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, OCTOBER 19, 201l § 9 10 11 12 COMMISSION MEETING 13 WEDNESDAY, OCTOBER 19, 2011 14 15 16 17 BE IT REMEMBERED THAT on Wednesday, the 19th 18 day of October 2011, the Texas Lottery Commission 19 meeting was held from 9:03 a.m. until 12:36 p.m., at 20 the Offices of the Texas Lottery Commission, 611 East 21 6th Street, Austin, Texas 78701, before CHAIRMAN MARY 22 ANN WILLIAMSON and COMMISSIONERS J. WINSTON KRAUSE and 23 CYNTHIA TAUSS DELGADO. The following proceedings were 24 reported via machine shorthand by Aloma J. Kennedy, a 25 Certified Shorthand Reporter. 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONERS: Mr. J. Winston Krause 5 Ms. Cynthia Tauss Delgado 6 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: 8 Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Philip D. Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - WEDNESDAY, OCTOBER 19, 2011 .......... 9 4 AGENDA ITEM NO. I - Meeting Called to Order......... 9 5 WELCOME TO COMMISSIONER DELGADO..................... 9 6 AGENDA ITEM NO. II - Report, possible discussion and/or action on ethics, 7 administrative procedure, and open government laws pertaining to the 8 Texas Lottery Commission............................ 10 9 AGENDA ITEM NO. III - Report, possible discussion and/or action on resource 10 allocation and prioritization of regulatory activities in the Charitable Bingo 11 Operations Division................................. 22 12 AGENDA ITEM NO. IV - Consideration of and possible discussion and/or action, 13 including adoption, on the rule review of 16 TAC Chapter 402 relating to Charitable 14 Bingo Administrative Rules.......................... 31 15 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action, including 16 proposal of repeal, of 16 TAC §402.703 (Books and Records Inspection), 16 TAC §402.704 17 (Tax Review Inspection), and 16 TAC §402.715 (Compliance Audit).................................. 34 18 AGENDA ITEM NO. VI - Report by the Charitable 19 Bingo Operations Director and possible discussion and/or action on the Charitable 20 Bingo Operations Division’s activities, including updates on licensing, accounting 21 and audit activities, pull-tab review, special projects, and upcoming operator 22 training............................................ 36 23 24 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. VII - Report, possible discussion and/or action on lottery sales 4 and revenue, game performance, new game opportunities, advertising, market research, 5 trends, and game contracts, agreements, and procedures...................................... 36 6 AGENDA ITEM NO. VIII - Report, possible 7 discussion and/or action on transfers to the State........................................ 48 8 AGENDA ITEM NO. IX - Report, possible 9 discussion and/or action on the 82nd Legislature......................................... 50 10 AGENDA ITEM NO. X - Report, possible 11 discussion and/or action on the Sunset review process involving the agency................. 51 12 AGENDA ITEM NO. XI - Consideration of and 13 possible discussion and/or action on external and internal audits and/or reviews 14 relating to the Texas Lottery Commission, and/or on the Internal Audit Department’s 15 activities, including an Internal Audit of Retailer Licensing and the FY 2012 Internal 16 Audit Activity Plan................................. 54 17 AGENDA ITEM NO. XII - Consideration of and possible discussion and/or action, including 18 adoption, on amendments to 16 TAC §§403.202 relating to Prerequisites to Suit, 403.205 19 relating to Agency Counterclaim, 403.207 relating to Duty to Negotiate, 403.208 20 relating to Timetable, 403.213 relating to Request for Contested Case Hearings, 403.214 21 relating to Mediation Timetable, 403.301 relating to Historically Underutilized 22 Businesses, and/or 403.501 relating to Custody and Use of Criminal History Record Information...... 59 23 AGENDA ITEM NO. XIII - Consideration of and 24 possible discussion and/or action, including proposal, on amendments to 16 TAC §403.401 25 relating to Use of Commission Motor Vehicles........ 64 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XIV - Consideration of and possible discussion and/or action, including 4 adoption, on the rule review, on 16 TAC Chapter 401 relating to Administration of 5 State Lottery Act................................... 66 6 AGENDA ITEM NO. XV - Consideration of and possible discussion and/or action, including 7 adoption, on amendments to 16 TAC §401.309 relating to Assignability of Prizes................. 67 8 AGENDA ITEM NO. XVI - Consideration of and 9 possible discussion and/or action, including adoption, on amendments to 16 TAC §401.318 10 relating Withholding of Delinquent Child Support Payments from Lump-sum and Periodic Installment 11 Payments of Lottery Winnings in Excess of Six Hundred Dollars..................................... 67 12 AGENDA ITEM NO. XVII - Consideration of and 13 possible discussion and/or action, including adoption, on amendments to 16 TAC §401.319 14 relating to Withholding of Child-Support Payments from Periodic Installment Payments 15 of Lottery Winnings................................. 67 16 AGENDA ITEM NO. XVIII - Consideration of and possible discussion and/or action, including 17 adoption, on amendments to 16 TAC §401.317 relating to “Powerball” On-line Game Rule........... 70 18 AGENDA ITEM NO. XIX - Consideration of and 19 possible discussion and/or action, including adoption, on amendments to Lotto Texas Jackpot 20 Estimation Procedure, OC-JE-002..................... 72 21 AGENDA ITEM NO. XX - Consideration of and possible discussion and/or action on 22 membership in the Multi-State Lottery Association (MUSL).................................. 74 23 AGENDA ITEM NO. XXI - Report, possible 24 discussion and/or action on GTECH Corporation....... 76 25 6 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE AGENDA ITEM NO. XXII - Report by the Executive 3 Director and/or possible discussion and/or action on the agency’s operational status, 4 agency procedures, and FTE status................... 82 5 AGENDA ITEM NO. XXIII - Consideration of the status and possible entry of orders in: 6 A. Docket No. 362-11-6293 – Speedy Express #5 B. Docket No. 362-11-6291 – Minimart 7 C. Docket No. 362-11-6292 – Minimart GP D. Docket No. 362-11-7293– Big Jim’s Liquor 8 E. Docket No. 362-11-6745 – Culebra Meat Market No. 12 9 F. Docket No. 362-11-7289 – El Pueblo Meat Market #2 10 G. Docket No. 362-11-4501 – Eddie’s Fruit & Vegetable Outlet 11 H. Case No. 2011-880 – Stop N Go #2419 I. Docket No. 362-11-7487 – Cameron Mini Mart 12 J. Case No. 2011-897 – Shadow Glen Food Mart K. Case No. 2011-775 – Travel Centers of 13 America L. Docket No. 362-11-7063.B – Fancy Richardson 14 M. Case No. 2010-272– Lois Arrendondo N. Docket No. 362-11-8435.B – Rotary Club of 15 Odessa East Texas, USA O. Case No. 2011-229 – Boys Club of Brazos 16 County, Inc. P. Docket No. 362-11-7490.B –AMVETS Post 90 17 Q. Docket No. 362-11-7488.B – Red Men Tribe 5 Wampum 18 R. Docket No. 362-11-7489.B –Central Texas Exposition, Inc. 19 S. Docket No. 362-11-7491.B – Red Men Tribe 38 20 T. Docket No. 362-11-6290.B – AMVETS Post 23.... 86 21 AGENDA ITEM NO. XXIV - Public comment............... 86 22 23 24 25 7 1 TABLE OF CONTENTS (CONTINUED) 2 AGENDA ITEM NO. XXV - Commission may meet in Executive Session: 3 A. To deliberate the duties and evaluation of the Executive Director pursuant to 4 Section 551.074 of the Texas Government Code. 5 B. To deliberate the duties and evaluation of the Internal Audit Director pursuant 6 to Section 551.074 of the Texas Government Code. 7 C. To deliberate the duties and evaluation of the Charitable Bingo Operations 8 Director pursuant to Section 551.074 of the Texas Government Code. 9 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 10 the Texas Government Code. E. To deliberate the duties of the Human 11 Resources Director pursuant to Section 551.074 of the Texas Government Code. 12 F. To receive legal advice regarding pending or contemplated litigation 13 pursuant to Section 551.071(1)(A) and/or to receive legal advice regarding 14 settlement offers pursuant to Section 551.071 (1) (B) of the Texas Government 15 Code and/or to receive legal advice pursuant to Section 551.071(2) of the 16 Texas Government Code, including but not limited to: 17 Texas Lottery Commission v. Leslie Warren, Texas Attorney General Child 18 Support Division, Singer Asset Finance Company L.L.C., and Great-West Life & 19 Annuity Insurance Company Department of Texas, Veterans of Foreign Wars 20 et al. v. Texas Lottery Commission et al., Rafael Tapia a/ka/ Rafael 21 Demetrio Tapia-Bido v. 7-Eleven et al., Willis Willis v. Texas Lottery 22 Commission, GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food Store #2, 23 Barkat N. Jiwani and Pankaj Joshi Employment law, personnel law, 24 procurement and contract law, evidentiary and procedural law, and 25 general government law.................. 130 8 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. XXVI - Return to open session for further deliberation and possible action 4 on any matter discussed in Executive Session........ 131 5 AGENDA ITEM NO. XXVII - Adjournment................. 132 6 REPORTER'S CERTIFICATE.............................. 133 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 9 1 P R O C E E D I N G S 2 WEDNESDAY, OCTOBER 19, 2011 3 (9:03 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery 7 Commission to order. Today is October 19, 2011. The 8 time is 9:03. Commissioners Krause and Delgado are 9 present, and we have a quorum. 10 WELCOME TO COMMISSIONER DELGADO 11 CHAIRMAN WILLIAMSON: I would like to 12 welcome our newest commissioner, Cynthia Tauss Delgado, 13 and let me tell you a little bit about her. She is 14 President of Cyndel Industries. She volunteers with 15 Texas Salute to Military Service and is a past member of 16 the State Commission on Judicial Conduct, the Texas 17 Board of Pardons and Paroles, the Texas Department of 18 Criminal Justice Victim Services Advisory Board and the 19 Texas Economic Development Board. She is also a past 20 board member of Justice For All and the Galveston County 21 Juvenile Justice Advisory Board. She received a 22 bachelor's degree from the University of Houston at 23 Clear Lake, and she claims -- where do you claim that 24 you live? 25 COMMISSIONER DELGADO: League City and 10 1 El Paso. 2 CHAIRMAN WILLIAMSON: And we welcome you 3 to the Commission, and thank you for sharing your time 4 and your energy. 5 Commissioner Krause, do you have any 6 comment? 7 COMMISSIONER KRAUSE: We are happy to have 8 you. 9 CHAIRMAN WILLIAMSON: And Commissioner 10 Delgado, do you have any comment? 11 COMMISSIONER DELGADO: No. 12 CHAIRMAN WILLIAMSON: Well, thank you and 13 welcome. 14 AGENDA ITEM NO. II 15 CHAIRMAN WILLIAMSON: The next item is 16 report, possible discussion and/or actions on ethics, 17 administrative procedure and open government laws 18 pertaining to the Texas Lottery Commission. 19 When we have a new commissioner, we put 20 this item on the agenda to provide pertinent 21 information. 22 And, Kim, if you'll take this item, 23 please. 24 MS. KIPLIN: Sure. Thank you. Good 25 morning. 11 1 Commissioner Delgado, what you have in 2 front of you -- and I've also put it in front of 3 Commissioner Krause and Commissioner Williamson -- it's 4 A Guide to Ethics Laws for State Officers and Employees. 5 It's actually produced by the Texas Ethics Commission, 6 but we've gone through it and annotated it for pertinent 7 provisions as it relates to Texas Lottery Commission 8 members. So I want to go through some things and 9 highlight some things. But certainly after you have had 10 an opportunity to review this, if you have any questions 11 whatsoever, feel free to call me, and we can walk 12 through that. 13 Just some things that I wanted to just 14 mention regarding the guideline. And if you can turn 15 and look at this part, on Part I, it will be Standards 16 of Conduct and Conflict of Interest. I think in terms 17 of standards of conduct, the most important or key point 18 that I would like for you to take away is to not accept 19 a gift, favor or service or take anything that would 20 influence you in discharging your dealings or impairing 21 your independence of judgment in performing your duties. 22 That's a general rule, a general guideline. 23 And if you will turn over, you will go to 24 another part on private interest in measures or 25 decisions. This has to do with whether you would have a 12 1 conflict of interest on a matter that is coming before 2 you for your taking of action as a Commissioner. 3 Specifically, if you go to Page 14 of this 4 guideline, you will see in blue certain things that are 5 conflicts of interest for a Commission member, and those 6 are set out. Just to highlight, "owns or controls, 7 directly or indirectly, more than a 10 percent interest 8 in a business entity or other organization regulated by 9 the commission or receiving . . .," employed by or 10 participates in the management of a business entity 11 regulated by the Commission or receiving funds, cannot 12 be an officer, employee or paid consultant of a Texas 13 trade association in the field of bingo or lottery. 14 I will also point out that if you believe 15 that you have a private or personal interest in any 16 matter that comes before the Commission, you must 17 disclose that fact to your Commission members and then 18 refrain from voting or participating in the matter. 19 It's a factual determination whether there 20 is a conflict of interest, so some of these can be 21 pretty challenging. I'm happy to work with you if 22 something comes to your attention that you may have a 23 personal interest, for example, in a -- a licensee or 24 something that might come to the attention, let's just 25 talk about it and we can work through that. 13 1 Another thing that I would like to point 2 out that's on Page 14 of the booklet is -- and this is 3 specific to, frankly, lottery commissioners but also 4 employees -- you may not purchase a ticket or claim or 5 collect or receive a lottery prize or share of a lottery 6 prize. And this provision also applies to your 7 immediate family members that reside in the same 8 principal place that you do. So hopefully that's not 9 going to be too much of an impact. 10 On the acceptance of benefits, like I 11 said, general gift laws. The general rule is to not 12 accept a gift. Now, for the general ethics laws, there 13 is a de minimis amount regarding what is a gift. We do 14 not have that in the Lottery Commission. So a meal, 15 anything of value -- it doesn't have to be above $50 -- 16 that is considered to be a gift. There is an exception, 17 and that has to do with whether the gift is given on 18 account of a prior relationship, a relationship that's 19 independent of your office such as kinship, personal or 20 professional. The specific Texas Lottery gift 21 prohibition laws are set out in Page 5 of this 22 guideline. 23 Another issue that I would like to bring 24 up is, sometimes somebody would say, "Well, I'm offering 25 this gift on behalf of the agency." For an agency to 14 1 accept a gift, the agency has to have express statutory 2 authority, and then there are procedures on how that 3 agency accepts a gift. This agency does not have 4 express statutory authority, so it cannot accept gifts. 5 Turning to the next part on abuse of 6 office, which is Part III of the guideline, the general 7 rule of thumb is that government property is to be used 8 for governmental purposes, not for personal or private 9 purposes. I will say that there's been an exception 10 that's been carved out for frequent flier mileage so 11 that a state employee can receive frequent flier 12 mileage, and that's not considered to be improper. 13 Turning to political campaigns, you may 14 not use state time or state employment to work on an 15 individual's campaign. Now, this is an interesting 16 provision in the Texas Lottery Commission statutes. And 17 specifically it's Section 467.025, and it's specific to 18 a Texas Lottery Commissioner. 19 And there have been two Opinions, Attorney 20 General Opinions, that have been written on this 21 particular issue. The first one was in '96. And what 22 it stands for is that a Commissioner may not directly or 23 indirectly coerce, attempt to coerce, command or advise 24 a person to pay, lend or contribute anything of value to 25 another person for a political purpose. 15 1 The AG Opinion in 1996 expanded this 2 provision to include the term "solicit" and also to 3 conclude that the provision applies to a commissioner, 4 not only in the commissioner's official capacity but 5 also in the commissioner's individual capacity. 6 Well, in 2008, the agency requested a 7 second opinion to focus in on certain key parts. One 8 was the constitutionality of the provision. The other 9 one was: Well, what does it really mean? Does it 10 really mean that a member of the Commission is 11 prohibited from inviting a person, for example, to a 12 political fundraising event, authorizing the inclusion 13 of a member's name as a sponsor or a host of a political 14 fundraising event, or soliciting a contribution to a 15 candidate for federal office? 16 And the Opinion said yes, it really could 17 mean all that. It's a factual determination, so you 18 would have to look specifically at the fact application. 19 And the Opinion also concluded that it is a factual 20 determination for the governors, the Governor to make, 21 because these are removal provisions. So if one were to 22 engage in conduct that would be violative of this 23 particular prohibition, then it's a basis for removal by 24 the Governor, and so it's the Governor's determination. 25 But I wanted to make sure that you knew of these two 16 1 Opinions, and I provided those to you, so you have that. 2 CHAIRMAN WILLIAMSON: Kim, I also want to 3 make it clear -- 4 MS. KIPLIN: Yes, ma'am. 5 CHAIRMAN WILLIAMSON: -- make it clear 6 that you still can write a check to a candidate. 7 MS. KIPLIN: Yes. 8 CHAIRMAN WILLIAMSON: That's correct. 9 MS. KIPLIN: You can. 10 CHAIRMAN WILLIAMSON: Yes. As an 11 individual? 12 MS. KIPLIN: Yes, you can. 13 Other employment that is prohibited, you 14 may not accept any employment or remuneration from a 15 person that has a significant financial interest in the 16 lottery, or a bingo commercial lessor, a bingo 17 distributor or bingo manufacturer. So that goes into 18 what you may not do. And that's set out on Page 10 19 where we've annotated this in blue highlights. A person 20 who has a significant financial interest in the lottery 21 is defined. I'll leave that to your reading. There's 22 several categories. I will say one is a lottery sales 23 agent. 24 Future employment: There are revolving 25 door provisions that are specifically applicable to 17 1 Texas Lottery Commission, and I can work through those 2 for you if you would like. You can also take a look at 3 Page 12, and you can see the revolving door provisions. 4 These are unique to Texas Lottery Commission members 5 that are set out on Page 12 and then continue over to 6 Page 13. 7 Personal financial statement: You have 8 filed yours, and so you will have an annual obligation 9 to file a personal financial statement -- so long as you 10 are a Texas Lottery Commission member -- with the Texas 11 Ethics Commission. 12 Turning to lobbying, appropriated funds 13 may not be used to influence the Legislature. I will 14 say that there is an exception to the prohibition on 15 using appropriated funds for lobbying so that state 16 employees can act as a resource and provide information 17 when requested to do so. 18 So that's a really quick run-through of 19 the ethics guideline. Happy to answer any questions 20 that you have now or in the future regarding this 21 particular handbook. And I'll leave that and go to the 22 next topic that I wanted to cover, and it has to do with 23 your role in activities under the Administrative 24 Procedure Act. You have really two key roles. One has 25 to do with rulemaking. The Commission sits as a policy- 18 1 making body, and you have the authority to adopt rules 2 within your jurisdiction, and so those matters would 3 come before you under the Bingo Enabling Act and the 4 Lottery Act. 5 There is no ex parte communication 6 prohibition. You can talk to whomever you would like to 7 or whomever would want to talk to you about the 8 rulemaking. It is an expression of your policy on 9 rulemaking. The process -- and you'll see as we go 10 through some of it today -- the beginning part and the 11 ending part is rules are proposed for public comment. 12 Public comment is received in a process, in a formal 13 process, and then the staff will bring back the action 14 for your consideration either to adopt, not to adopt. 15 But what we like to do is obtain the 16 public comment through the rulemaking process, not to 17 say people can't contact you, but it's always a good 18 idea for them to be clear in those communications that 19 they really need to follow the process to make sure that 20 their public comment is received and is part of the 21 record. So that's one of your roles under the APA. 22 The other key role under the 23 Administrative Procedure Act is your role as a 24 decisionmaker in matters, enforcement matters against 25 your licensees. We license folks on the lottery side as 19 1 sales agents and on the bingo side in several different 2 categories. At any given Commission meeting, there will 3 be enforcement actions. And this meeting is no 4 different than any other where you will be asked to act 5 as a decisionmaker, either in a contested case 6 proceeding that came through a formal hearing rule with 7 the State Office of Administrative Hearings or in a 8 proposed settlement and proposed agreed order. 9 There is an ex parte communication in 10 these matters. And what that means is that you may 11 not -- you may not communicate with a party about the 12 issues of fact or law in that case unless everybody 13 that's involved is given the opportunity to participate 14 in that matter. And it goes to fundamental due process, 15 to make sure that people have due process. 16 There is an exception where there are 17 matters that would require technical expertise of the 18 agency. And we have carved out the Special Counsel who 19 you met yesterday -- her name is Sandy Joseph -- in the 20 event that you have any questions that you would like to 21 consult privately with an attorney. And then certainly 22 if there are technical issues, somebody else within the 23 agency who has not participated in the contested case 24 proceeding, so that you have that ability to do that. 25 Any questions on -- I know I'm going 20 1 through it pretty quickly. Any questions on those two 2 key roles? 3 COMMISSIONER DELGADO: No. 4 MS. KIPLIN: And then finally I want to go 5 into open government, and that really has to do with the 6 Open Records and the Open Meetings Act. I'm going to 7 hit just on a few things, because I know that you have 8 the requirement to complete the Office of the Attorney 9 General's training on both open meetings and open 10 records, and they have that on their website. And then 11 when you go through their training, you can flip through 12 and print those certificates and provide those to me. 13 The agency actually must maintain those certificates on 14 your behalf. 15 But the general rule in open records is 16 know that anything that you reduce to writing in your 17 capacity with this agency is subject to being produced 18 under the Texas Public Information Act. There may be an 19 exemption that would prevent or protect that from being 20 produced, but just know that. Know that whatever you 21 write, whatever you reduce, that is subject to it, and 22 that goes to emails, to any kind of communications that 23 are in a written format. 24 Under the Open Meetings Act, know that a 25 quorum of the Commission will trigger an open meetings 21 1 requirement. And with this agency, the quorum is two. 2 So if two of you are together, then that will trigger 3 the review of the Open Meetings Act. And what that 4 means is that unless a meeting, the meeting of the 5 Commission has been properly noticed with those agenda 6 items properly identified so that the public has notice 7 that there will be a meeting, there will be a 8 discussion, you may not discuss a matter of business 9 with this agency or public business. 10 Now, there are exceptions, and those go 11 into -- for example, one I'll touch on are social 12 gatherings. There is no prohibition for you-all to be 13 in a social gathering and not have that be a 14 deliberation or a discussion that will trigger the 15 requirements of the Open Meetings Act. But know that 16 you cannot discuss -- with a quorum, you cannot discuss 17 in that social gathering any business of the agency or 18 any public business that would touch this agency. The 19 Open Meetings Act is, you know, sunshine in the 20 government. It has significant penalties for 21 violations, both civil and criminal, and it's taken very 22 seriously, so I wanted to touch on that. 23 There was also another exception that was 24 carved out -- and as we get closer to the legislative 25 session, I'll cover this again -- where before there was 22 1 not an exception to where if a quorum actually attended 2 a legislative committee hearing, it created a problem. 3 There was a request for an Opinion, and that's what the 4 Opinion said. And then the next session, there was a 5 carve-out for an exception that made it clear: Yes, a 6 quorum can attend. You cannot discuss what's occurring 7 with the business of it, but you can be there and it not 8 be a violation of the Open Meetings Act. And we'll 9 cover that as we get closer to the legislative session. 10 So real quick run-down -- I appreciate the 11 indulgence of the sitting Commissioners. I would like 12 to put that on the record. Either myself or a member of 13 my division are always available. Any questions that 14 you have regarding these particular legal provisions or 15 any other. Anybody have any questions? 16 COMMISSIONER DELGADO: No. 17 MS. KIPLIN: Thank you. 18 CHAIRMAN WILLIAMSON: Thank you, Kim. 19 It's always a good refresher and reminder for all of us. 20 AGENDA ITEM NO. III 21 CHAIRMAN WILLIAMSON: All right. Let's go 22 on to the next item. It's report, possible discussion 23 and/or action on resource allocation and prioritization 24 of regulatory activities in the Charitable Bingo 25 Operations Division. 23 1 Phil, this is your item, please. 2 MR. SANDERSON: Thank you, Chairman. Good 3 morning. Welcome, Commissioner Delgado. 4 At the August 10th Commission meeting, the 5 Commissioners asked that I go back and look at our 6 resources and see how we were going to prioritize our 7 activities with the limited resources and the budget 8 cuts that transpired over the last legislative session. 9 Because I went back and looked at the FTE 10 caps and the counts that we had. The actual purpose of 11 some of the discussion during the legislative session 12 really dealt more with not getting the funding restored 13 back to what we had had previously at $2.7 million a 14 year with 47 FTEs, that proceeding with the reduction 15 down to 35 FTEs, at $2.1 million in appropriation. 16 And after looking back at historical level 17 the last five to six years, we've had a 47 FTE budget 18 allocation. However, the positions filled ranged 19 anywhere from 35 to 40, depending on certain times of 20 the year we had some fluctuation and turnover. So the 21 activities that were being performed in those four or 22 five years are similar to what's going to be moving 23 forward. We're not going to be able to increase the 24 financial monitoring, per se, that the SAO audit had 25 requested. 24 1 We prioritized our activities, and we 2 looked at what we're required to do by statute. 3 Primarily one of those is issuing licenses. And after 4 going back and prioritizing these activities, we looked 5 at what time-sensitive processes there are in place that 6 we have to put a top priority to. For example, a 7 temporary license application which usually has a very 8 quick turnaround for request. Amendments to a license, 9 same thing. To work registry applications, we're 10 required to process cash payments that we receive within 11 72 hours. So there's certain activities that will take 12 a top priority, just by the nature of those activities. 13 The other activities that put us at a 14 middle range priority, which is the financial monitoring 15 as well as the processing of some original applications. 16 And depending on the number and type of these 17 activities, there will be an impact on some of the 18 other what is considered a lower priority activity. And 19 I'll use one example, is renewing a license, for 20 example. The Bingo Enabling Act allows for the -- it 21 operates along with the Administrative Procedures Act. 22 As long as they timely file the renewal, they can 23 continue to exist and conduct that activity. 24 So the processing of those applications 25 will take a lower priority; thus, taking probably a 25 1 little bit longer to receive the renewal application. 2 So the licensees will need to be understanding that it's 3 going to take a little bit longer to process the renewal 4 applications, because the efforts are focused more on 5 the temporaries and the amendments, and then the 6 originals have a time frame as well. 7 As far as other activities that we have 8 competing with those, of course, open records requests 9 that we receive, along with the administrative 10 litigation for settlement agreements and agreed orders. 11 One of the things that we have in place at 12 the agency is to review procedures every two years. And 13 we're at that point now to where the majority of our 14 procedures are under review. And so we're going through 15 those looking for any efficiencies that we may have to 16 try to increase the efficiency and reduce some of the 17 time constraints that it takes to process some of these 18 activities. 19 Additionally, the audit program has been 20 reevaluated after the initial implementation of the 21 methodology, after the 2006 internal audit. We have 22 hired a new audit manager. We've gone back and reviewed 23 and revisited the procedures and processes. And in the 24 beginning, audits were averaging anywhere between 600 to 25 900 to 1,000 hours each. And I just got a report this 26 1 morning that under the new audit methodology that we 2 have in place, we've decreased those down to an average 3 of about 260 to 270. So we're moving forward with that; 4 we're working close with the Internal Audit Department 5 as well to ensure that we, you know, keep in mind their 6 recommendations that were made several years ago. 7 The other activity, of course, that's on 8 the agenda today is a rule review, and we reviewed the 9 rules. There's a couple that will be repealed this 10 morning -- or on the agenda to be repealed this morning. 11 And we'll go back through the rule review, and there are 12 some that will need to be amended. We'll look at more 13 efficiency in trying to gain easier compliance by the 14 licensees. 15 Also as a result of not receiving the 16 funding for the new computer system or redesigning our 17 computer system's database, there's some missed 18 opportunities that we have to actually have some 19 improved efficiencies as a result of current technology. 20 And, as such, there may be some changes to the rules to 21 allow for changes in reporting requirements or some 22 other changes that would help improve our efficiency and 23 the monitoring of the financial activities of those 24 organizations, such as possibly recordkeeping or other 25 activities. And, of course, we'll work with the 27 1 industry on those rules as they become developed. 2 Not only was it an impact on the staffing, 3 there's some other additional cost cuts that I want to 4 make you aware of that will have an impact on some of 5 our activities. One of the, you know, cost cuts was 6 reducing our travel budget; thus, you know, it could 7 impact the possibility of the auditors actually going 8 out to the location to pick up the records and requiring 9 the organizations to bring those in to either the 10 headquarters or regional office. 11 Wherever possible, we reduced postage, 12 started using email, trying to use email notifications 13 and communications. We've also, as a lack of travel 14 funds, have ceased any on-site training programs. We'll 15 still conduct training programs in person here in 16 Austin. If there is a requested need for that type of 17 activity, it's available on-line 24/7. So anybody that 18 has access to the computers will take that training 19 class on-line. 20 And then the other things that we've done 21 is eliminated some special mailings and using email 22 notifications. We've set up that email subscription 23 service, which as of yesterday we had a little over 160 24 subscribers. And anybody that's interested in any of 25 the bingo activities or the bingo industry, I urge to 28 1 subscribe to that. We send out notifications of 2 anything that pertains to the bingo industry or the 3 agency that is of importance to the bingo industry. 4 And we will continue ongoing monitoring of 5 these activities and make necessary adjustments as 6 needed to ensure that we can still continue to strictly 7 control and regulate the activities of bingo and make 8 sure the funds are used properly. 9 And with that, I'll be glad to answer any 10 questions. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Commissioners, do y'all have any comments 13 or questions or thoughts? 14 COMMISSIONER DELGADO: No. 15 COMMISSIONER KRAUSE: Phil, did I hear you 16 say that you found new opportunities for improving the 17 work of the current computer system? 18 MR. SANDERSON: Not the current computer 19 system. I said while not receiving the funding for a 20 new computer system, we're missing opportunities for 21 improvement and efficiency. The current computer -- 22 CHAIRMAN WILLIAMSON: Okay. That's what I 23 wanted to focus on. 24 MR. SANDERSON: Yes. 25 COMMISSIONER KRAUSE: And so anyway, what 29 1 my comment is, is that sometimes I think perspective is 2 more important than knowledge, not in every case, but in 3 a case like this where our perspective is changed 4 because of the budget limitations. And so, you know, 5 I'm proud of you and your staff for finding new 6 opportunities to make it work better, more effective, in 7 the face of those budget limitations. 8 MR. SANDERSON: We continue to work on 9 that, yes, sir. 10 CHAIRMAN WILLIAMSON: Phil and I have been 11 spending quite a bit of time talking about what's 12 happening now and the impact on the future. And, you 13 know, obviously the software limitations concern me a 14 great deal, particularly down the road, as the other 15 software within this agency, obviously, has gone on to 16 new iterations and new levels. And the capacity for the 17 old software in bingo to be compatible at all with the 18 new software that the agency as a whole I think is 19 certainly -- potentially I'm not sure it's going to be 20 there. 21 So what I'm concerned about and what I'm 22 encouraging Phil and all of us to think about, I mean, 23 what do we need to start putting in place now if we have 24 to -- God forbid -- go back to we manually have to enter 25 bingo information into the agency, accumulated 30 1 information, and what that would entail. So I'm trying 2 to be looking forward, worst case, that's what we may 3 have to do. What do we have to do if that happens? 4 I'm also real focused and concerned about 5 the very complex rules and regulations that bingo as an 6 industry currently has to deal with. Being sensitive to 7 highly regulated industry in which I am in myself, it is 8 sometimes difficult for the people who are regulated to 9 understand exactly what it is that's required of them. 10 So I'm real focused on how can we maybe make this 11 simpler and easier for people to understand, one; and, 12 two, for us to regulate and manage? 13 So those of you that have read the 14 statutes I'm sure can appreciate where I'm coming from 15 on that comment. So I anticipate we will spend a lot of 16 time in the next few months looking at that and saying 17 maybe this is something we can go back to the 18 Legislature if it's a statute-driven requirement and 19 say, "Here is -- how can we make this easier for people 20 to deal with and to understand?" 21 And I'm also concerned that, obviously, 22 our financial audit -- but, yes, audits that we are 23 required to perform, that's kind of where we've taken 24 our biggest hit. So I'm also encouraging Phil to work 25 with Internal Audit and just discussions: What can we 31 1 do to improve that efficiency there, in light of the 2 restricted budget that he have? And I just -- that's 3 kind of where we are. I'm hoping people in the industry 4 can probably concur with a lot of that that I'm saying, 5 that it just doesn't have to be this hard, and maybe we 6 can make it better for everybody. So that's kind of 7 where we're headed, and that's kind of the dialogue that 8 we're having within the bingo industry itself. 9 So having said that, Phil has done a great 10 job of analyzing this, putting this together, in light 11 of what he has had to go through to this point to deal 12 with this reduction in budgets and his foresight in 13 understanding two years ago this is where he may have 14 ended up. So despite what he's had to deal with -- and 15 it was difficult -- I think his agency may not have been 16 as traumatized by the budget cuts as maybe some of the 17 other agencies within the state. 18 So, Phil, thank you for that. 19 MR. SANDERSON: Thank you. 20 AGENDA ITEM NO. IV 21 CHAIRMAN WILLIAMSON: All right. Let's go 22 on to the next item. It's consideration of and possible 23 discussion and/or action, including adoption, on the 24 rule review of 16 TAC Chapter 402 relating to Charitable 25 Bingo administrative rules. 32 1 Kim, this is your item, please. 2 MS. KIPLIN: Commissioners, each agency is 3 required to undergo a review of its rules every four 4 years. At an earlier Commission meeting, you-all voted 5 to initiate the rule review of the chapter 402 rules. 6 These are the bingo rules. And so we noticed that up in 7 the Register, and the staff undertook a rule review. We 8 received no comment regarding the rule review. The 9 purpose of the rule review is to determine whether the 10 reason for those rules to exist continues to exist. 11 Staff has undergone the rule review of the 12 rules in Chapter 402 and has determined that there are 13 some rules that there is no reason for those rules to 14 continue to exist. Staff has also indicated that other 15 rules, a majority of the rules, there is a need for them 16 to continue to exist. Some of them may need to be 17 revised. 18 What the staff is requesting today is that 19 you vote to adopt the rule review. And by doing that, 20 you'll readopt those rules that the agency needs. And 21 then in subsequent rulemaking matters, we will initiate 22 repealing the rules that don't need to exist, we get 23 them off the books and then revising those rules that 24 need to exist but require revision. 25 So for this agenda item, we request that 33 1 you-all vote to adopt the rule review in Chapter 402. 2 CHAIRMAN WILLIAMSON: All right. 3 Commissioners, do you have any questions 4 or discussion? 5 (No response) 6 Commissioner Krause, would you make a 7 motion, please. 8 COMMISSIONER KRAUSE: I make a motion that 9 the Commission adopt a rule that we review 16 TAC 10 Chapter 402 and evaluate those rules. 11 MS. KIPLIN: So what we're doing is, we're 12 adopting at this point that rule review, so we're going 13 to continue those rules, and so this is the end of the 14 process. 15 COMMISSIONER KRAUSE: That's my motion. 16 CHAIRMAN WILLIAMSON: All right. Is there 17 a second? 18 COMMISSIONER DELGADO: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 COMMISSIONER DELGADO: Aye. 23 CHAIRMAN WILLIAMSON: The vote is 3-0. 24 MS. KIPLIN: So, Commissioners, I have an 25 order reflecting your action. 34 1 CHAIRMAN WILLIAMSON: All right. 2 AGENDA ITEM NO. V 3 CHAIRMAN WILLIAMSON: Let's go on to Item 4 V, consideration of and possible discussion and/or 5 action, including proposal of repeal, of 16 TAC 402.703, 6 16 TAC 402.704 and 16 TAC 402.715. 7 Sandy, this is your item, please. 8 MS. JOSEPH: For the record, my name is 9 Sandra Joseph, Special Counsel. Before you for your 10 consideration are the proposed repeals of three bingo 11 rules: 16 TAC §402.703 concerning books and records 12 inspection, 16 TAC §402.704 concerning tax review 13 inspection, and 16 TAC §402.715 concerning compliance 14 audit. 15 The purpose of these draft proposed rules 16 is to eliminate these provisions from the Charitable 17 Bingo administrative rules, as the reasons for them no 18 longer exist. The submission prepared for the Texas 19 Register includes notice of a public hearing to be held 20 on the proposed repeal at 10:00 a.m. on Wednesday, 21 November 16, 2011. 22 Staff recommends that the Commission 23 initiate the rulemaking proceedings by publishing the 24 attached proposed repeals in the Texas Register for 25 public comment for a period of 30 days. 35 1 CHAIRMAN WILLIAMSON: Sandy, thank you. 2 Commissioners, do you have any questions 3 or discussion? 4 COMMISSIONER DELGADO: No. 5 CHAIRMAN WILLIAMSON: Is there a motion? 6 COMMISSIONER KRAUSE: Well, I'm always in 7 favor of getting rid of rules if we don't need them. 8 And I'll be happy to make a motion, and that is that I 9 make a motion that the Commission adopt the 10 recommendation to start the rulemaking process to repeal 11 the three rules -- 16 TAC §402.703, §402.715 and 12 §402.704 -- for public comment. 13 CHAIRMAN WILLIAMSON: Is there a second? 14 COMMISSIONER DELGADO: Second. 15 CHAIRMAN WILLIAMSON: All in favor? 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 COMMISSIONER DELGADO: Aye. 19 CHAIRMAN WILLIAMSON: The vote is 3-0. 20 Thank you. 21 MS. KIPLIN: Commissioners, I have a T-bar 22 memo. 23 CHAIRMAN WILLIAMSON: Thank you. 24 25 36 1 AGENDA ITEM NO. VI 2 CHAIRMAN WILLIAMSON: The next item it 3 report by the Charitable Bingo Operations Director and 4 possible discussion and/or action on the Charitable 5 Bingo Operation Division's activities, including updates 6 on licensing, accounting and audit activities, pull-tab 7 review, special projects, and upcoming operator 8 training. 9 Phil, this is your item, please. 10 MR. SANDERSON: Commissioners, you have in 11 your notebooks the report for the August and September 12 activities of the Bingo Division. And other than what's 13 in the report, I have no other comments. Be glad to 14 answer any questions. 15 CHAIRMAN WILLIAMSON: Commissioners, do 16 you have any questions or comments for Phil? 17 COMMISSIONER DELGADO: No. 18 COMMISSIONER KRAUSE: No, ma'am. 19 CHAIRMAN WILLIAMSON: All right. Thank 20 you. 21 AGENDA ITEM NO. VII 22 CHAIRMAN WILLIAMSON: The next item is 23 report, possible discussion and/or action on lottery 24 sales and revenue, game performance, new game 25 opportunities, advertising, market research, trends and 37 1 game contracts, agreements and procedures. 2 Kathy and Robert, please. 3 MS. PYKA: Good morning, Commissioners. 4 My name is Kathy Pyka, Controller for the Commission. 5 With me to my right is Robert Tirloni, our Products 6 Manager. 7 Commissioners, this morning we'll be 8 presenting to you final fiscal year sales data for 9 Fiscal Year 2011. Our first chart this morning reflects 10 comparative sales for fiscal year ending August 31, 11 2011, to the previous fiscal year. Total sales for 12 Fiscal Year 2011 amounted to $3.811 billion, which was a 13 $72.9 million increase, or almost two percent above 14 Fiscal Year 2010 sales. This not only marks the first 15 time we exceeded $3.8 billion in sales, this marks the 16 record-setting sales year for the Commission since the 17 inception of the lottery in 1992. 18 Fiscal Year 2011 instant ticket sales, as 19 reflected on the second blue bar, are at $2.842 billion, 20 which was an $81.3 million increase over the prior 21 fiscal year. And this marks our third highest instant 22 ticket sales year in the history of the Commission. 23 And our on-line sales reflected on the 24 second blue bar for Fiscal Year 2011 were $969 million, 25 which was an $8.4 million decline from the previous 38 1 fiscal year. 2 Our next slide reflects the cumulative 3 average daily sales for Fiscal Years 2009, Fiscal Year 4 2010 and Fiscal Year 2011. The average for Fiscal Year 5 2011 amounted to just over $10.44 million, which was an 6 increase of 2.5 percent over the $10.192 million for 7 Fiscal Year 2009 and six-tenths of a percent over the 8 $10.375 million for Fiscal Year 2010. 9 Our jackpot games are noted with the white 10 font. We wrapped the year up at $1.5 million which was 11 $127,000 increase over Fiscal Year 2009; however, it was 12 $180,000 increase from Fiscal Year 2010. And this 13 decrease is attributed to the large jackpot rolls that 14 we had for Lotto Texas during Fiscal Year 2010. 15 Our daily games are noted with the green 16 font. We wrapped up the fiscal year at $1.1 million as 17 our average. I wanted to highlight there that our Daily 18 4 game wrapped up with $160,000 as the average daily 19 sale, which was our highest sales total for the fiscal 20 year -- or for the game since it began in Fiscal Year 21 2008. 22 Last, our instant ticket sales are 23 reflected with the yellow font. Just under $7.8 million 24 is the daily average. This is a $139,000 increase over 25 Fiscal Year 2009 and a $223,000 increase over Fiscal 39 1 Year 2010. 2 Robert will now provide an overview of the 3 actual sales by game for Fiscal Year 2011. 4 MR. TIRLONI: Good morning, Commissioners. 5 For the record, my name is Robert Tirloni. I am 6 Products manager for the Commission. 7 As Kathy said, this is our fiscal year 8 comparison and it is our complete fiscal year 9 comparison, 2011 versus 2010. This slide is laid out, 10 the same format as the previous one, with our jackpot 11 games up at the top in white. 12 All of our games, our jackpot games, 13 performed well this past year. The exception was Lotto 14 Texas. That game did experience decline. But as we've 15 talked about pretty much throughout this whole fiscal 16 year or through the last fiscal year in these meetings, 17 Lotto in 2011 was competing with some very high jackpots 18 that occurred in the previous fiscal year, and that is 19 the reason for that decline. 20 The daily games are in green in the middle 21 of the slide. Again, good overall performance. The 22 daily games as a whole were up $8.1 million. So when we 23 combine the jackpot games and the daily games, we see a 24 decline of $8 million for the year. 25 On the instant product category, again we 40 1 had a very successful year. Instants were up slightly 2 over $81 million in Fiscal Year 2011 compared to 2010. 3 And that gives us the net effect of $3.8 billion in 4 Fiscal 2011, which is just under a $73 million increase 5 when we compare the two fiscal years. 6 We show you this slide about two times a 7 year. This is the wrap-up for the fiscal year, and this 8 pie chart represents our total instant sales for the 9 year, broken down by price point. So this is a 10 representation of $2.84 billion in instant ticket sales. 11 You can see the biggest piece of that pie is the yellow 12 piece, which is our $5.00 price point, so that continues 13 to be our best selling, most successful instant game 14 price point. 15 The next best is the $20 price point. 16 That's the purple colored piece of the pie right there. 17 The third best is the $2.00, followed by the $10. You 18 can see the $10 and the $2.00 are pretty close. The $10 19 represents $388 million, and the $2.00 represents 394, 20 just under $395 million. And so that is the overall 21 picture of how our instant price points performed this 22 past fiscal year. 23 I do have a couple of updates for you this 24 month. We talked a little bit about this, I think at 25 our last meeting in August, but our two NFL games, our 41 1 Dallas Cowboys and our Houston Texans games started in 2 September, on the 19th. They're both doing well, and 3 they both have valuable experiential prizes that can be 4 won through second-chance drawings. Some the prizes are 5 season tickets, suite packages, weekend suite packages, 6 signed jerseys. The Texans offer an away game trip 7 where you get to be -- kind of get to mimic the owner, 8 kind of like an owner-for-a-day type prize where you 9 travel to an away game trip. And the cowboys offer a 10 draft-day package where you get to go into their War 11 Room on Draft Day and you get to hear their recruitment 12 strategies from Jerry Jones and from other people in the 13 Cowboys organization. So those are very valuable prizes 14 that you just can't -- you can't obtain without entering 15 these types of drawings. 16 And so these games started on the 19th. 17 As I said, they're doing well. And we had a very good 18 kick-off event with the Dallas Cowboys at Cowboy Stadium 19 about a week or so before the games actually launched, 20 and Gary and Jerry Jones held a joint press conference 21 at Cowboy Stadium to roll out the new Dallas Cowboys 22 game. And so we have a clip of that to show you. This 23 is an edited version. So you'll see the press 24 conference and you'll some video that was edited in by 25 our Media Relations staff. 42 1 (The following transcription from video:) 2 MR. JONES: I'm really pleased to announce 3 that we're going into our third year with our 4 partnership with the Texas Lottery. Now, this is a big 5 deal to us, because at the end of the day, the money 6 goes to educate young people in the State of Texas, and 7 it really works. By being able to use the interest 8 across the state that's in not only sports -- football, 9 the NFL -- with the Dallas Cowboys, we really sell more 10 lottery tickets. And when we do that, we feel very 11 strongly that we're really making a contribution to 12 education in the State of Texas. 13 What we do is, to show you how serious we 14 are about it, we take the second chance lottery winners, 15 the ones that don't win the big cash prize, we take them 16 and we have incorporated in what I believe is some of 17 the most proprietary areas that we have in making and 18 building and running the Dallas Cowboys. My favorite 19 one is Draft Day, and we have those secondary winners 20 that come into the War Room on draft day, come right in. 21 And we're sitting there not only putting what other 22 teams, our strategy is to where they're going to be 23 drafting, but our own strategy right there in the room 24 with them. 25 We get a chance because, as you know, we 43 1 have a lot of down time in the Draft Room on Draft Day, 2 and so we spend a lot of time getting to know those 3 people and telling them what's going on in there and 4 giving them an idea of what it's like to be in the War 5 Room. Now, very few people go -- have ever been there, 6 and that's the second chance winners that are there. 7 We also have something that we're very 8 proud of, and that's their trip that they go, the 9 winners go on our away games, and they make those trips 10 and those winners get to be a part of that. Then, of 11 course, we have our game-day experience where a second 12 chance winner can win not only a suite but be involved 13 in what we do on game day. All in all, you can see that 14 these are some of the very best things that you can be a 15 part of with the Dallas Cowboys. 16 MR. GRIEF: Two years ago, I sat in a very 17 similar setting in front of some of you and announced 18 the very first Dallas Cowboy scratch-off game. And I 19 told you at that time it was going to be a big deal, and 20 I want you to know just how big. Think about these 21 numbers. In two years, over $110 million in total 22 lottery sales, over $75 million to our lucky players in 23 the form of prizes, and over $5 million in commissions 24 to our valuable retailers who sell the Dallas Cowboy 25 scratch-off game throughout the great State of Texas. 44 1 But most importantly, over $21 million to the Foundation 2 School Fund benefiting public education here in Texas. 3 Now, take a look, if you would, at our new 4 ticket for this season. This year we're going to be 5 offering $100,000 cash top prizes. But as Jerry 6 mentioned, just like in past seasons, our second-chance 7 drawings are going to be the items that are going to be 8 the attention-getters. In those second-chance drawings, 9 we're going to again be offering the Cowboys gift cards, 10 signed jerseys and season tickets, and those are 11 fabulous prizes. 12 But as Jerry alluded to, what really gets 13 the fans' blood pressure going, what they dream about 14 winning, are those Draft Day packages and those wild 15 weekend suite packages. And it never fails, when we 16 talk to our winners who have experienced one of those 17 wonderful prizes, they always mention the personal touch 18 given to them by the Jones family. And that goes a long 19 way in making sure that this game is a big money winner 20 for Texas education. 21 MR. JONES: I believe this is a shining 22 example of how to take the fact that Nielsen and the NFL 23 say your Dallas Cowboys are the No. 1 viewing entity 24 there is, not only in the NFL but in sports and on 25 television, how to take that and do some good for some 45 1 people that need that help. So I feel very strongly 2 about this. This is a direct way to use the interest in 3 sports and to use the interest in Dallas Cowboys, 4 especially here in Texas. 5 Gary, thank you again for joining us. 6 MR. GRIEF: Thank you. 7 (Conclusion of video) 8 MR. TIRLONI: So, Commissioners, we're 9 obviously very happy to have our relationship continue 10 with both the Cowboys and the Houston Texans. 11 CHAIRMAN WILLIAMSON: Well, I understand 12 someone from my community won one of those second prizes 13 yesterday. 14 MR. TIRLONI: Oh, did they really? 15 MR. GRIEF: That's correct. 16 CHAIRMAN WILLIAMSON: Gary was telling me 17 that. 18 MR. GRIEF: They won season tickets for 19 next season. 20 CHAIRMAN WILLIAMSON: I didn't know who it 21 was. 22 MR. TIRLONI: We had very good response to 23 the first drawing for both teams. It was held, 24 obviously, earlier this week. The cowboys had almost 25 96,000 entries, and that's almost double what they had 46 1 last year, so a very good response, very good response 2 to those drawings. And to get those prizes, obviously, 3 that's what the draw is. 4 I have one last update for you today, and 5 this has to do with Texas Lottery Black. This, too, is 6 a game that we've talked about a great deal over the 7 past fiscal year. This game first started in January of 8 2011, and we thought it was going to be a good game. It 9 has ended up being a great game. We are selling Version 10 3 right now. We have Version 4 printed in our 11 warehouse, and we believe that's going to start sometime 12 in about the next three to four weeks, depending on 13 sales through the third version. 14 So this has been a very successful game 15 for us from a sales standpoint. And we believe part of 16 the reason it was so successful was because of the 17 clever and creative marketing and advertising campaign 18 we put behind the game to kind of position it as a high 19 end, high quality, exclusive product. And so we thought 20 this would be a great candidate for the best new instant 21 game award that NASPL gives out. And NASPL is the North 22 American Association of State and Provincial Lotteries. 23 So we developed a business case analysis 24 about Texas Lottery Black, and we submitted it. And I'm 25 very happy to be able to inform you-all that next week 47 1 when we are in Indianapolis at the annual NASPL 2 conference and trade show, this game will be awarded the 3 best new instant game by NASPL. So we are very happy 4 about that; we're very pleased. A lot of people worked 5 very hard on the Black ticket and the marketing and 6 advertising campaign, both internally and externally. 7 That includes our advertising vendors, our printers and, 8 of course, GTECH and the sales force. So we wanted to 9 tell you about that honor, and we're very happy that 10 we'll be receiving that award next week in Indianapolis. 11 MR. GRIEF: I think the only thing I would 12 add to that, Commissioners, is we have to keep that a 13 secret, of course. 14 MR. TIRLONI: Until next week. 15 CHAIRMAN WILLIAMSON: We'll make sure 16 nobody can read the transcript of this meeting, then, 17 for what, a week? 18 MR. GRIEF: We'll delay that. 19 CHAIRMAN WILLIAMSON: Is that what that 20 is? 21 MR. GRIEF: That's it. 22 MR. TIRLONI: Commissioners, that 23 concludes our report, but we're sure happy to answer any 24 questions you might have. 25 CHAIRMAN WILLIAMSON: All right. Thank 48 1 you. 2 Commissioners, do you have any comments, 3 questions? 4 (No response) 5 CHAIRMAN WILLIAMSON: I just want to 6 commend everyone that was involved with the Black 7 ticket. I have been to a couple of those conventions, 8 and I have seen the advertising that has been -- that 9 competes for those prizes, and it's not easy so achieve 10 that. And I'm very proud of every one of you that 11 participated in that. 12 MR. TIRLONI: Thank you so much. 13 CHAIRMAN WILLIAMSON: Thank you. 14 AGENDA ITEM NO. VIII 15 CHAIRMAN WILLIAMSON: All right, Kathy. 16 On to the next item of transfers to the state, please. 17 MS. PYKA: Again, for the record, my name 18 is Kathy Pyka. I'm the Controller for the Commission. 19 Commissioners, again today I'll do a year- 20 end report on revenue transfers to the state. And the 21 first report in your notebook reflects the transfers and 22 allocations to the Foundation School Fund, the Texas 23 Veterans Commission, allocation of unclaimed prizes for 24 the period ending August 31, 2011. 25 Total cash transfers to the state amounted 49 1 to $1.025 billion, and this marks our eighth consecutive 2 year in which we're transferred over a billion dollars 3 to the State of Texas. 4 The second page in your notebook reflects 5 the detailed information for the monthly transfers. Of 6 the $1.025 billion transfer to the state, $963.2 million 7 was the amount transferred to the Foundation School 8 Fund. $8.1 million was the amount transferred to the 9 Texas Veterans Commission, with a balance of 10 $53.8 million transferred from unclaimed lottery prizes. 11 The final document in your notebook 12 includes our report of lottery sales, expenditures and 13 transfers from Fiscal Year 1992 to date. Our cumulative 14 transfers, Commissioners, now to the Foundation School 15 Fund through Fiscal Year 2011 total $13.6 billion. 16 That concludes my presentation. I would 17 be happy to answer any questions. 18 CHAIRMAN WILLIAMSON: Thank you, Kathy. 19 Commissioners, do you have any questions 20 or comments? 21 (No response) 22 CHAIRMAN WILLIAMSON: All right. Thank 23 you. 24 MS. PYKA: Thank you. 25 50 1 AGENDA ITEM NO. IX 2 CHAIRMAN WILLIAMSON: The next item is the 3 report, possible discussion and/or action on the 82nd 4 Legislature. Nelda. 5 MS. TREVINO: Good morning, Commissioners. 6 for the record, I'm Nelda Trevino. I'm the Director of 7 Governmental Affairs. 8 And during the legislative interim, the 9 Speaker of the House and the Lieutenant Governor 10 assigned charges to each committee to study a particular 11 issue or a group of issues and possibly conduct some 12 committee hearings for the purpose of making 13 recommendations for the next legislative session. While 14 these charges have yet to be assigned by the Speaker and 15 the Lieutenant Governor, there are some committees that 16 are already meeting. And Governmental Affairs staff is 17 monitoring these activities and will continue to keep 18 you advised on any charges that are assigned or any 19 activities or actions that might take place that impact 20 the agency. 21 And this concludes my report on this 22 agenda item, and I'll be glad to answer any questions. 23 CHAIRMAN WILLIAMSON: Thank you, Nelda. 24 Any comments or questions? 25 COMMISSIONER DELGADO: No. 51 1 AGENDA ITEM NO. X 2 CHAIRMAN WILLIAMSON: All right. Let's go 3 on to the next item: Report, possible discussion and/or 4 action on the Sunset review process involving the 5 agency. 6 MS. TREVINO: Again for the record, I'm 7 Nelda Trevino, the Governmental Affairs Director. 8 As you are aware, the Texas Lottery 9 Commission is one of the agencies scheduled for a Sunset 10 review during this biennium. As reported at the last 11 Commission meeting, the review process begins with the 12 submission of the agency's self-evaluation report, and 13 this report was submitted on September 1st and it is 14 also posted on the agency's website. The Sunset 15 Advisory Commission staff has begun its review of the 16 Lottery Commission, and I would like to provide you with 17 a brief update. 18 On October the 5th, the Sunset staff held 19 a meeting of the agency's executive management to 20 provide an overview of the review process. And included 21 in your notebook, we provided you a copy of the packet 22 that was provided to us at this meeting. I especially 23 want to bring to your attention the information that's 24 contained on the third page of your packet. And you 25 will note that the numbers of the Sunset Commission are 52 1 listed on this page, and you'll also note that there are 2 several appointments that are still pending to be made 3 by the Speaker and the Lieutenant Governor. 4 The names of the Sunset review team are 5 also noted on this page, and I would like to recognize 6 the members of the review team who are here with us 7 today. Our project manager for the Sunset review is Amy 8 Trost. And her review team includes Sean Shurtleff and 9 Katharine Teleki. I hope I didn't mess those names up. 10 And supervising the review process is Joe Walraven. So 11 again, they're with us here today, and I think they'll 12 be attending Commission meetings and be meeting with 13 staff as we go through this review process. 14 The timeline is also noted on this 15 particular page, the timeline for the agency's review, 16 and I would like to just point out that the review work 17 is scheduled to take place between October of this year 18 through March of 2012. It's anticipated that the Sunset 19 staff report will be published sometime in March of 20 2012. There will be a public hearing of the Sunset 21 Commission members that will tentatively take place the 22 week of April 9, 2012. And then the Commission decision 23 hearing is tentatively scheduled for June -- the week of 24 June 1, 2012. And then again, the Legislature then 25 begins in January of 2012 also -- excuse me -- of 2013. 53 1 So that's sort of a summary of the timeline of the 2 review process. 3 The next page of the document that's 4 included in your notebook, it's a flow chart, and it 5 provides a brief summary of the review process. And 6 then following that page is a one-page document that has 7 been posted on the agency's website, and this puts the 8 public on notice of the Sunset review of the Texas 9 Lottery Commission. And this notice also includes a 10 brief summary of the review process. It includes some 11 of the timeline that I just mentioned, and it also 12 includes an invitation for the public to submit any 13 ideas or suggestions about the Lottery Commission to the 14 Sunset staff by November 21st of this year. 15 The agency has already held some meetings 16 with the Sunset staff. And again, we'll continue to be 17 holding meetings with them during their review work. I 18 know they will be reaching out to each of the 19 Commissioners as well to discuss this review with each 20 one of you individually. 21 And this concludes my report, and I'll be 22 glad to answer any questions. 23 CHAIRMAN WILLIAMSON: Thank you. 24 Commissioners, do you have any comments or 25 questions? 54 1 COMMISSIONER DELGADO: No. 2 COMMISSIONER KRAUSE: I do not. 3 CHAIRMAN WILLIAMSON: Welcome to the 4 Lottery. And I'm sure you'll find working with our 5 staff a less burdensome process than maybe in other 6 places. They're very easy to work with. 7 FROM THE TEAM: Thank you. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 AGENDA ITEM NO. XI 11 CHAIRMAN WILLIAMSON: The next 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 Commission and on the Internal 15 Audit Department's activities, including an internal 16 audit of retailer licensing and the Fiscal Year 2012 17 Internal Audit Activity Plan. 18 Catherine, this is your item, please. 19 MS. MELVIN: Thank you, Chairman, 20 Commissioners. Before you is a copy of a recently 21 issued Internal Audit report, and that report is an 22 audit of retailer licensing. The purpose of the audit 23 was to evaluate the adequacy and effectiveness of the 24 system of internal control and the quality of 25 performance in carrying out assigned responsibility 55 1 related to retailer licensing. This audit focused on 2 the initial retailer licensing application process. 3 As part of the audit, we had three primary 4 objectives that we reviewed. The first stated objective 5 was to determine if the licensing process ensures only 6 eligible applicants are granted a new license and the 7 process affords fairness and consistency to all 8 applicants. In here we found that the current system of 9 internal control over retailer licensing requires 10 improvements to better ensure that only eligible 11 applicants are granted a new license and that the 12 process affords fairness and consistency to all. 13 The second stated objective of the review 14 was to determine if the licensing process is streamlined 15 for both the applicant and the agency. In here overall 16 we found that the process was streamlined; however, we 17 also identified some opportunities to improve the 18 licensing process, and those are contained in the 19 report. 20 And then lastly we looked at the license 21 fees, monies that come in with the license applications. 22 We looked at the controls over the receipt and the 23 recording of those application fees. And here we found 24 adequate and effective controls over receipt and 25 recording of the fees; however, we recommended that 56 1 additional analysis is needed to ensure that the 2 application fees cover the processing costs incurred in 3 accordance with our State Lottery Act. In addition, we 4 found that the agency was not refunding the bond fee for 5 all denied applicants, also required by the State 6 Lottery Act. 7 In this report, you will notice that the 8 very last section contains a management commendation. I 9 just wanted to make a comment about that. During the 10 process, I want to commend the division director that we 11 worked very closely with Michael Anger. His very 12 responsive actions taken throughout the course of the 13 audit resolved issues that we noted during the course of 14 the audit, such as statutory or administrative rule 15 requirements. And because those were taken care of, we 16 didn't feel the need to necessarily write up the 17 findings. 18 So if you have any questions about that 19 audit, I'm happy to answer. 20 CHAIRMAN WILLIAMSON: Commissioners? 21 COMMISSIONER KRAUSE: Can I interpret the 22 second objective of streamlining and finding 23 opportunities to streamline is making what we do less 24 burdensome on our customers or our licensees? 25 MS. MELVIN: Yes. We looked at that both 57 1 ways. Some years back we looked at licensing of the 2 bingo applicants also. And in there, we want to ensure, 3 of course, that we're doing all the things that we're 4 supposed to. You know, eligibility, of course, is a big 5 piece of any audit you're going to do licensing. But 6 the other element of that is efficiency. So we're 7 looking at the experience from the applicant's 8 perspective but also from the people that have to 9 process those applications to its end. 10 COMMISSIONER KRAUSE: Thanks. 11 CHAIRMAN WILLIAMSON: All right. Thank 12 you, Kathy. 13 MS. MELVIN: All right. And then I have 14 one other item, Commissioners. This is an action item. 15 This is the Fiscal Year 2012 Internal Audit Activity 16 Plan. Before you is our proposed activity plan for this 17 fiscal year. Just a few comments. 18 The division is committed to being a 19 resource and improving the agency's operations, and we 20 are proposing a plan, you'll notice, that is more 21 open-ended than we have had in years past. That's very 22 deliberate on our part. We recognize that this fiscal 23 year will be a significant year and that we'll be 24 transitioning to a new gaming system. We also recognize 25 the challenges that our Bingo Division will be facing in 58 1 meeting their statutory objectives with less resources. 2 And so we are dedicating a fair chunk of hours to be 3 flexible. 4 Internal audit shops provide fundamentally 5 two types of services, assurance or advisory, and we see 6 that this year we will likely be spending more time on 7 the advisory side of the house, to provide assistance in 8 helping management meet their goals and stated 9 objectives. The plan proposes to address risks 10 throughout the agency. But I think it's also important 11 to note that while risk is addressed through Internal 12 Audit, it is not completely covered through Internal 13 Audit services. It's also important to remember that 14 control systems are the responsibility of management, 15 but it's Internal Audit's job to go and assess the 16 quantity of that. 17 So if you have any questions, I would be 18 happy to answer. 19 CHAIRMAN WILLIAMSON: Commissioners, do 20 you have any questions? 21 COMMISSIONER DELGADO: No. 22 CHAIRMAN WILLIAMSON: Would you like to 23 make a motion, please. 24 COMMISSIONER KRAUSE: I make a motion that 25 the Commission adopt the Fiscal Year 2012 Internal Audit 59 1 Activity Plan. 2 CHAIRMAN WILLIAMSON: Is there a second? 3 COMMISSIONER DELGADO: Second. 4 CHAIRMAN WILLIAMSON: All in favor? 5 COMMISSIONER KRAUSE: Aye. 6 COMMISSIONER DELGADO: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 The vote is 3-0. 9 MS. KIPLIN: And, Commissioners I have the 10 original for your signature. 11 CHAIRMAN WILLIAMSON: Okay. You have the 12 original. Okay. All right. 13 Thank you, Catherine. 14 MS. MELVIN: Thank you. 15 AGENDA ITEM NO. XII 16 CHAIRMAN WILLIAMSON: All right. We'll go 17 on to the next item. It's consideration of and possible 18 discussion and/or action, including adoption, on 19 amendments to 16 TAC 403.202, 403.205, 403.207, 403.208, 20 403.213, 403.214, 403.301, 403.501. 21 Pete and Bob, you can sort all that out 22 for us, please. 23 MR. BIARD: I'm glad you read those. 24 Thank you. Good morning, Commissioners. My name is Bob 25 Biard, Assistant General Counsel with Legal Services 60 1 Division. And with me is Pete Wassdorf who is also 2 Assistant General Counsel in Legal Service. 3 Today we have for your consideration eight 4 rule amendments for final adoption. The Commissioners 5 approved publication of the proposed amendments to 6 receive public comment at the August 10th Commission 7 meeting, and the Commission has received no comments on 8 these proposals during the public comment period. 9 The first six amendments before you 10 conform to the Commission's rules on vendor contract 11 claims to a statutory language in the Texas Government 12 Code, Chapter 2260, which deals with contract claims 13 against the state. The seventh rule adopts the 14 Comptroller of Public Accounts' recently revised rules 15 on historically underutilized businesses. And the last 16 rule, which was handled by Mr. Wassdorf, I can let him 17 speak to. Our recommendation is that the Commission 18 adopt the amendments to these eight rules. 19 MR. WASSDORF: That eighth rule is 20 involving the custody and use of criminal history record 21 information, and there is a requirement that each agency 22 adopt rules with respect to that. And these are 23 rules -- proposed rules which comply with the statutory 24 requirement. 25 CHAIRMAN WILLIAMSON: All right. Thank 61 1 you. 2 Commissioners, do you have any questions? 3 COMMISSIONER KRAUSE: Well, are we making 4 these rule changes because there were changes to the 5 Texas Government Code in the last legislative session? 6 MR. WASSDORF: With respect to No. 8, we 7 are making changes because some things had previously 8 been omitted and because some things had been repealed 9 during the last session of the Legislature. 10 COMMISSIONER KRAUSE: Okay. 11 MR. BIARD: The changes to the contract 12 claims rules were in response to legislative changes 13 that were made in prior legislative sessions. This is 14 the first of -- this is the first time we've had our 15 four-year review, and we haven't -- we haven't had any 16 contract claims, I believe, under these rules in that 17 time period, so we're fixing those now. 18 COMMISSIONER KRAUSE: Do we have very 19 many -- I mean historically -- claims like that? 20 MR. BIARD: We haven't had any since I've 21 been here in three years. 22 MS. KIPLIN: We've had a few, but we don't 23 have very many. And so these are rules that are adopted 24 under the Chapter 2260 dispute resolution process in the 25 government code for vendors who have claims and want to 62 1 bring it against a state agency or the state. But we've 2 had a few. We actually had one that went all the way 3 through the State Office of Administrative Hearings 4 process. And that's where these matters are heard, by 5 statutes. And the Assistant General Counsel that 6 represents the agency over at the State Office of 7 Administrative Hearings proceeding. And the 8 Administrative Law Judge found in favor the Lottery 9 Commission in that matter. 10 COMMISSIONER KRAUSE: And it may be unfair 11 to ask this because, you know, we don't have so many. 12 But if we have so few, are they generally small or are 13 they big? Of course, that one was important enough to 14 somebody to take it to SOAH. 15 MS. KIPLIN: I think we've had so few that 16 it would be hard to stake out a trend. That one in my 17 view -- of course, from the vendor's perspective, would 18 disagree with me -- but I thought it was a small, a 19 small claim, but the vendor would disagree. He took it 20 on. And some of the others that have not gone through 21 the entire process, those have been some pretty big 22 amounts. But the vendor did not pursue that, that claim 23 through the process. 24 COMMISSIONER KRAUSE: Okay. Well, maybe 25 that's because we have such a well-run agency here. 63 1 Anyway, I'm ready to make a motion. 2 CHAIRMAN WILLIAMSON: Okay. Can we put 3 all of these into one motion? 4 MS. KIPLIN: Yes. And I guess your motion 5 would be that you would move to adopt the amendments to 6 each of these rules, as recommended by the staff. 7 CHAIRMAN WILLIAMSON: All right. 8 COMMISSIONER KRAUSE: So I don't have to 9 read them all. Right? 10 MS. KIPLIN: You don't. And we said each 11 of these rules, and we put it on the record and it's 12 properly noticed under the Open Meetings Act for this 13 agenda item. I do have an order for each rule, though, 14 that I would like for you to sign. 15 CHAIRMAN WILLIAMSON: All right. So is 16 there a motion, please? 17 COMMISSIONER KRAUSE: I make a motion that 18 we adopt staff's recommendation to amend the rules, all 19 of them, that are identified as Action Item No. XII on 20 our agenda. 21 CHAIRMAN WILLIAMSON: Do I have a second? 22 COMMISSIONER DELGADO: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 64 1 COMMISSIONER DELGADO: Aye. 2 CHAIRMAN WILLIAMSON: The vote for each 3 rule adoption is 3-0. 4 MR. BIARD: Thank you, Commissioners. 5 MS. KIPLIN: And I have these orders. 6 AGENDA ITEM NO. XIII 7 CHAIRMAN WILLIAMSON: All right. Let's go 8 on to Item XIII, consideration of and possible 9 discussion and/or action, including proposal, on 10 amendments to 16 TAC 403.401 relating to use of 11 Commission motor vehicles. 12 MR. WASSDORF: Thank you, Chairman. Good 13 morning, Commissioners. For the record, my name is Pete 14 Wassdorf, Assistant General Counsel in Legal Services 15 Division. 16 I direct your attention to Agenda Item 17 XIII. This is also part of the quadrennial review of 18 agency rules. And the staff is recommending an 19 amendment to 16 TAC 403.401, entitled Use of Commission 20 Motor Vehicles. The purpose of the amendment to this 21 section is to make the rule compliant with the statutory 22 requirements adopted since the last rule review and to 23 delete portions which are no longer required due to 24 legislative repeal in this last 82nd legislative 25 session. The staff recommends that this be proposed for 65 1 comments. 2 And I would be happy to answer any 3 questions. 4 CHAIRMAN WILLIAMSON: Commissioners, do 5 you have any questions or comments? 6 COMMISSIONER DELGADO: No. 7 COMMISSIONER KRAUSE: Well, my only 8 comment is, I'm always happy to hear when the 9 Legislature wants to review, wants to repeal some extra 10 little burdensome rule. 11 CHAIRMAN WILLIAMSON: Is there a motion? 12 COMMISSIONER KRAUSE: I make a motion that 13 we adopt staff's recommendation on the proposed amended 14 to 16 TAC §403.401. 15 CHAIRMAN WILLIAMSON: Is there a second? 16 COMMISSIONER DELGADO: Second. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMMISSIONER KRAUSE: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 COMMISSIONER DELGADO: Aye. 21 CHAIRMAN WILLIAMSON: The vote is 3-0. 22 MS. KIPLIN: Commissioners, I have a T-bar 23 memo. 24 MR. WASSDORF: Thank you, Commissioners. 25 CHAIRMAN WILLIAMSON: Thank you, Pete. 66 1 AGENDA ITEM NO. XIV 2 CHAIRMAN WILLIAMSON: All right. We will 3 go on to Item XIV, consideration of and possible 4 discussion and/or action, including adoption, on the 5 rule review on 16 TAC Chapter 401 relating to 6 administration of State Lottery Act. 7 Kim, this is your item. 8 MS. KIPLIN: Commissioners, this is the 9 end of the process on the rule review, the required 10 quadrennial -- I like that word, Pete -- rule review, 11 and this is over the lottery rules. The proposed rule 12 review, the initiation was published in the Texas 13 Register. We didn't receive any public comment. Staff 14 did undertake to review the rule. The reasons for the 15 existence of the rules continue to exist; however, we 16 will be bringing to you at a subsequent Commission 17 meeting initiating revising some of the rules that will 18 need to be revised to be consistent with agency 19 business. 20 So with that, staff recommends that you 21 adopt the rule review of Chapter 401. 22 CHAIRMAN WILLIAMSON: All right. 23 Commissioners, any questions or comments? 24 (No response) 25 CHAIRMAN WILLIAMSON: Is there a motion? 67 1 COMMISSIONER KRAUSE: I make a motion that 2 we adopt the rule review of 16 TAC Chapter 401. 3 CHAIRMAN WILLIAMSON: Is there a second? 4 COMMISSIONER DELGADO: Second. 5 CHAIRMAN WILLIAMSON: All in favor? 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 COMMISSIONER DELGADO: Aye. 9 CHAIRMAN WILLIAMSON: The vote is 3-0. 10 MS. KIPLIN: I have a T-bar memo. 11 CHAIRMAN WILLIAMSON: All right. So at 12 this time it is 10:15. We will take a 15-minute break 13 and everybody will be back at 10:30. 14 (Recess: 10:15 a.m. to 10:30 a.m.) 15 CHAIRMAN WILLIAMSON: All right. We're 16 back in session, and it's 10:30. 17 AGENDA ITEM NOS. XV, XVI, AND XVII 18 CHAIRMAN WILLIAMSON: The next item is 19 consideration of and possible discussion and/or action, 20 including adoption, on amendments to 16 TAC 401.309 21 relating to assignability of prizes. 22 Should we go ahead and do all of the other 23 two items right now? 24 MS. KIPLIN: It would be our preference if 25 you would, because they are all related to the same 68 1 subject matter. 2 CHAIRMAN WILLIAMSON: Okay. Then 3 continuing on, also consideration and possible 4 discussion and/or action, including adoption, amendments 5 on 16 TAC 401.318 and 16 TAC 401.319. 6 Deanne. 7 MS. RIENSTRA: Thank you. Good morning, 8 Commissioner. I am Deanne Rienstra, Assistant General 9 Counsel with the Legal Services Division. 10 The following rule amendments were 11 published for comment in the August 26, 2011 edition of 12 the Texas Register, included rule 401.309 involving the 13 assignability of prizes, Rule 401.318 regarding 14 withholding of delinquent child support payments and 15 periodic installment payments of lottery winnings in 16 excess of $600, and Rule 401.319, withholding of child 17 support payments from periodic installment payments of 18 lottery winnings. These rule amendments had to do with 19 recent legislative changes in the Texas Government Code 20 regarding the State Lottery Act. 21 No comments were received by the 22 Commission on any of these proposed rule amendments, and 23 staff recommends that the Commission adopt all of the 24 proposed amendments to these three rules. 25 CHAIRMAN WILLIAMSON: Thank you. 69 1 Commissioners, do you have any questions 2 or comments? 3 COMMISSIONER KRAUSE: Well, this is a 4 result of our request to the Legislature to keep us from 5 getting sued all the time over this, isn't it? 6 MS. RIENSTRA: Practically, yes. 7 COMMISSIONER KRAUSE: Okay. Did they give 8 us what we wanted? 9 MS. RIENSTRA: Yes, sir. 10 COMMISSIONER KRAUSE: All right. I make a 11 motion that we adopt the amendments to 16 TAC 401.309, 12 .318 and .319. 13 COMMISSIONER DELGADO: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMMISSIONER KRAUSE: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 COMMISSIONER DELGADO: Aye. 18 CHAIRMAN WILLIAMSON: Motion passes 3-0. 19 MS. KIPLIN: Commissioners, I have orders 20 on each of these rules adopting the amendments. 21 CHAIRMAN WILLIAMSON: All right. 22 MS. RIENSTRA: Thank you. 23 CHAIRMAN WILLIAMSON: Thank you, Deanne. 24 25 70 1 AGENDA ITEM NO. XVIII 2 CHAIRMAN WILLIAMSON: The next item is 3 consideration of and possible discussion and/or action, 4 including adoption, on amendments to 16 TAC 401.317 5 relating to the Powerball on-line game rule. 6 Kim, this is your item, please. 7 MS. KIPLIN: Commissioners, at an earlier 8 Commission meeting, you-all voted to propose amendments 9 to the Powerball rule to conform our rule to the 10 Multi-State Lottery Association powerball rule. Just 11 put on the record, we operate this game in this state 12 under a licensing agreement from the Multi-State Lottery 13 Association, MUSL. It's their game. And when they make 14 substantive changes to their game -- and this is an 15 example of a substantive change that they've made. It's 16 increasing the prize from a dollar to two dollars for a 17 ticket, for example, and changing the matrix -- we have 18 a couple of choices. We can either go with the changes 19 and continue to sell Powerball under that licensing 20 agreement or we can stop. 21 You-all voted to propose amendments to the 22 game rule. We did have a public comment hearing. We 23 had no appearances at that public comment hearing nor 24 have we received any written comment. At this time the 25 staff does request that you-all vote to now adopt the 71 1 amendments to the Powerball rule to conform our rule in 2 the game that is being sold here in Texas to the 3 Powerball game from MUSL. 4 CHAIRMAN WILLIAMSON: All right. 5 Commissioners, do you have any questions? 6 (No response) 7 CHAIRMAN WILLIAMSON: Now, is this 8 allowing us to go from the one dollar to the two dollar 9 price point? 10 MS. KIPLIN: Yes, it is. 11 CHAIRMAN WILLIAMSON: All right. That's 12 good. 13 COMMISSIONER KRAUSE: Maybe I do have a 14 question. Why do we need a rule? Why don't we just 15 say, "Okay. We have a licensing agreement that's been 16 changed either because we don't have a way to object to 17 the change" or whatever, and it gets changed by MUSL and 18 that's it? 19 MS. KIPLIN: I think that's a good 20 question. We've explored that and will continue to 21 explore it. It is on the list of the rules that you 22 need under our State Lottery Act for games. But I think 23 the point that you're making and has been made actually 24 by Gary and others is, it's not our game. It is to put 25 people on notice that as a matter of policy that we're 72 1 offering this game. And so I think it's best to have 2 some form of a rule, then we can talk about the content 3 of the rule, but it's best to have some form of rule so 4 that we can point to that. But it's an excellent 5 question. 6 CHAIRMAN WILLIAMSON: Okay. Well, I mean, 7 as a rule, all it says is you honor your contracts, and 8 so that's a contract we're party to and so -- anyway. 9 I make a motion that we adopt the 10 amendments to 16 TAC §401.317. 11 CHAIRMAN WILLIAMSON: Is there a second? 12 COMMISSIONER DELGADO: Second. 13 CHAIRMAN WILLIAMSON: All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 COMMISSIONER DELGADO: Aye. 17 CHAIRMAN WILLIAMSON: The vote is 3-0. 18 MS. KIPLIN: Here is a memo. 19 AGENDA ITEM NO. XIX 20 CHAIRMAN WILLIAMSON: The next item is 21 consideration of and possible discussion and/or action, 22 including adoption, on amendments to Lotto Texas jackpot 23 estimation procedure, OC-JE-002, I think. 24 Kathy, this is your item. 25 MS. PYKA: That is correct. Thank you, 73 1 Madam Chair. 2 For the record, my name is Kathy Pyka, 3 Controller for the Commission. Commissioners, in 4 accordance with the Commission's procedures regarding 5 approval of procedures that affect the Lotto Texas 6 jackpot game, I'm seeking your approval of Lotto Texas 7 Jackpot Procedure OC-JE-002. Following our June 13, 8 2011 Commission meeting, the proposed procedure was 9 placed in the Texas Register, on our Commission's 10 website for public comment. A minimum of 30 days has 11 lapsed since the public comment hearing that we had on 12 September 7th of 2011. To date there have not been any 13 comments received in writing or in the public comment 14 hearing on the proposed procedure. 15 It is staff's recommendation that the 16 procedure be approved. And, if approved, the approved 17 procedure will be is placed in the Texas Register again, 18 as well as on our Commission's website. 19 I would be happy to answer any questions. 20 CHAIRMAN WILLIAMSON: All right. Thank 21 you. 22 Commissioners, do you have any questions 23 or comment? 24 (No response) 25 CHAIRMAN WILLIAMSON: This is an action 74 1 item. Is there a motion? 2 COMMISSIONER KRAUSE: I make a motion that 3 we adopt the jackpot estimation procedure OC-JE-002. 4 CHAIRMAN WILLIAMSON: Is there a second? 5 COMMISSIONER DELGADO: Second. 6 CHAIRMAN WILLIAMSON: All in favor? 7 COMMISSIONER KRAUSE: Aye. 8 CHAIRMAN WILLIAMSON: Aye. 9 COMMISSIONER DELGADO: Aye. 10 CHAIRMAN WILLIAMSON: Motion passes 3-0. 11 MS. PYKA: Thank you, Commissioners. 12 CHAIRMAN WILLIAMSON: Thank you, Kathy. 13 AGENDA ITEM NO. XX 14 CHAIRMAN WILLIAMSON: The next item is 15 consideration of and possible discussion and/or action 16 on membership in the Multi-State Lottery Association, 17 also called MUSL. 18 Gary, this is your item. 19 MR. GRIEF: Commissioners, I informed you 20 in our last Commission meeting that I was exploring the 21 requirements for U.S. Lottery to join the Multi-State 22 Lottery Association, or MUSL as it's known. I want to 23 let you know, that work continues. As you know, MUSL is 24 the governing body for, among other games, Powerball, 25 and is comprised of 33 lottery jurisdictions. 75 1 Now, that said, I want to inform you of 2 some positive developments regarding the ongoing working 3 relationship between the MUSL and Mega Millions 4 consortiums. The president of MUSL, who is also the CEO 5 of the Tennessee Lottery, and I, recently together a 6 joint workgroup comprised of a handful of state lottery 7 directors -- some from MUSL and some from Mega Millions. 8 And our mission in the workgroup is to consider and 9 recommend a more structured collaboration between MUSL 10 and Mega Millions going forward, one that would allow 11 for enhanced team work, broader perspectives in 12 decisionmaking, maximum resource deployment. And 13 ultimately the goal is to generate more revenue for good 14 causes in all those lottery jurisdictions. 15 We had our first meeting of this workgroup 16 last week, and that meeting was very productive. We now 17 plan to lay out a first step proposal to our respective 18 full organizations at our industry trade conference next 19 week. So I look forward to providing you with updates 20 and progress on that at a future Commission meeting. 21 And that concludes my report on that item. 22 CHAIRMAN WILLIAMSON: Thank you. 23 Commissioners, do you have any questions 24 of Gary on this? 25 COMMISSIONER DELGADO: No. 76 1 CHAIRMAN WILLIAMSON: I commend both 2 organizations for doing that. I know it's challenging, 3 because of the makeup of both of them. But I think it's 4 a good direction for both groups to head, so I'm very 5 supportive of that move. 6 MR. GRIEF: Thank you, Chairman. 7 CHAIRMAN WILLIAMSON: Thank you. 8 AGENDA ITEM NO. XXI 9 CHAIRMAN WILLIAMSON: All right. Next 10 item is report, possible discussion and/or action on 11 GTECH Corporation. 12 Gary. 13 MR. GRIEF: Commissioners, I have nothing 14 further to report to you, other than what's in your 15 notebooks today. However, this is an opportunity for 16 you to receive a report regarding the conversion project 17 related to the new GTECH system. And if that is your 18 pleasure, then I would suggest that you invite Mike 19 Fernandez, our Administration Director, and Joe 20 Lapinski, the account general manager from GTECH, to 21 come forward. 22 CHAIRMAN WILLIAMSON: Yes, I would love to 23 hear from both of you, please. 24 MR. FERNANDEZ: Madam Chair, 25 Commissioners, good morning. My name is Mike Fernandez. 77 1 I'm the Director of Administration. 2 MR. LAPINSKI: And for the record, I'm Joe 3 Lapinski, the Account General Manager for GTECH 4 Corporation. 5 MR. FERNANDEZ: Personally, let me begin 6 by saying, I'm pleased to be here with this report this 7 morning. And I am happy to inform you that on October 8 the 2nd of this month, obviously, on Sunday, we rolled 9 out or turned up the new system. Prior to that time, 10 all new equipment, both retailer and customer-facing 11 equipment, had been installed. New network systems had 12 been installed, all of which had been tested. And I 13 think that the roll-out, conversion, was very 14 successful. 15 We have completed all staff training; all 16 the initial staff training had been completed at this 17 time. And staff continues to work very closely with the 18 GTECH team in making modifications to the software and 19 tweaking various components thereto. 20 What I would like to say is that this has 21 been a tremendous effort. This is a very, very large 22 system, obviously, and I suspect my colleague will speak 23 to it. But there were lots of hours, lots of work in 24 it, both on the part of GTECH but certainly on the part 25 of the Lottery staff. And they have done an 78 1 outstanding -- both teams have done an outstanding job. 2 And as you may know, that sometimes when large systems 3 roll out, people can become very tired and it can be 4 very stressful. But again, I am pleased to report that 5 that was a successful conversion. 6 MR. LAPINSKI: Yes, Chairman and 7 Commissioners, I just have a couple of comments to add 8 to what Michael said. And I reiterate his comments 9 about the effort of everyone. And the Texas Lottery 10 staff, the hours and effort they put in showed not only 11 their commitment to the conversion but, quite frankly, 12 the preparation that was done in advance of this. 13 Through the RFP period and the evaluation period, it was 14 clear they were prepared for what turned in to be a very 15 large and complex effort, which is what GTECH 16 anticipated. 17 And as part of our proposal, we had 18 provided a converted system, a system that was converted 19 to the prior contract specifications. And I will tell 20 you that that gave both the Lottery and GTECH a head 21 start on what we had to accomplish in the 10 months that 22 we had to convert the current system and the retailer 23 base. So what we had was a very aggressive timeline of 24 less than a year. Typically we are allowed at least 12 25 months for these conversions. 79 1 But in addition to that timeline, we had 2 the most complex system we operate in the United States 3 to convert, and we had 17,000 retailers scattered over a 4 very large state which needed to have new terminals, new 5 communication equipment and new signage and 6 point-of-sale materials deployed. And all of that being 7 accomplished in 10 months wouldn't have been possible 8 without the Lottery's obvious preparation and effort. 9 So I can't say enough thanks from our organization to 10 the Lottery for the effort and support we received in 11 making this happen. So thank you. 12 CHAIRMAN WILLIAMSON: Very good. 13 MR. FREDERICK: We would be happy to 14 answer any questions. 15 CHAIRMAN WILLIAMSON: Commissioners, do 16 you have any questions for these two gentlemen? 17 COMMISSIONER KRAUSE: I do. And it's not 18 all questions. It's some kudos. I want to say kudos to 19 both our staff and GTECH, because from my perspective, 20 this has been a joint effort to create something new, 21 going to a new level, creating a new model that didn't 22 exist before. Wouldn't y'all agree to that? 23 MR. LAPINSKI: Completely, yes. 24 COMMISSIONER KRAUSE: And in addition to 25 that, we have got our contract with GTECH so that it can 80 1 evolve and continue to be state-of-the-art through the 2 term of the contract. 3 MR. LAPINSKI: Yes, that's correct. 4 COMMISSIONER KRAUSE: Okay. And so 5 anyway, that being the case, then we feel a little bit 6 proprietary about it. And so the only thing that I'm 7 going to expect is that we keep the center of the 8 universe about that here in Texas, because this is where 9 it was born, this is where it's going to grow up. As 10 you take that model to other states, then we want you to 11 keep operations here, because these are Texas jobs. It 12 was born in Texas, it's grown up in Texas. We're happy 13 to export our ideas, but -- anyway, that's all I wanted 14 to say about that. But thank you guys, you know, for 15 working so hard and creating this wonderful model that 16 we have. Thank you. 17 CHAIRMAN WILLIAMSON: Thank you. And give 18 everybody just a little bit of an idea about the kind of 19 hours. I know I've heard the 12, 1, 2, 3 o'clock in the 20 morning from the different departments here. 21 MR. FERNANDEZ: I can speak to probably 22 ours certainly and probably to Joe's to some degree, 23 although he can speak for himself. GTECH stayed up -- I 24 suspect they were staffed up probably 24 hours around 25 the clock at conversion. And I know that we were seeing 81 1 emails -- or I've seen email traffic coming in from all 2 hours of the night and morning. 3 Operations, I had staff working late hours 4 with some frequency. Our financial team, Ms. Pyka's 5 unit, were working very long hours, into the early 6 morning, working with the GTECH staff to ensure that all 7 of the things that we need to do financially, whether 8 it's making payments or ensuring sweeps, that all of the 9 dollars were accounted for and were being appropriately 10 placed, if you will. So there were a lot of hours being 11 spent to ensure that when that system came up and had to 12 function in those areas, that it was going to function 13 appropriately. 14 CHAIRMAN WILLIAMSON: All right. 15 MR. LAPINSKI: And I would say that, you 16 know, the requirements process where we started with the 17 system conversion, were daily meetings with Lottery 18 staff every day, and they would start basically at 19 8 o'clock and run till 5:00, sometimes beyond. And on 20 GTECH's side, we take those notes, what was discussed in 21 those meetings. Again, someone overnight would make 22 those edits and changes so we could come back the next 23 day and sit down with updated materials. 24 So, really, from the moment we signed the 25 contract until now, we've had staff working 24 hours a 82 1 day, pretty much every day of the week -- not the 2 individuals going 24 hours a day, but in shifts. And 3 that's been pretty much a constant mode of business 4 throughout the conversion periods. So we've expended 5 well in excess of 100,000 hours just on development of 6 code. It doesn't only speak to the effort that went 7 into retailer training, requirements development and 8 other aspects of the conversion where Lottery staff and 9 GTECH worked together as well. 10 So it's been a phenomenal effort by both 11 teams. And, like I said, this is as complex a system as 12 we operate anywhere. And to see it done in this amount 13 of time is just tremendous effort by both sides. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you -- 16 MR. FERNANDEZ: Thank you. 17 CHAIRMAN WILLIAMSON: -- GTECH and the 18 Lottery staff. I know y'all have been really working 19 hard at this. Thank you so much. 20 AGENDA ITEM NO. XXII 21 CHAIRMAN WILLIAMSON: Let's go to the next 22 item. It's report by the Executive Director and any 23 discussion or action on the agency's operational status, 24 agency procedures and FTE status. 25 Gary. 83 1 MR. GRIEF: Commissioners, other than 2 what's in your notebooks today, I would like to bring to 3 your attention the annual conference for the North 4 American Association of State and Provincial Lotteries, 5 otherwise known as NASPL, that's going to be occurring 6 next week in Indianapolis. Several members of our Texas 7 Lottery team are going to be in attendance. This is an 8 opportunity for us to participate in a variety of 9 educational sessions, to see the latest industry 10 equipment and services that the vendor community has to 11 offer and to meet with our colleagues from lotteries 12 from around the world to share best practices and new 13 ideas with each other. 14 There are also going to be full meetings 15 of the MUSL and the Mega Millions consortiums early in 16 the week, and industry awards, which we hope to win a 17 few more, where a wide variety of categories are going 18 to be announced and presented during that conference. 19 Commissioners, that concludes my report, 20 and I would be happy to answer any questions. 21 CHAIRMAN WILLIAMSON: Thank you. 22 Commissioners, do you have any questions 23 or comments for Gary? 24 COMMISSIONER KRAUSE: Gary, did we break 25 any records this last year? 84 1 MR. GRIEF: Yes, sir, we did. We've set 2 an all-time lottery ticket sales record, $3.85 billion, 3 slightly more than that. 4 COMMISSIONER KRAUSE: Congratulations. 5 You know, I want to highlight that because, you know, 6 when we hear the reports, you know, I think that, you 7 know, staff is justifiably proud but they don't really 8 want to toot their horn, you know, in an unseemly way. 9 So, anyway, I'm glad to hear that, and congratulations 10 on staff to get that done. 11 When Governor Perry appointed me, I asked 12 him, "Well, what do you want me to do?" And he said, 13 "Well, you know, the Legislature has given us the 14 lottery. And since we've got it, we're going to run the 15 best lottery that we can." And I think this is evidence 16 of the fact that that's exactly what we're doing. And 17 I'm not doing it, you guys are. Well, thank you for 18 doing it. Keep up the good work. 19 MR. GRIEF: I appreciate those comments 20 greatly, Commissioner. And since you brought it up, I 21 would like to say just a couple of things about that. 22 What we talk to our staff about on a 23 regular basis is that it's a team approach. And every 24 one on the lottery staff, from the folks who are working 25 on the phone bank and answering questions from our 85 1 retailers to the ones who are supporting us from a 2 financial accounting perspective, to those obviously in 3 our marketing and our products area, all those people 4 make a difference in what we do. 5 I'll also give a lot of credit, a 6 tremendous amount of credit, to GTECH, our lottery 7 operator, to our three instant ticket printers -- 8 Scientific Games, Pollard and GTECH Printing -- and our 9 advertising partners, TracyLocke and LatinWorks. It's 10 everybody rowing in the same direction. And I think if 11 there's one thing we probably improved on over the last 12 couple of years, it's making sure that we're all pointed 13 in the same direction, we all have the same goals in 14 mind when it comes to sales and revenue. So I want to 15 say thank you for those comments. I feel exactly the 16 same way. We are very proud of what we did this fiscal 17 year. 18 COMMISSIONER KRAUSE: Well, I'm hopeful 19 with the roll-out of the new system, you know, we could 20 take the attitudes that records are made to be broken. 21 And so I would like to see -- I would like to see 22 records fall, even though this is an all-time high. 23 MR. GRIEF: That's our goal. 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. Good job. 86 1 AGENDA ITEM NO. XXIV 2 CHAIRMAN WILLIAMSON: Okay. I'm going to 3 skip over to the public comment item. And I have had no 4 one come forward for a public comment. 5 AGENDA ITEM NO. XXIII 6 CHAIRMAN WILLIAMSON: So we will go back 7 to the entry of order of cases, of which we have quite a 8 few. 9 So, Kim, if you'll start with those, 10 please. 11 MS. KIPLIN: I will. Commissioners, today 12 for you we have a variety of lottery cases and also 13 bingo cases. On the lottery side, we do have an 14 appearance on Letter G. And so with your permission, I 15 would like to hold that to the last and then go through 16 the ones where there's no appearances. Mr. Fenoglio is 17 here representing a bingo licensee, but I think he's 18 here if you have questions. And, if not, he does not 19 intend to appear. 20 CHAIRMAN WILLIAMSON: Okay. 21 MS. KIPLIN: And I've got another local 22 counsel, Ms. McCormick, who is here representing a 23 person who is on the registry, but she's here only if 24 you have questions. And, if not, then we will proceed. 25 So with your permission, I would like to 87 1 go through Letters A through F, letters A through F. 2 Commissioners, these are all lottery license revocation 3 cases due to insufficient funds being available at the 4 time that the agency swept the account. Each of these 5 cases did proceed to the State Office of Administrative 6 Hearings for a contested case hearing. And in each of 7 these cases, the Administrative Law Judge has 8 recommended revocation of the license, and the staff 9 requests that you adopt the Administrative Law Judge's 10 recommendation in each of these cases, and that's 11 Letters A through F. 12 CHAIRMAN WILLIAMSON: Commissioners, do 13 you have any questions or comments? 14 (No response) 15 CHAIRMAN WILLIAMSON: Do I hear a motion 16 on those? 17 COMMISSIONER KRAUSE: I make a motion that 18 on Agenda Item No. XXIII, items specifically -- the 19 docket numbers under A through F, that we adopt the 20 Administrative Law Judge's recommendation to revoke. 21 CHAIRMAN WILLIAMSON: Do I hear a second? 22 COMMISSIONER DELGADO: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 88 1 COMMISSIONER DELGADO: Aye. 2 CHAIRMAN WILLIAMSON: Motion passes 3-0. 3 MS. KIPLIN: Commissioners, I have one 4 order that incorporates all of these docket numbers into 5 that. This is the mass docket that we referred to in 6 the past, so I'll give that to you. 7 CHAIRMAN WILLIAMSON: All right. 8 MS. KIPLIN: Turning now to Letter H, 9 that's Case No. 2011-880, Stop N Go #2419, this is a 10 settlement agreement and a proposed agreed order between 11 the Lottery Division and the respondent. The issue at 12 hand was Stop N Go placing conditions on paying a prize. 13 And, in particular, the clerk said that 14 they would pay the prize but that the player would need 15 to purchase a particular -- a product for a prize. 16 That's a violation of the Act and the rules. It came to 17 our attention. We are recommending a 10-day suspension, 18 obviously, with an agreement that that conduct stop, but 19 a 10-day suspension in that case. And staff would 20 recommend that you adopt the agreed order. 21 CHAIRMAN WILLIAMSON: Commissioners, do 22 you have any questions or comments? 23 (No response) 24 CHAIRMAN WILLIAMSON: Is there a motion? 25 COMMISSIONER KRAUSE: I make a motion that 89 1 we adopt the staff's recommendation on the settlement 2 agreement in Case No. 2011-880 regarding Stop N Go. 3 COMMISSIONER DELGADO: Second. 4 CHAIRMAN WILLIAMSON: All in favor? 5 COMMISSIONER KRAUSE: Aye. 6 CHAIRMAN WILLIAMSON: Aye. 7 COMMISSIONER DELGADO: Aye. 8 CHAIRMAN WILLIAMSON: Motion passes 3-0. 9 MS. KIPLIN: Commissioners, I have an 10 order. 11 Turning now to Letter I, this is the 12 Cameron Mini Mart case. This is also a settlement 13 agreement and proposed agreed order. The proposed 14 disciplinary action is a 30-day suspension. The issues 15 that were involved in this case were that an employee 16 claimed a lottery prize by fraud. He told the player 17 the prize was less than it was. That was one aspect. 18 Another one was that there was a former 19 officer and director who had been removed as an officer 20 and director due to a disqualifying criminal conviction. 21 And then when the original complaint was being 22 investigated, it was determined that the person who was 23 not supposed to have any participation in the management 24 of this business did. 25 So we have entered into a settlement 90 1 agreement, and the settlement agreement would be the 2 30-day suspension. The employee who deceived the player 3 has been fired, no longer works there. And then there 4 is an agreement that the former officer, the director, 5 will not participate. 6 In discussions with staff, it was 7 obviously an intent to follow up and make sure that that 8 last part is being complied with. So staff recommends a 9 30-day suspension of this lottery license. 10 CHAIRMAN WILLIAMSON: Thank you. 11 Commissioners, do you have any questions 12 or comments? 13 (No response) 14 CHAIRMAN WILLIAMSON: Is there a motion? 15 COMMISSIONER KRAUSE: I make a motion that 16 we adopt staff recommendation concerning the settlement 17 agreement on Docket No. 362-11-7487 involving Cameron 18 Mini Mart. 19 COMMISSIONER DELGADO: I second. 20 CHAIRMAN WILLIAMSON: All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 COMMISSIONER DELGADO: Aye. 24 CHAIRMAN WILLIAMSON: Motions passes 3-0. 25 MS. KIPLIN: Commissioners, I have an 91 1 order on that. 2 Turning now to Letter J, this is the 3 Shadow Glen Food Mart matter. Commissioners, this is a 4 matter that involved an employee, a lottery retailer 5 employee accepting a credit card for purchase of lottery 6 tickets. It's specifically prohibited by the statute. 7 The proposed -- the settlement agreement and proposed 8 agreed order is a 10-day suspension of the lottery 9 retailer's license for the act of its employee. Staff 10 recommends that you adopt the agreed order. 11 CHAIRMAN WILLIAMSON: Commissioners, do 12 you have any questions or comment? 13 (No response) 14 CHAIRMAN WILLIAMSON: Do I have a motion? 15 COMMISSIONER KRAUSE: I make a motion that 16 we adopt the agreed order in Case No. 2011-897 involving 17 Shadow Glen Food Mart. 18 COMMISSIONER DELGADO: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 COMMISSIONER DELGADO: Aye. 23 CHAIRMAN WILLIAMSON: Motion passes 3-0. 24 MS. KIPLIN: Commissioners, I have an 25 order. 92 1 Commissioners, with the exception of the 2 one case that we're holding out, due to an appearance 3 today, that completes the lottery docket. And so now if 4 we can turn to the -- I missed an order. Let me give 5 that to you. That was the retailer employee claiming 6 the lottery prize by fraud. I'm sorry. Pass that 7 around. 8 So now if we can turn to the Registry of 9 Approved Bingo -- the bingo cases. And the first one, 10 Commissioners, is the matter involving Fancy Richardson. 11 Commissioners, this did proceed to a State Office of 12 Administrative Hearings contested case proceeding. The 13 staff recommended that the respondent be removed from 14 the registry. The respondent has a disqualifying 15 criminal conviction. It's a misdemeanor involving moral 16 turpitude. In fact, it's theft of property between $500 17 and $1,500. 18 The Administrative Law Judge has 19 recommended removal of the individual from the registry, 20 and the staff recommends that you adopt the 21 Administrative Law Judge's recommendation to remove from 22 the registry. 23 CHAIRMAN WILLIAMSON: Okay. 24 COMMISSIONER KRAUSE: That's L through T 25 or just L? 93 1 CHAIRMAN WILLIAMSON: Which one are we? 2 We're on L. 3 MS. KIPLIN: I'm sorry. It's Fancy 4 Richardson. 5 COMMISSIONER KRAUSE: Okay. 6 MS. KIPLIN: And that is Letter -- sorry 7 for that. 8 COMMISSIONER KRAUSE: L. 9 MS. KIPLIN: Yes, it's Letter L. 10 COMMISSIONER KRAUSE: Make a motion that 11 we adopt the recommendation on that agenda item. 12 COMMISSIONER DELGADO: Second. 13 CHAIRMAN WILLIAMSON: All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 COMMISSIONER DELGADO: Aye. 17 CHAIRMAN WILLIAMSON: Motion passes 3-0. 18 MS. KIPLIN: Commissioners, now turning to 19 Letter M, this is the matter of Lois Arrendondo. This 20 is a settlement agreement and a proposed agreed order 21 imposing administrative penalty against the worker in 22 the amount of $600. And the issue at hand is the worker 23 allowing the conduct of unlicensed bingo on 24 occasions 24 on behalf of a conductor. 25 And so the Bingo Division, using its 94 1 penalty matrix, has settled on a penalty amount of $600. 2 Staff recommends that you vote to adopt the agreed order 3 and imposing an administrative penalty on the worker in 4 the amount of $600. 5 COMMISSIONER KRAUSE: I make a motion that 6 we adopt the memorandum of agreement and consent order 7 in Case No. 2010-272. 8 COMMISSIONER DELGADO: Second. 9 CHAIRMAN WILLIAMSON: All in favor? 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Aye. 12 COMMISSIONER DELGADO: Aye. 13 CHAIRMAN WILLIAMSON: Motion passes 3-0. 14 MS. KIPLIN: And I have an order that I'll 15 hand you. 16 Turning now to Letter N, this is the 17 matter involving the Rotary Club of Odessa East Texas, 18 USA. This is also a settlement agreement and a proposed 19 agreed order. The amount of the administrative penalty 20 is $5,000. 21 Commissioners, this is the organization 22 that did allow bingo to be played outside its licensed 23 times, and Ms. Arrendondo worked for this particular 24 conductor, and so this is the disparate action against 25 the charity for that action. 95 1 CHAIRMAN WILLIAMSON: Okay. So Arrendondo 2 worked for the Rotary. Okay. 3 MS. KIPLIN: So the staff recommends that 4 you vote to approve the agreed order. 5 CHAIRMAN WILLIAMSON: All right. Is there 6 a motion? 7 COMMISSIONER KRAUSE: I make a motion that 8 we approve the agreed order in Docket No. 362-11-8435.B. 9 COMMISSIONER DELGADO: Second. 10 CHAIRMAN WILLIAMSON: All in favor? 11 COMMISSIONER DELGADO: Aye. 12 CHAIRMAN WILLIAMSON: Aye. 13 COMMISSIONER KRAUSE: Aye. 14 CHAIRMAN WILLIAMSON: Motion passes 3-0. 15 MS. KIPLIN: Okay. So, Commissioners, on 16 a housekeeping matter, I want to make sure on the Travel 17 Centers of America, which is a lottery, I did present 18 that, a retailer employee claiming a lottery prize by 19 fraud. The employee was fired, and it was a 10-day 20 suspension. I think I did that -- just as a 21 housekeeping matter. 22 COMMISSIONER KRAUSE: Okay. 23 MS. KIPLIN: Now if we can go to Letter O, 24 Boys Club of Brazos County, Inc. Commissioners, this 25 case involves the understating of pull-tab sales and the 96 1 overstating of prizes paid on pull-tabs in the quarterly 2 report. 3 The Bingo Division has applied its formula 4 or matrix on arriving at a penalty amount. And in this 5 case, the proposed agreed order is imposing a penalty 6 amount of $6,140.79. Staff recommends that you vote to 7 approve that proposed agreed order. 8 CHAIRMAN WILLIAMSON: All right. 9 COMMISSIONER KRAUSE: When the staff was 10 investigating that, is there any attempt to find out if 11 that was a clerical error or was it intentional? 12 MS. KIPLIN: Yes, I think so. And I'll 13 turn that over to Mr. Sanderson. 14 MR. SANDERSON: During the investigation, 15 it appeared to be intentional. 16 COMMISSIONER KRAUSE: Okay. 17 MR. SANDERSON: And the individual, if I'm 18 not mistaken -- and Mr. Rogers is not here today, but I 19 can follow up with him on that -- I believe we took it 20 to the Brazos County DA and they did not -- declined to 21 prosecute on the individual. 22 COMMISSIONER KRAUSE: All right. 23 CHAIRMAN WILLIAMSON: Thank you. 24 COMMISSIONER KRAUSE: I make a motion that 25 we adopt the staff recommended result in Case No. 97 1 2011-229, Boys Club of Brazos County. 2 COMMISSIONER DELGADO: Second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMMISSIONER DELGADO: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Motion passes 3-0. 8 MS. KIPLIN: Commissioners, I have an 9 order reflecting your vote. And I will just tell you 10 that the Letters P through S, those matters are very 11 similar in conduct to the Boys Club of Brazos County 12 where there was an understating of pull-tab sales and an 13 overreporting of prizes. There are different penalty -- 14 agreed-upon administrative penalty amounts for each of 15 those cases. I'm happy to lay those out separately but 16 they're the same, same in terms of conduct, similar 17 conduct. There are differences in administrative 18 penalties, but the staff would recommend that you 19 approve the agreed order in each of those cases, P 20 through S. 21 CHAIRMAN WILLIAMSON: What is the dollar 22 amount for each one? 23 MS. KIPLIN: For AMVETS Post 90, it's 24 $10,367.09 cents. For Red Men Tribe 5 Wampum, it's 25 $15,568.70. For Central Texas Exposition, Inc., it's 98 1 $9,319.54. And for Red Men Tribe 38, it's $15,568.70. 2 CHAIRMAN WILLIAMSON: Seems like a -- 3 MR. SANDERSON: The penalty is based on 4 the number of bingo occasions that they conducted at 5 these overstatements of prizes and understatement of 6 sales took place. So I believe the first one that you 7 took up, the Boys Club, they actually quit playing bingo 8 during that time period we were auditing, so they had 9 fewer bingo occasions to conduct; whereas, the higher 10 amounts, they conducted over the full -- I believe it 11 was a two-year period that we audited. 12 CHAIRMAN WILLIAMSON: All right. Okay. 13 Is there a motion? 14 COMMISSIONER KRAUSE: Okay. That's P 15 through S? 16 MS. KIPLIN: Yes. 17 COMMISSIONER KRAUSE: Okay. I make a 18 motion that for Agenda Items P, Q, R and S, that we 19 adopt the agreed order presented by staff. 20 COMMISSIONER DELGADO: Second. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 COMMISSIONER DELGADO: Aye. 25 CHAIRMAN WILLIAMSON: Those four items 99 1 pass 3-0. 2 MS. KIPLIN: And, Commissioners, I have 3 four orders. 4 That leaves one remaining bingo case. 5 That's the matter of AMVETS Post 23. In this case, 6 there is a settlement agreement between the staff and 7 the respondent, with the proposed agreed order. The 8 administrative penalty amount is $10,000. The issues 9 were the failure to deposit all bingo funds, the failure 10 to withhold prize fees, failure to maintain a perpetual 11 inventory. Staff would request that you approve the 12 agreed order imposing a $10,000 fine. 13 CHAIRMAN WILLIAMSON: How long has this 14 group conducted bingo? Do you know? 15 MR. SANDERSON: This organization, during 16 the audit that transpired where the findings took place, 17 they conducted bingo up through the end of that audit 18 period. They subsequently surrendered their license and 19 got out of bingo for about four years, then they came 20 back in. And at that point, we brought up the audit 21 findings with them again and negotiated the settlement 22 agreement. 23 CHAIRMAN WILLIAMSON: Okay. Prior -- 24 MR. SANDERSON: My understanding is, they 25 have new membership. And Mr. Fenoglio can address that, 100 1 since he represents them. But I believe they have new 2 memberships and new officers. 3 CHAIRMAN WILLIAMSON: Okay. So basically 4 they were taking care of this, wiping the slate clean, 5 starting over again and doing it the proper way. Is 6 that what I'm hearing? 7 MR. SANDERSON: That is my understanding, 8 yes. 9 CHAIRMAN WILLIAMSON: Okay. All right. 10 Is there a motion? 11 COMMISSIONER KRAUSE: I make a motion that 12 we adopt the agreed order in Docket No. 362-11-6290.B. 13 CHAIRMAN WILLIAMSON: Is there a second? 14 COMMISSIONER DELGADO: Second. 15 CHAIRMAN WILLIAMSON: All in favor? 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 COMMISSIONER DELGADO: Aye. 19 CHAIRMAN WILLIAMSON: Did you vote? 20 COMMISSIONER DELGADO: Yes. 21 CHAIRMAN WILLIAMSON: Okay. Motion passes 22 3-0. 23 MS. KIPLIN: Commissioners, I have handed 24 you an order. 25 CHAIRMAN WILLIAMSON: Okay. 101 1 MS. KIPLIN: That is all of the cases, 2 with the exception of the remaining lottery case which 3 is Docket No. 362-11-4501, in the matter of Eddie's 4 Fruit & Vegetable Outlet. 5 Commissioners, I will tell you that staff 6 is represented by Kristen Guthrie, an enforcement 7 attorney in the Legal Division. She's coming forward. 8 Michael Anger, of course, is the Lottery Operations 9 Division Director. 10 This matter went to a contested case over 11 at the State Office of Administrative Hearings. There 12 was a full evidentiary hearing. A proposal for decision 13 was issued by the Administrative Law Judge. Exceptions 14 were filed by the respondent. And the respondent's 15 attorney is here, if you would like for him to come 16 forward. I believe that's true -- yes? Exceptions were 17 filed. 18 MR. REDGATE: Yes, that's correct. 19 MS. KIPLIN: Replies were filed by the 20 staff. The Administrative Law Judge did not change his 21 recommendation, his findings, or his findings of fact -- 22 proposed findings of fact and proposed conclusions of 23 law, as a result of the exceptions that were filed. And 24 now the matter is being presented to you-all for your 25 decision on the proposed order in this case. 102 1 Commissioner Delgado, I think this is 2 your -- correct me if I'm wrong -- but this will be your 3 first opportunity sitting in a decisionmaking capacity 4 on a license matter for the agency that's issuing 5 licenses. So what's happened over at the State Office 6 of Administrative Hearings is, there was a full 7 evidentiary hearing, and each party had an opportunity 8 to put on their evidence and had the opportunity to 9 examine and cross-examine witnesses, and the 10 Administrative Law Judge sat as a fact-finder in that, 11 case, so those facts were found. 12 Under the Administrative Procedure Act, 13 it's very difficult for a commission to change finding 14 of facts, because you weren't there, you weren't the 15 people that were hearing the evidence. The proposal for 16 decision also includes proposed conclusions of law, and 17 those are the legal conclusions that the Administrative 18 Law Judge has developed. So that has occurred, and now 19 it's before you. 20 And so one important point that I would 21 make is that you're not really here to find facts. 22 That's already occurred. There is a record that's been 23 made. I caution both attorneys to stay within that 24 record. Each will have to keep the other honest on 25 that, if they're going outside the record. But you're 103 1 the decisionmaker, and so this is the opportunity for 2 the respondent to come before you and make whatever 3 argument the respondent would. 4 Now, it's a substantial evidence review 5 after your decision is made, and we can talk about what 6 happens and what your options are. But what's occurring 7 now is, the staff will put on, review information about 8 the case, why they took the case to the State Office of 9 Administrative Hearings. And we'll talk about the 10 Administrative Law Judge's recommended disposition. 11 Counsel for the respondent has an 12 opportunity to respond and tell you why he thinks it 13 should be different. And I'm here to provide legal 14 advice to you-all, try and keep them where they should 15 be in terms of the record. I'm here to provide legal 16 advice to you-all in terms of what your options are and 17 what you can do with this particular matter. 18 So with your permission, I would like to 19 turn it over to the staff attorney to lay out the case. 20 CHAIRMAN WILLIAMSON: Sure. 21 MS. GUTHRIE: Thank you, Commissioners. 22 A hearing was held in this matter on 23 May 11, 2011. Staff recommended revocation of 24 respondent's license. And subsequently a proposal for 25 decision was issued recommending a revocation of 104 1 respondent's license. The facts essentially are 2 undisputed in this case. And Mr. Hernandez purchased a 3 Texas Lottery instant ticket, and the respondent 4 informed Mr. Hernandez that he would be happy to cash 5 the ticket and pay him $1,600, which is $400 less than 6 the face value of the ticket. 7 Although Mr. Hernandez was aware that he 8 would be getting less than what the ticket was valued, 9 this is a violation of claiming a prize by fraud and 10 inducing another to assign or transfer for compensation, 11 a prize. Later, in May of 2010, respondent gave the 12 instant ticket to his son, which we'll refer to as 13 claimant. Claimant presented the instant ticket and 14 said that he was the purchaser of the ticket. 15 Mr. Hernandez's name had been whited -- covered with 16 White Out over the instant ticket and signed by the 17 claimant. The claimant indicated that he had actually 18 purchased the ticket. The respondent, as I said, was 19 the father of the claimant. 20 The respondent filed exceptions in this 21 matter that failed to provide a basis for 22 reconsideration of the PFD. The exceptions filed by 23 respondent do not allege any error of fact in law in the 24 proposal for decision but questions the appropriateness 25 of the penalty. The PFD properly found that there was 105 1 evidence to justify the penalty, as testified by 2 Michelle Young, the Lottery Operations -- from the 3 Lottery Operations Division testified that its policy, 4 due to the level of involvement by respondent directly 5 in these facts, that revocation is warranted, which is 6 provided by Lottery Rule 401.153. 7 Staff recommends that you uphold the 8 proposal for decision as originally issued by the 9 Administrative Law Judge in this matter, recommending 10 revocation of respondent's license. 11 CHAIRMAN WILLIAMSON: All right. Do you 12 have any questions -- well, I just want to make sure I 13 understand what's happened. Eddie's Fruit & Vegetable 14 Outlet, whoever was working there basically cashed the 15 ticket for less than the face value of the ticket? 16 MS. GUTHRIE: It was actually the retailer 17 himself who said that he would give him $1,600, the 18 $400 -- 19 CHAIRMAN WILLIAMSON: And the person 20 accepted the $1,600 -- 21 MS. GUTHRIE: Right. 22 CHAIRMAN WILLIAMSON: -- was willing to 23 take less. So Eddie -- I don't know if it's Eddie, but 24 I'll just use that phrase -- so Eddie then kept the 25 ticket, gave it to his son, and the son took it to a 106 1 claim center, whited out the name, cashed it for the -- 2 or tried to cash it for the full 2,000? 3 MS. GUTHRIE: Right. Correct. 4 CHAIRMAN WILLIAMSON: Is that pretty much 5 the facts? 6 MR. ANGER: Yes. Commissioners, for the 7 record, my name is Michael Anger. I'm the Lottery 8 Operations Director. A little additional background for 9 you. 10 Lottery-licensed retailers are allowed to 11 pay prizes up to $600, in accordance with our rules, 12 which are consistent with IRS reporting guidelines. 13 Anything of $600 or more must be brought to a lottery 14 claim center in order that we can collect tax 15 information for reporting to the IRS. We additionally 16 have other responsibilities associated with prizes at 17 that level in collection of monies owed to the state, 18 et cetera. 19 So a licensee can only redeem and validate 20 on their terminal a prize of $600. In this case, a 21 transaction took place outside of the validation process 22 that's authorized for licensees, between the licensee 23 and Mr. Hernandez, the original holder of the ticket. 24 CHAIRMAN WILLIAMSON: Okay. And so your 25 recommendation is to totally revoke the license. If 107 1 that occurs, how long of a period of time is that? 2 MR. ANGER: The licensee can reapply at 3 any time. In these types of circumstances, we work with 4 the licensee if a revocation is pursued and work 5 collaboratively with them to reconsider a future 6 application with them. Typically in a case like this, 7 we would encourage the licensee to stay in contact with 8 us and follow up in a year's time. And at that time, we 9 would reconsider the situation and offer them an 10 opportunity to potentially reapply for a license and be 11 reconsidered. 12 CHAIRMAN WILLIAMSON: Okay. 13 COMMISSIONER KRAUSE: How did this come to 14 our attention? 15 MR. ANGER: The son of the licensee came 16 forward as a claimant and represented that he had 17 purchased the ticket and submitted the claim to one of 18 our claim centers. Upon receiving the claim and looking 19 at the ticket, claim center staff identified that the 20 back of the ticket had been compromised. There was 21 White Out on the back of the ticket, so it was sent to 22 our investigative group in our Security Department to do 23 some forensic work and evaluate it. 24 And we identified Mr. Hernandez, the 25 original holder of the ticket's name, underneath the 108 1 White Out on the ticket. An investigation was conducted 2 by our Enforcement Division, and facts were collected. 3 And Mr. Hernandez indicated that he had entered into an 4 agreement with the licensee to accept something less 5 than the value of the ticket in exchange for the ticket. 6 COMMISSIONER KRAUSE: So our rules allow 7 this kind of -- well, will allow the retailer to cash 8 the ticket if it's $600 or less? 9 MR. ANGER: Yes. 10 COMMISSIONER KRAUSE: Okay. And so we 11 don't know if giving less than, you know, I guess the 12 value of the prize, we don't know how much that goes on, 13 do we, if it's under $600? 14 MR. ANGER: We do a number of things from 15 a consumer protection best practice perspective to limit 16 those types of situations, everything from the player 17 check-a-ticket devices that we deploy to allow players 18 to know the true value of their tickets, to the receipts 19 that are generated on our terminals so the players know 20 when a transaction is conducted with the store clerk, 21 what the value of their ticket should be and the monies 22 that they should receive. But outside of complaints and 23 communication from the public, we wouldn't know about 24 other events. 25 COMMISSIONER KRAUSE: But even for under 109 1 $600, it's not legal for the retailer to give less than 2 the award amount, the prize? 3 MR. ANGER: That is correct, yes, sir. 4 COMMISSIONER KRAUSE: Okay. 5 CHAIRMAN WILLIAMSON: All right. Thank 6 you. 7 Please identify yourself for the record. 8 MR. REDGATE: Madam Chairman, 9 Commissioners, my name is Steven Redgate. I'm here on 10 behalf of Edward Palazo. 11 Basically, the facts are undisputed, and I 12 agree with that. As a matter of fact, during the 13 hearing before the administrative judge, Mr. Palazo 14 conceded that he did this. He also testified, and the 15 record will show that he talked to the claimant and told 16 him -- and he knew the claimant and he told him that he 17 would be happy to do this, because the claimant was 18 complaining about going to Austin or going to a claim 19 center and going through this hassle to collect the 20 amounts. He told him that he would pay him $400 less. 21 And the claimant, who also said this in his statement, 22 was very happy to accept $400 less, to avoid the 23 trouble. So there was no fraud involved. 24 Now, there is a statement that this 25 particular act constitutes fraud by the statute, and 110 1 that's not really correct. Under the relevant 2 provision -- there's three relevant provisions that the 3 Commission went on in connection with this. Giving less 4 than the amount of a ticket is a violation and also 5 trying to collect a ticket by fraud is a violation, so 6 they are separate violations. The Administrative Law 7 Judge found that Mr. Palazo did give less, admitted to 8 giving less and was very straightforward and candid 9 during his presentation before the administrative judge. 10 I was not present at that time. 11 In his opinion or recommendation, the 12 Administrative Law Judge stated, "Staff is seeking 13 revocation due to the severity of the violation and the 14 fact that the owner was directly involved in the 15 violations." But he also states that based on 16 respondent's demeanor and genuine statement of regret, 17 the Administrative Law Judge would support a less 18 stringent penalty of a 90-day suspension, but he left 19 that for the Commission to decide. He then went on to 20 say that he agreed with the staff, because they thought 21 it was severe, and he would recommend revocation, based 22 on their position. 23 So basically the Administrative Law Judge 24 was deferring his discretion to the staff. In doing 25 that, he did make findings of fact. But if this 111 1 Commission will review those findings of fact, he sets 2 out the fact that he's going to follow certain 3 categories that are set out in the rules as far as what 4 needs to be considered or should be considered in making 5 the decision, and that's in 401.160(g). And even though 6 he says, "Well, I'm going to consider these factors," he 7 doesn't really make any consideration of the factors. 8 He just says, "Well, here's a factor. I found it." 9 For example, severity of offense, the ALJ 10 agreed that the offense was very severe, because it 11 involved misrepresentation, but not misrepresentation by 12 my client but by misrepresentation of his son. And 13 there was no evidence in the record that shows my client 14 knew or could have known what statements his son would 15 make when he presented that lottery ticket for payment. 16 The second thing is danger to the public. 17 There was no evidence that anything my client did posed 18 any danger. The number of repetitions of the offenses: 19 This was the first time in the record that my client had 20 ever done that, and my client admitted to it before the 21 judge. The number of complaints previously found 22 justified against the licensee, there were none. The 23 length of time the licensee held a license: He held a 24 license since July 24, 2009. Actual damage, physical or 25 otherwise, caused by the violation: There was no actual 112 1 damage. The claimant, the original claimant, agreed 2 that he thought $400 less for avoiding the hassle was 3 fair. And the deterrent effect of the penalty imposed, 4 the deterrent effect, according to the staff and 5 according to the Administrative Law Judge is "Well, this 6 is going to be a strong deterrent, because he's going to 7 have his license revoked. He can't do it anymore." 8 Well, there's a number of penalties that 9 are allowed for these particular violation, with 10 revocation being the most stringent. Each one of those 11 penalties provide a deterrent effect, but that wasn't 12 really considered. It was sort of a, "Well, we're going 13 to do this because we're going to do it. It's going to 14 deter him, because he'll never do it again." 15 Attempts by the licensee to correct or 16 stop violations: There is no evidence of any of that, 17 because that's not part of the record. But my client 18 stated he did not know it was a violation and he was 19 going -- well, just leave it at that. He did not know 20 it was a violation. 21 And any other mitigating or aggravating 22 circumstances: Again, my client never denied 23 violations. He was very straightforward. He came 24 forward and said, "Yes, I did it. I didn't know it was 25 incorrect, it was improper, but I admit it." 113 1 COMMISSIONER KRAUSE: Counsel, did the 2 original claimant testify? 3 MR. REDGATE: It was only by statement, 4 written statement. 5 MS. GUTHRIE: He did not testify. He 6 didn't submit any kind of verified statement for the 7 record. 8 COMMISSIONER KRAUSE: Okay. So he wrote 9 like a letter or something, but it wasn't like an 10 affidavit that the Court could consider? 11 MR. REDGATE: To my recollection, there is 12 a statement by the investigator who interviewed him, and 13 that is in the record. 14 COMMISSIONER KRAUSE: Okay. And the 15 investigator's notes said what about the original 16 claimant's story? 17 MS. GUTHRIE: The investigation did verify 18 that the claimant was okay with receiving less than the 19 amount that was the face value of the ticket. 20 COMMISSIONER KRAUSE: Just ballpark, you 21 know, how much has this cost the licensee so for to 22 defend this? 23 MR. REDGATE: Well, he defended himself at 24 the AG hearing. Probably about $1,500 to $2,000 so far. 25 COMMISSIONER KRAUSE: Okay. 114 1 CHAIRMAN WILLIAMSON: Michael, when we get 2 new -- this gentleman got his license in 2009, what sort 3 of information or training or whatever are they given or 4 provided so they would know the $600 rule? I mean, is 5 there something that we provide them and give them and 6 they acknowledge that they've received that so they have 7 that information when they first get their license? 8 MR. ANGER: All new licensees are required 9 to go through training that's conducted for us by GTECH 10 Corporation. We approve all of those training scripts, 11 and these types of issues are covered in the course of 12 that training. Retailers also receive a retailer manual 13 that explains this. And by terminal functionality, they 14 cannot validate a ticket of $600 or more. 15 So I would put forward to you that any 16 licensee who licenses with us to sell products 17 understands the basic process for validation and payment 18 of tickets and steps that they must take. For instance, 19 when they receive a ticket from a claimant that does 20 validate on their terminal, they're responsible for 21 destroying that ticket so it can't be presented again 22 for validation. That's a part of the training possess 23 that we have in place as well, is the non-payment of 24 prizes over $600, that there is a cap as to what they 25 can pay. 115 1 And when the retailer scans a ticket that 2 has a value of $600 or more, the terminal prints a 3 receipt that says "Claimant Lottery" and communicates 4 the message to both the player and the retailer as to 5 what action should occur next with regard to claiming 6 and payment of that prize. 7 CHAIRMAN WILLIAMSON: So then I would have 8 to assume when this ticket came in, it would have to be 9 verified to determine the value of the prize? 10 MR. ANGER: Yes. 11 CHAIRMAN WILLIAMSON: At that point that 12 entered our system, so we knew that that ticket had been 13 at least checked? 14 MR. ANGER: Yes. 15 CHAIRMAN WILLIAMSON: Okay. 16 COMMISSIONER KRAUSE: What's the next step 17 down from revocation? 18 MR. ANGER: The Commission can pursue a 19 range of options -- warning letter, suspension from -- 20 and I don't have this particular citation in front of 21 me. I believe it's 10 to 90 days. It may be 30 to 90 22 days for this violation, or revocation. 23 In this case, the reason that staff are 24 recommending revocation, it was the direct actions of a 25 licensee. The licensee was a direct party to the 116 1 transaction, and the licensee's son presented a claim 2 representing that he was the sole owner with a right to 3 the prize and claiming of the prize when he presented it 4 and that he had purchased the ticket when he presented 5 it at the claim center. 6 Now, outside of that, as counsel had 7 communicated, the fact is, is that we focused on the 8 actions of the licensee in this case in conducting this 9 transaction in violation of our rules. 10 MS. GUTHRIE: May I mention something from 11 the proposal for decision? The proposal for decision 12 did note that the violation of respondent were knowing 13 and intentional because, as the owner of the 14 establishment and the licensed respondent should be 15 familiar with the relevant statutes and rules. And that 16 was why the proposal for a decision did actually 17 recommend revocation. And it noted the strong deterrent 18 effect and that this -- we also noted in our response 19 that the Commission seeks revocation because the 20 Commission is responsible for collecting the fees owed 21 to the state. 22 And when retailers engage in activities 23 such as the facts in this case, this subverts that 24 responsibility to collect the amounts owed to the state. 25 MR. REDGATE: If I may? First of all, in 117 1 response to your question, my client was not the first 2 retailer that this was presented to. The original 3 winner, claimant, went to the place where he bought the 4 ticket. He did not buy it at my client's place of 5 business. 6 MS. GUTHRIE: This is outside of the 7 record. 8 MR. REDGATE: I don't believe it was. 9 MS. GUTHRIE: It's not in the transcript. 10 MR. REDGATE: Okay. I would not have 11 gotten that anywhere else but the transcript. But 12 that's fine, and I'll stick with that. 13 As far as the payment, this was more than 14 the amount that my client could pay out. And he let 15 the -- 16 MS. GUTHRIE: This is outside of the 17 record. 18 MR. REDGATE: Well, they just said it was 19 outside the amount. I mean, that's the legal issue. 20 It's not outside of the record. My client could not pay 21 out $2,000. He could only pay up to a certain amount. 22 But regardless, the claimant was aware of that, and 23 that's why he agreed to $400 less, because he did not 24 want to go to that trouble. 25 As far as the Administrative Law Judge's 118 1 finding that it was fraud, because it was knowing and 2 intentional, there is no definition of "knowing and 3 intentional" in the Government Code that applies. What 4 I did in my proposal for a decision is, I set out the 5 relevant discussion of -- definitions of culpable mental 6 states in the Penal Code. And if you follow those 7 definitions, just saying that you should have knowledge 8 of the law is kind of a phrase that has no meaning. 9 "You should have knowledge of a law 10 because it's there," well, that's not necessarily the 11 case. The question is, did he have knowledge of the law 12 in this instance? And there is no evidence in the 13 record that he did. If you apply the Penal Code 14 definitions to this particular case, it may show that he 15 had a reckless disregard of the Commission's rules, 16 because he didn't take time to review them, but it does 17 not show a knowing and intentional violation. 18 There is no question that he did the act. 19 He admitted to the act. But the question is whether the 20 punishment that's recommended by the Administrative Law 21 Judge and the staff is appropriate. And based on these 22 facts and based on the steps or the categories of 23 review, it's not. 24 COMMISSIONER KRAUSE: Do we have, you 25 know, any knowledge about whether or not he took GTECH 119 1 training? 2 MR. ANGER: In order to obtain his lottery 3 license, he would have had to have taken the training. 4 COMMISSIONER KRAUSE: He like showed up 5 and all that? 6 MR. ANGER: Yes. We create a record of 7 each licensee's participation in that training. 8 COMMISSIONER KRAUSE: So we kind of have 9 to presume that he knew this? 10 MS. KIPLIN: Yes. And, Commissioners, if 11 I could just state procedurally, the arguments that 12 you're hearing after the proposal for a decision was 13 issued in the form of exceptions, they were presented to 14 the Administrative Law Judge who sat over and presided 15 over this hearing. And the Administrative Law Judge 16 sent us a letter indicating there was no reason to 17 change his proposal for decision in response to the 18 post-issuance of the proposal for decision in briefing. 19 I will say that there are proposed 20 conclusions of law that have been entered by the 21 Administrative Law Judge, and I'll direct your attention 22 to that. It's on Page 10. But in particular, the 23 proposed Conclusion of Law 4 says, "Based on the above 24 findings of fact, respondent violated" -- and those are 25 the statutes that the Administrative Law Judge found -- 120 1 "in proposed Conclusion of Law 5, does conclude the 2 violation types and the severity of the violations found 3 in this case warrant revocation," and that the 4 Commission should revoke the lottery licensee. 5 So that's the outcome of the contested 6 case proceeding over at the State Office of 7 Administrative Hearings, including the filing of 8 exceptions and replies. So the reason I'm saying that 9 is because it's very limiting on a state agency in how 10 they can modify, how they can change a finding of fact 11 and conclusion of law or modify an order. I mean, I can 12 go through the different limitations. 13 COMMISSIONER KRAUSE: Let me go ahead and 14 ask this: Counsel, were you able to make your own 15 submission to the Administrative Law Judge after the 16 original decision? 17 MR. REDGATE: I did submit. 18 COMMISSIONER KRAUSE: Okay. So the Judge 19 already considered your -- 20 MS. KIPLIN: The Judge heard all of it. 21 COMMISSIONER KRAUSE: All right. 22 MS. KIPLIN: The Judge heard all of it. 23 MR. REDGATE: I would point out, though, 24 Commissioner, that in the response by the Administrative 25 Law Judge, it was a one-page letter saying, "Well, I'm 121 1 not going to make a change," you know. And in the 2 original decision, as far as the conclusions of law, 3 again he does lip service to the factors without setting 4 out any basis for the factors: It is what it is. It's 5 a serious violation because it's a serious violation. 6 Revocation is warranted, because revocation is 7 warranted. And that is just -- it's not a purposeful 8 reasoning. And, quite honestly, it almost rises to an 9 abuse of discretion. I'm not going to say it rises to 10 an abuse of discretion. Certainly the Administrative 11 Law Judge has a wide focus and he was present. 12 But again, if you review his initial 13 comments saying that if it was up to him, he would 14 recommend a 90-day suspension, but because of the 15 staff's input and how serious they believe it is, he's 16 going to agree with the staff and follow their 17 recommendation. 18 COMMISSIONER KRAUSE: Is that in here 19 somewhere? 20 MR. REDGATE: It's in the Opinion. 21 MS. KIPLIN: I think what counsel is 22 referring to is on Page 7. But there is also another 23 part in context that says, "Concerning the evidence 24 regarding sanctions" -- this is on Page 7 of the 25 proposal for decision -- "the ALJ concludes that the 122 1 severity of the offense and the element of 2 misrepresentation weigh in favor of a stringent 3 sanction. Notwithstanding the presence of mitigating 4 factors, the ALJ concludes that the staff's proposed 5 sanction of revocation is consistent with the 6 Commission's penalty guidelines, and the Commission 7 should revoke respondent's lottery ticket sales agent's 8 license." 9 COMMISSIONER KRAUSE: "So based on 10 respondent's demeanor and genuine statement of regret, 11 the ALJ would support a less stringent penalty of a 12 90-day suspension"? 13 MS. KIPLIN: It's at the top, if you 14 continue to read. 15 CHAIRMAN WILLIAMSON: Michael, under what 16 circumstances in a situation like this would you 17 normally recommend a 90-day as opposed to the 18 revocation? 19 MR. ANGER: We would recommend a 20 suspension under a different set of facts that didn't 21 involve the licensee directly, based on -- you know, to 22 give you an example, to walk through a scenario, if this 23 was the action of an employee of the licensee and the 24 investigation yielded facts that indicated that the 25 licensee did not directly know about the action of the 123 1 licensee -- or of the employee -- and the licensee 2 cooperated with our investigation and took action to 3 remove that employee from the business -- in fact, you 4 just approved a suspension order on another matter 5 involving a different fact set -- but basically the 6 employee was a bad actor and the licensee took action to 7 remove that employee from the business, and we pursued a 8 suspension in that matter. The difference for me as a 9 member of staff with regard to this recommendation is, 10 this is the licensee himself, the individual who attends 11 the training, who is responsible for the oversight and 12 management of all of the requirements associated with 13 being a lottery licensee, he is the individual who 14 engaged in this activity, and that's what makes the 15 matter more significant in my mind. 16 COMMISSIONER KRAUSE: Do we have any 17 latitude if we, you know, wanted to, you know, keep this 18 person as a licensee to say, "Okay. 90 days. But 19 you're going to have to pay some money, a fine, you 20 know, and remedial training"? Do we have that power? 21 MS. KIPLIN: Can I address that? Under 22 the State Lottery Act, you do not have the authority to 23 impose an administrative penalty. A money penalty, you 24 do not. 25 COMMISSIONER KRAUSE: Does the ALJ? 124 1 MS. KIPLIN: No. The ALJ has only the 2 authority that's part of the State Lottery Act. Now, 3 you know, if people want to reach an agreement, that may 4 be a different issue. We haven't really tested it on 5 the State Lottery Act. But that is one thing that is 6 silent. You can either suspend or you can revoke. 7 Unlike the Bingo Enabling Act, there is no ability to 8 impose a penalty. 9 COMMISSIONER KRAUSE: Well, what's the 10 likelihood, if he reapplies, that y'all are going to 11 approve him? 12 MR. ANGER: If he reapplies for a license 13 after -- 14 COMMISSIONER KRAUSE: If we revoke? 15 MR. ANGER: If he reapplies after a year, 16 we would reconsider the license application in 17 considering allowing him back as a license licensee. 18 COMMISSIONER KRAUSE: Okay. But that 19 really didn't answer my question. 20 MR. ANGER: I'm sorry. 21 COMMISSIONER KRAUSE: What is the 22 likelihood that you would actually say yes? 23 MR. ANGER: If there were no other facts 24 to indicate that there were other reasons to hold up the 25 license application, we would be likely to consider 125 1 relicensing him favorably. If other facts came to 2 light, you know, during the licensing review process, 3 you know, I can't speak to those. But as for this 4 matter -- you know, it is clear that the individual came 5 forward, admitted to the act -- and we don't have any 6 evidence of other activities, so in that regard, we 7 would reconsider the license and likely allow 8 relicensure after a year's time. 9 CHAIRMAN WILLIAMSON: Okay. 10 MR. GRIEF: Madam Chair -- 11 CHAIRMAN WILLIAMSON: Yes? 12 MR. GRIEF: -- can I make a comment, just 13 a general comment? 14 CHAIRMAN WILLIAMSON: Sure. 15 MR. GRIEF: I sense that there may be some 16 hesitation on the part of the Commission in hearing 17 staff's recommendation on the punishment, if you will, 18 for this conduct. And I just want to make kind of an 19 overarching comment about this. We don't sell Pepsis 20 and we don't sell potato chips. And, quite frankly, we 21 don't even sell lottery tickets at these locations. 22 What we sell is integrity and security. 23 And if we allow one of our licensees to 24 participate in conduct that undermines that integrity 25 and security in the minds of our players, then that 126 1 causes a crack in our foundation of what we do. And so 2 I just want to try to put it in perspective for the 3 Commission as to why staff has likely taken the position 4 that they've taken on this matter. And now I'll leave 5 it to the three of you for judgment. 6 CHAIRMAN WILLIAMSON: All right. And I 7 appreciate that comment, and that was why I wanted to 8 understand where Michael -- how he thought through the 9 process. And, frankly, I agree with him about the 10 licensee. You know, at the end of the day, I'm an 11 employee or I'm a business owner. You know, the buck 12 stops with me. Even if I might not specifically know a 13 law, I know the people that enforce that law don't 14 really care. I'm supposed to know that, and I'm 15 supposed to take care of them. So, you know, the 16 licensees, they are our face, as Gary said. And 17 regardless of the man that wanted to cash his check 18 because -- actually, he can mail in his ticket and get 19 his payment, I believe, can't they? They don't have to 20 go in person? 21 MR. ANGER: Yes. 22 CHAIRMAN WILLIAMSON: You know, I 23 understand that. But still at the end of the day, that 24 licensee is the person that represents us, is our face, 25 has to uphold all of our rules and our regulations. As 127 1 much as yes, we hate losing any licensee for any reason, 2 but it's just -- you know, that's just it. That's what 3 it is. At least that's my opinion and where I come from 4 on this. I mean, obviously, my fellow commissioners may 5 come from a different place on this. 6 COMMISSIONER KRAUSE: Well, I mean, we 7 every six months have information that is the result of 8 polling. And, you know, there are a substantial number 9 of people out in the public that, frankly, don't 10 understand what we do and they don't trust what we do. 11 And I guess at this point I wouldn't want to do anything 12 that would augment any of that. 13 CHAIRMAN WILLIAMSON: Do you have any 14 questions or comments? 15 COMMISSIONER DELGADO: No. 16 MR. REDGATE: Make I make one comment? 17 CHAIRMAN WILLIAMSON: Sure, you may. 18 MR. REDGATE: I think there is a big 19 difference between the case that was previously 20 considered by this Commission and this case. In the 21 case previously considered by the Commission, which an 22 agreement was made as part of the suspension of license, 23 and not revocation, the employee basically cheated that 24 person by saying, "Your prize is less than the amount 25 that you won." So there was a misrepresentation of that 128 1 fact. 2 So there is a danger to the community. 3 There is a necessity to impose a strict sanction. There 4 is a question of the integrity of the Commission or the 5 lottery system itself, because you have an employee or 6 even an owner who is attempting to defraud someone and 7 give them less than they won. 8 In this particular case, that same issue 9 of whether it affects the integrity or questions the 10 integrity of the lottery system does not exist, because 11 you have someone who knowingly offers and someone who 12 knows what the amount of the prize is, who knows what 13 the amount of the prize is, and says, "Yes, it sounds 14 like a good deal to me, because it's too much trouble 15 for me." 16 Whether you can mail in that ticket, 17 whether you have to go in person, here is a person who 18 did not want to go through the hassle and was willing to 19 take less. There wasn't an arm-twisting; there wasn't a 20 misrepresentation. There was no fraud. There is 21 nothing that challenged the integrity of the lottery 22 system. 23 COMMISSIONER KRAUSE: Counsel, you have 24 done a great job of presenting your client's case. You 25 have great arguments, and I've enjoyed listening to them 129 1 and all that. However, you know, he does have the 2 opportunity, if we agree to revoke, to come back in a 3 year. And if he's done all the right things, I heard 4 that more likely than not he will be approved again. 5 And so this isn't anything where it's going to be 6 permanent. Nobody is going to jail, not really even 7 costing him any money, other than, you know, have you 8 come down here today. And so that's where I stand. 9 CHAIRMAN WILLIAMSON: Any comments? 10 COMMISSIONER DELGADO: No. 11 COMMISSIONER KRAUSE: I'm ready to make a 12 motion. 13 CHAIRMAN WILLIAMSON: Okay. 14 COMMISSIONER KRAUSE: I make a motion to 15 adopt the recommendation of the ALJ and revoke this 16 license. 17 COMMISSIONER DELGADO: Second. 18 CHAIRMAN WILLIAMSON: All in favor? 19 COMMISSIONER DELGADO: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: The motion passes 23 3-0. 24 MS. KIPLIN: Commissioners, I have that 25 order. 130 1 MR. REDGATE: Thank you, Commissioners. 2 CHAIRMAN WILLIAMSON: Thank you. 3 AGENDA ITEM NO. XXV 4 CHAIRMAN WILLIAMSON: At this time I move 5 the Texas Lottery Commission go into executive session 6 to deliberate the duties and evaluation of the Executive 7 Director, Internal Audit Director and Charitable Bingo 8 Operations Director and to deliberate the duties of the 9 General Counsel and Human Resources Director pursuant to 10 Section 551.074, and to receive legal advice regarding 11 pending or contemplated litigation pursuant to Section 12 551.071(1)(A) and 551.071(1)(B.) 13 Is there a second? 14 COMMISSIONER DELGADO: Second. 15 CHAIRMAN WILLIAMSON: All in favor? 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 COMMISSIONER DELGADO: Aye. 19 CHAIRMAN WILLIAMSON: The motion passes 20 3-0. The Texas Lottery Commission will go into 21 executive session. The time is 11:45 a.m. Today is 22 October 19, 2011. 23 MS. KIPLIN: Commissioner, there is one -- 24 I didn't want to interrupt you -- but there is one other 25 statutory reference in here that I need to put on the 131 1 record that I'm hoping that you will bring into your 2 action, and that is going into executive session to 3 receive legal advice pursuant to Section 551.071(2) of 4 the Texas Government Code. 5 CHAIRMAN WILLIAMSON: All right. 6 (Off the record for executive session: 7 11:45 a.m. to 12:35 p.m.) 8 AGENDA ITEM NO. XXVI 9 CHAIRMAN WILLIAMSON: The Texas Lottery 10 Commission is out of executive session. The time is 11 12:35 p.m. And there is an action to be taken as a 12 result of the executive session. 13 Is there a motion to approve the 14 evaluations of the Executive Director, Charitable Bingo 15 Operations Director and Internal Audit Director? 16 COMMISSIONER KRAUSE: I so move. 17 CHAIRMAN WILLIAMSON: Is there a second? 18 COMMISSIONER DELGADO: Second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: Aye. 22 COMMISSIONER DELGADO: Aye. 23 CHAIRMAN WILLIAMSON: Motion passes 3-0. 24 And there are no other actions to be taken 25 as a result of the executive session. 132 1 AGENDA ITEM NO. XXVII 2 So is there a motion to adjourn? 3 COMMISSIONER KRAUSE: I make a motion we 4 adjourn. 5 CHAIRMAN WILLIAMSON: Is there a second? 6 COMMISSIONER DELGADO: Second. 7 CHAIRMAN WILLIAMSON: All in favor? 8 COMMISSIONER KRAUSE: Aye. 9 CHAIRMAN WILLIAMSON: Aye. 10 COMMISSIONER DELGADO: Aye. 11 CHAIRMAN WILLIAMSON: Motion passes 3-0, 12 and we are officially adjourned as of 12:36 p.m. 13 (Commission meeting adjourned: 12:36 p.m.) 14 15 16 17 18 19 20 21 22 23 24 25 133 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified Shorthand 5 Reporter in and for the State of Texas, do hereby 6 certify that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 28th day of October 2011. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/12 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 8140 North Mo-Pac Expressway Suite II-120 22 Austin, Texas 78759 23 24 25