0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 16 TEXAS ADMINISTRATIVE CODE ? 6 ? ?402.202, 402.400, 402.403, ? 7 ?402.404, 402.408 ? 8 9 PUBLIC COMMENT HEARING ON RULEMAKINGS 10 TUESDAY, FEBRUARY 16, 2010 11 BE IT REMEMBERED THAT on Tuesday, the 12 16th day of February 2010, the above-entitled public 13 comment hearing was held from 10:04 a.m. to 10:31 14 a.m., at the Offices of the Texas Lottery Commission, 15 611 East 6th Street, Austin, Texas 78701, before 16 SANDRA JOSEPH, ASSISTANT GENERAL COUNSEL. The 17 following proceedings were reported via machine 18 shorthand by Kim Pence, a Certified Shorthand Reporter 19 of the State of Texas, and the following proceedings 20 were had: 21 22 23 24 25 KENNEDY REPORTING SERVICE, INC. 512.474.2233 0002 1 APPEARANCES 2 3 ASSISTANT GENERAL COUNSEL: Ms. Sandra Joseph 4 5 CHARITABLE BINGO OPERATIONS, TAXPAYER SERVICES MANAGER: 6 Mr. Bruce Miner 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 P R O C E E D I N G S 2 TUESDAY, FEBRUARY 16, 2010 3 (10:04 a.m.) 4 MS. JOSEPH: Good morning. My name is 5 Sandra Joseph, Special Counsel for the Lottery 6 Commission. With me is Bruce Miner, Manager of the 7 Bingo -- Charitable Bingo Operating -- excuse me -- 8 Charitable Bingo Operations Division. 9 We're here today to receive public 10 comments on a number of proposed bingo rules. I'll 11 announce those. They include repeal of 16 TAC 12 Section 402.202, relating to transfer of funds; 13 proposed law of new 16 TAC Section 402.202, relating 14 to transfer of funds; amendments to 16 TAC 15 Section 402.400, relating to general licensing 16 provisions; amendments to 16 TAC Section 402.403, 17 relating to licenses for conduct of bingo occasions 18 and to lease bingo premises; amendments to 16 TAC 19 Section 402.404, relating to license fees; new 16 TAC 20 Section 402.408, relating to designation of members. 21 I have received two witness affirmation 22 forms for those wishing to offer comments. Is there 23 anyone else who wants to offer a witness affirmation 24 form that might want to offer comments? 25 (No response) 0004 1 MS. JOSEPH: I see no one else. 2 Appearing today I have Mr. Steve Bresnen 3 and Mr. Stephen Fenoglio. 4 Mr. Fenoglio, would you like to offer 5 your comments at this time? 6 MR. FENOGLIO: I would. Thank you. For 7 the record, my name is Stephen Fenoglio, and I filed 8 an appearance slip on behalf of the clients I 9 represent. 10 We support, first, the changes to 11 402.202 and 402.400 as we think the staff got it right 12 on target as far as the proposed changes are 13 concerned. 14 On 402.403, the conduct of bingo rule, 15 we particularly like the language the Commission has 16 chosen or the staff rather have chosen in 17 Subparagraphs (a)(3) and (4), and we support the 18 changes. We like the fact that a charity only needs 19 to submit documents under (a)(3) if the Commission is 20 unable to independently verify the licensed authorized 21 organization meets the criteria. And we understand 22 under Subparagraph (4) you're only looking for new 23 either articles -- amendments to articles of 24 incorporation or bylaws and the like. 25 This has been, in past, sometimes 0005 1 difficult once an agency has filed their articles and 2 bylaws repeatedly, the Commission continues to ask for 3 it. So we appreciate the fact the staff has heard 4 those comments. 5 And we like the repeal of Subparagraph 6 (a)(5). Again, once they've met the threshold, unless 7 the Commission has some reason to believe that they 8 don't meet the minimum substantive criteria, they 9 don't have to reinvent the wheel, so to speak. 10 And under Subparagraph (b) concerning 11 the commercial lessor license changes, we also agree 12 with that. 13 We would observe one thing, that within 14 402.403, once the Commission does receive a request 15 for a refund, it seems to us there ought to be a time 16 deadline by which that refund request should be 17 processed, and we would submit perhaps 15 calendar 18 days. 19 Throughout all of the rules, there are 20 different time deadlines. We moved in House Bill 1470 21 for most of -- I believe almost all of the deadlines, 22 instead of calendar days to business days. And so it 23 occurs to us that at some point if a charity asks for 24 a refund, there ought to be a deadline. I have seen 25 in the past -- normally it's prompt, but occasionally 0006 1 paperwork gets misplaced or what have you, and it can 2 take, I think, in the neighborhood of 60 days to 3 receive a refund. 4 Under 402.404, license fees, the only 5 comment that I have -- and it has to do with 6 Subparagraph (e)(1), and concerning, if you will, a 7 burden of proof if the license renewal document -- 8 does not have a postmark or a legible postmark. And 9 this was the -- an issue of some litigation that 10 Mr. Miner was involved with, and that's the concern of 11 my comment, is if a charity has done everything it's 12 supposed to do, including timely submitting, what I 13 would suggest -- and I don't think it's drafted this 14 way, Ms. Joseph, where there's only one hard and fast 15 rule. The agency -- the charity ought to be or the 16 lessor ought to be able to show, if there's a 17 question, whether it was timely renewed. Before you 18 go to a contested case, there ought to be an 19 opportunity to have a dialogue about that. 20 And for that reason, I brought with me a 21 letter that I received from the Commission, and it's 22 arguably something different, but the postmark -- the 23 letter date is February 16, 2007. I received it 24 February 10, 2010. It has to do with an open records 25 issue for a client of mine, K&B. And what happened 0007 1 was, whoever was drafting the letter chose the wrong 2 date, or the computer chose the wrong date, of 3 February 16, 2007. This particular license renewal 4 wasn't filed until '09. And my point on that is when 5 you put in the language, if there is no legible 6 postmark date, you choose, for example, the date of 7 the check that's written. 8 I don't know about you-all, but 9 occasionally when I change over a year from '09 to 10 '10, I'll write a lot of checks, as I did this year, 11 January of '09 instead of January 2010. And just as 12 people -- I mean, all people can make mistakes, and so 13 what I don't -- what I would like not to have occur is 14 the staff looks at this and says, well, the date on 15 the check -- and let's assume someone made the wrong 16 mistake -- or made a mistake -- and instead of writing 17 the correct year wrote a different year. It could be 18 one year ahead or two years ahead or one year or two 19 years behind, and that shouldn't be the end of the 20 story. 21 The thing that concerns me, it says 22 "shall be considered" as opposed to -- my suggestion 23 would be "may be considered." And my point on that is 24 to give both the licensee and the Commission 25 flexibility to work an issue out concerning renewal of 0008 1 a license where there's no legible postmark or 2 occasionally there's just no postmark whatsoever. I 3 mean, I receive letters in my office and at home where 4 there's no postmark, there's no postal meter, and 5 you're not quite certain when the document was sent, 6 if you will. 7 Finally, on 402.408, in Subparagraphs 8 (a)(2) and (b), we think the Commission staff is 9 making it far too cumbersome, and this has to do with 10 changes in House Bill 1474 to Section 2001.411 of the 11 Bingo Enabling Act. And literally the statute says 12 under -- adding new Subparagraph (c)(1) to 2001.411, 13 "an organization, meaning a licensed authorized 14 organization, may designate as members of the 15 organization one or more members -- one or more 16 individuals" -- pardon me -- "who elect to become 17 members," et cetera. 18 What the draft rule is saying is you 19 have to have a vote of the members of the organization 20 before someone who is designated as a bingo worker, if 21 you will, can be considered a bingo worker for 22 purposes of the Commission. 23 I brought with me a copy of The Arc of 24 the Capital Area, and I'd like to introduce that into 25 the record, and specifically it's from their website. 0009 1 I happen to be a member of The Arc of the Capital Area 2 and been a member for about 20 something years. And 3 literally the last page of that is -- the first page 4 is where you're on the website about us, and the last 5 page is do you want to become a member. And simply 6 put, in order to become a member of The Arc of the 7 Capital Area are hundreds of other licensed authorized 8 organizations. You put your information down on a 9 sheet of paper, as indicated on the last page of this 10 exhibit, and you pay some money. In the case of The 11 Arc, it's $20 for an individual. Then you're a 12 member. 13 There's no vote of the membership. By 14 the way, The Arc of the Capital Area has an annual 15 membership meeting. I've attended dozens of them, at 16 least two dozen, and not once have we ever had an 17 issue arise where we vote on the membership of the 18 organization. Simply put, you elect to join. 19 And so what you're doing is, you're 20 putting a new requirement on The Arc of the Capital 21 Area and hundreds of other licensed authorized 22 organizations where they have to have a vote of the 23 membership. And if they miss that, let's say there's 24 a new bingo worker -- and by the way, our workers at 25 the bingo hall at River City Bingo are members of The 0010 1 Arc of the Capital Area. 2 If you had a new individual who 3 wanted -- who was a member of the organization and 4 wanted to be a bingo worker, you might have to wait 5 another 12 months if you just had the meeting of the 6 membership in order to have another meeting. 7 In the case of The Arc of the Capital 8 Area, I believe -- I didn't bring the articles of 9 incorporation with me -- but I believe it requires a 10 quorum of 10 percent of the members. So you can see 11 that it's not an easy matter for the vote of the 12 members of the organization to make this designation. 13 And, in fact, if you want to be a member of The Arc, 14 you don't have to have anyone's approval. You just 15 apply to become a member. 16 Most charities are happy to have a 17 member for whatever reason. There are, by the way, 18 many organizations, and The Arc of the Capital Area 19 has one, where someone can initiate a disciplinary 20 proceeding against a member. If the member is 21 undertaking certain activities that do not comport 22 with the core beliefs of the agency or the charity, 23 then they might expel a member. It happens very 24 rarely, as you might imagine. 25 In the case of veterans' organizations, 0011 1 most veterans' organizations, including the VFW which 2 I represent, require that the veteran be honorably 3 discharged, and that's it, and there's no vote of the 4 membership of the VFW for them to become a member. 5 Now, there are also -- every veterans' 6 organization that I'm aware of have also an ability to 7 admit members who are not veterans, and they are very, 8 very limited, and it's pursuant to the Internal 9 Revenue Code, that they can have some amount of 10 members who are not veterans and still be considered a 11 veterans' organization. 12 So those are the comments we have. I 13 understand Mr. Bresnen is going to submit some 14 additional comments, especially on this point, on 408 15 with some suggested language. I'd be happy to answer 16 any questions. 17 MS. JOSEPH: All right. Thank you, and 18 I marked your exhibit Exhibit 1 for this hearing. 19 MR. FENOGLIO: Thank you. 20 (Exhibit No. 1 marked) 21 MR. BRESNEN: My name is Steve Bresnen. 22 I'm here on behalf of the Bingo Interest Group, which 23 is an organization of commercial lessors that operate, 24 broadly speaking, from Texarkana to Austin and up to 25 the Dallas/Fort Worth area and have numerous charities 0012 1 of -- a variety of types of charities that have 2 conducted bingo for back -- since the early '80s. 3 I'd like to start with the proposed 4 amendments -- or proposed 402.202, not the repeal. We 5 don't oppose the repeal. I do have some suggestion to 6 make on 402.202. 7 In Subsection (a), the definition of 8 "other account" taken literally that would include the 9 bingo account, and I think this is -- this is a 10 reference to the Bingo Enabling Act that I believe 11 distinguishes the other account from the bingo 12 account. 13 So after -- I would propose that this be 14 revised to read, "For purposes of Section 2001.451(c), 15 Texas Occupations Code, 'other account' means an 16 account other than the bingo account held in the name 17 of the licensed authorized unit -- organization or 18 unit." So I think you need the term for both. 19 Subparagraph (b) and (c), we have no 20 concern with. 21 It appears to us that Subparagraph (d) 22 and (i) are substantially the same, and I think it 23 could be merged into one section. They both seem to 24 require the maintenance of records to substantiate 25 funds in the -- in the bingo account. One, Subsection 0013 1 (i) seems to be distinguished from (d) in that (d) 2 requires a substantiation of the transfer, and (i) 3 requires substantiation of the use of the funds. But 4 the use of the funds in the bingo account are governed 5 by the chapters within the Bingo Enabling Act that 6 specify what the funds in the bingo account can be 7 used for, as well as existing rules. 8 So I really don't -- I don't think you 9 need (i), and I would suggest that you eliminate (i). 10 If the intention is to say that there has to be a 11 separate accounting for transferred funds, I don't 12 think the statute requires that. I don't see any 13 utility in it because the use of those funds is also 14 authorized by other law. 15 On Subsection (e) -- so we would suggest 16 striking (i) and allowing (d) to cover the 17 substantiation of the transfer of funds and also the 18 removal of any funds from the bingo account because 19 those can only be removed as required by other parts 20 of the statute and rules anyway. 21 Subsection (e) gives us -- at least the 22 second sentence gives us a high degree of heartburn. 23 The reason for this change in the rules is a provision 24 in House Bill 1474. And if you'll recall, the prior 25 law required an organization -- it basically 0014 1 prohibited putting money from another account back 2 into the bingo account unless you got a loan -- unless 3 you did it on a loan basis and it was approved by the 4 Commission. And it's clear throughout 1474 that the 5 legislature was trying to allow these organizations to 6 operate in a more businesslike fashion and to 7 streamline their business operations in order to 8 enhance compliance, but more importantly, to reduce 9 their costs. 10 In this section, there's a reference to 11 repayment of transferred funds. There is no 12 requirement to repay transferred funds. And 13 consequently, there should be no documentation of 14 something as a repayment of transferred funds. That's 15 sliding back into the notion that this is a loan to 16 begin with. It's simply a return of -- it's a 17 transfer of funds back to the organization if they 18 need to do so to bring it up to -- to restore 19 operating capital in order to be able to run the bingo 20 operations. So we would suggest the striking of 21 subsection -- the second sentence in Subsection (e). 22 Also I noticed in some parts of this 23 rule it will say "bingo account" or a "unit account," 24 and I think there's some inconsistency in that, and 25 you should -- it probably should say or "unit account" 0015 1 throughout -- throughout the rule in order to take 2 account of those organizations operating in the form 3 of a unit or as part of a unit. 4 Subsection (h), I would propose the 5 following rewording. It has more words in it than you 6 need. It should say, "Only funds from a licensed 7 authorized organization's other account may be 8 transferred into its bingo account or unit account if 9 the licensed authorized organization is a member of an 10 accounting unit at the time the funds are 11 transferred." In other words, you don't need general 12 fund or other account because if you make the 13 definitional change that I suggested, all accounts 14 other than the bingo account will be other accounts by 15 definition. 16 And then finally, the last Subsection 17 (j), the final operative phrase "as determined by the 18 Commission," which is referring to the operating -- 19 quarterly operating capital, we would want to make 20 sure that that was, you know, at the time of the 21 transfer because waivers may be used, and that's the 22 subject of another rule coming up. And so we want to 23 make sure that it's at the time of the -- at the time 24 of the transfer. 25 And these things could happen 0016 1 simultaneously, by the way. A person could wait to 2 receive word on, say, an increase in the operating 3 capital and then make a transfer simultaneously with 4 that. So you might want to say "at the time of the 5 transfer." 6 I'm now -- I'm moving on to proposed 7 rule -- amendments to Rule 402.400, general licensing 8 provisions. I'm in Subsection (k)(5). This is new 9 language that says that a license on administrative 10 hold must still comply with the requirements of the 11 Bingo Enabling Act concerning net proceeds. I will 12 grant you that an ultra-literal reading of the statute 13 says that licensees have to show net proceeds. I 14 think it's inconsistent with the legislative intent 15 that a license on administrative hold have to show net 16 proceeds. Frankly, it was nothing any of us ever 17 considered when we were working on it. If it would be 18 helpful to the agency, I can get a statement of 19 legislative intent from the authors of the 20 legislation. 21 But literally what this is basically 22 going to require is somebody with a license on 23 administrative hold to use a single temporary license 24 to conduct an event and make sure they make a dollar. 25 And since the legislature seldom intends an absurdity 0017 1 under the Code Construction Act, I would suggest that 2 you strike No. (5) and look the other way. In fact, I 3 would suggest you strike the words "look the other 4 way." 5 (Laughter) 6 MR. BRESNEN: On section -- proposed 7 amendments to Rule 402.403, I'm advised that my 8 comment on that is not needed. So we support -- we 9 support the changes to that rule in their entirety. 10 I subscribe to Mr. Fenoglio's comments 11 on the proposed amendments to 402.404 and note that 12 those are -- we're authorized to say on behalf of 13 Sharon Ives of Fort Worth Bookkeeping that those 14 comments are hers as well. 15 In the proposed Rule 402.408, 16 designation of members, I think -- this is another 17 example where House Bill 1474 was intended to make 18 things easier and to confer more discretion on behalf 19 of the charities. To require them to hold a meeting 20 and vote on the members, as Mr. Fenoglio pointed out, 21 is cumbersome. It's a departure from the standard 22 operating procedure for probably most, if not all, of 23 the 1400 charities that conduct bingo in the state. 24 So I would suggest changes along the 25 following lines. The first -- under the Bingo 0018 1 Enabling Act, Section 2001.002, this is the definition 2 section, definition (4-a), that's the definition of 3 "bingo chairperson." It means "An officer or member 4 of the board of directors of a licensed authorized 5 organization who is designated in writing by the 6 organization as responsible for overseeing the 7 organization's bingo activities and reporting to the 8 membership relating to those activities." 9 We would like to see the bingo 10 chairperson concept be loaded up with as much 11 responsibility -- it's a single point of 12 accountability, and we work consistently with the 13 agency to make that have meaning. But the series of 14 proposed rules that we've been seeing, the one in 15 front of us and others coming behind it, keep asking 16 for votes of the whole membership of an organization. 17 It's not workable. It's a trap for violations of the 18 act and instilling a lot more formality than is 19 necessary. 20 So what we would suggest -- and I'd also 21 say that over in Section 2001.411, Occupations Code, 22 Subsection (c)(1), it makes it clear that the 23 organization designates members, those who elect to 24 become members, and that can be done in any number of 25 ways, as Mr. Fenoglio pointed out. 0019 1 So we would suggest, number one, that 2 the procedure that's in the statute or in the proposed 3 rule right now might be used as a default. If the 4 chairperson's -- if the designated -- designation in 5 writing of the bingo chairperson includes that they 6 will convey the names of the members of the 7 organization, then that should be conclusive for the 8 organization. In other words, I could imagine most 9 organizations saying, "This is the bingo chairperson, 10 and they are the person who will communicate to the 11 agency who the members are should there be a 12 question." And that way the organizations will have 13 exercised their authority over the bingo chairperson. 14 You'll have a single point of contact, and we won't 15 have to have this cumbersome method. 16 Secondly, rather than the way the rules 17 are governing an organization that chose not to do it 18 that way, they might have their own way of doing it. 19 And so the rule could say either the bingo chairperson 20 designated in writing with that authority will do it 21 or the organization will do it according to its bylaws 22 or charter, or if it was not done one of those two 23 ways, it would be done as provided in the rule here. 24 And that way I think you'd have all the possibilities 25 covered, and the intent of the legislature would be -- 0020 1 would be carried out. 2 And then finally, to just sort of 3 emphasize the excessive formality that's injected, 4 Subsectino (d) in proposed Rule 402.408 says that "A 5 designated member or a licensed authorized 6 organization may notify the Commission that the 7 member's status has changed and is no longer bona fide 8 by submitting: (1) a completed form prescribed by the 9 Commission, or (2) a written request to remove the 10 designated member from all positions...signed by the 11 designated member or the organization's chief 12 executive officer and provides the effective date." 13 The whole notion of request to remove 14 seems to give some discretion to the agency, which we 15 think is unwarranted. The purpose of this section in 16 the statute was to recognize that these organizations 17 have rights, and they have an integrity of their own, 18 and they don't require the state of Texas to 19 micromanage their affairs. I think that sample is in 20 the legislative history, since I wrote it. I probably 21 pounded the table about it at the time. 22 So we would suggest that this be greatly 23 streamlined, any notion of having to go remove members 24 be eliminated, and the changes that I've suggested be 25 included in the final rule. I'd be happy to answer 0021 1 any questions now or in the hereafter. Thank you-all. 2 MS. JOSEPH: Thank you, Mr. Bresnen. 3 MR. BRESNEN: I appreciate you-all being 4 here and having these hearings. 5 MS. JOSEPH: All right. Well, we 6 certainly appreciate your attention to these rules and 7 your comments to help us make them as effective and 8 efficient as possible. 9 Is there anyone else who would like to 10 offer comments today? 11 (No response) 12 MS. JOSEPH: If not, this hearing will 13 be concluded at 10:31 a.m. Thank you very much. 14 (Proceedings concluded at 10:31 a.m.) 15 16 17 18 19 20 21 22 23 24 25 0022 1 C E R T I F I C A T E 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, Kim Pence, a Certified Shorthand 7 Reporter in and for the State of Texas, do hereby 8 certify that the above-mentioned matter occurred as 9 hereinbefore set out. 10 I FURTHER CERTIFY THAT the proceedings 11 of such were reported by me or under my supervision, 12 later reduced to typewritten form under my supervision 13 and control and that the foregoing pages are a full, 14 true and correct transcription of the original notes. 15 IN WITNESS WHEREOF, I have hereunto set 16 my hand and seal this 25th day of February 2010. 17 18 ______________________________ 19 KIM PENCE Certified Shorthand Reporter 20 CSR No. 4595-Expires 12/31/11 21 Firm Registration No. 276 Kennedy Reporting Service, Inc. 22 Cambridge Tower 1801 Lavaca Street, Suite 115 23 Austin, Texas 78701 512.474.2233 24 25