1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 16 TEXAS ADMINISTRATIVE CODE § 7 §402.203 § 16 TEXAS ADMINISTRATIVE CODE § 8 §402.205 § 16 TEXAS ADMINISTRATIVE CODE § 9 §402.501 § 16 TEXAS ADMINISTRATIVE CODE § 10 §402.502 § 16 TEXAS ADMINISTRATIVE CODE § 11 §402.604 § 12 13 14 PUBLIC COMMENT ON RULEMAKINGS 15 WEDNESDAY, FEBRUARY 16, 2011 16 17 18 BE IT REMEMBERED THAT on Wednesday, 19 the 16th day of February 2011, the above-entitled public 20 comment hearing was held from 10:00 a.m. until 10:17 21 a.m., at the Offices of the Texas Lottery Commission, 22 611 East 6th Street, Austin, Texas 78701, before SANDRA 23 JOSEPH, SPECIAL COUNSEL. The following proceedings were 24 reported via machine shorthand by Aloma J. Kennedy, a 25 Certified Shorthand Reporter. 2 1 APPEARANCES 2 SPECIAL COUNSEL: 3 Ms. Sandra Joseph 4 TAXPAYER SERVICES MANAGER: Mr. Bruce Miner 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - WEDNESDAY, FEBRUARY 16, 2011........ 4 4 COMMENTS ON BEHALF OF RIVER CITY BINGO, ET AL. (FENOGLIO)........................................ 5 5 REPORTER'S CERTIFICATE............................ 13 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 P R O C E E D I N G S 2 WEDNESDAY, FEBRUARY 16, 2011 3 (10:00 a.m.) 4 MS. JOSEPH: Good morning. For the 5 record, my name is Sandra Joseph, Special Counsel of the 6 Legal Services Division. With me is Bruce Miner, 7 Account -- 8 MR. MINER: Taxpayer Services Manager. 9 MS. JOSEPH: I'm sorry, Bruce. I get your 10 title mixed up. I should write it down. 11 All right. We're here today for a public 12 hearing to receive public comments regarding a number of 13 rulemakings. They include proposed amendments to 16 TAC 14 Section 402.502, relating to charitable use of proceeds, 15 the proposed repeal of existing 16 TAC Section 402.501 16 relating to distribution of proceeds for charitable 17 purposes, and proposal of new 16 TAC Section 402.501 18 relating to charitable use of net proceeds, proposed 19 amendments to 16 TAC Section 402.205 relating to unit 20 agreements, proposed amendments to 16 TAC Section 21 402.203 related to unit accounting, and proposed 22 amendments to 16 TAC Section 402.604 relating to 23 delinquent purchaser. 24 I have one witness affirmation form from 25 Mr. Stephen Fenoglio. Mr. Fenoglio, would you like to 5 1 offer comments? 2 COMMENTS ON BEHALF OF RIVER CITY BINGO, ET AL. 3 MR. FENOGLIO: I would. Thank you. 4 For the record, my name is Stephen 5 Fenoglio. I'm an attorney in Austin, and I filed an 6 appearance slip. My comments will be brief. 7 First, thanks to the staff for doing the 8 informal comment round that occurred. That was helpful. 9 I'll just take them in order in which they were 10 published, Sandy. 11 Under 402.203, Subparagraph (D)(4) 12 concerning the designated agent making available all 13 unit accounting records, the only concern is -- to a 14 licensed authorized organization -- that's always been 15 the understanding whose organization is a member and 16 then you added "or was," and the emphasis is on the "or 17 was." 18 For how long would that agent have to make 19 those records available to a member who was or to an 20 organization who was a member of the unit? And there 21 ought to be an understanding that if, for example, the 22 agent made those records available on two separate 23 occasions to a charity who left the unit at some point, 24 they shouldn't be required by Commission rule to 25 continue to make those records available. 6 1 Generally speaking, you have a requirement 2 in your rules of the agency or charities keeping records 3 for four years. And, of course, the unit accounting 4 rule is relatively new, although it's now been I guess 5 seven years since we've had those. 6 My understanding is, most accountants will 7 keep those records for a very long time. The agents may 8 or may not keep those records. So I don't really have a 9 suggestion, because it's going to be on a reasonable 10 basis when an agent if -- again, the departing charity, 11 one hopes, will always keep records that they're given, 12 but that may not be the case. And if an organization, 13 three years after they've left, after having been 14 provided those records three times, it would be unfair 15 for the Commission to get involved in a dispute between 16 two private parties where this rule suggests that the 17 agent must make those records available ad infinitum. 18 So that's the only comment we have on that. 19 Under 402.205 -- 20 MS. JOSEPH: Excuse me just a minute, 21 Mr. Fenoglio. 22 MR. FENOGLIO: Sure. 23 MS. JOSEPH: Do you think if we did put a 24 limit in there, that would be a substantive change that 25 would require us to republish? 7 1 MR. FENOGLIO: I don't believe it would 2 be, because you're trying to define what's already been 3 published, and it's not a substantive change. It's 4 just, again, for what period of time must an agent make 5 those records available? 6 MS. JOSEPH: Okay. Thank you. 7 MR. FENOGLIO: Under 205, Subparagraph 8 (d), the unit must notify the Commission of a change in 9 unit membership on a Commission-prescribed form seven 10 calendar days prior to the date. The second sentence 11 says the copy must be provided within 25 calendar days. 12 Occasionally there is a last-minute change 13 and occasionally an organization may not know of a 14 change within that seven-day period. What's the result 15 of that? Well, if, for example, a small organization 16 had a huge change in membership and said, "We're out of 17 bingo," and if they were outside the seven-day time 18 period, there is a violation. And I don't think that's 19 what your intent is. 20 Moreover, my experience has been in the 21 past that after changes occur, that's when the light 22 clicks on for the agent or for the representative to 23 notify the Commission. And so the comment made by 24 Sharon Ives, among others in our group, if you will, was 25 why not make the notification when the membership 8 1 changes? What's the magic of seven days before? We 2 understand from an audit perspective the Commission has 3 to know who is in the unit, but whether they know seven 4 days before the membership change or a few days after, 5 it seems to us it's sort of irrelevant. 6 Section 402.501, repeal, we support that. 7 And generally, by the way, we support all of the 8 changes, unless I'm indicating otherwise, that have been 9 made. 10 And then the new 501, charitable use of 11 net proceeds, we salute that it's significantly 12 simplified. The only -- and we support that. The only 13 comment really is on 501, Subparagraph (b), the 14 provision that says "...other than as reasonable 15 compensation for services rendered or if a cause or deed 16 consistent with its charitable purpose." 17 There's a body of practice at the agency 18 as what "reasonable compensation" means. And we 19 encourage the Commission's continued use of that 20 practice, if you will. I can't think of a specific case 21 on that, but the agency started out 10 years ago with a 22 very harsh standard. And when Phil became more involved 23 and now is the director, he's employed a reasonable -- 24 every pun intended -- standard to the reasonable 25 compensation standard. 9 1 There is a body of law that suggests if 2 the Commission repeals a rule and establishes a new 3 rule, then they're establishing a new set of standards, 4 and we want the same standard that's been employed for 5 the last three to five years to remain, and that's the 6 purpose of our comment. We recognize that reasonable 7 compensation is subject to multiple reasonable 8 interpretations, and we're comfortable with where the 9 agency is today in making those judgment calls, if you 10 will. 11 Under 502, charitable use of net proceeds 12 recordkeeping, we support the simplification of what 13 recordkeeping is required. And our understanding is 14 that standard that's embodied in Subparagraph, primarily 15 (a), has been the standard that's been used in the last 16 several years and we salute that. 17 Under Subparagraph (c)(1), the 18 recordkeeping, this isn't really a different -- this is 19 put in writing, what the standard, as we understand it, 20 has been at the Commission, and I want to use an 21 example. A charitable organization makes a donation to 22 Red Cross. Let's say another Hurricane Rita occurs in 23 south central Texas, and they make a donation to the Red 24 Cross. Historically the Commission had said, "Well, 25 okay. Agency, you don't have to track those funds that 10 1 Red Cross used in order to substantiate that the bingo 2 proceeds were used for a charitable purpose, consistent 3 with your 501(c)(3) -- or (c) designation," and we 4 support that standard, and we think that's what's 5 intended here is, if it goes to an organization that I 6 think everyone can acknowledge is a very top drawer 7 organization like Red Cross, that that's where the 8 inquiry usually ends and should end. 9 Under Subparagraph (c)(4), there is a 10 phrase, "including use of proceeds accounts." There are 11 some charitable organizations who have no idea what that 12 means and they don't -- that we hope it doesn't mean 13 they have to establish a new account. They understand, 14 as the case has been for many years, that they must 15 maintain records including, as the rule states, bank 16 statements, canceled checks and deposit slips, or images 17 of them, and bank reconciliations for all accounts to 18 which it deposits the charitable proceeds from the 19 proceeds of bingo, but some organizations have no idea 20 what "including use of proceeds accounts" is. It may be 21 that some organizations have a specific account called 22 that, use of bingo proceeds, but many organizations will 23 not. And to the extent that this requires them to keep 24 a new account, they don't think it's necessary. 25 We agree with the change, the new language 11 1 in Subparagraph (c)(5). Again, that's generally been 2 the standard the agency has employed for several years, 3 just putting it formally in writing. 4 And the same is true for Subparagraph 5 (c)(6). 6 Subparagraph (c)(8), "...the organization 7 must maintain minutes of any meeting where the use of 8 bingo proceeds or other activities related to the 9 conduct of bingo," and it stops. I'm assuming it's 10 meant is discussed or decided. It stops too soon. 11 One of the things -- assuming that's what 12 is intended by that, it may be that in the case of the 13 charities at River City Bingo, I happen to know that the 14 ARC of the Capital Area generally has in its meeting 15 minutes a discussion of, "The agency received $7,000 in 16 the last month" -- we do it on a monthly basis, our 17 distributions at River City Bingo here in Austin, 18 Texas -- "We received $7,000," but there may not 19 necessarily be a meeting minute where they vote to 20 appropriate that $7,000. And the reason is because they 21 adopted a budget at the beginning of the year. And 22 within that budget, there is a determination that 23 they're going to use bingo funds to fund certain 24 activities. So I don't think it's intended that you 25 have to -- what the minutes have to say, have to 12 1 discuss. If it is, then we would oppose that standard, 2 if you will. 3 Those are all the comments I have. Thank 4 you. 5 MS. JOSEPH: All right. And I understood 6 you to say that if you did not comment on something, 7 then you were supportive of it? 8 MR. FENOGLIO: Yes. 9 MS. JOSEPH: Well, thank you very much for 10 the time you spent reviewing these and coming to provide 11 us with comments today. 12 MR. FENOGLIO: And thank the agency. 13 MS. JOSEPH: All right. I have received 14 no other witness affirmation forms. If there is nothing 15 further, we will stand adjourned and conclude this 16 hearing at 10:17 a.m. Thank you. 17 (Hearing adjourned at 10:17 a.m.) 18 19 20 21 22 23 24 25 13 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 25th day of February 2011. 15 16 17 ________________________________ 18 Aloma J. 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