1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 6 MONDAY, JUNE 14, 2010 § 7 8 COMMISSION MEETING 9 MONDAY, JUNE 14, 2010 10 11 BE IT REMEMBERED THAT on Monday, the 12 14th day of June 2010, the Texas Lottery Commission 13 meeting was held from 9:03 a.m. to 10:56 a.m., at the 14 Offices of the Texas Lottery Commission, 611 East 6th 15 Street, Austin, Texas 78701, before CHAIRMAN MARY ANN 16 WILLIAMSON and COMMISSIONERS DAVID J. SCHENCK and J. 17 WINSTON KRAUSE. The following proceedings were 18 reported via machine shorthand by Aloma J. Kennedy, a 19 Certified Shorthand Reporter of the State of Texas, and 20 the following proceedings were had: 21 22 23 24 25 2 1 APPEARANCES 2 3 CHAIRMAN: Ms. Mary Ann Williamson 4 COMMISSIONERS: 5 Mr. David J. Schenck Mr. J. Winston Krause 6 GENERAL COUNSEL: 7 Ms. Kimberly Kiplin 8 EXECUTIVE DIRECTOR: Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: 10 Mr. Philip D. Sanderson 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - MONDAY, JUNE 14, 2010............... 8 4 AGENDA ITEM NO. I - Meeting Called to Order....... 8 5 AGENDA ITEM NO. II - Report, possible discussion and/or action on 1st quarter 6 2010 bingo conductor information.................. 10 7 AGENDA ITEM NO. III - Consideration of and possible discussion and/or action, including 8 adoption, on new 16 TAC §402.514 relating to Electronic Funds Transfer......................... 14 9 AGENDA ITEM NO. IV - Consideration of and 10 possible discussion and/or action, including adoption, on amendments to 16 TAC §402.506 11 relating to Disbursement Records Requirements..... 14 12 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action, including 13 adoption, on amendments to 16 TAC §402.600 relating to Bingo Reports......................... 14 14 AGENDA ITEM NO. VI - Consideration of and 15 possible discussion and/or action, including adoption, on new 16 TAC §402.450 relating to 16 Request for Waiver................................ 14 17 AGENDA ITEM NO. VII - Consideration of and possible discussion and/or action, including 18 adoption, on new 16 TAC §402.451 relating to Operating Capital................................. 14 19 AGENDA ITEM NO. VIII - Consideration of and 20 possible discussion and/or action, including adoption, on new 16 TAC §402.452 relating to 21 Net Proceeds...................................... 14 22 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action, including 23 adoption, on new 16 TAC §402.453 relating to Request for Operating Capital Increase............ 14 24 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. X - Consideration of and possible discussion and/or action, including 4 adoption, on amendments to 16 TAC §402.101 relating to Advisory Opinions..................... 22 5 AGENDA ITEM NO. XI - Report by the Charitable 6 Bingo Operations Director and possible discussion and/or action on the Charitable 7 Bingo Operations Division’s activities, including updates on HB 1474 implementation, 8 Bingo Advisory Committee nominations, status of licensees, rulemaking and form revisions, 9 audits, pull-tab review, special projects, allocations, and upcoming operator training....... 31 10 AGENDA ITEM NO. XII - Report, possible 11 discussion and/or action on lottery sales and revenue, game performance, new game 12 opportunities, advertising, market research, trends, and game contracts, agreements, and 13 procedures........................................ 33 14 AGENDA ITEM NO. XIII - Report, possible discussion and/or action on transfers to 15 the State......................................... 36 16 AGENDA ITEM NO. XIV - Consideration of and possible discussion and/or action on the 17 agency’s FY 11 operating budget................... 37 18 AGENDA ITEM NO. XV - Report, possible discussion and/or action on the agency's 19 Legislative Appropriations Request for the 2012-2013 biennium............................ 38 20 AGENDA ITEM NO. XVI - Consideration of and 21 possible discussion and/or action on the agency’s Strategic Plan........................... 41 22 AGENDA ITEM NO. XVII - Report, possible 23 discussion and/or action on the lottery operations and services procurement............... 43 24 25 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action, including 4 extension, on the agency's contract for random animated digital draw system and 5 amendment on the agency’s contract for outside counsel intellectual property 6 legal services.................................... 43 7 AGENDA ITEM NO. XIX - Report, possible discussion and/or action on the agency’s 8 contracts......................................... 49 9 AGENDA ITEM NO. XX - Report, possible discussion and/or action on the 81st 10 and/or 82nd Legislature........................... 49 11 AGENDA ITEM NO. XXI - Consideration of and/or report, possible discussion and/or 12 action on external and internal audits and/or reviews relating to the Texas 13 Lottery Commission, and/or on the Internal Audit Department’s activities, including 14 the lottery security study........................ 8 15 AGENDA ITEM NO. XXII - Report, possible discussion and/or action on GTECH Corporation..... 50 16 AGENDA ITEM NO. XXIII - Report by the 17 Executive Director and/or possible discussion and/or action on the agency’s 18 operational status, agency procedures, and FTE status.................................... 52 19 AGENDA ITEM NO. XXIV - Consideration of the 20 status and possible entry of orders in: A. Docket No. 362-10-3394 – 21 Yellowstone Sunmart #352 B. Docket No. 362-10-3393 – Gina’s 22 Food Mart C. Docket No. 362-10-3395 – Quick Mart 23 D. Docket No. 362-10-3429 – Big Willy’s Junction 24 E. Docket No. 362-10-3428 – Save N Go........ 53 25 6 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XXV - Public Comment.............. 55 4 AGENDA ITEM NO. XXVI - Commission may meet in Executive Session: 5 A. To deliberate the duties and evaluation of the Executive Director pursuant to 6 Section 551.074 of the Texas Government Code. 7 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 8 to Section 551.074 of the Texas Government Code. 9 C. To deliberate the duties and evaluation of the Charitable Bingo Operations 10 Director pursuant to Section 551.074 of the Texas Government Code. 11 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 12 the Texas Government Code. E. To deliberate the duties of the Human 13 Resources Director pursuant to Section 551.074 of the Texas Government Code. 14 F. To receive legal advice regarding pending or contemplated litigation 15 pursuant to Section 551.071(1)(A) and/or to receive legal advice 16 regarding settlement offers pursuant to Section 551.071(1)(B) of the Texas 17 Government Code and/or to receive legal advice pursuant to Section 551.071(2) 18 of the Texas Government Code, including but not limited to: 19 20 21 22 23 24 25 7 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XXVI (continued) 4 First State Bank of DeQueen et al. v. Texas Lottery Commission 5 Texas Lottery Commission v. Leslie Warren, Texas Attorney 6 General Child Support Division, Singer Asset Finance Company 7 L.L.C., and Great-West Life & Annuity Insurance Company 8 Employment law, personnel law, procurement and contract law, 9 evidentiary and procedural law, and general government law 10 Lottery Operations and Services procurement and/or contract.......... 61 11 AGENDA ITEM NO. XXVII - Return to open session 12 for further deliberation and possible action on any matter discussed in Executive Session...... 62 13 AGENDA ITEM NO. XXVIII - Adjournment.............. 62 14 REPORTER'S CERTIFICATE............................ 64 15 16 17 18 19 20 21 22 23 24 25 8 1 P R O C E E D I N G S 2 MONDAY, JUNE 14, 2010 3 (9:03 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery 7 Commission to order. Today is June 14, 2010. The time 8 is 9:03. Commissioners Schenck and Krause are present. 9 We have a quorum. 10 AGENDA ITEM NO. XXI 11 CHAIRMAN WILLIAMSON: Today we're going to 12 go out of order for a minute. We're going to bring up 13 Item XXI which is consideration of and possible 14 discussion on external and internal audits or reviews, 15 including the Texas Lottery and the Internal Audit 16 Department's Activities, including the lottery security 17 study. 18 So, Cat, if you would. 19 MS. MELVIN: Thank you, Chairman. Good 20 morning, Commissioners. For the record, Catherine 21 Melvin, Director of the Internal Audit Division. 22 This morning I just have a few items of 23 update. In addition to ongoing internal audit activity, 24 we also have external audits that are ongoing at the 25 agency that we reported previously. Those include the 9 1 annual financial audit and the State Auditor's office 2 audit of the Charitable Bingo Operations Division. 3 This morning I would like to introduce the 4 Grant Thornton team. They are here to conduct the 5 biennial security study. As, Commissioners, you are 6 aware, this study is required under the State Lottery 7 Act. We're very proud and pleased to have Grant 8 Thornton as our vendor this year. And Ms. Nancy Walden 9 of the Internal Audit Division will also be our liaison 10 for the study, so I have asked her to join the team. 11 But with that, let me turn it over and ask them to 12 introduce themselves. 13 MR. HILL: Good morning. And thank you. 14 My name is Ed Hill. I am an Executive Director with 15 Grant Thornton, and I am the overall project director 16 for the security study this year. I have extensive 17 background in internal and external auditing. And in 18 the IT audit world which we're going to begin with a 19 risk assessment and then proceed on to the study itself. 20 So thank you. 21 MR. VELLANI: Good morning. My name is 22 Nick Vellani, Senior Manager with Grant Thornton 23 Business Advisory Services. 24 Similarly to Ed, I also have significant 25 internal audit and external audit experience. And I 10 1 will as the project manager on an ongoing daily basis. 2 CHAIRMAN WILLIAMSON: Thank you. 3 MS. MELVIN: And, Commissioners that's all 4 we have this morning. If you have any questions, I 5 would be happy to answer those. 6 CHAIRMAN WILLIAMSON: Commissioners, do 7 you have any questions? 8 COMMISSIONER SCHENCK: No, thank you. 9 CHAIRMAN WILLIAMSON: Thank you. 10 MS. MELVIN: Thank you. 11 AGENDA ITEM NO. II 12 CHAIRMAN WILLIAMSON: All right. Then 13 we'll go on back onto our agenda. The next item is the 14 report, possible discussion and/or action on the first 15 quarter 2010 bingo conductor information. 16 Bruce, I believe this is yours, please. 17 MR. MINER: Good morning, Commissioners. 18 Let me get to the right place here quickly. 19 MS. KIPLIN: Bruce, I'm not sure your 20 microphone is on. 21 MR. MINER: Good morning, Commissioners. 22 For the record, my name is Bruce Miner, and I'm the 23 Manager of the Taxpayer Services Department. And I'm 24 here to present to you a quick summary of the 2010 first 25 quarter information as reported by our licensed 11 1 authorized organizations. 2 This chart shows a comparison of gross 3 receipts for the first quarter of each year from 2007 4 through 2010. And, as you can see, total gross receipts 5 have dropped slightly from 2009 to 2010. 6 Please note the gross receipts for instant 7 bingo sales had a slight decrease from $89.9 million to 8 $89.2 million. And this is the first time that we've 9 seen a decrease in instant bingo sales since the 10 introduction of event tickets in 2002. 11 This chart shows a comparison of net 12 receipts for the first quarter of each year from 2007 13 through 2010, and this slide captures a trend of net 14 receipts, which are gross receipts minus prizes. And 15 total net receipts shown by the green line here 16 decreased three and a half percent this year from last 17 year. 18 These next few slides will overlay the 19 comparison between the required distribution and net 20 proceeds and the actual reported distributions. First 21 we have here the required distributions, using the 22 35 percent calculation prior to October 1, 2009, and 23 shows that the required distribution for the first 24 quarter of 2007, 2008 and 2009 ran just at or above $2 25 million. But using the new requirement of all net 12 1 proceeds distributed, the required distribution for the 2 first quarter of 2010 was $5.8 million. 3 We can now compare these figures to the 4 net proceeds as defined in the revised Bingo Enabling 5 Act. Net proceeds is gross receipts minus prizes and 6 expenses. 7 And this slide overlays the actual 8 reported charitable distributions to the amounts 9 required to be distributed and the net proceeds. And 10 this shows that the organizations continue to distribute 11 more than that required for their charitable purposes. 12 And as you can see, even though the gross receipts and 13 net proceeds are down from 2009, charitable 14 distributions showed a slight increase. 15 In your notebook is additional information 16 from an analysis performed by Arlette Taylor, our 17 Operational Planning and Performance Coordinator. 18 And that concludes my briefing. 19 CHAIRMAN WILLIAMSON: All right. Before 20 you leave, Bruce -- Commissioners, do you have any 21 questions? 22 COMMISSIONER SCHENCK: I just have a quick 23 observation, Bruce. 24 MR. MINER: Yes, sir. 25 COMMISSIONER SCHENCK: It seems to me 13 1 despite the increase in the required distribution, the 2 actual net has gone up very, very little in terms of 3 total distributions over the state, something like, if I 4 have your chart right, from $9 million to $9.1 million. 5 MR. SANDERSON: It went up slightly, yes, 6 sir. 7 COMMISSIONER SCHENCK: Do you think that's 8 what the Legislature expected, by increasing the 9 required distribution? 10 MR. SANDERSON: Well, historically, 11 they've always distributed more than what was required, 12 and that number has always stayed between 7 and a half 13 to 9 million each quarter. Now the required 14 distributions are based on the net proceeds. However, 15 there is a period of time that organizations have to 16 deplete their operating capital or their bingo bank 17 accounts if they had excess funds in there. And so we 18 may see some fluctuations in that distribution over the 19 next couple of years, as they deplenish their account, 20 as well as some organizations that didn't have the 21 maximum capital in their bank account can now keep more 22 in there. So it's going to -- 23 COMMISSIONER SCHENCK: Okay. So it's too 24 early to judge, is what you're telling me? 25 MR. SANDERSON: Yes. 14 1 COMMISSIONER SCHENCK: Okay. Thanks, 2 Phil. 3 CHAIRMAN WILLIAMSON: Commissioner, do you 4 have anything? 5 COMMISSIONER KRAUSE: No questions. 6 CHAIRMAN WILLIAMSON: Thank you, Bruce. 7 AGENDA ITEM NOS. III THROUGH IX 8 CHAIRMAN WILLIAMSON: Let's see. Let's 9 take, Sandy, the next items, III through IX. Let's 10 start with those. And these are all items related to 11 the Bingo Enabling Act and rules associated thereof. So 12 just start us off. 13 MS. JOSEPH: Yes. Thank you. 14 For the record, my name is Sandra Joseph, 15 Special Counsel for the Legal Services Division. Items 16 III through IX are all proposed rulemaking actions that 17 are presented for adoption today. All of these rules 18 were proposed for amendment or publication in order to 19 implement HB 1474, which called for a number of changes 20 in the Bingo Act and, consequently, in the rules. 21 The rules were published for public 22 comment on March 26th. A public comment hearing was 23 held on April 14th. We did receive comments. There 24 were a number of comments made and suggestions for 25 changing wording. The primary comment on these rules I 15 1 would say was from Jamie McNally representing 2 Littlefield commercial lessors and the Texas Association 3 for Advancement of Charitable Bingo, suggesting that the 4 Commission should recognize and promote the accrual 5 method of accounting and allow that for bingo 6 organizations. 7 The staff's response to that is that 8 certainly organizations can use the accrual method of 9 accounting if they choose, that insofar as they report 10 their bingo activities, we prefer that that be on the 11 cash and actually want to require that that be on the 12 cash method of accounting, believing that that's a 13 simpler method for organizations. 14 Other than that, there was some changes 15 made in the rules for clarification. I would be happy 16 to take the rules individually if you would like, if you 17 would like to vote on them individually. 18 CHAIRMAN WILLIAMSON: Yes. Let's just 19 take them one at a time. 20 MS. JOSEPH: All right. Item III is 21 adoption of 16 TAC 402.514. This is a new rule relating 22 to electronic fund transfers. The rule sets forth 23 provisions related to controls over electronic fund 24 transfers, recordkeeping requirements and any 25 discrepancies. The staff does recommend that the 16 1 Commission adopt this new rule. I would be happy to 2 answer any questions about that. 3 CHAIRMAN WILLIAMSON: Commissioners? 4 COMMISSIONER KRAUSE: No questions. 5 COMMISSIONER SCHENCK: No. 6 CHAIRMAN WILLIAMSON: Is there a motion? 7 COMMISSIONER SCHENCK: Yes. I move that 8 we adopt staff recommendation and adopt this rule. 9 CHAIRMAN WILLIAMSON: Second? 10 COMMISSIONER KRAUSE: Second. 11 CHAIRMAN WILLIAMSON: All in favor? 12 COMMISSIONER SCHENCK: Aye. 13 CHAIRMAN WILLIAMSON: Aye. 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Motion passes 3-0. 16 MS. KIPLIN: Commissioners, I have orders 17 for each of these rulemakings, and I'll be happy to hold 18 them until the end if you would like. 19 CHAIRMAN WILLIAMSON: That would be great. 20 All right. Sandy, the next item, No. IV, 21 please. 22 MS. JOSEPH: Yes. Item IV is 23 consideration of adoption of amendments to 16 TAC 24 §402.506 relating to disbursement record requirements. 25 It's recommended that this rule be adopted with some 17 1 changes, in response to public comment. Those changes 2 are shown on your draft in the notebook. I would be 3 happy to answer any questions. 4 CHAIRMAN WILLIAMSON: Commissioners, do 5 you have any questions? 6 COMMISSIONER SCHENCK: I don't. 7 COMMISSIONER KRAUSE: No, ma'am. 8 CHAIRMAN WILLIAMSON: Is there a motion? 9 COMMISSIONER SCHENCK: I move we adopt 10 staff recommendation and that we adopt this proposed 11 rule. 12 CHAIRMAN WILLIAMSON: Second? 13 COMMISSIONER KRAUSE: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMMISSIONER SCHENCK: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 COMMISSIONER KRAUSE: Aye. 18 CHAIRMAN WILLIAMSON: 3-0, motion passes. 19 Next item, please. 20 MS. JOSEPH: Item V is consideration of 21 adoption of amendments to 16 TAC §402.600 relating to 22 bingo reports. The staff does recommend that this rule 23 also be adopted, with some changes as a result of 24 comments. I would be happy to answer any questions. 25 CHAIRMAN WILLIAMSON: Commissioners? 18 1 COMMISSIONER SCHENCK: No questions. 2 CHAIRMAN WILLIAMSON: Motion? 3 COMMISSIONER SCHENCK: I move we adopt the 4 staff recommendation and adopt the proposed rule. 5 CHAIRMAN WILLIAMSON: Second? 6 COMMISSIONER KRAUSE: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER SCHENCK: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Passes 3-0. 12 Next item, please. 13 MS. JOSEPH: Item VI is consideration of 14 adoption of new 16 TAC §402.450 relating to requests for 15 waivers. The purpose of this rule is to provide 16 requirements for an organization to request a waiver to 17 the maximum amount of operating capital that can be 18 maintained in its bingo account, in accordance with new 19 language in the statute. Again, the staff recommends 20 that this rule be adopted. 21 CHAIRMAN WILLIAMSON: Commissioners, any 22 questions? 23 COMMISSIONER SCHENCK: I see that there 24 were no comments from the public on this, other than the 25 two people that showed up. 19 1 MS. JOSEPH: That's correct. 2 COMMISSIONER SCHENCK: So I move that we 3 adopt this proposed rule, new 16 TAC 402.450. 4 COMMISSIONER KRAUSE: Second. 5 CHAIRMAN WILLIAMSON: Second? All in 6 favor? 7 COMMISSIONER SCHENCK: Aye. 8 CHAIRMAN WILLIAMSON: Aye. 9 COMMISSIONER KRAUSE: Aye. 10 CHAIRMAN WILLIAMSON: Motion passes. 11 MS. JOSEPH: I would like to clarify that 12 they were some comments, but they were generally in 13 favor. There were no written comments. 14 COMMISSIONER SCHENCK: That's what I 15 meant. 16 MS. JOSEPH: Okay. 17 CHAIRMAN WILLIAMSON: Item VII. 18 MS. JOSEPH: Item VII is consideration of 19 adoption of new 16 TAC §402.451 relating to operating 20 capital. The staff recommends that this rule be adopted 21 with changes, as shown on the draft in your notebook. 22 CHAIRMAN WILLIAMSON: Commissioners, any 23 questions? 24 COMMISSIONER SCHENCK: I have none. 25 COMMISSIONER KRAUSE: No, ma'am. 20 1 CHAIRMAN WILLIAMSON: Motion? 2 COMMISSIONER SCHENCK: I move that we 3 adopt the staff recommendation and adopt the proposed 4 new rule. 5 CHAIRMAN WILLIAMSON: Second? 6 COMMISSIONER KRAUSE: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER SCHENCK: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Passes 3-0. 12 Item VIII. 13 MS. JOSEPH: Item VIII is consideration of 14 adoption of new 16 TAC §402.452 relating to net 15 proceeds. It is recommended that this rule be adopted 16 without changes, any changes to the proposed text. One 17 individual was present at the hearing and commented in 18 favor of the rule. Staff recommends adoption. 19 CHAIRMAN WILLIAMSON: Commissioners, any 20 questions? 21 Motion? 22 COMMISSIONER SCHENCK: I move that we 23 adopt staff recommendations and adopt this proposed 24 rule. 25 CHAIRMAN WILLIAMSON: Second? 21 1 COMMISSIONER KRAUSE: Second. 2 CHAIRMAN WILLIAMSON: All in favor? 3 COMMISSIONER SCHENCK: Aye. 4 CHAIRMAN WILLIAMSON: Aye. 5 COMMISSIONER KRAUSE: Aye. 6 CHAIRMAN WILLIAMSON: Passes 3-0. 7 Item IX. 8 MS. JOSEPH: Item IX is consideration of 9 adoption of new 16 TAC §402.453 relating to requests for 10 operating capital increase. It's recommended also that 11 this rule be adopted without changes to the proposed 12 text. One individual appeared at the hearing and 13 commented in favor of the rule, and we received no 14 written comments. 15 CHAIRMAN WILLIAMSON: Thank you. 16 Commissioners, any questions. 17 COMMISSIONER SCHENCK: No. 18 CHAIRMAN WILLIAMSON: Motion. 19 COMMISSIONER SCHENCK: I move that we 20 adopt staff recommendation and adopt the rule. 21 CHAIRMAN WILLIAMSON: Second? 22 COMMISSIONER KRAUSE: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 COMMISSIONER SCHENCK: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 22 1 COMMISSIONER KRAUSE: Aye. 2 CHAIRMAN WILLIAMSON: Motion passes 3-0. 3 And just for the record, there was a 4 witnesses affirmation form from Steve Bresnen regarding 5 Items III through IX -- 6 MS. KIPLIN: And, Commissioners, I have 7 the orders. 8 CHAIRMAN WILLIAMSON: -- with no 9 testimony. 10 MS. KIPLIN: Commissioners, I have your 11 orders. 12 AGENDA ITEM NO. X 13 CHAIRMAN WILLIAMSON: Okay. Let's go on 14 to Item No. X, please. 15 MS. JOSEPH: All right. 16 CHAIRMAN WILLIAMSON: This is regarding 17 advisory opinions. 18 MS. JOSEPH: Yes. Item X is consideration 19 of adoption of amendments to 16 TAC §402.101 relating to 20 advisory opinions. Amendments were proposed to this 21 rule at the direction of the Commission. The purpose 22 was to remove language which indicated that any 23 individuals other than the requestor could rely on an 24 advisory opinion. 25 Comments were received from one individual 23 1 at the public hearing against these amendments. Those 2 comments argued that the rule has been working well as 3 is and provided a number of examples of other agencies 4 that do allow persons other than the requestor to rely 5 on the opinions. 6 In reviewing those other statutes, I did 7 note that those statutes do not modify the word "person" 8 with the language "who requests an advisory opinion." 9 In the Bingo Enabling Act, it states that a person who 10 requests an advisory opinion may rely on the opinion. 11 That phrase "to request an advisory opinion" is not 12 included in those other status, so there is a difference 13 in those statutes. The staff recommends that the rule 14 be adopted as proposed. 15 CHAIRMAN WILLIAMSON: Thank you. 16 If I recall, this is the one that you 17 wanted to narrow down the definition? 18 COMMISSIONER SCHENCK: And I believe that 19 we have, in response to my concerns, so I am quite happy 20 with the proposed rule. I'm prepared to make a motion, 21 but I'll wait for any other questions. 22 CHAIRMAN WILLIAMSON: All right. We do 23 have a witness affirmation form from Steve Bresnen at 24 this time. I know that since we are at the point to 25 pass this rule, Kim, what are the implications of this 24 1 if he so chooses to talk on this? 2 MS. KIPLIN: Thank you. Your comment 3 period on this rule has expired. The Commission set a 4 comment period. The Commission heard comment at the 5 time the rule was proposed. The Commission -- I believe 6 the Commission did receive a comment during the public 7 comment period. 8 If you choose to allow comment today, then 9 the staff will need to, consistent with the requirements 10 of the Administrative Procedure Act, will need to 11 summarize that comment. If the agency disagrees with 12 the comment, we'll need to provide its reasons why the 13 agency disagrees. 14 And so the impact would be that the staff 15 would need additional time and then would have to 16 present this rule. It's certainly up to the Commission 17 to decide whether you want to take comment at this time. 18 I believe this rule was published for 19 public comment in March, and so you have 180 days to act 20 on a proposed rulemaking. And if you don't act on it, 21 then it's withdrawn by operation of law. And I think 22 that clock would run in September, if I've counted 23 correctly. 24 So it's up to the Commission to decide 25 whether you want to take comment. If you do, if the 25 1 comment is -- and I'll add this part, because I believe 2 Ms. Bresnen is the one who provided that. If the 3 comment is beyond that comment that was previously 4 heard, then we would need to take it back and do some 5 work on the rule. 6 CHAIRMAN WILLIAMSON: Okay. So the 7 question then is, will the comment that is given go 8 outside the scope of what has already been given. 9 Correct? 10 MS. KIPLIN: Correct. If it would go 11 beyond the comment that was already provided. If the 12 comment is the same -- and we've had that situation 13 occur previously -- then it's already been summarized. 14 We don't need to summarize the same comment twice. 15 CHAIRMAN WILLIAMSON: Okay. 16 MS. JOSEPH: I don't believe Mr. Bresnen 17 previously commented on this rule. 18 MR. BRESNEN: The organization I represent 19 did. 20 MS. JOSEPH: All right. Pardon me. 21 Mr. Fenoglio represented him, his organization. 22 Mr. Bresnen himself did not appear, but Mr. Fenoglio 23 appeared on his behalf and his organization. 24 Thank you. 25 MS. KIPLIN: And I think that's fine. 26 1 It's the association -- regardless of who the 2 representative is, it's the association that we will put 3 down as the commenter. Certainly there will be a live 4 person, but it's on behalf of the particular entity. 5 CHAIRMAN WILLIAMSON: I guess the question 6 then is, Mr. Bresnen, does your comment go beyond the 7 scope of what has already been said regarding your 8 organization? 9 MR. BRESNEN: No, Madam Chairman. 10 CHAIRMAN WILLIAMSON: All right. Then -- 11 COMMISSIONER SCHENCK: So it's 12 duplicative, then. 13 MR. BRESNEN: I would think it might be 14 explanatory, and it certainly would disagree with the 15 staff's recommendation, and I would ask you to take a 16 different approach. The agenda item is about amendments 17 to this particular rule. The comments that I would make 18 are within the comment that was made on behalf of our 19 association, and I would attempt to persuade you to take 20 a different approach than simply dismissing that. 21 MS. KIPLIN: And the only thing that I 22 would offer is, in a conversation that Mr. Bresnen and I 23 had, I thought -- or at least I understood that he was 24 going to propose additional language by way of an 25 amendment. And if that's the case -- and I told him 27 1 that before we began the Commission meeting -- that in 2 my opinion, that was new comment and we would have to at 3 that point respond to that suggestion. 4 It's up to the Commission whether you want 5 to take the comment or not. The comment period is over. 6 If you don't want to, you're not required to. 7 COMMISSIONER SCHENCK: Kim, is there a 8 requirement that -- I don't remember the APA 9 requirement. But would you say we have to respond 10 orally to his comment or does the Commission need to 11 have it in a written record? 12 MS. KIPLIN: No, I think it would need to 13 be part of the written order that's adopting the rule, 14 if you're planning on proceeding to adopt the rule. 15 COMMISSIONER SCHENCK: But we don't have 16 to adopt the rule today? 17 MS. KIPLIN: Logistically I think we would 18 need to go back and do work on it. Now, having said 19 that -- and I said this previously -- I believe that you 20 are planning on having a Commission meeting in August, 21 and this rulemaking would not be withdraw by operation 22 of law until September. 23 So if the Commission chose to, the 24 Commission could take this comment. I just want to 25 preface it by saying the comment period is over. If you 28 1 do, then depending on -- well, if it's what I think it 2 is, which is a proposed amendment, my position is that 3 it's new comment and we would need to go ahead and 4 summarize that comment anyway. 5 CHAIRMAN WILLIAMSON: In simple terms from 6 a clock perspective, what does that mean? 7 MS. KIPLIN: From a clock perspective, if 8 you want to take the comment, you can, and I don't think 9 it would harm your rulemaking. And I think you would 10 have the opportunity to take this rule up at a 11 subsequent Commission meeting, particularly the one in 12 August. 13 The impact is, if you take new comment, 14 you know, then what's the point of having a comment 15 period if you continue to receive comment? But that's 16 not a legal issue. That's within the discretion of the 17 Commission if you want to do that. 18 CHAIRMAN WILLIAMSON: All right. So, 19 fellow Commissioners, do you want to hear additional 20 comment? 21 COMMISSIONER SCHENCK: I don't think it's 22 worth getting the rule off track. If he wants to 23 propose a new rule, we can consider a new rule at any 24 future meeting, or amendments to the existing, for the 25 rule that we adopt. 29 1 MS. KIPLIN: Well, I think that's correct. 2 If the Commission decided to adopt the rule, we would 3 file that with the Register. There's an effective 4 period of 60 days, but that certainly doesn't preclude 5 somebody, if they want to file a petition to the 6 rulemaking. That begins a new clock. Then you have 60 7 days to act on that petition. 8 CHAIRMAN WILLIAMSON: But we could leave 9 the rule as it is. And if we don't act on it this time, 10 we could act on it in August if we decided not to change 11 anything. Is that correct? 12 MS. KIPLIN: That's correct. 13 CHAIRMAN WILLIAMSON: All right. 14 Commissioner Krause, do you want to listen, to comment 15 or not? 16 COMMISSIONER KRAUSE: I'm ambivalent. I'm 17 not taking a big stand on that one way or the other. 18 COMMISSIONER SCHENCK: Well, it's my 19 instinct to want to hear what people have to say and 20 give them a fair chance to say it. But I'm concerned 21 that -- I don't want to put off a rulemaking until 22 August, for a number of reasons I don't want to get 23 into. But my preference would be not to get the 24 rulemaking off track. 25 COMMISSIONER KRAUSE: May I make a 30 1 suggestion? 2 CHAIRMAN WILLIAMSON: You prefer us to not 3 hear comment and go ahead and vote? 4 COMMISSIONER SCHENCK: If that's what we 5 have to do to vote, then yes. 6 CHAIRMAN WILLIAMSON: Depending on what 7 Mr. Bresnen says, that may or may not be the case. 8 MS. KIPLIN: You don't have to vote 9 whether you want to take the comment or not. You do 10 need to take action on the rule if you choose to. If 11 you don't, you don't have to. 12 COMMISSIONER SCHENCK: But if we hear 13 comment, you're saying we can't take action on the rule? 14 MS. KIPLIN: I think it would be difficult 15 for the staff to summarize that comment and then bring 16 it back to the Commission in the same Commission 17 meeting. Now, we've done some wordsmithing in the past 18 and have done that, but I think -- I wouldn't want to 19 leave the Commission with the expectation that that 20 could occur. 21 MR. BRESNEN: Madam Chair, I'll withdraw 22 my request to speak on this matter and address you at 23 the public comment period instead. Okay? Thank you 24 very much. 25 CHAIRMAN WILLIAMSON: Thank you. 31 1 All right. Then we will go on with the 2 agenda item, then. 3 COMMISSIONER SCHENCK: No. Wait a minute. 4 CHAIRMAN WILLIAMSON: Oh, no. I guess 5 we're ready for a vote. 6 MS. JOSEPH: Yes. The staff 7 recommendation is that you adopt -- 8 COMMISSIONER SCHENCK: I agree with staff, 9 and I move that we adopt the new rule. 10 COMMISSION KRAUSE: Second. 11 CHAIRMAN WILLIAMSON: All in favor? 12 COMMISSIONER SCHENCK: Aye. 13 CHAIRMAN WILLIAMSON: Aye. 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Motion passes 3-0. 16 MS. KIPLIN: And, Commissioners, I have an 17 order adopting this rule. 18 CHAIRMAN WILLIAMSON: Thank you, Sandy. 19 AGENDA ITEM NO. XI 20 CHAIRMAN WILLIAMSON: Let's go on to Item 21 XI, report by the Charitable Bingo Operations Director 22 and the activities of that department, including 23 updates, on House Bill 1474 and any other business that 24 the Bingo may have pending. 25 Phil, this is yours. 32 1 MR. SANDERSON: Good morning, 2 Commissioners. First off, I would like to recognize in 3 the audience today, we have our field staff, the bingo 4 auditors from Dallas, Houston, San Antonio and Odessa, 5 as well as the auditors here in Austin, attending a week 6 long training conference. They're working on developing 7 a Bingo Audit Methodology and Standards Manual and 8 working on new procedures for an audit. So I would like 9 for them to stand up so they can be recognized. 10 CHAIRMAN WILLIAMSON: Wow! Nice crowd. 11 Thank y'all for being here and participating briefly in 12 this meeting. And it's good to see y'all. 13 COMMISSIONER SCHENCK: Thanks for your 14 work. 15 CHAIRMAN WILLIAMSON: Yes. Thank you very 16 much. 17 MR. SANDERSON: And then other than that, 18 my report is in your notebook. And I will be glad to 19 answers any questions you may have. 20 COMMISSIONER SCHENCK: Fine report. 21 CHAIRMAN WILLIAMSON: Commissioners, do 22 you have any questions -- 23 COMMISSIONER SCHENCK: I do not, no. 24 CHAIRMAN WILLIAMSON: -- or comments? 25 CHAIRMAN WILLIAMSON: All right. Thank 33 1 y'all. We'll give y'all a minute to get back to your 2 real business. And we appreciate what you do for us. 3 (Brief pause) 4 AGENDA ITEM NO. XII 5 CHAIRMAN WILLIAMSON: We're on to Item 6 XII, report, discussion and action on lottery sales, 7 revenue, game performance, new games. 8 Kathy and Robert, this is your item, 9 please. 10 MS. PYKA: Good morning, Commissioners. 11 My name is Kathy Pyka, Controller for the Commission. 12 With me to my right is our Commission's Product Manager, 13 Robert Tirloni. 14 Our first chart that we have for you this 15 morning reflects comparative sales through the week 16 ending June 5, 2010. Total Fiscal Year 2010 sales 17 through this 40-week period are $2.91 billion, an 18 increase of $77.6 million compared to the $2.83 billion 19 in sales for the same period last fiscal year. 20 Our Fiscal Year 2010 instant ticket sales 21 reflected on the second blue bar are at $2.14 billion, a 22 $3.09 million decrease compared to the figure for last 23 fiscal year. And our on-line sales reflected on the 24 second red bar are at $769.1 million, an $80.7 million 25 gain over last fiscal year. 34 1 Our next slide, Commissioners, reflects 2 the cumulative average daily sales for Fiscal Years 3 2008, 2009 and 2010. As noted, the Fiscal Year 2010 4 sales continue to exceed our previous averages. Through 5 the 40th week of the fiscal year, the average for '10 is 6 $10.7 million, reflecting an increase of 4.8 percent 7 over Fiscal Year 2008 sales and an increase of 5 percent 8 over Fiscal Year 2009 sales. 9 As noted, the jackpot games in a white 10 font are at $1.8 million, which is about a half million 11 dollar increase over the previous fiscal years. And you 12 can see that that gain is attributed to the Lotto Texas 13 on-line jackpot game, as well as Powerball. Our daily 14 games reflected in the green font are at $1.1 million, 15 just below the prior two fiscal years. And you can see 16 that the Daily 4 game is running ahead of the two prior 17 fiscal years. And then again, our instant games are at 18 $7.7 million just between the two prior fiscal years. 19 Robert will now discuss each game with 20 actual sales for the fiscal years. 21 MR. TIRLONI: Good morning, Commissioners. 22 For the record, my name is Robert Tirloni. I'm the 23 Products Manager for the Commission. 24 This next slide is the fiscal year to date 25 sales comparison, comparing Fiscal 2010 to Fiscal 2009. 35 1 The slide is laid out in a similar fashion to the 2 previous slide. At the top we have our jackpot games. 3 And the jackpot games, we are realizing a $94 million 4 gain this fiscal over last fiscal. Again, that's being 5 driven by Lotto Texas and Powerball sales. 6 The middle of the slide in green is the 7 daily games. Those games are experiencing decline, 8 except for Daily 4, which is up about $5 million this 9 year. Overall, our on-line games are up, just under 10 $81 million. And our instant games are down slightly. 11 Through the week ending June 5th, they're town 12 $3 million. This decline is attributed to the fact that 13 we are competing with the spotlight game which started 14 at this time last year and gave us some very, very 15 strong sales weeks. Overall, as a total, our sales are 16 up just under $78 million for the fiscal year. 17 And that concludes the sales report, but 18 we're happy to answer any questions that you might have. 19 CHAIRMAN WILLIAMSON: Commissioners, do 20 you have any questions? 21 COMMISSIONER SCHENCK: It's very good 22 report. Every time I look at these numbers, Gary, I 23 keep thinking of where we're going to final the 24 Powerball cannibalization, and so far it's a net 25 positive. 36 1 MR. GRIEF: So far so good. 2 COMMISSIONER SCHENCK: Very good. 3 MS. PYKA: Thank you, Commissioners. 4 AGENDA ITEM NO. XIII 5 CHAIRMAN WILLIAMSON: Thank you. Item 6 XIII, transfers to the state. 7 Kathy. 8 MS. PYKA: Again, Kathy Pyka, Controller 9 for the Commission. 10 The first report in your notebook, 11 Commissioners, reflects transfers and allocations to the 12 Foundation School Fund, the Texas Veterans Commission 13 and the allocation of unclaimed prizes for the period 14 ending April 30th of 2010. Our total cash transfers 15 amounted to $642.2 million for the first eight months of 16 the fiscal year. 17 The next page in your notebook includes 18 the detailed information for the transfers. Of the 19 $642.2 million transfer to the state, $699 million was 20 transferred to the Foundation School Fund and 21 $4.7 million was transferred to the Texas Veterans 22 Commission, with a balance of $52.2 million transferred 23 from unclaimed lottery prizes. This represents a 2.23 24 percent increase, $14 million of the amount transferred 25 to the Foundation School Fund. 37 1 And, Commissioner, at this point we have 2 now transferred a cumulative $12.3 billion to the 3 Foundation School Fund. 4 I would be happy to answer any questions. 5 CHAIRMAN WILLIAMSON: Commissioners, do 6 you have any questions? 7 Thank you. 8 AGENDA ITEM NO. XIV 9 CHAIRMAN WILLIAMSON: Let's go to on XIV, 10 please. 11 MS. PYKA: Commissioners, Tab XIV is the 12 Fiscal Year 2011 operating budget. We've placed an 13 extra copy of that budget before you this morning. 14 This morning I'm seeking -- or we're 15 seeking approval of the Fiscal Year 2011 operating 16 budget in the amount of $223,989,491 and 330.75 17 full-time equivalent positions. The budget was 18 developed in accordance with the appropriation granted 19 in Senate Bill 1, adjusted for the rider and third-party 20 reimbursement provisions. 21 The initial draft of the budget was 22 developed by the Office of the Controller and delivered 23 to division management for their direct input, and the 24 final draft was developed after receiving their 25 feedback. 38 1 I would be happy to answer any questions 2 that you might have. 3 CHAIRMAN WILLIAMSON: In looking at this, 4 our FTEs pretty much stay -- are stable, aren't they? 5 We don't increase or -- 6 MS. PYKA: Exactly. We've actually 7 reduced the budget for 11 by one and a half FTEs as 8 compared to the current budget that we're in today. 9 CHAIRMAN WILLIAMSON: All right. 10 Commissioners, do you have any questions, comments? 11 MS. PYKA: And, Commissioners, this is an 12 action item. I am securing your approval on it. 13 CHAIRMAN WILLIAMSON: Is there a motion to 14 approve this budget? 15 COMMISSIONER SCHENCK: I move we approve 16 the budget. 17 COMMISSIONER KRAUSE: Second. 18 CHAIRMAN WILLIAMSON: All in favor? 19 COMMISSIONER SCHENCK: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Motion passes 3-0. 23 AGENDA ITEM NO. XV 24 CHAIRMAN WILLIAMSON: Let's go on to Item 25 XV -- Kathy, this is still you -- the legislative 39 1 appropriations request for 2012 and 2013. 2 MS. PYKA: Thank you. For the record, my 3 name is Kathy Pyka, Controller for the Lottery 4 Commission. 5 Commissioners, on May the 27th the 6 Commission was notified by state leadership that the 7 detailed instructions for the Fiscal Years '12 and '13 8 legislative appropriation request have been finalized. 9 The guidelines state that agencies' baseline requests 10 for the next biennium may not exceed the amounts 11 expended in Fiscal Years 2010 and budgeted in Fiscal 12 Year 2011, adjusted to reflect the full 5 percent budget 13 reduction that was required in this biennium. 14 We are also required to submit a 15 supplemental schedule in the LAR detailing how we would 16 reduce our baseline request by an additional 10 percent 17 in general revenue-related funding. The letter from 18 leadership does note specific exceptions to the baseline 19 request and notes that any requests above the baseline 20 amount may be submitted as an exceptional item. 21 Appropriations from our Commission's 22 general revenue dedicated lottery account continue to be 23 excluded from the reduction plan; however, we are going 24 to have to submit reductions for our bingo program 25 funded by general revenue funds. We'll be required to 40 1 submit a 5 percent reduction of $289,000, or $798,000 2 out of our biennial admin appropriation. 3 And then the 10 percent reduction 4 requirement will be an additional $550,616 in 5 administrative appropriation, as well as $2,527,100 in 6 bingo prize fee allocation funds. Those last two 7 amounts are both requirements on the 10 percent-based 8 reduction schedule for '12 and '13. 9 Commissioners, this concludes my 10 presentation. We will submit that with our LAR that 11 will be due August the 30th of this year. And I would 12 be happy to answer any questions. 13 CHAIRMAN WILLIAMSON: Commissioners, do 14 you have any questions? 15 COMMISSIONER SCHENCK: I do not, though 16 I -- well, I'm concerned that we do everything possible 17 to promote a budget and funding at a level where we can 18 achieve the minimum standards necessary to police the 19 activities we're responsible for policing and maintain 20 the high standards that are expected of this agency. 21 MS. PYKA: Certainly. 22 COMMISSIONER SCHENCK: It's critical. 23 MR. GRIEF: Commissioner, I can assure you 24 Phil is not alone in dealing with this. We have the 25 full resources of the agency working closely with him, 41 1 including myself, and we are working hard to put 2 together a plan that will do just exactly what you said, 3 Commissioner Schenck. 4 COMMISSIONER SCHENCK: Thank you, Gary. 5 COMMISSIONER KRAUSE: No questions. 6 MS. PYKA: Thank you, Commissioners. 7 CHAIRMAN WILLIAMSON: And this will be an 8 action item in August. Correct? 9 MS. PYKA: In August when we submit the 10 legislative appropriation request for your 11 consideration. It will include the base document as 12 well as any exceptional items that we have, including 13 that 10 percent base reduction schedule. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 AGENDA ITEM NO. XVI 17 CHAIRMAN WILLIAMSON: Let's go on to item 18 XVI, the agency strategic plan. Mr. Fernandez. 19 MR. FERNANDEZ: Good morning, 20 Commissioners, Madam Chairman. This morning we're going 21 to discuss or bring to you the agency's strategic plan. 22 And the person that was the point, a project leader on 23 this, was Robert Elrod. And I know he has been in front 24 of you previously on this, and so I'm going to ask 25 Mr. Elrod to -- 42 1 MR. ELROD: Good morning, Commissioners. 2 I'm Robert Elrod from the Administration Division. 3 As you know, the agency strategic plan for 4 Fiscal Years 2011 through 2015 is due to the Governor's 5 Office and the LBB on July 2nd. We send you drafts of 6 this report to review a couple of weeks ago, and I think 7 we have copies for you today if you need them. 8 I'll be happy to answer any questions. 9 Otherwise, we're going to ask for your approval of the 10 report today. 11 CHAIRMAN WILLIAMSON: Commissioners, do 12 you have any questions? 13 COMMISSIONER KRAUSE: No, ma'am. 14 CHAIRMAN WILLIAMSON: Is there a motion to 15 approve and adopt this plan? 16 COMMISSIONER SCHENCK: I so move. 17 CHAIRMAN WILLIAMSON: Second? 18 COMMISSIONER KRAUSE: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER SCHENCK: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Vote is 3-0. 24 Thank you. 25 COMMISSIONER KRAUSE: Thank you very much. 43 1 CHAIRMAN WILLIAMSON: Thank you for your 2 hard work on this. 3 COMMISSIONER SCHENCK: Thanks, Robert. 4 AGENDA ITEM NO. XVII 5 CHAIRMAN WILLIAMSON: Item No. XVII, 6 report, discussion on the lottery operations and 7 services procurement. 8 MR. FERNANDEZ: Again, good morning. For 9 the record, my name is Mike Fernandez. I'm the Director 10 of Administration. 11 And, as you know, this is our standard 12 posting for the lottery operations and services 13 procurement. I really don't have any updates. And, as 14 you know, the response to bid will be due on the 29th 15 and 30th, respectively. And the staff is anxious and 16 excited about receiving those bids. So I will keep you 17 posted as we move forward. 18 CHAIRMAN WILLIAMSON: Great! 19 MR. FERNANDEZ: That's all I have. 20 CHAIRMAN WILLIAMSON: We're looking to 21 have this milestone passed. So that's great. Thank 22 you. 23 AGENDA ITEM NO. XVIII 24 CHAIRMAN WILLIAMSON: All right. On to 25 Item XVIII, discussion, reports on extension of agency's 44 1 contract on random animated digital draw system and any 2 other items. 3 Mike Fernandez. 4 MR. FERNANDEZ: Yes, ma'am. Again, my 5 name is Mike Fernandez, the Administration Director. 6 And this is a briefing item to advise the Commission of 7 staff's intent to amend two contracts. The first, as 8 the Chair alluded to, is Scientific Games, to extend the 9 random animated digital draw system, so we propose to go 10 forward with that extension. 11 And then secondly is a contract amendment 12 with Meyertons, Hood, Kivlin, Kowert & Goetzel, outside 13 counsel. And although this contract expires 8/31 of 14 this year, we intend to raise the cap on that contract, 15 and so we will be moving forward with that. 16 CHAIRMAN WILLIAMSON: Any questions, 17 gentlemen? 18 COMMISSIONER SCHENCK: Yes, Mike. Are we 19 looking hard at some of these contractors to determine 20 whether it's essential that they be done outside the 21 agency, given that we have some serious budget 22 constraints looking forward? 23 MR. FERNANDEZ: Commissioner, I'm going to 24 punt that question to Ms. Kiplin. 25 MS. KIPLIN: Well, as it relates to the 45 1 outside counsel contract for intellectual property 2 matters, we do not have that level of expertise within 3 the agency nor does the Office of the Attorney General. 4 And this is a contract that is overseen by the Office of 5 the Attorney General. And each year that we propose to 6 move forward on procuring those services, the first 7 question that's always put to the AG's office is, "Do 8 you have that expertise in-house?" 9 COMMISSIONER SCHENCK: How much is this 10 contract per year? Can you remind me? 11 MS. KIPLIN: I want to say for the -- 12 MR. FERNANDEZ: It's approximately 13 $150,000, but it's a billable -- it's $150,000, is 14 what's the cap on the contract -- or $120,000. We're 15 going to raise the cap to 150. 16 COMMISSIONER SCHENCK: Okay. 17 MR. FERNANDEZ: It's a billable hour 18 contract. 19 COMMISSIONER SCHENCK: I understand. 20 Kim, you don't charge by the hour 21 upstairs, do you? 22 MS. KIPLIN: No. 23 COMMISSIONER SCHENCK: We don't pay you by 24 the hour, or your staff? 25 MS. KIPLIN: No. 46 1 COMMISSIONER SCHENCK: Okay. There's a 2 world full of unemployed attorneys out there right now, 3 I can assure you. I don't know how many of them have 4 intellectual property expertise. But in the three years 5 I've -- yes, almost four years I've been here, I think 6 we've had one intellectual property case that's been 7 brought to me for actual affirmative action on our part. 8 I'm not saying I'm against outside 9 counsel. In fact, let me be very clear for the record 10 I'm not against outside counsel. But we have limited 11 resources in the agency. And to the extent we can look 12 at any contracts that we're doing now and potentially 13 use our existing people to do them or find somebody 14 else. 15 If you're talking about $150,000 a year, I 16 don't imagine an FTE in your shop, Kim, is typically 17 $150,000. I don't know what kind of overhead we 18 calculate on top of their salary, but there may be some 19 room there. And I'm not asking -- I'm not directing you 20 to do anything. I'm just suggesting that you should 21 give some additional thought to some of these contracts 22 that we're pushing out. If there are people who are 23 here that could do them for less than we're paying 24 outside, this is a good time to be thinking about doing 25 that. 47 1 MR. FERNANDEZ: Well, I would add, 2 Commissioner, that we review each and every contract 3 thoroughly. Not only do our contract staff do that, but 4 depending on the line of business that that impacts, we 5 do work very closely with -- 6 COMMISSIONER SCHENCK: I know you do, 7 Mike. I'm just suggesting that the bar may have just 8 moved. 9 MR. FERNANDEZ: I understand. Very good. 10 CHAIRMAN WILLIAMSON: But if it's billable 11 hours, then we're only paying for what they're actually 12 doing. 13 MR. FERNANDEZ: It's the hourly rate. 14 CHAIRMAN WILLIAMSON: So, really, the cap 15 is, we're not going to pay them any more than 120. And 16 if they work for five hours, then we're just paying 17 their rate at five hours. 18 MR. FERNANDEZ: We're paying an hourly 19 rate. 20 COMMISSIONER SCHENCK: We don't pay them a 21 retainer? 22 MS. KIPLIN: No, we do not. We pay them 23 per billable hour. So we control the faucet, if you 24 will, on that. It tends to fluctuate during a year, 25 based on the need of the agency. This year we've had 48 1 some patent issues that we've had to ask for review, and 2 we've had the Trademark Monitoring Watch that has caused 3 us to pursue proceedings in an arbitration matter 4 through the ICAN, which is the International Corporation 5 of Assigned and Assumed Names and numbers. So it's an 6 ebb and a flow. But as a trademark owner, we have a 7 responsibility to monitor those marks. We certainly 8 will be mindful of the comments, Commissioner Schenck, 9 that you've made. 10 COMMISSIONER SCHENCK: Thank you. 11 MS. KIPLIN: And we'll -- 12 CHAIRMAN WILLIAMSON: So we're not 13 actually spending 150 or 120. It might be $10,000. 14 Right? 15 MR. FERNANDEZ: Yes, ma'am. It just 16 depends on the legal requirements of any given year. 17 MS. KIPLIN: But I will say -- I want to 18 be clear on the record -- the reason that we're 19 increasing the cap this year from $120,000 to $150,000 20 is because of the need that we are seeing from this 21 point to the end of the fiscal year. And that's not to 22 say the next fiscal year that it will be that amount. 23 This has been a bit unusual, because of some matters, 24 that we've had to obtain resources from the outside 25 counsel. 49 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 Commissioner, do you have anything? 4 COMMISSIONER KRAUSE: No, ma'am. 5 AGENDA ITEM NO. XIX 6 CHAIRMAN WILLIAMSON: Item XIX. Mike, the 7 next one is yours, any other agency contracts. 8 MR. FERNANDEZ: And then, lastly, this is 9 our standard quarterly report for the agency firm 10 contracts. 11 CHAIRMAN WILLIAMSON: Any other questions? 12 All right. Thank you. 13 AGENDA ITEM NO. XX 14 CHAIRMAN WILLIAMSON: Let's go on to Item 15 XX, report, discussion and/or action on the 81st and/or 16 82nd Legislature. 17 Nelda, this is your item. 18 MS. TREVINO: Good morning, Commissioners. 19 For the record, I'm Nelda Trevino, the Director of 20 Governmental Affairs. 21 I do not have a report to provide today, 22 but I'll be glad to answer any questions. 23 CHAIRMAN WILLIAMSON: Commissioners, do 24 you have any questions? 25 COMMISSIONER SCHENCK: I do not. 50 1 COMMISSIONER KRAUSE: No, ma'am. 2 CHAIRMAN WILLIAMSON: Thank you. 3 At this time it is 10 till 10:00. Let's 4 take a 10-minute break, and we'll start back up at 5 10 o'clock. 6 (Off the record: 9:10 a.m. to 10:03 a.m.) 7 CHAIRMAN WILLIAMSON: All right. We are 8 back in session. It is three after 10:00. 9 AGENDA ITEM NO. XXII 10 CHAIRMAN WILLIAMSON: Let's go on to the 11 next agenda item which will be now XXII, report on GTECH 12 Corporation. 13 Gary, that's you, please. 14 MR. GRIEF: Other than what's in your 15 notebooks today, I have nothing further to report on 16 that item. 17 CHAIRMAN WILLIAMSON: Any questions? 18 COMMISSIONER KRAUSE: I have got a 19 question. It seems like at the last Commission meeting, 20 Gary, we extended the period of time for I guess 21 response to our RFP. Anything happen in the meantime? 22 I mean, you extended it because there was a request to. 23 MR. GRIEF: A request from Interlott. 24 COMMISSIONER KRAUSE: Okay. Anything 25 happening on that? 51 1 MR. GRIEF: No communication from 2 Interlott since I sent the letter to them notifying them 3 and all the other vendors of the extension. 4 COMMISSIONER KRAUSE: Okay. Any informal 5 intelligence you've gathered around that? 6 (Laughter) 7 COMMISSION KRAUSE: If you want to answer 8 that? 9 MR. GRIEF: My sense is, and my hope 10 also -- I'll add to that. In addition to my sense is 11 that we receive three bids to the lottery operator RFP. 12 And, of course, I don't think there is any secret. 13 Those vendors are GTECH, Scientific Games and Interlott. 14 I will be very disappointed and a little bit surprised 15 if we don't receive three bids. 16 COMMISSIONER KRAUSE: That's all I wanted 17 to know. 18 CHAIRMAN WILLIAMSON: All right. 19 MS. KIPLIN: So that discussion is 20 probably more appropriate under the report, possible 21 discussion and/or action on the lottery operations and 22 services procurement. 23 CHAIRMAN WILLIAMSON: Right. I was going 24 to kind of slide into this next one. It's Gary's as 25 well, so we'll just go into that, Kim, since you 52 1 introduced that for us. Thank you. 2 AGENDA ITEM NO. XXIII 3 MR. GRIEF: Commissioners, I want to let 4 you know that next week I'll be attending the NASPL 2010 5 spring directors meeting in Coeur d'Alene, Idaho. Our 6 agenda will include NASPL general business. There will 7 be separate meetings held of both the Mega Millions and 8 the Powerball groups. 9 We'll have some in-depth group meetings 10 regarding the success of the cross-sell initiative. 11 Many of our vendors will be there, and there will be 12 some dialogue taking place with vendors. 13 And then to end the conference, there will 14 be a meeting of the Cross-sell Committee, which is 15 composed of eight members from the Powerball group and 16 four members from Mega Millions, of which I'm one of 17 those. And we'll be discussing what, if any, our next 18 steps will be towards the development of a national 19 game. And I'll keep you apprised of the success of 20 those meetings. 21 And other than that, I have nothing 22 further to add, other than what's in your notebook 23 today. 24 CHAIRMAN WILLIAMSON: All right. 25 Commissioners, do you have any questions? 53 1 COMMISSIONER SCHENCK: How do you get to 2 Coeur d'Alene, Idaho? 3 MR. GRIEF: I'm not sure yet. I'll have 4 to find out. 5 COMMISSIONER SCHENCK: I bet you're 6 renting a car or driving. 7 (Laughter) 8 CHAIRMAN WILLIAMSON: I think Mary Beth 9 would have the answer to that one. 10 COMMISSIONER SCHENCK: Yes. But it isn't 11 American Airlines. 12 AGENDA ITEM NO. XXIV 13 CHAIRMAN WILLIAMSON: Okay. Let's go on 14 to XXIV, consideration on the status and possible entry 15 of orders in cases posted on the agenda. 16 Kim, your item, please. 17 MS. KIPLIN: Commissioners, I would like 18 to take all items. Those would be Letters A through E. 19 These are all lottery revocation cases. In each of 20 these cases, it's because the retailer did not have 21 sufficient funds available at the time that the lottery 22 swept its account. 23 The staff recommended revocation of each 24 of the licenses. The Administrative Law Judge issued a 25 proposal for a decision upholding that recommendation. 54 1 And the staff at this point recommends that you adopt an 2 order in each of these cases revoking the license. 3 CHAIRMAN WILLIAMSON: Commissioners, any 4 questions? 5 COMMISSIONER SCHENCK: No. I'll note for 6 Nelda's benefit that this is the time in the meeting 7 every month when I say I want someone to promote 8 legislation -- which probably should be me -- to not 9 allow anyone who is in arrears to the state to sell 10 liquor and hold a liquor licenses or tobacco licenses. 11 These people have stolen -- well, are taking money from 12 the school children of Texas. They're not making good 13 on their obligations and that they're still operating 14 and making money under state licenses, which I don't 15 think they should. 16 CHAIRMAN WILLIAMSON: All right. 17 COMMISSIONER SCHENCK: With that -- 18 CHAIRMAN WILLIAMSON: With that comment, 19 is there a motion? 20 COMMISSIONER SCHENCK: I move that we take 21 all their licenses -- I move that we adopt staff's 22 recommendations with respect to Items A through E. 23 COMMISSIONER KRAUSE: Second. 24 CHAIRMAN WILLIAMSON: You're seconding? 25 COMMISSIONER KRAUSE: Second. 55 1 CHAIRMAN WILLIAMSON: All in favor? 2 COMMISSIONER SCHENCK: Aye. 3 CHAIRMAN WILLIAMSON: Aye. 4 COMMISSIONER KRAUSE: Aye. 5 CHAIRMAN WILLIAMSON: All motions pass 3 6 to zero. 7 MS. KIPLIN: I have orders in each of 8 these cases. 9 CHAIRMAN WILLIAMSON: All right. Thank 10 you. 11 AGENDA ITEM NO. XXV 12 CHAIRMAN WILLIAMSON: And next item, 13 public comment. And I have Mr. Bresnen. 14 COMMISSIONER SCHENCK: Kim, before we hear 15 public comment, we need to be careful not to respond to 16 whatever public comment we get, for fear of violating 17 our open meetings requirements? 18 MS. KIPLIN: That's correct. Public 19 comment is for you to listen, obviously, to the comment. 20 The Commission's deliberations are restricted. You can 21 respond to a matter of policy -- that's an inquiry -- if 22 you choose to. You can also deliberate the comment to 23 decide whether you want to add that item, the subject of 24 the comment, to a future Commission meeting. And that's 25 the extent of your deliberations. 56 1 COMMISSIONER SCHENCK: Okay. 2 CHAIRMAN WILLIAMSON: All right. Thank 3 you. 4 Mr. Bresnen. 5 MR. BRESNEN: Thank you, Madam Chairman, 6 members. My name is Steve Bresnen. I'm here on behalf 7 of the Bingo Interest Group, and I will be brief. I 8 have basically two things which I'm going to make 9 related, although it's a little bit of a stretch. 10 One is the rule that you adopted earlier 11 on the advisory opinions. I would like to just toss 12 this out here as an ongoing working item. As you'll 13 note, I signed up for Items I -- or the first nine rules 14 or however many there were there, in favor of them and 15 your adoption of them. That's because we've got a great 16 working relationship with the agency and the staff. And 17 everybody here, I think, respects, likes each other, and 18 we made considerable progress. We don't like everything 19 about those rules, but they're workable and we can live 20 with the difference. 21 We can actually live with the difference 22 on the advisory opinion rule because, as Mr. Fenoglio 23 said once or twice before on this, the easy thing to do 24 to ask an advisory opinion, especially when you 25 represent 900 and some-odd entities like he does, is 57 1 just put everybody's name and address on it and ask it 2 in their name. 3 So my first suggestion would be to the 4 staff, that you figure out how you're going to answer 5 that without doing a separate mailing for each one 6 because, as Commissioner Schenck has pointed out, your 7 budget is limited. 8 Secondly, in the rule -- and I don't know 9 if this is comprehended in the comment about all 10 licensees -- our position was that all licensees ought 11 to be able to rely on an advisory opinion if the facts 12 were substantially similar as stated in the advisory 13 opinion. 14 The legal analysis attached to the bill or 15 in response to the comment was, "Well, the Legislature 16 didn't include that language in the statute." And I 17 think that goes to whether the Legislature handcuffed 18 you by not including that in the statute or left you 19 discretion in that matter. And our position would be 20 that you had the discretion to treat it that way 21 because, as a practical matter, if you don't, in all 22 likelihood your decisions are going to be considered 23 arbitrary and capricious by a state administrative law 24 judge, but the licensee and the agency would have 25 expended a great deal of resources to get that far to 58 1 begin with. 2 Secondly, on the -- I wrote over my page 3 number here. Page 5 -- and it's Subsection (e)(2) -- it 4 says that you're going to give a written response. If 5 there has been a question on the issue before, you're 6 going to give a written response and cite the previous 7 advisory opinion. 8 What not's clear to me from the rule is 9 whether that written response constitutes an advisory 10 opinion. So again, from the staff, I would request, if 11 we need to go back to rulemaking, we'll request a 12 rulemaking, but it may be as simple as putting on the 13 top of that, quote, written responses that this is an 14 advisory opinion so the other provision of the rule 15 could be invoked. 16 What I was going to recommend, which I 17 think is within the comment that we made, and I think we 18 may have a legal difference of opinion about what 19 constitutes a new comment or not. That will be the 20 first time we've had a difference of opinion about a 21 legal matter -- but I was going to say that you could 22 add to the section about reliance, that an agency will 23 take into -- the agency will take into consideration 24 prior advisory opinions before taking action on any 25 matter involving a fact situation that's substantially 59 1 similar to the fact situation stated in a prior advisory 2 opinion. 3 I think had one of y'all come up with 4 that, it would have been clearly within your purview to 5 have amended this rule at this point in the process. 6 Yes, you might have had to wait till August. I don't 7 know if that's a substantial enough deviation from the 8 published version to require you to go back and 9 republish. But who cares? The agency is receiving 10 advisory opinion requests now; you're responding to them 11 now. So nobody would have been -- unlike, say, an 12 accounting rule or a reporting rule, nobody would have 13 been discommoded by treating that differently. 14 And here is my second subject. And I 15 swear to God I'll make it brief. 16 We worked for well over three years on 17 this legislation with this agency, and we did it with 18 our shirt sleeves rolled up and pencils and pads, and it 19 was an extremely cooperative effort. I'll take personal 20 responsibility for not placing in this statute that 21 anybody could rely on this opinion, because I had a 22 major hand in drafting a similar statute in 1991 in the 23 state's ethics laws, so that should have been on my 24 mind. And I'll take credit for it, even though I didn't 25 get to vote up in the building with the pink beanie on 60 1 it up there. 2 But if we are going to have to anticipate 3 every possible wrinkle on these things and the agency is 4 not going to fill in those blanks in a practical manner 5 and then take the approach that the Legislature 6 handcuffed them by leaving it out, we're going to have a 7 very difficult time going forward. As I told you the 8 last time I was here, we fully intend to be very active 9 participants, maybe the most active participants in the 10 legislation that's being considered to expand gaming. 11 As a practical matter, bingo people could 12 be left out by one or two words in a sentence in the 13 statute. Bingo people could be allowed in by the 14 language and then pushed out by technical requirements 15 that, as a practical or economic matter, couldn't 16 possibly be done. 17 So we're all going to be sitting -- and 18 y'all are going to be part of that process. I don't 19 know if you've been involved in the past, but I can 20 assure you and your staff will be integral to that 21 process now. And when we're sitting at the table, we 22 have to know that this agency is going to be thinking 23 about this practical implication for us going forward or 24 bingo will be wiped out. We know that from other 25 states. 61 1 So thank you very much for your time and 2 allowing me to participate in public comment. Sorry I 3 slowed you down a little bit earlier. And we'll get 4 with staff and figure out how we might address these 5 issues on the advisory opinion at another date. 6 Thank you. 7 CHAIRMAN WILLIAMSON: Thank you, 8 Mr. Bresnen. 9 MR. BRESNEN: And we really appreciate 10 y'all's service, too. 11 COMMISSIONER SCHENCK: Thank you. 12 CHAIRMAN WILLIAMSON: Thank you. 13 All right. And that was the only public 14 comment we have. 15 AGENDA ITEM NO. XXVI 16 CHAIRMAN WILLIAMSON: So at this time, I 17 move the Texas Lottery Commission go into executive 18 session to deliberate the duties and evaluation of the 19 Executive Director, Internal Audit Director and 20 Charitable Bingo Operations Director and deliberate the 21 duties of the General Counsel and Human Resources 22 Director and to receive any legal advice pending or 23 contemplated. 24 And it is now 10:15 that we go in. 25 COMMISSIONER SCHENCK: I second the 62 1 motion. 2 CHAIRMAN WILLIAMSON: Was there a second? 3 All in favor? 4 COMMISSIONER SCHENCK: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Motion passes 3-0. 8 MS. KIPLIN: I would say that you're going 9 in under Section 551.074 of the Texas Government Code, 10 have to put the statute on there. And then the time is 11 10:16, June 14, 2010. 12 (Recess: 10:16 a.m. to 10:55 a.m.) 13 AGENDA ITEM NO. XXVII 14 CHAIRMAN WILLIAMSON: The Texas Lottery 15 Commission is out of executive session. The time is 16 10:55. 17 There is no action to be taken as a result 18 of the executive session. 19 AGENDA ITEM NO. XXVIII 20 CHAIRMAN WILLIAMSON: And so I believe at 21 this time -- is there a motion to adjourn? 22 COMMISSIONER KRAUSE: Move to adjourn. 23 COMMISSIONER SCHENCK: I second the 24 motion. 25 CHAIRMAN WILLIAMSON: All in favor? 63 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN WILLIAMSON: Aye. 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Vote is 3-0. The 5 meeting is adjourned. 6 (Meeting adjourned: 10:56 a.m.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 64 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified Shorthand 5 Reporter in and for the State of Texas, do hereby 6 certify that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 23rd day of June 2010. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/10 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233 23 24 25