20 MR. GONZALEZ: We work out of the travel 21 police department. 22 REP. CHAVEZ: Okay. 23 MR. GONZALEZ: And that's kind of how it 24 was formed through that department as well. So it's 25 kind of a branch from -- 130 1 REP. CHAVEZ: Where your tribal judicial 2 court system is also? 3 MR. GONZALEZ: Yes. 4 REP. CHAVEZ: Because you're a sovereign 5 nation, you are recognized to have a tribal court, which 6 you do, for tribal purposes. 7 MR. GONZALEZ: Correct. 8 REP. CHAVEZ: You have your own jail? 9 MR. GONZALEZ: Correct. 10 REP. CHAVEZ: Is that correct? 11 You have your own police department? 12 MR. GONZALEZ: Correct. 13 REP. CHAVEZ: And now you have a volunteer 14 fire department? 15 MR. GONZALEZ: Correct. 16 REP. CHAVEZ: And you are part of and were 17 accepted recently last few months, I think in the fall, 18 to be recognized as one of the 23 -- 19 -- 19 MR. GONZALEZ: 20. 20 REP. CHAVEZ: 20 Pueblos in New Mexico. 21 MR. GONZALEZ: Correct. 22 REP. CHAVEZ: And those Pueblos in New 23 Mexico, how many do you think have volunteer fire 24 departments on their reservation? 25 MR. GONZALEZ: About -- I would say at 131 1 least 19 of them. 2 REP. CHAVEZ: 19 of them? Yeah. Okay. 3 So we need to look at the structure of that. 4 But it seems like we're in a catch 22 5 situation here, madam chair, because I think the tribe 6 has been told that they are allowed to do whatever the 7 State of Texas is allowed to do. And here, the State of 8 Texas permits bingo, and so I believe that the tribe in 9 good faith has come forth to the Commission repeatedly 10 with an effort to try to establish bingo in Texas, which 11 is legal. And so your Commission is continually denied 12 them the right of their self-sovereignty and their right 13 to petition the State of Texas to do that, and I think 14 that's where the situation and the problem is. 15 Not -- I don't think this Commission is 16 authorized to judge whether or not they are a sanctioned 17 fire department. I think that is probably something 18 that maybe the tribe needs to look at on talking to 19 those that regulate fire departments because there might 20 be one of you here or somebody in the audience who comes 21 from a rural community of, you know, Rising Star, Texas, 22 population under 3,000 or smaller communities and 23 Socorro, New Mexico, has bigger than Rising Star -- I 24 mean, Socorro, Texas -- but they also establish 25 volunteer fire departments for the purposes of helping 132 1 their community to deal with a fire. 2 I don't think it's relevant that they have 3 not had a fire. I think we should thank God for that, 4 that they haven't had a fire residence on the 5 reservation or a building or their court or their jail 6 or their properties, anything that they own. They 7 haven't had a significant fire. But they are preparing 8 themselves in the event that that kind of catastrophe 9 would have, and I think that should be recognized and 10 not belittled in any way. 11 So I guess my situation and concern here 12 is that they're coming forth in good faith to try to 13 establish an opportunity to continue or to build or to 14 expand on their volunteer fire department, and I guess I 15 would like the Commission to tell me what other 16 volunteer fire departments in that -- in the state of 17 Texas have you denied a bingo permit to. 18 CHAIRMAN WILLIAMSON: And I guess that 19 question would have to go to the -- Phil, our Executive 20 Director. 21 REP. CHAVEZ: Thank you. 22 MR. SANDERSON: Commissioners, 23 representative, there has been a volunteer fire 24 department that we have denied the application on for 25 failure to have conducted any activities in a 12-month 133 1 period prior to the application. I've got the licensing 2 manager trying to get that name right now, but I believe 3 it was the San Antonio, Bexar County area is where that 4 took place. 5 REP. CHAVEZ: Okay. And is that 12-month 6 rule, is that statutory or is that Commission rule? 7 MR. SANDERSON: The statute, I believe, 8 indicates that they must have been actively engaged in 9 firefighting, and the statute also requires that they 10 have to be continued in that activity for the 12 months 11 prior to the application. 12 REP. CHAVEZ: Okay. Continuing and being 13 involved and doing it for 12 months is different than 14 actually putting out a fire. If you -- if they 15 continue -- if they do training, if they do exercises, 16 if they climb up the -- we have an actual fire 17 department, little -- you know those things that they 18 climb, whatever it's called, if they're doing the 19 training that they need to establish, I mean, that means 20 that they're maintaining the standard, whatever standard 21 that is; and I'm not real sure, you know, what training 22 that they've participated in. But that's what those 23 volunteer fire departments do, is they prepare 24 themselves for a fire. 25 And so if in the last 12 months, that's 134 1 what y'all have been doing, Mr. Gonzalez? You do 2 monthly exercises? 3 MR. GONZALEZ: We gather twice a month. 4 REP. CHAVEZ: Twice a month? Great. 5 And how large is the tribe? 6 MR. GONZALEZ: How large population wise 7 or -- 8 REP. CHAVEZ: Yeah. Well, I guess it's a 9 numbers is big and families, extended families is -- 10 MR. GONZALEZ: About 1600. 11 REP. CHAVEZ: Yeah, okay. Great. 12 And you have two facilities? The old 13 traditional reservation? 14 MR. GONZALEZ: Right. We have two 15 districts of housing. 16 REP. CHAVEZ: Two housing districts. And 17 the volunteer fire department is there to help? 18 MR. GONZALEZ: Yes. We actually live in 19 the -- in each district. 20 REP. CHAVEZ: In each district you have? 21 Okay. Great. Well, congratulations. 22 So could I get a list of the -- can I get 23 all the correspondence regarding the denial of the 24 permit to the volunteer fire department and the statute 25 as well? 135 1 MR. SANDERSON: The Ysleta del Sur 2 Volunteer Fire Department? 3 REP. CHAVEZ: No, the San Antonio. 4 MR. SANDERSON: Actually, it was Spillway 5 Volunteer Fire Department in Azle, Texas, is where it 6 was, up in Tarrant County. 7 REP. CHAVEZ: And what year? 8 MR. SANDERSON: That order was signed 9 August the 5th of 2003. 10 REP. CHAVEZ: And no other volunteer fire 11 department has petitioned the Commission? 12 MR. SANDERSON: No other volunteer fire 13 department has made application for a bingo license that 14 has not been actively engaged in firefighting. 15 REP. CHAVEZ: Okay. And can I also have a 16 list of all the fire departments that have a gaming 17 license? 18 MR. SANDERSON: Yes, ma'am. 19 REP. CHAVEZ: Okay. Thank you. 20 Thank you, madam chair. 21 CHAIRMAN WILLIAMSON: And thank you. 22 Thank you for participating. 23 MR. RIGANO: If I could make one other 24 comment. 25 The Spillway Volunteer Fire Department was 136 1 actually -- if I recall correctly by reading the order, 2 they had a contract with, I think, the city to fight 3 fires on their behalf, and they lost that contract; and 4 so, therefore, they didn't have any place to, in other 5 words, fight fires. That's the distinction between that 6 particular denial of an application and the denial in 7 this particular case where these gentlemen have a place 8 to fight fires, have the capacity to fight fires, but 9 yet are being denied the license. 10 And one other thing I'd like to mention is 11 that the particular rule basically states that the 12 applicant must demonstrate significant progress toward 13 the accomplishment of the organization's purposes during 14 the 12 months preceding the date of the application, and 15 then the rule which the Commission promulgated basically 16 states that, "Well, we want to see your call list." And 17 that's what I have a problem with, is that we're stating 18 in one instance "Show us what you're doing," and then 19 the other instance we're saying, "The only thing that 20 we'll accept is this call list." And in this particular 21 instance, the two just don't mesh, and they don't come 22 together. 23 One other thing, Mr. Carlos Hisa who is 24 with the council of the Ysleta del Sur Pueblo informed 25 me that they had fires previous to 2003, and that was 137 1 one of the reasons that they created the volunteer fire 2 department was to be prepared. And just by the grace of 3 God, they have not had anything else come up to where 4 they've actually had to use them. 5 REP. CHAVEZ: If I -- madam chair, he's 6 the lieutenant governor for the tribe and also 7 Councilman Lopez is also here present, if they could -- 8 CHAIRMAN WILLIAMSON: Thank you for -- 9 REP. CHAVEZ: -- be recognized. 10 CHAIRMAN WILLIAMSON: -- joining us, 11 gentlemen. 12 REP. CHAVEZ: But can I ask, also, the 13 Commission, madam chair, if -- can I get a list of all 14 the other requests by the Commission for the call list 15 that you've done to other volunteer fire departments? 16 MR. SANDERSON: We may not have a 17 comprehensive list of a request for the call lists 18 because they normally have submitted that call list with 19 the application. So for those that we have requested 20 the call list, we'll have documentation for that; but 21 those that submitted the call list with the original 22 application, we wouldn't have requested the call list. 23 REP. CHAVEZ: Okay. Well, just the name 24 of the one that submitted with the call list and then 25 the names of those that you requested a call list. 138 1 MR. SANDERSON: Okay. 2 REP. CHAVEZ: Thank you. 3 COMM. KRAUSE: I've got a question. 4 You say that it's -- that your volunteer 5 fire department is, at this point, unfunded? 6 MR. GONZALEZ: Correct. 7 COMM. KRAUSE: Okay. And so no other 8 source of -- 9 REP. CHAVEZ: I think he said self funded, 10 that the tribe -- 11 MR. GONZALEZ: Well, self funded. We do 12 fund-raisers and stuff like that. 13 COMM. KRAUSE: Oh, okay. So y'all sell 14 barbecue or, you know, raffles or things like that? 15 MR. GONZALEZ: Yes, sir. 16 COMM. SCHENCK: Do you have a bank 17 account? 18 MR. GONZALEZ: Yes. 19 COMM. SCHENCK: A separate bank for the 20 volunteer fire department? 21 MR. GONZALEZ: A separate bank account for 22 the volunteer fire department. 23 MS. KIPLIN: So, Commissioners, if I could 24 take you back to where we are procedurally, if that's 25 appropriate for this time. 139 1 Where we are is you have a proposal for 2 decision that was issued by the State Office of 3 Administrative Hearings, administrative law judge, that 4 contains findings of facts and conclusion of law based 5 on a contested case hearing that occurred. 6 You-all, under the Administrative 7 Procedure Act, and in particular, Section 2001.058, you 8 may change a finding of fact or conclusion of law made 9 by the ALJ or you may vacate or modify an order issued 10 by the ALJ only if the agency determines that the ALJ 11 did not properly apply or interpret applicable law, 12 agency rules, written policies, or prior administrative 13 decisions. 14 It's very limiting in terms of what an 15 agency can do on modifying findings of fact and 16 conclusions of law. I'll put that out there in terms of 17 the restriction that's imposed by the -- 18 COMM. KRAUSE: What is their next step if 19 we decide to uphold the administrative law judge's 20 decision? 21 MS. KIPLIN: Well, procedurally, their 22 next step would be to file a motion for rehearing which 23 would come before this Commission, and the purpose of 24 the motion for rehearing is to point out to the 25 Commission where the Commission erred in the order that 140 1 it issued. After that motion for rehearing is heard, 2 you can either grant the motion for rehearing and look 3 at the relief or you can overrule it. 4 And then if it's granted, generally what 5 has occurred -- not that you're limited to this -- you 6 would remand it back for the taking of additional 7 evidence. 8 On the motion for rehearing, if it's 9 overruled, then the respondent has 30 days in which to 10 file a petition for judicial review, which is 11 jurisdictional. So in the motion for rehearing, by the 12 way, is also jurisdictional. 13 COMM. KRAUSE: So they get to go to 14 district court? 15 MS. KIPLIN: They could. Now -- yes, they 16 could, and they could challenge the agency's order that 17 there was an improper application of law. 18 If the Commission were to deny and then 19 the respondent accepted the denial, then I believe there 20 is a year sit out from the date of the denial before the 21 entity could come and file a new application for review. 22 Is that -- 23 COMM. KRAUSE: I think so. 24 COMM. SCHENCK: I'm looking at the statute 25 here, and there's a citation in the proposed -- the SOAH 141 1 proposal for decision to 2001.00228 of the occupation 2 code. My version of the Bingo Enabling Act does not 3 include a Subsection 28. Is that a typo? Am I missing 4 something? 5 MR. SANDERSON: That's -- well, that's the 6 old statute before HB 1474. 7 COMM. SCHENCK: Okay. So we just -- 8 MR. SANDERSON: So I -- 9 COMM. SCHENCK: It's trick the 10 Commissioner week with the old statute. 11 (Laughter) 12 MR. SANDERSON: It is in that statute. I 13 can -- 14 COMM. SCHENCK: Okay. 15 MR. SANDERSON: -- direct you to that 16 section. 17 COMM. SCHENCK: As I read the first 18 sentence, unless it's changed, it says that the Texas 19 Lottery Commission may issue a license. Is that 20 changed, Phil, to someone who is a bona fide charity and 21 then it lists the charities? 22 MR. SANDERSON: It still may. 23 REP. CHAVEZ: Would you give me that 24 subsection of the statute, please? 25 COMM. SCHENCK: It was 2001.002, 142 1 Subsection 28. 2 REP. CHAVEZ: Thank you so much. 3 MR. SANDERSON: That is the definition of 4 a volunteer fire department. 5 COMM. SCHENCK: Okay. And that is what 6 she's quoting from here, "operates firefighting 7 equipment" -- that's operates, present tense -- "is 8 organized primarily to provide firefighting services, 9 actively providing firefighting services, and does not 10 pay its members"? 11 MR. SANDERSON: Correct. 12 COMM. SCHENCK: Okay. When did that come 13 into the statute? 14 MR. SANDERSON: That's been in the statute 15 as long as I can remember. 16 COMM. SCHENCK: Okay. Well, my 2003 17 version of the act does not have that subsection in it. 18 REP. CHAVEZ: May I ask, also, madam 19 chair, when that statute was changed and when was the 20 application by the Tiguas, the Ysleta del Sur Pueblo, 21 filed? 22 CHAIRMAN WILLIAMSON: I can't give you 23 that factual information. We'll have to go to staff and 24 find that out. Do you want to repeat -- 25 (Simultaneous discussion) 143 1 REP. CHAVEZ: Yes. When -- I'd like to 2 know when the statute was changed and the date that the 3 Ysleta del Sur Pueblo requested to be recognized for the 4 permit and that their volunteer fire department be -- 5 CHAIRMAN WILLIAMSON: Okay. 6 REP. CHAVEZ: -- the basis for the 7 application? 8 CHAIRMAN WILLIAMSON: Is that something 9 you guys can answer now? 10 MS. KIPLIN: No, I can't in terms of the 11 statute. 12 And just for the record, what I gave 13 Commissioner Schenck was the printed version that we get 14 from Westlaw, and that's -- it does still contain the 15 definition of volunteer fire department. And it goes 16 back to 1999, acts in 1999, and I believe that's because 17 at the -- in the 1999 session, that's when the Bingo 18 Enabling Act, which was a part of the revised civil 19 statutes, was codified into the occupations code. 20 I'd have to go back, you know, and go down 21 legislative history to find out if it was a part of the 22 original act, which I think goes back into the 1980s, 23 while it was in the revised civil statutes, the 24 definition of volunteer firefighting. 25 CHAIRMAN WILLIAMSON: Okay. So that's 144 1 been there that long, more or less? 2 MS. KIPLIN: It's been there since 1999 in 3 a codified version of the occupations code. I believe 4 that it dates back beyond that into when the Bingo 5 Enabling Act was just part of the revised civil 6 statutes. 7 CHAIRMAN WILLIAMSON: Okay. 8 MS. KIPLIN: That definition of volunteer 9 fire department. 10 CHAIRMAN WILLIAMSON: And what was the 11 date of your application for this group? 12 MR. RIGANO: June -- I think it's 11th of 13 2009. 14 CHAIRMAN WILLIAMSON: Okay. 15 MR. RIGANO: And I believe the provision 16 that she's referring is in the Texas Administrative Code 17 Section 402.420, and under volunteer fire department 18 where I read to you earlier, "Must demonstrate 19 significant progress." The part over here where it says 20 to include the call list was apparently put into the 21 Texas Administrative Code of what we were told in 22 December of 2009. And I don't know what was in the 23 administrative code prior to that. 24 CHAIRMAN WILLIAMSON: Okay. And -- 25 COMM. SCHENCK: And just so I'm clear, I 145 1 have some questions here today. 2 Kim, this is a legal question. 3 MS. KIPLIN: Yes. 4 COMM. SCHENCK: The administrative record 5 here is closed, so if I'm asking questions and getting 6 answers, it's really not changing anything. I mean, the 7 record is what it was. This is functionally an appeal 8 that we're dealing with here? 9 MS. KIPLIN: You're -- well, what you are 10 limited to is the administrative record and the proposal 11 for decision and the findings and the conclusions of law 12 that are part of that. You know, I don't know because I 13 wasn't there. You know, I wasn't the attorney, whether 14 they've gone beyond the record or not. And if that's 15 the case, you know, to extent that you have, then you 16 can't take that information into consideration. 17 Mr. White is here. He was there, and I 18 heard no objection to him while this dialogue was going 19 on. 20 MR. RIGANO: We didn't go outside the 21 record too far. 22 MS. KIPLIN: Okay. 23 (Laughter) 24 COMM. SCHENCK: Well, I like to understand 25 what we're talking about, and I found our discussion to 146 1 be helpful. It's useful background, if nothing else. 2 But the challenge I have is it seems to me 3 from the record we have, these factual findings, and I 4 don't think we really have what anyone can present as a 5 factual error. There's just a legal question there, it 6 seems to me. 7 MR. SANDERSON: Madam chair? 8 CHAIRMAN WILLIAMSON: Yes. 9 MR. SANDERSON: I went back and looked in 10 the 1997 Bingo Enabling Act, which was prior to 11 recodification, Title 6, Article 179D. It was the same 12 definition in Section 2, Paragraph 8. So it's at least 13 since '97, it's been the same definition for volunteer 14 fire department. 15 REP. CHAVEZ: Other than the inclusion of 16 December 2009 of call lists. 17 MR. SANDERSON: That was an administrative 18 rule. 19 REP. CHAVEZ: Okay. 20 MS. KIPLIN: And so that -- and so just to 21 kind of clear that up, the Lottery Commission adopted 22 that rule, and your interpretation of what you're 23 looking for to flesh out actively engaged in 24 firefighting is exactly that information. And as I 25 understand it -- and, you know, Phil, correct me -- 147 1 that's essentially the rule that you-all adopted was 2 putting into effect what staff had been requesting all 3 along. And I think it was a recommendation that may 4 have come out of an internal audit report that you need 5 to start putting in a rule those things that you're 6 doing in practice so that it comes to the Commission as 7 a matter of policy. 8 COMM. SCHENCK: What does the record say 9 with respect to what equipment the fire department owns? 10 MR. RIGANO: I believe that the record 11 reflects that they own a fire truck. Each of their 12 members has boots -- 13 MR. GONZALEZ: Bunker gear. 14 MR. RIGANO: What do they call it? 15 MR. GONZALEZ: Bunker gear. 16 MR. RIGANO: Bunker gear? 17 MR. GONZALEZ: Yeah. 18 MR. RIGANO: And things of that nature. 19 It was fleshed out what that particular equipment was 20 and that it was all in working order and so forth. 21 CHAIRMAN WILLIAMSON: Any other comments? 22 Questions? 23 (No response) 24 CHAIRMAN WILLIAMSON: Okay. 25 Representative, do you have any other comments or 148 1 questions? 2 REP. CHAVEZ: I just kind of would like to 3 clarify your action here today, if you could state that 4 for the record? 5 CHAIRMAN WILLIAMSON: I think our action 6 here today would be to either uphold or override the 7 SOAH ruling, if I understand that correctly. 8 MS. KIPLIN: You can either reject the 9 proposal for decision; and if you do, and you're 10 rejecting it on the basis of a provision in the order 11 and that's a finding or conclusion, you have to state 12 why, and it would have to be part of the -- 13 CHAIRMAN WILLIAMSON: Okay. 14 MS. KIPLIN: -- per the order. So you can 15 do that. 16 You can approve the administrative law 17 judge's proposal for decision which includes the 18 findings and conclusions and the denial. You can do 19 nothing today, and you can wait until a future 20 Commission meeting, if you want to think more and 21 consider more. That's certainly -- those are the three 22 options that I can think of right now. 23 You can -- if you wanted to, you could 24 remand it back to the State Office of Administrative 25 Hearings for the taking of additional evidence. I don't 149 1 know what that would accomplish, but I put that out 2 there as an option. 3 COMM. SCHENCK: I don't see a basis on 4 this record for doing anything, as far as I'm concerned, 5 but approve the recommendations of the staff and the 6 administrative law judge. But that ripens us for a 7 motion for rehearing and a challenge to the courts where 8 we can determine what the legal problem is here. So 9 that would be my recommendation. 10 REP. CHAVEZ: I didn't hear. I'm sorry. 11 If he -- if you could briefly repeat. 12 COMM. KRAUSE: Why don't you go ahead and 13 make a motion? 14 COMM. SCHENCK: I'm going to move that we 15 adopt the SOAH findings and that we deny this license 16 application. 17 COMM. KRAUSE: Second. 18 CHAIRMAN WILLIAMSON: All in favor? 19 COMM. SCHENCK: Aye. 20 COMM. KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: I'll oppose. I 22 oppose. 23 Motion passes 2-1. 24 REP. CHAVEZ: Thank you. 25 MS. KIPLIN: Commissioners, I have all the 150 1 orders, and I'll present those to you. I'll hold this 2 one back so that there's no confusion on the vote 2-1 -- 3 CHAIRMAN WILLIAMSON: Okay. 4 MS. KIPLIN: -- on that. 5 CHAIRMAN WILLIAMSON: All right. At this 6 time that concludes the business of the Commission 7 and -- 8 MS. KIPLIN: I'm sorry to interrupt you. 9 CHAIRMAN WILLIAMSON: Yes? 10 MS. KIPLIN: While you-all were hearing 11 this matter, the matter going back to Letter G, 12 Stateline Citgo, the folks that were here and had spoken 13 to Mr. Anger did come back and they have completed a 14 witness affirmation form. And my understanding is they 15 would like to address the Commission. I will say that 16 you've already taken action and that action stands on 17 that; but if you want to hear from them, I'll give you 18 the witness affirmation forms. 19 CHAIRMAN WILLIAMSON: Do you want to hear 20 from them? 21 (No response) 22 I appreciate that, but we've already 23 ruled. And just so you know, the fact that you made the 24 trip here was duly noted and had a certain amount of 25 consideration in our ruling, so thank you. 151 1 AGENDA ITEM NO. XXI 2 CHAIRMAN WILLIAMSON: And I have no 3 other -- I don't have any public comments at this time, 4 so at this time I believe that concludes the business of 5 the Commission. Is there a motion to adjourn? 6 COMM. KRAUSE: I move we adjourn. 7 CHAIRMAN WILLIAMSON: All in favor? 8 MS. KIPLIN: Wait, wait. 9 COMM. SCHENCK: We've got to go into 10 executive session. 11 MS. KIPLIN: We have an executive session. 12 CHAIRMAN WILLIAMSON: Oh, yes. That's 13 right. We do. Sorry about that. 14 COMM. KRAUSE: I withdraw my motion. 15 (Laughter) 16 AGENDA ITEM NO. XXII 17 CHAIRMAN WILLIAMSON: Okay. Sorry. At 18 this time, then I move that we'd go into executive 19 session -- I was reading the wrong script. Sorry about 20 that guys -- to deliberate the duties and evaluation of 21 the Executive Director, Internal Audit Director, and 22 Charitable Bingo Operations Director and to receive any 23 legal advice on pending litigation. Is there a second? 24 COMM. SCHENCK: Second the motion. 25 CHAIRMAN WILLIAMSON: All in favor? 152 1 COMM. SCHENCK: Aye. 2 COMM. KRAUSE: Aye. 3 CHAIRMAN WILLIAMSON: Aye. 4 Opposed? 5 (No response) 6 CHAIRMAN WILLIAMSON: 3-0. We'll go into 7 executive session at 12:00 p.m. Today is August the 8 10th. 9 MS. KIPLIN: And then for the record, I'll 10 put the statutory citation, which we're required to do, 11 and that is Section 551.071(1)(A), Section 12 551.071(1)(B), and Section 551.071(2) of the Texas 13 Government Code. 14 (Executive session: 12:00 p.m. to 12:55 15 p.m.) 16 AGENDA ITEM NO. XXIII 17 CHAIRMAN WILLIAMSON: Okay. The 18 lottery -- the Texas Lottery Commission is out of 19 executive session. The time is 12:55 p.m. Is there any 20 action to be taken? There is no action to be taken as a 21 result of the executive session. 22 AGENDA ITEM NO. XXIV 23 CHAIRMAN WILLIAMSON: So at this time, I 24 believe this concludes the business of the Commission. 25 Is there a motion to adjourn? 153 1 COMM. SCHENCK: I move to adjourn. 2 COMM. KRAUSE: Second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMM. KRAUSE: Aye. 5 COMM. SCHENCK: Aye. 6 CHAIRMAN WILLIAMSON: Aye. Passes 3-0. 7 (Meeting adjourned: 12:56 p.m.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 154 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lorrie A. Schnoor, Certified Shorthand 5 Reporter in and for the State of Texas, Registered Merit 6 Reporter and Texas Certified Realtime Reporter, do 7 hereby certify that the above-mentioned matter occurred 8 as hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of such 10 were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true, 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 19th day of August 2010. 16 17 _______________________________ LORRIE A. SCHNOOR, RMR, TCRR 18 Certified Shorthand Reporter CSR No. 4642 - Expires 12/31/11 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. Cambridge Tower 21 1801 Lavaca Street, Suite 115 Austin, Texas 78701 22 512.474.2233 23 24 25