1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 REGULAR MEETING OF THE § 8 TEXAS LOTTERY COMMISSION § WEDNESDAY, AUGUST 10, 201l § 9 10 11 12 COMMISSION MEETING 13 WEDNESDAY, AUGUST 10, 2011 14 15 16 17 BE IT REMEMBERED THAT on Wednesday, the 10th 18 day of August 2011, the Texas Lottery Commission meeting 19 was held from 9:04 a.m. until 12:36 p.m., at the 20 Offices of the Texas Lottery Commission, 611 East 6th 21 Street, Austin, Texas 78701, before CHAIRMAN MARY ANN 22 WILLIAMSON and COMMISSIONER J. WINSTON KRAUSE. The 23 following proceedings were reported via machine 24 shorthand by Lorrie A. Schnoor, a Certified Shorthand 25 Reporter. 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONER: Mr. J. Winston Krause 5 GENERAL COUNSEL: 6 Ms. Kimberly L. Kiplin 7 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Philip D. Sanderson 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, AUGUST 10, 2011 .......... 9 4 AGENDA ITEM NO. I - Meeting Called to Order........ 9 5 AGENDA ITEM NO II - Consideration of and possible 6 discussion and/or action on external and internal audits and/or reviews relating to the Texas 7 Lottery Commission, and/or on the Internal Audit Department’s activities, including the FY11 8 financial audit.................................... 9 9 AGENDA ITEM NO. III - Report, possible discussion and/or action on lottery sales and revenue, game 10 performance, new game opportunities, advertising, market research, trends, and game contracts, 11 agreements, and procedures......................... 13 12 AGENDA ITEM NO. IV - Report, possible discussion and/or action on FY12 Operating Budget............. 17 13 AGENDA ITEM NO. V - Report, possible discussion 14 and/or action on transfers to the State and the agency’s budget status............................. 19 15 AGENDA ITEM NO. VI - Report, possible discussion 16 and/or action on the 82nd Legislature.............. 21 17 AGENDA ITEM NO. VII - Report, possible discussion and/or action on the Sunset review process involving 18 the agency, including approval of the agency’s self-evaluation report............................. 23 19 AGENDA ITEM NO. VIII - Consideration of and 20 possible discussion and/or action, including adoption, on the rule review of 16 TAC Chapter 403 21 relating to General Administration................. 28 22 23 24 25 4 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. IX - Consideration of and 4 possible discussion and/or action, including proposal, on amendments to 16 TAC §§403.202 5 relating to Prerequisites to Suit, 403.205 relating to Agency Counterclaim, 403.207 6 relating to Duty to Negotiate, 403.208 relating to Timetable, 403.213 relating to Request for 7 Contested Case Hearings, 403.214 relating to Mediation Timetable, 403.301 relating to 8 Historically Underutilized Businesses, 403.401 relating to Use of Commission Motor Vehicles, 9 and/or 403.501 relating to Custody and Use of Criminal History Record Information................ 29 10 AGENDA ITEM NO. X - Consideration of and 11 possible discussion and/or action, including notice of intention to review (proposed review), 12 on 16 TAC Chapter 401 relating to Administration of State Lottery Act............................... 34 13 AGENDA ITEM NO. XI - Consideration of and 14 possible discussion and/or action, including notice of intention to review (proposed review), 15 on 16 TAC Chapter 402 relating to Charitable Bingo Administrative Rules......................... 35 16 AGENDA ITEM NO. XII - Consideration of and 17 possible discussion and/or action, including proposal, on amendments to 16 TAC §401.309 18 relating to Assignability of Prizes................ 36 19 AGENDA ITEM NO. XIII - Consideration of and possible discussion and/or action, including 20 proposal, on amendments to 16 TAC §401.318 relating Withholding of Delinquent Child-Support 21 Payments from Lump-sum and Periodic Installment Payments of Lottery Winnings in Excess of Six 22 Hundred Dollars.................................... 36 23 24 25 5 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XIV - Consideration of and possible discussion and/or action, including 4 proposal, on amendments to 16 TAC §401.319 relating to Withholding of Child-Support Payments 5 from Periodic Installment Payments of Lottery Winnings........................................... 36 6 AGENDA ITEM NO. XV - Consideration of and 7 possible discussion and/or action, including proposal, on amendments to 16 TAC §401.317 8 relating to “Powerball” On-line Game Rule.......... 40 9 AGENDA ITEM NO. XVI - Consideration of and possible discussion and/or action, including 10 adoption, on amendments to 16 TAC §401.152 relating to Application for License................ 53 11 AGENDA ITEM NO. XVII - Consideration of and 12 possible discussion and/or action, including adoption, on amendments to 16 TAC §401.153 13 relating to Qualifications for License............. 54 14 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action, including procurement 15 on the agency’s lottery security study services, instant ticket manufacturing and services, and/or 16 advertising services............................... 56 17 AGENDA ITEM NO. XIX - Report, possible discussion and/or action on amendments to the 2010 lottery 18 operations and services contract................... 57 19 AGENDA ITEM NO. XX - Consideration of and possible discussion and/or action on membership 20 in the Multi-State Lottery Association (MUSL)...... 58 21 AGENDA ITEM NO. XXI - Report, possible discussion and/or action on GTECH Corporation................. 59 22 AGENDA ITEM NO. XXII - Report by the Executive 23 Director and/or possible discussion and/or action on the agency’s operational status, agency 24 procedures, and FTE status......................... 61 25 6 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XXIII - Consideration of and possible discussion and/or action, including 4 adoption or withdrawal, on new rule 16 TAC §402.110 relating to Temporary Increase of 5 License Fees....................................... 63 6 AGENDA ITEM NO. XXIV - Report, possible discussion and/or action on resource allocation 7 and prioritization of regulatory activities in the Charitable Bingo Operations Division........... 71 8 AGENDA ITEM NO. XXV - Report, possible 9 discussion and/or action on the Bingo Advisory Committee, including continuation of the Bingo 10 Advisory Committee, FY11 and/or FY12 work plan..... 77 11 AGENDA ITEM NO. XXVI - Consideration of and possible discussion and/or action on nominations 12 and/or appointments to the Bingo Advisory Committee..................................... NOT HEARD 13 AGENDA ITEM NO. XXVII - Report by the Charitable 14 Bingo Operations Director and possible discussion and/or action on the Charitable Bingo Operations 15 Division’s activities, including updates on staffing, licensing, accounting and audit 16 activities, pull-tab review, special projects, and upcoming operator training..................... 85 17 AGENDA ITEM NO. XXVIII - Consideration of the 18 status and possible entry of orders in: A. Docket No. 362-11-4892 – Quick Track 19 B. Docket No. 362-11-4894 – Payless Beer & Wine 20 C. Docket No. 362-11-4604 – Mr. Check Casher 21 D. Docket No. 362-11-4606 – Reed Diamond E. Docket No. 362-11-5365 – Midlothian Kwik 22 Stop F. Docket No. 362-11-5364 – Sim’s Drive In 23 Grocery #1 G. Docket No. 362-11-5363 – Discount Liquor 24 Beer & Wine 25 7 1 TABLE OF CONTENTS 2 PAGE H. Docket No. 362-11-5362 – Buy Low 3 I. Docket No. 362-11-5902 – First Stop Mart J. Docket No. 362-11-5361 – Stop N Save 4 K. Docket No. 362-11-4076 – Reed Oil Company 5 L. Docket No. 362-11-3690.B – Jina Weeks M. Docket No. 362-11-1310.B –Thomas Taylor 6 N. Docket No. 362-10-4189 – Lucky Food Store #2 7 O. Case No. 2011-774 – Stripes #9117 P. Case No. 2011-773 – Stop and Shop #3 8 Q. Case No. 2008-28 – Intl. Serving Hands of America, Inc. 9 R. Case No. 2008-27 – Savannah Boxing Association and Youth Club, Inc. 10 S. Case No. 2008-62 – Volunteers for Animal Protection, Inc. 11 T. Case No. 2009-929 – American Legion Post 53 12 U. Case No. 2009-929 – Big D Detachment Marine Corps League...................... 87 13 AGENDA ITEM NO. XXIX - Public comment.............. 87 14 AGENDA ITEM NO. XXX - Commission may meet in 15 Executive Session: A. To deliberate the duties and evaluation 16 of the Executive Director pursuant to Section 551.074 of the Texas Government 17 Code. B. To deliberate the duties and evaluation 18 of the Internal Audit Director pursuant to Section 551.074 of the Texas Government 19 Code. C. To deliberate the duties and evaluation 20 of the Charitable Bingo Operations Director pursuant to Section 551.074 of the Texas 21 Government Code. D. To deliberate the duties of the General 22 Counsel pursuant to Section 551.074 of the Texas Government Code. 23 E. To deliberate the duties of the Human Resources Director pursuant to Section 24 551.074 of the Texas Government Code. 25 8 1 TABLE OF CONTENTS 2 PAGE 3 F. To receive legal advice regarding 4 pending or contemplated litigation pursuant to Section 551.071 5 (1) (A) and/or to receive legal advice regarding settlement offers 6 pursuant to Section 551.071 (1) (B) of the Texas Government 7 Code and/or to receive legal advice pursuant to Section 551.071 (2) of the 8 Texas Government Code, including but not limited to: 9 Texas Lottery Commission v. Leslie Warren, Texas Attorney General Child 10 Support Division, Singer Asset Finance Company L.L.C., and 11 Great-West Life & Annuity Insurance Company 12 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 13 Commission et al. Rafael Tapia a/ka/ Rafael Demetrio 14 Tapia-Bido v. 7-Eleven et al. Willis Willis v. Texas Lottery 15 Commission, GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food 16 Store #2, Barkat N. Jiwani and Pankaj Joshi Employment law, personnel law, 17 procurement and contract law, evidentiary and procedural law, and general 18 government law........................... 129 19 AGENDA ITEM NO. XXXI - Return to open session for further deliberation and possible action on 20 any matter discussed in Executive Session.......... 130 21 AGENDA ITEM NO. XXXII - Adjournment................ 130 22 REPORTER'S CERTIFICATE............................. 132 23 24 25 9 1 P R O C E E D I N G S 2 WEDNESDAY, AUGUST 10, 2011 3 (9:04 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I'd 6 like to call the meeting of the Texas Lottery Commission 7 to order. Today is August the 10th, 2011. The time is 8 9:04. Commissioner Krause is present. We have a 9 quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: Our first item is 12 consideration of and possible discussion and/or action 13 on external and internal audits and/or reviews relating 14 to the Texas Lottery and/or on the internal audit 15 department's activities, including the Fiscal Year '11 16 financial audit. 17 Cat, if you'll start with this, please. 18 MS. MELVIN: Thank you, Chairman. Good 19 morning, Commissioner. For the record, Catherine 20 Melvin, director of the internal audit division. 21 Commissioners, I'd like to ask the 22 financial auditors to come up to the table to introduce 23 themselves. 24 As mandated by the State Lottery Act, the 25 Texas Lottery Commission is required to undergo an 10 1 annual independent financial audit. And I'm very 2 pleased to have back with us the firm Maxwell, Locke & 3 Ritter to conduct this year's financial audit. 4 Today, I'd like to say just a few words 5 about the firm before we introduce the auditors to 6 speak. 7 The firm was established here in Austin in 8 1991. It's locally owned and managed. And I, you know, 9 wanted to comment and say that the firm has received 10 numerous professional and community awards, recognition, 11 and accolades throughout the years. More recently, I 12 just wanted to say, these include being voted one of 13 Central Texas's best places to work by the Austin 14 Business Journal every year since 2004. They were 15 awarded the Samaritan Center's Ethics In Business award 16 just this year, and also ranked No. 1 in the top 25 17 accounting firms in the Austin area. 18 And so with that, let me turn this over to 19 Scott to introduce himself and Kelli. 20 MR. KRCHNAK: Thanks, Cat. For the 21 record, Scott Krchnak, partner with Maxwell, Locke & 22 Ritter. 23 MS. LEVENTHAL: And my name is Kelli 24 Leventhal. I work for Maxwell, Locke & Ritter; and I'm 25 the audit manager for the Texas Lottery Commission's 11 1 financial statement audit for the year ended 2 August 31st, 2011. 3 What I'd like to do is just take a moment 4 and let you know about the work we've done already this 5 year and what our plans are for the rest of the year. 6 Last month, we held an entrance conference 7 with -- which Chairman Williamson attended, in which we 8 primarily discussed milestones and deadline due dates 9 for various aspects of the audit. Currently, we are 10 wrapping up our interim audit procedures as well as 11 performing the agreed-upon procedures for Mega Millions, 12 Powerball, and Power Play. And this year we've utilized 13 internal audit as one of our resources in completing 14 those procedures for the audit interim work. 15 Coming up, we have at the end of August 16 the inventory observation that we do each year, and then 17 we expect to be back in November in order to complete 18 our audit fieldwork so that we can meet the final 19 deadline of December 20th, which is the final due date 20 of your audited financial statements to the state of 21 Texas. 22 And just one final note, there have been 23 no new audit or accounting pronouncements this year that 24 we expect to significantly affect the audit. 25 Do you have any questions? 12 1 CHAIRMAN WILLIAMSON: Commissioner, do you 2 have any questions? 3 COMMISSIONER KRAUSE: No, ma'am. 4 MS. LEVENTHAL: All right. Thank you very 5 much. 6 CHAIRMAN WILLIAMSON: Thank you very much. 7 Appreciate it. 8 COMMISSIONER KRAUSE: Thank you. 9 MS. MELVIN: Thank you. 10 Commissioners, I do just have one 11 additional item. 12 Not for the auditors. 13 MS. LEVENTHAL: Sure. 14 MS. MELVIN: Thank you. 15 (Laughter) 16 MS. MELVIN: This is the time of the year 17 that internal audit is making its plans for the coming 18 fiscal year, and so as we do each year, we are in the 19 midst of performing our risk assessment. We'll be 20 reaching out to agency staff, management, and to you, 21 Commissioners, to seek your input into the development 22 of that audit plan. And we hope to bring the proposed 23 audit plan to you for your approval at the next 24 commission meeting. 25 CHAIRMAN WILLIAMSON: Thank you. I have 13 1 no questions. 2 Commissioner, do you have any questions? 3 COMMISSIONER KRAUSE: None at all. 4 CHAIRMAN WILLIAMSON: Thank you. 5 MS. MELVIN: Thank you. 6 AGENDA ITEM NO. III 7 CHAIRMAN WILLIAMSON: The next item is 8 report, possible discussion, and/or action on lottery 9 sales and revenue; game performance; new game 10 opportunities; advertising; market research trend; and 11 game contracts, agreements, and procedures. 12 Kathy and Robert, this is your item. 13 MS. PYKA: Good morning, Commissioners. 14 My name is Kathy Pyka, controller for the agency. And 15 with me to my right is Robert Tirloni our product 16 manager. 17 Commissioners, the first chart that we 18 have for you this morning reflects the comparative sales 19 for the week ending August 6, 2011. Total Fiscal Year 20 2011 sales through this 49-week period are 21 $3.571 billion, which is an increase of $52.7 million 22 compared to the 3.519 billion in sales for last fiscal 23 year. 24 Our Fiscal Year 2011 instant ticket sales 25 reflected on the second blue bar are at $2.66 billion 14 1 which is a $66.3 million increase over Fiscal Year's 2 2010 sales. 3 And our Fiscal Year 2011 online sales 4 reflected on the second red bar are at 906.7 million 5 which is a $13.7 million decline under the 920.4 million 6 figure for last fiscal year. 7 Commissioners, our next slide includes 8 cumulative average daily sales for Fiscal Years 2009, 9 2010, and 2011. As reflected by total cumulative sales, 10 our daily sales average for Fiscal Year 2011 is 11 $10.5 million which is four-tenths of a percent increase 12 over Fiscal Year 2011 and a 3.6 percent increase over 13 Fiscal Year 2009 sales. 14 The jackpot games highlighted in white 15 reflect a $1.5 million sales average which is a $203,000 16 decline from Fiscal Year 2010. 17 And, Commissioners, I wanted to highlight, 18 the only online game that has significant sales decrease 19 is -- excuse me -- Lotto Texas, which is at $470,000, is 20 our daily average. And as we compare it to the $720,000 21 figure for Fiscal Year 2010, that fiscal year included 22 two large jackpot rolls up to 76 million and 97 million 23 during Fiscal Year 2010. 24 Our Daily games highlighted in the green 25 font are at $1.1 million which exceeds Fiscal Year 2010 15 1 by a little bit over 2 percent and is below Fiscal Year 2 2009 by just over 1-and-a-half percent. 3 I wanted to highlight within this group, 4 being our Pick 3 sales, which are at 755,000, which are 5 up 1.9 percent over last fiscal year; and then Daily 4 6 sales at 160,000 are up just over 10 percent over last 7 fiscal year. 8 And then last, our Instant average is at 9 $7.8 million which is an increase of 218,000 over Fiscal 10 Year 2010 and up 166,000 over Fiscal Year 2009. 11 So with that, Robert will now give an 12 overview of our actual sales for fiscal year by game. 13 MR. TIRLONI: Good morning, Commissioners. 14 For the record, my name is Robert Tirloni, products 15 manager for the Commission. 16 This slide has the same layout as the 17 previous one; and it's through the week ending 8-6, 18 which is just this past Saturday. At the top, we have 19 the jackpot games. They are experiencing overall a just 20 under $21 million decline. Again, you see the main 21 reason for that decline is the Lotto Texas game due to 22 the lack of jackpot rolls that Kathy just mentioned. 23 All of the other jackpot games are doing well and are 24 showing a surplus this fiscal compared to last. 25 The Daily games are in the middle of the 16 1 slide in green. Overall, they are showing an increase 2 of just under $7 million for this fiscal year. Again, 3 Pick 3 and Daily 4 are performing -- are performing well 4 this fiscal year with increases in the $4 million plus 5 range. 6 And our instant games are doing 7 exceptionally well in Fiscal 2011. They are up 8 $66 million compared to last fiscal year, and all of 9 this combined gives us a surplus for the year of just 10 under $53 million. 11 I did want to show you our new Dallas 12 Cowboys and Houston Texans scratch-off games. We worked 13 very closely with both teams in the spring during their 14 trying times with their labor issues. We stayed in 15 close contact with both teams so that we could be poised 16 and ready and get games out when they did get their 17 labor issues resolved. And so we're happy to be able to 18 have these games in production right now. The launch 19 date for both games will be Monday September 12th. 20 And that is the presentation for today. 21 We're happy to answer any questions you may have. 22 CHAIRMAN WILLIAMSON: Thank you. 23 Commissioner, do you have any questions? 24 COMMISSIONER KRAUSE: Well, I think that 25 before we took on Powerball, there was a question about 17 1 whether or not that was going to cannibalize our other 2 games. And so when we compare to the 2009 levels, I 3 mean, we are really, you know, getting back to the 2009 4 levels in Lotto Texas and Mega Millions. 5 MS. PYKA: That is correct, Commissioner. 6 COMMISSIONER KRAUSE: And so it's net 7 gain. 8 MS. PYKA: Exactly. 9 COMMISSIONER KRAUSE: Good call. 10 CHAIRMAN WILLIAMSON: All right. 11 (Laughter) 12 CHAIRMAN WILLIAMSON: Thank you. 13 AGENDA ITEM NO. IV 14 CHAIRMAN WILLIAMSON: Next item is report, 15 possible discussion, and/or action on Fiscal Year 2012 16 operating budget. 17 Kathy, please. 18 MS. PYKA: Thank you, Madam Chair. 19 Again, for the record, Kathy Pyka, 20 controller for the Commission. 21 Commissioners, this morning I'm seeking 22 your approval of the Fiscal Year 2012 operating budget 23 in the amount of $203,693,670 and 314.5 full-time 24 equivalent positions. The budget was developed in 25 accordance with the appropriation amounts outlined in 18 1 House Bill 1, adjusted for the rider appropriations as 2 well as the Article 9 funding provisions. 3 Commissioners, the initial draft of the 4 budget was developed by the Office of the Controller and 5 delivered to division management for their direct input, 6 and the final draft was developed after receiving 7 feedback from each of the division directors and 8 reviewed by executive management. I'd like to thank 9 each of the division directors as well as Mr. Grief's 10 leadership as we develop this budget. 11 And, Commissioners, this concludes my 12 presentation I'd be happy to answer any questions about 13 the budget. 14 CHAIRMAN WILLIAMSON: Thank you. 15 Commissioner, do you have any questions? 16 COMMISSIONER KRAUSE: No, ma'am. 17 CHAIRMAN WILLIAMSON: All right. Y'all 18 did a good job on this. 19 MS. PYKA: Thank you so much. 20 CHAIRMAN WILLIAMSON: Thank you. 21 All right. The next item is report, 22 possible discussion, and/or action on transfers to the 23 state and the agency budget status. 24 MS. KIPLIN: Commissioners, if I could go 25 back to the operating budget. That is an action item. 19 1 CHAIRMAN WILLIAMSON: Oh, yeah. 2 MS. KIPLIN: So it does require a motion 3 to approve that budget. 4 CHAIRMAN WILLIAMSON: Okay. 5 MS. KIPLIN: And a second and a vote. 6 CHAIRMAN WILLIAMSON: Is there a motion? 7 COMMISSIONER KRAUSE: I make a motion that 8 we approve the budget presented to us today. 9 CHAIRMAN WILLIAMSON: I second. All in 10 favor? 11 Aye. 12 COMMISSIONER KRAUSE: Aye. 13 CHAIRMAN WILLIAMSON: Motion passes 2-0. 14 AGENDA ITEM NO. V 15 CHAIRMAN WILLIAMSON: All right. Now 16 we'll go on to the next item: Report, possible 17 discussion, and/or action on transfers to the state and 18 the agency budget status. 19 Kathy? 20 MS. PYKA: Thank you, again. For the 21 record, Kathy Pyka, controller for the Commission. 22 Commissioners, Tab 5 does include 23 information on the agency's transfer to the state as 24 well as our budget status. 25 The first report in your notebook reflects 20 1 the transfers and allocations to the Foundation School 2 Fund, the Texas Veterans Commission, and the allocation 3 of unclaimed prizes for the period ending June 30th, 4 2011. 5 Our total cash transfers to the state 6 amounted to $824.4 million through tenth month of the 7 fiscal year. The second page of your notebook reflects 8 the detailed information for the monthly transfers of 9 $824.4 million transferred to the state, 771.1 million 10 was the amount transferred to the Foundation School 11 Fund, 6.9 million was transferred to the Texas Veteran's 12 Commission, with a balance of 46.4 million transferred 13 from unclaimed lottery prizes. This represents a 14 4.7 percent decrease, or $38 million, under the amount 15 transferred to the Foundation School Fund through the 16 month of June 2010. 17 Commissioners, I wanted to also share that 18 we did complete the July transfer yesterday, and the 19 July transfer was in the amount of $98.8 million to the 20 Foundation School Fund; and this represents a cumulative 21 difference now of 29.2 million, or 3.25 percent, decline 22 from where we were in the Foundation School Fund 23 transfers through July of last fiscal year. 24 The final document in your notebook 25 related to transfers does include the cumulative 21 1 transfers from the inception of time, from 1992 to date. 2 And our cumulative transfers through June to the 3 Foundation School Fund amounted to $13.4 billion. 4 Commissioners, the final item under this 5 tab is our agency's Fiscal Year 2011 Method of Finance 6 Summary for the third quarter ending May 31st, 2011. 7 Our Commission's lottery account budget for Fiscal Year 8 2011 is $28.87 million, and of this amount, we've 9 expended 83.7 percent as encumbered and obligated 10 through the end of the third quarter. Our bingo 11 operations budget funded by general revenue is 12 $15.5 million with 75.5 percent expended and encumbered 13 through the third quarter. 14 Commissioners, this concludes my 15 presentation. I'd be happy to answer any questions. 16 CHAIRMAN WILLIAMSON: Thank you. 17 Commissioner, do you have any questions? 18 COMMISSIONER KRAUSE: No, ma'am. 19 CHAIRMAN WILLIAMSON: All right. Thank 20 you. 21 MS. PYKA: Thank you, Commissioners. 22 CHAIRMAN WILLIAMSON: Thank you, Kathy. 23 AGENDA ITEM NO. VI 24 CHAIRMAN WILLIAMSON: Okay. On to 25 Item VI: Report, possible discussion, and/or action on 22 1 the 82nd Legislature. 2 Nelda. 3 MS. TREVINO: Good morning, Commissioners. 4 For the record, I'm Nelda Trevino. I'm the director of 5 governmental affairs, and I have a very brief report 6 today. 7 As I reported at the last Commission 8 meeting, bills enacted from both the regular and special 9 sessions that impact the agency are included in the 10 agency's legislative implementation project. Melissa 11 Villasenor from the agency's governmental affairs 12 division serves as coordinator of this project and is 13 responsible for tracking the progress of implementing 14 any required actions. 15 Committees comprised of appropriate agency 16 staff were formed to review each bill to determine what 17 action, if any, is required to take in order to 18 implement the bill. Any items that have been identified 19 that require commission action will be brought to your 20 attention. For example, as a result of Senate Bill 626, 21 this is the bill that clarified some provisions in the 22 Lottery Act as it relates to the assignments of the 23 lottery prizes. And under some separate agenda items 24 today, you're going to be considering some proposed 25 amendments to some administrative rules in order to 23 1 conform our administrative rules with the statute. 2 In your notebook, we've provided you a 3 tracking report of the bills included in the agency's 4 legislative implementation project. And progress 5 continues on this, and I believe we are on track. 6 And I'll be happy to answer any questions. 7 CHAIRMAN WILLIAMSON: Thank you. 8 Commissioner, do you have any questions? 9 COMMISSIONER KRAUSE: No, ma'am. 10 CHAIRMAN WILLIAMSON: All right. Thank 11 you. 12 AGENDA ITEM NO. VII 13 CHAIRMAN WILLIAMSON: Then we'll go on to 14 Item VII: Report, possible discussion, and/or action on 15 the Sunset Review process involving the agency. 16 Whose item is this? 17 MR. GRIEF: Mine. 18 CHAIRMAN WILLIAMSON: Yours? Okay, Gary. 19 MR. GRIEF: Commissioners, we've completed 20 the important first step of the Sunset process, and that 21 is the development of the self-evaluation report, or the 22 SER as it's known. As a reminder, the purpose of that 23 SER is to give the agency an opportunity to put forth 24 any problems, opportunities, or issues that the agency 25 would like the Sunset Commission to review during the 24 1 process. 2 The draft document was sent to you last 3 week. It's approximately 150 pages in length. We will 4 be supplementing that document with numerous and various 5 attachments, such as the Strategic Plan and other agency 6 documents that you're familiar with. We'll ultimately 7 be submitting the document to the Sunset Commission 8 staff towards the end of the this month. 9 In addition, we've got a couple of 10 placeholders in the document pending your decision today 11 on the rulemaking for bingo related to the ACBS. And 12 after you make those decisions, we'll fill in those 13 blanks in the document. We're also going to give it one 14 more check for typos and formatting, and we might have a 15 few minor nonsubstantive changes to make, as well, based 16 on that review. 17 Although almost -- well, every division 18 was involved. Many different staff people from around 19 the agency put in a lot of time. But I do want to 20 recognize Robert Elrod from the administration division 21 who, for the third year in a row -- or the third big 22 project in a row, did an outstanding job in managing the 23 document, the numerous edits, and the back and forth 24 between various staff members and then ultimately with 25 me. He did a great job on that project. 25 1 As a reminder, our goal with the Sunset 2 Project is to ultimately see a bill passed in the next 3 legislative session that will continue our agency on for 4 a prescribed number of years. 5 We're here this morning to answer any 6 questions that you might have about the document and 7 ultimately seeking your approval of the document. So 8 we're happy to answer any questions, if you have any. 9 CHAIRMAN WILLIAMSON: Okay. And I'm not 10 sure who -- whether Nelda needs to answer this or you. 11 Generally, I know they haven't appointed 12 everybody to Sunset -- this Sunset Committee yet. Sort 13 of, what's our timeline as -- that you've heard about so 14 far? 15 MS. TREVINO: Okay. There is a body made 16 up of house and senate members. There are currently 17 some house members and some senate members where their 18 terms are going to be expiring, so it's anticipated that 19 the lieutenant governor and the speaker of the house 20 will be filling those vacancies. 21 And I believe the Sunset Commission is 22 anticipating that to take place sometime this month, 23 next month, in order for the Sunset Commission to meet 24 in September, for them to approve this schedule -- the 25 review schedule for the Sunset staff. And until that 26 1 review schedule is approved, agencies who are under 2 Sunset Review really don't know when the Sunset staff 3 will be in the agency to review the agency for the 4 Sunset process. So I think until after that September 5 Sunset Commission meeting, we'll get a better idea as to 6 what the timeline is. 7 Once the review schedule is put out and 8 the Sunset staff comes in and reviews a particular 9 agency, then there is committee hearings that take 10 place. There is certainly an opportunity, also -- let 11 me back up. 12 The Sunset Self-evaluation Report, as Gary 13 mentioned, is the first step. That document is 14 submitted. It's a public record. The Sunset staff 15 obviously uses that as they review the agency, and then 16 they issue a report based on their review. Once that 17 report is issued, then there's a committee hearing that 18 takes place from the Sunset Commission. And there's an 19 opportunity for the agency to provide testimony; there 20 is an opportunity for public comment to take place; and 21 then subsequently, the Sunset Commission makes 22 recommendations on the agency, which then leads into a 23 bill for next session. 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. 27 1 Commissioner, do you have any questions? 2 COMMISSIONER KRAUSE: Is Mr. Elrod here? 3 FROM THE AUDIENCE: Thank you. 4 COMMISSIONER KRAUSE: Thank you for your 5 good work. 6 CHAIRMAN WILLIAMSON: Yes. I asked him 7 when I read -- I read most of it. I say, "Goodness. 8 Whoever managed this, it must be an incredible job" 9 because I was very impressed with -- basically, I said, 10 "Who typed this and kept it together?" So, yeah. 11 (Laughter) 12 CHAIRMAN WILLIAMSON: So, yes, thank you 13 for your hard work. 14 And let's see. This is an action item? 15 MR. GRIEF: Yes, ma'am. 16 CHAIRMAN WILLIAMSON: All right. Is there 17 a motion? 18 COMMISSIONER KRAUSE: I make a motion that 19 we approve this for submission to the Sunset Commission, 20 and we get it wrapped up, send it over there. 21 CHAIRMAN WILLIAMSON: All right. I 22 second. All in favor? 23 COMMISSIONER KRAUSE: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 Motion passes 2-0. 28 1 COMMISSIONER KRAUSE: Thank you. 2 AGENDA ITEM NO. VIII 3 CHAIRMAN WILLIAMSON: Let's see. The next 4 item is consideration of and possible discussion and/or 5 action, including adoption on the rule review of 16 TAC 6 Chapter 403 relating to general administration. 7 Kim, this is your item. 8 MS. KIPLIN: Good morning. Commissioners, 9 if you'll recall, at an earlier Commission meeting, 10 you-all voted to propose the rule review of this 11 particular Chapter 403 for public comment. Every four 12 years, an agency is required to undergo review of its 13 rules to considering whether those rules are still 14 necessary, if they need to be revised or repealed. 15 This is the end -- the culmination. This 16 is the adoption of that rule review. We received no 17 comment. We did review the rules. There are rules that 18 do need to be amended, but all the rules need to be 19 readopted. In each one of these rules, there's an 20 underlying statute that requires us to have a rule. 21 And so with that, the request from the 22 Staff is that you vote to adopt the rule review. 23 CHAIRMAN WILLIAMSON: All right. 24 Commissioner, do you have any questions? 25 COMMISSIONER KRAUSE: I do not, and I'm 29 1 ready to make a motion. 2 CHAIRMAN WILLIAMSON: All right. 3 COMMISSIONER KRAUSE: I make a motion that 4 we adopt the rule review of 16 TAC Chapter 403 as shown 5 on the attached draft. 6 CHAIRMAN WILLIAMSON: I second the motion. 7 All in favor? 8 COMMISSIONER KRAUSE: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 The vote is 2-0. 11 MS. KIPLIN: Thank you. And I have an 12 order. 13 AGENDA ITEM NO. IX 14 CHAIRMAN WILLIAMSON: Okay. And then 15 let's go on to the next -- IX. The next item is 16 consideration of and possible discussion and/or action, 17 including proposal to amendments to rules identified 18 item under -- under Item IX of the Open Meetings notice. 19 Bob and Pete, please. 20 MS. KIPLIN: And just to put an 21 introductory remark, these are the rules that are the 22 ones that we need to begin to amend as a result of the 23 rule review of Chapter 403. 24 CHAIRMAN WILLIAMSON: That were statutory 25 required -- 30 1 MS. KIPLIN: Yes. 2 CHAIRMAN WILLIAMSON: -- to have a rule? 3 Okay. 4 MR. BIARD: Good morning, Commissioners. 5 For the record, my name is Bob Biard, assistant general 6 counsel in the legal services division. 7 And this morning, I have for your 8 consideration seven rule amendments for proposals to 9 publish with the Texas Register for public comment, and 10 these resulted from our review of the agency's rules in 11 Chapter 403, which occurs every four years, as 12 Ms. Kiplin said. 13 Of the six of these proposals are cleanup 14 matters to conform to the agency's rules regarding 15 agency vendor contract claims, to conform them to 16 corresponding language in the governing statutes at 17 Chapter 2260 of the Government Code. In our review, we 18 identified several instances where our rule language was 19 not consistent with the statutory language, and our 20 proposals are to conform the rules to a statutory 21 language and, in a couple of instances, to change 22 internal references to our rule sections that will be 23 changed as a result of these amendments. 24 The seventh proposal is a readoption of 25 the comptroller's rules on historically underutilized 31 1 businesses, or HUBs. By statute, all state agencies are 2 required to adopt the comptroller's HUB rules as their 3 own, which this agency does in Rule 403.301. The 4 comptroller's office has proposed amendments to its HUB 5 rules and has indicated that it intends to adopt its 6 changes prior to September 1st. One of the amendments 7 that the comptroller is making is the addition of a new 8 rule number section that we would need to refer to in 9 our rule, if it's adopted. And because of the timing of 10 the comptroller's rulemaking, because it's coinciding 11 with our rule review, we're proposing to publish a 12 proposed amendment readopting the comptroller's HUB 13 rules with the new section listed referenced in our 14 rule. 15 For each of those proposals, Staff 16 recommends initiating the rulemaking process by 17 publishing the proposals in the Texas Register in order 18 to receive public comment for 30 days. 19 Happy to answer any questions. 20 CHAIRMAN WILLIAMSON: Thank you. 21 Commissioner, do you have any questions? 22 COMMISSIONER KRAUSE: Well, on this 23 cleanup, are these statutory changes that occurred in 24 the last legislative session? 25 MR. BIARD: No, sir, they occurred in 32 1 prior legislative sessions, and we became aware of those 2 when we went through this four-year review. 3 COMMISSIONER KRAUSE: Okay. 4 MR. BIARD: Prior to that, our rules had 5 been consistent with other agency rules and with the 6 similar rules that the Attorney General has for contract 7 claims. 8 COMMISSIONER KRAUSE: So the Attorney 9 General's rules were not in sync with our statute. 10 MR. BIARD: Well, I'm not sure I can say 11 that for sure. 12 COMMISSIONER KRAUSE: Whatever. 13 (Laughter) 14 MR. BIARD: I'm not sure I can speak 15 for -- 16 COMMISSIONER KRAUSE: Trying to get it 17 done. Right? 18 MR. BIARD: Right. Right. 19 COMMISSIONER KRAUSE: All right. I'm 20 ready do make a motion. 21 CHAIRMAN WILLIAMSON: All right. 22 MR. BIARD: We did coordinate. We did 23 Contact the Attorney General's office, and they said 24 they were in agreement with us making these cleanups. 25 COMMISSIONER KRAUSE: Excellent. 33 1 CHAIRMAN WILLIAMSON: All right. 2 COMMISSIONER KRAUSE: All right. Well, I 3 make a motion that we publish for public comment all of 4 the different rules -- changes to all the different 5 rules that are identified in Item No. IX of our agenda. 6 CHAIRMAN WILLIAMSON: There's a second. 7 All in favor? 8 COMMISSIONER KRAUSE: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 Motion passes, 2-0. 11 MS. KIPLIN: And, Commissioners, Pete has 12 one rule that's part of it on -- 13 CHAIRMAN WILLIAMSON: Okay. 14 MS. KIPLIN: -- custody and just to 15 incorporate it, the custody and use of criminal history 16 record information, and that's the very last one. And 17 we're going to pass one because we just picked up -- the 18 statute got repealed, so we're going to lift -- take 19 that language out. 20 CHAIRMAN WILLIAMSON: Okay. 21 MS. KIPLIN: So I wanted to just put that 22 on the record, and I think we're fine just to make sure 23 that that's referenced. And I guess that's it. 24 CHAIRMAN WILLIAMSON: Okay. All right. 25 MS. KIPLIN: And I have a T-bar memo -- 34 1 CHAIRMAN WILLIAMSON: Thank you, 2 gentlemen. 3 MS. KIPLIN: -- that reflects your action 4 today. Thank you. 5 AGENDA ITEM NO. X 6 CHAIRMAN WILLIAMSON: Let's see. The next 7 item is consideration of and possible discussion and/or 8 action, including notice of intention to review on 9 16 TAC Chapter 401, relating to administration of State 10 Lottery Act. 11 Kim, please. 12 MS. KIPLIN: So, Commissioners, this is 13 the kickoff of the required rule review of Chapter 401, 14 which are the lottery rules. They were last reviewed 15 four years ago, and so now it's time. 16 And so we're asking your permission to 17 publish the Notice of Intent on the rule review in the 18 register to receive public comment. And then in a 19 subsequent Commission meeting, we'll come back. We'll 20 do the same rule review we did for Chapter 403. We'll 21 go through and look at each rule. Decide do we need it? 22 Is it something we need? If it is, has our agency 23 practiced so that it should be revised? And we'll come 24 back at a later date and ask your permission on each of 25 the outcomes of that. 35 1 So today, what we're asking is you publish 2 it for public comment. 3 CHAIRMAN WILLIAMSON: All right. 4 Commissioner, do you have any questions? 5 COMMISSIONER KRAUSE: No, ma'am. I make a 6 motion that we publish for public comment in the Texas 7 Register notice of our intention to review the rules 8 under 16 TAC Chapter 401. 9 CHAIRMAN WILLIAMSON: I second the motion. 10 All in favor? 11 COMMISSIONER KRAUSE: Aye. 12 CHAIRMAN WILLIAMSON: Aye. 13 Motion passes 2-0. 14 AGENDA ITEM NO. XI 15 CHAIRMAN WILLIAMSON: We're on to Item XI. 16 The next item is consideration of and possible 17 discussion and/or action, including notice of intention 18 to review on 16 TAC Chapter 402, relating to Charitable 19 Bingo Administrative Rules. 20 Kim. 21 MS. KIPLIN: And so, Commissioners, this 22 is exactly the same action that we're asking to give 23 notice of intent to begin the rule review for the bingo 24 rules. They were last reviewed four years ago, and so 25 now it's time for us to do that. 36 1 I'd be happy to answer any questions. 2 CHAIRMAN WILLIAMSON: Well, I would just 3 encourage you on all of these endeavors, if there's a 4 rule we really don't need anymore, let's get rid of it. 5 I think all of us in business can appreciate how 6 burdened we all are with lots of rules and regulations, 7 so. 8 COMMISSIONER KRAUSE: I second that. We 9 got the -- we got the feds working overtime on that. So 10 if we can counterbalance that, that would be great. 11 MS. KIPLIN: We will take that 12 instruction. 13 CHAIRMAN WILLIAMSON: All right. Thank 14 you. 15 Is there a motion? 16 COMMISSIONER KRAUSE: I make a motion that 17 we publish for public comment the -- our intention to 18 review the rules under 16 TAC Chapter 402. 19 CHAIRMAN WILLIAMSON: I second the motion. 20 All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 Motion passes 2-0. 24 AGENDA ITEM NOS. XII, XIII and XIV 25 CHAIRMAN WILLIAMSON: And we're going to 37 1 take 12, 13, and 14 together. So I'll start with -- 2 Kim, you want me to just start with 12 and just read all 3 of them? 4 MS. KIPLIN: Yes, if you could, that would 5 be great. 6 CHAIRMAN WILLIAMSON: Okay. 7 MS. KIPLIN: And put it on the record. 8 CHAIRMAN WILLIAMSON: The 12 -- this is 9 consideration of and possible discussion and/or action, 10 including proposal on amendments to 16 TAC 401.309, 11 relating to assignability of prizes; and the next one 12 is, consideration of and possible discussion and/or 13 action, including proposal on amendments to 16 TAC 14 401.318, relating to withholding of delinquent child 15 support payments from lump sum and periodic installment 16 payments of lottery winnings in excess of $600; and 17 consideration of and possible discussion and/or action, 18 including proposal on amendments to 16 TAC 401.319, 19 relating to withholdings of child support payments from 20 periodic installment payments of lottery winnings. 21 Deanne, I know these three items are 22 yours, and this is as a result of Senate Bill 626 that 23 Nelda discussed earlier. 24 MS. RIENSTRA: Yes. 25 CHAIRMAN WILLIAMSON: All right. 38 1 MS. RIENSTRA: For the record, Deanne 2 Rienstra, assistant general counsel. 3 Commissioners, this year, as you said, the 4 state legislature passed SB 626 which amended the State 5 Lottery Act provisions involving lottery price payment 6 withholding and assignability of lottery prize payments. 7 In order to conform to and clarify this 8 recent legislation, certain lottery administrative rules 9 need amending. The lottery rules are found in Title 16 10 of the Texas Administrative Code and include 401.309, 11 relating to assignability of prizes; 401.318, relating 12 to the withholding of delinquent child support payments; 13 and 401.319, relating to the withholding of child 14 support payments from periodic installment payments of 15 lottery winnings. 16 Therefore, the Staff is recommending the 17 initiation of the rulemaking process by publishing the 18 proposed amendments to these three rules in the Texas 19 Register in order to receive public comment. 20 And I'm happy to answer any questions. 21 CHAIRMAN WILLIAMSON: Thank you. 22 Commissioner, do you have any questions? 23 COMMISSIONER KRAUSE: Did this Senate Bill 24 fix help us with any of the litigation that the Lottery 25 Commission's been involved with around these issues? 39 1 MS. RIENSTRA: Yes, sir. 2 COMMISSIONER KRAUSE: So it was 3 retroactive and not just prospective? 4 MS. RIENSTRA: By -- I don't understand 5 what you mean. 6 COMMISSIONER KRAUSE: Okay. Did the 7 Senate Bill help us out with the -- you know, some of 8 the litigation that we are involved with now? Do we 9 have any cases going on now? 10 MS. RIENSTRA: Not pending. We had the 11 DeQueen case in which the supreme court ruled last 12 October and then denied the motion for rehearing, which 13 involved the last two years. 14 COMMISSIONER KRAUSE: Okay. 15 MS. RIENSTRA: And now, the Senate Bill 16 changed the State Lottery Act which -- 17 COMMISSIONER KRAUSE: So all prospective, 18 then. 19 MS. RIENSTRA: -- which removed the -- and 20 allows the assignability of the last two years. 21 COMMISSIONER KRAUSE: Okay. 22 All right. Well, I make a motion that we 23 publish for public comment the amendments to 16 TAC 24 401.309, 16 TAC Section 401.318, and Section -- 16 TAC 25 Section 401.319 in the Texas Register. 40 1 CHAIRMAN WILLIAMSON: All right. I 2 second. 3 All in favor? 4 COMMISSIONER KRAUSE: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 Motion passes 2-0. 7 Thank you, Deanne. 8 AGENDA ITEM NO. XV 9 CHAIRMAN WILLIAMSON: Okay. The next item 10 is No. 15, the -- is consideration of and possible 11 discussion and/or action, including proposal on 12 amendments to 16 TAC 401.317, relating to Powerball 13 online game rule. 14 Robert and Kim? 15 MS. KIPLIN: Yes, thank you. If I could 16 start, and then I'll turn it over to Robert. 17 Commissioners, what you have in your 18 notebook today is a rulemaking to propose amendments to 19 the Powerball online game rule. The primary purpose of 20 the proposed amendments is to change the game matrix and 21 the ticket price. This is an interesting rule for us 22 and an interesting game; and it's a multistate, 23 multiparty lottery game rule. 24 And so, I guess, in an effort to try to 25 clarify what comment we're seeking when you publish -- 41 1 it's proposed for public comment, it really doesn't have 2 to do with the nature of the game, the game matrix, the 3 price of it because it's really not our gain. We're 4 operating under a license from the Multistate Lottery 5 Association. And so the comment to the most helpful 6 would be do you or do you not want to participate? 7 And so to give you a little bit of 8 background on that, we are authorized -- the Lottery 9 Commission is authorized by Texas Government Code 10 Section 466.451 to contract with other states and 11 foreign countries to participate in multijurisdictional 12 lottery games. And we have entered into an authorized 13 agreement, like I said, with the Multistate Lottery 14 Association, commonly known as MUSL, to offer the MUSL 15 Powerball game in Texas. 16 And so to be clear, the right to 17 participate in the MUSL Powerball game is provided to 18 the Commission in other participating Mega Million 19 states under licensure by MUSL. Lottery has no 20 independent authority to offer you this proprietary 21 product in Texas. Therefore, the conduct and the play 22 of Powerball must conform to the MUSL Powerball gaming 23 rule. And as I said, comments that go beyond whether 24 the lottery should or should not offer Powerball in 25 Texas and instead suggest changes to the conduct in play 42 1 of Powerball really go beyond the authority the lottery 2 would have with regard to Powerball being offered in the 3 state of Texas. 4 And I'll be glad to answer any questions 5 about the legal aspects of that. What we are asking for 6 is permission today to go ahead and publish the proposed 7 amendment so that we can conform our rule to the game 8 changes that have been made by MUSL with regard to the 9 Powerball rule under -- we are operating under licensing 10 arrangement, so. 11 CHAIRMAN WILLIAMSON: Okay. 12 COMMISSIONER KRAUSE: Well, this is 13 something that we have to do because we're a licensee. 14 MS. KIPLIN: That's right. And if we want 15 to offer Powerball in this state, we have to conform to 16 the changes that are being made by MUSL. 17 CHAIRMAN WILLIAMSON: All right. 18 MS. KIPLIN: If we don't, well, then we 19 don't offer Powerball in this state. We don't have this 20 rule. We don't have this game. 21 CHAIRMAN WILLIAMSON: Robert, would you go 22 ahead, please, and tell us your -- 23 MR. TIRLONI: Yes, ma'am. Again, 24 Commissioners, for the record, my name is Robert 25 Tirloni. I'm the products manager for the Commission. 43 1 So in late June, MUSL, which is the MUSL 2 state -- the Multistate Lottery Association, in late 3 June, they made an announcement that they were going to 4 be changing the Powerball game in 2012, almost in sync 5 with Powerball's 20th anniversary, which occurs in 6 April. 7 The game is being redesigned with the idea 8 that the redesign would bring more value to Powerball 9 players. This new version of the game is going to debut 10 on January 15th, 2012, and it is going to be a $2 game, 11 so the price is changing to $2. 12 There are three key takeaways or three key 13 points about this change that MUSL is communicating; and 14 that is more, bigger, and better. So the more has to do 15 with more millionaires, and that's because they are 16 increasing the second-tier prize in the game from 17 $200,000 up to a million dollars. The Power Play add-on 18 feature is going to remain on the Powerball game; and 19 that second-tier prize, if a player purchases Power 20 Play, can be increased up to $2 million. 21 The bigger aspect has to do with jackpots. 22 This game change will increase the starting jackpot 23 amount from $20 million to $40 million. So it's 24 doubling the starting jackpot amount. 25 And better has to do with the odds. Kim 44 1 talked about a matrix change. I'm going to cover that 2 in the next slide. But the matrix change is making the 3 overall odds of winning slightly better, and it is 4 making the odds of winning the jackpot better for 5 players as well. 6 So here's a comparison between the current 7 version of Powerball, which is on the left, and the new 8 version of the $2 Powerball game, as I said, which will 9 start in January. 10 So I just mentioned the matrix. It is 11 getting smaller. The first set of numbers remains the 12 same at 59. The set -- the Powerball set is decreasing, 13 so players will choose one out of 35 instead of one out 14 of 39. 15 The price, as I mentioned, is increasing. 16 It's going from $1 to $2 per play. The jackpot is 17 doubling. The starting jackpot is doubling from 18 20 million to 40 million. The second-tier prize, as I 19 mentioned, increases quite significantly from $200,000 20 up to a million dollars. And that is cash. That's not 21 an annuity. 22 And then at the opposite end of the 23 spectrum, the very lowest prize in the game is 24 increasing. That's if a player matches the Powerball 25 only, and that goes from $3 to $4. 45 1 The overall odds change from one in 35 to 2 one in 32. You'll notice a big difference in the 3 jackpot odds, though. Those are going from one in 4 195 million to one in 175 million. 5 Power Play is changing in this new version 6 of the game. The current version of Power Play is a 7 multiplier, and that multiplier amount is determined by 8 a drawing that takes place before the actual Powerball 9 game drawing. That feature is going away. It's being 10 changed to set prize increases, and I'll show you on the 11 next slide what those increases look like. 12 And MUSL did have a jackpot management 13 program on the Powerball game. It was called the Match 14 5 Bonus. Frankly, it caused quite a bit of confusion 15 for our retailers and our players. I think this is a 16 very positive change that they're taking this off of the 17 game. 18 Since we've been in the game, this has 19 never come into play. This only -- this Match 5 Bonus 20 only would come into play when a new record-level 21 jackpot was reached, and what would happen is it would 22 limit the amounts of the rolls. And some of that money 23 would then roll down to some lower level prizes or to 24 the next tier of prizes. So this is being taken out of 25 the new version of Powerball. 46 1 And just to give you an idea on how Power 2 Play will work, as I said, there's going to be no more 3 drawing. So there is no more multiplier. There are set 4 prize increases. 5 And I think this is a positive. I think 6 for player communication, we'll be able to very clearly, 7 in our communications with players, whether that be 8 brochures or on our website, communicate what the 9 increases are. Before we had to give everybody a range 10 of what the possible Power Play prizes would be 11 depending on the multiplier drawn. This should be 12 simpler communication for everybody. 13 And so you'll see that if you play 14 Powerball and you opt to spend the extra dollar for 15 Power Play, on the second-tier prize, you're $1 million 16 prize becomes $2 million; your $10,000 prize would 17 become $40,000; and so on and so forth down through all 18 of the prize tiers. 19 So just to kind of go through a schedule 20 of what could potentially happen over the next few 21 months. As I mentioned, Powerball is changing on 22 January 15th. That is the day MUSL has announced the 23 sales for the new game will start. 24 So we have our rule proposal for you today 25 for your consideration. We are going to have a public 47 1 comment hearing here at lottery headquarters on 2 September 7th. The rule would be ripe for your 3 consideration in October. And if you choose to adopt 4 that rule in October, we would work feverishly through 5 November and December to make sure we would be ready to 6 start sales on that game on the 15th of January. That's 7 a Sunday. And then the first drawing under the new game 8 matrix, with all of the new parameters of the game, the 9 first drawing would then be a few days later, on 10 Wednesday, January 18th. 11 Just to give you an idea of what type of 12 advertising and promotional support we are considering, 13 if you-all choose to adopt that rule in October, we 14 would produce a new creative campaign. So we would work 15 with TracyLocke and LatinWorks on new creative to 16 support this new version of Powerball. That would 17 typically include TV; radio; outdoor billboards; of 18 course, point of sale at our retail locations; customer 19 appreciation days with radio remotes -- that was 20 successful for us when we launched Powerball in January 21 of 2010 -- clerk promotions and player free ticket 22 promotions, statewide radio promotions. 23 And this was another successful initiative 24 when we launched Powerball. We had giant red inflatable 25 Powerballs that we placed at retailer locations. I 48 1 think we had about 30 of them, and that was very, very 2 attention getting. The retailers really liked having 3 those giant inflatables. Typically, they were placed on 4 the roof of their location. Some of them placed them in 5 parking lots, but it was very, very attention getting. 6 We got some media attention around those inflatables 7 being placed as well. So we have those left over. We 8 don't have to get new ones, and we would propose using 9 those again if all this comes to fruition. 10 And so that's the rundown that I have on 11 the changes, as Kim said, that our -- that MUSL is 12 putting into place starting in January. 13 And I'm happy to answer any questions. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 Commissioner, do you have any questions? 17 COMMISSIONER KRAUSE: Just a couple real 18 quick. 19 When we typically go to for a rule change 20 on Powerball, do we ever really get any significant 21 public comment? 22 MR. TIRLONI: We did when we were 23 starting -- when we did a public comment period when we 24 were first coming into Powerball, yes. 25 COMMISSIONER KRAUSE: So this is the first 49 1 time we're actually making any like rule changes and 2 just, you know, tinkering with the rule? 3 MR. TIRLONI: Yes, sir, that's correct. 4 COMMISSIONER KRAUSE: Okay. 5 MR. TIRLONI: We've not made any changes 6 since we launched the game. 7 COMMISSIONER KRAUSE: All righty. I guess 8 that's really my only question. 9 CHAIRMAN WILLIAMSON: But from what I 10 understand, we don't have any choice. We either say 11 "Yes, we're going to do this" or "No, we're not." And 12 if we say "No, we're not," then we're not participating 13 in Powerball. 14 MS. KIPLIN: Yes, ma'am. 15 CHAIRMAN WILLIAMSON: That is correct to 16 understand that? 17 MS. KIPLIN: Yes, that is correct. 18 CHAIRMAN WILLIAMSON: Okay. 19 COMMISSIONER KRAUSE: We want to stay in 20 Powerball. 21 CHAIRMAN WILLIAMSON: Okay. We do have 22 someone who'd like to make comment. 23 Ms. Nettles, would you like to come up 24 and -- 25 MS. NETTLES: Good morning, Commissioners. 50 1 My name is Dawn Nettles. I'm with the Lotto Report out 2 of Dallas, and I really don't have a whole lot that I 3 wanted to say. I was forced to do the form, if I did. 4 I have a couple of issues on this 5 Powerball rule change because I understand that it's 6 MUSL and that you have to -- you either offer it or you 7 don't. I do have a problem with the lottery sending out 8 a press release a month ago -- or don't know the exact 9 date -- stating that these changes were coming to Texas. 10 Okay. This appears that it's a done deal no matter what 11 anybody says, and the general public may have input on 12 as to whether or not they think playing Powerball in the 13 state of Texas is worthwhile or not. I frankly don't. 14 I think it's costing the state money. Okay? But 15 that -- I don't have figures or anything at this time. 16 The sales that are reported for Powerball 17 can sometimes be deceiving because you ought to take a 18 real good look at the prizes won from the scratch 19 tickets, where there are free tickets issued. So the 20 dollar amount that you think players are literally 21 turning over, that's not really a true figure because of 22 the free tickets. 23 I do hope Texas will consider public 24 comment and not ignore what people have to say. I hope 25 this Commission will listen and pay attention on it. 51 1 COMMISSIONER KRAUSE: Well, can we count 2 on you to make your public comment during the period? 3 MS. NETTLES: Most likely. I don't 4 think -- I don't think -- I think that when we joined 5 Powerball, I really questioned having being a part of 6 two multistate games. And I was really surprised that 7 Texas did so badly in sales, and it caught me off guard. 8 I never expected it to be as low as what it was. And so 9 it does take away from the other games, and it has hurt 10 Lotto Texas because no matter how you go about it in 11 Texas or anywhere else in the country, people only have 12 so much money they're going to spend. They're really 13 not going to pull out extra dollars because you have 14 extra games. Okay? They're going to spend a set amount 15 of money. So they're dividing amongst all the games. 16 Now, it's hurt Lotto when they were giving 17 the sales presentation a little bit ago and they said 18 that Lotto Texas sales were down. I forgot what 19 percentage, but -- and the reason for it is because last 20 year they had all these big jackpots. Well, what you've 21 got to remember is they went 50 draws without a winner. 22 Well, that hurts perception. That hurts play. People 23 will say, "Hey, forget this. Who wants to donate 50 24 times in a row before there's a winner?" And Lotto 25 Texas is costing this Commission money. It's 52 1 $30 million in the hole, I think, 20 -- 23 million in 2 the hole since the rule changed in '06. 3 So, and all of it occurred last year, or 4 this year. Okay. This fiscal year. Okay. 5 But I just hope that you-all will really 6 consider hard, and I hope that this perception -- 7 because really and truly, I feel it's a waste of my time 8 to be here because I feel like it's a done deal. If 9 Texas wants to play Powerball, they do have to make the 10 changes. I hope that this Commission will also consider 11 the other states that are going to pull out, and I don't 12 think that Powerball will be successful in their 13 changes. 14 But -- and I don't really mean to be so 15 negative, but I just don't think we need two multistate 16 games in Texas. I think you'd do better if you just had 17 one. And apparently, Mega Millions is the game. It was 18 your first one, and it's what people want. 19 CHAIRMAN WILLIAMSON: All right. 20 MS. NETTLES: So thank you -- 21 COMMISSIONER KRAUSE: Thank you, ma'am. 22 MS. NETTLES: -- for hearing me. 23 CHAIRMAN WILLIAMSON: Thank you so much. 24 So is there a motion to post this for 25 public comment? 53 1 COMMISSIONER KRAUSE: I make a motion that 2 we initiate the rulemaking process by publishing the 3 proposed rule changes presented to us today for 4 publishing in the Texas Register change 16 TAC Section 5 401.317. 6 CHAIRMAN WILLIAMSON: I second. 7 All in favor? Aye. 8 COMMISSIONER KRAUSE: Aye. 9 CHAIRMAN WILLIAMSON: Motion passes 2-0. 10 AGENDA ITEM NO. XVI 11 CHAIRMAN WILLIAMSON: Let's see the next 12 item is consideration of and possible discussion and/or 13 action, including adoption on amendments to 16 TAC 14 401.152, relating to application for license. 15 Pete, this is yours, please. 16 MR. WASSDORF: For the record, my name is 17 Pete Wassdorf, assistant general counsel of the legal 18 services division. 19 Good morning, Commissioners. I direct 20 your attention to Agenda Item 16. At your June 13th 21 meeting, you proposed an amendment to 16 TAC 401.152 22 entitled, "Application for License." The purpose of the 23 proposed amendment was to correct an erroneous citation 24 in the rule and to reflect the statutory treatment of 25 the application filing fees as provided in Government 54 1 Code 466.152. The Commission received no comments 2 during the comment period, and the Staff recommends that 3 the Commission adopt this amendment to 16 TAC 401.152. 4 CHAIRMAN WILLIAMSON: Thank you. 5 Commissioner, do you have any questions? 6 COMMISSIONER KRAUSE: No, ma'am. 7 CHAIRMAN WILLIAMSON: Motion, please? 8 COMMISSIONER KRAUSE: Make a motion that 9 we adopt the amendments to 16 TAC Section 401.152. 10 CHAIRMAN WILLIAMSON: Second the motion. 11 All in favor? 12 COMMISSIONER KRAUSE: Aye. 13 CHAIRMAN WILLIAMSON: Aye. 14 Motion passes 2-0. 15 MS. KIPLIN: Commissioners, I have an 16 order. 17 AGENDA ITEM NO. XVII 18 CHAIRMAN WILLIAMSON: Okay. Next item is 19 consideration of and possible discussion and/or action, 20 including adoption on amendments to 16 TAC 401.153, 21 relating to qualifications for license. 22 Pete, if you'll continue, please. 23 MR. WASSDORF: Again, for the record, my 24 name is Pete Wassdorf, assistant general counsel in the 25 legal services division. 55 1 I now direct your attention to Agenda Item 2 No. 17. Again, at your June 13th meeting, you proposed 3 an amendment to 16 TAC 401.153 entitled, "Qualification 4 for License." The purpose of that proposed amendment 5 was to correct an erroneous reference to a chapter of 6 the Education Code that was mentioned in that rule by 7 substituting the Education Code reference to Chapter 52 8 rather than to Chapter 53 of the Education Code. And, 9 again, the Commission received no comments during the 10 public comment period, and the Staff recommends that the 11 commission adopt the amendment to 16 TAC 401.153. 12 CHAIRMAN WILLIAMSON: Thank you. 13 Commissioner, do you have any questions? 14 COMMISSIONER KRAUSE: No, ma'am. 15 CHAIRMAN WILLIAMSON: Can you make a 16 motion, please? 17 COMMISSIONER KRAUSE: I make a motion that 18 we adopt the proposed amendments to 16 TAC Section 19 401.153. 20 CHAIRMAN WILLIAMSON: I second the motion. 21 MR. WASSDORF: Thank you, Commissioners. 22 CHAIRMAN WILLIAMSON: All in favor? 23 COMMISSIONER KRAUSE: Aye. 24 CHAIRMAN WILLIAMSON: Aye. 25 Motion passes 2-0. 56 1 MS. KIPLIN: I have an order. 2 AGENDA ITEM NO. XVIII 3 CHAIRMAN WILLIAMSON: Next item is report, 4 possible discussion, and/or action, including 5 procurement on the agency's lottery security study 6 services, instant ticket manufacturing and services, 7 and/or advertising services. 8 Mr. Fernandez? 9 MR. FERNANDEZ: Good morning, 10 Commissioners. For the record, my name is Mike 11 Fernandez. I'm the director of administration. 12 Item No. 18 in your notebook is a briefing 13 item, and this is to -- for Staff's intent to inform you 14 that we are going to issue procurements for services 15 regarding lottery security study, instant ticket 16 manufacturing and services, and advertising services. 17 So if you have any questions, I'll be 18 happy to answer. 19 CHAIRMAN WILLIAMSON: Commissioner, do you 20 have any questions? 21 COMMISSIONER KRAUSE: So when are you 22 going to, I guess, publish these requests for proposals? 23 MR. FERNANDEZ: We're looking late 24 October, early November. 25 COMMISSIONER KRAUSE: Okay. 57 1 CHAIRMAN WILLIAMSON: All right. I have 2 no questions. 3 Thank you, Mike. 4 AGENDA ITEM NO. XIX 5 CHAIRMAN WILLIAMSON: If you'll go on to 6 Item XIX: Report, possible discussion, and/or action on 7 amendments to the 2010 lottery operations and services 8 contract. 9 MR. FERNANDEZ: Again, for the record, my 10 name is Mike Fernandez. I'm the director of 11 administration. 12 Again, this is a briefing item, and this 13 item is to advise you of Staff's intent to enter into 14 Amendment No. 1 to the 2010 lottery operations and 15 services contract. The key purposes of the amendment 16 are to ensure an orderly transition to the new lottery 17 gaming system, to correct incorrect contract provision 18 references, and to clarify the equipment and services to 19 be provided under the terms of the contract. 20 Beginning September 1, 2011, GTECH will be 21 compensated at the new contract rate of 2.2099 percent. 22 And as you know, the current rate is 2.6999 percent. 23 I'll be happy to answer any questions. 24 CHAIRMAN WILLIAMSON: Commissioner, do you 25 have any questions? 58 1 COMMISSIONER KRAUSE: I do not. 2 CHAIRMAN WILLIAMSON: All right. 3 MR. FERNANDEZ: Thank you. 4 CHAIRMAN WILLIAMSON: Thank you. 5 AGENDA ITEM NO. XX 6 CHAIRMAN WILLIAMSON: Item XX: 7 Consideration of and possible discussion and/or action 8 on membership in the Multistate Lottery Association, or 9 MUSL. 10 Gary? 11 MR. GRIEF: Commissioners, at this time, I 12 only want to advise you that I'm exploring the 13 requirements to become a member of the Multistate 14 Lottery Association. As you know, that's the governing 15 body for among other games, Powerball, and it's 16 currently composed of 33 state lotteries. 17 As a member of the Mega Millions group, as 18 Kim stated earlier, we have a licensing agreement to 19 sell Powerball; but what we don't have is a vote on any 20 game changes such as the ones that have come before you 21 today, and we don't have any seats on any of the 22 numerous committees in MUSL. There's product 23 development, security, public relations, et cetera. I 24 believe it's important that we at least attempt to try 25 to get a voice in those discussions, and as I continue 59 1 to gather information together, I'll be reporting to you 2 further at a future commission meeting. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Commissioner, do you have any questions or 5 comments? 6 COMMISSIONER KRAUSE: Who are the other 7 big lotteries in MUSL? 8 MR. GRIEF: MUSL? The biggest is 9 Pennsylvania. 10 COMMISSIONER KRAUSE: Are they -- how do 11 they compare to Texas? 12 MR. GRIEF: Much smaller. In the Mega 13 Millions group, you have New York, you have Ohio, you 14 have New Jersey, you have Massachusetts, many of the top 15 selling lotteries. It's not entirely accurate to say 16 most of the big states are in Mega Millions and most of 17 the smaller states are in MUSL, but practically 18 speaking, that's how it's viewed. 19 COMMISSIONER KRAUSE: Okay. 20 CHAIRMAN WILLIAMSON: All right. Well, I 21 encourage you to continue the conversations, and we'll 22 see where it leads. 23 AGENDA ITEM NO. XXI 24 CHAIRMAN WILLIAMSON: We'll go on to Item 25 XXI: Report, possible discussion, and/or action on 60 1 GTECH Corporation. 2 MR. GRIEF: Commissioners, other than 3 what's in your notebooks today, I have nothing further 4 to report on that item. 5 CHAIRMAN WILLIAMSON: Other than -- Joe, 6 are you here? I'm going to put you on the spot. Just 7 give us a brief update on where we are in -- 8 COMMISSIONER KRAUSE: On the roll-out. 9 CHAIRMAN WILLIAMSON: -- in our roll-out. 10 MR. LAPINSKI: For the record, I'm Joe 11 Lapinski, the account general manager for GTECH in 12 Texas. Good day, Commissioners, Chairman. 13 I'm happy to inform you that the 14 conversion continues to go very well. Currently, the 15 retail deployments of signage in terminals is over 16 90 percent complete. It's on track to complete on the 17 scheduled date in August 26th. We have less than a 18 thousand retailers that have yet to receive their new 19 terminals and monitors. So very excited about how 20 that's gone. It's gone very much to plan. 21 We continue to work with the lottery staff 22 and support them in their user acceptance testing 23 efforts for the system. That's going very well. 24 And I can answer any questions you have. 25 CHAIRMAN WILLIAMSON: All right. Thank 61 1 you. 2 Commissioner, do you have any questions? 3 COMMISSIONER KRAUSE: I do not. Keep up 4 the good work. 5 CHAIRMAN WILLIAMSON: All right. 6 MR. LAPINSKI: Thank you. 7 CHAIRMAN WILLIAMSON: Thank you. 8 AGENDA ITEM NO. XXII 9 CHAIRMAN WILLIAMSON: On to Item XXII: 10 Report by the Executive Director and/or discussion or 11 action on the agency's operational status, agency 12 procedures, and FTE status. 13 MR. GRIEF: Commissioners, other than 14 what's in your notebook today, I want to bring to your 15 attention that the Texas Lottery began selling tickets 16 back in May of 1992. So we are going to be celebrating 17 our 20th anniversary throughout the next several months 18 culminating with our actual anniversary date, which was 19 May 29th. 20 Correct, Nelda? May 29th, 1992. 21 As we go through the next several months 22 I'll be sharing with you in Commission meetings some fun 23 dates from what occurred almost 20 years ago. So 24 looking back, in August of 1991 -- on August 19th, 1991, 25 that is when the formation of the controller -- the 62 1 state controller of public accounts, which was John 2 Sharp at the time. That was the formation of the 3 Lottery Task Force, and we still have three -- 4 correct -- three people here were a member of that task 5 force. That would be Nelda Trevino and Lenora Taylor, 6 who works in our lottery operations division, and 7 myself. And it's -- I continue to be amazed at how 8 young Nelda and I continue to look after all this time. 9 (Laughter) 10 CHAIRMAN WILLIAMSON: Surely you had more 11 hair back then. 12 MR. GRIEF: I appreciate that. 13 CHAIRMAN WILLIAMSON: I thought you would. 14 (Laughter) 15 COMMISSIONER KRAUSE: Getting long in 16 the -- 17 MR. GRIEF: The other date I want to bring 18 your attention is August 26th, 1991. That's day that 19 then governor Ann Richards signed the Lottery Act that 20 was following the 72nd Legislature. 21 So that concludes my report this morning. 22 I'll continue to share interesting dates with you as 23 time rolls along, over the next several months, and keep 24 you informed. Thank you. 25 CHAIRMAN WILLIAMSON: All right. Thank 63 1 you. 2 MS. TREVINO: I feel a little compelled to 3 interject one other piece to the history. We have with 4 us former Speaker Gib Lewis who was presiding over the 5 house when the lottery passed and probably has a story 6 or two to share on those historic moments. 7 (Laughter) 8 MR. GRIEF: And if I could, just so the 9 Speaker can be advised, when we get to May of next year, 10 we'll be inviting certain people back to make some 11 comments; and you will most definitely be among that 12 group. 13 MR. LEWIS: I'll be ready. 14 MR. GRIEF: Thank you, sir. 15 CHAIRMAN WILLIAMSON: And I know of a 16 certain member that was serving when you were Speaker 17 that was very, very pro "get this done." Yes, he was 18 very supportive of it, so... 19 All right. Well, at this time, we will -- 20 it's 10:05. We'll take a 15-minute break. 21 (Recess: 10:05 a.m. to 10:21 a.m.) 22 AGENDA ITEM NO. XXIII 23 CHAIRMAN WILLIAMSON: All right, 24 everybody. Let's get back in, please. The meeting is 25 back in session at 10:22. 64 1 We will go on to Item XXIII: 2 Consideration of and possible discussion and/or action, 3 including adoption or withdrawal on new rule 16 TAC 4 402.110, relating to temporary increase of license fees. 5 Phil, this is your item, please. 6 MR. SANDERSON: Good morning, 7 Commissioners. In your notebook is the copy of the rule 8 as it was published in the July 1st Texas Register, 9 along with copies of the transcript from the July 14th 10 public comment hearing as well as any written comment 11 that was received prior to the comment period that ended 12 on July the 31st. 13 Overall, the comments received were 14 strongly opposed to the adoption of this rule, in a 15 large part due to the economic burden that had been 16 imposed on the bingo industry. 17 Additionally, Representative Drew Darby, 18 who is the chairman of the House Appropriation 19 Subcommittee that oversee this agency's budget, 20 submitted a letter addressed to Chairman Williamson on 21 this matter which I'd like to read into the record. 22 (As read) Dear Chairwoman Williamson, I am 23 writing this letter at the request of representatives of 24 Charitable Bingo who are concerned about the license fee 25 increases being considered by the Texas Lottery 65 1 Commission to finance new computer software authorized 2 by House Bill 1. House Bill 1 authorizes but does not 3 require the Commission to purchase new Charitable Bingo 4 related software. The purchase of the software was made 5 contingent on a decision of the Commission to increase 6 fees in an amount necessary to cover the cost of the 7 software. That decision is solely within the discretion 8 of the Commission and is not compelled by House Bill 1, 9 nor do I believe the Legislature intended for the 10 commission to feel bound to make this purchase simply 11 because it is authorized in the bill. That decision 12 should be based on a consideration of conditions in the 13 Charitable Bingo industry and whether the need for a new 14 system is critical at this time or could wait until the 15 conditions for charitable bingo improve. Thank you for 16 your consideration on this letter, and if you have any 17 questions, please do not hesitate to call me or my 18 office. Sincerely, Drew Darby. 19 Given the comments that were received, 20 Staff recommends that this rule be withdrawn. On a 21 go-forward basis, the agency will continue to support 22 the existing system as best it can while recognizing the 23 inerrant risk of not proceeding with the redesign at 24 this time. 25 With that, I'll be glad to answer any 66 1 questions. 2 CHAIRMAN WILLIAMSON: All right. Phil, go 3 in to more detail, if you would, for Commissioner Krause 4 and I on the inerrant risk that we face if we have to 5 limp along with our current system. 6 MR. SANDERSON: Well, while it may be true 7 that we can limp along with this current system, there 8 will eventually come a time that we'll have to upgrade 9 this system. And at least for the short term, I've been 10 informed that the staff and informational resources has 11 the ability to maintain the system in its current state, 12 but the potential for any enhancements to the system 13 that would provide for better tracking, increased 14 efficiency would be minimal. 15 There are currently several processes that 16 are in place as a result of recent legislation. Those 17 being House Bill 25, 19 in the 78th Legislature and 18 House Bill 1474 of the 81st legislative session that 19 have not been coded into the current system. We have 20 work-arounds using other software, Excel, or Access to 21 help with those processes in their manual. 22 Additionally, there are several audit 23 recommendations from the state auditor's office, audit 24 of the Charitable Bingo Operations Division that was 25 report released last September, September 2010, that may 67 1 not be implemented. 2 And another item to consider is the 3 relationship that our bingo system has with other 4 lottery computer systems. The compliance and activity 5 monitoring program is one of the systems on the lottery 6 side that is in the process of going through redesign. 7 There are several programs that interact between the two 8 systems. And there may become a time when that 9 interaction may not be supported once the other system 10 becomes redesigned under the new format, and the bingo 11 system does not get improved or redesigned. 12 There is a chance that, you know, having 13 that will increase errors, and we'll try to keep those 14 at a minimum as best as we can. And realizing that the 15 potential risk of delaying this upgrade and redesign and 16 being able to accept that risk with the understanding 17 that sometime in the future, we'll need to proceed with 18 an upgrade. 19 And the bingo industry is able to accept 20 the potential for delays in processing of applications. 21 Most importantly, those that are amendments to licenses 22 and applications for temporary licenses, staff will have 23 to reorganize and reallocate resources, and some of the 24 services that we've been able to provide on a short 25 notice may not be doable in the foreseeable future. 68 1 CHAIRMAN WILLIAMSON: Okay. How will this 2 impact -- you know; I know our budget cuts have impacted 3 everything in your department. Our audits, how will 4 that impact that area? 5 MR. SANDERSON: The new system will not 6 really have -- redesigning the system or not redesigning 7 the system would not have any impact on the audits. 8 It's primarily more in the accounting activities and the 9 monitoring of the applications and the licenses that are 10 being issued. 11 CHAIRMAN WILLIAMSON: Okay. 12 MR. SANDERSON: The application process is 13 very, very detailed. There are several nuances that you 14 have to ensure based on regulation: That they can't 15 play more than three times a week, they can't play more 16 than twice a day, no more than, you know, seven 17 organizations can play at a location, and so forth. And 18 so the programming in the computer system has to look at 19 all these aspects before it approves a license to be 20 issued. 21 And there are some of those that are -- 22 particularly in the new unit accounting process that was 23 implemented in 2005, that is not part of the current 24 system. It was enhancement that we were looking at 25 adding that may not be in there, so the unit accounting 69 1 aspect may be a situation to where organizations are not 2 as freely to move amongst units as they have been in the 3 past. 4 CHAIRMAN WILLIAMSON: Okay. All right. 5 Commissioner, do you have any questions 6 or -- 7 COMMISSIONER KRAUSE: No. I just have a 8 comment that, you know, this is some hard times and some 9 tough choices; and I, you know, appreciate staff, you 10 know, taking a good, hard look at it. 11 MR. SANDERSON: Thank you. 12 CHAIRMAN WILLIAMSON: And we know this has 13 been difficult for you and your staff, in all regards. 14 And like I said, we're not unaware of that and 15 insensitive to that. 16 Kim, so what are our options on dealing 17 with this? 18 MS. KIPLIN: So, Commissioners, what your 19 options are is you can adopt the rule. You cannot take 20 any action, and if you take no action today or in the 21 future, the rule will expire 180 days from the date that 22 it was published in the Register. It will be withdrawn 23 by operational law. You can vote to formally withdraw 24 it, and if you do that, then we will file the notice of 25 withdrawal in the Texas Register and alert the public 70 1 that you've formally withdrawn the rule. 2 CHAIRMAN WILLIAMSON: Okay. Commissioner, 3 do you have any thoughts on how you want to proceed from 4 here? 5 COMMISSIONER KRAUSE: I'd be happy to make 6 a motion to withdraw the rule. 7 CHAIRMAN WILLIAMSON: Okay. Or we could 8 just let it die it's own death, so to speak. 9 COMMISSIONER KRAUSE: Either is fine with 10 me. How about we just not take any action? 11 CHAIRMAN WILLIAMSON: Okay. Then we'll 12 just take no action and let the clock tick and let it 13 just end in 180 days. 14 MS. KIPLIN: And what we'll receive from 15 the Register is just a notice your rule is about to 16 expire. 17 CHAIRMAN WILLIAMSON: Okay. 18 MS. KIPLIN: But unless I get further 19 instruction from you-all, then we will let that 20 rulemaking just stay out there, and it will be withdrawn 21 by operation of law in 180 days. 22 CHAIRMAN WILLIAMSON: Okay. And -- all 23 right. Those of you that have signed up to speak on 24 this matter, obviously we will not be doing that since 25 this is already taken care of. 71 1 All right. Any other comments, questions 2 that you have, Commissioner, on this? 3 COMMISSIONER KRAUSE: No, ma'am. 4 AGENDA ITEM NO. XXIV 5 CHAIRMAN WILLIAMSON: All right. Then 6 let's go on to XXIV: Report, possible discussion, 7 and/or action on resource allocation and prioritization 8 of regulatory activities in the Charitable Bingo 9 Operations Division. 10 Phil. 11 MR. SANDERSON: Commissioners, the most 12 recent legislative session requested that the 13 division -- or all state agencies submit a 5 percent 14 budget reduction. As it relates to the Bingo Division, 15 there are four -- five strategies within our 16 appropriation. One of which is the price fee 17 allocation. That makes up 85 percent of our 18 appropriation. We were not allowed to reduce that by 19 the 5 percent, but we were required to reduce the other 20 four strategies, which is roughly about, at the time, 21 $2.9 million. We had to reduce that by 27 percent in 22 order to come up with a budget reduction that the 23 legislature and the LBB were looking for. With that, it 24 also came with a reduction of 12 FTEs positions. 25 So we re-examined the purpose and the 72 1 mission of the Bingo Division, and we performed an 2 analysis to determine the best utilization of the 3 appropriate resources that we would have in an attempt 4 to meet our statutory requirements. After reviewing the 5 core functions, the divisions -- of the division's 6 charges, we developed a new organizational structure 7 developed and focused on the identified core function 8 responsibilities of licensing, accounting, audit and 9 enforcement, and bingo product testing. 10 In your notebook are two organizational 11 charts. Exhibit A is the chart that is currently in 12 place with the FY 2010 budget of $2.9 million and 47 13 full-time equivalent staff members. And the second 14 organizational chart, Exhibit B, shows a proposed FY 15 2012-13 biennium with a annual budget of $2.1 million 16 and 33 FTEs. 17 Besides the reduction of the 14 positions 18 that we had to go through, we made additional 19 operational costs that will impact some of the services 20 that we do provide. For example, reducing travel 21 expenses may require organizations that are being 22 audited to bring their records to a regional office or 23 here to headquarters, and then all entrants and exit 24 conferences may be held at the regional offices and the 25 headquarters here. 73 1 We've eliminated providing the bingo 2 training program offsite. It's available on the 3 Internet. There are several Internet cafes, if someone 4 does not have access, that they can go to and take the 5 training program. We will continue to offer it here at 6 headquarters since there's no travel cost associated 7 with that. 8 We're looking at emailing correspondence 9 as best -- as most often as we can, utilizing emailing 10 services. We're potentially looking at adding some 11 information to some of the rules that require email 12 addresses for bingo chairpersons and designated agents 13 so that we can correspond with them by email. Previous 14 forms that were mailed to organizations will be 15 available on the website. 16 We've created the email subscription 17 service that as of yesterday, we had 146 subscribers. 18 Still getting very good feedback on that service. And I 19 do recommend that individuals, you know, still sign up 20 for that service. For example, yesterday I sent out the 21 notice that the bingo bulletin was now placed on the 22 website. We've ceased mailing that out to all the 23 organizations to try to save on postage costs. 24 I'd like to emphasize that this reduction 25 is significant, and it will result in reduced frequency 74 1 of audits and inspections as well as lengthen time for 2 both the processing and the issuing of applications and, 3 in some cases, for disposition of enforcement matters. 4 Additionally, since some complaints take a 5 higher priority, and depending on the number and nature 6 of those complaints, any complaints that come in would 7 further reduce the potential for audits and inspections. 8 So with that, Bingo Division is moving 9 forward as lean as we can be. We're looking for 10 anything that will give us an edge. We're looking 11 strictly at what's in the statute, what we're required 12 to do, what we're required to ask for. And we're 13 reevaluating the procedures as well as we're now going 14 through this, you know, starting the rule review 15 process, and we'll reevaluate each one of our 16 regulations to determine whether they need to be 17 repealed or amended to help make things more efficient. 18 CHAIRMAN WILLIAMSON: All right. 19 MR. SANDERSON: With that, I'd be glad to 20 answer any questions. 21 CHAIRMAN WILLIAMSON: Okay. Commissioner, 22 do you have any questions? 23 COMMISSIONER KRAUSE: How much do you 24 spend on the -- on the Bingo Advisory Committee? How 25 much out of your budget is that? 75 1 MR. SANDERSON: The Bingo Advisory 2 Committee is -- we've eliminated the travel expense. 3 They were being reimbursed for travel, and we dropped 4 that, I think, the last time the budget came around, 5 2003, when the other budget cuts hit. 6 The only expense that we have is staff 7 time and some postage and mailings. Depending on the 8 number of meetings, it comes out to be roughly 12 to 9 $1500 per meeting as it relates to preparation time and 10 the staff time for the -- myself, my staff, and legal 11 staff in the preparation for those meetings. So it's 12 about $1500 a meeting. 13 CHAIRMAN WILLIAMSON: Okay. 14 COMMISSIONER KRAUSE: Okay. 15 CHAIRMAN WILLIAMSON: And I'm going to get 16 with you. What I want to do is quantify and really 17 spell out how this budget will impact. All the things 18 that you've just talked about, I want to try and 19 quantify that so everybody can understand this is how 20 we're going to deal with licensing now and audits now. 21 And I will get with you and get some -- because I want 22 to be able for everybody, particularly in the industry, 23 to understand this is what's going to be different and 24 this is how and this is why because, obviously, Phil and 25 his staff will not have the time and the resources to do 76 1 maybe what you've been used to. But I want you to 2 understand exactly what that impact is and how we got -- 3 or how Phil got to that point on where some of these 4 services may either no longer exist or be certainly 5 reduced, and so that will be our next endeavor, to try 6 and get that out there. 7 MR. SANDERSON: And I'll kind of lay out, 8 there is -- we're working right now on amending the card 9 minding -- bingo card minding rules to, one, bring them 10 into compliance or mirror them with the NAGRA standards 11 that were recently adopted. And there's some reporting 12 requirements and some data storage requirements in these 13 rules that I think will help make our job more efficient 14 and allow additional reporting requirements from the 15 organizations that will provide the division a better 16 capability to monitor their financial activities. So 17 there will be some of those things that we're looking at 18 as we go through the rulemaking process and the rule 19 review. 20 CHAIRMAN WILLIAMSON: Okay. Good. So 21 like I said, I intend to dig into this in great detail, 22 and so everybody out there can understand where we will 23 be and how we will be functioning from this point 24 forward. 25 77 1 AGENDA ITEM NO. XXV 2 CHAIRMAN WILLIAMSON: All right. Let's 3 see, then, I guess we'll go on to Item XXV: Report, 4 possible discussion, and/or action on the Bingo Advisory 5 Committee, including continuation of the Bingo Advisory 6 Committee for year end '11 and -- oh, and also their 7 '11 -- 2011-2012 work plan. 8 Phil. 9 MR. SANDERSON: Commissioners, the BAC is 10 scheduled to expire unless continued before August 31st, 11 2011. The information in your notebook provides the 12 Section 2110.006 of the Government Code which states 13 that an agency evaluation of committee costs and 14 effectiveness, the state agency that is established -- 15 an advisory committee shall evaluate annually the 16 committee's work, the committee's usefulness, and the 17 costs related to the committee's existence, including 18 the cost of agency staff time spent in support of the 19 committee's activities. 20 Also, in your notebook are pertinent 21 sections of the Bingo Enabling Act along with 22 administrative rule that relates to the Bingo Advisory 23 Committee. 24 Kimberly Rogers, the BAC chair, is present 25 today should you have any questions, and she provided 78 1 right before the meeting today the copy of the FY11-12 2 work plan that they used this last year. And this 3 information is all being provided to you to determine 4 whether or not the Commission wants any additional 5 information regarding its activities and whether or not 6 to continue the Bingo Advisory Committee. 7 And with that, I'll be glad to answer any 8 questions, and as I mentioned, Ms. Rogers is here as 9 well. 10 CHAIRMAN WILLIAMSON: Okay. I guess my 11 first question, then, is how useful do you think this 12 committee has been over the last year or two years? 13 MR. SANDERSON: Over the last two to three 14 years, it's -- there has been some struggles. I think 15 that if you go back and look at the transcripts or the 16 videos, the agenda items, there's usually one or two 17 members that discuss and deliberate. There's not a lot 18 of input during the meetings. 19 The last several meetings when we've had 20 rulemakings, we've sent out draft rules for the 21 committee to seek informal comment. Very little 22 informal comment came in, if any, and the majority of it 23 was at the BAC meeting. The public's attendance at the 24 BAC meeting is more directed at questions at myself than 25 for the BAC to deliberate and come up with some items to 79 1 report to the Commission. 2 There have been three instances over the 3 past several year where the Commission has requested the 4 BAC to bring them back specific information, and those 5 three times, they -- one, they did not bring back any 6 significant information, and the other two times, it was 7 little or no information. So I would say that the -- 8 there's -- the usefulness and the effectiveness is kind 9 of gone down a little bit in the most recent several 10 years. 11 There is the, as I mentioned, the 12 subscription service that we use. I do receive, you 13 know, several comments through there when I send out 14 draft rules. Of course, at any time, I'll be -- you 15 know, I can establish a stakeholders meeting if there 16 are some rules that I need to discuss. I could get 17 stakeholders or volunteers that want to get together and 18 discuss the rules before they come to the Commission for 19 publication. 20 CHAIRMAN WILLIAMSON: Okay. Commissioner, 21 do you have any questions or -- 22 COMMISSIONER KRAUSE: Comments? 23 CHAIRMAN WILLIAMSON: Uh-huh. 24 COMMISSIONER KRAUSE: Well, I was really 25 disappointed when we asked the BAC to get us some 80 1 information on how 8-liners were affecting our 2 licensees, and we got nothing. You know, I thought that 3 was an important issue. I had heard it was an important 4 issue, had testimony it's an important issue, but 5 apparently it wasn't important to the BAC. 6 And then where there was another time when 7 apparently there was a member of the BAC that had been 8 indicted, and then we asked the BAC, "What do you think 9 about that?" And the answer that we got back, "Oh. 10 Well, it's okay." 11 And so from my perspective, it's not 12 helpful. Now, if it's helpful to you, that may make a 13 difference. But given the budget cuts and, you know the 14 limited resources that you have, then I question whether 15 or not it's worth having BAC. 16 CHAIRMAN WILLIAMSON: Okay. So, Kim, once 17 again, what are our options here? Is this a 18 year-by-year decision? 19 MS. KIPLIN: This is essentially a 20 year-by-year. The rule is in a Q and A format, and it 21 says, "When does the BAC cease to exist?" And the 22 answer is, "The BAC will cease to exist annually on 23 August 31st unless the Commission, prior to August 31st, 24 votes to continue the BAC." 25 So I think you've got three options that I 81 1 can identify. One is you can affirmatively vote to 2 continue the BAC; one is you can take no action, and 3 then the BAC -- the Bingo Advisory Committee will cease 4 to exist; or you can vote to say they cease to exist. 5 Those are the three options. But if you don't vote to 6 continue, then per the rule, they will cease to exist 7 annually. 8 CHAIRMAN WILLIAMSON: Okay. All right. 9 MS. ROGERS: May I make a comment? 10 CHAIRMAN WILLIAMSON: Sure. 11 MS. ROGERS: For the record, my name is 12 Kimberly Rogers. I am the chair of the BAC. 13 And I understand your frustration in 14 wanting information on 8-liners. I think 15 Mr. Ciancarelli, who was the chair at that time of that 16 workgroup, I think he put a lot of hard hours and time 17 in that. That is a very difficult thing. When you 18 leave this room and you go out into the real word, 19 8-liner rooms, whether they're good or bad, you like or 20 you dislike, he brought a lot of information for you. 21 But there's certain restraints that just the general 22 public cannot walk into an 8-liner room and say, "Hey." 23 You know, you just can't do that. So he doesn't have 24 the resources to give you maybe the information that the 25 Commission wanted. And so, but I think he did spend a 82 1 lot of time on that. 2 And as far as someone being indicted on 3 the BAC, I don't condone that at all. I don't think 4 anyone on that board says, "Yay, you got indicted." No 5 one in this room wants to be indicted, and I don't want 6 to encourage anyone to participate in any illegal 7 activity that would cause them to be indicted. 8 But I do think that you -- I would ask 9 that you please consider that the BAC brings information 10 to Phil and his staff that he can't get from figures and 11 numbers, that he can't get from Lori that works upstairs 12 who's never played bingo. If you haven't played bingo, 13 gone into a hall, seen what it takes to run a bingo, 14 there's information that Phil gets from the BAC and 15 others that he can't get from auditors because they're 16 not in the day-to-day work of bingo. 17 Now, we did at our last meeting or the 18 meeting before move to only have meetings when they are 19 necessary because at some of our meetings, we didn't 20 have very many items to talk about. And I do most of 21 the talking, and I have discussed that with quite a few 22 of the BAC members. We're not here just for me to get 23 up here and hear myself talk. We're here to discuss the 24 problems and the things that staff and the BAC -- the 25 bingo industry needs. So we have tried to work on that. 83 1 And we are not -- we're not having quarterly meetings 2 any longer because there were times that we didn't need 3 to meet. We didn't have that much to talk about. We 4 were in and out within an hour. So we have tried to be 5 aware of that and help. 6 But I would strongly ask that you consider 7 what the BAC does bring. And I think Phil would have to 8 agree with me, there are things that we have brought to 9 the table that you can't get from pie charts and 10 figures. We know what the industry needs because we're 11 in it every single day. 12 And I'll be happy to answer any questions 13 you might have. 14 CHAIRMAN WILLIAMSON: Thank you. Just so 15 you know, I appreciate you donating your time to do 16 that. 17 MS. ROGERS: Thank you. 18 CHAIRMAN WILLIAMSON: This is not a 19 reflection of that at all. 20 MS. ROGERS: Yes, ma'am, I understand. 21 CHAIRMAN WILLIAMSON: This is mostly a 22 reflection of Phil has -- the bingo division has such 23 limited resources now, even $1500 cost or time 24 equivalent is significant for what he's having to deal 25 with right now. And so that's where we are coming 84 1 from -- and that's where I'm coming from, and I won't 2 speak for Commissioner Krause. But like I said, this is 3 not a reflection on you. 4 MS. ROGERS: No, no, and I appreciate 5 that. And I understand that. Trust me. I'm in the 6 bingo industry. I am one of the ones that Phil 7 discusses that submits the forms maybe a little bit 8 later than I should to get them, you know, approved, one 9 of those thorns in his side, which I need to try and be 10 better like so many people do. But, you know, we feel 11 it. Trust me. 12 And to lose 12 full-time employees that I 13 speak to probably once a month, once -- at least once 14 every quarter is going to be horrible. I don't know if 15 it's 12 or 14, whatever he had to cut. That's going to 16 be -- I know. And I feel for Phil. It's not going to 17 be easy. But I think everyone working together, 18 hopefully it'll pick up, and we'll be able to get our 19 new computer system. 20 CHAIRMAN WILLIAMSON: All right. Thank 21 you. 22 MS. ROGERS: Thank you. 23 CHAIRMAN WILLIAMSON: Commissioner, do you 24 have any other comments that you'd like to make or 25 anything? 85 1 COMMISSIONER KRAUSE: Yeah, well, I mean, 2 you know, I always appreciate citizens when they donate 3 their time to help make government work better. And, 4 you know, it's always the hope that that's useful. 5 And so, anyway, however, I'm going to be 6 in favor of taking a break from it for a year and see 7 how that happens. If there's a void there that simply 8 can't be made up by the BAC, we have another 9 opportunity, you know, next August to do the same thing. 10 And, you know, given the extreme, you know, reduction in 11 force that is going on with the bingo division, then, 12 you know, I'm up for whatever it takes to have that 13 organization be as effective as possible with what it's 14 got. 15 CHAIRMAN WILLIAMSON: All right. So I 16 think at this point, from what I'm hearing you say, 17 basically we'll take no action at this time. 18 MS. KIPLIN: Take no action, and the Bingo 19 Advisory Committee will cease to exist after 20 August 31st. 21 AGENDA ITEM NO. XXVI 22 CHAIRMAN WILLIAMSON: In which case, then, 23 we'll pass on Item XXVI. 24 AGENDA ITEM NO. XXVII 25 CHAIRMAN WILLIAMSON: And then we'll go on 86 1 to Item XXVII: Report by the Charitable Bingo 2 operations director and possible discussion and/or 3 action on the Charitable Bingo operations division's 4 activities, including updates on staffing, licensing, 5 accounting, and audit activities, pull-tab review, 6 special projects, and upcoming operator training. 7 MR. SANDERSON: Commissioners, in your 8 notebook are the reports for June and July activities 9 within the Bingo Division. 10 And other than that, I would also like to 11 just bring to your attention, as Gary mentioned earlier, 12 the lottery began lottery sales in May of '92. 13 Charitable Bingo issued their first licenses in April of 14 1982, so we're working on our 30th anniversary. August 15 is a milestone month as it relates to that. After the 16 constitutional amendment was passed in November of 1980, 17 tomorrow in 1981 -- 30 years ago tomorrow -- the 18 legislature passed the Bingo Enabling Act, and then on 19 August the 14th of 1981, then Governor Bill Clements 20 signed that bill into law. 21 So we're celebrating our 30th anniversary, 22 and we'll be working on some milestones between now and 23 April as -- along with Gary and his lottery milestones, 24 but I just wanted to bring that to your attention. 25 CHAIRMAN WILLIAMSON: All right. Well, 87 1 thank you. Maybe things will be a little bit more 2 optimistic in the next few months. We can hope. 3 Okay. At this time, we're going take a 4 five-minute break. It is 10:50. And then we'll start 5 on Item XXVIII when we get back. 6 (Recess: 10:50 a.m. to 10:55 a.m.) 7 AGENDA ITEM NO. XXIX 8 CHAIRMAN WILLIAMSON: All right, 9 everybody. We're ready to get back in session at 10:55. 10 And before we get that, there are no public comments to 11 be made. I'm sorry. I skipped to XXIX. There are no 12 public comments. 13 AGENDA ITEM NO. XXVIII 14 CHAIRMAN WILLIAMSON: So we'll go back to 15 XXVIII: Consideration of the status and possible entry 16 of orders in cases posted on the meeting agenda. 17 So, Kim, lead us through this, please. 18 MS. KIPLIN: Sure. Commissioners, if I 19 could take Letters A -- hang on a second -- A through, I 20 believe, J. I'm sorry. I'm looking for my cheat sheet. 21 No, I'm sorry. 22 Yeah, A through J, those are all contested 23 case proceedings that went to the State Office of 24 Administrative Hearings for insufficient funds available 25 at the time the lottery swept. In each of those cases, 88 1 the administrative law judge has recommended revocation 2 of the license. We're presenting those to you in mass 3 today for one order to be entered, and the staff does 4 recommend that you do enter that order adopting the 5 ALJs' findings and conclusions in revoking each license 6 in Letters A through J. 7 CHAIRMAN WILLIAMSON: All right. Thank 8 you. 9 Commissioner, do you have any questions? 10 COMMISSIONER KRAUSE: I do not. 11 CHAIRMAN WILLIAMSON: If you'll make a 12 motion, please. 13 COMMISSIONER KRAUSE: I make a motion that 14 we adopt staff's recommendation for those Items A 15 through J identified on the agenda. 16 CHAIRMAN WILLIAMSON: I second. 17 All in favor? 18 COMMISSIONER KRAUSE: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 Vote passes 2-0. 21 MS. KIPLIN: Commissioners, I have an 22 order in that matter that I'll present to you. 23 And then if I could move to Letter K that 24 is the matter of Reed Oil Company. Commissioners, this 25 is an agreed order. It's based on a disqualifying 89 1 criminal conviction or Donald Reed. Staff has agreed, 2 in lieu of revocation that Reed Oil will continue to 3 have a license but will remove Reed as an officer, 4 director, and all of his shares of stock will be 5 transferred to someone else. Staff recommends that you 6 vote to adopt this proposed agreed order. 7 CHAIRMAN WILLIAMSON: Commissioner, do you 8 have any questions? 9 COMMISSIONER KRAUSE: I do not, and I make 10 a motion that we adopt staff's recommendation on this 11 Reed order. 12 CHAIRMAN WILLIAMSON: I second. 13 All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 Motion passes 2-0. 17 MS. KIPLIN: And I have an order on that 18 matter. 19 Moving to Letter L, commissioners, this is 20 the matter of Lucky Food Store No. 2. This is presented 21 to you in the form of a proposed agreed order. 22 CHAIRMAN WILLIAMSON: Wait, wait. L is 23 Jina Weeks on mine. 24 MS. KIPLIN: Well, I'm sorry, then. I 25 made a mistake. Thank you for correcting me on that. 90 1 Yes. I'm sorry. If we could go to 2 Letter N. Thank you for that correction. 3 CHAIRMAN WILLIAMSON: Okay. Have we -- 4 are we going go back to L? 5 MS. KIPLIN: We will go back. 6 CHAIRMAN WILLIAMSON: Okay. All right. 7 MS. KIPLIN: Yes, we will. 8 CHAIRMAN WILLIAMSON: All right. 9 MS. KIPLIN: If I could go to Letter N. 10 This is the Lucky Food Store No. 2. It is 11 a proposed agreed order. This is an administrative 12 disciplinary action against the retailer in the matter 13 in which Mr. Willis, who we have pending litigation. 14 Retailer employee took his ticket and then came and 15 eventually claimed the prize. 16 The purpose of the proposed agreed order 17 is to establish a clear legal standard of liability on 18 corporate retailers, and that would be strict liability 19 in its -- on a go-forward basis. We're not intending to 20 suspend the license as part of the proposed agreed 21 order, but we are intending to have a very clear legal 22 standard of liability of strict liability. Staff 23 recommends that you do enter into the proposed agreed 24 order. 25 CHAIRMAN WILLIAMSON: Commissioner, do you 91 1 have any questions? 2 COMMISSIONER KRAUSE: Well, I do about 3 that. 4 MS. KIPLIN: Yes. 5 COMMISSIONER KRAUSE: Okay. So what we're 6 doing is that we are putting our corporate licensees in 7 a position of being unable to defend themselves. If 8 they have a defense such as we did background checks, we 9 did the training on this person, you know, we were not 10 negligent. And so if we say it's strict liability, they 11 don't have any defense. 12 MS. KIPLIN: We're saying as it relates to 13 an administrative disciplinary action. We have 16,000 14 retailers. 15 COMMISSIONER KRAUSE: Uh-huh. 16 MS. KIPLIN: And there are employees that 17 do engage in misconduct, and we're saying, yes, for 18 that, the legal standard of liability. And we believe 19 that is supported by the way of existing case law. We 20 do believe that it is supported by existing case law. 21 To go the opposite would put the agency at risk in terms 22 of having disciplinary actions against retailers for the 23 acts of their employees. 24 COMMISSIONER KRAUSE: Well, I don't want 25 to put the agency at risk, of course, but I also don't 92 1 want to, you know, handcuff our licensees if they've got 2 viable defenses. I mean, is what we're going to do 3 today going to be taken by plaintiffs' attorneys like 4 Mr. Willis's attorney and, you know, beat our corporate 5 licensees over the head with a that. 6 MS. KIPLIN: No, I don't think so because 7 that would be civil versus administrative. And in these 8 cases where we're going against a corporate retailer for 9 the acts of an employee, it rarely results in 10 revocation. It really has to do with a disciplinary 11 action in terms of a suspension. 12 In this case, we're just trying to 13 establish a clear standard of liability, and we're not 14 suspending the license. We're just trying to establish 15 a clear standard liability on a go-forward basis. 16 COMMISSIONER KRAUSE: Okay. 17 MS. KIPLIN: And staff does recommend that 18 you do adopt the proposed agreed order. 19 COMMISSIONER KRAUSE: All right. Well, 20 based on that, I make a motion that we adopt staff's 21 recommendation on this proposed agreed order. 22 CHAIRMAN WILLIAMSON: All right. Second. 23 All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 93 1 Motion passes 2-0. 2 MS. KIPLIN: And, Commissioners, I do have 3 that agreed order. 4 And, Commissioners, if I could, then, go 5 to Letter O. I'm taking the lottery cases, and then 6 we'll go back to the bingo, is the method to my madness. 7 Letter O is the matter of -- a proposed 8 agreed order involving the retailer Stripes No. 9117. 9 This is a ten-day suspension. The retailer employee 10 took a ticket from a customer and cashed it at another 11 location. The retailer did pay the customer the 250 for 12 the ticket and did fire the employee. And staff does 13 recommend that you adopt the proposed agreed order. 14 CHAIRMAN WILLIAMSON: All right. 15 Commissioner, any questions? 16 COMMISSIONER KRAUSE: Well, if it's an 17 agreed order, I'm happy to make a motion to adopt 18 staff's recommendation to approve the agreed order. 19 CHAIRMAN WILLIAMSON: Second. 20 All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 Motion passes. 24 MS. KIPLIN: And, Commissioners, that 25 leaves the remaining Stop N Save case. That's Letter J. 94 1 This is also a proposed agreed order. It's agreed by 2 the retailer and the staff, a ten-day suspension. This 3 is a situation where the retailer employee accepted an 4 8-liner coupon issued from 8-liners being operated at 5 the retail location as payment for lottery ticket. And 6 that's prohibited. Statutorily, there's only certain 7 forms of payment that can be accepted, and the 8 coupons -- 8-liner coupons are not one of them. So it's 9 a proposed ten-day suspension. 10 CHAIRMAN WILLIAMSON: All right. 11 Commissioner, do you have any questions? 12 COMMISSIONER KRAUSE: This is not agreed? 13 MS. KIPLIN: This is proposed agreed. 14 COMMISSIONER KRAUSE: Okay. If it's 15 proposed agreed, I'll make a motion that we adopt 16 staff's recommendation to approve this agreed order. 17 CHAIRMAN WILLIAMSON: Second. 18 All in favor? 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 Motion passes 2-0. Next item. 22 MS. KIPLIN: Commissioners, if I could go 23 to letter L. This is the matter of Jina Weeks. This is 24 a bingo registry worker, and the -- went to a contested 25 case. The administrative law judge has recommended 95 1 removing her from the registry of approved bingo workers 2 because of a disqualifying criminal conviction. Staff 3 recommends that you do adopt the administrative law 4 judges' proposed findings and conclusions and remove her 5 from the registry, bingo registry. 6 CHAIRMAN WILLIAMSON: Commissioner, do you 7 have any questions? 8 COMMISSIONER KRAUSE: What did she do? 9 MS. KIPLIN: She was convicted on two 10 occasions, both less than ten years ago, of felony 11 possession of a controlled substance; and statutorily, 12 if you've been convicted of a felony, you cannot be on 13 the bingo registry. 14 COMMISSIONER KRAUSE: All right. 15 CHAIRMAN WILLIAMSON: All right. Is there 16 a motion? 17 COMMISSIONER KRAUSE: I make a motion to 18 adopt staff's recommendation to approve the SOAH's court 19 order finding. 20 CHAIRMAN WILLIAMSON: I second. 21 All in favor? 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 Motion passes 2-0. Next item. 25 MS. KIPLIN: Commissioners, I'm holding 96 1 one case back because I know there was -- I believe 2 there's an appearance, and that's the matter of Thomas 3 Taylor. And if I could go to the agreed orders -- 4 CHAIRMAN WILLIAMSON: Okay. 5 MS. KIPLIN: -- and then leave that 6 because I believe Mr. Fenoglio has an appearance, and 7 Mr. White will represent the staff when they come before 8 you. 9 So if I can go to those matters, which are 10 Letter Q, International Serving Hands of America, Inc. 11 This is a proposed agreed order between the charity and 12 the division. The main violations were underreporting 13 sales of pull tabs, conducting bingo at other than 14 licensed times. The agreed upon penalty is $10,802.21, 15 and it's -- the computation is based on a mathematical 16 formula. Phil Sanderson is here. He can go into it. 17 But staff has agreed to that with the respondent, and we 18 recommend that you adopt the proposed agreed order. 19 CHAIRMAN WILLIAMSON: Commissioner, do you 20 have any questions? 21 COMMISSIONER KRAUSE: No, ma'am. I make a 22 motion that we adopt staff's recommendation to approve 23 the agreed order. 24 CHAIRMAN WILLIAMSON: Second. 25 All in favor? 97 1 COMMISSIONER KRAUSE: Aye. 2 CHAIRMAN WILLIAMSON: Aye. 3 COMMISSIONER KRAUSE: We can't do all the 4 agreed ones together? Yeah. 5 MS. KIPLIN: Commissioners, if I could 6 just take the remaining agreed orders, which would be -- 7 let me name those off for you -- Savannah Boxing 8 Association, Volunteers for Animal Protection, American 9 Legion Post 53, Big D Detachment Marine Corporations 10 League. Commissioners, these are all proposed agreed 11 orders for various violations of the Bingo Enabling Act 12 and the bingo rules. In each of these cases, the staff 13 has entered into an agreement with the respondent and 14 imposed in several of the cases penalties and the other 15 warnings. Staff recommends that you do vote to adopt 16 the proposed agreed order in each of these cases. 17 CHAIRMAN WILLIAMSON: Commissioner, do you 18 have any questions? 19 COMMISSIONER KRAUSE: No, ma'am. I make a 20 motion that we adopt staff's recommendation to approve 21 the agreed order in Items Q through U on our agenda. 22 CHAIRMAN WILLIAMSON: I second. 23 All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 98 1 Motion passes 2-0. 2 MS. KIPLIN: Commissioners, I have an 3 order in each one of those proposed agreed orders with 4 the remaining case. 5 Commissioners, that leaves us with the 6 remaining case -- 7 CHAIRMAN WILLIAMSON: Okay. Kim, just one 8 question. Do we pick up -- P's the Stop 'n Shop? 9 MS. KIPLIN: Yes, I got that. 10 CHAIRMAN WILLIAMSON: Okay. 11 MS. KIPLIN: Yes. 12 CHAIRMAN WILLIAMSON: I just didn't get it 13 checked off. All right. Sorry about that. 14 MS. KIPLIN: I went back on that. That 15 was the 8-liner. 16 CHAIRMAN WILLIAMSON: Okay. 17 MS. KIPLIN: Commissioners, now, if I 18 could direct your attention to the matter of Thomas 19 Taylor. I know we have appearances for that case, and 20 Mr. White represents the staff. He and Phil Sanderson 21 are here to answer any questions that you have, and 22 Mr. Fenoglio is representing Mr. Taylor. I will just 23 tell you this has to do with -- it's a contested case 24 proceeding to remove Mr. Taylor from the registry of 25 approved bingo workers. 99 1 Mr. Fenoglio filed last week a motion to 2 reject the proposal for decision and in the alternative 3 to reopen the matter, and I put it to each of your -- 4 each of your dais, the motion. You got copies if 5 they're not in front of you. And with that, I think I'm 6 going turn it over to the staff. 7 The way this will work is you sit in a 8 quasi judicial setting where the matter has gone to a 9 contested case, and they're here to present argument. 10 And I'm happy to help you go through your different 11 options, but I think at this time, it's appropriate to 12 turn it over to Mr. White and then Mr. Fenoglio. 13 CHAIRMAN WILLIAMSON: Oh, okay. 14 MS. KIPLIN: If that's acceptable to the 15 Commission. 16 CHAIRMAN WILLIAMSON: How do y'all want to 17 set it up? Do y'all want to -- 18 MS. KIPLIN: I think Mr. White should -- 19 if Mr. Fenoglio would -- is it acceptable to you to come 20 forward? 21 MR. FENOGLIO: Sure. You want me to join 22 the party? 23 MS. KIPLIN: Yeah, I think -- yes, sir, 24 you're probably going to want to say something, so it's 25 probably better to be there. Now, I'm speculating that 100 1 you'd want to say something. 2 I think it's -- it would be best if 3 Mr. White laid the case out since the staff is the one 4 who pursued this matter, and then Mr. Fenoglio can go 5 into his arguments of counsel. And, you know, I'd just 6 like to urge you -- I don't think this is a fact-based 7 matter, per se, but I'd urge you to stay within the 8 record. 9 CHAIRMAN WILLIAMSON: All right. 10 MR. WHITE: Thank you, Chairman, 11 Commissioner. For the record, my name is Stephen White. 12 I'm assistant general counsel with the Texas Lottery 13 Commission. 14 You have before you under Tab 28M a 15 proposal for decision issued by administrative law judge 16 after contested case hearing finding that Mr. Thomas was 17 convicted of a crime of moral turpitude as defined in 18 the Bingo Enabling Act. He is, therefore, disqualified 19 from being on the registry of approved workers. The 20 judge recommend that Mr. Thomas be removed from the 21 registry. 22 The facts were not in dispute at the 23 hearing. In 2004, Mr. Taylor pled guilty to assault 24 causing bodily injury to a family member by recklessly 25 causing bodily injury to Juan Manuel Perales (phonetic), 101 1 a child younger than 15 years of age, by hitting him 2 with his hand causing him to fracture his leg. 3 Respondent's plea of guilty was accepted but a finding 4 of guilt was deferred, and respondent was placed on 5 community supervision. 6 In February 2007, as a result of his 7 violating the terms of the community supervision order 8 by using methamphetamines and amphetamines, a judgment 9 adjudicating guilt was entered, and Mr. Taylor was 10 sentenced to 60 days in the Tarrant County jail. 11 The issue -- the hearing was whether 12 Mr. Taylor's conviction for assault/family violence, is 13 a crime of moral turpitude within the meaning of the 14 Bingo Enabling Act. 15 Additionally, Mr. Thomas last week filed a 16 motion asking you to consider whether assault/family 17 violence would be considered a crime a moral turpitude 18 under the new definition of moral turpitude as amended 19 by House Bill 2728 that will go in effect September 1st, 20 2011. 21 It is the position of the Charitable Bingo 22 Division that a Class A assault/family violence is a 23 crime of moral turpitude under both the current 24 definition and the definition under House Bill 2728 that 25 has not yet gone in effect. 102 1 The Bingo Enabling Act currently defines a 2 crime of moral turpitude to include any offense that is 3 classified in this state as a Class A misdemeanor and 4 puts the honesty and integrity of the individual who 5 committed the offense into question. The amended 6 definition under House Bill 2728 will change that 7 definition of a crime of moral turpitude to include a 8 Class A misdemeanor defined by another state law. 9 The administrative law judge found, 10 consistent with case law, prior agency decisions in the 11 common meaning of honesty and integrity that assault 12 involving family violence was a crime of moral 13 turpitude. And particular, the judge relied on the case 14 of Henry Hobbs in which this Commission adopted a 15 proposal for decision which held, quote, The crime of 16 assault against a family member is a crime of moral 17 turpitude. Family assault is classified in this state 18 as a Class A misdemeanor and puts the honesty and 19 integrity of the individual who committed the offense in 20 question, end quote. 21 The judge in this case also relied upon 22 the case of Ludwig v. State in which the Fort Worth 23 Court of Appeals stated, quote, a conviction for the 24 misdemeanor offense of a violation of a protective order 25 will be considered a crime of moral turpitude when the 103 1 underlying, uncharged offense is one of family violence 2 for the direct -- or a -- the direct threat of family 3 violence. Our legislature has condemned family 4 violence. Family violence is a serious danger and a 5 threat to society and its members. 6 The judge in this case was correct in 7 holding that an assault/family violence under the 8 current definition is a crime of moral turpitude. 9 In regard to the new definition of a crime 10 of moral turpitude that has not yet gone into effect of 11 any Class A misdemeanor defined by another state law, 12 assault/family violence is even more clearly a crime of 13 moral turpitude. When applying the Charitable Bingo 14 Division's application that another state law includes 15 case decisions in that there is already -- as already 16 noted, the Fort Worth Court of Appeals decision in 17 Ludwig v. State which, as I already said, says a 18 conviction of a misdemeanor offense of a violation of a 19 protective order will be considered a crime of moral 20 turpitude when the underlying, uncharged offense is one 21 of family violence. 22 Family violence, having been defined by 23 the Court of Appeals as a crime of moral turpitude would 24 still be considered a crime of moral turpitude under the 25 new statute that has not yet gone into effect. 104 1 Accordingly, the Bingo Operations Division recommends 2 adopting the ALJs' recommendation and remove Mr. Taylor 3 from the registry of approved workers. 4 And I have nothing further at this time. 5 CHAIRMAN WILLIAMSON: All right. 6 Mr. Fenoglio? 7 MR. FENOGLIO: Yes. For the record, my 8 name is Stephen Fenoglio. I represent Thomas Taylor 9 who's here with me today sitting directly behind me. 10 You've seen our filings. And I'm reminded 11 of Alice in Wonderland. 12 CHAIRMAN WILLIAMSON: Of what? 13 MR. FENOGLIO: Alice in Wonderland, words 14 mean what we say they mean. Let's review the bidding, 15 if you will. 16 First, in '04, when he entered a deferred 17 adjudication pleading would not have been a crime of 18 moral turpitude as it existed under Texas law at that 19 time. 20 In '07, when Mr. Taylor committed a 21 separate offense, the '04 deferred adjudication became 22 live in a conviction; and this agency had never taken a 23 position that the crime he was found guilty of was a 24 crime of moral turpitude. Period. End of sentence. 25 It's only in November of 2010 that, first, 105 1 the agency published a secret document -- it's in the 2 record -- that said, "These are the list of crimes of 3 moral turpitude." We questioned Meagan Ahmad at the 4 hearing. This list, she didn't have it at the hearing, 5 so we had to get it after the fact. Was this list ever 6 discussed in a public meeting at the agency? No. Was 7 it ever circulated to the licensees of the Charitable 8 Bingo Division? No. Was it sent to the members of the 9 bingo registry? No. We just had it in our pocket. 10 And that was the day when it was -- would 11 have been apparent to Mr. Taylor, in '04 or '07, if he 12 could have had the benefit of foresight, that he's in 13 harm's way. And then the Hobbs decision, about 20 days 14 later, was announced where the Commission, for the very 15 first time, said a crime of domestic violence is a crime 16 of moral turpitude. 17 Now, it's interesting that -- well, please 18 note that Mr. Taylor is not a lawyer, hasn't had legal 19 training. He's just a regular guy doing a regular job. 20 And I'm guessing if we brought 20 lawyers into the room, 21 we'd get at least 20 different opinions -- and I'm 22 looking at Commissioner Krause -- on what is the crime 23 of moral turpitude? It's not clear. In fact, in our 24 filing that we made on the exceptions to the proposal 25 for decision, we cite a Houston case, court of appeals 106 1 case, Chambliss v. State, that says a misdemeanor 2 assault of a man by a woman is not a crime of moral 3 turpitude. Clear holding. 4 My point on this is, it's not clear. And 5 you shouldn't hold it against Mr. Taylor when courts of 6 appeals can't agree on what constitutes a crime of moral 7 turpitude; and Mr. Taylor, in 2004 or 2007 or up until 8 if he'd been at the Commission meeting -- and he 9 wasn't -- in November of 2010 when this agency said for 10 the very first time "This is our policy. This activity 11 constitutes a crime of moral turpitude." 12 'Taint fair to Mr. Taylor. I think in 13 hindsight, we all know that had he had the benefit of 14 legal counsel knowing what the agency views the crime of 15 moral turpitude today, he wouldn't have taken the deal. 16 We can't go back in time, and I'm not suggesting that we 17 could. 18 The other thing, and in my filing that I 19 made last week, the senator who's sponsoring the bill 20 for the Commission says, "The staff says the crime of 21 moral turpitude statute is vague. We need to clean it 22 up." And they did. And now I hear my colleague, 23 Mr. White, saying, "But that doesn't matter because it 24 would still be a crime -- the domestic violence would 25 still be a crime of moral turpitude." Say what? That's 107 1 not what the statute that will be effective September 1 2 says. 3 Reasonable people can engage in reasonable 4 dispute. In this case, it's unclear what constitutes as 5 it relates to the conduct that Mr. Taylor was convicted 6 of. Is that a crime of moral turpitude? The tie ought 7 to go to the runner, in this case, Mr. Taylor, who works 8 as a bingo runner. I kind of like that synergy that I 9 just offered. 10 So having said that, the law is very 11 unclear. It wasn't clear at the time Mr. Taylor took 12 his plea. This agency had never taken that position 13 before, and it's unfair to him, a hardworking, everyday 14 guy. This is the only problem he's ever had with the 15 Lottery Commission in his many years as a bingo worker 16 to say, "Well, you know, there's a lot of ways you can 17 interpret what those words mean, and we got you." 18 That's not right. And it's not fair to him. 19 And I'd also point out to you that the 20 very words in the PFD that the judge is trying to 21 wrestle with this issue of is the conduct that he pled 22 guilty to not an intentional crime of assault, by the 23 way, but a reckless. Is that a crime of moral 24 turpitude? It's on Page 8 of the PFD. And the judge 25 says current case is before the Commission, quote, 108 1 without complete guidance from the judiciary, quote, 2 unquote. Later the judge says, "And it relates to the 3 crime of moral turpitude and integrity of the 4 individual, well, that's a, quote, closer call, quote, 5 unquote, again, on Page 8 of the PFD. It's not fair. 6 What the agency should do and what the 7 APA, the Administrative Procedure Act, Chapter 2001 of 8 the Texas Government Code says, if you're going to have 9 this kind of a policy, it's called a rule. And y'all 10 know what the process to adopt a rule is, so that 11 everyone will know what the rules of engagement are. 12 Here, Mr. Taylor has no way of knowing. He didn't know 13 in '04. He didn't know in '07. He didn't know in '10 14 when this agency adopted this, and it's very important 15 from Ms. Megan's extensive list of what constitutes a 16 crime of moral turpitude, that the agency has given a 17 lot of thought to it. It's not ad hoc. It's here's the 18 list. It's two pages. It's just not fair. Plain and 19 simple. 20 This agency has the ability to change it. 21 Alternatively, send it back to the -- and I believe you 22 should. I believe you should reject the PFD. 23 Alternatively, send it back to the ALJ. It's just not 24 fair. It's just not right. 25 Mr. Taylor asks for the opportunity to 109 1 make a very short statement to you. If you're ready, 2 he'll stay within the record. 3 CHAIRMAN WILLIAMSON: Sure. 4 MR. FENOGLIO: Come on up. 5 MR. TAYLOR: I just want to say that I 6 have been working -- I have been working bingo for 12 7 years. That's all I do know. It's kind of embarrassing 8 for everyone to hear. But the actual only thing I am 9 guilty of is the '07 thing. The '04 thing, I wasn't 10 represented well, and he kept wanting to go to -- kept 11 wanting me to take the plea, and I didn't want to take 12 it. I kept wanting to go to trial because it wasn't 13 true. 14 But, anyway, when this came along, this is 15 what I do. I work bingo. I work six days a week. I 16 work two halls a day. I just ask you to let me keep my 17 job. That's all I ask. 18 CHAIRMAN WILLIAMSON: All right. Thank 19 you. 20 MR. TAYLOR: If it wasn't important, I 21 wouldn't be here. 22 CHAIRMAN WILLIAMSON: We understand that. 23 Thank you. 24 MR. WHITE: If I could just add a couple 25 things. In terms of the alleged lack of notice, this 110 1 agency has always relied on case law, reported cases, to 2 guide us as to what constitutes a crime of moral 3 turpitude. We don't have a list, and no agency that I 4 know of has a list of every crime. I mean, there's 5 thousands of crimes. If you go to every statute and try 6 to say which ones are and which ones are not crimes of 7 moral turpitude is almost an impossible task and has 8 never been done by any agency that I'm aware of. 9 But the case relied on by the 10 administrative law judge and this agency previously of 11 Ludwig v. State is a 1998 case. It's been back since 12 that time that a court of appeals has held that 13 assault/family violence is a crime of moral turpitude, 14 and that has been the law since 1998. 15 MR. FENOGLIO: And I think we as lawyers 16 would disagree with the holding in Ludwig. It had to do 17 with a protective order, and it had to do with crime of 18 violence of a male on a female. Again, the more recent 19 court of appeals case that we cited is -- says that a 20 crime of violence by a woman on a man is not a crime of 21 moral turpitude. 22 COMMISSIONER KRAUSE: Questions? 23 CHAIRMAN WILLIAMSON: Sure. 24 MS. KIPLIN: Yes. 25 CHAIRMAN WILLIAMSON: Go for it. 111 1 COMMISSIONER KRAUSE: So in 2004, then, 2 the deferred disposition would have resulted if there 3 had been no other, you know, legal complications would 4 have been dismissed. 5 MR. FENOGLIO: Correct. 6 COMMISSIONER KRAUSE: Okay. 7 MR. WHITE: Well, I disagree with that. 8 I'm not sure if that's correct. He -- if he had -- he 9 wasn't found guilty in 2004. Had he been found guilty 10 in 2004, the question still would have been at that 11 time, is that a crime of moral turpitude? And as I just 12 indicated, the 1998 case of Ludwig v. State indicates 13 that assault/family violence is and was a crime of moral 14 turpitude. 15 COMMISSIONER KRAUSE: And what was it in 16 2007 that made it come live again? 17 MR. WHITE: That's when he was adjudicated 18 guilty. 19 COMMISSIONER KRAUSE: Okay. 20 MR. WHITE: He pled guilty in 2004. He 21 received deferred adjudication meaning if you complete 22 your probation without any additional wrongdoing, the 23 case will be dismissed. However, he engaged in the 24 possession or use of methamphetamines and amphetamines. 25 So he was, then, at that point found guilty. 112 1 COMMISSIONER KRAUSE: Okay. So we have, 2 now, I guess, double convictions, you know, assault on 3 somebody under the age of 15 and for meth use. 4 MR. FENOGLIO: No. 5 COMMISSIONER KRAUSE: Okay. 6 MR. FENOGLIO: It was a plea bargain 7 arrangement, as I understand it, and he was not found 8 guilty of the meth use. It was -- I'm guessing they 9 had, "Well, which one are we going go with?" And they 10 decided to go with '04. I'm assuming it was a lot 11 easier for the Court to do to turn the deferred 12 adjudication into a conviction. 13 COMMISSIONER KRAUSE: Well, so if we 14 decide to approve the SOAH court's order, then I'm 15 assuming that the next step could be an appeal to 16 district court. 17 MS. KIPLIN: Procedurally correct. What 18 would happen is if you adopted and you signed the order 19 removing him from the registry, there is an opportunity 20 for filing of a motion for rehearing. So Mr. Fenoglio 21 on behalf of Mr. Taylor could file that. It would come 22 back before you-all to listen to see what error you 23 might have made, if you want to grant that rehearing. 24 If you overrule that rehearing or you 25 don't take action on the motion within the prescribed 113 1 period of time, yes, there is an opportunity to go 2 before a district court so long as Mr. -- so long as the 3 time deadlines are met. There are very strict 4 deadlines. It's been considered to be jurisdictional if 5 you don't meet those deadlines in terms of the filing of 6 the motion for hearing and the petition seeking judicial 7 review. 8 COMMISSIONER KRAUSE: Well, I feel a 9 little bit handicapped to make, you know, a judgment on 10 what the law is. And, you know, the things that I take 11 a look at are, you know, if I've got somebody that's 12 working in the bingo halls, you know, that is capable of 13 injuring somebody under the age of 15, then that person 14 is working with guest or customers of the bingo hall. 15 And so -- and then, of course, we have the other, you 16 know, 2007 situation that, you know, does not reflect 17 positively. 18 And so this is the kind of person that 19 we're being asked to allow to continue, you know, 20 working with our customers or the public. And so, you 21 know, really have a hard time wanting to do that, which 22 is why I'm exploring, you know, what your opportunities 23 are to get a judge to, you know, actual -- actually make 24 a ruling on some of these legal authorities. 25 MR. FENOGLIO: Well, assuming the client 114 1 wants to take the appeal. 2 COMMISSIONER KRAUSE: Uh-huh. 3 MR. FENOGLIO: By the way, the procedure 4 would be, as Ms. Kiplin outlined, a motion for 5 rehearing. 6 COMMISSIONER KRAUSE: Uh-huh. 7 MR. FENOGLIO: The order is not final 8 until the Commission rules on the motion for rehearing, 9 assuming we file a motion for rehearing. 10 COMMISSIONER KRAUSE: Uh-huh. 11 MR. FENOGLIO: And that's roughly 60 days 12 from today, roughly. It could be quicker than that. 13 Once that decision is -- it's assuming the Commission 14 rejects the motion for rehearing. Then the order will 15 become final. At that moment, when it becomes final, 16 the final, final order, if you will, Mr. Taylor loses 17 his job. 18 While the appeal is pending he has no 19 right to get reinstated absent a TRO, temporary 20 injunction, and I can't imagine a Travis County district 21 court looking at that and saying this is so -- 22 COMMISSIONER KRAUSE: So he's working now? 23 MR. FENOGLIO: He is working now. 24 And by the way, to that extent, these 25 aren't your customers. These are the charities' 115 1 customers, and I think charities have all made the 2 decision that he's a worthwhile employee, and it doesn't 3 present an unreasonable or any harm to the public. And 4 that's where it ought to be, in my view. 5 But following your question, then, it 6 would get into district court. Typically, 7 administrative appeals, if everyone agrees on the 8 briefing schedule -- of course, the record has to get 9 over to the district court. I don't know how quick this 10 agency is. I just handled -- I'm handling an appeal at 11 the Railroad Commission. It took them a year-and-a-half 12 to get the record over to district court. I'm not 13 making it up. And then it's usually six months before 14 you get a final order from the court. 15 COMMISSIONER KRAUSE: Uh-huh. 16 MR. FENOGLIO: So Mr. Taylor is out of 17 work during that period of time, and then district 18 courts typically, once the case is briefed, within 60 19 days will issue an order; so six months plus 60 days 20 from the time the record walks over to the district 21 court. 22 COMMISSIONER KRAUSE: Who are our 23 licensees that have hired Mr. Taylor? He's got two. He 24 works for two bingo halls. 25 MR. FENOGLIO: Two -- there are a total 116 1 of, I believe, ten charities. I'm not sure those 2 charities are in the -- well, I guess, they are in 3 the -- 4 COMMISSIONER KRAUSE: Well, I guess he 5 really doesn't work for the -- well, technically, I 6 guess he does. But he really works for the two bingo 7 halls. 8 MR. FENOGLIO: Well, the charities, I 9 think, are the employers of the employees who work the 10 bingo hall. And it is in the record to the -- 11 COMMISSIONER KRAUSE: We're up in Fort 12 Worth. Right? 13 MR. FENOGLIO: Yes, sir. 14 COMMISSIONER KRAUSE: Okay. So -- while 15 you're looking, how long has this process been going on? 16 When did we first notify Mr. Taylor that we wanted him 17 to quit working there, and we've been working through 18 the system? 19 MS. KIPLIN: We mailed a notice of our 20 proposal to remove him from the registry November 5th, 21 2010. He requested -- 22 COMMISSIONER KRAUSE: Been going pretty 23 fast. 24 MS. KIPLIN: He requested a hearing. We 25 set the hearing, and I'm not sure whether there were 117 1 continuances. 2 MR. FENOGLIO: I stand corrected. The 3 names of the charities are not in the record that employ 4 Mr. Taylor. 5 COMMISSIONER KRAUSE: But it's your 6 testimony that there are about ten of our licensees that 7 have him hired to work for them, and it's their 8 customers that he is working with? 9 MR. FENOGLIO: Yes, sir. 10 COMMISSIONER KRAUSE: And that's all been 11 going on since 2004 when this first accusation came up? 12 MR. FENOGLIO: Yes. Yes. 13 MR. WHITE: And, of course, I mean, we 14 don't know whether these organizations are aware -- even 15 aware of his conviction. 16 COMMISSIONER KRAUSE: Well, but, you know, 17 public safety is my perspective, then. If on the one 18 hand if he's been working continuously for seven years 19 subsequent thereto and maybe even some time before that, 20 then, you know, I mean, that's what I'm wrestling with 21 right now, is what's the exposure to our licensees' 22 customers? 23 MS. KIPLIN: I could lay out options for 24 you, if you'd like. 25 CHAIRMAN WILLIAMSON: Okay. 118 1 MS. KIPLIN: One option is that you vote 2 and you approve the proposal for decision and you -- and 3 it's clear as matter of conclusion of law that Class A 4 misdemeanor family violence on somebody 15 or under is a 5 crime of moral turpitude and will disqualify you. You 6 can do that. 7 You could -- if you wanted to, you could 8 decide, you know, send it back to SOAH, the State Office 9 of Administrative Hearings, and with the idea of the 10 prospective statute which is going to come into effect 11 September 1. And because there is a change in that and 12 have a SOAH judge look at that and issue a proposed 13 conclusion of law, you know, as a matter of law, this 14 particular criminal offense is or is not a disqualifying 15 criminal offense. 16 Because if you make a decision today that 17 it is not, well, then, that will be the rule of law for 18 other folks on whether it is or is not a crime of moral 19 turpitude. You're looking at these facts, of course, on 20 this one. And if it went back, you know, it would be 21 for a limited purpose, I think, on looking 22 prospectively, looking at the statute that's going go 23 into effect September 1 because that will be the rule of 24 law on a go-forward basis, practically speaking. 25 You could reject the proposal for 119 1 decision, reject -- by doing that you would reject the 2 administrative law judge's proposed findings and 3 conclusions. Of course, Mr. Fenoglio filed exceptions 4 and made the same arguments and the administrative law 5 judge did not accept those arguments and stood by his 6 conclusion that it was, in fact, a crime of moral 7 turpitude. Now, that's on the current statute. 8 COMMISSIONER KRAUSE: So those arguments 9 were presented in the SOAH court about the new statute? 10 MS. KIPLIN: No, that's the point. It was 11 not because this hearing was held in the spring before 12 the statute -- probably was in bill form, but it 13 certainly wasn't in statute form. 14 So, you know, you could decide that what 15 you wanted to do is remand it back with the idea of 16 reopening it for the limited purpose of determining on a 17 go-forward basis because we're less than a month out 18 from the effective -- the new statute -- new definition 19 of crime of moral turpitude coming into effect. 20 And the reason that I'm saying that and 21 spending more time on that is because I heard you say, 22 well, maybe the thing is having district court -- 23 COMMISSIONER KRAUSE: Uh-huh, uh-huh. 24 MS. KIPLIN: -- to try to give you a 25 definition, looking prospectively. Of course, your 120 1 conclusions are law, you know, unless the court 2 overturns it on an appeal. But that could be an option. 3 So to summarize, you could adopt the PFD 4 and Mr. Fenoglio could file a motion for rehearing, if 5 he chose to, on behalf of Mr. Taylor, if that's the 6 decision. You could reject the proposal for decision 7 and say it's not a crime of moral turpitude and instruct 8 the staff and Mr. Fenoglio to work out the language of 9 that order. You could remand it back to SOAH for the 10 limited purpose of looking at this new statute, or you 11 could carry it forward and you not take any action 12 today. 13 CHAIRMAN WILLIAMSON: You know, you, one, 14 have a business dilemma and you have a moral dilemma. I 15 hate to put anybody out of a job in this current 16 economic climate. Once again, you know, the crime that 17 you allegedly that you were charged with in 2004 is of a 18 great concern to me, and so it creates a huge dilemma 19 for me in that regard. 20 You say you've been working there for 12 21 years? 22 MR. TAYLOR: Yes, ma'am. 23 CHAIRMAN WILLIAMSON: So you were working 24 in a bingo hall before this all started in 2004. 25 MR. TAYLOR: Yes, ma'am. 121 1 CHAIRMAN WILLIAMSON: So did the bingo 2 halls and the employees, the charities, have no idea 3 what -- the background of their workers? I guess this 4 is something I need to know. 5 MR. TAYLOR: They know -- they know about 6 me. 7 CHAIRMAN WILLIAMSON: Okay. 8 MR. TAYLOR: Yes, ma'am. Like I said, I 9 worked two bingo halls a day 12 -- two bingo halls a 10 day, 6 days a week. 11 MS. KIPLIN: I'm afraid this -- I don't 12 know if this is a part of the record or not. 13 MR. FENOGLIO: It's not. 14 MS. KIPLIN: I'm afraid that -- 15 MR. FENOGLIO: Yes, it's not. I can tell 16 you that I've spoken with two of the charity reps in the 17 course of it, and they were aware of the underlying 18 conviction. 19 But -- and that the -- by the way, the 20 evidentiary record in this case was closed 21 February 23rd, 2011. We had a very abbreviated hearing 22 in -- I can't remember -- January or so. So the ALJ did 23 not have the benefit of even a hint that the law might 24 change. 25 CHAIRMAN WILLIAMSON: So we either send it 122 1 back and let them look at it based on the new law; and 2 if we do nothing right now, basically it stays in 3 abeyance till we bring it up again? 4 MS. KIPLIN: Well, if you send it back, 5 then what would -- you would sign an order. Mr. White, 6 I think, has an order prepared for the limited remand 7 back and have Mr. Fenoglio take a look at it and it 8 would go back. He would -- Mr. Taylor would stay on the 9 registry until an order -- a final order removing him, 10 if it -- if that ever occurred, existed. So he would 11 continue to remain on the registry. He would continue 12 to work, assuming that -- you know, that that's the 13 arrangement between the charities and Mr. Taylor. 14 But there would be no prohibition from 15 this agency for him to be removed and not work. And 16 then state administrative law judge could take the 17 argument. I don't think the facts are at dispute. I 18 think it would just be legal argument on interpretation. 19 COMMISSIONER KRAUSE: It would be a legal 20 argument on if the hearing occurred after September the 21 1st, then would, you know, that law apply retroactively 22 or would it be applied, you know, at that time to what 23 happened in the past? 24 MS. KIPLIN: And it really would be, I 25 guess, giving you guidance from a third party, the 123 1 administrative law judge, on a prospective basis. Now, 2 he's under the old law; but, of course, you know, the 3 removal would be if the law changed, then it -- I think 4 it's fair to say that the new law would come into play. 5 COMMISSIONER KRAUSE: Well, and if part of 6 the -- our order is on the remand is to consider that, 7 then the judge would have to consider that. 8 MS. KIPLIN: I think so, yes. 9 COMMISSIONER KRAUSE: Okay. 10 MS. KIPLIN: I beg your pardon? 11 MR. WHITE: Well, just two points I'd like 12 to -- a couple things. You know, if you decide to adopt 13 the PFD today, he's removed from registry. After 14 September 1st, he can reapply. The director of bingo 15 operations has indicated -- has stated that when they 16 get applications from persons who are previously revoked 17 removed from the registry for convictions that are no 18 longer considered crimes of moral turpitude, he puts 19 them back on the registry. And, you know, that's the 20 procedure, the outlined procedure in the active rules. 21 You know, I just -- we remand this back to 22 SOAH puts SOAH in a very difficult position in that SOAH 23 is supposed to apply the agency's rules and policies, 24 and if they don't know what this agency's rules and 25 policy is as to what constitutes -- and this is an issue 124 1 on the remand, is what -- what is another state law? Is 2 that only statute? Is that statutes and rules? Is that 3 statutes and rules and case law? I've been told by the 4 bingo operations division director that it is his policy 5 that that includes case law. That's what we've always 6 looked at to define what is a crime of moral turpitude, 7 and he wishes to continue that policy. 8 SOAH doesn't know that. They haven't 9 been -- because this is the first time this has ever 10 come up. And because the statute hasn't even gone into 11 effect yet, so there's no way the agency could have 12 adopted a policy on that -- you know, formal policy on 13 that yet. 14 And so that's why I think the more 15 appropriate and proper procedure is to apply the law 16 currently in force. Under the current law, the ALJ has 17 ruled this is a crime of moral turpitude. Mr. Taylor is 18 removed. If he believes after September 1st 19 assault/family violence is no longer a crime of moral 20 turpitude, he can a reapply. 21 MS. KIPLIN: But to follow up on that, I 22 think if you were to reapply, the bingo division 23 director -- you know, one option is to say, "I continue 24 to see this under the new law as a crime of moral 25 turpitude" -- 125 1 (Laughter) 2 MS. KIPLIN: Sorry. 3 MR. FENOGLIO: Easy for you to say. 4 MS. KIPLIN: -- "and you're denied." And 5 in that situation, Mr. Taylor would need to request a 6 hearing and he would not be on the bingo registry. He 7 would not be working until such time as a final order on 8 the denial of his application to be on the registry. So 9 I just want to make sure you know that. 10 MR. SANDERSON: I'd also like to interject 11 that once you're removed from the registry, you may not 12 reapply for one year. 13 COMMISSIONER KRAUSE: Oh. 14 MR. FENOGLIO: I was going to add that as 15 well as if it's of an interest, if we are going to 16 reopen and you want to know who the charities are, we 17 can put that in the record as well. 18 COMMISSIONER KRAUSE: Okay. So if -- so, 19 then, with the new law going into effect, well, it 20 really wouldn't benefit him because he couldn't reapply 21 for a year. 22 MR. SANDERSON: Correct. 23 COMMISSIONER KRAUSE: Okay. 24 MS. KIPLIN: Under the rule. 25 MR. SANDERSON: The statute indicates you 126 1 can't apply for one year after being removed. 2 COMMISSIONER KRAUSE: Can we do anything 3 about that? 4 MR. SANDERSON: I don't think so. 5 COMMISSIONER KRAUSE: All right. Should I 6 make a motion? 7 CHAIRMAN WILLIAMSON: Yes. 8 COMMISSIONER KRAUSE: I'm going to make a 9 motion; and I don't know if the Chairwoman is going to 10 back me up on this, but I'm going to throw it out there. 11 And so what my motion is, is that we 12 remand it back to SOAH for the specific purpose of 13 taking into account what the legislature has done, and I 14 fully appreciate the fact that we want to be able to 15 rely on case law. I don't want SOAH to disregard case 16 law at all, but I also think it is significant that the 17 legislature, after the SOAH hearing was concluded, that 18 the legislature, you know, enacted changes to the Bingo 19 Enabling Act that is specifically directed to this 20 particular issue. 21 And so what I am going -- what this motion 22 does is it directs the SOAH court to specifically 23 consider the change in the law as well as to consider 24 whether or not that law is to be applied only 25 prospectively or if it can be applied -- should applied 127 1 in this particular case. 2 MS. KIPLIN: And I think, you know, you 3 can give direction to SOAH that you all -- it is your 4 position that reported judicial decisions are state law 5 and should be considered. 6 COMMISSIONER KRAUSE: Well, and that's -- 7 that was part of my motion. 8 MS. KIPLIN: Okay. I'm sorry. 9 COMMISSIONER KRAUSE: Well, and if I need 10 to restate it, I'd be happy to. Although, we have 11 somebody over there that's got it all. 12 So, anyway, that's my motion. 13 CHAIRMAN WILLIAMSON: All right. I'll go 14 ahead and second. 15 All in favor? 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 Motion passes 2-0. 19 MS. KIPLIN: And so we have an order. I'm 20 not sure that it's tailored to that level of 21 specificity, and I'd ask Mr. White and Mr. Fenoglio -- 22 MR. FENOGLIO: Confer. 23 MS. KIPLIN: -- to confer. And if they -- 24 if they're in agreement, I'm thinking that we're going 25 to be running -- adjourning the commission meeting. I 128 1 don't know that they'll get it drafted in time. Maybe 2 you will, but I'm okay as long as you are in agreement 3 with it to route it to you guys for signature. 4 COMMISSIONER KRAUSE: It's on the record, 5 so -- 6 MS. KIPLIN: It's on the record, uh-huh. 7 Maybe you guys can do it during the break. 8 CHAIRMAN WILLIAMSON: Yeah. 9 MS. KIPLIN: You have an order. I don't 10 know if it's sufficient. It may not be. 11 MR. WHITE: Yes, ma'am. The order 12 basically just says the case will be remanded back to 13 SOAH for the purpose of determining whether 14 assault/family violence is a crime of moral turpitude 15 under the new statute. It did not go into the statement 16 that is the Commission's policy that reported case law 17 constitutes other state law. I can add that in there, 18 if you like. 19 COMMISSIONER KRAUSE: Well, and then the 20 prospective versus retroactive of application, too. 21 MR. WHITE: Yes, sir. Okay. We will add 22 that. Okay. 23 MS. KIPLIN: Okay. 24 CHAIRMAN WILLIAMSON: All right. 25 MR. FENOGLIO: Thank you. 129 1 AGENDA ITEM NO. XXX 2 CHAIRMAN WILLIAMSON: That concludes all 3 of our agenda items so far. So at this time, I move the 4 Texas Lottery Commission go into executive session to 5 deliberate the duties and evaluation of the executive 6 director, internal audit director, and charitable bingo 7 operations director and to deliberate the duties of the 8 general counsel and human resources director pursuant to 9 Section 551.074 of the Texas Government Code and to 10 receive legal advice regarding any pending or 11 contemplated litigation pursuant to Section 12 551.071(1)(A) and regarding any settlements pursuant to 13 Section 551.071(1)(B) of the Texas Government Code and 14 to receive legal advice pursuant to Section 551.071(2) 15 of the Texas Government Code, including but not limited 16 to those items posted on the Open Meetings notice for 17 purposes of receiving legal advice. 18 Is there a second? 19 COMMISSIONER KRAUSE: I second. 20 CHAIRMAN WILLIAMSON: All in favor? 21 Aye. 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: The motion passes 24 2-0. The Texas Lottery Commission will go into 25 executive session. The time is 11:45. Today is August 130 1 the 10th, 2011. 2 (Executive Session: 11:45 a.m. to 12:35 3 p.m.) 4 AGENDA ITEM NO. XXXI 5 CHAIRMAN WILLIAMSON: Okay. The Texas 6 Lottery Commission is out of executive session. The 7 time is 12:35 p.m. And I believe there is an action not 8 to be taken as a result of the executive session but as 9 of a prior item before we went into executive session. 10 Kim, I'll turn that over to you. 11 MS. KIPLIN: Thank you, Commissioners. 12 If we could go back to the Thomas Taylor 13 matter. And I have an order that's been prepared that 14 is reflective of the action that you took on the agenda, 15 and it will remand the matter back to the State Office 16 of Administrative Hearings for the limited purpose of 17 receiving evidence and argument on whether assault, 18 hyphen, family violence would be a crime of moral 19 turpitude under the amended definition that's going into 20 effect September 1. So I would like to present that to 21 you-all for your review and your signature. 22 AGENDA ITEM NO. XXXII 23 CHAIRMAN WILLIAMSON: Okay. And I 24 guess -- Commissioner Krause, I believe that concludes 25 the business of the Commission for this meeting. Is 131 1 there a motion to adjourn? 2 COMMISSIONER KRAUSE: I make a motion that 3 we adjourn. 4 CHAIRMAN WILLIAMSON: I second the motion. 5 All in favor? 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 The motion carries 2-0. 9 (Proceedings concluded at 12:36 p.m.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 132 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lorrie A. Schnoor, Certified Shorthand 5 Reporter in and for the State of Texas, Registered Merit 6 Reporter and Texas Certified Realtime Reporter, do 7 hereby certify that the above-mentioned matter occurred 8 as hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of such 10 were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true, 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 19th day of August 2011. 16 17 _______________________________ LORRIE A. SCHNOOR, RMR, TCRR 18 Certified Shorthand Reporter CSR No. 4642 - Expires 12/31/11 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. 8140 North MoPac Expressway 21 Suite II-120 Austin, Texas 78759 22 512.474.2233 23 24 25